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https://www.courtlistener.com/api/rest/v3/opinions/8488764/	Appellate Case: 22-9501 Document: 010110772875 Date Filed: 11/22/2022 Page: 1 FILED United States Court of Appeals UNITED STATES COURT OF APPEALS Tenth Circuit FOR THE TENTH CIRCUIT November 22, 2022 _________________________________ Christopher M. Wolpert Clerk of Court CARLOS ANTONIO AGUIRRE- AVENDANO, Petitioner, v. No. 22-9501 (Petition for Review) MERRICK B. GARLAND, United States Attorney General, Respondent. _________________________________ ORDER AND JUDGMENT* _________________________________ Before HARTZ, PHILLIPS, and EID, Circuit Judges. _________________________________ Carlos Antonio Aguirre-Avendano is a native and citizen of El Salvador who entered the United States without permission. An immigration judge (IJ) found him removable and ineligible for asylum, withholding of removal, or protection under the Convention Against Torture (CAT), and ordered that he be returned to his home country. The Board of Immigration Appeals (BIA) dismissed his appeal in a single- * After examining the briefs and appellate record, this panel has determined unanimously to honor the parties’ request for a decision on the briefs without oral argument. See Fed. R. App. P. 34(f); 10th Cir. R. 34.1(G). The case is therefore submitted without oral argument. This order and judgment is not binding precedent, except under the doctrines of law of the case, res judicata, and collateral estoppel. It may be cited, however, for its persuasive value consistent with Fed. R. App. P. 32.1 and 10th Cir. R. 32.1. Appellate Case: 22-9501 Document: 010110772875 Date Filed: 11/22/2022 Page: 2 member order. Aguirre-Avendano now petitions for review of the BIA’s decision. We have jurisdiction under 8 U.S.C. § 1252(a), and we deny the petition. I. STANDARD OF REVIEW We review the BIA’s decision, but we may consult the IJ’s more-complete discussion of the same grounds relied upon by the BIA. Uanreroro v. Gonzales, 443 F.3d 1197, 1204 (10th Cir. 2006). “[W]e will not affirm on grounds raised in the IJ decision unless they are relied upon by the BIA in its affirmance.” Id. “[A]dministrative findings of fact are conclusive unless any reasonable adjudicator would be compelled to conclude to the contrary.” 8 U.S.C. § 1252(b)(4)(B). II. BACKGROUND & PROCEDURAL HISTORY Aguirre-Avendano entered the United States at an unknown location in 2006. In November 2010, the government charged him with removability as a noncitizen present in the United States without being admitted or paroled.1 Aguirre-Avendano conceded the charge and applied for asylum, withholding of removal, and CAT protection. He claimed he was being persecuted by the MS-13 gang because he refused to join them. Aguirre-Avendano and his sister (who came to the United States before him) testified at his asylum hearing in 2011 about the violence they suffered at gang members’ hands, and about their mother’s murder for resisting gang activity. The IJ’s eventual decision credited that testimony but held that those who resist gang 1 The government charged a second basis for removability, arising from a criminal conviction, but it has since abandoned that charge. 2 Appellate Case: 22-9501 Document: 010110772875 Date Filed: 11/22/2022 Page: 3 activity or recruitment are not a social group entitled to asylum. The IJ also ruled that the Salvadoran government was not acquiescent to gang violence, so CAT protection was inapplicable. Aguirre-Avendano appealed to the BIA, which affirmed, and he then petitioned this court for review. After briefing, the government moved to remand the case so the agency could re-examine Aguirre-Avendano’s asylum claim from a different perspective, namely, whether he was being persecuted on account of membership in a social group comprising his family. We granted that motion, leading to further proceedings before the agency in which Aguirre-Avendano claimed persecution based on membership in his nuclear family alone, or membership in a nuclear family that had made police reports against MS-13 gang activities (as his mother had). An IJ convened a second evidentiary hearing in 2018. Aguirre-Avendano’s sister testified again, and his younger brother (who had since come to the United States) testified for the first time. The IJ eventually issued a written decision holding:  Aguirre-Avendano’s sister’s testimony was not credible, given inconsistencies between her 2011 testimony and 2018 testimony;  Aguirre-Avendano’s brother’s testimony was unreliable;  Aguirre-Avendano’s proposed social groups based solely on membership in his nuclear family are valid social groups for asylum 3 Appellate Case: 22-9501 Document: 010110772875 Date Filed: 11/22/2022 Page: 4 purposes, but he failed to prove that he had been persecuted, or likely would be persecuted, on account of family membership;  Aguirre-Avendano’s proposed social groups based on his relationship to nuclear family members who have filed police reports against the gang are not cognizable because they are not socially distinct—and, in any event, he failed to prove persecution, or likelihood of persecution, motivated by that relationship; and  Aguirre-Avendano failed to prove that the Salvadoran government was unable or unwilling to oppose the MS-13 gang, or that it acquiesced in the gang’s violence. For all these reasons, the IJ denied asylum, withholding of removal, and CAT protection. Aguirre-Avendano appealed to the BIA, which held that substantial evidence supported all the IJ’s factual findings, and that those findings justified denial of relief. The BIA therefore dismissed the appeal. This petition for review followed. III. ANALYSIS A. Asylum An asylum applicant must prove that he or she is a “refugee.” 8 U.S.C. § 1158(b)(1). In this context, a “refugee” is a person unable or unwilling to return to his or her country “because of persecution or a well-founded fear of persecution on account of race, religion, nationality, membership in a particular social group, or 4 Appellate Case: 22-9501 Document: 010110772875 Date Filed: 11/22/2022 Page: 5 political opinion.” Id. § 1101(a)(42)(A). Aguirre-Avendano relied on the “particular social group” prong. As noted, he asserted: (1) membership in his nuclear family, and (2) membership in a nuclear family, one of whose members had filed police reports against the MS-13 gang.2 1. Credibility Aguirre-Avendano argues, in essence, that the IJ should have credited his sister’s and younger brother’s testimony, and then the IJ would have been compelled to conclude that the MS-13 gang persecuted Aguirre-Avendano on account of his membership in one of his proposed social groups. Thus, we address the credibility challenge first. a. Aguirre-Avendano’s Sister Aguirre-Avendano’s sister, Raina, testified at both the 2011 and 2018 hearings. She also submitted an affidavit ahead of the 2011 hearing. The key points of Raina’s affidavit were:  MS-13 gang members first attacked her in 2001 because they knew her ex-husband was working in the United States and sending her money;  in 2002–03, MS-13 gang members tried to recruit her brother Carlos (the petitioner here), and beat him savagely for refusing to join; 2 Aguirre-Avendano broke each of these groups into two, with slight differences between the definition of each, for a total of four proposed social groups. Those differences are irrelevant for present purposes. 5 Appellate Case: 22-9501 Document: 010110772875 Date Filed: 11/22/2022 Page: 6  Raina’s and Carlos’s mother reported the beating to the police and then started receiving threats and demands that they pay protection money of $50 per week;  Carlos was again savagely beaten in 2006, at which point his parents sent him to the United States; and  in 2008, MS-13 gang members murdered Raina’s and Carlos’s mother because she had reported them to the police, stopped paying the protection money, and refused to tell them where Carlos had gone. Raina’s testimony at the 2011 hearing was somewhat consistent with her affidavit, but three details changed:  Carlos’s troubles with MS-13 began in the year 2000 (not 2002);  she was attacked in the year 2000 (not 2001); and  she was attacked on account of Carlos’s refusal to join the gang (not because they knew she was receiving money from her ex-husband). Finally, at the 2018 hearing, Raina returned to the allegation in her affidavit that she had been attacked in 2001 (not 2000). But she added that her first attack had actually been a series of three attacks in 1997, and she was raped each time. She further testified that she had not provided that detail previously because she felt ashamed and embarrassed. The IJ found he could not accept Raina’s testimony due to its inconsistencies about the timing and number of the attacks, and about the gang members’ 6 Appellate Case: 22-9501 Document: 010110772875 Date Filed: 11/22/2022 Page: 7 motivations. The BIA, in turn, held that the IJ had provided adequate reasons for this credibility determination. The statute governing asylum sets the following standard for judging credibility: Considering the totality of the circumstances, and all relevant factors, a trier of fact may base a credibility determination on the demeanor, candor, or responsiveness of the applicant or witness, the inherent plausibility of the applicant’s or witness’s account, the consistency between the applicant’s or witness’s written and oral statements (whenever made and whether or not under oath, and considering the circumstances under which the statements were made), the internal consistency of each such statement, the consistency of such statements with other evidence of record (including the reports of the Department of State on country conditions), and any inaccuracies or falsehoods in such statements, without regard to whether an inconsistency, inaccuracy, or falsehood goes to the heart of the applicant’s claim, or any other relevant factor. 8 U.S.C. § 1158(b)(1)(B)(iii); see also id. § 1229a(c)(4)(C) (setting the same standard for removal proceedings generally). The agency’s credibility findings, “like other findings of fact, are subject to the substantial evidence test.” Elzour v. Ashcroft, 378 F.3d 1143, 1150 (10th Cir. 2004). Aguirre-Avendano argues that the agency should have viewed his sister’s testimony more sympathetically, but that is not enough to show “any reasonable adjudicator would be compelled to conclude” that his sister was credible, 8 U.S.C. § 1252(b)(4)(B). Because the agency’s finding falls within the broad range of 7 Appellate Case: 22-9501 Document: 010110772875 Date Filed: 11/22/2022 Page: 8 acceptable findings on the evidence before it, we must accept Raina’s lack of credibility as “conclusive.” Id. b. Aguirre-Avendano’s Younger Brother Aguirre-Avendano’s younger brother, Jose, testified only at the 2018 hearing. He was sixteen years old at the time. He was young (four or five years old) when he saw gang members murder his mother. They were then living in San Salvador. But the gang began to demand money from his father, so he and his father moved around the country to try and stay away from them. Eventually, the gang found him (Jose) and attacked him, and then his father sent him to the United States. The IJ found Jose’s testimony “unreliable” and “largely incoherent.” R. at 97. As examples, the IJ noted that Jose said he lived in five different places while trying to avoid the gangs, but could describe only three of them. The IJ also pointed out that Jose first said he never returned to San Salvador after his mother’s murder, but later said that the gang attacked him in a San Salvador alleyway when he was twelve years old. The IJ acknowledged Jose’s age and the trauma he experienced, but his testimony was nonetheless “unclear,” so the IJ chose to “afford it little, if any, weight.” Id. The BIA upheld this determination for the reasons given by the IJ. Aguirre-Avendano argues that Jose’s testimony was reliable, and any inconsistencies were not material. But the agency must consider inconsistencies “without regard to whether [they go] to the heart of the applicant’s claim.” 8 U.S.C. § 1158(b)(1)(B)(iii). In any event, the record does not compel a conclusion that 8 Appellate Case: 22-9501 Document: 010110772875 Date Filed: 11/22/2022 Page: 9 Jose’s testimony was reliable. Thus, we may not overturn the agency’s decision to ignore it. 2. Nexus Determination As stated above, Aguirre-Avendano insists that if the agency had credited Raina’s and Jose’s testimony, then the IJ would have been compelled to conclude that MS-13 was persecuting him because of his membership in at least one of the family- based social groups he proposed. Given the structure of this argument, we need not reach the latter issue because Aguirre-Avendano has not shown that the agency erred in its credibility decisions. At the very end of this section of his brief, however, Aguirre-Avendano adds, “Alternatively, Petitioner argues that even excluding his family members’ testimony, substantial evidence in the record shows that he was targeted due to his family membership, and that each member of his family was targeted for their family membership.” Pet’r’s Opening Br. at 47. But he does not develop this argument beyond that single sentence, so he waives the issue. See, e.g., Murrell v. Shalala, 43 F.3d 1388, 1389 n.2 (10th Cir. 1994) (“[S]uch perfunctory complaints fail to frame and develop an issue sufficient to invoke appellate review.”). We therefore uphold the agency’s finding that Aguirre-Avendano did not prove he had been persecuted, or would likely be persecuted, because of his membership in the social groups he proposed.3 3 Given this disposition, we need not reach Aguirre-Avendano’s argument that the agency erred when it found two of his proposed social groups (based on family 9 Appellate Case: 22-9501 Document: 010110772875 Date Filed: 11/22/2022 Page: 10 B. Withholding of Removal Aguirre-Avendano’s withholding-of-removal argument depends entirely on his argument that the agency should have granted him asylum. Because we uphold the agency’s asylum ruling, we likewise uphold its ruling that withholding of removal is unavailable. C. CAT Protection Aguirre-Avendano may still qualify for CAT protection if he “is more likely than not to be tortured” upon return to El Salvador. 8 C.F.R. § 1208.17(a). But such torture must be “inflicted by, or at the instigation of, or with the consent or acquiescence of, a public official acting in an official capacity.” Id. § 1208.18(a)(1). Aguirre-Avendano claims that his own family’s experience of reporting gang activity to the police and receiving no protection—indeed, those reports allegedly led to his mother’s murder—provides substantial evidence that the Salvadoran government would acquiesce in MS-13’s murderous intentions if he were sent back. But other evidence cuts against his argument. The agency relied on State Department evidence showing that “[t]he Salvadoran government has implemented structures to combat gang violence and actively apprehend, prosecute, and incarcerate gang membership plus a history of making reports to the police) lacked social distinction. The agency stated that Aguirre-Avendano’s evidence failed to prove a connection between the persecution he experienced and his membership in any social group he proposed, including those social groups the agency rejected for lack of social distinction. We also need not reach Aguirre-Avendano’s challenge to the agency’s finding about the Salvadoran government’s willingness or ability to protect its citizens from persecution. That issue is irrelevant if he cannot prove he was persecuted on account of a protected ground. 10 Appellate Case: 22-9501 Document: 010110772875 Date Filed: 11/22/2022 Page: 11 members who target members of the general population.” R. at 104–05. Aguirre- Avendano offers no argument why, on this body of evidence, “any reasonable adjudicator would be compelled” to find acquiescence, 8 U.S.C. § 1252(b)(4)(B). Accordingly, we uphold the agency’s acquiescence finding and, in turn, its denial of CAT protection. IV. CONCLUSION We deny the petition for review. Entered for the Court Gregory A. Phillips Circuit Judge 11	01-04-2023	11-22-2022
https://www.courtlistener.com/api/rest/v3/opinions/8488762/	RECOMMENDED FOR PUBLICATION Pursuant to Sixth Circuit I.O.P. 32.1(b) File Name: 22a0250p.06 UNITED STATES COURT OF APPEALS FOR THE SIXTH CIRCUIT ┐ SAFETY SPECIALTY INSURANCE COMPANY; SAFETY │ NATIONAL CASUALTY COMPANY, │ Plaintiffs-Appellees (22-1189), │ Plaintiffs-Appellants (22-1196), │ Nos. 22-1189/1196 > v. │ │ GENESEE COUNTY BOARD OF COMMISSIONERS; │ DEBORAH CHERRY, │ Defendants-Appellants (22-1189), │ │ THOMAS A. FOX; TAMMY PUCHLAK, as Trustee of the │ Walter Puchlak Revocable Trust Agreement dated │ February 24, 2010, │ Defendants-Appellees (22-1196). │ ┘ Appeal from the United States District Court for the Eastern District of Michigan at Bay City. No. 1:20-cv-13290—Thomas L. Ludington, District Judge. Argued: October 19, 2022 Decided and Filed: November 21, 2022 Before: SUTTON, Chief Judge; BOGGS and KETHLEDGE, Circuit Judges. _________________ COUNSEL ARGUED: Jeffrey C. Gerish, PLUNKETT COONEY, Bloomfield Hills, Michigan, for Genesee County and Deborah Cherry. John D. Hackett, CASSIDAY SCHADE, LLP, Chicago, Illinois, for Safety Specialty Insurance Company and Safety National Casualty Company. Philip L. Ellison, OUTSIDE LEGAL COUNSEL PLC, Hemlock, Michigan, for Thomas Fox and Tammy Puchlack. ON BRIEF: Jeffrey C. Gerish, PLUNKETT COONEY, Bloomfield Hills, Michigan, for Genesee County and Deborah Cherry. John D. Hackett, Adam H. McCabe, CASSIDAY SCHADE, LLP, Chicago, Illinois, Richard C.O. Rezie, GALLAGHER SHARP LLP, Cleveland, Ohio, for Safety Specialty Insurance Company and Safety National Casualty Company. Philip L. Ellison, OUTSIDE LEGAL COUNSEL PLC, Hemlock, Michigan, for Thomas Fox and Tammy Puchlack. Nos. 22-1189/1196 Safety Specialty Ins. Co., et al. v. Page 2 Genesee Cnty. Bd. of Comm’rs, et al. _________________ OPINION _________________ BOGGS, Circuit Judge. This insurance-coverage dispute springs from two class-action lawsuits against several Michigan counties that retained surplus proceeds from the tax- foreclosure sales of private property. Genesee County was named as a defendant in the lawsuits and claimed coverage under two liability-insurance policies. The County’s insurers, Safety National Casualty Company and Safety Specialty Insurance Company (together, “Safety”), denied the claim and filed this declaratory-judgment action in federal court against both the County and the underlying class representatives. The district court agreed with Safety that it has no duty to defend or indemnify the County from the lawsuits, but dismissed Safety’s case against the class representatives for lack of federal jurisdiction. We affirm. I. BACKGROUND A. The Fox and Puchlak Lawsuits In November 2018, Tammy Puchlak filed a class-action complaint in Michigan state court against five Michigan counties and their treasurers, including Genesee County and Deborah Cherry. She alleges that St. Clair County seized trust property to satisfy a $9,600 property-tax delinquency, sold the property at auction for $150,000—far below its fair-market value—and then kept the $140,400 difference. Seeking to represent a class of property owners who had their property seized and sold without receiving the surplus proceeds, Puchlak asserts that these counties committed takings without just compensation or imposed excessive fines in violation of the Michigan and federal constitutions. In June 2019, Thomas A. Fox filed a class-action complaint in federal district court against fourteen Michigan counties and their treasurers. He later amended his complaint to add thirteen more counties and their treasurers, including Genesee County and Deborah Cherry. Fox claims that Gratiot County seized his property to satisfy a property-tax delinquency of $3,091.23, sold the property at auction for $25,500.00, then kept the $22,408.77 difference between what Nos. 22-1189/1196 Safety Specialty Ins. Co., et al. v. Page 3 Genesee Cnty. Bd. of Comm’rs, et al. Fox owed and what Gratiot County received. Like Puchlak, Fox asserts that the counties named in his lawsuit committed takings without just compensation and imposed excessive fines; he also alleges unjust enrichment and violations of substantive and procedural due process. In October 2020, the district court certified Fox’s class. Fox v. County of Saginaw, 2020 WL 6118487, at 11 (E.D. Mich. 2020). B. The Insurance Policies In 2018, Safety issued a Public Officials and Employment Practices Liability policy (“PO&EPL Policy”) to Genesee County. The insurance policy is subject to a $2,000,000 liability limit and a $350,000 retention. Under the policy, Safety agreed to defend and indemnify Genesee County and its employees from covered claims alleging certain “wrongful acts.” The policy includes two exclusions, among others. One precludes coverage for claims “[a]rising out of . . . [t]ax collection, or the improper administration of taxes or loss that reflects any tax obligation.” The second excludes claims “[a]rising out of eminent domain, condemnation, inverse condemnation, temporary or permanent taking, adverse possession, or dedication by adverse use.” Safety also issued Genesee County a separate Commercial General Liability (“CGL Policy”) to cover liability for bodily injury and medical expenses, property damage, and “personal and advertising injury.” C. Procedural History Genesee County claimed coverage from Safety for Fox’s and Puchlak’s lawsuits, which Safety denied. Safety then filed a declaratory-judgment action in federal court against Genesee County, Fox, and Puchlak, seeking a ruling that, under its insurance policies, it owes no duty to defend Genesee County from the lawsuits or to indemnify it from any subsequent damages. Genesee County and Cherry counterclaimed, seeking both a declaration that they are covered under the policies and damages for a breach of contract based on Safety’s refusal to defend them. The parties filed cross-motions for summary judgment, with Fox and Puchlak arguing separately that Safety lacked standing to sue them. Nos. 22-1189/1196 Safety Specialty Ins. Co., et al. v. Page 4 Genesee Cnty. Bd. of Comm’rs, et al. The district court granted two motions for summary judgment: Fox and Puchlak’s motion against Safety, and Safety’s motion against Genesee County. The court found no Article III case or controversy between Safety and Fox and Puchlak. The court acknowledged that much of the relevant caselaw suggests that, in coverage disputes, “the insurer typically has standing to pursue a declaration against the injured party.” However, the court distinguished this case on the ground that, here, “the alleged wrongdoers are not the [County] Defendants but two nonparties— Gratiot County and St. Clair County.” Fox and Puchlak had joined Genesee County in their lawsuits only for class-representation purposes. Noting the uncertainty of 1) whether Fox and Puchlak would prevail in their lawsuits and 2) what damages, if any, they could recover from Genesee County, the court found that no “substantial controversy” of “sufficient immediacy and reality” exists between Safety and Fox and Puchlak. Safety timely appealed. The court also held that Safety owes Genesee County no duty to defend under either insurance policy. The court held that the CGL Policy does not cover the Fox and Puchlak lawsuits. The court also assumed that the PO&EPL Policy arguably covers the lawsuits and their indemnification but held that two of the policy’s exclusions applied: one for claims arising out of tax collection, another for claims arising out of condemnation, inverse condemnation, or taking. Genesee County timely appealed. II. ANALYSIS This court reviews de novo a district court’s grant of summary judgment. Bondex Int’l, Inc. v. Hartford Accident & Indem. Co., 667 F.3d 669, 676 (6th Cir. 2011). Summary judgment is proper “if the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law.” Fed. R. Civ. P. 56(a). A genuine dispute of material fact exists if “the evidence is such that a reasonable jury could return a verdict for the nonmoving party.” Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). The court does not weigh evidence but rather “view[s] [the evidence] in the light most favorable to the party opposing the motion.” Matsushita Elec. Indus. Co., Ltd. v. Zenith Radio Corp., 475 U.S. 574, 587 (1986) (quoting United States v. Diebold, Inc., 369 U.S. 654, 655 (1962) (per curiam)). This standard does not change when the parties present cross-motions for summary judgment; Nos. 22-1189/1196 Safety Specialty Ins. Co., et al. v. Page 5 Genesee Cnty. Bd. of Comm’rs, et al. we evaluate each motion on its own merits. Westfield Ins. Co. v. Tech Dry, Inc., 336 F.3d 503, 506 (6th Cir. 2003). Below, we address Fox and Puchlak’s summary-judgment motion against Safety, then turn to Safety’s summary-judgment motion against Genesee County. A. Article III Case or Controversy 1. Legal Framework The U.S. Constitution limits the jurisdiction of federal courts to “Cases” and “Controversies.” U.S. Const. art. III, § 2. Federal courts cannot issue advisory opinions. Arnett v. Myers, 281 F.3d 552, 562 (6th Cir. 2002). Article III’s case-or-controversy requirement allows federal courts to resolve concrete disputes, but prohibits them from passing “judgments on theoretical disputes that may or may not materialize.” Saginaw County v. STAT Emergency Med. Servs. Inc., 946 F.3d 951, 954 (6th Cir. 2020) (citing Steel Co. v. Citizens for a Better Env’t, 523 U.S. 83, 101–03 (1998)). The Supreme Court has delineated these limits with a number of justiciability doctrines, including standing and ripeness. See Nat’l Rifle Ass’n of Am. v. Magaw, 132 F.3d 272, 279–80 (6th Cir. 1997). To have standing, plaintiffs “must allege (1) an injury in fact (2) that’s traceable to the defendant’s conduct and (3) that the courts can redress.” Gerber v. Herskovitz, 14 F.4th 500, 505 (6th Cir. 2021) (citing Lujan v. Defs. of Wildlife, 504 U.S. 555, 559–61 (1992)). Plaintiffs “must show an imminent or actual injury before [entering] the federal courts.” STAT Emergency, 946 F.3d at 954. They “cannot sue simply to avoid a ‘possible future injury.’” Id. at 954–55 (quoting Clapper v. Amnesty Int’l USA, 568 U.S. 398, 409 (2013)). Suits based solely on the “mere risk of future harm” cannot establish an injury sufficient for standing. See TransUnion LLC v. Ramirez, 141 S. Ct. 2190, 2211 (2021). Moreover, a claim is not ripe if it turns on “contingent future events that may not occur as anticipated, or indeed may not occur at all.” Trump v. New York, 141 S. Ct. 530, 535 (2020) (quoting Texas v. United States, 523 U.S. 296, 300 (1998)); see Bigelow v. Mich. Dep’t of Nat. Res., 970 F.2d 154, 157 (6th Cir. 1992). “Ripeness separates those matters that are premature because the injury is speculative and may never occur from those that are appropriate for the court’s review.” Magaw, 132 F.3d at 280. Nos. 22-1189/1196 Safety Specialty Ins. Co., et al. v. Page 6 Genesee Cnty. Bd. of Comm’rs, et al. The Declaratory Judgment Act “does not alter these rules or otherwise enable federal courts to deliver ‘an expression of opinion’ about the validity of laws.” STAT Emergency, 946 F.3d at 954 (quoting Muskrat v. United States, 219 U.S. 346, 362 (1911)). The Act offers only an “alternative remedy—a declaratory judgment—for existing cases or controversies.” Ibid. When a party sues for declaratory relief, “he must satisfy the prerequisites of the Declaratory Judgment Act and Article III’s standing baseline.” Ibid. In particular, he must show “a substantial controversy, between parties having adverse legal interests, of sufficient immediacy and reality to warrant the issuance of a declaratory judgment.” Ibid. (quoting MedImmune, Inc. v. Genentech, Inc., 549 U.S. 118, 127 (2007)); see Friends of Tims Ford v. Tenn. Valley Auth., 585 F.3d 955, 971 (6th Cir. 2009) (explaining that a declaratory judgment must “affect[] the behavior of the defendant towards the plaintiff” (quoting Hewitt v. Helms, 482 U.S. 755, 761 (1987))). The difference between an abstract question and a controversy suitable for judgment is largely a one of degree. Maryland Cas. Co. v. Pac. Coal & Oil Co., 312 U.S. 270, 273 (1941). 2. Analysis In pursuing its declaratory judgment, Safety seeks to redress possible injuries that could stem from an improper invocation of two of its duties as an insurer: the duty to defend and the duty to indemnify. See Farmers & Merchants Mut. Fire Ins. Co. v. LeMire, 434 N.W.2d 253, 255 (Mich. Ct. App. 1988). The former requires insurers to pay for the insured’s legal counsel and litigation costs when the policy arguably covers the alleged liability; the latter requires them to pay the injured party any damages awarded against the insured for the covered loss. Ibid. With respect to Fox and Puchlak, each claim fails to satisfy the requirements of Article III and the Declaratory Judgment Act. The duty to defend is ripe for adjudication between Safety and Genesee County, but has little to do with Fox or Puchlak. The duty to indemnify, to the extent that it reflects a controversy between Safety and Fox and Puchlak, is not immediate enough to warrant declaratory judgment. Duty to Defend. Safety cannot litigate its duty to defend against Fox and Puchlak because this duty does not involve them. The duty to defend is a “right affecting only the Nos. 22-1189/1196 Safety Specialty Ins. Co., et al. v. Page 7 Genesee Cnty. Bd. of Comm’rs, et al. obligations of the insurer vis-a-vis the insured.” Allstate Ins. Co. v. Wayne County, 760 F.2d 689, 695 (6th Cir. 1985). Fox and Puchlak have not asked Safety to “prosecute or defend” them in any lawsuit. Safety can properly sue Genesee County over this duty, and did, but Fox and Puchlak have no stake in who wins that fight. To the extent that they have any interest in Safety’s duty to defend Genesee County, it would seem to align with Safety’s. Fox and Puchlak argue that they would “strategically prefer that there be no duty to defend” so that Genesee County would stop the “current foot-dragging in the [underlying] litigation.” From its duty to defend Genesee County, then, Safety cannot allege an “injury in fact . . . traceable” to Fox and Puchlak’s conduct. Gerber, 14 F.4th at 505 (citing Lujan, 504 U.S. at 559–61). Safety rejects the district court’s characterization of Fox and Puchlak as “complete strangers” to the coverage dispute between Safety and Genesee County. It asserts that, for Article III purposes, Fox and Puchlak are injured parties. We disagree. As discussed above, Fox and Puchlak are not signatories to the insurance contracts between Safety and Genesee County. Were we to declare a duty to defend Genesee County, that judgment would not affect the behavior of Fox and Puchlak towards Safety. Friends of Tims Ford, 585 F.3d at 971. While a dispute exists between Safety and Genesee County over Safety’s duty to defend, it has no connection to Fox and Puchlak. Safety argues that it included Fox and Puchlak in its lawsuit to avoid relitigating its coverage obligations. Michigan law, notes Safety, requires it to include all “interested parties” in a declaratory-judgment action. See Cincinnati Ins. Co. v. Vill. Plaza Holdings, LLC, 2020 WL 4200978, at 4 (E.D. Mich. July 22, 2020). Failing to add Fox and Puchlak means that any no- coverage judgment would lack preclusive effect against the other members of their putative classes. See Allstate Ins. Co. v. Hayes, 499 N.W.2d 743, 748 n.12 (Mich. 1993). We share the district court’s conclusion that Fox and Puchlak are not “interested parties” to whom Michigan law applies in this context. Even if Fox and Puchlak were interested parties, Safety’s reliance on Michigan caselaw is misplaced. Those decisions concern the preclusive effect of a declaratory-judgment action; they do not speak to federal courts’ jurisdiction over the parties in these actions. While Hayes may explain Safety’s interest in joining Fox and Puchlak Nos. 22-1189/1196 Safety Specialty Ins. Co., et al. v. Page 8 Genesee Cnty. Bd. of Comm’rs, et al. as parties to its lawsuit, it does not grant this court the jurisdiction to hear the dispute between them. No doubt Safety has strong reasons for seeking finality from a binding judgment against Fox, Puchlak, and their respective classes. But the “practical value” of its action “cannot overcome” Article III’s requirements. Trustgard Ins. Co. v. Collins, 942 F.3d 195, 201 (4th Cir. 2019). Duty to Indemnify. Even if Safety could seek declaratory relief against Fox and Puchlak over its duty to indemnify, ripeness would keep us from adjudicating this dispute. Fox’s and Puchlak’s lawsuits are both pending. For Safety to indemnify Fox and Puchlak, several events must occur. First, Fox and Puchlak must secure judgments against Genesee County. Second, Fox and Puchlak must establish damages against Genesee County; merely winning their claim or establishing damages against other counties is not enough. Even then, Genesee County must refuse, or declare itself unable, to satisfy any judgment before Fox and Puchlak could ask Safety to pay them for their injuries. Although our recent decision in Hall v. Meisner, 51 F.4th 185 (6th Cir. 2022), may signal merit to Fox’s and Puchlak’s lawsuits, the strength of their underlying claims is but one link in a chain of “contingent future events” that illustrates how resolving Safety’s duty to pay them damages would prove a costly and time-consuming hypothetical. Trump, 141 S. Ct. at 535. Safety argues that the Supreme Court’s decision in Maryland Casualty demands a contrary holding. There, an insurer sued an insured and the injured party for a declaratory judgment that it had no duty to defend or indemnify the insured for the injured party’s pending lawsuit in state court. Maryland Cas., 312 U.S. at 271–72. The Court held that a “substantial controversy” of “sufficient immediacy and reality” existed under the Declaratory Judgment Act. Id. at 273. On its face, Maryland Casualty would seem to govern this case. The Maryland Casualty Court rested its holding on three factors: Ohio law allowed the injured party to proceed against the insurer to satisfy any final judgment unpaid by the insured party after thirty days; the injured party could prevent the policy from lapsing by performing its notice conditions; and different courts could reach conflicting interpretations of the policy. Id. at 273–74. Here, Michigan law Nos. 22-1189/1196 Safety Specialty Ins. Co., et al. v. Page 9 Genesee Cnty. Bd. of Comm’rs, et al. would allow Fox and Puchlak to proceed against Safety to satisfy an unpaid judgment against Genesee County. Mich. Comp. L. § 500.3006. The PO&EPL Policy suggests that Fox and Puchlak do not need to prevent its lapse before collecting on a judgment. And Puchlak’s lawsuit awaits resolution in a state court, which could eventually reach an opposite interpretation of Genesee County’s PO&EPL Policy. However, unlike the insured party in Maryland Casualty, Genesee County is not the “alleged tortfeasor” that supposedly injured Fox and Puchlak. That distinction belongs to two nonparties, Gratiot County and St. Clair County, where Fox and Puchlak live. Even though the Sixth Circuit has previously allowed an insurer to bring a declaratory-judgment action against both the insured and injured parties, it has recognized that often the “real dispute is between the injured third party and the insurance company, not between the injured and an often-times impecunious insured.” Allstate Ins. Co. v. Green, 825 F.2d 1061, 1064 (6th Cir. 1987) (citing 6A Moore’s Federal Practice ¶ 57.19 (2d ed. 1983)); see ibid. (citing Maryland Cas., 312 U.S. at 274). Here, no real dispute exists—at least, for now—between Safety and Fox and Puchlak. The possibility that Fox and Puchlak might look to Safety for indemnification is more attenuated than it was for the parties in Maryland Casualty. Fox and Puchlak have not asked Safety to pay them for their injuries. As the district court noted, “[b]y all appearances, [Fox and Puchlak] joined [Genesee County] in the underlying lawsuits for class-representation purposes only.” Safety cannot derive from this arrangement a dispute with Fox and Puchlak, who, as the purportedly injured parties, are adverse to Genesee County “only insofar as they have different stakes in the outcome of the underlying lawsuits.” Even if Fox and Puchlak prevail in their lawsuits, Genesee County might not be held liable for damages. While ripeness is largely a question of degree, Maryland Cas., 312 U.S. at 273, we require more certainty of the necessity of indemnification before allowing Safety to hale Fox and Puchlak into federal court. Safety also contends that this case is ripe under Sixth Circuit precedent. The Sixth Circuit considers several factors when deciding whether the issues presented are ripe for review. United Steelworkers of America, Local 2116 v. Cyclops Corp., 860 F.2d 189, 194 (6th Cir. 1988). First is the hardship that “refusing to consider [Safety’s] prospective claims would impose upon the parties.” Id. at 195. Second is the likelihood that the harm alleged by Safety Nos. 22-1189/1196 Safety Specialty Ins. Co., et al. v. Page 10 Genesee Cnty. Bd. of Comm’rs, et al. “will ever come to pass.” Id. at 194. Third is whether the factual record is developed enough for a fair adjudication on the merits of the parties’ claims. Id. at 195. Safety argues that each of these factors tilts towards ripeness. We disagree. On the first factor, Safety argues that “insulat[ing] Fox and Puchlak (and the class members they represent)” from a coverage determination would leave Safety vulnerable to “multiple declaratory judgment actions” from Fox’s and Puchlak’s class members and expose it to the risk of “inconsistent coverage rulings.” Had Safety sought its judgment in state court, it may have been able to join Fox and Puchlak as parties and secure a binding judgment without running into the limits of Article III. On the second factor, Safety notes that Fox and Puchlak have filed class-action lawsuits, for which Genesee County claims coverage and seeks an immediate defense from Safety. As discussed above, to the extent that the duty to defend reflects immediate harm, it does not involve Fox and Puchlak. Meanwhile, harm from Safety’s duty to indemnify is less likely to occur. Fox and Puchlak must prevail in their lawsuits against Genesee County; Genesee County must be held liable to them for damages; and Genesee County must prove unwilling or unable to satisfy any judgment before Fox and Puchlak can ask Safety to indemnify them. On the third factor, Safety argues that the factual record is sufficiently developed and that Fox and Puchlak had an opportunity to weigh in. We agree with Safety on this point. On balance, however, Safety’s duty to indemnify is not ripe for adjudication between Safety and Fox and Puchlak. Because Safety lacks standing to sue Fox and Puchlak over its duty to defend and its claim for the duty to indemnify lacks ripeness, we affirm the district court’s holding that no substantial controversy of sufficient immediacy and reality exists between Safety and Fox and Puchlak. B. The PO&EPL Policy Exclusions 1. Interpretation of Insurance Contracts Under Michigan Law We focus here on the insurer’s duty to defend, which is broader under Michigan law than its duty to indemnify. Am. Bumper & Mfg. Co. v. Hartford Fire Ins. Co., 550 N.W.2d 475, 481 (Mich. 1996). If the allegations of a third party against an insured party “even arguably come Nos. 22-1189/1196 Safety Specialty Ins. Co., et al. v. Page 11 Genesee Cnty. Bd. of Comm’rs, et al. within the policy coverage, the insurer must provide a defense . . . even where the claim may be groundless or frivolous.” Ibid. Even if a policy excludes some claims, the duty to defend applies “if there are any theories of recovery that fall within the policy.” Protective Nat’l Ins. Co. v. City of Woodhaven, 476 N.W.2d 374, 376 (Mich. 1991) (quoting Detroit Edison Co. v. Mich. Mut. Ins. Co., 301 N.W.2d 832, 835 (Mich. Ct. App. 1981)). But “the duty to defend is not an unlimited one,” and insurers are not required to defend “against claims for damage expressly excluded from policy coverage.” Meridian Mut. Ins. Co. v. Hunt, 425 N.W.2d 111, 114 (Mich. Ct. App. 1988). In Michigan, the interpretation of an insurance policy is a question of law that a court can resolve at summary judgment. See Henderson v. State Farm Fire & Cas. Co., 596 N.W.2d 190, 193 (Mich. 1999); see also B.F. Goodrich Co. v. U.S. Filter Corp., 245 F.3d 587, 595 (6th Cir. 2001). The court interprets insurance contracts in two steps: it first determines coverage under the general insurance agreement, then it decides whether an exclusion applies to negate coverage. Auto-Owners Ins. Co. v. Harrington, 565 N.W.2d 839, 841 (Mich. 1997). While the burden of proving coverage rests on the insured party, the insurer bears the burden of proving that an exclusion precludes coverage. See Pioneer State Mut. Ins. Co. v. Dells, 836 N.W.2d 257, 263 (Mich. Ct. App. 2013); Am. Tooling Ctr., Inc. v. Travelers Cas. & Sur. Co. of Am., 895 F.3d 455, 459 (6th Cir. 2018) (applying Michigan law). Under Michigan law, we read an exclusion independently of other exclusions. Farm Bureau Mut. Ins. Co. v. Blood, 583 N.W.2d 476, 478 (Mich. Ct. App. 1998). Although exclusions are “strictly construed in favor of the insured . . . [c]lear and specific exclusions must be given effect.” Auto-Owners Ins. Co. v. Churchman, 489 N.W.2d 431, 434 (Mich. 1992). Courts must give policy provisions their “plain and ordinary meaning” to avoid “technical and strained constructions.” Ann Arbor Pub. Schs. v. Diamond State Ins. Co., 236 F. App’x 163, 166 (6th Cir. 2007) (quoting Century Sur. Co. v. Charron, 583 N.W.2d 486, 488 (Mich. Ct. App. 1998)). 2. Analysis Assuming, as the district court did, that the PO&EPL Policy would otherwise cover the Fox and Puchlak lawsuits, we hold that at least one exclusion negates coverage. The PO&EPL Nos. 22-1189/1196 Safety Specialty Ins. Co., et al. v. Page 12 Genesee Cnty. Bd. of Comm’rs, et al. Policy contains thirty-one exclusions, and Safety relies on six. Of those, the district court addressed the two “most fitting” exclusions—Exclusions 9B and 12—holding that either was sufficient to deny coverage. While Exclusion 12 may present a close case, Exclusion 9B does not; it excludes coverage of the Fox and Puchlak lawsuits. Exclusion 9B excludes claims “[a]rising out of . . . [t]ax collection, or the improper administration of taxes or loss that reflects any tax obligation.” The first issue is the meaning of the phrase “arising out of.” In the insurance-contract context, the Michigan Supreme Court has held that the phrase “requires a ‘causal connection’ that is ‘more than incidental.’” People v. Johnson, 712 N.W.2d 703, 706 (Mich. 2006) (quoting Pac. Emps. Ins. Co. v. Mich. Mut. Ins. Co., 549 N.W.2d 872, 875 (Mich. 1996)). Applying Michigan law, we understand “arising out of” to mean something that “springs from or results from something else, has a connective relationship, a cause and effect relationship, of more than an incidental sort with the [underlying] event.” Ibid. The language demands more than a “but-for causal connection, but does not require direct or proximate causation.” Great Am. Fid. Ins. Co. v. Stout Risius Ross, Inc., 438 F. Supp. 3d 779, 785 (E.D. Mich. 2020) (quoting Scott v. State Farm Mut. Auto. Ins. Co., 751 N.W.2d 51, 56 (Mich. Ct. App. 2008)). The claims in the Fox and Puchlak lawsuits are excluded from coverage because they arise out of tax collection. The Michigan Supreme Court’s recent case in Rafaeli, LLC v. Oakland County, 952 N.W.2d 434 (Mich. 2020), illustrates the cause-and-effect relationship between tax collection and the alleged withholding of surplus proceeds at issue in the Fox and Puchlak lawsuits. The court summarized the practice by which counties, under Michigan’s General Property Tax Act (“GPTA”), Mich. Comp. Laws § 211.1 et seq., retained surplus proceeds from the tax-foreclosure sales of private property. Rafaeli, 952 N.W.2d at 443–46. Real-property taxes are first assessed and collected by the municipality where the property is located. Id. at 443. When property taxes become delinquent, “collection is turned over to the foreclosing governmental unit,” usually the county, whose treasurer attempts to collect the delinquent taxes by seeking to foreclose on the associated property and then sell it at a public auction. Id. at 443–44. Upon sale, the county treasurer deposits the proceeds into an account containing the proceeds from all of the county’s delinquent-tax property sales for that year. Id. at Nos. 22-1189/1196 Safety Specialty Ins. Co., et al. v. Page 13 Genesee Cnty. Bd. of Comm’rs, et al. 445. Where the proceeds from individual sales exceed the tax delinquency, the surplus is first used to offset the costs of the county’s foreclosure proceedings and sales. Id. at 446. Any leftover money may then be transferred to the county’s general fund. Ibid. The Michigan Supreme Court stressed that “the GPTA does not provide for any disbursement of the surplus proceeds to the former property owner” but rather “requires the foreclosing governmental unit to disperse the surplus proceeds to someone other than the former owner.” Ibid. (citing Jenna Christine Foos, Comment, State Theft In Real Property Tax Foreclosure Procedures, 54 Real Prop. Tr. & Est. L.J. 93, 101–02 & n.56 (2019)). The overview in Rafaeli confirms that the process of tax collection is what causes Fox’s and Puchlak’s claims—the retention of their surplus tax-auction proceeds—to occur. Great Am. Fid. Ins. Co., 438 F. Supp. 3d at 785. The underlying conduct at issue in the Fox and Puchlak lawsuits—that the defendant counties retained too much money from the sale of property at tax- delinquency auctions—“springs from” tax collection, if it is not substantively an act of tax collection itself. Johnson, 712 N.W.2d at 706. In other words, a “cause and effect relationship” exists between the counties’ method of property-tax collection and the injury for which Fox and Puchlak seek to recover. Ibid. Therefore, Exclusion 9B precludes coverage for these claims. Genesee County argues for a narrow construction of “tax collection” that renders the exclusion inapplicable. Genesee County contends that the “process of ‘collection’ could reasonably be understood as not including the post-foreclosure decision to retain funds previously collected.” They characterize this case as involving “what happens after the taxation process is completed.” We disagree. The post-foreclosure retention of funds previously collected cannot reasonably be understood as a separate decision that counties or their treasurers make. As the Michigan Supreme Court describes, the GPTA contains an “exhaustive” reimbursement scheme that dictates where delinquent-tax property-sale proceeds must go. Rafaeli, 952 N.W.2d at 446. The retention of surplus proceeds is part of the multi-step process that is “tax collection,” as established by the GPTA, rather than a separate and independent decision. Nos. 22-1189/1196 Safety Specialty Ins. Co., et al. v. Page 14 Genesee Cnty. Bd. of Comm’rs, et al. Even if we accepted Genesee County’s point that the allegedly withheld surplus proceeds are not tax revenues, claims based on the failure to return those sums would still fall under the exclusion. Construing “tax collection” narrowly to refer only to the gathering of taxes owed does not affect the exclusion’s “arising out of” language, which sweeps in the complained-of activity. Whether or not surplus proceeds amount to tax revenue, their retention directly resulted from—and was part of—the tax-collection process outlined by the GPTA. Genesee County also argues that, even if Exclusion 9B precludes claims arising out of tax collection, it does not apply to other damages claims asserted in the underlying lawsuits. See City of Woodhaven, 476 N.W.2d at 376 (noting that an insurer must defend against a lawsuit “if there are any theories of recovery that fall within the policy” (quoting Detroit Edison, 301 N.W.2d at 835)). Genesee County asserts that Fox and Puchlak “allegedly ‘suffered two kinds of’ damages: those arising from the retention of the excess funds and those arising from the claimed due process violations.” To support the premise that the latter claims are not claims arising out of tax collection to which the exclusion would apply, Genesee County relies on Assurance Co. of America v. J.P. Structures, Inc., 1997 WL 764498 (6th Cir. Dec. 3, 1997). There, the court held that an insurance-coverage exclusion for claims arising out of a breach of contract did not preclude coverage for a trademark-infringement claim. See id. at *5. As Genesee County sees it, the J.P. Structures court reached its holding because the underlying claimant’s trademark-infringement claim was “of a different character” than its breach-of- contract claim. Because claims arising from the retention of excess funds are of a different character than claims for violations of due process and claims for excessive fines, Genesee County would have us similarly recognize, and require the defense of, those other claims that do not implicate a given exclusion. We read J.P. Structures differently. The court’s decision focused on the lack of a causal relationship between the two claims, not on whether the claims were different. It noted that the insured party’s “breach of the contract caused its termination” while its “intentional unauthorized use of the mark caused the trademark infringement.” Ibid. The only connection between the contract breach and the trademark infringement was that the post-breach termination of the contract “withdrew the authorization to use” the trademark, a connection that the court found Nos. 22-1189/1196 Safety Specialty Ins. Co., et al. v. Page 15 Genesee Cnty. Bd. of Comm’rs, et al. “too remote.” Ibid. In our case, however, the causal link between the excluded conduct—tax collection—and the subsequent claims is more direct. As the district court put it, “all 11 counts across both complaints rely on the same allegation: that county governments seized tax- delinquent property, sold it at auction, and kept the surplus proceeds.” We agree with Genesee County that an insurer must prove more than but-for causation when construing “arising out of” language in an exclusion. Stout Risius Ross, Inc., 438 F. Supp. 3d at 785. But that higher standard is met here, where the alleged tax-collection process directly caused the injuries underlying each of Fox’s and Puchlak’s claims. Because one exclusion—Exclusion 9B—is enough to deny coverage, we affirm. III. CONCLUSION For the reasons above, we affirm the district court’s grant of summary judgment to Fox and Puchlak against Safety, and its grant of summary judgment to Safety against Genesee County.	01-04-2023	11-22-2022
https://www.courtlistener.com/api/rest/v3/opinions/8488770/	STATE OF LOUISIANA COURT OF APPEAL, FIRST CIRCUIT ENTRE HAMPTON NO. 2022 CW 1238 VERSUS PETROLEUM SERVICES GROUP, LLC; CF INDUSTRIES NITROGEN, LLC; QUALITY CARRIERS, INC.; NOVMBER 22, 2022 CLYDE RICHARD; AND OLD REPUBLIC INSURANCE COMPANY In Re: Clyde Richard, Quality Carriers, Inc., and Allianz Underwriters Insurance Co., applying for supervisory writs, 19th Judicial District Court, Parish of East Baton Rouge, No. 691998. BEFORE: WHIPPLE, C. J., GUIDRY AND WOLFE, JJ. WRIT DISMISSED. Pursuant to the motion to withdraw application for supervisory writs filed by relators, representing that relators have reached a compromise and settlement with plaintiff which will completely resolve this matter making this writ application moot, and requesting that the writ application be withdrawn, this writ is dismissed. VGW JMG EW COURT OF APPEAL, FIRST CIRCUIT AD— 4 1 CLERK OF COURT FOR THE COURT	01-04-2023	11-22-2022
https://www.courtlistener.com/api/rest/v3/opinions/8488765/	USCA11 Case: 22-11273 Date Filed: 11/22/2022 Page: 1 of 2 [DO NOT PUBLISH] In the United States Court of Appeals For the Eleventh Circuit ____________________ No. 22-11273 Non-Argument Calendar ____________________ UNITED STATES OF AMERICA, Plaintiff-Appellee, versus JAVIER SANCHEZ MENDOZA, JR., Defendant-Appellant. ____________________ Appeal from the United States District Court for the Southern District of Georgia D.C. Docket No. 2:21-cr-00034-LGW-BWC-1 ____________________ USCA11 Case: 22-11273 Date Filed: 11/22/2022 Page: 2 of 2 2 Opinion of the Court 22-11273 Before JORDAN, BRANCH, and BRASHER, Circuit Judges. PER CURIAM: The Government’s motion to dismiss this appeal pursuant to the appeal waiver in Appellant’s plea agreement is GRANTED. See United States v. Boyd, 975 F.3d 1185, 1192 (11th Cir. 2020) (stat- ing that the “touchstone” for assessing whether an appeal waiver was made knowingly and voluntarily is whether the court clearly conveyed to the defendant that he was giving up his right to ap- peal under most circumstances);United States v. Bushert, 997 F.2d 1343, 1350-51 (11th Cir. 1993) (stating that a sentence appeal waiver will be enforced if it was made knowingly and voluntarily).	01-04-2023	11-22-2022
https://www.courtlistener.com/api/rest/v3/opinions/8488763/	NONPRECEDENTIAL DISPOSITION To be cited only in accordance with FED. R. APP. P. 32.1 United States Court of Appeals For the Seventh Circuit Chicago, Illinois 60604 Submitted October 25, 2022 * Decided November 22, 2022 Before DIANE S. SYKES, Chief Judge DIANE P. WOOD, Circuit Judge MICHAEL B. BRENNAN, Circuit Judge No. 21-3212 LOGAN DYJAK, Appeal from the United States District Plaintiff-Appellant, Court for the Central District of Illinois. v. No. 21-C-3032 JO-AN LYNN, et al., Michael M. Mihm, Defendants-Appellees. Judge. ORDER Logan Dyjak, a civil detainee at the McFarland Mental Health Center in Springfield, Illinois, sued three medical staff alleging that they disregarded known risks of violence and sexual assault by other patients. The district judge screened the * The appellees were not served with process and have not participated in this appeal. We have agreed to decide the case without oral argument because the appellant’s brief and the record adequately present the facts and legal arguments, and oral argument would not significantly aid the court. FED. R. APP. P. 34(a)(2)(C). No. 21-3212 Page 2 complaint and dismissed it, ruling that Dyjak had failed to state a claim. But because Dyjak plausibly alleged that the defendants intentionally acted in a manner that was objectively unreasonable, we vacate and remand for further proceedings. At this stage we accept Dyjak’s allegations as true. See Otis v. Demarasse, 886 F.3d 639, 644 (7th Cir. 2018). Dyjak’s complaint described two types of recurring, unaddressed violence at McFarland. First, another patient—who was known by McFarland staff to hit others regularly and with impunity—attacked Dyjak. Second, a third patient, while fondling his own genitals, repeatedly tried to grope Dyjak without consent, also without any intervention by McFarland staff. McFarland staff members Jo-An Lynn (clinical director), Stacey Horstman (psychiatrist), and Harvey Daniels (clinical nurse manager) knew about but did not address either patient’s behavior, even though all three were responsible for addressing violence among detainees. So Dyjak brought a failure-to-protect claim under 42 U.S.C. § 1983 against these three defendants. Additionally, Dyjak moved for recruited counsel claiming poverty, lack of education, and limited access to legal materials. The judge dismissed the complaint at screening for failure to state a claim. See 28 U.S.C. § 1915(e)(2). The judge concluded that the failure-to-protect claim failed because Dyjak had not alleged that the attempted sexual assaults caused physical harm and had pleaded nothing to substantiate the allegation that the defendants appreciated a risk to Dyjak. The judge gave Dyjak 30 days to replead the failure-to-protect claim. (Dyjak’s complaint also contained other allegations about incidents unrelated to those we’ve just described. The judge concluded that the additional allegations also failed to state a claim. We have examined that part of his ruling and see no error, so we omit further detail.) Dyjak moved for reconsideration, arguing that the complaint was adequate. The judge found these arguments unpersuasive and denied the motion. Soon thereafter and once Dyjak’s 30-day window to replead had lapsed, the judge dismissed the case without prejudice. 1 1 Even though the judge stated that the dismissal was without prejudice, the judgment is appealable. The judge’s statements in his merit-review order reflect that he was finished with the case. See Lauderdale-El v. Ind. Parole Bd., 35 F.4th 572, 575–76 (7th Cir. 2022). Further, a dismissal without prejudice is appealable when, as here, a claim cannot be refiled because the two-year statute of limitations has run. See Anderson No. 21-3212 Page 3 On appeal Dyjak first argues that the complaint sufficiently stated a failure-to- protect claim. Dyjak also disagrees that the attempted sexual assaults must be alleged to have caused physical harm. Notice pleading requires only “a short and plain statement of the claim showing that the pleader is entitled to relief.” FED. R. CIV. P. 8(a)(2). At the pleadings stage, the complaint need contain only enough factual matter, accepted as true, to allow the reasonable inference that the defendant is liable for the alleged conduct. Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009); Erickson v. Pardus, 551 U.S. 89, 94 (2007). As a detainee, Dyjak needed only to plausibly allege facts showing that the defendants responded unreasonably to dangerous conditions at McFarland. See Hardeman v. Curran, 933 F.3d 816, 822–23, 825 (7th Cir. 2019) (citing Kingsley v. Hendrickson, 576 U.S. 389, 396–97 (2015), and then citing Farmer v. Brennan, 511 U.S. 825, 832–33 (1994)) (holding that the pretrial detainee stated a conditions-of-confinement claim through allegations of “objectively unreasonable conditions”—insufficient water and exposure to backed-up toilets, their stench, and insects); Smith v. Dart, 803 F.3d 304, 312–13 (7th Cir. 2015) (holding that the pretrial detainee stated a conditions-of-confinement claim through allegations that “food is well below nutritional value” and that defendants knew that the detainees’ water was polluted). And those conditions—as well as the defendants’ response—do not have to result in physical harm; psychological harm is enough. Budd v. Motley, 711 F.3d 840, 843 (7th Cir. 2013). Taking Dyjak’s allegations as true, we conclude that the complaint adequately stated a failure-to-protect claim. In Hardeman we extended Kingsley’s objective unreasonableness standard to all conditions-of-confinement claims brought by pretrial detainees. Hardeman, 933 F.3d at 823. And such claims include those that assert a failure to protect. See, e.g., Kemp v. Fulton County, 27 F.4th 491, 494–95 (7th Cir. 2022) (citing Farmer, 511 U.S. at 833). To the extent that the judge ruled that Dyjak had not alleged enough factual detail to push the claim “from conceivable to plausible,” Bell Atl. Corp v. Twombly, 550 U.S. 544, 570 (2007), we disagree. The complaint stated a plausible failure- to-protect claim by alleging, first, that the defendants’ knowing disregard of the violent patient enabled that patient to attack Dyjak, and second, that the defendants’ acquiescence to the third patient’s repeated attempts to grope Dyjak while masturbating left Dyjak traumatized. For both situations the complaint sufficiently alleged that the defendants acted unreasonably by ignoring known threats to Dyjak’s well-being. v. Cath. Bishop of Chi., 759 F.3d 645, 649 (7th Cir. 2014). (Dyjak’s claim arose in early 2019.) No. 21-3212 Page 4 Accordingly, we VACATE and REMAND for further proceedings limited to Dyjak’s failure-to-protect claim against Lynn, Horstman, and Daniels. On remand the judge should rule on Dyjak’s motion for recruitment of counsel. See Pruitt v. Mote, 503 F.3d 647, 649–50 (7th Cir. 2007) (en banc).	01-04-2023	11-22-2022
https://www.courtlistener.com/api/rest/v3/opinions/8488769/	Filed 11/22/22 P. v. Negron CA2/2 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 TWO THE PEOPLE, B322510 Plaintiff and Respondent, (Kern County Super. Ct. No. DF013159A) v. JOSE NEGRON, Defendant and Appellant. APPEAL from a judgment of the Superior Court of Kern County, John R. Brownlee, Judge. Affirmed in part, vacated in part, and remanded with directions. William J. Capriola, under appointment by the Court of Appeal, for Defendant and Appellant. Rob Bonta, Attorney General, Lance E. Winters, Chief Assistant Attorney General, Michael P. Farrell, Assistant Attorney General, Eric L. Christoffersen, Sally Espinoza, and Stefanie Yee, Deputy Attorneys General, for Plaintiff and Respondent. ______________________________ In a single-count information filed by the Kern County District Attorney’s Office, defendant and appellant Jose Negron, also known as Joe Tomasello,1 was charged with battery by a prisoner on a nonconfined person (Pen. Code, § 4501.5),2 in the commission of which he personally inflicted great bodily injury (§ 12022.7). It was further alleged that defendant had five out-of- state convictions, which qualified as serious felonies within the meaning of the “Three Strikes” law (§§ 667, subds. (c)-(j), 1170.12, subds. (a)-(e)) and section 667, subdivision (a), and that he had served two prior prison terms (§ 667.5, subd. (b)). Defendant represented himself at trial. The jury found him guilty of the charged offense and found true the great-bodily- injury allegation. The jury also found true all prior conviction allegations.3 The trial court sentenced defendant to a total term of 27 years to life in prison, plus a determinate term of 23 years. 1 According to defendant, Jose Negron is an alias and his real name is Joe Tomasello. Both names appear throughout the record. 2 All further statutory references are to the Penal Code unless otherwise indicated. 3 At the request of the People, the trial court had previously dismissed the two prior prison term allegations. 2 In this timely appeal, defendant contends that (1) the trial court committed multiple reversible errors with respect to defendant’s competency to stand trial and to represent himself, and (2) the trial court erred in ruling that defendant’s out-of-state convictions qualified as serious felonies under California law. The People concede—and we agree—that the evidence was insufficient to prove that any of the out-of-state convictions was a serious felony for the purpose of the Three Strikes law or the section 667, subdivision (a) enhancement. Accordingly, we reverse the true findings on those prior conviction allegations, vacate defendant’s sentence, and remand the matter to the trial court, where the People may retry the prior conviction allegations. We otherwise affirm the judgment. FACTS4 On June 23, 2017, Correctional Officer Richard Juan entered defendant’s prison cell at Wasco State Prison to deliver legal mail. As Officer Juan bent over to have defendant, who was seated in his wheelchair, sign for the mail, defendant hit Officer Juan twice in the face. Officer Juan suffered a fractured nose, for which he underwent surgery. DISCUSSION I. Competency to Stand Trial and for Self-Representation Defendant raises three arguments related to his competency to stand trial and to represent himself. He contends 4 Because defendant does not challenge the sufficiency of the evidence underlying his conviction for the charged offense— battery by a prisoner on a nonconfined person—and the great- bodily-injury enhancement, we provide only a brief summary of the facts adduced at trial. 3 that the trial court erred by (1) failing to suspend proceedings and conduct a new competency hearing after learning that defendant was no longer taking medication and was displaying bizarre behavior; (2) allowing defendant to represent himself at a hearing on July 8, 2019, after the prosecutor raised a doubt as to defendant’s competence; and (3) permitting defendant to represent himself at trial. A. Background 1. Doubt as to defendant’s competency At a pre-preliminary hearing on December 6, 2017, defendant petitioned to represent himself. During the ensuing colloquy, defendant claimed that he had previously represented himself when Google Earth attempted to prosecute him. He stated that Google Earth was watching and listening to him and that people were “trying to pin [him] with stuff.” Defendant was taking medication for psychological reasons. The trial court declared a doubt as to defendant’s competency, suspended criminal proceedings, and appointed two mental health professionals to evaluate defendant. 2. Competency evaluations Two psychologists—Dr. Musacco and Dr. Haddock— evaluated defendant. i. Dr. Musacco’s evaluation “Defendant described a variety of delusional beliefs” to Dr. Musacco. For example, defendant stated that former First Lady Michelle Obama was transgender and that she was involved in a homosexual relationship with former President Barack Obama. The Obamas were monitoring him and had placed a camera in his jail cell. They were following defendant to “prevent him from exposing their well-kept secrets.” Then- 4 President Donald Trump had promised to help defendant. Defendant also claimed to be an internationally renowned DJ. Dr. Musacco found that defendant had “a serious mental illness which substantially impact[ed] his reality contact” and “an impaired understanding of his potential penalties . . . .” Dr. Musacco opined that defendant was “incapable of representing himself in a rational and effective manner.” ii. Dr. Haddock’s evaluation Defendant also made claims regarding the Obamas to Dr. Haddock. He stated that Michelle Obama was a “‘transvestite’” and a drug dealer; President Obama had been a police officer in Chicago and had arrested defendant. Defendant accused his mother of being “‘evil’” and “‘waiting for [him] to die so she c[ould] sue the State of California.’” He admitted to obsessive thoughts concerning being followed and watched. Dr. Haddock opined that defendant was incompetent to stand trial and to represent himself. 3. Incompetency to stand trial On January 3, 2018, after considering the psychological evaluations, the trial court found that defendant was not presently competent to stand trial and referred him to Kern Behavioral Health and Recovery Services for recommendation and evaluation. 4. Commitment to state hospital In late January 2018, the trial court committed defendant to the State Department of Mental Health. The court ordered defendant to be housed at Atascadero State Hospital (Atascadero) for appropriate treatment and confinement. 5 5. Involuntary administration of medication A psychologist at Atascadero evaluated defendant on November 7, 2018. During the evaluation, defendant “express[ed] delusional statements about Obama and FBI monitoring him through cameras[.]” (Italics omitted.) He “expressed clear paranoia and persecutory delusional beliefs about the criminal justice system[.]” (Italics omitted.) Defendant stated that he did not want to be represented by a public defender and maintained that he wanted to represent himself. The psychologist opined that defendant “would likely be extremely ineffective in court, as he relies upon delusional or misunderstood ‘evidence’ when discussing his case, is unable to remain calm while describing his legal situation, and is often unable to appropriately stay on topic.” (Italics omitted.) On December 10, 2018, the Department of State Hospitals petitioned for an order to compel the involuntary treatment of defendant with antipsychotic medication. The hearing on the petition was held on December 19, 2018. At the hearing, Dr. Elwyn, defendant’s treating psychiatrist at Atascadero, explained that defendant suffered from schizophrenia, the symptoms of which include hallucinations, delusions, paranoia, and disorganization. Dr. Elwyn’s conclusion was based on defendant’s “delusional beliefs” regarding, inter alia, the Obamas and the singer and actress Jennifer Lopez being his girlfriend. Defendant had also endorsed auditory and visual hallucinations. According to Dr. Elwyn, defendant “ha[d] no insight into the fact that he ha[d] a mental illness[,] that these [we]re delusional beliefs, [and] that he [wa]s in need of medication.” 6 At Atascadero, defendant had refused to take his prescribed antipsychotic medication. Dr. Elwyn explained that defendant suffered direct physical harm as a result of his schizophrenia, including declining medically recommended hernia surgery and licking the tip of his catheter, which caused an infection. If left untreated, defendant’s mental illness posed a threat of harm to his mental health. Defendant addressed the trial court, stating that he did not need medication, that he was “perfectly fine[,]” and that he needed help resolving the case so that he could “go about [his] way and . . . keep fighting.” The trial court found that defendant “lack[ed] the capacity to make his decision regarding psychotic medication and if his mental disorder [wa]s not treated, it would cause physical harm or mental harm to [defendant].” The court issued an order authorizing the involuntary administration of antipsychotic medication to defendant. 6. Restoration to competency In a February 28, 2019, report to the trial court, staff at Atascadero recommended that defendant “be returned to court as competent to stand trial . . . .” At that time, defendant’s “[t]hought process was linear, logical and goal-directed.” He continued, however, to “express grandiose claims” about knowing President Obama and Jennifer Lopez and had poor insight into his mental illness. Defendant’s “symptoms [were] effectively managed by his current medication.” Regarding his criminal case, defendant “ha[d] a solid understanding of his charge, consequences of prior convictions, and criminal proceedings against him.” (Bolding omitted.) Defendant had “attempted to conceal or ‘cheek’ his medication in the past”; therefore the report 7 recommended that his medication “be given exactly as prescribed . . . to avoid decompensation.” On March 4, 2019, Atascadero’s medical director certified that defendant was presently competent to stand trial. In an accompanying letter, the medical director stated: “[Defendant] is being returned to court on psychotropic medication. It is important that [defendant] remain on this medication for his own personal benefit and to enable him to be certified under Section 1372 of the Penal Code.” On March 15, 2019, the trial court found that defendant had been restored to competency and reinstated criminal proceedings. 7. Defendant’s request to represent himself On June 20, 2019, defendant again indicated that he wanted to represent himself. The trial court held a hearing on defendant’s request on June 27, 2019. At the hearing, the trial court informed defendant of the risks and disadvantages of self-representation, but defendant maintained his request. The court found that defendant had voluntarily, intelligently, and unequivocally waived his right to counsel. Defendant asked if he “could have a regular attorney to guide [him]” given that it was “a life case.” This concerned the court, which explained that it was not its normal practice to appoint “co-counsel” for a self-represented defendant. The court indicated its willingness to allow defendant to withdraw his request to represent himself. After the court elaborated on the disadvantages, defendant still elected self-representation. 8 8. The prosecutor’s pretrial concerns i. July 8, 2019, hearing On July 8, 2019, defendant indicated that he was ready for trial, that he had reviewed any and all relevant reports and evidence that could be used against him, and that he did not have any witnesses. The prosecutor then noted that defendant’s statement that he did not have any witnesses conflicted with his earlier representations. The prosecutor expressed concern that defendant was “not able to conduct his own defense in a rational manner.” According to the prosecutor, defendant had stated that he was not on any medication. The prosecutor noted that the evaluations from Atascadero had stated the importance of defendant remaining on medication to maintain his competency. When asked by the trial court, defendant confirmed that he had not been taking medication in the lead-up to trial. The court asked defendant if his doctors had told him that he no longer needed to take the medication or if he had “decided on [his] own[.]” Defendant responded, “They told me I didn’t need to take it. They took me off of it.” The following colloquy ensued: “THE COURT: I’m going to ask you some really basic questions. I don’t mean to be disrespectful to you. I need to make some considerations. . . . [¶] Do you know what I am, like what my title is? “THE DEFENDANT: Yes. You are a judge. “THE COURT: Do you understand what my role in this process is? “THE DEFENDANT: Yes. “THE COURT: Use your own words. What is my job? 9 “THE DEFENDANT: Your job is to either find me not guilty or guilty. “THE COURT: That would be if you waived your right to a jury trial. [¶] Do you understand you have a right to a jury trial? “THE DEFENDANT: Yes, I do. “THE COURT: Are you asking to give up that right or would you still be exercising your right to have a jury trial? “THE DEFENDANT: No. I would like a jury trial. “THE COURT: So understanding that the jury would be the finders of fact, they would be the ones determining whether or not you’re guilty or not based on the evidence, what, then, would you see my role as the judge? “THE DEFENDANT: Well, to hand down the sentence or set me free. “THE COURT: That is part of my job. [¶] During the trial what do you think I would be doing? “THE DEFENDANT: You would be basically objecting and sustaining or overruling what me and her have to say. “THE COURT: Do you understand what Ms. Marshall’s role is in this trial? “THE DEFENDANT: Yeah. She’s the prosecutor. “THE COURT: As the prosecutor . . . what is her role? “THE DEFENDANT: She needs to prove that I’m guilty. “THE COURT: Do you understand the burden of proof as far as how much—like how high she has to prove it, beyond what level? “THE DEFENDANT: No, I’m not sure about that. “THE COURT: Have you ever heard the phrase beyond a reasonable doubt? “THE DEFENDANT: Yeah. Okay. Yes.” 10 After the prosecutor stated that there was nothing else that she wanted to add to the record, the trial court announced that it had not found anything indicating or suggesting that defendant was incompetent. The court explained: “He seems to understand the role of the judge and the jury. He may not articulate it as well as perhaps somebody who is experienced in these matters, as a professional attorney or member of the court staff or myself, but I think he did explain the different roles [of] the main players . . . . “He’s indicated that the doctors have discontinued medication. I have nothing to suggest, other than the representations that the report indicated he needed to stay on medication, but he’s not showing any decompensation as a result of perhaps not being on medication at this time. “Additionally, he has indicated that he understands he has an obligation potentially to provide you information as far as evidence that he might want to present in his own defense. He also has indicated that he thought he might need some doctors to testify or some witnesses to testify on his own behalf, but he believes, upon further evaluation and analysis, he does not need those. He believes he has alternative evidence that may be able to establish the facts that he wants to establish by way of that evidence, and so I do not find that it would be appropriate to terminate [defendant’s] self-representation.” The trial court recognized “that somebody who may be competent to stand trial may not be competent to represent themsel[f].” The court, however, concluded that there were not “sufficient grounds to terminate” defendant’s right to self- representation. 11 ii. July 9, 2019, hearing The following day, on July 9, 2019, the case was transferred to a different courtroom for trial. Defendant indicated that he was ready for trial and that he might call two witnesses. The prosecutor noted that defendant had not subpoenaed any witnesses. The court responded, “Well, then, he won’t be calling them as witnesses if he hasn’t subpoenaed them.” Defendant stated that he had not received “paperwork from the law library to subpoena them” because he was in the prison’s administrative segregation. The court informed defendant that he was required to disclose the names of his witnesses to the prosecutor and reminded him that he had stated that he was ready for trial. Defendant responded, “Yeah. Okay. I’m ready. Let’s go to trial. I can do it.” The prosecutor told the trial court: “[Y]esterday I brought . . . a motion saying I don’t believe the defendant is competent to represent himself . . . .” She further explained, “I would have concerns with the defendant representing himself if he can’t even figure out [how] to subpoena the witness.” Defendant insisted that he could defend himself by telling the truth and questioning Officer Juan “to catch him in a lie.” The trial court gave defendant the opportunity to subpoena a witness, but it explained that defendant would “have to waive time in order to do that.” The court also offered to appoint an investigator to assist defendant with the subpoena. Defendant stated that he would only agree to postpone trial for a maximum of 10 days. When the court indicated that would be impossible, defendant reiterated that he did not want to waive time to present his defense. 12 The prosecutor stated that she did not think that defendant was prepared and that it was “a very bad choice” for him to represent himself. She further commented that the trial court could, “perhaps, . . . find he’s not competent to represent himself, but . . . he appears to understand what’s going on and just doesn’t want to waive.” Asked by the court if that was the case, defendant responded, “Yeah. I’m ready to go forward.” 9. Defendant’s trial conduct On July 10, 2019, prior to jury selection, the trial court renewed its offer to appoint an investigator for defendant and to allow defendant time to subpoena witnesses. Defendant was unwilling to accept that offer and indicated that he was prepared to go forward. Shortly thereafter, defendant made comments about “running from this state here and Google Earth” and that he had “let Mr. Trump know a couple of things and he was satisfied with that.” On the first day of trial, defendant cross-examined Officer Juan. Defendant questioned him regarding the purpose of entering defendant’s cell on June 23, 2017, the details of the battery, and Officer Juan’s incident report. The following morning, on July 11, 2019, defendant refused to come to court from the detention facility and was ordered to be brought “with reasonable and necessary force[.]” The prosecutor informed the trial court that when she had attempted to give defendant oral discovery, defendant had cursed at her and would not allow her to provide the discovery. After a physician’s assistant testified on direct-examination about Officer Juan’s injuries, the trial court asked defendant if he had any questions for the witness. Defendant did not respond and the court noted that defendant had “raised his right hand 13 and extended his middle finger.” Later, when asked by the court if defendant wished to make a statement to the jury, defendant refused to answer and again raised his middle finger. After the prosecution rested and the court asked if defendant wished to present any evidence, defendant twice raised his middle finger, which the court interpreted “as a no.” At the start of the afternoon session on July 11, 2019, the trial court inquired whether defendant wished to present any special instructions to the jury. Defendant raised his middle finger and stated, “These are my special instructions right here.” When the court repeated the request, defendant stated, “A faggot gets the finger[.]” The court noted that on several occasions during the morning session, defendant had extended his middle finger to the judge, the jury, or witnesses. The trial court noted that defendant had been placed in physical restraints that morning and set forth the reasons on the record by questioning two officers from the detention facility. According to one officer, defendant had refused to dress and come out of his cell that morning. Defendant had said, multiple times, “‘Eat a dog’s dick and die.’” Another officer had witnessed defendant screaming at the prosecutor as she was trying to give him discovery, telling her to “‘[d]iscover her own ass[.]” The trial court later asked defendant if he wanted the jury to consider any lesser-related offenses. Defendant stated, “I’m asking for the jury to get back. Or send me back so I can get some Zs.” When the court asked again, defendant responded, “No. I want to be—on a rig. I want to get out of here. I haven’t committed a crime.” On the third and final day of trial—July 15, 2019— defendant presented his closing argument, during which he asked 14 the jury to disregard his past because he was “a redeemed individual.” He argued that Officer Juan had caused his broken nose himself. The trial court repeatedly admonished defendant that he could not bring up new evidence. Defendant concluded by stating, “I guess I’ll leave it to Almighty to decide.” After the verdict was announced, the trial court asked defendant if he wanted to poll the jury. Defendant responded, “No, Judge. Actually, I haven’t been on my meds . . . [.]” After the jury exited the courtroom, defendant told the court, “I’ve been hearing voices throughout this whole trial and I’ve got, like, somebody talking to me in the cell and it tells me to represent myself and I was supposed to be on meds and they haven’t given me my meds so I am stating that I’m incompetent.” The court set the matter for sentencing. 10. Appointment of counsel Prior to sentencing, defendant requested and was appointed counsel. 11. Motion for a new trial On November 25, 2019, defendant, represented by counsel, filed a motion for “a new trial on the ground of legal error in permitting defendant to represent himself.” The People opposed the motion. On March 18, 2020, after entertaining oral argument, the trial court denied defendant’s motion for a new trial. The court explained, “This Court did not see any indication of severe mental illness to the point where the defendant could not carry out the basic tasks needed to present a defense. [¶] What the Court did see [are] the very common mistakes almost all pro per defendants make of being unfamiliar with the code, unable to properly pick a jury, or properly admit evidence. [¶] Due to this the defendant 15 would become frustrated or nonresponsive or make unsolicited statements. [¶] His cursing or disruptive actions or bizarre answers to questions or statements taken in isolation or overall in this particular trial was not substantial evidence of mental incompetence.” Thus, the court concluded that it “did not err[] in permitting the defendant to represent himself[.]” B. Relevant law 1. Competency to stand trial The trial of an incompetent defendant violates the due process clauses of both the United States and California Constitutions. (People v. Nelson (2016) 1 Cal.5th 513, 559.) “A defendant is incompetent to stand trial if the defendant lacks ‘“‘sufficient present ability to consult with his lawyer with a reasonable degree of rational understanding . . . [or] a rational as well as factual understanding of the proceedings against him.’”’ [Citations.]” (People v. Mickel (2016) 2 Cal.5th 181, 195 (Mickel).) A trial court is required “to suspend trial proceedings and conduct a competency hearing whenever the court is presented with substantial evidence of incompetence, that is, evidence that raises a reasonable or bona fide doubt concerning the defendant’s competence to stand trial. [Citations.]” (People v. Rogers (2006) 39 Cal.4th 826, 847; see also § 1368.)5 5 Section 1368, subdivision (a), provides: “If, during the pendency of an action and prior to judgment, . . . a doubt arises in the mind of the judge as to the mental competence of the defendant, he or she shall state that doubt in the record and inquire of the attorney for the defendant whether, in the opinion of the attorney, the defendant is mentally competent. If the defendant is not represented by counsel, the court shall appoint counsel. At the request of the defendant or his or her counsel or upon its own motion, the court shall recess the proceedings for as 16 “[G]enerally speaking, when a defendant has already been found competent to stand trial, ‘a trial court need not suspend proceedings to conduct a second competency hearing unless it “is presented with a substantial change of circumstances or with new evidence” casting a serious doubt on the validity of that finding.’ [Citation.]” (People v. Rodas (2018) 6 Cal.5th 219, 234 (Rodas); see also People v. Jones (1991) 53 Cal.3d 1115, 1153.) And, “when a competency hearing has already been held, ‘the trial court may appropriately take its personal observations into account in determining whether there has been some significant change in the defendant’s mental state,’ particularly if the defendant has ‘actively participated in the trial’ and the trial court has had the opportunity to observe and converse with the defendant. [Citation.] [¶] This rule does not, however, alter or displace the basic constitutional requirement of Pate[ v. Robinson (1966) 383 U.S. 375, 385–386] and People v. Pennington[ (1967) 66 Cal.2d 508, 518], which require the court to suspend criminal proceedings and conduct a competence hearing upon receipt of substantial evidence of incompetence even if other information points toward competence.” (Rodas, supra, at p. 234.) “We review a trial court’s determination concerning whether a new competency hearing must be held for substantial evidence. [Citation.]” (People v. Ng (2022) 13 Cal.5th 448, 531.) 2. Competency to exercise right to self-representation The United States Constitution guarantees a criminal defendant the “right to proceed without counsel when he voluntarily and intelligently elects to do so.” (Faretta v. long as may be reasonably necessary to permit counsel to confer with the defendant and to form an opinion as to the mental competence of the defendant at that point in time.” 17 California (1975) 422 U.S. 806, 807.) That right, however, is not absolute. (Indiana v. Edwards (2008) 554 U.S. 164, 171 (Edwards).) A state may “insist upon representation by counsel for those competent enough to stand trial . . . but who still suffer from severe mental illness to the point where they are not competent to conduct trial proceedings by themselves.” (Id. at p. 178.) Our Supreme Court has held that California “trial courts may deny self-representation in those cases where Edwards permits such denial.” (People v. Johnson (2012) 53 Cal.4th 519, 528.) Still, “[s]elf-representation by defendants who wish it and validly waive counsel remains the norm and may not be denied lightly. A court may not deny self-representation merely because it believes the matter could be tried more efficiently, or even more fairly, with attorneys on both sides.” (Id. at p. 531.) “A trial court’s determination regarding the defendant’s competence to represent himself is reviewed for substantial evidence.” (People v. Orosco (2022) 82 Cal.App.5th 348, 358.) C. Analysis 1. Failure to conduct new competency hearing Defendant asserts that the trial court erred by failing to declare a doubt as to defendant’s competence, suspend proceedings, and conduct a new competency hearing once it became aware that defendant had stopped taking his medication and “started displaying signs of incompetence similar to those he exhibited during the time he was incompetent[.]” We conclude otherwise. When the prosecutor expressed concern on July 8, 2019, that defendant was “not able to conduct his own defense in a rational manner” and was no longer taking medication, the trial 18 court took the reasonable and appropriate step of questioning defendant about the medication and defendant’s understanding of the court proceedings. Nothing in defendant’s response to this questioning, or in his subsequent conduct at trial, presented the court with substantially changed circumstances or new evidence that cast a serious doubt as to the validity of its prior competence finding. When asked by the trial court, defendant confirmed that he was no longer taking his medication but stated that his doctors had taken him off of it because he no longer needed it. Defendant now contends that his representation to the court “obviously cannot be trusted, and should not have been trusted.” But it is not impossible or inherently implausible that a doctor might discontinue prescribed medication such that the court was required to disbelieve defendant. (See State Farm Fire & Casualty Co. v. Jioras (1994) 24 Cal.App.4th 1619, 1626, fn. 5 [“an appellate court . . . may not reject evidence as lacking credibility unless it is physically impossible [citations] or inherently implausible [citation]”].) And, regardless of whether defendant made the unilateral decision to stop taking medication or was following professional advice, the court found that defendant was “not showing any decompensation as a result . . . .” Having questioned and observed defendant, the trial court was in the best position to make this determination (Mai, supra, 57 Cal.4th at p. 1033 [“the trial court is in the best position to observe the defendant during trial”]), and could “‘appropriately take its personal observations into account in determining whether there ha[d] been some significant change in . . . defendant’s mental state’” (Rodas, supra, 6 Cal.5th at p. 234). 19 Defendant argues that, as the trial progressed, he “grew increasingly hostile and withdrawn and showed signs of decompensation.” It is certainly true that defendant used profanity in the courtroom, made obscene hand gestures, uttered occasional bizarre comments, and was uncooperative at times. “However, once a defendant has been found to be competent, even bizarre statements and actions are not enough to require a further inquiry. [Citation.]” (People v. Marks (2003) 31 Cal.4th 197, 220.)6 “An uncooperative defendant is not tantamount to an incompetent one.” (People v. Parker (2022) 13 Cal.5th 1, 29.) Nor is “disruptive behavior . . . substantial evidence of incompetence unless, by its particular nature, it casts doubt on the defendant’s ability to assist in his or her defense. [Citations.]” (Mai, supra, 57 Cal.4th at p. 1034.) Here, defendant demonstrated an adequate understanding of the criminal proceedings, cross- examined a witness, made opening and closing statements, and advanced a seemingly plausible defense. 6 It is well-settled that mere bizarre statements or actions do not by themselves require a trial court to hold a competency hearing. (See Mickel, supra, 2 Cal.5th at p. 202; People v. Laudermilk (1967) 67 Cal.2d 272, 285.) By way of example, the California Supreme Court recently concluded that a criminal defendant’s “odd behaviors”—including “calling [a] mental health expert . . . ‘a Christian spy’; suggesting there were poisoned ants on cookies provided by the jail; referring to [d]efense [c]o- counsel . . . as the ‘consigliere of the principality of Israel,’ the last phrase (the principality of Israel) seemingly referring to himself; referring to [the] [p]rosecutor . . . as ‘one of [his] subjects’; and calling [the trial judge] the ‘lady of the court[]’”— did not require the trial court to raise a doubt as to the defendant’s competency under section 1368. (People v. Bloom (2022) 12 Cal.5th 1008, 1032.) 20 We also find that the two cases upon which defendant relies heavily—Rodas, supra, 6 Cal.5th 219 and People v. Murdoch (2011) 194 Cal.App.4th 230 (Murdoch)—do not compel reversal, as they are distinguishable in significant ways. In Rodas, the defendant was found incompetent to stand trial and was confined to a state hospital, where he was treated with antipsychotic medication. (Rodas, supra, 6 Cal.5th at p. 223.) “After several months of treatment with antipsychotic medication, hospital physicians reported that [the] defendant had regained trial competence, but cautioned that it was important for [the] defendant to continue taking his medication. At the start of his jury trial some months later, however, the trial court learned that [the] defendant had stopped taking his medication and that he had begun communicating incoherently with counsel about defense strategy, exhibiting some of the same symptoms he had displayed during earlier episodes of incompetence. Defense counsel declared a doubt about [the] defendant’s competence, but the trial court ruled that the trial could proceed after conducting a brief colloquy with [the] defendant in which [the] defendant was able to identify the charges against him and stated a willingness to go to trial and work with counsel.” (Ibid.) The California Supreme Court reversed, holding: “As a general rule, once a defendant has been found competent to stand trial, a trial court may rely on that finding absent a substantial change of circumstances. But when a formerly incompetent defendant has been restored to competence solely or primarily through administration of medication, evidence that the defendant is no longer taking his medication and is again exhibiting signs of incompetence will generally establish such a change in circumstances and will call for additional, formal 21 investigation before trial may proceed. In the face of such evidence, a trial court’s failure to suspend proceedings violates the constitutional guarantee of due process in criminal trials. [Citation.]” (Rodas, supra, 6 Cal.5th at p. 223.) While the facts of Rodas are similar to those of the instant case in several respects, critical differences exist. In both cases, a prior competence finding was “effectively conditioned” on taking antipsychotic medication. (Rodas, supra, 6 Cal.5th at p. 235; see also id. at p. 238.) But here, defendant represented to the trial court that his medication had been discontinued by his doctors, which the court was entitled to believe. No such representation was made in Rodas. And, in Rodas, the trial court was confronted with substantial evidence that the defendant was exhibiting signs of incompetence that directly related to his ability to assist in his defense. Defense counsel informed the trial court that her client was communicating in an incoherent manner; he was using the same type of “‘word salad’” that he had used when he had previously been deemed incompetent. (Id. at p. 227.) Defense counsel had difficulty understanding what her client was saying and wanted. (Ibid.) Unlike here, the trial court in Rodas was aware of facts “rais[ing] a reasonable doubt as to whether [the] defendant was able to communicate rationally with his attorney and thus ‘to assist counsel in the conduct of a defense in a rational manner.’” (Id. at p. 233, italics added.) In Murdoch, doctors appointed to examine the defendant pursuant to section 1368 concluded that he was presently competent, but they expressed concern that he had subsequently refused to take his prescribed medication and could, as a result, become incompetent. (Murdoch, supra, 194 Cal.App.4th at pp. 232–233.) The trial court found that the defendant was not 22 incompetent. (Ibid.) About two months later, the defendant was permitted to represent himself at trial. (Id. at pp. 233–234.) Prior to opening statements, the defendant informed the trial court that his defense was that the alleged victim was not a human being. To prove this, he wanted to introduce pages from the Bible and demonstrate that the victim did not have shoulder blades, which he believed were “‘symbolic of angelic beings.’” (Id. at p. 234.) The sole question he asked of a witness was whether the victim could shrug his shoulders. (Id. at p. 235.) The Court of Appeal held that the defendant’s bizarre statements, “taken together” with the expert reports (Murdoch, supra, 194 Cal.App.4th at p. 238) detailing the “defendant’s fragile competence and its evident dependence upon continued medication” (id. at p. 237), “provide[d] the substantial evidence necessary to demonstrate a reasonable doubt as to whether he had in fact decompensated and become incompetent as the experts had warned” (id. at p. 238). In both Rodas and Murdoch, “the defendants’ behavior, in combination with the warnings of the health professionals about the likelihood that they would become incompetent if they did not take antipsychotic medication, was substantial evidence giving rise to a doubt as to their competence.” (Rodas, supra, 6 Cal.5th at p. 236.) Here, the trial court was aware that defendant was no longer taking his medication, but the court was not confronted with statements and behavior indicating that defendant could not rationally contribute to his defense. Defendant did not speak in “‘word salad’” (id. at p. 227) or advance a delusional defense such as that the victim was not human (Murdoch, supra, 194 Cal.App.4th at p. 234). Defendant contends that his refusal to delay proceedings in order to subpoena witnesses was 23 irrational in light of the sentence he was facing if convicted. While arguably unwise, we decline to find that asserting his right to a speedy trial and declining to waive time when he believed that he could mount his defense in other ways was substantial evidence of incompetence.7 Having carefully reviewed the record, we conclude that substantial evidence supports the trial court’s decision not to hold a new competency hearing. Given the lack of substantially changed circumstances or new evidence casting serious doubt on the validity of its prior competence finding, the court could continue to rely on it. 2. Self-representation at the July 8, 2019, hearing Defendant also claims that, under People v. Lightsey (2012) 54 Cal.4th 668 (Lightsey), the trial court committed reversible error by allowing defendant to represent himself at the July 8, 2019, hearing after the prosecutor informed the court that defendant was no longer taking his medication and questioned his competence to represent himself. In Lightsey, the California Supreme Court held that it was reversible error for a trial court to permit a “defendant to represent himself during the competency proceedings following the trial court’s . . . declaration of doubt under section 1368.” 7 In his reply brief, defendant likens his case to In re Sims (2021) 67 Cal.App.5th 762 (Sims), where “even to a casual observer, the manner in which [the] defendant conducted her defense was not rational. [Citation.]” (Id. at p. 778.) This included arguing that her husband, who she was accused of killing, had actually been alive when the coroner took photographs. (Id. at p. 769.) Albeit ultimately unsuccessful, we cannot say that defendant conducted his defense in a similarly irrational way. 24 (Lightsey, supra, 54 Cal.4th at p. 690.) The Supreme Court pointed to the language of section 1368, which requires the appointment of counsel under such circumstances. (Lightsey, supra, at p. 692 [“The plain language of section 1368 . . . provides that when the trial court states on the record that a doubt exists concerning the defendant’s mental competence, ‘[i]f the defendant is not represented by counsel, the court shall appoint counsel[]’” (italics omitted)].) The Supreme Court concluded that the defendant’s statutory rights had been violated, but it declined to decide whether his constitutional rights were also violated. (Id. at pp. 698–699.) Lightsey does not compel reversal here, where the trial court did not declare a doubt concerning defendant’s competency, suspend trial proceedings, and initiate formal competency proceedings.8 Section 1368’s requirement that counsel be appointed upon the trial court’s declaration of doubt simply was not triggered, and we find no error in allowing defendant to represent himself at the July 8, 2019, hearing. 8 Defendant’s reliance on People v. Tracy (1970) 12 Cal.App.3d 94 (Tracy) is equally misplaced. In Tracy, the trial court permitted the defendant to discharge his attorney and represent himself in the midst of section 1368 competency proceedings. (Tracy, supra, at pp. 99–101.) The Court of Appeal reversed, concluding: “When a doubt has arisen as to a defendant’s sanity, and that fact has been judicially declared, we think it equally contradictory, inconsistent and incongruous to permit him to discharge his attorney and represent himself at the hearing where the issue of his sanity is to be determined.” (Id. at p. 102.) Here, in contrast, doubt regarding defendant’s competence was not “judicially declared” (ibid.) at the July 8, 2019, hearing. 25 3. Self-representation at trial Finally, defendant contends that he was incompetent to represent himself at trial. Quoting People v. Burnett (1987) 188 Cal.App.3d 1314, 1327, defendant argues that he lacked “‘an appreciation of the . . . nature of possible penalties . . . [or] his own physical or mental infirmities’ and was unable to ‘use relevant information rationally in order to fashion a response to the charges; [or] coherently communicate that response to the trier of fact.’” We disagree. Defendant expressed his understanding that he was facing a life sentence when he sought to represent himself. He participated in voir dire and used a peremptory challenge to excuse a juror who worked for the California Department of Corrections and Rehabilitation as a correctional officer because “the case has to do with being in the CDC[R].” During argument and the cross-examination of Officer Juan, defendant consistently advanced his theory that the victim had lied about the way the assault had occurred. Defendant did not subpoena and call his own witnesses, but this was not due to incapacity. Rather, defendant made the decision to prioritize a speedy trial over accepting the assistance offered by the trial court. The trial record reflects that defendant “was capable of performing the basic tasks of self-representation without the assistance of counsel.” (People v. Miranda (2015) 236 Cal.App.4th 978, 989 (Miranda).) In denying defendant’s motion for a new trial, the trial court explained that it “did not see any indication of severe mental illness to the point where the defendant could not carry out the basic tasks needed to present a defense.” Instead, the court saw common mistakes made by 26 “almost all” individuals representing themselves, which caused defendant to become “frustrated or nonresponsive or make unsolicited statements.” Defendant may have been “inarticulate and ineffective[,]” but “that is no doubt the norm in many self-represented cases, not the exception.” (Miranda, supra, 236 Cal.App.4th at p. 989.) His deficiencies at trial do not appear to be the result of mental incompetence but rather choice, inexperience, frustration, or anger. The trial court did not err by permitting defendant to represent himself. II. Prior Out-of-State Convictions Defendant argues, and the People concede, that there was insufficient evidence to support the trial court’s finding that the five prior out-of-state convictions qualified as serious felonies within the meaning of the Three Strikes law or the section 667, subdivision (a) enhancement. A. Background The information alleged that defendant had previously suffered the following out-of-state convictions, which qualified as serious felonies within the meaning of the both the Three Strikes law and the section 667, subdivision (a) enhancement because they included all elements of California’s crime of robbery: (1) a December 8, 1999, conviction in Florida; (2) an August 8, 2001, conviction in Florida; (3) an April 9, 2003, conviction in Florida; (4) a September 30, 1988, conviction in Illinois; and (5) another September 30, 1988, conviction in Illinois. The information did not identify any Florida or Illinois statutes in relation to the alleged prior convictions. At trial, the People introduced several exhibits to prove the prior convictions. These included certified printouts from the 27 California Law Enforcement Telecommunications System (CLETS) reflecting defendant’s criminal history in Florida and Illinois and various court documents from those states. On July 15, 2019, the trial court stated that it had reviewed the People’s exhibits and had “determined that the defendant is the person named therein and that the out-of-state prior convictions adhere to the elements of the corresponding California crime.” The court further noted that it was incumbent on the jury “to determine if the defendant suffered these prior convictions based on the exhibits presented.” B. Relevant law “‘Various sentencing statutes in California provide for longer prison sentences if the defendant has suffered one or more prior convictions of specified types.’ [Citation.] A prominent example is a conviction of a ‘serious felony’ as defined in . . . section 1192.7, subdivision (c).” (People v. Avery (2002) 27 Cal.4th 49, 53 (Avery).) As relevant here, serious felonies include robbery (§ 1192.7, subd. (c)(19)), attempted robbery (§ 1192.7, subds. (c)(19) & (39)), “any felony in which the defendant personally uses a firearm” (§ 1192.7, subd. (c)(8)), and “any felony in which the defendant personally used a dangerous or deadly weapon” (§ 1192.7, subd. (c)(23)). “Conviction of a serious felony has substantial sentencing implications under the ‘Three Strikes’ law [citation] and also under section 667, subdivision (a)(1), which mandates a five-year sentence enhancement for each such conviction.” (Avery, supra, 27 Cal.4th at p. 53.)9 9 Under the Three Strikes law, prior convictions for “violent felony offenses” are also subject to increased punishment. (§ 667, subd. (b); see also § 667.5, subd. (c) [defining violent felony].) 28 “To qualify as a serious felony, a conviction from another jurisdiction must involve conduct that would qualify as a serious felony in California.” (Avery, supra, 27 Cal.4th at p. 53.) However, “if the foreign law can be violated in different ways, and ‘“the record does not disclose any of the facts of the offense actually committed, the court will presume that the prior conviction was for the least offense punishable under the foreign law.” [Citation.]’ [Citations.]” (People v. Denard (2015) 242 Cal.App.4th 1012, 1024 (Denard).) “[T]he [trial] court’s factfinding role regarding prior convictions [is] . . . ‘limited to identifying those facts that were established by virtue of the [prior] conviction itself—that is, facts the jury was necessarily required to find to render a guilty verdict, or that the defendant admitted as the factual basis for a guilty plea.’ [Citations.]” (In re Milton (2022) 13 Cal.5th 893, 903 (Milton); see also People v. Gallardo (2017) 4 Cal.5th 120, 136.) We review for substantial evidence a trial court’s finding that a prior out-of-state conviction is a serious felony under California law. (See People v. Delgado (2008) 43 Cal.4th 1059, 1067; Denard, supra, 242 Cal.App.4th at pp. 1023–1026.) C. Analysis We agree with the parties that the evidence was insufficient to support the trial court’s finding that the five prior There is some overlap between the definitions of serious and violent felonies. (See §§ 667, subd. (c), 1192.7, subd. (c).) For example, “robbery is both a serious and violent felony offense. (§§ 667.5, subd. (c)(9), 1192.7, subd. (c)(19).)” (People v. Montalvo (2019) 36 Cal.App.5th 597, 624.) The information, however, only alleged that the five prior out-of-state convictions were serious felonies—not violent felonies—within the meaning of the Three Strikes law. 29 out-of-state convictions—three from Florida and two from Illinois—qualified as serious felonies within the meaning of the Three Strikes law or section 667, subdivision (a). 1. The 1999 and 2003 Florida convictions The exhibits introduced at trial by the People reflect that defendant was convicted in Florida of attempted robbery (Fla. Stat., §§ 812.13(2)(c), 777.04) following a plea of nolo contendere in 1999 and of robbery (Fla. Stat., §§ 812.13(2)(c)) following a guilty plea in 2003. In Florida, robbery is defined as “the taking of money or other property which may be the subject of larceny from the person or custody of another, with intent to either permanently or temporarily deprive the person or the owner of the money or other property, when in the course of the taking there is the use of force, violence, assault, or putting in fear.” (Fla. Stat. § 812.13(1), italics added.) Thus, under Florida law, a robbery can be committed with the intent to only temporarily deprive a victim of property.10 In contrast, “[t]he California offense of robbery (§ 211) . . . is a specific intent crime that requires ‘“the intent to permanently deprive the person of the property.”’ [Citation.]” (Milton, supra, 13 Cal.5th at p. 900, italics added.) Defendant could have been convicted of robbery or attempted robbery in Florida for conduct that would not have constituted a robbery or attempted robbery in California. (See 10 “Theoretically, [a Florida] jury could find that the slapping of the cell phone from the victim’s hand or the rummaging through the victim’s purse technically constituted a taking [as required to prove robbery] under the theory that it temporarily deprived the victim of her property.” (Thermidor v. State of Florida (Fla. Dist. Ct. App. 2014) 146 So.3d 95, 97, fn. 1.) 30 Milton, supra, 13 Cal.5th at p. 900.) Nothing before the trial court demonstrated that defendant committed the Florida offenses with the intent to permanently—as opposed to temporarily—deprive the victims of property. 2. The 2001 Florida conviction The record indicates that defendant was convicted in Florida of armed robbery (Fla. Stat., § 812.13(2)(b), 775.087) following a plea of guilty in 2001. According to the charging document, defendant “carried a deadly weapon, to wit: metal bar and/or fire extinguisher” (capitalization omitted) during the commission of the robbery. As discussed above, the fact that defendant was convicted of robbery in Florida, by itself, does not provide sufficient evidence that the conviction qualifies as a serious felony. Nor does the fact that defendant was convicted of armed robbery in Florida provide sufficient evidence that he was convicted of a “felony in which the defendant personally used a dangerous or deadly weapon” (§ 1192.7, subd. (c)(23), italics added) that would qualify as a serious felony. That is because, under Florida law, “the statutory element which enhances punishment for armed robbery is not the use of the deadly weapon, but the mere fact that a deadly weapon was carried by the perpetrator. The victim may never even be aware that a robber is armed, so long as the perpetrator has the weapon in his possession during the offense.” (State v. Baker (Fla. 1984) 452 So.2d 927, 929.) 3. The 1988 Illinois convictions The CLETS printout of defendant’s Illinois criminal history indicates that, in 1988, defendant was convicted of armed robbery (720 Ill. Comp. Stat. 5/18-2(a)) and “ARMED ROBBERY/DISCH F/ARM/HARM” (720 Ill. Comp. Stat. 5/18-2(a)(4)) in that state. 31 Robbery in California “is a specific intent crime that requires ‘“the intent to permanently deprive the person of the property.”’ [Citation.] Illinois robberies are general intent crimes, and the definitions of robbery and armed robbery in Illinois do not include this specific intent element. [Citations.]” (Milton, supra, 13 Cal.5th at p. 900; see also People v. Jamison (Ill. 2001) 756 N.E.2d 788, 801 [in Illinois, “armed robbery is a general intent crime”].) Thus, “the Illinois robbery statutes do not contain all the elements of California’s robbery statute[.]” (Milton, supra, at p. 900.) The version of the Illinois robbery statute in effect when defendant was convicted provided, in relevant part: “A person commits armed robbery when he or she violates [the Illinois robbery statute] while he or she carries on or about his or her person, or is otherwise armed with a dangerous weapon.” (Ill. Stat. 1988, ch. 38, par. 18-2(a).) Thus, defendant could have been convicted of armed robbery in Illinois if he merely carried a dangerous weapon during the course of the robbery. This would not constitute a “felony in which the defendant personally used a dangerous or deadly weapon” and, thus, a serious felony in California. (§ 1192.7, subd. (c)(23).) Finally, the CLETS printout indicates that defendant suffered a conviction under subdivision (a)(4) of the Illinois armed robbery statute (720 Ill. Comp. Stat. 5/18-2(a)(4)). That subdivision provides that a person who violates the Illinois robbery statute commits armed robbery when “he or she, during the commission of the offense, personally discharges a firearm that proximately causes great bodily harm, permanent disability, permanent disfigurement, or death to another person.” (720 Ill. Comp. Stat. 5/18-2(a)(4).) A conviction under this subdivision 32 would appear to qualify as a serious felony in California as either a “felony in which the defendant personally uses a firearm” (§ 1192.7, subd. (c)(8)) or a “felony in which the defendant personally used a dangerous or deadly weapon” (§ 1192.7, subd. (c)(23)). But, as defendant correctly observes, it is impossible that he suffered a conviction in 1988 under subdivision (a)(4) of the Illinois armed robbery statute because that subdivision did not exist until 2000. (People v. Garcia (Ill. 2002) 770 N.E.2d 208, 210 (conc. opn. of Harrison, C. J.).) 4. Remedy Based on the foregoing, there is a lack of substantial evidence that any of the five prior out-of-state convictions qualifies as a serious felony for the purpose of the Three Strikes law or the section 667, subdivision (a) enhancement. The true findings on the strikes and section 667, subdivision (a) enhancements must be reversed. On remand, the people may retry the strike and section 667, subdivision (a) enhancement allegations. (People v. Strike (2020) 45 Cal.App.5th 143, 154 [“reversal of a true finding on a prior conviction allegation does not prevent retrial of that enhancement”]; People v. Cortez (1999) 73 Cal.App.4th 276, 284, fn. 7 [“There is no double jeopardy bar to a retrial on a prior conviction allegation in a noncapital sentencing proceeding”].) 33 DISPOSITION The true findings on the strikes and section 667, subdivision (a) enhancements are reversed. The sentence is vacated, and the case is remanded. On remand, the People may retry the strike and section 667, subdivision (a) enhancement allegations. If the People do not retry the allegations, or following a retrial, the trial court shall conduct a full resentencing. In all other respects, the judgment is affirmed. NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS. _____________________, J. ASHMANN-GERST We concur: ________________________, P. J. LUI ________________________, J. HOFFSTADT 34	01-04-2023	11-22-2022
https://www.courtlistener.com/api/rest/v3/opinions/8488766/	USCA11 Case: 22-10412 Date Filed: 11/22/2022 Page: 1 of 6 [DO NOT PUBLISH] In the United States Court of Appeals For the Eleventh Circuit ____________________ No. 22-10412 Non-Argument Calendar ____________________ PABLO APAZA-ORE, Petitioner, versus U.S. ATTORNEY GENERAL, Respondent. ____________________ Petition for Review of a Decision of the Board of Immigration Appeals Agency No. A088-075-416 ____________________ USCA11 Case: 22-10412 Date Filed: 11/22/2022 Page: 2 of 6 2 Opinion of the Court 22-10412 Before JORDAN, BRANCH, and LUCK, Circuit Judges. PER CURIAM: Pablo Apaza-Ore, a native and citizen of Peru, filed a petition for review of the Board of Immigration Appeals’ order affirming an immigration judge’s denial of his motion to reopen. Mr. Apaza- Ore argues that the BIA should have reopened his immigration proceedings because the IJ violated due process by reaffirming a prior adverse credibility finding before holding a scheduled hearing on his case. Mr. Apaza-Ore argues that this deprived him of an op- portunity to present additional evidence and arguments after the BIA had previously remanded the record for the IJ to issue an up- dated removal order. Because the IJ’s actions were consistent with the BIA’s remand order and Mr. Apaza-Ore had a full and fair op- portunity to be heard, we affirm. We review only the decision of the BIA, except to the extent that the BIA expressly adopts or agrees with the opinion of the IJ. See Ayala v. U.S. Att’y Gen., 605 F.3d 941, 947-48 (11th Cir. 2010). We review constitutional claims, including claims that the BIA’s actions violated due process, de novo. See Ali v. U.S. Att’y Gen., 443 F.3d 804, 808 (11th Cir. 2006). An alien may move to reopen his removal order. See INA § 240(c)(7), 8 U.S.C. § 1229a(c)(7). Such a motion must “state the new facts that will be proven at a hearing to be held if the motion is granted, and shall be supported by affidavits or other evidentiary USCA11 Case: 22-10412 Date Filed: 11/22/2022 Page: 3 of 6 22-10412 Opinion of the Court 3 material.” See INA § 240(c)(7)(B), 8 U.S.C. § 1229a(c)(7)(B). A mo- vant “bears a heavy burden, and must present evidence of such a nature that the BIA is satisfied that if proceedings before the IJ were reopened, with all attendant delays, the new evidence offered would likely change the result in the case.” Ali, 443 F.3d at 813 (quotation marks and brackets omitted). The Fifth Amendment “entitles petitioners in removal pro- ceedings to due process of the law.” Lapaix v. U.S. Att’y Gen., 605 F.3d 1138, 1143 (11th Cir. 2010). Due Process requires that “aliens be given notice and an opportunity to be heard in their removal proceedings.” Id. Further, “[d]ue process is satisfied only by a full and fair hearing.” Alhuay v. U.S. Att’y Gen., 661 F.3d 534, 548 (11th Cir. 2011) (citation omitted). To establish a violation of due process, a petitioner must show that he “was deprived of liberty without due process of law,” and that the error caused him substantial prejudice. See Lapaix, 605 F.3d at 1143. To show substantial prejudice, “an alien must demonstrate that, in the absence of the alleged violations, the out- come of the proceeding would have been different.” Id. Here, the BIA did not err in dismissing Mr. Apaza-Ore’s ap- peal of the denial of his motion to reopen. We explain why below. 1 1 The BIA initially remanded Mr. Apaza-Ore’s case in 2014, and the IJ did not issue the updated removal order until September 2017. Mr. Apaza-Ore took no action during this 3-year period and, rather than appealing the updated re- moval order, filed the instant untimely motion to reopen. Mr. Apaza-Ore USCA11 Case: 22-10412 Date Filed: 11/22/2022 Page: 4 of 6 4 Opinion of the Court 22-10412 In its initial remand order, the BIA criticized the IJ’s failure to provide an adequately reasoned analysis to support her adverse credibility determination. As such, the BIA remanded to the IJ to “re-evaluate the respondent’s credibility and issue a new decision.” The IJ did just that, issuing a written decision and order again find- ing that Mr. Apaza-Ore was not credible and therefore, concluding that he had failed to establish his eligibility for asylum, withholding of removal, or CAT relief. Mr. Apaza-Ore appears to believe that, because the BIA re- manded his proceedings, he should have had an opportunity to pre- sent additional evidence. But the BIA was not concerned with the adequacy of Mr. Apaza-Ore’s presentation of evidence. It was con- cerned with the structure and adequacy of the IJ’s explanation for the rejection of that evidence. Its remand order, declaring exactly what it wanted to see from the IJ’s removal order—what factors and authority the IJ relied upon, citations to authority, and a “clear” assessment of the “totality of circumstances”—made that clear. The BIA’s remand order did not mention a new hearing or the introduction of new evidence. Mr. Apaza-Ore already had a removal hearing where he testified and presented evidence, and an appeal to the BIA. This was a full and fair opportunity for him to blamed the untimeliness on his prior counsel. To avoid prejudicing Mr. Apaza-Ore, the IJ administratively returned the record to the BIA, which cured the untimeliness and provided him with an opportunity to appeal. On appeal to the BIA, he did not challenge this administrative action. USCA11 Case: 22-10412 Date Filed: 11/22/2022 Page: 5 of 6 22-10412 Opinion of the Court 5 be heard on his application for relief, see Lapaix, 605 F.3d at 1143, and he was not entitled to another opportunity simply because the BIA remanded his proceedings for a limited purpose. Mr. Apaza-Ore argues that the IJ on remand scheduled a master calendar hearing, where he could have presented additional argument and evidence had the IJ not issued the second removal order. But a master calendar hearing is not an evidentiary hearing. In immigration proceedings, master calendar hearings are held to resolve administrative issues such as advising a respondent of cer- tain rights, explaining immigration court procedures, and schedul- ing further adjudicative hearings. See Immigr. Ct. Prac. Manual, ch. 4.15(a), (e). Accordingly, the IJ’s issuance of the updated re- moval order before the master calendar hearing was to occur did not deprive Mr. Apaza-Ore of an opportunity to present new evi- dence or argument. Moreover, Mr. Apaza-Ore does not challenge on appeal the BIA’s determination that, even if he suffered a due process viola- tion, he could not show prejudice. See Lapaix, 605 F.3d at 1143. Consequently, he has abandoned any such argument. See Sepul- veda v. U.S. Att’y Gen., 401 F.3d 1226, 1228 n.2 (11th Cir. 2005). This alone is reason to deny his petition. In any event, Mr. Apaza-Ore failed to show that any pur- ported due process violation substantially prejudiced him. The IJ’s adverse credibility finding was based on insufficient detail and in- consistent testimony regarding Mr. Apaza-Ore’s religious missions in Peru and the resulting attacks he suffered. The additional USCA11 Case: 22-10412 Date Filed: 11/22/2022 Page: 6 of 6 6 Opinion of the Court 22-10412 evidence he provided with his motion to reopen, however, did not address the bases of the IJ’s adverse credibility finding. Nor did his updated asylum application. Though he indicated in his brief to the BIA that he intended to submit additional evidence beyond what was attached to his motion to reopen, he did not identify that evidence or explain how it “would likely [have] change[d] the re- sult in the case.” See Ali, 443 F.3d at 813. Accordingly, he did not show that, but for the alleged due process violation, the outcome of his proceedings would have been different. See Lapaix, 605 F.3d at 1143. The BIA did not err in denying Mr. Apaza-Ore’s motion to reopen. There was no due process violation and, even if there was, there is no showing of prejudice. The petition for review is denied. PETITION DENIED.	01-04-2023	11-22-2022
https://www.courtlistener.com/api/rest/v3/opinions/8494727/	MEMORANDUM MAGDELINE D. COLEMAN, Bankruptcy Judge. On August 5, 2011 (the “Petition Date”), John Robison, IBT South Florida LLC, Learned J. Hand, Jehu Hand, and Esthetics World (collectively, the “Petitioning Creditors”) filed an involuntary petition, under chapter 11 of the Bankruptcy Code, 11 U.S.C. § 101 et seq. (the “Involuntary Petition”), against VitaminSpice. Thereafter, VitaminSpice filed the Motion to Dismiss the Improperly Filed Involuntary Petition and Lift the Automatic Stay Pending 285Adjudication of this Motion (the “Motion to Dismiss”). In the Motion to Dismiss, Vi-taminSpice seeks dismissal of the Involuntary Petition on the grounds that it (1) is a bad-faith filing and abuse of the bankruptcy system initiated by the Petitioning Creditors to exact payment from Vitamin-Spice for baseless claims, (2) was filed as a litigation tactic to frustrate pending litigation between VitaminSpice and the Petitioning Creditors, (3) had and will continue to have deleterious impacts on Vitamin-Spice’s ongoing business. Following several evidentiary hearings on the Motion to Dismiss and after review of voluminous documents submitted by Vi-taminSpice in support of the Motion to Dismiss and the Petitioning Creditors in opposition to same, the Court will grant the Motion to Dismiss. Although the Court finds that at least three of the Petitioning Creditors hold undisputed claims against VitaminSpice, dismissal is warranted because the Petitioning Creditors failed to prove that VitaminSpice is generally not paying its debts as they become due. Consistent with Fed. R. Bankr.P. 7052, the following discussion constitutes this Court’s findings of fact and conclusions of law. This Court has jurisdiction over this core proceeding pursuant to 28 U.S.C. §§ 157 and 1334. STATEMENT OF FACTS 1 A. The Formation of VitaminSpice VitaminSpice is a Wyoming corporation headquartered in Chester County, Pennsylvania with a business address of 996 Old Eagle School Road, Suite 1102, Wayne, Pennsylvania 19087. VitaminSpice is a public company whose shares are traded on the Electronic Bulletin Board under the symbol VTMS and is in the business of selling cooking spices enhanced with vitamins. In 2008, Edward Bukstel (“Buk-stel”) founded the predecessor entity to VitaminSpice, VitaminSpice, LLC. After founding VitaminSpice, LLC, Bukstel attempted to raise capital from local investors. Finding private sources of capital to be insufficient to develop a commercially-marketable product, Bukstel began investigating how he could take the company public. To this end, Bukstel’s former college roommate, Kevin Woodbridge (“Woodbridge”) introduced Bukstel to Jehu Hand. Jehu Hand was and remains a securities attorney who specialized in the performance of reverse mergers. In August 2009, upon the advice of Woodbridge, Bukstel traveled to California to meet with Jehu Hand to discuss how VitaminSpice, LLC could be taken public. As a result of their conversation, the two determined that a reverse merger with a publicly-traded “shell company” would most effectively allow VitaminSpice, LLC to access public capital markets. The principal reason for the adoption of this method was that a reverse merger with a pre-existing, publicly-traded company would permit VitaminSpice, LLC to avoid the costs of going public via an initial public offering. In September 2009, VitaminSpice achieved its present corporate form as the result of a reverse merger of VitaminSpice LLC with Qualsec, LLC (“Qualsec”). Jehu Hand’s brother. Learned J. Hand, owned Qualsec. Qualsec, a limited liability company organized under the laws of the State of Wyoming, was at the time a publicly-traded shell company. The resulting 286entity was renamed “VitaminSpice” and is the VitaminSpice in this proceeding. At the close of the merger, Bukstel was appointed to serve as VitaminSpice’s chief executive officer and chief financial officer. Jehu Hand agreed to serve as Vitamin-Spice’s corporate counsel. In that capacity, Jehu Hand assisted VitaminSpice with, inter alia, identifying potential investors, the preparation of VitaminSpice’s financial statements and the distribution of press releases. Existing creditors of Qualsec were given shares in the newly-formed entity. Learned J. Hand was among those receiving such shares and received 50,000 shares as a result of the transaction. Buk-stel received 46,255,234 shares in the new entity.2 From this beginning, things quickly went south for VitaminSpice and the cast of characters involved in its business operations. During this period, it appears that substantial friction developed between Jehu Hand and Bukstel. On the one hand, Bukstel alleges that, beginning with the performance of the reverse merger, the Hands, along with other parties, engaged in a scheme to manipulate the shares of VitaminSpice and divest control of Vitam-inSpice from Bukstel. On the other, the Petitioning Creditors allege that Bukstel diverted corporate assets for his personal benefit and wasted corporate opportunities. In the beginning of 2010, Jehu Hand claims to have become concerned by Buk-stel’s conduct when Jehu Hand noticed certain accounting irregularities during the performance of his bookkeeping role. Jehu Hand concluded that it was necessary to impose accounting procedures with VitaminSpice to prevent Bukstel from using corporate funds for personal purposes. To address his concerns, Jehu Hand traveled to Philadelphia in March 2010 to meet with Bukstel with regard to the adoption of accounting procedures necessary to comply with Securities and Exchange Commission financial reporting requirements. After traveling to Philadelphia, Jehu Hand determined that it was necessary for VitaminSpice to hire an employee to establish accounting controls. Because Bukstel and VitaminSpice did not have the funds to pay for the salary of this employee, Jehu Hand agreed to pay the salary of the employee in the amount of $2,000.00 every two weeks. The parties did not provide any documentary evidence establishing the terms of this agreement including whether VitaminSpice or Bukstel agreed to reimburse Jehu Hand for such expenses. Around this time, Jehu Hand engaged himself in the business of preparing draft financial statements that were presented to VitaminSpice’s auditor in connection with VitaminSpice’s June 30, 2010 Financial Statements (“June 2010 Statements”). As part of his efforts, Jehu Hand prepared several documents that describe capital investments in VitaminSpice and are now part of the record before this Court. Among these documents is a copy of the “Notes to Unaudited Condensed Financial Statements” dated June 30, 2010. Trial Exh. D-ll. In this document, VitaminSpice states “In the first quarter of 2010 we sold 300,000 shares of common stock for cash of $75,000.” Although the statement does not identify the source or sources of the $75,000, VitaminSpice’s record reflects that the $75,000 investment came from three sources — Keith Destephano, Chip Rodden and Esthetics World. Trial Exh. D-17, Attachment A 24. Following Jehu Hands’ completion of his work relating to the preparation of Vitam-inSpice’s June 2010 Statements, the rela287tionship between Jehu Hand and Bukstel completely deteriorated. Bukstel and Jehu Hand have leveled various accusations against each other regarding the cause for this development. Bukstel claims that his decision to terminate Jehu Hand was the result of his discovery of an alleged stock manipulation scheme. On the other hand, Jehu Hand alleges that his termination was in retaliation for his efforts to inform VitaminSpice’s board of directors of Bukstel’s alleged mismanagement of VitaminSpice. Whatever the true cause of their disagreement, it is apparent that on July 6, 2010, Bukstel terminated Jehu Hand’s relationship with Vitamin-Spice. B. The Pre-Petition Litigation Prior to the Petition Date, VitaminSpice, several of the Petitioning Creditors, and certain of VitaminSpice’s shareholders were litigants in various lawsuits. These disputes centered on restrictions placed on the sale of certain of VitaminSpice shares by Bukstel. During 2010, Bukstel apparently issued stop orders to Stalt, Inc., Vi-taminSpice’s stock transfer agent, restricting the sale of shares owned by Learned J. Hand and Advanced Multilevel Concepts, Inc., Able Direct Marketing, Ken Nail, Esthetics World, International Business Development, and Irv Pyun (collectively, the “Restricted Shareholders”). Bukstel contends that the stop orders were issued to prevent a stock manipulation scheme engineered by Jehu Hand. On March 7, 2011, Learned Hand filed a complaint against VitaminSpice in North Carolina state court (“North Carolina Action”) seeking to recover from Vitamin-Spice damages allegedly arising from the stop order placed on his shares. Thereafter, Learned Hand obtained a default judgment in the North Carolina Action in the amount of $12,701.24 plus punitive damages in the amount of $250,000.00 (“North Carolina Judgment”).3 Subsequent to the filing of the Involuntary Petition, the North Carolina Judgment was set aside upon motion of VitaminSpice on the grounds that the complaint initiating the North Carolina Action was not properly served. Learned Hand has since initiated an adversary proceeding before this Court in which he seeks the same relief that he sought in the North Carolina Action. On June 8, 2011, the Restricted Shareholders filed a complaint in the United States District Court for the Eastern District of Pennsylvania.4 This action was captioned Advanced Multilevel Concepts Inc., Able Direct Marketing Inc., Ken Nail, Esthetics World, International Development Business, Inc., and Irv Pyun et al. v. Bukstel, VitaminSpice, Seelig, et al. (the “District Court Action”). The complaint named as defendants Bukstel, Vi-taminSpice, and Richard Seelig. Each of the Restricted Shareholders alleged that he or it were a shareholder of Vitamin-Spice and the substance of their claims relate to damages in the amount of $3,967,871 that they allege to have incurred as a result of their inability to convey their shares as a result of the various stop orders placed on their shares by Bukstel. VitaminSpice and Bukstel answered the Complaint and filed a motion to disqualify Jehu Hand as counsel for the Restricted 288Shareholders. In the motion to disqualify. Vitamin Spice asserted that Jehu Hand, although not listed as attorney of record for the Restricted Shareholders, had prepared the complaint initiating the District Court Action and his participation in the action directly through preparation of the complaint as well as indirectly through the entities that were alleged to be his alter ego constituted a gross violation of his ethical obligations to VitaminSpice, his former client. VitaminSpice further alleged that the factual allegations contained in the complaint were necessarily derived from confidential information learned by Jehu Hand while acting in his capacity as counsel for VitaminSpice. On August 5, 2011, the same day that the Petitioning Creditors filed the Involuntary Petition, the Restricted Shareholders filed their response to the motion to disqualify Jehu Hand. In their response, the Restricted Shareholders denied that Jehu Hand prepared their complaint. However, they admitted that Jehu Hand reviewed the complaint prior to its filing. In the alternative, the Restricted Shareholders contended that Jehu Hand’s representation of VitaminSpice did not overlap with the matters implicated by the District Court Action and therefore these was no risk that his involvement with the Restricted Shareholders would cause him to disclose confidential information learned in his capacity as VitaminSpice’s counsel. On September 13, 2011, the District Court transferred the District Court Action to the civil suspense file. The District Court took no action on the motion to disqualify prior to placing of the action in the civil suspense file. Subsequent to the filing of the Involuntary Petition, the Restricted Shareholders filed with this Court a notice of removal dated September 2, 2011, seeking removal of the District Court Action to this Court. C. The Involuntary Bankruptcy The Petitioning Creditors filed the Involuntary Petition on August 5, 2011. The Petitioning Creditors are comprised of five creditors including individuals and entities: John Robison (“Robison”), South Florida LLC (“IBT”), Learned J. Hand, Jehu Hand, and Esthetics World. Robison, an individual, claims he is owed $58,000 representing amounts due pursuant to an unpaid promissory note. IBT, a corporation, states the amount of its claim is $38,500 and is derived from amounts due pursuant to an unpaid promissory note. Learned J. Hand states the amount of his claim is $262,701.24 and is based upon an unpaid judgment. Jehu Hand states the amount of his claim is $26,151.20 and is derived from amounts due as a result of unreim-bursed expenses. Finally, Esthetics World, a corporation, states the amount of its claim to be $30,000 and the nature of its claim to be cash on deposit. In response to the Involuntary Petition, VitaminSpice filed the Motion to Dismiss that is the subject of this decision. In the Motion to Dismiss, VitaminSpice presses three arguments in favor of dismissal of the Involuntary Petition. First, Vitamin-Spice argues that the Involuntary Petition was filed in bad faith. Specifically, Vitam-inSpice argues that Jehu Hand engineered the filing of the Involuntary Petition for the purpose of gaining tactical advantage with regard to the District Court Action, the North Carolina Action, and litigation pending in the Chester County Court of Common Pleas commenced by Robison. With regard to the District Court Action, VitaminSpice argues that Jehu Hand and Esthetics World joined the Involuntary Petition for the purpose of preventing the District Court from considering Vitamin-Spice’s claims arising from Jehu Hand’s alleged breach of his professional obli289gations. With regard to the North Carolina Action, VitaminSpice argues that Learned J. Hand joined the Involuntary Petition for the purpose of preventing Vi-taminSpice from vacating an improperly obtained default judgment. The Motion to Dismiss does not allege that Robison or EBT were motivated by improper purposes. Rather, VitaminSpice argues that Robison or IBT were recruited by Jehu Hand for the purpose of achieving his and his brother’s improper purposes. Second, VitaminSpice argues that the Petitioning Creditors lack standing to file the Involuntary Petition because their claims are subject to bona fide disputes. Third Vitamin-Spice argues that the Involuntary Petition should be dismissed because its filing has harmed and will continue to harm Vitamin-Spice’s business operations. In addition to dismissal VitaminSpice has requested that it be awarded fees and costs pursuant to 11 U.S.C. § 303(i)(l) and (2). On September 18, 2011, the Petitioning Creditors filed their opposition to the Motion to Dismiss (the “Opposition”). In the Opposition, the Petitioning Creditors argue that the Petitioning Creditors have presented prima facie evidence sufficient to show that the claims held by “all 4 petitioners” are valid and not subject to bona fide dispute. With regard to Vitam-inSpice’s argument that the Petitioning Creditors filed the Involuntary Petition in bad faith, the Petitioning Creditors argue that they are entitled to a presumption of good faith and that VitaminSpice has not put forth sufficient evidence to rebut that presumption. The Opposition contains no discussion of whether VitaminSpice is generally not paying its debts as they become due or VitaminSpice’s request for fees and costs pursuant to 11 U.S.C. § 303(i)(l) and (2). Shortly after the Petition Date, the Petitioning Creditors filed a Motion for Appointment of a Trustee (“Trustee Motion”). In the Trustee Motion, the Petitioning Creditors request the appointment of an interim trustee pursuant to 11 U.S.C. § 1104(a)(1). The Petitioning Creditors assert that a trustee is required to protect VitaminSpiee’s assets and properly operate the Company because of financial improprieties committed by Bukstel relating to his use of VitaminSpice’s corporate funds as well as his alleged personal infirmities. The Court denied the Trustee Motion without prejudice. The Petitioning Creditors filed a Second Motion for Appointment of a trustee (“Second Trustee Motion”) setting forth almost identical claims as those in the Trustee Motion. That matter remains pending before this Court. DISCUSSION In determining whether the filing of an involuntary petition is valid and as a condition to the entry of any order of relief, a bankruptcy court must determine whether the petitioning creditors have standing and whether the putative debtor is not paying its debts as they become due. 11 U.S.C. §§ 303(b), 303(h)(1); B.D.W. Assocs., Inc. v. Busy Beaver Bldg. Ctrs., Inc., 865 F.2d 65, 66 (3d Cir.1989) (recognizing bankruptcy court is required to determine whether claims of petitioning creditors are subject to a bona fide dispute); Bartmann v. Maverick Tube Corp., 853 F.2d 1540 (10th Cir.1988); In re Law Center, 261 B.R. 607, 609-10 (Bankr.M.D.Pa.2001). In addition, a bankruptcy court may also consider whether the petitioning creditors filed the involuntary petition in good faith. Shinko v. Miele, 29 Fed.Appx. 890, 891 (3d Cir.2002) (recognizing that bankruptcy court was justified in dismissing involuntary petition because petition was filed in bad faith). I. Standing of the Petitioning Creditors, § 303(b)(1) As an initial matter, the Court must consider whether the Petitioning 290Creditors have standing to file the Involuntary Petition. To determine whether the Petitioning Creditors have standing, this Court must determine whether the Petitioning Creditors are the holders of bona fide claims against VitaminSpice. B.D.W. Associates, Inc., 865 F.2d at 66 (recognizing that if a creditor’s claim is subject to a bona fide dispute, that creditor lacks standing to file an involuntary petition). Landon v. Hunt, 977 F.2d 829, 832 (3d Cir.1992) (“The Bankruptcy Code clearly states that an involuntary proceeding can only be filed by creditors who hold claims that are not contingent as to liability or subject to a bona fide dispute”) (emphasis in original); In re Tama Manufacturing Co., Inc., 436 B.R. 763, 768 (Bankr.E.D.Pa.2010) (same). Pursuant to 11 U.S.C. § 303(b)(1), a petitioning creditor does not have standing if its debt is subject to a bona fide dispute. As a result of the 2005 amendments to the Bankruptcy Code, a dispute as to liability or amount is sufficient to render a creditors claim subject to a bona fide dispute. In re Euro-American Lodging Corp., 357 B.R. 700, 712 n. 8 (Bankr.S.D.N.Y.2007) (stating that as a result of the 2005 amendments “any dispute regarding the amount that arises from the same transaction and is directly related to the underlying claim should render the claim subject to a bona fide dispute.”); In re Mountain Dairies, Inc., 372 B.R. 623, 633 (Bankr.S.D.N.Y.2007) (stating “That a claim could have been filed in good faith when a substantial portion of that claim was the subject of a dispute on its face is untenable”). As such, the Petitioning Creditors have standing to file the Involuntary Petition, only if they are the holders of “a claim against [VitaminSpice] that is not contingent as to liability or the subject of a bona fide dispute as to liability or amount.” Landon, 977 F.2d at 832 (recognizing “an involuntary proceeding can only be filed by creditors who hold claims that are not contingent as to liability or subject to a bona fide dispute”). In a process similar to proof of claim litigation, the Petitioning Creditors bear the burden of providing prima facie evidence that their claims are not subject to a bona fide dispute. Once the petitioning creditors meet their prima facie burden, VitaminSpice bears the burden of establishing that a bona fide dispute does exist with regard to the petitioning creditors’ claims. Bartmann, 853 F.2d at 1543-44 (discussing burden shifting standard with regard to a creditor’s standing to file an involuntary petition); In re Dilley, 339 B.R. 1, 6 (1st Cir. BAP 2006) (discussing shifting burdens); Mountain Dairies, Inc., 372 B.R. at 633 (“the petitioning creditor must first establish a prima facie case that no bona fide dispute exists”); In re Mylotte, David & Fitzpatrick, Bky. No. 07-11861, 2007 WL 2033812, at 6 (Bankr.E.D.Pa. Jul. 12, 2007) (same). Ultimately, whether a petitioning creditor’s claim is the subject of a bona fide dispute is determined by whether “there is a genuine issue of a material fact that bears upon the debtor’s liability, or a meritorious contention as to the application of law to undisputed facts.” B.D.W. Assoc., Inc., 865 F.2d at 65; Tama Manufacturing Co., 436 B.R. at 768 (applying Busy Beaver standard); In re Graber, 319 B.R. 374, 377 (Bankr.E.D.Pa.2004) (“A claim is in bona fide dispute if there is a substantial issue of material fact that bears on the debtor’s liability, or a substantial contention as to the application of law to the facts.”). If VitaminSpice has twelve or more creditors, an involuntary petition may be initiated by the filing of an involuntary petition by three or more creditors that are holders of claims not subject to a bona fide dispute. 11 U.S.C. § 303(b)(1). Al291ternatively, if VitaminSpice has less than twelve creditors, an involuntary petition may be initiated by one creditor holding a claim not less than $14,425 and not subject to a bona fide dispute. 11 U.S.C. § 303(b)(2). Here, the parties do not contest whether VitaminSpice has more than twelve creditors.5 For this reason, this Court will assume that VitaminSpice does in fact have more than twelve creditors and will evaluate whether at least three of the Petitioning Creditors are holders of claims not subject to a bona fide dispute. The Claims This Court will now consider the claims of the Petitioning Creditors to determine whether, as of the filing of the Involuntary Petition, each held a bona fide claim. However, the Court will not perform an analysis of Learned J. Hand’s claim because it appears that the Petitioning Creditors, as set forth in their Opposition, do not rely on this claim in support of whether at least three of the Petitioning Creditors’ claims are not subject to a bona fide dispute. The Court’s analysis of the four remaining Petitioning Creditors’ claims follows.6 A. John Robison’s Claim This Court heard the testimony of Robison at the hearing on October 21, 2011 (the “October 21 Hearing”). Robison contended that he is the holder of a claim against VitaminSpice as a result of a $50,000 loan made to VitaminSpice. In support of his claim, Robison offered and the Petitioning Creditors submitted into evidence a Bridge Loan Agreement dated March 19, 2010 (the “Bridge Loan Agreement”) and a Promissory Note dated March 2010 in the amount of $50,000 (the “Robison Note”). Pursuant to the terms of the Bridge Loan Agreement, Vitamin-Spice was to issue to Robison 25,000 shares of common stock in exchange for each $25,000 loaned. The Bridge Loan Agreement further provided that the Robi-son Note was to be repaid on or before September 19, 2010. Both the Bridge Loan Agreement and the Robison Note appear to bear the signature of Bukstel who signed on behalf of VitaminSpice. Robison testified that he had provided a $50,000 check to Woodbridge, Bukstel’s former college roommate and the party who introduced Robison to VitaminSpice, with the expectation that the check would be delivered to Jehu Hand by Wood-bridge.7 Robison further testified that he 292understood Jehu Hand’s role in Vitamin-Spice’s operations was to manage Vitamin-Spice’s books and handle its financial transactions. Robison had no direct contact with Jehu Hand during the course of the transaction. In addition to the written documentation evidencing Robison’s claim, the Petitioning Creditors identified a wire transfer from Jehu Hand’s trust account received by Vi-taminSpice on March 22, 2010, in the amount of $40,000 as evidence that Vitam-inSpice did in fact receive a loan from Robison. The Petitioning Creditors explain that the $10,000 difference between the $50,000 loan and the amount of the wire transfer is attributable to a $5,000 finder’s fee paid to Woodbridge, the party who introduced Robison to VitaminSpice, and $5,000 unilaterally withheld by Jehu Hand as reimbursement of certain payments made by him on behalf of Vitamin-Spice. The Petitioning Creditors also rely on electronic mail (“email”) correspondence, including an email dated September 19, 2010, in which Bukstel acknowledges receipt by VitaminSpice of the proceeds of the Robison Note. Trial Exh. C-2. In the same email, Bukstel offers to authorize the issuance of 100,000 shares to Robison to compensate him for the original unissued 50,000 shares and for any additional damages Robison may have incurred as a result of VitaminSpice’s failure to comply with its obligations under the Bridge Loan Agreement and the Robison Note. Robison testified that to collect the amounts due pursuant to the loan he contacted Woodbridge and other parties involved in VitaminSpice’s operations. During this time, Robison was issued a share certificate evidencing his ownership of the shares that were to be delivered pursuant to the Bridge Loan Agreement. However, the certificate had a stop order on it that prevented Robison from conveying his shares. Based on his conversations with VitaminSpice’s representative, Robi-son testified that he became increasingly skeptical of VitaminSpice’s intent to honor its obligations under the Bridge Loan Agreement and the Robison Note. Ultimately, Robison filed on November 5, 2010, a lawsuit in Chester County Court of Common Pleas, Docket No. 10-13170 against VitaminSpice, Bukstel, Richard Seelig,8 and William Fields (the “Robison Litigation”). The purpose of this lawsuit was to recover the amounts due pursuant to the Bridge Loan Agreement and the Robison Note. VitaminSpice filed its answer and affirmative defenses on January 21, 2011. This lawsuit remained pending as of the Petition Date. In his testimony, Robison acknowledged that VitaminSpice has contested the amount due pursuant to the Robison Note in the state court proceeding. In response to the Petitioning Creditors evidence of VitaminSpice’s obligations to Robison, VitaminSpice argues that the Ro-bison claim is not bona fide because it is the subject of the pending Robison Litigation.9 VitaminSpice does not dispute that both the alleged loan from Robison was not repaid and the 50,000 shares of common stock were not issued when due on September 18, 2010. Rather, Vitamin-Spice argues that it was not obligated to repay the loan or issue the shares because Robison’s claim is “a trumped-up and phony debt, nowhere near bona fide and is 293hotly contested in a separate case pending in Pennsylvania state court.” In support of its position, VitaminSpice relies exclusively on the testimony of Bukstel who alleges that his signatures on both Bridge Loan Agreement and the Promissory Note were forged. In addition, VitaminSpice claims that the $40,000 received cannot be attributed to any loan made by Robison because the wire transfer transmitting these funds to VitaminSpice came from Jehu Hand’s client-trust account. Alternatively, VitaminSpice relied on the testimony of Bukstel as well as email correspondence between Bukstel and Robison dated September 19, 2010 (Trial Exhibit C-2) to argue that despite the bank records evidencing receipt of the wire transfer, Vi-taminSpice never actually received the proceeds of the Robison loan. Instead, Bukstel claims that the proceeds of the Robison loan were diverted by Jehu Hand. Based on this Court’s review of the evidence regarding the Robison claim, including copies of the agreements setting forth the terms of VitaminSpice’s obligations to Robison, evidence that Robison fulfilled the contractual prerequisites to his claim, and VitaminSpice’s records acknowledging the loan as a valid liability (Trial Exh. C-12), this Court finds that the Petitioning Creditors have established that Ro-bison holds a bona fide claim against Vi-taminSpice. VitaminSpice’s unsupported denials of liability, including Bukstel’s claim that his signatures on the loan documents were forged, are insufficient to rebut their prima facie validity. Dilley, 339 B.R. at 7 (a mere denial “is not sufficient under § 303 or under Fed.R.Civ.P. 56(e), made applicable by Fed. R. Bankr.P. 7056, to counter the [petitioning creditors’] pri-ma facie claims.”); In re Paper I Partners, L.P., 283 B.R. 661, 676 (Bankr.S.D.N.Y.2002) (“It was not the intention of Congress that a debtor be able to avoid bankruptcy by merely disputing the existence or amount of a claim.”). With regard to the significance of the pending Robison Litigation, this Court notes that the mere existence of litigation relating to a petitioning creditor’s claim is insufficient to rebut its prima facie validity. In re Red Rock Rig 101, Ltd., 397 B.R. 545 (10th Cir. BAP 2008) (“The mere existence of pending litigation is insufficient to establish the existence of a bona fide dispute.”). B. IBT South Florida LLC’s Claim IBT asserts a claim against Vitamin-Spice in the amount of $35,000 for an unpaid loan made on March 17, 2010. IBT is a Florida limited liability company managed by Ray Suprenard (“Suprenard”). The Petitioning Creditors submitted an affidavit from Suprenard in support of IBT’s claim. In his affidavit, Suprenard stated that he was introduced to Bukstel in November 2009 at which time Suprenard learned that VitaminSpice was soliciting investments to finance its operations. Suprenard claimed that Jehu Hand provided him a draft promissory note evidencing his proposed investment. After making revisions to the proposed note, Suprenard claimed that he forwarded a copy to Jehu Hand and informed him that upon receipt of a copy of the note signed by Bukstel, Suprenard would wire to Jehu Hand’s trust account his $35,000 investment. Suprenard further stated that on March 19, 2010, he received a signed copy of the IBT Note at which point he wired $31,500 to Jehu Hand’s trust account and paid $3,500 to Tom Jeter as a finders’ fee. The terms of the IBT Note state that repayment of the loan was due on June 9, 2010. In addition, the terms of the IBT Note call for VitaminSpice to' have issued 35,000 shares of common stock to IBT as further consideration for the loan. The Petitioning Creditors allege that VitaminSpice failed to either repay the IBT Note or 294issue the 35,000 shares of common stock to IBT. In further support of the IBT claim, the Petitioning Creditors submitted a Promissory Note dated March 11, 2010, in the amount of $35,000 (the “EBT Note”). The Petitioning Creditors claim that Bukstel signed the EBT Note on behalf of Vitamin-Spice on March 16, 2010. In addition to the written documentation evidencing IBT’s claim, the Petitioning Creditors identified a wire transfer from Jehu Hand’s trust account to VitaminSpice’s corporate account on or about March 18, 2010, in the amount of $28,970 as evidence that VitaminSpice did in fact receive a loan from IBT. Trial Exh. C-12. In response to the Petitioning Creditors evidence of VitaminSpice’s obligations to IBT, VitaminSpice does not dispute that the alleged loan from IBT was not repaid on June 9, 2010, when it came due or that the 35,000 shares of common stock were not issued. As with the documents evidencing Robison’s claim, Bukstel alleges that the signature appearing on the IBT Note is not his and is a forgery. In addition, VitaminSpice claims that the $30,000 received cannot be attributed to any loan made by Robison because the wire transfer transmitting these funds to Vitamin-Spice came from Jehu Hand’s client-trust account. On this basis, VitaminSpice argues that the fact that the wire transfer came from Jehu Hand’s trust account rather than directly from IBT is evidence of Jehu Hand’s scheme to cause VitaminSpice to incur bogus debts that the Petitioning Creditors now rely upon to file their Involuntary Petition. The record before this Court indicates the existence of a written agreement evidencing a loan with its attending terms between VitaminSpice and IBT. In addition, the evidence establishes that IBT fulfilled the contractual prerequisites to its claims. VitaminSpice’s internal documents, reflect that VitaminSpice recognized its obligation to IBT. VitaminSpice’s General Ledger as of March 31, 2010 (the “General Ledger”) accounted for and recognized VitaminSpice’s debts to EBT. Trial Exh. C-12. In addition, in an email dated May 19, 2010, Bukstel acknowledged receipt of $30,000.00 from Suprenard. VitaminSpice’s unsupported denials of liability, including Bukstel’s claim that his signatures on the loan documents were forged, like the opposition to Robison’s claim, are insufficient to rebut its prima facie validity. Dilley, 339 B.R. at 7 (a mere denial “is not sufficient under § 303 or under Fed.R.Civ.P. 56(e), made applicable by Fed. R. Bankr.P. 7056, to counter the [petitioning creditors’] prima facie claims.”); Paper I Partners, 283 B.R. at 676 (“It was not the intention of Congress that a debtor be able to avoid bankruptcy by merely disputing the existence or amount of a claim.”). Accordingly, this Court finds that VitaminSpice has failed to rebut the prima facie evidence that IBT is the holder of a bona fide claim against VitaminSpice. C. Jehu Hand’s Claim Jehu Hand asserts a claim against VitaminSpice in the amount of $23,119.20 for unreimbursed expenditures he made in connection with service performed on behalf of VitaminSpice and for which he claims VitaminSpice was obligated to reimburse him. The Petitioning Creditors offered the testimony of Jehu Hand and invoices relating to the alleged expenditures in support of this claim. Jehu Hand testified that VitaminSpice’s obligation to reimburse him for the expenditures is not based upon any written agreement. Jehu Hand testified that there is no written document evidencing the terms and conditions of VitaminSpice’s repayment of ex295penditures. Jehu Hand rejected any claim by VitaminSpice that a retainer agreement dated June 2, 2009 between Jehu Hand’s law firm and VitaminSpice governed the claim at issue. Jehu Hand testified that the retainer agreement is an unenforceable agreement because it was never executed by a representative of VitaminSpice. Jehu Hand testified that, as such, Vitamin-Spice’s obligation to reimburse him for the expenditures is based upon “mutual expectation that the funds would be paid.” Jehu Hand further maintained that he functioned not as VitaminSpice’s attorney, but as its bookkeeper. Jehu Hand claims to have devoted 80% of his time to working as a controller or bookkeeper for Vitamin-Spice. He attributes his other time to the review of board minutes and press releases. Bukstel alleges that Jehu Hand was retained as counsel by VitaminSpice. Whatever Jehu Hand’s role at Vitamin-Spice, the Court finds that the Petitioning Creditors failed to establish that he has a bona fide undisputed claim against Vitam-inSpice. While the Petitioning Creditors have presented evidence sufficient to establish that Jehu Hand did in fact make certain expenditures that appear to have been on behalf of VitaminSpice, the Petitioning Creditors failed to identify from what evidence, other than Jehu Hand’s unsupported testimony, this “mutual expectation” may be inferred. The Petitioning Creditors failed to submit any documents or correspondence between Jehu Hand and any representative of Vitamin-Spice containing any affirmative statement evidencing a “mutual expectation” that these expenditures would be reimbursed. The Petitioning Creditors have failed to present any evidence that establishes that VitaminSpice is under any obligation to reimburse Jehu Hand for these expenditures, or that such debts, even if owed, are presently due and owing. Consequently, this Court must find that the Petitioning Creditors have failed to meet their prima facie burden of establishing that Jehu Hand’s claim is not subject to a bona fide dispute. D. Esthetics World’s Claim Esthetics World appears to be an entity with a principal place of business located at 1005 Country Club Drive, Cheyenne, Wyoming. Jehu Hand admits that he is counsel for Esthetics World and that the company is involved in the import and export of beauty supplies. According to VitaminSpice’s share transfer records maintained by Stalt, Esthetics World holds at least four separate share certificates evidencing ownerships of a total of 3,037,-180 shares of VitaminSpice’s common stock. Jehu Hand explained that Esthetics World’s interests arose from certain debts owed by Qualsec that were converted to equity upon the completion of the reverse merger. As for the claim relied upon by Esthetics World in connection with the filing of the Involuntary Petition, the Petitioning Creditors allege that the claim held by Esthetics World derives from a subsequent direct payment in the amount of $30,000 made by Esthetics World to Vi-taminSpice in exchange for the issuance of 120,000 shares in VitaminSpice. In support of this claim, the Petitioning Creditors provided evidence of a wire transfer in the amount of $30,000 received by Vi-taminSpice on February 16, 2010. The evidence consists of two account statements, one from the account originating the transfer and the other from the account receiving the transfer, and a copy of VitaminSpice’s General Ledger. These three documents show that VitaminSpice received on February 16, 2010 a transfer in the amount of $30,000 from a bank account in the name Esthetics World. Trial Exh. D-ll, Attachments 16,17. 296In addition, the Petitioning Creditors rely on the “Notes to Unaudited Condensed Financial Statements” dated June 30, 2010, to establish that VitaminSpice acknowledge receipt of the investment and its obligation to issue the shares at issue. Trial Exh. D-ll, Attachment 18. In this document, VitaminSpice states “In the first quarter of 2010 we sold 300,000 shares of common stock for cash of $75,000.” Although the statement does not identify the source or sources of the $75,000, other documents in the record indicate that the $75,000 investment came from three sources — Keith Destephano in the amount of $30,000 for 120,000 shares. Chip Rodden in the amount of $15,000 for 60,000 shares, and Esthetics World in the amount of $30,000 for 120,000 shares. Trial Exh. D-ll, Attachment 24, General Ledger, p. 3. On the basis of this evidence, this Court finds that the Petitioning Creditors have met their initial burden with regard to the claim asserted by Esthetics World. Vi-taminSpice’s own records establish that it received from Esthetics World the $30,000 investment and that it was obligated to issue 120,000 shares in consideration of this investment. Finding that the Petitioning Creditors met their initial burden with regard to whether Esthetics World holds a bona fide claim, this Court must now determine whether the Debtor has established that a bona fide dispute does exist with regard to Esthetics World’s claim. In response to the Petitioning Creditors’ allegations, VitaminSpice admits that it received the $30,000 payment from Esthetics World. However, VitaminSpice denies that receipt of this payment caused it to incur any repayment obligation. Vitamin-Spice claims that Jehu Hand is the real party in interest because the payment came from Jehu Hand’s trust account and constitutes payment of Jehu Hand’s obligations due to VitaminSpice pursuant to the terms of the reverse merger between Qualsec and VitaminSpice, LLC. Bukstel claims to be in possession of certain documents “showing [Esthetic World’s] bogus addresses, shareholders, and offers, as well as additional documents (including forgeries by [Jehu Hand] showing [Jehu Hand’s] control over [Esthetics World] and [Esthetic World’s] VitaminSpice stock.” Trial Exh. D-14. However, this Court has not been provided with documents that establish Jehu Hand controls Esthetics World or otherwise establishes that Esthetic World is his alter ego. Bukstel’s subjective belief that Jehu Hand controls Esthetics World is insufficient to establish that a bone fide dispute exists. IBM Credit Corp. v. Compuhouse Systems, Inc., 179 B.R. 474, 479-80 (W.D.Pa.1995) (refusing to credit alter ego theory to establish claims were subject to bona fide dispute where evidence that consisted of nothing more than “subjective belief’). Because an unsupported denial is not sufficient to create a bona fide dispute, this Court finds that Bukstel’s allegations in this regard are insufficient to establish that Esthetics World’s claim is subject to a bona fide dispute. Finding that IBT, Robison and Esthetics World are each in possession of a bona fide claim, this Court finds that at least three of the Petitioning Creditors had standing to file the Petition. II. Whether VitaminSpice is Generally Not Paying its Debts as they Become Due, § 303(h)(1) VitaminSpice has not challenged or disputed that it is not paying its debt. However, as required by § 303(h)(1), a finding by this Court that VitaminSpice is generally not paying its debts as such debts become due is a prerequisite to the entry of 297any order of relief. Paradise Hotel Corp. v. Bank of Nova Scotia, 842 F.2d 47, 51 (3d Cir.1988) (recognizing that petitioning creditor must produce evidence establishing debtor was not paying its debts as such debts become due); In re Miller, 444 B.R. 446 (Bankr.N.D.Okla.2011) (before a bankruptcy court may enter an order for relief in an involuntary proceeding, it must find that “the debtor is generally not paying such debtor’s debts as such debts become due unless such debts are the subject of a bona fide dispute as to liability or amount[.]”); In re Food Gallery at Valleybrook, 222 B.R. 480, 486 (Bankr.W.D.Pa.1998) (recognizing bankruptcy court may not enter involuntary relief unless the debtor is generally not paying its debts as such debts become due); In re Brooklyn Res. Recovery, Inc., 216 B.R. 470, 481 (Bankr.E.D.N.Y.1997) (holding that a bankruptcy court may only grant involuntary relief if the petitioning creditors show that debtor is not paying its debts as they become due). Courts considering whether a debtor is generally not paying its debts consider several factors including the number of debts, the amount of delinquency, the materiality of nonpayment and the nature of the debtor’s conduct of its financial affairs. Express Car & Truck Rental, 440 B.R. at 434 (listing factors relating to “the ‘generally not paying’ standard in § 303(h)(1)”); Food Gallery at Valleybrook, 222 B.R. at 486-87 (listing factors); Brooklyn Resource Recovery, Inc., 216 B.R. at 481 (listing factors). The burden is on the petitioning creditors to establish by a preponderance of the evidence that the debtor was generally not paying its debts as they became due as of the petition date. Bartmann, 853 F.2d at 1546; In re Petro Fill, Inc., 144 B.R. 26, 30 (Bankr.W.D.Pa.1992); In re Better Care, Ltd., 97 B.R. 405 (Bankr.N.D.Ill.1989) (addressing whether petitioning creditors produced sufficient evidence to show debtor was generally not paying its debts). Here, to meet their burden with regard to whether VitaminSpice is generally not paying its debts. Petitioning Creditors were required to present evidence of VitaminSpice’s total debt and what amount of that debt is delinquent. See, e.g., In re Spivey, Bky. No. 10-50340, 2010 WL 5476754, at 1 (Bankr.S.D.Ga. Dec. 17, 2010) (recognizing that at trial petitioning creditors presented evidence as to Debtor’s total debt and the percentage unpaid); In re Smith, 415 B.R. 222, 231 (Bankr.N.D.Tex.2009) (recognizing that facts presented at hearing showed debtor “is not paying ninety-nine percent of his debts in aggregate amount”). Despite bearing the burden of establishing by a preponderance of the evidence that Vitam-inSpice is not paying its debts as such debts become due, the Petitioning Creditors have failed to provide sufficient evidence with regard to the issue. The only evidence submitted to this Court relating to whether VitaminSpice is generally not paying its debts as they become due relates to whether VitaminSpice has failed to pay the specific debts relied upon by the Petitioning Creditors. The Petitioning Creditors have provided no evidence with regard to VitaminSpice’s other creditors or the total amount of debt owed to them, let alone whether VitaminSpice’s debts owed to such creditors are delinquent. Simply stated, the record contains no evidence with regard to the total number of Vitam-inSpice’s debts, the total amount of delinquency and the materiality of any delinquency. The Petitioning Creditors have presented some evidence relating to Vitamin-Spice’s conduct of its financial affairs. Such evidence relates exclusively to the Petitioning Creditors’ claim that Bukstel is 298misappropriating corporate resources for his personal benefit. However, the record contains no evidence from which this Court may infer that to the extent Bukstel is misappropriating corporate resources his conduct is causing the nonpayment of Vi-taminSpice’s debts. From this record, this Court is without any basis to infer whether the debts this Court has found to be not subject to a bona fide dispute constitute a substantial percentage of VitaminSpice’s overall obligations. For this reason, this Court finds the present record to be insufficient to establish that VitaminSpice is generally not paying its debts as they become due. The failure of the Petitioning Creditors to present direct evidence as to Vitamin-Spice’s overall financial obligations is without excuse. It is not this Court’s role to act as a forensic accountant to piece together from a helter skelter record evidence of VitaminSpice’s overall financial condition. See, e.g., Downs v. Los Angeles Unified Sch. Dist., 228 F.3d 1003 (9th Cir.2000) (“it behooves parties to treat [judges] not as if we were pigs sniffing for truffles”); Guarino v. Brookfield Township Trs., 980 F.2d 399, 405-06 (6th Cir.1992) (“Nothing in either the rules or case law supports an argument that the trial court must conduct its own probing investigation of the record.... What concept of judicial economy is served when judges ... are required to do the work of a party’s attorney?”). Three of the five Petitioning Creditors were involved in litigation pending for some time in other courts prior to the Petition Date. By his own admission, Jehu Hand served as Vitamin-Spice’s bookkeeper. The Petitioning Creditors should have been able to provide some information with regard to this issue. Their failure to present any evidence with regard to a necessary condition to their right to involuntary relief mandates dismissal of the Petition. In re Aminian, Bky. No. 07-12957, 2008 WL 793574, at 1 (Bankr.S.D.N.Y. Mar. 25, 2008) (recognizing that dismissal is appropriate where evidence is insufficient to conclude debtor was generally not paying its debts); In re Whiteside, 238 B.R. 468, 471 (Bankr.W.D.Mo.1999) (dismissing involuntary petition because with regard to the issue of whether debtor was generally paying its debts as they became due “the paucity of relevant and substantial evidence precludes us from making any meaningful determination”); Brooklyn Resource Recovery, Inc., 216 B.R. at 474 (dismissing involuntary petition because petitioning creditors failed to establish debtor was generally not paying its debts as they became due). III. Bad Faith Filing VitaminSpice has requested that the Court dismiss the Involuntary Petition as a bad faith filing. The Court finds that it need not address the issue of bad faith at this juncture given that the Petitioning Creditors’ failure to demonstrate that Vi-taminSpice was not generally paying its debts as they became due is sufficient reason to dismiss the Involuntary Petition. The Court will schedule a separate hearing to allow the parties to augment the present record "with regard to the issue of whether VitaminSpice is entitled to fees and costs pursuant to 11 U.S.C. § 303(i). At that time, the Court will consider the issue of bad faith as it relates to Vitamin-Spice’s § 303(i) requests. SUMMARY For the reasons discussed above, Vitam-inSpice’s Motion to Dismiss is granted. This Court finds that, of the five Petitioning Creditors, three have met their prima facie burden of establishing that their claims are not subjected to a bona fide dispute. However, this Court finds that 299the Petitioning Creditors have not met their burden as to whether VitaminSpice is not paying its debts as such debts become due. For this reason, this Court is unable to order relief in this case and will dismiss the Involuntary Petition for the Petitioning Creditors’ failure to comply with 11 U.S.C. § 303(h)(1). A further hearing to consider VitaminSpice’s request for attorney’s fees pursuant to 11 U.S.C. § 303(i) will be held. An Order consistent with this Memorandum will be entered. ORDER AND NOW, upon consideration of the motion to dismiss [Docket No. 13] filed by VitaminSpice, the parties’ briefs addressT ing the issue, the evidence submitted to this Court at the hearings held by this Court on November 14, 2011, and for or the reasons set forth in the accompanying Memorandum Opinion, It is hereby ORDERED that: 1. The involuntary petition dated August 5, 2011, is hereby DISMISSED. 2. Pursuant to 11 U.S.C. § 303(i), a hearing shall be held on May 22, 2012, at 11:00 a.m., in Bankruptcy Courtroom No. 5, U.S. Bankruptcy Court, 900 Market Street, Philadelphia, PA (the “§ 303(i) Hearing”), to address whether Vitamin-Spice is entitled to an award of attorneys’ fees and/or costs. 3. Prior to the § 303(i) Hearing, Vi-taminSpice shall file an accounting of its attorneys’ fees and cost incurred in connection with the involuntary petition. 4. Prior to the § 303(i) Hearing, the parties may submit memoranda addressing whether VitaminSpice is entitled to an award of attorneys’ fees and/or costs. . The facts set forth herein are obtained from exhibits presented at trial, trial testimony, motions and briefs of VitaminSpice and the Petitioning Creditors. Many of the facts are not disputed by the parties, consequently, the Court will provide specific citation to sources only where a dispute exists or such detail might be useful. . No documents evidencing the terms of the reverse merger were submitted into evidence. . This judgment served as the basis for Learned J. Hand's claim as a petitioning creditor holding an undisputed claim. As discussed below, it appears that the Petitioning Creditors are no longer relying on this claim as undisputed. . Of the Restricted Shareholders, Esthetics World is the only party to join the Petitioning Creditors in filing the Involuntary Petition. .This Court notes that the Petitioning Creditors have the burden of coming forward with evidence as to the number of the Alleged Debtor's creditors. In re Express Car & Truck Rental, Inc., 440 B.R. 422, 434 (Bankr.E.D.Pa.2010) (determining that petitioning creditor failed to undertake any inquiry as to whether alleged debtor had more than twelve creditors); In re Stewart, Bky. No. 07-11414, 2008 WL 4526130, at *10-11 (Bankr.E.D.Va. Sept. 30, 2008) (awarding alleged debtor attorneys’ fees and costs resulting from an involuntary petition filed by a creditor who had failed to perform reasonable diligence with regard to whether the alleged debtor had fewer than twelve creditors); In re Silverman 230 B.R. 46, 53 (Bankr.D.N.J.1998) (finding that petitioning creditor failed to use reasonable diligence in investigating whether the debtor had more than twelve creditors). . In reviewing and analyzing the Petitioning Creditors' claims, the Court gave little, if any, consideration to the testimony of either Jehu Hand or Bukstel. The testimony of both parties was not credible and often conflicted with both the documentary evidence and their express statements contained in the written record. For this reason, when necessary, this Court relied almost exclusively on the documentary evidence to determine whether a bona fide dispute exists with regard to any of the Petitioning Creditors’ claims. . At the time Robison delivered the check, Robison was aware that Woodbridge had been convicted for securities fraud. . Richard Seelig appears lo be a shareholder and director of the VitaminSpice who was responsible for providing clinical trials of the VitaminSpice’s products. . For whatever reasons, the parties have not provided to this Court copies of the pleadings filed in the Robison Litigation.	01-04-2023	11-22-2022
https://www.courtlistener.com/api/rest/v3/opinions/8494728/	MEMORANDUM OPINION BRIAN F. KENNEY, Bankruptcy Judge. This matter came before the Court on the Complaint of Data Mountain Solutions, Inc. (“DMS”) and Derek McUmber to determine the dischargeability of certain debts owed to them by the Debtor, Mr. Giordano, as of the date of the filing of Mr. Giordano’s bankruptcy petition. For the reasons stated below, the Court holds that: (a) $5,000 is non-dischargeable, pursuant to 11 U.S.C. §§ 523(a)(4) and (a)(6); (b) the amounts of $166,957 payable to DMS, plus interest at 6% from July 2008, and $120,083 payable to Mr. McUmber, plus interest at 6% from July 2008, are non-dischargeable pursuant to 11 U.S.C. § 523(a)(4) and (a)(6); (c) any additional damages accruing after July 2008 have not 319been proven, and hence, are dischargeable; and (d) the Plaintiffs’ claim for their post-arbitration award of attorney’s fees are dischargeable. The case was tried over the course of five days in November, December 2011 and January 2012. This Memorandum Opinion constitutes the Court’s findings of facts and conclusions of law under Bankruptcy Rule 7052. Findings of Fact 1. Data Mountain Solutions, Inc. (“DMS”) is a West Virginia corporation, originally organized by Mr. Hill and Mr. Watson. 2. In June 2003, Mr. McUmber was employed by a company known as Web Putty. Web Putty was in danger of running out of money, and Mr. McUmber was looking for employment and other business opportunities. He was introduced to Mr. Giordano. On June 2, 2003, Mr. McUmber became a shareholder of DMS. The DMS Shareholders Agreement 3. On June 2, 2003, the four shareholders of DMS — Mr. McUmber, Mr. Giorda-no, Mr. Watson, and Mr. Hill — entered into a Shareholders Agreement. Plaintiffs’ Exh. 2. Each shareholder initially owned 22,500 shares in the company. Further, the parties agreed that Mr. Watson and Mr. Hill would hold officer positions within the company, as follows: President: Frederick S. Hill, Jr. Vice President: Anthony Watson Secretary: Anthony Watson Treasurer: Frederick S. Hill, Jr. Defendant’s Exhibit P. 4. The company’s June 2, 2003, Organizing Resolution also acknowledged that Mr. Watson had loaned $28,406 to the company. Defendant’s Exh. P. 5. The parties agreed that each shareholder would be a Director. Defendant’s Exh. M, Shareholders Agreement, ¶ 1(a). Collectively, the four individuals constituted the company’s Board of Directors. Id. Furthermore, under the company’s Bylaws, the Chairman had the ability to cast the deciding vote in order to break any tie votes of the Board. Defendant’s Exh. N, § 2.12. 6. Under the Bylaws, each Director would continue to serve until his successor was elected and qualified. Id. at § 2.3. However, the same provision does not appear in Section 2.5 relating to the position of Chairman. Accordingly, it was the view of the company’s counsel, Mr. Thompson, that, by the Board Meeting of May 25, 2006 (discussed below), there was no Chairman to break a deadlock of the Board. 7. Further, under the Shareholders Agreement, each Director would remain a Director as long as the Director was a shareholder of the company, even if the shareholder owned only one share (a fact which would come to have significance as the shareholders grew more distant and mistrustful of each other). Defendant’s Exh. M, § 1(b). The Blue Pages and Dot Gov Contracts 8. In 2003 and 2004, DMS did not have the ability to contract directly with the Government Services Administration (GSA) because it lacked what is known as a GSA Schedule. Accordingly, DMS teamed up with a company known as Native Technology, Inc. (“NTI”), which not only had a GSA Schedule, but had the further advantage of being a Section 8(a) minority-owned business enterprise, which enabled NTI to obtain contracts from GSA without competitive bidding. 9. NTI had a contract with GSA for what was known as the Blue Pages contract, which was essentially an online telephone directory for government agencies. 320There were two task orders under the Blue Pages contract, Blue Pages I and Blue Pages II. 10. On or about January 13, 2003, Mr. Giordano, acting on behalf of a company that he called “Wave Interface/DMS,” entered into a Teaming Agreement with NTI. Defendant’s Exh. A, Teaming Agreement. The Teaming Agreement has an “Exhibit A” attached to it, which purports to allocate 47lf¿% of the Blue Pages (and any other, future contracts) to “Wave/ DMS” (for our purposes, DMS) for the provision of technical services, and 47/6% to Mr. Giordano for Project Management. Id at Exhibit A to Defendant’s Exh. A, Teaming Agreement. 11. Mr. Giordano maintains that he disclosed the Teaming Agreement to the other DMS shareholders, and that they were aware of its terms. However, there is no evidence (e.g., e-mails or correspondence) to support the purported disclosure of the Teaming Agreement to the other shareholders, and shareholders Hill and McUm-ber maintain that they did not see the Teaming Agreement until the parties were engaged in arbitration proceedings and it was produced in discovery. The Court finds that Teaming Agreement was never disclosed to the other shareholders of DMS, was never presented to the DMS Board for approval, and was not known to the other shareholders of DMS until it was produced in discovery when the parties later became litigants in arbitration against each other. 12. In May 2004, the GSA awarded NTI a contract known as the Dot Gov contract. In essence, this contract was for the management and routing of all e-mail traffic under the “.gov” top level domain for the U.S. government, as well as for State and local governments that used the .gov domain. The Contract was initially for a two-year period, with 3 one-year option periods. It was set to expire at the end of 2009, but was extended through February 2011. 13. NTI did not have the ability to perform the requirements of the Dot Gov contract, so it teamed up with DMS for this purpose. Under the Teaming Agreement between NTI and DMS, NTI was to receive 5% of the revenue from the contract, and DMS was to receive 95% of the revenue. Defendant’s Exh. A. The parties further agreed that Mr. McUmber and Mr. Giordano would act as contract employees for NTI, and that Mr. McUmber and Mr. Giordano would receive 1099 income tax statements from NTI. Plaintiffs’ Exhs. 8-9 (McUmber and Giordano 1099s). Under this arrangement, Mr. McUmber and Mr. Giordano would each receive 23% of the revenue of the contract, after the payment of expenses, and DMS would receive 49%. The revenue was consistently divided among the three parties on that basis (with the exception of the first two Dot Gov Contract payments) from the inception of the Contract through June 2006. Plaintiffs’ Exhs. 4-9.1 14. For purposes of the Dot Gov contract, Mr. McUmber acted as the technical manager, with day-to-day responsibility for keeping the system up and running, answering help desk calls, and trouble shooting. Mr. Giordano acted as the project manager, interfacing in meetings with NTI and GSA, picking up the checks from NTI on a monthly basis, depositing the checks into the company’s bank account, and distributing the money to DMS, Mr. McUm-ber and himself in the agreed-upon per321centages, 49%, 23% and 23% respectively. The parties — DMS and Mr. McUmber— entrusted Mr. Giordano with the responsibility of picking up the checks and distributing the funds in the agreed-upon amounts. DMS Re-Acquires Mr. Hill’s Shares 15. On May 1, 2004, DMS reacquired 11,250 of Mr. Hill’s shares in the company. Defendant’s Exh. Q, p. 1. 16. On May 10, 2005, DMS reacquired an additional 3,756 of Mr. Hill’s shares in the company. Id. at p. 4. 17. The net effect of these two transactions was that Mr. Hill was left with 7,494 shares in DMS. 18. Throughout this period, Mr. Hill became interested in business opportunities unrelated to DMS. By July 2004, he had resigned as an officer of the corporation. However, he remained a director of DMS. Mr. Giordano’s Attempt to Gain Control of DMS, and The May 25, 2006, Board Meeting 19. Beginning in early (February or March) 2006, Mr. McUmber and Mr. Hill began to grow dissatisfied with Mr. Gior-dano’s management of DMS’s finances. Specifically, Mr. McUmber and Mr. Hill grew concerned that: (a) it appeared that critical vendors (Zone Edit and Navisite) were not being paid, and if they terminated their agreements with DMS, the system could not function; (b) Mr. McUmber noticed that certain payments, totaling $6,000, were apparently made to family members of Mr. Giordano; (c) Mr. Hill was concerned that the company was not current in its tax obligations; and (d) Mr. Hill and Mr. McUmber were both concerned that the monthly payments from NTI weren’t being deposited into the company bank account at United Bank. 20. Moreover, the shareholders had discussed, but had never concluded, an agreement for the purchase of Mr. Watson’s shares in DMS. Mr. Watson was embarking on a course of study at Harvard University, and did not have time to devote to the affairs of DMS. Mr. Watson wanted the company to repurchase his shares. He also wanted control of the intellectual property known as Securecabi-net, which was owned by DMS, and to which he had devoted his efforts while at DMS. 21. On May 22, 2006, Mr. Hill sent out a proposed Agenda for a Board meeting scheduled for May 25th. Defendant’s Exh. A-Q. The proposed Agenda prompted a number of e-mails among the shareholders as to what was to be discussed at the meeting. The reacquisition of Mr. Watson’s shares in the company was on the Agenda, as was the reacquisition of Mr. Hill’s remaining shares.2 22. Although not formally noticed as such, this Board meeting was a special meeting of the Board, pursuant to Section 2.8 of the Bylaws. Defendant’s Exh. N, § 2.8. 23. Mr. Giordano maintained at trial that this was both a Board meeting and a special meeting of the shareholders. However, Mr. Hill’s e-mail of May 22, 2006, and the attached Agenda, both reference only a Board meeting, and not a shareholders meeting. Defendant’s Exh. AQ. Further, other shareholders, notably Mr. and Mrs. Millheiser, Luman, Lange and Wheeler, LLP, and Christopher Wheeler, did not have any notice of the meeting as a shareholders meeting. Another shareholder, 322Luman, Lange, Thomas & McMullen, LLP, arguably did have notice because Mr. Thomas, the company’s corporate counsel, attended the meeting. The Court finds that this was a Board meeting only, and not a shareholder’s meeting. This conclusion is bolstered by Mr. Hill’s e-mail of April 27, 2006, to Mr. Thomas, the company’s corporate counsel, in which Mr. Hill stated that “I only want Board members present for this meeting,” and that the shareholders would later be brought up to date. Defendant’s Exh. X. 24. On May 24, 2006, Mr. Giordano deposited two checks, in the amounts of $21,614 and $43,228, into the company’s bank account at United Bank. Plaintiffs’ Exhs. 11-12. These funds represented one month’s and two months’ revenue from NTI on the Dot Gov contract, respectively.3 25. On the same day, May 24th, Mr. Giordano wrote two checks on the company’s United Bank account, in the amounts of $40,000 and $20,000. Plaintiffs’ Exh. 14. With the $40,000 check, Mr. Giordano purchased a $35,000 cashier’s check, payable to himself. With the $20,000 check, Mr. Giordano purchased a $20,000 cashier’s check, payable to Mr. Watson. Mr. Gior-dano endorsed the $35,000 cashier’s check, and delivered it to Mr. Watson, in an attempt to purchase 22,499 of Mr. Watson’s 22,500 shares in DMS. Plaintiffs’ Exh. 15; Defendant’s Exh. Y, Watson— Giordano Stock Purchase Agreement. Mr. Giordano further delivered the $20,000 cashier’s check to Mr. Watson in satisfaction of Mr. Watson’s loan to the company and unpaid expenses.4 26. Mr. Giordano maintained at trial that the $40,000 check was a bonus. However, the bonus was not authorized by the company’s Board of Directors, and was unknown to the Board at the time Mr. Giordano withdrew the funds. Moreover, the Board did not authorize the $20,000 payment to Mr. Watson in satisfaction of his loan and expenses. 27. The Board of Directors met the next day, on May 25, 2006. At the start of the meeting, Mr. Giordano announced that he had paid himself a bonus, and that he had acquired Mr. Watson’s shares in the company. This, in Mr. Giordano’s view, gave him a majority of shares in the company, owing to the company’s prior acquisition of Mr. Hill’s 15,006 shares. Further, the obvious purpose of leaving Mr. Watson with one share was to keep him on the Board as a voting Board member, so that these actions could be ratified, if necessary.5 28. Needless to say, Mr. Giordano’s unilateral payment of the $40,000 bonus 323and his attempted purchase of Mr. Watson’s shares were viewed with suspicion and anger by Mr. McUmber and Mr. Hill. Mr. McUmber and Mr. Hill maintained that: (a) the $40,000 bonus was unauthorized; and (b) Mr. Giordano’s attempted acquisition of the Watson shares violated the DMS Shareholder Agreement. 29. Mr. Giordano attempted to turn the Board meeting into a shareholder’s meeting, maintaining that he now owned 60% of the company’s shares, and that Mr. Hill and Mr. McUmber owned the remaining 40%, despite the fact that notice of the meeting had not been sent to all of the shareholders. Mr. Giordano took a vote of the shareholders present, and announced that he had a 60% majority to ratify his actions. Later, Mr. Giordano purportedly “rescinded” his purchase of Mr. Watson’s shares, and Mr. Watson promised to pay back the $35,000. However, this money was never repaid by Mr. Watson. 30. Subsequent to the May 25th Board meeting, matters only grew worse among the shareholders. Mr. Giordano, who was the individual responsible for picking up the checks from NTI, began to withhold the checks and did not deposit them into the company’s United Bank account. In December 2006, Mr. Giordano opened two bank accounts at Bank of America in the name of DMS, and began depositing the NTI money there. Plaintiffs’ Exh. 40. Mr. Giordano did not, however, pay any of the company’s ongoing monthly expenses out of this bank account. Further, and importantly, Mr. Giordano began requesting the funds from NTI, and, at Mr. Gior-dano’s request, NTI began paying the contract proceeds on the basis of 47/6% to DMS and 47]6% to Mr. Giordano — the result, according to Mr. Giordano, of his decision to “go back to” the literal terms of the Subcontract Agreement (Exhibit A to Defendant’s Exh. A, Teaming Agreement) with NTI. Throughout the trial, Mr. Gior-dano’s position was that the consistent payment of the Dot Gov Contract proceeds on a 49% (DMS), 23% (Giordano) and 23% (McUmber) basis was a matter of his own largesse, calling it at one point an “at will contribution.” This is flatly contradicted by the arbitrator’s Modified Final Award, discussed below, which found an enforceable agreement among these three parties dating back to “at least May 2004.” Plaintiffs’ Exh. 22, § 9. The U.S. District Court Litigation and the Arbitration 31. On September 24, 2006, DMS, Mr. McUmber, and Mr. Hill filed a Complaint in the U.S. District Court in the District of Columbia against Mr. Giordano and Mr. Watson (as well as against Mr. Thompson, the company’s counsel). Defendant’s Exh. E. 32. On May 11, 2007, Mr. Giordano demanded arbitration with the American Arbitration Association, pursuant to the terms of the Shareholders’ Agreement. Defendant’s Exh. G. 33. On May 18, 2007, DMS responded with its own demand for arbitration. Defendant’s Exh. F.6 34. The parties proceeded to arbitration, and on November 14, 2008, the arbitrator issued his Modified Final Award. Defendant’s Exh. B; Plaintiffs’ Exh. 22. 35. In the Modified Pinal Award, the arbitrator determined and ordered the following: • Mr. Watson was ordered to sell, and the company was ordered to purchase, 324the 22,500 Watson shares in DMS. The purchase price was deemed to have been satisfied in full with the $55,000 in funds taken by Mr. Giordano and paid over to Mr. Watson on May 24, 2006. • Mr. Hill was ordered to sell, and the company to purchase, 15,006 of Mr. Hill’s shares, for the purchase price of $51,020, which Mr. Hill had previously received from the company. - • As a result, the following parties were deemed to be shareholders of the company, in the following share amounts: Hill 7,494 Giordano 22,500 McUmber 22,500 Millheiser 1,000 Luman, et al. 140 Human, et al. 52 Wheeler 42 • There was a valid agreement between DMS, Giordano, and McUmber, dating back to at least May 2004, in which the three parties agreed to share the revenue from the Dot Gov contract in the following amounts: DMS 49% McUmber 23% Giordano 23% • DMS and McUmber had not received the full amount to which they were entitled under this agreement. The arbitrator ordered Mr. Giordano to pay the following amounts to DMS and Mr. McUmber: (a) “$166,957.19 (representing DMS’s portion of the overpayment to Mr. Giordano through July 2008), plus any additional amounts that Giordano has received that DMS should have received pursuant to the foregoing percentages plus interest on the total at the rate of six percent (6%) per annum;” and (b) “$120,083.00 (representing McUmber’s portion of the overpayment to Giordano through July 2008), plus any additional amounts that Giordano has received that McUmber should have received pursuant to the foregoing percentages plus interest on the total at the rate of six percent (6%) per annum.” • For reasons that remain unclear, DMS was ordered to pay both its own legal fees, and the legal fees of Mr. Giorda-no’s counsel. 36. The arbitrator’s award was confirmed and entered as a final Judgment of the U.S. District Court for the District of Columbia on January 15, 2010 (hereinafter, the “D.C. Judgment”). Plaintiffs’ Exh. 24. The Judgment remains unsatisfied. THE NTI Interpleader Action 37. In the meantime, NTI, apparently increasingly concerned with the DMS shareholder disputes, filed an action for interpleader in the Circuit Court of Fair-fax County, Virginia. 38. On July 20, 2007, the Circuit Court of Fairfax County entered a Consent Order of Interpleader, under which the proceeds of the Dot Gov contract would be paid into the registry of the Court. Defendant’s Exh. A-I. The Giordano Bankruptcy Filing 39. On March 30, 2010, Mr. Giordano filed a voluntary petition under Chapter 7, in this Court. 40. DMS, Mr. McUmber, and Mr. Hill filed a timely Complaint to determine the dischargeability of the debts represented by the arbitration award (and thereafter).7 32541. DMS and Mr. McUmber also filed Proofs of Claim (Claim Nos. 8 and 9, respectively), asserting that DMS is owed $377,259, and that Mr. McUmber is owed $434,965. Plaintiffs’ Exhs. 34-35. The DMS Proof of Claim also includes $153,116 in post-arbitration, pre-bankruptcy petition legal fees for the collection efforts undertaken by DMS’s attorneys on the arbitration award/U.S. District Court Judgment. Conclusions of Law This is an action to determine the dischargeability of debts under Section 523 of the Bankruptcy Code. The Court has jurisdiction pursuant to 28 U.S.C. § 1334 and the Order of Reference from the United States District Court for the Eastern District of Virginia, dated August 15, 1984. This is a core proceeding within the meaning of 28 U.S.C. § 157(b)(2)(I). The Plaintiffs bear the burden of proof on all issues under Section 523 of the Code. Grogan v. Garner, 498 U.S. 279, 291, 111 S.Ct. 654, 112 L.Ed.2d 755 (1991). The standard of proof is a preponderance of the evidence. Id.8 The Supreme Court has made it clear that collateral estoppel principles apply in Section 523 dischargeability cases. Grogan v. Garner, 498 U.S. 279, 284-85, 111 S.Ct. 654, 112 L.Ed.2d 755 (1991). As well, collateral estoppel applies in dis-chargeability cases with respect to arbitration awards. See, e.g., Stasz v. Eisenberg (In re Stasz), 352 Fed.Appx. 154 (9th Cir.2009); Bard v. Appel (In re Appel), 315 B.R. 645 (E.D.N.Y.2004); Roth v. McCartin (In re McCartin), No. 10-59014, 2011 WL 2443717 (Bankr.S.D.Ind. June 14, 2011); Tatge v. Chandler (In re Judiciary Tower Assocs.), 175 B.R. 796 (Bankr.D.D.C.1994). “The preclusive effect of a federal court judgment is determined by federal common law.” Taylor v. Sturgell, 553 U.S. 880, 891, 128 S.Ct. 2161, 171 L.Ed.2d 155 (2008). Issue preclusion, or collateral es-toppel, bars the “ ‘successive litigation of an issue of fact or law litigated and resolved in a valid court determination essential to the prior judgment,’ even if the issue recurs in the context of a different claim.” Id. at 892, 128 S.Ct. 2161 (citing New Hampshire v. Maine, 532 U.S. 742, 748, 121 S.Ct. 1808, 149 L.Ed.2d 968 (2001)). In the D.C. Circuit, where this arbitration award was confirmed, a final arbitration award has collateral estoppel and res judicata preclusive effects. Camp v. Kollen, 567 F.Supp.2d 170, 174 n. 6 (D.D.C.2008) (unconfirmed arbitration award given collateral estoppel effect (citing Century Int’l Arms, Ltd. v. Fed. State Unitary Enter. State Corp. “Rosvoorou-zheinie”, 172 F.Supp.2d 79, 95-96 (D.D.C. 2001))); see also Hammad v. Lewis, 638 326F.Supp.2d 70, 74 (D.D.C.2009) (“Decisions of an arbitration panel normally provide the type of finality sought by courts to be protected by collateral estoppel”). For collateral estoppel to apply under District of Columbia law, the following elements must be established: (1) the same issue must have been contested by the parties and submitted for judicial determination in the prior case; (2) the issue must have been actually and necessarily determined by a court of competent jurisdiction in that prior case; and (3) preclusion in the second case must not work a basic unfairness to the party bound by the first determination. Johnson v. Sullivan, 748 F.Supp.2d 1, 10 (D.D.C.2010) (citing Martin v. Dep’t of Justice, 488 F.3d 446, 454 (D.C.Cir.2007)). In this case, the parties arbitrated many (though not all) of the issues, and the U.S. District Court for the District of Columbia confirmed the arbitration award. The arbitration award is clear in certain respects, as stated above. See supra pp. 323-24, ¶ 35. The Court is required to accept, and does accept, these findings as a matter of collateral estoppel. There has been no showing, however, that the issues relating to the non-dischargeability of the obligations, that is, the fraud-based issues, were actually litigated in the arbitration. Specifically, the arbitrator made no findings as to whether the debt was the product of actual fraud, whether the Debtor willfully and maliciously damaged the Plaintiffs’ property, or whether the debt was the product of a defalcation while acting in a fiduciary capacity. It is the task of this Court to determine whether or not the amounts represented by the arbitration award are dischargeable under Section 523 of the Bankruptcy Code. Further, it is this Court’s obligation to determine, if the arbitration award is found to be non-dischargeable, the extent to which the award may be non-dischargeable—i.e., the amount of damages that may be non-dis-chargeable. I. Count I—11 U.S.C. § 528(a)(2)(A) (Money Obtained through False Pretenses, False Representation, or Actual Fraud). The Court will first address Count I, the Plaintiffs’ claim that the Debtor’s debts to them are excepted from discharge as money and services obtained by “false pretenses, a false representation, or actual fraud.” 11 U.S.C. § 523(a)(2)(A). The Fourth Circuit has stated that, “[f]or a debt to fall within this exception, money, property or services, or an extension, renewal or refinancing of credit must actually have been obtained by the false pretenses or representations or by means of actual fraud.” Nunnery v. Rountree (In re Rountree), 478 F.3d 215, 219 n. 1 (4th Cir.2007) (citing Collier on Bankruptcy, ¶ 523.08[l][b] (15th ed., rev. 2004)). To prevail on a claim of actual fraud, the plaintiff “must prove four elements: (1) a fraudulent misrepresentation; (2) that induces another to act or refrain from acting; (3) causing harm to the plaintiff; and (4) the Plaintiffs justifiable reliance on the misrepresentation.” Foley & Lardner v. Biondo (In re Biondo), 180 F.3d 126, 134 (4th Cir.1999). The burden of proof is on the objecting creditor, and the standard of proof is preponderance of the evidence. See supra p. 325; Grogan v. Garner, 498 U.S. 279, 291, 111 S.Ct. 654, 112 L.Ed.2d 755 (1991). A. The $10,000 and the $20,000 Checks. The Plaintiffs spent an enormous amount of trial time focused on the Debt- or’s procurement of the two bank checks, in the amounts of $40,000 and $20,000, and on the Debtor’s delivery of the two checks to Mr. Watson in exchange for Mr. Wat327son’s stock. The Debtor testified that he paid $35,000 to Mr. Watson for his stock, which came from the first check, and that he resolved Mr. Watson’s loan and expense claims against DMS for $20,000, which came from the second check. The Debtor acknowledged that he kept the remaining $5,000 from the first check. The Debtor testified that he did this with the understanding that, after the repurchases of the Hill stock by the company, he and Mr. Watson would own a majority of the shares in DMS. The so-called “bonus” of $40,000 taken by the Debtor was inargu-ably an unauthorized act of which none of the other directors (other than Mr. Watson) had any advance knowledge and of which they certainly would not have approved. In essence, this was a naked power grab by the Debtor in derogation of his fundamental obligations of fairness and disclosure to his co-directors and shareholders. He did it in a surreptitious way in order to avoid the money being traced. See supra p. 322, n. 4. He did it in advance of the Board meeting, not after. And he did it in such a way as to keep Mr. Watson on the Board, by ensuring that Mr. Watson retained a single share of the company. See supra p. 322, n. 5. However, at the end of the day, DMS and Mr. McUmber have no claim arising out of the $40,000 and $20,000 transactions other than the $5,000 retained by Mr. Giordano. This is because the arbitrator ruled that $55,000 was to be credited to the purchase of Mr. Watson’s shares by DMS. Defendant’s Exh. B, § 3(a) (“The Watson Share Purchase Price shall be deemed to be paid in full by (i) the US$55,-000 received by Watson from DMS funds paid directly or indirectly via Giordano on or about May 24, 2006, plus accrued interest thereon, and (ii) the transfer of 100% of the shares owned by DMS in Securecabi-net, which transfer occurred no later than fiscal year 2005”). DMS appears to have conceded the point as, in it its Proof of Claim, it identified only $5,000 as the amount of the Fairfax Judgment (plus the arbitration award amounts having to do with the Dot Gov contract funds). Plaintiffs’ Exh. 34. With respect to the $20,000 check, the Court finds that the Debtor’s testimony that this amount satisfied Mr. Watson’s loan and expenditure claims is unrebutted. The Court finds that that the remaining $5,000 is not exempt from dischargeability under Section 523(a)(2)(A). Although the Debtor took this money without the other shareholders and directors knowing it at the time, he made no misrepresentations at the time. In fact, no one knew of the Debtor’s act until the next day at the Board meeting. As well, DMS and McUmber were not induced to act, or not to act, and they did not rely in any way on any misrepresentations of the Debtor with respect to the $5,000. The Court cannot find that the Debtor made any misrepresentations, nor any reliance by the Plaintiffs. The $40,000 check and the $20,000 check (including the $5,000 retained by the Debtor) are not exempt from discharge-ability under Section 523(a)(2)(A). Rather, the $5,000 claim is better addressed under Counts II and III (11 U.S.C. § 523(a)(4)), and Count IV (11 U.S.C. § 523(a)(6)), below. B. The Dot Gov Contract Proceeds. The Plaintiffs proved at trial (and at the arbitration) that they had an agreement with the Debtor to split the Dot Gov contract proceeds on a 49% (DMS), 23% (McUmber), 23% (Giordano) basis. The Court accepts the finding of the arbitrator that there was such an agreement. The Plaintiffs maintain that they were not paid in accordance with these percentages from July 2006 (following the disastrous Board meeting of May 25th) forward. 328For purposes of Section 523(a)(2)(A), there was an agreement to pay these amounts, but in the future. There were no statements of existing fact made in support of this agreement. A debt can be held to be non-dischargeable under 11 U.S.C. § 523(a)(2)(A) only if the Debtor made the agreement to split the proceeds without the present intent to perform that agreement. Structured Invs. Co., LLC v. Dunlap (In re Dunlap), 458 B.R. 301, 333 (Bankr.E.D.Va.2011) (“[T]he intent not to perform must be present at the time the future performance is promised” (quoting Ocean Equity Group, Inc. v. Wooten (In re Wooten), 423 B.R. 108, 122 (Bankr.E.D.Va.2010))). Here, the Court cannot find that the agreement was made without a present intent to perform. In fact, the parties all agree that Mr. Giorda-no collected the funds from NTI and paid out the proceeds in accordance with the foregoing percentages (49/23/23%) from the inception of the Dot Gov contract through June 2006, with only two exceptions at the outset of the arrangement. There was no evidence that the Debtor never intended to perform his promises, from the outset of the Dot Gov contract. Consequently, the amounts awarded by the arbitrator are not exempt from dis-chargeability under 11 U.S.C. § 523(a)(2)(A). Rather, these amounts are better addressed under Counts II and III (11 U.S.C. § 523(a)(4)), and Count IV (11 U.S.C. § 523(a)(6)), below. II. Count II—11 U.S.C. § 523(a) (I) (Fraud or Defalcation While Acting in a Fiduciary Capacity). The Plaintiffs next claim that their claims are excepted from discharge because the debtor committed defalcation while acting in a fiduciary capacity. Among the debts excepted from an individual debtor’s discharge are debts incurred through “fraud or defalcation while acting in a fiduciary capacity, embezzlement, or larceny.” 11 U.S.C. § 523(a)(4). To succeed on a claim of fiduciary defalcation, “a creditor must ordinarily make a two-part showing: (1) that the debt in issue arose while the debtor was acting in a fiduciary capacity; and (2)' that the debt arose from the debtor’s fraud or defalcation.” Kubota Tractor Corp. v. Strack (In re Strack), 524 F.3d 493, 497 (4th Cir.2008) (citation omitted). A defalcation “ ‘need not rise to the level of embezzlement’”—“even an innocent mistake which results in misappropriation or failure to account is sufficient.” In re Uwimana, 274 F.3d 806, 811 (4th Cir.2001) (quoting Pahlavi v. Ansari (In re Ansari), 113 F.3d 17, 20 (4th Cir.1997)).9 A. Was the Debtor a Fiduciary? The first issue to be determined is whether the Debtor occupied a fiduciary position, vis-a-vis DMS and Mr. McUmber. The Court finds that he did. First, with respect to DMS, the Debtor was a director of DMS. Directors are unquestionably fiduciaries of the corporations they serve. Airlines Reporting Corp. v. Ellison (In re Ellison), 296 F.3d 266, 270-71 (4th Cir.2002) (looking to West Virginia law); Janssens v. Freedom Medical, Inc., Civ. No. JFM-10-2042, 2011 WL 1642575, at 5 (D.Md.2011) (the term “fiduciaries” includes directors and “and others who occupy ‘positions of ultimate trust’ ” (quoting Spinoso v. Heilman (In re Heilman), 241 B.R. 137, 169 (Bankr.D.Md.1999)); Crockett v. Ferris (In re Ferris), 447 B.R. 516, 523-24 (Bankr.E.D.Va.2011)) (noting that 329“Virginia law is clear that officers and directors of corporations occupy a fiduciary relationship to the corporation and its stockholders”).10 The Court also finds that the parties— the Debtor, DMS and Mr. McUmber— entered into a joint venture under which the Debtor would act as the manager for purposes of collecting and disbursing the funds from the Dot Gov contract. The joint venture was separate and distinct from the parties’ respective shareholder interests in DMS. The Debtor was solely responsible for billing NTI on behalf of himself, DMS and Mr. McUmber. The Debtor was, similarly, solely responsible for collecting the funds from NTI and for disbursing them to DMS and Mr. McUm-ber. This was more than a contractual arrangement. It was, both in fact and in operation, a joint venture among the three. “Under Virginia law, ‘a joint venture exists where two or more parties enter into a special combination for the purpose of a specific business undertaking, jointly seeking a profit, gain, or other benefit, without any actual partnership or corporate designation.’ ” Andrews v. Primus Telecomms. Group, Inc., 107 Fed.Appx. 301, 308 (4th Cir.2004) (quoting PGI, Inc. v. Rathe Prods., Inc., 265 Va. 334, 340, 576 S.E.2d 438, 431 (2003)). Moreover, in Virginia, “joint venturers have a fiduciary relationship among themselves which ‘begins with the opening of the negotiations for the formation of the syndicate, applies to every phase of the business which is undertaken, and continues until the enterprise has been completely wound up and terminated.’ ” Roark v. Hicks, 234 Va. 470, 475, 362 S.E.2d 711, 714 (1987) (quoting Horne v. Holley, 167 Va. 234, 239, 188 S.E. 169, 172 (1936) (emphasis in original Roark v. Hicks opinion)). In Roark v. Hicks, the Court held that the duties and obligations of joint venturers are essentially the same as those of partners in a partnership. Roark v. Hicks, 234 Va. at 475, 362 S.E.2d at 714 (citing Jackson Company v. City of Norfolk, 197 Va. 62, 67, 87 S.E.2d 781, 785 (1955)). Furthermore, the Virginia Code expressly requires partners to abide by their fiduciary duties to the partnership, requiring partners “[t]o account to the partnership and hold as trustee for it any property, profit, or benefit derived by the partner in the conduct and winding up of the partnership business or derived from a use by the partner of partnership property....” Va.Code § 50-73.102(B)(l). Other courts have held that a joint venture relationship is sufficient to establish a fiduciary relationship under Section 523(a)(4), particularly where the debtor is responsible for managing the venture’s funds. See Lewis v. Short (In re Short), 818 F.2d 693, 695-96 (9th Cir.1987); Pope v. Kryszak, No. 10-C-1180, 2011 WL 4435368, at 2 (E.D.Wis. Sept. 23, 2011); In re Hanson, No. 11-90361-MM, 2011 WL 6148429, at 7-8 (Bankr.S.D.Cal. Nov. 21, 2011); In re Wisell, No. 811-08163-reg., 2011 WL 3607614, at 11-12 (Bankr.E.D.N.Y. Aug. 16, 2011); In re Mills, 2011 WL 6148662, at 6-7 (Bankr.D.Mass. Dec. 12, 2011); In re Duffy, No. 08-2307, 2010 WL 3260077, at 10 (Bankr.D.NJ. Aug. 18, 2010).11 Here, the Court finds that there was a joint venture among the Debtor, DMS, and 330Mr. McUmber, which gave rise to fiduciary duties on behalf of the Debtor, specifically with respect to the funds collected from NTI and the duty to properly account for and disburse the same to the Debtor’s co-venturers, DMS and Mr. McUmber. B. Did the Debtor Commit a Defalcation.9 As noted above, the term defalcation “need not ‘rise to the level of embezzlement’ ”—“even an innocent mistake which results in misappropriation or failure to account is sufficient.” In re Uwimana, 274 F.3d 806, 811 (4th Cir.2001) (quoting Pahlavi v. Ansari (In re Ansari), 113 F.3d 17, 20 (4th Cir.1997)). The Court finds that, unquestionably, the Debtor committed a defalcation while acting in a fiduciary capacity. The Debtor was entrusted with the responsibility of collecting the funds from NTI and disbursing them to DMS and Mr. McUmber in the agreed percentages—23% (Giordano), 23% (McUmber), and 49% (DMS). This agreement, the arbitrator found, went back to at least 2004. In 2006, when the Debtor’s power play didn’t work out and the parties were at a corporate standstill, the Debtor simply refused to distribute the funds and held on to them. Beginning in July 2006, the Debtor sought to “go back to the Teaming Agreement,” under which: (a) he paid DMS only 47)6% (i.e., was Pk% short), and (b) he paid Mr. McUmber nothing. This was clearly a failure to account and a defalcation of the Debtor’s fiduciary duties, both to DMS and to Mr. McUmber. C. To What Extent Were the Plaintiffs Harmed by the Defalcation? The Court finds that the Plaintiffs were harmed by the defalcation of the Debtor. To what extent, though, is a more difficult question. i. The Pre-Arbitration Award Amounts. The arbitrator’s award, as confirmed by the U.S. District Court, found that there was an agreement between Mr. Giordano, Mr. McUmber, and DMS as to the split of the Dot Gov contract proceeds. The arbitrator further found that Mr. Giordano had been over-compensated to the detriment of Mr. McUmber and DMS in the specific amounts found in the award. The arbitration award, as confirmed by the U.S. District Court, is entitled to collateral estoppel effect as to the specific amounts of the award—$166,957 for DMS, plus interest at 6% from July 2008, and $120,083 for Mr. McUmber, plus interest at the rate of 6% from July 2008. Defendant’s Exh. B, § 9. These amounts, the Court finds, were the direct result of the Debtor’s failure to account for the Dot Gov contract proceeds to his co-venturers, DMS and Mr. McUmber. The amounts were established in the arbitration, and cannot be questioned here as a matter of collateral estoppel. To be clear, the Court accepts the specific amounts established by the arbitration award as a matter of collateral estoppel, but the Court makes its own, independent finding of a failure to account, and' a defalcation by the Debtor while acting in a fiduciary capacity, with respect to these specifically identified amounts, pursuant to 11 U.S.C. § 523(a)(4). ii The Post-Arbitration Award Amounts. The post-arbitration amounts are a different story. While the arbitrator used the phrase “plus any additional 331amounts that Giordano has received that [DMS and Mr. McUmber] should have received pursuant to the foregoing percentages,” the arbitrator made no specific findings with respect to these amounts. Defendant’s Exh. B, § 9. The arbitrator’s use of the phrase “additional amounts” is too vague for this Court to find that the amounts were actually determined in the arbitration. It falls to this Court, therefore, to determine whether the Plaintiffs have proven their damages to be non-dischargeable under 11 U.S.C. § 523(a)(4). To say that the Plaintiffs’ post-arbitration award damage calculations were inconsistent and difficult to follow would be an understatement. The Plaintiffs relied on Plaintiffs’ Exhibits 32 and 33, which were summaries of the amounts claimed to be owed, as well as Plaintiffs’ Exhibits 34 and 35, the DMS and McUmber proofs of claim in this case. The submitted documents were internally inconsistent, and, in many ways, incomprehensible to the Court. Exhibits 32 and 33 included amounts that were already awarded in the arbitration award (the 2006, 2007, and 5/6th’s of the 2008 damages were already in the arbitration award). Moreover, Exhibit 32 includes a reference to the “High System” contract, which the Court understood was an add-on to the Dot Gov contract. It still isn’t clear how the High Systems contract fit in to the Plaintiffs’ damages scenario. Additionally, Exhibits 32 and 33 were just one page summaries of what the Plaintiffs claimed were owed to them. No support for these amounts — in particular, bank deposits into a bank account or accounts controlled by Mr. Gior-dano — was ever introduced by the Plaintiffs into evidence.12 The Proofs of Claim, Plaintiffs’ Exhibits 34 and 35, only added to the confusion, since the numbers in the Proofs of Claim were entirely inconsistent with, and not reconcilable with, the numbers in Exhibits 32 and 33. Although not clear from the face of Exhibit 32, the Plaintiffs assert that Exhibit 32 should be read to mean the following: $166,957.19 Arbitration Award 1,422.41 l/6th of 2008 (not previously included in the Arbitration Award)13 11,804.70 2009 9,620.97 2010 amount of $238,680.85, less $229,059.88 for High System 12,100.79 2011 $201,906.06 TOTAL Plaintiffs’ Exhibit 34, the DMS Proof of Claim, on the other hand, shows a total of $184,266.42 (plus interest and legal fees) due to DMS on the Dot Gov Contract. It is possible that the difference between the Exhibit 32 number and the Exhibit 34 number may be accounted for by funds received by DMS from the Fairfax County Circuit Court interpleader action, but this was not explained to the Court, nor were the amounts accounted for or introduced into evidence, in terms of bank deposits, canceled checks, or the like. Similarly, Exhibit 33, as explained to the Court, would show the following for amounts due to Mr. McUmber: $120,083.00 Arbitration Award 21,805.00 l/6th of 2008 (not previously included in the Arbitration Award) 181,005.40 2009 147,521.51 2010 amount of $255,039.41, less $107,517.90 for High System 172,818.09 2011 $643,233.00 TOTAL 332Yet, Mr. McUmber’s Proof of Claim shows that $374,852.05 in principal is owed to him. Plaintiffs’ Exh. 35. Again, this might be accounted for by payments made to Mr. McUmber pursuant to the Fairfax County interpleader action, but it is not clear to the Court how much was paid to Mr. McUmber, or when any such amounts were paid. The Court is left with irreconcilable numbers between the two sets of Exhibits, and the Court will not speculate as to what accounts for the differences. The flaw in the Plaintiffs’ evidence on the post-arbitration award amounts is that, in order to prove the amounts of money paid by the GSA to NTI, the Plaintiffs relied exclusively on evidence that they assert was downloaded from the GSA’s website. Plaintiffs’ Exhibits 32 and 33 use these alleged payment amounts as a starting point, and assume that NTI paid the funds over to Mr. Giordano. There was no showing at the trial, in the form of bank statements, expert accounting testimony, or other competent evidence, that Mr. Giordano ever actually received these funds from NTI. Critically, the Plaintiffs did not call Mr. Abbate, NTI’s president, to testify (other than with respect to the reading of portions of Mr. Abbate’s deposition testimony into evidence, which was not helpful, and did not discuss the payment of any funds to the Debtor by NTI). Although the Plaintiffs called Mr. Giorda-no as an adverse witness in their case in chief, he did not testify that he received these funds to the Plaintiffs’ detriment. Proof of just how much the Debtor received in Dot Gov contract proceeds, and thereafter failed to pay over to the Plaintiffs, post-arbitration award, was utterly lacking. Accordingly, the Court cannot find that Mr. Giordano converted the post-arbitration award funds to his own use. The Court is unable to say with any certainty what the amounts were that the Debtor converted to his own benefit, to the detriment of the Plaintiffs, in the post-arbitration period. Accordingly, the Court finds that any amounts in excess of the amounts specifically stated in the arbitration award-$166,957 for DMS, plus interest at 6% from July 2008, and $120,083 for Mr. McUmber, plus interest at the rate of 6% from July 2008—are not exempt from dis-chargeability under 11 U.S.C. § 523(a)(4). III. Count III—11 U.S.C. § 523(a)(1) (Embezzlement or Larceny). In Count III, the Plaintiffs claim that the Debtor is guilty of embezzlement or larceny under 11 U.S.C. § 523(a)(4). Embezzlement is “ ‘the fraudulent appropriation of property by a person to whom such property has been entrusted, or into whose hands it has lawfully come.’ ” Direct Capital Group, LLC v. Hadley (In re Hadley), No. 09-07141-FJS, 2011 WL 3664609, at 12, 2011 Bankr.LEXIS 3194, at 34 (Bankr.E.D.Va. Aug. 19, 2011) (citing KMK Factoring, L.L.C., et al. v. McKnew (In re McKnew), 270 B.R. 593, 631 (Bankr.E.D.Va.2001)). Larceny is defined as the “ ‘fraudulent and wrongful taking and carrying away of the property of another with intent to convert such property to the taker’s own use without the consent of the owner.’” In re Criswell, 52 B.R. 184, 202 (Bankr.E.D.Va.1985) (quoting In re Graziano, 35 B.R. 589, 594 (Bankr.E.D.N.Y.1983)). See also Caviness v. Lane (In re Lane), 445 B.R. 555, 565 (Bankr.E.D.Va.2011). A. The $10,000 and the $20,000 Checks. As noted above, the Court finds that the Debtor was acting in a fiduciary capacity with respect to the NTI funds. See supra pp. 19-21. The Debtor simply took the $40,000- and the $20,000 when he was not entitled to the funds. His justification for taking the $40,000, that it was a 333bonus approved by him and Mr. Watson, is nothing more than a post hac rationalization for a wrongful act. The Court found, above, however, that DMS received the benefit of $55,000 in the form of the purchase of the Watson stock. Modified Final Award, Defendant’s Exh. B, § 3(a); Plaintiffs’ Exh. 22, § 3(a). Further, as noted above, the Court must accept as unrebutted the testimony of the Debtor, to the effect that the $20,000 was in satisfaction of Mr. Watson’s loans to the company and his expenses. See supra p. 331, n. 13. This was contested by the Plaintiffs, but the Plaintiffs submitted no evidence that rebutted Mr. Giordano’s testimony in this regard. Significantly, Mr. Watson never testified. Further, there was unrebutted evidence that Mr. Watson had loaned the company money from the outset. Defendant’s Exh. P, Informal Action by the Board (“[T]he Corporation acknowledges that Anthony J. Watson has loaned the Corporation the sum of $28,406”). Mr. Giordano testified that he got the company a “good deal” in settling the Watson loan and expenses for $20,000. No evidence was submitted to rebut this claim. Accordingly, the Court finds that the $20,000 is not exempt from dischargeability under 11 U.S.C. § 523(a)(4). The Court finds that the remaining $5,000, however, is non-dischargeable under all three prongs of Section 523(a)(4)—defalcation while acting in a fiduciary capacity, embezzlement and larceny. First, as noted above, the Debtor was a fiduciary with respect to the funds. He took the funds without his co-venturers knowing it, and then attempted to justify it by claiming that it was approved. Further, the funds were entrusted to him by the Plaintiffs. The Debtor occupied a position of confidence and trust with respect to funds. He simply took money that was not his. Accordingly, he is guilty of embezzlement and larceny with respect to the $5,000 that he retained. B. The Dot Gov Contract Proceeds. Having found that the pre-arbitration award Dot Gov contract proceeds, in the amounts of $166,957 for DMS, plus interest at 6% from July 2008, and $120,083 for Mr. McUmber, plus interest at 6% from July 2008, are non-disehargea-ble as a defalcation while acting in a fiduciary capacity, the Court similarly finds that these amounts were the product of embezzlement or larceny. Mr. Giordano was entrusted with complete control of these funds by DMS and Mr. McUmber. Moreover, he asserted possession and control over the funds to the detriment of the Plaintiffs. These amounts are non-dis-chargeable, as the product of embezzlement or larceny, under 11 U.S.C. § 523(a)(4). IV. Count IV—11 U.S.C. § 523(a)(6)(Willful and Malicious Injury to Property). The Plaintiffs’ final claim is that that their claims are excepted from the Debtor’s discharge as a “willful and malicious injury by the debtor to another entity or to the property of another entity.” 11 U.S.C. § 523(a)(6). The Supreme Court explained that “willful,” as the term is used in § 523(a)(6), requires “a deliberate or intentional injury, not merely a deliberate or intentional act that leads to injury.” Kawaauhau v. Geiger, 523 U.S. 57, 61, 118 S.Ct. 974, 977, 140 L.Ed.2d 90 (1998) (emphasis in original). The requirement that the conduct be “malicious,” however, does not require that a debtor bear subjective ill will toward, or specifically intend to injure, his or her creditor; it is sufficient that a debtor’s injurious act is done “ ‘deliberately and intentionally in knowing disregard of the rights of anoth334er.’ ” First Nat’l Bank of Md. v. Stanley (In re Stanley), 66 F.3d 664, 667 (4th Cir.1995) (quoting St. Paul Fire & Marine Ins. Co. v. Vaughn, 779 F.2d 1003, 1010 (4th Cir.1985)). The proper focus is not on the Debtor’s “good intentions,” but whether he exercised dominion and control over funds that he knew belonged to another. First Nat’l Bank v. Stanley (In re Stanley), 66 F.3d at 668. The burden of proof is on the objecting creditor, and the standard of proof is preponderance of the evidence. See supra p. 325; Grogan v. Garner, 498 U.S. 279, 291, 111 S.Ct. 654, 112 L.Ed.2d 755 (1991). A. The $10,000 and the $20,000 Checks. As noted above, the Debtor issued the $40,000 check as an unauthorized bonus. While DMS obtained the benefit of $55,000 of the funds (see Modified Final Award, Defendant’s Exh. B, § 3(a); Plaintiffs’ Exh. 22, § 3(a)), the Debtor retained $5,000 of the funds for his personal benefit. Under the circumstances, the Court has no hesitancy in concluding that this was a conversion of the funds. Further, the Court finds that the conversion was willful and malicious. It was done on the eve of the Board meeting with no notice to the other directors. Moreover, Mr. Giordano attempted to execute these transactions in a way that would make the funds “untraceable.” And, it was done in a way to leave Mr. Watson on the Board in order to further the Debtor’s aims with respect to DMS. The $5,000 is therefore non-dis-chargeable under Section 523(a)(6).14 B. The Dot Gov Contract Proceeds. The Court finds that the pre-arbi-tration award amounts — $166,957 for DMS, plus interest at 6% from July 2008, and $120,083 for Mr. McUmber, plus interest at 6% from July 2008 — are non-dis-chargeable under Section 523(a)(6). There is no question that the Debtor intentionally refused to pay these amounts over to DMS and Mr. McUmber in knowing disregard of their rights to the funds. The Debtor’s defense was that “he could not have known of the arbitration award” back in the July 2006 to November 2008 time frame. This much is true, of course, but it is not the arbitrator’s award that made the refusal to pay non-dischargeable; it is the Debtor’s willful and knowing refusal to pay the funds over to DMS and Mr. McUmber. The Debtor asserts that he was “going back to the Teaming Agreement.” The Court simply does not accept this explanation. The Debtor operated under the 49/23/23% agreement for the entire period of the Dot Gov contract, up until July 2006. He acted not just in derogation of the contractual agreement beginning in July 2006 when he refused to pay DMS anything more than 47 %% and refused to pay Mr. McUmber anything at all, but he also acted willfully and maliciously, knowing that they were entitled to these funds. The pre-arbitration award amounts— $166,957 for DMS, plus interest at 6% from July 2008, and $120,083 for Mr. McUmber, plus interest at 6% from July 2008 — are therefore non-dischargeable under Section 523(a)(6). With respect to the post-arbitration award amounts, i.e., the Dot Gov contract proceeds after July 2006, again, the Court cannot tell with any certainty (or even with any educated guesswork) the amount the Debtor is alleged to have received and not paid over to the Plaintiffs. Accordingly, the Court will find that any amounts alleged to have been received by the Debtor 335post-July 2006 are not exempt from dis-chargeability under Section 523(a)(6). V. The Debtor’s Defense of Res Judica-ta. The Debtor argues that the claims that are now the subject of the Plaintiffs’ Complaint were all resolved in his favor in the arbitration proceeding, and therefore, are res judicata at this point. Specifically, the Debtor asserts that the Complaint that the Plaintiffs filed in the U.S. District Court, Defendant’s Exhibit E, which ultimately went to arbitration, encompassed the current fraud-based claims, and that the arbitrator ruled that “any other claims not specifically addressed herein are denied.” Defendant’s Exh. B, § 17. However, this completely ignores the fact that the arbitrator found against the Debtor on the key issues of whether there was an agreement, whether the Debtor breached that agreement, and whether the Plaintiffs suffered damages as a result. See id. at § 9. It is entirely possible that the arbitrator, having found an agreement, breach, and resulting damage, simply did not see the need to address the fraud issues raised in the Complaint. Further, although a number of the Counts in the Complaint are similar to what is at issue here (see, e.g., Complaint, Defendant’s Exh. E, Count V (Breach of Fiduciary Duties), and Count X (Conversion)), there is no basis for a finding of res judicata under the Supreme Court’s ruling in Brown v. Felsen, 442 U.S. 127, 99 S.Ct. 2205, 60 L.Ed.2d 767 (1979). In Brown v. Felsen, the Supreme Court rejected the Debtor’s claim of res judicata where the creditor’s claim had been litigated to a judgment in State court on a contract claim. Id. at 138-139, 99 S.Ct. 2205 (“[W]e reject respondent’s contention that res ju-dicata applies here and we hold that the bankruptcy court is not confined to a review of the judgment and record in the prior state-court proceedings when considering the dischargeability of respondent’s debt”). The Court specifically rejected the argument that the creditor’s claim under Section 17 of the Bankruptcy Act (the predecessor to the current day Code Section 523) could have been litigated in State court. Id. at 137, 99 S.Ct. 2205. The Supreme Court noted that Bankruptcy Courts are uniquely situated to make determinations of non-dischargeability and that, in the ordinary case, issues of fraud or conversion need not be submitted to State courts in order to reach a judgment. Id. at 138, 99 S.Ct. 2205. Accordingly, the Debtor’s defense of res judicata is rejected. VI. The Defense of Setr-Off for the Legal Fees Paid By Mr. Giordano to his Counsel. Throughout the trial, the Debt- or maintained that he paid his counsel, Mr. Bledsoe, roughly $53,000 in connection with the arbitration, and that he was entitled to recover those funds pursuant to Section 16 of the arbitrator’s Modified Final Award. However, the Debtor did not list the $53,000 in his Schedule B in this case, nor did he claim an exemption for these funds on his Schedule C.15 An asset that is not listed remains an asset of the bankruptcy estate until administered or abandoned by the Trustee. 11 U.S.C. § 554(d). The $53,000 receivable, if there is one, is owned by the Chapter 7 Trustee, 336not by Mr. Giordano. Mr. Giordano cannot use the Trustee’s property to set off his own non-dischargeable liability. In re White, No. 09-50511, 2011 WL 5509406, at 7 (Bankr.S.D.Ill. Nov. 9, 2011) (Debtor cannot use claims belonging to the Trustee to set off a non-dischargeable judgment); Parkdale v. Sims (In re: Sims), 2009 WL 4255555 (Bankr.D.Kan.2009) (Debtor lacked standing to assert claim for setoff); Bemas Constr., Inc. v. Dorland (In re Dorland), 374 B.R. 765, 774 (Bankr.D.Colo.2007) (same). Accordingly, the Court will not allow a setoff of Mr. Giorda-no’s non-dischargeable liability in the amount requested ($53,000). VII. The Legal Fees Claimed by DMS. Finally, the DMS Proof of Claim includes $153,116 in post-arbitration award, pre-bankruptcy petition legal fees incurred by DMS in seeking enforcement of the D.C. Judgment. Plaintiffs’ Exh. 34, p. 2. As noted, the arbitrator did not award DMS any legal fees as against Mr. Giorda-no. To the contrary, the arbitrator ordered DMS to pay all of Mr. Giordano’s legal fees in the arbitration. The basis for the claimed legal fees is the Shareholder’s Agreement, Plaintiffs’ Exh. 2, §§ 6(a)(v) and 13(c). However, Section 6(a) has to do with the execution of a Note that the corporation may issue in connection with the redemption of a shareholder’s shares Id. at § 6(a) (“Payment of the purchase price for the Seller’s Shares, as determined under paragraph 5, shall be made as follows ... ”). Section 13 obligates the shareholders to use their best efforts to promote the company’s business, not to compete with the company (with a company “which is engaged in a business similar to that of the Corporation”), and the like. The problem for DMS is that none of the post-Judgment collection efforts had anything to do with paragraphs 6 or 13 of the Shareholder’s Agreement. It is abundantly clear that the arbitration award was based on the GSA-NTI Fee Sharing Agreement, not the Shareholder’s Agreement. Defendant’s Exh. B, § 9; Plaintiffs’ Exh. 22, § 9. The arbitration award was based on the fact that the parties had agreed on a split of the Dot Gov contract proceeds — 49% to DMS, 23% to Mr. Gior-dano, 23% to Mr. McUmber — and that the Debtor wrongfully withheld the proceeds from the Plaintiffs. The Shareholder’s Agreement, while it may have been the basis for arbitration in the first place, was not the basis for the arbitrator’s award. Accordingly, the Court finds that the $153,116 in legal fees asserted in the DMS Proof of Claim to be dischargeable. Conclusion For the foregoing reasons, the Court rules as follows: A. Count I will be dismissed. B. On Counts II and III, the Court determines that the D.C. Judgment is non-dischargeable pursuant to 11 U.S.C. § 523(a)(4) as to: (a) the $5,000; and (b) the pre-arbitration award amounts, $166,957 for DMS, plus interest at 6% from July 2008, and $120,083 for Mr. McUmber, plus interest at the rate of 6% from July 2008. The balance of the post-arbitration award amounts and the Plaintiffs’ claim for attorney’s fees are dischargeable. C. On Count IV, the Court determines that the D.C. Judgment is non-dis-chargeable pursuant to 11 U.S.C. § 523(a)(6) as to (a) the $5,000; and (b) the pre-arbitration award amounts, $166,957 for DMS, plus interest at 6% from July 2008, and $120,083 for Mr. McUmber, plus interest at the rate of 6% from July 2008. The balance of the post-arbitration award amounts and the 337Plaintiffs’ claim for attorney’s fees are dischargeable. An appropriate Order shall issue, consistent with the terms of this Memorandum Opinion. . Mr. Giordano and Mr. McUmber needed to be "1099” employees of NTI in order to satisfy federal contracting regulations. These amounts, together with NTI’s 5%, would keep 51% of the revenue in NTI (at least for the sake of appearances). . The compány had previously tried to reacquire Mr. Watson’s shares (Defendant’s Exh. R), but the issue of the Securecabinet intellectual property was never resolved to anyone's satisfaction, and the acquisition transaction was never consummated. . The deposit of three months' worth of checks on the same day confirmed Mr. Hill's suspicions that Mr. Giordano was not depositing revenue from the Dot Gov Contract into the company bank account at United Bank on a timely basis. . According to the testimony of Mr. McUm-ber, which the Court credits on this issue, Mr. Giordano advised the other shareholders that the funds were "untraceable.” This, the Court finds, was Mr. Giordano’s reason for exchanging the two company checks for cashier’s checks — in Mr. Giordano’s view, this would make the funds untraceable to the other shareholders (it did not, of course, it just made it more difficult for Mr. McUmber and Mr. Hill to trace the funds). .Mr. Giordano testified that Mr. Watson wanted to keep one share in the company for "sentimental” reasons, and that it was just "fortuitous” that the retention of one share allowed Mr. Watson to continue to vote as a Director. The Court finds that this statement lacked any semblance of credibility. The Court finds that the purpose of leaving one share with Mr. Watson was for the purpose of keeping him on the Board as a voting member. . The demand for arbitration appears to have been signed on February 26, 2007, but it is file-stamped May 18, 2007. . The introduction to the Complaint references Section 727 of the Bankruptcy Code, the general objection to discharge statute. However, none of the Counts are stated under Section 727. All of the Counts are stated under Section 523, the dischargeability provisions of the Code. Mr. Hill was dismissed as a Plaintiff by Order of the Court on September 10, 2010. Docket No. 10. . The Defendant maintained at trial that the standard is “clear and convincing evidence” under Count II, the 523(a)(4) Count (fraud or defalcation while acting in a fiduciary capacity). The Court can discern no reason why a dischargeability action under Section 523(a)(2)(A) should have a lesser standard of proof than one under Section 523(a)(4), and the Court will apply the preponderance standard to all Counts. See FNFS, Ltd. v. Harwood (In re Harwood), 637 F.3d 615 (5th Cir.2011) (applying the preponderance standard to a Section 523(a)(4) claim); Patel v. Shamrock Floorcovering Servs. (In re Patel), 565 F.3d 963 (6th Cir.2009) (same). The Supreme Court in Grogan v. Garner noted that there are no burden of proof distinctions among the various subsections of Section 523. See Grogan v. Garner, 498 U.S. at 287, 111 S.Ct. 654 ("Our conviction that Congress intended the preponderance standard to apply to the discharge exceptions is reinforced by the structure of § 523(a), which groups together in the same subsection a variety of exceptions without any indication that any particular exception is subject to a special standard of proof”). Accordingly, the Court will apply the preponderance standard to all Counts. . The $20,000 and the $40,000 checks (and the resulting $5,000 liability) are addressed as a part of Count III, below. . The Court in Ferris ultimately found that it was unnecessary to decide the issue, because it held the debt to be non-dischargeable on other grounds. . The Court looks to Virginia law because this was the locus of the parties’ transactions. Mr. McUmber picked up the funds from NTI in Virginia, deposited them (or not) to a bank in Virginia, and disbursed them (or not) in Virginia. The same result would obtain under the law of the State of West Virginia, DMS's state of incorporation. "A partner is a trustee for the other partners and for the partnership, he is the cestui que trust of the *330other partners. The relationship between partners being fiduciary, the highest degree of good faith between the partners is required.” Mullens v. Wolfe, 120 W.Va. 672, 674, 200 S.E. 37, 38 (1938). . Exhibits 32 and 33 were not introduced into evidence at the trial. However, because both parties relied on these Exhibits in their closing arguments, the Court will admit them into evidence so that the record is complete. . The 1/6 is derived from the fact that the arbitration award was in November, so two months of 2008 are not accounted for in the award. . Again, the Court finds that the company received the benefit of the $35,000 (repurchase of Mr. Watson’s stock), and the $20,000 (satisfaction of the Watson loan and expense claim). . Plaintiff’s counsel requested, at the beginning of the trial, that this Court take judicial notice of the Debtor's Schedules in bankruptcy, and the Debtor did not object. Accordingly, the Court takes judicial notice of the Schedules in the bankruptcy case. Fed. R.Evid. 201; In re Bernick, 440 B.R. 449, 450 (Bankr.E.D.Va.2010) (indicating that “the court may take judicial notice of the debtor’s schedules”).	01-04-2023	11-22-2022
https://www.courtlistener.com/api/rest/v3/opinions/8494729/	MEMORANDUM OPINION PATRICK M. FLATLEY, Bankruptcy Judge. First United Bank & Trust (“First United”) seeks entry of an involuntary order for relief against The Square at Falling Run, LLC (“The Square”), under Chapter 7 of the Bankruptcy Code.1 The Square contends that, among other things, First United filed the involuntary petition in bad faith and that this is only a two-party dispute such that an involuntary order for relief should not be entered. Based upon the evidence and arguments presented by the parties, the court finds that First United has established grounds for relief under 11 U.S.C. § 303; accordingly, an order for relief will be entered.2 340I. BACKGROUND On December 19, 2008, several entities controlled by common principals borrowed $2.48 million from First United on a non-revolving line of credit. The Square, which also shares principals common to the Borrowing Entities,3 guaranteed the Borrowing Entities’ indebtedness to First United. By signing the December 19, 2008 Commercial Guaranty (the “Guaranty”), The Square obligated itself to the performance and prompt payment, upon request, of all indebtedness when due, whether at maturity or earlier. To secure The Square’s performance of the Guaranty, First United took a credit line leasehold deed of trust on The Square’s leasehold interest in the April 17, 2008 Ground Lease (the “Ground Lease”) executed by the City of Morgantown Building Commission (the “City”), as lessor, and The Square and McCoy 6 Apartments, Limited Liability Company (“McCoy 6”), as lessees. The Ground Lease required, in part, that The Square and McCoy 6 build a parking structure on the leased property by April 1, 2011. The Borrowing Entities defaulted on the note owed to First United. Subsequently, First United filed a complaint against The Square in the District Court for the Northern District of West Virginia (Case No. l:ll-cv-31) on March 18, 2011, alleging The Square’s default on the December 19, 2008 loan agreement and Guaranty, demanding damages flowing from the default, and seeking the appointment of a receiver to take control of The Square’s assets and operations.4 While the district court litigation was proceeding, however, the City sent all interested parties notice of its intent to terminate the lease with The Square based on The Square’s failure to complete the contemplated parking structure on the leased property by the April 1, 2011 deadline. First United’s receipt of the City’s notice of termination precipitated its decision to file this involuntary petition against The Square.5 341II. DISCUSSION First United asserts that the court should enter an involuntary order for relief against The Square because (1) it holds a non-contingent claim of $2.48 million that is not the subject of a bona fide dispute as to liability or amount; (2) its claim is at least $14,425.00 more than the value of any lien on The Square’s property securing its claim; (3) The Square has fewer than 12 creditors;6 and (4) The Square is generally not paying its debts as they become due. The Square asserts that First United’s claim is contingent and is the subject of a bona fide dispute, First United is its only creditor causing this case to be only a two-party dispute, and First United filed the involuntary petition in bad faith. 1. Not Contingent as to Liability Without directing the court to any specific language in the Guaranty — in fact, the court finds none — The Square asserts that First United’s claim is contingent and the subject of a bona fide dispute on the grounds that the December 19, 2008 Guaranty was contingent upon the building of a parking facility on the property leased from the City. The Square further asserts that, pursuant to the terms of its lease with the City, its leasehold interest in the property upon which the parking facility was to be built could not be encumbered except for the purpose of building the parking facility. Thus, The Square asserts that because the loan it guaranteed was a “workout loan,” which was not made for the construction of a parking facility, First United’s secured interest in the leasehold property is subject to bona fide dispute. The initial burden rests on the petitioning creditors to establish a prima facie case that their claims are not contingent and that no bona fide dispute exists regarding such claims. In re Tucker, No. 5:09-bk-914, 2010 WL 4823917, at 3 (Bankr.N.D.W.Va. Nov. 22, 2010) (citing Platinum Fin. Servs. Corp. v. Byrd (In re Byrd), 357 F.3d 433, 437 (4th Cir.2004)). Once the prima facie case is established, the burden then shifts to the debtor to show that the claims are contingent or that a bona fide dispute exists. Tucker, 2010 WL 4823917, at 3. Section 303(b) of the Bankruptcy Code (the “Code”) authorizes the filing of an involuntary Chapter 7 petition by creditors who meet certain qualifications. To file an involuntary petition against a putative debtor, a creditor must hold a claim that is not “contingent as to liability or the subject of a bona fide dispute as to liability or amount.” 11 U.S.C. § 303(b)(1). The first creditor qualification criterion — not contingent as to liability — is defined by case law. The following formulation is widely accepted as the standard used for determining whether a claim is contingent under § 303(b): [Cjlaims are contingent as to liability if the debt is one which the debtor will be called upon to pay only upon the occurrence or happening of an extrinsic event which will trigger the liability of the debtor to the alleged creditor and if such 342triggering event or occurrence was one reasonably contemplated by the debtor at the time the event giving rise to the claim occurred. In re All Media Properties, Inc., 5 B.R. 126, 133 (Bankr.S.D.Tex.1980); see e.g., Holland v. DePaulis (In re DePaulis), No. 3:07cv75, 2008 WL 4446999, at 6, 2008 U.S. Dist. LEXIS 74396, at 16-17 (W.D.N.C. Sept. 26, 2008); Brockenbrough v. Commissioner, IRS, 61 B.R. 685, 686 (W.D.Va.1986); In re Local Communs. Network, Inc., No. 07-12433, 2008 WL 52865, at 2-3, 2008 Bankr.LEXIS 14, at 8 (Bankr.E.D.Va. Jan. 2, 2008); In re Gills Creek Parkway Assocs., L.P., 194 B.R. 59, 62 (Bankr.D.S.C.1995); In re Galaxy Boat Mfg. Co., 72 B.R. 200, 203 (Bankr.D.S.C.1986). When a petitioning creditor’s claim is based upon a putative debtor’s guaranty of a primary obligor’s performance and payment, the court focuses on whether the guaranty is absolute. See 38A C.J.S. Guaranty § 79 (2011) (“In general, in the absence of an express provision, the duty of the guarantee to notify the guarantor of a default depends on whether [ ] the guaranty is absolute.”). “A guaranty is deemed to be absolute unless its terms import some condition precedent to the liability of the guarantor.” Esso Standard Oil Co. v. Kelly, 145 W.Va. 43, 48, 112 S.E.2d 461, 465 (W.Va.1960). But if a guaranty imposes some affirmative duty upon a petitioning creditor to provide a guarantor with notice of default or demand for payment, the court then focuses on whether such affirmative action was taken. See In re Vitro Asset Corp., et al., No. 11-32600-hdh-11, 2011 WL 1561025, at 3 (Bankr.N.D.Tex. April 21, 2011) (“Because the indentures require a demand on the guarantors and no such demand had been made when the involuntary petitions were filed, ... the guarantors’ obligations were contingent as to liability”). Here, the following provision contained in the Guaranty evidences that The Square is not an absolute guarantor in that its duty to perform arises only after request or demand by First United: “If Borrower fails to perform or observe any covenants, conditions and agreements required of Borrower ... the Guarantors shall, upon request of Lender, perform such covenant, condition or agreement, including but not limited to prompt payment of the Indebtedness.... ” PL’s Exhibit 7, page 4 (emphasis added). Thus, request or demand for payment is a condition of The Square’s liability on the Guaranty. The Square has no duty to act under the terms of the Guaranty until First United requests or demands payment. The court finds, however, that The Square received the required notice of default and demand for payment from First United upon the filing of the three-count, March 18, 2011 complaint in the district court (Doc. No. 3 in Case No. 1:11— cv-31), which occurred before First United filed this involuntary petition against The Square. As Beverly Sines, Chief Credit Officer at First United, testified, First United brought its district court action against The Square because the Borrowing Entities defaulted on the December 19, 2008 loan, and First United wanted to demand payment from The Square as Guarantor. First United’s filed complaint specifically alleges default under the Borrowing Entities’ loan agreement and The Square’s leasehold deed of trust, and demands judgment against The Square as guarantor in the principal amount of $1,502,087.11.7 Thus, Count I of the corn 343plaint alleging default under the December 19, 2008 loan and demanding payment is a sufficient demand for payment under the Guaranty to make First United’s claim noncontingent. See Cedarbrook Plaza, Inc. v. Gottfried, Civil Action No. 97-1560, 1997 WL 330390, at 4-5, 1997 U.S. Dist.LEXIS 8026, at 13 (E.D.Pa. June 4, 1997) (considering the filing of a complaint a demand for payment on a guaranty where the guaranty was silent as to how demand was to be made). To the extent that The Square also asserts that First United’s claim against it as Guarantor is contingent because its obligation to guaranty the indebtedness to First United was contingent upon the building of a parking structure, the purpose of the Guaranty is of no consequence; the fact remains that the indebtedness guaranteed by The Square is due and owing — making the claim noncontingent.8 See In re Tucker, No. 5:09-bk-914, 2010 WL 4823917, at 6 (Bankr.N.D.W.Va. Nov. 22, 2010) (finding the petitioning creditor met its burden in proving its claim was not contingent where the putative debtor guaranteed payment on a note on which the borrowers had defaulted). Moreover, the Guaranty does not contain any language evidencing that The Square’s obligation as guarantor to First United was contingent upon the building of the parking structure. Likewise, the court rejects The Square’s assertion that First United’s claim is the subject of a bona fide dispute. The Square asserts that there may be some dispute surrounding the propriety of the December 19, 2008 loan and Guaranty. Any assertions in that regard, however, are made in the context of this involuntary case being filed in bad faith and have no impact on the court’s determination regarding whether First United’s claim is contingent or the subject of a bona fide dispute.9 Similarly, The Square’s assertion that First United’s claim is subject to a bona fide dispute because it challenges the secured nature of First United’s claim is unpersuasive. Even if First United were wholly unsecured, it has a claim that is not the subject of a bona fide dispute against The Square based on the Guaranty. 2. First United’s Good Faith The Square asserts that First United filed this involuntary petition against it in bad faith on the grounds that First United 344contributed to the default on the December 19, 2008 loan, used this filing as a litigation tactic by imposing the automatic stay to forestall the City from terminating its ground lease with The Square, and based on the fact that First United is The Square’s only creditor. Notwithstanding § 803, if requested, a court must determine whether an involuntary petition has been filed in good faith, and must dismiss a bad faith filing. United States Optical, Inc. v. Corning, Inc. (In re United States Optical, Inc.), No. 92-1496, 1993 WL 93931, 3, 1993 U.S.App. LEXIS 6960, 9 (4th Cir. April 1, 1993); Atlas Machine & Iron Works, Inc. v. Bethlehem Steel Corp., 986 F.2d 709, 716 (4th Cir.1993). “A filing is presumed to be in good faith, and the existence of bad faith must be proven by the debtor by a preponderance of the evidence.” U.S. Optical, at 3, 1993 U.SApp. LEXIS 6960, at 9. The Fourth Circuit employs a combined approach to determine whether an involuntary petition has been filed in bad faith: an objective standard that focuses on whether a reasonable person in the position of the creditor would have filed, and a subjective standard that examines the petitioner’s motivation. Id. No single factor is determinative; rather, a court must consider the totality of the circumstances. Id. Here, the court finds that, aside from presenting no evidence at the eviden-tiary hearing in this matter, The Square’s argument and cross-examination of First United’s witnesses failed to show bad faith by First United. Objectively speaking, The Square failed to show how invoking the bankruptcy process is not something a reasonable creditor in First United’s position would do. Although The Square asserts that it “does not make sense that a party who won its case in district court ... would then go on and file a bankruptcy to stay enforcement of that Order,” the facts of this case lead the court to a different conclusion. First United is the only creditor of The Square that the court is aware of and a secured creditor of several entities related to The Square.10 The Borrowing Entities and The Square have been engaged in a common development project for some time, with First United being one of the project’s principal lenders. McCoy 6, Augusta Apartments, LLC (“Augusta”), and Grand Central Building Limited Liability Company of Morgantown (“Grand Central”) each filed for bankruptcy protection, and a common bankruptcy trustee was appointed to administer each of the bankruptcy estates. McCoy 6 and The Square are both lessees to the Ground Lease with the City, and the Chapter 11 bankruptcy estate of McCoy 6 is being administered by a trustee, Robert L. Johns, who is also the gap trustee appointed in this case. Thus, First United is trying to take advantage of synergies that can be achieved by having the businesses of both entities to the Ground Lease being administered in bankruptcy by a common trustee, and attempting to receive payment according to the bankruptcy priority scheme from any value that may be realized from the common administration of related debtor entities. Such action is an objectively reasonable attempt to maximize potential recovery from the assets of related bankruptcy estates. Regarding The Square’s contention of First United’s subjective bad faith, the court finds that First United did not file 345the involuntary petition with any improper motive or intent directed toward The Square. As Beverly Sines testified to during the evidentiary hearing on this matter, First United filed the involuntary petition upon receiving notice from the City of its intent to terminate the Ground Lease in which First United believes it is secured.11 The avowed purpose of the bankruptcy filing was to preserve the status quo of The Square by imposition of the automatic stay; something that could not be achieved through the receivership process. The court does not find any subjective bad faith by invoking the automatic stay in order to preserve whatever value may exist in The Square’s bankruptcy estate and to provide for its orderly liquidation.12 Although not specifically articulated, The Square asserts as part of its bad faith argument the factors considered by a court when analyzing whether § 305 abstention is appropriate in a bankruptcy case. Generally, abstention under § 305 is considered separate and apart from any analysis of an involuntary petition under § 303, but because The Square raises the issue as part of its allegation of First United’s bad faith, the court considers the argument as it relates to the bad faith analysis. In that regard, the Square directs the court to several cases, including this court’s decision in In re Watson, No. 10-1292, 2010 WL 4497477 (Bankr.ND.W.Va. Nov. 1, 2010), to support its argument that the filing of a bankruptcy case as a “litigation tactic” evidences bad faith. Those cases, however, are inapposite to this case. Watson involved a voluntary Chapter 7 filing by a consumer debtor that was essentially a one-creditor dispute aimed solely at avoiding the repayment of any amount purportedly due on the debtor’s obligation to his largest creditor when the debtor had means to pay his creditors in full. Likewise, the court finds In re Macke Intern. Trade, Inc., 370 B.R. 236 (9th Cir. BAP 2007) unpersuasive because it involved the dismissal of an involuntary petition under § 305 of the Bankruptcy Code where, among other things, there was an absence of a bankruptcy purpose to reorganize, there was pending litigation in another forum, and another forum would be more appropriate for the resolution of any lingering dispute between the parties. Here, however, there is a valid bankruptcy purpose to be served by a Chapter 7 case. The Square has no business purpose outside bankruptcy; it is insolvent and incapable of achieving its business objectives. But there may be value to be salvaged through bankruptcy. The Chapter 7 process allows for leveraging a potential return to creditors through the administration of this bankruptcy estate 346and the bankruptcy estates of related entities — all of which involve First United as a creditor — by a common trustee who can take advantage of a structured liquidation of The Square’s assets.13 Also, although the parties are involved in the pending district court litigation, the district court has already ruled that a receiver was appropriate in that case to wind up the affairs of The Square, which is quite similar to the purpose of a Chapter 7 bankruptcy, such that the court does not believe abstention under § 305 is appropriate. A creditor’s election to proceed by way of bankruptcy as opposed to the use of receivership is not irrational or unreasonable; in fact, it may provide a more efficient forum in which to wind down the financial affairs of the debtor. Moreover, abstention under § 305 requires that a court must avoid balancing the harm to the debtor versus the harm to creditors and focusing merely on whether one party will be better served than another by the exercise of abstention. Instead, the court must find that both parties will be served by abstaining. In re Smith, 415 B.R. 222, 238 (Bankr.N.D.Tex.2009) (“[RJather, the interests of both the debtor and its creditors must be served by [abstaining under § 305].”)(emphasis added). Here, although The Square asserts that the court should abstain in this matter because it is merely a two-party dispute that is already pending in district court, it has failed to show how it and First United would both be better served by the court abstaining from entering an order for relief. In fact, it appears to the court that First United is better served adjudicating its rights in this court because it can take advantage of the automatic stay and any potential assets a Chapter 7 trustee may be able to administer,14 and The Square is in no better a position if the court abstains because a receiver has already been ordered in the district court action such that The Square has no further viability as a going concern. References by The Square to the cases of In re Knedlik, Nos. WW-08-1011-KuKJu and 07-15547, 2008 WL 8444815 (9th Cir. BAP June 30, 2008) and In re Hatcher, 218 B.R. 441 (8th Cir. BAP 1998) are unpersuasive because they involve instances where debtors abused the bankruptcy process to stay secured creditors. In fact, Hatcher was not an involuntary proceeding but a voluntary Chapter 11 filing that was dismissed under § 1112(b) for lack of good faith, and Knedlik involved a nefarious debtor who attempted to forestall his creditors by using his mother in order to obtain relief under the Bankruptcy Code by enlisting her to file, not just one, but several involuntary petitions against him. Thus, the factual background of each of those cases is markedly different from the case currently before the court. Finally, In re Grossinger, 268 B.R. 386 (Bankr.S.D.N.Y.2001) is of no avail to The Square’s argument. It involved the filing of an involuntary petition by a creditor of the debtor who had a simple, nominal claim that the creditor should have pur347sued m state court. In that case, the court noted that, “[t]o use an involuntary filing as a tactic to work it out with one’s alleged obligor is an abuse of the bankruptcy process-” Id. at 389. Again, this case is unpersuasive given the factual disparity between it and the instant case. In sum, because involuntary petitions are presumed to be filed in good faith, and given the paucity of The Square’s, evidence offered to rebut the presumption that the involuntary petition was filed in good faith, consideration of the totality of the circumstances — on both objective and subjective counts — fail to show that the involuntary petition was filed in bad faith. III. CONCLUSION First United has established its standing under § 303(b)(2) to bring this involuntary petition against The Square, as well as grounds for relief under § 303(h). An order for relief under Chapter 7 of the Bankruptcy Code, therefore, is granted. The court will enter a separate order consistent with this memorandum opinion. . To the extent that The Square asserts in its post-trial briefing that First United cannot be a petitioning creditor against it because First United is a joint venturer, the court disposed of that argument in connection with First United’s motion to dismiss The Square’s counterclaim in ll-ap-60. By order dated September 30, 2011, the court found that The Square failed to state a cause of action against First United based on joint venture where the record reflected that the two parties had nothing more than a lender-borrower relationship. Thus, the court will not substantively address the same argument here. . The court will not address substantively the $14,425.00 minimum threshold or the "gener340ally not paying” factors because those elements of 11 U.S.C. § 303(b) and (h) are not disputed by The Square in its answer to the involuntary petition. . The Borrowing Entities are McCoy 6 Apartments, Limited Liability Company; Augusta Apartments, LLC; Grand Central Building Limited Liability Company of Morgantown; New Creek, LLC; and Battle Hill, LLC. McCoy 6 Apartments, Augusta Apartments, and Grand Central Building are each being administered by a common trustee under Chapter 11 of the Bankruptcy Code. . The Square's only apparent asset is its interest in the Ground Lease. While under The Square’s control, the Ground Lease generated monthly income of approximately $7,500, which The Square’s principals used to pay living expenses. After the filing of the involuntary petition and the appointment of an interim Chapter 7 trustee, monthly operating reports filed by the interim trustee suggest that The Square's leasehold interest in the Ground Lease has generated substantially more monthly income; albeit at the sufferance of the City given the ostensible expiration of the Ground Lease. .On April 25, 2011, First United filed this involuntary case. In an effort to dispose of the matter with dispatch, the court, after disposing of several preliminary matters and allowing for a period of discovery, held a December 15, 2011 evidentiary hearing on the contested involuntary petition, and took the matter under advisement after receiving post-trial briefing. Subsequently, counsel for First United interrupted the court's January 6, 2012 Chapter 13 docket in Martinsburg, WV, and represented to the court that all parties agreed to stay proceedings in the case in favor of settlement discussions. As a result, the court ceased further work upon its opinion. On January 10, 2012, a joint stipulated order staying the case and setting a March 1, 2012 telephonic status conference was entered by the court. At the March 1, 2012 status conference, it was clear that some, but not all, of the parties had engaged in negotia341tions and were optimistic about settlement. The Square, however, had not been included in those negotiations, and some parties expressed concern that a decision on the involuntary petition might be the best use of judicial resources. At the request of the parties, however, the court continued the status conference for one week to allow the parties to confer in that regard, at which time all of the parties were in agreement that a decision on the involuntary petition was needed. Thus, the court is now ruling on the involuntary petition a year after its filing. . The court will not address substantively the numerosity requirement of § 303(b), because it is undisputed that The Square has fewer than twelve creditors. . At the request of The Square and First United, the court takes judicial notice of the dis*343trict court's docket. Upon review of the district court's docket, the court finds that First United filed its complaint against The Square on March 18, 2011. First United's district court complaint consists of three counts, including an allegation of breach of contract. Without accepting them as true, the court takes judicial notice of the facts alleged in First United’s district court action under Fed. R.Evid. 201. . As the district court found on page eleven of its order adopting-in-part the report and recommendation of Magistrate Judge Kaul, "[t]his balance indisputably remains overdue and unpaid.” . Specifically, The Square asserted facts during the evidentiary hearing regarding alleged fraudulent and improper conduct on the part of First United. The Square's answer to the involuntary petition, however, contains no assertion of fraudulent conduct. Upon questioning Beverly Sines on cross-examination about the purpose of the loan, First United objected to The Square raising any affirmative or avoidance defenses during trial because none were pled. In sustaining the objection, the court permitted The Square's line of questioning only as relevant to a bad faith determination, but cautioned The Square that because no affirmative defenses were raised in its answer, the court would not receive evidence in that regard. See Fed. R. Bankr.P. 1018 (incorporating Fed. R. Bankr.P. 7008, which incorporates Fed.R.Civ.P. 8 requiring affirmative defenses, such as fraud, to be affirmatively pled in answering a contested involuntary petition). . At the evidentiary hearing in this matter, First United attempted to establish that other creditors, primarily taxing authorities, may exist. The record, however, is insufficiently developed for the court to make any finding in that regard. . Upon the filing of this involuntary petition, the City filed a motion for relief from stay so that it could move to terminate the Ground Lease based on The Square’s default in failing to build the parking structure by the April 1, 2011 deadline. The Square did not contest the motion for relief from stay, but First United subsequently filed an adversary proceeding in this case based on its belief that it is secured in the Ground Lease. The City and First United agreed to stay those proceedings until disposition of the involuntary petition. . The U.S. District Court found on page eleven of its decision granting the appointment of a receiver that: In connection with this loan transaction, First United purportedly received [The Square’s] interest in the Ground Lease as security for its obligations as a guarantor. Based on the inaction of [The Square], however, First United faces the loss of that security, the only remaining collateral not subject to the various Warner bankruptcies. Order adopting-in-part Report and Recommendation of Magistrate Judge Kaul (Doc. No. 26 in 1:1 l-cv-00031-IMK-JSK). . Even if a trustee were not common to all of the related bankruptcy estates, it likely would be in the interest of each trustee to cooperate and coordinate their efforts, insofar as possible, in order to maximize the return to each estate. . Notably, the interim trustee continued The Square's operation of a parking lot on the property that it the subject of the Ground Lease with the City of Morgantown. Based on evidence adduced at the evidentiary hearing on this matter, the trustee has been able to increase The Square's cash flow from the parking lot, and has substantial cash on hand to administer in an involuntary Chapter 7 estate.	01-04-2023	11-22-2022
https://www.courtlistener.com/api/rest/v3/opinions/8494730/	MEMORANDUM OPINION AND ORDER (1) GRANTING DEFENDANT’S MOTION FOR SUMMARY JUDGMENT (DE # 9) AND (2) DENYING PLAINTIFF’S CROSS-MOTION FOR SUMMARY JUDGMENT (DE # 15) H. CHRISTOPHER MOTT, Bankruptcy Judge. This adversary proceeding pits plaintiff, debtor and taxpayer John Oliver Green (“Plaintiff Green”) — who is no stranger to the Bankruptcy Court, Tax Court, and Fifth Circuit Court of Appeals — against defendant United States of America, on behalf of the Internal Revenue Service (“Defendant IRS”) — which is also no stranger to the Bankruptcy Court, Tax Court, and Fifth Circuit Court of Appeals. Plaintiff Green filed this adversary proceeding to determine whether his federal income tax liabilities for the years 1997, 1999, and 2000 were discharged in this Chapter 7 bankruptcy case, and to determine the validity and amount of federal tax liens. Defendant IRS filed a Motion for Summary Judgment, and Plaintiff Green filed a Cross-Motion for Summary Judgment. For the reasons stated in this Memorandum Opinion, the Court grants the Defendant’s Motion for Summary Judgment and denies Plaintiffs Cross-Motion for Summary Judgment, pursuant to 351Rule 56 of the Federal Rules of Civil Procedure (“FRCP”), which are incorporated into Rule 7056 of the Federal Rules of Bankruptcy Procedure (“Bankruptcy Rules”). I. PROCEDURAL BACKGROUND On September 26, 2011, Plaintiff Green, pro se, filed his Complaint to Determine Dischargeability of Tax Claims and Validity and Extent of Lien Rights (“Complaint”) (DE # 1). In general, through the Complaint, Plaintiff Green requested that the Court determine that his unpaid federal tax liabilities for the years 1997, 1999, and 2000 have been discharged in this Chapter 7 case, to determine the validity and extent of Defendant IRS’ lien rights, and to enforce his bankruptcy discharge. On October 6, 2011, Defendant IRS filed its Answer to the Complaint (“Answer”) (DE # 4). In general, in its Answer, Defendant IRS requested the Court to determine that Plaintiff Green’s federal tax liabilities for the 1997, 1999, and 2000 years were not discharged in this Chapter 7 case and that its federal tax liens attached to Plaintiff Green’s assets. On November 21, 2011, Plaintiff Green filed his Amended Verified Reply With Incorporated Legal Authority to the Answer (“Reply”) (DE #8). On November 23, 2011, Defendant IRS filed a Motion for Summary Judgment (“Defendant’s MSJ”) (DE #9), together with its Declaration (DE # 10). On December 15, 2011, Plaintiff Green filed its Opposition to Defendant’s MSJ with Incorporated Memorandum of Law (DE # 16). On January 11, 2012, Defendant IRS filed its Response to Plaintiffs Opposition to Defendant’s MSJ (DE #29), and a Corrected Declaration in Support of Defendant’s Response (DE # 33).1 On January 20, 2012, Plaintiff Green filed his Reply to Defendant’s Response (DE # 36). Meanwhile, on December 15, 2011, Plaintiff Green filed his Cross-Motion for Summary Judgment With Incorporated Memorandum of Law (“Plaintiffs MSJ”) (DE # 15). On January 11, 2012, Defendant IRS filed a Response in Opposition to Plaintiffs Cross-Motion for Summary Judgment (DE #27), along with a Corrected Declaration in Support (DE # 32). On January 20, 2012, Plaintiff Green filed a Reply to Defendant’s Response in Opposition to Plaintiffs MSJ (DE # 37). On February 9, 2012, the Court conducted a hearing on Defendant’s MSJ and Plaintiffs MSJ, and took its ruling under advisement. Plaintiff Green and counsel of record for Defendant IRS appeared and made arguments and stipulations at the hearing. On February 9, 2012 after the hearing and pursuant to FRCP 56(e)(1), the Court signed an Order Granting Leave to Supplement Summary Judgment Record (DE #38), authorizing the parties to file supplements or stipulations with respect to the outstanding amount of taxes and tax liens. Pursuant to such Order, on February 24, 2012, Plaintiff Green and Defendant IRS filed a Joint Supplement to Summary Judgment Record (“Joint Supplement Stipulation”) (DE # 40), whereby the parties stipulated to certain facts with respect to the amount of outstanding taxes and federal tax liens. 352 II.JURISDICTION The Court has jurisdiction over this adversary proceeding under 28 U.S.C. § 157 and § 1334. This adversary proceeding is a “core proceeding” under 28 U.S.C. § 157(b)(2)(I) and (K), and the Court is authorized to enter a judgment in this adversary proceeding under 28 U.S.C. § 157(b)(1). III.SUMMARY JUDGMENT STANDARD Summary judgment is appropriate when a movant shows that no genuine issue of material fact exists and the movant is entitled to judgment as a matter of law. See FRCP 56(a); Piazza’s Seafood World, LLC v. Odom, 448 F.3d 744, 752 (5th Cir.2006); Placid Oil Co. v. Williams (In re Placid Oil Co.), 450 B.R. 606, 612 (Bankr.N.D.Tex.2011). A genuine issue of material fact is present when the evidence is such that a reasonable fact finder could return a verdict for the non-movant. Piazza’s Seafood, 448 F.3d at 752 (citing Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986)). Material facts are those that could affect the outcome of the action. Wyatt v. Hunt Plywood Co., Inc., 297 F.3d 405, 409 (5th Cir.2002), cert. denied, 537 U.S. 1188, 123 S.Ct. 1254, 154 L.Ed.2d 1020 (2003). In the summary judgment context, the court should view evidence in a light most favorable to the non-moving party. Piazza’s Seafood, 448 F.3d at 752. Factual controversies must be resolved in favor of the non-movant. Little v. Liquid Air Corp., 37 F.3d 1069, 1075 (5th Cir.1994). If the movant satisfies its burden, the non-movant must then come forward with specific evidence to show that there is a genuine issue of fact. Placid Oil, 450 B.R. at 613, citing Ashe v. Corley, 992 F.2d 540, 543 (5th Cir.1993). The non-movant may not merely rely on conclusory allegations or the pleadings; rather, it must demonstrate specific facts identifying a genuine issue to be tried in order to avoid summary judgment. FRCP 56(c)(1); Piazza’s Seafood, 448 F.3d at 752; Placid Oil, 450 B.R. at 613. IV.UNDISPUTED MATERIAL FACTS Based on the summary judgment record, the following material facts are not in genuine dispute: Plaintiff Green’s federal tax liabilities for the years at issue — 1997, 1999, and 2000— have previously been litigated with Defendant IRS and adjudicated by the U.S. Tax Court (“Tax Court”) and affirmed by the Fifth Circuit Court of Appeals. See Green v. Commissioner, T.C. Memo 2008-130 (T.C.M.2008) (“Tax Court Opinion”); Green v. Commissioner, 322 Fed.Appx. 412 (5th Cir.2009) (“Fifth Circuit Opinion”). (DE # 10, pp. 13-27; DE # 15-1, pp. 30-31; DE # 10, pp. 28-36). Plaintiff Green is a former federal civil service employee (with the IRS). Plaintiff Green received disability-retirement payments for a medical condition from the Office of Personnel Management (“OPM”). Plaintiff Green is also a tribal member of the Potawatomi Citizens Tribe of Oklahoma. (DE # 10, pp. 16, 29-31). This bankruptcy case is not Plaintiff Green’s first visit to the Bankruptcy Court. Plaintiff Green has filed Chapter 7 bankruptcy before in 1996 in this Court, case no. 96-13645-FM (“First Bankruptcy Case”). Plaintiff Green filed an adversary proceeding against Defendant IRS in the First Bankruptcy Case, adversary no. 97-1044-FM, regarding his federal income tax liabilities for the years 1981, 1982, and 1983. Such adversary proceeding and the dischargeability of Plaintiff Green’s tax liabilities for those years (1981, 1982, 1983) were resolved by an Agreed Judgment 353entered into between Plaintiff Green and Defendant IRS and signed by this Court on June 30, 1998 (“Agreed Bankruptcy Judgment”) (DE # 8-1, pp. 48, 49). Plaintiff Green’s federal tax liabilities for the years at issue in this adversary proceeding and this second bankruptcy case — 1997, 1999, and 2000 — were not addressed in Plaintiff Green’s First Bankruptcy Case filed in 1996. After an IRS internal examination of his tax liability for 1997, 1998, 1999, and 2000,2 Defendant IRS issued notices of deficiency to Plaintiff Green, although the notices were not mailed to Plaintiff Green’s proper address. Plaintiff Green filed a petition in Tax Court, but Defendant IRS filed a Motion to Dismiss for Lack of Jurisdiction in order to send the deficiency notices to the correct address and provide Plaintiff Green time to correctly challenge the deficiencies. The Tax Court granted the Motion and entered an order to dismiss for lack of jurisdiction on April 5, 2005. (DE # 8-1, p. 79; DE # 10, pp. 16, 29). Defendant IRS issued a new notice of deficiency to Plaintiff Green at his correct address. On June 27, 2005, Plaintiff Green then timely filed a petition in Tax Court to contest the deficiencies for the 1997, 1999, and 2000 tax years, and litigation on the merits in Tax Court proceeded. (DE # 8-1, pp. 61-63; DE # 10, p. 16, 29). In Tax Court, Plaintiff Green contested the deficiency on multiple grounds. According to the Tax Court Opinion, Plaintiff Green did not file federal income tax returns for 1997, 1999, and 2000 using the traditional documentation. Instead, Plaintiff Green submitted what has been referred to as “treaty-based position disclosure documents” (described by the Tax Court as “disclosure documents”). Plaintiff Green claimed authority to do so pursuant to Section 6114 of the Internal Revenue Code (herein “IRC”). Plaintiff Green claimed in Tax Court that due to his status as a member of the Potawatomi Citizens Tribe of Oklahoma, his treaty-based “disclosure documents” constituted “tax returns” that triggered the running of the statute of limitations. See Tax Court Opinion (DE # 10, pp. 15-16). One of the central issues decided by the Tax Court was whether these treaty-based “disclosure documents” filed by Plaintiff Green for 1997, 1999, and 2000 constituted federal income tax returns. Plaintiff Green argued in Tax Court that his “disclosure documents” were federal income tax returns, and thus the three-year statute of limitations on assessing a deficiency had expired. The Tax Court rejected Plaintiff Green’s argument, and determined that Plaintiff Green’s treaty-based “disclosure documents” did not constitute tax returns, that Plaintiff Green “never filed tax returns for the years 1997, 1999, 354and 2000”, and that the statute of limitation did not bar the deficiency assessment for such years. See Tax Court Opinion (DE # 10, pp. 16-20). The Tax Court also rejected Plaintiff Green’s other arguments, and affirmed the Defendant IRS’ determination of deficiencies, penalties, and interest for 1997, 1999, and 2000. See Tax Court Opinion (DE # 10); Fifth Circuit Opinion, 322 Fed.Appx. at 414 (DE # 10, p. 29). Following Plaintiff Green’s appeal to the Fifth Circuit, the Fifth Circuit affirmed the Tax Court in all respects. In so doing, the Fifth Circuit stated “[w]e have little difficulty concluding that Green’s homemade ‘disclosure documents’ are not returns. They do not purport to be returns; in fact they state that they are tendered to the IRS because ‘no return of tax is required to be filed’... ”. See Fifth Circuit Opinion, 322 Fed.Appx. at 415 (DE # 10, p. 31). The Tax Court Opinion was issued by the Tax Court on May 15, 2008. (DE # 10, p. 13). Pursuant to Tax Court Rule 155, the Tax Court withheld entry of a decision and allowed the parties to submit a computation of the tax deficiency in accordance with the Tax Court Opinion. (DE # 8-1, p. 62; DE # 10, p. 27). On June 24, 2008, Respondent’s Computation for Entry of Decision was filed with the Tax Court under Tax Court Rule 155 and signed by both parties (“Rule 155 Computation”). (DE #15-1, pp. 9-29). The Rule 155 Computation includes a face document, a computation statement, and lodging of a proposed decision. The face document to the Rule 155 Computation states: “The computation is submitted without prejudice to respondent’s right to contest the correctness of the decision entered herein by the Court”, and this page is signed by the Chief Counsel’s office for Defendant IRS. On the following page, the face document to the Rule 155 Computation states: “Without prejudice to the right of appeal, it is agreed that the attached computation is in accordance with the opinion of the Tax Court in this case”, and this page is signed by Tax Court counsel for Plaintiff Green. (DE # 15-1, pp. 10,11). On June 27, 2008, the Tax Court entered its decision (“Tax Court Decision”). (DE # 15-1, pp. 30-31). The Tax Court Decision determined Plaintiff Green was liable for tax deficiencies and additions for the years 1997, 1999, and 2000 in specified dollar amounts. The Tax Court Decision provides in part “Pursuant to the opinion of the Court filed May 15, 2008, incorporating herein the facts recited in the respondent’s computation as the findings of the Court....”. (DE # 15-1, p. 30). The Tax Court Decision was signed by respective counsel for Defendant IRS and Plaintiff Green, and states: “The parties stipulate that the foregoing decision is in accordance with the opinion of the Court and respondent’s computation, and that the Court may enter this decision, without prejudice to the right of either party to contest the correctness of the decision entered herein”. (DE # 15-1, p. 31). Then, Plaintiff Green appealed the decision of the Tax Court to the Fifth Circuit. The Fifth Circuit affirmed the decision of the Tax Court in all respects, by its opinion dated April 23, 2009. See Fifth Circuit Opinion, 322 Fed.Appx. at 413 (DE # 10, pp. 28-35). Plaintiff Green did not file any request for reconsideration, further appeal or petition for writ of certiorari with respect to the Fifth Circuit Opinion. On December 10, 2009, Defendant IRS prepared a Notice of Federal Tax Lien against Plaintiff Green’s assets for the federal tax liabilities in the 1997, 1999, and 2000 tax years. The Notice of Federal Tax Lien was filed in Travis County, Tex355as, on December 28, 2009. (DE # 8-1, p. 78; DE # 10, p. 12). On June 30, 2010, Plaintiff Green filed a voluntary bankruptcy petition under Chapter 7 in this Court in this main bankruptcy case no. 10-11781. In his Bankruptcy Schedules, Plaintiff Green listed •the tax debt owed to the IRS for income tax for years 1997, 1999, 2000 (totaling approximately $93,917) as being totally unsecured by any value of collateral, as well as being unliquidated and disputed. Creditors were instructed by the Court not to file proofs of claims, as the bankruptcy case was determined to be a no asset case with no distributions from the bankruptcy estate by the Chapter 7 Trustee. On October 11, 2010, Plaintiff Green received his Chapter 7 bankruptcy discharge in this bankruptcy case, (main bankruptcy case no. 10-11781, DE #1; DE #2, pp. 1, 16, 17; DE # 13). On September 26, 2011, Plaintiff Green initiated this adversary proceeding against Defendant IRS by filing his Complaint to determine that his federal income tax liabilities for 1997, 1999, and 2000 were discharged in this bankruptcy case and to determine the validity and extent of the federal tax lien. (DE # 1). On November 23, 2011, Defendant IRS filed a Motion for Summary Judgment (herein “Defendant’s MSJ”) (DE # 9). On December 15, 2011, Plaintiff Green filed his Cross-Motion for Summary Judgment With Incorporated Memorandum of Law (herein “Plaintiffs MSJ”) (DE # 15). On February 9, 2012, the Court conducted a hearing on Defendant’s MSJ and Plaintiffs MSJ. On February 24, 2012, Plaintiff Green and Defendant IRS filed a Joint Supplement to Summary Judgment Record (herein “Joint Supplement Stipulation”) (DE # 40), as authorized by order of the Court. Through such Joint Supplement Stipulation, Plaintiff Green and Defendant IRS stipulated in this adversary proceeding that (1) if it determined that Plaintiff Green’s federal tax liabilities for the years 1997, 1999, and 2000 are not discharged in this bankruptcy case, then as of February 14, 2012, the unpaid amount of Plaintiff Green’s federal tax liability for the 1997 year is $71,087.54, for the 1999 tax year is $4,429.56, and for the 2000 tax year is $3,874.723 (which excludes penalties and interest on penalties that the parties stipulated have been discharged) (hereafter “Taxes”); (2) if these Taxes are determined not to be discharged in this bankruptcy case, then the IRS federal tax lien is properly filed in the foregoing amounts and attaches to all of Plaintiff Green’s real and personal property; and (3) if these Taxes are determined to be discharged in this bankruptcy case, then Defendant IRS will abate all amounts due for such tax years and release its federal tax lien. Therefore, the parties have now stipulated with respect to the amount of the unpaid taxes for 1997, 1999, and 2000 (herein “Taxes”) and the validity and scope of the tax lien of Defendant IRS, dependent upon whether or not the Taxes have been discharged in this bankruptcy case. Accordingly, the only remaining disputed issue for the Court to determine is whether Plaintiff Green’s Taxes for the years 1997, 1999, and 2000 have been discharged in this bankruptcy case. V. LEGAL ANALYSIS A. DISCHARGEABILITY OF TAXES The primary disputed issue for this Court to determine is whether Plaintiff 356Green’s unpaid federal income tax liabilities for the 1997, 1999, and 2000 tax years (herein “Taxes”) have been discharged in this Chapter 7 bankruptcy case. In Defendant’s MSJ, Defendant IRS takes the position that the Taxes were not discharged in Plaintiff Green’s bankruptcy case. Conversely, in Plaintiffs MSJ, Plaintiff Green takes the position that the Taxes were discharged in this Chapter 7 bankruptcy case. Section 727 of the Bankruptcy Code permits the discharge of debts in a Chapter 7 bankruptcy case, but contains several exceptions. One of the exceptions to debt discharge are certain tax debts set forth in § 523 of the Bankruptcy Code. See 11 U.S.C. § 727(b); McCoy v. Mississippi State Tax Commission (In re McCoy), 666 F.3d 924, 926 (5th Cir.2012). ISSUE #1. Are the Taxes excepted from discharge under § 523(a)(l)(B)(i) of the Bankruptcy Code? The primary position of the IRS is that the Taxes owed by Plaintiff Green are excepted from his bankruptcy discharge under § 523(a)(l)(B)(i) of the Bankruptcy Code, because Plaintiff Green never filed a tax return for the 1997, 1999, and 2000 tax years. In pertinent part, § 523(a)(1)(B)© of the Bankruptcy Code provides: (a) A discharge under section 727 ... of this title does not discharge an individual debtor from any debt— (1) for a tax ...— (B) with respect to which a return, or equivalent report or notice, if required— (i) was not filed or given.... 11 U.S.C. § 523(a)(1)(B)© (emphasis added). In 2005, Congress enacted the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (hereafter “BAPC-PA”). As part of the BAPCPA amendments to the Bankruptcy Code, a hanging paragraph was added to § 523(a), which defined the term “return” for bankruptcy discharge purposes. See McCoy, 666 F.3d at 927. This hanging paragraph of § 523(a) is often identified as § 523(a)(), and provides: For purposes of this subsection, the term ‘return’ means a return that satisfies the requirements of applicable non-bankruptcy law (including applicable filing requirements). Such term includes a return prepared pursuant to section 6020(a) of the Internal Revenue Code of 1986, or similar State or local law, or a written stipulation to a judgment or a final order entered by a nonbankruptcy tribunal, but does not include a return made pursuant to section 6020(b) of the Internal Revenue Code of 1986, or a similar State or local law. 11 U.S.C. § 523(a)(). In Plaintiff Green’s MSJ and related responses and replies, Plaintiff Green makes a myriad of arguments that he filed or gave a qualifying tax “return” within the scope of § 523(a)(), and so the Taxes at issue are not excepted from discharge under § 523(a)(1)(B)®. Plaintiff Green’s primary arguments, although sometimes difficult to follow, may be summarized as follows: (1) the treaty-based “disclosure documents” he submitted to the IRS were a qualifying “return” because they satisfied “the requirements of applicable non-bankruptcy law” (federal income tax law) under § 523(a)() of the Bankruptcy Code; (2) the Rule 155 Computation entered into with the IRS in Tax Court was a “return prepared pursuant to Internal Revenue Code section 6020(a)” under § 523(a)() of the Bankruptcy Code; (3) the Tax Court Decision (and the Rule 155 Computation) signed on his behalf in Tax Court is a 357qualifying “return”, as it constitutes a “written stipulation to a judgment or final order entered by a nonbankruptcy tribunal” under § 523(a)() of the Bankruptcy Code; and finally (4) the treaty-based “disclosure documents” he submitted were a qualifying “return”, because they were an “equivalent report or notice” within § 523(a)(1)(B) of the Bankruptcy Code. Applying the plain language of § 523(a)() to this proceeding, there are three possible types of qualifying “returns” for bankruptcy discharge purposes: (a) a “return” that satisfies the requirements of applicable nonbankruptcy law (including applicable filing requirements), (b) a “return” prepared pursuant to § 6020(a) of the Internal Revenue Code (herein “IRC”), and (c) a written stipulation to a judgment or a final order entered by a nonbankruptcy tribunal (Tax Court). The Court will address each of these three possibilities of a qualifying “return” under § 523(a)() in turn, as well as whether there as an “equivalent report or notice” within the meaning of § 523(a)(1)(B). a. Has there been a “return that satisfies the requirements of applicable nonbankruptcy law (including applicable filing requirements)” under § 523(a) () of the Bankruptcy Code for the Taxes? Plaintiff Green claims the treaty-based “disclosure documents” he filed with the IRS for the Taxes was a “return” for federal income tax purposes, and so he has filed a return that meets the requirements of “applicable nonbankruptcy law” under § 523(a)(). Here, the “applicable non-bankruptcy law” is federal tax law, as the Taxes are federal taxes. However, in prior litigation between Plaintiff Green and the IRS regarding these very Taxes, the Tax Court and the Fifth Circuit determined that Plaintiff Green’s “disclosure documents” were not tax returns under federal income tax law. Plaintiff Green argued in Tax Court that his “disclosure documents” were federal income tax returns, and thus the three year statute of limitations on assessing a deficiency had expired. The Tax Court rejected this argument, determined that Plaintiff Green’s treaty-based “disclosure documents” did not constitute tax returns, and that Plaintiff Green “never filed tax returns for the years 1997, 1999, and 2000”. See Green v. Commissioner, T.C. Memo 2008-130, pp. 4-7 (T.C.M. RIA 2008) (DE # 10, pp. 16-20) (herein “Tax Court Opinion”). Following Plaintiff Green’s appeal to the Fifth Circuit, the Fifth Circuit affirmed the Tax Court in all respects. In so doing, the Fifth Circuit stated “[w]e have little difficulty concluding that Green’s homemade ‘disclosure documents’ are not returns. They do not purport to be returns; in fact they state that they are tendered to the IRS because ‘no return of tax is required to be filed’... ”. See Green v. Commissioner, 322 Fed.Appx. 412, 415 (5th Cir.2009) (DE # 10, p. 31) (herein “Fifth Circuit Opinion”). Defendant IRS argues, and the Court agrees, that res judicata applies to prevent Plaintiff Green from re-litigating this issue — whether his disclosure documents satisfied the requirements of federal tax law and constituted federal tax returns — in this subsequent adversary proceeding. Res judicata, or claim preclusion, applies to bar re-litigation of an issue if four requirements are met. See e.g., United States v. Davenport, 484 F.3d 321, 326 (5th Cir.2007). First, the parties in the second action must be identical or in privity with the parties in the prior action. Second, the judgment in the prior action must have been rendered by a court of competent jurisdiction. Third, the prior 358action must have concluded with a final judgment on the merits. Fourth, the same claim or cause of action must be involved in both actions. Id. The res judicata effect of a prior judgment is a question of law. Davenport, 484 F.3d at 326 (citations omitted). Here, all of the requirements of res judicata are met as a matter of law. The two parties in this adversary proceeding (Plaintiff Green and Defendant IRS) are identical to the parties to the Tax Court and Fifth Circuit case. The Tax Court and Fifth Circuit were clearly courts of competent jurisdiction. The pri- or action in the Tax Court and the Fifth Circuit was concluded with a final judgment on the merits. Finally, the same claim or cause of action was involved and decided — as the Tax Court and Fifth Circuit determined that Plaintiff Green’s “disclosure documents” were not returns for the 1997, 1999, and 2000 tax years and did not meet the applicable filing requirements of federal tax law. As a result, Plaintiff Green is precluded from re-litigating the issue regarding whether his “disclosure documents” satisfied the requirements of applicable federal tax law and constituted federal tax returns. Plaintiff Green has also raised a collateral estoppel/res judicata type argument. In substance, Plaintiff Green appears to argue that in the Agreed Bankruptcy Judgment in his First Bankruptcy Case, IRS counsel agreed to accept reports of income on OPM payments as Plaintiff Green’s “sole obligation”, and thus the IRS is somehow “estopped” from taking the position that his treaty-based disclosure documents for 1997, 1999, and 2000 did not satisfy the tax return filing requirements of federal tax law. (DE # 7, p. 9; Agreed Bankruptcy Judgment, DE # 16, pp. 14-15). Plaintiff Green’s argument is completely meritless on several levels. First, the First Bankruptcy Case was filed by Plaintiff Green in 1996, and the adversary proceeding with the IRS in the First Bankruptcy Case could not have addressed subsequent tax liabilities and filing obligations of Plaintiff Green that are at issue in this adversary proceeding (taxes for 1997, 1999, and 2000). Indeed, the Agreed Bankruptcy Judgment expressly deals only with Plaintiff Green’s 1981, 1982, and 1983 tax liabilities. (DE # 16, pp. 14-15, ¶¶ 1-4, 6) Second, the Agreed Bankruptcy Judgment does not even address (expressly or impliedly) Plaintiff Green’s tax liabilities or tax return filing obligations for 1997, 1999 and 2000. Third, the paragraph in the Agreed Bankruptcy Judgment upon which Plaintiff Green seizes, including the phrase “sole obligation”, deals with delivery of OPM forms, with a copy to counsel for the IRS. (DE # 16, p. 15, ¶ 5d). This paragraph has nothing to do with 1997, 1999 and 2000 year tax return filing obligations or treaty-based disclosure documents satisfying federal income tax filing requirements. And finally, if Plaintiff Green really thought the Agreed Bankruptcy Judgment somehow satisfied his tax return filing obligations for the 1997, 1999, and 2000 tax years, he could have and should have raised it in the Tax Court litigation which he filed in 2005, where the issue of his failure to file tax returns for 1997, 1999, and 2000 was litigated by Plaintiff Green with Defendant IRS. Accordingly, for any and all of these reasons, the Court concludes that, as a matter of law, there has not been a return that satisfies the “requirements of applicable nonbankruptcy law (including applicable filing requirements)” under § 523(a)() of the Bankruptcy Code for the Taxes. 359 b. Has there been a “return prepared pursuant to section 6020(a) of the Internal Revenue Code” under § 523(a) () of the Bankruptcy Code for the Taxes? Next, Plaintiff Green argues that the Rule 155 Computation entered into by the parties in Tax Court constitutes a “return” prepared pursuant to IRC § 6020(a). And, as his argument goes, because a IRC § 6020(a) return is a qualifying “return” within the meaning of § 523(a)() for bankruptcy discharge purposes, the Taxes at issue have been discharged. Plaintiff Green’s argument here — that a Rule 155 Computation constitutes a § 6020(a) return — is a novel and unprecedented argument. Section 6020 of the Internal Revenue Code (herein “IRC”) authorizes the IRS to make a return if the taxpayer fails to file a required return. The return can be made pursuant to either IRC § 6020(a) or § 6020(b). Section 6020(a) of the IRC provides the following statutory requirements: If any person shall fail to make a return required by this title or by regulations prescribed thereunder, but shall consent to disclose all information necessary for the preparation thereof, then, and in that case, the Secretary may prepare such return, which, being signed by such person, may be received by the Secretary as the return of such person, (emphasis added). 26 U.S.C. § 6020(a). A return prepared pursuant to § 6020(a) is a return in which the IRS, in cooperation with the taxpayer, fills out a return, usually on a Form 1040 or Form 870, and the taxpayer signs the tax return. See Bergstrom v. United States (In re Bergstrom), 949 F.2d 341, 343 (10th Cir.1991) (citations omitted). Section 6020(a) returns are those “in which a taxpayer has failed to file his or her returns on time nonetheless discloses all information necessary for the I.R.S. to prepare a substitute return that the taxpayer can then sign and submit”. McCoy, 666 F.3d at 928. Here, the Rule 155 Computation entered into on behalf of Plaintiff Green with the IRS in June 2008 (DE # 15-1, pp. 9-29) does not and cannot be considered a valid § 6020(a) return for multiple reasons. First of all, the Rule 155 Computation is simply not a tax return, and is neither on Form 1040, Form 870, or other substitute return form. Second, the Rule 155 Computation was not received by the IRS (Secretary) as a return of the taxpayer Plaintiff Green — which is a statutory requirement for a valid § 6020(a) return. The IRS Account Transcript for the years at issue (DE # 10, pp. 3-11), show substitute returns prepared and received by the IRS in 2002 — almost 6 years before the Rule 155 Computation in June 2008. Such IRS Account Transcript also demonstrates that the IRS (Secretary) did not receive or treat the Rule 155 Computation as a “return”. Third, the Rule 155 Computation was not signed by the taxpayer (Plaintiff Green), which is another statutory requirement of a valid § 6020(a) return (DE # 15-1, pp. 9-29). Furthermore, the Rule 155 Computation entered into on behalf of Plaintiff Green and the IRS was made pursuant to Tax Court Rule 155(a). Tax Court Rule 155(a) permits the parties to submit computations of tax liabilities based on the determinations in the opinion rendered by the Tax Court. Plaintiff Green did not agree to liability through the Rule 155 Computation; Plaintiff Green’s tax counsel signature on the Rule 155 Computation states that it is “without prejudice to the right of appeal, it is agreed that the attached computation is in accordance with the opinion of the Tax Court in this case”. (DE # 15-3601, pp. 10,11). And indeed, Plaintiff Green continued (unsuccessfully) to contest and appeal the Tax Court Decision and his tax liabilities to the Fifth Circuit. The Rule 155 Computation was also entered into in June 2008, many years after Plaintiff Green’s tax returns for the 1997, 1999, and 2000 tax years were due. Under any scenario, even if somehow this Computation constituted “returns”; they were late-filed returns. See McCoy, 666 F.3d at 929-982 (holding that late-filed state income tax return is not a “return” for bankruptcy discharge purposes, unless it is filed under a safe harbor similar to § 6020(a) of the IRC; and indicating the same would be true for federal tax returns); Hernandez v. Internal Revenue Service (In re Hernandez), 2012 WL 78668 (Bankr.W.D.Tex. January 11, 2012) (concluding, in the wake of McCoy, that late-filed federal tax return cannot be treated as a filed return for § 523(a) discharge purposes, unless narrow § 6020 return exception is met). It must also be noted that the Rule 155 Computation in June 2008 was several years after notices of deficiency were issued by the IRS to Plaintiff Green in 2003 and 2005 for the tax years at issue. See Tax Court Opinion (DE # 10, p. 16); Fifth Circuit Opinion (DE # 10, p. 29). Given the timing and context of the Rule 155 Computation, it did not and could constitute a return under § 6020(a) of the Internal Revenue Code, and thus does not qualify as a “return” under § 523(a)() of the Bankruptcy Code. Here, in essence, Plaintiff Green seeks to impermissibly expand the meaning of a § 6020(a) return so he can try to fit within the second sentence of § 523(a)() of the Bankruptcy Code and obtain discharge of his taxes. In McCoy, the Fifth Circuit described the second sentence of § 523(a)() as carving out a “narrow” exception to the definition of return for a § 6020(a) return. McCoy, 666 F.3d at 932; see also Hernandez, 2012 WL 78668 at 4 (concluding that the § 6020 return exception to the § 523(a)() definition of return is a “narrow one”). In light of this narrow exception, the Court cannot accept Plaintiff Green’s extremely broad (and unprecedented) interpretation that the Rule 155 Computation somehow constituted a § 6020(a) return. Accordingly, for any or all of these reasons, the Court concludes that, as a matter of law, there has not been a “return prepared pursuant to § 6020(a) of the Internal Revenue Code” under § 523(a)() of the Bankruptcy Code for the Taxes. c. Has there been a “written stipulation to a judgment or a fínal order entered by a nonbankruptcy tribunal” that would constitute a return under § 523(a)() of the Bankruptcy Code for the Taxes? Plaintiff Green next argues that the Tax Court Decision (and perhaps the Rule 155 Computation) filed and entered in Tax Court, which his counsel signed, qualifies as a “written stipulation to a judgment or final order entered by a non-bankruptcy tribunal” under § 523(a)() of the Bankruptcy Code.4 And, as his argument goes, the Tax Court Decision is thus a “return” within the meaning of § 523(a)() for bankruptcy discharge purposes, and the Taxes at issue have been discharged. Plaintiff Green’s argument here relies primarily on the fact that his counsel signed the Tax Court Decision and Rule 155 Computation. However, the Tax Court Decision signed by his counsel states: “The parties stipulate that the 361foregoing decision is in accordance with the opinion of the Court and the respondent’s computation, and that the Court may enter this decision, without prejudice to the right of either party to contest the correctness of the decision entered herein ” (emphasis added). (DE # 15-1, pp. 30-31). Further, the Rule 155 Computation signed by his counsel (the respondent’s computation referred to in the Tax Court Decision) states: “Without prejudice to the right of appeal, it is agreed that the attached computation is in accordance with the opinion of the Tax Court in this case” (emphasis added). (DE # 15-1, p. 11). Defendant IRS disagrees and argues that only a stipulated Tax Court decision in which taxpayer agreed to a final determination of his taxes for a given year and for which no appeal may be taken, is contemplated by § 523(a)() for tax discharge purposes. This Court must agree with Defendant IRS. The Tax Court is undoubtedly a “nonbankruptcy tribunal” within the meaning of § 523(a)() of the Bankruptcy Code. But the Tax Court Decision (and the Rule 155 Computation) was not a “written stipulation to a judgment or final order” within the meaning of § 523(a)() of the Bankruptcy Code, because Plaintiff Green did not admit to liability, reserved his right to appeal the Tax Court’s determination of his tax liabilities, and in fact, did appeal. The Bankruptcy Code does not define the term “stipulation”, a key word in § 523(a)(). When the Bankruptcy Code does not define a term used in the statute, the Supreme Court has instructed courts to look to the “ordinary meaning” of the term. See Ransom v. FIA Card Services, NA, — U.S. -, 131 S.Ct. 716, 724, 178 L.Ed.2d 603 (2011) (citing Hamilton v. Lanning, — U.S. -, 130 S.Ct. 2464, 177 L.Ed.2d 23 (2010)). In addition, in construing the Bankruptcy Code, the statutory context in which the term is used and the purpose of the statute may be considered. Ransom, 131 S.Ct. at 724-725. Looking to the “ordinary meaning” of the term, “stipulation” is defined as: an agreement relating to a proceeding, made by attorneys representing adverse parties to the proceeding ... <the plaintiff and defendant entered into a stipulation on the issue of liability > ... a stipulation relating to a pending judicial proceeding, made by a party to the proceeding or the party’s attorney, is binding without consideration ... (emphasis added). Black’s Law Dictionary (9th ed. 2009). The statutory context in which the term “stipulation” is used in § 523(a)() is also instructive. Section 523(a)() defines a tax return, for bankruptcy discharge purposes, as including a “written stipulation to a judgment or a final order entered by a nonbankruptcy tribunal”. Thus, the ordinary meaning of the term “stipulation” and the statutory context in which the term is used in § 523(a)(), strongly suggests the stipulation made by the taxpayer must be binding as to liability (such as a judgment) and non-appealable (such as a final order) to qualify as a “return” under § 523(a)(). Here, the Tax Court Decision signed by counsel for Plaintiff Green did neither — it was not binding as to the liability of Plaintiff Green and was expressly appealable. Consideration of the purpose of the BAPCPA amendments, which added § 523(a)() to the Bankruptcy Code, strengthens the Court’s interpretation in this regard. Congress, when drafting § 523(a)(), likely wanted to reward taxpayers that cooperated with the IRS. See McCoy, 666 F.3d at 931 (in the context of differentiating between § 6020(a) and § 6020(b) returns), citing H.R.REP. No. 362109-31 (2005), reprinted in 2005 U.S.C.C.A.N. 88, 92 (hereinafter “House Report”) (explaining that BAPCPA was passed, in part, to address the problems of the bankruptcy system having loopholes and incentives that allow and sometimes encourage opportunistic personal filings). Here, having a taxpayer (like Plaintiff Green) not file income tax returns for the tax years at issue, litigate with the IRS in Tax Court regarding his tax liabilities unsuccessfully, continue to appeal and litigate with the IRS in the Fifth Circuit regarding the tax liabilities (also unsuccessfully), and then file personal bankruptcy shortly thereafter in an effort to discharge the unpaid tax liabilities — can hardly be considered as having cooperated with the IRS. The Court’s interpretation also comports with Congressional purpose behind the non-discharge of certain tax debts. By granting non-disehargeable and priority status to certain income tax claims under § 523(a)(1) of the Bankruptcy Code, Congress intended to provide the IRS with full and unimpeded opportunity to collect income taxes before they can be discharged in bankruptcy. See e.g., Bair v. United States (In re Bair), 240 B.R. 247, 251-52 (Bankr.W.D.Tex.1999) (other citations omitted). If there had been a binding non-appealable stipulation to a Tax Court deficiency judgment by Plaintiff Green (which there was not), then the IRS would have had a sufficient opportunity to assess and collect on the tax liability. On the other hand, if the Tax Court deficiency judgment is appealable and was not final (the situation in our case) the IRS in general must wait until the Tax Court decision becomes final to assess and bring an action to collect the taxes. See 26 U.S.C. § 6213(a) (“... no assessment of a deficiency in respect of any tax imposed ... and no levy or proceeding in court for its collection shall be made ... if a petition has been filed with the Tax Court, until the decision of the Tax Court has become final.”)5 In a similar vein, if the Tax Court Decision and Rule 155 Computation (signed by counsel for Plaintiff Green reserving the right to appeal), constituted a written “stipulation” to a judgment or final order under § 523(a)(), it would undermine the purpose of the nondischargeability provisions of § 523(a)(1)(B). It would enable a taxpayer to file for and obtain discharge of taxes two years after he entered into such a stipulation while reserving the right to appeal liability for the taxes.6 Then, if the taxpayer appealed the Tax Court decision, and considering the time necessary for the appeal to be adjudicated, a taxpayer would be able to file bankruptcy and obtain a discharge of the taxes before the IRS had a sufficient opportunity to attempt to collect the taxes. In our present case, Plaintiff Green filed bankruptcy on June 30, 2010 (two years and just a few days after the Tax Court Decision was entered) and seeks to discharge the Taxes, less than a year after the Tax Court Decision became “final” after his unsuccessful Fifth Circuit appeal, and only a few months after the IRS filed a tax lien to try to collect the Taxes. This would not be consistent with Congressional intent in passing the BAPCPA amendment 363that added § 523(a)(). See supra House Report, (BAPCPA was passed, in part, to address the problems of the bankruptcy system having incentives that allow and sometimes encourage opportunistic personal bankruptcy filings). All of this demonstrates that the appealable “stipulation” entered into in Tax Court by Plaintiff Green (such as the Tax Court Decision and Rule 155 Computation) is not the type of “written stipulation” that would be included within § 523(a)(). The word “stipulate” is present on the last page of the Tax Court Decision merely because the parties stipulated as to the computation of the tax amount based on the Tax Court Opinion, in accordance with Tax Court Rule 155. (DE # 15-1, p. 31; DE # 15-1, pp. 9-11; DE # 8-1, p. 62). Tax Court Rule 155(a) allows the parties to stipulate to a tax computation pursuant to the Tax Court’s determination of the issues, but does not bind the parties to the Tax Court’s determination of the issues. Because this was a stipulation by Plaintiff Green only with regard to the computation of the tax amount based on the Tax Court’s legal decision, and was not a stipulation as to the legal issues and liability decided by the Tax Court, it was not legally binding on Plaintiff Green with regards to the deficiency liability and Plaintiff Green still had the right to appeal the Tax Court Decision (which he did). Furthermore, the IRS Revenue Procedures demonstrate that the Tax Court Decision document in this case was nothing more than the standard decision document submitted by the IRS to the Tax Court any time a decision is entered under Tax Court Rule 155. See Internal Revenue Manual 35.11.1 (Exhibit 35.11.1-200) (“the above stipulated paragraphs are common to all stipulated decisions, including settled cases, Rule 155 cases and cases on remand”). When there is a settled deficiency case as to liability, the proposed decision will usually contain a paragraph stating that the taxpayer “waives the restriction contained in I.R.C. § 6213(a) prohibiting assessment and collection of the deficiency (plus statutory interest) until the decision of the Tax Court has become final.” Id. Here, there is no such waiver by the taxpayer Plaintiff Green in the Tax Court Decision signed by his counsel. This also demonstrates it was merely for a Rule 155 computation situation. Examination of analogous ease law also buttresses the Court’s decision. When parties consent to entry of a judgment, they waive their right to appeal. See Swift & Co. v. United States, 276 U.S. 311, 324, 48 S.Ct. 311, 72 L.Ed. 587 (1928). In the Tax Court context, this rule has been applied to mean that a taxpayer has waived its right to appeal when a taxpayer has stipulated to entry of a Tax Court decision for a tax deficiency. See Tapper v. Commissioner, 766 F.2d 401, 403 (9th Cir.1985) (taxpayer cannot appeal a stipulated decision in Tax Court, when taxpayer’s stipulation provided “it is hereby stipulated that the Court may enter the foregoing decision in this case”); White v. Commissioner, 776 F.2d 976, 978 (11th Cir.1985) (taxpayer who “stipulated” to entry of judgment in Tax Court for reduced tax deficiencies, waived right to appeal). Here, in stark contrast, Plaintiff Green did not waive his right to appeal by his counsel’s signature on the Tax Court Decision (and Rule 155 Computation) — instead Plaintiff Green expressly reserved his right to appeal and to continue to contest the tax liabilities. (DE # 15-1, p. 31; DE # 15-1, p. 11). And in fact, Plaintiff Green appealed the Tax Court Decision to the Fifth Circuit. See Fifth Circuit Opinion, 322 Fed.Appx. at 413 (DE # 10, pp. 28-35). 364Accordingly, for any and all of these reasons and the reasons set forth in Issue # 2 below, the Court concludes that, as a matter of law, there has been no “written stipulation to a judgment or a final order entered by a nonbankruptcy tribunal” that would constitute a return under § 523(a)() of the Bankruptcy Code for the Taxes. d. Has there an “equivalent report or notice” within the meaning of § 523(a)(1)(B) of the Bankruptcy Code that has the effect of discharging the Taxes? As his next argument, Plaintiff Green asserts that his treaty-based “disclosure documents” that he submitted to the IRS were an “equivalent report or notice” under § 523(a)(1)(B) of the Bankruptcy Code. As this argument goes, he did not need to file a tax “return” because he filed an equivalent report or notice, and thus the Taxes have been discharged. In pertinent part, § 523(a)(1)(B) of the Bankruptcy Code provides: (a) A discharge under section 727 ... of this title does not discharge an individual debtor from any debt— (1) for a tax ...— (B) with respect to which a return, or equivalent report or notice, if required— (i) was not filed or given.... 11 U.S.C. § 523(a)(1)(B) (emphasis added). Plaintiff Green interprets § 523(a)(1)(B) to mean that if he filed a “equivalent report or notice,” then he does not have to file a “return” to discharge the Taxes. And, he claims that his treaty-based “disclosure documents” constituted such an “equivalent report or notice” and were filed on time; thus, the Taxes have been discharged. Plaintiff Green is misinterpreting the statutory language of § 523(a)(1)(B), as the “equivalent report or notice” language in the statute is irrelevant because Plaintiff Green failed to file the required “return.” As confirmed by case law and leading commentators, the statute must be interpreted to read that if a debtor-taxpayer fails to file a required return, or fails to file a required notice, or fails to file a required report, then the taxes are excepted from discharge. The purpose of the “equivalent report or notice” language in § 523(a)(1)(B) is to preclude the discharge of debt when the debtor failed to file a report or notice relating to the tax liability that was required in addition to a tax return. This issue was recently addressed by the Fourth Circuit in the case of State of Maryland v. Ciotti (In re Ciotti), 638 F.3d 276, 279-80 (4th Cir.2011). In Ciotti the debtor-taxpayer argued (like Plaintiff Green does here) that Congress amended § 523(a)(1)(B) to “allow dischargeability of tax debt for debtors who failed to file a required return but nevertheless gave or filed an equivalent report or notice”. 638 F.3d at 280. In a well-reasoned opinion, the Fourth Circuit rejected such argument, found that the language of § 523(a)(1)(B) was not susceptible to the debtor-taxpayer’s interpretation, and was not what Congress intended. The Fourth Circuit also stated that through the addition of the language “or equivalent report or notice” to § 523(a)(1)(B), Congress “clearly expanded” (not contracted) the requirements that must be met to discharge taxes in bankruptcy. Id. In the words of the Fourth Circuit in Ciotti “[i]t is apparent from the changes that Congress determined that the same policy reasons that justify precluding the discharge of tax debt when the debtor 365failed to file a return also justify precluding the discharge of the tax debt when the debtor failed to file or give a required report or notice corresponding to that debt.” 638 F.3d at 279-280. Citing to the legislative history of the BAPCPA amendments to the Bankruptcy Code, the Fourth Circuit in Ciotti found that in amending § 523(a)(1)(B), Congress made it applicable not only to the failure to file a required tax return, but also to the failure to file a required “report or notice”. 638 F.3d at 279; swpra House Report. The Court agrees with the Fourth Circuit’s analysis, and finds that Plaintiff Green’s argument that no tax return is required and that just a “report or notice” is sufficient under § 523(a)(1)(B) to discharge taxes, has no merit. The Court’s interpretation of § 523(a)(1)(B) is also consistent with a leading commentator’s reading of the statute, as well as other case law construing this language in § 523(a)(1)(B). For the required “report or notice” language in § 523(a)(1)(B) to be applicable to discharge taxes, the debtor must have filed a tax return. See Collier on Bankruptcy ¶ 523.07[3][a] (Alan N. Resnick & Henry J. Sommer eds., 16th ed. 2010), which states: “[t]he reference to the failure to provide ‘notice’ means that if a debtor is obligated under nonbankruptcy law to file an amended return or give notice to a governmental unit of an amendment or correction to a prior filed federal tax return, the failure to do so will render nondischargeable any corresponding tax liability ...” (emphasis added); Shorton v. Massachusetts (In re Shorton), 375 B.R. 26, 32 (Bankr.D.Mass.2007) (debtor that filed state tax return, but then failed to file a required “report or notice” reflecting adjustments to such filed tax return, resulted in taxes being excepted from discharge under § 523(a)(1)(B)). To accept Plaintiff Green’s interpretation of § 523(a)(1)(B) — that no tax return need be filed, only a report or notice to discharge taxes — would also render the language of § 523(a)() inoperative or superfluous. Section 523(a)* defines “return” as a return that satisfies the requirements of applicable nonbankruptcy law (including applicable filing requirements). If one could just discharge taxes by filing some type of notice or report that is not a tax return, then § 523(a)() and its definition of “return” would become meaningless. This would be contrary to well-established principles of statutory interpretation of the Bankruptcy Code. See Bank of Am. v. 203 LaSalle St. P’ship, 526 U.S. 434, 452, 119 S.Ct. 1411, 143 L.Ed.2d 607 (1999); see also In re Luongo, 259 F.3d 323, 340 (5th Cir.2001) (effect is to be given to every word of a statute if possible, so that no portion of a statute is rendered redundant, inoperative, or superfluous). In short, Plaintiff Green’s treaty-based “disclosure documents” do not constitute a “equivalent report or notice as required” within the statutory language of § 523(a)(1)(B) that would result in the discharge of the Taxes. Plaintiff Green never filed returns for the Taxes, and merely filing a report or notice does not discharge the Taxes. Accordingly, for any and all of these reasons, the Court concludes that, as a matter of law, that Plaintiff Green’s disclosure documents are not an “equivalent report or notice” within the meaning of § 523(a)(1)(B) that has the effect of discharging the Taxes. ISSUE # 1 — Conclusion. Because there is no genuine dispute as to a material fact and the Court concludes as a matter of law that a “return” under § 523(a)() for the Taxes was not “filed or 366given,” Plaintiffs MSJ must be denied and Defendant IRS is entitled to summary-judgment that the Taxes are excepted from discharge under § 523(a)(l)(B)(i) of the Bankruptcy Code. ISSUE #2. Are the Taxes excepted from discharge by § 523(a)(l)(B)(ii)? Plaintiff Green has an additional alternative argument as to why the Taxes should be discharged that the Court will now address separately. Plaintiff Green has argued that the Tax Court Decision was a “return” under § 523(a)(), and thus § 523(a)(1)(B)® does not except the Taxes from discharge. His alternative argument is that the Tax Court Decision rendered on June 27, 2008 was a “final order of a nonbankruptcy tribunal” that qualifies as a “return” under § 523(a)(), even if he did not make a “stipulation” to the Tax Court Decision. Here, basically Plaintiff Green interprets the language in § 523(a)() defining a return as including “a written stipulation to a judgment or a final order entered by a nonbankruptcy tribunal” as providing two separate possibilities that qualify as a return — (1) “a written stipulation to a judgment” and (2) “a final order entered by a nonbankruptcy tribunal” (i.e., the Tax Court). And, taking his argument to its logical conclusion, since the Tax Court Decision constituted a “return” under § 523(a)() when it was entered on June 27, 2008 (and just a few days more than two years before Plaintiff Green’s bankruptcy filing on June 30, 2010), the Taxes have been discharged and the exception to discharge of taxes provided by § 523(a)(1)(B)® and § 523(a)(l)(B)(ii) do not apply. The Court rejects Plaintiff Green’s interpretation of § 523(a)() in this regard because it is contrary to the plain reading of the statute. Alternatively, the Court holds that even if Plaintiff Green’s interpretation is accepted, then the Taxes are still excepted from discharge under § 523(a)(l)(B)(ii) of the Bankruptcy Code. The critical phrase of § 523(a)() at issue is emphasized below: Such term includes a return prepared pursuant to section 6020(a) of the Internal Revenue Code of 1986, or similar State or local law, or a written stipulation to a judgment or a final order entered by a nonbankruptcy tribunal, but does not include a return made pursuant to section 6020(b) of the Internal Revenue Code of 1986, or a similar State or local law. (emphasis added) 11 U.S.C. § 523(a)(). Under Plaintiff Green’s interpretation, the word “stipulation” does not modify the language “final order of a nonbankruptcy tribunal” in § 523(a)(). In other words, he argues that it is not necessary for him to have entered into a written stipulation to the Tax Court Decision for the Decision to be considered a return. Plaintiff Green’s interpretation, however, is contrary to the plain meaning of the statute. The double use of the word “or” as a coordinating conjunction in the phrase (“or a written stipulation to a judgment or a final order entered by a nonbankruptcy tribunal”) is the root of Plaintiff Green’s interpretation. Significantly however, the first “or” in the phrase is preceded by a comma, and the words at the end of the phrase (“nonbankruptcy tribunal”) ends with a comma. The exact statutory language is “,[comma] or a written stipulation to a judgment or a final order entered by a nonbankruptcy tribunal,[comma] ” [added]. Grammatically, this means that “final order entered by a non-bankruptcy tribunal” is the final item in the phrase delineated by the two commas, and demonstrates that the words “written stipulation” modify the words “final order entered by a non-bankruptcy tribunal” as well as words 367“to a judgment”.7 The second “or” in the phrase (relied upon by Plaintiff Green) is not the final possibility in the list of qualified returns in this phrase, but instead includes “final order of a nonbankruptcy tribunal” as an additional type of a “written stipulation” that can operate as a return. Further, Plaintiff Green’s interpretation of the second “or” in the phrase as being exclusive would be in conflict with the statutory rules of construction set forth in the Bankruptcy Code. See 11 U.S.C. § 102(5) (the word “or” is not exclusive). Accordingly, the Court finds that the plain and proper reading of the phrase in § 523(a)() at issue is that a written stipulation to a judgment or a written stipulation to a final order of a nonbankruptcy tribunal, will qualify as a return. Indeed, why would Congress require a “written stipulation to a judgment” by a taxpayer for it to qualify as a tax return for tax debt discharge, but not require a “written stipulation to a final order of a non-bankruptcy tribunal” to qualify as a tax return for tax debt discharge? This is effectively Plaintiff Green’s argument — that a debtor taxpayer only need enter into a written stipulation to a judgment to qualify as a tax return and discharge the taxes, but that a debtor-taxpayer need not enter into a written stipulation as to a final order of a nonbankruptcy tribunal (i.e., the Tax Court) for it to qualify as a tax return and discharge the taxes. Plaintiff Green’s argument and interpretation of the statute would lead to an absurd result, is not in accord with the plain meaning rule, and cannot be accepted by the Court. See e.g., United States v. Ron Pair Enters., Inc., 489 U.S. 235, 241, 109 S.Ct. 1026, 103 L.Ed.2d 290 (1989) (when the statute’s language is plain, the sole function of the courts is to enforce the statute according to its terms where the disposition required by the text is not absurd). Consideration of the purpose of the BAPCPA amendments, which added § 523(a)() to the Bankruptcy Code, strengthens the Court’s reading and interpretation of this central phrase at issue in § 523(a)(). As noted earlier, Congress, when drafting § 523(a)(), likely wanted to reward taxpayers that cooperated with the IRS. See McCoy, 666 F.3d at 931; supra House Report. To reward taxpayers that cooperated with the IRS by entering into a written stipulation as to their tax liability (whether it be a written stipulation to a judgment or a written stipulation to a final order of the Tax Court) would promote this cooperative legislative purpose. On the other hand, to accept Plaintiff Green’s suggestion that no written stipulation to a final order of the Tax Court is necessary to qualify as a “return” and discharge taxes in bankruptcy, would be at odds with this Congressional purpose. In conclusion, the Court determines that the Tax Court Decision was not a “final order of a nonbankruptcy tribunal” that qualifies as a “return” under § 523(a)(), because Plaintiff Green did not enter into a “written stipulation” to the Tax Court Decision. For this reason and the reasons set forth in Issue # 1 above, the Taxes are excepted from discharge under § 523(a)(l)(B)(i) because no return was filed or given for the Taxes. Alternatively, even if Plaintiff Green’s interpretation of this critical phrase in § 523(a)() is correct (i.e., it is not necessary for the debtor-taxpayer to enter into a written stipulation to a final 368order of a non-bankruptcy tribunal to constitute a “return” for tax debt discharge), the Court still concludes that the Taxes are excepted from discharge under § 523(a)(l)(B)(ii).8 Simply put, this is because the order of the non-bankruptcy tribunal (here, the Tax Court Decision) did not become “final” until July of 2009. In pertinent part, § 523(a)(l)(B)(ii) of the Bankruptcy Code provides: (a) A discharge under section 727 ... of this title does not discharge an individual debtor from any debt— (1) for a tax ... — (B) with respect to which a return, or equivalent report or notice, if required— (ii) was filed or given after the date on which such return, report or notice was last due, under applicable law or under any extension, and after two years before the date of filing of the petition, (emphasis added) 11 U.S.C. § 523(a)(l)(B)(ii). In simple terms relevant here, if a “return” is filed or given less than two years before the debtor filed his bankruptcy petition, then the taxes are excepted from discharge under § 523(a)(l)(B)(ii). Without this exception to discharge, a taxpayer that had failed to file tax returns and managed to elude the IRS for many years could file all his returns quickly, immediately file for bankruptcy, and get a discharge of his taxes without providing' the IRS an opportunity to collect the taxes.9 In one of the variations of his multifarious arguments, Plaintiff Green is relying on the Tax Court Decision as the qualifying tax “return” under § 523(a)() of the Bankruptcy Code. Section 523(a)() defines a qualifying tax “return” as including “a final order entered by a nonbankruptcy tribunal.” It is not and cannot be disputed that the Tax Court is a “nonbankruptcy tribunal” and that the Tax Court Decision is an “order” within the meaning of § 523(a)(). The key issue here, however, is whether and when the Tax Court Decision became “final ” — as § 523(a)() expressly requires that the order of the non-bankruptcy tribunal (Tax Court) be “final” to constitute a qualifying tax return. To this point, Defendant IRS argues that the meaning of “final” is defined in the Internal Revenue Code (26 U.S.C. § 7481), because the order at issue is from the Tax Court for a federal income tax liability. The Court agrees. Section 7481 of the Internal Revenue Code (herein “IRC”) is aptly entitled “Date When Tax Court Decision Becomes Final”. In pertinent part, § 7481 of the IRC provides as follows: (a) Reviewable decisions. Except as provided in subsections (b), (c), and (d), the decision of the Tax Court shall become final— (1) Timely notice of appeal not filed. Upon the expiration of the 369time allowed for filing a notice of appeal, if no such notice has been duly-filed within such time; or (2) Decision affirmed or appeal dismissed. (A) Petition for certiorari not filed on time. Upon the expiration of the time allowed for filing a petition for certiorari, if the decision of the Tax Court has been affirmed or the appeal dismissed by the United States Court of Appeals and no petition for certiorari has been duly filed; or (B) Petition for certiorari denied. Upon the denial of a petition for cer-tiorari, if the decision of the Tax Court has been affirmed or the appeal -dismissed by the United States Court of Appeals; or (C) After mandate of Supreme Court. Upon the expiration of 30 days from the date of issuance of the mandate of the Supreme Court, if such Court directs that the decision of the Tax Court be affirmed or the appeal dismissed, (emphasis added) 26 U.S.C. § 7481(a). Here, the Tax Court Decision was entered on June 27, 2008. (DE # 15-1, pp. 30-31). Plaintiff Green then appealed the Tax Court Decision to the Fifth Circuit Court of Appeals. The Fifth Circuit affirmed the Tax Court Decision in all respects by its opinion entered April 23, 2009. See Green v. Commissioner, 322 Fed.Appx. 412, 415 (5th Cir.2009) (DE # 10, p. 28-35) (herein “Fifth Circuit Opinion”). No petition for certiorari was filed with respect to the Fifth Circuit Opinion. Under IRC § 7481(a)(2)(A), when Plaintiff filed a notice of appeal of the Tax Court Decision and the Tax Court Decision was affirmed on appeal by the Fifth Circuit Court of Appeals, the Tax Court Decision became “final” upon expiration of the time for filing a petition for certiorari to the Supreme Court. The time expired for filing a petition for certiorari 90 days after the Fifth Circuit Opinion was issued on April 23, 2009 — which would have been in July 2009. See Sup. Ct. R. 13 (“a petition for writ of certiorari ... is timely when it is filed with the Clerk of this Court within 90 days ... ”). Thus, the Tax Court Decision did not become “final” under IRC § 7481(a) until July 2009. Accordingly, the “return” under § 523(a)() of the Bankruptcy Code upon which Plaintiff Green relies — the Tax Court Decision — did not become “final” until July 2009. Section 523(a)() expressly requires that to be a considered a “return” for tax debt discharge, the order of the nonbankruptcy tribunal (Tax Court) must be “final”. Section 523(a)(l)(B)(ii) of the Bankruptcy Code excepts from bankruptcy discharge a “return” that was filed or given less than two years before the debtor filed a bankruptcy petition. Here, the “return” (the Tax Court Decision) was not filed or given until July 2009 when it became “final”, and Plaintiff Green filed this bankruptcy case in June 2010, less than one year later. Thus, in any event, the Taxes are excepted from discharge under 523(a)(l)(B)(ii) since the “return” was filed or given less than two years before Plaintiff Green filed his bankruptcy case. ISSUE # 2 — Conclusion. There is no genuine dispute as to a material fact and the Court concludes as a matter of law that the Tax Court Decision was not a “final order of a nonbankruptcy tribunal” that qualifies as a “return” under § 523(a)(), because Plaintiff Green did not enter into a “written stipulation” to the Tax Court Decision as required by the statutory language of § 523(a)(). As a result, the Taxes are excepted from discharge under § 523(a)(1)(B)© for this rea370son and the reasons set forth in Issue # 1 above. As an alternative holding, if no “written stipulation” to the Tax Court Decision is required to constitute a “return” under § 523(a)(), the Court finds that there is no genuine issue as to material fact and concludes as a matter of law that the Taxes are still excepted from discharge under § 523(a)(1)(B)(ii) because the Tax Court Decision did not become “final” until July 2009. Therefore, Plaintiffs MSJ must be denied and Defendant IRS is entitled to summary judgment as the Taxes are excepted from discharge under § 523(a)(1)(B)®, or alternatively, § 523(a)(l)(B)(ii) of the Bankruptcy Code. B. VALIDITY OF TAX LIEN AND AMOUNT OF UNPAID TAXES In Plaintiffs MSJ, Plaintiff Green asserted that the federal tax lien filed by the IRS is invalid. In his Complaint, Plaintiff Green also sought a determination of the validity and extent of the federal tax lien on Plaintiff Green’s property and amount of any unpaid taxes. The Court no longer needs to address these issues substantively because the parties have since resolved these issues by a Joint Supplement to Summary Judgment Record (herein “Joint Supplement Stipulation”) filed on February 24, 2012 (DE # 40). In the Joint Supplement Stipulation, Plaintiff Green and Defendant IRS stipulated in this adversary proceeding that (1) if the Court determined that Plaintiff Green’s federal tax liabilities for the years 1997, 1999, and 2000 are not discharged in this bankruptcy case, then as of February 14, 2012, the unpaid amount of Plaintiff Green’s federal tax liability for the 1997 year is $71,087.54, for the 1999 tax year is $4,429.56, and for the 2000 tax year is $3,874.72 (herein “Taxes”); and (2) if the Court determined that the Taxes are not discharged in this bankruptcy case, then the IRS federal tax lien is properly filed in the foregoing amounts and attaches to all of Plaintiff Green’s real and personal property. As the Court has now determined in this Opinion that the Plaintiff Green’s Taxes are not discharged in this bankruptcy case, the Joint Supplement Stipulation between the parties resolves the issues raised by Plaintiff Green as to the validity and extent of the federal tax lien and the amount of unpaid taxes. VI. CONCLUSION AND ORDER Plaintiff Green, a frequent visitor to the Bankruptcy Court, and no stranger to the Tax Court and Fifth Circuit, has raised multiple creative and often novel arguments to the Court regarding why his federal income taxes have been discharged in this bankruptcy case. Although Plaintiff Green may be commended for his ingenuity, in the end the Court cannot accept these arguments as a matter of law. The Court concludes that there is no genuine issue of material fact and as a matter of law, the Taxes owed by Plaintiff Green have not been discharged in this bankruptcy case, the IRS is entitled to summary judgment that the Taxes have not been discharged, and Plaintiff Green’s request for summary judgment must be denied. Accordingly, it is hereby ORDERED that Defendant’s MSJ is GRANTED; it is further ORDERED that Plaintiffs MSJ is DENIED; it is further ORDERED that Plaintiffs outstanding federal tax liabilities for the years 1997, 1999, and 2000 have not been discharged in this bankruptcy case, and as of February 14, 2012, the unpaid amount of Plaintiffs 371federal tax liability for the 1997 year is $71,087.54, for the 1999 tax year is $4,429.56, and for the 2000 tax year is $3,874.72 (herein “Taxes”); it is further ORDERED the IRS federal tax lien is properly filed for the amount of the Taxes and attaches to all of Plaintiffs real and personal property. A separate judgment will be entered by the Court of even date herewith that incorporates this Opinion. . On January 11, 2012, Defendant IRS filed a Motion to Redact (DE #31), seeking to restrict from public access the original Declarations filed in support of its Responses (DE # 28, 32), due to Plaintiff's social security number being contained in an exhibit to the original Declarations. Such Motion was granted (DE # 34), and Corrected Declarations were filed by the IRS on January 11, 2012 (DE #32, 33). . Defendant IRS contends that it prepared '‘6020(b)’' returns for Plaintiff Green for the tax years at issue, and for this reason (among others), Plaintiff Green’s tax liabilities were not discharged in this bankruptcy. (DE # 29, p. 4). In general, section 6020(b) of the Internal Revenue Code ("IRC”) authorizes the Secretary to "make” and "subscribe” a 6020(b) return for a taxpayer that fails to timely file a return. 26 U.S.C. § 6020(b). The factual support in the summary judgment record for the proposition that the IRS prepared 6020(b) returns for Plaintiff Green appears only to be IRS account transcripts (DE # 10, pp. 3-11). The Court is unable to conclude that such IRS transcripts alone are sufficient to establish the fact that the IRS prepared 6020(b) returns for Plaintiff Green in the context of summary judgment. See e.g., Piazza's Seafood, 448 F.3d at 752 (a court should view summary judgment evidence in light most favorable to non-movant). Should this proceeding ever go to trial, Defendant IRS may well be able to prove it prepared 6020(b) returns for Plaintiff Green, but based on the summary judgment evidence, the Court cannot determine that there is no genuine dispute as to this fact. . The first page of the Joint Supplement Stipulation lists the tax liability for the 2000 year as $3,974.72; but the Court assumes this is a typographical error as the attached Exhibit 1 (updated federal tax lien) and Exhibit 2 (updated IRS transcript) show that the tax liability for such year is $3,874.72. . An alternative argument with respect to the Tax Court Decision made by Plaintiff Green under this provision of § 523(a)() is addressed in Issue # 2 below. . As discussed in Issue # 2 below, the term ''final” has a statutorily defined meaning in the Internal Revenue Code. 26 U.S.C. § 7481. . In general, if there is a qualifying "return” filed or given by the taxpayer under § 523(a)(*), then § 523(a)(l)(B)(ii) only excepts from discharge any taxes for which the return was filed or given within two years before the bankruptcy. On the other hand, if the qualifying “return” was filed or given more than two years before the bankruptcy, in general the taxes will be discharged in bankruptcy unless some other exception applies. . See e.g., United States v. Ron Pair Enters., Inc., 489 U.S. 235, 241, 109 S.Ct. 1026, 103 L.Ed.2d 290 (1989) (grammatically, when a phrase in the Bankruptcy Code is set aside by commas, it stands independent of the language that follows). . In Plaintiffs MSJ, Plaintiff Green expressly requested the Court to determine that he has met the requirements of § 523(a)(1)(B) for discharge of the Taxes. (DE # 15, p. 5). Section § 523(a)(l)(B)(ii), addressed in this part of the Court’s Opinion, is part of § 523(a)(1)(B). . Section 507(a)(8) of the Bankruptcy Code basically provides that tax debts are excepted from discharge if the required filing date for such debts was within three years before the bankruptcy petition or the taxes were assessed within 240 days before the bankruptcy petition. Without § 523(a)(l)(B)(ii), if the taxes were for tax years more than three years old, the IRS only has 240 days after assessing the debt to fully collect, otherwise the taxpayer could file bankruptcy and discharge the tax debt.	01-04-2023	11-22-2022
https://www.courtlistener.com/api/rest/v3/opinions/8494731/	MEMORANDUM OPINION ON THIS COURT’S DENIAL OF THE CHAPTER 7 TRUSTEE’S APPLICATION TO EMPLOY ADAIR & MYERS, P.L.L.C. [Docket No. 22] JEFF BOHM, Bankruptcy Judge. I. Introduction The Court writes this Memorandum Opinion on what has heretofore generally been a relatively routine request from a Chapter 7 trustee: namely, an application to employ counsel. The Court has heretofore been willing to approve fairly generic applications to employ such as the one presently pending in the case at bar. The Court, however, is no longer willing to do so. On February 6, 2012, Randy Williams, the Chapter 7 Trustee (the Trustee) for the estate of Stephan Bechuck (the Debt- or), filed an application to employ Adair & Myers, P.L.L.C., (the Firm) pursuant to 11 U.S.C. § 3271 (the Application) [Doc. No. 22]. The Application specifically identifies two of the Firm’s attorneys who will represent the Trustee: Thomas W. Graves (Graves) and Marc Douglas Myers (Myers). Upon review of the Application, the Court concludes that it should be denied without prejudice to refiling. This Court finds that the Application is inadequate because it fails to include sufficient detail regarding the proposed attorneys’ 374qualifications. This Memorandum Opinion will outline the relevant factors that must be included in a trustee’s application for employment. II. Conclusions of Law A. Jurisdiction, Venue, and Constitutional Authority to Sign a Final Order The Court has jurisdiction over this matter pursuant to 28 U.S.C. §§ 1334(b) and 157(a). This matter is a core proceeding pursuant to 28 U.S.C. § 157(b)(2)(A) and the general “catch-all” language of 28 U.S.C. § 157(b)(2). See In re Southmark Corp., 163 F.3d 925, 930 (5th Cir.1999) (“[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.”); De Montaigu v. Ginther (In re Ginther Trusts), Adv. No. 06-3556, 2006 WL 3805670, at 19 (Bankr.S.D.Tex. Dec. 22, 2006) (holding that a matter may constitute a core proceeding under 28 U.S.C. § 157(b)(2) “even though the laundry list of core proceedings under § 157(b)(2) does not specifically name this particular circumstance”). Venue is proper pursuant to 28 U.S.C. § 1408(1). Having concluded that this Court has jurisdiction over this matter, this Court nevertheless notes that Stern v. Marshall, — U.S. -, 131 S.Ct. 2594, 180 L.Ed.2d 475 (2011) sets forth certain limitations on the constitutional authority of bankruptcy courts to enter final orders. Therefore, this Court has a duty to constantly inquire into its constitutional authority to enter a final order for any matter brought before this Court. In the first instance, this Court concludes that its denial of the Application is not a final order because the denial is without prejudice to the refiling of another application seeking approval of the Firm that includes the information discussed in this Memorandum Opinion. See WMX Technologies, Inc. v. Miller, 104 F.3d 1133, 1136-37 (9th Cir.1997) (holding that “when a district court expressly grants leave to amend, it is plain that the order is not final”) (citing Anastasiadis v. S.S. Little John, 339 F.2d 538, 539-40 (5th Cir.1964) (noting a dismissal with leave to amend is not a final appealable order)). Hence, this Court has the constitutional authority to enter the order denying the Application because this order is an interlocutory order. Alternatively, even if the order denying the Application is somehow a final order, this Court nevertheless concludes that it has the constitutional authority to enter the order. The Court arrives at this conclusion because the facts in Stem are entirely distinguishable from those in the case at bar. In Stem, the debtor’s counterclaim was based solely on state law; there was no Bankruptcy Code provision undergirding the counterclaim. Id. at 2611. Moreover, the resolution of the counterclaim was not necessary to adjudicating the claim of the creditor. Id. Under these circumstances, the Supreme Court held that the bankruptcy court lacked constitutional authority to enter a final judgment on the debtor’s counterclaim. Id. at 2620. In the case at bar, the Application is based solely on an express bankruptcy statute and an express bankruptcy rule: 11 U.S.C. § 327 and Bankruptcy Rule 2014. State law has no equivalent to this statute and this rule; they are purely creatures of the Bankruptcy Code. Accordingly, because the resolution of this matter is based on solely bankruptcy law, not state law, Stem is inapplicable, and this Court has the constitutional authority to enter a final order on the Application. 375B. Requirements of a Chapter 7 Trustee in Retaining Counsel for the Estate A Chapter 7 trustee is the representative of the debtor’s estate, and, as such, is entrusted with certain duties regarding the estate. 11 U.S.C. § 704(a); In re McCombs, 436 B.R. 421, 439 (Bankr.S.D.Tex.2010). Under 11 U.S.C. § 327(a), the trustee may obtain approval to appoint professionals to assist him in carrying out his duties as long as: (1) the professional does not hold an interest adverse to the estate; and (2) the professional is a disinterested person, as defined in 11 U.S.C. § 101(14). The Bankruptcy Code does not define the first requirement of § 327(a)— i.e. lack of adverse interest. Case law, however, defines the term “adverse interest” as: (1) the broad commercial and economic meaning of “adverse interest,” and (2) “possessing or asserting any economic interest that would tend to lessen the value of the estate or create either an actual or potential dispute in which the estate is a rival claimant.” In re Red Lion, Inc., 166 B.R. 296, 298 (Bankr.S.D.Tex.1994). “Adverse interest also includes the attorney’s economic and personal interests.” Id. Congress intended the second § 327(a) requirement — the disinterested person standard — “to prevent conflicts of interest without regard to the integrity of the person under consideration for employment.” Id. In the case as bar, the Court concludes that the Firm has no adverse interest to the estate and that the proposed professionals, i.e. Adair & Myers, are disinterested. But, this conclusion does not end the analysis. Aside from the requirements of § 327(a), the trustee must also focus on Federal Rule of Bankruptcy Procedure 2014(a). This rule provides an indication of the factors the trustee should consider in selecting an attorney to represent the estate. See Fed. R. Bankr.P. 2014(a); In re Briscoe Enters., Ltd. II, Bankr.No. 489-44447-MT-11, 1991 WL 303809, at 4 (Bankr.NJD.Tex. Aug. 16, 1991). Rule 2014(a) requires the trustee to include six categories of information in the application to appoint counsel: (1) the specific facts demonstrating the necessity for employing the attorney; (2) the name of the attorney the trustee wishes to hire; (3) the reasons for selecting the attorney; (4) the professional services the attorney will provide; (5) any proposed fee arrangement; (6) and, “to the best of the applicant’s knowledge, all of the person’s connections with the debtor, creditors, and any other party in interest, their respective attorneys and accountants, the United States trustee, or any person employed in the office of the United States trustee.” Fed. R. Bankr.P. 2014; In re Kuykendahl, 112 B.R. 847, 849 (Bankr.S.D.Tex.1989). Additionally, case law places the burden upon the applicant “to come forward with facts pertinent to eligibility.” In re Huddleston, 120 B.R. 399, 400 (Bankr.E.D.Tex.1990). This Court has substantial discretion to grant an application to employ a professional for the estate. In re Bigler, LP, 422 B.R. 638, 643 (Bankr.S.D.Tex.2010). In evaluating an application, this Court focuses on whether the proposed professional will maximize value for the estate, and the Court exercises its discretion accordingly. In re Lyons, 439 B.R. 401, 405 (Bankr.S.D.Tex.2010). If an application lacks sufficient information to convince the Court that the proposed professional is the best choice to represent the estate, the Court has discretion to deny the application. In re McConnell, 82 B.R. 43, 44 (Bankr.S.D.Tex.1987). Accordingly, in evaluating the Application in this case, the Court will examine whether it provides sufficient detail pursuant to Bankruptcy Rule 2014 about Graves and Myers for this 376Court to conclude that the retention of the Firm is the best choice to represent the estate. The Court concludes that it does not. C. Reasons for the Denial of the Application. 1. The Application fails to disclose the history of success that Graves and Myers have had in past representations of the Trustee. To convince this Court of an attorney’s qualifications, an application must include an explanation as to why the proposed attorney is the best choice to represent the Chapter 7 estate. Huddleston, 120 B.R. 399 at 400. Part of this explanation should include the attorney’s history of success in past representation of the trustee. Here, the Application is limited to a single conclusory statement that Graves and Myers “have previously represented [the Trustee] in numerous chapter 7 and chapter 11 proceedings.” [Doc. No. 22], There is no further explanation regarding their qualifications. While the Application indicates, in a generic sense, that these attorneys have experience with bankruptcy law, without further explanation, this statement is too vague. Further, the mere fact that these attorneys have previously represented the Trustee does not give the Court any indication whether they were successful in achieving the tangible, identifiable, and material benefits for the estate required by In re Pro-Snax, 157 F.3d 414, 426 (5th Cir.1998). Thus, the Court is not left with a sound basis to grant the Application. Merely having experience does not instill confidence in this Court that the Trustee has actively sought out the best candidate to represent the estate in this particular case. Convincing this Court requires concrete examples of success, not general references to the attorneys’ experience in bankruptcy. 2. The Application fails to discuss how often Graves and Myers have actually undertaken the specific tasks assigned to them in this particular case. An application for employment of a professional must include a section itemizing the scope of the assignment. See Fed. R. Bankr.P. 2014(a) (requiring an application to appoint professionals pursuant to § 327 to include the “professional services to be rendered”). Each enumerated item should include a detailed description of the attorney’s assignment and duties.2 The Application satisfies this requirement; however, it lacks any discussion of how often Graves and Myers have actually undertaken these specific tasks in past representation of trustees. For example, one of the specific tasks set forth in the Application is that Graves and Myers will “analyze, institute, and prosecute actions regarding insider transactions and third party dealings.” [Doc. No. 22], The Application contains no discussion as to how many times have these two attorneys have actually filed such adversary proceedings and prosecuted them to conclusion in a trial. This information is important because this Court needs to know whether these attorneys have the actual experience of obtaining a judgment in a full blown trial. The reason is simple: any attorney representing a defendant will drive a much harder bargain in settlement discussions if that attorney knows that counsel for the Trustee has never tried a dispute to its 377conclusion. This is key information to disclose because the Trustee has a fiduciary duty to maximize the value of the estate. 11 U.S.C. § 704(a); In re Johnson, 433 B.R. 626, 638 (S.D.Tex.2010). This duty cannot be satisfied if the Trustee is allowed to retain counsel whose inexperience or inability to actually try a lawsuit (a) emboldens opposing counsel to make low ball settlement offers that the trustee’s counsel, out of fear of trying a lawsuit, urges the trustee to accept; and (b) leads the trustee to settle cheaply out of fear that his counsel will utterly fail at trial. 3. Other reasons for denial of the Application. i. Personal relationships are not relevant factors that should be included within the Application. The Application sets forth that one reason, among others, to employ the Firm is that the Trustee and Graves “have a personal friendship, which has fostered [the Trustee’s] confidence and trust in the Firm’s competence to represent [the Trustee].” [Doc. No. 22], The nature of the personal relationship between the Trustee and the proposed attorney is irrelevant as to the attorney’s qualifications and should not be included in the Application. Indeed, the argument that the Application should be approved due to this personal relationship actually undermines the Application because it could be viewed as a conflict between the proposed attorney and the Trustee under Rule 2014. The selection of attorneys by Chapter 7 trustees has been described as a breeding ground for cronyism. In re Aladdin Petroleum Co., 85 B.R. 738, 740 (Bankr.W.D.Tex.1988); In re Philadelphia Mortg. Trust, 930 F.2d 306, 309 (3d Cir.1991); see In re Arkansas Co., Inc., 798 F.2d 645, 649 (3d Cir.1986) (stating that the Code “was designed to eliminate the abuses and detrimental practices ... [such as] the cronyism of the ‘bankruptcy ring’ and attorney control of bankruptcy cases.”). A personal friendship has no relevance to retention of a professional; what counts is demonstrated competence for the specific tasks germane to the Chapter 7 case so that the chances are maximized that a tangible, identifiable, and material benefit will be obtained for the estate. Stated differently, the Trustee has a fiduciary duty to bring in funds, not friends. ii. It is not in keeping with the spirit of the Trustee’s fiduciary duty to the estate to allow the proposed attorneys to sign the Trustee’s name with permission on a form application to employ. The Application is signed by Myers rather than by the Trustee himself. [Doc. No. 22]. The signature line reflects that the Trustee gave Myers permission to sign his name on the Application. [Doc. No. 22], There is no question that the Trustee has the right to give Myers permission to sign his name; no rule is violated by so doing. There is, however, a hollowness to this approach. It reflects that the Application is nothing more than a form pleading on the Firm’s system, and that whenever the Trustee decides to hire the Firm, it is this form which is spit out and filed — thereby creating the impression, if not the reality, that the Trustee is really not giving much thought on a case-by-case basis about why he wants to hire the specific attorneys he has chosen and why they are the most qualified attorneys for the relevant tasks in the present case. The Court believes that the Trustee, in order to fulfill his fiduciary duty to the estate, must take the time to make an independent judgment in each case as to whom he wants to hire and why he wants to hire a particular attorney or attorneys. Allowing a proposed attorney to file a form application signed by that attorney with permission of the Trustee creates the appearance that the Trustee is not making a concerted effort to fulfill his fiduciary duty *378to choose the best attorney for the estate to maximize the value of its assets. III. CONCLUSION The Court recognizes that this opinion will be unsettling to Chapter 7 trustees and some attorneys who have been representing these trustees over the past several years. The culture of Chapter 7 trustee representation has involved repeated retention of the same attorneys who have become accustomed to being retained out of friendship and reciprocal retention. This environment has led the trustees to lose focus of finding and seeking approval of the most aggressive and qualified attorneys who are willing to fight hard — both in and out of court — to maximize the value of the estate. The Court hopes that by requiring future employment applications to discuss the trial experience and success history of the attorneys whom they propose to hire — in addition to reviewing the hourly rates of these attorneys and other relevant factors — the Chapter 7 trustees in this District will hire attorneys who will generate maximum proceeds for distribution to creditors. The Court also wants to disabuse any reader of this Memorandum Opinion that the Court is unwilling to approve employment of attorneys who have only been practicing for one or two years as opposed to twenty or thirty years. Recognizing that this Court has substantial discretion in approving applications to employ, three key factors in this Court’s analysis of any application seeking to employ an attorney with only a few years’ experience will be: (1) How well have those less experienced attorneys done on those tasks on which they have already worked in other cases— that is, have their services rendered a tangible, identifiable, and material benefit?; (2) Do the less experienced attorneys have the willingness and savvy to aggressively prosecute the adversary proceeding and tenaciously negotiate with opposing counsel?; and (3) What are their hourly rates compared to the hourly rates of more experienced attorneys who are competing against them for trustee representation?3 It is this Court’s duty to make these assessments on a case-by-case basis, just as it is a trustee’s duty to consider these issues on a case-by-case basis. As noted previously, the Court is denying the Application without prejudice to the Trustee filing another application that provides the information in accordance with this Opinion. An order consistent with this Opinion will be entered on the docket simultaneously with the entry of this Opinion. . Any reference to “the Code” refers to the United States Bankruptcy Code, and reference to any section (i.e. § ) refers to a section in 11 U.S.C., which is the United States Bankruptcy Code unless otherwise noted. Further, any reference to “the Bankruptcy Rules” refers to the Federal Rules of Bankruptcy Procedure. . If, however, the trustee believes that too much specificity could alert putative defendants that a lawsuit is soon to be filed— thereby affording them an opportunity, for example, to quickly transfer money or other property out of the reach of the trustee — then the trustee is certainly entitled to file the application under seal. 11 U.S.C. § 107(b); Fed. R. Bankr.P. 9018. . The Court does not want to suggest that it will not consider factors other than the three indicated herein. Indeed, there may well be other factors that need to be considered, depending upon the specific needs of the trustee. The Court expects the trustee to raise any other factors that he or she believes merit bringing to this Court's attention.	01-04-2023	11-22-2022
https://www.courtlistener.com/api/rest/v3/opinions/8494734/	447 MEMORANDUM OPINION AND DECISION RICHARD L. SPEER, Bankruptcy Judge. This cause comes before the Court on the Motion for Summary Judgment filed by the Plaintiff/Trustee, John N. Graham. (Doc. No. 16). The Plaintiffs Motion for Summary Judgment is brought in support of his complaint to avoid certain prepetition transfers made to the Defendant, the Huntington National Bank. (Doc. No. 1). Against the Plaintiffs Motion for Summary Judgment, the Defendant filed an objection, with the Plaintiff then filing a reply thereto. (Doc. No. 18 & 22). The Court has now had the opportunity to review the arguments made by the Parties in support of their respective positions. Based upon this review, the Court, for the reasons set forth herein, finds that the Plaintiffs Motion for Summary Judgment should be Granted. FACTS There are three Debtors in this case: (1) MedCorp, Inc.; (2) Stickney Avenue Investment Properties, LLC; and (3) Med-Corp E.M.S. South, LLC. (Hereinafter referred to collectively as the “Debtors”). The Debtors were formerly engaged in the business of operating an ambulance service; whereby they provided emergency and non-emergency transportation services for persons in need of medical care. For their business operations, the Defendant, the Huntington National Bank (hereinafter the “Bank”), extended credit to the Debtors. The extension of credit included obligations set forth in a “Credit and Security Agreement,” dated August 28, 2009 which provided for: (1) a revolving credit facility in the principal amount of $7,500,000.00; and (2) a term loan in the principal sum of $4,100,000.00. As of January 28, 2011, there was an outstanding balance on the revolving loan in the amount of $6,075,296.07, and a balance of $3,529,070.03 outstanding on the term loan. In exchange for the Bank’s extension of credit, the Debtors granted the Bank a security interest in substantially all of 448their assets. According to the Bank, its security interest extended to the vehicles the Debtors used to operate their business — these vehicles being primarily ambulances and other similar vehicles. The certificates of titles produced for these vehicles, however, do not show the existence of the Bank’s lien on any of the titles. (Doc. No. 17). Also, there is no evidence that a notation of the Bank’s lien had been entered into an automated processing system used by the clerk of the common pleas court of Ohio for recording liens on vehicles. In June of 2011, the Debtors’ business assets and operations were set to be sold to a third party through a state-court receivership. This sale, however, was stayed when, on June 10, 2011, the Debtors filed petitions in this Court for relief under Chapter 11 of the United States Bankruptcy Code. An order was thereafter entered, providing for the joint administration of the Debtors’ three bankruptcy cases. On June 17, 2011, the Plaintiff, John Graham, was appointed as trustee for the Debtors’ bankruptcy estate pursuant to § 1104 of the Code. During the administration of their case, the Court entered an order approving the Debtors’ use of cash collateral. Among the terms of this Order, the Bank was granted a postpetition lien in estate assets. (Case No. 11-38239, Doc. No. 145). Specifically, the Order provided that, to the extent of any diminution in the Bank’s interest in prepetition collateral, the Bank would granted a “replacement security interests and liens (to the same extent, validity, enforceability, perfection and priority as security interest and liens that Huntington had immediately preceding the Petition Date).... ” The Court’s cash collateral order then went on to further delineate the scope of the Bank’s postpetition interest in estate property. First, the Order specified that: Nothing in this Order will be deemed to grant Huntington a lien or security interest on assets held by Debtor but not subject to Huntington’s liens or security interest on the Petition Date, excepting only (i) a replacement lien equal to ten percent (10%) of fees paid to Debtor’s receiver/custodian from Cash Collateral pursuant to the order of this Court, and (ii) a replacement lien equal to such other administrative expenses of Debtor or the Trustee paid from Cash Collateral; in either case Huntington shall be granted a corresponding replacement lien in any unencumbered assets, should they exist. The Court’s cash collateral Order then further provided: Notwithstanding anything contained in this Order to the contrary, including but not limited to this paragraph, Huntington shall have no right or interest in any avoidance actions or causes of action under sections 542, 544, 545, 547, 548, 549, 550, 551, or 553 of the Bankruptcy Code or proceeds thereof, (collectively, the “Avoidance Actions”) for or on account of the Replacement Liens. On October 3, 2011, the Court entered an order approving the sale of substantially all of the Debtors’ assets pursuant to Bankruptcy Code § 363. The parties to this sale and the terms of this sale were substantially identical to those originally proposed during the pendency of the state-court receivership. On September 23, 2011, the Trustee, citing to § 544(a)(1) of the Bankruptcy Code, commenced this proceeding to avoid any security interests or liens claimed by the Bank in those vehicles the Debtors formerly used to operate their business. DISCUSSION In his Complaint, the Trustee asks that the Court enter a “judgment declaring 449that any interest Huntington may have possessed in any of the vehicles that was not properly perfected under Ohio law is avoided pursuant to 11 U.S.C. § 544, and therefore, the Trustee may sell the vehicles free and clear of any lien Huntington claims to have upon the vehicles[.]” (Doc. No. 1). This matter, as it requires the Court to make a determination concerning the validity, extent, or priority of liens in a bankruptcy case, is a core proceeding pursuant to 28 U.S.C. § 157(b)(2)(E). Thus, this Court has the jurisdictional authority to enter final orders and judgments in this proceeding. 28 U.S.C. § 157(b)(1). Legal Framework The Bankruptcy Code recognizes two types of claims: (1) secured; and (2) unsecured.1 In re Reg'l Bldg. Sys., Inc., 273 B.R. 423, 469 (Bankr.D.Md.2001). A secured claim is defined by the Bankruptcy Code to mean “[a]n allowed claim of a creditor secured by a lien on property in which the estate has an interest ... to the extent of the value of such creditor’s interest in the estate’s interest in such property.” 11 U.S.C. § 506(a)(1). As used in this provision, the term ‘lien’ “means charge against or interest in property to secure payment of a debt or performance of an obligation.” 11 U.S.C. § 101(37). This term is often used interchangeably with the term “security interest” which the Code defines as a “lien created by agreement.” 11 U.S.C. § 101(51). In re Spaniak, 221 B.R. 732, 735 (Bankr.W.D.Mich.1998). The distinction between a secured creditor, holding a lien against estate assets, and an unsecured creditor, who does not have any specific interest in estate property, carries with it a number of implications. Of import, it is the general rule that liens will “pass through bankruptcy unaffected.” Dewsnup v. Timm, 502 U.S. 410, 418, 112 S.Ct. 773, 116 L.Ed.2d 903 (1992). As explained by the United States Supreme Court: “a bankruptcy discharge extinguishes only one mode of enforcing a claim — namely, an action against the debtor in personam— while leaving intact another — namely, an action against the debtor in rem.” Johnson v. Home State Bank, 501 U.S. 78, 79, 111 S.Ct. 2150, 2151, 115 L.Ed.2d 66 (1991). This, however, is not always the case. In certain circumstances, a creditor holding an otherwise valid lien may have that lien avoided through the bankruptcy process. But for a lien to be avoided in bankruptcy, the party seeking avoidance is required to take some sort of affirmative action to have the lien avoided. As well, the avoidance of the lien must be based upon a specific statutory provision. CenPen Corp. v. Hanson, 58 F.3d 89, 92-93 (4th Cir.1995). In this matter, nothing submitted by the Trustee directly challenged the position espoused by the Bank that, based upon its “Credit and Security Agreement” with the Debtor, it held liens against substantially all of the Debtors’ assets, including the vehicles formerly used by the Debtors in the operation of their business. Instead, it is the position of the Trustee that any security interests/liens claimed by the Bank in the Debtors’ vehicles are now subject to avoidance as a part of this bankruptcy process. As authority for this position, the Trustee’s Complaint relies on 11 U.S.C. § 544(a)(1). 11 U.S.C. § 544(a)(1) Section 544(a)(1) of the Bankruptcy Code, otherwise known as the strong-arm clause, provides: 450(а) The trustee shall have, as of the commencement of the case, and without regard to any knowledge of the trustee or of any creditor, the rights and powers of, or may avoid any transfer of property of the debtor or any obligation incurred by the debtor that is voidable by— (1) a creditor that extends credit to the debtor at the time of the commencement of the case, and that obtains, at such time and with respect to such credit, a judicial lien on all property on which a creditor on a simple contract could have obtained such a judicial lien, whether or not such a creditor exists[.] The substance of § 544(a)(1) is to confer upon a bankruptcy trustee, at the commencement of a bankruptcy case, the status of a hypothetical judicial lien holder, and then to allow the trustee to avoid any liens claimed by a creditor in estate property to the extent that, as against the creditor’s lien, the trustee’s hypothetical judicial lien would be superior in right. The party moving for the applicability of § 544(a)(1), here the Trustee, carries the burden of proof to show the applicability of the provision. In re Brouillette, 389 B.R. 214, 218 (Bankr.D.Kan.2008). For his burden, the Trustee set forth in his Complaint that the liens held by the Bank in the Debtors’ vehicles are subject to avoidance under § 544(a)(1) based on this deficiency: The liens were not properly perfected. Perfection is the process by which a party, who seeks to claim an interest in a debtor’s property, takes the necessary steps to protect its interest against competing claims in the same collateral, usually by providing notice of the interest. BlacK’s Law DictionaRY 1137 (9th ed. 1990). Perfection is to be contrasted with a lien’s creation, sometimes called attachment, which concerns whether the lien is enforceable between the respective parties. Drown v. Perfect (In re Giaimo), 440 B.R. 761, 766-68 (6th Cir. BAP 2010). Under the Uniform Commercial Code, a party obtaining a judicial lien on a debtor’s property will normally take priority over an unperfected security interest. UCC 9-317. For purposes of § 544(a)(1), this means that a creditor holding an un-perfected, or improperly perfected lien against a debtor when a bankruptcy case is filed may be subject to having their lien avoided by the trustee. Malloy v. Wilserv Credit Union (In re Harper), 516 F.3d 1180, 1182 (10th Cir.2008); see also Simon v. Chase Manhattan Bank (In re Zaptocky), 250 F.3d 1020, 1023 (6th Cir.2001). (section 544(a)(1) is commonly employed to void unperfected liens and security interests in personal property). The policy rationale of § 544(a)(1) is to maximize the estate assets available to a debtor’s general body of unsecured creditors by preventing the creation and enforcement of secret or undisclosed liens. Consol. Partners Inv. Co. v. Lake, 152 B.R. 485, 490 (Bankr.N.D.Ohio 1993). Whether a lien is properly perfected and whether a judicial lien takes priority over an unperfected lien is a determination made according to applicable, nonbankruptcy law. See Butner v. United States, 440 U.S. 48, 54, 99 S.Ct. 914, 918, 59 L.Ed.2d 136 (1979) (property rights in a debtor’s assets are determined by state law). For this purpose, this means that Ohio law is applicable since the liens sought to be avoided by the Trustee are held against vehicles titled in Ohio. Ohio law follows Article 9 of the Uniform Commercial Code by affording a judicial lien priority over an unper-fected hen in personal property. As set 451forth in § 1309.317(A)(2) of the Ohio Revised Code: (A) A security interest or agricultural lien is subordinate to the rights of: (2) Except as otherwise provided in division (E) of this section, a person who becomes a lien creditor before the earlier of the time: (a) The security interest or agricultural lien is perfected!)] The creation of a security interest in a motor vehicle is also governed by Article 9 of Ohio’s Uniform Commercial Code. In re Giaimo, 440 B.R. at 767 (“Article 9 of the UCC, as adopted and enacted by Ohio, governs her claim to a security interest in the Debtor’s vehicle.”). However, unlike most other interests in personal property, the determination of whether a security interest in a motor vehicle is properly perfected is governed not by Article 9, but by Ohio’s “Certificate of Motor Vehicle Title Law,” O.R.C. § 4505.13. Under § 4505.13 it is provided: (B) Subject to division (A) of this section, any security agreement covering a security interest in a motor vehicle, if a notation of the agreement has been made by a clerk of a court of common pleas on the face of the certificate of title or the clerk has entered a notation of the agreement into the automated title processing system and a physical certificate of title for the motor vehicle has not been issued, is valid as against the creditors of the debtor, whether armed with process or not, and against subsequent purchasers, secured parties, and other lienholders or claimants. Therefore, pursuant to § 4505.13(B), motor vehicles — not subject to division (A) of this section, regarding dealer inventory— may only be perfected by two methods. First, if a certificate of title has not been issued, the lien may be perfected by the clerk of the common pleas court noting the lien on the automated title processing system established by the State of Ohio. Second, and more commonly, where a certificate of title has been issued for a motor vehicle, a creditor can only perfect their interest in the vehicle by noting the security agreement on the vehicle’s certificate of title. As recently explained by the Bankruptcy Appellate Panel for the Sixth Circuit: Under Ohio law, perfection of a security interest is generally accomplished through the filing of a financing statement. However, this method of perfection is inapplicable in the case of motor vehicles. Under Ohio’s Certificate of Motor Vehicle Title Act, except for vehicles held as inventory, the notation of a lien on the vehicle’s certificate of title is the exclusive manner by which a security interest is perfected in a motor vehicle. In re Giaimo, 440 B.R. at 765. As presented to the Court, when the Debtors commenced their bankruptcy cases on June 17, 2011, none of the certificate of titles issued for the Debtors’ vehicles reveals a lien held by the Bank against the vehicles. At this same time, there is also no indication that, for those vehicles owned by the Debtors, but for which no certificate of title was issued, the clerk of the common pleas court had entered a notation of the Bank’s lien into the automated title processing system. Accordingly, for purposes of O.R.C. § 4505.13(B), any security interests held by the Bank in the Debtors’ vehicles were not perfected, thereby subjecting the interests to avoidance by the Trustee under § 544(a)(1). In opposition to the Trustee’s avoidance action, the Bank did not take direct issue with the above deficiencies as they pertain to O.R.C. § 4505.13(B). Instead, it is the 452Bank’s position that any deficiencies as they relate to O.R.C. § 4505.13(B) were cured by the cash collateral order entered by this Court. In this Order, the Bank was granted a “replacement lien” on certain unencumbered estate assets for the purpose of providing it with “adequate protection” of its prepetition interests in the Debtors’ property. The purpose of adequate protection is to guard a secured creditor against any decrease in the value of its collateral resulting from depreciation, destruction or the debtor’s use of the collateral. In re Panther Mountain Land Development, LLC, 438 B.R. 169, 188 (Bankr.E.D.Ark.2010). The concept of adequate protection is founded on the Fifth Amendment to the United States Constitution, and its protection of private property interests. Id. Consistent with the Bank’s position, a court may, as a means of affording a creditor “adequate protection” of its interest in a debtor’s property, grant a creditor a “replacement lien” in estate property. In § 361(2) of the Bankruptcy Code, it is provided: When adequate protection is required under section 362, 363, or 364 of this title of an interest of an entity in property, such adequate protection may be provided by— (2) providing to such entity an additional or replacement lien to the extent that such stay, use, sale, lease, or grant results in a decrease in the value of such entity’s interest in such property!.] (emphasis added). This provision is often used, as is the situation here, where a creditor’s lien has been cut off by the effect of § 551(a)2 which operates to generally nullify any lien resulting from any security agreement entered into by the debtor before the commencement of the case to the extent that such a lien would encumber estate property. Collier on Bankruptcy P 361.03 (Alan N. Resnick & Henry J. Sommer eds., 16th ed.). Because matters concerning “adequate protection” are “core proceedings,” thereby conferring on the bankruptcy court jurisdiction to enter final order and judgments, the extent and scope of a replacement lien afforded to a creditor under § 361(2) is delineated entirely by the court’s order providing the lien. In re UAL Corp., 297 B.R. 710, 712 (Bankr.N.D.Ill.2003). To this end, a replacement lien conferred upon a creditor under § 361(2) may enlarge, diminish or simply leave in place the scope of a creditor’s prepetition interest in a debtor’s property. It would also appear that, consistent with the Bank’s position, a lien afforded to a creditor under § 361(2) may be delineated in such a way so as to cure prepetition defects that existed in the creditor’s lien, such as in the Bank’s situation where its prepetition liens were not properly perfected. For example, in the case of Small v. Beverly Bank, the Seventh Circuit Court of Appeals held that, notwithstanding that a lien afforded by a bankruptcy court’s order was not perfected in accordance with procedures provided under applicable state law, the lien holder was still entitled to rely on the language of the bankruptcy court’s order which provided that its lien would be valid, perfected and enforceable without need for any further action. 936 F.2d 945, 948-49 (7th 453Cir.1991) (involving a superpriority lien afforded to a creditor under § 364). See also In re Murphy, 226 B.R. 601, 608 (Bankr.M.D.Tenn.1998) (as adequate protection for the unavoidable portion of a creditor’s lien in a motor vehicle, the court conditioned turnover of the vehicle on the debtor noting the creditor’s lien on the vehicle’s title). The Bank’s position, thus, necessarily hinges on whether this Court’s cash collateral order can be read so as to insulate the Bank from a lien avoidance action under § 544(a)(1) by affording it a first priority and unavoidable perfected lien against the Debtors’ vehicles. As with any order, the court entering the order is in the best position to interpret it. See, e.g., Colonial Auto Ctr. v. Tomlin (In re Tomlin), 105 F.3d 933, 941 (4th Cir.1997) (“The bankruptcy court was in the best position to interpret its own orders.”). When this Court issues an order, affording a creditor a hen in estate assets, this general bankruptcy tenet is applied: Absent express statutory authority or unusual circumstances, a creditor should not be placed in a better position simply on account of a debtor’s bankruptcy. Davis v. Davis, 170 F.3d 475 (5th Cir.1999). As it regards the Bank’s replacement hen, this Court’s cash collateral order applies this principle by initially providing that the replacement hen would only extend “to the same extent, validity, enforceability, perfection and priority as security interest and hens that Huntington had immediately preceding the Petition Date....” Specific language contained in a court order, of course, will normally override language of a more general nature. Relying on this construct, the Bank cites to the following language in this Court’s cash collateral order as the basis for its position: Nothing in this Order will be deemed to grant Huntington a hen or security interest on assets held by Debtor but not subject to Huntington’s hens or security interest on the Petition Date, excepting only (i) a replacement hen equal to ten percent (10%) of fees paid to Debtor’s receiver/custodian from Cash Collateral pursuant to the order of this Court, and (ii) a replacement hen equal to such other administrative expenses of Debtor or the Trustee paid from Cash Collateral; in either case Huntington shall be granted a corresponding replacement hen in any unencumbered assets, should they exist. Consistent, therefore, with this Order, the Bank holds a replacement hen on unencumbered estate assets in an amount equal to total administrative expenses and 10% of receiver’s fees paid from its cash collateral. This, according to the Bank, affords it an interest in the Debtors’ vehicles because its “replacement hen would encumber the motor vehicles’ sale proceeds, even if it has no security interest in the vehicles themselves, it would be entitled to these proceeds.” (Doc. No. 18, at pg. 4). The Bank’s reading of its interest in the Debtors’ motor vehicles, however, misconstrues this Court’s Order. In order for a creditor to have, as the Bank argues, an interest in any “proceeds” arising from a sale of collateral, the creditor must have, in the first instance, a valid and enforceable interest in the underlying collateral. Proceeds, in this regard, may be defined as “whatever is received upon the sale, exchange, collection or other disposition of collateral or proceeds.” BlaCK’s Law DICTIONARY 1205 (9th ed. 1990) (defining proceeds). See also UCC 9-102(64).3 454In this case, however, by virtue of the Trustee exercising his strong-arm powers under § 544(a), which arise immediately upon the commencement of a bankruptcy case, any prepetition interests held by the Bank are retroactively void from the time the Debtors filed their bankruptcy cases. McRoberts v. Transouth Financial (In re Bell), 194 B.R. 192, 197 (Bankr.S.D.Ill.1996). Consequently, for purposes of their bankruptcy cases, the Bank had no interest in the Debtors’ vehicles, and thus the Bank cannot, by definition, have an interest in any “proceeds” received from the sale of the vehicles. In this regard, the effect of § 544(a)(1) is to entirely void a creditor’s interest in a debtor’s property — as opposed to subordinating the interest, as is often the case under state law— leaving the effected creditor with only an unsecured claim against the debtor’s estate. Id., at 195. The avoided interest is then automatically preserved for the exclusive benefit of the bankruptcy estate. 11 U.S.C. § 551. Even leaving the above discussion aside, there exists a further impediment to the Bank’s position. In this Court’s cash collateral order, it was provided: Notwithstanding anything contained in this Order to the contrary, including but not limited to this paragraph, Huntington shall have no right or interest in any avoidance actions or causes of action under sections 542, 545, 547, 548, 549, 550, 551, or 553 of the Bankruptcy Code or proceeds thereof, (collectively, the “Avoidance Actions”) for or on account of the Replacement Liens, (emphasis added). This provision, by excluding the Bank from any interest in an avoidance action brought by the Trustee under § 544(a), clearly shows that it was not the intent of this Court’s cash collateral order to protect the Bank, or for that matter any other creditor, from an avoidance action brought by the Trustee. To hold otherwise would render the provision largely superfluous, thereby going contrary to settled rules of interpretation. See 2A Sutherland Statutory Construction § 46:5 (7th ed.). In summation, any prepetition security interest arising in favor of the Bank against the Debtors’ vehicles is subject to avoidance by the Trustee under § 544(a)(1) as the interests were not perfected in accordance with Ohio law. Moreover, contrary to the Bank’s position, the replacement lien afforded to it by this Court’s cash collateral order did not extend to, and was specifically excluded, from any action brought by the Trustee to avoid the Bank’s interest in the Debtors’ vehicles. As well, the replacement lien cannot be read so as to extend to the proceeds received from any sale of the vehicles by the Trustee. Before concluding, one final issue needs to be addressed. The Bank, in its response to the Trustee’s Motion for Summary Judgment, suggested that there is a procedural defect in the Trustee’s action. Specifically, the Bank stated that it “believes the proper statute for this action is 45511 U.S.C. § 506 as Plaintiffs declaratory judgment count seeks to determine the validity, priority, and extent of security interests against the Debtors’ motor vehicles.” (Doc. No. 18). The Court disagrees. Section 544(a) specifically applies to an action brought by a trustee to avoid an interest claimed by a party in estate property. In turn, such an action is commenced and then prosecuted by a trustee through an adversary proceeding. See, e.g., In re Together Development Corp., 227 B.R. 439, 442 (Bankr.D.Mass.1998) (“Avoidance should normally be accomplished through an adversary proceeding.”); Fed.R.BankR.P. 7001. In any event, the Bank has been an active participant in the Debtors’ legal affairs, both prepetition and postpetition. As well, in the instant matter, the Bank filed an answer and a response to the Trustee’s Motion for Summary Judgment. As such, the Bank was fully aware of the relief sought by the Trustee and cannot be considered prejudiced by any procedural defect that may exist with respect to this action brought by the Trustee. For the reasons set forth herein, the Court finds that the Motion for Summary Judgment brought by the PlaintiffiTrus-tee, John Graham, should be Granted, and that any interest held by the Bank in the Debtors’ motor vehicles is subject to avoidance by the Trustee pursuant to 11 U.S.C. § 544(a)(1). In reaching the conclusions found herein, the Court has considered all the evidence, exhibits and arguments of counsel, regardless of whether they are specifically referred to in this Opinion. Accordingly, it is ORDERED that the Motion for Summary Judgment filed by the Plaintiff/Trustee, John Graham, be, and is hereby, GRANTED. It is FURTHER ORDERED that any interest claimed by the Defendant, the Huntington National Bank, in vehicles subject to administration by the Trustee as a part of the Debtors’ bankruptcy estate, are avoided and declared void pursuant to 11 U.S.C. § 544(a). The Trustee is authorized to sell said vehicles in accordance with 11 U.S.C. § 363. It is FURTHER ORDERED that, in accordance with 11 U.S.C. § 551, the interests avoided in the above order are hereby preserved for the benefit of the Debtors’ bankruptcy estate. . Unsecured claims are further divided into two categories: (1) unsecured, priority claims; and (2) unsecured, nonpriority claims. 11 U.S.C. § 507. . Section 551(a) provides that, "Except as provided in subsection (b) of this section, property acquired by the estate or by the debtor after the commencement of the case is not subject to any lien resulting from any security agreement entered into by the debtor before the commencement of the case.” . Defining proceeds to mean the following property: 454(A) whatever is acquired upon the sale, lease, license, exchange, or other disposition of collateral; (B) whatever is collected on, or distributed on account of, collateral; (C) rights arising out of collateral; (D) to the extent of the value of collateral, claims arising out of the loss, nonconformity, or interference with the use of, defects or infringement of rights in, or damage to, the collateral; or (E)to the extent of the value of collateral and to the extent payable to the debtor or the secured party, insurance payable by reason of the loss or nonconformity of, defects or infringement of rights in, or damage to, the collateral.	01-04-2023	11-22-2022
https://www.courtlistener.com/api/rest/v3/opinions/8494735/	459MEMORANDUM SHELLEY D. RUCKER, Bankruptcy ' Judge. Defendant C. Kenneth Still, trustee (“Mr. Still” or “Trustee”) moves this court to dismiss the complaint of Plaintiff Grant, Konvalinka & Harrison, P.C. (“GKH”) in this adversary proceeding. [Doc. No. 5].1 GKH opposes the motion of the Trustee. [Doc. No. 8]. The court has reviewed the briefing filed by the parties, the pleadings at issue, and the applicable law and makes the following findings of fact and conclusions of law pursuant to Fed. R. Bankr.P. 7052. Based on those findings and conclusions, the court will GRANT the motion to dismiss with respect to the Trustee, but will DENY the motion with respect to the other defendants, Richard L. Banks (“Banks”), Richard Banks & Associates, P.C. (“Banks P.C.”), and Steve A. McKenzie (“Debtor”). I. Background Facts The court has summarized facts involving these same parties in several other memoranda filed in both the main bankruptcy case and in separate adversary proceedings involving similar allegations. See, e.g., [Adv. Proc. 11-1016, Doc. No. 68; Bankr. Case No. 08-16378, Doc. Nos. 1199, 1354, 1387; Adv. Proc. 11-1110, Doc. No. 25]. However, for ease of reference, the court will review the procedural and factual background here. A. Procedural Background GKH filed this lawsuit (“HC Malpractice M/P Lawsuit”) on August 5, 2011 in the Circuit Court of Hamilton County, Tennessee. [Doc. No. 1-2]. The HC Malpractice M/P Lawsuit Complaint asserts that: (a) GKH is a law firm located in Chattanooga, Tennessee; (b) defendant Richard L. Banks is an attorney who represented both the Trustee and the Debtor in a lawsuit brought against GKH in the Chancery Court of Bradley County, Tennessee, alleging conflicts of interest and breach of fiduciary duty (“Malpractice Lawsuit”); (c) the law firm of Banks P.C. employs Mr. Banks; and (d) the Trustee is the trustee in the Debtor’s main bankruptcy case. See HC Malpractice M/P Lawsuit Complaint, ¶¶ 1-3. GKH contends that the pursuit of the Malpractice Lawsuit was malicious prosecution and abuse of process. On the same day GKH filed an almost identical lawsuit in this court. See [Adv. Proc. No. 11-1118, Doc. No. 1] (“Bankruptcy Malpractice M/P Lawsuit”). The Trustee subsequently removed the HC Malpractice M/P Lawsuit to this, court. [Adv. Proc. No. 11-1121, Doc. No. 1]. GKH moved to remand and/or abstain and/or consolidate this adversary proceeding with Adversary Proceeding Number 11-1118. [Adv. Proc. No. 11-1121, Doc. No. 3 (“Motion for Remand”) ]. The court is simultaneously issuing its ruling on the Motion for Remand with this memorandum. For the reasons stated in the memorandum pertaining to the Motion for Remand, it is denying the request to remand the claims against the Trustee to state court. It is also denying GKH’s request to abstain from ruling on the claims against the Trustee. The court will also issue a ruling on the Trustee’s Motion to Dismiss pending in the Bankruptcy Malpractice M/P Lawsuit. The remaining claims in both adversary proceedings against Banks, Banks P.C. and the Debtor will be consolidated and 460will be remanded to the state court. The consolidated adversary proceeding will be Adv. Pro. No. 11-1121. B. Case Background On November 20, 2008, a group of petitioning creditors filed an involuntary petition in bankruptcy in this court against the Debtor. See [Bankruptcy Case No. OS-16378, Doc. No. 1], On December 20, 2008, the Debtor filed a Chapter 11 voluntary petition in bankruptcy, Bankruptcy Case No. 08-16987. On January 16, 2009, this court consolidated the two bankruptcy cases. [Bankruptcy Case No. 08-16378, Doc. No. 33]. The court held a hearing on the U.S. Trustee’s motion to appoint a trustee on February 19, 2009. [Bankr. Case No. OS-16378, Doc. Nos. 135, 101]. The U.S. Trustee filed a notice appointing Mr. Still Chapter 11 trustee for the Debtor on February 19, 2009; the court issued an order granting the U.S. Trustee’s motion to appoint a Chapter 11 Trustee on February 20, 2009. [Bankruptcy Case No. 08-16378, Doc. Nos. 130, 140]. The court converted the case to a Chapter 7 case on June 14, 2010, and Mr. Still continued as the Chapter 7 trustee. [Bankruptcy Case No. OS-16378, Doc. No. 789].2 C. Malpractice Lawsuit On August 6, 2010, the Trustee and the Debtor filed the Malpractice Lawsuit in Bradley County Chancery Court, Docket No. 2010-CV-251, against Nelson Bowers, II; Exit 20 Auto Mall, LLC; John Anderson; and GKH. See [Doc. No. 1-1]. The Trustee and the Debtor asserted causes of action against GKH for breach of fiduciary duty, conflict of interest and civil conspiracy. Id. It is the prosecution of the Malpractice Lawsuit that is the basis of GKH’s malicious prosecution and abuse of process claims in this proceeding. The HC Malpractice M/P Complaint provides a detailed account of the litigation proceedings that occurred following the Trustee’s filing of the Malpractice Lawsuit. This court reviewed substantially similar allegations by GKH in the briefs filed in support of GKH’s motion for leave to file such a malicious prosecution and abuse of process action against the Trustee and his counsel in Bradley County, Tennessee (“Bradley Leave Motion”) that was filed in the main bankruptcy case. See [Bankr. Case No. 08-16378, Doc. Nos. 1200, 1248, 1248-1 through 1248-6, 1307, 1307-1 through 1307-7, 1387]. The court denied leave to file the action in Bradley County on August 5, 2011. [Doc. Nos. 1387, 1388]. In response, GKH filed the Bankruptcy Malpractice M/P Lawsuit asserting those claims of malicious prosecution and abuse of process against the Trustee and other defendants arising out of the Malpractice Lawsuit in addition to this adversary proceeding. Attached to the HC Malpractice M/P Complaint are numerous exhibits that all relate to the parties’ disputes arising in the Malpractice Lawsuit. The court has had a 461prior opportunity to examine many of these exhibits in detail as most of the exhibits were provided to the court in support of the Bradley Leave Motion. See [Bankr. Case No. 08-16378, Doc. Nos. 1248-1 through 1248-6; 1307-1 through 1307-7]. The exhibits include a copy of the complaint filed in the Malpractice Lawsuit with all of its attachments; the complaint filed by the Trustee and the Debtor in this court as Adversary Proceeding No. 10-1407 with all of its attachments; transcripts of hearings held in the Malpractice Lawsuit; motions to dismiss filed by the defendants in the Malpractice Lawsuit; a transcript of Judge Cook’s opinion in Adversary Proceeding No. 10-1407; briefs filed by the plaintiffs in the Malpractice Lawsuit with GKH’s and John Anderson’s response; GKH’s and John Anderson’s motion to compel filed in the Malpractice Lawsuit; motion for joinder and responses; the Bradley County Chancery Court’s order of dismissal of the plaintiffs breach of fiduciary duty and conflict of interest claims on statute of limitations grounds; transcript of a hearing in the Malpractice Lawsuit held on February 22, 2011; and an agreed order entered by the chancery court. See [Doc. Nos. 1-1 through 1-17]. Many of the issues discussed in the court’s memorandum issued in conjunction with its denial of the Bradley Leave Motion are relevant to this memorandum. See [Bankr. Case No. 08-16378, Doc. No. 1387], Additionally, the court has already reviewed the underlying circumstances pertaining to the Malpractice Lawsuit and an accompanying avoidance action lawsuit brought by the Trustee in this court, Still v. Bowers, II, et al., Adv. Pro. No. 10-1407 (“50 Acre Lawsuit”). In its memorandum denying the Bradley Leave Motion, the court previously found the following related to the two suits brought against GKH and others by the Trustee: On August 5, 2010, the Trustee brought an action against Nelson E. Bowers II, Exit 20 Auto Mall, LLC, John Anderson, Grant, Konvalinka and Harrison, PC, and CapitalMark Bank & Trust. [Adv. No. 10-1407, (“Trustee’s Complaint”)]. The Trustee’s Complaint was signed by Mr. Banks and Mr. LeRoy as counsel for Mr. Still. See [Adv. No. 10-1407, Doc. No. 1]. The enumerated causes of action in the Trustee’s Complaint were violation of the automatic stay, avoidance of post petition transfers, avoidance of preferences, avoidance of fraudulent transfers, an action to determine the validity of a lien, equitable subordination, and preference claims against insiders. The Trustee’s Complaint sought to avoid a post petition transfer of approximately sixty acres of real estate located in Bradley County, Tennessee. Based on filings with the Tennessee Secretary of State and the Register’s Office of Bradley County which were attached to the Trustee’s Complaint and on which Judge John C. Cook relied in his dismissal, [Adv. No. 10-1407, Doc. No. 1]; [Transcript, Adv. No. 10-1407 at pp. 8-9], the transferor was Cleveland Auto Mall, LLC whose members were the debtor and Mr. Nelson E. Bowers, II. The transferee company was Exit 20 Auto Mall, LLC, formed December 10, 2008, organized by Wayne Grant, who also served as registered agent with an address at 633 Chestnut Street, Chattanooga, TN. The deed was dated December 10, 2008, approximately twenty days after the involuntary filing. The deed reflects that it was “Prepared by and [to be returned] to Grant, Konvalinka & Harrison, P.C., Ninth Floor-Republic Centre, 633 462Chestnut Street, Chattanooga, TN 37450-0900.” See [Adv. No. 10-1407, Doc. No 1, p. 47]. The Affidavit of Value on the deed was signed by Nelson E. Bowers, II as Chief Manager and showed a value of $4,000,000. The Trustee’s Complaint also had attached a Deed of Trust from Cleveland Auto Mall, LLC to SunTrust Bank dated February 24, 2006, securing approximately $3,800,000 in debt. The court granted the motion of Capi-talMark Bank & Trust for a judgment on the pleadings and granted the Motion of GKH to dismiss the Trustee’s Complaint on December 16, 2010. [Adv. No. 10-1407, Doc. No. 67], The court could not find any allegation of a transfer of property of the debtor or the estate. It found that the transfers alleged to have been made were of property owned by the limited liability company based on the documentation attached to the complaint. With respect to the allegation regarding equitable subordination, the court found the claim was insufficient to support a claim for equitable subordination because the pleadings demonstrated no actions against property of the estate or the debtor. [Transcript, Adv. No. 10-1407 at p. 11]. GKH is also a creditor in the case. It filed a secured claim for $406,828.51 on April 27, 2009. [Bankr. Case. No. 08-16378, Claim 86-1]. This claim reflected that the collateral securing its debt was real property. GKH amended its claim on February 9, 2011, to increase the amount owed to $750,000 and reflected that its collateral was real estate and “other.” It attached a promissory note dated October 24, 2008, and a pledge agreement dated October 13, 2008, between the debtor and GKH, pledging a number of equity interests of the debtor. [Bankr. Case. No. 08-16378, Claim 86-2], GKH also attached an amended pledge agreement dated October 29, 2008, which pledged additional equity interests including the debtor’s interest in Cleveland Auto Mall, LLC. GKH also attached three deeds of trust on certain real estate of the debtor pledged on October 24, 2008. [Bankr. Case. No. 08-16378, Claim 86-2, Parts 5, 6, and 7]. The amended pledge agreement recited that “Whereas, Pledgee has provided as of the date hereof to the Pledgor and the various Companies legal services in the amount of at least $385,000 (“Legal Services”); and Whereas, in order to induce Pledgee to continue to provide legal services to Pledgor and the Companies, Pledgor has agreed to pledge to Pledgee all of his interests as set forth on Exhibit A’ ”. The entities listed on Exhibit A were defined as the “Companies.” Id. Part 4, Amendment to Membership Interest and Stock Pledge Agreement at 1. The services to be provided would be “in an amount of at least $750,000.” Id. In addition to the 50 Acre Lawsuit, on August 6, 2010, the Trustee also joined the Debtor in filing the Malpractice Lawsuit seeking damages for breach of fiduciary duty, conflicts of interest and conspiracy by GKH and Nelson Bowers and the transferee of the 50 acres. Like the 50 Acre Lawsuit, the complaint in Bradley County alleged that Cleveland Auto Mall, LLC (“CAM”) was owned by Mr. Bowers and the Debtor, that CAM owned 50 acres in Bradley County, Tennessee, that the property was worth $250,000 an acre, that ten acres had been transferred to NBR TOY Properties, LLC for $1,002,000 but CAM had not received payment for the transfer, 463that the Debtor was suffering severe health problems in December of 2009, that GKH[,] which had been counsel for the Debtor and his entities[,] had drafted the documents that transferred those acres to a limited liability company owned by Mr. Bowers, and that Mr. McKenzie signed a deed as a member of CAM conveying the 50 acres to Exit 20 Auto Mall, LLC, an entity owned at least in part by Mr. Bowers. Like the 50 Acre Lawsuit, the only allegation about the debt of CAM was that it owed $3,000,000 to SunTrust Bank. There was no allegation specifically addressing the value of the debtor’s equity at the time of the transfer. The Trustee and his counsel fared no better in the Malpractice Lawsuit than they had in the 50 Acre Lawsuit. The complaint was met with motions to dismiss from GKH and Nelson Bowers. GKH first raised the defense of the statute of limitations. It argued that “if McKenzie suffered a legally cognizable injury resulting from the events described in the complaint as occurring on December 10, 2008, clearly McKenzie either knew, or should have known, the facts sufficient to give notice of the injury at that time since the allegation[s] of the complaint admit that McKenzie was intimately involved.” [Doc. No. 1248-1, Motion to Dismiss by GKH, at 11]. On November 2, 2010, Mr. Bowers also filed a motion to dismiss the first two counts based on the failure of the complaint to state a viable cause of action, the expiration of the statute of limitations, and lack of any fiduciary duty owed by Mr. Bowers. The motion sought dismissal of the third count of conspiracy between the defendants based on there having been no violation of the stay and the plaintiffs’ failure to state a viable cause of action with respect to fraudulent transfer, fraudulent misrepresentation or fraudulent concealment. [Doc. No. 1248-2, Motion to Dismiss by Nelson Bowers at 2-3]. On January 4, 2010, GKH joined the Bowers motion to dismiss. The Trustee and the Debtor responded on January 5, 2010 with a Memorandum of Authorities and a Motion for Joinder of an Indispensable Party. The indispensable party was CAM. GKH contends that these January filings, made after the bankruptcy court’s December ruling that the 50 acres was not property of the estate, give rise to additional damages. GKH contends that the Trustee failed to acknowledge the “clear pre-clusive effect” of the bankruptcy court’s ruling in the 50 Acre Lawsuit. [Doc. No. 1307, Brief in Support of GKH’s Motion for Leave to File Action in Bradley County at 17]. On January 26, 2011, the Chancellor found that the affidavit filed by the Debtor and the Trustee was “not sufficient to raise the issue of tolling of the Statute of Limitations under the case law in Tennessee.” [Doc. No. 1248-5, Chancellor’s Order, January 25, 2011]. The Chancellor granted the motion to dismiss with respect to causes of action related to breaches of fiduciary duty and conflicts of interest based on his finding that those two causes of action had a one year statute of limitations. Id. On February 22, 2011, the Trustee and the Debtor announced in open court that they were going to submit an order which would provide that the January 25, 2011 Order would be a final dismissal as to all defendants and all counts. That announcement was memorialized in an order entered on March 4, 2011. [Doc. No. 1200-2, Ex. B, Chancellor’s Agreed Order]. [Bankr. Case. No. 08-16378, Doc. No. 1387, pp. 5-8 (footnotes omitted) (quoting 464Bankr. Case No. 08-16378, Doe. No. 1199, pp. 2-5, Memorandum Opinion relating to GKH’s Motion to Clarify) ]. In the Malpractice Lawsuit, the parties briefed the legal arguments regarding the statute of limitations for the Chancellor, and those arguments are included in the exhibits to HC Malpractice M/P Complaint. [Doc. No. 1-8, No. 1-13, pp. 15-18]. The Trustee did not appeal the Chancellor’s ruling. The Trustee now contends that the Chancellor erred in finding that a one year statute of limitations applied to his causes of action and cites 11 U.S.C. § 108(a) for the proposition that a bankruptcy trustee has two years to bring a suit for causes of action which accrued prior to the commencement of the case. Because of the filing of an involuntary followed by a voluntary ease, the Trustee contends that the commencement of the case for purposes of the creation of an estate is December 20, 2008, and the statute would not have run until December 20, 2010. See [Adv. Proc. No. 11-1118, Doc. No. 18, Trustee’s Memorandum in Support of Motion to Dismiss at 8]; [Doc. No. 5]. D. Related Malicious Prosecution/Abuse of Process Claims After the court dismissed the 50 Acre Lawsuit, GKH filed a lawsuit alleging that the 50 Acre Lawsuit brought by the Trustee was malicious prosecution and an abuse of process. Grant, Konvalinka & Harrison, P.C. v. Banks, et al., Adv. Pro. 11-1016 (“50 Acre M/P Lawsuit”). GKH also brought a malicious prosecution and abuse of process suit against the Trustee and his counsel arising out of an action for the turnover of documents. Grant, Konvalinka & Harrison, P.C. v. LeRoy et al., Adv. Pro. 11-1110 (“Turnover M/P Lawsuit”). Both of these adversary proceedings have been dismissed by the court and are on appeal to the district court. The court dismissed the 50 Acre M/P Lawsuit on the basis that the Trustee was immune from suit. The court found that pursuing the 50 Acre Lawsuit — albeit unsuccessfully — was still within the scope of his duties. E. Comparison of Two Malicious Prosecution Cases Arising from Claims Brought Based on the Same Operative Facts While the HC Malpractice M/P Lawsuit Complaint is very similar to the one filed in the 50 Acre M/P Lawsuit, there are significant differences that require the court to consider whether the court’s prior rulings are equally applicable to this motion. First, the parties are different. In the 50 Acre Lawsuit, the only plaintiff was the Trustee pursuing bankruptcy avoidance actions to bring property into the estate which he alleged had been transferred from the Debtor. The 50 Acre M/P Lawsuit named only the Trustee and his counsel as defendants. In the Malpractice Lawsuit, there were two plaintiffs. The Trustee, joined by the Debtor, filed the complaint. Banks and Banks, P.C. represented the Debtor and the Trustee. Specifically, the complaint states that “Steve A. ‘Toby’ McKenzie ... brings this case in an individual capacity for the damages he has sustained after the filing of his bankruptcy, which are not part of his bankruptcy estate. He joins with the Plaintiff, C. Kenneth Still, Trustee in seeking relief and damages against the defendants for all pre-petition acts of the defendants.” [Doc. No. 1-1, Malpractice Lawsuit Complaint at 2, ¶ 4, Doc. No. 1-1], Second, the causes of action which GKH alleges were maliciously pursued are different, as are the recoveries sought by the Trustee and the Debtor. In the 50 Acre Lawsuit the court found that the Trustee was trying to recover the 50 acres of real property transferred — not from the Debt- 465or — but from a limited liability company. The statutory bases for the Trustee’s claims were 11 U.S.C. §§ 362, 510, 547, 548, 549 and 550. The 50 Acre Lawsuit Complaint alternatively asked for the value of the property transferred. In the Malpractice Lawsuit the parties were seeking damages for conflicts of interest, breach of fiduciary duty, malpractice and civil conspiracy to violate the bankruptcy stay or to make a fraudulent transfer arising from GKH’s participation in the transactions of December 10, 2008. The merits of the allegations of conflicts of interest and breach of fiduciary duty arising from GKH’s role in the postpetition transactions of December 10, 2009 have never been litigated. The Chancellor dismissed those counts, concluding that they were not raised until after the statute of limitations had run. The Trustee and the Debtor argued that the statute should be tolled for two reasons. First, they argued that the statute should be tolled because the malpractice had not been discovered at the time it occurred and that it should be tolled because of the Debtor’s diminished capacity. The Trustee also argued that he had two years after the commencement of the case to pursue the cause of action pursuant to 11 U.S.C. § 108. [Doc. No. 1-8]. GKH argued that the discovery rule should not apply since the Debtor signed the documents and that the defense of diminished capacity had not been sufficiently shown to cover the entire period needed for tolling. With respect to the Trustee’s tolling argument, GKH argued that the two-year statute granted in section 108 had been construed in bankruptcy case law to apply only to causes of action that accrued pre-petition. [Doc. No. 1-13]. GKH argued that all of the actions on which the Trustee’s claims were based occurred after the commencement of the involuntary case; therefore, only the one-year Tennessee statute of limitations applied. The Chancellor found that: the Affidavit [filed by the Plaintiffs] [was] not sufficient to raise the issue of tolling the Statute of Limitations under the case law in Tennessee. Therefore, the Complaint of Plaintiffs that alleges breach of fiduciary duty and conflict of interest arising out of the signing of a deed on December, 2008 are hereby dismissed because these two causes of action have a one year Statute of Limitations. [Doc. No. 1-14]. II. Jurisdiction This court has jurisdiction over this matter pursuant to 28 U.S.C. § 1334. This matter is a core proceeding as it involves the administration of the estate and the liquidation of assets of the estate. 28 U.S.C. § 157(b)(2)(A) and (O). Specifically, malicious prosecution and abuse of process actions against a trustee are core proceedings. Kirk v. Hendon (In re Heinsohn), 247 B.R. 237, 244 (E.D.Tenn.2000). III. Standard of Review Federal Rule of Bankruptcy Procedure 7012(b) states that Federal Rule of Civil Procedure 12(b) applies to adversary proceedings. See Fed. R. Bankr.P. 7012(b). Federal Rule of Civil Procedure 12(b)(6) allows a party to move to dismiss a complaint for failure to state a claim upon which relief can be granted. Fed.R.Civ.P. 12(b)(6). In reviewing a motion to dismiss pursuant to Federal Rule of Civil Procedure 12(b)(6), a court “must read all well-pleaded allegations of the complaint as true.” Weiner v. Klais and Co., Inc., 108 F.3d 86, 88 (6th Cir.1997) (citing Bower v. Federal Express Corp., 96 F.3d 200, 203 (6th Cir.1996)). In addition, a court must construe all allegations in the light most favorable to the plaintiff. Bower, 96 F.3d 466at 203 (citing Sinay v. Lamson & Sessions, 948 F.2d 1037, 1039 (6th Cir.1991)). The Supreme Court has explained “an accepted pleading standard” that “once a claim has been stated adequately, it may be supported by showing any set of facts consistent with the allegations in the complaint.” Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 563, 127 S.Ct. 1955, 1969,167 L.Ed.2d 929 (2007). The complaint “must contain either direct or inferential allegations with respect to all material elements necessary to sustain a recovery under some viable legal theory.” Weiner, 108 F.3d at 88 (citing Allard v. Weitzman (In re DeLorean Motor Co.), 991 F.2d 1236, 1240 (6th Cir.1993)). In Twombly the Supreme Court emphasized that: [w]hile a complaint attacked by a Rule 12(b)(6) motion to dismiss does not need detailed factual allegations, a plaintiffs obligation to provide the “grounds” of his “entitle[ment] to relief’ requires more than labels and conclusions, and a formulaic recitation of the elements of a cause of action will not do, ... Factual allegations must be enough to raise a right to relief above the speculative level, on the assumption that all the allegations in the complaint are true (even if doubtful in fact). 550 U.S. at 555, 127 S.Ct. at 1964-65 (citations omitted). See also, Papasan v. Allain, 478 U.S. 265, 286, 106 S.Ct. 2932, 92 L.Ed.2d 209 (1986) (noting that “[ajlthough for the purposes of this motion to dismiss we must take all the factual allegations in the complaint as true, we are not bound to accept as true a legal conclusion couched as a factual allegation”). The Supreme Court has further clarified that Twombly is not limited “to pleadings made in the context of an antitrust dispute.” Ashcroft v. Iqbal, 556 U.S. 662, 129 S.Ct. 1937, 1953, 173 L.Ed.2d 868 (2009). IY. Analysis A. Immunity The Trustee argues that he is immune from liability for activities taken in his capacity as a bankruptcy trustee. GKH asserts that the Trustee’s and the Debtor’s claims in the Malpractice Lawsuit were “meritless” as evidenced by the Chancery Court’s dismissal of the Malpractice Lawsuit and, in particular, by the Chancellor’s finding that the Malpractice Lawsuit against GKH was filed after the statute of limitations had run. GKH contends that the Debtor and Trustee should have known that the Malpractice Lawsuit was filed outside of the relevant statute of limitations. From that fact, GKH asks the court to infer that the bringing of such an action was for the purpose of extorting money from GKH, and therefore was an intentional and deliberate act of malicious prosecution. GKH then asks this court to conclude that the commission of intentional torts is outside the scope of actions that a trustee may take with immunity. Furthermore, GKH contends that the continued pursuit of claims for conspiracy to commit a fraudulent transfer or to violate the automatic stay, both of which require a finding of a transfer of property of the debtor or the estate, after a ruling was made in the 50 Acre Lawsuit that no property of the Debtor or the estate had been transferred, is an abuse of process. GKH asks the court to infer from the dismissal of the 50 Acre Lawsuit, that the Trustee knew or should have known that his remaining causes of action were also “merit-less,” and the continued pursuit of those causes of action was an abuse of process, another intentional tort which must also be outside the scope of the Trustee’s duties. In order to analyze GKH’s position, the court will examine the scope of the Trustee’s duties, consider whether bringing this suit was within that scope and finally, con467sider whether any exceptions to the doctrine of immunity are present in this case. 1. Trustee’s Duties under the Bankruptcy Code This court has already reviewed the doctrine of immunity as it applies to trustees in bankruptcy in several opinions. See [Adv. Proc. No. 11-1016, Doc. No. 68; Bankr. Case No. 08-16378, Doc. Nos. 1354, 1387; Adv. Proc. No. 11-1110, Doc. No. 25]. The court begins its analysis of immunity with a review of some of the duties at the heart of a trustee’s obligations in representing a Chapter 7 bankruptcy estate. 11 U.S.C. § 704 requires the trustee to “collect and reduce to money the property of the estate for which such trustee serves, and close such estate as expeditiously as is compatible with the best interests of parties in interest.” 11' U.S.C. § 704(a)(1). The trustee must further “investigate the financial affairs of the debt- or.” 11 U.S.C. § 704(a)(4). A trustee in bankruptcy is given a number of powers relating to his duties under 11 U.S.C. § 704. One of these powers is the “capacity to sue.” 11 U.S.C. § 323(b). As for the estate he is charged with administering, it is created upon the filing of a petition in bankruptcy and includes “all legal or equitable interests of the debt- or in property as of the commencement of the ease.” 11 U.S.C. § 541(a)(1). Additional property may be added. The estate also includes “any interest in property that the trustee recovers under section ... 550 ... of this title” and “[a]ny interest in property that the estate acquires after the commencement of the case.” 11 U.S.C. § 541(a)(3) and (7). In a Chapter 11 case, the property the Debtor acquires postpetition before conversion or dismissal is also property of the estate. 11 U.S.C. § 1115(a). One of GKH’s arguments supporting its contention that the Trustee is not entitled to immunity is that he was not pursuing property for the benefit of the estate, and was therefore acting outside the scope of his duties. This contention is based on the ruling that the 50 acres was not the Debt- or’s property. As part of this court’s analysis of the scope of the Trustee’s duties, the court must review what the Trustee was pursuing in the Malpractice Lawsuit and whether that was for the benefit of the estate. The Malpractice Lawsuit Complaint describes the Trustee’s role in the Malpractice Lawsuit. He was pursuing damages from GKH for their prepetition actions. Resolution of those claims may have required ownership of the 50 acres to be proven as one of their elements, but there was no action to seize or exert control over GKH’s property. To the extent that there are any damages sought that were not property of the estate, those claims were asserted by the Debtor. [Doc. No. 1-1, Complaint, Bradley County Chancery Court, No. 2010-CV-251 at 2], To the extent that causes of action accrued prior to November 20, 2008, the date the involuntary case was commenced, the causes of action would be property of the estate. 11 U.S.C. § 541(a)(1). “ ‘It is well-established that the broad scope of § 541 encompasses causes of action existing at the time of the commencement of the bankruptcy action.’ ” In re Bailey, 421 B.R. 841, 848 (Bankr. N.D.Ohio 2009) (quoting In re Carson, 82 B.R. 847, 851 (Bankr.S.D.Ohio 1987)). See also, Bauer v. Commerce Union Bank, Clarksville, Tennessee, 859 F.2d 438, 441 (6th Cir.1988) (only Chapter 7 trustee had standing to bring cause of action); Clarke v. United Parcel Service, Inc., 421 B.R. 436 (W.D.Tenn.2010) (trustee and Chapter 13 debtor have concurrent standing). 468In In re Lawrence the district court explained: [i]t is the Trustee who has the exclusive standing and capacity to sue and be sued on behalf of the bankruptcy estate under 11 U.S.C. § 323(b). The Trustee is appointed by the Bankruptcy Court to take charge of the debtor’s estate, collect assets, bring suit on the debtor’s claims against other persons, defend actions against the estate, and otherwise administer the estate. Lawrence v. Jahn (In re Lawrence), 219 B.R. 786, 801 (E.D.Tenn.1998) (citations omitted). Moreover, “[t]he trustee is the representative of the estate, 11 U.S.C. § 323(a), and it ... is authorized, with or without court approval, to ‘commence and prosecute any action or proceeding in behalf of the estate in any tribunal.’ ” Hays and Co. v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 885 F.2d 1149, 1154 n. 6 (3d Cir.1989) (emphasis added) (quoting Fed. R. Bankr.P. 6009). Applying 11 U.S.C. §§ 704(a)(1), 704(a)(4), 1115, and 323(b), the court concludes that the Malpractice Lawsuit related directly to the Trustee’s statutory duties of collecting assets, pursuing property of the estate and investigating the Debtor’s financial affairs. Thus, the court finds that the filing of the Malpractice Lawsuit was within the scope of the Trustee’s duties pursuant to the Bankruptcy Code. 2. Doctrine of Immunity as Applied to Bankruptcy Trustees In Kirk v. Hendon (In re Heinsohn), the bankruptcy court addressed the immunity of a trustee from state law claims of malicious prosecution and defamation that the trustee defendant had removed to the bankruptcy court. 231 B.R. 48, 50 (Bankr. E.D.Tenn.1999). The bankruptcy court reviewed the plaintiffs motion for remand or abstention and the defendant trustee’s motion to dismiss. It granted the trustee’s motion to dismiss and denied the plaintiffs motions. Id. The plaintiff alleged that the trustee initiated a criminal action against him for an improper purpose and without probable cause. Id. He sued the trustee for malicious prosecution following his acquittal from criminal charges of bankruptcy fraud and conspiracy to commit bankruptcy fraud. After determining that it had jurisdiction over the plaintiffs claims and that those claims constituted core proceedings, the bankruptcy court concluded that the trustee had absolute judicial immunity for his actions in making the criminal referral relating to the plaintiff. In a detailed opinion, the bankruptcy court reviewed the evolution of absolute immunity for trustees acting within the scope of their duties as defined by the Bankruptcy Code. The bankruptcy court concluded that the trustee’s duty to report possible violations of federal law was analogous to a prosecutor’s duties, and he was entitled to immunity for such actions. In re Heinsohn, 231 B.R. at 62. The court explained: ... the reasoning which supports full immunity from malicious prosecution actions for prosecutors applies equally to trustees: [T]he risk of injury to the judicial process from a rule permitting malicious prosecution suits against prosecutors is real. There is no one to sue the prosecutor for an erroneous decision Not to prosecute. If suits for malicious prosecution were permitted, the prosecutor’s incentive would always be not to bring charges. Similarly, if trustees are subject to suit and liability for their actions in reporting possible criminal violations to the 469prosecuting authorities, no trustee would ever make a referral. No trustee would run the risk of damages being assessed against him for making a referral based on often incomplete information which produces no monetary benefit to the trustee since a trustee’s primary obligation is to collect and liquidate assets of the estate, not report crimes. Yet a trustee is in a unique position to discover possible bankruptcy crimes since his duties require him to “investigate the financial affairs of the debtor.” To expose a trustee to the potential for liability for complying with his obligations under 18 U.S.C. § 3057 would emasculate an important public function which a trustee is in a distinct position to fulfill. In re Heinsohn, 231 B.R. at 63 (quoting Imbler v. Pachtman, 424 U.S. 409, 438, 96 S.Ct. 984, 47 L.Ed.2d 128 (1976) (emphasis in original) and 11 U.S.C. § 704(4)). The bankruptcy court further acknowledged that other safeguards existed to protect against prosecutorial abuses, including “an investigation and independent review by the United States attorney” that serve to “lessen the possibility that an innocent party will be harmed by a misguided or even malicious trustee.” Id. After reviewing the landscape of analogous cases, the court concluded that: [b]ased on the foregoing analysis that the function performed by a bankruptcy trustee in reporting possible criminal violations to the United States attorney is judicial in nature, that there are adequate safeguards to reduce the possibility of harm to an innocent party, and that subjecting a trustee to liability in this instance would deter the trustee from complying with his obligations under 18 U.S.C. § 3057, this court concludes that the defendant is protected by absolute immunity from the plaintiffs malicious prosecution action. In re Heinsohn, 231 B.R. at 64. The court distinguished cases concerning a malicious prosecution claim involving third party nonbeneficiaries from suits by beneficiaries of the bankruptcy estate involving a breach of the trustee’s fiduciary duty. Id. at 65-66. The district court affirmed the bankruptcy court’s decision in Kirk v. Hendon (In re Heinsohn), 247 B.R. 237 (E.D.Tenn.2000). The district court explained: [t]he Court agrees with the bankruptcy court the trustee’s obligation to report perceived violations of federal law to the United States attorney and to cooperate with any ensuing investigation and prosecution is a task integral to the judicial process which must be immune from suits for money damages. Government officials must be free to execute their duties without the threat of lawsuits. If lawsuits, in particular malicious prosecution and defamation actions such as in this case, are allowed against trustees for making criminal referrals, trustees will be less inclined to perform these duties and will hesitate in the future to do so, thereby lessening the impact and defeating the purpose of the criminal referral statute. Id. at 245. The present case does not involve a criminal referral, but the Sixth Circuit has found that similar policy reasons apply in cases where the trustee was engaged in civil actions. In Lowenbraun v. Canary (In re Lowenbraun), the Sixth Circuit reviewed whether a trustee was protected by immunity from claims of libel, slander, abuse of process, wrongful use of civil proceedings and the tort of outrage brought against him by the debtor’s wife in response to an unsuccessful motion for contempt brought by the trustee. 453 F.3d 314, 319 (6th Cir.2006). The debtor’s wife initiated suit against the trustee de470fendant in state court, and the trustee removed the case to bankruptcy court. The plaintiff moved for remand or abstention, and the bankruptcy court denied the motion. It then granted summary judgment to the trustee on immunity grounds. The district court affirmed the bankruptcy court decision, and the plaintiff appealed. Id. The Sixth Circuit reviewed cases pertaining to trustee immunity, including In re Heinsohn, and held that the trustee was entitled to immunity for both his judicial and extra-judicial statements regarding missing funds. Id. at 322-23. The Court noted: [The trustee’s attorney’s] role as counsel for the trustee permitted him to investigate [the debtor’s wife’s] transfer and to recover assets properly belonging to the bankruptcy estate. [The trustee’s attorney’s] actions, moreover, benefited the estate.... Any statements made in the course of [the trustee’s attorney’s] investigation and recovery effort were thus within the privilege. [The trustee’s attorney] is therefore entitled to immunity for his judicial statements. Id. at 323. Courts in other jurisdictions have also determined that bankruptcy trustees are entitled to immunity when performing duties outlined for them in the Bankruptcy Code. For example in Traina v. Blanchard, the district court concluded that: [c]ourt appointed bankruptcy trustees are among those who play a fundamental role in the administration of the judicial process and therefore are entitled to immunity. “Judicial immunity not only protects judges against suit for acts done within their jurisdiction, but also spreads outward to shield related public servants, including ... trustees in bankruptcy....” Judicial employees enjoy absolute immunity for quasi-judicial acts done in the course of their employment. Quasi-judicial acts include those which play a fundamental role to the judicial process.... The role of a Chapter 7 bankruptcy trustee, appointed by a bankruptcy judge, is fundamental to the administration of the estate. A Chapter 7 trustee performing the required functions established by the Bankruptcy Code, [the trustee] is cloaked with the protection given to judicial employees carrying out duties in the scope of their employment. No. 97-0348, 1998 WL 483485, at 2 (E.D.La. Aug. 13, 1998) (quoting Wickstrom v. Ebert, 585 F.Supp. 924, 934 (E.D.Wis.1984)). The Sixth Circuit and courts within this Circuit have consistently presumed that the trustee is acting within the scope of his authority as a trustee. For example, in In re Heinsohn, the district court, in affirming the bankruptcy court’s opinion, noted that “[t]he Court presumes such acts were a part of the trustee’s duties unless Plaintiff initially alleges at the outset facts demonstrating otherwise.” 247 B.R. at 246. In considering the district court’s presumption, the Sixth Circuit noted in In re Lowenbraun: This presumption strikes us as persuasive. Congress intended for the Bankruptcy Code to be comprehensive and for the federal courts to have exclusive jurisdiction over bankruptcy matters. A presumption in favor of the trustee, counsel, or other bankruptcy official that they were acting within the scope of their duties prevents a plaintiff ... from making unsupported allegations in an attempt to defeat Congress’s goal of providing exclusive federal jurisdiction over bankruptcy matters. 453 F.3d at 322. See also, Unencumbered Assets Trust v. Hampton-Stein (In re National Century Fin. Enterpr., Inc.), 426 B.R. 282, 292 (Bankr.S.D.Ohio 2010). 471Like the plaintiff in Lowenbraun, GKH alleges that the Trustee brought the action “with malice for an improper or wrongful motive and in an attempt to extort settlement proceeds from GKH in the hopes that GKH would pay to avoid the expense and publicity of litigation.” [Doc. No. 1-1 at 21, ¶ 34]. The support for this statement is, first, the Bradley County Chancellor’s finding that the statute of limitations had run on two of the causes of action. GKH alleges that the Trustee failed to research the issue or intentionally ignored the status of the law. Id. at ¶ 33. Second, the Trustee pursued claims that required a showing that there had been a transfer of property of the Debtor. GKH argues that this court’s opinion found that there was no transfer of property of this Debtor and a review of the case law would have put the Trustee on notice that his cause of action would not be successful. Id. Again, GKH relies on the Trustee’s legal positions as the evidence of an improper motive. With respect to the first contention, the Trustee raised opposition to the defense of the statute of limitations based on the Debtor’s medical condition and an interpretation of the bankruptcy tolling statute. With respect to the second contention regarding property of the estate, this court has previously noted the cases that have found the removal of the value of limited liability interests constitutes a transfer of property of the debtor for discharge purposes, and the unusual circumstances of the December 10, 2008 transaction that might cause a “light bulb to go off in a trustee’s head” that he needed to pursue these facts further. [Adv. Proc. No. 10-1016, Doc. No. 68, Memorandum Dismissing 50 Acre Lawsuit, p. 21]. This court cannot draw an inference that the unsuccessful litigation of two contested legal issues is evidence of malice on the part of the Trustee. Nor is that allegation sufficient to overcome the presumption that the Trustee’s actions were within the scope of his authority. In Picard v. Chais, et al. (In re Bernard L. Madoff Investment Securities, LLC), the bankruptcy court granted the trustee’s motion to dismiss counterclaims of tortious interference with contract, tortious interference with a business relationship, conversion, and a Fifth Amendment claim asserted by the defendants. 440 B.R. 282, 286 (Bankr.S.D.N.Y.2010). The bankruptcy court concluded that the counterclaims “must be dismissed because the Trustee sent the Letter [warning of possible violations of the automatic stay] in good faith within the scope of his duties, and is therefore immune from liability.” Id. at 290. In its analysis, the bankruptcy court noted that “[i]n the Second Circuit, a bankruptcy trustee is a quasi-judicial official ‘immune from suit for personal liability for acts taken as a matter of business judgment in acting in accordance with statutory or other duty or pursuant to court order.’ ” Id. (quoting In re Smith, 400 B.R. 370, 377 (Bankr.E.D.N.Y.2009)). In addressing whether the trustee was only protected by qualified immunity pursuant to an exception to the immunity doctrine in the Second Circuit, the bankruptcy court explained the policy behind trustee immunity. In re Bernard L. Madoff Investment Securities, LLC, 440 B.R. at 292. It noted: ... sound policy counsels in favor of providing immunity for trustees in cases such as this one. A trustee should be shielded from liability for his lawful exercises of judgment and discretion, even if, in hindsight, such interpretations of law were incorrect. If immunity applied only to decisions that toned out to be proper, there would be no need for the doctrine of immunity. Here, a determination that the Trustee can be held liable would deter future 472trustees for fear they could be held liable for every discretionary decision.... The Court cannot impose liability on the Trustee for carrying out his duties in good faith and based on his business judgment. Id. at 292-93 (emphasis added). See also, Weissman v. Hassett, 47 B.R. 462, 467 (S.D.N.Y.1985) (lawsuit was initiated against trustee for libel, intentional infliction of emotional distress and intentional interference with business relationship for statements in the trustee’s report. Court found that immunity “furthered an important public purpose and should not render him subject to suit, particularly since he acted pursuant to court order and statutory authorization”); Walton v. Watts (In the Matter of Swift), 185 B.R. 963, 970 (Bankr.N.D.Ga.1995) (concluding that “case law has firmly established that, as an arm of the bankruptcy court, the [U.S.] Trustee merits ... quasi-judicial immunity. Accordingly, the law will absolutely immunize the Trustee for his conduct, unless he has acted in the clear absence of any authority regarding this matter”). In Weissman the plaintiffs sought a finding of personal liability of the trustee for more than $25 million in damages. Weissman, 47 B.R. at 467. The district court determined that the trustee was immune from personal liability and noted that “[e]ven a remote prospect of personal liability of such a magnitude could not help but lessen the vigor with which future reorganization trustees will pursue their obligations to uncover wrongdoing and report on potential claims held by a bankrupt estate.” Id. The court also noted that the Bankruptcy Code contained several safeguards to prevent a trustee’s abuse of his authority. Id. (citing 11 U.S.C. § 107(b)(2); 11 U.S.C. § 326; 11 U.S.C. § 324). As one bankruptcy court has noted, “[sjuits against trustees and their counsel should not be a substitute for Rule 9011, and indeed such lawsuits would usually impose an unnecessary and unwarranted burden in cases in which a meritorious Rule 9011 motion could be brought.” In re Kids Creek Partners, L.P., 248 B.R. 554, 564 (Bankr.N.D.I11.2000). With respect to abuse of process, GKH further complains that the Trustee acted beyond the scope of his authority by continuing to pursue his remaining claims against GKH after Judge Cook dismissed Adversary Proceeding No. 10-1407. Judge Cook dismissed Adversary Proceeding No. 10-1407 on December 16, 2010. See [Doc. No. 1-5, Oral Transcript of Opinion in Adversary Proceeding 10-1407]. The deadline to appeal ran on December 30, 2010. The continued action on which GKH bases its abuse of process claim is the Trustee’s and Debtor’s submission to the Chancellor of a memorandum of authorities raising the tolling of the statute of limitations issue on January 5, 2011, only a week after the deadline to appeal Judge Cook’s ruling on property of the estate. See [Doc. No. 1-8]. That memorandum cited authorities which involved issues related to the transfer of the 50 acres which GKH contends was abusive. It also cited authorities on the statute of limitations issue which had not been decided at the time the memorandum was filed. The Chancellor rejected the plaintiffs’ tolling argument and dismissed two of the claims against GKH on January 25, 2011. See [Doc. No. 1-14, Chancellor’s Order]. The other allegedly abusive pleading is a motion to join an indispensable party which was filed after the December 16, 2010 Order. Before the joinder motion was decided, “[o]n February 22, 2011, the Trustee and the Debtor announced in open court that they were going to submit an order which would provide that the January 25, 2011 Order would be a final dismissal as to all defendants and all counts. 473That announcement was memorialized in an order entered on March 4, 2011.” [Bankr. Case. No. 08-16378, Doc. No. 1387, p. 8]. The Trustee did not know that his statute of limitations argument would be rejected by the Chancery Court until January 25, 2011. Under Tennessee procedural law, he had 30 days to appeal the court’s ruling on the statute of limitations. Tenn. R.App. P. 4(a). The court finds no filings by the Trustee in furtherance of the Malpractice Lawsuit alleged to have been made after January 25, 2011. Hence there appears to have been no use, much less abuse, of process by the Trustee after that date. Following the Chancellor’s decision in January, the Trustee took less than one month to announce his decision to dismiss the claims against all defendants and conclude the Malpractice Lawsuit. Therefore, the Trustee did not act beyond the scope of his duties in continuing to pursue the Malpractice Lawsuit for the roughly two months following the December 16, 2010 dismissal of the 50 Acre Lawsuit. The Seventh Circuit noted in In the Matter of Linton: [The plaintiffs] appear to believe that the fact that the trustee dropped the adversary action shows that it was groundless and therefore malicious. This of course is wrong. Many suits filed in good faith after careful precom-plaint investigation fizzle long before judgment, whether because further investigation fails to substantiate the allegations of the complaint or because the defendant presents compelling evidence in his favor that the plaintiff didn’t know about or because it turns out that the defendant doesn’t have sufficient assets to make the continued prosecution of the suit worthwhile. As long as there is probable cause to sue, there is no malicious prosecution. The bankruptcy judge was satisfied that there was probable cause here.... Such a chain of transfers was bound to cause a light bulb to flash in a receiver’s or bankruptcy trustee’s brain. The trustee might well have been thought derelict not to pursue the claim of fraudulent conveyance to the extent that he did. The fact that [the trustee] couldn’t substantiate his suspicions did not retroactively remove his probable cause to sue. 136 F.3d 544, 546-47 (7th Cir.1998). See also, In re Bernard L. Madoff Investment Securities, LLC, 440 B.R. at 292-93. 3. Exceptions to Immunity GKH argues that there are exceptions to the immunity granted to trustees. The court does not find that any of these exceptions apply to the Trustee. (a) Breach of Fiduciary Duty GKH argues that the Trustee’s conduct in pursuing the Malpractice Lawsuit was an intentional tort. It contends the deliberate and willful filing was without probable cause and was done with malice, and thus, is not protected by the immunity doctrine, citing Ford Motor Credit Co. v. Weaver, 680 F.2d 451 (6th Cir.1982). In that Chapter XI case, a creditor sued a debtor in possession for the conversion of its collateral. The creditor claimed that the debtor had breached his fiduciary duty to safeguard farm equipment belonging to the estate securing the creditor’s claim. The debtor denied any liability on the basis that he had been discharged. The Sixth Circuit remanded the case for the trial court to make a specific finding on the issues of the debt- or’s negligence and conversion in order to determine whether individual liability should be imposed. As explained by the court in In re Heinsohn, there is a difference between claims 474brought against the trustee by third parties for tort actions and claims brought by creditors of the estate against the estate fiduciary for a breach of his fiduciary duties. See 231 B.R. at 64-66. In Ford Motor the Sixth Circuit addressed the second type of claim, a claim for breach of fiduciary duty. 680 F.2d at 461. The court of appeals explained that “[a] trustee in bankruptcy may be liable for violations of his fiduciary duties. A trustee in bankruptcy can be liable in his official capacity or individually.... A bankruptcy trustee is liable personally only for acts willfully and deliberately in violation of his fiduciary duties.” Id. at 461-62. As this court explained in its opinion denying the Bradley Leave Motion, “GKH is not alleging a breach of fiduciary duty in its capacity as a creditor of the estate. Such a claim might involve allegations that the Trustee was not adequately pursuing assets of the estate or was otherwise squandering assets of the estate. Instead, GKH is arguing the opposite — i.e., that the Trustee was pursuing property that was not property of the estate and maliciously prosecuting GKH in the process.” [Bankr. Case No. 08-16378, Doc. No. 1387, p. 18]. Thus, the Ford Motor case’s deliberate and willful standard is not applicable here where GKH is suing the Trustee, not for breach of fiduciary duty, but rather as a third party for the torts of malicious prosecution and abuse of process brought against it by the Trustee. (b) Ultra Vires Actions GKH does not argue that the immunity doctrine does not exist. Instead, it argues that it simply does not apply in this situation. It contends that the Trustee’s action in prosecuting the Malpractice Lawsuit Complaint was ultra vires or an action outside the scope of the Trustee’s duties under the Bankruptcy Code. As such, GKH contends that the Trustee’s actions are not protected by the doctrine of immunity as explained by In re Heinsohn. In that case, the court noted that absolute immunity generally protects “acts within the ambit of bankruptcy trustee’s official duties.” In re Heinsohn, 231 B.R. at 63. None of the cases GKH cites involve a finding of an ultra vires act in the context of a trustee’s filing a lawsuit to pursue damages for the estate. They all involve a trustee’s seizing or exercising physical control over property that is determined not to belong to the Debtor or to the estate. The court has already provided analysis distinguishing the cases upon which GKH relies in its prior opinions dismissing the 50 Acre M/P Lawsuit and the Turnover M/P Lawsuit. See [Adv. Proc. No. 11-1016, Doc. No. 68 at pp. 14-17, Adv. Proc. No. 11-1110, Doc. No. 25, at pp. 19-21]. In this case, GKH again relies on Teton Millwork Sales v. Schlossberg for support of its position that the Trustee was acting outside the scope of his authority. 311 Fed.Appx. 145, 2009 WL 323141 (10th Cir. Feb. 10, 2009). That case involved a receiver authorized by a court order to collect assets of the husband in an acrimonious divorce dispute. The receiver then “seize[d] the assets” of Teton Millwork Sales, a Wyoming company in which the ex-husband was a twenty-five percent shareholder. Id. at 147. Teton Millwork Sales brought suit against the receiver in Wyoming, alleging that the receiver exceeded his authority by seizing its assets, as well as by making false representations pertaining to his legal authority. Id. In reversing the lower court’s granting of the receiver’s motion to dismiss the lawsuit, the Tenth Circuit noted that “[i]n order to be immune, the receiver must act within the scope of his authority in carrying out a court order.” Id. at 150. The appellate court found that the relevant court order only authorized the receiver to obtain the 475assets of the ex-husband, not assets that belonged to another entity. The court found that the allegations that the receiver seized assets beyond the scope of the court order, without having obtained jurisdiction in Wyoming and through the use of fraudulent and misleading statements, were enough to survive a motion to dismiss. Id. at 151. Thus, Teton Millwork Sales involved a receiver’s physical seizure of property outside the scope of a court order aggravated by allegations of misrepresentation and fraud. The court finds the current case distinguishable from Teton Millwork. Here, the Trustee did not seize anyone’s property. He did not mislead anyone about his authority. His role and the Debtor’s roles as plaintiffs were set out in the paragraphs of the Malpractice Lawsuit Complaint defining the parties. [Doc. No. 1-1]. The Malpractice Lawsuit sought damages for conflicts and the breach of fiduciary duty. Finally, and perhaps, most importantly the aggrieved party with standing to complain about such an ultra vires action in the Teton Millwork case was Teton Millwork Sales, the owner of the property which the trustee had wrongfully seized. GKH has never alleged that it owned the real property that the Trustee was trying to recover in the 50 Acre Lawsuit. GKH also cites Leonard v. Vrooman in support of its position. 388 F.2d 556 (9th Cir.1967). That case, again, involved an actual physical seizure of property by a trustee. The bankruptcy estate in Leonard included grocery store stock and equipment in a building that had been leased to the bankrupt estate, but was determined to be owned by Leonard. The trustee took control of the building and did not relinquish control until there was a court determination that Leonard was the owner. Id. at 558. The trustee, along with a constable, took physical possession of the entire building and put new locks on all of the doors. Id. Again, the party suing the trustee was the owner of the property seized by the trustee. The Ninth Circuit concluded that “the trustee initially could have and should have obtained a turnover order directing delivery to the trustee of the personalty which was an asset of the bankrupt estate.” Id. at 560-61. In this case, the Trustee did what the Ninth Circuit suggested. He brought a lawsuit in which the issue of ownership could be raised if it was relevant. In another case cited by GKH on this issue, the bankruptcy court noted, “[t]he situation in which trustees have been most commonly found to have acted outside of their authority is in seizing property which is found not to be property of the estate.” Schechter v. State of Illinois, Dep’t of Revenue (In re Markos Gurnee Partnership), 182 B.R. 211, 217 (Bankr.N.D.Ill.1995). The only other authority GKH cites for the ultra vires exception involves a trustee’s operation of a business. In Ziegler v. Pitney, the Second Circuit addressed a tort claim of negligence against a bankruptcy trustee where the negligent acts of the employees of the trustee, who was operating a bankrupt railroad, resulted in the death of a child. 139 F.2d 595, 596 (2d Cir.1943). The Second Circuit affirmed the dismissal of the complaint because the plaintiff was attempting to sue the trustees in their individual capacities when there was no suggestion that the trustees had acted ultra vires outside of their authority. Id. Pursuing the Malpractice Lawsuit was not the operation of a business. In summary, the Trustee’s alleged tort did not arise from the operation of a business. His participation in the Malpractice Lawsuit did not involve an intentional deprivation of property owned by GKH. It was a lawsuit brought to recover damages. As explained supra, the court 476finds that the filing of a suit asserting causes of action on behalf of the estate against a third party is an ordinary exercise of a trustee’s powers. It is true that the third party must respond to the complaint and defend itself against the proceeding. This is true of all litigation. However, the filing of a complaint that commences a lawsuit, even if unsuccessful, replete with procedures and the provision of judicial due process is very different from an act of conversion brought by the party whose property has been taken. For the reasons stated, the court does not find that this exception applies. (c) Balancing of the Interests of Third Parties GKH further asserts that the court should be concerned about the plight of third parties who are harassed by trustees in bankruptcy. Bankruptcy courts do recognize this concern. Rule 9011 is one of the safeguards to protect third parties from such abuse. In re Kids Creek Partners, 248 B.R. 554, 564 (Bankr.N.D.Ill.2000). However, GKH cites no authority in which a court has denied a trustee immunity based on this concern. The court also questions whether GKH would be the beneficiary of such a balancing test if one existed. GKH is not the typical third party who transacted business with the Debtor and has no idea that the Debt- or may be headed to bankruptcy. GKH was the Debtor’s counsel and counsel for a significant number of entities in which the Debtor invested. The court has previously found that GKH attempted to take a security interest in thirty-nine of the Debtor’s entities six weeks before the involuntary bankruptcy was instituted for its outstanding legal bills which were approximately $385,000. [Bankr. Case No. 08-16378, Doc. No. 1605, Memorandum Denying Motion for Relief from the Automatic Stay]. GKH was the firm that drafted the documents for the December 10, 2008 transaction in which the 50 acres were transferred. It appears to have been the only law firm involved for all of the parties. The court has found no authority for a balancing test exception to immunity. If there were such a test, it would have to be balanced against the strong policy reasons previously cited by this court as stated in the case law of this Circuit supporting trustee immunity. As an example of how strong the policy is, this Circuit favors dismissal upon immunity grounds, if applicable, as early as possible to avoid the unnecessary expense of discovery. For example, in Moore v. City of Hardman, the Sixth Circuit noted that in its prior decision of Wells v. Brown: [w]e explained the policy rationale of the qualified immunity doctrine, i.e., the “desire to shield public officials from diverting their energies through the forced defense of challenges to their actions taken in their governmental capacities,” and the related requirement that those who are entitled to such immunity “should be granted that immunity at the earliest possible stage of the case.” This means resolving the immunity question prior to discovery. 272 F.3d 769, 778 (6th Cir.2001) (quoting Wells, 891 F.2d 591, 593-94 (6th Cir.1990)) (citing Harlow v. Fitzgerald, 457 U.S. 800, 102 S.Ct. 2727, 73 L.Ed.2d 396 (1982) (concluding that “bare allegations of malice should not suffice to subject government officials either to the costs of trial or to the burdens of broad-reaching discovery”)). Similarly, in this case the court concludes that subjecting the Trustee to discovery in this proceeding will serve as a distraction during the ongoing main bankruptcy matter and may preclude him from fully focusing on his duty relating to the administration of the Debtor’s estate. See, 477e.g., In the Matter of Linton, 136 F.3d at 545 (noting that the concern of distracting a trustee from his statutory obligations “is most acute when suit is brought against the trustee while the bankruptcy proceeding is still going on. The threat of his being distracted or intimidated is then very great ... ”). In the absence of any evidence suggesting the Trustee acted with malice beyond GKH’s speculative assertions, the court concludes that dismissal of this action against the Trustee is appropriate at this early stage of the litigation due to the inherent policy considerations surrounding trustee immunity from liability, as well as the costs and burden of launching a defense to litigation. (d) Waiver of Immunity as a Result of Not Obtaining Leave of this Court to File the Malpractice Lawsuit GKH argues that the Defendants needed to obtain leave of this court in order to be immune from liability and failed to do so. While not in perhaps the specific form of an order authorizing the Trustee to pursue the Malpractice Lawsuit, the court notes that the Trustee did seek approval to employ Banks P.C. as special counsel to pursue actions against GKH and others. [Bankr. Case No. 08-16378, Doc. No. 749]. No objection was filed to the request and the court approved the application on July 1, 2010. [Bankr. Case No. 08-16378, Doc. No. 806]. Even if the approval of counsel was not specific authority, this court does not find that failure to obtain an order in this ease results in a waiver of immunity. A trustee’s authority may be derived from statutory authority as well as an order. See Hays and Co. v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 885 F.2d 1149, 1154, n. 6 (3d Cir.1989); Lawrence v. John (In re Lawrence), 219 B.R. 786, 801 (E.D.Tenn.1998); 11 U.S.C. § 323. This court has addressed GKH’s “no order authorizing” argument in several prior opinions (see Bankr. Case No. 08-16378, Doc. No. 1387, pp. 14-15; Adv. Proc. No. 11-1016, Doc. No. 68, pp. 17-19; Adv. Proc. No. 11-1110, Doc. No. 25, pp. 22-25), and finds no reason to change its ruling in this case. GKH continues to cite Kashani v. Fulton (In re Kashani), 190 B.R. 875 (9th Cir. BAP 1995), for the proposition that the Defendants should have sought leave of this court prior to filing the Malpractice Lawsuit. See [Doc. No. 21, pp. 37-38]. Rather than repeating this court’s full analysis, the court will merely re-summarize its prior explanations of this issue. In In re Kashani the court held that a bankruptcy trustee is an officer of the appointing court. As an officer of the court, the trustee is entitled to a form of derivative judicial immunity ... A trustee is entitled to such immunity only if the trustee is acting within the scope of authority conferred upon the trustee by the appropriate statute(s) or the court. 190 B.R. at 883. A trustee in bankruptcy is given a number of powers relating to his duties under 11 U.S.C. § 704. One of these powers is the “capacity to sue.” 11 U.S.C. § 323(b). In addition, the estate, created upon the filing of a petition in bankruptcy, includes “all legal or equitable interests of the debtor in property as of the commencement of the case.” 11 U.S.C. § 541(a)(1). As noted supra, the estate also includes, “[a]ny interest in property that the estate acquires after the commencement of the case.” 11 U.S.C. § 541(a)(7). Further, “[c]hoses-in-action ... are included within this broad definition.” In re Bailey, 421 B.R. 841, 849 (Bankr.N.D.Ohio 2009). See also, Bauer v. Commerce Union Bank, Clarksville, Tennessee, 859 F.2d 438, 441 (6th Cir.1988); Logan v. JKV Real Estate Servs. (In re Bogdan), 414 F.3d 507, 512 (4th Cir.2005); 478Polis v. Getaways (In re Polis), 217 F.3d 899, 901 (7th Cir.2000); In re Lawrence, 219 B.R. at 801. In In re Kashani the Ninth Circuit Bankruptcy Appellate Panel noted that “courts have established certain standards and instructions whereby the trustees can protect themselves by complying with these standards and, thus, gain judicial immunity. Those instructions include: the trustee should give notice to the debtor and obtain prior court approval of the proposed act; ...190 B.R. at 884. However, in stating this proposition, the In re Kashani court cited cases in which a trustee sought to carry on business on behalf of the estate. See, e.g., Bennett v. Williams, 892 F.2d 822, 823 (9th Cir.1989); Mosser v. Darrow, 341 U.S. 267, 71 S.Ct. 680, 95 L.Ed. 927 (1951). Since the statement in In re Kashani upon which GKH relies, several courts have weighed in on the advisability of a trustee seeking court approval prior to taking specific actions in the course of administering the estate. For example, in In re NSCO, Inc., the bankruptcy court addressed whether the tenets of Mosser still applied: Although Mosser continues to be cited, including by the First Circuit and other courts, the requirement of a case or controversy, coupled with the ripeness doctrine, inform that the Court must not render an advisory opinion or a premature one in an effort to insulate a trustee faced with a difficult question.... Moreover, at least one court, In re Freedlander Inc., The Mortg. People, 95 B.R. 390 (Bankr.E.D.Va.1989), has questioned whether Mosser is still good law in light of the evolution of bankruptcy judges from bankruptcy referees to true judicial officers and the development of the United States Trustee system. Because of these changes in bankruptcy practice, the court refused to advise the trustee whether or not to pursue an appeal. The Freedlander court’s reasoning provides further support for removing a court from deciding issues that are more appropriately left to those responsible for administering bankruptcy estates. 427 B.R. 165, 177-78 (Bankr.D.Mass.2010) (citing In re Freedlander Inc., The Mortgage People, 95 B.R. 390, 391-94 (Bankr.E.D.Ya.1989)) (reviewing history of bankruptcy judges and determining that the procedure of trustees asking the court for advice on filing suit is “unwise and perhaps, impermissible today”). Here, by filing the Malpractice Lawsuit, the Trustee sought to pursue a claim under 11 U.S.C. § 323(b) relating to the potential assets of the estate pursuant to 11 U.S.C. § 542(a)(1). The Trustee and his counsel were not engaged in conducting business of the estate that required the use of business judgment that would benefit from a court order authorizing them to proceed with a particular business strategy. Thus, for the reasons stated herein and for the reasons discussed in In re Freedlander, Inc. and In re NSCO, the court concludes the Trustee had no obligation to seek court approval in advance of the filing of the Malpractice Lawsuit as a prerequisite to this court finding the Tras-tee acted within the scope of his authority. 95 B.R. at 391-94, 427 B.R. at 177-78. B. Failure to State a Claim for Relief Based upon its view that the Trustee acted within the scope of his duties and is immune, the court concludes that GKH has failed to demonstrate that its complaint states a prima facie case of malicious prosecution or abuse of process against the Trustee. The court has already discussed very similar actions and provided legal 479analysis on this issue. See [Adv. Proc. No. 11-1016, Doc. No. 68, pp. 19-25; Adv. Proc. No. 11-1110, Doc. No. 25, pp. 25-31]. In addition, the legal analysis provided supra, regarding the scope of the Trustee’s duties also applies to whether the Trustee had probable cause to bring the Malpractice Lawsuit. Therefore, the court will merely briefly summarize its position here. 1. Malicious Prosecution Under Tennessee law, a claim of malicious prosecution requires a plaintiff to demonstrate three elements: “(a) that a prior lawsuit or judicial proceeding was brought against the plaintiff without probable cause, (b) that the prior lawsuit or judicial proceeding was brought against the plaintiff with malice, and (c) that the prior lawsuit or judicial proceeding terminated in the plaintiffs favor.” Parrish v. Marquis, 172 S.W.3d 526, 530 (Tenn.Sup.Ct.2005). A plaintiff bears a heavy burden of proof to establish the elements of lack of probable cause and malice. Buda v. Cassel Bros., Inc., 568 S.W.2d 628, 631 (Tenn.Ct.App.1978). In Buda the court adopted the description from the Restatement of Torts regarding the element of probable cause: In order to establish the lack of probable cause in instituting a civil proceeding, it must appear that the suit was filed primarily for a purpose other than that of securing the proper adjudication of the claim in which the proceedings are based. If it is established that the party instituting the proceeding reasonably believes in the existence of the facts upon which the claim is based and has reasonable belief that under those facts the claim may be valid or has reasonable belief in reliance upon the advice of counsel, sought in good faith and given after full disclosure of all relevant facts within his knowledge and information, then probable cause is established. Id. at 631-32 (quoting Restatement of Torts, Second §§ 674, 675). In In the Matter of Linton the court considered the issue of probable cause for a trustee’s actions. It addressed the plaintiffs contention that the trustee’s dismissal of an adversary action indicated a lack of probable cause: “The bankruptcy judge was satisfied that there was probable cause here.... The fact that [the trustee] couldn’t substantiate his suspicions did not retroactively remove his probable cause to sue.” 136 F.3d at 547. The court then affirmed the bankruptcy court’s decision to deny leave to sue the trustee in state court. In this action, although the Trustee did not persuade the Chancellor that the Bankruptcy Code tolled the Trustee’s statute of limitations, it does not necessarily follow that the Trustee lacked all probable cause for bringing the Malpractice Lawsuit. See In the Matter of Linton, 136 F.3d at 547; In re Bernard L. Madoff Investment Securities, LLC, 440 B.R. at 292-93. For the reasons explained, supra at Part IV.A.2. the court finds that probable cause existed for the Trustee’s filing of the Malpractice Lawsuit. Therefore, there is no presumption of malice. GKH’s claim for malicious prosecution fails as a matter of law. Specifically, with respect to the Trustee’s pursuit of the claim for breach of fiduciary duty/conflict of interest, GKH has failed to plead that there was a favorable termination. Those claims were dismissed by the Chancellor on the basis that they were barred by the statute of limitations. Such a ruling does not “reflect on the merits of an action.” Parrish, 172 S.W.3d at 531. As such, it does not satisfy 480the element of favorable termination. Id. at 533. 2. Abuse of Process Under Tennessee law to establish a claim of abuse of process, a plaintiff must show: “ ‘(1) the existence of an ulterior motive; and (2) an act in the use of process other than such as would be proper in the regular prosecution of the charge.’ ” Givens v. Mullikin ex rel. Estate of McElwaney, 75 S.W.3d 383, 400 (Tenn.Sup.Ct.2002) (quoting Bell ex rel. Snyder v. Icard, Merrill, Cullis, Timm, Furen & Ginsburg, P.A., 986 S.W.2d 550, 555 (Tenn.Sup.Ct.1999)). Further, “[a]buse of process differs from malicious prosecution in that abuse of process lies ‘for the improper use of process after it has been issued, not for maliciously causing process to issue.’ ” Bell ex rel. Snyder, 986 S.W.2d at 555. In addition: [t]he test as to whether there is an abuse of process is whether the process has been used to accomplish some end which is without the regular purview of the process, or which compels the party against whom it is used to do some collateral thing which he could not legally and regularly be compelled to do. Priest v. Union Agency, 174 Tenn. 304, 125 S.W.2d 142, 143-44 (1939) (quoting 1 Am.Jur., Abuse of Process § 6). GKH urges that the continued filing and prosecution of claims even beyond this court’s dismissal of the claims in the 50 Acre Lawsuit demonstrate a prima fa-cie case of abuse of process. However, the court has already discussed supra the legal support for the Trustee’s initial claims alleged in the Malpractice Lawsuit, as well as his legitimate arguments pertaining to the statute of limitations and his continued prosecution of the Malpractice Lawsuit for another month following the Chancellor’s January 25, 2011 decision. The Trustee and GKH were engaged in a legal dispute regarding the claims at issue in the Malpractice Lawsuit, as well as the timeliness of those claims. Although the Chancellor dismissed two of the claims against GKH, and the Trustee ultimately agreed to dismiss the remaining claim, the Trustee’s pursuit of a possible claim of the estate was not without a basis in the law. See discussion supra at IV.A.1-2. See also, In the Matter of Linton, 136 F.3d at 547. Although GKH suffered through a few weeks of litigation proceedings following Judge Cook’s dismissal of Adversary Proceeding No. 10-1407, there is no evidence that the Trustee engaged in any conduct not typical of litigation generally. The court concludes that GKH has failed to establish a prima facie case for its abuse of process claim against the Trustee. Even taking all of GKH’s allegations as true, the court cannot infer that the plaintiffs’ filing of a memorandum of authorities to enable the Chancellor to reach a decision on the defenses to the motions to dismiss the Malpractice Lawsuit, and the further actions taken to dismiss the remaining claims were improper or demonstrate an ulterior motive. GKH has failed to allege that the Trustee engaged in process that would not be proper in the regular prosecution of a claim of the estate pursuant to 11 U.S.C. § 704(a)(1) and 11 U.S.C. § 323(b). In this case, the Trustee was taking the procedural steps necessary to be entitled to recoup additional assets for the estate if he was successful. The court would be discouraging the filing of adversary proceedings by denying the Trustee’s motion here when the filing of a lawsuit is precisely the process by which trustees are to seek recovery of assets of the estate. See 11 U.S.C. § 323(b); In re Lawrence, 219 B.R. at 801; In re Bailey, 421 B.R. at 849. 481C. Trustee’s Arguments Regarding Pre-emption Having concluded that the Trustee is immune from suit in this action, the court declines to consider the Trustee’s further arguments relating to pre-emption. This court’s analysis on that issue is not necessary to the decision here, and, as such, would constitute mere dicta. Y. Conclusion As explained supra, the court concludes that the Trustee is entitled to immunity from further prosecution of this adversary proceeding against him. GKH has further failed to state a prima facie case of eithér malicious prosecution or abuse of process against the Trustee. The Trustee’s motion to dismiss will be GRANTED. A separate order will enter. . All citations to docket entries pertain to docket entries for Adversary Proceeding 11-1121, unless otherwise noted. . GKH asserts that there is no order appointing Mr. Still as the Chapter 7 trustee following the Chapter 7 conversion. See [Adv. Proc. No. 11-1118, Doc. No. 21, p. 2], incorporated by reference by [Doc. No. 8], Although a bankruptcy court issues an order appointing a Chapter 11 trustee, the court does not issue an order appointing an interim trustee in a Chapter 7. The U.S. Trustee appoints the interim Chapter 7 trustee who becomes the trustee unless there is an objection or an election. See 11 U.S.C. § 701(a)(1). The docket in the Debtor’s main bankruptcy case indicates that the U.S. Trustee convened a meeting of creditors after the conversion, and an amended notice was sent to creditors reflecting that Mr. Still was the Chapter 7 trustee in the case. [Bankr. Case No. 08-16378, Doc. No. 792],	01-04-2023	11-22-2022
https://www.courtlistener.com/api/rest/v3/opinions/8494736/	MEMORANDUM OPINION A. BENJAMIN GOLDGAR, Bankruptcy Judge. Before the court for ruling are two motions in the chapter 7 bankruptcy case of Efoora, Inc. Trustee Catherine Steege has moved to sell certain rights under an 2008 asset purchase agreement between the bankruptcy estate and an entity called Applied Biomedical. An investor in Efoora, Douglas Jaeger, has objected to the sale. Jaeger, in turn, has moved to dismiss the bankruptcy case for lack of jurisdiction. Jaeger contends that Efoora, a Delaware corporation, had been dissolved for more than three years when the bankruptcy case was filed and so lacked the capacity to file it. On April 23, 2012, the court held an evidentiary hearing on the sale motion. Following the hearing, the parties briefed the motion to dismiss. For the reasons discussed below, Jaeger’s motion to dismiss will be denied and Steege’s sale motion will be granted. 1. Jurisdiction The court has subject matter jurisdiction over this case pursuant to 28 U.S.C. § 1334(b) and the district court’s Internal Operating Procedure 15(a). The sale motion is a core proceeding pursuant to 28 U.S.C. § 157(b)(2)(A) and (N). As for the motion to dismiss, a federal court always has jurisdiction to determine its jurisdiction. Gladney v. Pendleton Corr. Facility, 302 F.3d 773, 775 (7th Cir.2002). 2. Background Efoora was a company that claimed to be engaged in the development of tests for HIV, mad cow disease, and blood glucose levels. See United States v. Dokich, 614 F.3d 314, 315 (7th Cir.2010). In fact, Efoora “was nothing but a phony.” Id. “[T]housands of investors” in Efoora were defrauded out of “millions of dollars” — at least $10 million and perhaps as much as $55 million. Id. at 316, 321. Efoora’s principals were convicted of an assortment of federal criminal offenses, id. at 316, and the Securities & Exchange Commission brought a separate civil action against the principals accusing them of securities fraud, see S.E.C. v. Efoora, Inc., No. 06 C 3526 (N.D.Ill. Aug. 25, 2009) (judgment entered). In mid-2007, a year after filing the civil action, the S.E.C. moved to have a receiver for Efoora appointed. (S.E.C. action, Dkt. No. 42). The district court granted the motion (id., Dkt. No. 46), and Ira Boden-stein was appointed receiver (id., Dkt. No. 47). Bodenstein later sought and received permission from the district court to sell substantially all of Efoora’s assets to Applied Biomedical, LLC. (Id., Dkt. Nos. 105, 123; Tr. at 27).1 Applied Biomedical is a 484limited liability company co-owned by Dr. Subhash Varshney, a California medical doctor, and his wife. (Tr. at 26, 95-96). Dr. Varshney was an investor in Efoora and formed Applied Biomedical for the purpose of acquiring Efoora’s assets. (Id. at 26). His goal was to manufacture and sell the HIV and blood glucose test kits that Efoora had only claimed it was going to manufacture and sell. (See id. at 28-29). Applied Biomedical offered $1 million cash for the assets, cash that Dr. Varshney himself would furnish. (Tr. at 27). Applied Biomedical’s offer was the only one Bodenstein received. (Id. at 19). Accordingly, on April 4, 2008, Bodenstein and Applied Biomedical entered into an asset purchase agreement (“the APA”) under which Applied Biomedical became the owner of Efoora’s assets. (Trustee Ex. 1). But the $1 million from Dr. Varshney was not the only consideration for the sale. Under section 1.6 of the APA, Applied Biomedical was also required to make certain “earnout payments” to the receiver. (Trustee Ex. 1 at 5-7). The contractual provision is complex, but the gist is that starting in 2009, Applied Biomedical would pay the receiver a percentage of either its net sales or its net income, as well as additional amounts. (Id.). If Applied Biomedical had no sales, however, it would have no obligation to make any further payments. (Id.; see also Tr. at 22-23). On March 6, 2009, Bodenstein moved for permission to file a chapter 7 bankruptcy case on Efoora’s behalf. (S.E.C. action, Dkt. No. 146). Bodenstein noted in his motion that it would take “approximately 3 to 5 years” for Applied Biomedical to have enough sales to incur payment obligations under the APA — “if [the company] is able to manufacture and sell rapid diagnostic tests.” (Id. at 3, ¶ 9). Given “the uncertainty of the Earn Out,” the “length of time that it will take for the Receiver to receive sufficient funds to make a meaningful distribution,” and the potentially “complex claims resolution process,” Bo-denstein suggested that the bankruptcy court was “better suited” than the district court to handle claims administration involving thousands of investors. (Id. at 3-4, ¶¶ 10-11; see also Tr. at 24). The district court granted Bodenstein’s motion (S.E.C. action, Dkt. No. 151), and on June 5, 2009, Bodenstein filed this chapter 7 bankruptcy case for Efoora. Steege was appointed trustee. (Tr. at 130). Apparently unknown to Bodenstein or the district court, however, the Delaware Secretary of State had previously declared Efoora no longer in good standing. On March 1, 2006, the corporation had forfeited its certificate of incorporation (or corporate charter) “for non-payment of taxes” and, in the words of a certification the Secretary issued, had become “inoperative and void.” (Jaeger Mot. Ex. A). On February 13, 2012, almost three years after the bankruptcy case began, Steege filed her sale motion. Steege noted that since the closing of the sale, Applied Biomedical had not been obligated to make any earnout payments. She also noted that she had been told Applied Biomedical would be unable to continue in business without additional financing, and the earn-out provision was preventing the company from obtaining it. (Trustee Mot. at 2, ¶ 5). Steege added that financial information she had received confirmed that Applied Biomedical was unlikely to make any earn-out payments in the near future, and the company might well go out of business if the APA were not amended. (Id. at 3, ¶ 7). Steege accordingly sought permis485sion to enter into an amendment to the APA under which Applied Biomedical would buy the estate’s rights to the earn-out payments in exchange for $50,000.2 (Id. at 2, ¶ 6). When the motion was presented, Jae-ger appeared and objected. In the written objection he subsequently filed, Jae-ger argued (among other things) that Steege had engaged in insufficient due diligence before agreeing to the sale, and Applied Biomedical’s “troubles [were] exaggerated.” (Jaeger Obj. at 6).3 Given the factual questions that Jaeger’s objection presented, the motion was set for an evidentiary hearing on April 23, 2012. On April 20, just three days before the hearing was to begin, Jaeger moved to dismiss the bankruptcy case for lack of jurisdiction. Jaeger asserted in the motion that Efoora had been “administratively dissolved” on March 1, 2006, and the three-year wind-up period under Delaware law had ended on March 1, 2009, before the case was filed. (Jaeger Mot. at 1). Therefore, Jaeger argued, Efoora lacked the capacity to file bankruptcy, and in the absence of an eligible debtor the court lacked jurisdiction over the case. Because the dismissal motion was filed at the last minute with insufficient notice, see Fed. R. Bankr.P. 2002(a)(4), and was not presented until the day of the hearing, the court elected to proceed with the hearing and have the motion briefed later. (Tr. at 12-14). Jaeger was also required to serve all creditors with notice of the motion (id. at 223-25), and he did so (Bankr.Dkt. No. 53). The notice set a deadline for creditors to respond to the motion. (Id.). No creditor responded either to join in the motion or oppose it, but Steege filed a written response opposing the motion. Both the motion to dismiss and the sale motion are now fully briefed and ready for ruling. 3. Discussion Jaeger’s motion to dismiss will be denied, and Steege’s sale motion will be granted. Despite the loss of its certificate of incorporation, Efoora was eligible to be a debtor in bankruptcy. Steege, meanwhile, has easily met the low threshold for permission to sell estate property under section 363(b). a. Dismissal Motion The case will not be dismissed for lack of jurisdiction. Under Delaware law, 486applicable here, a corporation that has lost its certificate of incorporation for non-payment of taxes retains the capacity to file a bankruptcy case. With limited exceptions, section 109(b) of the Code permits a “person” to be a debtor in a chapter 7 case. 11 U.S.C. § 109(b). Under section 101(41), a “person” includes a “corporation.” 11 U.S.C. § 101(41). “Corporation,” in turn, is defined broadly in section 101(9) to include a wide variety of business and non-business entities. 11 U.S.C. § 101(9). The Code, however, does not address whether a particular corporation has the capacity to file bankruptcy. State law governs that question. See Chicago Title & Trust Co. v. Forty-One Thirty-Six Wilcox Bldg. Corp., 302 U.S. 120, 127-28, 58 S.Ct. 125, 82 L.Ed. 147 (1937); In re International Zinc Coatings & Chem. Corp., 355 B.R. 76, 83 (Bankr.N.D.Ill.2006). Because Efoora was incorporated in Delaware, its ability to be a debtor depends on Delaware law. Jaeger argues that the revocation of Efoora’s certificate of incorporation on March 1, 2006, means that as of that date the corporation had been “administratively dissolved.” (Jaeger Mot. at 1). Jaeger acknowledges that section 278 of the Delaware General Corporation Law extends the life of all corporations, “whether they expire by their own limitation or are otherwise dissolved,” for an additional three years for certain purposes. Del.Code Ann. tit. 8, § 278. Jaeger also acknowledges that during the wind-up period, a dissolved corporation is eligible to be a debtor in a bankruptcy case. See International Zinc, 355 B.R. at 83 (dictum). But after the wind-up period it is ineligible, see id., and Efoora’s bankruptcy was filed after that period had passed. By June 2009, Jaeger contends, Efoora had ceased to exist and could not be a debtor. Jaeger is mistaken. Efoora was not dissolved. It forfeited its certificate of incorporation for failure to pay franchise taxes, which is not the same. Section 510 of the Delaware General Corporation Law penalizes corporations that fail to pay franchise taxes. It provides: “If any corporation ... neglects or refuses for 1 year to pay the State any franchise tax or taxes, ... the charter of the corporation shall be void, and all powers conferred by law upon the corporation are declared inoperative .... ” Del.Code Ann. tit. 8, § 510. The loss of a certificate of incorporation, however, is not “dissolution.” See United States v. Northeastern Pharm. & Chem. Co., 810 F.2d 726, 747 (8th Cir.1986) (holding that a Delaware corporation that had “lost its charter” had “not been dissolved”); Board of Managers of Soho Int’l Arts Condo, v. City of New York, No. 01 Civ. 1226(DAB), 2005 WL 1153752, at 11 & n. 19 (S.D.N.Y. May 13, 2005) (observing that under Delaware law, “ ‘[dissolution’ of a corporation is a specific legal term and is not the legal equivalent of a corporation declared inactive for non-payment of franchise taxes”). In fact, section 277 of the Delaware General Corporation Law declares that “[n]o corporation shall be dissolved under this chapter” until all franchise taxes have been paid. DeLCode Ann. tit. 8, § 277. Unlike dissolution, forfeiture of the certificate of incorporation does not mean the corporation ceases to exist. Section 312 of the Delaware General Corporation Law provides that a corporation whose certificate of incorporation has become void may “at any time procure an extension, restoration, renewal or revival of its certificate of incorporation.” DeLCode Ann. tit. 8, § 312(b). Reinstatement of the certificate validate^] all contracts, acts, matters and things made, done and performed within the scope of its certificate of incorporation by the corporation, its offi487cers and agents during the time when its certificate of incorporation was forfeited or void pursuant to this title, ... with the same force and effect and to all intents and purposes as if the certifícate of incorporation had at all times remained in full force and effect. DeLCode tit. 8, § 312(e). Given this reinstatement right, Delaware courts hold, a corporation that has had its certificate of incorporation revoked for failure to pay franchise taxes “is not completely dead.” Wax v. Riverview Cemetery Co., 24 A.2d 431, 436 (Del.Super.Ct.1942). It is instead merely “in a state of coma from which it can be easily resuscitated.” Id.; see also Frederic G. Krapf & Son, Inc. v. Gorson, 243 A.2d 713, 715 (Del.1968) (noting that “in Delaware it has long been the law that a Delaware corporation is not dead for all purposes following forfeiture of its charter”); Harned v. Beacon Hill Real Estate Co., 84 A. 229, 234 (Del.1912) (observing that even though a corporation had forfeited its charter and the three-year wind-up period had passed, the corporation “nevertheless was sufficiently alive and existent” to own property). Forfeiture of a certificate of incorporation therefore “does not extinguish the corporation as a legal entity.” Wax, 24 A.2d at 436.4 Because a corporation that has forfeited its certificate of incorporation still exists as a legal entity, it retains its eligibility to be a debtor in a bankruptcy case. In Watts v. Liberty Royalties Corp., 106 F.2d 941, 944 (10th Cir.1939), the court specifically reached this conclusion under facts similar to those here. A receiver had been appointed for defendant Liberty, a Delaware corporation, in July 1931. Id. at 941. Not quite a year later, in April 1932, Liberty forfeited its charter for failure to pay what the court called its “annual license fees.” Id. at 941-42. Six years after that, in 1938, Liberty filed a reorganization petition under the Bankruptcy Act. Id. at 942. The receiver (who had not filed the petition) and several shareholders moved to dismiss the case, but the district court apparently refused, instead approving the petition and ordering the appointment of permanent trustees. Id. The receiver and shareholders appealed, arguing that Liberty had no capacity to file bankruptcy after the three-year wind-up period under Delaware law. Id. at 943. The Tenth Circuit rejected the argument. The court agreed that under Illinois law as the 4136 Wilcox Bldg. Corp. decision construed it, a dissolved corporation “is ended for all time and for all purposes.” Id. at 943^44. But, the court said: “That is not so under the laws of Delaware. If it were, life could not be breathed into the corpse, it could not be revived nor reinstated, nor could all things done by the corporation during its period of suspension be validated by its reinstatement.” Id. at 944. The court continued: So long as a corporation may be reinstated by the payment of delinquent fees and have validated all of its acts that were done while its powers were suspended, the corporation is not dead. Its powers are only in suspension and reinstatement of its charter restores it to all of its powers and validates all of its acts, including the acts done while its charter was suspended. The corporation had power to institute this proceeding for its reorganization.... 488Id. The Delaware Superior Court cited and discussed Watts with approval in Wax, see Wax, 24 A.2d at 436, and the Delaware Supreme Court in turn cited Wax with approval in Gorson, see Gorson, 243 A.2d at 715. Gorson is the last word on the subject from the highest court of the state. It appears, then, that Watts is still good law.5 Because Efoora was not dissolved but only had its certificate of incorporation revoked for non-payment of franchise taxes, the corporation still existed as a legal entity and still had the capacity to file a bankruptcy case. Jaeger’s motion to dismiss the case for lack of jurisdiction will be denied. b. Sale Motion Steege’s motion to amend the APA, effectively selling the earnout rights to Applied Biomedical, will be granted. Steege has given a rational business justification for the sale and has more than adequately supported her decision. Section 363(b)(1) of the Bankruptcy Code permits a trustee, after notice and a hearing, to “use, sell, or lease” property of the estate outside the ordinary course of business. 11 U.S.C. § 363(b)(1). A sale is permissible and will be authorized as long as the trustee has an “ ‘articulated business justification.’ ” Fulton State Bank v. Schipper (In re Schipper), 933 F.2d 513, 515 (7th Cir.1991) (quoting In re Continental Air Lines, 780 F.2d 1223, 1226 (5th Cir.1986)); see also UAL Corp., 443 F.3d at 571 (stating that the transaction must “make[] good business sense” and “the creditors as a whole should benefit”); In re Telesphere Commc’ns, Inc., 179 B.R. 544, 552 (Bankr.N.D.Ill.1994) (noting that the sale must be “in the best interest of the estate”). The “business judgment” test, as it is sometimes called, differs from the business judgment rule under corporate law. 3 Collier on Bankruptcy ¶ 363.02[4] at 363-18 (Alan N. Resnick & Henry J. Sommer eds., 16th ed. 2012). The bankruptcy court reviews the trustee’s business judgment “to determine independently whether the judgment is a reasonable one.” Id. At the same time, the court “should not substitute its judgment for the trustee’s.” Id. A trustee has considerable discretion when it comes to the sale of estate assets, and that discretion is entitled to “great judicial deference” as long as a sound business reason is given. In re State Park Bldg. Grp., Ltd., 331 B.R. 251, 254 (N.D.Tex.2005); In re Murphy, 288 B.R. 1, 5 (D.Me.2002); In re Gulf States Steel, Inc. of Ala., 285 B.R. 497, 516 (Bankr.N.D.Ala.2002).6 The trustee bears the burden of demonstrating a sound business justification. See In re Lionel Corp., 722 F.2d 1063, 1071 (2d Cir.1983). A party objecting to a sale, in turn, must produce “some 489evidence respecting its objections.” Id. Approval of a sale rests with the bankruptcy court’s discretion. Corporate Assets, Inc. v. Paloian, 368 F.3d 761, 767 (7th Cir.2004); In re Irvin, 950 F.2d 1318, 1320 (7th Cir.1991). Steege offered a sound business justification for selling the estate’s rights to the earnout payments for $50,000. She explained that her decision to propose the sale required answers to two questions: first, whether any earnout payments under the APA were due the estate from Applied Biomedical; and second, whether Applied Biomedical was reasonably likely to owe the estate earnout payments in .the future. (Tr. at 163-64). The answer to the first question, whether Applied Biomedical owed the estate any earnout payments, was no. The estate’s rights to payments depended on Applied Biomedical having net sales. (Tr. at 163). Applied Biomedical, Steege learned, had had no sales at all since the APA was signed in 2008 and so had no revenue at all. (Id. at 131, 140, 163). As a consequence, no earnout payments were due. (Id. at 131,184). The answer to the second question, whether Applied Biomedical was reasonably likely to make earnout payments in the future, was also no. (Tr. at 169, 173-74). Steege was told that Dr. Yarshney had run out of money to operate the company — had “tapped out his personal finances” (id. at 169) — and would have to shut it down without financing (id. at 170, 173, 185-86). It would take another $7 million to produce marketable HIV and blood glucose test kits and sell them, and no one would give him financing unless the APA were amended to remove the earnout provision. (Id. at 141). Even if Dr. Varshney did get financing, Steege said, she suspected Applied Biomedical was unlikely ever to get off the ground. (Tr. at 140, 173-74). After three years, the company had not only sold no test kits but had not yet developed one that could be sold. (Id. at 141). The receiver, Bodenstein, had told her he was unsure “if there really was a viable product here,” that it was unclear whether Efoora had been “a viable business, or whether it was just completely a fraud.” (Id. at 140-41). Steege asked for and received financial information to support what she was hearing about Applied Biomedical’s circumstances. (Tr. at 147, 150). She obtained tax returns from 2008-2010 showing that Applied Biomedical had no income for any of those years and losses of $171,238 in 2008, $740,487 in 2009, and $594,257 in 2010. (Trustee Exs. 3-5; see also Tr. at 31-33). She obtained a 2011 financial statement for Applied Biomedical. (Tr. at 150). She obtained a short, written history of the business summarizing the company’s problems, both financial and technical. (Id.; see also Jaeger Ex. 6). And she obtained a package of materials explaining the projection that $7 million would be necessary for Applied Biomedical to produce and sell test kits. (Tr. at 150). Steege also insisted that Dr. Yarshney or someone else testify at the sale hearing and confirm the representations made to her. (Tr. at 131-32). Dr. Varshney testified both at a deposition taken at Mr. Jaeger’s instance and again at the sale hearing. (Id. at 132, 155, 157-58, 160). On both occasions, Steege said, his answers under oath were consistent with the information she had been given. (Id. at 155). At the hearing, Dr. Varshney testified that Applied Biomedical had acquired the assets of Efoora with the hope of producing HIV and blood glucose test kits — and he had used his own money for the acquisi490tion, mortgaging his house and borrowing against his life insurance policy. (Tr. at 27-28). Although Efoora itself had never sold any test kits, he had been optimistic about Applied Biomedical’s prospects. (Id. at 28-29). He soon discovered, however, that the equipment Applied Biomedical had acquired was rusted, broken, and inoperative — “[what] I inherited was [a] piece of junk,” he said (id. at 91) — and Efoora’s servers containing critical technological data were missing (id. at 29-30, 45, 91; see also Jaeger Ex. 6). Applied Biomedical moved the equipment to California (id. at 77, 109-10), and Dr. Varshney spent more of his own money, quite a bit of it, having the equipment repaired and refurbished (id. at 77; Jaeger Ex. 6). But despite all his effort and expense, Dr. Varshney said, Applied Biomedical had never produced properly functioning medical test kits. (Tr. at 35, 114). Only prototypes had been produced, not kits with the kind of consistency necessary for FDA approval and mass production. (Id. at 48-50, 110-12, 126-27). After four years, he said, the kits were still in the “research and development phase.” (Id. at 37, 49, 79). No test kits ready for sale had been produced, and so, of course, no kits had been sold. (Id. at 46, 48). Because there had been no sales, Applied Biomedical had had no income — had “not earned a single dime.” (Id. at 27, 30, 32-33, 35). And because there had been no income, no earnout payments under the APA had been made. (Id. at 27). At this point, Dr. Varshney said, Applied Biomedical was unable to continue in business. The company was incurring $60,000 to $70,000 in monthly expenses but was still earning nothing. (Tr. 35, 123). To date, he and his wife had provided all of the money for the company’s operations, and they had no more. (Id. at 123). “I have borrowed [from] every corner,” he commented. “I don’t have any money left.” (Id. at 123). According to Dr. Varshney, the company needed another $7 million to get to the point of selling test kits. (Id. at 38,105,107). Without financing, Applied Biomedical would have to shut down. (Id. at 38, 41). Dr. Varshney had tried to raise money, but so far his efforts had met with no success. (Tr. at 38). The obstacle was the earnout provision in the APA. “Basically,” he explained, “this industry is quite mature. A lot of competition. Profit margin is very low, and the cost of the production is higher as compared to what it was five years ago.” (Id. at 39 — 40; see also id. at 72). As a consequence, the earnout provision, which would deprive Applied Biomedical of a portion of its profits, was discouraging prospective lenders and investors. (Id. at 40-41, 56, 101, 103, 105). To them, Dr. Varshney said, the provision was “prohibitive” (id. at 40), a “red flag” (id. at 101). More than one prospective lender had told him that until the earnout provision was removed, a loan was impossible. (Id. at 56,103). Even with additional funding, Dr. Varsh-ney admitted, it would take two to three years to get test kits to market. (Tr. at 107, 113, 128). It would be as if Applied Biomedical were “starting all over again from square one.” (Id. at 107). And it was always possible that Applied Biomedical would never produce a marketable HIV or blood glucose test kit. (Id. at 115). “I survive on hope,” he said. “So far, I am a failure.” (Id. at 123). Steege testified, finally, that several other considerations influenced her decision to sell the earnout payment rights back to Applied Biomedical: • Nothing in the APA gives her the legal ability to force Applied Biomedical to do anything. She cannot make the company have a certain level of capital, obtain fi491nancing, produce test kits for sale, sell test kits overseas, or even stay in business. (Id. at 141, 143-44, 158, 169). • Efoora has more than 4,000 creditors, some of whom have told Steege they want to file their final tax returns and write off their losses from the Efoora debacle. (Tr. at 180). These creditors have asked why the bankruptcy case, open for three years, has not been closed. (Id. at 134, 142, 180). • Of the more than 4,000 creditors, only one, Jaeger, has objected to the proposed sale. (Tr. at 136). • No one else, including Jaeger, has made a better offer for the earnout payment rights. (Tr. at 139, 142-43, 172). • The estate is holding $180,000 to $190,000. (Tr. at 182-83). No creditors in the case have been paid anything yet, and no creditors will be paid anything until a final report is filed and the case is closed. (Id. at 181-82). • The estate stands to gain $50,000 from the sale (Tr. at 144), increasing the estate’s size by more than 20%. If the sale does not go through and Applied Biomedical goes out of business, the estate will receive nothing. (Id.). With no money having come into the estate in the past three years and the prospect of any money ever arriving highly doubtful, Steege concluded that on balance it no longer made sense to wait. (Tr. at 142). Better to take the sure $50,000 than speculate that, contrary to all the evidence, Applied Biomedical would not only stay in business but would turn a profit. Steege’s decision to sell the earnout payment rights back to Applied Biomedical is an eminently reasonable one, makes “good business sense,” UAL Corp., 443 F.3d at 571, and is “in the best interest of the estate,” Telesphere, 179 B.R. at 552. Steege is a sophisticated bankruptcy lawyer with almost twenty-five years of experience as a panel trustee (Tr. at 129), and her decision is entitled to considerable deference, State Park, 331 B.R. at 254. In opposing the sale, Jaeger argues that Dr. Varshney has exaggerated Applied Biomedical’s problems. Jaeger introduced at the hearing a series of e-mails from 2009 and 2010 between Dr. Varshney and a man named Peterson who had been associated somehow with Efoora (see Tr. at 158), e-mails in which Dr. Varshney suggested that success for Applied Biomedical was only months away (see id. 62-64, 73-78, 81-83, 89-90; Jaeger Exs. 7-11, 13). Jaeger noted, and Steege conceded, that it would be in Applied Biomedical’s interest to get rid of the APA’s earnout payment provision. (See Tr. at 157). Dr. Varshney acknowledged the e-mails but explained them credibly as no more than mistaken optimism on his part. They were “truthful” (Tr. at 112) and represented what he genuinely thought at the time (id. at 76, 82, 83, 90). “I was very optimistic,” he said. “Basically, I’m a very optimistic person, positive-thinking person.” (Id. at 112). Ultimately, though, his predictions proved incorrect; Applied Biomedical failed to reach the benchmarks he mentioned in the e-mails. (Id. at 112). “I was wrong,” he admitted. (Id. at 114). Steege dismissed the e-mails as not “really say[ing] anything concrete,” as merely making predictions of performance that Applied Biomedical’s tax returns later showed had been incorrect. (Id. at 158). She was right to dismiss them. Along the same lines, Jaeger suggested that if the consistency necessary to obtain FDA approval were an obstacle, Applied Biomedical could sell its test kits overseas without approval. (See, e.g., Tr. at 46). But Jaeger offered no evidence or legal argument to support his suggestion. Dr. Varshney testified without contradiction that at least for the HIV test kit, FDA 492approval was necessary to obtain an export license. (Id. at 46^47, 119). He also testified without contradiction that there is little potential for selling these kits outside the United States, FDA approval or not, because companies in other countries are “mass-producing these test kits [for a] considerably cheaper price,” one with which he could not compete. (Id. at 120). Applied Biomedical’s focus, he said, “is to produce and sell in the U.S.A.” (Id.). Jaeger also criticizes Steege for proposing the sale without conducting a sufficient investigation. Steege admitted that she did not obtain copies of Applied Biomedical’s bank statements or checks (Tr. at 187), did not have signed copies of the tax returns (id. at 186), did not visit the California facility where the equipment was located (id. at 160), did not examine Applied Biomedical’s technical problems with the HIV test (id.), did not learn about the industry (for example, by talking to companies in the Chicago area) (id. at 166-68), and did not hire an auditor or accountant to conduct an independent analysis of Applied Biomedical’s financial health (id. at 162-63). Jaeger is right that a trustee must conduct an adequate investigation, see, e.g., JAS Partners, Ltd. v. Boyer, No. 1:10-cv-303-TLS, 2011 WL 1486205, at 4 (N.D.Ind. Apr. 19, 2011); In re Wolverine, Proctor & Schwartz, LLC, 436 B.R. 253, 261-62 (D.Mass.2010), but Steege’s investigation was quite adequate under the circumstances. She spoke repeatedly to Dr. Varshney’s counsel (who made the initial overture and explained to her Applied Biomedical’s situation), obtained a package of financial documents that she concluded backed up what she had been told about Applied Biomedical’s history and prospects, and then required Dr. Varshney to make his representations about the company under oath — which he did, both at his deposition (where Jaeger’s counsel and Steege questioned him) and again at the sale hearing. No evidence was produced to her (or for that matter at the hearing) showing that anything Dr. Varshney had said was false. (Tr. at 158, 160, 185). Could Steege have done more? Certainly. A more extensive investigation is always possible.7 What Jaeger forgets is that a chapter 7 trustee has no independent source of money to fund the investigation of potential sales. The money comes from the estate. The expenses Jae-ger would have had Steege incur to hire experts or travel to California would only have resulted in administrative claims paid before the claims of other unsecured creditors. See 11 U.S.C. §§ 503(b)(1)(A), 507(a)(2). Every penny Steege spent on a more thorough investigation would thus have reduced the $180,000 to $190,000 she is holding to pay more than 4,000 defrauded investors. A trustee has to balance the need for investigation against her responsibility not to waste estate assets. In re Commercial Loan Corp., 316 B.R. 690, 703-04 (Bankr.N.D.Ill.2004). It cannot be said that Steege struck the balance incorrectly here. Finally, Jaeger tried to question Steege at the hearing about whether she had considered a different amendment to the APA, one under which the estate’s rights to earnout payments would be subordinated to the rights of any new lenders rather than eliminated. (Tr. at 170). Such an 493arrangement would presumably address the concerns that section 1.6 of the APA had generated among prospective lenders and so permit Applied Biomedical to obtain financing without removing altogether the estate’s right to earnout payments. Jaeger’s attempt to explore this possibility was cut short, however, when an objection to the question was sustained on relevance grounds. (Id. at 171). The subject was irrelevant. A trustee has a responsibility to “maximize the value obtained from a sale,” true enough. In re Bakalis, 220 B.R. 525, 532 (Bankr.E.D.N.Y.1998); see also In re Lakeside Dev., LLC, No. CA 11-05211-dd, 2012 WL 619071, at 4 (Bankr.D.S.C. Feb. 24, 2012). But a proposed sale is properly disapproved only in favor of a better alternative that is “in hand,” In re Broadmoor Place Invs., L.P., 994 F.2d 744, 746 (10th Cir.1993), and there was no evidence that any lender would provide financing if the APA were amended in the manner Jaeger was proposing. Jaeger offered no evidence of any.8 Dr. Varshney, meanwhile, testified (without objection) that he had floated the idea to potential lenders but had been unable to generate any interest. (Tr. at 191). Even if prospective lenders had been willing to provide financing under Jaeger’s suggested amendment, Steege could fairly have rejected the proposal in favor of Dr. Varshney’s $50,000 deal. The Jaeger amendment would have benefitted the estate only if Applied Biomedical had (1) succeeded in producing a marketable product, (2) ended up with net sales, and (3) generated enough net income to satisfy in full its new debt obligations. The possibility that any of this might happen was no better than speculation, what Dr. Varsh-ney accurately termed “our hopes.” (Tr. at 123). A trustee is the “conservator of the estate and must, to the extent possible, be risk averse.” In re Salander, 450 B.R. 37, 48 (Bankr.S.D.N.Y.2011) (internal quotation omitted). It is reasonable, consequently, for a trustee in Steege’s position to accept a lower, safer offer over a higher, riskier one. See Bakalis, 220 B.R. at 532; see also In re Frezzo, 217 B.R. 985, 993 (Bankr.E.D.Pa.) (rejecting criticism of trustee for accepting “a binding ‘bird in the hand’ ” over “the proverbial ‘two in the bush’ ”), appeal dismissed, 225 B.R. 581 (E.D.Pa.1998). Because Steege supplied a sound business reason for the sale of the earnout rights to Applied Biomedical, and because she conducted a sufficient investigation before proposing the sale, her motion to amend the APA will be granted. 4. Conclusion For these reasons, the motion of Douglas Jaeger to dismiss the bankruptcy case for lack of jurisdiction is denied, and the motion of chapter 7 trustee Catherine Steege for authorization to amend the asset purchase agreement between the estate and Applied Biomedical, LLC, is granted. A separate order will be entered consistent with this opinion. . The transcript of the April 23, 2012, hearing on the sale motion is cited in this opinion as 484"Tr.-." . Because the amendment's effect would be to sell to Applied Biomedical the estate's remaining rights to receive payments under the APA, Steege's motion is one for permission to sell estate property under section 363(b) of the Bankruptcy Code, 11 U.S.C. § 363(b). Cf. In re UAL Corp., 443 F.3d 565, 571 (7th Cir.2006) (stating that a motion to modify a debtor-in-possession's collective bargaining agreement "had to be approved by the bankruptcy judge under section 363(b)(1)”). . Jaeger made other arguments, as well. His main one was that the rights to the earnout payments are not property of the bankruptcy estate Steege can sell because any payments would ultimately go to Efoora's investors. He described the investors as "third party beneficiaries” of the APA. (Jaeger Obj. at 3). Not so. The APA was an agreement between Applied Biomedical and Bodenstein as receiver, and the rights to the earnout payments belonged to Bodenstein in that capacity. Sections 1.6(b) and (c) of the APA expressly declared that “the Purchaser shall pay to the Receiver ” any amounts due. (Trustee Ex. 1 at 5 (emphasis added)). No payments were to be made to investors. When the bankruptcy case was filed, Bodenstein’s contract rights therefore became part of the bankruptcy estate, the same as all other Efoora assets. See In re Resource Tech. Corp., 254 B.R. 215, 220 (Bankr.N.D.Ill.2000) ("The scope of property interests included in the estate under § 541(a) is quite broad, and includes any contract rights that a debtor possesses at the time of the bankruptcy filing.”). As trustee, Steege is entitled to administer the asset for the benefit of creditors. . The Delaware decisions distinguish decisions on corporate dissolution under Illinois law — including Chicago Title & Trust Co. v. 4136 Wilcox Bldg. Corp., 302 U.S. 120, 58 S.Ct. 125, 82 L.Ed. 147 (1937), a decision that concerned Illinois law and on which Jaeger relies in his motion. See, e.g., Wax, 24 A.2d at 435-36. . One difference between Watts and this case is that Liberty was reinstated six months after the appeal was taken, see Watts, 106 F.2d at 942, whereas the un-reinstated Efoora is still "in a state of coma,” Wax, 24 A.2d at 436. It might therefore be argued that Liberty’s bankruptcy case was retroactively validated in a way that Efoora's case has not been. But Liberty's reinstatement appears not to have played any role in the Watts court’s decision. The question on appeal, the court said, was whether "on May 5, 1938” — the day the petition was filed, not later — Liberty had the "power to institute a voluntary proceeding for its reorganization.” Watts, 106 F.2d at 943. The court answered that question affirmatively without ever mentioning the corporation’s subsequent return to consciousness. See id. at 943-44. . Jaeger's contention at the hearing — that “a high level of scrutiny” must be given to a trustee's sale motion under section 363(b) (Tr. at 217) — is simply wrong. . It is unclear, however, what Steege might have learned from Applied Biomedical's bank statements or checks that could have affected her decision, given that she had the tax returns. As for the tax returns being unsigned, Dr. Varshney testified that the returns introduced into evidence were in fact Applied Biomedical’s returns (Tr. at 30-31), and the information in them was correct (id. at 31-33). . If this proposed amendment were as attractive as Jaeger implies, and if Applied Biomedical’s future were as rosy as Jaeger apparently believes, Jaeger himself could have sought to purchase the estate’s rights with a view to amending the APA just this way. But he made no offer. (Tr. at 139).	01-04-2023	11-22-2022
https://www.courtlistener.com/api/rest/v3/opinions/8494737/	MEMORANDUM DECISION ROBERT D. MARTIN, Bankruptcy Judge. Jonathan and Veronica Graham (“the debtors”) filed a voluntary chapter 7 petition on February 18, 2011. Associated Bank (“the Bank”) brought this adversary proceeding, requesting that the amount the debtors spent after the Bank mistakenly deposited it in their account be excepted from discharge under § 523(a)(2)(A) and § 523(a)(6). A trial was held on November 22, 2011. In March 2006, when the debtors opened a personal checking account with the Bank, they signed a Signature Card, agreeing to be bound by the rules regulating the account. The Bank Deposit Account Information Rules include on page 10 thereof: Customer’s Examination Responsibility “You must examine your statement of account and report any unauthorized signatures, alterations, other unauthorized transactions, or errors, along with the relevant facts surrounding the same ... within [a maximum of 14 days] ... Even if timely reported, you may have to bear the loss or share the loss with us if your lack of ordinary care substantially contributed to the loss. If you fail to report any unauthorized ... transactions, or errors in your account within 14 days of when we first send or make the statement available, you cannot assert a claim against us on any items in that statement, and the loss will be entirely yours. This 14-day limitation is without regard to whether we used ordinary care.” No evidence suggests that the debtors ever read this language. In any event, they failed to report an erroneous deposit made to their account. The debtors had also opened two accounts with the Bank for their businesses, Sloppy Lobster, Inc. and Quarry Interiors. Veronica Graham ran the day-to-day operations of the businesses. The debtors intermingled funds in their accounts. During the time period relevant to this matter (July 2008 to September 2008), the debtors used money in the personal account to pay business as well as personal expenses. Jonathan Graham was a Delta Airlines pilot whose salary was deposited in an account at a Delta Community credit union in Atlanta. He also served in the Air Force Reserve. He had returned from serving in Iraq at the end of March 2008, and during August 2008, he was in South Africa. His monthly Reserve pay was deposited in the personal account at the Bank. While activity within this account varied month to month, the deposits typically corresponded with contemporaneous withdrawals in similar amounts. Prior to July 28, 2008, the account balance at the end of each statement period was quite small. 528Account activity between July 18 and July 28, 2008 brought the balance in the personal account near zero. The only two deposits made during this period corresponded with two subsequent withdrawals in similar amounts. Other withdrawals were due to overdraft fees and expenses Jonathan incurred while he was deployed overseas. On July 28, 2008, the Bank erroneously deposited $64,467.67 into the debtors’ personal account. On their bank statement, the line item next to this deposit reads “Mark and Lisa Beyer.” The debtors do not know Mark and Lisa Beyer. The debtors did nothing to induce or compel this deposit. Transactions for the following day show a deposit in the amount of $276.40 and a withdrawal in the amount of $500.00. Between July 30, 2008 and August 6, 2008, no deposits were made, but over $500.00 was withdrawn. On August 7, 2008, a $200.00 deposit was made, but about $2,000.00 was withdrawn. Account activity between August 8 and August 20 show about $5,300.00 in deposits, and over $18,500.00 in withdrawals. The majority of the withdrawals took place in Wisconsin, but some appeared to have been made by Jonathan overseas. The funds withdrawn were used to pay household and business expenses. No extravagant purchases or diverting deposits were shown to have been made. Throughout this period, the debtors did not contact the Bank regarding the $64,467.67 deposit. And, they testified that they did not discuss it with one another, because Jonathan’s deployment prevented them from regular conversation. They explained that they were expecting inheritance money (possibly as much as $90,000.00) from Jonathan’s uncle, and they assumed the deposit was an installment of this inheritance, although they did not necessarily expect to receive the inheritance via wire transfer. Prior to July 2008, the debtors had received an installment of the inheritance by check in the amount of $2,000.00. The Bank was notified of its error on September 22, 2008, and immediately commenced an investigation. The debtors maintain that they did not learn of the Bank’s mistake until a bank representative informed Veronica on September 22 that an error had been made. She replied that they had anticipated an inheritance, and she would be contacting her husband and working with the Bank to resolve the matter. The Bank reversed the errant deposit that day, leaving the account overdrawn by over $61,000.00. The Bank notified the debtors of the deficiency and asked them to replace the funds. The debtors failed to do so, and the Bank incurred the loss. There was no evidence as to whether the loss was insured. From an affidavit of the debtors which accompanied a motion to dismiss this proceeding we learned that: In March 2009, the Bank brought a suit against the debtors on two causes of action: Breach of Contract and Misappropriation. It asked for judgment on its first claim in the amount of $60,624.09, plus costs and attorney fees, or “in the alternative, if the Defendants actions are found to be intentional, on its second claim in the amount of $242,496.36 ...” In a response brief filed with this court, the Bank explained that: After almost two years of litigation in state court, the Bank consented to dismissal of the Misappropriation claim without prejudice. The debtors had informed the Bank that they intended to file bankruptcy, and the Bank voluntarily dismissed the Misappropriation claim so it could obtain summary judgment on the breach of contract claim in the 529amount of $65,425.09 ($60,624.09, plus costs and attorney fees). There was no finding of misappropriation, fraud or intentional injury. The judgment was not put in evidence at trial, but the facts recited here are not contested. The Bank commenced this adversary proceeding against the debtors under § 528(a)(2)(A) and § 523(a)(6). It argues that as of July 29, 2011, when she made a $500.00 withdrawal from the account, Veronica Graham not only knew of the $64,467.67 transfer, but knew the transfer was made in error. As stated in its Proposed Findings of Fact, the Bank believes that it is entitled to judgment and an Order of Non-dischargeability in the amount of $60,152.31-the amount by which the account was overdrawn after the Bank reversed the errant transfer, less $471.46 in overdraft fees and one small withdrawal. Exceptions to discharge are construed strictly against a creditor and liberally in favor of the debtor. Westlund v. Casper (In re Casper), 440 B.R. 500, 505 (Bankr.W.D.Wis.2010) (citing In re Chambers, 348 F.3d 650, 654 (7th Cir.2003)). A plaintiff must prove all elements of an exception to discharge by a preponderance of the evidence. Id. 11 U.S.C. § 523(a)(2)(A) states: “(a) 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 — ... (2) 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 ...” In order to except a debt from discharge under § 523(a)(2)(A), a creditor must establish the following elements: (i) that the debtor made a false representation of fact, (ii) that the debtor either knew the representation was false or made the representation with reckless disregard for its truth, (iii) that the representation was made with an intent to deceive, and (iv) that the plaintiff justifiably relied upon the false representation to its detriment. See Iwaszczenko v. Neale (In re Neale), 440 B.R. 510, 521 (Bankr.W.D.Wis.2010). To succeed under this section, all three ingredients are needed-falsity, fraudulent intent, and reliance. Bremer Bank, N.A. v. Wyss (In re Wyss), 355 B.R. 130, 133 (Bankr.W.D.Wis.2006). A breach of a contract or a failure to perform some promised act, by itself, will not render a debt nondischargeable under § 523(a)(2)(A). Christenson v. Lee (In re Lee), 415 B.R. 367, 372 (Bankr.E.D.Wis.2009). The inquiry under § 523(a)(2)(A) focuses on the manner in which the debtor “obtained” the funds. Bremer Bank, N.A. v. Wyss (In re Wyss), 355 B.R. at 134 (citing McClellan v. Cantrell, 217 F.3d 890, 895 (7th Cir.2000) (the statute requires that “money, property, or services be obtained by fraud”)). Subsequent conduct is only relevant to the extent it can illuminate the debtor’s behavior at the time the debt was incurred. Id. Fraud can be found in an express misrepresentation or failure to disclose a material fact: Actual fraud precluding discharge consists of any deceit, artifice, trick or design, involving the direct and active operations of the mind used to circumvent or cheat another; something said, done or omitted with the design of perpetrating what is known to be a cheat or deception. However, fraud may consist of silence, concealment or intentional nondisclosure of a material fact, as well as affirmative misrepresentation of a material fact. Christenson v. Lee (In re Lee), 415 B.R. at 371-372 530(citing In re Faulk, 69 B.R. 748, 750 (Bankr.N.D.Ind.1986) (internal quotes and citations omitted)). Still, an omission traditionally must induce the obtaining of the money. In Christen-son, by not disclosing that the firearms were nontransferable, the debtor induced Christenson into a purchase transaction. Id. at 373-74. Christenson relied on this non-disclosure to his detriment, as he paid significant sums of money for guns that he never obtained. Id. at 374. The parties agree that the debtors did nothing fraudulent (indeed, nothing at all) to bring about the $64,467.67 transfer to their account. The transfer was the Bank’s error. Neither an act nor an omission by the debtors induced the Bank to make the deposit. Even if the debtors had been aware of their contractual duty to report errors, breach of a contractual duty alone is not enough to except a debt from discharge under this section. The debtors’ use of the funds does not constitute a false statement for the purposes of § 523(a)(2)(A). Checks are not factual assertions, and therefore cannot be characterized as true or false statements. Williams v. U.S., 458 U.S. 279, 284-285, 102 S.Ct. 3088, 3091-92, 73 L.Ed.2d 767 (1982); see also Capital One Bank v. Bungert (In re Bungert), 315 B.R. 735, 738-739 (Bankr.E.D.Wis.2004). If a check or withdrawal was a representation, it was one made to the designated payee and represented at most that the payee would receive funds from the account. The Bank might have protected itself from loss by not honoring checks written on the account, but it had a contractual duty of its own to pay its obligation to the debtors represented by the checks and electronic withdrawals. Because the money was not “obtained” by false pretenses, the elements of § 523(a)(2)(A) have not been met. 11 U.S.C. § 523(a)(6) states: “[a] discharge under section 727 ... does not discharge an individual debtor from any debt — for willful and malicious injury by the debtor to another entity or to the property of another entity.” In order for a debt to be excepted from discharge under this section, a court must find the injury to be both willful and malicious. See In re Kimzey, 761 F.2d 421, 424 (7th Cir.1985). To succeed, the plaintiff must show that the debtor intended to and caused an injury to the plaintiff or the plaintiffs property. In re Neale, 440 B.R. 510, 520 (Bankr.W.D.Wis.2010) (citing Zamora v. Jacobs (In re Jacobs), 403 B.R. 565, 581 (Bankr.N.D.Ill.2009)). Because a person will rarely admit to acting in a willful and malicious manner, the requirements may be inferred from the circumstances surrounding the injury. Weinberger v. AnchorBank, No. 10-C-0996, 2011 WL 679343, 5 (E.D.Wis. Feb. 16, 2011) (citing Kawaauhau v. Geiger (In re Geiger), 523 U.S. 57, 118 S.Ct. 974, 140 L.Ed.2d 90 (1998)). “Willful” means deliberate or intentional. Kawaauhau v. Geiger, 523 U.S. at 61, 118 S.Ct. 974. Willfulness requires more than just negligence, or even recklessness. Id. The creditor must prove that the debtor subjectively intended to injure it or knew that injury was “substantially certain” to result. In re Neale, 440 B.R. at 520. “Malicious” means “in conscious disregard of one’s duties or without just cause or excuse; it does not require ill-will or specific intent to do harm.” In re Thirtyacre, 36 F.3d 697, 700 (7th Cir.1994). This court has required that “the debtor know that his act will harm another and proceed in the face of that knowledge.” In re Jorenby, 393 B.R. 663, 666 (Bankr.W.D.Wis.2008). Tortious conversion is included only generally in § 523(a)(6) of the Bankruptcy Code. First 531Weber Group, Inc. v. Horsfall (In re Horsfall), No. 10-179, 2011 WL 1628472, 3-4, 2011 Bankr.LEXIS 1729, 10 (Bankr.W.D.Wis. Apr. 26, 2011); see also Kawaauhau v. Geiger, 523 U.S. at 61-62, 118 S.Ct. 974. But it is generally acknowledged to be a proper basis for nondis-chargeability. Id. No controlling decisions, and none from other Circuit Courts of Appeals, address facts similar to those proved in this case, but there are some from other bankruptcy courts. In In re Nawroz, the debtor held a certificate of deposit account at Wacho-via Securities, with a balance of $28,032.12. In re Nawroz, No. 11-0183, 2011 WL 6749064, 1 (Bankr.E.D.Va. Dec. 22, 2011). The debtor requested that Wachovia transfer the funds from the CD account to her retirement account, and Wachovia mistakenly credited her retirement account twice. Id. The debtor transferred the entire amount of $56,043.24 to her checking account at a different bank. Id. Then she wrote a check in the amount of $81,000.00, which the court noted would not have cleared, but for the mistaken transfer. Id. Judge Kenney inferred that the debtor was intentionally using funds that she knew were not hers to spend, and therefore, the debtor’s act satisfied the “willful” element of § 523(a)(6). Id. at 2. The court also found “malice” was present, as the debtor made a conscious choice to use the funds, rather than to alert Union Bank or Wachovia of the mistake. Id. at 3. Thus, “her exercise of dominion and control over funds she knew belonged to another” warranted a finding that the debt- or’s actions were malicious. Id. (citing First Nat’l Bank v. Stanley (In re Stanley), 66 F.3d 664, 668 (4th Cir.1995)). In In re Martin, the plaintiff mistakenly sent a check to the defendant in the amount of $36,500.00. In re Martin, 321 B.R. 437, 439 (Bankr.N.D.Ohio 2004). The plaintiff did not discover the error until all of the funds had been spent. Id. The plaintiff commenced an action in state court and obtained a judgment holding the defendant liable for conversion. Id. at 440. The bankruptcy court found that the defendant knew he was not the intended recipient of the check, yet he proceeded to negotiate and then dissipate the funds from the check, and that this conduct established “willfulness,” as “[t]o hold otherwise, under the conditions just mentioned, would unduly raise the evidentiary bar on an action brought under § 523(a)(6) so as to make it almost impossible, without a direct admission, to establish the ‘willful’ standard of the statute.” Id. The court noted that malice requires a “heightened level of culpability transcending mere willfulness,” and the defendant’s conduct established “maliciousness” because he did not intend to confer a benefit on the injured party. Id. at 442. He actually attempted to keep the transactions secret (upon receiving the check, the defendant did not deposit it in his normal business account, but instead deposited it in his personal account). Id. From that, the court concluded that “[w]hen considered in conjuncture with those circumstances, as previously set forth, demonstrating the willfulness of the Defendant’s actions, the weight of the evidence in this case tips heavily toward a finding that the Defendant’s actions were taken in conscious disregard of his duties and without just cause or excuse.” Id. at 442-43. Accordingly, the court found that the debtor acted both willfully and maliciously, and the state court judgment debt was excepted from discharge under § 523(a)(6). Id. at 443. Conversely, a debt was discharged when an employee received too much for severance pay, but did not report the error. The debtor was to receive $5,113.00 severance pay from her former employee. SmithKline Beecham Corp. v. Catherine 532Lam (In re Catherine Lam), No. 06-09096, 2008 WL 7842072, 1, 2008 Bankr.LEXIS 1372, 2 (Bankr.N.D.Ga. Mar. 27, 2008). Instead, by dint of clerical error, she received a check from the plaintiff in the amount of $53,932.29, and cashed it. Id. The debtor learned of the plaintiffs error several months later in a letter from the plaintiffs representative. Id. at 1, 2008 Bankr.LEXIS 1372, at 3. In ruling for the debtor, the court found that the act of cashing the check was indeed a willful one, but it did not rise to the level of malicious without establishing the requisite intent to injure. Id. at 2-3, 2008 Bankr.LEXIS 1372, at 7. Nothing established that debtor cashed the check to deliberately or intentionally injure the plaintiff. Id. at 3, 2008 Bankr.LEXIS 1372, at 8. The court acknowledged the debtor’s uncontroverted (and seemingly credible) testimony that she was not aware of the error when she cashed the check. Id. In this case, there is prima facie evidence of a willful act. The debtors most likely would have been aware of the transfer soon after it occurred. They usually kept the account balance near zero. Withdrawals that occurred within the first week of the transfer were relatively small, and some came from overseas. There is no direct proof that the debtors checked the balance during this period. But on August 7, 2008, a $200.00 deposit was made, and about $2,000.00 was withdrawn. Account activity between August 8 and August 20 show about $5,300.00 in deposits, and over $18,500.00 in withdrawals. The debtors are not likely to have made those withdrawals without believing there was extra money in the account. So, possibly as soon as August 7, 2008, the debtors knew about the $64,467.67 deposit. However, such a finding does not in itself establish “willfulness.” The debtors must have known that the extra money did not belong to them. The debtors deny having that knowledge, testifying that they believed the $64,467.67 deposit was part of an inheritance. While not rebutted directly, this version of the debtors’ state of mind is not easily credited. It is likely that at some point, they were aware they were spending someone else’s money. Whether that date is August 7th (when they were probably aware that the deposit had been made) or later, is uncertain. Even if the debtors knew they were spending someone else’s money on August 7th, it may not have been malicious. No evidence supports that the debtors concealed their use of the funds. As is apparent from their bank records, they spent the money at stores such as Menards and Home Depot. Some of the withdrawals were for expenses for their business. The debtors never made a large or disguised withdrawal. However, if the debtors knew they were spending someone else’s money, and if they knew they could not replace it, they certainly knew that by spending the funds in the account, an injury would result. Whether they knew who they were injuring is less clear. Was it the Bank, the rightful owner of the funds deposited, or an insurer of either? To succeed under § 523(a)(6) in this district, the plaintiff must show that the debtor intended to and caused an injury to the plaintiff or the plaintiff’s property interests. In re Neale, 440 B.R. at 520 (emphasis added). That element has not been proved by the greater weight of the evidence. While the circumstances suggest each of the elements of § 523(a)(6), alternative explanations are equally probable. It is the Bank’s burden to establish that the debtors knew the money did not belong to them when they spent it. The Bank established they knew about the deposit, but it did not establish that the 533debtors knew it was not theirs. Nor was it proved that the debtors knew drawing on their personal account would injure the Bank. The burden of proof is “by a preponderance of the evidence.” When one inference is as likely as its opposite, that standard is not met. Although we don’t reach the question of “how much” is nondischargeable, it deserves a short note. Courts in the Seventh Circuit have held that only the portion of the debt actually based on willful and malicious injury by the debtor is non-dischargeable. See In re Cox, 243 B.R. 713 (Bankr.N.D.Ill.2000). In Cox, Judge Schmetterer held that the debtor’s “willful and malicious injury” to the creditor’s collateral did not provide basis for excepting entire amount of creditor’s claim from discharge, but rather, only to the extent that the debtor destroyed the car’s retail value through selling its parts. Id. at 720. In this case, it is not possible on the evidence presented to trace the transactions and determine when the debtors spent money that they knew was from the subject deposit and when they spent money they deposited themselves. The debtors did spend some of their own money after they became aware of the erroneous deposit. Even if we knew the exact time after which the debtors knew they were spending someone else’s money, not all of the Bank’s judgment amount would have been tied to that spending. And no means to calculate an exact sum has been provided in the evidence received. For these reasons, the Bank has failed to prove all required elements for nondis-chargeability under § 523(a)(2)(A). The Bank has not met its burden of proof to establish a claim for nondischargeability under § 523(a)(6). Therefore, the Bank is not entitled to a judgment of nondis-changeability in any amount. It may be so ordered.	01-04-2023	11-22-2022
https://www.courtlistener.com/api/rest/v3/opinions/8494738/	NAIL, Bankruptcy Judge. Montgomery Bank, N.A. (“Bank”) appeals the February 22, 2012 judgment of the bankruptcy court1 dismissing Bank’s complaint against Debtor Marsha Steger (“Debtor”). We affirm. BACKGROUND Debtor and James Clay Waller (“Waller”) were the only members of Triple C Development, LLC (“Triple C”). Debtor handled the books; presumably, Waller handled everything else. In February 2008, Triple C borrowed $140,000.00 from Bank to construct a duplex on a lot on Cape Rock Drive in Cape Girardeau, Missouri. In connection therewith, Triple C executed a construction loan agreement, a promissory note, and a deed of trust. Debtor personally guaranteed the loan. In February 2009, Debtor and her husband, Ray Steger, both guaranteed the loan. Pursuant to the construction loan agreement, Triple C presented lien waivers, and Bank advanced the loan proceeds. In July 2009, after the loan was fully advanced, Bank discovered the proceeds had been used, not to construct the duplex on Cape Rock Drive, but to construct a different duplex on a different lot owned by Clay Waller and Jacque Waller. In September 2009, Bank demanded payment of the $130,102.87 it was then owed. Triple C paid Bank $85,000.00 and entered into a change in terms agreement to pay Bank the remaining $45,102.87 plus interest, attorney’s fees, and costs of collection by December 30, 2009. When Triple C failed to make the promised payment, Bank exercised its rights under the deed of trust and caused the lot on Cape Rock Drive to be sold. After the sale, Bank was still owed $39,559.98. 536Debtor and her husband filed for relief under chapter 7 of the bankruptcy code in August 2011. Bank timely filed a complaint against Debtor and her husband to determine the dischargeability of its claim under 11 U.S.C. § 523(a)(2)(A), (4), and (6).2 In its complaint, Bank alleged, inter alia, Debtor “made false and fraudulent representations to [Bank] ... that the proceeds being advanced were for construction of a duplex on [Cape Rock Drive] ... when the proceeds were in fact not used to construct a duplex on [Cape Rock Drive].” The matter was tried on February 14, 2012. At trial, Bank abandoned its claim under § 523(a)(4). After hearing the testimony of Bank’s manager and Debtor and receiving a number of exhibits, the bankruptcy court ruled from the bench and memorialized its decision in a judgment dismissing Bank’s complaint. Bank timely filed a notice of appeal. STANDARD OF REVIEW We review for clear error the bankruptcy court’s determination of whether the requisite elements of a claim of nondischargeability under § 523(a)(2)(A) have been satisfied. R & R Ready Mix v. Freier (In re Freier), 604 F.3d 583, 587 (8th Cir.2010). We also review for clear error the bankruptcy court’s determination of whether a debtor acted willfully and maliciously within the meaning of § 523(a)(6). Waugh v. Eldridge (In re Waugh), 95 F.3d 706, 710 (8th Cir.1996). “A finding is clearly erroneous if, after reviewing the entire evidence, we are ‘left with the definite and firm conviction that a mistake has been committed.’ ” Freier, 604 F.3d at 587 (quoting Anderson v. Bessemer City, 470 U.S. 564, 573, 105 S.Ct. 1504, 84 L.Ed.2d 518 (1985)). “Oral findings and conclusions under [Fed.R.Civ.P.] 52(a) ‘must be liberally construed and found to be in consonance with the judgment if the judgment has support in the record evidence.’ ” Fonder v. United States, 974 F.2d 996, 999-1000 (8th Cir.1992) (quoting Jiles v. Ingram, 944 F.2d 409, 414 (8th Cir.1991) (citations omitted)).3 DISCUSSION 11 U.S.C. § 523(a)(2)(A) Section 523(a)(2)(A) excepts from discharge a debt “for money, property, services, or an extension, renewal, or refinancing of credit, to the extent obtained by ... false pretenses, a false representation, or actual fraud, other than a statement respecting the debtor’s or an insider’s financial condition.” To prevail under § 523(a)(2)(A), a creditor must prove each of the following elements by a preponderance of the evidence: 1. The debtor made a representation. 2. The debtor knew the representation was false at the time it was made. 3. The representation was deliberately made for the purpose of deceiving the creditor. 4. The creditor justifiably relied on the representation. 5. The creditor sustained the alleged loss as the proximate result of the representation having been made. Freier, 604 F.3d at 587 (citations therein omitted). The bankruptcy court found no evidence Debtor made a false statement to Bank prior to Bank’s advancing the funds to Triple C. The record supports this finding. Bank’s manager testified Debtor presented “some” of the lien waivers, but Bank did not identify them or offer them 537as exhibits, leaving the bankruptcy court with no rational basis for finding Debtor made any representation with respect to any particular lien waiver. Further, Debt- or was not personally present — -and thus could not have made any representation to Bank — on any of the occasions when Bank’s manager inspected what he erroneously believed to be the duplex for which the loan proceeds were intended. Debtor also testified she did not learn the loan proceeds were being used to build a different duplex until sometime after the loan had been fully disbursed, and Bank’s manager testified he had no firsthand knowledge that Debtor knew the loan proceeds were not being used for their intended purpose. Even if the record might also support a finding to the contrary — and we are not suggesting it does-the bankruptcy court’s finding is not clearly erroneous. Anderson, 470 U.S. at 574, 105 S.Ct. 1504 (“Where there are two permissible views of the evidence, the factfinder’s choice between them cannot be clearly erroneous.”) (citations therein omitted). Bank raises a number of arguments for the first time on appeal: that “[b]y failing to make some effort to repay the loan or otherwise remedy the situation, [Debtor] ratified the false representations she claimed she did not know were false at the time”;4 that Waller’s allegedly fraudulent conduct may be imputed to Debtor; and that Debtor’s actions constituted a reckless disregard for the truth. Because Bank did not raise these issues before the bankruptcy court, we will not consider them on appeal.5 Edwards v. Edmondson (In re Edwards), 446 B.R. 276, 279-80 (8th Cir. BAP 2011) (citations therein), aff'd, No. 11-2147, - Fed.Appx. -, 2012 WL 1570850 (8th Cir. May 7, 2012). 11 U.S.C. § 528(a)(6) Section 523(a)(6) excepts from discharge a debt “for willful and malicious injury by the debtor to another entity or to the property of another entity[.]” Such a debt must be the result of an injury that is both a “willful injury” and a “malicious injury.” Blocker v. Patch (In re Patch), 526 F.3d 1176, 1180 (8th Cir.2008). A willful injury is one that results from the commission of an intentional tort. Geiger v. Kawaauhau (In re Geiger), 113 F.3d 848, 853 (8th Cir.1997), aff'd, 523 U.S. 57, 118 S.Ct. 974, 140 L.Ed.2d 90 (1998). A malicious injury is one that results from conduct “targeted at the creditor ... at least in the sense that the conduct is certain or almost certain to cause financial harm.” Barclays American/Business Credit, Inc. v. Long (In re Long), 774 F.2d 875, 881 (8th Cir.1985). The bankruptcy court found there was no evidence of a tort, much less an intentional tort. Having reviewed the entire record, we cannot say the bankruptcy court’s finding is clearly erroneous. Bank did not identify — and indeed has yet to *538identify — a tort on which its § 523(a)(6) claim might be predicated. Debtor simply failed to repay a debt in full. Were that sufficient for a debt to be excepted from discharge under § 523(a)(6), it is unlikely any debt could ever be discharged in bankruptcy. CONCLUSION For the foregoing reasons, we affirm the bankruptcy court’s judgment dismissing Montgomery Bank, N.A.’s complaint against Debtor Marsha Steger. . The Honorable Barry S. Schermer, Chief Judge, United States Bankruptcy Court for the Eastern District of Missouri. . Bank voluntarily dismissed its complaint against Debtor’s husband. . Rule 52 applies in adversary proceedings. Fed.R.Bankr.P. 7052. . Bank cited no authority in support of this rather curious proposition, which is in any event premised on a misstatement of the record. Once Waller’s alleged fraud was discovered, Debtor in fact contributed $35,000.00 of her personal funds and signed a $50,000.00 note to evidence a loan that Waller negotiated with one of his other business associates to enable Triple C to repay $85,000.00 of the loan. Debtor also entered into the change in terms agreement to pay the remaining $45,102.87 Triple C owed to Bank. . Bank's complaint is the only source for identifying Bank’s arguments before the bankruptcy court: Bank did not file a pre-trial brief; it waived an opening statement; it did not offer a closing argument; and when given the opportunity to have the bankruptcy court consider additional findings of fact, its counsel stated, "I think those findings are fine, Your Honor.”	01-04-2023	11-22-2022
https://www.courtlistener.com/api/rest/v3/opinions/8494739/	MEMORANDUM OPINION AND ORDER DENYING RULE 11 SANCTIONS AND AWARDING FEES AND COSTS RICHARD D. TAYLOR, Bankruptcy Judge. On May 4, 2011, Richard L. Cox, the chapter 7 panel trustee (“Trustee”) in the Affiliated Foods Southwest, Inc. (“Affiliated Foods”) bankruptcy proceeding, filed a preference and fraudulent transfer action (“Complaint”) against, inter alia, Swiss-American, Inc. (“Swiss-American”) and Swiss-American Importing Company (“Swiss Importing”). Swiss-American tested the sufficiency of the Complaint by filing Defendant Swiss-American, Inc.’s Motion to Dismiss (“Motion to Dismiss”) on June 3, 2011. Shortly thereafter, on June 14, 2011, Swiss-American also filed Defendant Swiss-American, Inc. ’s Motion for Sanctions (“Motion for Sanctions”) seeking sanctions against the Trustee and his attorneys, Thomas S. Streetman, Robert Bynum Gibson, III, and Streetman, Meeks & Gibson, PLLC (“Respondents”) pursuant to Federal Rule of Bankruptcy Procedure 9011 (“Rule 9011”).1 The Respondents filed a Response of Plaintiff and His Attorneys to Swiss-American, Inc.’s Motion for Rule 11 Sanctions (“Answer”) denying that sanctions were appropriate. Additionally, Respondents asked for “all costs and attorneys fees in defense of the motion pursuant to the provisions of Rule 9011” and for sanctions against Swiss-American and its attorneys, Ryan C. Hardy (“Hardy”) and Spencer Fane Britt & Browne, LLP 541(“Spencer Fane”),2 for a perceived merit-less Motion for Sanctions. The court held a hearing on the Motion to Dismiss on October IB, 2011, and entered an order on that date. The court’s order denied the Motion to Dismiss as to the Trustee’s preference action but granted the Motion to Dismiss as to the constructive fraud count. The court gave the Trustee an opportunity to amend his Complaint and directed Swiss-American to file an answer or other responsive pleading on or before November 29, 2011. Prior to any amendment or the necessity of Swiss-American filing an answer, the Trustee voluntarily dismissed the Complaint. The court entered an Order Granting Dismissal with Prejudice on October 18, 2011, dismissing the Complaint but retaining jurisdiction to hear the Motion for Sanctions. The court, on March 9, 2012, heard the Motion for Sanctions. At the conclusion of Swiss-American’s case, the court granted the Respondents’ motion for a judgment on partial findings under Federal Rule of Bankruptcy Procedure 7052(c). As part of its oral ruling, the court denied the Respondents’ request to award them the expenses and attorney’s fees they incurred in opposing the Motion for Sanctions. Before the entry of a written order, the Respondents filed their Motion for Reconsideration and Findings of Fact and Conclusions of Law (“Motion for Reconsideration”) renewing their request for fees, expenses, and sanctions against Swiss-American, Hardy, and Spencer Fane. In the interest of judicial economy, this court, on March 20, 2012, entered its Order Setting Hearing, which: (1) set the Motion for Reconsideration and the response thereto for hearing on April 18, 2012; and (2) stated that the court would enter a single order subsequent to the April 18, 2012 hearing on both the Motion for Sanctions and the Motion for Reconsideration. The court heard the Motion for Reconsideration on April 18, 2012, and took the matter under advisement. The Motion for Sanctions is hereby denied. The court’s findings of fact and conclusions of law read into the record on March 9, 2012, are incorporated by reference herein pursuant to Federal Rule of Bankruptcy Procedure 7052. Further, an examination and reconsideration of the facts and law has sufficiently convinced this court that an award of fees and expenses is warranted by the prosecution of a meritless motion for Rule 9011 sanctions. For the reasons stated below, the Motion for Reconsideration is granted in part and denied in part. Pursuant to Rule 9011(c)(1)(A), Respondents are awarded reasonable expenses and attorney’s fees incurred in the sum of $16,976.88 against Swiss-American. Pursuant to Federal Rule of Bankruptcy Procedure 7054, the court will enter a separate judgment to this effect. The Respondents’ request for sanctions as contained in their Answer is denied; their request does not comply with the requirements of Rule 9011(c)(1)(A). I. Jurisdiction This court has jurisdiction over this matter pursuant to 28 U.S.C. §§ 1334 and 157. This is a core proceeding under 28 U.S.C. § 157(b)(2)(A), (F), and (H). The following opinion constitutes findings of fact and conclusions of law in accordance with Federal Rule of Bankruptcy Procedure 7052. II. Findings of Fact The Trustee filed a very basic preference action against Swiss-American, Swiss 542Importing, and other defendants in the amount of $83,623.24. (Ex. M3, 2, Mar. 9, 2012.) Concerned whether the transferee was actually a creditor of Affiliated Foods, the Trustee included a constructive fraud count. The Respondents had a factual and legal basis, which was reasonable under the circumstances, to sue Swiss-American. Specifically, by letter dated March 24, 2011, the Trustee made an initial demand on Swiss-American for seven alleged preferential transfers that occurred between February 4, 2009, and April 1, 2009.3 (Ex. Ml, 7, Mar. 9, 2012.) Four transfers were by check; three were wire transfers. The Trustee addressed his letter to Swiss-American at 4200 Papin Street, St. Louis, Missouri, the address that appeared on the checks in question. (Ex. Ml, 7, 18-20, Mar. 9, 2012.) Swiss-American’s counsel, Hardy, replied by his letter dated April 7, 2011, disclaiming liability. (Ex. Ml, 10-11, Mar. 9, 2012.) Hardy asserted that Swiss-American had, on April 2, 2009 (one day after the last alleged preferential transfer), purchased substantially all the assets of Swiss Importing. (Ex. Ml, 10, Mar. 9, 2012.) According to Hardy, Swiss Importing was an “unrelated entity” and the true beneficiary of the transfers. (Ex. Ml, 10, Mar. 9, 2012.) Hardy also argued that, if a transferee, Swiss-American took as a result of an asset purchase agreement and, thus, for value without notice of the voidability of the transfers. (Ex. Ml, 10, Mar. 9, 2012.) Hardy went on to suggest alternative defenses for Swiss-American, assuming ar-guendo that Swiss-American was the transferee. These defenses included the new-value defense and an assertion that the three wire transfers were pre-pay-ments, not payments for antécedent debt. (Ex. Ml, 10, Mar. 9, 2012.) With regard to the new-value defense, Hardy noted in his letter, “[bjecause we have not received all of the records from Swiss-American and its predecessor, this detail is subject to change.” (Ex. Ml, 10, Mar. 9, 2012.) Because the statute of limitations was about to run, the Trustee proposed a tolling agreement on April 5, 2011, and again on April 10, 2011. (Ex. Ml, 12, Mar. 9, 2012.) Hardy replied by e-mail, again asserting that Swiss-American did not receive a transfer from Affiliated Foods as all the transfers were to “a different company,” Swiss Importing. (Ex. M2, 2, Mar. 9, 2012.) In response to Hardy’s e-mail, the Trustee provided check and wire transfer documentation, noting that the checks were made payable to Swiss-American and that the wire transfers contained a reference to an “importing company.” (Ex. Ml, 13, Mar. 9, 2012.) Notwithstanding that ambiguity, the Trustee noted that clearly Swiss-American had, at the very least, received payment of the four checks prior to the alleged asset purchase agreement. (Ex. Ml, 13, Mar. 9, 2012.) The Trustee again offered the option of a tolling agreement to allow time to sort out the transfers. (Ex. Ml, 13, Mar. 9, 2012.) Otherwise, he would file suit against Swiss-American for the preferences and as a secondary transferee of any preferences involving Swiss Importing. (Ex. Ml, 13, Mar. 9, 2012.) Hardy’s response was to offer the declaration of a Swiss-American officer that Swiss-American did not receive the transfers and that its purchase of Swiss Importing was in good faith, for value, and without notice. (Ex. 543M2, 1, Mar. 9, 2012.) Hardy refused a request to supply a copy of the asset purchase agreement referenced in his correspondence. Thereafter, on April 23, 2011, the Trustee’s attorneys, Streetman, Meeks & Gibson, PLLC, by Robert Bynum Gibson, III (“Gibson”), made written demand on Swiss-American at 4200 Papin Street, St. Louis, Missouri, for the full amount of the alleged preferential transfers. (Ex. Ml, 25, Mar. 9, 2012.) Gibson again offered Swiss-American the option of executing a tolling agreement. (Ex. Ml, 25, Mar. 9, 2012.) Hardy responded to Gibson’s letter by phone and e-mail, attaching to his email his prior communications with the Trustee. Hardy restated his position that his client, Swiss-American, did not receive transfers from Affiliated Foods. (Ex. Ml, 30, Mar. 9, 2012.) Hardy also noted that the endorsements on the checks to Swiss-American were by Swiss Importing and argued that the wire advices reflected the same. (Ex. Ml, 30, Mar. 9, 2012.) No tolling agreement was forthcoming; therefore, the Trustee filed his Complaint. The Complaint included both Swiss-American and Swiss Importing. (Ex. M3, 1, Mar. 9, 2012.) The evidence reflects that the Respondents, both before and after the initial exchange of correspondence with Hardy, took detailed and appropriate steps in formulating and filing the Complaint against both entities. The Respondents’ pre-filing calculus included a number of salient facts, circumstances, and unresolved issues. There were seven apparent transfers to Swiss-American, four by check and three by wire transfer. The wire transfers contained additional “importing company” language. (Ex. Ml, 13, Mar. 9, 2012.) The wire transfer advices stated “BNF=Swiss-American,” followed by several spaces, then “Importing Co. [or Company] No Address.” (Ex. Ml, 22-24, Mar. 9, 2012.) The four checks were all made payable to Swiss-American but were deposited by Swiss Importing. (Ex. Ml, 18-21, Mar. 9, 2012.) These incongruities gave rise to two legitimate concerns: (1) whether the entity that received each wire transfer or cashed each check was the entity to whom Affiliated Foods owed a debt (thus forming a basis for the constructive fraud allegation); and (2) the exact nature of the relationship between Swiss-American and Swiss Importing with respect to the transfers from Affiliated Foods. Swiss-American repeatedly declined to execute a tolling agreement to give the parties additional time to further define the relationship between Swiss-American and Swiss Importing. Hardy would not supply a copy of the asset purchase agreement referenced in his correspondence. The self-serving declaration offered by Hardy was no substitute for comprehensive documentation or discovery. Prefiling and without the benefit of discovery, the Trustee was not in a position to analyze the nature of the purchase — whether an asset purchase, stock sale, or merger. A review of the agreement might also have been revealing in the context of notice as between the two entities regarding potentially voidable transfers. The Respondents’ prefiling efforts were not restricted to communications with Hardy. Gibson intently researched the relationship between Swiss-American and Swiss Importing. Gibson visited Swiss-American’s website and found a disquieting time line announcement that, in 2009, “Joe Hoff, Swiss-American’s president since 2006, purchase[d] the company from brothers Ron & Jerry Weil.” (Cox Ex. 3, Mar. 9, 2012.) Gibson correlated the purchase reference with the April 2, 2009 purchase transaction and saw a continuity of management both before and after the 544alleged arm’s-length asset purchase of what Hardy had termed an unrelated entity. Gibson also researched the records of the Missouri Secretary of State’s office. Gibson discovered that on September 3, 1992, Swiss Importing registered Swiss-American as a fictitious name. (Cox Ex. 4, 2, Mar. 9, 2012.) The address for both entities is listed as 4245 Papin Street, St. Louis, Missouri. (Cox Ex. 4, 2, Mar. 9, 2012.) Jerry Weil executed this document. (Cox Ex. 4, 3, Mar. 9, 2012.) By a filing with the Secretary of State’s office on April 2, 2009, and based upon an amendment to its articles of incorporation on March 30, 2009, Swiss Importing changed its name to R & J Investors, Inc. (Cox. Ex. 5, 2-3, Mar. 9, 2012.) Jerry Weil also signed this document. (Cox Ex. 5, 3, Mar. 9, 2012.) On April 6, 2009, over Jerry Weil’s signature, Swiss Importing canceled its use of Swiss-American as a fictitious name. (Cox Ex. 6, 2, Mar. 9, 2012.) Notwithstanding the already fictitious name existence of Swiss-American — not cancelled until April 6, 2009 — Swiss-American filed articles of incorporation with the Missouri Secretary of State’s office on March 20, 2009. (Cox Ex. 7, 1, Mar. 9, 2012.) These articles of incorporation, prepared by Spencer Fane, are sparse. Patrick J. Sweeney is listed as the incorpo-rator, and Spenserv, Inc. is listed as the agent for service. (Cox Ex. 7, 2, Mar. 9, 2012.) The “Name and address to return filed document” box on the filing references Spencer Fane, 1 N. Brentwood Blvd., Ste 1000, St. Louis, MO 63105. (Cox Ex. 7, 2, Mar. 9, 2012.) The same address is given for Patrick J. Sweeney, the incorporator, and Spenserv, Inc., the agent for service. (Cox Ex. 7, 2, Mar. 9, 2012.) A few days later, on March 30, 2009, Spencer Fane filed Articles of Merger with the Missouri Secretary of State’s office, merging Swiss-American with JH Acquisitions, LLC. (Cox Ex. 8, 2, Mar. 9, 2012.) Swiss-American is listed as the surviving entity. (Cox Ex. 8, 2, Mar. 9, 2012.) The Articles of Merger are signed by Joseph Hoff as President of Swiss-American and as manager of JH Acquisitions, LLC. (Cox Ex. 8, 3, Mar. 9, 2012.) The Articles of Merger recite that “[t]he executed agreement of merger is on file at the principal place of business of the survivor,” that is, Swiss-American, “located at 4200 Papin Street, St. Louis, MO 68110.” (Cox Ex. 8, 2, Mar. 9, 2012.) Prefiling, the Respondents had reason to believe that Spencer Fane, Hardy’s law firm, had created Swiss-American in March 2009, which was run by Joseph Hoff, then merged it with another entity, which was also run by Joseph Hoff, with Swiss-American as the surviving entity. That Swiss-American may have then on April 2, 2009, entered into an insufficiently quantified transaction with Swiss Importing, where Joseph Hoff had been the president since 2006. Swiss Importing also did business as Swiss-American and, for a period of time, had continued to do business as Swiss-American even after Spencer Fane had created the new Swiss-American, which was run by the same Joseph Hoff and located at a nearly identical address (perhaps the same address given the Proof of Claim discussion below). The surviving Swiss-American had the same address as the entity on the checks that predated the April 2, 2009 transaction. No one testified at the sanctions hearing on behalf of Swiss-American. The alleged asset purchase agreement has never been produced, and the relationship between Swiss-American and Swiss Importing remains unclear. Gibson’s suspicions concerning notice, the arm’s-length nature of the April 2, 2009 transaction, and whether 545the transaction was actually a merger, stock sale, or merely the continuation of the same business are understandable both prefiling and with the full benefit of hindsight. Gibson’s uncertainty was not lessened by the fact that, prefiling, he had studied a Proof of Claim filed on August 13, 2009, by Swiss-American in the Affiliated Foods bankruptcy. (Cox Ex. 1, Mar. 9, 2012.) The Proof of Claim, in the amount of $108,377.24, states that it is for “Goods Sold” between December 17, 2008, and March 12, 2009. (Cox Ex. 1, 2, Mar. 9, 2012.) This period, of course, predates the April 2, 2009 transaction. The address on the Proof of Claim itself, as well as the numerous invoices attached, is 4200 Papin Street, the address of the new Swiss-American and, apparently, the same address historically used by Swiss Importing doing business as Swiss-American. Gibson noted that Swiss-American, Hardy’s client, appeared to be asserting a claim for goods sold before the supposed asset purchase agreement. The Proof of Claim, filed before the Complaint, is by Swiss-American. At the Motion for Sanctions hearing, Swiss-American introduced the answer filed by R & J Sales and Marketing, Inc. (“RJ”) on behalf of Swiss Importing. Apparently, RJ was originally incorporated and operated under the name Swiss Importing until April 2, 2009, the supposed asset purchase date, but it also conducted business under the Swiss-American name until the same April 2, 2009 date. (Ex. M7, 1, Mar. 9, 2012.) The Proof of Claim, however, was not filed under the name RJ, Swiss Importing, Swiss Importing doing business as Swiss-American, RJ doing business as Swiss-American, or RJ doing business as Swiss Importing. On this record, the only Swiss-American entity left standing when the Proof of Claim was filed is Hardy’s Swiss-American, and all of the invoices for goods sold and for which Swiss-American now seeks payment predate the alleged asset purchase agreement. A perfectly valid explanation for the confusion may exist. This could include a term concerning the allocation or settlement of receivables between two companies acting at arms-length. Also, terms of this nature might have been pertinent to an analysis of Hardy’s notice defense. But Gibson, neither then nor now, had the benefit of an explanation backed by satisfactory documentation. The address on the four checks — all written before the alleged asset purchase agreement — is 4200 Papin Street, St. Louis Missouri. (Ex. Ml, 18-21, Mar. 9, 2012.) The Trustee sent his initial March 24, 2011 demand letter to that address. (Ex. Ml, 7, Mar. 9, 2012.) This letter generated a response from Hardy, not some other lawyer on behalf of RJ. (Ex. Ml, 10-11, Mar. 9, 2012.) Gibson’s subsequent demand letter also went to the same address and resulted in a phone call and an e-mail response from Hardy, not an attorney on behalf of RJ. (Ex. Ml, 25, Mar. 9, 2012.) The address on the Proof of Claim is 4200 Papin Street, St. Louis, Missouri. (Cox Ex. 1, Mar. 9, 2012.) The old address of Swiss Importing, apparently doing business as Swiss-American, is nearly the same (and is the same on old invoices) as the address of the more recently formed but overlapping Swiss-American, and both were run by the same president. Gibson testified that the information before him reflected a continuation of the same business, perhaps with a change in ownership. Because the Complaint included Swiss-American, Swiss-American sought Rule 9011 sanctions against the Respondents. The gravamen of Swiss-American’s Motion 546for Sanctions is set out in paragraph 13, which states: 13. Mr. Gibson and his law firm violated Rule 9011(b) by filing the adversary complaint commencing this proceeding against Swiss-American because all evidence indicates that Swiss-American (a) did not receive the Transfers and (b) even if it did somehow receive the Transfers, it must have received them in a good-faith purchase for value without notice of the avoidability of the Transfers. Accordingly, the allegations in the Complaint violate Rule 9011(b). (Ex. Ml, 4, Mar. 9, 2012.) The evidence, however, reflects that the Respondents, both before and after the initial exchange of correspondence with Hardy, took detailed and appropriate steps in formulating and filing the Complaint against both entities. The Respondents, without the benefit of facts developed through the discovery process and faced with a refusal to voluntarily provide pertinent and perhaps dispositive documentation, acted reasonably in filing suit against both Swiss-American and Swiss Importing. RJ filed an answer on behalf of Swiss Importing. Following informal discovery, the Trustee voluntarily dismissed the Complaint based on information supplied by RJ’s counsel that satisfied the Trustee that the transfers were prepayments. The Respondents’ actions in this regard were consistent with any trustee in a large chapter 7 researching and filing numerous preference actions, conducting ongoing research and discovery, and proceeding in light of the information obtained. A simple answer filed by Swiss-American, followed by the exchange between RJ’s counsel and the Trustee, would have resulted in a dismissal. The Respondents retained William David Duke (“Duke”) with the law firm of Robinson, Staley, Marshall & Duke, P.A. to represent them in the context of the Motion for Sanctions. The Respondents incurred $379.38 in costs and $16,597.50 in fees for a total of $16,976.88. (Cox Ex. 11, 9, Apr. 18, 2012.) Thomas S. Streetman (“Streetman”), a named Respondent and the senior partner of Respondent Street-man, Meeks & Gibson, PLLC, testified that he considered these fees and costs to be reasonable. Swiss-American did not cross-examine Streetman or offer testimony contradicting the reasonableness of these fees and expenses. An examination of the costs and expenses reflects reasonable and appropriate efforts on the part of Duke and his firm in representing the Respondents. The Respondents also introduced an invoice representing fees of $28,917 and expenses of $438.10 charged by Gibson and Streetman solely with respect to the Motion for Sanctions. (Cox Ex. 12, 27-28, Apr. 18, 2012.) In their fee application, Streetman and Gibson billed their time at an hourly rate for their efforts in defending against the Motion for Sanctions just as if they were representing a client. Swiss-American did not cross-examine Streetman or offer testimony contradicting the reasonableness of the requested fees and expenses. In his remarks at the Motion for Sanctions hearing, Hardy stated that Spencer Fane’s ethics committee had reviewed and approved the filling of the Motion for Sanctions. Hardy and Spencer Fane, in a post-trial brief, argued that any award for attorney’s fees and expenses in favor of the Respondents should be against Swiss-American, not Hardy or Spencer Fane. In their Answer, the Respondents asked for sanctions and fees from Swiss-American, Hardy, and Spencer Fane. In their post-trial brief, the Respondents encouraged the court to hold Hardy and Spencer Fane 547principally responsible for the unfounded Motion for Sanctions. III. Discussion A. Denial of Rule 9011 Sanctions Against Respondents At the March 9, 2012 hearing on the Motion for Sanctions, the court denied the relief sought by Swiss-Ameriean. The court’s oral findings of fact and conclusions of law are incorporated by reference herein pursuant to Federal Rule of Bankruptcy Procedure 7052. It is pertinent to the Motion for Reconsideration to briefly reiterate the factual and legal basis for the court’s determination that the Motion for Sanctions lacked merit. “[Ejxercise of the power granted to the court by Rule 11 requires ... a determination as to whether, judged by the standard of reasonable party or lawyer, the party or lawyer offended one of the rule’s provisions.” The Cadle Co. v. Pratt (In re Pratt), Bankr.No. 00-35214-HDH-7, Adv. No. 00-03600, 2008 WL 2954755, at 3 (N.D.Tex. July 30, 2008) (citing Lucas v. Spellings, 408 F.Supp.2d 8, 11 (D.D.C.2006), vacated on other grounds; see also Childs v. State Farm Mut. Auto. Ins. Co., 29 F.3d 1018, 1024 (5th Cir.1994)) (“the standard under which the attorney is measured [under Rule 11] is an objective, not subjective, standard of reasonableness under the circumstances”). Having tested the allegations contained in the Complaint by the reasonableness of the Respondents’ prefiling inquiry under the circumstances, the court found that the Respondents acted reasonably by including Swiss-American as a defendant in the Complaint. This was a simple preference lawsuit. Swiss-Ameriean only had to file an answer raising basic affirmative defenses. RJ filed an answer on behalf of Swiss Importing. Subsequently, RJ’s counsel satisfied the Trustee that the payments described in the Complaint were in fact prepayments. The Trustee subsequently dismissed his Complaint. The dismissal was not predicated upon Hardy’s primary assertion that Swiss-Ameriean had merely purchased the assets of a different and unrelated company, Swiss Importing. The Respondents acted reasonably and prudently in filing suit against both Swiss-Ameriean and Swiss Importing. Prior to filing the Complaint, the Trustee and his attorneys knew or understood that, within ninety days of filing its Chapter 11 petition, Affiliated Foods made seven transfers to Swiss-Ameriean. Four transfers were made by check to Swiss-Ameriean at a specific address in St. Louis, Missouri; the checks appear to have been endorsed by Swiss Importing. Three wire transfers were made with ambiguous references, noting Swiss-Ameriean followed by a blank space and the words “Importing Co. [or Company].” The Trustee made demand on Swiss-Ameriean at the same address listed on the checks and received a response from Swiss-American’s attorney, Hardy. Hardy raised defenses in two areas: (1) the supposed arm’s-length and, presumably, insulating asset purchase transaction between Swiss-Ameriean and an unrelated Swiss Importing; and (2) Hardy suggested prepayment and new-value defenses unique to the actual transferee. The sale transaction occurred one day after the last alleged preferential transfer. Joseph Hoff, the current president of Swiss-Ameriean, had, according to its website, been its president since 2006, a period that predated his April 2009 purchase of the company. The transaction involved, in some general but unspecified way, a more recently formed company with the same exact name, also with Joseph Hoff as president. Swiss Importing did business as 548Swiss-American, with Joseph Hoff as president. Hardy’s Swiss-American had, for a short, overlapping period, existed at the same time that Swiss Importing was doing business under the same exact name, at the same address, and with the same president. Hardy refused informal requests to provide the asset purchase agreement that might have enlightened and satisfied the Trustee. Spencer Fane created the more recent Swiss-American, with Joseph Hoff as its president. Joseph Hoff served the same role with Swiss Importing doing business as Swiss-American. Postpetition, Swiss-American (under that name and not as RJ, Swiss Importing, RJ doing business as Swiss Importing, or RJ doing business as Swiss-American) filed a proof of claim in the Affiliated Foods bankruptcy. The Proof of Claim was filed at a time when Hardy’s Swiss-American was the only Swiss-American in existence. Furthermore, the Proof of Claim related to goods sold prepetition, including during the preference period, all before the most recent Swiss-American existed, and all at the same address in St. Louis, Missouri. A great deal of uncertainty existed as to the exact nature of the relationship between Swiss-American and Swiss Importing, including whether the entity that received the wire transfers or deposited the checks was the actual creditor to whom Affiliated Foods owed a debt — that fact alone justified a constructive fraud count. Affiliated Foods, if it paid the wrong entity or if the wrong entity got the money, may have received from the transferee less than reasonably equivalent value. Two entities existed using the same exact name, partly at the same time, with the same president, at the same address, in the same business, with a Proof of Claim that bridged the existence of both, with putatively one or both being the transferees of one or more potentially avoidable transfers.4 Faced with an impending statute of limitations and a refusal to supply documentation, reasonable attorneys acting prudently would sue Swiss-American every time. Based upon the court’s review of the Respondents’ prefiling inquiry and the circumstances involved, the court found that the Respondents acted reasonably under the circumstances in commencing suit against Swiss-American, and the Motion for Sanctions lacked any merit. B. Motion for Reconsideration At the conclusion of the Motion for Sanctions hearing, the court indicated that each party would bear its own expenses and attorney’s fees. Prior to the entry of a written order, the Respondents filed their Motion for Reconsideration. The Respondents asked the court to rule on their request for fees and sanctions against Hardy, Spencer Fane, and Swiss-American as set forth in their Answer. Upon reflection and reconsideration, the circumstances leading up to the filing of the Complaint juxtaposed against a merit-less Motion for Sanctions compels the conclusion that an award of reasonable expenses and attorney’s fees to the Respondents is warranted. However, for the reasons discussed below, the court declines to levy sanctions against Hardy, Spencer Fane, or Swiss-American. Rule 9011(c)(1)(A) specifically provides that, “[i]f warranted, the court may award to the party prevailing on the motion [for sanctions] the reasonable expenses and attorney’s fees incurred in presenting or op549posing the motion.” Williamson v. Basco, No. 06-00012 JMS-LEK, 2008 WL 954173, at 1 (D.Haw. Apr. 3, 2008) (awarding attorney’s fees and expenses incurred in defending a Rule 11 motion to defendants under Rule 9011(c)(1)(A) because plaintiffs motion was “substantively without merit”). Swiss-American unnecessarily charted an extremely expensive and onerous course. The Motion for Sanctions unfairly questioned the Respondents’ competence and exposed them to significant attorney’s fees. In contrast, the Respondents acted in a manner consistent with the affirmative dictates of Rule 9011(b). Neither Swiss-American nor Hardy had a reasonable basis to allege otherwise. The facts suggested liability on the part of Swiss-American. Hardy interposed the asset purchase agreement as a defense but refused the Respondents’ efforts to confirm his representations. Swiss-American had the right to decline to informally produce the sales agreement. Swiss-American was not, however, entitled to sanctions against the Respondents for failing to appreciate a document that it would not produce. Even after two hearings, the record remains unclear whether the supposed asset purchase agreement would have insulated Swiss-American as Hardy argued. Neither Hardy nor anyone else ever testified on Swiss-American’s behalf. Swiss-American filed its Motion for Sanctions either for tactical reasons or because it lacked a proper understanding of the legal and factual circumstances that drive a preference action as well as the simple and proper ways to defend and dispose of one. Either purpose should not be at the Respondents’ expense. Based upon Swiss-American’s conduct in filing and pursuing a meritless Motion for Sanctions, the Respondents are entitled to an award of reasonable expenses and attorney’s fees as the prevailing party in opposing the Motion for Sanctions pursuant to Rule 9011(c)(1)(A). C. Motion for Reconsideration— Sanctions and Responsible Party In their Answer, the Respondents asked for attorney’s fees and costs incurred “in defense of the motion pursuant to the provisions of Rule 9011” and for sanctions against Swiss-American, Hardy, and Spencer Fane for a meritless Motion for Sanctions. (Answer, July 15, 2011, EOF No. 32.) Having made the determination that fees are “warranted,” the court must decide against whom these fees are assessed. This determination requires an analysis of whether the fee award is a prevailing party fee award properly assessed against Swiss-American, a prevailing party fee award properly assessed against Hardy and Spencer Fane, or a sanction against Hardy and Spencer Fane on the basis that they, as attorneys, violated Rule 9011. The court finds that this is a prevailing party fee award against Swiss-American, which does not require a violation of Rule 9011, and is not a Rule 9011 sanction against Hardy or Spencer Fane. 1. Attorney’s Fees and Expenses Awarded to the Prevailing Party under Rule 9011(c)(1)(A) Rule 9011 contains two separate sections concerning attorney’s fees and costs. The first is in section (c)(1)(A), which outlines how a sanction effort is initiated. This section states: (A) By Motion. A motion for sanctions under this rule shall be made separately from other motions or requests and shall describe the specific conduct alleged to violate subdivision (b). It shall be served as provided in Rule 7004. The motion for sanctions may not be filed with or presented to the court unless, within 21 days after service of the 550motion (or such other period as the court may prescribe), the challenged paper, claim, defense, contention, allegation, or denial is not withdrawn or appropriately corrected, except that this limitation shall not apply if the conduct alleged is the filing of a petition in violation of subdivision (b). If warranted, the court may award to the party prevailing on the motion the reasonable expenses and attorney’s fees incurred in presenting or opposing the motion. Absent exceptional circumstances, a law firm shall be held jointly responsible for violations committed by its partners, associates, and employees. Fed. R. BaNKrP. 9011(c)(1)(A) (2012) (emphasis added). Attorney’s fees awarded under Rule 9011(c)(1)(A) are characterized in terms of the prevailing party. These are fees incurred in presenting or opposing a motion for sanctions and are awarded “if warranted.” A fee award under section (c)(1)(A) is not a sanction and does not require a cross-motion under Rule 9011. In Tandem Computers, Inc., the court, in referencing the attorney’s fee language in Rule 11(c)(1)(A), found that “[t]his sanction is available whether or not the motion [for Rule 11 sanctions] itself violated Rule 11.”5 Equal Emp’t Opp. Comm’n v. Tandem Computers, Inc., 158 F.R.D. 224, 229 (D.Mass.1994). The court then awarded attorney’s fees specifically against the client, Tandem Computers, Inc. Id. To penalize the lawyers, the court issued an order to show cause under Rule 11(c)(1)(B) as to why the attorneys for Tandem Computers, Inc. should not be sanctioned on the basis that Tandem Computers, Inc.’s motion for sanctions itself violated Rule 11. Id. The court ultimately ruled that the motion for sanctions did violate Rule 11 and that the attorney for Tandem Computers, Inc. should be fined five hundred dollars to be paid into the court. Id. at 230. 2. Attorney’s Fees and Expenses as a Sanction under Rule 9011(c)(2) The second reference to attorney’s fees is in Rule 9011(c)(2). This section limits the sanctions the court can impose and provides as follows: (2) Nature of Sanction; Limitations. A sanction imposed for violation of this rule shall be limited to what is sufficient to deter repetition of such conduct.... [T]he sanction may consist of, or include, directives of a nonmonetary nature, an order to pay a penalty into court, or, if imposed on motion and warranted for effective deterrence, an order directing payment to the movant of some or all of the reasonable attorneys’ fees and other expenses incurred as a direct result of the violation. Fed. R. BANKR.P. 9011(c)(2) (2012) (emphasis added). This second reference to attorney’s fees is solely in the context of sanctions. Before a court may impose sanctions, certain conditions must be met under both sections (c)(1)(A) and (c)(2). Rule 9011(c)(1)(A) requires a motion made separately from other motions or requests that describes the specific conduct alleged to have violated the rule, and such motion may not be filed with or presented to the court until after the expiration of a twenty-one day safe harbor period within which the responding attorney could dismiss or withdraw the offending pleading. Under section (c)(2), which concerns an award of attorney’s fees or other expenses in the context of sanctions, there are requirements of: (1) “on motion”; (2) “and war551ranted”; (3) “for effective deterrence”; and (4) “incurred as a direct result of the violation.” Fed. R. BankrJP. 9011(c)(2). Accordingly, a sanctions effort must conform to sections (c)(1)(A) and (c)(2). Thus, each attorney’s fee section serves a different purpose. One section is a prevailing party award “if warranted” for fees incurred in presenting or opposing the motion for Rule 9011 sanctions. The other section is a sanction itself that, prior to imposition, must comply with the procedural safeguards set forth in Rule 9011 and is limited to the fees and expenses incurred as a direct result of the violation, i.e., the offensive pleading. In Jawbone, LLC, the court denied both an original and a cross-motion for Rule 11 sanctions. Jawbone, LLC v. Donohue, No. 01 CIV. 8066(CSH), 2002 WL 1424587 (S.D.N.Y. June 28, 2002). In denying the cross-motion for failure to comply with the safe harbor provisions, the court recognized that the respective respondents could nevertheless recover fees and costs in defending against each motion for sanctions, stating: Notwithstanding the procedural defect in plaintiffs cross-motion for sanctions, the Court has the power to award expenses and attorney’s fees to plaintiff for its efforts in successfully opposing defendants’ motion for sanctions; by the same token, the Court has the power to award expenses and attorney’s fees to defendants for their efforts in successfully opposing plaintiffs cross-motion for sanctions. Rule 11 authorizes a court to “award to the party prevailing on the motion the reasonable expenses and attorney’s fees incurred in presenting or opposing the motion.” Fed.R.CivP. 11(c)(1)(A); see also Advisory Committee Note to 1993 Amendments (“[S]er-vice of a cross motion under Rule 11 should rarely be needed since under the revision the court may award to the person who prevails on a motion under Rule 11 — whether the movant or the target of the motion — reasonable expenses, including attorney’s fees, incurred in presenting or opposing the motion.”). Id. at 8; see also Harman v. City of Univ. Park, No. 3:94-CV-2450-P, 1997 WL 53120, at 1 (N.D.Tex. Feb. 3, 1997) (stating, “[t]his award does not require a cross-motion for sanctions and is available whether or not the original motion for sanctions itself violates Rule 11”) (citations omitted). The Harman court awarded attorney’s fees to the defendant over the plaintiffs objection, despite finding that the plaintiffs Rule 11 motion was brought in good faith. Id. at 1, 3 (citations omitted). This application of Rule 9011’s two fee award sections is appropriate given the history of Rule 9011. The reasonable expenses and attorney’s fee sentence in section (c)(1)(A) was added to Rule 9011 in 1997. The Notes of the Advisory Committee on Rules, specifically the 1997 Amendments to Rule 9011, state: This rule is amended to conform to the 1993 changes to Fed.R.CivP. 11. For an explanation of these amendments, see the advisory committee note to the 1993 amendments to Fed.R.CivP. 11. Fed. R. Bankr.P. 9011 advisory committee’s note. The 1993 Advisory Committee Notes to Rule 11 state: [T]he filing of a motion for sanctions is itself subject to the requirements of the rule and can lead to sanctions. However, service of a cross motion under Rule 11 should rarely be needed since under the revision the court may award to the person who prevails on a motion under Rule 11 — whether the movant or the target of the motion — reasonable ex552penses, including attorney’s fees, incurred in presenting or opposing the motion. Fed.R.CivP. 11 advisory committee’s note (emphasis added). One interpretation of this language is that the successful respondent to a Rule 9011 motion is entitled to sanctions back against the lawyer who filed the motion on behalf of the original movant, without the necessity of filing a Rule 9011 motion. The more appropriate reconciliation of the rule and these notes is that the 1997 bankruptcy rule amendment recognizes that typically the respondent is only out fees and costs for responding to and successfully defeating the Rule 9011 motion. The respondent is not out attorney’s fees for the appropriate pursuit of the underlying litigation. The only bad filing that occasioned more attorney’s fees would be the Rule 9011 motion itself. Thus, the “if warranted” prevailing party standard can make the successful respondent whole. If, however, the respondent views the Rule 9011 motion itself to be a violation of Rule 9011, the respondent must take the additional steps for sanctions as outlined in Rule 9011(c)(1)(A). These steps include noticing the opposing attorney, in a separate pleading, outlining the specific conduct in violation of Rule 9011(b), granting him the safe harbor opportunity, and then pursuing additional sanctions in the form of a filed Rule 9011 motion. This course represents the unusual, or “rarely be needed” situation, where deterrence is the object. Any resulting sanction is defined and limited by section (c)(2). Sanctions could be nonmon-etary, a penalty paid to the court, or, if properly initiated, could include fees and costs as a direct result of the violation. The Respondents did not elect to follow this procedure. This reading of the rule reconciles the existence of the two attorney fee provisions in the same rule. It also serves the public policy of making the successful respondent whole, in most instances, without the unnecessary filing of additional Rule 9011 motions. In her treatise on Rule 11, Georgene Vairo echoes this court’s reconciliation of the amendment to Rule 11, which incorporated the prevailing party fee provision. [b] Under the 1993 Amendments The 1993 amendments to Rule 11 resolved the problem raised in the preceding section. Rule 11(c)(1)(A) now allows the district court to award prevailing party fee-shifting, and it now provides that “[i]f warranted, the court may award to the party prevailing on the motion the reasonable expenses and attorney’s fees incurred in presenting or opposing the motion.” However, the amendments do not require fee-shifting whenever a party prevails on a Rule 11 motion, but courts of appeals have upheld such awards in appropriate situations. In a sense, the 1993 amendments adopted the Seventh Circuit’s “make-whole” approach with respect to the Rule 11 movant. Additionally, the amendments allow the Rule 11 target to obtain the cost of successfully defending a Rule 11 motion. Accordingly, this provision should result in the elimination of cross-motions for Rule 11 sanctions targeting the movant’s Rule 11 motion, since one is no longer necessary in order to be able to recover the expenses of defending against the Rule 11 motion. For instance, in Patelco Credit Union v. Sahni, the Ninth Circuit determined that when a party opposing a Rule 11 motion is counter-requesting fees, it need not comply with the safe-harbor and separate document requirements of Rule 11(c)(1)(A). The court quoted the 5531993 Advisory Committee Note for support, as follows: “As under former Rule 11, the filing of a motion for sanctions is itself subject to the requirements of the rule and can lead to sanctions. However, service of a cross motion under Rule 11 should rarely be needed since under the revision the court may award to the person who prevails on a motion under Rule 11 — whether the mov-ant or the target of the motion — reasonable expenses, including attorney’s fees, incurred in presenting or opposing the motion.” Rule 11(c)(1)(A) not only solves the fees on fees problem discussed in the previous subsection, but it also complements the overriding philosophy of the 1993 amendments to Rule 11. As discussed in many parts of this Chapter, the Advisory Committee intended the 1993 amendments to de-emphasize fee-based sanctions. A concern expressed at the hearings in February of 1991 was that a de-emphasis on compensatory sanctions would create a disincentive to bring Rule 11 motions to attack frivolous papers. By providing a fee-shifting provision, parties would still have an incentive to move for sanctions, because even if the sanction imposed does not redound to the benefit of the prevailing party, that party may still be reimbursed for its costs, including its attorney’s fees, for combating the Rule 11 violation. At the same time, the provision provides some protection for targets of frivolous Rule 11 motions, because they may be able to recover their costs and fees under Rule 11(c)(1)(A). Although fee-shifting is generally disfavored under the 1993 amendments, the provision regarding the ability to recover the fees and expenses incurred regarding a Rule 11 motion was designed as a disincentive to the filing of counter Rule 11 motions claiming that the first one was frivolous, with the ultimate goal of decreasing the volume of Rule 11 litigation. GeoRgene M. Vairo, American Bar Association: Rule 11 Sanctions § 9.04 (2004), available at Westlaw ABA-SANCT s 9.04 (footnotes omitted). Stated succinctly, attorney’s fees under section (c)(1)(A) are for the prevailing party, either the Rule 9011 movant or the respondent, “if warranted.” Attorney’s fees under section (c)(2) are specifically included as a potential sanction for a violation of the rule, awarded against an attorney, imposed on motion, warranted for effective deterrence, and must be incurred as a direct result of the violation. 3. Responsible Party As this is a prevailing party fee award, it follows that the award should be against Swiss-American as the losing party, not Hardy or Spencer Fane. Unfortunately, Rule 9011 is not a complete model of clarity in this regard. In dealing with Rule 9011 motions, parties and their attorneys tend to think in terms of penalizing attorneys. That is the primary impetus and thrust of a Rule 9011 motion. The inclination to penalize attorneys is not diminished by the fact that, in section (c)(1)(A), the “if warranted” language is immediately followed by a sentence that reads: “Absent exceptional circumstances, a law firm shall be held jointly responsible for violations committed by its partners, associates, and employees.” Fed. R. Banxr.P. 9011(c)(1)(A). This language certainly fosters the implication that attorney’s fees to the prevailing Respondents could be awarded against Hardy and Spencer Fane. 554However, the language concerning a law firm’s liability for the acts of its partners and associates must be appreciated in the entirety of section (c)(1)(A), which recites that a separate motion is required to initiate a sanctions effort. This motion must “describe the specific conduct alleged to violate” the rule and may not be filed or presented to the court until after the twenty-one day safe harbor period has expired. Fed. R. BANKR.P. 9011(c)(1)(A). Section (c)(1)(A) goes on to include joint responsibility for law firms, absent exceptional circumstances, “for violations committed by its partners, associates, and employees.” Fed. R. BanKR.P. 9011(c)(1)(A) (emphasis added). Thus, the principle import of this section deals with how to initiate a sanctions effort and the inclusiveness of any sanction for a violation. If a violation of the rule has occurred, a court should properly look to section (c)(2) to determine the nature of the sanctions, which can include attorney’s fees “if imposed on motion and warranted for effective deterrence [and] incurred as a direct result of the violation.” Fed. R. BanKR.P. 9011(c)(2). The attorney’s fee language in section (c)(1)(A) is not a sanction. It is merely a prevailing party award directed solely for the attorney’s fees “incurred in presenting or opposing the motion”- — not fees “incurred as a direct result of the violation [of the rule]” as contemplated in section (c)(2). Fed. R. Bankr.P. 9011(c)(1)(A), (2). The court in Divane stated: The 1993 amendments to Rule 11(c)(2) limited the amount of attorneys’ fees , that may be imposed as a sanction, contemplating the award of reasonable attorneys’ fees and costs “incurred as a direct result of the violation,” but endorsed the use of attorneys’ fees as a sanction. Fed.R.Civ.P. 11(c)(2). We therefore find no basis for the contention that the award of reasonable attorneys’ fees constitutes an abuse of discretion. Divane v. Krull Elec. Co., 200 F.3d 1020, 1030 (7th Cir.1999). In Cadle, a creditor, the Cadle Company (“Cadle”), sought to sanction the debtor’s counsel in a Rule 9011 motion. 2008 WL 2954755, at 2. Cadle lost, and the court awarded the attorney his reasonable attorney’s fees and expenses pursuant to Rule 9011(c)(1)(A).6 Id. The Cadle court awarded fees under this section against the mov-ant, Cadle.7 Id. at 4. In Browne, the district court, while using the term “sanctions,” did, under Rule 11(c)(1)(A), award attorney’s fees against the plaintiffs, not their counsel, to the defendants victimized by an unsuccessful Rule 11 motion. Browne v. Nat’l Ass’n of Sec. Dealers, Inc., No. 3:05-cv-2469-G, 2006 WL 3770505 (N.D.Tex. Dec. 14, 2006). In Harman, the court ordered the lawyer for the moving party, not the moving party itself, to pay the attorney’s fee apparently because the underlying subject of the motion for sanctions involved issues that had been resolved at a pretrial conference. 1997 WL 53120, at 1. In doing so, the Harman court may have simply been exercising its inherent powers, or it may have interpreted the rule to allow cross-555sanctions against a lawyer without a Rule 11 motion. This court, as discussed above and below, declines to do so. See In re Kirk-Murphy Holding, Inc., 313 B.R. 918 (Bankr.N.D.Fla.2004) (awarding prevailing party fees under Rule 9011(c)(1)(A) to the successful respondents to a sanctions motion against the movant, Kirk-Murphy Holding, Inc.). A certain logic exists to the Respondents’ position that Hardy and/or Spencer' Fane should be the responsible party. Rule 9011 motions are lawyer generated and directed. Lawyers advise their clients, the actual parties to the litigation, that they believe the opposing counsel has violated Rule 9011. Notice is given followed by a safe harbor period. If the offending pleading is not withdrawn, the attorney, in the name of his client, files a motion for sanctions directed against the opposing attorneys themselves. However, Rule 9011 does draw a distinction between an award of fees for prosecuting or defending against a Rule 9011 motion and the imposition of sanctions. There are two attorney fee sections in Rule 9011; each serves a different purpose. Attorneys are the targets of Rule 9011 motions and are the ones sanctioned.8 If the court determines that the motion is well-founded, it may sanction the lawyers who failed to comply with Rule 9011(b). The rule specifically limits the nature of sanctions, emphasizing deterrence for a violation of the rule. Sanctions may also include payment to the movant of some or all of its attorney’s fees (unrelated to presenting the actual motion for sanctions itself) if imposed on motion, warranted for effective deterrence, and resulting from the violation itself. Swiss-American is the movant on the Motion for Sanctions, not Hardy or Spencer Fane. Had Swiss-American been successful, this court could have sanctioned the Respondents for a violation of the rule in a manner sufficient to deter repetition of such conduct. These sanctions could be nonmonetary or a penalty paid to the court. Additionally, “if imposed on motion9 and warranted for effective deterrence,” the court could also order that the Respondents pay to the movant, Swiss-American, some or all of its reasonable attorney’s fees and other expenses “incurred as a direct result of the violation.” Fed. R. BaNKR.P. 9011(c)(2). This potential fee award is specifically a sanction for the fees and costs incurred as a direct result of the offending pleading, here the Complaint, filed without a reasonable basis in law or fact in violation of Rule 9011. The attorney’s fees under section (c)(2) could be those fees incurred in filing a motion to dismiss, answering, discovery, or otherwise defending. Swiss-American could have also sought its attorney’s fees and costs “[i]f warranted” for “presenting ... the motion.” Fed. R. BaNKR.P. 9011(c)(1)(A). Thus, there can also be a prevailing party fee award related solely to prosecuting the motion for sanctions itself. This award does not require a finding that any Rule 9011 violation occurred. Here, Swiss-American was unsuccessful in its pursuit of Rule 9011 sanctions. The successful but aggrieved Respondents are not without recourse. The fee language goes both ways: “If warranted, the court may award to the party prevailing on the motion the reasonable expenses and attorney’s fees incurred in presenting or opposing the motion.” Fed. R. Baner.P. 5569011(c)(1)(A) (emphasis added). In this instance, the award of fees to the Respondents is warranted. The Respondents, specifically and generically in any Rule 9011 dispute, are not out attorney’s fees in the otherwise appropriate pursuit of the underlying litigation. Rule 9011 respondents are out their attorney’s fees in successfully opposing the Rule 9011 motion and, if warranted, may be awarded those fees and costs. However, there is no Rule 9011 motion against Hardy or Spencer Fane alleging a violation of Rule 9011 where a sanction might be appropriate to deter future conduct as contemplated by section (c)(2). It is apparent that some courts assign responsibility to the attorneys by exercising their inherent powers. This court declines to do so. This refusal has a basis. Specifically, a Rule 9011 motion is filed on behalf of a party to litigation. It is directed not at the other party but instead specifically names the other party’s counsel. The responding attorneys have already been put on notice and are aware of the questioned conduct with a commensurate safe harbor period within which to dismiss or withdraw the offensive pleading. If well-founded, the court could issue non-monetary directives or require the responding attorneys to pay a penalty into the court. Additionally, the court could award, as sanctions, attorney’s fees that the moving party incurred “as a direct result of the violation.” Fed. R. BANKR.P. 9011(c)(2). The court could also award attorney’s fees for “presenting ... the motion.” Fed. R. BankR.P. 9011(c)(1)(A). Conversely, as explained above, a successful responding party has the ability to ask the court to award fees if warranted. In most instances, this award will make the respondents whole. In these circumstances, the fees should be awarded against the moving party, not its counsel. Simply filing an unsuccessful Rule 9011 motion should not carry with it the ominous threat that the movant’s attorney might be personally liable for the respondent’s attorney’s fees. That is a procedurally deficient penalty for simply filing what the attorney believes is a proper motion for sanctions. If, however, the Rule 9011 motion has not been filed for proper purposes and itself potentially violates Rule 9011, then the offending attorney for the movant should be entitled to the same procedural safeguards afforded to the original respondents. Accordingly, for sanctions to lie in this case, Rule 9011(c)(1)(A) requires a motion made separately from other motions or requests, that describes the specific conduct alleged to have violated the rule, and such motion may not be filed with or presented to the court until after a twenty-one day safe harbor period within which Hardy could have dismissed or withdrawn the Motion for Sanctions. That process did not occur in this instance. However, under the same Rule 9011(c)(1)(A), a prevailing party fee award can be awarded, and such award is not a sanction and does not require a cross-motion under Rule 9011. This application of Rule 9011 awards prevailing party fees “if warranted,” regardless of whether a Rule 9011 violation has occurred, restricts sanctions to violations of the rule, encourages sanctions solely for deterrence, preserves all the notice and safe harbor protections afforded the accused, and makes the Respondents whole without the necessity of separate or cross-motions, thus avoiding excessive Rule 9011 filings. Although this court is confident that Hardy was the driving force behind the meritless Motion for Sanctions, he has not been afforded the benefits of a proper Rule 9011 motion or cross-motion. The aggrieved Respondents in this instance are 557made whole by the award of their attorney’s fees from Swiss-American. Further, if a proper cross-motion had been filed, the fee award enuring to the benefit of the Respondents in the nature of a Rule 9011(c)(2) sanction would be no greater than that awarded in this opinion. For the reasons stated above, the Respondents are entitled to, as the prevailing party, attorney’s fees and expenses from Swiss-American for successfully defending against the unfounded Motion for Sanctions. The Motion for Reconsideration is denied on the issue of attorney’s fees and costs as a sanction. D. Fee Award Swiss-American’s Motion for Sanctions lacked merit. The Respondents, as the prevailing parties, are entitled to an award of reasonable expenses and attorney’s fees incurred in opposing the Motion for Sanctions pursuant to Rule 9011(c)(1)(A). The court must now analyze the reasonableness of the expenses and attorney’s fees incurred by the Respondents. In their Motion for Reconsideration, the Respondents requested that the court award reasonable expenses and attorney’s fees to Duke and to the Respondents, Gibson and Street-man, in defending the Motion for Sanctions. For the reasons stated below, an award of Duke’s fees is appropriate; an award of Gibson and Streetman’s fees is not. 1. Duke’s Fees In the Eighth Circuit, the lodestar approach is generally used to calculate reasonable attorney’s fees. In re Morrison, 231 B.R. 754, 758 (Bankr.W.D.Mo.1999) (citations omitted). “The lodestar amount is determined by multiplying the number of hours reasonably expended in a case by a reasonable hourly rate.” Id. “The lodestar amount presumably reflects the novelty and complexity of the issues, the special skill and expertise of counsel, the quality of representation, and the results obtained.” Id. “Only in rare and exceptional circumstances, supported by specific evidence on the record, is an upward adjustment of the lodestar amount warranted.” Id. (citing Novelty v. Palans (In re Apex Oil Co.), 960 F.2d 728, 732 (8th Cir.1992)). The Respondents retained Duke to represent them solely in the context of the Motion for Sanctions. At the hearing on the Motion for Reconsideration, the Respondents introduced an invoice detailing Duke’s expenses of $379.38 and attorney’s fees of $16,597.50 for a total of $16,976.88. Streetman, a named Respondent and the senior partner of Respondent Streetman, Meeks & Gibson, PLLC, testified that he considered Duke’s expenses and attorney’s fees to be reasonable. The Respondents are entitled to the entirety of Duke’s requested expenses and attorney’s fees. At the hearing on the Motion for Reconsideration, Swiss-American did not cross-examine Streetman, present any testimony, or otherwise question the reasonableness of Duke’s expenses and attorney’s fees. The court has independently reviewed Duke’s invoice and finds that it is reasonable in substance and amount. Further, in applying the lodestar approach, the court finds that the hours expended and the hourly rate charged by Duke are reasonable. As such, the Respondents are awarded the sum of $16,976.88, representing Duke’s expenses and attorney’s fees. 2. Gibson and Streetman’s Fees At the hearing on the Motion for Reconsideration, the Respondents also introduced an invoice representing attorney’s fees and expenses charged by Gibson and Streetman solely with respect to the Motion for Sanctions. The invoice reflected expenses of $438.10 and attorney’s 558fees of $28,917 for a total of $29,355.10. In their fee application, Gibson and Street-man billed their time at an hourly rate for all of their efforts in defending against the Motion for Sanctions just as if they were representing a client or monitoring their fees as pro se litigants. Swiss-Ameriean did not cross-examine Streetman or offer testimony contradicting the reasonableness of Gibson and Streetman’s fees and expenses. Gibson and Streetman are not entitled to an award based on their hourly fees and expenses. In Ray, Massengale sued a number of defendants, one of whom, Neil Kolner (“Kolner”), represented himself. Massengale v. Ray, 267 F.3d 1298, 1299 (11th Cir.2001). Kolner, an attorney, not only succeeded in having Massengale’s complaint dismissed, but he also successfully prosecuted a motion for Rule 11 sanctions. Id. at 1300. The district court compensated Kolner in the sum of $25,000, representing the value of his attorney’s fees for the time he spent on the case as a result of Massengale’s conduct. Id. at 1301. On appeal, the Eleventh Circuit Court of Appeals reversed the district court by holding that a pro se litigant was not entitled to an award of attorney’s fees as sanctions under Rule 11. Id. at 1302-05. Specifically, the court stated as follows: While it is true that the purpose behind Rule 11 sanctions is deterrence and punishment, and not to encourage litigants to retain independent counsel, we cannot conclude that Rule 11 allows for an award of attorneys’ fees to a pro se litigant as a sanction. When a district court determines that an “attorney or unrepresented party” has violated Rule 11(b), it “may ... impose an appropriate sanction upon the ... part[y] that ... violated subsection (b)-” The sanction imposed may include “an order directing payment to the movant of some or all of the reasonable attorneys’ fees and other expenses incurred as a direct result of the violation.” Because a party proceeding pro se cannot have incurred attorney’s fees as an expense, a district court cannot order a violating party to pay a pro se litigant a reasonable attorney’s fee as part of a sanction. In Ray, we observed that: [T]he word “attorney” generally assumes some kind of agency (that is, attorney/client) relationship. The fees a lawyer might charge himself are not, strictly speaking, “attorney’s fees.” And, where a lawyer represents himself, legal fees are not truly a “cost” of litigation-no independent lawyer has been hired (or must be paid) to pursue the ... complaint. Because Kolner did not incur legal fees as a cost or expense in representing himself, the district court erred in awarding $25,000 in attorney’s fees to Kolner as a sanction upon Massengale. The award violated the plain language of Rule 11, and the district court abused its discretion in imposing it. Id. at 1302-03 (internal citations omitted). The holding in Ray is equally compelling in considering attorney’s fees either as a sanction or as a prevailing party fee award. In construing a similar statute, the court in Pickholtz stated: The rule requires that the expenses be “incurred.” We consider that term to be controlling on the issue, as the term means “[t]o have liabilities cast upon one by act or operation of law, as distinguished from contract, where the party acts affirmatively[; t]o become liable or subject to.” Thus, one cannot “incur” fees payable to oneself, fees that one is not obliged to pay. Moreover, the word “attorney” connotes an agency relationship between two parties (client and at*559torney), such that fees a lawyer might charge himself are not “attorney fees.” Nor are such fees a payable “expense,” as there is no direct financial cost or charge associated with the expenditure of one’s own time. Pickholtz v. Rainbow Tech., Inc., 284 F.3d 1365, 1375 (Fed.Cir.2002) (internal citations omitted). When personally attacked and to benefit from the dispassionate advice and advocacy of a skilled attorney, the Respondents hired Duke to represent them in the context of the Motion for Sanctions. Duke provided those services, and the Respondents incurred fees and expenses. To the extent that Gibson or Streetman did research or drafting that otherwise would have fallen to Duke, they did so for their own benefit. Ultimately, absent this court’s award, they risked being responsible for all of Duke’s fees. While the court is not without sympathy for the time and efforts expended by Gibson and Street-man, they are, however, no different than any other party represented by counsel who suffers loss in time and money as a result of unfounded litigation. As such, Gibson and Streetman may not be compensated for their attorney’s fees and expenses. IV. Conclusion In light of the facts known to them at the time, coupled with Hardy’s unwillingness to supply perhaps dispositive documentation, the Respondents acted reasonably under the circumstances in naming Swiss-American in the Complaint. Swiss-American did not have a reasonable basis for a Rule 9011 motion. Swiss-Ameriean’s Motion for Sanctions is denied. Fees are warranted, and the Respondents are awarded reasonable expenses and attorney’s fees in the amount of $16,976.88 against Swiss-American. Pursuant to Federal Rule of Bankruptcy Procedure 7054, the court will enter a separate judgment to this effect. The Respondents’ request for the same fees and costs as a sanction against Swiss-American, Hardy, or Spencer Fane is denied. IT IS SO ORDERED. . The Trustee, Richard L. Cox, is also an attorney. . The Respondents did not seek fees, expenses, or sanctions against Jess L. Askew, Andrew King, or Williams & Anderson, PLC, who served as local counsel for Swiss-American. . Affiliated Foods filed for relief under chapter 11 on May 5, 2009, and later voluntarily converted to a chapter 7. . There is no assertion, and the court makes no finding, that Joseph Hoff or Swiss-American did anything improper in the conduct of its business or the April 2009 transaction. This ruling concerns only the information available to the Respondents at the time of filing the Complaint, and the Respondents' obligations under Rule 9011. . Although it termed the award of fees as a “sanction,” the import of the court’s statement is that the award did not require a violation of Rule 11. . The court in Cadle tended to use the term "sanctions” in this context, a term with which this court respectfully disagrees. . The court notes that Cadle does cite a Texas district court decision where the court awarded fees directly against the attorney who filed an unsuccessful Rule 11 motion for a client. See Atlantic Recording Corp. v. Heslep, No. 4:06-cv-132-Y, 2007 WL 1435395 (N.D.Tex. May 16, 2007). This court cannot concur that doing so is proper without a counter Rule 9011 motion. However, it may be that the federal district court sanctioned the attorney under its inherent powers, powers which this court declines to exercise in the present case. . Only rarely are there circumstances that dictate shifting responsibility to or including the opposing party whose attorneys are the subject of the Rule 9011 sanction effort. . Here, the Motion for Sanctions suffices.	01-04-2023	11-22-2022
https://www.courtlistener.com/api/rest/v3/opinions/8494741/	ORDER DENYING CONFIRMATION ELIZABETH E. BROWN, Bankruptcy Judge. THIS MATTER comes before the Court on the Debtors’ Motion to Confirm Chapter 13 Plan and the Objection of the Chapter 13 trustee (the “Trustee”). The Court, having reviewed the pleadings, documents submitted, the arguments and the case law, hereby FINDS and CONCLUDES: Debtors have filed two bankruptcy cases. They filed their first case under Chapter 7 on September 15, 2009 (“First Case”). On April 13, 2010, this Court entered an order discharging the Debtors. After discharge entered, Debtors moved to convert their case to Chapter 13, which this Court granted. No party requested to vacate the prior discharge order. Over the next year, Debtors tried, without success, to confirm a Chapter 13 plan. On August 26, 2011, the Court dismissed the Debtors’ First Case for failure to file a timely amended plan. Approximately three weeks later, on September 19, 2011, Debtors filed their second bankruptcy case under Chapter 13 (“Second Case”) and submitted a proposed Chapter 13 plan. The Trustee objects to this plan because it states that the Debtors will receive a discharge. The Trustee contends the Debtors are not eligible for a discharge because 11 U.S.C. § 1328(f)1 prohibits a court from granting a discharge if the debtor received a discharge in a prior Chapter 7 case filed within the preceding four years. Debtors counter that, since their First Case was dismissed, it does not affect their right to receive a discharge in the Second Case, relying on § 349(a). Section 1328(f) limits the ability of debtors to obtain successive discharges by filing multiple cases. It prohibits a debtor from receiving a discharge in Chapter 13 if that debtor has received a discharge in a Chapter 7 case filed “during the 4-year period preceding the [petition date].” 11 U.S.C. § 1328(f)(1). In this case, Debtors received a Chapter 7 discharge in their First Case. The First Case was filed on September 15, 2009, less than four years before they filed their Second Case on September 19, 2011. Consequently, this statute prohibits the Debtors from obtaining another discharge in the Second Case. On the other hand, § 349 specifically addresses the effect of a dismissal. Subsection (a) states that, unless the Court orders otherwise, the dismissal of a case “does not bar the discharge, in a later case under this title, of debts that were dis-chargeable in the case dismissed; nor does the dismissal of a case under this title 581prejudice the debtor with regard to the filing of a subsequent petition under this title, except as provided in section 109(g) of this title.” 11 U.S.C. § 349(a). In reliance on this statute, Debtors contend that dismissal of their First Case should not bar them from discharging debts in the Second Case. Admittedly, these statutes appear to be contradictory. Fortunately, legislative history sheds light on Congress’ intent in § 349(a): Subsection (a) specifies that unless the court for cause orders otherwise, the dismissal of a case is without prejudice. The debtor is not barred from receiving a discharge in a later case of debts that were dischargeable in the case dismissed. Of course, this subsection refers only to pre-discharge dismissals. If the debtor has already received a discharge and it is not revoked, then the debtor would be barred under § 727(a) from receiving a discharge in a subsequent liquidation case for six years.... S.Rep. No. 95-989, at 48; reprinted in 1978 U.S.C.C.A.N. 5787, 5834 (emphasis added). Other courts and commentators that have addressed this issue have similarly limited the effect of § 349(a) to pre-discharge dismissals. In re Baylies, 114 B.R. 324, 325 (Bankr.D.D.C.1990); First State Bank & Trust Co. v. Bishop (In re Bishop), 74 B.R. 677, 681 (Bankr.M.D.Ga.1987); Collier on Bankruptcy ¶ 349.02[2] (Alan N. Resnick & Henry J. Sommer eds., 16th ed.). Applying this reasoning, if a debtor’s case is dismissed prior to discharge, § 349(a) allows that debtor another opportunity to get the same debts discharged in a later case, absent certain extenuating circumstances. See Frieouf v. United States (In re Frieouf), 938 F.2d 1099, 1104-05 (10th Cir.1991) (court may order dismissal with prejudice as to future discharge of debts scheduled in the dismissed case under § 349(a) upon showing of bad faith conduct). If a debtor’s case is dismissed post-discharge, there is no need for a second opportunity because the debts have already been discharged. This is both good news and bad news for the Debtors in this case. The good news is the prior discharge that entered during their Chapter 7 case remains effective to discharge all dischargeable debts that existed at the time of the petition date of the First Case. “The cases in which a Chapter 7 debtor’s case was dismissed post-discharge uniformly hold that the dismissal had no automatic effect on the discharge.” In re Bevan, 2011 WL 2161737, at 3 (Bankr.N.D.Cal. May 31, 2011). Nor did the Debtors’ conversion to Chapter 13 in the prior case have the effect of revoking the discharge order. In re Sieg, 120 B.R. 533, 535 (Bankr.D.N.D.1990) (“Conversion ... does not undo the effect of a previously granted discharge.”). Thus, a discharge is not necessary in the present case to address the debts that existed at the time of the filing of the First Case. The bad news is that these Debtors are not eligible to receive a second discharge in this case. Any debts that arose after the filing of the First Case (and any non-dischargeable debts from the First Case) may be addressed in the Debtors’ plan, but the Debtors will not receive a discharge of these debts on completion of the plan, unless the debts have been paid in full. For this reason, the Debtors should object to any filed unsecured claims that were previously discharged.2 Otherwise not 582only will the creditors holding these discharged claims receive something to which they are not legally entitled, but it will dilute the distribution to the unsecured creditors whose claims will not be discharged in this Second Case, with a corresponding increase in the Debtors’ personal liability following plan completion. For these reasons, Debtors are not eligible to receive a discharge in this case. The Trustee’s Objection to confirmation is SUSTAINED. The Debtors’ Motion to Confirm is DENIED. Debtors shall file an amended plan within fourteen days from the date of this Order. . All references to "§ " or "Section” shall refer to Title 11, United States Code, unless expressly stated otherwise. . The Court refers to "unsecured debts,” but technically the same reasoning would apply to secured debts as well. The Debtors' personal liability on the secured debts (unless they were reaffirmed) was likely discharged in the prior case, but the liens were not. To the 582extent the Debtors are attempting to retain property subject to liens, they may still need to include them in their Chapter 13 plan,	01-04-2023	11-22-2022
https://www.courtlistener.com/api/rest/v3/opinions/8494742/	595 MEMORANDUM OPINION ON CROSS MOTIONS FOR SUMMARY JUDGMENT KAREN S. JENNEMANN, Chief Judge. The numerous plaintiffs in these four adversary proceedings each signed a purchase agreement to buy units in a hotel-condominium project developed by the debtor, Mona Lisa at Celebration, LLC.1 The buyers no longer want to go forward with their purchases and have requested the return of their sizeable deposits alleging violations of various state and federal laws. Plaintiffs and defendants each have moved for summary judgment on some or all of the sixteen counts in plaintiffs’ amended complaints.2 Although the Court will analyze all counts in numerical order, and the defendants are successful on many, really most, of the disputes, in the end, the plaintiffs have established they are entitled to summary judgment on key portions of Counts VII, VIII, XV, and XVI, such that each plaintiff is entitled to void their purchase contracts and receive a refund of their deposits with interest, legal fees, and costs. Mona Lisa marketed, developed, and sold units in a luxury hotel-condominium development in Celebration, Florida. From June 2005 through September 2007, plaintiffs entered into one of two types of agreements with Mona Lisa to purchase specific units. Initially, the contracts did not require Mona Lisa to complete construction within two years. These are the “Original Purchase Agreements.” Starting in 2006, Mona Lisa changed the form of the contract to impose an obligation on itself to complete construction within two years. These are the “Updated Purchase Agreements.” Almost every buyer, regardless of which version of the contract was signed, made a deposit of more than 10% of the purchase price with Mona Lisa.3 Most buyers made a down payment of between 15-20% of the unit’s purchase price to Mona Lisa, who deposited the funds into an escrow account maintained by SunTrust, the escrow agent. In total, plaintiffs’ deposits equal $3.38 million.4 On December 1, 2006, Mona Lisa obtained a surety bond from Westchester Fire Insurance Company to allow it to withdraw the first ten percent of plaintiffs’ deposits from the escrow account, as permitted under Fla. Stat. § 718.202.5 Mona Lisa relied on Fla. Stat. § 718.202(3) to withdraw the balance of plaintiffs’ deposits and to use the funds for purposes characterized as construction and development of the project. Construction of the project is now complete. The development consists of 240 596one- and two-bedroom suites within two separate buildings arranged in a semi-eir-cular arc. Between the two hotel-condominium buildings lies a circular pool and hot-tub surrounded by approximately 28,-500 square feet of decking and landscaping features. Also within the arc is a separate two-story multi-use building with visitor and resident amenities, including a reception area, bar, restaurant, and meeting facilities. Mona Lisa finished construction in early 2008 and obtained a certificate of occupancy on May 7, 2008.6 By the end of 2008, over 70 unit owners had closed on the sale of their units.7 Mona Lisa’s business (like that of many other businesses in Orlando) was crippled by the financial recession of 2008. Property values plummeted. Many buyers refused to close on their sales contracts. To add to Mona Lisa’s troubles, construction delays pushed back completion of the Mona Lisa development over a year from its original estimated closing date of April 30, 2007. From May 2008 through January 2009, some plaintiffs brought individual actions against Mona Lisa in the United States District Court for the Middle District of Florida, seeking rescission of their purchase agreements. On November 7, 2008, the District Court consolidated these civil cases.8 On January 15, 2009, Mona Lisa filed for Chapter 11 bankruptcy, automatically staying all District Court actions.9 During 2009, seventy-one plaintiffs filed four adversary proceedings against Mona Lisa alleging violations of various state and federal laws.10 In two of the four adversaries, the parties filed cross motions for summary judgment on the ten counts asserted in the original complaint.11 The 597Court granted summary judgment12 in favor of the defendants on most counts (Counts I — III, and V-VII) but concluded a trial was needed on the remaining counts (Counts IV, VIII, and X).13 Plaintiffs from all four adversary proceedings then filed amended complaints now asserting these similar sixteen causes of action against the remaining three defendants — Westchester, SunTrust, and Mona Lisa: • Counts I-IV — Mona Lisa violated various provisions of the Interstate Land Sales Full Disclosure Act in 15 U.S.C. § 1701 et seq. • Count V — Mona Lisa failed to file a registration statement in violation of the Securities Act of 1933. • Count VI — Mona Lisa failed to file a registration statement in violation of the Investor Protection Act in Florida Chapter 517. • Count VII — Mona Lisa failed to maintain separate escrow accounting for purchaser deposits, and Mona Lisa used purchaser deposits for improper purposes, in violation of Florida Condominium Act § 718.202. • Count VIII — Mona Lisa failed to file with the Division of Florida Land Sales, Condominiums, and Mobile Homes all the required documents and amendments, in violation of Florida Condominium Act § 718.502. • Count IX — Mona Lisa failed to deliver a prospectus and disclosure statement with all exhibits to prospective purchasers, in violation of Florida Condominium Act § 718.503. • Count X — Mona Lisa made material misrepresentations in advertising material for the purchase of a condominium, in violation of the Florida Condominium Act § 718.506.14 • Count XI — Mona Lisa’s alleged violation in Counts I-X constitute per se violations of the Florida Deceptive and Unfair Trade Practices Act (“FDUT-PA”) in Fla. Stat. § 501.201 et seq. • Count XII — Mona Lisa failed to notify purchasers that their units were part of a Community Development District, in violation Fla. Stat. § 190.04, which constitute a per se FDUTPA violation. • Count XIII — Mona Lisa failed to notify purchasers of the type, thickness, and R-Value of insulation that was to be used in their units, in violation of 16 C.F.R. § 460.16, which constitute a per se FDUTPA violation. • Count XIV — Mona Lisa failed to disclose that the units were subject to a home owner’s association in violation of Fla. Stat. § 720.401. • Count XV — Breach of Contract. • Count XVI — Declaratory Relief. Some of these counts are identical to ones the Court addressed in the first summary judgment decision,15 and others are causes 598of action brought for the first time. For clarity, the Court will discuss whether summary judgment is appropriate for each count, taking them in numerical order. Plaintiffs have moved for summary judgment on Counts I-IY, VII, VIII, XI, XV, and XVI,16 and defendants have moved for summary judgment on all counts of plaintiffs amended complaints.17 On October 6, 2011, the Court consolidated all four adversary proceedings and took plaintiffs’ and defendants’ cross motions for summary judgment under advisement.18 Under Federal Rule of Civil Procedure 56, made applicable by Federal Rule of Bankruptcy Procedure 7056, a court may grant summary judgment where “there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law.” 19 The moving party has the burden of establishing the right to summary judgment.20 However, under Rule 56(c), the nonmoving party, in responding to a properly made motion for summary judgment, “may not rely merely on allegations or denials in its own pleadings; rather, its response must — by affidavits or as otherwise provided in this rule — ■ set out specific facts showing a genuine issue for trial. If the opposing party does not so respond, summary judgment should, if appropriate, be entered against that party.”21 Conclusory allegations by either party, without specific supporting facts, have no probative value.22 In determining entitlement to summary judgment, “facts must be viewed in the light most favorable to the nonmoving party only if there is a “genuine” dispute as to those facts.”23 “Where the record taken as a whole could not lead a rational trier of fact to find for the nonmoving party, there is no genuine issue for trial.”24 A material factual dispute thus precludes summary judgment.25 THE INTERSTATE LAND SALES FULL DISCLOSURE ACT (COUNTS I-TV) The Interstate Land Sales Full Disclosure Act (“ILSFDA”)26 is a federal anti-599fraud statute regulating the sale of certain real estate developments containing more than 100 “lots” of land.27 The ILSFDA was enacted to stop shady developers from foisting undesirable realty onto unsuspecting or ill-informed investors and consumers.28 The statute’s principal purpose of “protecting purchasers from unscrupulous sales of undeveloped home sites” is effectuated primarily through mandatory disclosures.29 Developers now are required to provide a detailed prospectus and make numerous disclosures to buyers who are purchasing pre-construction homes or contracting to purchase undeveloped real estate from remote locations sight-unseen.30 The ILSFDA does not apply to all developers. As will be discussed, a developer can take measures to exempt a contract from the ILSFDA by providing alternate forms of protection. In Counts I-IY, plaintiffs move for summary judgment under various sections of ILSFDA claiming “every critical disclosure provision of the ILSFDA was violated by Mona Lisa.”31 Plaintiffs specifically claim Mona Lisa violated the ILSFDA: (1) by failing to give plaintiffs a property report and notices of utilities and amenities as required by § 1703(a) (Counts I and II), (2) by failing to notify plaintiffs that they had 7-day and 2-year statutory rights of revocation under § 1703(b) and (c) (Count III),32 and (3) by failing to provide a lot description and default notices under § 1703(d) (Count IV).33 For these alleged violations, plaintiffs seek damages, rescission of their contracts, refunds of their deposits, court costs, and attorney fees. Defendants, in response, contend they are entitled to summary judgment in their favor on these counts raised under ILSF-DA.34 In general, the Court holds the defendants indeed are entitled to summary judgment under Counts I-TV, with the exception that a trial is needed to determine whether plaintiffs who signed Original Purchase Agreements and who brought claims within three years are entitled to damages, assuming they can establish that the units they were purchasing are “lots” covered by ILSFDA. ILSFDA Only Applies to Sales of “Lots” The ILSFDA only applies to the sale of “lots” that are part of a sales program of 100 or more lots offered pursuant to a common promotional plan.35 Plaintiffs and Mona Lisa disagree whether the units in Mona Lisa’s hotel-condominium are “lots.”36 In 2010, this Court held that the 600analysis of whether ILSFDA would or would not apply to the hotel-condominium units sold by Mona Lisa is very fact-specific and not susceptible to resolution by summary judgment.37 The Court did not address the factual lot issue because, even assuming the hotel-condominium units were “lots,” no plaintiff at that time was entitled to summary judgment because all their ILSFDA claims were time barred, unsupported by a factual allegation of damages, or plaintiffs’ contracts were exempt from the ILSFDA.38 Plaintiffs now have filed amended complaints asserting new ILSFDA claims, and additional plaintiffs have joined the lawsuit.39 The Court will re-address the timing of the ILSFDA claims, plaintiffs’ allegation of damages, and Mona Lisa’s additional defenses. Many of the plaintiffs’ ILSFDA claims remain time-barred. On others, the defendants are entitled to summary judgment, assuming the hotel-condominium units are “lots” and the provisions of ILSFDA do apply. Summary judgment in favor of the plaintiffs, however, is still improper under any ILSFDA claim until the plaintiffs prove the units are “lots.” Statute of Limitations under ILSFDA As a threshold matter and assuming ILSFDA applies, plaintiffs must have timely filed their claims under ILSFDA’s statute of limitations in order to bring an ILSFDA claim.40 Pursuant to a recent binding decision of the Eleventh Circuit Court of Appeals, in the case of Gentry v. Harborage Cottages-Stuart, LLLP,41 a buyer has two years from signing a sales contract to automatically revoke a contract under § 1703(c), but has three years to assert a damages claim under § 1711(b). In Gentry, the Eleventh Circuit Court of Appeals said: We agree with Plaintiffs that the district court’s damages award is permitted under § 1709. Even though Plaintiffs are not entitled to the automatic statutory revocation remedies provided in 15 U.S.C. § 1708(c) because they did not attempt to revoke their contracts within two years from the date of signing the purchase contracts, they may still be entitled to the return of their deposits as equitable relief under § 1709. Where, as here, a developer violates § 1703(c)’s notice requirement obligating the developer to disclose to Plaintiffs their right to rescind, the purchaser may be entitled to relief under § 1709(b). The two-year limitation period in § 1703(c) governs those circumstances in which an aggrieved purchaser seeks to enforce an automatic, unconditional right to revoke if the requirements of the subsection are met. On the other hand, the three-year limitation period in 15 U.S.C. § 1711 governs those circumstances in which a purchaser seeks rescission that is not automatic, but must be supported by proper proof. In other words, the automatic revocation or [rescission] remedy in § 1703(c) itself is not the only revocation or [rescission] remedy. In addition to that remedy, § 1709(b) permits a purchaser to obtain 601the deposit as an equitable remedy if the purchaser shows that the remedy is justified by the facts of a specific case.42 The two-year statute of limitation on automatic, “no questions asked” rescission applies regardless of whether the contract properly noticed plaintiffs of their right to rescind under ILSFDA and regardless of whether plaintiffs otherwise had actual notice of this right.43 A plaintiff who did not timely file claim for automatic rescission within two years nevertheless has three years to bring a damages claim under the ILSFDA. The damages claim may include a request for rescission of the contract that is justified under the circumstances; for example, if the developer wrongly refused to rescind the contract.44 Any party who filed an ILSFDA claim more than three years after signing a purchase agreement is completely time-barred from asserting either a rescission or damages claim under ILSFDA.45 In this case, based on the date each plaintiff filed its ILSFDA claims against Mona Lisa, the only plaintiffs who can bring automatic rescission claims under the ILSFDA are those who filed their claims within two years of signing the original purchase agreement. Appendix A lists the plaintiffs who filed timely rescission claims. (The Court notes each of these plaintiffs also signed Updated Purchase Agreements that, as will be discussed next, are exempt from ILSFDA.) The only plaintiffs who can bring damages claims are those who filed their claims within three years of signing Original Purchase Agreements. Appendix B lists all plaintiffs who filed timely damages claims under ILSFDA. All other plaintiffs filed their claims more than three years after signing their contracts with Mona Lisa. These plaintiffs’ ILSFDA claims are time barred and are listed on Appendix C. Defendants Entitled to Summary Judgment Barring ILSFDA Claims Brought More than Three Years After Contract Signed Section 1711(b) of ILSFDA requires that all actions to enforce a right under § 1703 be brought within three years of signing a sales contract.46 Therefore, defendants are entitled to summary judgment against all plaintiffs who filed their ILSFDA claims more than three years after signing their respective contracts because these plaintiffs, listed in Appendix C, are all completely time barred from bringing any ILSFDA claim. Defendants Entitled to Summary Judgment on all ILSFDA Automatic Rescission Claims Most plaintiffs signed the earlier form of Mona Lisa’s contract, the Original Purchase Agreement. As will be discussed, this version of the contract is not exempt from ILSFDA. However, no plaintiff who signed an Original Purchase Agreement filed a timely claim for automatic rescission within two years of signing the contract. All plaintiffs who brought timely automatic rescission claims signed the Updated Purchase Agreements that are ex602empt from the ILSFDA. Defendants are entitled to summary judgment as to all plaintiffs’ automatic rescission claims, listed in Appendix A. These plaintiffs may, however, have a valid damages claim under § 1711(b), because they brought their claim within three years. Defendants are Entitled to Summary Judgment Against All Plaintiffs Who Signed Updated Purchase Agreements Because the Contracts are Exempt under ILSFDA Plaintiffs who bring valid causes of action under the ILSFDA within two years of signing purchase contracts are entitled to automatic revocation of their purchase contracts, without proving damages, as long as their contracts are not exempt from the ILSFDA.47 As noted, no such plaintiff exists. Plaintiffs who bring ILSFDA claims within three years of signing a purchase contract, such as those listed in Appendix B, may recover damages if their contracts are not exempt. Certain contracts, however, are exempt from ILSFDA, if they provide purchasers of pre-construction condominiums sufficient assurances that protect against real estate fraud.48 For example, a contract selling an existing home is exempt, presumably because a purchaser can see the house.49 The buyer is not at risk the developer will take his deposit and fail to build the home. Similarly, a contract for the sale of a lot to a government agency is exempt because the agency generally does not require the same level of consumer protections as an individual consumer.50 For the same sort of reasons, and most relevant in this dispute, a contract for the sale or lease of land also is exempt from the ILSFDA if it obligates the developer to construct the building within 2 years.51 Whether or not construction actually is completed within two years is irrelevant, as long as the obligation is unconditional.52 In March 2006, Mona Lisa amended its Original Purchase Agreement to include in Paragraph 3 a promise to complete construction within two years. Pursuant to § 1702(a)(l)-(2), these “Updated Purchase Agreements” containing this new two-year construction promise are exempt from the ILSFDA, unless the two-year construction obligation was “adopted for the purpose of evasion.”53 Plaintiffs make several arguments that Mona Lisa’s promise to complete construction within two years was indeed illusory, was included for the sole purpose of evading the statute, and that the Updated Purchase Agreements are not exempt. Spe603cifically, plaintiffs argue the force majeure clause in Paragraph 3, the limitation of remedies clause in Paragraphs 13,54 the risk of loss provision in Paragraph 24, the title exception provisions in Paragraph 10, and the estimated closing date in Paragraph 2 all work together to make Mona Lisa’s promise to complete construction in two years illusory. In the following lengthy analysis, the Court rejects each of these arguments. As a result, the Updated Purchase Agreements are exempt from ILSFDA, and every plaintiff that signed this later agreement cannot bring an ILSFDA claim, period. In arguing that Mona Lisa inserted the two-year construction requirement into the Updated Purchase Agreement simply to exempt them from ILSFDA, plaintiffs cite to the ILSFDA Guidelines which provide that “any condition which qualifies the obligation to complete a building within two years nullifies the applicability of the exemption.”55 If Plaintiffs were to read further, however, they would recognize that not all qualifications are impermissible. Even though a contract must provide either specific performances or damages, a legitimate contract defense by its own definition allows a developer to avoid both remedies. The HUD Guidelines clarify this: Contract provisions which allow for nonperformance or for delays of construction completion beyond the two-year period are acceptable if such provisions are legally recognized as defenses to contract actions in the jurisdiction where the budding is being erected. For example, provisions to allow time extensions for events or occurrences such as acts of God, casualty losses or material shortages are generally permissible. Although the factual circumstances upon which nonperformance or a delay in performance is based may vary from transaction to transaction, as a general rule delay or nonperformance must be based on grounds cognizable in contract law such as impossibility or frustration and or events which are beyond the seller’s reasonable control.56 A contractual provision renders an obligation “illusory” only when it allows a party “to breach with impunity.”57 However, “allowing for reasonable delays caused by events beyond the seller’s control do not ... transform the seller’s obligation into an option.... The question is whether [the contractual provision] allows nonperformance by the seller at the seller’s sole discretion.”58 The ILSFDA does not require developers to waive all legitimate contract defenses to avoid inclusion in ILSFDA, but, instead, requires that the reason for the developer’s non-performance arises from a source outside of the developer’s control. The Force Majeure Clause Does Not Make the Two-Year Completion Deadline Illusory In the Updated Purchase Agreements, plaintiffs first point to Paragraph 3, 604containing the force majeure provisions, which provides: 3. Completion of Unit. Seller shall cause the construction of the Condominium and the Unit to be completed within a period of two (2) years from the date Purchaser signs this Contract. The date for completion of such construction may not be extended by the Seller for any reason other than delays caused by circumstances beyond Seller’s control, such as acts of God, or other grounds cognizable in Florida contract law as impossibility or frustration of performance .... 59 The first sentence of Paragraph 3 obligates Mona Lisa to finish construction of plaintiffs’ units within two years of signing their respective purchase agreements. Plaintiffs, however, argue that the second sentence — the force majeure clause — renders illusory the promise to complete construction. The force majeure clause is appropriate and does not render Mona Lisa’s performance discretionary. In a binding decision, the Eleventh Circuit Court of Appeals has held that a clause excusing performance due to conditions out of the developer’s control does not make the promise to perform “illusory” or preclude a contract from the § 1702(a)(2) exemption.60 Even a force majeure clause that includes foreseeable, as well as unforeseeable, events is permissible.61 And, under Stein, a contract can be exempt from ILSFDA even if the two-year obligation to complete construction is subject to the provision that “delays caused by matters which are legally recognized as defenses to contract actions in the jurisdiction where the Unit is being constructed.”62 Moreover, the conditions on the two-year construction obligation need not be limited to excuses that fall within the doctrine of impossibility.63 Florida courts recognize both impossibility and frustration as excuses to a breach of contract claim.64 In Florida, a sales contract containing a force majeure clause subject to recognized excuses for performance under state law still qualify for the § 1702(a)(2) exemption.65 605Virtually ignoring these recent decisions, plaintiffs cite a 20-year-old decision of the Florida Supreme Court for the proposition that any conditions restricting the two-year obligation are impermissible.66 First, Samara is contrary to the recent binding decisions of the Eleventh Circuit, just discussed. Second, Florida appellate courts repeatedly have limited Samara’s reach.67 For example, the Second District Court of Appeals has held “acts of God, impossibility of performance, and frustration of purpose are well-recognized defenses to nonperformance of a contract” under Florida law, and that “well-recognized defenses to contractual non-performance” do not render the two-year obligation illusory.68 More specifically, a Florida appellate court recently held that, despite Samara, a force majeure clause that includes conditions beyond the seller’s control does not render the two-year obligation illusory.69 Similarly, here, Paragraph 3 of the Updated Purchase Agreements, which only limited the two-year commitment to circumstances beyond Mona Lisa’s control, imposed a binding, non-illusory commitment on Mona Lisa to complete construction within two years of signing the agreements, which causes the contracts to be exempt from the ILSFDA. The Two-Year Completion Deadline was Not Inserted to Evade ILSFDA Plaintiffs next argue that Mona Lisa added the two-year completion requirement of Paragraph 3 to “evade” compliance with the statute. Under ILSFDA, an exemption will not apply if the mechanism for qualifying for the exemption was “adopted for the purpose of evasion.”70 Although not all courts follow the Eighth Circuit’s requirement to show fraudulent intent in evading the statute,71 a developer does not evade the statute merely by taking “conscious action to ensure a [development] meets the requirements of one or more exemptions that are explicitly provided in the statute.”72 As one court recently found, “the mere fact that a developer structures the sale of a subdivision in a way that makes the project exempt from the [ILSFDA] is not, without more, sufficient to conclude that the seller has taken 606such actions for the purpose of evading the [ILSFDA]’s requirements.”73 In the Eleventh Circuit, a developer seeking an exemption from the ILSFDA must “produce factual evidence demonstrating that the method of disposition has a real world objective that manifests a legitimate business purpose. The ‘legitimate business purpose’ standard asks the party invoking the exemption to articulate some legitimate business reason for its method of disposition other than the avoidance of the ILSFDA’s consumer protections.” 74 A developer has the burden of demonstrating that evading the ILSF-DA is not the sole reason for seeking an exemption.75 This is not a heavy burden.76 For example, a developer can prove a legitimate business purpose by proving it sought an exemption to reduce project costs.77 A defendant can also meet this low threshold by submitting a company officer’s affidavit stating that using ILSF-DA allowed for greater flexibility in developing the project and saved the company time and money.78 In this case, Mona Lisa has asserted a legitimate business purpose for including the two-year commitment to complete construction. William Haber-man, a managing member of Mona Lisa, states in his affidavit that Mona Lisa’s construction lender, BankFirst, required the contracts to include the provision in order to invoke ILSFDA’s exemption.79 Mona Lisa took a conscious action to qualify for one of the exemptions permitted under ILSFDA because the debtor could not get funding without the exemption. The Court thus finds that Mona Lisa did not “evade” the statute by adding the two-year commitment to finish construction.80 The Limitation of Remedies Provision Does Not Make the Two-Year Completion Deadline Illusory Plaintiffs next point to Paragraph 13 of the Updated Purchase Agreement, which limits plaintiffs’ available remedies, as a further proof that Mona Lisa’s promise to complete construction within two years was illusory. Paragraph 13 reads as follows: 13. Seller’s Default. If Seller fails to perform Seller’s obligations under this Contract, then Purchaser shall have the right to terminate this Contract and receive a full refund of all Deposits and moneys paid by Purchaser hereunder, together with any accrued interest thereon, and Purchaser shall have the right to pursue claims for specific performance or damages.81 Under recent binding Eleventh Circuit precedent, limiting buyers’ remedies to deposit refunds and damages or specific performance, as Paragraph 13 does here, does not make a builder’s two-year completion 607promise “illusory.”82 Even prior to Stein, federal district courts in the Southern District of Florida83 and Florida state courts84 reached the same conclusion. In this case, if Mona Lisa defaults, the buyers have the right to specific performance or damages and the right to terminate the contract and receive a full refund of all deposits paid.85 The purchase agreements do not limit the kind of damages plaintiffs could recover. This differs from the contract in Stein86 which limited damages to “actual and direct damages.” Yet, even in that case, the Eleventh Circuit found the developer’s obligation to perform under the contract was not illusory. In short, there is little support for plaintiffs’ argument. Accordingly, the Court finds that the remedies listed in Paragraph 13 of the Updated Purchase Agreements did not render illusory Mona Lisa’s obligation to complete construction within two years. The Risk of Loss Provision Does Not Make the Two-Year Completion Deadline Illusory Plaintiffs next argue Paragraph 24 of the Updated Purchase Agreements governing incidences of casualty impermis-sibly qualify the two-year construction obligation by giving Mona Lisa the option of nonperformance. Paragraph 24 reads: Risk of Loss Prior to Closing. Any loss and/or damage to the Condominium Property, the Unit or the common elements between the Effective Date of this Contract and the closing will be at the Seller’s sole risk and expense. Seller shall have the right to elect to repair such damage or destruction.... If Seller does not elect to repair the damage or destruction, this Contract shall be terminated and all Deposits made by Purchaser hereunder shall be refunded to Purchaser, whereupon the parties here to shall be released from all liability hereunder to one another”87 Florida courts interpret casualty provisions like the one above as legitimate contract defenses because the developer’s election not to repair is limited to circumstances beyond a developer’s control.88 Interpreting the Updated Purchase Agreements as a whole,89 the casualty provision 608is constrained by the requirement in Paragraph 3 that construction of the project may only be extended for legitimate contract defenses and circumstances beyond a Seller’s control.90 Accordingly, damage and destruction to the property so severe that it would give Mona Lisa the election not to repair would qualify as a legally cognizable defense to contract. Paragraph 24 therefore does not render Mona Lisa’s two-year construction obligation illusory. The Title Exception Provision Does Not Make the Two-Year Completion Deadline Illusory Plaintiffs point to Paragraph 10(b) of the Updated Purchase Agreement that outlines the developer’s obligation for curing title defects to show Mona Lisa’s two-year construction deadline is illusory. Paragraph 10(b) provides: Title. Purchaser shall have five (5) days ... to notify Seller in writing of any objection(s) to matters of title that are not Permitted Exceptions and would render title to the Unit unmarketable.... If any objections(s) made by Purchaser would render title unmarketable, Seller shall have ninety (90) days after receipt of notice of the objection(s) to title to cure same, but Seller is not obligated to do so. If Seller cannot or elects not to cure such objection(s) within the ninety (90) day period, Purchaser shall elect one of the following options 91 Under this provision, a buyer has two choices. He can accept title as-is without a reduction in the purchase price or he can terminate the contract and receive a full refund of all deposits and accrued interest, waiving all claims against the Seller, and agreeing that “Seller shall not be liable to Purchaser for damages as a result of Seller’s inability or unwillingness to cure any title objection(s) that render title unmarketable.” 92 The definition of “Permitted Exceptions” includes a laundry list of those things normally found on a seller’s title that are customary, immaterial, “or matters that would not normally interfere with the use of the Unit for its intended purpose or will be cured by application of the Purchase Price or other funds of Seller » 93 This provision in Paragraph 10(b) is similar to the title clause in the purchase contracts in Stefan v. Singer Island Condos, Ltd.94 In that case, the court read the developer’s two-year construction obligation together with a similar title provision and found the provision did not render the two-year construction commitment illusory. The court based its findings on a severability clause that restricted the seller’s remedies to only those that did not extend the seller’s completion obligation 609beyond the two-year period.95 Further, Paragraph 10(b) is distinguishable from the clause at issue in Dorchesr ier96 because, according to the definition of “Permitted Exceptions,” the only situations that trigger Mona Lisa’s nonperformance arise from title defects that are either unfeasible to correct or unanticipated by either party.97 If Mona Lisa failed to cure a title defect that was not a Permitted Exception, i.e., it was anticipated or easy to correct, plaintiffs would have a breach of contract claim under Paragraph 13. Paragraph 10(b) does not allow Mona Lisa to avoid its obligation to complete construction within two years. Rather, the title provision in the Updated Purchase Agreement only gives Mona Lisa an escape clause in the event unanticipated or unfíxable title defects arise. Construction may not be extended by the seller for any reason other than circumstances beyond seller’s control. Paragraph 10(b) does not make the two-year completion deadline illusory. The Estimated Closing Date Does Not Make the Two-Year Construction Deadline Illusory Plaintiffs lastly claim the “Estimated Closing Date” in Paragraph 2 contradicts the absolute two-year construction obligation in Paragraph 3, rendering it illusory, or at least ambiguous, in which case the agreement should be interpreted against the drafter.98 The relevant part of Paragraph 2 reads: Purehaser acknowledges that the Unit and the Condominium improvements of which it is a part have not yet been constructed, and that the Estimated Closing Date is Seller’s good faith estimate of a date when construction shall be completed, a certificate of occupancy can be obtained, and possession can be delivered. The Estimated Closing Dates in the Updated Purchase Agreements all occur before the end of Mona Lisa’s two-year obligation to complete construction. If Mona Lisa failed to actually close by its Estimated Closing Date, which it did, the contracts permit éxtensions beyond two years only for reasonable defenses to contract and circumstances beyond seller’s control. Mona Lisa’s good faith estimate to close within a certain time frame in Paragraph 2 does not render the two-year construction obligation illusory.99 That is, the only reasons Mona Lisa could extend the estimated closing date are the same exact reasons it could exceed the two-year completion deadline — for circumstances out of its control. The Updated Purchase Agreements are exempt from ILSFDA pursuant to § 1702(a). As such, plaintiffs who signed Updated Purchase Agreements have no causes of action under ILSFDA regardless of when their claims were filed. Defendants are entitled to summary judgment as to Counts I-IV against all plaintiffs who signed Updated Purchase Contracts. A list of all plaintiffs who signed an Updated 610Purchase Agreement is attached as Appendix D.100 Mona Lisa’s Failure to Provide Notices Required by § 1703(a), (b), and (d) of ILSFDA Caused Plaintiffs No Actual Damages After concluding that no plaintiff has an automatic right to rescind the purchase agreement under ILSFDA, that any plaintiff who filed a claim more than three years after signing the purchase agreement is time barred from bringing an ILSFDA claim, and that any plaintiff who signed an Updated Purchase Agreement has no ILSFDA claim, the only remaining plaintiffs with ILSFDA claims are those who signed Original Purchase Agreements and who filed a claim within three years of signing the contract. A list of these plaintiffs is attached as Appendix E. Because ILSFDA does not provide for statutory damages,101 these remaining plaintiffs are required to prove actual damages. Consistent with the law of the Eleventh Circuit, this Court rejects plaintiffs’ bald contention that “proof of loss causation is simply not required under ILSFDA.”102 Gentry held that if a purchaser fails to revoke a contract before two years expire, a court may award damages if a plaintiff proves he was harmed by a developer’s ILSFDA violation and brings a claim within three years of signing a purchase contract.103 The ILSFDA also “permits a purchaser to obtain the deposit as an equitable remedy if the purchaser shows that the remedy is justified by the facts of a specific case.”104 Rescission also is an appropriate equitable remedy “if a plaintiff can show that he or she was actually harmed by the statutory violations or by the developer’s failure to provide the required notices.”105 Even though, as plaintiffs argue, the “remedies of rescission and damages [may] have the same result, namely to return the Plaintiffs deposit money,”106 different levels of proof apply. Plaintiffs who fail to take advantage of their two-year automatic “no questions asked” rescission rights instead must prove actual damages to recover a refund of their deposits if they wait more than two years to seek rescission. To show actual damages, plaintiffs must allege that Mona Lisa’s failure to provide them with required disclosures 611caused them actual harm and that they are entitled to compensation for their injury. In their pleadings, plaintiffs have alleged their deposits constitute actual damages as a result of Mona Lisa’s failures, but they do not explain why or how they were injured. Plaintiffs also argue in the alternative that, even if proof of damages is required, they have proven they were harmed by alleging they would have revoked their contracts had they been given the appropriate disclosures.107 Defendants insist that plaintiffs cannot show actual damages because plaintiffs received numerous disclosures similar to what would have been provided in the property report and nothing in the property report or the other required disclosures, had they been provided, would have changed plaintiffs’ minds about purchasing a hotel-condominium unit.108 Because defendants argued in their motion for summary judgment that plaintiffs cannot show the debtor’s failure to provide the property report caused plaintiffs any harm, plaintiffs, under Rule 56(e), then had the burden to produce some facts or evidence to support their claim.109 Instead, plaintiffs have merely repeated their assertion that had they received the property report information they would have revoked the applicable contract. The plaintiffs’ bare allegations that they would have changed their mind if Mona Lisa had given them the required disclosures is devoid of any basis in fact and is not enough to meet plaintiffs’ burden of production in responding to defendants’ summary judgment motion. Plaintiffs were required to demonstrate with specific facts how the information they did not receive would have altered their decision to pay deposits to Mona Lisa for their respective hotel-condominium units. On summary judgment, when defendants raised a credible doubt as to whether plaintiffs could prove actual damages, plaintiffs are required to show much more than these types of conelusory allegations. Because they have not done so, plaintiffs’ damages claims must fail. Plaintiffs specifically allege numerous disclosure violations under ILSFDA: (1) Mona Lisa failed to provide a property report required by § 1703(a)(1); (2) Mona Lisa failed to provide a lot description required by § 1703(d)(1); (3) Mona Lisa failed to provide a disclosure relating to future roads and utility services as required by § 1703(a)(2); (4) Mona Lisa failed to provide disclosures relating to the plaintiffs right to cure contract breaches or, that upon a breach, Mona Lisa was entitled to retain up to 15% of the purchase price as required by § 1703(d)(2 and 3); and (5) Mona Lisa failed to disclose a seven-day revocation right as required by § 1703(b). Yet, not a single plaintiff offers any factual proof other than to recite in a rote fashion that, if given the disclosure, they would not have signed the contract. The likely reason the plaintiffs rely on these conelusory statements is that they cannot demonstrate any actual damages because, by and large, Mona Lisa did everything it promised. Mona Lisa completed construction. The project has the exact same road, pool, suites, bathrooms, kitchens, and utilities contained on the numerous maps and promotional materials each 612of the plaintiffs received. Indeed, many purchasers in the same situation as the plaintiffs closed on their units and are now enjoying the amenities of the project. Perhaps even more telling is the plaintiffs’ argument that Mona Lisa did not disclose a seven-day revocation right as required by § 1703(b). They are correct. Mona Lisa did not give them just seven days to revoke the contract. Mona Lisa gave them fifteen days as required by the Florida Condominium Act.110 The plaintiffs cannot with a straight face argue they were harmed when Mona Lisa gave them twice as long a time to decide whether to revoke the contract. The ILSFDA’s seven-day revocation provision “is a general buyer’s remorse provision”111 which allows a purchaser to revoke a purchase contract during the seven days following the signing of a sales contract.112 Similarly, Florida’s fifteen-day revocation right is Florida’s version of a buyer’s remorse provision and provides for a “cooling off period to protect the public in general from high pressure condominium sales situations.”113 Plaintiffs argue this fifteen-day right given by Florida law is insufficient to comply with the seven-day revocation requirements under § 1703(b) of ILSFDA because it restricts a buyers’ rights by requiring written notice, whereas the disclosure required under § 1703(b) has no such limitation.114 Plaintiffs rely on Werdmuller Von Elgg v. Paramount, where the court granted plaintiffs a refund because a purchase contract failed to include a seven-day right to revoke, even though it included Florida’s mandatory fifteen-day revocation notice under § 718.503.115 Werdmuller, which did not discuss damages but simply refunded a deposit, was decided before the Eleventh Circuit clarified that plaintiffs who bring ILSFDA claims after two years, but within three years, of signing a purchase agreement, must prove actual damages in order to recover for an ILSFDA violation. In this case, plaintiffs were on notice they could cancel their contracts within fifteen days of signing the purchase contracts. None of them pursued this option. Plaintiffs do not explain how the written notice requirement in § 718.503 under Florida law prevented them from asserting their longer fifteen-day right to cancel. Nor do they make any factual allegations as to why, after seven days, they all would have cancelled their agreements based on buyer’s remorse. Nevertheless, they argue that they would have revoked had they been informed of their shorter, seven-day oral revocation right in § 1703(b). Plaintiffs’ only claim of damages comes from their affidavits stating they were: 613“unaware of their rescission and revoca- ■ tion rights under the ILSFDA, and the contract did not disclose such rights. Specifically, I was unaware that I had a right to revoke the contract within 2 years after the date I signed the contract, and I was unaware that I had a right to revoke the contract until midnight of the 7th day after signing the contract. If Mona Lisa had disclosed in the contract my right to revoke and rescind, I would have revoked and rescinded the contract within the time provided by the ILSFDA.”116 Plaintiffs’ arguments, that they all would have revoked within seven days had they known they could do so verbally, are unconvincing and unsubstantiated by facts. Defendants are entitled to summary judgment as to those plaintiffs who signed Original Purchase Agreements and timely filed damage claims within three years to the extent that they assert damages arising from Mona Lisa’s failure to provide disclosures required by § 1703(a), (b), or (d) of ILSFDA. Material Factual Disputes Preclude Summary Judgment as to Mona Lisa’s Failure to Prove Notice of Plaintiffs’ Two-Year Revocation Rights under § 1703(c) Plaintiffs next allege they were harmed by Mona Lisa’s failure to include notice of plaintiffs’ two-year revocation right in the Original Purchase Contracts, as required under § 1703(c).117 If, as in this case, plaintiffs have failed to automatically revoke their purchase contracts within two years of signing them, they have an additional year to file a claim to assert they were damaged by a developer’s failure to disclose this right. Mona Lisa does not dispute that the purchase contracts do not contain the required two-year revocation disclosure but argues that plaintiffs were not harmed by this mistake. In the Eleventh Circuit, plaintiffs can prove they were harmed by a developer’s failure to notice the two-year revocation right by providing specific evidence of causation.118 In Gentry, the Eleventh Circuit Court of Appeals granted purchasers the return of their deposits as damages because they swore that they would have timely revoked their contracts had they been aware of their rights to do so.119 Two prior decisions by the United States District Court for the Middle District of Florida, Harari and Kiertz, came to the same conclusion.120 In both cases, the district court found a developer liable for failing to provide purchasers with notice of their two-year rights of revocation in their contracts, holding that a plaintiff 614may recover damages for failing to disclose a rescission right “if she can establish that (a) the defendant did not tell her of her right to rescind, (b) she did not know of her right to rescind until after the two-year rescission period had expired, (c) she would have timely exercised her rescission option had the defendant informed her of same as the ILSFDA required it to do, and (d) she has incurred damages as a result of her inability timely to exercise her rescission option.”121 Accordingly, the district court found the plaintiffs were entitled to damages for the developer’s failure to provide notice of their two-year revocation rights because failure to provide the notice proximately caused their damages in the amount of their contract deposits. In Harari and Kiersz, as in Gentry, the developer accepted deposits from buyers and then failed to timely complete construction as promised. The plaintiffs in Gentry argued the developer misrepresented the quality and scope of the development as promised.122 In Harari and Kiersz, construction of the plaintiffs’ units took much longer than the plaintiffs anticipated.123 The two-year automatic rights of revocation in § 1703(c) was relevant in these cases because, as construction of the condominium units continued, the plaintiffs identified factors that would have caused them to revoke their contracts within two years had they known they could. Instead, because these plaintiffs lacked notice of their automatic revocation rights, they missed the opportunity. This case has similar facts. Mona Lisa failed to include notice of plaintiffs’ two-year automatic right to revoke in the contracts. Plaintiffs all claim in affidavits that they would have revoked their contracts within two years had Mona Lisa disclosed this right.124 Plaintiffs’ claims are plausible, considering the extensive delays in construction. Mona Lisa completed construction approximately one year later than promised. After Mona Lisa failed to close on the estimated closing date, plaintiffs would have had at least some time before two years passed to consider revoking their contracts had they known of their right to do so. As such, plaintiffs who signed Original Purchase Agreements and brought timely damage claims within three years of signing their contracts have established they were damaged by Mona Lisa’s failure to disclose their two-year automatic revocation right. Genuine issues of fact preclude summary judgment on this claim, however, because the Court has not yet determined whether the units are “lots,” and thus whether Mona Lisa is subject to any of the provisions in the ILSFDA. Material factual disputes preclude a determination of whether the units are or are not “lots.” As such, neither party is entitled to summary judgment on Mona Lisa’s failure to comply with § 1703(c) as a matter of law. 615 Summary Judgment Rulings on ILSFDA Claims (Counts I-IV) Defendants are entitled to summary judgment against all plaintiffs who brought ILSFDA claims after three years of signing their purchase agreements because all these plaintiffs are time barred. Defendants also are entitled to summary judgment as to all plaintiffs who signed Updated Purchase Agreements because their contracts are exempt from the ILSFDA. As to the plaintiffs who signed Original Purchase Agreements and brought damage claims within three years of signing the contract, (1) they have no automatic rescission claim because no plaintiff brought an ILSFDA claim within two years; (2) defendants are entitled to summary judgments for all damage claims brought under § 1703(a), (b), and (d) because the plaintiffs have failed to show any actual harm caused by Mona Lisa’s failure to make the required disclosures; and (3) neither party is entitled to summary judgment for damage claims under § 1703(c) because material factual disputes exist as to whether the “units” are “lots” covered by ILSFDA. Mona Lisa Did Not Violate Federal or State Securities Laws (Counts V and VI) In Count V, plaintiffs allege that the hotel-condominium units they purchased from Mona Lisa were unregistered securities under § lie oí the Federal Securities Act of 1933.125 Likewise, in Count VII, plaintiffs allege Mona Lisa violated the Florida Securities and Investor Protection Act (“FSIPA”) by selling unregistered securities.126 Because FSIPA parallels almost exactly the 1933 Securities Act, the Court’s analysis under the federal statute also determines the outcome under FSI-PA. Under § lie of the 1933 Securities Act, the seller of any “investment contract” or security must file a registration statement with the SEC. A real estate sales contract can qualify as an “investment contract” or a “security” when the buyer “participate^] in a profit-sharing or rental pooling arrangement upon completing the transaction, or when the transaction includes restrictions limiting the owner’s control over the property.”127 Plaintiffs here contend the purchase agreements are securities and that Mona Lisa was required to file a registration statement pursuant to § lie. Defendants argue the contracts are not securities. The Court agrees. The Howey test governs whether a real estate sales contract is a “security” under the 1933 Securities Act.128 Sales contracts are securities when: (1) individuals make an investment of money in (2) a common enterprise and (3) when the expectation of profits is to be derived solely from the efforts of others.129 A party must prove all three prongs of the Howey test to establish that a real estate sales contract is a “security” under the Act. Given that each of the plaintiffs made an investment of monies by placing a deposit to 616purchase a hotel-condominium unit, the parties agree the first prong is met. The parties, however, dispute whether plaintiffs have established the second and third prongs. As to the second Howey factor, in the Eleventh Circuit, a “common enterprise” exists when there is vertical commonality.130 The Eleventh Circuit’s “broad vertical commonality” test requires plaintiff to show that the likelihood of the investment’s financial success depends on the efforts of a third-party manager.131 That is, the buyers are dependent upon a third party who manages and controls their investments and is solely responsible for the future financial success of the investment. For example, the shareholder of a publicly-traded company does not have direct control over the future value of a company’s shares because the shareholder does not have direct control over the company’s day-to-day operations and thereby its ultimate financial success. The likelihood that the company’s stock value will increase instead depends on how well the company’s managers operate the company. The critical factor in determining vertical commonality then is “the amount of control that the investors retain under their ... agreements.”132 The United States District Court for the Middle District of Florida has held that when condominium buyers gave up a significant amount of control to the condominium developer and were dependant on the developer to realize a return on their investment, the sales contracts were a “security.” 133 Some factors that led to the court’s decision in Morris include that the condominium units were designed to be rented out as hotel rooms, that all revenue was to be shared between the buyers and the developer, and that the developer managed the rental business.134 Under those circumstances, vertical commonality existed between the condo-unit buyers and the developer because the likelihood of the investment’s success was almost entirely dependent on the developer’s performance. The more control a developer retains over a buyer’s unit and its profitability, the more likely the vertical commonality prong is met. In this case, no vertical commonality exists, Unlike Morris, plaintiffs here retained a significant amount of control over their individually-owned units under the purchase agreements and were not necessarily dependent on Mona Lisa or any other third party to manage their investment. Certainly, each unit came with restrictions that limited plaintiffs’ control. For example, each buyer could occupy the hotel-condominium unit for only 179 days per year. But, on the other hand, the buyer could unilaterally decide how to use the unit during the remaining 181 days of the year. Moreover, when it comes to deciding with whom and whether to sign a rental agreement—arguably the most important decisions concerning the 617ability to make money from the unit — each owner individually retained near total control over the unit. A buyer could use the service offered by Mona Lisa’s affiliate to rent a unit, but renting the unit was neither required nor necessarily an integral part of unit ownership. A buyer also could have used another rental company totally unrelated to the debtor. A buyer, lastly could leave the unit vacant for the entire 181 days the buyer could not personally occupy the unit. The choice and the control are left solely to the buyer, not the developer. The amount of control retained by plaintiffs demonstrates how little dependence they have on Mona Lisa to realize any return on their “investments.” Whether a particular buyer treats his hotel-condominium unit as an investment is up to each buyer. Some buyers may rent out their unit for 181 days per year using the debt- or’s rental management company; other buyers may not rent their unit for even one day. Profitability is not left in the hands of Mona Lisa or its management company. As such, no common enterprise exists. As to the third prong of the How-ey test, plaintiffs could not have reasonably expected to profit from Mona Lisa’s efforts because Mona Lisa’s promotional materials135 did not highlight the investment aspect of hotel-condominium ownership. The 1933 Securities Act defines the purchase of a security as when an individual “parts with his money in the hope of receiving profits from the efforts of others.” 136 The Act thus distinguishes securities transactions from those in which the buyer’s purpose is “to use or consume the item purchased.”137 For this reason, courts focus on how the developer markets the properties in its promotional materials. When the developer highlights the investment aspects of a development, as opposed to the amenities and unit features, this is a strong indication the condominiums are securities.138 Here, Mona Lisa did not emphasize the investment aspect of hotel-condominium ownership. The promotional materials instead emphasized using the units for vacation and recreational purposes and highlighted the many amenities of the development. Although there were statements in the materials suggesting that the buyers could rent their units as hotel rooms, these statements were not the focus of the materials. Furthermore, the purchase agreements include provisions stating that the buyers acknowledge that the seller did not make representations about economic benefits or any tax benefits to be derived from owning a unit.139 Mona Lisa’s promotional efforts are thus distinct from those of a developer who markets the development as a passive investment opportunity.140 In Kirkland, partly because the developer highlighted the investment opportunities of condo own618ership, the District Court for the Middle District of Florida held that the 1933 Securities Act applied to condominium sales contracts because the buyers expected to profit from the developer’s efforts to rent their units. By contrast, Mona Lisa’s advertising materials focused almost entirely on the amenities available to buyers when they vacationed in their units. Plaintiffs did not sign their sales contract expecting to gain a profit from the efforts of others. Recent SEC no-action letters141 and the SEC’s 1973 guidelines142 bolster the Court’s finding that the third Howey prong is not met here. Each of the four no-action letters advised respective condominium developers that the 1933 Securities Act likely did not apply to the sale of their condo units in part because the developers did not focus their promotional efforts on the development’s potential investment value.143 In each case, the developers did not emphasize the potential economic benefits of purchasing a unit, did not make cash flow estimates or representations of tax advantages, did not have rent pooling agreements, and did not mandate a rental program. The only significant distinction between the developments described in these letters and Mona Lisa’s is that the Mona Lisa buyers could occupy their units for 179 days, whereas some of the sales contracts in the SEC no-action letters appear to have imposed even more stringent limitations on buyers, sometimes limiting the buyer’s use to two weeks per year.144 The SEC’s guidelines are in accordance with these no-action letters. They state that a real estate transaction is not subject to the 1933 Securities Act when the real estate units “are not offered and sold with emphasis on the economic benefits to the purchaser to be derived from the managerial efforts of others....”145 Here, the promotional materials did not emphasize the economic benefits of hotel-condominium ownership. Applying the Howey test, the Court finds under the undisputed facts of this case that, although buyers did pay a deposit to purchase a unit, no common enter619prise exists, nor did the buyers have a reasonable expectation of profits to be derived solely from the efforts of the debtor or its management company. As such, plaintiffs have failed to establish the second and third prongs of the Howey test. The purchase agreements are not securities as defined under the 1933 Securities Act, and, as a result, also are not securities under the FSIPA. Mona Lisa did not violate either act by failing to register the purchase agreements. Defendants are entitled to summary judgment on Counts V and VI. Mona Lisa Violated the Florida Condominium Act (Count VII) In Count VII, plaintiffs allege Mona Lisa violated § 718.202 of the Florida Condominium Act146 by failing to adhere to the strict regulations imposed upon developers who receive deposits from condominium buyers. The Florida Condominium Act regulates the sale of condominium units — a novel form of property ownership when the statute was first enacted in 1963.147 The rapid growth in condominium construction and ownership between the mid-1960s and early 1980s, along with the “concomitant ‘abuses of unscrupulous developers and brokers’ ” prompted regular revisions by the Florida legislature as the statute expanded to encompass time shares and cooperatives.148 Section 718.202 of the Florida Condominium Act imposes obligations on a developer who uses purchasers’ preconstruction deposits “to protect purchasers under pre-construction condominium contracts from loss of their deposits should the developer fail to perform its contractual obligations.” 149 Interested buyers often pay a “reservation deposit” to hold a particular unit until a contract is signed. Section 718.202 requires a developer to place these reservation deposits into a separate account holding only reservation deposits. The developer also must keep separate accounting for each prospective purchaser’s deposits.150 A developer can access funds from a reservation account once a purchase contract has been signed, at which time all funds immediately are subject to the provisions of § 718.202(1) — (5). A developer’s responsibilities then vary depending on whether a buyer pays a deposit in excess of 10% of the purchase price of a condominium unit. Subsection (1) of § 718.202 requires a developer to pay into an escrow account all purchaser deposits up to 10% of the purchase price of the unit (the “Under 10% Escrow”) if construction of the condominium project is not substantially complete at the time the developer contracts to sell the unit. A developer may withdraw and use the funds from the Under 10% Escrow if it provides the purchaser with alternative assurance, such as a surety bond, in an amount equal to the Under 10% Escrow. The Division Director of Florida Land Sales, Condominiums and Mobile Homes of the Department of Business and Professional Regulation in the State of Florida (the “Director”) must approve the alternate assurance prior to use by a developer of any of the funds in the Under 10% Escrow.151 620Subsection (2) of § 718.202 requires a developer to place all deposits received prior to completion of construction in excess of 10% of the purchase price of a unit into a separate escrow account (the “Over 10% Escrow”). Then, and only if the purchase contract so provides, a developer may use the Over 10% Escrow for the “actual construction and development of the condominium property in which the unit to be sold is located.”152 A developer’s use of (the Over 10%) Escrow funds for “salaries, commissions, or expenses of salespersons or for advertising purposes” is strictly prohibited.153 A developer who violates § 718.202 of the Florida Condominium Act is subject to stiff penalties. The statute essentially imposes strict liability on a developer who fails to comply with the requirements of § 718.202 — the purchase contracts are voidable and the buyers are entitled to recovery of their deposits.154 But, if a developer does comply and buyers later refuse to close as required by their purchase contract, substantially all of the buyers’ deposits are forfeited, and the developer is entitled to recover reasonable fees and costs.155 Plaintiffs here claim they are entitled to their deposits, fees, and costs, in this case in excess of $3.3 million, because Mona Lisa violated the various protections of § 718.202 and then failed to return plaintiffs’ deposits after plaintiffs attempted to void their contracts. Plaintiffs make the following claims regarding Mona Lisa’s § 718.202 violations: (1) Mona Lisa improperly withdrew funds from the Under 10% Escrow before the Director approved the surety bond that Mona Lisa secured as adequate assurance; (2) Mona Lisa received deposits from most purchasers in excess of 10% of the purchase prices of their units, but Mona Lisa failed to segregate or account for the deposits; (3) Mona Lisa improperly used funds from the Over 10% Escrow for sales and advertising purposes; 156 (4) Mona Lisa failed to include the required legend on some of the plaintiffs’ contracts;157 and (5) Mona Lisa im-permissibly used interest earned on the deposits before the construction was complete.158 The Court will address these arguments seriatim. Mona Lisa Obtained a Proper Surety Bond Before Using Funds From the Under 10% Escrow Plaintiffs first allege Mona Lisa violated Fla. Stat. § 718.202 by withdrawing funds from the Under 10% escrow before the Director approved Mona Lisa’s surety bond as alternate assurance. Because construction of the units was not completed when plaintiffs signed the purchase agreements, Mona Lisa was required to establish an escrow account for plaintiffs’ deposits up to 10% of the purchase price. Mona Lisa did this, as evidenced by the Escrow Agreement.159 But Mona Lisa also purchased a surety bond as alternative assurance to allow it to with621draw 100% of the Under 10% Escrow deposits.160 Plaintiffs contend that funds from this escrow were withdrawn as of December 1, 2006, before Mona Lisa received the Director’s approval, but they have not provided any factual basis for their assertion. As this Court previously noted, if “Mona Lisa can establish that it did in fact obtain the [Director’s] approval of the Surety Bond as an alternative assurance prior to withdrawing plaintiffs’ escrow funds, Count IV [now Count VII] surely must fail.”161 Defendants now have provided sufficient evidence to establish that Mona Lisa obtained the Director’s approval before it withdrew the deposits from the Under 10% Escrow. According to a letter from the Department of Business and Professional Regulations, on Nov. 22, 2006, the Director approved the surety bond as adequate assurance, which allowed Mona Lisa to withdraw the Under 10% Escrow deposits.162 Mona Lisa has provided numerous bank records of the escrow agent, SunTrust Bank, that prove no funds were withdrawn from the Under 10% Escrow during 2006.163 As such, before Mona Lisa used any of the funds, Mona Lisa secured an approved surety bond from Westchester Fire Insurance Company in the amount of $6,575,000 to insure against any kind of loss. Mona Lisa Did Not Properly Segregate Plaintiffs’ Deposits Plaintiffs next claim Mona Lisa failed to adequately segregate or classify deposits into escrow accounts as required by § 718.202(1) — (6). The Florida Condominium Act originally required a developer to physically segregate deposits into separate escrow accounts. A developer could not simply keep separate accountings for over 10% deposits. Although § 718.202 was amended in 2010, allowing a developer to either create separate escrow accounts for the over-and under-10% deposits, or, instead, hold all deposits in one account but maintain separate accounting for each buyer’s deposits, Mona Lisa is bound by the original requirements. Mona Lisa was required to keep the Under 10% Escrow amounts in a separate account from the Over 10% Escrow.164 Mona Lisa has proven it created three escrow accounts to hold plaintiffs’ deposits. Prior to February 2006, Mona Lisa placed all deposits it received into Account # 7900086 (the “Reservation Account”).165 (In some cases, Mona Lisa improperly used the Reservation Account to hold a purchaser’s down payment after he signed a purchase contract.) In February 2006, prior to breaking ground on the development or disbursing any funds from any of the escrows, Mona Lisa directed SunTrust to divide buyers’ deposits into two separate accounts — Account # 7908776 (for the Under 10% Escrow) and Account # 7911486 (for the Over 10% Escrow). After February 2006, Mona Lisa claims it deposited 100% of the preconstruction deposits directly into the Under 10% Escrow, then expeditiously transferred funds into the Over 10% Escrow as appropriate. This two-step process was necessary because not all buyers issued a separate 622check for deposits under and over 10% of their purchase prices. Mona Lisa claims all transfers from the Under 10% Escrow to the Over 10% Escrow occurred promptly, within fifteen days after receipt of the deposits.166 Plaintiffs’ argument that Mona Lisa violated § 718.202 rests on the fact that buyers’ deposits were not segregated immediately, but comingled in either the Reservation Account or Under 10% Escrow for a period of time after the purchase contracts were signed.167 Plaintiffs list 29 alleged violations of § 718.202(2)’s segregation requirement.168 The record shows that in the heat of the real estate boom, some plaintiffs indeed made reservation deposits to reserve the right to purchase a particular unit before they signed a purchase contract.169 Mona Lisa generally placed these monies into the Reservation Account. Any kind of segregation, physical or otherwise, of these deposits was impossible prior to signing a contract because the 10% calculation was indeterminable without a purchase price.170 Upon signing a contract, however, the statute requires prompt segregation of the deposits into separate escrows to protect a buyer’s deposits from misuse. Section 718.202(6) reads, “upon the execution of a purchase agreement for a unit, any funds paid by the purchaser as a deposit to reserve the unit pursuant to a reservation agreement, and any interest thereon, shall cease to be subject to the provisions of this subsection and shall instead be subject to the provisions of subsections (1) — (5).” Sections (1) and (3) require the classification into the over- and under-10% amounts. Mona Lisa often failed to either classify or physically segregate some purchasers’ deposits promptly after they executed their purchase contracts. Plaintiffs Ajog-basile and Hill, purchasers of Unit 124, provide an example. Together these two plaintiffs contracted to purchase a unit, and, on April 28, 2005, they made their first reservation deposit with Mona Lisa for $12,500, which was placed in the Reservation Account. On June 21, 2005, they made another $24,900 payment. On September 25, 2005, they signed a contract to purchase Unit 124 for $349,000. With the execution of the contract and the determination of the purchase price, Mona Lisa and SunTrust were required by § 718.202 to transfer $34,900 of the total deposits from the Reservation Account to the Under 10% Escrow and $2,500 to the Over 10% Escrow. (Of course, these accounts were not even opened until February 2006.) Mona Lisa simply left these deposits in the Reservation Account for several months. In addition, even after signing the contract, on October 4, 2005, Mona Lisa took another deposit from Ajogbasile and Hill in the amount of $14,950 and comingled it in the Reservation Account. Mona Lisa did not open the required escrow accounts until February 2006, over four months after Mr. Ajogbasile and Ms. Hill signed their purchase contract. Even though Mona Lisa never used any of the 623funds from the Reservation Account before it transferred them, it impermissibly co-mingled at least some of the deposits .in violation of § 718.202(l)-(6).171 “[F]ailure to comply with the provision of this section renders the contract voidable by the buyer, and if voided, all sums deposited or advanced under the contract shall be refunded with interest.” At least some of the plaintiffs are entitled to void their contracts and receive the return of their deposits with interest because of Mona Lisa’s failure to segregate or account for their deposits after they signed purchase contracts as required by § 718.202 of the Florida Statutes.172 The Court need not determine, however, exactly which plaintiffs’ deposits were wrongly held because under § 718.202(3) or § 718.502, discussed next, all plaintiffs are entitled to return of their deposits. Mona Lisa Improperly Used the Escrow Funds for Advertising Purposes Plaintiffs next claim Mona Lisa violated § 718.202(3) by withdrawing funds from the Over 10% Escrow and improperly using them for expenses unrelated to construction and development. As already noted, the first subsection of § 718.202 protects the first 10% of a buyer’s deposit from loss by requiring a developer to hold it in escrow or obtain another form of assurance before those funds are to be released to the developer. Section 718.202(3) allows a developer to use the portion of buyers’ deposits over 10% of the purchase price173 for the “actual construction and development of the condominium property”174 without first obtaining alternative assurances, as long as these funds are not used for salaries, commissions, or expenses of salespersons or for advertising purpose s.175 Plaintiffs claim “from July 6, 2007 through August 8, 2008, over $2,000,000 was transferred from the Over 10% Escrow to the Mona Lisa Project Account and used for improper purposes unrelated to construction of the project.”176 Plaintiffs point to expenses such as payroll expenses, property taxes, surety bond payments, legal fees, loan extension fees, loan costs, and payment for sales center rent as those expenses not related to construction and development of the project.177 Mona Lisa insists it used the Over 10% Escrow funds only for construction and development related expenses, and “only as permitted by Florida law.”178 Mona Lisa claims it transferred deposits from the Over 10% Escrow to either the Mona Lisa Project Account or the Mona Lisa Operating Account to pay construction and development-related expenses. William Haberman, managing member of Mona Lisa Development, LLC, swore in his affidavit that each and every disbursement of 624over 10% funds was for a specific purpose relating to the construction or development of the project, and each and every transfer of funds represented a reimbursement to the operating account for proper expenditures.179 No court has decided under § 718.202 what expenses are properly associated with “actual construction and development.” Plaintiffs advocate for a narrow interpretation of the terms “construction and development” based on a dictionary definition that suggests “development” is “building or constructing on land.”180 They argue this is warranted because the statute is intended to protect the purchasers of pre-construction condominiums, and the legend in their contracts only informs buyers that their deposits over 10% may be used “FOR CONSTRUCTION PURPOSES BY THE DEVELOPER.”181 Mona Lisa objects to this definition because it excludes development-related expenses like taxes, professional fees, insurance, and salaries because, although they do not relate to the physical construction of a building, the costs are critical and necessary to complete construction.182 “Applying] the statute in a realistic, common sense manner that will preserve the basic contract rights of the parties while affording the purchaser the protection the legislature intended”183 requires this Court to look beyond dictionary definitions, and instead consider common industry practices for what “construction and development expenses” really means. The Court first notes that the unambiguous language of § 718.202 allows a developer to use the Over 10% Escrow for construction and development, regardless of what the legend tells purchasers.184 Second, professional fees and expenses are essential to the overall development of a real estate project. When a developer obtains a construction loan to develop a project, it commonly receives funding for development expenses because they are integral to the completion of a real estate project. Construction lenders anticipate these kinds of costs, and disburse funds to developers for all expenses related to the physical and non-physical aspects of developing a property.185 Therefore, the costs plaintiffs complain of, including bank extension fees, loan costs, engineering expenses, design expenses, and construction management fees can reasonably be characterized as costs related to the overall construction and development of the Mona Lisa project. Courts should interpret the term “construction and development expenses” broadly, 625recognizing that some costs are visible, hard-costs, and some expenses are just as critical to the project, but perhaps not as visible. The statute however contains a specific limitation — a developer cannot use the Over 10% Escrow monies for “salaries, commission, or expenses of salesperson or for advertising purposes.” On this point, the Court finds that, even broadly defining “construction and development costs,” Mona Lisa impermissibly used a portion of the plaintiffs’ deposits for advertising and sales related purposes. It paid rent on the Mona Lisa at Celebration Sales Center. Advertising can take many forms, and the term should be construed within the meaning of the statute.186 In this case, § 718.202 strictly prohibits the developer’s use of over-10% deposits for advertising and sales expenses, i.e., any expense used to attract or entice buyers to enter into pre-construction contracts. The Mona Lisa sales center does just this. The undeniable function of a sales center is to secure and process purchase contracts for units in a condominium development. Sales centers display model units, finishes, drawings and renditions of the units, and are staffed by experienced and suggestive salespersons whose job it is to sell those units and execute purchase contracts. All of these activities constitute on-premise advertising, which is an impermissible use of plaintiffs’ deposits.187 Mr. Haberman acknowledges in his affidavit that Mona Lisa simply deposited the Over 10% Escrow monies into Mona Lisa’s Operating or Project Account. Once deposited, the monies were irretrievably commingled so that it is impossible to determine if the rental center costs were borne by the plaintiffs or, as Mr. Haber-man argues, paid from other sources. This is similar to a husband and wife with separate bank accounts who also share a joint account. Once the monies are placed in the joint account, you cannot say one spouse versus the other paid the electric bill or bought the groceries. The undisputed facts are that Mona Lisa placed all of the funds in the Over 10% Escrow account into its general operating account and that Mona Lisa paid the rental center costs from that account, which is an expense prohibited by § 718.202. Because monies, once commingled, are fungible, Mona Lisa cannot after the fact “reimburse” the expenses.188 The bell once rung cannot now be un-rung. Mona Lisa’s use of plaintiffs’ deposits for sales center rent violates § 718.202(3). Because § 718.202 is a strict liability statute, Mona Lisa’s good faith efforts to comply with the statute do not negate its liability.189 Failure to comply with this section renders the contract voidable by 626the buyer, and plaintiffs who paid more than a 10% deposit are entitled to a refund of their full deposits, not just the over 10% portion, with interest.190 This result is required because, according to § 718.202(5) “failure to comply with the provision of this section renders the contract voidable by the buyer, and if voided, all sums deposited or advanced under the contract shall be refunded with interest.” 191 Plaintiffs who paid more than a 10% deposit also are entitled to full payment of their reasonable attorney fees and costs.192 The Court acknowledges that the sanction to Mona Lisa in this case is a significant penalty for a relatively small infraction of the statute. Plaintiffs paying more than a 10% deposit can void their contracts and will receive their down payment (in full) with interest and attorney fees. The strict liability is appropriate because otherwise developers would have no incentive to meticulously comply with the laudatory purposes underlying the Florida Condominium Act — to insure that the purchasers’ deposits are used for the intended purpose of budding a condominium they can occupy. In this case, although Mona Lisa did complete construction, it did not comply with the use limitations imposed by § 718.202. All plaintiffs except one party paid deposits of over 10% of their purchase prices; all these plaintiffs are entitled to summary judgment on Count VII.193 Factual Issues of Mona Lisa’s Good Faith Preclude Summary Judgment on Disclosure Breaches Plaintiffs allege Mona Lisa violated § 718.202(3) because 11 of the purchase contracts failed to comply with its disclosure provisions.194 Specifically, a contract permitting the use of escrowed funds for proper purposes must include the following legend “conspicuously printed or stamped in boldfaced type on the first page of the contract and immediately above the place for the signature of the buyer:”195 ANY PAYMENT IN EXCESS OF 10 PERCENT OF THE PURCHASE PRICE MADE TO DEVELOPER PRIOR TO CLOSING PURSUANT TO THIS CONTRACT MAY BE USED FOR CONSTRUCTION PURPOSES BY THE DEVELOPER.196 Mona Lisa concedes that 11 of the purchasers’ contracts do not contain the required disclosure on the first page, but offers no explanation for this failure. Instead, Mona Lisa argues the omission was unintentional and seeks the protection under the good faith exception in § 718.505.197 Mona Lisa also suggests plaintiffs were not harmed because the form purchase contract that was provided 627in the prospectus contained the required legends that sufficiently placed plaintiffs on notice. Understandably, the disclosure requirements of the Act may cause some confusion. At first blush, § 718.202(3) appears to demand strict compliance because the intent of a disclosure is to make purchasers aware of a risk, for example, a risk that their deposits could be spent by a developer for construction purposes. Without this disclosure, purchasers would be unaware of the risk that their funds could be depleted by the developer, and once depleted, purchasers would have greater difficulty in recovering them upon a developer’s breach of contract.198 Plaintiffs ask the Court to follow Cuellar v. Harbour East Development, Ltd., which awarded rescission of the plaintiffs’ condominium contracts because the developer did not strictly comply with the legend requirement in § 718.202(3).199 In that case, the legend on the first page of a purchase contract inadvertently was pushed to the second page because of an amendment to the contract.200 A closer read of the entire Florida Condominium Act as a whole indicates certain errors or omissions, like the one in Cuel-lar, are excusable upon a showing of good faith. Section 718.505, “Good Faith Effort to Comply,” states that nonmaterial errors or omissions in the disclosure materials are not actionable “[i]f a developer, in good faith, has attempted to comply with the requirements of this part (Part V of the Condominium Act),201 and if, in fact, he or she has substantially complied with the disclosure requirements of this chapter (Chapter 718 — the Condominium Act).”202 Read together, § 718.202 and § 718.505 require a developer to make a good faith effort to substantially comply with the disclosure requirements of the Act, which Mona Lisa claims it has done. Summary judgment on whether Mona Lisa acted in good faith or substantially complied with the disclosure provisions of the Florida Condominium Act is improper because “[a] trier of fact may need to weigh each of these factors separately or in relationship to each other in determining whether a developer substantially complied with section 718.202(3).”203 Lack of prejudice alone is not sufficient justification to find summary judgment for defendants on this issue.204 In Florida, the developer must show a good faith effort to comply with the disclosure provisions of the Act as a prerequisite to proving the purchasers were not harmed.205 628 Mona Lisa Was Entitled to Earn Interest on the Escrow Accounts. Plaintiffs next argue Mona Lisa impermissibly took interest earned on the escrow accounts prior to closing in violation of § 718.202(1).206 Section 718.202(1) requires a developer to wait until closing to receive interest on buyers’ deposits “if the contract does not provide for the payment of any interest earned on the es-crowed funds.” 207 Mona Lisa was permitted to earn interest on the deposits because the escrow agreements, incorporated into the contracts by reference, provided that Mona Lisa “was entitled to receive all of the interest earned on deposits unless provided otherwise in the applicable Contracts or in the Condominium Act.” 208 In Florida, a “document may be incorporated by reference in a contract if the contract specifically describes the document and expresses the parties’ intent to be bound by its terms.” 209 The purchase agreements and escrow agreements specifically allowed Mona Lisa to receive interest on plaintiffs’ deposits. Summary of Ruling on Florida Condominium Claims (Count VII) In summary, although defendants are entitled to a summary finding that Mona Lisa did obtain the necessary surety bond and the Director’s approval before using the escrowed funds, and that Mona Lisa was entitled to use interest accruing on the escrowed funds, factual disputes preclude any summary finding as to whether Mona Lisa substantially complied with the disclosure requirements in the Florida Condominium Act. In the end, the Court will award summary judgment in favor of the plaintiffs on Count VII. Mona Lisa did not properly segregate the funds into the necessary accounts on a timely basis. More significantly, Mona Lisa used the plaintiffs deposits for improper advertising purposes. Therefore, pursuant to § 718.202(l)(a), buyers properly terminated their contracts, and Mona Lisa should have refunded plaintiffs’ deposits with interest.210 Plaintiffs are entitled to a full refund of their deposits with interest, the payment of their reasonable attorney fees and costs, and the revocation of their purchase agreements. Mona Lisa Failed to Submit the Updated Purchase Contracts for Division Approval (Count VIII) Part V of the Florida Condominium Act titled “Regulation and Disclosure 629Prior to Sale of Residential Condominiums” governs a developer’s obligations pri-- or to selling residential condominiums. Section 718.502(l)(a) of the Act requires a developer of a residential condominium to file with the Division one copy of each document required by §§ 718.503 and 718.504, including the purchase and sale agreement, and, until a developer has filed the agreement, a sale contract remains voidable by the purchaser prior to closing.211 Plaintiffs who executed the Updated Purchase Agreements seek summary judgment under Count VIII alleging Mona Lisa failed to submit the Updated Purchase Agreement to the Division for approval after Mona Lisa amended it to include the two-year obligation to complete construction so it would qualify for the ILSFDA exemption.212 Mona Lisa concedes “it did not file a copy of the post-March 2006 form Purchase Agreement with the Division,”213 but disputes that it was required to comply with this provision because the units in the project were not “residential condominiums” governed by § 718.103(28) but instead, the project was a “commercial hotel” with a primarily commercial use.214 Alternatively, Mona Lisa argues that even if § 718.502 applies, Mona Lisa complied because it obtained Division approval of the original form contract and the revision of the contract actually increased plaintiffs’ rights by including a firm 2-year completion deadline and was not otherwise inconsistent with Chapter 718.215 The Act defines “Residential condominium” as: “a condominium consisting of two or more units, any of which are intended for use as a private temporary or permanent residence, except that a condominium is not a residential condominium if the use for which the units are intended is primarily commercial or industrial and not more than three units are intended to be used for private residence, and are intended to be used as housing for maintenance, managerial, janitorial, or other operational staff of the condominium. With respect to a condominium that is not a timeshare condominium, a residential unit includes a unit intended as a private temporary or permanent residence as well as a unit not intended for commercial or industrial use.”216 Plaintiffs first argue that the units are residential because they could be used for up to 179 days and were intended as a “private temporary residence.”217 Mona Lisa disputes this, emphasizing the fact that the project is zoned commercial and plaintiffs all received marketing materials that consistently referred to the hotel suites as a hotel condominium to be used 630for “transient hotel room occupancy rentals.” 218 The Court finds the units are residential because they were intended primarily as private temporary residences for plaintiffs’ personal use, and not for rental or investment purpose. Mona Lisa cannot argue the units were intended to be commercial rental units without admitting that they also were intended to be purchased as investments. If this were true, Mona Lisa would be required to furnish registration statements under federal and state securities laws.219 Mona Lisa argues in Counts V and VI that the units are not investments subject to securities regulations because plaintiffs retained a significant amount of control over their individually-owned units, plaintiffs were not ever required to rent their units, and plaintiffs could live in their units temporarily for up to 179 days a year and leave them vacant the rest of the year if they so chose. The Court agreed and concluded that plaintiffs could not have reasonably expected to profit because, as Mona Lisa argues, the promotional material did not highlight the investment aspect of hotel-condominium ownership, and Mona Lisa’s advertising materials focused predominantly on the amenities of the development. The Court therefore finds that the units are “residential” and not commercial.220 As such, Mona Lisa was required to comply with the requirements in Part V of the Act and submit the Updated Purchase Agreements to the Division for approval. Mona Lisa admittedly failed to do this. And, even though the inclusion of the two-year obligation to construct may have increased plaintiffs’ rights and caused no harm, a developer’s obligation to submit purchase contracts to the Division for approval is not a “disclosure requirement” entitled to reprieve under the good faith exception in § 718.505. The disclosure requirements of Chapter 718 are 631those required to be given to prospective purchasers so that they can make informed decisions about whether to purchase a pre-construction condominium unit from a developer. Conversely, a developer’s requirements under §§ 718.502, 718.503 and 718.504 to submit purchase agreements, condominium declarations, bylaws, association agreements, operating statements, and other important condominium documents to the Division for approval provides a different and added protection to buyers because the Division, in its paternal capacity, ensures a purchaser has, at a minimum, all the documents it needs to make an informed purchase. Theses submissions cannot be overlooked or marginalized by the good faith escape hatch in § 718.505. Summary judgment is granted in favor of the plaintiffs who signed Updated Purchase Agreements, listed in Appendix D, under Count VIII. Their contracts are voidable, and plaintiffs are entitled to the refund of their deposits,221 interest,222 and reasonable attorney fees and costs.223 Mona Lisa Made No Adverse Alterations That Would Allow Buyers to Rescind Their Contracts (Count IX) Florida Statute § 718.503(l)(a)(l) allows a condominium unit buyer to rescind a purchase agreement within 15 days “after the date of receipt from the developer of any amendment which materially alters or modifies the offering in a manner that is adverse to the purchaser.” 224 Section (b) of this statute also allows a buyer to void a contract if a developer fails to provide a prospectus that includes all required exhibits, including, but not limited to, the declaration of condominium, articles of incorporation, association by-laws, and other documents related to condominium ownership.225 In Count IX, plaintiffs first allege Mona Lisa violated § 718.503(a)(1) by making materially adverse changes to the design of the development’s common areas.226 They claim Mona Lisa reduced the size of the pool deck by half. Second, they allege Mona Lisa’s decision to eliminate a rooftop deck on top of the hotel amenities building, in favor of adding space to the lower floors of the building, was a material adverse change to the project. Plaintiffs also allege Mona Lisa violated § 718.503(b) by failing to provide them with a prospectus that included all required exhibits.227 The Court will address each argument in turn. As to the pool deck, plaintiffs contend Mona Lisa reduced the size of the deck area surrounding the common area pool to nearly half the size originally represented to them in the Prospectus.228 The Prospectus states the pool would be “surrounded by approximately twenty-three thousand five hundred (23,500) square feet of decking,” and would provide space for about 150 people. Plaintiffs allege that the decking as built provides only 12,096 632square feet of actual deck space. Plaintiffs are correct that 12,096 square feet of the pool decking is comprised of hard concrete pavers, but they seem either to ignore or to discount entirely the additional 11,500 square feet of landscaping and walkways interwoven with this concrete. By doing so, plaintiffs have completely misrepresented the as-built pool deck. In fact, the completed project has a usable pool area of nearly 23,500 square feet containing ample sitting areas for 150 people, plus elegant palm trees, planters, walkways, and other landscaping features that break up the deck space. Although plaintiffs are correct that the Prospectus states the pool deck would be 23,500 square feet, it does not state the pool deck would provide 23,500 square feet of open, unlands-caped deck space. Moreover, Mona Lisa’s architectural drawings of the pool deck never changed — they always represented that the total space available around the pool was approximately 23,500 square feet and, as built, it is as represented.229 Plaintiffs are grasping at straws by complaining about a spectacular pool deck that in all material respects was built as originally represented to them. The square footage of the entire area never changed; the capacity is as represented in the Prospectus — 150 people. Accordingly, the Court finds there were no changes made to the pool deck plans and representations, let alone any material adverse changes. As to the elimination of the rooftop deck, plaintiffs argue that Mona Lisa represented to them in its promotional materials that there would be a fourth-floor observation deck on top of the hotel amenities building and that Mona Lisa’s decision not to build the roof deck materially and adversely affected the value of the project. Mona Lisa does not dispute that no roof deck was built, but they argue that eliminating the roof deck was not a material adverse change because they substituted other enhancements that added overall value to the project. Specifically, Mona Lisa substantially enlarged the restaurant and bar areas of the first floor of the hotel amenities building and built a covered balcony for dining on the second floor of the building.230 As an initial matter, whether an amendment to a design plan is “material” and “adverse” under § 718.503 is determined by an objective standard.231 The question is: “would a reasonable buyer under the purchase agreement find the change to be so significant that it would alter the buyer’s decision to enter into the contract?” 232 The actual buyer’s own thoughts are irrelevant. The inquiry is completely focused on whether the change significantly decreased the value of the original, proposed development plans from a reasonable buyer’s perspective. Plaintiffs continue to rely on their argument set forth in their first motion for summary judgment, which cited three cases for the proposition that any reduction or elimination of amenities is a material and adverse change.233 The Court rejected all three. Two of the cases were 633decided under another statute — Fla. Stat. § 718.506.234 One of these cases, Gentry, at most stands for the proposition that, assuming their falsity, numerous alleged misrepresentations could amount to a material misrepresentation under Fla. Stat. § 718.506. In that case, the court merely held that such allegations were enough to survive a motion to dismiss.235 The second case decided under Fla. Stat. § 718.506, Klinger,236 held that the elimination of an outdoor jogging path and VITA course was “substantial noncompliance” with the planned development scheme. In so holding, the court found the condo unit purchasers had a substantial interest in the development’s recreational facilities and amenities.237 At best, this case may tend to support plaintiffs’ position that they had an interest in the common areas of the Mona Lisa development. But the case does not establish a per se rule that altering the location of a common area element automatically establishes a violation of § 718.508, insofar as that statute was not even at issue in the case. The one case cited by plaintiffs in which § 718.503 was at issue also fails to support plaintiffs’ argument.238 Mastaler held that the addition of nine private cabanas around a condominium development’s pool was a material adverse change.239 The court reasoned that “a reasonable buyer would find the change significant to their decision to enter the contract” because the pool’s available deck space was substantially reduced by the cabanas and the cost to use a cabana was material, at $225,OOO.240 Unlike the changes made to the pool deck in Mastaler, the changes Mona Lisa made to the hotel amenities building are not overtly either material or adverse. In that case, the court found that adding nine private cabanas around the pool deck unquestionably was adverse to plaintiff because the cabanas “hinderjed] his use of the common area around the pool.”241 Here, Mona Lisa compensated for eliminating the roof deck by adding other significant enhancements to the hotel amenities building, an offset that was not present in Mastaler. Whether the offset of the enhanced restaurant and bar area compensates for the removal of the roof deck is a factual issue. Defendants, unlike plaintiffs, have provided competent evidence in support of their request for summary judgment to establish that the hotel amenities building redesign was neither material nor adverse, and, moreover, was a value additive change. Mr. Haberman, Mona Lisa’s managing member, in his affidavit,242 provides insight into Mona Lisa’s decision making process, and gives two main reasons Mona Lisa chose to eliminate the rooftop deck. First, he states that Mona Lisa’s architects and professional management company recommended it add more space on the first and second floors.243 Applicable Osceola County zoning provisions, however, required reallocating the “usable” space from somewhere else in the building to those areas. Second, Haberman states that other appli634cable building codes would have required Mona Lisa to build a 42 inch tall, solid safety wall around the perimeter of the roof deck, which would have greatly reduced the view of the pool deck below and made the rooftop area less aesthetically pleasing. Thus, Mona Lisa’s design team decided to reallocate the usable space from the rooftop deck to the first and second floors of the building. Haberman further states that this redesign cost Mona Lisa an additional “several hundred thousand dollars to complete,” but that it decided to spend the extra money because its experts believed the changes added value to the overall development.244 Mona Lisa has provided convincing evidence that the changes, while perhaps material, were certainly not adverse to buyers. Under Rule 56(e), plaintiffs then had the burden to come forward with some facts, affidavits, or other evidence to establish a genuine issue of material fact for trial. In response, however, plaintiffs did not submit anything to rebut Haberman’s statements that the change increased the value of the project. Nowhere does plaintiffs’ expert, Daniel Robinson, opine that the overall value of the hotel amenities building was adversely impacted as a result of the redesign.245 Plaintiffs have failed to raise any credible factual allegations that would establish a genuine issue as to whether the redesign of the hotel amenities building was materially adverse. The Court, therefore, finds that a reasonable buyer in this ease would not find the changes so significant that they would alter the buyer’s decision to purchase a unit in the Mona Lisa development. If anything, based on Mr. Haberman’s affidavit, the changes made buying a unit more attractive to a reasonable buyer. Accordingly, defendants are entitled to summary judgment in their favor on this part of Count IX. Defendants also are entitled to summary judgment as to plaintiffs’ claim that it failed to deliver a prospectus and disclosure statement with all exhibits.246 All plaintiffs executed their respective purchase contracts acknowledging receipt of these documents that they now claim they did not receive.247 Under Florida law, when a buyer signs a contract acknowledging the receipt of all required documents, and then later claims a developer did not provide them, “he is bound by the contract’s terms and cannot rescind.”248 Plaintiffs have failed to produce any facts or evidence to support their claim of missing exhibits. By signing and acknowledging receipt of the required documents, Mona Lisa was not put on notice of a potential problem, and plaintiffs lost their rights to void their contracts on this basis. Defendants are entitled to summary judgment as to Count IX. Mona Lisa Made No Materially False or Misleading Representations (Count X) Florida Statute § 718.506 provides condominium purchasers a cause of action for rescission of a condominium purchase agreement when a purchaser reasonably relies on any false material statement by a developer. To state a cause of action for rescission under Fla. Stat. § 718.506, a party must establish: (1) a false or misleading statement; (2) the 635statement was published in promotional materials; (3) the statement was material; and (4) reliance on the statement was reasonable.249 In Count X, plaintiffs allege that Mona Lisa made false material statements in its promotional materials concerning the size of the pool deck, the presence of a rooftop observation deck, and various other alleged misrepresentations concerning the size of the units, the development design, and the cost of monthly assessments. The Court previously addressed these alleged violations in its first summary judgment opinion.250 Plaintiffs have supplied no additional evidence to support any of their current allegations. Plaintiffs also allege Mona Lisa falsely represented that the units would be furnished with all appliances, furniture, and decorative items, which plaintiffs also fail to support with any facts. As to the size of the pool deck, plaintiffs’ claim is unfounded because, as the Court already has found, the size of the pool deck is as represented in the Prospectus. Plaintiffs’ argument is based entirely on the fact that the Prospectus promised a pool deck of approximately 23,-500 square feet, and the pool deck as built is comprised of approximately 12,036 square feet of hard concrete pavers and about 11,500 square feet of landscaping features. But, again, nothing in the Prospectus promised 23,500 square feet of un-landscaped, bare deck space. The pool deck was built exactly to the specifications provided to plaintiffs in the Prospectus. The Court accordingly finds that Mona Lisa’s statements regarding the pool deck were not false or misleading in any way. As to the rooftop deck allegations, Mona Lisa’s statements were not false or misleading because Mona Lisa did intend to build, at the time the representations were made, a rooftop deck. A statement is false or misleading only if it was false or misleading at the time it was made.251 As Haberman explains in his affidavit, Mona Lisa did originally plan to build a rooftop deck, as shown in the building plans included within the Prospectus, so the statement was not false when it was made. Later, as discussed above, Mona Lisa decided to change the design of the hotel amenities building to enhance its value, at significant expense to Mona Lisa. Haberman makes clear that Mona Lisa’s design team made these changes to add value to the project at no additional cost to plaintiffs, not to skimp on building costs. Plaintiffs have not provided any facts or evidence to contradict Haberman’s explanation. The Court accordingly finds that Mona Lisa never made a false or misleading statement to plaintiffs by advertising a rooftop deck. Plaintiffs next allege that Mona Lisa made material misstatements in its promotional materials concerning the size of 636the units, the design of the development,252 and the amount of monthly condominium owners’ association fees.253 Plaintiffs contend that at the time Mona Lisa provided this information, “[Mona Lisa] knew, or should have known, that the information was false and would be changed as reflected in the amendments and changes made by Mona Lisa in the Declaration of Condominium of Mona Lisa at Celebration, a Condominium Hotel recorded on October 26, 2007 in the Osceola County, Florida, Official Records at Book 03585 ... and the final as built condition.” But, other than changes related to the hotel amenities building redesign, the 2007 Declaration of Condominium 254 does not differ in any respect from the 2005 Declaration of Condominium that was included with the Prospectus.255 Each Declaration shows identical unit sizes and identical percentage condominium assessments for each unit. The only changes to the architectural drawings are related to the hotel amenities unit redesign, which removed the roof deck and added space on the first and second floors of the building. There is also no question that Mona Lisa has built three buildings, including a hotel amenities building that includes a high-end restaurant and bar with over 6,000 square feet and patio seating, and which includes over 3,000 square feet of reception and meeting space.256 Plaintiffs’ allegations to the contrary are unsupported by the undisputed facts. Plaintiffs’ contention that a material issue of fact exists as to whether the units were actually built to specifications also is not supported by any evidence. Plaintiffs have simply alleged that it is possible the units were not built to specifications and request time to examine the units; but they cannot establish a genuine issue of material fact for trial on bare allegations alone. Under Rule 56, on a motion for summary judgment, conclusory allegations — without specific supporting facts — have no probative value.257 Plaintiffs thus must present some specific factual allegations to raise a legitimate question of fact as to whether the units were built to specifications. Other than continue to speculate that Mona Lisa may have built certain units differently than represented, they have supplied no credible evidence, even though they have had more than ample time to inspect the units. Defendants, on the other hand, have provided ample evidence that verifies the units were all built exactly as represented in the Prospectus.258 Lastly, plaintiffs for the first time claim Mona Lisa falsely represented that the units would be furnished with all appliances, furniture, and decorative items to be selected by Mona Lisa. Again, plaintiffs provide no facts as to what furnishings are missing or how any missing furnishings, if any, materially or adversely affected plaintiffs’ ownership interests. 637None of plaintiffs’ allegations in Count X are supported by any facts that would establish a genuine issue of fact that Mona Lisa made any false or misleading statements in its promotional materials. The Court will enter summary judgment in favor of defendants as to Count X. Factual Issues Exist as to Plaintiff Lieberman’s Unique Claims (Counts XVII-XX) Ms. Lieberman, a plaintiff in the Bennett Adversary Proceeding, makes additional allegations in Counts XVII-XX that she is entitled to rescission due to Mona Lisa’s misrepresentations about her specific unit. She claims Mona Lisa either falsely, fraudulently, negligently, or mistakenly represented that, for a cost upgrade, she would be receiving a unit with a pool view, when in fact, the cabana-style restrooms obstruct her view of the pool.259 Only defendants have moved for summary judgment. Lieberman’s allegations raise genuine issues of material facts. Evidence is needed to determine (1) whether the unit has an obstructed view, (2) whether Mona Lisa made any misrepresentations negligently or with the intent to deceive, and (3) whether Ms. Lieberman justifiably relied upon them.260 Due to the factual issues which preclude summary judgment as a matter of law, the Court will deny defendants’ request for summary judgment as to Counts XVII-XX. Defendants are Entitled to Partial Summary Judgment as to Per Se Violations of the Florida Deceptive and Unfair Trade Practices Act (Counts XI, XII, and XIII) The Florida Deceptive and Unfair Trade Practices Act (the “FDUTPA”) provides that a violation of any law, statute, rule or ordinance that proscribes unfair methods of competition, or unfair, deceptive, or unconscionable acts or practices, is a per se violation of FDUTPA.261 To recover under a FDUTPA claim, a plaintiff must show “(1) a deceptive act or unfair practice; (2) causation; and (3) actual damages.” 262 In Florida, deception occurs if a defendant engages in a practice that is likely to “mislead the consumer acting reasonably in the circumstances, to the consumer’s detriment,” which requires a 638showing of probable, not possible, deception.263 Plaintiffs assert three counts raising per se FDUTPA violations — Counts XI, XII, and XIII. In Count XI, plaintiffs have alleged per se violations of FDUTPA based on the alleged violations of ILSFDA (Counts I-IV), § 77e of the 1933 Securities Act (Count V), Fla. Stat. § 517 (Count VI), Fla. Stats. §§ 718.202 (Count VII), 718.502(Count VIII) 718.503 (Count IX), 718.506 (Count X). In Count XII, plaintiffs have alleged per se violations of FDUTPA under Fla. Stat. 190.048. In Count XIII, plaintiffs have alleged per se violations of FDUTPA under 16 CFR § 460.16 (Count XIII). Defendants are entitled to summary judgment as to Counts XII and XIII, and for the majority of Count XI. Summary judgment is premature and therefore denied as to Mona Lisa’s possible violation of 15 U.S.C. § 1703(c) (ILSFDA) until the Court determines whether or not the units are “lots.” Predicate Claims — ILSFDA (Count XI) Plaintiffs are correct that any violation of ILSFDA, a consumer protection statute, is a per se violation of FDUTPA.264 Failing to include notice of plaintiffs’ two-year automatic rescission rights can be classified as an unfair, unconscionable, or deceptive practice for which FDUTPA was designed to prevent. Plaintiffs already have established that they were harmed by Mona Lisa’s failure to include notice of their automatic two-year revocation rights. A factual issue remains, however, as to whether the units are “lots” and whether ILSFDA even applies.265 Because this material factual dispute exists, the defendant is not entitled to summary judgment as a matter of law. All of the plaintiffs’ other FDUT-PA claims relying on ILSFDA fail, however, because plaintiffs cannot establish a predicate violation under ILSFDA. First, no other predicate ILSFDA violation exists because plaintiffs’ claims either are time barred or their purchase contracts are exempt.266 Nonetheless, plaintiffs argue that, because the Court in part bases its holding under ILSFDA on plaintiffs’ claims being time-barred, the Court should, for purposes of FDUTPA, look at Mona Lisa’s underlying conduct without regard to ILSFDA’s statute of limitations and find a violation of ILSFDA to serve as a predicate violation of FDUTPA. In other words, plaintiffs argue that conduct that violates ILSFDA’s substantive provisions can constitute a per se violation of FDUT-PA, even when that conduct occurred beyond the applicable statute of limitations.267 639The argument to ignore the applicable statute of limitation is meritless. The basis for a court’s holding under a predicate statute is of no significance for purposes of FDUTPA. A party either has or does not have a claim under a predicate statute. In this case, the buyers’ ILSFDA claims are largely time-barred. They do not have a claim. The reason is irrelevant; the claim is extinguished for all purposes, including serving as a predicate act for FDUTPA. Plaintiffs cannot establish a per se violation of FDUTPA based on alleged but unfounded violations of ILSFDA. As such, defendants are entitled to partial summary judgment under Count XI on all ILSFDA issues alleged to serve a predicate act under FDUTPA, other than the one issue relating to the disclosure of the plaintiffs two year rescission rights to which factual disputes exist. Other Predicate Acts (Count XI) Plaintiffs also have alleged predicate violations under the 1933 Securities Act, Florida Chapter 517, and the Florida Condominium Act, Fla. Stat. §§ 718.202, 718.503, 718.504, and 718.506. None of these statutes can serve as predicate violations for a claim under FDUTPA. First, the statutes simply do not proscribe unfair methods of competition and are not encompassed within the penumbra of consumer protection statutes covered by FDUTPA. They instead govern the use of plaintiffs’ deposits held in escrow and other technical requirements unrelated to any unfair or deceptive trade practice.268 Certainly, Mona Lisa was required to follow these provisions, and the statutes absolutely protect purchasers; however, the protection they provide is totally unrelated to the scope of FDUTPA that is designed to protect purchasers from unfair competition or deceptive trade practices.269 For example, Mona Lisa’s requirement to submit the Updated Purchase Agreements to the Division for approval (as asserted in Count VIII) is not tantamount to deceptive conduct likely to cause injury to the plaintiffs. Plaintiffs who signed the Updated Purchase Agreement clearly were aware of the terms in the agreement insofar as they signed the contract. Plaintiffs do not explain how Mona Lisa’s failure to submit the amended agreement to the Division was deceptive, how they were harmed, or what damages they incurred. This violation of § 718.502 was merely technical. Therefore, no per se violation exists for which plaintiffs can bring a FDUTPA claim under § 718.502. Second, in accordance with the Court’s rulings above, plaintiffs cannot establish a predicate violation under the 1933 Securities Act, Florida Chapter 517, or Fla. Stats. §§ 718.503, 718.506. The Court already has held that Mona Lisa did not violate any of these statutes and, therefore, no predicate act exists. As such, defendants are entitled to summary judgment as to Count XI as to claims plaintiffs argue arose from any non-ILSFDA statute. Mona Lisa is Not Bound by Community Development District Requirements (Count XII) Plaintiffs next claim in Count XII that Mona Lisa violated Fla. Stat. § 190.048, which is a per se FDUTPA violation. Florida Statute § 190.048 requires a developer to disclose to purchasers that their units are located in and subject to a Corn-640munity Development District. Fla. Stat. § 190.048 is inapplicable in this case, however, for an obvious reason — Mona Lisa is not selling residential units within a Community Development District.270 Plaintiffs have not offered any evidence to support their claim that units are located within a Community Development District, and now actually “acknowledge that [defendant is entitled to summary judgment regarding this portion of Plaintiffs FDUTPA claim.”271 Accordingly, Mona Lisa has not violated § 190.048, because it does not apply. Plaintiffs cannot establish a per se FDUT-PA violation using this statute to establish a predicate act. Defendants are entitled to summary judgment under Count XII. Mona Lisa Made Required Insulation Disclosures — Count XIII Similarly, plaintiffs cannot establish a per se violation under Count XIII. 16 CFR § 460.16 requires a developer to disclose the thickness and R-value of the insulation used in construction in plaintiffs’ contracts.272 Plaintiffs have provided no evidence to support their claim that Mona Lisa failed to make this required disclosure. Indeed, plaintiffs “now acknowledge that Defendant is entitled to summary judgment regarding this portion of Plaintiffs FDUTPA claim.” 273 Summary judgment is granted in favor of the defendants on Count XIII. To summarize, summary judgment is denied as to Mona Lisa’s ILSFDA violation for failure to disclose plaintiffs’ two year revocation rights until the issue of “lots” is determined (Count XI). Defendants are entitled to summary judgment as to all plaintiffs’ other FDUTPA claims in Counts XI, XII, and XIII because plaintiffs have failed to establish a predicate violation. Mona Lisa had No Disclosure Obligation under Florida Statute § 720.401(l)(a) (Count XIV) Plaintiffs claim in Count XIV that Mona Lisa violated Fla. Stat. § 720.401(l)(a) by failing to include a disclosure summary revealing that each plaintiffs unit is located within a community subject to an association membership.274 In Florida, developers must make this disclosure to all prospective parcel owners before they execute a contract for sale.275 If such disclosure is not provided and made conspicuous, the contract is voidable by the buyer.276 This section does not apply, however, to any association regulated under Chapter 718, 719, 721, or 723, nor does it apply if the association disclosure “is otherwise made in connection with the requirements of chapter 718, chapter 719, chapter 721, or chapter 723.”277 641Neither party disputes that the Florida Condominium Act contained in Chapter 718 of the Florida Statutes applies to Mona Lisa because the development is a “condominium created and existing” in the state of Florida.278 Therefore, § 720.401 simply does not apply. Even if it did, plaintiffs’ purchase contracts comply with the exception and include notice of an association membership in Section 15.279 The disclosure need not be in a form substantially similar to that provided in § 720.401(l)(a). Defendants are granted summary judgment in their favor as to Count XIV. Mona Lisa Breached Its Contractual Obligations (Count XV) In Count XV, plaintiffs allege Mona Lisa ■ breached the purchase agreements by (1) failing to provide purchasers with the legal opportunity to close on the Estimated Closing Date, (2) failing to use plaintiffs’ deposits in accordance with the Florida Condominium Act, and (3) making material misrepresentations regarding the development’s amenities.280 The Court will address each argument in turn, and grant summary judgment in favor of the plaintiffs on Count XV, with the exception of the last allegation. Mona Lisa Breached the Original Purchase Agreements by Failing to Properly Notify Plaintiffs of Changes to the Estimated Closing Date Plaintiffs argue that Mona Lisa breached the Original Purchase Agreements by failing to close on the Estimated Closing Date. Specifically, plaintiffs claim time was of the essence for Mona Lisa to close on the Estimated Closing Date, and, alternatively, Mona Lisa failed to provide plaintiffs with appropriate notice of delays in the Estimated Closing Date by certified mail as required by the purchase contracts. Defendants argue in response that plaintiffs’ breach of contract claim fails as a matter of law because the Estimated Closing Date was only an estimate, Mona Lisa reserved the right in Paragraph 8(a) of the purchase agreements to delay closing for any reason, and plaintiffs cannot show damages. The Court will address both parties’ arguments in turn.281 Under Florida law, the elements of a breach of contract claim are (1) a valid contract, (2) a material breach, and (3) damages, unless proof of damages is altered by the parties’ agreement.282 642When a contract fails to specify a time for performance, the law will imply a reasonable time by which the contract should have been performed.283 As in this case, performance, under Florida law, is not complete until a developer obtains a certificate of occupancy and the buyer is able to close 284 and occupy the unit.285 Unless specifically provided by contract, time is not of the essence in contracts for the sale and purchase of real estate.286 When time is not of the essence for closing under a real estate contract, a party can breach by failing to timely close only by refusing to perform after the other party demands that a closing take place within a reasonable time and place.287 The disputed time of the essence provision in the purchase agreements, Paragraph 26, reads in full: Time is of the essence for making all payments due under this Contract, and for the dosing of this transaction. Time for Purchaser’s performance of all other obligations hereunder may be made of the essence by Seller giving not less than five (5) days’ advance written notice to Purchaser.” (Emphasis added). Plaintiffs contend that the Estimated Closing Dates specified in Paragraph 8(a) of the purchase agreements 288 are by law the reasonable dates by which Mona Lisa was required to obtain and deliver a certificate of occupancy for the units, citing Harvey v. Lake Buena Vista Resort, LLC.289 But that case involved purchase agreements with a firm two-year completion deadline. Indeed, Harvey found a breach of contract when the developer obtained a certificate of occupancy a mere four days after the absolute deadline for completion specified in the purchase agreements.290 Here, the Original Purchase Agreements had no firm commitment to close on the Estimated Closing Date. Paragraph 8(a) of the purchase agreements expressly allows Mona Lisa to delay closing until “such later date ... as may be set by Seller.” The Court cannot find that the Estimated Closing Date was, as a matter of law, the date by which Mona Lisa was required to close. Given that Mona Lisa could extend the closing date at will, the Court cannot find that time was of the essence as implied by Paragraph 26 of the purchase agreements. If time was not of the essence, plaintiffs, under Florida contract law, need to establish they demanded performance from Mona Lisa within a rea643sonable time and that Mona Lisa then failed to perform.291 To support its claim that time was not of the essence, Mona Lisa argues a reasonable developer would not have committed to a defined closing date in a contract because delays are common and expected in the construction industry.292 This claim is supported by the affidavit of Charles D. Brecker,293 an expert in the construction and development, who affirms that it is common for a developer to expect delays due to unforeseen contingencies in a large development project such as design changes, permit delays, contractor and subcontractor staffing issues, material shortages, and more. Plaintiffs have presented nothing, other than referencing the contractual language, to dispute Mona Lisa’s position that the time was not of the essence. The Court therefore concludes that, as to the Original Purchase Agreements, time was not of the essence on the closing date.294 Plaintiffs next argue Mona Lisa breached Paragraph 8 of the Original Purchase Agreements by failing to properly and timely give the required fifteen days’ notice to the plaintiffs of any extension of the Estimated Closing Date.295 Paragraph 16 of the Original Purchase Agreements provides that all notices be sent via U.S. certified mail. Many plaintiffs have sworn they never received a single notice from Mona Lisa extending the Estimated Closing Date.296 Others argue “defendant repeatedly rescheduled the Estimated Completion Date to a later date ... [e]ach time Defendant rescheduled the Estimated Closing Date, Defendant failed to notice me in a manner required by Paragraph 16 of the subject purchase agreement ... [and] Defendant failed to provide me notice of the delay in the ‘Estimated Closing Date’ in ‘writing and sent by United States certified mail....” 297 Nothing in the record supports a finding that Mona Lisa served any notice addressed to a particular purchaser by U.S. certified mail, although some plaintiffs indeed may have received informal notices over the years. Mona Lisa claims that it repeatedly notified plaintiffs of the delays in construction and closing; 298 the record however is woefully lacking in any support for this bare allegation. The email and letter communications Mona Lisa offers as evidence to support its position are inadequate.299 The emails show only that a Mona Lisa representative, Cynthia Madsen, sent emails to herself, in what appear to be blind copies 644that may have gone to various purchasers.300 Although the text in the emails is directed at the purchasers and discusses changes to the Estimated Closing Date, none of the emails were addressed to any particular purchaser, nor do they conform to the notice requirements of Paragraph 16 that all notices be sent via U.S. certified mail. Similarly, none of the letters sent via Fed Ex were addressed to any particular plaintiff. They are all addressed to “Buyer” and offer no address or contact information whatsoever.301 As such, Mona Lisa has failed to establish that it actually sent these notices or whether any purchasers actually received them. All of the factual issues would have been resolved if Mona Lisa has just done what it promised — to serve notices of any extension of the Estimated Closing Date by U.S. Certified Mail to each individual purchaser. Mona Lisa has failed to rebut the plaintiffs affidavits in even one case. Mona Lisa certainly breached Paragraph 16 of the purchase contracts requiring all notices to be sent by certified mail. Plaintiffs are granted summary judgment as to their breach of contract claim on Count XV. Contrary to Mona Lisa’s contention, plaintiffs are not required to prove they were harmed by this breach. As plaintiffs point out, Paragraph 13 of the purchase agreements gives the purchasers the right to terminate the contract and receive a full refund of all deposits paid in the event Mona Lisa fails to perform its obligations under the contract.302 Mona Lisa Breached the Purchase Agreements by Improperly Handling Plaintiff’s Escrow Deposits Plaintiffs next argue that, as asserted in Count VII, Mona Lisa improperly used and failed to properly segregate plaintiffs’ deposits and failed to account for them properly, which also constitutes a breach of contract because Paragraphs 1, 7, and 8(a) of the purchase agreements similarly restrict Mona Lisa from using the deposits in violation of Fla. Stat. § 718.202. The Court already has held above that Mona Lisa indeed did fail to comply with § 718.202, and Mona Lisa is liable to the plaintiffs for the return of the deposits with interest and the payment of reasonable attorney fees and costs. The Court now extends that ruling to conclude that the same violation constitutes a breach of contract for which the plaintiffs are entitled to similar relief. Plaintiffs are granted summary judgment as to this portion of Count XV. Mona Lisa However Did Not Breach the Purchase Agreements by Making any Materially Adverse Changes Plaintiffs next assert that the allegations regarding Mona Lisa’s misrepresentations regarding aspects of the condominium development (i.e., the size of the pool deck and elimination of the rooftop deck), which formed the basis for their claims under Count IX, also establish a breach of contract because Paragraph 27(g) of the purchase agreements mirrors the statutory language of Fla. Stat. § 718.503. Because the Court has ruled in favor of defendants on Count IX, determining that the allegedly material adverse changes were not in fact adverse, the Court also has determined that Mona Lisa did not breach Paragraph 27(g) of the purchase agreements. On this point, defendants are entitled to partial summary judgment as to this part of Count XV. 645 Declaratory Relief (Count XVI) In Count XVI, plaintiffs seek declaratory relief finding that (1) SunTrust, the escrow agent, is liable to the plaintiffs for any amounts awarded by the Court; (2) Westchester, issuer of the surety bond, similarly is liable to plaintiffs for any amounts awarded by the Court; (3) plaintiffs’ deposits are not Mona Lisa’s property or property of Mona Lisa’s bankruptcy estate; and (4) plaintiffs are entitled to the immediate return of their full deposits, plus interest, attorney fees, costs, and any other relief the Court may deem just and proper. SunTrust is not Liable to Plaintiffs As discussed earlier in the analysis of Count VII, SunTrust did fail to comply with the terms of the escrow agreement 303 until February 2006, when it first properly segregated plaintiffs’ deposits in compliance with the Florida Condominium Act. Regardless, § 718.202 “does not authorize a private cause of action against an escrow agent. The statute clearly sets forth the rights and obligations of only developers, not escrow agents, regarding the treatment of deposits made by condominium buyers ... and provides for no remedy against the escrow agent.”304 Therefore, SunTrust is not liable to plaintiffs. Defendants, and specifically Sun-Trust, are granted summary judgment as to this part of Count XVI.305 Westchester Must Pay Plaintiff’s Deposits under the Surety Bond Plaintiffs next argue that West-chester, as a matter of law, must pay the amounts of any deposits the Court awards in these proceedings. The Court agrees. Paragraph 4 of the surety agreement obligates Westchester to pay the full amount of plaintiffs’ deposits that Mona Lisa fails to pay.306 When PRINCIPAL [Mona Lisa] fails to refund deposits as required by Chapter 718, Florida Statutes, and/or agreements with buyers, ESCROW AGENT [Sun-Trust] or the DIVISION may declare this Bond in default and SURETY [Westchester] is required to disburse funds in the amount of refund deposits that are due and payable, within 30 days by SURETY, as a debt to ESCROW AGENT or DIVISION, the amount being payable subject to any reductions in the face amount calculated pursuant to Paragraph 5 herein.307 Westchester argues that the recital clauses of the surety agreement limit Westchester’s obligation to pay only the amount of plaintiffs’ deposits equal to or less than 10% of the purchase price.308 The Court disagrees. In Florida, operative clauses of a contract prevail over recital clauses and ‘whereas’ clauses when a conflict arises between the two.309 Paragraph 4 of the surety agreement is an operative clause and clearly requires 646Westchester to pay all of the deposits Mona Lisa is required to refund under Florida Statute Chapter 718 for a breach of the purchase contracts. Westchester therefore is liable to plaintiffs for all deposits due and payable by Mona Lisa up to the surety bond limit of $6,575,000.310 Mona Lisa remains liable for the interest, fees, and costs due to plaintiffs as a result of its breach of the purchase contracts and violations of the Florida Condominium Act, because Paragraph 4 of the surety bond requires Westchester to disburse funds in the amount of the refund deposits due and payable, not all amounts due and payable. This interpretation is supported by the underlying purpose of the surety bond in § 718.202, which is to protect the first 10% of plaintiffs’ deposits from misuse. The bond is not meant to protect the developer from having to pay fees and costs incurred as a result of misusing deposits. Instead the bond is meant to repay purchasers their deposits should a developer be required to give them back because it squandered them away, breached a purchase contract, or otherwise failed to meet its obligations. Plaintiffs are granted summary judgment in their favor as to West-chester’s liability under the surety bond for the amount of the deposits, and Mona Lisa is liable for all other fees, costs, and interest. Deposits are Not Property of the Mona Lisa Bankruptcy Estate Federal bankruptcy law determines what assets are included in property of a bankruptcy estate. But state law determines the extent and validity of a debtor’s interest in those assets.311 Under the Bankruptcy Code,312 a debtor’s bankruptcy estate includes “all legal and equitable interests of the debtor in property as of the commencement of the case.”313 A bankruptcy estate cannot succeed to a greater interest in property than a debtor holds prior to bankruptcy.314 Whether the deposits become property of the estate depends on the nature of the escrow agreement.315 For example, in cases where an escrow arrangement operates to create an assurance that funds will be used for a particular purpose, the escrow funds generally are not property of the estate.316 This is true in Florida, where legal title to deposits placed in an escrow account “remains with the purchasers until the occurrence of the conditions specified in the escrow agreement.”317 647Consistent with the protective qualities inherent in an escrow agreement, a grantor retains legal interests in escrowed funds if it has the right to unwind a transaction and recover the escrowed funds.318 For these reasons, funds in escrow do not become property of a grantee until they are irretrievably placed beyond the grantor’s reach.319 Plaintiffs argue their deposits are not property of Mona Lisa’s bankruptcy estate.320 No dispute exists that the escrow accounts in question were created to reassure purchasers that Mona Lisa would use their deposits to pay for expenses related to the development of the project and only as permitted by the Florida Condominium Act, in accordance § 718.202 of the Florida Statutes. Plaintiffs were entitled to retrieve their deposits if they could successfully prove Mona Lisa misused them. This they have done in connection with the discussion of Count VII above. Mona Lisa’s interest in the deposits has always been subject to divestment should Mona Lisa improperly use the funds.321 Because Mona Lisa used the deposits for purposes prohibited by Florida law, Mona Lisa never gained legal title over them. Thus, the deposits never became property of the bankruptcy estate. Plaintiffs are entitled to recover their deposits with interest, costs, and fees from Mona Lisa.322 Westchester, as Mona Lisa’s surety, is liable to plaintiffs under the surety agreement for the lesser of the total of plaintiffs’ deposits or $6,575,000.323 Mona Lisa is liable for all deposits, interest, fees, and costs. CONCLUSION Plaintiffs are entitled to final summary judgment as to part of Count VII, Count VIII, part of Count XI, and part of count XV. Defendants are entitled to summary judgment as to Counts V, VI, IX, X, XII, XIII, XIV, and partial summary judgment as to Counts I-IV, VII, XI, and XV. Summary judgment is denied for both parties as to part of Counts I-IV, XI, and XVII-XX. A separate order consistent with this Memorandum Opinion shall be entered. DONE AND ORDERED. 648[[Image here]] 649[[Image here]] 650[[Image here]] 651[[Image here]] 652[[Image here]] 653[[Image here]] 654[[Image here]] 655[[Image here]] 656[[Image here]] 657[[Image here]] 658[[Image here]] 659[[Image here]] 660[[Image here]] 661[[Image here]] 662[[Image here]] ORDER ON CROSS MOTIONS FOR SUMMARY JUDGMENT Plaintiffs in these four consolidated adversary proceedings filed numerous complaints against defendants alleging twenty causes of action. Plaintiffs have moved for summary judgment on Counts I-IV, VII, VIII, XI, XV, and XVI of the complaints, and defendants have moved for summary judgment on all counts of the complaints. Consistent with the Memorandum Opinion on the Cross Motions for Summary Judgment, entered simultaneously, it is ORDERED: 1. Final summary judgment on Counts I-IV is granted in favor of 663the defendants as to all plaintiffs listed on Appendixes A, C, and D, attached to the Memorandum Opinion, and as to all plaintiffs listed on Appendix E, attached to the Memorandum Opinion, as to all claims asserted under the ILSFDA, except the one remaining claim asserted under 15 U.S.C. § 1703(c). 2.Both plaintiffs’ and defendants’ motions for summary judgment on Counts I-IY are denied as to plaintiffs listed on Appendix E, attached to the Memorandum Opinion, asserting a claim under 15 U.S.C. § 1703(c) because a material issue of fact exists as to whether or not the units are “lots.” 3.Final summary judgment is granted for defendants on Counts V, VI, IX, X, XII, XIII, and XIV. 4. As to Count VII, although defendants are entitled to final summary judgment that Mona Lisa obtained a proper surety bond before using funds from the Under 10% Escrow and was entitled to earn interest on the escrow funds, plaintiffs are entitled to final summary judgment that Mona Lisa did not properly segregate plaintiffs’ deposits and improperly used the escrow funds for advertising purposes under § 718.202 of the Florida Statutes. Plaintiffs are entitled to the full recovery of the deposits, interest, costs, and reasonable attorney fees. Factual disputes preclude summary judgment in favor of either party as to Mona Lisa’s good faith on disclosure breaches of the Florida Condominium Act. 5. Final summary judgment as to Count VIII is granted in favor of plaintiffs who signed Updated Purchase Agreements, listed on Appendix D, attached to the Memorandum Opinion, and denied as to defendants. 6. Final summary judgment as to Count XI is granted in favor of defendants on all allegations except as to Mona Lisa’s possible violation of 15 U.S.C. § 1703(c) (ILSFDA) until the determination is made as to whether or not the units are “lots” under Counts I-IV, as referenced in paragraph 2 above. 7. Final summary judgment as to Count XV is entered in favor of plaintiffs and against defendants. 8. As to Count XVI for Declaratory Relief: a. SunTrust is not liable to plaintiffs. b. Plaintiffs’ deposits are not property of debtor’s bankruptcy estate. c. Plaintiffs are entitled to recover their deposits, with interest, and reasonable costs and fees from Mona Lisa as unsecured creditors and pursuant to Mona Lisa’s confirmed Plan of Reorganization.1 Westchester is liable to plaintiffs under the surety agreement for the lesser of the total of plaintiffs’ deposits or $6,575,000. 9. On or before June 15, 2012, plaintiffs are directed to file a statement of their reasonable costs and fees incurred in connection with these adversary proceedings, together with any supporting documentation and a proposed final judgment. 10.As to Counts XVII-XX, brought by a single plaintiff, Ms. Lieberman, material factual disputes preclude defendants’ request for summary judgment as a matter of law. 66411. A pretrial conference is scheduled for June 19, 2012, at 2:00 p.m., at the United States Bankruptcy Court, 5th Floor, Courtroom B, 135 W. Central Blvd., Orlando, FL 32801. The Court then will consider the parties’ position as to whether further mediation is merited and scheduling evidentiary hearings needed to resolve all remaining sues. DONE AND ORDERED. . Defendants, in addition to Mona Lisa, include its surety bond issuer, Westchester Fire Insurance Company, and the escrow agent for plaintiffs' deposits, SunTrust Bank. Unless noted otherwise, all references to docket numbers are to those in the Bruno Adversary 9-ap-49. . Doc. No. 177. . All plaintiffs paid deposits in amounts over 10% of their purchase prices except the Byrnes, who paid deposits totaling exactly 10% of the purchase price for their two units, 303 and 319. . As set forth in their Amended Complaints, the Bruno plaintiffs paid deposits totaling $1,433,825; the Dodsworth plaintiffs paid deposits of $572,550; the McKibbin plaintiffs paid deposits totaling $404,000; and the Bennett plaintiffs paid deposits totaling $966,000, for a total of $3,376,765. . The surety bond originally was in the amount of $5,000,000, effective December 1, 2006. On December 1, 2007, Westchester issued a rider increasing the surety bond amount to $6,575,000. Doc. No. 125, Exhibit 3. . Doc. No. 125, Exhibit 5. . None of these owners are plaintiffs in this proceeding. . Doc. No. 44 in 6:08-cv-735-orl-KRS. . The District Court actions were stayed (Doc. No. 56 in 6:08-cv-735-orl-KRS) pending resolution of plaintiffs' motions for relief from stay to proceed with the lawsuits (Doc. Nos. 33, 42, and 43 in the main bankruptcy case), and administratively closed shortly thereafter on February 2, 2009. This Court denied the motions for relief from stay on May 15, 2009 (Doc. No. 138 in 6:09-bk-00458-KSJ). . On February 25, 2009, 36 plaintiffs filed Adversary Proceeding No. 9-ap-49 (the "Bruno Plaintiffs”) seeking $1,434,000 in damages. Three later adversary proceedings were filed. On May 26, 2009, 14 plaintiffs filed Adversary Proceeding No. 9-ap-769 (the “Dodsworth Plaintiffs”) seeking $573,000 in damages. On May 25, 2009, seven plaintiffs filed Adversary Proceeding No. 9-ap-770 (the "McKibbin Plaintiffs”) seeking $404,000 in damages. On August 26, 2009, 14 plaintiffs filed Adversary Proceeding No. 9-ap-859 ("the Bennett Plaintiffs”) seeking $966,000 in damages. Mona Lisa was named as the sole defendant in the first eight counts of the complaints. Count IX was only asserted against BankFirst, who plaintiffs later voluntarily dismissed as a defendant pursuant to the four Joint Stipulations of Dismissal of Defendant BankFirst Only {see e.g., Doc. No. 147). Count X sought declaratory relief against Mona Lisa, SunTrust, and Westches-ter, collectively. Plaintiffs from the first two adversary proceedings and the three remaining defendants then filed cross motions for summary judgment on Counts I-VIII and Count X. .The Bruno and Dodsworth initial complaints both alleged the same 10 causes of action against Mona Lisa: Count I: Interstate Land Sales Full Disclosure Act (15 U.S.C. § 1703); Count II: 1933 Securities Act (15 U.S.C. § 77a); Count III: Florida Securities and Investor Protection Act (Fla. Stat. § 517.01 et seq.); Count IV: Florida Condominium Act (Fla. Stat. § 718.202); Count V: Florida Condominium Act (Fla. Stat. § 718.503); Count VI: Florida Condominium Act (Fla. Stat. § 718.506); 597Count VII: Florida Deceptive and Unfair Trade Practices Act (Fla. Stat. § 501.201 et seq.); Count VIII: Breach of Contract; Count IX: Equitable Lien; Count X: Declaratory Judgment. . Doc. Nos. 153-154. . In re Mona Lisa, 436 B.R. 179 (Bankr.M.D.Fla.2010). Count IX, asserted against BankFirst, was dismissed. The Dodsworth Plaintiffs appealed the Court’s ruling. Doc. No. 158. District Court Judge Mary Scriven dismissed the interlocutory appeal without prejudice. Case No.: 6-10-cv-1352-Orl-35. . In connection with Count X, the Court addresses Counts XVII-XX regarding plaintiff Lieberman’s claims that Mona Lisa misrepresented his unit’s location behind the cabana restrooms. . Doc. Nos. 153-154. . Doc No. 205; Response (Doc. No. 223); Joinder in Westchester's Response, filed by Mona Lisa (Doc No. 222). . Doc. No. 207. Reply to Westchester Fire Insurance Company and Mona Lisa at Celebration, LLC's Responses to Motions for Summary Judgment and Supporting Memorandum of Legal Authority, filed by Plaintiffs (Doc. No. 231); Joinder in 6:09-ap-0770 and 6:09-ap-0859 Plaintiffs' Memorandum in Opposition and Response to Motions for Summary Judgment by Defendants Mona Lisa at Celebration, LLC and Westchester Fire Insurance Company and Supporting Memorandum of Legal Authority, filed by Plaintiffs (Doc No. 219); Reply memorandum of law in further support of its motion for summary judgment, filed by Defendant Westchester Fire Insurance Company (Doc. No. 228); Joinder in Westchester Fire Insurance Company's Reply Memorandum of Law in Further Support of its Motion for Summary Judgment, filed by Defendant Mona Lisa at Celebration, LLC (Doc. No. 229). . Doc. No. 232. . Fed.R.Civ.P. 56.; Fed. R. Bankr.P. 7056. . Fitzpatrick v. Schiltz (In re Schiltz), 97 B.R. 671, 672 (Bankr.N.D.Ga.1986). . Evers v. General Motors Corp. 770 F.2d 984, 986 (11th Cir.1985). . Id. . Scott v. Harris, 550 U.S. 372, 380, 127 S.Ct. 1769, 167 L.Ed.2d 686 (2007). . Matsushita Elec. Industrial Co. v. Zenith Radio Corp., 475 U.S. 574, 587, 106 S.Ct. 1348, 89 L.Ed.2d 538 (1986). . Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986). . 15 U.S.C. § 1701 etseq. . ILSFDA generally applies to the sale of "lots” that are part of a sales program of 100 or more lots offered pursuant to a common promotional plan. 61 Fed. Reg. 13,601-02 (1996). . See James Oliver, Beyond Consumer Protection: The Application of the Interstate Land Sales Full Disclosure Act to Condominium Sales, 37 UFLLR 945 (1985). . Gentry v. Harborage Cottages Stuart, LLLP, 654 F.3d 1247, 1258 (11th Cir.2011). . See James Oliver, 37 UFLLR 945 (1985) Beyond Consumer Protection: The Application of the Interstate Land Sales Full Disclosure Act to Condominium Sales. . Doc. No. 39 in Case No. 9-ap-859. . Section 1703(b) unconditionally allows a purchaser to revoke a contract until midnight of the seventh day following the signing of such contract, and § 1703(c) allows a purchaser to revoke a contract until within two years following the signing of such contract if a developer does not provide a property report to the purchaser. . Doc. No. 39 in 9-ap-859. . Doc. No. 208. . 61 Fed. Reg. 13, 601-02 (1996). . 15 U.S.C. § 1703(a). . Mona Lisa, 436 B.R. at 189 n. 19. . See Mona Lisa, 436 B.R. at 189. . McKibbin and Bennett Plaintiffs in Case Nos. 9-ap-770 and 9-ap-859, respectively. . Mona Lisa at 189-190 (adopting Taylor v. Holiday Isle, 561 F.Supp.2d 1269 (S.D.Ala. 2008)). The Taylor reasoning also was adopted by numerous other courts, as noted in Harari v. Seymour Int’l, Inc., Case 6:09-cv-01277-ACC-GJK (February 8, 2009). .Gentry v. Harborage Cottages-Stuart, LLLP, 654 F.3d 1247 (11th Cir.2011). . Gentry, 654 F.3d at 1262. . Gentry, 654 F.3d at 1262; Taylor v. Holiday Isle, LLC, 561 F.Supp.2d 1269, 1276 (S.D.Ala.2008); Mona Lisa, 436 B.R., at 190 (rejecting Plaza Court L.P. v. Baker-Chaput, 17 So.3d 720 (Fla.App. 5th Dist.2009)). . Mona Lisa, 436 B.R. at 190 (citing Gilmore v. Residences at Sandpearl Resort, LLC, 2008 WL 4426705, at 1 (M.D.Fla. September 26, 2008); Taylor 561 F.Supp.2d at 1271-72 & n. 8; Bush v. Bahia Sun Associates LP, 2009 WL 963133, at 12 (M.D. Fla. April 8, 2009)). . Mona Lisa at 189-190. . 15 U.S.C. § 1711(b). . Gentry, 654 F.3d at 1262. . See Gentry, 602 F.Supp.2d at 1248-49 (citing the guidelines for ILSFDA describing certain exemptions: "An exemption is available because of the presence of already completed homes on certain lots that met the requirements of § 1702(a)(2), leaving the remaining lots exempt under the One Hundred Lot exemption. ... The Guidelines provide another example where certain lots were exempt because they had preexisting residential structures already erected, while others lots were to be sold to contractors or reserved for construction of homes by the developer. The exemption of these lots qualified the remaining lots for the One Hundred Lot exemption.” Guidelines for Exemptions Available Under the Interstate Land Sales Full Disclosure Act, 61 Fed. Reg. 13596-01, Part 7010). . 15 U.S.C. § 1702(a)(2). . 15 U.S.C. § 1702(a)(5). . 15 U.S.C. § 1702(a)(2). . Adams-Lipa v. TDS Town Homes (Phase I) LLC, 2009 WL 1850267 at 3 (M.D.Fla. June 25, 2009) (citing Harvey v. Lake Buena Vista Resort, LLC, 568 F.Supp.2d 1354, 1362 (M.D.Fla.2008)). . 15 U.S.C. § 1702(b). . Doc. No. 39 at 8 in 9-ap-859. . Guidelines for Exemptions under the Interstate Land Sales Full Disclosure Act, 44 Fed. Reg. 24.010, 24.012 (1979). . Id. . Stein, 586 F.3d at 858 (citing Port Largo Club, Inc. v. Warren, 476 So.2d 1330, 1333 (Fla.App.Dist.3d.1985)). Impunity means “an exemption or protection from punishment.” Black's Law Dictionary 774 (8th Ed. 2004). .Guidelines for Exemptions Available Under the Interstate Land Sales Full Disclosure Act, 61 Fed. Reg. 13,596 (Mar. 27, 1996) (emphasis added); Stein, 586 F.3d at 858 (citing Atteberry v. Maumelle Co., 60 F.3d 415, 420 (8th Cir.1995)). . Doc. 125 Exhibit 7. . Stein v. Paradigm Mirasol, LLC, 586 F.3d 849 (11th Cir.2009) (clause stated that "... Seller shall not be responsible for any delay caused by acts of God, weather conditions, restrictions imposed by any governmental agency, labor strikes, material shortages or other delays beyond the control of the seller ...”); see also Rondini v. Evernia Properties, LLLP, 2008 WL 793512, No. 07-81077-CIV (S.D.Fla. Feb. 13, 2008). . Stein, 586 F.3d at 857-58; see also Kamel v. Kenco/The Oaks at Boca Raton LP, 321 Fed.Appx. 807 (11th Cir.2008). . Van Hook v. the Residences at Coconut Point, LLC, 364 Fed.Appx. 549 (11th Cir.2010). . Aikin v. WCI Communities, Inc., 26 So.3d 691, 697 (Fla.App.Dist.2d 2010); see also Jankus v. Edge Investors, L.P., 650 F.Supp.2d 1248, 1255-56 (S.D.Fla.2009). . The two doctrines are interrelated. Impossibility "refers to those factual situations, too numerous to catalog, where the purposes, for which the contract was made, have, on one side, become impossible to perform.” Crown Ice Machine Leasing Co. v. Sam Senter Farms, Inc., 174 So.2d 614, 617 (Fla.App.Dist.2d 1965). Frustration arises when "one of the parties finds that the purpose for which he bargained, and which purposes were known to the other party, have been frustrated because of the failure of consideration, or impossibility of performance by the other party.” Crown Ice Machine Leasing Co. v. Sam Senter Farms, Inc., 174 So.2d 614, 617 (Fla.App.Dist.2d 1965). . Ryan v. WCI Communities Inc., 2008 WL 2557541, No. 3:08cv4/MCR (N.D. Fla. June 23, 2008); Gentry v. Harborage Cottages-Stuart, LLLP, 602 F.Supp.2d 1239, 1245 (S.D.Fla.2009); Snavely Siesta Assocs., LLC v. Senker, 34 So.3d 813 (Fla.2010). . Samara Dev. Corp. v. Marlow, 556 So.2d 1097 (Fla.1990). Plaintiffs also cite to two other distinguishable cases. In Schatz v. Jockey Club Phase III, Ltd. 604 F.Supp. 537, 541—42 (S.D.Fla.1985), the contractual provision specifically stated buyers had no remedy if the developer failed to complete construction on time. In Dorchester Development, 439 So.2d 1032 (Fla.App.Dist.3d 1983), the contractual provision never promised a completion date but instead gave buyers an option to cancel the contract if construction was not finished within two years. Neither contract imposed a binding two-year completion commitment on the developer and are not persuasive. . See, e.g. Hardwick Properties, Inc. v. Newbern, 711 So.2d 35, 39-40 (Fla.App.Dist. 1st 1998). . Aikin v. WCI Communities, Inc., 26 So.3d 691, 697 (Fla.App.Dist.2d 2010), quoting Mailloux v. Briella Townhomes, LLC, 3 So.3d 394, 396 (Fla.Dist.Ct.App. 4th 2009); see also Snavely Siesta Assocs., LLC v. Senker, 34 So.3d 813 (Fla.2010) (force majeure clause limited to impossibility or frustration of purpose does not preclude a sales contract qualifying for the § 1702(a) exemption). . Home Devco/Tivoli Isles, LLC v. Silver, 26 So.3d 718, 723 (Fla.App.Dist. 4th 2010). . 15 U.S.C. § 1702(a). . Gentry, 602 F.Supp.2d at 1247-48 (disagreeing with the 8th Circuit's holding in Atteberry, 60 F.3d at 421 (8th Cir.1995) that a plaintiff must make a showing of fraudulent intent to evade the statute). . Bodansky v. Fifth on the Park Condo, LLC, 732 F.Supp.2d 281, 292 (S.D.N.Y. January 29, 2010). . Gentry, 654 F.3d at 1257 (citing Gently, 602 F.Supp.2d at 1247). . Gentry, 654 F.3d at 1257. . Id. at 1259. . Id. . Double AA Int’l Investment Group, Inc. v. Swire Pacific Holdings, Inc., 674 F.Supp.2d 1344, 1355 (S.D.Fla.2009). . Swire, 674 F.Supp.2d at 1355. . Doc. No. 125, ¶ 20. . As an aside, the Court notes that adding Paragraph 3 did not simply exempt Mona Lisa from ILSFDA. The provision imposed an additional burden on Mona Lisa to complete construction within two years providing greater protections for buyers by mandating completion within a relatively short period of time. . Doc. No. 125 Exhibit 7. . Stein, 586 F.3d 849 (11th Cir.2009). . Barry v. Midtown Miami No. 4, LLC, 651 F.Supp.2d 1320, 1324 (S.D.Fla.2008); Rondini v. Evernia Properties, LLLP, 2008 WL 793512, No. 07-81077-CIV (S.D.Fla. Feb. 13, 2008). . See, e.g., Hardwick Properties, Inc. v. Newbern, 711 So.2d 35, 39-40 (Fla.App.Dist. 1st 1998). . Doc. No. 127 Exhibit 7, at 6. . 586 F.3d 849 (11th Cir.2009). . Doc. No. 125 Exhibit 1, at ¶ 24. . Adams-Lipa, 2009 WL 1850267 at 4-5. Against the weight of authority, plaintiffs rely on Dalzell v. Trailhead, a District of Colorado case that found a similar casualty provision rendered the purchase contract illusory. Doc. No. 39 at 9-10 in 9-ap-859 (citing Dalzell v. Trailhead, 2010 WL 3843464 (D. Colo. Sept. 27, 2010)). The developer agreed to construct within two years, but the case does not clarify whether any provision included an out for "recognizable contract defenses.” See Adams-Lipa, 2009 WL 1850267 at 4-5, See also Stein 586 F.3d at 849 (noting that because the clause “or any other similar causes not within Seller’s control” follows events listed before it — events which provide a recognized defense to a claim for contractual breach under Florida law — the clause can be construed as covering only events which are beyond the seller's control). . Restatement of Contract § 235(c) (1932): Rules Aiding Application of Standards of Interpretation ("A writing is interpreted as a whole and all writings forming part of the same transaction are interpreted together”); Antar v. Seamiles, LLC, 994 So.2d 439 (Fla.App.Dist.3d.2008) (citing Gen. Star Indem. Co. v. W. Fla. Vill. Inn, Inc., 874 So.2d 26, 30 (Fla.App.Dist.2d 2004) for the proposition 608that in general contract law a "court must read a contract ‘as a whole, endeavoring to give every provision its full meaning and operative effect,” and that a single contract provision "should not be considered in isolation, but rather, the contract shall be construed according to the entirety of its terms”). . See Stefan v. Singer Island Condominiums Ltd., 2009 WL 426291 (S.D.Fla. Feb. 20, 2009). . Doc. No. 125 Exhibit 7 at II 10(b). . Id. . Doc. No. 125 Exhibit 7, at Section 10(c). . Stefan, 2009 WL 426291 at 2 ("Seller agrees to substantially complete construction of the Unit, in the manner specified in this Agreement by a date no later than two (2) years from the date Buyer signs this Agreement, subject, however, only to delays caused by matters which are legally recognized as defenses to contract actions in the jurisdiction where the Building is being erected.”). . Stefan, 2009 WL 426291 at 8. . Dorchester, 439 So.2d 1032, 1034. . See Restatement of Contracts § 265 Discharge by Supervening Frustration: ("Where, after a contract is made, a party's principal purpose is substantially frustrated without his fault by the occurrence of an event the non occurrence of which was a basic assumption on which the contract was made, his remaining duties to render performance are discharged, unless the language or the circumstances indicate the contrary.”). . Doc. No. 61 at ¶ 35 in 9-ap-859. . Van Hook v. the Residences at Coconut Point, LLC, 364 Fed.Appx. 549 (11th Cir.2010). . Some of these plaintiffs are listed in Appendix A as plaintiffs who filed automatic rescission claims within two years of signing their Updated Purchase Contracts. . Mona Lisa, 436 B.R. at 192 (citing 15 U.S.C. § 1709(a)). . Doc. No. 39 at 13-14 in Case No. 9-ap-859 (arguing "[djefendant fails to understand the strict liability nature of the ILSFDA.”). . Gentry, 654 F.3d at 1262. . Gentry, 654 F.3d at 1262 (Citing Murray v. Holiday Isle, 620 F.Supp.2d 1302, 1312 (S.D.Ala.2009) ("where a purchaser has been damaged by nondisclosure of these rescission rights as required by § 1703(c), the purchaser plainly has an actionable ILSFDA claim pursuant to § 1709(b).”)). Plaintiffs erroneously cite to Schatz and Appalachian Inc. to show loss causation is not required. Schatz v. Jockey Chib Phase III, Ltd., 604 F.Supp. 537 (S.D.Fla.1985); Appalachian, Inc. v. Olson, 468 So.2d 266 (Fla.App.2d Dist.1985). In both cases the courts granted plaintiffs' rescission requests without addressing whether or how the plaintiffs were damaged. These dated cases lack an abundance of facts and are distinguishable because they simply fail to address ILSFDA's various statutes of limitation or even mention when plaintiffs brought their causes of action. . Venezia v. 12th & Division Properties, LLC, 679 F.Supp.2d 842, 850 (M.D.Tenn.2009) (emphasis added). . Doc. No. 61 at ¶ 17 in Case No. 9-ap-859. . Doc. No. 39 at 13 in 9-ap-859. . Doc. No. 126, at 22-23. . Under Rule 56(e), the nonmoving party, in responding to a properly made motion for summary judgment, “may not rely merely on allegations or denials in its own pleadings; rather, its response must — by affidavits or as otherwise provided in this rule — set out specific facts showing a genuine issue for trial. If the opposing party does not so respond, summary judgment should, if appropriate, be entered against that party.” Fed. R. Civ. Pro. 56(e). . See Doc. No. 125, Exhibit 7 (Original Purchase Agreement notices in bold just before signature block). . Doc. No. 61 at ¶21 in 9-ap-859 (citing Ditthardt v. North Ocean Condos, L.P., 580 F.Supp.2d 1288, 1291 (S.D.Fla.2008)). The Court, however, rejects the finding that § 1703(b) comes with an automatic three-year rescission right. . 15U.S.C. § 1703(b). . Pretka v. Kolter City Plaza II, Inc., 2011 WL 841513, 4 (S.D.Fla. March 7, 2011). Fla. Stat. § 718.503 reads: THIS AGREEMENT IS VOIDABLE BY PURCHASER BY DELIVERING WRITTEN NOTICE OF THE BUYER'S INTENTION TO CANCEL WITHIN FIFTEEN (15) DAYS AFTER THE DATE OF THE EXECUTION OF THIS CONTRACT BY THE BUYER, AND RECEIPT BY THE BUYER OF ALL OF THE ITEMS REQUIRED TO BE DELIVERED TO PURCHASER BY THE DEVELOPER UNDER SECTION 718.503, FLORIDA STATUTES. . Doc. No. 61 at ¶ 11 in 9-ap-859. . Werdmuller Von Elgg v. Paramount, No. 6:08-CV-1285-KRS (M.D.Fla.2008). . See plaintiffs’ affidavits, for example, in Doc. Nos. 58-61 in 9-ap-770. Some affidavits claim "We were unaware of our 15 U.S.C. § 1703(c) rescission right and the Purchase Agreement fails to disclose such right as required." Doc. Nos. 55-75. . 15 U.S.C. § 1703(c) reads: In the case of any contract or agreement for the sale or lease of a lot for which a property report is required by this chapter and the property report has not been given to the purchaser or lessee in advance of his or her signing such contract or agreement, such contract or agreement may be revoked at the option of the purchaser or lessee within two years from the date of such signing, and such contract or agreement shall clearly provide this right. . Gentry, 654 F.3d at 1262-63.; Harari v. Seymour Int’l, Inc., Case No. 6:09-cv-1277-Orl-22-ACC-GJK (Doc. No. 25); . Gentry, 654 F.3d at 1262-62. . The Court previously rejected the analysis from these two cases because plaintiffs cited the cases for a separate provision of the ILSF-DA. Mona Lisa, 436 B.R. at 192-93 (citing Harari v. Seymour Int’l, Inc., Case No. 6:09-cv-1277-Orl-22-ACC-GJK (Doc. No. 25); 614Kiersz v. Seymour Int'l, Inc., Case No. 6:08-cv-1664-ACC-GJK (Doc. No. 44)). . Harari, 6:09-cv-1277 at 7 (citing Murray v. Holiday Isle, 620 F.Supp.2d. 1302 (S.D.Ala.2009)). . Gentry v. Harborage Cottages-Stuart, LLLP, 602 F.Supp.2d 1239, 1243 (S.D.Fla.2009). . Harari, (Doc. No. 25); Kiersz, (Doc. No. 44). In both cases, the plaintiffs make the claim that the developer failed to complete construction within two years. .Doc. No. 61 in 9-ap-859, among other places. Mona Lisa counters that “plaintiffs' identical declarations that they should have rescinded had they known of these rights amount to nothing more than the restatement of the bald allegations of their Complaint with no supporting facts.” . 15 U.S.C. § 77a, et seq. . Fla. Stat. § 517.011, et seq. . SEC v. Kirkland, 521 F.Supp.2d 1281, 1289 (M.D.Florida 2007); Alunni v. Development Resources Group, LLC, 2009 WL 2579319 (M.D.Fla. Aug. 18, 2009) (citing United Housing Foundation Inc. v. Forman, 421 U.S. 837, 95 S.Ct. 2051, 44 L.Ed.2d 621 (1975)). . Securities and Exchange Commission v. W.J. Howey Co., 328 U.S. 293, 66 S.Ct. 1100, 90 L.Ed. 1244 (1946). . SEC v. Unique Fin. Concepts, Inc., 196 F.3d 1195, 1199 (11th Cir.1999). .Id. at 1199 (11th Cir.1999). A common enterprise also is possible when there is horizontal commonality involving a pooling of interests or profits in the transaction. SEC v. Kirkland, 521 F.Supp.2d 1281, 1292 (M.D.Fla.2007). No horizontal commonality exists in this case because it is undisputed that there was no pooling arrangement involved with this project. . SEC v. ETS Payphones, Inc., 408 F.3d 727, 732 (11th Cir.2005). . Albanese v. Fla. Nat'l Bank, 823 F.2d 408, 410 (11th Cir.1987). . Morris v. Bischoff, 1997 WL 128114, at 5 (M.D.Fla. March 4, 1997). . Id. . The debtor distributed various brochures and materials on a website to interested purchasers. The materials are attached as exhibits to plaintiffs' affidavits in the Bruno Adversary as Doc. No. 49, Exhibit 2 (the “Small Brochure”); Doc. No. 50, Exhibit No. 3 (the "Large Brochure”); and Doc. No. 51, Exhibit 3 (the “Website Materials”). . United Housing Foundation Inc. v. Forman, 421 U.S. 837, 858, 95 S.Ct. 2051, 44 L.Ed.2d 621 (1975). . Id. . Garcia v. Santa Maria Resort, Inc., 528 F.Supp.2d 1283, 1292 (M.D.Fla.2007). . See, e.g., Doc. No. 10-1, p. 9, ¶ 27(a). . E.g., SEC v. Kirkland, 521 F.Supp.2d 1281 (M.D.Fla.2007). . SEC no-aclion letters are not binding precedent, but courts can rely on them for their persuasiveness. Allaire Corp. v. Okumus, 433 F.3d 248, 254 (2d Cir.2006). . Guidelines As to the Applicability of the Federal Securities Laws to Offers and Sales of Condominiums or Units in a Real Estate Development, Securities Act, 1973 WL 158443, Release No. 33-5347, 1 Fed. Sec. L. Rep. (CCH) ¶ 1049 (Jan. 4, 1973). . Diamond Cove Associates, 1990 WL 287055 (Sept. 27, 1990) (This case does not identify the real estate development specifically as a "condo-hotel.” Rather, it is a condo development which is heavily oriented towards units being rented out to vacationers. The developer anticipated less than 20 percent of units serving as primary residences.); FC Beach Joint Venture, 1998 WL 278529 (May 29, 1998); Int’l Investment Properties, Inc., 1995 WL 451934 (July 28, 1995); Intrawest Corp., 2002 WL 31626919 (Nov. 8, 2002). . The Intrawest no-action letter strongly suggests buyers in that development could use their units for only two weeks a year by asking "what does the purchaser do with this resort property with the other 50 weeks of the year?” Section III. B. The SEC staff still recommended no enforcement action. . Guidelines, 1973 WL 158443, at 3. The Court notes that the SEC Guidelines also state that “limitations on the period of time the owner may occupy the unit ... suggests that the purchaser is in fact investing in a business enterprise, the return from which will be substantially dependent on the success of the managerial efforts of other person.” However, the more recent SEC no-action letters indicate this is only one factor among many that should be considered, and that how the developer advertised the units is also an important factor. . Fla. Stat. § 718.101 etseq. . Double AA Intern. Inv. Group Inc. v. Swire Pacific Holdings, Inc., 2010 WL 1258086, 6 (S.D.Fla. March 30, 2010) (aff'd (in part) Double AA Intern. Inv. Group, Inc. v. Swire Pacific Holdings, 637 F.3d 1169 (11th Cir.2011)). . Id. . First Sarasota Service Corp. v. Miller, 450 So.2d 875, 878 (Fla.App. 2 Dist.1984). . Fla. Stat. 718.202(6). . Florida Administrative Code Rule 61B-17.009(1). In the its first summary judgment opinion, the Court found an issue of fact precluded summary judgment as to whether 620Mona Lisa had properly obtained this needed approval by the Director before using the Under 10% Escrow deposits. In re Mona Lisa at Celebration, 436 B.R. 179, 201-02 (Bankr.M.D.Fla.2010). . Fla. Stat. § 718.202(3). . Fla. Stat. § 718.202(3). . CRC 603, LLC v. North Carillon, LLC, 77 So.3d 655, 657 (Fla.App.Dist.3d 2011). . Id. . Doc. No. 177. . § 718.202(3). . § 718.202(1). . Prospectus, Ex. 4, Doc. No. 48; Doc. No. 125, Ex. 1. . Doc. No. 125, Exhibit 3. . Memorandum Opinion Denying Defendant’s Motion to Dismiss at 12 (Doc. No. 92 in Case No 9-ap-49; Doc. No. 40 in Case No. 9-ap-769). . Doc. 65 Exhibit 4 in 9-ap-770. . Doc. No. 125 Exhibit 1. . Fla. Stat. 718.202(11). See CRC 603, LLC, 77 So.3d 655. . Doc. No. 224 at 3. . Id, at 5 (except for a single plaintiff whose deposits were segregated 16 months after the funds were established). The Court need not address this singular issue because all plaintiffs are entitled to recovery based on Mona Lisa’s violation of the escrow agreement in § 718.202(3). . Doc. No. 205 at 17. . Id. at 17-19. See also Doc. No. 205, Exhibit 2. . Doc. No. 205, Exhibit 2. This summary is consistent with the SunTrust records submitted by Mona Lisa. . Doc. No. 223 at 3. . An argument of “no harm, no foul” is circular reasoning because plaintiffs would have to wait until their assets are lost before they can act under § 718.202. Double AA Intern. Inv. Group, Inc. v. Swire Pacific Holdings, Inc. 2010 WL 1258086, 21 (S.D.Fla.2010). . No private cause of action exists under § 718.202 against SunTrust, as escrow agent, for these failures. Double AA Intern. Inv. Group, Inc. v. Swire Pacific Holdings, Inc., 637 F.3d 1169, 1171 (11th Cir.2011). See infra, Count XVI. . Interestingly, § 718.202 places no similar restrictions on the use of the Under 10% Escrow, presumably because buyers are protected by the equivalent surety bond. . Fla. Stat. § 718.202(3). . Fla. Stat. § 718.202(3) (emphasis added). . Doc. No. 205 at 11. . Doc. No. 205 at 10-15. . Doc. No. 208 at 51. . He claims this transfer process was necessary because when expenses became payable, the Over 10% Escrow lacked sufficient funds to pay them. In other words, Mona Lisa argues these payments were reimbursements for proper expenses already paid from another account. . Doc. No. 230 at 13 (citing Merriam-Webster’s Dictionary). . Doc. No. 230 at 13 (citing Florida Statute § 718.202(3))(emphasis added). . Doc. No. 230 at 13. . Doc. No. 230 at 14. . Rollins v. Pizzarelli, 761 So.2d 294, 297 (Fla.2000) (noting "when the language of the statute is clear and unambiguous and conveys a clear and definite meaning ... the statute must be given its plain and obvious meaning.”). . Douglas County Bd. Of Equalization v. Fidelity Castle Pines, 890 P.2d 119 (Colo.1995). Construction and Development Financing § 3:141(3d Ed). See also In re GIC Government Securities, Inc., 98 B.R. 71, 72 (Bankr.M.D.Fla.1989) (recognizing certain soft costs relating to the development, such as appraisal fees, engineering costs, and the franchise application fee). . People v. Montague, 280 Mich. 610, 274 N.W. 347 (1937); Home-Owners Ins., Co. v. Thomas Lowe Ventures, Inc., 1998 WL 1856221 at 4-6 (Mich.Cir.Ct. August 27, 1998). See also Amsel v. Brooks, 141 Conn. 288, 106 A.2d 152, 158 (1954) (Advertising means the act or practice of attracting public attention to a product, service, or business, directly or indirectly, for the purpose of inducing a sale by emphasizing desirable qualities). . See Metromedia, Inc. v. City of San Diego, 453 U.S. 490, 526, 101 S.Ct. 2882, 69 L.Ed.2d 800 (1981) (discussing advertising display signs in an opinion regarding First Amendment rights). . See Abdnour v. Abdnour, 19 So.3d 357, 364 (Fla.App.2d Dist.2009) (Money is fungible and once it is comingled it loses it separate character). . Other sections of the Florida Condominium Act, such as Fla. Stat. § 718.505, allows for good faith noncompliance with disclosure requirements. Section 718.202, however, contains no good faith exception. . Fla. Stat. § 718.202(5). . § 718.202(5) (emphasis added). . Fla. Stat. § 718.125 allows the prevailing party to recover attorneys' fees. Paragraph 25 of the purchase contracts provides the prevailing party is entitled to attorney fees and costs for breach of contract. Doc. No. 125 Exhibit 7. . All plaintiffs paid deposits in amounts over 10% of their purchase prices except the Byrnes, who paid deposits totaling exactly 10% of the purchase price for their two units, 303 and 319. The Byrnes are not entitled to recovery under Fla. Stat. § 718.202. But, the Byrnes signed Updated Purchase Agreements and are entitled to recover their deposits, with interest, costs, and fees, under Count VIII. . Contracts for Unit Nos. 136, 218, 219, 221, 237, 511, 523, 536, 538, 545, and 547. . Id. . Id. . Doc. No. 228 at 23; Doc. No. 125. . Pretka, 2011 WL 841513 at 4. . Doc. No. 205 at 19 (citing Cuellar v. Harbour East Development, Ltd., 2011 WL 2550461 at 2 (Bankr.S.D.Fla. June 20, 2011)). . Id. . Part V of the Condominium Act "Regulation and Disclosure Prior to Sale of Residential Condominiums” largely governs to enforcement and oversight of the Act. . Bruce v. O’Neill, 445 So.2d 379 (Fla.App. 4th Dist.1984); Pretka, 2011 WL 841513. . Pretka, 2011 WL 841513 at 5 (emphasis added) (rejecting defendant’s motion to dismiss and holding "[a] trier of fact may need to weigh each of [the § 718.505] factors separately or in relationship to each other in determining whether a developer substantially complied with section 718.202(3).”). . The Court disagrees with Pretka v. Kolter City Plaza II Inc., 2011 WL 3204256 to the extent it required the plaintiffs to allege prejudice. . Bruce, 445 So.2d at 380 ("We are doubtful as to the cause of action for statutory rescission [under section 718.506] where there is absolutely no demonstration that the plaintifPpurchaser was even slightly prejudiced by the technical statutory noncompli-628anee of the seller.”); Beach Place Joint Venture v. Beach Place Condo. Assoc., 458 So.2d 439, 441 (Fla.App.2d Dist.1984) (“Appellant urges that a good faith attempt was made to comply with the Condominium Act, Chapter 718, Florida Statutes, and that the recording error should not be used to provide a windfall to the condominium owners. We agree.”). . Doc. No. 177 at ¶ 222. . Fla. Stat. § 718.202(1) (emphasis added). . Doc. No. 125 Exhibit 1 at 4. . Mgmt. Computer Controls, Inc. v. Charles Perry Constr., Inc., 743 So.2d 627, 631 (Fla.App. 1st Dist.1999); see also OBS Co. v. Pace Constr. Corp., 558 So.2d 404, 406 (Fla.1990) (“It is a generally accepted rule of contract law that, where a writing expressly refers to and sufficiently describes another document, that other document, or so much of it as is referred to, is to be interpreted as part of the writing.”). The ability to incorporate by reference applies equally to statutes. See Century Vill., Inc. v. Wellington E, F, K, L, H, J, M, & G, Condo. Ass’n., 361 So.2d 128, 133 (Fla.1978); Geico Indent. Co. v. Virtual Imaging Services, Inc., 2011 WL 5964369, 5 (Fla.App.3d Dist.2011). .Fla. Stat. § 718.202(l)(a) reads "If a buyer properly terminates the contract pursuant to its terms or pursuant to this chapter, the funds shall be paid to the buyer together with any interest earned.” . Fla. Stat. § 718.502(Z)(a). See also Clone, Inc. v. Orr, 476 So.2d 1300, 1302 (Fla.App. 5th Dist.1985). . Doc. No. 57 at 19-20 in Case No. 9-ap-770. See infra Counts I-IV. . Defendant’s Responses and Objections to Plaintiffs’ Requests for admission. Doc. No. 46 in 9-ap-859 Exhibit 1. In answer no. 6, Mona Lisa admits it did not submit its post-March 2006 agreement to Division. . Doc. No. 76 at 8 in 9-ap-770; Doc. No. 225 at 14. . Doc. No. 225 at 14. . Fla. Stat. § 718.103(23) (emphasis added). . Doc No. 61 in 9-ap-859. . Mona Lisa is mistaken, however, when it suggests "this Court held in its August 2010 Opinion that Mona Lisa is not a residential condominium.” What the Court specifically held was that Mona Lisa was not selling residential units within a Community Development District based on plaintiffs' allegations under Fla. Stat. § 190.048 — it made no determination as to the residential nature of the individual units themselves. In re Mona Lisa at Celebration, 436 B.R. 179, 208 (Bankr.M.D.Fla.2010). . See infra, Counts V-VI. . Mona Lisa also argues that even if the Court finds the units to be residential, this section of the Act still does not apply because an administrative rule interpreting § 718.502 provides an exception. Administrative Rule 61B-17.006(2)(b) reads: No changes shall be made to the form purchase contract approved by the Division without first filing and obtaining acceptance of such changes from the Division. However, in an individual unit sale transaction using the form purchase contract approved by the Division, a change to the purchase contract or a modification made on the purchase contract or the attachment of a rider or addendum to such contract is not required to be filed with the Division provided that such change, modification, rider or addendum does not contain either a waiver or reduction of purchaser’s rights under Chapter 718, F.S., or a reduction of a developer’s duties under Chapter 718 F.S., and the rules promulgated there under, and is not otherwise inconsistent with Chapter 718.F.S. (Emphasis Added). The first sentence clearly requires all changes to a purchase form to be submitted to the Division. The second sentence refers to modifications of an "individual unit sale,” a scenario not applicable to the facts of this case because Mona Lisa was selling numerous units. Therefore, whether or not the change was material is irrelevant. This administrative rule sets forth the procedures a developer must follow if it alters documents required to be filed with the Division. See Garcia v. Swire, 2010 WL 1524230 at 4 (S.D.Fla. April 14, 2010). . Fla. Stat. § 718.502(l)(a). . Fla. Stat. § 718.202(l)(a). . Fla. Stat. § 718.125. Section 25 of the purchase contracts provides for reasonable attorney fees and costs to the prevailing party of any litigation arising out of the purchase contracts. . Fla. Stat. § 718.503. See In re Suncoast East Assoc., 241 B.R. 476 (Bankr.S.D.Fla.1999); Mona Lisa, 436 B.R. at 202-03; D&T Properties, Inc. v. Marina Grande Associates, Ltd., 985 So.2d 43 (Fla.App. 4th Dist.2008). . Fla. Stat. 718.503(b) (referring to § 718.504(24)). . See Doc. No. 61 at ¶ 56 in Case No. 9-ap-859, among other places. . Doc. No. 177 at ¶ 255. . Doc. No. 48 at 5. . See Prospectus, Doc. No. 48, and architectural renderings therein. . Specifically, see Small Brochure, pg. 10; Large Brochure, pg. 8; Website Material, pg. 1. . See D & T Properties, Inc., 985 So.2d at 49. . Id. . Doc. No. 45 at 14, citing Gentry, 2008 WL 1803637, 2-4 (S.D.Fla. April 21, 2008); Klinger, 502 So.2d at 1254; and Mastaler v. Hollywood Ocean Group, L.L.C., 10 So.3d 1114 (Fla.Dist.Ct.App. 4th 2009). Doc. No. 61 at ¶ 56-57 in Case No. 9-ap-859. . Gentry, 2008 WL 1803637 at 3; Klinger, 502 So.2d at 1254. . Gentry, 2008 WL 1803637 at 3. . Klinger, 502 So.2d at 1253-54. . Id. at 1254. . Mastaler, 10 So.3d 1114. . Id. at 1116. . Id. . Id. . Doc. No. 121. . Doc. No. 121 at ¶ 33. . Id. at ¶ 39. . Doc. No. 46. . Doc. No. 177 at V 254-55. . Chalfonte Dev. Corp. v. Rosewin Coats, Inc., 374 So.2d 618, 619 (Fla.App. 4th Dist.1979). . Id. . Kaufman v. Swire Pacific Holdings, Inc., 675 F.Supp.2d 1148, 1152 (S.D.Fla.2009). . Mona Lisa, 436 B.R. at 205. . Although neither the statute nor Florida case law under § 718.506 provide any guidance on the issue of what constitutes a "false” or "misleading” statement, courts generally find that similar statutes require that the rep-resentor knew or should have known the statement was false or misleading at the time it was made. See, e.g., Rollins, Inc. v. But-land, 951 So.2d 860, 877 (Fla.App.2d Dist.2006) (finding misleading advertising [under § 817.41] is a particularized form of fraud requiring plaintiffs to prove each of the elements of common law fraud in the inducement); Joseph v. Liberty Nat. Bank, 873 So.2d 384, 388 (Fla.App. 5th Dist.2004) (finding § 817.41 requires plaintiff to prove repre-sentor knew or should have known falsity of statement, as when proving fraud in the inducement). . Specifically, that (1) the units would be part of a development totaling three buildings; (2) the development would include an on-site, high-end restaurant and bar with over 6,000 square feet and additional outdoor patio seating in the courtyard; and (3) the development would include over 3,000 square feet of reception and meeting space. . Amended Complaint at ¶¶ 159-180, Doc. No. 10. . Doc. No. 46 Ex. 9; Doc. No. 89 Ex. 1. . Compare 2005 Declaration of Condominium'and 2007 Declaration of Condominium. . See Doc. No. 125 at ¶ 5. . Evers v. General Motors Corp. 770 F.2d 984, 986 (11th Cir.1985). .Doc. No. 125, at ¶ 5. . These allegations appear in Counts XVI (false misrepresentation under FDUTPA § 501.201), Count XVII (fraudulent misrepresentation), Count XIX (negligent misrepresentation), and Count XX (unilateral mistake) of plaintiffs’ Second Amended Complaint (Doc. No. 32 in 9-ap-859). . A FDUTPA claim requires (1) a deceptive act or unfair practice; (2) causation; and (3) actual damages. Bookworld Trade, Inc. v. Daughters of St. Paul, Inc., 532 F.Supp.2d 1350, 1364 (M.D.Fla.2007) (citation omitted). To state a claim for negligent misrepresentation, Florida law requires a plaintiff to allege: “(1) misrepresentation of a material fact; (2) that the representor made the misrepresentation without knowledge as to its truth or falsity or under circumstances in which he ought to have known of its falsity; (3) that the representor intended that the misrepresentation induce another to act on it; and (4) that injury resulted to the party acting in justifiable reliance on the misrepresentation.” Holguin v. Celebrity Cruises, Inc., 2010 WL 1837808, *1 (S.D.Fla.2010). Fraudulent misrepresentation in Florida requires: "(1) a false statement concerning a material fact; (2) the representor’s knowledge that the representation is false; (3) an intention that the representation induce another to act on it; and (4) consequent injury by the party acting in reliance on the representation.” Butler v. Yusem, 44 So.3d 102, 105 (Fla.2010). Note that justifiable reliance is not an element of fraudulent misrepresentation. Specialty Marine & Industrial Supplies, Inc. v. Venus, 66 So.3d 306, 310 (Fla.App. 1st Dist.2011). . Fla. Stat. § 501.201 et seq. . In re Florida Cement and Concrete Antitrust, 746 F.Supp.2d 1291, 1320-21 (S.D.Fla.2010). . Zlotnick v. Premier Sales Group, Inc., 480 F.3d 1281, 1284 (11th Cir.2007) (citations omitted). . Doc. No. 39 in 9-ap-859. Prato v. Hacienda Del Mar, LLC, 2011 WL 161787 (M.D.Fla. Jan. 18, 2011) (citing Trotta v. Lighthouse Point Land Co., LLC, 551 F.Supp.2d 1359, 1367 (S.D.Fla.2008) (rev’d on other grounds); Pugliese v. Pukka Dev., Inc., 550 F.3d 1299 (11th Cir.2008)). . Fla. Stats. § 501.207; § 501.211(2) & § 501.2105. . There can be no per se violation of FDUT-PA based on alleged but unfounded violations of ILSFDA. Mona Lisa, 436 B.R. at 208. . Plaintiffs cite Semtek Int’l, Inc. v. Lockheed Martin Corp., 531 U.S. 497, 504, 121 S.Ct. 1021, 149 L.Ed.2d 32 (2001) and a number of similar Florida cases for the proposition that the "expiration of the applicable statute of limitations merely bars the remedy and does not extinguish the substantive right." But they cherry-picked this quotation from the middle of a longer sentence having to do with claim-preclusion. Neither the sentence fragment nor the complete sentence supports plaintiffs’ argument. . Id. (citing Double AA, 674 F.Supp.2d at 1357; Edgewater By the Bay, LLLP v. Gaunchez, 419 B.R. 511 (Bankr.S.D.Fla.2009)). . In re Samuels, 176 B.R. 616, 628 (Bankr.M.D.Fla.1994); Suris v. Gilmore Liquidating, Inc., 651 So.2d 1282, 1283 (Fla.Dist.Ct.App.3d 1995). . Doc. No. 65 in 9-ap-770. Mona Lisa maintains "[n]one of Mona Lisa’s Purchase Contracts with buyers contain the language set forth in Florida Statutes § 190.048 because Mona Lisa did not offer “residential” units for sale within a Community Development District.” . Doc. No 61 at ¶ 67 in 9-ap-859. . 16 C.F.R. § 460.16 requires sellers of new homes to provide the thickness, and R-value of the insulation that will be installed in each part of the house. . Doc. No. 61 in 9-ap-859. . Fla. Stat. § 720.401(l)(a). . Id. . Fla. Stat. § 720.401(c). . Id. (emphasis added). See Florida Farm, LLC v. 360 Developers, LLC, 45 So.3d 810 (Fla.App.3d Dist.2010). . Fla. Stat. § 718.102 ("Every condominium created and existing in this state shall be subject to the provisions of this chapter.”). . "Purchaser, by virtue of ownership of the Unit, shall automatically become a member of the Association, and shall be obligated to pay assessments and other fees and charges in accordance with the Declaration and exhibits thereto, described elsewhere in this Contract or in materials delivered to Purchaser contemporaneously with or prior to the Effective Date of this Contract.” (Doc. No. 125 Exhibit 7). . Doc. No. 177 at 58-62. . Plaintiffs appear to have dropped their argument that Mona Lisa breached Paragraph 3 of the Updated Purchase Agreements by failing to complete construction of the units within two years after the dates the agreements were signed. Mona Lisa obtained its Certificate of Occupancy on May 7, 2008. Doc. No. 26 in Adversary Proceeding No. 9-859. Even assuming that Mona Lisa finished construction on May 7, 2008, the latest date by which Mona Lisa could have finished construction, no plaintiff signed the Updated Purchase Agreement before May 7, 2006. Therefore, because all of the plaintiffs who signed the Updated Purchase Agreement did so on or after May 29, 2006, no plaintiff can claim that Mona Lisa breached Paragraph 3 of the Updated Purchase Agreement. Mona Lisa timely completed construction. .Border Collie Rescue, Inc. v. Ryan, 418 F.Supp.2d 1330, 1342-43 (M.D.Fla.2006). . Denson v. Stack, 997 F.2d 1356, 1361 (11th Cir.1993). . Plaintiffs also argue that they could not legally close on their units because Mona Lisa failed to properly update the relevant declaration of condominium after it completed construction as required by § 718.104(4)(e) of the Florida Statutes. The Court finds that the plaintiffs' claim on this point is untimely pursuant to § 718.110(10) and is moot, given the undisputed fact numerous other non-plaintiff purchasers have closed on their units. See, Haberman Declaration, Doc. No. 65 in Adversary Proceeding No. 9-770. . Hollander v. K-Site Assocs., 630 So.2d 1153, 1154 (Fla.App.3d Dist. 1993). . Henry v. Ecker, 415 So.2d 137, 140 (Fla.App. 5th Dist.1982). . Id. . The Original Purchase Agreements specified April 30, 2007, as the Estimated Closing Date, while the Updated Purchase Agreements specify either July or September 2007, as the Estimated Closing Date. . 568 F.Supp.2d 1354, 1366 (M.D.Fla.2008). . Although the contracts also specified an estimated closing date, the court in Hatvey found a breach of contract when the developer failed to complete construction by the mandatory two-year deadline. . Id. . Doc. No. 208 at 73-76. . Doc. No. 44 in 9-ap-859 Affidavit of Charles D. Brecker. . Finding that the Estimated Closing Date in the Original Purchase Agreements was flexible and that time was not of the essence, plaintiffs then had the obligation to demand Mona Lisa deliver their units in a timely fashion and demonstrate that Mona Lisa thereafter failed to perform. Plaintiffs never made any such demands, and, as such, now cannot demonstrate that Mona Lisa failed to timely deliver any units. . Doc. No. 47 at ¶ 15 in Case No. 9-ap-859; Doc. No. 57 at 17 in 9-ap-770. . See e.g. Doc. No. 203 at 9, Plaintiffs' Affidavits in which plaintiffs allege: “there is absolutely no evidence that any of the Plaintiffs had actual and timely notice of any changes in the Estimated Closing Date or that any of the plaintiffs waived any of their contractual rights.” . Doc. No. 70 at ¶ 36-37 in 9-ap-859. . Doc. No. 208 at 81. . See Doc. No. 49 at 81 in 9-ap-49 listing "examples” of communications sent to plaintiffs.” . Doc. No. 45 Exhibit 9 in 9-ap~859. . Id. .Mona Lisa, 436 B.R. at 210. . Doc. No. 125, Exhibit 1. . Double AA Intern. Inv. Group Inc. v. Swire Pacific Holdings, Inc., 637 F.3d 1169, 1171 (11th Cir.2011) (citing United Auto. Ins. Co. v. A 1st Choice Healthcare Sys., 21 So.3d 124, 128 (Fla.App.3d Dist.2009)). . SunTrust has filed a cross-claim against Mona Lisa. Doc. No. 90. Mona Lisa has filed an answer. Doc. No. 95. The issue is not decided here because neither party has moved for summary judgment as to SunTrust's cross-claim. . Doc. No. 205 at 23-24. . Doc. No. 125, Exhibit 3, at ¶ 4. . Id. . Johnson v. Johnson, 725 So.2d 1209, 1212-13 (Fla.App.3d Dist.1999). . Westchester has filed a cross-claim against Mona Lisa seeking indemnity from Mona Lisa for all amounts owed by Westches-ter, including fees and costs. Doc. No. 89. Mona Lisa has replied. Doc. No. 96. Neither party has filed a motion for summary judgment on this cross claim. . State law determines the extent and validity of a debtor’s interest in property. In re Scanlon, 239 F.3d 1195, 1197-98 (11th Cir.2001); Butner v. United States, 440 U.S. 48, 54, 99 S.Ct. 914, 59 L.Ed.2d 136 (1979). . All references to the Bankruptcy Code refer to 11 U.S.C. § 101 etseq. . 11 U.S.C. § 541(d). See also T & B Scottdale Contractors, Inc. v. United States, 866 F.2d 1372, 1376 (11th Cir.1989); Scanlon, 239 F.3d. at 1197-98. . Doc. No. 177 at 62-63 (citing 11 U.S.C. § 541(d) and Butner, 440 U.S. 48, 99 S.Ct. 914 (1979)). . In re Cedar Rapids Meats, Inc., 121 B.R. 562, 567 (Bankr.N.D.Iowa 1990) (citing In re Sun, 116 B.R. 767, 771 (Bankr.D.Haw.1990)). . In re Cedar Rapids Meats, Inc., 121 B.R. at 567 (citing In re Dolphin Titan Intern., Inc., 93 B.R. 508, 512-13 (Bankr.S.D.Tex.1988)). . In re Berkley Multi-Units, Inc., 69 B.R. 638 (Bankr.M.D.Fla.1987); Scanlon, 239 F.3d at 1197-98; In re Hallmark Builders, Inc., 205 B.R. 971, 973 (Bankr.M.D.Fla.1996). . Dickerson v. Central Florida Radiation Oncology Group, 225 B.R. 241, 244 (M.D.Fla.1998). . See In re Royal Business School, Inc., 157 B.R. 932, 941-42 (Bankr.E.D.N.Y.1993); In re Dolphin Titan Intern., Inc., 93 B.R. 508, 512-13 (Bankr.S.D.Tex.1988). . Doc. No. 205 at 6. . See In re Royal Business School, Inc., 157 B.R. 932, 940 (Bankr.E.D.N.Y.1993) (an escrow grantee has an equitable interest in property until full performance of the conditions of the escrow have been met, at which time legal title to the property in escrow will vest in the grantee). . Even though plaintiffs have proven they are entitled to return of their deposits, the Eleventh Circuit has held § 718.202 does not authorize a private cause of action against an escrow agent. See Double AA Intern. Inv. Group, Inc. v. Swire Pacific Holdings, Inc., 637 F.3d 1169, 1171 (11th Cir.2011) (citing United Auto. Ins. Co. v. A 1st Choice Healthcare Sys., 21 So.3d 124, 128 (Fla.App.3d Dist.2009) (overturning Swire, "Absent a specific expression of legislative intent, a private right of action may not be implied.”)). For the same reasons, no private cause of action under § 718.202 shall be maintained against the surety, Westchester. Plaintiffs’ actions against Westchester to recover their deposits may only be based on the contractual obligations under the surety agreement. .Westchester's cross claim, at Doc. No. 89, indicates that the total amount under Surety agreement is $6,750,000. However, the surety bond and rider indicate the total amount of the surety increased from $5,000,000 to $6,575,000. Doc. No. 125 Exhibit 3 (Rider). . Doc. No. 502, Amended Order Confirming Plan of Liquidation.	01-04-2023	11-22-2022
https://www.courtlistener.com/api/rest/v3/opinions/8494743/	MEMORANDUM DECISION MICHAEL B. KAPLAN, Bankruptcy Judge. I.INTRODUCTION This matter comes before the Court upon (i) the motion (“Defendant’s Motion”) of the Defendant, Anthony P. D’Amore, III, (“Defendant”) for summary judgment to dismiss Plaintiffs, Charles Kelly (“Kelly”), Eugene Guerin, James Guerin, Louis Filoso, Michael Reilly, Steven Langan, James Carey and Marsena Carey’s (collectively the “Individual Plaintiffs”) adversary complaint to declare nondischargeable certain debts of the Defendant, and (ii) the cross motion (“Cross Motion”) of the Individual Plaintiffs for summary judgment as to liability, as well as relief from the automatic stay. The Court has reviewed the pleadings submitted and heard oral argument on February 27, 2012. The Court issues the following ruling: II. JURISDICTION The Court has jurisdiction over this contested matter under 28 U.S.C. §§ 1334(b), 1334(e)(1), 157(a) and the Standing Order of the United States District Court dated July 10, 1984, referring all bankruptcy cases to the bankruptcy court. This matter is a core proceeding within the meaning of 28 U.S.C. § 157(b)(2)(I). Venue is proper in this Court pursuant to 28 U.S.C. §§ 1408 and 1409. The following constitutes the Court’s findings of fact and conclusions of law as required by Fed. R. Bankr.P. 7052.1 III. PROCEDURAL HISTORY/FACTS Sofia Homes, LLC (“Sofia Homes”) was formed as a construction company focusing on the development and construction of residential housing projects. Sofia Design & Development at South Brunswick, LLC (“SDD”) is a limited liability company (“LLC”) established to own property for purposes of development. Defendant was an officer and member of Sofia Homes and SDD (collectively the “Sofia Entities”). 684With the exception of Plaintiff Steven Lan-gan, each of the Individual Plaintiffs is a member of one or both of the Sofía Entities. The Sofia Entities received loans from Amboy Bank and Investors Savings Bank to fund the construction projects of Gateway Commons and Liberty Crossing (collectively the “Loans”). The terms of the Loans restricted the use of the funding specifically to the respective projects. Defendant alleges that Kelly violated the Loan agreements by using the funds to write checks and pay bills for ventures unrelated to the Gateway Commons and Liberty Crossing projects (collectively the “Projects”). Specifically, Defendant claims that Kelly: (1) wrote checks to pay contractors and bills for the renovation of his sister’s apartment; (2) paid back investors with money that was designated for the completion of the Projects; and (3) wrote checks from the Sofia Entities’ accounts and incurred charges on the Sofia Entities’ credit cards without documenting the expenses in the ledgers, and without alerting the Defendant or the bookkeeper of such transactions. Defendant contends that Kelly’s conduct threatened the solvency of the Sofia Entities and stalled the completion of the Projects. In order to prevent any further harm by Kelly, Defendant contends that he withdrew the remaining funds from the construction account (the “Construction Funds”) and moved them into the account of Bay Dock Holdings, LLC (“Bay Dock”) — an entity owned by Roger Passarella (“Passarella”) and which now employs the Defendant. The Individual Plaintiffs maintain that Defendant improperly diverted Construction Funds in excess of $350,000.00 from the Sofia Entities between March and June of 2009. On December 23, 2009, Defendant resigned his office and membership in Sofia Homes. On March 22, 2010, an action was filed against Defendant, Bay Dock and Passarella in the Superior Court of New Jersey, Monmouth County, captioned Sofia Design & Development at South Brunswick, LLC, et al. v. Bay Dock Holding, LLC, et al. (MON-L-1430-10) (the “State Court Action”).2 In June of 2010, the members of SDD unanimously voted to remove Defendant from his office and terminate his membership. On August 20, 2010, Defendant filed a voluntary petition for relief under Chapter 7, staying the State Court Action as to Defendant. On October 4, 2011, CAD Contracting filed involuntary Chapter 7 petitions against the Sofia Entities. On October 5, 2011, the Individual Plaintiffs and the Sofia Entities executed a “SETTLEMENT, ASSIGNMENT & RELEASE AGREEMENT,” transferring to the Individual Plaintiffs all rights and interests in certain tort claims held by the Sofia Entities. On December 12, 2010, the Individual Plaintiffs filed the within adversary complaint (the “Adversary Complaint”), alleging the following claims against the Defendant: (1) fraud while acting in a fiduciary capacity; (2) defalcation while acting in a fiduciary capacity; (3) embezzlement; (4) larceny; and (5) usurpation of corporate opportunity. On December 21, 2011, the Defendant’s Motion was filed. Defendant contends that the Individual Plaintiffs have failed to establish a genuine dispute of material fact, or put forth a legal basis to preclude the entry of summary judgment in his favor. In this regard, Defendant argues that the transfer of the tort claims to the Individual Plaintiffs contravenes New Jersey Law; moreover, even if such transfer is permissible, the Individual Plaintiffs lack standing to pursue the 685claims. The Individual Plaintiffs oppose the relief, asserting that as a matter of law, they maintain causes of action independent of claims originally held by Sofia Homes and SDD. On January 13, 2012, the Individual Plaintiffs filed their Cross Motion. The Individual Plaintiffs argue that the Defendant has failed to establish a genuine dispute of material fact, or put forth a legal basis to preclude the entry of summary judgment in its favor as to: (1) Defendant’s liability arising from his breach of his fiduciary duties to each of the Individual Plaintiffs; and (2) the granting of relief from the automatic stay to pursue the State Court Action. Defendant opposes the relief, for the reasons expressed in support of Defendant’s Motion. For the reasons which follow, the Court grants Defendant’s Motion and denies the Cross Motion. IV. DISCUSSION A. Summary Judgment Standard. Summary judgment is appropriate where “the pleadings, the discovery, and disclosure materials on file, and any affidavits show there is no genuine dispute as to any material fact and the moving party is entitled to a judgment as a matter of law.” Fed.R.Civ.P. 56(c).3 As the Supreme Court has indicated, “Summary judgment procedure is properly regarded not as a disfavored procedural shortcut, but rather an integral part of the Federal Rules as a whole, which are designed ‘to secure the just, speedy, and inexpensive determination of every action.’ ” Celotex Corp. v. Catrett, 477 U.S. 317, 327, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986) (citing Fed.R.Civ.P. 1). In deciding a motion for summary judgment, the judge’s function is to determine if there is a genuine dispute for trial. Josey v. John R. Hollingsworth Corp., 996 F.2d 632, 637 (3d Cir.1993). The moving party bears the initial burden of demonstrating the absence of a genuine dispute of material fact. Huang v. BP Amoco Corp., 271 F.3d 560, 564 (3d Cir.2001) (citing Celotex Corp., 477 U.S. at 323, 106 S.Ct. 2548). In determining whether a factual dispute warranting trial exists, the court must view the record evidence and the summary judgment submissions in the light most favorable to the non-movant. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 249, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986). Issues of material fact are those “that might affect the outcome of the suit under the governing law.” Id. at 248, 106 S.Ct. 2505. An issue is genuine when it is “triable,” that is, when 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) (citations omitted). If the moving party will bear the burden of persuasion at trial, the party must support its motion with credible evidence — using any of the materials specified in Rule 56(c) — that would entitle it to a directed verdict if not controverted at trial. Celotex Corp., 477 U.S. at 331, 106 S.Ct. 2548. Such an affirmative showing shifts the “burden of production” to the party opposing the motion and requires the party to either demonstrate the existence of a “genuine [dispute]” for trial or 686to request additional time for discovery under Fed.R.Civ.P. 56(f). Fed.R.Civ.P. 56(e). Once the moving party establishes the absence of a genuine dispute of material fact, the burden then shifts to the non-moving party to “do more than simply show that there is some metaphysical doubt as to the material facts.” Matsushita, 475 U.S. at 586, 106 S.Ct. 1348. A party may not defeat a motion for summary judgment unless it sets forth specific facts, in a form that “would be admissible in evidence,” establishing the existence of a genuine dispute of material fact for trial. Fed.R.Civ.P. 56(e) (providing that in response to a summary judgment motion the “adverse party may not rest upon the mere allegations or denials of [its] pleading, but the adverse party’s response, by affidavits or as otherwise provided in this rule, must set forth specific facts showing that there is a genuine [dispute] for trial”). See also Fireman’s Ins. Co. of Newark, N.J. v. DuFresne, 676 F.2d 965, 969 (3d Cir.1982); Olympic Junior, Inc. v. David Crystal, Inc., 463 F.2d 1141, 1146 (3d Cir.1972). If the nonmoving party’s evidence is a mere scintilla or is not “significantly probative,” the court may grant summary judgment. Liberty Lobby, Inc., 477 U.S. at 249-50, 106 S.Ct. 2505. The non-mov-ant will prevail only if the evidence produced is of “sufficient quantum and quality” to allow a rational and fair-minded fact finder to return a verdict in his favor, bearing in mind the applicable standard of proof that would apply at trial on the merits. Id. at 249,106 S.Ct. 2505. B. Summary Judgment is Granted in Favor of the Defendant 1. Defendant Owed Fiduciary Duties of Care and Loyalty to the Individual Plaintiffs and the Sofia Entities. At the outset, the Court must address whether the Defendant owed a fiduciary duty to the Individual Plaintiffs and the Sofia Entities under New Jersey law. “In order to establish a cause of action for a breach of fiduciary duty in New Jersey, a plaintiff must show that the defendant had a duty to the plaintiff, that the duty was breached, that injury to plaintiff occurred as a result of the breach, and that the defendant caused that injury.” Goodman v. Goldman, Sachs & Co., CIV. 10-1247 FLW, 2010 WL 5186180, 10 (D.N.J. Dec. 14, 2010) (citing St. Matthew’s Baptist Church v. Wachovia Bank Nat. Ass’n, No. Civ.A. 04-4540, 2005 WL 1199045, 9 (D.N.J. May 18, 2005) (citing In re ORFA Sec. Litig., 654 F.Supp. 1449, 1457 (D.N.J.1987))). The Individual Plaintiffs contend that under New Jersey law, a managing member of an LLC owes fiduciary duties of care and loyalty to both the LLC and its non-managing members. The Individual Plaintiffs acknowledge that the New Jersey Limited Liability Company Act, N.J.S.A. 42:2B-1, et seq., (the “NJ LLC Act”), unlike its Delaware statutory counterpart, does not contain an express recitation of the fiduciary duties owing by LLC officers and/or members; indeed, the Individual Plaintiffs direct the Court to the Sofia Entities’ operating agreements (collectively the “Operating Agreements”) to determine the scope of the Defendant’s duties, and urge the Court to take guidance from the common law of both New Jersey and Delaware relative to partnerships and corporations. New Jersey enacted the NJ LLC Act in 1994 to enable members and managers of LLCs “to take advantage of both the limited liability afforded to shareholders and directors of corporations and the pass through tax advantages available to partnerships.” Kuhn v. Tumminelli, 366 N.J.Super. 431, 439, 841 A.2d 496 (App. 687Div.2004) (citing Senate Commerce Committee Statement, S. Doc. No. 890, at 1 (June 14, 1993)). The NJ LLC Act provides that when “a limited liability company is managed by its members, unless otherwise provided in the operating agreement, each member shall have the authority to bind the limited liability company.” N.J.S.A. § 42:2B-27(b)(l). Further, “[except as otherwise provided in an operating agreement, a member or manager may lend money to, borrow money from, act as a surety, guarantor or endorser for, ... [an LLC].” § 42:2B-9. As a result, members are free to structure an operating agreement to either restrict or expand rights, responsibilities and authority of its managers and members. See Tumminelli, 366 N.J.Super. at 431, 841 A.2d 496. Consequently, the statutory provisions of the NJ LLC Act control in the absence of a contrary provision in an operating agreement. Id. The Court must liberally construe the NJ LLC Act “to give the maximum effect to the principle of freedom of contract and to the enforceability of operating agreements.” N.J.S.A. § 42:2B-66(a). Here, the Operating Agreements do not explicitly reduce or limit a manager’s or member’s fiduciary duties. The SDD Operating Agreement, for example, states in pertinent part: Rights and Obligations of Members. Except for Member voting contemplated or allowed under Section 7.1 of this Agreement and the Act, no Class B Member shall take part in the management or control of the business of the Company, nor shall any Class B Member have the power to sign for or bind the Company. A Class A Member is both a Manager and a Member of the Company and has the rights and powers, and is subject to the restrictions and liabilities of both a Member and a Manager. See Walsh Cert., Docket No. 25, Ex. A. at § 5.5 (emphasis added). Managers shall exercise their responsibility and duties to the Company with the highest level of fiduciary care and loyalty to the Company, in a prudent business manner, and will take all actions and make all votes in good faith consistent with such duties and the community benefits to be served by the Company. Id. at § 6.1.2 (emphasis added). * * Transaction with Members and Affiliates. Any contract or agreement or agreement with a Member must be approved by the Management Committee in accordance with the Company’s Conflict of interest policy. No contract action or transaction is void or voidable with respect to the Company because it is between or affects the Company or one or more of its Members or Managers ... if any one of the following applies: (i) The material facts as to his, her or their relationship or interest as to the contract, action, or transaction are disclosed or are known to the Members or Managers ... Id. at § 6.3.1. Liability for Certain Acts. Each Manager shall perform his or her duties in good faith, in a manner he or she reasonably believes to be in the best interest of the Company, and with such care as an ordinary prudent person in like position would use under similar circumstances. A Manager who performs his or her duties shall not have any liability to the Company or to any Member for any loss or damage 688sustained by the Company or any Member unless the loss or damage shall have been the result of fraud, gross negligence, willful misconduct or a wrongful taking by such manager. Id. at § 6.4 (emphasis added). While the cited provisions of the SDD Operating Agreement expressly state that a manager owes a fiduciary duty of care and loyalty to the company, the Operating Agreement remains silent as to whether fiduciary duties are owed to the nonmanaging members of SDD.4 Consequently, the Court need look to applicable law outside of the Sofía Entities’ Operating Agreements to determine whether a manager of the Sofia Entities owes a fiduciary duty to a non-managing member. In analyzing corporate law issues, the Court regards the decisions rendered by Delaware courts as a germane source of reference. See Lawson Mardon Wheaton, Inc. v. Smith, 160 N.J. 383, 398, 734 A.2d 738 (1999) (citing Lawson Mardon Wheaton v. Smith, 315 NJ.Super. 32, 61, 716 A.2d 550 (1998); Pogostin v. Leighton, 216 N.J.Super. 363, 373, 523 A.2d 1078 (App. Div.), certif. denied, 108 N.J. 583, 531 A.2d 1356, cert. denied 484 U.S. 964, 108 S.Ct. 454, 98 L.Ed.2d 394 (1987)).5 Like the Delaware Limited Liability Company Act (“Delaware LLC Act”), the NJ LLC Act is silent with respect to the nature of the fiduciary duties owing by and among members, leaving this issue to be developed by common law. See, e.g., N.J.S.A. § 42:2B-1, et seq.; see also Bay Ctr. Apartments Owner, LLC v. Emery Bay PKI, LLC, CIV. A. 3658-VCS, 2009 WL 1124451, 8, FN 33 (Del. Ch. Apr. 20, 2009) (citing See 6 Del. C. § 18-1104; Robert L. Symonds, Jr. & Matthew J. O’Toole, Delaware Limited Liability Companies § 9.04[B][3] (2007)). Therefore, when confronted with an LLC case, and lacking pertinent authority interpreting the NJ LLC Act, this Court follows the approach taken by the Delaware courts, which draws from the law of limited partnerships. See e.g., Bay Ctr. Apartments Owner, LLC, 2009 WL 1124451, 8, FN 33 (citing See, e.g., In re Seneca Invs. LLC, 970 A.2d 259, 2008 WL 5704773, at 2 (Del.Ch.Sept. 23, 2008); In 689re Silver Leaf, L.L.C., 2005 WL 2045641, at 10 (Del.Ch. Aug. 18, 2005)). It has been recognized in the context of limited partnerships that “each partner stands in a fiduciary relationship to every other partner.” Heller v. Hartz Mountain Indus., Inc., 270 N.J.Super. 143, 150-51, 636 A.2d 599 (N.J.Super.L.1993) (citing Neustadter v. United Exposition Service Co., 14 N.J.Super. 484, 493, 82 A.2d 476 (Ch.Div.1951)). The fiduciary relationship is “one of trust and confidence, calling for the utmost good faith, permitting of no secret advantages or benefits.” Heller, 270 N.J.Super. at 151, 636 A.2d 599 (citing Stark v. Reingold, 18 N.J. 251, 261, 113 A.2d 679 (1955) (citations omitted)). In cases where a managing partner controls the partnership’s business, that partner is held to the “strictest possible obligation” to his or her co-partner. 270 N.J.Super. at 151, 636 A.2d 599 (citing Silverstein v. Last, 156 NJ.Super. 145, 152, 383 A.2d 718 (App.Div.1978)); see also Bay Ctr. Apartments Owner, LLC, 2009 WL 1124451, 8, fn. 33 (“[ajbsent a contrary provision in the partnership agreement, the general partner of a Delaware limited partnership owes the traditional fiduciary duties of loyalty and care to the Partnership and its partners.”) (citing Gotham Partners, L.P. v. Hallwood Realty Partners, L.P., 2000 WL 1476663, at 10 (Del.Ch. Sept. 27, 2000)). Guided by the above principles, and consistent with the LLC cases recently decided by courts within the Third Circuit, this Court holds that absent a contrary provision in an LLC’s operating agreement, managing members of an LLC owe the traditional fiduciary duties of loyalty and care to non-managing members of that LLC. Bay Ctr. Apartments Owner, LLC, 2009 WL 1124451, 8; see also Douzinas v. Am. Bureau of Shipping, Inc., 888 A.2d 1146, 1149-50 (Del.Ch.2006); Metro Commc’n Corp. BVI v. Advanced Mobilecomm Techs. Inc., 854 A.2d 121, 153 (Del.Ch.2004); VGS, Inc. v. Castiel, 2000 WL 1277372, at 4-5 (Del.Ch.Aug. 31, 2000), aff'd 781 A.2d 696 (Del.2001).6 However, in the absence of management responsibility and control, members do not owe such fiduciary duties to each other. There is no basis in law “for imposing such a duty upon one member of an LLC in relation to others who stand on equal footing.” Antolino v. Quinn, A-2875-07T3, 2009 WL 1361592, 2 (N.J.Super.Ct.App.Div. May 18, 2009). 690Based upon the Operating Agreements and Defendant’s status as a Class A Shareholder of SDD, the Court finds that at all relevant times Defendant served as the managing member of the Sofia Entities, and therefore, owed fiduciary obligations of care and loyalty to the Individual Plaintiffs. As explained below, however, the Court concludes that the Individual Plaintiffs cannot pursue their claims in this action which are bottomed on the alleged breaches of duty. 2. The Individual Plaintiffs Cannot Pursue Their Claims in This Action. The Individual Plaintiffs contend that Defendant breached his fiduciary duties by: (1) misappropriating and/or diverting the Sofia Entities project funds to Bay Dock; and (2) deliberately concealing or misrepresenting his actions to the Individual Plaintiffs in order to divert said funds. In response, Defendant argues that while he may have originally testified that he felt he had a duty to disclose the transfer of the Construction Funds to Bay Dock, he did not in fact breach any such duty as a matter of law. Defendant, instead, takes the position that he diverted the Construction Funds to protect and preserve the Sofia Entities’ capital from improper usage by Mr. Kelly. Under New Jersey Corporate law, directors of a corporation are required to “discharge their duties in good faith and with that degree of diligence, care and skill which ordinarily prudent people would exercise under similar circumstances and in like positions.” In re Teleservices Group, Inc., 2009 WL 4250055, 7 (D.N.J. Nov. 25, 2009). “Where a director in fact exercises a good faith effort to be informed and to exercise appropriate judgment, he or she should be deemed to satisfy fully the duty of [care].” Teleservices Group, Inc., 2009 WL 4250055 at 7 (citing In re Caremark Int’l Inc. Derivative Litig., 698 A.2d 959, 968 (Del.Ch.1996)). “[D]ue care in the decision[ ]making context is process due care only.... Substantive review of business decisions ... is effected when decisions are tested for bad faith or waste.” 2009 WL 4250055 at 7 (citing Stanziale v. Nachtomi, 416 F.3d 229, 240 (3d Cir.2005)). “The duty of loyalty requires that the best interests of the corporation and its shareholders take precedence over any self-interest of a director, officer, or controlling shareholder that is not shared by the stockholders generally.” Id. (citing McCall v. Scott, 239 F.3d 808, 824 (6th Cir.2001)). “Fiduciaries breach their duty of loyalty by intentionally failing to act in the face of a known duty to act, demonstrating a conscious disregard for their duties.” Id. (citing Bridgeport Holdings Inc. Liquidating Trust v. Boyer, 388 B.R. 548, 564 (Bankr.D.Del.2008) (citing Stone v. Ritter, 911 A.2d 362, 369 (Del.2006))). In assessing whether a director violates his duty of loyalty, the Court must inquire as to whether the director has a conflicting interest in the transaction. Id. Directors qualify as “interested” if they “either appear on both sides of a transaction []or expect to derive any personal financial benefit from it in the sense of self-dealing, as opposed to a benefit which devolves upon the corporation or all stockholders generally.” Id. (citing In re Seidman, 37 F.3d 911, 934 (3d Cir.1994) (citation and internal quotes omitted)). Encompassed within the duties of loyalty and care is the fiduciary’s responsibility to act in good faith. Id. (citing Guttman v. Huang, 823 A.2d 492, 506 n. 34 (Del.Ch.2003) (stating that “[a] director cannot act loyally towards the corporation unless she acts in the good faith belief that her actions are in the corporation’s best interest”)). 691Under Delaware and New Jersey Law, the duty to disclose is encompassed within the duties of loyalty, care and good faith. See Eurofins Pharma U.S. Holdings v. BioAlliance Pharma SA, 623 F.3d 147, 158-59 (3d Cir.2010) (citing Big Lots Stores, Inc. v. Bain Capital Fund VII, LLC, 922 A.2d 1169, 1184 (Del.Ch.2006)); In re Reliance Sec. Litig., 135 F.Supp.2d 480, 519-20 (D.Del.2001); see also United Jersey Bank v. Kensey, 306 N.J.Super. 540, 551, 704 A.2d 38 (App.Div.1997). The duty to disclose, however, “is not a general duty to disclose everything the director knows about transactions in which the corporation is involved.” Eurofins, 623 F.3d at 158-59 (citing Big Lots, 922 A.2d at 1184). Rather, it is “[t]he intentional failure or refusal of a director to disclose to the board a defalcation or scheme to defraud the corporation of which he has learned, [which] itself constitutes a wrong.” 623 F.3d at 158-59 (citing Hoover Indus., Inc. v. Chase, 1988 WL 73758, at 338 (Del.Ch. July 13, 1988) (quoted in Big Lots, 922 A.2d at 1184)). For example, directors are required “to disclose fully and fairly all material obligations within the board’s control when it seeks shareholder action.” In re Reliance Sec. Litig., 135 F.Supp.2d at 519-20 (citing Stroud v. Grace, 606 A.2d 75, 84 (1992)). An omitted fact is material if there is a “substantial likelihood that the disclosure of the omitted fact would have been viewed by the reasonable investor as having significantly altered the ‘total mix’ of information made available.” Scheidt v. DRS Technologies, Inc., 424 N.J.Super. 188, 204-05 (App.Div.2012) (citations omitted). Generally, there are three types of transactions where the duty to disclose arises: (1) where a fiduciary relationship exists between the parties; (2) where either party to the transaction “expressly reposes ... a trust and confidence in the other”; or (3) where the nature of the transaction calls for “perfect good faith and full disclosure.” United Jersey Bank v. Kensey, 306 N.J.Super. 540, 551, 704 A.2d 38 (App.Div.1997) (citations omitted); see also U.S. Small Bus. Admin. v. Katawczik, 107 Fed.Appx. 281, 285-86 (3d Cir.2004); see also Joseph Oat Holdings, Inc. v. RCM Digesters, Inc., CIV.06-4449(NLH)(JS), 2009 WL 900758 (D.N.J. Mar. 31, 2009) (citing Roll v. Singh, 2008 WL 3413863, 7 (D.N.J.2008) (finding that there was a fiduciary duty between the majority shareholder and the minority shareholder, thus creating a duty to disclose material information)). The Individual Plaintiffs contend that Defendant owed a duty to disclose that he was diverting the Construction Funds to his co-employer Bay Dock. At his deposition, Defendant testified that he did not advise the Individual Plaintiffs before diverting the Construction Funds. See Walsh Cert., Docket No. 25, Ex. D. at 78:2-79:23. Further, Defendant testified that he eliminated the Individual Plaintiffs access to the Sofia Entities’ Quickbooks records during the time period that he diverted the Construction Funds. Id. at 74:9-75:8. Moreover, the Individual Plaintiffs maintain that when questioned by Mr. Kelly about the status of the construction loan advances, the Defendant failed to disclose that he had previously arranged for the transfer of the Construction Funds from the Sofia Account to Bay Dock’s Account. The Defendant asserts that he diverted the Construction Funds to prevent Mr. Kelly from improperly using them in violation of the loan agreements. At Mr. Kelly’s deposition, he testified that he was using Sofia Home’s capital to pay for the renovation of his sister’s apartment when he knew that the loan monies were only to be used for the corresponding Projects. 692See D’Amore Cert., Docket No. 26, Ex. D. at 96:8-19 & 117:19-118:6. Thus, Defendant claims that he moved the Construction Funds to Bay Dock’s bank account to prevent Mr. Kelly from further using those monies for the renovation of his sister’s apartment. Moreover, Defendant contends that Bay Dock actually paid out more money on account of the Sofia Entities’ obligations than it was transferred by the Defendant. Defendant further submits that these excess payments were necessitated by Mr. Kelly’s submission of improper invoices for payments made out of the Construction Funds. Notwithstanding his admitted diversion of the Construction Funds, Defendant contends that the Individual Plaintiffs lack standing to assert the breach of fiduciary duty claims set forth in the Adversary Complaint because they do not constitute a cause of action separate and distinct from any claim that could be brought by the Sofia Entities. The Individual Plaintiffs counter that they maintain direct causes of action against Defendant for breach of fiduciary duties that resulted in injuries independent of those allegedly sustained by the Sofia Entities. The central issue before this Court, to be decided before reaching the issue of Defendant’s alleged breaches of duty, is whether the harm traceable to Defendant’s alleged breach of fiduciary duties should be redressed in this action brought by the Individual Plaintiffs, or must instead be pursued, if at all, by the Sofia Entities through their appointed Chapter 7 trustees. Consistent with 11 U.S.C. § 323 and Fed. R. Bank.P. 6009, the Chapter 7 trustees for the Sofia Entities alone are vested with the authority to act on behalf of these entities. “While such a claim [breach of fiduciary duty] is ordinarily derivative and not personal, see Strasenburgh v. Straubmuller, 284 N.J.Super. 168, 175-80, 664 A.2d 497 (App.Div.1995), aff'd in part, 146 N.J, 527, 683 A.2d 818 (1996), the claim can be considered to be personal if the oppressed minority shareholder can establish an injury distinct from the injury suffered by the shareholders in general.” Weil v. Express Container Corp., 360 N.J.Super. 599, 611, 824 A.2d 174 (App.Div.2003).7 A derivative lawsuit enables individual shareholders to assert claims to “enforce a corporate cause of action against officers, directors and third parties.” In re Sharkey, 272 B.R. 574, 581 (Bankr.D.N.J.2001) (citing Ross v. Bernhard, 396 U.S. 531, 534, 90 S.Ct. 733, 736, 24 L.Ed.2d 729 (1970)). “The purpose of the derivative action [i]s to place in the hands of the individual shareholder a means to protect the interests of the corporation from the misfeasance and malfeasance of ‘faithless directors and managers.’ ” Sharkey, 272 B.R. 574 at 581 (citing Strasenburgh v. Straubmuller, 146 N.J. 527, 548-49, 683 A.2d 818 (1996) (quoting Kamen v. Kemper Financial Servs., Inc., 500 U.S. 90, 95, 111 S.Ct. 1711, 1716, 114 L.Ed.2d 152 (1991) (quoting Cohen v. Beneficial Indus. Loan Corp., 337 U.S. 541, 548, 69 S.Ct. 1221, 1226, 93 L.Ed. 1528 (1949)))). The American Law Institute’s Principles of Corporate Governance: Analysis and Recommendations provides a comprehensive definition of the difference between a “derivative” action by a shareholder on behalf of a corporation, and a “direct” action by a shareholder on his behalf: (a) A derivative action may be brought in the name or right of a corporation 693by a holder ... to redress an injury sustained by, or enforce a duty owed to, a corporation. An action in which the holder can prevail only by showing an injury of breach of duty to the corporation should be treated as a derivative action. (b) A direct action may be brought in the name and right of a holder to redress an injury sustained by, or enforce a duty owed to, the holder. An action in which the holder can prevail without showing an injury or breach of duty to the corporation should be treated as a direct action that may be maintained by the holder in an individual capacity. 272 B.R. 574 at 582 (citing Brown v. Brown, 328 N.J.Super. 30, 36, 731 A.2d 1212 (App.Div.), certif. denied, 162 N.J. 199, 743 A.2d 851 (1999)). In Strasen-burgh, the New Jersey Supreme Court provides an example of conduct that would give rise to both types of actions: The example is of directors making a worthless investment in untested technology while touting the optimistic potential of the technology. Investors deceived by the recklessly optimistic statements that occasioned shareholders to buy or retain their shares may sue for the direct injuries that they suffered. Shareholders may also sue for the derivative injury to the corporation for the imprudent and wasteful investment in faulty technology. The distinction between the two types of action is crucial. Id. (citing Strasenburgh, 146 N.J. at 549, 683 A.2d 818). Indeed, “a thin line often separates actions that are derivative or individual.” Id. Thus, a shareholder may assert an individual cause of action “where there is a wrong suffered by [a] plaintiff that was not suffered by all stockholders generally or where the wrong involves a contractual right of the stockholders, such as the right to vote.” Kahn v. Rusckowski A-2181-08T2, 2010 WL 2696856, 5 (N.J.Super.Ct.App.Div. July 1, 2010). “To determine whether a complaint states a derivative or an individual cause of action, courts examine the nature of the wrongs alleged in the body of the complaint, not the plaintiffs designation or stated intention.” Kahn, 2010 WL 2696856 at 5. For example, claims brought against directors for the selective dissemination of information to one class of shareholders over another are individual in nature because the shareholders deprived of the information are affected unequally by the unfair dealing. Id.; see also Litman v. Prudential-Bache Properties, Inc., 611 A.2d 12, 15 (Del.Ch.1992) (contractual rights of shareholders such as the right to vote, or to assert majority control, are independent of any right of the corporation). As part of its analysis, a court must determine (1) whether the corporation or the suing stockholder suffered the alleged harm; and (2) whether the potential recovery results in a benefit to the corporation or the individual. Id.; see also Tooley v. Donaldson, Lufkin & Jenrette, Inc., 845 A.2d 1031, 1035 (Del.2004). One New Jersey court has blurred the distinction between derivative and individual actions with respect to closely held corporations: In the case of a closely held corporation ... the court in its discretion may treat an action raising derivative claims as a direct action, exempt it from those restrictions and defenses applicable only to derivative actions, and order an individual recovery, if it finds that to do so will not (i) unfairly expose the corporation or the defendants to a multiplicity of actions, (ii) materially prejudice the interests of creditors of the corporation, or 694(iii) interfere with a fair distribution of the recovery among all interested persons. Brown v. Brown, 323 N.J.Super. 30, 36, 731 A.2d 1212 (App.Div.1999). Within the bankruptcy context, the court lacks such discretion, and must dismiss the case if an individual shareholder mistakenly pleads a wholly derivative claim. Under 11 U.S.C. § 541, the bankruptcy trustee becomes a successor in interest to “all legal or equitable interests of the debtor in property as of the commencement of the case.” In re Total Containment, Inc., 335 B.R. 589, 620 (Bankr.E.D.Pa.2005). Likewise, 11 U.S.C. § 323 provides “(a) [t]he trustee in a case under this title is the representative of the estate ... (b) [t]he trustee in a case under this title has capacity to sue and be sued.” 11 U.S.C. § 323. Consequently, the “trustee stands in the shoes of the debtor and can only [sic] assert those causes of action possessed by the debtor.” Total Containment, Inc., 335 B.R. at 620. Therefore, the trustee must be the party to assert claims belonging solely to the corporate debtor. See 335 B.R. at 620; see also In re Transcolor Corp., 296 B.R. 343, 361 (Bankr.D.Md.2003) (“Accordingly, whenever a cause of action ‘belongs’ to the debtor corporation, the trustee has the authority to pursue it in bankruptcy proceedings.” In re Ozark Restaurant Equipment Co., 816 F.2d 1222, 1224 (8th Cir.1987)); see also In re DeMert & Dougherty, Inc., 271 B.R. 821, 838 (Bankr.N.D.Ill.2001) (“Among those powers, the trustee may bring claims against the debtor’s fiduciaries.”) (citing See Koch Refining v. Farmers Union Central Exchange, Inc., 831 F.2d 1339, 1343 (7th Cir.1987), cert. denied, 485 U.S. 906, 108 S.Ct. 1077, 99 L.Ed.2d 237 (1988) (“rights of action against officers, directors and shareholders of a corporation for breaches of fiduciary duties, which can be enforced by either the corporation directly or the shareholders derivatively before bankruptcy, become property of the estate which the trustee alone has the right to pursue after the filing of a bankruptcy petition.”)). After reviewing the evidence submitted, the Court finds that the Individual Plaintiffs may not recover the alleged breaches of Defendant’s fiduciary duties of care and loyalty. While the transfer of the Construction Funds could be characterized as one of the three types of transactions that would give rise to a duty to disclose, as a matter of law, the Court finds that Defendant owed no such duty of disclosure to the Individual Plaintiffs. The Court bases this finding on the fact that the allegedly stolen funds are proceeds of the Loans taken by the Sofia Entities and are thus corporate property. Therefore, any damages suffered initially flow through the Sofia Entities. As a matter of law, Defendant owed a duty to disclose the transaction to the Sofia Entities only, and thus, there was no breach of any such duty with respect to the Individual Plaintiffs. The Court’s decision is also informed by Mr. Kelly’s deposition testimony, wherein he confirmed his belief that his personal damages stemmed from the “expectation of making profits on Freehold, Wall Township, South Brunswick” and the consequential damage of being personally forced to file a Chapter 7 Petition as a result of the defaults that were caused by the Loans he personally guaranteed. See D’Amore Cert., Docket No. 26, Ex. D. at 49:25-50:17. The Individual Plaintiffs do not dispute that all damages alleged in the Adversary Complaint were initially suffered by the Sofia Entities, and only thereafter indirectly by the Individual Plaintiffs. The Court further determines that the Individual Plaintiffs’ claims for 695misappropriation of corporate funds and usurpation of corporate opportunities are distinct corporate causes of action, and do not give rise to an independent shareholder action.8 Given this conclusion, the Court holds that the Individual Plaintiffs lack standing to assert the derivative claims pleaded in the Adversary Complaint, and therefore, they are dismissed as a matter of law.9 Having dismissed the 696Adversary Complaint, the Court need not address the additional relief sought in the Cross Motion. Thus, the Court grants Defendant’s Motion, and denies the Cross Motion.10 V. CONCLUSION In light of the foregoing, the Court grants Defendant’s Motion, dismisses the Adversary Complaint, and denies the Cross Motion. Defendant is directed to submit a form of order reflecting the Court’s rulings. . To the extent that any of the findings of fact might constitute conclusions of law, they are adopted as such. Conversely, to the extent that any conclusions of law constitute findings of fact, they are adopted as such. . Trial was scheduled in the State Court Action for March 19, 2012. . Federal Rule of Civil Procedure 56 was amended as of December 1, 2010. As noted by the court in Guiliano v. Coy (In re Coy): Subdivision (a) now contains the summary judgment standard previously stated in subdivision (c). Fed.R.Civ.P. 56 Advisory Committee’s Note to 2010 Amendments ("Subdivision (a) carries forward the summary-judgment standard expressed in former subdivision (c), changing only one word — genuine 'issue' becomes genuine 'dispute.’ ‘Dispute’ better reflects the focus of a summary-judgment determination.”). 2011 WL 3667607, 2, 2011 Bankr.LEXIS 3196, 6-7 (Bankr.D.Del. Aug. 22, 2011). . The Sofia Operating Agreement contains virtually identical provisions to those cited herein, recognizing the liability for damages to the company and its members for breach of the manager’s duties, including, but not limited to, "fraud, deceit, gross negligence, willful misconduct or a wrongful taking[.]” See Walsh Cert., Docket No. 25, Ex. B. at § 7.06. . See also City of Roseville Employees’ Ret. Sys. v. Crain, CIV.A. 11-2919 JLL, 2011 WL 5042061, 3 (D.N.J. Oct 24, 2011) (New Jersey courts "generally follow Delaware’s pronouncements on corporate law, and therefore 'an appropriate source of reference is the case law of Delaware.' ") (citing In re Merck & Co. Sec., Derivative & ERISA Litig., 493 F.3d 393, 399 (3d Cir.2007); Seidman v. Clifton Sav. Bank, 2009 N.J.Super. Unpub. LEXIS 2267, at 9 n. 5, 2009 WL 2513797, at 9 (N.J.Super.Ct.App.Div. Aug. 19, 2009) (citation omitted)); Casey v. Amboy Bancorporation, A-0715-04T3, 2006 WL 2287024, 24 (N.J.Super.Ct.App.Div. Aug. 10, 2006) ("New Jersey courts find Delaware law 'helpful' when analyzing issues of corporate law.”) (citing Lawson, supra, 160 N.J. at 398, 734 A.2d 738; see also In re S. Canaan Cellular Investments, LLC, 10-MC-0057, 2010 WL 3306907, 7 (E.D.Pa. Aug. 16, 2010)) (Relying upon the Delaware Chancery Cases Kelly v. Blum, 2010 WL 629850, 1, 2010 Del. Ch. LEXIS 31, 3 (Del. Ch. Ct. Feb. 10, 2010) and Kuroda v. SPIS Holdings, LLC, 2010 Del. Ch. LEXIS 57, 25-26, 2010 WL 925853, 7-8 (Del. Ch. Ct. March 16, 2010), the United States District Court for the E.D. of Pennsylvania held that in the absence of an operating agreement altering the traditional fiduciary duties owed by an LLC’s managers and controlling members in a manager-managed LLC, those managers and controlling members owe the traditional fiduciary duties that directors and controlling shareholders in a corporation would, including the traditional duties of loyalty and care). . See also Moschillo v. Jovanov, A-3500-09T2, 2010 WL 5348725 (N.J.Super.Ct.App.Div. Dec. 29, 2010) ("coequal shareholders in a closely held corporation owe each other a fiduciary duty similar to that of a partnership.”) (citing See Balsamides v. Perle, 313 N.J.Super. 7, 14, 712 A.2d 673 (App.Div.1998), aff'd in part, rev’d in part, remanded sub nom Balsamides v. Protameen Chems., Inc., 160 N.J. 352, 734 A.2d 721 (1999)); Fortugno v. Hudson Manure Co., 51 N.J.Super. 482, 499, 144 A.2d 207 (App.Div.1958) ("Joint adventurers, like co-partners, owe to one another, while the enterprise continues, the duty of the finest loyalty.”) (quoting Stark v. Reingold, 18 N.J. 251, 261, 113 A.2d 679 (1955)); see also In re Allentown Ambassadors, Inc., 361 B.R. 422, 461 (Bankr.E.D.Pa.2007) (Applying North Carolina corporate law, the U.S. Bankruptcy Court for the E.D. of PA held that courts in North Carolina would hold that a manager of an LLC owes a duty to the individual members of the LLC that may be the subject of a claim for breach of fiduciary duty); In re S. Canaan Cellular Investments, LLC, 10-MC-0057, 2010 WL 3306907 (E.D.Pa. Aug. 16, 2010) (District Court held that traditional fiduciary duties are imposed only on managers and those designated as controlling members of an LLC) (citing See, e.g., Kuroda v. SPJS Holdings, LLC, 2010 Del. Ch. LEXIS 57, 25-26, 2010 WL 925853, *7-8 (Del. Ch. Ct. March 16, 2010)); Laugh Factory, Inc. v. Basciano, 608 F.Supp.2d 549, 562 (S.D.N.Y.2009) (New York Courts hold that a manager member of an LLC owes a fiduciary duty to the other members of the LLC). . As cautioned infra, while the case at hand involves the obligations owing by and between members of a New Jersey limited liability company, this Court will be guided by New Jersey and Delaware case law that draws on both corporate and partnership law. . See United States v. Penny Lane Partners, L.P., CIV. 06-1894(GEB), 2008 WL 2902552 (D.N.J. July 24, 2008) (Court held that Plaintiff's claim that Defendants breached their fiduciary duty by taking advantage of their insider knowledge to the disadvantage of their shareholders was a classic example of a derivative claim.); In re Cendant Corp. Derivative Action Litig., 96 F.Supp.2d 394, 397 (D.N.J.2000) (Plaintiff properly pled a derivative action consisting of three state law claims for: (1) breach of fiduciary duty by the individual defendants for insider selling and misappropriation of corporate information; (2) breach of fiduciary duty for "waste of corporate assets, mismanagement, [and] gross negligence,”; and (3) gross negligence.); see also Pullman-Peabody Co. v. Joy Mfg. Co., 662 F.Supp. 32, 35 (D.N.J.1986) (Court held that claims of breach of fiduciary duty and of corporate waste are not an individual basis for litigation and are injuries to the corporation. Claims for alleged mismanagement must be brought as derivative actions.); see also LaSala v. Bordier et Cie, 519 F.3d 121, 131 (3d Cir.2008) (a breach of fiduciary duty claim relating to a corporation’s loss in value or economic viability is a harm to the corporation and only derivatively a harm to its shareholders.); see also Litman v. Prudential-Bache Properties, Inc., 611 A.2d 12, 16 (Del.Ch.1992) (Plaintiffs alleged that the general Partners breached their fiduciary duties by inadequately investigating and monitoring investments and by placing their interests in fees above the interests of the limited partners. The court held that “mismanagement which depresses the value of stock is a wrong to the corporation.” Therefore, the court held that the injury the Plaintiffs were seeking to redress was to the Partnership, as the misconduct alleged resulted directly in the Partnership receiving a lower amount of income. The Court further held that the reduction in the value of the Plaintiffs' interests flowed from the damage inflicted directly on the Partnership.); see also Kramer v. W. Pac. Indus., Inc., 546 A.2d 348, 353 (Del.1988) (A Plaintiff shareholder’s claim that alleged director mismanagement caused the value of his proportionate stock to deteriorate is derivative in nature. A claim of mismanagement resulting in corporate waste constitutes a direct wrong to the corporate and only indirectly impacts all shareholders.); see also In re Cheeks, 467 B.R. 136, 155 (Bankr.N.D.Ill.2012) (Court held that plaintiff's claim that Defendant breached his fiduciary duly to plaintiff and misappropriated corporate assets could only be remedied through a shareholder derivative action because plaintiff did not establish a distinct personal injury.); compare with Kahn v. Rusckowski, A-2181-08T2, 2010 WL 2696856 (N.J.Super.Ct.App.Div. July 1, 2010) (Court stated that claims against directors for the selective dissemination of information to one group of shareholders over another are not derivative in nature because the unfair dealing unequally affects shareholders that were deprived of the information. Therefore, the Court held that the injury suffered by the shareholder plaintiffs was not derivative in nature because the defendant's alleged wrongful conduct only harmed the minority shareholders who were allegedly deprived of the opportunity to decide whether to hold or sell their shares at a price forty-six percent higher than the stock market price.). . The Court's Opinion does not address, because it need not, the Sofia Entities’ assignment of its pre-judgment tort claims with respect to the issue of the Individual Plaintiffs' standing in this case. The Court, however, does recognize that New Jersey courts, as a matter of public policy, have consistently held that tort claims cannot be assigned before judgment. Integrated Solutions, Inc. v. Serv. Support Specialties, Inc., 124 F.3d 487, 490 (3d Cir.1997) (citing Village of Ridgewood v. Shell Oil Co., 289 N.J.Super. 181, 673 A.2d 300, 307-08 (1996); Costanzo v. Costanzo, 248 N.J.Super. 116, 590 A.2d 268, 271 (1991) ("[I]n New Jersey, as a matter of public policy, a tort claim cannot be assigned.”); East Orange Lumber Co. v. Feiganspan, 120 N.J.L. 410, 199 A. 778, 779 (1938); see also Conopco, Inc. v. McCreadie, 826 F.Supp. 855, 865-67 (D.N.J.1993) ("It is clear that under New Jersey law, choses in action arising out of tort are not assignable prior to judgment.”)). . For arguments sake, were the Court to find the Defendant liable for the full amount of the Construction Funds transferred from the Sofia Entities to Bay Dock, the Individual Plaintiffs would still face an uphill battle in proving damages. The Individual Plaintiffs contend that Defendant diverted in excess of $350,000 from the Sofia Entities to Bay Dock. The evidence submitted suggests that the monies diverted to Bay Dock were actually paid out to cover expenses that corresponded with the Projects to which the funding was originally obtained. See D'Amore Cert., Docket No. 26, Ex. C. In fact, the evidence submitted indicates that Bay Dock actually paid out more money on the Sofia Entities' obligations than it was transferred by the Defendant. This fact is further supported by the "cash analysis" of the Bay Dock bank account that was, according to the Defendant, prepared by the Plaintiffs. While the contents of said document would have to be corroborated at trial, the Court finds the "cash analysis" revealing nonetheless. The document shows that Bay Dock owed SDD $227,619.77, but also reveals that Bay Dock paid out $252,324.80 on behalf of SDD. Thus, according to the "cash flow" analysis, SDD owes Bay Dock $24,705.03. Indeed, all the evidence submitted as of this date indicates that the debt owing by the Sofia Entities far exceeds that of any amount the Sofia Entities or the Individual Plaintiffs could claim as damages. Therefore, assuming again that the Court did hold Defendant personally liable for the $470,011.41 in transferred funds, those damages would be used to satisfy the claims of the Sofia Entities' creditors first, which in total exceed more than $7,000,000.00, leaving no excess monies for the Individual Plaintiffs.	01-04-2023	11-22-2022
https://www.courtlistener.com/api/rest/v3/opinions/8494744/	ORDER JOHN E. WAITES, Chief Judge. Defendant Nicholas Peter Francis Ear-lam brings this matter before the Court upon a Motion for a Protective Order (the “Motion”) pursuant to Fed.R.Civ.P. 26(c)1 as to the time and location of a deposition noticed by Plaintiffs pursuant to Rule 30(b).2 Plaintiffs sought to depose Ear-lam — a resident of the United Kingdom— in Columbia, South Carolina. Earlam contends that requiring him to be deposed in South Carolina would significantly disrupt his business and personal affairs. Earlam requests that he be deposed in Liverpool, United Kingdom, which is where he resides and serves as the chairman of the 699board and as a high-level executive for-Defendant Plexus Cotton, Ltd. (“Plexus”).3 The events giving rise to this adversary-proceeding are extensive and complicated. The Complaint summarizes these events as follows: Debtor entered into a number of contracts in late 2007 and early 2008 to purchase a large amount of cotton from Plaintiffs, with delivery to take place at a later time. Due to extreme volatility in the commodities market during 2008, Debtor was ultimately rendered insolvent because of various market positions it held at that time. Subsequently, Debtor failed to honor its contractual obligations to Plaintiffs, and Plaintiffs contend that they suffered significant losses as a result. The Complaint alleges that Defendant Plexus, as the majority owner of Debtor, controlled Debtor’s affairs, which included taking actions that caused Debtor to become insolvent. In seeking compensatory damages of $10,687,356.72 and punitive damages of $100,000,000.00, Plaintiffs contend that Debtor was essentially the alter ego of Plexus and that Debtor’s financial condition and Defendants’ wrongful conduct warrant a piercing of Debtor’s corporate veil in order to hold Plexus and its agents and subsidiaries liable for damages. As additional causes of action, the Complaint asserts a breach of fiduciary duties owed by Debtor’s board to Debtor’s creditors, breach of contract, fraud, negligent misrepresentation, civil conspiracy, tor-tious interference with contractual obligations, and promissory estoppel. The Complaint further requests that a constructive trust be placed on Defendants’ assets based on the alleged unlawful conduct. Earlam, in his role as an executive and chairman of the board at Plexus and former board member of Debtor, is painted as the primary force behind the actions that gave rise to this adversary proceeding. Earlam filed the Motion seeking a protective order that requires Plaintiffs to depose him in Liverpool, where he lives and where Plexus and its employees are located. He submits that Plaintiffs have not overcome the presumption that a defendant who is not a resident of the forum is to be deposed where the defendant resides. In support of his contention, Ear-lam filed an affidavit stating that he has no business interests or business reasons to travel to South Carolina and that requiring him to do so would impose a hardship on his personal affairs as well as disrupt Plexus’ operations. Conversely, Plaintiffs allege that the factors of cost, convenience, and litigation efficiency favor holding the deposition in South Carolina. Plaintiffs additionally argue that holding the deposition in South Carolina would better preserve the Court’s ability to preside over any discovery disputes, and that because Earlam played a central role in the alleged wrongdoing, the equities favor Plaintiffs’ choice of forum for the deposition. I. Applicable Standards Neither the Federal Rules of Civil Procedure nor the Local Bankruptcy or District Court Rules specify where a deposition is to take place. Rule 30 governs oral depositions and specifies that reasonable written notice must be given to every other party and “must state the time and place of the deposition.” Rule 30(b)(1). Rule 26(c), which governs motions for protective orders, states that a “court may, for good cause, issue an order 700to protect a party or person from ... undue burden and or expense,” including “specifying terms, including time and place, for the disclosure or discovery.” Rule 26(c)(1)(B). Rules 30(b) and 26(c) act in concert, as “the examining party may set the place for the deposition of another party wherever he or she wishes subject to the power of the court to grant a protective order under Rule 26(c)(1)(B) designating a different place.” 8A Charles Alan Wright & Arthur R. Miller, Federal Practice and Procedure § 2112 (3d ed. 2012). Courts are accordingly given broad discretion to manage discovery and make discovery rulings. See United States v. Westinghouse Savannah River Co., 305 F.3d 284, 290 (4th Cir.2002) (“We afford substantial discretion to a district court in managing discovery....”); Botkin v. Donegal Mut. Ins. Co., Civil Action No. 5:10cv00077, 2011 WL 2447939, at 8 (W.D.Va. June 15, 2011) (“Courts have broad discretion to determine the appropriate location for a deposition.”) (citing Armsey v. Medshares Mgmt. Servs., Inc., 184 F.R.D. 569, 571 (W.D.Va.1998)). Generally, a plaintiff, by choosing the forum in which an action is brought, will be required to make himself or herself available to be deposed in the forum district. See In re Outsidewall Tire Litig., 267 F.R.D. 466, 471 (E.D.Va.2010); Wright & Miller, supra, § 2112 (“Ordinarily, plaintiff will be required to make himself or herself available for examination in the district in which suit was brought.”). On the other hand, “a non-resident defendant ordinarily has no say in selecting a forum,” and thus “an individual defendant’s preference for a situs for his or her deposition near his or her place of residence — as opposed to the judicial district in which the action is being litigated — is typically respected.” In re Outsidewall Tire Litig., 267 F.R.D. at 471; see also Wright & Miller, supra, § 2112 (“[C]ourts are more willing to protect defendant from having to come to the forum for the taking of his or her deposition than they are in the case of plaintiffs.”) The same general rule that applies to depositions of individual defendants also applies to corporations, in that a deposition of a defendant corporation through its officers is to take place at the corporation’s principal place of business or where the officers reside. Connell v. Biltmore Sec. Life Ins. Co., 41 F.R.D. 136, 137 (D.S.C.1966); Wright & Miller, supra, § 2112 (citing cases). These general rules create “an initial presumption that a defendant should be deposed in the district of his residence or principal place of business.” Armsey, 184 F.R.D. at 571 (citing Turner v. Prudential Ins. Co. of Am., 119 F.R.D. 381, 383 (M.D.N.C.1988)); see also Farquhar v. Shelden, 116 F.R.D. 70, 72 (E.D.Mich.1987) (“[C]ourts have held that plaintiffs normally cannot complain if they are required to take discovery at great distances from the forum.”) (citing Work v. Bier, 107 F.R.D. 789, 792 (D.D.C.1985)). To overcome the presumption that a defendant should be deposed where he or she resides or at its principal place of business, circumstances must exist “distinguishing the case from the ordinary run of civil cases.” In re Outsidewall Tire Litig., 267 F.R.D. at 472 (citing Salter v. Upjohn Co., 593 F.2d 649, 651-52 (5th Cir.1979)). Moreover, “the plaintiff has the affirmative burden of demonstrating ‘peculiar’ circumstances which compel the Court to suspend the general rule” of holding depositions where defendants are located. Sloniger v. Deja, No. 09-CV-858S, 2010 WL 5343184, at 4 (W.D.N.Y. Dec. 20, 2010) (citation omitted). To determine if the circumstances of a case warrant departing from the general presumption, courts look at a number of factors, including: 701(1) location of counsel in the forum district; (2) the number of corporate representatives to be deposed; (3) the likelihood that significant discovery disputes will arise and necessitate resolution by the forum court; (4) whether the persons sought to be deposed often engage in travel for business purposes; and (5) the equities with regard to the nature of the claim and the parties’ relationship. Botkin, 2011 WL 2447939, at 8 (citing Armsey, 184 F.R.D. at 571); see also Nat’l Cmty. Reinvestment Coal. v. Novastar Fin., Inc., 604 F.Supp.2d 26, 31-32 (D.D.C.2009) (citing Turner, 119 F.R.D. at 383). The Court notes that the factors set out in Botkin and Armsey are usually applied to determine whether a corporate defendant, through its officers, ought to be deposed at its principal place of business.4 It is not entirely clear from the record whether Plaintiffs seek to depose Earlam as an individual or in his capacity as a Plexus executive, but it appears that both are likely. Nonetheless, with the exception of the second factor, the other factors can be readily applied to a situation where an individual defendant seeks to be deposed where he resides and not in the forum state. Courts have in fact applied similar factors in these circumstances. See Robert Smalls Inc. v. Hamilton, No. 09 Civ. 7171(DAB)(JLC), 2010 WL 2541177, at l-3 (S.D.N.Y. June 20, 2010) (applying factors of convenience, which included convenience of counsel, where individual defendant resided, and the extent to which travel to the forum would disrupt defendant’s affairs, as well as cost and litigation efficiency) (citations omitted). Additionally, given that Plexus is a named Defendant and Earlam is a high ranking Plexus executive, his deposition may be important in determining whether Plexus can be held liable on the various causes of action. II. Standards Applied Plaintiffs contend that the circumstances of this case, including factors of cost, convenience, litigation efficiency, and equities warrant deposing Earlam in South Carolina. While certain factors do weigh in Plaintiffs’ favor, the Court cannot conclude at this stage that Plaintiffs have shown this case to be sufficiently peculiar to overcome the general presumption that a defendant is to be deposed where he or she resides or at its principal place of business. While all parties have obtained local counsel, Plaintiffs’ lead counsel is located in Memphis, Tennessee, and Defendants’ lead counsel is located in New York, New York. Consequently, travel costs seem inevitable regardless of whether the deposition takes place in South Carolina or in the United Kingdom. The Court recognizes that requiring all the lawyers to travel to the United Kingdom may be more expensive than requiring the parties to travel to Columbia; however, “the convenience of counsel is less compelling than any hardship to the witnesses.” Morin v. Nationwide Fed. Credit Union, 229 F.R.D. 362, 363 (D.Conn.2005) (quoting Devlin v. Transp. Commc’n Int’l Union, Nos. 95 Civ. 0752 JFK JCF, 95 Civ. 10838 JFK JC, 2000 WL 28173, at 4 (S.D.N.Y. Jan. 14, 2000)). Additionally, considering the amount of damages sought, the complex nature of the claims, and the number of named defendants, Plaintiffs likely anticipated that litigation costs would be significant. 702Earlam submitted an affidavit stating that requiring him to travel to South Carolina would significantly disrupt his personal and business affairs, including the affairs of Plexus. Earlam’s affidavit also states that he has had no business interests or need to travel to South Carolina since the demise of Debtor. Plaintiffs did submit evidence that Earlam traveled to Columbia as late as September, 2008.5 Nonetheless, the proper inquiry is not whether the deponent travels often or used to travel to the forum, but “whether the deponent frequently travels to the forum district or the proposed deposition situs.” In re Outsidewall Tire Litig., 267 F.R.D. at 467 (emphasis added). The Court has not been presented with any evidence that Earlam presently travels to South Carolina or has traveled to the state since his trip in late 2008. Regarding the number of corporate defendants to be deposed, Mark English and Laurence Kirby are both named Defendants and Plexus executives who work and reside in Liverpool, United Kingdom. Defendants additionally contend that Plaintiffs have expressed a need to depose additional foreign witnesses associated with Hong Kong and German entities.6 However, Plaintiffs’ memorandum filed in opposition to the Motion states that they have “made no decisions regarding whether they will depose additional overseas witnesses,” and Plaintiffs’ counsel stated at the hearing that they have agreed to take the depositions of English and Kirby via video. Given the uncertainty of Plaintiffs’ intentions regarding future depositions, the Court finds that the number of corporate representatives who need to be deposed weighs in favor of Defendants. Last, the equities and likelihood of discovery disputes do not tip the scales enough in Plaintiffs’ favor to overcome the general presumption. The Court finds that some discovery disputes are likely to arise considering that the parties were unable to reach an agreement as to where Earlam’s deposition should take place. However, it appears that the parties have stipulated that the Federal Rules of Civil Procedure and Federal Rules of Bankruptcy Procedure will apply to the depositions of any foreign defendants, and the time difference between South Carolina and Liverpool will not prevent the parties from petitioning the Court for guidance when necessary. As to the equities, the Court notes that Defendants have not filed any counterclaims and that that Debtor’s filing of bankruptcy in South Carolina did not compel Plaintiffs to bring this adversary against the non-debtor Defendants before this Court. Plaintiffs’ counsel argued at the April 3 hearing that Earlam’s conduct, which gave rise to this adversary, weighs in favor of holding his deposition in South Carolina.7 While wrongful conduct that has been admitted could weigh in favor of forcing a non-resident defendant to be deposed in the forum district, it would be 703inappropriate for mere civil allegations to control where a defendant’s deposition is to take place when those allegations have been denied. CONCLUSION In sum, the Court finds that Plaintiffs have not overcome the presumption that Defendant Nicholas Earlam should be deposed as an individual and as a representative of Plexus Cotton, Ltd. in Liverpool, United Kingdom. The circumstances of this case are not sufficiently peculiar to warrant an alternative finding. As a result, Defendant Nicholas Earlam’s Motion for a Protective Order is granted. Ear-lam’s deposition is it to take place in Liverpool, United Kingdom at a time to be agreed upon by the parties involved and in accordance with any scheduling order and amendments thereto entered by the Court. AND IT IS SO ORDERED. . Further references to the Federal Rules of Civil Procedure will be by rule number only. . Rules 26(c) and 30(b) are made applicable to these proceedings by Federal Rules of Bankruptcy Procedure 7026 and 7030. . The Rule 30(b)(1) Notice of Deposition sent to Earlam did not specify whether Plaintiffs sought to depose him as an individual or whether Plaintiffs were attempting to depose Defendant Plexus through Earlam in his role as an executive and chairman of the board, or both. . See, e.g., Botkin, 2011 WL 2447939, at 7-*9; Cadent Ltd. v. 3M Unitek Corp., 232 F.R.D. 625 (C.D.Cal.2005); Morin v. Nationwide Fed. Credit Union, 229 F.R.D. 362, 363 (D.Conn.2005); Armsey, 184 F.R.D. at 571-72. . Subsequent to a hearing on the Motion, Plaintiffs moved to supplement the record in order to admit various exhibits, which showed that Earlam had traveled to Columbia, South Carolina numerous times between 2001 and September, 2008. Defendants' filed a response thereto and objected. Despite Defendants' objection, the Court granted Plaintiffs’ Motion to Supplement the Record. . Plaintiffs have filed a Notice of Intent to Conduct Foreign Non-Party Depositions of witnesses that are located in Hong Kong and Germany. However, this Notice states that the necessity of these foreign deponents cannot be determined until all domestic discovery is completed. .Over forty exhibits were submitted at the hearing that include various emails sent by Earlam and some of the other Defendants and allegedly show the wrongful conduct that caused Plaintiffs' losses.	01-04-2023	11-22-2022
https://www.courtlistener.com/api/rest/v3/opinions/8494747/	OPINION REGARDING SUMMARY JUDGMENT MOTIONS THOMAS J. TUCKER, Bankruptcy Judge. These consolidated adversary proceedings require the Court to decide whether an order issued by the Michigan Attorney Discipline Board, requiring an attorney to pay restitution and costs, created debts that are nondischargeable under 11 U.S.C. § 523(a)(7). The Court concludes that § 523(a)(7) does not apply to such debts. These cases came before the Court for a hearing on February 29, 2012, on two motions for summary judgment: (1) Plaintiff Michigan Attorney Grievance Commission’s motion for summary judgment, filed in Case No. 11-6273 (Docket #45); and (2) Defendant Shelly A. Stasson’s motion for summary judgment, filed in Case No. 11-6273 (Docket # 50). At the conclusion of the hearing, the Court took the motions under advisement. For the reasons stated in this opinion, the Court will deny Plaintiff Commission’s motion, and grant Defendant Stasson’s motion. I. Background and facts In these consolidated adversary proceedings, the Plaintiff in Adv. No. 11-6390 is the Michigan Attorney Grievance Commission (the “Commission”), and the Plaintiff in Adv. No. 11-6273 is Donald L. Bas-quin. The Defendant in each adversary proceeding, Shelley A. Stasson, is the Debtor in the Chapter 7 bankruptcy case that she filed on May 27, 2011. Ms. Stas-son received a discharge in her bankruptcy case on August 30, 2011. Plaintiffs each claim that certain debts owed by Defendant Stasson are nondis-chargeable under 11 U.S.C. § 523(a)(7). Plaintiff Basquin claims that Stasson’s debt to him also is nondischargeable under 11 U.S.C. § 523(a)(4). The summary judgment motions, and this opinion, concern only § 523(a)(7). The material facts are undisputed. The debts in question arise from an order of the State of Michigan Attorney Discipline Board. Beginning in November 1979, Defendant Stasson was an attorney licensed and practicing in Michigan. In 2007, Stas-son was charged with professional misconduct by the Commission. Ultimately, the Michigan Attorney Discipline Board found against Stasson, and issued an Order on March 20, 2009, suspending Stasson’s license for four years. The Board’s Order also required that Stasson “pay restitution to complainant Donald Basquin in the amount of $29,178.88,” no later than May 20, 2009. And the Order required that Stasson pay “costs” to the State Bar of Michigan in the amount of $4,477.56, no later than September 20, 2009. The Order stated the following regarding the costs: IT IS FURTHER ORDERED that respondent shall, on or before September 20, 2009, pay costs previously assessed in the hearing panel order of November 26, 2008 in the amount of $4,384.56, together with costs incurred by the Attorney Discipline Board for the transcript of review proceedings conducted on March 11, 2009 in the amount of $93.00 for a total amount due of $4,477.56. Check or money order shall be made payable to the State Bar of Michigan, but submitted to the Attorney Discipline 751Board [211 West Fort St., Ste. 1410, Detroit, MI 48226] for proper crediting.1 It is undisputed that Defendant Stasson has not paid any of the restitution or costs as required by the Attorney Discipline Board’s Order. II. Jurisdiction This Court has subject matter jurisdiction over these adversary proceedings under 28 U.S.C. §§ 1334(b), 157(a) and 157(b)(1), and Local Rule 83.50(a)(E.D.Mich.). These are core proceedings under 28 U.S.C. § 157(b)(2)(I). III. Summary judgment standards Fed.R.Civ.P. 56(a), applicable to bankruptcy adversary proceedings under Fed. R.Bankr.P. 7056, provides that a motion for summary judgment “shall” be granted “if the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law.” In Cox v. Kentucky Dep’t of Transp., 53 F.3d 146, 149-50 (6th Cir.1995), the court elaborated: The moving party has the initial burden of proving that no genuine issue of material fact exists and that the moving party is entitled to judgment as a matter of law. To meet this burden, the moving party may rely on any of the eviden-tiary sources listed in Rule 56(c) or may merely rely upon the failure of the non-moving party to produce any evidence which would create a genuine dispute for the [trier of fact]. Essentially, a motion for summary judgment is a means by which to challenge the opposing party to ‘put up or shut up’ on a critical issue. If the moving party satisfies its burden, then the burden of going forward shifts to the nonmoving party to produce evidence that results in a conflict of material fact to be resolved by [the trier of fact]. In arriving at a resolution, the court must afford all reasonable inferences, and construe the evidence in the light most favorable to the nonmoving party. However, if the evidence is insufficient to reasonably support a ... verdict in favor of the nonmoving party, the motion for summary judgment will be granted. Thus, the mere existence of a scintilla of evidence in support of the plaintiffs position will be insufficient; there must be evidence on which the [trier of fact] could reasonably find for the plaintiff. Finally, the Sixth Circuit has concluded that, in the “new era” of summary judgments that has evolved from the teachings of the Supreme Court in Anderson [v. Liberty Lobby, Inc., 477 U.S. 242, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986) ], Celotex [Corp. v. Catrett, 477 U.S. 317, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986) ] and Matsushita [Elec. Indus. Co., Ltd. v. Zenith Radio Corp., 475 U.S. 574, 106 S.Ct. 1348, 89 L.Ed.2d 538 (1986) ], trial courts have been afforded considerably more discretion in evaluating the weight of the nonmoving party’s evidence. The nonmoving party must do more than simply show that there is some metaphysical doubt as to the material facts. If the record taken in its entirety could not convince a rational trier of fact to return a verdict in favor of the nonmov-ing party, the motion should be granted. Id. (internal quotation marks and citations omitted). In determining whether the moving party has met its burden, a court must “believe the evidence of the nonmov-ant, and draw all justifiable inferences in favor of the nonmovant.” Ingram v. City of Columbus, 185 F.3d 579, 586 (6th 752Cir.l999)(relying on Russo v. City of Cincinnati, 953 F.2d 1036, 1041-42 (6th Cir.1992)). IV. Discussion Plaintiff Commission seeks summary judgment determining that both the restitution and the costs owing by Defendant Stasson under the Attorney Discipline Board’s Order are nondischargeable debts under § 523(a)(7). Defendant Stasson seeks summary judgment to the contrary, against the Commission. Plaintiff Basquin has not moved for summary judgment, but he and Stasson have stipulated that the Court’s decision on the pending summary judgment motions will be binding with respect to Basquin’s nondischargeability claim under § 523(a)(7).2 Exceptions to discharge, including the exceptions under § 523(a)(7), “are to be strictly construed against the creditor.” See Rembert v. AT & T Universal Card Servs., Inc. (In re Rembert), 141 F.3d 277, 281 (6th Cir.l998)(citing Manufacturer’s Hanover Trust v. Ward (In re Ward), 857 F.2d 1082, 1083 (6th Cir.1988)). The creditor must prove each of the elements under § 523(a)(7) by a preponderance of the evidence. See id. (citing Grogan v. Garner, 498 U.S. 279, 291, 111 S.Ct. 654, 112 L.Ed.2d 755 (1991)). Section 523(a)(7) states, in pertinent part, that: 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— (7) to the extent such debt is for a fine, penalty, or forfeiture payable to and for the benefit of a governmental unit, and is not compensation for actual pecuniary loss, other than a tax penalty— 11 U.S.C. § 523(a)(7). The Court will discuss each component of Stasson’s debt — restitution and costs — • separately. A. The Order to pay “restitution” of $29,178.88 to Basquin This debt, based on the Attorney Discipline Board’s Order that Stasson “pay restitution to complainant Donald Basquin in the amount of $29,178.88,” clearly does not fall within § 523(a)(7), for three independent reasons. First, it is not a debt that is “payable to” a governmental unit, as required by § 523(a)(7). Rather, it is payable to Donald Basquin. For this reason alone, the Court must conclude that § 523(a)(7) does not apply. Second, this debt is not “for the benefit of a governmental unit,” as required by § 523(a)(7). It is obviously for the benefit of Donald Basquin, and only Donald Bas-quin. Third, this debt is “compensation for actual pecuniary loss,” which also makes § 523(a)(7) inapplicable. This “restitution” portion of the Order is clearly intended to compensate Donald Basquin for his loss. It is not penal in nature. The Michigan Court Rules only reinforce this conclusion — they state that “[discipline for misconduct is not intended as punishment for wrongdoing, but for the protection of the public, the courts, and the legal profession.” Mich.CtR. 9.105(A)(emphasis added). The “restitution” debt in this case is, for all purposes that matter, similar to the legal-malpractice judgment debt that the attorney-debtor owed to his client in Hughes v. Sanders, 469 F.3d 475 (6th Cir.2006), cert. denied, 549 U.S. 1341, 127 S.Ct. 7532051, 167 L.Ed.2d 768 (2007). The Sixth Circuit in Hughes held that § 523(a)(7) did not apply to such debt, because it was not “payable to and for the benefit of a governmental unit,” and because it was “compensation for actual pecuniary loss.” 469 F.3d at 477-79. And the Sixth Circuit discussed at length the Supreme Court’s decision in Kelly v. Robinson, 479 U.S. 36, 107 S.Ct. 353, 93 L.Ed.2d 216 (1986). Kelly held that criminal restitution to be paid to a state agency was nondischargeable under § 523(a)(7). Kelly held that such criminal restitution was not “compensation for actual pecuniary loss” within the meaning of § 523(a)(7). The Sixth Circuit held that Kelly “applies narrowly to criminal restitution payable to a governmental unit.” 469 F.3d at 478. This Court is bound by the Sixth Circuit’s holding in Hughes, and by that court’s interpretation of the Supreme Court’s decision in Kelly. Under Hughes, restitution ordered in a non-criminal proceeding,3 that is not payable to a governmental unit, is not nondischargeable under § 523(a)(7). B. The order to pay “costs” of $4,477.56 to the State Bar of Michigan This debt is based on the Attorney Discipline Board’s Order that Stasson pay “costs” to the State Bar of Michigan in the amount of $4,477.56. The parties agree that this debt is “payable to and for the benefit of a governmental unit,” within the meaning of § 523(a)(7). But Defendant Stasson argues that this debt is “compensation for pecuniary loss,” so that § 523(a)(7) does not apply. Plaintiff Commission disagrees. In Michigan, “costs” that are assessed against an attorney found guilty of misconduct in a disciplinary proceeding have two components. The first component is for “basic administrative costs,” in a fixed amount, depending on the type of proceeding. Mich.Ct.R. 9.128(B). For a proceeding in which an order imposes discipline other than by consent, for example, the amount is $1,500.00. Mich.CtR. 9.128(B)(1)(b). The second component of costs is “expenses actually incurred by the board, the commission, a master, or a panel for the expenses of that investigation, hearing, review and appeal, if any.” Mich. Ct.R. 9.128(B). It is clear that the assessment of costs against an attorney in a Michigan disciplinary proceeding is one of the ways in which the State Bar of Michigan pays for the cost of operating its disciplinary system, including administrative, overhead-type expenses, and certain actual costs incurred in the particular disciplinary proceeding. Plaintiff Commission does not dispute this, but points out that bar dues assessed against all Michigan attorneys also help fund the disciplinary system. See also Mich.CtR. 9.105(B) (“The legal profession, through the State Bar of Michigan, is responsible for the reasonable and necessary expenses of the [Attorney Discipline Board], the [Attorney Grievance Commission], and the [grievance administrator], as determined by the Supreme Court.”) The costs assessed in disciplinary proceedings certainly are compensatory in their effect, and the purpose of such costs clearly appears to be to compensate the State Bar of Michigan for the expenses of the disciplinary proceeding. Despite this, Plaintiff Commission argues that such costs are not “compensation for pecuniary 754loss” and are a “fine, penalty or forfeiture” under § 523(a)(7). The Commission draws an analogy between the costs assessed against Defendant Stasson for her disciplinary proceeding, and the criminal restitution in the Kelly case, discussed above, which the Supreme Court held to be non-compensatory under § 523(a)(7). And the Commission cites cases that support its position, including State of Michigan v. Doerr (In re Doerr), 185 B.R. 533 (Bankr.W.D.Mich.1995). Defendant Stasson, on the other hand, cites contrary cases, including the recent case, Love v. Scott (In re Love), 442 B.R. 868 (Bankr.M.D.Tenn.2011). The Love case discussed this issue and the case law at great length, and held that § 523(a)(7) did not apply to costs assessed against an attorney in a Tennessee disciplinary proceeding. Rather, the court held, such costs were “compensation for actual pecuniary loss.” The Court finds persuasive, and agrees with, the Love court’s discussion of the cases and issues on this subject, including Love’s discussion of Kelly; the Sixth Circuit’s interpretation of Kelly in the Hughes case (also discussed in this opinion above); and numerous lower court cases on this subject. And the Court agrees with Love’s reasoning in concluding that the costs in the case before it were “compensation for actual pecuniary loss.” The Court finds unpersuasive the Plaintiff Commission’s effort to distinguish Love from this case. Based on the reasoning and discussion in the Love case, this Court concludes that Defendant Stasson’s debt for costs to the State Bar of Michigan is “compensation for pecuniary loss” within the meaning of § 523(a)(7). In addition, the Court concludes that this ruling is consistent with the Sixth Circuit’s command that exceptions to discharge under § 523(a) “are to be strictly construed against the creditor.” Rembert, 141 F.3d at 281. For these reasons, the Court concludes that Defendant Stasson’s debt for “costs” is not nondischargeable under § 523(a)(7). Y. Conclusion For the reasons stated in this opinion, the Court will enter an order denying Plaintiff Commission’s motion for summary judgment, and granting Defendant Stasson’s motion for summary judgment. . Ex. 6 to Defendant's Motion for Summary Judgment (Docket # 50). . See Final Pretrial Order filed in Case No. 11-6273 (Docket # 62) at 4. . The Plaintiffs have conceded that attorney discipline proceedings in Michigan are not criminal proceedings, although they argue that such proceedings are "quasi-criminal.” It is not clear what this means, but clearly it is not the same thing as a criminal proceeding, such as the criminal prosecution for larceny in the Kelly case.	01-04-2023	11-22-2022
https://www.courtlistener.com/api/rest/v3/opinions/8494749/	AMENDED FINDINGS OF FACT AND CONCLUSIONS OF LAW JACK B. SCHMETTERER, Bankruptcy Judge. This matter was. tried on Plaintiffs above entitled Adversary Complaint to de770termine non-dischargeability of debt against the Debtor, David Ernest Wish (“Wish”) under 11 U.S.C. Sections 523(a)(2)(A), (a)(4), and (a)(6), (the “Complaint”). The Complaint seeks a finding that debts asserted in the Adversary Complaint to be due to Plaintiff are non-dischargea-ble under (i) 11 U.S.C. § 523(a)(2)(A) for false pretenses, false representation and actual fraud, (ii) 11 U.S.C. § 523(a)(4) for fraud or defalcation while acting in a fiduciary capacity, embezzlement or larceny, and (iii) 11 U.S.C. § 523(a)(6) for willful and malicious injury to Plaintiffs property. At trial, Plaintiff called two witnesses, Michael Joyce, the Plaintiff herein, and Hany Morsy, formerly a loan officer of Amcore Bank, N.A. Defendant’s counsel called no witnesses. In fact, Defendant David Wish did not even attend the trial, so he did not testify. Following trial, the following Amended Findings of Fact and Conclusions of Law are made and will be entered. JURISDICTION AND VENUE Jurisdiction lies under 28 U.S.C. § 1334 and District Court Internal Operating Procedure 15(a). The question of discharge-ability of a debt is a core proceeding under 28 U.S.C. § 157(b)(2). Venue of this case is appropriate in this District pursuant to 28 U.S.C. § 1409. INTRODUCTION On May 4, 2007, Amcore Bank, N.A. (“Amcore”) extended to First Fruits Holdings, LLC (“First Fruits”) a revolving credit facility in the principal sum of $1,000,000 (the “Loan”) as reflected by a certain Commercial Loan Agreement dated May 4, 2007, with an original maturity date of May 4, 2008. (Plaintiffs Exhibit No. 17). The Loan was established to provide financing for First Fruit’s acquisition of various foreclosed residential properties in and around the Chicago Metropolitan area. First Fruits would from time to time borrow from the Loan to purchase various residential properties in and around the Chicago Metropolitan area. The properties would be mortgaged to Amcore as security. First Fruits would then rehab and attempt to re-sell these properties to various unrelated third parties at a profit. The proceeds of sale would then be used to pay Amcore (which would, in turn, release its mortgage interest in the real property that had been sold) and pay various sale related expenses and closing costs, with the net sale proceeds to be paid to First Fruits. Defendant David Wish (“Wish”) and his associate Lance Kupisch (“Kupisch”) each personally guaranteed all of First Fruits’ obligations and indebtedness to Amcore by executing separate commercial guaranty agreements dated May 4, 2007. In addition, Wish pledged a personal money market account to Amcore as security for any and all loans that First Fruits had borrowed from Amcore. In connection with that pledge, he executed an Assignment of Deposit Account Agreement to that effect. (Plaintiffs Exhibit Nos. 18, 19 and 20). Wish and Plaintiff Michael Joyce (“Joyce”) met sometime in late 2006 and became friends traveling together on each other’s boats in and around Florida and the Caribbean in 2007. (Wish knew Ku-pisch previously, and it was Kupisch who initially introduced Wish to Joyce.) During the late summer or early fall of 2007, Wish spoke with Joyce and offered him an opportunity to invest, through First Fruits, in certain residential real estate in and around the Chicago Metropolitan area. There is no evidence that First Fruits was in any financial difficulty at 771that time, or that First Fruits was then in default on any of its obligations to Amcore, although as discussed below, Joyce knew when he decided to invest in First Fruits that it had already “maxed out” its existing credit line. Wish stated to Joyce that if Joyce opened a money market account at Am-core, the bank would extend to First Fruits a line of credit in at least the amount that Joyce deposited there. Wish also told him that the account set up by him at Amcore would be solely in his name and that no one, other than Joyce himself, would have access to the money in that account. In addition, Wish told him that the financing provided to First Fruits by Amcore would be used by First Fruits to purchase residential real estate in and around the Chicago Metropolitan area on a going forward basis. After opening an account at Amcore Joyce was to share in profits after First Fruits rehabbed and resold the properties for a profit. Wish’s and Joyce’s discussions with each other continued over a period of several months throughout the summer and fall of 2007. During that time, Joyce did not ever come to Chicago to inspect the activities of First Fruits. Joyce did not request nor did he receive any financial statements, tax returns, organizational documents, nor any other records of First Fruits prior to deciding to invest in it. At no time did Joyce see any of the properties that First Fruits had purchased before he became involved, nor any of the properties that were later purchased with his line of credit. Joyce was never a member of the First Fruits LLC, but merely an outside investor. His intention was to earn a profit, but he knew that there was some risk involved. At no time did Joyce consult an attorney regarding his investment in First Fruits, nor did he even seek the advice of his friend Kupisch, who was an attorney. Wish was not involved first hand in running the day to day operations of First Fruits. Another person named Andy Roman (“Roman”) was primarily responsible for selecting the properties to be purchased by First Fruits, whether with the pre-existing line of credit or with Joyce’s line of credit. Joyce never met or spoke with Roman. Nor did Joyce ask to become involved in the property selection process being handled by Roman on behalf of First Fruits. Any profit on the sale of properties purchased with the available line of credit was by oral agreement to be split between four individuals. Two-thirds of the profit would be split equally between Wish, Kupisch and Joyce and the remaining one-third to Roman. At no time was there ever any written agreement between Joyce and Wish, or between Joyce and First Fruits, documenting the details of Joyce’s relationship to First Fruits. Wish initially recommended that Joyce invest $500,000 in First Fruits, but Joyce decided that he could only invest $400,000. In late November or early December 2007, Wish again contacted Joyce and urged Joyce to invest, stating that Joyce was “missing opportunities,” and that First Fruits had “maxed out” its existing line of credit. Joyce testified that First Fruits originally had $5 million in available credit. Therefore, when told that First Fruits had “maxed out” its existing line of credit, it was likely that Joyce knew that First Fruits was substantially indebted to Am-core. Nonetheless, Joyce agreed to open a money market account at Amcore even before he received any documentation of his investment or any documents from Amcore. Before receiving those documents, Joyce wire transferred his $400,000 account to Amcore. In late December 2007 or early January 2008, Amcore sent Joyce an Assignment of 772Deposit Account agreement (the “Assignment”) (Plaintiffs Exhibit No. 4) and a Commercial Guaranty Agreement dated February 13, 2008 (the “Guaranty”) (Plaintiffs Exhibit No. 5) for him to sign and return (collectively, the “Amcore documents”). Joyce held the documents until February 2008, but did not sign them. Even though he had them for over a month, he testified that he never read the contents of the documents, and that he relied on what Wish had said about the documents he was to sign. In February, the bank had to re-send the same documents to Joyce, because the first set had become stale. This time Joyce signed them on or around February 13, 2008, and returned them to Amcore. Again he did not read them before or when he signed them, nor did he consult an attorney concerning them or show them to Wish before he signed them. Among the documents then signed by Joyce, the Guaranty clearly provided that Joyce was a guarantor of any and all indebtedness incurred by First Fruits and that Joyce’s account was pledged as security, not only for Joyce’s $400,000 line of credit, but for any and all prior indebtedness incurred by First Fruits, including the Loan. Joyce testified that he had not previously made real estate investments. However, he owns and operates a successful pros-thetics business in New York, owns the building where that business is situated, and owns a home in New York. On February 13, 2008, First Fruits executed a promissory note in the principal amount of $400,000 (the “February 2008 Note” or the “stand alone line of credit”). (Plaintiffs Exhibit No. 3) The February 2008 Note was executed by Wish and Ku-pisch, who were the managers of First Fruits, and the stand alone line of credit was secured by the Assignment and the Guaranty signed by Joyce that same day. Prior to Joyce’s pledging of his money market account at Amcore (which was to be used as security for the $400,000 “stand alone” line of credit) and his signing of the Amcore documents, Wish had told Joyce that all loan proceeds related to the February 2008 Note were going to be used solely by First Fruits to purchase residential properties in and around the Chicago Metropolitan area. Several properties were bought with funds borrowed from the stand alone line of credit backed by Joyce’s money market account. Joyce received several checks representing his portion of the profits on resale of some properties. (Plaintiffs Exhibits 34M2). However, profits due to him from other resales (detailed below) were never paid to him. However, the shares of net proceeds due to Plaintiff from the resales were never set aside for him or earmarked as his property. On or about April 9, 2008, Wish caused $100,000 to be drawn on from the February 2008 Note. Evidence showed that a deposit of $100,000 was made on the same date to a checking account belonging to First Fruits, and that this same amount was transferred the same day out of the First Fruits account to an account identified as Account Number 9802582739-D. Plaintiff introduced Exhibit 29, which contained a two-page bank statement dated January 21, 2009, from a checking account belonging in part to David Wish. It was thereby proven that Wish obtained that money from the Joyce account and deposited the same $100,000 into his personal checking account. While the $100,000 was later repaid, as discussed below, the repayment came indirectly from Plaintiffs own asset, not from Defendant. Joyce began the month of January 2009 with the amount of $413,071.15 still on 773hand in his money market account. However, between January 23-27, 2009, Am-core Bank removed a total of $413,068.15 from Joyce’s money market account, and applied it to outstanding indebtedness of First Fruits (as detailed below). Joyce was not asked to nor did he consent to these actions, except through the documents that he had earlier signed without reading, but there is no' evidence that Wish had any hand in the bank’s action. Joyce contends that the Bank’s actions were improper. However, from evidence presented here, it appears that the bank exercised its rights under the aforementioned Assignment of Deposit Account and Guaranty, both signed — but not read — by Joyce, and it thereby applied his money market funds to prior indebtedness of First Fruits. After application of the monies from Joyce’s money market account that were used to pay off First Fruits prior indebtedness under the Loan and related promissory notes only $231.58 remained in Joyce’s money market account as of March 2009. (Plaintiff’s Exhibit No. 15). DETAILED ADDITIONAL FINDINGS OF FACT 1. Plaintiff, Michael Joyce (“Joyce”), is a citizen of the state of New York, residing in Roslyn Harbor, New York. 2. At the time of the filing of this Complaint, Defendant David E. Wish (“Wish”) was a citizen of the state of Illinois, residing in Chicago, Illinois. Wish is the Debt- or in the above-referenced bankruptcy case. 3. First Fruits Holdings, LLC (“First Fruits”) was an Illinois limited liability company with its principal place of business in Chicago, Illinois. 4. Wish, along with his business partner, Lance Kupisch (“Kupisch”), were both members and/or managers of First Fruits. Joyce was not a manager or member of First Fruits at any time. 5. On May 4, 2007, Amcore Bank, N.A. (“Amcore”) extended to First Fruits a revolving credit facility in the principal sum of $1,000,000 (the “Loan”) as reflected by a certain Commercial Loan Agreement dated May 4, 2007, with an original maturity date of May 4, 2008. (Plaintiffs Exhibit No. 17) The Loan indebtedness was evidenced by a certain Promissory Note dated May 4, 2007 (the “Note”). (Plaintiffs Exhibit No. 16) 6. The Loan was established for the sole purpose of funding First Fruit’s acquisition of various foreclosed residential properties in and around the Chicago Metropolitan area. 7. First Fruits was to use proceeds provided by Amcore under the Loan to purchase residential properties in and around the Chicago Metropolitan area, pledge those properties as collateral security to Amcore in the form of a mortgage, rehab the properties and then “flip” (sell) the residential properties to various third parties. The proceeds of sale would then be used to pay off Amcore (who would, in turn, release its mortgage interest in the real property) and to pay various sale related expenses and closing costs, with the balance of the proceeds, if any, to be paid to First Fruits. 8. Contemporaneously with the execution of the Loan and Note, Wish and Ku-pisch each personally guaranteed all of First Fruits’ obligations and indebtedness to Amcore by executing separate commercial guaranty agreements dated May 4, 2007. In addition, Wish pledged his money market account of $500,000 to Amcore for any and all loans that First Fruits had with Amcore and, in connection with that unlimited pledge, executed an Assignment 774of Deposit Account Agreement to that effect. (Plaintiffs Exhibit Nos. 18, 19 and 20) 9. As a result, Plaintiff argues that Wish knew about the structure of his transaction with Amcore and the contents of the loan and collateral related documents that Amcore used in transactions of this type, so he must have deduced that the bank would always use the same forms for similar transactions. 10. The Loan specifically listed Wish and Kupisch as unlimited guarantors. 11. As First Fruits would draw on the Loan to purchase residential property in and around the Chicago Metropolitan area, the amount of the draw was to be documented with a separate promissory note and Amcore would be secured by a mortgage on the specific parcel of purchased real property. 12. On or about January 7, 2007, First Fruits used the Loan to purchase real property located at 7920 S. Langley, Chicago, Illinois (the “Langley Property”). 13. Amcore funded and advanced monies in the principal amount of $120,080 to First Fruits under the Loan so that First Fruits could purchase the Langley Property. According to the underlying loan documents, the indebtedness related to this acquisition matured on January 7, 2008. 14. On or about November 9, 2007, First Fruits used the Loan to purchase real property located at 3318 W. Ohio St., Chicago, Illinois (the “Ohio Street Property”). 15. Amcore funded and advanced monies in the principal amount of $98,828.28 to First Fruits under the Loan so that First Fruits could purchase the Ohio Street Property. According to the underlying loan documents, the indebtedness related to this acquisition matured on November 9, 2008. (Plaintiffs Exhibit No. 11) 16. On or about November 12, 2007, First Fruits used the Loan to purchase real property located at 5235 W. 30th St., Cicero, Illinois (the “Cicero Property”). 17. Amcore funded and advanced monies in the principal amount of $126,400 to First Fruits under the Loan so that First Fruits could purchase the Cicero Property. According to the underlying loan documents, the indebtedness related to ' this acquisition matured on November 12, 2008. (Plaintiffs Exhibit No. 13) 18. On or about August 6,2007, First Fruits used the Loan to purchase real property located at 624 N. Lorel Avenue, Chicago, Illinois (the “Lorel Avenue Property”). 19. Amcore funded and advanced monies in the principal amount of $72,574.40 to First Fruits under the Loan so that First Fruits could purchase the Lorel Property. According to the underlying loan documents, the indebtedness related to this acquisition matured on August 6, 2008. (Plaintiffs Exhibit No. 9) 20. As detailed below, the loans for the Ohio Street, Cicero and Lorel Avenue properties were eventually paid off through Amcore with the monies deposited by Joyce in his money market account at Amcore. 21. In December 2007, First Fruits was indebted to Amcore under the Loan in the amount of approximately $1,000,000. (Plaintiffs Exhibit No. 22) 22. Wish and Joyce had met sometime in late 2006 and became friends traveling together on each other’s boats in and around Florida and the Caribbean in 2007. 23. During the late summer or early fall of 2007, Wish contacted Joyce and offered him an opportunity to invest, 775through First Fruits, in certain residential real estate in and around the Chicago Metropolitan area. 24. During their conversations regarding the investment opportunity, Wish told Joyce that if Joyce opened a money market account at Amcore, the bank would agree to extend to Wish, or an entity that he controlled (which Joyce later learned was First Fruits), a line of credit equal to at least the amount that Joyce deposited at that bank. 25. Wish also told Joyce that any account set up by him at Amcore would be solely in his name and that no one, other than Joyce, would have access to the money in that account. Wish said to Joyce that such account was to earn interest for Joyce’s sole benefit. 26. Wish further told Joyce that any money deposited with Amcore would be a safe and secure investment because the value of the properties purchased after they were rehabbed by First Fruits would always exceed the amount advanced and that Wish and Kupisch had sufficient funds to make good on any possible although unlikely shortfall in the event any of the properties were sold for less than the indebtedness related to a particular property- 27. On several occasions, Wish told Joyce that if Joyce established a deposit account at Amcore the financing provided to First Fruits by Amcore would be used by First Fruits solely to purchase residential real estate in and around the Chicago Metropolitan area. The goal, as represented to Joyce by Wish, was that the residential properties purchased under this particular line of credit would be rehabbed and resold to various third parties for a profit. 28. Wish told Joyce that when a piece of residential property was purchased under the line of credit that was to be secured by Joyce’s money market account, the property would remain as security for the line of credit until the property was resold. The net proceeds, after the mortgage and other expenses were paid, would then be distributed to Wish, Kupisch, Joyce and an individual named Andy Roman (“Roman”) and Joyce’s profits would be deposited into his money market account or sent to him via check by First Fruits. 29. Wish also said to Joyce that profit from the resales would be split between four individuals, two-thirds of the profit would be split equally between Wish, Ku-pisch and Joyce and the remaining one-third to Roman. 30. Wish further told Joyce that Wish and his business partner, Kupisch, had established their own deposit accounts at Amcore to serve as security and, as a result, had also received lines of credit from Amcore. (Plaintiffs Exhibit No. 18) 31. Wish informed Joyce that the money market account to be pledged by Joyce to Amcore for the stand alone line of credit was to serve only as security for that line of credit and not for any other loans that First Fruits may have had with Amcore. 32. Plaintiff argues that Wish made these oral statements to Joyce even though Wish’s own money market account was pledged for any and all First Fruits indebtedness by virtue of the Assignment of Deposit Account Agreement that he had previously executed. This argument assumes that because Wish knew that his own pledge was of an unlimited nature, he therefore knew Plaintiffs pledge would also be unlimited even though the evidence did not show that Wish read the papers sent to Joyce by Amcore. 33. In approximately late November or early December 2007, Wish again contact776ed Joyce to let Joyce know that they had located several residential properties that they wanted to purchase through First Fruits, and that Wish had already lined up third party buyers to acquire those properties once they were rehabbed. However, in order to acquire these properties, Wish told Joyce that he needed Joyce to open a money market account at Ameore immediately, (even though this conversation was held before the relevant loan/security related documents had been forwarded to Joyce by Ameore) so that Ameore could provide First Fruits with the additional financing to purchase these residential properties. 34. Wish also told Joyce that the documents that Joyce was to receive and sign would protect Joyce and his money market account and would be consistent with what Wish had previously represented to Joyce. However, Wish did not ever tell Joyce that Wish would have a hand in drafting those documents or that he would ever review them or that he had read them. 35. In December 2007, at Wish’s request, and before receiving the transaction related documents, Joyce opened a money market account at Ameore by wire transferring the sum of $400,000 to Ameore. At the time that the wire was sent, Joyce had not received any loan, pledge or other bank related documents from Wish or Am-eore, except an account opening form or card. 36. At no time did Wish ever advise Joyce that Joyce was going to be guaranteeing any prior indebtedness of First Fruits, including the Loan, or that his money market account was being pledged to secure prior indebtedness of First Fruits. In fact, Wish told Joyce that the documents that he was to sign related only to the $400,000 stand alone line of credit that was tied to his money market account. 37. At no time did Wish ever advise Joyce that First Fruits, Wish and Kupisch, as guarantors of the Loan, owed Ameore approximately $1,000,000, or that Wish’s pledge of his money market account was of an unlimited nature. 38. In late December 2007 or early January 2008 and then again in February 2008, Ameore sent Joyce a form for assignment of his deposit account (the “Assignment”) (Plaintiffs Exhibit No. 4) and a commercial guaranty agreement dated February 13, 2008 (the “Guaranty”) (Plaintiffs Exhibit No. 5) to execute (collectively, the “Ameore documents”). 39. Although Wish represented to Joyce that the Ameore documents to be received by Joyce would be consistent with terms that Wish had previously discussed with Joyce, he never represented that he would review or had reviewed those documents or that he had a hand in preparing them. 40. Joyce testified that he was reassured by Ameore loan officer, Michael Ci-belli (“Cibelli”), both before and after receiving the Ameore documents that his money market account was to serve only as collateral for the $400,000 stand alone line of credit to be given to First Fruits by Ameore. 41. Joyce executed the Assignment and Guaranty on or about February 13, 2008. Joyce did not read those documents before signing them, or have legal counsel review the Ameore documents for him. 42. The Guaranty that Joyce signed clearly provided that he was a guarantor of any and all indebtedness incurred by First Fruits and that Joyce’s account was pledged as security, not only for the $400,000 stand alone line of credit, but for any and all prior indebtedness incurred by First Fruits, including the Loan. 77743. Although Joyce owns and operates a prosthetics business in New York at the time he was asked to sign the Amcore documents, he had never invested in a real estate venture nor had he signed loan related documents in connection with any real estate investment opportunity. As a result, he was unfamiliar with the form of Amcore documents before he signed them. However, he was an educated man who knew that commercial documents signed by him would have meaning and importance. 44. On February 13, 2008, First Fruits executed a promissory note in the principal amount of $400,000 (the “February 2008 Note” or the “stand alone line of credit”). (Plaintiffs Exhibit No. 3) The February 2008 Note was executed by Wish and Ku-pisch, who were the managers of First Fruits, and the “stand alone” line of credit was secured by the Assignment and the Guaranty. 45. Immediately after Amcore received Joyce’s wire transfer of $400,000 in December 2007, a significant portion of the wired funds were withdrawn by either Am-core or Wish or Kupisch on behalf of First Fruits, and used to purchase real estate. (Plaintiffs Exhibit No. 1). This money deposited by Joyce was not then authorized in writing to be used for that purpose, but eventually it was redeposited back into Joyce’s money market account in late February 2008 and that temporary withdrawal did not cause any harm or loss to Joyce. 46. On or about April 9, 2008, Wish caused $100,000 to be drawn from the February 2008 Note as a loan to himself personally. That loan was not authorized by Joyce. Said funds were then deposited into Wish’s personal checking account at Amcore (Checking Account No. 9802582739). (Plaintiff’s Exhibit Nos. 8, 23, 26 and 29) 47. The $100,000 loan taken by Wish was not used by Wish to purchase, rehab, and re-sell any properties that were to be acquired with the proceeds from the February 2008 Note secured by Joyce’s money market account at Amcore, nor was this personal loan advance ever paid back by Wish from his own assets. Instead, Joyce’s own money market account pledge was used by Amcore in January 2009 to pay back this personal loan advance made by Wish. 48. Amcore eventually used Joyce’s money market account to also satisfy and reduce the pre-existing indebtedness owed to Amcore, including the amounts due under the Loan and related promissory notes and the personal loan advance taken by Wish under the February 2008 Note. 49. Specifically, on January 23, 2009, the sum of $73,480.57 was applied from Joyce’s money market account to pay off a preexisting First Fruits Promissory Note dated August 1, 2007 related to the Lorel Avenue Property. (Plaintiff’s Exhibit Nos. 7, 9 and 10) On January 23, 2009, the sum of $100,019.02 was applied from Joyce’s money market account to pay off a preexisting First Fruits Promissory Note dated November 9, 2008 related to the Ohio Street Property. (Plaintiffs Exhibit Nos. 7,11 and 12) On January 23, 2009, the sum of $127,867.64 was applied from Joyce’s money market account to pay off a preexisting First Fruits Promissory Note dated November 12, 2007 related to the Cicero Property. (Plaintiffs Exhibit Nos. 7, 13 and 14) On January 23, 2009, the sum of $95,125.64 was applied from Joyce’s money market account to cover Wish’s personal loan advance of $100,000. Finally, on January 27, 2009, the sum of $16,578.28 was applied from Joyce’s money market account for other indebtedness of First Fruits. The foregoing payments served to 778pay in full the past obligations of First Fruits to Amcore. 50. After application of the monies from Joyce’s money market account that were used to pay off First Fruits prior indebtedness under the Loan and related promissory notes and also the unauthorized personal loan advance taken by Wish under the February 2008 Note, only $281.58 remained in Joyce’s money market account as of March 2009. (Plaintiffs Exhibit No. 15). 51. None of the real estate acquired with the proceeds of the February 2008 Note resulted in any losses for First Fruits; all real estate acquired by First Fruits with proceeds from the February 2008 Note turned a profit. 52. In March 2008, First Fruits purchased the property commonly known as 380 W. Rosalie Lane, Palatine, Illinois (the “Palatine Property”) with the proceeds from the February 2008 Note (Plaintiffs Exhibit No. 30) and then sold, through a Land Trust in which First Fruits was the sole beneficiary (Plaintiffs Exhibit No. 21), said property to a third party in July 2008, receiving net sales proceeds of $96,924.76. These funds were then deposited into First Fruits’ business account held at Amcore. (Plaintiffs Exhibit No. 28) The funds deposited into First Fruits’ business account represented net profits from this sales transaction since all expenses related to the acquisition and sale, including closing costs are normally required to be paid at the closing by the title company in accordance with the Settlement Statement. (Plaintiffs Exhibit No. 33). 53. Although amounts advanced under the February 2008 Note for purchase of the Palatine Property were repaid at the closing (Plaintiffs Exhibit No. 31), Joyce did not receive from First Fruits any share of the net sales proceeds that constituted profits, and which under their agreement would have been one third of two thirds of $96,924.76, or the sum of $21,538. 54. First Fruits also purchased the property commonly known as 4462 W. Devon Avenue, Lincolnwood, Illinois (the “Devon Property”) with proceeds from the February 2008 Note (Plaintiffs Exhibit No. 43), and then resold that property in July 2008, receiving net sales proceeds of $18,686.89. (Plaintiffs Exhibit No. 42) The proceeds were then deposited into First Fruits’ business account held at Am-core. (Plaintiffs Exhibit No. 28) The funds deposited into First Fruits’ business account represented net profits from this sales transaction since all expenses related to the acquisition and sale, including closing costs, are normally required to be paid at closing by the title company in accordance with the Settlement Statement. (Plaintiffs Exhibit No. 42) Although amounts advanced under the February 2008 Note for purchase of the Devon Property were repaid at the closing, Joyce did not receive from First Fruits the portion of profits from net sales proceeds, which under the agreement with Wish would have been one third of two thirds of this $18,686.89, or the sum of $4,152.64. 55. Despite numerous requests from Joyce, Wish failed to provide Joyce with any written documentation, financial information or an accounting of profits regarding the real estate transactions. Joyce’s shares of the profits relating to the Palatine and Devon property resales were not paid to Joyce by First Fruits, but rather were used for other uses. However, the evidence did not show that any share of profits due Joyce from any resale of property was ever earmarked as his property or set aside for him, 56. Facts set forth in the Conclusions of Law will stand as additional Findings of Fact. 779 CONCLUSIONS OF LAW Count I Objection to Dischargeability of Debt Under 11 U.S.C. Section 523(a)(2)(A) Section 523(a)(2)(A) of the Bankruptcy Code forbids the discharge of any debt incurred by false pretenses, a false misrepresentation, or actual fraud, perpetrated in order to secure credit, money or property from another, other than a statement respecting the Debtor’s or an insider’s financial condition. 11 U.S.C. § 523(a)(2)(A). If a non-dischargeable debt includes under law an award of attorneys’ fees, the amounts due for such fees would also be non-dischargeable. Cohen v. de la Cruz, 523 U.S. 213, 223, 118 S.Ct. 1212, 140 L.Ed.2d 341 (1998) (involving a violation of New Jersey statute that allowed an award of attorneys fees). False pretenses in the context of § 523(a)(2)(A) include implied misrepresentations or conduct intended to create or foster a false impression. Mem’l Hosp. v. Sarama (In re Sarama), 192 B.R. 922, 927 (Bankr.N.D.Ill.1996). False pretenses do not necessarily require overt misrepresentations. If a debtor has a duty to disclose, omissions or a failure to disclose on the part of the debtor can constitute misrepresentations where the circumstances are such that omissions or failure to disclose creates a false impression that is known by the debtor. Sarama, 192 B.R. 922, 928; Shelby Shore Drugs, Inc. v. Sielschott (In re Sielschott), 332 B.R. 570, 573 (Bankr.C.D.Ill.2005) (finding that silence or concealment may constitute false pretenses). A creditor must establish the following elements: (1) the debtor made a false representation of fact; (2) which the debtor (a) either knew to be false or made with reckless disregard for its truth and (b) made with an intent to deceive; and (3) the creditor justifiably relied on the false misrepresentation. In re Bero, 110 F.3d 462, 465 (7th Cir.1997); Baker Dev. Corp. v. Mulder (In re Mulder), 307 B.R. 637, 643 (Bankr.N.D.Ill.2004). “False representation” does require an express misrepresentation that can be demonstrated either by a spoken or written statement or through conduct of the debtor. New Austin Roosevelt Currency Exchange. Inc. v. Sanchez (In re Sanchez), 277 B.R. 904, 908 (Bankr.N.D.Ill.2002). Furthermore, the failure to disclose pertinent information may also constitute a false representation where the circumstances imply a specific set of facts and disclosure is necessary to correct what would otherwise be a false impression. Trizna & Lepri v. Malcolm (In re Malcolm), 145 B.R. 259, 263 (Bankr.N.D.Ill.1992). Actual fraud is not limited to misrepresentation but may encompass any deceit, artifice, trick, or design involving direct or active operation of the mind, used to circumvent and cheat another. McClellan v. Cantrell, 217 F.3d 890, 893 (7th Cir.2000). Unlike with false pretenses or misrepresentation, the creditor need not allege misrepresentation and reliance to establish a cause of action for fraud under Section 523(a)(2)(A); instead, the creditor must prove that (a) an actual fraud occurred; (b) the debtor intended to defraud the creditor; and (c) the fraud created the debt at issue. Wallner v. Liebl (In re Liebl), 434 B.R. 529 (Bankr.N.D.Ill.2010). Because a debtor will rarely, if ever, admit to acting with intent to defraud, the scienter element may be inferred from the surrounding circumstances. Hickory Point Bank & Trust, Inc. v. Kucera (In re Kucera), 373 B.R. 878, 884 (Bankr.C.D.Ill.2007). Proof of in780tent to deceive is to be measured by the debtor’s subjective intent at the time the representation was made. CFC Wireforms Inc. v. Monroe (In re Monroe), 304 B.R. 349, 356 (Bankr.N.D.Ill.2004). Relevant circumstances that took place after the debt was incurred may be considered, (Sears, Roebuck & Co. v. Green (In re Green), 296 B.R. 173, 179 (Bankr.C.D.Ill.2003)), if that conduct provides an indication of his state of mind at the time of the misrepresentation. Rose v. Gelhaar (In re Gelhaar), Case No. 09 B 07578, Adv. No. 09 A 900504, 2010 WL 4780314, at 7, 2010 Bankr.LEXIS 3899, at 23 (Bankr.N.D.Ill. Nov. 17, 2010) (J., Squires). Thus, intent may be inferred from the surrounding circumstances. Kucera, 373 B.R. at 884. From all of the evidence provided, it must determined whether the circumstances, viewed as a whole, presents a picture of debtor’s deceptive conduct indicating intent to defraud. Cripe v. Mathis (In re Mathis), 360 B.R. 662, 666 (Bankr.C.D.Ill.2006). Intent to deceive may be inferred where a person knowingly or recklessly makes false misrepresentations that the person knows or should know whether it was true or false and that it will induce another to act. Bletnitsky v. Jairath (In re Jairath), 259 B.R. 308, 315 (Bankr.N.D.Ill.2001). It is not necessary that Debtor obtain money or property for himself through false pretenses or fraud under Section 523(a)(2)(A). Weinreich v. Langworthy (In re Langworthy), 121 B.R. 903, 907 (Bankr.M.D.Fla.1990). However, it is critical for an action under § 523(a)(2)(A) that the aggrieved party must establish that he “justifiably” relied on the false pretense or false representation made by the defendant. Field v. Mans, 516 U.S. 59, 74-75, 116 S.Ct. 437, 133 L.Ed.2d 351 (1995). Justifiable reliance is an intermediate standard, requiring less than reasonable reliance, but more than reliance in fact. Goldberg v. Ojeda, 417 B.R. 59 (Bankr.N.D.Ill.2009). The justifiable reliance standard imposes no duty to investigate unless falsity is readily apparent. Field v. Mans, 516 U.S. 59, 70-72, 116 S.Ct. 437, 133 L.Ed.2d 351 (1995). However, “a person is required to use his sense and cannot recover if he blindly relies on a misrepresentation the falsity of which would be patent to him if he had utilized his opportunity to make a cursory examination or investigation.” Id. at 71, 116 S.Ct. 437. Whether a party can be held to have justifiably relied on a misrepresentation is determined by looking at the circumstances of the particular case and the characteristics of the particular plaintiff. Id. It is not an objective standard. Id. Plaintiff argues that he has satisfied all requirements to deny Wish’s discharge under Section 523(a)(2)(A), contending as follows: That representations made by Wish to Joyce regarding the nature of the Am-core documents to be signed by him in order to pledge his money market account, and the purpose for which the pledge was intended were false and fraudulent, and that Wish’s statements created or fostered a false impression of, among other things, the nature of the transaction and that Joyce’s pledge of his money market account would be of a limited nature. In particular, he argues that prior to pledging his money market account at Amcore (which was to be used in connection with the stand alone line of credit) and his signing of the Amcore documents, Wish represented to Joyce that all of the loan proceeds related to the February 2008 Note were going to be used solely by Wish and First Fruits to purchase distressed residential properties in and around the Chicago Metropolitan area. Plaintiff contends that in actuality, the Assignment and 781Guaranty that were signed by Mm were also used ultimately by Wish as a means to reduce other First Fruits indebtedness, i.e., the Loan (of which Wish was a guarantor), and to otherwise benefit Wish, Ku-pisch and First Fruits in connection with its relationship with Amcore, all of which provided little or no value to Joyce. This Count rests on what Wish said to Joyce concerning the Amcore documents before Wish signed them. Wish told Joyce that the money market account that he pledged to Amcore for the stand alone line of credit was to secure only that line credit and no other loans that First Fruits had with Amcore. This argument assumes that Wish was fully familiar with Amcore documents that he himself had previously signed (Assignment of Deposit Account Agreement and Personal Guaranty), which were both unlimited in nature. Plaintiff reasons that Wish should have known that the Amcore documents that he signed were going to be the same type of documents that Joyce was going to be asked to sign since the structure of the transactions were identical. Assuming accuracy of testimony as to representations made by Wish concerning documents from Amcore to be signed by Joyce (particularly since Wish did not testify to deny that testimony), it remains questionable that Joyce could have justifiably relied thereon. Plaintiff is an educated man who, despite lacking law training, knew from his personal business and other experience that words in contracts signed by him have meaning. He could not justifiably rely on a statement by Wish that bank documents would say something though Wish did not claim to have either prepared or even seen these documents. Those entering into a large financial transaction needs to read the documents before signing them or get a lawyer to read them. Joyce did neither and thus signed away rights that the Bank later took advantage of. Plaintiffs logic and argument that he could justifiably rely on Defendant’s prediction about what the documents would say without himself reading them or obtaining counsel to read them disregards the need for anyone to take minimal steps to know what they sign. It might be argued as well that if anyone tells us no traffic is coming that we may justifiably rely on that advice and step off the curb without looking. Likewise it is not justifiable to sign commercial documents without reading them. Therefore, the loss of Plaintiffs $400,000 was not due to his reliance on statements made by Defendant to him, but was due to the Bank’s exercise of rights pursuant to documents signed by Plaintiff that he never read or obtained legal advice on. Finally, it is argued that Wish committed fraud because he failed to cause the corporation to distribute certain profits that rightfully were due to Joyce in connection with the sale of the Palatine and Devon properties. The evidence showed that the parties had an agreement for sharing of profits in home resales, and that Defendant entered into the agreement orally on behalf of the corporation First Fruits. Arguably, evidence also showed that First Fruits used the net profits due to Plaintiff for something other than paying him all shares of profits that were due, all while Defendant controlled First Fruits. However, while that evidence showed a contract breach by First Fruits, it does not prove a fraud by Defendant. The evidence did not trace or show what was done by First Fruits with monies that might have been used to pay shares of profits due to Plaintiff or show a diversion of funds due Plaintiff into Defendant’s pockets. Moreover, the monies due from the corporation to Plaintiff were never seg782regated or earmarked as being property of the Plaintiff. As to each, however, Plaintiff did not establish a fraud by defendant or any false pretenses or misrepresentations that lead to loss of the profit shares. Most significantly, Plaintiff did not plead or attempt to prove that the corporate form of First Fruits should be disregarded under possible legal theories so as to impose its obligations to Wish. Illinois law applies as First Fruits Holdings, LLC was an Illinois limited liability company with its principal place of business in Chicago, Illinois. Stromberg Metal Works v. Press Mech., 77 F.3d 928, 933 (7th Cir.1996). (“Efforts to ‘pierce the corporate veil’ are governed by the law of the state of incorporation.”). Under Illinois law, two requirements must be met to disregard the corporate form. Gallagher v. Reconco Builders, Inc., 91 Ill.App.3d 999, 47 Ill.Dec. 555, 415 N.E.2d 560, 564 (1980) First, there must be such a unity of interest and ownership that the separate personalities of the corporation and the individual no longer exist. Id. Second, circumstances must be such that an adherence to the fictions of corporate existence would sanction a fraud or promote injustice. Id. at 564. Plaintiff did not plead under this theory or produce evidence to satisfy his burden under these requirements. Accordingly, judgment on Count I must favor Defendant. Count II Objections to Dischargeability of Debt Under 11 U.S.C. Section 523(a)(4) Section 523(a)(4) of the Bankruptcy Code provides that a debtor shall not be discharged from any debt “for fraud or defalcation while acting in a fiduciary capacity, embezzlement, or larceny.” 11 U.S.C. § 523(a)(4). To prevail under 11 U.S.C. § 523(a)(4), the moving party must prove that the debtor committed (1) fraud or defalcation while acting in a fiduciary capacity; or (2) embezzlement; or (3) larceny. Under § 523(a)(4) debts arising out of the debtor’s embezzlement (In re Powers, 261 Fed.Appx. 719 (5th Cir.2008)) or larceny are exempted from discharge, (In re Ormsby, 591 F.3d 1199 (9th Cir.2010)), whether or not the debtor was acting in a fiduciary capacity at the time of the misconduct. To establish a claim for embezzlement, Joyce must show that the Debtor misappropriated Joyce’s property for his own benefit with fraudulent intent. Zamora v. Jacobs (In re Jacobs), 448 B.R. 453 (Bankr.N.D.Ill.2011); see also Sherman v. Potapov (In re Sherman), 603 F.3d 11, 14 (1st Cir.2010). A trust or fiduciary relationship need not be established in order to find a debt excepted from discharge by an act of embezzlement. Green v. Pawlinski (In re Pawlinski), 170 B.R. 380, 390 (Bankr.N.D.Ill.1994). “The essence of the common law concept [of embezzlement] is knowing use of entrusted property for an unauthorized purpose, there is no exception for financial joy riding (unauthorized ‘borrowing’ [even] with intent to repay is still embezzlement, the borrowing being unauthorized).” In re Sherman, 603 F.3d 11, 15 (1st Cir.2010) (citation omitted). For purposes of Section 523(a)(4), the definition of larceny is a matter of federal common law and is therein defined as a “felonious taking of another’s personal property with intent to convert it or deprive the owner of the same.” 4 Collier on Bankruptcy Section 532.10[2] (15th ed. rev. 2008); see also Kaye v. Rose (In re Rose), 934 F.2d 901 (7th Cir.1991). Intent to convert or deprive may be inferred from the totality of the circumstances and the conduct of the person accused. Kaye v. Rose (In re Rose), 934 F.2d 901, 904 (7th Cir.1991). 783Section 523(a)(4) also exempts from discharge debts based on fraud or defalcation by a person acting in a fiduciary capacity. In re McGee, 353 F.3d 537 (7th Cir.2003); In re Short, 818 F.2d 693 (9th Cir.1987); Ragsdale v. Haller, 780 F.2d 794 (9th Cir.1986); In re Barker, 40 B.R. 356 (Bankr.D.Minn.1984). To prevail under this theory a plaintiff must ordinarily establish existence of an express trust or a fiduciary relationship and a debt caused by the debtor-defendant’s defalcation while acting as a fiduciary. See Grogan v. Garner, 498 U.S. 279, 291, 111 S.Ct. 654, 112 L.Ed.2d 755 (1991); In re Woldman, 92 F.3d 546 (7th Cir.1996); Vozella v. Basel-Johnson (In re Basel-Johnson), 366 B.R. 831, 848 (Bankr.N.D.Ill.2007). However, a fiduciary relationship upon which a claim under Section 523(a)(4) may also arise when there is: .... a difference in knowledge or power between fiduciary and principal which ... gives the former a position of ascendancy over the latter. The fiduciary may know much more by reason of professional status, or the relation may be one that requires the principal to repose a special confidence in the fiduciary.... These are all situations in which one party to the relation is incapable of monitoring the other’s performance of his undertaking, and therefore the law does not treat the relation as a relation at arm’s length between equals. In re Marchiando, 13 F.3d 1111 (7th Cir.1994). Joyce argues that he has established a claim for larceny and embezzlement as he has shown that Wish somehow misappropriated $100,000 of Joyce’s contributed account at Ameore for his own benefit. Since Wish knew that his taking of $100,000 was not authorized, Joyce argues that fraudulent intent can be inferred. He also argues that Wish’s failure to testify creates an adverse inference that any explanation Wish could have offered would injure his case. Likewise, it is argued that the elements of larceny have also been established as Wish through First Fruits knowingly kept Plaintiffs share of profits with intent to convert it or deprive Joyce of it. It was here proved that First Fruits failed to distribute shares of profits rightfully due to Joyce in connection with sales of the Palatine and Devon properties. However, the complaint as to profits not paid to Plaintiff by First Fruits is not valid because, as earlier discussed, the corporate form may not be disregarded here, and those profits were not earmarked or set aside as Plaintiffs property. Under the Seventh Circuit’s definition in Marchiando of what constitutes a fiduciary relationship, Plaintiff argues that a real disparity in knowledge and economic status and power between the two parties was established when Joyce became an investor. Wish, as the supposed fiduciary, is said to have had a status and knowledge superior to Joyce. This disparity arguably grew as Wish refused to provide Joyce with any financial information, accounting or other documents related to First Fruits and the properties that it acquired. Moreover, while an asserted fiduciary, Wish took out an unauthorized personal loan of $100,000 from First Fruits thereby increasing the debt of First Fruits to Am-core, guaranteed by Joyce’s asset that was only to be used to purchase residential properties for investment and resale. However, a fiduciary relation qualifies under § 523(a)(4) only if it “imposes real duties in advance of the breach....” Marchiando, 13 F.3d at 1116. In other words, the fiduciary’s obligation must exist prior to the alleged wrongdoing. The reach of Marchiando was recently 784further explained by the Seventh Circuit Opinion in In re Berman: Not all persons treated as fiduciaries under state law are considered to “act in a fiduciary capacity” for purposes of federal bankruptcy law ... The Supreme Court taught in Davis v. Aetna Acceptance Co., 293 U.S. 328, 55 S.Ct. 151, 79 L.Ed. 393 (1934), that the non-dis-chargeability exception’s reference to fiduciary capacity was “strict and narrow.” As Justice Cardozo wrote for the Court, the debtor “must have been a trustee before the wrong and without reference thereto.” Those facts are not present in a situation ... where the corporation’s breach of its contract created the debt. The resulting obligation to the creditor is not “turned into” one arising from a trust ... Such obligations are “remote from the conventional trust or fiduciary setting, in which someone ... in whom confidence is reposed is entrusted with another person’s money for safekeeping.” Berman, 629 F.3d 761, 767 (7th Cir.2011). That language would negate Plaintiffs theory concerning the profit shares never paid to him. While the fiduciary theory is certainly arguable as to the $100,000 taking, regardless of whether that theory applies here, Plaintiff clearly prevails under his larceny and embezzlement theory. Defendant deliberately found a means to snatch $100,000 of funds from Amcore out of a loan based on credit from Plaintiffs account and used that property with fraudulent intent for his own purposes unrelated to the venture for which it was pledged. The withdrawal of $100,000 was never repaid by Defendant out of his assets, and the larceny and embezzlement of those funds thereby reduced Plaintiffs account at Amcore and ultimately damaged him in that amount. It is undisputed that the $100,000 taking benefitted Wish and was not used by Wish to purchase, rehab and flip any properties that were to be acquired with the proceeds from the February 2008 Note secured by Joyce’s money market account1, nor was this taking ever repaid by Wish. In Defendant’s Amended Proposed Findings of Fact and Conclusions of Law, Defendant attempts to avoid this issue by claiming that Joyce was not damaged by this personal loan since it came from the stand alone line of credit as opposed to Joyce’s money market account. That argument lacks merit. Documents admitted into evidence demonstrated that there was no balance actually remaining due under the First Fruits line of credit once the Joyce asset was used to pay the lender. The loan history report for the one million dollar line of credit issued to First Fruits Holdings LLC (Plaintiffs’ Exhibit No. 22) shows that it was paid in full on December 19, 2008 by exhausting Plaintiffs asset securing that loan. Defendant’s claim that Joyce suffered no damage from the taking was thereby contradicted by the evidence. Accordingly, the unauthorized taking of 785$100,000 by Wish for his own use was a larceny and embezzlement that damaged' Plaintiff in that amount. Plaintiffs Count II will therefore prevail as to the $100,000 taking. Count III Objection to Dischargeability of Debt Under 11 U.S.C. Section 523(a)(6) Section 523(a)(6) of the Bankruptcy Code provides that a debtor shall not be discharged from any debt “for willful and malicious injury by the debtor to another or to the property of another.” 11 U.S.C. § 523(a)(6). A creditor must prove three elements under that provision: (a) that the debtor intended to and caused injury to the creditor or his personal property interest; (b) that the debtor’s actions were willful; and (c) that the debtor’s actions were malicious. Birriel v. Odeh (In re Odeh), 431 B.R. 807, 817 (Bankr.N.D.Ill.2010). To satisfy the requirements of § 523(a)(6), a creditor must prove that the debtor actually intended to cause harm to him or his property and not merely that the debtor acted intentionally and the creditor or property was thus harmed. Kawaauhau v. Geiger, 523 U.S. 57, 118 S.Ct. 974, 140 L.Ed.2d 90 (1998). Either a showing of prospective intent to injure someone or showing a knowledge by the actor that injury to plaintiff or plaintiffs property was substantially certain to result from acts performed intentionally will establish the intent required under Geiger. Mutual Management Services, Inc. v. Fairgrieves (In re Fairgrieves), 426 B.R. 748, 756 (Bankr.N.D.Ill.2010). Conduct is “malicious” if it is taken in knowing disregard of one’s duties or without just cause or excuse. In re Thirtyacre, 36 F.3d 697 (7th Cir.1994). Under Thirtyacre, the test for malice is that: (a) the wrongful act, (b) done intentionally, (c) causes injury to the creditor or his property, and (d) is done without just cause or excuse. It is argued that Joyce has satisfied all requirements to deny Wish’s discharge under § 523(a)(6), and that Wish’s deliberate and intentional attempts to injure Joyce are supported by misrepresentations made by Wish to Joyce. Plaintiff relies on his testimony that Wish knowingly misrepresented the nature of the Am-core transaction and thus misrepresented the true nature of the pledge of Joyce’s money market account to Amcore. It is said that Wish further intended that the monies deposited by Joyce into his account at Amcore would not be used solely to purchase, rehab and sell certain residential properties in the Chicago Metropolitan Area, but rather would be used to reduce other First Fruits pre-existing indebtedness. However, these asserted misrepresentations were not, for reasons earlier discussed, justifiably relied on for purposes of Count I and the words of Defendant argued to support this theory did not injure Plaintiffs property. Apart from relying on erroneous statements by Defendant, Count III relies on Defendant using $100,000 of the February 2008 Note loan proceeds for his own use and benefit and for otherwise failing to pay Joyce the profits that he was entitled to receive for the Palatine and Devon properties. By taking the personal loan from the February 2008 Note without Joyce’s authorization, Wish is asserted to have actually intended to harm Joyce. Wish’s taking of the personal loan advance was indeed a wrongful act because the February 2008 Note was to be used solely to purchase, rehab, and re-sell real estate. Moreover, it was done intentionally by Joyce; it caused injury to Joyce’s property *786interest when it was not repaid from Defendant’s own assets; and it was done without just cause or excuse. Thus, Defendant’s conduct at the time of taking is argued to have been malicious under Thirtyacre. Plaintiff has not established -willful or malicious injury to Plaintiffs property from the withdrawal of $100,000 because that money was essentially embezzled and stolen, not damaged. It would be a strained use of § 523(a)(6) to apply it to that taking. As noted by a Seventh Circuit Opinion this month, that a wrongful act was done intentionally does not necessarily bring it within the scope of § 523(a)(6). Intentional torts are not all covered by that provision. Jendusar-Nicolai et al. v. Larsen (In re Larsen), 677 F.3d 320 (7th Cir.2012) (“Debts resulting from fraud, for example, are covered in different sections of the Bankruptcy Code.”) By analogy, debts resulting from embezzlement or larceny are covered under a separate provision— § 523(a)(4). See also Berkson v. Gulevsky (In re Gulevsky), 362 F.3d 961, 963-64 (7th Cir.2004) (“Exceptions to discharge are to be construed narrowly, and the subsections of § 523 should not be construed to make others superfluous. Furthermore, when both a specific and a general provision govern a situation, the specific one controls.”) (citations omitted). Plaintiffs loss is therefore more properly remedied under § 523(a)(4) in Count II for reasons earlier given. As to the failure to turn over profits from sales, those debts were owed to Plaintiff by First Fruits, not by Wish. Wish was not shown to be a guarantor of any obligations of First Fruits to Joyce. But, most important, the corporate form was not challenged and funds not distributed by First Fruits cannot be treated as being held by Defendant. Moreover, such funds were not earmarked as nor did they constitute property of Plaintiff, so their use for some other purpose was not a harm to property of Plaintiff under § 523(a)(6). As to the lost $400,000 that was swept by Ameore, the evidence is that Joyce willingly deposited cash in a money market account under his own name. Plaintiff signed documents whereby that account acted as collateral for the whole line of credit to First Fruits. First Fruits did in fact utilize this line of credit to purchase some real estate. The funds in Joyce’s money market account were later taken by Ameore Bank, to be applied to other indebtedness of First Fruits, as permitted by documents signed by Plaintiff that he did not read. Wish was not shown to have control over the actions of Ameore Bank. Therefore, there was no wilful or malicious injury inflicted by Wish on Plaintiffs interest in that account. CONCLUSION Pursuant to the foregoing Findings of Fact and Conclusions of Law, separate Judgments will be entered awarding judgment to Plaintiff on Count II, and separate judgments in favor of Defendant on Count I and III. . Paragraph 38 of the Amended Stipulation of Facts states as follows: "On or about April 9, 2008, Wish caused $100,000 to be drawn from the $400,000 February 2008 Note as a loan to him personally. Said funds were then deposited into Wish’s personal checking account at Amcore (Checking Account Number 9802582739)." Paragraph 39 of the Amended Stipulation of Facts states as follows: "The $100,000 loan advance was not used by Wish to purchase, rehab and flip any properties that were to be acquired with the proceeds from the $400,000 February 2008 Note secured by Joyce’s money market account at Amcore."	01-04-2023	11-22-2022
https://www.courtlistener.com/api/rest/v3/opinions/8494750/	MEMORANDUM DECISION ROBERT D. MARTIN, Bankruptcy Judge. This case presents the question of whether a limited partner’s interest in real estate can be exempted as being similar to a pension or profitsharing plan under § 522(d)(10)(E) of the Bankruptcy Code. I find that this one can. The debtor is 42 years old, and has been employed as a cashier at Kwik Trip, Inc. (Kwik Trip) for 16 years. On Bankruptcy Schedule B, she listed a 401(k) retirement plan with Kwik Trip in the amount of $34,597.00, and a “CSI Retirement Savings Plan” (the CSI Plan) at a value of $21,819.00. CSI, short for “Convenience Store Investments,” is a limited partnership formed by CSI, Inc., the general partner, and Kwik Trip employees, the limited partners. The purpose of the CSI partnership is to provide Kwik Trip employees a long-term benefit by participating in the ownership of Kwik Trip’s real estate assets. The debtor testified that over the course of her employment, she acquired one unit of ownership in CSI each year at a price of $500.00. These units are credited to her Capital Account, as defined in CSI’s Amended and Restated Agreement of Limited Partnership (the partnership agreement). By purchasing CSI units, the debtor became a limited partner. 790The debtor has received an annual “milk check” distribution from CSI since 2007. These distributions appear to come from the earnings the limited partnership receives from its investments in real estate. According to a Summary of Operations dated February 1, 2011, in December 2010, the “milk check” equaled $100.00 for each unit owned. Profits and losses associated with operating CSI (including gains and losses on sales of property) are allocated among the general and limited partners in proportion to the number of units held. According to a document entitled “Notes to Financial Statements,” CSI makes annual cash distributions to limited partners “to permit the partners to pay the income taxes on their share of the Partnership’s income.” The debtor’s 2010 federal tax return reveals a net loss of $6,247.00 from her investment in CSI. Her Schedule K-l (“Partner’s Share of Income, Deductions, Credits, etc.”) displays this loss, and also shows a distribution in the amount of $1,080.00. It is unclear from the record whether the “milk check” distribution is included in this distribution amount. A document entitled “Statements of Partners’ Equity — Income Tax Basis” indicates that tax distributions and “special” (milk check) distributions are accounted for separately. The partnership agreement provides guidelines for when a limited partner may redeem her CSI units. A redemption means that the limited partner cashes out her units by having the general partner repurchase them. If a limited partner ceases to be employed by a Kwik Trip entity, other than for reason of a “Qualified Retirement” or “Disability Retirement,” CSI, Inc. is obligated to repurchase the CSI units from the limited partner. Partnership Agreement, § 6.10(b). A Qualified Retirement is defined in part as when a person ceases to be actively employed by a Kwik Trip entity, but only if the person was employed on a continuous basis for the twelve years preceding retirement, and has attained the age of 55. Partnership Agreement, § 1.22B. A Disability Retirement is defined in part as when an employee is unable to perform her duties due to physical or mental illness, disability or incapacity, for a continuous period of one hundred eighty days. Partnership Agreement, § 1.7A. In the ease of a Qualified Retirement or Disability Retirement, the limited partner may retain his or her units. However, CSI, Inc. has the right to purchase a limited partner’s units ten years after the anniversary of their Qualified or Disability Retirement. Partnership Agreement, § 8.2(c). When certain requirements are met, CSI, Inc. will allow limited partners a “Hardship Redemption.” After receiving a request for a Hardship Redemption, the General Partner has twenty days to determine, in good faith, whether the requirements are satisfied. Partnership Agreement, § 6.9(f)(iii). According to the partnership agreement, a Hardship Redemption means “a redemption of Units which is necessitated by circumstances of severe and unusual financial hardship to the Limited Partner or Unitholder occasioned by illness, casualty, or other unforeseen events not within such person’s control.” Id. The debtor has never requested a Hardship Redemption. The partnership agreement states that “[a] Limited Partner may withdraw from the Partnership at any time by redemption of his or her Units ... in accordance with the procedures set forth in this Section 6.9.” Partnership Agreement, § 6.9(a). Like the process for a Hardship Redemption, a limited partner must make a written request to the General Partner, who may accept or reject the request. Accord791ing to the partnership agreement, “the General Partner may refuse to recognize any request for redemption of Units, for any reason whatsoever ...” Partnership Agreement, § 6.9(e). A letter to Kwik Trip employees, dated August 2011, indicates that CSI, Inc. must approve all requests for redemptions, and emphasizes that CSI, Inc. “has a long-standing policy of not granting requests for the redemption of CSI units while an employee continues to be employed by Kwik Trip.” According to the letter, “CSI, Ine.’s practice has been and continues to be to grant redemptions only in the case of termination of employment, death and disability.” On her bankruptcy schedules, the debtor claims an exemption in the CSI Plan under § 522(d)(10)(E). The trustee objected, arguing the CSI Plan is not similar to those enumerated in the statute. The trustee further argues that the debtor’s interest in the CSI Plan cannot be exempted under § 522(d)(10)(E) because it is not “on account of illness, disability, death, age, or length of service.” Bankruptcy Rule 4003(c) places the burden of proving an exemption was improperly claimed on the objecting party. In re LaLonde, 431 B.R. 199, 209 (Bankr.W.D.Wis.2010). Exemptions are to be liberally construed in favor of the debtor. Id. (citing In re Geise, 992 F.2d 651 (7th Cir.1993)). 11 U.S.C. § 522(d)(10)(E) states that the debtor may exempt: “The debtor’s right to receive — ... a payment under a stock bonus, pension, profitsharing, annuity, or similar plan or contract on account of illness, disability, death, age, or length of service, to the extent reasonably necessary for the support of the debtor and any dependent of the debtor, unless— (i) such plan or contract was established by or under the auspices of an insider that employed the debtor at the time the debtor’s rights under such plan or contract arose; (ii) such payment is on account of age or length of service; and (iii) such plan or contract does not qualify under section 401(a), 403(a), 403(b), or 408 of the Internal Revenue Code of 1986.” The limitation described in (i), (ii), and (iii) does not apply in this case because the CSI Plan was not established by an insider. If an insider-employer had established the plan, and the plan payments were on account of age or length of service, the plan would have to qualify under the enumerated sections of the Internal Revenue Code. 11 U.S.C. § 522(d)(10)(E)(i)-(iii); see also In re Michael, 339 B.R. 798, 804 (Bankr.N.D.Ga.2005). However, if (i) or (ii) does not apply, the CSI Plan need not qualify under the stated provisions of the Internal Revenue Code. Under the relevant part of 11 U.S.C. § 101(31), an “insider” is: (A) if the debtor is an individual— (i) relative of the debtor or of a general partner of the debtor; (ii) partnership in which the debtor is a general partner; (iii) general partner of the debtor; or (iv) corporation of which the debtor is a director, officer, or person in control ... The definition of insider is not an exhaustive list; bankruptcy courts have expanded it to include positions analogous to those enumerated. In re Longview Aluminum, L.L.C., 657 F.3d 507, 509-10 (7th Cir.2011). The insider analysis is a case-by-case decision based on the totality of the circumstances, and bankruptcy courts have used many different factors in their determinations. Id. at 509. One approach 792“focuses on the similarity of the alleged insider’s position to the enumerated statutory categories, while another approach focuses on the alleged insider’s control of the debtor.” Id. The term insider can also encompass anyone with a “sufficiently close relationship with the debtor that his conduct is made subject to closer scrutiny than those dealing at arm’s length with the debtor.” Id. (citing In re Krehl, 86 F.3d 737, 741-42 (7th Cir.1996)). Courts look to the closeness of the relationship between the parties and to whether any transactions between them were conducted at arm’s length. Id.; see also In re Krehl, 86 F.3d at 742. The CSI Plan was formed by CSI, Inc. and limited partners like the debtor. CSI, Inc. does not employ the debtor. Even if it did, CSI, Inc. is not a general partner of the debtor — it is a general partner of the limited partnership, CSI. Therefore, CSI, Inc. is not a statutory insider. Even assuming CSI, Inc. formed the CSI Plan under the auspices of Kwik Trip, Kwik Trip is not the debtor’s statutory insider, either. And the debtor does not have a sufficiently close relationship with Kwik Trip or CSI, Inc. to render either entity her insider. Kwik Trip has convenience stores in more than 350 locations across the Midwest, and employs thousands of “co-workers” at these locations, consisting of a mixture of full-time and part-time employees.1 The debtor has no duties beyond that of a cashier, and all transactions occurring between her and Kwik Trip are at arm’s length. The same is true for her transactions with CSI, Inc. Since § 522(d)(10)(E)(i) does not apply, an examination of § 522(d)(10)(E)(ii) is unnecessary, and the CSI Plan does not need to conform to the enumerated Internal Revenue Code provisions. But the debtor’s right to payment under the CSI Plan must still meet the elements of the statute to qualify for the exemption. According to the United States Supreme Court, the debtor’s right to receive payment under the CSI Plan must meet three requirements to be exempted under this provision: “(1) [t]he right to receive payment must be from ‘a stock bonus, pension, profitsharing, annuity, or similar plan or contract’; (2) the right to receive payment must be ‘on account of illness, disability, death, age, or length of service’; and (3) even then, the right to receive payment may be exempted only ‘to the extent’ that it is ‘reasonably necessary [to] support’ the accountholder or his dependents.” Rousey v. Jacoway, 544 U.S. 320, 325-26, 125 S.Ct. 1561, 161 L.Ed.2d 563 (2005). In order to be a “similar plan or contract” under § 522(d)(10)(E), the CSI Plan must provide income that substitutes for wages earned as salary or hourly compensation. Rousey, 544 U.S. at 331, 125 S.Ct. 1561. A plan that merely “operates as a savings account” is not sufficient. Id. at 329, 125 S.Ct. 1561. Judge Utschig noted the legislative history of § 522(d)(10)(E), which states that “[paragraph (10) exempts certain benefits that are akin to future earnings of the debtor.” In re Cilek, 115 B.R. 974, 988 (Bankr.W.D.Wis.1990) (citing H.R.Rep. 595, 95th Cong., 1st Sess. 362 (1977), U.S.Code Cong. & Admin.News 1978, p. 6318). 793“Akin to future earnings” means the funds were “designed to function as a wage substitute at some future period and, during that future period, to ‘support the basic requirements of life for [the debtors] and their families Id. (quoting Kokoszka v. Belford, 417 U.S. 642, 94 S.Ct. 2431, 41 L.Ed.2d 374 (1974)). A “similar plan” does not have to be a retirement plan to qualify under § 522(d)(10)(E). The Supreme Court observed that all plans listed in the statute provide income that substitutes for wages, but they are different in other respects. Rousey, 544 U.S. at 331, 125 S.Ct. 1561. For example, “employers establish and contribute to stock bonus, profitsharing, and pension plans or contracts, whereas an individual can establish and contribute to an annuity on terms and conditions he selects.” Id. Pension plans and annuities provide deferred payment, but profitshar-ing or stock bonus plans may or may not provide deferred payment. Id. Further, while a pension provides retirement income, none of the other plans necessarily provide retirement income. Id. By the terms of the partnership agreement, CSI is obligated to redeem a partner’s units upon termination of employment. CSI has a policy of granting other redemptions only in the case of termination of employment, death and disability. In the case of a Qualified Retirement or Disability Retirement, a limited partner is generally able to redeem her units or retain them. These terms fit with the purpose described in the August 2011 letter, that Convenience Store Investments is a long-term benefit similar to a retirement savings plan for the employees of Kwik Trip. The terms of the agreement and the general policy of the partnership indicate that the debtor’s right to redeem her CSI units functions as a substitute for wages. The occasional “milk check” distribution makes this plan seem less like a substitute for wage income. But milk check distributions are not guaranteed. The CSI Plan’s stated purpose is to provide a long-term benefit through the investment of real estate. The debtor has also received short-term benefits that are common to conventional real estate investments such as passed-through losses, presumably from depreciation, that reduce her current income taxes. However, the structure of the CSI Plan makes it difficult for the debtor to redeem her units unless she ceases to work, and that makes it look like a substitute for wages in the future. The CSI Plan payments also meet the second element of the statute, as redemption of units can occur “on account of’ disability, death, or illness. According to the Supreme Court, “on account of’ in § 522(d)(10)(E) requires that the right to receive payment be “because of’ illness, disability, death, age, or length of service. Rousey, 544 U.S. at 326-27, 125 S.Ct. 1561. Under the terms of the partnership agreement, the debtor may redeem her CSI units in cases of “severe and unusual financial hardship to the Limited Partner or Unitholder occasioned by illness, casualty, or other unforeseen events not within such person’s control.” “Illness” is an enumerated condition in § 522(d)(10)(E). CSI, Inc. has a policy of granting redemption in cases of death and disability, which are also enumerated conditions in the statute, and denying them in other circumstances. There is, of course, the possibility that the debtor could take advantage of CSI’s policy of redeeming units of a terminated Kwik Trip employee, by quitting or getting fired. But, while such a redemption would not be “on account of’ disability, death or illness, it would be a fairly drastic step unlikely to be in the debtor’s interest. That possibility does not alter the character of the plan, *794which otherwise satisfies this element of the analysis. The final element requires that the exempted fund is reasonably necessary for the support of the debtor. A determination that funds are reasonably necessary for support under § 522(d)(10)(E) is a factual determination. Matter of Kochell, 732 F.2d 564, 566 (7th Cir.1984). In Kochell, the Seventh Circuit Court of Appeals cited In re Taff, 10 B.R. 101 (Bankr.D.Conn.1981), for factors a court should consider in determining whether funds are reasonably necessary for support under 11 U.S.C. § 522(d)(10)(E). Id. Thus, in this circuit, “the ‘reasonably necessary’ standard requires that the court take into account other income and exempt property of the debtor, present and anticipated ... and that the appropriate amount to be set aside for the debtor ought to be sufficient to sustain basic needs, not related to his former status in society or the lifestyle to which he is accustomed but taking into account the special needs that a retired and elderly debtor may claim.” In re Cilek, 115 B.R. at 990 (citing Taff, 10 B.R. at 107). Other courts have elaborated on Taff to include the debtor’s age, present employment, future employment prospects and general health. Id. The Court of Appeals cited to relevant legislative history: “... Section 6 of the Uniform Exemptions Act defined the phrase ‘property to the extent reasonably necessary for the support of [the debtor] and his dependents’ as ‘property required to meet the present and anticipated needs of the individual and his dependents as determined ... after consideration of the individual’s responsibilities and all of the present and anticipated property and income of the individual, including that which is exempt.’ ” Matter of Kochell, 732 F.2d at 565. At the hearing, neither party addressed whether the CSI Plan payments were reasonably necessary for the debtor’s support. The debtor is 42 years old. According the debtor’s 2010 Federal Tax Return, her Income (before any adjustments) totaled $15,621.00. She reported $65,196.27 in total assets and $44,546.91 in total liabilities on her bankruptcy schedules, all of which is unsecured debt. She owns no real property. As of the petition date, the value of her 401(k) retirement plan is $34,597.00. The value of her CSI Plan, as of petition date, is $21,819.00. Taken together, the total value of these two plans is $56,416.00. It cannot be determined what these plans will be worth when she ceases to work. However, whether she continues to work the next 20 years or whether she stops working next year, the combined value of these two plans does not appear to exceed the debt- or’s needs. The trustee has not proved that the payments under the CSI Plan are not reasonably necessary for the support of the debtor and any dependent of the debtor. While this plan does provide some current benefits to the debtor, it also has the earmarks of a traditional retirement plan. It operates as one intended to provide income when the debtor is retired or is not able to work, for reasons that include those contemplated by § 522(d)(10)(E). For these reasons, the trustee’s objection is overruled, and the exemption is allowed. It will be so ordered. . Wikipedia.org, Kwik Trip, http://en. wikipedia.org/wild/Kwik_Trip (last visited May 11, 2012); Kwiktrip.com, Kwik Trip, Inc., http://www.kwiktrip.com/AboutUs/The Company/KwikTripInc.aspx (last visited May 11, 2012); see also Noam Cohen, Courts Turn to Wikipedia, but Selectively, N.Y. Times, Jan. 29, 2007, at C3 (noting Judge Posner stated that "Wikipedia is a terrific resource," but “[i]t wouldn’t be right to use it in a critical issue,”).	01-04-2023	11-22-2022
https://www.courtlistener.com/api/rest/v3/opinions/8494751/	MEMORANDUM OPINION JERRY W. VENTERS, Bankruptcy Judge. On May 3, 2011, Debtors-Plaintiffs Bruce and Mary Knigge filed a two-count complaint against SunTrust Mortgage, Inc., seeking: 1) a determination that Sun-810Trust does not have standing to enforce the promissory note or deed of trust underlying SunTrust’s purported lien on the Debtors’ residence, and 2) an order removing SunTrust’s deed of trust from the chain of title as a cloud thereon. The Plaintiffs and the Defendant have each filed motions for summary judgment on both counts of the complaint. For the reasons stated below, the Court will deny the Plaintiffs’ motion for summary judgment and grant the Defendant’s motion for summary judgment. STANDARD OF REVIEW Summary judgment is appropriate “if the pleadings, the discovery and disclosure of materials on file, and any affidavits show that there is no genuine issue as to any material fact and that the movant is entitled to judgment as a matter of law.”1 A court should grant a motion for summary judgment unless the facts, when viewed in the light most favorable to the nonmoving party and all reasonable inferences which can be drawn therefrom, demonstrate that some genuine issue of fact exists.2 UNCONTROVERTED FACTS The Note and Deed of Trust On December 15, 2003, Bruce and Mary Knigge executed a $143,582.00 promissory note (“Note”) in favor of Mid America Mortgage Services of Kansas City, Inc., to finance the purchase of their residence at 14120 Lora Street, Smithville, Missouri 64089.3 To secure payment of the Note, the Knigges executed a deed of trust (“Deed of Trust”) granting Mid America a security interest in the residence. The Deed of Trust was recorded on December 16, 2003, in the Clay County Recorder’s Office, and identifies Mortgage Electronic Registration Systems, Inc. (MERS), as “beneficiary” and “nominee for Lender.”4 Sometime thereafter, Mid America sold the Note to the Defendant, SunTrust Mortgage, Inc. Prior to delivering the Note to SunTrust, Mid America endorsed it to SunTrust. That endorsement appears on the front of the Note. SunTrust received possession of the Note on or about January 22, 2004. Upon receipt of the Note, SunTrust endorsed it, in blank, on the back side of the Note. The Note does not contain an allonge. The original Note is currently in a fire proof safe in SunTrust’s attorney’s office and was previously made available to the Debtors’ attorney for inspection and copying. On January 29, 2004, SunTrust sold the Note to the Government National Mortgage Association (Ginnie Mae) but retained possession of the Note. On January 28, 2010, SunTrust repurchased the Note from Ginnie Mae.5 811In sum, SunTrust has been in possession of the Note endorsed in blank from January 22, 2004, to the present. The Bankruptcy Proceedings On February 22, 2005, the Knigges filed a Chapter 13 bankruptcy petition initiating Case No. 05-41006. Schedule D attached to their Chapter 13 Petition identified “SunTrust Mortgage, Inc.” as a secured creditor with a mortgage on real property located at 14120 Lora Street, Smithville, Missouri 64089. Paragraph 5 of the Chapter 13 Plan proposed by the Debtors identified SunTrust as the holder of a residential home mortgage to be paid as a long-term debt excepted from discharge. The Court confirmed the Plan on April 19, 2005.6 On December 10, 2007, SunTrust filed a Motion for Relief from Stay alleging, inter alia> that the Debtors had failed to make three monthly payments (which were to be made directly to SunTrust under the terms of the Debtors’ Plan). The Debtors filed a response disputing the amount of the arrearage but, notably, they did not challenge the validity of SunTrust’s secured claim or SunTrust’s standing to enforce it. On January 1, 2008, the Debtors and SunTrust entered into a “Consent Order and Stipulation in Settlement of Defendant’s Motion for Relief,” wherein the Debtors consented to relief from the stay if they failed to make the payments required in the Consent Order. The parties entered into an Amended Consent Order on May 13, 2009, wherein the Debtors agreed to a payment plan to catch up on seven outstanding mortgage payments. Case No. 05-41006 was closed on May 20, 2010, upon the Debtors’ completion of their Chapter 13 Plan and receipt of a discharge. On April 14, 2011, the Knigges filed another Chapter 13 bankruptcy petition, initiating the current case. Schedule D attached to Debtors’ Petition again identified SunTrust Mortgage, Inc., as a secured creditor with a mortgage on the real property located at 14120 Lora Street, Smith-ville, Missouri 64089. The claim was not marked as “disputed,” and the Debtors’ Chapter 13 Plan provided for the payment of SunTrust’s mortgage as a long-term, secured debt.7 The Debtors filed this adversary proceeding on May 3, 2011. On June 9, 2011, SunTrust objected to confirmation of the Debtors’ Chapter 13 Plan on the grounds that the Plan understated the amount of SunTrust’s claim and did not provide for interest on the prepetition arrearage portion of the claim. Despite filing the adversary seeking to invalidate SunTrust’s claim, the Debtors resolved SunTrust’s objection by entering into an “Agreed Order in Settlement of SunTrust Mortgage, Inc.’s Objection to Confirmation,” which adjusted the amount and interest rate of SunTrust’s claim. Notably, the Order did not mention the adversary or reserve the Debtors’ rights to contest SunTrust’s claim through the adversary. The Agreed Order was entered on June 16, 2011. DISCUSSION In the past few years, the courts have been witness to many abuses in the mortgage industry: forged paperwork, inflated claims, “robo-signers,” etc. While it is incumbent on the Court to be vigilant for these abuses and to protect debtors from 812overreaching creditors, the Court must also be wary of debtors trying to ride the wave of anti-creditor sentiment to evade liability on valid claims, based on insignificant, technical irregularities, notwithstanding admissions that they borrowed money, secured the loan with a deed of trust, mortgage, etc., and have suffered no abuse by the lender whatsoever (i.e., no improper foreclosure, no excessive fees, no nonfea-sance or malfeasance). Notably, these debtors don’t usually allege that they owe the money to a different entity or that a different entity has the standing to enforce a mortgage; rather, they seek to shed the lien and loan altogether — despite the fact they’ve suffered no harm other than the reality that they have to repay the loan to keep their property. Another insidious aspect to this “gotcha” litigation — one that has reared its ugly head here — is when debtors play along with a creditor in the early part of a bankruptcy (or a prior bankruptcy) when it suits their purposes, e.g., working out a payment plan to forestall relief from the automatic stay or settling a creditor’s objection to confirmation, but then try to invalidate the creditor’s secured claim when it becomes problematic or burdensome. Thankfully, the doctrine of judicial estoppel does not permit such conduct. And applied here, it warrants summary judgment in favor of the Defendant on both counts of the complaint. (Also, as discussed below, the Defendant is entitled to summary judgment based on the merits of its motion.) A. The Debtors are judicially estopped from challenging SunTrust’s secured claim. The doctrine of judicial estoppel prevents a party from prevailing in one phase of a case on an argument and then relying on a contradictory argument to prevail in another phase.8 It is “designed to preserve the dignity of the courts and insure order in judicial proceedings.”9 Because the doctrine’s focus is on a court’s integrity, judicial estoppel does not require proof of privity, reliance, or prejudice by the party invoking it.10 Put simply, the doctrine is designed to prevent a party from playing “ ‘fast and loose with the courts.’ ”11 A review of the pleadings in the Debtors’ current and prior bankruptcy cases12 suggests that the Debtors are doing just that, significantly prejudicing Sun-Trust in the process. In addition to listing SunTrust’s secured claim as undisputed on their Schedules in both cases, the Debtors have affirmatively acknowledged Sun-Trust’s standing to enforce the Note and Deed of Trust at least three times. In the Debtors’ 2005 bankruptcy, the Debtors acknowledged the validity of Sun-Trust’s secured claim (and its standing to pursue it) when they entered into consent 813orders with SunTrust on January 1, 2008, and May 13, 2009, agreeing each time to cure the arrearage owed to SunTrust to prevent SunTrust from obtaining relief from the automatic stay. And in this case, the Debtors’ agreement to the order settling SunTrust’s objection to confirmation constitutes yet another acknowledgment that SunTrust has a valid secured claim. These orders do not explicitly recite that SunTrust has a valid secured claim, but that fact is implied in the Orders. If SunTrust did not have a secured claim, there would have been no good reason for the Debtors to make the agreements they did. Moreover, nothing in these orders indicates that the Debtors reserved their rights to challenge SunTrust’s claim, lien, or standing at a later date. In the absence of such a reservation of rights, the Debtors cannot now take a position inconsistent with the position taken in those orders. In other words, the Debtors are judicially estopped from arguing in this adversary proceeding that SunTrust lacks the authority or standing to enforce the Note and Deed of Trust. Moreover, as the Court held in In re Washington,13 the consent orders granting SunTrust relief from the automatic stay bar the Debtors from challenging SunTrust’s standing to enforce the Note and Deed of Trust as a matter of res judicata,14 and the Agreed Order in Settlement of SunTrust Mortgage, Inc.’s Objection to Confirmation bars the Debtors’ arguments here under the law of the case doctrine.15 These holdings should come as no surprise to Debtors’ counsel — he represented the debtor in In re Washington. Consequently, the Debtors’ motion for summary judgment must be denied and the Defendant’s motion for summary judgment must be granted. B. The Note is a negotiable instrument, and SunTrust, as the party in possession of that Note, has standing to enforce it. Turning to the merits, in its Motion for Summary Judgment SunTrust has advanced the straightforward argument that the Note is a bearer note, i.e., endorsed in blank, and therefore, as the party in physical possession of the Note, SunTrust has standing to enforce it against the Debtors. SunTrust maintains that it is the valid assignee of the Deed of Trust and, therefore, has standing to enforce it. SunTrust also argues that, as the party in possession of the Note, SunTrust has the authority and standing to enforce the Deed of Trust, regardless of the validity of the assignment. Finally, since the Deed of Trust is valid, there is no basis to strike it from the land records as a cloud on title. The Defendant’s arguments are sound and supported by the uncontrovert-ed facts. Borrowing again from In re Washington, the facts of which are analogous to this case: The Note is a negotiable instrument and is therefore subject to the Missouri Uniform commercial Code. Under Mo.Rev. Stat. § 400.3-301, a “Person entitled to enforce” an instrument is defined as “(i) the holder of the instrument, (ii) a non-holder in possession of the instrument who has the rights of a holder, or (iii) a person not in possession of the instrument who is entitled to enforce the in814strument pursuant to Section 400.3-309 or 400.3-418(d). A person may be a person entitled to enforce the instrument even though the person is not the oumer of the instrument or is in urrongful possession of the instrument.” “Holder” with respect to a negotiable instrument, means the person in possession if the instrument is payable to bearer. “If a negotiable instrument has been endorsed in blank, as the Note in this case has been, the instrument becomes payable to “bearer” and may be negotiated by transfer of possession alone.” Finally, under Missouri law, a party entitled to enforce a note is also entitled to enforce the deed of trust securing that note, regardless of whether that transfer is recorded. Possession of the note insures that this creditor, and not an unknown one, is the one entitled to exercise rights under the deed of trust, and that the debtor will not be obligated to pay twice.16 The Debtors’ argument in this case is that the analysis and holding in In re Washington are inapplicable because: 1) the Note hasn’t been endorsed in blank because the purported blank endorsement is on an invalid allonge, and 2) even if the endorsement is valid, the Note is not a negotiable instrument under Missouri law.17 These arguments are without merit, and the first is, frankly, preposterous considering Debtors’ counsel was allowed to inspect and copy the original Note on October 14, 2011, at the deposition of Sun-Trust’s corporate representative. With regard to negotiability, the Debtors argue that the Note isn’t negotiable under Missouri law because the Deed of Trust referred to in the Note requires the Debtors to perform a variety of undertakings beyond the payment of money, such as “occupy[ing] the property, re-frainfing] from wasting or destroying the property, maintain[ing] insurance on the property, and giv[ing] notice to Lender of any losses relating to the property.”18 These additional undertakings do not undermine the negotiability of the Note under Missouri law, which defines negotiable instruments as follows: (a) Except as provided in subsections (c) and (d), “negotiable instrument” means an unconditional promise or order to pay a fixed amount of money, with or without interest or other charges described in the promise or order, if it: 815(1) is payable to bearer or to order at the time it is issued or first comes into possession of a holder; (2) is payable on demand or at a definite time; and (3) does not state any other undertaking or instruction by the person promising or ordering payment to do any act in addition to the payment of money, but the promise or order may contain (i) an undertaking or power to give, maintain, or protect collateral to secure payment, (ii) an authorization or power to the holder to confess judgment or realize on or dispose of collateral, or (iii) a waiver of the benefit of any law intended for the advantage or protection of an obligor.19 All of the undertakings that the Debtors argue undermine the negotiability of the Note fall squarely under the exception provided in the italicized language, i.e., those necessary to maintain or protect the collateral securing the Note.20 Contrary to counsel’s assertions, none of them alters the unconditional nature of the promise to pay the amount due in the Note. Therefore, the Court finds that the Note, validly endorsed in blank, is a negotiable instrument, and SunTrust, as the party in possession of the Note, has the right to enforce it and the Deed of Trust. Accordingly, there is no basis for striking the Deed of Trust from the land records of Clay County, Missouri as a cloud on title. CONCLUSION For the reasons stated above, the Debtors-Plaintiffs’ Motion for summary judgment will be denied and the Defendant’s Motion for Summary Judgment will be granted. The Clerk of the Court is directed to enter judgment in accordance with this Memorandum Opinion. . Fed.R.Civ.P. 56(c). . See Enterprise Bank v. Magna Bank of Missouri, 92 F.3d 743, 747 (8th Cir.1996). . The formal description of the property is: ALL OF LOT 20, WOODS COURT PLATE 1, A SUBDIVISION IN SMITHVILLE, CLAY COUNTY, MISSOURI, ACCORDING TO THE RECORDED PLAT THEREOF. . Further facts regarding the structure of MERS and SunTrust's membership therein have been omitted inasmuch as they are irrelevant to the Court’s decision here. .The Debtors contend that SunTrust’s sale to and repurchase of the Note from Ginnie Mae were essentially legal nullities because the Note remained in SunTrust’s possession. Even if this proposition was true (and the Court is not convinced it is), the result would be that SunTrust has had (and continues to have) possession and ownership of the Note since January 22, 2004, when it purchased it from Mid America. . SunTrust’s treatment in the Plan did not change in any of the Debtors' six subsequent amendments to the Plan. . Later amendments to the Plan have not changed the classification or treatment of SunTrust’s claim. . See New Hampshire v. Maine, 532 U.S. 742, 749, 121 S.Ct. 1808, 149 L.Ed.2d 968 (2001). . Edwards v. Durham, 346 S.W.2d 90, 101 (Mo.1961). . See Monterey Development Corp. v. Lawyer’s Title Ins. Corp., 4 F.3d 605, 609 (8th Cir.1993). . Monterey Development Corp., 4 F.3d at 609 (quoting Konstantinidis v. Chen, 626 F.2d 933, 937 (D.C.Cir.1980)). .Stallings v. Hussmann Corp., 447 F.3d 1041, 1047 (8th Cir.2006) ("Judicial estoppel prevents a person who states facts under oath during the course of a trial from denying those facts in a second suit, even though the parties in the second suit may not be the same as those in the first.”). Here, the parties in the second "suit,” i.e., bankruptcy case, are the same. . See In re Washington, 468 B.R. 846 (Bankr.W.D.Mo.2011). . Id. at 851-52 (holding that a debtor's consent to an order granting a creditor relief from the stay to enforce its lien bars relitigation of the issue of the creditor's standing to enforce that lien). .Id. at 851. . Id. at 852 (citations omitted, emphasis in original). . Debtors' counsel chides the Court for not examining the negotiability of the promissory note in In re Washington, repeatedly citing an article by former University of Missouri law professor Dale Whitman for the proposition that "there is a general consensus among those devoting the time and effort necessary to understanding the negotiability of mortgage loans that the great majority of notes in the modern secondary mortgage market are non-negotiable.” See, e.g., Dale Whitman, How Negotiability Has Fouled Up the Secondary Mortgage Market, and What To Do About It, 37 Pepp. L.R. 737 (2010). The undersigned had the privilege of being a student in Professor Whitman’s real property class. In any event, this criticism is ironic since counsel for Ms. Washington (and the Debtors in this case) never raised the negotiability of the note (or lack thereof) as an issue in that case. .Debtors’ Suggestions in Support of Summary Judgment, p. 7. In their reply brief, the Debtors identify additional obligations in the Deed of Trust that allegedly render the Note nonnegotiable. The Court will not consider these allegations, see e.g., McGhee v. Pottawattamie County, Iowa 547 F.3d 922 (8th Cir.2008) (sustaining Iowa District Court’s refusal to consider arguments first raised in a summary judgment reply brief), although considering them wouldn’t change the outcome here; they are all related to the preservation of SunTrust's collateral and do not alter the unconditional nature of the promise to pay the amount due in the Note. . Mo.Rev.Stat. § 400.3-104. . See Tower Grove Bank & Trust Co. v. Duing, 346 Mo. 896, 144 S.W.2d 69, 71-72 (Mo.1940) (rejecting the argument that a note was rendered nonnegotiable because it required compliance with a deed of trust, which in turn required "the payment of taxes, keeping the property insured, etc.").	01-04-2023	11-22-2022
https://www.courtlistener.com/api/rest/v3/opinions/8494752/	ORDER MICHAEL E. ROMERO, Bankruptcy Judge. This matter comes before the Court on the following matters: 1. Plaintiff’s Motion for Partial Summary Judgment (Docket No. 62) and the Defendant’s Response to Plaintiffs Motion for Partial Summary Judgment (Docket No. 89) 2. Defendants’ Motion for Partial Summary Judgment (Docket No. 90), and the Plaintiffs Response to Motion for Partial Summary Judgment (Docket No. 102). 8. Defendant FNF Security Acquisition, Inc. ’s Additional Motion for Partial Summary Judgment (Docket No. 124), and the Plaintiffs Response to Motion for Partial Summary Judgment (Docket No. 145). BACKGROUND FACTS A. Procedural Status On January 27, 2010, Plaintiff Mercury Companies, Inc. (“Mercury”) filed its Complaint against FNF Security Acquisition, Inc. A First Amended Complaint was filed July 28, 2010,1 adding as defendants Fidelity National Title Company, USA Digital Solutions, Inc., American Heritage Title Agency, Inc., Mercury Settlement Services of Utah, Inc., and United Title Company, Inc. (the “Amended Complaint”). On February 16, 2011, Mercury filed a Motion for Partial Summary Judgment as to Mercury’s Fourth Claim for Relief, to which Defendant FNF Security Acquisition, Inc. (“FNF”) filed a Response and Cross-Motion for Partial Summary Judgment. FNF filed a second Motion for Partial Summary Judgment on July 13, 2011. On August 15, 2011, FNF filed a Motion to Withdraw the Reference, which was denied by the United States District Court for the District of Colorado on October 31, 2011. Thereafter, this Court held a status conference and later a hearing on the above pending motions. B. General Background The Amended Complaint alleges Mercury entered into a stock purchase agreement (the “Stock Purchase Agreement”) with Defendant Fidelity National Title Company (“Fidelity”) under which Fidelity would purchase from Mercury all the outstanding capital stock of certain of Mercury’s subsidiaries, specifically Defendants USA Digital Solutions, Inc., American Heritage Title Agency, Inc., Mercury Settlement Services of Utah, Inc., and United Title Company, Inc. (the “Colorado Subsidiaries”), and take on the Colorado Subsidiaries’ ongoing operational liabilities. The Amended Complaint alleges Fidelity did not fully perform under the stock purchase agreement. In addition, it alleges 827Mercury paid approximately $1.68 million to the Colorado Subsidiaries after the transaction with Fidelity closed, for transactions which had occurred pre-closing, in the belief the payment was required under the stock purchase agreement. The Amended Complaint seeks 1) recovery of a fraudulent transfer against Fidelity; 2) damages for breach of contract against Fidelity; 3) damages from alleged breach of implied covenant of good faith and fair dealing by Fidelity; 4) recovery of the $1.68 million as a fraudulent transfer against the Colorado Subsidiaries; and 5) avoidance of the $1.68 million payment to the Colorado Subsidiaries as a preference under 11 U.S.C. § 547.2 The Defendants’ Answer to the Amended Complaint admits Mercury was in a difficult financial position in August 2008, and admits Comerica Bank’s sweep of Mercury’s bank accounts and the closure of Mercury’s California, Arizona, and Texas subsidiaries rendered Mercury insolvent. The Defendants also admit Fidelity entered into a stock purchase agreement to purchase the outstanding stock of the Colorado Subsidiaries. They agree Fidelity wired $1 million of the $5 million purchase price directly to Mercury, and wired an additional $1,484,004 to Comerica Bank, but refused to pay the remaining $2,516,000. However, the Defendants deny knowledge as to whether Mercury was insolvent on the date of the sale or as a result of the sale, and deny the $5 million purchase price was less than equivalent value. They dispute assertions of breach of contract by Fidelity, and deny the transfers of the funds of the Colorado Subsidiaries constituted fraudulent transfers or preferences. The Defendants raise the following affirmative defenses in their Answer: 1) Mercury’s claims are subject to the doctrine of estoppel; 2) Mercury’s claims are barred due to a failure of consideration; 3) Mercury’s claims are barred due to laches; 4) Mercury has waived the claims; 5) Mercury’s claims are barred in whole or in part due to failure to comply with a condition precedent; 6) Mercury has not stated a cause of action upon which relief may be granted; 7) Mercury’s claims are barred in whole or in party by the applicable statute of limitations; 8) the alleged fraudulent transfers by Mercury to Defendant are not avoidable because the Defendants took such transfers for value and in good faith; 9) the alleged preferential transfers are not avoidable because any such payments were intended by the parties to be contemporaneous exchanges for new value, and were in fact such exchanges; and 10) the alleged preferential transfers are not avoidable because they were made with earmarked funds. C. The Cross-motions for Partial Summary Judgment 1. The Plaintiffs Motion With respect to its fourth claim for relief, on which it seeks summary judgment based on the theory of fraudulent transfer, Mercury notes it must prove, under § 548: 1) Mercury received less than reasonably equivalent value in exchange for each transfer; and, 2) Mercury a) was insolvent on the date each transfer was made or became insolvent as a result of such transfer; b) was engaged in a business or transaction, or was about to engage n a business or transaction, for which any property remaining with Mercury was a unreasonably small capital; or c) intended to incur, or 828believed it would incur, debts beyond its ability to pay as such debts matured. Mercury’s Motion alleges that prepetition, the Colorado Subsidiaries’ funds were transferred to Mercury on a daily basis. The Colorado Subsidiaries deposited their operating cash each day in their own bank accounts, which were then “swept” into Mercury’s operating account, known as the “Concentration Account.” Then, at the beginning of each business day, sufficient funds were transferred from Mercury’s Concentration Account to each subsidiary’s account so the subsidiary could make necessary disbursements. Mercury alleges it also used funds from the Concentration Account for its own purposes, that there was no written or other agreement about this arrangement, and that Mercury did not segregate the subsidiaries’ funds in its Concentration Account. Mercury had complete control over the funds in the Concentration Account, including how and when they were disbursed. However, when a transfer was made to the Concentration Account from a subsidiary, the transfer was recorded on Mercury’s balance sheet as a payable owed by Mercury to the subsidiary, or as a receivable from Mercury owned by the subsidiary. When a transfer was made from the Concentration Account to a subsidiary or to pay a subsidiary’s expense, the transfer was recorded on Mercury’s balance sheet as reducing a payable owed by Mercury to the subsidiary or as an unsecured debt owed by the subsidiary to Mercury, and these transactions appeared on Mercury’s consolidated balance sheet as credits and debits with respect to the companies involved. Therefore, the balance owed by Mercury to a subsidiary, or by a subsidiary to Mercury, varied from day to day depending upon whether the amounts transferred from a subsidiary to the Concentration Account were greater or lesser than the amounts transferred to the subsidiary or advanced on the subsidiary’s behalf from the Concentration Account. On July 28, 2018, the Concentration Account was held at U.S. Bank.3 On that date, U.S. Bank swept all the approximately $30 million from the Concentration Account, rendering Mercury insolvent. A new account at Wells Fargo Bank, titled solely in Mercury’s name, was opened late July 2008, and Mercury’s subsidiaries, including the Colorado Subsidiaries, began to deposit most of their cash into the account, commingling the funds of the subsidiaries. According to Mercury, the Wells Fargo account was intended to provide a cash management system similar to the previous Concentration Account. 2. The Defendants ’ Response The Defendants do not dispute Mercury’s insolvency.4 They argue the question is whether the transfers constituted transfers of Mercury’s interest in property. According to the Defendants, although Mercury states the undisputed facts show the Purchased Company Transfers were Mercury’s funds, because funds titled in an entity’s name in a bank account are presumed to belong to that entity,5 genuine issues of material fact exist as to who owned the funds at issue in the transfers. Specifically, the Defendants allege Mercury glosses over the many distinctions between the facts in Amdura and the facts 829in the present case. The Court notes the Amdura Court found funds in a concentration account into which Debtor Amdura’s subsidiaries’ funds were deposited, and from which the subsidiaries’ expenses were paid were not property of a subsidiary’s bankruptcy estate, stating: In this case the concentration account was not only held exclusively in Amdu-ra’s name, but Amdura also possessed all other legally cognizable indicia of ownership. None of the money in the account was ever segregated; Amdura had, at least pre-petition, the right to spend the money entirely as it saw fit without concern for “whose money” it was spending; and Amdura in fact spent concentration account funds on its own obligations as well as those of the subsidiaries. Even if the parties’ own characterization of the account were binding on this court, the record reveals no statements that controvert the existence of these rights of ownership.6 By contrast, the Defendants here argue Mercury and the Subsidiary Defendants always listed the cash as an asset of the Subsidiary Defendants on their balance sheets despite the fact the majority of their operating cash was held in Mercury’s account. In addition, the Defendants dispute Mercury’s assertion it paid the transfers to the Colorado Subsidiaries purchased by Fidelity and received nothing in return. Rather, the Defendants allege the Stock Purchase Agreement makes clear cash was not included within intercompany accounts which were eliminated pursuant to the Stock Purchase Agreement. The Defendants further argue the majority of the operating cash at issue was deposited into Mercury’s account by chance. If Wells Fargo had refused to do business with Mercury, the Colorado Subsidiaries presumably would have started depositing their operating cash into their own operating accounts as of July 30, 2008. Accordingly, the Defendants state a genuine issue of material fact exists as to the purpose of these accounts, how the parties anticipated they would handle operating cash on an ongoing basis, and how their cash management plans affected ownership of the funds within Mercury’s and the Colorado Subsidiaries’ bank accounts. They also contend the Colorado Subsidiaries were the source of the funds for the subject transfers, and the Colorado Subsidiaries, not Mercury, had control of the funds. The Defendants claim a genuine issue of material fact exists as to whether the funds underlying the transfers which were held in Mercury’s bank accounts were owned by Mercury. They further assert Mercury’s reasonably equivalent value argument rests on the faulty premise that the Stock Purchase Agreement eliminated the Colorado Subsidiaries’ rights to their operating cash. 3. The Defendants’ Motions The Defendants’ Initial Motion for Partial Summary Judgment was brought by all the Defendants, and states Mercury cannot bring claims against its subsidiaries because its Chapter 11 reorganization plan did not preserve such rights and claims. Citing an earlier decision of this Court, the Defendants assert after the acceptance of a Chapter 11 plan, a party’s ability to enforce a claim once held by the bankruptcy estate is limited to that which is retained under the terms of the plan.7 830The Second Motion for Partial Summary Judgment was brought by FNF Security Acquisition, Inc. (“FNF”) only. It contends Mercury is not entitled to a claim for breach of contract because it acted in bad faith by not disclosing Mercury’s purchased companies’ contingent liabilities, and because it cannot show FNF breached obligations under the Stock Purchase Agreement. FNF also argues the claim for breach of the covenant of good faith and fair dealing must fail as a matter of law because of Mercury’s failure to disclose the financial conditions of the Colorado Subsidiaries. Therefore, FNF seeks summary judgment in its favor on Mercury’s claims of breach of contract and breach of the covenant of good faith and fair dealing. Specifically, FNF argues Mercury’s claim for breach of contract fails as a matter of law because Mercury cannot establish: 1) the existence of an express or implied contract; 2) the breach of an obligation imposed by that contract; and 3) resulting damages to the plaintiff.8 FNF asserts Mercury and FNF are sophisticated parties who negotiated the terms of the Stock Purchase Agreement with the assistance of counsel and made their own judgments about the risks. According to FNF, the parties bargained and included within the Stock Purchase Agreement a provision whereby FNF’s obligation to pay the remainder of the purchase price was subject to several conditions which were not met, including disclosure of Mercury’s contingent liabilities. In order to state for a claim for breach of the implied covenant of good faith and fair dealing for FNF’s refusal'to pay the remainder of the purchase price, Mercury must show: 1) a specific implied contractual obligation, 2) a breach of that obligation by FNF, and 3) resulting damage to Mercury.9 Because Mercury cannot point to any specific implied contractual obligation or breach of that obligation, two of the essential three elements of this claim, FNF contends this claim is subject to summary judgment. Jp. The Plaintiffs Responses In its response to the Motion for Partial Summary Judgment brought by all the Defendants, Mercury argues the Chapter 11 Plan confirmed in its Chapter 11 case preserved, unambiguously, Mercury’s right to pursue avoidance claims. Mercury notes it sued the Defendants before the confirmation of the Plan. The Defendants, all of whom except FNF are its previous subsidiaries, are not creditors of Mercury, did not file proofs of claim against Mercury, and did not receive copies of the Plan or Disclosure Statement. However, Section 8.03 of the confirmed Plan provides: Except as otherwise provided in the Plan, as of the Effective Date, pursuant to § 1123(b)(3)(B) of the Bankruptcy Code, any and all Causes of Action accruing to the Debtor, or the Debtor in its capacity as debtor-in-possession, not released or compromised pursuant to this Plan, including, without limitation, actions under §§ 544, 545, 547, 548, 549, 550, 551, and 553 of the Bankruptcy Code, shall remain assets of the Estate, and the Debtor shall have the authority to prosecute such Causes of Action for the benefit of the Estate.10 831According to Mercury, further “magic words” were not required to be included in the Plan, and the Defendants already had notice, through the suit filed against them, that Mercury intended to pursue the action post-confirmation. As to Defendant FNF’s Motion for Partial Summary Judgment, Mercury contends none of the provisions of the Stock Purchase Agreement excuse FNF from paying the rest of the contract price, and argues the Agreement does not contain detailed representations and warranties. Further, Mercury disputes FNF’s allegations it was pressured into buying the Colorado Subsidiaries, and contends FNF’s representatives understood the financial terms of the parties’ agreement before they traveled to Denver. Mercury states FNF asked for and received information about the Colorado Subsidiaries. According to Mercury, FNF’s representatives were sophisticated business people who proceeded because they were obtaining valuable assets for a fraction of their value. Mercury therefore argues FNF did not meet its burden under Rule 56, because disputed issues of fact remain as to what the FNF representatives knew and when they knew it, whether they received information they requested, and whether the information they received was accurate. Mercury maintains FNF received all information it requested, and disputes FNF’s allegation the Plaintiffs representations were inaccurate or misleading. Mercury alleges FNF did not conduct appropriate due diligence before it purchased the Colorado Subsidiaries, and so cannot now assert it did not receive the required information. Further, Mercury asserts FNF controlled certain of the information it claims it needed to make the decision whether to buy the Colorado Subsidiaries, and cannot now argue the lack of such information justifies FNF’s failure to pay the remaining obligations under the Stock Purchase Agreement. Lastly, Mercury states FNF’s Motion attempts to introduce parole evidence outside the four corners of the Stock Purchase Agreement, supporting a finding that disputed issues of material fact exist. DISCUSSION Summary judgment shall be granted “if the pleadings, the discovery and disclosure materials on file, and any affidavits show that there is no genuine issue as to any material fact and that the movant is entitled to judgment as a matter of law.”11 The burden for establishing entitlement to summary judgment rests on the movant.12 Summary judgment is not appropriate where a dispute exists as to facts which could affect the outcome of the suit under relevant law.13 A genuine dispute over a material fact exists .when the “evidence supporting the claimed factual dispute [is] shown to require a jury or judge to resolve the parties’ differing versions of the truth at trial.”14 In reviewing motions for summary judgment, the Court must view the record in the light most 832favorable to the non-moving party.15 As noted by Chief Judge Howard R. Tallman of this Court: This Court exercises great circumspection in the granting of a motion for summary judgment. There should always be a natural preference for allowing the parties to proceed to a trial on the merits where there is any factual matter subject to a bona fide dispute which bears on the ultimate resolution of the controversy. Associated Press v. U.S., 326 U.S. 1, 6, 65 S.Ct. 1416, 1418, 89 L.Ed. 2013 (1945) (“Rule 56 should be cautiously invoked to the end that parties may always be afforded a trial where there is a bona fide dispute of facts between them”). “Where it appears however that there is no genuine issue as to any material fact upon which the outcome of the litigation turns, the case is appropriate for disposition by summary judgment and it becomes the duty of the court to enter such judgment.” Whelan v. New Mexico Western Oil and Gas Company, 226 F.2d 156, 159 (10th Cir.1955).16 As revealed by the background facts, above, the Stock Purchase Agreement is a complex contract. The cross-motions for summary judgment contain much conflicting affidavit testimony, and conflicting positions on the interpretation of the Agreement. At the least, the following matters remain in dispute: 1) whether Mercury owned the cash that was transferred; 2) whether the Stock Purchase Agreement was breached by FNF, and 3) whether Mercury’s Plan provided adequate reservation of rights to continue the action against the Colorado Subsidiaries.17 Accordingly, genuine issues of material fact remain to be tried — allowing the Court to evaluate the conflicting testimony as it is presented live, rather than by affidavit. Summary judgment is therefore inappropriate for either FNF or Mercury on the Plaintiffs Motion for Partial Summary Judgment, or the Defendants’ Second Motion for Partial Summary Judgment. In addition, regarding the Defendants’ Initial Motion for Partial Summary Judgment, based on the above discussion of the Disclosure Statement, Plan, and knowledge of the Defendants and the Colorado Subsidiaries of Mercury’s intent to continue prosecution of this adversary proceeding post-confirmation, the Court finds genuine issues of material fact remain to be tried, and the Defendants have not shown entitlement to judgment as a matter of law. CONCLUSION Based upon the above findings IT IS ORDERED Plaintiff’s Motion for Partial Summary Judgment (Docket No. 62) is DENIED. IT IS FURTHER ORDERED Defendants’ Motion for Partial Summary Judgment (Docket No. 90) is DENIED. IT IS FURTHER ORDERED Defendant FNF Security Acquisition, Inc.’s Ad833ditional Motion for Partial Summary Judgment (Docket No. 124) is DENIED. . The First Amended Complaint was docketed on June 14, 2010, along with a Motion to Amend Complaint. The motion was granted on July 28, 2010, so the First Amended Complaint was deemed to be filed on that date. . Unless otherwise noted, all future statutory references in the text are to Title 11 of the United States Code. .It is not clear from the Amended Complaint or the Motion why the Amended Complaint alleges the Concentration Account was swept by Comerica Bank, while the Motion alleges it was swept by U.S. Bank. . Undisputed Facts at ¶ 10. . The Defendants cite Amdura Nat'l Dist. Co. v. Amdura Corp. (In re Amdura Corp.), 75 F.3d 1447, 1451 (10th Cir.1996). . Id. . Connolly v. City of Houston (In re Western Integrated Networks, LLC), 322 B.R. 156, 160 (Bankr.D.Colo.2005) (citing 11 U.S.C. § 1123(b)(3)). . FNF cites VLIW Tech., LLC v. Hewlett-Packard Co., 840 A.2d 606, 612 (Del.2003). . FNF cites Kelly v. Blum, 2010 WL 629850 at 13 (Del.Ch. February 24, 2010) (Not Reported in A. 2d). .Plaintiff’s Response at 4.; Underlying Case Docket No. 1679, Chapter 11 Plan, at 10, ¶ 8.03. . Fed.R.Civ.P. 56, (as incorporated by Fed. R. Bankr.P. 7056); Celotex Corp. v. Catrett, 477 U.S. 317, 322, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986). . Celotex, 477 U.S. at 323, 106 S.Ct. 2548. . Carey v. U.S. Postal Service, 812 F.2d 621, 623 (10th Cir.1987). . Anderson v. Liberty Lobby, 477 U.S. 242, 249, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986) (quoting First National Bank of Arizona v. Cities Service Co., 391 U.S. 253, 288-289, 88 S.Ct. 1575, 20 L.Ed.2d 569 (1968)). . Gray v. Phillips Petroleum Co., 858 F.2d 610, 613 (10th Cir.1988). . National Labor Relations Board v. Gordon (In re Gordon), 303 B.R. 645, 650 (Bankr.D.Colo.2003). . The Court notes with respect to whether Mercury retained the ability to pursue the action against the Colorado Subsidiaries, the case law addresses specific plans and disclosure statements, different from those in this case, providing guidance but not certainty as to what reservations of rights would be sufficient. See In re Texas Wyoming Drilling, Inc., 647 F.3d 547, 550 (5th Cir.2011); In re Mako, Inc., 985 F.2d 1052, 1055 (10th Cir.1993); In re Western Integrated Networks, LLC, 329 B.R. 334, 338 (Bankr.D.Colo.2005).	01-04-2023	11-22-2022
https://www.courtlistener.com/api/rest/v3/opinions/8494754/	MEMORANDUM OPINION AND ORDER REQUIRING BARTON MOTION TO BE FILED AND PERMITTING AMENDMENT OF COMPLAINT JAMES S. STARZYNSKI, Bankruptcy Judge. Plaintiffs’ complaint seeks to hold the chapter 7 case trustee (“Trustee”) personally liable for damages for an alleged loss of proceeds from a class action. Adversary Proceeding (“AP”) doc l.1 Trustee has 842moved to dismiss (“Motion”) (AP doc 4), which Plaintiffs oppose (AP doc 7). The Court finds the Motion well taken and will dismiss, subject to Plaintiffs having the opportunity to amend the complaint and attach it to a motion seeking permission to pursue the claims against the Trustee.2 Background Plaintiffs are the daughters of Debtor Antonia Herrera. Debtor died December 1, 2009, and Plaintiffs are Debtor’s only heirs. On July 8, 2005, Debtor filed a chapter 7 bankruptcy petition. Doc 1. Neither the schedules nor the Statement of Financial Affairs made any mention of a class action pending in the state of Alabama against Family Dollar Stores, Inc. from which Debtor was allegedly entitled to share in a recovery. Doc 1. Trustee issued a No Distribution Report (doc 7) and the case was closed on October 31, 2005. Doc 9. On April 6, 2006, Trustee moved to reopen the case, asserting that a creditor informed Trustee that Debtor had a claim for back wages from the Family Dollar Store class action. Doc 10. Apparently it was discovered by some party involved in the Alabama action, after judgment, that certain class members had filed bankruptcy petitions but had not disclosed the bankruptcy filings to the Alabama court. The Court entered the order reopening the case the next day. Doc 11. Trustee then promptly withdrew the No Distribution Report (doc 12), issued a notice of assets (doc 13) and obtained a claims filing deadline of July 13, 2007 (doc 14). She also hired her own law firm to assist in the prosecution of a lawsuit against Family Dollar Stores, Inc., and to hire and oversee special counsel (motion-doc 16; order-doc 17). And she obtained the employment of other law firms as special counsel to assist the Trustee in the recovery of damages. (Motion-doc 21; order-doc 24). In the meantime, presumably pursuant to the notice of possible dividend, three proofs of claim were timely filed in the total amount of $14,141.29.3 Exactly what happened after that is a bit murky, and those events are of course at the heart of the complaint. What is clear from an examination of this Court’s docket is that the Trustee filed an interim report on September 28, 2006 (doc 26) and another interim report on September 27, 2007 (doc 27). Six days later on October 3, 2007 the Trustee filed a text entry of No Distribution and Abandonment of Assets. The next day, October 4, a final decree was entered and the case reclosed. Doc 28. Approximately 26 months later Debtor died, apparently having taken no action while she was still alive to realize any distribution from the Alabama action. A little over a year after Debtor’s death, and over three years after the chapter 7 case had been reclosed, Plaintiffs filed this adversary proceeding. Trustee promptly filed her Motion to Dismiss (doc 3), to 843which Plaintiffs filed their Plaintiffs’ Response to Motion to Dismiss (doc 7), to which Trustee filed her Reply on Motion to Dismiss (doc 8). Claims Plaintiffs make three claims in the complaint: that Trustee’s law firm (Yvette Gonzales, LLC) committed malpractice (Count I), that the Trustee owed a fiduciary duty to Plaintiffs and breached it by failing to adequately monitor the attorneys the estate had hired (Count II), and that the estate’s attorneys and the Trustee made misrepresentations to the Trustee [sic] (Count III). Based on those claims, Plaintiffs ask for compensatory, treble and punitive damages.4 For the reasons set forth below, the Court rules that the complaint in its present state fails to state a claim for which relief can be granted. Analysis5 Standing Trustee challenges Plaintiffs’ standing to bring this action against her. The Court must address standing to the extent the issue arises at any point. Warth v. Seldin, 422 U.S. 490, 498, 95 S.Ct. 2197, 45 L.Ed.2d 343 (1975) (the existence of a case or controversy is the threshold question in every federal case). In Board of County Commissioners of Sweetwater County v. Geringer, 297 F.3d 1108, 1111-12 (10th Cir.2002), the Court of Appeals for the Tenth Circuit described the requirements of standing in considerable detail: “The standing inquiry requires us to consider ‘both constitutional limits on federal-court jurisdiction and prudential limitations on its exercise.’ ” Sac & Fox Nation of Mo. v. Pierce, 213 F.3d 566, 573 (10th Cir.2000) (quoting Warth v. Seldin, 422 U.S. 490, 498, 95 S.Ct. 2197, 45 L.Ed.2d 343 (1975)). Constitutional standing derives from Article III of the U.S. Constitution, which restricts federal courts’ jurisdiction to suits involving an actual case or controversy. Schaffer v. Clinton, 240 F.3d 878, 882 (10th Cir.2001) (citing Allen v. Wright, 468 U.S. 737, 750, 104 S.Ct. 3315, 82 L.Ed.2d 556 (1984)). To satisfy constitutional standing requirements, a plaintiff must demonstrate the presence of three elements: (1) “injury in fact” — meaning “the invasion of a legally protected interest that is (a) concrete and particularized, and (b) actual or imminent, not conjectural or hypothetical”; (2) “a causal relationship between the injury and the challenged eonductf’-meaning that the “injury fairly can be traced to the challenged action of the defendant”; and (3) “a likelihood that the injury will be redressed by a favorable decision” — meaning that the “prospect of obtaining relief from ... a favorable ruling is not too speculative.” Buchwald [v. University of New Mexico School of Medicine], 159 F.3d [487] at 493 (10th Cir.1998) (quoting Northeastern Fla. Chapter of the Associated Gen. Contractors of Am. v. City of Jacksonville, 508 U.S. 656, 663-64, 113 S.Ct. 2297, 124 L.Ed.2d 586 (1993)); see. also Bennett v. Spear, 520 U.S. 154, 163, 117 S.Ct. 1154, 137 L.Ed.2d 281 (1997) (“To satisfy the ‘case’ or ‘controversy’ requirement of Article III, which is the ‘irreducible constitutional minimum’ of standing, a plaintiff must, generally 844speaking, demonstrate that he has suffered ‘injury in fact,’ that the injury is ‘fairly traceable’ to the actions of the defendant, and that the injury will likely be redressed by a favorable decision.”) (quoting, inter alia, Lujan v. Defenders of Wildlife, 504 U.S. 555, 560-61, 112 S.Ct. 2130, 119 L.Ed.2d 351 (1992)). At its core, we have explained, constitutional standing requires a court “to ask not only whether an injury has occurred, but whether the injury that has occurred may serve as the basis for a legal remedy in the federal courts.” Schaffer, 240 F.3d at 883. In addition to satisfying the prerequisites for constitutional standing, a plaintiff must also meet, generally speaking, the requirements of prudential standing, a judicially-created set of principles that, like constitutional standing, places “limits on the class of persons who may invoke the courts’ decisional and remedial powers.” Warth, 422 U.S. at 499, 95 S.Ct. 2197; see also Allen, 468 U.S. at 751, 104 S.Ct. 3315 (describing prudential standing as “judicially self-imposed limits on the exercise of federal jurisdiction”). Under a prudential standing inquiry, a party that has satisfied the requirements of constitutional standing may nonetheless be barred from invoking a federal court’s jurisdiction. Bennett, 520 U.S. at 163, 117 S.Ct. 1154; Warth, 422 U.S. at 499, 95 S.Ct. 2197, 45 L.Ed.2d 343. Like its constitutional counterpart, prudential standing establishes three conditions a party must overcome before invoking federal court jurisdiction. First, a plaintiff must assert his “own rights, rather than those belonging to third parties.” Sac & Fox Nation, 213 F.3d at 573; see also Warth, 422 U.S. at 499, 95 S.Ct. 2197, 45 L.Ed.2d 343 (explaining that a plaintiff “cannot rest his claim to relief on the legal rights or interests of third parties”). Second, the plaintiffs claim must not be “a ‘generalized grievance’ shared in substantially equal measure by all or a large class of citizens.” Warth, 422 U.S. at 499, 95 S.Ct. 2197; see also Allen, 468 U.S. at 751, 104 S.Ct. 3315 (explaining that generalized grievances should normally be directed to the legislative, as opposed to judicial, branches of government). Third, prudential standing requires that “a plaintiffs grievance must arguably fall within the zone of interests protected or regulated by the statutory provision or constitutional guarantee invoked in the suit.” Bennett, 520 U.S. at 163, 117 S.Ct. 1154. When ruling on a motion to dismiss for want of standing, the Court must accept as true all material allegations of the complaint and must construe the complaint in favor of the complaining party. Warth, 422 U.S. at 501, 95 S.Ct. 2197. Taking as true the factual allegations of the complaint and construing them most favorably to Plaintiffs, the Court nevertheless finds that Plaintiffs have not alleged sufficient facts to bestow standing upon themselves with respect to any of the counts of the complaint. Count I does not allege malpractice on the part of the Trustee. Rather, it alleges that the law firm, Yvette Gonzales, LLC, malpracticed. Count III is in part similar to Count I in that it charges counsel for the estate with violations of the New Mexico Unfair Practices Act (“UPA”). Plaintiffs are thus alleging that they have standing to sue professionals that have been hired by the Trustee and are supposed to report to her. Only the Trustee, as the representative of the estate, has the authority to bring an action against the professionals that are supposed to report to her. 11 U.S.C. § 323. Creditors of the estate (if such these be), who have only suffered a 845general injury common to all creditors and derivative of injury to the estate, have no such standing. See Geringer, 297 F.3d at 1111-12 (citing Warth, 422 U.S. at 499, 95 5.Ct. 2197); Stoll v. Quintanar (In re Stoll), 252 B.R. 492, 495 (9th Cir. BAP 2000). That is because the claim for the alleged malpractice is a claim against the estate, and it is the trustee, not any random creditor, that has the sole authority to sue on behalf of the estate as its representative. 11 U.S.C. § 323. Count II alleges that the Trustee as such breached a fiduciary duty that she owed the estate. The alleged breach is that she failed to (adequately) monitor the counsel that she had hired for the estate. Count III alleges that, in addition to her law firm, the Trustee violated the New Mexico Unfair Practices Act. While these allegations might well provide the basis for standing for a creditor, they do not do so for (the heirs of) a debtor. Ordinarily a debtor has no standing to argue about the size of the estate because the debtor has no pecuniary interest in the estate which could be injured by the actions of a trustee. Stoll, id. at n. 4, citing in re Thompson, 965 F.2d 1136, 1144 (1st Cir.1992). First of all, it is necessary to differentiate between the “person aggrieved” standard for standing which is applicable to bankruptcy appeals and the constitutional case or controversy standing by which this Court must measure its authority to adjudicate a matter. “The ‘person aggrieved’ test is meant to be a limitation on appellate standing in order to avoid ‘endless appeals brought by a myriad of parties who are indirectly affected by every bankruptcy court order.’ ” Lopez v. Behles (In re American Ready Mix, Inc.), 14 F.3d 1497, 1500 (10th Cir.1994) (quoting Holmes v. Silver Wings Aviation, Inc., 881 F.2d 939, 940 (10th Cir.1989)). Under the “person aggrieved” standard, only those parties whose “rights or interests are directly and adversely affected pecuniarily by the decree or order of the bankruptcy court” are permitted to prosecute an appeal of that order. Holmes, 881 F.2d at 940. Thus, the “person aggrieved” test, which focuses on whether or not the appellant has been financially affected by a bankruptcy court order, is a prudential doctrine meant to limit bankruptcy appeals and sets a somewhat higher standard than the Article III cases or controversies standard that serves as a constitutional limitation on federal jurisdiction in the first instance. Nintendo Co., Ltd. v. Patten (In re Alpex Computer Corp.), 71 F.3d 353, 357 n. 6 (10th Cir.1995). Ebel v. King (In re Ebel), 338 B.R. 862, 868 (Bankr.D.Colo.2005) (debtor had no pecuniary interest in estate subject to injury and therefore no standing to contest trustee’s actions taken on behalf of estate). Nothing in the complaint states what collection might be had from the Family Dollar litigation, nor what distributions Trustee might have to make for administrative claims and general unsecured claims, in the process of determining what if anything might have been left over for Debtor.6 Even construing the complaint 846most favorably for Plaintiffs, there is no suggestion in the complaint of any standing to pursue the relief they want. Thus, the complaint must be dismissed on the grounds of standing, but the Court will allow Plaintiffs to file an amended complaint to particularize the facts to state the basis for their standing. See Worth, 422 U.S. at 501-02, 95 S.Ct. 2197. Failure to State a Claim In 2007, the United States Supreme Court recast the standard by which the sufficiency of complaints is judged. In Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 562-63, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007), the court stated in part: We could go on, but there is no need to pile up further citations to show that Conley’s “no set of facts” language has been questioned, criticized, and explained away long enough. To be fair to the Conley [v. Gibson, 355 U.S. 41, 78 S.Ct. 99, 2 L.Ed.2d 80 (1957) ] Court, the passage should be understood in light of the opinion’s preceding summary of the complaint’s concrete allegations, which the Court quite reasonably understood as amply stating a claim for relief. But the passage so often quoted fails to mention this understanding on the part of the Court, and after puzzling the profession for 50 years, this famous observation has earned its retirement. The phrase is best forgotten as an incomplete, negative gloss on an accepted pleading standard: once a claim has been stated adequately, it may be supported by showing any set of facts consistent with the allegations in the complaint. See Sanjuan [v. American Bd. of Psychiatry and Neurology, Inc.], 40 F.3d [247], at 251 [ (7th Cir.1994) ] (once a claim for relief has been stated, a plaintiff “receives the benefit of imagination, so long as the hypotheses are consistent with the complaint”); accord, Swierkiewicz [v. Sorema N.A.], 534 U.S. [506], at 514, 122 S.Ct. 992 [152 L.Ed.2d 1 (2002) ]; National Organization for Women, Inc. v. Scheidler, 510 U.S. 249, 256, 114 S.Ct. 798, 127 L.Ed.2d 99 (1994); H.J. Inc. v. Northwestern Bell Telephone Co., 492 U.S. 229, 249-250, 109 S.Ct. 2893, 106 L.Ed.2d 195 (1989); Hishon v. King & Spalding, 467 U.S. 69, 73, 104 S.Ct. 2229, 81 L.Ed.2d 59 (1984). Conley, then, described the breadth of opportunity to prove what an adequate complaint claims, not the minimum standard of adequate pleading to govern a complaint’s survival. Under the new standard of Twombly a plaintiffs claim must be “plausible on its face” in order to survive a motion to dismiss. Twombly, 550 U.S. at 570, 127 S.Ct. 1955 (“[W]e do not require heightened fact pleading of specifics, but only enough facts to state a claim to relief that is plausible on its face.”) “The concept of ‘plausibility’ at the dismissal stage refers not to whether the allegations are likely to be true; the court must assume them to be true. The question is whether, if the allegations are true, it is plausible and not merely possible that the plaintiff is entitled to relief under the relevant law.” Christy Sports, LLC v. Deer Valley Resort Co., Ltd., 555 F.3d 1188, 1191-92 (10th Cir.2009) (citing Robbins v. Oklahoma, 519 F.3d 1242, 1247 (10th Cir.2008)). The Supreme Court elucidated the Twombly standards in Ashcroft v. Iqbal, 556 U.S. 662, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009), in which it analyzed Twombly to require that a well pleaded complaint allege activity which nudges the claims from conceivable to plausible and which is 847not more consistent with lawful behavior rather than unlawful or otherwise improper behavior. To survive a motion to dismiss, a complaint must contain sufficient factual matter, accepted as true, to “state a claim to relief that is plausible on its face.” [Twombly], at 570, 127 S.Ct. 1955. A claim has facial plausibility when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged. Id., at 556, 127 S.Ct. 1955. The plausibility standard is not akin to a “probability requirement,” but it asks for more than a sheer possibility that a defendant has acted unlawfully. Ibid. Where a complaint pleads facts that are “merely consistent with” a defendant’s liability, it “stops short of the line between possibility and plausibility of ‘entitlement to relief.’ ” Id., at 557, 127 S.Ct. 1955 (brackets omitted). Our decision in Twombly illustrates the two-pronged approach. There, we considered the sufficiency of a complaint alleging that incumbent telecommunications providers had entered an agreement not to compete and to forestall competitive entry, in violation of the Sherman Act, 15 U.S.C. § 1. Recognizing that § 1 enjoins only anticompetitive conduct “effected by a contract, combination, or conspiracy,” Copperweld Corp. v. Independence Tube Corp., 467 U.S. 752, 775, 104 S.Ct. 2731, 81 L.Ed.2d 628 (1984), the plaintiffs in Twombly flatly pleaded that the defendants “ha[d] entered into a contract, combination or conspiracy to prevent competitive entry ... and ha[d] agreed not to compete with one another.” 550 U.S., at 551, 127 S.Ct. 1955 (internal quotation marks omitted). The complaint also alleged that the defendants’ “parallel course of conduct ... to prevent competition” and inflate prices was indicative of the unlawful agreement alleged. Ibid, (internal quotation marks omitted). The Court held the plaintiffs’ complaint deficient under Rule 8. In doing so it first noted that the plaintiffs’ assertion of an unlawful agreement was a “ ‘legal conclusion’ ” and, as such, was not entitled to the assumption of truth. Id., at 555, 127 S.Ct. 1955. Had the Court simply credited the allegation of a conspiracy, the plaintiffs would have stated a claim for relief and been entitled to proceed perforce. The Court next addressed the “nub” of the plaintiffs’ complaint — the well-pleaded, non-conclusory factual allegation of parallel behavior — to determine whether it gave rise to a “plausible suggestion of conspiracy.” Id., at 565-566, 127 S.Ct. 1955. Acknowledging that parallel conduct was consistent with an unlawful agreement, the Court nevertheless concluded that it did not plausibly suggest an illicit accord because it was not only compatible with, but indeed was more likely explained by, lawful, unchoreo-graphed free-market behavior. Id., at 567, 127 S.Ct. 1955. Because the well-pleaded fact of parallel conduct, accepted as true, did not plausibly suggest an unlawful agreement, the Court held the plaintiffs’ complaint must be dismissed. Id., at 570,127 S.Ct. 1955. Under Twombly’s construction of Rule 8, we conclude that respondent’s complaint has not “nudged [his] claims” of invidious discrimination “across the line from conceivable to plausible.” Ibid. Id. at 678-680, 129 S.Ct. 1937. Iqbal also states: Determining whether a complaint states a plausible claim for relief will, as the Court of Appeals observed, be a context-848specific task that requires the reviewing court to draw on its judicial experience and common sense. [Iqbal v. Hasty,] 490 F.3d [143], at 157-158 [(2nd Cir.2007) ]. Id. at 679, 129 S.Ct. 1937. Utilizing this Court’s judicial experience and common sense in this context-specific task results in scenarios in which Trustee’s actions are permissible, and perhaps even required. The complaint says nothing about why the case was closed without a distribution. The obvious question presents itself of whether the Trustee, having lined up counsel to help her collect from the Family Dollar litigation, found that she was too late. There is nothing in the complaint which even says that the Trustee was not already time-barred from obtaining the funds when she reopened the case to investigate the newly disclosed asset. Another obvious question is whether, in the exercise of her reasonable judgment, the Trustee determined that the amount to be collected from the Family Dollar litigation was simply too small to justify the outlay of time and expense to recover it.7 That is, even assuming that the amount to be recovered was a gross figure of about $66,000 (a figure which, as already pointed out, does not appear in the complaint but in the amended schedules B and C), the Trustee would incur significant costs and disbursements before and after obtaining the funds: —class action counsel at a 33 1/3% contingency rate, which would be taken out before the deduction for costs (doc 24) (approximately $22,000, without taking into account any costs); —Yvette Gonzales, LLC at $175 per hour plus tax and costs (doc 17); —the Trustee’s fee provided for by 11 U.S.C. § 326(a) (approximately $6,550); —the cost for an accountant to file a tax return for the estate; and —the Debtor’s exemption (claimed at $8,379). Assuming ten hours of attorney time for the Trustee’s firm ($1,750), not accounting for any costs or taxes from any firm, nor any costs for an accountant to prepare tax returns (and assuming no taxes due), the cost of obtaining the $66,532 would be $38,679, for a net to the estate of $27,853, a figure which, given the assumptions above, is almost demonstrably too optimistic.8 Depending on what considerations were at play, it is conceivable that the Trustee had a valid business reason for not pursuing the recovery but instead closing the estate.9 849Further, it is important that Count II is framed in terms of the Trustee’s failure to monitor her counsel. Parsing the complaint as rigorously as did the court in Iqbal, one is reasonably left wondering what exactly counsel did or did not do that the Trustee failed to watch out for. In any event, the complaint fails to recite facts that plausibly support a claim against the Trustee for a failure of fiduciary duty by failing to monitor her counsel.10 Trustee’s Immunity The standard for the sort of liability for which a trustee may be held liable in her personal capacity in the Tenth Circuit is set out in Sherr v. Winkler, 552 F.2d 1367 (10th Cir.1977). In that Act case, a Chapter X trustee obtained a turnover order for proceeds from certain oil and gas leases. The trustee, under some pressure to act expeditiously, failed, before obtaining the order, to check for others who might have an interest in the proceeds. Plaintiffs Sherr and Rubin did in fact have such an interest, and alleged that the trustee’s action caused them to have to intervene in the reorganization case to protect their interests, causing them to unnecessarily incur significant attorney fees. The District Court dismissed the complaint, which ruling the Tenth Circuit affirmed, ruling in part as follows: Thus, a trustee in bankruptcy is not to [be] held personally liable unless he acts willfully and deliberately in violation of his fiduciary duties. A trustee in bankruptcy may be held liable in his official capacity and thus surcharged if he fails to exercise that degree of care required of an ordinarily prudent person serving in such capacity, taking into consideration the discretion allowed. The rule applies to the trustee’s selection and supervision of his agents and employees. (Emphasis added; citations omitted.) Id. at 1375.11 The complaint speaks repeatedly of “malpractice”, “negligence” and “negligent actions”, “failfure] to exercise ordinary care”, etc. However, paragraph 43 of Count II alleges that “Ms. Gonzales’12 actions were committed knowingly, intentionally and maliciously, or in reckless disregard to Plaintiffs’ rights.” And paragraph 46 of Count III, alleging New Mexico Unfair Practices Act violations against Yvette Gonzales, LLC, asserts that “Trustee’s Law Firm and Ms. Gonzales knowingly made false or misleading statements or other representations in connection with the services and benefits contract for by Trustee and the Herrera Bankruptcy Estate.” Finally, paragraph 55, also part of Count III, states that “Trustee’s Law Firm’s and Ms. Gonzales’ actions were committed knowing, intentionally and maliciously, or in reckless disregard to Ms. Herrera’s rights and well being.” The problem with the allegations 850is that while they use the talismanic words that get beyond the mere negligence (for which there is only a claim against the estate, at least in the Tenth Circuit), the allegations are themselves bare legal conclusions that do not provide a sufficient factual predicate to sustain the complaint under the standards enunciated in Twom-bly and Iqbal. There is no explicit recitation of actions that on their face would have constituted knowing, intentional, malicious or reckless harm to Debtor. Thus as a complaint against the Trustee individually, it fails and must be dismissed. Permission to sue a trustee In Barton v. Barbour, 104 U.S. 126, 26 L.Ed. 672 (1881), the United States Supreme Court ruled that a person allegedly injured by the negligence of a (state court)13 receiver operating a railroad must obtain the permission of the court that had appointed the receiver before pursuing an action against the receiver. Id. at 136-37. Mr. Justice Miller dissented and in effect won the day, when six years later Congress passed legislation which was the predecessor to 28 U.S.C. § 959(a).14 Collier on Bankruptcy ¶ 10.01 (Alan N. Resnick & Henry J. Sommer eds., 16th ed. 2012). Section 959(a) reads as follows: (a) Trustees, receivers or managers of any property, including debtors in possession, may be sued, without leave of the court appointing them, with respect to any of their acts or transactions in carrying on business connected with such property. Such actions shall be subject to the general equity power of such court so far as the same may be necessary to the ends of justice, but this shall not deprive a litigant of his right to trial by jury. The language of the statute embraces virtually all the issues that were argued in Barton. Since that case was decided and the statute passed, an important distinction has been recognized in at least some of the case law: it is one thing to without leave of the appointing court sue the trustee who is operating a business; it is quite another to sue the trustee without leave who is merely performing her duties in administering the estate, including perhaps gathering the assets of the estate. Collier on Bankruptcy, ¶ 10.01. For example, in Muratore v. Darr, 375 F.3d 140, 145 (1st Cir.2004), the chapter 11 trustee was sued in the United States District Court for negligence, breach of fiduciary duty, and other claims arising out of his administration of the case, after the case was closed. The First Circuit cited numerous cases which compelled the dismissal of the case, holding in part that actions taken in the mere continuous administration of property under order of the court do not constitute an “act” or “transaction” in carrying on business connected with the estate. Field v. Kansas City Refining Co., 9 F.2d 213, 216 (8th Cir.1925); see also [Allard v. Weitzman] In re DeLorean Motor Co., 991 F.2d [1236] at 1241 [6th Cir.1993] (action against trustee and representatives alleging abuse of process and mali851cious prosecution in relation to prosecution of fraudulent conveyance action is a suit for actions of trustee wholly unrelated to carrying on debtor’s business because trustee merely collected, took steps to preserve, and/or held assets, as well as performed other aspects of administering and liquidating estate); Carter [v. Rodgers], 220 F.3d [1249] at 1254 [ (11th Cir.2000) ]. Id. at 144-15. See also Springer v. The Infinity Group Co., 189 F.3d 478 (10th Cir.1999) (dismissal of action brought in the Northern District of Oklahoma against trustee appointed by the District Court for the Eastern District of Pennsylvania in an SEC action, citing with approval DeLorean Motor Co.).15 In contrast, § 959 “is intended to ‘permit actions redressing torts committed in furtherance of the debtor’s business, such as the common situation of a negligence claim in a slip and fall case where a bankruptcy trustee, for example, conducted a retail store.’ ” Carter, 220 F.3d at 1254 (quoting Lebovits v. Scheffel (In re Lehal Realty Assocs.), 101 F.3d 272, 276 (2d Cir.1996)). There is no disagreement that Plaintiffs failed to obtain this Court’s permission to initiate the state court action against the Trustee. There is no doubt that the Trustee was not operating a business in the course of administering this simple chapter 7 case. Thus dismissal is required unless the happenstance of this state court case having been removed to, and now pending in this Court as, an adversary proceeding compels a different result. It does not. In Heavrin v. Schilling (In re Triple S Restaurants, Inc.), 342 B.R. 508 (Bankr.W.D.Ken.2006), aff'd Heavrin v. Schilling (In re Triple S Restaurants, Inc.), 519 F.3d 575 (6th Cir.2008), plaintiff filed an action for intentional infliction of emotion distress against the trustee for threatening to report him to the United States Attorney’s office in connection with life insurance proceeds that the trustee asserted belonged to the estate. The action was filed in state court and removed to the bankruptcy court.16 The bankruptcy court granted the trustee’s motion to dismiss on Barton grounds, holding that “the appointing court has a strong interest in protecting the trustee from unjustified personal liability for act taken within the scope of his official duties” (citing In re Lehal Realty Assocs.). Id. at 512. In a similar vein, Judge Posner has stated in relevant part as follows: Just like an equity receiver, a trustee in bankruptcy is working in effect for the court that appointed or approved him, administering property that has come under the court’s control by virtue of the Bankruptcy Code. If he is burdened with having to defend against suits by litigants disappointed by his actions on the court’s behalf, his work for the court will be impeded. This concern is most acute when suit is brought against the trustee while the bankruptcy proceeding is still going on. The threat of his being distracted or intimidated is then very great, and some of the cases we have cited stress this. In this case, the suit and the motion for leave to file it came after the bankruptcy 852had been wound up. We cannot find any federal appellate court rulings on whether leave is required in such a case. But we think that it is. Without the requirement, trusteeship will become a more irksome duty, and so it will be harder for courts to find competent people to appoint as trustees. Trustees will have to pay higher malpractice premiums, and this will make the administration of the bankruptcy laws more expensive (and the expense of bankruptcy is already a source of considerable concern). Furthermore, requiring that leave to sue be sought enables bankruptcy judges to monitor the work of the trustees more effectively. It does this by compelling suits growing out of that work to be as it were prefiled before the bankruptcy judge that made the appointment; this helps the judge decide whether to approve this trustee in a subsequent case. Yet these reasons alone might not be sufficient to warrant the extension (if that is how it should be regarded) of the leave-to-file requirement to suits filed after the winding up of the bankruptcy. For we are mindful of the Supreme Court’s refusal in Ferri v. Ackerman, 444 U.S. 193, 100 S.Ct. 402, 62 L.Ed.2d 355 (1979), to grant appointed counsel in federal criminal cases immunity from malpractice suits by their clients, in the face of arguments similar to those in the preceding paragraph. See id. at 204-05, 100 S.Ct. at 409-10. At stake in the present case, however, is a concern that has no counterpart in Ferri, concern with the integrity of the bankruptcy jurisdiction. If debtors, creditors, defendants in adversary proceedings, and other parties to a bankruptcy proceeding could sue the trustee in state court for damages arising out of the conduct of the proceeding, that court would have the practical power to turn bankruptcy losers into bankruptcy winners, and vice versa. A creditor who had gotten nothing in the bankruptcy proceeding might sue the trustee for negligence in failing to maximize the assets available to creditors, or to the particular creditor. A debtor who had failed to obtain a discharge might through a suit against the trustee obtain the funds necessary to pay the debt that had not been discharged. Of course principles of res judicata and the good faith of state courts would head off the worst consequences of the kind of divided jurisdiction over bankruptcy matters that we have just described. But a simpler and more secure protection is to require the person wanting to bring a suit in state court against a trustee in bankruptcy to obtain leave to do so from the bankruptcy court. Matter of Linton, 136 F.3d 544, 545-46 (7th Cir.1998) (state court action filed against trustee after chapter 7 bankruptcy case closed; plaintiffs then filed a motion in the bankruptcy court to be allowed to continue the state court action; motion denied).17 In both Heavrin and Linton, the bankruptcy courts arguably could have declined to apply Barton but did not. On the other hand, in Harris v. Wittman (In re Harris), 590 F.3d 730 (9th Cir.2009), the Ninth Circuit took the opposite approach. While it affirmed the dismissal of the state court action that had been removed to the bankruptcy court based on the trustee’s quasi-judicial immunity, id. at 742-44, it ruled that the mere act of removing the action to the bankruptcy court eliminated the Barton issue: 853Here, it is undisputed that Harris did not seek leave of the appointing court before filing his claim in state court. As a result, when the case was removed to bankruptcy court, the bankruptcy court held that, under the Barton doctrine, even as the appointing court, it did not have subject matter jurisdiction to hear Harris’s claim, and so dismissed the suit. This was error, however, because, absent leave of the appointing court, the Barton doctrine denies subject matter jurisdiction to all forums except the appointing court. The Barton doctrine is a practical tool to ensure that all lawsuits that could affect the administration of the bankruptcy estate proceed either in the bankruptcy court, or with the knowledge and approval of the bankruptcy court. The Barton doctrine is not a tool to punish the unwary by denying any forum to hear a claim when leave of the bankruptcy court is not sought. When Harris’s case was removed to the appointing bankruptcy court, all problems under the Barton doctrine vanished. Therefore, the district court erred in affirming the bankruptcy court’s dismissal of Harris’s suit for lack of subject matter jurisdiction under the Barton doctrine. Id. at 742. Without in any way disparaging the utility of an “it’s here now, let’s just deal with it” approach, the fact is that there are many doctrines that have the effect of punishing the unwary, such as filing requirements, statutes of limitations and repose, etc. Despite how inefficiently and even unfairly those policies seem to work sometimes, they continue to be enforced because they implement major policies deemed to be of overriding importance. So here trustees should not face personal liability — both the cost of defense and the possibility of a judgment — unless the action has been filed in the first instance in the bankruptcy court or there has been a determination by the bankruptcy court that the action can be initiated elsewhere. All problems under the Barton doctrine do not vanish when the unauthorized non-bankruptcy court action is removed to bankruptcy court. The trustee should not have to expend resources to remove the action to begin with. Nor should the trustee have to file a motion to dismiss in the non-bankruptcy forum, educating that court about the Barton doctrine and hoping for the correct result.18 And what if she is not properly served but the action proceeds anyway, resulting in liability to her which may be overturned later but is still in effect for some period of time. What happens if the trustee is unable to remove the action timely? Only by requiring any potential plaintiff to always start 854in the bankruptcy court, either by filing a Barton motion or filing the action itself in the bankruptcy court, can the process, and trustees, most consistently be protected.19 This Court concurs strongly with those courts that view the bankruptcy process as fraught with debtor and creditor unhappiness and that also consider competent trustees to be critical to the functioning of a process often viewed critically by the public. For that reason, the Court will require Plaintiffs to file a motion seeking leave to proceed, in this Court or any other, attaching thereto a copy of the proposed amended complaint. See Kashani v. Fulton (In re Kashani), 190 B.R. 875, 885-86 (9th Cir. BAP 1995). This procedure seems justified by the fact that the decision on the Barton motion will depend in good part on the allegations of the amended complaint. If the amended complaint survives scrutiny — that is, if the Court would have allowed it to have been filed in state court, then the adversary proceeding will continue with subsequent pleadings, an initial pretrial conference, discovery, perhaps another motion to dismiss, etc. Conclusion Given the analysis set out above, the Court finds that it need not decide whether Plaintiffs have stated a cause of action against the Trustee under the New Mexico Unfair Practices Act at this time. However, the Court has determined that under the Barton doctrine Plaintiffs will have to file a motion for permission to proceed against the Trustee, and attach to that motion an amended complaint. ORDER IT IS THEREFORE ORDERED that Plaintiffs may file an amended complaint. IT IS FURTHER ORDERED that as a condition to filing an amended complaint, Plaintiffs must file a motion (and attach a copy of the amended complaint to the motion) seeking permission of this Court to sue the Trustee (and her law firm) in her personal capacity. IT IS FURTHER ORDERED that the motion shall be filed no later than May 16, 2012, unless the parties agree to a different date. Should the motion with the attached amended complaint not be filed timely, the Trustee shall submit a form of order to the Court dismissing the complaint without leave to amend. . Because most of the record references are to docket entries in the underlying chapter 7 842case, the Court uses "doc_” to refer to docket entries in the chapter 7 case and "AP doc — ” to refer to docket entries in this adversary proceeding. . The Court has subject matter and personal jurisdiction pursuant to 28 U.S.C. §§ 1334 and 157(b); this is a core proceeding pursuant to 28 U.S.C. § 157(b)(2)(A) and (O); and these are findings of fact and conclusions of law as may be required by Rule 7052 F.R.B.P. . Plaintiffs mistakenly assert that no proofs of claim were filed. AP Doc 1, at paragraph 27. The three claims filed were from GMAC in the amount of $5,318.18, Hyundai Motor Finance Company in the amount of $6,183.96, and New Mexico Educators Federal Credit Union in the amount of $2,639.15. All the claims were filed as unsecured. Debtor listed a total of 16,214 of Schedule F claims, the bulk of them being the three represented by proofs of claim. No claims were listed in Schedules D and E. . The complaint also asks for punitive damages and an award of attorney fees against "Insurer''. AP Doc 1, at paragraph 56 and decretal paragraph D. The Court takes these references as typographical errors. . In analyzing the complaint, the Court has adopted the terminology that Plaintiffs used. . Debtor’s amended schedule B lists the claim in the amount of $66,532, of which Debtor claimed, in amended Schedule C, a total of $8,379 exempt. Doc 23. These figures are not recited in the complaint, so that it is not clear if Plaintiffs adopt this number, or are even aware of it. Were Trustee to have received funds excess of what was needed to pay all the administrative claims (all the allowed professional fees plus the allowed trustee fees), 11 U.S.C. § 726(a)(1), plus the filed unsecured claims (with interest), § 726(a)(5), she would then presumably file a notice of surplus to give unpaid creditors the chance to *846be paid (including interest). § 726(a)(3). These payments would all be made before any distribution to Debtor (other, of course, than her exemptions). . The following analysis goes significantly beyond construing the complaint most favorably to Plaintiffs; it is almost instead the equivalent of rewriting the complaint. Nevertheless, the Court has engaged in the analysis to explain fully to Plaintiffs how to take into account the bankruptcy process in deciding whether they have a claim, or a claim that is worth pursuing. . To carry the analysis a step further, assuming that the filed claims in the amount of $14,141.29 were paid, but without taking into account interest or any tardily filed claims, the remainder to be distributed to Debtor would have been approximately $13,712. Again, this number is overstated due to the factors listed above that are not accounted for; it could easily be a four digit figure, or less. Whether in reality there would have been any distribution to Debtor is thus a bit questionable. .Of course, once the case was reclosed, this time with the asset having been scheduled under § 521(a)(1), the claim would have been abandoned by the Trustee pursuant to § 554(c), and thus available in full to the Debtor to recover and keep, free and clear of claims of prepetition creditors. The parties have chosen not to argue that issue at this stage of the proceedings. E.g., Reply on Motion to Dismiss at 2, n. 2 (doc 8). . The sufficiency of the allegations in Count III against the Trustee in her personal capacity are addressed immediately below in the section on Trustee Immunity. . The ruling was based on the court’s interpretation of Mosser v. Darrow, 341 U.S. 267, 71 S.Ct. 680, 95 L.Ed. 927 (1951). There are rather widely differing standards among the circuits concerning trustee's personal liability, see Louis M. Phillips and Ashley S. Green, Musings on the Standard of Care Governing the Question of Trustee Immunity and Trustee Liability, Part 2, at 12-19 (Nat'l Ass’n of Bankruptcy Trustees, NABTalk Winter 2008). And the Ninth Circuit has specifically disagreed with the Sherr court's interpretation of Mosser v. Darrow and thus with the standard applied by the court in Sherr v. Winkler. Hall v. Perry (In re Cochise College Park), 703 F.2d 1339, 1357 n. 26 (9th Cir.1983). Of course, the Tenth Circuit decision and standard of liability is binding on this Court. ."Ms. Gonzales” is defined in the complaint to mean the Trustee in her personal capacity. Complaint at paragraph 3. . "Barton involved a receiver in state court, but the circuit courts have extended the Barton doctrine to lawsuits against a bankruptcy trustee.” Carter v. Rodgers, 220 F.3d 1249, 1252 (11th Cir.2000). . The opening lines of Mr. Justice Miller’s dissent seem as apropos as ever today: The rapid absorption of the business of the country of every character by corporations, while productive of much good to the public, is beginning also to develop many evils, not the least of which arises from their failure to pay debts and perform the duties which by the terms of their organization they assumed. Id. at 137. . DeLorean also extended the Barton doctrine to trustee's counsel as the functional equivalent of the trustee. 991 F.2d at 1240. . The Court uses the phrase "removed to the bankruptcy court” as shorthand for the process which requires removal of an action to the United States District Court pursuant to 28 U.S.C. § 1452(a) and then an automatic referral of the action to the United States Bankruptcy Court pursuant to the district's standing order of referral and 28 U.S.C. § 157(a). . The Court is not citing Judge Posner's decision for the use of the Barton doctrine as a device for vetting trustees for future assignments. . Should the non-bankruptcy court deny the Barton motion to dismiss, presumably the Rooker-Feldman doctrine would dictate that an appeal would lie to the appellate court in that system. The Rooker-Feldman doctrine Rooker v. Fidelity Trust Co., 263 U.S. 413, 414-416, 44 S.Ct. 149, 68 L.Ed. 362 (1923) and District of Columbia Court of Appeals v. Feldman, 460 U.S. 462, 482, 103 S.Ct. 1303, 75 L.Ed.2d 206 (1983) ordinarily prevents a federal court from acting as an appellate court to review a state court decision. However, the importance of the issues concerning administration of bankruptcy estates are of such significance that a bankruptcy court might be tempted to ignore Rooker-Feldman. Cf., e.g., Chao v. Hospital Staffing Services, Inc., 270 F.3d 374, 384 (6th Cir.2001) ("If the non-bankruptcy court’s initial jurisdictional determination [concerning the applicability of the automatic stay] is erroneous, the parties run the risk that the entire action later will be declared void ab initio. (Citation omitted.) If a state court and the bankruptcy court reach differing conclusions as to whether the automatic stay bars maintenance of a suit in the non-bankruptcy forum, the bankruptcy forum’s resolution has been held determinative, presumably pursuant to the Supremacy Clause."). . If the bankruptcy case has already been closed, requiring the filing of a Barton motion presumably will require the reopening of the case pursuant to § 350. That is a small burden to impose on a plaintiff that seeks to pursue relief that could have a major impact on the trustee and perhaps the court. Indeed, the motion to reopen might itself be what triggers the Barton inquiry.	01-04-2023	11-22-2022
https://www.courtlistener.com/api/rest/v3/opinions/8494757/	MEMORANDUM-OPINION JOAN A. LLOYD, Bankruptcy Judge. This matter is before the Court on the Application to Employ Attorney for the Estate filed by Trustee Robert W. Keats (“Trustee”). The Trustee seeks approval 867of the hiring of attorney David A. Black (“Black”) on behalf of the Estate in Rebecca Hash v. L & N Federal Credit Union, et al. pending in the Jefferson Circuit Court, Case No. ll-CI-02139 (“the case”). The Application seeks approval of the employment of Black on a contingency fee basis. The Court considered the Trustee’s Application, the Objection of L & N Federal Credit Union (“L & N”) and the comments of counsel for the parties at the hearing held on the matter. For the following reasons, the Court will GRANT the Trustee’s Application. PROCEDURAL AND FACTUAL BACKGROUND L & N is a creditor of the Debtor Rebecca Hash (“Debtor”) and is the largest unsecured creditor of the estate. L & N contends Black is not disinterested as defined by 11 U.S.C. § 101(14) and as required by 11 U.S.C. § 327(a). L & N is the Defendant in the case filed by the Debtor. According to L & N, Black is not disinterested because he is a creditor of the estate based on his prior work representing the Debtor pre-petition. L & N contends that because Black represented Debtor in several matters in the past, he cannot objectively value the case and has provided varying estimates on the value of the case. It also states that a conflict may arise, when and if, the case is resolved and Debtor claims an exemption. LEGAL ANALYSIS Under 11 U.S.C. § 327(a), “... the trustee, with the court’s approval, may employ one or more attorneys, accountants, appraisers, auctioneers, or other professional persons, that do not hold or represent an interest adverse to the estate, and that are disinterested persons, to represent or assist the trustee in carrying out the trustee’s duty under this title.” Additionally, Rule 2004 of the Federal Rules of Bankruptcy Procedure dictates the manner in which the trustee request approval of the employment of a professional under § 327. The Trustee’s Application meets the requirement of the Rule, but L & N contends that Black does not meet the requirements of § 327. The issues before the Court are whether Black is “disinterested” under 11 U.S.C. § 327 and whether Black has an interest materially adverse to the estate, the Debt- or or creditors. “Disinterested person” is defined under 11 U.S.C. § 101(14) as the following: (a) a person who is not a creditor, equity security holder, or insider; (b) a person who is not and was not, within two years before the date of the filing of the Petition, a director, officer or employee of the debtor; and (c) a person who does not have an interest materially adverse to the interest of the estate or any class of creditors or equity security holders, by reason of any direct or indirect relationship to, connection with, or interest in, the debtor or for any other reason. The Court is convinced that Black is “disinterested” within the meaning of the statute. There is no contention that subsection (b) above applies to Black. L & N contends that (a) applies because Black is a creditor of the estate. However, Black indicated at the hearing on this matter that he is not owed any funds by the Debtor and is not a creditor of the Debtor. In the event that any sums are possibly owed to Black due to his past representation of the Debtor, Black waived any such claim at the hearing. There is no other evidence of record to support L & N’s claim that Black is a creditor of the estate. L & N contends that in the event Debtor recovers any funds, a conflict “may” arise, if the Debtor claims an ex868emption and a dispute arises over whether the exemption should be allowed. There is no actual conflict in existence and there is no basis or authority for declining the Trustee’s Application on the mere possibility that a conflict may arise at some point in the future. L & N has no basis to claim that Black is materially adverse to the interest of the estate because he has represented the Debtor in legal matters in the past. There has been no showing that Black’s allegiance to the estate will be diminished or his judgment swayed due to his past representation of the Debtor. The Bankruptcy Code clearly provides the Trustee with the authority to hire professionals without the interference of creditors. In re Federated Dept. Stores, Inc., 114 B.R. 501 (Bankr.S.D.Ohio 1990), rev’d on other grounds, 44 F.3d 1310 (6th Cir.1995). The trustee should be deprived of his or her choice of professionals in “only the rarest cases.” In re Smith, 507 F.3d 64, (2nd Cir.2007). This is not one of those rare cases. It appears that L & N, the largest unsecured creditor of the Debt- or’s estate, seeks to gain an advantage in the case by disqualifying Black. The Trustee clearly believes that Black’s employment is in the best interest of the estate and that he has the expertise, familiarity and skill to proceed with representation of the estate in the action pending against L & N. The Court has been provided with no legal or factual basis to overrule the Trustee’s judgment on this issue. Accordingly, the Court will enter the attached Order granting the Application. CONCLUSION For all of the above reasons, the Court will approve the Application of the Trustee to Hire Attorney David A. Black on Behalf of the Estate. An Order accompanies this Memorandum-Opinion. ORDER The Court having considered the foregoing Application of the Trustee to employ the professional to act as attorney for the estate and the Declaration of that attorney in support thereof, and it appearing that David A. Black, is a disinterested person, and that the employment of the professional is in the best interest of the estate and the economical administration thereof, and therefore, IT IS HEREBY ORDERED, ADJUDGED AND DECREED that Robert W. Keats, Trustee herein, is authorized to employ David A. Black, attorney-at-law of David A. Black, PSC, to act as attorney for the Trustee and the estate, with compensation to be paid in such amounts as may be allowed by the Court upon proper application; and IT IS FURTHER ORDERED, ADJUDGED AND DECREED that the funds received from the litigation shall be turned over to the Trustee and held in his account for the Debtor’s estate subject to further order of this Court.	01-04-2023	11-22-2022
https://www.courtlistener.com/api/rest/v3/opinions/8488771/	STATE OF LOUISIANA COURT OF APPEAL, FIRST CIRCUIT ENTRE HAMPTON NO. 2022 CW 1237 VERSUS PETROLEUM SERVICES GROUP, LLC; CF INDUSTRIES NITROGEN, LLC; QUALITY CARRIERS, INC.; NOVEMBER 22, 2022 CLYDE RICHARD; AND OLD REPUBLIC INSURANCE COMPANY In Re: Clyde Richard, Quality Carriers, Inc., and Allianz Underwriters Insurance Co., applying for supervisory writs, 19th Judicial District Court, Parish of East Baton Rouge, No. 691998. BEFORE: WHIPPLE, C. J., GUIDRY AND WOLFE, JJ. WRIT DISMISSED. Pursuant to the motion to withdraw application for supervisory writs filed by relators, representing that relators have reached a compromise and settlement with plaintiff which will completely resolve this matter making this writ application moot, and requesting that the writ application be withdrawn, this writ is dismissed. VGW JMG EW COURT OF APPEAL, FIRST CIRCUIT P T CLERKOF COURT FOR THE COURT	01-04-2023	11-22-2022
https://www.courtlistener.com/api/rest/v3/opinions/8488772/	STATE OF LOUISIANA COURT OF APPEAL, FIRST CIRCUIT DYLAN HUGHES NO. 2022 CW 1246 VERSUS COURTNEY HARVEY NOVEMBER 22, 2022 In Re: Courtney Harvey, applying for supervisory writs, 21st Judicial District Court, Parish of St. Helena, No. 23607. BEFORE: WHIPPLE, C. J., GUIDRY AND WOLFE, JJ. STAY DENIED; WRIT NOT CONSIDERED. This writ application failed to include a copy of each pleading on which the ruling was founded, including the amended petition/ motion to modify custody and the custody decree sought to be amended, and a copy of the judgment complained of in violation of Rule 4- 5( 6) and 8) of the Uniform Rules of Louisiana Courts of Appeal. Supplementation of this writ application and/ or an application for rehearing will not be considered. Uniform Rules of Louisiana Courts of Appeal, Rules 2- 18. 7 & 4- 9. In the event relator seeks to file a new application with this court, it must contain all pertinent documentation, including the missing items noted herein, and must comply with Uniform Rules of Louisiana Courts of Appeal, Rule 2- 12. 2. Any new application must be filed on or before November 30, 2022, and must contain a copy of this ruling. VGW JMG EW COURT OF APPEAL, FIRST CIRCUIT 46 Pyyi P U FOR CLERK THE OF COURT COURT	01-04-2023	11-22-2022
https://www.courtlistener.com/api/rest/v3/opinions/8488773/	People ex rel. DeFazio v Imperati (2022 NY Slip Op 06650) People v DeFazio 2022 NY Slip Op 06650 Decided on November 22, 2022 Appellate Division, Second 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 on November 22, 2022 SUPREME COURT OF THE STATE OF NEW YORK Appellate Division, Second Judicial Department MARK C. DILLON, J.P. BETSY BARROS LARA J. GENOVESI JANICE A. TAYLOR, JJ. 2022-09112 DECISION, ORDER & JUDGMENT [1]The People of the State of New York, ex rel. Anthony vDeFazio, on behalf of Brandon Vetere, petitioner, Kirk Imperati, etc., et al., respondents. Anthony DeFazio Law, P.C., Beacon, NY (Anthony DeFazio pro se of counsel), for petitioner. William V. Grady, District Attorney, Poughkeepsie, NY (Scott R. Johnson and Anna Diehn of counsel), for respondents. Writ of habeas corpus in the nature of an application to release Brandon Vetere upon his own recognizance or, in the alternative, to set reasonable bail upon Dutchess County Indictment No. 90/2022. ADJUDGED that the writ is sustained, without costs or disbursements, to the extent that bail upon Dutchess County Indictment No. 90/2022 is set in the sum of $40,000 posted in the form of an insurance company bail bond, the sum of $100,000 posted in the form of a partially secured bond, with the requirement of 10% down, or the sum of $20,000 deposited as a cash bail alternative, on condition that, in addition to posting a bond or depositing the cash alternative set forth above, Brandon Vetere shall (1) continue to attend outpatient substance abuse treatment that he attended prior to his remand and provide monthly written verification that he attended such treatment to the Office of the District Attorney of Dutchess County; (2) surrender all passports, if any, he may have to the Office of the District Attorney of Dutchess County, or, if he does not possess a passport, he shall provide to the Office of the District Attorney of Dutchess County an affidavit, in a form approved by the Office of the District Attorney of Dutchess County, in which he attests that he does not possess a passport, and shall not apply for any new or replacement passports; and (3) provide to the Office of the District Attorney of Dutchess County an affidavit, in a form approved by the Office of the District Attorney of Dutchess County, in which he attests that if he leaves the jurisdiction he agrees to waive the right to oppose extradition from any foreign jurisdiction; and it is further, ORDERED that upon receipt of a copy of this decision, order and judgment together with proof that Brandon Vetere (1) has given an insurance company bail bond in the sum of $40,000, has given a partially secured bond in the sum of $100,000, with the requirement of 10% down, or has deposited the sum of $20,000 as a cash bail alternative; (2) has surrendered all passports, if any, he may have to the Office of the District Attorney of Dutchess County, or, if he does not possess a passport, has provided to the Office of the District Attorney of Dutchess County an affidavit, in a form approved by the Office of the District Attorney of Dutchess County, in which he attests that he does not possess a passport, and shall not apply for any new or replacement passports; and (3) has provided to the Office of the District Attorney of Dutchess County an affidavit, in a form approved by the Office of the District Attorney of Dutchess County, in which he attests that if he leaves the [2]jurisdiction he agrees to waive the right to oppose extradition from any foreign jurisdiction, the Warden of the facility at which Brandon Vetere is incarcerated, or his or her agent, is directed to immediately release Brandon Vetere from incarceration. DILLON, J.P., BARROS, GENOVESI and TAYLOR, JJ., concur. ENTER: Maria T. Fasulo Clerk of the Court	01-04-2023	11-22-2022
https://www.courtlistener.com/api/rest/v3/opinions/8488775/	11/22/2022 IN THE COURT OF CRIMINAL APPEALS OF TENNESSEE AT NASHVILLE October 12, 2022 Session STATE OF TENNESSEE v. LARRY DALE PITTS Appeal from the Circuit Court for Rutherford County No. 82534 Barry R. Tidwell, Judge ___________________________________ No. M2021-01334-CCA-R3-CD ___________________________________ Larry Dale Pitts, Defendant, was convicted of aggravated assault after a jury trial. The trial court denied his request for judicial diversion and sentenced him to split confinement, with one year of incarceration, and the remainder on supervised probation. He now appeals the sentencing determinations of the trial court, arguing that it abused its discretion in denying judicial diversion, denying full probation, and sentencing him to the maximum within-range sentence of six years. After review, we affirm the judgment of the trial court. Tenn. R. App. P. 3 Appeal as of Right; Judgment of the Circuit Court Affirmed TIMOTHY L. EASTER, J., delivered the opinion of the court, in which ROBERT L. HOLLOWAY, JR., and JILL BARTEE AYERS, JJ., joined. Heather Parker (on appeal and at trial) and Jake Beggin (at trial), Murfreesboro, Tennessee, for the appellant, Larry Dale Pitts. Herbert H. Slatery III, Attorney General and Reporter; T. Austin Watkins, Senior Assistant Attorney General; Jennings H. Jones, District Attorney General; and John Zimmermann, Assistant District Attorney General, for the appellee, State of Tennessee. OPINION A Rutherford County grand jury indicted Defendant for attempted first degree murder and employing a handgun during the commission of a dangerous felony after Defendant shot his next-door neighbor in the leg. The matter proceeded to a jury trial. The following facts were established at trial based on video evidence from multiple security cameras, the testimonies of police officers, Defendant’s neighbors, the victim, the victim’s fiancée, Defendant, and Defendant’s wife. The victim, Daniel Dority, his fiancée, Tiffany Blalock, and their three children moved next door to Defendant and Defendant’s wife, Marla Pitts, in 2016. The victim and Ms. Blalock were in their early thirties. Defendant and Mrs. Pitts were in their late fifties. Defendant carried a gun on him at all times. Both couples drank heavily and frequently and became friends. In September 2018, the neighbors had a falling out. There was conflicting testimony concerning the altercation that led to the falling out. Regardless, a nine-month feud ensued between the two households. The neighbors found themselves to be the recipient of the other’s torment. Ms. Blalock testified that Defendant called the police on them and made up lies, installed video cameras where her kids played, and made sexual remarks about her 10-year-old daughter. Defendant and Mrs. Pitts testified that the victim repeatedly insulted Defendant and threatened to hurt him. The feud culminated on July 16, 2019. Around 2:00 p.m., the victim was mowing his lawn. While the victim was mowing, Defendant walked outside and posted a private property sign on his property nearby the victim. The men exchanged words and the conversation spiraled into an argument. Eventually, the victim returned to mowing his grass. Around 5:30 p.m., Defendant and Mrs. Pitts ate dinner and consumed “a few” beers. Defendant and Mrs. Pitts went outside and sat on their porch. Around 9:00 p.m., while the victim was eating dinner and drinking a six-pack of beer, Ms. Blalock testified that she went outside to put away her children’s bicycles. Defendant was on his porch, and Ms. Blalock was in her yard. The two insulted each other. Ms. Blalock went inside and told the victim of the argument. Ms. Blalock and the victim went outside and into the street. They began hollering at Defendant. Defendant shouted back from his porch. Mrs. Pitts yelled for everyone to return to their homes. The argument escalated. Defendant and the victim, both intoxicated, threatened each other. The victim, standing in the street, goaded Defendant off his porch. Defendant left his porch and walked to the corner of his property near the street. Ms. Blalock went inside to call the police. Mrs. Pitts attempted to restrain Defendant. Defendant pulled out his gun and the victim turned away. Defendant shot the victim once in the leg from behind. After shooting the victim, Defendant went inside his home. Ms. Blalock testified that when she emerged from her house, she saw the victim limping around and bleeding everywhere. Another neighbor, Helen Davidson, helped Ms. Blalock stop the victim’s bleeding with towels and used the victim’s belt as a tourniquet. -2- Rutherford County Sherriff’s Office Deputy Denise Smotherman and another deputy arrived and cleared the scene. The officers went to Defendant’s house and found him and Mrs. Pitts sitting in the garage on a couch, heavily intoxicated. They found Defendant’s gun on the kitchen counter. The officers arrested Defendant. An ambulance arrived shortly thereafter and the victim was transported to Vanderbilt Hospital. He underwent 10 hours of surgery on his leg. At the conclusion of the trial, the Rutherford County Circuit Court jury convicted Defendant of the lesser-included offense, aggravated assault, and acquitted him of employing a handgun during the commission of a dangerous felony. At sentencing, the victim testified that he still experienced pain from the gunshot wound. He endured a month-long recovery from surgery and was unable to work for three months. As a plumber, his job required him to “scoot, bend, kneel, and sometimes climb[,]” and he now had “difficulty doing all of this.” Mrs. Pitts testified that she and Defendant had two kids and four grandchildren. She explained that Defendant spent as much time as he could with his grandchildren. Mrs. Pitts said that Defendant was in a motorcycle accident in 2007 and had long-term injuries to his right leg. Defendant also suffered from asthma. Mrs. Pitts testified that Defendant had not drunk alcohol since July 16, 2019. Defendant took biweekly drug and alcohol screens and wore a GPS monitoring bracelet. Isabella Williams testified that she had known Defendant and Mrs. Pitts for 30 years. She described Defendant as “a real nice guy” and stated that he had “always been very friendly and helpful.” The trial court considered the parties’ arguments, the evidence, the presentence report, and the purposes and principles of sentencing. The trial court applied two enhancement factors and no mitigating factors. The trial court considered judicial diversion and probation. After making the relevant considerations, the court denied judicial diversion and full probation. The trial court sentenced Defendant to the maximum within-range sentence of six years and ordered a sentence of split confinement, with one year of incarceration and the remaining five years on supervised probation. Defendant timely appeals. Analysis On appeal, Defendant raises three sentencing issues. Specifically, that the trial court abused its discretion in denying judicial diversion, that the trial court abused its discretion in denying full probation, and that the trial court abused its discretion in imposing the maximum within-range sentence of six years. The State responds that the -3- trial court properly denied judicial diversion and full probation and properly sentenced Defendant to six years. Standard of Review When the record establishes that the trial court imposed a sentence within the appropriate range that reflects a “proper application of the purposes and principles of our Sentencing Act,” this Court reviews the trial court’s sentencing decision under an abuse of discretion standard with a presumption of reasonableness. State v. Bise, 380 S.W.3d 682, 707 (Tenn. 2012). The same standard of review applies to a trial court’s decision regarding “probation or any other alternative sentence.” State v. Caudle, 388 S.W.3d 273, 278-79 (Tenn. 2012); see also State v. King, 432 S.W.3d 316, 325 (Tenn. 2014) (applying the same standard to judicial diversion). This Court will uphold the trial court’s sentencing decision “so long as it is within the appropriate range and the record demonstrates that the sentence is otherwise in compliance with the purposes and principles listed by statute.” Bise, 380 S.W.3d at 709-10. The party appealing the sentence has the burden of demonstrating its impropriety. T.C.A. § 40-35-401, Sentencing Comm’n Cmts.; see also State v. Ashby, 823 S.W.2d 166, 169 (Tenn. 1991). Judicial Diversion Defendant contends that the trial court abused its discretion in denying judicial diversion. The State responds that the trial court considered the relevant factors and properly denied judicial diversion. Judicial diversion is a “legislative largess” granted to certain qualified defendants whereby the judgment of guilt is deferred and the defendant is placed on probation. King, 432 S.W.3d at 323; see T.C.A. § 40-35-313(a)(1)(A). Once a defendant who is placed on diversion successfully completes probation, the charge will be dismissed. T.C.A. § 40-35-313(a)(2). A “qualified defendant” is a defendant who is found guilty or pleads guilty or nolo contendere to a Class C, D, or E felony; is not seeking deferral for an offense committed by an elected official; is not seeking deferral for a sexual offense; has not been convicted of a felony or a Class A misdemeanor previously and served a sentence of confinement; and has not been granted judicial diversion or pretrial diversion previously. T.C.A. § 40-35-313(a)(1)(B)(i). The decision of whether to grant judicial diversion is left to the trial court’s discretion. King, 432 S.W.3d at 323. The defendant bears the burden of proving that he or she is a suitable candidate for judicial diversion. State v. Faith Renea Irwin Gibson, No. E2007-01990-CCA-R3-CD, 2009 WL 1034770, at 4 (Tenn. Crim. App. Apr. 17, 2009) (citing State v. Curry, 988 S.W.2d 153, 157 (Tenn. 1999) State v. Baxter, 868 S.W.2d 679, 681 (Tenn. Crim. App. 1993)), no perm. -4- app. filed. “There is no presumption that a defendant is a favorable candidate for judicial diversion.” State v. Dycus, 456 S.W.3d 918, 929 (Tenn. 2015) Although the deferential standard of review articulated in Bise applies to the decision to grant or deny diversion, the common law factors which the trial court has long been required to consider in its decision have not been abrogated. King, 432 S.W.3d at 326. Accordingly, in determining whether judicial diversion is appropriate, a trial court must consider: (a) the accused’s amenability to correction, (b) the circumstances of the offense, (c) the accused’s criminal record, (d) the accused’s social history, (e) the accused’s physical and mental health, and (f) the deterrence value to the accused as well as others. The trial court should also consider whether judicial diversion will serve the ends of justice—the interests of the public as well as the accused. State v. Parker, 932 S.W.2d 945, 958 (Tenn. Crim. App. 1996) (footnote omitted). In addition to considering these factors, the trial court must weigh them against one another and place an explanation of its ruling on the record. King, 432 S.W.3d at 326 (citing State v. Electroplating, Inc., 990 S.W.2d 211, 229 (Tenn. Crim. App. 1998)). If the trial court has adhered to these requirements, the reviewing court merely looks to see whether “any substantial evidence” exists in the record to support the trial court’s decision. Id. “Under the Bise standard of review, when the trial court considers the Parker and Electroplating factors, specifically identifies the relevant factors, and places on the record its reasons for granting or denying judicial diversion,” this Court must apply a presumption of reasonableness and uphold the trial court’s decision so long as there is any substantial evidence to support the decision. King, 432 S.W.3d. at 327. The trial court need not “recite” all of the factors, but the record must reflect that it considered each factor, identified the specific factors applicable to the case, and addressed the relevant factors. Id. “‘[A] trial court should not deny judicial diversion without explaining both the specific reasons supporting the denial and why those factors applicable to the denial of diversion outweigh other factors for consideration.’” State v. Walter Townsend, No. W2015-02415-CCA-R3-CD, 2017 WL 1380002, at 2 (Tenn. Crim. App. Apr. 13, 2017) (quoting State v. Cutshaw, 967 S.W.2d 332, 344 (Tenn. Crim. App. 1997)), no perm. app. filed. The record indicates that the trial court considered the evidence, the presentence report, and the purposes and principles of sentencing. The trial court applied little weight in favor of judicial diversion to the presentence report, Defendant’s physical condition, mental condition, and social history. The court found that the facts and circumstances -5- surrounding the offense and the nature and circumstances of Defendant’s conduct weighed heavily against judicial diversion. Specifically, the court stated that Defendant was “intoxicated, carrying a firearm that he carried all the time and resulted in shooting [the victim]” as the victim turned away. The court weighed Defendant’s lack of criminal history in favor of judicial diversion. Regarding Defendant’s previous actions and character, the court noted some positive testimony from the sentencing hearing and some negative testimony from the trial. The court stated that the testimonies offset each other and therefore it found this factor to be neutral. The court “d[id not] doubt” Defendant could be rehabilitated and would likely comply with the terms of his probation, but applied little weight to those factors. The court acknowledged that Defendant had complied with his bond conditions over the previous two and a half years, but applied little weight in favor of judicial diversion. The court considered whether a sentence of judicial diversion would unduly depreciate the seriousness of the offense and weighed that factor against judicial diversion. The court stated, “This was a serious offense. . . . [T]he fact is that perhaps years of arguments back and forth, as much given from [the victim] as [Defendant], what it resulted in is [Defendant] shooting his neighbor while he was drunk.” Without providing specific reasoning, the court found that whether confinement was particularly suited to provide an effective deterrent to others likely to commit similar offenses weighed slightly against judicial diversion. The trial court acknowledged that it did not find Defendant’s offense particularly “enormous, gross, or heinous.” In denying judicial diversion, we note that the court thoughtfully placed its analysis on the record and provided substantial evidence to support its conclusions. The court did not abuse its discretion in denying judicial diversion. Defendant is not entitled to relief. Probation Defendant argues that the trial court abused its discretion in denying him full probation. The State responds that the trial court properly sentenced Defendant to split confinement. “A defendant shall be eligible for probation under this chapter if the sentence actually imposed upon the defendant is ten (10) years or less,” with some exceptions. See T.C.A. § 40-35-303(a). In determining whether confinement is appropriate, the trial court should consider the following principles: -6- (A) Confinement is necessary to protect society by restraining a defendant who has a long history of criminal conduct; (B) Confinement is necessary to avoid depreciating the seriousness of the offense or confinement is particularly suited to provide an effective deterrence to others likely to commit similar offenses; or (C) Measures less restrictive than confinement have frequently or recently been applied unsuccessfully to the defendant[.] T.C.A. § 40-35-103(1)(A)-(C). Additionally, the sentence imposed should be (1) “no greater than that deserved for the offense committed[,]” and (2) “the least severe measure necessary to achieve the purposes for which the sentence is imposed[.]” T.C.A. § 40-35- 103(2), (4). The trial court may also consider the Electroplating factors in determining whether to impose a sentence of probation. State v. Trent, 533 S.W.3d 282, 291 (Tenn. 2017) (citing Electroplating, Inc., 990 S.W.2d at 229). Generally, to deny alternative sentencing solely on the basis of the seriousness of the offense, “‘the circumstances of the offense as committed must be especially violent, horrifying, shocking, reprehensible, offensive or otherwise of an excessive or exaggerated degree, and the nature of the offense must outweigh all factors favoring a sentence other than confinement.” State v. Trotter, 201 S.W.3d 651, 654 (Tenn. 2006) (quoting State v. Grissom, 956 S.W.2d 514, 520 (Tenn. Crim. App. 1997)). Additionally, in State v. Hooper, 29 S.W.3d 1 (Tenn. 2000), our supreme court noted five factors to consider when denying probation on the basis of deterrence and held that a trial court may impose a sentence of incarceration based solely on a need for deterrence “when the record contains evidence which would enable a reasonable person to conclude that (1) deterrence is needed in the community, jurisdiction, or state; and (2) the defendant’s incarceration may rationally serve as a deterrent to others similarly situated and likely to commit similar crimes.” Id. at 10-13. However, in State v. Sihapanya, 516 S.W.3d 473, 476 (Tenn. 2014), the Tennessee Supreme Court determined that “the heightened standard of review [from Trotter and Hooper] that applies to cases in which the trial court denies probation based on only one of these factors is inapplicable” when the trial court “combined the need to avoid depreciating the seriousness of the offense with the need for deterrence and the nature and circumstances of the offense.” The trial court analyzed whether to grant judicial diversion and probation in conjunction. Regarding probation, the trial court stated that it was “perhaps the toughest of today’s decisions. I’ve considered everything. I’ve looked at the probation -7- considerations.” The court found that granting full probation would unduly depreciate the seriousness of the offense. Incorporated into the court’s probation assessment through its judicial diversion analysis, the trial court noted, without providing its reasoning, that there was deterrence value to others likely to commit a similar offense. The court also found that the circumstances surrounding the offense were violent and reprehensible and weighed heavily against Defendant. After nearly a year of conflict, Defendant, while intoxicated, shot his neighbor in the leg from behind. The heightened standard of review from Trotter and Hooper does not apply because the trial court relied on the seriousness of the offense, the need for deterrence, and the nature and circumstances of the offense. We cannot say that the trial court abused its discretion in sentencing Defendant to split confinement. Defendant is not entitled to relief. Length of Sentence Defendant argues that the trial court abused its discretion in sentencing him to the maximum within-range sentence of six years and that the trial court incorrectly applied enhancement factor (6). The State agrees with Defendant that the trial court improperly applied enhancement factor (6), but contends that the court properly sentenced Defendant. We agree the trial court improperly applied enhancement factor (6), that the personal injuries inflicted upon the victim were particularly great. See T.C.A. § 40-35- 114(6). It is well-settled that statutory enhancement factors may not be applied if they are essential elements of the offense. See State v. Imfeld, 70 S.W.3d 698, 704 (Tenn. 2002). Serious bodily injury was an element of Defendant’s aggravated assault conviction, and thus, enhancement factor (6) cannot be used to enhance Defendant’s sentence. See T.C.A. § 39-13-102. However, the trial court also relied on enhancement factor (9), that the defendant possessed or employed a firearm during the commission of the offense. See T.C.A. § 40-35-114(9). Despite the improper application of enhancement factor (6), the trial court properly applied enhancement factor (9), considered the purposes and principles of sentencing, and imposed a within-range sentence. Accordingly, we conclude the trial court did not abuse its discretion. Defendant is not entitled to relief. Conclusion Based on the foregoing, the judgment of the trial court is affirmed. ____________________________________ TIMOTHY L. EASTER, JUDGE -8-	01-04-2023	11-22-2022
https://www.courtlistener.com/api/rest/v3/opinions/8488776/	11/22/2022 IN THE COURT OF CRIMINAL APPEALS OF TENNESSEE AT JACKSON Assigned on Briefs October 4, 2022 DARIN WOODS v. STATE OF TENNESSEE Appeal from the Criminal Court for Shelby County No. 14-03680 Paula L. Skahan, Judge No. W2021-01332-CCA-R3-PC The Petitioner, Darin Woods, appeals from the Shelby County Criminal Court’s denial of his petition for post-conviction relief from his convictions for attempted second degree murder, attempted aggravated robbery, aggravated robbery, and employing a firearm during the commission of a dangerous felony, for which he is serving an effective twenty-seven year sentence. On appeal, the Petitioner contends that the post-conviction court erred in denying relief on his ineffective assistance of counsel claim. We affirm the judgment of the post-conviction court. Tenn. R. App. P. 3 Appeal as of Right; Judgment of the Criminal Court Affirmed ROBERT H. MONTGOMERY, JR., J., delivered the opinion of the court, in which J. ROSS DYER and TOM GREENHOLTZ, JJ., joined. Shae Atkinson, Memphis, Tennessee, for the appellant, Darin Woods. Jonathan Skrmetti, Attorney General and Reporter; Benjamin A. Ball, Senior Assistant Attorney General; Amy P. Weirich, District Attorney General; Leslie Byrd, Assistant District Attorney General, for the appellee, State of Tennessee. OPINION On April 18, 2014, the Petitioner participated in the robbery of Devin and Dedrick Bradley.1 The Petitioner and his cousins, Rodney Fleming and Sanders Malone, lured Devin and Dedrick to the back of an apartment complex where Mr. Fleming and the 1 Because the two victims share a common surname, we will refer to them by their first names. No disrespect is intended. Petitioner, brandishing a gun, told them to hand over their money and the keys to their car. In response, Dedrick and Devin ran, and the Petitioner shot Devin in the back. Mr. Malone was not present for the shooting but heard shots and picked up Mr. Fleming in his Jeep. Later, Mr. Malone met with Mr. Fleming and the Petitioner at the Petitioner’s brother’s house, where Mr. Malone learned about what had happened. Law enforcement officers developed suspects, including Mr. Malone, after Mr. Malone’s mother called the police. Mr. Malone implicated Mr. Fleming and the Petitioner in the incident. Devin identified the Petitioner from a photograph lineup as the shooter and later testified to that fact at trial. The Petitioner testified at trial, denying his involvement in the robbery of the Bradley brothers and the shooting. State v. Darin Woods, No. W2016-01486-CCA-R3- CD, 2017 WL 2820126, at 1-3 (Tenn. Crim. App. June 29, 2017), perm. app. denied (Tenn. Nov. 20, 2017). On April 30, 2018, the Petitioner filed a timely pro se petition for post-conviction relief. The post-conviction court dismissed the petition, and the Petitioner appealed. This court reversed the judgment of the post-conviction court and remanded the case for the post-conviction court to determine whether counsel should be appointed or whether the Petitioner should be permitted time to retain private counsel. See Darin Woods v. State, No. W2019-00514-CCA-R3-PC, 2020 WL 864160, at 2 (Tenn. Crim. App. Feb. 19, 2020). Upon remand, the post-conviction court appointed post-conviction counsel. As relevant to this appeal, the Petitioner, in his petition, alleged that he received the ineffective assistance of trial counsel as counsel failed to challenge a photograph lineup and failed to investigate a prosecutorial misconduct claim. At the post-conviction hearing, trial counsel testified that he had practiced law for more than fifteen years at the time he represented the Petitioner and that the majority of his cases were criminal defense. Counsel said the Petitioner’s case was difficult because several eyewitnesses, including the Petitioner’s own family members, placed the Petitioner at the scene of the crime. When asked about his trial strategy, counsel said that he attempted to discredit the witnesses’ testimony and to suggest that the codefendants were conspiring against the Petitioner. Counsel said he hired an investigator to assist with the investigation and the Petitioner’s defense. Trial counsel testified that he reviewed all the discovery with the Petitioner and met with the Petitioner a minimum of ten times before trial. He said he and the Petitioner discussed trial strategy “numerous times,” including discussing the complaint, the photograph lineup, and the other discovery provided by the State. He said he conveyed the State’s plea offer, which he thought was twenty-four years, to the Petitioner and discussed its pros and cons. Counsel said that he recommended the Petitioner accept the offer. Counsel said he also talked to the Petitioner about any lesser included offenses for which the Petitioner could be convicted at trial. -2- Trial counsel testified that he communicated with the Petitioner’s family. He said the Petitioner’s mother shared her ideas about the case with counsel. He said he contacted the Petitioner’s sister, who lived in Boston, regarding the case and about her serving as a possible alibi witness, but she was unable to confirm that the Petitioner was with her at the time of the crimes. Counsel said that, as a result, he elected not to call the sister as an alibi witness. Counsel stated that he told the Petitioner an alibi defense based on his sister’s testimony would not work at trial. Trial counsel testified that he had no problems communicating with the Petitioner. Counsel related his experiences working with criminal defendants, including those who suffered from mental illness, and stated he did not believe a mental health examination was warranted. Counsel said that he and the Petitioner discussed at length whether he should testify at trial and that when the Petitioner indicated he intended to testify, counsel worked with the Petitioner in preparing his trial testimony. Counsel stated that he thought he did everything he could have done to defend the Petitioner. The Petitioner testified that trial counsel gave him copies of discovery and met with him several times at the jail where they discussed the case. The Petitioner said he was aware of the State’s plea offer of twenty-four years and was aware counsel recommended he accept the offer. The Petitioner said he also understood from counsel that four people planned to testify against him and place him at the scene of the crimes. He said counsel believed he would be found guilty based upon the witnesses’ testimony. The Petitioner testified that he was with his sister at the time of the crimes. Although he believed his sister would be called at trial as an alibi witness, he acknowledged she could not confirm he had been with her. The Petitioner stated he still would have gone to trial even if he had known ahead of time that his sister would not be called as an alibi witness. The Petitioner testified that his cousin, Mr. Malone, identified him during a police interview and later at trial. The Petitioner said he was aware that the victim, Devin Bradley, identified him in a photograph lineup the day before Mr. Malone’s statement. The Petitioner said law enforcement did not have probable cause to include his photograph in the lineup prior to Mr. Malone’s statement and that counsel should have challenged the lineup. On cross-examination, the Petitioner acknowledged that he was aware of the charges against him, his codefendants’ statements implicating him in the crimes, the problems with his alibi defense, the timing of Mr. Malone’s statement and the photograph lineup, and the contents of the discovery. The Petitioner stated his prosecutorial misconduct allegation related to his being placed in a photograph lineup the day before Mr. Malone made his formal police statement. -3- At the post-conviction hearing, the prosecutor told the court that before the Petitioner was included in the photograph lineup, law enforcement officers had been investigating the shooting and had interviewed victims who provided descriptions of potential suspects. The post-conviction court denied relief. The court found that trial counsel did not perform deficiently by failing to challenge the photograph lineup identifying the Petitioner as a suspect because the Petitioner “failed to show how there was no probable cause” and that counsel did not perform deficiently by failing to discuss prosecutorial misconduct with the Petitioner, as there was no evidence of any misconduct. On appeal, the Petitioner contends that trial counsel was ineffective for failing to challenge the inclusion of his photograph in a lineup because law enforcement lacked probable cause to believe the Petitioner was involved in the shooting at that time. He argues that “he should not have been placed in a photo lineup until . . . someone made him a suspect – not before.” The Petitioner also contends that counsel was ineffective for “not investigating prosecutorial misconduct and pursuing that as part of his defense.” The Petitioner argues that the fact he was included in the photograph lineup “before [he] was a suspect” is evidence of prosecutorial misconduct. The State contends that the Petitioner waived his ineffective assistance claims for failing to provide any legal authority in support of his arguments or, alternatively, that trial counsel’s performance was not deficient and did not prejudice the Petitioner. See Tenn. Ct. Crim. App. R. 10(b); Strickland v. Washington, 466 U.S. 668, 687 (1984). Post-conviction relief is available “when the conviction or sentence is void or voidable because of the abridgment of any right guaranteed by the Constitution of Tennessee or the Constitution of the United States.” T.C.A. § 40-30-103 (2018). A petitioner has the burden of proving his factual allegations by clear and convincing evidence. Id. § 40-30-110(f) (2018). A post-conviction court’s findings of fact are binding on appeal, and this court must defer to them “unless the evidence in the record preponderates against those findings.” Henley v. State, 960 S.W.2d 572, 578 (Tenn. 1997); see Fields v. State, 40 S.W.3d 450, 456-57 (Tenn. 2001). A post-conviction court’s application of law to its factual findings is subject to a de novo standard of review without a presumption of correctness. Fields, 40 S.W.3d at 457-58. To establish a post-conviction claim of the ineffective assistance of counsel in violation of the Sixth Amendment, a petitioner has the burden of proving that (1) counsel’s performance was deficient and (2) the deficient performance prejudiced the defense. Strickland, 466 U.S. at 687; see Lockhart v. Fretwell, 506 U.S. 364, 368-72 (1993). The Tennessee Supreme Court has applied the Strickland standard to an -4- accused’s right to counsel under article I, section 9 of the Tennessee Constitution. See State v. Melson, 772 S.W.2d 417, 419 n.2 (Tenn. 1989). A petitioner must satisfy both prongs of the Strickland test in order to prevail in an ineffective assistance of counsel claim. Henley, 960 S.W.2d at 580. “[F]ailure to prove either deficiency or prejudice provides a sufficient basis to deny relief on the ineffective assistance claim.” Goad v. State, 938 S.W.2d 363, 370 (Tenn. 1996). To establish the performance prong, a petitioner must show that “the advice given, or the services rendered . . . are [not] within the range of competence demanded of attorneys in criminal cases.” Baxter v. Rose, 523 S.W.2d 930, 936 (Tenn. 1975); see Strickland, 466 U.S. at 690. The post-conviction court must determine if these acts or omissions, viewed in light of all of the circumstances, fell “outside the wide range of professionally competent assistance.” Strickland, 466 U.S. at 690. A petitioner “is not entitled to the benefit of hindsight, may not second-guess a reasonably based trial strategy by his counsel, and cannot criticize a sound, but unsuccessful, tactical decision.” Adkins v. State, 911 S.W.2d 334, 347 (Tenn. Crim. App. 1994); see Pylant v. State, 263 S.W.3d 854, 874 (Tenn. 2008). This deference, however, only applies “if the choices are informed . . . based upon adequate preparation.” Cooper v. State, 847 S.W.2d 521, 528 (Tenn. Crim. App. 1992). To establish the prejudice prong, a petitioner must show that “there is a reasonable probability that, but for counsel’s unprofessional errors, the result of the proceeding would have been different.” Strickland, 466 U.S. at 694. “A reasonable probability is a probability sufficient to undermine confidence in the outcome.” Id. The Petitioner argues that law enforcement needed probable cause to include his photograph in a lineup before Mr. Malone’s statement implicating the Petitioner in the crimes was made and that trial counsel was ineffective for not challenging the lineup. The constitutional limitation regarding the use of photograph lineups is that they cannot be “impermissibly suggestive as to give rise to a very substantial likelihood of irreparable misidentification.” Neil v. Biggers, 409 U.S. 188, 197 (1972) (quoting Simmons v. United States, 390 U.S. 377, 384 (1968)); see Bennett v. State, 530 S.W.2d 511 (Tenn. 1975). However, the Petitioner has not alleged that the photograph lineup was impermissibly suggestive, nor has he cited to any legal authority supporting his argument that probable cause was required before the Petitioner’s photograph could be placed in a photograph lineup. See Tenn. Ct. Crim. App. R. 10(b) (“Issues which are not supported by argument, citation to authorities, or appropriate references to the record will be treated as waived in this court.”). This issue is waived. The Petitioner also contends that trial counsel was ineffective for “not investigating prosecutorial misconduct and pursuing that as part of his defense.” The Petitioner argues that the fact his picture was included in the photograph lineup before he was a suspect is evidence of prosecutorial misconduct. To prevail on this claim, the Petitioner must prove by clear and convincing evidence that counsel’s failure to -5- investigate the events resulting in the photograph lineup was deficient and prejudiced the defense. See Strickland, 466 U.S. at 687; T.C.A. § 40-30-110(f) (2018). The Petitioner has not presented any evidence to show that an investigation into the photograph lineup would have resulted in discovery of evidence of prosecutorial misconduct. The post- conviction court found that counsel did not perform deficiently, and the evidence does not preponderate against its finding. The Petitioner is not entitled to relief on this basis. In consideration of the foregoing and the record as a whole, the judgment of the post-conviction court is affirmed. _____________________________________ ROBERT H. MONTGOMERY, JR., JUDGE -6-	01-04-2023	11-22-2022
https://www.courtlistener.com/api/rest/v3/opinions/8488808/	IN THE SUPREME COURT OF PENNSYLVANIA MIDDLE DISTRICT HARTFORD FIRE INSURANCE COMPANY : No. 250 MAL 2022 : : v. : Petition for Allowance of Appeal : from the Order of the Superior Court : CHARLES DAVIS AND KEYSTONE : AUTOMOTIVE OPERATIONS, INC. : : : v. : : : HARTFORD FIRE INSURANCE : COMPANY, INDIVIDUALLY AND D/B/A : THE HARTFORD INSURANCE GROUP : AND THE HARTFORD INSURANCE : GROUP, INDIVIDUALLY AND D/B/A THE : HARTFORD AND THE HARTFORD, : : Additional Defendants : : : : : PETITION OF: HARTFORD FIRE : INSURANCE COMPANY : ORDER PER CURIAM AND NOW, this 22nd day of November, 2022, the Petition for Allowance of Appeal is DENIED. Further, the Application for Leave to File Amicus Brief and the Application for Leave to file Post-Submission Communication are DENIED as moot.	01-04-2023	11-22-2022
https://www.courtlistener.com/api/rest/v3/opinions/8488809/	IN THE SUPREME COURT OF PENNSYLVANIA MIDDLE DISTRICT JOSEPH C. HAZZOURI, : No. 223 MAL 2022 : Petitioner : : Petition for Allowance of Appeal : from the Order of the v. : Commonwealth Court : : PENNSYLVANIA TURNPIKE : COMMISSION (WORKERS' : COMPENSATION APPEAL BOARD), : : Respondents : ORDER PER CURIAM AND NOW, this 22nd day of November, 2022, the Petition for Allowance of Appeal is DENIED.	01-04-2023	11-22-2022
https://www.courtlistener.com/api/rest/v3/opinions/8488810/	IN THE SUPREME COURT OF PENNSYLVANIA WESTERN DISTRICT COMMONWEALTH OF PENNSYLVANIA, : No. 219 WAL 2022 : Respondent : : Petition for Allowance of Appeal : from the Order of the Superior Court v. : : : LAMON STREET, : : Petitioner : ORDER PER CURIAM AND NOW, this 22nd day of November, 2022, the Petition for Allowance of Appeal is DENIED.	01-04-2023	11-22-2022
https://www.courtlistener.com/api/rest/v3/opinions/8488781/	USCA4 Appeal: 22-6018 Doc: 18 Filed: 11/21/2022 Pg: 1 of 2 UNPUBLISHED UNITED STATES COURT OF APPEALS FOR THE FOURTH CIRCUIT No. 22-6018 ANTHONY ANDREWS, Petitioner - Appellant, v. BRYAN K. DOBBS, Warden FCI Williamsburg, Respondent - Appellee. Appeal from the United States District Court for the District of South Carolina, at Greenville. David C. Norton, District Judge. (6:20-cv-03026-DCN) Submitted: November 7, 2022 Decided: November 21, 2022 Before WYNN and QUATTLEBAUM, Circuit Judges, and KEENAN, Senior Circuit Judge. Affirmed by unpublished per curiam opinion. Anthony Andrews, Appellant Pro Se. USCA4 Appeal: 22-6018 Doc: 18 Filed: 11/21/2022 Pg: 2 of 2 PER CURIAM: Anthony Andrews appeals the district court’s order denying his Fed. R. Civ. P. 60(b) motion. We have reviewed the record and find no reversible error. Accordingly, we affirm the district court’s order. Andrews v. Dobbs, No. 6:20-cv-03026-DCN (D.S.C. Dec. 8, 2021). We dispense with oral argument because the facts and legal contentions are adequately presented in the materials before this court and argument would not aid the decisional process. AFFIRMED 2	01-04-2023	11-22-2022
https://www.courtlistener.com/api/rest/v3/opinions/8488780/	USCA4 Appeal: 21-1359 Doc: 31 Filed: 11/21/2022 Pg: 1 of 2 UNPUBLISHED UNITED STATES COURT OF APPEALS FOR THE FOURTH CIRCUIT No. 21-1359 JUAN LUIS GARCIA RUIZ, Petitioner, v. MERRICK B. GARLAND, Attorney General, Respondent. On Petition for Review of an Order of the Board of Immigration Appeals Submitted: September 30, 2022 Decided: November 21, 2022 Before KING and DIAZ, Circuit Judges, and TRAXLER, Senior Circuit Judge. Dismissed in part, denied in part by unpublished per curiam opinion. ON BRIEF: Daniel Thomann, P.C., Chicago, Illinois, for Petitioner. Brian M. Boynton, Principal Deputy Assistant Attorney General, Linda S. Wernery, Assistant Director, Taryn L. Arbeiter, Office of Immigration Litigation, Civil Division, UNITED STATES DEPARTMENT OF JUSTICE, Washington, D.C., for Respondent. Unpublished opinions are not binding precedent in this circuit. USCA4 Appeal: 21-1359 Doc: 31 Filed: 11/21/2022 Pg: 2 of 2 PER CURIAM: Juan Luis Garcia Ruiz, a native and citizen of Mexico, petitions for review of an order of the Board of Immigration Appeals (Board) dismissing his appeal from the Immigration Judge’s decision denying his request for a continuance and denying his application for cancellation of removal. Because the Board affirmed the denial of cancellation of removal as a matter of discretion and Garcia Ruiz failed to raise any colorable legal or constitutional issues, we lack jurisdiction to review the denial of that relief. See 8 U.S.C. §§ 1252(a)(2)(B)(i), (D); Sorcia v. Holder, 643 F.3d 117, 124-25 (4th Cir. 2011) (finding no jurisdiction to review discretionary denial of cancellation of removal absent constitutional claim or question of law). Thus, we dismiss the petition for review in part as to cancellation of removal. Next, we find no abuse of discretion or due process violation in the Board’s decision to uphold the denial of a continuance. See Lendo v. Gonzales, 493 F.3d 439, 441 (4th Cir. 2007); Rusu v. INS, 296 F.3d 316, 321-22 (4th Cir. 2002). Finally, upon review, we conclude that Garcia Ruiz’s remaining claims are without merit. Accordingly, we deny the petition for review in part. In re Garcia Ruiz (B.I.A. Mar. 5, 2021). We dispense with oral argument because the facts and legal contentions are adequately presented in the materials before this court and argument would not aid the decisional process. DISMISSED IN PART; DENIED IN PART 2	01-04-2023	11-22-2022
https://www.courtlistener.com/api/rest/v3/opinions/8488786/	UNITED STATES DISTRICT COURT FOR THE DISTRICT OF COLUMBIA DAVID EARL WATTLETON, ) ) Plaintiff, ) ) v. ) Civil Action No. 22-0145 (BAH) ) Chief Judge Beryl A. Howell ) U.S. DEPARTMENT OF JUSTICE, ) ) Defendant. ) MEMORANDUM OPINION Plaintiff David Earl Wattleton, proceeding pro se and in forma pauperis, filed this lawsuit under the Freedom of Information Act (“FOIA”), 5 U.S.C. § 552, to compel the United States Department of Justice’s (“DOJ’s”) Executive Office of United States Attorneys (“EOUSA”) to disclose certain records that he requested in December 2020. See Compl., at 1–2, ECF No. 1. 1 DOJ now moves for summary judgment, DOJ Mot. for Summ. J. (“Def.’s Mot.”), at 1, ECF No. 11; DOJ Mem. Supp. Mot. for Summ. J. (“Def.’s Mem.”), at 1, ECF No. 11-1; DOJ Stmt. of Facts Mot. for Summ. J. (“Def.’s SOF”), at 1–2, ECF No. 11-2, and, for the reasons discussed below, that motion is granted. I. BACKGROUND Plaintiff’s FOIA request at issue was received and acknowledged by EOUSA, on December 3, 2020, and assigned tracking no. EOUSA-2021-000704. Def.’s SOF ¶ 1; Declaration of EOUSA Attorney-Advisor Auborn Finney (“Finney Decl.”) ¶¶ 1, 4, ECF No. 11- 3; Compl. at 1–2; Compl. Ex. A. (Pl.’s Undated and Unsigned FOIA Request); Compl. Ex. B 1 The page numbers generated by the Electronic Case Filing/Case Management (“ECF/CM”) system are used in citing to the complaint. 1 (EOUSA’s Dec. 3, 2020 Acknowledgment Letter.). 2 Plaintiff requested the following information: [n]ames of all individuals and/or entities of all Public Access to Court Electronic Records (“PACER”), or LIONS systems users who, within the time period of May 27, 1999 through November 10, 2020, accessed a United States Federal Court or the United States Attorney for the Northern District of Georgia affiliated with the case number 1:99-CR-306-TWT or to retrieve information based on the name David Earl Wattleton. Def.’s SOF ¶¶ 1–2; Finney Decl. ¶ 4; Compl. at 1; Compl. Ex. A. This FOIA request references two databases: PACER and LIONS. The Public Access to Court Electronic Records, or “PACER,” is a case management database maintained by the Administrative Office of the United States Courts (“AO”) on behalf of the federal judiciary to provide electronic public access to federal court records. Def.’s SOF ¶ 4 (citing Finney Decl. ¶ 9; “Public Access to Court Electronic Records,” available at pacer.uscourts.gov) (last visited Nov. 8, 2022)); see also Am. Civ. Lib. Union v. U.S. Dep’t of Justice, 655 F.3d 1, 7 n.7 (D.C. Cir. 2011) (“PACER, provided by the federal judiciary, ‘is an electronic public access service that allows users to obtain case and docket information from [all] federal appellate, district and bankruptcy courts.’” (quoting http://www.pacer.gov)). The Legal Information Office Network System, or “LIONS,” was a database and case management system that formerly was used by the regional United States Attorney’s field offices to “identify cases and retrieve files related to cases and investigations by using district court case numbers, defendants’ names, and the internal number assigned by each United States Attorney’s Office.” Def.’s SOF ¶ 5 (citing Finney Decl. ¶ 4 n.1). Some time ago, LIONS was replaced by 2 Plaintiff submitted a nearly identical FOIA request to DOJ’s EOUSA in February 2019, and ultimately challenged EOUSA’s response by filing a lawsuit in this District on May 14, 2019. See Wattleton v. DOJ, No. 19- cv-1402 (BAH), at Compl., ECF No. 1. Since plaintiff had failed to exhaust administrative remedies, DOJ was granted summary judgment in that matter on August 12, 2020. See Wattleton v. United States DOJ, Civil Action No. 19-1402 (BAH), 2020 U.S. Dist. LEXIS 144401, at *1 (D.D.C. Aug. 12, 2020). 2 the “Caseview” filing system, which is now used by U.S. Attorney’s Offices “to track civil and criminal cases, appellate investigations, and matters based on parties’ names, USAO case jacket numbers, and court case docket numbers.” Finney Decl. ¶ 4 n.1; see Def.’s SOF ¶ 6. EOUSA does not maintain any centralized database of case records and, instead, each individual field office is responsible for respectively maintaining its own records. See Finney Decl. ¶ 5; Def.’s SOF ¶ 7. Upon receipt of a FOIA request, EOUSA sends that request through its electronic system, FOIAxpress, to the relevant field office(s) that may have potentially responsive documents, and then those offices perform their own searches and report back to EOUSA. See Finney Decl. ¶ 5. This process was followed with respect to plaintiff’s FOIA request at issue. Specifically, on February 4, 2021, after receiving plaintiff’s FOIA request at issue in this case, EOUSA corresponded with plaintiff, partially explaining this process, and also stating that his FOIA request had been categorized as “complex,” requiring additional time for review, due to, among other things, EOUSA’s need to contact the relevant individual field office(s) and for them to conduct their own searches. See Compl. Ex. C (EOUSA Letter to plaintiff, dated Feb. 4, 2021). EOUSA determined that the only office with potentially responsive documents was the United States Attorney’s Office for the Northern District of Georgia (“USAO-NDGA”). See Finney Decl. ¶ 7; see also Compl. Ex. A. On September 10, 2021, EOUSA requested that USAO-NDGA search for records potentially responsive to plaintiff’s FOIA request, while noting “that the information requested for PACER may not be tracked since it is a U.S. courts system.” Finney Decl. ¶ 8. While that request was being processed, plaintiff filed this lawsuit on January 20, 2022. See generally Compl. 3 On March 29, 2022, the point of contact at USAO-NDGA’s FOIA Office, Diana Todd, informed EOUSA that the information requested by plaintiff is not tracked by USAO-NDGA, so no responsive records were located. Finney Decl. ¶ 9; Def.’s SOF ¶ 10. In preparing that response, Todd contacted Alysun Laskowski, a Records Management Specialist, who “is responsible for providing analytical and program management work to insure all USAO records and information . . . are created, maintained and disposed of in accordance with federal and Departmental guidelines[.]” Id.; Def.’s SOF ¶ 8. Laskowski confirmed to Todd that plaintiff sought information from PACER, but “PACER is a U.S. Courts system and thus the United States Attorney Office has no way of tracking who has accessed certain cases within the U.S. Court’s system.” Finney Decl. ¶ 9; see Def.’s SOF ¶¶ 4, 9. Laskowski also confirmed that “USAO-NDGA does not track who has accessed specific cases or searched for specific parties within LIONS or PACER[,]” nor does it otherwise “maintain any records reflecting the names of those users.” See id. Consequently, on May 29, 2022, Todd sent EOUSA a search response stating that no responsive records were located. Finney Decl. ¶ 9; Def.’s SOF ¶ 10. Additionally, Stephanie Johnson, an EOUSA Caseview Program Manager, who is responsible for Caseview application development activities, database operations and maintenance support, and customer service, and who also has personal knowledge regarding EOUSA’s tracking methods and of the information that is, in fact, “tracked,” confirmed that Caseview “does not keep track of who has accessed specific cases or searched for specific parties.” See Finney Decl. ¶ 10; Def.’s SOF ¶ 12. On March 30, 2022, EOUSA mailed a response letter to plaintiff, informing him that no documents responsive to his request were located. See Finney Decl. ¶ 11; id., Ex. B (EOUSA Mar. 30, 2022 Response Letter); Def.’s SOF ¶ 11. 4 II. LEGAL STANDARD Under Federal Rule of Civil Procedure 56, "[a] party is entitled to summary judgment only if there is no genuine issue of material fact and judgment in the movant's favor is proper as a matter of law." Soundboard Ass'n v. Fed. Trade Comm'n, 888 F.3d 1261, 1267 (D.C. Cir. 2018) (quoting Ctr. for Auto Safety v. Nat'l Highway Traffic Safety Admin., 452 F.3d 798, 805, (D.C. Cir. 2006)); see also FED. R. CIV. P. 56(a). "In FOIA cases, summary judgment may be granted on the basis of agency affidavits if they contain reasonable specificity of detail rather than merely conclusory statements, and if they are not called into question by contradictory evidence in the record or by evidence of agency bad faith." Aguiar v. Drug Enf't Admin., 865 F.3d 730, 734-35 (D.C. Cir. 2017) (quoting Jud. Watch, Inc. v. U.S. Secret Serv., 726 F.3d 208, 215 (D.C. Cir. 2013)); see also Students Against Genocide v. Dep't of State, 257 F.3d 828, 833 (D.C. Cir. 2001) ("[A]n agency is entitled to summary judgment if no material facts are in dispute and if it demonstrates 'that each document that falls within the class requested either has been produced . . . or is wholly exempt from the Act's inspection requirements.'" (omission in original) (quoting Goland v. CIA, 607 F.2d 339, 352 (D.C. Cir. 1978))). Most FOIA cases "can be resolved on summary judgment." Brayton v. Off. of U.S. Trade Representative, 641 F.3d 521, 527 (D.C. Cir. 2011). “[T]o satisfy FOIA's aims of providing more transparency into the workings of the government,” an agency must demonstrate that an adequate search for records responsive to a FOIA request was made. Montgomery v. IRS, 40 F.4th 702, 714 (D.C. Cir. 2022). This demonstration “entails a ‘show[ing] that [the agency] made a good faith effort to conduct a search for the requested records, using methods which can be reasonably expected to produce the information requested.’" Id. (quoting Oglesby v. U.S. Dep't of Army, 920 F.2d 57, 68 (D.C. 5 Cir. 1990)). The D.C. Circuit has explained that “[w]hile the agency need not search every record system, it also may not limit its search to only one record system if there are others that are likely to turn up the information requested." Id. (internal quotation and citation omitted). Moreover, "the adequacy of a FOIA search is generally determined not by the fruits of the search, but by the appropriateness of the methods used to carry out the search," Iturralde v. Comptroller of Currency, 315 F.3d 311, 315 (D.C. Cir. 2003), but, at the same time, a "positive indication[] of overlooked materials" can lead a court to determine the search was inadequate, Valencia-Lucena v. U.S. Coast Guard, 180 F.3d 321, 327 (D.C. Cir. 1999) (internal citations omitted); see also Ancient Coin Collectors Guild v. U.S. Dep't of State, 641 F.3d 504, 514 (D.C. Cir. 2011) (noting that agency must establish “beyond material doubt that its search was reasonably calculated to uncover all relevant documents.”) (internal quotation and citation omitted). In short, summary judgment is inappropriate only “if a review of the record raises substantial doubt as to the search's adequacy, particularly in view of well defined requests and positive indications of overlooked materials." Shapiro v. United States DOJ, 40 F.4th 609, 613 (D.C. Cir. 2022) (quoting Reporters Committee for Freedom of the Press v. FBI, 877 F.3d 399, 402 (D.C. Cir. 2017) (cleaned up)). In assessing an agency’s fulfillment of its FOIA obligations, an agency’s declarations are accorded "'a presumption of good faith, which cannot be rebutted by purely speculative claims about the existence and discoverability of other documents.'" Id. (quoting Bartko v. DOJ, 898 F.3d 51, 74 (D.C. Cir. 2018) (some quotation marks omitted) (quoting SafeCard Services, Inc. v. SEC, 926 F.2d 1197, 1200 (D.C. Cir. 1991))). III. DISCUSSION DOJ has demonstrated that an adequate search was conducted for records responsive to the FOIA request at issue and that the agency otherwise met its statutory obligations. While 6 EOUSA did not retrieve any records responsive to plaintiff’s FOIA request, notably, a search is not inadequate merely because it failed to “uncover[] every document extant.” SafeCard Servs., 926 F.2d at 1201; see Iturralde, 315 F.3d at 315 (“The adequacy of a FOIA search is generally determined not by the fruits of the search, but by the appropriateness of the methods used to carry out the search.”). Plaintiff’s FOIA request sought records related to individuals or entities that accessed case information related to USAO-NDGA’s prosecution of plaintiff in a criminal matter, see Compl. at 1; Compl. Ex. A, and the agency’s declarant, who is an experienced Attorney Advisor in EOUSA’s FOIA Office with personal knowledge of the applicable FOIA regulations and EOUSA’s processes and procedures in responding to the FOIA requests, including the plaintiff’s request, see Finney Decl. ¶¶ 1–3, determined that, if such records existed, they would be maintained by USAO-NDGA, see id. ¶¶ 6–7. USAO-NDGA, through Todd and Laskowski, determined that the office does not track or maintain records related to the search inquiries of individual users through any case management system, including PACER, LIONS, or Caseview. See id. ¶¶ 8–9; Def.’s SOF ¶¶ 4–7, 9. EOUSA then expanded its inquiry by consulting with Johnson, who confirmed that EOUSA neither tracks, nor has the ability to track, the information sought by plaintiff. See Finney Decl. ¶ 10; Def.’s SOF ¶ 12. These efforts were thorough and reasonable under the attendant circumstances. See Truitt v. Dep’t of State, 897 F.2d 540, 542 (D.C. Cir. 1990). In response, plaintiff fails to present any countervailing evidence to suggest that a genuine dispute of material fact exists as to the adequacy of the search. See Morley v. CIA, 508 F. 3d 1108, 1116 (D.C. Cir. 2007). Plaintiff’s sole argument is that records are “likely” to exist somewhere, and that DOJ and EOUSA are required––but have failed—to “write a computer 7 program that enables them to search the PACER Service Center information technology department[,]” to retrieve the information that he requested. See Pl.’s Opposition (“Pl.’s Opp’n”), at 4–5, ECF No. 14. In support, he contends that EOUSA’s declaration falls short by failing adequately to explain PACER’s technological capabilities, and that Finney has insufficient expertise in the field of information technology. See id. at 4–6. Plaintiff’s arguments are unpersuasive. First, plaintiff fails to provide any authority supporting his contention that DOJ or EOUSA is obligated to “write a computer program” designed to create records not already maintained. 3 Indeed, the “FOIA imposes no duty on the agency to create records.” Forsham v. Harris, 445 U.S. 169, 186 (1980). The “FOIA . . . only requires disclosure of documents that already exist, not the creation of new records not otherwise in the agency's possession.” Nat’l Sec. Counselors v. CIA, 969 F.3d 406, 409 (D.C. Cir. 2020) (citations omitted); see also Yeager v. DEA, 678 F.2d 315, 321 (D.C. Cir. 1982) (“It is well settled that an agency is not required by FOIA to create a document that does not exist in order to satisfy a request.”). Akin to the instant circumstances, in Elkins v. FAA, 103 F. Supp. 3d 122 (D.D.C. 2015), plaintiff’s request “that the agency use a confidential algorithm” to extract and translate potentially responsive data from its computer system was rejected since the agency was not required to take this additional step and the agency’s “obligation ended” after its customary search for then-existing records did not uncover any responsive information, id. at 131. See also Nat'l Sec. Counselors v. CIA, 898 F. Supp. 2d 233, 269 (D.D.C. 2012) (holding that an agency need not “analyze data” or “conduct research” in response to a FOIA request), aff’d, 969 F.3d 3 Plaintiff cites to 6 C.F.R. § 5.4(i)(2)(ii), Pl’s Opp’n at 5, but this subsection of the Code of Federal Regulations is unhelpful. This provision applies only to records requests submitted to the Department of Homeland Security, not to DOJ or EOUSA, and, in any event, does not support plaintiff’s argument that computer programming is required. See 6 C.F.R. § 5.4(i)(2)(ii). To the contrary, this provision makes clear that “[c]reating computer programs or purchasing additional hardware to extract” certain types of archived electronic data “are not considered business as usual” and therefore are not required “if extensive monetary or personnel resources are needed to complete the project.” See id. 8 406 (D.C. Cir. 2020). EOUSA is simply not required to create the records or adopt the technology requested by plaintiff and thus plaintiff’s complaint that Finney lacked the qualifications or abilities to do computer programming are immaterial. Second, plaintiff’s bald conclusion that the records sought are likely to exist somewhere, despite DOJ’s diligent search, does not generate a dispute of material fact. See Kowalczyk v. Dep’t of Just., 73 F.3d 386, 389 (D.C. Cir. 1996). The Supreme Court has held that the only “agency records” subject to examination under the FOIA are those that an agency creates or obtains, and controls at the time the FOIA request was made. See U.S. Dep’t of Just. v. Tax Analysts, 492 U.S. 136, 144–46 (1989); see also Burka v. U.S. Dep't of Health & Human Servs., 87 F.3d 508, 515 (D.C. Cir. 1996) (same). Here, EOUSA has averred that the records sought are not created, obtained or controlled by the agency, and plaintiff has presented no substantive information to dispute this fact. Finally, even if the records sought by plaintiff exist within PACER and, further, that EOUSA had a right to obtain the requested records from within PACER, EOUSA would still not be obliged under the FOIA to obtain such information outside its possession and control. See Beveridge & Diamond, P.C. v. EPA, 78 F. Supp. 3d 199, 206–07 (D.D.C. 2015) (explaining that, when agency itself did not maintain responsive data, the agency was not obligated to obtain it from a third-party in response to the plaintiff’s FOIA request, because the “public cannot learn anything about agency decisionmaking from a document . . . neither created nor consulted” by the agency) (citing Judicial Watch, Inc. v. Fed. Hous. Fin. Agen., 646 F.3d 924, 927 (D.C. Cir. 2011) (other citations omitted)). EOUSA is obligated only to conduct a reasonable search of its own records and is not required to respond to any part of plaintiff’s request for records maintained elsewhere. See Lewis v. Dep’t of Just., 867 F. Supp. 2d 1, 12–13 (D.D.C. 2011) 9 (granting summary judgment for EOUSA where agency did not control documents filed and maintained in federal court). Any responsive information on PACER—if it exists at all—would be maintained by the AO, not by DOJ or EOUSA, see Def.’s SOF ¶ 4; see also Am. Civ. Lib. Union, 655 F.3d at 7 n.7, and the federal judiciary, including the AO is exempt from the requirements of the FOIA, see 5 U.S.C. § 551(1)(B) (explicitly excluding federal courts from definition of “agency”); see also Banks v. Dep’t of Just., 538 F. Supp. 2d 228, 231–32 (D.D.C. 2008) (“The term ‘agency’ as defined for purposes of FOIA . . . expressly excludes the courts of the United States . . . [and] [t]he phrase ‘courts of the United States’ is interpreted such that this exemption applies to the entire judicial branch of government[,]” including the AO); Lewis, 867 F. Supp. 2d at 13 n.5 (same) (collecting cases). Consequently, even if the information requested by plaintiff were somehow extant and accessible on PACER, the information would be exempt from release under the FOIA. IV. CONCLUSION For the foregoing reasons, DOJ’s motion for summary judgment is granted. An order consistent with this memorandum opinion will be issued contemporaneously. ________/s/_________________ BERYL A. HOWELL Date: November 22, 2022 Chief United States District Judge 10	01-04-2023	11-22-2022
https://www.courtlistener.com/api/rest/v3/opinions/8488785/	United States Court of Appeals FOR THE DISTRICT OF COLUMBIA CIRCUIT ____________ No. 22-3066 September Term, 2022 1:21-cr-00035-EGS-7 Filed On: November 22, 2022 United States of America, Appellee v. Ronald Colton McAbee, Appellant ON APPEAL FROM THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF COLUMBIA BEFORE: Katsas, Walker, and Childs, Circuit Judges JUDGMENT This appeal was considered on the record from the United States District Court for the District of Columbia and on the memoranda of law and fact filed by the parties. The court has determined that the issues presented occasion no need for an opinion. See D.C. Cir. Rule 36. It is ORDERED AND ADJUDGED that the district court’s September 3, 2022 order denying appellant’s motion for reconsideration of the pretrial detention order be affirmed. Appellant has not demonstrated that the district court clearly erred in finding that no condition or combination of conditions of release would reasonably assure the safety of any other person and the community. See United States v. Hale-Cusanelli, 3 F.4th 449, 454–55 (D.C. Cir. 2021); United States v. Munchel, 991 F.3d 1273, 1282 (D.C. Cir. 2021). The government proffered evidence demonstrating that appellant planned for potential violence at the Capitol on January 6, 2021, by discussing with an associate the acquisition of various items that were or could be used as weapons, and that he took at least one of these items—a pair of metal-knuckled gloves—with him to the Capitol. The government also proffered video evidence demonstrating that, while outside the Capitol, appellant attempted to drag one police officer who was lying on the ground into a crowd of protesters and physically assaulted a second officer who attempted to intervene. Appellant then returned his attention to the first officer who was still lying on the ground, grabbed that officer by the torso, and the two then slid down United States Court of Appeals FOR THE DISTRICT OF COLUMBIA CIRCUIT ____________ No. 22-3066 September Term, 2022 the stairs toward the crowd of protesters. Although appellant subsequently provided additional video evidence that appears to show that other protesters played a larger role in ultimately dragging the first officer into the crowd, the new video evidence does not establish that appellant played no role in that result. Given this evidence, we discern no clear error in the district court’s conclusion that no condition or combination of conditions of release would reasonably assure the safety of any other person and the community. Pursuant to D.C. Circuit Rule 36, this disposition will not be published. The Clerk is directed to withhold issuance of the mandate herein until seven days after the resolution of any timely petition for rehearing or petition for rehearing en banc. See Fed. R. App. P. 41(b); D.C. Cir. Rule 41. Per Curiam FOR THE COURT: Mark J. Langer, Clerk BY: /s/ Daniel J. Reidy Deputy Clerk Page 2	01-04-2023	11-22-2022
https://www.courtlistener.com/api/rest/v3/opinions/8488784/	USCA11 Case: 21-12593 Date Filed: 11/22/2022 Page: 1 of 12 [DO NOT PUBLISH] In the United States Court of Appeals For the Eleventh Circuit ____________________ No. 21-12593 Non-Argument Calendar ____________________ UNITED STATES OF AMERICA, Plaintiff-Appellee, versus KLAYVON DEON JOHNSON, a.k.a. Klayvon Johnson, Defendant-Appellant. ____________________ Appeal from the United States District Court for the Southern District of Florida USCA11 Case: 21-12593 Date Filed: 11/22/2022 Page: 2 of 12 2 Opinion of the Court 21-12593 D.C. Docket No. 1:20-cr-20145-FAM-1 ____________________ Before JORDAN, LAGOA, and BRASHER, Circuit Judges. PER CURIAM: Klayvon Johnson appeals the 48-month sentence imposed by the district court after he pled guilty to being a felon in posses- sion of a firearm and ammunition. Mr. Johnson argues that the district court’s 18-month upward variance above the top end of the applicable Sentencing Guidelines range of 24 to 30 months was sub- stantively unreasonable. After review of the parties’ briefs and the record, we affirm. I A On March 10, 2020, Mr. Johnson was indicted on one count of possession of a firearm and ammunition by a convicted felon, in violation of 18 U.S.C. § 922(g)(1). He faced a statutory maximum sentence of 10 years. Mr. Johnson pled guilty on May 12, 2021. As part of his guilty plea, he agreed to the following facts. On January 17, 2020, Miami Gardens Police Department de- tectives stopped Mr. Johnson for operating a vehicle with illegally tinted windows. During a lawful pat-down, a Miami Gardens de- tective found a black Smith & Wesson firearm in Mr. Johnson’s waistband. The firearm, which was previously stolen, contained USCA11 Case: 21-12593 Date Filed: 11/22/2022 Page: 3 of 12 21-12593 Opinion of the Court 3 12 live rounds of .9 millimeter caliber ammunition in the magazine and one in the chamber. A lawful search of Mr. Johnson’s vehicle yielded a plastic bag with four grams of marijuana, a plastic bag containing nine grams of Percocet pills, 21 unidentified prescription pills in a labeled pill bottle, 47 prescription Ibuprofen pills in a labeled pill bottle, four prescription Metronidazole pills in a labeled pill bottle, and $742 in cash. None of the labeled prescription pills were issued to Mr. Johnson. Mr. Johnson previously had been convicted of a felony of- fense. Specifically, Mr. Johnson was convicted for carrying a con- cealed firearm in state court and for possession of a firearm by a convicted felon in federal court. When Mr. Johnson possessed a firearm and ammunition on January 17, 2020, he was on supervised release in the federal case, and he knew that he was a convicted felon. B A probation officer prepared a presentence investigation re- port (“PSR”). The PSR recommended a guideline imprisonment range of 37 to 46 months based on a total offense level of 17 and a criminal-history category of IV. In calculating the offense level, the PSR set the base offense level at 14. The PSR then added two levels because the firearm was stolen, and four levels because Mr. John- son was in possession of Percocet with intent to sell or deliver. USCA11 Case: 21-12593 Date Filed: 11/22/2022 Page: 4 of 12 4 Opinion of the Court 21-12593 Finally, the PSR applied a three-level reduction for acceptance of responsibility. The PSR also described Mr. Johnson’s criminal history, which involved several gun-related offenses. According to the PSR, Mr. Johnson’s criminal-history category of IV was based on eight criminal history points resulting from two convictions. Mr. Johnson’s first conviction, in state court, was for carry- ing a concealed firearm and resisting an officer without violence when he was 17 years old. As a result of this conviction, he was sentenced to six months’ supervised release and had to pay a fine and court costs. A couple of months after his sentence, however, Mr. Johnson’s supervised release was revoked because he failed to comply with the conditions of his supervised release by leaving Mi- ami-Dade County without permission and getting arrested for dealing in stolen property and carrying a concealed firearm. Mr. Johnson’s state conviction earned him three criminal history points. Mr. Johnson’s second conviction, in federal court, was for possession of a firearm and ammunition by a convicted felon when he was 25 years old. Mr. Johnson was sentenced to 32 months’ imprisonment, three years of supervised release, and a special as- sessment. This federal conviction also earned him three criminal history points. USCA11 Case: 21-12593 Date Filed: 11/22/2022 Page: 5 of 12 21-12593 Opinion of the Court 5 The PSR further explained that Mr. Johnson earned two ad- ditional points because he committed the instant offense while he was on supervised release for his last conviction. Finally, the PSR noted Mr. Johnson’s other possible criminal conduct, which included arrests since he was 17 years old. Specifi- cally, those prior arrests included (1) possession of cannabis on April 21, 2008; (2) first degree murder and attempted felony murder on December 28, 2008; (3) discharging of a firearm in public, felon in possession of a firearm, and throwing a deadly missile on March 18, 2013; (4) dealing in stolen property and carrying a concealed firearm on March 18, 2013; (5) solicitation of prostitution services on March 26, 2015; and (6) felon in possession of a firearm, aggra- vated assault with a firearm, and discharge of a firearm in public on July 5, 2016. Mr. Johnson objected to the PSR’s four-level enhancement related to the possession of controlled substances at the time of the offense. According to Mr. Johnson, he was merely the driver of the vehicle, not its owner, and none of the pills—the Percocet pills found in the center console, the Ibuprofen prescription bottle, or the Metronidazole bottle—belonged to him. Therefore, Mr. John- son asked the district court to reject the portion of the PSR calling for a four-level enhancement and argued that his sentencing guide- line range should be 24 to 30 months of imprisonment. The gov- ernment did not file any objections to the PSR or respond to Mr. Johnson’s objection. USCA11 Case: 21-12593 Date Filed: 11/22/2022 Page: 6 of 12 6 Opinion of the Court 21-12593 C At the sentencing hearing, the government explained that it was not seeking the four-level enhancement to Mr. Johnson’s base offense level based on the possession of the controlled substances at the time of the offense. Given this concession by the govern- ment, the district court asked the probation officer to “delete the four-level enhancement” in paragraph 13 of the PSR and noted that Mr. Johnson’s new offense level was 13. See D.E. 41 at 5. The district court noted that the criminal history category remained the same, but the sentencing guideline range decreased from 37 to 46 months to 24 to 30 months. Mr. Johnson argued to the district court that he should re- ceive the “bottom of the guidelines” because that was the stipula- tion in his plea agreement, and because he would be given a con- secutive sentence in his pending violation of supervised release. See id. at 7. In addition, Mr. Johnson argued for the low end of the advisory guidelines because he grew up in Miami-Gardens and that was in the “best interest” of his wife, child, and mother. See id. at 17. Mr. Johnson explained that while he was out of prison, he was employed as a machine repairman, worked on getting his GED, and was doing community service hours. Mr. Johnson also person- ally addressed the district court and apologized to the court and to his family. He said he just wanted “to move” and have a “new start.” Id. at 22. Mr. Johnson admitted that he “carried the fire- arm,” acknowledged that it was “wrong,” and understood that USCA11 Case: 21-12593 Date Filed: 11/22/2022 Page: 7 of 12 21-12593 Opinion of the Court 7 there is “a punishment for it.” Id. The government did not make any argument at sentencing. After hearing and considering the arguments presented, and applying the factors set out in 18 U.S.C. § 3553(a), the district court sentenced Mr. Johnson to 48 months of imprisonment, three years of supervised release, and a $100 special assessment. The district court explained that a “higher sentence” was necessary to “protect the public.” Id. The district court specifically observed that it was “bothered” that Mr. Johnson had a firearms offense for which he was placed on supervised release by a state court judge, and that he also had another firearms offense in federal court for which he re- ceived “32 months’ imprisonment.” Id. The district court con- cluded by stating that four years “may prevent [Mr. Johnson] from [having guns] during that time.” Id. at 23. In arriving at Mr. Johnson’s sentence, the district court de- clined to consider Mr. Johnson’s arrests for possession of mariju- ana, first degree murder and attempted felony murder, and solici- tation of prostitution. See id. at 9, 18, 14. The district court ex- plained that the “problem” it had in giving Mr. Johnson the bottom of the advisory guidelines was “[a]ll these guns [sic] things,” refer- ring to Mr. Johnson’s prior gun-related offenses. See id. at 15. In- deed, the district court said it was a “repeated crime.” Id. at 19. At the end of the hearing, the district court entered the judgment in the case and completed a statement of reasons form marking the applicable § 3553(a) factors and noting the reasons for the upward variance. USCA11 Case: 21-12593 Date Filed: 11/22/2022 Page: 8 of 12 8 Opinion of the Court 21-12593 II Mr. Johnson argues that the upward variance to 48 months was “substantively unreasonable” because the district court “fo- cused exclusively” on his criminal history, which had already been taken into consideration by the Sentencing Guidelines. See Appel- lant’s Br. at 12. In response, the government contends that “there is nothing wrong” with varying upward based on Mr. Johnson’s criminal history even if the Sentencing Guidelines already address that factor. See Appellee’s Br. at 15. III A We review the substantive reasonableness of a sentence for abuse of discretion. See Gall v. United States, 552 U.S. 38, 51, (2007). In conducting that review, we examine the “totality of the circumstances, including the extent of any variance from the [g]uidelines range,” but we cannot presume that a sentence outside of that range is unreasonable. See id. We must give “due defer- ence” to the district court’s “decision that the § 3553(a) factors, on a whole, justify the extent of the [variance]. The fact that [we] might have reasonably concluded that a different sentence was ap- propriate is insufficient to justify reversal[.]” Id. The party chal- lenging the sentence bears the burden of establishing that it is un- reasonable. See United States v. Shabazz, 887 F.3d 1204, 1224 (11th Cir. 2018). When reviewing a sentence for substantive reasonableness, we examine the totality of the circumstances, including “whether USCA11 Case: 21-12593 Date Filed: 11/22/2022 Page: 9 of 12 21-12593 Opinion of the Court 9 the statutory factors in § 3553(a) support the sentence in question.” United States v. Gonzalez, 550 F.3d 1319, 1324 (11th Cir. 2008). We have also explained that “[a] sentencing court is not required to in- cant the specific language used in the guidelines or articulate its consideration of each individual § 3553(a) factor, so long as the rec- ord reflects the court’s consideration of many of those factors.” United States v. Riley, 995 F.3d 1272, 1279 (11th Cir. 2021) (internal quotation marks omitted) (quoting United States v. Ghertler, 605 F.3d 1256, 1262 (11th Cir. 2010)). Mr. Johnson’s sentence is not substantively unreasonable. The record demonstrates that the district court considered the ev- idence and arguments presented and properly weighed the § 3553(a) factors. The district court considered Mr. Johnson’s family support, his employment history, his pursuit of a GED, and his vol- untary community service hours. The district court gave Mr. John- son an opportunity to personally address the court to express his regret and his desire to relocate to a different city and start fresh. The district court also acknowledged the presence of Mr. Johnson’s family in the courtroom. The district court specifically declined to consider Mr. John- son’s arrests for possession of marijuana, first degree murder and attempted felony murder, and solicitation of prostitution. The dis- trict court, however, explained that it was “bothered” by Mr. John- son’s history of unlawfully possessing firearms and the lack of de- terrence from a prior 32-months’ imprisonment sentence for a fire- arms-related offense, which according to the district court, was USCA11 Case: 21-12593 Date Filed: 11/22/2022 Page: 10 of 12 10 Opinion of the Court 21-12593 “actually higher than the guidelines [it] [had] found[.]” D.E. 41 at 22. Indeed, Mr. Johnson had committed the current firearms of- fense while on supervised release for a similar firearms offense. The district court, therefore, explained that “a higher sentence [was] necessary to protect the public.” Id. Moreover, in its statement of reasons, the district court noted various reasons for its 18-month variance from the top end of the advisory guidelines. First, the 18-month variance was im- posed “[t]o reflect the seriousness of the offense, to promote re- spect for the law, and to provide punishment for the offense (18 U.S.C. § 3553(a)(2)(A)).” See PSR 2d Attachment (Statement of Reasons) at 3. Second, the variance was imposed “[t]o afford ade- quate deterrence to criminal conduct (18 U.S.C. § 3553(a)(2)B)).” Id. Third, the variance was imposed “[t]o protect the public from further crimes of [Mr. Johnson] (18 U.S.C. § 3553(a)(2)(C)).” Id. Finally, the district court stated that the “basis for [the] variance” was due to “recent repeated similar prison offense [and] being on supervised release on the identical crime.” Id. We conclude that the 48-month sentence imposed by the district court was reasonable in light of all the circumstances pre- sented, considering that 48 months (4 years) was well below the 10- year statutory maximum that Mr. Johnson faced, “which is a con- sideration favoring its reasonableness.” United States v. Rosales- Bruno, 789 F.3d 1249, 1257 (11th Cir. 2015). As such, we hold that the district court did not abuse its discretion in sentencing Mr. Johnson. See Riley, 995 F.3d at 1279 (affirming a sentence of 70 USCA11 Case: 21-12593 Date Filed: 11/22/2022 Page: 11 of 12 21-12593 Opinion of the Court 11 months, which was 52 months above the top end of the advisory guideline range of 12 to 18 months, as substantively reasonable in a case where the defendant was convicted of being a felon in pos- session of a firearm in violation of 18 U.S.C. § 922(g)(1)). B Mr. Johnson takes issue with the district court’s emphasis on his criminal history and argues that the district court improperly “focused only” on that history, “a factor already taken into consid- eration by the sentencing guidelines.” Appellant’s Br. at 15. We are unpersuaded by Mr. Johnson’s argument. It is well established in this Circuit that “[t]he weight to be accorded any given § 3553(a) factor is a matter committed to the sound discretion of the district court, and we will not substitute our judgment in weighing the relevant factors.” United States v. Amedeo, 487 F.3d 823, 832 (11th Cir. 2007). “And discretion in weighing sentencing factors is particularly pronounced when it comes to weighing criminal history.” Riley, 995 F.3d at 1279. The fact that the district court afforded more weight to some aggravat- ing factors, including Mr. Johnson’s criminal history, does not mean that it abused its discretion. See Rosales-Bruno, 789 F.3d at 1254 (“[T]he sentencing court is permitted to attach ‘great weight’ to one factor over others.”) (quotation marks omitted). In any event, and contrary to Mr. Johnson’s argument, the district court did not focus only on one § 3553(a) factor—his crimi- nal history. Mr. Johnson’s extensive criminal record, which con- tained various gun-related offenses, was pertinent to the district USCA11 Case: 21-12593 Date Filed: 11/22/2022 Page: 12 of 12 12 Opinion of the Court 21-12593 court’s assessment of several § 3553(a) factors. See Riley, 995 F.3d at 1280 (“[W]hen a court chooses to give ‘substantial weight’ to a defendant’s criminal record, that choice is ‘entirely consistent with § 3553(a)’ because five of that section’s factors are related to crimi- nal history.”). See also Rosales-Bruno, 789 F.3d at 1263 (placing substantial weight on a defendant’s criminal record is entirely con- sistent with § 3553(a) because five of the factors it requires a court to consider are related to criminal history). In sum, we reject Mr. Johnson’s argument that the district court committed a clear error of judgment in focusing on his crim- inal history. IV We affirm Mr. Johnson’s sentence. AFFIRMED.	01-04-2023	11-22-2022
https://www.courtlistener.com/api/rest/v3/opinions/8494758/	FINDINGS OF FACT AND CONCLUSIONS OF LAW KATHY A. SURRATT-STATES, Bankruptcy Judge. The matters before the Court are Housing Authority of St. Louis County’s Complaint Objecting to Discharge of Debtor, Answer to Complaint filed by Joelonda White, Plaintiffs Motion for Summary Judgment and Statement of Undisputed Material Facts, Memorandum of Law in Support of Plaintiffs Motion for Summary Judgment and Response Filed by Defendant Joelonda White. The matters were taken as submitted. Upon consideration of the record as a whole, the Court issues the following FINDINGS OF FACT: On January 24, 2007, Debtor Joelonda White (hereinafter “Debtor”) sought rental assistance from Plaintiff Housing Authority of St. Louis County (hereinafter “Plaintiff’). Plaintiff is a municipal corporation of the State of Missouri which administers the Section 81 low-income rental subsidy program of the United States Department of Housing and Urban Development in St. Louis County, Missouri. As required, on March 20, 2008, Debtor executed a Personal Declaration upon which Debtor reported that she worked for U.S. Bank and earned total weekly wages of $375.00. Debtor also showed Plaintiff a current pay-stub. The Personal Declaration also includes an affirmation that the contained information is true, correct and complete, and that any changes in income must be reported in writing within 10 days from the date of occurrence. Debtor received rental assistance based upon the representation Debt- or made as to her total weekly wages on the Personal Declaration. Between March 20, 2008 and March 19, 2009, U.S. Bank’s payroll records indicated 886that Debtor earned gross wages of $41,231.21. As a result, Debtor received $2,188.00 more in rental assistance in 2008 than Debtor would have received had her actual income been reported. Debtor states that the increased wages were issued to her through monthly bonuses which were neither guaranteed nor reliable. On or about August 5, 2009, Debtor agreed to reimburse Plaintiff for the excess rental subsidies she received in the total amount of $2,188.00, to be paid in 12 installments. The first installment was to be paid by October 1, 2009 in the amount of $186.00 and the remaining installments were to be paid on the first of each month thereafter in the amount of $182.00. Debtor made the October 1, 2009 payment and the November 1, 2009 payment. The outstanding balance is $2,113.00. Debtor filed her petition for relief under Chapter 7 of the Bankruptcy Code on October 10, 2010. Plaintiff now requests that the debt for the excess rental assistance be excepted from discharge pursuant to Section 523(a)(2)(B). Debtor states that she believes that she was as honest as possible when she completed the Personal Declaration. Debtor further states that she included Plaintiff as a creditor in her bankruptcy case because she cannot afford to repay this debt. JURISDICTION This Court has jurisdiction of this matter pursuant to 28 U.S.C. §§ 151, 157 and 1334 (2010) and Local Rule 81-9.01(B) of the United States District Court for the Eastern District of Missouri. This is a core proceeding under 28 U.S.C. § 157(b)(2)(I) (2010). Venue is proper in this District under 28 U.S.C. § 1409(a) (2010). CONCLUSIONS OF LAW Under Rule 56(c) of the Federal Rules of Civil Procedure, as made applicable under Rule 7056 of the Federal Rules of Bankruptcy Procedure, summary judgment is proper “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 a judgment as a matter of law.” Celotex Corp. v. Catrett, 477 U.S. 317, 322, 106 S.Ct. 2548, 2550, 91 L.Ed.2d 265 (1986). The moving party has the burden of showing that there is no genuine issue of material fact, and that it is entitled to judgment as a matter of law. Id. at 323, 106 S.Ct. 2548. Once the movant carries its burden, the burden shifts to the non-movant. Id. In ruling on a motion for summary judgment, a court must view all facts in a light most favorable to the non-moving party, and that party must receive the benefit of all reasonable inferences drawn from the facts. Robinson v. Monaghan, 864 F.2d 622, 624 (8th Cir. 1989) (citing Trnka v. Elanco Prods. Co., 709 F.2d 1223, 1224-25 (8th Cir.1983)). Under Section 523(a)(2)(B), any debt obtained for “money, property, services, or an extension, renewal, or refinancing of credit, to the extent obtained by use of a statement in writing (i) that is materially false; (ii) respecting the debtor’s or an insider’s financial condition; (iii) on which the creditor to whom the debtor is liable for such money, property, services, or credit reasonably relied; and (iv) that the debtor caused to be made or published with intent to deceive” will be excepted from discharge. 11 U.S.C. § 523(a)(2)(B) (2010); In re Binns, 328 B.R. 126, 129 (8th Cir. BAP 2005). 887For purposes of Section 523(a)(2)(B), a statement is materially false if it “paints a substantially untruthful picture of a debtor’s financial condition by misrepresenting information of the type which would normally affect the decision to grant credit.” In re Bohr, 271 B.R. 162 (Bankr.W.D.Mo.2001); In re Capelli, 261 B.R. 81, 90 (Bankr.D.Conn.2001). The plaintiff must demonstrate both that it actually relied upon the false financial statement and that its reliance was reasonable under the circumstances. Teachers Credit Union v. Johnson, 131 B.R. 848, 854 (Bankr.W.D.Mo.1991). Partial reliance is all that is necessary; the financial statement need only be a contributing cause to the decision to extend credit. Johnson, 131 B.R. at 854. The reasonableness of the creditor’s reliance on the financial statement is based on an assessment of the totality of the circumstances. First Nat. Bank of Olathe, Kan. v. Pontow, 111 F.3d 604, 610 (8th Cir.1997); In re Ghere, 393 B.R. 209, 216 (Bankr.W.D.Mo.2008); In re Bohr, 271 B.R. at 168. The court may consider if there were any “red flags” that would have alerted the creditor to the possibility that the financial statement was not accurate and whether minimal investigation would have revealed the inaccuracy. In re Pontow, 111 F.3d at 610 (citing In re Coston, 991 F.2d 257, 261 (5th Cir.1993) (en banc)). The debtor may have produced a statement with intent to deceive without having a malignant heart; actual malice is not required. In re Webb, 256 B.R. 292, 297 (Bankr.E.D.Ark.2000); In re Ghere, 393 B.R. at 215; In re Bohr, 271 B.R. at 169. A creditor may establish intent to deceive by proving that debtor knew the statement was false or that debtor acted with reckless indifference to or reckless disregard of the accuracy of the information in a debtor’s financial statement. In re McCleary, 284 B.R. 876, 888 (Bankr.N.D.Iowa 2002); In re Ghere, 393 B.R. at 215; In re Bohr, 271 B.R. at 169. Because direct evidence of such intent is often absent, it may be inferred from the circumstances. In re Ghere, 393 B.R. at 215. The debtor cannot overcome an inference of intent to deceive merely with unsupported assertions of honest intent. In re Ghere, 393 B.R. at 215; In re Bohr, 271 B.R. at 169. “It is well established that writings with pertinent omissions can readily constitute a statement that is materially false for purposes of Section 523(a)(2)(B).” In re McCleary, 284 B.R. at 876 (citing In re Dammen, 167 B.R. 545, 551 (Bankr.D.N.D.1994)). The Personal Declaration form required Debtor to report her total weekly wages. Debtor’s Personal Declaration to Plaintiff made on March 20, 2008 reported that Debtor’s total weekly wages were $375.00. There are 52 weeks in a year, and thus at $375.00 per week can be computed as $19,500 per year. Debtor’s actual income in 2008 was approximately $40,000.00. Debtor alleges that she could only report $375.00 per week because that income was certain whereas the additional income constituted monthly bonuses which she did know she would receive. The Personal Declaration form required Debtor to report her total weekly wages. The purpose of rental assistance was to provide housing assistance to those in financial need. Debtor however, had double the income she reported. The Personal Declaration was materially false. Plaintiff determined the amount of rental assistance to provide to Debtor based on the reported income on Debtor’s Personal Declaration. The pay-stubs shown by Debtor at the time of her application were presumably consistent with Debtor’s reported income at that time. The Personal Declaration however required Debtor to *888report any changes to her income within 10 days. Debtor could have reported her consistently higher income but instead chose not to. There were no reasonable means for Plaintiff to discover Debtor’s increased pay unless Debtor informed Plaintiff of the increase as Debtor was required to do. Plaintiffs reliance on Debtor’s statement regarding her financial condition in determining the amount of rental assistance to grant Debtor was reasonable. The only matter remaining is whether Debtor intended to deceive Plaintiff. Debtor believes that she truthfully reported her income on the Personal Declaration, however, the deceit is Debtor’s failure to report her increased wages. While true, the additional income was paid as monthly bonuses to Debtor, nonetheless, Debtor was required to report her total income such that Plaintiff would be aware of the funds available to Debtor in order for Plaintiff to determine whether Plaintiff qualified for rental assistance. Debtor failed to report her additional income with the intent to deceive Plaintiff. By separate Order, judgment will be entered in favor of Plaintiff. ORDER Upon consideration of the record as a whole, and consistent with the Findings of Fact and Conclusions of Law entered separately in this matter, IT IS ORDERED THAT Plaintiffs Motion for Summary Judgment and Statement of Undisputed Material Facts is GRANTED; and judgment on the Complaint is entered in favor of Plaintiff Housing Authority of St. Louis County and against Debtor/Defendant Joelonda White in that the debt for excess rental assistance in the amount of $2,113.00 is excepted from discharge pursuant to Section 523(a)(2)(B); and this is the final judgment and Order of the Bankruptcy Court in this case. . See 42 U.S.C. § 1437f (2010).	01-04-2023	11-22-2022
https://www.courtlistener.com/api/rest/v3/opinions/8494759/	MEMORANDUM OPINION CHARLES E. RENDLEN, Bankruptcy Judge. On March 23, 2011, the Plaintiff (the “Trust”) filed a three-count First Amended Complaint (the “Complaint”) [Docket # 5], objecting to the granting of a discharge under § 727(a) of title 11 of the United States Code (the “Bankruptcy Code”1) and seeking related equitable relief.2 On June 2, 2011, the Debtor-Defendant (the “Debt- or”) filed an Answer [Docket #24]. On November 16, 2011, the matter went to trial and was taken under submission after post-trial briefing. The Court now issues this Memorandum Opinion in support of its contemporaneously entered Order of Judgment overruling the objection and granting judgment for the Debtor on all Counts. I. FACTUAL BACKGROUND For approximately forty years, the Debtor owned auto dealerships in St. Louis. For much of that time, he operated through “Don Darr Chevrolet, Inc. d/b/a Don Darr Pontiac” (“DDC”), of which he was the sole shareholder. On December 15, 1998, the Debtor, in his individual capacity, entered into a lease (the “Lease”) with David F. Mungenast and Barbara Mungenast, predecessors to the Trust, whereby the Debtor agreed to lease real property from the Mungenasts. DDC then operated at that leased property. Over the years, the parties allowed the Lease to continue, with adjustments to the amounts owed thereunder. As of October 2007, the base monthly rent was $41,000.00. On April 6, 2007, DDC and Bommarito Pontiac South, Inc. (“Bommarito”) entered into an asset purchase agreement (the “APA”), whereby DDC agreed to sell its assets to Bommarito (effecting the “Sale”). At the June 15, 2007 closing on the Sale, DDC received two checks from Bommarito Pontiac-Mazda South, Inc., totaling $1,214,326.09 (the “Sale Proceeds”). The Debtor executed the APA on behalf of DDC, as President and Sole Shareholder. Attached to the APA as Exhibit ll(j) was a non-compete agreement (the “NCA”) signed by Bommarito, DDC, and 893the Debtor individually. Pursuant to the NCA, the Debtor agreed not to compete with Bommarito, and Bommarito agreed to pay a consulting fee (the “Consulting Income”). The redacted copy of the NCA entered into evidence reads: “Bommarito shall pay to Don Darr, or any corporation Don Darr directs, in writing, a consultant fee_of a month for a period of Twelve (12) months, with the first payment to be due one month after the Closing Date, for a total of Two Hundred Forty _ over term.” The evidence showed that $240,000.00 in Consulting Income was paid in monthly payments of $10,000.00 a month for 24 months, beginning the month after the closing on the Sale. Also attached to the APA as Exhibit 4 was a phantom stock option, pursuant to which the Debtor in his personal capacity had 30 days after the Sale closing to exercise an option to purchase a non-voting 10% interest in Bommarito. In exchange for this option, the Debtor agreed not to compete with Bommarito. Within 30 days of the Sale closing, the Debtor caused to be transferred $400,094.55 of the Sale Proceeds from DDC to Bommarito, purportedly in exchange for the phantom stock. The phantom stock, however, was never issued. Instead, Bommarito carried its obligation as a note. Bommarito reported the income paid on this obligation (the “Interest Income”) each year beginning in tax year 2009 on an I.R.S. Form 1099-INT (“1099-INT”) issued to the Debtor in his individual capacity. As such, putting substance over form, the transfer of the $400,094.55 did not effect a stock purchase; it effected a loan to Bommarito for which the Debtor received interest payments. Moreover, because the Debtor treated $400,094.55 of the Sale Proceeds as his personal assets, and because both parties treated the Interest Income as being a debt owed to the Debtor in his individual capacity and not to DDC, the loan arising from the $400,094.55 transfer was a loan made by the Debtor to Bommarito. In addition to directing DDC to transfer $400,094.55 of the Sale Proceeds to Bom-marito, the Debtor also caused DDC to use Sale Proceeds to pay creditors, such as contractors, subcontractors, and government entities. Through October 2007, the Debtor performed his obligations under the Lease. Thereafter, he defaulted. On February 22, 2008, the Trust filed a petition against the Debtor in state court for rent and possession (the “State Case”). On October 15, 2009 (the “Petition Date”), before a judgment was entered in the State Case, the Debtor filed his petition for bankruptcy relief. The Debtor has a high school education and is 72 years old. As will be set forth in further detail herein, the Debtor fundamentally misunderstood the nature of the post-Sale income he received from Bom-marito, as well as some of his disclosure obligations under bankruptcy law. This confusion resulted in the Debtor making numerous representations that were incorrect or inconsistent. II. COUNT I: OBJECTION TO DISCHARGE A. Overview of Law on Objecting to Discharge The Court grants a discharge once an individual debtor has satisfied his statutory obligations, unless circumstances warrant denial of a discharge. 11 U.S.C. § 727(a). Section 727(a) sets forth the circumstances that require denial of a discharge, most of which reflect the public policy of granting a discharge only to an honest debtor with clean hands. Because denial of a discharge is a drastic remedy, Sullivan v. Bieniek (In re Bieniek), 417 894B.R. 138, 136 (Bankr.D.Minn.2009) (internal citations omitted), § 727(a) “must be construed liberally in favor of the debtor and strictly against the objecting party with the burden of proof resting squarely upon the latter,” id. at 136-37 (citing In re Kaler v. Huynh (In re Huynh), 392 B.R. 802, 809-10 (Bankr.D.N.D.2008)). Pursuant to Federal Rule of Bankruptcy Procedure 7001(4), the filing of a § 727(a) objection commences an adversary proceeding. At the trial on the objection, the objecting party must establish its objection by a preponderance of the evidence. Floret LLC. v. Sendecky (In re Sendecky), 283 B.R. 760, 763 (8th Cir. BAP 2002). B. Analysis of § 727(a) Objection In the Complaint, the Trust alleges that denial of a discharge is proper under paragraphs (2), (3), (4)(A), (5), and (7) of § 727(a). The Court will address the objection as it relates to each § 727(a) paragraph, in turn below. 1. Objection as brought pursuant to § 727(a)(2). Section 727(a)(2)(A-B) provides that the court shall grant the debtor a discharge, unless “the debtor, with intent to hinder, delay, or defraud a creditor ... has transferred, removed, destroyed, mutilated, or concealed ... (A) property of the debtor, within one year before the date of the filing of the petition; or (B) property of the estate, after the date of the filing of the petition.” The elements “transferred, removed, destroyed, mutilated, or concealed” are disjunctive. a. “Concealment” ground under § 727(a)(2). Concealment by the failure to schedule the post-Sale income fi'om Bommari-to. The Trust argues that denial of a discharge under § 727(a)(2)(B) is proper because the Debtor concealed property by failing to list his post-Sale income on Schedule I of his Schedules of Assets and Liabilities (collectively, the “Schedules”; individually, each a “Schedule”). As a preliminary matter, it is undisputed that the Debtor received post-Sale income from Bommarito; it is the nature of that income that is in dispute. The testimony regarding the nature of the income was muddled, primarily because of the Debtor’s failure to understand his income. The documentary evidence provides clearer guidance. The Debtor’s post-Sale, pre-Petition Date income from Bommarito took two forms. First, the Debtor received the $240,000.00 of Consulting Income. Specifically, he received $10,000.00 a month for 2 years (through July 2009). The Debtor disclosed this income at Line 1 of his Statement of Financial Affairs (the “SoFA”), where historical income for the past two calendar years is listed. At Line 1, he indicated that he received $120,000.00 in 2008, which would equal $10,000.00 a month for 12 months, and $60,000.00 in 2009, which would equal $10,000.00 a month for the 6 months running from January through July. (Presumably, the first $60,000.00 of the $240,000.00 was paid in the second half of the calendar year 2007— not a year required to be listed at Line 1.) It appears that the Consulting Income was paid to DDC and not the Debtor in his individual capacity (as was allowed under the APA, at the Debtor’s direction). Although no I.R.S. Forms 1099-MISC (each, a “1099-MISC”) were entered into evidence showing to whom the Consulting Income was paid in 2007, 2008, and 2009,3 895other evidence supports the conclusion that it was paid to DDC: namely, the Debtor’s federal income tax returns for 2007, 2008 and 2009 (each on an I.R.S. Form 1040 (“1040)”) do not include amounts for Consulting Income, while DDC’s federal income tax returns for 2008 and 2009 show that DDC earned a “consulting fee” from Bommarito of $140,-000.004 in 2008 and $60,000.00 in 2009. Regardless, however, the Court will treat the Consulting Income as income of the Debtor personally, given the Debtor’s admission at Line 1 of his SoFA, where he represented the Consulting Income to be his personal income. Second, the Debtor received Interest Income, beginning in 2009 (the only year in which the Debtor received both types of income: Interest Income, which was actually paid to him, and Consulting Income, which was actually paid to DDC but was imputed to him).5 According the 1099-INT issued by Bommarito to the Debtor for 2009, the Debtor received interest-type income of $93,129.66. This income also is reflected on the Debtor’s 1040 for 2009. At Line 8a of that 1040, the Debtor indicates that he received $93,152.00 in taxable interest, and his supporting Schedule B to the 1040 indicates that $93,130.00 of the $93,152.00 was attributable to “Bommarito Pontiac South.”6 With these understandings of the nature of Debtor’s post-Sale, prepetition Bommar-ito income, the Court now turns to the issue of whether the Debtor concealed property through his representations regarding this income. There was no concealment of the Consulting Income on Schedule I. Schedule I (captioned “Current Income of Individual Debtor(s)”) requires an “estimate of average or projected monthly income at time case [is] filed” for each listed income category. Schedule I is not the form on which historical income is listed. As previously noted, historical income is listed on the SoFA. Because the Debtor stopped receiving the Consulting Income several months before the Petition Date, the Consulting Income was not part of his monthly income as of the Petition Date. Therefore, the Consulting Income was not concealed by its proper omission from the representation at Line 9 of Schedule I. There also was no concealment of the Interest Income on Schedule I. Income from “Interests and dividends” is listed on 896Line 9 of Schedule I. However, unlike Line 1, which requires the debtor to list his “Monthly gross wages, salaries, and commissions” and to “prorate if not paid monthly,” Line 9 does not require prorating. Thus, if interest income is not part of a debtor’s actual monthly income — even if a debtor anticipates receiving interest income in the future- — -he is not required to estimate, prorate, and list such anticipated interest income at Line 9. While a debtor may choose to disclose his anticipated interest income by prorating and listing it at Line 9, he also may choose to disclose the anticipated income elsewhere on Schedule I — most notably, at Line 17, where additional anticipated income is listed. Thomson v. Glenn (In re Glenn), 335 B.R. 703, 708 (Bankr.W.D.Mo.2005) (holding that “it was incumbent upon [the debtor] to disclose [his significant bonus income] in some fashion — by prorating it as part of his current gross monthly income or by indicating at the bottom of Schedule I that he expected significant additional income in the following year”). Here, the Debtor chose to disclose at Line 17 that he anticipated additional income (although in his confusion about his income source, he attributed the anticipated income to the fact that he “may be called upon from titme [sic ] to time to do consulting work”). In the alternative, even if the Debtor was required to prorate his Interest Income at Line 9, and he “concealed” property by failing to do so,7 § 727(a)(2)(B) still is not satisfied because the Debtor did not act with the intent “to hinder, delay or defraud.” The Debtor omitted the Interest Income because he did not recognize it to be interest-type income. The sworn pretrial and trial testimony make it clear that the Debtor did not grasp that his post-Sale income from Bommarito took two forms. Perhaps the confusion arose from the Debtor’s lack of sophistication about contract law; perhaps it was born from the fact that the Consulting Income and the Interest Income served the same purpose (to keep the Debtor from competing with Bommarito).8 But whatever the reason, the Debtor insisted that the income he received in 2009 and 2010 was for consulting — even when confronted with the 1099— INTs for those years. Conflating the two forms of income, he testified repeatedly that the income from the phantom stock was income for consulting services. For example, when presented with evidence that the income types were distinguishable, the Debtor — unable to appreciate the evidence and its implications — responded: “In my mind, they are not.” (Trial Audio at 11:53:48.) Later, the Debtor insisted: “I call it consulting; they call it the phantom stock. That’s my interpretation.” (Trial Audio at 12:34:15-21.) This confusion continued throughout the trial, at times making examination of the Debtor difficult. Because of his confusion, the Debtor believed that he did not have interest-type income.9 An omission based on this belief establishes only a mistake as to the facts — not to the intent to hinder, delay or defraud. 897This lack of intent to hinder, delay or fraud also is shown when the Debtor admits at Line 17 on Schedule I that he anticipated an increase in income. While more details at Line 17 — such as an estimation of the anticipated income — and a correct identification of the anticipated income as interest-type income would have been helpful, the Debtor’s representation at Line 17 still is an attempt at disclosure. When the Debtor’s representations are viewed through the lens of his confusion about the nature of his income types, there is no evidence of the intent to hinder, delay or defraud. Concealment by the failure to schedule the wine collection as it existed on the Petition Date. The Trust argues that denial of a discharge under § 727(a)(2)(B) is warranted because the Debtor concealed property by failing to list his wine collection on his original Schedule B (the form on which the debtor lists his personal property). The wine collection, as of the Petition Date, was of nominal value, as the valuable wines in the collection had been sold prepetition. When asked to explain the omission, the Debtor testified that because it was of no value, he did not schedule it. A debtor’s belief that property had no value is not license to omit it from Schedule B. However, as noted before, even if the Debtor concealed property by failing to schedule it, that concealment alone does not establish a § 727(a)(2) objection. The intent to hinder, delay or defraud also must be shown. Here, the Debtor mistakenly believed that the lack of value meant that disclosure was not required. He was wrong in this belief and made a good faith error. There was no evidence to support the opposite conclusion: that the Debtor actually knew that the wine collection had to be scheduled, but (out of sheer vindictiveness or for some other similar reason) omitted the valueless collection, in an effort to hinder, delay or defraud creditors. Concealment by the failure to disclose the prepetition sale of the valuable wines sold prepetition from the wine collection. Line 10 of the SoFA requires disclosure of property transferred within two years of the petition date. Approximately a year before the Petition Date, the Debtor sold to a third-party the valuable wines from his collection at the fair market value of $115,000.00. However, he did not list these wines at Line 10. At trial, the Debtor — who is in his seventies — testified that he forgot to schedule the wines he had sold a year before the original SoFA was filed. The Court finds this testimony to be credible to show that the Debtor lacked the intent to hinder, delay or defraud. Concealment by the failure to schedule the “Thursday Club Account.” The Trust argues that denial of a discharge under § 727(a)(2)(B) is warranted because the Debtor concealed property by failing to schedule a checking account known as the “Thursday Club Account,” on which the Debtor was a signatory. Prior to the Petition Date, the account had been used to collect checks from the members of an auto dealers’ weekly lunch club (the Debtor paid for the lunches at his country club and the other members reimbursed him). The Debtor testified that he did not schedule the account because he did not think of it as his property, given its purpose. While the Debtor exercised poor judgment in failing to schedule the Thursday Club Account, there was no intent to hinder, delay or defraud the creditors by this failure. As of the Petition Date, there were no funds in the account, and the Debtor’s explanation, while not an excuse, demonstrates that he was not seeking to hinder, delay or defraud creditors. Concealment by the failure to schedule the Bommarito automobiles used by 898the Debtor. The APA provides to the Debtor the right to use, without charge, two vehicles provided by Bommarito. These vehicles were not given or leased to the Debtor. They belonged to Bommarito. Because the vehicles were not the Debtor’s personal property, the Debtor correctly omitted them from his Schedule B, which requires a listing of personal property. The Debtor should have listed the vehicles on the SoFA at Line 14 (“Property held for another person”), where a debtor is required to “[l]ist all property owned by another person that the debtor owns or controls.” However, even if the Debtor “concealed” property by failing to list the vehicles, the requisite intent to hinder, delay or defraud, again, was not shown. The Debtor failed to list two vehicles that belong to a third-party. He was not hiding property in which he had an ownership interest that could be liquidated for distribution to creditors. While he should have disclosed his holding of the vehicles, there is no evidence that, in failing to do so, he was trying to hinder, delay or defraud his creditors. b. “Transfer” or “remove” ground under § 727(a)(2). From the pleadings (PL’s Trial Brief at 6 & PL’s Post-Trial Brief at 14) and evidence adduced at trial, the Trust appears to rely exclusively on the “concealed” ground to establish its § 727(a)(2) objection. However, to the degree that the Trust may object pursuant to the “transferred” or “removed” grounds,10 the objection still would fail. No transfer to which the Trust points supports a § 727(a)(2) objection. The transfers to the Debtor’s brother and the transfer of $400,094.55 were out-of-time for purposes of § 727(a)(2). The sale of the Rolex watch and the valuable wines, each made within a year of the Petition Date, were for fair market value and do not suggest the requisite intent to hinder, delay or defraud. Even the postpetition transfer of the December 2009 check in the amount of $56,535.84 from Bommarito 11 into the Thursday Club Account does not establish a § 727(a)(2) objection. The Debtor testified that he had been advised not to deposit the check into a scheduled account (presumably because doing so might be an admission that these were estate assets and the chapter 7 trustee would administer on the funds). Following this advice, the Debtor deposited the check into the unscheduled Thursday Club Account, which had not been scheduled. The Debtor’s testimony is credible to show that he thought this transfer into an unscheduled account was proper. Thus, even assuming that the $56,535.84 was an estate asset and improperly transferred to the Thursday Club Account, the Debtor still lacked the requisite intent to hinder, delay, or defraud. It also follows that the later transfers from the Thursday Club Account likewise do not support a § 727(a)(2)(B) objection. After depositing the check into the Thursday Club Account, the Debtor used the account to pay bills. However, even if the (postpetition-received) funds in the account were property of the estate, the Debtor did not know this. There is insufficient evidence to suggest that, by using these monies, the Debtor had the intent to hinder, delay or defraud his creditors by using the monies. 8992. Objection as brought pursuant to § 727(a)(4). Section 727(a)(4) provides that the court shall grant the debtor a discharge, unless “the debtor knowingly and fraudulently, in or in connection with the case ... made a false oath or account.” 12 The Trust argues that the Debtor made a false oath by making false representations under penalty of perjury on his Schedules and SoFA, at the § 341 meeting of creditors, and at trial. False oath related to the representations of the Debtor’s post-Sale Bommarito Income. The Trust principally points to the confusing, contradictory representations made by the Debtor regarding his post-Sale income from Bom-marito to establish the making of a false oath. However, even where the Debtor made representations about this income that were false, the Debtor did not “knowingly and fraudulently” make a false oath. The Debtor tried to accurately represent his income and describe his financial situation; he just often failed to do so. He was not capable of properly describing and attributing the income because he did not understand how it was structured. The result was an incompetent and sometimes-incoherent explanation of his income — but it did not amount to a knowingly and fraudulently made false oath. False oath related to omission of purported phantom stock on Schedules. The Trust argues that the Debtor knowingly and fraudulently made a false oath by failing to include his (purported) phantom stock on his Schedule B. The Debtor testified that he believed that the (purported) stock was worthless. This “worthless” valuation apparently was based on the Debt- or’s mistaken belief that his income was for consulting. The belief that an interest has no value does not except it from being scheduled. Accordingly, because the Debtor believed in good faith (albeit wrongly) that he owned phantom stock, he should have listed the stock that he believed he owned on Schedule B. However, the Debtor also was functioning under the belief that because he assigned no value to the purported stock, he did not have to schedule it. By omitting it from the Schedule B, he was not seeking to make a misrepresentation— he thought he had made a complete representation as required. As such, he did not knowingly and fraudulently make a false oath by failing to schedule his purported phantom stock. The Court notes that, when the Debtor amends his Schedules and SoFA — as he will be ordered to do in the Order of Judgment entered contemporaneously with this Memorandum Opinion — the amendments should be consistent with the findings made by the Court herein. The Debtor now knows that the transfer of the $400,094.55 actually effected a loan, not the purchase of phantom stock, and that he personally made the loan. Accordingly, it would not be proper to schedule the nonexistent phantom stock. Rather, the amendments should disclose a loan and the related annual interest paid. False oath related to other omissions on Schedules and SoFA. When the Debtor made the previously described omissions (such a the omission of the wine collection) in his Schedules and SoFA, these omissions were the result of oversight or a misunderstanding regarding his obligation to disclose. Representing what one believes in good faith to be true cannot 900be the basis of a knowingly and fraudulently made false oath, regardless of how mistaken that belief may turn out to be. False oath related to Curtis Francois. The Trust argued that the Debtor knowingly and fraudulently made a false oath by failing to schedule Curtis Francois as a creditor. At the time the Debtor filed his Schedules, he believed that Mr. Francois did not hold a claim against the estate. The fact that Mr. Francois filed a proof of claim does not show that the Debtor made a false oath. It shows that there was a difference of opinion as to whether Mr. Francois was a creditor. Without any other evidence (such as evidence that the Debtor knew at the time the Schedules were filed that Mr. Francois held a claim), the Debtor did not knowingly and fraudulently make a false oath by omitting Curtis Francois from his list of scheduled creditors. False oath related to 2010 and 2011 Bommarito income. The Trust suggests that the Debtor made a false oath by failing to amend his SoFAs and Schedules to reflect Interest Income paid to him in tax years 2010 and 2011. However, the Debtor was not obligated to disclose this postpetition income on the SoFAs and Schedules. False oath related to the value of DDC stock. The Debtor did not make a false oath when he scheduled his DDC stock as valueless. As of the Petition Date, no Consulting Income or Interest Income was filtered through DDC, and DDC was not operating. There is no evidence that DDC had value. 3. Objection as brought pursuant to § 727(a)(5). Section 727(a)(5) provides that the court shall grant the debtor a discharge, unless “the debtor has failed to explain satisfactorily ... any loss of assets or deficiency of assets to meet the debtor’s liabilities.” Section 727(a)(5) does not require the denial of a discharge simply when there is a loss or deficiency of assets. Denial of a discharge is required only when the Debt- or has failed to explain satisfactorily such loss or deficiency. For § 727(a)(5) purposes, the debtor need not justify the wisdom of the disposition of the assets, Cohen v. Olbur (In re Olbur), 314 B.R. 732, 741 (Bankr.N.D.Ill.2004) (internal citations omitted), or provide a “far-reaching and comprehensive” explanation, id. at 741 (internal citations omitted). However, the explanation “must amount to more than a ‘vague, indefinite, and uncorroborated hodgepodge of financial transactions.’ ” Id. (internal citations omitted). “The explanation given by the debtor must be definite enough to convince the trial judge that assets are not missing.” Allred v. Vilhauer (In re Vilhauer), 458 B.R. 511, 514-15 (8th Cir. BAP 2011) (internal citation omitted). In short, “[w]hat is relevant is ‘the completeness and truth’ of [the debtor’s] explanation. The debtor must explain in good faith ‘what really happened to the assets in question.’ ” Id. (internal citations omitted). Although § 727(a)(5) has no limitations period, “courts have held that the assets in question must at least have belonged to the debtor ‘at a time not remote in time to case commencement.’ ... How long ago is too long ago depends on the case; there is no hard and fast rule.” Cohen v. Olbur (In re Olbur), 314 B.R. at 741 (internal citations omitted). The dissipation of $400,094.55 of the Sale Proceeds. In its briefing (PL’s Trial Brief at 13-14) and at trial, the Trust relied principally upon the dissipation of the $1,214,326.09 in Sale Proceeds to support its § 727(a)(5) objection. As discussed earlier, the Court will treat the 901$400,094.55 of the Sale Proceeds transferred by DDC to Bommarito for the purchase of the purported phantom stock as property of the Debtor. Therefore, its dissipation properly may be the subject of a § 727(a)(5) objection. There is no mystery as to what happened to the $400,094.55. The Debtor caused DDC to transfer this amount to Bommarito, purportedly for the purchase of the phantom stock. To the extent this $400,094.55 is a “loss” or “deficiency” for purposes of § 727(a)(5), it was explained satisfactorily. The Trust cannot genuinely argue that the whereabouts of the $400,094.55 is not explained satisfactorily, as the Trust itself established what happened to the money. The Trust’s real complaint is that the transfer of the $400,094.55 benefited the Debtor and not the Trust, and frames this complaint in the insinuation that the Debt- or violated the APA. The Trust points to Paragraph 3 of the APA, which includes a Lease buy-out provision, and the APA’s Closing Statement Summary, where the parties calculated the Sale Proceeds to include $451,000.00 to be paid to DDC for the Debtor’s rent obligation under the Lease as well as additional amounts for the Debtor’s property tax obligations under the Lease. At trial, the Trust argued that it was entitled to an explanation as to why the $451,000.00-plus included in the Sale Proceeds calculation for the Lease buy-out was not paid to the Trust. Underlying the Trust’s argument is the suggestion that because the APA included a Lease buy-out provision, the Debtor was required to use the portion of the Sale Proceeds allotted for that buy-out to, in fact, buy out the Lease. However, regardless of the APA, the Debtor remained obligated to the Trust only pursuant to the terms of the Lease. The Trust was entitled to nothing other than performance by the Debtor under the Lease. But perhaps more importantly, even if the transfer of the $400,094.55 was improper, as the Trust suggests' — or even if it was imprudent, fraudulent, or flat-out illegal — such impropriety, imprudence, fraudulence, or criminality would be irrelevant to the § 727(a)(5) analysis. The issue is whether the Debtor explained satisfactorily the loss or deficiency of the $400,094.55, not whether that explanation established that the loss or deficiency is a result of a legally sound or financially wise dissipation. Buckeye Retirement Co., LLC. v. Hake (In re Hake), 387 B.R. 490, 511-12 (Bankr.N.D.Ohio 2008). The dissipation of the remainder of the Sale Proceeds. The Trust failed to show that the remainder of the Sale Proceeds was prepetition property of the Debtor. While it is clear that the Debtor treated $400,094.55 of the Sale Proceeds as his personal property by causing DDC to use that portion to benefit the Debtor individually, the evidence is less clear that the remainder of the Sale Proceeds were similarly treated. The Court is not convinced that the remainder of the Sale Proceeds should be deemed to have been the Debt- or’s personal property, and thus the dissipation of the remainder of the Sale Proceeds cannot be the basis of a § 727(a)(5) objection. However, even if all of the Sale Proceeds can be deemed to have been the Debtor’s personal property, the dissipation of the remainder is explained satisfactorily. The Debtor testified that $600,000.00 amount was used to satisfy “state” obligations (presumably, taxes). The Court finds this testimony to be credible and reasonable given the circumstances. That leaves the remaining $214,231.59 of the Sale Proceeds ($1,214,326.09 less the $400,094.55 and the $600,000.00). The record shows that the Debtor had significant financial obligations in the years between 902the Sale and the Petition Date, and was unable to meet those obligations. The Debtor continued to incur and juggle living expenses, litigation fees, and non-consumer debts.13 And through October 8, 2007, the Debtor continued to make payments to the Trust on his monthly $41,000,000 obligation under the Lease. Given this cumulative picture of the Debtor’s financial obligations, the Court would have no difficulty finding that, if the remainder of the Sale Proceeds was used for by the Debtor as his personal funds, they were spent defraying his considerable obligations. See (Baker v. Reed) In re Reed, 310 B.R. 363, 370-71 (Bankr.N.D.Ohio 2004) (reasoning that “[t]he depletion of an asset stemming from the need to meet everyday living expenses is a commonly used, and in appropriate circumstances will constitute a satisfactory!,] explanation ... it is simply not realistic, especially the more time that passes, to expect a debtor to account for every penny spent ... when living expenses are at issue an exact accounting cannot be expected, with a corresponding decrease in accuracy taking place the more time that passes ...” (internal citations omitted)). As such, even if the remainder of the Sale Proceeds was prepetition property of the Debtor, the dissipation of which constituted a “loss” or “deficiency,” such loss or deficiency was explained satisfactorily. The dissipation of the $56,535.84 check. In addition to pointing to the dissipation of the Sale Proceeds as a basis for a § 727(a)(5) objection, the Trust also pointed to the dissipation of the $56,535.84 received from Bommarito postpetition in support of denial of a discharge under § 727(a)(5). Assuming that the $56,535.84 was property of the estate, the Debtor satisfied his burden of explaining satisfactorily the loss of these funds. He testified credibly that he used these funds to pay his postpetition bills and living expenses. Again, the Trust’s real issue was with the propriety of this use. As explained, § 727(a)(5) does not offer relief for the improper use of estate assets — only for their unaccounted use. While a more detailed accounting of the complained-of dissipations would have been even stronger evidence for the Debt- or, his explanations were not insufficiently vague considering the circumstances. The Court is firmly convinced that the monies were spent on either DDC debts or the Debtor’s personal obligations and the assets are not “missing.” The Court also notes that the chapter 7 trustee has not made any suggestion that she, as the administrator of the estate, believes that any assets are missing or was unable to investigate the circumstances surrounding the loss or deficiency. 4. Objection as brought pursuant to § 727(a)(3) and (7). The Trust cites § 727(a)(3) and § 727(a)(7) as two paragraphs providing a basis for its objection to the discharge. However, in its Trial Brief, the Trust did not argue that there is a basis under either of these paragraphs for denial of discharge. Rather, it represented that it seeks relief “primarily” under § 727(a)(2), § 727(a)(4)(A), and § 727(a)(5)' — not mentioning § 727(a)(3) or § 727(a)(7). (Pl.’s Pretrial Brief at 4.) The Trust did not cite to § 727(a)(3) or § 727(a)(7) in its opening statement, did not focus any of its eviden-tiary presentation on those paragraphs in particular, and did not cite to these paragraphs in its Posh-Trial Brief. The Court deems the Trust to have abandoned its position that these paragraphs are bases for denial of a discharge. 903In the alternative, even if the Trust did not abandon its position that these paragraphs are bases for denial of a discharge, the Court would find that the Trust failed to meet its evidentiary burden as these paragraphs. Section 727(a)(3) provides that [t]he court shall grant the debtor a discharge, unless “the debtor has concealed, destroyed, mutilated, falsified, or failed to keep or preserve any recorded information ... from which the debtor’s financial condition or business transactions might be ascertained ...” There was no evidence that the debtor committed such an act regarding recorded information. Section 727(a)(7) provides that the Court shall grant the debtor a discharge unless “the debtor has committed any act specified in paragraph (2), (3), (4), (5), or (6) of this subsection, on or within one year before the date of the filing of the petition, or during the case ... concerning an insider.” 11 U.S.C. § 727(a)(7). An “insider” of an individual debtor includes a “relative of the debtor ... or [a] corporation of which the debtor is ... [a] person in control.” 11 U.S.C. § 101(31)(A). The Trust established that there were two insiders of the Debtor (the Debtor’s brother and DDC). However, the Trust did not establish that the Debtor committed any act specified in the applicable paragraphs concerning such insider. III. COUNTS II AND III (REQUESTS FOR EQUITABLE RELIEF) In addition to the objection to the granting of the discharge as brought in Count I, the Complaint brings two other counts. In Count II, the Trust seeks the imposition of a constructive trust on a July 1, 2010 check written by Bommarito, the Thursday Club account, and “all other property received by [the Debtor and DDC] that was intended to pay [the Debt- or’s] personal obligations under the Lease.” (Pl.’s Trial Brief at 15.) In Count III, the Trust seeks an accounting of the Debtor’s property and funds. Under § 105, the Court has the authority to grant equitable relief in connection with sustaining an objection to the granting of the discharge under § 727(a). However, here, the Court will not sustain the objection. Moreover, no further accounting is needed, as the Court will order that the Debtor amend his bankruptcy filings to correctly account for his property and obligations, and the Trust is not entitled as a matter of equity to the imposition of a constructive trust. Accordingly, contemporaneously with the entry of this Memorandum Opinion, the Court will enter an Order of Judgment denying the relief requests made in Counts II and III and granting judgment in favor of the Defendant be entered on Counts II and III. IV. CONCLUSION For the reasons set forth herein, the Court will enter an Order of Judgment overruling the Trust’s objection and entering judgment on all counts in favor of the Debtor. Such Order also will direct the Debtor to amend his Schedules and SoFA in all ways necessary, within 14 days of entry of the Order of Judgment. Among these amendments must be disclosure of the $400,094.55 loan made to Bommarito (which was created when the parties treated the phantom stock interest as an interest-bearing note), to allow the chapter 7 trustee to determine proper administration. Failure to timely comply and amend will result the issuance of an Order to Appear and Show Cause, directing the Debtor to appear and show cause as to why his main bankruptcy case should not be dismissed for refusal to comply with a Court order. 904A copy of this Memorandum Opinion shall be served upon the Trust’s counsel, the Debtor, the Debtor’s main bankruptcy case counsel, the Debtor’s Adversary Proceeding counsel, the chapter 7 trustee in the main bankruptcy case, the counsel for the chapter 7 trustee in the main bankruptcy case, and the Office of the United States Trustee. . Hereinafter, references to ''§ [§ ]” or “section[s]” shall refer to the indicated section(s) of the Bankruptcy Code. . Neither the chapter 7 trustee nor the U.S. Trustee joins in the Complaint, and the chapter 7 trustee has not suggested to the Court that the Debtor was not forthcoming with the chapter 7 trustee and responsive to her requests. . The NCA provides that the income would be reported on an I.R.S. Form 1099 (presumably, a 1099-MISC). However, no 1099-MISC issued to the Debtor for tax year 2007 or 2008 is in evidence. The only I.R.S. Form 1099 issued to the Debtor that is in evidence *895is a 1099-INT for 2009, on which is reported the Debtor's Interest Income, not his Consulting Income. . Why DDC was paid an additional $20,000.00 in "consulting fee” income, above the $120,000.00, is not clear. But, it also does not matter for the purposes here. It is clear that the Consulting Income was paid to DDC. . There is no evidence that the Debtor received Interest Income prior to 2009. The Court rejects the Trust’s assertion that the Debtor received $30,000.00 in interest-type income in 2008. This assertion is based on the representation of the comptroller of Bom-marito, who stated by affidavit that Bommari-to "paid the amount of $30,000.00 to [the Debtor] during 2008.” However, no 1099-INT issued by Bommarito to the Debtor for a tax year prior to 2009 was introduced (the comptroller asserted that the 1099 issued to the Debtor for tax year 2008 could not be located), and the Debtor's 1040 for the prior tax years do not indicate any taxable interest at Line 8a. .The Debtor continues to earn Interest Income from Bommarito postpetition. The Debtor received a 1099-INT from Bommarito for 2010, showing that he had been paid $87,872.90 in interest-type income. That amount also is reflected at Line 8 a and the supporting Schedule B of the Debtor's 1040 for 2010. It is projected that the Debtor earned a similar amount of Interest Income in 2011. . The Court makes this leap only for the sake of argument. The Court does not hold that "concealment” is shown merely by the omission of required information. . The Debtor's confusion may be understandable, given his level of formal education. While the Debtor may have been a gifted car salesman, that sales savvy does not impute sophistication in contract law. .Even if such belief were unreasonable, such unreasonableness does not impute the requisite intent. Section 727(a)(2) requires actual, not constructive, intent. See, e.g., Najjar v. Kablaoui (In re Kablaoui), 196 B.R. 705, 709 (Bankr.S.D.N.Y.1996)(internal citations omitted). . It is not necessary here to distinguish between “transferred” or "removed.” For brevity, the Court will use "transferred” to refer to "transferred” and "removed.” . The Court assumes that this was an installment of the Interest Income. . It is not necessary here to distinguish between "oath” and "account.” For brevity, the Court will use "oath” to refer to both "oath” and "account.” . The Debtor's main bankruptcy case is a "primarily non-consumer debt” case.	01-04-2023	11-22-2022
https://www.courtlistener.com/api/rest/v3/opinions/8494760/	905 ORDER KATHY A. SURRATT-STATES, Bankruptcy Judge. The matter before the Court is the Trustee’s Objection to Exemptions Claimed in Unliquidated Personal Injury Claim and Debtors’ Response to Trustee’s Objection to Exemptions Claimed in Unliq-uidated Personal Injury Claim. A hearing was held on the matter on April 5, 2012 at which Trustee appeared in person and Debtors appeared by counsel and presented brief oral argument. At that time, this Court indicated that it would sustain Trustee’s Objection to Exemptions Claimed in Unliquidated Personal Injury Claim. The Court makes the following findings and conclusions: Debtors filed their Joint Petition under Chapter 13 of the Bankruptcy Code on August 3, 2011. On February 7, 2012, Debtors filed an Amended Schedule B which for the first time listed a personal injury claim on line 21 (hereinafter “Personal Injury Claim”). That same day, Debtors also filed an Amended Schedule C in which Debtors claimed any recovery from the Personal Injury Claim as exempt pursuant to Missouri Statute Section 513.427 and Missouri common law. On February 27, 2012, Trustee filed Objection to Exemption Claimed in Unliquidated Personal Injury Claim. On March 23, 2012, Debtors filed Debtors’ Response to Trustee’s Objection to Exemption Claimed in Unliquidated Personal Injury Claim. This Court has jurisdiction over the parties and this matter pursuant to 28 U.S.C. §§ 151, 157, and 1334 (2011) and Local Rule 81-9.01 (B) of the United States District Court for the Eastern District of Missouri. This is a core proceeding under 28 U.S.C. § 157(b)(2)(B) (2011). Venue is proper in this District under 28 U.S.C. § 1409(a) (2011). When a debtor files for protection under the Bankruptcy Code, an estate is created. See 11 U.S.C. § 541(a) (2011). A bankruptcy estate includes all legal and equitable interests of the debtor in property. Id. The Bankruptcy Code allows debtors to exempt certain property from the estate. Exemptions are dictated by Section 522(d) of the Bankruptcy Code. Under Section 522(b)(2), a state may opt out of the federal exemptions outlined in Section 522(d) and thereafter, debtors domiciled in that state must avail themselves to the exemptions available pursuant to state law. See In re Benn, 491 F.3d 811, 813 (8th Cir.2007). Missouri has opted out of the federal bankruptcy exemptions, and did so under Section 513.427. Id. at 813-14. The Eighth Circuit has stated that the term exemption is a term of art and “in the context of [11 U.S.C.] § 522, [exemption] refers to laws enacted by the legislative branch which explicitly identify property [that] judgment-debtors can keep away from creditors for reasons of public policy.” In re Benn, 491 F.3d at 814 (citation omitted). Missouri Statute Section 513.427 states: Every person by or against whom an order is sought for relief under Title 11, United States Code, shall be permitted to exempt from property of the estate any property that is exempt from attachment and execution under the law of the state of Missouri or under federal law, other than Title 11, United States Code, Section 522(d), and no such person is authorized to claim as exempt the property that is specified under Title 11, United States Code, Section 522(d). R.S.Mo. § 513.427 (2011). Per Debtors’ Amended Schedule C, Debtors attempt to assert that Missouri Statute Section 513.427 is itself an exemption statute under which Debtors’ personal injury claim may be exempt. The Eighth 906Circuit in In re Benn has already stated that Missouri Statute Section 513.427 is not an exemption statute and rather is purely an opt-out provision. In re Benn, 491 F.3d at 812, 815. Consequently, only property that is explicitly excluded under a Missouri statute or a federal statute other than Title 11 of the United States Code, Section 522(d), may be exempt from the bankruptcy estate. A personal injury claim is part of a bankruptcy estate insofar that it is a legal and equitable interest of a debtor. No Missouri statute or federal statute other than Title 11 of the United States Code, Section 522(d), explicitly exempts personal injury claims. As a result, a personal injury claim may not be exempted from the bankruptcy estate. See In re Mahony, 374 B.R. 717, 720 (Bankr.W.D.Mo.2007); see also Dylewski v. Amco Ins. Co., 2010 WL 1727870 at 3 (E.D.Mo.2010) (where the District Court for the Eastern District of Missouri concluded that although some previous Missouri case law suggested that personal injury claims might be exempt, personal injury claims are not exempt from inclusion in the bankruptcy estate because no Missouri statute explicitly does so as is required by the Eighth Circuit). Therefore, Debtors may not exempt the Personal Injury Claim pursuant to Missouri Statute Section 513.427. Nonetheless, Debtors further argue that Debtors may exempt the Personal Injury Claim pursuant to Missouri common law, and that the holding in In re Benn does not prohibit Missouri common law as a basis for an exemption in a Bankruptcy case. In support thereof, Debtors cite to Butner v. United States in which the Supreme Court stated: 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. 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.” Lewis v. Manufacturers National Bank, 364 U.S. 603, 609, 81 S.Ct. 347, 350, 5 L.Ed.2d 323. The justifications for application of state law are not limited to ownership interests; they apply with equal force to security interests, including the interest of a mortgagee in rents earned by mortgaged property. Butner v. U.S., 440 U.S. 48, 55, 99 S.Ct. 914, 918, 59 L.Ed.2d 136 (1979). Based on Butner, Debtors argue that debtors should have the same protections and interest in property under federal law as debtors would under state law. As such, Debtors argue that since personal injury claims are exempt from attachment pursuant to Missouri common law insofar that Missouri Courts have interpreted Missouri Statute Section 513.427 to be an exemption statute pursuant to which personal injury claims are exempt from attachment, personal injury claims should also be exempt from a bankruptcy estate pursuant to the application of Missouri law in federal Bankruptcy law. This Court rejects Debtors’ position. Debtors correctly state that Missouri Courts have long held that personal injury claims are exempt from attachment. Therefore, because personal injury claims are not exempt under Bankruptcy law, a Bankruptcy trustee has the ability to seek more assets to repay creditors than a creditor outside of bankruptcy. This result only appears to be in contravention of Butner. The Supreme Court in Butner made the qualifying statement that ‘unless 907some federal interest requires a different result, ’ property rights should be the same under both state and federal law. This Court submits that the federal interests in balancing the multiple purposes of the Bankruptcy Code are sufficient justification for why a debtor who seeks the protections, privileges and relief available under the Bankruptcy Code must also avail themselves to the extent required for the trustee to maximize assets to pay creditors; this includes the inability of debtors to exempt unliquidated personal injury claims. Specifically, the Eighth Circuit stated: [W]e do not think it unreasonable to expect that the Missouri legislature might grant powers or remedies to a bankruptcy trustee that are unavailable to a non-bankruptcy creditor. As the Trustee points out, it is ‘a basic quid pro quo of bankruptcy’ that ‘debtors receive extraordinary relief that is unavailable outside of bankruptcy by obtaining a bankruptcy discharge, and bankruptcy trustees have powers that are unavailable to creditors outside of bankruptcy in order to provide the body of creditors as a whole a chance at some recovery.’ That common law remedies available to a non-bankruptcy creditor would not reach certain property interests of the debtor does not inexorably lead to the conclusion that the legislature would elect as a matter of policy to create an exemption that excludes that property from the bankruptcy estate. In re Benn, 491 F.3d at 816 (citation omitted). The Eighth Circuit has concluded that unless a Missouri statute expressly exempts property or an interest in property from attachment, that property or property interest is included in the bankruptcy estate. Missouri common law is not a Missouri statute, and therefore, under the direction of the Eight Circuit as set forth in In re Benn, Missouri common law does not serve as a basis for an exemption from a bankruptcy estate under federal bankruptcy law. Contra Russell v. Healthmont of Missouri, LLC, 348 S.W.3d 784, 787-88 (Mo.App.2011) (“Under Missouri law, an unliquidated, personal-injury claim can, if the proper procedures are followed and conditions satisfied, be exempted from [a] bankruptcy estate pursuant to § 513.427”). Therefore, IT IS ORDERED THAT Trustee’s Objection to Exemptions Claimed in Unliqui-dated Personal Injury Claim is SUSTAINED and the claimed exemptions are not allowed.	01-04-2023	11-22-2022
https://www.courtlistener.com/api/rest/v3/opinions/8494761/	MEMORANDUM AND ORDER SHON HASTINGS, Bankruptcy Judge. I. INTRODUCTION A. Procedural Background By Complaint filed August 19, 2010, Plaintiff Terrance Paul Aslakson, individually and derivatively on behalf of North Country Auto Brokers, LLP, initiated this adversary proceeding seeking a determination that Debtor/Defendant Todd James Freese’s obligation to Aslakson is nondis-chargeable pursuant to 11 U.S.C. § 523(a)(2) and (4). Aslakson also pled a cause of action under 11 U.S.C. § 727. Debtor filed an Answer on September 7, 2010, denying the allegations. The matter was tried on September 27, 2011. Prior to the presentation of evidence at trial, Aslakson abandoned his section 727 claim. At the close of evidence, Aslakson also abandoned his section 523(a)(4) claim to the extent he pled a cause of action alleging that the debt owed to Aslakson was not dischargeable because it resulted from embezzlement or larceny. Consequently, the only causes of action before this Court are Aslakson’s claim under section 523(a)(2)(A), asserting that the debt to 912Aslakson is not dischargeable because it was obtained by false pretenses, false representations or actual fraud; and his claim under section 523(a)(4), alleging that the debt to Aslakson is not dischargeable because it resulted from fraud or defalcation while acting in a fiduciary capacity. B. Motion to Admit Evidence Two weeks after trial, Aslakson filed a Motion to Admit Evidence, arguing his failure to offer Plaintiffs Exhibit 10 at trial was an oversight. Plaintiffs Exhibit 10 includes contracts of sale from North Country Auto Brokers and bills of sale from Tri-State Auto Auction-Fargo. At trial, Debtor identified these documents and Aslakson questioned Debtor about information included in these documents. Debtor did not file a response to Aslak-son’s motion. Because proper foundation for the receipt of these documents was offered at trial and the Court received no objection to the admissibility of this evidence, Aslakson’s motion is GRANTED. Plaintiffs Exhibit 10 is RECEIVED into evidence. II. FINDINGS OF FACT In December 2001, Aslakson and Debt- or, who was married to Aslakson’s stepdaughter at the time,1 formed a North Dakota limited liability partnership for the purpose of owning, holding, managing, leasing and selling pre-owned vehicles. Although Aslakson had no experience selling used cars, he agreed to form a partnership with Debtor because Debtor was unemployed and Aslakson wanted to help him start a business. The name of the partnership and the business formed by it was North Country Auto Brokers, LLP (NCAB). Aslakson and Debtor executed a Partnership Agreement on December 21, 2001, appointing Debtor the Managing Partner of NCAB. Under the Partnership Agreement, the Managing Partner handled the day-to-day affairs of the partnership and provided such services to the operation of the partnership’s business as he deemed “proper and necessary.” Pl.’s Exh. 1 at ¶¶ 8b, 10. The Partnership Agreement required the Managing Partner to keep and maintain complete records of each and every transaction of the partnership and deposit the funds of the partnership in a designated bank account. Pl.’s Exh. 1 at ¶¶ 8c, 8d. Other responsibilities were left to the discretion of the Managing Partner. The Partnership Agreement granted the Managing Partner a great deal of discretion and gave him the benefit of the doubt regarding the exercise of this discretion. The agreement provided: The Managing Partner shall not be liable to the Partnership or to any Partner for any mistake, error in judgment, act or omission believed in good faith to be within the scope of authority conferred by this Agreement. The Managing Partner shall be liable only for acts or omissions involving intentional wrongdoing. Pl.’s Exh. 1 at ¶ 8e. As compensation for these services performed for the partnership, the Managing Partner was guaranteed a salary of $3,000 per month. Pl.’s Exh. 1 at ¶ 8. Consistent with the Partnership Agreement, Debtor assumed responsibility for all functions and operations of NCAB. As-lakson’s role in the business was to provide collateral for the loans to NCAB. He also provided a location for NCAB, allowing it to operate from the same property as As-lakson’s trucking company. Other than occasionally repairing vehicles NCAB of913fered for sale or lease, Aslakson did not have any direct involvement in the business after it was formed, leaving the day-to-day operations to Debtor, who was employed in the car business for fifteen to twenty years prior to forming a partnership with Aslakson. To fund operating capital used to pay business expenses, including the purchase of vehicles NCAB offered for sale, NCAB borrowed money from Community Bank of the Red River Valley, now known as Frandsen Bank and Trust (Frandsen Bank). The loans included an operational line of credit, a “floor plan” loan and a third loan for approximately $5,500.00 to pay business debt. The first loan from Frandsen Bank to NCAB was a $100,000.00 revolving line of credit secured, at least in part, by personal guaranties from both Aslakson and Debt- or. After two or three years, the operating loan was depleted because NCAB was not a profitable business. In 2004, Aslak-son and Debtor decided to continue with the business and made arrangements to borrow additional money. Frandsen Bank extended NCAB a $75,000.00 “floor plan” line of credit to purchase cars for sale by the partnership. To secure the line of credit, Aslakson offered additional collateral and both Aslakson and Debtor provided a personal guaranty to the bank. In addition, NCAB granted Frandsen Bank a security interest in the vehicles acquired with proceeds from the floor plan line of credit. Frandsen Bank kept an inventory of vehicles. According to Aslakson, Frandsen Bank held titles to the vehicles purchased with the floor plan line of credit until it received proceeds from the sale of a specific vehicle, at which time it would release the title to the vehicle sold.2 Based on this testimony, it appears that Aslakson assumed that the bank and/or Debtor routinely reconciled the inventory list with the sale documentation to ensure that the proceeds from every NCAB sale were applied to the debt owed against the vehicle. Aslakson maintained he would not have agreed to enter into an agreement to borrow money under the floor plan line of credit or offer collateral for this line of credit had he known that the proceeds from the sale of the vehicles would not be promptly applied to the loan as expected. Debtor testified that the floor plan line of credit did not require that NCAB notify the bank and remit the proceeds from each sale of a vehicle immediately after sale of a vehicle listed on the floor plan inventory. However, Debtor offered no detail or documentation regarding any grace period to notify the bank or pay off the debt against the vehicle purchased with funds from the line of credit. The Parties stipulated that NCAB was never profitable. Financial statements prepared by NCAB’s accountant, Clarence V. Vetter, show a bleak financial picture. Net Income/Loss Total Stockholders’ Equity 2002 ($38,162.04) ($ 40,914.92) 2003 ($43,899.11) ($ 84,814.03) 2004 ($20,411.12) ($105,225.15) 2005 $ 243.29 ($104,981.86) 2006 ($69,751.01) ($163,113.63) Pl.’s Exh. 5, 6, 7, 8.3 Vetter explained that while he used generally accepted accounting procedures to prepare these financial 914statements, NCAB did not apply generally accepted accounting procedures in its business. In support of this testimony, Vetter noted that NCAB’s accounts were used by Debtor to pay personal expenses, such as rent, child support and liquor. Vetter also clarified that the financial statements did not reflect payments from Aslakson’s personal account that were made on behalf of NCAB. Vetter explained that, if these sums had been included in the financial analysis, NCAB’s losses would have been greater. Aslakson acknowledged that he knew the business was not profitable after the first year it was in business. Other than a dividend after the first six months of operating, all the information provided to As-lakson indicated that NCAB was losing money. The information Aslakson received included business plans for NCAB, which Debtor prepared every year and provided to Aslakson. Aslakson also received financial statements prepared by Vetter, which were based on information Vetter received from Debtor. The financial statements included figures reflecting the value of inventory maintained by NCAB.4 Aslakson also received information from Debtor regarding the status of NCAB’s sales.5 Because Aslakson’s trucking business was located at the same place as NCAB, Aslakson and Debtor saw each other on almost a daily basis, and the men regularly discussed how the business was doing and whether business was good or slow. In deciding whether to allow the business to continue operating despite its losses, Aslakson relied on Debtor’s reports and the financial statements prepared by Vetter. Aslakson’s access to the NCAB financial information and business records was not restricted; he simply relied on the information he received from Debtor.6 Despite receipt of financial statements showing business losses for 2002, 2003 and 2004, Aslakson testified that the first sign of serious business trouble came in 2005. During a partnership meeting in November 2005, Aslakson learned that NCAB did not have funds sufficient to make the interest payment to Frandsen Bank. At this meeting, Debtor provided Aslakson a business plan he had prepared for NCAB on August 31, 2005. See Pl.’s Exh. 4.7 In the plan, Debtor represented that interest on the credit line floor plan and insurance 915payments were current, but he was not able to reduce the credit line debt of $100,000 because of “personal issues.” Id. To address his goal of reducing NCAB’s business debt, Debtor stated he would not draw a salary from NCAB from November 2005 to February 2006, the time of year when sales are slow.8 Id. From March 2006 to October 2006, Debtor planned to make payments of $500/month toward the credit line. He also planned to apply $100 per vehicle sold to the debt owed by NCAB. Id. Debtor reported that NCAB realized no financial losses from January to August 2005, and expressed optimism regarding the future success of the business. Id. Relying on earlier business plans prepared by Debtor and Debtor’s representations in the August 2005 business plan that he would make future loan payments and refrain from taking a salary for the months of November 2005 through February 2006, Aslakson agreed not to terminate the partnership immediately.9 He also agreed to provide more financial support to NCAB. On November 12, 2005, Aslak-son paid NCAB’s interest payment of over $8,000.00 with funds from a personal account. However, Aslakson advised Debtor he would not agree to pay any more of NCAB’s debt with money “out of his own pocket.” He also told Debtor that if Debt- or could not make a living from NCAB, the partnership would have to close the business. Although Debtor did not take a full salary from November 2005 to February 2006 as planned, he withdrew cash and paid personal expenses from NCAB’s checking account.10 In August 2006, Aslakson received a telephone call from Frandsen Bank Representative Jack Robertson. Robertson indicated that there was a problem with NCAB’s inventory. Aslakson met with Robertson at the bank to discuss the status of NCAB’s inventory. Robertson reportedly told Aslakson that he reviewed the NCAB inventory list with Debtor over the phone and Debtor informed Robertson of the status or location of each vehicle on the inventory list. According to Aslakson, Robertson recorded Debtor’s comments about the location of the vehicles with handwritten notes on an NCAB inventory list dated July 3, 2006.11 Robertson advised Aslakson that a bank representative tried to find each of the 32 or 33 vehicles on NCAB inventory list and located only five. After meeting with Robertson, Aslakson called Debtor to tell him about his conversation with Robertson and to ask Debtor about the NCAB inventory list. A short time after the telephone call, the two men met at Debtor’s apartment to discuss NCAB’s inventory. During this conversation, which Aslakson maintains took place 916in August 2006, Debtor admitted that he had been selling vehicles without remitting the proceeds from these sales to the bank, and that there were only ten vehicles on the July 2006 inventory list that had not been sold. Debtor conceded that, as early as August 2005, he sold vehicles without reporting the sales to the bank, also referred to as “selling vehicles off the floor plan.” Aslakson maintains that the first time he learned that Debtor was selling vehicles off the floor plan was during the August 2006 conversations with Robertson and Debtor. Aslakson testified that he would have exercised his right to terminate the business earlier had he known Debtor was selling vehicles off the floor plan and the business was “upside down.” In conflicting testimony, Debtor claims that he notified Aslakson that he had been selling cars off the floor plan in the spring of 2006. Specifically, Debtor testified he called Aslakson in April 2006 to arrange a meeting, and the two men met to discuss the status of NCAB’s inventory. According to Debtor, at this meeting, he told Aslakson that NCAB was behind on payments to the bank for cars sold. Sometime after Aslakson’s conversations with Robertson and Debtor about the NCAB inventory, Debtor, Aslakson and a Frandsen Bank representative met to review the status of NCAB’s inventory. During this meeting, which presumably took place on or after August 23, 2006, the bank representative produced an updated NCAB inventory list.12 The bank representative asked Debtor about each vehicle on the list and made handwritten notes on the inventory list indicating the location of the vehicles or noting they had been sold as reported by Debtor. Debtor informed the bank representative and Aslakson that most of the vehicles on the list were sold. He also indicated three of the vehicles on the list were at the repair shop, but the repair shop refused to release the vehicles until NCAB paid $8,000.00 or $9,000.00 for work completed on the vehicles. Aslakson testified that Debtor confessed to the bank that he had been selling vehicles without immediately advising the bank of the sales since the fall of 2005. Debtor does not dispute that he sold vehicles off the floor plan beginning in the fall of 2005. Debtor’s admissions, Aslak-son’s testimony and a comparison of the NCAB inventory lists for July and August 2006 with invoices and bills of sale received into evidence confirm this fact. See Pl.’s Exh. 2, 3 & 10. Debtor claims, however, that he did not make any representations with intent to defraud. He testified that he had exhausted all of his efforts and there were too many expenses for the business to continue. NCAB ceased its business operations in August 2006, leaving considerable loan obligations due and owing to Frandsen Bank. Aslakson claimed that NCAB lost approximately $60,000.00-$70,000.00 by the end of 2005, and the loss would have been higher if Aslakson had not been making payments out of his own pocket. Aslakson and Debtor signed a third promissory note for $5,500.00 sometime after NCAB ceased business in 2006 because the bank informed Aslakson it was part of the business debt. The floor plan loan was restructured in 2007. According to Aslakson, Debtor represented that he was going to make the loan payments on the restructured debt. Debtor made approximately three payments, refinancing his motorcycle three times to make these payments. 917Frandsen Bank subsequently enforced the personal guaranty against Aslakson. Aslakson has been making payments toward the NCAB loan obligations. Aslak-son testified he personally paid $140,000.00 on the loans and the balance remaining is approximately $122,000.00. Debtor petitioned for relief under Chapter 7 of the Bankruptcy Code on May 28, 2010. II. CONCLUSIONS OF LAW The statutory exceptions to discharge in bankruptcy are narrowly construed against the creditor to effectuate the fresh start policy of the Bankruptcy Code. Owens v. Miller (In re Miller), 276 F.3d 424, 429 (8th Cir.2002). Accordingly, a creditor opposing discharge of a debt carries the burden of proving the debt falls within an exception to discharge. Werner v. Hofmann, 5 F.3d 1170, 1172 (8th Cir.1993) (per curium). Preponderance of the evidence is the standard of proof that applies to discharge exceptions under 11 U.S.C. § 523(a). Grogan v. Garner, 498 U.S. 279, 286-87, 111 S.Ct. 654, 112 L.Ed.2d 755 (1991); Simek v. Erdman (In re Erdman), 236 B.R. 904, 911 (Bankr.D.N.D.1999). Where an objecting creditor fails to establish every element under section 523(a), the indebtedness at issue is dischargeable. Id. In his closing statement, Aslakson argued that Debtor should be held liable for the net losses incurred by NCAB as a result of Debtor’s alleged fraud. Specifically, Aslakson claims that if Debtor had not concealed the fact that he was selling cars off the floor plan, Aslakson would have terminated the partnership and stopped NCAB from losing more money. In the alternative, Aslakson argues Debtor should be held liable for the reduction of stockholder’s equity that allegedly resulted from Debtor’s fraud. Aslakson alleges that this liability should be excepted from discharge under section 523(a)(2)(A) and (a)(4). A. 11 U.S.C. § 523(a)(2)(A) Section 523(a) of the Bankruptcy Code excepts certain debts from discharge in bankruptcy, including debts for money, property, services, or an extension, renewal, or refinancing of credit, to the extent obtained by false pretenses, a false representation, or actual fraud. 11 U.S.C. § 523(a)(2)(A). To meet his burden of proving that Debtor is not entitled to a discharge of a debt owed to him, Aslakson must make a threshold showing that the debt was “obtained by” false pretenses, a false representation, or actual fraud. 11 U.S.C. § 523(a)(2)(A). If this threshold showing is made, Aslakson must then prove each of the following elements to establish nondischargeability of a debt under section 523(a)(2)(A): 1. the debtor made a false representation; 2. at the time the representation was made, the debtor knew it was false; 3. the debtor made the representation deliberately and intentionally with the intention and purpose of deceiving the creditor at the time he made the representation; 4. the creditor justifiably relied on the representation; and 5. the creditor sustained the alleged loss as the proximate result of the representation. Marcusen v. Glen (In re Glen), 427 B.R. 488, 492 (8th Cir. BAP 2010); Blue Skies, Inc. v. Preece (In re Preece), 367 B.R. 647, 652 (8th Cir. BAP 2007); Burt v. Maurer (In re Maurer), 256 B.R. 495, 500 (8th Cir. BAP 2000). Aslakson did not offer evidence sufficient to establish the threshold show918ing that the debt at issue was “obtained by” fraud. To sustain a claim that money or property was “obtained by” fraud under section 523(a)(2)(A), Aslakson must show that the alleged fraudulent conduct occurred at the inception of the debt, i.e., Debtor committed a fraudulent act to induce Aslakson to part with his money, property or services. Valley Mem’l Homes v. Hrabik (In re Hrabik), 330 B.R. 765, 772 (Bankr.D.N.D.2005); Burbank v. Capelli (In re Capelli), 261 B.R. 81, 88-89 (Bankr.D.Conn.2001). Stated another way, Aslakson must show that the alleged fraud “existed at the time of, and has been the methodology by which, the money, property or services were obtained.” Wilcoxon Constr., Inc. v. Woodall (In re Woodall), 177 B.R. 517, 523 (Bankr.D.Md.1995). Misrepresentations made subsequent to the creation of the debt “have no effect upon the dischargeability of a debt, since the false representation could not have been the creditor's reason for the extension of credit.” In re Woodall, 177 B.R. at 524 (citation and internal quotation marks omitted); In re Capelli, 261 B.R. at 88; Fetty v. DL Carlson Enters., Inc., d/b/a Cottman Transmission (In re Carlson), 426 B.R. 840, 857 (Bankr.D.Idaho 2010). Although he characterized it differently, Aslakson is seeking contribution from Debtor for the sum of money Aslak-son paid, and is still obligated to pay, to Frandsen Bank to satisfy NCAB’s debt. Aslakson’s personal obligation to pay Frandsen Bank arose from loan guaranties he executed. There is no evidence that loans from Frandsen Bank to NCAB were obtained by fraud. There is also no evidence that Aslakson was induced by fraud to sign the guaranties. Rather, the evidence shows that Aslakson and Debtor both knowingly and voluntarily co-signed loans on behalf of NCAB and both knowingly and voluntarily signed guaranties securing the loans from Frandsen Bank. The conduct Aslakson claims is fraudulent— Debtor’s failure to disclose that he was selling vehicles off the floor plan — did not occur until the fall of 2005, several years after the first loan from Frandsen Bank and approximately one year after Frand-sen Bank extended NCAB a $75,000.00 “floor plan” line of credit. The third loan for $5,500.00 was after Aslakson learned about the alleged fraudulent omission. Accordingly, the Court finds that the alleged fraudulent omissions did not incur at the inception of the debt and did not induce Aslakson to sign the guaranties. Aslakson argues that from August 2005 (when Debtor began selling vehicles off the floor plan without advising Aslakson of this business decision) to December 2006 (when NCAB stopped doing business), the partnership steadily lost more funds resulting in less money available to pay the debt to Frandsen Bank. Aslakson claims that Debtor’s failure to advise him of these growing losses and the depletion of the inventory was an omission which “created debt” from the inception thereby meeting the definition of “obtained by.” Debtor cites no law in support of this proposition. However, there is law contrary to it. See Marcusen v. Glen (In re Glen), 639 F.3d 530, 532-33 (8th Cir.2011) (finding that to meet their burden under section 523(a)(2)(A) creditors were required to show that debtors obtained money or property concurrent with debtors’ misrepresentations; debtors’ concealment of mortgages debtor granted to third parties which reduced the creditors’ equity in the same property was not sufficient to satisfy this burden because debtors obtained financing from the creditors before the fraud took place, not as a result of the alleged fraud); Samuel J. Temperato Revocable Trust v. Unterreiner (In re Unterreiner), 459 B.R. 725, 730 (8th Cir. BAP 9192011) (finding that creditor failed to meet its burden under section 523(a)(2) because the creditor’s debt stemmed from a guaranty which was dated years before the alleged misrepresentations took place and not as a result of the misrepresentations); In re Juve, 455 B.R. at 894-896 (finding that debtor did not have a duty to tell the creditors that equity in assets was decreasing, resulting in debtor’s inability to repay the creditors’ investment). Further, there is insufficient evidence to show that Debtor was the person who obtained the loan funds from Frand-sen Bank, the repayment of which serves as the basis for Aslakson’s section 523(a)(2)(A) claim. To satisfy the threshold showing under section 523(a)(2)(A), As-lakson must show Debtor fraudulently obtained something from him, not simply that Debtor engaged in fraud that results in a debt owed to Aslakson. In re Glen, 639 F.3d at 533 (citing cases standing for the proposition that debtor himself must have obtained money or property from the creditor and that “obtaining” money or property has one meaning: the direct transfer of money from a creditor to the debtor); Heide v. Juve (In re Juve), 455 B.R. 890, 894-896 (8th Cir. BAP 2011) (finding that the undisputed facts were not sufficient to show the debtor obtained funds by fraud; financing arrangement that served as the basis for the debt the creditor sought to except from discharge was made with a corporation in which the debtor owned shares, not with the debtor individually); In re Unterreiner, 459 B.R. at 730 (“[T]he creditor is required to prove that the debtors obtained money, property, services or an extension, renewal or refinancing of credit from it at the time of the misrepresentation.”) (citations omitted); Nunnery v. Rountree (In re Rountree), 478 F.3d 215, 222 (4th Cir.2007) (holding that section 523(a)(2)(A) requires that a debtor fraudulently obtain money, property, services or credit from the creditor; a debt arising from fraud that results in a debt to the creditor without evidence that the debtor obtained something is not sufficient to meet this burden); Richard v. Dougherty (In re Dougherty), 179 B.R. 316, 322 (Bankr.M.D.Fla.1995) (“In other words, the debtor himself must have obtained the money or property and he must have received it from the claimant.”). Frandsen Bank loaned money to NCAB, not Debtor individually. The debt that Aslakson seeks to except from discharge arose as a result of a guaranty Aslakson executed in favor of the bank, which served as security for NCAB’s debt to the bank. There is no evidence that proceeds from the Frandsen Bank loan were transferred to Debtor.13 Rather, the loan proceeds were transferred to NCAB. Accordingly, Aslakson has not made the requisite threshold showing that Debtor obtained money or property from Aslakson by fraud. His claim under section 523(a)(2)(A) is dismissed. Even if Aslakson had offered evidence sufficient to meet the threshold showing required under section 523(a)(2)(A), the record does not include evidence sufficient to establish several of the other elements of this claim. The heart of Aslakson’s claim is Debtor’s failure to disclose that he was selling vehicles 920without immediately remitting the proceeds to Frandsen Bank to pay NCAB’s debt to the bank. Aslakson’s understanding of the floor plan loan arrangement was that Frandsen Bank held titles to the vehicles purchased with the floor plan line of credit until it received proceeds from the sale of a specific vehicle, at which time it would release the title to the vehicle sold. Apparently, Aslakson assumed that the bank and/or Debtor routinely reconciled the inventory list with the sale documentation to ensure that the proceeds from every NCAB sale were applied to the debt owed against the vehicle. Based on the length of time between August 2005/fall 2005 (when Debtor admittedly began selling vehicles off the floor plan) and the date the bank first inquired about inventory discrepancies in August 2006, it appears that reconciliation of inventory with debt against the inventory did not occur as frequently as Aslakson assumed. Contrary to Aslakson’s understanding, Debtor testified that the floor plan line of credit did not require that NCAB notify the bank and remit the proceeds from each sale of a vehicle immediately after sale of a vehicle listed on the floor plan inventory. Debtor offered no detail or documentation regarding any grace period to notify the bank or payoff the debt against the vehicle purchased with funds from the line of credit. Neither party offered the loan documents and security agreements between Frandsen Bank and NCAB as evidence at trial, leaving the Court with an incomplete understanding of NCAB’s obligations to the bank. More importantly, there is no evidence that the Partnership Agreement or other agreement, policy or practice established Debtor’s duty as the Managing Partner of NCAB to immediately remit sale proceeds from each and every vehicle to Frandsen Bank to reduce the outstanding debt or to inform Aslakson if he failed to do so. To the contrary, the management of NCAB’s financial affairs was the type of responsibility left to the discretion of Debtor as Managing Partner. Without evidence of such an obligation or an appropriate grace period between the vehicle sale and loan payment, the Court is left without information sufficient to determine when the failure to remit sale proceeds to the bank (or to advise Aslakson of such failure) turned from common business practice to fraud. Likewise, it is impossible to determine the loss proximately resulting from the alleged omission without knowing at what point Debtor’s failure to advise Aslakson that he had not remitted sale proceeds to the bank amounted to a fraudulent omission.14 Accordingly, the Court finds Aslakson did not meet his burden of showing that Debtor’s failure to advise him he was selling cars off 921the floor plan was a fraudulent omission/“representation” under section 523(a)(2)(A) because Debtor did not have an ongoing duty under this subsection to advise Aslakson that NCAB’s equity in the inventory was losing value. See In re Juve, 455 B.R. at 896 (“The Debtor did not have an ongoing duty under § 523(a)(2)(A) to advise the Creditor regarding whether his interest in the vehicles was protected and the loss of equity in the vehicles would not support a determination of fraud under § 523(a)(2)(A).”). In addition, the Court finds that there is insufficient evidence to show that Aslakson justifiably relied on Debtor’s alleged fraudulent omissions. This finding is based on two reasons. First, Aslakson could not have justifiably relied on the alleged fraudulent omissions in signing the guaranties to Frandsen Bank in late 2001/early 2002 and 2004 — which serve as the basis for the debt he seeks to except from discharge — because the fraudulent omissions began in August 2005, more than a year after the last guaranty he executed. See In re Unterreiner, 459 B.R. at 730 (finding that creditor could not have reasonably relied on misrepresentations in a security agreement which was granted by debtor long after the creditor signed a loan guaranty which served as the basis of the debt the creditor sought to except from discharge). Second, Aslakson knew about the gradual demise of NCAB’s business and understood that under the terms of the guaranties he signed, he would be liable to the bank for sums owed to it if NCAB failed. Specifically, Aslakson knew NCAB was not profitable after the first year in business, but continued to invest in the business and support Debtor, who was his son-in-law at the time. Other than a dividend after the first six months of operating, all the information provided to Aslakson indicated that NCAB was losing money. The information Aslakson received included a business plan for NCAB, which Debtor prepared every year and provided to Aslakson. As-lakson also received financial statements prepared by Vetter, which showed substantial business losses. Although he did not know whether there was a profit earned from each vehicle sold, he understood that NCAB incurred expenses other than the cost to purchase the vehicles, such as insurance, rent and vehicle transportation. Aslakson conceded he had no evidence that profits found their way to Debtor’s pocket. In addition to financial statements, As-lakson also received information from Debtor regarding the-status of NCAB’s sales. Because Aslakson’s trucking business was located at the same place as NCAB, Aslakson and Debtor saw each other on almost a daily basis, and the men regularly discussed how the business was doing. Aslakson’s access to the NCAB financial information and business records was not restricted by Debtor. Finally, during a partnership meeting in November 2005, Aslakson learned that NCAB did not have funds sufficient to make the interest payment to Frandsen Bank. This meeting occurred shortly after Debtor began selling vehicles off the floor plan. Although there were obvious warning signs about the viability of NCAB, Aslakson agreed to help his son-in-law by making NCAB’s interest payment of over $8,000.00 with funds from a personal account. In closing argument, Aslakson claimed that inventory figures provided on the 2005 financial statements (which he claims were supplied by Debtor) were intentionally misleading because they provided the floor plan debt balance rather than the actual inventory. Aslakson also suggests that he relied on these inventory figures 922and, had they been accurate, he would have known about the depletion of the inventory and closed the business sooner. Aslakson’s argument is not supported by the evidence offered at trial. Aslakson offered no evidence that the financial statements prepared from 2002 to August 2005 (before Debtor began to sell vehicles off the floor plan), were inaccurate. As to those that were prepared after August 2005, NCAB’s accountant testified that he prepared the 2005 and 2006 financial statements some time after NCAB stopped doing business, and could not recall if Debtor or Aslakson gave him the numbers used in these financial statements. Consequently, Aslakson could not have relied on omissions allegedly withheld from inventory figures on the 2005 financial statements because the financial statements were not prepared until after Debt- or admitted to selling cars off the floor plan and after NCAB was terminated. To meet his burden of showing justifiable reliance under section 523(a)(2)(A), which is a lesser standard than reasonable reliance,15 a creditor may rely on a representation of fact even though he might have discovered the falsity of the representation if he had investigated the matter. Islamov v. Ungar (In re Ungar), 633 F.3d 675, 679 (8th Cir.2011) (citing Field v. Mans, 516 U.S. 59, 70, 116 S.Ct. 437, 133 L.Ed.2d 351 (1995)). However, creditors may not “turn a blind eye where a patent falsity could be determined by a cursory examination or investigation.” Id. (quoting Field, 516 U.S. at 71, 116 S.Ct. 437) (internal quotations and citations omitted). Here, it is apparent the Partnership Agreement not only granted Debtor a great deal of discretion, it gave him the benefit of the doubt regarding the exercise of this discretion — which Aslakson did not seek to restrict until August 2006. Aslak-son knew that NCAB was not financially successful, that the business losses grew steadily and that stockholders’ equity diminished from -$40,914.92 in 2002 to -$163,113.63 in 2006. Access to NCAB’s inventory and business records was immediately available to Aslakson because NCAB was located in the same place as Aslakson’s trucking business, and his access to the records was not restricted. Although the question of justifiable reliance is a close one, given the broad discretion granted to Debtor under the Partnership Agreement and the regular disclosure of financial information by Debtor and Vetter, and without evidence of a duty on the part of Debtor to disclose that he was selling vehicles without immediately remitting the proceeds to the bank, the Court finds that there is not sufficient evidence to show justifiable reliance. Accordingly, Aslakson’s claim under section 523(a)(2)(A) fails for these reasons as well. B. 11 U.S.C. § 523(a)(4) In his Complaint, Aslakson also seeks an order excepting the debt Aslak-son claims Debtor owes to him under section 523(a)(4). Specifically, Aslakson alleges Debtor’s conduct constitutes fraud or defalcation while acting in a fiduciary capacity. To prevent the discharge of the debt under section 523(a)(4), Aslakson must establish two elements: (1) there was a fiduciary relationship between Aslakson and Debtor; and (2) Debtor committed fraud or defalcation in the course of that fiduciary relationship. See Jafarpour v. Shahrokhi (In re Shahrokhi), 266 B.R. 702, 707 (8th Cir. BAP 2001); Helena Chem. Co. v. Richmond (In re Richmond), 429 B.R. 263, 301 (Bankr.E.D.Ark.2010). 923Whether the relationship is a fiduciary relationship within the meaning of 11 U.S.C. § 523(a)(4) is an issue of federal law. Tudor Oaks Ltd. P’ship v. Cochrane (In re Cochrane), 124 F.3d 978, 984 (8th Cir.1997). The fiduciary relationship required under this section is more narrowly defined than that under the general common law. In re Shahrokhi, 266 B.R. at 707. “[T]he broad, general definition of fiduciary — a relationship involving confidence, trust and good faith — is inapplicable in the dischargeability context.” Hunter v. Philpott, 373 F.3d 873, 876 (8th Cir.2004) (quoting Cal-Micro, Inc. v. Cantrell (In re Cantrell), 329 F.3d 1119, 1125 (9th Cir.2003)); Brown v. Heister (In re Heister), 290 B.R. 665, 673 (Bankr.N.D.Iowa 2003) (noting that “fiduciary” as that term is used in section 523(a)(4) “does not extend to the more general class of fiduciaries such as agents, ... partners.”) (citation omitted). Rather, to meet the narrow definition applicable under section 523(a)(4), the fiduciary relationship between the debtor and the creditor must arise from an express or technical trust “‘that was imposed before and without reference to the wrongdoing that caused the debt.’ ” In re Cochrane, 124 F.3d at 984 (citation omitted). A technical trust is one imposed by statute or common law.16 “An express trust is created by a direct, positive, and objectively-manifested act under contract, or under an instrument such as a deed or will.” Chicago Title Ins. Co. v. Moe (In re Moe), 2006 WL 4711887 at 6 (Bankr.D.Minn.2006) (citation omitted). Typically, the parties to an express trust prepare a declaration of a trust, define a trust res and outline specific duties and responsibilities of the trustee.17 However, “[i]t is the substance of a transaction, rather than the labels assigned by the parties, which determines whether there is a fiduciary relationship for bankruptcy purposes.” Barclays Am./Bus. Credit v. Long (In re Long), 774 F.2d 875, 878-79 (8th Cir.1985). Neither a constructive trust imposed by law because of the trustee’s malfeasance nor mere contractual relationships are cognizable under section 523(a)(4). Hunter, 373 F.3d at 876; In re Long, 774 F.2d at 878-879; In re Shahrokhi 266 B.R. at 708. Aslakson did not assert in trial briefs or in closing argument that an express or technical trust established a fiduciary relationship between Debtor and Aslakson. Instead, it appears that both Aslakson and Debtor assumed the broad, general definition of fiduciary — a relation924ship involving confidence, trust and good faith — created a fiduciary relationship and imposed duties enforceable in this bankruptcy case. As noted above, this type of fiduciary relationship is inapplicable in the dischargeability context. Hunter, 373 F.3d at 876; Arvest Mortg. Co. v. Nail (In re Nail), 446 B.R. 292, 300 (8th Cir. BAP 2011). However, in closing argument Aslakson referred to the Partnership Agreement as evidence that a fiduciary relationship was created. Assuming this reference may be read as an assertion that the Partnership Agreement included a provision creating an express trust sufficient to establish a fiduciary relationship between Debtor and Aslakson, this argument is rejected as well. The Partnership Agreement did not include a provision requiring that Debtor hold sale proceeds in trust or immediately remit the proceeds from the sale of vehicles to the bank. Further, the agreement did not require that Debtor inform Aslak-son of any failure to apply sale proceeds to the debt owed to the bank or otherwise comply with a security agreement or any other financial commitment incurred by the partnership. To the contrary, the management of NCAB’s financial affairs was the type of responsibility left to the discretion of Debtor as Managing Partner. Under the Partnership Agreement, the Managing Partner was granted authority to provide such services to the operation of the partnership’s business as he deemed “proper and necessary.”18 Pl.’s Exh. 1 at ¶¶ 8b, 10. Both parties testified that the day-to-day management of NCAB was left to Debtor. The Partnership Agreement not only granted the Managing Partner a great deal of discretion, it gave him the benefit of the doubt regarding the exercise of this discretion. The agreement provided: The Managing Partner shall not be liable to the Partnership or to any Partner for any mistake, error in judgment, act or omission believed in good faith to be within the scope of authority conferred by this Agreement. The Managing Partner shall be liable only for acts or omissions involving intentional wrongdoing. Pl.’s Exh. 1 at ¶ 8e. Accordingly, the Court finds that a fiduciary relationship between Debtor and As-lakson did not arise from an express trust created in the Partnership Agreement. Any liability for intentional wrongdoing resulting from Debtor’s conduct and imposed by the “intentional wrongdoing” language of the Partnership Agreement may arguably support the imposition of a constructive trust under common law, but it does not establish that the debt is excepted from discharge under section 523(a)(4). The fiduciary relationship contemplated by section 523(a)(4) must arise from an express or technical trust “ ‘that was imposed before and without reference to the wrongdoing that caused the debt.’ ” In re Cochrane, 124 F.3d at 984 (citation omitted) (emphasis added); Hunter, 373 F.3d at 876; In re Long, 774 F.2d at 878. The trustee of a constructive trust imposed because of the trustee’s wrongful conduct is not a fiduciary within the meaning of section 523(a)(4). In re Hunter, 373 F.3d at 875-76 (referring to a constructive trust as one “imposed by law because of the trustee’s malfeasance”); In re Long, 774 F.2d at 878 (referring to a constructive trustee as one “designated as such because 925of misconduct”). Therefore, even if Aslak-son had established that Debtor was liable for intentional wrongdoing under the Partnership Agreement, this would not prove his claim under section 523(a)(4). Since the Partnership Agreement did not create an express trust that imposed a fiduciary relationship between Debtor and Aslakson cognizable under section 523(a)(4), and since Aslakson did not assert that a fiduciary relationship arose from a technical trust imposed by statute or common law, his claim and cause of action under section 523(a)(4) fails. CONCLUSION For the reasons stated above, IT IS ORDERED that Plaintiff Terrance Paul Aslakson’s Motion to Admit Evidence is GRANTED. Aslakson failed to prove his claims under section 523(a)(2) and (4) by a preponderance of the evidence. His claims and causes of action are DISMISSED. Defendant/Debtor’s Motion for Directed Verdict is MOOT. JUDGMENT MAY BE ENTERED IN FAVOR OF DEFENDANT. . Debtor and Aslakson’s stepdaughter divorced in 2006. . Aslakson did not offer loan documentation in support of this understanding. None of the loan documents and security agreements between Frandsen Bank and NCAB were offered as evidence at trial. . Vetter prepared the 2005 and 2006 financial statements some time after NCAB stopped doing business. He could not recall if Debtor or Aslakson gave him the numbers used in the 2005 and 2006 financial statements and could not confirm whether they were accurate. . Vetter testified that the figures he used for the 2002-2004 inventory balance generally came from Debtor. Sometimes Debtor would provide a floor plan inventory, sometimes Debtor would simply provide an inventory value for Vetter to use in preparing the financial statements. As noted above, the financial statements for 2005 and 2006, which included inventory balances, were not prepared until after the partnership was terminated. . Aslakson admitted that he did not know when NCAB vehicles were sold or whether there was a profit from each sale, but he assumed that the vehicles sold for more than the debt owed against them. He also acknowledged that NCAB incurred expenses other than the cost to purchase the vehicles, such as insurance, rent and vehicle transportation, but suggested that some of the profit may have gone to pay Debtor's salary. However, during cross examination, he conceded he had no evidence that profits found their way to Debtor’s pocket. . In his testimony, Debtor suggested that As-lakson looked at the books and reviewed financial statements from time to time. . Debtor claims he did not know if the business was delinquent on the Frandsen Bank loans in August 2005 when he prepared the business plan, but he conceded that he put a positive spin on the business outlook to entice people to continue doing business with NCAB. He testified he did not create the business plan with the intent to defraud, and that he prepared it with the best of his knowledge. . Debtor found part-time employment as a bartender, which he assumed would provide sufficient income to take care of personal needs from November 2005 through February 2006. . The Partnership Agreement granted any partner holding 50% or more of partnership interests the right to vote to terminate and dissolve the partnership. Pl.'s Exh. 1 at ¶ 14. Aslakson and Debtor each owned 50% of the partnership interests. . As noted above, Vetter testified that Debtor paid personal expenses with funds from NCAB’s business checking account, including rent, child support and liquor. Copies of checks received as evidence at trial confirm this testimony, and show that Debtor routinely wrote checks to himself for $30-$100, with no apparent business purpose for doing so. . The NCAB inventory list dated July 3, 2006 was marked as Plaintiff's Exhibit 2 and received into evidence without objection. . The inventory list, which was marked as Plaintiff's Exhibit 3 and received into evidence without objection, was dated August 23, 2006. . Although Aslakson offered evidence that Debtor wrote checks from the NCAB account for personal expenses during the months of November 2005 to November 2006, the sum of money Debtor withdrew did not exceed the $3,000/month he was entitled to withdraw as a salaiy pursuant to the terms of the Partnership Agreement. Further, Aslakson did not offer evidence that loan proceeds, which were reportedly disbursed in late 2001/early 2002 and again in 2004, were used by Debtor for personal expenses. . Aslakson suggests that bank records showing that Debtor routinely withdrew cash from NCAB's account or wrote personal checks for expenses unrelated to NCAB's business is evidence of Debtor's fraudulent intent. The Court is not persuaded that this evidence is sufficient to meet his burden under section 523(a)(2)(A) for several reasons. First, Aslak-son admitted that there was no evidence that profits from the sale of vehicles found their way to Debtor’s pocket. Second, under the Partnership Agreement, Debtor was entitled to withdraw $3,000/month as a salary. The sum of money Debtor withdrew or spent for personal expenses does not exceed this sum. While there is no doubt that it was a more prudent business practice to write a check for salary from the business account rather than write checks for personal expenses from NCAB’s account, given the small sum used for personal purposes, this evidence is insufficient to establish fraudulent intent. Third, Debtor's use of the business account for personal expenses, without more, does not show that he was intentionally withholding information from Aslakson about selling vehicles off the floor plan. . Reuter v. Cutcliff (In re Reuter), 443 B.R. 427, 435 (8th Cir. BAP 2011). . Reshetar Sys., Inc. v. Thompson (In re Thompson), 458 B.R. 504, 508 (8th Cir. BAP 2011) (citing E. Armata, Inc. v. Parra (In re Parra), 412 B.R. 99, 104 (Bankr.E.D.N.Y. 2009) and A.J. Rinella & Co. v. Bartlett (In re Bartlett), 397 B.R. 610, 619 (Bankr.D.Mass.2008)); Chicago Title Ins. Co. v. Moe (In re Moe), 2006 WL 4711887 at 6 (Bankr.D.Minn.2006) (citing Stowe v. Bologna (In re Bologna), 206 B.R. 628, 632 (Bankr.D.Mass.1997)). . See In re Thompson, 458 B.R. at 508 (“An express trust is one created with the settlor's express intent, usu[ally] declared in writing." (citing Black's Law Dictionary 1650 (9th ed. 2009))); Werner v. Hofmann (In re Hofmann), 144 B.R. 459, 463 (Bankr.D.N.D.1992) ("Generally, an express trust is created by an agreement between two parties to impose a trust relationship. The typical characteristics of an express trust generally include an explicit declaration of a trust with a trust res, and an intent to create a trust relationship.” (citations omitted)); In re Richmond, 429 B.R. at 301 (" 'Unless the parties intended a trust, defined a trust res, and gave specific duties regarding the trust funds or unless a statute imposes a trust, the fiduciary relationship contemplated in § 523(a)(4) does not extend to financing arrangements or security agreements.’ ” (citations omitted)). . Under the Partnership Agreement, the Managing Partner was also required to keep and maintain complete records of each and every transaction of the partnership and deposit the funds of the partnership in a designated bank account. PL’s Exh. 1 at ¶¶ 8c, 8d. There was no evidence that Debtor failed to comply with these requirements.	01-04-2023	11-22-2022
https://www.courtlistener.com/api/rest/v3/opinions/8494763/	MEMORANDUM DECISION HOLDING QUORUM FEDERAL CREDIT UNION IN CONTEMPT FOR VIOLATING THE AUTOMATIC STAY CECELIA G. MORRIS, Chief Judge. Debtors brings this motion seeking actual and punitive damages caused by Quorum Federal Credit Union’s (“Quorum”) refusal to return debtor’s repossessed vehicle upon the filing of the bankruptcy petition. Quorum argues that Debtor’s vehicle was not property of the estate and that it could legally maintain control of the vehicle despite the bankruptcy petition. For the reasons set forth in this Memorandum Decision, the Court finds that Quorum violated the automatic stay by failing to release the vehicle and the Debtors are entitled to costs and damages. Statement of Jurisdiction This Court has subject matter jurisdiction pursuant to 28 U.S.C. § 1334(a), 28 U.S.C. § 157(a) and the Amended Standing Order of Reference signed by Chief Judge Loretta A. Preska dated January 31, 2012. This is a “core proceeding” under 28 U.S.C. § 157(b)(2)(A) (“matters concerning the administration of the estate”); 157(b)(2)(E) (“orders to turn over property of the estate”); and 157(b)(2)(0) (“other proceedings affecting the liquidation of the assets of the estate or the adjustment of the debtor-creditor or the equity security holder relationship ... ”). Background On November 21, 2011, Quorum repossessed the Debtors’ 2003 Dodge Caravan. The Debtors filed chapter 7 on November 25, 2011. Quorum was listed as a secured creditor on the petition and was notified of the Debtors’ intent to keep the vehicle and reaffirm the debt. Quorum withheld the vehicle and stated that they were not required by law to return the vehicle. Debtors were told that 66they had to pay arrearages of $817 and provide proof of insurance in order to regain possession of the vehicle. Forty-five days after the bankruptcy petition was filed and after various attempts to regain control of the vehicle, the Debtors paid $817, signed a reaffirmation agreement, and provided proof of insurance to Quorum and received possession of the vehicle. Debtors now make this motion to hold Quorum in violation of the automatic stay. They seek actual damages in the amount of $303 for the cost of a rental vehicle to attend an out of state funeral; compensatory damages for out of pocket expenses, such as legal fees, and sanctions for punitive damages for the willful violation of the stay. In its response to the motion, Quorum admits that it required $817 in arrears, proof of insurances and an executed reaffirmation agreement before it released the vehicle to the Debtors. The reaffirmation agreement was filed on February 7, 2012. Quorum argues that it did not violate the automatic stay because, pursuant to N.Y. UCC § 9-609(a), the Debtors no longer held a possessory interest in the vehicle. Instead, Quorum argues that the Debtors held a right to redeem and the vehicle was not property of the estate. They argue that any violation was not willful. Quorum also argues that it had the right to impose conditions upon the release and reaffirmation of the vehicle. Moreover, Quorum argues that it would be inequitable to impose sanctions on it for conduct that occurred prior to the entry of the reaffirmation agreement. It argues that the reaffirmation agreement, as a “meeting of the minds,” “resolved” any outstanding issues between the parties. Summary of the Law Whether Quorum was Required to Return a Repossessed Vehicle upon Filing Section 542(a) states that an entity, other than a custodian, in possession, custody, control, during the case, of property that the trustee may use, sell, or lease under section 363 of this title, or that the debtor may exempt under section 522 of this title, shall deliver to the trustee and account for, such property or the value of such property, unless such property is of inconsequential value or benefit to the estate. In United States v. Whiting Pools, 462 U.S. 198, 204, 103 S.Ct. 2309, 76 L.Ed.2d 515 (1983), the Supreme Court determined that “property of the estate” includes property in which a creditor has a secured interest, and extends to encompass such property even if the secured creditor has taken possession of its collateral prior to the bankruptcy filing. See Collier on Bankruptcy P 542.02 (Alan N. Resnick & Henry J. Sommer eds., 16th ed.) (citing and interpreting Whiting). The Court stated that “[i]n effect, § 542(a) grants to the estate a possessory interest in certain property of the debtor that was not held by the debtor at the commencement of the reorganization proceedings!.]” Whiting, 462 U.S. at 207, 103 S.Ct. 2309. In Weber v. SEFCU, 2012 U.S. Dist. LEXIS 40004 (N.D.N.Y Mar. 23, 2012), the court held that “a creditor who takes lawful repossession of a debtor’s property prior to the debtor filing a bankruptcy petition must return the property to the debtor’s reorganization estate immediately upon learning of the bankruptcy proceedings, as long as the debtor (1) retains an interest in the property and (2) any provision of the Bankruptcy Code makes the property available to the reorganization estate.” See also Thompson v. Gen. Motors Acceptance Corp., LLC, 566 F.3d 699, 703 (7th Cir.2009); In re Yates, 332 B.R. 1, 4-5 (10th Cir. BAP 2005); In re Sharon, 234 B.R. 676, 681 (6th Cir. BAP 1999); In 67re Knaus, 889 F.2d 773, 775 (8th Cir.1989) (“We fail to see any distinction between a failure to return property taken before the stay and a failure to return property taken after the stay. In both cases the law clearly requires turnover.... [and t]he duty arises upon the filing of the bankruptcy petition.”). The Weber court came to this conclusion after a well-reasoned interpretation of the Supreme Court’s decision in United States v. Whiting Pools, 462 U.S. 198, 204, 103 S.Ct. 2309, 76 L.Ed.2d 515 (1983). Thus, as the Weber court recognized, “as long as the debtor retains an interest in the repossessed property and the property is capable of being pulled into the estate by a provision under the Bankruptcy Code, that property is included in the reorganization estate at the commencement of bankruptcy proceedings.” Weber v. SEFCU, 2012 U.S. Dist. LEXIS 40004, at 9 (N.D.N.Y. Mar. 12, 2012). Pursuant to New York’s Uniform Commercial Code, a debtor has the right to redeem the repossessed property. Id. at 9-10 n.6, 11 n.7 (citing N.Y. U.C.C. § 9-623(a)). In its opposition, Quorum states that “while courts in [the Second] Circuit have arrived at different outcomes when considering this issue ... Quorum believes that this Court should adopt the reasoning of the Alberto court to find that Quorum’s conduct did not violate the automatic stay.” In Manufacturers & Traders Trust Co. v. Alberto (In re Alberto), 271 B.R. 223, 228 (N.D.N.Y.2001), the district court reversed a bankruptcy court’s finding of a willful violation of the stay where, like here, a secured creditor refused to return a vehicle to the debtor that was repossessed prior to filing. This decision is not binding on this Court and has been criticized by the court in Weber, the more recent Northern District of New York de-cisión, which this Court finds more persuasive. The Court notes that while the Supreme Court’s decision in Whiting Pools did not directly address turnover by secured creditors in chapters other than chapter 11, “the reasoning of the opinion applies equally in any case in which turnover would assist in the debtor’s rehabilitation or fresh start.” Collier on Bankruptcy P 542.02 (Alan N. Resnick & Henry J. Som-mer eds., 16th ed.) (citing Gouveia v. IRS (In re Quality Health Care), 215 B.R. 543, 566 n. 11 (Bankr.N.D.Ind.1997) for the premise that Whiting Pools applies in chapter 7 cases). Sections 362, 541, and 542 apply with the same force in a chapter 7 case as they do in a chapter 13 or a chapter 11. Although the court in Weber qualifies the bankruptcy estate as a “reorganization” estate, section 541 of the Bankruptcy Code makes no such qualification. Instead section 541 states that the “estate is comprised of all the following property, wherever located and by whomever held” and includes “all legal or equitable interests of the debtor in property as of the commencement of the case.” 11 U.S.C. § 541(a)(1) (emphasis added); see also In re Gerwer, 898 F.2d 730, 734 (9th Cir.1990) (“[W]e see no compelling reason to limit sections 363 and 542 to a case of reorganization. Section 541 comprehensively puts within the estate all the property of the debtor whether reduced to possession or not and whether the estate of the debtor is being reorganized or liquidated. Section 363 is tied to this definition of the estate. The Trustee’s power under section 542 to obtain turnover does encroach upon the expectations of a lienholder. But if the statutory power was intended to be invoked only in a reorganization, words of limitation were essential. As written, the statute speaks to the power of a trustee whether the debtor’s estate is in reorganization or liquidation.”). 68In this case, Quorum did have a duty to turn over the vehicle to the Debtors upon the filing of the filing of their bankruptcy petition and by not doing so, have violated the automatic stay. Sensenich v. Ledyard Nat’l Bank (In re Campbell), 398 B.R. 799, 811 (Bankr.D.Vt.2008) (stating that creditors have “an affirmative duty to take steps to deliver the debtor’s personal property to the Trustee”). Violation of the Automatic Stay Bankruptcy Code Section 362(k) states in relevant part: “an individual injured by any willful violation of a stay provided by this section shall recover actual damages, including costs and attorneys’ fees, and, in appropriate circumstances, may recover punitive damages.” 11 U.S.C. § 362(k); see also Weber, 2012 U.S. Dist. LEXIS 40004, at 12 (finding that the creditor “was required to return the [vehicle] to [Debtor] upon learning that [Debtor] filed a bankruptcy petition and failure to do so violated the automatic stay”). Section 362(k) mandates an. award of actual damages to an individual where the violation is willful, and the Court has discretion to assess punitive damages. Damages for willful violation of the automatic stay will lie if “a person takes a deliberate act ... in violation of a stay, which the violator knows to be in existence ... [s]uch an act need not be performed with specific intent to violate the stay. Rather, so long as the violator possessed general intent in taking actions which have the effect of violating the automatic stay the intent required ... is satisfied.” Sucre v. MIC Leasing Corp. (In re Sucre), 226 B.R. 340, 349 (Bankr.S.D.N.Y. 1998) (Gonzalez, J.). The Second Circuit has stated that: any deliberate act taken in violation of a stay, which the violator knows to be in existence, justifies an award of actual damages. An additional finding of maliciousness or bad faith on the part of the offending creditor warrants the further imposition of punitive damages pursuant to 11 U.S.C. § 362(h). This standard encourages would-be violators to obtain declaratory judgments before seeking to vindicate their interests in violation of an automatic stay, and thereby protects debtors’ estates from incurring potentially unnecessary legal expenses in prosecuting stay violations. In re Crysen/Montenay Energy Co., 902 F.2d 1098, 1105 (2d Cir.1990) (emphasis added). Even where a stay violation is not willful, the action taken in violation of the stay is void ab initio. See In re Patti, 2001 WL 1188218 at 7 (Bankr.E.D.Pa. 2001). Here, Quorum received notice of the bankruptcy filing and did not release the vehicle — nor did it come to this Court for an order seeking a determination on whether it could maintain possession. Instead, Quorum unilaterally determined that it was not in possession of property of the estate and conditioned the release of the vehicle upon the signing of a reaffirmation agreement, payment of arrears, and providing proof of insurance. Quorum now argues that it cannot be held liable for any violation of the automatic stay by virtue of the signing of the agreement. While it may be true that the Debtors should have alerted the Court to this stay violation as soon as possible, Quorum cannot ratify its willful violation of the stay by forcing a debtor to sign a reaffirmation agreement prior to doing what it was required to do under the law. In support of its position that the Debtors impliedly consented to the stay violation by signing the reaffirmation agreement (though no order has been entered 69approving the reaffirmation agreement between Quorum and the Debtors), Quorum cites In re FYM Clinical Laboratory, Inc., 1993 WL 288541, 1993 Bankr.LEXIS 1034 (Bankr.S.D.N.Y. June 17, 1993). FYM is concerned with the interpretation of a settlement agreement resolving a disagreement between a debtor and creditor. In that case, the settlement at issue was so ordered by the court after it was placed on the record of a hearing — and clearly established that the creditor had “agreed to relinquish its recoupment rights in exchange for ‘good faith’ negotiations in three months, a § 364(c)(3) lien and certain ‘carve-outs’ for professionals.” Id. at 5, 1993 Bankr. LEXIS 1034 at 12-13. The court in FYM was not expounding on the law of reaffirmation agreements but rather was interpreting a settlement agreement having nothing to do the issue in this case. Next Quorum argues that Debtors ratified any violations of the automatic stay by executing the reaffirmation agreement and cite In re Scotto, 2010 WL 1688743, 2010 Bankr.LEXIS 1370 (Bankr.E.D.N.Y. Apr. 26, 2010). This case is also distinguishable from the facts at hand. In Scotto, the debtor sought to dismiss a chapter 7 petition based upon the fact that he did not give the attorney permission to file on his behalf and the fact that someone in the attorney’s office forged his signature on the petition. The court in Scotto found that the debtor had ratified the bankruptcy filing by failing to protest the filing sooner despite obtaining knowledge of the petition two days after it was filed. Id. at 12-15, 2010 Bankr.LEXIS 1370 at 36-44. In that case, the court refused to dismiss the chapter 7 until the debtor could prove to the satisfaction of the chapter 7 trustee and the court that such dismissal would not unduly prejudice creditors. Id. at 14-15, 2010 Bankr.LEXIS 1370 at 43-44. The case does not touch upon whether a secured creditor may withhold property of the estate in violation of the stay and then shield itself from sanctions by conditioning its release upon the signing of a reaffirmation agreement. Finally, Quorum cites In re Boates, 2005 Bankr.LEXIS 2821 (Bankr.E.D.Pa. July 6, 2005) for its argument that Debtors should be estopped from invoking a violation of the automatic stay. In Boates, the debtor had staved off a foreclosure in state court by agreeing to an extension of the 180-day bar to re-filing a bankruptcy petition. Then, when she re-filed in violation of the agreement, she argued that such an agreement was invalid. Because the court determined that the debtor had deceived the creditor and had filed her second petition in bad faith, it estopped her from receiving protection of the automatic stay. The court noted that such a remedy was “tailored to address the harm done to [the creditor] and the state court process by the debtor’s inconsistent representations.” Id. at 34. Here it is the creditor, not the Debtors, who acted in bad faith by retaining property of the estate unlawfully and then conditioning its release upon the signing of a reaffirmation agreement and the collection of pre-petition arrears despite the imposition of the automatic stay. If Quorum believed that it was entitled to lawfully retain the vehicle it should have sought permission of this Court to do so. See Sensenich v. Ledyard Nat’l Bank (In re Campbell), 398 B.R. 799, 811 (Bankr.D.Vt.2008) (“A willful violation of the stay does not require specific intent to violate the stay. A party can be subject to liability under 362(h) [now § 362(k)(l)] if it engages in conduct which violates the automatic stay, with knowledge that a bankruptcy petition has been filed. In determining whether a 70stay violation was willful, it is irrelevant whether the party believed in good faith that it had a right to the property at issue. Not even a good faith mistake of law or a legitimate dispute as to legal rights relieve a willful violator of the consequences of his act.”) (internal quotation omitted). Instead of coming to this Court for a ruling, Quorum withheld Mrs. Velichko’s only means of transportation— causing her to incur more debt by forcing her to rent a car and making it virtually impossible for her to receive the fresh start to which she is entitled under the Bankruptcy Code. Then as a condition for her to receive possession of the car, which she was legally entitled to receive upon the filing of the petition, Quorum extracted from her over $800 in arrears and a reaffirmation agreement. Conclusion Because Quorum violated the automatic stay by retaining the vehicle after the bankruptcy filing, the Debtors are entitled to actual damages — their cost for the rental car, attorney’s fees, and re-payment of arrears required by Quorum in order to release the vehicle. In addition, the Debtors are entitled to punitive damages. Quorum shall pay the amount of actual damages a second time to the Debtors as punitive damages and shall consider them current on the vehicle payments despite having to return over $800 of pre-petition arrears. Debtors shall submit an order consistent with this decision. The order shall include a breakdown of the costs and fees incurred by the Debtors as a result of this stay violation and shall be settled on seven (7) days notice so that Quorum may have notice of and an opportunity to object to the amount of fees awarded.	01-04-2023	11-22-2022
https://www.courtlistener.com/api/rest/v3/opinions/8494764/	OPINION MARY D. FRANCE, Chief Judge. Orrstown Bank (“Orrstown”) filed a motion for relief from the automatic stay (the “Motion”) to pursue mortgage foreclosure proceedings against real property owned by Biltwood Properties LLC (“Debtor”). For the reasons set forth below, the Motion will be granted. I. Procedural History Debtor filed a voluntary petition under Chapter 11 on November 11, 2011. On Schedule A, Debtor listed its interest in real property with a value of $700,000 located at 544 Buchanan Trail West, Green-castle, Franklin County, Pennsylvania (the “Greencastle Property” or the “Property”). On March 15, 2012, Orrstown filed the Motion stating that as of December 9, 2011, it held a claim against Debtor of approximately $331,520 secured by first, second, and third liens against the Green-castle Property. Orrstown also asserted that the Property was subject to a fourth mortgage held by the Franklin County Area Development Corporation (the “FCADC”) and a fifth mortgage held by Larry and Shirley DiMarco (the “DiMar-cos”). In its schedules, Debtor lists the total face amount of the mortgages held by the FCADC and the DiMareos at $200,000. In addition to the mortgage debt, Debtor reported outstanding real estate taxes owing to Franklin County of $17,846. Orrstown asserts that it is entitled to relief because Debtor does not have equity in the Property, and it is not necessary to an effective reorganization. This assertion is supported by an appraisal setting the value of the Property at $335,000. Orrs-town further argues that Debtor has failed to pay post-petition real estate taxes, which constitutes a breach of the mortgage agreement. Debtor counters that it is providing Orrstown with adequate protection through equity in the Property and by making regular mortgage payments. A hearing on this matter was held on April 17, 2012. Debtor and Orrstown each presented the testimony of an appraiser who offered an opinion as to the value of the Property. No briefs were requested, thus this matter is ready for decision.1 II. Facts The Greencastle Property is a 1.74 acre parcel of commercial real estate with a light industrial building of 18,507 square feet. The assessed value of the land and buildings is $62,190. When the county equalization ratio is applied to the assessed value, it produces an implied market value of $474,510. The deed transferring the Property to Debtor, which is recorded in the Franklin County Register and Recorder’s Office, states that the Property was transferred to Debtor on November 29, 2001 for a sale price of $250,000. Debtor acquired the Property in 2001 and leased the existing building to a related company, which operated a millwork and powder coating business from the site. At the time of the hearing in this matter the millwork business had closed. The powder coating business was operating, but the owner was in the process of selling the business to an unrelated third party. Debtor’s, principal testified that if the purchase was consummated, Debtor would receive $1350 per month in rent from the new tenant. Only about one-third of the 73building is occupied by the powder coating business; the remainder is vacant. At the time of the hearing, the Greencastle Property was listed for sale with FCADA at a price of $695,000. Debtor’s principal stated that Debtor intended to list the property with a realtor and lower the asking price to $525,000 as determined by Debt- or’s appraiser. Before Debtor filed its petition, Orrs-town had commenced foreclosure proceedings due to Debtor’s failure to pay real estate taxes for 2009, 2010, and 2011. The failure to pay real estate taxes constituted a breach of the mortgage loan agreement. As of April 13, 2012, Debtor owed $26,603.46 in delinquent real estate taxes. At the hearing, Debtor’s principal represented that Debtor would pay future real estate taxes as they became due until the real estate was sold. A Orrstown’s appraisal Orrstown’s appraiser, Tim Ausherman (“Ausherman”), appraised the Property on February 23, 2012 using the cost and sales comparison approaches. To arrive at the replacement cost of the building on a comparable site, Ausherman first calculated the land value using the sales comparison approach. Three vacant commercial properties of approximately one to two acres sold in Franklin County within two years of the appraisal date were compared to the subject. After adjusting for factors such as proximity to the Greencastle Property, location, size, and topography, Ausherman set the market value of the land at $196,000. He then estimated the replacement cost of the building and improvements, which were depreciated based upon an effective age of 25 years for the building and 7 years for site improvements. These adjustments produced a value for the improvements of $247,537. When the land cost of $196,000 was added to the depreciated value of the improvements of $247,537, it produced a rounded value under the cost approach of $444,000. To calculate the value of the Greencastle Property under the sales comparison approach, Ausherman analyzed four sales of commercial property in Franklin County that had closed within three and one-half years of the date of the appraisal and one property that was under contract when the appraisal was prepared. After adjusting the comparable sales for location, sale date, site size, improvements and building design, age, size, and condition, Ausher-man valued the Greencastle Property at $335,000. B. Debtor’s appraisal Debtor’s appraiser, Robert Gearhart (“Gearhart”), also used the cost2 and comparable sales approaches to value the Greencastle Property. Gearhart determined the cost approach by valuing the land through comparable sales of vacant land, calculating the cost to build a similar structure and then depreciating the replacement cost of the building by 33% to account for the effective age of the structure. Three vacant commercial properties of approximately one to four acres sold in Franklin County within fourteen months of the appraisal date were compared to the subject. After adjusting for factors such as location, size, and the availability of public utilities, Gearhart set the market value of the land at $156,600 or $89,080 per acre. Gearhart determined that it would cost $670,285 to construct the building and after depreciation, the current structure was valued at $449,090. Adding the rounded depreciated value of the building of $450,000 to a rounded value for the land of $150,000, Gearhart calculated the value 74of the Property under the cost approach at $600,000. To calculate the value of the Greencastle Property under the sales comparison approach, Gearhart analyzed three sales of commercial property in Franklin County that had closed within approximately two years of the date of the appraisal and one property that closed six years before the appraisal date.3 After adjusting the comparable sales for sale date, location, site size, building size and condition, and the existence of additional storage, Gearhart valued the Greencastle Property at $525,000. Both appraisers agreed that values in the county have remained flat since the onset of the recession in 2008. Each appraiser used at least one property obtained by the seller through foreclosure as a comparable sale. Both appraisers also agreed that the highest and best use of the property was for commercial or light manufacturing enterprises. III. Discussion Section 362(a) of the Bankruptcy Code provides that most actions against property of a Chapter 11 debtor are stayed. Under 11 U.S.C. § 362(d)(1), a creditor may be granted relief from the automatic stay for cause, including a lack of adequate protection for its interest in the property. Relief also may be granted if a debtor has no equity in the property and the property is not necessary to an effective reorganization. 11 U.S.C. § 362(d)(2). The party requesting relief from the stay has the burden of proof on the issue of a debtor’s equity in the property, and the party opposing the relief has the burden of proof on all other issues. 11 U.S.C. § 362(g). A. The adequate protection requirement of 11 U.S.C. § 362(d)(1) Orrstown asserts that it should be granted relief because its interest is not adequately protected. Adequate protection comes in a variety of forms, including periodic payments, additional or replacement liens, and other relief that provides the “indubitable equivalent” to the protections afforded to the creditor outside of bankruptcy. Delaware Valley Sav. & Loan Assn. v. Curtis (In re Curtis), 9 B.R. 110, 112 (Bankr.E.D.Pa.1981) (citing In re Murel Holding Corp., 75 F.2d 941, 942 (2d Cir.1935)). See also 11 U.S.C. § 361. Typically, adequate protection is provided to a creditor through periodic payments. Here, Orrstown admits that Debtor has made all post-petition mortgage payments. It asserts, however, that Debtor’s failure to pay pre-petition real estate taxes for three years has impaired Orrstown’s lien status so the mortgage payments alone fail to provide adequate protection. Under Pennsylvania law, taxes imposed on real property by counties, cities, and school districts are a first lien on real property, subject only to taxes imposed by the Commonwealth. 53 P.S. § 7103; In re Com., Dept. of Tmnsp., 36 Pa.Cmwlth. 346, 350, 388 A.2d 344, 346 (1978). It is undisputed that the three liens held by Orrs-town, which total $331,520, are subordinate to the lien for unpaid real estate taxes. Therefore, the unpaid real estate taxes of $26,603.46 constitute a first lien against the Greencastle Property. Unless the value of the Greencastle Property exceeds $358,123, Orrstown’s lien is impaired. This is true even though Debtor is making regular mortgage payments to Orrstown. If the value of the Property exceeds the amount of the real estate tax lien and the first, second and third mortgage liens of 75Orrstown, however, Debtor may be providing adequate protection to the bank in the form of an “equity cushion.” An equity cushion is the value of the property after the claim of the creditor seeking relief from the automatic stay and all senior claims are deducted. Nantucket Investors II v. Cal. Fed. Bank (In re Indian Palms Assoc., Ltd.), 61 F.3d 197, 207 (3d Cir.1995). To determine whether Orrstown’s interest in the Greencastle Property is protected by an equity cushion, this Court must first determine its value. B. The equity requirement under 11 U.S.C. § 362(d)(2) Under § 362(d)(2) the Court must conduct a slightly different analysis to determine whether Debtor has equity in the Property and whether it is necessary for an effective reorganization. Whether a debtor has any equity in a property for purposes of § 362(d)(2) is determined by comparing the amount of all liens against the property to its value, not just the lien in question and all superior liens. Id. at 206. “All encumbrances are totalled to determine equity whether or not all lien-holders have requested relief from the stay.” Nazareth Nat’l Bank & Trust Co. v. Trina-Dee, Inc. (In re Trina-Dee, Inc.), 26 B.R. 152, 154 (Bankr.E.D.Pa.1984), aff'd, 731 F.2d 170 (3d Cir.1984). Therefore, while different approaches are pursued when calculating equity for purposes of (d)(1) when compared to (d)(2), both analyses require that a court determine the value of the collateral. C. Analysis of the appraisals In the within case, both appraisers used similar approaches to evaluate the Green-castle Property. Both employed two of the three generally accepted valuation methods&emdash;the cost approach and the comparable sales approach. Both appraisers determined that the income approach was not an appropriate methodology to determine the value of the Greencastle Property. Using the cost approach, Gearhart valued the Property at $600,000, and Aush-erman valued it at $444,000. Although both appraisers valued the Property under the cost approach, neither appraiser relied upon this method to any significant extent when he determined its value. Using the sales comparison approach, Gearhart valued the Property at $525,000 while Aush-erman valued it at $335,000. Both experts were qualified commercial real estate appraisers, and both conducted a thorough review of the premises and relevant real estate records. Both appraisers had difficulty locating comparable properties considering the sluggishness of the commercial real estate market in Franklin County during the past several years. The comparable sales they did select required extensive adjustments. Having reviewed the analysis of comparable sales in both appraisals, I find Ausher-man’s opinion as to value more persuasive. Although neither appraiser relied on the cost approach, Ausherman’s methodology was more detailed and better supported than Gearhart’s approach. For example, both appraisers describe the building as being partially concrete block and partially steel. Gearhart simply provides an overall price per square foot of $32.89. Ausher-man, however, assigned a different cost per square foot for portions of the building that were steel as compared to portions that were masonry. Ausherman included a value for site improvements, namely the parking lot, which were not valued separately by Gearhart. The most significant flaw in Gearhart’s cost methodology, however, was his calculation of depreciation. Both appraisers opined that the effective age of the Greencastle Property was 25 76years. Gearhart determined that the life expectancy of the property was 45 years.4 Under the age/life method of depreciation used by both appraisers, the effective age of the building is divided by its life expectancy to determine a depreciation percentage, which is then applied to the replacement cost.5 Gearharts report stated that using the age/life method, the appropriate depreciation factor was 33%. Had Gear-hart performed the calculation correctly, he would have concluded that the correct depreciation factor was 56% (effective age (25) -p life expectancy (45) = 56%). This change in the depreciation factor reduces the value of a replacement building from approximately $450,000 to approximately $378,000. Accordingly, had the reconstruction cost been calculated correctly, the value reached by Gearhart under the cost approach would have been $533,000 rather than approximately $600,000. While this error undermined Gearhart’s credibility generally, it had no impact on the final calculation because both appraisers primarily relied upon the sales comparison approach rather than the cost approach. Each appraiser compared the Greencastle Property to four “comparable” sales of commercial property. The only comparable sale they had in common was a property located in Mercersburg. Both appraisers had difficulty identifying similar buildings on similar sized lots sold within the last three years. The adjustments made to the Mercersburg property demonstrate the limitations of the sales comparison approach when the subject and a comparable property are dissimilar in several significant aspects. Gearhart made adjustments to the value of the Mercersburg property to arrive at an indicated value for the Greencastle Property of $538,700. Comparing the same properties, Ausherman adjusted the sale price of the Mercersburg property to produce an indicated value of $263,370— less than half the value calculated by Gear-hart. Both appraisers agreed that the Greencastle Property enjoyed a location that was superior to that of the Mercers-burg property with Gearhart concluding that this variation justified an adjustment of $200,000. Ausherman, on the other hand, concluded that the inferior location of the Mercersburg property only justified an adjustment of $125,000. Gearhart deducted $48,900 for the smaller site size of the Greencastle Property, while Ausher-man determined that the adjustment for the same factor should be $244,500.6 Their positions, however, were reversed when building size was considered. Gear-hart’s adjustment for the smaller size of the Greencastle Property was $112,400, while Ausherman only reduced the value by $57,130. Gearhart found the Greencastle Property to be in average condition and the Mercersburg property to be in “average-” condition. This slightly less desirable description caused Gearhart to add $100,000 to the indicated value of the subject. In a similar finding, Ausherman found that the building quality of the Greencastle Property was superior to the Mercers-burg property, but only added $50,000 to its indicated value. Finally, Ausherman determined that the improvements at the Mercersburg property were superior and 77deducted $10,000 from the indicated value. No similar adjustment was made by Gearhart. The appraisers did not provide evidence to substantiate these adjustments so it was difficult for the Court to determine which ones were more realistic. Based upon the reports and the testimony presented, however, the Court finds that Ausherman’s opinion as to value is better supported primarily because some of Gearhart’s adjustments were inconsistent. The adjustments most difficult to understand in Gearhart’s analysis of comparable sales were those related to land area. In computing comparable land values as part of the cost analysis, Gearhart used a per acre adjustment of $100,000. For example, when comparing the subject (1.74 acres) with a comparable land sale located in State Line, Pennsylvania (2 acres), Gearhart deducted $26,000 from the $250,000 sale price of the comparable property. The acreage difference between the two properties was .26 acres, thus the $26,000 adjustment was based upon a per acre value of $100,000. When adjusting for differences in acreage using the comparable sales approach, however, Gearhart only valued the acreage differences at $15,000 per acre. He was unable to explain why the two approaches would use such different acreage adjustments, stating that this was his typical methodology.7 Ausherman, however, used the same per acre value for calculating the value of vacant lots in the cost approach as he did when making adjustments to comparable sales. Although there probably is a rational basis for distinguishing between the per acre value of vacant versus improved land, I find Ausherman’s consistent approach of adjusting value for lot size at $75,000, whether the land was vacant or improved, to be more logical than the use of a range of values from $15,000 per acre to $100,000 per acre for similar properties.8 D. Relief from the automatic stay Having determined that Ausher-man’s opinion as to value is more credible, I find that the value of the Greencastle Property for the purpose of determining whether Orrstown is entitled to relief from the automatic stay is $335,000. When the outstanding real estate taxes of $26,603.46 are added to the outstanding amount on the Orrstown debt of $331,520, the value of the property ($335,000) is less than the amount of the tax lien and Orrstown’s mortgage ($358,123). Therefore, I find that Orrstown’s lien is not protected by an equity cushion and that further, Debtor has no equity in the Greencastle Property. Even if Debtor continues to make regular monthly mortgage payments, Orrstown’s secured position is not adequately protected because of the existence of a superior tax lien. Therefore, under 11 U.S.C. § 362(d)(1), relief from the automatic stay will be granted. 78Orrstown also has alleged that relief should be granted under § 362(d)(2). Having determined that Debtor does not have equity in the property, I must consider whether the property is necessary to an effective reorganization. In United Sav. Ass’n v. Timbers of Inwood Forest Assocs., Ltd., 484 U.S. 365, 108 S.Ct. 626, 98 L.Ed.2d 740 (1988), the Supreme Court explained that to meet its burden of proof under § 362(d)(2), a debtor must show that there is “ ‘a reasonable possibility of a successful reorganization within a reasonable time.’ ” Id. at 367, 108 S.Ct. 626 (citations omitted). As noted by the Court of Appeals for the Third Circuit, while “a lift stay hearing should not be transformed into a confirmation hearing,” “[t]he ‘effective reorganization’ requirement enunciated by the Supreme Court ... require[s] a showing by a debtor ... that a proposed or contemplated plan is not patently un-confírmable and has a realistic chance of being confirmed.” John Hancock Mut. Life Ins. Co. v. Route 37 Business Park Assocs., 987 F.2d 154, 157 (3d Cir.1993) (quoting In re 266 Washington Assocs., 141 B.R. 275, 281 (Bankr.E.D.N.Y.1992), aff'd, 147 B.R. 827 (E.D.N.Y.1992)). In the within case Debtor has not proposed a plan and is attempting to sell the Greencastle Property at a price far in excess of market value.9 At the hearing on this matter, Debtor stated that it would be lowering the asking price to $525,000 based on Gearhart’s appraisal. This price, however, is still significantly above market value as determined by this Court. Accordingly, this strategy is unlikely to produce a successful result. Debtor introduced no other evidence at the hearing to meet its burden to establish that there is a reasonable likelihood that it can successfully reorganize within a reasonable time. Accordingly, it has failed to meet its burden under 11 U.S.C. § 362(d)(2)(B). Therefore, relief from the automatic stay also will be granted under § 362(d)(2). IV. Conclusion For the reasons set forth above, Orrs-town has met its burden to prove that Debtor lacks equity in the Greencastle Property. Debtor has failed to prove that it has provided Orrstown with adequate protection or that the property is necessary for an effective reorganization. An order will be entered granting Orrstown relief from the automatic stay to proceed with the action it commenced in state court prior to the filing of the petition. . I have jurisdiction to hear this matter pursuant to 28 U.S.C. §§ 157 and 1334. This matter is core pursuant to 28 U.S.C. § 157(b)(2)(A),(B) and (O). This Opinion constitutes findings of fact and conclusions of law made under Fed. R. Bankr.P. 7052, which is applicable to contested matters pursuant to Fed. R. Bank. P. 9014. . Gearhart described the cost approach as the "reconstruction cost approach.” . Only one comparable sale property was used by both appraiser — the September 22, 2011 sale of a commercial building on five acres located in Mercersburg, PA. . Ausherman determined that the life expectancy of the Greencastle Property was 35 years. The basis for this discrepancy was not explored in the testimony. . Appraisers Institute, The Appraisal of Real Estate 392 (12th ed. 2001). . The site size for the Mercersburg property is 5 acres as compared to the 1.74 acre size of the Greencastle Property. . One adjustment Gearhart failed to make that the Court found troubling was an adjustment to the value his second comparable sale (80 Commerce Drive, Greencastle) for its superior condition when compared to the subject. If Gearhart had made the same adjustment to the second comparable sale that he made to the fourth comparable sale (both of which were in '‘good” rather than "average” condition), the value of the second comparable would have been $285,500 rather than $535,500. . While Ausherman attributed more weight to variations in acreage than did Gearhart, he made lower adjustments based upon building size. Ausherman adjusted the variations in building size at a rate of $10 per square foot, while Gearhart adjusted the values at $20 per square foot. The Court has no basis upon which to determine which approach is more accurate. Therefore, this distinction does not factor into the Court’s determination that Ausherman’s assessment of value was more credible than the value offered by Gearhart. . As an alternative to selling the Greencastle Property, Debtor has been attempting to lease areas of the building not being used by the powder coating business, but with no success.	01-04-2023	11-22-2022
https://www.courtlistener.com/api/rest/v3/opinions/8494765/	MEMORANDUM OPINION RICHARD E. FEHLING, Bankruptcy Judge. I. INTRODUCTION Plaintiff/Debtor, Erik Von Kiel, formerly known as Dennis Fluck, (“Debt- or”), is a doctor who owed, as of February 29, 2012, $200,239.42 in Health Education Assistance Loans (“HEAL loans”). See Declaration of Barry M. Blum (“Blum Declaration”), p. 6, ¶ 32 (attached to Defendants’ Motion for Summary Judgment as Exhibit l).1 Through his Complaint, Debt- or seeks a determination that for various reasons, the HEAL loans should be deemed not to exist (Counts 1, 2, 3, and 6) or, in the alternative, that the HEAL loans were discharged in his 1991 bankruptcy case (Count 4) or, again in the alternative, are dischargeable in this bankruptcy case (Count 5). Defendants, United States Department of Health & Human Services (“HHS”) and 81United States Department of Justice (collectively “Defendants”), have filed their Motion for Summary Judgment, which is the subject of this Memorandum Opinion. Defendants maintain that no genuine issues of material fact exist and that they are entitled to judgment on the Complaint as a matter of law because: (1) I lack jurisdiction over Counts 1, 2, 3, and 6 of the Complaint under the Rooker-Feldman doctrine; (2) even if I have jurisdiction over Counts 1, 2, 3 and 6, these Counts are barred under the doctrine of res judicata, also known as claim preclusion; (3) the HEAL loans were not discharged in Debt- or’s prior bankruptcy case (Count 4); and (4) the HEAL loans cannot be discharged in Debtor’s present bankruptcy ease (Count 5) because I denied Debtor a discharge in this bankruptcy case by my Memorandum Opinion and Order entered on January 5, 2012, in Deangelis v. Von Kiel (In re Von Kiel), Adv. No. 10-2136 (10-21364REF), reported in 461 B.R. 323 (Bankr.E.D.Pa.2012).2 Debtor responded by filing a Cross-Motion for Summary Judgment. For the reasons that follow, I find that no genuine issue of material fact exists and Defendants are entitled to summary judgment as a matter of law on Counts 1-6 of the Complaint. I therefore grant Defendants’ Motion for Summary Judgment on these Counts and deny Debtor’s Cross-Motion for Summary Judgment. This Memorandum Opinion constitutes my findings of fact and conclusions of law. II. PROCEDURAL HISTORY Debtor filed his 15-count Complaint against Defendants and the Honorable Pe-trese Tucker, United States District Court Judge for the Eastern District of Pennsylvania, United States Attorney David Zane Memerager, Assistant United States Attorney Virginia Powell, United States Trustee Roberta A. DeAngelis and Assistant United States Trustee Dave Adams on February 17, 2011. On March 24, 2011, Defendants filed a Motion To Dismiss and/or Strike Complaint (“Motion To Dismiss”). Both parties filed briefs and I heard argument on the Motion To Dismiss on May 12, 2011. After which I entered a bench Order that granted the Motion To Dismiss in part, denied it in part and took under advisement and directed the parties to brief the res judicata and collateral estoppel arguments raised by Defendants. My May 12, 2011 Bench Order was later memorialized in two written Orders. My May 13, 2011 written Order directed the parties to brief the res judicata and collateral estoppel arguments and granted in part and denied in part Defendants’ Motion To Dismiss. Specifically, my May 18 Order dismissed Judge Tucker as a defendant in this proceeding because Debtor consented to her dismissal during the May 12, 2011 argument. In footnote 3, I explained that Counts 11 and 12 were the only counts of the Complaint that pertained to Judge Tucker and I dismissed Counts 11 and 12. My May 18 Order also dismissed United States Attorney David Zane Memerager, Assistant United States Attorney Virginia Powell, United States Trustee Roberta A. DeAngelis, and Assistant United States Trustee Dave Adams as defendants in this proceeding because they were entitled to absolute immunity from this suit and because they had no duty to report or investigate the claims that Debtor argued 82should have been reported or investigated. Finally, my May 18 Order dismissed Counts 7-11 and Counts 13-15 of the Complaint for Debtor’s failure to state claims that were plausible on their face under Fed. R. Bankr.P. 7012(b) and Fed.R.Civ.P. 12(b)(6). After my May 18 Order, Counts 1-6 were the only counts of the Complaint that remained pending and HHS and the United States Department of Justice were the only parties who remained as defendants.3 The parties then briefed the res judicata and collateral estoppel issues, and on October 7, 2011, I entered an Order granting Defendants’ Motion To Dismiss as to Counts 1, 2, 3, 4 and 6 of the Complaint. After my October 7 Order, only Count 5, which requests a determination that the HEAL loans are dischargeable in this bankruptcy case, remained pending. On October 21, 2011, Debtor filed a Motion To Reconsider my October 7, 2011 Order (“Motion To Reconsider”), as well as a Request for Extension of Time To Complete his Motion To Reconsider. Meanwhile, Defendants filed their Answer to Count 5 of the Complaint on October 28, 2011. On November 3, 2011, Debtor filed another Motion To Reconsider my October 7, 2011 Order. For some reason, on November 18, 2011, Debtor, without explanation and without seeking leave of court, filed an Amended Complaint which purported to reinstate Counts 1, 2, 3, 4 and 6 of the Complaint. On November 21, 2011, I dismissed the Amended Complaint, finding that Debtor violated Fed.R.Civ.P. 15(a)(1)4 by filing the Amended Complaint without first obtaining leave of court. Meanwhile, on January 20, 2012, Defendants filed a Renewed Motion To Dismiss Count 5 of Complaint. On February 13, 2012, I held a hearing on Debtor’s Motion To Reconsider and I heard argument on Defendants’ Renewed Motion To Dismiss Count 5. On February 13, 2012, I entered an Order granting Debtors’ Motion To Reconsider and vacating my October 7, 2011 Order dismissing Counts 1-4 and Count 6 of the Complaint. My February 13 Order also denied Defendants’ Renewed Motion To Dismiss Count 5, and directed Defendants to file, by March 10, 2012, a Motion for Summary Judgment on Counts 1-6 of the Complaint or an Answer to Counts 1-6 of the Complaint. I also directed Defendants to limit any summary judgment motion to three issues, namely: (1) Whether Debtor’s HEAL loans were discharged in a prior bankruptcy; (2) whether In re Dabrowski, 257 B.R. 394 (Bankr.S.D.N.Y. 2001) has precedential value in the Third Circuit; and (3) the effect of my January 5, 2012 Memorandum and Order denying Debtor a discharge5 on Debtor’s ability to have his HEAL loans discharged in his main bankruptcy case. Defendants filed their Motion for Summary Judgment and brief in support thereof on March 12, 2012.6 83Debtor filed a Motion for Summary Judgment (construed as his “Cross-Motion for Summary Judgment”) with accompanying brief on April 6, 2012, to which Defendants filed a Reply on April 13, 2012. Debtor then filed a Response to Defendants’ Reply on April 27, 2012 and a supplemental brief on May 4, 2012. All briefs are now filed and Defendants’ Motion for Summary Judgment and Debtor’s Cross-Motion for Summary Judgment are now ripe for my disposition. III. FACTUAL BACKGROUND Debtor is a medical doctor who financed his education with the use of Health Education Assistance (“HEAL”) loans insured by the federal government under the Public Health Service Act, 42 U.S.C. § 292f-p. Debtor’s HEAL loans came due on the first day of the tenth month after Debtor ceased being a full-time student. The HEAL loans financed by First Eastern Bank and First American Bank, N.A. were subsequently purchased, and were held, by the Student Loan Marketing Association (“Sallie Mae”). Defendants refer to these loans as “Claim I.” The remaining HEAL loans were held by the Pennsylvania Higher Education Assistance Agency (“PHEAA”). Defendants refer to these loans as “Claim II.” See Blum Declaration, pp. 1-2, ¶ 4. A. CLAIM I — SALLIE MAE LOANS The loans that were held by Sallie Mae (Claim I) first came due on March 30, 1989, after Debtor completed his internship programs and the nine month forbearance period expired. See Blum Declaration, p. 2, ¶ 5. From May 10, 1989 through January 29, 1998, Debtor made 34 payments on these loans totaling $26,717.03. Debtor made no other payments on the Sallie Mae loans. See Blum Declaration, p. 2, ¶ 6. Sallie Mae declared Debtor in default and filed a complaint against Debtor in 2000 in the Lehigh County Court of Common Pleas, Civil Division, docketed at No. 2000-C-757. On July 14, 2000, the state court entered a judgment in this action against Debtor in the amount of $132,185.27. See Blum Declaration, p. 2, § 7, and Exhibit D (Blum-00054-72) (certified state court docket and pleadings). Sallie Mae then filed an insurance claim against HHS. HHS paid Sallie Mae’s claim on November 20, 2000, and Sallie Mae assigned the judgment to HHS. See Blum Declaration, pp. 2-3, ¶¶ 8-9, Exhibit E (Blum-00073^), Exhibit G.7 84After receiving the assignment of the judgment, HHS repeatedly attempted to collect the debt from Debtor. See Blum Declaration, p. 3, ¶¶ 10-12, Exhibit H. On September 19, 2002, HHS registered the judgment with the United States District Court for the Eastern District of Pennsylvania. See Blum Declaration, p. 3, ¶ 13, Exhibit I (Blum-00088-90). B. CLAIM II — PHEAA LOANS The loans that were held by PHEAA (Claim II) first became due on May 15, 1989. See Blum Declaration, p. 3, ¶ 14. From May 9, 1989 through April 22, 1998, Debtor made 43 payments on the PHEAA loans totaling $23,027.93. Debtor made no other payments on the PHEAA loans. See Blum Declaration, p. 4, ¶ 15. PHEAA declared Debtor in default and filed a complaint against Debtor in the Lehigh County Court of Common Pleas, Civil Division, docketed at Case No. 1999-N-0761. On August 3, 1999, the state court entered a judgment in this action against Debtor in the amount of $29,008.36 plus interest accruing at 7.375%. See Blum Declaration, p. 4, § 16, and Exhibit L (Blum-00132^0) (certified state court docket and pleadings). PHEAA then filed an insurance claim against HHS. HHS paid PHEAA’s claim in the amount of $28,581.00 on September 15, 1999 and PHEAA assigned the judgment to HHS. See Blum Declaration, pp. 4, 5, ¶¶ 17, 18, 23, Exhibit M (Blum-00143), Exhibit N (Blum 00145-46), Exhibit O.8 After receiving the assignment of the judgment, HHS repeatedly attempted to collect the debt from Debtor. See Blum Declaration, p. 4, ¶¶ 19-22, Exhibit O. On September 19, 2002, HHS registered the judgment with the United States District Court for the Eastern District of Pennsylvania. See Blum Declaration, p. 4, 5, ¶ 23, Exhibit I (Blum-00088-90). IV. DISCUSSION A. SUMMARY JUDGMENT STANDARD A motion for summary judgment should be granted “if the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law.” Fed. R.Civ.P. 56(a).9 “Facts that could alter the outcome are ‘material,’ and disputes are ‘genuine’ if evidence exists from which a rational person could conclude that the position of the person with the burden of proof on the disputed issue is correct.” Ideal Dairy Farms, Inc. v. John Labatt, 85Ltd., 90 F.3d 737, 743 (3d Cir.1996) (citations omitted). The party requesting summary judgment bears the burden of showing that the record contains no genuine issue of material fact and that he is entitled to judgment as a matter of law. Celotex Corp. v. Catrett, 477 U.S. 317, 323, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986); Conoshenti v. Pub. Serv. Elec. & Gas Co., 364 F.3d 135, 140 (3d Cir.2004). If the moving party meets this burden, the burden then shifts to the party opposing summary judgment to present “specific facts showing that there is a genuine issue [of material fact] for trial,” offering concrete evidence supporting each essential element of its claim.” Olick v. Kearney (In re Kearney), 466 B.R. 680, 696 (E.D.Pa.2011) quoting Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 587, 106 S.Ct. 1348, 89 L.Ed.2d 538 (1986) (emphasis in original). The non-moving party cannot defeat a well supported summary judgment motion by reasserting unsupported factual allegations contained in his pleadings. Williams v. Borough of West Chester, 891 F.2d 458, 460 (3d Cir.1989). The party opposing summary judgment “must do more than simply show that there is some metaphysical doubt as to the material facts,” Matsushita, 475 U.S. at 586, 106 S.Ct. 1348, and he may not rely on “mere allegations, general denials, or ... vague statements.... ” Trap Rock Indus., Inc. v. Local 825, Int’l Union of Operating Eng’rs, 982 F.2d 884, 890 (3d Cir.1992) (quotation omitted). Rather, he must rebut the motion by designating “specific factual averments through the use of affidavits or other permissible evidentiary material that demonstrate a triable factual dispute.” GMAC Inc. v. Coley (In re Coley), 433 B.R. 476, 486 (Bankr.E.D.Pa.2010). B. DEBTOR’S HEAL LOANS WERE NOT DISCHARGED IN HIS PRIOR BANKRUPTCY CASE Count 4 of Debtor’s Complaint is labeled, “Loan Discharged in Bankruptcy already” and alleges that the HEAL loans were discharged in Debtor’s prior chapter 7 bankruptcy case filed in 1991. At the time Debtor filed his prior bankruptcy case in 1991, a HEAL loan was automatically excepted from discharge unless the debtor filed an adversary complaint requesting that the HEAL loan be discharged. A debtor was obliged to establish: (1) The discharge would be granted after the expiration of the five year period 10 beginning on the first date when repayment of the HEAL loan was required; (2) excepting the HEAL loan from discharge would be unconscionable; and (3) the Secretary had not waived rights to offset the loan amount from certain reimbursements from HHS, 42 U.S.C. § 294f(g), now renumbered as § 292f(g); United States v. Wood, 925 F.2d 1580, 1582-83 (7th Cir.1991); United States v. Degerness, Civ. A. No. 91-A-806, 1992 WL 295952, at 2 (D.Colo. Sept. 14, 1992). A debtor must have filed an adversary complaint requesting that the HEAL loan be discharged and establishing all three of these conditions to discharge the HEAL loans. Wood, 925 F.2d at 1582-83; Degerness, 1992 WL 295952, at 2. Debtor and his wife, Insa Von Kiel, filed a chapter 7 bankruptcy petition in this court on September 9, 1991. This filing predated my tenure as a bankruptcy judge, and was assigned to my predecessor, the Honorable Thomas M. Twardow-ski. My review of the docket entries contained in Debtor’s 1991 bankruptcy case reveals that Debtor never filed an adversary complaint in that case requesting that 86the HEAL loans be discharged.11 The HEAL loans were not, therefore, discharged in Debtor’s 1991 bankruptcy case.12 42 U.S.C. § 294f(g), now renumbered as § 292f(g). Wood, 925 F.2d at 1582-83; Degemess, 1992 WL 295952, at 2. Because Debtor failed to file an adversary complaint in his 1991 bankruptcy case requesting that the HEAL loans be discharged, the HEAL loans were not discharged in Debtor’s 1991 bankruptcy case. Defendants are therefore entitled to judgment as a matter of law on Count 4 of the Complaint. C. DEBTOR’S HEAL LOANS WERE NOT DISCHARGED IN HIS 1991 BANKRUPTCY CASE: THE STATE COURT JUDGMENTS THEREFORE ARE NOT VOID The two state court judgments entered against Debtor by the Lehigh County Court of Common Pleas were based on the HEAL loans owed by Debtor to HHS. In his Counts 1, 2, 3 and 6 of the Complaint, Debtor attempts to challenge the existence of the HEAL loans. To adjudicate these Counts would require that I review and set aside the two state court judgments entered against Debtor. The Rooker-Feldman doctrine, however, prohibits me from exercising jurisdiction over a dispute that challenges the validity of a state court judgment. Rooker v. Fidelity Trust Co., 263 U.S. 413, 44 S.Ct. 149, 68 L.Ed. 362 (1923); District of Columbia Court of Appeals v. Feldman, 460 U.S. 462, 103 S.Ct. 1303, 75 L.Ed.2d 206 (1983). See also Great Western Mining & Mineral Co. v. Fox Rothschild LLP, 615 F.3d 159, 166-70 (3d Cir.2010); Madera v. Ameriquest Mortgage Co. (In re Madera), 586 F.3d 228, 232 (3d Cir.2009) (the Rooker-Feldman doctrine applies even if bankruptcy jurisdiction over a proceeding exists); Randall v. Bank One Nat'l Ass’n (In 87re Randall), 358 B.R. 145, 154 (Bankr. E.D.Pa.2006) (the Rooker-Feldman doctrine applies to state court default judgments). In addition, Debtor’s Counts 1, 2, 3 and 6 of the Complaint: (1) Seek to litigate claims that could have been raised in the underlying state court actions; and (2) involve the same parties or their privies and the same causes of action that were involved in the underlying state court actions. Final judgments were entered against Debtor by courts of competent jurisdiction in the underlying state court actions. For these reasons, even if I had subject matter jurisdiction over Counts 1, 2, 3 and 6 (which I do not), these Counts are barred under the doctrine of res judi-cata, also known as claim preclusion. Munoz v. Sovereign Bank, 323 Fed.Appx. 184, 187-88 (3d Cir.2009); Schuldiner v. Kmart Corp., 284 Fed.Appx. 918, 920-21 (3d Cir. 2008); Randall, 358 B.R. at 165-66 (the res judicata doctrine applies to state court default judgments). An exception to the Rooker-Feld-man and other preclusionary doctrines was recognized by the court in In re Dabrowski 257 B.R. 394 (Bankr.S.D.N.Y.2001). Specifically, the Dabrowski court held that Rooker-Feldman and other preclusionary doctrines do not apply to state court judgments that are void because of a bankruptcy discharge. Debtor argues that the state court judgments entered by the Le-high County Court of Common Pleas are void because the HEAL loans upon which they were based were discharged in his 1991 bankruptcy case and that the Da-browski exception applies. The court in Dabrowski found only that a bankruptcy court was not preempted from hearing a case in which a state court incorrectly determined that a clear bankruptcy discharge did not affect the validity of state court claims or judgments. I previously found and I reiterate, however, that the HEAL loans were not discharged in Debtor’s 1991 bankruptcy case. Debt- or’s underlying premise that the state court judgments are void is therefore erroneous. Debtor’s reliance on Dabrowski is misplaced. The state court judgments entered against Debtor are not void and the Rook-er-Feldman and res judicata (claim preclusion) doctrines bar my consideration of Counts 1, 2, 3, and 6 of the Complaint and Debtor’s attempt to argue that the HEAL loans and the debt he owes to HHS do not exist.13 Defendants are therefore entitled to’ summary judgment on Counts 1, 2, 3 and 6 of the Complaint. D. THE JANUARY 5, 2012 ORDER DENYING DEBTOR A DISCHARGE IN THIS BANKRUPTCY CASE RENDERS DEBTOR’S ATTEMPT TO DISCHARGE THE HEAL LOANS IN THIS ADVERSARY PROCEEDING MOOT Count 5 of the Complaint seeks a present determination that the HEAL 88loans are dischargeable in this bankruptcy case under 42 U.S.C. § 292f(g).14 The January 5, 2012 Opinion and Order I entered in Deangelis v. Von Kiel (In re Von Kiel), Adv. No. 10-2136 (10-21364REF), reported in 461 B.R. 323 (Bankr.E.D.Pa. 2012), however, denied Debtor a discharge in this bankruptcy case under 11 U.S.C. § 727(a)(2), (3) and (4). Specifically, I found clear and convincing evidence that Debtor should be denied a discharge because he: (1) Was engaged in a fraudulent scheme to evade taxes and frustrate his creditors; (2) failed to keep and preserve recorded information from which his financial condition could be ascertained; (3) intentionally transferred and concealed assets with intent to hinder, delay or defraud a creditor or an officer of the estate within one year of the date he filed his bankruptcy petition; and (4) made false oaths or accounts in connection with his bankruptcy case.15 Under 42 U.S.C. § 292f(g), HEAL loans may be released by a discharge in bankruptcy under any chapter of Title 11, only if such discharge is granted — (1) after the expiration of the seven-year period beginning on the first date when repayment of such loan is required, exclusive of any period after such date in which the obligation to pay installments on the loan is suspended; (2) upon a finding by the Bankruptcy Court that the nondischarge of such debt would be unconscionable; and (3) upon the condition that the Secretary shall not have waived the Secretary’s rights to apply subsection (f) of this section to the borrower and the discharged debt. Section 292f(g), by its very terms, applies only if a discharge is granted — which will not occur in this case because my January 5, 2012 Order denied Debtor a discharge under'Section 727(a)(2), (3) and (4). When a general discharge is denied under Section 727, issues regarding exceptions to discharge of specific debts under Section 523 or 42 U.S.C. § 292f(g) become moot. Perotti v. Perotti (In re Perotti), Adv. No. 1:07-AP-00144, Bankr.No. 1:07-BR-01889MDF, 2008 WL 5158543, at 10 (Bankr.M.D.Pa. Aug. 27, 2008) (finding that “because § 727(a)(8) precludes a discharge in the instant case, a decision on dischargeability would be merely advisory and therefore improper”); Rasmussen v. Unruh (In re Unruh), 278 B.R. 796, 807 (Bankr.D.Minn.2002); Barnett Bank of Pasco County v. Decker (In re Decker); 105 B.R. 79, 82 (Bankr.M.D.Fla.1989) (“The threshold issue is whether the Debt- or should be denied a general discharge in bankruptcy as a denial of his discharge will render the dischargeability issues academic and moot.”); Chillicothe State Bank v. Carroll (In re Carroll), 70 B.R. 143, 146 89(Bankr.W.D.Mo.1986) (“if discharge is denied, all dischargeability proceedings become moot.”); Continental Bank v. Bobroff (In re Bobroff), 58 B.R. 950, 953 (Bankr.E.D.Pa.1986). “[F]ederal courts may adjudicate only actual, ongoing cases or controversies. It is of no consequence that the controversy was live at earlier stages in this case; it must be live when ... deciding] the issues. If a case is indeed moot, the Court must refrain from reaching the merits because any opinion issued would be merely ‘advisory’ and rest on hypothetical underpinnings.” Unruh, 278 B.R. at 807 (citation omitted). To rule on the discharge-ability of a specific debt after the debtor has been denied a general discharge would therefore constitute an improper advisory opinion. Id. My decision denying Debtor a discharge under Section 727 renders the discharge-ability of specific loans, including the HEAL loans, moot because I have already denied Debtor a discharge of any of his pre-petition debts. To rule on the dis-chargeability of the HEAL loans under these conditions would constitute an improper advisory opinion. For this reason, no question of material fact exists and Defendants are entitled to judgment as a matter of law on Count 5 of the Complaint. V. CONCLUSION For all of these reasons, I find that no genuine issues of material fact exist and Defendants are entitled to judgment as a matter of law on Counts 1-6 of the Complaint.16 I shall enter the accompanying Order granting Defendants’ Motion for Summary Judgment on these Counts and denying Debtor’s Cross-Motion for Summary Judgment. ORDER GRANTING MOTION FOR SUMMARY JUDGMENT AND NOW, this 19 day of June, 2012, upon my consideration of Defendants’ Motion for Summary Judgment and documents filed in support thereof, Debtor’s Cross-Motion for Summary Judgment and documents filed in support thereof, and the briefs filed by the parties, and upon the findings of fact and conclusions of law stated in the accompanying Memorandum Opinion, IT IS HEREBY ORDERED that Defendants’ Motion for Summary Judgment is GRANTED and JUDGMENT ON COUNTS 1-6 OF THE COMPLAINT IS ENTERED IN FAVOR OF DEFENDANTS AND AGAINST DEBTOR. IT IS FURTHER ORDERED that Debtor’s Cross-Motion for Summary Judgment is DENIED. . I reject Debtor’s attack on the admissibility of the Blum Declaration. The arguments advanced by Debtor were flatly rejected by the Sixth Circuit Court of Appeals in a well reasoned decision that also involved a declaration filed by Mr. Blum. United States v. Petroff-Kline, 557 F.3d 285, 291-93 (6th Cir. 2009); see also United States v. Lawrence, 276 F.3d 193, 197 (5th Cir.2001), which I adopt herein. As the Sixth Circuit Court of Appeals recognized, the Blum Declaration qualifies as a business record under Fed.R.Evid. 803(6) because “to qualify under the business records exception to the hearsay rule a 'witness need only have knowledge of the procedures under which the records were created,' not knowledge of the actual entries in the records.” Petroff-Kline, 557 F.3d at 292, quoting United States v. Wables, 731 F.2d 440, 449 (7th Cir.1984). See also Lawrence, 276 F.3d at 195. The Blum Declaration is also self authenticating under Fed.R.Evid. 902(11), Petroff-Kline, 557 F.3d at 292. In addition, Debtor's reliance on Commonwealth Fin. Sys., Inc. v. Smith, 15 A.3d 492 (Pa.Super.Ct.2011), is misplaced because the Smith case involved application of the Pennsylvania Rules of Evidence, whereas Fed. R. Bankr.P. 9017 makes clear that the Federal Rules of Evidence apply to bankruptcy cases. The Superior Court in Smith acknowledged that the Pennsylvania Rules of Evidence that deal with the admissibility of business records of a predecessor company or organization differ from the Federal Rules of Evidence on this topic and have not been interpreted by the Pennsylvania Supreme Court consistently with the way federal courts have interpreted the Federal Rules on this topic. Smith, 15 A.3d at 497-500. The Pennsylvania Superior Court's decision in Smith is therefore neither controlling nor persuasive. . Debtor appealed this decision. The appeal is presently pending before the Honorable Cynthia M. Rufe, United States District Court Judge, Eastern District of Pennsylvania, docketed at 5:12-CV-00972CMR. . On September 2, 2011, however, Defendants filed a "Renewed Motion To Dismiss Count 12 of Complaint” ("Renewed Motion”). On September 14, 2011, Debtor responded by filing a Motion To Dismiss Defendants’ Renewed Motion. On October 5, 2011, I denied Defendants’ Renewed Motion as moot because Count 12 had previously been dismissed in my May 18, 2011 Order. . Fed.R.Civ.P. 15(a)(1) is made applicable to adversary proceedings in bankruptcy cases by Fed. R. Bankr.P. 7015. . The Memorandum and Order denying Debt- or his discharge was entered in Deangelis v. Von Kiel (In re Von Kiel), Adv. No. 10-2136 (10-21364REF), reported in 461 B.R. 323 (Bankr.E.D.Pa.2012). . On April 6, 2012, Debtor filed a Motion To Strike Defendants' Brief Supplementing Their Motion for Summary Judgment for Untimely Filing. I denied this Motion in my Order entered on April 11, 2012, in which I explained that I desired to rule on the merits of the proceeding and that, nonetheless, Defen83dants' Motion was timely filed because the deadline for the filing of the motion fell on a Saturday. Therefore, under Fed. R. Bankr. P. 9006(a)(1)(c), the deadline advanced to the next business day, which was the day on which Defendants filed their Motion for Summary Judgment and brief. . The record reflects the following: (1) The judgment entered on June 14, 2000, against Debtor and in favor of Sallie Mae by the Lehigh County Court of Common Pleas was for $132,185.27; (2) the insurance claim submitted by Sallie Mae to HHS was for $121,087.54; and (3) HHS paid Sallie Mae only $118,219.19 of its $121,087.54 claim. Defendants have not explained why HHS did not reimburse Sallie Mae for the full amount of the judgment or claim. My review of the Exhibits attached to the Blum Declaration, however, leads me to conclude that it might be, at least in part, because Sallie Mae did not submit documents to HHS in a timely fashion. Regardless, neither the exact amount of Sallie Mae’s claim or judgment nor the exact amount of HHS's claim against Debtor need be resolved to decide the issues raised in the Complaint and Summary Judgment Motions. The issues are: (1) Do I lack jurisdiction over Counts 1, 2, 3 and 6 of the Complaint under Rooker-Feldman; (2) if I have jurisdiction over Counts 1, 2, 3, and 6, are those counts barred by res judicata (claim preclusion); (3) was the debt owed by Debtor to HHS discharged in Debtor’s prior bankruptcy case (Count 4); and (4) is the debt owed by Debtor to HHS dischargeable in this case (Count 5). . The record reflects the following: (1) The judgment entered on August 3, 1999 against Debtor and in favor of PHEAA by the Lehigh County Court of Common Pleas was for $29,008.36; (2) the insurance claim submitted by PHEAA to HHS was for $29,094.98; and (3) HHS paid PHEAA $28,581.00 of its $29,094.98 claim. Defendants have not explained why HHS did not reimburse PHEAA for the full amount of the judgment or claim. My review of the Exhibits attached to the Blum Declaration, however, leads me to conclude that it might be, at least in part, because PHEAA failed to submit certain documents to HHS in a timely fashion. Regardless, neither the exact amount of PHEAA's claim or judgment nor the exact amount of HHS’s claim against Debtor must be resolved to decide the issues raised in this Complaint and Summary Judgment Motion. The issues are: (1) Do I lack jurisdiction over Counts 1, 2, 3 and 6 of the Complaint under Rooker-Feldman; (2) if I have jurisdiction over Counts 1, 2, 3, and 6, are those counts barred by res judicata (claim preclusion); (3) was the debt owed by Debtor to HHS discharged in Debtor's prior bankruptcy case (Count 4); and (4) is the debt owed by Debtor to HHS dischargeable in this case (Count 5). . Fed.R.Civ.P. 56 is made applicable to adversary proceedings in bankruptcy cases by Fed. R. Bankr.P. 7056. . In 1993, Congress amended this provision to change the period of strict nondischarge-ability from 5 years to 7 years. National Institutes of Health Revitalization Act of 1993, Pub. L. 103-43, § 2014. . I take judicial notice, under Fed.R.Evid. 201 (incorporated into bankruptcy cases by Fed. R. Bankr.P. 9017), of the docket entries and the bankruptcy petition, schedules, and statement of financial affairs filed in Debtor’s prior bankruptcy case. See Maritime Elec. Co., Inc. v. United Jersey Bank, 959 F.2d 1194, 1200 n. 3 (3d Cir.1991); Levine v. Egidi, No. 93C188, 1993 WL 69146, at 2 (N.D.Ill. March 8, 1993); Calabria v. CIT Consumer Group (In re Calabria), 407 B.R. 671, 673, 675-76 (Bankr.W.D.Pa.2009) (bankruptcy court may take judicial notice of the records of a prior bankruptcy proceeding for the purpose of ascertaining the timing and status of events, such as the filing of documents or pleadings); In re Paolino, No. 85-00759F, 1991 WL 284107, at 12 n. 19 (Bankr.E.D.Pa. Jan. 11, 1991): see generally Nantucket Investors II v. California Federal Bank (In re Indian Palms Assoc., Ltd.), 61 F.3d 197 (3d Cir.1995). I may not take judicial notice sua sponte of the facts contained in Debtor’s prior bankruptcy case that are in dispute, In re Aughenbaugh, 125 F.2d 887 (3d Cir.1942), but I may take judicial notice of adjudicative facts "not subject to reasonable dispute ... as long as it is not unfair to a party to do so and does not undermine the trial court’s factfinding authority.” Indian Palms, 61 F.3d at 205 (citing Fed.R.Evid. 201(f) advisory committee note (1972 proposed rules)). In this case, the fact that Debtor never filed an adversary complaint in his 1991 bankruptcy case requesting a determination that the HEAL loans be found dischargeable cannot be subject to reasonable dispute because this fact is evident from a review of the official court docket of Debtor’s 1991 bankruptcy case. In addition, it is not unfair to Debtor for me to take judicial notice of this fact and taking judicial notice of this fact does not undermine my factfinding authority. Indian Palms, 61 F.3d at 205. . Even if Debtor had filed an adversary complaint in his 1991 bankruptcy case requesting that the HEAL loans be discharged, which I specifically find he did not, he would not have been entitled to discharge the HEAL loans. It cannot be disputed that his discharge was entered in his 1991 case on February 18, 1993, which is less than five years from the date that his HEAL loans first became due. See 42 U.S.C. § 294f(g), now renumbered as § 292f(g). Wood, 925 F.2d at 1582-83; De-gemess, 1992 WL 295952, at *2. . The Rooker-Feldman and res judicata doctrines also bar me from considering Debtor's meritless argument that Defendants must produce the original promissory notes to be entitled to summary judgment. Petroff-Kline, 557 F.3d at 291 (rejecting the debtor’s argument that the original promissory notes must be produced stating that ''[pjhotocopies are allowed into evidence as if they were originals,” quoting Buziashvili v. Inman, 106 F.3d 709, 717 (6th Cir. 1997), invoking Fed.R.Evid. 1003). These doctrines also prohibit me from considering Debtor's meritless arguments concerning his name appearing in all capital letters in the state and federal court judgments entered against him and the alleged lack of service of the state court pleadings. Debtor advances the occasional spurious claim I hear that when a person’s name is in all capital letters, that somehow does not refer to the same person as if the same were spelled in both upper and lower case letters. I do not accept that claim as having any merit whatsoever. . Debtor’s argument that the HEAL loans must have been in default when his bankruptcy petition was filed in order for them to be deemed nondischargeable under 42 U.S.C. § 292f(g) and the Bankruptcy Code is fatally flawed. Debtor cites no authority for this proposition and none exists. In addition, as I explain in more detail throughout this Opinion, the debt Debtor owes to HHS: (1) Was not discharged in his 1991 bankruptcy case because he never filed an adversary complaint requesting a determination that the debt be discharged and he never established the elements necessary to have the HEAL loans discharged; and (2) cannot be discharged in this case because I denied Debtor a discharge in this bankruptcy case in the Memorandum Opinion and Order I entered on January 5, 2012 in Deangelis v. Von Kiel (In re Von Kiel), Adv. No. 10-2136 (10-21364REF), reported in 461 B.R. 323 (Bankr.E.D.Pa.2012). . I also found that Debtor’s entire bankruptcy filing was undertaken to circumvent a decision rendered by United States District Court Judge Petrese B. Tucker and to frustrate her orders requiring that Debtor's compensation be garnished so that he may start to repay his substantial educational debts. Von Kiel, 461 B.R. at 328. . Counts 7-15 of the Complaint were previously dismissed by my Order dated May 18, 2011, which granted Defendants’ Motion To Dismiss. Only Counts 1-6 remained after my May 18 Order, which are disposed in the accompanying Order. No Counts remain pending after I enter the Order accompanying this Memorandum Opinion.	01-04-2023	11-22-2022
https://www.courtlistener.com/api/rest/v3/opinions/8494766/	MEMORANDUM ORDER THOMAS P. AGRESTI, Chief Judge. This case originated in the Allegheny County Court of Common Pleas and was removed here by the Defendants on January 26, 2012. Very briefly, the Complaint alleges that the Defendants, who were retained by the Chapter 7 Trustee to assist in the marketing of some real estate, misrepresented the zoning status of the property to the detriment of the Plaintiff. Presently at issue are a Motion to Dismiss filed by the Defendants at Doc. No. 5 and a Motion to Remand Proceedings to the Court of Common Pleas of Allegheny County, or in the Alternative, Abstain from Hearing the Case (“Motion to Remand”), filed by the Plaintiff at Doc. No. 12. The Parties have filed briefs, there have been several arguments, and the two motions are now ripe for decision. Even though it was filed chronologically later, the Motion to Remand would normally be considered first since, if granted, it would render the Motion to Dismiss moot, at least in this Court. However, the Motion to Dismiss raises a jurisdictional issue in the form of the Barton doctrine that must be addressed on a preliminary basis. Under that doctrine, originally announced in Barton v. Barbour, 104 U.S. 126, 26 L.Ed. 672 (1881), a party must obtain leave of the bankruptcy court before it brings an action in another forum against a bankruptcy trustee for acts done in the trustee’s official capacity. If such leave of court is not obtained, the other forum lacks subject matter jurisdiction to hear the case. As a general proposition, this doctrine remains viable in the Third Circuit, as confirmed by the recent decision of In re VistaCare Group, L.L.C., 678 F.3d 218 (3d Cir.2012). Even after Vista-Care, however, some question remains as to whether and how far the doctrine extends beyond an actual bankruptcy trustee. The majority of cases extend the doctrine to professionals retained by a trustee who have been approved by the bankruptcy court to assist with trustee duties. See, e.g., Lawrence v. Goldberg, 573 F.3d 1265 (11th Cir.2009) (applying doctrine to trustee, trustee’s court-approved attorneys, investigator retained with court approval, and creditor under court-approved financing agreement who had agreed to finance trustee’s efforts to bring property into the estate); Blixseth v. Brown, 2012 WL 691598 (D.Mont. March 5, 2012) (doctrine applied to chairman of the unsecured creditors’ committee as court approved officer); Carter v. Rodgers, 220 F.3d 1249 (11th Cir.2000) (antique company that court had appointed to sell property of the debtor was covered by the Barton doctrine); Equipment Leasing, L.L.C. v. Three Deuces, Inc., 2011 WL 6141443 (E.D.La.2011) (doctrine applied to auctioneer which had been appointed by bankruptcy court). The Court thus finds that the Defendants, as real estate professionals appointed by the Court to assist 92the Trustee under the circumstances of this case, fall within the protection of the Barton doctrine. This finding is problematic for the Plaintiff because, as required by the Barton doctrine, it never obtained the Court’s approval before filing this action. The Court could dismiss the case for that reason, but the dismissal would be without prejudice. If this approach was taken, it is likely that the Plaintiff would simply reinitiate the process, beginning this time by seeking approval from the Court before actually filing a new action.1 Rather than exalt form over substance in that fashion, the Court finds that the better course is to simply make the determination now as to whether the case should be permitted to proceed under the Barton doctrine. The VistaCare case is controlling on the standard to be applied and instructs that the Plaintiff has the burden of making out a prima facie case against the Defendants by showing that its claim is “not without foundation.” VistaCare, at 232. The Court has no trouble concluding that the Plaintiff has met that rather minimal standard, therefore the case will be given nunc pro tunc approval for Barton doctrine purposes, obviating that impediment to Plaintiff in proceeding with its cause. The resolution of the Barton doctrine issue means the state court action was appropriately filed and was then removed to this Court pursuant to 28 U.S.C. § 1452. By filing the Motion for Remand the Plaintiff is seeking to have the case sent back to state court and that request can now be considered. The principal argument raised by the Plaintiff in the Motion to Remand is that the Court lacks even “related to” jurisdiction in this matter because no assets of the estate will be affected by the outcome of the case. The Defendants agree that estate assets will not be affected per se, but they argue that related to jurisdiction nevertheless exists because the outcome of the case will affect the process in the ease. Defendants claim that the Chapter 7 Trustee will now need to be joined as a party, and the damages which the Plaintiff is seeking are directly related to and clearly implicate orders previously made by the Court in the main bankruptcy case. The Court is not persuaded by the first of the Defendants’ arguments because it is speculative whether the Trustee will ever be sought to be joined as a party. The Defendants have not claimed that the Trustee is a “necessary” party, nor have they articulated a convincing explanation as to why the Trustee would bear any liability for the zoning misrepresentation. However, the second argument by the Defendants is stronger and requires closer attention. Although the Complaint as filed in state court includes a count for fraudulent misrepresentation, the Defendants have since orally withdrawn any fraud-based cause of action in this matter. Audio of April 2, 2012 hearing at 10:08:80. The only remaining counts in the Complaint are therefore negligence and negligent misrepresentation. The Plaintiff concedes that these claims cannot support any kind of expecta93tion damages2, leaving hand money paid and related expenses allegedly incurred as the only damages that Plaintiff is seeking in this matter. Such a remedy, however, would be directly related to the sale process and orders issued in the main bankruptcy case. See, e.g., February 9, 2011 Order at ¶ 4, Main Case Doc. No. 206. In other words, if the Plaintiff is successful in this action it would necessarily impact the bankruptcy process by effectively modifying prior orders related to the sale and allowing the Plaintiff to recover as damages non-refundable hand money it previously paid pursuant to those orders. The Court thus finds that a sufficient nexus exists between the case filed by the Plaintiff and the main bankruptcy case to at least establish related to jurisdiction3 and the Motion to Remand must therefore be denied. Plaintiffs alternative request for abstention will also be denied.4 The Court may now turn to a consideration of what remains of the Motion to Dismiss. The Defendants raise five (5) grounds in the Motion to Dismiss. See id. at ¶ 10. Most of these have already been resolved. The Barton doctrine (¶ 10(a)) has been addressed above. The contention that Plaintiff is improperly attempting to bring an action for violation of the Pennsylvania Real Estate Licensing and Registration Act, 63 P.S. § 455.001, et seq. (¶ 10(c)) was adequately addressed at the oral argument when Plaintiff’s Counsel stated that the statute was simply being cited as a source of duty for the negligence claims, not as the basis for a private statutory cause of action. The arguments that Plaintiff has failed to state a claim for fraudulent misrepresentation (¶ 10(d)), and that Plaintiff is not entitled to recover expectation damages (¶ 10(e)) have both been rendered moot by the Plaintiffs withdrawal of the fraudulent misrepresentation claim. The sole remaining argument in the Motion to Dismiss is that the Defendants are entitled to quasi-judicial immunity from this suit (¶ 10(b)). The Defendants, however, concede that there is no Third Circuit authority to extend such immunity even to bankruptcy trustees, let alone to real estate brokers. See Brief in Support of Motion to Dismiss at 3, Doc. No. 6. In the absence of any such authority, the Court declines to find that Defen*94dants enjoy any such immunity under the circumstances of this case. The Motion to Dismiss must therefore be denied. Nevertheless, the Plaintiff will be required to file an Amended Complaint to formally remove the fraudulent representation claim and to make clear that no expectation damages are being sought. AND NOW, this 7th day of June, 2012, for the reasons stated above and on the record at the time of the hearings, it is ORDERED, ADJUDGED and DECREED that: (1) Although the Plaintiff failed to obtain the prior approval of this Court under the Barton doctrine before filing this action, the Court elects to now give the necessary approval on a nunc pro tunc basis, thereby allowing the case to proceed. (2) The Motion to Remand is DENIED. (3) Subject to Paragraph (1) above, the remainder of the Motion to Dismiss is DENIED. (4) On or before June 25, 2012, the Plaintiff shall file an Amended Complaint that omits any claim for fraudulent representation and makes clear that Plaintiff is not seeking any expectation or loss of bargain type damages. (5) On or before July 15, 2012, the Defendants shall answer or otherwise respond to the Amended Complaint. . As the Plaintiff stated during argument, if the Court were to dismiss the present case for failure to first seek permission as required by the Barton doctrine, the Plaintiff would immediately respond by filing a motion for leave to file a new action in state court against the Defendants. Assuming the Court granted permission to proceed, a new state court action would then be filed, and in all likelihood, the Defendants would then file another notice of removal bringing the matter back to this Court. Looking even further down the road, it is reasonable to conclude that another motion for remand and another motion to dismiss (minus the Barton issue) would be filed, leaving the Court right back where it is now. . In its Brief filed in opposition to the Motion to Dismiss, the Plaintiff argued only that a fraud claim (now withdrawn) can support expectation or loss of bargain damages. See Doc. No. 16 at 8. . Given the finding that if Plaintiff were to prevail it would effectively alter or amend prior orders in the main bankruptcy case, it is conceivable the matter might properly be characterized as implicating “arising in" jurisdiction and being a core proceeding. See 27 U.S.C. §§ 157(b)(2)(A) (matters affecting the administration of the estate), 157(b)(2)(N) (orders approving the sale of property), 157(b)(2)(0) (other proceedings affecting the liquidation of assets of the estate). The Court need not make that determination at this time since the existence of related to jurisdiction is itself sufficient to deny remand. .To the extent that Plaintiff is seeking permissive or discretionary abstention, the Court declines to grant that request. To the extent Plaintiff is seeking mandatory abstention pursuant to 11 U.S.C. § 1334(c)(2), the Court must decline that request as well. The mandatory abstention provision of Section 1334(c)(2) is subject to the overarching principle that such abstention should only be granted "if that will not adversely affect the bankruptcy proceedings.” Stoe v. Flaherty, 436 F.3d 209, 214 (3d Cir.2006). Here, even if the other factors for mandatory abstention were present, the Court finds that the bankruptcy proceedings would indeed be adversely affected if a state court were permitted to nullify the orders of this Court. For that reason, the Court will not invoke mandatory abstention.	01-04-2023	11-22-2022
https://www.courtlistener.com/api/rest/v3/opinions/8494767/	108 MEMORANDUM OPINION DOUGLAS O. TICE, JR., Chief Judge. On March 13, 2012, Mattress Discounters Group, LLC, “through its chief executive officer and sole participating Member and Manager, Raymond T. Bojanowski,” filed a motion for relief from the automatic stay of the Bankruptcy Code, seeking to enforce a purchase option set forth in the January 8, 2010, “Buy-Sell Agreement for Mattress Discounters Group, LLC,” between debtor, Raymond T. Bojanowski, and Mattress Discounters Group, LLC. (Docket 390) Debtor filed its objection to the motion for relief on March 27, 2012. (Docket 418) On March 16, 2012, debtor filed its sixth notice of rejection of executory contracts and unexpired leases of nonresidential real property. (Docket 394) The notice stated that the debtor intended to reject the “Buy-Sell Agreement for Mattress Discounters Group, LLC” as an executory contract. Mattress Discounters Group, LLC, again “through its chief executive officer and sole participating Member and Manager, Raymond T. Bojanowski,” filed an objection to debtor’s notice on March 26, 2012. That response also contained a motion to strike, requesting that the court strike debtor’s amended Schedule G as prejudicial and having been filed in bad faith. (Docket 412) Hearing on several matters, including the motion for stay relief and debtor’s notice of rejection, was held April 3, 2012. After hearing argument of counsel, the court requested the parties to file proposed findings of fact and conclusions of law. The court has received and considered these papers. For the reasons stated in this opinion, the court finds that the Buy-Sell Agreement was an executory contract that has been rejected by debtor’s notice of rejection. In accordance with this ruling, the court overrules the objection to debtor’s notice of rejection filed by Bojanowski and Mattress Discounters Group, denies the motion to strike debtor’s amended Schedule G, and denies the motion for relief from stay filed by Bojanowski and Mattress Discounters Group. Findings of Fact. Debtor RoomStore, Inc., filed a chapter 11 petition in this court on December 12, 2011. On December 19, 2011, the United States Trustee appointed an official committee of unsecured creditors, which remains active. Debtor continues to manage and operate its business as debtor in possession. Prior to the bankruptcy filing, on December 1, 2008, RoomStore and Raymond Bojanowski entered into a limited liability company operating agreement in connection with the formation of Mattress Discounters Group, LLC, (MDG), organized under the Virginia Limited Liability Company Act, Va.Code ANN. §§ 13.1-1000-13.1-1080 (2012). Debtor owns a 65% membership interest in MDG, and Boja-nowski owns the remaining 35% membership interest. MDG operates a chain of approximately 80 retail mattress and bedding stores in Maryland, Virginia, Delaware, and Washington, D.C.; it employed approximately 188 employees in fiscal year 2011 and generated revenues of $59.5 million, $61.6 million, and $59.2 million in fiscal years 2010, 2011, and 2012, respectively. MDG is profitable, has no long-term debt, generates positive cash flow from operations, and paid pro rata cash distributions of $1,625,000 and $650,000 to the Debtor in fiscal years 2011 and 2012. Debtor performs certain of MDG’s essential support and logistics functions, including accounting, human resources, in109formation technology, and distribution and delivery services. Debtor and Bojanowski are parties to two prepetition agreements governing, among other things, the management and operation of MDG and their respective rights, duties, and restrictions with respect to their ownership interests in MDG: (a) Operating Agreement of Mattress Discounters Group, LLC, dated as of December 1, 2008, and (b) Buy-Sell Agreement dated January 8, 2010 (the “Agreement” or the “Buy-Sell Agreement”). These agreements are two separate, stand-alone contracts and not a single, integrated contract. The Buy-Sell Agreement contains three categories of covenants: 1) options to purchase and rights of first refusal, 2) a mandatory buyout covenant, and 3) negative covenants, which may be summarized as follows: Option Covenants: If a Change of Control of the Debtor occurs, Bojanowski has the option to require MDG to purchase his entire membership interest in MDG. ¶ 3.1(a). If Bojanowski becomes totally and permanently disabled for at least two months, MDG has the option to purchase Bojanow-ski’s entire membership interest in MDG. ¶ 3.2(a). If Bojanowski is divorced and a court order transfers part or all of his membership interest in MDG to his former spouse, MDG has the option to purchase Bojanow-ski’s former spouse’s newly transferred membership interest in MDG. ¶ 3.4(a). If a member of MDG files a bankruptcy petition or is subject to an involuntary bankruptcy petition or its membership interest in MDG is subject to attachment or otherwise subject to transfer by operation of law, MDG has the option, for 180 days thereafter, to purchase such Member’s membership interest in MDG. ¶ 3.5(a). Mandatory Buyout Covenant: This covenant requires MDG, upon Bo-janowski’s death, to purchase Bojanowski’s entire membership interest in MDG from Bojanowski’s estate. ¶ 3.3(a). Negative Covenants: These covenants prohibit members of MDG from (a) transferring their membership interests in MDG except as permitted by the Buy-Sell Agreement or (b) encumbering their membership interests in MDG. ¶ 2(a), (b). On March 13, 2012, MDG (purporting to act “through its chief executive officer and sole participating Member and Manager, Raymond T. Bojanowski”) filed a motion for stay relief that seeks to enforce the purchase option set forth in section 3.5(a) of the Buy-Sell Agreement, which permits MDG to purchase the debtor’s membership interest in MDG within 180 days after debtor, among other triggers, files a bankruptcy petition. (Docket 390) On March 16, 2012, debtor filed the rejection notice pursuant to the procedures approved by the Court in the “Order Pursuant to 11 U.S.C. §§ 105(a), 365(a), and 554 and Bankruptcy Rule 6006 Authorizing (I) Expedited Procedures for Rejecting Unexpired Leases of Nonresidential Real Property and Executory Contracts, (II) Abandonment of De Minimis Personal Property, and (III) Establishing Claims Bar Date as Applicable.” (Docket 237) Also, on March 16, 2012, debtor filed an amended Schedule G with the Buy-Sell Agreement listed as an executory contract. (Docket 393) On March 26, 2012, Bojanowski filed MDG’s objection to debtor’s rejection notice and also filed a motion to strike, requesting that the court strike debtor’s amended Schedule G as prejudicial and 110having been filed in bad faith. (Docket 412) On March 27, 2012, debtor filed an objection to Bojanowski and MDG’s stay-relief motion based in part on debtor’s proposed rejection of the Buy-Sell Agreement. (Docket 418) Hearing on the various pleadings, including a preliminary hearing on Bojanow-ski and MDG’s motion for relief from the stay and debtor’s notice of rejection was held on April 3, 2012, following which the court took the matters under advisement. The parties agreed that the automatic stay would continue in effect pending the court’s ruling on the rejection notice.1 Discussion and Conclusions of Law. The issue here is whether the Buy-Sell Agreement is an executory contract that may be rejected by the debtor pursuant to Bankruptcy Code § 365(a). The issue is important to the parties because the option provision, ¶ 3.5(a), in the Agreement gives MDG the right to purchase debtor’s interest in MDG upon debtor’s bankruptcy filing. Upon exercise of the option, the Agreement provides a method for determining the purchase price. However, the purchase price determined pursuant to the Agreement is not necessarily the market value of debtor’s interest. Debtor therefore wishes to reject the contract so that it can maximize the value of its interest by exposing it to the market. Debtor has argued that Bojanowski and MDG oppose rejection so as to acquire the interest at less than market value. Commentators and courts have noted that the law of executory contracts is “hopelessly convoluted” and a “bramble filled thicket.” See Cohen v. Drexel Burnham Lambert Grp., Inc. (In re Drexel Burnham Lambert Grp., Inc.), 138 B.R. 687, 690 (Bankr.S.D.N.Y.1992) (quoting Michael T. Andrew, Executory Contracts Revisited: A Reply to Professor West-brook, 62 U. Colo. L. Rev. 1 (1991)).2 While the issue presented in the present case is fairly limited and straightforward, the case nevertheless illustrates the difficulty of applying abstract legal principles to unique facts. The Fourth Circuit and most courts have decided issues on assumption or rejection of executory contracts under § 365(a) using Professor Countryman’s definition, formulated nearly 40 years ago: [A] contract is executory if the obligations of both the bankrupt and the other party to the contract are so far unperformed that the failure of either to complete the performance would constitute a material breach excusing the performance of the other. Vern Countryman, Executory Contracts in Bankruptcy: Part I, 57 Minn. L. Rev. 439, 460 (1973), as quoted in Lubrizol Enters., Inc. v. Richmond Metal Finishers, Inc. (In re Richmond Metal Finishers, Inc.), 756 F.2d 1043, 1045 (4th Cir.1985) (citing Gloria Mfg. Corp. v. Int’l Ladies’ Garment Workers’ Union, 734 F.2d 1020, 1022 (4th Cir.1984)).3 See 3 CollieR on 111BANKRUPTCY, ¶ 365.02[2][a] (Alan N. Res-nick & Henry J. Sommer, eds., 16th ed. rev. 2010). As previously noted, the dispute between the parties in this case concerns the purchase option provision of the Buy-Sell Agreement, ¶ 3.5(a). That paragraph provides that “[i]f a Member ... files a voluntary petition under any bankruptcy or insolvency law ... then the Company shall have the option for a period of 180 days after the date of the Insolvency Event to purchase the Membership Interest for Fair Market Value.... ” Fair Market Value is defined in Section 1 of the Agreement. The court has been unable to find a case involving a contract quite like the one being judged here. And even though both parties rely on the Fourth Circuit’s opinion in Lubrizol Enterprises, Inc. v. Richmond Metal Finishers, Inc. (In re Richmond Metal Finishers, Inc.), 756 F.2d 1043, 1045 (4th Cir.1985), and the Countryman definition of executory contracts, courts have divided on the two divergent approaches argued by the parties. According to MDG and Bojanowski, the date of the commencement of a case is the critical date for determining whether a contract is executory. In support of their position, they cite RCI Technology Corporation v. Sunterra Corporation (In re Sunterra Corporation), 361 F.3d 257, 264 (4th Cir.2004) (“Applying the Countryman Test, the Agreement was not executory unless it was executory as to both Sunterra and RCI when Sunterra petitioned for bankruptcy.”) (emphasis in original). Here, on the date debtor filed bankruptcy, no party to the Agreement had exercised any of the option covenants under the Agreement. Thus, MDG and Bojanowski argue that no party had affirmative or negative duties to perform that could lead to a material breach. Because there was no mutuality of obligations, they posit that the Agreement is not executory in nature. MDG and Bojanowski cite the following cases in support of their broad assertion that contracts with purchase options not exercised prepetition cannot be executory: Unsecured Creditors’ Committee v. Southmark Corp. (In re Robert L. Helms Constr. and Dev. Co.), 139 F.3d 702 (9th Cir.1998); Gouveia v. Tazbir, 37 F.3d 295 (7th Cir.1994); BNY Capital Funding, LLC v. U.S. Airways, Inc., 345 B.R. 549 (E.D.Va.2006); In re Plascencia, 354 B.R. 774 (Bankr.E.D.Va.2006); Bronner v. Chenoweth-Massie P’ship (In re Nat’l Fin. Realty Trust), 226 B.R. 586 (Bankr. W.D.Ky.1998); In re Bergt, 241 B.R. 17 (Bankr.D.Alaska 1999). In the case of Robert L. Helms Construction and Development Co., 139 F.3d 702, Southmark, a Texas corporation, sold real property to Double Diamond Ranch Limited Partnership with an option to buy the property back. Southmark subsequently filed a chapter 11 case without having exercised its repurchase option. Southmark’s chapter 11 plan provided that all executory contracts not listed were deemed rejected. Because the plan did not list the option contract, the contract would have been rejected if it had been executory. The issue of whether in fact the option contract was executory was not addressed in the Southmark bankruptcy. Some time later, Double Diamond itself filed bankruptcy in Nevada. In that case, Double Diamond’s unsecured creditors committee sought to sell the real property free and clear of Southmark’s purchase option. Southmark opposed the sale, and the bankruptcy court found that the option contract had indeed been executory and thus had been rejected in the Southmark bankruptcy. The ruling was appealed to 112the Bankruptcy Appellate Panel, which reversed and held that the option contract had not been executory and thus had not been rejected. Southmark appealed to the Ninth Circuit Court of Appeals. The Ninth Circuit, en banc, reversed the lower courts, holding that a purchase option not exercised prior to the bankruptcy is not an executory contract.4 The court, quoting the Countryman definition, puzzled over the application of the definition to “a paid-for but unexercised option.... ” and noted that “t[h]e contingent nature of the obligations has troubled courts.” Id. at 705. After reviewing decisions on both sides of the issue, the court made its ruling on the following basis: A better approach ... is to ask whether the option requires further performance from each party at the time the petition is filed. Typically, the answer is no, and the option is therefore not executory. The optionee need not exercise the option-if he does nothing, the option lapses without breach. The contingency which triggers potential obligations-exercising the option-is completely within the op-tionee’s control.... Id. at 705-06. The Ninth Circuit considered noteworthy the fact that its ruling was important to Southmark’s bankruptcy estate for the preservation of a valuable asset, whereas the bankruptcy court’s ruling that the contract was rejected gave the optionor, Double Diamond, “an undeserved windfall.” Id. at 706. Indeed, the court went on to discuss that debtors sometime fail to recognize the value such options and “fail to expressly assume them. This leads to a trap, as unassumed executory contracts may be deemed rejected ... when the trustee has no intention of abandoning the asset.” The court noted the “sidesteps” that courts have taken to avoid such a result. Id. Other similar rulings rely on the Ninth Circuit’s analysis in Helms Construction. In Bronner v. Chenoweth-Massie Partnership (In re National Financial Realty Trust), 226 B.R. 586 (Bankr.W.D.Ky.1998), debtor held a prepetition unexercised option to purchase realty from defendant. Post-petition, debtor transferred the option to plaintiff. When plaintiff attempted to exercise the option, defendant refused to comply on the basis that the option was an executory contract that had been rejected because it had not been timely assumed. The court, referring extensively to Helms Construction, held that the option was not an executory contract, and therefore assumption was not required. “The pivotal question is whether performance is due by both sides [when the petition is filed].” Id. at 590. If neither party is required to do anything to avoid a breach, the optionee has discretion whether to exercise the option. “The optionee does not commit a breach by choosing to do nothing.” Id. See also In re Bergt, 241 B.R. 17 (Bankr.D.Alaska 1999) (nondebt- or’s unexercised right of first refusal to purchase real property of debtor, a property interest under state law, was not execu-tory contract). In contrast, debtor’s position, which finds ample support in the case law, is that a contingent obligation, even though not yet triggered on a debtor’s petition date, is nevertheless executory until expiration of the contingency because “[u]ntil the time has expired during which an event triggering a contingent duty may occur, the contingent obligation represents 113a continuing duty to stand ready to perform if the contingency occurs.” Lubrizol, 756 F.2d at 1046; see also CB Holding Corp., 448 B.R. 684, 689 (Bankr.D.Del. 2011) (holding that a right of first refusal is executory, noting that “the majority of courts” have so held, and criticizing the Bergt decision and others that held otherwise); In re AbitibiBowater, Inc., 418 B.R. 815, 830-31 (Bankr.D.Del.2009); In re Simon Transp. Servs., 292 B.R. 207, 219-20 (Bankr.D.Utah 2003); In re Kellstrom Indus., Inc., 286 B.R. 833, 834-35 (Bankr. D.Del.2002); In re Riodizio, Inc., 204 B.R. 417, 424 (Bankr.S.D.N.Y.1997). In re A.J. Lane & Co., 107 B.R. 435, 437 (Bankr. D.Mass.1989) (“The contingency of the option exercise does not make the agreement non-executory.”); In re Hardie, 100 B.R. 284, 287 (Bankr.E.D.N.C.1989); G-N Partners, 48 B.R. 462, 465 (Bankr.D.Minn. 1985); cf. In re Safety-Kleen Corp., 410 B.R. 164, 167 (Bankr.D.Del.2009) (holding that contingent indemnity obligations were sufficient to render a contract executory; the option covenants were executory both as of the petition date and on an ongoing basis thereafter). An enlightened discussion of the question raised here is found in In re Simon Transportation Services, 292 B.R. 207, 218-220 (Bankr.D.Utah 2003). The debt- or, a large motor carrier, held on the petition date a large number of “trade-back” agreements that gave it the option to trade used trucks back to the seller of the trucks and to require the seller to repurchase trucks at a fixed price. Because the market price of a used truck was less than the price set under the trade-back agreements, the trade-back agreements were worth approximately 4.1 million dollars. The debtor sought to assume and assign those trade-back agreements. The court considered the decisions on both sides of the issue of whether unexercised options may constitute executory contracts and concluded that the trade-back agreements in question were executory contracts that could be assumed and assigned. In its discussion, the court noted that some courts have adopted a “functional approach” to the issue by which they determine whether a contract is executory by looking “to the benefits to be gained by the debtor’s estate....” Id. at 218. It further noted that the Tenth Circuit would likely find the trade-back agreements to be exec-utory, as “the economic realities of the situation turn the options into obligations. Exercising the Trade — Back Agreements is the only sensible course of action available to Simon. Viewed in such a way, the Trade — -Back Agreements fall within the definition of executory contracts even under the Countryman approach.” Id. at 220. Debtor cites the Fourth Circuit’s Lubri-zol decision in support of its argument that the MDG Buy-Sell Agreement with its contingency provisions is executory. In that case the court held that a technology licensing agreement held by the debtor was executory. Among other conditions, the licensing agreement required the li-censor to defend debtor from infringement suits and also to indemnify debtor. The reported facts of the case do not indicate that any such suits had been filed on Lu-brizol’s petition date.5 The court of appeals specifically held that this contingency did not prevent the licensing agreement from being executory. Id. at 1046. The court also noted several continuing duties of the parties under the contract. Obligations the licensor of the agreement owed 114the debtor included the duty of “notice and forbearance in licensing.” Id. at 1045. Duties of the debtor to the licensor included “the continuing duty of accounting for and paying royalties for the life of the agreement” and keeping license technology in confidence. Id. at 1046. Debtor further argues that the provisions of Paragraphs 2(a) and (b) of the Buy-Sell Agreement, which prohibit members of MDG from encumbering their interests in MDG or transferring their membership interests except as permitted in the Agreement, render the Agreement ex-ecutory. Such a conclusion finds support in Sunterra6 and Lubrizol,7 both of which described types of continuing duties of the parties to the contracts that made those contracts executory. I decline to follow the line of authority of the Helms Construction decision of the Ninth Circuit and cases following it. One strong factor in my decision is that the MDG Buy-Sell Agreement contains more than a simple purchase option or right of first refusal. Unlike the facts in the majority of cases cited by MDG and Bojanow-ski, the court here is evaluating a complex contract with multiple continuing conditions. I further find that Bojanowski and MDG’s reliance on the Fourth Circuit statement in Sunterm that the commencement date of the bankruptcy case is the date for determining whether a contract is executory is not well-placed and begs the question. The real issue in this case is whether an option contract can be executo-ry. The facts in Sunterra are plainly distinguishable from those here. Sunterra involved a prepetition software licensing agreement that the court held was execu-tory but which debtor was prohibited from assuming, for other reasons not relevant here, pursuant to § 365(c). The court held the agreement was executory on the petition date because on that date each party had a “continuing material duty” to the other to maintain the confidentiality of the source code of the subject software. Id. at 264. MDG and Bojanowski also rely on a 2006 decision from the Eastern District of Virginia. In BNY, Capital Funding LLC v. U.S. Airways, Inc., 345 B.R. 549 (E.D.Va.2006), debtor U.S. Airways held a binding prepetition letter of intent from BNY, Capital Funding, under which BNY would provide financing for debtor’s purchase of aircraft. In its plan of reorganization, debtor included the letter of intent on a list of executory contracts to be as115sumed. BNY objected to this assumption based upon its position that Bankruptcy Code § 365(c) prohibits the assumption of an executory contract to make a financial accommodation. Debtor responded by asserting that the letter of intent was in fact not an executory contract. The bankruptcy court ruled in favor of debtor that the letter of intent was not an executory contract. The district court affirmed. Citing the Countryman definition, which is followed in the Fourth Circuit, the court found that the debtor’s letter of intent was not an executory contract because debtor had no unperformed obligations under the letter of intent at the time of the petition. Its future obligations were contingent upon debtor’s exercise of its option. The court noted that the Fourth Circuit in Lubrizol had stated that the “contingency of an obligation does not prevent its being executory under § 365.” Id. at 553, citing Lubrizol, 756 F.2d at 1046. The district judge acknowledged that the contingency premise was sound in Lubrizol but not in the case of US Airways, and he distinguished the two cases. He noted that Lubrizol involved a technology license agreement under which both sides had ongoing obligations but that US Airways had no binding obligations on the petition date, “and thus the contract was not execu-tory under the Countryman definition.” 335 B.R. at 553. There were no unperformed obligations on US Airways under its letter of intent, the conditions of which became material only if it sought to exercise the option.8 There are factual distinctions between the US Airways case and the case before me which make that case inapposite here. The dispositive distinction is that in this case there was a continuing obligation on each side. Each had agreed to negative covenants under which each agreed to refrain from transferring or encumbering its interest in MDG. Further, in US Airways, the debtor was the holder of the option and sought to assume it, whereas in this case, the holder of the option is the creditor. Assumption served to retain a valuable asset for the estate in the US Airways case, whereas in this case, if debtor cannot reject the Buy-Sell Agreement, a valuable asset may be removed from the estate. While there is a provision in the Agreement for pricing the asset, a transfer pursuant to those terms would still remove the asset from the market and its valuation mechanisms. Instead, under the Agreement, the asset would be sold at a fair market price as defined in the Buy-Sell Agreement. If the parties to the Agreement do not agree upon á fair market price, then appraisers will determine the fair market price. This may not maximize recovery.9 Debtor’s rejection of the Agreement will give it the opportunity to expose the asset to the market and maxim116ize its value for the benefit of the bankruptcy estate. Finally, the court’s ruling on the executory contract issue requires the court to deny the motion of MDG and Bo-janowski for relief from the automatic stay under which they seek to exercise the purchase option, because rejection of the contract takes that option away. In conclusion, in light of the continuing obligations on each side and the binding Fourth Circuit precedent of Lubrizol, I find the Buy-Sell Agreement to be an executory contract. Accordingly, the objection of MDG and Bojanowski will be overruled and the contract is deemed rejected as of the March 16, 2012, rejection date set forth in debtor’s sixth notice of rejection of certain executory contracts.10 The court does not find that debtor’s amendment of Schedule G to include the Buy-Sell Agreement was in bad faith or unduly prejudicial. Pursuant to Bankruptcy Rule 1009(a), “[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.” There has been nothing presented to the court that persuades it that debtor, in choosing its strategies in this chapter 11 case, has acted in bad faith. The motion of MDG and Bojanowski to strike will be denied. A separate order will issue. ORDER For reasons stated in the Memorandum Opinion issued this date, the court finds that the Buy-Sell Agreement for Mattress Discounters Group, LLC, dated January 8, 2010, is an executory contract pursuant to provisions of 11 U.S.C. § 365(a), and that the Agreement has been rejected by debt- or in accordance with its sixth notice of rejection of executory contracts and unexpired leases of nonresidential real property. Accordingly, IT IS ORDERED that the objection filed by Mattress Discounters Group, LLC, through Raymond T. Bojanowski to debtor’s sixth notice of rejection of certain executory contracts is OVERRULED and it is further ORDERED that the January 8, 2010, “Buy-Sell Agreement for Mattress Discounters, LLC,” between debtor, Raymond T. Bojanowski, and Mattress Discounters Group, LLC, is deemed rejected as of the March 16, 2012, rejection date set forth in debtor’s sixth notice of rejection of certain executory contracts, and it is further ORDERED that the motion of Mattress Discounters Group, LLC, through Raymond T. Bojanowski to strike debtor’s amended Schedule G is DENIED, and it is further ORDERED that the motion of Mattress Discounters Group, LLC, through Raymond T. Bojanowski for relief from the automatic stay is denied. . For details, see the court’s order entered May 11,2012. (Docket 573) . The reference to Professor Westbrook is to a 1989 article by Professor Jay Lawrence West-brook, in which he noted that "[b]ankruptcy is that volume of the law that might have been written by Lewis Carroll, every conventional legal principle refracted through the prism of insolvency. In that fact lies much of its students’ joy — and their frustration. In no chapter of that volume has the law become more psychedelic than in the one titled '‘executory contracts.” Jay Lawrence Westbrook, A Functional Analysis of Executory Contracts, 74 Minn. L. Rev. 227, 228 (1989). .For a discussion of the Countryman definition of executory contracts, see 3 Collier on 111Bankruptcy, ¶ 365.02[2][a] (Alan N. Resnick & Henry J. Sommer, eds., 16th ed. rev. 2010). . The Ninth Circuit remanded the case to the bankruptcy court for further findings concerning treatment of the option in South-mark's chapter 11. The court recognized that the contract might have been specifically rejected in Southmark's chapter 11 plan, which would be conclusive of rejection. 139 F.3d at 704. . Additionally, the court noted that Lubrizol had never used the licensed technology at issue. 756 F.2d at 1045. . The Fourth Circuit in Sunteira remarked that: On this point, we agree with the district court that the Agreement was executory when Sunterra petitioned for bankruptcy. When the bankruptcy petition was filed, each party owed at least one continuing material duty to the other under the Agreement-they each possessed an ongoing obligation to maintain the confidentiality of the source code of the software developed by the other, i.e., the Software and the Sunter-ra Enhancements. 361 F.3d at 264. . Similarly, in Lubrizol, the Fourth Circuit noted that: Applying that test here, we conclude that the licensing agreement was at the critical time executory. RMF owed Lubrizol the continuing duties of notifying Lubrizol of further licensing of the process and of reducing Lubrizol's royalty rate to meet any more favorable rates granted to subsequent licensees. By their terms, RMF’s obligations to give notice and to restrict its right to license its process at royalty rates it desired without lowering Lubrizol’s royalty rate extended over the life of the agreement, and remained unperformed. Moreover, RMF owed Lubrizol additional contingent duties of notifying it of suits, defending suits and indemnifying it for certain losses. 756 F.2d at 1045. . MDG and Bojanowski also cite In re Plas-cencia, 354 B.R. 774 (Bankr.E.D.Va.2006), a chapter 13 case in which the debtor owned real property that was subject to a right of first refusal. This case can be readily distinguished. While the court held that the right of first refusal was not an executory contract, citing the US Airways case, 345 B.R. 549, the primary basis for the ruling is the fact that the holder of the first refusal right held an interest in property, protected by a deed recorded at the time of debtor’s purchase. . The court notes the potential difference in recovery for the estate in light of the discussion in Simon Transportation Services as to the functional and economic realities approaches of determining whether a contract is executory. Under those approaches, this contract would likely be found to be executory. It is ironic that Helms Construction, 139 F.3d 702, which is probably the strongest opinion in support of MDG's and Bojanowski's position, is arguably based on a policy emphasized by the Ninth Circuit of preserving the asset for the benefit of the bankruptcy estate. . See the court’s order in this case authorizing procedures for rejecting executory contracts. (Docket 237)	01-04-2023	11-22-2022
https://www.courtlistener.com/api/rest/v3/opinions/8494768/	Memorandum Opinion HARLIN DEWAYNE HALE, Bankruptcy Judge. On March 2, 2012, Alejandro Francisco Sanchez-Mujica and Javier Arechavaleta Santos, acting as Foreign Representatives of the above-captioned debtor, Vitro, S.A.B. de C.V. (‘Vitro SAB”), filed a Motion of Foreign Representatives of Vitro S.A.B. de C.V. for an Order Pursuant to 11 U.S.C. §§ 105(a), 1507 and 1521 to (I) Enforce the Mexican Plan of Reorganization of Vitro S.A.B. de C.V., (II) Grant a Permanent Injunction, and (III) Grant Related Relief (“Enforcement Motion”). Wilmington Trust, National Association (“Wilmington”), U.S. Bank National Association, as Indenture Trustee (“U.S. Bank”), and the Ad Hoe Group of Vitro Noteholders (“Ad Hoc Group”) (collectively, the “Objecting Parties”), who are claimants under various indentures issued by Vitro SAB in the United States and guaranteed by its subsidiaries, responded. On March 5, 2012, the Court heard the Enforcement Motion on an expedited basis. In addition to the Enforcement Motion, on March 2, 2012, the Foreign Representatives filed, under seal, a Motion for a Temporary Restraining Order and Preliminary Injunction (“TRO Motion”), supported by 1) a Verified Complaint for Temporary Restraining Order and In-junctive Relief, 2) the Enforcement Motion and 3) Declarations of certain individuals. In response, the Objection Of U.S. Bank National Association, As Indenture Trustee, To Foreign Representatives’ Motion For A Temporary Restraining Order And Preliminary Injunction and the Ad Hoc Group of Vitro Noteholders’ Objection to Motion for Temporary Restraining Order were timely filed with the Court. On March 7, 2012, also on an expedited basis, the Court heard arguments for and against the TRO Motion. On March 12, 2012, the Court entered an Order Granting Limited Temporary Restraining Order to Maintain Status Quo (“TRO”). The TRO was extended by the parties’ agreement. On May 25, 2012, the Objecting Parties each timely filed with the Court an objection (“Ad Hoc Noteholders Objection,” “Wilmington Trust Objection,” and “U.S. Bank Objection” respectively) to the Enforcement Motion. Beginning June 4, 2012, this Court held a four day trial on the Enforcement Motion, on a schedule agreed to by the parties. Vitro SAB and the Objecting Parties put on a number of witnesses and introduced hundreds of exhibits. The Court took the matter under advisement. I. Background Facts The events leading to the Debtor’s commencement of this Chapter 15 case are generally described in this Court’s memorandum opinion of June 24, 2011, denying the request of the foreign representatives of Vitro SAB to enjoin lawsuits filed against its non-debtor guarantors in New York state court.1 As explained therein, at that time the proceedings in Mexico were in an early stage, and it was unclear 120whether they would be successful.2 This Court determined that the pre-recognition injunction should be granted in favor of Vitro SAB only, and did not find that the litigation by the noteholders against the subsidiary guarantors of Vitro SAB should be enjoined when the subsidiaries were not in an insolvency proceeding. Thereafter, in August 2011, a group of noteholders filed suit against Vitro SAB’s subsidiaries in New York state court, seeking a money judgment on certain guarantees and declaratory relief. Wilmington TRUST N.A. v. Vitro AUTOMOTRIZ S.A. De C.V., No. 652303-2011 (N.Y. Sup. Ct. filed Aug. 17, 2011). Specifically, in addition to a judgment on their guarantees, the noteholders wanted a declaratory judgment stating that Vitro SAB’s reorganization attempts would not impact their guaranties from Vitro SAB’s nondebtor subsidiaries. Id. In December 2011, the New York state court ruled in favor of the noteholders, finding that the indentures prevent non-consensual modification of the subsidiaries’ guaranties. Wilmington TRUST N.A. v. Vitro AUTOMOTRIZ S.A. De C.V., No. 652303-2011 (N.Y.Sup. Ct. Dec. 5, 2011). In its decision, the New York state court noted that the subsidiaries had waived their rights under Mexican law. Id. On December 18, 2011, the noteholders obtained a temporary restraining order from the New York state court that enjoined the subsidiaries from giving their consent to the Concurso plan. Wilmington Trust N.A. v. Vitro Automotriz S.A. de C.V., No. 653459-2011 (N.Y. Sup.Ct. filed Dec. 14, 2011). However, upon Vitro SAB’s request, this Court, finding that the lockup agreement between Vitro SAB and its subsidiaries was an asset of Vitro SAB’s estate, entered an order enforcing the automatic stay and enjoining the Noteholders’ seeking injunctive relief in the New York State Court. Despite an appeal by the noteholders,3 that order remained in effect and the subsidiaries were permitted to vote on the Concurso plan. The subsidiaries voted in favor of the plan and though they were insiders, their votes were counted to win approval of the plan. On February 3, 2012, the Federal District Court for Civil and Labor Matters for the State of Nuevo León, the United Mexican States (the “District Court of Nuevo León”) issued a Concurso Approval Order under the Ley de Concursos Mercantiles (the “LCM”) in Vitro SAB’s voluntary judicial reorganization proceeding (the “Mexican Proceeding”). After the issuance of the Concurso Approval Order, the objecting Noteholders continued to take actions against Vitro SAB’s non-debtor subsidiaries, attempting to collect debts owed to them under various guarantees to indentures issued by Vitro SAB.4 In response, Vitro SAB filed the Enforcement Motion and sought the TRO and permanent injunction, which led to the trial upon which this opinion is rendered. The Concurso Approval Order not only modifies the debts owed by Vitro SAB to the noteholders under various indentures, it also novates and extinguishes the guarantees, effectively discharging the obligations of Vitro SAB’s non-debtor subsidiary guarantors to the noteholders. In the Enforcement Motion, the Foreign Representatives ask the Court to enforce the Concurso Approval Order, which approves Vitro SAB’s Concurso Plan. Specifically, the Enforcement Motion asks the 121Court to 1) give “full force and effect in the United States to the Concurso Approval Order,” 2) “grant a permanent injunction prohibiting certain actions in the United States against Vitro SAB,” as well as its non-debtor subsidiaries and 3) “grant certain related relief,” all pursuant to §§ 105(a), 1507, and 1521 of Title 11 of the United States Bankruptcy Code. II. Issues There are two main issues that must be addressed in order to determine whether the Enforcement Motion should be granted: (1) whether the provisions of the Con-curso Approval Order that grant a permanent injunction prohibiting certain actions in the United States against Vitro SAB’s non-debtor subsidiaries may be extended to creditors in the United States by this Court through §§ 1521 or 1507 consistent with the principles of comity; and (2) if so, does the § 1506 public policy exception, which limits the extension of comity where it would be “manifestly contrary” to the public policy of this country, prevent enforcement of the Concurso Approval Order. III. Analysis The Court has jurisdiction pursuant to 28 U.S.C. § 1334. The proceeding is core, pursuant to 28 U.S.C. § 157(b)(2)(P). Beyond the mandatory effects of recognition of a foreign main proceeding5 found in 11 U.S.C. § 1520, additional relief “may” be granted to protect the assets of the debtor or the interests of creditors pursuant to § 1521, as well as additional assistance that may be provided to a foreign representative of the debtor consistent with the principles of comity, pursuant to § 1507. Under § 1521, a bankruptcy court may “grant any appropriate relief’ in order to “effectuate the purpose of this chapter and to protect the assets of the debtors or the interests of the creditors.” 11 U.S.C. § 1521(a). This includes, at the request of the foreign representative, entrusting “the distribution of all or part of the debtor’s assets located in the United States to the foreign representative or another person, including an examiner, authorized by the court, provided that the court is satisfied that the interests of creditors in the United States are sufficiently protected.” 11 U.S.C. § 1521(b). Section 1522(b) permits the court to impose conditions on any discretionary relief that it grants either pre- or post-recognition, which permits the court to achieve an appropriate balance between the interests of creditors and other interested entities, including the debtor. See In re Tri-Continental Exchange Ltd., 349 B.R. 627, 637 (Bankr.E.D.Cal.2006); 11 U.S.C. § 1522(b). In addition to the relief enumerated in § 1521, § 1507(a) of the Bankruptcy Code provides that “the court, if recognition is granted, may provide additional assistance to a foreign representative.” 11 U.S.C. § 1507(a). In determining whether to provide such additional assistance, courts must look to § 1507(b) for guidance, which provides that: (b) In determining whether to provide additional assistance under this title or under other laws of the United States, the court shall consider whether such additional assistance, consistent with principles of comity, will reasonably assure: 1221) just treatment of all holders of claims against or interests in the debtor’s property; 2) protection of claim holders in the United States against prejudice and inconvenience in the processing of claims in such foreign proceeding; 3) prevention of preferential or fraudulent dispositions of property of the debtor; 4) distribution of proceeds of the debt- or’s property substantially in accordance with the order prescribed by this title; and 5) if appropriate, the provision of an opportunity for a fresh start for the individual that such foreign proceeding concerns. 11 U.S.C. § 1507(b). Comity should be the Court’s primary consideration when applying § 1507(b). See In re Petition of Garcia Avila, 296 B.R. 95, 108 n. 14 (Bankr.S.D.N.Y.2003). Comity has been defined as the “recognition which one nation allows within its territory to the legislative, executive or judicial acts of another nation, having due regard both to international duty and convenience, and to the rights of its own citizens or of other persons who are under the protections of its laws.” Hilton v. Guyot, 159 U.S. 113, 163— 64, 16 S.Ct. 139, 40 L.Ed. 95 (1895). Granting comity to judgments in foreign bankruptcy proceedings is appropriate as long as U.S. parties are provided the same fundamental protections that litigants in the United States would receive. See id. at 202-03,16 S.Ct. at 158-59. Vitro SAB urges the Court to defer in favor of the Enforcement Motion in the interests of comity. However, “The principle of comity has never meant categorical deference to foreign proceedings. It is implicit in the concept that deference should be withheld where appropriate to avoid the violation of the laws, public policies, or rights of the citizens of the United States.” In re Treco, 240 F.3d 148, 157 (2d Cir.2001); see also, Overseas Inns S.A., P.A. v. United States, 911 F.2d 1146 (5th Cir.1990) (comity was not accorded to Luxembourg bankruptcy plan that treated IRS as general, rather than priority, creditor); In re Schimmelpenninck, 183 F.3d 347, 365 (5th Cir.1999) (“foreign laws ... must not be repugnant to our laws and policies”). Public Policy Exception — § 1506 If the Court finds that the Concurso Approval Order should be enforced, pursuant to § 1507, then the Chapter 15 of the Bankruptcy Code provides a final hurdle for Vitro SAB to overcome in the public policy exception found in § 1506. Specifically, § 1506 provides that “[njothing in this chapter prevents the court from refusing to take an action governed by this chapter if the action would be manifestly contrary to the public policy of the Untied States.” 11 U.S.C. § 1506. The parties spent much of their time on this issue. Unfortunately, the Bankruptcy Code does not define what should be considered “manifestly contrary to the public policy of the United States.” Therefore, this Court must look to the legislative history and to relevant case law for guidance. Although few published opinions discuss the scope of section 1506, “it appears well settled that the exception is to be construed narrowly.” In re British Am. Isle of Venice, Ltd., 441 B.R. 713, 717 (Bankr.S.D.Fla.2010) (citing In re Qimonda AG Bankr. Litig., 433 B.R. 547, 567-70 (E.D.Va.2010)). Further, it should be “invoked only under exceptional circumstances concerning matters of fundamental importance for the United States.” In re Ran, 607 F.3d 1017, 1021 (5th Cir.2010) (citing In re Iida, 377 B.R. 243 (9th Cir. 123BAP 2007)); In re Atlas Shipping A/S, 404 B.R. 726 (Bankr.S.D.N.Y.2009); In re Ernst and Young, Inc., 383 B.R. 773, 781 (Bankr.D.Colo.2008)). “The word ‘manifestly’ in international usage restricts the public policy exception to the most fundamental policies of the United States.” In re Ephedra Prods. Liability Litig., 349 B.R. 333, 336 (S.D.N.Y.2006) (citing H.R. REP. NO. 109-31(1), at 109, as reprinted in 2005 U.S.C.C.A.N. 88, 172). Despite § 1506’s limited scope, the statute has also been described as a “safety valve”6 that offers “specific protections” 7 to creditors in Chapter 15 proceedings. When determining whether to apply § 1506, courts have focused on two factors: (1) whether the foreign proceeding was procedurally unfair; and (2) whether the application of foreign law or the recognition of a foreign main proceeding under Chapter 15 would ‘severely impinge the value and import’ of a U.S. statutory or constitutional right, such that granting comity would ‘severely hinder United States bankruptcy courts’ abilities to carry out ... the most fundamental policies and purposes’ of these rights. Id. (quoting In re Qimonda AG Bankr. Litig., 433 B.R. at 568-69) (citations omitted). Although not much case law exists, several courts have recently considered the § 1506 public policy exception. Because Chapter 15 of the Bankruptcy Code was not enacted until 2005, the scope of § 1506 has not yet been clearly defined. Therefore, a review of some of the more recent cases is helpful. In In re Ephedra Prods. Liability Li-tig., the bankruptcy court had to determine whether granting an order recognizing and enforcing an order of the Canadian insolvency tribunal would violate § 1506. 349 B.R. 333 (S.D.N.Y.2006). The Canadian order at issue approved a claims resolution procedure that provided for mandatory mediation, which could result in the liquidation of claims by creditors who never approved of the plan. Id. at 335. Some of the claimants argued that the foreign “procedure was manifestly contrary to U.S. policy because it deprived them of due process and a jury trial.” Id. The bankruptcy court looked to the legislative history and found that the word “manifestly” is restrictive so that the public policy exception should be “narrowly interpreted.” Id. at 336. Looking at an 1895 Supreme Court decision, Hilton v. Guyot, 159 U.S. 113, 16 S.Ct. 139, 40 L.Ed. 95 (1895), the Ephedra court added that foreign judgments should be recognized and enforced when the foreign “ ‘proceedings are according to the course of a civilized jurisprudence,’ i.e., fair and impartial.” In re Ephedra Prods. Liability Litig., 349 B.R. at 336 (quoting Hilton, 159 U.S. at 205-06, 16 S.Ct. 139). With respect to the claimants’ due process argument, the court acknowledged that there was at least some merit to the objection because the Claims Officer had originally refused to receive evidence and to liquidate claims without granting interested parties an opportunity to be heard. Id. at 335. However, the bankruptcy court ultimately rejected the due process argument because the Ontario Court adopted amendments to the Canadian order that cured the due process problems. Id. With respect to the claimants’ second argument, based on deprivation of their right to a jury trial, the court held that “neither § 1506 nor any other law prevents a Unit124ed States court from giving recognition and enforcement ... simply because the procedure alone does not include a right to jury.” Id. at 335-36. Although the bankruptcy court recognized that the constitutional right to a jury trial is important to the American legal system, it did not find that a jury trial is absolutely necessary in order to have a fair and impartial verdict. Id. at 337 (citing Evangelical Alliance Mission, 930 F.2d 764, 768 (9th Cir.1991); In re Union Carbide Corp. Gas Plant Disaster at Bhopal, 809 F.2d 195, 199, 202 (2d Cir.1987)). Because the court found that the claimants’ real complaint had to do with the loss of leverage during settlement negotiations, the court rejected the argument. Id. It explained that “[deprivation of such bargaining advantage hardly rises to the level of imposing on plaintiffs some fundamental unfairness.” Id. In In re Qimonda AG Bankr. Litig., the United States District Court discussed the § 1506 public policy exception at length. 433 B.R. 547, 567-71 (E.D.Va.2010). Qim-onda, a German company and producer of computer chips, claimed to hold approximately 12,000 patents, including at least 4,000 U.S. patents and over 1,000 pending U.S. patent applications. Id. at 552. Before the commencement of insolvency proceedings in Germany, Qimonda entered into various joint venture and patent cross-licensing agreements with international electronic companies. Id. In the foreign insolvency proceeding, Qimonda sought to terminate these patent cross-licensing agreements. The attorney appointed as Insolvency Administrator of Qimonda’s estate filed a petition for recognition of the German insolvency proceeding in the U.S. Bankruptcy Court. Id. The bankruptcy court below in In re Qimonda AG, had a hearing and issued two orders. Id. at 552 (discussing In re Qimonda AG, 2009 WL 4060083 (Bankr. E.D.Va.2009) (No. 09-14766-RGM), affd in part, remanded in part sub nom. In re Qimonda AG Bankr. Litig., 433 B.R. 547 (E.D.Va.2010)). According to the United States District Court, “[t]he first order correctly recognized the insolvency proceeding as a ‘foreign main proceeding.’ ” Id. (citing 11 U.S.C. § 1517). The second order granted discretionary relief to Qim-onda and the Insolvency Administrator, including a paragraph that made particular “provisions of the Bankruptcy Code applicable to Qimonda’s Chapter 15 proceeding.” Id. at 552-53. After the bankruptcy court issued the orders, the Insolvency Administrator sent letters to some of the international electronic companies in order to elect nonperformance of their patent cross-licensing agreements pursuant to German Insolvency Code Section 103. Id. at 553. In response to these letters sent on behalf of Qimonda, certain international electronic companies argued that election of these agreements was impermissible under § 365(n) of the U.S. Bankruptcy Code, which was made applicable by the bankruptcy court’s second order. Id. In order to resolve the dispute, the Insolvency Administrator filed a motion with the bankruptcy court seeking to amend the second order. Id. The bankruptcy court granted the motion and issued a new order, stating that: [t]he application of section 365 to the instant proceeding shall not in any way limit or restrict (i) the right of the Administrator to elect performance or nonperformance of agreements under § 103 German Insolvency Code or such other applicable rule of law in the Foreign Proceeding, or (ii) the legal consequence of such election; provided, however, if upon a motion by the Administrator under Section 365 of the Bankruptcy Code, the Court enters an Order providing for the assumption or rejection of an execu-tory contract, then Section 365 shall ap125ply without limitation solely with respect to the contracts subject to such motion. In re Qimonda AG Bankr. Litig., at 553-54 (citation omitted). The bankruptcy court also revised the second order. Specifically, it added the following language to the paragraph making certain provisions of the U.S. Bankruptcy Code applicable: “provided, however, Section 365(n) applies only if the Foreign Representative rejects an executory contract pursuant to Section 365 (rather than simply exercising the rights granted to the Foreign Representative pursuant to the German Insolvency Code).” Id. at 554 (citation omitted). On appeal, the international electronic companies argued that “the Bankruptcy Court erred in conditioning the applicability of § 365(n) on the Foreign Representative’s formal rejection of the parties’ cross-licensing agreements under the Bankruptcy Code.” Id. at 554. The district court focused on “whether § 365(n) embodies the fundamental public policy of the United States, such that subordinating [it] to German Insolvency Code § 103 is an action ‘manifestly contrary to the public policy of the United States.’ ” Id. at 565 (citing 11 U.S.C. § 1506). The district court reviewed applicable case law and found three guiding principles for analyzing whether an action taken in a Chapter 15 proceeding is manifestly contrary to the public policy of the United States: 1) The mere fact of conflict between foreign law and U.S. law, absent other considerations, is insufficient to support the invocation of the public policy exception. 2) Deference to a foreign proceeding should not be afforded in a Chapter 15 proceeding where the procedural fairness of the foreign proceeding is in doubt or cannot be cured by the adoption of additional protections. 3)An action should not be taken in a Chapter 15 proceeding where taking such action would frustrate a U.S. court’s ability to administer the Chapter 15 proceeding and/or would impinge severely a U.S. constitutional or statutory right, particularly if a party continues to enjoy the benefits of the Chapter 15 proceeding. Id. at 570. The district court found that, based on the record, it was unclear whether the three principles were applied to “the Bankruptcy Court’s decision to condition the applicability of § 365(n) on the formal rejection of an executory contract under the Bankruptcy Code.” Id. Instead, the bankruptcy court merely held that U.S. courts administering Chapter 15 proceedings must “cooperate on an international basis and ... give precedence to the [foreign] main proceeding.” Id. at 570-71 (citing In re Qimonda AG, 2009 WL 4060083, at 2). Therefore, the district court remanded the case to the bankruptcy court so that it could be determined whether there had been a violation of fundamental U.S. public policies under § 1506. Id. at 571. Upon remand, the bankruptcy court held that deferring to German law, to the extent that it would allow for the cancellation of U.S. patent licenses, would be manifestly contrary to U.S. public policy. In re Qimonda AG, 462 B.R. 165, 185 (Bankr. E.D.Va.2011). Although the bankruptcy court acknowledged that terminating the licenses would result in greater value to the debtor’s estate, it found that interest to be outweighed by the risk to substantial investments by the licensees in research and manufacturing facilities in reliance on the design freedom provided by cross-licensing agreements. Id. at 182-83 (considering § 1522(a) of the U.S. Bankruptcy Code). With respect to the § 1506 analysis, procedural fairness was not the issue. Id. at 183. In fact, the objecting parties 126never argued that the German proceedings or German insolvency laws were procedurally unfair. Id. Instead, the analysis hinged on whether the application of German insolvency law would impinge on a “U.S. statutory or constitutional right such that deferring to German law would defeat the most fundamental policies and purposes of such rights.” Id. at 184. The bankruptcy court expressed concern that terminating the licenses would result in uncertainty, which would lead to a slower pace of innovation to the detriment of the U.S. economy. Id. at 185. Specifically, the objecting parties argued that the uncertainty would discourage investments in research and development, as well as “construction of manufacturing facilities that are required in the ... industry.” Id. In furtherance of that argument, all but one of the objecting parties offered Professor Jerry A. Hausman as an expert witness. Id. at 176, n. 9. He testified that eliminating the protection § 365(n) provides to licensees if the licensor files bankruptcy would impair innovation by creating uncertainty, which would ultimately impact investment decisions. Id. at 176. In fact, Professor Hausman posited that if § 365(n) was inapplicable then many innovative products, such as the iPhone, might have reached the market later. Id. at 185. Despite conflicting evidence, the bankruptcy court was persuaded by Professor Hausman’s position. Id. According to the bankruptcy court, failing to apply § 365(n) to the facts of this case would result in uncertainty, which would ultimately impinge on the important statutory protection provided to licensees of U.S. patents. Id. Therefore, a separate order was entered “denying .the foreign administrator’s motion to amend the Supplemental Order and confirming that § 365(n) applies.” Id. In In re Gold & Honey, Ltd., a bankruptcy court applied § 1506 and determined that recognition of an Israeli receivership proceeding as a foreign proceeding would be manifestly contrary to the public policy of the United States. 410 B.R. 357, 371 (Bankr.E.D.N.Y.2009). Gold & Honey, Ltd. (“GH Ltd.”) and Gold & Honey (1995) L.P. (“GH LP”) were debtors in non-consolidated Chapter 15 cases, as well as in administratively consolidated Chapter 11 proceedings, which were pending with the bankruptcy court before the Chapter 15 cases were filed. Id. at 360. In fact, the debtors filed their petitions for the Chapter 11 cases on September 23, 2008,8 at which time § 362 of the Bank-' ruptcy Code automatically stayed all litigation against GH Ltd. and GH LP.9 Despite the filing of the Chapter 11 cases, First International Bank of Israel (“FIBI”) continued to pursue its pending application for the appointment of a temporary receiver before an Israeli Court.10 Ultimately, this fact led to the bankruptcy court’s finding that § 1506 applied and that recognition of the foreign proceeding would be manifestly contrary to the public policy of the United States. Specifically, the bankruptcy court refused to recognize the foreign proceeding “because such recognition would re127ward and legitimize FIBI’s violation of both the automatic stay and [its] Orders regarding the stay.” Id. at 371. In In re Gold & Honey, Ltd., the debtors applied to the U.S. bankruptcy court for an order stating that the automatic stay applied to the debtors’ “property wherever located and by whomever held” on October 3, 2008. Id. at 363. Agreeing with the debtors, on October 6, 2008, the bankruptcy court entered an Order stating the same. Id. Furthermore, the bankruptcy court “advised FIBI that if it proceeded before the Israeli Court in the Israeli Receivership Proceeding, it did so at its own peril.” Id. (citation omitted). Nevertheless, FIBI continued its actions in the Israeli Receivership Proceeding. Id. at 364. Thereafter, the U.S. bankruptcy court’s Order and the record of the October 6 Hearing were presented to the Israeli Court. Id. In the Israeli Court’s decision, dated October 30, 2008, it determined that neither the automatic stay nor the U.S. bankruptcy court’s Order should be given effect and that the Israeli Receivership Proceeding could continue irrespective of the debtors’ chapter 11 cases. Id. On November 30, 2008, pursuant to FIBI’s application in the Israeli Receivership Proceeding, the Israeli Court appointed receivers for GH Ltd. and GH LP. Id. The receivers filed petitions, in the Chapter 15 cases, for recognition of the Israeli Receivership Proceeding as foreign main proceedings of GH Ltd. and GH LP. Id. at 365. The bankruptcy court denied the receivers’ petitions for recognition of the Israeli Receivership Proceeding as a foreign proceeding, based on the public policy exception in § 1506. Id. at 371-73. First, it recognized, as does this Court, that “the legislative history of Section 1506 demonstrates that this exception should be applied narrowly” so that it is “invoked only when fundamental policies of the United States are at risk.” Id. at 372 (citing In re Iida, 377 B.R. 243 (9th Cir. BAP 2007); In re Atlas Shipping A/S, 404 B.R. 726 (Bankr.S.D.N.Y.2009); In re Ernst & Young, Inc., 383 B.R. 773, 781 (Bankr. D.Colo.2008) (citing H.R.REP. NO. 109-31(1) at 109 (2005), reprinted in U.S.C.C.A.N. 88, 172)). Next, it examined the cases relied upon by the receivers seeking recognition and distinguished them from the facts in In re Gold & Honey, Ltd. Id. For example, the bankruptcy court discussed In re Ephedra Prods. Liáb. Litig., and pointed out that the “United States District Court only approved the Ontario claims resolution procedure after the Ontario court adopted certain procedural changes requested by the United States court ‘to assure greater clarity and procedural fairness.’ ” In re Gold & Honey, Ltd., 410 B.R. at 371 (quoting In re Ephedra Prods. Liab. Litig., 349 B.R. 333, 334 (S.D.N.Y.2006)). Also, the Gold & Honey court noted that “jury trials in bankruptcy courts are quite rare and not typically invoked in a claims allowance process” whereas “allowing the offensive use of an automatic stay violation ... would severely impinge the value and import of the automatic stay.” Id. The bankruptcy court reasoned that recognition of a “foreign seizure of a debtor’s assets post-petition would severely hinder [our] bankruptcy courts’ abilities to carry out two of the most fundamental policies and purposes of the automatic stay.” Id. Additionally, “condoning FIBI’s conduct ... would limit a federal court’s jurisdiction over all of the debtors’ property ... as any future creditor could follow FIBI’s lead and violate the stay in order to procure assets that were outside the United States, yet still under the United States court’s jurisdiction.” Id. (citing 28 U.S.C. § 1334(e)). 128In re Toft is another published opinion where relief sought is denied based on the public policy exception in § 1506. 453 B.R. 186, 189 (Bankr.S.D.N.Y.2011). In Toft the bankruptcy court refused to recognize and enforce foreign orders, which would have permitted the foreign representative to access the debtor’s email accounts stored on servers within the United States. Id. at 188-89. In the foreign proceeding, the foreign representative was granted a “Mail Interception Order” 11 in a German Court, and that order was later recognized and enforced by an ex parte order issued in an English Court. Id. at 188. The foreign representative argued that the U.S. bankruptcy court should “grant comity” based on §§ 1521,1507 and 1519(a) of the Bankruptcy Code. Reviewing these statutes, among others,12 the bankruptcy court found that “there is no doubt that the relief available under Chapter 15 ... should be consistent with the principle of comity.” Id. at 189-90 (citing In re Metcalfe & Mansfield Alt. Invs., 421 B.R. 685, 697 (Bankr.S.D.N.Y.2010)). In fact, it added that § 1507 expressly provides so “with respect to ‘additional assistance,’ and more broadly, § 1509(b)(3) directs that once a foreign representative obtains recognition, ‘a court in the United States shall grant comity or cooperation to the foreign representative.’ ” Id. at 190. However, the bankruptcy court also found that “all relief under Chapter 15 is subject to the caveat in § 1506, providing the court with authority to deny the relief requested where such relief would be ‘manifestly contrary to the public policy of the United States.’ ” Id. at 191 (citing 11 U.S.C. § 1506; In re Ephedra Prods. Liability Litig., 349 B.R. 333 (S.D.N.Y.2006)). In other words, the foreign representative could not force the bankruptcy court to apply foreign laws in the U.S. proceeding by merely “making an impassioned appeal to comity.” Id. In the Toft opinion, Judge Gropper provides a detailed discussion of the applicable case law before concluding that an order of recognition as requested would violate § 1506, including the cases discussed previously in this opinion.13 Additionally, Judge Gropper analyzed In re Metcalfe & Mansfield Alt. Invs., 421 B.R. 685, 697 (Bankr.S.D.N.Y.2010), in which a bankruptcy court determined that § 1506 did not bar enforcement of third-party releases that were part of a Canadian plan. In re Toft, 453 B.R. at 193-95. As does this Court, Judge Gropper recognized that “those courts that have considered the public policy exception codified in § 1506 have uniformly read it narrowly and applied it sparingly.” Id. at 195. And that “foreign law need not be identical to U.S. law” in order to avoid violating § 1506, so it was not dispositive that U.S. law differed from German law. Id. at 198 (citations omitted). Ultimately, however, the court determined that “this is one of the rare cases that calls for its application” because “any ex parte recognition and enforcement of the Mail Interception Order would directly contravene the U.S. laws and public policies.” Id. at 196. According to Judge Gropper, the question to be asked was 129“whether the German procedures [were] in accord with U.S. public policy,” addressing: i. the manner in which an order of recognition would be entered — without notice to the debtor — and ii. the relief sought — that German procedures be given effect in this country regardless of the fact that they exceed traditional limits on the powers of a trustee in bankruptcy under U.S. law and constitute relief that is banned by statute in this country and might subject those who carried it out to criminal prosecution. Id. Judge Gropper rejected the foreign representative’s arguments because providing the relief sought “would directly compromise privacy rights subject to a comprehensive scheme of statutory protection, available to aliens, built on constitutional safeguards incorporated in the Fourth Amendment as well as the constitutions of many States.” Id. Said differently, these particular German procedures were not in accordance with U.S. public policy; therefore, such relief “would impinge severely a U.S. constitutional or statutory right.” Id. at 198 (citing In re Qimonda AG Bankr. Litig., 433 B.R. at 570). Objecting Parties’ Arguments The Objecting Parties have raised multiple objections to Vitro SAB’s Enforcement Motion. The Objecting Parties contend the Concurso plan should not be enforced in the United States because (1) Vitro cannot meet its burden under section 1507(b); (2) enforcing the plan would violate the manifest public policy of the United States; and (3) Vitro has not met the requirements for issuing an injunction. Section 1507(b) The Objecting Parties assert that Vitro SAB cannot meet any of the section 1507(b) requirements to enforce the plan. The Objecting Parties contend the plan violates: (1) subsection (b)(1) by discriminating between foreign and non-foreign creditors; (2) subsection (b)(2) by protecting creditors from the inconvenience in the processing of claims in the foreign proceeding; (3) subsection (b)(3) by failing to reasonably assure the prevention of fraudulent transfers; and (4) violates subsection 1507(b)(4) by failing to distribute the proceeds of the estate in substantial accordance with the Bankruptcy Code. Specifically, the Objecting Parties assert that the Concurso plan discriminates between foreign and non-foreign creditors by giving creditors with guaranties the same treatment as other unsecured creditors, by the “death trap” provision of the plan which penalizes the Objecting Parties, and by the allocation of value to creditors’ claims in accordance with the face amount, not the total amount, of their claim. The Objecting Parties assert that the Concurso plan violates subsection 1507(b)(2) by treating the nondebtor guarantors as debtors, and by not providing an opportunity for creditors of the non-debtor guarantors to vote. The Objecting Parties also assert that the Concurso plan encourages fraudulent transfers; and that the Concurso plan does not distribute proceeds of the estate in accordance with Title 11 because the plan fails to follow the absolute priority rule under 11 U.S.C. § 1129, and because it grants equity interests substantially more than they would likely receive in a Chapter 11 bankruptcy. In addition, the Objecting Parties urge the Court to invoke the § 1506 “public policy exception” by refusing to grant any action that is manifestly contrary to the public policy of the United States. The Objecting Parties contend enforcing the Concurso plan violates the public policies of (1) the absolute priority rule; (2) dis130charging non-debtor debts; (3) good faith dealing; (4) enforcement of negotiated instruments; (5) the prohibition of vote buying; and (6) violated many, if not all, of the protections afforded creditors under Title 11. As part of their public policy argument, the Objecting Parties assert that enforcing the Concurso plan will erode the status of the United States as a financial center, harming the United States and other nations. The Objecting Parties argue refusing to protect creditors bargained for protections from foreign courts will signal to bond markets U.S. law does not protect creditor rights, harming banks. Finally, the Objecting Parties contend the plan will harm the Mexican economy by raising interest rates on Mexican companies. The Objecting Parties further argue the Mexican process violated United States notions of an impartial and disinterested tribunal, based on the Condliador’s alleged financial interest and the Conciliador’s accounting firm’s relationship with Vitro SAB. The Objecting Parties also believe a lack of transparency in the Mexican Proceeding violated due process. Additionally, the Objecting Parties contend several standing issues prevented them from receiving due process. The Objecting Parties allege the systemic corruption of the Mexican judiciary undermines confidence in the judiciary as a whole. In support of this corruption argument, the Objecting Parties cite reports by, among others, the U.S. State Department, United Nations, World Bank, Transparency International. Conclusions by the Court Having reviewed the evidence and considered the testimony of witnesses over four days, this Court believes that a portion of the Concurso plan should not be enforced as presented. However, the Court will first address certain of the Objecting Parties’ arguments that must be overruled. Overruled Objections Corruption Argument The Objecting Parties have argued that the judicial system in Mexico is corrupt and its rulings should not be respected by this Court. Their expert, Dr. Stephen D. Morris, who testified for the Objecting Parties on this point appeared to be a knowledgeable and qualified witness on corruption in Mexico generally, but the application of his studies to the Vitro proceedings was not persuasive. Further, the Objecting Parties’ own Mexican counsel testified that in his forty years of practice he had not bribed an official. To date, this Court has not seen evidence that the Mexican Proceeding is the product of corruption, or that the LCM itself is a corrupt process. Impact on the Credit Markets The Objecting Parties offered the expert testimony of Dr. Elaine Buckberg, a former economist at the International Monetary Fund, who testified that confirmation of the Concurso plan will have an adverse impact on the financial markets in the United States. She testified credibly that approval of the Concurso plan in the United States will adversely impact the attractiveness of the United States to foreign issuers. Although Dr. Buckberg was a good witness and credible, she was unable to quantify the effect. For example, she could not testify as to the amount of any increase in rates for indentures for Mexican companies if the Concurso plan was enforced. For these reasons, the Court is unable to conclude that approval would have an adverse impact on credit markets. Unfairness Argument A number of the objections raised by the Objecting Parties fall under the 131category of general unfairness. For example, they emphasize that Vitro SAB had many ex parte meetings with the presiding judges. Ex parte contact with judges is apparently common in Mexico; in fact, the Objecting Parties’ counsel had ex parte meetings of their own. And they say that the Mexican courts did not consider their objections. However, the changes made to the Concurso plan suggest that at least some of their concerns were addressed. In any event, such a complaint is better raised in Mexico in the appeal that has been filed. Finally, they complain that the Conciliador was not disinterested. Such argument is for the Mexican court system. On the whole, this Court cannot conclude that the Concurso proceeding was unfair to the Objecting Parties. Violations of Mexican Law and Process The Objecting Parties have raised a number of objections concerning the process in Mexico. Those issues of Mexican law will have to be decided by the Mexican courts. Meritorious Objections — Arguments That Preclude Enforcement Third Party Releases For the past year, this Court has expressed concerns regarding the most problematical part of the Mexican Proceeding, the extinguishment of claims held by the Objecting Parties against non-debt- or subsidiaries, entities which did not avail themselves of protection in the Mexican Proceeding. In re Vitro S.A.B. de C.V., 455 B.R. 571 (Bankr.N.D.Tex.2011). This Court expressed its views at that time that it had grave concerns about any plan in Mexico that would protect non-filing subsidiaries that guaranteed United States indentures. However, Vitro SAB proceeded with such a plan anyway. Generally speaking, the policy of the United States is against discharge of claims for entities other than a debtor in an insolvency proceeding, absent extraordinary circumstances not present in this case. Such policy was expressed by Congress in Bankruptcy Code Section 524, and in numerous cases in this circuit. See, e.g., Matter of Zale Corp., 62 F.3d 746 (5th Cir.1995). This protection of third party claims is described both in terms of jurisdiction and also as a policy. See id. at p. 102, n. 28. The Fifth Circuit has largely foreclosed non-consensual non-debtor releases and permanent injunctions outside of the context of mass tort claims being channeled toward a specific pool of assets. See In re Pacific Lumber Co., 584 F.3d 229, 252 (5th Cir.2009), rev’d on other grounds, Rad-LAX Gateway Hotel, LLC v. Amalgamated Bank, 566 U.S. -, 132 S.Ct. 2065, 182 L.Ed.2d 967 (2012). In its argument, Vitro SAB points to the Metcalfe & Mansfield Alt. Invs., decision discussed above that enforced a Canadian Order that allowed for a limited third party release. 421 B.R. 685, 688. However, in Metcalfe, there was no question that the Canadian Proceedings should be recognized as a foreign main proceeding. Instead, the issue arose in enforcement of the Canadian Orders which contained a third-party nondebtor release and an injunction. Id. The facts in Metcalfe differ from the facts in the present case. In Metcalfe, there was near unanimous approval of the plan by the creditors, who were not insiders of the debtor. Also, the plan was negotiated between the parties and there appears not to have been a timely objection to the order. Finally, the language of the opinion indicates that the release was not complete like the one in the present case. 132For three reasons the Enforcement Motion must be denied. Section 1507 The Concurso Approval Order does not provide for the distribution of proceeds of the debtor’s property substantially in accordance with the order prescribed by Title 11. See 11 U.S.C. § 1507(b)(4). Under a Chapter 11 plan, the noteholders would receive their distribution from the debtor and would be free to pursue their other obligors, in this case the non-debtor guarantors. The Concurso plan provides drastically different treatment in that the note-holders receive a fraction of the amounts owed under the indentures from Vitro SAB and their rights against the other obligors are cut off. Section 1521 Second, the Concurso Approval Order neither sufficiently protects the interests of creditors in the United States, nor does it provide an appropriate balance between the interests of creditors and Vitro SAB and its non-debtor subsidiaries. One could argue that Vitro SAB, as a holding company, is trying to achieve, through its Con-curso plan, an entrustment of the distribution of the assets of its non-debtor U.S. subsidiaries without sufficiently protecting the Objecting Creditors, pursuant to §§ 1521(b) and 1522(a). Public Policy The expression by Congress in § 524, paired with the case law in this Circuit, lead this Court to conclude that the protection of third party claims in a bankruptcy case is a fundamental policy of the United States. The Concurso Approval Order does not simply modify such claims against non-debtors, they are extinguished. As the Concurso plan does not recognize and protect such rights, the Concurso plan is manifestly contrary to such policy of the United States and cannot be enforced here. Possible Meritorious Objections As noted above, this Court sustains the Objecting Parties’ primary objection, that the Concurso plan improperly released claims against non-debtors in violation of § 1507, 1521 and the public policy of the United States. However, there are two other strong objections that this Court notes for the appellate court, but does not reach, because the Court has sustained the objection to the release of the third party claims against the nondebtor subsidiaries. Voting Irregularities The noteholders have raised and submitted evidence of at least suspect voting on the Concurso plan. The Mexican court allowed insiders to vote and counted such votes, which swamped the noteholders’ votes. See Testimony of Mr. Claudio del Valle. In fact, it is undisputed that Vitro issued bonds to insiders as a defense shortly before the Concurso plan was filed, and such votes were cast and counted. Id. Allowing insiders to vote, including the subsidiaries who voted to extinguish their own guarantees to the Objecting Parties, gives the Court pause. This argument, however, may be one of Mexican law, which should be decided by a court in Mexico. Absolute Priority Rule Under the Concurso plan, equity retains a value of approximately $500 million. Creditors, such as the Objecting Parties, are not paid in full. Such a plan would violate the absolute priority rule in the United States. By allowing the retention of equity, and, at the same time, not paying the Objecting Parties in full, the Con-curso plan arguably runs afoul of § 1507 because the result is demonstrably different than would occur in Chapter 11. The wide variance in return to creditors from what would be expected in a Chapter *13311 plan in this country was the subject of testimony by Dr. Joseph W. Doherty, an expert put forth by the Objecting Creditors. His testimony was credible. IV. Conclusion Accordingly, this Court concludes that the Concurso plan approved in this instance, which extinguishes the guarantee claims of the Objecting Creditors that were given under an indenture issued in the United States against non-debtor entities that are subsidiaries of Vitro, should not be accorded comity to the extent it provides for the extinguishment of the non-debtor guarantees of the indentures. Such order manifestly contravenes the public policy of the United States and is also precluded from enforcement under §§ 1507, 1521 and 1522 of the Bankruptcy Code. Generally, reorganization pursuant to the LCM is found to be a fair process, worthy of respect. In other and subsequent cases this Court would expect that Concurso decisions would be enforced in this country. However, if approved for enforcement, the present order would create precedent without any seeming bounds. The Concurso plan presently before the Court discharges the unsecured debt of non-debtor subsidiaries. What is to prevent this type of plan from eventually giving non-consensual releases to discharge the liabilities of officers, directors, and any other person? Because of the importance of this case to the financial and legal community, the Court will stay its decision until June 29, 2012, at 5:00 p.m. Central Daylight Time, and will maintain the TRO for fourteen days to allow Vitro time to appeal and to seek a stay on appeal. Any further stay or extension of the TRO should be sought from the district court or court of appeals. The Objecting Parties shall submit an order consistent with this decision within ten days from the date of entry of this opinion. . In re Vitro S.A.B. de C.V., 455 B.R. 571 (Bankr.N.D.Tex. June 24, 2011). . Id. at 583. . See In re Vitro S.A.B. de C.V., No. 11-CV-3554-F (N.D. Tex. filed Dec. 23, 2011). .See In re Vitro S.A.B. de C.V., 455 B.R. at 575-76. . A “foreign main proceeding” is defined as "a foreign proceeding pending in the country where the debtor has the center of its main interests.” 11 U.S.C. § 1502(4). . In re Basis Yield Alpha Fund (Master), 381 B.R. 37, 45 n. 27 (Bankr.S.D.N.Y.2008). . In re Tri-Cont'l Exch. Ltd., 349 B.R. 627, 638 (Bankr.E.D.Cal.2006). . In re Gold & Honey, Ltd., 410 B.R. 357, 363 (Bankr.E.D.N.Y.2009). . This Court, like the bankruptcy court in In re Qimonda AG Bankr. Litig., acknowledges drat courts and commentators have disagreed about whether the § 362 automatic stay may be applied extraterritorially, but finds, nevertheless, that resolution of this question would not impact the import of In re Gold & Honey to the facts of In re Qimonda AG Bankr. Litig. See 433 B.R. 547, 570 n. 43 (Bankr.E.D.Va. 2010) (citing French v. Liebmann (In re French), 320 B.R. 78, 81-83 (E.D.Va.2004)). . “In late July 2008, FIBI seized substantially all of GH Ltd. and GH LP’s assets and accounts, and commenced the Israeli Receivership Proceeding.” In re Gold & Honey, Ltd., 410 B.R. at 362. . The Mail Interception Order permitted the foreign representative and administrator of the German estate, Prager, to intercept Toft’s postal and electronic mail. In re Toft, 453 B.R. at 188. . The Court addressed the Wiretap Act and the Stored Communications Act, which are both subparts of the Electronic Communications Privacy Act (the “Privacy Act”). 18 U.S.C. § 2511, etseq. .In re Qimonda AG Bankr. Litig., 433 B.R. 547 (E.D.Va.2010); In re Ephedra Prods. Liability Litig., 349 B.R. 333 (S.D.N.Y.2006); In re Gold & Honey, Ltd., 410 B.R. 357 (Bankr. E.D.N.Y.2009).	01-04-2023	11-22-2022
https://www.courtlistener.com/api/rest/v3/opinions/8494769/	DECISION ON MOTION TO RECONSIDER AND/OR VACATE ORDER GRANTING MOTION FOR ORDERS CONFIRMING TERMINATION OF AUTOMATIC STAY AND FOR ORDER DETERMINING THAT STAY REMAINS IN EFFECT AS TO ACTIONS TAKEN AGAINST PROPERTY OF THE ESTATE LEIF M. CLARK, Bankruptcy Judge. Sandra Lee Scott-Hood (the “Debtor”) filed a Voluntary Petition for Relief under Chapter 13 on October 11, 2011. The Debtor had a bankruptcy case pending within the year preceding this filing — Case No. 09-55022. That case was dismissed on August 19, 2011. Section 362(c)(3), added by the 2005 amendments to the Bankruptcy Code, states that the automatic stay of section 362(a) expires thirty days after filing, unless the debtor files a motion to extend the stay, and obtains a hearing on the motion within that 30 day window. The Debtor never did so here. On March 1, 2012, creditor JPMorgan Chase Bank (“Chase”) filed a Motion for Orders Confirming Termination of Automatic Stay Under 11 U.S.C. § 362(j). On March 6, 2012, the court entered an Order Determining Status of Automatic Stay, confirming that the stay had terminated with respect to Chase on the real property described in the motion. The order further provided that Chase could take all legal action necessary to enforce its rights under nonbankruptcy law. On March 16, 2012, the Debtor filed a timely Motion to Reconsider and/or Vacate Order Granting Motion for Orders Confirming Termination of Automatic Stay, and for Order Determining that Stay Remains in Effect as to Actions Taken Against Property of the Estate. The 135Debtor’s Motion seeks a determination that the stay remains in full force and effect with respect to the real property at issue under the terms of section 362(c)(3)(A), because such property is property of the estate, not property of the debtor. As such, says the Debtor, the property is not subject to the termination of stay provisions in section 362(c)(3)(A). Discussion This case calls for the court to construe the language of Section 362(c)(3)(A), which in relevant part provides: (3) if a single or joint case is filed by or against a debtor who is an individual in a case under chapter 7, 11, or 13, and if a single or joint case of the debtor was pending within the preceding 1-year period but was dismissed, other than a case refiled under a chapter other than chapter 7 after dismissal under section 707(b)— (A) the stay under subsection (a) with respect to any action taken with respect to a debt or property securing such debt or with respect to any lease shall terminate with respect to the debtor on the 30th day after the filing of the later case[.] 11 U.S.C. § 362(c)(3)(A) (emphasis added). The highlighted language lies at the center of our analysis, because, as noted, this Debtor did not file a motion to extend the stay under subsection (b). See In re Moreno, No. 07-13478-B-13, 2007 WL 4166296, at 1, 2007 Bankr.LEXIS 3992, at 2 (E.D.Cal. Nov. 20, 2007) (noting that debt- or had not filed a motion to extend the stay within 30 days as required by 362(c)(3)(B), and concluding that “[ejxtend-ing the time for a hearing under Rule 9006(b) will not postpone termination of the stay, which is mandatory by the plain meaning of § 362(c)(3)(A)”); but see Capital One Auto Fin. v. Cowley, 374 B.R. 601, 606-07 (W.D.Tex. Dec. 28, 2006) (declining to decide whether a bankruptcy court “may use its 105 power to extend the automatic stay once it has terminated pursuant to § 362(c)(3)(B),” but noting that if § 105 did grant such power, the court would have to employ the “traditional test for injunctive relief’). , There is a split of authority regarding the interpretation of section 362(c)(3)(A). Most courts agree that section 362(c)(3)(A) terminates the stay with respect to actions against the debtor and the debtor’s property, see, e.g., In re Holcomb, 380 B.R. 813, 816 (10th Cir. BAP 2008) (section 362(c)(3)(A) terminates the stay as to the debtor and the debtor’s property),1 courts disagree on whether section 362(c)(3)(A) terminates the stay with respect to property of the estate. See In re Paul, 2010 WL 3811955, at 2-3, 2010 Bankr.LEXIS 3324, at 5-7 (Bankr.N.D.Tex. Sept. 17, 2010) (noting split of authority and listing cases). The issue is especially pointed in our district and division because our confirmation orders in chapter 13 cases contain standard language to the effect that property of the estate does not revest in the debtor upon confirmation. See 11 U.S.C. § 1327(b) (“Except as otherwise provided in the plan or the order confirming the plan, the confirmation of a plan vests all of the property of the estate in the debtor”): see also Amended Standing Order Relating to Chapter 13 Practices in the San Antonio Division (Bankr. W.D. Tex. Nov. 7, 2005). Thus, in the San Antonio Division of the Western District of Texas, where property of the bankruptcy estate encom136passes essentially all property of the debt- or as of filing, plus all property acquired post-filing and earnings from services performed post-petition, see 11 U.S.C. §§ 541(a), 1306, an early termination of the stay under section 362(c)(3)(A) could be meaningless if the stay does not terminate as to property of the estate. The question squarely presented in this case is this: did the stay terminate under section 362(c)(3)(A) with respect to the subject property, or did the stay remain in effect, because the property was (and is) “property of the estate”? This court has not found a decision from any court in the Fifth Circuit addressing this particular issue. The majority of courts from other jurisdictions have held that section 362(c)(3)(A), by its plain terms, applies only to the debtor and the debtor’s property, and does not terminate the stay with respect to proceedings against property of the estate. See In re Holcomb, 380 B.R. 813, 816 (10th Cir. BAP 2008) (concluding that “the language of § 362(c)(3)(A) terminates the stay only as to the debtor and the debtor’s property”); In re Jumpp, 356 B.R. 789, 797 (1st Cir. BAP 2006) (holding that “the automatic stay remains in effect to the extent that the residence is property of the bankruptcy Estate”); Rinard v. Positive Invs., Inc. (In re Rinard), 451 B.R. 12, 19-20 (Bankr. C.D.Cal.2011) (adopting majority reasoning and stating: “The plain text of § 362(c)(3)(A) is crystal clear that the automatic stay is terminated with respect to the Debtor. There is no mention of the Estate in the text. There are no fuzzy words; there are no hanging paragraphs; there are no words requiring a dictionary ...”); In re Alvarez, 432 B.R. 839, 843 (Bank.S.D.Cal.2010) (concluding that “failure of a debtor to timely obtain an extension of the automatic stay pursuant to § 362(c)(3)(B) results in the termination of the stay under § 362(c)(3)(A) as to the debtor only, and not also as to property of the estate”); In re Graham, 2008 WL 4628444, 2008 Bankr.LEXIS 2694 (Bankr. D.Or. Oct. 17, 2008) (adopting majority approach and holding, based on plain, unambiguous language of section § 362(c)(3)(A), that the stay terminates “with respect to the debtor and property of the debtor, but leaves the stay in place respecting property of the estate.”); In re Johnson, 335 B.R. 805, 806 (Bankr. W.D.Tenn.2006) (“When read in conjunction with subsection (1), the Court finds that the plain language of 362(c)(3)(A) dictates that the 30-day time limit only applies to ‘debts’ or ‘property of the debtor’ and not to ‘property of the estate’ ”); In re McFeeley, 362 B.R. 121 (Bankr.D.Vt.2007); In re Jones, 339 B.R. 360 (Bankr.E.D.N.C. 2006); In re Williams, 346 B.R. 361 (Bankr.E.D.Pa.2006); In re Rice, 392 B.R. 35 (Bankr.W.D.N.Y. 2006). A minority of courts have found the language of section 362(c)(3)(A) to be ambiguous. They focus on the apparent internal “disconnect” between the first part of the subsection (“the stay ... with respect to an action taken with respect to a debt or property securing such debt ... ”) and the last part (“... shall terminate with respect to the debtor ... ”). See In re Reswick, 446 B.R. 362 (9th Cir. BAP 2011). These courts have gone on to conclude that, to give effect to the intent of Congress, section 362(c)(3)(A) should be read to terminate the stay not only with respect to the debtor and the debtor’s property but also with respect to property of the estate (absent a timely motion to extend the stay). See id.; see also In re Furlong, 426 B.R. 303 (Bankr.C.D.Ill.2010); In re Daniel, 404 B.R. 318 (Bankr.N.D.Ill.2009); In re Curry, 362 B.R. 394 (Bankr.N.D.Ill. 2007); In re Jupiter, 344 B.R. 754 (Bankr. D.S.C.2006). 137Resort to legislative history is unnecessary when a statute’s chosen language is clear. See Lamie v. United States Trustee, 540 U.S. 526, 534, 124 S.Ct. 1023, 157 L.Ed.2d 1024 (2004); see also In re Condor Ins. Ltd., 601 F.3d 319, 321 (5th Cir.2010) (“In a statutory construction ease, the beginning point must be in the language of the statute, and when a statute speaks with clarity to an issue judicial inquiry into the statute’s meaning, in all but the most extraordinary circumstance, is finished”). If a statute is unclear, however, or if the language as written is demonstrably at odds with the intent of its drafters, then resort to other sources may be appropriate. See Thomas J. Waldron & Neil M. Berman, Principled Principles of Statutory Interpretation: A Judicial Perspective After Two Years of BAPCPA, 81 Am.BaNKR.L.J. 195, 214 (2007). Unfortunately, there are few “other sources” for BAPCPA provisions.2 A plain meaning approach to the statute is difficult, though not impossible. It has been said that inartful drafting or poor grammar does not mean that a statute’s meaning is no longer plain. See Lamie v. U.S. Trustee, 540 U.S. 526, 534, 124 S.Ct. 1023, 157 L.Ed.2d 1024 (2004). Our first task, then, is to divine what meaning can be found in a close inspection of the language of section 362(c)(3)(A). For ease of reference, the statute’s language is repeated here: (A) the stay under subsection (a) with respect to any action taken with respect to a debt or property securing such debt or with respect to any lease shall terminate with respect to the debtor on the 30th day after the filing of the later case[.] 11 U.S.C. § 362(c)(3)(A). At the outset, it is worth noting that the statute would easily yield the reading of the minority with just a few edits: (A) the stay under subsection (a) with respect ■to -any-ae-tion-faken with respect to a debt or property securing such debt or with respect-to-any lease shall terminate with-respect to the debtor on the 30th day after the filing of the later case[.] Indeed, an early House Report with respect to an earlier bill that proposed the same language said essentially this — but only in the report, not in the proposed statutory language. See H.R.Rep. No. 105-540, at 80 (1998) (“In the subsequently filed bankruptcy case, the automatic stay terminates 30 days following the filing date of the case ... ”). That Report offers no explanation for the tortured and confusing language in the proposed statutory language, nor does it explain why the drafters did not simply use the straightforward wording used in the House Report, if that was their intention. As it is, we are left to parse the language of the statute, rather than the lan138guage of a House Report to an unenacted bill. Breaking down the sentence, we first note that the subject of the sentence is “the stay under subsection (a),” referring to section 362(a) in foto. The operative verb is “shall terminate.” Everything else in the sentence qualifies or delimits these two concepts. Firstly, the subject of the sentence, “the stay,” is limited in three significant respects: (1) with respect to an action taken with respect to a debt, (2) with respect to an action taken with respect to property securing such debt (referring back to the aforementioned “debt”), and (3) with respect to any action taken with respect to any lease. A “debt” is defined in section 101(12) as “liability on a claim.” Claim in turn is defined in section 101(5) as “any right to payment.” Thus, one aspect of the stay to be terminated would be any aspect that otherwise bars taking action on a debt— applying of necessity to all creditors, regardless of security. “Property securing such debt” refers back to “debt,” and so picks up all property that stands as collateral for debt. Significantly, that is a smaller universe than “property of the estate.” It does not include unencumbered estate property. Nor does it include unencumbered property that is the debtor’s property (such as property that reverts to the debtor as a result of section 522). Still, it is easy to identify what property is intended to be covered by this language. The third category, actions taken with respect to “any lease”, are less relevant to this case, but certainly include all the normal remedies associated with enforcing a lease, including eviction. As a result of this exercise, we now have three categories — debts, property securing debts (ie., collateral), and leases. It is the stay with respect to these categories that “shall terminate.” The verb “shall terminate” is also qualified and delimited. Most easily, it limited by a time factor: termination happens on the 30th day after the filing of the case. That is easy enough to understand. Secondly, termination is limited in application — the stay terminates “with respect to the debtor.” What does this limitation mean in the context here used? One possibility is that it means “as opposed to the estate.” The majority of courts have so concluded, but have failed to apply that conclusion to the context of the rest of the sentence. If we add the qualifier to each of the categories, however, we get the following possible interpretation: 1. The stay terminates as to actions taken with respect to debts, but only insofar as those actions are pursued with respect to the debtor. 2. The stay terminates as to actions taken with respect to property securing such debts, but only insofar as those actions are pursued with respect to the debtor. 3. The stay terminates as to actions taken with respect to leases, but only insofar as those actions are pursued with respect to the debtor. WTiat would be included and what would be excluded using this breakdown? With regard to the first category, any creditor could pursue the debtor (but not the estate) to collect its debt. That could include dunning notices, phone calls, demand letters, lawsuits, garnishment of wages, and so forth. As the caveat is that the pursuit must be with respect to the debtor, no similar pursuit would be permitted against the trustee. With regard to the second category, there are two limitations. First of all, only property that stands as collateral is available to be pursued (this has been noted previously, but bears repeating for clarity’s sake). Secondly, such actions can be 139taken only with respect to the debtor, implying that no similar action could be taken with respect to collateral under the control of the trustee. By this reading, as a practical matter, only property claimed as exempt that also secures a debt could be pursued, and then only as of the time the property becomes exempt and so leaves the bankruptcy estate. Usually, this category does not exist as of the 30th day after filing. It only comes into existence, at the earliest, thirty days after the conclusion of the § 341 meeting, or some 50 days into the case. See Fed.R.BaNKrP. 2003(a), 4003(b), 11 U.S.C. §§ 341(a), 522(c), (Z). Still, the fact that a given interpretation of a statute delivers less than a constituency might have expected is hardly reason to reject that interpretation. See United States v. Granderson, 511 U.S. 39, 68-69, 114 S.Ct. 1259, 127 L.Ed.2d 611 (1994) (Kennedy, J., concurring). With regard to the third category, action could be taken only with respect to leases “with respect to the debtor.” A car lease or an apartment lease would seem to be logical candidates for this subset. How much more broadly this might reach is not clear, and lies beyond the scope of this opinion. However, the important thing worth noting is that there is an obvious category of actions to which this third subset likely applies. Thus, it is possible to tease out a “plain meaning” reading of the statute. It is worth noting that this approach departs from both the majority and the minority approaches. Still, it has a basis in the language of the statute itself, the preferred starting point for interpreting any provision of the Bankruptcy Code. See Waldron & Berman, supra, at 232 (“plain meaning is the default entrance, not the mandatory exit”). Under this interpretation, the trustee in a chapter 7 case need not worry about creditors attempting to enforce their debts against the trustee, or against unencumbered property of the estate. What is more, secured creditors would not be free to go after property of the estate that stands as their collateral, because the stay terminates only “with respect to the debtor.” Questions remain about some types of leases in chapter 7, but they are not before the court in this case, and while uncertainty around the margins is reason for courts to weigh in to clarify, that uncertainty does not mean that the interpretation offered here is wrong only that it is incomplete and needs further elaboration when an actual case and controversy is presented. In chapter 13, section 362(c)(3)(A) works essentially the same way, even though the exemption scheme serves a far more limited purpose in chapter 13 (because nonexempt property is not surrendered to a trustee and liquidated, as it would be in chapter 7), and even though property of the estate in chapter 13 includes all property of the debtor as of the filing, plus all property acquired and all wages earned post-petition, see 11 U.S.C. § 1306, and even though, property is not “re-vested” in the debtor until the plan is confirmed, see 11 U.S.C. § 1327(b). There is still a debt- or, as distinct from a trustee and as distinct from the estate or its property. That debtor can still be the target of collection action, litigation, phone calls, and the like. When it comes to the debtor’s wages, chapter 13 generates a different outcome, because those wages are property of the estate and so could not be garnished. Finally, property claimed as exempt in chapter 13, even though it is not physically separated out from estate property, is no longer property of the estate as a matter of law. See In re Halbert, 146 B.R. 185, 188 (Bankr.W.D.Tex.1992) (“Once the property is exempted, it is no longer any part of the property of the estate and it ‘revests’ in the Debtor.”). Thus, the stay termination provision works effectively in the same way in chapter 13 as it does in 140chapter 7 with respect to property that stands as collateral for a debt that is also exempt property. The secured creditor faces the same delay with respect to this property because the property only becomes property of the debtor no earlier than 50 days into the case. The result reached by the foregoing textual analysis may be less than optimal. The fact that the scope of relief is less robust than creditors who lobbied for this legislation might have hoped for, however, is no reason to conclude that the statute is “truly absurd.” It has meaning. It just doesn’t have the meaning that the creditor wants it to have. So it often is with statutes. They fail to deliver on the expectations of those who zealously worked for their passage. By the same token, however, the statute does deliver more relief, in this court’s view, than the majority view says it delivers. That too is but another consequence of the way the statute is written, and how it intersects with the rest of the Bankruptcy Code. The court’s job is not to select the optimal policy outcome but to discover the intent of the drafters of the legislation, to the extent that can be done with the interpretative tools available. See Robinson v. Shell Oil Co., 519 U.S. 337, 341, 117 S.Ct. 843, 136 L.Ed.2d 808 (1997); see also Dolan v. U.S. Postal Service, 546 U.S. 481, 486, 126 S.Ct. 1252, 163 L.Ed.2d 1079 (2006) (definition of words in isolation is not always enough; a court may be required to examine the whole statutory text, considering its purpose and context).3 After reviewing both the plain language of the statute itself, as well its narrow context within section 362 and its broader context within the Bankruptcy Code, the court concludes that section 362(c)(3)(A) terminates the stay only with respect to the debtor individually, with respect to the debtor’s exempt property that stands as collateral for a debt of the debtor, and with respect to certain leases. It does not terminate with respect to property of the estate. Accordingly, the Debtor’s Motion to Reconsider and/or Vacate Order Granting Motion for Orders Confirming Termination of Automatic Stay, and for Order Determining that Stay Remains in Effect as to Actions Taken Against Property of the Estate is hereby GRANTED. An Order reflecting the court’s findings and conclusions will be entered separately. . See discussion infra regarding whether the statute's language actually supports application to “property of the debtor.” . Normally, legislative history would be helpful, especially committee reports. However, there was no conference report, no senate committee report, and no floor statements. In addition, the House Report is a mere regurgitation of the statute’s language. See Waldron & Berma, supra, at 217. A number of courts have tracked back through earlier iterations of the bill that was enacted in 2005, finding similarities in the proposed language in those earlier versions, then consulting the House Judiciary Committee Reports with respect to those provisions as support for their interpretation of the current law. See, e.g., In re Daniel, 404 B.R. 318, 327-329 (Bankr. N.D.Ill.2009). The problem with this approach is that it presumes that the legislative intentions of the 105th Congress can be imputed to the intentions of the 109th Congress that enacted the law. Perhaps the intentions of the lobbyists were the same. Perhaps even the intentions of the political party from whence came the various bills were the same. But we dare not convert the principle of “legislative intent” into lobbyist intent, or political party intent. . Of course, it needs to be added that the limited utility of section 362(c)(3)(A) hardly deprives creditors of remedy. Creditors still have the ability to file motions for relief from automatic stay, pursuant to section 362(d). That motion will be heard within 30 days, and will be granted unless the debtor can offer the creditor adequate protection. It is just that creditors don’t have the remedy that they apparently thought they had — though with the clarity of the language of the statute, one wonders what led them to their unrealistic expectations.	01-04-2023	11-22-2022
https://www.courtlistener.com/api/rest/v3/opinions/8494770/	MEMORANDUM OPINION LETITIA Z. PAUL, Bankruptcy Judge. The court has held a trial in the above captioned adversary proceeding. The following are the Findings of Fact and Conclusions of Law of the court. A separate conforming Judgment will be entered. To the extent any of the Findings of Fact are considered Conclusions of Law, they are adopted as such. To the extent any of the Conclusions of Law are considered Findings of Fact, they are adopted as such. Findings of Fact Alireza Farhangkhah (“Debtor”)1 filed a voluntary petition under Chapter 7 of the Bankruptcy Code on June 30, 2010. 143The sequence of events at issue in the above captioned adversary proceeding began in 2008. Debtor, who had been employed as a field engineer by General Electric, was laid off from his job. Debtor testified that, at the time that he lost his job, he had approximately $50,000 in savings.2 Real Property Transactions During November and December, 2008, Debtor purchased real property at foreclosure sales. Debtor testified that, on November 4, 2008, he purchased real property located at 1608 Brickarbor, Houston, Texas (the “Brickarbor Property”), in a tax foreclosure sale, for $31,500. He testified that, approximately two days after the foreclosure sale, he contacted Rebecca Phillips, the record owner of the Brickarbor Property prior to the foreclosure sale. He testified that Phillips paid him $30,000, two days after the sale, and paid an additional $1,500 approximately two weeks later. He testified that Phillips paid a redemption fee of $7,875 (reflecting 25 percent of the price Debtor paid at the foreclosure sale) during January or February of 2010. He testified that he executed a quitclaim deed with respect to the property before he received the redemption fee. After Debtor’s November, 2008 purchase and the quick redemption had resulted in a promised return of 25 percent,3 Debtor invested in additional properties at foreclosure sales the next month. On December 2, 2008, Debtor purchased the properties located at 3706 Nathaniel Brown (the “Nathaniel Brown Property”), 5105 Southwind (the “South-wind Property”), 2611 Canfield (the “Canfield Property”), and 6701 Stearns (the “Stearns Property”) and 8713 Co-mal (the “Comal Property,”) all located in Houston, Texas, in tax foreclosure sales. Debtor also purchased the property located at 8243 Misty Ridge (the “Misty Ridge Property”) in an execution sale, for foreclosure of a homeowners’ association lien. Debtor paid $4,700 to purchase the Misty Ridge Property. Debtor testified that, one day after the execution sale of the Misty Ridge Property, Debtor was contacted by William Gammon, purportedly on behalf of the homeowners’ association that initiated foreclosure proceedings with respect to the Misty Ridge Property. Debtor testified that Gammon demanded the immediate turnover of the property, and loudly berated Debtor, within hearing of Debtor’s family, when Debtor stated that he needed to research his rights. Debtor testified that, approximately two weeks after his discussion with Gammon, he learned, after consultation with several attorneys, that the record owner of the Misty Ridge Property, Samuel G. Reyes (“Plaintiff’) had a right to redeem the property by repaying to Debtor the $4,700 which Debtor had paid at the foreclosure sale, without paying a redemption fee. He testified that he made several calls to Gammon, trying to arrange for the redemption, but that his calls were not returned. 144Debtor testified that, during 2009, he was contacted by John Maher, the attorney for Plaintiff. Debtor testified that, although he was prepared to permit Plaintiff to redeem the property, he was prevented from doing so by a restraining order obtained by Maher for Plaintiff. Debtor testified that he presented an offer to permit a redemption of the property to Maher several times, but that Maher declined Debtor’s offer. The state court in which Plaintiff filed suit against Debtor found that Debtor had refused to accept the redemption payment, and failed to comply with Tex. Prop.Code § 209.011 until several months after Plaintiff filed suit.4 (Plaintiffs Exhibit 4). Debtor testified that, during the middle of 2009, the state court ordered him to sign a deed transferring the Misty Ridge Property to Plaintiff. He testified that he did receive $4,700 from Plaintiff. After a trial held on February 22, 2010, the state court awarded Plaintiff $13,735 in attorney fees, plus costs of court and post-judgment interest. The state court’s findings of fact and conclusions of law were signed on February 23, 2010. (Plaintiffs Exhibit 4). The state court’s final judgment was signed on March 31, 2010. (Plaintiffs Exhibit 5). The documents with respect to Debtor’s purchases of the Nathaniel Brown Property (Exhibit D-l), the Southwind Property (Exhibit D-2), the Canfield Property (Exhibit D-3), the Stearns Property (Exhibit D-4), and the Comal Property (Plaintiffs Exhibit 10) are in evidence. Debtor purchased the Nathaniel Brown Property on December 2, 2008, for $14,000. Debtor testified that, before he purchased the property at the tax foreclosure sale, he had not seen the property. He testified that, after the sale, he visited the property. He found that the roof had fallen into the living room, making it impossible to use the door of the home. He testified that the house on the property was condemned. He testified that he sold the Nathaniel Brown Property for $14,000, on March 5, 2010. He testified that, after paying broker fees, taxes, and other fees on the sale of the property, he received $4,949.79, resulting in a net loss of approximately $10,050. Debtor purchased the Southwind Property on December 2, 2008, for $3,200. He testified that he was required to spend a small amount of money clearing trash from the property. He testified that he sold the Southwind Property for a gross sale price of $5,000, on January 15, 2010. He testified that, after paying taxes and fees at closing, he received $3,307.81, resulting in a net gain of approximately $8. Debtor purchased the Canfield Property on December 2, 2008, for $7,800. He testified that he spent approximately $2,500 to fix damage to the property from Hurricane Ike. He testified that he sold the Canfield Property on August 28, 2009 for $27,000. He testified that, after paying taxes and fees, he received $8,000 in cash, and a note for $12,000, which was paid over the course of six months. Debtor purchased the Stearns Property on December 2, 2008, for $12,200. He sold the Stearns Property on May 11, 2009, for a gross sale price of $17,500. The settlement statement reflects that, after paying 145taxes and fees, Debtor received $13,765.76. (Exhibit D-4). Debtor’s 2009 tax return reflects a net gain of $1,266 on the Stearns Property. (Exhibit D-18). Debtor purchased the Comal Property on December 2, 2008, for $14,500. Debtor testified that, after he purchased the property at the foreclosure sale on Tuesday, December 2, 2008, he first visited the property on Saturday, December 6, 2008. He testified that, although it had been represented to him at the foreclosure sale that there was a house on the property, the house had been demolished, leaving only a vacant lot covered in trash. He testified that the home had burned prior to its demolition. Debtor testified that, approximately one week after the foreclosure sale, he sought to determine when he would get a deed conveying the Comal Property to Debtor. He testified that he learned that the property was encumbered by a lien for demolition costs in the approximate amount of $8,000 and by additional taxes in the approximate amount of $5,000. The Harris County Appraisal District valued the Comal Property at $14,595 for 2010 and 2011. (Exhibit D-12). The Harris County Appraisal District valued the Comal Property at $65,313 for 2009. (Plaintiffs Exhibit 16). Debtor testified that the 2009 value did not reflect the burning and demolition of the house that had been on the property. Debtor testified that, on December 20, 2008, 18 days after he had purchased the Comal Property, he transferred the property to his sister, Mahin Farhang. The transfer was not contemporaneously recorded in the real property records of Harris County, Texas. The transfer was recorded in the real property records of Harris County, Texas nearly two years later, on February 23, 2010. Debtor testified that he was prepared to surrender the Comal Property, but that Mahin Farhang requested that he transfer the property to her. Debtor testified that Mahin Farhang planned to contend that the liens for demolition costs and taxes were extinguished by the tax sale of the property. Debtor testified that he believed that the liens could not be avoided. Debtor testified that he received “almost nothing” from Mahin Farhang, in exchange for the property. The contract between Debtor and Mahin Farhang reflects a sale price of $10. (Plaintiffs Exhibit 10). Debtor testified that his belief regarding the impossibility of avoiding the demolition and tax liens ultimately appeared to be proven correct. He testified that Mahin Farhang offered to donate the Comal Property to an adjoining property owner. He testified that the adjoining property owner, which operates a church, refused the donation. Debtor introduced into evidence a letter, dated January 14, 2012, from Rev. Rugley Monroe, Jr., of the El Bethel Missionary Baptist Church, stating that during 2010 Mahin Farhang had offered the property to the church. Monroe states in the letter: “Unfortunately, this property has over $9000.00 demolition lien and value for this property is way below the lien. We are grateful for the offer but regretfully refused.” [sic] (Exhibit D-8). Debtor testified that, ultimately, Mahin Farhang elected to surrender the property to the City of Houston. He testified, however, that notwithstanding the recording of the deed transferring the property to Ma-hin Farhang and Mahin Farhang’s surrender of the property, the City of Houston continued to bill him for the demolition fee and taxes on the property. Stock Transactions Debtor’s 2010 tax return reflects that Debtor purchased 2,001 shares of SMF 146Energy Corp. on August 31, 2009, for $3,045, and sold those shares on January 27, 2010, for $2,696, a net loss of $349. Debtor’s 2010 tax return reflects that Debtor purchased 1,000 shares of Citigroup Inc. on September 1, 2009, for $4,925, and sold those shares on January 28, 2010, for $3,245, a net loss of $1,680. Debtor’s 2010 tax return reflects that Debtor purchased 1,000 shares of Citigroup Inc. on October 28, 2009, for $4,215, and sold those shares on January 29, 2010, for $3,265, a net loss of $950. Gambling Losses On January 16, 2010, Debtor began gambling at the Coushatta casino in Louisiana. Records from the casino indicate that Debtor gambled each day from January 16, 2010 through January 26, 2010, and also gambled on three days in February, 2010 and five days in April, 2010. During this time period, Debtor lost an aggregate of $39,330 at the Coushatta casino. (Plaintiffs Exhibit 12). Debtor appears to have spent an additional $3,220 at the L’Auberge casino in Louisiana during February, 2010. Debtor testified that, after he had lost a significant portion of his savings on his real estate transactions, he tried to get his money back by gambling. He testified that he took a big risk, and lost. Schedules and Statements Debtor’s schedules indicate that he has no real property, and a very small amount of personal property. Debtor listed no secured or priority claims. He listed a total of $71,989.23 in unsecured claims. The scheduled unsecured claims include a $14,000 claim for Maher, and $7,763.66 owed to the City of Houston. Debtor testified that the $7,763.66 unsecured debt to the City of Houston is based on the City’s billing for the demolition fee on the Comal Property. In Question No. 4 on Debtor’s statement of financial affairs, Debtor identified as pending the suit filed by Plaintiff in state court. Debtor did not identify as pending any other lawsuits. On November 29, 2010, Harris County taxing authorities served on Debtor a notice of dismissal of a suit they had filed. The date of filing of the suit is not in evidence. (Plaintiffs Exhibit 28). Debtor testified that the suit had been dismissed before the date of filing of Debtor’s Chapter 7 petition. In Question No. 8 on Debtor’s statement of financial affairs, Debtor identified as losses the $39,330 in gambling losses he incurred at the Coushatta casino. He did not identify any losses at L’Auberge. The instructions for Question No. 10. a. on Debtor’s statement of financial affairs directed Debtor 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 two years immediately preceding the commencement of this case. (Married debtors filing under chapter 12 or chapter 13 must include transfers by either or both spouses whether or not a joint petition is filed, unless the spouses are separated and a joint petition is not filed.) (Docket No. 1, Case No. 10-35379-H3-7). In Debtor’s response to Question No. 10. a., Debtor listed the transfers of the Southwind Property, the Nathaniel Brown Property, the Canfield Property, and the Stearns Property. In Debtor’s response to Question No. 10. a., Debtor did not list the transfer of the Brickarbor property. Debtor testified that he did not list the transfer because 147Rebecca Phillips’ redemption of the property took place immediately. In Debtor’s response to Question No. 10. a., Debtor did not list the sales of stock. Debtor testified that he did not list the sale of stock because his attorney advised him that it was not necessary in light of Debtor’s losses on the sales of stock. The instructions for Question No. 10. b. on Debtor’s statement of financial affairs directed Debtor to: List all property transferred by the debtor within ten years immediately preceding the commencement of this case to a self-settled trust or similar device of which the debtor is a beneficiary. (Docket No. 1, Case No. 10-35379-H3-7). Debtor’s response to Question No. 10. b. listed the transfer to Mahin Farhang. In a column titled “Name of Trust or Other,” Debtor identified Mahin Farhang. In a column titled “Date(s) of Transfer(s)”, Debtor identified that the deed was signed on 12/20/2008, and recorded on 2/23/2010. In a column titled “Amount of Money or Description and Value of Property or Debtor’s Interest in Property,” Debtor listed $10.00. Adversary Pleadings In Plaintiffs second amended complaint, Plaintiff seeks denial of discharge, and a determination that Plaintiffs claim is not dischargeable. Plaintiffs arguments for denial of discharge do not track the subsections of Section 727 of the Bankruptcy Code. However, Plaintiff does allege that Debtor “fraudulently transferred numerous real estate assets,” “made transfers of real property to insiders and family members immediately prior to filing,” and that the “petition contained numerous inaccuracies for the sole purpose of avoiding discovery, delaying proceedings, and hiding assets.” Although Plaintiff cites Section 523(a)(2) for a determination of discharge-ability, it is difficult to find any factual allegations in the complaint that support a contention that Plaintiffs debt is nondis-chargeable, and in the event, there was no evidence presented to support such a conclusion. Additionally, in the prayer of the complaint, Plaintiff seeks an award of attorney fees, and a bar for Debtor’s filing another bankruptcy case. Plaintiff does not cite authority for these grounds of relief. In his answer, Debtor denied the material allegations of the complaint, and requested an award of attorney fees. Discovery Issues On March 17, 2011, Plaintiff filed a motion to compel production of documents. (Docket No. 25). Debtor responded, asserting that all documents in his possession had been forwarded to Plaintiffs counsel, and that all of the pertinent information had been disclosed to Plaintiffs counsel through the Section 341 creditors meeting. This court held an evidentiary hearing on the motion to compel, on July 26, 2011. After the evidentiary hearing, this court ruled, by order entered on September 2, 2011, that the requested discovery had been produced. Notwithstanding this court’s ruling, Maher spent hours conducting direct and cross examination of Debtor at trial, attempting to relitigate the question of whether Debtor’s responses to discovery requests had been complete. Additionally, midway through trial, over six months after the evidentiary hearing on the discovery issues, and over four months after this court had ruled, Plaintiff filed a motion seeking a finding of contempt, denial of discharge as a sanction, withdrawal of the reference, and a criminal referral, all based on what Maher asserted to be false testimony offered at trial by Debtor. Plaintiff also filed a motion to reconsider 148this court’s ruling on discovery issues, (Docket No. 64). Those motions lack evi-dentiary support, and are denied.5 Demeanor of the Attorneys and Credibility of the Witnesses The court notes that Maher, who was essentially prosecuting the instant adversary proceeding for his own benefit (because the entire amount in controversy in the instant adversary proceeding consisted of Maher’s attorney fees), repeatedly lectured Debtor during his direct and cross examination on Maher’s view of the law, and, after approaching the witness with leave of court, frequently stood over the witness, asked questions in a loud and belligerent manner, and spoke over Debt- or’s answers. He was several times instructed by the court to step away from the witness. In addition, Maher belabored the questions about Debtor’s answers to questions regarding the schedules and statement of financial affairs by repeatedly asking Debtor at length whether he had signed the schedules and statement of financial affairs, and whether he knew that they were signed under penalty of perjury. Although English is not Debtor’s first language, and Debtor was occasionally inaudible and less than confident on the witness stand, the court finds Debtor’s testimony to be credible and competent with respect to the facts at issue and his mental state. It is clear from Debtor’s testimony that, while Debtor has some understanding of the law, his understanding of both the English language and the law is less than perfect. The court finds the testimony of Ruth Liddil and Reese Baker to be competent and credible, but not probative of the pertinent facts with respect to the instant adversary proceeding. The court finds the testimony of Fatomeh Jalalat not credible, and also not probative of the pertinent facts with respect to the instant adversary proceeding.6 Creditor’s Meeting Testimony At the meeting of creditors pursuant to Section 341 of the Bankruptcy Code, Debt- or testified regarding the reason for his filing of the instant Chapter 7 case, and as to the truth of the information contained in the schedules and statement of financial affairs. On questioning from Maher at the meeting, Debtor testified that he transferred the four properties for fair market value. Maher’s questioning focused on the differences between the amounts listed in the statement of financial affairs (which Debtor testified were the amounts he received after sale of the properties, rather than the gross sale price) and the values listed for the properties by the Harris County Appraisal District. Debtor testified at the meeting that the appraised value does not reflect the condition of the properties at the time he acquired them.7 Debtor’s testimony at the meeting of creditors was generally consistent with his testimony at trial.8 149 Conclusions of Law Section 523(a)(2) of the Bankruptcy Code provides in pertinent part: (a) 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— (2) 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; (B) use of a statement in writing— (i) that is materially false; (ii) respecting the debtor’s or an insider’s financial condition; (iii) on which the creditor to whom the debtor is liable for such money, property, services, or credit reasonably relied; and (iv) that the debtor caused to be made or published with intent to deceive. 11 U.S.C. § 523(a)(2). In the instant adversary proceeding, Plaintiff presented no evidence to support any contention that Debtor’s debt to plaintiff should be excepted from discharge pursuant to Section 523(a)(2) of the Bankruptcy Code. The court concludes that the relief requested pursuant to Section 523(a)(2) of the Bankruptcy Code should be denied. Section 727(a) of the Bankruptcy Code provides in pertinent part: (a) The court shall grant the debtor a discharge, unless— (2) the debtor, 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; or (B) property of the estate, after the date of the filing of the petition; (4) the debtor knowingly and fraudulently, in or in connection with the case— (A) made a false oath or account; (B) presented or used a false claim; (C) gave, offered, received, or attempted to obtain money, property, or advantage, or a promise of money, property, or advantage, for acting or forbearing to act; or (D) withheld from an officer of the estate entitled to possession under this title, any recorded information, including books, documents, records, and papers, relating to the debtor’s property or financial affairs; (5) the debtor has failed to explain satisfactorily, before determination of denial 150of discharge under this paragraph, any loss of assets or deficiency of assets to meet the debtor’s liabilities; 11 U.S.C. § 727(a). At the trial on a complaint objecting to discharge, the plaintiff has the burden of proving the objection. Rule 4005, Fed. R. Bankr.P. Although it is not entirely clear from Plaintiffs complaint, it appears that Plaintiff contends that, under Section 727(a)(2) of the Bankruptcy Code, Debtor’s transfer of the Comal Property to Mahin Farhang was made with intent to hinder, delay, or defraud Plaintiff. Evidence of actual intent to defraud creditors is required to support a finding sufficient to deny a discharge. Matter of Reed, 700 F.2d 986 (5th Cir. 1983). Actual intent may be inferred from the actions of the debtor and may be proven by circumstantial evidence. Matter of Chastant, 873 F.2d 89 (5th Cir.1989). The Comal Property transferred by Debtor to Mahin Farhang had a value of no more than $14,595. There is some evidence that the value of the property is less than $14,595. The property transferred was encumbered by liens totaling at least $13,000, and perhaps as much as $15,000. While it is possible that Mahin Farhang may have received property of a value greater than zero, the evidence does not support an inference that Debtor’s transfer of the Comal Property to Mahin Farhang was made to hinder, delay, or defraud Plaintiff.9 To the extent Plaintiff may have intended to assert that the other transfers of property were intended to hinder, delay, or defraud Plaintiff, those transfers appear to have been for fair market value of the properties. Plaintiff has not met his burden of proof with respect to Plaintiffs allegations of transfers with intent to hinder, delay, or defraud under Section 727(a)(2) of the Bankruptcy Code. With respect to Section 727(a)(4), Plaintiffs allegation that the “petition contained numerous inaccuracies for the sole purpose of avoiding discovery, delaying proceedings, and hiding assets” appears to allege that Debtor knowingly and fraudulently made a false oath or account. Maher also asserted, in questioning Debtor at trial, that several inaccuracies constituted such false oaths or accounts: Debtor’s listing of a mail drop as an address on the petition; Debtor’s listing of the transfer to Mahin Farhang on Question 10. b. of the statement of financial affairs; Debtor’s omission from the statement of financial affairs of the Brickarbor transaction; and Debt- or’s omission of the stock transactions from the statement of financial affairs. To prevail on a claim under Section 727(a)(4), the Plaintiff must prove by a preponderance of the evidence that (1) the debtor made a statement under oath; (2) the statement was false; (3) the debtor knew the statement was false; (4) the debtor made the statement with fraudulent intent; and (5) the statement was material to the bankruptcy case. In re Duncan, 562 F.3d 688 (5th Cir.2009), citing Sholdra v. Chilmark Fin. LLP (In re Sholdra), 249 F.3d 380 (5th Cir.2001); Beaubouef v. Beaubouef (In re Beaubouef), 966 F.2d 174 (5th Cir.1992). In the instant case, it is clear that the statements made by Debtor in the 151petition, schedules, and statement of financial affairs were made under oath. With respect to the question of whether any of the statements were false, the petition directed the Debtor to list a “Street Address of Debtor.” Debtor’s listing of a mail drop is technically false, though Debt- or’s credible testimony is that he did not have a street address. The listing of transfers in Question 10. a. clearly should have included the Briekarbor transaction. Thus, Debtor’s omission of the Briekarbor transaction makes his answer to Question 10. a. false. Likewise, although Debtor disclosed the transaction with respect to the Comal Property, it appears it should have been included under Question 10. a. rather than 10. b., and thus both answers are false. Debtor’s stock transactions should have been listed in response to Question 10. a. As a result, Debtor’s response omitting the stock transactions was false. Plaintiff presented no evidence on the question of whether Debtor knew that any of the statements were false. It is clear that, as to the transaction with Mahin Far-hang, Debtor attempted to disclose the terms correctly. As to the street address listed in the petition, Debtor is able to read, and presumably was able to understand that the petition directed him to list his street address. As to the Briekarbor transaction, Debtor’s credible testimony is that he believed he was not required to list the Briekarbor purchase or sale, because the property was redeemed nearly immediately. The court concludes that Debtor did not know that his statement of financial affairs was false as to its omission of the Briekarbor Property. As to the stock transactions, Debtor’s explanation of his reason for omitting them from the statement of financial affairs does not negate his knowledge that the statement was false. Circumstantial evidence may be used to prove fraudulent intent, and the cumulative effect of false statements may, when taken together, evidence a reckless disregard for the truth sufficient to support a finding of fraudulent intent. In re Duncan, 562 F.3d, at p. 695. In the instant case, there is insufficient evidence upon which to infer fraudulent intent. Debtor’s credible testimony indicates that he attempted to get all the transfers listed on his schedules and statement of financial affairs, and failed to do so in several respects. This court finds neither the omission of several transactions nor their timing probative of fraudulent intent on the part of the Debtor. Moreover, there is no evidence that any of Debtor’s omissions were material. It does not appear that Debtor could have gained anything, or hidden any assets from the reach of creditors, by virtue of the few false/inaccurate statements in the schedules and statement of financial affairs. The court concludes that Plaintiff has not met his burden of proof with respect to Plaintiffs allegations that Debtor knowingly and fraudulently made a false oath or account, under Section 727(a)(4) of the Bankruptcy Code. With respect to an objection to discharge asserting a debtor’s failure to explain satisfactorily any loss of assets, the initial burden of going forward with evidence is on the objector, who must introduce more than merely an allegation that the debtor has failed to explain losses. Once the objector has introduced some evidence of the disappearance of substantial assets or of unusual transactions, the debtor must satisfactorily explain what happened. The objector retains the burden of persuasion. Matter of Chastant, 873 F.2d 89 (5th Cir.1989). 152In the instant case, Plaintiff made a prima facie showing of both a disappearance of assets and unusual transactions. However, Debtor’s explanation of those transactions was credible, and is satisfactory for the purposes of Section 727(a)(5) of the Bankruptcy Code. Debtor clearly made some bad investments, and lost money gambling, but the bulk of Plaintiffs allegations are derived from Plaintiffs assertions as to the values of the parcels of real property Debtor transferred prior to the date of filing of the instant case. The court finds that Debtor’s testimony on the values of the properties was credible. The court concludes that Debtor has satisfactorily explained the loss of his assets in the months prior to the filing of his Chapter 7 case. Attorney Fees Defendant pled for an award of attorney fees in this adversary proceeding. Generally, absent statute or an enforceable contractual provision, litigants must pay their own attorney fees. Galveston County Navigation Dist. No. 1. v. Hopson Towing Co., 92 F.3d 353 (5th Cir. 1996). Section 727 of the Bankruptcy Code does not provide for an award of attorney fees to a Debtor who prevails in defense of an objection to discharge. See In re Shahid, 254 B.R. 40 (10th Cir. BAP 2000); In re Baker, 205 B.R. 125 (Bankr.N.D.Ill. 1997). Section 523(d) of the Bankruptcy Code provides: (d) If a creditor requests a determination of dischargeability of a consumer debt under subsection (a)(2) of this section, and such debt is discharged, the court shall grant judgment in favor of the debtor for the costs of, and a reasonable attorney’s fee for, the proceeding if the court finds that the position of the creditor was not substantially justified, except that the court shall not award such costs and fees if special circumstances would make the award unjust. 11 U.S.C. § 523(d). Section 101(8) of the Bankruptcy Code defines “consumer debt” as “debt incurred by an individual primarily for a personal, family, or household purpose.” 11 U.S.C. § 101(8). The debt incurred by Debtor to Plaintiff is not a consumer debt, but rather a debt arising as a result of litigation of a statutory tort claim by Plaintiff. The court concludes that Section 523(d) does not provide a basis for an award of attorney fees. The court concludes that Defendant is not entitled to an award of attorney fees. Based on the foregoing, a separate conforming Judgment will be entered. . Debtor testified that he has also been known as Al Farhang. He testified that, during Octo143ber, 2010, his name was legally changed to A1 Frank. . The dates on which Debtor worked are not in evidence. Debtor’s statement of financial affairs reflects employment income of zero for 2010, $36,932 for 2009, and $39,894 for 2008. (Docket No. 1, Case No. 10-35379-H3-7). . Under Tex. Tax Code § 34.21, the owner of real property sold at a tax foreclosure sale may redeem the property by paying the purchaser, inter alia, a redemption premium of 25 percent of the aggregate total spent by the purchaser. . Tex. Prop.Code § 209.011 governs redemption after a sale of real property foreclosing a property owners’ association's assessment lien. Unlike Tex. Tax Code § 34.21, Tex. Prop.Code § 209.011 does not provide for a redemption premium. Tex. Prop.Code § 209.011(f) requires, inter alia, that if a lot owner redeems the property, the purchaser shall immediately execute and deliver to the owner a deed transferring the property to the redeeming lot owner. . The court additionally notes that Debtor testified that, for approximately two years, Maher has called or written to him nearly daily, seeking additional discovery. . Debtor testified that Fatomeh Jalalat, who is one of Debtor’s sisters and uses the name "Nina”, was injured in a major vehicle accident in 2002. He testified that both he and Mahin Farhang have powers of attorney to act for Ms. Jalalat. It appears that Plaintiff called Ms. Jalalat as a witness primarily because Plaintiff, or Mr. Maher, believed that "Nina” was a name for Mahin Farhang, rather than for Ms. Jalalat. . The court notes that the properties were purchased in November and December, 2008. Hurricane Ike made landfall near Houston, Texas in September, 2008. . There was some evidence as to inconsistent descriptions of Debtor's address. In Debtor's 149petition, he listed an address of 15821 FM 529 # 124, Houston, XX, 77095. At the meeting of creditors, Maher asked Debtor: "What is the apartment number,” to which Debtor replied, "124.” At trial, Debtor testified that he has no home. He testified that the address listed in the petition is a private mail drop. He testified that he sometimes stays at the home of his sister, Fatomeh Jalalat, and sometimes stays at the home of a friend. The court does not infer from the inconsistency in description of Debtor’s address any intent to mislead the court. Debtor's response at the meeting of creditors appears to reflect an incomplete understanding of the question asked by Maher. . Maher suggests that the timing of the recording of the transfer, one day after the date of trial of Plaintiff's cause of action against Debtor in state court, proves fraudulent intent on Debtor's part. The court does not infer fraudulent intent from the timing of the recording of the transfer.	01-04-2023	11-22-2022
https://www.courtlistener.com/api/rest/v3/opinions/8494771/	MEMORANDUM OPINION ON PLAINTIFFS’ AMENDED COMPLAINT [Adv. Doc. No. 2] JEFF BOHM, Bankruptcy Judge. I. Introduction In the suit at bar, the Chapter 13 Debtors, Charles J. Ruth, III and Jennifer L. Ruth (the Plaintiffs) request this Court to disallow the proof of claim, specifically Claim No. 10, filed by Resurgent Capital Services and LVNV Funding, Inc. (the Defendants) and request affirmative relief in the form of sanctions for abuse of the proof of claim process and a damages award for vexatious litigation against the Defendants. [Adv. Doc. No. 2], For the reasons set forth herein, all relief requested by the Plaintiffs is denied. The Court makes the following Findings of Fact and Conclusions of Law pursuant to Federal Rule of Civil Procedure 52, as incorporated into Federal Rule of Bankruptcy Procedure 7052, and Bankruptcy 156Rule 9014. To the extent that any Finding of Fact is construed to be a Conclusion of Law, it is adopted as such. To the extent that any Conclusion of Law is construed to be a Finding of Fact, it is adopted as such. The Court reserves the right to make any additional Findings and Conclusions as may be necessary or as requested by any party. II. Findings of Fact 1. On January 29, 2009, the Plaintiffs filed their Chapter 13 bankruptcy petition. [Main Case Doc. No. 1], The Plaintiffs’ initial plan, proposing to pay unsecured creditors nothing, was also filed on January 29, 2009. [Main Case Doc. No. 2]. 2. On February 11, 2009, notice of the Chapter 13 case was filed, establishing June 4, 2009 as the deadline for filing proofs of claim. [Main Case Doe. No. 17], 3. On March 27, 2009, the Defendants filed two proofs of claim.1 Proof of Claim No. 10 (Claim No. 10) was for $547.58. [See Adv. Doc. No. 2, Ex. A], Claim No. 10 contains the last four digits of an account number and lists the creditor’s name as “LVNV Funding LLC and its successors and assigns as assignee of MHC Receivables, LLC.” Claim No. 10 is signed by Joyce Montjoy, Bankruptcy Recovery Manager of Resurgent Capital Services. The basis for the claim is “UNSECURED CHARGEOFF” from account number 6671. There are three documents attached to Claim No. 10. One is entitled “Proof of Claim' — Account Detail” and sets forth the amount of the claim, and the account number, among other rudimentary information. Although the Defendants put an “X” on the box located on the form designating that the claim includes “interest or other charges,” the first document contains no itemized statement of interest or other charges. The second document attached to the claim form is entitled “Assignment of Accounts and Bill of Sale,” and sets forth that an entity known as MHC Receivables LLC (MHC) has assigned to Sherman Originator LLC (Sherman) all of its rights in “unsecured consumer credit card accounts which are described on computer files.... There is no other document attached to this assignment setting forth that the credit card debt of the Debtors was ever owned by MHC. The third document attached to the claim is entitled “Sale and Assignment,” and sets forth, among other things, that Sherman has assigned all of its rights in “the Receivable Assets (as defined in the Agreement)” to LVNV Funding, Inc. There is no document attached to this assignment setting forth what the definition is of the Receivable Assets. Thus, the documentation attached to Claim No. 10 fails to completely satisfy the requirements of the form — i.e. Official Form 10. Specifically, the Defendants have failed to attach an itemized statement of interest and charges, plus documents supporting the claim and the Defendants’ 157ownership of the claim. [Adv. Doc. No 2, Ex. A]. 4. The Plaintiffs did not object to Claim No. 10 on or before June 29, 2009. [See Main Case Docket]. Thus, Claim No. 10 was deemed allowed on June 30, 2009, by operation of Local Bankruptcy Rule 3021-l(c).2 5. On April 13, 2009, the Plaintiffs’ plan was amended, proposing to pay unsecured creditors a one percent dividend over five years. [Main Case Doc. No. 31]. 6. More than one year later, on May 13, 2010, the Chapter 13 trustee filed his Notice of Trustee’s Intent to Pay Claims (the Notice). [Main Case Doc. No. 78]. The Notice set forth that the trustee has examined proofs of claim that have been filed in the case — which included Claim No. 10 — and that “the Trustee states that claims should be deemed allowed, or ‘not filed’ as indicated below.” Claim No. 10 is then shown on page 3 of the Notice as being allowed in the amount of $547.58. Finally, on the last page, the last three paragraphs (including the prayer paragraph) expressly put creditors on notice that there is a deadline to file an objection to the Notice, and if they fail to do so, then “any objection to claim not filed within twenty days after service hereof be barred.” [Main Case Doc. No. 78]. 7. On October 22, 2010, the Plaintiffs filed their Amended Complaint (the Amended Complaint),3 requesting this Court to grant them the following relief: (1) disallowance of Claim No. 10; (2) actual and punitive damages for vexatious litigation; and (3) sanctions against the Defendants based on their conduct of willfully and intentionally filing “thousands of [proofs of claim]” without sufficient supporting documentation. [Adv. Doc. No. 2]. 8. On January 24, 2011, the Defendants filed a Motion to Dismiss Plaintiffs’ Amended Complaint (the Dismissal Motion). The Defendants contend that the Amended Complaint should be dismissed because: (a) the Plaintiffs failed to object before Claim No. 10 was deemed allowed on June 30, 2009; (b) the Plaintiffs have failed to ade158quately plead a valid cause of action; (c) no cause of action exists for an “insufficient” proof of claim under Fed. R. Bank. P. 3001 or Section 1054 other than giving up the presumption of validity; and (d) Claim No. 10 provided some documentary proof of the debt. [Adv. Doc. No. 11]. 9.On February 22, 2011, the Plaintiffs filed a Response to Defendants’ Motion to Dismiss (the Response). The Plaintiffs contended that the applicable Local Bankruptcy Rules (LBR 3007-1 & 3021-l(c)) and Fed. R. Bankr.P. (Rule 3007) do not set an absolute deadline for objections to claims; the automatic deemed allowance of a claim on a certain date does not bar an objection to that claim at a subsequent date; and the Defendants did not identify any basis to grant the Dismissal Motion. In addition, the Plaintiffs argued that the Defendants have a pattern of willful and intentional inadequate filing of claims in all, if not substantially all, of the bankruptcy cases in which they file claims. [Adv. Doc. No. 13], 10.On March 21, 2011, the Defendants filed their Reply to Plaintiffs’ Response to Motion to Dismiss Plaintiffs Complaint (the Reply). In the Reply, the Defendants contended that Local Bankruptcy Rule 3021-1(c) imposes a deadline for debtors to file objections to proofs of claim, a proposition that they argued is supported by case law. [Adv. Doc. No. 14, ¶ 1], The Defendants also asserted that the Plaintiffs lack standing to request sanctions for alleged deficient proofs of claim filed in other bankruptcy cases. [Adv. Doc. No. 14, ¶ 4], 11. On July 22, 2011, this Court denied the Dismissal Motion by entering on the docket an order entitled “Order Denying Defendants’ Motion to Dismiss Plaintiffs’ Amended Complaint” (the Order). [Adv. Doc. No. 25]. In the Order, this Court ruled that to determine whether cause exists for reconsidering Claim No. 10, this Court must look to 11 U.S.C. § 502(j). This Court concluded that Claim No. 10 had not been previously litigated, and thus, this Court had discretion to reconsider Claim No. 10 based on equitable principles. The Order also set forth that “[t]his Court, however, does not have sufficient evidence on the record to adequately determine whether cause exists for reconsideration of the Defendants’ proof of claim.” Accordingly, the Court denied the Dismissal Motion and scheduled a trial to allow the Plaintiffs to adduce testimony and introduce exhibits in order to establish whether cause exists for reconsideration of Claim No. 10. The Order stated that if the Plaintiffs could not prove that cause exists, then the relief requested by the Plaintiffs (in the pending adversary proceeding) will be denied. 12. On March 7, 2012, this Court held a trial on whether cause exists under Section 502(j) for this Court to reconsider Claim No. 10. The Plaintiffs introduced no exhibits, but they did give testimony. The Plaintiffs’ counsel testified about 159the timing, reasoning, and initiation of the filing of the Amended Complaint. The Defendants called no witnesses, but did introduce exhibits. [Tape Recording, 3/7/12 Trial at 10:18:21 a.m.]. After listening to the testimony given at this trial, as well as closing arguments, the Court took the matter under advisement. III. Credibility of Witnesses Three witnesses testified at trial: Johnie Patterson (Mr. Patterson), who is the attorney for the Plaintiffs and also their general bankruptcy counsel in their main Chapter 13 case. Additionally, the Plaintiffs themselves gave testimony. The Court finds that all three of these individuals are credible. However, the testimony given by the Plaintiffs was very brief and not particularly useful in assisting this Court to render a decision. Rather, it is Mr. Patterson’s testimony which is material. IV. Conclusions of Law A. Jurisdiction, Venue, and Constitutional Authority to Render a Final Judgment The Court has jurisdiction over this adversary proceeding pursuant to 28 U.S.C. §§ 1334(b) and 157(a). This particular dispute is a core proceeding pursuant to 28 U.S.C. § 157(b)(2)(A), (B), and (0). Additionally, this proceeding is a core proceeding under the general “catch-all” language of 28 U.S.C. §§ 157(b)(2). See In re Southmark Corp., 163 F.3d 925, 930 (5th Cir.1999) (“[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.”); De Montaigu v. Ginther (In re Ginther Trusts), Adv. No. 06-3556, 2006 WL 3805670, at 19 (Bankr.S.D.Tex. Dec. 22, 2006) (holding that an “[adversary [proceeding is a core proceeding under 28 U.S.C. § 157(b)(2) even though the laundry list of core proceedings under § 157(b)(2) does not specifically name this particular circumstance”). Venue is proper pursuant to 28 U.S.C. § 1409(1). Having concluded that this Court has jurisdiction over this dispute, this Court nevertheless notes that Stern v. Marshall, — U.S. -, 131 S.Ct. 2594, 180 L.Ed.2d 475 (2011) sets forth certain limitations on the constitutional authority of bankruptcy courts to enter final orders. In Stem, the debtor filed a counterclaim against a creditor who had filed a proof of claim. The debtor’s counterclaim was based solely on state law; there was no Bankruptcy Code provision undergirding the counterclaim. Id. at 2611. Moreover, the resolution of the counterclaim was not necessary to adjudicating the claim of the creditor. Id. Under these circumstances, the Supreme Court held that the bankruptcy court lacked constitutional authority to enter a final judgment on the debt- or’s counterclaim. Id. at 2620. In the dispute at bar, this Court concludes that it has constitutional authority to enter a final judgment in the dispute at bar for the reasons set forth below. 1. The Amended Complaint Seeks Relief Based on an Express Bankmptcy Statute and Bankruptcy Rules, Not on Any State Law. In Stem, the suit between the debtor’s estate and the creditor concerned solely state law issues. Id. at 2611. In the suit at bar, the Amended Complaint arises out of whether the Defendants properly filed Claim No. 10. The relief that the Plaintiffs seek is based upon Bankruptcy Code Section 502 — governing the claims allowance process — Bankruptcy Rule 3007, which governs objections to claims, and 160Bankruptcy Rule 3008, which governs reconsideration of claims. State law has no equivalent to this statute and these rules; they are purely creatures of the Bankruptcy Code. Accordingly, because the resolution of this dispute is based on express bankruptcy law, not state law, Stem is inapplicable, and this Court has the constitutional authority to enter a final judgment pursuant to 28 U.S.C. §§ 157(a) and (b)(1). 2. Resolution of This Dispute Necessarily Determines Whether Claim No. 10 Is an Allowed Claim. As already stated, in Stem, the resolution of the counterclaim was not necessary to adjudicating the claim of the creditor. In the dispute at bar, however, the Plaintiffs have filed an objection to Claim No. 10, the resolution of which is necessary to adjudicating Claim No. 10. Indeed, the Plaintiffs’ objection is expressly aimed at disallowing Claim No. 10. The resolution of this dispute therefore necessarily determines the validity of Claim No. 10, which was not true in Stem. For these reasons, this Court concludes that Stem has no application and that this Court has constitutional authority to enter a final judgment in this suit. B. Analysis of the Plaintiffs’ Objection to Claim No. 10 The Plaintiffs object to Claim No. 10 on two grounds. [Adv. Docket No. 2, p. 5-6]. First, the Plaintiffs assert that Claim No. 10 should be disallowed because it fails to meet Federal Rule of Bankruptcy Procedure 30015 standards. [Adv. Docket No. 2, p. 5]. Second, the Plaintiffs argue that the Defendants are “strangers” and that they (i.e. the Plaintiffs) do not and have never owed a debt to the Defendants. [Adv. Docket No. 2, p. 6]. The Defendants have responded to the Amended Complaint by requesting that this Court dismiss the objection to Claim No. 10. [Adv. Docket No. 11]. The Defendants assert that the Plaintiffs’ objection is not timely. [Adv. Docket No. 11, p. 5]. Alternatively, the Defendants argue that even if the Plaintiffs’ objection is timely, the Plaintiffs have failed to provide sufficient evidence to prove that cause exists for this Court to reconsider Claim No. 10. [Adv. Docket No. 31, p. 7], Given these arguments, this Court must first determine whether the Plaintiffs’ objection to Claim No. 10 is timely. If it is untimely, then this suit must be dismissed.6 If the Court finds that the objection is not untimely, the Court must then decide whether there is cause to reconsider the allowance of Claim No. 10 pursuant to 11 U.S.C. § 502(j). 1. Defendants’ Argument That the Plaintiffs’ Objection to Claim No. 10 Is Untimely Fails Because the Court May Reconsider the Allowance of a Claim at Any Time. The Defendants contend that the Plaintiffs’ objection to Claim No. 10 is 161untimely due to the language in Bankruptcy Local Rule 3021-l(c). Specifically, the Defendants point to the following language in this Local Rule to support their argument: “The deadline for filing objections to filed claims is 21 days after the proof of claim deadline. If no objection is filed by the deadline, the claim is an allowed claim and should be paid in accordance with the plan.” (emphasis added). BLR 3021-Kc). In the Plaintiffs’ Chapter 13 case, under Local Bankruptcy Rule 3021-l(c), the deadline for filing an objection to the Defendants’ proof of claim was on June 29, 2009. [Finding of Fact No. 4]. The Plaintiffs filed their objection on October 22, 2010, approximately sixteen months after the deadline calculated by Local Rule 3021 — 1(c). [Finding of Fact No. 7]. The Plaintiffs do not dispute that their objection to the Defendants’ proof of claim was filed beyond the deadline pursuant to Local Bankruptcy Rule 3021-l(c). [Adv. Docket No. 2]. Nonetheless, they argue that the Defendants’ interpretation of Local Rule 3021-l(c) is erroneous. [Adv. Docket No. 25, p. 3]. This Court agrees. Contrary to the Defendants’ arguments, Rule 3021-l(c) does not bar the Plaintiffs’ objection. [Adv. Docket No. 25, p. 3]. In addition to the language in Rule 3021-l(c) cited above, Rule 3021-l(c) also expressly states that “Nothing in this rule precludes the reconsideration of the allowance of a claim pursuant to § 502(j) of the Bankruptcy Code.” Importantly, § 502(j) does not place time restrictions on requests for the reconsideration of claims. Accordingly, this Court finds that the Plaintiffs’ objection to Claim No. 10 is not barred due to untimeliness.7 Thus, this Court will now assess whether Claim No. 10 should be reconsidered for cause under 11 U.S.C. § 502(j) and Fed. R. BankrJP. 3008. 2. Plaintiffs Have Failed to Establish Cause to Reconsider Claim No. 10, and therefore Claim No. 10 Remains an Allowed Claim. Under § 502(j), a court may reconsider the allowance of a claim if the objecting party can show cause. Specifically, § 502(j) states that “[a] claim that has been allowed or disallowed may be reconsidered for cause. A reconsidered claim may be allowed or disallowed according to the equities of the case.” The Fifth Circuit has held that bankruptcy courts may exercise “virtually plenary” discretion when deciding whether to reconsider a claim. Colley v. Nat’l Bank of Tex. (In re Colley), 814 F.2d 1008, 1010 (5th Cir.1987) (internal citations omitted). However, the Fifth Circuit has held that courts should exercise caution when apply162ing this expansive discretion. See Colley, 814 F.2d at 1010. It has urged bankruptcy courts not to allow parties to use § 502© as a means to rehash already litigated issues. See id. Specifically, the Fifth Circuit concluded in Colley: The court’s broad discretion should not, however, encourage parties to avoid the usual rules for finality of contested matters. Bankruptcy Rule 9024 incorporates Federal Rule of Civil Procedure 60 into all matters governed by the Bankruptcy Rules except, inter alia, “the reconsideration of an order allowing or disallowing a claim against the estate entered without a contest is not subject to the one year limitation prescribed in Rule 60(b).... ” We interpret 9024 to provide that, when a proof of claim has in fact been litigated between the parties to a bankruptcy proceeding, the litigants must seek reconsideration of the bankruptcy court’s determination pursuant to the usual Rule 60 standards if they elect not to pursue a timely appeal of the original order allowing or disallowing the claim. The elaboration of Section § 502(j)’s requirement of “cause” for reconsideration by the Rule 60 criteria substantially eliminates the “tension with the right of an appeal from an erroneous final order.” Id. Accordingly, Fifth Circuit precedent requires that bankruptcy courts apply Fed.R.Civ.P. 60(b)8 standards to the reconsideration of claims that have in fact been litigated — which impliedly means that Rule 60(b) standards do not apply if the parties have not in fact litigated the proof of claim. Id. Because § 502(j) also applies to claims that the parties have not in fact litigated, when a bankruptcy court is reconsidering a claim under these circumstances, Rule 60(b) standards do not apply. Id. Indeed, in applying Fifth Circuit law, this Court has already held that: [I]f the parties have not litigated the merits of the proof of claim, Rule 60 is inapplicable and the bankruptcy court has wide discretion pursuant to § 502(j) to determine whether “cause” exists for reconsidering the allowance of a claim. In re Jack Kline Co., 440 B.R. 712, 741 (Bankr.S.D.Tex.2010). Therefore, after concluding that Rule 60(b) standards apply to previously litigated proofs of claim, this Court must now determine whether the merits of Claim No. 10 have in fact been previously litigated. i. Claim No. 10 Was Not Previously Litigated by the Parties in This Case. The Court finds that the merits of the Defendants’ Claim No. 10 have not in fact been previously litigated. This Court has held that if no party objects to the allowance of a claim, then the merits of the claim will not be deemed litigated “until the conclusion of the case” — and the Plaintiffs’ main Chapter 13 case is certainly not concluded, as the Plaintiffs are making payments under their confirmed plan.9 Id. Additionally, this Court has held that “[pjroofs of claims themselves are not final judgments giving rise to res judicata, but the bankruptcy court’s allowance or disal-lowance of a proof of claim is a final judgment.” In re Hence, No. 06-32451, 2007 163WL 4333834, at 4, 2007 Bankr.LEXIS 4156, at 15 (Bankr.S.D.Tex. Dec. 5, 2007) (internal citation omitted). In the dispute at bar, nothing in the record suggests that the merits of Claim No. 10 have ever been litigated. In fact, the Plaintiffs did not object to Claim No. 10 until after this claim became an allowed claim. [Findings of Fact Nos. 4, 6, & 7]. Accordingly, this Court concludes that Claim No. 10 has not in fact been litigated. Therefore, in this adversary proceeding, the Court is not required to apply the Rule 60(b) standards in reconsidering Claim No. 10. Instead, this Court may exercise its “virtually plenary” discretion and the equities of the case to determine whether Claim No. 10 should be reconsidered. ii. The Plaintiffs Have Not Shown Cause to Reconsider Claim No. 10 Pursuant to § 502(j). Federal Rule of Bankruptcy Procedure 3001(f) states that an allowed proof of claim is prima facie evidence of the validity and amount of a claim. See also 11 U.S.C. § 502(a). Therefore, the objecting party bears the burden of proof in establishing cause for reconsidering an allowed claim. See Jack Kline, 440 B.R. at 742 (holding that proof of claim should not be reconsidered because objecting party had not established that claim was inappropriate or fraudulent). The Court finds that the Plaintiffs, as the objecting parties, have not met the burden of proof necessary to overcome the presumptive validity of Claim No. 10. The trial held on March 7, 2012 afforded the Plaintiffs the opportunity to adduce testimony and introduce exhibits to establish cause for reconsideration of Claim No. 10. The Plaintiffs, however, provided very little evidence to meet their burden. [See Finding of Fact No. 10]. At this hearing, the Plaintiffs’ counsel, Mr. Patterson, gave testimony that he, unilaterally, decided to object to Claim No. 10 because he believes that this claim is unenforceable on its face. Mr. Patterson also testified that he objected because the Defendants were not the original creditors holding the debt in issue.10 164Mr. Patterson, however, gave no sound reason as to why he waited so long to file the objection. He did not file this objection until October 22, 2010, [Finding of Fact No. 7], which is almost sixteen months after Claim No. 10 became an allowed claim under Local Bankruptcy Rule 3021-l(c), [Finding of Fact No. 4], and almost five months after Claim No. 10 became a “deemed allowed” claim under the Notice. [Finding of Fact No. 6]. For the Chapter 13 system to operate efficiently and effectively, the Chapter 13 trustee, and all creditors who have filed claims, need to know relatively soon what the universe of allowed claims will be so that the trustee can make the proper distributions to creditors once the plan is confirmed. Necessarily, therefore, once a claim is filed, Local Bankruptcy Rule 3021-1(c) reminds debtors to lodge objections; and once the trustee files the Notice, debtors (and, for that matter, any other creditors) are reminded to lodge objections. While § 502(j) does not impose any deadline for reconsideration of claims, there must be a sound reason for lodging an objection months later when the objection could have been lodged within the deadlines set forth in Local Bankruptcy Rule 3021-l(c) and the Notice. Mr. Patterson’s reason — which is essentially that he did not file the objection for several months because he did not believe it was economically prudent, but then changed his mind — is not a sufficiently sound basis to establish cause for reconsideration of Claim No. 10. And, although “Section 502(j) allows reconsideration of the claim according to the equities of the case,” In re Hernandez, 282 B.R. 200, 207 (Bankr. S.D.Tex.2002), the Plaintiffs have failed to provide any evidence demonstrating that there is an equitable basis for reconsideration of Claim No. 10. Accordingly, this Court concludes that the Plaintiffs have failed to meet the burden of proof necessary to overcome Claim No. 10’s presumptive validity. Therefore, this Court concludes that Claim No. 10 remains an allowed claim. 3. Sanctions Against the Defendants are not Appropriate Under Section 105 and this Court’s Inherent Powers. The Court has discretion under its inherent authority to examine the facts as established and “may impose sanctions against litigants or lawyers appearing before the court so long as the court makes a specific finding that they engaged in bad faith conduct.” Knight v. Luedtke (In re Yorkshire, LLC), 540 F.3d 328, 332 (5th Cir.2008) (citing Elliott v. Tilton, 64 F.3d 213, 217 (5th Cir.1995)). The Plaintiffs seek sanctions because they assert that Claim No. 10 falls woefully short of satisfying the documentary requirements of Fed. R. Bankr.P. 3001. The Plaintiffs’ argument presumably is that the Defendants’ failure to comply constitutes bad faith conduct given the fact that this Court has previously taken the Defendants to task for failing to attach appropriate documentation to their proofs of claim. In re DePugh, 409 B.R. 84, 103 (Bankr.S.D.Tex. 2009). There is no question that this Court has previously held that the Defendants’ failure to comply with Bankruptcy Rule 3001 by attaching required documents and providing sufficient information constitutes “bad faith” because such failure is a “willful disregard of and a refusal to learn the facts when available and at hand.” Id. (citing Citizens Bridge Co. v. Guerra, 152 Tex. 361, 258 S.W.2d 64, 69-70 (1953)). Indeed, several years ago, three bankruptcy judges for the Northern District of Texas issued a joint opinion in In re Armstrong explaining the sort of documentation that a claimant must produce in order to avail its claims of prima facie 165validity pursuant to Bankruptcy Rule 3001(f). 320 B.R. 97, 103-06 (Bankr. N.D.Tex.2005). Holders of consumer claims, like the Defendants in this case, must provide “an account statement containing the debtor’s name, account number, the prepetition account balance, interest rate, and a breakdown of the interest charges, finance charges and other fees that make up the balance of the debt, or attach enough monthly statements so that this information can be easily determined.” Id. at 106;11 see also In re Relford, 323 B.R. 669, 674 (Bankr.S.D.Ind.2004) (“[A] credit card or consumer credit claim is based on both the credit card agreement and proof of the credit card’s actual use. Accordingly, a claim for such debt must include the parties’ credit agreement (and any amendments thereto), as well as evidence regarding the debtor’s use of the credit card or consumer account.”). Additionally, a claimant whose claims have been assigned — also like the Defendants in this case — must “document its ownership of the claim” and produce “a signed copy of the assignment and sufficient information to identify the original credit card account.” Id. (quoting In re Hughes, 313 B.R. 205, 212 (Bankr.E.D.Mich.2004)). Claim No. 10 falls short of compliance with these requirements because it is nothing more than a bare allegation that the Plaintiffs owe some amount of money based on “UNSECURED CHARGEOFF” with respect to an account ending in 6671. [See Finding of Fact No. 3]. It was incumbent on the Defendants to produce sufficient documentation supporting their claim. See In re Armstrong, 320 B.R. at 106. They have not done so, just as they did not do so in In re DePugh.12 409 B.R. 84 (Bankr.S.D.Tex.2009). Based on the Defendants’ previous interactions with this Court concerning this same issue of bad faith in filing proofs of claim,13 they cannot argue their deficient filing of Claim No. 10 was an honest mistake. This Court has previously held this type of behavior to be in bad faith. However, here, the Plaintiffs filed their objection to Claim No. 10 almost sixteen months after the twenty-one day deadline set forth in Local Bankruptcy Rule 3021-1(c). [See Finding of Fact Nos. 3, 4, 6, & 7], Moreover, the objection was filed approximately five months after the deadline had passed pursuant to the Notice. [Finding of Fact Nos. 6 & 7]. This Court declines to impose sanctions given the significant delay in the Plaintiffs’ filing of their objection to Claim No. 10. Alternatively, even if this Court were to disregard the timing of the filing of the objection in its analysis, the Plaintiffs do not have standing to argue a pattern of behavior by the Defendants in 166cases other than their own. The Plaintiffs contend that the deficient Claim No. 10 filed by the Defendants is part of an ongoing business strategy constituting an “abuse of the system” that must be sanctioned. [Adv. Doc. No. 13]; see Fed. R. Bankr.P. 9011. The Plaintiffs assert that the Defendants have a pattern of willful and intentional conduct, filing “hundreds, if not thousands” of inadequate claims in this Court. [See Finding of Fact No. 7], The Plaintiffs ask this Court to “rely on the public record and its knowledge of the claims filed by the Defendants in the Southern District of Texas.” [Adv. Doc. No. 13, ¶ 4(e) ]. The Plaintiffs acknowledge that they have not sought sanctions based upon the Defendants’ filing of this the single claim (i.e. Claim No. 10) in their bankruptcy case; rather, they seek sanctions and disallowance of Claim No. 10 based upon the Defendants’ improper filing of claims in not only the pending case, but many other cases. [Adv. Doc. No. 13, ¶ 4(a) ]. In the context of standing, there is a “general prohibition on a litigant’s raising another person’s legal rights.” Allen v. Wright, 468 U.S. 737, 751, 104 S.Ct. 3315, 82 L.Ed.2d 556 (1984). To invoke this Court’s jurisdiction, the Plaintiffs must have a personal stake in the outcome of the controversy, which is satisfied if they have suffered a “distinct and palpable injury” 14 that is “fairly traceable to the challenged action, and relief from the injury must be ‘likely’ to follow from a favorable decision.” Allen, 468 U.S. at 751, 104 S.Ct. 3315. The Plaintiffs, however, do not specifically allege they are directly injured by the Defendants’ conduct in this case, but attempt to obtain sanctions in this case based on alleged wrongs in other unrelated bankruptcy cases. This, they cannot do. Thus, the Plaintiffs lack standing to seek sanctions based on allegedly inadequate proofs of claim filed in other debtors’ bankruptcy cases. Without standing, this Court does not have jurisdiction to determine this issue; Wells Fargo Bank, N.A. v. Stewart (In re Stewart), 647 F.3d 553, 557 (5th Cir.2011), and accordingly, this Court refuses to impose sanctions. 4. The Plaintiffs’ Vexatious Litigation Claim Also Fails. The United States Supreme Court has held that federal courts possess the inherent power to police the conduct of the attorneys and parties who appear in the federal courts. See Chambers v. NAS-CO, Inc., 501 U.S. 32, 111 S.Ct. 2123, 115 L.Ed.2d 27 (1991). Courts may also use these powers to assess fees against parties who pursue vexatious litigation. Id. However, Fifth Circuit precedent states that a court must use its powers to sanction narrowly to only address a particular misconduct. See Topalian v. Ehrman, 3 F.3d 931, 936 (5th Cir.1993). Furthermore, the Fifth Circuit has defined vexatious litigation as conduct that evidences “bad faith, motive, or reckless disregard of the duty owed to the courts.” Edwards v. Gen. Motors Corp., 153 F.3d 242, 246 (5th Cir. 1998). At least one bankruptcy judge in this District, the Honorable Letitia Z. Paul, has characterized vexatious litigation as conduct that leads to increased costs for the opposing party and multiplicity in litigation. In re Rollings, No. 04-31511, 2008 WL 899300 at 9, 2008 Bankr.LEXIS 993 at 25 (Bankr.S.D.Tex. Mar. 31, 2008). In Rollings, Judge Paul found that the respondents’ conduct was vexatious because their continued requests for discovery and filing of baseless motions resulted in increased litigation and costs to the 167debtor. Id. In Rollings, the debtor filed a Chapter 13 case and subsequently converted the case to a Chapter 7 case. Id. at 1-2, 2008 Bankr.LEXIS 993 at 3. The respondents then filed a complaint to determine dischargeability. Id. Additionally, the discovery request included nine extensive interrogatories and thirty-six different requests for production. Id. Judge Paul rejected the respondents’ explanation that their extensive discovery tactics were employed only to obtain information from the debtor. Accordingly, Judge Paul held that respondents misused the discovery process to harass the debtor that resulted in “increasing costs and multiplying ... litigation before this court.” Id. at 5, 2008 Bankr.LEXIS 993 at 4. In the dispute at bar, the Plaintiffs’ vexatious litigation claims fails for various reasons. Unlike the debtor in Rollings, who was subjected to extensive litigation costs, the Plaintiffs have not provided evidence of any multiplicity of litigation or costs in their case. [Adv. Docket No. 2], Instead, virtually all of the Plaintiffs’ vexatious litigation claims are founded on the Defendants’ conduct in other cases. [Adv. Docket No. 2, p. 9-10]. As discussed in the previous section concerning sanctions, the Plaintiffs are not parties in these other cases, and therefore do not have standing to seek relief for the Defendants’ alleged misconduct in those cases. Finally, the Plaintiffs challenge only one claim against the estate: Claim No. 10. The filing of this claim has not led to extensive examinations or any court filings outside of the normal litigation process. Indeed, the Plaintiffs have not provided sufficient evidence to support a finding of multiplicity in litigation or that the Defendants filed Claim No. 10 to increase costs to the Plaintiffs. In sum, the Court concludes that the Plaintiffs have not provided sufficient evidence to support their assertion of vexatious litigation by the Defendants. Accordingly, the relief requested by the Plaintiffs will be denied. V. Conclusion Creditors should not be permitted to deliberately file woefully deficient proofs of claim in the hope that the debtor will not object to their violations of Bankruptcy Rule 3001. See, e.g., In re DePugh, 409 B.R. at 104 (concluding the defendant’s “utter disregard for Bankruptcy Rule 3001’s requirements when filing its original proofs of claim amounts to bad faith.”); In re Gilbreath, 395 B.R. 356, 367 (Bankr. S.D.Tex.2008) (disallowing proofs of claim amendments due to the delayed attempts to amend well after the hearing on the debtor’s objections combined with the “blatant disregard for Bankruptcy Rule 3001”); In re Today’s Destiny, Inc., No. 05-90080, 2008 WL 5479109, at 5-7 (Bankr.S.D.Tex. Nov. 26, 2008) (distinguishing three proofs of claim categories: (1) allowing proofs of claim that fully complied with Rule 3001, (2) allowing those that substantially complied with 3001, but (3) disallowing those claims that failed to comply with 3001 — i.e. provided no supporting documentation— such that the debtor could not evaluate the validity of the claim); see also Caplan v. B-Line, LLC (In re Kirkland), 572 F.3d 838, 841 (10th Cir.2009) (affirming the dis-allowance of a claim because the creditor failed to produce a single document to support its claim and failed to explain its failure to attach supporting documentation). While this Court has already taken the Defendants to task for such failures in a prior case, DePugh, 409 B.R. at 104, it is still incumbent on all debtors (including the Plaintiffs here) to timely file objections to proofs of claim pursuant to the Local Rules and notices sent by the trustee as to which claims he believes are allowed claims that merit payment. Here, the *168Plaintiffs failed to timely file their objection to Claim No. 10. The Plaintiffs’ objection to Claim No. 10, therefore, should be denied. Additionally, due to the delayed objection well beyond the deadlines of Local Rule 3021-l(c) and the Notice, plus the Plaintiffs’ lack of standing to assert that the Defendants have filed inadequate proofs of claim in other bankruptcy cases, this Court will not impose sanctions. A decision not to sanction the Defendants or award damages for vexatious litigation, however, does not imply that their conduct has been entirely appropriate. Indeed, this Court is very discouraged by the Defendants’ continued failure to attach all documents evidencing that they are the present owners of the debt or, alternatively, to attach an explanation as to why not all of the documents can be attached. That is, after all, what Bankruptcy Rule 3001(c)(1) and the proof of claim form (i.e. Form 10) require. Moreover, this Court is discouraged by the Defendants’ failure to provide a breakdown of the interest charges and other fees that comprise the debt figure set forth in Claim No. 10— information which is now required by Bankruptcy Rule 3001(c)(2)(A). The Court hopes that this Opinion will encourage the Defendants to fully comply with Rule 3001 in the future. The Court also trusts that debtors will timely object to those proofs of claim that they believe fail to comply with Bankruptcy Rule 3001. A judgment consistent with this Memorandum Opinion will be entered on the docket simultaneously with the entry on the docket of this Memorandum Opinion. . One of the Defendants' proofs of claim, for account number 2437, is in the amount of $310.28. The second proof of claim, for account number 6671 (Claim No. 10), is for $547.58. [See Main Case Doc. No. 78], The Plaintiffs request disallowance of only Claim No. 10. [See Adv. Doc. No. 13, ¶ 4(a) ]. . The version of Local Rule 3021-1 (c) applicable in this dispute read as follows: "Payments made by the Chapter 13 trustee will only be made as follows: ... (c) Payments on claims that are filed shall be reserved in the amount payable under the plan until the filed claim is an allowed claim. The deadline for filing objections to filed claims is 25 days after the proof of claim deadline. If no objection is filed by the deadline, the claim is an allowed claim and should be paid in accordance with the plan. Nothing in this rule precludes the reconsideration of the allowance of a claim pursuant to [11 U.S.C] § 502(j) of the Bankruptcy Code.” Therefore, for the purposes of this particular adversary proceeding, the deadline for all claim objections was June 29, 2009. To avoid any confusion, the Court notes that subsequently this local rule was amended so that the deadline for lodging an objection to a filed claim became 21 days after the proof of claim deadline. This version of Local Bankruptcy Rule 3021-1 (c) remained in effect until April 12, 2012, at which time this rule was once again amended. The Court wants to emphasize that its ruling in the dispute at bar is based upon the version of Local Rule 3021-1(c) that was in effect in June of 2009. . The Plaintiffs filed the Amended Complaint on the same day as the original complaint. [Adv. Doc. Nos. 1 & 2]. The original complaint failed to include an exhibit referenced in the original complaint. The Amended Complaint cured this deficiency. . Any reference herein to a section is a reference to a section of the Bankruptcy Code. Any reference to "Code” is a reference to the Bankruptcy Code. . In the Amended Complaint, the Plaintiffs refer only to Rule 3001. This Rule was amended in 2011, and the amendments took effect on December 1, 2011. At the time of the filing of the Amended Complaint, Bankruptcy Rule 3001(c) read, in pertinent part, as follows: "When a claim ... is based on a writing, the original or a duplicate shall be filed with the proof of claim. If the writing has been lost or destroyed, a statement of the circumstances of the loss or destruction shall be filed with the claim." The amendments of 2011 did not change this language, but this language is now in Rule 3001(c)(1), and an entire new subsection (2) was added. This Court applies old Bankruptcy Rule 3001(c)— which is now Bankruptcy Rule 3001(c)(1) — to the dispute at bar. . In the Order (of July 22, 2011), this Court concluded that the Plaintiffs' objection was not untimely. [Adv. Doc. No. 25]. Although the Court has already decided this issue, it sets forth its reasoning in this opinion in the event an appeal is taken. . Nor is the objection untimely under the Notice. Although the Notice requests “that any objection to claim not filed within twenty days after service [of the Notice] hereof be barred,” [Finding of Fact No. 6], this Court has never entered an order to this effect. Indeed, the Notice was not accompanied by a proposed order. If the Chapter 13 trustee had wanted this Court to sign such an order, then he would have filed a motion requesting such relief, together with a proposed order, as is required by Local Bankruptcy Rule 9013-1(h). Thus, just as the deadline for lodging objections to claims set forth in Local Bankruptcy Rule 3021-l(c) does not bar invocation of Section 502(j), neither does the deadline set forth in the Notice. If anything, the deadline set forth in the Notice provides protection to the Chapter 13 trustee should any party subsequently complain that the trustee has made payments to a particular claimant. The trustee can point to the Notice to demonstrate that all parties were put on notice that if they did not object to the claims listed on the Notice, the claim would be deemed allowed for purposes of distribution pursuant to the confirmed plan, and the trustee would therefore be making disbursements to this claimant. . Fed.R.Civ.P. 60(b) is applicable in all bankruptcy cases and adversary proceedings pursuant to Fed. R. Bankr.P. 9024. . The Debtors' plan was confirmed on May 21, 2009, [Main Case Doc. No. 44], and the Debtors are required to make monthly payments over sixty months. [Main Case Doc. No. 32]. Thus, this case has by no means been concluded. . The Court agrees with Mr. Patterson that the documents attached to Claim No. 10 are insufficient to conclusively establish that the Defendants are the present holders and owners of the claim. The assignments attached to Claim No. 10 do not specifically reference any obligation owed by the Debtors. Moreover, the so called "Agreement” and “Receivable Assets” (identified on the so-called "Receivable File”), which are referenced in the assignments, are not attached. Thus, there is no document connecting any obligation owed by the Debtors to any receivable assigned to the Defendants. Stated differently, the blanket assignments attached to Claim No. 10 contain no reference to the creditor originally holding the debt. The document attached to Claim No. 10 entitled "Proof of Claim — Account Detail” does refer to an account number with the last four digits being 6671, and the Debtors’ Amended Schedule F does reference these same four digits in representing that the Debtors owe Credit One the sum of $789.62. But, aside from the fact that $789.62 is a different figure than $547.58 (i.e. the amount set forth in Claim No. 10), there is no assignment attached to Claim No. 10 showing that Credit One ever assigned the debt owed by the Debtors to either of the Defendants, nor do either of the two assignments that are attached to Claim No. 10 ever mention Credit One. Finally, the Defendants did not attach to Claim No. 10 a statement of the circumstances as to why there are no documents attached to the assignments showing that the obligation owed by the Debtors was actually assigned to the Defendants (For example, have these documents been lost or destroyed, or are they too voluminous to attach to Claim No. 10?). Despite all of these failings, Claim No. 10 is nevertheless presumptively valid, as this claim became an allowed claim when no objections were filed pursuant to the deadlines set forth in Local Bankruptcy Rule 3021-1 (c) and the Notice. [Finding of Fact Nos. 4 & 6], Therefore, the Plaintiffs have the burden to overcome this presumption. . Bankruptcy Rule 3001(c)(2)(A), which is a new rule- that took effect on December 1, 2011, substantially adopts the requirements set forth in Armstrong. This subsection of the Rule reads as follows: “In a case in which the debtor is an individual: (A) If, in addition to its principal amount, a claim includes interest, fees, expenses, or other charges incurred before the petition was filed, an itemized statement of the interest, fees, expenses, or charges shall be filed with the proof of claim.” . See supra note 10. .See generally In re DePugh, 409 B.R. 84 (Bankr.S.D.Tex.2009). This case concerned amendments to four proofs of claim that did not comply with Bankruptcy Rule 3001 filed by the LVNV and Resurgent Capital Services, the same defendants in the suit at bar. Id. at 91-95. In considering the defendants' motion to amend their original proofs of claim, this Court concluded that the defendants had filed the initial proof of claim in bad faith. Accordingly, the Court denied the motion to amend. See also In re Gilbreath, 395 B.R. 356 (Bankr.S.D.Tex.2008). . Warth v. Seldin, 422 U.S. 490, 501, 95 5.Ct. 2197, 45 L.Ed.2d 343 (1975).	01-04-2023	11-22-2022
https://www.courtlistener.com/api/rest/v3/opinions/8494772/	171 MEMORANDUM OPINION MARVIN ISGUR, Bankruptcy Judge. Defendant Tomball Forest, Ltd. has moved for summary judgment. The chapter 11 Plan for Debtors Bison Building Holdings, Inc.; Bison Multi-Family Sales, LLC; Bison Construction Services, LLC; Bison Building Materials Nevada, LLC; Bison Building Materials, LLC; Bison Building GP, Inc.; HLBM Company; and Milltech, Inc. (collectively, “Bison”) established a Post-Confirmation Committee. The Committee sued Tomball Forest to avoid allegedly preferential transfers from Bison. Tomball Forest argues that it is entitled to summary judgment on the basis of its contemporaneous exchange and ordinary course affirmative defenses. The Committee filed a cross motion for summary judgment as to Tomball Forest’s contemporaneous exchange defense. The Court denies Tomball Forest’s motion for summary judgment and grants the Committee’s motion for partial summary judgment. Jurisdiction The District Court has jurisdiction over this proceeding pursuant to 28 U.S.C. § 1334. This proceeding has been referred to the Bankruptcy Court by General Order 2005-06. This is a core proceeding under 28 U.S.C. § 157(b)(2)(F). Bankruptcy Court’s Authority This is a proceeding to recover allegedly preferential transfers under 11 U.S.C. § 547(b). This Court may not issue a final order or judgment in matters that are within the exclusive authority of Article III courts. Stern v. Marshall, — U.S. -, 131 S.Ct. 2594, 2620, 180 L.Ed.2d 475 (2011). The Court may, however, exercise authority over essential bankruptcy matters under the “public rights exception.” Actions to recover preferential transfers under § 547 fall within the Bankruptcy Court’s constitutional authority. West v. Freedom Medical, Inc. (In re Apex Long Term Acute Care-Katy, L.P.), 465 B.R. 452 (Bankr.S.D.Tex.2011). Under Thomas v. Union Carbide Agricultural Products Co., a right closely integrated into a public regulatory scheme may be resolved by a non-Article III tribunal. 473 U.S. 568, 593, 105 S.Ct. 3325, 87 L.Ed.2d 409 (1985). The Bankruptcy Code is a public scheme for restructuring debtor-creditor relations, necessarily including “the exercise of exclusive jurisdiction over all of the debtor’s property, the equitable distribution of that property among the debtor’s creditors, and the ultimate discharge that gives the debtor a ‘fresh start’ by releasing him, her, or it from further liability for old debts.” Central Va. Cmty. College v. Katz, 546 U.S. 356, 363-64, 126 S.Ct. 990, 163 L.Ed.2d 945 (2006); see Northern Pipeline Constr. Co. v. Marathon Pipe Line Co., 458 U.S. 50, 71, 102 S.Ct. 2858, 73 L.Ed.2d 598 (1982) (plurality opinion) (noting in dicta that the restructuring of debtor-creditor relations “may well be a ‘public right’ ”). But see Stern, 131 S.Ct. at 2614 (“We noted [in Granfinanciera, S.A. v. Nordberg, 492 U.S. 33, 56 n. 11, 109 S.Ct. 2782, 106 L.Ed.2d 26 (1989) ] that we did not mean to ‘suggest that the restructuring of debt- or-creditor relations is in fact a public right.’ ”). To determine whether a matter falls within the public rights exception to exclusive Article III authority, the Court examines whether an issue “stems from the bankruptcy itself or would necessarily be resolved in the claims allowance process.” Stern, 131 S.Ct. at 2618; Apex, 465 B.R. at 460. A matter stems from the bankruptcy itself if the right is established by the Bankruptcy Code or if the substantive outcome of the issue is affected by 172bankruptcy law. Apex, 465 B.R. at 460. A matter would necessarily be resolved in the claims allowance process if it can be resolved through the exercise of in rem jurisdiction over the bankruptcy estate or if the proceeding is necessary to effectuate such in rem jurisdiction. Id. Preferential transfer actions both stem from the bankruptcy itself and are decided primarily pursuant to in rem jurisdiction. The right to recover preferential transfers is established by the Bankruptcy Code, and preferential transfer actions are fundamental to the bankruptcy scheme. Id. at 463. Preferential transfer actions also fall within, or are necessary to effectuate, a bankruptcy court’s in rem jurisdiction over the property of the estate. Id. at 463-64 (citing Katz, 546 U.S. at 372, 126 S.Ct. 990). The Bankruptcy Code effectively treats preferentially transferred property as if it had always been property of the estate. Id. at 464. The determination of avoidance therefore falls within a bankruptcy court’s in rem jurisdiction, and the court may issue a turnover order under § 550(a) “ancillary to and in furtherance of the court’s in rem jurisdiction.” Id. (quoting Katz, 546 U.S. at 372, 126 S.Ct. 990). Because preferential transfer actions stem from the bankruptcy itself and can be decided through in rem jurisdiction, the Court has constitutional authority to enter a final judgment in this adversary proceeding. Summary Judgment Standard “The court shall grant summary judgment if the movant shows that there is no genuine dispute as to any material fact and that the movant is entitled to judgment as a matter of law.” Fed.R.Civ.P. 56(a). Fed. R. Bankr.P. 7056 incorporates Rule 56 in adversary proceedings. A party seeking summary judgment must demonstrate: (i) an absence of evidence to support the non-moving party’s claims or (ii) an absence of a genuine dispute of material fact. Sossamon v. Lone Star State of Tex., 560 F.3d 316, 326 (5th Cir.2009); Warfield v. Byron, 436 F.3d 551, 557 (5th Cir.2006). A genuine dispute of material fact is one that could affect the outcome of the action or allow a reasonable fact finder to find in favor of the non-moving party. Brumfield v. Hollins, 551 F.3d 322, 326 (5th Cir.2008). A court views the facts and evidence in the light most favorable to the non-moving party at all times. Campo v. Allstate Ins. Co., 562 F.3d 751, 754 (5th Cir.2009). Nevertheless, the Court is not obligated to search the record for the non-moving party’s evidence. Malacara v. Garber, 353 F.3d 393, 405 (5th Cir.2003). A party asserting that a fact cannot be or is genuinely disputed must support the assertion by citing to particular parts of materials in the record, showing that the materials cited do not establish the absence or presence of a genuine dispute, or showing that an adverse party cannot produce admissible evidence to support the fact.1 Fed. R.Civ.P. 56(c)(1). The Court need consider only the cited materials, but it may consider other materials in the record. Fed.R.Civ.P. 56(c)(3). The Court should not weigh the evidence. A credibility determination may not be part of the summary judgment analysis. Turner v. Baylor Richardson Med. Ctr., 476 F.3d 337, 343 (5th Cir.2007). However, a party may 173object that the material cited to support or dispute a fact cannot be presented in a form that would be admissible in evidence. Fed.R.CivJP. 56(c)(2). “The moving party bears the burden of establishing that there are no genuine issues of material fact.” Norwegian Bulk Transp. A/S v. Int’l Marine Terminals P’ship, 520 F.3d 409, 412 (5th Cir.2008). The evidentiary support needed to meet the initial summary judgment burden depends on whether the movant bears the ultimate burden of proof at trial. If the movant bears the burden of proof on an issue, a successful motion must present evidence that would entitle the movant to judgment at trial. Malacara, 353 F.3d at 403. Upon an adequate showing, the burden shifts to the non-moving party to establish a genuine dispute of material fact. Sossamon, 560 F.3d at 326. The non-moving party must cite to specific evidence demonstrating a genuine dispute. Fed.R.Civ.P. 56(c)(1); Celotex Corp. v. Catrett, 477 U.S. 317, 324, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986). The non-moving party must also “articulate the manner in which that evidence supports that party’s claim.” Johnson v. Deep E. Tex. Reg’l Narcotics Trafficking Task Force, 379 F.3d 293, 301 (5th Cir.2004). Even if the movant meets the initial burden, the motion should be granted only if the non-movant cannot show a genuine dispute of material fact. If the non-movant bears the burden of proof of an issue, the movant must show the absence of sufficient evidence to support an essential element of the non-mov-ant’s claim. Norwegian Bulk Transp. A/S, 520 F.3d at 412. Upon an adequate showing of insufficient evidence, the non-mov-ant must respond with sufficient evidence to support the challenged element of its case. Celotex, 477 U.S. at 324, 106 S.Ct. 2548. The motion should be granted only if the non-movant cannot produce evidence to support an essential element of its claim. Condrey v. SunTrust Bank of Ga., 431 F.3d 191, 197 (5th Cir.2005). Summary Judgment Evidence Tomball Forest provides two pieces of summary judgment evidence: • Affidavit of Vince Goodman, stating that Tomball Forest invoiced Bison for the amounts paid during the preference period, Defs Ex. A; ECF No. 22-1, at 1-2; • Chart showing allegedly preferential transfers to Tomball Forest along with invoice dates associated with the transfers, Defs Ex. B; ECF No. 22-1, at 3. The Committee did not provide additional summary judgment evidence. Background Bison filed for chapter 11 bankruptcy on June 28, 2009. Case No. 09-34452. Bison’s chapter 11 plan was confirmed on June 29, 2010. Case No. 09-34452, ECF No. 589. The Plan established a Post-Confirmation Committee. The Committee was granted the exclusive right to pursue all avoidance actions. Case No. 09-34452, ECF No. 589-2, at 7. The Committee filed this preferential transfer action against Tomball Forest on June 24, 2011. ECF No. 1. Tomball Forest filed an answer on July 20, 2011, ECF No. 7, and an amended answer on August 29, 2011, ECF No. 13. Tomball Forest filed a motion for summary judgment on February 28, 2012. ECF No. 22. The Committee filed a response and cross motion for partial summary judgment on March 20, 2012. ECF No. 27. Tomball Forest filed a reply to the Committee’s response and a response to the Committee’s cross motion on April 3,2012. ECF No. 28. 174Tomball Forest argues that Bison’s transfers to Tomball Forest were in the ordinary course of business and were also contemporaneous exchanges for new value, and therefore are not avoidable preferences under § 547. 11 U.S.C. § 547(c)(1) & (2). ECF No. 22 at 4. Goodman’s affidavit, which is Tomball Forest’s major piece of summary judgment evidence, states that the allegedly preferential transfers were payments on four invoices: • On March 5, 2009, Tomball invoiced Bison $14,007.32 for lumber products it provided to Bison. On April 9, 2009, Bison paid Tomball $14,007.32 for the lumber products it received from Tom-ball. • On March 18, 2009, Tomball invoiced Bison $14,237.34 for lumber products it provided to Bison. On April 20, 2009, Bison paid Tomball $14,237.34 for the lumber products it received from Tomball. • On April 13, 2009, Tomball invoiced Bison $30,842.39 for lumber products it provided to Bison. On May 12, 2009, Bison paid Tomball $30,842.39 for the lumber products it received from Tomball. • On April 30, 2009, Tomball invoiced Bison $4,020.01 for lumber products it provided to Bison. On June 17, 2009, Bison paid Tomball $4,020.01 for the lumber products it received from Tom-ball. Defs Ex. A; ECF No. 22-1, at 2-3. Tom-ball Forest also provides a schedule of Tomball Forest invoices and Bison payments, purportedly prepared by the Committee’s counsel. Defs Ex. B; ECF No. 22-1, at 3. Tomball Forest’s Exhibit B, which has the heading “Preferential Transfers” lists four payments, with the same invoice dates, amounts, and payment dates, as the transactions listed in Goodman’s affidavit. The Committee argues that summary judgment is premature. Tomball Forest filed the motion for summary judgment just after both parties had filed their initial disclosures and before either party had yet served discovery. ECF No. 27, at 1-2. The Committee also argues that Tomball Forest’s admissions in its answer, ECF No. 13, show that Tomball Forest cannot prevail on its contemporaneous exchange defense. The Committee therefore moves for partial summary judgment with respect to the contemporaneous exchange defense. Analysis The Committee has sued Tomball Forest to avoid allegedly preferential transfers under § 547 of the Bankruptcy Code. Under § 547(b), a transfer is avoidable if it (1) benefits the creditor; (2) is made in payment of a debt that is antecedent to the transfer; (3) is made while the debtor is insolvent; (4) is made within ninety days before the filing of the bankruptcy petition; and (5) enables the creditor to receive more than it would under chapter 7 bankruptcy proceedings. Baker Hughes Oilfield Operations, Inc. v. Cage (In re Ramba, Inc.), 416 F.3d 394, 398 (5th Cir. 2005). Section 547(c) lists eight exceptions to the general rule of avoidability under § 547(b), including contemporaneous exchange for new value, § 547(c)(2), and ordinary course of business, § 547(c)(1). Id. Tomball Forest does not argue that the Committee cannot prove an essential element of a preferential transfer claim under § 547. Instead, Tomball Forest argues that it is entitled to summary judgment on the basis of its two affirmative defenses, contemporaneous exchange and ordinary course of business. 175Tomball Forest bears the burden of proof as to its affirmative defenses. As the moving party, Tomball Forest must provide evidence that would entitle it to a judgment at trial as to at least one of the affirmative defenses. Tomball Forest does not meet this burden with respect to either of the affirmative defenses. The Court therefore denies Tomball Forest’s motion for summary judgment. The Committee argues that it is entitled to partial summary judgment as to Tom-ball Forest’s contemporaneous exchange defense. According to the Committee, Tomball Forest’s own evidence and admissions in its answer establish, as a matter of law, that the exchanges were not substantially contemporaneous. Because Tomball Forest’s own evidence establishes that the parties did not intend the exchange to be contemporaneous, the Court grants the Committee’s motion for partial summary judgment. Contemporaneous Exchange Section 547(c)(1) provides an affirmative defense to a preferential transfer action for a contemporaneous exchange for new value: The trustee may not avoid under this section a transfer to the extent that such transfer was— (A) intended by the debtor and the creditor to or for whose benefit such transfer was made to be a contemporaneous exchange for new value given to the debtor; and (B) in fact a substantially contemporaneous exchange!.] 11 U.S.C. § 547(c)(1). The purpose of the contemporaneous exchange exception is to protect transactions that do not result in a diminution of the bankruptcy estate. Velde v. Kirsch, 543 F.3d 469, 472 (8th Cir.2008). If new value is given, a contemporaneous exchange does not diminish the estate. Id. To defend itself under § 547(c)(1), a creditor must demonstrate “intent, con-temporaneousness and new value.” Southmark Corp. v. Schulte Roth & Zabel (In re Southmark Corp.), 2000 WL 1741550, at 3 (5th Cir.2000) (quoting Tyler v. Swiss Am. Sec. (In re Lewellyn & Co.), 929 F.2d 424, 427 (8th Cir.1991)). Whether intent, contemporaneousness, and new value exist are questions of fact. Id. “The critical inquiry in determining whether there has been a contemporaneous exchange for new value is whether the parties intended such an exchange.” McClendon v. Cal-Wood Door (In re Wadsworth Bldg. Components, Inc.), 711 F.2d 122, 124 (9th Cir.1983). Courts determine the parties’ intent by examining evidence of the parties’ mutual understanding of the payment arrangement and evidence of how payments were reflected on the parties’ books. See Hechinger Inv. Co. of Del., Inc. v. Universal Forest Prods., Inc., 489 F.3d 568, 575 (3d Cir.2007) (holding that the existence of a credit relationship does not preclude a finding that a contemporaneous exchange was intended and noting that the parties had a general understanding that payments would be made at essentially the same time shipments were received) (citing In re Payless Cashways, Inc., 306 B.R. 243, 247-54 (8th Cir. BAP 2004)); Barnes v. Karbank Holdings, LLC (In re JS & RB, Inc.), 446 B.R. 350, 357 (Bankr. W.D.Mo.2011) (finding that a contemporaneous exchange was intended when the payment was equal to the amount owed for monthly rent); Official Committee of Unsecured Creditors of Contempri Homes, Inc. v. Seven D Wholesale (In re Contempri Homes, Inc.), 269 B.R. 124, 128-29 (Bankr.M.D.Pa.2001) (finding that a contemporaneous exchange was not intended 176when evidence showed that although payments roughly corresponded to the value of new goods shipped, checks were applied to old invoices). Contemporaneousness is a flexible concept that requires a case-by-case inquiry into all relevant circumstances—such as length of delay, reason for delay, nature of the transaction, intentions of the parties, and possible risk of fraud—surrounding an allegedly preferential transfer. Pine Top Ins. Co. v. Bank of Am. Nat’l Trust & Sav. Assoc., 969 F.2d 321, 328 (7th Cir.1992). Tomball Forest does not meet its burden of establishing that the transfer was intended to be a contemporaneous exchange. Tomball Forest’s only evidence of intent is the conclusory statement in Goodman’s affidavit that “Tomball and Bison intended for each delivery, invoice, and payment to be a contemporaneous exchange.” Defs Ex. A; EOF No. 22-1, at 2. The only evidence that the exchanges were substantially contemporaneous is that each invoice was paid approximately one month after it was issued. This evidence falls far short of establishing that the exchanges were substantially contemporaneous: it suggests the opposite conclusion. On the basis of the same evidence, the Committee moves for partial summary judgment against Tomball Forest on the contemporaneous exchange defense. Tom-ball Forest admits that the four invoices were each issued 30 to 45 days before Bison made the four payments. The Committee therefore argues that, as a matter of law, the payments were not substantially contemporaneous. Tomball Forest argues that the payments were received within one month of the invoices, or shortly thereafter, and that the Court may take factors other than the length of the delay into account when determining whether the payment was substantially contemporaneous. The limited summary judgment evidence shows that (i) the four payments were made 30 to 45 days after the invoices were issued; (ii) the payments were for lumber products Bison received from Tomball Forest; and (iii) “Tomball Forest and Bison made all invoices, deliveries, and payments in the regular course of business and as agreed upon and under ordinary business terms.” Defs Ex. A; ECF No. 22-1, at 1-2 (emphasis added). The Court need not reach the question of whether the payments were, in fact, substantially contemporaneous. The Goodman affidavit shows that the payments were made “as agreed upon” and that Bison regularly paid Tomball Forest approximately one month after Tomball Forest issued invoices. The Goodman affidavit thus shows that the parties agreed that payments would be made about a month after invoices. In other words, the parties agreed that the exchanges would not be contemporaneous. Tomball Forest, citing Pine Top Insurance Company, argues that the definition of “substantially contemporaneous” does not exclude, as a matter of law, payments made a month after invoicing. 969 F.2d 321. The court in Pine Top Insurance Company held that a “two- to three-week delay ... did not defeat the substantially contemporaneous nature of this exchange,” and that a determination of contemporane-ousness required an examination of numerous other factors, including “reason for delay, nature of the transaction, intentions of the parties, [and] possible risk of fraud[.]” 969 F.2d at 328. However, the intent requirement is less flexible than the contemporaneousness requirement. The “contemporaneous 177in fact” requirement is modified by the adverb “substantially.” 11 U.S.C. § 547(c)(1)(B). The intent requirement contains no such modification. 11 U.S.C. § 547(c)(1)(A). The parties must intend that the exchange be actually' — not just substantially — contemporaneous. Here, there is direct evidence that the parties did not intend the exchange to be contemporaneous. The Court therefore grants partial summary judgment in favor of the Committee. Ordinary Course of Business Section 547(e)(2) provides an affirmative defense for transfers in the ordinary course of business: The trustee may not avoid under this section a transfer to the extent that such transfer was in payment of a debt incurred by the debtor in the ordinary course of business or financial affairs of the debtor and transferee, and such transfer was— (A) made in the ordinary course of business or financial affairs of the debt- or and the transferee; or (B) made according to ordinary business terms[.] 11 U.S.C. § 547(c)(2). To prove the ordinary course defense, “the creditor must show that as between it and the debtor, the debt was both incurred and paid in the ordinary course of their business dealings and that the transfer of the debtor’s funds to the creditor was made in an arrangement that conforms with ordinary business terms[.]” Gulf City Seafoods, Inc. v. Ludwig Shrimp Co., 296 F.3d 363, 367 (5th Cir.2002). To determine whether a debt was incurred and paid in the ordinary course, “[tjypically, courts look to the length of time the parties were engaged in the transaction at issue, whether the amount or form of tender differed from past practices, whether the creditor engaged in any unusual collection activity, and the circumstances under which the payment was made (i.e. whether the creditor took advantage of the debtor’s weak financial condition).” Compton v. Plains Marketing, LP (In re Tri-Union Dev. Corp.), 349 B.R. 145, 150 (Bankr. S.D.Tex.2006). The test of whether the payment arrangement conforms with ordinary business terms is “objective” — it must be resolved by considering whether the arrangement falls within the outer boundaries of practices in the industry. Gulf City Seafoods, 296 F.3d at 368-69. Tomball Forest does not provide sufficient evidence either that the transfers were in the ordinary course of Bison’s business dealings with Tomball Forest or that the payment arrangement conformed with ordinary business terms in the industry. The only evidence that the transfers were made in the ordinary course of business is Goodman’s statement that “Bison ordered the products and materials and incurred the indebtedness associated with each of the above transactions in the ordinary course of business. Tomball and Bison made all invoices, deliveries, and payments in the regular course of business and as agreed upon and under ordinary business terms.” Defs Ex. A; EOF No. 22-1, at 2. Goodman’s conclusory and self-serving statement is insufficient evidence. See Burtch v. Revchem Composites, Inc. (In re Sierra Concrete Design, Inc.), 463 B.R. 302, 306 (Bankr.D.Del.2012) (ruling that a “one-paragraph; conclusory allegation in [a] supporting affidavit” was “insufficient evidence to establish the ordinary course of business”). Goodman’s statements that the transactions occurred in the regular course of business are conclusory, and the affidavit provides no specific facts supporting Goodman’s conclusory statements. *178The Court therefore denies summary judgment on the ordinary course of business defense. Conclusion The Court denies Tomball Forest’s motion for summary judgment. The Court grants the Committee’s motion for partial summary judgment. . If a party fails to support an assertion or to address another party’s assertion as required by Rule 56(c), the Court may (1) give an opportunity to properly support or address the fact; (2) consider the fact undisputed for purposes of the motion; (3) grant summary judgment if, taking the undisputed facts into account, the movant is entitled to it; or (4) issue any other appropriate order. Fed. R.Civ.P. 56(e).	01-04-2023	11-22-2022
https://www.courtlistener.com/api/rest/v3/opinions/8494773/	MEMORANDUM OPINION REGARDING DEBTOR’S MOTION FOR REDEMPTION PURSUANT TO § 722 [Doc. Nos. 237 & 244] JEFF BOHM, Bankruptcy Judge. I. Introduction The Court writes this Memorandum Opinion to underscore two points to the consumer bankruptcy bar. First, even though a Chapter 13 plan assigns a value to property that establishes the amount of a secured claim, the Court is not bound by that value once the debtor converts to Chapter 7 and seeks to redeem that property; BAPCPA modified the particular Bankruptcy Code provision on this issue 1 Second, the consumer bankruptcy bar should not slavishly rely upon the N.A.D.A. Appraisal Guide in attempting to establish the value of a vehicle. The particular dispute before this Court pits a divorced mother with custody of two minor children against a credit union. The mother, who is the debtor in this case, is trying to hang onto her car — a 2006 Toyota Tundra that she has driven 160,000 miles — because it is her sole means of transportation. She seeks to redeem the Tundra at an amount unacceptable to the credit union. The credit union contends that the debtor should not be allowed to redeem the Tundra because she is unwilling or unable to pay cash equal to either: (1) the value of the Tundra as established in the debtor’s Chapter 13 case, less the amount that the Chapter 13 Trustee paid to the credit union; or (2) the value of the Tundra according to the N.A.D.A. Approval Guide. For the reasons set forth herein, this Court concludes that the debtor will be allowed to redeem the Tundra for the amount of $6,476.50, which is lower than either of the values that the credit union contends must be used. The Court makes the following Findings of Fact and Conclusions of Law pursuant to Federal Rule of Civil Procedure 52, as incorporated into Federal Rule of Bankruptcy Procedure 7052, and Bankruptcy Rule 9014. To the extent that any Finding of Fact is construed to be a Conclusion of Law, it is adopted as such. To the extent 180that any Conclusion of Law is construed to be a Finding of Fact, it is adopted as such.2 II.Findings op Fact 1. On June 8, 2009, Fawn Airhart (the Debtor) filed a voluntary petition under Chapter 13 of the Bankruptcy Code3 (the Petition Date). [Doc. No. 1]. 2. The Tundra is the Debtor’s sole means of transportation. It presently has an approximate mileage of 160,000 miles. [Tape Recording, 4/11/2012 Hearing at 9:52:36 a.m.]. 3. The Court confirmed the Debtor’s plan [Doc. No. 119], which set forth that the secured claim on the Tundra was $17,000.00. The lienholder on the Tundra is Right Choice Federal Credit Union (Right Choice). 4. The Debtor made plan payments to the Chapter 13 Trustee for several months. Moreover, the Trustee made several distributions to Right Choice during this time period, totaling approximately $4,200.00, thereby reducing Right Choice’s secured claim to approximately $12,800.00. [Right Choice’s Ex. A]. 5. Unfortunately, in July of 2011, the Debtor lost her job and was unemployed for approximately two months. [Testimony of Debtor]. The Debtor’s ex-husband also stopped making child support payments during this time4. [Testimony of Debtor]. Consequently, the Debtor made de minimis payments to the Chapter 13 Trustee in July and August of 2011, and she made no payments in September and October of 2011. [Testimony of Debt- or]. 6.Eventually, the Debtor filed a Notice of Voluntary Conversion to Chapter 7, and the Debtor’s Chapter 13 case was therefore converted to a Chapter 7 case. [Doc. No. 236], It is in this converted Chapter 7 case that the Debtor now seeks to redeem the Tundra. Her pending motion is styled: “Debtor’s Motion for Redemption Pursuant to § 722” (the Motion to Redeem). [Doc. No. 237], III.Credibility of Witnesses The Debtor was the sole witness at the hearing on her Motion to Redeem. The Court finds that her testimony on all issues was credible and gives substantial weight to her testimony. IV.Conclusions of Law A. Jurisdiction, Venue, and Constitutional Authority to Enter a Final Order The Court has jurisdiction over this adversary proceeding pursuant to 28 U.S.C. 181§§ 1334(b) and 157(a). This particular dispute is a core proceeding pursuant to 28 U.S.C. §§ 157(b)(2)(G) and (0). See Southmark Corp. v. Coopers & Lybrand (In re Southmark Corp.), 163 F.3d 925, 930 (5th Cir.1999) (“[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.”); Lee de Montaigu v. Ginther (In re The Ginther Trusts), Adv. No. 06-3556, 2006 WL 3805670, at 19 (Bankr.S.D.Tex. Dec. 22, 2006) (holding that an “[adversary [proceeding is a core proceeding under 28 U.S.C. § 157(b)(2) even though the laundry list of core proceedings under § 157(b)(2) does not specifically name this particular circumstance”). Additionally, venue is proper in this case pursuant to 28 U.S.C. § 1408. Having concluded that this Court has jurisdiction over this dispute, this Court nevertheless notes that Stern v. Marshall, - U.S. -, 131 S.Ct. 2594, 180 L.Ed.2d 475 (2011) sets forth certain limitations on the constitutional authority of bankruptcy courts to enter final orders. In Stem, the debtor filed a counterclaim against a creditor who had filed a proof of claim. Id. at 2595. The debtor’s counterclaim was based solely on state law; there was no Bankruptcy Code provision undergirding the counterclaim. Id. at 2611. Moreover, the resolution of the counterclaim was not necessary to adjudicate the claim of the creditor. Id. Under these circumstances, the Supreme Court held that the bankruptcy court lacked constitutional authority to enter a final judgment on the debt- or’s counterclaim. Id. at 2620. With regard to the Motion to Redeem, this Court concludes that it has the constitutional authority to enter a final order. The Motion to Redeem is based upon an express provision of the Code; namely, § 722. There is no state law involved. Indeed, Texas state law has no equivalent to this statute; it is purely a creature of the Bankruptcy Code. Accordingly, because the resolution of this dispute is based solely on bankruptcy law, not state law, Stem is inapplicable, and this Court has the constitutional authority to enter a final order on the Motion to Redeem pursuant to 28 U.S.C. §§ 157(a) and (b)(1). B. The Motion to Redeem A debtor may redeem personal property, intended to be used for personal, family, or household purposes, from a lien securing a “dischargeable consumer debt.” 11 U.S.C. § 722. To redeem the personal property, the debtor must pay the holder of the lien the amount of the “allowed secured claim ... in full.” Id. The Code defines an allowed secured claim as: An allowed claim of a creditor secured by a lien on property in which the estate has interest ... is a secured claim to the extent of the value of such creditor’s interest in the estate’s interest in such property ... Such value shall be determined in light of the purpose of the valuation and of the proposed disposition or use of such property, and in conjunction with any hearing on such disposition or use or plan affecting such creditor’s interest. 11 U.S.C. § 506(a). 1. If a Debtor who Originally Filed a Chapter IS Thereafter Converts to a Chapter 7 and Seeks to Redeem Property After the Conversion, the Value of the Property for Redemption Purposes is not Determined by Using the Value of the Property that was Established During the Chapter IS Case Bankruptcy courts must apply 11 U.S.C. § 348(f)(1) to determine the valúa182tion of an allowed secured claim after a debtor has converted her case from Chapter 13 to Chapter 7. BAPCPA revised this provision. The current version of § 348(f)(1)(B) states that: Valuations of property and of allowed secured claims in the chapter 13 case shall apply only in a case converted under chapter 11 or 12, but not in a case converted to a case under chapter 7, with allowed secured claims in cases under chapters 11 and 12 reduced to the extent that they have been paid in accordance with the chapter 13 plan. [Emphasis added]. Under the canon of statutory interpretation, “[a] statute is to be construed to give effect to its plain meaning. ‘There generally is no need for a court to inquire beyond the plain language of the statute.’ Where ... the language of the statute is clear, the court must enforce it according to its terms.” In re Davis, 300 B.R. 898, 902 (Bankr.N.D.Ill.2003) (quoting U.S. v. Ron Pair Enterprises, Inc., 489 U.S. 235, 240-241, 109 S.Ct. 1026, 103 L.Ed.2d 290 (1989)). In the case at bar, contrary to Right Choice’s assertion, § 348(f)(1)(B) unambiguously requires that Chapter 13 valuations should only be applied when valuing allowed secured claims in cases converted to Chapters 11 and 12. Section 348(f)(1)(B) explicitly excludes converted Chapter 7 cases from the requirement that allowed secured claims should be valued pursuant to the debtor’s Chapter 13 plan. Thus, although the Debtor’s Chapter 13 plan establishes the value of Right Choice’s secured claim to be $17,000.00 [Finding of Fact No. 3], this Court is not bound by this value now that the Debtor has converted her case to Chapter 7. It necessarily follows that the redemption value of the Tundra is not automatically determined by subtracting the total amount that Right Choice received from the Chapter 13 Trustee (i.e. $4,200) from the Chapter 13 secured claim amount of $17,000.00. Stated differently, $12,800.00 is not automatically the redemption amount. Right Choice has cited certain cases holding that Chapter 13 plan valuations of allowed secured claims should be applied in converted Chapter 7 cases. See, e.g., In re Davis, 300 B.R. at 898 (holding that the Chapter 13 valuation of a secured claim must be applied when a debtor seeks to redeem personal property in a converted Chapter 7 case). However, these cases were decided prior to the 2005 amendments to the Code and thus have been statutorily overruled5. Accordingly, the Court concludes that § 348(f)(1)(B) bars this Court from automatically using the valuation of the Tundra in the Debtor’s Chapter 13 case to determine the value at which the Debtor can redeem the Tundra in her Chapter 7 case. Consequently, this Court must determine the valuation standard to apply to determine the value at which the Debtor can redeem the Tundra. 2. The Value of the Tundra for Redemption Purposes is Determined by the Commercially Reasonable Disposition Approach In determining the redemption value of property, a bankruptcy court must 183use a valuation approach that “balances the competing interests of the debtor and the lienholder.” In re Waters, 122 B.R. 298, 300 (Bankr.W.D.Tex.1990). A debtor will be interested in redeeming personal property at the lowest cost. Id. On the other hand, a lienholder will be interested in obtaining a high value for the property so that its claim is paid in full or, if not paid in full, at least as much as possible. Id. Bankruptcy courts have used three valuation approaches to determine the value at which a debtor may redeem personal property: (1) the fair market value, which is the net amount at which a creditor would dispose of the collateral as permitted under non-bankruptcy law6; (2) the liquidation value, which is the amount of dollars that the personal property would likely generate in an auction or forced sale; and (3) the commercially reasonable disposition approach, which permits courts to look at numerous factors in valuing the personal property. Waters, 122 B.R. at 301. For instance, bankruptcy courts may evaluate the age and condition of the property and the nature of the lienholder’s business to determine the valuation of the property for redemption. Id. Although the fair market value and liquidation value approaches may have several benefits, this Court concludes that the commercially reasonable disposition approach is the most suitable option for balancing the interests of both the Debtor and Right Choice. The commercially reasonable disposition approach allows courts to determine the value of personal property by considering the property itself, and the property’s existing physical condition and age. Id. This approach also gives courts the flexibility to include in their valuations, “the nature of the creditor’s business and the way in which such property is normally disposed of in that business when the collateral is recovered by the creditor.” Id. Commercially reasonable disposition valuation produces a property value that is the “middle ground between the retail valuation and distressed sale valuation.” Id. (citing In re Damron, 8 B.R. 323, 326 (Bankr.S.D.Ohio 1980)). In the case at bar, the Debtor has converted her Chapter 13 case to a Chapter 7 case. [Finding of Fact No. 6]. At the hearing on the Motion to Redeem, the only evidence that Right Choice introduced was one page from the N.A.D.A. Appraisal Guide estimating the retail value for the Tundra. [Right Choice’s Ex. B], This exhibit provides the Court with a range of trade-in values for the Tundra, but the N.A.D.A.’s valuation is based on the Tundra having a mileage of 100,000 miles7. [Doc. No. 252; Right Choice’s Ex. B], The Tundra, however, actually has mileage of approximately 160,000 miles. [Finding of Fact No. 2], Given this fact, Right Choice’s evidence does not accurately estimate the 184Tundra’s trade-in value. See e.g., In re Jenkins, 215 B.R. 689, 691 (Bankr. N.D.Tex.1997) (“In this ease, the vehicle has excessive mileage for a vehicle of its age. Because excessive mileage presupposes future repair costs above the norm for a vehicle of that age, the willing buyer would expect a price adjustment.”). Consequently, the Court gives very little weight to Right Choice’s N.A.D.A. valuation. The Debtor introduced a Carmax cash appraisal offer for the Tundra. [Debtor’s Ex. No. 3]. The Court gives substantial weight to this appraisal because it is based upon a relatively recent inspection of the Tundra by an employee of Carmax, and also discusses the actual mileage and physical condition of the Tundra. Specifically, the Carmax cash appraisal offer notes that: (1) the mileage on the Tundra is 151,116 miles8; (2) the Tundra’s carpet is stained; (3) both the front doors need repair; (4) the windshield and rear bumper need to be replaced; and (5) the Tundra’s front bumper and driver’s side quarter panel need paintwork. [Debtor’s Ex. No. 3]. Under these circumstances, Car-max appraised the cash value of the Tundra at $5,000.00. [Debtor’s Ex. No. 3]. The Court finds this cash value to be a very credible figure. Further, the Debtor also introduced two Kelley Blue Book valuation reports on the trade-in value of the Tundra9. [Debtor’s Ex. Nos. 1 & 2]. Each report identifies the trade-in value of the Tundra — whether to a private party or a dealership — based on the vehicle’s mileage and current condition. [Debtor’s Ex. Nos. 1 & 2]. At the hearing, the Debtor testified that the Tundra is in fair condition. [Tape Recording, 04/11/2012 Hearing at 9:51:11 a.m.]. The Debtor’s Exhibit 1 (one of the Kelley Blue Book valuation reports) identifies the private party value of the Tundra, in fair condition, as $7,953.00. The Debtor’s Exhibit 2 (the other Kelley Blue Book valuation report) identifies the trade-in value of the Tundra, in fair condition, as $5,448.00. The Debtor asserts that this Court should value the Tundra based on the average between the Carmax cash appraisal of $5,000 and the Kelley Blue Book private party value of $7,953.00. [Tape Recording, 04/11/2012 Hearing at 9:54:18 a.m.]. The average of the Carmax cash appraisal value and the private party trade-in value is $6,476.50. The Court finds that the average of the cash appraisal value and the private party trade-in value comports with the commercially reasonable disposition standard. Waiers, 122 B.R. at 301-2. This Court also finds that the $6,476.50 value reasonably balances the interests of both the Debtor and Right Choice because it is less than the N.A.D.A. dealership trade-in value, but more than the Carmax cash appraisal value. Therefore, this Court concludes that the Debtor may redeem the Tundra for $6,476.50. V. Conclusion BAPCPA significantly changed valuation of property for cases converted from *185Chapter 13 to Chapter 7. Under the amended statute (§ 348(f)(1)), once the case is converted, valuation begins anew. Stated differently, the parties have a “second bite at the valuation apple.” And, because they do, they must be prepared to introduce evidence on the actual age and condition of the property to be redeemed. With respect to vehicles, while introduction of information from the N.A.D.A. Appraisal Guide — or any similar guide' — -may be appropriate, any vehicle lienholder seeking to establish value based upon the N.A.D.A. Appraisal Guide needs to be mindful of the assumptions that it makes. Here, the Tundra has substantially more mileage than the assumption made by the N.A.D.A. Appraisal Guide. Accordingly, Right Choice’s sole reliance on the N.A.D.A. Appraisal Guide at the hearing undercut its position when the Debtor gave credible testimony about the actual mileage of the Tundra and introduced appraisals that are based on this actual mileage. Right Choice — or, for that matter, any vehicle lienholder — would do well to have an agent inspect the vehicle before making a decision as to whether it is worth the time and attorneys’ fees to contest the valuation of the collateral in court; and, it would behoove the lienholder to adduce testimony from that agent if the decision is made to go to court. Sole reliance upon the N.A.D.A. Appraisal Guide increases the odds of obtaining a disappointing result. And, indeed, Right Choice has received such a poor result in the case at bar. The Debtor’s plan proposed to pay Right Choice the sum of $17,000.00 [Finding of Fact No. 3], and during the pendency of her Chapter 13 case, Right Choice received approximately $4,200.00. [Finding of Fact No. 4]. Thus, the amount owed to Right Choice on the date of the conversion to Chapter 7 was $12,800.00. [Finding of Fact No. 4], By relying solely on one page of the N.A.D.A. Appraisal Guide, which assumes that the Tundra has mileage of 100,000, Right Choice ran the risk that this Court would disregard the values set forth on this page and, instead, accept the value asserted by the Debtor based upon her own testimony and appraisals that are based on the actual mileage and the actual condition of the Tundra. And, that is exactly what has happened. Thus, by ruling that the Debtor may redeem the Tundra for $6,476.50, Right Choice is left with a deficiency of $6,323.50 (i.e. $12,800.00 - $6,476.50 = $6,323.50). If Right Choice had simply done more than robotically rely upon the N.A.D.A. Appraisal Guide, it might have improved its chances of convincing this Court that the redemption value is higher than $6,476.50, thereby reducing the deficiency. Or, if Right Choice had simply inspected the Tundra, it might have concluded that it should attempt to negotiate a settlement with the Debtor and reach an agreement on a redemption value higher than $6,476.50, thereby once again reducing the deficiency. An Order consistent with this Memorandum Opinion has already been entered on the docket. . In 2005, the Bankruptcy Code was amended. The changes in the Bankruptcy Code are commonly referred to as the BAPCPA amendments because the law is entitled the "Bankruptcy Abuse Prevention and Consumer Protection Act” (BAPCPA). .The Court made an oral ruling on the issues at bar on April 23, 2012. This Memorandum Opinion now memorializes this ruling to explain how this Court arrived at its decision. To the extent that this Court's oral findings of fact and conclusions of law in any way conflict with this Memorandum Opinion's written findings and conclusions, the latter shall govern. To the extent that the Court's oral findings and conclusions address issues not covered in this Memorandum Opinion, these oral findings and conclusions shall supplement the written findings and conclusions set forth herein. . Any reference hereinafter to “the Code” refers to the United States Bankruptcy Code, and reference to any section (i.e. § ) refers to a section in 11 U.S.C., which is the United States Bankruptcy Code unless otherwise noted. Further, any reference to "the Bankruptcy Rules” refers to the Federal Rules of Bankruptcy Procedure. . The Debtor has custody of two minor children from her divorce, and an order from a family law court requires the Debtor’s ex-husband to make monthly child support payments. . Prior to BAPCPA, § 348(f)(1)(B) read as follows: "Except as provided in paragraph (2), when a case under chapter 13 of this title is converted to a case under another chapter under this title ... valuations of property and of allowed secured claims in the chapter 13 case shall apply in the converted case, with allowed secured claims reduced to the extent that they have been paid in accordance with the chapter 13 plan.” See Warren v. Peterson, 298 B.R. 322, 324 (N.D.Ill.2003). This language clearly required valuations done in a Chapter 13 case to apply to a converted case regardless of whether the case was converted to Chapter 7, Chapter 11, or Chapter 12. BAPCPA, however, added language that expressly sets forth that Chapter 13 valuations no longer apply in converted Chapter 7 cases. . In re Crusetumer, 8 B.R. 581, 585 (Bankr. D.Utah 1981); Report of the Commission of Bankruptcy Laws of the U.S., H.R. Doc. No. 93-137, 93rd Cong., 1st Sess., Pt. 11, at 131 (1973). . The range of N.A.D.A. trade-in values is as follows: (1) the “Clean trade-in” value was $15,500.00; (2) the “Average trade-in” value was $14,250.00; and (3) the “Rough trade-in” value was $12,750.00. The terms "Clean”, “Average”, and "Rough” are somewhat generic definitions used by the N.A.D.A. Appraisal Guide. For example, the term “Clean” means that the vehicle will need minimal reconditioning to be made ready for resale, whereas the term "Average” means that the vehicle will need a fair degree of reconditioning, and the term "Rough” means that the vehicle will need substantial reconditioning. None of these terms take into account the mileage on the vehicle. N.A.D.A. Glossary, http://www.nada.com/b2b/Support/Glossary. aspx (last visited May 31, 2008). . The Carmax appraisal was done on February 14, 2012 [Debtor’s Ex. No. 3], which was almost two months before the hearing held in this Court. During these two months, the Debtor drove the Tundra, which explains why the mileage figure of 160,000, about which the Debtor testified at the hearing, exceeds the mileage figure of 151,116 set forth in the Carmax appraisal. . This Court distinguishes between the N.A.D.A. Appraisal Guide and the Kelley Blue Book. The Kelley Blue Book, which coined the term Blue Book, is the original source for determining the loan value on used vehicles. The N.A.D.A. Appraisal Guide, founded in 1933, is a separate and distinct source of information on values of used vehicles. MSP Press, http://www.msppress.com/nada-blue-book.php (last visited May 23, 2012).	01-04-2023	11-22-2022
https://www.courtlistener.com/api/rest/v3/opinions/8494774/	AMENDED MEMORANDUM OPINION TRACEY N. WISE, Bankruptcy Judge. INTRODUCTION Debtor, Timothy John Micek, owes a balance of $28,969.06 to Dodd and Dodd 187Attorneys, PLLC (“Dodd”), his ex-wife’s attorneys, for their fees incurred on behalf of the ex-wife in their divorce action. Dodd filed a proof of claim herein claiming the debt as a priority Domestic Support Obligation (“DSO”). The Chapter 7 Trustee objects to the DSO classification and requests the claim be relegated to unsecured non-priority status and allowed as a general unsecured claim. The Trustee generally asserts that: (a) the claim cannot be a DSO because Dodd is not an eligible payee of a DSO and it is not “recoverable” by the ex-wife as a result of her subsequent bankruptcy; (b) the attorneys fees are not in the nature of support; (c) the claim is not entitled to priority status because Dodd has sought to levy on ex-wife’s maintenance award in her bankruptcy proceeding. BACKGROUND Timothy Micek’s Bankruptcy Proceeding. The within chapter 7 proceeding was filed on June 24, 2009. The Debtor is represented by W. Thomas Bunch. James Lyon is the Trustee. Mr. Micek listed Allen McKee Dodd, Jr., Esq. on his original Schedule F as “Estranged wife’s divorce attorney — unliquidated (notice)”. This listing was marked “contingent, unliq-uidated, disputed” with the amount of claim listed at $100.00. Mr. Micek’s ex-wife was not listed as a creditor until almost two months later when he filed an “Amendment to Schedule E” [Doc. 22] to list “Lisbeth Micek, c/o Allen M. Dodd, Jr., Esq.” as a creditor holding an unsecured priority domestic support obligation for “child support and temporary maintenance” and listing the amount owed as $0.00. Dodd’s Claim. POC 3-2 is Dodd’s amended priority (DSO) claim in the amount of $39,000.00. The basis for the claim is “attorney’s fees.” The claim includes an order of the Madison Circuit Court Family Court (the “Divorce Court”) in Case No. 08-CI-698 (the “Divorce Action”) dated April 6, 2010 that orders the Debtor to pay his ex-wife’s attorney fees in the amount of $39,000.00 because he is in a “position of financial superiority.” The claim includes a second Divorce Court order dated October 26, 2010, denying the Debtor’s request to relieve him of the order requiring him to pay the $39,000.00 in attorney fees. Dodd’s Response to the Trustee’s claim objection includes invoices [Doc. 127, Ex. D, pp. 45-79] setting forth attorney fees and expenses incurred prior to the petition date herein. Doc. 130 is an affidavit by Allen Dodd authenticating the invoices and stating that the total fees and expenses incurred by ex-wife as of May 31, 2009, were $47,533.06, with a total of $18,564.00 of those fees already paid, leaving a balance due of $28,969.06, the amount at issue herein. Ex-wife, Lisbeth Ann Micek’s, Bankruptcy. The Debtor’s ex-wife, Lisbeth Ann Micek, filed a Chapter 7 petition in this Court on September 3, 2010 (Case No. 10-52848), over a year after this case was filed by her former husband. She was likewise represented by W. Thomas Bunch. Notwithstanding (a) that Mr. Bunch represents both she and her ex-husband in separate bankruptcy proceedings and (b) the entry of the Divorce Court orders described above, her schedules fail to schedule her claim against her ex-husband for payment of her attorneys’ fees as an asset; rather, only her debt to Dodd is listed on her Schedule F as an unsecured non-priority claim in the amount of $64,090.12. Pursuant to the “Notice of Chapter 7 Bankruptcy Case, Meeting of Creditors, & Deadlines”, her case was a no asset case and no bar date for the filing of 188claims was set [Case No. 10-52848, Doc. 4]. Dodd did not file a proof of claim in her case. Ex-wife received a discharge on December 14, 2010. On July 20, 2011, Dodd filed an adversary proceeding, Dodd v. Lisbeth Ann Mi-cek, (Bankr. E.D. Ky. Adv. No. 11-5048) (the “Dodd Adversary”), seeking, inter alia, a determination that Ms. Micek’s discharge did not bar Dodd from asserting a statutory attorneys’ fee lien in maintenance payments due to her from Debtor Mr. Mieek. This matter remains pending before the Judge assigned to Ms. Micek’s bankruptcy, Judge Scott. The Objection. As noted above, the Trustee objects to the classification of Dodd’s claim as a DSO herein, contending that debts owed to third-party attorneys are not DSOs as defined by 11 U.S.C. § 101(14A) (i.e. they are not owed to a person listed in the DSO definition); that the attorney fees are not a support obligation because there is nothing in the Divorce Court orders characterizing them as such; and finally, that Dodd’s claim should not receive priority herein while they are attempting to levy on the ex-wife’s maintenance award via the Dodd Adversary Proceeding. Dodd responds [Doc. 127] that under applicable Sixth Circuit law (including pre-BAPCPA law), Dodd is an eligible recipient of a DSO and the award of attorney fees is in the nature of support because an award of attorney fees in a divorce action is inherently in the nature of support as it may only be made when financial disparity exists between the parties.1 Lastly, claimant argues that denying it priority status will harm ex-wife because of Dodd’s claims in the Dodd Adversary. JURISDICTION The Court has jurisdiction under 28 U.S.C. § 157 and § 1384. Venue is proper under 28 U.S.C. § 1408 and § 1409. This is a core proceeding under 28 U.S.C. § 157(b)(2)(A) and (B). ANALYSIS Whether a payment qualifies as a DSO is a fact specific inquiry, and the claimant has the burden of proof to show that his claim is entitled to priority. In re Clark, 441 B.R. 752, 755 (Bankr.M.D.N.C. 2011) (citations omitted). Here, Dodd has the burden of proving the claim by a preponderance of the evidence. In re Johnson, 384 B.R. 763, 769 (Bankr.E.D.Mich. 2008). Section 502(b) states, inter alia, that if an objection to claim is made, the court shall determine the allowance of a claim “as of the date of the filing of the petition.” 11 U.S.C. § 502(b). A Domestic Support Obligation is defined as follows: The term ‘domestic support obligation’ means a debt that accrues before, on, or after the date of the order for relief in a case under this title, including interest that accrues on that debt as provided under applicable nonbankruptcy law notwithstanding any other provision of this title, that is— (A) owed to or recoverable by— (i) a spouse, former spouse, or child of the debtor or such child’s parent, legal guardian, or responsible relative; or (ii) a governmental unit; (B) in the nature of alimony, maintenance, or support (including assistance provided by a governmental unit) of such spouse, former spouse, or child of 189the debtor or such child’s parent, without regard to whether such debt is expressly so designated; (C) established or subject to establishment before, on, or after the date of the order for relief in a case under this title, by reason of applicable provisions of— (i) a separation agreement, divorce decree, or property settlement agreement; (ii) an order of a court of record; or (iii) a determination made in accordance with applicable nonbankruptcy law by a governmental unit; and (D) not assigned to a nongovernmental entity, unless that obligation is assigned voluntarily by the spouse, former spouse, child of the debtor, or such child’s parent, legal guardian, or responsible relative for the purpose of collecting the debt. 11 U.S.C. § 101(14A). The Trustee asserts that because the Divorce Court ordered the attorneys fees to be paid to Dodd, that they are not “owed to or recoverable by a spouse or former spouse”; particularly where the ex-wife has now filed bankruptcy. The support aspects of professional fees in divorce cases has been the subject of much litigation and struggle among the courts. The evolving law is adeptly reviewed by Bankruptcy Judge Hoffman who identified three emerging views of third party payees in the DSO context: (1) a plain meaning approach; (2) a support obligation approach; and (3) limited exception/joint support obligation approach. In re Kassicieh, 425 B.R. 467 (Bankr.S.D.Ohio 2010). Cases following the plain meaning approach simply look to whom the order directs payment and if it is not one of the payees listed in the statute, hold that the obligation is not a domestic support obligation. Id. at 472-474. This position is urged by the Trustee herein; to-wit: the Divorce Court orders the Debtor to pay Dodd which is not a spouse, former spouse or other identified payee listed in Section 101(14A)(A)(i) or (ii). Cases following the support obligation approach analyze whether the obligation at issue has the effect of providing support to the spouse under a third party beneficiary analysis, thus examining the substance of the obligation over its form. Courts following this approach find support in pre-BAPCPA decisions (interpreting identical or similar language in former Section 523(a)(5)) which held that attorney fee awards (among others) can be nondis-ehargeable even if payable directly to the attorney. See Kassicieh, 425 B.R. at 474-477 (collecting cases). This position is urged by Dodd. The third analytical approach turns on whether the Debtor’s spouse, former spouse or parent is jointly liable on the alleged support obligation. Simply stated, courts that have analyzed support obligations under this approach have reasoned that if the spouse has no independent obligation for the debt, there is no reason to deviate from a plain meaning approach. See e.g., Simon, Schindler & Sandberg, LLP v. Gentilini (In re Gentilini), 365 B.R. 251 (Bankr.S.D.Fla.2007); In re Johnson, 397 B.R. 289, 296 (Bankr. M.D.N.C.2008) (stating that debt need not be paid directly to identified payees in § 101(14A), but former spouse also must remain liable on the debt). The Sixth Circuit has not decided this issue under current law; however, Judge Hoffman notes that the Sixth Circuit analyzed the direct-payee issue in Long v. Calhoun (In re Calhoun), 715 F.2d 1103 (6th Cir.1983) holding that payments in the nature of support need not be made directly to the spouse or dependent to be nondis-chargeable. He points out that Calhoun can be read two ways: one way, Calhoun 190employed a broad approach to interpreting Section 523(a)(5) by its express holding that payments in the nature of support need not be made directly to the spouse of dependent to be nondischargeable; the second way, Calhoun embraced the more limited approach joint liability approach because all of the bankruptcy court cases cited in Calhoun were cases in which the non-debtor spouse was jointly liable to the payee and could have been harmed financially by the debtor’s non-payment. See Kassicieh, 425 B.R. at 479-481. In his second Kassicieh opinion, Judge Hoffman concluded that the approach which focuses on the nature of the debt; rather than the payee, controls whether the obligation is dischargeable, regardless of the spouses’ joint liability. In re Kassicieh, 467 B.R. 445 (Bankr. S.D.Ohio 2012) (holding debtor’s obligation for guardian ad litem fees have the effect of providing support and constitute a domestic support obligation). In reaching this decision, he noted that most courts interpreting § 101(14A) have not deviated from the rationale expressed in pre-BAPC-PA caselaw that, in analyzing the dis-chargeability of debts payable to a third party, it is the nature of the debt, rather than the identity of the creditor, that controls. Id. at 450. This Court agrees with that majority. Moreover, the joint liability element is irrelevant here because, as of Mr. Micek’s petition date (the date on which the claim must be determined), the parties were jointly liable for the subject attorneys fees. Thus the Court shall not decide whether joint liability is a necessary element. The issue here is whether the debt is in the nature of support; if so, the debt will be deemed a domestic support obligation entitled to administrative priority under § 507(a)(1)(A). This determination must be made in accordance with federal bankruptcy law, not state law. See generally Reissig v. Gruber, 436 B.R. 39 (Bankr. N.D.Ohio 2010). The Divorce Court’s order stating that the Debtor is “in a position of financial superiority” is not determinative of this issue. Moreover, although this dispute is technically between Mr. Micek’s Trustee and Ms. Micek’s divorce attorneys, at its core, the issue requires an adjudication of issues between former spouses, both of whom are represented by the same counsel in separate cases. The record in the Dodd Adversary in Ms. Micek’s case now reflects that an “Agreed Order” has been entered in the Divorce Action providing generally for a modification of child support to be paid by Mr. Micek and that his “maintenance obligation” is “extinguished.” [Adv. No 11-5048, Doc. 20, p. 6-8], These events raise at least a suspicion of collusion between the former spouses, an occurrence, which as observed by the Sixth Circuit, is not unheard of in bankruptcy court: ... We do not wish to establish a per se rule in every bankruptcy case involving a domestic relations situation ... For example, there might be times when the bankruptcy court suspects collusion between the spouses to stage a divorce to avoid payment of the just claims of creditors ... In re White, 851 F.2d 170, 174 (6th Cir.1988). At this juncture, the issues raised herein are inextricably intertwined with those in the Dodd Adversary. Accordingly, the Dodd Adversary will be reassigned to the undersigned judge and a status conference will be scheduled by separate order. Finally, the Trustee’s argument that Dodd is estopped from claiming a priority DSO claim by its attempts to levy on the ex-wife’s maintenance award in the Dodd Adversary is not supported with any *191legal authority. The Court finds this position to be without merit. This Amended Memorandum Opinion replaces the Memorandum Opinion [Doc. 131] of May 18, 2012. . All of the attorney fees are prepetition as verified by the affidavit of Allen McKee Dodd [Doc. 130]; thus, the Trustee’s Section 507(a)(1) objection on this point is resolved.	01-04-2023	11-22-2022
https://www.courtlistener.com/api/rest/v3/opinions/8494776/	OPINION REGARDING DEBTOR’S CONTEMPT MOTION THOMAS J. TUCKER, Bankruptcy Judge. A. Introduction This case came before the Court for hearing on January 19, 2011 and on March 30, 2011 on a motion filed by Debtor entitled “Motion for Order for Contempt, Damages and Attorney Fees for Willful Violation of the Automatic Stay and Creditor Misconduct” (Docket # 18, the “Motion”). At both the January 19 and March 30 hearings, the Court made certain findings, conclusions, and rulings regarding the Motion, all of which the Court now incorporates by reference into this opinion. At the conclusion of the March 30 hearing, the Court took the Motion under advisement. One of the issues to be decided concerns the Bankruptcy Code’s definition of “domestic support obligation.” That definition requires, among other things, that in order for a debt to be a “domestic support obligation,” the debt must be “owed to or recoverable by — (i) a spouse, former spouse, or child of the debtor or such child’s parent, legal guardian, or responsible relative; or (ii) a governmental unit.” 11 U.S.C. § 101(14A)(A). In this case, the Debtor, Thomas Murphy, argues that the debt in question does not meet this requirement, and therefore is not a domestic support obligation. The creditor, Dayna Milbrand, argues the opposite. B. Facts The facts relevant to this issue are undisputed. The debt in question arises from the Consent Judgment of Divorce that was entered by the Macomb County Circuit Court on April 9, 2009 (the “Judgment”).1 The Judgment divorced the Debtor from Stacey Murphy. It contained numerous provisions, including a provision requiring Debtor to pay attorney fees to Dayna Milbrand in the amount of $2,500.00. Ms. Milbrand was Stacey Murphy’s attorney in the divorce case. The provision in question states: ATTORNEY FEES IT IS FURTHER ORDERED AND ADJUDGED that [Thomas Murphy] shall pay attorney fees to Dayna Mil-199brand in the amount of $2,500.00, by cashing in one of his 401(K) related assets to make said payment, within sixty (60) days from the entry of this Judgment of Divorce. Upon failure to pay said sum then such amount can be collected through all collection remedies available at law, as if these funds were a Judgment. IT IS FURTHER ORDERED AND ADJUDGED that each party shall pay their own attorney fees and costs associated with this divorce action.2 The Judgment also contains a section labeled “Non-Dischargeability,” which states: NON-DISCHARGEABILITY IT IS FURTHER ORDERED AND ADJUDGED that [Stacey Murphy and Thomas Murphy] acknowledge that by assuming their individual share of the marital debts that they have under this property settlement, they have assumed all domestic obligations which are not dischargeable under the Bankruptcy Code 11 USC 1328(B)(5). In the event either party discharges or attempts to discharge in bankruptcy any debt for which any creditor then seeks to sue or compel payment or receives judgment against for the discharged debt from the non-bankrupt party, then the bankrupt party shall indemnify the other party in full for any liability incurred.3 When the Judgment was entered, Dayna Milbrand gave her client, Stacey Murphy, a credit on her attorney fee bill for the $2,500.00 that Debtor was required to pay to Ms. Milbrand. Debtor did not pay the $2,500.00 attorney fee debt to Dayna Milbrand. Nor did he reimburse Stacey Murphy in any amount for these attorney fees. Stacey Murphy filed her own Chapter 7 bankruptcy case in this Court, on June 2, 2010 (Case No. 10-58179). The parties agree that the discharge that Stacey Murphy received in that case, on September 14, 2010,4 discharged any debt that Stacey Murphy may have had for attorney fees to Dayna Milbrand. Debtor filed a voluntary Chapter 7 bankruptcy petition on November 9, 2010, commencing this case. Dayna Milbrand then filed a motion in the Macomb County Circuit Court, on December 6, 2010, seeking to enforce Debtor’s obligation to pay her the $2,500.00 attorney fees.5 Ms. Mil-brand filed her motion in state court without seeking or obtaining relief from the automatic stay in this Court. Debtor’s present Motion followed. C. Discussion After considering the arguments of the parties and surveying the case law on the issue, the Court concludes that the Debtor’s obligation under the Judgment to pay $2,500.00 in attorney fees to Dayna Milbrand cannot be deemed a “domestic support obligation,” because it is not a debt “owed to or recoverable by — (i) a spouse, former spouse, or child of the debtor or such child’s parent, legal guardian, or responsible relative; or (ii) a governmental unit.” 11 U.S.C. § 101(14A)(A). The debt in question is owed to Dayna Milbrand, and she is not one the entities listed in this statute. The debt is not “owed to or recoverable by” Debtor’s “former spouse,” Stacey Murphy, because Sta200cey Murphy is not liable to Dayna Mil-brand for the $2,500.00 in attorney fees in question, and cannot possibly ever become liable for such fees, in the event the Debt- or Thomas Murphy fails to pay them. As Ms. Milbrand correctly acknowledges, the discharge that Stacey Murphy received in her bankruptcy case on September 14, 2010 discharged any debt that Stacey Murphy may have had for attorney fees to Dayna Milbrand. Thus, from well before the date on which the Debtor Thomas Murphy filed this bankruptcy case, the “former spouse,” Stacey Murphy, could not held liable or otherwise be adversely affected if the Debtor failed to pay Ms. Milbrand the $2,500.00 in fees. And the indemnification clause in the Judgment, quoted above, could not apply to give Stacey Murphy a right to any relief against the Debtor Thomas Murphy, because Stacey Murphy cannot possibly “incur” any “liability” for Ms. Milbrand’s fees, due to Ms. Murphy’s bankruptcy discharge. In this situation, the debt in question cannot be deemed to be “owed to or recoverable by” the former spouse Stacey Murphy, within the meaning of the § 101(14A)(A) definition of “domestic support obligation,” because Stacey Murphy is not liable, and can never be liable, for the attorney fees in question. This Court agrees with what the court in Kassicieh v. Battisti (In Kassicieh), 425 B.R. 467, 477-81 (Bankr.S.D.Ohio 2010) called the “third line of authority” on this question. Under that view of § 101(14A)(A), and its predecessor, the pre-2005 version of 11 U.S.C. § 523(a)(5), The debt must be in the nature of support, but also must be a debt to the former spouse or child. This “debt to” element can be satisfied when the obligation is payable directly to a third party, typically a professional who provided services to benefit the wife or child, but only if the former spouse is also obligated for the fees. 425 B.R. at 478 (emphasis added by the Kassicieh court) (quoting Simon, Schindler & Sandberg, LLP v. Gentilini (In re Gentilini), 365 B.R. 251, 256 (Bankr. S.D.Fla.2007)). See also In re Johnson, 397 B.R. 289, 296 (Bankr.M.D.N.C.2008). It follows that the Debtor’s debt under the Judgment—his obligation to pay $2,500.00 in attorney fees to Dayna Mil-brand—is not a “domestic support obligation.” As a result, the Court must reject Ms. Milbrand’s argument that 11 U.S.C. § 362(b)(2)(B) applies to her action in filing her state court motion against Debtor. The Court also must reject Ms. Milbrand’s argument that her state court motion is covered by 11 U.S.C. § 362(b)(3). Ms. Milbrand’s filing of her state court motion was not an “act to perfect, or to maintain or continue the perfection of, an interest in property ...” within the meaning of § 362(b)(3). Ms. Milbrand had no “interest in [any] property” of the Debtor, Thomas Murphy before Mr. Murphy filed bankruptcy or when Ms. Milbrand filed her state court motion. D. Conclusion Based on the foregoing, and based on the other findings, conclusions, and rulings that the Court made during the January 19 and March 30 hearings on the Motion, the Court finds and concludes that Dayna Milbrand willfully violated the automatic stay when she filed her state court motion on December 6, 2010 and pursued that motion. Ms. Milbrand was aware of Debt- or Thomas Murphy’s bankruptcy case when she filed her state court motion, and the filing and prosecution of that motion violated the automatic stay under 11 U.S.C. § 362(a)(1), (a)(2), and (a)(6). *201Debtor is entitled to appropriate relief under 11 U.S.C. § 362(k)(l). The Court will enter an order for further, appropriate proceedings on Debtor’s Motion. . Docket #21, Exhibit A. . Id. at 13-14. . Id. at 14 (emphasis added). . See Discharge Order, Docket #18, in Case No. 10-58179. . Docket #21, Exhibit B.	01-04-2023	11-22-2022
https://www.courtlistener.com/api/rest/v3/opinions/8488793/	Filed 11/22/22 P. v. Calvert CA6 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. IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA SIXTH APPELLATE DISTRICT THE PEOPLE, H047146 (Santa Clara County Plaintiff and Respondent, Super. Ct. No. C1893273) v. ADRIAN RODRIGUEZ CALVERT, Defendant and Appellant. A jury convicted defendant Adrian Rodriguez Calvert of second degree murder and three counts of attempted murder for stabbing four men during a confrontation on a street in San Jose. The jury also found true various sentence enhancement allegations, including gang enhancements. The trial court sentenced Calvert to 15 years to life for the murder consecutive to a term of 14 years and four months. On appeal, Calvert raises eight claims of error. Stated broadly, he contests two jury instructions on self-defense (CALCRIM Nos. 3471 & 3472), the admission of evidence about his gang affiliation, the cumulative prejudice of the alleged errors, the jury’s findings on the gang enhancement allegations, and various aspects of his sentence. For the reasons explained below, we reject Calvert’s claims challenging his convictions but reverse the true findings on the gang enhancement allegations, vacate his sentence entirely, and remand with directions for retrial on the gang enhancement allegations and resentencing. I. FACTS AND PROCEDURAL BACKGROUND A. Procedural History In November 2018, the Santa Clara County District Attorney filed an information charging Calvert and his codefendant, Gener Rabino, with the murder of Valentin B. (Pen. Code, § 187, subd. (a);1 count 1), and the attempted murder of Aaron P., Eric C., and Otoniel C. (§§ 187, subd. (a), 664; counts 2–4).2 For all counts, the information alleged that Calvert personally used a deadly and dangerous weapon (a knife) (§ 12022, subd. (b)(1)) and that Calvert and Rabino committed the charged crimes for the benefit of, at the direction of, or in association with a criminal street gang (§ 186.22, subd. (b)(5)) (gang enhancement). For counts 2, 3, and 4, the information further alleged that Calvert and Rabino committed the attempted murders willfully, deliberately, and with premeditation (§§ 187, 189, 664) and that Calvert personally inflicted great bodily injury on the victim (§§ 12022.7, subd. (a), 1203, subd. (e)(3)).3 In February 2019, the jury found Calvert guilty of murder as charged in count 1 but found not true an allegation that the crime was in the first degree. The jury also found Calvert guilty of all three counts of attempted murder (counts 2–4) but found not true the attendant allegations that the attempted murders were willful, premeditated, and 1 Unspecified statutory references are to the Penal Code. 2 The information identifies the victims by their first names and the first letter of their last names. We refer to the victims and certain witnesses in similar fashion to protect their privacy interests. (See Cal. Rules of Court, rule 8.90(b)(4), (10).) 3 Prior to Calvert’s trial, the district attorney amended the information to add an assault charge against Rabino (§ 245, subd. (a)(4); count 5) with a gang enhancement (§ 186.22, subd. (b)(1)(A)). The district attorney and Rabino then resolved the case by a plea to count 5 and admission of the gang enhancement. The trial court sentenced Rabino to a three-year prison term. 2 deliberate. In addition, the jury found true all the weapon, gang, and great bodily injury allegations. In May 2019, the trial court sentenced Calvert to 15 years to life, consecutive to a term of 14 years and four months. The sentence consisted of an indeterminate term of 15 years to life plus a one-year weapon use enhancement for the murder conviction (count 1) and a consecutive determinate term of seven years plus a one-year weapon use enhancement (count 2), and two consecutive terms of two years four months plus a four- month weapon use enhancement (counts 3 & 4). The court struck under section 1385 the punishments for the gang (former § 186.22, subd. (g)) and great bodily injury enhancements (§§ 12022.7, subd. (a), 1203, subd. (e)(3)). The trial court ordered Calvert to pay victim restitution to three parties plus administrative fees (former § 1203.1, subd. (l)). The court also imposed a $300 restitution fine (§ 1202.4), a suspended $300 parole revocation restitution fine (§ 1202.45), a $160 court security fee (§ 1465.8), a $120 criminal conviction assessment (Gov. Code, § 70373), and a $129.75 criminal justice administration fee (CJAF) (Gov. Code, former §§ 29550, 29550.1, 29550.2). Calvert timely appealed. B. Evidence Presented at Trial 1. Prosecution Evidence On April 22, 2018,4 a San Jose Police Department officer saw Calvert with a couple of other people in the parking lot of Starbird Park in West San Jose. Members of the Sureño gang Varrio Sur Town (VST) commonly hung out at the park, which was within the gang’s claimed territory. The officer spotted a large knife near the center console of Calvert’s car. Calvert said the knife was his, and the officer confirmed that the knife was legal to possess if carried openly. 4 Unless otherwise indicated, all dates were in 2018. 3 On June 8, about 11:00 p.m., Noe Santillano picked up Calvert’s codefendant Rabino and Rabino’s brother Mrk Romero. Santillano drove Rabino and Romero to their residence in Sunnyvale, where they all smoked marijuana.5 Calvert called Rabino about having some drinks. Calvert was 21 years old, and Santillano had previously worked and socialized with him. Santillano testified that he did not know Calvert, Rabino, or Romero to be gang members. Santillano, Rabino, and Romero picked up Calvert at his house. Calvert was wearing a black sweater and carried a checkered backpack and a knife that was attached to his belt by holster or sheath. Calvert showed his knife to the group. Santillano asked Calvert why he had the knife and said, “ ‘You know you shouldn’t have that.’ ” Calvert responded, “ ‘It’s all right’ ” or “ ‘Yeah, whatever. Don’t trip.’ ” The group returned to Rabino’s and Romero’s residence and drank alcohol for a couple of hours. Calvert suggested that they all go to his friend’s home. While Santillano drove the group in his car, Calvert provided directions to his friend’s apartment. According to Santillano, along the way and as they approached their destination in San Jose, Calvert and Rabino whistled and repeatedly shouted out of the car’s open windows “ ‘Fuck Sur Trece’ ” and “ ‘Norte.’ ” Santillano parked in a lot under the apartment complex, and Calvert and Rabino eventually entered the complex to find their friend Ivan. Later, Santillano and Romero also entered the complex. The complex was located in an area claimed by the VST Sureños gang, about a quarter mile from Starbird Park. As Santillano and Romero looked for Calvert and Rabino in the complex, Romero heard Calvert shouting “ ‘Norte’ ” several times. Santillano and Romero eventually encountered Calvert and Rabino heading back downstairs toward the street level. 5 Santillano and Romero testified at trial under a use-immunity agreement. 4 Santillano later heard a commotion from below that sounded like “people were going to fight.” Santillano and Romero exited the complex. According to Romero, Rabino and Calvert were on the street in front of the complex. Calvert yelled “ ‘Norte’ ” a couple of times as four men ran and then walked toward him and Rabino. The men asked them, “ ‘Do you bang?’ ” Calvert responded, “ ‘No,’ ” and the men kept walking toward him and Rabino. Romero testified that Rabino ran away before the men were close enough to punch him. However, Romero had previously testified at the preliminary hearing that he had originally told the police Rabino punched one of the men before fleeing and that he had given this incorrect information to the police because he was confused.6 According to Romero, Calvert approached the men, reached for his knife, and swung it. Calvert stabbed Valentin B., who fell to the ground. Calvert then charged at the three other men as they ran away to the south, but Romero did not see whether Calvert caught up with them. Aaron P., Otoniel C., and Eric C. were stabbed multiple times during the incident.7 Santillano testified that, when he reached the street, he saw the silhouettes of about 10 people running around a nearby street corner away from Valentin B., who was lying in the street bleeding. Romero told Santillano that he (Romero) was going to go look for his brother Rabino. Santillano then drove away from the scene. Romero testified that he 6 While Rabino was in jail pending trial, Romero and Rabino spoke by telephone. Rabino asked Romero whether he had told the police that he (Rabino) punched one of the men. When Romero confirmed that he had told the police that information, Rabino denied punching anyone and accused Romero of snitching on him. 7 San Jose Police Department Detective Richard Martinez testified as an expert on Sureño and Norteño gangs. Detective Martinez opined that Valentin B., Otoniel C., and Eric C. (who all had gang-associated tattoos) were members of the VST Sureños criminal street gang. Detective Martinez further opined that Aaron P. was an associate of the VST gang. Only Aaron P. testified at trial, but excerpts of Aaron P.’s, Otoniel C.’s, and Eric C.’s medical records (which described their injuries) were admitted into evidence. 5 found Rabino, who called their mom. Romero and Rabino walked south past the scene to a nearby post office. Manuel V., a resident of the apartment complex, testified that he was awoken in the early morning hours of June 9 by people shouting “ ‘Norte’ ” more than once, “ ‘Fuck,’ ” and “ ‘What’s up, fool?’ ” Manuel V. heard fighting and people being hit. He looked out his window and saw a four-on-three fight in the street (San Tomas Aquino Road). Before the fight ended, a person wearing a blue backpack ran toward the south, screaming after having been punched that he did not “ ‘even bang.’ ” When the fight broke up, four of the people involved moved quickly toward the apartment complex, while two others ran north. Manuel V. saw all of the men involved throwing punches, except the person who had run away screaming. One of the people who moved toward the apartment complex said he had been stabbed and asked that someone call 911. The fight lasted about 30 to 60 seconds. About five minutes later, two people walked by from north to south—they appeared to be looking for someone and were wearing clothing different than that worn by the two men who had previously run north. About 15 minutes after the fight broke up, Manuel V. saw the man with the backpack wave at the police, who then arrested him. Laura A. lived across the street from the apartment complex. She awoke when she heard a noise about 4:00 a.m. She looked out her window. Although her view was partly obstructed by a tree, she saw around eight or 10 people in the street. Some of the men ran across the street to the apartment complex, and another man ran in a different direction. The man who eventually died in the street appeared to be fighting with another man. Laura A. also saw a man run south (toward Payne Avenue), away from two men who were throwing punches and trying to fight and beat him. That man “looked a little heavier,” “had long hair” that was “ ‘puffy,’ ” was wearing a backpack, and had a long object in his hand that “looked like a loaf of bread.” After the heavier man ran away, the two men who had pursued him went into the garage of the apartment complex. A few 6 minutes later, Laura A. saw two men walk past the scene heading south toward Payne Avenue. Calvert called 911 after the incident, and the police took him into custody at the scene. Calvert did not appear to be especially intoxicated. He told the police where he had thrown his knife, and the police recovered it from a nearby backyard south of the scene. No other knife was recovered from the scene or the victims. After Valentin B. was transported to the hospital, police observed an approximately 64-foot long, north-to- south “ ‘drip trail’ ” the ended near a bloodied T-shirt and pool of blood. Forensic testing conducted on Calvert’s knife revealed the presence of Otoniel C.’s DNA on the blade and that Calvert was possibly a major contributor to a DNA mixture found on the knife’s handle. San Jose Police Department Officer Todd Jennings testified (in rebuttal) that he and his partner Sergeant Jesus Mendoza interviewed Calvert for about three hours on the afternoon or early evening of June 9. Calvert reported that he had a bump on his head, but Officer Jennings did not see any redness or bruising and did not feel Calvert’s head for a bump. Jennings only saw some injuries on Calvert’s knuckles. 8 Calvert provided the name Ivan “ ‘Squeaky’ ” Saucedo and said he had stabbed two individuals, but he did not say other people were involved in the incident. After the interview, the police confirmed with Saucedo that Calvert and the others were trying to contact him early on June 9. Santa Clara County Correctional Officer Charles Martin testified that, in the late evening of June 9, he interviewed Calvert for jail classification purposes. Martin explained that during the classification process, he routinely asked incoming inmates questions about their gang activity. At the Santa Clara County jail, the majority of gang- 8 Calvert testified in the defense case that the injuries he had on his hand were caused by a game of “Bloody Knuckles” that he had played with Santillano earlier that night, before the incident outside the apartment complex. 7 affiliated inmates are Norteños. Norteños are primarily housed in the general population of the jail, and Sureños are segregated from their Norteño rivals. On cross-examination, Martin said that if a jail inmate falsely claimed to be a Norteño, he might be beaten by the true gang members in the jail. During the classification interview, Calvert initially said he did not consider himself to be a gang member. When Martin asked Calvert whether that meant it would be okay to house him with Sureños, Calvert said, “ ‘No.’ ” Next, when asked if he considered himself to be a Norteño, Calvert replied, “ ‘Yes.’ ” Calvert also said that he was a member of “Via Sol” and had the moniker “ ‘Ace.’ ”9 An autopsy conducted on Valentin B.’s body revealed that he was approximately 5 feet 11 inches tall and weighed 280 pounds. He had a seven-inch deep stab wound on the left side of his upper chest which penetrated his heart. He also had a stab wound to his right lower back, some bruises on his upper left arm, an abrasion on his right forearm, and an abrasion on his forehead. Valentin B.’s chest wound was consistent with being stabbed with a knife (rather than being slashed). Blood tests revealed that Valentin B. was intoxicated at the time of his death (i.e., 0.159 percent blood-alcohol concentration) and had an amount of cocaine in his system “consistent with recreational use,” which, in general, could increase a person’s potential for engaging in violence. 9 After Officer Martin testified, the trial court held an Evidence Code section 402 hearing (hereafter section 402 hearing) regarding Calvert’s waiver of his rights under Miranda v. Arizona (1966) 384 U.S. 436 (Miranda). Officer Jennings testified that Sergeant Mendoza had read his Miranda rights to Calvert on June 9 about 4:48 p.m. Calvert acknowledged his rights and talked to Jennings and Mendoza for a few hours. Immediately after the interview, Calvert was taken to the county jail for booking. Based on Jennings’s section 402 hearing testimony, the trial court ruled that Calvert knowingly, voluntarily, and intelligently waived his Miranda rights as to both the police interview and the subsequent statements Calvert made to Officer Martin during the jail classification process. 8 During the police investigation, officers executed a search warrant on Calvert’s home and confiscated numerous items of red clothing from his bedroom. The clothing’s color and logos indicated a possible “Northerner” gang association. Regarding Calvert’s and Rabino’s gang affiliation and gang conduct, Sunnyvale Police Department Detective Sean Mula testified as an expert in the Norteño gang and its subset Varrio Via Sol (VVS). Detective Mula described the organizational structure, signs, and symbols of the gang and the common activities and conduct of the gang’s membership. Detective Mula opined that Calvert was a member of the VVS gang. Mula based his opinion on Calvert’s various statements, associations with Norteño gang members, social media content, tattoos, and apparel. Mula further opined that Rabino was a Norteño associate. Mula based that opinion mainly on Rabino’s prior involvement in spraying gang-related graffiti and on the various items and indicia associated with the Norteños that were found in Rabino’s home. In addition, Detective Mula opined that in a hypothetical scenario where a man left Norteño territory and entered Sureño territory armed with a knife, shouted “ ‘Norte’ ” or “ ‘Fuck Sur Trece,’ ” and whistled until he was checked by a group of four Sureño- associated men whom he stabbed during a fight, that crime was committed for the benefit of a criminal street gang with the intent to assist, further, or promote criminal conduct by gang members. Mula explained how the crime enhanced the gang’s reputation. Additionally, San Jose Police Department Detective Martinez provided similar opinions about the crime. Detectives Mula and Martinez explained that a person who enters gang territory and shouts the name of a rival gang will provoke a “street check” and/or fight with the territory’s gang members. According to Martinez, gang members frequently will enter rival gang territory to go “ ‘hunting’ ” or seek out rivals to instigate altercations in order to bolster their reputations and earn respect from their gang. 9 According to Detective Mula, the primary activities of VVS members involved assaults with a deadly weapon and VVS members commonly carried weapons such as knives or bats. Regarding predicate offenses committed by VVS gang members, the prosecution presented evidence about: (1) Paul Carmona’s conviction of criminal threats (§ 422) for the benefit of, at the direction of, or in association with a criminal street gang (§ 186.22, subd. (b)(1)(A)), committed on April 22, 2012; (2) Frank Memolo’s and Mauricio Murillo’s convictions of assault with force likely to cause great bodily injury (§ 245, subd (a)(4)) for the benefit of, at the direction of, or in association with a criminal street gang, committed on November 30, 2013; (3) Anthony Hofland’s conviction of assault (§ 245, subd (a)(4)) for the benefit of, at the direction of, or in association with a criminal street gang, committed on January 19, 2014; and (4) Jesus Ibarra’s conviction of carrying a loaded firearm in a vehicle (§ 25850) for the benefit of, at the direction of, or in association with a criminal street gang, committed on March 22, 2015. 2. Defense Evidence Calvert testified as the only defense witness. Calvert said he is 6 feet 2 inches tall and 270 pounds. He admitted stabbing “one or more men” in self-defense because they were attacking him, and he believes he “saw a knife.” Calvert did not intend or want to kill anyone when he stabbed the men. He also said that he did not act at the direction of, in association with, or for the benefit of the VVS gang or any other Norteño gang. He denied being a gang member. Calvert explained that he grew up in Sunnyvale around peers who identified themselves as either Sureños or Norteños, and he was identified by others at school as a “Norteño kid” because he “used to hang around them in school.” Since then, some people had continued to recognize him as a Norteño gang member. On April 22, Calvert was drinking and smoking marijuana at Starbird Park with his friend Ben (who lived across the street from the park) and some others. Calvert frequented the park “[e]very other day” around that time and knew it was in a Sureño 10 neighborhood. At the park, a police officer advised Calvert not to carry his knife because the “cops will harass you for it.” The officer also confirmed that it was legal to carry the knife visibly. Calvert testified that he “always had knives” and purchased his large knife because he “just wanted a bigger one.” Calvert carried his knife “[e]very day.” He explained why: “A lot of people don’t like me” “[b]ecause my past, how I was just -- in my -- hung around Northerners in school [sic].” He said further (on cross-examination) that he carried the knife for “[s]afety” to defend himself “in case someone attacks [him].” On the night of June 8, Calvert was home, drinking whiskey and watching TV alone. He posted what he was doing on his social media, and Rabino responded by saying, “ ‘Drink up.’ ” Calvert had met Rabino about a year earlier through Santillano and had drunk alcohol with them once before. Calvert had never met Romero and did not know Santillano or Rabino to be associated with the Norteños. Calvert arranged with Santillano to be picked up. After the group picked up Calvert, they drove to Rabino’s house and drank alcohol “for a while.” Rabino suggested that the group meet up with Ivan Saucedo (whom Calvert knew from high school) to obtain some marijuana. Saucedo gave Rabino an address, and the group drove there, stopping at two stores along the way to obtain more alcohol. By the time they reached their destination in San Jose, Calvert had drunk a “half a bottle” of whiskey, some more alcohol from two other bottles, and two tall cans of beer. Calvert “definitely” was drunk and acknowledged that, as a result, “[he] d[id]n’t remember a whole lot.” Calvert denied that he or anyone else had yelled “ ‘Norte’ ” out of Santillano’s car during the drive to San Jose. He had not previously been to the location where the incident occurred and had no idea whether that area was gang territory. When the group arrived at the apartment complex, they drank for 10 minutes, and then Calvert and Rabino went to look for Saucedo using an application on Rabino’s cellphone that displayed Saucedo’s location. Calvert whistled in order to find Saucedo, but Saucedo messaged 11 Rabino saying he could not hear any whistling. Calvert denied that he or Rabino ever yelled “ ‘Norte’ ” or “ ‘Fuck Sur Trece’ ” at the apartment complex. Unable to locate Saucedo, Calvert and Rabino exited the apartment complex and looked for but could not find Santillano’s car. Calvert and Rabino then “ran out to the street,” still looking for Santillano’s car. There, “[l]ike, six” men ran at them from “in the building,” yelling “ ‘Hey, where you going? It’s VST right here.’ ” Based on Calvert’s past experiences at school, he knew the men were Sureños and thought they were going to “beat [him] up.” Rabino fled without throwing a punch or doing anything else. Calvert “stopped” and “turned around,” worried about being beaten up if he were to turn his back to the men and try to run away Calvert testified, “They were really close to [him]. [He] . . . was afraid they . . . were just going to whack [him] in the back of the head.” He also said that he did not attempt to run away because he is “heavy,” “can’t run that fast,” and did not know the area or “where we were running to.” The men asked Calvert “ ‘do you bang?’ ” Calvert replied, “ ‘No, I don’t bang. I think you got the wrong person.’ ” The men “were all circled around [him],” about five feet away. He was worried the men on his side were “[were] going to jump” him. He saw a small man in front of him “reach for his pocket.” Calvert thought the man had a knife and was going to use it. Calvert pulled out his knife. Next, the men “started attacking” Calvert. Calvert explained, “One of the guys in front of [him] struck [him], [his] left side. That other guy -- he started hitting [Calvert]. All of them started hitting [him].” After being struck by a fist in the left temple, Calvert “started, like, slicing [his knife] towards them, trying to get them away from [him], but that didn’t stop them.” He did not target particular people with his knife, rather he “was trying . . . to get all of them at once.” He said that he did not “thrust[] [his] knife out” toward the men. He also testified that he had deliberately tried to stab someone during the incident, explaining, “I, 12 like, stabbed one of them in the stomach, and then I pulled it out, and the ribs too. Then the other guy . . . kept on hitting me, and so I did it to them [sic] too.” Calvert was scared, and “[i]t happened fast.” Although he was concerned that he might hurt someone by thrusting and slashing with his knife, he “didn’t think [he] was going to kill anyone.” He testified that he recalled “stabbing two of them,” and said that he did not stab anyone who was not attacking him. After Calvert stabbed the men, “They stopped. [He] started running. They started running, but they ran a different direction than [he] did.” He felt safe running away at this point because the men “were trying to help the guy on the floor.” Calvert ran toward Payne Avenue to get away from the men. He hid behind a van and threw his knife over a fence. He called 911, reporting what had happened and asking for help. When the police arrived, he told them where he had thrown the knife. The police arrested Calvert, and detectives interviewed him for five or six hours, during which time he identified Rabino, Romero, Santillano, and Saucedo. Calvert acknowledged that he had not been completely truthful with the detectives, explaining that he was “scared.” Regarding his booking into the county jail, Calvert testified to the jury that Correctional Officer Martin told him that gang affiliation “wasn’t even going to be brought up in court. He told [Calvert] it had nothing to do with court. ‘You just tell me whatever you want to tell me. It’s fine. They’re not going to use it against you in court.’ ” When Martin asked Calvert if he was a “Northerner,” Calvert said “ ‘No.’ ” Martin then asked if Calvert knew of the Sunnyvale gang “ ‘Via Sol.’ ” Calvert said he was familiar with it. The conversation continued: “Then he’s, like, ‘So you’re part of them? [¶] I was, like, ‘I’m . . . not part of it.’ [¶] He’s, like, ‘But you know people from there. So you’d say you would associate with them?’ [¶] I said, ‘I guess, yeah. I didn’t know what ‘associate’ meant at the time. [¶] . . . [¶] So I said, ‘Yeah.’ [¶] And then 13 he’s, like. ‘So you wouldn’t care if we house you with Sureños? [¶] I was, like, ‘Yeah, I would care, because my case involves Sureños.’ ” (Italics omitted.) Calvert testified further that Officer Martin told him, “ ‘Well, when I house you, you’re going to have to say you’re a Northerner because of your paperwork. And if they find out you’re lying, . . . they’ll hurt you.’ [¶] And then he said . . . [¶] . . . [¶] . . . they were most likely going to house me with an active gang member. And I [¶] . . . [¶] [] pretty much had no choice, because 95 percent of the jails are Northerners.” Calvert testified that he “just told” Martin he “was a Northerner” but did not say he was member of or associated with the VVS gang. Calvert also explained that he told Martin that his family calls him “ ‘Ace.’ ” In his testimony, Calvert provided explanations for his social media name (“ ‘Ace SV’ ”), the various items that were posted on his social media accounts, and why he had a red comforter and red bedroom curtains. He also said that Sureños (whom he called “scraps” on his social media) once slashed his tires and keyed his truck. He reported this incident to the Sunnyvale police, but “[t]hey said they couldn’t do anything about it because it was just keyed. It has no fingerprints.” On cross-examination, Calvert acknowledged that he had told Detective Jennings and Sergeant Mendoza that only two people approached him during the incident on June 9. Calvert explained that he had “told [Jennings] two because all [he] remember[ed] was two.” Calvert further acknowledged that the events he described on direct examination were what he believed happened, not what he in fact recalled having happened. He ultimately testified that he could only remember two men having run at him and Rabino that night, not six. Calvert admitted that he had used cocaine and alcohol that night and acknowledged knowing that shouting “ ‘Norte’ ” in Sureño territory is a provocation to Sureño gang members and a challenge to fight. Calvert decided to “turn and fight” the men who ran at him. He wanted to stand his ground and knew he could pull out his knife (which had an eight-inch blade) to 14 defend himself. Calvert tried to “back [the men] off” and he stabbed Valentin B. after he (Calvert) “thought [Valentin B.] grabbed his knife.” But Calvert did not actually see any knife, and he admitted that he had lied to the police when he had told them he saw the other man with a knife before grabbing it. Calvert testified that he only intended to scare the men by pulling out his knife, but he knew he could kill by stabbing someone with his knife in the back, stomach, or chest. Calvert admitted having lied during the police interview when he said that one of the two men had walked into his knife. Calvert also admitted having lied to police at the scene when he said that the men tried to stab him with a knife (which he stopped with his hand) and further said, initially, that the men had taken away his knife and thrown it over a fence. II. DISCUSSION Calvert raises eight claims of error. In his opening brief, he contends: (1) the trial court erred by instructing the jury on self-defense with CALCRIM Nos. 3471 and 3472; (2) the evidence about his admission of gang affiliation during the jail classification process should have been excluded as involuntary and an alleged statement made during the police interview should have been excluded as inadmissible testimonial hearsay; (3) the alleged errors were cumulatively prejudicial; (4) the matter should be remanded for resentencing due to recent legislative changes made to section 1170; (5) the $129.75 CJAF should be vacated in light of Assembly Bill No. 1869 (2019-2020 Reg. Sess.) (Assembly Bill 1869); (6) the victim restitution orders should be modified to strike the attached administrative fees on multiple grounds, including recent changes made by Assembly Bill No. 177 (2021-2022 Reg. Sess.) (Assembly Bill 177); and (7) the restitution fines, fees, and assessments should be stricken because the trial court failed to find that Calvert had an ability to pay them. In a supplemental opening brief, Calvert contends that the jury’s findings on the gang enhancements should be vacated, and the matter should be remanded because the 15 jury was not instructed on all the requisite elements under current section 186.22, as amended by Assembly Bill No. 333 (2021-2022 Reg. Sess.) (Assembly Bill 333). We first address Calvert’s claims regarding the self-defense instructions, his statements about gang affiliation, and cumulative error. We next consider Calvert’s challenge to the gang enhancements. Finally, we turn to Calvert’s various sentencing claims. A. Self-Defense Instructions CALCRIM No. 3471 provides instruction on self-defense in a mutual combat or initial aggressor scenario. CALCRIM No. 3472 instructs that the right to self-defense may not be contrived. Calvert contends that CALCRIM Nos. 3471 and 3472 “erroneously authorized the jury to conclude that Calvert had no right to defend himself if he provoked or started the fight or quarrel by yelling ‘Norte’ and whistling, regardless of whether the Sureños’ attack was unlawful and whether Calvert truly feared he was about to be killed or badly injured.” Calvert asserts that “the instructions either should not have been given or should have been modified to explain that the ‘aggressor’ and ‘contrived’ limitations on self-defense apply only when a defendant ‘th[r]ough his own wrongful conduct (e.g., the initiation of a physical assault or the commission of a felony), has created circumstances under which his adversary’s attack or pursuit is legally justified.’ ” He claims that the error here eviscerated his defense and allowed the jury to convict him without determining beyond a reasonable doubt that he did not act in either perfect or imperfect self-defense.10 Calvert acknowledges his defense counsel’s failure to object to either of the challenged CALCRIM instructions. Nevertheless, Calvert urges us to consider his claim 10 We note that Calvert does not assert that no substantial evidence supported the challenged instructions or that the prosecutor committed any error in his closing arguments. 16 under section 1259—given that the allegedly erroneous instructions affected his substantial rights11 —or because we generally have discretion to eschew forfeiture. Alternatively, Calvert contends that his defense counsel was constitutionally ineffective when he failed to object to these instructions. Finally, Calvert asserts that the error requires reversal of his convictions for murder and attempted murder because it amounts to structural error or was prejudicial under any standard of prejudice. The Attorney General responds that Calvert forfeited his claim by failing to request any modification of the challenged instructions and has failed to show that the alleged instructional error affected his substantial rights. The Attorney General argues further that Calvert’s alternative ineffective assistance of counsel (IAC) claim is meritless because Calvert fails to demonstrate that his counsel’s performance was objectively unreasonable or prejudicial. 1. Background After the presentation of evidence, the trial court and counsel for the parties discussed the jury instructions in chambers, off the record. Neither the court nor counsel subsequently said anything on the record about their discussion of the instructions. The trial court instructed the jury on count 1 regarding murder with malice aforethought (i.e., express and implied malice) and willful, deliberate, and premeditated first degree murder, as well as the lesser offenses of voluntary manslaughter based on sudden quarrel/heat of passion and voluntary manslaughter based on imperfect self- defense. For counts 2 through 4, the court instructed on the elements of attempted murder and willful, deliberate, and premeditated attempted murder, as well as the lesser 11 Section 1259 provides, in relevant part, that an appellate court “may [] review any instruction given, refused or modified, even though no objection was made thereto in the lower court, if the substantial rights of the defendant were affected thereby.” (§ 1259.) 17 offenses of attempted voluntary manslaughter based on sudden quarrel/heat of passion and attempted voluntary manslaughter based on imperfect self-defense. Regarding self-defense, the trial court provided the jury multiple instructions addressing perfect (or complete) and imperfect self-defense. The court instructed on the elements of perfect self-defense using the standard instruction for justifiable homicide, CALCRIM No. 505. The court told the jury that Calvert “is not guilty of murder or manslaughter, attempted murder or attempted voluntary manslaughter if he was justified in killing or attempting to kill someone in self-defense.” The instruction also stated: “The People have the burden of proving beyond a reasonable doubt that the killing or attempted killing was not justified. If the People have not met this burden, you must find the defendant not guilty of murder or manslaughter/attempted murder/attempted voluntary manslaughter.” CALCRIM No. 505 also informed the jury that a defendant acts in lawful self- defense if he “reasonably believed that he was in imminent danger of being killed or suffering great bodily injury,” “reasonably believed that the immediate use of deadly force was necessary to defend against that danger,” and “used no more force than was reasonably necessary to defend against that danger.” Relatedly, the court instructed with CALCRIM No. 3474 as follows: “The right to use force in self-defense continues only as long as the danger exists or reasonably appears to exist. When the attacker withdraws or no longer appears capable of inflicting any injury, then the right to use force ends.” In addition, the trial court instructed the jury with CALCRIM No. 3471, the pattern instruction on the right to self-defense in a mutual combat or initial aggressor scenario. The instruction provided: “A person who engages in mutual combat or who starts a fight has a right to self-defense only if: [¶] 1. he actually and in good faith tried to stop fighting; [¶] and [¶] 2. he indicated, by word or by conduct, to his opponent, in a way that a reasonable person would understand, that he wanted to stop fighting and that 18 he had stopped fighting[;] [¶] and [¶] 3. he gave his opponent a chance to stop fighting. [¶] If the defendant meets these requirements, he then had a right to self-defense if the opponent continued to fight. [¶] However, if the defendant used only non-deadly force, and the opponent responded with such sudden and deadly force that the defendant could not withdraw from the fight, then the defendant had the right to defend himself with deadly force and was not required to try to stop fighting, communicate the desire to stop to the opponent, or give the opponent a chance to stop fighting. [¶] A fight is mutual combat when it began or continued by mutual consent or agreement. That agreement may be expressly stated or implied and must occur before the claim to self-defense arose.” (Some capitalization omitted.) The trial court also instructed the jury with CALCRIM No. 3472, the pattern instruction providing that the right to self-defense may not be contrived. The instruction stated: “A person does not have the right to self-defense if he or she provokes a fight or quarrel with the intent to create an excuse to use force.” Regarding imperfect self-defense, the instructions on voluntary manslaughter (CALCRIM No. 571) and attempted voluntary manslaughter (CALCRIM No. 604) told the jury that a killing or attempted killing is reduced from murder to voluntary manslaughter and attempted murder to attempted voluntary manslaughter, respectively, if the defendant killed or attempted to kill “because he acted in imperfect self-defense.” The instructions explained that “[t]he difference between complete self-defense and imperfect self-defense depends on whether the defendant’s belief in the need to use deadly force was reasonable.” The instructions stated that for imperfect self-defense to apply, the defendant must have actually believed that he was in imminent danger of being killed or suffering great bodily injury and that the immediate use of deadly force was necessary to defend against the danger, but “[a]t least one of those beliefs was unreasonable.” 19 In addition, the instruction for voluntary manslaughter based on imperfect self- defense told the jurors that “[i]mperfect self-defense does not apply when the defendant, through his own wrongful conduct, has created circumstances that justify his adversary’s use of force.” However, the parallel instruction on attempted voluntary manslaughter did not include any such language regarding the effect of defendant’s wrongful conduct on imperfect self-defense. Further, both of these parallel imperfect self-defense instructions stated that “The People have the burden of proving beyond a reasonable doubt that the defendant was not acting in imperfect self-defense” and “[i]f the People have not met this burden, [the jurors] must find the defendant not guilty of murder” or “attempted murder,” respectively. Regarding voluntary manslaughter based on sudden quarrel/heat of passion, the instruction informed the jury that this offense occurred if “1. The defendant was provoked; [¶] 2. As a result of the provocation, the defendant acted rashly and under the influence of intense emotion that obscured (his/her) reasoning or judgment; [¶] and [¶] 3. The provocation would have caused a person of average disposition to act rashly and without due deliberation, that is, from passion rather than from judgment.” (Some capitalization omitted.) The instruction for attempted voluntary manslaughter based on sudden quarrel/heat of passion included the additional elements of “at least one direct but ineffectual step toward killing a person” and an intent to kill that person. Both instructions also stated that “The People have the burden of proving beyond a reasonable doubt that the defendant did not kill as the result of a sudden quarrel or in the heat of passion” and “[i]f the People have not met this burden, [the jurors] must find the defendant not guilty of murder” or “attempted murder,” respectively. During his closing argument, the prosecutor addressed self-defense at length. The prosecutor acknowledged that “Calvert did not have an obligation to retreat” and that “a person can pursue an aggressor until the danger of death or great bodily injury has passed.” Notwithstanding these concessions, the prosecutor asked the jurors to consider 20 the significance of Calvert’s decision to not retreat with regard to his mental state and whether any danger had passed during the confrontation.12 The prosecutor argued further that at “the very minimum, this was a case of mutual combat. . . . But in all likelihood and the facts prove that Adrian Calvert started that fight at every step of the way.” The prosecutor asserted that “Calvert’s claim of self-defense is completely contrived” because he knowingly “created this threat from the very moment he stepped out of his car” (if not earlier “while they were still driving into San Jose”) by challenging the neighborhood’s Sureños when “shouting, over and over again, ‘Norte.’ ” The prosecutor noted that Rabino had thrown the first punch “that start[ed] the conflict” and Calvert pulled out his knife and stabbed the victims despite that “[n]o on else had a knife in this fight.” The prosecutor also said, “Calvert escalate[d] this fight, pushe[d] it to the point that the victims in this case ha[d] absolutely no choice but to fight back” and “defend themselves.” Regarding mutual combat specifically, the prosecutor argued that even if the four victims and Calvert were all intent on fighting, Calvert did not try to stop fighting or withdraw from the fight. Rather, he charged at and chased the victims and ultimately escaped the incident uninjured. Additionally, the prosecutor argued that for self-defense to apply, Calvert must have used only reasonable force. The prosecutor asserted that given the proof substantiating that Calvert was the only person with a weapon and that three of the victims ran away when Calvert pulled out his knife, Calvert did not act in self-defense. Regarding voluntary manslaughter based on imperfect self-defense, the prosecutor argued that Calvert did not actually believe he needed to defend himself against the four unarmed men. 12 Earlier in his closing argument, the prosecutor asserted that Calvert had stabbed Valentin B. twice, and then “[a]t that second fight location, some 75 feet south of where it happened, Mr. Calvert engage[d] in another fight, with” Eric C., Aaron P., and Otoniel C., stabbing them repeatedly, i.e., three times, five times, and one time, respectively. 21 As for voluntary manslaughter based on sudden quarrel/heat of passion, the prosecutor argued that Calvert did not “fit[] the requirements” because “[t]his is a fight he was seeking out,” the four men having run toward Calvert after he shouted “ ‘Norte’ ” did not amount to sufficient provocation, Calvert’s “group” (i.e., Rabino) started the fight by throwing the first punch, and Calvert then escalated it by stabbing Valentin B. Regarding the attempted murder charges, the prosecutor argued that self-defense was “not viable” because Calvert’s claim was “based on the idea that maybe [Valentin B.] ha[d] a knife” and when Calvert chased and stabbed the three other victims, the threat posed by any knife was over. In the defense closing argument, Calvert’s defense counsel urged the jurors to find Calvert not guilty of murder, manslaughter, attempted murder, and attempted manslaughter based on self-defense because the prosecutor had failed to prove that Calvert did not act in perfect self-defense. Alternatively, counsel argued that “at most, what this is, is voluntary manslaughter under a theory of sudden quarrel, mutual combat, or a theory of . . . honest, but unreasonable self-defense.” In addition, counsel asserted that the prosecutor had failed to prove Calvert intended to kill, as required for convictions on attempted murder and attempted voluntary manslaughter. Counsel argued that “it was Calvert who ran away” from an attack perpetrated by several men, “crying, screaming in terror,” and that Calvert did not chase down any of the victims. Counsel further asserted that the evidence failed to prove Rabino had thrown a punch (thereby starting a fight) and, in any event, throwing a punch when being rushed by four Sureños doing a “ ‘street check’ ” is legally justified. Regarding the reasonableness of Calvert’s beliefs about an imminent danger and the need to use force, counsel argued that Calvert’s use of a knife in response to an attack by four gang members (one of whom reached for his pocket) was reasonable, as was “stabbing until he could get away.” 22 On their fourth day of deliberations, the jurors rejected the prosecution’s contention that Calvert had committed first degree murder (i.e., that he acted willfully, deliberately, and with premeditation) and found Calvert guilty of second degree murder (count 1).13 The jurors also found Calvert guilty of attempted murder (counts 2–4) but rejected the allegation that those offenses were willful, premeditated, and deliberate. 2. Legal Principles “ ‘In criminal cases, even in the absence of a request, a trial court must instruct on general principles of law relevant to the issues raised by the evidence and necessary for the jury’s understanding of the case.’ [Citation.] That duty extends to instructions on the defendant’s theory of the case, ‘including instructions “as to defenses ‘ “that the defendant is relying on . . ., or if there is substantial evidence supportive of such a defense and the defense is not inconsistent with the defendant’s theory of the case.” ’ ” ’ ” (People v. Townsel (2016) 63 Cal.4th 25, 58 (Townsel).) Moreover, “[e]ven if the court has no sua sponte duty to instruct on a particular legal point, when it does choose to instruct, it must do so correctly.” (People v. Castillo (1997) 16 Cal.4th 1009, 1015; see also Townsel, at p. 58.) Nevertheless, “[a] trial court has no sua sponte duty to revise or improve upon an accurate statement of law without a request from counsel [citation], and failure to request clarification of an otherwise correct instruction forfeits the claim of error for purposes of appeal.” (People v. Lee (2011) 51 Cal.4th 620, 638 (Lee); see also People v. Covarrubias (2016) 1 Cal.5th 838, 873–874, 901; People v. Bolin (1998) 18 Cal.4th 297, 326.) “To make out a claim that counsel rendered constitutionally ineffective assistance, ‘the defendant must first show counsel’s performance was deficient, in that it fell below an objective standard of reasonableness under prevailing professional norms. Second, the 13 The prosecutor had argued both express and implied malice to the jury. The verdict form for count 1, however, did not ask the jury to specify a finding for either express malice or implied malice. 23 defendant must show resulting prejudice, i.e., a reasonable probability that, but for counsel’s deficient performance, the outcome of the proceeding would have been different.’ ” (People v. Hoyt (2020) 8 Cal.5th 892, 958 (Hoyt); see also Strickland v. Washington (1984) 466 U.S. 668, 687 (Strickland).) We can reject an ineffective assistance of counsel claim if the defendant fails to establish either element of the Strickland standard. (See Strickland, at p. 687; People v. Kirkpatrick (1994) 7 Cal.4th 988, 1008, disapproved on another ground in People v. Doolin (2009) 45 Cal.4th 390, 421, fn. 22.) “On direct appeal, a conviction will be reversed for ineffective assistance only if (1) the record affirmatively discloses counsel had no rational tactical purpose for the challenged act or omission, (2) counsel was asked for a reason and failed to provide one, or (3) there simply could be no satisfactory explanation. All other claims of ineffective assistance are more appropriately resolved in a habeas corpus proceeding.” (People v. Mai (2013) 57 Cal.4th 986, 1009 (Mai).) 3. Analysis We begin our analysis of Calvert’s claim by addressing the issue of forfeiture. Calvert argues that “[a]lthough CALCRIM Nos. 3471 and 3742 may be correct statements of the law in some cases, in this case they failed to convey relevant and important principles established by decades of case law – a defendant forfeits the right to self-defense by starting or provoking a fight or quarrel only if he did so through wrongful conduct such as the initiation of a physical attack or the commission of a felony and the adversary was legally justified in using responsive force.” In his reply brief, Calvert asserts further that the two challenged instructions amount to incorrect statements of the law to which forfeiture does not apply, because they “fail[] to convey that a term – like the words ‘starts’ and ‘provokes’ in the challenged instructions -- has a technical legal meaning peculiar to an area of law.” 24 Calvert acknowledges that the jury instructions were, in the abstract, correct statements of the law of self-defense. We conclude that Calvert’s claim is best viewed as a challenge to instructions that were responsive to the evidence but otherwise incomplete on the particular facts of the case and thus should have been modified. Accordingly, Calvert’s failure to object to or request modification of otherwise supported and correct jury instructions forfeited his current claim of error. (See Lee, supra, 51 Cal.4th at p. 638.) Nevertheless, “[w]e may review defendant’s claim of instructional error, even absent objection, to the extent his substantial rights were affected.” (Townsel, supra, 63 Cal.4th at pp. 59–60; § 1259.) “Ascertaining whether claimed instructional error affected the substantial rights of the defendant necessarily requires an examination of the merits of the claim—at least to the extent of ascertaining whether the asserted error would result in prejudice if error it was.” (People v. Andersen (1994) 26 Cal.App.4th 1241, 1249.) In addition, “ ‘[s]ubstantial rights’ are equated with errors resulting in a miscarriage of justice under People v. Watson [(1956)] 46 Cal.2d 818.” (People v. Mitchell (2008) 164 Cal.App.4th 442, 465.) Based on our review of the evidence, arguments, and instructions, Calvert’s substantial rights were not affected by the unmodified, challenged instructions. The jury received multiple proper instructions on perfect and imperfect self-defense. The two instructions Calvert challenges in this appeal have been accepted by courts as legally correct. CALCRIM No. 3471 (mutual combat or initial aggressor) is generally a correct statement of the law. (See People v. Nguyen (2015) 61 Cal.4th 1015, 1050; see also People v. Quach (2004) 116 Cal.App.4th 294, 301 [construing a similar instruction, CALJIC No. 5.56].) Likewise, CALCRIM No. 3472 (no contrived self-defense) “is generally a correct statement of law, which might require modification in the rare case in which a defendant intended to provoke only a non-deadly confrontation and the victim responds with deadly force.” (People v. Eulian (2016) 247 Cal.App.4th 1324, 1334 25 (Eulian); see also id. at p. 1333 [citing People v. Enraca (2012) 53 Cal.4th 735, 761 (Enraca) (concluding that an analogous CALJIC instruction was supported by the evidence in the record)]; People v. Ramirez (2015) 233 Cal.App.4th 940, 947 (Ramirez).) Calvert makes no specific argument that this matter is a “rare case” under Eulian and Ramirez, which might have required the trial court to modify CALCRIM No. 3472. The Court of Appeal in Ramirez acknowledged that CALCRIM No. 3472 “states a correct rule of law in appropriate circumstances.” (Ramirez, supra, 233 Cal.App.4th at p. 947.) But the court reversed the defendants’ convictions, concluding the instruction misstated the law on the facts of the case because “[t]he instructions and the prosecutor’s argument established as a matter of law that defendants were not entitled to imperfect self-defense if they contrived to use any force, even nondeadly force, but that was a question for the jury to decide on its own evaluation of the facts.” (Id. at p. 953.) Unlike in Ramirez, the prosecutor here did not misstate the law of self-defense. Further, Calvert’s testimony was inconsistent with the theory he advances on appeal. Calvert contends that the contrived self-defense instruction should have been modified to narrow the type of force that triggers the limitation, but Calvert effectively disclaimed any intent to precipitate a confrontation with the men on the street. Calvert testified that he never shouted “ ‘Norte’ ” on the drive to or at the apartment complex and he had no idea he was in gang territory. Calvert said the reason his group traveled to the apartment complex was to obtain marijuana from Ivan Saucedo. Further, when the men on the street ran at Calvert, he told them that he did not “ ‘bang’ ” and they “ ‘got the wrong person.’ ” He testified that he “really had no choice” about running away from the men because they had surrounded him. Under its own terms, the instruction applies only if the defendant “provokes a fight or quarrel with the intent to create an excuse to use force.” (See Eulian, supra, 247 Cal.App.4th at p. 1333, italics added; Ramirez, supra, 233 Cal.App.4th at pp. 944–946.) 26 Furthermore, we are not convinced by Calvert’s argument that the challenged instructions had to explicitly state that “a person loses the right to self-defense only if his provocative acts are felonious and only if the responders’ use of force is lawful” (italics added). Calvert bases this purported limitation on the provocation doctrine to “felonious” conduct from language in a footnote in a decision by the California Supreme Court that was not about provocation at all. (See In re Christian S. (1994) 7 Cal.4th 768, 773, fn. 1 (Christian S.).) The issue faced by the California Supreme Court in Christian S. was whether the Legislature had abrogated the doctrine of imperfect self-defense through an amendment to the Penal Code. (Id. at p. 771.) The Supreme Court concluded that it had not. (Ibid.) In its footnote in Christian S., the Court compared imperfect self-defense with “the ordinary self-defense doctrine” and stated neither may “be invoked by a defendant who, through his own wrongful conduct (e.g., the initiation of a physical assault or the commission of a felony), has created circumstances under which his adversary’s attack or pursuit is legally justified.” (Christian S., supra, 7 Cal.4th at p. 773, fn. 1.) We do not agree that this parenthetical statement in a footnote in a decision focused on a different legal question should be read to limit the law of provocation in the manner urged by Calvert. In a later case, the California Supreme Court explained that “[t]he doctrine of imperfect self-defense cannot be invoked . . . by a defendant whose own wrongful conduct (for example, a physical assault or commission of a felony) created the circumstances in which the adversary’s attack is legally justified.” (People v. Booker (2011) 51 Cal.4th 141, 182; see also Enraca, supra, 53 Cal.4th at p. 761 [quoting Christian S.]; § 197, subds. (1), (3).) Again, we do not agree with Calvert that this parenthetical statement stands for the proposition that the provocation doctrine is limited to those who act feloniously. Calvert reads too much into the passages he cites. It is merely “wrongful conduct” that suffices. The challenged instructions accurately 27 conveyed that principle. Moreover, CALCRIM No. 3471 addressed the principle that Calvert claims was lacking here. It informed his jury that if Calvert “used only non- deadly force, and the opponent responded with such sudden and deadly force that [Calvert] could not withdraw from the fight, then [Calvert] had the right to defend himself with deadly force and was not required to try to stop fighting.” In sum, because the challenged instructions were legally correct under the present circumstances, we conclude that Calvert’s substantial rights were not affected by those instructions. For similar reasons, we reject Calvert’s alternative claim that his defense counsel was constitutionally ineffective for failing to request that CALCRIM Nos. 3471 and 3472 be modified or not be given at all. As noted, both instructions were legally correct statements of the law, both in the abstract and under the facts of this case. Accordingly, we decide that Calvert has failed to carry his burden to show that his counsel’s performance was constitutionally deficient. B. Evidence about Gang Affiliation Calvert contends that the evidence of his post-Miranda statements about gang affiliation made to Officer Martin during the jail classification process should have been excluded. Calvert claims that his statements were involuntary because the “questions about gang affiliation inherently put a person in a coercive situation of having to admit any gang affiliation or risk being mixed with enemies.” Calvert further asserts that “Martin actively induced Calvert’s statements by threatening to house Calvert with Sureños if he did not admit to being a Norteño and by falsely promising that his statements would not be used in court.” Additionally, Calvert contends that Detective Mula’s cross-examination testimony about Calvert having said during his police interview that “he was Varrio Via Sol should have been excluded because it was inadmissible testimonial hearsay.” 28 Calvert acknowledges that his defense counsel did not object to Officer Martin’s or Detective Mula’s testimony. Nevertheless, he urges this court to forgo forfeiture because his claims of error are grounded in his constitutional rights (namely, the privilege against self-incrimination, due process, and confrontation). Alternatively, Calvert asserts that his counsel was constitutionally ineffective by failing to object to the evidence Calvert currently challenges. Furthermore, Calvert argues that the erroneous admission of his statements regarding gang affiliation warrant reversal under any applicable standard of prejudice. The Attorney General responds that Calvert forfeited his claim regarding his statements to Officer Martin, invited any error regarding Detective Mula’s testimony because the challenged statement was elicited on cross-examination by Calvert’s own counsel, and has failed to demonstrate that his defense counsel performed deficiently or that any deficient performance prejudiced Calvert. 1. Additional Background As discussed ante (part I.B.1.), on the day of the crime, Officer Jennings and Sergeant Mendoza read Calvert his Miranda rights and interviewed him for about three hours. After the police interview, Calvert was taken to the county jail for booking. There, Officer Martin questioned Calvert regarding his gang affiliation for the purpose of classification. At a section 402 hearing held during trial, the trial court ruled that Calvert knowingly, voluntarily, and intelligently waived his Miranda rights as to both the police interview and the subsequent questioning by Martin during the jail classification process. At trial, Officer Martin testified that during the jail classification process he asked Calvert if he considered himself to be a gang member, to which Calvert replied “ ‘No.’ ” Martin then asked Calvert if “ ‘it would be okay [to] put [him] with the Sureños.’ ” Calvert immediately responded “ ‘No.’ ” Next, Martin “kind of said, ‘So you considered yourself a Norteño, then.’ ” Calvert replied “Yes.” Martin followed up on this answer by asking Calvert if he was affiliated with any particular gang subset. Calvert said he was a 29 member of “Via Sol” and that his moniker was “ ‘Ace.’ ” Martin also testified that nothing in his interaction with Calvert led him to believe that Calvert was impaired or under the influence of drugs or alcohol during the questioning. The prosecutor did not present evidence at trial about what if anything Calvert had said during the police interview about his gang affiliation. However, during defense counsel’s cross-examination of Detective Mula, Mula mentioned the police interview. In particular, defense counsel questioned Mula about the bases of his opinion that Calvert was a gang member and the testimony that Officer Martin had provided about what Calvert said about his gang affiliation. The cross-examination of Mula included the following exchange: “Q. All right. And so the correctional officer [Martin] said to him, ‘So you’re a Norteño.’ [¶] And that’s when Calvert said, ‘Yeah.’ “A. I -- I don’t . . . think he said, ‘So you’re a Norteño,’ yes. But I -- I don’t remember the exact testimony for that. “Q. Okay. But that admission and the way it went down was an important factor for you in going from skeptical to convinced. “A. That was one of the things that I did consider, is when I called him -- I mean, when you go to these interview and interrogation schools, you’re taught to ask questions in a certain way so they don’t elicit a certain response. [¶] So I asked Mr. Martin -- I did my own investigation on it -- about the circumstances of how he asked for it. And I asked him, specifically, ‘Did Calvert feel like . . . he had to choose the Norteños for his own protection based off the crime that he was admitted in?’ [¶] And he said, ‘No.’ [¶] And I noticed during that admission that he said -- he identified himself as Via Sol, which is a specific gang to Sunnyvale, which is the same that matched Mr. -- Detective Jennings’ statement that he provided earlier in the night. “Q. Detective Martin told you nothing – or Correctional Officer Martin told you nothing different than what he testified to, under oath, up on that witness stand; true? 30 “A. He did tell me something different. [¶] When you’re talking about in the context of when I asked him, specifically, ‘Is he saying this for his own protection?’ he said, ‘No.’ “Q. So Correctional Officer Martin told you something different than what he told this jury under oath. “A. I’m talking about a direct answer that I asked him that was not asked in this courtroom.” (Italics added & omitted.) As detailed ante (part I.B.2.), Calvert addressed the issue of gang affiliation in his own testimony. He denied ever being a member of the VVS gang or any other Norteño gang. He also testified extensively about the interaction he had with Officer Martin during his booking into the county jail. Calvert recounted the conversation he had had with Martin in detail and provided explanations for his various statements. Calvert’s testimony included that Martin had said gang affiliation “wasn’t even going to be brought up in court” and would not be used against Calvert in court. Calvert also testified that, in response to Martin’s statements about where he (Calvert) would be housed in the jail and that he would have to claim to be a Northerner to the other inmates there, Calvert told Martin he “was a Northerner” but never said he was member of or associated with the VVS gang. 2. Legal Principles “[S]tatements made by a defendant subject to custodial interrogation are inadmissible (for certain purposes) unless the defendant was ‘warned that he has a right to remain silent, that any statement he does make may be used as evidence against him, and that he has a right to the presence of an attorney, either retained or appointed.’ [Citations.] ‘The defendant may waive effectuation of these rights, provided the waiver is made voluntarily, knowingly and intelligently.’ ” (People v. Krebs (2019) 8 Cal.5th 265, 299 (Krebs); see also People v. Elizalde (2015) 61 Cal.4th 523, 530–540 [holding 31 that jail classification interviews may constitute custodial interrogation for purposes of Miranda].) “Independent of whether a defendant’s rights under Miranda were observed, his or her statements may not be admitted unless they were voluntary. ‘The court in making a voluntariness determination “examines ‘whether a defendant’s will was overborne’ by the circumstances surrounding the giving of a confession.” ’ [Citation.] The prosecution bears the burden of proof and must show ‘by a preponderance of the evidence the statements were, in fact, voluntary.’ ” (Krebs, supra, 8 Cal.5th at p. 299.) “Whether the confession was voluntary depends upon the totality of the circumstances.” (People v. Carrington (2009) 47 Cal.4th 145, 169.) “In evaluating the voluntariness of a statement, no single factor is dispositive. [Citation.] The question is whether the statement is the product of an ‘ “essentially free and unconstrained choice” ’ or whether the defendant’s ‘ “will has been overborne and his capacity for self- determination critically impaired” ’ by coercion. [Citation.] Relevant considerations are ‘ “the crucial element of police coercion [citation]; the length of the interrogation [citation]; its location [citation]; its continuity” as well as “the defendant’s maturity [citation]; education [citation]; physical condition [citation]; and mental health.” ’ [Citation.] [¶] ‘In assessing allegedly coercive police tactics, “[t]he courts have prohibited only those psychological ploys which, under all the circumstances, are so coercive that they tend to produce a statement that is both involuntary and unreliable.” [Citation.]’ [Citation.] [¶] A confession is not involuntary unless the coercive police conduct and the defendant’s statement are causally related.” (People v. Williams (2010) 49 Cal.4th 405, 436–437 (Williams).) Regarding the failure to object to evidence of allegedly involuntary statements, “[a] defendant ordinarily forfeits elements of a voluntariness claim that were not raised below.” (Williams, supra, 49 Cal.4th at p. 435; see also People v. Kennedy (2005) 36 Cal.4th 595, 611–612 (Kennedy) [forfeiture of a coercion claim], disapproved of on 32 another ground in Williams, supra, 49 Cal.4th at p. 459.) Likewise, the California Supreme Court has applied the forfeiture rule “numerous times to find forfeiture of a constitutional right of confrontation claim.” (People v. Arredondo (2019) 8 Cal.5th 694, 710.) Regarding a defendant’s IAC claim, “[t]he decision whether to object to the admission of evidence is ‘inherently tactical,’ and a failure to object will rarely reflect deficient performance by counsel.” (People v. Castaneda (2011) 51 Cal.4th 1292, 1335, abrogated on another ground as stated in People v. Hardy (2018) 5 Cal.5th 56, 100; see also People v. Kelly (1992) 1 Cal.4th 495, 520.) There is a “strong presumption that counsel’s conduct falls within the wide range of reasonable professional assistance.” (Strickland, supra, 466 U.S. at p. 689.) “If the record on appeal ‘ “ ‘sheds no light on why counsel acted or failed to act in the manner challenged[,] . . . unless counsel was asked for an explanation and failed to provide one, or unless there simply could be no satisfactory explanation,’ the claim on appeal must be rejected.” ’ ” (People v. Vines (2011) 51 Cal.4th 830, 876, overruled on other grounds by Hardy, at pp. 103–104; see also Hoyt, supra, 8 Cal.5th at pp. 958–960.) 3. Analysis Beginning with the issues of forfeiture and invited error, we agree with the Attorney General that Calvert’s claim asserting the involuntariness of his statements to Officer Martin is forfeited by Calvert’s failure to raise the issue at trial. (See Williams, supra, 49 Cal.4th at p. 435; Kennedy, supra, 36 Cal.4th at pp. 611–612.) We further conclude that Calvert’s claim challenging Detective Mula’s cross-examination testimony is forfeited by the failure to object and move to strike that testimony. (See People v. Parker (2017) 2 Cal.5th 1184, 1229–1230; Evid. Code, § 353, subd. (a); see also United States v. Miller (9th Cir. 1985) 771 F.2d 1219, 1234.) Turning to Calvert’s alternate contention that his defense counsel provided ineffective assistance by failing to object to the challenged evidence on the grounds 33 raised in this appeal, we conclude Calvert has not demonstrated deficient performance by his defense counsel. Regarding the alleged involuntary statements told to Officer Martin, Calvert fails to show that there could be no satisfactory explanation for his defense counsel’s failure to object on voluntariness grounds. “ ‘Coercive police activity is a necessary predicate’ ” of involuntariness and must be “ ‘the “proximate cause” of the statement in question.” ’ ” (People v. Jablonski (2006) 37 Cal.4th 774, 814.) Here, there is no support in Officer Martin’s testimony for the assertion that Martin coerced Calvert to say that he was a gang member. The fact that Martin asked Calvert if thought he could be housed with Sureños does not amount to a threat to in fact house him with Sureños. Nor is it conduct that would tend to produce an involuntary and unreliable statement about gang affiliation. Martin’s inquiry regarding the propriety of housing Calvert with Sureños is distinct from whether Calvert considered himself to be a Norteño affiliated with the VVS gang. It does not follow that a person who had reason to protest being housed with Sureños due to the circumstances of his offense would consequently admit to being affiliated with the Norteños. Detective Mula’s testimony about his own follow-up conversation with Officer Martin concerning Martin’s questioning of Calvert corroborated the lack of coercion in that questioning. Given this evidence, Calvert’s defense counsel could have reasonably concluded that the prosecution would have been able to prove the voluntariness of Calvert’s statements to Officer Martin regarding gang affiliation had counsel objected on that ground. In addition, that Calvert testified in the defense case about his interaction with Officer Martin does not foreclose the possibility of a satisfactory explanation for defense counsel’s failure to raise the voluntariness issue at trial. In his testimony, Calvert stated that Martin had promised that gang affiliation would not be raised in court and urged Calvert to say, upon being housed in the jail, that he is a “Northerner.” Nevertheless, the 34 record before us does not indicate whether Calvert ever recounted this or any other version of the booking interview to his counsel before taking the witness stand. Moreover, Calvert does not point to anything in the record demonstrating that his counsel viewed his testimony about his interaction with Martin as sufficiently credible to assert a viable voluntariness claim in the face of Martin’s testimony. Relatedly, Calvert does not direct us to any point in his counsel’s closing argument where counsel expressly urged the jurors to accept Calvert’s version of the interaction with Martin—even though the prosecutor had already challenged Calvert’s story in his closing argument. Calvert has not persuaded us that defense counsel’s decisions were so unreasonable as to fall outside the bounds of constitutionally sufficient representation. Defense counsel could reasonably have sought to avoid calling attention to Calvert’s statements on this point, having made a tactical decision about how best to support Calvert’s credibility before the jury and the court. In sum, based on the record before us, we cannot conclude that defense counsel performed deficiently by failing to raise the alleged involuntariness issue. Calvert’s IAC claim is “more appropriately resolved in a habeas corpus proceeding.” (Mai, supra, 57 Cal.4th at p. 1009.) Similarly, Calvert has not shown that there could be no satisfactory explanation for his defense counsel’s failure to object to the following testimony by Detective Mula: “And I noticed during that admission [to Officer Martin] that he said – [Calvert] identified himself as Via Sol, which is a specific gang to Sunnyvale, which is the same that matched Mr. -- Detective Jennings’ statement that he provided earlier in the night.” (Italics added & omitted.) Calvert’s IAC claim turns on his particular interpretation of the above-quoted sentence. Specifically, Calvert asserts that the sentence means Detective Mula testified “that his opinion [about Calvert’s gang affiliation] was supported by the fact that Calvert had identified himself to Officer Jennings during the interrogation as being ‘Via Sol.’ ” 35 Based on this interpretation of Mula’s testimony, Calvert argues that the testimony amounted to “inadmissible testimonial hearsay” and “it is inconceivable that counsel would decide not to object to . . . inadmissible incriminating statements.” As a threshold matter, we reject Calvert’s assertion that Detective Mula’s testimony conveyed that Calvert had identified himself to Officer Jennings during the police interview as a member of the VVS gang. The challenged portion of Mula’s testimony is not as clear as Calvert makes out. Even if we assume that the “he” in the phrase “Detective Jennings’ statement that he provided earlier in the night” (italics added) refers to Calvert, the rest of the sentence does not clearly state that Calvert, in fact, identified himself to both Officer Martin and Officer Jennings as a VVS member. On its face, the challenged sentence does not state what exactly Calvert had “provided earlier in the night” “that matched” his self-identification “as Via Sol, which is a specific gang to Sunnyvale.” The sentence could be read to mean that Calvert had provided to Jennings some information about the VVS gang itself, not that he was a member of that gang. Moreover, and notably, Calvert does not point to any assertion by the prosecutor in closing argument that the challenged portion of Mula’s testimony supported the prosecution’s contention that Calvert was a gang member. Given the ambiguity in the challenged portion of Detective Mula’s cross- examination testimony, a reasonably competent defense counsel could have rationally decided that the testimony was not incriminating and thus not worthy of an objection and motion to strike. Hence, we cannot conclude that there is no satisfactory explanation for counsel’s inaction in the face of Mula’s ambiguous statement. (See Mai, supra, 57 Cal.4th at p. 1009.) Furthermore, even assuming arguendo that defense counsel’s performance was deficient for failing to object to the identified portion of Detective Mula’s testimony, Calvert fails to show any prejudice resulting from the admission of that testimony. The prosecutor presented an array of other evidence to support Mula’s opinion that Calvert 36 was a member of the VVS gang. And, as noted, the prosecutor did not mention the challenged testimony when arguing his case to the jury. Under these circumstances, we conclude that even if the trial court would have struck Mula’s fleeting ambiguous statement had counsel objected to it, there is no reasonable probability that the result of Calvert’s trial would have been different. C. Cumulative Error Having concluded ante that Calvert’s two claims challenging his convictions are without merit, we in turn reject his claim of cumulative prejudice resulting from the asserted errors. There is no prejudicial error to cumulate. (See People v. Hensley (2014) 59 Cal.4th 788, 818.) D. Gang Enhancement Allegations Calvert contends that recent amendments to the gang enhancement statute (§ 186.22) made by Assembly Bill 333 (Stats. 2021, ch. 699, §§ 3, 4) require reversal of the jury’s true findings on the gang enhancement allegations (§ 186.22, subd. (b)(5)) attached to each of the four counts of conviction. Calvert asserts that the legislative revisions to section 186.22 increased the prosecution’s burden to prove certain elements of the gang enhancements and those revisions apply to his non-final judgment. He urges us to vacate the jury’s findings because “the jury was not required to make findings as to the additional elements required by [Assembly Bill] 333 and the state cannot show beyond a reasonable doubt that a jury would find the enhancements true under the current law.” Finally, he asserts that we should remand the case to allow the prosecutor an opportunity to retry the gang enhancement allegations under the current law. The Attorney General agrees that Calvert is entitled to the retroactive benefit of Assembly Bill 333’s amendments to section 186.22. We concur. (See People v. Tran (2022) 13 Cal.5th 1169, 1206–1207 (Tran).) The Attorney General further agrees with Calvert that a remand is necessary, conceding that the evidence presented at trial “failed 37 to show that VVS gang members collectively engaged in a pattern of criminal gang activity” as defined by current section 186.22. Considering the parties’ agreement on the deficiencies in the proof under current section 186.22, and based on our review of the record, we conclude that reversal of the jury’s findings on the gang enhancement allegations is required. (See Tran, supra, 13 Cal.5th at p. 1207.) Accordingly, we vacate the jury’s findings on the four gang enhancement allegations attached to counts 1 through 4. On remand, the district attorney shall be afforded the opportunity to retry Calvert on the gang enhancement allegations based on the current version of section 186.22. (See People v. E.H. (2022) 75 Cal.App.5th 467, 480; People v. Sek (2022) 74 Cal.App.5th 657, 669–670.) E. Sentencing Claims Calvert raises several claims related to his sentencing. In one his claims, Calvert contends that recent legislative changes made to section 1170 apply retroactively to his non-final judgment and that, under current section 1170, subdivision (b), this matter should be remanded for the trial court to consider reducing the sentence imposed on count 2 from the middle term to the lower term. Current section 1170, subdivision (b)(6), provides in relevant part: “Notwithstanding paragraph (1), and unless the court finds that the aggravating circumstances outweigh the mitigating circumstances that imposition of the lower term would be contrary to the interests of justice, the court shall order imposition of the lower term if any of the following was a contributing factor in the commission of the offense: [¶] . . . [¶] (B) The person is a youth, or was a youth as defined under subdivision (b) of Section 1016.7 at the time of the commission of the offense.” (Stats. 2021, ch. 695, §§ 5.3, 6 [Assembly Bill No. 124; eff. Jan. 1, 2022]; Stats. 2021, ch. 731, §§ 1.3, 3(c) 38 [Senate Bill No. 567; eff. Jan. 1, 2022].)14 In turn, section 1016.7, subdivision (b), states: “A ‘youth’ for purposes of this section includes any person under 26 years of age on the date the offense was committed.” (Stats. 2021, ch. 695, § 4.) The Attorney General concedes that the recent legislative change to section 1170, subdivision (b)(6), applies retroactively to this case. We agree. (See People v. Flores (2022) 73 Cal.App.5th 1032, 1038–1039 (Flores); People v. Garcia (2022) 76 Cal.App.5th 887, 902; People v. Banner (2022) 77 Cal.App.5th 226, 240 (Banner).) The record in this case demonstrates that Calvert was 21 years old at the time of the June 9, 2018 offense. Further, at Calvert’s sentencing hearing, the trial court explained its imposition of the middle term of seven years on count 2 by stating that it “does not find the factors in aggravation or mitigation to preponderate.” The Attorney General agrees with Calvert that this case should be remanded for resentencing. The Attorney General concedes that “it is possible that [Calvert’s] age ‘was a contributing factor in the commission of the offense’ that would presume imposition of the lower term.” The Attorney General’s concession is well taken. Because Calvert was sentenced before section 1170, subdivision (b)(6)(B), became effective, the trial court here necessarily imposed the middle term on count 2 without considering the statutory presumption now potentially available to Calvert under the revised statute. We thus will vacate Calvert’s sentence entirely and remand for the trial court to hold a new sentencing hearing and resentence Calvert on all counts. (See People v. Gerson (2022) 80 Cal.App.5th 1067, 1096; Banner, supra, 77 Cal.App.5th at p. 242; Flores, supra, 73 Cal.App.5th at p. 1039.) We express no opinion as to how the trial court should exercise its discretion on remand. 14 We note that the Legislature recently amended section 1170 again, but the new amendments (effective January 1, 2023) do not change the provisions relevant to our analysis of Calvert’s claim. (See Stats. 2022, Ch. 744, § 1 [Assembly Bill No. 960].) 39 Considering our conclusion that Calvert should be resentenced in full, we do not address Calvert’s other claimed sentencing errors. The trial court can address them at resentencing, as necessary. Calvert will have the opportunity at resentencing to present evidence and argument concerning his ability to pay any fines, fees, and assessments. Additionally, Calvert may raise any issue regarding the $129.75 CJAF under Assembly Bill 1869 or the administrative fees for the victim restitution orders under Assembly Bill 177 during resentencing. III. DISPOSITION The judgment is reversed. The true findings on the gang enhancement allegations (Pen. Code, § 186.22, subd. (b)(5)) attached to counts 1–4 are reversed. Calvert’s convictions and the remaining enhancements are affirmed. The sentence is vacated in its entirety. The matter is remanded to the trial court for a possible retrial of the gang enhancement allegations. If the district attorney elects not to retry Calvert on the gang enhancement allegations, or at the conclusion of any retrial, the trial court is directed to resentence Calvert in a manner consistent with this opinion under current sentencing law (see Pen. Code, § 1170). 40 ______________________________________ Danner, J. WE CONCUR: ____________________________________ Bamattre-Manoukian, Acting P.J. ____________________________________ Wilson, J. H047146 People v. Calvert	01-04-2023	11-22-2022
https://www.courtlistener.com/api/rest/v3/opinions/8488798/	Filed 11/22/22 In re Hailey R. CA2/2 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 TWO In re HAILEY R., a Person B317884 Coming Under the Juvenile (Los Angeles County Court Law. Super. Ct. No. 18CCJP03868B) LOS ANGELES COUNTY DEPARTMENT OF CHILDREN AND FAMILY SERVICES, Plaintiff and Respondent, v. HEATHER H., Defendant and Appellant. APPEAL from an order of the Superior Court of Los Angeles County. Hernan D. Vera, Judge. Affirmed. Donna P. Chirco, under appointment by the Court of Appeal, for Defendant and Appellant. Dawyn R. Harrison, Acting County Counsel, Kim Nemoy, Assistant County Counsel, and Brian Mahler, Deputy County Counsel, for Plaintiff and Respondent. _________________________ Following the termination of parental rights over her daughter, Hailey R. (Hailey, born Sept. 2009), Heather H. (mother) filed the instant appeal. She alleges that both the Los Angeles County Department of Children and Family Services (DCFS) and the juvenile court failed to comply with their initial inquiry duties under the Indian Child Welfare Act (ICWA) and related California law. Because the juvenile court did not commit reversible error, we affirm. FACTUAL AND PROCEDURAL BACKGROUND1 I. Prior Related Proceedings Mother is no stranger to the juvenile dependency system. In June 2018, mother gave birth to her fourth child, Timothy L. (Timothy), and he tested positive for methamphetamine—the 1 Because ICWA error is the only issue raised in this appeal, this summary of the factual and procedural background focuses on matters related to ICWA compliance. (In re I.B. (2015) 239 Cal.App.4th 367, 370.) 2 third of mother’s five children to do so.2 DCFS filed a separate Welfare and Institutions Code section 3003 petition alleging that mother’s substance abuse put Timothy at risk of serious physical harm.4 Mother completed a “Parental Notification of Indian Status” (ICWA-020) form, indicating that she had no Indian ancestry as far as she knew. (Timothy L., supra, B311103, at p. 3.) When the juvenile court asked mother about Timothy’s possible Indian status at the detention hearing, mother reiterated that she did not have any known Indian ancestry. (Ibid.) The juvenile court found that there was “no reason to believe that this [was] an [ICWA] case or that [the ICWA] applie[d].” (Ibid.) On February 17, 2021, the juvenile court terminated mother’s parental rights. 2 Aside from Hailey and Timothy, mother has three other children. These children were part of an earlier dependency proceeding, which closed in 2019 with the adoption of all three children by their maternal aunt. They are not part of this appeal. 3 All further statutory references are to the Welfare and Institutions Code unless otherwise indicated. 4 On our own motion, we take judicial notice of the prior unpublished opinion in this case. (See In re Timothy L. (May 31, 2022, B311103 [nonpub. opn.] (Timothy L.).) Per California Rules of Court, rule 8.1115(b), we may cite this opinion “to explain the factual background of the case.” (Pacific Gas & Electric Co. v. City and County of San Francisco (2012) 206 Cal.App.4th 897, 907, fn. 10; The Utility Reform Network v. Public Utilities Com. (2014) 223 Cal.App.4th 945, 951, fn. 3.) 3 II. Current Proceeding On January 19, 2021, DCFS filed another section 300 petition against mother. This petition alleged that mother’s history of substance abuse and prior abuse of her other children posed a substantial risk of serious physical harm to her oldest daughter, Hailey. On March 2, 2021, mother again denied any Indian heritage. Mother then went incommunicado for roughly six months; she did not attend any hearings in that time, and DCFS had a difficult time locating her to provide notice of upcoming hearings. Hailey’s presumed father, Juan R. (father), did attend multiple hearings, including the detention hearing held on March 17, 2021. At that hearing, father told the juvenile court that he had nothing to report regarding ICWA. He also filed an ICWA-020 form, checking the box indicating that neither he nor Hailey was a member or eligible for membership in a federally recognized Indian tribe, and that he did not have any lineal ancestors who were members of such tribes. Based on father and mother’s representations, the juvenile court found that there was no reason to know that Hailey was an Indian child within the meaning of ICWA. Hailey was removed from her parents and placed with her paternal grandmother and prospective adoptive parent, with whom she had lived since she was two weeks old. On September 16, 2021, mother resurfaced and submitted a second ICWA-020 form identical to father’s. On January 10 and 11, 2022, the juvenile court held a section 366.26 hearing. Mother attended these hearings. After 4 hearing argument, the court terminated mother’s parental rights as to Hailey over mother’s objections. Mother timely appealed. DISCUSSION I. Relevant Law and Standard of Review A. ICWA “ICWA was enacted to curtail ‘the separation of large numbers of Indian children from their families and tribes through adoption or foster care placement’ [citation], and ‘to promote the stability and security of Indian tribes and families by establishing . . . standards that a state court . . . must follow before removing an Indian child from his or her family’ [citations].”5 (In re Dezi C. (2022) 79 Cal.App.5th 769, 780 (Dezi C.), review granted June 28, 2022, S275578.) Under California law enacted to implement ICWA, DCFS and the juvenile court have “three distinct duties . . . in dependency proceedings.” (In re D.S. (2020) 46 Cal.App.5th 1041, 1052 (D.S.).) The first is the initial duty of inquiry, which DCFS “discharges . . . chiefly by ‘asking’ family members ‘whether the child is, or may be, an Indian child.’ ([§ 224.2], subd. (b).) This includes inquiring of not only the child’s parents, but also others, including but not limited to, ‘extended family members.’ (Ibid.) For its part, the juvenile court is required, ‘[a]t the first appearance’ in a dependency case, to ‘ask each participant’ ‘present’ ‘whether the participant knows or has reason to know 5 An “‘Indian child’ means any unmarried person who is under age eighteen and is either (a) a member of an Indian tribe or (b) is eligible for membership in an Indian tribe and is the biological child of a member of an Indian tribe[.]” (25 U.S.C. § 1903(4); see also § 224.1, subd. (a) [adopting federal definition].) 5 that the child is an Indian child.’ (Id., subd. (c).)” (Dezi C., supra, 79 Cal.App.5th at p. 780; see also Cal. Rules of Court, rule 5.481(a)(1)-(2).) The second duty—the duty of further inquiry—is triggered if there is “reason to believe that an Indian child is involved” (§ 224.2, subd. (e)), while the third duty—to notify the relevant tribes—is triggered if there is “reason to know . . . that an Indian child is involved” (§ 224.3, subd. (a)).6 A spate of appellate courts has recently weighed in on the consequence of a social services agency’s failure to conduct the required initial ICWA inquiry, resulting in “a continuum of tests for prejudice stemming from error in following California statutes implementing ICWA.” (In re A.C. (2022) 75 Cal.App.5th 1009, 1011; see also Dezi C., supra, 79 Cal.App.5th at pp. 777–778.) Our Division has adopted the following rule: “[A]n agency’s failure to conduct a proper initial inquiry into a dependent child’s American Indian heritage is harmless unless the record contains information suggesting a reason to believe that the child may be an ‘Indian child’ within the meaning of ICWA, such that the absence of further inquiry was prejudicial to the juvenile court’s ICWA finding. For this purpose, the ‘record’ includes both the record of proceedings in the juvenile court and any proffer the appealing parent makes on appeal.” (Dezi C., supra, at p. 779.) B. Standard of Review “We review claims of inadequate inquiry into a child’s Indian ancestry for substantial evidence. [Citation.]” (In re H.V. (2022) 75 Cal.App.5th 433, 438.) “Where, as here, there is no doubt that the Department’s inquiry was erroneous, our 6 Here, mother only challenges compliance with the initial duty of inquiry, so the duties of further inquiry and notice are not at issue. 6 examination as to whether substantial evidence supports the juvenile court’s ICWA finding ends up turning on whether that error by the Department was harmless—in other words, we must assess whether it is reasonably probable that the juvenile court would have made the same ICWA finding had the inquiry been done properly.” (Dezi C., supra, 79 Cal.App.5th at p. 777.) II. Analysis Urging reversal, mother identifies two ICWA inquiry errors made below. First, she asserts that the juvenile court failed to ask her about any potential Indian heritage when she was present before the court, both at her February 2021 arraignment hearing and at the January 2022 termination hearing. Second, she argues that DCFS failed to make inquiries with several extended family members with whom it came into contact over the course of these proceedings, including Hailey’s paternal grandmother, paternal uncles, and maternal aunt. DCFS concedes that these were errors but contends that they were ultimately harmless. We agree with DCFS. Applying the “‘[r]eason to [b]elieve’ [r]ule” that we adopted in Dezi C., supra, 79 Cal.App.5th at page 779, we conclude that DCFS’s failure to make the requisite inquiries of mother and extended family members was harmless because nothing in the record suggests a reason to believe that Hailey is an Indian child within the meaning of ICWA. Mother and father both repeatedly reported that they had no known Indian ancestry, and nothing in the record suggests that either parent was adopted such that “their self-reporting of ‘no heritage’ may not be fully informed [citation].” (Dezi C., supra, 79 Cal.App.5th at p. 779; contra, In re Y.W. (2021) 70 Cal.App.5th 542, 554 [a mother’s denial of Indian heritage was unreliable 7 because she was adopted at a young age and had no contact with her biological parents].) Mother also makes no proffer on appeal that she or father have any Indian heritage. (See Dezi C., at pp. 779, fn. 4, 786.) Additionally, mother does not dispute that in 2018, the juvenile court properly found that ICWA did not apply to another of her children. This is buttressed by mother’s submission of an ICWA-020 form that is functionally identical to the form she submitted back in 2018. And mother has not asserted that she, or any of Hailey’s extended relatives, could have given new information to the juvenile court had it made the proper inquiry. Our analysis is underscored by ICWA itself, which narrowly defines “Indian child” to include only a child who is herself or whose parent is a current member of a federally recognized Indian tribe. (§ 224.1, subd. (b).) We doubt that Hailey’s extended relatives, if asked, would have been able to provide any different information about whether Hailey, her mother, or her father were current tribal members—particularly in the absence of any contrary suggestion from mother, either before the juvenile court or on appeal. (See In re A.C., supra, 75 Cal.App.5th at p. 1024 (dis. opn. of Crandall, J.) [“Because such basic information is often known or easily discoverable by each respective parent, there is limited utility in remanding such matters for ‘extended family member’ inquiry”].) Lastly, as the prospective adoptive parent, Hailey’s paternal grandmother had unique incentives to provide any information about Hailey’s paternal background. (In re S.S. (2022) 75 Cal.App.5th 875, 882 [Because “[u]nder ICWA, when an Indian child is the subject of . . . adoptive placement proceedings, ‘preference shall be given, in the absence of good cause to the 8 contrary, to a placement with . . . [¶] . . . a member of the Indian child’s extended family[,]’” the prospective adoptive parent “ha[s] a strong incentive to bring to the court’s attention any facts that suggest that [the prospective adoptee] is an Indian child”].) The fact that the paternal grandmother never provided any information that could suggest that Hailey or her father were tribal members strengthens our conclusion that DCFS’s error to conduct a proper inquiry was harmless. Accordingly, we conclude that “it is reasonably probable that the juvenile court would have made the same ICWA finding” even if it had conducted proper initial inquiries with mother or with Hailey’s extended relatives. (Dezi C., supra, 79 Cal.App.5th at p. 777.) DISPOSITION The juvenile court’s order terminating parental rights is affirmed. NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS. _____________________, J. ASHMANN-GERST We concur: _________________________, P. J. LUI _________________________, J. HOFFSTADT 9	01-04-2023	11-22-2022
https://www.courtlistener.com/api/rest/v3/opinions/8488811/	IN THE SUPREME COURT OF PENNSYLVANIA MIDDLE DISTRICT COMMONWEALTH OF PENNSYLVANIA, : No. 236 MAL 2022 : Respondent : : Petition for Allowance of Appeal : from the Order of the Superior Court v. : : : JAMAL AARON PRESSLEY, : : Petitioner : ORDER PER CURIAM AND NOW, this 22nd day of November, 2022, the Petition for Allowance of Appeal is DENIED.	01-04-2023	11-22-2022
https://www.courtlistener.com/api/rest/v3/opinions/8488796/	Filed 11/22/22 In re J.R. CA3 NOT TO BE PUBLISHED 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 THIRD APPELLATE DISTRICT (Yuba) ---- In re J.R., a Person Coming Under the Juvenile Court C094403 Law. THE PEOPLE, (Super. Ct. No. JDSQ2000026) Plaintiff and Respondent, v. J.R., Defendant and Appellant. A juvenile court committed J.R. (the minor) to the Division of Juvenile Justice for 15 years after finding he committed second degree murder. The minor now challenges the court’s finding for two reasons. First, he contends the juvenile court’s finding that he committed second degree murder lacks evidentiary support. Although he acknowledges he unlawfully shot a man to death, he asserts he lacked the malice necessary for second degree murder under the doctrine of imperfect self-defense—a doctrine that applies when a person kills based on an honest but unreasonable belief in the necessity to defend against imminent danger of death or great bodily injury. Second, he contends the 1 juvenile court’s ruling followed from a misunderstanding of the doctrine of imperfect self-defense and, in support, cites several instances where the court mischaracterized the doctrine. We reject both arguments. While the juvenile court misstated the law at times in discussing imperfect self-defense, we are satisfied that it ultimately applied the correct standard. We are also satisfied that substantial evidence in the record supports the court’s finding that the minor committed second degree murder. Apart from addressing the minor’s arguments, we also address one sentencing issue. Although, the juvenile court found true an enhancement allegation that the minor personally used a firearm when he committed the murder, it neither extended the minor’s commitment based on this enhancement nor struck the enhancement. We will remand to the juvenile court to clarify its decision. In all other respects, we affirm. BACKGROUND A district attorney filed a juvenile wardship petition under Welfare and Institutions Code section 602 after the minor shot to death a man named Lonnie L. The district attorney alleged in the petition that the minor committed murder and that he personally used a firearm, personally discharged a firearm, and personally discharged a firearm causing great bodily injury or death. The parties afterward stipulated that the minor shot Lonnie in the chest, which damaged his heart, lung, and liver and caused his death. At the hearing on the petition, several witnesses offered conflicting accounts of the facts surrounding the shooting. Lonnie’s wife, Erica L., offered the following account. She and Lonnie awoke to the sound of their son, J.L., screaming outside. They ran outside in their bathrobes and found “a whole bunch of kids, older kids in their teens,” including J.L. and the minor. Erica described the scene this way: “Everybody kind of fighting everybody, kind of thing.” She yelled, “Knock it off. Let’s go inside. Knock it off.” She also tried to get J.L. away from the fighting. After Erica, J.L., and Lonnie started to leave, the minor pointed a gun at J.L. J.L. responded, “sorry, sorry, man. 2 We’re leaving.” The minor then pointed the gun at Erica. But after Lonnie made a comment, the minor turned the gun on Lonnie. Lonnie then taunted the minor, saying, “Hey, you. Take that pellet gun, your little pellet gun, BB ass. Punk kids, get out of here and go home.” He also called the minor stupid. Erica then heard a gunshot and heard Lonnie say, “Oh, no babe. He shot me. No. Oh, babe.” The minor was about eight to 10 feet from Lonnie at the time. Erica never saw Lonnie holding a weapon nor saw him approach the minor. J.L. testified similarly. After hearing a disturbance outside his house, J.L. ran outside and saw a boy yelling and punching his girlfriend’s cousin’s car. J.L. and another person outside, Ja. L., began fighting shortly after. Several other people outside joined the fight too. Lonnie and Erica came outside the house as the fighting went on. Lonnie encouraged J.L. to win the fight, and Erica screamed as she tried “to make sense of what [was] happening.” At some point during the fighting, the minor pointed a gun at J.L.’s chest and told him he “was going to blow [his] fucking brains out.” J.L. put his hands up, begged for forgiveness, and asked the minor to chill. Sometime later, the minor pointed his gun at Lonnie, who, at the time, was trying to get J.L., J.L.’s girlfriend, and Erica inside. Lonnie told the minor “[t]o go put that toy BB gun down and go to sleep.” J.L. then heard a shot and heard Lonnie say, “Mom, he just shot me.” The minor was about six feet from Lonnie at the time. J.L. never saw Lonnie with a weapon, never saw him make any threats, and never saw him fighting anyone that evening. The minor offered a very different account of the shooting. He was staying at his girlfriend’s house at the time. After hearing his girlfriend’s brother was getting jumped, he ran outside and saw J.L. and Ja. L. fighting. The minor was friends with Ja. L. The minor ran back inside his girlfriend’s house, grabbed his gun, and returned to the fighting. He grabbed the gun for protection and to break up the fight. The minor, who kept his gun hidden at the time, told J.L. to “let my friend get up.” J.L. eventually complied. But shortly after, J.L. and Ja. L. began fighting again. A man in a robe 3 (Lonnie) came toward the minor around this time, acted aggressive, looked crazy, and appeared to be on drugs. Lonnie carried an object about 12 to 18 inches long that looked like a wooden post. The minor twice told Lonnie to stop his approach and, when Lonnie failed to listen, the minor pulled out his gun and said, “This is what I have. Just go inside.” Lonnie responded, “You punk kid. Put that BB gun away.” He then continued his approach and added, “What are you going to do about it?” The minor warned him, “I’m not like these other people. I will really shoot you.” He then cocked the gun and pointed it at the ground, but Lonnie only laughed at him, saying, “You punk kid. . . . Put that BB gun away.” The minor began stepping back to maintain a four-foot gap between him and Lonnie, but Lonnie continued his approach. After Lonnie “kind of” moved his arm, the minor fired the gun. He pointed the gun at Lonnie’s chest and then aimed to the right before firing, intending to prove to Lonnie he had a real gun and to scare Lonnie without hitting him. The minor then “[c]asually” turned around and walked back to his girlfriend’s house, thinking at first that he had missed Lonnie and later, after Lonnie said he had been shot, that he might have grazed him. Before firing the gun, the minor felt scared for his life, believed anything could have happened with Lonnie so close, and did not believe he could turn his back on Lonnie and run away. He also felt disrespected by Lonnie but more afraid than disrespected. The minor said he had no experience with guns at the time. The minor’s friend, Phillip Rutherford, described the events consistent with the minor. He saw J.L. and Ja. L. fighting and, at one point, J.L. tried to fight him too. After J.L. got on top of Ja. L. and started hitting his head into the ground, Rutherford tried to push J.L. off Ja. L. But as he tried to intervene, Lonnie hit him once or twice in the back with “a bar or a bat or something” and left him with a bruise. Lonnie then began hitting Ja. L. too and encouraged J.L. to “beat his ass.” Lonnie also ran at other people with his weapon and swung it around, but he never hit anyone else. Rutherford said he was 4 “pretty intoxicated” at the time of the fighting. He drank “at least two bottles of Jack Daniels” before the fighting started, and about a quart of brandy afterward with his mother. Lonnie and Erica’s neighbor, Robert Lawrence, also testified about the night of the shooting. After hearing noises outside, he went outside and saw a fight in the middle of the street. Both J.L. and Lonnie were present and outnumbered. J.L. was fighting someone, and Lonnie was trying to pull someone off J.L. and break up the fight. Several kids hit Lonnie and Lonnie, in turn, hit back while trying to end the fight. According to Lawrence’s initial testimony, he never saw Lonnie with a weapon, though he saw “something next to him” after he was shot. But after a three-day break in his testimony, he said Lonnie in fact did have a weapon, which was about 18 inches long. He also said Lonnie raised the weapon threateningly, though he never swung it. Lawrence stated he was heading back toward his home when he heard a gunshot. He then heard Lonnie say, “They shot me in the dick,” and saw Lonnie grab that area. During the questioning of several witnesses, the parties asked about a souvenir baseball bat found at the scene. Erica said she had never seen the bat before. J.L., on the other hand, said he had seen the bat. After the shooting, J.L. saw others run, heard a bat fall to the ground, and then saw a bat on the ground about 14 feet from Lonnie. The souvenir baseball bat was the bat he saw. J.L. added that he never saw anyone holding the bat and had never seen that bat in his house. Rutherford also recalled seeing a souvenir baseball bat, though in his telling, Lonnie used the bat as a weapon. He said Lonnie’s weapon “looked like one of those little souvenir baseball bats you get at the baseball parks. It looked like one of those.” But he then said he only made that determination at a later date; around the time of the shooting, he did not “know what it was.” Lawrence did not recognize the bat, but he said the weapon he saw Lonnie carrying was about the size of the bat. 5 Following the above witnesses’ testimony, several officers testified that each of these witnesses had offered a materially different account in their statements shortly following the shooting. Although, for instance, Lawrence testified he saw Lonnie hit someone during the fighting, he told an officer that Lonnie never hit anyone. And although Lawrence ultimately testified he saw Lonnie carrying a weapon during the fighting, he told officers otherwise in his initial statement: “He did not see a weapon in [Lonnie’s] hands.” J.L.’s and Erica’s testimony likewise occasionally strayed from their statements to officers. Although J.L. testified that the minor pointed a gun at him, he told officers he only heard the gunshot; he never actually saw the gun. And although Erica testified that the minor pointed the gun at her and J.L., she never mentioned that detail in her statement to officers. Nor, in her statement to officers, did she say she saw the minor point the gun at Lonnie or anyone else. Erica also informed the officers that she could not see exactly who was involved because she was not wearing her glasses. The minor’s and Rutherford’s testimony also occasionally departed from their statements to officers. The minor, for instance, testified he had no experience with guns. But he earlier told officers differently: He had been shooting with his father a couple of times before Lonnie’s death. He also testified he believed Lonnie was on drugs, likely methamphetamine. But he made no mention of this detail in his interview with the officers. He further said Lonnie was eight feet away at the time he fired the gun, not four feet away as he testified. Rutherford also described the facts somewhat differently in these two settings. Although he testified about being present during the shooting, he initially told an officer he knew nothing about the shooting. And after he acknowledged being present in a later interview with officers, he told the officers that Lonnie hit him with a weapon on the head—not, as he testified, that Lonnie hit him on the back. The parties’ remaining evidence largely concerned security camera footage, character evidence about Lonnie, and character evidence about the minor. A detective 6 reviewed surveillance videos taken from several home security systems, including from Lawrence’s house and Erica and Lonnie’s house. In viewing the video footage, the detective never saw Lonnie carrying a weapon. But the detective acknowledged he could not see Lonnie’s left hand and part of his left arm. The character evidence about Lonnie was both good and bad. The good character evidence came from a man who had dated Erica’s sister for nine years. He said he had never witnessed Lonnie act violently toward anyone during the nine years he was with Erica’s sister, never saw him use methamphetamine “or any of that type of stuff,” and found him to be a “very kind, kind man.” The bad character evidence came from a 2009 article that the parties stipulated should be admitted into evidence. One minor, who was 11 years old at the time, said Lonnie asked her to perform oral sex on him and, when she refused, Lonnie threatened to tie her up and throw her in the river if she told anyone. Another minor, who was then 15 years old, said Lonnie gave him valium and a morphine patch after he reported pain following yard work. Later the same day, Lonnie told the boy to sleep with him and his wife and, the morning after, hit the boy in the legs with a belt because he thought the boy disclosed what happened. A third minor, who was then around 16 years old, said Lonnie and Erica gave her hallucinogenic mushrooms and tried to have sex with her. After the minor refused, Lonnie and Erica had sex in front of her. The character evidence about the minor concerned his good character. His mother testified that he is nonviolent, loving, honest, and helpful with family. Another witness, Jodi Hernandez, testified similarly. She met the minor when she was an assistant at an in-school suspension room. She first became familiar with the minor and his family after tutoring his sister at the minor’s home, and she later saw the minor at the in-school suspension room after he stopped going to school. Over time, Hernandez became close to the minor and his family. She believed the minor was honest, was not an aggressive person, and was not violent. 7 After hearing the parties’ evidence, the juvenile court found the minor committed second degree murder. Although the minor claimed self-defense and imperfect self- defense, the court found neither applicable. It reasoned, among other things, that the evidence showed the minor acted because Lonnie “ma[d]e a wise crack about you’re just basically a punk kid” and “that’s not a real gun,” not “because of a fear.” The court also found the minor “personally used a firearm within the meaning of Penal Code [1 ] [s]ection 12022.5[, subdivision ](b) as alleged in the enhancement,” though the only statute cited for the alleged enhancements was section 12022.53.2 The court committed the minor to the Division of Juvenile Justice for 15 years for the murder. It intentionally added no additional time for the firearm enhancement, but it never explicitly struck the enhancement or the punishment for the enhancement. The minor timely appealed. DISCUSSION I Substantial Evidence The minor first contends the juvenile court’s finding that he committed second degree murder lacks evidentiary support. He reasons that because the prosecution presented insufficient evidence to rebut his claim of imperfect self-defense, the juvenile court should have found he committed voluntary manslaughter, not second degree murder. We disagree. “ ‘Second degree murder is the unlawful killing of a human being with malice, but without the additional elements (i.e., willfulness, premeditation, and deliberation) that would support a conviction of first degree murder.’ ” (People v. Chun (2009) 45 Cal.4th 1 Undesignated statutory references are to the Penal Code. 2 The court’s minute order, unlike its oral pronouncement, cites to section 12022.53, subdivision (d). The court later cited this same provision during the disposition hearing. 8 1172, 1181; see §§ 187, subd. (a), 189.) Voluntary manslaughter, in turn, is the unlawful killing of another without malice. (§ 192, subd. (b).) In one of its forms, voluntary manslaughter is called imperfect (or unreasonable) self-defense manslaughter. (People v. Elmore (2014) 59 Cal.4th 121, 134 [“Unreasonable self-defense is ‘not a true defense; rather, it is a shorthand description of one form of voluntary manslaughter’ ”].) Under this theory of voluntary manslaughter, a person kills another based on “ ‘an honest but unreasonable belief in the necessity to defend against imminent peril to life or great bodily injury’ ” and lacks the malice necessary for first and second degree murder. (Ibid.) In this case, we find sufficient evidence supports the juvenile court’s finding that the minor committed second degree murder. In evaluating the minor’s contention, we must “ ‘ “review the entire record in the light most favorable to the judgment to determine whether it contains substantial evidence—that is, evidence that is reasonable, credible, and of solid value—from which a reasonable trier of fact could find the [the minor committed the alleged act] beyond a reasonable doubt.” ’ ” (People v. Lee (2011) 51 Cal.4th 620, 632.) Our job is not to evaluate witness credibility, “ ‘for it is the exclusive province of the trial judge or jury to determine the credibility of a witness and the truth or falsity of the facts upon which a determination depends.’ ” (Ibid.) Nor is it our job to reweigh the evidence. We instead must resolve all conflicts in the evidence in favor of the judgment’s findings, so long as these findings are based on substantial evidence and not speculation, supposition, or conjecture. (Ibid.; People v. Davis (2013) 57 Cal.4th 353, 360.) Applying this deferential standard here, we find sufficient evidence supports the finding of second degree murder. After seeing a friend in a fight with J.L., the minor grabbed his gun from his girlfriend’s house, went back outside, and then approached J.L. According to J.L., the minor pointed the gun at his chest and said he was “going to blow [his] fucking brains out.” And according to Erica, the minor pointed the gun at J.L., then 9 at her, and finally at Lonnie. Both J.L. and Erica heard Lonnie taunt the minor about the gun, calling it a “BB gun” or a “pellet gun.” Erica also heard Lonnie call the minor “stupid” and a “[p]unk kid[].” The minor acknowledged these comments left him “pissed” (though “not mad”) and wanting to prove he had a real gun. He also acknowledged he told Lonnie, “I’m not like these other people. I will really shoot you.” Following Lonnie’s taunting, J.L. and Erica heard a shot and heard Lonnie say, “He shot me” or “he just shot me.” Before the shooting, neither J.L. nor Erica saw Lonnie carrying a weapon. Nor does any of the surveillance video footage show Lonnie carrying a weapon, though, again, the footage never shows Lonnie’s left hand and part of his left arm. J.L., moreover, never heard Lonnie make any threats, and neither J.L. nor Erica ever saw Lonnie move toward the minor. Considering this record, we find the evidence sufficiently supports a finding that the minor shot Lonnie because he was “pissed” and wanted to prove he had a real gun, not because he feared for his safety. And that is what the juvenile court found. In the court’s words, “That’s not somebody who is acting because of a fear. . . . That’s somebody who is responding to somebody who makes a wise crack about you’re just basically a punk kid. And that’s not a real gun.” Although other evidence in the record also supports a contrary finding that the minor acted because he feared Lonnie, the juvenile court acted within its discretion in declining to credit this evidence. Relevant to this topic, three witnesses testified that Lonnie had a weapon, described at various times as a bat, a bar, and a wooden post. Lawrence, for example, testified that he saw Lonnie carrying a weapon about 18 inches long. But his testimony varied on this topic. First, he testified that Lonnie carried no weapon. But then, three days later, he testified that Lonnie did carry a weapon. And later still, he testified that he spoke truthfully with an officer about what transpired shortly after the shooting; and at that time, he said he did not see any weapon in Lonnie’s hands. Given Lawrence’s conflicting statements, the juvenile court reasonably could 10 have decided to credit Lawrence’s initial characterization of the facts in his statement to an officer—which in Lawrence’s own telling, was the truth. Two other witnesses also testified about seeing Lonnie carrying a weapon: Rutherford and the minor. But the juvenile court reasonably found both their statements not credible. Rutherford was the minor’s friend, said he testified to help the minor, and acknowledged he was “pretty intoxicated” the night of the shooting, having had “at least two bottles of Jack Daniels” with a friend before the shooting and a quart of brandy after the shooting with his mother. He also gave conflicting statements about the details of the shooting. He initially told officers he knew nothing about the shooting. But later he told officers otherwise. He also told officers Lonnie hit him on the head with a weapon. But at the hearing, he said Lonnie hit him on the back. He further claimed at the hearing that the weapon “looked like one of those little souvenir baseball bats,” apparently similar to the baseball bat found at the scene. But he then said that at the time of the shooting he did not actually know what the weapon looked like; he only later managed to determine that the weapon “looked like one of those little souvenir baseball bats.” Considering Rutherford’s motive to help the minor, his intoxication the night of the shooting, and his changing statements, the juvenile court reasonably could have doubted (and ultimately did doubt) his credibility. The juvenile court also had grounds for doubting the minor’s credibility. The minor, as covered already, gave conflicting statements about his experience with firearms. At the hearing, he said he had no experience using guns. But in his earlier interview with a detective, he acknowledged he had shot guns with his father before Lonnie’s death. The minor’s characterization of the night of the shooting also appeared questionable. He said Lonnie had a weapon, acted aggressively, appeared to be on drugs, and acted unafraid of the gun. He added that he could not turn his back on Lonnie because Lonnie was only four feet away and “anything could happen.” But he then said that after he fired his gun to scare Lonnie, he casually turned his back on Lonnie and 11 started walking away—even though he initially thought he had missed Lonnie and even though he had just claimed he could not turn his back on Lonnie because Lonnie was so close and “anything could happen.” Considering this testimony, the juvenile court reasonably expressed doubt about the minor’s credibility. It said: “If there was an imminent [danger3 ] and [the minor] was not sure he hit him, he wouldn’t just be turning around to walk away. And if he’s only firing at him to scare him, one might think he would have immediately gone over to see if he was okay. This was all an accident. But he did not.” The minor nonetheless maintains that the juvenile court should have found in his favor. But in making his argument, he evinces a misunderstanding of the relevant standard on appeal. He argues: “[S]ubstantial evidence supported the verdict of voluntary manslaughter on the theory of an actual but unreasonable belief that [Lonnie] was about to assault [the minor] with the potential for killing him or inflicting great bodily injury upon him. Therefore, [the minor’s] second-degree murder conviction (count found true) must be reversed and a finding that he committed a voluntary manslaughter imposed.” But the question is not whether substantial evidence supports the minor’s position; it is instead whether substantial evidence supports the juvenile court’s decision. And for the reasons covered, we find it does. 3 The court omitted the word danger in its statement. It said: “If there was an imminent and [the minor] was not sure he hit him.” But shortly before this statement, the court discussed the requirements for self-defense, stating that the minor must have “reasonably believed that he was in imminent danger of being killed or suffering great bodily injury.” Considering this context, we understand that the court meant to say “an imminent danger,” not simply “an imminent.” 12 II The Juvenile Court’s Misstatements About Imperfect Self-Defense The minor also contends the juvenile court prejudicially misunderstood the standard for imperfect self-defense. He notes that the juvenile court wrongly characterized imperfect self-defense as follows: “Imperfect self-defense is where there’s one who would use like an excessive force; where one might have a defense of self- defense and use excessive or inappropriate force.” The minor adds that the juvenile court applied this flawed understanding of imperfect self-defense to the facts of this case when it stated: “[This is] not a situation where there might be some force that would be appropriate and somebody uses excessive force. So that is why I don’t think it’s imperfect self-defense.” We reject his argument. The juvenile court, it is true, misstated the applicable standard for imperfect self- defense in these instances. As covered above, under the theory of imperfect self-defense, the trier of fact considers whether the actor had “ ‘an honest but unreasonable belief in the necessity to defend against imminent peril to life or great bodily injury’ ” (People v. Elmore, supra, 59 Cal.4th at p. 134)—not, as the juvenile court represented, whether the actor had some ground for acting in self-defense but used excessive force. Under the applicable standard, an actor may have no valid reason for acting in self-defense, yet still be entitled to invoke the doctrine of imperfect self-defense. But not so under the juvenile court’s stated standard. Under the court’s understanding, even if the actor had an actual but unreasonable belief in the necessity to defend against imminent danger of death or great bodily injury, that would not be enough unless the actor also had a legitimate reason for using at least some force in self-defense. But although the juvenile court evinced a misunderstanding of the appropriate inquiry in these statements, it ultimately (and appropriately) based its decision on an evaluation of the minor’s actual beliefs. After discussing the minor’s conduct, it said the following about the minor in rejecting his claim of imperfect self-defense: “That’s not 13 somebody who is acting because of a fear. . . . That’s somebody who is responding to somebody who makes a wise crack about you’re just basically a punk kid. And that’s not a real gun.” The court similarly, discounting the minor’s claimed fear of Lonnie, said: “If there was an imminent [danger] and [the minor] was not sure he hit him, he wouldn’t just be turning around to walk away.” The minor’s conduct, in other words, belied his claim that he feared Lonnie and feared imminent danger of death or great bodily injury. These statements show the juvenile court ultimately rejected the minor’s claim of imperfect self-defense on a valid ground—the evidence negated his claim that he acted because he feared imminent peril. In the end, then, “even though the court, in isolated instances, misstated the applicable standard,” “[t]he record of the hearing as a whole persuades us . . . it nevertheless applied the proper concept.” (People v. Mayfield (1993) 5 Cal.4th 142, 196.) III Sentence Enhancement Apart from addressing the minor’s arguments, we also address one sentencing issue. In its petition, the prosecution alleged three firearm enhancements. It alleged the minor personally used a firearm within the meaning of section 12022.53, subdivision (b), personally discharged a firearm within the meaning of section 12022.53, subdivision (c), and personally discharged a firearm causing great bodily injury or death within the meaning of section 12022.53, subdivision (d). The juvenile court purported to find one of the alleged enhancements true. It found the minor “personally used a firearm within the meaning of Penal Code [s]ection 12022.5[, subdivision ](b) as alleged in the enhancement,” though, again, the prosecution alleged firearm enhancements within the meaning of a different code section—section 12022.53. The court afterward committed the minor to the Division of Juvenile Justice for 15 years and intentionally declined to 14 impose any additional time for the firearm enhancement. But the court never purported to strike either the enhancement or the additional punishment for the enhancement. We will remand to the juvenile court to clarify the applicable statute for the firearm enhancement and to clarify whether it intended to impose or strike the enhancement. (See People v. Hunt (1977) 19 Cal.3d 888, 897 [“a use finding cannot be dismissed or struck sub silentio”]; see also §§ 1385, subds. (a)-(b) [court can strike an enhancement entirely or “instead strike the additional punishment for that enhancement”]; § 12022.53, subd. (h) [“court may, in the interest of justice pursuant to Section 1385 and at the time of sentencing, strike or dismiss an enhancement otherwise required to be imposed by this section”]; People v. Vizcarra (2015) 236 Cal.App.4th 422, 432 [“a trial court’s failure either (1) to pronounce sentence on a statutory sentence- enhancement allegation based upon a finding by the trier of fact or an admission by the defendant that the allegation is true, or (2) to exercise its discretion—to the extent imposition of the enhancement is discretionary—to either strike the enhancement allegation or impose the enhancement, results in an unauthorized sentence”].) DISPOSITION The matter is remanded to the juvenile court to clarify the applicable statute for the firearm enhancement and to clarify whether it intended to impose or strike the enhancement. The judgment is otherwise affirmed. /s/ BOULWARE EURIE, J. We concur: /s/ HULL, Acting P. J. /s/ MAURO, J. 15	01-04-2023	11-22-2022
https://www.courtlistener.com/api/rest/v3/opinions/8488788/	Filed 11/22/22 P. v. Miner CA2/8 Opinion following transfer from Supreme Court 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 EIGHT THE PEOPLE, B301803 Plaintiff and Respondent, Los Angeles County Super. Ct. No. LA044952 v. GREGORY DOUGLAS MINER, Defendant and Appellant. APPEAL from an order of the Superior Court of Los Angeles County, Alan Schneider, Judge. Reversed. Jonathan E. Demson, under appointment by the Court of Appeal, for Defendant and Appellant. Xavier Becerra and Rob Bonta, Attorneys General, Lance E. Winters, Chief Assistant Attorney General, Susan Sullivan Pithey, Senior Assistant Attorney General, Charles S. Lee and Nicholas J. Webster, Deputy Attorneys General, for Plaintiff and Respondent. ____________________ Gregory Douglas Miner appeals the trial court’s denial of his request for resentencing under former Penal Code section 1170.95. (Effective June 30, 2022, section 1170.95 was renumbered section 1172.6, with no change in text (Stats. 2022, ch. 58, § 10).) On March 30, 2021, we held that Miner’s special circumstance findings made him ineligible for resentencing and we affirmed the trial court’s ruling. On October 19, 2022, the Supreme Court directed us to vacate that decision and reconsider in light of People v. Strong (2022) 13 Cal.5th 698 (Strong). Miner and the prosecution now agree we should reverse the trial court. We reverse and remand for further proceedings. Statutory citations are to the Penal Code. In 2007, a jury convicted Miner of two counts of first degree robbery (§ 211), one count of first degree burglary (§ 459), and two counts of first degree murder (§ 187, subd. (a)). The jury found true special circumstances that each murder occurred during a robbery and burglary. (§ 190.2, subd. (a)(17).) It also found Miner personally used a knife in the murders, robberies, and burglary. (§ 12022, subd. (b)(1).) On February 19, 2019, Miner filed a petition for resentencing under former section 1170.95. The court denied the petition. It found Miner failed to make a prima facie case because of the jury’s special circumstance and knife findings, and because the murder victims were stabbed and their house was set on fire. The court reasoned that Miner was the actual killer or a major participant who acted with reckless indifference to human life. We agree with Miner and the prosecution that we must reverse because of Strong. In Strong, the California Supreme 2 Court held that felony-murder special circumstance findings that predate People v. Banks (2015) 61 Cal.4th 788 and People v. Clark (2016) 63 Cal.4th 522 do not preclude relief under section 1172.6 at the prima facie stage. (Strong, supra, 13 Cal.5th at pp. 717–718.) Furthermore, courts cannot independently examine the record at the prima facie stage to evaluate whether there is sufficient evidence to sustain special circumstance findings under Banks and Clark. (Id. at pp. 718–720.) We remand for the trial court to issue an order to show cause under section 1172.6, subdivision (c) and to follow the procedures of section 1172.6, subdivision (d). DISPOSITION We reverse the order denying Miner’s resentencing petition and remand for further proceedings under Penal Code section 1172.6, subdivisions (c) and (d). WILEY, J. We concur: STRATTON, P. J. GRIMES, J. 3	01-04-2023	11-22-2022
https://www.courtlistener.com/api/rest/v3/opinions/8488797/	Filed 11/22/22 In re I.B. CA4/2 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. IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA FOURTH APPELLATE DISTRICT DIVISION TWO In re I.B., a Person Coming Under the Juvenile Court Law. SAN BERNARDINO COUNTY CHILDREN AND FAMILY SERVICES, E079403 Plaintiff and Respondent, (Super.Ct.No. J285274) v. OPINION J.B., Defendant and Appellant. APPEAL from the Superior Court of San Bernardino County. Steven A. Mapes, Judge. Conditionally reversed and remanded with directions. Michelle D. Pena, under appointment by the Court of Appeal, for Defendant and Appellant. Tom Bunton, County Counsel, Svetlana Kauper, Deputy County Counsel for Plaintiff and Respondent. 1 Defendant and appellant J.B. (Mother) appeals after the termination of her parental rights to I.B. (a boy, born June 2017; Minor) at a Welfare and Institutions Code section 366.261 hearing. Mother contends the juvenile court failed to make an express finding that ICWA did not apply. Further, the matter must be reversed for the failure of plaintiff and respondent San Bernardino County Children and Family Services (CFS) to adequately perform its initial duty of inquiry about Indian ancestry to determine whether Minor was an Indian child. Moreover, CFS failed to provide complete notice to the relevant tribes and Bureau of Indian Affairs (BIA) when it neglected to provide all available information. Remand is necessary in order for additional inquiry as to whether Minor is an Indian child and to provide adequate notice, if necessary. FACTUAL AND PROCEDURAL HISTORY A. DETENTION Mother and M.B. (Father) had a previous case involving Minor. The case was dismissed with family court orders giving custody of Minor to Father. Father married A.R. (Stepmother). Father was convicted of assault with a deadly weapon and was given a seven-year prison sentence with a parole date of July 2021. Father executed an agreement in favor of Stepmother before going to prison, giving her temporary guardianship of Minor. On May 15, 2020, it was reported to CFS that Stepmother had been drinking 10 shots of alcohol a day in order to cope with the stress of taking care of Minor and to deal with Father’s incarceration. Previously, in April 2020, a social worker 1 All further statutory references are to the Welfare and Institutions Code unless otherwise indicated. 2 had gone to Stepmother’s home and Stepmother had tested clean. A safety plan was put in place for Stepmother to engage in random drug and alcohol testing. Stepmother had a positive test for alcohol on May 15, 2020. A meeting was held with Stepmother and CFS. Also present was a maternal aunt (Rebecca), and maternal great-grandmother. Stepmother reported taking between seven to 10 shots of alcohol every day for one year. She reported being a “heavy drinker,” and that she suffered from pancreatitis. She had been a heavy drinker since 2018. Stepmother and Father had separated prior to him going to jail but Minor remained with her. She drank to deal with her depression. She denied that her drinking impacted her ability to take care of Minor. Stepmother agreed to have Minor stay with Rebecca. Mother was interviewed on May 15, 2020. She was aware that Minor was being cared for by Stepmother. Stepmother and Mother were cousins. She was unaware that Stepmother suffered from alcoholism. She had never observed Stepmother drink alcohol. Mother had been visiting with Minor at maternal great-grandmother’s house. Mother agreed that it was best to have Rebecca care for Minor. Mother wanted to have Minor returned to her custody. Mother admitted that at the time Minor was born, Mother tested positive for methamphetamines. Mother was homeless and using drugs. She agreed to have Father take custody of Minor because she was unable to provide a stable environment. She had not used drugs since November 2018. Mother was committed to maintaining her sobriety. Mother was pregnant and agreed to drug test for CFS. Mother, Stepmother and Rebecca agreed that Minor could be placed with Rebecca. 3 A social worker spoke with Father on May 19, 2020. He was incarcerated and placed at Fire Camp. He insisted that he was unaware that Stepmother had a drinking problem. Although he and Stepmother were separated, he was hopeful they would reconcile. As of May 22, 2020, Mother had not drug tested. Mother had since disappeared. Minor was detained and placed in a foster home. On May 29, 2020, CFS filed a section 300 petition for Minor against Mother, Father and Stepmother (petition). It was alleged failure to protect pursuant to section 300, subdivision (b), that Father and Mother suffered from substance abuse problems and could not adequately care for Minor; Mother had failed to protect Minor from the behavior of Minor’s custodian, Stepmother, which put Minor at a risk of serious harm or injury. It was further alleged pursuant to section 300, subdivisions (b), and (j), that Minor had been removed from Mother’s care in 2017 due to her substance abuse problems and placed in the custody of Father. Mother completed a family find and ICWA inquiry form on June 1, 2020. She provided the names of maternal aunts Melissa N., and Rebecca. She checked the box that she may have Indian ancestry and named the Pala tribe. She also provided the name of maternal great-grandmother, her phone number, and only that she lived in Redlands. Mother also filed an ICWA-020 form indicating possible Indian ancestry in the Pala tribe. A detention hearing was held on June 1, 2020. Mother was present in court. The juvenile court found there was a prima facie case for detaining Minor. Mother was ordered to submit to drug and alcohol testing. The juvenile court noted that ICWA may 4 apply based on Mother’s claim of Indian ancestry in the Pala Indian tribe. Mother stated that maternal great-grandmother was a registered member. Father was ordered to submit an ICWA-020 form. Father requested that Minor be placed with paternal grandmother. B. JURISDICTION/DISPOSITION REPORT AND HEARING The jurisdiction/disposition report was filed on July 8, 2020. It was recommended that the allegations in the petition be found true. Stepmother should be dropped from the case as she had no legal standing in the case. Family reunification services should be granted to Mother but denied to Father. Minor had been placed in the home of maternal aunt, Ms. B, on May 29, 2020. The report stated that ICWA did not apply. It was noted that Mother had no known Indian ancestry. Inquiry of Father was made on July 6, 2017, and he denied Indian ancestry. A social worker tried to contact Mother on June 17, 2020, and July 6, 2020, at the phone number she had provided. A message was left for Mother but she had not returned the calls. On June 9, 2020, a social worker spoke with “maternal aunt/caregiver,” with no further identifying information, who denied any Indian ancestry. CFS attempted to contact Rebecca but her phone number was no longer in service. Mother had lost custody of Minor’s older sibling in 2016; Rebecca was named the legal guardian. Mother failed to show for a drug test on June 25, 2020, and results of a test on July 7, 2020 were still pending. Mother had not visited with Minor. Mother had prior convictions of being under the influence of drugs and maintaining a drug house. CFS reported that Father had an extensive criminal history including assault, drug offenses and burglary. 5 CFS recommended that family reunification services not be given to Father because of his incarceration and conviction of a violent felony. It was noted that ICWA noticing requirements had been initiated and Minor may come under the provisions of ICWA. Attached to the jurisdiction/disposition report was a minute order from the prior case in which custody was given to Father. The juvenile court had found that ICWA did not apply in that case. Additional information was provided to the juvenile court on August 21, 2020. Father remained incarcerated with an unknown release date. Mother had not contacted CFS during the reporting period. On August 25, 2020, the matter was set for the jurisdiction/disposition hearing but Father’s counsel requested a continuance so Father could be transported from prison. CFS was also seeking a continuance. Counsel for CFS stated, “We don’t have the ICWA done because we can’t get ahold of the mother to complete the ICWA 030, so we will try to find some family members to interview. Mom, I think, claimed Pala ancestry.” The matter was continued to October 8, 2020. On October 8, 2020, the matter was again continued in order for Father to be transported from prison and for CFS to complete its ICWA inquiry. On November 18, 2020, CFS filed its ICWA declaration of due diligence. CFS sent notice to the Pala Band of Missions Indians and BIA on November 12, 2020. No response had been received. The notice provided the names of Mother and Father, along with their birth dates and places. The notices provided the names of maternal grandmother and paternal grandmother. Birth dates were provided for both. A tribal 6 enrollment number was provided for maternal grandmother, who was listed as deceased. The names and birth dates of maternal and paternal grandfathers were also provided. Maternal great-grandmother’s maiden name was not provided. Her birth date was provided but not her birthplace or address. The only tribal affiliation was listed as the BIA. Maternal and paternal great-grandfather’s names were provided along with their birth dates. All of the paternal great-great-grandparents’ names were provided along with their birth dates. The matter was continued again on November 25, 2020. Another ICWA declaration of due diligence was filed on January 6, 2021. The Pala Indian tribe had acknowledged receipt of the notice on November 16, 2020. BIA acknowledged service on November 17, 2020. No confirmation had been received from any Indian tribes as of January 6, 2021. Additional information was provided to the juvenile court on January 12, 2021. A corrected criminal history for Father was provided. His release date from prison was still unknown. Mother had not been in contact with CFS during the reporting period. Minor remained with maternal aunt, Ms. B. The jurisdiction/disposition hearing was continued to January 13, 2021, as Father was scheduled to be released from prison. On February 9, 2021, CFS filed its ICWA Findings and Orders. CFS provided in its findings that ICWA did not apply as the required 65-day period of time since notice was received by the BIA and indicated tribes had passed with no affirmative response of tribal membership received. The order finding that ICWA did not apply was signed by the juvenile court. Included with the order was the final ICWA declaration of due 7 diligence. It provided that the Pala Indian tribe and BIA had been properly served and had not responded within 65 days. CFS filed a new findings and orders on February 16, 2021. It included that Minor may come under the provisions of ICWA and that noticing requirements had been initiated. CFS was now recommending reunification services for Father since he was out of prison. The jurisdiction/disposition hearing was held on February 16, 2021. Mother was not present. Father appeared telephonically. Father denied any Indian ancestry. CFS entered all of its reports, including the ICWA due diligence notices and the findings and orders on ICWA. Stepmother was dismissed from the action. Father’s counsel requested that Minor be returned to Father’s care. Father’s counsel also noted that the correct criminal history showed no drug convictions and was not as extensive as the original history provided. The petition was amended to eliminate the section 300, subdivision (j), allegation against Mother. As amended, the juvenile court found the allegations to be true. The juvenile court found, “I will adopt the findings and orders.” Family reunification services were ordered for both Mother and Father. Father filed a family find and ICWA inquiry form on February 16, 2021. He listed Stepmother and paternal grandmother with phone numbers. He filed an ICWA-020 form denying any Indian ancestry. 8 C. REVIEW REPORTS AND HEARINGS CFS filed a six-month review report on August 4, 2021. Minor remained in placement with Ms. B. She was willing to adopt Minor. It was recommended that reunification services for Mother and Father be terminated. The report stated that ICWA did not apply. Mother had not been in contact with CFS, but family members reported she had lost her baby. Mother had not participated in her reunification services. Mother had visited Minor only one time during the dependency proceedings. Minor did not recognize her as his mother. Father had completed his services, including therapy, parenting education, and having negative drug tests, but CFS was concerned about his protective capacity. Father continued to be in a relationship with Stepmother, he was living with her and he denied that Stepmother had a substance abuse problem. On July 28, 2021, Stepmother reported she had enrolled in an outpatient program on June 19, 2021, and would provide paperwork to CFS. Stepmother did not give the social worker consent to contact the program. Father had been consistent with visitation with Minor. Visits occurred at the home of maternal great-grandmother. Additional information was provided by CFS on September 23, 2021. Father had moved in with paternal grandmother. After he moved, Stepmother had died. Based on the change in circumstances, CFS was now recommending that Father be given additional reunification services. At the six-month review hearing held on September 27, 2021, reunification services were continued for Father but terminated for Mother. 9 A status review report was filed on November 18, 2021. The recommendation was that Minor remain in Ms. B’s home but that the permanent plan be to return home to Father. It was noted that ICWA did not apply. Father lived with paternal grandmother who was willing to help him with the care of Minor. Mother had not been in contact with CFS. Father had fully participated in reunification services up until the time of Stepmother’s death. He needed to complete more therapy sessions. CFS recommended additional services to Father. Additional information was provided to the court on November 22, 2021. Father had relapsed and tested positive for amphetamines on November 16, 2021. As such, CFS was no longer recommending an extension of reunification services, and recommended that services be terminated as to Father. The matter was set contested on February 16, 2022. Additional information was provided on February 15, 2022. Father had been arrested on a charge of possession of a firearm by a felon, burglary, and violation of his parole. Father had not completed any further services during the reporting period. CFS recommended termination of Father’s reunification services and adoption by Ms. B. At the review hearing on February 16, 2022, Father’s reunification services were terminated and the matter was set for a section 366.26 hearing. Mother was not present at the hearing. As for ICWA, CFS provided that it did not apply. It stated, “ICWA noticing was completed and the required sixty-five (65) day period of time since noticing was received by the [BIA] and indicated tribes passed with no affirmative response of tribal membership received.” 10 D. SECTION 366.26 REPORT AND HEARING The section 366.26 report was filed on June 9, 2022; Minor was four years old. The recommendation was termination of parental rights and adoption by Ms. B. Minor was strongly bonded to Ms. B and his cousins. ICWA did not apply as notice was given to the BIA and Pala tribe and no response had been received. Additional information was provided on July 8, 2022. CFS had made further ICWA inquiries. Two maternal aunts, Rebecca and Melissa, denied any Indian ancestry. CFS made several attempts to contact paternal grandmother, but received no response. CFS stated, “On July 7, 2022, the undersigned attempted to contact [maternal great- grandmother] to inquire about Native American Ancestry in her family.” Maternal great- grandmother had not returned the phone calls. Social workers were informed by Rebecca that maternal great-grandmother was bedridden and unable to respond to their inquiries. Rebecca offered to help facilitate a conversation between a social worker and maternal great-grandmother, but had yet to contact CFS. Father had not visited with Minor since February 23, 2022. Father did not have a strong bond with Minor. Minor had only one visit during the pending dependency proceedings with Mother, and he did not recognize her as his mother. CFS recommended that parental rights should be terminated. The section 366.26 hearing was conducted on July 11, 2022. Mother and Father were present in court. No affirmative evidence was presented. The juvenile court adopted all previous findings and orders that did not conflict with the termination of parental rights. Parental rights of Father and Mother were terminated and Minor was freed for adoption. 11 DISCUSSION Mother contends the juvenile court failed to make an express finding that ICWA did not apply. Further, the matter must be reversed for the failure of CFS to adequately perform its initial duty of inquiry about Indian ancestry to determine whether Minor was an Indian child. Moreover, it failed to provide complete notice to the relevant tribes and BIA when it neglected to provide all available information. Remand is necessary in order for additional inquiry as to whether Minor is an Indian child and to provide adequate notice, if necessary. Since we conclude, post, that remand is necessary in order for CFS to conduct further inquiry, we need not address the issue of whether the juvenile court made an express finding that ICWA did not apply. “Congress enacted ICWA in 1978 in response to ‘rising concern in the mid -1970’s over the consequences to Indian children, Indian families, and Indian tribes of abusive child welfare practices that resulted in the separation of large numbers of Indian children from their families and tribes through adoption or foster care placement, usually in non- Indian homes.’ ” (In re Isaiah W. (2016) 1 Cal.5th 1, 7.) “ ‘Notice to Indian tribes is central to effectuating ICWA’s purpose, enabling a tribe to determine whether the child involved in a dependency proceeding is an Indian child and, if so, whether to intervene in, or exercise jurisdiction over, the matter.’ ” (In re S.R. (2021) 64 Cal.App.5th 303, 313.) “ICWA provides: ‘In any involuntary proceeding in a State court, where the court knows or has reason to know that an Indian child is involved, the party seeking the foster care placement of, or termination of parental rights to, an Indian child , . . . shall 12 notify the parent or Indian custodian and the Indian child’s tribe, by registered mail with return receipt requested, of the pending proceedings and of their right of intervention.’ [Citation.] ICWA also requires child welfare agencies to notify the [BIA] of the proceedings, if the juvenile court knows or has reason to know the child may be an Indian child but the identity of the child’s tribe cannot be determined.” (In re N.G. (2018) 27 Cal.App.5th 474, 479-480, fns. omitted.) “ ‘ICWA itself does not impose a duty on courts or child welfare agencies to inquire as to whether a child in a dependency proceeding is an Indian child.’ . . . . [¶] . . . ‘ICWA provides that states may provide “a higher standard of protection to the rights of the parent or Indian custodian of an Indian child than the rights provided under” ICWA.’ ” (In re J.S. (2021) 62 Cal.App.5th 678, 685.) Pursuant to California law, “section 224.2 creates three distinct duties regarding ICWA in dependency proceedings. First, from the [CFS]’s initial contact with a minor and his family, the statute imposes a duty of inquiry to ask all involved persons whether the child may be an Indian child. [Citation.] Second, if that initial inquiry creates a ‘reason to believe’ the child is an Indian child, then the Agency ‘shall make further inquiry regarding the possible Indian status of the child, and shall make that inquiry as soon as practicable.’ [Citation.] Third, if that further inquiry results in a reason to know the child is an Indian child, then the formal notice requirements of section 224.3 apply.” (In re D.S. (2020) 46 Cal.App.5th 1041, 1052.) “ ‘ “The juvenile court must determine whether proper notice was given under ICWA and whether ICWA applies to the proceedings.” ’ [Citation.] ‘If the court makes 13 a finding that proper and adequate further inquiry and due diligence as required in [section 224.2] have been conducted and there is no reason to know whether the child is an Indian child, the court may make a finding that [ICWA] does not apply to the proceedings, subject to reversal based on sufficiency of the evidence.’ ” (In re Y.W. (2021) 70 Cal.App.5th 542, 552; see also In re A.M. (2020) 47 Cal.App.5th 303, 314.) “On appeal, we review the juvenile court’s ICWA findings for substantial evidence.” (In re D.S., supra, 46 Cal.App.5th at p. 1051.) Here, CFS made initial inquiries with Mother and Father. Mother reported on June 1, 2020, on the family find and ICWA inquiry form, that maternal great- grandmother was registered with the Pala Indian tribe. Mother confirmed this information at the detention hearing. CFS continued the matter several times in order to obtain further information from Mother or extended relatives. CFS then prepared the notice sent to the BIA and Pala Indian Tribe on November 12, 2020. The notice sent to the BIA and Pala Indian tribe listed the registered member as maternal grandmother, who was deceased. As for maternal great-grandmother, who Mother identified as the registered member to CFS, she was listed with a name that was different than the name provided by Mother. The only information listed was her birth date. No known address was provided and tribal membership was listed as the BIA. The BIA and Pala Indian tribe never responded to the inquiry. Once the 65 days passed, the juvenile court signed its findings and orders that ICWA did not apply. However, CFS continued to inquire regarding Minor’s possible Indian ancestry. 14 On August 16, 2021, CFS provided in its status review report that Father had been visiting with Minor. Such visits occurred at maternal great-grandmother’s house. The next inquiry occurred just prior to the section 366.26 hearing on July 7, 2022. This was two years since Mother had filed the initial ICWA form. CFS noted that it had attempted to contact maternal great-grandmother but was unsuccessful. CFS stated they wanted to interview her as to the family’s Indian ancestry. Based on the record, CFS did not try to interview maternal great-grandmother until two years after Mother reported maternal great-grandmother was the registered member. CFS was unable to reach maternal great-grandmother and never interviewed her. Maternal great-grandmother was “readily available” to CFS at least in August 2021, based on Father visiting Minor at her home. (In re Benjamin M. (2021) 70 Cal.App.5th 735, 744-745 [child protective services conceded it “failed to obtain information that appears to have been both readily available and potentially meaningful” and remand for further inquiry was appropriate].) Further, maternal great-grandmother’s name was listed differently on the ICWA notice than the name Mother provided. CFS listed yet another name on the final report in July 2022. Maternal great-grandmother’s correct name is not clear from the record. It is not clear whether her proper name was provided on the ICWA notice. Further, Mother reported that maternal great-grandmother was the registered member, but the notice to the BIA and Pala Indian tribe listed maternal grandmother as the registered member. No other information was provided as to maternal great-grandmother’s birth date or address. 15 CFS did not make an adequate inquiry in failing to interview maternal great- grandmother. It further failed to provide accurate information on the notice to the BIA and Pala Indian tribe. As such, even if we were to conclude the juvenile court made an implied finding that the agency conducted an adequate inquiry into Minor’s Indian ancestry and gave proper notice, such conclusion was not supported by substantial evidence based on CFS’s failure to interview maternal great-grandmother, despite having access to her throughout the dependency proceedings, and Mother stating she was a registered member. Maternal great-grandmother could have provided valuable information about Minor’s Indian ancestry. Remand for further inquiry is appropriate as there is the “probability of obtaining meaningful information.” (In re Benjamin M., supra, 70 Cal.App.5th at p. 744.) We also note that Father had denied any potential Indian ancestry on numerous occasions. The record does not establish if any of his extended relatives were asked about Indian ancestry. Upon remand, CFS should further inquire of Father’s extended relatives of any possible Indian ancestry. DISPOSITION The orders terminating parental rights to Minor are conditionally reversed and the case is remanded to the juvenile court with directions to comply with the inquiry and notice provisions of ICWA and of sections 224.2 and 224.3. If, after the court finds adequate inquiry has been made, the court finds ICWA applies, the court shall vacate its existing orders and proceed in compliance with ICWA and related California law. If the 16 court finds ICWA does not apply, the orders terminating parental rights to Minors shall immediately be reinstated. In all other respects, the court’s orders are affirmed. NOT TO BE PUBLISHED IN OFFICIAL REPORTS MILLER Acting P. J. We concur: CODRINGTON J. FIELDS J. 17	01-04-2023	11-22-2022
https://www.courtlistener.com/api/rest/v3/opinions/8488821/	11/22/2022 IN THE SUPREME COURT OF TENNESSEE AT NASHVILLE May 3, 2022 Session CITY OF KNOXVILLE, TENNESSEE v. NETFLIX, INC. ET AL. Certified Question of Law from the United States District Court for the Eastern District of Tennessee No. 3-20-CV-00544-DCLC-DCP Clifton L. Corker, Judge ___________________________________ No. M2021-01107-SC-R23-CV ___________________________________ This is a case about fitting new technology into a not-so-new statutory scheme. Exercising our power to answer questions certified to us by federal courts, we consider whether two video streaming services—Netflix, Inc. and Hulu, LLC—provide “video service” within the meaning of a Tennessee law that requires such providers to obtain a franchise and pay franchise fees to localities. Netflix and Hulu say they do not provide “video service” and therefore do not owe franchise fees; the City of Knoxville says they do. We agree with Netflix and Hulu. Tenn. Sup. Ct. R. 23 Certified Question of Law SARAH K. CAMPBELL, J., delivered the opinion of the court, in which ROGER A. PAGE, C.J., and SHARON G. LEE, JEFFREY S. BIVINS, and HOLLY KIRBY, JJ., joined. Victor Jih, Los Angeles, California, and John L. Farringer and Hunter Branstetter, Nashville, Tennessee, for the petitioner, Hulu, LLC. Mary Rose Alexander and Robert C. Collins III, Chicago, Illinois, Jean A. Pawlow and Gregory G. Garre, Washington, D.C., and W. Tyler Chastain, Knoxville, Tennessee, for the petitioner, Netflix, Inc. James Gerard Stranch, IV and Benjamin A. Gastel, Nashville, Tennessee, Austin Tighe, Michael Angelovich, and Chad E. Ihrig, Austin, Texas, and Justin J. Hawal, Mentor, Ohio, for the respondent, City of Knoxville, Tennessee. John Bergmayer, Washington, D.C., and Buck Lewis and Charles C. McLaurin, Nashville, Tennessee, for the amicus curiae, Public Knowledge. Buck Lewis and Charles C. McLaurin, Nashville, Tennessee, and Pantelis Michalopoulos, Matthew R. Friedman, and Jared R. Butcher, Washington, D.C., for the amici curiae, DISH Network Corp. and DISH Network L.L.C. Mandy Strickland Floyd, Nashville, Tennessee, and Adam H. Charnes, Dallas, Texas, for the amicus curiae, DIRECTV, LLC. OPINION I. In the cable industry, a “franchise” is authorization from a government entity to construct or operate a cable system in the public rights-of-way. See 47 U.S.C. § 522(9)– (10). Federal law allows state and local governments to issue franchises within their jurisdictions. See id. § 541(a); see also id. § 521(3). This allocation of authority reflects the principal justification for cable franchising—localities’ “need to regulate and receive compensation for the use of public rights-of-way.” In re Implementation of Section 621(a)(1) of the Cable Communications Policy Act of 1984 as amended by the Cable Television Consumer Protection and Competition Act of 1992, 22 FCC Rcd. 5101, 5135 (Mar. 5, 2007) (hereinafter FCC Order). Before reforming its franchise system in 2008, Tennessee, like many States, allowed counties and municipalities to exercise this authority by granting franchises at the local level. Tenn. Code Ann. § 7-59-102 (2005) (amended 2008). And traditional cable companies, which provide cable television through cable facilities—e.g., equipment such as transmission lines—located in the public rights-of-way, were the primary franchise recipients. FCC Order, 22 FCC Rcd. at 5103, 5135; see also U.S. Dep’t of Justice, Voice, Video and Broadband: The Changing Competitive Landscape and Its Impact on Consumers 5, 9, A-2 (Nov. 2008), https://perma.cc/4JWA-65NF (hereinafter DOJ Report). The entry of new competitors into the cable market led to changes in the local character of franchising, but not its facilities-based nature. In the mid-2000s, telephone companies like AT&T and Verizon began upgrading their existing networks to allow bundling of video, internet, and telephone services. FCC Order, 22 FCC Rcd. at 5103; DOJ Report, supra, at 6–9; see also Robert W. Crandall et al., Does Video Delivered over a Telephone Network Require a Cable Franchise?, 59 Fed. Comm. L.J. 251, 253 (2007). Many of these new entrants already had access to public rights-of-way but sought cable franchises to upgrade old facilities and build new ones. FCC Order, 22 FCC Rcd. at 5103, 5108, 5112. That process was cumbersome, because they often needed to obtain franchises from as many as thousands of localities. Id. at 5108–09, 5112 & n.72, 5120; see also Crandall et al., supra, at 253–54. In response, several States passed legislation to streamline the franchising process. FCC Order, 22 FCC Rcd. at 5109. Tennessee was among them. In 2008, the Tennessee -2- General Assembly enacted the Competitive Cable and Video Services Act (the “Act”). Act of May 15, 2008, ch. 932, 2008 Tenn. Pub. Acts 479, 480–525 (codified at Tenn. Code Ann. §§ 7-59-301 to -318 (2015 & Supp. 2022)). While the Act preserved the option of negotiating franchise agreements with individual localities, it offered cable and video service providers the alternative of obtaining a state-issued certificate of franchise authority that would apply in multiple jurisdictions across the State. Tenn. Code Ann. § 7-59- 304(a)(2). The Act has two essential features that are relevant here. First, the Act requires “[a]ny entity . . . seeking to provide cable or video service over a cable system or video service network facility” to obtain a franchise. Id. § 7-59-304(a)(1); see also id. § 7-59- 305(a) (requiring “a cable or video service provider [to] file an application [for a state- issued franchise] with the [Tennessee Public Utility Commission]”). A “franchise” “authoriz[es]” a cable or video service provider “to construct and operate a cable or video service provider’s facility within the public rights-of-way used to provide cable or video service.” Id. § 7-59-303(8) (incorporating definition from 47 U.S.C. § 522(9)); see also id. § 7-59-305(e). The Act defines the term “video service” to mean “the provision of video programming through wireline facilities located, at least in part, in the public rights-of-way without regard to delivery technology, including Internet protocol technology or any other technology.” Id. § 7-59-303(19); see also id. § 7-59-303(20) (defining a “video service provider” as “a provider of video service”). The Act, however, excludes from the definition of “video service” “any video programming . . . provided as part of, and via, a service that enables end users to access content, information, electronic mail or other services offered over the public Internet.” Id. § 7-59-303(19). Second, the Act provides that—in exchange for receiving authorization to use a locality’s public rights-of-way—the holder of a state-issued franchise must pay a franchise fee. Id. § 7-59-306(a). The fee is based primarily on the holder’s gross revenues from providing cable or video service within a specific city or county, id., and the holder pays this fee to the relevant locality, id. § 7-59-306(c)(1). The fee is “intended as a form of compensation for the provider’s occupancy of the public rights-of-way” in the city or county, and a locality may not impose any other taxes or fees on providers for that purpose. Id. § 7-59-306(i). The Act thus ties the franchise-fee obligation to physical occupation of public rights-of-way in specific localities—consistent with the principal justification for cable franchising. Since the Act’s passage, facilities-based providers have obtained franchises to build and operate networks in Tennessee’s public rights-of-way. See Tennessee Advisory Commission on Intergovernmental Relations, Local Government Revenue in Tennessee and the Evolving Market for Cable Television, Satellite Television, and Streaming Video Services 5–7 (Sept. 2019), https://perma.cc/9AUQ-J3GK (hereinafter TACIR Report). Such providers use these networks to carry television service to their subscribers. Id. at 14. And they remit franchise fees to the localities where they provide service. Id. at 7. -3- In the last decade or so, video streaming services, like Petitioners Netflix and Hulu, have surged into competition with these facilities-based providers, attracting increasingly large numbers of subscribers, many of whom have “cut the cable cord.” See id. at 1–2, 13. But unlike cable or telephone companies, Netflix and Hulu have not obtained franchises and instead have relied on third-party internet service providers (“ISPs”)—including those same cable or phone companies—to transmit their video content to the end-user. See id. In layman’s terms, Netflix and Hulu subscribers use an internet-connected device to send a request to view particular content to a Netflix or Hulu server, which then returns a response—the requested content. Both signals typically travel over broadband internet connections via wireline facilities that are located in public rights-of-way and operated by ISPs. Netflix and Hulu do not own or operate those wireline facilities; in Knoxville, as elsewhere, they depend on the facilities of third-party ISPs to connect subscribers to their content. Nor do Netflix and Hulu pay franchise fees to the localities where subscribers stream their content. The City of Knoxville asserts that Netflix and Hulu ought to pay franchise fees because they use the public rights-of-way to provide video service. Knoxville sued Netflix and Hulu in the United States District Court for the Eastern District of Tennessee, seeking a declaratory judgment to that effect on behalf of a putative class of all Tennessee municipalities and counties in which Netflix or Hulu has subscribers. Knoxville contends that Netflix and Hulu are “video service providers” as defined in the Act. According to Knoxville, Netflix and Hulu were thus required to apply for a franchise and pay franchise fees to Knoxville and violated the Act by failing to do so. Netflix and Hulu both filed motions to dismiss, arguing among other things that they do not provide “video service” under the Act. After the completion of briefing, the district court entered an order staying the case and certifying the following question of law to this Court: “Whether Netflix and Hulu are video service providers, as that term is defined in the relevant provision of [the Act], Tenn. Code Ann. § 7-59-303(19).” We accepted the certified question.1 II. As head of the Tennessee judiciary, this Court has inherent power to answer questions certified to us by the federal courts. Haley v. Univ. of Tenn.-Knoxville, 188 S.W.3d 518, 523 (Tenn. 2006); see also Tenn. Sup. Ct. R. 23. Here, the certified question is one of statutory interpretation. In interpreting statutes, our job is to give effect to the text the legislature enacted. State v. Hawk, 170 S.W.3d 547, 551 (Tenn. 2005); see also BellSouth Telecomms., Inc. v. Greer, 972 S.W.2d 663, 672–73 (Tenn. Ct. App. 1997). In 1 In their briefs, Netflix and Hulu ask this Court to answer an additional question that was not certified: whether Knoxville has a private right of action under the Act. We decline to reach that question. -4- the absence of statutory definitions, we give the words of the statute their “natural and ordinary meaning.” Ellithorpe v. Weismark, 479 S.W.3d 818, 827 (Tenn. 2015) (quoting Johnson v. Hopkins, 432 S.W.3d 840, 848 (Tenn. 2013)). To determine that meaning, we read statutory language in its context and “in the context of the entire statutory scheme.” Hathaway v. First Fam. Fin. Servs., Inc., 1 S.W.3d 634, 640 (Tenn. 1999) (quoting Storey v. Bradford Furniture Co., 910 S.W.2d 857, 859 (Tenn. 1995)); see also West Virginia v. EPA, 142 S. Ct. 2587, 2607 (2022); Antonin Scalia & Bryan A. Garner, Reading Law: The Interpretation of Legal Texts 167 (2012) (“Context is a primary determinant of meaning.”). III. Netflix and Hulu are “video service providers” if they provide “video service” as defined by section -303(19) of the Act. See Tenn. Code Ann. § 7-59-303(20). Knoxville argues that Netflix and Hulu are “video service providers” because they (a) provide “video programming” and (b) do so “through wireline facilities located, at least in part, in the public rights-of-way.” Netflix and Hulu counter that they do not provide “video service” because, among other things, they do not own, construct, or operate the wireline facilities that third-party ISPs use to deliver Netflix and Hulu content to end-users. We agree with Netflix and Hulu and conclude that they are not video service providers within the meaning of the Act.2 A. Under the Act, an entity provides “video service” if it engages in the “provision of video programming through wireline facilities located, at least in part, in the public rights- of-way.” Id. § 7-59-303(19). No one disputes that the streaming content that Netflix and Hulu sell travels over wireline facilities located in the public rights-of-way to reach their subscribers. But the parties disagree about whether Netflix and Hulu’s use of wireline facilities owned and operated by third-party ISPs counts as the “provision of video programming through wireline facilities” within the meaning of the Act. Knoxville argues that the referenced “wireline facilities” may include facilities owned, constructed, and operated by another entity. Knoxville points out that section -303(19) refers to “wireline facilities” without limitation to those that are owned, constructed, or operated by the provider, and it accuses Netflix and Hulu of improperly reading words into the statute. Netflix and Hulu, on the other hand, argue that reading 2 Netflix and Hulu press other arguments as to why they are not required to obtain a franchise or pay franchise fees. Both entities argue that their programming falls within the exception in section -303(19) for programming “provided as part of, and via, a service that enables end users to access content, information, electronic mail or other services offered over the public Internet.” Tenn. Code Ann. § 7-59- 303(19). Netflix further contends that its content does not constitute “video programming” within the meaning of section -303(18). Because we agree with Netflix and Hulu’s argument regarding wireline facilities, we do not reach those additional arguments. -5- section -303(19) to encompass entities that do not own, construct, or operate any wireline facilities would make a mess of the overall statutory scheme, which is focused on physical occupation of the public rights-of-way. The text of section -303(19), in isolation, does not resolve this dispute. Knoxville is right that the term “wireline facilities” is not textually limited to those owned, constructed, or operated by the provider. But the text of section -303(19) does not preclude Netflix and Hulu’s narrower interpretation either. Fortunately, we need not and “should not” confine our analysis to “interpret[ing] [section -303(19)] in isolation.” Coffee Cnty. Bd. of Educ. v. City of Tullahoma, 574 S.W.3d 832, 846 (Tenn. 2019). Because “[t]he meaning . . . of certain words may only become evident when placed in context,” we must read statutory terms “in their context and with a view to their place in the overall statutory scheme.” FDA v. Brown & Williamson Tobacco Corp., 529 U.S. 120, 132–33 (2000) (quoting Davis v. Mich. Dep’t of Treasury, 489 U.S. 803, 809 (1989)); see also Coffee Cnty., 574 S.W.3d at 846 (explaining that “statutes should not be interpreted in isolation” but in view of “[t]he overall statutory framework”). We thus consider the Act as a whole and seek to interpret section -303(19) as part of “a symmetrical and coherent regulatory scheme.” Brown & Williamson, 529 U.S. at 133 (quoting Gustafson v. Alloyd Co., 513 U.S. 561, 569 (1995)). i. Consideration of the Act as a whole makes the meaning of section -303(19) clear. At least two features of the Act clarify that the “wireline facilities” referenced in section -303(19) must be operated by the video service provider. First, the Act expressly contemplates that the entities required to obtain a franchise will be those that actually construct and operate the facilities in the public rights-of-way that are used to provide video service. The Act forbids a “video service provider” from providing video service without a franchise, Tenn. Code Ann. § 7-59-304(a)(1), and it defines a “franchise” to mean “authorization to construct and operate a cable or video service provider’s facility within the public rights-of-way used to provide cable or video service,” id. § 7-59-303(8).3 And the Act likewise prescribes that a franchise-authority certificate must contain two authorizations—one to “provide cable or video service” and another “to construct, maintain and operate facilities through . . . any public rights-of-way.” Id. § 7-59-305(e)(1)–(2). 3 The Act also incorporates by reference the federal definition of “franchise,” see Tenn. Code Ann. § 7-59-303(8), which similarly defines the term to mean “initial authorization, or renewal thereof . . . which authorizes the construction or operation of a cable system,” 47 U.S.C. § 522(9). -6- Other provisions of the Act similarly link franchise holding with construction or operation of facilities in the public rights-of-way. For example, section -305(c)(8) provides that an application for a franchise “shall . . . affirm” that “[n]otice will be provided to other entities with facilities in the rights-of-way . . . prior to performing any installation in the right-of-way.” Id. § 7-59-305(c)(8). Section -310(a)(3) assumes a franchise holder’s use of the public rights-of-way, requiring video service providers to “abide by the rights-of-way ordinances and resolutions of the municipality or county . . . in which the service is provided.” Id. § 7-59-310(a)(3); see also id. § 7-59-318(a) (requiring a franchise holder to indemnify state and local governmental authorities for claims “for injury or death to persons or damage to property . . . arising out of, caused by, or as a result of the holder’s exercising its [franchise] authority”). And section -305(h) specifies that even if a franchise holder “terminate[s] its state-issued certificate of franchise authority,” it remains obligated to “remov[e] . . . its facilities within the public right-of-way.” Id. § 7-59-305(h). Still other provisions impose obligations on video service providers that only a facilities-based operator could perform. The Act, for example, provides that, under certain circumstances, “the cable or video service provider shall designate . . . a sufficient amount of capacity on its cable system or video service network” for public, educational, and governmental access channels. Id. § 7-59-309(e). Similarly, the Act mandates that the holder of an unexpired local franchise “shall” grant local governments the ability to “override the cable or video system” in case of emergency, even after “a cable provider or video service provider” has elected to terminate the local franchise. Id. § 7-59-305(l); see also id. § 7-59-303(11)(A)(v) (defining “gross revenues” to exclude “[r]evenue from services provided over the cable system or video service system that are associated with or classified as non-cable or non-video services under federal law” (emphasis added)). Second, the Act expressly connects payment of the franchise fee with physical occupation of the public rights-of-way. Under the Act, only a franchise holder must pay a franchise fee. Id. § 7-59-306(a)(1). This fee is principally “derived from . . . [t]he provision of cable or video service to subscribers located within the municipality or . . . county.” Id. § 7-59-306(a)(1)(A). Yet the fee is not a tax on revenues derived from the locality. Rather, it is “intended” to “compensat[e]” the locality “for the [cable or video service] provider’s occupancy of the public rights-of-way” within its territory. Id. § 7-59-306(i). In other words, a video service provider must acquire a franchise and pay a franchise fee as compensation for its facilities’ presence in a particular locality’s public rights-of-way. It follows that an entity that does not occupy the rights-of-way in a locality does not owe that locality compensation and thus does not need a franchise or owe a franchise fee. The Act as a whole, then, is focused on granting video service providers permission to physically occupy the public rights-of-way and ensuring that those providers adequately compensate localities for that privilege. Given the Act’s focus, it would make little sense to interpret it to apply to entities like Netflix and Hulu that do not construct or operate the wireline facilities that are used to transmit their content. And we must interpret -7- section -303(19) as part of “a symmetrical and coherent regulatory scheme.” Brown & Williamson, 529 U.S. at 133 (quoting Gustafson, 513 U.S. at 569). We thus conclude that an entity does not engage in the “provision of video programming through wireline facilities,” Tenn. Code Ann. § 7-59-303(19), when it provides video programming through wireline facilities operated by a third party. This conclusion comports with a 2019 report by the Tennessee Advisory Commission on Intergovernmental Relations concerning the “effects of cord cutting . . . on local government revenue in Tennessee.” TACIR Report, supra, at 2. The Commission— whose membership consists primarily of state and local officials, including nearly a dozen state legislators—predicted that local revenue would decrease if cord cutting continued. Id. at 1. This prediction was based on the Commission’s understanding that video streaming services are “[n]ot required to enter franchise agreements with state or local governments” because they do not “deploy any of their own infrastructure in public rights-of-way.” Id. at 32, 59. ii. Other States have statutes similar to Tennessee’s. And while we are the first appellate court to consider whether Netflix or Hulu provide “video service” within the meaning of those statutes, trial courts to consider the question have almost uniformly agreed that the provision of “video service” does not include transmission of programming via third-party-operated facilities.4 See, e.g., Gwinnett Cnty. v. Netflix, Inc., No. 20-A- 07909-10, 2022 WL 678784, at 6–7 (Ga. Super. Ct. Feb. 18, 2022) (holding, based largely on the definition of “franchise,” that Georgia’s law did not apply to entities that did not own networks in the public rights-of-way, did not need to construct or operate such networks, and thus did not need authorization to do so); City of Lancaster v. Netflix, Inc., No. 21STCV01881, 2022 WL 1744233, at 8–9 (Cal. Super. Ct. Apr. 13, 2022) (rejecting interpretation of “provided through facilities” that would have “required [Defendant streaming services] to obtain a ‘construction and operation’ franchise even though Defendants did not construct and do not operate facilities in the rights-of-way”); City of Kenner v. Netflix, Inc., No. 814-168, 2022 WL 4101746, at 1 (La. Dist. Ct. Aug. 25, 2022) (concluding, based on Louisiana’s definition of “franchise,” that because neither Netflix nor Hulu “construct, operate, install, or otherwise maintain any cable system, wireline facilities, or other infrastructure in the public rights of way,” they need not “obtain a 4 Other courts have concluded that Netflix’s and Hulu’s streaming services fall within the exception to the definition of “video service” for “video programming ‘provided . . . via a service that enables end users to access content . . . offered over the public Internet.’” City of Ashdown v. Netflix, Inc., 565 F. Supp. 3d 1111, 1115–16 (W.D. Ark. 2021) (quoting Ark. Code Ann. § 23-19-202(15)(B)(ii)) (holding that Netflix fell within the public-internet exception and declining to consider whether it was a “video service provider”), aff’d on other grounds, ___ F.4th ___, 2022 WL 16754392 (8th Cir. Nov. 8, 2022); see also City of Reno v. Netflix, Inc., 558 F. Supp. 3d 991, 996–97 (D. Nev. 2021) (same), aff’d on other grounds, ___ F.4th ___, 2022 WL 15579803 (9th Cir. Oct. 28, 2022). -8- franchise before they make their content available to their customers”); City of Fort Scott v. Netflix, Inc., No. BB-2021-CV-000166, at 3 (Kan. Dist. Ct. Oct. 10, 2022) (reasoning that neither Netflix nor Hulu “provide ‘video service’” under Kansas’s Video Competition Act because they “do not use the public rights-of-way” and instead transmit their content to “subscribers over the wirelines of third-party ISPs”). Our interpretation of “video service provider” under the Act also accords with administrative and judicial interpretations of related statutory schemes. See City of Chicago v. FCC, 199 F.3d 424, 429–33 (7th Cir. 1999) (agreeing with the Federal Communications Commission that a cable programming provider did not provide service through “a cable system” because the provider fell within an exclusion for “a facility that serves subscribers without using any public right-of-way” where the provider transmitted its signal over a third-party’s cable lines); AT&T Commc’ns of the Sw., Inc. v. City of Austin, 40 F. Supp. 2d 852, 855–56 (W.D. Tex. 1998) (rejecting argument that a telephone provider “use[d] and . . . occup[ied]” the public rights-of-way and was therefore required to obtain a franchise where the provider had “no ownership or operational rights” over the third-party- owned facilities it used to transmit signals to its customers), judgment vacated for mootness, 235 F.3d 241, 243 (5th Cir. 2000). To be sure, as Knoxville points out, those cases involved different technologies and statutes. But their reasoning is instructive, and it supports our conclusion that entities providing video programming via a third-party’s facilities located in the public rights-of-way are not required to obtain a franchise. Knoxville relies heavily on a Missouri trial court’s ruling that use of another entity’s wireline facilities to deliver video programming to the end-user may qualify as provision of video service under a similar statute. See City of Creve Coeur v. Netflix, Inc., No. 18SL- CC02819, ¶ 15 (Mo. Cir. Ct. Dec. 30, 2020). But that opinion considered only whether the municipal plaintiff had pleaded sufficient facts to survive a motion to dismiss. More importantly, it engaged in no serious analysis of the phrase “provision . . . through wireline facilities” in the statutory definition of “video service” and focused instead on whether allegations about the defendants’ streaming content satisfied the meaning of “video programming.” Id. ¶¶ 15–21. We thus do not find its analysis helpful. iii. Knoxville raises three additional arguments in favor of interpreting “provision . . . through wireline facilities” to include provision through a third-party’s wireline facilities. None is persuasive. First, Knoxville points out that section -303(19) includes the phrase “without regard to delivery technology, including Internet protocol technology or any other technology,” Tenn. Code Ann. § 7-59-303(19), and argues that this language “reflects the legislature’s intent to encompass future emerging technology, such as over-the-top video programming.” But that language, too, must be read in context. Given the Act’s focus -9- elsewhere on physical occupation of the public rights-of-way, we think that phrase is better understood to encompass entities like AT&T and Verizon that provide video programming through wireline facilities they operate but do so using internet technology. Second, Knoxville contends that the Act allows, but does not require, a franchise holder to construct facilities, so section -303(19) may cover an entity that does not plan to build facilities in the public rights-of-way. In support, Knoxville cites the definition of “franchise area,” which means “the geographical area . . . within which a [franchise] holder . . . is seeking authority to deliver cable or video services.” Id. § 7-59-303(9). This definition, Knoxville argues, envisions that a franchise holder might merely “deliver cable or video services,” rather than construct facilities. But Knoxville fails to reconcile its “permissive” interpretation with any of the other provisions explicitly linking the franchise requirement to construction or operation of facilities in the public rights-of-way. See supra section III(A)(i). For example, it fails to explain why, assuming its interpretation is correct, a franchise only provides “authorization to construct and operate a cable or video service provider’s facility”—not to use another entity’s facility. See Tenn. Code Ann. § 7-59- 303(8). Nor does it reconcile its interpretation with provisions, such as sections -305(l) and -309(e), mandating that a “video service provider” take certain actions with respect to “its . . . video service network” or “video system.” Id. §§ 7-59-305(l), 7-59-309(e). Third, Knoxville argues that Netflix and Hulu’s popularity has caused ISPs to build additional capacity in public rights-of-way and that Netflix and Hulu therefore ought to compensate municipalities for benefitting from these improvements. This is a policy argument that “must be made to the General Assembly,” not to this Court. Mooney v. Sneed, 30 S.W.3d 304, 308 (Tenn. 2000); see also New York v. FERC, 535 U.S. 1, 24 (2002). Unlike the legislature, we are not well situated to weigh competing policy arguments involving rapidly changing technologies in a complex economic sector subject to substantial federal and state regulation. We conclude that entities that do not operate facilities in the public rights-of-way do not fall within the Act’s definition of a “video service provider.” B. That brings us to the definition’s application here. Under our interpretation of section -303(19), Netflix and Hulu do not qualify as “video service” providers. As alleged in Knoxville’s complaint, Netflix and Hulu do not carry video content over their own wireline facilities. Instead, Netflix and Hulu subscribers “send a request to the Internet-service provider,” which “forwards that request to Netflix’s and Hulu’s dedicated Internet servers” and “relay[s Netflix’s or Hulu’s response] back to the subscriber’s device.” As Knoxville puts it, the “ISP acts in the role of a common carrier for [Netflix’s and Hulu’s] content.” And these ISPs, not Netflix and Hulu, “own and operate - 10 - wireline facilities in public rights-of-way.” Netflix and Hulu, for their part, “arrange to deliver [their content] to [their] customer[s] via the ISP’s wireline facilities.” So assuming the content offered by Netflix and Hulu qualifies as “video programming,” they do not “provid[e]” it “through wireline facilities” within the meaning of section -303(19). They do not construct or operate the facilities through which their content passes and rely instead on third-party ISPs to transmit it to the end-user. Thus, they do not provide “video service” under the Act. * * In sum, we answer the district court’s certified question “no”: Netflix and Hulu do not provide “video service” within the meaning of section -303(19) and thus do not qualify as “video service providers” under section -303(20). Pursuant to Tennessee Supreme Court Rule 23, section 8, we direct the Appellate Court Clerk to send a copy of this opinion to the United States District Court for the Eastern District of Tennessee. Costs are taxed against the City of Knoxville, for which execution may issue if necessary. _____________________________ SARAH K. CAMPBELL, JUSTICE - 11 -	01-04-2023	11-22-2022
https://www.courtlistener.com/api/rest/v3/opinions/8488800/	2022 IL App (1st) 210508-U NOTICE: This order was filed under Supreme Court Rule 23 and is not precedent except in the limited circumstances allowed under Rule 23(e)(1). SECOND DIVISION November 22, 2022 No. 1-21-0508 ______________________________________________________________________________ IN THE APPELLATE COURT OF ILLINOIS FIRST DISTRICT ______________________________________________________________________________ PEOPLE OF THE STATE OF ILLINOIS, ) Appeal from the ) Circuit Court of Respondent-Appellee, ) Cook County ) v. ) No. 08 CR 15946 01 ) JUSTIN WALKER, ) The Honorable ) Thomas J. Byrne, Petitioner-Appellant. ) Judge Presiding. PRESIDING JUSTICE FITZGERALD SMITH delivered the judgment of the court. Justices Howse and Cobbs concurred in the judgment. ORDER ¶1 Held: Summary dismissal of postconviction petition asserting claim that petitioner’s state constitutional rights were violated by his arrest pursuant to investigative alert is reversed and remanded for second-stage postconviction proceedings. ¶2 Petitioner Justin Walker appeals from the trial court’s summary dismissal of his pro se postconviction petition. On appeal, he contends that his petition presented arguable claims that his state constitutional rights were violated by (1) his arrest pursuant to an investigative alert instead of a warrant and (2) the prohibition under truth-in-sentencing laws on his ability to earn good- conduct credit to reduce his 30-year sentence for an offense committed at age 17. For the reasons No. 1-21-0508 that follow, we reverse this summary dismissal and remand for second-stage proceedings. ¶3 BACKGROUND ¶4 Petitioner was convicted in a jury trial of first-degree murder for the death of Clarence “Red” Harrington in 2008. The evidence adduced at petitioner’s trial is set forth in detail in this court’s order on direct appeal. People v. Walker, 2015 IL App (1st) 123369-U. We summarize here only that evidence necessary to an understanding of the case and the issues involved in this appeal. ¶5 Prior to trial, petitioner moved to quash his arrest and suppress evidence on the grounds that, inter alia, there was no probable cause for his arrest. He asserted that the only information leading to his arrest had been given to police by Lakesha Royal after she was arrested on an unrelated narcotics search warrant on April 4, 2008. He alleged that, on April 21, 2008, the Chicago Police Department had issued an “Investigative Alert” for petitioner but never obtained a warrant for his arrest. Petitioner was arrested the following day. He subsequently made statements to police and was identified in a lineup as having been present when Harrington was robbed and beaten. ¶6 At the suppression hearing, two detectives from the Chicago Police Department testified about their respective interviews of Royal. Detective John Valkner testified that Royal recounted that in January 2008, the janitor at her apartment building knocked on her door and told her that four people were on the second floor beating a man. Royal went there and saw four young black males, whom she did not know but recognized as a group that sometimes loitered in her apartment building, run down the stairs out of the building. Royal did not see any of them touch or take anything from the victim and only saw them running. Detective Reuben Weber testified that Royal told him she had seen the four men beating Harrington and identified petitioner in a photo array as one of the offenders she saw fleeing the scene. ¶7 Also testifying at the suppression hearing was Detective Michael Landando, who testified -2- No. 1-21-0508 that after receiving the above information he went to the apartment building and spoke to James “JB” Williams, who recounted witnessing a group of four young black males that regularly loitered in the apartment building standing over a person laying on the floor, beating and punching him. Williams knocked on Royal’s door to get help in breaking up the fight, whereupon the four offenders ran away. Williams showed Detective Landando and his partner the location where this had occurred, and the detectives observed blood splatter on the carpets and baseboards. Detective Landando testified that, after attempting for 10 days to locate petitioner near his home, he issued an “investigative alert with probable cause” for petitioner’s arrest. He did this based on the identification by Royal, the corroborating interview with Williams, and the evidence recovered. Petitioner was arrested the following day, based solely on the investigative alert. Upon his arrest, petitioner made statements to police and was identified in lineups by both Royal and Williams. At the conclusion of the hearing, the trial court found that probable cause had existed at the time petitioner’s arrest and denied his motion to quash and suppress evidence. ¶8 The case proceeded to trial. The evidence showed that on January 6, 2008, Harrington was found unconscious in the hallway of an apartment building on South Mason Street in Chicago. He was transported to the hospital with injuries consistent with having been beaten and kicked. He died as a result of these injuries on March 9, 2008. ¶9 Royal and Williams both testified. Williams testified that he was the building’s janitor and was working when he heard a noise from the second-floor hallway. He knocked on Royal’s door to find help. Royal testified that she went to the second floor and saw “someone standing there and someone lying there,” although all she could see “was his feet.” She identified the man standing as petitioner, whom she had seen several times in the lobby of the building. She then ran back to her apartment and did not report the incident until she was arrested on narcotics charges in April -3- No. 1-21-0508 2008. Williams testified that he went out the back of the building and came around to the front, where he saw petitioner coming out the front door. He accompanied emergency responders to the victim, who was laying on his back and bleeding, with his pockets inside out. Both Royal and Williams testified to identifying petitioner in a lineup as the man they had seen that day. ¶ 10 William Howard testified that he was also charged with first-degree murder involving the same incident and was testifying pursuant to a plea agreement. He lived in the same apartment building with petitioner, and the two were friends. On the day at issue, Howard was in the lobby of the apartment building on South Mason Street when petitioner arrived with Nathan Clark. They began to talk, and petitioner asked Howard if he wanted “to hit this thing with us?” or do a “stain,” which Howard explained meant getting some money in some way. Howard declined but agreed to be a lookout for petitioner and Clark. He then saw them go upstairs and return 30 to 45 minutes later, running down the stairs and out the door. Howard followed them, and when they stopped, he saw that petitioner’s knuckles were red, “like he just punched someone.” ¶ 11 Detective Robert Cordero of the Chicago Police Department testified, corroborating much of Detective Landando’s testimony from the motion to suppress. Briefly, they received the case following the victim’s death, interviewed Royal and Williams, and went to the apartment building where they saw blood splatter in the second-floor hallway. After unsuccessfully searching for petitioner for several days, they issued an investigative alert, and he was arrested the next day. He was brought to the police station where he was questioned and gave a statement. A video showing a portion of the conversation between petitioner and the detectives was then allowed into evidence and played for the jury. Before this occurred, Detective Cordero testified that petitioner had provided three different versions of events. First, he said that a man named Shannon Carr had approached him about accompanying him to the second floor of the apartment building, where -4- No. 1-21-0508 they came upon the victim. Carr then started to “steal on him,” that is, punch him and knock him to the ground. Petitioner stated he became alarmed, stopped Carr, and ran away. In the second version of events, petitioner agreed only to be a lookout while Carr performed a “stain,” which he confirmed meant a robbery, and he did not strike or take any money from the victim. In the third version of events, petitioner stated that he was the lookout for Carr and Clark, that he saw money in the victim’s hands once they started beating him, that he grabbed the money totaling $23, and that all three of them fled the building. On cross-examination, Detective Cordero affirmed that petitioner consistently maintained that he had never touched the victim and that he had tried to pull Carr off the victim after Carr started beating him. ¶ 12 In the defense case-in-chief, petitioner presented Howard’s plea agreement for impeachment purposes and then rested. The jury then returned a verdict finding petitioner guilty of first-degree murder. At the sentencing hearing, the trial court set forth the sentencing range and stated that whatever sentence was imposed had to be served at 100% under truth-in-sentencing provisions. It then stated that it was considering petitioner’s “extreme youth” as relevant to his potential for rehabilitation. It concluded by stating that a sentence at the statutory minimum of 20 years “would not be sufficient” and that a 30-year sentence was appropriate “based upon his youth.” ¶ 13 On direct appeal, petitioner argued among other things that the trial court erred in denying his motion to suppress based on a lack of probable cause. As part of that argument, he asserted that the investigative alert, which formed the sole basis of his arrest, was not comprised of sufficient evidence to justify the belief that a law had been broken and that he was the one who broke it. This court rejected that argument, holding that the “clear and consistent evidence from multiple sources” was “sufficient to provide probable cause for [petitioner’s] warrantless arrest via the investigative alert.” Id. ¶¶ 29, 34. The Illinois Supreme Court denied leave to appeal. People v. -5- No. 1-21-0508 Walker, No. 119272, 39 N.E.3d 1010 (Ill. Sep. 30, 2015) (Table). ¶ 14 On December 10, 2020, the present petition for postconviction relief was docketed in the circuit court, in which petitioner raised two claims. First, he asserted that his arrest violated article I, section 6 of the Illinois Constitution (Ill. Const. 1970, art. I, § 6) because it was based on an investigative alert rather than on the presentation of sworn facts to a judge. He stated that he was advancing this claim based upon this court’s opinion in People v. Bass, 2019 IL App (1st) 160640, aff’d in part, vacated in part, 2021 IL 125434. Second, he asserted that the truth-in-sentencing law that required him to serve 100% of the 30-year sentence imposed on him as a 17-year-old was unconstitutional. See 730 ILCS 5/3-6-3(a)(2)(i) (West 2012). ¶ 15 On February 24, 2021, the trial court entered an order finding both claims to be frivolous and patently without merit. As to the first claim, the trial court found that it failed for three reasons: (1) Bass was not decided until seven years after petitioner’s conviction in 2012, and prior to Bass no court had held that warrantless arrets pursuant to investigative alerts were unconstitutional; (2) any new rule of criminal procedure announced in Bass that warrantless arrests based on investigative alerts violate the state constitution would not be retroactive to petitioner’s case on collateral review; and (3) subsequent decisions of the appellate court have held that the reasoning of Bass was flawed and that the use of investigative alerts does not violate the constitution as long as there is probable cause. As to his second claim, the trial court reasoned that (1) even though petitioner was not eligible for parole under truth-in-sentencing provisions, his 30-year sentence was not an unconstitutional life sentence; (2) the authority on which petitioner primarily relied had been subsequently vacated (see People v. Othman, 2019 IL App (1st) 150823, vacated in part, No. 125580 (Ill. Jan. 9, 2020) (supervisory order)); and (3) the trial court took petitioner’s youth and its attendant characteristics into account when it imposed his sentence. Accordingly, the trial court -6- No. 1-21-0508 summarily dismissed petitioner’s petition. This appeal followed. ¶ 16 ANALYSIS ¶ 17 The Post-Conviction Hearing Act (725 ILCS 5/122-1 et seq. (West 2020)) provides a three- stage process for imprisoned individuals to raise constitutional challenges to their convictions or sentences. People v. Hatter, 2021 IL 125981, ¶ 22. This case involves the first stage, in which the trial court examines the filed petition to determine whether it “is frivolous or is patently without merit” and must summarily dismiss a petition it determines to meet this standard. 725 ILCS 5/122- 2.1(a)(2) (West 2020); see People v. Brown, 236 Ill. 2d 175, 184 (2010). A petition should be summarily dismissed under this standard “only if the petition has no arguable basis either in law or in fact.” People v. Hodges, 234 Ill. 2d 1, 11-12 (2009). A petition that lacks an arguable basis in law or in fact is one “based on an indisputably meritless legal theory or a fanciful factual allegation.” Id. at 16. The threshold for a petition to survive summary dismissal is low. Hatter, 2021 IL 125981, ¶ 23. The allegations of the petition, taken as true and liberally construed, must present the gist of a constitutional claim. Id. ¶ 24. Our review is de novo. Id. ¶ 18 Petitioner’s first argument on appeal is that his postconviction petition presented a claim with arguable merit that his 2008 arrest pursuant to an investigative alert was unconstitutional, because the police did not obtain an arrest warrant from a judge despite having more than a week and a half to do so. He does not dispute that probable cause existed as of the time of his arrest, and this court has previously held on direct appeal that it did. Walker, 2015 IL App (1st) 123369-U, ¶¶ 29, 34. Rather, he argues that despite probable cause existing, his arrest pursuant to an investigative alert violated his rights under article I, section 6 of the Illinois Constitution, which provides: “The people shall have the right to be secure in their persons, houses, papers and other possessions against unreasonable searches, seizures, invasions of privacy or interceptions -7- No. 1-21-0508 of communications by eavesdropping devices or other means. No warrant shall issue without probable cause, supported by affidavit particularly describing the place to be searched and the persons or things to be seized.” Ill. Const. 1970, art. I, § 6. ¶ 19 An “investigative alert” is the name of a method used within the Chicago Police Department to communicate that an individual is wanted for a specific crime if he or she happens to be stopped by an officer. See Sanders v. Cruz, No. 08 C 3318, 2010 WL 3004636, *3 (N.D. Ill. July 29, 2010). The record discloses that the type of investigative alert used in petitioner’s case was an “investigative alert with probable cause.” This constitutes a determination by the police department that probable cause exists for the individual to be arrested, although the police have neither obtained a warrant for the individual’s arrest nor presented a sworn affidavit to a magistrate. See People v. Hyland, 2012 IL App (1st) 110966, ¶ 45 (Salone, J., specially concurring). ¶ 20 As of the date of issuance of this decision, the argument that arrests made pursuant to investigative alerts are unconstitutional has some support in case law and is therefore not “indisputably meritless.” In People v. Smith, 2022 IL App (1st) 190691, ¶¶ 66, 99, a divided panel of this court held that a defendant’s arrest pursuant to an investigative alert violated the state constitution, despite the fact that probable cause existed, where the police did not obtain a warrant despite having had six months to do so. The Smith majority reasoned that the language of article I, section 6 of the Illinois Constitution (Ill. Const. 1970, art. I, § 6) contemplates a neutral magistrate making a finding of probable cause based on facts presented in a sworn “affidavit” and thereupon issuing a warrant; and arrests based on investigative alerts, in which the police department makes its own probable cause determination without swearing to facts before a magistrate, violate that requirement. Smith, 2022 IL App (1st) 190691, ¶¶ 90, 95. ¶ 21 The defendant in Smith was convicted of murder and mob action. His sole claim on direct -8- No. 1-21-0508 appeal was that his motion to suppress should have been granted because his arrest was made pursuant to an investigative alert, based upon a detective’s determination of probable cause, rather than on a determination of probable cause made by a neutral magistrate and supported by an “affidavit.” Id. ¶¶ 48, 52. He did not dispute that probable cause existed for his arrest. Id. ¶ 52. ¶ 22 The Smith majority began its analysis by discussing the reasoning and subsequent procedural history of Bass, 2019 IL App (1st) 160640, which was the first case in which a panel of this court held that arrests pursuant to investigative alerts violate the state constitution. Smith, 2022 IL App (1st) 190691, ¶¶ 54-68. It acknowledged that the supreme court had vacated the portion of the appellate court’s decision in Bass that had addressed the constitutionality of investigative alerts, affirming on different grounds. Id. ¶¶ 62-64 (citing Bass, 2021 IL 125434, ¶¶ 29-31). The Smith majority also acknowledged that other panels of this court had disagreed with the holding of the appellate court majority in Bass that investigative alerts were unconstitutional. Smith, 2022 IL App (1st) 190691, ¶ 65 (citing People v. Braswell, 2019 IL App (1st) 172810, ¶ 37; People v. Simmons, 2020 IL App (1st) 170650; People v. Thornton, 2020 IL App (1st) 170753; People v. Bahena, 2020 IL App (1st) 180197, ¶¶ 61-64). However, the Smith majority stated that it was not bound by those decisions and thus proceeded to its own analysis. Smith, 2022 IL App (1st) 190691, ¶ 65. ¶ 23 Upon doing so, the Smith majority recognized that the fourth amendment to the United States Constitution did not require police to obtain an arrest warrant from a judge. Id. ¶ 68 (citing United States v. Watson, 423 U.S. 411, 423 (1976)). It reasoned, however, that the language of article I, section 6 of the Illinois Constitution that “[n]o warrant shall issue without probable cause, supported by affidavit” (Ill. Const. 1970, art. I, § 6) affords greater protection than the analogous requirement of the fourth amendment that “no [w]arrants shall issue, but upon probable cause, supported by [o]ath or affirmation” (U.S. Const., amend. IV). Smith, 2022 IL App (1st) 190691, -9- No. 1-21-0508 ¶ 78. It noted that the phrase “supported by affidavit” was first included in the 1870 Constitution (see Ill. Const. 1870, art. II, § 6), and the delegates to the 1870 Constitutional Convention had intentionally selected the word “affidavit” and rejected “oath and affirmation.” Smith, 2022 IL App (1st) 190691, ¶ 80. It went on to reason that several supreme court cases had then “interpreted the ‘affidavit’ language in our state constitution as contemplating the crucial role of a magistrate in the determination of probable cause necessary to issue a warrant.” Id. ¶ 85 (citing Lippman v. People, 175 Ill. 101, 112-13 (1898), and People v. Elias, 316 Ill. 376, 381 (1925)). ¶ 24 The Smith majority found persuasive the case of People v. McGurn, 341 Ill. 632 (1930), which involved a defendant’s conviction for carrying a concealed revolver that had been discovered on his person during an arrest later found unlawful by the supreme court. Smith, 2022 IL App (1st) 190691, ¶¶ 86-89. The arrest giving rise to the discovery of the revolver in McGurn did not occur because the arresting officer believed the defendant had committed or was in the process of committing any crime; rather, the arresting officer stated he was acting under the orders of a superior officer to arrest the defendant, despite the absence of any warrant or process of law for the defendant’s arrest. McGurn, 341 Ill. at 637-38. The arresting officer referred to this in his testimony as a “standing order.” Id. at 635. The Smith majority quoted the supreme court’s statement in McGurn that, under the state constitution, “ ‘no municipality has authority to clothe any officer with the autocratic power to order the summary arrest and incarceration of any citizen without warrant or process of law and thus render the liberty of every one of its citizenry subject to the arbitrary whim of such officer.’ ” (Emphasis omitted.) Smith, 2022 IL App (1st) 190961, ¶ 89 (quoting McGurn, 341 Ill. at 638). ¶ 25 Ultimately, the Smith majority reasoned that an arrest pursuant only to an investigative alert resembled the kind of arrest that had been held unlawful in McGurn. Id. ¶ 94. It reasoned that in - 10 - No. 1-21-0508 the arrest before it, similar to McGurn, the arresting officer had neither observed the defendant committing a crime nor had knowledge of the crime he had allegedly committed, and the sole basis of the officer’s decision to arrest the defendant was the investigative alert issued by another detective. Id. ¶¶ 94-95. The majority also emphasized that in the case before it, six months had elapsed between the issuance of the investigative alert and the defendant’s arrest, during which time the police could have sought a warrant but made no attempt to do so. Id. ¶ 96. The majority suggested that investigative alerts could be permissible for shorter time periods of approximately 24 to 48 hours if probable cause existed to suspect that a subject might commit further crimes or be a flight risk, but it stated that this was not the situation in the case before it. Id. ¶ 97. ¶ 26 Despite engaging in the above analysis, the majority in Smith concluded that, notwithstanding the unconstitutionality of the defendant’s arrest, the admission of evidence derived from that arrest was harmless error, and it affirmed the conviction on that basis. Id. ¶ 101. Justice Coghlan issued a special concurrence, in which she agreed that the defendant’s conviction should be affirmed but disagreed that the constitutional issue should have been reached. Id. ¶ 115 (Coghlan, J., specially concurring). Justice Coghlan found that the arrest of the defendant did not violate the Illinois constitution because it was supported by probable cause despite the fact that a warrant had not been obtained. Id. ¶¶ 117-19 (Coghlan, J., specially concurring). ¶ 27 Relying on Smith, which we allowed petitioner to cite as supplemental authority, petitioner contends that there is clear arguable merit to his claim that his arrest violated the state constitution simply because it was made pursuant to an investigative alert and not a warrant, regardless of the existence of probable cause. We agree with petitioner that, in light of the majority’s opinion in Smith, it cannot be said at this stage that such a constitutional claim is frivolous or patently without merit. Accordingly, we reverse and remand for second stage postconviction proceedings. - 11 - No. 1-21-0508 ¶ 28 In doing so, we wish to make several points that may become pertinent as this case proceeds. This case comes to us for decision at a moment when, due to the majority’s opinion in Smith, support exists in the case law for the constitutional argument raised by petitioner that requires us to advance this case for further proceedings. We note, however, that the supreme court has accepted a petition for leave to appeal in a case in which one of the arguments raised is that the defendant’s arrest violated the state constitution because it was made pursuant to an investigative alert and not a warrant. People v. Dossie, 2021 IL App (1st) 201050-U, appeal allowed, No. 127412 (Ill. Sep. 29, 2021). Thus, the decision in Dossie could affect the continued merit of the constitutional argument made by petitioner here. ¶ 29 Second, we note that one of the bases upon which the trial court summarily dismissed petitioner’s claim was that the rule from which he sought to benefit is one that would not apply retroactively to his case on collateral review. See Teague v. Lane, 489 U.S. 288 (1989). However, the State did not argue for affirmance on this ground, and we decline to consider the applicability of this principle here in the absence of argument or briefing by the parties. ¶ 30 Finally, the State argues that regardless of the constitutionality of petitioner’s arrest, suppression of his post-arrest statements to police and lineup identification is unwarranted under the good-faith exception to the exclusionary rule. The good faith exception to the exclusionary rule is a judicially created rule providing that evidence obtained in violation of a defendant’s fourth amendment rights will not be suppressed when police acted with an objectively reasonable good- faith belief that their conduct was lawful, or when their conduct involved only simple, isolated negligence. People v. Bonilla, 2018 IL 122484, ¶ 35; see also People v. LeFlore, 2015 IL 116799, ¶ 24. According to the State, the police in this case acted in objectively reasonable good-faith reliance upon the legal landscape that existed at the time of petitioner’s arrest, which permitted the - 12 - No. 1-21-0508 use of investigative alerts supported by probable cause to effectuate an arrest. See LeFlore, 2015 IL 116799, ¶ 31. However, we agree with petitioner’s argument that it would be premature for us to affirm first-stage summary dismissal on this basis. More information and evidence would be necessary about the procedures by which investigative alerts are issued and executed, both in general and in petitioner’s case specifically, before the court could conclude that the good faith exception to the exclusionary rule applies. ¶ 31 As mentioned above, petitioner’s postconviction petition also included a second claim that the truth-in-sentencing provisions that required him to serve 100% of the 30-year sentence imposed on him as a 17-year-old was unconstitutional. However, based on our conclusion that petitioner’s first claim should be advanced for second stage proceedings, we do not need to separately address the merits of this second claim. If a postconviction petition is comprised of multiple claims and one of them survives the summary dismissal stage, the entire petition is docketed for second-stage proceedings regardless of the merits of the other claims. People v. Romero, 2015 IL App (1st) 140205, ¶ 27 (citing People v. Rivera, 198 Ill. 2d 364, 371 (2001)). ¶ 32 CONCLUSION ¶ 33 For the reasons set forth above, we reverse the trial court’s summary dismissal of petitioner’s pro se postconviction petition and remand this case for further proceedings under the Post- Conviction Hearing Act (725 ILCS 5/122-2.1(b) (West 2020)). ¶ 34 Reversed and remanded. - 13 -	01-04-2023	11-22-2022
https://www.courtlistener.com/api/rest/v3/opinions/8492783/	SUMMARY ORDER TERRY L. MYERS, Bankruptcy Judge. This matter came before the Court on the Stipulation for Relief from Automatic Stay submitted by Potlatch No. 1 Credit Union, Debtors, and the chapter 7 Trustee. By virtue of the correspondence to the Court from Potlatch’s counsel, the Stipulation filed September 30,1998 is WITHDRAWN.	01-04-2023	11-22-2022
https://www.courtlistener.com/api/rest/v3/opinions/8492784/	RULING ON DEFENDANT’S MOTION TO DISMISS COMPLAINT ROBERT L. KRECHEVSKY, Bankruptcy Judge. I. BACKGROUND Martin W. Hoffman, Trustee (“the Trustee”) of the Chapter 7 case of Astroline Communications Company Limited Partnership (“the Debtor”), filed a complaint on June 12, 1998 seeking subordination to all other creditors of a claim held by the defendant, Astro-line Company, Inc. (“the Defendant”). The complaint is founded on section § 510(c)(1) of the Bankruptcy Code which, in relevant part, provides: “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....” 11 U.S.C. § 510(c)(1) (1993). The Defendant’s unobjected-to proof of an unsecured claim is in the amount of $7,537,-703.00 based upon two promissory notes executed by the Debtor in favor of the Defendant on December 1,1997 and September 20, 1988, in the original amounts of $4,000,000 and $2,930,000, respectively. The Defendant is a limited partner of the Debtor whose bankruptcy case was commenced by an involuntary creditors’ petition on October 31, 1988. At that time, the Debtor owned and operated a Hartford-based television station. The nub of the Trustee’s averments in the complaint to support subordination is that “at least $4,000,000 of the alleged debt was originally an equity contribution which was subsequently recharacterized as a debt” and that “the Debtor was under-capitalized at the time(s) the alleged debts of the Debtor to the Defendant were incurred.” (Complaint at 2, ¶¶ 13 and 14.) The Trustee also contends the Defendant was an “insider” of the Debtor as a “person in control of the debtor.” (Id. At ¶ 12.) The Defendant, on July 14, 1998, filed its motion to dismiss the complaint pursuant to Fed.R.Civ.P. 12(b)(6), made applicable in adversary proceedings by Fed.R.Bankr.P. 7012(b), for “failure to state a claim upon which relief can be granted.” The Defendant contends that the Trustee’s “claim is barred by principles of res judicata and collateral estoppel.” (Motion to Dismiss at 1.) II. CONTENTIONS The underpinning of the Defendant’s argument for dismissal is this court’s ruling in Hoffman v. WHCT Management Inc. (In re Astroline Communications Company Ltd. Partnership), 188 B.R. 98 (Bankr.D.Conn. 1995) [hereinafter ‘Astroline I ”]1 which involved the present parties. In Astroline I the court held that the Defendant’s (and its general partner’s) “exercise of control over the Debtor does not meet the requisite standard of substantially the same as the exercise of the powers of a general partner” so that the Defendant was not liable to the Trustee under the provisions of section 723(a) of the Bankruptcy Code.2 The Defendant argues that where the court so concluded in Astroline I, the doctrine of collateral estoppel now bars the Trustee from relitigating what the Defendant 327asserts is the identical issue in the present proceeding, namely the issue of the Defendant’s control of the Debtor. The Defendant further argues that the doctrine of res judi-cata bars the Trustee’s “claim, because he is bringing a new claim which he could have asserted in Astroline I." (Defendant’s Original Memorandum at 10.) III. DISCUSSION “Normally the defenses of res judicata and collateral estoppel are affirmative defenses to be raised in an answer under Rule 8(c) of the Federal Rules of Civil Procedure. ‘However, when all relevant facts are shown by the court’s own records, of which the court takes notice, the defense may be upheld on a Rule 12(b)(6) motion without requiring an answer.’ ” 9281 Shore Rd. Owners Corp. v. Seminole Realty Co. (In re 9281 Shore Road Owners Corp.), 214 B.R. 676, 684 (Bankr.E.D.N.Y.1997) [hereinafter Shore Road I] (quoting Day v. Moscow, 955 F.2d 807, 811 (2d Cir.1992)). Accordingly, the motion to dismiss is properly before the court. A COLLATERAL ESTOPPEL “As applied to prior federal court adjudications, the doctrine of collateral estop-pel is an embodiment of the precept of federal common law...” Federal Trade Comm’n v. Wright (In re Wright), 187 B.R. 826, 831 (Bankr.D.Conn.1995); Also see Centra Mortgage Holdings, LTD. v. Mannix, 18 F.Supp.2d 162, 164 (D.Conn.1998) (State law determines preclusive effect of prior state court action, while federal common law determines preclusive effect of prior action in federal court.).3 The U.S. Supreme Court has summarized the elements of the doctrine of collateral estoppel: “Under collateral es-toppel, once an issue is actually and necessarily determined by a court of competent jurisdiction, that determination is conclusive in subsequent suits based on a different cause of action involving a party to the prior litigation.” Montana v. United States, 440 U.S. 147, 153, 99 S.Ct. 970, 973, 59 L.Ed.2d 210, 217 (1979) (emphasis added). Because there is no dispute that the parties involved in this action and in Astroline I are the same, and that questions raised in the earlier proceeding were actually and necessarily determined by a court of competent jurisdiction, the relevant inquiry is whether the issue involved in Astroline I is determinative of the outcome of this proceeding. Whether the Defendant could be considered a general, rather than limited, partner of the Debtor was a question determined under Massachusetts law, not the Bankruptcy Code. In Astroline I, this court applied the standards of the 1982 Massachusetts Limited Partnership Act, Mass. Gen. L. ch. 109, § 19(b)(2) (1982) [hereinafter “MLPA”], determining that the Defendant would be liable as a general partner only if it actually exercised “all of the powers of a general partner.” Astroline I at 105 (emphasis added ). The Bankruptcy Code’s definition of “insider” is far more expansive. General partners are -but one subset of those who could be considered “insiders.” 11 U.S.C.A. § 101(31).4 As a result, while a finding in Astroline I that the Defendant exercised control as a general partner of the Debtor would have been sufficient to consider the Defendant an “insider” for bankruptcy purposes, see 11 U.S.C. § 101(31), the converse does not follow; not having exercised control as a general partner does not necessarily imply that one is not ah “insider,” since that term, as defined in the Bankruptcy Code includes, but is not limited to, general partners. 11 328U.S.C. §§ 101(31), 102(3).5 The broader issue of whether the Defendant was an insider was not litigated in the prior proceeding. The U.S. Supreme Court discussed the necessity of limiting collateral estoppel to issues where not only the same conduct is involved, but where the same standards are applied. See Brown v. Felsen, 442 U.S. 127, 139 n. 10, 99 S.Ct. 2205, 2213 n. 10, 60 L.Ed.2d 767, 776 n. 10 (1979) (If a prior state court adjudication were to determine factual issues “using standards identical” to those applicable in bankruptcy proceedings, “then collateral estoppel, in the absence of countervailing statutory policy, would bar relit-igation of those issues in the bankruptcy court.”) (emphasis added). In Grogan v. Garner, 498 U.S. 279, 111 S.Ct. 654, 112 L.Ed.2d 755 (1991), the Supreme Court considered whether a state court decision that a debtor’s conduct was or was not fraudulent would preclude a bankruptcy court from relitigating that issue in a nondischargeability proceeding. Even though state law determines the elements of fraud, in bankruptcy as well as nonbankrupt-cy proceedings, the Court found that relit-igation would be precluded only if the same standard of proof also applied to both proceedings. Unless every aspect of the issue involved is identical in both proceedings, the Court noted, a prior finding that one did not meet the requirements of the more restrictive criteria would not preclude relitigation of the broader issue in the subsequent proceeding. Id. at 286 n. 12, 111 S.Ct. 654. The scope of the decision in Astroline I was limited to whether the Defendant’s control of the Debtor was so extensive that, under the MLPA, the Defendant would be liable as a general partner for claims against the Debtor. Since that issue was the only one that was actually and necessarily determined in that proceeding, and because Massachusetts state law provides the appropriate standard for determining whether the Defendant’s status is that of a general or limited partner, it is the only issue precluded from relitigation under the criteria for collateral estoppel. The question of the Defendant’s liability as a general partner or codebtor is not at issue in this proceeding, while the question of whether the Defendant was an insider of the Debtor, as that term applies in the bankruptcy context, was not at issue in Astroline I. Some of the facts offered to substantiate the trustee’s claim in Astroline I may be relevant in determining whether the Defendant is an insider; however, the standards applicable to such a determination are quite different from those of the MLPA. In this regard, the Defendant’s reliance on Shore Road is misplaced. In Shore Road, every act of inequitable conduct that was alleged to have given rise to the claim for equitable subordination involved conduct where the bankruptcy court looks to state law to determine the applicable standards, e.g. mortgage validity, fraud, etc. Shore Road, 214 B.R. at 682-83. Since the state court had already exonerated the defendants, applying the same standards that would be applicable to a bankruptcy proceeding, collateral estoppel properly applied to prevent re-litigation of those issues. This proceeding concerns whether the Defendant’s claims should be equitably subordinated to those of the general unsecured creditors. Section 510(c) of the Bankruptcy code permits the bankruptcy court “under principles of equitable subordination” to subordinate all or part of one claim to another. 11 U.S.C. § 510(c)(1). The legislative history indicates that Congress “intended that the term ‘principles of equitable subordination’ follow existing ease law and leave to the courts the development of this principle.” Stop & Shop Cos., Inc. v. Rosow (In re Rosow), 13 B.R. 203, 204 (Bankr.D.Conn. 1981) (quoting 124 Cong.Rec. H 11,095 (Sept. 28,1978) S 17,412 (Oct. 6, 1978)). The courts have adopted a three-prong test to determine whether a bankruptcy court may equitably subordinate a claim. The requirements are: (1) inequitable conduct by that claimant; (2) harm to other creditors of the Debtor or unfair advantage 329to the claimant as a result of such conduct, and (3) that subordination would not be inconsistent with other aspects of the Bankruptcy Code. Benjamin v. Diamond (In re Mobile Steel), 563 F.2d 692, 699-700 (5th Cir.1977); also see United States v. Noland, 517 U.S. 535, 538-39, 116 S.Ct. 1524, 1526, 134 L.Ed.2d 748, 754 (1996) (citing the Mobile Steel test as that generally followed). While a creditor’s control of a debtor is often a consideration in an equitable subordination proceeding, control or insider status alone, cannot provide a sufficient basis for such subordination. Comstock v. Group of Int’l Investors, 335 U.S. 211, 229, 68 S.Ct. 1454, 1463, 92 L.Ed. 1911, 1923 (1948) ( “It is not mere existence of an opportunity to do wrong that brings the rule into play; it is the unconscionable use of the opportunity afforded by the domination to advantage itself at the injury of the subsidiary that deprives the wrongdoer of the fruits of his wrong.”); Fabricators, Inc. v. Technical Fabricators, Inc. (In re Fabricators, Inc.), 926 F.2d 1458, 1467 (5th Cir.1991) (“Our inquiry does not end simply by finding an insider relationship. The cases are clear that the mere fact of an insider relationship is insufficient to warrant subordination.”). If a creditor is shown to be an insider of the debtor, its conduct is subject to a higher level of scrutiny, and the burden of proof is shifted, with the insider being required to prove its good faith and fair dealing. Official Comm. of Unsecured Creditors of Interstate Cigar Co. v. Bambu Sales, Inc. (In re Interstate Cigar Co.), 182 B.R. 675, 681 (Bankr.E.D.N.Y.1995) (“Since the claim is that of an insider of the Debtor, the Court is required to weigh two principles relative to the inequitable conduct: 1) following the Plaintiffs presentation of unfair conduct, the Defendant has the burden to demonstrate the good faith and fairness of the disputed transactions and 2) the Court gives ‘special scrutiny’ to the Defendant’s transactions with the Debtor.”) Since (1) the ruling in Astroline I determined only that the Defendant did not exercise control as a general partner of the Debt- or, and did not eliminate the possibility that the Defendant could nevertheless be considered an “insider” under the more expansive criteria applicable to the Bankruptcy Code, and (2) since insider status alone, even if proved, would not be sufficient for equitable subordination, the doctrine of collateral es-toppel does not support Defendant’s motion to dismiss. B. RES JUDICATA Unlike collateral estoppel, the doctrine of res judicata not only precludes relit-igation of issues actually decided on the merits, but may also bar litigation of certain claims not raised in the prior proceeding. Brown v. Felsen, 442 U.S. 127, 138 n. 10, 99 S.Ct. 2205, 2213 n. 10, 60 L.Ed.2d 767, 776 n. 10 (1979). Because it “blockades unexplored paths that may lead to truth... [i]t therefore is to be invoked only after careful inquiry.” Id. at 132, 99 S.Ct. 2205. In Anaconda-Ericsson, Inc. v. Hessen (In re Teltronics Services, Inc.), 762 F.2d 185, 190 (2d Cir.1985) [hereinafter Teltron-ics], the Second Circuit outlined the four-part test to be applied in determining whether a suit is to be precluded pursuant to the doctrine of res judicata. “[Tjhis doctrine applies to preclude later litigation if the earlier decision was (1) a final judgment on the merits, (2) by a court of competent jurisdiction, (3) in a case involving the same parties or their privies, and (4) involving the same cause of action.” Teltronics 762 F.2d at 190. The first two requirements, that the prior holding, Astroline I, constituted a final judgment on the merits, and that it was rendered by a court of competent jurisdiction have been satisfied. Because the present plaintiff and defendant were both parties to Astroline I, the third requirement is also satisfied. The dispositive question then becomes whether the fourth requirement, that both suits involve the same cause of action, is satisfied. In determining whether this requirement is satisfied, the Second Circuit has indicated “that the test for deciding the sameness of claims requires that the same transaction, evidence, and factual issues be involved. N.L.R.B. v. United Technologies Corp., 706 F.2d 1254, 1259 (2d Cir.1983). 330Also dispositive to a finding of preclusive effect is whether an independent judgment in a separate proceeding would ‘impair or destroy rights or interests established by the judgment entered in the first action.’ Herendeen v. Champion Int’l Corp., 525 F.2d 130, 133 (2d Cir.1975).” Sure-Snap Corp. v. State St. Bank & Trust Co., 948 F.2d 869, 874 (2d Cir.1991); see also Corbett v. MacDonald Moving Services, Inc., 124 F.3d 82, 88 (2d Cir.1997) (emphasizing the last inquiry in the bankruptcy context). The trustee’s plea for equitable subordination of the Defendant’s claims does not depend on the same transaction, evidence and factual issues as those presented in Astroline I. In the complaint seeking equitable subordination, the trustee has alleged that (1) the Defendant was an “insider,” and (2) that the Defendant recharacterized its equity interest as debt (3) while the debtor was insolvent. Astroline I dealt only with whether the extent of the Defendant’s control over the debtor was sufficient to render it liable as a general, rather than a limited, partner, under the MLPA. “[T]he circumstance that several operative facts may be common to successive actions between the same parties does not mean that the claim asserted in the second is the same claim that was litigated in the first. Whether or not the first judgment will have preclusive effect depends in part on whether ... the facts essential to the second were present in the first.” United Technologies, 706 F.2d at 1259-60. The current proceeding could not have been adjudicated solely on the basis of the facts upon which Astroline I relied. While control is relevant in determining whether the Defendant was an insider of the debtor, insider status is not sufficient to justify equitable subordination; it merely establishes the level of scrutiny to be applied and the burden of proof. “The reason the transactions of insiders will be closely studied is because such parties usually have greater opportunities for such inequitable conduct, not because the relationship itself is somehow a ground for subordination.” Fabricators, Inc., 926 F.2d at 1465. Evidence of inequitable conduct and unfair advantage or harm to other creditors is required for equitable subordination. Mobile Steel, 563 F.2d at 699-700. In this proceeding, the trustee alleges that the Defendant was an insider of the debtor, and recharac-terized its equity interest as a loan while the debtor was undercapitalized. Taken together, these three allegations may considered sufficient to satisfy the Mobile Steel three-part test. Summit Coffee Co. v. Herby’s Foods, Inc. (In re Herby’s Foods, Inc.), 2 F.3d 128, 132 (5th Cir.1993). With regard to the final criteria for determining whether both suits involve the same cause of action, an equitable subordination proceeding would not impair any rights or interests established in the prior proceeding. Astroline I concerned whether the assets of the Defendant could be reached to satisfy creditors of the debtor. This proceeding deals only with the priority of the Defendant’s claims against the debtor’s estate. Regardless of its outcome, the Defendant’s other assets will remain out of reach as determined under the MLPA. While the trustee might have joined this claim in the prior proceeding under Fed.R.Bankr.P. 7018, he was not required to do so. Such joinder is permissive, not mandatory. The court finds that the present proceeding does not involve the same cause of action as Astroline I. It is not barred by the doctrine of res judicata. IV. CONCLUSION For the foregoing reasons, the Defendant’s motion to dismiss is denied. It is SO ORDERED. . Astroline I was affirmed on the basis of the bankruptcy court's findings and conclusions, after district court affirmance on grounds different from those relied upon by the bankruptcy court, by the United States Court of Appeals for the Second Circuit on April 17, 1997 by way of a "Summary Order.” The order states: "This summary order will not be published in the federal reporter and may not be cited as prece-dential authority to this or any other court, but may be called to the attention of this or any other court in a subsequent stage of this case, in a related case, or in any case for purposes of collateral estoppel or res judicata.” . Section 723(a) provides: If there is a deficiency of property of the estate to pay in full all claims which are allowed in a case under this chapter concerning a partnership and with respect to which a general partner of the partnership is personally liable, the trustee shall have a claim against such general partner to the extent that under applicable nonbankruptcy law such general partner is personally liable for such deficiency. 11 U.S.C.A. § 723(a) (West Supp.1998). . Although some areas of controversy exist between the federal doctrine and those of some states regarding default judgments and mutuality, neither of those areas are relevant to this proceeding. . § 101(31) provides in relevant part: (31) "insider” includes— (C) if the debtor is a partnership— (i)general partner in the debtor; (ii) relative of a general partner in, general partner of, or person in control of the debt- or; (iii) partnership in which the debtor is a general partner; . (iv) general partner of the debtor; or (v) person in control of the debtor; 11 U.S.C.A. § 101(31) (West 1993). . § 102 provides in relevant part: In this title— (3) "includes” and "including” are not limiting; 11 U.S.C.A. § 102(3) (West 1993).	01-04-2023	11-22-2022
https://www.courtlistener.com/api/rest/v3/opinions/8492785/	CARL L. BUCKI, Bankruptcy Judge. Virtually on the eve of the trustee’s final distribution in this Chapter 7 proceeding, Leo P. Lefort moved for the allowance of a 338supplemental claim which arose as the result of his settlement of an adversary proceeding to recover a preference. In response, the trustee urges the Court to disallow Lefort’s claim, due to the lateness of its submission. Bender Ready Mix, Inc., filed a petition for relief under Chapter 7 of the Bankruptcy Code on June "6, 1994. Until the date of filing, Leo P. Lefort had served as president of the debtor corporation. Mr. Lefort timely filed an initial proof of claim on October 31, 1994. Thereafter, in 1996, the Chapter 7 trustee commenced three adversary proceedings against Lefort to recover allegedly preferential payments. After some litigation, Lefort and the trustee reached a settlement whereby Lefort agreed to pay $100,000 in full satisfaction of the trustee’s claims. Upon the trustee’s motion on notice to all creditors, this Court approved the settlement by order dated February 20, 1997. However, that order contained no provision regarding Le-fort’s right to file a proof of claim. Lefort asserts that he intended to amend his original proof of claim to add a demand for the $100,000 that he paid pursuant to his settlement of the adversary proceedings. His counsel prepared the necessary form on or about April 15, 1997, but for. reasons unknown, the Clerk of this Court did not receive the claim. The trustee acknowledges that he received a copy in his office at approximately the same time that it was prepared. Nonetheless, because the proof of claim was never delivered to the Bankruptcy Clerk, the Clerk never included it in his register of claims. Working from that register, the trustee prepared his final report without consideration of the supplemental claim. Lefort’s original proof of claim sought to recover the sum of $120,121.80. Included in this amount were purported loans totaling $81,000, as well as a claim for undistributed employment bonuses of $39,121.80. Alleging that the loans represented contributions to capital, the trustee filed a motion on February 3, 1997, to disallow that portion of the claim. After a hearing on due notice to Lefort and his counsel, the Court sustained this objection and by Order dated May 6, 1997, reduced his claim to the amount of undistributed bonuses. Then, on August 26, 1997, the Court approved a further compromise that allowed the bonuses for one-half of the amount claimed. Unfortunately, the papers filed in connection with this compromise again made no reference to Lefort’s supplemental claim. Sometime after submission of the trustee’s final report but before the trustee’s distribution of estate assets, Lefort’s counsel learned that the final report made no provision for the supplemental claim of $100,000. Accordingly, Lefort served the present motion to allow this claim as a timely amendment of his earlier proof of claim. The trustee responds that because the Clerk had already noticed his final report, it is now too late to file an additional claim. The trustee further asserts that even if Lefort had filed the claim as intended on April 15, 1997, such claim would be untimely under Bankruptcy Rule 3002(c)(3). Nor, in the trustee’s view, is Lefort’s supplemental claim an amendment of his previous filing, such as to relate back to the date of that original claim. For the reasons stated hereafter, the Court will overrule the trustee’s objections and direct the allowance of Lefort’s supplemental claim. Lefort’s primary argument is that his supplemental claim is properly in the nature of an amendment to his original proof of claim. He contends that because the original proof of claim was timely, the timeliness of a proper amendment will relate back to the earlier date of filing. Although the logic of this position is correct, it presumes that the supplemental claim is a proper amendment. As to the validity of this presumption, at least some courts disagree. See, e.g., In re International Diamond Exchange Jewelers, Inc., 188 B.R. 386 (Bankr.S.D.Ohio 1995) (holding that a claim based upon the return of a preference is necessarily different from other pre-petition claims, and therefore not an amendment of any such prior claim). We need not consider the characteristics of an amendment, however, because in the present instance, the supplemental claim was itself filed in a timely fashion. Section 726(a) of the Bankruptcy Code essentially provides that after payment of priority claims, the trustee in a chapter 7 339proceeding shall distribute property of the estate to those unsecured creditors who have timely filed a proof of claim. Bankruptcy Rule 3002 confirms that with certain exceptions not here relevant, the Court is to allow only those claims for which proofs of claim are filed. In the present instance, the Clerk of this Court set October 31, 1994, as the last day for filing proofs of claim, and Leo Lefort filed his initial claim on that date. Because the preference litigation settled in 1997, Lefort’s original proof of claim properly did not include any demand for the moneys that he would later pay under terms of the settlement. The trustee contends that Bankruptcy Rule 3002(c)(3) governs this circumstance and requires that Lefort file any supplemental claims within thirty days of his payment of the settlement amount to the trustee. Bankruptcy Rule 3002(c)(3) provides as follows: An unsecured claim which arises in favor of an entity or becomes allowable as a result of a judgment may be filed within 30 days after the judgment becomes final if the judgment is for the recovery of money or property from that entity or denies or avoids the entity’s interest in property. If the judgment imposes a liability which is not satisfied, or a duty which is not performed within such period or such further time as the court may permit, the claim shall not be allowed. In the view of this Court, Rule 3002(c)(3) has application only to instances in which the claim arises from a final judgment. By its very language, the rale says nothing about claims for reimbursement of moneys paid through settlements that do not entail the entry of a judgment. Because Lefort voluntarily made payment of $100,000 to the trustee pursuant to the terms of their settlement stipulation, and because that settlement averted the need for a judgment against Lefort, the Bankruptcy Rules simply impose no limit for the timely filing of a supplemental proof of claim. This Court respectfully disagrees with the decision in Matter of Mul Corporation, 60 B.R. 636 (Bankr.D.Conn.1986), which held that Rule 3002(c)(3) requires the filing of a proof of claim within 30 days of the payment of any preference settlement. In that decision, the court acknowledged that “the language of the rale seemingly encompasses only claims that arise as a result of judgments.” Id. at 638. Finding such restrictive language to be “the result of an obvious oversight and inadvertence,” id. at 638, the judge inferred a Congressional intent to extend the time limits of Rule 3002(c)(3) to all recoveries by the trustee. He concluded, however, that “[i]f there were any plausible reason for this omission, [he] would consider it deliberate, and restrict the applicability of Rule 3002(c)(3) to claims arising as a result of a judgment.” Id. at 639. The limited scope of Bankruptcy Rule 3002(c)(3) is readily explained by the distinctive nature of a settlement recovery. Unlike the entry of an involuntary judgment, a settlement necessarily entails some event of agreement between trustee and defendant. In the context of reaching such agreement, the trustee enjoys adequate opportunity either to address the allowance of claims as part of a global resolution, or at least to establish a framework for presentment of claims within a specified limit of time. The second sentence of Rule 3002(c)(3) serves to highlight the purpose for the special treatment of claims arising as a result of a judgment. The mere entry of judgment supplies no assurance of the trustee’s recovery. Until a defendant satisfies its liability to return a preferential payment, that defendant has no basis to recover a claim back against the estate. In the absence of an extension of time, the second sentence of Rule 3002(c)(3) requires disallowance of such a claim unless the preference judgment is satisfied within thirty days after the judgment becomes final. Thus, Rule 3002(c)(3) links timely payment of a preference judgment to both the assertion and allowance of the defendant’s claim back against the estate. In contrast, when the trustee receives a settlement, he thereby knows immediately the value of the creditor’s claim against the estate. Considerations of fairness support the goal of assuring that all allowable and *340timely claims share in the distribution of estate assets. While the need for efficient administration may at times require the enforcement of time limitations on the filing of claims, such concerns should not unduly preempt the system’s fundamental concern for fairness. Unless a time limit is clearly expressed, this Court will not read into the Bankruptcy Rules a restriction that can at most only be inferred. In the present context in which no distribution has yet occurred, such a result imposes no excessive hardship upon the trustee. Having received Lefort’s payment, the trustee knew of the potential for his claim, and could easily have asked the Court to establish a specific bar date for its assertion. The Court will, therefore, accept Lefort's supplemental claim as timely. Lefort paid the sum of $100,000 to settle causes of action that were based solely upon allegations of preferential payment. Such return of a preference gives rise to a claim back against the estate. To the extent that the trustee identifies any other basis to challenge its allowance, he may now file appropriate objection. Otherwise, he should proceed to amend his final report to. reflect' Lefort’s claim and to request an allowance for any expenses related to the present motion. So ordered.	01-04-2023	11-22-2022
https://www.courtlistener.com/api/rest/v3/opinions/8492786/	ORDER ON TRUSTEE’S OBJECTION TO CLAIM OF EXEMPTION LEWIS M. KILLIAN, Bankruptcy Judge. THIS MATTER came on for hearing on September 17, 1998 on the Trustee’s Objections to Property Claimed as Exempt. The issues before the Court are whether the insurance renewal commissions received by Mr. Braddy are property of his estate under § 541 of the Bankruptcy Code and whether Mr. Braddy may exempt those commissions under Florida’s wage exemption statute, § 222.11. Having considered the arguments of counsel for both parties, the evidence presented, and for the reasons set forth below, I sustain the Trustee’s objection and hold that the renewal commissions are property of the estate and that those commissions may not be exempted as wages under § 222.11. FACTS Jimmy Braddy, prior to filing under chapter 13 on July 12, 1996 (subsequently converted to chapter 7 on October 28, 1996), owned an insurance agency. He represented United American Insurance Company, in addition to a few other smaller companies. Mr. Braddy was paid solely by commissions, and he did not receive a regular salary. He did not pay Social Security or other taxes on the commissions he earned. Mr. Braddy paid all of his agency’s expenses out of the commissions he received. As of the date of his deposition, May 22,1998, Mr. Braddy was no longer writing any insurance. He has relinquished his license and retired from the business. According to Mr. Braddy, he does not have any active involvement in the renewal of the policies. Mr. Braddy continues to receive monthly insurance renewal premiums, although the premiums are slowly declining as his clients die or choose not to renew their insurance coverage. Mr. Braddy receives a monthly statement that delineates the total amount of his renewal premium less any amount to be paid back to the client who has died or chosen not to renew. The renewal premiums are Mr. Braddy’s main source of income. Mr. Braddy claims that these renewal premiums are exempt from his estate, and the trustee objects to this exemption. The first issue is whether the renewal premiums Mr. Braddy receives constitute pre-petition earnings and are property of the estate, or whether they are post-petition earnings and are not property of the estate under 11 U.S.C. § 541. The second issue is whether the renewal premiums, if found to be property of the estate, can be exempted under Florida’s wage exemption statute. See § 222.11, Fla. Stat. (1998). DISCUSSION Once a bankruptcy petition has been filed, whether a voluntary, involuntary or joint ease, an estate is created. See 11 U.S.C. § 541(a) (1997). Section 541 of the Bankruptcy Code lists the property that becomes part of the estate. Under § 541(a)(1), the estate includes “[ejxcept as provided in subsections (b) and (c)(2) of this section, all legal or equitable interests of the debtor in property as of the commencement of the ease.” 11 U.S.C. § 541(a)(1) (1997). Under § 541(a)(6), the estate consists of “[pjroceeds, product, offspring, rents and or profits of or from property of the estate, except such as are earnings from semces performed by an individual debtor after the commencement of 481the case.” 11 U.S.C. § 541(a)(6) (emphasis added); see also In re Palmer, 57 B.R. 332, 333 (Bankr.W.D.Va.1986) (stating that the scope of § 541 is broader than its predecessor under the Bankruptcy Act and “is intended to be all embracing”). Therefore, wages earned by the debtor pre-petition become part of the estate, but wages earned post-petition do not become part of the estate. See Palmer, 57 B.R. at 334 (“The decisive factor in determining whether sums of money received post-petition constitute property of the estate is whether such income accrues from post-petition services.”). Bankruptcy courts consider several factors in making a determination of whether renewal premiums are included as property of the estate, including the ratio of work performed by the debtor pre- and post-petition and whether the renewal premiums are conditioned on the debtor’s performance of future services. See, e.g., In re Palmer, 57 B.R. at 334 (“[A]n important consideration central to the holding in each ease is whether the payments are conditioned upon activities required of the Debtor subsequent to filing of the petition.”); In re Blackerby, 208 B.R. 136, 143 (Bankr.E.D.Pa.1997) (“The test to determine whether renewal commissions ... are property of a debtor’s bankruptcy estate under § 541 of the Code is whether payment of the commissions ... is for services performed by the debtor after the commencement of the bankruptcy ease.”). One Florida Bankruptcy Court takes into consideration when the debtor performed “the bulk M.D. Fla.1989” (finding that the bulk of the debtor’s work was performed pre-petition and holding that the renewal premiums were, therefore, property of the estate); accord In re Wicheff, 215 B.R. 839, 841-42 (6th Cir. BAP 1998) (“Insurance renewal commissions received postpetition are property of the estate if all of the actions to earn the commissions are completed prepetition.”). The Froid court concluded that the debtor “earned his right to the renewal commissions prepetition, that the renewal commissions were vested prepetition, and thus, the renewal commissions are properties of the estate.” Froid, 109 B.R. at 488; see also In re Parker, 9 B.R. 447, 449 (Bankr.M.D.Ga.1981) (“[T]he defendant was entitled to receive the renewal commissions, and the right to receive these commissions was in no way conditioned upon future services.... ”); In re Rankin, 102 B.R. 439, 441 (Bankr.W.D.Pa. 1989) (finding that renewal commissions were property of the estate because “[n]o additional effort of the part of the debtor is required to earn renewal commissions. Since the debtor fulfilled all his obligations prior to the filing ... the renewal commissions represent payment for past services and are property of the bankruptcy estate.”). Another case from the Middle District of Florida held that renewal premiums were property of the estate but only to the extent that the services were performed pre-petition. See In re Malloy, 2 B.R. 674, 676-77 (Bankr.M.D.Fla.1980). Applying a proportionality test, the court found that because the debtor dedicated 20% of his post-petition time to servicing his clients, 20% of the debt- or’s renewal premiums were post-petition earnings. Eighty percent of his renewal premiums were pre-petition earnings and, therefore, property of the estate. See id. at 677. The United States Bankruptcy Appellate Panel of the Ninth Circuit applied a similar test when it stated: Whether and to what extent the renewal commissions are excluded from the estate depends upon whether the debtor’s postpe-tition services are a prerequisite to the right to the renewal commissions and, if so, the extent to which the commissions are attributable to the postpetition services as opposed to prepetition services. In re Wu, 173 B.R. 411, 416 (9th Cir. BAP 1994). In In re Bluman, 125 B.R. 359 (Bankr. E.D.N.Y.1991), the debtor argued that although the renewal commissions he earned were partly the result of pre-petition activities, he continued to work for his commissions post-petition. The debtor asserted, “if he were to cease and desist from continuing these activities, the accounts would dry up.” Id. at 365. The court was not persuaded by this argument and held that the renewal commissions were property of the estate: As the renewals to the Debtor are not conditioned on future services and in fact 482the acts of the Debtor necessary to earn these payments are rooted in the prebank-ruptcy past, this Court finds that the commissions are not earnings from services of the Debtor and are therefore part of the estate. Id. at 366. Similarly, in In re Tomer, 128 B.R. 746 (Bankr.S.D.Ill.1991), the court dismissed the debtor’s argument that he performed sufficient post-petition activity by stating, “[w]hile the debtor is undoubtedly correct that only continued service will bring full value to pre-petition accounts, it does not follow that the owners of policies written prior to bankruptcy would stop paying premiums or fail to renew if the debtor or his agents no longer called on them.” Id. at 761. The court found that: Because the debtor need not perform further service for such commissions to be paid and because the debtor’s right to them accrued prior to bankruptcy, payment of these commissions to the trustee for the benefit of creditors will not impair the debtor’s fresh start following bankruptcy, and the trustee is entitled to these commissions as property of the debtor’s bankruptcy estate. Id. Courts holding that renewal premiums are not part of the estate do so primarily because the debtor continues to sell insurance or perform sufficient post-petition activities. See In re Zahneis, 78 B.R. 504 (Bankr. S.D.Ohio 1987) (holding that renewal commissions were not property of the estate because of continuing contractual relationship); In re Hodgson, 54 B.R. 688 (Bankr. W.D.Wis.1985) (finding that renewal premiums were not property of the estate because the debtor “spends the vast majority of his time servicing old policies”); In re Sloan, 32 B.R. 607, 611 (Bankr.E.D.N.Y.1983) (stating in dicta that “[wjhere a debtor derives post-petition commissions under a pre-petition contract, and such commissions are dependent upon the continued services of the debt- or, they do not constitute property of the estate”); In re Kervin, 19 B.R. 190, 194 (Bankr.S.D.Ala.1982) (finding that because the debtor continued to work for the insurance agency post-petition, the renewal premiums were not property of the estate); In re Leibowitt, 93 F.2d 333, 335 (3d Cir.1937) (holding that renewal commissions were not property of the estate because “substantial service still must be rendered by the bankrupt in order that the compensation referred to may become payable by the insurance company”). Those cases finding that the renewal premiums are not part of the estate are distinguishable from the case at hand, however. In all of these cases, the decisive factor was that the debtor continued to service the clients after filing for bankruptcy. According to his own deposition, Mr. Braddy was no longer licensed and had retired from the business. Mr. Braddy stated that he has no current active involvement in the policy renewals. His receipt of renewal commissions is not conditioned upon future services. Mr. Braddy relies on a Florida case where the court found that the debtor’s renewal premiums were not property of the estate because the commissions were contingent upon the debtor’s remaining the agent of record on the policy. See In re Selner, 18 B.R. 420, 421 (Bankr.S.D.Fla.1982). The Seiner court acknowledged that it was recognizing an exception to the general rule that “[cjommissions earned on renewal of policies sold by an insurance salesman prior to bankruptcy but paid after the filing of bankruptcy are considered property acquired prior to bankruptcy and belong to the estate.” Id. Mr. Braddy’s situation is distinguishable from the debtor in Seiner. In Seiner, the court stated that the renewal commissions were not property of the estate because “the continued payment of this commission is contingent upon Seiner’s remaining as the agent of record on the policy with all attendant rights and responsibilities." See Selner, 18 B.R. at 421 (emphasis added). Mr. Braddy does not have any further responsibilities. He is retired and has relinquished his insurance license. Therefore, the Seiner case does not support Mr. Braddy’s argument that his renewal commissions are not property of his estate. Mr. Braddy receives insurance renewal premiums as a result of services he 483performed prior to filing for bankruptcy. The commissions are not contingent upon future services to be performed by Mr. Brad-dy because he is retired, no longer licensed, and admits to having no active involvement with any of his prior clients. Therefore, under § 541(a)(6), the commissions that Mr. Braddy receives are property of his estate. If renewal commissions are property of the estate, the next question is whether the debtor may exempt those commissions under Florida Statutes § 222.11. While § 522(d) of the Bankruptcy Code lists the property which is exempt under federal law, § 522(b)(1) allows each state to “opt out” of the federal scheme and to adopt its own list of exempt property. See 11 U.S.C. §§ 522(b)(1), (d) (1998). Florida exempts wages from garnishment in Florida Statutes § 222.11. See § 222.11, Fla. Stat. (1998). Under § 222.11, if a debtor is the head of his family and his disposable earnings are less than $500 per week, his disposable earnings are exempt from garnishment. See § 222.11(2)(a), Fla. Stat. Cases determining the applicability of § 222.11 usually make a distinction between employees and independent contractors. Many cases hold that in order to fit within the purview of § 222.11, a debtor must be classified as an employee, not as an independent contractor. See In re Hanick, 164 B.R. 165, 167 (Bankr.M.D.Fla.1994); see also In re Montoya, 77 B.R. 926 (Bankr.M.D.Fla.1987); In re Malloy, 2 B.R. 674, 676 (Bankr. M.D.Fla.1980) (stating that because debtor was determined to be independent contractor, debtor was “not entitled to the benefits of the [wage exemption] statute”). In Hanick, the debtor was a real estate agent paid solely through commissions on the policies he sold and was not treated as an employee. ' He was responsible for all of the costs associated with the business, and he did not pay any Social Security or withholding taxes on the commissions he received. See id. at 166. For these reasons, the court found that the debtor was an independent contractor and not an employee. As such, he was not entitled to the protection of § 222.11. See id. at 167; see also In re Moriarty, 27 B.R. 73, 74 (Bankr.M.D.Fla.1983) (finding that real estate agent debtor who was paid solely by commission, paid no taxes, and provided for his own expenses was independent contractor and not entitled to § 222.11 exemption). The court held that § 222.11 applies only to employees and not to independent contractors. See id.; see also In re Porter, 182 B.R. 53, 56 (Bankr.M.D.Fla.1994) (following the Eleventh Circuit’s decision in In re Schlein, 8 F.3d 745, 755 (11th Cir.1993), the court found that in order to fall under § 222.11, the debtor must be an employee and not an independent contractor); cf. Refco, Inc. v. Sarmiento, 487 So.2d 75, 76 (Fla. 3d DCA 1986) (finding that debtor was employee for purposes of § 222.11 because his work was supervised and subject to the approval of his supervisor). Similarly, the same court found two years later that independent contractors are not entitled to the wage exemption under § 222.11. See In re Lee, 204 B.R. 78, 79 (Bankr.M.D.Fla.1996); but see In re Glickman, 126 B.R. 124 (Bankr.M.D.Fla.1991) (finding that the statute does not limit the wage exemption to employees but covers independent contractors as well). In Lee, the debtor received renewal premiums on life insurance policies that he sold pre-petition. The court found that the debtor was an independent contractor because the debtor ran his insurance agency like a business, and he was not under any obligation to work for any particular insurance company. Also, the debtor was responsible for all of his own expenses. See id. The facts of Hanick and Lee are similar to Mr. Braddy’s situation. While Mr. Hanick was a real estate agent and Messrs. Lee and Braddy were insurance agents, all were paid solely on commissions. All were responsible for all of the costs of their business, and all paid no Social Security or other taxes on the commissions they received. Under the Hanick and Lee approach, Mr. Brad-dy is an independent contractor and, therefore, does not receive the wage exemption under § 222.11. CONCLUSION Based upon the foregoing analysis, Mr. Braddy’s renewal commissions are property 484of his estate, and he is an independent contractor for purposes of § 222.11. Therefore, the commissions are property of Mr. Brad-dy’s bankruptcy estate, and he cannot exempt them under § 222.11. Accordingly, the Trustee’s Objections to Property Claimed as Exempt is hereby SUSTAINED, and the exemption is disallowed.	01-04-2023	11-22-2022
https://www.courtlistener.com/api/rest/v3/opinions/8492787/	MEMORANDUM AND DECISION JAMES A. GOODMAN, Bankruptcy Judge. This Court heard on September 15, 1998 the following contested matters in the above captioned adversary proceeding: (1) Bank Boston’s Motion to Dismiss the Counterclaim and Strike the Affirmative Defenses of the Defendant, JBI Associates Limited Partnership; (2) Bank Boston’s Motion for Summary Judgment; and (3) Bank Boston’s Motion for Sanctions against JBI Associates Limited Partnership under Me. R. Civ. P. 11. For the reasons discussed below, the Court grants the Motion to Dismiss JBI Associates’ Counterclaim, strikes JBI Associates’ Affirmative Defenses, grants BancBoston’s Motion for Summary Judgment, and the request for sanctions is denied without prejudice. 490 BACKGROUND Understanding the identity and roles of the parties is essential to the issues at bench, so I begin with the roster of players: Running Hill Associates Limited Partnership (“Running Hill”) is a Massachusetts Limited Partnership which owns the fee interest in land on Running Hill Road in South Portland, Maine (“the Premises”). JBI Associates Limited Partnership (“Associates”) is a Massachusetts Limited Partnership that leases the Premises owned by Running Hill under a ground lease. Associates developed the Premises into an acute care psychiatric hospital. Jackson Brook Institute, Inc. (“Institute”) is a Maine Corporation and the Debtor in these proceedings. Institute leases the Premises and buildings of the psychiatric hospital from Associates under a sublease and operates the hospital under the name Jackson Brook Institute. Institute also claims a 32% limited partnership interest in Associates. While it is not clear, Associates appears to be denying such an interest.1 Community Care Systems, Inc. (“CCSI”) is a Massachusetts Corporation which is the parent corporation of the Institute and owns 100% of the Institute stock. In 1982 when the premises was being developed, CCSI was a general partner of Associates. Frederick Thacher is the president of CCSI and during some of the relevant times, the president of the Institute. He is also the sole general partner of Running Hill and the majority shareholder of CCSI. Robert Cserr is a general partner of Associates and a shareholder in CCSI. Elia Lipton alleges that he is a General Partner of Associates. Cserr disputes Lipton’s status as a general partner and this matter is being litigated in Massachusetts. Lipton is also a shareholder in CCSI. Casco Bank and Trust Company (“Cas-co”) is the financial institution that provided the original financing to construct the psychiatric hospital. Casco Northern Bank, N.A. (“Casco Northern”) is the successor in interest to Casco. BancBoston Real Estate Capital Corporation (“BancBoston”) is the assignee of Casco Northern’s interest in the Note, Mortgage, Collateral Assignment of Leases, and other documents relating to the original financing of the psychiatric hospital by Casco. CCSI develops health care facilities and in 1979 it proposed to build the Jackson Brook Institute, a psychiatric hospital in South Portland, Maine. The plan was to create two new entities: Associates, which would obtain the financing to construct the facility; and Institute, an entity that would lease the facility from Associates and run the hospital.2 Associates was formed as a limited partnership with CCSI as one of its general partners. Institute was created as the wholly owned corporate subsidiary of CCSI. Thacher controlled all three entities and was authorized to contract on their behalf.3 In 1982, Casco negotiated with CCSI, Associates, and Institute all through Thacher, to provide $5.6 million in construction financing to build the hospital. Thacher executed the Commitment Letter which stated inter alia that: No funds from Jackson Brook Institute, Inc., or JBI Associates shall be withdrawn for the benefit of any affiliated business entities in any form without the prior written consent of Casco Bank and Trust Company. Withdrawals shall include but not limited to management fees, dividends, loans and rental payments. December 20, 1982 Commitment Letter, p.3, ¶ 6. On January 27, 1983, Thacher acting on behalf of the Institute, Associates and CCSI 491executed a clarification to the Commitment Letter with Casco stating that the prohibition against the up-streaming of funds quoted above is intended to control withdrawal of funds from Institute and Associates once the hospital is operational. In May 1988, Associates entered into a “Lease and Sublease Agreement” for the land and yet-to-be built hospital with Institute. CCSI guaranteed Institute’s obligations under the lease. In 1999, Institute is required under the terms of the lease to tender to Associates an offer to purchase the leased premises for $10 million or its fair market value, whichever is greater.4 On May 11, 1983, Casco funded the $5.6 million loan to Associates, who in turn with Running Hill granted a mortgage and security interest in the hospital to Casco. Associates also assigned thé lease and CCSI’s guaranty to Casco. All documents were executed by Thacher in his capacity as president of CCSI, which was at the time a general partner of Associates, and as a general partner of Running Hill. On May 12, 1983, Associates and Institute executed an amendment to the December Commitment Letter whereby Institute, Associates and CCSI expressly agreed to be bound by the terms of the Commitment Letter. On February 16,1995, Casco Northern assigned all of its rights and interest in the Note, Mortgage and security agreements to BancBoston. THE LITIGATION (A) The 1993 Up-streaming Action: Things proceeded smoothly until sometime in 1993 when Casco discovered that Institue was up-streaming funds to its parent CCSI, in violation of the December Commitment Letter. On November 24, 1993, Casco Northern filed suit in the Maine Superior Court against Associates, Institute, and CCSI seeking injunctive and declaratory relief including enforcement of the up-streaming prohibition contained in the Commitment Letter. Casco Northern alleged in the Complaint that sometime prior to June 1993, Institute up-streamed upwards of $3 million to CCSI without Casco’s consent, and there remained due and owing to Institute in excess of $800,000. Institute answered the Complaint and denied that it was bound by the up-streaming prohibition contained in the December Commitment Letter. Associates filed a crossclaim against Institute and filed a motion requesting injunctive relief that mirrored Casco Northern’s request.5 The First major incident in the litigation occurred on May 25, 1994, when Institute moved to disqualify Associates’ legal counsel because that counsel had previously represented the Institute in various related matters. The litigation stalled pending a decision on the disqualification motion, which was granted on February 1, 1995. Associates appealed the disqualification order, to the Maine Law Court and on February 14, 1995, it sought a stay of the Up-streaming Litigation pending the appeal. On February 17, 1995, the Superior Court granted Associates' request for a stay. On November 30, 1995, the Law Court affirmed the disqualification order and, thereafter, Associates sought and obtained seven additional extensions of the stay of the litigation. See BancBoston’s Memorandum in Support of Motion to Dismiss Counter Claims and Strike Affirmative Defenses, Exhibits 9-22. The litigation was effectively stayed for almost three years until December 8, 1997. In each request for a stay, Associates claimed that the stay was necessary to ongoing settlement discussions and should negotiations break down, it would need the 492additional time to prepare its new counsel for litigation. Remarkably, on October 14,1997, prior to the expiration of the seventh and final stay granted by the Superior Court, Associates’ new counsel withdrew from the case. See Defendant’s Statement of Material Facts in Dispute, Exhibit 6, Docket Sheet. (B) BancBoston’s Foreclosure Action: On October 29, 1997, BancBoston filed a Complaint for Foreclosure against Running Hill, Associates, Institute, and other interested parties in Maine Superior Court. The Complaint alleges that Associates defaulted on its obligations to the bank by: (1) failing to make the required monthly payment due and owing on August 1, 1997; (2) failing to make timely payments under the note including the months of June, July, and August 1997; (3) failing to timely pay interest and late charges under the note; (4) failing to pay real estate taxes due and payable before August 21, 1997; (5) failing to provide financial statements as required; and (6) failing to obtain BancBoston’s written consent before transferring partnership interests or admitting additional partners into Associates. Associates filed its Answer setting forth four affirmative defenses, along with a four count Counterclaim. All of the affirmative defenses and each count of the counterclaim, except one, depend upon the same factual basis. Associates alleges that Casco, and subsequently BancBoston did not aggressively pursue the Up-streaming Litigation. As a consequence, Institute diverted funds to CCSI during the litigation thereby leaving Institute with too little cash to pay rent to Associates under the lease. Based on this premise, Associates states as affirmative defenses that BancBoston is: (1) estopped from foreclosing its mortgage; (2) barred from foreclosing due to BancBoston’s breach of its contractual duties of good faith and fair dealing; (3) barred from foreclosing due to Banc-Boston’s breach of its fiduciary duties owed to Associates; and (4) liable to Associates for the Institute’s lease obligations, and is barred from taking advantage of the defaults under the Note and Mortgage. Based upon the same premise that Banc-Boston failed to aggressively pursue the Up-streaming Litigation, Associates counterclaims that BancBoston: (1) breached its contractual duty of good faith and fair dealing; (2) breached a fiduciary duty owed to Associates; and (3) became a principal liable for rent and other obligations owed by Institute to Associates. Based upon BancBo-ston’s actions, Associates claims that Banc-Boston is estopped from taking advantage of the Institute’s default and accelerating Associates’ payment obligations under the Note. The last remaining counterclaim is premised upon BancBoston’s intervention into Associates’ litigation against Institute, CCSI, and Thacher, which is discussed in further detail below. Essentially, Associates alleges that BancBoston’s intervention was done for the sole purpose of interfering with Associates’ ability to prosecute the litigation, thereby breaching a duty owed to Associates. While not clear from the papers, Associates’ counsel clarified in argument that it merely seeks damages by way of this count. (C) Associates’ Law Suit: In November 1997, shortly after BancBo-ston commenced foreclosure proceedings, Associates filed suit in Maine Superior Court against Institute, CCSI, and Thacher seeking inter alia to collect past due rents owed by Institute, recover the funds up-streamed from Institute to CCSI as a fraudulent conveyance, and appoint a receiver for Institute pending its dissolution. In its Complaint, Associates admits that it was in default of its obligation to BancBoston under the Casco note and mortgage. See BaneBoston’s Memorandum in Support of Motion to Dismiss Counter Claims and Strike Affirmative Defenses, Exhibit 23, Complaint, p. 7 ¶ 22, p. 9 ¶ 33. Additionally, in other papers filed in the litigation, Associates acknowledged that BancBoston was free to proceed against Associates for a money judgment that was enforceable through foreclosure. See BancBo-ston’s Memorandum in Support of Motion to Dismiss Counter Claims and Strike Affirmative Defenses, Exhibit 24, Memorandum in Support of Motion for Attachment, pp. 7-8. BancBoston moved to intervene in the litigation because it had exercised its rights under the Assignment of Leases between 493Associates and Institute, and it was the entity that was entitled to sue on the lease. The Superior Court granted BancBoston’s request to intervene. The Court also denied Associates’ pending motions to appoint a receiver for Institute and obtain a pre-judgment attachment, finding inter alia that BancBoston may be the real party in interest to enforce the rights under the lease and not Associates. See BaneBoston’s Memorandum in Support of Motion to Dismiss Counter Claims and Strike Affirmative Defenses, Exhibit 25, Decision and Orders on Pending Motions. (D) The Bankruptcy: On March 27, 1998, Institute filed a voluntary petition under Chapter 11. On April 9, 1998, I ordered Institute to pay rents directly to BancBoston and on May 22, 1998, I granted BancBoston’s unopposed Motion for Relief from Stay to continue the State Court foreclosure litigation. On or about June 8, 1998, pursuant to Fed. R. Bankr.P. 9024, Institute filed a notice of removal of the BancBoston foreclosure litigation to this Court. BancBoston concurred in the removal and filed a statement indicating that the matter was a core proceeding under 28 U.S.C. §§ 157(b)(2)(A), (N), and (0). Associates objected to this Court’s jurisdiction and filed a Motion asking this Court to Abstain or in the Alternative to Remand. I heard the matter on July 15, 1998, and found that this Court has jurisdiction pursuant to 28 U.S.C. § 1334(b) and that this matter is a core proceeding under 28 U.S.C. § 157(b)(2). That Order is on appeal before the United States District Court and no stay pending appeal has been requested or issued. Prior to removal, BancBoston filed the following motions in the foreclosure litigation: (1) Motion to Dismiss the Counterclaim and Strike the Affirmative Defenses of Associates; (2) Motion for Summary Judgment; and (3) Motion for Sanctions against Associates, under Me. R. Civ. P. 11. Associates responded to all of these motions and on September 15, 1998, I heard oral argument. They are now ripe for disposition. DISCUSSION Prior to addressing the merits of the pending motions, I believe a recapitulation of this Court’s jurisdiction over this removed action is in order given the import of this litigation on the pending reorganization. Removal is governed by 28 U.S.C. § 1452(a), which states: “A party may remove any claim or cause of action in a civil action... to the district court for the district where such civil action is pending, if such district court has jurisdiction of such claim or cause of action under section 1334 of this title.” Section 1334(b) determines jurisdiction and provides that: “the district courts shall have original but not exclusive jurisdiction of all civil proceedings arising under title 116, or arising in7 or related to cases8 under title 11.” Pursuant to 28 U.S.C. § 157(a) the District Court may refer bankruptcy jurisdiction to the bankruptcy court and by its Order dated August 1, 1984, the United States District Court for the District of Maine has completely executed its Section 157(a) reference authority. See Goldstein v. Marine Midland Bank, N.A. (In re Goldstein), 201 B.R. 1, 4 (Bankr.D.Me.1996). Once jurisdiction is found, 28 U.S.C. § 157 is examined to determine the extent to which a bankruptcy court may adjudicate the matter which depends upon whether the matter is classified 494as core or non-core. FDIC v. Majestic Energy Corp. (In re Majestic Energy Corp.), 835 F.2d 87, 90 (5th Cir.1988); Goldstein, 201 B.R. at 6-7. In this case, the primary assets of this estate are: the Institute’s lease of the Hospital with Associates; the Institute’s potential 32% limited partnership interest in Associates; and the Institute’s mandatory option under the lease to purchase the full fee interest in the Hospital in 1999. Institute has defaulted under the lease pre-petition. BaneBoston claims to have stepped into the shoes of Associates under the lease based upon the assignment, and through its Foreclosure Complaint, it asks the Court to determine that its mortgage interest has priority over any other interest in the Hospital. BaneBoston also asks that the court “[djeter-mine the order of priority of such other parties as may appear, together with amounts due such parties, if any.” Under the Non-Disturbance, Attornment and Subordination Agreement (“Subordination Agreement”) dated May 11, 1983, if the Institute is not in terminable default under the terms of the Lease, in the event of foreclosure, BaneBoston agrees that the “Lease and the rights of Lessee [Institute] thereunder shall not be disturbed except in accordance with the term of said Lease and any foreclosure sale shall be made subject to said Lease.” Subordination Agreement at ¶2. The Institute, under Title 11, has the ability to cure its defaults under the lease and assume the lease, thereby directly affecting the priority of interests in the Hospital property. See 11 U.S.C. § 365. Allowing the foreclosure litigation to proceed in State Court separate and apart from the bankruptcy proceeding would strip the Institute of its ability to reorganize and of the rights granted to it under Title 11. The Institutes’ Section 365 rights vest upon the bankruptcy filing and allow the Institute to enforce the terms of the Subordination Agreement. I conclude, therefore, that this is a matter arising under title 11, and that this is a core proceeding pursuant to 28 U.S.C. §§ 157(b)(2)(A), (N), and (0). See Citicorp Sav. v. Chapman (In re Chapman), 132 B.R. 153, 157 (Bankr.N.D.Ill.1991)(Finding removed foreclosure proceeding against property of the estate to be a core matter because, inter alia, the property was a major asset of the estate and foreclosure would have a significant impact on reorganization); In re Hunt Energy Co., Inc., 1988 U.S. Dist. LEXIS 14295, 27-28 (D.Ohio 1988)(Adver-sary proceeding commenced to sell debtor’s principal asset and determine priorities was a proceeding arising under Title 11); In re Dogpatch U.S.A., Inc., 810 F.2d 782, 785-86 (8th Cir.1987)(Finding that a contract and guaranty given by third parties were such an integral part of reorganization that subsequent litigation on the contract and guaranty constituted a core proceeding). I. Motion to Dismiss Counterclaims and Strike Affirmative Defenses: The Motion to Dismiss the Associates’ counterclaims is governed by Fed.R.Civ.P. 12(b)(6) which states: Every defense, in law or fact, to a claim for relief in any pleading, whether a claim, counterclaim, cross-claim, or third-party claim, shall be asserted in the responsive pleading thereto if one is required, except that the following defenses may at the option of the pleader be made by motion: ... (6) failure to state a claim upon which relief can be granted. See also Fed. R. Bankr.P. 7012(b). Upon reviewing a motion to dismiss, it is well established that the court “must take the allegations in the complaint as true,” Watterson v. Page, 987 F.2d 1, 3 (1st Cir.1993), and that “the allegations of the complaint should be construed favorably to the pleader.” Scheuer v. Rhodes, 416 U.S. 232, 236, 94 S.Ct. 1683, 40 L.Ed.2d 90 (1974). Furthermore, “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) (footnote omitted). A motion to strike affirmative defenses falls within the realm of Fed.R.Civ.P. 12(f) which states: “Upon motion made by a party ... the court may order stricken from any pleading any insufficient defense.... ” 495See also Fed. R. Bankr.P. 7012(b). Motions to strike defenses are generally disfavored and the court may “strike only those defenses so legally insufficient that it is ‘beyond cavil that the defendants could not prevail on them.’ ” Coolidge v. Judith Gap Lumber Co., 808 F.Supp. 889, 893 (D.Me.1992) (quoting U.S. v. Kramer, 757 F.Supp. 397, 409-10 (D.N.J.1991)). “Courts grant motions to strike a defense ‘only if the defense is legally insufficient, and presents no question of law or fact that the court must resolve.’ ” Nelson v. University of Maine System, 914 F.Supp. 643, 647 (D.Me.l996)(quoting 2A Moore’s Federal Practice, P 12.21[3] at 112-210). (A) No Factual Basis Exists for Affirmative Defenses and Counts 1-3 of Associates’ Counterclaim: Counts 1-3 of Associates’ Counterclaims and all of its affirmative defenses are based upon the faulty assumption that BancBoston failed to aggressively pursue the 1993 Up-Streaming Litigation against the Institute. Associates states that BancBoston delayed the litigation with the knowledge that funds were being up-streamed to CCSI, thereby leaving the Institute with insufficient cash to pay its rent to Associates. This in turn left Associates without funds to service BaneBo-ston’s Note. It is admitted and it is without contradiction that Associates caused the majority of delays in the Up-streaming Litigation. Initially, Associates sought a stay pending the appeal of the order disqualifying its counsel. This stay lasted 10 months. Associates then sought and obtained seven separate extensions of the stay, effectively staying the litigation until December 8, 1997, an additional two years. In each motion, Associates alleged ongoing settlement discussions and the need to educate new counsel should the discussions break down. To add insult to injury, Associates’ new counsel withdrew on October 14, 1997, two months after obtaining its final stay and one and one-half months before the stay expired. Clearly, it was not Casco or BancBoston but Associates. When confronted with the unrefuted travel of the Up-streaming Litigation, Associates responds that its delay was justified because Casco delayed initially in the litigation. Such an argument is ludicrous and is unsupported by the record in the Up-streaming Litigation. Associates was the beneficiary of the stays it sought in the Up-streaming Litigation. We agree with BancBoston that Associates is now judicially estopped from asserting a contrary legal position in this matter. See Patriot Cinemas, Inc. v. General Cinema Corp., 834 F.2d 208, 212 (1987) (“where a party assumes a certain position in a legal proceeding, and succeeds in maintaining that position, he may not thereafter, simply because his interests have changed, assume a contrary position, especially if it be to the prejudice of the party who has-acquiesced in the position formerly taken by him")(citing Davis v. Wakelee, 156 U.S. 680, 689, 15 S.Ct. 555, 39 L.Ed. 578 (1895)); Chrysler Corp. v. Silva, 118 F.3d 56, 59-60 (1st Cir.1997) (Counterclaim denied where factual basis for counterclaim was contradicted by earlier submissions and pre-trial evidence presented by the same party). Associates cannot now be heard to complain about delays in the Up-streaming Litigation that it occasioned, and that it acknowledged were beneficial and necessary when obtained.9 To allow Associates to assert a contrary position here would provide them with an unfair advantage and sanction Associates’ gamesmanship in judicial proceedings. See Patriot Cinemas, 834 F.2d at 212. Accordingly, because there is no factual basis for Counts 1-3 of the Counterclaim and the Affirmative Defenses presented by Associates, I find that Counts 1-3 of the Counterclaim fail to state a claim upon which relief can be granted and the Affirmative Defenses pleaded are legally insufficient. I GRANT BaneBoston’s Motion to Strike the Affirmative Defenses and BaneBoston’s Motion to Dismiss Counts 1-3 of the Counterclaim. 496(B) No Legal Basis Exists for Affirmative Defenses and Counts 1-4 of Associates’ Counterclaim In addition to my holding above, I find that there is no legal basis for the Counterclaim or the Affirmative Defenses set forth in Associates’ Answer to the Foreclosure Complaint. Accordingly, for the additional reasons set forth below, I find that the Counterclaims fail to state a claim upon which relief may be granted and the Affirmative Defenses are legally insufficient. Count I of the Counterclaim and Associates’ second Affirmative Defense allege that Casco’s and later BancBoston’s failure to diligently pursue the Up-Streaming Litigation constituted a breach of their “contractual duty of good faith and fair dealing.” Because the loan documents, Commitment Letter, and the agreements modifying the Commitment Letter contain no express contractual duty of good faith and fair dealing on the part of the bank, we can only assume that Associates is referring to an implied duty. BancBoston has cited a line of cases which hold that under the Maine version of the Uniform Commercial Code, there is an implied duty of good faith on banks “requiring ‘honesty in fact in the conduct or transaction concerned.’ ” Diversified Foods, Inc. v. First Nat. Bank, 605 A.2d 609, 613 (Me. 1992). However, the Law Court has been unwilling to extend the duty on banks beyond its statutory scope to impose a more onerous duty of objective good faith. See Id. at 613; First NH Banks Granite State v. Scarborough, 615 A.2d 248, 250-51 (Me. 1992); People’s Heritage Sav. Bank v. Recoll Management, Inc., 814 F.Supp. 159, 168-70 (D.Me.1993). The Court in Diversified Foods did acknowledge that the more onerous standard of good faith can apply to banks in Article 4 of the UCC, but that is “limited to issues of bank deposits and collections.” Id. Clearly, that Article does not apply to the instant case. BancBoston argues that its relationship with Associates is not governed by the UCC, and even if it were, Associates has not alleged that BancBoston or Casco acted without honesty in fact in pursuing the Up-streaming Litigation. • [10] Associates points to the case Top of the Track Assoc, v. Lewiston Raceways, Inc., 654 A.2d 1293 (Me.1995), for the proposition that implied covenants are recognized in contracts when it is absolutely necessary to effectuate the intent of the parties. It argues that an implied term in Casco’s contract with Associates was that Casco would “exercise its best effort — that is, it would attempt in ‘good faith’ — to limit The Institute’s ability to send money ‘upstream’ to its parent, CCSI.” I find that such an expansive duty of good faith is not required under Maine Law between a borrower and a lender and that Top of the Track is distinguishable from the instant case. In Top of the Track, an operator of a harness racing facility sought investors to upgrade its concession facilities to attract a larger audience on race dates. 654 A.2d at 1293. Top of the Track Associates (“TOTA”) was formed for that purpose and entered into a lease with the Operator. Id. at 1294. TOTA renovated the clubhouse specifically to accommodate the patrons of the raceway. Before the start of the new racing season, the Operator, without knowledge to TOTA withdrew its application for race dates with the state commission and subsequently ceased operating the race track. Id. TOTA argued that the lease contained an implied covenant that the Operator would operate the race track and apply annually for racing dates until the expiration of the lease. Id. The Operator argued that such an implied covenant was prohibited by the integration clause contained in the lease. Id. at 1295. The Law Court reversed a grant of summary judgment in favor of the Operator finding that a contract contains not only the promises expressed in words, but also implied provisions that are “ ‘indispensable to effectuate the intention of the parties and as arise from the language of the contract and the circumstances under which it was made.’” Id. (quoting Sacramento Nav. Co. v. Salz 273 U.S. 326, 329, 47 S.Ct. 368, 71 L.Ed. 663 (1927)). The Court went on to say that “courts have long recognized an implied covenant in contracts that neither party shall be its unilateral action destroy or injure the right of the other party to receive the fruits or benefits of the contract or render perfor-497manee impossible.” Top of the Track, 654 A.2d at 1296. Clearly, Top of the Track does not deal with a borrowerfiender relationship. With the Law Court’s pronouncement in Diversified Foods that it would not extend the implied duty of good faith against a bank beyond its statutory scope, we cannot presume that its utter silence on the matter in Top of the Track would be tantamount to such an extension. See also Niedojadlo v. Central Maine Moving & Storage Co., 715 A.2d 934, 937 (Me.1998)(In August of this year, the Law Court affirmed that it would not extend the implied covenant of objective good faith beyond its statutory scope contained in the Maine UCC). It appears that Associates’ rebanee on Top of the Track would have been better suited in an action by Associates against the Institute on its lease; however, Associates has not seen fit to pursue such a matter.10 Assuming that the UCC appbes to the lending relationship between BancBoston and Associates, I find that Associates has not alleged any facts that would support a finding that BancBoston or Casco acted without honesty in fact in pursuing the Up-streaming Litigation. Accordingly, on this basis, I dismiss Count I of the Counterclaim and strike the second Affirmative Defense. Count II of the Counterclaim and Associates’ third Affirmative Defense allege that BancBoston’s and Casco’s failure to diligently pursue the Up-Streaming Litigation constitutes a breach of a fiduciary duty owed to Associates. I agree with BancBoston’s statement of the law on this issue. The Law Court has consistently held that where there is no confidential relation between the parties giving rise to a fiduciary duty, there can never be a breach of a fiduciary duty. See Diversified Foods, 605 A.2d at 614; Ruebsamen v. Maddocks, 340 A.2d 31, 36 (Me.1975); People’s Heritage, 814 F.Supp. at 170 (recognizing “[u]nder Maine law, ‘fiduciary’ and ‘confidential’ relations are legal equivalents”). “The salient elements of a confidential relation are the actual placing of trust and confi-denee in fact by one party in another and a great disparity of position and influence between the parties to the relation.” Ruebsamen, 340 A.2d at 35. In applying the test to a lender-borrower situation, the First Circuit suggested that a court look for any “concrete facts alleged to show a relationship going beyond the ordinary bank/customer situation.” Reid v. Key Bank, 821 F.2d 9, 17 (1st Cir.1987). Typical situations involve the lender exercising control over the borrower’s day to day operations. See generally Diversified Foods, 605 A.2d at 615 (citing Reid, 821 F.2d at 17-18). Associates has not even alleged the existence of a confidential relationship, let alone any facts that would tend to show a relationship going beyond the ordinary bank/borrower relationship. “A general allegation of a confidential relation is not a sufficient basis for establishing the existence of one.... The facts constituting the alleged relationship must be set forth with sufficient particularity to enable the court to determine whether, if true, such facts create a fiduciary or confidential relationship.” Ruebsamen, 340 A.2d at 35 (citations omitted). Accordingly, Count II of the Counterclaim is dismissed and the third Affirmative Defense is stricken. Count III of Associates’ Counterclaim alleges that by virtue of Casco’s and BancBoston’s “acquisition of the power to control The Institute’s upstreaming of funds to CCSI, [they] became principals with liability for the institute’s obligations to The Partnership under the Lease.” Similarly, Associates’ fourth Affirmative Defense states that by virtue of the control possessed by Banc-Boston and Casco over the Institute, specifically the power to prevent the Institute from up-streaming funds to its parent CCSI, BancBoston is liable to Associates for the Institute’s obligations under the lease. BancBoston readily acknowledges that banks have been held liable to borrowers in 498situations where the bank exercised complete dominion and control over the affairs of the borrower so as to render the borrower a “mere instrumentality” of the bank. See e.g. F.C. Imports, Inc. v. First Nat’l Bank, 816 F.Supp. 78, 91-98 (D.P.R.1993). Here, Institute is not a borrower. Furthermore, the action complained of is BancBoston’s failure to control the affairs of the Institute. That is opposite of what is required to prove a borrower is the mere instrumentality of the bank. On this basis, I find that there is no legal basis for Count III of the Counterclaim or the fourth Affirmative Defense. Associates, in its Objection, appears to argue that this claim should be viewed as an agency/fiduciary relationship between Casco and the Institute. To the extent Associates relies on the existence of a fiduciary relationship, we have already disposed of this issue against Associates supra and no further discussion is required herein. Count IV of the Counterclaim alleges that when BancBoston sought to exercise its rights under the Collateral Assignment of Leases, collecting rent directly from the Institute and intervening in Associates’ 1997 lawsuit against the Institute, it acted for the purpose of harming Associates and not for any other commercially legitimate purpose. Associates states that these actions constituted a breach of BancBoston’s duty to Associates. I have dealt with the issue of the existence of an implied duty supra and have resolved that issue against Associates. For the reasons discussed earlier, I find that there is no such implied duty and this Count must also fall because it fails to state a claim upon which relief can be granted. Additionally, under the Assignment of Leases, upon Associates’ default under the Note, BancBoston was entitled, inter alia, to collect rents directly from the Institute. Associates acknowledged in its litigation against the Institute that it was in default under the Casco Note. BancBoston’s actions were within the realm of its contractual remedies. Furthermore, BancBoston’s intervention into Associates’ Litigation was done in an effort to preserve its contractual remedies and was approved by the State Court. The Court expressly stated that it was “equally concerned about the claim of BancBoston that, pursuant to the collateral assignment of leases, it, not the partnership [Associates], is the entity entitled to enforce rights under the lease.” See BancBoston’s Memorandum in Support of Motion to Dismiss Counter Claims and Strike Affirmative Defenses, Exhibit 25, Decision and Orders on Pending Motions, pp. 3-4. If BancBoston did not act in the manner it ultimately did, its actions could have been viewed as commercially unreasonable. I find that Count IV is totally lacking in merit. II. Summary Judgment: A motion for summary judgment is governed by Fed. R. Bankr.P. 7056 which applies and incorporates Rule 56 of the Federal Rules of Civil Procedure in bankruptcy proceedings. The rule states: The judgment sought shall be rendered forthwith 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 a judgment as a matter of law. Fed.R.Civ.P. 56(c). The First Circuit BAP has recently summarized the standard for summary judgment as follows: “To succeed, the moving party must show that there is an absence of evidence to support the nonmoving party’s position.” Rogers v. Fair, 902 F.2d 140, 143 (1st Cir.1990); see also Celotex Corp. v. Catrett, 477 U.S. 317, 325, 106 S.Ct. 2548, 2553-54, 91 L.Ed.2d 265 (1986). “Once the moving party has properly supported its motion for summary judgment, the burden shifts to the non-moving party, who ‘may not rest on mere allegations or denials of his pleading, but must set forth specific facts showing there is a genuine issue for trial.’ ” Barbour [v. Dynamics Research Corp.], 63 F.3d [32] at 37 [(1st Cir.1995), cert. denied, 516 U.S. 1113, 116 S.Ct. 914, 133 L.Ed.2d 845 (1996) ] (quoting Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 256, 106 S.Ct. 2505, 2514, 91 L.Ed.2d 202 (1986)). “There must be ‘sufficient evidence favor499ing the nonmoving party for a jury to return a verdict for that party. If the evidence is merely colorable or is not significantly probative, summary judgment may be granted.”’ Rogers, 902 F.2d at 143 (quoting Anderson, 477 U.S. at 249-50, 106 S.Ct. at 2511) (citations and footnote in Anderson omitted). We “view the facts in the light most favorable to the non-moving party, drawing all reasonable inferences in that party’s favor.” Barbour, 63 F.3d at 36. Borschow Hosp. and Medical Supplies, Inc. v. Cesar Castillo Inc., 96 F.3d 10, 14 (1st Cir.1996). In summary judgment parlance, a dispute is “genuine” if “ ‘the evidence about the fact is such that a reasonable jury could resolve the point in the favor of the non-moving party.’ ” Riverar-Muriente v. Agosto-Alicea, 959 F.2d 349, 352 (1st Cir.1992) (quoting United States v. One Parcel of Real Property, Etc., 960 F.2d 200, 204 (1st Cir.1992)). “A fact is material if it ‘carries with it the potential to affect the outcome of the suit under the applicable law.’ ” One National Bank v. Antonellis, 80 F.3d 606, 608 (1st Cir.1996) (quoting Nereida-Gonzalez v. Tirado-Delgado, 990 F.2d 701, 703 (1st Cir. 1993)). See also Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 247-48, 106 S.Ct. 2505, 2509-10, 91 L.Ed.2d 202 (1986). Thus, the substantive law defines which facts are material. Id. at 248, 106 S.Ct. at 2510. Sanchez v. Alvarado, 101 F.3d 223, 227 (1st Cir.1996). Weiss v. Blue Cross/Blue Shield, 206 B.R. 622, 624 (1st Cir. BAP 1997). In support of its Motion for Summary Judgment, BaneBoston attaches the Verified Complaint filed by Associates in its 1997 litigation against the Institute and the Affidavit of Christopher Smith, a vice president at BaneBoston, N.A., the parent company of BaneBoston.11 In support of its Motion, the Bank argues that Associates’ statement in its Complaint that Associates “has been unable to fulfill its obligations to BaneBoston,” constitutes an admission that it is in default of its obligations under the Note. That admission, argues BaneBoston, coupled with the Smith Affidavit setting forth the terms of the Note and security agreements, the specific defaults, and the balances due under the Note, is sufficient to enter summary judgment on its Foreclosure Complaint. Associates filed an Objection without supporting affidavits and relies primarily on the same arguments set forth in support of its Counterclaim and Affirmative Defenses. Because these issues have been resolved against Associates, I will not address them any further herein. Additionally, Associates argues that: (1) a genuine issue of material fact exists as to whether Associates’ failure to provide financial statements is a material breach under the Mortgage. In that vein it argues that the Court should not allow the bank to foreclose because of mere technical defaults; (2) a genuine issue of material fact exists as to whether there have been any material transfers of interests in Associates; (3) a genuine issue of material fact exists as to whether BaneBoston waived the foreclosure under M.R.S.A. § 6204 by accepting payments from the Institute; and (4) a genuine issue of material fact exists as to whether the attorney fees and expenses claimed by BaneBoston are reasonable. While I agree with Associates that disputed facts exist as to whether there were material transfers of interests in Associates and whether technical defaults occurred under the Note and Mortgage, these issues are not material to resolution of the legal issue presented. BaneBoston alleges in its Complaint that a payment default occurred on August 1, 1997. See Foreclosure Complaint ¶ 12(a), p. 3. This allegation is supported by the unre-futed Smith Affidavit and by Associates’ own admission in the Complaint it filed in 1997, stating that it has been unable to fulfill its obligations to BaneBoston. See Smith Affidavit at ¶ 9(a), p.3; See BaneBoston’s Memorandum in Support of Summary Judgment, Exhibit A, Complaint, p. 7 ¶22, p. 9 ¶33. Even if Associates made a general denial that it was not in payment default, which it did not, such a denial would not be sufficient 500to overcome BancBoston’s request for summary judgment. See Fed.R.Civ.P. 56(e).12 The strongest argument made by Associates is that under 14 M.R.S.A. § 6204, BancBoston may have waived the foreclosure by accepting payment from Institute. Upon further investigation, however, this argument is equally fallible. The statute reads in relevant part: The acceptance, before the expiration of the right of redemption and after the commencement of foreclosure proceedings of any mortgage of real property, of anything of value to be applied on or to the mortgage indebtedness by the mortgagee or any person holding under the mortgagee constitutes a waiver of the foreclosure, unless an agreement to the contrary in writing is signed by the person from whom the payment is accepted or, with regard to foreclosures commenced by civil action under section 6321, unless the bank returns the payment to the mortgagor within 10 days of receipt. The receipt of income from the mortgaged premises, by the mortgagee or the mortgagee’s assigns while in possession of the premises,, does not constitute a waiver of the foreclosure proceedings of the mortgage on such premises. 14 M.R.S.A. § 6204. The statute says that a mortgagee in possession may accept and apply income from the mortgaged premises without causing a waiver of the foreclosure. It is undisputed that BancBoston held a Collateral Assignment of Leases which was perfected by re-cordation of the proper indices. See Smith Affidavit, p. 3, ¶ 7 and Exhibit D, Collateral Assignment of Lease or Leases. Furthermore, Associates acknowledged it was in default of its obligations to BancBoston under the Note and Mortgage. See BancBoston’s Memorandum in Support of Summary Judgment, Exhibit A, Complaint, p. 7 ¶ 22, p. 9 ¶33. According to the Smith affidavit, on December 24, 1997, counsel for BancBoston sent written notification to Institute’s Corporate Clerk informing him that BancBoston exercised its rights under the Assignment of Lease and that all future rental payments should be paid directly to BancBoston. See Smith Affidavit, p. 5, ¶ 16. Institute has paid rent to BancBoston and continues to do so post-petition. Based on these facts, I-find BancBoston is in possession of the premises and any income received by BancBoston does not constitute a waiver under the statute. In re Somero, 122 B.R. 634, 638 (Bankr.D.Me.l991)(holding that under a collateral assignment of rents, “a mortgagee may be entitled to rents and profits upon a default if it either takes possession of the property or has a receiver appointed to collect the rents and profits”); In re Galvin, 120 B.R. 767, 771-72 (Bankr.D.Vt.l990)(find-ing under Vermont law that actual possession of premises unnecessary when mortgagee is in default and bank demands and collects rents directly from the tenant and the tenant pays rents over to the bank); In re SeSide Co., Ltd., 152 B.R. 878 (E.D.Pa.1993) (Under Pennsylvania law possession can be actual possession or constructive possession by making demand for rents on tenants). Additionally, the language of the Collateral Assignment of Lease or Leases states: ... it is understood and agreed by assign- or [Associates] and Assignee [BancBoston] that exercise of any rights by assignee under this agreement, including the receipt of rents, issues and profits and any allocation of same by assignee shall not constitute a waiver of any rights, statutory or otherwise, of assignee under said mortgage or note including, but not limited to, the right of foreclosure and acceleration of said mortgage indebtedness, whether such foreclosure or acceleration has been corn-501menced prior to or shall be commenced subsequent to exercise of such rights. Smith Affidavit, Exhibit D, Collateral Assignment of Lease or Leases ¶ 7 (emphases added). By this language, Associates has waived its right to assert the defense set forth in Section 6204 and has in essence, agreed in writing that such payments do not constitute a waiver as contemplated by the statute. Regarding post-petition rents paid by Institute, they were paid pursuant to Court Order and by agreement of all the parties. The Order of April 9, 1998, states that “nothing herein shall limit the rights of.. .BaneBoston.. .with respect to the lease and/or the pending foreclosure action_” I find that under these there is no genuine issue of material fact because legally, there has not been a waiver of the foreclosure under the statute. Finally, Associates argues that there may be a genuine issue of material fact as to the reasonableness of the attorney fees and claimed by BaneBoston. Given the breadth of the litigation, I believe that the amount of attorney fees and disbursements sought is presumptively reasonable. However, I do believe Associates is entitled to at least a complete breakdown of the time and costs incurred. This issue is not a material issue in the overall litigation and is not decisive in allaying summary judgment in this case. Accordingly, because there is no genuine dispute as to any material fact, and BaneBoston has established, and it is undisputed that Associates is in payment default under the Note and Mortgage, I GRANT BancBoston’s Motion for Summary Judgment and will enter judgment in favor of BaneBoston on the Foreclosure Complaint. BaneBoston is directed to submit a form of judgment consistent with this decision. The request for attorney fees and disbursements will not be included in the foreclosure judgment at this time and BaneBoston is ordered Me. has file a complete detail of its fees and expenses within 10 days, with a copy to Associates. If Associates believes that the fees and expenses are still unreasonable, it must file an objection to those fees and expenses within 15 days with specification of the nature of the objection. The objection must contain admissable evidence sufficient to controvert the reasonableness of the fees. If such an objection is filed, the Court will conduct an evidentiary hearing on that limited issue. The Court will then determine the reasonableness of the fees and costs incurred. Institute’s silence in these proceedings has not gone unnoticed and it appears to be attributable to the fact that BaneBoston and Institute are working in concert to maximize the value of the Hospital assets. Pursuant to the Non-Disturbance, Attornment and Agreement, dated May 11,1983, if the Institute is not in terminable default under the terms of the Lease, the Lease and the rights of Institute can not be disturbed upon foreclosure and any foreclosure is subject to the Lease. See Subordination Agreement at ¶ 2. Through this Chapter 11, Institute can formulate a plan to cure its prepetition defaults and enjoy all of the fruits and benefits under the lease, notwithstanding BancBoston’s foreclosure. III. Sanctions: The final issue before the Court is BancBoston’s request for Sanctions under Me. R. Civ. P. 11. The parties did not address this motion in oral argument nor has BaneBoston supplemented its motion to include the relevant federal provision, Fed. R. Bankr.P. 9011. Additionally, BaneBoston has not addressed how the safe harbor provision of the amended Bankruptcy Rule would operate in this proceeding. See Fed. R. Bankr.P. 9011(c)(1)(A)13. Notwithstanding these shortcomings, I find that while Associates’ actions herein have been far from exemplary, the imposition of sanctions is not wargation, 502ranted, at least not at this juncture. In viewing the “big picture”, we have a private psychiatric hospital serving an important community need. From this Court’s observation, Institute, BancBoston and other interested parties have been cooperating in an attempt to reorganize the facility that was constructed for a single purpose — a psychiatric hospital. The facility’s best use is as a psychiatric hospital. Associates is the only party that has been objecting by interposing defenses that have no merit in fact or law. Associates is a “middle man” in these proceedings by virtue of its Sublease with Institute. There is no question in this Court’s mind that Associates litigation tactics to date are for the purpose of gaining Associates an unwarranted advantage in negotiating a plan of reorganization. This Court is concerned by the admission made at oral argument by Associates’ Counsel Christopher Taintor that he represents both the interests of Cserr and Associates.14 It is possible that the two interests are divergent and that the actions taken by one may not be in the best interests of the other. Associates is forewarned that all future actions will be closely scrutinized for compliance with Fed. R. Bankr.P. 9011. With that said, the request for sanctions is DENIED without prejudice. SO ORDERED. . Associates does not deny the existence of this interest nor does it agree that the Institute has such an interest. . The fee simple interest in the real estate has at all times remained in Running Hill. On May 5, 1983 Associates entered into a ground lease with Running Hill. On the same date, Associates in turn subleased the land to Institute. .As set forth above, Thacher is also the sole general partner of Running Hill, the entity that owns the Premises where the hospital was built. . Because Associates is merely a lessee under the Ground Lease with Running Hill, it seems odd that it could convey the fee interest to Institute. However under the Ground Lease, Associates is also required to make a mandatory offer to purchase the Premises from Running Hill in 1999. See Ground Lease Agreement p. 14, ¶ 17(b). The Ground Lease also provides that if Associates accepts the mandatory offer from Institute under its Sublease, Running Hill will in turn accept Associates offer to purchase subject only to completion of the purchase by Institute under the Sublease. See Ground Lease Agreement, pp. 14-15, ¶ 17(b). . The bulk of Associates' defense of foreclosure is the alleged failure of BancBoston to pursue the Up-streaming Litigation. Curiously, Associates' crossclaim and request for injunctive relief in that litigation sought the same relief as BancBo-ston and was not pursued by Associates. . Proceedings "arising under” title 11 involve a " ‘cause of action created or determined by a statutory provision of the Bankruptcy Code’ ”, Goldstein v. Marine Midland Bank, N.A. (In re Goldstein), 201 B.R. 1, 4 (Bankr.D.Me.1996) (quoting Norton Bankruptcy Law and Practice 2d § 4:38 at 4-230). . Proceedings "arising in” a case under title 11 involve " ‘those that are not based on any right expressly created by Title 11, but nevertheless, would have no existence outside of the bankruptcy.’ ” Norton Bankruptcy Law and Practice 2d § 4:30 at 4-231 (quoting Wood v. Wood (In re Wood), 825 F.2d 90 at 96-97 (5th Cir.1987)); see also Goldstein, 201 B.R. at 4. . "Related to” jurisdiction is the broadest component of Section 1334(b) and "extends to matters 'concerned only with State law issues that did not arise in the core bankruptcy function of adjusting debtor-creditor rights.’ ” Boyajian v. DeLuca (In re Remington Dev. Group, Inc.), 180 B.R. 365, 368 (Bankr.D.R.I.1995)(qouting In re Arnold Print Works, Inc., 815 F.2d 165, 167 (1st Cir.1987)). . Again, it is interesting to note that Associates argues it was an intended beneficiary under the agreement prohibiting the up-streaming of funds, yet it did not pursue any remedy when the agreement was broken. It did just the opposite by delaying the litigation. . Given all the overlapping interests between the parties involved in the Hospital, Associates' status as the Lessor of the Hospital, and the fact the Associates was the primary obligor under the Note and Mortgage to Casco, Associates was in the best position to know of and to prevent the Institute from up-streaming funds to CCSI. It is also apparent that Associates had a lot to lose by the up-streaming of funds and again, why it did not act sooner is beyond comprehension. . BaneBoston also includes an affidavit from its attorney, Robert Keach, indicating that as of March 9, 1998, the bank incurred fees totaling $24,276 and disbursements of $4,079. . The Rule states in part: When a motion for summary judgment is made and supported as provided in this rule, an adverse party may not rest upon the mere allegations or denials of the adverse party’s pleading, but the adverse party’s response, by affidavits or as otherwise provided in this rule, must set forth specific facts showing that there is a genuine issue for trial. If the adverse party does not so respond, summary judgment, if appropriate, shall be entered against the adverse party. Fed.R.Civ.P. 56(e). . The safe harbor provision states: The motion for sanctions may not be filed with or presented to the court unless, within 21 days after service of the motion (or such other period as the court may prescribe), the challenged paper, claim, defense, contention, alleto or denial is not withdrawn or appropriately corrected, except that this limitation shall not apply if the conduct alleged is the filing of a petition in violation of subdivision (b). Fed. R. Bankr.P. 9011(c)(1)(A). . In responding to this Court’s question at oral argument, "Who is Associates," Mr. Taintor responded that he did not know because the question of who is a general partner is disputed and subject to litigation in Massachusetts. Due to the dispute, he stated that he represented Robert Cserr and Associates. Without the answer, the question "Who is Associates” raises an additional question of whether or not Associates has entered a valid appearance in this case and whether or not Associates' purported counsel has authority to act on its behalf.	01-04-2023	11-22-2022
https://www.courtlistener.com/api/rest/v3/opinions/8492788/	MEMORANDUM OPINION MARTIN V.B. BOSTETTER, Jr., Chief Judge. We determine here whether to sustain trustee’s objection to debtor’s claimed homestead exemption. The issue concerns whether debtor timely had his homestead deed admitted to record as required by Virginia law. After hearing arguments, the Court 549held that debtor properly filed his homestead deed and it was admitted to record within the requisite time period. The Court possesses jurisdiction over the parties and subject matter of this core proceeding pursuant to 28 U.S.C. §§ 157(a), 157(b)(1), 157(b)(2)(I) and 157(b)(2)(J). Venue is proper under 28 U.S.C. § 1409. Quy Van Nguyen (“debtor”) filed his voluntary Chapter 7 bankruptcy petition on August 29, 1997. Debtor listed in his Schedule B, and claimed as exempt, an automobile worth $6,000. He claimed a $2,000 exemption under Virginia Code § 34-26(8) and a $4,000 exemption pursuant to Virginia Code § 34-4. Va.Code Ann. §§ 34-26(8), ■ 34-4. Debtor’s $4,000 claim of exemption is at issue in this case. The first meeting of creditors was scheduled for October 1, 1997. Debtor mailed his homestead deed by United States Postal Service priority mail to the Fairfax County Circuit Court. The clerk received and signed for the package on Friday, October 3, 1997. However, the clerk did not record debtor’s homestead deed until Tuesday, October 7, 1997, one day after § 34-17’s five-day statutory limit. Va.Code Ann. § 34-17. As a result, trustee claims debtor failed to have his homestead deed properly admitted to record within the five-day time limit. Debtor urges the Court to find that his homestead deed was admitted to record upon being delivered to the clerk of court. The Court therefore must determine what constitutes “admitted to record” under Virginia law. The Bankruptcy Code allows a debtor to exempt real and personal property from property of the estate. 11 U.S.C. § 522. As Virginia has opted out of the federal exemption scheme, Virginia law governs the property a debtor may claim as exempt. Va.Code Ann. § 34-3.1; In re Heater, 189 B.R. 629, 632 (Bankr.E.D.Va. 1995). Virginia’s “homestead exemption” permits a debtor to exempt $5,000 of real or personal property by filing a homestead deed in the appropriate circuit court clerk’s office. Va.Code Ann. § 34-4.1 A debtor desiring to exempt personal property must file a homestead deed adequately describing the property, which then “shall be admitted to record to be recorded as deeds are recorded, in the county or city wherein such householder resides.” Va.Code Ann. § 34-14; Heater, 189 B.R. at 632. When a debtor files for bankruptcy, debtor must “set apart” the homestead exemption no later than five days after the first date set for the meeting of creditors in the bankruptcy case. VaCode Ann. §§ 34-17; 34-14.2 “Setting apart” includes admitting the homestead deed to record. Only after a homestead deed is properly admitted to record does the clerk’s duty arise to record it in the deed book. United States v. Lomas Mortgage, USA, Inc., 742 F.Supp. 936, 939 (W.D.Va.1990); Jones v. Folks, 149 Va. 140, 140 S.E. 126, 127 (Va.1927); Davis v. Beazley, 75 Va. 491, 495 (1881). Failing to strictly 550comply with these requirements will result in the loss of that exemption in bankruptcy. Zimmerman v. Morgan, 689 F.2d 471, 472 (4th Cir.1982); In re Franklin, 214 B.R. 826, 830 (Bankr.E.D.Va.1997). This district recently dealt with what constitutes “admitted to record” in In re Franklin. Franklin, 214 B.R. at 826. In Franklin, the Court held a combined hearing on two cases bearing essentially identical facts to those in the case at bar. In both those cases, debtors sent their homestead deeds by Federal Express on the same day they were due under Virginia law. The parties stipulated at trial that the clerk’s office received both homestead deeds within the five-day period. Id. The trustee objected to debtors’ claimed exemptions in the two cases on the grounds that the clerk’s stamped certificate on the homestead deed reflected the following day as the recordation date. The Court sustained trustee’s objections finding that “mere arrival [of the homestead deed] at the courthouse is not sufficient.” Franklin, 214 B.R. at 833. Though we agree with Franklin’s comprehensive analysis of the law, we disagree with its holding where debtor has done everything necessary to preserve his rights to exempt property under the statute. The Virginia Code requires debtor’s homestead deed to be recorded as any other deed. Va.Code Ann. § 34-13. Virginia Code § 17-59 governs records, recordation and indexing, which states: Every writing authorized by law to be recorded ... upon payment of fees for the same and the tax thereon, if any, shall, when admitted to record, be recorded by or under the direction of the clerk on such media as prescribed by § 17-70. However, the clerk may refuse to accept any writing for filing or recordation [if certain requirements, not relevant here, are not met.] However, if the writing or deed is accepted for record and spread on the deed books, it shall be deemed to be validly recorded for all purposes .... Upon admitting any such writing or other paper to record the clerk shall endorse thereon the day and time of day of such recordation. Va.Code Ann. § 17-59. A careful reading of the statute’s plain language indicates that recordation of a deed involves it first being admitted to record and then spread on the deed books. Franklin, 214 B.R. at 830. The statute also makes clear that once debtor has properly presented the deed for recordation, the clerk “shall” endorse the day and time on the writing in order to admit it to record. Va. Code Ann. § 17-59; see Franklin, 214 B.R. at 830; Fooshee v. Snavely, 58 F.2d 772, 774 (W.D.Va.1931), aff'd, 58 F.2d 774 (4th Cir.); cert. denied, 287 U.S. 635, 53 S.Ct. 85, 77 L.Ed. 550 (1932) (admitting to record is not a mere mental act, but requires the physical act of indorsing the day and time of admission). The case law further supports this reading of Virginia statutory law. The Fourth Circuit stated in Fooshee v. Snavely in dicta that a properly presented deed for recordation requires the clerk to at once admit it to record. Fooshee, 58 F.2d at 777 (emphasis added); In re Smith, 256 F.Supp. 844, 851 (E.D.Va.1966), rev’d on other grounds, 377 F.2d 271 (4th Cir.1967) (“received” was synonymous with “filed” and therefore lien attaches to an automobile as of the date the department of motor vehicles receives the requisite paperwork and fees); see also Davis, 75 Va. at 495 (after a deed is admitted to record it remains the clerk’s duty to record it on the deed book and the admission to record is effectual, though the clerical act of spreading the instrument in extenso on the deed book be never performed). A clerk’s failure to do so cannot defeat the rights of the party presenting the instrument. Franklin, 214 B.R. at 833; Fooshee, 58 F.2d at 777; Davis 75 Va. at 495. Any other interpretation would make admitting to record dependent on the acts or omissions of the clerk over whom debtor has no control and with whom the law compels him to deposit the deed. Fooshee, 58 F.2d at 777; Beverley v. Ellis, 22 Va. (1 Rand. 102) (1822). In the case at bar, debtor complied with the procedural requirements the law *551placed on Mm in setting apart and perfecting Ms homestead exemption. Franklin, 214 B.R. at 830 n. 6; Heater, 189 B.R. at 638; In re Haynesworth, 145 B.R. 222, 226 (Bankr.E.D.Va.1992); Homeowner’s Fin. Corp. v. Pennington (In re Pennington), 47 B.R. 322, 326 (Bankr.E.D.Va.1985). The first meeting of creditors pursuant to 11 U.S.C. § 341 was scheduled for October 1, 1997. Debtor mailed his homestead deed via United States Postal Service priority mail. The parties stipulated at hearing that the clerk received the deed on October 3, 1997, well within the five-day statutory period. The responsibility then shifted to the clerk to admit the deed to record. The situation before this Court is similar to one where a deed is lost or destroyed after it has been submitted, but prior to recordation. In the seminal case of Beverley v. Ellis, the Virginia Supreme Court found that the rights of a grantee whose deed was lost by the clerk’s office took priority over subsequent grantees. Ellis v. Baker, 22 Va. (1 Rand) 47, 48. The court reasoned that once the grantee properly submitted the deed, he had done all the law required of him to protect and secure his title. Id. Likewise, we find that if no deficiencies exist as to a deed’s form or in the fees tendered, a homestead deed is admitted to record when properly received by the clerk’s office. To hold otherwise would deny debt- or’s rights, as given to him by the legislature, and make them contingent to the malfeasance of an individual clerk who should have properly performed the duties of the office. Such an outcome is neither equitable nor justifiable under the Virginia case law where debtor has done all he can to protect his rights. The Court finds that debtor timely had his homestead deed admitted to record upon delivering it to the clerk’s office. For the foregoing reasons, we overrule trustee’s objection to debtor’s claim of exemption. The Court will enter a separate order consistent with this opinion. . Virginia Code § 34-4 outlines a debtor's homestead exemption and states: Every householder shall be entitled, in addition to the property of the estate exempt under §§ 23-38.81, 34-26, 34-27, 34-29, and 64.1-151.3, to hold exempt from creditor process arising out of a debt, real and personal property, or either, to be selected by the householder, including money and debts due the householder not exceeding $5,000 in value. In addition, upon a showing that a householder supports dependents, the householder shall be entitled to hold exempt from creditor process real and personal property, or either, selected by the householder, including money or monetary obligations or liabilities due the householder, not exceeding $500 in value for each dependent. For the purposes of this section, "dependent” means an individual who derives support primarily from the householder and who does not have assets sufficient to support himself, but in no case shall an individual be the dependent of more than one householder. Va.Code Ann. § 34-4. . Section 34-17 provides that "[t]o claim an exemption in bankruptcy, a householder who (i) files a voluntary petition in bankruptcy ... shall set such real or personal property apart on or before the fifth day after the date initially set for the meeting held pursuant to 11 U.S.C. § 341, but not thereafter." Va.Code Ann. § 34-17. Section 34-14 provides for some property to be set aside by using a homestead deed, which is the means by which a householder (or debtor in bankruptcy) sets aside as exempt from the creditor process "[s]uch personal estate selected hy the householder ... under § 34-4, 34-4.1, or 34-13....” Va.Code Ann. § 34-14.	01-04-2023	11-22-2022
https://www.courtlistener.com/api/rest/v3/opinions/8492789/	MEMORANDUM-OPINION J. WENDELL ROBERTS, Bankruptcy Judge. This adversary proceeding was filed by the Chapter 7 Trustee, William Stephen Reisz (“Trustee”), for the purpose of recovering an allegedly preferential transfer from Defendant, Newcomb Oil Co. (“Newcomb”). The Debtor, Andaco, Inc. (“Andaco”), which operated a convenience-type store, sold motor fuel to retail customers. The motor fuel was supplied on a consignment basis by New-comb, with Newcomb retaining title at all times until each respective sale to the customer. The month before Andaco filed for bankruptcy, Newcomb removed its motor fuel from its tanks located at the Andaco store, asserting that Andaco had breached its contract with Newcomb. Trustee asserts by his Complaint that this removal constituted a preferential transfer, which should be set aside. This matter is presently before the Court on Newcomb’s Motion for Summary Judgment. Newcomb argues that it is entitled to judgment as a matter of law because: (1) the transfer did not involve property in which the Debtor, Andaco, possessed an interest; and (2) was not for or on account of an antecedent debt. It is a requirement that the Trustee prove both of these elements to recover a transfer as a preference pursuant to 11 U.S.C. § 547. The Court, having fully reviewed the briefs filed by both parties, as well as the entire file, including the main file, finds that there are material facts in dispute. Thus, the case is not at the present time ripe for summary judgment, and Newcomb’s Motion must, accordingly, be overruled for the reasons set forth below. FACTS Andaco operated a convenience-type store in Bullitt County, Kentucky. As is typical of many stores of this nature, Andaco sold motor fuel to retail customers. Andaco obtained the motor fuel it sold from Newcomb, which supplied it on a consignment basis. Pursuant to the Motor Fuel Agreement between Andaco and Newcomb, Newcomb placed motor fuel owned by Newcomb into tanks also owned by Newcomb located at Andaco’s store. Newcomb retained ownership of the motor fuel at all times until it was sold to retail customers. There is no dispute that Andaco never owned the motor fuel stored in the tanks located at its store premises. In addition, pursuant to the terms of the Agreement, Newcomb owned, installed and maintained all of the equipment and improvements associated with the motor fuel, including, the tanks, pumps, and canopy. Since Newcomb was the exclusive supplier of motor fuel to Andaco, it was never co-mingled with motor fuel from other suppliers. It is undisputed that Newcomb held exclusive title to all motor fuel sold at the Andaco store. However, despite Newcomb’s exclusive ownership of the motor fuel and related equipment, it did not post a sign or any other notice that would have advised Andaco’s customers or creditors of that fact. Under the terms of the Agreement, Anda-co reported to Newcomb each day to account for the amount of fuel sold. Newcomb would then directly draft Andaco’s bank account for the corresponding dollar amount minus An-daco’s commission. In May of 1996, New-comb additionally agreed to accept money orders, cash, or certified checks from Andaco on a daily basis for the previous day’s sale of motor fuel. On December 27, 1996, Newcomb removed all of its motor fuel then located in its tanks 580at Andaco’s store. Trustee’s Complaint states that the value of the motor fuel removed was approximately $1900.00. At the time Newcomb removed the motor fuel, An-daeo owed Newcomb $948.22 for the motor fuel sold the previous day but at that time yet unpaid. Newcomb states that it removed the motor fuel because Andaco defaulted on the terms of their Agreement. Newcomb has not, however, elaborated on or explained the nature of the default. The next month, on January 14, 1997, An-daco filed for Chapter 7 bankruptcy. Thereafter, Trustee brought this adversary proceeding on the premise that Newcomb received a preference when it removed its motor fuel. Trustee takes the position that although the motor fuel was sold on a consignment basis, Newcomb did not post a sign or otherwise put the public on notice that it, rather than Andaco, owned the motor fuel. Thus, Trustee alleges, the fuel was an asset of Andaco’s bankruptcy estate, and as a result Newcomb received a preference by removing it. DISCUSSION OF LAW I. SUMMARY JUDGMENT In considering a motion for summary judgment, the question presented to this Court is whether there is “no genuine issue as to any material fact and whether the moving party is entitled to judgment as a matter of law.” Fed.R.Civ.P. 56(c). This Court cannot try issues of fact on a Rule 56 motion, but is authorized to determine whether there are issues to be tried. In re Atlas Concrete Pipe, Inc., 668 F.2d 905, 908 (6th Cir.1982). In Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986), the Supreme Court held that “in filing a motion for summary judgment, the judge must view the evidence presented through the prism of the. substantive evidentiary burden; i.e., whether a jury could reasonably find either the plaintiff proved his case by the quality or quantity of evidence required by the law or that he did not”. Id., 477 U.S. at 254, 106 S.Ct. 2505. When ruling on a motion for summary judgment, the inference to be drawn from the underlying facts contained in the record must be viewed in a light most favorable to the party opposing the motion, in this case the Trustee. Anderson, 477 U.S. at 242, 106 S.Ct. 2505. By granting summary judgment, the Court is concluding that based on the evidence upon which the nonmoving party intends to rely at trial, no reasonable fact finder could return a verdict for the nonmov-ing party. Munson v. Friske, 754 F.2d 683, 690 (7th Cir.1985). The moving party carries the initial burden of proof by informing the Court of the basis of its motion, and by identifying portions of the record which highlight the absence of genuine factual issues. Once the moving party has produced such evidence, the non-moving party must then direct the Court’s attention to evidence in the record sufficient to establish that there is a genuine issue of material fact for trial. In other words, the nonmoving party, in this case the Trustee, must come forward with evidence establishing that it has a viable cause of action. See Celotex Corp. v. Catrett, 477 U.S. 317, 322, 106 S.Ct. 2548, 2552, 91 L.Ed.2d 265 (1986); First National Bank v. Cities Service Co., 391 U.S. 253, 289-90, 88 S.Ct. 1575, 1592-93, 20 L.Ed.2d 569 (1968). In this case, there are clearly material facts that are in dispute. Thus, this case is not ripe for summary judgment. The Court begins its analysis with a review of 11 U.S.C. § 547(b), which provides in relevant part: (b) 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 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 581(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; (C) such creditor received payment of such debt to the extent provided by the provisions of this title. Pursuant to this section of the Bankruptcy Code, Trustee is empowered to recover property of the debtor transferred to or for the benefit of a creditor within the designated periods prior to bankruptcy. Although the debtor does not possess an ownership interest in goods held for sale on a consignment basis, such goods are considered to be property of the debtor and thus subject to the provisions of § 547(b). See In re Sullivan, 103 B.R. 792 (Bankr.N.D.Miss.1989); In re Kingsport Hardware, Inc., 40 B.R. 838 (Bankr.E.D.Tenn.1984); In re A.J. Nichols, Ltd., 21 B.R. 612 (Bankr.N.D.Ga.1982); In re P.M.R.C. Corp., 39 B.R. 912 (Bankr.E.D.N.Y. 1984); In the Matter of Castle Tire Center, 56 B.R. 180 (Bankr.W.D.Pa.1986). There are three exceptions to this rule, however. The consigned property does not become designated as property of the debtor’s estate, subject to § 547 in any of the three following instances: (1) where the consignor posts a sign giving notice of its ownership interest; (2) it is generally known by the creditors of the entity holding the consigned goods that it is “substantially engaged in selling the goods of others;” or (3) the goods are subject to a properly perfected security interest in compliance with Article 9 of the Uniform Commercial Code. Sullivan, 103 B.R. at 792; Kingsport Hardware, 40 B.R. at 838; A.J. Nichols, 21 B.R. at 612; P.M.R.C. Corp., 39 B.R. 912; Castle Tire Center, 56 B.R. at 180. The case law governing the application of § 547 to consigned goods has its genesis in Section 2-326 of the Uniform Commercial Code, which provides in relevant part: Where goods are delivered to a person for sale and such person maintains a place of business at which he deals in goods of the kind involved, under a name other than the name of the person making delivery, then with respect to claims of creditors of the person conducting the business the goods are deemed to be on sale or return. The provisions of this section are applicable even though an agreement purports to reserve title to the person making delivery until payment or resale or uses such words as “on consignment” or “on memorandum.” However, the subsection is not applicable if the person making delivery (a) complies with an applicable law providing for a consignor’s interest or the like to be evidenced by a sign, or (b) establishes that the person conducting the business is generally known by his creditors to be substantially engaged in selling the goods of others, or (c) complies with the filing provisions of the article on secured transactions (Article 9). KRS 355.2-326(3) (emphasis supplied). In the case at bar, it is undisputed that the Debtor, Andaco, sold the motor fuel on a consignment basis, possessing no ownership interest at any time in that property. However, Newcomb argues that Trustee cannot establish two of the required elements under § 547 to récover the removed motor fuel as a preference. First, Newcomb argues that the motor fuel falls into one of the recognized exceptions, because it was generally known by Andaco’s creditors that the motor fuel sold by Andaco was not owned by Andaco. Therefore, Newcomb argues, Trustee cannot establish a “transfer of an interest of the debtor in property,” the initial requirement for a § 547 preference action. Second, New-comb argues that the transfer was not “for or on account of an antecedent debt owed by the debtor,” as is required by § 547(b)(2). The Court finds that there are material facts in dispute with regard to both assertions. A. THERE IS A MATERIAL ISSUE OF FACT WITH REGARD TO WHETHER IT WAS GENERALLY KNOWN BY ANDACO’S CREDITORS THAT ANDACO WAS SUBSTANTIALLY ENGAGED IN SELLING GOODS OF OTHERS. It is undisputed that Newcomb did not post a sign or otherwise put the public on 582notice that it owned the motor fuel sold by Andaco. Newcomb argues, however, that the second exception applies; i.e., that it was generally known by Andaco’s creditors that Andaco did not own the motor fuel that it sold. In support of this contention, New-comb proffers the Affidavit of Richard Maxe-don, a purported expert in the petroleum marketing industry. Mr. Maxedon states it is widely known that convenience-type stores do not own the gasoline that they sell. Having proffered this Affidavit testimony, the burden shifts to Trustee to provide evidence in rebuttal. Trustee has, in response, proffered the Affidavit of Margie Beinlein, the accounts receivable specialist with Heitz-man Bakery, another of Andaco’s creditors. She states that “she did not know that prior to the bankruptcy being filed that there was any ownership interest in Newcomb Oil Company, or anyone else in the gasoline held in the tank storage by [Andaco].” While the Court finds this evidence somewhat weak as a question has been raised as to whether Ms. Beinlein was even aware prior to the bankruptcy that Andaco sold motor fuel at all, the Court finds Ms. Beinlein’s Affidavit at the very least raises a material issue of fact as to what Andaco’s creditors generally knew. B. THERE IS A MATERIAL ISSUE OF FACT AS TO WHETHER NEW-COMB’S REMOVAL OF ITS MOTOR FUEL WAS ON ACCOUNT OF AN ANTECEDENT DEBT. Newcomb acknowledges that $948.22 was due on the date it removed its motor fuel from the tanks located at the premises of the Andaco store. However, Newcomb states that the removal was not “for or on account of’ that debt. Rather, Newcomb asserts, it was made in response to Andaco’s defaults under the Motor Fuel Agreement. Unfortunately, Newcomb does not elaborate upon or explain those defaults. Newcomb does not , describe the nature of the default, or give the Court a dollar figure for damages resulting from a default. The Court notes that if the removal occurred on account of a debt arising from an earlier default, the § 547 preference requirements would be satisfied, assuming Trustee is able to establish the remaining elements. The matter becomes further clouded by the fact that Newcomb has not filed a Proof of Claim. If the removal of the motor fuel was unrelated to the $948.22 owed at the time of the removal, it is logical to assume that the debt would still be owing. However, if that were the case, Newcomb would surely have filed a Proof of Claim, which it has not. The matter is additionally confused by An-daco’s'Bankruptcy Schedules. Newcomb is listed as an unsecured creditor, but the debt owed is not described. In addition, the dollar amounts listed do not coincide with those provided to the Court in the briefs that have been filed in connection with this Motion for Summary Judgment. Andaco’s Schedules state that a payment was made to Newcomb on December 27, 1996, in the amount of $1500.00, leaving a balance owed of $1223.74. It is unclear whether the “$1500.00 transfer” refers to Newcomb’s removal of the motor fuel because the Schedules do not describe the transfer. Additionally, that dollar amount does not match up with the dollar amount of $1900.00 that Trustee has assigned to the motor fuel removed, and the Court does not find that Newcomb has refuted that amount anywhere in the file. Nor does the Court find any reference to suggest the $1900.00 figure includes interest. Thus, it is unclear whether the $1500.00 transfer referred to in Andaco’s Schedules refers to Newcomb’s removal of its motor fuel. If it does, it.would appear from the Schedules that at least Andaco perceived the removal of the motor fuel to be a transfer of property in which it had an ownership interest that was made on account of an antecedent debt. In fact, the Schedules expressly indicate that the transfer satisfied all but $1223.74 of a debt owed to Newcomb. Also creating uncertainty is the $1223.74 figure for the debt owed by Andaco to New-comb, as listed in the Schedules. That figure does not match the $948.22 figure that has been stated as the debt owed for gas sold the day preceding Newcomb’s removal of the motor fuel. If the $1,223.74 figure does refer to the debt owed for motor fuel sold the day preceding the removal, that fact would indi583cate that at least Andaco believes that particular debt has never been satisfied, but is still due and owing even after the removal. Accordingly, there are material issues of fact with regard to whether Newcomb’s removal of its motor fuel was “for or on account of an antecedent debt.” CONCLUSION For the above stated reasons, the Court finds that there are material issues of fact. Thus, this case is not presently ripe for summary judgment and Defendant, New-comb’s, Motion will, by separate order, be overruled.	01-04-2023	11-22-2022
https://www.courtlistener.com/api/rest/v3/opinions/8492790/	MEMORANDUM & ORDER KEITH M. LUNDIN, Bankruptcy Judge. The issue is whether the Early Retirees of the Debtor have direct claims against this Chapter 11 estate for supplemental benefits and for the difference between what they will get from the Pension Benefit Guaranty Corporation (“PBGC”) and what they were promised under the Debtor’s defined benefit plan. The Early Retirees’ direct claims are 610preempted by the Employee Retirement Income Security Act (“ERISA”). I. In June 1995, prior to its bankruptcy filing, Lineal Group, Inc., offered early retirement to selected salaried employees. Thirty-six (36) employees (the “Early Retirees”) accepted the early retirement offer. The Debtor’s tax-qualified, single employer, defined benefit pension plan was amended to provide for the 1995 Voluntary Early Retirement Program. Employees who opted into the 1995 early retirement program were to receive their accrued benefit, a $300 per month Supplemental Benefit, and a retirement supplement. On September 1, 1995, the Debtor filed Chapter 11. On November 27, 1995, the Debtor sold its assets pursuant to 11 U.S.C. § 363(b). Subsequently, the Debtor confirmed a liquidating plan under 11 U.S.C. § 1129(a). Prior to confirmation, the Debtor and its Creditors’ Committee attempted to modify the Early Retirees’ benefits under 11 U.S.C. § 1114. By Order entered October 1, 1996, the court found the Supplemental Benefits to be “retiree benefits” within the meaning of § 1114, and denied modification. On January 23, 1997, the court classified the Supplemental Benefits as general unsecured claims for purposes of distribution. Allowance of those claims was not then before the court. Unsuccessful in its bankruptcy court efforts to modify the 1995 early retirement benefits, the Debtor petitioned the IRS for authority to retroactively amend its employee benefit plan to eliminate the 1995 Early Retirement Program. On September 26, 1997, the IRS granted the Debtor’s request for amendment “as it pertains to benefit payments not yet made as to the date of the [letter ruling].” Amendment was denied “to the extent it pertains to benefits that have already been paid as of the date of the [ruling].” The Early Retirees do not contest the Debtor’s authority to unilaterally seek this relief through the IRS. The Early Retirees and the PBGC1 filed benefit plan related claims. The Early Retirees filed claims for the $300 per month Supplemental Benefit plus the difference between the benefit each early retiree will receive pursuant to ERISA and the full retirement benefits the Early Retirees would have received under the Debtor’s benefit plan. Notwithstanding the elimination of the 1995 Early Retirement Program, the Early Retirees assert that they are entitled to direct claims against the estate because the Supplemental Benefit was used by the Debtor to induce these claimants to accept early retirement. That the Supplemental Benefits were paid from the pension fund, the Early Retirees reason, does not alter that the Debtor promised to pay these benefits yet failed to insure the solvency of its pension plan. The Early Retirees offer no statutory theory for recovery from the estate, and do not challenge the Debtor’s actions under ERISA. Rather, the Early Retirees plead for an equitable remedy that will preserve at least their proportionate share as unsecured creditors. On similar grounds the Early Retirees contend they should not be denied their full benefits or at least their prorata share of the distribution to unsecured claims. The PBGC filed eighteen proofs of claim. Those claims included amounts each retiree would received under the Debtor’s benefit plan, including the Supplemental Benefits claimed directly by the Early Retirees. On preemption grounds, the PBGC objects to the Early Retirees’ assertion of direct claims for the Supplemental Benefit and the difference between the benefit that will be administered by the PBGC and the amount the Early Retirees would have had under the Debtor’s benefit plan. The PBGC views the Early Retirees’ claims for prospective Supplemental Benefits as moot in light of the IRS’s letter ruling eliminating the early retirement program. The Debtor and the Creditors’ Committee objected to the duplicity of the claims asserted by the Early Retirees and the PBGC. 611They asserted that distribution to all retirees, including the Early Retirees, will be determined under ERISA and by the allowance of the PBGC’s claims. II. ERISA is a comprehensive remedial statutory scheme “designed to promote the interest of employees and their beneficiaries in employee benefit plans.” Shaw v. Delta Air Lines, Inc., 463 U.S. 85, 90, 103 S.Ct. 2890, 2896, 77 L.Ed.2d 490 (1983). ERISA § 514(a) provides that ERISA will “super-cede any and all State laws” to the extent those laws “relate to” any employee plan subject to ERISA. 29 U.S.C. § 1144(a). “ERISA’s preemption clause casts a wide net.” Davies v. Centennial Life Ins. Co., 128 F.3d 934, 938 (6th Cir.1997). “State law,” under ERISA, includes “all laws, decisions, rules, regulations, or other State action having the effect of law, of any State.” 29 U.S.C. § 1144(c)(1). “[A] law ‘relates to’ an employee benefit plan, in the normal sense of the phrase, if it has a connection with or reference to such a plan.” Shaw v. Delta Air Lines, Inc., 463 U.S. 85, 96-97, 103 S.Ct. 2890, 2900, 77 L.Ed.2d 490 (1983). That the state law is not specifically designed to affect an ERISA plan and does so only indirectly does not save the law from preemption. In-gersoll-Rand Co. v. McClendon, 498 U.S. 133, 138-39, 111 S.Ct. 478, 483-84, 112 L.Ed.2d 474 (1990). “[0]nly those state laws and state law claims whose effect on employee benefit plans is merely tenuous, remote or peripheral are not preempted.” Cromwell v. Equicor-Equitable HGA Corp., 944 F.2d 1272, 1276 (6th Cir.1991). “It is not the label placed on a state law claim that determines whether it is preempted, but whether in essence such a claim is for the recovery of an ERISA plan benefit.” Id. “To determine whether a state law has a ‘connection with’ an ERISA plan, we must ‘look both to the objectives of the ERISA statute as a guide to the scope of the state law that Congress understood would survive, -as well as to the nature of the effect of the state law on ERISA plans.’” Davies, 128 F.3d at 939 (quoting California Division of Labor Standards Enforcement v. Dillingham Constr., N.A., Inc., 519 U.S. 316,-, 117 S.Ct. 832, 838, 136 L.Ed.2d 791 (1997) (internal quotation marks and citations omitted)). The Court of Appeals for the Sixth Circuit has addressed the preemptive effects of ERISA in numerous cases. See Davies, 128 F.3d 934; Massachusetts Casualty Ins. Co. v. Reynolds, 113 F.3d 1450 (6th Cir.1997); United Steelworkers of America v. United Engineering, Inc., 52 F.3d 1386 (6th Cir.1995); Gordon v. Barnes Pumps, Inc., 999 F.2d 133 (6th Cir.1993); Cromwell v. Equicor-Equitable HCA Corp., 944 F.2d 1272 (6th Cir.1991); Perry v. PIE Nationwide, Inc., 872 F.2d 157 (6th Cir.1989). In Perry, employees sued their former employer for fraudulent inducement in obtaining the employees’ participation in an employee stock ownership plan (“ESOP”) covered by ERISA. The employees accepted the ESOP and agreed to an irrevocable fifteen percent reduction in wages for 5 years. Shortly thereafter, the business was sold, contrary to representations made by the employer. In addition to wrongful inducement, the employees alleged fraud, coercion, misrepresentation, promissory estoppel, lack of consideration, and breach of fiduciary duty. The employees sought rescission of the ESOP or damages. The former employer moved to dismiss the action as preempted under ERISA. The district court held that ERISA preemption applies only once the benefit plan exists. Any claim arising out of the actions alleged to obtain the employees’ participation were not subject to ERISA preemption, Perry, 872 F.2d at 158-59. The Sixth Circuit affirmed in part and reversed in part. The claims for breach of fiduciary duty and lack of consideration were preempted. The breach of fiduciary duty claim was preempted because ERISA provides “a specific remedy for breach of fiduciary duty with respect to establishment of an ERISA plan.” Id. at 161 (citing 29 U.S.C. §§ 1104 & 1132(a)). The lack of consideration claim, the court concluded, was preempted because it went “to the substance of the undertaking, which is an ‘area of exclusive federal concern.’ ” Id. (citation omitted). The claims for fraud, misrepresentation, coercion, and promissory estoppel in relation 612to obtaining the employees’ participation in the ESOP were not preempted because the remedies of reeission and recoupment were not available under ERISA. The employees did not seek benefits under the plan, rather they sought not to be bound by the plan and to recover the reduction in wages the plan required. The Sixth Circuit has strictly limited Perry to its facts. See MacKay v. Grumman Allied Indus., Inc., 993 F.Supp. 1068, 1069-70 (W.D.Mich.1997) (citing Davies v. Centennial Life Ins., 128 F.3d 934, 943 (6th Cir.1997); Massachusetts Casualty Ins. Co. v. Reynolds, 113 F.3d 1450, 1453 (6th Cir.1997); Tolton v. American Biodyne, Inc., 48 F.3d 937, 943 n. 5 (6th Cir.1995); Fisher v. Combustion Eng’g, Inc., 976 F.2d 293, 297 (6th Cir.1992); Kopczynski v. Central States, Southeast & Southwest Areas Pension Fund, 782 F.Supp. 350, 356-57 (E.D.Mch.1992)). See also Zuniga v. Blue Cross & Blue Shield of Michigan, 52 F.3d 1395, 1402 (6th Cir.1995) (breach of contract claim that requires evaluation of employee benefits plan is preempted by ERISA). The Sixth Circuit recently explained Perry’s narrow holding: Perry did hold, to be sure, that state law claims for reeission of an ERISA plan and for restitution based on fraud and misrepresentation occurring before the ERISA plan existed were not preempted, the claims not being for ‘plan benefits or an increase in plan benefits.’ The case also implied, however, that a plaintiffs state law claims for benefits under an ERISA plan are preempted by ERISA even though based on wrongful conduct occurring prior to the existence of the ERISA plan. Massachusetts Cas. Ins., Co. v. Reynolds, 113 F.3d at 1450, 1454 (6th Cir.1997) (internal citations omitted). See also Davies, 128 F.3d at 943. In Reynolds, the plan beneficiary brought an action for fraud and breach of a disability insurance contract. He sought specific performance and a money judgment based on bad faith. Relying on Perry, the beneficiary argued that because the fraud and misrepresentations occurred while the plan was being negotiated, the action was not preempted by ERISA. The Sixth Circuit rejected the beneficiary’s argument because his request for specific performance was a preempted claim for benefits under the plan. The court explained that “Perry did not actually hold that a plaintiff could pursue a state law claim ‘that fell within ERISA’s civil enforcement provision merely because ERISA did not provide the desired remedy.” ’ Id. at 1454 n. 2 (quoting Tolton v. American Biodyne, Inc., 48 F.3d 937, 943 n. 5 (6th Cir.1995)). See also MacKay, 993 F.Supp. at 1071 (“[WJhether a plaintiffs state claims related to conduct occurring prior to participation in an employee benefit plan are preempted turns on the type of remedy the plaintiff seeks.”). Here, the Early Retirees claim against the bankruptcy estate is for benefits the Debtor amended out of the plan and for the difference between their full benefits and what will be paid by the PBGC. The grounds for these direct claims are not expressly stated, but sound in breach of contract, misrepresentation, and promissory estoppel in connection with inducing the Early Retirees to accept the early retirement package. The remedy they seek is specific performance — benefits under the plan. As in Reynolds, these claims of the Early Retirees are preempted by ERISA. The Early Retirees’ claims “relate to” the Debtor’s ERISA plan because they can only be calculated and evaluated under that plan. The plan existed when the Early Retirement Program was offered. The Early Retirees were participants under that plan prior to the amendment that forms the basis for their claims. The Early Retirees seek to hold the Debt- or liable as a guarantor of the solvency of the employee benefit plan. The insolvency of the plan, however, lends further support to preemption of the Early Retirees’ claims for lost benefits. In United Engineering, the Sixth Circuit considered preemption in the context of a distressed termination of employee benefit plans. The union filed a claim under § 301 of the Labor Management Relations Act against the employer to collect supplemental or nonguaranteed benefits “payable to employees prior to retirement age in the event of a plant shutdown or physical disability.” United Eng’g, 52 F.3d at 1388. The 613employer and the PBGC responded that any claim for supplemental benefits was preempted by ERISA. The district court held that the union’s claims were preempted based on the 1986 and 1987 amendments to ERISA that expanded ERISA coverage to nonguar-anteed or supplemental benefits. The Sixth Circuit agreed: When an employer terminates a pension plan with insufficient funds, the employer becomes liable to the PBGC for “the total amount of the unfunded benefit liabilities (as of the termination date) to all participants and beneficiaries under the plan.” 29 U.S.C. § 1362(b)(1)(A). Prior to the 1986 and 1987 amendments to ERISA, an employer was liable to the PBGC only for the lesser of the unfunded guaranteed benefits or 30% of the employer’s net worth, 29 U.S.C. § 1362(b)(2)(B) (Supp.1994), and the PBGC was obligated to pay only guaranteed benefits under 29 U.S.C. § 1322. The employer was not liable to the PBGC or to anyone else under the former statutory scheme for unfunded non guaranteed benefits. Many federal courts, including this circuit, perceived a gap in the statutory structure of ERISA regarding the payment of unfunded nonguaranteed pension benefits. They recognized, therefore, a federal common law action allowing employees to directly sue their employers to recover non-guaranteed benefits. In 1986, Congress addressed, for the first time, the protection of nonguaranteed pension benefits and amended ERISA by enacting the Single-Employer Pension Plan Amendments Act (SEPPAA), 29 U.S.C. § 1349 (repealed 1987). SEPPAA established a trust fund called the “Section 4049 trust” that would receive funds from employers and distribute those funds to plan participants to cover nonguaranteed benefits. SEPPAA made employers liable to the trustee for up to 76% of the amount of nonguaranteed benefits. In 1987, Congress repealed SEPPAA and enacted the Pension Protection Act (PPA), 29 U.S.C. § 1362 (Supp.1994), which is the current law regarding payment of unfunded pension benefits. The PPA provides that the liability of an employer who terminates a pension plan to the PBGC “shall be the total amount of the unfunded benefit liabilities (as of the termination date) to all participants and beneficiaries under the plan.” 29 U.S.C. § 1362(b)(1)(A). As before the amendments, the PBGC is still required to pay all guaranteed benefits. Since the amendments, however, the PBGC must pay some portion of the non-guaranteed benefits. The portion is determined by the amount the PBGC recovers from the employer and the amount due to participants.... 29 U.S.C. §§ 1322(c)(2), 1322(c)(3)(A) (Supp.1994). The PBGC then allocates the nonguaranteed amounts according to the priority scheme set out in 29 U.S.C. § 1344(a) (1985 and Supp.1994). Several courts that have addressed the issue that confronts us today have held that ERISA now preempts direct actions against the employer. For example, the court in In re Adams Hard Facing Co., 129 B.R. 662 (W.D.Okla.1991), held that participants in a pension plan could not recover monies directly from their employer’s bankruptcy estate. Id. at 663. In so holding, the court stated: The debtors and the PBGC agree that if Plan participants make claims directly against the bankruptcy estate, the purposes of ERISA § 4022(c) [ (29 U.S.C. § 1322(e)) ] will be defeated. Under ERISA, the PBGC must collect the employer’s unfunded benefit liabilities and distribute those amounts to plan participants within the priority scheme of § 4044(a) [ (29 U.S.C. § 1344) ]. The direct claims of the participants in the ... Plan are therefore disallowed. The PBGC is instructed to collect and allocate the unfunded benefit liability amounts in strict compliance with ... ERISA .... United Eng’g, 52 F.3d at 1390-94. United Engineering forecloses the Early Retirees’ claims for the difference between *614their full retirement benefits and the amount they will receive under ERISA from the PBGC. Finally, even if the Early Retirees’ estoppel claims for Supplemental Benefits are not preempted and if the Supplemental Benefits are welfare benefits,2 the Sixth Circuit has limited the availability of estoppel actions under similar circumstances. In Sprague v. General Motors Corporation, 133 F.3d 388 (6th Cir.1998) (en banc), general retirees and early retirees challenged, changes the company made to their health care plan. The retirees asserted that GM obligated itself to provide health care coverage cost free to retirees for life, and charged GM with breach of fiduciary duty, equitable or promissory estoppel and violation of the health care plans. On the estoppel claims, the Sixth Circuit affirmed the district court finding that GM made no representations to the general retirees, but reversed the trial court’s decision that GM was estopped by misrepresentations of the plan terms from upholding the plan changes as to early retirees. “Principles of estoppel, ..., cannot be applied to vary the terms of unambiguous plan documents; es-toppel can only be invoked in the context of ambiguous plan provisions.” Id. at 404 (citations omitted). GM’s plans, the court found, “unambiguously reserved ... the right to amend or terminate the plan.” Id. The Lineal Group plan unambiguously reserved to the Debtor the right to amend, modify or terminate the benefit plan at any time and to any extent consistent with ERISA. The plan amendment that established the 1995 Voluntary Early Retirement Program specifically provided that the amendment did not affect, alter or vary any other term, condition or provision of the plan. Under Sprague the Early Retirees are not entitled to hold the estate directly liable for these benefits on estoppel grounds. III. The objections of the Creditors’ Committee and the PBGC to the direct claims of the Early Retirees against the estate are sustained. The direct claims of the Early Retirees for Supplemental Benefits and for the difference between benefits under ERISA and benefits under the Debtor’s plan are disallowed. . The Debtor’s pension plan has been terminated in accordance with the requirements of Title IV of ERISA. The PBGC administers the mandatory pension plan termination insurance program established under ERISA. In that capacity, the PBGC guarantees the payment of certain pension benefits upon plan termination. See 29 U.S.C. §§ 1321 & 1322. . ERISA classifies benefit plans either as "welfare benefit plans” or as "pension benefit plans.” See 29 U.S.C. §§ 1002(1) & (2)(A). That a benefit plan might be both a welfare benefit plan and a pension plan is anticipated by the statute. 29 U.S.C. § 1002(3). Welfare benefit plans are "established or maintained for the purpose of providing [participants or beneficiaries], through the purchase of insurance or otherwise, [] medical, surgical, or hospital care or benefits, or benefits in the event of sickness, accident, disability, death or unemployment, or vacation benefits ....” 29 U.S.C. § 1002(1)(A). "A pension plan 'provides retirement income to employees’ or 'results in a deferral of income by employees for periods extending to the termination of ... employment of beyond Sprague v. General Motors Corp., 133 F.3d 388, 400 (6th Cir.1998). Employers enjoy greater discretion in amending and terminating employee welfare plans. Sprague v. General Motors Corp., 133 F.3d at 400 ("employers 'are generally free under ERISA, for any reason at any time, to adopt, modify, or terminate welfare plans.' ”) (citation omitted). The Sixth Circuit has recognized equitable estop-pel and promissory estoppel actions under ERISA in the case of welfare benefit plans. Sprague v. General Motors Corp., 133 F.3d at 403 n. 13: Armistead v. Vernitron Corp., 944 F.2d 1287 (6th Cir.1991). Estoppel theories have not been accepted in the case of pension plans. See Richards v. General Motors Corp., 876 F.Supp. 1492, 1508 (E.D.Mich.1995) (citing Armistead, 944 F.2d at 1298).	01-04-2023	11-22-2022
https://www.courtlistener.com/api/rest/v3/opinions/8492791/	ORDER GRANTING DEFENDANT’S MOTION TO SET ASIDE DEFAULT AND JUDGMENT BY DEFAULT C. TIMOTHY CORCORAN, III, Bankruptcy Judge. This adversary proceeding came on for consideration of the defendant’s motion to set aside default and judgment by default pursuant to: a. Judge Corcoran’s Administrative Lead Case Initial Case Management Order entered on March 5, 1998, and the First Supplement thereto entered on July 6, 1998, in Adversary No. 91-00192, Lloyd T. Whitaker, etc. v. Sportsstuff, Inc. (Documents Nos. 25 and 32A); b. the parties’ Stipulation Regarding Pending Motions to Vacate Default Judgments filed on May 18, 1998, in that adversary proceeding (Document No. 30); and c. the parties’ Stipulation Regarding Pending Motions to Vacate Default Judgments filed on July 10, 1998, in that adversary proceeding (Document No. 33) [a copy of which also appears in this adversary proceeding as Document No. 15]. Pursuant to the court’s orders and the parties’ stipulations, the parties have designated this adversary proceeding as the “lead case” for the 24 proceedings in the “excusable neglect” group as set forth in the schedule appearing as Attachment 1 to the stipulation described in paragraph (c) above. Accordingly, the decision contained in this order applies to all of the proceedings in that “excusable neglect” group. As the file reflects, the defendant has filed its motion containing an affidavit and legal memorandum (Document No. 16), the plaintiff has filed his opposing legal memorandum (Document No. 17), and the defendant has filed its reply memorandum (Document No. 18). In consideration of these papers and the entire file, therefore, the court decides the issues as follows: PROCEDURAL POSTURE On May 19, 1993, the clerk entered a default against the defendant for failure to plead or otherwise defend as provided by the rules after being served with process on November 2, 1992 (Document No. 6). On May 20,1993, the court entered an order granting the plaintiffs motion for the entry of judgment and a separate judgment by default in the amount of $2,848.59 (Documents Nos. 7 and 8). Less than a month later, on June 16, 1993, the defendant filed its original motion and affidavit to set aside the default and judgment by default (Document No. 9). The 707defendant also filed a proposed answer and affirmative defenses (Document No. 11). Because this was one of literally thousands of adversary proceedings raising the same kinds of “undercharge” claims assigned to the undersigned judge, the court took no action on the motion pending the development with counsel of an agreed framework within which to determine the many issues pending in these adversary proceedings. Ultimately, the court and counsel developed such a framework as set forth in the orders described in paragraph (a) above. Accordingly, the parties have now briefed the issues for the court’s determination. FACTS On October 16, 1990, Olympia Holding-Corporation, formerly known as PIE Nationwide, Inc., filed for relief under Chapter 11 of the Bankruptcy Code. The court later converted the case to a case under Chapter 7, and the plaintiff became the Chapter 7 trustee. The adversary proceeding in one of approximately 32,000 asserting the same kinds of claims filed by the plaintiff in the bankruptcy case. The debtor was a motor carrier that shipped freight for the defendant before the filing of the bankruptcy case. In late 1992, the plaintiff brought this adversary proceeding against the defendant. Among other claims, the plaintiff seeks to recover amounts allegedly owed to the debtor arising from “undercharges,” the differences between the undiscounted or published rates and the discounted rates actually billed to and paid by the defendant. The plaintiff served the defendant by U.S. Mail on November 2, 1992, as permitted by the rules. The defendant is a relatively small company that does not have in-house counsel or employ a full-time attorney. When the president of the defendant received the suit papers, he sent the package to an attorney “to determine a course of action and have the matter attended to.” Heche aff. at ¶ 7. The president presumed that “the matter was being taken care of and did nothing further” until he received copies of the default judgment papers that the court entered in May 1993. Id. at ¶ 8. When the president then inquired about why it had not been handled by the lawyer to whom he had sent it, the law firm could provide no explanation except that the individual lawyer involved had left the firm. “[Ajpparently, the matter had been lost and forgotten in the transition.” Id. at ¶ 9. The president promptly employed new counsel who moved to set aside the default and the judgment less than a month after the court had entered them. Id. at ¶ 10. DISCUSSION The Legal Standards The court may set aside a judgment by default “in accordance with Rule 60(b)” for “mistake, inadvertence, surprise, or excusable neglect.” F.R.Civ.P. 55(e), incorporated by F.R.B.P. 7055; F.R.Civ.P. 60(b)(1) [emphasis added], incorporated by F.R.B.P. 9024. “In order to establish mistake, inadvertence, or excusable neglect, the defaulting party must show that: (1) it had a meritorious defense that might have affected the outcome; (2) granting the motion would not result in prejudice to the non-defaulting party; and (3). a good reason existed for failing to reply to the complaint.” Florida Physician’s Insurance Co. v. Ehlers, 8 F.3d 780, 783 (11th Cir.1993). Our court of appeals established this formulation for setting aside a judgment by default well after the Supreme Court decided Pioneer Investment Services Co. v. Brunsunck Associates Ltd. Partnership, 507 U.S. 380, 113 S.Ct. 1489, 123 L.Ed.2d 74 (1993), a case that construes “excusable neglect” in the context of filing a proof of claim after the bar date. Ehlers, therefore, sets forth the criteria under which the defendant’s motion must be tested. Applying the Standards 1. Does the defendant have a meritorious defense that might affect the outcome? In this adversary proceeding, the defendant has defenses, among others, stemming from Whitaker v. Frito-Lay, Inc. (In re Olympia Holding Corp.), 88 F.3d 952 (11th 708Cir.1996), the Negotiated Rates Act of 1993, and Whitaker v. Power Brake Supply, Inc. (In re Olympia Holding Corp.), 68 F.3d 1304 (11th Cir.1995). Indeed, Frito-Lay and Power Brake Supply are cases that came out of this very bankruptcy case. Were the court to adjudicate the plaintiffs claims on their merits, it is not at all clear that the plaintiff would obtain judgment against the defendant. In these circumstances, therefore, the defendant plainly has meritorious defenses to assert. 2. Will the plaintiff be prejudiced if the court sets aside the judgment by default? The defendant moved to set aside the judgment by default less than a month after the court entered it. Despite the entry of the default and judgment by default, there has been no substantial delay in bringing this proceeding to issue caused by the defendant. It is true that the plaintiff filed this proceeding as long ago as 1992 and the court entered the judgment by default in 1993. Any delay in reaching the merits of this proceeding, however, stems from the fact that there were originally some 32,000 of these proceedings with which to deal. The multitude of proceedings has necessitated an organized and methodical approach by the court and the parties to determine a myriad of issues. It is true that much time has passed, but this delay cannot be attributed to the defendant. Although many of the common issues have been — and are being — resolved by the courts, not a single one of these proceedings has actually yet gone to trial. Thus, had the defendant filed its answer immediately upon being served, this proceeding and the plaintiff would be in the same position in which they will be if the court now sets aside the judgment by default. In these circumstances, the court can find no prejudice that the plaintiff will suffer if the court were to set aside the judgment by default. 3. Does the defendant have a good reason for failing to reply to the complaint? From the perspective of the defendant, the defendant did all that could be expected of it to defend the complaint properly and appropriately. When it received the summons and complaint, the defendant engaged counsel to defend. Although it would have been better had the president of the debtor followed up with counsel after a few weeks to confirm that counsel was handling the matter as counsel should have been, the defendant did entrust the matter to the hands of counsel and could reasonably expect that counsel was handling the matter appropriately. Although counsel may not have a good reason for failing to reply to the complaint, the defendant itself surely does have a good reason, that is, counsel’s failure to follow through as requested by the defendant. Weighing the Standards Each of the three elements a defaulting party must show to establish mistake, inadvertence, or excusable neglect under Fillers weighs in favor of setting aside the judgment by default in this case. The plaintiff, however, relies on Eleventh Circuit authorities in which the court has not relieved a party from the consequence of counsel’s negligence. See, e.g., Cavaliere v. Allstate Insurance Co., 996 F.2d 1111, 1115 (11th Cir.1993) [affirming denial of Rule 60(b) motion; decided very shortly after Pioneer, but not citing Pioneer]-, Solaroll Shade & Shutter Corp. v. Bio-Energy Systems, Inc., 803 F.2d 1130, 1132 (11th Cir.1986) [attorney’s negligent failure to respond to a motion does not constitute excusable neglect; decided years before Pioneer]. The plaintiff then argues that “negligent” failure by a defendant’s counsel to respond to a summons and complaint cannot constitute “excusable neglect” as a matter of law. Contrary to the plaintiffs argument for an absolute rule, whether excusable neglect can be found turns on a consideration of all factors applied by the court in an exercise of its sound judicial discretion. As the court of appeals recently wrote: While we have been at some pain to define “excusable neglect” in different fact situations [citations omitted], [t]he Supreme Court has now clarified the meaning of “excusable neglect” in Pioneer Investment Services Co. v. Brunswick Associates *709Ltd. Partnership, 507 U.S. 380, 113 S.Ct. 1489, 123 L.Ed.2d 74 (1993). There the Court held that a bankruptcy court abused its discretion by refusing to permit the late filing of a proof of claim pursuant to Bankruptcy Rule 9006(b)(1). In reaching its decision, the Court reviewed the meaning of excusable neglect in the context of analogous rules that allow for late filings. It stated that “for purposes of Rule 60(b), ‘excusable neglect’ is understood to encompass situations in which the failure to comply with a filing deadline is attributable to negligence.” Id. at 394, 113 S.Ct. at 1497. The Court concluded that whether a party’s neglect of a deadline may be excused is an equitable decision turning on “all relevant circumstances surrounding the party’s omission. ” Id. at 395, 113 S.Ct. at 1498 (citations and footnotes omitted). The factors we must weight include “the danger of prejudice to the [opposing party], the length of the delay and its potential impact on judicial proceedings, the reason for the delay, including whether it was unthin the reasonable control of the movant, and ivhether the movant acted in good faith.” Id. Cheney v. Anchor Glass Container Corp., 71 F.3d 848, 849-50 (11th Cir.1996) [emphasis added]. Notably, Cheney involved a plaintiffs failure to file, in the 30-day period required by District Court Local Rule 8.05(b), a timely motion for trial de novo after court-annexed arbitration. The reason for the late filing was a failure in communication between plaintiffs lead counsel and the associate attorney working in his office. “The nonfiling was simply an innocent oversight by counsel.” Id. at 850. The court weighed all of the circumstances and concluded that the district court had abused its discretion by not relieving the plaintiff from this failure. Not only do the Ehlers factors weigh in favor of setting aside the default, all of the other circumstances of this ease, as identified in Cheney, weigh the same way. The defendant’s delay in presenting its defenses was “simply an innocent oversight by counsel.” The record contains nothing suggesting bad faith on the part of the defendant that would justify preventing the defendant from receiving a determination of the proceeding on its merits. The defendant responded immediately to correct counsel’s error when it learned of it. The delay that has occurred has had no impact on the proceeding as a whole; had the defendant timely filed its answer and defenses, this proceeding would be no further along toward determination on its merits than it will be if the court sets aside that judgment. Moreover, in Ehlers itself, the court held that “[w]ith respect to the third element [good reason for failing to reply], ‘a technical error or a slight mistake’ by a party’s attorney should not deprive the party of an opportunity to present the merits of his claim.” Ehlers at 783. The court then specifically noted its conflict with the older Solaroll Shade decision upon which the plaintiff relies. In the circumstances of this case, counsel’s error in failing to respond can fairly be characterized as “a technical error or a slight mistake” that has had no negative impact on the plaintiff or on the adversary proceeding. Holding the defendant to the judgment by default in the circumstances of this case would indeed be championing technical form over substance. Conclusion For all of these reasons and based upon all of these .relevant circumstances, the court concludes that the defendant has demonstrated mistake, inadvertence, or excusable neglect in connection with failing to respond timely to the plaintiffs complaint. Accordingly, the court grants the defendant’s motion to set aside default and judgment by default. The court hereby vacates the default and the judgment by default. The proposed answer and affirmatives defenses (including counterclaim) previously filed by the defendant are deemed timely filed.	01-04-2023	11-22-2022
https://www.courtlistener.com/api/rest/v3/opinions/8492792/	MEMORANDUM OPINION1 JUDITH K. FITZGERALD, Bankruptcy Judge. The sale of a commercial building in Wilkes-Barre, Pennsylvania, the only asset of this estate, precipitated Robert O. Lampl’s (“Lampl”) Motion for Allowance of Administrative Expense Pursuant to 11 U.S.C. Section 503 or, in the Alternative, Motion for Approval Under 11 U.S.C. Section 330, Nunc Pro Tunc, and the Supplement thereto by which Lampl seeks payment under § 506(c). Numerous objections have been filed to the Motion. We find that, because prior court approval to serve as a professional representing the debtor-in-possession is required by 11 U.S.C. § 327 and Lampl failed to obtain such approval, he is not entitled to be paid a fee from this estate. Further, his claim does not qualify as an administrative expense under § 503(b)2, nor is he entitled to be paid from the secured creditor’s asset under § 506(c). Section 330 of the Bankruptcy Code allows the court to authorize payment to professionals employed under § 327. Section 327 requires court approval of the employment of professionals representing the interests of the estate. The Court of Appeals for the Third Circuit has held that, absent extraordinary circumstances, counsel who has not been appointed cannot be paid. In In re F/S Airlease II, Inc. v. Simon, 844 F.2d 99 (3d Cir.), cert. denied, 488 U.S. 852, 109 S.Ct. 137, .102 L.Ed.2d 110.(1988), the court refused to permit payment to a broker who had not obtained court approval even though all parties and the bankruptcy judge were aware that the broker was working for the estate and had produced a buyer for a major asset. In Matter of Arkansas Co., Inc., 798 F.2d 645 (3d Cir.1986), the court expressed the need for court approval and set out strict standards for nunc pro time approval. Retroactive approval of the employment of a professional is permissible only when the delay in seeking approval of appointment is beyond the professional’s control. 798 F.2d at 649. These cases have been the standard in this Circuit since 1986 and Lampl, an attorney who regularly practices in the bankruptcy courts in this Western District of Pennsylvania, is well aware of them. We note at the outset that Lampl did not serve as an attorney for the estate, a creditor, or the trustee 834in this case, nor did he act as a broker in the commonly understood sense of the term— i.e., one who markets the property and, while doing so, actively seeks interested buyers. Although he asserts this claim as a broker, his status is more that of a finder. He learned that the debtor had its commercial building for sale, discussed that fact with a client who was unrelated to the estate or parties, and brought that client to the sale. After competitive bidding against the initial offeror, Lampl’s client outbid the initial offer- or, became the successful bidder, and purchased the property. At the sale hearing this court inquired of Lampl whether there was a broker’s commission component to his client’s bid. The following colloquy ensued: MR. LAMPL: The only broker that was in this case was me. THE COURT: All right. MR. LAMPL: I actively — and I not [sic] asking for a fee.... Transcript of Sale Hearing, March 13, 1998, at 73. Lampl now seeks compensation from this estate (as opposed to seeking it from his client) for producing the successful bidder. Lampl claims entitlement to a fee of $36,000 as a broker for the estate based on a claimed six percent commission on the difference between the original bid ($1,000,000) and the successful bid ($1,600,000) presented by his client.3 He asserts that his fee is an administrative expense of preserving the estate under § 503(b)(1) and for making a substantial contribution under § 503(b)(3)(D). He also asserts that extraordinary circumstances exist which permit approval of his employment as a broker nunc pro tunc. Alternatively he argues that he is entitled to a fee from the lienholders pursuant to 11 U.S.C. § 506(c). Lampl is entitled to a fee on none of these bases. Lampl cannot succeed as a broker for the estate under § 503(b)(1) because he was not appointed as broker for the estate.4 No extraordinary circumstances have been recited that would permit nunc pro tunc appointment and payment under F/S Airlease or Arkansas and, in fact, he has not filed a motion pursuant to § 327 to be appointed nunc pro tunc.5 In his motion, Lampl cites as extraordinary circumstances the fact that the sale was brought on an expedited basis, that he “stimulated the proposed sale interest” in the bidder shortly before the scheduled hearing which did not allow the Movant time to file a Motion for approval, ... nor would the filing of such a motion been [sic] appropriate under the circumstances inasmuch as [the bidder] was merely a bidder at that point.6 Further, the Movant avers that[ ] this Honorable Court[ ] will ordinarily approve real estate broker’s finder’s fees for realtors who represent successful bidders at sales in this Court. Motion at ¶ 13. These arguments are not sufficient to meet the strictures of Arkansas for the following reasons: (1) An expedited sale process in bankruptcy is not an “extraordinary” circumstance. In fact, expedited sales in bankruptcy are fairly frequent due to the exigencies of any particular ease.7 835(2) The brief period between the time Lampl notified his client of the availability of this property and the date of the sale is irrelevant to Lampl’s obligation under the Bankruptcy Code and Rules and case law to obtain court approval of employment if he intended to serve as a professional in the estate. The extraordinary circumstance to which Arkansas speaks is that beyond the professional’s control which prevents the professional from promptly seeking approval of employment. 798 F.2d at 649. Nothing in this case prevented counsel from seeking appointment as a broker on an expedited basis if he was of the opinion that he would be entitled to broker status. What is more, he specifically declared at the sale hearing that he was not seeking brokering fees. (3) His assertion that this court approves broker’s fees for realtors is true only insofar as those brokers are properly approved by the court, a fact absent in this case. (4) Lampl has waived any broker’s fee to which he might have been entitled, at least from the assets of this estate, by virtue of his statement to the court during the sale that he was not seeking one. Furthermore, Lampl is not entitled to payment of a fee as an administrative claim under § 603(b)(1) or (b)(3)(D) merely because he found a buyer and brought to the sale the entity which ultimately was successful. The very purpose of advertising and holding auction sales in bankruptcy is to attract interested bidders. Simply because a bidder is brought to a sale by counsel and ends up winning the bidding war does not entitle counsel to a broker’s fee. See, e.g., In re Yobe, 74 B.R. 430, 434 (Bankr.W.D.Pa.1987) (“[i]f we were to so allow [finder’s fees] every purchaser in every sale in this Court would be accompanied by a broker claiming to be a finder entitled to a commission”). Lampl cannot fare any better under § 503(b)(3)(D), even though his client paid $600,000 more for the property than the initial offeror proposed, because he did not represent a creditor, indenture trustee, equity security holders, or committee and, therefore, is not encompassed within this provision. His client, moreover, engaged in active, competitive bidding against the initial offeror whose bidding drove up the price. Thus, to the extent that the increased sales price evidences a “substantial contribution” to this case, the credit for it does not fall squarely on Lampl’s shoulders. Finally, Lampl is not entitled to a fee under § 606(c) because that section entitles only the trustee, which term includes the debtor-in-possession, to recover certain costs and expenses. Lampl is not, and does not represent, the debtor-in-possession, the trustee, or a creditor. Section 606(c) provides that [t]he trustee may recover from property securing an allowed secured claim the reasonable, necessary costs and expenses of preserving, or disposing of, such property to the extent of any benefit to the holder of such claim. The term “trustee” includes a debtor-in-possession by virtue of § 1107(a) which provides, in part, that “a debtor in possession shall have all the rights ... of a trustee serving in a case under this chapter.” See also In re Birdsboro Casting Corp., 69 B.R. 955, 958 (Bankr.E.D.Pa.1987) (“[u]tilizing both 11 U.S.C. § 1107(a) and the legislative history, ..., most courts have allowed debtors in possession to use § 506(c).”) Further, in In re McKeesport Steel Castings Company 799 F.2d 91 (3d Cir.1986), the Court of Appeals made it clear that creditors might be entitled to act in lieu of a trustee for purposes of § 506(c) when the debtor-in-possession fails to do so. Lampl and his client, however, are not creditors of this estate and Lampl does not seek to recover costs and expenses that the estate incurred in preserving or disposing of collateral. Lampl has filed no evidence of incurring any costs or expenses in this regard. Therefore, he cannot recover against a secured creditor’s collateral. Accordingly, Lampl must look to his client for whatever compensation to which he thinks he might be entitled.8 *836An appropriate order will be entered.9 . The court’s jurisdiction was not at issue. This Memorandum Opinion constitutes our findings of fact and conclusions of law. . In his motion Lampl refers to § 503(a)(1) which was a misprint. At the hearing on the motion Lampl clarified that the § 503 claim was made under § 503(b). . The entity that served as the prepetition broker sought only a five percent commission. . Judge Markovitz of this court has ruled upon a similar issue in In re Glosser Bros., Inc., 102 B.R. 38 (Bankr.W.D.Pa.1989), and concluded that not every professional who appears in the bankruptcy court is entitled to compensation from the estate. In that case he said: Section 327 of the Code provides the minimum requirements which must be met in order to qualify for appointment as a professional.... However, the mere fact that a professional satisfies the technical elements of § 327 does not mandate Court approval. Id. at 39. . His motion cites only § 330 but the “wherefore" clause asks that he be retained “as a broker/finder nunc pro tunc, under 11 U.S.C. Section 330....” Construing this request under § 327 results in no different result. . Typically, brokers are approved before any bidders appear and express interest. . Although most expedited sales do not result in written opinions, see In re Conroe Forge & Manufacturing Corp., 82 B.R. 781 (Bankr.W.D.Pa. 1988) (a delay in confirmation of the sale would have resulted in postponement of sale due to Wisconsin Frost Laws or loss of the sale; therefore, circumstances required confirmation of sale before a liquidating plan could be confirmed). . At the argument on this Motion, Lampl mentioned that his client has paid for some services performed on his behalf, including Lampl’s participation in the closing. . After this Memorandum Opinion was drafted, the court received a proposed order that would approve a "settlement” of Lampl's disputed administrative claim by authorizing a $10,000 payment by a secured creditor, Second Mortgage Partners, from funds held in escrow from the sale proceeds. No settlement agreement or motion to approve settlement has been filed. However, Second Mortgage Partners will receive at least $10,000 from that escrow pursuant to Debt- or’s confirmed Plan. Because this court concluded that there is no basis in law or in fact for Lampl’s claim, the requested order cannot be entered.	01-04-2023	11-22-2022
https://www.courtlistener.com/api/rest/v3/opinions/8492793/	MEMORANDUM OPINION H. CLYDE PEARSON, Bankruptcy Judge. The within Adversary Proceeding is before the Court to determine the dischargeability of a judgment debt pursuant to 11 U.S.C. § 523(a)(6) and (a)(2)(A). A brief history of this matter is as follows: The Debtors, George Kidd and Renee Kidd (“Debtors”), filed Chapter 11 petitions in this Court on November 13, 1992 and March 18, 1993, respectively. The petitions were consolidated by Court order on April 26, 1993. Prior to the petition, Anthony Doss (“Plaintiff’), obtained a judgment in the Circuit Court of Bristol, Virginia, against the Debtors in the amount of $220,000.00. During the pendency of the Chapter 11 case, Plaintiff filed an adversary proceeding seeking to determine the debt nondischargeable. The Court issued a Memorandum Opinion on April 28, 1994, dismissing the complaint against Mr. Kidd as untimely filed and held that the judgment of the Circuit Court constituted a claim as determined by the jury but deferred the issue of nondischargeability as to Mrs. Kidd’s debt for further hearing 838pending the ongoing Chapter 11 case. On December 13, 1995, the Court issued a further Memorandum Opinion and Order holding Plaintiffs judgment lien a preference obtained within 90 days of the Chapter 11 filing and deferred the issue of nondischargeability. On January 25, 1996, Debtors’ Chapter 11 case was converted to Chapter 7. The Plaintiff filed the within Adversary Proceeding, which the Court found to be timely filed against the Debtors in the successor Chapter 7 case. The first issue before the Court is whether res judicata and collateral estoppel will bar the Debtors from determining the dischargeability of the debt under 11 U.S.C. § 523(a)(6) and (a)(2)(A). The Court, having carefully reviewed the facts and evidence in the record, holds, for reasons hereafter stated, that the Debtors are not barred and the debt is dischargeable. As an initial matter, the Court notes that the Bankruptcy Code generally is to be liberally construed in favor of the debtor. See Williams v. U.S. Fidelity & Guaranty Co., 236 U.S. 549, 35 S.Ct. 289, 59 L.Ed. 713 (1915); Roberts v. W.P. Ford & Son, 169 F.2d 151, 152 (4th Cir.1948) (citing Johnston v. Johnston, 63 F.2d 24, 26 (4th Cir.1933) and Lockhart v. Edel, 23 F.2d 912, 913 (4th Cir. 1928)). This universally recognized principle serves to “relieve the honest debtor from the weight of oppressive indebtedness and permit him to start afresh.” Local Loan Co. v. Hunt, 292 U.S. 234, 244, 54 S.Ct. 695, 78 L.Ed. 1230 (1934) (citations omitted). This same “honest but unfortunate debtor” is thus provided with “a new opportunity in life and a clear field for future effort, unhampered by the pressure and discouragement of preexisting debt.” Grogan v. Garner, 498 U.S. 279, 111 S.Ct. 654, 112 L.Ed.2d 755, 764, 765 (1991); Perez v. Campbell, 402 U.S. 637, 648, 91 S.Ct. 1704, 29 L.Ed.2d 233, 241 (1971); Local Loan Co. v. Hunt, 292 U.S., at 244, 54 S.Ct. 695; Johnston v. Johnston, 63 F.2d, at 26; Royal Indemnity Co. v. Cooper, 26 F.2d 585, 587 (4th Cir.1928). This Court, upon trial of this matter, heard the evidence including the testimony of the witnesses. It observed the candor, demean- or, truthfulness, and forthright testimony of witnesses as well as their credibility and makes the findings and conclusions herein. Res judicata is the general doctrine that includes both claim and issue preclusion. In Re Williams Contract Furniture, 148 B.R. 799 (Bankr.E.D.Va.1992). Collateral estoppel is synonymous with the more specific doctrine of “issue preclusion.” Id. Res judicata acts as a complete bar to the second action and precludes the litigation of all grounds for defenses and recovery that were previously available to the parties, regardless of whether they were asserted or determined in the prior action.1 In re Wizard Software, 185 B.R. at 517; Brown v. Felsen, 442 U.S. 127, 99 S.Ct. 2205, 60 L.Ed.2d 767 (1979). In the Fourth Circuit case of Combs v. Richardson, 838 F.2d 112, 116 (4th Cir.1988), the Court held that “prior state court judgments not be given res judicata effect to preclude litigation of dischargeability issues which could have been, but were not litigated in the earlier proceeding.” They further held that collateral estoppel applies if the issue was actually litigated and decided in an earlier proceeding and was necessary to the decision.2 This Court has before it only the jury instructions and the final decree of the state court proceeding. A copy of the state court transcript is not before the Court. In the state court proceedings, Jury Instruction No. 4 states that the verdict should be for Doss if “you believe from the evidence in this case 839that Renee Kidd and George Kidd unlawfully used the property of the plaintiff and converted it to their own use or to the use of persons other than the owner.” (Plaintiffs Exhibit 5). The instruction does not give direction as to willful and malicious injury to an entity or property of another entity. 11 U.S.C. § 523(a)(6) provides in pertinent part as follows: (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 (б) for willful and malicious injury by the debtor to another entity or to the property of another entity, (emphasis added). Willful means deliberate or intentional. H.R.Rep. No. 595, 95th Cong., 1st Sess. 365, reprinted in 1978 U.S.Code Cong. & Ad. News 5963, 6320-21. “Malice” carries a meaning that “a debtor may act with malice even though he bears no subjective ill will toward, and does not specifically intend to injure, thus a debtor’s injurious act done in knowing disregard of the right to others is a malicious act.” In re Stanley, 66 F.3d at 667. Jury Instruction No. 4 used the term “unlawfully” converted property but makes no mention of willfulness nor malice. For an injury to be rendered nondisehargeable under § 523(a)(6), it must be willful and malicious. Secondly, Jury Instruction Nos. 5, 6, and 9 set forth instructions on false and misleading impression, intentional misrepresentations of material facts. Although the jury was instructed on fraud, the court’s final decree does not specify whether the verdict was based upon fraud or unlawful conversion. Thus, this Court is unable to determine whether the state court actually found fraud and whether malice and willfulness were actually litigated. Additionally, the Final Decree in the state court recites that “[w]e the jury find our verdict for Anthony Doss and affix as damages; Compensatory— Two hundred Thirty-five Thousand Dollars ($235,000.00)—punitive ($0.00).” This Court cannot determine what the jury based their verdict upon. It clearly does not show by a preponderance of the evidence that the verdict was based upon willful and malicious conversion of property nor does it indicate that the verdict was based upon fraud. The jury could render a verdict for the Plaintiff under several different scenarios and the Final Decree does not specify which instruction the jury relied upon and the Court does not have before it the facts presented in the state court. For instance, in Combs, the court examined the jury instructions and the verdict of the state court tort action and determined that the willful and malicious nature of the defendant’s actions were actually and necessarily litigated. The jury instruction in Combs expressly required the jury to determine actual malice. Plaintiff has not met the burden of proving by a preponderance of the evidence that the elements of res judicata and collateral estoppel have been established. The Court holds that Plaintiff has not met the burden of proof and res judicata and collateral estoppel are not applicable for purposes of determining the debt nondisehargeable. The final issue to be determined is whether the debt is dischargeable. The issue was heard and the Debtors appeared and presented testimony on the issues. The Plaintiff, Doss, did not appear nor present any rebuttal testimony. The Court granted additional time for written arguments whereby only the Debtor submitted additional authorities. The only other evidence before the Court is a copy of the state court’s Final Decree and copies of the jury instructions. An examination of the evidence before the Court does not support a finding that the Debtors acted “willfully and maliciously or with actual fraud.” The relationship between the Debtors and Plaintiff began as one of a professional nature. Mrs. Kidd was a patient of Dr. Doss and later developed into a friendship. The Kidds and Doss later entered into a business relationship owning equal shares in a dress shop in Bristol. Debtors were interested in purchasing a new home and the day before the loan was to close with the bank, Plaintiff approached them and offered to lend them the money at a lower interest rate than a bank could offer them. The Kidds agreed to the loan and Plaintiff was to set up the payment plan with *840Ms CPA. Subsequently, the relationship between Debtors and Dr. Doss changed, which led to the controversy. Mr. Kidd testified that, at the time of the transaction, he did not make a representation that he knew to be false nor did he have any intent to deceive the Plaintiff. He further stated that he did not knowingly disregard the rights of Plaintiff. In this case, the transaction between the Kidds and Doss was at arm’s length. This was not a situation where a Debtor was in possession of money that he knew was not his. On the contrary, Plaintiff offered to loan the money to the Debtors. Plaintiff had already placed the money in Debtors’ safe deposit box. Having-heard the testimony of the Debtors, the Court concludes that the nature of the Debtors’ actions clearly does not reach the level of maliciousness as required by the Fourth Circuit. Secondly, in order to prevail on a nondischargeability claim pursuant to § 523(a)(2)(A), the creditor must show (1) that the debtor made representations; (2) that at the time of so making, the debtor knew them to be false; (3) that the representations were made with intent to deceive; (4) that the creditor relied on the representations; and (5) that the creditor was damaged as a result thereof. These elements must be proved by a preponderance of the evidence.3 There is no evidence before the Court that the Kidds had an intent to deceive Doss nor is there any evidence that they committed actual fraud or made any false representations. An appropriate Order will be entered. Service of a copy of this Memorandum Opinion shall be made by mail to the Debtors; counsel for Debtors/John M. Lamie, Esq.; counsel for Plaintiff/Timothy Wayne Hudson, Esq.; and Trustee. . Under Virginia law, the court may apply three tests to determine res judicata: first, whether two causes of action are based upon mutually exclusive code sections or statutory language; second, whether both causes of action contain substantially the same factual and legal issues; and third, whether same evidence supports both causes of action. In re Professional Coatings, Inc., 210 B.R. 66 (Bankr.E.D.Va.1997). . Under Virginia law, five elements are necessary for collateral estoppel: first, issue litigated must have been essential to prior judgment; second, prior action must have resulted in valid and final judgment against party sought to be precluded in present action; third, parties or privies in both proceedings must be the same; fourth, there must be mutuality between parties; and fifth, factual issue litigated actually must have been litigated in prior action. Professional Coatings at 80. . 11 U.S.C. § 523(a)(2)(a) states in pertinent part as follows: (a) 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— (2) 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;	01-04-2023	11-22-2022
https://www.courtlistener.com/api/rest/v3/opinions/8492794/	MEMORANDUM OF DECISION ON RENEWED MOTION TO COMPEL FRANCIS G. CONRAD, Bankruptcy Judge. MEMORANDUM OF DECISION Trustee seeks order1 compelling Bank to produce records of bank examinations. Commissioner contends that the materials sought are privileged under 8 V.S.A. § 508,2 and that the federal common law bank examination privilege militates strongly against disclosure. Trustee claims that the statute is unconstitutional. We hold that neither the Vermont statute nor the federal common law qualified bank examination render the reports privileged. Trustee’s Renewed Motion to Compel is granted. FACTUAL AND PROCEDURAL HISTORY In early 1996, Alan and Beth Powell (“Debtors”) sought to purchase Kenny’s Kwick Stop and Deli in Winooski, Vermont (“Deli”). JRM Enterprises, a closely-held corporation, owned Deli, with Jeffrey and Denies Meyers the sole shareholders. To purchase the real estate and assets of Deli, Debtors applied for a $220,000 loan from Bank. The application was rejected, but Bank later lent Debtors $50,000 to purchase Deli’s business assets. When the Meyers received the $50,000 purchase price from Debtors, they used the money to pay down the principal on a loan they owed Bank. Debtors claim that Bank either negligently or intentionally overestimated the cash flow of Deli to Debtors, thereby inducing them to enter into the deal. Bank denies having done any financial analysis for Debtors. Deli ultimately failed in Debtors’ hands, and Bank auctioned off the business assets to Jeffrey Meyers for $12,000. Debtors filed for Chapter 7 Bankruptcy. Trustee brought this adversary proceeding against Bank, alleging breach of contract, negligent misrepresentation, constructive fraud, negligence, and negligent supervision. Trustee originally made a Motion to Compel Discovery on Bank, and after reviewing the documents produced, made a Renewed Motion to Compel. Bank and the FDIC objected to production on the grounds that the evidence was privileged.3 Trustee’s Renewed Motion to Compel seeks production of “(r)eports of examination and related factual material and supervisory correspondence on credit administration practices at [Bank] and its parent company from bank regulatory or supervisor entities.” Commissioner claims the information sought is privileged under 8 V.S.A. § 508 and the federal bank examination privilege. Trustee counters that 8 V.S.A. § 508 is unconstitutional under the Supremacy Clause of the Federal Constitution and under the Separation of Powers Doctrine of Vermont’s State Constitution. We do not reach the constitutional questions, because we hold that neither 8 V.S.A. § 508 nor the qualified federal bank examination privilege renders the materials immune from the discovery powers of this Court. 64 STATE LAW OF PRIVILEGE Under the Federal Rules of Civil Procedure, persons not parties to an action “may be compelled to produce documents and things or to submit to an inspection.... ” Fed.R.Civ.P. 34(e). The court may quash or modify a subpoena that “requires disclosure of privileged or other protected matter...” Fed.R.Civ.P. 45(c)(3)(A)(iii). The Federal Rules of Evidence4 state that when a federal court is trying state law claims, that state’s laws of privilege applies to the case.5 This adversary proceeding brought by Trustee involves allegations of breach of contract, negligent misrepresentation, constructive fraud, negligence, and negligent supervision. These issues, while relevant to Debtor’s bankruptcy and distribution of the estate, are wholly predicated upon state law. Therefore, we apply Vermont’s laws of privilege. If the Vermont statute recognizes an evidentiary privilege, we must apply the privilege under Fed.R.Evid. 501. The Federal Rules do not provide any definition of what constitutes a privilege, so we must look to case law. In general, courts are reluctant to recognize novel privileges. “Whatever their origins, these exceptions to the demand for every man’s evidence are not lightly created nor expansively construed, for they are in derogation of the search for truth.” Vescio v. Merchant’s Bank (In re Vescio), 208 B.R. 122, 130 (Bankr.D.Vt.1997) (quoting United States v. Nixon, 418 U.S. 683, 710, 94 S.Ct. 3090, 3108, 41 L.Ed.2d 1039 (1974)). Even statutes that render materials confidential usually do not create privileges. “Because evidentiary privileges directly undercut the truth-seeking function of court proceedings, we will not construe a confidentiality statute as creating an evidentiary privilege unless the intent to do so is clear.” In re F.E.F., 156 Vt. 503, 514, 594 A.2d 897, 904 (1991) (emphasis added). 8 V.S.A. § 508 reads: Sec. 508 Confidentiality of investigation and examination reports (a) All records of investigations and reports of examinations by the commissioner, including any copies thereof in the possession of any institution under the supervision of the commissioner, shall be confidential communications, shall not be subject to subpoena and shall not be made public. The commissioner may, in his or her discretion, disclose or publish or authorize the disclosure or publication of any such record or report or any part thereof, to civil or criminal law enforcement authorities for use in the exercise of such authority’s duties, in such manner as the commissioner may deem proper. (b) For the purposes of this section, records of investigation and reports of examinations shall include records of investigation and reports of examinations conducted by any bank regulatory agency of the federal government and any other state, and of any foreign government which are considered confidential by such agency or foreign government and which are in possession of the commissioner. Commissioner argues that the statute renders the investigations and reports sought by Trustee privileged. Commissioner says that according to case law, “where a statute makes certain records confidential, enumerates exceptions allowing disclosure but contains no exception for the use of the records in a court proceeding, the statute creates a form of evidentiary privilege and the records are generally not discoverable.” 4 Memorandum in Opposition to Trustee’s Supplemental Memorandum on Motion to Compel Re: Unconstitutionality of Vermont Statute. 65Commissioner rests its argument upon the court’s holding in State v. Roy6 In that case, the court held a criminal defendant was not entitled to discovery of police department internal investigation files. A statute classified the materials as confidential,7 and the court said the statute created a “form of privilege”. Because it was dearly the legislature’s intent to create an evidentiary privilege,8 the investigation files were not discoverable. State v. Roy, 151 Vt. at 35, 557 A.2d at 895 (emphasis added). We do not think that case is applicable here. First of all, the Roy court expressly limited its holding to the facts of that case. “(W)e affirm the denial of access to the information sought by the defense based on the facts and circumstances of this particular case.” State v. Roy, 151 Vt. at 35, 557 A.2d at 895 (1989). ‘We do not exclude the possibility that a defendant could have access to internal investigation files in a proper case and in a proper manner.” Id. More importantly, unlike the court in Roy, we are left utterly unconvinced that the legislature intended to create an evidentiary privilege by enacting 8 V.S.A. § 508. While realizing our duty to give deference to Commissioner’s interpretation of this statute,9 we also recognize that the Vermont Supreme Court is reluctant to read statutes as creating evidentiary privileges without an express intent by the legislature to do so. “Where we have recognized statutes as creating evidentiary privileges, the intent of the legislature to do so was far more clearly expressed.... the statutes in question specifically stated that the information involved could not be admitted in evidence in a court proceeding.” In re F.E.F., 156 Vt. at 514, 594 A.2d at 904 (1991).10 “(W)e will not construe a confidentiality statute as creating an evidentiary privilege unless the (legislative) intent to do so is clear.” Id. 8 V.S.A. § 508 says nothing about the ultimate admissibility or privileged status of these bank reports, it merely says that the materials may not be subpoenaed. Privileged materials on the other hand, are customarily protected from both discovery and admissibility. “These two limitations are the customary indicia of a privilege.” Somer v. Johnson, 704 F.2d 1473, 1479 (11th Cir.1983). So contrary to Commissioner’s claim, in Vermont, granting material “confidential” status alone does not render the confidential material privileged. See In re F.E.F, 156 Vt. 503, 594 A.2d 897 (1991). Other courts con66cur with this conclusion. “A non-disclosure or “confidentiality” provision in a statute may not always create an evidentiary privilege, especially if the legislature did not “explicitly create an evidentiary privilege... Merely asserting that a state statute declares that the records in question are “confidential” does not make out a sufficient claim that the records are “privileged” within the meaning of.. .Fed.R.Evid. 501” Martin v. Lamb, 122 F.R.D. 143, 146 (W.D.N.Y., 1988) (citing American Civil Liberties Union of Mississippi, Inc. v. Finch, 638 F.2d 1336 (5th Cir., 1981)) and Nguyen Da Yen v. Kissinger, 528 F.2d 1194 (9th Cir., 1975); also see Zucker v. Sable, 72 F.R.D. 1, 4 (S.D.N.Y., 1975) (“even if it were confidential” the information is not “necessarily outside the scope (of the Federal Rules of Civil Procedure)”); Luey v. Sterling Drug, Inc., 240 F.Supp. 632, 636 (W.D.Mich., 1965) (“confidential materials are not thereby excluded”). While Bank’s reports are obviously confidential to the general public, there is nothing in 8 V.S.A. § 508 preventing disclosure of these materials to this Court or to the parties in this litigation. In fact, by granting the commissioner such wide discretion to disclose these materials, it appears that the legislature intended that this confidential information still be available to the courts in a wide variety of circumstances. As the court noted in In re F.E.F.: The confidentiality statute for the investigation of child abuse and neglect is riddled with exceptions and gives the Commissioner broad discretion to allow disclosure. Moreover, the statute allows for the information to reach the prosecutor for law enforcement use. It is likely that the legislature intended that the information in the registry would be used where appropriate in criminal and CHINS proceedings. We do not think an evidentiary privilege was intended. In re F.E.F., 156 Vt. at 514, 594 A.2d at 904. Commissioner claims that it has “little discretion” in disclosing information because it may only disclose to civil and criminal law enforcement authorities. We disagree. The statute does not outline any specific instances or criteria to tell us when disclosure is or is not warranted to the authorities. No specific authorities to whom disclosure is allowed are designated. It appears that once any civil11 or criminal law enforcement makes a request for the information, the discretion to disclose is left entirely to the commissioner. Ultimately, we fail to find any real substantive limitations on the Commissioner’s discretion in the statute. 8 V.S.A. § 508 regulates the issuance and applicability of subpoenas, a procedural issue of discovery, not an issue of privilege. As such, it is not applicable to this case. Our reasoning is analogous to the reasoning in Merrin Jewelry Co., v. St. Paul Fire and Marine Ins. Co., 49 F.R.D. 54 (S.D.N.Y., 1970). In that case, a New York statute exempted attorney work product from discovery, but said nothing about the material’s ultimate admissibility. Plaintiff claimed that the statute rendered the reports privileged, but the court disagreed, and held that because the statute governed procedure, it was inapplicable to the federal court under Fed. R.Evid. 501: (D)efendant rests its position on the ground that state law ‘governs the issue of privilege in diversity cases’. The defect in the argument is that we do not have here an ‘issue of privilege in any pertinent sense.... (T)he matter is one governing procedure in the state courts, a direct counterpart of the federal rules governing us. 67Merrin Jewelry Co., Inc. v. St. Paul Fire & Marine Ins. Co., 49 F.R.D. 54, 56 (S.D.N.Y., 1970). 8 V.S.A. § 508 is a rule governing procedure in the state courts. While the Federal Rules require us to follow Vermont’s law of privilege in this case, this statute does not create a privilege. It is a procedural rale. However, we follow the Federal Rules of Procedure. Merrin Jewelry Co., 49 F.R.D. 54 (S.D.N.Y., 1970). Those federal rules clearly grant us the power to compel production of these materials. See Fed.R.Civ.P. 34(c). Conflicting procedural rales are entirely inapplicable to this case. Vescio v. Merchant’s Bank (In re Vescio), 208 B.R. 122, 126-127 (Bankr.D.Vt.1997). We need not reach the constitutional arguments of the parties, because we find that the statute in question does not limit our authority to compel production of the materials. FEDERAL COMMON LAW BANK PRIVILEGE Commissioner claims that Bank’s reports and examinations are privileged under the federal common law banking examination privilege which “accords agency opinions and recommendations and banks’ responses thereto protection from disclosure.” Vescio v. Merchant’s Bank (In re Vescio), 208 B.R. 122, 127 (Bankr.D.Vt.1997). Unfortunately for the Commissioner, we wholeheartedly agree with its earlier argument that we are obliged to apply the state law of privileges in this case. Therefore any federal privileges, including the bank examination privilege, are inapplicable to this case. Even if Vermont law did incorporate the federal bank examination privilege, we hold that the privilege would not apply under the facts in this case. First of all, the subpoena is only seeking factual material, which is not covered by the privilege. “Purely factual material falls outside the privilege, whereas opinions and deliberative processes do not,” In re Vescio, 205 B.R. at 42. Debtor seeks production of “reports of examination and related factual material and supervisory correspondence on credit administration practices at the bank and its parent company from bank regulatory and supervisory entities.” Debtor is seeking factual information, not requesting the opinions or the deliberative processes of Bank’s regulators. Any opinions which might be contained in these materials can be redacted out or separated from the factual material. Accordingly, the privilege does not apply. Finally, even if the privilege did apply, we hold that it would be overridden by the interests of justice. To overcome the privilege, the Court is required to examine (1) the relevance of the document sought to be protected; (2) the availability of other evidence; (3) the “seriousness” of the litigation and the issues involved; (4) the role of the government in the litigation; and (5) the possibility of future timidity by government employees who will be forced to recognize that their secrets are violable. In re Vescio, 208 B.R. 122, 127 (Bankr.D.Vt.1997). The documents sought here are relevant to the alleged misfeasance of Bank. Part of Debtor’s claim sounds in negligence, and it is highly likely that if Bank’s supervisors have been negligent in their lending practices, that the regulatory agencies have come across evidence of the that negligence. Such evidence would be highly relevant. Further, while there may be some other way to obtain evidence, we think that the reports on Bank’s practices are likely to be the best and most complete evidence of any negligence. The charges against Bank are undoubtedly serious. Accusations against the bank include fraud, negligence and negligent supervision. We think that even Bank and Commissioner would concede that these charges constitute serious allegations against a licensed banking institution. The government is not a party to this action, and there are no suggestions that the government has acted improperly. Finally, we do not think that disclosure here will make for future timidity by government employees who are forced to reveal their secrets. Opinions and informal communications will still be protected by the privilege. Further, the federal common law banking examination privilege is only a qualified privilege. It is not absolute. Therefore, it is likely that communicants are already aware that in some instances, the *68privilege will not apply. In re Vescio, 208 B.R. 122, 131 (Bankr.D.Vt.1997). CONCLUSION We hold that 8 V.S.A. § 508 does not confer an evidentiary privilege upon records and reports of bank examinations. We also hold that the federal bank examination privilege is inapplicable under Vermont state law, and in the alternative that the privilege would be inapplicable under the facts of this case. Finally, we hold that even if the privilege were applicable under the facts of this case, that the interests of justice override the banking privilege. Trustee’s counsel shall settle an order consistent with the terms of this Memorandum on Ten (10) day’s notice. . Our subject matter jurisdiction over this controversy arises under 28 U.S.C. § 1334(b) and the General Reference to the Court under Part V of the Local District Court Rules for the District of Vermont. This is a core matter under 28 U.S.C. § 157(b)(2)(A) and (E). This Memorandum of Decision constitutes findings of fact and conclusions of law under Fed.R.Civ.P. 52, as made applicable by Fed.R.Bkrtcy.P. 7052. . Vt. Stat.Ann. Tit. 8 § 508 (1997). . This Court, after reviewing the pleadings and representations of counsel, ruled from the bench on Plaintiff's Renewed Motion to Compel in part. We ordered the bank to produce a number of documents, including among other things, audits or reviews on credit administration and collection practices from outside auditors or consultants, missing portions of its lender's manual, and memorandum regarding its practices as to appraisals, borrower privacy, conflicts of interest and other issues. We denied Plaintiff's request to compel production of employee and personnel records subject to Plaintiff’s right to show good cause. . The Federal Rules of Evidence are made applicable by to bankruptcy proceedings by Fed. R.Evid. 101 and 1101(a) and Fed.R.BanhP. 9017. . (T)he privilege of a witness, person, government, State, or political subdivision thereof shall be governed by the principles of the common law as they may be interpreted by the courts of the United States in the light of reason and experience. However, in civil actions and proceedings, with respect to an element of a claim or defense as to which State law supplies the rule of decision, the privilege of a witness, person, government, State, or political Subdivision thereof shall be determined in Accordance with State law. Fed. R.Evid. 501. (emphasis added). . 151 Vt. 17, 557 A.2d 884 (1989) habeas corpus denied sub nom by Roy v. Coxon, 907 F.2d 385 (2nd Cir.1990). . 20 V.S.A. § 1923(d) reads: (d) Records of the office of internal investigation shall be confidential, except: (1) The state police advisory commission shall, at any time, have full and free access to such records; and (2) The commissioner shall deliver such materials from the records of the office of internal investigation as may be necessary to appropriate prosecutorial authorities having jurisdiction; and (3) The state police advisory commission shall, in its discretion, be entitled to report to such authorities as it may deem appropriate, or to the public, or to both, to ensure that proper action is taken in each case. . "It is clear that the intent of the statute is that the records not be subject to disclosure except for statutory purposes." State v. Roy, 151 Vt. at 32, 557 A.2d at 893 (1989). The preeminent factor in the Roy decision was the ability to discern the legislature’s intent. "We concluded that because it was clear ‘that the intent of the statute is that the records not be subject to disclosure except for the statutory purposes,’ a form of evidentiary privilege was created." In re F.E.F. 156 V.t. at 514, 594 A.2d at 904 (1991). . “We acknowledge the preference in the courts for narrow construction of privileges. We are also cognizant, however, of the deference generally accorded administrative agencies in the interpretation of their governing statutes. 'Unless contraiy to the indications of the statute itself, the construction and application of a statute by the agency charged with its administration is entitled to substantial deference’ ”. In re Grand Jury Subpoena, 118 F.R.D. 558, 562 (D.Vt., 1981) (quoting Grocery Mfrs. of America, Inc. v. Gerace, 755 F.2d 993, 1001 (2d Cir., 1985)). . Compare Camp v. Howe, 132 Vt. 429, 432, 321 A.2d 71, 72-73 (1974) (recognizing an evidentia-ry privilege where statute said information "shall not be admissible as evidence... in any case or proceeding in any other court... ”) (emphasis added); Wheeler v. Central Vermont Medical Center, Inc., 155 Vt. 85, 89, 582 A.2d 165, 168 (1989) (recognizing a privilege where statute rendered reports of committees "confidential and privileged. . .not.. .subject to discovery or introduction into evidence...”.) (emphasis added). . Indeed, we are at a loss as to who or what qualifies as a 'civil law enforcement authority.' Nothing contained in the legislative history illuminates the definition, and presumably, this Court and other federal Courts qualify as a civil law enforcement authorities. See Deary v. Guardian Loan Company, 623 F.Supp. 630, 632 (S.D.N.Y.1985) ("‘enforcement officials' may include courts and members of the judiciary when they are acting in an enforcement capacity.”) (citing Supreme Court of Virginia v. Consumers Union, 446 U.S. 719, 736, 100 S.Ct. 1967, 1977, 64 L.Ed.2d 641 (1980)); also see Black’s Law Dictionary, 5th Ed. 318 (defining civil court as "established for the adjudication of controversies between the individual parties, or the ascertainment, enforcement, and redress of private rights...”) (emphasis added).	01-04-2023	11-22-2022
https://www.courtlistener.com/api/rest/v3/opinions/8492795/	OPINION AND ORDER ON DEFENDANT KEYBANK NATIONAL ASSOCIATION’S MOTION FOR RELIEF FROM JUDGMENT BARBARA J. SELLERS, Bankruptcy Judge. This matter is before the Court on defendant KeyBank National Association’s motion for relief from judgment and for leave to file its answer instanter. The motion is supported by the affidavit of Alan J. Ronan, a vice-president of loan administration for Key-Bank National Association (KeyBank). The plaintiff/trustee, Arnold S. White, opposed the motions and moved to strike all or certain paragraphs of Mr. Ronan’s affidavit for lack of personal knowledge. The matter was heard by the Court on June 30,1998. This Court has jurisdiction over this matter pursuant to 28 U.S.C. § 1334(a) and the general order of reference entered in this district. This is a core matter which this bankruptcy judge may hear and determine under 28 U.S.C. § 157(b)(2)(H) and (K). The evidence clearly establishes that Society National Bank nka KeyBank was served with a copy of the amended complaint and summons. Society likewise was served with the trustee’s motion for default judgment. In each of these instances, service was directed by certified mail to Society’s presi135dent, and an employee at KeyBank’s Columbus office signed for the mail. The record is devoid of any response by KeyBank, formal or otherwise. KeyBank does not challenge the validity or the sufficiency of the service. Alan J. Ronan, a work-out officer in KeyBank’s Cleveland office, testified that the two individuals who signed the respective certified mail receipts were employees of KeyBank authorized to receive mail. Mr. Ronan offered no explanation for what happened to the amended complaint and summons and the motion for default judgment after they were received by KeyBank. According to his testimony, the documents are nowhere to be found in Key-Bank’s records. Mr. Ronan first became involved with this matter following entry of the default judgment when Larry Kent, one of the defendants in this action, wrote a letter to KeyBank dated March 12, 1998, which referenced the default judgment. The matter was referred to Mr. Ronan on March 21, 1998. He then made various phone inquiries to KeyBank’s personnel and hired a Columbus law firm to investigate. Mr. Ro-nan also familiarized himself with the procedures for distribution of litigation documents in the Columbus office of KeyBank. He was unable to determine, however, whether or not these procedures were followed with respect to this matter. KeyBank has moved to set aside the default judgment pursuant to Rule 60(b) of the Federal Rules of Civil Procedure on grounds that its failure to answer or otherwise respond to the trustee’s amended complaint was the result of excusable neglect. KeyBank urges this Court to consider its motion under the standard for excusable neglect set forth in Pioneer Inv. Servs. Co. v. Brunswick Assocs. Ltd. Partnership, 507 U.S. 380, 113 S.Ct. 1489, 123 L.Ed.2d 74 (1993). While the Sixth Circuit has not analyzed excusable neglect under Rule 60(b) using the Pioneer standard, the Bankruptcy Appellate Panel notes that the Rule 60(b) eases decided by the Sixth Circuit are consistent with Pioneer. Bavely v. Powell (In re Baskett), 219 B.R. 754, 759 (6th Cir. BAP 1998). The factors considered by the Sixth Circuit include: (1) whether culpable conduct on the part of the defendant led to the default; (2) whether the defendant has a meritorious defense; and (3) whether the plaintiff will be prejudiced. Waifersong, Ltd. v. Classic Music Vending, 976 F.2d 290, 292 (6th Cir.1992). When a defendant is proceeding under Rule 60(b)(1), as here, the culpability factor is framed in terms of “excusable neglect”. Id. Only if the defendant can satisfy that its default was the product of excusable neglect, will it be allowed to demonstrate satisfaction of the other two criteria. Id.; see also Manufacturers’ Indus. Relations Ass’n v. East Akron Casting Co., 58 F.3d 204, 209 (6th Cir.1995). The Court does not believe that Key-Bank has demonstrated its default was the product of excusable neglect. In fact, it offered no explanation for why its procedures for the distribution of litigation documents repeatedly failed regarding this matter. As a result of KeyBank’s failure to establish excusable neglect, the Court determines that its inaction in this case was culpable. See Slutsky v. American Express Travel Related Services Co. (In re William Cargile Contractor, Inc.), 209 B.R. 435, 438. (“Generally, a defendant’s conduct is considered culpable if there is no excuse for the default.”) Wfiiile there was no evidence that KeyBank intended to thwart these judicial proceedings, its inability to account for multiple service of pleadings in this adversary indicates a.reckless disregard for the effect of its conduct on the court proceedings. See Thompson v. American Home Assur. Co., 95 F.3d 429, 433 (6th Cir.1996) (quoting INVST Financial Group, Inc. v. Chem-Nuclear Systems, Inc., 815 F.2d at 399). Because KeyBank failed to establish that the conduct leading to its default was not culpable, the Court need not go any further in order to deny its motion for relief from judgment. Nevertheless, assuming that KeyBank could demonstrate excusable neglect and could state a meritorious defense 136to the trustee’s claim, the Court still would not grant relief from the judgment given the resulting prejudice which would imbue to the trustee. The trustee testified that but for the judgment against Society nka KeyBank, the settlement he reached with the Kents could not have gone forward. He further testified that during the settlement negotiations, both he and the Kents were forced to reveal otherwise confidential information to each other. It is his belief that if KeyBank is relieved from the judgment, he would be forced to try this adversary with increased difficulties due to the sharing of this information and that such a trial would thereby present a greater opportunity for collusion. For all of the foregoing reasons, the Court DENIES KeyBank’s motions for relief from judgment and for leave to file its answer instanter. The Court also DENIES the trustee’s motion to strike Mr. Ronan’s affidavit. While the Court agrees that certain paragraphs in the affidavit were not based on Mr. Ronan’s personal knowledge, he testified at the hearing subject to cross-examination by counsel for the trustee and the Kents. Accordingly, the Court considers the trustee’s motion to strike to be moot. IT IS SO ORDERED.	01-04-2023	11-22-2022
https://www.courtlistener.com/api/rest/v3/opinions/8492796/	OPINION AND ORDER ON RAIL EUROPE, INC.’S MOTION FOR ATTORNEYS’ FEES AND EXPENSES BARBARA J. SELLERS, Bankruptcy Judge. This matter is before the Court on the motion of Rail Europe, Inc., a creditor herein, for an award of its attorneys’ fees and expenses. Rail Europe claims entitlement to such fees and expenses pursuant to 11 U.S.C. § 503(b) because they were allegedly incurred in making a substantial contribution to this bankruptcy estate by insuring that all creditors received full payment of their claims with interest. The debtor opposed Rail Europe’s motion and requested a hearing. The matter was heard by the Court on July 23,1998. This Court has jurisdiction over this matter pursuant to 28 U)S.C. § 1334 and the general order of reference entered in this district. This is a core matter which this bankruptcy judge may hear and determine under 28 U.S.C. § 157(b)(2)(A) and (B). In support of its application, Rail Europe relies on the invoices of professional services performed by its attorneys and asks the Court to take judicial notice of the filings and prior hearings in this case. The invoices were admitted into evidence as Exhibits A and B. Rail Europe did not call any witnesses of its own, but did cross-examine the debtor’s witnesses. The debtor called two witnesses, Mary Kirsch, its office manager, and Heinz Wes-ner, the president of DER Travel Services in the United States. The debtor is currently an outlet for DER Travel Services. The crux of the testimony offered by the debtor is that it always had intended to pay its creditors in full, and that Rail Europe’s efforts had nothing to do with the successful outcome of this case. If anything, the debtor asserts, Rail Europe’s activities in this ease produced a negative impact. Rail Europe’s motion to convert, the debtor says, was not the impetus for the filing of its first plan of reorganization; nor did the competing plan proposed by Rail Europe and Forsyth Travel cause the debtor to sweeten its plan and ultimately dismiss its ease with an immediate full payment of its creditors. Rather, the debtor states that its vastly improved sales figures for the later months of 1997 convinced DER Travel Services and its suppliers other than Rail Europe to grant it the favorable terms needed to immediately pay off its creditors. Section 503(b) of the Bankruptcy Code provides that, after notice and hearing, the Court shall allow as administrative expenses the actual, necessary expenses incurred by a creditor in making a substantial contribution in a case under chapter 11. 11 U.S.C. § 503(b)(3)(D). The Court shall also 138allow reasonable compensation for the creditor’s attorney in making the substantial contribution. 11 U.S.C. § 503(b)(4). In general, services that confer a substantial benefit are those which “foster and enhance, rather than retard or interrupt the progress of reorganization.” Hall Financial Group, Inc. v. DP Partners, Ltd. Partnership (Matter of DP Partners Ltd. Partnership), 106 F.3d 667, 672 (5th Cir.1997) (citation omitted). Based on its review of the evidence, the Court finds that Rail Europe made a substantial contribution in this chapter 11 case. At the time Rail Europe filed its motion to convert, the exclusive period for the debtor to file a plan of reorganization and to obtain acceptances of that plan had long since expired. By its witness’ own admission, the motion to convert was one of the reasons the debtor filed its first plan in December 1997. The first plan proposed by the debtor provided for payment of its unsecured creditors in full but over time and without interest. Two weeks later, the debtor filed a second plan which provided for full payment on the effective date, but again without interest. On March 8, 1998, the debtor moved to dismiss its case upon full payment to all creditors with interest. The submission of the debtor’s second plan and its motion to dismiss occurred after the filing of the plan by Rail Europe and Forsyth Travel. This competing plan would have paid creditors in full with interest on the effective date. The debtor maintains that its negotiations with suppliers, particularly DER Travel Services, enabled it to continually sweeten its deal until it could do what it had intended to do all along, i.e., pay its creditors in full. The success of these negotiations, according to the debtor, did not depend on any actions undertaken by Rail Europe, but instead were the result of its vastly improved sales figures. The Court does not take issue with the debtor’s evidence on this score. It appears that the agreement with DER Travel Services, obtained after these sales figures became available, enabled the debtor to pay off its creditors. The Court’s concern is whether the actions of Rail Europe forced the debtor to come up with a deal whereby all creditors would be paid in full immediately or to face the prospect that its present ownership interest would not survive reorganization. The Court concludes that Rail Europe’s actions did produce the beneficial effect. Without Rail Europe’s actions, there would have been little incentive for the debt- or to come up with a better plan even though subsequent events made it possible to do so. The debtor also attacks Rail Europe’s motives in undertaking the motion to convert, the submission of the competing plan, and other actions in this case. Where a creditor’s actions result in a benefit to the estate, however, the creditor’s motivation for taking such actions has little relevancy to whether it is entitled to fees and expenses under § 503(b) for making a substantial contribution. D P Partners, 106 F.3d at 672. Having found that Rail Europe made a substantial contribution to this bankruptcy estate, this Court must determine the value of its services. The Court reviewed the invoices submitted by Rail Europe and concludes that only those services which directly relate to the motion to convert and the submission of the competing plan are compensa-ble as administrative expenses. The value of such services indicated in Exhibit A is $14,-560. This figure includes services beginning November 19, 1997 with the draft preparation of the motion to convert, and ending with the debtor’s motion to dismiss filed on March 8, 1998. The $14,560 is exclusive of services performed during the time frame which the Court deems not to have been directly related. The Court also reviewed the invoices of Howard A. Wintner included in Exhibit B, but found no means of separating out those services which were directly related to the motion to convert and the submission of the competing plan. For this reason, and because Mr. Wintner was not present to provide sufficient explanation of his services, the Court will not allow any of those fees as an administrative expense. The Court also makes no award of expenses to Rail Europe. The invoices detailing those expenses place them in gener139alized categories, and the Court cannot determine which of the expenses conferred a benefit upon the estate and which did not under the criteria utilized. Based on the foregoing, the Court allows, as an administrative expense, reasonable compensation to Rail Europe’s attorneys in the amount of $14,560. IT IS SO ORDERED.	01-04-2023	11-22-2022
https://www.courtlistener.com/api/rest/v3/opinions/8488813/	IN THE SUPREME COURT OF PENNSYLVANIA EASTERN DISTRICT COMMONWEALTH OF PENNSYLVANIA, : No. 178 EAL 2022 : Respondent : : Petition for Allowance of Appeal : from the Order of the Superior Court v. : : : JEDAYAH NESMITH, : : Petitioner : COMMONWEALTH OF PENNSYLVANIA, : No. 179 EAL 2022 : Respondent : : Petition for Allowance of Appeal : from the Order of the Superior Court v. : : : JEDAYAH NESMITH, : : Petitioner : ORDER PER CURIAM AND NOW, this 22nd day of November, 2022, the Petition for Allowance of Appeal is DENIED.	01-04-2023	11-22-2022
https://www.courtlistener.com/api/rest/v3/opinions/8488814/	IN THE SUPREME COURT OF PENNSYLVANIA MIDDLE DISTRICT COMMONWEALTH OF PENNSYLVANIA, : No. 298 MAL 2022 : Respondent : : Petition for Allowance of Appeal : from the Order of the Superior Court v. : : : JOHN MICHAEL JOHNSON, : : Petitioner : ORDER PER CURIAM AND NOW, this 22nd day of November, 2022, the Petition for Allowance of Appeal is DENIED.	01-04-2023	11-22-2022
https://www.courtlistener.com/api/rest/v3/opinions/8488816/	IN THE SUPREME COURT OF PENNSYLVANIA MIDDLE DISTRICT COMMONWEALTH OF PENNSYLVANIA, : No. 234 MAL 2022 : Respondent : : Petition for Allowance of Appeal : from the Order of the Superior Court v. : : : JEROME DOLNEY, : : Petitioner : ORDER PER CURIAM AND NOW, this 22nd day of November, 2022, the Petition for Allowance of Appeal is DENIED.	01-04-2023	11-22-2022
https://www.courtlistener.com/api/rest/v3/opinions/8488817/	IN THE SUPREME COURT OF PENNSYLVANIA EASTERN DISTRICT COMMONWEALTH OF PENNSYLVANIA, : Nos. 145-48 EAL 2022 : Respondent : : Petition for Allowance of Appeal : from the Order of the Superior Court v. : : : RICHARD COLLINS, : : Petitioner : ORDER PER CURIAM AND NOW, this 22nd day of November, 2022, the Petition for Allowance of Appeal is DENIED.	01-04-2023	11-22-2022
https://www.courtlistener.com/api/rest/v3/opinions/8488818/	IN THE SUPREME COURT OF PENNSYLVANIA EASTERN DISTRICT COMMONWEALTH OF PENNSYLVANIA, : Nos. 145-48 EAL 2022 : Respondent : : Petition for Allowance of Appeal : from the Order of the Superior Court v. : : : RICHARD COLLINS, : : Petitioner : ORDER PER CURIAM AND NOW, this 22nd day of November, 2022, the Petition for Allowance of Appeal is DENIED.	01-04-2023	11-22-2022
https://www.courtlistener.com/api/rest/v3/opinions/8488820/	IN THE SUPREME COURT OF PENNSYLVANIA EASTERN DISTRICT COMMONWEALTH OF PENNSYLVANIA, : Nos. 145-48 EAL 2022 : Respondent : : Petition for Allowance of Appeal : from the Order of the Superior Court v. : : : RICHARD COLLINS, : : Petitioner : ORDER PER CURIAM AND NOW, this 22nd day of November, 2022, the Petition for Allowance of Appeal is DENIED.	01-04-2023	11-22-2022
https://www.courtlistener.com/api/rest/v3/opinions/8488799/	Filed 11/22/22 In re E.V. 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 In re E.V., a Person Coming Under the Juvenile Court Law. D080120 THE PEOPLE, Plaintiff and Respondent, (Super. Ct. No. J244078) v. E.V., Defendant and Appellant. APPEAL from a judgment of the Superior Court of San Diego County, Richard R. Monroy, Judge. Affirmed. Jeffrey Manning-Cartwright, under appointment by the Court of Appeal, for Defendant and Appellant. Rob Bonta, Attorney General, Lance E. Winters, Chief Assistant Attorney General, Charles C. Ragland, Assistant Attorney General, Melissa Mandel and Genevieve Herbert, Deputy Attorneys General, for Plaintiff and Respondent. E.V. appeals from a judgment of the juvenile court following her admission to the offense of being a minor in possession of a concealable firearm without the permission of her parents and while unaccompanied by a parent or guardian. (Pen. Code, § 29610.) E.V. challenges the juvenile court’s denial of her motion to suppress evidence that the police discovered during the search of her purse after stopping a vehicle in which she was a passenger. She also contends that we should strike the juvenile court’s identification of the maximum term of confinement as reflected in the minute order from the jurisdiction hearing. We conclude that E.V.’s arguments lack merit, and we accordingly affirm the judgment. I. FACTUAL AND PROCEDURAL BACKGROUND Because E.V.’s main appellate challenge involves the juvenile court’s ruling on the motion to suppress, we begin with a discussion of the evidence presented at the hearing on that motion. San Diego Police Officer Colton Hofrichter testified that on September 6, 2021, he was part of a crime suppression team patrolling the Mission Beach area, which had experienced multiple shootings and robberies. Around 6:00 p.m., Officer Hofrichter decided to conduct a traffic stop of a BMW sedan for having illegally tinted windows. Earlier in the afternoon, Officer Hofrichter ran the license plate of the BMW, which showed that the registered owner had been released on bail after being charged with robbery involving a firearm. As he pulled behind the BMW, Officer Hofrichter activated his patrol car lights and then his siren to initiate the traffic stop. The BMW did not stop right away, but instead drove slowly for half a block before coming to a 2 stop. According to Officer Hofrichter, such behavior often occurs when the occupants of a vehicle are trying to hide contraband or weapons. Officer Hofrichter observed people moving around in the car as it slowly rolled to a stop. As soon as the car stopped, E.V. exited the front passenger seat, holding a large purse. Because E.V. had exited the BMW, Officer Hofrichter opened his car door even before his patrol car came to a stop. He approached E.V. and asked her to sit back inside the BMW. She did so and placed the purse at her feet while acting agitated. Officer Hofrichter perceived E.V.’s behavior of exiting the car during a traffic stop to be abnormal. In addition to E.V., there were three other occupants of the BMW. Officer Hofrichter learned that the driver did not have a driver’s license. He also determined that the two men in the back seat—one of whom owned the car—were out on bail from charges of robbery with a firearm and were subject to Fourth Amendment waivers.1 After learning this information, Officer Hofrichter removed all of the occupants from the BMW, put them in handcuffs, and detained them. E.V. attempted to bring her purse with her, which Officer Hofrichter viewed as a red flag that something could be inside the purse. He took the purse from E.V. and put it back inside the BMW, noting that it was heavy. Officer Hofrichter believed that there were weapons in the bag, and he believed that there had been time while the BMW was coming to a stop to put items inside the purse. 1 A Fourth Amendment waiver, or “ ‘[a] “Fourth Waiver” is a shorthand term police use to describe a person whose “reasonable expectation of privacy” under the Fourth Amendment has been either “significantly diminished” by a condition of probation [citation], or extinguished as a condition of his parole.’ ” (People v. Cervantes (2017) 11 Cal.App.5th 860, 863, fn. 2 (Cervantes).) Here, it appears the Fourth Amendment waivers were imposed as a condition of bail. 3 Officer Hofrichter and another officer then conducted a search of the BMW to look for any contraband that might have been hidden by the individuals with Fourth Amendment waivers. In the course of the search, they found a holster in the backseat. After finding the holster, Officer Hofrichter looked inside E.V.’s purse, where he found two firearms.2 Officer Hofrichter testified, “I searched the bag in the car that everyone had, you know, access to, and could touch and put whatever they wanted into it.” On December 10, 2021, a juvenile wardship petition charged E.V. with the following offenses: unlawful possession of a substance containing cocaine while armed with a loaded, operable firearm (Health & Saf. Code, § 11370.1, subd. (a)); transportation of a controlled substance, cocaine (id., § 11352, subd. (a)); unlawful possession of a controlled substance, cocaine, for sale (id., § 11351); two counts of being a minor in possession of a concealable firearm without the permission of her parents and while unaccompanied by a parent or guardian (Pen. Code, § 29610); and unlawful possession of live ammunition (id., § 29650). On February 2, 2022, the juvenile court held a hearing on E.V.’s motion to suppress the evidence found in her purse. The juvenile court denied the motion to suppress, ruling as follows: “After reviewing and hearing the evidence in this case, along with hearing the argument of each counsel, the Court does recognize that there has to be, since there is no warrant, there had to be some type of specific and articulable fact by which Officer Hofrichter had to support any search of [E.V.’s] bag. “. . . Upon stopping, the officer had information, already, with regard to the vehicle itself, that the registered owner was out on 2 Officer Hofrichter did not testify about finding any controlled substances in the purse, but the Probation Officer’s social study states that a powdery substance was found. 4 bail on firearm charges. Then detaining the passengers in the car and then discovery that the driver himself did not have a valid license, and then the officer asked all parties to exit the vehicle. Prior to exiting the vehicle, he noticed that, just before approaching the car, [E.V.] attempted to leave the vehicle with the bag. Understanding the nature of the registered owner’s status with regard to his Fourth waiver and that firearm charges [sic], it is reasonable to conclude that Officer Hofrichter would have looked into his safety and welfare, and would have been focused on the bag, given that she was holding the bag, and then when she sat back down, placed the bag down by her feet. “Based on the totality of the circumstances, the Court finds that it was reasonable for Officer Hofrichter, with four years of experience, had stopped the vehicle and to have suspicion that criminal activity might be in progress. [I] [w]ill also note that the vehicle itself, although it didn’t have much time to stop, there was enough time for the officer to ask for additional units, given his confirmation of movement in the vehicle of passengers. “In addition, his exiting the vehicle before it even stopped . . . that even before the patrol vehicle stopped, Officer Hofrichter was exiting to make contact and prevent one of the passengers from leaving the scene. “And then also what’s telling is that he kept the bag, concern for officer’s safety, understanding the Fourth waiver and the nature of the out-on-bail of two of the passengers, and when searching the vehicle itself, found a holster in the back, and only then after finding the holster, went in and looked in the bag. For those reasons, the court does deny the motion and find that the search was valid based on the totality of the circumstances. And the motion is denied.” On February 18, 2022, E.V. admitted one count of being a minor in possession of a concealable firearm without the permission of her parents and while unaccompanied by a parent or guardian (Pen. Code, § 29610). The remainder of the charges were dismissed. At the disposition hearing on 5 March 11, 2022, the juvenile court placed E.V. on probation and released her to the custody of her mother. E.V. appeals from the judgment. II. DISCUSSION A. The Juvenile Court Did Not Err in Denying the Motion to Suppress We first consider E.V.’s contention that the juvenile court erred in denying her motion to suppress the evidence discovered when Officer Hofrichter searched her purse. A juvenile may move to suppress evidence “as a result of an unlawful search or seizure” pursuant to Welfare and Institutions Code section 700.1. “Challenges to the admissibility of evidence obtained by a police search and seizure are reviewed under federal constitutional standards. [Citations.] A warrantless search is unreasonable under the Fourth Amendment unless it is conducted pursuant to one of the few narrowly drawn exceptions to the constitutional requirement of a warrant.” (People v. Schmitz (2012) 55 Cal.4th 909, 916 (Schmitz).) “The burden is on the People to justify the warrantless search as reasonable.” (Id. at p. 919.) “The standard of review of a trial court’s ruling on a motion to suppress is well established and is equally applicable to juvenile court proceedings.” (In re Lennies H. (2005) 126 Cal.App.4th 1232, 1236.) “ ‘We defer to the trial court’s factual findings, express or implied, where supported by substantial evidence. In determining whether, on the facts so found, the search or seizure was reasonable under the Fourth Amendment, we exercise our independent judgment.’ ” (People v. Redd (2010) 48 Cal.4th 691, 719.) “We may affirm the ruling if it is correct on any theory, even if the trial court’s reasoning was incorrect.” (People v. Hall (2020) 57 Cal.App.5th 946, 952.) 6 The People rely on two exceptions to the warrant requirement to justify Officer Hofrichter’s search of E.V.’s purse: (1) the exception that allows the search of a vehicle passenger compartment to locate weapons when officer safety is at issue (Michigan v. Long (1983) 463 U.S. 1032, 1049 (Long)); and (2) the exception that applies when a fellow occupant of a vehicle is subject to a Fourth Amendment waiver and could have hidden items in the area searched (Cervantes, supra, 11 Cal.App.5th 860, 871). We consider each in turn. 1. Search for Weapons Based on Officer Safety Concerns “The search of a vehicle passenger compartment, limited to those areas where a weapon may be placed or hidden, is permissible if the officer possesses a reasonable belief the suspect is dangerous and may gain immediate control of weapons. ([Long, supra,] 463 U.S. 1032 [at p.] 1049; People v. King (1989) 216 Cal.App.3d 1237, 1239.) ‘[The] issue is whether a reasonably prudent [person] in the circumstances would be warranted in the belief that his safety or that of others was in danger.’ (Terry v. Ohio (1968) 392 U.S. 1, 27.) If, while conducting a search of the vehicle interior the officer discovers contraband, he or she is not required to ignore the contraband and the Fourth Amendment does not require its suppression. ([Long], 463 U.S. at p. 1050.)” (People v. Brueckner (1990) 223 Cal.App.3d 1500, 1506 (Brueckner).) In the course of briefing and arguing the motion to suppress, the parties did not discuss the officer safety exception set forth in Long, supra, 463 U.S. 1032.3 However, the juvenile court’s comments when ruling on the 3 The People argued in opposition to the motion to suppress that the search was permissible, under the circumstances, based on the Fourth Amendment waivers of the other passengers in the BMW. At the hearing on 7 motion to suppress shows that it did consider and rely upon that exception, among others, in denying the motion.4 E.V. argues that because the People did not identify the officer safety exception set forth in Long, supra, 463 U.S. 1032, when opposing the motion to suppress, they may not rely on that exception in this appeal. “Although it is a settled principle of appellate review that a correct decision of the trial court will be affirmed even if based on erroneous reasons, the Supreme Court has cautioned that ‘appellate courts should not consider a Fourth Amendment theory for the first time on appeal when “the People’s new theory was not supported by the record made at the first hearing and would have necessitated the taking of considerably more evidence . . .” or when “the defendant had no notice of the new theory and thus no opportunity to present evidence in opposition.” ’ (Robey v. Superior Court [(2018) 56 Cal.4th 1218,] 1242.) However, when ‘the record fully establishes another basis for affirming the trial court’s ruling and there does not appear to be any further evidence that could have been introduced to defeat the theory,’ a ruling the motion, the People addressed the issue of officer safety only once, when attempting to distinguish a case on which defense counsel relied (People v. Baker (2008) 164 Cal.App.4th 1152 (Baker)), arguing that “this case goes well beyond the facts in Baker where there was no evidence at all of any criminal endeavors or any concern for officer’s safety.” (Italics added.) 4 Two statements made during the juvenile court’s ruling pertain to officer safety: First, as the juvenile court explained, “Understanding the nature of the registered owner’s status with regard to his Fourth waiver and that firearm charges [sic], it is reasonable to conclude that Officer Hofrichter would have looked into his safety and welfare, and would have been focused on the bag . . . .” Next, the juvenile court stated, “And then also what’s telling is that he kept the bag, concern for officer’s safety, understanding the Fourth waiver and the nature of the out-on-bail of two of the passengers, and when searching the vehicle itself, found a holster in the back, and only then after finding the holster, went in and looked in the bag.” 8 denying a motion to suppress will be upheld on appeal.” (People v. Johnson (2018) 21 Cal.App.5th 1026, 1032.) During Officer Hofrichter’s testimony, both defense counsel and the prosecutor thoroughly explored the circumstances under which Officer Hofrichter decided to conduct a search of E.V.’s purse, including that he believed it contained weapons. Moreover, in the juvenile court’s view, the evidence was sufficiently developed on the issue of officer safety, as it based its ruling on that exception, at least in part. (Cf. People v. Holiman (2022) 76 Cal.App.5th 825, 833-834 [in deciding that the People could not attempt to justify a traffic stop based on a ground asserted for the first time on appeal because the record may not have been sufficiently developed, the court found it relevant that the trial court did not address the issue].) Although E.V. contends that she was deprived of the opportunity to cross-examine Officer Hofrichter on issues related to officer safety, she does not identify any specific lines of inquiry that were left undeveloped and does not explain what testimony could have been elicited to call into question the self-evident safety concerns that arise when an officer suspects that detained individuals may have immediate access to firearms in their vehicle when released from detention. Under those circumstances, we conclude that facts related to the officer safety exception set forth in Long, supra, 463 U.S. 1032 were sufficiently developed, and the People may therefore, on appeal, rely on that exception to justify the warrantless search. Turning to that exception, Officer Hofrichter testified to multiple facts, which taken together, reasonably warranted a belief that the passengers in the BMW posed a danger to officers based on the possibility that they “may gain immediate control of weapons” when released back into the car. (Long, supra, 463 U.S. at p. 1049.) First, Officer Hofrichter learned that two of the 9 BMW’s passengers were out on bail for robbery with a firearm. That fact could reasonably support an inference that those passengers may be the types of individuals who would use a firearm to commit violence against a police officer if they had access to a weapon upon being released back into the BMW. Second, several facts supported a reasonable inference that there might, in fact, be weapons inside the BMW. Specifically, Officer Hofrichter found an empty holster when searching the backseat area where the two other passengers were sitting. He noted that the BMW had rolled slowly to a stop while there was movement inside the car, which, from experience, he understood was often associated with efforts to hide contraband or weapons. Finally, he believed that E.V.’s two attempts to remove the purse from the BMW were suspicious, and he noted that E.V. seemed agitated. Taken together, as Officer Hofrichter expressly testified, those facts reasonably led him to believe that there were weapons inside E.V.’s purse. E.V. suggests that concerns for officer safety did not justify the search because all of the occupants of the BMW were handcuffed while officers searched the car and thus could not have accessed any weapons. However, as the Supreme Court has made clear, the proper timeframe for the officer safety inquiry includes the period after a detained person is released back into a vehicle. (Long, supra, 463 U.S. at p. 1051 [noting that “the officers did not act unreasonably in taking preventive measures to ensure that there were no other weapons within Long’s immediate grasp before permitting him to reenter his automobile” (italics added), and rejecting the proposition that “it was not reasonable for the officers to fear that Long could injure them, because he was effectively under their control during the investigative stop and could not get access to any weapons that might have been located in the automobile.”].) 10 In sum, we conclude that based on the evidence presented at the suppression hearing, “ ‘a reasonably prudent [person] in the circumstances would be warranted in the belief that his safety or that of others was in danger’ ” (Brueckner, supra, 223 Cal.App.3d at p. 1506), which justified Officer Hofrichter’s search of the BMW for weapons in any place where they reasonably could have been concealed, including in E.V.’s purse. 2. Search Based on the Fourth Amendment Waivers of the Other Passengers The second relevant exception to the Fourth Amendment warrant requirement applies when a fellow occupant of an automobile, who is subject to a Fourth Amendment waiver, had the ability to exert control over an item of personal property to hide contraband. Our Supreme Court first identified the applicable exception in the context of a person subject to a Fourth Amendment waiver because he was on parole. “[A] vehicle search based on a passenger’s parole status may extend beyond the parolee’s person and the seat he or she occupies. Such a search is not without limits, however. The scope of the search is confined to those areas of the passenger compartment where the officer reasonably expects that the parolee could have stowed personal belongings or discarded items when aware of police activity. Within these limits, the officer need not articulate specific facts indicating that the parolee has actually placed property or contraband in a particular location in the passenger compartment before searching that area.” (Schmitz, supra, 55 Cal.4th at pp. 925-926, fn. omitted.) “[A]n officer may search only those areas where he or she reasonably expects, in light of all the circumstances, that the parolee could have placed personal items or discarded contraband,” which includes “items of personal property if the officer reasonably believes that the parolee owns the items or has the ability to exert control over them.” (Id. at p. 930.) A 11 decision with respect to the reasonableness of the search must ultimately be based “on the totality of the circumstances.” (Id. at p. 929.) In Cervantes, this court subsequently established that the exception identified in Schmitz also applies in the context of a fellow passenger who is a probationer subject to a Fourth Amendment waiver. (Cervantes, supra, 11 Cal.App.5th at p. 871.) We perceive no reason why the exception identified in Schmitz and Cervantes for parolees and probationers would not also apply to fellow passengers who, as in this case, are subject to Fourth Amendment waivers because they have been released on bail. Like parolees and probationers, persons on bail with Fourth Amendment waivers are “well aware that [their] own privacy rights are severely limited” and thus “have a heightened incentive to conceal or quickly dispose of incriminating evidence.” (Schmitz, supra, 55 Cal.4th at pp. 925-926.) Applying the exception identified in Schmitz and Cervantes, we conclude that Officer Hofrichter could reasonably conclude the backseat passengers in the BMW “could have placed personal items or discarded contraband” in E.V.’s purse when they became aware that police were conducting a traffic stop. (Schmitz, supra, 55 Cal.4th at p. 930.) The facts that support this reasonable conclusion are substantially the same as those we have discussed above with respect to the officer safety exception. First, as Officer Hofrichter testified, the BMW slowed to a stop and there was movement inside the car, which reasonably raised a suspicion that the occupants of the car may be trying to hide contraband or weapons. Second, the officers found an empty holster in the backseat, but no firearm. That fact could reasonably support an inference that the backseat passengers—both of whom were already charged with firearm offenses—had removed a firearm from the holster and hidden it somewhere in the BMW. Next, E.V. engaged 12 in behavior that made Officer Hofrichter believe that her purse was being used to hide weapons. Specifically, she exited the BMW with her purse as soon as it came to a stop, and she once again tried to take her purse with her when she was removed from the vehicle to be detained. Finally, the purse was heavy when Officer Hofrichter lifted it to place it back into the BMW. All of these facts, taken together, could lead a reasonable officer to conclude that the backseat passengers may have been given access to E.V.’s purse for the purpose of hiding weapons. E.V. argues that it was not reasonable for Officer Hofrichter to conclude that the backseat passengers had the ability to exert control over her purse, as a woman’s purse is a personal item, to which other people are not normally given access. E.V. relies on Baker, supra, 164 Cal.App.4th 1152, which, like this case, concerned the legality of a police search of a purse that belonged to a female passenger in a vehicle. Baker held that, under the circumstances, it was not reasonable to conclude that the driver, who was subject to a Fourth Amendment waiver, “exercised control or possession of the purse, or that the purse contained anything belonging to the driver.” (Id. at p. 1159.) As Baker observed, “a purse is not generally an object for which two or more persons share common use or authority.” (Id. at p. 1160.) Baker does not control here because the facts of that case were different in significant respects. In Baker, after the officer stopped the vehicle for speeding, he learned the driver had a Fourth Amendment waiver, based on which he searched the entire passenger compartment, including the passenger’s purse, which had been resting at the passenger’s feet. (Baker, supra, 164 Cal.App.4th at p. 1156.) Unlike in this case, the facts in Baker did not suggest that a weapon may have been hidden while the vehicle came to a stop, and the passenger in Baker did not attempt to leave the vehicle with her 13 purse. (Ibid.) Thus, Baker concluded that the facts did not reasonably support an inference that the driver “exercised control or possession of the purse” for the purpose of putting contraband inside of it. (Id. at p. 1159.) Here, in contrast, as we have explained, there was specific evidence to support an inference that the backseat passengers could have hidden weapons inside E.V.’s purse. In fact, Officer Hofrichter reasonably explained the basis on which he did reach that conclusion before searching the purse.5 We accordingly conclude that, under the specific circumstances of this case, the warrantless search of E.V.’s purse was permissible based on the Fourth Amendment waivers of the backseat passengers in the BMW. B. The Maximum Term of Confinement Noted in the Minute Order From the Jurisdiction Hearing Need Not Be Stricken At the February 18, 2022 jurisdiction hearing, at which E.V. admitted to committing the offense charged in count 4, the juvenile court informed E.V. that the maximum term of confinement for that offense was three years. The minute order from that hearing states: “The minor is advised the maximum term for Count 4 is 3 years. [¶] • The minor is advised the overall maximum term of confinement is 3 years.” At the March 11, 2022 disposition hearing, E.V. was placed on probation and released to the custody of her mother. The 5 Moreover, we note that Baker was decided in 2008, prior to our Supreme Court’s 2012 opinion in Schmitz. (Baker, supra, 164 Cal.App.4th 1152; Schmitz, supra, 55 Cal.4th 909.) Accordingly, Baker did not apply the specific inquiry set forth in Schmitz. Instead, it applied the rules applicable to the search of an area of a residence, over which multiple persons have common authority, when one resident is a probationer subject to a Fourth Amendment waiver. (Baker, at pp. 1158-1159, citing People v. Woods (1999) 21 Cal.4th 668.) For that reason too, Baker has limited applicability here. We note that Schmitz acknowledged and discussed Baker, which it distinguished based on its facts. (Schmitz, at p. 931.) 14 minute order from the disposition hearing makes no mention of a maximum term of confinement. E.V. contends that the identification of the maximum term of confinement in the February 18, 2022 minute order must be stricken. Welfare and Institutions Code section 726, subdivision (d)(1) provides, “If the minor is removed from the physical custody of the minor’s parent or guardian as the result of an order of wardship made pursuant to Section 602, the order shall specify that the minor may not be held in physical confinement for a period in excess of the middle term of imprisonment which could be imposed upon an adult convicted of the offense or offenses which brought or continued the minor under the jurisdiction of the juvenile court.” (Italics added.) Case law has disapproved the practice of stating a maximum term of confinement at a disposition hearing when the juvenile is not removed from parental custody, and it has required that any such language be stricken from the relevant order. (In re Matthew A. (2008) 165 Cal.App.4th 537, 541; In re A.C. (2014) 224 Cal.App.4th 590, 592.) Based on that case law, E.V. contends that because she was not removed from parental custody, the maximum term of confinement should be stricken from the February 18, 2022 minute order.6 We reject the argument because the statement of the maximum term of confinement in this case was made at the jurisdiction hearing, not at the disposition hearing. As the court explained in In re P.A. (2012) 6 E.V. also contends that the juvenile court incorrectly identified the maximum term of confinement as three years rather than two years, which she contends “is likely to lead to confusion if the maximum confinement time should ever come into play.” However, in the event that the maximum term of confinement ever becomes relevant for E.V., she may address the issue at that time, regardless of the juvenile court’s statement at the February 18, 2022 jurisdiction hearing. 15 211 Cal.App.4th 23, “[W]ith respect to stating or not stating a maximum term of confinement, it is what happens at the disposition hearing that matters. By declining to make any statement [at the disposition hearing] regarding a term of confinement in conjunction with continuing Minor in his parents’ custody, the court in this case acted correctly. What the court stated at the jurisdiction hearing regarding the maximum term of confinement is of no consequence. Accordingly, there was no error.” (Id. at p. 32, italics added.) Because the maximum term of confinement was identified by the juvenile court at the jurisdiction hearing, not the disposition hearing, we reject E.V.’s contention that it should be stricken from the minute order. DISPOSITION The judgment is affirmed. IRION, Acting P. J. WE CONCUR: DO, J. BUCHANAN, J. 16	01-04-2023	11-22-2022
https://www.courtlistener.com/api/rest/v3/opinions/9350249/	Hospitality Concepts, LLC v Bernhardt (2022 NY Slip Op 07350) Hospitality Concepts, LLC v Bernhardt 2022 NY Slip Op 07350 Decided on December 23, 2022 Appellate Division, Fourth 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 on December 23, 2022 SUPREME COURT OF THE STATE OF NEW YORK Appellate Division, Fourth Judicial Department PRESENT: SMITH, J.P., PERADOTTO, CURRAN, WINSLOW, AND MONTOUR, JJ. 808 CA 21-01571 [*1]HOSPITALITY CONCEPTS, LLC, PLAINTIFF-RESPONDENT, vJAY BERNHARDT, BEDFORD FALLS ENTERPRISES, LLC, JGB PROPERTIES, LLC, DEFENDANTS-APPELLANTS, ET AL., DEFENDANT. (APPEAL NO. 2.) D.J. & J.A. CIRANDO, PLLC, SYRACUSE (JOHN A. CIRANDO OF COUNSEL), FOR DEFENDANTS-APPELLANTS. HINMAN, HOWARD & KATTELL, LLP, BINGHAMTON (JEFFREY A. JAKETIC OF COUNSEL), FOR PLAINTIFF-RESPONDENT. Appeal from an order of the Supreme Court, Onondaga County (Deborah H. Karalunas, J.), entered September 14, 2021. The order, inter alia, awarded plaintiff attorneys' fees. It is hereby ORDERED that said appeal is unanimously dismissed without costs. Same memorandum as in Hospitality Concepts, LLC v Bernhardt ([appeal No. 1] — AD3d — [Dec. 23, 2022] [4th Dept 2022]). Entered: December 23, 2022 Ann Dillon Flynn Clerk of the Court	01-04-2023	12-23-2022
https://www.courtlistener.com/api/rest/v3/opinions/9350345/	NUMBER 13-22-00141-CR COURT OF APPEALS THIRTEENTH DISTRICT OF TEXAS CORPUS CHRISTI – EDINBURG JOHN ELDRIDGE MURPHY, Appellant, v. THE STATE OF TEXAS, Appellee. On appeal from the 12th District Court of Walker County, Texas. MEMORANDUM OPINION Before Justices Benavides, Hinojosa, and Silva Memorandum Opinion by Justice Benavides Appellant John Eldridge Murphy was convicted by a jury of assault involving family violence, with a prior conviction for the same offense. See TEX. PENAL CODE ANN. § 22.01(b)(2)(A). Appellant pleaded “true” to an enhancement paragraph that elevated his punishment range from a third-degree felony to second-degree felony, and the jury sentenced him to eighteen years’ imprisonment. See id. §§ 12.33(a), 12.42(a). Appellant’s court-appointed counsel has filed an Anders brief stating that there are no arguable grounds for appeal. See Anders v. California, 386 U.S. 738, 744 (1967). We affirm the trial court’s judgment.1 I. ANDERS BRIEF Pursuant to Anders v. California, appellant’s court-appointed appellate counsel filed a brief and a motion to withdraw with this Court, stating that his review of the record yielded no grounds of reversible error upon which an appeal could be predicated. See id. Counsel’s brief meets the requirements of Anders as it presents a professional evaluation demonstrating why there are no arguable grounds to advance on appeal. See In re Schulman, 252 S.W.3d 403, 406 n.9 (Tex. Crim. App. 2008) (orig. proceeding) (“In Texas, an Anders brief need not specifically advance ‘arguable’ points of error if counsel finds none, but it must provide record references to the facts and procedural history and set out pertinent legal authorities.” (citing Hawkins v. State, 112 S.W.3d 340, 343–44 (Tex. App.—Corpus Christi–Edinburg 2003, no pet.))); Stafford v. State, 813 S.W.2d 503, 510 n.3 (Tex. Crim. App. 1991). In compliance with High v. State, 573 S.W.2d 807, 813 (Tex. Crim. App. [Panel Op.] 1978) and Kelly v. State, 436 S.W.3d 313, 319–22 (Tex. Crim. App. 2014), appellant’s counsel carefully discussed why, under controlling authority, there is no 1 This case is before the Court on transfer from the Tenth Court of Appeals in Waco pursuant to a docket-equalization order issued by the Supreme Court of Texas. See TEX. GOV’T CODE ANN. §§ 22.220(a) (delineating the jurisdiction of appellate courts), 73.001 (granting the supreme court the authority to transfer cases from one court of appeals to another at any time that there is “good cause” for the transfer). 2 reversible error in the trial court’s judgment. Appellant’s counsel also informed this Court in writing that he: (1) notified appellant that counsel has filed an Anders brief and a motion to withdraw; (2) provided appellant with copies of both pleadings; (3) informed appellant of his rights to file pro se responses, to review the record prior to filing those responses, and to seek discretionary review if we conclude that the appeal is frivolous; and (4) provided appellant with a form motion for pro se access to the appellate record that only requires appellant’s signature and date with instructions to file the motion within ten days. See Anders, 386 U.S. at 744; Kelly, 436 S.W.3d at 319–20; see also In re Schulman, 252 S.W.3d at 408–09. Appellant filed a pro se response. When appellate counsel files an Anders brief and the appellant independently files a pro se response, the court of appeals has two choices: [i]t may determine that the appeal is wholly frivolous and issue an opinion explaining that it has reviewed the record and finds no reversible error. Or, it may determine that arguable grounds for appeal exist and remand the cause to the trial court so that new counsel may be appointed to brief the issues. Bledsoe v. State, 178 S.W.3d 824, 826–27 (Tex. Crim. App. 2005) (internal citations omitted). We are “not required to review the merits of each claim raised in an Anders brief or a pro se response.” Id. at 827. Rather, we must merely determine if there are any arguable grounds for appeal. Id. If we determine there are such arguable grounds, we must remand for appointment of new counsel. Id. Reviewing the merits raised in a pro se response would deprive an appellant of the meaningful assistance of counsel. Id. 3 II. INDEPENDENT REVIEW Upon receiving an Anders brief, we must conduct a full examination of all the proceedings to determine whether the case is wholly frivolous. Penson v. Ohio, 488 U.S. 75, 80 (1988). We have reviewed the record and counsel’s brief, and we have found nothing that would arguably support an appeal. See Bledsoe, 178 S.W.3d at 827–28 (“Due to the nature of Anders briefs, by indicating in the opinion that it considered the issues raised in the briefs and reviewed the record for reversible error but found none, the court of appeals met the requirements of Texas Rule of Appellate Procedure 47.1.”); Stafford, 813 S.W.2d at 511. III. MOTION TO WITHDRAW In accordance with Anders, appellant’s counsel has asked this Court for permission to withdraw as counsel. See Anders, 386 U.S. at 744; see also In re Schulman, 252 S.W.3d at 408 n.17. We grant counsel’s motion to withdraw. Within five days from the date of this Court’s opinion, counsel is ordered to send a copy of this opinion and this Court’s judgment to appellant and to advise him of his right to file a petition for discretionary review.2 See TEX. R. APP. P. 48.4; see also In re Schulman, 252 S.W.3d at 411 n.35; Ex parte Owens, 206 S.W.3d 670, 673 (Tex. Crim. App. 2006). 2 No substitute counsel will be appointed. Should appellant wish to seek further review of this case by the Texas Court of Criminal Appeals, he must either retain an attorney to file a petition for discretionary review or file a pro se petition for discretionary review. Any petition for discretionary review must be filed within thirty days from the date of either this opinion or the last timely motion for rehearing or timely motion for en banc reconsideration that was overruled by this Court. See TEX. R. APP. P. 68.2. Any petition for discretionary review must be filed with the Clerk of the Texas Court of Criminal Appeals. See id. R. 68.3. Any petition for discretionary review should comply with the requirements of Texas Rule of Appellate Procedure 68.4. See id. R. 68.4. 4 IV. CONCLUSION We affirm the trial court’s judgment. GINA M. BENAVIDES Justice Do not publish. TEX. R. APP. P. 47.2(b). Delivered and filed on the 22nd day of December, 2022. 5	01-04-2023	12-26-2022
https://www.courtlistener.com/api/rest/v3/opinions/9350391/	COURT OF APPEALS FOR THE FIRST DISTRICT OF TEXAS AT HOUSTON ORDER Appellate case name: Alief Independent School District v. Anthony Velazquez Appellate case number: 01-22-00444-CV Trial court case number: 2021-42160 Trial court: 80th District Court of Harris County On October 11, 2022, the First Supplemental Clerk’s Record was filed. The correspondence in the First Supplemental Clerk’s Record indicated the following was attached: Image No: 100195815; Exhibit 2 to Alief ISD’s First Amended Plea to the Jurisdiction (delivered via courier on February 3, 2022, as a USB flash drive, as requested by the court clerk and on October 4, 2022, as a document containing a link to video). The First Supplemental Clerk’s Record only contained a non-functioning “video link” and not the original USB flash drive. On December 9, 2022, this Court requested that the district clerk file the USB flash drive that contains Exhibit 2 to Alief ISD’s First Amended Plea to the Jurisdiction within five days. On December 19, 2022, the district clerk filed a Second Supplemental Clerk’s Record that stated the trial court clerk is “unable to locate documents/Video USB Flash Drive relating to Exhibit 2 in our case file.” Texas Rule of Appellate Procedure 34.5 addresses the procedure when the clerk’s record is lost or destroyed. It states: If a filing designated for inclusion in the clerk's record has been lost or destroyed, the parties may, by written stipulation, deliver a copy of that item to the trial court clerk for inclusion in the clerk's record or a supplement. If the parties cannot agree, the trial court must—on any party's motion or at the appellate court's request—determine what constitutes an accurate copy of the missing item and order it to be included in the clerk's record or a supplement. TEX. R. APP. P. 34.5(e). Accordingly, we abate the appeal and remand to the trial court. If the parties can agree by stipulation about the contents of the missing flash drive, they may deliver a copy of the flash drive or the contents thereof to the trial court clerk for inclusion in the clerk’s third supplemental record. If the parties cannot agree by stipulation within fourteen days of the date of this order, the trial court must determine what constitutes an accurate copy of the missing item and order it to be included in the third supplemental clerk’s record. TEX. R. APP. P. 34.5(e). The appeal is abated, treated as a closed case, and removed from this Court’s active docket. The appeal will be reinstated on this Court’s active docket when the third supplemental clerk’s record is filed with the Clerk of this Court or upon further order from this Court. It is so ORDERED. Judge’s signature: /s/ Veronica Rivas-Molloy Acting individually Date: December 22, 2022	01-04-2023	12-26-2022
https://www.courtlistener.com/api/rest/v3/opinions/8488824/	MEMORANDUM OPINION JOHN FLOWERS, Bankruptcy Judge. This adversary proceeding involves a dispute regarding the interpretation of a written contract. The debtor sold certain real property in which the defendants claim a twenty-five percent interest to the extent the net proceeds of sale exceeded $750,-000.00. The parties are in agreement the value of the 25% interest is $51,843.10. The defendant contends the entire amount is due now in cash. The debtor contends only $2,856.88 in cash is due now and the defendant is entitled to the balance of $48,986.22 either by assignment of a 25% interest in a promissory note received in the sale of the property or payment of the sum in cash on March 1, 1980, when the note is paid. . The pertinent portions of the parties agreement provides: “. . . when the cumulative amount of the Net Proceeds exceeds $750,000 . . . then the Net Proceeds in excess of said $750,000 shall be divided as follows: 75% to JMI (the debtor) . and 25% to Plaza (the defendant) . ” The contract defines net proceeds to be the gross sales price less the closing expenses borne by JMI in the sale. The agreement is silent on the question of the form of payment and the only other provision relating to payment provides “If any portion of the Net Proceeds from the sale constitutes the Plaza share, then JMI shall instruct the Title Company to disburse the Plaza Share direct to Plaza . The agreement also provides for notice to Plaza of proposed sales. It is undisputed such notice was not given. The contract is silent on the effect of the failure to give such notice. The defendants make no complaint of the failure to give the notice except to point out such failure. They are apparently content with the price and terms of sale as being fair and reasonable. I find the failure to give such notice is not a material breach of the agreement. The reasonable construction of the contract is that the definition of net proceeds is the formula to calculate the amount Post is entitled to receive from the sale. The provision relating to the title company distributing the share directly to Post provides the mechanics of delivery of the payment. The contract provides that the proceeds shall be divided between Post and the debtor. From this I find the parties inténded to share in the proceeds in the form received. That is the proceeds should be divided in kind. The disbursements from the gross sales price have been paid in cash leaving net proceeds in excess of $750,000.00 consisting of cash of $11,427.52 and a note for $195,944.88, of which the defendants are entitled to a 25% interest in the note and an immediate cash payment of $2,856.88. Upon assignment of the 25% interest in the note and payment of the cash to the defendants they shall execute a release of their claim against the property.	01-04-2023	11-22-2022
https://www.courtlistener.com/api/rest/v3/opinions/8488778/	USCA4 Appeal: 21-1778 Doc: 23 Filed: 11/21/2022 Pg: 1 of 2 UNPUBLISHED UNITED STATES COURT OF APPEALS FOR THE FOURTH CIRCUIT No. 21-1778 KUI ZHENG, Petitioner, v. MERRICK B. GARLAND, Attorney General, Respondent. On Petition for Review of an Order of the Board of Immigration Appeals. Submitted: September 20, 2022 Decided: November 21, 2022 Before DIAZ and HEYTENS, Circuit Judges, and TRAXLER, Senior Circuit Judge. Petition denied by unpublished per curiam opinion. ON BRIEF: Zhou Wang, New York, New York, for Petitioner. Brian Boynton, Acting Assistant Attorney General, Anna Juarez, Senior Litigation Counsel, Robert Michael Stalzer, Office of Immigration Litigation, Civil Division, UNITED STATES DEPARTMENT OF JUSTICE, Washington, D.C., for Respondent. Unpublished opinions are not binding precedent in this circuit. USCA4 Appeal: 21-1778 Doc: 23 Filed: 11/21/2022 Pg: 2 of 2 PER CURIAM: Kui Zheng, a native and citizen of the People’s Republic of China, petitions for review of an order of the Board of Immigration Appeals (Board) dismissing his appeal from the Immigration Judge’s decision denying his application for asylum. We have thoroughly reviewed the record and conclude that the evidence does not compel a ruling contrary to any of the administrative factual findings, see U.S.C. § 1252(b)(4)(B), and that substantial evidence supports the denial of relief, see INS v. Elias-Zacarias, 502 U.S. 478, 481 (1992). Accordingly, we deny the petition for review for the reasons stated by the Board. In re Zheng (B.I.A. June 29, 2021). We dispense with oral argument because the facts and legal contentions are adequately presented in the materials before this court and argument would not aid the decisional process. PETITION DENIED 2	01-04-2023	11-22-2022
https://www.courtlistener.com/api/rest/v3/opinions/8488826/	ORDER GRANTING MOTION FOR PARTIAL SUMMARY JUDGMENT ALEXANDER L. PASKAY, Bankruptcy Judge. This cause came on for consideration, with due notice and hearing, upon the motion for partial summary judgment filed by the trustee, Sonia Uransky. The motion is addressed to Count I of the Amended Complaint involving the defendant John Allred only. In order to present this matter in its proper focus, a brief recital of the procedural posture and pertinent facts of this case as appear from the record is in order. Fortiner Realty Company (the Bankrupt) was the duly registered real estate broker in an October 22, 1976 real estate transaction in which D. Dean Barnard (Barnard) took title to the property as trustee for the benefit of Edward Caldwell, D. Dean Barnard and the defendant John Allred (Allred). The defendants, Billy D. Breeze (Breeze) and Marion Campbell Potts (Potts) were the salespersons who were instrumental in obtaining the sale. At the time of the transaction, Breeze and Potts were associated with the bankrupt and were compensated'by the bankrupt on a commission basis for sales which they procured. At one point during the negotiations which led up to the sale, a price of $1,000,-000 was agreed upon between the parties. In anticipation of a sale at this price, Allred, Breeze, Potts and the president of the bankrupt, James Fortiner, entered into a commission agreement on March 26, 1977 wherein Allred agreed to pay $100,000 in broker’s fees to the bankrupt. On August 25, 1975 the bankrupt assigned two-thirds of this fee to Breeze and Potts. The price of the property was subsequently reduced from $1,000,000 to $800,000. As a result, Breeze entered into a commission agreement with Barnard on October 22, 1976, the date of the sale, which set the commission 561at $80,000. It is this agreement which is the subject of the present controversy. Although the agreement stated at the outset that Barnard was obligated to the bankrupt broker for the entire $80,000 in commission, the agreement provided that Barnard was to pay $15,000 to the bankrupt at the time of closing and the remainder was to be paid directly to Breeze and Potts in installments over a period of years. On November 3, 1976, the bankrupt filed a voluntary petition in bankruptcy. On February 28, 1977, Barnard executed an assignment of Trusteeship in which Allred was designed as successor trustee. By virtue of this assignment, Allred assumed any and all obligations of his predecessor trustee, Barnard, including any commission due as a result of the October 22, 1976 sale. On June 26, 1978, the trustee instituted this adversary proceeding alleging that since the commission payments were to be made directly to the salespersons, Breeze and Potts, rather than to the bankrupt broker, the commission agreement was illegal by virtue of Florida Statute § 475.42(l)(d); thus is voidable by a judgment creditor having a provable claim against the bankrupt; therefore, void against the trustee by virtue of § 70(e) of the Bankruptcy Act. The complaint seeks a declaration that the entire commission agreement is null and void as against the trustee and seeks a determination of the liability of Allred for the payment of a reasonable commission to the trustee for the benefit of the bankruptcy estate. On January 26,1979, this Court entered a partial final judgment by default against the defendants Breeze and Potts involving Counts II and III of the complaint wherein the rights of Breeze and Potts to receive commission payments by virtue of the October 22, 1976 commission agreement were declared to be null and void and the trustee was declared to have the right to collect the commission, as determined by the Court, for the benefit of the bankruptcy estate. As noted earlier, the present motion for partial summary judgment filed by the trustee involves Count I of the Amended Complaint. The trustee asserts that the commission agreement is illegal as to all parties, including Allred, because the payments provided for by the commission agreement would have been paid directly to the salesman rather than to the broker. It appearing that there are no issues of material fact in controversy, it is appropriate to resolve this matter by summary judgment. § 70(e) of the Bankruptcy Act provides in pertinent part as follows: “A transfer made or suffered . by a debtor adjudged a bankrupt. . which, under any Federal or State law . ■. is . . . voidable. . by any creditor of the debtor, having a claim provable under this Act, shall be null and void as against the trustee of such debtor.” Florida Statute § 475.42(l)(d) provides in pertinent part as follows: “No salesman shall collect any money in connection with any real estate brokerage transaction, whether as a commission or otherwise, except in the name of the employer, and with express consent of the employer . . . This Court has already determined that the provision in the October 22, 1976 commission agreement which gave Breeze and Potts the right to receive directly the commission payments was in violation of Florida Statute § 475.42 and therefore the agreement was null and void and unenforceable by them. Allred contends that the commission agreement is valid in other respects, therefore, he cannot be expected to pay the commission in a lump sum, but only according to the terms of the agreement, i. e., in installments. This leaves the remaining controversy which is whether the commission agreement is in all other respects valid, which determination would permit Allred to pay the balance of the commission in installments over a period of years or whether the entire agreement is null and void, which determination in turn would permit the trustee to proceed on a quantum meruit basis to collect a reasonable commission in a lump sum. 562Allred cites Newcomer v. Rizzo, 163 So.2d 312 (Fla.App.1964), in support of his contention that the agreement is valid. However, Newcomer, supra primarily involved Florida Statute § 475.41 which provides that a contract for a commission is not valid unless the broker or salesman is registered under Florida law. In Newcomer, supra an unlicensed salesman had assisted a licensed broker in procuring a sale. The contract involved made the purchaser liable only to the broker for the commission but stated that the broker could assign the note to the unlicensed salesman. The broker thereafter assigned a portion of the note to the unlicensed salesman who reassigned his interest to a third party. The court held that the note was enforceable since there was no infirmity in the initial obligation solely between the purchaser and the broker. This is entirely different from the instant situation where the agreement is between the salesman and the purchaser and the purchaser contractually obligated himself to make the commission payments directly to the salespersons. Allred argues that the October 22, 1976, agreement is valid because it is a mere modification of the March 26, 1971 agreement which provided for payment of the commission to the bankrupt. However, the October agreement, by Allred’s own admission, entirely supercedes the March agreement and the prior agreement by the bankrupt does not cure the fact that in the agreement under consideration the purchaser is obligated to make commission payments directly to the salesperson. The instant situation is closely analogous to the case cited by the trustee, Campbell v. Romfh Bros., Inc., 132 So.2d 466 (Fla.App. 1961), where a promissory note for a real estate commission payable to both the broker and the salesman was found to be wholly invalid. The Court in Campbell, supra, held that the note, as to the salesman, was in violation of Florida Statute § 475.42 and that this partial illegality invalidated the whole transaction. Just as the note in Campbell, supra was found to be wholly invalid because it was payable in part directly to the salesperson, so must the agreement in the instant case be found wholly invalid. The essence of the agreement under consideration is to create in the purchaser the obligation to make commission payments directly to the salesperson. As this is an obvious attempt to circumvent the prohibition of Florida Statute § 475.42, this Court must find that the entire agreement is in violation of this statute. Since there is an existing creditor having a provable claim under the Bankruptcy Act against whom the agreement would be voidable in light of Florida Statute § 475.42, the agreement is, therefore, void as against the trustee by virtue of § 70(e) of the Bankruptcy Act. As it is undisputed that the bankrupt was the procuring cause of the sale wherein Allred’s predecessor, as trustee, took title to the property, the trustee of the bankruptcy estate should be allowed to establish a claim for a reasonable commission on the basis of quantum meruit. In accordance with the foregoing, it is ORDERED, ADJUDGED AND DECREED that the trustee’s Motion for Partial Summary Judgment as to Count I, be and the same, is hereby granted and the commission agreement of October 22, 1976, be the same, is hereby declared to be null and void, and it is FURTHER ORDERED, ADJUDGED AND DECREED that the Trustee shall have the opportunity to establish either by agreement or by evidence the amount of commission due on a quantum meruit basis.	01-04-2023	11-22-2022
https://www.courtlistener.com/api/rest/v3/opinions/8488827/	MEMORANDUM AND ORDER ROBERT L. KRECHEVSKY, Bankruptcy Judge. On June 27, 1977, an involuntary petition was filed against C. S. Mersick & Co. (“Mer-sick”), and it was adjudicated a bankrupt by default the following July 19th. Prior to the adjudication, Mersick was in the possession of a building at No. 458 Sackett Point Road, North Haven, Connecticut under a 25-year lease dating from 1960. At all times, the lessors have been the same persons. During 1976 and 1977, the monthly rental provided for by said lease was $10,140.61. The lessors also held a “security deposit” of $22,500.00. The lease stated that in the event of an adjudication in bankruptcy of the tenant, the lessors had the option to terminate the lease upon six months’ notice. A written modification to the lease in February, 1977 provided, inter alia, that if the rent was unpaid for ten days after the first of any month, the lessors had the right to notify the tenant by certified mail of the nonpayment of rent, and the tenant would have ten days thereafter to pay the same or be in default. No such notice was ever sent by the lessors under this provision of the lease. Steven M. Zelman, as the trustee of Mer-sick, has filed a complaint against G. E. Esher, Jr., Joseph U. Labov, and Allan I. Sheppard (“lessors”), seeking (1) the return of rental payments in the amount of $27,-121.40 on the basis that the said payments were preferences, and (2) the return of $22,-500.00 as an amount fraudulently transferred by Mersick to the defendant-lessors. An evidentiary hearing has been held after which the parties filed a written stipulation of additional facts with the Court. I. The stipulation states that for the months of September, 1976 through February, 1977, rents were received from Mersick and deposited by the lessors in their bank on different dates during each month, varying from the 8th day of a month through the 30th day of a month. In March, 1977, the rent check was deposited by the lessors on March 14th, and again on March 21st, and each time, the check was returned by the bank for insufficient funds. A substituted check of Mersick was deposited on March 28, and was honored. In April, the rent was paid by two checks by Mersick, and when one check was dishonored, Mersick delivered another check on April 21st, which check was thereafter honored. The rent checks for the months of May and June, 1977, were duly honored. During each of the last three months, Mersick utilized a check of a sublessee to make up a portion of the rental payment. The trustee presented two witnesses. The first was Joseph Labov, one of the lessors, who denied having any knowledge of the Mersick’s insolvency at any time prior to the involuntary petition being brought. He stated that in late March, 1977, he met with the president of Mersick, Jordan Friedman, in Hartford, Connecticut. Mersick had a facility in Hartford, in addition to the one in North Haven. Friedman told Labov that Mersick needed a new plant because the Sackett Point Road location was an inefficient one for Mersick’s purposes. Friedman advised Labov that he would like to get out of the lease in North Haven. At this time, Mersick occupied about 30% of the leased premises and subleased the balance. A major subtenant (50% of the entire space) was United Liquors Ltd. of Connecticut, Inc. (“United”). On June 16,1977, a written agreement was reached whereby the lessors released Mer-sick from all liability under the lease, and, in return, Mersick released the lessors from any claim “it may have in its security deposit in the amount of $22,500.00”. At the same time, the lessors and United entered into a lease agreement whereby United leased all the premises formerly leased by Mersick under exactly the same conditions and terms as in the original Mersick lease, except that United was relieved from the payment of the rent during the last two months of the lease term, provided that amount did not exceed $22,500.00. Labov testified that, in essence, he utilized the “security deposit” to make the deal with 601United, and no further security deposit was required from United. At no time was there any discussion of any financial problems of Mersick, according to Labov, with the entire transaction being one commenced and concluded at the request of Mersick’s president. The only other witness at the hearing was William J. Shea, the treasurer and controller of Mersick. He was unable to testify as to any knowledge that the lessors might have had of Mersick’s financial condition. The bankruptcy schedules which Mer-sick filed in this proceeding, after adjudication, had been compiled by Mr. Shea. They show that Mersick claimed assets of $1,173,-000.00, and that Mersick had been in business since 1849. It also appears that there were over 350 separate creditors of Mersick at the time of the petition, with claims in excess of $3,000,000.00. Shea also confirmed that March, 1977 was the first time a Mersick rent check ever was dishonored. It was stipulated at trial that Mersick was insolvent at all relevant times. The trustee alleges that the rent payments received by the lessors for the four months prior to the bankruptcy petition are voidable preferences under § 60b of the Bankruptcy Act. He also maintains that the “transfer” of the “security deposit” of $22,500.00 constitutes a fraudulent conveyance within § 67(d)(2) of said Act. II. The purpose behind prohibiting preferences is to prevent favoritism. Whether or not a transfer of property is to be held a preference for the purposes of bankruptcy law is determined by § 60a(1) of the Bankruptcy Act.1 If a transfer fails to exhibit each and every element of the definition found in § 60a(1), it is not a preference. 3 Collier on Bankruptcy (“Collier”) (14th Ed.), ¶ 60.02 at 759. The lessors deny that an essential element of § 60a(1) applies to the rent payments alleged to be preferential by the trustee. Specifically, the lessors deny that these payments were “for or on account of an antecedent debt”. They claim they were-for a present consideration. The issue dividing the parties is thus one of characterization. Are rent payments made as these payments were, to be characterized as for a present consideration or for an antecedent debt? No case has been offered by either party, nor has the Court found one, which precisely addresses the issue. A limited body of case law supports 3 Collier, ¶ 60.19 at 853, n. 20, that “current payments of rent may be said to rest on a present consideration”.2 This proposition is entirely consistent with the general policy of § 60 that payment for current expenses incidental to the operation of a business is not a preference. 3 Collier, ¶ 60.23 at 873. Although the cases cited in note 2 supra do not treat the question of when rent payments are current, the trustee has not pointed to any authority deciding that rent payments made within the month in which they fell due may constitute voidable preferences. A tenant’s failure to pay rent on the date it falls due (normally in advance of the period to which it applies) does not terminate a 602lease, but, rather, gives rise to a right in the landlord to terminate- — a right never exercised here. Mayron’s Bake Shops v. Arrow Stores, 149 Conn. 149, 176 A.2d 574 (1961). The Mersick lease established an annual rent to be paid in monthly installments, suggesting that the period for which each installment was to be consideration was the month in which the installment fell due. Payment during that month would be for present consideration, and the Court so holds. Even if the Court were to conclude that payments made as these payments were constituted a preference under § 60a(1), a further burden rests on the trustee. For such a preference to be recoverable by the trustee, the trustee must show, under the terms of § 60b, that the lessors had “reasonable cause to believe that the debtor (was) insolvent” at the time the rent payments were made.3 On the evidence presented in this case, the trustee has not discharged his burden of proof. Despite the somewhat checkered history of rent payment during the last months preceding bankruptcy the lessors need not have reásonably believed anything more than that Mersick had temporary cash-flow problems. Mersick was presumably a substantial business concern, established in 1849, with a 16-year track record as a responsible tenant. There were over 350 creditors at this time. “A creditor is not chargeable with knowledge of the debtor’s insolvency where the same could only be disclosed by the debtor’s books of account to which the creditor has no access”. 3 Collier, ¶ 60.54 at 1079. For the foregoing reasons, the Court concludes that the rent payments made to the lessors during the four months preceding the bankruptcy petition were not for an antecedent debt and that even if they were, the trustee, having failed to show the lessors’ requisite constructive knowledge of insolvency, may not recover them. III. Fraudulent transfers under the Bankruptcy Act are governed by the terms of § 67d of the Act.4 For a transfer to fall within the prescription of § 67d, fair consideration must be lacking. The trustee alleges that the surrender by Mersick of a $22,-500 “security deposit” to the lessors in exchange for a release from their future obligations under the lease does not constitute fair consideration, thereby enabling him to avoid the transfer.5 The facts of this case support the claim that the release of obligations under the lease in exchange for the security deposit was a bargained-for and reasonable exchange. There is no evidence that would justify a finding of bad faith. A lease with an unexpired rental obligation of nearly nine years bound the parties, with the tenant wishing to relocate. The petition in bankruptcy which followed the exchange of mutual releases was not voluntary. The trustee has not been able to contradict the history of the release transaction as described by the lessors (Part I supra). *603The trustee claims that permitting the lessors to retain the security deposit grants them a windfall. He maintains that the lessors sustained no damages because they immediately negotiated an assumption (in effect) of the unexpired lease by United. The trustee chooses to ignore the fact that the lessors applied the security deposit against the last two months’ rent of the assuming sublessee — evidence that suggests a bargained-for lease assumption as part of a package deal with no windfall to the lessors. “Whether a fair consideration has been given for a transfer must depend on all the circumstances of the case. Thus, whether a release of rights under a contract or the surrender of a lease is made for a fair consideration must depend upon whether a good bargain is being given up or a burdensome obligation is being discharged.” 4 Collier, ¶ 67.33 at 508-509. On the facts as herein found and recounted the Court holds that the exchange of a security, deposit for a release from future rent obligations is an exchange for fair consideration and not void as to the trustee. IV. The following language of the lease entered into by Mersick and the lessors has been treated by the parties as creating a “security deposit”: ., except that the net rental for the last three months of the said term, namely, seventeen thousand two hundred fifty dollars ($17,250), shall be payable in advance on the date of the execution of this indenture.6 Nothing in this language denominates the amount to be so paid as a security deposit, and no other language in the lease deals with this matter. The conclusion is inescapable that this amount is, in law and fact, a payment of rent in advance as distinguished from a security deposit. Connecticut law makes significant distinctions between a security deposit and a payment of rent in advance. Schoen v. New Britain Trust Company, 111 Conn. 466, 150 A. 696’ (1930). The effect of this distinction is that upon termination of the lease by default or abandonment, ownership of the advanced payment of rent automatically vests in the lessor, absent a provision in the lease to the contrary. Id. at 473,150 A. 696. A series of Federal cases have recognized the state law distinction between security deposits and payments of rent in advance7 in a situation where a trustee in bankruptcy has attacked a lessor’s retention of advance rent. The cases first apply state law to determine whether the amount in contention was an advance payment of rent or a security deposit. Where an advance payment of rent is found state law is next applied to vest ownership in the lessor, either at the time of default, abandonment, or other lease termination, or at the time payment was made by the tenant. The issue seems thus to be well settled, with three Circuit Courts of Appeal in accord. The consequences for the case before us are apparent. If the sum paid to the lessors by Mersick in 1960 was rent in advance, under Connecticut law as recited in Schoen, supra, the ownership of the advanced rent would have vested in the lessors either at the commencement of the lease or at the time of the termination of the lease, and there would have been, in fact, no property of Mersick transferred on June 16, 1977. Under the theory of a security deposit or under the theory of advance rental, the defendants must prevail on this issue. Judgment may enter for the defendants on all counts of the complaint, and it is SO ORDERED. . § 60a(l) Preferred Creditors. A preference is a transfer as defined in this Act, of any of the property of a debtor to or for the benefit of a creditor for or on account of an antecedent debt, made or suffered by such debtor while insolvent and within four months before the filing by or against him of the petition initiating a proceeding under this Act, the effect of which transfer will be to enable such creditor to obtain a greater percentage of his debt than some other creditor of the same class. . Matter of Bowles, 14 Am.B.R. (N.J.) 133 (Ref. Neb. 1928); In re William P. Barrett, 6 Am.B.R. 199 (S.D.N.Y.1901); In re Louis J. Bergdoll Motor Co., 35 Am.B.R. 32 (E.D.Pa.1915); In re Herman Lange, 3 Am.B.R. 231 (S.D.N.Y.1899); It will be noted that these cases were decided very early in the life of the Bankruptcy Act of 1898. The failure of later case law to attack the basic proposition found in Collier suggests that the proposition was too obvious to be questionable. A case contra was decided in this Court, In the Matter of Ailing Sport Shop, Inc., H-77-79. In the Ailing case, Judge Seid-man found late rent payments preferential, not for the purposes of § 60a(l), but rather as an act of bankruptcy to preserve the jurisdiction of the court. In rendering its decision, the Court limited its finding to the facts of Ailing, noting that “what might appear to be a highly technical interpretation of past consideration becomes the only peg upon which the creditors can fasten their inquiry into the faots”. (emphasis supplied). . § 60b reads in pertinent part: Any such preference may be avoided by the trustee if the creditor receiving it or to be benefited thereby or his agent acting with reference thereto has, at the time when transfer is made, reasonable cause to believe that the debtor is insolvent. . § 67d(2) reads in pertinent part: Every transfer made and every obligation incurred by a debtor within one year prior to the filing of a petition initiating a proceeding under this Act by or against him is fraudulent if made or incurred without fair consideration by a debtor who is or will be thereby rendered insolvent without regard to his actual intent § 67d(l)(e) defines fair consideration: [C]onsideration given for the property or obligation of a debtor is fair (1) when, in good faith, in exchange and as a fair equivalent therefor, property is transferred or an antecedent debt is satisfied, or (2) when such property or obligation is received in good faith to secure a present advance or antecedent debt in an amount not disproportionately small as compared with the value of the property or obligation obtained. . For the purposes of Part III of this decision, it may be noted that the amount in contention ($22,500) has been consistently characterized by the parties as a “security deposit”. Whether or not it is, by law, a security deposit will be treated in Part IV infra. In Part III, the Court will, arguendo, accept the characterization of the parties and omit quotation marks setting off the term “security deposit” hereafter. . The discrepancy between the amount specified in the lease agreement and the $22,500 in contention, named in the release executed on June 16, 1977, has been neither noted nor explained by the parties. . Sline Properties, Inc. v. Colvin, 190 F.2d 401 (4th Cir. 1951); Zaconick v. McKee, 310 F.2d 12 (5th Cir. 1962); In the Matter of Riviera Club, Inc., 280 F.Supp. 741 (W.D.Mo.1967); Aylward v. Broadway Valentine Center, Inc., 390 F.2d 556 (8th Cir. 1968).	01-04-2023	11-22-2022
https://www.courtlistener.com/api/rest/v3/opinions/8488828/	ORDER JOHN J. CHINEN, Bankruptcy Judge. This Order deals with two motions: the Motion for Further Rulings Respecting Sanctions filed by Waikiki Hobron Associates, hereafter “WHA”, and the Motion for 669Reconsideration of Ruling re Motion for Sanctions and Motion to Compel filed by Investment Mortgage Incorporated, hereafter “IMI”. A hearing was held on both Motions on November 29,1979. Based upon arguments of counsel and the records and memoranda filed herein, the Court makes the following Findings of Facts and Conclusions of Law: FINDINGS OF FACT On August 16, 1979, counsel for WHA served Interrogatories and Request for Production of Documents upon counsel of record for IMI. Pursuant to Rule 33 of the Federal Rules of Civil Procedure, the answers to the Interrogatories were due on September 15, 1979. No answers to said Interrogatories were served upon WHA as of November 26,1979. There was no objection to said Interrogatories lodged by IMI. On August 16, 1979, counsel for WHA also served notice to take depositions upon oral examination of Messrs. J. William Oldenburg and Vernon Watters of IMI. The notice stated that the depositions were scheduled to take place on September 24 and 25, 1979, at Honolulu, Hawaii. However, counsel for IMI informed counsel for WHA that Messrs. Oldenburg and Watters would refuse to appear for the depositions in Honolulu, Hawaii, on September 24 and 25, 1979. Thereafter, counsel for WHA noticed said depositions for a period of time specifically stipulated to be acceptable to Messrs. Oldenburg and Watters in San Francisco, California on September 18 and 19, 1979. WHA and IMI agreed that the stipulation had the effect of a subpoena. At the same time, WHA made arrangements for depositions of additional witnesses for the afternoon of September 19, 1979 in San Francisco, California. Certain documents were produced by IMI at 10:00 a. m. on Monday, September 17. However, the following documents were missing and were not produced as of November 26, 1979: cancelled checks, credit card billings, telephone bills, desk calendars, diaries and any other documents demonstrating and reflecting travel to or communication with Hawaii during the relevant time period. Both Messrs. Oldenburg and Watters failed to appear at their scheduled depositions. No protective order had been sought on behalf of either Mr. Watters or Mr. Oldenburg. Because of the previously established schedule, counsel for WHA was forced to remain in San Francisco to take the depositions of Mr. Boswell and Mr. Rossetti late on Wednesday afternoon. The only reasons given for the failure of Messrs. Oldenburg and Watters to appear at their deposition was that they had a business commitment in Chicago, which they thought was more important than the deposition. Later, counsel for WHA was assured that Messrs. Oldenburg and Wat-ters would appear in Honolulu, Hawaii, at their own expense on September 24, 1979. Based on the assurance from counsel for IMI, WHA had a court reporter standing by to take the depositions of Messrs. Watters and Oldenburg on September 24, 1979, at Honolulu, Hawaii. However, neither Mr. Oldenburg nor Mr. Watters appeared as promised. Mr. Watters appeared for his deposition in Honolulu on September 25, 1979 at 3:00 p. m., which deposition was continued through to September 26, 1979. Mr. Oldenburg did not appear at all for his deposition. Another assurance was given by counsel for IMI that Mr. Oldenburg would appear for deposition on October 10 and 11, 1979. However, Mr. Oldenburg failed to appear on said dates. As a result thereof, WHA filed on October 30, 1979, a Motion for Sanctions. A hearing was held on November 8, 1979 on WHA’s motion, at which time the Court rendered a partial decision, assessing certain costs against IMI and reserving ruling on the balance of the Motion, pending completion of Mr. Oldenburg’s deposition scheduled the following week in Honolulu, Hawaii, and also the filing of IMI’s answers to the Interrogatories. At the hearing on No670vember 8, 1979, the Court directed counsel for IMI to inform Mr. Oldenburg that he was to appear in Honolulu on November 15 for his deposition, and that the answers to the Interrogatories were to be served upon counsel for WHA by November 15, 1979. Following the oral ruling of this Court on November 9, 1979, Mr. Oldenburg appeared in Honolulu for deposition on November 15, 1979. At that time, in response to the questions posed by counsel for WHA, Mr. Oldenburg explained his failure to appear at the previous depositions. Mr. Oldenburg stated that he did not appear at the deposition in San Francisco because of an important business meeting in Chicago on the same day as the scheduled deposition. He also stated that, upon his return to San Francisco from Chicago on September 20, he tried to contact his attorney to arrange for his deposition, but learned that all the attorneys had left for Honolulu. As for the deposition scheduled in Honolulu on September 24 and 25, Mr. Oldenburg stated that he had failed to appear because of poor airplane connection. He stated that he had tried to arrange for his deposition after September 25, but that counsel for WHA had a trip to Washington, D. C., previously scheduled. Thus, no further arrangement was made for a deposition during the month of September, though he was willing to appear at a deposition. Thereafter, on November 26, 1979, WHA filed its Motion for Further Rulings Respecting Sanctions. WHA contended that the failure to appear at the various scheduled depositions was a willful and intentional disregard of the discovery rules. In addition, WHA contended that all of the documents requested for productions were not produced. WHA requested that the answers of IMI be stricken and that a Default Judgment be entered in favor of WHA. IMI admits that Messrs. Watters and Oldenburg failed to appear at several depositions, but contends that their failure to appear at their depositions as scheduled was not willful and intentional, but that it was because of unforseen circumstances which necessitated their attending to other pressing matters. As for the deposition scheduled in San Francisco, prior to the departure from Honolulu to San Francisco by counsel for WHA, IMI contends counsel for WHA had been notified that Messrs. Wat-ters and Oldenburg would probably not be able to attend those depositions. However, the facts show that counsel for WHA informed counsel for IMI that the depositions had been scheduled and that, because of the stipulation, she did expect Messrs. Watters and Oldenburg to appear at their depositions. IMI also contends that the failure of Mr. Oldenburg to appear at Honolulu on September 25, 1979, was the result of poor plane connection, and not because of a deliberate attempt by Mr. Oldenburg to avoid the deposition. IMI contends that Mr. Oldenburg was ready to fly to Hawaii after September 26, but that because counsel for WHA was preparing to leave for Washington, D. C., another deposition during the week of September 26 was not scheduled. IMI contends that' Mr. Oldenburg failed to attend the deposition scheduled for October because of a death in the family. IMI also contends that Messrs. Watters and Oldenburg cooperated in their depositions and answered all of the questions posed by counsel for WHA. IMI further contends that nearly all of the documents requested for production had been produced and that IMI is trying to locate the other documents for production requested by WHA. IMI requests that no sanction be imposed because the depositions had taken place and that most of the documents had been produced. CONCLUSIONS OF LAW 1. Rule 37 of Federal Rules of Civil Procedure is made applicable to an adversary proceedings in the Bankruptcy Court by rule 737 of the Rules of Bankruptcy Procedure. 2. Federal Rules of Civil Procedure, Rule 37(d) entitled, Failure of Party to At671tend at Own Deposition or Serve Answers to Interrogatories or Respond to Request for Production, provides in relevant part that when failure to make discovery occurs, [T]he Court in which the action is pending on motion may make such orders in regard to the failure as are just, and among others it may take any action authorized under paragraphs (A), (B), (C) of Subdivision (b)(2) of this rule. In lieu of any order or in addition thereto, the court shall require the party failing to act or the attorney advising him or both to pay the reasonable expenses, including attorney’s fees, caused by the failure. 3. In Moore’s Federal Practice, it is stated: Rule 37(d) makes it explicit that a party properly served has an absolute duty to respond, that is, to present himself for the taking of his deposition or to serve answers or objections to Interrogatories served upon him, or serve a response to request for discovery under Rule 34 as the case may be, and that the Court in which the action is pending may enforce this duty by imposing sanctions for its violations. 4(A) Moore’s Federal Practice, ¶ 37.05, at 37-90 (2nd Ed. 1978). 4. A Court order compelling defendant to appear is not a condition precedent to an imposition of sanctions under 37(d). 5. In Chagas v. United States, 369 F.2d 643 (5th Cir. 1966), citing Harris v. 20th Century Fox Film Corporation, 139 F.2d 571 (2d Cir. 1943), the Court stated, The Courts have held that where a Notice to Take Deposition is served upon the party’s attorney of record and no motion for relief is filed on behalf of that party that it must be considered as if the Court had directed the depositions to be taken. Id. at 644. 6. However, the United States Supreme Court has stated that Rule 37 sanctions are limited by the Fifth Amendment. Societe Internationale, etc. v. Rogers, 357 U.S. 197, 78 S.Ct. 1087, 2 L.Ed.2d 1255 (1958). 7. In the Societe Internationale case, the Court stated: The provisions of Rule 37 which are here involved must be read in light of the provisions of the Fifth Amendment that no person shall be deprived of property without due process of law, and more particularly against the opinions of this Court in Hovey v. Elliott, 167 U.S. 409, 17 S.Ct. 841, 42 L.Ed. 215 and Hammond Packing Company v. State of Arkansas, 212 U.S. 322, 29 S.Ct. 370, 53 L.Ed. 530. These decisions establish that there are constitutional limitations upon the power of courts, even in aid of their own valid processes, to dismiss an action without affording the party an opportunity for a hearing on the merits of his cause. The authors of Rule 37 were well aware of these constitutional considerations. See Notes of Advisory Committee on Rules, Rule 37, 28 U.S.C. (1952 ed. p. 4325). Id. at 209, 78 S.Ct. at 1094. 8. In Vac-Air, Inc. v. John Mohr and Sons, Inc., 471 F.2d 231 (7th Cir. 1973), the Court held that Rule 37 sanctions must be applied reasonably in light of the facts and circumstances of each case. In Vac-Air case, the Court stated, In Sapiro v. Hartford Fire Insurance Co., 452 F.2d 215, 216 (7th Cir. 1971), decided after the district court acted in the present case, we pointed out, quoting from other authorities, that the extreme sanction of the dismissal must be tempered by the careful exercise of judicial discretion to assure that its imposition is merited, and that where an alternative, less drastic, sanction would be just as effective, it should be utilized. Id. at 234. 9. In Fox v. Studebaker Worthington, Inc., 516 F.2d 989 (8th Cir. 1974), the Court stated, The provisions of Rule 37(d) with regard to interrogatories do not apply when the failure to comply is anything less than a total failure to respond. 8 Wright & Miller, Civil Practice and Procedure § 2291, at 809 (1970); 4(A) Moore’s Federal Practice § 37.05, at 37-103, 106 (2nd Ed. 1974). If a response is made, but some questions not answered or are eva672sive or incomplete, a motion under Rule 37(a) to compel answers is proper remedy. Id. See GFI Industries v. Fry, 476 F.2d 1, 3 (5th Cir. 1973). Similarly, a Rule 37(d) sanction is improper where a written response to a request to inspect documents is made but is not satisfactory. 8 Wright & Miller at 810. Similar rules apply to the discovery by deposition. See First Nat’l Bank of Washington v. Langley-Howard, Inc., 391 F.2d 207, 208 (3d Cir. 1968). In other words, Rule 37(d) sanctions are proper only where there has been a complete or nearly total failure of discovery. See Notes on Advisory Committee on Rules, Rule 37, 28 U.S.C.A. (1975 Supp.) page 53. Id. at 995. 10. In the instant case, counsel for WHA had noticed counsel for IMI that depositions of Messrs. Watters and Oldenburg were scheduled for September 24 and 25, 1979 in Honolulu, Hawaii. Counsel for IMI informed counsel for WHA that Messrs. Watters and Oldenburg refused to be in Honolulu at the designated time. Consequently, counsel for WHA and counsel for IMI entered into a stipulation for depositions in San Francisco, California. Counsel for WHA did appear for depositions of Messrs. Watters and Oldenburg in San Francisco at the scheduled time. However,. Messrs. Watters and Oldenburg did not appear, but instead left for Chicago. They stated that the business in Chicago was much more important than the depositions. Prior to the departure from San Francisco for Honolulu, counsel for IMI assured counsel for WHA that Messrs. Watters and Oldenburg will appear in Honolulu at their own expense on September 25 and 26. But again at the appointed time both Messrs. Watters and Oldenburg did not appear. Mr. Watters appeared a day late, but Mr. Oldenburg did not appear at all. And also Mr. Oldenburg did not appear for another deposition scheduled for October 11 and 12. Up to the time of the filing of the Motion for Sanction, answers for Interrogatories were not delivered by IMI to WHA. It was only after a hearing on the Motion and upon the direction of the Court that IMI answered the Interrogatories and delivered a copy of the Answers to counsel for WHA. And it was only after that hearing that Mr. Oldenburg appeared for his deposition. This Court finds that Messrs. Watters and Oldenburg failed to follow the rules as set forth in the Civil Rules of Procedure and the Bankruptcy Rules. They had failed to answer the Interrogatories within the period provided for by the Rules of Civil Procedure. They had failed to appear for depositions as scheduled, although given proper notice and even after they had entered into a stipulation which they agreed had the effect of a subpoena. With reference to the depositions scheduled in San Francisco for September 16 and 17, the Court finds that the reasons given by Messrs. Watters and Oldenburg for failure to appear are unsatisfactory. Thus, the sanctions previously imposed concerning the depositions in San Francisco are hereby reaffirmed. With reference to the depositions scheduled in Honolulu for September 25 and 26, Mr. Watters did appear for deposition although he was a day late, but Mr. Oldenburg did not appear. Mr. Oldenburg said he tried to arrange another deposition after September 26, but that because counsel for WHA was scheduled to leave for Washington, D. C., no further arrangement was made for his deposition in September. The Court finds that counsel for WHA and Messrs. Oldenburg and Watters are busy individuals and that they were not able to select an ideal time for the depositions. However, since counsel for WHA had been assured that both Messrs. Watters and Oldenburg would appear in Honolulu on a certain day and because counsel for WHA had prepared for such deposition, the Court hereby awards WHA all costs which were incurred as a result of preparation for deposition on September 25, 1979, including costs for requesting a court reporter to stand by. As for the third deposition that had been scheduled in October, because Mr. Oldenburg’s mother had passed away, the Court finds that Mr. Oldenburg’s failure to appear *673for that deposition is excusable. However, if WHA had not been properly notified that Mr. Oldenburg would not appear and if WHA had incurred expenses as a result of preparation for that deposition, IMI is required to reimburse WHA for all such expenses. The answers to the Interrogatories were delivered far beyond the time required under the rules. Likewise, the documents were not produced as required under the rules. In fact, some of the documents still have not been produced for inspection by WHA. This, the Court finds inexcusable. IMI has had more than sufficient time to either produce those documents or to give valid reasons why those documents are not available. At his deposition in Honolulu, Mr. Oldenburg assured counsel for WHA that he would file an affidavit immediately after the deposition concerning those missing documents. However, to date, no affidavit has been filed. For the foregoing reasons, except for the depositions scheduled in October, the Court hereby awards WHA all of the expenses incurred for the other depositions in which Messrs. Oldenburg and Watters failed to appear, including attorney’s fees. In addition, this Court awards WHA all expenses, including attorney’s fees, in connection with the Motion for Sanctions and Motion for Further Rulings Respecting Sanctions, including the preparation of all memoranda submitted to the Court. The Court hereby directs WHA to submit the total amount requested for approval by this Court. The Court finds that the facts herein do not justify the striking of IMI’s answers and an Order of Default. However, the Court is imposing the following sanctions: 1. IMI will pay to WHA all expenses in connection with the depositions scheduled but not held as abovementioned, together with all expenses in connection with the preparation and hearing on the Motion for Sanctions and Motion for Further Rulings Respecting Sanctions. 2. IMI will not be permitted to offer into evidence or to offer testimony concerning any document which has been requested by WHA but not produced.	01-04-2023	11-22-2022
https://www.courtlistener.com/api/rest/v3/opinions/8488829/	MEMORANDUM OPINION AND ORDER HELEN S. BALICK, Bankruptcy Judge. On September 11, 1979, Telmark Incorporated filed a complaint against Steven Schwartz as trustee of William B. Johnson, Jr. and Jeanette D. Johnson seeking reclamation of an Agway American steel building which was in the Johnsons’ possession at the time of the filing of their voluntary petition in bankruptcy on February 12, 1979. Counsel for Telmark and the trustee subsequently stipulated that the building should be sold at public auction free and clear of liens and encumbrances and the claim of Telmark transferred to the net proceeds of sale. At sale, the building was sold for $6,200. The matter was tried November 13, 1979. At trial there was introduced into evidence the following documents: sales agreement dated September 8, 1975; building construction agreement and lease each dated September 29, 1975; an assignment from Agway to Telmark; and a payment book. 690The issue before the Court is whether the transaction involving the Agway building resulted in a true lease situation or a lease agreement intended as security. If the lease were one intended as security, Section 9-102(2) of the Delaware Uniform Commercial Code provides that it falls within the scope of Article 9. Consequently, Telmark’s failure to perfect that interest in accordance with the state law would result in a subordination of -its rights to those of the trustee. Section l-201(37)(b) of Title 6 of the Delaware Code defines “security interest” and states in pertinent part: whether a lease is intended as security is to.be determined by the facts of each case; however, (a) the inclusion of an option to purchase does not of itself make the lease one intended for security; and (b) an agreement that upon compliance with the terms of the lease, the lessee shall become or has the option to become the owner of the property for no additional consideration or for a nominal consideration, does make the lease one intended for security. In Peco, Inc. v. Hartbauer Tool and Die Co., 262 Or. 573, 500 P.2d 708, the Oregon Supreme Court succinctly analyzed Section 1-102(37), and I quote: Upon a careful reading of the entire section, it is clear that the first question to be answered is that posed by clause (b)— whether the lessee may obtain the property for no additional consideration or for a nominal consideration. If so, the lease is intended for security. If not, it is then necessary to determine ‘by the facts of each case’ whether the lease is intended as security . The cases construing the above section have uniformly held that if the lessee, upon compliance with the lease, has the option to purchase the property for no additional consideration, or for a nominal consideration, the lease is a security interest as a matter of law. In this respect, see also Judge Schwartz’s Opinion dated December 21, 1978, in Watkins Leasing Company v. Eduard F. von Wettberg, trustee for Metal Cleaning and Processing, Inc., BK No. 77-49. We do not have here a lease where the lessee may obtain the property for no consideration nor do we have an obviously nominal consideration. The lease, at Paragraph 4 states that at termination the lessee may purchase the item for an amount equivalent to its fair market value at termination. Clearly, this language was intended to remove any transaction under it from the operation of Article 9 of the Uniform Commercial Code. But, the Court cannot look solely to the form of the lease. It must examine the facts of the case. The essential facts are undisputed. At the initial contact on September 8, 1975, Agway’s salesman, Mr. Wolgemuth, explained to Mr. Johnson that he could acquire this building in one of three ways: 1. purchase it for a straight-cash payment 2. finance it for a period of up to eight years 3. lease the building through Telmark’s leasing plan He emphasized the third option as providing the greatest tax benefit in that Johnson could deduct the entire payment over the period of the lease. A preliminary sales agreement was prepared at that time. Following a credit check, there was a second meeting for the closing of the deal on September 29, 1975. Mr. Wolgemuth returned to the Johnson farm with Mr. Ger-hart, a representative of Telmark, which is a subsidiary of Agway. At that time, a building construction agreement and the lease was prepared and signed. Mr. Johnson had been told by Mr. Wolgemuth that at the expiration of the lease term he would have three options: 1. extend the lease at its fair rental value 2. purchase the building outright at fair market value 3. advise Telmark he no longer had use for the building and it would be removed 691He further explained that fair market value at termination was based upon approximately 15% of the original cost but that the figure was negotiable. The original cost was $13,945. Fifteen per cent of that is $2,091.75. Payments for the full eight-year period of the lease would total $24,407.36. Mr. Johnson testified that he believed he was building some equity, that he understood no difference between the financing and leasing options other than he would be required to make a final payment but that overall the amount would be about $26,000 and the final figure would be worked out. At trial Mr. Gerhart testified that over the past four-year period, which corresponded with the time period in this matter, he could not remember a farm building ever having been repossessed at the conclusion of the lease term because Telmark and the customer had been unable to reach agreement on a sale price. He could not state the difference, in financial terms, between the leasing arrangement and the available arrangement for financing through Tel-mark. There are significant tax advantages. In addition to the lease, there is a sales agreement, a building construction agreement, a loan payment coupon book, and Agway took a mortgage on the farm. Mr. Gerhart further testified that the lease is intended to cover both equipment and buildings; however, in his experience it is used more often for equipment. When you apply the terms of the lease to this building, particularly the loss payable clause, save harmless clause, payment of taxes, etc., assumption of risk of loss, etc. and obligation to pay out the aggregate amount of unpaid rental upon a loss, these are indicia of sale when taken in conjunction with the other documents. The question of whether the final payment is nominal, as argued by the trustee, is not crucial to the determination of this case. I find that the lease was one intended as security. Plaintiff, not having complied with the terms of the Delaware Uniform Commercial Code, does not have a perfected security interest, and the trustee prevails. An order entering judgment in favor of the defendant will be placed on the docket today.	01-04-2023	11-22-2022
https://www.courtlistener.com/api/rest/v3/opinions/8488830/	ORDER JON J. CHINEN, Bankruptcy Judge. The issue before this Court is whether or not this Court should reconsider or alter the Judgment entered herein on October 31, 1979. FINDINGS OF FACT On October 23, 1979, this Court entered its Findings of Fact and Conclusions of Law and directed that Summary Judgment be entered in favor of Oceanside Properties, Inc., hereafter “OPI”. The Judgment was filed on October 31,1979. On November 13, 1979, the City and County, hereafter “City”, filed its Motion For Reconsideration or in the Alternative for Alteration of Judgment. A hearing was held on City’s motion on December 7, 1979. At said hearing, City asserted that this Court should reconsider or alter its Judgment filed on October 21, 1979, for the following main reasons: 1. That, even though there is a Second Amended Declaration of Horizontal Property Regime filed with the State Land Court and noted on the pertinent Transfer Certificate of Title, hereafter “TCT”, the original Declaration of Horizontal Property Regime was still part of the TCT, with notice to the world that 900 parking stalls were “Reserved for the City and County of Honolulu”. (The Horizontal Property Regime is hereafter referred to as “HPR”.) 2. That, because the State had not filed its certificate of tax lien (excise tax), OPI cannot rely on the tax lien to set aside the Condominium Conveyance Document, hereafter “CCD”. 3. That, because the CCD was held in escrow for the benefit of only the City, there was a trust in favor of City. 4. That, because Banker’s Trust had participated in preventing the CCD from being recorded, OPI cannot rely on the Additional Charge Mortgage of Banker’s Trust to set aside the CCD. Also, because the Additional Charge Mortgage covered a preexisting debt, Banker’s Trust is not a purchaser for valuable consideration. 5. OPI was not insolvent at the time of filing of the Petition. CONCLUSIONS OF LAW 1. Effect of the Second Amended HPR The city contends that the Second Amended HPR did not replace the Original 749HPR and the First Amended HPR, but that the Second Amended HPR merely amended the previous HPRs. The City relies on Greenville v. Community Hotel Corporation, 230 S.C. 239, 95 S.E.2d 262 (1956) to support its contention. However, the Court finds that the City’s reliance on the Greenville case is misplaced. In the first instance, Greenville involves an amendment to pleadings and not an amendment to a Horizontal Property Regime. Furthermore, with respect to pleadings under the Federal Rules of Civil Procedure, the 9th Circuit Court has held that an amended pleading supercedes a prior pleading. In Bullen v. De Bretteville, 239 F.2d 824 (9th Cir. 1956), the Court stated: It is Hornbook law that an amended pleading supercedes the original, the latter being treated thereafter as non-existent. (citations omitted). Once amended, the original no longer performs any function as a pleading and cannot be utilized to aid a defective amendment. Id at 833. The Hawaii Supreme Court also has held that an amended pleading replaced the previous pleading. In Wight v. Lum, 41 Haw. 504 (1956), the Court held that: The filing of the amended petition, complete in itself and not referring to any prior pleading, without objection by respondents, took the original out of the record and the amended petition became the' sole statement of the petitioner’s case. Id at 507-08. See also Wolbert v. Reif, 194 Md. 642, 71 A.2d 761 (1950); Wichman v. United States, 553 F.2d 1104 (8th Cir. 1977); Gravitt v. Southwestern Bell Telephone Co., 396 F.Supp. 948, 950 (W.D.Tex.1975). The purpose of the Second Amended HPR, as shown in the document itself, was to consolidate all of the changes made up to date in a single instrument. If so, it is only logical to assume that the governing document would be the one containing all of the changes. The facts show that the Second HPR was a document complete in itself. It contained just as many pages as the original HPR, which further shows that the Second Amended HPR was intended to supercede the original HPR. The only reference of the original HPR in the Second Amended HPR occurs in the “Whereas clause”, where a history of the transaction is given. • The subsequent conduct of the parties, OPI and City, indicates that the Second Amended HPR superceded the previous HPRs. Amendments subsequent to the Second HPR provide that those amendments were being made pursuant to the terms of the Second Amended HPR and not the original HPR. This shows that the governing document was the Second Amended HPR. In addition, in seeking execution and recording of the CCD conveying the 960 parking stalls to City, the City acknowledged that it then had no interest in the parking stalls and that it wanted a conveyance to itself of those stalls. If the City owned the parking stalls under the original HPR even after execution and recording of the Second Amended HPR, the CCD was not necessary. However, the facts show a long period of negotiation and work leading to the drafting and execution of the CCD, indicating that the City felt that the CCD was necessary for it to obtain title to the parking stalls. There is a difference between a “First Amendment to HPR ” and a “First Amended HPR”. The first shows merely an intent to change some provisions in the original document, whereas the second shows an intent to supercede the original document with the amended document. Based on all of the foregoing, the Court finds that the Second Amended HPR super-ceded all previous HPRs. 2. The State Tax Lien City contends that, because the State Tax Lien was not recorded, OPI cannot rely on such tax lien to set aside the CCD. OPI contends that since the CCD is still not recorded, OPI may rely on the tax lien to set aside the CCD under Section 70(c) of the Bankruptcy Act. 750The City has admitted that it has never owned and does not own the parking stalls. It has also admitted that the CCD is a conveyance document. In its Memorandum in Opposition to Motion for Summary Judgment, filed in the First Circuit Court on February 3, 1978, Exhibit E to its Memorandum in Opposition to Motion For Summary Judgment, the City stated: “The stalls involved here are not now and never owned by the City. . . . ” “The language of the CCD clearly indicates, however, that it is a conveyance document, intended to serve as a deed to convey the stalls to the City when certain conditions have been met.” It must be also noted that the City has never challenged Banker’s Trust’s Additional Charge Mortgage as being void for affecting property (parking stalls) owned by City. HRS 231-33(a)(3) reads as follows: “(3) The interest of a party, if required to be recorded or entered of record in any public office in order to be valid against subsequent purchasers, does not arise pri- or to the time of such recording or entry of record.” HRS 231-33(b) provides as follows: “(b) Any state tax which is due and unpaid is a debt due the state and constitutes a lien in favor of the state upon all property and rights to property, whether real or personal, belonging to any person liable for the tax. The lien for the tax, including penalties and interest thereon arises at the time the tax is assessed, or at the time of filing by the department of taxation of the certificate provided for by subsection (f) whichever first occurs. From and after the time the lien arises it is a paramount lien upon the property arid rights to property against all parties, whether their interest arose before or after that time, except as otherwise provided in this section.” HRS 231-33(c) provides as follows: “(c) The lien imposed by subsection (b) is not valid as against: (1) A mortgagee or purchaser of real property, or the lien of a judgment creditor upon real property, whose interest arose prior to the recording by the department of the certificate provided for by subsection (f);” HRS 231-33(f) provides as follows: “(f) The department may record in the bureau of conveyances at Honolulu, . a certificate setting forth the amount of taxes due and unpaid, which have been returned, assessed, or as to which a notice of proposed assessment has issued. The certificate shall identify the tax or taxes involved. The certificate shall include such further information, if any, as may be required by Chapter 501 to procure a lien on registered land. The recording or filing of the certificate has the effect set forth in this section, but nothing in this section shall be deemed to require that a certificate recorded or filed by the department must include the amount of any penalty or interest, in order to protect the lien therefor . . . ” In the instant ease, the State Tax Lien was assessed on November 20, 1978, based upon tax returns earlier filed. Based on such returns earlier filed, under Section 231-33(b), by November 20, 1978, the State held a paramount tax lien upon all of the real property interest owned by OPI. HRS 231-33(c)(l) provides that a State Tax Lien is not valid against a purchaser of real property whose interest arose prior to the recording by the Department of Taxation of the certificate provided for by subsection (f). In the instant case, since Land Court property is involved, City was required to register the CCD to perfect its interest against subsequent purchasers. HRS 501-101 and HRS 501-82. Since the CCD has not yet been recorded, City has no interest in the parking stalls protected by HRS 231-33(c)(1). Thus, the State Tax Lien prevails over City’s unrecorded CCD. 3. Trust The City contends that the CCD was placed in escrow for its benefit only and 751that, upon the fulfillment of certain conditions precedent, escrow was required to record said CCD. The City claims that it had performed all of its obligations and that there was nothing else left for it to do; thus, escrow was holding the CCD in trust for its (City’s) benefit. The facts are clear that the CCD was delivered to escrow with instructions that the CCD be delivered to City when escrow was notified in writing that: (1) the Interim Construction Lender had been paid in full or there was a recorded release of the Interim Lender’s Mortgage and (2) that OPI received its total development cost as provided in the CCD, or January 31, 1979, had passed, which ever occurred first. Even though January 1, 1979 has passed, the Interim Construction Lender (Banker’s Trust) has not yet been paid in full. Until it is paid in full, the CCD cannot be recorded. Thus, the escrow is for the protection of not only City, but also for Banker’s Trust. City cannot complain at the escrow arrangement, for had OPI permitted the CCD to be recorded without approval of Banker’s Trust, the Bank would have foreclosed on its original mortgage, free and clear of the CCD. And as previously discussed under the heading of (2) The State Tax Lien, in its own memorandum filed in the State Circuit Court on February 3, 1978, City had admitted that it held no interest in the parking stalls. Based on the foregoing and other matters discussed in the original Findings of Fact, the Court finds that there is no trust by virtue of the escrow arrangement. 4. Conduct and Status of Banker’s Trust Banker’s Trust first mortgage was executed and filed with the Land Court prior to the execution of the CCD. Said mortgage contained a provision that no assignment of interest in the real property covered by said mortgage may be filed without consent of Banker’s Trust. A violation of said provision constituted a breach of the mortgage. City attempted to have Banker’s Trust consent to filing of the CCD with the Land Court. However, Banker’s Trust refused. City contends that such refusal on the part of Banker’s Trust shows that Banker’s Trust was instrumental in preventing filing of the CCD. And that, since the Additional Charge Mortgage was executed and filed after execution of the CCD, City claims that the Additional Charge Mortgage cannot be used by OPI as a basis of a Section 70(e) claim. No fraud was alleged against Banker’s Trust by City. The conduct of Banker’s Trust was that of a “prudent businessman.” Banker’s Trust did not consent to a filing of the CCD to protect its own interest. Banker’s Trust was under no obligation to protect City’s interest. As this Court had previously stated, under the law of Hawaii, actual knowledge of a mortgage or purchase of Land Court property that is not properly filed is immaterial provided that the subsequent purchaser files first. City and County of Honolulu v. Clarke, 60 Haw. No. 6124 (1978). Mortgagees are generally treated as the equivalent of purchasers. However, mortgagees are still required to give value to be protected under Section 70(e). In the instant case, the Additional Charge Mortgage shows that it was based on a pre-existing debt. No evidence was presented to show that said Additional Charge Mortgage was given for any other consideration. The prevailing view is that a mortgage for a pre-existing debt is not given for value so as to entitle the mortgagee as a purchaser for value. 55 Am.Jur.2d “Mortgagor” Sec. 324, citing numerous cases. The Court thus finds that Banker’s Trust is not a “purchaser for value”. Consequently, OPI may not rely on the rights of Banker’s Trust to avoid the CCD under Section 70(e) of the Bankruptcy Act. To this extent, the Findings of Fact and Conclusions of Law dated October 23, 1979 is modified. 7525. Insolvency of OPI Since the Court has not discussed the matter of preference, the Court finds the matter of the insolvency of OPI to be moot. Based on the foregoing, the Court hereby amends the Findings of Fact and Conclusions of Law to show that, under the facts presented to the Court, Banker’s Trust is not a purchaser for value and thus OPI cannot rely on Banker’s Trust’s position to set aside the CCD. However, because OPT may still rely on the State Tax Lien to set aside the CCD which is still not noted on the TCT, the judgment entered herein is affirmed.	01-04-2023	11-22-2022
https://www.courtlistener.com/api/rest/v3/opinions/8488833/	ORDER REDUCING FEE OF ATTORNEY FOR THE BANKRUPT THOMAS C. BRITTON, Bankruptcy Judge. The bankrupt’s attorney charged and received $1,060 in payment for his services in this matter. The bankrupt had $228,000 debts as against nominal assets over and above the exemptions allowed by Florida *30law. He had $60 in cash at the time of bankruptcy, having paid, presumably, all the rest of his cash to his attorney. It is this court’s duty to examine such fees if they appear excessive, because the bankrupt has little incentive to conserve his estate for the benefit of creditors. In re Wood & Henderson, 210 U.S. 246, 253, 28 S.Ct. 621, 52 L.Ed. 1046 (1908); Collier on Bankruptcy ¶ 62.30, 62.31. In accordance with the provisions of B.R. 220(a), notice was given for such an examination. (C.P. No. 5) A hearing was held on November 20, 1979. Mr. Lesser is an experienced, capable attorney who has practiced for 20 years. He had not previously represented this individual. The individual bankrupt had been involved with several wholly owned corporations and his affairs, therefore, were somewhat more complex than those of a typical wage earner. Mr. Lesser’s time records reflect only nine hours spent in this matter but he estimates a total of between ten and twelve hours were spent by him through the first meeting of creditors. He is permitted to charge for services rendered only through that date. I find that a reasonable fee for the services actually rendered by him in this instance was $750 and the balance received by him of $310, shall be paid over forthwith to the trustee. The fees typically charged in Palm Beach County and, indeed, in the entire District, for representation in an individual bankruptcy typically range from less than $200 to $500. The circumstances referred to above justify a slight increase in that charge but do not support the entire payment received in this instance.	01-04-2023	11-22-2022
https://www.courtlistener.com/api/rest/v3/opinions/8488834/	SECOND ORDER FOR FEES FOR OPPOSITION TO CONFIRMATION THOMAS C. BRITTON, Bankruptcy Judge. Arthur S. Weitzner, as attorney for several creditors in this case, has applied for compensation from the estate under § 64a(3) of the Act. (C.P. No. 95) That section accords a priority status to “the reasonable costs and expenses” of creditors in blocking confirmation of a Chapter XI arrangement. These creditors through this attorney twice achieved that result in this case. Therefore, by order entered on July 26, 1979 (C.P. No. 101) Weitzner’s application was granted. On the debtor’s motion (C.P. No. 104), that order was later set aside (C.P. No. 109) because notice had not been given upon the motion in accordance with B.R. 11 — 24(a)(7). The matter has been reheard and briefed by the parties. I am now satisfied that the notice requirement was met in the Order for First Meeting, paragraph seven. (C.P. No. 8) The confirmation hearing was held on July 25, 1979 (C.P. No. 92) and Weitz-ner’s application was filed before that hearing. Weitzner’s application is opposed on two grounds: (1) that no ultimate benefit accrued to the creditors from this service and (2) that the creditors have not paid the fee and the expenses. In re Fashion Shop, Inc., E.D.Pa. 1934, 6 F.Supp. 533, 539 is, perhaps, the only reported decision touching these points. The District Judge in that case rejected the Bankruptcy Court’s conclusion that there must be an actual monetary benefit to the creditors before the estate may be charged for expenses incurred in defeating confirmation. There is no such requirement in § 64a(3) and as the District Court states: “We do not think we are at liberty to add further conditions which the act does not impose.” I agree. The first objection to Weitzner’s application is without merit. The District Court also held, with respect to the second objection, that: “The original petition was by counsel for the allowance of a fee to him. Clearly he is given no such right by the act. . In making this comment we do not wish to be understood as distinguishing between an expense paid by the creditor and one incurred. Whatever question might thus arise is not before us. The petition does not ask for the allowance for ‘reasonable expenses’ paid or incurred, but for counsel fees qua counsel fees for services, as we have said, as if rendered to the bankruptcy estate. Such claim we think was properly rejected.” This holding is cited with approval in Collier on Bankruptcy (14th ed.) ¶ 64.302 n. 6 and is in line with the strict construction given all fee provisions contained in the Bankruptcy Act. In re Joslyn, 7 Cir. 1955, 224 F.2d 223, 225. The application before me cannot be distinguished from the one rejected by both the Bankruptcy Court and the District Court in In re Fashion Shop, Inc. For that reason, Mr. Weitzner’s application is denied.	01-04-2023	11-22-2022

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