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https://www.courtlistener.com/api/rest/v3/opinions/8488984/ | MEMORANDUM OPINION AND ORDER
EDWARD B. TOLES, Bankruptcy Judge.
This cause coming on to be heard upon the adjourned first meeting of creditors, the adjourned hearing on indemnity and the adjourned hearing on adjudication or dismissal, pursuant to Section 481(2) of the 1898 Bankruptcy Act (“Bankruptcy Act”) and Chapter XII Rule 12-41(b) and Chapter XII Rule 12-19(d) of the Rules of Bankruptcy Procedure, and due and proper notice of these hearings having been given to all parties entitled thereto, and
The Court having held hearings on the above-mentioned matters on June 3, 4, 5, 24, 25, and 30,1980, and on October 9,1980, and the Court having heard evidence, and the Court having examined the pleadings and files in this cause, and having heard arguments of counsel, and being fully advised in the premises;
The Court Finds:
1. The Debtors, KMJ-72 and WICKEN-BURG INN DEVELOPMENT COMPANY (“Debtors”), represented by the law firm of NACHMAN, MUNITZ & SWEIG, LTD., are both Arizona limited partnerships. The Creditor, ALAMAND CORPORATION, is a Delaware corporation, and the Creditor, DIXIT CORPORATION, is a California corporation and a wholly owned subsidiary of ALAMAND CORPORATION. ALAMAND CORPORATION and DIXIT CORPORATION (“Creditors”) are represented in this *535proceeding by the law firm of KATTEN, MUCHIN, GITLES, ZAVIS, PEARL & GALLER.
2. In September 1973, February 1974, and between February 1974 and February 1975, the Creditor, ALAMAND CORPORATION, through its predecessor in interest, BENEFICIAL STANDARD MORTGAGE INVESTORS (“BSMI”), loaned the Debtors the aggregate sum of $4,400,000.00 for the construction and development of the Wick-enburg Inn (“Inn”). The Inn is a 160 acre tennis and dude ranch located in Wieken-burg, Arizona, about 60 miles north of Phoenix, Arizona. The Inn is surrounded by 2,400 acres of undeveloped desert land which is the subject of two land trusts, White and Suggs (“Trusts”), in which the Debtor, KMJ-72, held second beneficial interests.
3. On August 11,1976, as further security for payment on the above-mentioned obligations, the Debtor, KMJ-72, assigned its second beneficial interests in the Trusts to the Creditor, ALAMAND CORPORATION. In the autumn of 1978 the Creditor, DIXIT CORPORATION, purchased the first beneficial interests in the Trusts.
4. In 1975 the Creditors instituted a foreclosure action against the Debtors in the Superior Court of Yavapai County, Arizona, which was settled by agreement among the parties on August 11, 1976. On July, 18, 1977, a second foreclosure action was instituted by the Creditors in the Superior Court of Yavapai County, Arizona, and the Debtors have denied liability and have counterclaimed on the grounds of fraud and breach of the 1976 settlement agreement. On September 30, 1977, the Superior Court of Yavapai County, Arizona appointed Ira Edward Cheek receiver of the Inn and the surrounding 2,400 acres of undeveloped desert land.
5. On January 26, 1978, the Debtors were notified that they were in default on the Trusts and that they had until November 7, 1978, at 2:00 P.M., Mountain Standard Time, to cure such defaults or forfeit their interests in the Trusts. On November 7, 1978, at 2:30 P.M., Central Standard Time, the Debtors filed two separate Petitions for Arrangements under Chapter XII of the Bankruptcy Act in the United States District Court for the Northern District of Illinois situated in Chicago, Illinois; said cases were assigned to the Honorable Frederick J. Hertz, Bankruptcy Judge, as Case Numbers 78 B 8732 and 8733, and were consolidated on November 7, 1978.
6. On March 29, 1979, the Debtors filed a plan of arrangement, and then filed an amended plan of arrangement on September 21,1979. On October 6,1980, the Debtors filed a second amended plan of arrangement after proofs were closed on the hearings on adjudication or dismissal on June 30,1980, and pending this Court’s final decision. On July 23,1979, the Creditors filed a plan of arrangement. Sufficient acceptances have not been filed to confirm the Debtors’ amended plan of arrangement filed on September 21, 1979, or the Creditors’ plan of arrangement filed on July 23, 1979. On October 9, 1980, the Clerk of the United States Bankruptcy Court for the Northern District of Illinois filed a memorandum with this Court which reads as follows:
*536
7. On November 7, 1978, the Debtors filed a complaint for a temporary restraining order and a complaint for an injunction against foreclosure on the Trusts in the Arizona state court before the Honorable Frederick J. Hertz, Bankruptcy Judge, and a temporary restraining order was entered on November 7,1978. On January 23,1979, a preliminary injunction was entered restraining the Creditors from foreclosing upon the Debtors’ interests in the Trusts in Arizona state court, and on January 29, 1979, the Creditors filed a notice of appeal from the January 23, 1979, order. Said appeal is currently pending before the Honorable Hubert L. Will, United States District Court Judge for the Northern District of Illinois, Case Number 79 C 805.
8. On November 27, 1978, the Creditors filed a motion to dismiss Case Number 78 B 8732 for want of jurisdiction or in the alternative to dismiss or transfer both of the above-entitled cases for improper venue. On July 27, 1979, the Honorable Frederick J. Hertz, Bankruptcy Judge, denied the Creditors’ motion, and on July 30, 1979, the Creditors filed a notice of appeal to the United States District Court for the Northern District of Illinois. Said appeal is currently pending before the Honorable Hubert L. Will, United States District Court Judge for the Northern District of Illinois, Case Number 79 C 3587.
9. On February 9,1979, more than three months after the filing of these Chapter XII proceedings and one month after the entry of the preliminary injunction on January 23, 1979, the Debtors first filed their complaint to determine the validity and extent of liens. Said complaint is similar to the Debtors’ counterclaim of fraud and breach of the 1976 settlement agreement filed in the second foreclosure action pending before the Superior Court of Yavapai County, Arizona. On April 27, 1979, five months after the filing of this case, the Debtors amended said complaint. On March 9, 1979, the Creditors filed their answer and for the first time filed a counterclaim to lift or modify the automatic stay, pursuant to Rule 12-43(d) of the Rules of Bankruptcy Procedure which provides for hearings for relief from the stay at, “the earliest possible date, and it shall take precedence over all matters except older matters of the same character.”
10. In order to prepare for trial on matters pending before the Honorable Frederick J. Hertz, Bankruptcy Judge, the Creditors sought extensive discovery. On January 29,1980, Judge Hertz ordered the Debtors to produce all written agreements or memoranda of verbal agreements pertaining to the creation of a joint venture for the development, sale, financing or refinancing of the Inn by and among the Debtors and various financing sources, including John B. Wogan, Jr. (“Wogan”), a real estate developer in Denver, Colorado. Under said order, the Creditors were precluded from showing or delivering said documents or passing on information contained therein to any other person, firm or corporation, and the use of said documents was limited to the pending Chapter XII proceeding.
11. On December 3, 1979, some 13 months after the filing of this Chapter XII proceeding, the Creditors filed a petition for withdrawal of reference from the Honorable Frederick J. Hertz, Bankruptcy Judge, with the Executive Committee of the United States District Court for the Northern District of Illinois (“Executive Committee”), and alleged undue delay of this proceeding. On December 7, 1979, the Executive Committee denied the Creditors’ petition without prejudice, with leave to renew said petition in ninety days. On February *53729, 1980, the Creditors filed a second petition for withdrawal of reference with the Executive Committee. On March 7, 1980, the Executive Committee withdrew the reference of the above captioned matter from the Honorable Frederick J. Hertz, Bankruptcy Judge, and this case was reassigned to the undersigned, Edward B. Toles, Bankruptcy Judge.
12. On April 25,1980, after due notice to the parties, this Court, the undersigned presiding, set the adjourned first meeting of creditors, the adjourned hearing on indemnity, and the adjourned hearing on adjudication or dismissal for June 3, 4, and 5, 1980. Said hearings were held on the above-mentioned dates, and further hearings were held on June 24, 25, and 30,1980. On May 9, 1980, this Court modified the January 29, 1980, order entered by Judge Hertz, and required the Debtors to produce to the Creditors for inspection within 15 days documents pertaining to the creation of a joint venture for the development, sale, financing or refinancing of the Inn. The documents to be produced specifically included the following: correspondence, memoranda, written proposals, applications to lenders, commitment letters, financial statements, reports, projections and development plans. On May 12, 1980, the Creditors filed a notice of deposition of Wogan, who resides in Denver, Colorado, and on May 21,1980, this Court denied the Debtors’ motion to quash the deposition of Wogan. On May 27, 1980, upon the Creditors’ motion, the Honorable John F. McGrath, Bankruptcy Judge, United States Bankruptcy Court, District of Colorado, in Denver, Colorado, issued a subpoena duces tecum, and required Wogan to appear for a deposition on May 29, 1980, with his business records pertaining to the development of the Inn. On May 29, 1980, Wogan filed a motion to quash the subpoena duces tecum, and on that date Judge McGrath ordered Wogan to deliver said records to this Court for in camera inspection and a ruling whether said records should be released to the Creditors. Pursuant to the order of Judge McGrath, on May 30, 1980, eight folders of documents were received by this Court from the law firm representing Wogan in Denver, Colorado, BADER & COX. On June 3, 1980, this Court received an additional folder of documents from the law firm of BADER & COX. On June 13,1980, the Creditors filed a motion for the production of the documents received by this Court on May 30, 1980, and on June 3, 1980. On June 23, 1980, the Creditors were permitted to examine said documents, in chambers, and introduced relevant portions into evidence at the hearings on adjudication or dismissal. On June 30, 1980, proofs were closed, and this Court, after arguments of counsel, ordered the parties to file proposed findings of fact and conclusions of law on or before July 31, 1980. Said findings were filed on that date.
13. Clearly, from the facts heretofore stated all parties, Creditors and Debtors, were dilatory in prosecuting this action during the 16 month period in which it pended before the Honorable Frederick J. Hertz, Bankruptcy Judge. Apparently, during said period the parties were attempting to arrive at a settlement of the matters, as transpired in the first foreclosure action filed in 1975 and settled by agreement of the parties on August 11, 1976. The testimony before this Court of Joseph Ehrenr-eich, chief financial officer of the Creditor, ALAMAND CORPORATION, demonstrates that the parties were involved in extensive and detailed settlement negotiations while this ease pended before Judge Hertz. (See Debtors’ Exhibit One received in evidence, Letter dated June 20, 1979, from Joseph Ehrenreich, chief financial officer of ALAMAND CORPORATION).
The Court Concludes and Further Finds:
1. The purpose of Chapter XII of the Bankruptcy Act is to provide a means for the rehabilitation of debtors, other than corporations, who are insolvent, and whose debts are secured by real property. Typically, a Chapter XII proceeding includes creditors having a security interest in the debtor’s real property, and may encompass both secured and unsecured creditors. Under Chapter XII of the Bankruptcy Act the goal is to keep the debtor in business during the preparation of a plan of arrangement *538by which all creditors are to be paid. Once a debtor files a voluntary petition for an arrangement under Chapter XII of the Bankruptcy Act, the bankruptcy court obtains exclusive jurisdiction over the debtor’s property, wherever situated. In order to insure that the debtor has an opportunity to propose a viable plan, Chapter XII of the Bankruptcy Act provides for the stay of all lien enforcement proceedings. Once the debtor proposes a plan of arrangement, it is reviewed by the court at the meeting of creditors. Also, certain creditors may file a proposed plan of arrangement.
2.Under Section 481(2) of the Bankruptcy Act and Rule 12 — 41(b)(1) of the Bankruptcy Rules of Procedure a case may be dismissed for want of prosecution. Rule 12-41(b)(l) of the Bankruptcy Rules of Procedure reads as follows:
(b)Dismissal or Conversion to Bankruptcy for Want of Prosecution, Denial of Confirmation, Default, or Termination of Plan. The court shall enter an order, after hearing on such notice as it may direct dismissing the case, or adjudicating the debtor a bankrupt if he has not been previously so adjudged, or directing that the bankruptcy case proceed, whichever may be in the best interest of the estate —(1) for want of prosecution....
While the purpose of Chapter XII arrangement proceedings is to allow the debtor ample time to reorganize and rehabilitate itself, free from the threat of foreclosure action, courts must consider seriously the interests of creditors and the diminution of the estate by the continued pendency of the Chapter XII case. In re Spicewood Associates, 445 F.Supp. 564, 573 (N.D.Ill.1977); Gardens of Cortez v. John Hancock Mutual Life Ins. Co, 585 F.2d 975, 978 (10th Cir. 1978) (per curiam); In re Colonial Realty Investment Co., 516 F.2d 154, 160 (1st Cir. 1975); Taylor v. Wood, 458 F.2d 15, 16 (9th Cir. 1972) (per curiam); In re Samoset Associates, 3 B.C.D. 393, 396 (D.Me.1978). See generally, Norton, Real Property Arrangements Chapter XII, Federal Bankruptcy Act, Part 14, Motion to Dismiss (1st Ed. 1977).
3. Undoubtedly, this proceeding has been characterized by want of prosecution and lack of progress toward the confirmation of a plan of arrangement. For 24 months the Debtors have sought help from several financial institutions, equity investors, and real estate developers. Not one of these sources has yielded a single firm commitment to lend new monies or make new equity investments in the Inn. Throughout this proceeding the Creditors have demonstrated that they are unalterably opposed to the confirmation of a plan of arrangement, as proposed by the Debtors. In reaching its conclusion this Court has specifically taken into consideration the following facts:
(a) The only substantial asset in said estate consists of real estate, the Inn, which the Creditors had a mortgage upon at the time of the filing of the petition for an arrangement, and which is being operated by a state court appointed receiver;
(b) The probability of a reorganization or rehabilitation of the Debtors is remote, and there is no likelihood that a plan of arrangement will be accepted or confirmed within the near future;
(c) There is a continuing loss to or diminution of the estate, and an absence of a reasonable likelihood of rehabilitation, and there is unreasonable delay by the Debtors that is prejudicial to the Creditors in view of the Debtors’ inability to effectuate a plan; and,
(d) It would not be in the best interest of this estate and its creditors for this Chapter XII proceeding to continue to pend. The foreclosure action against the Debtors which has been filed and is pending in Arizona state court, and in which action the Debtors have counterclaimed on the bases of fraud and breach of the 1976 settlement agreement, may proceed without the continuance of this Chapter XII proceeding.
4. Under similar circumstances the United States Court of Appeals for the Ninth and Tenth Circuits have upheld the dismissals of Chapter XII proceedings. In Taylor v. Wood, 458 F.2d 15 (9th Cir. 1972) (per curiam) it was noted that:
*539(T)he Woods (the sole affected creditors) had been restrained from foreclosing their deed of trust since the inception of the proceedings; and that the debtor had received no bona fide offer (after consultation with over 400 real estate brokers) to purchase the property. Id. at 16.
In Gardens of Cortez v. John Hancock Mutual Life Ins. Co., 585 F.2d 975 (10 Cir. 1978) {per curiam) the bankruptcy court had dismissed a Chapter XII proceeding without granting the debtor an opportunity to present an amended plan of arrangement, and without taking evidence on the creditor’s motion to lift the stay-and the debtor’s counterclaim of alleged tortious interference with contract. The Court noted that:
(A)s of the date of the dismissal order Cortez (debtor) had satisfied the claims of all unsecured creditors, and that its principal secured creditor, Hancock, was unalterably opposed to any plan and preferred to pursue its foreclosure rights in the state court. In such circumstance, submitting an alternate plan would be useless .... Hancock’s request that the stay order be lifted became moot when the bankruptcy judge dismissed the petition. And by the same token, having dismissed the petition, the bankruptcy court lost jurisdiction to proceed further with Cortez’ counterclaim. Id. at 978.
IT IS THEREFORE ORDERED, ADJUDGED and DECREED that the above captioned Arrangement Proceedings herein filed under Chapter XII of the Bankruptcy Act, be, and the same are hereby dismissed for want of prosecution. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8488985/ | FINDINGS OF FACT AND CONCLUSIONS OF LAW ON COMPLAINT FOR RELIEF FROM AUTOMATIC STAY
SIDNEY M. WEAVER, Bankruptcy Judge.
THIS CAUSE having come on to be heard upon Plaintiff’s Complaint for Relief from Automatic Stay, and the Court having heard the testimony, and examined the evidence presented, having considered the arguments of the parties, and being fully advised in the premises, does hereby make the following findings of fact and conclusions of law:
The Complaint for Relief from Automatic Stay filed herein by Plaintiff was duly served upon the Debtor and this Court has accepted jurisdiction over the subject matter thereof and the parties thereto.
On or about March 3, 1979, the Debtor agreed and entered into a retail installment contract (the “Contract”) with the Plaintiff. By stipulation of the parties, Exhibit “A” to the Complaint filed herein is a true copy of the Contract.
By virtue of the terms of the Contract, the Debtor obligated himself to Plaintiff for the amount of FOURTEEN THOUSAND ONE HUNDRED THIRTEEN and 80/100 DOLLARS ($14,113.80) to be paid in sixty (60) monthly installments, each in the amount of TWO HUNDRED THIRTY-FIVE and 23/100 DOLLARS ($235.23).
*642Pursuant to the Contract, Plaintiff was granted a security interest in and lien on the following described property:
1979 Dodge Van, Serial # B21JE9K322812
Plaintiff has duly perfected its aforesaid security interest and lien by noting the existence thereof on the certificate of title covering the aforedescribed motor vehicle.
Due to the Debtor’s failure to timely pay Plaintiff installments due it under the Contract, Plaintiff repossessed the subject motor vehicle from the Debtor on or about September 8, 1980. Plaintiff has had possession of the subject motor vehicle since it was repossessed based upon the belief that disposition thereof was prohibited by virtue of the automatic stay arising out of the Debtor’s petition under Chapter XIII of the Bankruptcy Reform Act of 1978, which petition was filed on September 10, 1980.
The evidence adduced by Plaintiff reflects that the Debtor is presently indebted to Plaintiff in the sum of EIGHT THOUSAND EIGHT HUNDRED SEVENTY and 3/100 DOLLARS ($8,870.03), under the Contract, as well as Plaintiff’s costs for repossession, care and custody of the subject motor vehicle.
Further, the testimony of Plaintiff’s expert witness demonstrated that by virtue of the age, condition and model of the subject motor vehicle, said motor vehicle had a value of approximately SIX THOUSAND FIVE HUNDRED and no/100 DOLLARS ($6,500.00) as of November, 1980, and a value of approximately SIX THOUSAND and no/100 DOLLARS ($6,000.00) as of February, 1981. Such testimony was based upon the highest signed written bids submitted by three local dealers after each dealer had an opportunity to inspect and appraise such motor vehicle.
It appeared to the Court that the Debtor had no present means of satisfying, in full, his indebtedness to Plaintiff due to the garnishment of his wages on July 22, 1980 to fulfill a State Court Contempt Judgment entered in a child support proceeding on March 24, 1980.
Based upon the foregoing, the Court concludes that since the Contract balance owed by the Debtor to Plaintiff, exclusive of repossession and storage charges, exceeds the average value of the subject motor vehicle, the Debtor has no equity in said motor vehicle. Further, the Court concludes that due to the. Debtor’s inability to repay his debt to Plaintiff and the absence of any present prospects for such repayment, Plaintiff is without adequate protection of its interest in the subject motor vehicle.
Accordingly, the Court holds that Plaintiff has established its right to relief from the automatic stay entered herein as it has shown cause therefor as prescribed in § 362(d) of the Bankruptcy Reform Act of 1978, 11 U.S.C. § 362(d).
The Debtor filed a Counterclaim alleging damages suffered as a result of Plaintiff’s alleged failure to dispose of the collateral in a commercially reasonable manner. It appeared to the Court that although the motor vehicle was repossessed prior to the filing of Debtor’s petition, and thus would be outside the property of the Estate, the Debtor was still claiming an interest in the subject property.
It is the holding of the Court that Debt- or’s Counterclaim be denied on the ground that the relief sought was not available in this instance.
Further, it is the holding of the Court that Plaintiff is not entitled to recover judgment against the Debtor should a deficiency result from disposition of the aforesaid property.
A judgment will be entered in accordance with these findings and conclusions. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8488986/ | FINAL JUDGMENT
JOSEPH A. GASSEN, Bankruptcy Judge.
Plaintiff, Dade Savings and Loan Association filed its complaint to modify stay, seeking to continue its foreclosure on the home of the debtor-defendant, Iliana M. Rodriguez.
The facts are not now in dispute. Prior to the bankruptcy proceeding, Dade Savings obtained a final judgment of foreclosure of plaintiff’s first mortgage against the debtor’s property. On the eve of the foreclosure sale, the debtor’s voluntary chapter 7 bankruptcy petition was filed thus causing the automatic stay under 11 U.S.C. § 362 to apply. In the bankruptcy proceeding, the property was set aside as exempt and no objections were filed. The debtor did not seek to avoid or invalidate the mortgage lien.
The preliminary question to be decided is whether the court has authority to enter any order affecting the rights of the parties as to this mortgage. Although originally bringing this adversary action, plaintiff now contends that since the property has been exempted and is no longer property of the bankruptcy estate, this court is without jurisdiction to enter any order affecting a lien on the property.
While all property in which the debtor had an interest comes into the bankruptcy estate under 11 U.S.C. § 541, property may be exempted, and thus removed from the estate, under 11 U.S.C. § 522(b), as was done here. However, the Bankruptcy Code contemplates the continued jurisdiction of the court to hear certain matters related to exempt property, such as the avoidance of certain liens on exempt property as permitted by 11 U.S.C. § 522(f).
This court need not determine whether that jurisdiction extends to decide a complaint to lift stay, however, because it concludes that the stay has already lifted under the terms of 11 U.S.C. § 362. Even after this property was no longer property of the estate, plaintiff’s foreclosure action continued to be stayed under § 362(a)(5) which *644stays “any act to ... enforce against property of the debtor any lien to the extent that such lien secures a claim that arose before the commencement of the case under this title”. But § 362(c)(2) provides that such a stay continues only until the earliest of the time when the case is closed or dismissed or the time when a discharge is granted to the debtor. The debtor has received her discharge in this case and by the terms of § 362, the automatic stay has lifted as to plaintiff’s foreclosure action. Cf. Guild Mortgage Company v. Cornist, 7 B.R. 118 (S.D.Cal.1980). In view of the foregoing, it is
ORDERED and ADJUDGED that the stay heretofore in effect no longer applies to plaintiff’s state court foreclosure action and there is nothing pending in this court which restrains plaintiff from continuing the prosecution of that foreclosure action. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8488989/ | DECISION AND ORDER
CHARLES A. ANDERSON, Bankruptcy Judge.
PRLIMINARY PROCEDURE
Pauline Perkins filed a voluntary petition in bankruptcy on 7 May 1980. Among assets scheduled was a life insurance policy (No. 97253) on her life with Commonwealth Life Insurance Company, naming as beneficiary her ex-husband and a policy (Certificate No. 5000160) on her life with Modern Woodmen of America, also naming as beneficiary her ex-husband. These policies were claimed as exempt pursuant to the Ohio Revised Code Sections 2329.66(A)(6)(b) and 2329.66(A)(6)(d).
On 30 June 1980 James R. Warren, the Trustee in Bankruptcy, filed an objection to these claimed exemptions. On 11 July 1980, the Debtor filed an amended claim of exemption for the policies, adding Ohio Revised Code Sections 3921.18 and 3911.10; and, a motion to strike Trustee’s objections, which was set for hearing on 15 August 1980.
On 14 July 1980, the Trustee filed an objection to the amended claims of exemptions.
FINDINGS OF FACT
The total cash surrender value of both policies in question is in the total amount of $1,170.41 and the named beneficiary was never changed after the divorce of the Debtor.
The life insurance contract (certificate of insurance) with Modern Woodmen was purchased in the same fashion as the Commonwealth policy; namely, on solicitation of insurance agents. At the time of the purchase of the Modern Woodmen policy, the Debtor was never made aware of being a member of any society. Furthermore, she has never participated in any lodge system activities, or ever knew that any ritualistic society even exists. She merely paid her premium charges when due and considered her life insurance in effect as such. The fact that she automatically became a member of a society by purchasing insurance was never brought to her attention.
According to the Debtor, she never heard of or participated in any type of initiation or any ceremony after dealing with the *811insurance agent for the purpose of purchasing life insurance. She has never been contacted by or in contact with, any officials or members of any fraternal society.
The policy was physically enclosed in a storage envelope provided by the insurer, with logo and printed virtues recited thereon, such as “Modern Woodmen of America, Rock Island, Illinois . . . since 1883 Life Insurance for the entire family;” and “Modern Woodmen of America is named, controlled and operated by and for its members. Patronize it when your needs for life insurance change;” and, “your life insurance contract is valuable property and was purchased to cover the following: Clean up fund — readjustment income — mortgage cancellation — retirement income — education — family security — juvenile insurance— savings.”
The documentary evidence, nevertheless, reflects a fraternal society image and format. Modern Woodmen was authorized by the State of Ohio Department of Insurance “to transact in this State, in accordance with the laws thereof ... the business of Fraternal Insurance as prescribed in the statutes of the State of Ohio.”
The 1978 Revision of By-Laws provides, inter alia, that the principal office of Modern Woodmen of America shall be at the city and county of Rock Island, Illinois, and, as follows:
“Sec. 2, NATURE, PURPOSES AND OBJECTIVES” — This Society is a fraternal benefit society incorporated under the laws of the State of Illinois. It is the objective and purpose of the Society to bring together persons of exemplary habits and good moral character into a fraternal benefit society and thereby to provide for the social, intellectual, moral, and physical improvement of its members; to promote fraternal relationships and foster acts of fraternity, charity, and benevolence by and among its members; to encourage and strengthen the concept of the conventional and traditional family unit to assist its members in living in harmony with their environment; and to provide death, disability, annuity, and other benefits, rights and privileges of its members and their beneficiaries as authorized by these By-Laws and in accordance with the laws of Illinois pertaining to fraternal benefit societies.
The By-Laws contemplate and establish two categories of membership. One category is for “Beneficial members” of “qualified age who have furnished acceptable evidence of insurability.” The other category is “Social members” of qualified age who are not Beneficial Members but who support the general objectives and purposes of the Society and desire to become members of a local Camp and pay the required dues ...”
The Articles of Incorporation specifies, as follows:
“3. This corporation is a fraternal benefit society, without capital stock, organized and carried on for the sole benefit of its members and their beneficiaries and not for profit, having a lodge system with ritualistic form of work and representative form of government. The purpose of the Society shall be to encourage and foster acts of fraternity by and to promote fraternal relationships among its members and to provide death, disability and other benefits, rights and privileges as authorized by its By-Laws and in accordance with the laws of Illinois. It may create, maintain, and disburse funds in accordance with its By-Laws and the laws of Illinois. The payment of benefit in all cases, shall be subject to compliance by the member with the contract, rules and laws of the Society.
“4. The plan which shall be followed in carrying out the purpose of this Society is as follows, to wit: By the organization of local Camps and a National Convention as defined in the By-Laws. The local Camps shall have stated meetings at least once a month, and the National Convention shall meet at least once in four calendar years. The National Convention shall be the legislative and governing body of the Society, having jurisdiction over all subordinate Camps and officers and members of the Society. It shall be the judge of the election and qualification of *812its own members. It shall possess the power to do and perform any and all acts and things by it deemed essential to the welfare and perpetuity of the Society and in conformity with the laws of the State of Illinois. The Society shall have the power to acquire, hold and convey such real and personal property as shall be requisite for the convenience accommodation of the transaction of its business and such as may come into its possession by reason of its investments or in satisfaction of indebtedness. The Society may create, maintain, and operate for the benefit of its sick, disabled, aged, or distressed members and their families and dependents, hospitals, asylums, homes or sanatoriums, and for such purpose may own, hold or lease personal property and real property located within or without the State of Illinois, with necessary buildings thereon.”
The documentary evidence adduced was obtained from Modern Woodmen, after the Trustee’s objection, and no such material as the By-Laws and purposes of the organization had ever been seen by the Debtor prior to that time. The Debtor, upon being examined by the Trustee at the first meeting of creditors testified she was not a member of the society.
The certificate of life insurance issued to Pauline Perkins, however, is a typical “legal reserve basis” life insurance contract and in no manner confers any social or other benefits, as recited by the By-Laws. If the insured does not pay her premiums, she then is no longer a “member”.
CONCLUSIONS OF LAW
In analyzing the questions of law, it must initially be observed that the question of whether Modern Woodmen of America is legally operating in the State of Ohio as a fraternal benefit society is not a viable issue. By comparing the wording of Ohio Revised Code Section 3921.01 to the Articles of Incorporation, we note very meticulous use of the same semantics. It is obvious that the incorporators were acutely aware of statutory requirements.1 The thrust of the Trustee’s position in this regard need not be explored in detail because of evidence to the contrary, and can be dismissed.
The issue raised of whether or not the life insurance policy (“One-Parent Family Certificate”) is exempt cannot be dismissed so readily. This question is fundamentally to be resolved as an interpretation of the Ohio exemption statutes and the rights of the Debtor and her creditors in an insolvency context, without regard to the insurer, (which supplied the documentary evidence without becoming a party to the litigation).
The primary authority upon which Debt- or relies is a case precedent under Minnesota law. In the Matter of Heideman, (1975) 5 C.B.C. 518, 1 B.C.D. 1157. This well reasoned decision is worthy of note, even though rendered before adoption of the current Ohio exemption statutes (enacted in haste, to “opt out” of the 1978 Bankruptcy Code federal exemptions) because of at least superficial resemblance to the Ohio statutes pertaining to fraternal benefit societies and an apparent uniformity evolved in such state statutes nationally.
The case precedents relied upon in Heide-man place great emphasis upon “the worthy and benevolent design made so prominent in organizations of this character, realizing that the fund accumulated by assessment upon the living was for the relief and assistance of the families of deceased members, not for the benefit of creditors ...”
There can be little doubt that the underlying, basic purpose of fraternal benefit societies is as worthy of protection today as in the late nineteenth century. Such ration*813ale, nevertheless, begs the question instanter as to life insurance exemptions, a province in Ohio of state law. Unfortunately, no Ohio case precedents interpreting the exemption status of such life insurance contracts has been cited.2
To balance all of the equities appertaining to bankruptcy administration and the conflict resolution among disparate interests, a court must employ a functional approach as a juridical factor. Looking to the Ohio exemption statute, as amended to opt out under 11 U.S.C. § 522(b)(1),3 O.R.C. § 2329.66(A)(6)(a) exempts “The person’s interest in a beneficiary fund set apart appropriated, or paid by a benevolent association or society, as exempted by Section 2329.63 of the Revised Code.” (Emphasis here is directed to the preposition underlined).
Under Section 2329.66(A)(6)(b) is exempted, “The person’s interest in contracts of life or endowment insurance or annuities, as exempted by Section 3911.10 of the Revised Code.” Under Section 2329.66(A)(6)(d) is exempted, “The person’s interest in money, benefits, charity, relief, or aid to be paid, provided, or rendered by a fraternal benefit society, as exempted by Section 3921.18 of the Revised Code.” (emphasis added).
Chapter 3921. pertaining to Fraternal Benefit Societies is an integral part of Title 39 of the Ohio Revised Code governing and regulating the insurance industry in Ohio, and establishing a Department of Insurance under the Superintendent of Insurance as chief executive officer and director of the department.
Under the provision of Ohio Revised Code Section 3921.19, “No money or other benefit, charity, relief, or aid to be paid, provided or rendered by any [fraternal benefit] society, is liable to attachment, garnishment, or other process, or to be seized, taken, appropriated, or applied by any legal or equitable process or operation of law to pay any debt or liability of a member or beneficiary, or any other person who may have a right, either before or after payment by the society.” (emphasis added).
Looking to the exemptions in Ohio pertaining to life or endowment insurance (O.R.C. Section 2329.66(A)(6)(b)), the statute incorporates by reference Section 3911.-10 from the insurance chapter of the Ohio Revised Code, which exempts all contracts of life insurance which have been taken out for the benefit of “the spouse, or children, or any relative dependent upon such person
Focusing the issue, therefore, the question posed is whether the life insurance exemption status of the contract with Modern Woodmen should be treated as “benefit, charity, relief, or aid to be paid, provided or rendered by any society”; or, is it treated as any other life insurance policy? If considered in the nature of any other life insurance policy, it is not exempt because the beneficiary is not a suitable nuclear family member or dependent.
The solution depends upon the analysis of the exact statutory terms of the respective exemptions. Even though a fraternal benefit society, Modern Woodmen’s business of writing life insurance is amenable to the economic and legal eonstrietures imposed for the protection of the public by the Ohio Department of Insurance, and in competition within the industry as such a business. There is no functional purpose in either rationalizing that creditors’ rights should be treated differently to this generic type of asset; or, that holders of life insurance policies issued by different business organizations should be denied equal protection of the law. Hence, it is unnecessary to exam*814ine the constitutional validity of the Ohio exemption statutes in this regard.
Furthermore, treating life insurance contracts as a separate business, even though sold by a licensed fraternal benefit society, in no fashion detracts from the fundamental purpose of such organizations. The statutes are neither constitutionally questionable nor inconsistent when considered in pari materia. Ohio Revised Code Section 3921.18 does not refer to insurance policy cash values and no purpose can be served to read such into the statute and thereby render this section in conflict with Section 3911.10, the insurance exemption. The “benefit, charity, relief, or aid to be paid, provided or rendered by any society” does not and should not contemplate commercial life insurance policies.
In fact, the articles of incorporation, bylaws, and the manner of doing life insurance business by Modern Woodmen in Ohio bear out this very obvious differentiation. The Debtor was sold a policy by a commercial agent; no mention was even broached, about any fraternal society; the by-laws distinguish between “beneficial numbers” and “social members”; and the Debtor herself testified that she did not consider herself as a member of any such society. Even more elucidating is the absence of any evidence whatever that Modern Woodmen in the State of Ohio in any degree conforms to the Ohio statutory description of a society “operated on a lodge system with ritualistic form of work.”
In final analysis, it must be concluded that the character and attributes of the property claimed exempt from execution is the determinative factor, rather than the character and attributes of the merchant.
As to the operation of the affairs of Modern Woodmen of America in other states, we concur with the pronouncement of the United States District Court for the District of New Mexico in Modern Woodmen of America v. Casados, (1937) 17 F.Supp. 763, at page 767, as follows:
“It is urged that, taking a broad view of plaintiff’s business, it is an insurance company in fact; that its fraternal features serve only to enable it to take advantage of statutory exemptions accorded fraternals [from insurance company taxation]. The large amount of insurance on its books, the number of its agents, the salaries of its officers, are relied upon as proof. There is little doubt that, during the years, the situation has changed. At the outset, the insurance feature of these societies were a mere incident to fraternity; more and more, fraternity has become the incidental feature. But the legislature has not put a limit on the amount of insurance a fraternal may write, or the number of its agents or officers, or the amount of their composition. The courts cannot ... It is then said that plaintiff is really operated for the benefit of its officers and agents, who draw respectable salaries and commissions. Doubtless the officers and agents are satisfied with the salaries
The litigation instanter is between the debtor and her creditors as to the cash surrender value of the life insurance. The legality of the business of Modern Woodmen is not at issue, being determined by the Ohio Department of Insurance. The statutes of Ohio, as to exempt property, do not when closely analyzed, distinguish between insurance policies issued by Modern Woodmen and those issued by any other life insurance company. Life insurance is not a “benefit, charity, relief or aid to be paid, provided, or rendered by any society.” As the decision by the Supreme Court of Ohio illustrates, the life insurance business of such fraternal benefit societies, which operate on a level premium basis, is only a thin, technical thread from the business operations of a mutual life insurance company, other than name only. See Security Benefit Life Ins. Co. v. Robinson, Superintendent of Insurance, (1959) 170 Ohio St. 217, 163 N.E.2d 352.
Referring to the character of the asset, therefore, we note that the cash surrender value of the policy is the property at issue. Conformably to the decision of this court in Butz, Trustee v. Blue (1980) 5 B.R. 723 *815(Bkrtcy., D. Ohio), and In re Howard (1980) 6 B.R. 220, 6 B.C.D. 1011 (Bkrtcy., D. Ohio), the Debtor may claim exemptions in the cash surrender value of both policies pursuant to Ohio Revised Code Section 2329.-66(A)(17), totalling the amount of $800.00.
It has also been the policy of this court to permit a Trustee to accept the loan valué of a policy, as substantially equivalent to the cash surrender value, thereby to enable a debtor who may currently be uninsurable to retain existing life insurance coverage.
Accordingly, it is ORDERED, ADJUDGED AND DECREED that the objections to the claimed exemption filed by the Trustee in Bankruptcy, is hereby sustained.
ORDERED, that an alternative exemption be allowed to Debtor in both policies of life insurance pursuant to Ohio Revised Code Section 2329.66(A)(17), totalling the amount of $800.00.
. “§ 3921.01 — Definitions.
Any incorporated society, order, or supreme lodge without capital stock, including one exempted under the provisions of division (b) of Section 3921.42 of the Revised Code whether incorporated or not, conducted solely for the benefit of its members and their beneficiaries and not for profit, operated on a lodge system with ritualistic form of work, having a representative form of government, and which makes provision for the payment of benefits in accordance with Chapter 3921. of the Revised Code, is hereby declared to be a fraternal benefit society.” O.R.C. § 3921.01.
. (Parenthetically, it is noted that the question of the exemption status of life insurance policies issued from commercial sales of life insurance by agents of ostensible fraternal benefit societies has not been addressed in any case precedents discovered by research by this Court. The case precedents have all at least tacitly understood or assumed that the life insurance was issued by a fraternal society actually functioning as such. In this regard, we do not purport to draw any conclusions as to the operation of the Modern Woodmen of America in states other than Ohio).
. See O.R.C. § 2329.662, effective 9/28/79. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8492811/ | ENTRY ON MOTION FOR SUMMARY JUDGMENT
ROBERT L. BAYT, Bankruptcy Judge.
This matter is before the Court on the Motion for Summary Judgment (“Motion for Summary Judgment”) filed by First of America Bank, N.A. (the “Bank”) on May 21, 1998. *866Arcy Michelle Perdew (“Debtor”) filed a response to the Motion for Summary Judgment (“Response”) on June 2, 1998. The Bank filed a reply (“Reply”) on June 18,1998. The Court, having reviewed the Motion for Summary Judgment, the Response, the Reply, and the briefs and affidavits of the parties, now makes the following Entry.1
The Debtor filed a petition under Chapter 7 on March 31, 1997. The complaint that initiated the instant adversary proceeding was filed by the Debtor on April 15, 1997. On August 8,1997, the Debtor filed her First Amended Complaint for Damages Resulting From Contempt of the Stay Order, and on August 29,1997, the Debtor filed her Second Amended Complaint for Damages Resulting From Contempt of the Stay Order (the “Second Amended Complaint”).2
The Debtor’s core allegation against the Bank concerns the Bank’s handling of a freeze on the Debtor’s bank account (the “Debtor’s Account”). The Debtor alleges that the Bank violated the automatic stay when the Bank did not lift the freeze on the Debtor’s Account immediately after becoming aware of the Debtor’s bankruptcy filing. In the Motion for Summary Judgment, the Bank alleges that it is entitled to judgment that it did not violate the automatic stay in its handling of the Debtor’s Account.
The Facts
The Debtor filed her bankruptcy petition on March 31, 1997. On March 24, 1997, one week prior to the Debtor’s bankruptcy filing, an employee of the Bank, Pamela S. Coleman (“Ms.Coleman”), received a garnishment of the Debtor’s Account. She immediately placed a “hard hold” on the Debtor’s Account. See Coleman Affidavit, paragraph 9. In a letter from the Bank to the Debtor dated March 24, 1997, the Bank advised the Debtor that it would “be unable to honor any checks outstanding or withdrawals” against the Debtor’s Account. See Attachment D to Document 39.
On Wednesday, April 2,1997, Ms. Coleman received notice of the Debtor’s bankruptcy filing via facsimile transmission.3 See Coleman Affidavit, paragraph 13. Ms. Coleman contacted the attorney for the judgment creditor, advised him of the bankruptcy filing, and requested a release of the garnishment order. See Coleman Affidavit, paragraph 13.
On Saturday, April 5, 1997, the state court entered an order directing the Bank to release the hold on the Debtor’s account (the “State Court’s April 5 Order”). See Attachment I to Document 39. On Monday, April 7, 1997, Ms. Coleman received via facsimile transmission a copy of the State Court’s April 5 Order. See Coleman Affidavit, paragraph 15. On the same date that Ms. Coleman received a copy of the State Court’s April 5 Order, i.e., April 7, 1997, Ms. Coleman deleted the “hard hold” on the Debtor’s Account, credited the Debtor’s Account for the amount withheld, and filled out a “checking credit” to evidence the transaction. See Coleman Affidavit, paragraph 15.
*867
The Standard for Summary Judgment
Summary judgment is properly granted where there is no genuine issue of material fact, and the moving party is entitled to judgment as a matter of law. Bankruptcy Rule 7056, adopting by reference Federal Rule of Civil Procedure 56; The Pantry, Inc. v. Stop-N-Go Foods, Inc., 777 F.Supp. 713, 726 (S.D.Ind.1991).
The party seeking summary judgment bears the initial burden of establishing the absence of a genuine issue of material fact. Celotex Corp. v. Catrett, 477 U.S. 317, 322-23, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986). The ultimate burden of demonstrating the existence of a genuine issue of material fact, however, lies with the party resisting summary judgment. Celotex. The United States Supreme Court has explained the shifting burden as follows:
When the moving party has carried its burden under Rule 56(c), its opponent must do more than simply show that there is some metaphysical doubt as to the material facts____ In the language of the Rule, the nonmoving party must come forward with ‘specific facts showing that there is a genuine issue for trial.’
Matsushita Elec. Indus. Co., Ltd. v. Zenith Radio Corp., 475 U.S. 574, 586-87, 106 S.Ct. 1348, 89 L.Ed.2d 538 (1986).
The mere existence of a factual dispute is not, standing alone, sufficient to bar summary judgment. A factual dispute does not prevent summary judgment unless the disputed fact is outcome determinative. Irrelevant or unnecessary disputed facts do not preclude entry of summary judgment. Kaken Pharmaceutical Co., Ltd. v. Eli Lilly and Co., 737 F.Supp. 510, 515 (S.D.Ind.1989).
The Bank’s Argument That it Did Not Violate the Automatic Stay
11 U.S.C. Section 362(a) provides that the following actions constitute a violation of the automatic stay:
(1)the commencement or continuation, including the issuance or employment of process, of a judicial, administrative, or other action or proceeding against the debtor that was or could have been commenced before the commence of the case under this title....
(2) the enforcement, against the debtor or against property of the estate, of a judgment obtained before the commencement of the case under this title;
(3) any action to obtain possession of property of the estate or of property from the estate or to exercise control over property of the estate;
(4) any act to create, perfect, or enforce any lien against property of the estate;
(5) any act to create, perfect, or enforce against property of the debtor any lien to the extent that such hen secured a claim that arose before the commencement of the case under this title;
(6) any act to collect, assess, or recover a claim against the debtor that arose before the commencement of the case under this title;
(7) the setoff of any debt owing to the debtor that arose before the commencement of the case under this title against any claim against the debtor; and
(8) the commencement or continuation of a proceeding before the United States Tax Court concerning the debtor.
The Debtor alleges that the Bank violated the automatic stay when it failed to release the freeze on the Debtor’s Account immediately after becoming aware of the Debtor’s bankruptcy filing.4
The Court turns first to the Indiana law concerning the garnishment of bank accounts. Pursuant to Indiana Code Section 28-9-4-2, once the Bank received notice of the judgment creditor’s money judgment, the Bank was required to place-a hold on the Debtor’s Account:
(a) Upon receipt from an adverse claimant who is a money judgment creditor of the documents and process required under IC 28-9-3-4(d), a depository financial institution shall:
*868(2) within a commercially reasonable time after receiving the documents and process, restrict withdrawal of the funds in the deposit account identified in the documents and process....
Once the garnishment summons was served on the Bank, the judgment creditor, Dr. George W. Hicks, M.D. (hereinafter the “Judgment Creditor”), obtained a lien against the funds on deposit in the Debtor’s Bank Account. As the Seventh Circuit explained in Matter of Freedom Group, Inc., 50 F.3d 408 (7th Cir.1995),
Under Indiana law a notice of garnishment not only prevents the debtor from withdrawing the funds in his bank account but also gives the judgment creditor who procured the notice a lien against the funds up to the amount of the judgment.
Freedom Group, 50 F.3d at 410.
Once the Judgment Creditor’s lien attached to the Debtor’s Account, the Bank could not release the hold on the Debtor’s Account unless the Debtor obtained one of the following: one, authorization from the Judgment Creditor to release the hold; two, an order from the state court to release the hold, or three, an order from the bankruptcy court to release the hold.5
Once the lien has attached, without the permission of the [judgment creditor] or an order of the court, neither the judgment' debtor not the garnishee [here, the Bank] can take any action with regard to the property in question which can defeat the judgment creditor’s interest in it.... Instead, the lien continues until it has been satisfied.
Matter of U.S. Marketing Concepts, Inc., 113 B.R. 487, 492 (Bankr.N.D.Ind.1990). Had the Bank lifted the hold on the Debtor’s account immediately upon learning of the Debtor’s bankruptcy filing, and prior to receiving a state court order to lift the hold, the Bank could have been forced to pay the garnished funds twice, once to the Debtor, and once to the Judgment Creditor. Matter of U.S. Marketing, 113 B.R. at 492.
The Judgment Creditor’s lien was not avoided by the filing of the Debtor’s bankruptcy petition. Contrary to the Debtor’s assertion, the Bank could not unilaterally lift the hold on the Debtor’s Account, simply because the Bank became aware that the Debtor had filed a bankruptcy petition.
When the Bank received a copy of the State Court’s April 5 Order on April 7, the Bank immediately lifted the hold on the Debtor’s Account. Although the parties dispute some of the peripheral facts before the Court, the one, outcome-determinative fact is not in dispute: the Bank acted promptly to lift the hold on the Debtor’s Account once the Bank received a copy of the State Court’s April 5 Order.
Pursuant to the foregoing, it is the conclusion of the Court that neither the imposition of the hold on the Debtor’s account, nor the Bank’s inability to remove the hold until April 7, 1997, constitutes a violation of the automatic stay. The United States Supreme Court has held that an administrative hold does not constitute a set off within the meaning of Section 362(a)(7), and does not constitute a violation of Section 362(a)(3) or (a)(6). Citizens Bank of Maryland v. Strumpf 516 U.S. 16, 116 S.Ct. 286, 133 L.Ed.2d 258 (1995). Nothing that the Bank did could qualify as a violation of the stay pursuant to Section 362(a)(1), (2), (4), (5), or (8). Accordingly, there being no material facts in dispute, the Bank is entitled to judgment as a matter of law that it did not violate the automatic stay in its handling of the freeze on the Debtor’s Account.
The Debtor’s Argument That There are Matenal Issues of Fact
In the Debtor’s Response filed on June 2, 1998, the Debtor’s argues that summary judgment should not be granted to the Bank, because:
There are still genuine issues of material fact left to resolve.
The first is whether the contract on which the Bank relies was valid and can be enforced against the [Debtor].
*869The second is whether the Bank was obligated to, and whether it did, act with reasonable dispatch to honor the Stay Order.
Response, page 8.
When the Debtor first opened her bank account with the Bank, she signed an agreement (the “Account Agreement”) that set out the terms pursuant to which the account would be maintained. The Account Agreement provides, inter alia, that if the Bank Account were to become involved in a legal proceeding, the Debtor’s use of the Bank Account might be restricted.
If your account is involved in a legal proceeding, including a garnishment or other levy, your use of it may be restricted. We may refuse to pay out any money from the account until the dispute is resolved.
Attachment B to Document 39, Account Agreement, page 2.
In the Debtor’s Response, the Debtor makes several arguments concerning the enforceability of the Account Agreement,6 all of which are irrelevant to the issues before the Court. The resolution of the instant case is controlled by Indiana law concerning garnishment and the duties imposed on a garnishee-defendant, and is not controlled by the terms of the Account Agreement. Whatever the terms of the Account Agreement were, the Bank was required to freeze the Debtor’s Account upon receiving the garnishment order from the state court.
Secondly, the Debtor argues in the Response that there is a material issue of fact as to whether the Bank acted with “reasonable dispatch” in releasing the hold on the Debtor’s Account. Contrary to the Debtor’s assertion, there is no material issue of fact as to whether the Bank acted with reasonable dispatch. The Bank could not have released the hold on the Debtor’s Account prior to receiving a copy of the State Court’s April 5 Order. The Bank did release the hold on the Debtor’s Account on the first available business day after the State Court’s April 5 Order was entered.7
The Debtor points to two sets of facts to support her assertion that there is a material issue of fact: first, the Debtor argues that Ms. Coleman’s memory is faulty concerning an alleged April 2, 1997 conversation between herself and counsel for the Debtor; and secondly, the Debtor argues that based on the fact that the Judgment Creditor and the Bank had facsimile machines, the parties could have acted more quickly to release the hold on the Debtor’s Account. Neither argument by the Debtor raises a material issue of fact. The alleged April 2, 1997 conversation between counsel for the Debtor and Ms. Coleman, is irrelevant to the Court’s decision today. The fact that the parties had facsimile machines is similarly irrelevant. Even if the Bank had received a facsimile copy of the State Court April 5 Order on April 5, 1997 (as opposed to receiving it on April 7, 1997), the Court would still hold as a matter of law that the Bank acted with reasonable dispatch when it lifted the hold on the Debtor’s Account on the next available business day, Monday, April 7,1997.
For all the foregoing reasons, it is the conclusion of the Court that the Debtor’s arguments concerning the existence of a material issue of fact are not meritorious. The Bank is entitled to summary judgment as a matter of law.
IT IS, THEREFORE, ORDERED, ADJUDGED AND DECREED that the Bank’s Motion for Summary Judgment be, and hereby is, GRANTED. The Court hereby HOLDS that the Bank did not violate 11 U.S.C. Section 362(a) by waiting until April 7, 1997, to lift the hold on the Debtor’s Account.
. On February 26, 1998, the Debtor filed a Motion for Leave to Amend Her Complaint to Join Additional Defendants, and filed a Motion to Join Additional Parties Defendants. The motion for leave to amend and motion to join are addressed in a separate opinion being issued concurrently herewith.
. In the Second Amended Complaint, the Debtor asks the Court to make the following findings:
WHEREFORE the Debtor, by counsel, pleads for a judgment in her favor and against the Defendant Bank:
a) finding the Defendant in willful contempt of the Court's stay order;
b) assessing nominal, consequential, and intangible damages against the Defendant in the amount of $7,592.00;
c) from that figure, assessing punitive damages against the Defendant under Federal law in an amount that- will keep the Defendant from committing the same act against other Debtors;
d) Charging the Defendant with the Debtor's reasonable, contingency legal fees of one-third; and
d) [sic] granting all other just and proper relief.
.There is some dispute as to the exact date on which the Bank received notice of the Debtor's bankruptcy filing. Given the Court's decision hereinunder, the issue of whether the Bank received notice of the bankruptcy filing on April 2, 1997, or on an earlier date, is not outcome determinative.
. Because the hold was initially placed on the Debtor’s Bank Account on March 24, 1997, one week prior to the date of the Debtor’s bankruptcy filing, it is undisputed that the initial freezing of the account was not a violation of the automatic stay.
. The Debtor did not petition the bankruptcy court for an order to release the hold.
. The Debtor argues that the Account Agreement is unenforceable against the Debtor because: 1) there was “no meeting of the minds”; 2) the Account Agreement is unconscionable; 3) the terms of the Account Agreement were not,communicated to the Debtor; and 4) the Account Agreement is "illusory”.
. April 5, 1997, was a Saturday, and April 7, 1997, was the first available business day during which the Bank could have released the hold on the Debtor’s Account. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8493300/ | JUDGMENT
Pursuant to the judgment of the U.S. Court of Appeals, the mandate in this case is hereby recalled and the Panel’s opinion and judgment of January 4, 2001 are vacated. It is further ordered and adjudged that the judgment of the bankruptcy court *207is affirmed in part and reversed in part and this case is remanded to the bankruptcy court fox entry of a judgment consistent with the opinion of the U.S. Court of Appeals. Mandate issued forthwith. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8488990/ | OPINION AND DECISION
BERT GOLDWATER, Bankruptcy Judge.
On July 6, 1979, defendant debtor in this Chapter 11 proceeding leased from plaintiff certain bakery equipment. The balance due under the lease is approximately $132,000. Debtor is currently in default under the lease and the sum required to cure the default is in the approximate amount of $28,000.
Plaintiff seeks herein to lift the automatic stay of 11 U.S.C. 362 so as to repossess. Primarily, even though the complaint filed by plaintiff calls the lease a security agreement, the lease is not considered a security agreement under NRS 104.9102. Generally, a lease is a secured transaction when the intention of the parties is that the transaction be a sale on credit with the subject matter of the sale serving as security. 13 U.C.L.A. L.R. 250. The evidence clearly shows that this was not the intention of the parties. Consequently, the debtor is entitled to assume or reject the lease under 11 U.S.C. 365(d)(2) providing that the default is cured and that there can be adequate assurance of future performance under 11 U.S.C. 365(b)(1).
Considering that the amount of the default is staggering and the equipment is valued at only $35,000,1 the Court grants the defendant debtor sixty (60) days from April 1,1981, to accept or reject the lease if the default under the lease is cured at the time of assumption and defendant pays the April 1981 lease payment within five (5) days of this order and continues to make the monthly lease payments within three (3) days of the due date under the lease.
. Stipulation of parties. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8488992/ | MEMORANDUM OPINION IN RE ATTORNEYS’ FEES
ROBERT L. ORDIN, Bankruptcy Judge.
Debtor’s counsel seeks an award of fees and costs for services rendered and expenses incurred as counsel for the debtor in these proceedings.
A review of the files, documents and records in this case reveals the following:
1. Debtor’s petition was filed on September 17, 1979.
2. The operation of the debtor’s business during the ongoing Chapter proceedings was financed in large part by the debtor’s mother, pursuant to an arrangement approved by this Court in the early stages of the case.
3. The plan (confirmed on July 31,1980) provides for the payment of $25,000, to be used to discharge priority and unsecured claims. The debtor is to pay $15,000 upon confirmation, and an additional $10,000 in three installments of $3,333.33 or more, payable 6 months, 12 months, and 18 months after the first dividend is paid.
4. Expenses of administration and priority claims are to be paid in full from the initial $15,000 deposit. The balance of the initial deposit, if any, and the entire $10,000 are to go to unsecured debt.1
5. The dollar amount of unsecured claims consenting to the plan was $140,-298.57.
6. Administration expenses for the referees’ salary and expense fund and special charges of the Clerk’s Office equal $4,443, and other priority claims equal $2,012.82. The sum of these ($6,455.82) must be paid first out of the initial $15,000 deposit, without reference to counsel or accountant fees and costs.
7. Counsel seeks $17,125 as fees, and $103.75 as costs. The accountants seek $2,764 fees, and $72 costs. The aggregate of these requests ($19,889 fees and $175.25 costs), if allowed, will have the following impact:
(a) Priority debts and expenses of administration will total $26,344.82.
(b) This exceeds the total funds available under the plan by $1,344.82.
The law in the Ninth Circuit with respect to counsel’s fees in reorganization proceedings is clearly set forth in In the Matter of York International Building, Inc., 527 F.2d 1061 (9th Cir. 1975), and In the Matter of Beverly Crest Convalescent Hospital, Inc., 548 F.2d 817, 819 (9th Cir. 1976). An analysis of these decisions reveals the following principles:
(i) The history, language and spirit of the Bankruptcy Act forbids the “crying evils” of unreasonable, excessive, or extravagant allowances of fees to lawyers in bankruptcy cases.
(ii) In awarding compensation, the Court should deal equitably and fairly with the debtor and its creditors.
(iii) Reorganization proceedings are designed to inure to the benefit of the debtor and creditors, not just to those engaged in the administration of the estate.
Nothing in this case or the fee application justifies the dissipation of 100 per*900cent of the cash proceeds available upon confirmation in payment of counsel fees and administrative costs, while creditors are relegated to downstream payments out of profits, if any. Such a result does not accord with this court’s view of the purpose of Chapter XI.
This was a simple, uncomplicated business case; the debtor survived the reorganization process largely because the mother of the chief operating officer financed the debtor’s business during the Chapter proceeding. Ultimately, the debtor was able to acquire $15,000 with which to fund the initial payment to confirm the plan of arrangement. The $10,000 balance is to be funded out of profits.2 Accepting the assertion by debtor’s counsel that 137 hours were consumed in processing the case, the value of those services must be determined by the court. The aggregate economic impact of the requested fee award would minimize the benefit to creditors from the processing and conclusion of this reorganization. Such a result is not consistent with the guidelines enunciated in York or Beverly Crest.
While able and competent lawyers should not be discouraged from participating in the bankruptcy system by denying reasonable remuneration for services rendered, and the economy principle should not be applied with such vigor as to deprive debtors of the services of able and experienced counsel, the Court must nevertheless avoid the perpetration of an economic incongruity of the proportions suggested by debtor’s counsel in this case.
Accordingly, and considering all of the facts and circumstances in this proceeding, it appears to this Court that the services of counsel in this proceeding were fairly worth an aggregate of $7,500. A $5,000 retainer having been paid, the balance of fees awarded to counsel is $2,500. The claimed expenses of $103.75 are approved.
The fees of the accountants are approved as prayed; to wit, $2,764 in fees, and $72 in costs.
IT IS SO ORDERED.
. Plan, paragraph 11.
. Application for Fees by Attorney for Debtor, page 4, lines 12-15. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8488993/ | MEMORANDUM OF OPINION AND DECISION
WILLIAM J. O’NEILL, Bankruptcy Judge.
This cause is before the Court on the complaint of General Electric Credit Corporation and the answer and counterclaim of Tenna Corporation, hereinafter referred to as GECC and TENNA, respectively. The parties were involved in two transactions for manufacturing equipment. The filing of TENNA’S Chapter 11 reorganization proceedings precipitated GECC’S “Complaint for Reclamation or for Relief from Stay and Request for Adequate Protection” for the equipment. TENNA’S answer and cross-complaint maintains GECC is entitled to no relief since the transactions violated the Ohio Retail Installment Sales Act, commonly referred to as ORISA. The issue is whether the transactions denominated as “Lease Agreements” are loans as GECC alleges or sales covered by ORISA with its attendant penalties as TENNA asseverates.
Attorneys Edward R. Brown and Marvin A. Sicherman representing GECC and TEN-NA, respectively, have stipulated the facts, *905submitted extensive briefs and presented cogent oral arguments. The approved stipulations with pertinent documents annexed are attached hereto. [Matter omitted for purposes of publication.] The Court adopts them and finds the facts to be as follows:
“1. Plaintiff, General Electric Credit Corporation (‘GECC’), offers prospective customers several formats for the purpose of structuring financing arrangements, including security agreements, leases without options to purchase, and leases with options to purchase at the end of the terms of such leases for a nominal consideration. Defendant, Tenna Corporation (‘Tenna’), selected the format of a lease with an option to purchase for a nominal consideration.
2.Attached hereto and identified as ‘Stipulation Exhibits’ are the following:
S-l ‘Chattel Lease Agreement’ dated September 25, 1979.
S-2 Promissory Note relating to Exhibit ‘S-l’.
S-3 Letter dated September 21,1979 regarding ‘S-l’ purchase obligation of Defendant.
S-4 Financing Statements filed with the Secretary of State and County Recorder relative to Exhibit ‘S-l’.
S-5 ‘Chattel Lease Agreement’ dated October 24, 1979.
S-6 Promissory Note relating to Exhibit ‘S-5’.
S-7 Purchase Agreement between the parties relative to Exhibit ‘S-5’ evidencing the obligation of Defendant to purchase the equipment described in Exhibit ‘S-5’ at the end of the purported lease term.
S-8 Financing Statements filed with the Secretary of State and County Recorder relative to Exhibit ‘S-5’.
S — 9 Letter of March 25, 1980 from Plaintiff to Defendant which relates to Exhibit ‘S-5’.
S — 10 The Amended Proof of Claim filed by Plaintiff purporting to be a creditor of the Debtor in the case under Title 11 of the U. S. Code.
3. The items of equipment described in Exhibits ‘S-l’ and ‘S-5’ were manufactured and delivered to Defendant, Tenna, pursuant to orders entered by it with the manufacturers previous to such delivery, and as follows:
a. Harper Buffing Machine — manufactured and shipped by Harper Buffing Machine Company.
b. Stud Driving Machine — manufactured and shipped by Dial X Automated Equipment Company.
c. Reader-Printer — manufactured and shipped by Oce Industries, Inc.
4. GECC upon delivery of the above-described equipment to Tenna, paid to the manufacturers of such equipment the full purchase price of the equipment. GECC paid the purchase price for the equipment described in Exhibit ‘S-5’ on October 26, 1979, and for the equipment described in Exhibit ‘S-l’ on September 25, 1979.
5. Concurrent with the payment of GECC described in Stipulation No. 4 Tenna paid to GECC the following sums:
a. $908.01 plus $44.94 purportedly for Ohio Sales or Use tax for a total sum of $957.95 as relates to Exhibit‘S — 1’.
b. $13,693.80 as relates to Exhibit ‘S-5’.
6. Thereafter on November 1,1979 Ten-na paid Plaintiff $302.67 plus $16.65 purportedly for Ohio Sales or Use tax for a total of $319.22 as relates to Exhibit ‘S-l’.
7. Subsequent thereto Tenna has not paid any additional sums to Plaintiff relative to Exhibit ‘S-l’.
8. If Tenna had continued to pay monthly installments to Plaintiff as relates to Exhibit ‘S-l’ it would have been required to include Ohio Sales or Use taxes computed at the rate of five and one-half (5%%) percent on each such installment which would have been thirty-two installments of $302.67 and a thirty-third installment of $303.67 or including the purported Ohio Sales or Use tax, payment of $319.32 per month for thirty-two months, and a final installment of $320.37.
9. Describing the transaction contemplated in the document identified as Exhibit *906‘S-l’ as a ‘lease’ would require Ohio Sales or Use taxes in the sum of $599.45 to be paid.
10. If the transaction contemplated in Exhibit ‘S-l’ were classified as a sale the aggregate Ohio Sales or Use taxes assessable against Defendant, Tenna, would have been $497.20.
11. Tenna has made no payments to Plaintiff as relates to Exhibit ‘S-5’ after the payment of the sum of $13,693.80.
12. If Tenna had continued to make payments relative to Exhibit ‘S-5’ it would have paid eighty-two consecutive monthly installments of $2,375.35, and a final installment of $2,376.76, all of which are exclusive of Ohio Sales or Use Taxes, as Tenna had claimed to be exempt from such taxes as the equipment was to be used for manufacturing.
13. The aggregate Ohio Use Tax assessable against Tenna, if it had made installment payments to Plaintiff as relates to Exhibit ‘S-5’ as a purported lease of chattels and was not exempted from such taxes, would have been in the aggregate sum of $11,597.18.
14. If the transaction contemplated by Exhibit ‘S-5’ had been denoted as a sale the aggregate Ohio Sales or Use taxes that would have been payable by Defendant, Tenna, would have been the sum of $7,531.59, provided Tenna was not exempted from such taxes as above mentioned.
15. Without Plaintiff admitting that the Retail Installment Law of Ohio as found in Chapter 1317 of the Ohio Revised Code or the finance and service charge limitations set forth therein, are applicable, the following represents the disclosure material necessary and the computations of permissible charges thereunder particularly Section 1317.06 thereof based upon a 33 month amortization schedule, as relates to Exhibit ‘S-l’.
Cash Price $ 9,040.00 ‘Finance Charge Computations '
Down Payment Unpaid Balance 908.01 $ 8,131.99 8% -s-12 months = .0066666 per month
Official Fees _6.00 x 83 months = .5533278 $ 8,137.99 x $123,250.20 = $68,197.76
‘Finance Charge 1,790.34
“Service Charge 57.75
Time Balance $ 9,986.08
Total Time Price $10,888.09
‘Finance Charge Computations
8% 12 months = .0066666 per month
x 33 months = .2199978
x $8,137.99 = $1,790.34
“Service Charge Computations
$.50 for 1st $50.00 unit per month
.25 for next $50.00 unit per month
.25 for next $50.00 unit per month
.25 for next $50.00 unit per month
.25 for next $50.00 unit per month
.25 for next $50.00 unit per month $1.75
x 33 months $57.75
16. Item 8* of Exhibit ‘S-l’ is in the sum of $9,989.11, which would exceed the finance and service charges described in the preceding Stipulation by $3.03, exclusive of the additional Qhio Use tax burden herein-before described and stipulated to.
17. Without Plaintiff admitting that the Retail Installment Law of Ohio as found in Chapter 1317 of the Ohio Revised Code or the finance and service charge limitations set forth therein are applicable, the following represents the disclosure material necessary and the computations of permissible charges thereunder particularly Section 1317.06 thereof based upon an 83 month amortization schedule, as relates to Exhibit ‘S-5’.
Cash Price $136,938.00
Down Payment 13,693.80
Unpaid Balance $123,244.20
Official Fees 6.00
$123,250.20
‘Finance Charge 68,197.76
“Service Charge 145.25
Time Balance $191,593.21
Total Time Price $205,281.01
*907** Service Charge Computations
$.50 for 1st $50.00 unit per month
.25 for next $50.00 unit per month
.25 for next $50.00 unit per month
.25 for next $50.00 unit per month
.25 for next $50.00 unit per month
■25 for next $50.00 unit per month $1.75
x 83 months $145.25
18. Item 8 of Exhibit ‘S-5’ is in the sum of $197,155.46, which would exceed the finance and service charges described in the preceding Stipulation by $5,562.25, exclusive of the potential additional Ohio Use Tax burden hereinbefore described and stipulated to.
19. The computations made by Plaintiff with respect to Exhibit ‘S-9’ included calculations of interest charges without making an adjustment upon the principal sum relating to the $13,693.80 payment.
20. Predicated upon Exhibit ‘S-9’ and without Plaintiff admitting that the transaction contemplated in Exhibit ‘S-5’ is a Retail Installment Sale, the components thereof as purportedly adjusted by the referenced Exhibit would be as follows:
Cash Price Down Payment $136,938.00 13,693.80
Unpaid Balance $123,244.20
Official Fees 6.00
$123,250.20
Finance Charge 69,015.75
Service Charge 147.00
Time Balance $192,412.95
Total Time Price $206,100.75
21.The amount reflected in the preceding Stipulation as relates to the ‘Time Balance’ is $819.74 greater than the sum reflected as ‘Time Balance’ in paragraph 17 supra. The interest rate reflected in Stipulation 20 is 8.096% add-on, and if the alleged lease had required payments to extend for 84 months as opposed to 83 months the interest rate would have been 8% add-on.
22.The parties are unable to agree or stipulate as to whether Exhibit ‘S-9’ is a timely rectification of a purported overcharge, or if the overcharge is wilfull, and therefore incapable of rectification under Ohio Revised Code Section 1317.08.
23. The parties are unable to agree or stipulate whether the additional Ohio Sales and Use Taxes applicable to the transactions described as a lease, as opposed to a sale, constitute a ‘wilfull overcharge’ as that term is described in Ohio Revised Code Section 1317.08.
24. The parties are further unable to stipulate or agree whether Exhibit ‘S-10’ constitutes an attempt by Plaintiff to exact a ‘wilfull overcharge’ as that term is defined in Ohio Revised Code Section 1317.-08.
25. The principal balance as asserted in the Proof of Claim (Exhibit ‘S-10’) represents, as relates to the equipment and transaction described in Exhibit ‘S-5’, the net cash price of the equipment adjusted by a deduction of $13,693.80 constituting the sums paid by Defendant to Plaintiff relative thereto as hereinabove described.
26. The principal balance as asserted in the Proof of Claim (Exhibit ‘S-10’) represents as relates to the transaction described in Exhibit‘S — 1’, the cash price of the equipment, adjusted by a deduction of $908.01 plus that portion of the November 1, 1969 (sic) payment to Plaintiff by Defendant in the sum of $319.32, which Plaintiff alleges was attributable to ‘principal amortization’ only.
27. To the extent Financing Statements were required to be filed in the Offices of the Secretary of State of Ohio and the County Recorder of Cuyahoga County, Ohio, to perfect security interests in the chattel equipment described in Exhibits ‘S-1’ and ‘S-5’ such Financing Statements were timely and properly filed on the dates indicated in Exhibits ‘S — 4’ and ‘S-8’.
28. GECC herewith and hereby currently waives any right to receive payment of any interest on any obligations evidenced by Exhibits ‘S-l’ and ‘S-5’ exceeding eight (8%) percent simple interest per annum after maturity.
29. That the transactions and documents hereinbefore stipulated to constitute extensions of credit by Plaintiff to Defendant.
*90830. That all of the transactions between the parties hereinbefore described and stipulated to are governed by the laws of the State of Ohio.
31. The parties do hereby agree that the foregoing is a complete and comprehensive statement of facts, and that there are no other facts which either party wishes to introduce into evidence respecting the applicability and effect of the Ohio Retail Installment Sales Act, and by reason thereof, the parties do hereby waive the right to trial by jury and the right to introduce additional facts unless requested by the Court to do so. The parties further recognizing the rights of the Court to request oral argument from Counsel for the parties.”
ISSUES
1. Are the GECC-TENNA transactions “loans” or “sales”?
2. If “sales”, are the transactions retail installment sales governed by ORISA?
3. If ORISA controls, did GECC violate the statute thereby subjecting itself to the attendant penalties?
LAW AND COMMENTS
Obviously, if the transactions in question are determined to be loans rather than sales, Issues No. 2 and No. 3 are moot. Consequently, our attention is focused upon Issue No. 1.
Since the stipulations are rather extensive, a brief summary of the salient facts may be helpful. TENNA selected and ordered several items of equipment from various manufacturers. The agreement of September 25, 1979 dealt with the Reader-Printer and the October 24, 1979 transaction covered the Conveyer Buffing Machine and a Stud Driving Machine. Upon manufacturers’ delivering equipment to TENNA, GECC paid the manufacturers in full. Concurrent with payment, GECC and TENNA entered into two agreements designated “Chattel Leases” which contained options to purchase for $1.00 upon expiration. TEN-NA selected this lease format from three available choices, the other two being a lease with security agreements and another containing no purchase option. TENNA paid GECC a total of $1,210.68 on the Reader-Printer, $908.01 down payment and a subsequent $302.67 payment on November 1, 1979. A $13,693.80 down payment was made on the Buffing and Stud Driving Machines. No additional payments were made. TENNA filed the Chapter 11 petition on December 5,1979 and scheduled the GECC debt on A-2 for a total of $206,-842.30.
There is a paucity of law in Ohio defining the scope of ORISA. None of the cases in Ohio or elsewhere is identical with the case in point. Determination of the issues, therefore, lies with examining the statutory language and applying the law in cases with similar facts.
It is clear that ORISA (Ohio Revised Code, Section 1317.01, etc.) applies only to transactions involving retail installment sales. Case law also indicates that one purpose of the Act was to separate the interests of the retail seller and the financing institution in profits resulting from a retail sale. Teegardin v. Foley, 166 OS 449 (1957) and In the Matter of City Home Service, Inc., Bankruptcy No. 77123, (N.D.Ohio, 1958), unreported. From the statutory language and these cases it is apparent the financing agent is not covered by or subject to the provisions of ORISA. Further, ORI-SA restricts only the relationship between the retail seller and buyer and does not affect a buyer’s independent dealings with a financier. To determine, therefore, whether GECC was acting as a financing agent or a seller, the proper method for analyzing the transactions is to look through the form and examine the intent of the parties and the facts and circumstances which existed at the time of the agreements.
It is imperative to reiterate that the evidence reflects no dealings between GECC and the manufacturers other than the former’s payment in full for the equipment selected and ordered by TENNA.
*909The parties agree and the statute corroborates that the transactions constitute security interests. O.R.C., Section 1301.01 (KK) states,
“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.” (emphasis added)
GECC’S security interest in the equipment, however, is not sufficient to apply ORISA without the existence of a retail sale. We must determine, therefore, whether GECC sold the equipment to TEN-NA or loaned them the purchase price and took the security interests to insure repayment.
A retail installment sale is defined under ORISA as including “... every retail installment contract to sell specific goods, every consumer transaction in which the cash price may be paid in installments over a period of time, and every retail sale oí specific goods to any person in which the cash price may be paid in installments over a period of time.” O.R.C., Section 1317.-01(A). (emphasis added) “Contract for sale” and “sale” for the purposes of ORISA carry the same meaning as those terms are given in the general definitions of the Ohio Commercial Code. O.R.C., Section 1317-01(M). “Contract for sale” includes both a present sale of goods and a contract to sell goods at a future time. A “sale” consists in the passing of title from the seller to the buyer for a price.” O.R.C., Section 1302.-01(A)(11). Section 1302.02, O.R.C.,1 makes it clear, however, that even though a transaction takes the form of a contract for sale, if it is intended only to operate as a security transaction it will not be treated as a sales agreement.
The GECC-TENNA transactions are indeed difficult to characterize as sales or loans. Careful scrutiny and deliberation, however, lead to the inescapable conclusion that the agreements are purchase money loans with retained security. In economic reality TENNA selected the merchandise, placed the orders and received delivery of the equipment from the manufacturers; i. e., TENNA purchased the equipment from the manufacturers. GECC then provided the funds to complete the. purchases and took a security interest in the equipment to insure repayment of the loan. Despite any appearance of a sale, it is apparent there was never any intent that GECC sell TEN-NA the equipment. GECC was acting as a financing agent for TENNA’s purchases from the manufacturers, and Section 1302.-02, O.R.C. precludes the transactions from being construed as sales.
Similar transactions to those in question have been considered by other Courts. The basic guideline for characterizing the transactions is well stated in Burroughs Corp. v. Barry, 380 F.2d 427, 429 (8th Cir. 1967),
“At the outset we would point out that in determining the character of an instrument, the use of the term “lease” has undoubted weight, but the governing consideration is the legal effect of the instrument as gathered from all its provisions.”
Courts have found transactions substantially comparable to the within to be loans rather than leases or sales contracts. In McKeeman v. Commercial Credit Equipment Corp., 320 F.Supp. 938 (D.Neb., 1970), the Court held a lease was actually an *910agreement for a loan of money. Although the lessor held legal title to the equipment, the burdens of ownership were placed on the lessee with no recording of the lessor’s ownership interest. In determining a lease agreement to be a loan, Courts have also considered and were persuaded by the fact the lessor was not in the business of selling the goods involved, did not maintain an inventory or sales staff, did not advertise the goods and had no interest therein other than financing the purchase. In re Sherwood Diversified Services, Inc., 15 UCC Rep.Serv., 701 (S.D.N.Y., 1974) and McGalliard v. Liberty Leasing Co. of Alaska, Inc., Alaska, 534 P.2d 528, (1975).
In the case at bar, the burdens of ownership fall upon TENNA despite GECC’s purportedly retaining title to the equipment. TENNA bears responsibility to provide insurance, pay any and all taxes and is obligated for any damage to or loss of the equipment. GECC is to receive the full amount of the agreement; i. e., repayment of advanced funds. The burdens of ownership upon TENNA weigh heavily in determining it purchased the equipment from the manufacturers, and GECC’s only interest in the equipment was security on the loan of the purchase price. Also significant and most persuasive is that GECC is a financing agent, not a seller of equipment, maintains no inventory, advertises no equipment sales and has no sales staff.
The GECC-TENNA transactions were purchase money loans for commercial equipment, not sales. The sales occurred between TENNA and the manufacturers. GECC, whose purpose is structuring financing arrangements, had no voice in the selection or delivery of the equipment. In fact, GECC had no contact with the manufacturers other than advancing the purchase price for TENNA. Since ORISA regulates retail installment sales and not purchase money loans in commercial transactions, and there being no evidence GECC as financing agent was involved in the sales between TENNA and the manufacturers, the GECC-TENNA agreements do not fall within the purview of ORISA.
Assuming, arguendo, the transactions were sales, in this Court’s opinion, ORISA is still inapplicable. Courts and commentators alike have noted the primary purpose behind retail installment sales regulation is “... to protect the unwary, inexperienced retail buyer, easily misled and overreached.” In the Matter of City Home Service, Inc., supra; see also Consumer Credit: The Ohio Retail Installment Sales Act and Its Abuses, 30 CWR Law Rev. 621, (1969). The latter article contains the following language on page 621, “In general, installment sales acts were passed to relieve economic burdens on low-income, high-risk consumers.” Further, on page 629, “Such sales are generally the result of heavy television advertising campaigns which offer expensive luxury items at seemingly low prices and at favorable terms of time payment.” On page 453 of Teegardin v. Foley, supra, in referring to ORISA, the Court states, “... Chapter 1317 was enacted by the General Assembly in order to correct certain abuses existing in the field of dealer participation in the financing of sales made on the installment plan, which were so common, and that the abuses directly responsible for the legislation centered in the area of sales of automobiles, both new and used.”
TENNA relies heavily upon the case of In re Sloan, 285 F.Supp. 1, (N.D.Ohio, 1968). This Court appreciates the Sloan argument when applied to retail consumer sales such as motor vehicles, motor homes, washers, dryers, television sets, etc., but not to commercial transactions where the equipment is used for manufacturing purposes. The application of the Sloan case is best described on page 625 of CWR Law Review article, supra, “The Sloan decision should also be a major weapon of Legal Aid offices and the neighborhood law offices in the ghetto areas, where the negative equity situation is most likely to occur.”
To torture the GECC-TENNA agreements into retail installment sales will serve neither the purposes of ORISA nor the real*911ities of the purchase money loans in the commercial transactions herein.
CONCLUSIONS OF LAW
1. The GECC-TENNA transactions are loans to TENNA for TENNA’s purchase of commercial equipment from the manufacturer.
2. The GECC-TENNA transactions being loans and not retail installment sales, ORISA has no application and Issues No. 2 and No. 3 are, therefore, moot.
*912
*913
*914
*915
*916
*917
*918
*919
*920
. Ҥ 1302.02 (UCC 2-102) Scope; certain security and other transactions excluded.
Unless the context otherwise requires, sections 1302.01 to 1302.98, inclusive, of the Revised Code, apply to transactions in goods; they do not apply to any transaction which although in the form of an unconditional contract to sell or present sale is intended to operate only as a security transaction nor do sections 1302.01 to 1302.98, inclusive, of the Revised Code impair or repeal any statute regulating sale to consumers, farmers, or other specified classes of buyers.” | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8488994/ | MEMORANDUM DECISION
THOMAS C. BRITTON, Bankruptcy Judge.
Two bondholders, the Halfonds, seek the removal of the trustees and their counsel and the creditors’ committees and their counsel, and to surcharge these persons for fees and expense reimbursement they have received. The motion also seeks delay in the submission of the trustees’ plan to the creditors for their vote. (C.P.No.2488) This motion was filed after the Halfonds obtained leave for a major accounting firm to conduct a partial audit investigation of the trustees’ operation at the Halfonds’ expense. The motion is based largely upon that investigation.
By this court’s order of May 9, 1980, the motion was denied insofar as it sought delay in the submission of the trustees’ plan to the creditors. (C.P.No.2510) Hearings were held to consider the application in all other respects on May 30, June 2, 4, 5, 6, 9, 11 and 12.
The motion alleges and the evidence generally substantiates that: (1) No court authorization was obtained for the appointment and compensation of at least nine of the present officers and directors of the debtors and the debtors’ wholly owned subsidiaries, some of whom had been employees of the debtors before bankruptcy. In addition $143,500 in bonuses were paid in 1979 to three of these same officers without court approval. (2) The debtors own 176 cars and have leased 28 more cars without court approval, including 7 cars provided for officers and a Lincoln Continental provided for each of the trustees. The debtors *7pay almost all car expenses for all these cars. (3) The debtors provided travel, meals and lodgings for many creditors’ committee members, their attorneys, and at least one S.E.C. attorney on various occasions in New York, Los Angeles and Eleuthera. (4) One company that employs two sons of one of the debtors’ officers received $10 million in construction contracts from the debtors during 1976 through 1979 and one son received $20,000 in real estate commissions for sales of the debtors’ property in the past two years. In addition, during 1978, the debtors paid officers without court approval $150,000 for expenses, including $12,000 for the trustees.
The application characterizes the foregoing conduct as misfeasance, nonfeasance and malfeasance on the part of the trustees and their attorneys and charges that the trustees deliberately undertook to:
“. .. woo Creditors Committees and their attorneys in connection with promoting the Trustees’ Plan and encouraging Callahan’s retention as chief executive by the Reorganized Company.”
Section 191 of the Act (11 U.S.C. § 591), provides that trustees:
“... may employ officers of the debtor at rates of compensation to be approved by the court ...”
and Bankruptcy Rule 10-215(a) provides that:
“A person seeking compensation from the estate for services or reimbursement of necessary expenses shall file with the court an application ...”
Respondents concede that these two provisions were not complied with in the instances specified in the motion. They seek indulgence because (a) this is a very large case and their attention was absorbed with more pressing matters, (b) the omission was an oversight on their part and not an intentional effort to hide these matters from the court or the creditors, and they offer to refund any improper payment received, and (c) they have otherwise performed their duties with devotion and skill. Each of these contentions is generally supported by the record before me and I find no fraud, embezzlement or attempt to conceal or deceive on the part of any of the respondents.
With respect to the charges of nepotism on the part of Powell (an officer of the debtors) in awarding many substantial construction contracts, the trustees were not involved and I do not find them negligent in failing to detect or prevent the nepotism. The debtors have suffered no injury or loss resulting from the nepotism.
More significantly, perhaps, I find no statute, court rule, general principle of law or existing company rule which prohibited Powell from awarding contracts to a company that employed his sons. There is a clear prohibition of nepotism by federal judges. 28 U.S.C. § 458; 18 U.S.C. § 1910. Powell, an officer of the debtor corporations, was not bound by these statutory provisions. Powell made no effort to conceal his sons’ participation. There is presently no basis to punish anyone for nepotism in this case. I can only suggest that the trustees consider the adoption of a company rule designed to prevent future nepotism.
The issue before me, therefore, is whether the admitted transgressions in the first three categories outlined above warrant dismissal of the trustees, their attorneys, the creditors’ committees and their attorneys. I have concluded that they do not. The respondents are guilty of technical violations rather than actual and active wrongdoing. Cf. Matter of Arlan’s Department Stores, Inc., S.D.N.Y.1978, 462 F.Supp. 1255, 1262. These matters presented in these hearings will be considered in fixing compensation for the respondents. They do not warrant more at this stage of this case.
The Act requires prior approval in the appointment of the debtor’s officers and directors “to prevent the old management from indirectly slipping back into control.” 18 N.Y.U.Law Review 399, 446. There was nothing surreptitious about these appointments and old management is not back in control. The compensation, including the bonuses has been based upon recommendations of independent management consult*8ants employed with court approval. I am confident that failure to get prior approval was an oversight. . The appointments and compensation are ratified.
There is nothing unusual in the purchase and lease of cars that took place in this case, except for the leased cars provided for the officers and trustees. The practice is common in industry today. It was followed by these companies before bankruptcy and it has been ratified here. (C.P.No.2707.)
The trustees, however, are instructed that there are to be no future instances of either trustee receiving any advantage from his position at the expense of the debtors without specific prior court approval. I am aware that trustee Callahan used the debtor’s funds to make a deposit on a car purchased by him in 1976 and that my late predecessor admonished and instructed Callahan on that occasion. (C.P.No.326 at page 22). Freehling, as an experienced trustee should have known better. If this case were not nearly concluded and if the trustees had not done such a good job, I could not overlook this obvious insensitivity as to their fiduciary responsibility.
The expenditures for travel, accommodations and meals for creditors’ committees and attorneys were made to facilitate communication between the trustees and the diverse creditor interests which threatened to stalemate any recovery of these businesses. I am satisfied that the trustees intended to soften resistance to their plans for rehabilitation. The expenditures had the desired effect. Although I am certain that Judge Hyman was unaware of the expenses, I believe he would have authorized them had his approval been sought.
The trustees have been able to revive a company that was a complete shambles. It had lost $25 million the preceding year. It owed nearly $100 million more than its assets were worth. Its development projects had been almost completely arrested by federal, state and local regulatory agencies, who frequently imposed conflicting requirements. The real estate market was more depressed than it had been for the past 40 years.
If the business had been liquidated at that time, no general creditor and very few secured creditors would have recovered anything. Thousands of purchasers of home-sites and of homes under construction would have lost their investments. The partially developed communities built by this business would have become stagnant, severely depressing the property values of all who had already bought in those communities as well as those in neighboring communities.
After four and one-half years of determined effort on the part of the trustees, particularly Callahan, the developments are solidly underway, the litigation that threatened from every quarter has been settled, and the trustees have $35 million in cash on hand and all usable assets have been preserved. The trustees’ plan for reorganization which was approved by the S.E.C. and has been accepted by far more than the two-thirds majority of creditors required by the Act, is now before this court for confirmation.
We should never forget that the only purpose of Chapter X and its implementing rules is to make such a rehabilitation possible. Dietrich Corp. v. King Resources Co., 10 Cir. 1978, 583 F.2d 1143, 1149. This court’s function is to achieve that result, if possible without infringing the rights of others, as quickly and as economically as possible. That purpose would be obstructed, not served, by the replacement of the trustees, and the creditors’ committees and their attorneys at this point in this case.
This motion is denied. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8488997/ | OPINION
BARNEY E. EATON, III, Bankruptcy Judge.
On May 15,1980, Rosie Mae Hill (Debtor) filed a voluntary petition for relief pursuant to Chapter 7 of the Bankruptcy Code. As a result, the automatic stay provisions of Bankruptcy Code § 362 (11 U.S.C. § 362) became applicable. On June 30, 1980, Prudential Credit Services (Prudential) commenced this proceeding by filing an “Application for Abandonment,” seeking this Court to enter an order requiring the Trustee to abandon the Debtor’s homestead from the Debtor’s estate in order to allow Prudential to pursue foreclosure proceedings. On July 22, 1980, the Debtor filed an “Answer to the Application for Abandonment” contending that she received no consideration for the loan, that she did not intend to give a second deed of trust on her home and requested that the Court prevent the trustee from abandoning the property. A hearing on the matter was held before this Court on October 6, 1980.
I.
The pertinent facts as established by the pleadings, testimony, and other evidence offered at the hearing are as follows:
The Debtor’s petition for relief filed May 15,1980, listed on Schedule A-3, Prudential Credit Services as an unsecured creditor, with Walter Tate, Debtor’s son, listed as co-signer.
The loan in controversy was made in order to allow Tate and another man to purchase a taxi cab.
The check for the loan in question was made payable to Tate.
The Debtor testified that Prudential failed to explain to her the terms of the contract or her obligations thereunder. The testimony showed that the debtor was under the assumption that she was signing only as a guarantor of the loan. In addition, the Debtor’s testimony convinced the Court that she did not intend to give a second deed of trust on her home at the time she signed the deed of trust. The testimony indicated that the property description on the deed of trust was blank when signed by the Debtor, with the identification of the property being filled in later. Therefore, because tne property description was blank at the time of the signing, the debtor assumed that her property was not collateral for the loan. The Debtor’s testimony was consistent throughout the trial despite strenuous effort to discredit her on cross-examination.
*36II.
This Court has had broad experience in dealing with the problems of consumer debtors and small loan companies. Rarely is there a debtor who has not borrowed money from one or more small loan companies, producing a variety of serious problems both for the debtor and the creditor. Frequently, creditors lending money to a consumer debtor take a security interest in the debtor’s homestead. In many cases, the debtor is unaware of the consequences of the forms he signs. The creditors are expert in this area which provides to them substantial advantage over the debtor. Often, the debtor is neither knowledgeable nor familiar with such financial and legal matters. It has been the Court’s experience that the small loan companies do not explain sufficiently to the debtor the consequences or significance of his signing. Usually, the loan company places before the debtor a number of forms, which the debtor signs without complete comprehension of the documents he is signing or the consequences thereunder. This Court recognizes that small loan companies serve an important economic place in society by making high risk loans to needy people who would be turned down by commercial banks. This risk, however, is compensated by state laws which permit them to assess the borrower with enormously high interest rates and other charges. Accordingly, the loan company should not be allowed to take advantage of these needy and often unknow-ledgeable people. The loan company should clearly and conspicuously show the debtor that his residence has been put up as collateral for the loan and that if he fails to pay back the loan, he may lose his house.
In' this case, the Debtor is a lady with what appears to be little formal education. She went with her son to the loan company in order to help him obtain a loan. The Debtor testified that she was told that her son would pay back the loan and that she was signing merely because she had good credit. The check for the loan was made payable to the Debtor’s son, Walter Tate, who used the check to purchase a taxi cab.
It is a well established rule that equitable principles govern the exercise of bankruptcy jurisdiction. 28 U.S.C: § 1481; Bank of Marin v. England, 385 U.S. 99, 87 S.Ct. 274, 17 L.Ed.2d 197 (1966); Pepper v. Litton, 308 U.S. 295, 60 S.Ct. 238, 84 L.Ed. 281 (1939); Securities & Exchange Commission v. United States Realty & Improvement Co., 310 U.S. 434, 60 S.Ct. 1044, 84 L.Ed. 1293 (1940).
“A court of bankruptcy is a court of equity, exercising equitable powers of broad sweep. And, within the statutory scheme, the court may exert such powers in full vigor with respect to the allowance, rejection or subordination of claims. It is empowered to sift the circumstances surrounding any claim to see that injustice and unfairness is not done in the administration of the bankrupt estate.” Rader v. Boyd, 252 F.2d 585, 586 (10th Cir. 1957).
Accordingly, this Court feels obligated to remedy problems which develop from a debtor’s ignorance of the nature of their credit obligations, especially where the creditor has been a contributing factor. In this case, it is clear that it would be inequitable to hold the debtor liable where the deed of trust was not completed and where the loan company failed to adequately explain the content and the meaning of the deed of trust to the debtor.
The Debtor’s son, Walter Tate, was the party that received the consideration for the loan. To permit the loan company under these circumstances, to obtain recovery only from the party that benefited from the transaction is to do equity.
This opinion is in accordance with the Order entered in this cause on October 7, 1980. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8488998/ | ORDER OF DISMISSAL
THOMAS C. BRITTON, Bankruptcy Judge.
This matter came before the court on the trustee’s complaint to recover assets valued at $815 which were in the debtors’ possession at the time the petition was filed and for which no exemption had been claimed. Since the filing of the complaint, the debtors who are husband and wife filed an amendment claiming a $1,000 exemption in personal property under Article 10, Section 4 of the Florida Constitution. The matter was heard on February 26, 1981.
At the hearing, the trustee objected to the claimed exemption on the basis that since the debtor-husband is serving a three year prison sentence in a foreign country, he is not supporting anyone and is, therefore, not entitled to head-of-a-family status for purposes of claiming the exemption. I disagree. Imprisonment, which involves a forced absence from the home, does not effect an abandonment of homestead rights. 5 A.L.R. 259. I find that the debtors’ exemption has. been properly claimed and is, therefore, allowed.
Accordingly, the trustee’s objection is overruled and this complaint is dismissed. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489000/ | FINDINGS OF FACT AND CONCLUSIONS OF LAW
SIDNEY M. WEAVER, Bankruptcy Judge.
THIS CAUSE came on to be heard upon a Complaint filed herein by the Plaintiff and the Court having heard testimony and examined the evidence presented; observed the candor and demeanor of the witnesses; considered the arguments of Counsel and being otherwise fully advised in the premises, does hereby make the following Findings of Fact and Conclusions of Law:
1. This Court has before it for determination the question of priority as between the Defendants in this adversary proceeding. Each of the Defendants was a Contract Vendee as to Lot 30, OAK HAVEN SUBDIVISION. This litigation was commenced by the Trustee for a determination whether the contract between the Debtor and EUGENE MILGRAM and CHARLOTTE MILGRAM (MILGRAM) was in force or had been properly terminated and defaulted by the Debtor prior to these reorganization proceedings. It is necessary to make such a determination since NEIL WINICK and PHYLLIS WINICK (WIN-ICK) had an undeniably valid agreement to purchase the same Lot. Also, the Trustee sought a determination of the priority, if any, as between the Defendants.
2. The Court has entered an Order in this adversary proceeding. wherein MIL-GRAM was determined to have an equitable lien on Lot 30. WINICK, by prior Order in another proceeding, had already been adjudicated an equitable lien holder on the same Lot. Further, this Court has authorized the Trustee to reject all executory contracts to purchase homes from the Debt- or. Each of these Vendees, MILGRAM and WINICK, was party to that proceeding and their contracts deemed rejected.
3. At this juncture the Court must decide which of these two parties holding rejected contracts to purchase the same property from the Debtor is entitled to a priority over the other as to the equitable lien granted. This Court has authorized the Trustee to reject similar executory contracts between the Debtor and Contract Vendees involved in purchase of real property from the Debtor. The Court’s Findings of Fact and Conclusions of Law dated June 17, 1980 in these proceedings fully explored the Congressional intent as to the meaning and effect of 11 U.S.C. § 365(j). Since the Court has not receded from its prior conclusions, further discussion herein is unnecessary. For a more detailed analysis, the parties are referred to the aforesaid Findings and Conclusions dated June 17, 1980.
4. An equitable lien of a rejected Contract Vendee attaches to the Debtor’s interest on the date the Petition was filed. *109Consequently, each equitable lien holder’s claim must relate to that date. The liens of MILGRAM and WINICK are entitled to equal dignity and should be treated pari passu as to each other.
5. A Final Judgment will be entered in accordance with these Findings of Fact and Conclusions. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489001/ | MEMORANDUM AND ORDER
WALTER J. KRASNIEWSKI, Bankruptcy Judge.
This matter came on to be heard upon the Debtor’s application for Court approval of a proposed reaffirmation agreement with Thorp Discount Inc. of Ohio. The agreement involves a discharged debt of $14,-203.95 which is secured by real property. Upon consideration thereof, the Court finds that Court approval of the proposed reaffirmation agreement is not required by the Bankruptcy Code.
11 U.S.C. § 524(c) authorizes the enforcement of reaffirmation agreements only if certain conditions are met. This Section provides as follows:
“(c) An agreement between a holder of a claim and the debtor, the consideration for which, in whole or in part, is based on a debt that is dischargeable in a ease under this title is enforceable only to any extent enforceable under applicable non-bankruptcy law, whether or not discharge of such debt is waived, only if—
*151(1) such agreement was made before the granting of the discharge under Section 727, 1141, or 1328 of this title;
(2) the debtor has not rescinded such agreement within 30 days after such agreement becomes enforceable;
(3) the provisions of subsection (d) of this section have been complied with; and
(4) in a case concerning an individual, to the extent that such debt is a consumer debt that is not secured by real property of the debtor, the court approves such agreement as — ” (emphasis added)
Subsections 1, 2, and 3 of § 524(e) set forth the formal requirements for all reaffirmations whether the debt is secured by real or personal property. Subsection 4 deals with Court approval of reaffirmation agreements mandating Court authorization when the debt involved is not secured by real property. The legislative history further indicates the creation of an exception involving debts secured by real property stating: “In addition, to any extent the debt is a consumer debt that is not secured by real property of the debtor reaffirmation is permitted only if the court approves the reaffirmation agreement...;” 124 Cong. Rec. H 11,096 (Sept. 28, 1978); S 17,413 (Oct. 6, 1978).
§ 524(d) which requires the Court at the hearing on the reaffirmation to determine whether or not the reaffirmation agreement complies with § 524(c)(4), also excepts from court approval debts which are secured by real property. § 524(d) in pertinent part states:
“(d) In a ease concerning an individual, when the court has determined whether to grant or not to grant a discharge under section 727,1141, or 1328 of this title, the court shall hold a hearing at which the debtor shall appear in person. At such hearing, the court shall inform the debtor that a discharge has been granted or the reason why a discharge has not been granted. If a discharge has been granted and if the debtor desires to make an agreement of this kind specified in subsection (c) of this section, then at such hearing the court shall — ”
“(2) determine whether the agreement that the debtor desires to make complies with the requirements of subsection (c)(4) of this subsection, if the consideration for such agreement is based in whole or in part on a consumer debt that is not secured by real property of the debtor.” (emphasis added)
The above sections of the Code require the Court to make certain findings before approving a reaffirmation agreement. The requirements, however, apply only to dis-chargeable consumer debts that are not secured by real property. In this instance the debt sought to be reaffirmed is secured by real property. Therefore § 524(e)(4) is not applicable and Court approval is not required.
In accordance with the foregoing; it is therefore,
ORDERED that the Debtor’s application for reaffirmation of a dischargeable debt secured by real property be, and it hereby is, denied and dismissed. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489002/ | MEMORANDUM OPINION
CONRAD K. CYR, Bankruptcy Judge.
Requesting relief from the automatic stay in force from the filing of the debtors’ voluntary chapter 7 petition, plaintiff seeks to foreclose valid mortgages on real property of the debtors and to reclaim personal property subject to a valid security interest.1 At issue is the extent to which future advances are protected by a second real estate mortgage.
On the strength of their promissory note and a first real estate mortgage the debtors borrowed $35,000 from the plaintiff with which to construct a dwelling house. Later, Orin McBreairty applied for additional financing with which to enlarge and complete the structure. A second mortgage on the same real estate was “given subject to [the] first real estate mortgage.. . . ” It contained a future advance clause limiting the total indebtedness protected by the lien of the second mortgage to “any and all sums not exceeding the sum of Forty Thousand Dollars ($40,000.00) which we may at this time or at any future time until this Mortgage shall be discharged, owe to Grantee.” The debtors recognize the validity of future advance clauses under Maine law, see Bunker v. Barron, 93 Me. 87, 44 A. 372 (1899); *153Googins v. Gilmore, 47 Me. 9 (1859); Holbrook v. Baker, 5 Me. (5 Greenl.) 309 (1828), but insist that this future advance clause expressly limits the lien protection afforded by the second mortgage to the difference between $40,000 and $35,000, the amount due under the first mortgage, or $5,000.2
The issue turns upon the intent of the parties as gleaned from the documents and the prevailing circumstances. Gosselin v. Better Homes, Inc., Me., 256 A.2d 629, 637-38 (1969). On January 22, 1979, Orin McBreairty submitted to the plaintiff an application to “increase open end mtge. to $70,000.”3 On January 25, 1979, the debtors executed a second mortgage, expressly subordinating it to the first mortgage between the same parties. No advances were made under the second mortgage until at least December 5, 1979, when Orin McBreairty4 executed a $14,000 promissory note. On February 22, 1980, he executed another note for $2,000. Each note provided: “This note is secured by existing collateral, including but not limited to: none.”5 On March 5, 1980, two more promissory notes were executed in the amounts of $26,-726.47 and $11,626.99, with interest at 20% per annum. Each of these notes contained the typewritten words Real Estate Mortgage in the space provided for ‘Description of Collateral.’ The parties stipulate that the value of the real estate is $75,000.
The court is satisfied under all of the circumstances, see id., that the first and second mortgage agreements represented separate and cumulative undertakings intended to secure total indebtedness not exceeding $75,000. The parties plainly intended that two of the advances made on March 5, 1980 come under the protection of the second mortgage.6 The unpaid principal and interest on these two loans at the commencement of the chapter 7 proceedings totaled $40,581.12, making it unnecessary to determine whether the parties intended that the second real estate mortgage cover any remaining advances.7 The court concludes that plaintiff is the holder of valid mortgages upon which the indebtedness due at least equals the value of the collateral. See Bankruptcy Code § 362(d)(2)(A), 11 U.S.C. § 362(d)(2)(A) (1979).
All remaining issues considered by counsel relate to the enforceability of the real estate mortgage liens and a security interest in personal property as against third persons, whose rights are not vested in the debtors but in their trustee in bankruptcy.8 Since plaintiff’s rights vis-a-vis the debtors in both real and personal property are plainly enforceable inter se, see Lausier v. Goodwin, 7 B.R. 476, 479 (Bkrtcy. D.Me. B.J. 1980); In re James, 7 B.R. 73, 74 (Bkrtcy. D.Me.B.J.1980), and since the trustee in bankruptcy asserts no rights therein, the requested relief from stay must be granted.
The court adopts this Memorandum Opinion as its findings of fact and conclusions of law.
. Plaintiff brought these adversary proceedings against the debtors and their trustee in bankruptcy. The trustee in bankruptcy failed to appear or otherwise defend and has been defaulted.
. In addition to the $35,000 loaned under the first mortgage, plaintiff later loaned the debtors another $58,666.37.
. See Plaintiff’s Exhibit # 4. (Emphasis added.) The only fair reading of the quoted language is that future advances over and above those covered by the first mortgage were to be protected by the same collateral.
. Elaine McBreairty guaranteed all of Orin McBreairty’s obligations to plaintiff.
. The italicized word “none” is typewritten, while the remaining language is part of the printed form.
. The future advance clause contradicts the collateralization provisions contained in the promissory notes dated December 5, 1979, February 22, 1980, and March 5, 1980 [$3,562.91]. See text accompanying notes 4 & 5 supra.
. See Smith v. Kerr, 130 Me. 433, 439, 157 A. 314 (1931).
. See Bankruptcy Code § 544, 11 U.S.C. § 544 (1979). | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489003/ | MEMORANDUM AND ORDER
THOMAS M. TWARDOWSKI, Bankruptcy Judge.
Presently before the Court in the above-captioned case is an application by the debt- *172or for approval of an agreement in settlement of litigation1 between the debtor and a creditor, the Pennsylvania'Higher Education Assistance Agency [hereinafter referred to as PHEAA], in resolution of adversary number 80-0565, involving a complaint to determine the dischargeability of a debt.2 For reasons hereinafter given, the application shall be dismissed.
Section 524(c) requires Court approval of three types of agreements: reaffirmation (§ 524(c)(4)(A)), redemption (§ 524(c)(4)(B) and those in settlement of § 523 litigation (§ 524(c)(4)(B)).3 Ordinarily, for a debtor to enter a legally enforceable obligation on a pre-petition debt, the Court must first find that such an agreement is in the best interest of the debtor and would not impose an undue hardship (§ 524(c)(4)(A)), or in the alternative, that such an agreement was entered into in good faith and in settlement of § 523 litigation or providing for § 722 redemption (§ 524(c)(4)(B)).
However, § 524(c) requires Court approval only when the proposed agreement concerns an agreement “the consideration for which ... is based on a debt that is dis-chargeable in a case under [title 11 U.S.
This Court entered an order on November 5, 1980 disposing of adversary matter 80-0565. The order resulted from the agreement of the parties that the debt owed the creditor-plaintiff in the case, PHEAA, was to be determined to be non dischargeable. Since, by the agreement of the parties and by Court order, such debt was determined to be nondischargeable, we conclude that any agreement between the debtor and PHEAA to repay the debt need not be presented for Court approval.
This is consistent with the Bankruptcy Code philosophy of subjecting to Court scrutiny renewal by debtors of obligations ordinarily dischargeable by virtue of the bankruptcy proceedings:
This provision is a significant factor in making bankruptcy relief an effective remedy. It ensures that a debtor will not come out of bankruptcy in the same situation as when he went in. It contributes to the debtor’s fresh start. The provision prevents creditor experience in handling bankrupt debtors from overwhelming inexperienced debtors that are in a severely disadvantaged bargaining position after bankruptcy.
H.R.Rep.No. 95-595, 95th Cong., 1st Sess. 164 (1977) U.S.Code Cong. & Admin.News 1978, 5787, 6125.
The debtor in this case agreed to a determination of nondischargeability of the debt to PHEAA; therefore, no § 524(c) inquiry *173need be made, since the Court could approve the repayment of a dischargeable debt only. See H.R.Rep.No. 95-595, supra at 366. Moreover, when a debt is stipulated to be nondischargeable, the debtor is still obligated personally on that liability, notwithstanding bankruptcy, and it therefore become superfluous to question whether any agreement to repay the nondischargeable debt is entered into in good faith (§ 524(c)(4)(B)(i)).
Debtor’s “Application for Approval of Agreement in Settlement of Litigation pursuant to 11 U.S.C. § 524” shall be and hereby is DISMISSED.
. At the hearing conducted pursuant to 11 U.S.C. § 524(d) (1979), the Court expressed the concern that the arrangement between the parties arrived at in settlement of adversary number 80-0565 should possibly be the subject of Court scrutiny under 11 U.S.C. § 524(c), and requested that the parties reduce their agreement to writing and submit it to the Court.
. This Memorandum and Order constitutes the findings of fact and conclusions of law required by Rule 752 of the Rules of Bankruptcy Procedure. See this Court’s decision in In re Trim-ble, 8 B.R. 227, 7 BCD 100 (Bkrtcy.E.D.Pa. 1981), disposing of the same issue.
. 11 U.S.C. § 524(c) provides:
(c) An agreement between a holder of a claim and the debtor, the consideration for which, in whole or in part, is based on a debt that is dischargeable in a case under this title is enforceable only to any extent enforceable under applicable nonbankruptcy law, whether or not discharge of such debt is waived, only if—
(1) such agreement was made before the granting of the discharge under section 727, 1141, or 1328 of this title;
(2) the debtor has not rescinded such agreement within 30 days after such agreement becomes enforceable;
(3) the provisions of subsection (d) of this section have been complied with; and
(4) in a case concerning an individual, to the extent that such debt is a consumer debt that is not secured by real property of the debtor, the court approves such agreement as—
(A)(i) not imposing an undue hardship on the debtor or a dependent of the debtor; and (ii) in the best interest of the debtor; or
(B)(i) entered into in good faith; and
(ii) in settlement of litigation under section 523 of this title, or providing for redemption under section 722 of this title [emphasis added]. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489029/ | FINDINGS OF FACT AND CONCLUSIONS OF LAW
SIDNEY M. WEAVER, Bankruptcy Judge.
The Plaintiff, CAROL SCHWAGER, a judgment creditor, filed a complaint objecting to the discharge of the Defendant, JOSEPH S. SANTORO, SR. The complaint objected to the discharge of the defendant on various grounds under Section 727(a) of the Bankruptcy Code. This matter was tried on March 4,1981 and after considering the evidence presented, the testimony of the witnesses and the memoranda submitted by counsel for the parties, this Court makes the following findings of fact and conclusions of law:
The first objection to the defendant’s discharge was for the defendant’s alleged failure to keep or preserve sufficient books and records by which the defendant’s financial condition or his business transactions could be ascertained under Section 727(a)(3) of the Bankruptcy Code. The Court finds that the defendant was a sole proprietor of a construction business and a stockholder and officer in a real estate corporation, which had only one closing and, that under the circumstances, the books and records kept were sufficient to determine his business activity for a reasonable period of time.
The next two objections raised by the plaintiff focused around the $26,000.00 loan proceeds which the defendant had received from Primax Corporation. The plaintiff objected to the discharge of the defendant under Section 727(a)(5) and (2) because the defendant could not satisfactorily explain the loss of these loan proceeds or in the alternative, defendant had transferred, removed or concealed the loan proceeds. After having reviewed the cancelled checks, receipts and the testimony of the defendant, the Court finds that the loan proceeds were used for living expenses of the defendant and his family and that none of the loan proceeds were transferred, removed or concealed with the intent to delay, hinder or defraud creditors.
The final objection raised was that the defendant had knowingly and fraudulently made a false oath or account under Section 727(a)(4)(A) of the Bankruptcy Code. The evidence and testimony presented fails to demonstrate this conclusion.
Consequently, the Court concludes, the plaintiff has failed to meet its burden of proof by sufficient, competent evidence to deny the defendant his discharge under Section 727(a)(2), (3), (4) or (5) of the Bankruptcy Code. The defendant is entitled to a judgment dismissing plaintiff’s complaint in conformity with these findings of fact and conclusions of law. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489030/ | *62FINDINGS OF FACT AND CONCLUSIONS OF LAW
SIDNEY M. WEAVER, Bankruptcy Judge.
This Cause came on to be heard upon the petitioner’s Complaint to Determine Validity, Priority and Extent of Attorney’s Lien. The Court, having heard the argument of counsel, having reviewed all pleadings and memoranda, and having been fully advised in the premises, does hereby make the following findings of fact and conclusions of law.
On September 7,1979, the FHA Corporation (FHA), a mechanic’s lien creditor, recovered from 18th Avenue Development Corporation (debtor) the sum of $25,896.04 in the Dade County Circuit Court. Of this judgment, the attorney for FHA, who is the plaintiff herein, recovered $3,500.00 as attorney’s fees and $57.50 as costs.
On October 5, 1979, an involuntary petition under Chapter 7 of the Bankruptcy Code was filed against the debtor. The debtor converted the case to a Chapter 11 proceeding and an Order for Relief was entered on November 19, 1979. Subsequently, a claim of FHA in the amount of $25,897.72 with interest to June 30, 1980 was allowed against the debtor in a separate adversary proceeding in this Court.
The United States served a notice of levy upon William D. Seidle, the trustee in this bankruptcy estate, claiming a federal tax lien priority upon any amounts due FHA to the extent of $21,802.12, plus penalties and interest to the date of payment. As a result of the service of this notice of levy upon the trustee, the attorney for the trustee notified the plaintiff that any distribution of funds from these bankruptcy proceedings would be paid to the United States to the extent of $21,802.12, plus penalties and interest.
The plaintiff has filed this adversary proceeding seeking an attorney’s lien against FHA, superior to the tax lien of the United States, for services previously rendered and to be rendered on behalf of FHA in both the state and bankruptcy courts together with costs and interest.
The United States has admitted that the plaintiff is entitled to a priority position over the federal tax lien to the extent of the $3,500.00 plus costs which were awarded in the State court. However, the United States disputes the plaintiff’s position that (1) the compensation for the services rendered by the plaintiff in the Bankruptcy Court is entitled to priority over the United States tax liens and (2) that the plaintiff is entitled to interest upon his charging lien superior to the tax lien of the United States.
The plaintiff seeks comfort in Title 26 U.S.C. Section 6323(b)(8) in asserting his superpriority status over the United States. While this provision grants the plaintiff a priority for his $3,500.00 fee awarded in the state court, the Court finds that the statute is inapplicable to the balance of his claim.
Title 26 U.S.C. Section 6323(b)(8) reads as follows:
Section 6323. Validity and priority against certain persons.
(b) Protection for certain interests even though notice filed. Even though notice of a lien imposed by Section 6321 has been filed, such lien shall not be valid—
(8) Attorney’s liens. With respect to a judgment or other amount in settlement of a claim or of a cause of action, as against an attorney who, under local law, holds a lien upon or a contract enforcible against such judgment or amount, to the extent of his reasonable compensation for obtaining such judgment or procuring such settlement, except that this paragraph shall not apply to any judgment or amount in settlement of a claim or of a cause of action against the United States to the extent that the United States offsets such judgment or amount against any liability of the taxpayer to the United States. (Emphasis supplied)
This statute therefore presents one issue for consideration, namely, the application of “obtaining such judgment” to the facts of this case.
*63With respect to obtaining a judgment, the Court finds that the plaintiff’s representation of FHA in the adversary proceeding in this Court was not for obtaining a judgment, but rather was for collecting or enforcing a judgment. This distinction finds support in Section 6323 itself (compare Section 6323(b)(8) with Section (e)(3)). The Court considers the language of “obtaining such judgment” to include only these services which were rendered in the prior state court action. Indeed, if the Court were to hold otherwise, an attorney could, with each successful defense of a judgment, continuously deplete the levied fund. Such a depletion is not intended by this statute.
The remaining issue presented to this Court for determination is whether the plaintiff should be allowed interest upon that part of the judgment upon which the plaintiff has a lien.
The Court is aware that Title 26 U.S.C. Section 6323(e)(1) does contain a provision which could grant the plaintiff priority for interest on his lien. However, the Court finds that the said provision is not applicable in the instant case, as the statute requires that the interest have, under local law, the same priority as the charging lien. While the Court has been unable to locate any case law on this point, there is authority that interest should not be included as a part of the charging lien, 4 Fla.Jur.2d, Attorneys at Law Section 160, and should not be accorded the same priority as the charging lien itself, 4 Fla.Jur.2d, Attorneys at Law Section 162. In summary, the plaintiff is not entitled to interest on his charging lien.
In accordance with the foregoing, the Court finds that the plaintiff is entitled to a priority over the tax lien of the United States to the extent of the $3,500.00 fee awarded plus costs in the amount of $57.50 together with interest to June 3, 1980 as reflected in the judgment previously obtained.
A judgment will be entered in accordance with these findings and conclusions. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489031/ | MEMORANDUM AND ORDER
BILL H. BRISTER, Bankruptcy Judge.
An involuntary petition for relief under Chapter 7 of Title 11, United States Code, was filed against N. K. Parrish, Inc., on July 1, 1980. Thereafter on August 14, 1980, .N. K. Parrish, Inc. moved to convert the case to one under Chapter 11 and for appointment of an examiner. Thereafter on January 6, 1981, order was entered converting the case to one under Chapter 11 of Title 11, United States Code, upon the application of the debtor. At all times relevant to this memorandum Robert B. Wilson has served as trustee.
Prior to the filing of the involuntary petition against it, the debtor had been engaged in business in the vicinity of Lubbock, Tex*66as. On January 1, 1977, it had adopted the N. K. Parrish, Inc., Pension Plan, to be administered by one trustee “who shall be appointed by and serve at the pleasure of the employer.” At all times relevant to the issues in this case N. K. Parrish, individually, served as the trustee of the Plan. He was also the major stockholder and principal officer of N. K. Parrish, Inc., debtor, and he is the principal beneficiary under the Pension Plan.
Robert B. Wilson, Trustee, filed application with the court for order to remove N. K. Parrish as trustee of the N. K. Parrish, Inc., Pension Plan, citing as his authority to so remove N. K. Parrish from serving as trustee the provision in the Plan that the “employer” has the sole power to remove and appoint the trustee. He claims further that N. K. Parrish, as trustee, has breached his fiduciary duty and has been guilty of acts of misfeasance and nonfeasance which necessitate his removal as trustee of the Plan.
Pretermitting resolution of the issue as to whether there has been such breach of fiduciary duty or other acts which justify removal as trustee of the Pension Plan, there is an issue as to whether the trustee in bankruptcy has the standing to remove, or seek removal, of the trustee.
Under former § 70(a)(3) of the Bankruptcy Act the trustee was vested by operation of law with the title of the bankrupt to powers which the bankrupt might have exercised for his own benefit, but not those which he might have exercised solely for some other person. That provision was expanded under the Code. Pursuant to 11 U.S.C. § 541(b) any power that the debtor may exercise solely for the benefit of an entity other than himself is excluded from property of the estate. The term “entity” is defined under § 101(14) as including a “person, estate, trust, or governmental unit”.
§ 541(b) may reasonably be construed so that if the power may be exercised for the benefit of another entity, but is capable of also conferring benefit on the debtor, it does become property of the estate. In this case, however, there is no apparent benefit which is capable of being conferred on the debtor corporation. The trustee in bankruptcy argues that he has a cause of action against the trust and against N. K. Parrish, individually, because funds of the corporate debtor were contributed on behalf of the former wife of N. K. Parrish into the Pension Plan. Assuming that to be the case any action against N. K. Parrish, individually, or against the pension fund itself, is property of the estate within the meaning of § 541(a). However, the interest is that of creditor of the pension fund or creditor of Parrish, individually. The interest as creditor of the pension fund conflicts with the claimed authority of the bankruptcy trustee, as successor to the “employer”, to remove and appoint a trustee for the Pension Plan. The interest of the bankruptcy trustee as creditor is not an interest which prevents the operation of § 541(b). The bankruptcy trustee does not contend, and it does not otherwise appear, that the Pension Plan may be avoided and all of its assets returned to the debtor corporation.
The power which the bankruptcy trustee seeks to exercise is not capable of conferring any apparent benefit on the debtor, and the exercise of that power is prohibited under the provisions of 11 U.S.C. § 541(b).
It is, therefore, ORDERED by the court that the motion by the trustee in bankruptcy for removal of N. K. Parrish as trustee and for appointment of successor trustee for the N. K. Parrish Inc., Pension Plan, should be, and it is hereby, denied and dismissed without prejudice.
LET JUDGMENT BE ENTERED ACCORDINGLY.
The clerk is directed to file this order and to furnish a copy of the order to the attorneys of record. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489032/ | OPINION
EMIL F. GOLDHABER, Bankruptcy Judge:
The issues which confront us in this case are whether (1) the claims of the bankrupt’s employees for vacation and holiday pay benefits and (2) the union’s claim for contributions to a health and welfare fund are entitled to priority under the Bankruptcy Act (“the Act”). We conclude that they are hot because even if they are in the nature of wages, they were earned more than three months before the date of the commencement of the proceedings under the Act.
The relevant facts of the instant case are as follows:1 In July of 1974, Lansdale Transportation Co., Inc. (“the bankrupt”) entered into an agreement with its creditors pursuant to which the bankrupt ceased operations, sold all of its assets and turned the cash proceeds over to a committee of its creditors. Thereafter the former employees of the bankrupt and their union (“the claimants”) instituted suits which resulted in judgments against the bankrupts. The claimants subsequently caused writs of attachment to be issued against the funds held by the creditors’ committee whereupon, on August 16, 1976, the committee filed an involuntary petition in bankruptcy against the bankrupt under the Bankruptcy Act.2 Thereafter, adversary proceedings were filed in this court by the claimants in which we held that the claimants did not have valid security interests in the fund which was held by the creditors’ committee by virtue of the claimants’ writs of attachment because the bankrupt had no interest therein when the attachments were issued.3 Thereafter, objections were filed by the trustee to the proofs of claim filed in the bankruptcy proceedings by the claimants,4 contending that, pursuant to our above opinion and the district and circuit courts’ affirmances, none of the claims filed by the *80claimants was a priority claim and that, moreover, there is no basis for concluding that either claim is entitled to a priority.5
The claimants assert, however, that each of their claims is entitled to priority under § 64(a)(2) of the Act which provides:
a. The debts to have priority, in advance of the payment of dividends to creditors, and to be paid in full out of bankrupt estates, and the order of payment shall be . .. (2) wages and commissions, not to exceed $600 to each claimant, which have been earned within three months before the date of the commencement of the proceeding... .
With respect to the claim of the employees herein for vacation and holiday pay benefits, several courts have held that such a claim constitutes “wages” within the meaning of § 64(a)(2). See, e. g., In re Public Ledger, Inc., 161 F.2d 762 (3d Cir. 1947). But the courts have also held that those benefits must have been earned within three months of the commencement of the filing of the petition in bankruptcy in order to be entitled to priority. See In re Ad Service Engraving Co., 338 F.2d 41 (6th Cir. 1964); In re Public Ledger, supra; In re Ko-Ed Tavern, Inc., 129 F.2d 806 (3d Cir. 1942); Strom v. Peikes, 123 F.2d 1003 (2d Cir. 1941); In re Mergentime, Inc., 217 F.Supp. 887 (S.D.N.Y.1963); In re Clinton Woolens, 113 F.Supp. 803 (D.Me.1952). In the instant case the benefits which are the subject of the employees’ claims were earned months prior to July of 1974 which is substantially more than three months pri- or to the commencement of the instant proceedings in August of 1976.
The employees argue, however, that the wage benefits were earned within three months of the time when the bankrupt transferred all of its assets to the creditors’ committee, i.e., in July 1974, and that the three months period should run from that date instead of the date the petition in bankruptcy was filed, on August 16, 1976. Otherwise, the employees assert, a bankrupt or its creditors could wipe out all employee wage priority claims by delaying the filing of the bankruptcy petition as was done in the instant case. What is more, the employees contend that, given the legislature’s special consideration for employees and their wage claims, Congress could not have intended that those claims could lose their priority in this way. The employees have cited several cases in support of their argument: Lines v. Frederick, 400 U.S. 18, 91 S.Ct. 113, 27 L.Ed.2d 124 (1970); Manly v. Hood, 37 F.2d 212 (4th Cir. 1930).
We conclude that the arguments of the employees are unconvincing and without merit. In Lines v. Frederick, supra, the United States Supreme Court dealt with § 70(a)(5) not § 64(a)(2) and the reasoning of the Court in that case does not convince us that we should ignore the plain language of § 64(a)(2). That section clearly states that a priority is given only to wage claims “which have been earned within three months before the date of the commencement of the proceeding.” To interpret that section as the claimants would have us interpret it would be contra to the specific words of the statute and to the intent of Congress. This result is supported by the decisions of the courts in In re Ko-Ed Tavern, supra, and Strom v. Peikes, supra. Although Manly v. Hood, supra, which is cited by the claimants, holds to the contrary, the law in this circuit is crystal clear and we are not convinced by the reasoning of the court in Manly. Nor does it appear that other courts have been so convinced. In addition, we are bound by the decision of the United States Court of Appeals for the Third Circuit in In re Ko-Ed Tavern, supra, which held that a priority wage claim must have been earned within three months of the commencement of the bankruptcy proceedings and that that three month period is not tolled by a prior state court proceeding or by the bankrupt’s earlier insolvency.
*81We conclude, therefore, that the instant claims of the employees for vacation and holiday pay benefits are not entitled to priority under § 64(a)(2) since they were not earned within three months of the commencement of the bankruptcy proceedings herein.
With respect to the union’s claim for health and welfare fund contributions, we conclude that it likewise is not entitled to any priority. The union has asserted, as the only grounds for priority that its claim is in the nature of “wages” and consequently, is entitled to a priority under § 64(a)(2). Assuming that the nature of the union’s claim is, in fact, for “wages”,6 we conclude that that claim is nonetheless not entitled to priority under § 64(a)(2) because it too was not earned within three months prior to the commencement of the bankruptcy proceeding. Accordingly, for the reasons stated above we will sustain the trustee’s objections to the priority status of the claims of the employees and the union. The claims will be allowed in the amounts filed as unsecured claims.
. This opinion constitutes the findings of fact and conclusions of law required by Rule 752 of the Rules of Bankruptcy Procedure.
. While the Bankruptcy Act has been superseded by the Bankruptcy Code as of October 1, 1979, the provisions of said Act still govern petitions filed before that date. The Bankruptcy Reform Act of 1978, Pub.L.No. 95-598, § 403, 92 Stat. 2683 (1978).
. See In re Lansdale Transportation Co., Inc., Bankr.No. 76-1601 (E.D.Pa., filed Sept. 13, 1979), aff'd. No. B-76-01601 (E.D.Pa., filed June 30, 1980), aff'd. No. 80-2201 (3d Cir., filed January 23, 1981) 642 F.2d 442.
. Proofs of claim numbered 61, 63 and 66 were filed by Road Carriers Local 707 Welfare and Pension Trust Funds. Inasmuch as claims numbered 61 and 63 are amended by and, *80therefore, superseded by claim number 66, we will disallow claims numbered 61 and 63.
Proofs of claim numbered 60, 64 and 67 were filed directly by employees Leonard J. Squeo, et al. Again, inasmuch as claims numbered 60 and 64 are amended by and superseded by claim number 67, we will disallow claims numbered 60 and 64.
. No objections were made, however, to the amounts of either claim nor to their allowances as unsecured claims.
. See, e. g., In re E. V. Moore, 447 F.2d 1106 (9th Cir. 1971); In re Embassy Restaurants, Inc., 154 F.Supp. 141 (E.D.Pa.1957); In re Otto, 146 F.Supp. 786 (S.D.Cal.1956). But see, Local 140 Security Fund v. Hack, 242 F.2d 375 (2d Cir. 1957) and cases cited therein; In re Victory Apparel Mfg. Corp., 154 F.Supp. 819 (D.N.J.1957). | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489033/ | OPINION
EMIL F. GOLDHABER, Bankruptcy Judge.
The issues at bench arise out of motions filed by the two litigants in which each seeks to have the other’s attorneys disqualified from participation in this case because of predicted violations of Canon 5 of the American Bar Association’s Code of Professional Responsibility. We conclude that both motions, based on unproven allegations, should be dismissed.
As yet the case is devoid of any testimony. All that confronts us are the following allegations contained in a series of motions:
On November 12, 1980, the law firm of Fellheimer, Eichen & Goodman, (“the Fell-heimer firm”) acting on behalf of the purported new officers, directors and stockholders (“the new officers”) of Eastern Bancorporation (“EBC”), filed a petition for reorganization under Chapter 11 of the Bankruptcy Code. On November 26, 1980, the law firm of Spector, Cohen, Gadon & Rosen, (“the Spector firm”) acting on behalf of the purported former officers, directors and stockholders (“the former officers”) of EBC, filed an answer to the petition, seeking its dismissal on the ground that the new officers had illegally executed the stock powers of EBC which had been given as collateral by it to First Pennsylvania Bank, N. A. (“First Pennsylvania”) to secure certain loans given by First Pennsylvania to EBC.
On March 10, 1981, the Fellheimer firm, acting on behalf of the new officers, filed a motion to remove and disqualify the Spec-tor firm from appearing in behalf of the former officers and, on April 9, 1981, the Spector firm filed bpth an answer to the Fellheimer motion and a motion on behalf of the former officers to remove and disqualify the Fellheimer firm from appearing in behalf of the new officers.
On April 21 the Fellheimer firm filed a responsive pleading the purport of which was to assert the attorney-client privilege with respect to most of the allegations in the former officers’ motion. For its part, the Spector firm chose to file the affidavit of one Philip M. Comerford, who maintains that he is the president of EBC and that he is satisfied that the testimony of the Spec-tor firm “will be consistent with the factual assertions and accounts set forth by Eastern in this matter,” and that he had concluded “that it is in the best interest of Eastern Bancorporation to continue to retain the law firm of Spector Cohen Gadon & Rosen to represent it herein...”
Canon 5 of the American Bar Association’s Code of Professional Responsibility — adopted as the standard of conduct under Local Rule 11 of the United States District Court for the Eastern District of Pennsylvania — states that “A lawyer should exercise independent professional judgment on behalf of a client.” In support of the principle enunciated in that canon, Disciplinary Rule 5-102 provides:
DR 5-102 Withdrawal as Counsel When the Lawyer Becomes a Witness.
(A) If, after undertaking employment in contemplated or pending litigation, a lawyer learns or it is obvious that he or a lawyer in his firm ought to be called as a witness on behalf of his client, he shall withdraw from the conduct of the trial and his firm, if any, shall not continue representation in the trial, except that he may continue the representation and he or a lawyer in his firm may testify in the circumstances enumerated in DR 5-101(B)(1) through (4).
(B) If, after undertaking employment in contemplated or pending litigation, a lawyer learns or it is obvious that he or a lawyer in his firm may be called as a witness other than on behalf of his client, he may continue the representation until it is apparent that his testimony is or may be prejudicial to his client.
*97With respect to DR 5-102(A) each party herein asserts that it has no intention of calling any member of its attorneys’ law firm as a witness. They further assert that even if they were to call a member of the firm as a witness his testimony would be merely corroborative of the testimony of the other witnesses called by that party.
In interpreting DR 5-102(A), the United States Court of Appeals for the Third Circuit has stated that the phrase “ought to be called as a witness on behalf of his client” means that the attorney is an undispensable witness, i. e., he must have “crucial information in his possession which must be divulged” and which no other witness for the client has. Universal Athletic Sales Co. v. American Gym, Recreational and Athletic Equipment Corp., 546 F.2d 530, 538 n.21 (3d Cir. 1976), cert. denied 430 U.S. 984, 97 S.Ct. 1681, 52 L.Ed.2d 378 (1977). See also, Davis v. Stamler, 494 F.Supp. 339 (D.N.J.1980). In the instant ease both parties have asserted that no member of the law firms representing them is an indispensable witness. Therefore, in light of the fact that “an attorney and his client are in the best possible position to determine whether his testimony is in fact indispensable, . .. [they] should be permitted to present their case according to their own best judgment, and if it is their best judgment that they can get by without testimony from counsel,” their decision should be respected. J. D. Pflaumer, Inc. v. United States Department of Justice, 465 F.Supp. 746, 747-48 (E.D.Pa.1979). See also, Kroungold v. Triester, 521 F.2d 763 (3d Cir. 1975). Consequently, we conclude that neither of the law firms which represent the parties herein need be disqualified under DR 5-102(A).
With respect to the firms’ disqualification under DR 5-102(B), we conclude that that Disciplinary Rule also does not require their disqualification in the instant case. Under that rule, representation may continue “until it is apparent that [the attorney’s] testimony is or may be prejudicial to his client.” Courts have held that the mere allegation that the opposing party’s counsel is a potentially adverse witness to his client’s interest is insufficient to disqualify that attorney. See e. g., Kroungold v. Triester, supra; Davis v. Stamler, supra; Harrison v. Keystone Coca-Cola Bottling Co., 428 F.Supp. 149 (M.D.Pa.1977). In fact, the District Court for the Eastern District of Pennsylvania has held that, in a motion to disqualify the attorney for the opposing party, “the moving party bears the burden of demonstrating specifically how and as to what issues in the case the prejudice will occur and that the likelihood of prejudice occurring is substantial.” Freeman v. Kulicke & Soffa Industries, Inc., 449 F.Supp. 974, 978 (E.D.Pa.1978). In the instant case neither party has presented anything more than the mere allegation, denied by the opposing party, that adverse counsel will be called as a witness and will testify against the interests of its client. Consequently, we conclude that neither party has sustained its burden of establishing that the opposing party’s counsel should be disqualified.
If, however, the litigants later produce evidence to support the above allegations or if it becomes apparent at the trial herein that one or both of the law firms should be disqualified, we would consider a renewal of the motions to disqualify in light of the above discussion. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489034/ | OPINION
THOMAS M. TWARDOWSKI, Bankruptcy Judge.
The Small Business Administration [hereinafter referred to as SBA], a secured creditor of the debtor, has filed a complaint to *99modify the stay pursuant to 11 U.S.C. § 362 (1979). Two issues have been presented to the Court for resolution: first, whether the SBA should be subject to the equitable doctrine of marshaling of assets, and first satisfy its security interest from the assets pledged as personal guarantees of officers of the corporation before reclaiming corporate assets; second, whether the SBA is entitled to certain rents received from the lease by the trustee of a piece of machinery subject to the SBA’s security interest.
For reasons hereinafter given, we conclude: first, that the doctrine of marshaling of assets does not require that the SBA first pursue non-corporate assets; second, that the SBA is not entitled to any rent from the lease of the debtor’s machinery.1
This case originated as an involuntary petition under Chapter 11 of the Bankruptcy Code. A trustee was appointed concurrently with the entry of the order for relief. The SBA was the major secured creditor of the debtor corporation by virtue of a loan of $125,000, evidenced by a promissory note executed by the officers of the debtor. Collateral for the loan consisted of a security interest in all the debtor’s machinery and equipment, furniture, fixtures, inventory, and accounts receivable, existing and thereafter acquired.
I. MARSHALING OF ASSETS
In addition to the security interest in the debtor’s machinery, equipment, and other assets, the SBA obtained the personal guarantees of the president and secretary of the debtor corporation, Virginia and Jack D. Smith, respectively. The SBA filed a complaint for relief from the automatic stay in order to reclaim the collateral encumbered by its security interest. The trustee interposed, by way of its answer, the specific defense of marshaling of assets. Essentially, the trustee’s argument is that the SBA, as senior lienor, should first be required to satisfy its debt from the personal guarantees of the officers of the debtor, thus making some of the corporate assets available for the unsecured creditors. Assuming that the trustee’s status under 11 U.S.C. § 544(a) (1979) of the Bankruptcy Code2 grants him standing to request marshaling where no other lien creditor exists, we find that in this case, the equitable doctrine of marshaling of assets is not applicable.
The doctrine of marshaling assets is an equitable principle upon which the legal rights of creditors are controlled in order to accomplish an equitable distribution of funds in accordance with the relative priorities of different parties entitled to share therein. The doctrine springs from the principle that a senior lienor who is entitled to satisfaction of his demand from either of two funds, shall not be permitted to exercise his election so as to deny satisfaction to a junior lienor of one fund only. Meyer v. United States, 375 U.S. 233, 84 S.Ct. 318, 11 L.Ed.2d 293 (1963).
Generally, three elements must be present in order for a court of equity to invoke the marshaling doctrine: 1) the existence of two creditors with a common debtor; 2) the existence of two funds belonging to the debtor; 3) the legal right of one creditor to satisfy his demand from either or both of the funds, while the other may resort to only one fund. Farmers & Mechanics Bank v. Gibson, 7 B.R. 437 (Bkrtcy.N.D.Fla.1980); 53 Am.Jur.2d Marshaling Assets § 7 (1970).
*100Trustee cites the case of Farmers & Mechanics Bank v. Gibson, 7 B.R. 437 (Bkrtcy.N.D.Fla.1980) in support of his position. That case is very similar to the case at bar in that an officer and sole shareholder of the debtor corporation offered his personal guaranty as an inducement to the Bank to grant a loan to the debtor. In Gibson, the court granted the requested marshaling, treating the pledge of personal assets as a contribution to capital thus satisfying the requirement that there exist two funds belonging to the common debtor. The court based its decision on the equitable nature of both marshaling and the shareholders’ right to limited liability, and concluded that, in equity, the officer/shareholder was deemed to have pledged his personal assets as corporate assets.
Similarly, in In re Jack Green’s Fashions, 547 F.2d 130 (8th Cir. 1979), the personal property of two partners was subjected to marshaling where the court concluded that the partners had pledged their property as if it had been partnership assets. Again, the court grounded its decision on the equitable notion that marshaling would permit the junior creditors to share in the debtor’s assets.
In the instant case, however, we conclude that nothing in the record compels this court to treat the guarantees of the Smiths as a contribution to capital of the debtor corporation. Nor does the record reveal that the Smiths managed their property and the corporate property as if it were the same. By its terms, the guaranty given by the Smiths was intended by the parties to create a form of secondary liability, and the subsequent filing of a corporate bankruptcy petition did not alter the nature of that secondary liability.
We decline to invoke the marshaling doctrine in this case because of the absence of one of the three requisite elements discussed above, namely, that there must exist two funds belonging to a common debtor. The Smiths and the debtor corporation are separate entities, and we find that the personal assets of the Smiths and the corporate assets of the debtor are of separate and distinguishable ownership. See also, Port Welcome Cruises, Inc., v. S. S. Bay Belle, 215 F.Supp. 71 (D.Md.1963).
Since we find that the Smiths’ guarantees created merely a secondary liability, marshaling would not enhance the trustee’s position. As guarantors of the corporation, the Smiths would be subrogated to the rights of the SBA, thus defeating the trustee’s hoped-for advantage. In re Ciccantelli, Bankr. No. 29881. (E.D.Pa. Aug. 30, 1968).
II. SECURITY INTEREST IN RENTS
Shortly after entry of the order for relief and the concurrent appointment of the trustee, the trustee applied for authority to enter into a lease of personal property of the debtor, specifically, a filling and membraning machine. The SBA entered objections to the application. A hearing was held, whereupon the objections were withdrawn pursuant to an order which placed the payments under the lease in escrow pending the further order of the court. The SBA alleges that its security interest in the machinery, equipment, fixtures and other personal property of the debtor extended to the rental payments from the lease of the collateral, as proceeds thereof. The trustee answered, admitting that the SBA’s security interest extended to proceeds of the collateral, but specifically denying that rental payments constitute proceeds.
11 U.S.C. § 552(b) (1979)3 provides for an exception to the general rule that pre-peti*101tion security interests do not extend to property acquired by the debtor after filing of the petition. The section provides that a pre-petition security interest in proceeds, product, offspring, rents or profits of the secured property will continue post-petition, to the extent provided by the security agreement and applicable nonbankruptcy law. It must be noted, however, that Section 552(b) is subject to the provisions of 11 U.S.C. § 363 (1979), which grants to the trustee the conditional power to use, sell, or lease property of the estate.4
The argument proffered by the SBA fails by virtue of the very provisions of the law it seeks to invoke. First, the terms of the security agreement expressly limit the security interest to the named collateral and “proceeds and products therefrom.” Nowhere does it appear that the parties intended that rents from the lease of such collateral, either pre- or post-petition, were to be covered by the security agreement. Applicable nonbankruptcy law defines proceeds as “whatever is received when collateral is sold, exchanged, collected, or otherwise disposed of.” 13 Pa.Cons.Stat.Ann. § 9306 (Purdon).
The SBA cites the case of Feldman v. Philadelphia National Bank, 408 F.Supp. 24 (E.D.Pa.1976) in support of its position. In that case a secured creditor sought and received rental payments made pursuant to a lease of collateral in which the creditor held a security interest. That case, however, is distinguishable from the case at bar. In Feldman, the secured party’s security interest extended specifically to the lease of, and other contract rights in, the collateral. The secured party took possession of the lease document in order to perfect its interest. The court reasoned that a perfected security interest in a lease and its proceeds included the rental payments as proceeds of the lease. Here the security interest extends only to the named collateral, and not to the contract rights or chattel paper arising out of the lease of the collateral.5
More persuasive, however, is In re Cleary Brothers Construction Co., 30 UCC Rep. 1444 (S.D.Fla.1980), an almost identical factual situation to the case at bar. There, a bankruptcy court determined that in the absence of a security interest taken specifically in a lease, the term “proceeds” refers to collateral which has been finally or permanently converted into another form; however, where there exists a security interest in a lease, proceeds will include rental payments as “the account arising when the right to payment is earned under a contract right.” Cleary Bros., at 1445 (citing U.C.C. § 9-306.) The court distinguished Feldman on the same basis as we do today, that is, proceeds do not include rental payments when the security interest does not cover the lease of the collateral.
We, therefore, do not reach the question of whether the trustee, under Sections 363 and 552(b) would prevail against the SBA based upon the equities of the case. Although Congress has addressed that problem in those sections,6 we conclude that the *102parties to the underlying security agreement did not intend to include therein, rental payments from the lease of the collateral in question. Hence, the trustee’s right in this case to lease the machine is in no way limited by the provisions of Section 552(b).
. This opinion constitutes the findings of fact and conclusions of law required by Rule 752 of the Rules of Bankruptcy Procedure.
. Section 544(a) of the Bankruptcy Code provides:
(a) 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 debt- or 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 a judicial lien, whether or not such a creditor exists; . ..
. Section 552(b) of the Bankruptcy Code provides:
(b) Except as provided in sections 363, 506(c), 544, 545, 547, and 548 of this title, if the debtor and a secured party enter into a security agreement before the commencement of the case and if the security interest created by such security agreement extends to property of the debtor acquired before the commencement of the case and to proceeds, product, offspring, rents, or profits of such property, then such security interest extends to such proceeds, product, offspring, rents, or profits acquired by the estate after the commencement of the case to the extent provided by such security agreement and by applicable nonbankruptcy law, *101except to the extent that the court, after notice and a hearing and based on the equities of the case, orders otherwise.
. Section 363(b) of the Bankruptcy Code provides:
(b) The trustee, after notice and a hearing, may use, sell, or lease, other than in the ordinary course of business, property of the estate.
. On the face of the security agreement executed by the officers of the debtor appears a checklist of various categories of collateral. A checkmark is to be placed in the box aside each type of collateral covered by the agreement. We note that the box referring to “All contract rights now in force or hereafter acquired” is not checked. Nor does there appear any box marked “Chattel paper arising out of the lease of the collateral” or any similar language.
The Pennsylvania law of secured transactions defines chattel paper as “[a] writing or writings which evidence both a monetary obligation and a security interest in or lease of specific goods....” 13 Pa.Cons.Stat.Ann. § 9105 (Purdon).
.Although the section grants a secured party a security interest in proceeds, product, offspring, rents, or profits, the section is explicitly subject to other sections of title 11. For example, the trustee or debtor in possession may use, sell, or lease proceeds, product, offspring, rents, or profits under section 363. 124 Cong. Rec. H 11,097-11,098 (Sept. 28, 1978); S 17,414 (Oct. 6, 1978). | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489037/ | OPINION
C. E. LUCKEY, Bankruptcy Judge.
This opinion shall be applicable to each of the above-captioned adversary proceedings as each involves a common issue.
The debtor-in-possession in these proceedings was engaged in a business of purchas*180ing used houses, reconditioning them, and then offering them for sale.
Materialmen’s liens were filed against properties in question, and‘the lien holders felt insecure because of the Oregon statute requiring commencement of suit to foreclose within 6 months to prevent expiration of the liens. They therefore obtained unopposed orders of relief from the automatic stays and filed state court foreclosure suits which were promptly removed to this Court.
Properties subject to the liens were sold by the debtor-in-possession who instructed the escrow company to satisfy the liens from the proceeds.
The lien holders contend that satisfaction of the liens entitles them to attorney fees and costs in addition to the principal sum secured by the statutory lien.
The parties tendered a pre-trial Order relating to the attorney fee issue joined by the attorneys for the lien holders, the creditors’ committee and the debtor-in-possession.
There was no issue joined in the removed foreclosure proceeding by a'nswer. Instead, the debtor-in-possession acknowledged by escrow instructions the validity of the asserted liens.
The Oregon statute (87.060(4) ORS) provides for attorneys fees as a part of the judgment on foreclosure to the “prevailing party”. By their pre-trial Order, the parties have stipulated that the plaintiff-lienee is the prevailing party. Thus, apart from the problems created by the Bankruptcy Code, this Court’s problem would seem made easy.
The incidence of the Chapter 11 case, however, poses additional problems. The adversary proceeding for lien foreclosure is a proceeding within the Bankruptcy Code case. The Bankruptcy Code and applicable rules apply.
In instances in which the Code does not make a specific statutory provision relative to attorneys fees, it is necessary to apply the Bankruptcy Rules governing the allowance of the fees.
The application of the Bankruptcy Rules is complicated by the consolidation of Chapters X, XI and XII into Chapter 11. Throughout the Bankruptcy Rules for Chapters X, XI and XII, however, runs the applicability of Rule 219. Rule 219 in part provides:
“. .. The requirements of this subdivision [re application for compensation or reimbursement] shall apply to an application for compensation for services rendered by an attorney or accountant even though the application is filed by a creditor or other person on his behalf.”
It is noted that the Bankruptcy Code Comment under Rule 219(a) provides that the Rule is unaffected by the Code (Collier 1979 Pamphlet Edition Part 2 Bankruptcy Rules).
Bankruptcy Rule 754 applies to adversary proceedings in bankruptcy cases and applies subdivisions (a), (b) and (c) of Rule 54 of the Federal Rules of Civil Procedure.
The Rules Advisory Committee note to Rule 754 relating to allowance of costs under Rule 754(b) follows:
“Under § 2a(18) of the Act the bankruptcy courts have followed the equity practice of allowing costs to either party as a matter of discretion. 1. Collier, 381-82 (1968). Because of the adverse effect on creditors of imposing costs on a bankrupt estate and the reciprocal equities of those involved in litigation with such an estate, costs have often been denied either party in contested proceedings in bankruptcy cases. Subdivision (b) preserves the traditional approach by leaving the taxation of costs in such proceedings to the court’s discretion.”
This Court therefore concludes that the seeker of attorney fees must comply with Rule 219 and the Court has broad discretion in the allowance of the fees.
The parties have agreed in the proposed pre-trial Order that the attorneys fees sought, if allowable, are reasonable. This seems to fall short of the prohibited agreement fixing fees condemned as criminal under the provisions of Title 18, Section 155 *181of the United States Code. That they could apparently not legally agree to a fee fixing imposes upon the Court the responsibility to fix the fee. This is not to suggest the parties acted “knowingly and fraudulently” in violation of the section, because the fee question has been submitted to the Court.
Additionally, when the Court fixes the fee, it must comply with notice requirements relating to allowances of compensation or reimbursement provided by Bankruptcy Rule ll-24(a)(7) or Rule 10-209(b)(6).
Finally, the problem remains as to the nature of any allowed fee as a part of the lien, as an administrative expense, or as a claim to be provided for by a debtor’s plan of arrangement, or as a general claim in the event of conversion to Chapter 7 liquidation.
Provision for attorneys fees in consensual liens generally attached to the security in accordance with the contractual terms.
Here we are concerned with a statutory lien and statutory provisions conditionally providing for attorneys fees (87.039(2), 87.-057(3) and 87.060(4) ORS). Compliance with the notice requirements of the statutes are not disputed.
Although a prevailing party ordinarily is determined after issue is joined and judgment entered, the treatment accorded the lien holder’s complaint by the debtor-in-possession created of the lien holder an ipso facto prevailing party.
The statute is silent as to whether or not the award of attorneys fees becomes a part of the lien, or simply an in personam judgment. Material liens are entitled to a high priority because they theoretically enhance the value of security held in the same property by other security holders. These security holders are upon notice that costs and attorneys fees may apply in the event of forced foreclosure, and as well as the debt- or, could protect their position by payment of the lien.
The silence of the statute requires interpretation and this Court has, after diligent inquiry, been unable to find any applicable interpretation of the Oregon statute relating to the attachment of the costs and attorneys fees as a part of the lien.
However, if the statutory conditions are met it would seem anomalous to accord less dignity to the statutory provision than to a consensual provision.
This concept is reinforced by the provisions of Section 87.076 ORS relating to the lifting of a lien by the posting of bond to include obligation for costs and attorneys fees. It is further reinforced by policy which should encourage settlement of litigation short of judgment. See Delta Air Lines, Inc. v. August, - U.S. -, 101 S.Ct. 1146, 67 L.Ed.2d 287 (1981).
The Court, therefore, upon proper application and notice, will fix the attorneys fees and costs and impress the proceeds of the sales with the sum to be so fixed. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489040/ | Memorandum and Order
THOMAS JAMES, Bankruptcy Judge.
The court held a trial on the complaint of Sandra McClaflin, debtor, to avoid the non-possessoiy, nonpurchase-money security interest lien of Avco Financial Services, Inc., defendant, under § 522(f) of the Bankruptcy Code on certain property of the type listed in § 522(f)(2)(A) on the parties’ agreed statement of facts. Judgment will be entered in favor of Sandra McClaflin, plaintiff, and against Avco Financial Services, Inc., defendant.
On or about December 15, 1978 Sandra borrowed $2,409.09 from Avco and executed a security agreement in and to all of the personalty, household goods, furniture and appliances, and other consumer goods in her possession in Avco’s favor. Sandra has claimed the goods as exempt. The court concludes that Avco has a nonpossessory, nonpurchase-money security interest that impairs the exemptions to which she is entitled under § 522(b).
Avco asserts that because its lien was created prior to October 1, 1979, the effective date of the Bankruptcy Code, the use of § 522 to avoid its lien would constitute an unlawful taking of its property without due process of law. Debtor argues that Congress intended § 522 to apply to liens existing on its effective date of October 1, 1979, and that avoidance of such liens is not unconstitutional. Debtor is correct.
Section 522 provides that:
(f) Notwithstanding any waiver of exemptions, the debtor may avoid the fixing of a lien on an interest of the debtor in property to the extent that such lien impairs an exemption to which the debtor would have been entitled under subsection (b) of this section, if such lien is—
******
(2) a nonpossessory, nonpurchase-mon-ey security interest in any—
(A) household furnishings, household goods, wearing apparel, appliances, books, animals, crops, musical instruments, or jewelry that are held primarily for the personal, family, or household use of the debtor or a dependent of the debtor ....
Bankruptcy Judge Ralph Mabey has analyzed in great detail the questions of the retrospective application of § 522(f) and the constitutionality of such application in his learned opinion in In re Pillow, 8 B.R. 404 (Bkrtcy.Utah, 1981). This court agrees with Judge Mabey’s analysis and respectfully adopts his opinion in support of its conclusion.
Section 522(f) applies to liens existing on the effective date of the Bankruptcy Code. There is no suggestion in the language of § 522 that it refers only to liens created after any particular date. The purpose of the section, as expressed in the legislative history, is to provide a method for ending *357'collection efforts concerning discharged debts. Congress found that household property is of itself of little or no value to creditors. The threat of repossession, is, however and Congress sought to remove this threat for debtors who filed bankruptcy cases on and after October 1, 1979.
The court’s conclusion is further supported by the absence of a savings clause for the type of security interest Avco claims as of the effective date of the Code. Section 522(f) is available to all debtors who file petitions after October 1, 1979 regardless of when liens were created.
Modification of Avco’s rights under Sandra’s security agreement does not deprive Avco of property without due process. Avco’s right to Sandra’s property arises only when certain specific conditions occur. The Code modifies the contract between Avco and Sandra in such a way that Avco loses a right it had under the contract. As noted by Judge Mabey all bankruptcy statutes have done away with creditors’ rights and have been vigorously attacked for so doing. But Congress has the constitutional authority under its bankruptcy power to avoid creditors’ rights including liens.
It is therefore ordered that judgment is entered in favor of Sandra McClaflin, debt- or-plaintiff, and against Avco Financial Services, Inc., defendant, and the lien of Avco Financial Services, Inc. in and to any or all of the personalty, household goods, furniture and appliances, and other consumer goods of Sandra McClaflin is voided. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489041/ | ORDER DENYING CONFIRMATION
THOMAS C. BRITTON, Bankruptcy Judge.
A hearing was held on May 19, 1981, to consider confirmation of the debtor’s chapter 13 plan.
Confirmation requires that the plan meet the six requirements of 11 U.S.C. § 1325(a). This plan fails to meet two of those requirements and, therefore, confirmation is denied.
The debtor is retired and derives his sole monthly income of approximately $1,400 from his pension. Of this amount, after subtracting expenses, the debtor proposes to pay a total of $500 a month to the secured and unsecured creditors. This includes a monthly mortgage payment of $217 as well as approximately $200 a month to purchase his car, a 1979 Oldsmobile. The balance of the monthly payment, $100, would be distributed among his unsecured creditors, $40 a month to his first wife and $60 a month to the remaining unsecured creditors.
In order to confirm a plan, this court must find that:
“ . .. the plan has been proposed in good faith and not by any means forbidden by law.” 11 U.S.C. § 1325(a)(3).
*443The debtor’s first wife has a judgment against him in the approximate amount of $70,000 representing unpaid alimony. The remaining unsecured debt totals $10,000. I find that the debtor’s proposal to pay $100 a month to the unsecured creditors while he pay twice that amount to keep his car is not in good faith. The debtor testified that he needs the car because he is a part-time real estate salesman and hopes to receive additional income. I do not find this reason sufficient to justify the payment terms of this plan. Although the debtor has been hoping to generate income from this source for the past three years, his only significant income to date has been from his pension. The request to extend payments under the plan to five years which has been sought by the debtor (C.P. No. 3), if granted, would not, in my opinion, cure the lack of good faith.
The debtor’s plan also fails to meet the fourth requirement:
“ ... the value, as of the effective date of the plan, of property to be distributed under the plan on account of each allowed unsecured claim is not less than the amount that would be paid on such claim if the estate of the debtor were liquidated under chapter 7 of this title on such date.”
By an order entered two months before bankruptcy, the first wife obtained from a Massachusetts State court continuing garnishment of the debtor’s monthly annuity check in the amount of $770.42 until the full amount of her judgment is satisfied. This judgment is nondischargeable under the provisions of § 523(a)(5). The garnishment complies completely with 15 U.S.C. § 1673. If the estate of this debtor were liquidated under chapter 7, the ex-wife’s claim (assuming she received nothing from the liquidation of this estate) would survive bankruptcy and would be paid in full through garnishment within eight years.
The $40 a month proposed by the debtor’s plan, totaling $2,400 over five years to be paid on account of this claim, would not even satisfy the interest accruing on the judgment and would delay this creditor at least an additional five years from receiving full payment on her claim. I find and conclude, therefore, that the value as of the effective date of the plan of property to be distributed under the plan on account of the ex-wife’s claim is substantially less than the amount of the claim.
A colleague has concluded that the words in § 1325(a)(4), “the amount that would be paid on such claims” excludes the amount that would be paid on a non-dischargeable claim after a chapter 7 liquidation. Matter of Marlow, Bkrtcy.N.D.Ill.1980, 3 B.R. 305, 6 B.C.D. 77, 78. I disagree. Neither the literal provisions of the statute nor anything I have seen in the legislative history requires such a narrow construction.
In view of the foregoing findings, the debtor’s application to extend the time for payment under the plan is denied. Notice is given to the debtor and to all creditors that a hearing will be held at 10:00 a. m. on Tuesday, July 7, 1981, at 701 Clematis Street, West Palm Beach, Florida, at which time this court will either grant or deny additional time for filing another plan or a modification of this plan or will either dismiss or convert this case to chapter 7. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489042/ | MEMORANDUM OF DECISION
ROSS M. PYLE, Bankruptcy Judge.
The Debtors’ Objection to Claim No. 5, item no. 2, filed by Mutual Savings and Loan (hereinafter referred to as “Mutual”) came on regularly for hearing on February 13,1981. There were no appearances by or on behalf of Mutual. The Court, having considered the evidence and arguments of counsel, renders its Memorandum of Decision as follows.
FACTS
Mutual’s claim in the amount of $39,-429.94 is secured by a first mortgage on certain real property in Isabella County, Michigan. On the face of the claim, the property is stated to have a fair market value of $48,000.00.
The Debtors list the claim of Mutual in their schedules as a contingent liability, arising from a home which they sold in 1980. The Debtors object to the allowance of Mutual’s claim in any amount for the reason that the claim is fully secured by the real property and should not be paid through the Debtor’s Chapter 13 plan. At the time of the hearing on this objection, there was no evidence presented or allegations made that the home loan note and mortgage were in default.
At the hearing, the Court ordered that no payments were to be made on this claim by the Chapter 13 Trustee pending further order of the Court and the matter was taken under submission. The parties were given until February 27, 1981, to file Points and Authorities on the applicable Michigan law but none have been filed with the Court.
DISCUSSION
Under Michigan law, a mortgagor is liable for any deficiency if a valid sale does not bring enough to satisfy the principal, interest and costs. M.C.L. § 600.3150; 16 Mich. Law & Prac. Encyc., Mortgages § 188 (1957). The Michigan court in discussing a default under a land sale contract, stated that mortgagees may obtain a deficiency judgment, whether the foreclosure is by action or advertisement. Gruskin v. Fisher, 405 Mich. 51, 58, 273 N.W.2d 893 (1979) (rehrg. denied 406 Mich. 1117).
If a foreclosure suit seeks a personal decree for any deficiency that may result, a mortgagor who has sold his or her interest in the mortgaged property subject to the mortgage debt which a purchaser has assumed, is a necessary party to such foreclosure action. 16 Mich. Law & Prac. Encyc., supra, § 236.
A defense to the deficiency judgment is that the property was underbid and that its value is sufficient to fully repay the foreclosing creditor. Chabut v. Chabut, 66 Mich.App. 440, 239 N.W.2d 401 (1976).
From the foregoing, it appears that under Michigan law the debtors are contingently liable for any deficiency if the purchasers of the property default on the note, but only if the debtors are parties to the foreclosure and if the value of the property is insufficient to pay off all sums due.
11 U.S.C. § 502(c) provides as follows:
(c) There shall be estimated for the purpose of allowance under this section—
*487(1) any contingent or unliquidated claim, fixing or liquidation of which, as the case may be, would unduly delay the closing of the case....
In the instant case, to await the maturing of any potential deficiency judgment against the debtor would delay the closing of the case. Therefore, the Court must estimate the amount of this contingent claim. From the face of the claim, it appears that the amount of the claim should be zero because the value of the property is stated to be $48,000, roughly $8,500 in excess of the unpaid balance on the note. Thus, the property’s value is sufficient to fully repay the creditor even if foreclosure took place immediately. Consequently, under Michigan law, the debtors would have a complete defense to a deficiency judgment.
Therefore, since the contingent claim is valueless, it will be disallowed.
CONCLUSION
Claim No. 5, item no. 2, filed by Mutual Savings and Loan in the amount of $39,-429.94 is disallowed as having no value.
The Attorney for the debtors shall prepare an appropriate order within ten (10) days from the date hereof. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489043/ | SIDNEY M. WEAVER, Bankruptcy Judge.
THIS CAUSE having come on for trial upon an Adversary Complaint to Recover Monies Due and Owing, Accounts Stated, and Goods Sold and Delivered filed by Plaintiff, WALTER E. HELLER & CO., a secured Creditor of the Debtor, and HERBERT FREEHLING, Trustee in Bankruptcy, and the Defendant having appeared and the Court having heard the testimony of Plaintiffs and Defendants; observed the candor and demeanor of the witnesses; and being otherwise fully advised in the premises, does hereby make the following Findings of Fact and Conclusions of Law:
Plaintiff, WALTER E. HELLER & CO. (“HELLER”) is a secured Creditor of the Debtor and is a proper party Plaintiff pursuant to this Court’s Order entered September 5, 1980 ratifying a Stipulation entered into between the Trustee in Bankruptcy and Plaintiff, authorizing Plaintiff to collect certain Accounts Receivable of the Debtor, GAMY & LEVY ASSOCIATES, INC. This Court has jurisdiction to hear and determine this cause pursuant to 28 U.S.C. § 1471.
At trial HELLER presented testimony that in April of 1979 Defendants MARGOT FISHER BROOKS and WALTER FISHER BROOKS approached the Debtor seeking to purchase carpet for installation in a restaurant they owned, the MARABELLE RESTAURANT (“the RESTAURANT”). The Debtor refused to sell directly to the RESTAURANT but did agree to sell the carpet to LE ROUND POINT INTERIOR, an interior decorating firm owned by Defendants.
On or about April 20, 1979 the Debtor sold Defendants carpeting and carpet installation at a price of Seven Thousand Nine Hundred and Thirty Dollars and Forty Cents ($7,930.40). The Debtor sent Defendants a bill for that amount which was introduced in evidence at trial. The carpet was installed in the RESTAURANT on or about October 10, 1979 by a sub-contractor acting for the Debtor.
The Defendants admitted that the carpet was received and installed in the RESTAURANT, but presented testimony, supported by photographs introduced in evidence, that there were minor problems with the installation of the carpet and that there were defects in the carpet itself resulting in several tears in the carpet.
Although the Defendants testified that the carpet was damaged to such an extent that it required replacement, it is clear to the Court that the carpet was installed in a commercial establishment and that the Defendants have had the use and benefit of the carpet for more than one year. Thus, the Defendants claim, though well-founded, is a matter of setoff, not an absolute defense. The Court accordingly allows a set-off to the Defendants in the amount of Three Thousand Nine Hundred and Thirty Dollars and Forty Cents ($3,930.40). Set*590ting off that sum against the amount owed to Plaintiffs, this Court finds as a matter of fact and this Court concludes as a matter of law that the Defendants are indebted to Plaintiff in the sum of Pour Thousand Dollars ($4,000.00), plus costs and interest.
A Final Judgment will be entered in accordance with these Findings of Fact and Conclusions of Law. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489044/ | SUPPLEMENTARY OPINION, INCLUDING INTRODUCTORY STATEMENT, ANALYSIS OF PROOF, DISCUSSION AND CONCLUSION OF LAW
EUGENE J. RAPHAEL, Bankruptcy Judge.
Introductory Statement:
The Pritchards filed their petitions in bankruptcy on May 13th, 1979. Since this was before the effective date of the Bankruptcy Reform Act of 19781 all procedural matters are to be conducted and determined in accordance with the provisions of the Bankruptcy Act and the Rules of Bankruptcy Procedure and all questions of substantive law are to be determined under the provisions of the Bankruptcy Act, as if the Bankruptcy Reform Act of 1978 had not been enacted. P.L. 95-598, Section 403(a). Hence, Section 17 of the Bankruptcy Act applies rather than Section 523(a)(2) of the new Title 11.
The Bank of Mississippi filed a complaint in each of these cases, seeking a determination that the debts owed it by the bankrupts were not dischargeable under Section 17(a)(2) of the Bankruptcy Act, in that the bankrupts had used their Master Charge cards in such a way as to make these debts “liabilities for obtaining money or property by false pretenses or false representations”. The defendants answered and these two adversary proceedings were tried before me together. At the close of plaintiff’s case, the defendants moved for a directed verdict (Tr. p. 83). I granted the motion and dismissed the complaints, relying on the case of Davison-Paxon Co. v. Caldwell (C.A. 5, 1940) 115 F.2d 189; cert. denied 313 U.S. 564, 61 S.Ct. 841, 85 L.Ed. 1522.
Plaintiff appealed to the District Court, and the appeal was assigned to Honorable Orma R. Smith. Judge Smith, holding that in dictating my opinion into the trial record at the close of the trial, I had failed to make findings of fact sufficient to allow an appellate court to determine whether my decision was justified, remanded the case for the purpose of making specific findings, “if such can be done on the present record; if not, then for a full trial on the merits”.
Judge Smith’s opinion and order indicated that the findings of fact should include findings on the following issues:
1) Whether there had been actual overt false pretenses or representations on the part of the defendants.
2) Whether the defendants, in making purchases in separate depc-tments of the same store on the same day, did so with intent to defraud by thus keeping each individual purchase under $50.00, knowing that in the case of purchases in excess of $50.00 the merchant would have to make inquiry by telephone of the status of the account, and that such inquiry would reveal that the account was delinquent.
3) Whether the Pritchards inserted the $300.00 credit limitation in their signed application for the credit card or whether that *616limitation was inserted by the plaintiff or the credit card company without the knowledge or authority of the defendants.
Analysis of The Proof:
(a) The Credit Limit — The only witnesses called to the stand by the Bank were the debtors, as adverse witnesses, and David Beene, a bank employee since 1972. Mr. Beene described his position as “assistant manager, Master Charge Center at the Bank of Mississippi”.
This saga starts with a written application by the Pritchards to the Bank for a Master Charge Card. They testified that they went to the Bank, obtained the printed form from the Bank, took the form home, filled it out together, signed it and then Mrs. Pritchard mailed it back to the Bank in a self-addressed business-reply envelope. The form shows “date signed” as March 29th, 1978. A rubber stamp indicates it was received March 31. The form contains a minimal amount of credit information about the debtors: their names, social security numbers, addresses, telephone numbers, dates of birth, name and address of nearest relative, names and addresses of their respective employers, positions held, gross salary, previous employer, other income, their bank and the types of accounts carried, and information as to existing credit obligations, including the name of each creditor, the balance owing and the amount of each periodic payment.
Mr. Beene testified as to the Bank’s procedure when a credit application was received. The application is “sent to our credit bureau, which is checked out and sent back to us, like a credit decision is made, cards are issued, and a credit line is established. Cards would be sent out if approved. If not, it would be denied”. While Mr. Beene did not specifically say that cards were issued on this Pritchard application, it is obvious from the evidence that they were.
There is no testimony in the record that any of the statements made by the Pritch-ards in the application for the credit card was false or misleading, and indeed the Bank makes no such claim. The only dispute about this application form is over the credit limit.
At the top of the form is a heading: “Your Request for a Master Charge Card”. Just under that, in smaller type, there appears:
“I hereby request a credit limit of $_after reviewing my family expenses.”
On the application as introduced into evidence (Plaintiff’s Exhibit “2”) the blank in the above sentence was filled in in ink with the figure “300.00”. The Pritchards testified that they had not written the figure 300.00 in, and that when they mailed the application to the Bank nothing had been filled in this blank. They further testified that they did not have any conversation with any bank officials about it at the time when they picked up the application or later. The application was not delivered to the Bank in person. It was mailed in. There is no testimony whatever in the record with regard to any oral communication between the Pritchards and any employee of the Bank at any time. Mr. Pritchard further testified that he did not even know what a credit limit was.
The Bank sought to show that the Pritch-ards knew about the credit limit by having Mr. Beene testify as to the Bank’s procedures with respect to delinquent accounts (Plaintiff’s Exhibit “3”). These consisted of a series of letters which, Mr. Beene said, would be sent out automatically by the computer at various stages of a customer’s delinquency. The computer was located in Atlanta and the mailing was done from there. Copies of the letters were not mailed to the Bank. The Pritchards denied that they ever received a letter with respect to their credit limit. The items contained in Exhibit “3” were not offered as copies of letters actually sent to the Pritchards, but merely as samples of the types of letters that the computer should have written to them. Assuming that the sending and receipt of such letters would be relevant to any of the issues in this case, I find that there is insufficient evidence that any such *617letters were mailed to Mr. and Mrs. Pritch-ard.
Mr. Beene testified that he did not see the figure 300.00 written in; that he did not know who put it there, or whose handwriting it was. He did state that it was against the bank’s policy for any employee of the bank to fill in the credit limit blank on this type of application form. However, he did not see the application when it arrived at the bank and was unable to say the application had arrived with the amount of the credit limit filled in. No other witness testified on the subject of the credit limit blank. I do not think that the testimony of Mr. Beene that it was not the policy of the bank for its employees to fill in this blank is sufficient to overcome the positive testimony of Mr. and Mrs. Pritchard that they had not filled in the 300.00 credit limit figure when the application was mailed, and that the figure was not in their handwriting.
So with respect to the 3rd question set out in Judge Smith’s opinion, I find that the Bank has failed to prove that the credit limit blank was filled in by the Pritchards and I therefore find that the 300.00 figure had not been inserted by them. As to the second part of the question, there is no evidence whatever to show who did insert the 300.00 credit limit.
Analysis Of The Proof (continued) :
(b) Use of the Account by Debtors and The Question of Multiple Charges on the Same Day — The monthly statements (Plaintiff’s Exhibit “1”) sent to the Pritch-ards by the bank with respect to this Master Charge account are quite revealing. In summary, they show the following:
Monthly Statement
Closing Date Previous Balance Items Charged This Month Minimum Payment Actual Payment New Balance
5-19-78 0.00 268.55 13.00 none 268.84
6-19-78 268.84 257.60 24.00 50.00 480.32
7-19-78 480.32 181.89 57.00 none 669.35
8-18-78 669.35 129.23 65.00 " 30.00 778.17
9-18-78 778.17 317.88 14.00 797.00 299.05
10-18-78 299.05 348.89 46.00 none 653.17
11-17-78 653.17 163.56 87.00 none 826.43
12-18-78 826.43 131.60 135.00 none 970.16
1-17-79 970.16 909.35 229.00 none 1,893.28
2-16-79 1,893.28 709,40 359.00 none 2,603.10
3-19-79 2,603.10 582.64 519.00 none 3.216.12
4-18-79 3.216.12 271.80 695.00 none 3.524.12
5-18-79 3.524.12 478.90 897.00 none 4,041.94
It will be noted that the putative credit limit of $300.00 was exceeded in the second billing period; that for the first four months only two payments were made on the account, one for $50.00 and one for $30.00, leaving a balance due for the period ending August 18,1978, $778.17; that in the very next period that balance was wiped out by a single payment of $797.00. That large payment was received by the Bank on August 30, 1978 and represented the proceeds, or part of the proceeds, of a loan the debtors obtained from Money Mart, Inc., a personal loan company. From that time on, no payments whatever were made by the debtors on this Master Charge account.
The above table reveals the basic flaw in the Bank’s procedures with respect to its Master Charge department. All records were maintained by a computer located in *618Atlanta. The computer was programmed to send bills each month to card holders, but not to send copies of the bills to the Bank. It was also programmed, according to the Bank to send letters to card holders whenever a card holder went two successive months without a payment; but again, no copies of these letters were sent to the Bank. When a cardholder’s account was delinquent, a note on the monthly statement chided the cardholder for his delinquency and gave him a telephone number which he was requested to call with reference to the account, but again, no notice of this request went to the Bank. In short, the Bank had established no routines whatever which would have enabled it to monitor the accounts of its Master Charge customers.
Of course, the failure of the Bank to keep track of the status of the debtors’ account would not excuse the debtors if, in fact, they had been guilty of any false pretenses or fraudulent misrepresentations; but it does serve to explain how the debtors’ delinquencies went undetected for so long a time and reached such outrageous proportions.
The Bank has claimed that the debtors deliberately kept the amount of their charge purchases at each particular store on particular occasions below $50.00, and that when they were going to charge more than that amount on a particular day at a single store they would not make all the purchases at one time, but would make multiple purchases at different times on the same day. It is well and widely known, and the court will take judicial notice, that merchants who accept Master Charge cards and other bank credit cards are required to inquire as to the status of the customer’s account by telephone and obtain approval from the card company or the bank involved, whenever an attempt is made to charge more than $50.00 at the same store at one time; so, the Bank alleges, the debtors would have been prevented from running up so large an indebtedness if a larger-than-$50.00 purchase had been made, which would have resulted in the Bank becoming aware of the status of the account.
I can find no factual basis in the record to substantiate this charge. To begin with, the monthly statements reveal that there were four occasions on which single purchases in excess of $50.00 were made. These are:
Dated Merchant Amount Balance of A/C
1. 4-22-78 Weathers Auto Supply 68.25
2. 6-28-78 S. H. Kress, Tupelo 60.86 521.32
3. 8-12-78 Weathers Auto Supply 57.75 685.72
4. 12-01-78 K. Mart 66.67 970.16
On the first of these occasions, the account had not exceeded the $300.00 credit limit. On the second and third occasions the credit limit has been substantially exceeded. On the fourth occasion the account balance was more than three times the credit limit and no payment had been made on the account for three successive calendar months. Testimony at the trial did not reveal how these charges happened to go through. One can only surmise that one of two things happened: either the merchants involved called the Bank and the charges were approved despite the status of the account; or, the merchants did not call the Bank, but the Bank later accepted the charges and paid the merchants anyway. In either event, it is obvious, and I so find, that the Bank was not strictly enforcing either the $300.00 alleged credit limit or the $50.00 inquiry rule.
With regard to the Bank’s claim that the debtors were deliberately making multiple purchases on days when they wanted to incur charges totalling more than $50.00 with the purpose of avoiding an inquiry by the merchant as to the status of the account, I find that this claim is not supported by the evidence. Analysis of the monthly statement shows that there were only six instances of multiple purchases be*619ing made on the same day at the same store and on one such occasion the aggregate purchases did not exceed $50.00. These transactions were as follows:
It will be noted that on one of these occasions, five separate items were purchased at the same store. Two of these items were disputed by the debtors. On all of the other occasions there were only two purchases on the same day. One of these items was disputed and, as to the others, the debtors testified that purchases were made in different departments of the store. In any event, assuming that all of the purchases were made, there are 215 purchases listed on the account over a period of thirteen months and there are only five occasions where the multiple purchases on a single day totalled more than $50.00, compared with four occasions in the same period where a single purchase exceeded $50.00. This does not indicate to me that there was any plan by the debtors to make multiple purchases on the same day to keep the merchant involved from having to inquire as to the status of debtors’ account and I find no evidence of such an intention. Accordingly, Judge Smith’s second question will be answered in the negative.
Analysis of The Proof (continued) :
(c) Actual or Overt False Pretenses or False Representations by Defendants —Turning now to Judge Smith’s first question, whether there had been actual overt false pretense or representation on the part of the defendants, the Bank has conceded that there were no false representations or pretenses in the written application for the card filled out by the debtors before the card was issued. There is not one word of testimony in the record of any communication by the bankrupts to the Bank, oral or written, other than their request for a credit card application blank and the completed application. This question, too, must therefore be answered in the negative.
The bankrupts, of course, knew or should have known, that their account was delinquent. While they stated, and I have found, that they did not receive the collection letters the computer was supposed to have sent them, they did receive monthly statements of their Master Charge account. On the statement for the period ending July 19, 1978 this language appears underneath the list of items charged:
“Have we missed your payment.... If you have not already mailed it, please do so today”.
*620The same language appears on the statement for the period ending August 18,1978. It does not appear on the next following statement, presumably because on August 30 the defendants made a payment of $797.00, as mentioned previously. The same language re-appears on the statement for the period ending October 18, 1978. Then on the statement for the period closing November 17, 1978 we find this language:
“You have missed your last two payments. Please pay now to avoid losing your credit privileges”.
The December 18th statement bore this legend:
“You are seriously delinquent. Contact our collection dept, at 842-3541 to make payment arr”.
The next month, the statement for the period ending January 17, 1979 put it this way:
“Your account is seriously past due. Call 601-842-3541 today”.
After that the computer apparently gave up, as there are no such admonitions on the four succeeding months’ statements and, by the end of April, 1979 the Bank had finally awakened to the situation and had retrieved the credit cards from the Bankrupts.
Discussion:
The question for decision at the trial was whether the conduct of the Bankrupts, set forth above, was sufficient to constitute false pretenses or false representations within the meaning of Section 17(a)(2) of the Bankruptcy Act (former Section 35(a) of the old Title 11, United States Code). That question was answered for courts located in the Fifth Circuit by Davison-Paxon Co. v. Caldwell, supra. That case held that, to come within the meaning of the section in question, there had to be an actual misrepresentation; that the fact that a bankrupt had accepted credit at a time when he knew, or should have known, he was broke, would not give rise to an inference that the bankrupt had represented to the creditor that he intended to pay for what he bought, knowing that he had no such intention.
Davison-Paxon has been criticized severely by Collier and by district courts and bankruptcy courts in other circuits, which have refused to follow it. Collier on Bankruptcy (14th Edition) par. 17.16 at p. 1640; and see, for example, In re Black (E.D.Wis., 1974), 373 F.Supp. 105; In re Schneider, 3 B.C.D. 175.
The. Fifth Circuit itself, has criticized Davison-Paxon. See Matter of Boydston, (C.A. 5, 1975) 520 F.2d 1098; Matter of Wood, (C.A. 5,1978) 571 F.2d 284. In Boyd-ston, Judge Coleman commented that “The rationale underlying Davison-Paxon has been severely eroded in the modern world of credit transactions....”. In both these Fifth Circuit eases, however, the Court declined to overrule Davison-Paxon, affirming the lower courts on the basis of factual findings by the bankruptcy judge which, they said, were not clearly erroneous.
Hence, Davison-Paxon is still the law of the Fifth Circuit and I did not feel at the trial, nor do I feel now, that a judge at the trial court level should take it on himself to overrule it. If it is to be overruled, that decision should be made by the Fifth Circuit itself. It is not for this court to say what that court will do, should it once again be offered the opportunity. I therefore granted the defendants’ motion to dismiss at the end of the plaintiff’s case.
It may well be that Davison-Paxon would no longer be applicable had this case arisen under the Code, instead of under the Bankruptcy Act. The new Title 11, Section 523(a)(2)(A), has added to false pretenses or a false representation “actual fraud, other than a statement respecting the debtor’s or an insider’s financial condition”. It may be that the conduct of these defendants could be found to amount to “actual fraud”. I make no comment as to that since, as pointed out early in this opinion, the new Bankruptcy Code does not apply to this case.
. Except for those sections specified in Section 402(d) of that act (not applicable here) which took effect on enactment. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489045/ | PER CURIAM.
The Appellees have moved for dismissal of this appeal on the ground that the Appellant, who filed his notice of appeal on January 20, 1981, has failed to perfect his appeal. The Appellant has never filed a designation of the contents for inclusion in the record on appeal and a statement of the issues he intends to present on his appeal, as required by Appellate Rule 7.1
The Appellant has not filed a response to Appellees’ Motion to Dismiss, as permitted under Appellate' Rule 13(a). He has, however, filed a brief in support of his appeal.
We conclude that the Appellees’ Motion should be granted and the appeal be dismissed.
This Appellate Panel, since its inception over a year ago, has leniently overlooked numerous violations of appellate procedure. Such violations often result in confusion costing hours of valuable court time. In addition, additional burdens are placed on opposing counsel and court personnel.
Now that the Appellate Rules have been in effect for over a year, practitioners are fairly charged with the responsibility of substantial compliance.
Counsel for this Appellant, in particular, has appeared before this Appellate Panel at least once before and should be familiar with the procedure.
In reaching our decision we have studied the Memorandum and Order appealed from as well as the Appellants’ brief and are of the opinion that his Appeal has little merit in any event.
APPEAL DISMISSED.
. First Circuit Rules Governing Appeals from Bankruptcy Judges to District Courts and Appellate Panels. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489046/ | PER CURIAM.
Appellants have moved to strike Appel-lee’s “Designation of Record and Statement of Issues with respect to appeal by Auburn Medical Associates, Inc., Roland Caron and Auburn Medical Realty, a Limited Partnership.”
Appellee has not responded to the motion, as permitted by Appellate Rule 13(a).1
We conclude, after a review of the record on appeal, that Appellants’ motion should be granted.
In the first place, the document filed by Appellee was not timely filed, see Appellate Rule 7, nor was a request for an enlargement of time made by Appellee as permitted by Appellate Rule 21(a).
In addition, none of the papers designed by the Appellee has even the remotest bearing on the issues raised in this appeal.
Furthermore, the Appellee attempts to raise additional issues on appeal by his “STATEMENT OF ISSUES”; this is not permitted under the Appellate Rules. The proper procedure would have been for the Appellee to file and perfect his own appeal; this he has failed to do.
APPELLANTS’ MOTION TO STRIKE GRANTED. APPELLEE’S DOCUMENT ENTITLED “DESIGNATION OF RECORD AND STATEMENT OF ISSUES WITH RESPECT TO APPEAL BY AUBURN MEDICAL ASSOCIATES, INC., ROLAND CARON AND AUBURN MEDICAL REALTY, A Limited Partnership” IS STRICKEN FROM THIS APPEAL.
. First Circuit Rules Governing Appeals from Bankruptcy Judges to District Courts and Appellate Panels. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489047/ | ANDERSON, Bankruptcy Judge.
PRELIMINARY STATEMENT
This matter came for hearing on 5 May 1981 upon an application for approval by the court of a proposed settlement agreement; oral arguments in open court by both proponents and parties in opposition; and, was submitted, without the introduction of evidence upon memoranda submitted in behalf of the Consumers Coal Company on 19 May 1981 and of E. M. Asquith on 14 May 1981. The only facts before the court, in addition to documents not disputed, are contained in the court records, of which the court takes judicial notice. The settlement agreement speaks for itself.
FINDINGS OF FACT
Originally, two matters were set for the Court’s disposition; however, counsel for the debtor advised the Court that its Application to Sell Assets was no longer at issue because the debtor had received no viable offers to purchase said assets.1
Having determined that Application moot, the Court proceeded with the debtor’s Application to Approve the Agreement and Settlement filed March 31, 1981.
The Settlement Agreement for which the debtor seeks this Court’s approval arises out of several adversary proceedings pending between the debtor and Donald Graves and Gaylord Stacy. The latter gentlemen are the managers of Kentucky Prince Company, a wholly owned subsidiary of the debtor, Consumers Coal Company. Kentucky Prince Company is the operating entity of the debtor. Messrs. Graves and Stacy claim to be creditors of the debtor to the extent of approximately $3,266,000.00, which amount represents the balance of the purchase price due them on the sale of Kentucky Prince Company to Consumers Coal Company. As security for the purchase of Kentucky Prince, Graves and Stacy accept*788ed a pledge of Consumers Coal stock which pledge they have threatened to foreclose upon in lieu of payment of the $3,266,000.00 balance due. This threatened action has resulted in the debtor’s filing of an adversary proceeding under the pending Chapter XI case in which it requested this Court permanently to enjoin Graves and Stacy from foreclosing upon their stock pledge agreement until such time as the pledge agreement has been found by the court as valid. The shareholders of Consumers instituted a similar action in United States District Court. Thus, as a result of the disputed pledge agreement, there are two pending civil actions in United States Bankruptcy Court and United States District Court involving the debtor and Messrs. Graves and Stacy. The well-informed and reasoned opinions of counsel for these parties indicate that the issues requiring resolution in these cases are long and complicated and could result in many months, if not years, of litigation.
Consumers Coal Company has filed a Plan of Arrangement in this Chapter XI proceeding. Because of disputes over the subject pledge agreement and because of a general atmosphere of controversy and disagreement over management tactics within the debtor’s organization, Donald Graves and Gaylord Stacy have rejected the Plan of Arrangement; and, in the opinions of counsel, it is doubtful that a plan offered by the debtor would ever be accepted by Graves and Stacy under conditions presently existing between the two factions. Also because of the conflict within management of the debtor and in light of the pending litigation, the National Bank of Detroit, which holds a security interest on virtually all of the debtor’s assets, is reticent to begin a restructuring of the loan which is the basis for its security interest in the Consumers Coal property. The debtor has emphatically represented that the anticipated restructuring of the loan from National Bank of Detroit, is a prerequisite to the funding of a feasible plan of arrangement.
The pending litigation and the uncertainty surrounding stock ownership and voting rights in the Debtor has interfered with direction to management; negotiating with creditors and interested parties; and the preparation and filing of an amended plan of arrangement so that the Chapter XI process can be implemented. This court on 31 December 1980 in entering a temporary restraining order to delay the sale of 6566 shares of Debtor’s stock and wrongfully interfering with negotiations with creditors and efforts to effect acceptances of a plan of arrangement, made the following finding, to-wit:
“With regard to the defendants’ motion to dismiss, made pursuant to Federal Rule of Civil Procedure 12(b), we find this Court does have subject matter jurisdiction over the issues presented. We find that this Court may protect against interference with a Chapter XI proceeding, by any entity, especially once a Plan has been filed with the Court. Consequently we may hear evidence to determine whether such conduct is occurring or may occur in the future, and we may enjoin any such conduct. Further, we find that the determination of the plaintiff’s complaint will necessarily require the Court’s determination of the status of Messrs. Graves’ and Stacy’s claim . ... ”
Because of this finding, on 28 January 1981 Donald C. Graves and Gaylord S. Stacy requested and obtained an order of this court adjourning to an undetermined time the hearing on the preliminary injunction scheduled for January 28, 1981, so that a compromise and settlement agreement could be explored among the litigants.
CONCLUSIONS OF FACT AND DECISION
The parties to the subject Settlement Agreement represent that it will resolve the following problems which have been interfering with the Chapter XI proceedings, to-wit:
(1) The Agreement terminates the pending litigation over the pledge agreement involving the debtor’s stock and thereby resolves any question as to who may file a modified plan of arrangement;
*789(2) The Agreement should eliminate further management disputes; consequently, there should be no further obstacles to National Bank of Detroit’s restructuring of the Consumer financing;
(3) The Agreement eliminates problems involving a dissident shareholder, Mr. R. J. Peebles;
(4) With regard to the controversies over Coal Production Company of Hazard and the tipple and unit train, that entity will not acquire a lien against the debtor’s property and the tipple and unit train will be reconveyed to the debtor.
The means by which the Settlement Agreement proposes to accomplish the above is through a sale of stock and assets of Consumers Coal Company to unify management and the preparation of a Plan of Arrangement to propose to creditors. The sales may occur only upon the approval of H. T. Mead, Mead Development, Donald Graves, Gaylord Stacy and this Court. The key element in the Settlement Agreement from this Court’s point of view is the provision which ensures that any payments of moneys to shareholders or other insiders of the debtor will not occur if the debtor’s plan of arrangement is not accepted by its creditors. Thus, we have a safeguard for creditors in the nature of an automatic voiding of the Settlement Agreement if the forthcoming plan is not acceptable to creditors in the Chapter XI proceedings.
Several of the debtor’s creditors appeared in opposition to the proposed Settlement Agreement and have submitted memoranda in opposition to the same. The major objection which these creditors make to the provisions of the Agreement are, as follows:
(1)The creditors are not able to analyse the effects of the Settlement Agreement because the debtor has not furnished them such information as the amount of secured debt owing to National Bank of Detroit or A and T Manufacturing. Without this information, creditors feel they cannot accurately determine the marketability of the assets;
(2) Although the creditors acknowledge that some of their objections are better suited to the hearing on confirmation of the debtor’s plan, they believe they must express those objections now because of the interdependence of the Settlement Agreement and the prospective plan. They are concerned that the approval of the Agreement now would lock creditors into the untenable position of having to accept the plan because other alternatives would be precluded;
(3) The creditors suggest that the type of ownership restructuring which will result from the Settlement Agreement is of a magnitude which only a Chapter X bankruptcy proceeding can encompass. The terms of the Agreement will provide Messrs. Graves and Stacy with approximately one-half of the Consumers stock between them by means of Mead Development, H. T. Mead and Richard Hodson divesting themselves of substantial amounts of the company’s stock. The creditors suggest that a Chapter XI proceeding is not the proper vehicle by which to accomplish such a major capital restructuring;
(4) Also with regard to the capital restructure, the creditors take umbrage with the prospect that the present owners of Consumers who are being bought out will receive priority claims against the debtor for the purchase prices. This priority will result in a depletion of moneys going to creditors;
(5) The Agreement would lock Graves and Stacy into management positions.
In essence, the creditors believe that adoption of the Settlement Agreement will require adoption of the proposed plan which accompanies it because the restructuring of management and other bargains struck will preclude all other alternatives.
The creditors posited and the Court concurs the Chapter XI process does not con*790template court mandated capital restructuring of a corporation. The practical effect of this principle, however, is not so facilely administered. Apparently, the creditors believe that because a Chapter XI proceeding is an improper format for capital restructure, this Court should not approve the Settlement Agreement presently before it. An approval by this court would merely be an approval to the extent that the Agreement will expedite and facilitate the Chapter XI proceedings. Approval should not be deemed an adoption of the terms of the Agreement or a sanction of its contents. We would note and concur with counsel for the debtor that the proposed plan of arrangement which was annexed to the Settlement Agreement and sent to creditors is not the plan which the debtor will finally propose. This suggested Plan is not before the Court. The debtor believes a far better plan may now be composed due to its increased ability to bargain with National Bank of Detroit for a restructuring of its loan terms. The major thrust of the objections at present are addressed to the unacceptability of a Plan which is not before the court and presently justiciable. In light of the debtor’s representation that this plan will not be proposed for confirmation, we find many of the objections are premature.
We glean from the creditors’ remarks that they believe, perhaps, some provisions of the Settlement will prevail notwithstanding the creditors’ rejection of the prospective plan. Thus, the objections and concerns are not accurately based upon fact— the fact that no term of the Agreement will be valid unless the plan which the debtor proposes in the near future is accepted and approved by this Court according to law.
E. M. Asquith presented a memorandum to the Court urging that “the fact is the parties who control the debtor will be contractually held to present a plan which contemplates diversion of debtor’s assets to pay off shareholders, which contemplates liquidation of certain insider claims without a hearing to determine amount and priority of such claims and which contemplates classification of unsecured creditors into two classes, outsiders and insiders, with insiders seemingly being favored.” (Brief of E. M. Asquith in Opposition to Requested Findings of Fact and Conclusions of Law with Respect to Agreement of Compromise and Settlement, filed May 14, 1981 at p. 3.) Although some of these conclusions take the terms of the settlement to the extreme, we must state that even if they are accurate and the agreement does lock the debtor into offering a plan with these elements, this does not require Asquith to accept the plan. If and when the proposed plan is rejected by the creditors the Settlement Agreement will expire and will no longer affect the debtor. We would make a caveat to the creditors not to prejudge a plan which may never exist. The debtor now believes there will result a very favorable plan for creditors. We would suggest that the parties wait to see if this is so and not close their minds to any proposal which is feasible and to the best interests of unsecured creditors.
Asquith also urges that “the proposed Order approving the Settlement appears to be an effort to obtain a predetermination by this Court that the proposed Amended Plan to be filed by the Debtor is in the best interests of creditors so that any hearing on this issue at confirmation will be no more than perfunctory.” Id. at p. 4. This argument is a reiteration of the suggestion at May 5, 1981 hearing, that approval of the Agreement will somehow be a covert approval of the plan. We would categorically clarify now that our approval of the settlement agreement is only to the extent that it will result in the removal of obstacles to the Chapter XI proceedings. The court does not sanction the substance of its terms — nor is it implied that any plan to be submitted will be deemed in the best interest of creditors if it is patterned after this Agreement.
Based upon the arguments of counsel for the debtor and the objecting creditors and upon the law governing Chapter XI proceedings, this Court is constrained to approve the Settlement Agreement herein presented to the extent that said agreement will remove impediments to the Chapter proceedings. It is obvious that the Settlement Agreement addresses the impediments of controversy and conflicts among *791management personnel, and of the pending complex litigation in both this Court and the United States District Court. We would point out that our analysis of this Agreement might be quite different if it were to result in the immediate sale of assets or transfer of stock. The manner in which the Agreement is presented will not consummate any such transaction; instead such transactions can only occur upon the confirmation by this Court of the debtor’s plan to be proposed in the near future. The safeguard of creditor scrutiny of the plan satisfies this Court’s interest in the debtor’s assets and stock.
As stated from the bench, the court does not mean to overlook the expressed arguments against the terms of the Agreement. Indeed, we think the arguments pose major issues. However, we emphasize that those issues more properly must be raised at the hearing on confirmation of a plan, under the legal safeguards afforded for such purposes.
ORDERED, ADJUDGED AND DECREED that the settlement agreement to the extent that it settles pending litigation, removes and prevents interference with the prosecution of the Chapter XI process, and promotes the best interests of the unsecured creditors should be, and is hereby, approved.
. We note that S. M. Billingsley, Esq. appeared on behalf of Pellet Coal Company to argue that a valid offer had been made by. the latter. The Court continued the matter and has since been presented with a separate law suit between Consumers and Pellet to litigate the validity of Pellet’s alleged Contract to Purchase. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489048/ | MEMORANDUM OPINION AND ORDER
RICHARD L. SPEER, Bankruptcy Judge.
These causes came to be heard upon Applications of the Debtor-Defendant for Removal of the Civil Actions pending in Lucas County Common Pleas Court, No. Cl 80-2461, and in the Monroe County, Michigan Circuit Court, No. 75-4390 CK, upon the asserted grounds that the claims should properly be before this Court pursuant to 28 U.S.C. § 1471(b) and (c). These Applications For Removal will be decided in tandem because they are based upon the same action and final judgment of the Michigan Circuit Court.
*806FACTS
The Court makes the following findings of fact:
1.) August 18, 1980, a final judgment was rendered in the case of Dale Johnson v. Harry May Chevrolet-Cadillac, Inc. v. Johnson, Inc., Case No. 75-4390 CK, by the Circuit Court of Monroe County, Michigan. This judgment has been appealed within the Michigan Court system and is now pending a decision.
2.) Plaintiff, Harry May Chevrolet-Cadillac, Inc. (hereafter Harry May), now moves this Court to remand the case for the purpose of permitting the Michigan appeals process to continue.
3.) Harry May and Charles J. Golden, Receiver, filed an Amended Complaint on October 30, 1980, in the Court of Common Pleas of Lucas County, Ohio. Plaintiffs seek to have the State of Ohio give full faith and credit to the Michigan judgment. Plaintiff, Harry May, seeks this determination so that he can pursue collection on that judgment against the Defendants’ Ohio property.
4.) The underlying cause of action of the Michigan judgment is based upon a complaint by Dale Johnson against Harry May for sales commissions earned while employed by Harry May, and Harry May’s counterclaim of a violation of the Common Law of unfair competition.
5.) March 10, 1981, Johnson, Inc. d/b/a Southwyck Honda filed a Voluntary Petition under Chapter 11 of the Bankruptcy Reform Act of 1978, and remains a Debtor in Possession pursuant to this Court’s Order.
6.) March 18, 1981, Debtor-Defendant filed these Applications For Removal pursuant to 28 U.S.C. § 1478.
STATEMENT OF LAW
The sole question to be resolved is whether the Court should proceed with these cases pursuant to its jurisdictional grant under 28 U.S.C. § 1471(b) and (c), or whether it should abstain and remand the cases back to their respective Courts.
The jurisdictional statute, 28 U.S.C. § 1471(b) and (c) in pertinent part states the following:
“(b) Notwithstanding any Act of Congress that confers exclusive jurisdiction on a court or courts other than the district courts, the district courts shall have original but not exclusive jurisdiction of all civil proceedings arising under title 11 or arising in or related to cases under title 11.
“(c) The bankruptcy court for the district in which a case under title 11 is commenced shall exercise all of the jurisdiction conferred by this section on the district courts.”
The Court appreciates all the effort which has taken place in both the Michigan and Ohio cases up to this point.
During the hearing on these Applications, the Court heard argument from all parties concerning the jurisdiction of the bankruptcy court over the matters at hand. One case advanced by Counsel for Defendant, Danny Johnson, in support of removal was Westinghouse Credit Corp. v. Claude S. Yeary, Sr., 6 B.R. 567, 3 C.B.C.2d 31 (Bkrtcy.W.D.Va.1980), in which the Court stated the following:
“To insure the expeditious and orderly processing of cases pending in this Court, as well as cases pending elsewhere coming within this Court’s jurisdiction, Congress further provided in 28 U.S.C. § 1478 procedure for removal of civil actions pending in other courts. It is well to note that § 1478 is broad and encompassing, excluding only proceedings in the United States Tax Court or civil action by a Government unit to enforce police or regulatory powers. To further implement the Congressional intent to extend the broad jurisdictional authority of the Bankruptcy Court, the Congress further provided in § 1478(b) that an order granting remand or declining to grant remand is not reviewable by appeal or otherwise. This would seem to demonstrate a clear congressional intent, to implement the broad range of jurisdiction and powers *807needed in this Court to effectively resolve such disputes.”
It further added, “[i]n order to determine whether or not remand should be granted, this Court should only look to the jurisdictional language as to whether or not the matters affecting the action in question ‘arise in’ or is ‘related to’ the Debtor proceeding.”
Clearly, these cases “relate to” the Debt- or proceeding. For in determining the validity of the judgment, under Michigan law, which this Court is quite able to do, there will also be a determination under federal law of the validity and priority of the alleged claims against the Debtor’s real property, personal property, and stock ownership, all which are essential to the success of the Chapter 11 reorganization.
As stated in In re Lafayette Radio Electronics Corp., 8 B.R. 973, 3 C.B.C.2d 804, 808, referring to the Supreme Court’s Opinion in Meredith v. City of Winter Haven, 320 U.S. 228, 64 S.Ct. 7, 88 L.Ed. 9 (1943), “[ajbstention should be exercised only when there are unusual or exceptional circumstances * * * The mere presence of a unique question of fact does not mandate abstention * * * It is not necessary to decide if there is a question of fact or law because * * * the incident of state courts not having yet settled an issue of law is not by itself sufficiently exceptional to warrant abstention."
The issue in Michigan is currently in the Appellate Courts in that State and a decision has not yet been rendered. It is quite possible that a further appeal may be made to the Supreme Court of the State of Michigan and whatever remands might be issued could further require that this case be retried in the State Court of original jurisdiction.
After that resolution, the question as to dischargeability of the claim of Harry May could then be brought before this Court for determination, which possibly would result in a retrial of the entire matter. Brown v. Felsen, 442 U.S. 127, 99 S.Ct. 2205, 60 L.Ed.2d 767 (1979).
Since it is one of the purposes of the Bankruptcy Code to effectuate a prompt rehabilitation of the debtor-in-possession in a Chapter 11, it could require an inordinately long time for the case to wait for the determination of the Harry May question. This passage of time would be in direct contravention to the spirit of the Act and would, in effect, make the Chapter 11 proceeding unavailable to the Debtor, thus depriving ¡I of its rightful use of the Bankruptcy Code.
For the foregoing reasons, the Court finds that these causes are properly before this Court; the parties will not be prejudiced by the removal of these cases to this Court.
In order to protect the interests of the Debtor in Possession, it is therefore
ORDERED, ADJUDGED, AND DECREED that the causes shall not be remanded to the Michigan Appeals Court or the Lucas County Common Pleas Court, but will appropriately remain with this Court for final resolution of the claims of Harry May Chevrolet-Cadillac, Inc., and Charles J. Golden, Receiver. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489049/ | MEMORANDUM OPINION AND ORDER
RICHARD L. SPEER, Bankruptcy Judge.
A Motion for an order disqualifying the firm of Brown, Baker, Schlageter & Craig, collectively, and any members individually, from representing or counselling with any of the Defendants herein, and for an appropriate order protecting the work product in the possession of the firm of Brown, Baker, Schlageter & Craig and/or any individual members thereof relative to representation of Alumco Industries Corporation and for a further order relative to former members of the firm who may have had access to the work product or participated in the representation of Alumco Industries Corporation having been filed by the Trustee, and a hearing having been held with testimony offered into evidence and briefs filed by the parties, the Court makes the following findings:
1.) The Chapter 11 was originally filed on February 12, 1980. Brown, Baker, Schla-geter and Craig were Attorneys of record on behalf of the Debtor.
*82.) A two-day hearing on a Motion of one of the creditors for appointment of trustee commenced March 5, 1980. Brown, Baker, Schlageter and Craig were Attorneys of record on behalf of the Debtor.
3.) The Chapter 11 proceeding was converted to a Chapter 7 proceeding on May 6, 1980. At that time, Brown, Baker,. Schla-geter and Craig were Attorneys of record.
4.) The present suit by the Trustee instituted against the Defendants was filed December 19, 1980.
5.) A hearing on a Motion for temporary restraining order filed by Trustee was commenced December 30, 1980, with Attorney Charles Boxell of Brown, Baker, Schlageter and Craig present on behalf of Defendants Arthur, Debra and David Tuchinsky.
6.) Subsequent to the hearing on December 30, 1980, the following Orders were issued by the Court concerning Brown, Baker, Schlageter and Craig and the following pleadings were filed by Brown, Baker, Schlageter and Craig on behalf of their clients:
A.) December 30,1980 — Order continuing hearing to show cause why temporary restraining order should not be made permanent filed. Notation made on Order that copies were mailed to Brown, Baker, Schlageter and Craig as Attorneys of record.
B.) January 21, 1981 — Answer of Defendant Arthur Tuchinsky to Plaintiff’s Complaint filed.
C.) January 21, 1981 — Answer of Defendant The Bala Corporation, formerly known as Gulf Ports Crating Co., to Plaintiff’s Complaint filed.
D.) January 21, 1981 — Answer of Defendant Carlton Corporation to Plaintiff’s Complaint filed.
E.) January 21, 1981 — Answer of Defendant Paulab Corporation to Plaintiff’s Complaint filed.
F.) January 21,1981 — Answer of Defendant Market Management, Inc. to Plaintiff’s Complaint filed.
G.) January 21, 1981 — Answer of Defendant Investment Consultants, Inc. to Plaintiff’s Complaint filed.
H.) January 21, 1981 — Answer of Defendant Vitronic Systems, Inc. to Plaintiff’s Complaint filed.
I.) January 21, 1981 — Answer of Defendant David Tuchinsky to Plaintiff’s Complaint filed.
J.) January 21, 1981 — Answer of Defendant Blanche Aboyan to Plaintiff’s Complaint filed.
K.) January 21, 1981 — Answer of Defendant Jean A. Aboyan to Plaintiff’s Complaint filed.
L.) January 21, 1981 — Answer of Defendant David Garner to Plaintiff’s Complaint filed.
M.) January 21, 1981 — Answer of Defendant Mark Greenburg to Plaintiff’s Complaint filed.
N.) January 21, 1981 — Answer of Defendant Blake Parks to Plaintiff’s Complaint filed.
O.) January 21,1981 — Answer of Defendant Marie Parks to Plaintiff’s Complaint filed.
P.) January 21,1981 — Answer of Defendant Debra Tuchinsky to Plaintiff’s Complaint filed.
Q.) January 27, 1981 — Interrogatories and request for production of documents by Defendant David Garner directed to Plaintiff filed.
R.) January 27, 1981 — Interrogatories and request for production of documents by Defendant Jean A. Aboyan directed to Plaintiff filed.
S.) January 27, 1981 — Interrogatories and request for production of documents by Defendant Blanche Aboyan directed to Plaintiff filed.
T.) January 27, 1981 — Interrogatories and request for production of documents by Defendant Mark Greenburg directed to Plaintiff filed.
U.) January 27, 1981 — Interrogatories and request for production of documents by Defendant Marie Parks directed to Plaintiff filed.
V.) January 27, 1981 — Interrogatories and request for production of documents by Defendant Debra Tuchinsky directed to Plaintiff filed.
*9W.) January 27, 1981 — Interrogatories and request for production of documents by Defendant David Tuchinsky directed to Plaintiff filed.
X.) January 27, 1981 — Interrogatories and request for production of documents by Defendant Yirtonic Systems, Inc. directed to Plaintiff filed.
Y.) January 27, 1981 — Interrogatories and request for production of documents by Defendant Investment Consultants, Inc. directed to Plaintiff filed.
Z.) January 27, 1981 — Continued hearing held to show cause why temporary injunction should not be made permanent. Brown, Baker, Schlageter and Craig were present as Attorneys of Record.
AA.) January 27, 1981 — Consent Order for preliminary injunction filed. Notation made on Order that B B S & C were mailed copy of Order as Attorneys of record.
BB.) January 29,1981 — Motion of Harald E. Craig for continuance of pre-trial conference filed.
CC.) March 5, 1981 — Memorandum of Vi-ronic Systems, Inc., Investment Consultants, Inc., David Tuchinsky, Debra Tu-chinsky, Marie Parks, Mark Greenburg, J. David Garner, Jean Aboyan and Blanche Aboyan in opposition to Plaintiff’s Motion for additional time to respond to interrogatories filed.
DD.) March 2, 1981 — Interrogatories and request for production of documents by Defendant The Carlton Corporation directed to Plaintiff filed.
EE.) March 3, 1981 — Joint request to Plaintiff of Defendants Irma Penneys, et al., for production of documents filed.
7.) The Motion to disqualify was filed March 16, 1980.
8.) Throughout the prosecution of the bankruptcy case and this adversary case, both in its original Chapter 11 format, the defense of the Motion to appoint a trustee to replace the debtor-in-possession and the subsequent administration of the Chapter 7 case, the firm of Brown, Baker, Schlageter and Craig represented the Debtor, Alumco Industries Corporation, and later, several of the directors, officers and employees of the corporation.
9.) The lapse of time from the institution of the lawsuit on December 19, 1980, and the institution of the Motion to disqualify, filed on March 16, 1981, indicates that the Trustee had, or should have had, for a period of approximately three months, knowledge that the Firm of Brown, Baker, Schla-geter and Craig was representing the officers and employees of the Debtor Corporation, and he dealt with them as such. In fact, the preceding seven months of contact between the Trustee and the Attorneys, Brown, Baker, Schlageter and Craig, while the Chapter 7 was in progress, gave notice to the Trustee that the Firm of Brown, Baker, Schlageter and Craig had been representing the Corporation.
In the case of City of Cleveland v. Cleveland Elec. Illuminating, 440 F.Supp. 193 (N.D.Ohio 1976), aff’d. 573 F.2d 1310 (6th Cir.1977), cert. den., 435 U.S. 996, 98 S.Ct. 1648, 56 L.Ed.2d 85 (1978), Judge Krupan-sky stated that a client’s right to object to an attorney’s allegedly adverse representation may be waived. The facts in that case indicated that the City had prior knowledge that the law firm representing the Cleveland Electric Illuminating Company had previously represented the City and thereby had consented to that law firm’s present representation of Cleveland Electric Illuminating. The case at bar involves a very large sum of money and a multiplicity of Defendants in several states. Many pleadings have been filed by both the Plaintiff and the Defendants since the adversary case was filed. The Trustee has known since December 30, 1980, that the firm of Brown, Baker, Schlageter and Craig was representing, or was going to represent, several of the Defendants and in fact has dealt with this firm in several pretrials without comment.
Therefore, this Court’s conclusion is that the length of time having passed between the institution of the suit, together with the prior knowledge of the Trustee of Brown, Baker, Schlageter and Craig’s representation of the Debtor, the officers, directors *10and employees, and the filing of the Motion to Disqualify constitutes a waiver by the Trustee and a consent to the continuing representation of the Defendants by Brown, Baker, Schlageter and Craig.
Accordingly, it is ORDERED, ADJUDGED AND DECREED that the Motion of the Trustee for permanent injunction to disqualify be, and it hereby is, denied and the temporary injunction is hereby lifted. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489050/ | SIDNEY M. WEAVER, Bankruptcy Judge.
This matter came on before the Court to be heard upon the Amended Complaint filed by the Trustee to recover for unjust enrichment from the Defendants the damages representing the greater value of the home sold by the Debtor to the Defendants “as built” as compared to the home described in the plans and specifications which were part of the sales agreement. During the course of the trial, the Plaintiff’s plead*11ings were amended to conform to the evidence seeking recovery of the unpaid balance due on the purchase of the home.
The Defendants, James N. Turner and Cecelia A. Turner responded to the Amended Complaint denying the allegations and asserting a setoff of money due Turner Construction Company (the “Company”). This Court having heard the testimony and examining the evidence and after hearing arguments of counsel, does hereby make these findings of fact and conclusions of law.
James N. Turner was the owner and president of the Company. The Company was engaged by the Debtor, 18TH AVENUE DEVELOPMENT CORP. to act as general contractor on its project known as “The Village”. Pursuant to the terms of a written contract dated July 20, 1976, the Company continued to act as general contractor for the Debtor to construct homes sold within the project, until construction ceased in May of 1979.
While acting as general contractor on the project, the Company was simultaneously engaged in several other building projects unrelated to The Village. All funds for the various projects were commingled and disbursements made from one corporate bank account.
During the Company’s employment as general contractor, the Defendants entered into a contract to purchase a home within the project from the Debtor, Lot 24, in The Village project. The Company thereupon commenced construction for the Debtor of the home under contract with the Defendants. The home was completed in March of 1979 and the Defendants thereupon consummated the purchase with the Debtor by closing in May of 1979. The Defendants have admitted that there remained due to the Seller the sum of Sixty-Seven Thousand Nine Hundred Dollars ($67,900.00). That balance was not paid at closing and remains unpaid at this time.
During the trial the Defendants introduced evidence that the Debtor considered the Company and the Defendant, James Turner, as one and the same entity; because of this the Debtor did not insist on payment of the balance due at closing, in view of the advances which James Turner claimed were made by the Company for the Debtor. This evidence placed issues before the Court which were not raised in the pleadings, but the Plaintiff and the Defendants acquiesced to the admission of this evidence.
This Court finds that no prejudice resulted in the presentation of either the Plaintiff’s or Defendants’ case. An issue may be tried by the express or implied consent of the parties where, as here, the Court has jurisdiction of the subject matter. Rule 15(b) F.R.C.P.; Lienitz v. Wheeler, 113 F.2d 767 (CCA 8th). A change in the “cause of action” is not barred even though the nature of the claim has changed somewhat, where the departure does not prejudice either party in presenting their case. Hamill v. Maryland Casualty Company, 209 F.2d 338 (CCA 10th); Hogue v. National Auto. Parts Association, D.C., 87 F.Supp. 816; Nester v. Western Union Telegraph Co., D.C., 25 F.Supp. 478.
This Court concludes from the evidence presented at the trial that the Defendants did not on their own behalf pay any monies to the Debtor due at closing. No evidence was presented to establish that the Company advanced any money to the Debtor on behalf of the Defendants. The Court rejects the argument that the Company and the Defendants were one and the same. Defendants failed to establish by testimony and evidence that the Company was their alter ego.
The Defendants have urged the Court to establish a setoff as between the parties due to their prior business arrangements. However, the basic test for the allowance of a setoff under 11 U.S.C. § 553 is that there must be mutuality. Similarity of the obligation is not required. Gibson v. Central National Bank of McKinney, 5th Cir., 171 F.2d 398. The debts must be in the same right and between the same parties who stand in the same capacity. The creditor’s debt must be owed to the estate *12of the Debtor and the estate’s debt must be owed to the creditor. See United States v. Roth, 2 Cir., 164 F.2d 575. A debt possibly-owed to the Company cannot be set off as against a debt owed by Turner to the estate. See U. S. v. Roth, 2 Cir., 164 F.2d 575. The Defendants are not entitled to a setoff for any monies advanced by the Company to the Debtor.
The Court concludes as a matter of fact and law that the Defendants owe the Plaintiff the amount of Sixty-Seven Thousand Nine Hundred Dollars ($67,900.00). Judgment will be entered in accordance with these findings. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489051/ | DECISION AND ORDER
CHARLES A. ANDERSON, Bankruptcy Judge.
This matter is before the Court for disposition of the plaintiff’s complaint seeking vacation of the automatic stay effective pursuant to 11 United States Code § 362(a). The plaintiff requests the termination so as to proceed with the foreclosure and sale of the above defendants’ real estate as ordered by the Court of Common Pleas of Clark County, Ohio on August 12, 1980. The debtors have not challenged the validity or propriety of the proposed foreclosure; however, the debtors have counterclaimed that, upon the plaintiff’s foreclosure, they are entitled to an exemption of $5,000.00 each on the value of the real estate by virtue of Ohio Revised Code § 2329.66(A)(1).
The defendants filed their petition for relief under Chapter 7 of the Bankruptcy Code with this Court on August 15, 1980. Each claimed as exempt property a $5,000.00 interest in the value of their residence. As of the filing of their petition, the debtors resided at property known as 11518 State Route 56, Mechanicsburg, Ohio. According to decree of August 12, 1980, the Common Pleas Court of Clark County found the following liens existed on the debtors’ residence in the order of priority as set forth below:
Ralph Stiers, Treasurer of Clark County ! 792.97
James M. Locke and Naomi L. Locke 10,180.59
Mutual Loan & Savings Company 51,326.78
Mechanicsburg Concrete, Inc. 422.47
Tanner-Robinson Lumber Company 1,455.06
Farmers Bank of Mechanicsburg 1,696.72
The property was appraised at $60,000.00 in the state court foreclosure and the total of liens, costs, taxes and interest is in excess of $62,000.00.
The plaintiff filed its complaint for relief from the automatic stay on September 18, 1980, so as to proceed with the sale. As a counterclaim, the defendants allege they are entitled to a total of $10,000.00 as their exempt portion of the proceeds from the foreclosure and sale of their residence prior to the above plaintiff’s second mortgage (junior to purchase money mortgage to the Locke’s).
In their memorandum of law, the defendants contend that Ohio 'Revised Code § 2329.661(A)(2) and (3) support their position. Those sections provide as follows:
(A) Division (A)(1) of section 2329.66 of the Revised Code does not:
(2) Impair the lien, by mortgage or otherwise, of the vendor for the purchase money of real or personal property that the debtor or a dependent of the debtor uses as a residence, the lien of a mechanic or other person, under a statute of this state, for materials furnished or labor performed in the erection of a dwelling house on real property, or a lien for the payment of taxes due on real property;
(3) Affect or invalidate any mortgage on any real property, or any lien created by such a mortgage.
In referring to these sections, the defendants urge that because section (A)(2) makes specific reference to a vendor’s purchase-money mortgage, the Ohio Legislature meant to give that class of creditors special treatment by providing that their liens cannot be impaired by the exemption in O.R.C. § 2329.66(A)(1). The defendants extrapolate that the Legislature did not intend to permit impairment of other types of mortgages, which are deferred to the exemptions.
We do not so interpret those sections. Instead we interpret the specific mention of vendors’ liens, mechanics’ liens, material-men’s liens and tax liens to be the Legislature’s way of making sure these liens are given at least similar treatment to mortgage liens. Further, we find the legislative history regarding the federal exemptions (upon which the Ohio Statute was patterned) plainly sets forth the priority of exemptions viz-á-viz valid liens:
*17Under proposed 11 U.S.C. 541, all property of the debtor becomes property of the estate, but the debtor is permitted to exempt certain property from property of the estate under this section [section 522]. Property may be exempted even if it is subject to a lien, but only the unencumbered portion of the property is to be counted in computing the “value” of the property for the purposes of exemption. Thus, for example, a residence worth $30,000.00 with a mortgage of $25,000.00 will be exemptable to the extent of $5,000. This follows current law. The remaining value of the property will be dealt with in the bankruptcy case as is any interest in property that is subject to a lien.
... The bankruptcy discharge will not prevent enforcement of valid liens. H.R. Rep.No.95-595, 95th Cong., 1st Sess. 360-361 (1977), U.S.Code Cong. & Admin. News 1978, pp. 5787, 6316.
Clearly, the legislative, history of 11 U.S.C. § 522 coupled with a comprehensive reading of O.R.C. § 2329.661(A) as a whole supports the general proposition that statutory exemption rights do not impair or affect in any way the operation of otherwise valid liens and mortgages.
Any other interpretation would raise serious constitutional questions upon impairment of contracts by state law, which are hereby rendered moot.
Accordingly, it is hereby ORDERED, ADJUDGED AND DECREED that the plaintiff herein is entitled to satisfaction of its mortgage next after satisfaction of the purchase money mortgage of James P. Locke and Naomi L. Locke and that the within defendants may exercise their exemption rights as set forth in O.R.C. § 2329.66(A)(1) only to the extent there is value in the unencumbered portion of the subject residence real estate. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489052/ | FINDINGS OF FACT AND CONCLUSIONS OF LAW
SIDNEY M. WEAVER, Bankruptcy Judge.
This Cause came on to be heard upon the petitioning creditor’s Complaint for Relief from Automatic Stay. The Court, having heard the testimony of the witnesses and having examined the- evidence presented, having observed the candor and demeanor of the witnesses, having considered the arguments of counsel and being otherwise fully advised in the premises, does hereby make the following findings of fact and conclusions of law.
The debtor/defendant filed a voluntary petition under Chapter 7 of the Bankruptcy Code on July 18, 1980. On February 25, 1981, pursuant to Bankruptcy Code Section 706, the petition was converted to a Chapter 11 proceeding.
The plaintiff is a holder of a judgment which was obtained against the debt- or/defendant in the Circuit Court of the 15th Judicial Circuit in and for Palm Beach County. Pursuant to this judgment, a writ of execution was issued and docketed with the sheriff’s department.
The plaintiff, in her search for property owned by the debtor, found this subject real property in Broward County, which the debtor has an undisputed interest in. Accordingly, the property was duly scheduled for a sheriff’s sale when the debtor filed this petition, thereby staying the state court action.
The plaintiff now seeks to have the automatic stay lifted in order to allow the state court action to proceed to sale. The plaintiff contends that the debtor has no equity in the property and that it is not necessary for the effective reorganization of the debt- or.
Testimony was taken from the plaintiff’s real estate appraiser, who was familiar with the property and who had recently visited the premises. The appraiser’s estimate of the value of the property ranged from $110,000.00 to $117,907.00, based upon differing methods of valuation. The Court accepts this appraisal.
The debtor/defendant testified that a plan of reorganization would be forthcoming and that the plan would involve the use of this property, and accordingly, would be necessary for the effective reorganization of the debtor.
Section 362(d) of the Bankruptcy Code provides as follows:
(d) On request of a party in interest and after notice and a hearing, the court shall grant relief from the stay provided under subsection (a) of this section, such as by terminating, annulling, modifying, or conditioning such stay—
(1) for cause, including the lack of adequate protection of an interest in property of such party in interest; or
(2) with respect to a stay of an act against property, if—
(A) the debtor does not have an equity in such property; and
(B) such property is not necessary to an effective reorganization.
Based upon the evidence and testimony-presented, the Court finds that the plaintiff is not adequately protected, as there is the following outstanding indebtedness on the property:
$45,000.00 plus interest on the first mortgage,
$6,853.04 plus interest on the second mortgage,
*38and a judgment for $95,000.00 plus costs, attorneys fees, and interest.
By using the most liberal figures of the plaintiffs appraiser, the Court finds that even a sale grossing $117,907.00 would not be adequate to retire the total amount of outstanding indebtedness. Likewise the Court finds that the debtor has no equity in the property.
The Court also finds that this property is not necessary for the effective reorganization of the debtor. The debtor/defendant testified that under the plan of reorganization, the property would be used as a business office. The Court, however, concludes that such a use of this property is not necessary for an effective reorganization of the debtor.
In accordance with the foregoing, the relief being sought by the petitioning creditor is hereby granted.
A judgment will be entered in accordance with these findings and conclusions. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489053/ | MEMORANDUM DECISION
FREDERICK A. JOHNSON, Bankruptcy Judge.
In this proceeding the Plaintiff, a dealer in building materials, seeks a determination that its claim against the Debtor in the amount of $8,846.89, is nondischargeable.
The Debtor, a small building contractor, had been engaged in the construction business for two years before he commenced doing business with the Plaintiff. During September of 1977 he was contacted by one of the Plaintiff’s salesmen on a job site. The Plaintiff’s salesman, who had just started his employment with the Plaintiff, was acquainted with the Debtor and his construction company through his previous employment as a salesman for another supplier in the area. After a short discussion with the Plaintiff’s salesman the Debtor agreed to purchase materials from the Plaintiff. The salesman furnished a credit application form which was filled out by the Debtor on October 11, 1977 and returned to the salesman.
On the credit application the Debtor stated that he owned an 8 acre subdivision on the Bartlett Road in Kittery Point which was “paid for” and a 3-unit apartment house upon which the Portsmouth Savings Bank held a mortgage. The form did not have a space for asset values and such values were not listed by the Debtor; nor did the form provide a space for information regarding the extent to which assets were subject to security interests.
The credit application was reviewed by the President of the Plaintiff company on October 28, 1977. After having checked with creditors listed therein and the local credit bureau the Plaintiff’s President approved the Debtor for credit with a limit of $3,000.
The Debtor purchased materials from the Plaintiff on credit from October of 1977 until February of 1979, at which time the Plaintiff terminated his credit.
The credit application signed by the Debtor was false because, during August of 1977 the Debtor had conveyed to his mother the 3-unit apartment house and all of his interest in the 8 acre subdivision. In addition, the subdivision was subject to a mortgage held by Portsmouth Savings Bank.
The Plaintiff Creditor argues that because the Debtor falsely reported in the credit application that he owned the 8 acre subdivision and the 3-unit apartment house its claim is not dischargeable in bankruptcy.
DISCUSSION
Section 523 of the Bankruptcy Code (11 U.S.C. § 523) provides:
(a) A discharge under section 727 ... of this title does not discharge an individual debtor from any debt—
(2) for obtaining money, property, services, or an extension, renewal, or refinance of credit, by—
(B) use of a statement in writing—
(i) that is materially false;
(ii) respecting the debtor’s ... financial condition;
(iii) on which the creditor to whom the debtor is liable for obtaining such money, property, services, or credit reasonably relied; and
(iv) that the debtor caused to be made or published with intent to deceive;
Each of the elements of Section 523(a)(2)(B) must be proved by clear and convincing evidence. In re Lyon, 3 C.B. C.2d 644, 648; 8 B.R. 152 (Bkrtcy.Ct., D.Me.1981).
In this proceeding Plaintiff has failed to establish that it reasonably relied upon the *48Debtor’s financial statement or that the financial statement was made by the Debt- or with the intent to deceive.
In the first place, the Debtor did not seek out the Plaintiff for an extension of credit. The Plaintiff, through its salesman, contacted the Debtor for the purpose of inducing the Debtor to do business with the Plaintiff. The completion of the credit application was merely incidental to the Plaintiff’s solicitation of the Debtor’s business and was treated perfunctorily by the Debt- or.1
Secondly, the credit application, which is a form furnished by the Plaintiff, is incomplete in several details. There is no provision on the form for assets values or the extent to which assets are encumbered. The Plaintiff cannot seriously claim that it reasonably relied upon the Plaintiff’s ownership of the 8-acre subdivision or the 3-unit apartment house when there is no indication of their value or of the Debtor’s equity therein.
In addition, on the issue of reasonable reliance, the Plaintiff, a supplier of construction materials, knew or should have known that the subdivision was under development by the Debtor and would eventually be sold. Furthermore, the Plaintiff and the Debtor did business for one and a half years, during which time the Debtor purchased on credit approximately $90,000 worth of materials. The Court finds that the Plaintiff relied more on the Debtor’s credit history with the Plaintiff, at least after the first few months, than it did on the credit application.
On the issue of the Debtor’s intent the Court finds that although the subdivision and the apartment house were conveyed to the Debtor’s mother during the summer of 1977, the Debtor honestly believed that these properties were readily available to him, if needed, in support of his construction business. The Debtor, his parents and the rest of his family were a very close unit and assisted each other in their business affairs.2
The Plaintiff’s business records reveal that the Debtor continued to pay on his account up to the time that the parties ceased doing business. During January and February of 1979 the Debtor’s general account was reduced from $10,500.96 to $4,598.09.3
Upon all of the evidence, the Court is not convinced that the Debtor obtained credit from this Plaintiff by use of a materially false statement in writing respecting his financial condition, with the intent to deceive, or that the statement was reasonably relied upon by the Plaintiff within the intent of Section 523(a)(2)(B) of the Bankruptcy Code.
An appropriate order will be entered.
. The Court, by this decision, does not mean to condone such perfunctory treatment of credit applications by debtors. Under different facts this Court has ruled that such action can result in a nondischargeable debt. See In re Huth, BK-75-308/9, 2/13/76.
. Because of this close family relationship the Court, previous to this proceeding, ordered an examination of the Debtor and his family in order to determine whether or not the family was engaged in a joint venture or partnership.
.The Plaintiff carried four separate accounts for this Debtor; a General Account, a Pick-up Account, a Kitchen Account and a Plans Account. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489055/ | FINDINGS OF FACT AND CONCLUSIONS OF LAW
SIDNEY M. WEAVER, Bankruptcy Judge.
THIS CAUSE came before this Court upon the Crossclaim of Defendant, Cayman Aviation Finance, Inc., (“Cayman”) against Defendant, Connie Valenti (“Valenti”). William Roemelmeyer, Trustee (“the Trustee”), as Plaintiff, having previously commenced this Adversary Proceeding by filing a Complaint against both Cayman and Valenti, settled his claim against both and was *95no longer a party at the time of trial. The Court, having heard the Crossclaim asserted by Cayman against Valenti, having heard the testimony of the witnesses, and having examined the evidence presented, observed the candor and demeanor of the witnesses, considered the .Memoranda submitted by counsel, and being otherwise fully advised in the premises, does hereby make the following Findings of Fact and Conclusions of Law.
The Crossclaim asserted by Cayman against Valenti is based on alleged fraud and misrepresentation and on unjust enrichment. Cayman seeks an equitable decree impressing a constructive trust for the benefit of Cayman on Valenti’s interest in certain real property. Cayman acquired its claim by a rather circuitous route. Robert Richards, the herein Debtor, is the husband of Valenti, who has kept her maiden name. In August, 1978, P.A. Smith, a long-time friend of Richards, approached Jerry Harvey, also a friend of Smith and an acquaintance of Richards, to obtain a loan for Richards. Harvey testified that between August 1978 and December 1978, he made loan advances to Richards totalling $58,174.00. Harvey further testified that some $10,-000.00 of the funds advanced to Richards, were provided by one Peter Stremenos, another friend of Harvey; and that all but $12,000.00 of the $58,174.00 advanced to Richards was intended to be used and was, in fact, used by Richards to purchase a house at 6357 Jack Rabbit Lane, Miami Lakes, Florida (“the House”).
Harvey is local agent for Cross-Plaintiff Cayman. After making the loan to Richards, Harvey struck a deal with Cayman, whereby Harvey obtained a promissory note made by Richards in the amount of $50,-000.00, which he then sold and assigned to Cayman for $50,000.00 cash. The note was secured by a second mortgage on the House, which Richards executed in February 1979, and which Cayman recorded in April 1979. Harvey also guaranteed the $50,000.00 note assigned to Cayman.
Richards, however, was not the sole owner of the House. At the time of closing, Richards was still in the process of divorcing his first wife, who lived in another state. At closing, Richards took title with Valenti as tenants in common. Richards was living with Valenti at the time and later married Valenti, to whom he is still married. Valenti did not, in any fashion, execute, the note delivered by Richards to Harvey and assigned to Cayman, nor did she execute the second mortgage on the House, given by Richards to Cayman.
When Richards defaulted on the $50,-000.00 note, Cayman foreclosed its mortgage in State Court and obtained title to Richards’ interest in the House. Valenti, who was not a party to the State Court foreclosure, remains a tenant in common with Cayman. The value of Richards’ interest in the House, however, is apparently insufficient to satisfy Cayman’s judgment, so when the Trustee commenced an adversary proceeding against both Cayman and Valenti, Cayman crossclaimed against Valenti, alleging that Richards had promised to take title to the House, solely in his own name. Cayman alleges that when Harvey found out that Valenti was also an owner of record, Valenti, with full knowledge that Harvey was advancing money to Richards to be secured by a second mortgage on the House, several times promised to execute the $50,000.00 note and second mortgage securing it, but later refused to do so.
Valenti, corroborated by Richards’ testimony, denies having had any knowledge of the loans by Harvey to Richards until some time after all the advances had been made. By then Valenti and Richards had closed on the House and were living there together. Valenti, who had executed a note held by Peninsula Federal and a purchase money first mortgage securing it, denies having agreed to execute the $50,000.00 note or the second mortgage. Valenti further testified that she had contributed roughly $5,000.00 to the down payment on the House; and that she had paid several monthly mortgage payments to Peninsula Federal, using her own funds, introducing in evidence checks drawn on her personal account to prove such payments.
On the relevant facts and contentions summarized above, Cayman, as succes*96sor in interest to Harvey and as holder of the $50,000.00 note and second mortgage, seeks to subject Valenti’s interest in the House as a tenant in common to a constructive trust for its benefit. A constructive trust is a traditional remedy which equity affords in order to effectuate justice. It is appropriate for a Court of equity to impose a constructive trust on property, where one, through fraud, abuse of confidence, or other questionable means, gains property, which in equity or good conscience, he should not be permitted to retain, or, in appropriate circumstances, to prevent unjust enrichment. See, e.g., Hallam v. Gladman, 132 So.2d 198 (Fla.App.1961).
This Court has carefully reviewed the record and weighed the evidence as it bears on the conduct of the Cross-Defendant, Valenti, and finds no showing by clear and convincing proof, nor even by preponderance of the evidence, of any fraud or misrepresentation on her part. Whether or not Richards defrauded Cayman is not here at issue. Cayman has already foreclosed its lien on Richards’ interest and it is Valenti, not Richards, against whom Cayman is here proceeding. The evidence, however, does not establish Valenti’s complicity in the alleged fraud and misrepresentation by Richards, and Cayman has failed to establish any fraud, unconscionable conduct, artifice, concealment, or obtaining property by questionable means on the part of Valenti.
Cayman has also failed to show that Valenti would be unjustly enriched by allowing her to retain her interest in the House as tenant in common. Valenti’s testimony that she contributed a substantial sum to the down payment on the House and made various mortgage payments to Peninsula Federal from her own funds is uncontro-verted. Moreover, Valenti’s execution as co-maker of the Peninsula Federal note is manifestly additional consideration for her interest in the House.
Valenti clearly gave substantial consideration for her interest in the House, and did not execute the $50,000.00 note or the second mortgage. Absent a clear showing that Valenti falsely represented her intention to subject her interest in the House to the second mortgage, or that she acted in complicity with Richards in some form of inequitable conduct, there is no basis for this Court to invoke its equitable power to impress a constructive trust on her interest in the House. Accordingly, without determining the extent of the respective interests of the parties in the House, this Court will deny Cayman equitable relief, dismiss Cayman’s Crossclaim against Valenti with prejudice, and leave the parties in status quo with each party to bear its own costs. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489068/ | ORDER DENYING DEFENDANT’S MOTION FOR SUMMARY JUDGMENT
BERT GOLDWATER, Bankruptcy Judge.
On January 27, 1981, plaintiff filed an adversary action for relief from the automatic stay (11 U.S.C. 362) and assumption or rejection of an unexpired lease (11 U.S.C. 365). Defendant answered and moved for summary judgment.
On May 15, 1979, plaintiff and defendant entered into a partnership agreement forming R-T Enterprises. The purpose of the partnership was to operate a slot business on the premises known as Reno Joe’s Restaurant. The agreement provided that each partner make an initial cash contribution to the capital of the partnership and subsequent contributions in such amounts and at such times as the partners agreed. The agreement also provided that if either partner failed to pay a subsequent contribution within thirty days from the due date thereof, the other partner had the option to purchase the partnership interest of the defaulting partner. If the option was not exercised, the partnership was to be liquidated and dissolved.
Defendant defaulted but plaintiff did not exercise his option to purchase defendant’s interest. Defendant contends that the partnership automatically dissolved when plaintiff did not exercise his option and that plaintiff can do nothing more than sue for his contribution. Plaintiff contends that defendant is estopped to deny the existence of a partnership because defendant continued to act as if a partnership existed.
Federal Rule of Civil Procedure 56 provides for the issuance of a summary judgment if there is no genuine issue as to any material fact and the moving party is entitled to judgment as a matter of law. The requirement that summary judgment *483be granted only if there is no genuine dispute as to any material fact is to be strictly construed in order to insure that factual issues will not be determined without the benefit of truth-seeking procedures at trial. See Jackson Tool and Die, Inc., v. Smith, 339 F.2d 88 (5th Cir. 1964).
Here there is a genuine dispute as to whether the partnership remained in existence after plaintiff failed to exercise his option or whether there was an automatic dissolution — a material fact in this proceeding. A partnership relationship is legally ended and its affairs completed when the three steps of (1) dissolution, (2) winding up or liquidation, and (3) termination are finished. Ramseyer v. Ramseyer, 98 Idaho 47, 558 P.2d 76 (1976). There is a presumption that a partnership, once shown to exist, continues until competent proof of dissolution is given or knowledge comes to persons dealing with the partnership. City of North Kansas City, Missouri v. Sharp, 414 F.2d 359 (8th Cir. 1969).
Defendant’s motion for summary judgment is denied. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489069/ | Memorandum Opinion on Motion for Summary Judgment
EDWARD H. PATTON, Jr., Bankruptcy Judge.
This opinion concerns a motion for summary judgment in an adversary proceeding brought by a creditor objecting to the claim of exemptions filed by a debtor in a Chapter 11 proceeding under the Bankruptcy Code.1
Sidney L. Born is an individual debtor in a Chapter 11 proceeding currently pending before this court. Mr. Born filed a list of exemptions pursuant to § 522 of the Bankruptcy Code on February 14, 1980. On May 8, 1981, Hoyt, Inc., G.C.R.E.A., Ltd., No. 12, *604and Albert E. Keuhnert filed an adversary proceeding objecting to the exemptions taken by Mr. Born. Mr. Born has moved for summary judgment on the grounds that no objection was filed within 15 days as provided in Rule 403(c) of the Rules of Bankruptcy Procedure. There has been no response by the objecting creditors to the motion for summary judgment.
The issue presented is whether an objection to the exemptions claimed by a Chapter 11 debtor must be made within 15 days after the exemption claims are filed.
Section 522(l) of the Bankruptcy Code provides that property claimed as exempt is automatically exempt unless there is an objection. Section 522 is made applicable to proceedings under Chapter 11 by § 103(a) of the Bankruptcy Code. Rule 403(c) of the Rules of Bankruptcy Procedure permits creditors to object to a claim for exemptions within 15 days after the trustee files a report on exemptions, unless further time is granted by the court before the 15 day period has run. Rule 11-47 of the Rules of Bankruptcy Procedure makes only paragraph (a) of Rule 403 (which requires that exemptions be claimed in the schedules of property) applicable to Chapter 11 proceedings. Significantly, Rule 11-47 does not make Rule 403(c) applicable to reorganization proceedings. The Advisory Committee’s note to Rule 11-A7 clearly indicates that the time limit imposed by Rule 403(c) should not apply to cases under Chapter XI:
Since no time limitations are imposed in this rule or in the bankruptcy rule, the debtor is not estopped from claiming exemptions under Bankruptcy Rule 403 if the Chapter XI case is later converted to bankruptcy, nor are creditors or the trustee prevented from objecting to the claim if there had been no litigation of the issue in the Chapter XI case.
Ordinarily, the matter of exempt property is not important in a Chapter 11 proceeding because exempt property is usually not set apart to the debtor as it is under Chapter 7. Also, a trustee’s report on exemptions is not usually filed in a Chapter 11 case since a trustee is not appointed as a matter of course. In a Chapter 11 case where there is a debtor-in-possession there is no independent entity to promptly evaluate the propriety of exemptions as in a Chapter 7 proceeding, so it is not surprising that the time limit of Rule 403(c) has not been made applicable by Rule 11-47. See also 14 Collier on Bankruptcy, ¶ 11-47.03 at 11-47-3 (14th ed. 1976). All of the cases cited by the attorneys for Mr. Born requiring objections to be filed within the time limits of Rule 403(c) are distinguishable because they are cases under Chapter 7 or possibly Chapter 13. None deal with exemptions under Chapter 11. Bankruptcy Rule 11-47 is not inconsistent with the Bankruptcy Reform Act of 1978 and is therefore applicable to this case.
The court notes that a disclosure statement has been approved and a confirmation hearing on Mr. Born’s plan is set for August 12, 1981. It appears to the court that in this case the objection to the exemptions may properly be considered as part of the confirmation procedure. At the confirmation hearing the court must find that the plan meets the “best interest of creditors” test for the plan to be confirmed. That is, under § 1129(a)(7)(A)(ii) the creditors must receive at least as much under the reorganization plan as would be received on liquidation. If some exemptions have been improperly claimed, it would mean that those assets wrongfully claimed exempt would be available to creditors upon liquidation. Therefore, it may be necessary for the court to consider objections to exemptions to determine whether the plan meets the requirements of § 1129(a)(7)(A)(ii).
For the reasons stated above, the motion for summary judgment will be denied. An order conforming with this opinion is being entered this date.
. Although an objection to exemptions is not classified as an adversary proceeding, by Bankruptcy Rule 701, the court can conceive no prejudice by so proceeding. See Bankruptcy Rule 914. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489070/ | OPINION
ROBERT A. JOHNSON and LOUIS PUCCINI, Jr., Bankruptcy Judges.
These cases have been consolidated for the resolution of an issue common to each: the constitutionality of § 522(f) of the *662Bankruptcy Reform Act of 1978 (“the Code”) as applied to liens created in the period between the enactment of the Code on November 6, 1978, and its effective date of October 1, 1979 (“gap liens”). The other issues in each case will be addressed by the respective judge in a separate opinion.
Plaintiffs in each case argue that gap liens may be avoided under § 522(f). Defendants raise two issues: 1) the Code should not be retroactively applied, and 2) even if so applied, the result violates the fifth amendment to the United States Constitution by depriving each creditor of its property without due process. They argue further that statutory construction of the Code’s effective date requires that § 522(f) be given effect only to liens created after October 1, 1979. Plaintiffs state that the substantive portions of the Code were to apply to all cases filed after October 1, 1979, H.R.Rep.No.595, 95th Cong., 2nd Sess. 459 (1978), U.S.Code Cong. & Admin.News, 5787, and that the success of defendants’ theory on the effective date would defeat the Code’s stated application to all cases. They reason further that once the Code was enacted in late 1978, a creditor is charged with notice of its provisions and no due process violation occurs.
The threshold question of whether Congress intended the Code to apply retroactively is answered affirmatively. The Tenth Circuit held the Code retroactive in Rodrock v. Security Industrial Park, 642 F.2d 1193, 7 B.C.D. 344 (10th Cir. 1981), by concluding that a holding of non-retroactivity of the Code would result in no bankruptcy law applicable to security interests incurred by a debtor who filed after October 1, 1979, but that were created prior to that date. The Court concluded further that Congress had not intended “such a no-man’s land.” Id. at 1197, 7 B.C.D. at 347. Accord, Oldham v. Beneficial Finance Co., 7 B.R. 124 (Bkrtcy.D.N.M.1980). This inherent retroactivity of the Code defeats defendants’ argument on the Code’s effective date.
Since the Code is to be applied retroactively, we must address the question of the constitutionality of § 522(f). As applied to liens created before the enactment of the Code on November 6, 1978, § 522(f) is unconstitutional because the property rights of lienholders are taken from them without due process, i. e., notice of the voiding powers bestowed by debtors by the Code. Oldham, 7 B.R. at 125. This resolution leads to the question of whether creditors can be charged on November 6, 1978, with notice of the Code’s newly enacted lien avoidance provisions. We find that the creditors are indeed on constructive notice of the Code’s provisions at the date of its enactment. Seltzer v. General Finance Corp., 7 B.R. 80, 82 (Bkrtcy.D.Colo.1980).
This charging of the defendants with awareness of the Code’s provisions at their enactment may, at first glance, seem to be harsh, especially in light of the general rule that a statute is effective at the date of its enactment unless it recites within its own provisions a later effective date, in which case, the designated effective date governs. However, since in this situation the statute was designed and intended to apply to liens created before the October 1, 1979, date upon which the general statute took effect, there would appear no rational alternative to the enactment date as the appropriate date after which the lien avoidance provisions would operate. This would seem the only date which could be chosen to permit the constitutional application of the lien avoidance provisions.
This result follows what is becoming the view taken in the clear majority of the reported cases. In re Bruntz, 10 B.R. 444 (Bkrtcy.D.Iowa 1981); In re Webber, 7 B.R. 580 (Bkrtcy.D.Or.1980); In re Sweeney, 7 B.R. 814 (Bkrtcy.E.D.Wis.1980); In re Head, 4 B.R. 521 (Bkrtcy.E.D.Tenn.1980); In re Steinart, 4 B.R. 354 (Bkrtcy.W.D.La.1980), Contra, In re Bibb, 10 B.R. 40 (Bkrtcy.E.D.Mich.1981); In re Lucero, 4 B.R. 659 (Bkrtcy.D.Colo.1980). Obviously, some consistency between districts is desirable in the interpretation of a federal statute.
The Code as a whole governs any debtor who files a bankruptcy petition on or after October 1, 1979. Since its inherent retroac-tivity requires the Code to be applied to debts, liens and other obligations incurred *663by the debtor before the filing, the creditor must be held to be on constructive notice of the retroactivity of the Code itself as well as of its substantive provisions. A standard of actual notice of the Code’s lien avoidance provisions would invite for the Court at least confusion and ambiguity, as well as fiction, and perhaps even perjury. To recognize that the Code’s lien avoidance provisions apply to the period of time after its enactment but not to hold the public aware of such provisions is a contradiction which ought to be avoided. Accord, Seltzer, 7 B.R. 80.
Therefore, the avoidance by debtors herein of liens created during the period between November 6, 1978, and October 1, 1979, is each, and the same shall be hereby, granted. Any lien created on November 6, 1978, whether before or after the actual moment of enactment by Congress, may be avoided since any act of lawmaking is effective from the beginning of the day of the lawmaking. See, United States v. Will, 449 U.S. 200, 101 S.Ct. 471, 66 L.Ed.2d 392 (1980). | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489071/ | FINDINGS AND CONCLUSIONS
JOSEPH A. GASSEN, Bankruptcy Judge.
The plaintiff, United Coal Resources (UCR), initiated this adversary case by filing a complaint in five counts seeking (1) damages for an alleged breach of contract, (2) damages for alleged wrongful withholding of property, (3) an accounting for funds that defendants received which allegedly belong to the plaintiff, (4) adjudication of the rights of the parties under the various agreements between them and the ownership of properties referred to therein, and (5) determination of the interest of the plaintiff in property under 11 U.S.C. § 544(a)(3) (C.P. No. 1). The defendants (herein referred to collectively as S & T) denied that the plaintiff is entitled to any of the relief sought and asserted by way of affirmative defenses and counterclaim that they are entitled to rescission of the agreements for the purchase and sale of assets and damages under several bankruptcy code as well as non-bankruptcy theories (C.P. No. 14).
This case came on for trial before the court on January 22 and 23 and February 11 and 12, 1981. The commencement of the trial was simultaneous with the trial of a companion adversary in which Barclaysam-erican/Business Credit, Inc., a Connecticut corporation, was plaintiff and all parties to this adversary were defendants (Adversary Case No. 80-0377-BKC-JAG-A).
The facts are complex and quite bizarre but essentially not in dispute except as to who knew what and when he knew it. The primary decisions to make in this case are on the legal issues of whether or not the plaintiff is entitled to the declaratory relief and damages prayed for in its complaint and whether or not the defendant-counter-claimants are entitled to rescission of the entire transaction and to have the parties restored to their status as it existed prior to the commencement of the transaction.
UCR was created by its general partner and primary mover Edward Granville-Smith to provide a tax shelter investment for professional and business persons. Among other properties that UCR intended to obtain for the purposes of such tax shelter investment were all of the off-the-road and other equipment of S & T together with certain oil leases, contracts and other tangible and intangible assets which S & T owned prior to December 29, 1978.
Some months prior to December, 1978, Edward Granville-Smith commenced negotiations with the principals of S & T. On December 29, 1978 an agreement was reached (UCR’s Exhibit No. 1) providing for a closing on or before December 31, 1978. It is evident to the court that the parties did not, in fact, contemplate the actual physical closing by December 31, 1978 on a contract that had been reduced to writing only two days in advance of that date but rather that the document was signed to *683create a basis for the tax shelter purposes of the investment contemplated by UCR in 1978.
The evidence shows that the relatively small equity capital investment of the limited partners in UCR was not sufficient to fund any portion of the acquisition of the S & T assets, but rather, the equity investment in UCR would provide little more than organizational expenses and limited working capital. UCR applied to Equibank of Pittsburgh, Pennsylvania for a loan to finance the acquisition contemplated by the December 29, 1978 agreement. In the spring of 1979, UCR learned that Equibank would not make the loan. The promissory note given by UCR to S & T on December 29, 1978 was to be redeemed in cash as part of the down payment on the closing contemplated by that original agreement. However, that closing was never held and payment was never demanded by S & T because all parties understood that UCR required a commercial loan to fund the down payment which would include the redemption of the promissory note (UCR’s Exhibit No. 3).
Throughout the early part of 1979, UCR attempted to obtain financing from various sources. Ultimately, a loan agreement was reached with Barclaysamerican (formerly Aetna Business Credit, Inc.), as evidenced by a number of documents executed between UCR on the one hand and Barclay-samerican on the other in July, 1979 (Barclay’s Exhibits Nos. 3, 4 and 5). Even with the anticipated $4,575,000 in proceeds from the Barclaysamerican loan, UCR needed an additional $5,000,000 to satisfy the down payment requirements of the transaction with S & T. When it was unable to accomplish such funding through traditional and usual sources, UCR employed the “services” of one James Feeney and one Mark Phillips, neither of whom was shown to have had traditional American banking connections or expertise.
Feeney represented that he could obtain a total line of credit of $35,000,000 for UCR from off-shore sources for the S & T and other contemplated acquisitions. The first $7,000,000 of that line of credit was to be allocated as follows: $5,000,000 for the closing of the transaction with S & T and the balance of $2,000,000 for promotional, organizational and operating capital needs. In furtherance of that representation, Fee-ney arranged for Granville-Smith, Edward Smock, a financial officer of UCR’s general partner UEC of Maryland, Inc., Phillips and himself to fly to the island of St. Vincent in the West Indies to meet with representatives of Aeiola Bank and Trust Company. Instead of meeting in a place of business, these gentlemen were directed to a private residence where they met with Kevin Barry Krown, a representative of the Aeiola Bank. No documents were signed or delivered on that occasion except for Granville-Smith giving to Kevin Barry Krown copies of a brochure which had previously been prepared for a New York stockbroker in connection with a hoped-for private placement of funds which had not materialized. (UCR’s Composite Exhibit No. 16).
Thereafter, through Feeney, the “loan” transaction for the first $7,000,000 was consummated in the following manner. Gran-ville-Smith was required to deposit his personal checks for $2,000,000 and $5,000,000 in the Aeiola Bank in exchange for two official Aeiola Bank checks in like amounts. Granville-Smith did deliver his personal checks to the Aeiola Bank on his understanding that it was for file purposes only and that they were not to be presented to his bank for collection. (He took the precaution, however, of issuing stop-payment orders to his bank and, in fact, the checks were later presented for payment to his bank but were dishonored. Had there been no stop-payment order, it was admitted that there were insufficient funds to cover the checks.)
Feeney’s fee or commission on this phase of the transaction was to be $150,000. He required payment of his fee before he would deliver the official Aeiola bank checks to UCR. For a number of reasons, Granville-Smith found it convenient to borrow the $150,000 from Chase Manhattan in New York. He obtained the loan, giving a *684personal guarantee, and received a check which he tendered to Feeney. Feeney would not accept an endorsement of the Chase Manhattan check but demanded currency. The check was then returned to the bank department issuing it, and the loan officer obtained $150,000 in $100 bills for Granville-Smith.
Feeney also required that the physical transaction take place in an automobile so it would not occur on U. S. soil. Granville-Smith and Smock took the currency in a briefcase and met with Feeney and Linda Starr, another person associated with the Aeiola Bank, in an automobile on the street in front of the Chase Manhattan Bank. Upon delivery of Feeney’s fee, Feeney gave Granville-Smith two official Aeiola bank checks of $2,000,000 and $5,000,000.
Granville-Smith deposited the $2,000,000 check at Chase Manhattan, in part to cover the $150,000 loan. He retained the $5,000,-000 check for delivery to S & T.
The transaction between UCR and S & T had been restructured through an amendment which was executed September 11, 1979 (UCR’s Exhibit No. 4). This agreement was an amendment and restatement of the December 29, 1978 agreement. Among other things, the purchase price to UCR was reduced to $12,500,000, but the down payment was increased to $9,100,000.
Some time between September 12, 1979 and September 21, 1979, Granville-Smith exhibited the $5,000,000 check to George Solomon to demonstrate to George Solomon that the entire down payment could now be funded. A closing was set for Friday, September 21, 1979 for the Barclaysamerican loan to UCR in the offices of the local Pittsburgh attorneys for Barclaysamerican. That date was inserted in handwriting in the amendment and restatement of September 11, 1979, a document that was otherwise typewritten. The evidence does not clearly reflect when, or by whom, that date was chosen and when it was inserted in the September 11, 1979 agreement. The evidence is clear, however, that the entire transaction between UCR and S & T was not consummated on September 21, 1979. The bulk of the paper work accomplished on that occasion was the completion of the Barclaysamerican loan transaction which required that S & T transfer title of all of the personal property being given as security for that loan to UCR, the borrower. None of the real property which was included in the transaction was conveyed by S & T to UCR on that date, nor has such conveyance taken place at any time subsequent thereto. It is obvious that there had been no title searches as of September 21, 1979. Furthermore, the regular attorneys for S & T did not even attend the meeting in Pittsburgh that day. The only lawyer present on behalf of S & T on that occasion was Gerald Solomon, the son of George Solomon who does not regularly represent the S & T interests in transactions of this kind.
UCR had made an agreement with George Solomon for him to manage the S & T properties as well as other coal properties which UCR anticipated acquiring. Therefore, the closing was not expected to and did not result in any change in physical control. S & T has continued in physical possession and has maintained operations until the present.
The $5,000,000 official check of the Aeiola Bank was delivered by Granville-Smith to George Solomon on that occasion but, since it was late Friday, the check could not be deposited for the benefit of S & T until the following Monday, September 24, 1979.
The only benefit S & T received as a result of the September 21, 1979 “closing” was $4,100,000 paid to it or on its behalf in satisfaction of preexisting liens on the personal property it transferred on that occasion which had a value substantially in excess of that amount according to all of the expert evidence presented at the trial of the companion adversary. (Case No. 80-0377— BKC-JAG-A).
The $5,000,000 Aeiola Bank check deposited by S & T to its account with Equibank on September 24, 1979, was dishonored. The $2,000,000 Aeiola Bank check which Granville-Smith had deposited with Chase Manhattan on September 12, 1979, was also dishonored. The only evidence that UCR *685was aware oil September 21, that there might be trouble with the Aeiola Bank checks, was the testimony of Edward Smock who testified that there was trouble with the $2,000,000 check that had been deposited nine days before. However, the court need not determine whether or not UCR had reason to know that the $5,000,-000 check would be dishonored in order to decide this adversary case.
When all efforts to collect the $5,000,000 check or to obtain substitute funds therefor failed, the parties entered into a supplemental agreement on January 24, 1980 (UCR’s Exhibit No. 5).
By mid-January, 1980, S & T was convinced that either a fraud had been perpetrated upon it or at least there had been such a gross and substantial failure of consideration so as to warrant rescission of the entire transaction. S & T had signed over its titles to the various personal properties which were collateral for the Barclaysamer-ican loan to UCR. It had been induced to make the first monthly payments under the Barclaysamerican note and security agreement even though S & T was not a direct party to it. Barclaysamerican’s liens were greater, and secured a loan at a higher rate of interest than the liens which had previously existed on the personal property. Having been thus prejudiced, S & T was trying to extricate itself in the most propitious manner possible by creating a new arrangement through which it would ultimately get the balance of the purchase price. Because there was an issue at that time as to whether or not it was entitled to a rescission, S & T was careful to include in the supplemental agreement of January 24, 1980, the following provision:
4. In the event of any default under the Supplemental Agreement, the Purchaser agrees to a rescission of this entire transaction, and further agrees to transfer, convey, assign, and return to Seller any and all assets which they acquired from Seller, and in addition thereto Purchaser agrees to pay Seller for any and all damages suffered by Seller from any default in the payment of the purchase money due under said agreement of September 11, 1979, together with all attorney’s fees and costs expended by Seller relating to this entire transaction from its inception.
Nothing could be clearer than the language of that paragraph of the supplemental agreement. In fact, UCR did not pay any portion of the $5,000,000 balance in accordance with the extended payment provisions of the January 24, 1980 supplemental agreement. Furthermore, S & T continued to make the monthly payments to Bar-claysamerican until UCR filed the main proceeding in this court (Case No. 80-01439-BKC-JAG) under chapter 11 of the Bankruptcy Code on November 4, 1980, from which time the automatic stay under the Code protected UCR from any action by Barclaysamerican.
While one is naturally skeptical of the sincerity and good faith of the principals of UCR in encouraging S & T to enter into the September 11, 1979 amendment and restatement of original agreement and in delivering the $5,000,000 official check of Aei-ola Bank to S & T at the Barclaysamerican closing on September 21, 1979 without disclosing to S & T any of the circumstances surrounding the making of the “loan” from Aeiola Bank and obtaining the $5,000,000 official check, the court does not need to make a determination of whether or not there was actual fraud on the part of UCR in the inducement to S & T to divest itself of its properties and to “close” the transaction. The crystal clear language and intent of the portions of the January 24, 1980 supplemental agreement quoted above resolve the issue. It would not make any difference even if S & T did not have sufficient grounds for a rescission based on fraud or failure of consideration at that time as a matter of law. Both parties were represented by counsel throughout the history of these events and used the word “rescission” as a term of legal art in the January 24, 1980 supplemental agreement.
Counsel for each party presented their clients’ position in an outstanding manner in the trial of the case and in the prepara*686tion of post-trial memoranda to aid the court in sifting through these complex facts and the applicable law. The court has read the authorities cited by the parties in their memoranda. Pennsylvania law is applicable to this case because the transactions occurred in that state and the parties incorporated such a choice of law provision into their agreements. The court .concludes that Pennsylvania law requires rescission based upon the supplemental agreement of January 24, 1980. (Apparently, this is the prevailing view throughout the United States as well as in Pennsylvania.) The authorities cited by counsel for S & T were more to the point on the issue of rescission based upon contract and are more applicable to the issues presented here than the other authorities cited.
Therefore, the court need not belabor this opinion and this record with a discussion and recitation of the myriad fact details and legal analyses that would be involved if it were deciding this case on any of the other theories presented by the parties. While S & T did seek relief from the automatic stay in order to prosecute a case it had brought against UCR in Pennsylvania prior to the commencement of the chapter 11 proceedings in this court, all parties agreed to submit the issues in that case to this court for resolution, and all factual matters that would have been involved in that Pennsylvania action were presented to this court.
Pursuant to B.R. 921(a), a Final Judgment incorporating these Findings and Conclusions is being entered this date. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489072/ | FINDINGS AND CONCLUSIONS
JOSEPH A. GASSEN, Bankruptcy Judge.
This adversary proceeding in a case filed prior to the effective date of the new Bankruptcy Code, came to trial on the first count of the complaint of Kenneth A. Berdick. Plaintiff objects to the discharge of the *690bankrupt, Donald F. Coester, because of a mortgage given by the bankrupt to his wife on his interest in a house held by the two as a tenancy by the entirety. Plaintiff contends that defendant thereby intentionally divested himself of his property, in fraud of his creditors. While the complaint does not clearly set forth this transaction as the one upon which plaintiff was proceeding, after numerous pre-trial motions and hearings, the defendant was aware of plaintiff’s theory of the case at the time it came to trial, and the plaintiff orally requested that the pleadings be conformed to the proof at trial.
For the reasons given below, the court concludes that defendant will not be denied a discharge.
In 1971, defendant Donald Coester and his wife Eleanore Coester purchased a home in South Miami, Florida, which they held as a tenancy by the entirety. They resided there until 1976 when they moved to a home in Plantation, Florida, also held as a tenancy by the entirety. The South Miami house could not be sold and was rented. Eleanore Coester testified that during a period of at least five years, she “lent” her personal funds to her husband with the intention that he repay her. It was her testimony that in 1971 she contributed over $2,000 to purchase the South Miami house, that in 1976 she paid the nearly $800 moving bill from South Miami to Plantation, that she provided the cash at closing and the $500 attorneys’ fee for the Plantation house closing, that she made mortgage payments on the Plantation house, and that she made a loan of $233.90 for family living expenses, also in 1976. Mrs. Coester had documents to support her testimony as to the amount of most of the expenses, although a number of the documents do not show on their face that payment was made by Mrs. Coester.
Coester was the primary stockholder of and had personally guaranteed substantial debts of South Florida Health Care Services, Inc., which had financial difficulties. The Florida State Insurance Commission, in its regulatory capacity, intervened, and on January 11, 1979 a receiver was appointed to rehabilitate the corporation. On January 17, 1979, a note and mortgage were executed, by which Donald Coester gave his wife a second mortgage on his interest in their South Miami house on a loan shown to be $16,324.09 (Plaintiff’s Exhibit No. 6). In February or March, 1979, South Florida Health Care Services, Inc. went into liquidation.
On September 25, 1979, Donald Coester filed his voluntary individual petition in bankruptcy. The second mortgage to his wife was scheduled in the amount of $12,-000 but was not listed as a transfer during the year immediately preceding the filing of the petition. No rental from the house was scheduled as income, and defendant testified that payments on the first mortgage and for repairs exceeded the rental so that there was no net income.
Mrs. Coester testified she insisted that the loans she made to her husband be repaid because her husband was capable of supporting the family and she expected him to do so, and because she was personal representative of her father’s estate and the funds were from her father’s estate. There was no documentation or more detailed testimony to indicate that the funds were from the estate itself rather than the funds she received as a beneficiary. She also stated that the Plantation house could not have been purchased without her funds and that she therefore advanced them with the expectation of repayment. She testified that it was contemplated that these loans would be repaid from the proceeds of the South Miami house and that it was intended from the beginning that she would receive a mortgage, but that Mr. Coester procrastinated in getting it done.
There was conflicting testimony as to how the $16,000 mortgage note figure was reached. The testimony of attorney Howard Galbut who prepared the mortgage in question, and whose partner handled the closing of the Plantation house was as follows: The Coesters wanted the mortgage prepared because Mrs. Coester had put her own funds into the Plantation house. How*691ever, the mortgage was not prepared at that time (1976) because Galbut needed accurate figures regarding the rate of interest, the full amount of the Plantation closing and other matters. During 1977 through 1979, he represented Mrs. Coester in several matters. Finally, in December 1978 or 1979, Mr. Coester gave Galbut the necessary figures and told him that the husband and wife had agreed to ten percent as the rate of interest. Galbut then computed interest and prepared the instruments for the Coesters to sign.
The Coesters agreed in their testimony that Mrs. Coester kept what records they had. She testified that she did not keep a running balance of the debt because these were “normal family transactions” but that she kept bills, checks and such. She did not testify as to the rate of interest. Mr. Coes-ter testified that their attorney advised them to use a ten percent interest figure. Defendant’s position is that the various loans he received from his wife totaled approximately $12,000 and that the pre-mort-gage interest brought the total of the debt to the $16,324.09 shown on the mortgage note.
Given the conflicts and contradictions in testimony and in the documentary evidence, and the totality of the circumstances, the court finds that there was no valid debt of Donald Coester to Eleanore Coester which was secured by the mortgage in question. The court further concludes that the bankrupt intended to make the transfer in order to hinder, delay or defraud his creditors. As the transfer was made within the twelve months immediately preceding the filing of the petition in bankruptcy, the defendant’s discharge would be denied under § 14(c)(4) of the Bankruptcy Act, 11 U.S.C. § 32 (1978), except that the property encumbered by the mortgage was not a part of the bankruptcy estate.
The court finds as a fact that the consideration alleged to have been given the bankrupt in return for his giving of the mortgage did not exist. The inconsistencies in testimony of the witnesses together with inferences to be drawn from the circumstances and explanations lead the court to conclude that the “loan” from Eleanore Coster to Donald Coester was in part or in whole a sham, designed to justify the giving of the mortgage. Cf. Rader v. Lichtenthal, 306 F.2d 195 (2d Cir. 1962).
Nevertheless, the bankrupt’s intentions do not affect his discharge in this case. Under Florida law, property held in a tenancy by the entirety is not subject to execution to satisfy the individual debts of only one of the tenants. Vaughn v. Mandis, 53 So.2d 704 (Fla.1951); France v. Hart, 170 So.2d 52,53 (Fla.App.1965). Therefore, tenancy by the entirety property does not pass to the bankruptcy trustee under 11 U.S.C. § 110(a). 4A Collier on Bankruptcy ¶70.-17[7] and [8] (14th ed.) As a result, a Florida bankrupt’s creditors cannot be injured by any transfer by the debtor of his interest in entireties property, and such an act on his part cannot be the basis of a denial of discharge. Cf. Albinak v. Kuhn, 149 F.2d 108 (6th Cir. 1945), applying Michigan law as to a tenancy by the entirety.
Pursuant to B.R. 921(a), a Final Judgment incorporating these Findings and Conclusions is being entered this date. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489073/ | FINDINGS OF FACT AND CONCLUSIONS OF LAW
JON J. CHINEN, Bankruptcy Judge.
Two properties owned by Debtors and subject to liens in favor of Finance Factors and the Internal Revenue Service were sold under the jurisdiction of this Court free and clear of all encumbrances, with the liens attaching to the proceeds of the sale. The issue before this Court is whether or not Finance Factors, as the holder of a valid lien on both properties, is entitled to the proceeds of the sale, after the costs of the sale are deducted, or whether or not the general administrative expenses of the Chapter XII proceedings must be paid prior to payment to Finance Factors.
A hearing was held on March 13, 1981 at which time Max Sung Hi Lim and Lily Sook Myeng Lim, hereafter “Debtors”, were represented by Edward C. Kemper; Ralph S. Aoki, hereafter “Trustee”, was represented by Richard T. Kaneko; Finance Factors, Limited, hereafter “Finance Factors” was represented by Harold M. Fong; the Internal Revenue Service, hereafter “IRS” was represented by Elliot S. Enoki; and Bert S. Tokairin represented himself.
FINDINGS OF FACT
1. Finance Factors was the mortgagee of the properties owned by Debtors situated at 58-261E Kamehameha property (Kamehameha property) and Lot 9, “Pupukea Beach Subdivision” (Pupukea property). The levy by the IRS was made subsequent to the mortgagees in favor of Finance Factors.
2. By orders of this Court filed herein on September 12, 1977 and March 8, 1979, the Pupukea and Kamehameha properties, respectively, were sold free and clear of all liens, with the liens attaching to the proceeds of the sale.
3. The proceeds of the sale are now held by the Trustee. Claims for payment from the proceeds have been made by Finance *822Factors, the mortgagee; the IRS for taxes; and the Trustee and his attorney for administrative expenses.
CONCLUSIONS OF LAW
1. The issue before this court is whether or not the general administrative expenses other than those relating to the actual sale of the properties may be charged against the proceeds of the sale prior to payment to the lienholders.
2. The general rule regarding the handling of liens in a bankruptcy proceeding is stated by Colliers as follows:
When the time for distribution arrives, therefore, the trustee may find that much of the bankrupt’s property is encumbered by still-valid liens. These liens, with certain exceptions, some of which are now created by the Act itself, must be satisfied in full before any payment of dividends to unsecured creditors or on administrative expenses can be made; only after the discharge of such valid liens and incumbrances are assets available for distribution to priority claimants. 3A Collier’s on Bankruptcy ¶ 64.02[2] 14th ed. (1975).
3. The Ninth Circuit has adopted the rule that the liens must be satisfied in full before any payment on administrative expenses can be made. See In Re Williams’ Estate, 156 Fed. 934 (9th Cir.1907).
4. The above view was reaffirmed in In Re Hull, 311 F.Supp. 197 (1970). In that case after the sale of the bankrupt’s property, the Trustee used the sale proceeds to pay administrative expenses, contending that, since the lien holders were voluntarily in the bankruptcy court, they had waived their claim for priority over the proceeds.
5. In rejecting the argument of the Trustee, the Court stated:
It cannot be seriously contended that in the instant case, the petitioners came voluntarily into the bankruptcy court to enforce their liens. They were specifically enjoined by the court when they tried to foreclose their liens. Once the referee had assumed jurisdiction over the property, their later appearances and conduct in the bankruptcy court in protecting their interest cannot be construed as express or implied consent to actions of the bankruptcy court. Id. at 202-203.
After quoting from In Re Williams’, the Court made the following statement:
Thus, in the Ninth Circuit, non-consenting lien holders can be charged only with expenses directly connected with the sale — those expenses inherit in the selling procedure which were incurred by the bankruptcy court only because it had jurisdiction over the property and which would have been incurred by someone else had the sale taken place independent of the bankruptcy court. Id. at 203.
6. In the instant case, after payment of the costs actually incurred in the sale of the Kamehameha and Pupukea properties, all the proceeds will be paid to Finance Factors as are due under the mortgages on said properties. After Finance Factors is satisfied, then the proceeds remaining may be used to satisfy the lien of the IRS and the administrative expenses.
An order will be signed upon presentation. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489074/ | MEMORANDUM AND ORDER
ROBERT L. EISEN, Bankruptcy Judge.
This matter came to be heard on the motion of defendant, Marvin Feig, for a summary judgment pursuant to Federal Rules of Civil Procedure, Rule 56. Debtor, Systems for Solar Control, Inc., (Systems), filed an adversary complaint seeking a judgment of $75,000 plus fees and costs. Feig answered said complaint and also moved for a summary judgment alleging the absence of any genuine issue of material fact. Having carefully considered all the briefs, pleadings and memoranda filed by the parties, and being fully advised in the premises, the court hereby makes the following findings of fact and conclusions of law.
*875FINDINGS OF FACT
Debtor herein is an Illinois corporation known as “Systems for Solar Control” (Systems). Defendant, Marvin Feig, was President of Systems on September 26, 1978. Paul Richmond was Secretary of Systems on September 26, 1978. On that date Feig, as ‘seller’ and Richmond as ‘purchaser’, entered into a written “Agreement for the Purchase of Capitol Stock.” The Agreement recites that:
This Agreement, dated September 26, 1978, by and between Paul Richmond (hereinafter referred to as (Purchaser), and Marvin Feig (hereinafter referred to as Seller), and Systems for Solar Control, Inc. and Environmental Manufacturing, Inc., both Illinois corporations (collectively referred to as “The Corporations”)... ******
Whereas Seller owns and desires to sell to Purchaser, all of the issued and outstanding capítol stock of the Corporations owned by Seller, and Purchaser ... will purchase the shares from the Seller.. .
Systems’ instant complaint is based upon the written agreement between Feig and Richmond. Systems contends that Richmond acted as its nominee in the transaction. Systems then contends that the transaction can be avoided as a fraudulent transaction pursuant to § 67(d) of the Bankruptcy Act of 1898. Formerly 11 U.S.C. § 107(d). The agreement was signed “Marvin Feig-Seller” and “Paul Richmond-Purchaser.”
DISCUSSION
Summary Judgment for the defendant will be granted if it is shown that “there is no genuine issue as to any material fact.” Federal Rules of Civil Procedure, 56(c). Defendant argues that the agreement clearly and unambiguously proves that Richmond was the purchaser of the stock. Since the agreement is clear and unambiguous, defendant contends Systems cannot vary the terms of the agreement by extrinsic evidence. Systems argues that the court must resolve the issues of whether or not Richmond was its nominee through the admission of extrinsic evidence. Systems points out that although Feig and Richmond signed the agreement as Seller and Purchaser respectively, they also signed the agreement in their capacities as officers of the two corporations involved.
Based on the clear language of the written agreement the court holds that Richmond was not the nominee of Systems during the disputed transactions. The agreement continually refers to Richmond as the Purchaser. Nowhere in the agreement are the words “nominee”, “agent” or “principal” used. This court endorses the general rule that:
as between parties to an instrument, extrinsic evidence is inadmissiblé to vary, alter or contradict a written instrument which is complete, unambiguous, valid and unaffected by fraud, duress, mistake or illegality. (Cites omitted).
* * * * * *
The intention of the parties must be ascertained ... from language employed in the contract itself.
World Insurance Company v. Smith, 28 Ill.App.3d 1022, 329 N.E.2d 518 (1975). Under Illinois statutory law,
an authorized representative who signs his own name to an instrument is personally obligated if the instrument neither names the person represented nor shows that the representative signed in a representative capacity.
S.H.A., ch. 26, § 3 — 103(2). Based on the above statute and the clear language of the agreement, the court finds that Richmond signed as purchaser in his individual capacity, he became personally obligated under that agreement, and he was not System’s nominee.
The written agreement between Feig and Richmond stated that:
The purchase price for the shares of the Corporations being purchased by Purchaser from Seller shall be the sum of $75,000 plus the elimination of any debt that Seller may owe the Corporations presently on the books.. . *876The Corporations shall transfer to Seller three life insurance policies . . . and Seller shall give to Purchaser credit on the purchase price, the amount of cash surrender value of the same policies. .. The Corporations shall transfer to Seller, if such transfer is allowed by the insurance company, the Aetna Life Insurance Company disability policy, number PXP17075, owned by the Corporations and the Seller shall give to Purchaser credit on the purchase price, the amount, if any, of the cash surrender value that exists.. . .
WHEREFORE, it appearing that the Corporations may have furnished Richmond with some of the consideration for the sale of stock, the court will grant the defendant partial summary judgment. The parties shall contact the clerk to arrange a hearing limited to the issue of the actual monetary consideration the corporations supplied to Feig via Richmond. Systems will thereby have the opportunity to prove how much the insurance policies were worth, the amount of debt Feig owed the Corporations and the amount of credit towards the purchase price that was allowed Richmond. The court must stress that the only issue at the anticipated hearing will be the amount of consideration that Systems supplied to Feig through Richmond by transferring life and disability insurance policies and by erasing Feig’s debts from the corporate books. Assuming that Systems proves the corporations furnished a meaningful portion of the consideration to Feig, Systems will then have to prove, at a later hearing, that the transaction was fraudulent within the meaning of the Act. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489075/ | OPINION AND DECISION ON TRUSTEE’S APPLICATION FOR PAYMENT OF AUCTION PROCEEDS
BERT GOLDWATER, Bankruptcy Judge.
Prior to the order for relief on June 3, 1980, the trustee in bankruptcy for Golconda Farms (Golconda) was a state court receiver. During that time he auctioned equipment and vehicles as well as 1979 crops. The trustee now holds money from the auction as to the equipment and vehicles (approximately $1,000,000) and the crops (approximately $500,000). Some accounts receivable from 1979 crop sales, other than from the auction, will add to the crop account when collected.
All of the funds are subject to an unresolved lien claim of the Internal Revenue Service (IRS). The trustee has applied to distribute the funds up to the amount of the IRS lien.
An agreement was reached between Nevada National Bank (NNB) and the trustee in bankruptcy for Golden H Packing Company (GHP), a partnership, that the former receive 51% and the latter 49% should either be found to have priority.
The claims among NNB, GHP, J. R. Simplot Co. (Simplot), and Sierra Pacific Power (Sierra) are in conflict as to the 1979 crop proceeds.
Prior to the formation of a partnership with GHP known as Golconda, LaVar Mur-dock operated farms in Humboldt County, Nevada, with financing from NNB. In the latter part of 1977, NNB refused to further finance Murdock because of his defaults and told him that he would have to obtain new capital or be liquidated. Prior to that time, NNB had security agreements on farm products of Murdock for each year for the years 1975, 1976, and 1977.1
Murdock obtained preliminary financing for 1978 in April from GHP looking towards selling GHP one-half interest in Murdock Farms and a partnership. GHP obtained security agreements on all farm products from Murdock on April 6, 1978. GHP and Murdock agreed to buy and sell and become partners doing business as Golconda Farms as of April 10, 1978.2 GHP insisted it could not bear the entire cost of financing the 1978 Golconda crop. The sale closing, with formation of the partnership, included a loan from NNB to the newly formed Golconda for $1,200,000 (Exhibit 37) with subordination by GHP of its April 1978 security agreement to the extent of 51% in favor of NNB. On September 8, 1978, Golconda gave NNB a security agreement on all farm products. In January 1979, NNB again received a security agreement from Golconda for farm products (Exhibits 86 and 87).
At all times NNB refused financing for the 1979 Golconda crops. The situation became critical for Golconda in April 1979. Money was obtained from Haddad Farms, Inc., (Haddad) to finance lease payments and the 1979 crop after an inquiry by Had-dad’s attorney as to whether or not NNB had a “security interest”. NNB stated verbally and by letter3 that (1) NNB had no interest in financing a 1979 operating loan for Golconda Farms, (2) NNB held “no security interest in 1979 crops or farm prod*899ucts”, but (3) “we do have a security interest in the proceeds of crops and products” (emphasis added) (Exhibit 90).
For many years Murdock had purchased chemicals and fertilizers from Simplot on open account. In the spring of 1979, Sim-plot officers met with Golconda principals concerning the delinquent account and the future payment of Golconda’s bills. About June 5, 1979, Golconda signed a note dated June 1, 1979 for $247,792.77 in favor of Simplot. This was a balance struck by Sim-plot in which it had given $125,000 credit on Murdock’s old bills. The note covered purchases both before and after Golconda was formed. GHP claims the note should be only for Golconda’s debt for the 1978 crop with credit of $125,000.4
If there is an issue as to the proper amount of the promissory note, it is a matter for Golconda’s trustee to object.
At the time the promissory note was signed, Simplot also refused further credit to Golconda without security. Simplot’s Winnemucca representative found the financing records showed NNB had a September 1978 filing and Haddad had an April 1979 filing. On June 11, 1979, an agreement letter, drawn by Simplot, was executed. It provided Simplot would furnish all chemicals and fertilizers for the 1979 crop on credit after June 1, 1979. The promissory note was not mentioned and the agreement by its terms excluded any statement, promise or inducement not contained in the agreement. Golconda was to grant Simplot a security interest in crops. Had-dad was to subordinate its security interest in grain crops.
Simplot did not find the NNB 1979 filing.5 Simplot made its decision to advance credit believing it would “come ahead of everybody but A. G. Haddad”. 2 Transcript of Proceeding 206 (May 13, 1981).
On November 13, 1979, Golconda signed a security agreement in favor of Sierra to which GHP subordinated.
A subordination may be oral or by letter. The formality of a subordination filing is not necessary. N.R.S. 104.9316 provides:
Nothing in this article prevents subordination by agreement by any person entitled to priority.
See Williams v. First National Bank and Trust Co. of Vinta, 482 P.2d 595 (Okl.1971); Kirkpatrick v. Oil Well Supply Co., 172 Okl. 248, 49 P.2d 712 (1935).
There was a conflict in the testimony of the NNB officer and Haddad’s counsel as to what was said and understood. In any event, whether NNB subordinated to Had-dad in response to the inquiry from Had-dad’s counsel is now moot.6
There is really only one issue here: Does Simplot have a priority position over NNB as to 1979 Golconda crop proceeds? The answer is no.
NNB was on record in September 1978 with a subordination as to 49% to GHP. On January 22, 1979, Golconda executed a security agreement in favor of NNB of crops and all after-acquired property of the same description.7
*900Simplot’s decision as to its security interest position was made the way “business was conducted in this industry” (2 Transcript of Proceedings 217 [June 2, 1981]). The witness Johnson made it eminently clear that Simplot did not consider NNB filings in September 1978 to be effective because of the “New Money versus Old Money rule” (id. at 215). This is the rule of the official Uniform Commercial Code, Section 9-312, subparagraph (2):
(2) A perfected security interest in crops for new value given to enable the debtor to produce the crops during the production season and given not more than three months before the crops become growing crops by planting or otherwise takes priority over an earlier perfected security interest to the extent that such earlier interest secures obligations due more than six months before the crops become growing crops by planting or otherwise, even though the person giving new value had knowledge of the earlier security interest.
Simplot, an Idaho Company, was probably under the impression that it would be taking a super priority for new value to produce the 1979 crop because Idaho law adopts the official Uniform Commercial Code [28-9-312(2) Idaho Code],
Unfortunately for Simplot, Nevada did not adopt subparagraph 2. See N.R.S. 104.-9312 (“2. [There is no subsection 2.]”).8 In Nevada, first in time controls. N.R.S. 104.-9312.5(a).
Although Simplot’s chief witness testified that Simplot relied upon the record of filings,9 its brief contends that it is entitled to priority because NNB is estopped by its course of dealing. Now, in hindsight Sim-plot points out conduct of NNB which might be inconsistent with its present position, such as its communication to Haddad’s lawyer (Exhibit 90, supra).
In Lear v. Bishop, 86 Nev. 709, 476 P.2d 18 (1970), an oral promise was made by the ranch manager for Lear to acquire and exchange certain land. The promise was made to Fish and Game and included an exchange of land with C-B Ranch. While the promise was not made to the C-B Ranch, the latter was made aware of the promise, relied upon the promise and changed its position. The Supreme Court said (at 714 of 86 Nev., 476 P.2d 18):
Although the doctrine of promissory estoppel expressed in Section 90 (of the Restatement of Contracts) and applied in American Savings, supra, (85 Nev. 350, 455 P.2d 39 (1969)) is limited to cases in which the action in reliance is on the part of the promisee (Fish and Game), an intended third party beneficiary (C-B Ranch) should similarly be protected if its reliance was likewise forseeable. Vol. 1A Corbin on Contracts § 200, p. 219; Burgess v. California Mutual Bldg, and Loan Ass’n [210 Cal. 180], 290 P. 1029 (Cal. 1930). Here, the terms of Lear’s participation were eventually memorialized by escrow instructions prepared by Lear’s counsel and accepted by C-B Ranch. An injustice can be avoided only by forcing Lear to honor the promise of his general manager. (Emphasis added.)
The testimony in this case is that Haddad told Simplot that he had a first position [Transcript (June 2, 1981) supra at 216] Simplot did not know of NNB’s communication to Haddad’s lawyer and made no inquiry of NNB. It relied upon a misunderstanding of Nevada law, a failure to note a NNB 1979 Uniform Commercial Code filing and conversation with Haddad.
Simplot did not rely upon NNB’s course of dealing. It was not a party to NNB’s response to Haddad’s lawyer. NNB did not clearly and unequivocally release its priority position. Its talk of “releasing the collateral” but not the proceeds does not constitute an absolute release even if it were *901communicated to Simplot. If NNB should be held to foresee the effect of its statement, it could only be held to foresee that someone would understand that it retained a security interest of some kind. If, prior to filing, Simplot had been given a copy of NNB’s letter it would be on notice as surely as if it had found and seen the January 22, 1979 filing that NNB claimed a security interest in the proceeds of the 1979 crop.
NNB knew or should have known that Golconda needed fresh money to continue its 1979 crop but NNB could not be expected to know that Simplot was changing its position from open account to secured creditor based upon a conversation between Haddad and NNB. To so hold would subvert the entire purpose of the Uniform Commercial Code and ignore the fact that at all times NNB was on record and later confirmed by letter a claim of security interest in proceeds.
NNB is entitled to priority of the crop proceeds as against Simplot. Sierra filed a position paper but did not participate in the trial of the issue among GHP, NNB, and Simplot. Sierra reserved its right to assert its priority and that matter must now be set for hearing unless resolved among counsel for the interested parties.
. All references herein to security agreements include financing statements and perfection as required by law.
. Many documents were signed September 8, 1978 and the escrow finally closed in December 1978.
. The letter was written by NNB but never received by Haddad’s lawyer.
.While Golconda was in its formative stage in April 1978, GHP sent $25,000 to Murdock and later, in September 1978, an additional $100,-000 was given to Murdock from the NNB loan. Murdock sent both sums to Simplot which did not credit the amounts to the 1978 crop expense but against Murdock’s delinquent account.
The certified public accountant who was to make up the Golconda accounting “as of April 10, 1978” according to the sale agreement of September 8, 1978, testified that Golconda was to pay all of Murdock’s debts and Murdock would then owe the Golconda partnership an account receivable. Tom Haddad, partner in GHP, testified that the funds were forwarded by GHP strictly in accordance with its agreement to fund only the 1978 crop expenses of Golconda.
. NNB had filed January 22, 1979 covering all after-acquired crops (see Exhibits 86 and 87).
. Haddad was also marketing agent by agreement with Golconda and retained sales proceeds to repay itself in full.
. Filing or perfection as to collateral includes proceeds. N.R.S. 104.9312.6. Proceeds include what is received upon the sale of collateral. N.R.S. 104.9306.1. A security interest may attach to after-acquired property such as crops to be grown. N.R.S. 104.9203, 104.9204.
. 1967 Minutes of Nevada Assembly Judiciary Committee, April 5, 1967, pages 332, 335 re SB 488 (Exhibit 114).
. The witness testified that had Simplot known of NNB’s January 22, 1979 filing it would have been very reluctant to consider that it could take a priority position. Transcript (June 2, 1981) supra at 243-244. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489076/ | MEMORANDUM DECISION
GEORGE L. PROCTOR, Bankruptcy Judge.
In 1977, the plaintiff took delivery of a Ward-Haggas-Smith engine lathe under lease with option to purchase from Circle Leasing of Florida. In September, 1978, the plaintiff placed the lathe on the debtor’s lot for sale on consignment. The debtor was a dealer in equipment similar to the lathe and customarily sold new and used equipment of this sort. On the date of the petition, the lathe was still on the debtor’s premises.
When Circle leased the lathe to the plaintiff, it recorded a UCC-1 against the plaintiff. Subsequent to the date of the petition, Circle filed a UCC-3 assigning its rights to the plaintiff. By virtue of this assignment, plaintiff claims rights in the lathe superior to those of the Trustee. The defendant argues that Circle’s filing against the plaintiff is not good against the creditors of the debtor, since they would be unable to check with the Secretary of State to determine whether there were any liens on or claims against the property as it sat in the debtor’s yard.
When he delivered the lathe to the debt- or, the plaintiff did not file a UCC-1. Thus, as between his rights as consignor and the defendant’s rights as Trustee, the Trustee prevails. UCC 9-114.
UCC 9-306(2) provides that a security interest continues in collateral notwithstanding sale, exchange or other unauthorized disposition. Because of the assignment, plaintiff contends that it stands in the shoes of Circle.
If the contest of priority were between the Trustee and Circle, Circle would win. UCC 9-306(2); Walter E. Heller & Co., Southeast Georgia v. Raviana Foods, Inc., 648 F.2d 1059 (5th Cir. 1981). Only a buyer in the ordinary course of business would unquestionably take free of Circle’s security interest. UCC §§ 2-403(2); 9-307(1). The strongarm powers of § 544 give a Trustee the rights of a judicial lien creditor, a creditor with an unsatisfied execution, and a bona fide purchaser of real property, but not of a buyer in the ordinary course of business or bona fide purchaser of personal property.1
Section 9-306(3) represents a balance between the desire of a supplier to maintain an interest in his goods and that of the creditor in relying on the apparent wealth of the debtor. Walter E. Heller & Co. v. Riviana Foods, supra, at 1062. Its purpose is to protect a secured party from unauthorized disposition of his collateral. The issue boils down to this: Having failed to protect itself as required by UCC 9-114, can the plaintiff bootstrap its priority by the assignment from Circle? In this case, the Court thinks not. The plaintiff should not be able to use his unauthorized disposition of collateral to overcome his negligence in failing to protect himself by filing.
Wherefore, in view of the foregoing discussion, a final judgment shall be entered on behalf of the Trustee and against the plaintiff.
. It is obvious why the Bankruptcy Code does not grant the Trustee this power. If it did, security interests would be invalid in bankruptcy. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489079/ | MEMORANDUM DECISION
THOMAS C. BRITTON, Bankruptcy Judge.
Debtors seek the avoidance of a judgment lien against their home under 11 U.S.C. § 522(fXl). (C.P. No. 1). The defendant lienor has answered. (C.P. No. 4). The matter was tried before me on July 9, 1981.
The facts were stipulated at trial. Defendant obtained and pérfected a judgment lien for $6,986 against the debtors on August 23, 1977. Debtors then owned their present home, which then and now qualifies as a homestead under Article X, § 4(a)(1), *96Florida Constitution, which provides that no judgment shall be a lien against the homestead, with certain exceptions not applicable here. Debtors have duly claimed the exemption of their home.
Defendant’s only pleaded defense is that the debtor’s property may be foreclosed by a third party who holds a purchase money mortgage and there might be a surplus at the judicial sale which would be subject to defendant’s judgment lien. I reject this defense, because the judgment lien did not attach to the debtors’ home (or so far as this record reflects, any other property) before bankruptcy. Therefore, a bankruptcy discharge will effectively eliminate any further vitality in the judgment and the judgment lien. Under § 55.145, Florida Statutes, the judgment may be can-celled in the State court if that should prove necessary. Albritton v. General Portland Cement Co., Fla.1977, 344 So.2d 574, 576-577.
At the same session, this matter was presented for trial, these debtors presented a companion case seeking identical relief under identical circumstances against another judgment lien creditor whose lien, like this one, vested before the enactment date of § 522(f)(1). I have held in that case (13 B.R. 96) that § 522(f)(2) cannot be constitutionally applied to a creditor’s security interest which vested before the enactment date of the section in question. I adopt by this reference the discussion in that decision as being equally applicable here.
It follows that the complaint must be dismissed with prejudice and, as is required by B.R. 921(a), a separate judgment will be entered to that effect. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489080/ | MEMORANDUM DECISION
THOMAS C. BRITTON, Bankruptcy Judge.
Debtors seek the avoidance of a judgment lien against their home under 11 U.S.C. § 522(f)(1). (C.P. No. 1). The defendant lienor has answered. (C.P. No. 4). The matter was tried before me on July 9, 1981.
The facts were stipulated at trial. Defendant obtained and perfected a judgment lien for $1,453 against the debtors on March 1, 1976. Debtors then owned their present home, which then and now qualifies as a homestead under Article X, § 4(aXl), Florida Constitution, which provides that the homestead is exempt from creditors’ claims and no judgment shall be a lien against the homestead, with certain exceptions not applicable here. Debtors have duly claimed the exemption of their home.
It is defendant’s position (C.P. No. 4) that § 522(f) cannot constitutionally be applied to a creditor’s security interest acquired before the provision was enacted, November 6, 1978. I agree.
In Rodrock v. Security Industrial Bank, 10 Cir. 1981, 642 F.2d 1193, the court concluded that Congress intended that § 522(f) be applied retroactively and then defined the sole remaining issue in these words:
“There remains the issue of whether the provisions of Section 522(f)(2) can be constitutionally applied to a creditor’s security interest which vested prior to the enactment date of the Reform Act, i. e., November 6, 1978.”
The court held that it cannot be applied to a security interest which, like the one in this case, vested before November 6,1978, citing Louisville Joint Stock Land Bank v. Radford, 295 U.S. 555, 55 S.Ct. 854, 79 L.Ed. 1593 (1935). Though I have read with interest those published decisions of several colleagues in other districts who have reached a contrary conclusion, I have no difficulty in following the Tenth Circuit.
Rodrock dealt solely with § 522(f)(2), whereas the issue here is the applicability of § 522(f)(1). The fact that § 522(f)(2) permits avoidance of certain contractual liens which impair exemptions on certain personal property while (f)(1) permits avoidance of all judicial liens which impair exemptions affords no basis for distinction under the rationale of Rodrock.
Defendant did not comply with 28 U.S.C. § 2403 which requires notice to the Attorney General whenever “the constitutionality of an Act of Congress affecting the public interest is drawn in question”. I will not delay decision here to await a decision of the Attorney General whether or *98not to intervene, because (a) the Attorney General participated in Rodrock, and (b) less than four months ago, the Attorney General declined to intervene in Matter of Howison, 80-0308-BKC-JAG-A pending in this District before Judge Gassen. That case presented this same question. Judge Gassen also followed Rodrock.
I note that compliance with this statute is not a jurisdictional requirement. Wallach v. Lieberman, 2 Cir. 1966, 366 F.2d 254, 258. I will, therefore, direct that a copy of this decision be sent to the Attorney General in order that he may intervene in the event I have erroneously assumed his preference. For this purpose and for the Attorney General’s benefit, the time for appeal from this order is extended an additional 20 days. B.R. 802(c).
It follows that the complaint must be dismissed with prejudice and, as is required by B.R. 921(a), a separate judgment will be entered to that effect.
Although defendant’s judicial lien is not avoidable under § 522(f), it should be noted that the lien did not attach to the debtor’s home (or so far as this record reflects any other property) before bankruptcy. Therefore, a bankruptcy discharge will effectively eliminate any further vitality in the judgment and the judgment lien. Under § 55.145, Florida Statutes, the judgment may be cancelled in the State court if that should prove necessary. Albritton v. General Portland Cement Co., Fla.1977, 344 So.2d 574, 576-577. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8491306/ | ORDER GRANTING MOTION OF CITIZENS BANKING COMPANY FOR RELIEF FROM AUTOMATIC STAY
BARBARA J. SELLERS, Bankruptcy Judge.
This matter is before the Court upon a motion filed by Citizens Banking Company on April 19, 1991 seeking relief from the automatic stay imposed by 11 U.S.C. § 362(a). An “Objection” to the motion was filed by the debtors on May 2, 1991.
The bases of the debtors’ objection is that they seek to reaffirm their debt to Citizens. As this Court has previously advised debtors’ counsel, the desire of a debt- or to reaffirm its debt with a creditor is not a legal defense to such creditor’s motion for relief from the automatic stay. Likewise, relief from the automatic stay does not preclude reaffirmation of the subject debt under the provisions of 11 U.S.C. § 524.
For the foregoing reasons, Citizens’ motion for relief from stay is hereby granted.
IT IS SO ORDERED. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489082/ | ORDER OF DISMISSAL
THOMAS C. BRITTON, Bankruptcy Judge.
This chapter 11 proceeding was filed for the debtor on May 19 by the corporate debtor’s president, a layman without counsel. A hearing was held on July 21 upon notice to the debtor that the court would consider dismissal of this proceeding.
The schedules are incomplete and in many respects confusing. They reflect that the debtor has or claims a partial ownership of two parcels and the entire interest in a third parcel of improved realty in Milwaukee with a stated value of $80,000. They also reflect that the debtor owns three old vehicles worth $6,850 and has substantial claims against several individuals. The president obviously is incapable of representing the debtor in this sophisticated and comparatively technical proceeding. Nothing has been accomplished in the past two months and nothing can be accomplished under these circumstances.
The debtor has been given ample opportunity to arrange representation. The president states he cannot do so because he cannot afford to do so. That statement is inconsistent with the representations in the schedules.
In the meantime, the automatic stay provided by 11 U.S.C. § 362 prevents all creditors from enforcing their claims while the president has unsupervised control of the debtor’s assets.
The debtor has had no income for at least two years and there would appear to be no ongoing business to preserve or rehabilitate.
The debtor is at least partially owned by yet another corporation, Church of the Sentient Free, Inc. This debtor is not, therefore, the mere alter ego of its president, or so it would appear from the schedules.
Under these circumstances, I find that the interests of creditors and the debtor would be better served by dismissal. Accordingly, the case is dismissed under 11 U.S.C. § 305(a)(1). | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489085/ | CHARLES J. MARRO, Bankruptcy Judge.
FINDINGS OF FACT, MEMORANDUM AND ORDER
The claim of Vermont National Bank filed as secured in the sum of $10,239.48 on September 3,1980, came on for hearing as a contested proceeding at the Grand Jury Room, Federal Building, Rutland, after notice, on September 22, 1980.
The hearing was reported by Debbie Tag-gart of Depositions, Etcetera.
From the testimony adduced at said hearing, the exhibits received and the records in the case, the following Findings of Fact are made and Conclusions reached:
On June 13, 1978, the Debtors executed and delivered to the Vermont National Bank a promissory note in the principal sum of $18,000.00 payable with interest in monthly installments of $170.74 beginning July 25, 1978. This note was secured by real estate upon which was situated the residence of the Debtors and a garage operated by D. Stephen Titus as a commercial business under the name of Titus Auto Repair.
Said real estate was considered by the Debtors as their residence even though the commercial garage was also thereon situated.
The mortgage which was dated June 13, 1978 was conditioned upon the payment of the aforesaid promissory note for $18,000.00 as well as “all sums of money which are now owing or which may hereafter become due and owing to the mortgagee or to any of the bank’s predecessors in title and interest therewith from the said mortgagor on any and all forms of indebtedness according to the tenor and effect thereof; including any and all other notes, debts or liabilities now due or which may hereafter become due from the said mortgagor (or any or all of them if more than one, including any subsequent and new obligation of any or all of said mortgagors to said bank which is hereby specifically consented to) to the said VERMONT NATIONAL BANK, however specified, and whether direct or indirect,
The commercial garage was burned down and in order to pay off the cost of reconstruction, the Debtors made application to the bank for a loan which they wished to have added as part of the indebtedness under the real estate mortgage, but the bank denied this application. In lieu thereof, the bank approved an installment loan with a note executed and delivered by the Debtors to the bank dated December 3, 1979 in the sum of $11,377.20 payable in monthly installments of $189.62 beginning January 15, 1980. This note included the paying off of a prior indebtedness of $5,200.00, new money of $2,500.00, finance charges of $3,766.76, life insurance of $208.20, disability insurance of $390.24, and recording fees of $12.00.
As security for the payment of said note, the Debtors executed and delivered to the bank a security agreement on furniture, fixtures, machinery and equipment, as well as other personal property with financing statements filed in the Town of Reading and with the Secretary of State.
At the time of the closing of the loan evidenced by the aforesaid promissory note, the Debtors understood and intended that the only security for payment was the personal property described in the security agreement.
The loan application signed by the debtor, D. Stephen Titus, and dated December 3, 1979 carried on the back thereof the following notation: “The Titus’s are requesting loan of 2500.00 to pay for lumber bill for construction of barn for business. They *449would like to pick up balance of existing I/L and get 2500.00 more. Bob and I can see no problem in going 60 months on this with an interest rate of 17%. We will take all furniture, fixtures, equipment and right of rescission of property.”
In addition, the Debtors on the same date signed and delivered to the bank a “Notice of Right of Rescission” which indicated that the transaction of December 3, 1979 “may result in a lien, mortgage, or other security interest on your home.” These notices were signed by the Debtors. They were not read by the debtor, D. Stephen Titus, but they were read by his wife, and her understanding was that they gave them the right to cancel the transaction.
The $5,200.00 which was paid off from the proceeds of the loan on December 3, 1979, represented the balance due on a prior loan which the bank made to the Debtors on August 20, 1979, $3,000.00 of which was to be used for the construction of a garage.
Prior to the closing of this loan, the Debtors had requested that the amount borrowed be added to the indebtedness secured by the real estate mortgage, but this application was denied.
As security for this loan, the Debtors executed and delivered to the bank a security agreement covering a used Chevrolet truck. The rate of interest for this loan was 13.38%. The bank was familiar with the limit of 12% interest on loans for residences prescribed under Vermont Law.
In connection with the loan of August 20, 1979, the Debtors executed and delivered a “Notice of Right of Rescission” which stated that the transaction of August 20, 1979 might result in a lien, mortgage, or other security interest on their home. These notices were not read by the debtor, D. Stephen Titus, but they were read by his wife, but her understanding was that they gave them the right to cancel the transactions.
The rates of interest charged by the bank on the loans of December 3, 1979 and August 20,1979, were 17% and 13.38%, respectively, and both were in excess of the 12% limit which could be charged on those debts or notes secured by a residence of the Debtors.
There was no intention on the part of the parties to secure payment of the notes of August 20, 1979 and December 3, 1979 under the “future indebtedness clause” in the original real estate mortgage dated June 13, 1978 securing payment of the principal sum of $18,000.00.
MEMORANDUM AND CONCLUSIONS
The only witnesses at the hearing were Robert A. Baran, assistant vice president and manager of the Springfield office of the Vermont National Bank, and the Debtors.
The testimony as to whether the loans of August 20, 1979 and of December 3, 1979 were to be added to the real estate mortgage under the future indebtedness clause was conflicting.
The Debtors testified that it was their first intention that they borrow the money with the real estate pledged as security, but the bank disapproved the application. This was not denied by the bank’s witness.
The Debtors were emphatic in their testimony that the only security for the loan of December 3, 1979 was the furniture, fixtures, machinery and equipment used in the garage and other personal property. It is true that they executed the Notices of Right of Rescission which spelled out a possible lien or mortgage on their residence. However, the debtor, D. Stephen Titus, did not read the notices and his wife read them but interpreted them as meaning they could merely rescind the transaction. Their testimony in this regard is credible.
On the other hand, the bank did have them execute the Notices of Right of Rescission but it would appear that this was done in the exercise of a superabundance of caution so that the bank could attempt at a later date in the event that the loans went sour to add the amount due under the future indebtedness clause in the mortgage.
The testimony bears out the conclusion that there was no definite understanding that the loans were to be secured *450by the real estate. Had the bank been serious in this respect, it would have taken the necessary precaution to fix the rate of interest at 12%, which was the limit prescribed by State Law.
The Debtors were entitled to this interest limit as well as a definite explanation by the bank that the indebtedness was to be secured by the residence. The only reasonable conclusion is that there was no such intention.
In support of its position the bank cited Bloom v. First Vermont Bank and Trust Company, 133 Vt. 407, 340 A.2d 78. This case holds that a mortgagee under a mortgage also covering future debts due the mortgagee must, to obtain a secured position under the mortgage as to future debts, show that the parties intended the subsequent debt to be secured by the mortgage. The burden is definitely on the mortgagee, in this case the bank.
In Bloom the Court pointed out that the bank “simply failed to sustain its burden of establishing that the money advanced after the mortgage was executed was intended by the parties to be secured thereby.” In the instant case the facts bear out the same conclusion. Hence Bloom more appropriately favors the Debtors.
The mortgage provision as to future debts has been labelled as a “dragnet” clause. Where such exists it may be worded broadly to cover all other debts in addition to the one specifically secured and it will be construed to cover another debt although such other debt is secured by another mortgage. However, independent loans, as in the instant case, secured by different security have been held not covered by the mortgage in question under the construction placed on the “dragnet” clause in some mortgages. 55 Am.Jur.2d 286, Sec. 145.
The Debtors have admitted that the note of December 3, 1979 is secured by the equipment and personal property.
ORDER
Upon all of the foregoing,
IT IS ORDERED as follows:
1. The claim of the Vermont National Bank in the sum of $10,239.48 is not secured by the real estate mortgage of June 13, 1978.
2. Its claim is secured by the value of the equipment and other personal property which value if not agreed upon by the parties followed by a written stipulation shall be determined by the Court at a later hearing.
3. The balance of the claim not secured by equipment and personal property shall be allowed as unsecured. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489087/ | OPINION AND ORDER ON COMPLAINT TO DETERMINE DISCHARGEABILITY
R. J. SIDMAN, Bankruptcy Judge.
This matter is before the Court on the complaint filed by Boyd L. Davis to determine the dischargeability of certain obligations owed to him by Georgia Arlene Davis, his ex-wife and the bankrupt herein. The matter was tried to the Court on its merits and has been submitted to the Court for decision.
The Court finds the following facts. Boyd Davis and Georgia Davis were married for 27 years, from 1951 to 1978. During a portion of this time Mr. Davis, with the assistance of the bankrupt, operated a proprietorship known as The House of Clocks. The operation of this business included the sale of new clocks for which the appropriate Ohio sales tax was collected at the time of the sales.
In May of 1978, Mr. and Mrs. Davis were divorced. The separation agreement, which was incorporated into their divorce decree, specified that Mrs. Davis was to “retain as her own, free and clear from any claim by [Mr. Davis] all rights, title and interest in *458the business and assets of the proprietorship known as The House of Clocks...” In return, Mrs. Davis was to assume and “pay all debts, liabilities, and obligations” of the business whether then currently owing or to become due and owing at some subsequent date. Mrs. Davis was also to retain “as her sole and exclusive possession, free and clear from any claim by [Mr. Davis]” certain antique clocks. The separation agreement further stated that Mr. Davis was not to pay any alimony to Mrs. Davis.
Georgia Arlene Davis filed her petition in bankruptcy on June 8, 1979, and was duly adjudicated a bankrupt. Mr. Davis filed a claim in her bankruptcy proceeding for $26,295.73, based in part upon a debt for sales taxes which was owed to the State of Ohio and which was to have been paid by Mrs. Davis pursuant to the separation agreement, and in part on other debts she had agreed but failed to pay. Mr. Davis, as the holder of the vendor’s license for the business at the time the merchandise was sold, had received notices of assessment from the State of Ohio Department of Taxation. These taxes have not been paid to date with the exception of two payments of $100.00 paid by Mr. Davis.
In October of 1978 Mrs. Davis sold one of the antique clocks she had received in the divorce settlement. Mr. Davis helped her to sell the clock by talking to the prospective buyer. Mr. Davis has testified that Mrs. Davis assured him that, if he helped to sell the clock, she would use the proceeds of that sale to pay a portion of the state sales tax liability. Mrs. Davis, in her defense, stated that Mr. Davis had helped to sell the clock, but that she had made no firm agreement to use the proceeds for payment of the tax bill. She stated that she was aware of her responsibility to pay the past due sales taxes, and that she had intended to apply the proceeds from the clock sale to the tax debt. In her view, Mr. Davis’ assistance with the clock sale was not conditioned upon use of the proceeds for the tax debt. The proceeds from the clock sale were in fact used for living expenses, and the tax debt was not paid. On the basis of the relevant provisions in the divorce decree, Mr. Davis is seeking to have the tax debt declared nondischargeable as a debt owed for taxes to the State of Ohio within three years of bankruptcy. See, Section 17(a)(1) of the Bankruptcy Act of 1898 [formerly 11 U.S.C. § 35(a)(1)], Mr. Davis further asserts that the debt is nondischargeable because Mrs. Davis committed fraud while acting in a fiduciary capacity when she used the funds from the clock sale for expenses other than the tax debt. See, § 17(a)(4) of the Bankruptcy Act of 1898 [formerly 11 U.S.C. § 35(a)(4)]. Mr. Davis finally asserts that the debt is nondis-chargeable because it represents nondis-chargeable alimony owed to him by his ex-wife. See, § 17(a)(7) of the Bankruptcy Act of 1898 [formerly 11 U.S.C. § 35(a)(7)].
The first issue before the Court is the assertion that the debt owed by Mrs. Davis is a debt for a tax liability due within three (3) years of her bankruptcy. The relevant part of § 17(a)(1) of the Bankruptcy Act of 1898, which governs the disposition of this case, provides that:
“a. A discharge in bankruptcy shall release a bankrupt from all of his provable debts, whether allowable in full or in part, except such as ... (1) are taxes which became legally due and owing by the bankrupt to the United States or to any State or any subdivision thereof within three years preceding bankruptcy.” (emphasis added) 11 U.S.C. § 35(a)(1) (now repealed).
To come within the provisions cited above, the plaintiff must show that the tax debt was owed to the state by the bankrupt. No evidence has been presented to the Court that the business known as The House of Clocks ever operated as a partnership such that there would be joint liability for the sales taxes accruing prior to the transfer of the business to Mrs. Davis. The separation agreement which is part of the record of this proceeding refers to the business as a proprietorship. The vendor’s license issued by the State of Ohio was solely in Mr. Davis’ name prior to the divorce decree. Furthermore, the tax assess*459ments which are part of the record show assessments by the State of Ohio against Mr. Davis only. This Court therefore finds that Mrs. Davis has no original tax liability to the State of Ohio for any sales taxes due from The House of Clocks before the date of her divorce from Mr. Davis. Had she had original liability which Mr. Davis had undertaken to pay, he could have attempted to assert a priority status for his claim based upon principles of subrogation. See, Gilbert v. United States Fidelity and Guaranty Co., 180 F.Supp. 794 (M.D.Ga.1959), aff’d 274 F.2d 823 (5th Cir. 1960). Contra, In Re Trakan, 3 Bankr.L.Rep. (CCH) ¶ 67,-606 (9th Cir. 1980). However, without such liability, the debt cannot fall within the ambit of § 17(a)(1) of the Bankruptcy Act of 1898. The divorce decree did not create a liability of Mrs. Davis to the State of Ohio.
The State of Ohio has not asserted any claim against Mrs. Davis in this proceeding. While absence of a claim is not conclusive, it may be indicative of the view taken by the State. The situation and the concomitant responsibilities can be analogized to the purchase of a business in Ohio. Although Ohio Revised Code § 5739.14 places personal liability upon a buyer of a business for taxes formerly owed by the business, it does not eliminate the original liability of the vendor. Meglen v. Donahue, 8 Ohio App.2d 37, 220 N.E.2d 697 (1966). Furthermore, the contractual debt between the buyer and the seller of the business does not change the debt of the buyer, which is a statutory and contractual debt, into a tax debt. If the seller of the business pays the pre-sale tax debts, he has the right to go against the buyer for reimbursement, but the State of Ohio does not have a nondischargeable tax debt in the bankruptcy proceeding of the buyer. In Re Harper, No. B2 74-2886 (S.D.Ohio, 1979) (unpublished). Further, the granting of a business to a wife in a divorce proceeding is not a “sale” and therefore the transaction in this case is not brought under the ambit of O.R.C. § 5739.14. Cf. State v. Standard Oil Co., 39 Ohio State 2d 41, 313 N.E.2d 838 (1974). The provision, embodied in the separation agreement and incorporated in the divorce decree, which places upon Mrs. Davis the liability for past sales taxes due to the State of Ohio from The House of Clocks proprietorship, created a debt to Mr. Davis from Mrs. Davis. This is a debt, but not a tax debt, and as a non-tax debt, the provision of § 17(a)(1) excepting certain tax debts from discharge is not applicable. In Re Corson Furniture Co. Inc., 46 F.Supp. 678 (S.D.N.Y.1942) and In Re Hunter Hotel Enterprises, Inc., 44 F.Supp. 613 (S.D.N.Y.1940).
Davis next asserts that § 17(a)(4) of the Bankruptcy Act of 1898 establishes nondischargeability of the debt owed him by Georgia Davis. That section provides in relevant part:
“a. A discharge in bankruptcy shall release a bankrupt from all of his provable debts, whether allowable in full or in part, except such as ... (4) were created by his fraud, embezzlement, misappropriation or defalcation while acting as an officer or in any fiduciary capacity;” 11 U.S.C. § 35(a)(4) (now repealed).
For § 17(a)(4) to apply, Mr. Davis will have to first show the existence of a fiduciary capacity. Crawford v. Burke, 195 U.S. 176, 25 S.Ct. 9, 49 L.Ed. 147,12 Am.B.R. 659 (1904). In support of this allegation, he states that the proceeds of the clock sale were to be set aside for the payment of the tax debt. He claims that in selling the clock, Mrs. Davis became a trustee as to the proceeds received, and that her non-payment of the tax debt with these proceeds shows fraud or misappropriation by a fiduciary.
Mrs. Davis has raised the Statute of Frauds, codified in Ohio Revised Code § 1335.05, as an affirmative defense to this charge. O.R.C. § 1335.05 states:
“No action shall be brought whereby to charge the defendant, upon a special promise, to answer for the debt, default, or miscarriage of another person; ... unless the agreement upon which such action is brought, or some memorandum or note thereof, is in writing and signed *460by the party to be charged therewith or some other person thereunto by him or her lawfully authorized.”
It is the opinion of this Court that the Statute of Frauds is not applicable to the agreement here between Mr. and Mrs. Davis. Viewing the agreement as a suretyship agreement upon which Mr. Davis will remain primarily liable, Mrs. Davis’ promise to pay the tax debt might be non-enforceable by virtue of the Statute of Frauds except that the agreement was made for her own business benefit. Such a purpose takes the agreement out of the Statute of Frauds. Wilson Floors Co. v. Sciota Park, Ltd., 54 Ohio St.2d 451, 377 N.E.2d 514 (1978). In addition, the embodiment of the agreement into the separation agreement, which was part of the record in the state court of Common Pleas, serves as a written memo of the agreement which satisfies the Statute of Frauds. Huston v. Cincinnati and Zanesville Railway Co., 21 Ohio St. 235 (1871). If the agreement is not that of a surety (which is the case if the debt is an original tax debt as to Mrs. Davis), she is not assuming to pay the debt of another and the Statute of Frauds does not apply. Ferrell v. Maxwell, 28 Ohio St. 383 (1876). This Court therefore holds that the Statute of Frauds is not a bar to the proof sought to be introduced relating to the existence of a fiduciary relationship between Mr. and Mrs. Davis.
Fiduciary capacity has been defined by the Courts as requiring a technical or express trust, rather than a trust implied through a contract. Schlecht v. Thornton (In Re Thornton), 544 F.2d 1005 (9th Cir. 1976). The decision as to whether a technical or express trust has been created will be governed by federal law. Even if a trust has been created under state law, the Bankruptcy Court has a special duty to decide whether or not it is a trust for purposes of the Bankruptcy Act. Schlecht v. Thornton (In Re Thornton), 544 F.2d 1005 (9th Cir. 1976). The facts of each case will be determinative. Grissom v. Consumers Money Order Corp. of America (In the Matter of Grissom), 345 F.Supp. 316 (D.Col. 1972). If a trust is created, it must exist before the incident creating the debt and separate from it. Davis v. Aetna Acceptance Co., 293 U.S. 328, 55 S.Ct. 151, 79 L.Ed. 393 (1934).
To create an express or technical trust requires sufficient words to create a trust, a definite subject, and a certain and ascertained object or res. 89 C.J.S. Trusts § 22, 734-35. The separation agreement between Mr. and Mrs. Davis created no specific fund out of which the past sales taxes were to be paid. The clause awarding Mrs. Davis the antique clocks specifically states that the clocks are to be hers “free and clear from all claims of [Mr. Davis].” No written agreement has been introduced into the record setting apart the proceeds from the sale of any of the clocks. Without a specific statutory duty or a specific agreement and without a specific fund set apart by more than precatory words or promises, there can be no fiduciary capacity created. See Pomfrey v. Powell (In Re Powell), 3 B.C.D. 410 (E.D.Va.1977).
The Court finds that no fiduciary capacity existed between Mr. and Mrs. Davis as that term is used in § 17(a)(4) of the Bankruptcy Act of 1898. Without such a relationship it is not necessary for the Court to consider whether fraud or misappropriation has been shown. Crawford v. Burke, 195 U.S. 176, 25 S.Ct. 9, 49 L.Ed. 147, 12 Am. B.R. 659 (1904).
The final provision relied upon by Davis to show that the debt owed him by Georgia Davis is nondischargeable is § 17(a)(7) of the Bankruptcy Act of 1898. Section 17(a)(7) states that:
“a. A discharge in bankruptcy shall release a bankrupt from all of his provable debts, whether allowable in full or in part, except such as ...
(7) are for alimony due or to become due or for maintenance or support of wife or child ...” 11 U.S.C. § 35(a)(7) (now repealed).
The Court finds no evidence in the record to support this assertion. The only express language in the separation agreement *461states that Mr. Davis is to pay no alimony to Mrs. Davis. No mention is made of alimony to Mr. Davis and no evidence exists in the record to support a finding that an award of alimony was made or intended, Therefore, the Court finds this assertion to be without merit.
Based upon the above findings, the Court finds that the plaintiff, Boyd Davis, has failed to show that the debt owed him by the bankrupt, Georgia Davis, is nondis-chargeable as a tax debt, ás a debt incurred through the fraud of one in a fiduciary capacity, or as an award for alimony. The Court therefore finds that the debt owed to Davis by the bankrupt is, and the same shall be, hereby declared dischargeable in bankruptcy.
IT IS SO ORDERED. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489088/ | FINDINGS OF FACT AND CONCLUSIONS OF LAW
JON J. CHINEN, Bankruptcy Judge.
On August 20, 1980, defendant Bernard Pacheco filed a motion to set aside entry of default. Hearing on the motion was held on October 8,1980. William A. Snyder, one of the attorneys for Mitchell K. Ng and Lou Hon Wing, hereafter “plaintiffs”, challenged the motion. The motion was taken under advisement.
Based on the arguments of counsel, the memoranda and records herein, this Court makes the following Findings of Fact and Conclusions of Law.
FINDINGS OF FACT
1. An involuntary petition under Chapter 7 of the Bankruptcy Code was filed herein against Liza Chong, the debtor, on March 4, 1980.
2. On June 18, 1980, the plaintiffs filed a complaint to surrender property and for damages. Named as defendants in the action were Bernard Pacheco and Scott Naka-gawa, the trustee in this bankruptcy proceeding.
3. The complaint alleged four causes of action. These causes of action were:
a. The Plaintiffs had an interest in a certain piece of property located at 6009 Kalanianaole Highway, and the property is presently and wrongfully in the bankrupt estate.
b. Bernard Pacheco, intentionally, wil-fully, and maliciously assigned the property to the trustee with full knowledge that such an assignment would prejudice and jeopardize the plaintiff’s interest.
c. The trustee conspired in bad faith with Bernard Pacheco to assign the property to the trustee. The property is presently and wrongfully in the bankrupt estate, and held by the trustee without authority of law.
d. The plaintiffs are entitled to punitive damages in the amount of $500,-000.00.
Plaintiff’s prayer for relief stated that the trustee surrender title to the property and, in addition to the $500,000 in punitive damages, the defendants should be jointly and severally liable in the amount of $750,-000 in general damages, plus costs.
4. The complaint was filed on June 18, 1980 and was served upon Bernard Pacheco and Scott Nakagawa, the trustee on June 20, 1980. Defendant Bernard Pacheco acknowledged receipt of the complaint for himself and his attorney.
5. On July 25, 1980, Scott Nakagawa, the trustee in this bankruptcy proceeding, filed an answer to the complaint. The trustee raised several defenses to the complaint. These defenses were:
a. Plaintiff lacked standing to bring the present lawsuit;
b. Plaintiffs alleged interest in the subject property were void;
c. The complaint was barred by res judi-cata;
d. The complaint was barred by collateral estoppel;
*467e. This court lacked jurisdiction over this proceeding.
6. Also on July 25, 1980, the Plaintiffs requested an entry of default against defendant Bernard Pacheco because of his failure to respond, plead, or answer to the complaint. The defendant had twenty days in order to respond. The request for an entry of default was made pursuant to Rule 755(a) of the Federal Rules of Bankruptcy. An entry of default was entered by the clerk of the bankruptcy court.
7. On August 20, 1980, a motion to set aside the entry of default based on Rule 924 of the Federal Rules of Bankruptcy and Rule 60(b)(1) and (6) of the Federal Rules of Civil Procedure was filed by the defendant. Attached to the motion were the affidavits of defendant Bernard Pacheco and his attorney. The affidavit of Bernard Pacheco stated the following reasons for his failure to answer the complaint:
a. The defendant admitted receipt of the complaint for himself and his attorney.
b. His attorney was on the mainland at the time that he received the complaint. The attorney, however, returned to Hawaii on July 2, 1980.
c. The defendant left for Spain on July 5, 1980 and returned to Hawaii on July 18, 1980.
d. Due to his business trip, the defendant failed to give the complaint to his attorney. Also, the defendant failed to read the complaint and did not know an answer was due.
The affidavit of the defendant’s attorney stated:
a. The attorney did not know his client received service of the complaint on his behalf.
b. The attorney was not aware of the complaint until July 27, 1980.
8. On October 2, 1980, the attorney for the plaintiffs filed a memorandum in opposition to the motion to set aside the entry of default.
9. On October 8,1980, a memorandum in support of the motion to set aside the entry of default was filed. Also attached to the memorandum was an answer to the complaint.
10.These Findings of Fact insofar as they are Conclusions of Law, are incorporated herein.
CONCLUSIONS OF LAW
1. With respect to the plaintiffs being granted an entry of default and the present challenge by the defendants to set aside the entry of default, there are certain procedural defects which this court must address.
2. Plaintiffs sought an entry of default pursuant to Rule 755(a) of the Federal Rules of Bankruptcy. Rule 755(a) states:
When a judgment is sought against a party in adversary proceedings and such party has, without sufficient excuse, (1) failed to plead or otherwise defend or, (2) having filed a pleading or motion, is not ready to proceed with trial on the day set therefor in accordance with these rules, the court upon request therefor shall enter a judgment by default, except as provided hereinafter. If, in order to enable the court to enter judgment or to carry it into effect, it is necessary to take an account or to determine the amount of damages or to establish the truth of any averment by evidence or to make an investigation of any other matter, the court may conduct such hearings as it deems necessary and proper. No judgment by default shall be entered against an infant or incompetent person unless represented in the proceeding by a general guardian, committee, conservator, or other such representative who has appeared therein. Immediately on the entry of judgment by default the court shall serve a copy of the judgment by mail in the manner provided by Rule 705 on the party against whom the judgment is entered. The service of such copy shall be noted in the court’s docket. Lack of service of the copy does not affect the time to appeal or relieve or authorize the court to relieve a party for failure to appeal within the time allowed, except as provided by Rule 802.
*4683. Bankruptcy Rule 755 is an adaptation of Rule 55 of the Federal Rules of Civil Procedure. However, the rules are not identical, and the default procedure has been streamlined under Bankruptcy Rule 755. When there is a default in a bankruptcy proceeding, reference is made only to Bankruptcy Rule 755. 13 Collier’s on Bankruptcy § 755.02 (14th ed. 1977).
4. An entry of default and a judgment by default are two distinguishable entries. An entry by default does not constitute a judgment but rather, it is just an order precluding the defaulting party from making any further defense in the case as far as the defendant’s liability is concerned. 6 Moore’s Federal Practice ¶ 55.03[2] (2nd ed. 1976).
5. In the present case, plaintiffs requested and were granted an entry of default by the clerk of the bankruptcy court. However, Plaintiffs to date have not requested this court to enter a default judgment against the Defendant Pacheco.
6. Under Bankruptcy Rule 755(a), the concept of an entry of default has been eliminated. See Advisory Committee’s Note to Rule 755; Trost, Trial Practice Under the New Bankruptcy Rules, 47 Am.Bankr.L.J. Ill (1973), hereinafter cited as Trost article. The proper procedure if a defendant fails to plead or answer, is for the plaintiff to file a motion seeking a default judgment from the court. Only the bankruptcy court, and not the clerk of the bankruptcy court can enter a default judgment. Therefore, the entry of default which the plaintiffs received has no validity since an entry of default is unnecessary and has been eliminated under Bankruptcy Rule 755.
7. The defendant’s motion to set aside the entry of default was also in error. The defendant’s motion to set aside the entry of default was primarily based on Rules 60(b)(1) and 60(b)(6) of the Federal Rules of Civil Procedure. Rule 60 of the Federal Rules of Civil Procedure applies in bankruptcy cases through Bankruptcy Rules § 755(b) and 924. Bankruptcy Rule 755(b) states that “for good cause shown the court may set aside a judgment by default in accordance with Rule 924.” The defendant’s motion based on Rules 60(b)(1) and 60(b)(6) of the Federal Rules of Civil Procedure is inapplicable for the reason that no judgment by default has been entered by this court.
8. Bankruptcy Rule 755 governs where there is a default by a party in a bankruptcy proceeding.
9. Under Bankruptcy Rule 755(a) an entry of default has been eliminated. The proper procedure for a plaintiff is to submit a motion for a default judgment to the court.
10. Since Bankruptcy Rule 755(a) has eliminated the entry of default, such default order has no validity.
11. Therefore, it is unnecessary for this court to consider defendant’s motion to set aside the entry of default.
A Judgment will be signed upon presentment. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489090/ | MEMORANDUM
CHARLES J. MARRO, Bankruptcy Judge.
In this adversary proceeding to avoid a lien under § 522(f) of the Code, a hearing was held.
*529The established facts are as follows:
The Debtors filed a Voluntary Petition for Relief under Chapter 7 of the Bankruptcy Code on February 16, 1981 and listed as one of their assets a residence at Porter’s Point Road which is in Colchester, Vermont, with fee simple title in their both names and with a valuation of $57,500.00. The Schedules also show that the Vermont Federal Savings and Loan Association holds a mortgage on this residence for $37,300.00 and that the Defendant, Connecticut Bank and Trust, has a lien by virtue of a pre-petition judgment against the Debtor, Sherman C. Latulippe, and a post-petition judgment against the Debtor, Harriet M. Latulippe, in the total sum of $7,830.00.
The Debtors have exercised their option to claim the Vermont State Exemptions which include a homestead exemption in their residence on Porter’s Point, Colches-ter, Vermont, under Title 27, Vermont Statutes Annotated § 101 which reads as follows:
“The homestead of a natural person consisting of a dwelling house, outbuildings and the land used in connection therewith, not exceeding $30,000.00 in value, and owned and used or kept by such person as a homestead together with the rents, issues, profits and products thereof, shall be exempt from attachment and execution except as hereinafter provided.”
On December 18, 1978, the Defendant filed suit in State Court in the sum of $5,190.00 against the Debtors, Sherman C. Latulippe and Harriet M. Latulippe, and on July 30, 1979, the Defendant obtained a Writ of Attachment against the property owned by the Debtors in Colchester, Vermont, and occupied by them as a residence. On June 24, 1980, the Vermont Chittenden Superior Court entered Default Judgment against the Debtor, Harriet M. Latulippe, in the sum of $7,829.90, but the case is still pending as to the Debtor, Sherman C. Latu-lippe, who filed an Answer to the Plaintiff’s Complaint in that Court. Under Title 12 of Vermont Statutes Annotated § 2901, a final judgment issued in a civil action shall constitute a lien on any real property of a judgment debtor if recorded as provided in subsequent sections of Title 12. This statute permits a judgment creditor to record a judgment lien at any time within eight years from the date of judgment. It follows, therefore, that the Defendant has obtained a “judicial lien” against the homestead property of the Debtors. See § 101(27) of the Bankruptcy Code which defines a “judicial lien” as one obtained by judgment, levy, sequestration, or other legal or equitable process or proceeding.
The Debtors now seek to avoid this lien under § 522(f) reading as follows:
“Notwithstanding any waiver of exemptions, the debtor may avoid the fixing of a lien on an interest of the debtor in property to the extent that such lien impairs an exemption to which the debtor would have been entitled under subsection (b) of this section, if such lien is— (1) a judicial lien; ...”
It is clear that the judicial lien obtained by the Defendant bank impairs the homestead exemption of the Debtors. Their residence is valued at $57,500.00 and subject to a mortgage in favor of Vermont Federal Savings and Loan Association in the sum of $37,300.00 leaving a balance of $20,200.00 as the homestead exemption to which the debtors are entitled under Vermont Statutes. Even though the debtors chose the state exemptions, the avoiding powers to which they are entitled under § 522(f) apply equally to property such as a residence to the extent that an exemption is allowed by the state. See 3 Collier 15th Edition 522-68 and 522-69.
The Defendant bank argues that the Debtors may not avoid the lien since it was obtained by a judgment rendered 13 months prior to the filing of the Petition for Relief and was perfected as to the Debtor, Harriet M. Latulippe, seven months prior to the filing of the Petition and it further contends that the avoidance of a judgment lien should be restricted to one obtained within the preference period; i. e., 90 days before the filing. There is no basis for this argu*530ment. The statute is clear and it contains no time limitation. Had Congress intended that avoidance be limited to a lien obtained within the preference period it would have incorporated this condition in haec verba in the statute.
The Defendant bank cites In Re Sillani (Bkrtcy.1981), 9 B.R. 188, in support of its position. In Sillani the debtor sought the reopening of the case in order to seek determination that a judgment lien was void but the Court refused to reopen on the grounds that the debtor had failed to suggest any possible basis on which the judgment lien, perfected against real property two years before bankruptcy, could be avoided by the Trustee or any other interested party. The debtor had during the course of a divorce proceeding relinquished his interest in the home to his wife and the transfer of title was approved by the State Court. Having done this he had no title to nor equitable claim of any interest in the property and the house was not property of the estate under § 541 of the Code. The Court pointed out that since the debtor had lost title to the property about five months before bankruptcy the only way that the lien could have been avoided was by the trustee establishing a preference under § 547(b)(4)(B).
Admittedly there are certain cases in which the judicial lien has been avoided on the basis of a preference. But this is only coincidental. In Re Boyd, 11 B.R. 690 (Bkrtcy.1981), cited by the Bank, may be such a case. But it is not apposite.
§ 522(f) clearly permits the debtors to avoid the judicial lien obtained by the Bank. In addition case law supports the position of the debtors. See In Re Butler (Bkrtcy., District of Maryland—1980) 5 B.R. 360, 6 B.C.D. 768; In Re Porter (Bkrtcy.E.D.PA—1980) 7 B.R. 356; In Re Ashe (Bkrtcy.M.D. PA—1981) 10 B.R. 97; In Re Blecker (Bkrtcy.S.D.Fla.—1980) 9 B.R. 31; In Re Naples (D.Conn.1980) CCH § 67442.
The concept of lien avoidance under § 522 of the Code is to protect the debtors from creditors trying to assert rights against exempt property. In the instant case the Defendant bank, even without the Debtors’ filing for relief under the Code, would have no right to levy execution for satisfaction of its judgment lien against the homestead property of the Debtors exempt under state law.
The lien should be avoided.
JUDGMENT AVOIDING LIEN
The Complaint of the Debtors against the Defendant, The Connecticut Bank and Trust Company, to avoid a lien in the approximate sum of $7,830.00 against the residence and homestead of the Debtors having come on for hearing and the issue having been determined by Memorandum of this Court filed August 7, 1981.
It is accordingly
ORDERED, ADJUDGED, AND DECREED that the Judgment Lien obtained by the Defendant bank on June 24, 1980 impairs the homestead exemption of the Debtors and it is hereby cancelled. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489092/ | FINDINGS OF FACT, CONCLUSIONS OF LAW AND MEMORANDUM OPINION
ALEXANDER L. PASKAY, Chief Judge.
THIS IS a Chapter 11 business reorganization case and the matter under consideration is a complaint filed by The Equitable Life Assurance Society of The United States (Equitable Life) which seeks to lift the automatic stay imposed by § 362(a) of the Bankruptcy Code against property owned by the Country Club of Sarasota, Ltd. (the Debtor).
The facts relevant to the resolution of this adversary proceeding can be summarized as follows:
The Debtor is the owner of a partially completed Planned Unit Development (P.U.D.) located in Sarasota, Florida. The property is comprised of 150 single family, unimproved residential lots; an 18 hole golf course with amenity package, i. e. clubhouse and restaurant, swimming pool and tennis courts; and a sewage treatment plant. On April 30, 1980, the Debtor discontinued operations at the Development and ostensibly abandoned the Development leaving it partially completed.
Equitable Life is the holder of a first mortgage encumbering all land and holding of the Debtor and also holds perfected security interests encumbering all equipment and other personal properties owned by the Debtor (Pi’s Exh. # 14).
Equitable Life accelerated the Debtor’s obligations under the notes and mortgages; petitioned the state court and obtained the appointment of two receivers, one for the country club and one for the sewage treatment facility and commenced its foreclosure action.
On March 23, 1981, nearly one year after the first receiver was appointed, the Circuit Court for the 12th Judicial Circuit, Sarasota, Florida entered a judgment of foreclosure in favor of Equitable Life and against the Debtor in the amount of $5,227,162.80 plus interest at the legal rate of 8% (Pi’s Exh. #2). The final judgment was not appealed.
Pursuant to the final judgment, the property was ordered to be sold. The sale was scheduled to be held on May 5,1981 but was never held due to the intervention of the bankruptcy proceedings which was instituted by a petition for relief under Chapter 11 filed by the Debtor on May 4, 1981. In due course, Equitable Life filed its complaint and sought a judgment lifting the automatic stay imposed by § 362 of the Bankruptcy Code.
The Court is satisfied that based on the record as established at the preliminary hearing, the value of the subject property is $5,676,000 less discounts for needed repairs to the sewage treatment plant and equipment; for renovations to the facility including complete resurfacing of Hard-Tru tennis courts; deferred maintenance of the facility; outstanding unpaid real and personal property taxes; commissions and sales costs as well as the value of entrepreneurial profit and the time value of money.
The appraised value is comprised of two elements: The value of the golf club facility, to wit: $1,760,000 and the value of the undeveloped lots if sold at an average price of $44,000, to wit: $3,916,000. Although some evidence was presented by the Debtor *626that the value of the unimproved lots should be appraised substantially higher, the Court is unpersuaded in light of the fact that such sales would be contingent upon the Debtor’s ability to reopen and run the facility making the sales over a substantial period of time and in view of the fact that the Debtor has at present no signed contracts at the proposed higher price.
The Court further finds that the encumberances on the property meet or exceed $6,000,000. Not only is Equitable Life presently owed in excess of $5,320,090, but there are substantial real estate taxes owing (Pi’s Exh. #10) and Court authorized receivership certificates outstanding in excess of $100,000 and other encumberances in excess of $350,000 which includes liens for homeowner’s association maintenance assessments, liens for unpaid sales taxes and various docketed judgments.
The evidence is without dispute that the Debtor has not made any payments since the date of default; that the Debtor, in fact, abandoned the property; permitted the property to deteriorate and since the subject property is the Debtor’s only asset, the Debtor is no longer capable to achieve rehabilitation and would not be in a position to effectuate a reorganization under Chapter 11 of the Bankruptcy Code.
It is Equitable Life’s contention that it is entitled to the removal of the automatic stay either under § 362(d)(1) because of lack of adequate protection, or in the alternative, under § 362(d)(2) because this Debtor has no equity in the property and the property is not necessary for an effective reorganization.
In addition, Equitable Life urges the Court to lift the stay for cause because the Debtor filed its Chapter 11 petition in bad faith on the eve of Equitable Life’s foreclosure sale, solely for the purpose of delay and to thwart the attempt of Equitable Life to satisfy its interest in the property.
In opposition, the Debtor contends that it has equity in the property and can adequately protect Equitable Life’s interest. According to the Debtor, the value ascribed to the property by Equitable Life’s appraiser is too low and in fact the comparable sale selected by the appraiser on which values were partially determined was the “El Conquistador” located in Bradenton, Florida where for the most part property values are less than those obtained in Sarasota, Florida.
In light of the foregoing, this Court is satisfied that the automatic stay should be lifted and that Equitable Life should be permitted to reschedule and complete the foreclosure sale of this property and otherwise enforce its security interest in a court of competent jurisdiction. The Court is further satisfied that Equitable Life established with the requisite degree of proof that the Debtor has no meaningful equity in the property and that the property, while theoretically might be needed for the reorganization, in fact is not because this Debt- or is not in a position to effectuate a reorganization. In addition, the Debtor failed to establish that Equitable Life is adequately protected; that the Debtor is in a position to protect the interest of Equitable either by way of periodic payments or by granting additional replacement liens as permitted by § 361(1), (2).
It, therefore, appears appropriate to have the stay lifted both for cause, § 362(d)(1), and under § 362(d)(2).
A separate final judgment will be entered in accordance with the foregoing. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489093/ | MEMORANDUM DECISION
THOMAS C. BRITTON, Bankruptcy Judge.
Plaintiff seeks a determination that a part of its claim is nondischargeable under 11 U.S.C. § 523(a)(2)(A) and (B). The debtors have answered. (C.P. No. 8). The matter was tried on July 21.
Plaintiff manufactures doors and frames. From 1977 to 1980, it regularly sold doors to the debtors’ family-owned corporation. There was always an account owed to plaintiff and on December 4, 1979, plaintiff required and the debtors furnished a lien against the corporate assets, a personal guarantee of the corporate debt and a personal financial statement. Thereafter *655plaintiff shipped $25,557 worth of goods and received $15,765 in payments, all of which plaintiffs elected to credit toward the corporation’s account outstanding at the time the guarantee and the financial statement were given ($26,196).
The financial statement was prepared and is dated August 10, 1979, though furnished to plaintiff four months later with at least the implied representation that it had not changed materially. It reflected a net worth of $27,850. An accurate financial statement would possibly have reflected a negative net worth.
Section 523(a)(2)(B) excepts from discharge any debt for obtaining property 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 obtaining such money, property, services, or credit reasonably relied; and
(iv) that the debtor caused to be made or published with intent to deceive; ...”
The debtors omitted a $20,000 contingent liability for a S.B.A. loan to their business which they guaranteed. That loan was approved after the preparation of the statement but before it was furnished plaintiff. However, plaintiff had been given all the S.B.A. loan documents including the guarantee. There was no intent to deceive in this omission, nor did plaintiff reasonably rely on this omission.
The statement lists as assets worth a total of $15,700 an automobile, “other personal property” and “other assets”. The items were sold by the wife during the following 12 months for $2,400 while her husband was bed-ridden with a serious illness. These were distress sales not necessarily indicating value and the debtors’ basis for assigning the values they gave were reasonable. The values given were not materially false. Collier on Bankruptcy (15th ed.) ¶ 523.09[a]. Nor do I find any intent to deceive in connection with these items. The fact that debtors omitted substantial assets from their statement and that they made substantial payments after the statement tend to negate any actual intent to deceive the plaintiff.
Additionally, the record before me does not warrant a finding that plaintiff in fact relied upon this statement in extending additional credit after December 4. It seems clear to me that plaintiff’s actual reliance was on the new S.B.A. capital plus its secured status, not the debtors’ personal guarantee, the biggest item of which was their residential trailer ($15,000) which is exempt from the claims of creditors under Florida law. Discounting this unreachable asset and adding the $20,000 contingent liability, there was no effective personal guarantee.
Plaintiff has failed to establish its count under § 523(a)(2)(B).
Some nine months after they received the financial statement and they had denied further credit, plaintiff shipped another order worth $4,576 upon the debtors’ specific oral representation that this shipment would be paid immediately. Plaintiff relied on this representation and although the debtors received payment from their customer for these goods, payment was never made.
Section 523(a)(2)(A) excepts from discharge any debt for obtaining property by:
“false pretenses, a false representation, or actual fraud, other than a statement respecting the debtor’s or an insider’s financial condition; ...”
However, it is well-settled that:
“A mere promise to be executed in the future is not sufficient to make a debt nondischargeable, even though there is no excuse for the subsequent breach.” Collier on Bankruptcy (15th ed.) ¶ 523.08[4], n. 17.
There is no basis in the record before me to find that the debtors had no intention of paying at the time their representation was made. There is no misrepresentation here and plaintiff has not supported its count under § 523(a)(2)(A).
It follows that the complaint must be dismissed. As is required by B.R. 921(a), a *656separate judgment will be entered to that effect. Costs will be taxed on motion. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489094/ | OPINION AND DECISION
BERT GOLDWATER, Bankruptcy Judge.
This is an adversary action seeking the nondischargeability of a judgment upon a jury verdict for $23,500, $10,000 of which was for punitive damages, under 11 U.S.C. § 523(a).
In Nevada punitive damages are allowed under N.R.S. 42.010 as follows:
In an action for the breach of an obligation not arising from contract, where the defendant has been guilty of oppression, fraud or malice, express or implied, the plaintiff, in addition to the actual damages, may recover damages for the sake of example and by way of punishing the defendant.
A motion for summary judgment was denied because the verdict did not state the ground of the judgment for punitive damages.
The bankruptcy court has exclusive jurisdiction to determine the dischargeability of a debt, 11 U.S.C. § 523(c), but the bankruptcy court may adopt the findings of another court if the findings are clearly on the issue. In the absence of a specific finding, the matter was retried here to determine if there was an exception to discharge under 11 U.S.C. § 523(a).
Plaintiff and defendant were longtime friends before defendant was licensed as a real estate broker-salesman. When defendant became licensed, he solicited plaintiff to sell her home through his real estate office and promised plaintiff that he would do everything he could to help her find another house including co-signing to *657help her qualify. At first plaintiff refused but later listed her house for sale upon the condition that no sale be concluded unless plaintiff found and qualified for the purchase of another larger house. The house was listed for sale in a multiple listing service available to all brokers with plaintiff’s contingency that it was conditioned upon plaintiff as seller obtaining another house.
A contract for sale of the house was made through another broker but failed to state the contingency. Before signing the contract as seller, plaintiff met with the selling broker and defendant. She knew of the omission and remarked as to its absence. Her inquiry to the selling broker was referred to defendant. Defendant did not answer aloud but appeared to acknowledge the inquiry. Plaintiff was then told by the selling broker that “your broker will take care of it.” Plaintiff signed the agreement of sale expecting the contingency would be provided in additional documents.
Plaintiff was unable to find another larger home for which she could qualify as buyer. Defendant refused to participate as co-signer with plaintiff in three homes which plaintiff located for purchase and he gave her no aid or assistance in finding another house.
When plaintiff was told that the buyers were ready to close escrow and that she would have to vacate the premises, she refused to complete the escrow. Plaintiff was sued by the buyers and brought a third-party complaint against defendant. She alleged five claims for relief, two sounding in negligence, two in contract, and one in fraud based upon defendant’s breach of fiduciary duty to her as a licensed broker.
Plaintiff’s testimony was that she was “done wrong” because “a broker should be honest and truthful.” She said she trusted him. Her entire case in this court was that defendant had breached his trust as a friend and as a real estate broker.
Clearly, plaintiff pleaded and sought to prove an exception to discharge under 11 U.S.C. § 528(a)(4):
(a) A discharge under section 727,1141, or 1328(b) of this title does not discharge an individual debtor from any debt—
(4) for fraud or defalcation while acting in a fiduciary capacity, embezzlement, or larceny;
No actual fraud was pleaded or proven. Plaintiff signed the contract of sale knowing the contingency that she first obtain another home was not included. She simply trusted and relied upon defendant to see to her protection as a condition in that regard.
Additionally, even though there is no question that defendant breached his duty as a real estate broker-salesman when he failed to protect plaintiff’s conditional listing, Section 523(a)(4) insofar as it relates to a debtor acting in a fiduciary capacity does not apply to real estate brokers. The rule is long standing.
The qualification that the debtor be acting in a fiduciary capacity has consistently, since its appearance in the Act of 1841, been limited in its application to what may be described as technical or express trusts, and not to trusts ex male-ficio that may be imposed because of the very act of wrongdoing out of which the contested debt arose. There is no reason to believe that section 523(a)(4) will be construed otherwise. Thus, unless there be some additional fact, section 523(a)(4), insofar as it relates to a debtor acting in a fiduciary capacity, does not apply to frauds of agents, bailees, brokers, factors, partners, and other persons similarly situated. Also, the commonplace frauds of the ordinary debtor in disposing of his property so as to hinder, delay, or defraud his creditors are not within clause (4). Nor does the phrase “in a fiduciary capacity” include or apply to trusts which are merely implied by law from contracts.
3 Collier on Bankruptcy 523-99-523-102 (15th ed. 1980)
Plaintiff has failed to bring the state court judgment or the jury verdict within any exception in the Code. Let judgment be entered that plaintiff’s claim is discharged. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489095/ | MEMORANDUM OPINION ON MOTION FOR SUMMARY JUDGMENT
ALEXANDER L. PASKAY, Chief Judge.
THE MATTER under consideration is a Motion for Summary Judgment filed by the Defendant, Port Charlotte Bank and Trust Company (the Bank) who filed a cross claim against co-defendant, The W. W. Williams Co. of Florida, Inc. (Williams) in the above-captioned adversary proceeding. The Motion for Summary Judgment is based on FRCP 56 as adopted by Bankruptcy Rule 756 and seeks a judgment as a matter of law with respect to two bank accounts presently frozen in its bank. T & B General Contracting Co., Inc. (T & B), the Debtor, is the holder of the two accounts but makes no claim to the funds in question, the Bank’s motion is opposed by Williams.
The Court is satisfied that the Motion can be disposed of as a matter of law based upon the undisputed facts which are as follows:
T & B, prior to filing its Chapter XI petition in this Court, maintained two bank accounts in the Port Charlotte Bank. Account # 05-289-9 was a general operating account and has a present balance of $20,809.06. Account # 09-229-0 was dissipated as a payroll account and has a present balance of $184.96. Williams, a judgment creditor of T & B, served a writ of garnishment on the Bank with respect to the two T & B accounts. The Bank, who holds several secured notes of T & B, elected to treat the entry of a judgment against T & B under the terms of the notes and security agreements, as a default and proceeded to accelerate the note’s maturity, and set-off its claim against the two accounts.
It is undisputed that there was, and still is, a mutual debtor-creditor relationship between the Bank and T & B. It is further undisputed that both the service of the writ of garnishment by Williams and the Bank’s answer pursuant to Fla.Stat. Chapter 77, claiming set-off, occurred pre-petition. In addition, as noted earlier, for the purposes of this Motion, T & B nor any other party claims any interest in these two accounts.
It is the Bank’s contention that by virtue of specific terms of the notes and the security agreement executed by T & B in its favor, the entry of the judgment against T & B was a “default” under the security agreement, which in turn authorized the Bank to accelerate the notes and cause the obligations under the notes to mature. This being the case, so contends the Bank, it had a right to exercise its common law and contractual right of set-off against the two accounts. In anticipation of a challenge on its right of set-off, the Bank also contends that whether or not T & B was given a notice prior to the acceleration of its indebtedness is of no consequence because this alleged defect has been waived by Williams who never referred to a lack of notice in its answer, affirmative defenses and neither filed a controverting affidavit in the garnishment proceedings.
*688It is Williams’ position that its writ of garnishment must be honored and the writ defeats any right of set-off by the Bank because the writ of garnishment was obtained and served on the Bank before the Bank exercised its right of set-off. In addition, although not formally presented, it is intimated by Williams that the Bank could not exercise its right of set-off because the obligation of T & B to the Bank did not mature at the time the writ of garnishment was served because the Bank did not notify T & B of the acceleration.
Having considered the arguments of counsel for the respective parties, the affidavits and briefs in support of their contentions, the Court is satisfied that the Bank is entitled to its Motion for Summary Judgment as a matter of law.
Considering first the issue of whether a garnishing creditor could defeat a garnishee bank who elects to set-off a mutual and matured debt, the Court is satisfied that priorities are not determined by whether the service of the writ precedes the election to set-off, or vice versa. 6 Am. Jur.2d, Attachment and Garnishment, § 374, citing, Aarons v. Public Service Building & Loan Association, 318 Pa. 113, 178 A. 141 (1935); Coyle v. Pan American Bank of Miami, 377 So.2d 213 (Fla. 3d DCA 1979). In addition, it is not necessary that a bank even make book entries prior to the service of the writ. 6 Am.Jur.2d, Attachment and Garnishment, § 374.
The Court is further satisfied that, under the law of this State, the event or default, which triggers the maturity of the debt is not limited to the obligor’s failure to make timely payment, rather it can be a bargained for element of the agreement of the parties. Barsco Inc. v. H. W. W., Inc., 346 So.2d 134 (Fla. 1st DCA 1977). In Barsco, supra the garnishing creditor contended that the trial court’s entry of summary judgment in favor of the garnishee was improper because the note which evidenced an obligation owed by the debtor to the garnishee was not yet mature at the time of the service of the garnishment writ and, therefore, the garnishee could not exercise a claimed right of set-off. The Court acknowledged the existence of a line of cases which requires that the garnishee must take affirmative action to accelerate the debtor’s obligation, but found those cases inapposite when the parties have entered into an agreement which provides for the right of set-off under default. The Court went on to conclude that even though the Debtor was current on its obligation to the garnishee, a default under the parties security agreement unrelated to payment triggered the maturity of the obligation.
In Florida, the law is clear that the garnishing creditor only steps into the shoes of a debtor and may only assert against a garnishee, such rights as could have been asserted by the debtor in the first instance. Reeves v. Tulle’s and Associates, Inc., 305 So.2d 813 (Fla. 1st DCA 1975).
In the present instance this Court is satisfied that the notes and security agreements gave the Bank a right of set-off in the event of a default by T & B. The security agreement also provides that entry of a judgment against the obligor, i. e. T & B is deemed to be a default, which was properly exercised in this present instance. The Court is further satisfied that even in the absence of such an agreement, lack of notice to T & B is not in issue inasmuch as it has not been raised by the pleadings or affidavits of Williams and is, therefore, waived as an affirmative defense to the Motion for Summary Judgment.
This leaves for consideration the question whether or not the right of set-off is proper with respect to the T & B payroll account as well. Under Florida law if the T & B payroll account constituted a special account, it would not be subject to set-off by the Bank because it is not a special account set up to satisfy T & B’s indebtedness to the Bank. Coyle v. Pan American Bank of Miami, supra. The Court is satisfied that in the present instance the monies in the T & B payroll account were not segregated from the general funds of the Bank. Thus, the Court is satisfied that the T & B payroll account was a general *689account even though identified as a special account subject to the Bank’s prepetition right of set-off. Coyle, supra at 216.
A separate final summary judgment will be entered in accordance with the foregoing. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489096/ | MEMORANDUM AND CONCLUSIONS
CHARLES J. MARRO, Bankruptcy Judge.
This is an adversary proceeding in which the Plaintiff objects to the discharge of the debtor pursuant to § 727(a)(5) under which the Plaintiff claims that the Debtor has failed to explain satisfactorily any loss of assets or deficiency of assets to meet the debtor’s liabilities. Specifically, the Plaintiff claims that the Debtor has not satisfactorily explained the loss of a 1970 International Scout which allegedly was security for a loan from the Plaintiff to the Debtor. In the alternative the Plaintiff seeks to have declared non-dischargeable the debt of the Debtor to the Plaintiff on the grounds that pursuant to § 523(a)(2)(A) of the Bankruptcy Code the Debtor obtained money under false pretenses in that he had listed in the note one 1970 International Scout as collateral when in fact it had allegedly been transferred at the time that the Debtor procured the loan from the Plaintiff.
The Debtor filed a Voluntary Petition for Relief under Chapter 7 of the Bankruptcy Code on June 18, 1981 and in his Schedules he listed the Merchants Bank as an unsecured creditor by virtue of two promissory notes in the sums of $4,433.66 and $527.44. The 1970 International Scout is not listed as an asset.
On January 23,1981, the Debtor executed and delivered to the Plaintiff a promissory note in the total sum of $5,770.44 and this note represented a consolidation loan which was handled by David J. Keefe as loan officer of the Plaintiff. He filled in all of the data relating to the terms of the note and it was signed by the Debtor and his wife, Debra R. Walker. The note contained a space for description of collateral. The Debtor at the time of closing the loan was handed a copy of the note and the place indicated for description of collateral was blank. However, at the time of the hearing the original note in the sum of $5,770.44 was admitted as an exhibit and the words “1970 International Scout” appeared in the space for description of collateral. Loan Officer Keefe admitted that he did not *692write in the 1970 International Scout as collateral for the note and he could not explain how or when this had been done.
At the time of the execution of the note, as a matter of fact, the Debtor did not own a 1970 International Scout but had disposed of it about a year before the note was executed. There was no intention on his part to give the Bank the Scout as collateral for the loan. He had on November 15, 1979 executed and delivered to the Plaintiff a security agreement granting the Plaintiff a security interest in a 1970 International Scout to secure payment of a note dated 11/15/79 in the principal sum of $3,675.37 and also to secure “also any and all other liabilities of Debtor to the Lender, direct or indirect, absolute or contingent, due or to become due, now existing or hereafter arising.”
At that time the Debtor did own a 1970 International Scout but he subsequently got rid of this collateral and he does not remember if he notified a representative of the bank at the time that he disposed of the International Scout. Any balance owing on the loan securing the Scout was consolidated in the note dated January 23, 1981.
CONCLUSIONS
It is apparent from the testimony adduced at the hearing that the Debtor had no intention to pledge the 1970 International Scout as security for the consolidation loan of January 23, 1981. It seems fair to conclude that some representative of the bank filled in the space for description of collateral sometime after the note was executed and delivered to the Plaintiff. This apparently was done on the basis of the prior security agreement which must have been in the files of the Bank, and its representative decided to carry over the security as collateral for the January 23, 1981 note. The Debtor had no intention whatsoever to deceive the Bank.
From the evidence it is clear that the Debtor satisfactorily explained the disposition of the 1970 International Scout and, therefore, the objection to the discharge based on § 727(a)(5) of the Code fails. It is also apparent that the Debtor did not obtain any money from the Bank under false pretenses or false representations pursuant to § 523(a)(2)(A) of the Code. The frauds included in this portion of the Code are those which involve moral turpitude or intentional wrong; fraud implied in law which may exist without imputation of bad faith or immorality is insufficient. It must further affirmatively appear that such representations were knowingly and fraudulently made and that they were relied upon by the other party. 3 Collier 15th Edition 523-39 and 523-40 § 523.08(4).
The Courts, under § 17(a) of the Bankruptcy Act, the forerunner of § 523 under the Code and couched in the same language, have uniformly construed that false pretenses or false representations entail frauds which involve moral turpitude or intentional wrong and not those implied in law. Underwood v. Ajax Rubber Company, Inc., 296 S.W. 964, 11 Am.B.R. (N.S.) 488; In the Matter of Noble, 42 F.Supp. 684,48 Am.B.R. (N.S.) 391. See also cases cited under Note 12 3 Col. 15th Ed. 523-39.
The Plaintiff has failed to sustain its burden both as to the objection to discharge and its Complaint to determine discharge-ability. This action should be dismissed. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489097/ | ORDER RE: MOTION TO AMEND JUDGMENT
JON J. CHINEN, Bankruptcy Judge.
On June 25, 1981, Investment Mortgage Incorporated, hereafter “IMI”, filed a Motion to Amend Judgment, wherein it sought to amend the judgment filed herein on June 19, 1981 by deleting paragraphs (2) and (4) therefrom, and adding a provision that Plaintiff be ordered to pay to IMI attorney’s fees and costs as may subsequently be determined by this Court.
A hearing was held on the Motion on July 15, 1981, at which time William J. Shannon represented IMI and Diane D. Hastert represented Waikiki Hobron Associates, hereafter “WHA”. Based upon the arguments of counsel, the records and memoranda filed herein, the Court finds as follows:
1.Paragraph (2) of the Judgment reads:
(2) The Mortgage by and between Domain Corporation, as attorney-in-fact for Waikiki Hobron Associates, a Hawaii Limited Partnership, and IMI, dated September 15, 1978, securing the aforesaid note in the amount of $1.8 million, filed on January 26, 1979, in the Office of the Assistant Registrar of the Land Court of the State of Hawaii as Document No. 920539, and noted on Transfer Certificates of Title Nos. 200,592, 200,953 and 201,717, is declared null and void and is hereby cancelled. The Assistant Registrar of the Land Court of the State of Hawaii is instructed to note said cancellation of said mortgage noted on Transfer Certificates of Title Nos. 200,592, 200,953 and 201,717 by appropriate reference to this order;
2. Paragraph (45) of the Findings of Fact provides in pertinent part as follows:
On or about October 5, 1979, while in San Francisco, Fujinaga executed a $1.9 million mortgage in favor of IMI to secure payment of the fees recited in the Note and the F & S Agreement. (Emphasis added.)
In its Conclusions of Law, after reciting in Paragraph 13 the legal basis for its ruling that no additional fees are owed by WHA to IMI, this Court concluded at paragraph 81 that “... IMI is not entitled to the $1.8 million fee.” Thus, Paragraph (2) of the Judgment, providing that the IMI mortgage executed to secure the fees evidenced by the note is null and void, is consistent with and supported by the above-referenced Findings of Fact and Conclusions of Law.
3. In its Conclusions of Law and in paragraph (1) of the Judgment, the Court extinguished all of the alleged obligation of WHA to IMI on the Fee & Security Agreement, hereafter “F & S Agreement”, and the promissory note. As recited at paragraph (45) of the Findings of Fact, the sole basis for the IMI mortgage was to secure payment of fees recited in the F & S Agreement and evidenced by the promissory note. IMI in its own Trial Memorandum filed *702herein on August 1,1980, stated that “[t]he Mortgage merely secured the debt created by the Note.” (Emphasis added.) Accordingly, there can be no conceivable grounds for permitting the mortgage to continue to exist.
4. IMI asserts in its Supplemental Memorandum in Support of Motion to Amend Judgment that the Court failed to rule on its claim for quantum meruit and that the mortgage should be permitted to exist until that claim is satisfied. This argument ignores the fact that the Court has extinguished any debt on the part of WHA to IMI, effectively ruling that defendant’s quantum meruit claim is without merit.
5. Rules of Bankruptcy Procedure 752 requires that the Court issue Findings of Fact and Conclusions of Law, followed by formal judgment in accordance with Rules of Bankruptcy Procedure 921.
6. Judgment is to be entered consistent with the Findings of Fact and Conclusions of Law. A trial court, however, is not required to enter conclusions on each and every issue of law in order to support its judgment. Duff v. Duff, 256 Cal.App.2d 781, 64 Cal.Rptr. 604, 607 (1967). In that case the trial court entered judgment for the plaintiff, but failed to enter a specific conclusion respecting an asserted statute of limitation defense. The appellate court stated that a judgment will not be set aside for failure to make a specific finding when the judgment “results by necessary implication from the express findings made.” Id. 64 Cal.Rptr. at 607-08. The “implied finding rule” does require findings as to all material facts sufficient to support a judgment. Id. 64 Cal.Rptr. at 608.
7. In the instant case, in finding that IMI’s claim was based on a personal services contract, the fees of which were evidenced by a promissory note secured by a mortgage, and that the obligations under that contract were extinguished, the Court has ruled by necessary implication that the mortgage is null and void and should be cancelled.
8. IMI further argues that paragraph (2)of the Judgment is in error because plaintiff’s complaint respecting the issue of condition precedent (Count IV) and its Proposed Findings of Fact and Conclusions of Law addressing Count IV did not pray specifically that the mortgage be declared null and void. Count IV sought to extinguish any obligation based on the F & S Agreement. Once the obligation was extinguished, the mortgage securing it would be voided accordingly.
9. Even if this Court were to determine that plaintiff’s prayer for relief respecting Count IV should have included a specific request that the mortgage be declared null and void, a trial court can grant relief to which a party is entitled under the evidence adduced, even if the party has not explicitly demanded such relief in its pleadings. Fed.R.Civ.P. 54(c). See also Roach Aircraft, Inc. v. Sable, 513 P.2d 244, 247 (Colo.App.1973); Baideviso v. Thompson, 54 Hawaii 125, 504 P.2d 1217, 1223 (1972); England v. Valley National Bank of Phoenix, 94 Ariz. 267, 383 P.2d 183, 184 (1963).
Based on the foregoing, this Court finds that Paragraph (2) of the Judgment declaring the IMI mortgage null and void should not be amended, and plaintiff should be permitted to have the mortgage expunged forthwith.
10. Paragraph (4) of the Judgment reads as follows:
(4)IMI is ordered to pay to the plaintiff reasonable attorney’s fees and costs as may be subsequently determined by this Court.
11. In the Findings of Fact and Conclusions of Law filed on May 29, 1981, there is no reference to attorney’s fees being paid by either party. Although WHA’s proposed Findings of Fact and Conclusions of Law contained a provision for the payment of attorneys fees by IMI to WHA, this Court did not adopt the suggested provision. Thus, Paragraph 4 should be and is deleted from the Judgment.
12. IMI contends that, by virtue of Paragraph IV.B. of the F & S Agreement, *703it is entitled to attorney’s fees. Said Paragraph IV.B. provides as follows:
Developer agrees to indemnify and hold IMI harmless from any and all claims arising from the execution of this agreement, and to indemnify and hold IMI harmless from any and all costs, including attorney’s fees, incurred by IMI by reason of the execution of this agreement.
13. IMI had not previously asserted a claim for indemnification. It did not assert such a claim in its Answer to the Third Amended Complaint filed on March 27, 1980.
14. Fed.R.Civ.P. 8(a), made applicable in this proceeding by Rules of Bankruptcy Procedure 708, provides as follows:
A pleading which sets forth a claim for relief, whether an original claim, counterclaim, cross-claim, or third-party claim, shall contain (1) a short and plain statement of the grounds upon which the court’s jurisdiction depends, unless the court already has jurisdiction and the claim needs no new grounds of jurisdiction to support it, (2) a short and plain statement of the claim showing that the pleader is entitled to relief, and (3) a demand for judgment for the relief to which he deems himself entitled. Relief in the alternative or of several different types may be demanded. (Emphasis added).
15. No pleading filed by IMI in this action mentions an indemnification agreement, much less stating a claim in compliance with the requirements of the above-quoted Rule. IMI has failed to state any claim at all, much less one upon which relief could be granted and to which WHA has had an opportunity to respond.
16. Fed.R.Civ.P. 8(f) provides that “[a]ll pleadings shall be so construed as to do substantial justice.” The pleadings in this matter should be construed so as to prohibit IMI’s tardy claim, inasmuch as there has been no compliance with the well-established rules regarding the statement and presentation of claims.
17. IMI is prohibited by the rules from attempting to present its claim at this time. Fed.R.Civ.P. 13(a), made applicable in bankruptcy by Rules of Bankruptcy Procedure 713, provides in pertinent part as follows regarding compulsory counterclaims:
A pleading shall state as a counterclaim any claim which at the time of serving the pleading the pleader has against any opposing party, if it arises out of the transaction or occurrence that is the subject matter of the opposing party’s claim and does not require for its adjudication the presence of third parties of whom the court cannot acquire jurisdiction. (Emphasis added.)
IMI’s belated attempt to assert a claim for indemnification is subject to the compulsory counterclaim rule.
18. For procedural purposes a claim for indemnification is ripe for adjudication and may be tendered in a pending action in which primary liability is being adjudicated. Atlantic Aviation Corp. v. Estate of Costas, 332 F.Supp. 1002, 1977 (E.D.N.Y.1971).
19. The district court further noted that a defendant’s claim against a plaintiff on an alleged indemnification agreement between them is within the compulsory counterclaim language quoted above. Id. at 1007.
[A claim for indemnification is] ... within the precise language of Rule 13(a), [because] it was a litigable claim which at the time of the serving of the pleading, the pleader had against an opposing party, it arose out of the transaction or occurrence that was the subject matter of the opposing party’s claim, and it did not require for its adjudication the presence of third parties over whom the court could not acquire jurisdiction. In other words, here, and generally, a elaimover is, if it exists in behalf of a primary defendant against the plaintiff, precisely within the definition of counterclaim, and it is a presently litigable claim. Id.
Similarly, in Mobile Power Enterprises, Inc. v. Power Vac, Inc., 496 F.2d 1311, 1312-13 (10th Cir. 1974), a trial court was found to have awarded erroneously costs to a prevailing defendant because he had failed to assert a claim for indemnification by way of counterclaim.
*70420. IMI presented no evidence respecting the validity or application of the alleged indemnification agreement. Therefore, its proposed amendment to the judgment would have no basis whatsoever in the evidence before this Court.
21. In addition, WHA was not given an opportunity to defend against any claim for indemnification based on the indemnification provision in the F & S Agreement.
22. Finally, in no event is it conceivable that a court of equity could award attorney’s fees to a losing party, and IMI has presented no legal authority to support its contention in these circumstances. It is beyond reason that a prevailing party, having been put to enormous cost and effort to establish its position, should be required to pay a losing party for the trouble it has caused.
23. Thus, there is no basis to add a provision to the Amendment concerning payment of fees to IMI.
IT IS HEREBY ORDERED that
1. The Motion to Amend Paragraph (2) of the Judgment is denied.
2. The Motion to Amend Paragraph (4) of the Judgment is granted.
3. IMI is not entitled to attorney’s fees and costs. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489099/ | MEMORANDUM DECISION
THOMAS C. BRITTON, Bankruptcy Judge.
The debtors’ complaint seeks the avoidance of defendant's lien under 11 U.S.C. § 522(f)(2)(A). The defendant has answered. (C.P. No. 5). The matter was tried before me on August 18.
The facts are undisputed. Defendant concedes that if its lien had been perfected after the effective date of the Bankruptcy Reform Act of 1978, October 1,1979, its lien is voidable under the provisions of § 522(f)(2)(A). However, it is also undisputed that defendant’s loan was made and its lien was perfected during the gap period between the enactment of the Bankruptcy Reform Act, November 6, 1978, and its effective date almost one year later, and defendant argues that for this reason the statute in question cannot constitutionally be applied to this defendant.
I disagree.
The question presented by defendant has produced a flurry of Bankruptcy Court decisions, almost all of which have concluded that the application of § 522(f) to liens perfected during the gap period between enactment and the effective date of the Reform Act present no serious legal question. The Bankruptcy Court decisions are divided as to whether this section may constitutionally be applied to liens perfected before the enactment of the Reform Act. The only reported decision on this point at the circuit level at this moment is Rodrock v. Security Industrial Bank, 10 Cir. 1981, 642 F.2d 1193. The Tenth Circuit held that § 522(f) cannot constitutionally be applied to security interests which came into being before the enactment date of the Reform Act. In reaching that conclusion, the court found that:
“Congress intended for substantive provisions of the Reform Act, such as Section 522(f)(2), to be given retroactive effect to the end that such statutory provisions govern security interests that came into being before the effective date of the Reform Act.” (At p. 1197)
The prohibition against the impairment of contracts contained in Article I, Section 10, clause 1, of the Constitution applies only to states and not Congress. The constitutional question, therefore, is whether the Fifth Amendment Due Process Clause invalidates the retroactive application of a statute to contractual rights which have vested before the statute. Continental Bank v. Rock Island Railway, 294 U.S. 648, 680, 55 S.Ct. 595, 608, 79 L.Ed. 1110 (1934). That principle is applicable, if at all, only to the retroactive effect of federal statutes before the enactment of those statutes. This is so because every contracting party is presumed to know the law and to have acted with full notice of the law. Although this premise is frequently unrealistic, the alternative premise would be chaotic. As I see it, therefore, there is no question as to the applicability of § 522(f) to the defendant’s lien in this case.
I have not overlooked the requirement of 28 U.S.C. § 2403 that notice be given the Attorney General of any action “wherein the constitutionality of any Act of Congress affecting the public interest is drawn in question.” No such notice has been given. Because of the conclusion reached, I will *743not delay this matter further to invite the Attorney General’s intervention. His intervention is authorized in the event of an appeal. Wallach v. Lieberman, 2 Cir. 1966, 366 F.2d 254; Thatcher v. Tennessee Gas Transmission Co., 5 Cir. 1950, 180 F.2d 644, cert. den. 340 U.S. 829, 71 S.Ct. 66, 95 L.Ed. 609.
As is required by B.R. 921(a), a separate judgment will be entered voiding defendant’s lien. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489100/ | OPINION ON PETITION TO LIFT STAY, FOR DECLARATION OF CERTAIN DEBTS AS NON-DISCHARGEABLE AND FOR OTHER RELIEF
RODNEY R. STEELE, Bankruptcy Judge.
On June 25, 1981, plaintiff filed a complaint to have this Court determine that *760certain debts owed by the defendant-debtor Beach to the plaintiff were non-dischargea-ble, and to further authorize the lifting of the automatic stay to authorize the plaintiff to proceed in a certain action filed by it against the defendant Beach in the Circuit Court of Montgomery County, Alabama, to liquidate and recover on such debts alleged to be non-dischargeable.
By a Summons and Notice of Trial entered on July 6,1981, the complaint was set to be heard at Montgomery on July 16, 1981. Notice was supplied to the debtor and his attorney, to the trustee, and to the plaintiff’s attorney.
On July 10, 1981, the debtor-defendant answered denying that he was guilty of any misconduct which would make any debts due to the plaintiff nondischargeable, and alleged that the debt was dischargeable.
On July 16, 1981, the parties expressed a desire to have the Court treat the hearing as a pre-trial hearing, and it was so treated and a new trial date was set of August 17, 1981.
On July 24, 1981, the Reliance Insurance Company, a bondsman for Jerry A. Beach in his capacity as a guardian, filed an answer to the complaint of the Alabama National Bank in this case, but at the time of trial in this matter, withdrew its answer in open court. See the withdrawal of answer filed on August 26, 1981.
The complaint came on for hearing on August 17, 1981. Testimony was taken from the defendant-debtor Beach, and from Cary Slay, trust officer of the Alabama National Bank. Exhibits offered and admitted into evidence were plaintiff’s exhibits one through seven. Exhibit Number 1 is a copy of the record of state court proceedings involving Jerry A. Beach as guardian for his two minor children and certain court proceedings instituted on behalf of the wards of Beach as guardian for the recovery of certain property and the imposition of a trust on that property for the benefit of the wards.
The matter was on August 17, 1981, submitted upon the testimony and other evidence taken, and upon the filing of briefs and citations to authority.
ISSUES PRESENTED
The complaint sets out that Jerry Beach, this debtor-defendant was a duly appointed guardian for his two minor children and that he held and managed certain property of those wards for their benefit, and that he owed the guardianship estate of his wards certain moneys which he had failed to pay, and which he as guardian had failed to collect and account for, and that such debts were non-dischargeable in his bankruptcy proceeding here, because, in the first place they were debts incurred through false pretenses, a false representation or actual fraud, and on the other hand that they were debts for fraud or defalcation while acting in a fiduciary capacity. See Sections 523(a)(2)(A) and 523(a)(4) of the Bankruptcy Code of 1978 (11 U.S.C. § 523).
Specifically, the allegations are that debt- or-defendant was guilty of false pretense and false representations or actual fraud when he individually leased approximately one thousand acres of land belonging to his children, from himself as guardian for those same children, his wards, and at the time of entering upon the lease of that land the defendant Beach did not intend to or knew that he could not pay all of the rental installments to himself as guardian as they became due.
Specifically, as to the claimed debt under Section 523(a)(4), it is alleged that Beach, as guardian of his two children, James Anderson Beach and Bobbie Elizabeth Beach, was guilty of defalcation in failing to take reasonable steps to protect, preserve and invest the guardianship property to reduce losses and to recover moneys owed on the guardianship account, and by otherwise wasting the guardianship property and neglecting the affairs of the guardianship.
FINDINGS
Jimmy Lee Crenshaw died in about 1973. He died owning considerable real estate, and by his last will and testament provided, at paragraph eight as follows:
*761I give, devise and bequeath to my wife, Annie J. Crenshaw, FOR HER LIFE ONLY, the tract of land of approximately 2,000 acres known as my home place. This 2,000 acres is located in Lowndes County, Alabama, on one tract on the west side of U. S. Highway # 31, opposite my old residence. I have recently constructed a new home on this 2,000 acre tract.
At the death of my wife, Annie J. Cren-shaw, I give, devise and bequeath the above described property in fee simple to the then living children of Nita Beach, the niece of my wife, Annie J. Cren-shaw. ..
Nita Beach was the wife of Jerry Beach. They have two children, James Anderson Beach and Bobbie Elizabeth Beach, both minors.
Jerry Beach was appointed as guardian for his two minor children, and he obtained an order from the Circuit Court of Montgomery County, Alabama, on October 9, 1975, to cut the timber from the two thousand acres, to apply the proceeds from the cutting of the timber to the purchase of an additional tract of land of approximately one thousand acres, known as the Powell Property.
Beach, as guardian, then arranged to have the timber cut on the two thousand acres, and with the proceeds purchased the Powell Property in the name of his two wards, James Anderson Beach and Bobbie Elizabeth Beach.
By the same Order of October 9, 1975, Jerry A. Beach leased the Powell Property together with one Thomas Sansom, Jr., for the sum of five thousand dollars per year. And in December of 1975, Beach entered into possession as tenant of the Powell Property, and remained in possession for three years until December of 1978. Rentals for these years were due annually in arrears in December of 1976,1977 and 1978. Beach remained in possession of the property for the three-year period and maintained a cattle farm on that property. He thus owed $15,000 to himself as guardian, from whom he had leased the property. He paid only the first five thousand dollars rent due in December of 1976. He owes a balance of ten thousand dollars for rent due in December of 1977 and December of 1978.
The money was due to be paid by him to himself as guardian and accounted for in the guardianship account.
The lease arrangement is now terminated as between Jerry A. Beach, individually, and Jerry A. Beach as guardian of his two minor children.
In the guardianship proceedings in the Circuit Court of Montgomery County, Alabama, the debtor, Jerry A. Beach as an individual has been found liable for the rentals not paid to himself as guardian.
A separate proceeding in the Circuit Court of Montgomery County, Alabama, seeks to impose liability upon Beach as guardian and upon his guardian’s bondsman for failure to faithfully perform the duties of guardian.
The application in this Court is to determine whether the individual liability of Beach to pay rent, determined by the Circuit Court of Montgomery County, Alabama, in its Order of October 29,1980, to be a judgment debt is dischargeable in bankruptcy under 523(a)(2)(A).
The present application also seeks to have this Court determine whether the liability sought to be imposed upon Beach as guardian in the pending suit in the Circuit Court of Montgomery County, Alabama, is a dis-chargeable debt under Section 523(a)(4) of the Bankruptcy Code.
The Circuit Court of Montgomery County, in the accounting required of the guardian and in the appointment of a trustee to preserve the interest of the wards as re-maindermen and legatees under the will of Crenshaw, set out in that Court’s Order of October 29, 1980, made certain conclusions of law pertinent to the findings of fact in this case.
The Court in that Order of October 29, 1980, held that the remainder interest of James Anderson Beach and Bobbie Elizabeth Beach, the children of Nita Beach, *762living at the time of the death of Crenshaw, were contingent and vested no present interest in them. The wording of the will, it was concluded, created a life estate for the life of the widow, with a contingent remainder interest over to certain unascer-tainable persons, namely those who might be born after the death of Crenshaw and before the death of his wife, and the possibility that James Anderson Beach and Bobbie Elizabeth Beach might die before the death of the widow.
That Court also concluded in its Order that since the Powell Property had been purchased with proceeds from the timber sales from the two thousand acres, it was proceeds from the sale of property in which contingent remaindermen had an interest, and that the Powell Property, directly traceable to those timber proceeds, should be vested in a trustee for the benefit of all contingent remaindermen or residuary legatees under the will of Crenshaw. That trustee should also recover all rents and profit derived from the Powell Property to be held for distribution to those remainder-men who might be living and capable of taking at the time of the death of Mrs. Crenshaw. That Order further appointed a trustee, the Alabama National Bank in this case, to recover the property and manage it for the benefit of those remaindermen and legatees.
The Order further provided for the turnover of all such properties including the Powell Properties and the rents and profits therefrom, by this debtor-defendant Beach and other who might have custody and control of it.
CONCLUSIONS
1. As to the dischargeability of Beach’s debt, already reduced to judgment for nonpayment of rent, alleged under 523(a)(2) of the Bankruptcy Code to be a fraud or a false representation, we find no proof of such wrongdoing. There is no evidence that Beach, when he leased the Powell Property, did not intend to pay the rent. His testimony, not contradicted, is that the failure of his cattle business left him with no money to pay the rent to the guardianship estate. That debt is, then, simply a dischargeable debt insofar as it is a debt owing by Beach individually.
2. As to the dischargeability of Beach’s debt as guardian for defalcation while acting in a fiduciary capacity, under Section 523(a)(4) of the Bankruptcy Code of 1978, the conclusion must be that this debt, under the applicable Alabama law, is non-dischargeable.
A) There is no doubt that Beach, as appointed guardian for his two children, bore a strong relationship of trust and confidence to them, one of the highest of fiduciary duties. He was appointed as their guardian by the Probate Court of Montgomery County; he acted as guardian under the letters of guardianship; the Circuit Court of Montgomery County, per Phelps, Judge, concluded that Beach was a guardian in its Order of October 29, 1980; moreover, Beach held or controlled property admittedly not his own, and which belonged to either vested or contingent remaindermen including his wards, and which he undertook to manage and hold for others.
There is some argument, not unpersuasive, that because the Circuit Court of Montgomery County, in its Order of October 29,1980, concluded that “the remainder interest of James Anderson Beach and Bobbie Elizabeth Beach is contingent and vests no present interest in them,” then the guardian had nothing of the willed property belonging to his wards which he needed to protect or preserve.
The conclusion that the two wards had no “present” interest does not mean, however, that they did not have some interest. That interest was determined to be contingent.1 And whether the interest was vested and thus clearly an interest of the wards to be *763protected, or contingent, and thus an execu-tory devise under Code of Alabama 1975, Section 35-4-212, it was a right in the wards, alone or with other “unascertainable persons” which interest of the wards a fiduciary for the wards is bound to protect and preserve in Alabama. Badham v. Johnston, 1940, 239 Ala. 48, 193 So. 420.
B) It is also clear that there was defalcation by Beach in the management and accounting of the guardianship.
Cases cited to us by Beach emphasize the failure of the fiduciary to account for and pay over money collected for the estate he administers. And this is undoubtedly defalcation, a truncating or cutting short of the rights of the beneficiaries.
But such cutting short of the rights of beneficiaries may occur in other ways, which readily show up in the accounts of their fiduciary.
Thus where a guardian has leased lands of his wards to third persons for a period longer than one year, he is bound to get confirmation of such lease from the Court which appointed him and to prove to that Court that he has security for the payment of rent under the lease. Otherwise, the lease may not be approved. Code of Alabama, 1975, Section 26-4-22.
We find no evidence of such confirmation or security in this case from the lessee.
Moreover, where guardian deals with himself as an individual, in handling the property of his wards, he is treated as if he himself had leased and is charged with full liability for all risks and losses. In Micou v. First National Bank of Montgomery, 1882, 104 U.S. 530, 26 L.Ed. 834, the Supreme Court accepted with approval the decisions of the Probate Court of Tallapoosa County, Alabama in surcharging the guardian in that case, father of his wards, for all such losses as they had suffered while he was guardian and while he had, individually, used their lands: 104 U.S. at 537-538, at 26 L.Ed. p. 837.
The accounts, as originally filed by the guardian, are based upon the principle of crediting the wards with the net proceeds of the operation of their plantations, carried on for them by their father, while the accounts, as settled by the probate court, charge him with the risks and losses of the business as carried on, requiring him to account as if he had rented the plantations and hired the slaves for his own use, at such sums as he might have obtained from others.
It seems not to be denied, that the latter, under the laws of Alabama, was a proper mode and basis of settlement, unless the guardian could show some previous special authority for carrying on the operations of the plantation in the name and at the risk of his wards.
In the settlement of Micou’s accounts it was claimed on his behalf and as a justification of his account as filed by himself, that such special authority existed; and to prove this, there was produced an order of the Probate Court of Tallapoosa County, dated July 18,1859, which, it was claimed, contained such authority. It appears from a copy of that order, exhibited with the bill, that on November 22, 1858, Benjamin H. Micou, as guardian of his daughters, filed a petition, setting forth that it was to the interest of said minors that the slaves belonging to them be kept together and worked on a plantation, instead of hired out, and that for said purposes it was necessary to purchase a plantation on which to work said slaves, and to the interest of said minors so to do; suggesting that he had contracted for the purchase of a described tract for the purpose aforesaid, and praying for an order authorizing him to purchase and pay for the same....
******
On June 23, 1859, the guardian made report of the authorized purchase, and of the payment of the price, and that a title had been made to the lands. This report was approved and confirmed by an order of the court, made July 18, 1859. But it does not appear that any further order was made by the court, directing or authorizing the guardian to keep the slaves of his wards together and work them on *764their plantation, at their risk and expense, instead of hiring them out and renting the lands. And the probate court decided, in the matter of the final settlement of his accounts, that the order to purchase the additional land, of December 20, 1858, relied on as authority for so doing, did not have such effect; and the judge accordingly adjusted the account and found the balance due on the principle stated.
Here, Beach, as guardian, is cast with the risk of such losses not only by his self-dealing, but because he was in fact a lessee of his wards’ property without having given or obtained security for the rent. He must, therefore, as guardian, be liable for the loss suffered, despite his bankruptcy discharge, when the rent was not accounted for.
An appropriate Order will enter.
. A finding of contingency, where the law prefers vesting of remainders, is not without some doubt, in light of some older Alabama cases. Cf. Thorington et al. v. Thorington, et al., 1896, 111 Ala. 237, 20 So. 407; Blakeney v. DuBose, 1910, 167 Ala. 627, 52 So. 746; Wright v. City of Tuscaloosa, 1938, 236 Ala. 374, 182 So. 72. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489101/ | FINDING AS TO AVOIDANCE OF NON-POSSESSORY, NONPURCHASE-MONEY SECURITY INTEREST IN HOUSEHOLD GOODS, PURSUANT TO 11 U.S.C. SECTION 522(f)
H. F. WHITE, Bankruptcy Judge.
In each of the four above-named cases, plaintiffs, debtors in Chapter 7 proceedings under Title 11 U.S.C., filed complaints against the defendants to avoid the defendants’ nonpossessory, nonpurchase-money security interests on plaintiffs’ household goods, pursuant to 11 U.S.C. § 522(f). Defendants filed answers to said complaints claiming their liens were not subject to avoidance under 11 U.S.C. § 522(f).
Upon agreement of the parties, the complaints to avoid liens were held in abeyance pending a determination of the validity of the liens, under Section 522(f) of the Bankruptcy Code and under the Ohio Revised Code, in similar cases pending on appeal to the District Court. The United States District Court, Northern District of Ohio, Eastern Division, on May 29, 1981, in the case of Curry, et. al. v. Associates Financial Services, 11 B.R. 716, 7 B.C.D. 968, affirmed the orders of the bankruptcy courts allowing the avoidance of liens under 11 U.S.C. § 522(f).
Defendants now contend that their liens are not subject to avoidance under 11 U.S.C. § 522(f) because no exemptions exist under Ohio law pursuant to Ohio Revised Code Section 2329.661(C) and therefore demand that the complaints to avoid the liens be dismissed. Defendants did not desire to file briefs with the court in support of their position. Defendants and plaintiffs agreed to submit the matter to the court upon the following agreed facts.
FINDING OF FACT
1. Defendants took nonpossessory, non-purchase-money security interests on Plaintiffs’ household goods as security for the loans Defendants made to Plaintiffs.
2. The nonpossessory, nonpurchase-mon-ey security interests in household goods were taken after the November 6, 1978 enactment date of the Bankruptcy Code in the Lance case and after the October 1, 1979 effective date of the Bankruptcy Code in the Phillips, Dolan, and Mosley cases.
3. Plaintiffs, in Schedule B-4 of their petitions, claimed their household goods and furniture exempt under Ohio Rev.Code Section 2329.66(A)(4)(b). There were no objections, by any party in interest, to the property claimed as exempt by Plaintiffs.
4. No particular item of the household goods and furniture claimed exempt exceeded $200.00 in value.
5. Plaintiffs valued their household goods and furniture claimed exempt at the following amounts: Phillips case— $1,245.00; Lance case — $1,015.00; Dolan case — $1,861.00; and Mosley case— $1,550.00.
ISSUE
The issue is whether a debtor, domiciled in Ohio, may avoid a nonpossessory, nonpur-chase-money security interest in household goods pursuant to 11 U.S.C. Section 522(f), notwithstanding Ohio Rev.Code Section 2329.661(C), the State of Ohio exemption law provision disallowing any exemption that would invalidate an existing security interest.
DISCUSSION OF LAW
An examination of the interaction of Federal bankruptcy law and the State of Ohio exemption law is necessary to resolve the issue. Federal bankruptcy law, 11 U.S.C. Section 522(f) permits a debtor to avoid nonpossessory, nonpurchase-money security interests in household goods to the *813extent that such liens impair exemptions to which the debtor would have been entitled under subsection 522(b).1 The liens of Defendants, herein, are nonpossessory, non-purchase-money security interests in household goods and thus qualify for avoidance under 11 U.S.C. Section 522(f). The dispute centers around the language of Section 522(f) as to the extent to which the liens may be avoided. The lien may be avoided “... to the extent that such lien impairs an exemption to which the debtor would have been entitled under subsection (b) of this section, ...”
Section 522(b) gives a debtor the choice of exempting from property of the estate either (1) the Federal exemptions established by Congress and set forth in subsection (d) of Section 522 or (2) the State exemptions established by the State legislature of the State where the debtor is domiciled for 180 days preceding the filing of his petition, if said State denies debtors the federal exemptions listed in Section 522(d).2
Under the Bankruptcy Act of 1898 as amended, what property was exempt was determined under State law. The legislative history surrounding the enactment of the Bankruptcy Reform Act of 1978 (The Bankruptcy Code) clearly shows that Congress intended that a debtor be given sufficient exemptions to assure a fresh start and provides as follows:
Though exemption laws have been considered within the province of State law under the current Bankruptcy Act, H.R. 8200 adopts the position that there is a Federal interest in seeing that a debtor that goes through bankruptcy comes out with adequate possessions to begin his fresh start. Recognizing, however, the circumstances do vary in different parts of the country, the bill permits the States to set exemption levels appropriate to the locale, and allows debtors to choose between the State exemptions and the Federal exemptions provided in the bill. Thus, the bill continues to recognize the States’ interest in regulating credit within the States, but enunciates a bankruptcy policy favoring a fresh start. H.R. Rep.No.595, 95th Cong. 1st Sess. 126 (1977), U.S.Code Cong. & Admin.News, 1978, p. 5787 (emphasis added)
11 U.S.C. Section 522(b) gives the States the authority to “set exemption levels appropriate to the locale.” Thus, the type of property that may be exempted and/or the maximum value of an item that may be exempted may vary from state to state.
The General Assembly of the State of Ohio, pursuant to the authority granted it in 11 U.S.C. § 522(b)(1), “opted out” of the *814Federal exemptions set forth in Section 522(d) and established its own list of exemptions available to a debtor in bankruptcy domiciled in Ohio. Ohio Rev.Code Section 2329.662 provides:
Pursuant to the “Bankruptcy Reform Act of 1978”, 92 Stat. 2549, 11 U.S.C.A. § 522(b)(1), this state specifically does not authorize debtors who are domiciled in this state to exempt property specified in the “Bankruptcy Reform Act of 1978”. 92 Stat. 2549, 11 U.S.C.A. § 522(d).
Thus, a debtor in bankruptcy domiciled in Ohio is precluded from selecting the Federal exemptions listed under 11 U.S.C. Section 522(d) and may only exempt from his bankruptcy estate, the property that is specified under Ohio Rev.Code Section 2329.66(A).
Ohio Rev.Code Section 2329.66(A)(4)(b) entitles the debtor to hold exempt “..., the person's interest, not to exceed two hundred dollars in any particular item, in household furnishings, household goods, appliances, ..., that are held primarily for the personal, family, or household use of the person.” The language of the Federal exemption provision dealing with household goods, 11 U.S.C. Section 522(d)(3), is very similar to the above-quoted Ohio exemption provision. Debtors, herein, claimed their household goods exempt under Ohio Rev.Code Section 2329.66(A)(4)(b) and there were no objections, by any party in interest, to the exemptions claimed.3
In a recent case, dealing with the identical issue before this Court herein, the Bankruptcy Court observed that:
..., if the Ohio law extended no further, unquestionably this debtor would be entitled to exemption of her household goods and furnishings and would be able to avoid the fixing of a lien against that interest. However, Ohio has apparently taken a quantum leap beyond the permissive language of Subsection 522(b).
Matter of Cox, 4 B.R. 240 at 242 (Bkrtcy. S.D.Ohio 1980).
The “quantum leap” referred to in the Cox decision is Ohio Rev.Code Section 2329.-661(C) which provides that: “Section 2329.-66 of the Revised Code does not affect or invalidate any sale, contract of sale, conditional sale, security interest, or pledge of any personal property or any lien created thereby.” Defendants contend that the effect of Section 2329.661(C) of the Ohio Rev. Code is to deny debtors domiciled in Ohio the availability of Section 522(f) of the Bankruptcy Code to avoid certain liens. This Court disagrees with Defendant’s interpretation of the interaction between the Federal bankruptcy law provisions and the State of Ohio exemption law provisions. The United States District Court for the Northern District of Ohio in the case of Curry, et al. v. Associates Financial Services, 11 B.R. 716, 7 B.C.D. 968 at 970 (N.D. Ohio 1981), summarized the argument of creditors as follows:
In short, it is argued that the encumbered personal property is not exempt under the applicable state law and therefore cannot be exempt from the bankrupt’s estate under 11 U.S.C. Section 522(b). Consequently, it is further maintained that the federal lien avoidance provision is not available as there is no exemption to which the bankrupt is entitled. This construction of the relationship between the Ohio exemption statute and the Reform Act is unsupportable.
As stated in Cox, 4 B.R. at 242:
The pivotal question that surfaces is whether Congress intended to not only allow States to determine which list of exemptions would be available to a debt- or, but also to permit State law to modify or preempt other substantive areas of the Bankruptcy Code.
A close scrutiny of the Bankruptcy Code produces no specific authority for the States to enact laws beyond selecting debtor exemption entitlements.
... No authority can be found which would allow States to deny debtors the *815availability of Subsection 522(f) to avoid the fixing of certain liens.
Collier on Bankruptcy supports the view taken in Cox and states that subsection (f) (of 11 U.S.C. Section 522) grants the avoiding power with respect to any exemption allowed under subsection (b) (of 11 U.S.C. Section 522) including the state option. If a state opts out of the federal exemption, it does not affect the debtor’s power under subsection (f). 3 Collier on Bankruptcy Section 522.29 (15th ed. 1979).
The United States District Court, in Curry at 971, explained the authority Congress granted the States as follows:
While the states are permitted not to authorize the federal exemptions but instead make the state exemptions available in bankruptcy proceedings, Congress did not permit the states to exercise any discretion over lien avoidance. Lien avoidance was a congressional response to what was perceived as a nationwide problem. Dragnet security interests in household goods and personal property seriously threatened the rehabilitation of the bankrupt and therefore one of the overriding goals of federal bankruptcy law.
The power of Congress to legislate in the area of bankruptcies is plenary.4 Pursuant to the supremacy clause, U.S. Const, art. VI, cl. 2, any state legislation which frustrates the full effectiveness of federal law is rendered invalid.5 “A state is without power to make or enforce any law governing bankruptcies that impairs the obligation of contracts or extends to persons or property outside its jurisdiction or conflicts with national bankruptcy laws.” Internat. Shoe Co. v. Pinkus, 278 U.S. 261 at 263-64, 49 S.Ct. 108 at 109, 73 L.Ed. 318 (1929).
Ohio Rev.Code Section 2329.661(C), providing that Section 2329.66 of the Ohio Rev.Code, the statute listing exemptions, does not affect or invalidate security interests, conforms with the constitutional prohibition against any state law impairing the obligation of contracts, U.S.Const. art. I, section 10, and is applicable to a debtor in the state courts. However, Ohio Rev.Code Section 2329.661(C) is in direct conflict with 11 U.S.C. Section 522(f) and “.. . any conflict between the state lien conservation provision and the federal lien avoidance provision must be constitutionally resolved in favor of the federal law. .. The Ohio lien conservation section is inoperable in bankruptcy proceedings and has no effect upon the bankrupt’s ability to claim exemptions or avoid liens.” Curry at 971.
Therefore, it is the conclusion of this Court that debtors, domiciled in Ohio, may avoid nonpossessory, nonpurchase-money security interests in their household goods pursuant to 11 U.S.C. Section 522(f), the Federal bankruptcy law provision permitting lien avoidance, notwithstanding Ohio Rev.Code Section 2329.661(C), the State of Ohio exemption law provision disallowing any exemption that would invalidate an existing security interest.
. 11 U.S.C. Section 522(f) provides:
Notwithstanding any waiver of exemptions, the debtor may avoid the fixing of a lien on an interest of the debtor in property to the extent that such lien impairs an exemption to which the debtor would have been entitled under subsection (b) of this section, if such lien is—
(1) a judicial lien; or
(2) a nonpossessory, nonpurchase-money security interest in any—
(A) household furnishings, household goods, wearing apparel, appliances, books, animals, crops, musical instruments, or jewelry that are held primarily for the personal, family, or household use of the debtor or a dependent of the debtor;
(B) implements, professional books, or tools, of the trade of the debtor or the trade of a dependent of the debtor; or
(C) professionally prescribed health aids for the debtor or a dependent of the debtor.
. 11 U.S.C. Section 522(b) provides:
Notwithstanding section 541 of this title, an individual debtor may exempt from property of the estate either—
(1) property that is specified under subsection (d) of this section, unless the State law that is applicable to the debtor under paragraph (2)(A) of this subsection specifically does not so authorize; or, in the alternative,
(2)(A) any property that is exempt under Federal law, other than subsection (d) of this section, or State or local law that is applicable on the date of the filing of the petition at the place in which the debtor’s domicile has been located for the 180 days immediately preceding the date of the filing of the petition, or for a longer portion of such 180-day period than in any other place; and
(B) any interest in property in which the debtor had, immediately before the commencement of the case, an interest as a tenant by the entirety or joint tenant to the extent that such interest as a tenant by the entirety or joint tenant is exempt from process under applicable nonbankruptcy law.
. 11 U.S.C. Section 522(1) provides, in pertinent part, that: “The debtor shall file a list of property that the debtor claims as exempt under subsection (b) of this section ... Unless a party in interest objects, the property claimed as exempt on such list is exempt.”
. See, Sturges v. Crowninshield, 17 U.S. (4 Wheat.) 122, 192, 4 L.Ed. 52 (1819).
. See, Perez v. Campbell, 402 U.S. 637 at 652, 91 S.Ct. 1704 at 1712, 29 L.Ed.2d 233 (1971); Moore v. Bay, 284 U.S. 4 at 5, 52 S.Ct. 3, 76 L.Ed. 133 (1931); Globe Bank v. Martin, 236 U.S. 288 at 298, 35 S.Ct. 377 at 380, 59 L.Ed. 583 (1914). | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489102/ | OPINION AND ORDER
ROBERT G. MOOREMAN, Bankruptcy Judge.
This controversy arises from the trustee’s objection to homestead exemptions. The issue in this case is whether the state $20,-000 homestead exemption can be tacked upon the $7,500 federal “wild card” exemption. This issue is now moot in future cases in Arizona because of a change in Arizona exemption statutes. In the instant case, the debtors, Roscoe Morrison and Thelma Morrison, filed a joint petition under Chapter 11 of the Bankruptcy Code on March 11, 1980, and thereafter, on November 18, 1980, the debtors’ petition was converted to a Chapter 7 proceeding. In an amended schedule to the original petition, Mrs. Thelma Morrison chose to claim the federal exemption then in effect under 11 U.S.C. § 522(d), generally described as the $7,500 “wild card” exemption on real or personal property, on the couple’s residence. Mr. Roscoe Morrison, in contrast, elected to claim the Arizona state exemption and in particular, he claimed the $20,000 homestead exemption on the couple’s residence under A.R.S. § 33-1101(A)(l), thereby tacking upon the $20,000 claim the $7,500 wild card exemption claimed by his wife.
The trustee filed an objection to the debtors’ tacking or stacking of state and federal exemptions and relied on the decision in the case of Ageton v. Cervenka, 5 B.R. 323, 6 B.C.D. 706 (Bkrtcy.D.Ariz.1980), referred to as Ageton I, which held tacking impermissible. The theory of Ageton I was that A.R.S. § 33-1101 required that spouses must join in claiming the $20,000 homestead exemption in community property thereby effectively precluding the alternative election of state and federal exemptions by spouses in a joint petition. The Ageton I decision was appealed to the United States Appellate Panels and was decided conversely thereto on July 24, 1981, B.A.P. No. 80-1036-HLK, the opinion of which is referred to as Ageton II herein. In correcting Age-ton I, the appellate court stated:
The failure of Congress to provide specific limitations upon the use of state and federal exemptions and its intent favoring fresh starts for debtors should be cornerstones from which we should interpret the Code. With this in mind we hold that Mr. Ageton may claim $20,000 equity in the home as exempt under state law and allow Mrs. Ageton to exempt an additional $7,500 equity under federal exemptions.
Also cited by the appellate court was In Re Ancira, 5 B.R. 673 (Bkrtcy.N.D. CA 1980) which approved the stacking of state and federal homestead exemptions thereby in*817terpreting the statute liberally in favor of the debtors.
In addition to the analysis provided in Ageton II, and Ancira, supra, we wish to add the following in support of the stacking of state and federal exemptions.
The dispute in issue revolves around the interaction of state homestead exemption laws with federal law, 11 U.S.C. § 522(m). Section 522(m) of the Bankruptcy Code states:
This section shall apply separately with respect to each debtor in a joint case.
A review of the legislative history of this section is found in House Report No. 95-595, 95th Cong., 1st Sess. (1977) 363, U.S. Code Cong. & Admin.News 1978, 5787, 6319, and provides:
Subsection [(m)] provides the rule for a joint case; each debtor is entitled to the federal exemptions provided under this section or to the state exemptions, whichever the debtor chooses.
The express language of the Bankruptcy Code, § 522(m), and the relevant legislative history allow each individual debtor the right to choose between the state and federal exemption schemes and no condition is placed upon the right to tack one upon the other.
Under 11 U.S.C. § 522(b)(1), the states were allowed to enact legislation requiring its citizens to elect only the state exemptions and the State of Arizona has done so by enacting A.R.S. § 33-1133(B). (This legislation affects only cases commenced after July 30, 1980, and as stated, is not applicable here but is imposed on future cases in Arizona.) In resolving the problems of the instant case, it is apparent that Congress originally granted the choice between state and federal exemption schemes to each individual debtor. The result in Ageton I was that under the prior law a married couple filing a joint petition in Arizona could claim either one $20,000 state exemption or two $7,500 federal exemptions, but the possibility of one spouse claiming the state exemption and the other spouse claiming the federal exemption was interpreted as being prohibited under Arizona community property law. Thus, the express option of Section 522(m) that one spouse may choose the state exemption and the other spouse the federal exemption was held not proper under Ageton I. It cannot be fairly argued that it was the intent of Congress to discriminate against debtors in community property states, which require joinder in claiming exemptions, to prevent the claiming of state and federal exemptions. The reasoning adopted here to allow each debtor a choice was followed in In Re Brosius, 7 B.R. 811 (Bkrtcy.C.D. CA 1980). Therein it was noted that exemption rights are personal to each individual debtor, and that no congressional intent could be found to justify granting joint petitioners any less than individual petitioners. The more recent case of In Re Brents-Pickrell, 12 B.R. 352, C.C.H. Bankruptcy Law Reports ¶ 68,227 also gives further weight to the authorized stacking of federal and state exemptions. There the California Bankruptcy Court stated:
The Bankruptcy Code, however, grants each debtor the right to separately choose which body of exemption laws to use, either federal or state. If the state residential exemption law is in conflict with this choice granted by Congress to each spouse, then state law must give way to the code, under the Supremacy Clause.
The resolution of conflicts between community property concepts and federal interests has been dealt with by the United States Supreme Court. In the decision of Hisquierdo v. Hisquierdo, 439 U.S. 572, 99 S.Ct. 802, 59 L.Ed.2d 1 (1979), the court in resolving an issue on retirement benefits set forth certain guidelines in determining when a state must defer to the federal statutory scheme where its statutes based on community property concepts are in conflict with federal objectives. The court stated:
The pertinent questions are whether the right as asserted conflicts with the express terms of federal law and whether its consequences sufficiently injure the objectives of the federal program to require non-recognition.
*818The Bankruptcy Code, 11 U.S.C. § 522(m) expressly gives each individual debtor the right to choose between federal and state exemptions and overrides the apparent conflict with the wording of A.R.S. § 33-1101 which would otherwise deprive an individual debtor of any such choice where his or her spouse wished to choose the alternative type of exemption.
IT IS THEREFORE ORDERED, based upon the foregoing analysis, denying the trustee’s objections to the debtors’ amended Schedule B-4 exemptions, and thereby allowing the debtors to each individually choose between the state or federal exemptions and tack or stack the claims of homestead for the total benefit of this joint estate. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489103/ | ORDER ON OBJECTION AT CREDITORS’ MEETING
THOMAS C. BRITTON, Bankruptcy Judge.
During a creditors’ meeting held on August 10, the debtor’s representative, Feld-man, was asked:
“Would you know if Mr. Feinstein is an officer or a director of that corporation (Heritage Corp.)?”
The question was objected to by the debt- or:
“It’s immaterial and irrelevant what Mr. Feinstein is in reference to Heritage Corp.”
The scope of examination at a creditors’ meeting is extremely broad. 11 U.S.C. § 343; B.R. 205(d) 2 Collier on Bankruptcy (15th ed.) ¶ 373.05. B.R. 205, which remains applicable under the Code provides that:
“The examination ... may relate only to the acts, conduct, or property of the *838bankrupt, or to any matter which may affect the administration of the bankrupt’s estate, or to his right to discharge.”
Heritage Corporation is this chapter 11 debtor’s largest creditor. According to the debtor’s schedules at least some of the debtor’s books and records are in the possession of Heritage and payments have been made during the year before bankruptcy to Heritage. Edward Feinstein is the holder of 42.5% of the stock of the debtor corporation. The relationship of Feinstein to Heritage Corporation could clearly affect the administration of this estate in several ways. The question is well within the scope of permissible examination. The objection is overruled.
The witness, Feldman, is ordered to answer the question fully and completely in affidavit form within seven days, filing the affidavit with the clerk in this case, and sending a copy to the interrogating attorney, Samuel Goldman. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489104/ | FINDINGS OF FACT AND ORDER
RICHARD L. MERRICK, Bankruptcy Judge.
This cause came on for trial as a consolidation of adversary proceedings objecting to the discharge of the debtor, contesting the dischargeability of the debtor’s debt to First Federated Life Insurance Co. (hereinafter “First Federated”) and allegations that assets of the debtor were not disclosed in the schedules which were a part of his petition and, conversely, were concealed by being placed in the name of the debtor’s father, Alex J. Martin. The property in question is a condominium apartment situated at 4601 West Touhy Avenue, Lincoln-wood, Illinois, a residential suburb northwest of Chicago. This property was purchased in 1976 for $67,500 of which $15,000 was derived from a cash down payment and the balance from proceeds of a mortgage loan from Cook County Federal Savings and Loan Association, of which the note was signed by Alex J. Martin and Josephine Martin, his wife. Title to the property is held by American National Bank and Trust Company of Chicago under an Illinois Land Trust of which the beneficial owner is Alex J. Martin.
It generally has been assumed by the parties that the property in question has a value substantially in excess of the outstanding mortgage debt, and that if Dennis E. Quaid, the Trustee (hereinafter “Quaid”, or “the Trustee”) can establish ownership of it that he will be able to generate substantial funds for the benefit of creditors.
At the close of the plaintiffs’ case the defendant moved for judgment. The plaintiff's counsel argued that a lower standard of proof or lesser preponderance of evidence, is required then than at the close of an entire case. The logic of this theory was not explained nor were authorities cited, but, apparently to save the time and expense of argument and briefs, the defendant then rested, so that the motion becomes one for judgment at the close of the entire case.
The bulk of the plaintiff’s case was the testimony, as adverse witnesses, of the Martins, father and son. Seldom has this Court observed witnesses whose credibility was lower. It was not so much that they appeared to be lying as it was that they seemed to be indifferent to the truth. They were both extremely facile witnesses who would be difficult to impeach on the ground of inconsistent prior testimony because both the present and earlier statements were so vague, qualified and general that direct contradictions are unlikely. Where a direct conflict appeared to be impending, it would be avoided by a lapse of memory.
For purposes of impeachment the plaintiffs sought to introduce evidence of a criminal conviction of Ronald A. Martin in 1968, which was not admitted for reasons discussed below. It would not have affected this trier of fact in any event, because the Court already had concluded that both Martins would testify to whatever version of facts seemed at the moment to favor the financial interest of Ronald. Less credibility hath no man than this.
Both Martins testified that they, particularly the father, frequently conducted substantial financial transactions through the use of cash, generally $100 bills. They did not discuss why they used this method of dealing, but it is the experience of the Court that persons do not engage in large cash transactions unless they are trying to hide something from somebody. Sometimes they are covering up a crime not related to taxation, frequently they are disguising income, occasionally they are defrauding creditors or co-owners, or concealing assets from their wives. The use of cash does not, of itself, establish that any one of the fore*885going reasons would be the controlling factor in a given case; that must be established by extrinsic evidence.
The testimony of both Martins with respect to the purchase of the Touhy Avenue condominium is as follows:
(a) A $15,000 down payment was made consisting of three separate partial payments,
(1) On January 30,1976, Alex J. Martin drew a check on the Bank of Lincoln-wood in the amount of $6,750, representing 10% of the purchase price, payable to Katz, Weiss Construction Company, the developer;
(2) About May 19, 1976 a similar check for $3,375 was issued, and
(3) In late August or early September, 1976, a similar check in the amount of $4,675.80 was issued.
Each of the foregoing payments is documented. It is also documented that the Bank of Lincolnwood account of Alex Martin was opened January 30, 1976, by the deposit of a check for $6,800, either drawn on the Dreyfus Liquid Asset Fund, payable to Ronald A. Martin and endorsed by him over to Alex J. Martin, or what is more probable, drawn on Ronald A. Martin’s checking account at about the time that a check in the same amount drawn on the Dreyfus Liquid Asset Fund account had been deposited in Ronald A. Martin’s account. Similarly, coincidental withdrawals of $3,375 and $5,000 from the Dreyfus account of Ronald A. Martin matched deposits of these amounts in Ronald Martin’s checking account, and corresponded with checks of $3,375 and $4,675.80 drawn on Ronald’s account and deposited in Alex’ account and similar checks drawn on Alex’ account and payable to Katz, Weiss Construction Co.
From the foregoing it readily is apparent that some mischief was afoot. Funds which had been in Ronald Martin’s account with Dreyfus were used to provide the down payment for the condominium and had gone through a process of “laundering.” The debtor does not offer any explanation for why the efforts were made to disguise the flow of funds. He does contend, however, that the money was Alex’ money which had been invested in Ronald’s account at the Dreyfus Fund.
The Dreyfus Fund account itself is difficult to square with conventional attitudes concerning finance. The account was opened in the name of Ronald A. Martin on August 22, 1975 with an initial deposit of $55,650, which Ronald Martin testified was the proceeds of the sale of his marital home as a result of a separation and impending divorce from his wife. The home was owned by his wife and Martin’s sister. Martin said that the $55,650 was not a gift from his wife and sister but that it was pursuant to an oral agreement. When pressed as to the terms of the agreement Martin testified:
“The agreement was, sir, that my wife agreed to let me have the money.
Q ... completely unrestricted?
A Yes
Q and you could use this in any fashion that you wanted?
A That is correct, sir.”
On October 20, 1975 a deposit of $15,000 was made into the Dreyfus account, which Martin testified represented cash given to him by his father, Alex, for the purpose of using as a down payment on the condominium. No explanation was offered for Alex’ giving the money to Ronald three months before it was needed.
Alex Martin testified that during this period he frequently kept from $10,000 to $25,000 in cash in a safe deposit box, although his annual income was approximately $6,000 per year. In addition to an apartment which he owns in Chicago and in which he lives six months each year, he owns a condominium apartment in Florida in which he lives six months each year. Both Alex and Ronald testified that Alex took $15,000 in one hundred dollar bills *886from his safe deposit box. Alex testified that he took it back to his apartment where he kept it in an unlocked drawer of his desk for several weeks before giving it to Ronald. Ronald kept the money for a while before investing it in the Dreyfus Liquid Asset Fund. On three separate occasions Ronald made withdrawals which were paid to the developer of the Touhy Avenue condominium.
Ronald lived in the condominium, paid all mortgage and maintenance charges, voted as a condominium owner and deducted the interest payments on his own federal income tax returns. His income was about $119,000 in the year of the condominium purchase, and there has been no suggestion that he was insolvent at that time.
Counsel for First Federated and the Trustee argue that the story told by Alex and Ronald Martin is not credible, that the Martins were attempting to conceal the source of the funds used to purchase the condominium, and that Ronald acted as though he owned the condominium; therefore, there was a secret agreement between Alex and Ronald for Alex to hold the property in the name of himself and his wife as nominees for Ronald. The Court agrees with everything except the conclusion. It is a possible explanation, but it is not the only possible explanation, nor even the most likely situation.
The most probable situation one might say based upon general observation is that Ronald was trying to conceal ownership of the condominium from his wife, who was in the process of obtaining a divorce from him. But there is not a shred of evidence to support that hypothesis. The only evidence as to the relationship between the two was Ronald’s testimony that his wife had given him a large sum of money to use without any conditions. Concealment of the ownership from Internal Revenue Service is a possibility, but, again, there is no evidence of it.
If one accepts the testimony of the two Martins about their respective incomes, it would have been a friendly thing for Ronald to have bought the apartment for his parents as a gift, which in all probability would return to him in due course through their estates.
There is no evidence in the case of a secret agreement between Alex and Ronald respecting ownership of the condominium. The influence of a secret agreement is no stronger than the inference of a gift. There is not any substantial credible evidence to rebut a prima facie showing of a secret agreement, but the prima facie showing did not get made in the first instance.
The version which Alex and Ronald gave of the source of the $15,000 used to purchase the condominium as being one hundred dollar bills taken from Alex’ safe deposit box and then left lying around Alex’ apartment and then Ronald’s apartment is not strong enough to outweigh the testimony of competent disinterested witnesses to another version, if there had been any, but there was none.
The Court finds that the source of the $15,000 down payment on the Touhy Avenue Condominium was Ronald Martin’s account with Dreyfus Liquid Asset Fund. There is no credible proof that the account did not consist entirely of Ronald’s money. No motive has been established for Ronald’s using his parents as a nominee for his real estate ownership. Therefore, the Court makes no finding with respect to whether the transaction was one of gift or to conceal true ownership. Because the plaintiffs had the burden of establishing their proposition by a preponderance of the evidence and at best they have produced a draw, the Court finds that it has not been established that a secret agreement exists between Alex and Ronald Martin under which Alex will hold title to the Touhy Avenue Condominium for Ronald. Because it has not been established that Ronald owns the apartment, it similarly has not been established that Ronald failed to disclose his ownership, or concealed his ownership.
*887For purposes of impeachment plaintiff’s attempted to introduce evidence of Ronald Martin’s having been convicted of a federal crime in 1968 for which he was sentenced to one year’s imprisonment. The evidence was rejected for two reasons under Rule 609 of the Federal Rules of Evidence:
1. Rule 609(b) sets forth a ten year period of limitation from the later of the date of conviction or release from confinement, except under unusual circumstances, and
2. Rule 609(c) excludes evidence of conviction “if (1) the conviction has been the subject of a pardon, annulment, certificate of rehabilitation, or other equivalent procedures based on a finding of the rehabilitation of the person convicted...”
This Court found that the present circumstances were not such as to extend the ten year limitation. With respect to Rule 609(c) this particular pardon did not, and the Court was advised that regularly federal pardons do not contain findings of rehabilitation. A more leisurely reading of subsection (c) than was possible at the trial suggests that the phrase “based on a finding of the rehabilitation of the person convicted” is not intended to qualify “pardon” or “annulment” but rather is meant to apply to less formal proceedings which include a finding of rehabilitation. In any event the Court’s opinion of the credibility of Ronald Martin was so low that evidence of conviction of a crime probably would not have affected it.
The Court finds that the plaintiffs did not establish by clear and convincing evidence that a secret agreement exists between Alex J. Martin and Ronald A. Martin respecing the Touhy Avenue Condominium, much less what the terms of that agreement might be.
With respect to the adversary proceeding objecting to the discharge of the debtor, it is held that there has not been established by clear and convincing evidence that the debtor has improperly transferred or concealed any property within one year before the filing of the petition in this case nor is there clear and convincing evidence that he has failed to disclose in the schedule of assets made a part of his petition any property which he owns. With respect to the adversary proceeding relating to the dis-chargeability of the debt owed to First Federated Life Insurance Co., it is similarly ordered that there has not been established by clear and convincing evidence that the debtor has improperly transferred or concealed any property within one year before the filing of the petition in this case nor is there clear and convincing evidence that he has failed to disclose in the schedule of assets made a part of his petition any property which he owns.
Judgment for the defendant is ordered in each of the adversary proceedings consolidated here for trial and decision. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489106/ | MEMORANDUM OPINION
EUGENE J. RAPHAEL, Bankruptcy Judge.
At the time the petition herein was filed, the debtor operated a retail store in Lee County, Mississippi under the trade name of Pearson’s Supermarket. This adversary proceeding was commenced by a complaint filed by the trustee, seeking to establish that all of the equipment located in or about debtor’s store premises was the property of the trustee, free and clear of any security interest or any claim of title in and to any of said equipment on the part of any of the defendants. All of the defendants were served with process and all have contested the trustee’s claims except the defendant, Al-Com Systems, Inc., which has defaulted. The claims of the individual defendants, though not identical, are related and will be dealt with in one section of this opinion. The claim of Tupelo Coca-Cola Bottling Company and of R. L. Estes Typewriter Company, Inc., will each be considered in separate portions of the opinion.
The Lackeys, The Pearsons and The Ac-tons — On or about August 27th, 1977 Dalton Lackey and Fannie Lackey (hereinafter referred to as the Lackeys) sold to Hoyle Pearson and Joyce Pearson (hereinafter re*958ferred to as the Pearsons) and to Roy Acton and Martha Acton (hereinafter referred to as the Actons) certain store equipment located in a supermarket which was subsequently operated by the debtor. The Pear-sons and the Actons executed a promissory note, dated August 27th, 1977, to the order of the Lackeys, in the amount of $26,000.00 with interest after date until paid at the rate of 714% per annum “payable Three Hundred Five and 24/100 ($305.24) per month including principal and interest for 120 months”.
Simultaneously, the Pearsons and the Ac-tons executed a deed of trust securing payment of said note. This deed of trust was on a printed form intended for use in connection with real property rather than personal property. The printed word “property” is stricken and the word “equipment” is substituted, so that the deed of trust conveys to the trustee “the following described equipment in Lee County, State of Mississippi, to-wit:”. Then follows a long list of the equipment covered by the deed of trust, approximately fifty items. Some of the items are meticulously described by kind, manufacturer’s name and serial number, such as “12' frozen vegetable box-Warren Serial # GA-157-1374”. Others are less completely described, such as “Ice Maker Frigidaire”. Still others (and they are fairly numerous) are described by generic words only, such as
“Produce Table
Calculater Machine
1 Office Desk
1 Office Chair
Stocking Cart”
No location is stated for these items of equipment other than “in Lee County, State of Mississippi”. The use of a real property deed of trust form for this security arrangement resulted, of course, in the omission of a number of provisions, usual in personal property security agreements, which might have given the Lackeys better protection than they have been afforded by this instrument. The document does contain a provision that “Hereinafter whenever property appears, it is to be deemed to be the described equipment”. There is no provision in the deed of trust, however, with regard to after-acquired property, or with regard to substitution of one item for another, nor is there any coverall provision, such for example, as “all other equipment used by the debtors in their business”.
A U. C. C. financing statement, or the equivalent, a copy of the deed of trust, was filed in the office of the Chancery Clerk of the appropriate county. However, there was no U. C. C. filing in the office of the Secretary of State.
The equipment described in the deed of trust was located in retail store premises and was used in a business conducted in said premises under the trade name of Pearson’s Supermarket. It was not entirely clear from the evidence whether the Pear-sons and the Actons operated this business jointly, or whether only the Pearsons were involved in that operation.
On November 28th, 1977, a charter of incorporation was issued to Elvis Presley Heights Supermarket, Inc., and thereafter the business was conducted by that corporation (debtor herein). However, the business was carried on, as before, under the trade name of Pearson’s Supermarket and the business sign on the outside of the store premises continued to read “Pearson’s Supermarket”. It was the testimony of both the Pearsons and the Actons that title to the equipment in the store (the same equipment described in the Lackeys’ deed of trust) was never transferred to the corporation, but remained in the Pearsons and the Actons.
Subsequently, there was a fire which destroyed some of the items of equipment. Insurance on this equipment was carried in the names of the Pearsons and the Actons, and they were the ones who received the insurance proceeds. Although there was a loss payable clause in favor of the Lackeys, they did not receive any of the insurance proceeds. The Pearsons and the Actons *959used the insurance proceeds, or part of said proceeds, to purchase additional equipment to substitute for the items which had been burned up. The Lackeys claim in this proceeding that these replacements are covered by their deed of trust.
I find that both the original items listed in the deed of trust, and the replacement items were the property of the Pearsons and the Actons and that, as between them and the debtor corporation, the corporation has no interest in the equipment. Whether the replacement items are covered by the Lackeys’ chattel deed of trust need not be decided, for reasons which will hereafter appear.
There is no doubt, however, and I so find, that both the items listed in the chattel deed of trust and the replacement items purchased after the fire were, at the time the petition was filed, located in the store premises where the business known as Pearson’s Supermarket was conducted and were used by the debtor in the operation of that business and that the Lackeys, the Pearsons and the Actons all knew it. There is also no doubt, and I so find, that there was no sign in or on debtor’s premises indicating that the equipment located there was the property of anyone other than the debtor. Based on that factual situation, the trustee claims that all of the equipment used in the debtor’s business is covered by the Mississippi Business Sign Statute (Miss. Code of 1972, Section 15-3-7); that under that statute, all property used in the debt- or’s business is, as to creditors of the debtor, to be treated as property of the debtor, unless there was a sign at the premises indicating that it was the property of someone else, or, in the alternative, recording or perfection of a security interest under the provisions of the Uniform Commercial Code; and that, in his status as an ideal judgment creditor, 11 U.S. Code Section 544(a), he is entitled to all the benefits conferred on creditors of the debtor by the Mississippi Business Sign Statute.
The effect of the Mississippi Business Sign Statute on the factual situation stated above is most plainly stated, perhaps, in the case of Paine v. Hall’s Safe & Lock Co., 64 Miss. 175, 1 So. 56. That case, and others which follow it, make it clear that the absence of a sign indicating ownership or the existence of a security interest in the store fixtures and equipment in someone other than the debtor, gives debtor’s creditors and its trustee in bankruptcy the right to treat the store fixtures and equipment as though they were the unencumbered property of the debtor. Later eases carve out an exception where a bill of sale, chattel mortgage or other instrument has been properly recorded. Unfortunately, all of these cases were decided before the advent of the Uniform Commercial Code in Mississippi in 1968. This court has been assuming that, when the opportunity arises, the Mississippi Supreme Court will hold that filing of a U. C. C. financing statement in the appropriate filing office or offices is sufficient to do away with the need for a business sign, just as recording was, prior to the adoption of the Uniform Commercial Code. We do not yet have any guidance from the Mississippi Supreme Court, however, as to how completely and in what detail the financing statement must describe the property, or as to where filing must take place. For example, must there be complete compliance with sections 75-9-401 and 75-9-402 of the Mississippi Code of 1972, or will something less suffice? Will a description of the property by type (such as “equipment”) be sufficient to satisfy the Sign Statute, or will there have to be a more complete description of the items involved?
In the present case, we need not be concerned with the question last posed, since what was filed was a copy of the chattel deed of trust. But we must face squarely the question of the place of filing. Where, as here, the property involved is equipment (other than equipment used in farming operations), filing is governed by subsection (c) of Section 75-9-401 of the Mississippi Code of 1972. That subsection requires filing “... in the office of the secretary of state and in addition, if the debtor has a *960place of business in only one (1) county of this state, also in the office of the chancery clerk of such county.
I hold that filing of a security agreement or financing statement will act as a substitute for a sign and is to be deemed to be compliance with the Business Sign Statute, just as the recording of a chattel mortgage or deed of trust would formerly have been. But I also hold that, in order to be accepted as a substitute for recording and for the sign, filing must take place in all of the offices where filing would be necessary in order to perfect a security interest in the kind of property involved. Here, the primary place to file was in the Secretary of State’s office; and, since the debtor operated in only one county, filing in the Chancery Clerk’s office would also have been necessary. Although filing did take place in the latter office, there was no filing in the office of the Secretary of State. Since such filing would have been necessary to perfect the Lackeys’ security interest in the store equipment as against creditors of the debtor, there has not been sufficient filing to cure the absence of a business sign showing that the equipment in the store was not the property of the debtor. The trustee, as an ideal judgment creditor, may assert the rights of creditors under the Sign Statute. Re: Waynesboro Motor Co., 60 F.2d 668 (5 Cir. 1932). The trustee, therefore, holds title to all of the equipment in or about the debtor’s store premises, free and clear of any interest of the Lackeys in such equipment.
With respect to the Pearsons and the Actons, the rights of the trustee are equally clear. They claim that the equipment in the premises was purchased by them, that it was never conveyed to the debtor, and that they are the owners of it. But there was no sign anywhere on debtor’s premises indicating such ownership and there was nothing on record in the Secretary of State’s office or the Chancery Clerk’s office showing such claim to ownership. Admittedly the equipment in the store was, with the knowledge and the acquiescence of the Pearsons and the Actons, being used in the debtor’s business. Accordingly, I hold that the trustee holds title to all of the equipment in the debtor’s store premises, free and clear of any interest claimed therein by the Pear-sons and the Actons.
R. L. Estes Typewriter Company, Inc. —Among the items of personal property located in debtor’s business premises at the time the petition was filed were one Tec Scale, serial number 9H6340, one Tec Printer, serial number 9D252 and one Jay cash register, serial number 77900101. These items were the property of R. L. Estes Typewriter Company, Inc., of Tupelo, Mississippi (hereinafter referred to as Estes) and were the subject of a written agreement of lease (Exhibit 9) signed by both debtor and Estes and dated July 20th, 1980. Estes claims that this was a so-called “true lease” and not a security agreement. There is considerable doubt as to this, since the lease on its face shows total cost of the equipment to the lessor of $5,675.36 and calls for an immediate down payment of $2,400.02, plus 22 monthly payments of $148.87, which would make the total rental come within twenty cents of the total cost to the lessor. However, this question was not litigated, and the court will not decide it.
It is undisputed that the debtor was engaged in the business of selling merchandise at retail, that Estes knew it, that these three items were used in the debtor’s business, that they were located in the debtor’s business premises, that the lease agreement was not recorded, and that no attempt was made to comply with the filing provisions of the Uniform Commercial Code. The question for decision is whether there were signs on these items, or at debtor’s premises, placed conspicuously and in letters easy to read, showing that these items were the property of Estes (Mississippi Code of 1972, Section 15-3-7).
There were signs on these machines, gummed labels which were affixed to them. *961In the case of the cash register, the label was so placed that it would be necessary to raise the lid at the bottom of the machine in order to see it. It is plain therefore that the sign on the cash register, even if it had otherwise complied with the statute, was not “placed conspicuously at the house where such business is transacted”.
There were gummed labels also on the scale and the computer. These were affixed to the side of the machine and were plainly visible. The label bore, in the center, the name of R. L. Estes Typewriter Company, Inc., in reasonably large lettering, the inventory control number, and the date it was purchased by Estes. Assuming, without deciding, that the labels on the scale and on the computer were “placed conspicuously”, they nevertheless were not sufficient compliance with the Business Sign Statute because, while they might indicate Estes was the source from which these items were obtained, they contained no language to show that ownership of the property was in Estes, rather than in the debtor.
Accordingly, I hold that the trustee has title to the scale, the computer and the cash register free and clear of any claim to them by Estes.
Tupelo Coca-Cola Bottling Company —The final item to be dealt with is the refrigerated drink box which, like the other items mentioned in this opinion, was located in the debtor’s business premises at the time the petition was filed and had been regularly used in the debtor’s business. This box was not of the coin-operated type. It was an upright box with sliding doors, in which bottled or canned drinks were displayed, and from which they could be removed by the debtor’s customers.
This box had been placed in debtor’s business premises pursuant to a written agreement, dated December 19th, 1979 (Exhibit 20). The agreement was purely one of loan. No rental or other charge was made for the box, except that debtor agreed to pay any taxes assessed on the box and assumed liability for any damage to the box other than from normal wear and tear and usage. The agreement was cancellable by either party on five days written notice. The agreement was not recorded, nor was there any U. C. C. filing with respect to it.
There was a flashing, electric sign on the box, displaying the name “Coca-Cola”. There was not, however, any sign on the box, or elsewhere on debtor’s premises, indicating that Tupelo Coca-Cola Bottling Company was the owner of the box.
Drink boxes have been given special treatment in the Mississippi Sign Statute. The statute was amended in 1956 by the insertion of the following language:
“However, the provisions of the section shall not apply to a refrigerated box, vending machine or other container when placed by a person, firm, or corporation in a store, mercantile establishment, or other place of business to be used therein, where said refrigerated box, vending machine, or other container is plainly marked with a sign, painted on or attached to and prominently displayed on such property, showing said property to be the property of the person, firm, or corporation, placing same therein”. (Emphasis added).
This amendment spells out in plain, modern English for “refrigerated boxes, vending machines or other containers” exactly what the courts have been saying is the meaning of the section with regard to personal property generally (except that with respect to other types of property the sign need not necessarily be on or attached to the property itself).
Quite clearly, a sign that says merely “Coca-Cola”, no matter how prominently displayed, does not show that the box is the property of Tupelo Coca-Cola Bottling Company. The trustee is the owner of this box, and may dispose of same, free and clear of any interest claimed therein by Tupelo Coca-Cola Bottling Company.
The trustee will submit an appropriate order or orders. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489107/ | MEMORANDUM OPINION
CONRAD K. CYR, Bankruptcy Judge.
Chicago Bridge & Iron Company [CBI] asserts a lien for labor and materials furnished in the erection of two huge storage tanks for Maine Sugar Industries [MSI] on land owned by Aroostook Development Corporation [ADC] and later acquired by Triple A Sugar Corporation [Triple A], the Chapter XI debtor in possession. CBI claims a lien against the tanks, but not the land on which the tanks are situated,1 on the basis of the following language of title 10 M.R. S.A., section 3251: “If the owner of the building has no legal interest in the land on which the building is erected or to which it *971is moved, the lien attaches to the building....”2 CBI contends that the tanks were the property of MSI, although the land belonged to ADC. Triple A maintains that the tanks constitute fixtures and therefore belong to the owner of the land. Consequently, says Triple A, MSI was not “the owner of the [tanks],” within the meaning of section 3251.3
On December 14, 1968, CBI entered into an agreement with MSI for the sale and assembly of two tanks at the MSI refinery site in Easton, Maine. The tanks were prefabricated to specification for use in the storage of chemicals,4 delivered as large steel sheets, and welded together at the refinery site between December 16, 1968 and April, 1969. The tanks were erected some 600 to 700 feet away from and were not connected with the refinery building itself. Piping, some of it underground, connected the tanks to a pumping and a mixing station being constructed by MSI while the erection of the tanks was in progress. The pumping station, consisting of four pumps in a small building, pumped the chemicals 200 feet from a railroad siding to the tanks for storage, and from the tanks about 300 feet to the mixing station. The mixing station, where the chemicals were weighed, mixed with water to form liquid fertilizer, and loaded onto trucks for delivery to contracting farmers, consisted of 10 vats on scales set on concrete pads.
MSI was the lessee of the land on which the tanks were erected, having conveyed the property to ADC in July, 1965 and leased it back from ADC for a twenty-five year term. ADC mortgaged the property, in July, 1965, to First National Bank of Boston, Small Business Administration, and Northern National Bank, Trustee, and again on April 4, 1969. CBI recorded its lien certificate on June 6, 1969 and filed a complaint in the Maine Superior Court to preserve and enforce its lien on June 25, 1969.
The principal difficulty the court has with the positions put forth by the parties stems from their apparent assumption that MSI, though admittedly not the record owner of the land on which the tanks were erected, had “no legal interest in the land on which the [tanks were] erected.” On the contrary, MSI had a long-term leasehold interest in the real estate. The principal thrust of section 3251, as evidenced by its opening sentence, makes clear that the “legal interest” of which the quoted language from the second sentence of section 3251 speaks was not intended to exclude leasehold interests in land on which buildings are erected.
Whoever ... furnishes labor or materials ... in erecting ... a ... building ... by virtue of a contract with or by consent of the owner [of the building], has a lien thereon and on the land on which it stands and on any interest such owner [of the building] has in the same.. . .5
The inchoate CBI lien attached to whatever interest MSI had in the tanks and in the *972land, viz., the leasehold, “from the moment labor or materials [were] first provided.” Lyon v. Dunn, 402 A.2d 461, 463 (Me.1979).
We turn next to a determination of the status of these tanks as fixtures. The tanks constitute fixtures if it appears from proven facts and circumstances and by reasonable inference that MSI intended to incorporate them as a permanent part of the premises. Wedge v. Butler, 136 Me. 189,190, 6 A.2d 46 (1939). See Cumberland County Power and Light Co. v. Hotel Ambassador, 134 Me. 153, 157, 183 A. 132 (1936); Roderick v. Sanborn, 106 Me. 159, 163, 76 A. 263 (1909). The requisite intent is best determined through recourse to the three-point test articulated in Bangor-Hydro Electric Co. v. Johnson ; 6 that is, personal property is not a fixture unless
1) it is physically annexed, at least by juxtaposition, to the realty or some appurtenance thereof; 2) it is adapted to the use to which the land to which it is annexed is put, or the chattel and the real estate are united in the prosecution of a common enterprise, and 3) it was so annexed with the intention on the part of the person making the annexation to make it a permanent accession to the realty.7
Physical annexation, either actual or constructive, is an essential element in the transformation of a thing from chattel to fixture. Bangor-Hydro Electric Co. v. Johnson, 226 A.2d 371, 376, 378 (Me.1967); Hayford v. Wentworth, 97 Me. 347, 350, 54 A. 940 (1903). While minimal physical annexation may suffice, the method and extent of the annexation bear upon the intention permanently to attach, which the law deduces from external facts. Readfield Telephone & Telegraph Co. v. Cyr, 95 Me. 287, 290, 49 A. 1047 (1901). The parties agree that the tanks were united with the land, having been set upon sand platforms and connected by piping to other fixtures, such as the pumping and mixing stations. See Parsons v. Copeland, 38 Me. 537, 544 (1854). But the legal significance of the physical annexation of the tanks is seen as minimal by CBI, inasmuch as the tanks may be removable without damage to the freehold. The inevitability of injury to the freehold upon removal of the thing attached has been considered a clear indication of an intention permanently to annex, see Hayford v. Wentworth, 97 Me. 347, 350-51, 54 A. 940 (1903), whereas evidence of the unlikelihood of injury to the freehold upon removal is not conclusive evidence of lack of annexation, see id. at 353,8 54 A. 940. The physical character of the annexation is not determinative of a permanent annexation. Id. at 351, 54 A. 940. See Bangor-Hydro Electric Co. v. Johnson, 226 A.2d 371, 376 (Me.1967).
The second element of the fixture test is whether the goods are adapted to the existing use of the land, or the chattel and realty are united in the prosecution of a common enterprise. Id. at 378. The site upon which the tanks were erected was devoted to refining sugar beets grown by local farmers. The chemicals stored in the tanks were converted into liquid fertilizer for sale to beet growers upon whom the refinery was dependent for its supply of raw product. The clear purpose and actual use of the tanks *973were complementary to the entire refinery enterprise.9 See note 8 supra.
The character of the physical annexation, as well as the compatibility of the uses to which the chattel and the freehold are devoted, indicate the intention governing annexation. The nature of any interest held in the freehold by the party making the annexation is another important circumstance to be considered in evaluating the intention with which the annexation was accomplished. See Fischbach & Moore, Inc. v. Presteel Corp., 398 A.2d 397, 400 (Me.1979); Bangor-Hydro Electric Co. v. Johnson, 226 A.2d 371, 377 (Me.1967). Where title to both the realty and the thing annexed were held in common there arises a presumption that the chattel became a fixture upon annexation, id., while, as a general rule, tenant chattels remain personalty on the theory that the limited term of the tenant makes it improbable that the tenant would readily relinquish title without consideration.10 See id. The tenant-chattel presumption is rebuttable. See Fischbach & Moore, Inc. v. Presteel Corp., supra at 399-400. Tenant chattels which cannot be removed without damage are fixtures, Readfield Telephone & Telegraph Co. v. Cyr, 95 Me. 287, 290, 49 A. 1047 (1901); Tyler v. Fickett, 75 Me. 211, 213 (1883), as are goods attached without the consent of the mortgagee, Gaunt v. Allen Lane Co., 128 Me. 41, 47, 145 A. 255 (1929). The circumstances of the present case rebut the tenant-chattel presumption.
First, the sheer scale of the problems posed by any attempt at piecemeal removal of these huge structures,11 which would necessitate acetylenic cutting and dismantlement even to salvage, augurs against their anticipated disassembly and persuades strongly of an original intention that they remain part of the realty.
Second, there is no evidence that CBI obtained the consent of the various real estate mortgagees before the tanks were erected at the refinery. See id. at 46-47, 145 A. 255 (1929). See also Me.Rev.Stat. Ann., tit. 33, § 455.
Third, and most important, the lease between ADC and MSI provided that the MSI lease payments were to defray the payments required to satisfy the ADC mortgage indebtedness due the First National Bank of Boston, upon satisfaction of which MSI would once again become the record owner of the realty. MSI was not the typical tenant. It perceived from the outset that it would ultimately resume ownership of the realty. These facts negate any presumption that MSI did not intend to annex the tanks permanently. Cf. Hemenway v. Cutler, 51 Me. 407, 408 (1863) [property annexed by mortgagor or holder of bond for deed becomes fixture]; Tyler v. Fickett, 75 Me. 211, 213 (1883) [property annexed by occupant under contract to purchase real estate becomes fixture].
The court holds that the tanks became fixtures upon their physical annexation. How then, Triple A inquires, can MSI be considered the “owner” of the tanks within the meaning of the first two sentences of section 3251? 12 The “owner” of the tanks, within the meaning of section *9743251, in my judgment must mean the party obligated for their cost at the time the labor and materials were first furnished, cf. Lyon v. Dunn, 402 A.2d 461, 463 (Me.1979), not the record owner of the land upon which the tanks were affixed. There is no sound reason to preclude a lien upon the tanks, even if considered fixtures, merely because the “owner” of the tanks has less than a fee simple interest in the land. The construction urged by Triple A would preclude the creation of a lien under either the first or second sentence of section 3251, since neither sentence becomes operative unless MSI was the “owner” of the building. In these circumstances a tenant who contracts for the erection of a building on land occupied by him under a long-term lease is the “owner” of the building for the balance of the term of the lease, within the meaning of section 3251, even if the building be considered a fixture.
The court concludes that the inchoate CBI lien attached to the tanks and to the leasehold interest of MSI “from the moment labor or materials [were] first provided,” see Lyon v. Dunn, 402 A.2d 461, 463 (Me.1979), notwithstanding the fact that the materials supplied by CBI became fixtures upon annexation.
. The recorded lien certificate purports to assert a lien against both land and buildings.
.Title 10, Maine Revised Statutes Annotated, section 3251 provides in pertinent part:
Whoever performs labor or furnishes labor and materials ... used in erecting, altering, moving or repairing a house, building or appurtenances ... by virtue of a contract with or by consent of the owner, has a lien thereon and on the land on which it stands and on any interest such owner has in the same, to secure payment thereof, with costs. If the owner of the building has no legal interest in the land on which the building is erected or to which it is moved, the lien attaches to the building....
Me.Rev.Stat.Ann., tit. 10, § 3251 (1980). (Emphasis added.)
. See note 2 supra.
. The contract called for two cone-roofed tanks; one 132' X 40' with a 400-million gallon capacity and one 93' X 40' with a 200-million gallon capacity.
. Me.Rev.Stat.Ann., tit. 10, § 3251 (1980). (Emphasis added.)
From statehood until 1857, the statutory lien covered claims for labor or materials furnished in the construction or repair of a building only if furnished under a contract with the owner of the land. Marshall v. Mathieu et al., 143 Me. 167, 170, 57 A.2d 400 (1948). In 1857, the statutory lien law was liberalized to protect *972claims for labor or materials furnished for a building on the land of another, so as to reach “any interest the owner of the building might have in the land.” Id. Finally, in 1883, the Legislature expanded the lienable interest to include a building whose owner has no interest in the land. See Publ.L. c. 232 (1883).
. 226 A.2d 371 (Me.1967).
. Id. at 375 (quoting from 97 Me. at 350, 54 A. 940).
.Whether a thing is a fixture does not always depend upon the manner in which it is attached to the freehold. Its character is often indicated by the uses and purposes to which it is devoted. Doors and blinds which may be easily removed from the buildings, with which they are connected, are nevertheless a part of them. They are component and necessary parts of them, and are intended to be used as such.
Corliss v. McLagin, 29 Me. 115, 116 (1848).
.CBI maintains that the mixing, sale and distribution of liquid fertilizer went beyond the scope of the terms of the MSI-ADC lease, which restricts usage of the land to the purposes enumerated in 10 M.R.S.A. § 703(3), which permits an agricultural enterprise to engage in the “manufacturing, processing, assembling or preparing for market of raw materials or other products....” Me.Rev.Stat.Ann., tit. 10, § 703(3)(A) (1980). The statutory license is ample to permit the uses for which these tanks were designed and to which they were in fact put.
. The inference of an intention permanently to annex strengthens with the likelihood that the useful life of the thing annexed does not extend beyond the leasehold. See Parsons v. Copeland, 38 Me. 537, 547 (1854).
. See note 4 supra.
. See note 2 supra. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489108/ | MEMORANDUM DECISION
M. S. YOUNG, Bankruptcy Judge.
This matter is before the court upon cross-motions for summary judgment filed by plaintiff U. & I. Incorporated, and defendant, L. D. Fitzgerald. There is no genuine issue as to the following material facts.
In late 1977, Neibauer & West Farms leased a certain potato cellar to one Ronald Campbell, for storage of a portion of his 1977 crop. Campbell had produced the crop on an acreage he had leased from plaintiff, U. & I. Pursuant to that lease, one third of the crop raised belonged to U. & I. as lessor and the other two-thirds belonged to Campbell.
In December, 1977, Campbell filed a voluntary petition for relief in this court. Following the filing of the bankruptcy petition, L. D. Fitzgerald was appointed trustee of the debtor’s estate. The parties disagree as to what specifically transpired following the appointment of Mr. Fitzgerald as trustee, but the record reflects that Fitzgerald, acting as trustee, took possession of the potatoes in the cellar, spoke with one of the partners of Neibauer & West concerning equipment of the debtor, and had a number of conversations relating to disposition of the potatoes with Grant Cleverly, farm manager for U. & I. Eventually, defendant, acting as trustee, decided that the potatoes should be abandoned as an asset of the estate and did indeed abandon them. Following the abandonment, the potatoes were released by Neibauer & West to purchasers found by plaintiff.
Prior to their abandonment, the potatoes were treated with “Sprout-Nip”, a chemical which inhibits sprouting growth in stored potatoes. The charges for this treatment, as well as the storage charges for the potatoes, supply the basis for the present action.
In April, 1980, Neibauer & West commenced an action in the Sixth District Court for the State of Idaho against U. & I. to recover the costs of storage. Neibauer & West alleged that U. & I. had guaranteed payment of these costs and that, based upon such representations, Neibauer & West released the potatoes without having first been paid. U. & I. filed a third party complaint against Mr. Fitzgerald in that action seeking indemnity for the storage charges as well as payment for the chemical treatment of the potatoes. U. & I. contended that Mr. Fitzgerald personally guaranteed payment of the debtor’s portion of the storage and sprout inhibitor treatment charges.
Upon motion of third party defendant, Fitzgerald, for summary judgment in the state court action, the state district court dismissed the third party action against Mr. Fitzgerald, holding:
“It is the opinion of the court that Mr. Fitzgerald was at all times herein acting in his official capacity as a bankruptcy trustee and was not involved in conducting or operating the debtor’s, Ron Campbell, business as he simply made an agreement for the storage and preservation of the debtor’s property and the court does not believe such a transaction constitutes conducting or operating the debtor’s business.
*976IT IS A FURTHER opinion of the court that this court does not have jurisdiction over the subject matter herein. Apparently, there are two situations in which a trustee in bankruptcy, acting in his official capacity, may be sued in State Court without leave of the federal bankruptcy court, one being where the trustee has committed a tort, and the other where the claim of alleged wrongful doing arises out of the trustee’s operating of the debtor’s business. Collier on Bankruptcy, § 23.20 at 642-645 (* 14th Ed.). Where the trustee merely enters into a contract for storage of the debtor’s assets, however, no action will lie in a state court without leave of the bankruptcy court, 1 Collier on Bankruptcy § 2.36 at 248,249 (14th Ed.).”
Plaintiff herein and defendant in the State Court action, U. & I., has appealed that decision to the Idaho Supreme Court.
U. & I. thereafter filed, in May of this year, the present adversary action before this court, seeking a judgment holding that permission of the Bankruptcy Court is not required prior to instituting or maintaining an action against the defendant Fitzgerald in state court in circumstances such as present here. In the alternative, plaintiff U. & I. seeks an order of this court granting such permission.
By way of counterclaim, the defendant trustee seeks the following relief: (1) dismissal of the plaintiff’s claim, (2) an order enjoining plaintiff from further attempts to hold Fitzgerald personally liable in state court, (3) a judgment holding that no personal liability on the part of Fitzgerald exists, and (4) that plaintiff’s relief, if any, is limited to the filing of a claim against the bankruptcy estate.
In regard to plaintiff U. & I.’s motion seeking permission to sue the trustee personally in state court or, alternatively, a decision by this court that no permission is necessary, the law is well-settled. The trustee in bankruptcy is an officer of the court appointing him, and courts other than the appointing court have no jurisdiction to entertain suits against the trustee, without leave from that appointing court, for acts done in his official capacity and within his authority as an officer of the court. Barton v. Barbour, 104 U.S. 126, 26 L.Ed. 672 (1881); Leonard v. Vrooman, 383 F.2d 556 (9th Cir. 1967), cert. den. 390 U.S. 925, 88 S.Ct. 856, 19 L.Ed.2d 985 (1967); Vass v. Conron Bros. Co., 59 F.2d 969 (2d Cir. 1932); 2 Collier on Bankruptcy ¶ 23.20 (14th Ed.).
A limited exception to this rule exists by way of 28 U.S.C. § 959 which allows for suit against trustees, receivers, or managers of any property, including debtors-in-possession, without leave of the court appointing them, with respect to any of their acts or transactions “in carrying on business connected with such property.” As the Idaho Sixth District Court correctly concluded, the concept of “carrying on business” is not applicable here. Merely collecting, taking steps to preserve, and/or holding assets, as well as other aspects of administering and liquidating the estate, do not constitute “carrying on business” as that term has been judicially interpreted. 28 U.S.C. § 959; Austrian v. Williams, 216 F.2d 278 (2d Cir. 1954) cert. den. sub nom Fogarty v. Austrian, 348 U.S. 953, 75 S.Ct. 441, 99 L.Ed. 744 (1955); Vass v. Conron Bros. Co., supra; In re Kalb & Berger Mfg. Co., 165 F. 895 (2d Cir. 1908). See also 4 Collier on Bankruptcy ¶ 721.05[1] (15th Ed.); 1 Collier on Bankruptcy ¶ 2.36 (14th Ed.); 2 Collier on Bankruptcy ¶ 23.20 (14th Ed.).
It is apparent from the record before me that all acts or transactions of the trustee here complained of, regardless of their propriety or of any potential liability therefor, were undertaken by the trustee acting as such, i. e., in his official capacity, within the authority and duty of a trustee in bankruptcy. I therefore agree with the conclusion reached by the Sixth District Court for the State of Idaho that permission of this court is a prerequisite to suit in state court against the trustee for such acts.
*977Plaintiff in the alternative has sought such leave of this court as would enable it to further pursue judgment against the trustee in the courts of Idaho. It is clear that the decision to grant such permission is committed to the sound discretion of the appointing court. See e. g,, Securities and Exchange Comm. v. Lincoln Thrift Assn., 557 F.2d 1274 (9th Cir. 1977). Not only has plaintiff’s action in state court reached termination (for at least a considerable period of time while the appeal is processed in the state court system), it appears to me that all issues here raised are intimately tied to the question of the proper function of the trustee within a liquidating bankruptcy. The actions in question concern the preservation and liquidation of assets and general administration of the estate and this court is directly concerned with the resolution of these issues, a concern reflected in the rule requiring leave of the appointing court for suits to be maintained in other forums. I conclude that the present contentions of the parties will be most reasonably, expeditiously, and properly resolved by denying permission to litigate further in state court. Concomitantly, I am granting defendant’s request and enjoining further actions on the part of plaintiff in the courts of the State of Idaho to determine the defendant trustee’s liability, if any, for actions taken in administration of the debtor Campbell’s estate.
Plaintiff’s complaint seeks only judgment against Mr. Fitzgerald personally; plaintiff expressly states therein that it does not seek recovery from the estate or from Mr. Fitzgerald in his representative capacity as trustee. Having determined from the evidence submitted by the parties hereto in the form of depositions that at all relevant times Mr. Fitzgerald was acting as trustee, and within the scope of his authority, I conclude an independent action asserting personal liability in the factual context herein shown is foreclosed and defendant is thus entitled to dismissal of plaintiff’s complaint. Sherr v. Winkler, 552 F.2d 1367 (10th Cir. 1977); Tiller, Personal Liability of Trustees and Receivers in Bankruptcy, 53 American Bankruptcy Law Journal 75 (Winter 1979).
In sum, I find: that Mr. Fitzgerald was acting at all relevant times in his capacity as trustee; that under the facts as indicated by the record no personal liability exists; that a state court suit against the trustee seeking to establish personal liability is improper and cannot be maintained without leave of this court; that such leave is not granted; and that plaintiff is enjoined from seeking further relief in state court.
No costs or attorneys fees awarded. Counsel for defendant to prepare an order in accord with this decision. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8491307/ | OPINION AND ORDER ON MOTION TO REOPEN CASE
R. GUY COLE, Jr., Bankruptcy Judge.
I.Introduction
This matter is before the Court upon the Motion to Reopen Case filed by Robert A. and Paulette M. Eggleston, debtors in this closed Chapter 7 case. The Motion is opposed by a creditor, Andy Estates Development Corporation (“Andy Estates”). An evidentiary hearing was held on April 29, 1991, following which the Court took this matter under advisement.
The Court is vested with jurisdiction over this contested matter pursuant to 28 U.S.C. § 1334(b) and the General Order of Reference entered in this judicial district. This is a core proceeding which the Court may hear and determine pursuant to 28 U.S.C. § 157(b)(1) and (2)(A).
II. Findings of Fact
1. On April 4, 1988, the debtors filed a joint petition under Chapter 7 of the Bankruptcy Code.
2. The debtors’ statement of financial affairs discloses the repossession by Len Immke Buick, Inc. of a 1986 Buick automobile (the “Buick”). The debtors’ schedules do not list Len Immke Buick, Inc. as a creditor in the bankruptcy case.
3. The debtors leased the Buick from Immke Circle Leasing, Inc. — apparently an affiliate of Len Immke Buick, Inc. — which, after repossessing it, assigned the lease to Andy Estates. The debtors did not list Immke Circle Leasing, Inc. or Andy Estates as creditors in their schedules because of the debtors’ belief that “the repossession constituted full satisfaction of any obligations they owed under the auto lease.” Motion to Reopen at 2. The debtors believed that the automobile had a value at repossession roughly equal to their remaining obligations under the lease; thus, they believed that the Buick’s liquidated value would satisfy all obligations under the lease.
4. Because Andy Estates was not listed as a creditor, it did not receive any of the *745notices or orders mailed in this case by the Bankruptcy Clerk to parties-in-interest.
5. The Order for Meeting of Creditors, Combined with Notice Thereof and Automatic Stay, entered by the Court and mailed to scheduled creditors on November 23, 1988, contained the following language:
Special Notice It appears from the schedules of the debtor that there are no assets from which any dividend can be paid to creditors. It is unnecessary for any creditor to file his claim at this time in order to share in any distribution from the estate. If subsequently it appears that there are assets from which a dividend may be paid, creditors will be so notified and given an opportunity to file their claims.
6. Andy Estates, as “owner of all accounts receivables [sic] and assets of Immke Circle Leasing, Inc.,” commenced a civil action against the debtors in the Municipal Court, Franklin County, Ohio, on April 11, 1989, to recover the sum of $5,503 as damages under the lease agreement. Creditor’s Exh. A. Under the terms of the lease agreement between Immke Circle Leasing, Inc. and the debtors, executed on April 21, 1986, the debtors were obligated to pay the lessor $351.45 per month for a term of forty-eight months. Andy Estates, as assignee of Immke’s interest under the lease, seeks to recover $4,003, representing twenty-six unpaid monthly installments, and an additional $1,500 in various “out-of-pocket” costs, including attorney’s fees.
7. On December 27, 1988, the Chapter 7 trustee filed a final report, stating that there were no assets available for distribution to creditors.
8. A discharge was issued to the debtor on April 20, 1989. This case was closed by the Bankruptcy Clerk on April 21, 1989.
9. In or about September 1990, Andy Estates obtained a default judgment against the debtors on its civil complaint in Municipal Court, and thereafter instituted wage-garnishment proceedings against Robert Eggleston.
10. On March 5, 1991, the debtors filed the instant motion, requesting the Court’s issuance of an order reopening this case to add Andy Estates and B.J. Glavan, M.D. as creditors. Andy Estates has opposed the Motion.
III. Conclusions of Law
Section 350(b) of the Bankruptcy Code permits the reopening of closed cases and provides as follows:
(b) A case may be reopened in the court in which such case was closed to administer assets, to accord relief to the debtor, or for other cause.
The allowance of a request to reopen a bankruptcy case for the amendment of schedules rests within the sound discretion of the court, and will not be set aside absent an abuse of discretion. Rosinski v. Boyd (In re Rosinski), 759 F.2d 539, 540-41 (6th Cir.1985).
In, Rosinski, the Sixth Circuit Court of Appeals stated, with respect to a request to reopen a closed case, that:
a debtor may be prevented from amending her schedule only if her failure to include a creditor on the original schedule can be shown to have prejudiced ... [the creditor] in some way or to have been part of a scheme of fraud or intentional design.
In re Rosinski, 759 F.2d at 541. The court continued by noting that the “key inquiry is whether [the debtor’s] failure to include [the omitted creditor] on the original schedule of assets and liabilities has deprived [that creditor] of remedies available under the Bankruptcy Code or whether there was evidence that the exclusion was fraudulent or intentional.” Id.; see also Stark v. St. Mary’s Hospital (In the Matter of Stark), 717 F.2d 322 (7th Cir.1983).
In Soult v. Maddox (In re Soult), 894 F.2d 815 (6th Cir.1990), the Sixth Circuit reaffirmed the position established in In re Rosinski and permitted reopening in a “no-asset case” where no fraud was involved and the creditor was omitted through mistake or inadvertence. The court noted in Soult that a case may be reopened to accord relief to the debtor, or for other cause. “ ‘[0]ther cause’ can be found when the failure to schedule a debt was simply inadvertent and did not prejudice the creditor in *746any way.” In re Soult, 894 F.2d at 817 (quoting In re Rosinski, 759 F.2d 539 (6th Cir.1985)).
In this case, Andy Estates has not lost any meaningful right that it would have enjoyed if it had been properly listed in the debtors’ schedules. Because there are no assets from which creditors could receive any dividend, Andy Estates would not have received any distribution from the bankruptcy estate even if it had received timely notice of the case and filed a proof of claim. By being added to the list of creditors now Andy Estates insures itself of not losing its right to participate in a dividend if nonexempt distributable assets are located. In the event that such assets are discovered, Andy Estates, if it files a claim, will be given an equal chance with other scheduled creditors to share in any distribution.
Moreover, there is no indication that the debtors acted willfully, recklessly, or fraudulently in failing to schedule Andy Estates, or its assignor, initially. In fact, quite the opposite is true. The uncontroverted testimony of Robert Eggleston establishes he believed that the repossession of the Buick satisfied the debtors’ obligations to its lessor. Thus, the debtors sincerely believed that there was no need to include the lessor (or its assignee) on the list of creditors. The debtors’ decision to exclude Immke and Andy Estates was founded, therefore, on their legitimate belief that they owed no money to the lessor under the lease agreement.
There being no prejudice offered or established by Andy Estates, the motion to reopen is hereby GRANTED so as to permit the debtors to include Andy Estates and B.J. Glavan, M.D. on their schedule of creditors.
IT IS SO ORDERED. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8491309/ | ORDER CLARIFYING THIS COURT’S APRIL 5, 1991 DECISION AND ORDER ON MOTION OF PLAINTIFF TO STRIKE CROSS-CLAIMS AND COUNTERCLAIMS
LEIF M. CLARK, Bankruptcy Judge.
On May 28, 1991, this Court requested counsel for Bettina M. Whyte, Fiscal Agent, Merlin Express, Inc., Fairchild Gen-Aero, Inc., Texas National Airlines (collectively the “Plaintiffs”) and GMF Investments, Inc. (“GMFI”) to deliver an order to this Court clarifying this Court’s April 5, 1991 Decision and Order on Motion of Plaintiff to Strike Cross-Claims and Counterclaims (the “Decision and Order”), 126 B.R. 717. Counsel for GMFI and the Plaintiffs have agreed as follows:
1. The Decision and Order, at page 724, stated the following:
If the defendants had any true conviction that the consolidated returns were improperly completed (as they broadly suggest), the most obvious (and perhaps only) remedy would be for them to file an amended consolidated return. Instead, the defendants are expecting this Court to determine that the consolidated returns were improperly completed (warranting an allocation of the refund different from that suggested from the figures in the return), without making the Internal Revenue Service a party. In essence, the defendants invite this Court to permit the parties to present the IRS with one set of figures, and this Court with another set. This Court will not consider any different figures than those presented to the IRS, which means that the parties will be bound by the figures in the current return unless they elect to file an amended return. To adopt any other course is to issue an open invitation to the Commission of tax fraud.
2. GMFI and its aligned entities believe that the corporate consolidated income tax returns for the fiscal years ending September 30, 1988 and 1989 were incorrectly pre*976pared. Based upon the discovery completed to date, GMFI and its aligned entities believe that the consolidated corporate income tax returns for the fiscal years ending September 30, 1988 and 1989 are incorrect because Fairchild Aircraft Corporation (“FAC”) deducted expenses and losses attributable to Air Kentucky Airlines, Inc. which should have been deducted by GMFI or one of its aligned entities. The GMFI discovery responses have indicated that this reallocation of expenses is necessary in order to properly reflect their claim to the disputed tax refunds. GMFI does not believe that it can litigate its claim to the disputed tax refunds in light of the quote from the Decision and Order in the preceding paragraph.
3. The Plaintiffs do not believe that the April 5, 1991 Decision and Order has limited, subject to all appropriate evidentiary objections, the ability of any of the parties to this adversary proceeding to present any evidence in support of their respective claims to the income tax refunds or in support of any cross-claims or counterclaims. [Editor’s Note: Paragraph 4 has been omitted from publication by the court.]
5. This Court finds, based upon the stipulation made by the Plaintiffs that none of the parties will be limited or prevented from offering, subject to all appropriate evidentiary objections, any evidence relating to their claims to the disputed tax refunds and the cross-claims or counterclaims and that its April 5, 1991 Decision and Order should be clarified and amended. Accordingly, it is therefore
ORDERED that this Court’s April 5, 1991 Decision and Order on Motion of Plaintiff to Strike Cross-Claims and Counterclaims is hereby clarified as follows: [Editor’s Note: Paragraph 1 has been omitted from publication by the court.]
ORDERED that all of the parties to this litigation, regardless of their designation as plaintiff or defendant, shall be allowed to present all necessary evidence, subject to all appropriate evidentiary objections, which form the basis for their respective claims to the disputed tax refunds or in support of any counterclaims or cross-claims. Any conclusions of fact or law made by this Court in its Decision and Order on Motion of Plaintiff to Strike Cross-claims and Counterclaims filed April 5, 1991, particularly in the quoted paragraph above, shall not be interpreted by this Court or any of the parties to this adversary proceeding as a limitation on the scope of the nature of the claims or the nature or the extent of the evidence which this Court will consider in determining the ownership of the disputed tax refunds or the merits of the counterclaims and cross-claims. It is further
ORDERED that in light of these findings, this Court orders that none of the parties shall file with the Internal Revenue Service amended corporate income tax returns for the fiscal years ending September 30, 1988 or 1989 until the resolution of this adversary proceeding or unless they have first sought and obtained leave of this Court to file such a tax return. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8491311/ | MEMORANDUM OPINION AND ORDER
HELEN S. BALICK, Bankruptcy Judge.
In this adversary proceeding, Hiram N. Lasher moves for summary judgment on Count III of the amended complaint of Harold and S. Jean Marvel, debtors. Count III states an abuse of process claim and seeks unspecified damages. This Court has jurisdiction pursuant to 28 U.S.C. § 157, and this is a core proceeding under 28 U.S.C. § 157(b)(2)(A), (K), and (0).
I. FACTS
In considering a motion for summary judgment, the court will consider admissions, depositions and exhibits thereto, and signed affidavits on file. Matter of L.B. Trucking, 90 B.R. 81, 84 (Bankr.D.Del. 1988). Viewing this record in the light most favorable to the non-movants (the Marvels), the following facts for the purposes of this motion exist.
*28On March 21,1987, the Marvels executed a note in the amount of $150,000 in favor of Lasher. The note contained a confession of judgment clause. On June 9, 1989, Lasher commenced a proceeding in Superi- or Court for the State of Delaware to confess judgment against the Marvels for $146,235.41 in principal, $8,773.14 in past-due interest, and post-judgment interest. A stipulated judgment was subsequently filed, and was signed by Superior Court on November 22, 1989. Lasher filed a notice of execution on December 19, 1989. On March 1, 1990, after a hearing at which the Marvels appeared and did not object, the Court issued a writ of execution. Four days later, Lasher filed a Fi Fa attachment with the Prothonotary’s Office of Sussex County directing the Sheriff to levy upon goods and chattels of the Marvels. On April 19, 1990, the Sheriff of Sussex County did levy upon about 15 items of farm equipment, as well as real estate owned by the Marvels. A sale was scheduled for June 27, 1990. Lasher knew that the Sheriff’s levy would bar the Marvels from using the farming equipment during the height of the farming season. His purpose in filing the Fi Fa attachment was to extract payment from the Marvels.
On June 26, 1990, the Marvels filed a voluntary petition under Chapter 11 in this Court. Lasher subsequently filed a proof of claim relating to the Superior Court judgment for $180,170.23 plus interest.
II. DISCUSSION
Count III alleges Lasher wrongfully and maliciously executed upon the farm equipment knowing that the Debtors would be unable to use the farm equipment at the height of the farming season in order to extract payment from the Marvels. As a result of the scheduling of the Sheriffs sale, Count III alleges the Marvels were forced to file a bankruptcy petition to enable them to continue farming. Count III seeks all expenses ensuing from this filing, including attorney’s fees.
The parties agree that the Marvels’ abuse of process tort claim must satisfy the requirements of Delaware law:
[T]he essential elements of the tort are: 1) an ulterior purpose; and 2) a wilful act in the use of the process not proper in the regular conduct of the proceedings. In explaining these elements, Prosser notes that some definite act or threat not authorized by the process, or aimed at an objective not legitimate in the use of the process, is required. Merely carrying out the process to its authorized conclusion, even though with bad intentions, does not result in liability. Some form of coercion to obtain a collateral advantage, not properly involved in the proceeding itself, must be shown.
Nix v. Sawyer, Del.Super., 466 A.2d 407, 412 (1983) (citations omitted). That there must be some definite act in furtherance of an illegitimate objective was recently reiterated in Feinman v. Bank of Delaware, 728 F.Supp. 1105, 1115 (D.Del.1990) (construing Delaware law).
Initially, the court notes that Lasher’s use of the Fi Fa attachment process was fully authorized, and was a legitimate method of attempting to satisfy the debt. The Marvels emphasize Lasher’s bad intent in utilizing this process. However, that Lasher had bad intentions in filing the Fi Fa attachment does not by itself satisfy the abuse of process requirements. The Marvels have not averred any overt act, either before or after the attachment, that could be equated with coercion to obtain a collateral advantage. See id. at 1115. Specifically, Mr. Marvel’s affidavit does not allege that Lasher extracted, or attempted to extract payments from the Marvels.
In apparent recognition of this deficiency, the Marvels cite non-Delaware case law for the proposition that “in the case of excessive attachment, ... the inference may be drawn that the defendant sought extortionate advantage by tying up all of the plaintiff’s property when attachment of a small amount would provide sufficient security for the debt.” See Prosser and Keeton, Law of Torts, § 121, at 899 & n. 28 (5th ed. 1984). This doctrine, assuming it would be applicable in Delaware, does not help shore up the hole in the Marvels’ abuse of process claim. No evidence of *29record suggests that the value of the levied property greatly exceeds the approximately $155,000 debt owed to Lasher. The Marvels themselves have pointed out in their briefing that the farm equipment subject to Sheriff’s sale was worth far less than $200,000. Moreover, the Marvels also state that the farm equipment was fully encumbered by a prior security interest in favor of Farmers Home Administration for at least $200,000 and that Lasher could not have recovered any monies from the sale. This is hardly an “excessive attachment” situation.
The Marvels have not averred a coercive act, and therefore, their abuse of process claim is deficient as a matter of law. It is thus not necessary to reach the issue of whether extracting payment on a debt in these circumstances constitutes an unauthorized and illegitimate objective as required by the Feinman case.
III. CONCLUSION
An order in accordance with this Memorandum Opinion is attached.
ORDER
AND NOW, June 13, 1991, for the reasons stated in the attached Memorandum Opinion,
IT IS ORDERED THAT:
1. Hiram N. Lasher’s motion for summary judgment is GRANTED.
2. Lasher’s request for sanctions pursuant to Bankruptcy Rule 9011 is DENIED.
3. Trial on Counts I and II of the amended complaint will be held September 26, 1991 at 11:00 a.m. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8491312/ | MEMORANDUM OPINION AND ORDER
HELEN S. BALICK, Bankruptcy Judge.
Plaintiffs Transamerica Commercial Finance Corporation (Transamerica), a sue-cessor-in-interest to Borg-Warner Acceptance Corporation, and Wilmington Trust Company have filed separate, but factually related complaints against debtors L. Gene Jarrell and Gladys E. Jarrell. The plaintiffs object to the discharge of their debts, based on 11 U.S.C. § 727, and alternatively seek a determination of the dischargeability of certain debts, based on 11 U.S.C. § 523. This court has jurisdiction over this matter pursuant to 28 U.S.C. § 1334, and this is a core matter pursuant to 28 U.S.C. § 157(b)(2)(A) and (I).
I. Facts.1
B & J Mobile Home Sales sold mobile homes to retail customers from a location in Dover, Delaware. Originally, Gene Jar-rell and Richard Engle operated B & J as a partnership. On July 1, 1983, they and Wilmington Trust executed a mobile home financing agreement. This agreement contemplated the sale and assignment by B & J to Wilmington Trust of retail installment contracts arising from B & J sales of mobile homes. In exchange for Wilmington Trust’s purchase of such an installment contract, B & J agreed, among other things, to provide Wilmington Trust “with a certificate of title to the property subject to the contract assigned to [Wilmington Trust] showing a lien or encumberance [sic] for 'the benefit of Wilmington Trust Company.”
At some point prior to April 23,1985, Mr. Engle ceased to be a partner of B & J, and Mr. Jarrell henceforth operated B & J as a sole proprietorship. The business form of B & J is not disputed. Gladys Jarrell was the office manager of B & J. She supervised the receptionist and service manager, and helped out in the service department. In 1986, B & J employed a bookkeeper. Because Mrs. Jarrell had no bookkeeping training or experience herself, her supervision of the bookkeeper was minimal.
On April 23, 1985, Mr. Jarrell entered into a “floor plan” agreement with Trans-america. This agreement provided that Transamerica would advance funds for the purchase of manufactured homes. Trans-america took a security interest in these homes and all future proceeds deriving from the sale of these homes. Upon the sale of each home by B & J to a customer, the agreement obligated B & .J to hold the proceeds in trust for Transamerica and to immediately use these proceeds to repay Transamerica for funds it had advanced. Until B & J repaid Transamerica these funds, Transamerica held the certificate of origin to the manufactured home. The certificate of origin is required to obtain a certificate of title from the Department of Motor Vehicles.
Through a separate document, Mr. and Mrs. Jarrell personally guaranteed all ba-*32bilities of B & J Mobile Home Sales to Transamerica.
The relevant composite effect of the BWA and Wilmington Trust agreements was that Transamerica had a security interest in each mobile home B & J sold that a customer financed pursuant to a retail installment contract that, in turn, was subsequently assigned to Wilmington Trust. In order for B & J to satisfy the certificate of title requirement of the Wilmington Trust agreement, it first had to satisfy the repayment requirement of the Transamerica agreement to obtain the certificate of origin.
In 1986, Jarrell sold the following four manufactured homes (“the homes”) to retail customers without informing Trans-america of the sales or paying Trans-america the sale proceeds:
1. 1986 Catalina, Serial Number 1985 to McParlin and McCoy on June 10, 1986;
2. 1986 Catalina, Serial Number 7527 to Mayhorn on June 26, 1986;
3. 1986 Zimmer, Serial Number 2327 to Tennant and Turner on July 25,1986; and
4. 1986 Country Manor (Homes of Merit), Serial Number 3437 to McFarland.
These types of sales are known in the financing industry as selling property “out of trust.” B & J assigned the installment contracts associated with the first three of these home sales to Wilmington Trust. The total value of these three contracts was $36,002. Transamerica did not discover these out of trust sales until an inventory inspection it conducted on August 7. After negotiations between the parties, on August 29, 1986, B & J paid Trans-america $32,000 towards monies it owed Transamerica pursuant to the floor plan agreement. Although Transamerica understood the $32,000 to be sales proceeds, the monies were actually derived from the sale of real estate. Because B & J never paid Transamerica in full for the out of trust proceeds, B & J never received the certificates of origin for any of the homes. Consequently, Wilmington Trust never received the three certificates of title it was entitled to pursuant to the financing agreement.
L. Gene Jarrell and Gladys Jarrell filed a joint Chapter 7 petition in this court on September 11, 1986. Transamerica agreed to turn over the $32,000 to the estate as the result of a preference action filed by the trustee, Jeremy Homer.
Wilmington Trust filed a complaint to determine dischargeability of debts. The debtors answered and filed a third party complaint against Transamerica, alleging they were damaged by Transamerica’s failure to provide certificates of origin for the homes. Transamerica answered and filed its own adversary complaint against the debtors to determine dischargeability of debts.
II. The Merits of the Plaintiffs’ Objections to discharge.
A. The Debtors did not refuse to obey an order of this court.
The plaintiffs assert that § 727(a)(6)(A) operates to deny the debtors a discharge. This section provides that a discharge shall be denied if:
the debtor has refused, in the case — to obey any lawful order of the court, other than ah order to respond to a material question or to testify. 11 U.S.C. § 727(a)(6)(A) (emphasis added).
Specifically, plaintiffs rely upon this court’s December 31, 1986 order, wherein this court ordered debtors to immediately deposit good funds in a Wilmington Trust accounts in the amount of $2,326.90. Debtors have not paid these monies.
Initially, the debtors argue this ground “is an attempt to argue facts not in evidence.” In addition, the debtors apparently argue that they were not on adequate notice of this allegation in order to have an opportunity to rebut at trial the § 727(a)(6)(A) ground. This argument is without merit. Wilmington Trust’s complaint sufficiently articulated the § 727(a)(6)(A) ground for non-dischargeability and referred to the court order. This reference was repeated in the pretrial or*33der. On the evidentiary issue, the court order was admitted twice, in Exhibit B and L of the two volume collection of stipulated exhibits. And the debtors did admit that the ordered sums have never been paid to Wilmington Trust.
Addressing next the merits of plaintiffs’ § 727(a)(6)(A) ground, the court notes that in its complaint and briefing, the plaintiffs take the position that debtors “failed ” to obey the court order. Section 727(a)(6)(A) allows this court to deny a discharge only if the debtors “refused ” to obey the court order. The use of the word “refused” in § 727(a)(6)(A) must be distinguished from the use of the word “failed” elsewhere in § 727(a). Bankruptcy law recognizes that mere failure does not equal refusal where the creditor does not show wilful or intentional disobedience, as opposed to inability, inadvertence or mistake. 4 Collier on Bankruptcy, 11727.09[2] (15th ed. 1979) (citing cases). Plaintiffs have never alleged or argued that the debtors refused to obey the court’s December 31, 1986 order. Plaintiffs’ § 727(a)(6)(A) objection is therefore overruled.
B. Section 727(a)(3) does not apply to deny discharge.
Wilmington Trust also alleges that for the calendar year 1986, the debtors “failed to keep or preserve any recorded information, including books, documents, records, and papers, from which the debtor’s financial condition or business transactions might be ascertained.” 11 U.S.C. § 727(a)(3).
The debtor’s duty under § 727(a)(3) is not to provide its creditors with a statement of its financial condition, but with information sufficient to allow the creditors to ascertain its financial condition. Id.; In re Silverman, 10 B.R. 727, 731-732 (Bankr.S.D.N.Y.1981). Whether the debtor has provided sufficient information depends on the facts of each case, and is within the discretion of the bankruptcy court. In re Decker, 595 F.2d 185, 187 (3d Cir.1979). The creditor alleging that a discharge should be denied under § 727(a) has the burden of proof. Bankr.R. 4005.
In the pre-trial order, the debtors conceded that no accounting or other financial statement was prepared for 1986. In the same pre-trial order however, Wilmington Trust conceded that the debtors maintained a record of cash receipts and cash disbursements. In addition, at trial, the debtors testified that they maintained the same records in 1986 as they did for 1985, when an accountant did prepare a financial statement. The debtors also introduced business records during discovery and at trial in response to Wilmington Trust’s complaint under § 727(a)(3). Wilmington Trust did not offer any evidence that these records were insufficient. To the contrary, Mr. Fox, B & J's accountant, testified that before the chapter 7 petition was filed, he had started preparing a financial statement for 1986. Under these circumstances, Wilmington Trust has not met its burden as a matter of fact and law to show that § 727(a)(3) applies.
In light of this holding, it is unnecessary to reach the justification issue of § 727(a)(3).
C. Mr. Jarrell has failed to satisfactorily explain or justify the loss of over $137,000 in 1986.
The final ground plaintiffs assert should apply to deny a discharge is based on § 727(a)(5), which reads:
The court shall grant the debtor a discharge, unless — ... the debtor has failed to explain satisfactorily, before determination of denial of discharge under this paragraph, any loss of assets or deficiency of assets to meet the debtor’s liabilities.
B & J began 1986 with $77,449.00 in cash. During 1986, B & J received an additional $996,330.00 in cash and disbursed $936,130.00. Mathematically then, B & J should have had $137,652.00 in cash on the date of filing. The debtors’ amended financial statement, however, lists less than $140.00 in cash. This loss of assets shifts the burden of proof to the debtor to satisfactorily explain the loss. Id.; see In re Hochberg, 17 F.Supp. 916, 919 (W.D.Pa. *341936). Debtors’ only explanation is that the bank-to-bank fund transfers account for the numerical discrepancies. The above computations, however, already discount the effect of the bank-to-bank transfers and so debtors’ position is without merit.
At this juncture, it is necessary to distinguish between the debtors Mr. and Mrs. Jarrell. Mr. Jarrell was the sole proprietor of B & J whereas Mrs. Jarrell was just an employee of B & J. The portion of § 727(a)(5) requiring the debtor to explain a loss of assets is based on the premise that the debtor, who is in control of the assets, is in the best position to know what happened to those assets. See 4 Collier on Bankruptcy, 11727.08 (15th ed. 1979). This rationale does not apply to Mrs. Jarrell, a mere employee with no bookkeeping expertise. To deny her a discharge based on § 727(a)(5) would impute to her knowledge of her husband, and in effect, hold her to.a strict liability standard. This result is outside the scope of § 727(a). See First Texas Savings Assoc. v. Reed, 700 F.2d 986, 993 (5th Cir.1983) (§ 727(a)(2) does not apply to deny discharge to spouse where other spouse engaged in fraudulent conduct); Davis v. Jacobs, 35 F.2d 936 (1st Cir.1929) (similarly construing precursor of § 727(a)(2)). Therefore, plaintiffs’ objection to Mrs. Jarrell’s discharge is overruled. Mr. Jarrell, however, has failed to explain the loss of assets and his discharge is therefore denied.
III.The merits of plaintiffs’ complaint to determine dischargeability.
Plaintiffs also argue certain debts of the debtors should be determined nondischargeable pursuant to sections 523(a)(2)(A), 523(a)(4), 523(a)(5), and 523(a)(6). First, since this court has determined that Mr. Jarrell will be denied a discharge, it is unnecessary to determine the dischargeability of specific debts as applied to him.
The only remaining issue then is whether any of the above subsections of 523 apply to make any of Mrs. Jarrell’s debts non-dischargeable. The reasoning of Section II.C., supra, applies with equal force to this issue. The plaintiffs’ arguments all rely on misconduct solely of Mr. Jarrell. Transamerica relies upon his sale of homes out of trust and failure to ever pay it an amount equal to the sale proceeds. Wilmington Trust relies upon his failure to provide it with certificates of origin required by the financing agreement. None of these transactions involved Mrs. Jarrell. She signed neither the financing agreement nor the floor plan agreement. She did not sell any of the four out of trust homes. Mr. Jarrell was not her agent. Mrs. Jarrell is liable on these claims only because of her personal guaranty. Plaintiffs’ have not provided the court with any reasons why then her debts in connection with these transactions should be non-dischargeable. The law is clear that, under these circumstances, her debts are dischargeable. Newmark v. National Bank of North America, 20 B.R. 842, 857-58 (Bankr.E.D.N.Y.).
IV. Debtors’ third party complaint against Transamerica is dismissed.
The debtors have not presented any argument on their third party complaint against Transamerica for damages. That complaint is dismissed.
V. Conclusion.
An order in accordance with this Memorandum Opinion is attached.
ORDER
AND NOW, July 24, 1991, for the reasons stated in the attached Memorandum Opinion,
IT IS ORDERED THAT:
1. L. Gene Jarrell is denied a discharge pursuant to 11 U.S.C. § 727(a)(5).
2. Contemporaneously with this order a Discharge of Debt order shall be entered as to the debts of Gladys E. Jarrell.
3. The third-party complaint of debtors L. Gene Jarrell and Gladys E. Jarrell against Transamerica is dismissed.
. At trial, the parties submitted two bound volumes of exhibits comprising hundreds of pages, including over 45 pages of unnecessary duplicate documents, for the court to consider as part of the record. The parties agreed to refer in their briefing to specific pages they wished the court to read. The vast majority of the exhibits were never referred to. In particular, the parties introduced over 240 pages of deposition transcripts as part of the record. Only six pages were referred to in the briefs. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8491313/ | HAROLD F. WHITE, Bankruptcy Judge.
This matter came before the court on the complaint of plaintiffs Paul A. Elam and Beth A. Elam (hereinafter “debtors”) to Determine Dischargeability and Extent and Priority of the lien of the United States of America, Internal Revenue Service (“IRS”), on debtors’ real property, and the IRS’s memorandum in response. In pre-trial, the parties agreed that this matter would be decided on an agreed stipulation of facts which the parties subsequently submitted to this court on January 16, 1991. Therefore, after an examination of the agreed facts, the record, and the law regarding this matter, the court makes the following Finding of Facts and Conclusions of Law.
AGREED STATEMENT OF FACTS
1.On June 18, 1990, debtors filed a voluntary petition pursuant to Chapter 7 of Title 11 the United States Code.
2. On July 3, 1990, debtors filed their Schedule B-l listing their residence at 3886 Fairfield Drive, in the city of Mogadore, County of Summit, and State of Ohio, with a market value of $88,000.00; and on the same date, they filed Schedule B-4, each claiming an exemption pursuant to section 2329.66(A) of the Ohio Revised Code in the sum of $5,000.00.
3. On December 14, 1990, debtors filed their Amended Schedule B-3 listing their interests in an ERISA-type, 401(k) retirement plan through Mr. Elam’s employer, Aircraft Braking Systems, for informational purposes only; the total value of the plan was $8,414.90, but the debtors dispute that it is property of the estate.
4. On December 15, 1990, Tom Conway, an appraiser selected by the plaintiffs, and Greg Zivoder, an appraiser selected by the IRS, submitted their joint written appraisal of the debtors’ real estate located at 3886 Fairfield Drive, Mogadore, Ohio, stating that the property has a fair market value of $80,000.00, and a liquidation value of $75,000.00.
5. On August 21, 1990, debtors filed an amended Schedule A-2 listing National City Bank (“NCB”) with a secured claim and a valid and subsisting first mortgage and first lien on the Fairfield Drive property in the sum of $80,900.00.
6. As of November 28, 1990, the balance of the first mortgage owed to National City Bank is $80,300.00.
7. On their amended Schedule A-2, debtors also list the IRS as a secured creditor with a disputed claim for personal income taxes for 1980 through 1984 inclusive, secured by tax liens against the Fair-field Drive property.
8. On October 1, 1990, the IRS filed its “Proof of Claim for Internal Revenue Taxes” as a secured claim in the total sum of $43,834.02, and as an unsecured general claim in the sum of $10,296.22, a copy of which is appended hereto as “Exhibit B” and incorporated by reference herein.
9. A “Notice of Federal Tax Lien" was filed on October 4, 1988 at the office of the Recorder of Summit County against Paul *139A. Elam and Beth Ann Elam for income tax liability for the year ending December 31, 1984 in the sum of $7,069.02.
10. A “Notice of Federal Tax Lien” was filed on October 4, 1988 at the office of the Recorder of Summit County against Paul A. Elam solely for income tax liability for the years ending December 31, 1980; December 31, 1981; and December 31, 1982; in the total sum of $31,503.88.
11. The tax liabilities referenced herein-above are dischargeable pursuant to section 727(a) and (b) of the Bankruptcy Code.
12. The court finds from the record that the Trustee abandoned the Fairfield Drive property on December 17, 1990, and the debtors were granted a discharge on December 26, 1990.
ISSUE
May Title 11 U.S.C. § 506(d) be utilized to avoid the IRS’s lien on the debtors’ Fairfield Drive property even though that property has already been abandoned from debtors’ estate?
CONCLUSIONS OF LAW
This court has jurisdiction in this matter pursuant to 28 U.S.C. § 1334(b) and the General Order of Reference entered in this district. This is a core proceeding pursuant to 28 U.S.C. § 157(b)(2)(E).
Title 11 U.S.C. § 506(a) provides that a claim is a secured claim to the. extent of the value of the creditor’s interest in the estate’s interest in the property. Title 11 U.S.C. § 506(d) provides that a lien is voidable to the extent that it is unsecured. Since NCB has a first lien on the debtors’ Fairfield Drive property, which along with debtors’ homestead exemption exceeds both the fair market value and liquidation value of the property, debtors claim that the IRS’s lien is voidable pursuant to § 506(a) and (d). Conversely, the IRS asserts that these code sections cannot be utilized to avoid its lien, because the debtors’ Fairfield Drive property was abandoned on December 17,1990.1 (Docket No. A-2)
Since § 506(a), which determines secured status, refers to property “in which the estate has an interest”, the courts are split on the issue of whether or not § 506(d) may be utilized to avoid liens on abandoned property. See § 506(a) which provides, in relevant part, that:
An allowed claim of a creditor secured by a lien on property in which the estate has an interest, ... is a secured claim to the extent of the value of such creditor’s interest in the estate’s interest in such property, ... and is an unsecured claim to the extent that the value of such creditor’s interest ... is less than the amount of such allowed claim.... (Emphasis added)
Presently, there are only two circuit court decisions wherein the courts have addressed this precise issue: Gaglia v. First Federal Sav. & Loan Ass’n, 889 F.2d 1304 (3rd Cir.1989) and In re Dewsnup, 908 F.2d 588 (10th Cir.1990), cert. granted, — U.S. -, 111 S.Ct. 949, 112 L.Ed.2d 1038 (1991). In Gaglia, which represents the majority position, the court opined that § 506(a) was not to be interpreted to limit lien avoidance to property which was administered, because to do so would conflict with the plain meaning of § 506(d), which on its face contained no such restriction. Gaglia, 889 F.2d at 1307-1308.
We do not read this limitation in § 506. On its face, that section contains no such restriction. Congress was surely aware that some estates would contain overen-cumbered property with nothing available for unsecured creditors. It certainly realized that in many such cases the trustee might decide not to liquidate the property. Yet Congress did not limit § 506 to cases in which it aids the administration of the estate. Gaglia, 889 F.2d at 1309.
However, the Dewsnup court, noting that a strong minority of courts have rejected the Gaglia approach on the basis *140that it is unfair to lienholders, held that Chapter 7 debtors could not use § 506 to void the undersecured portion of a lien on real property which had been abandoned by the estate.
Pursuant to the plain language of section 506(a), an allowed claim of a creditor is one in which the estate has an interest.... In order to apply section 506(a), the estate must have an interest in the property. The estate has no interest in, and does not administer, abandoned property. ... This assessment is consistent with our examination of statutory language generally_when statutory language is clear, “it is conclusive ‘absent a clearly expressed legislative intent to the contrary.’ ” [citations omitted] Dewsnup, 908 F.2d 588 at 590.
The Dewsnup court rejected the Gaglia court’s premise that § 506(d) must be read in isolation:
It is a fundamental precept of statutory construction that “[i]n expounding a statute, we must not be guided by a single sentence or member of a sentence, but look to the provisions of the whole law, and to its object and policy.” Dewsnup, 908 F.2d 588 at 591, quoting Mastro Plastics Corp. v. NLRB, 350 U.S. 270, 285, 76 S.Ct. 349, 359, 100 L.Ed. 309 (1956).
The Dewsnup court opined that “the language used in sections 506(a) and (d) was intended to facilitate valuation and disposition of property in the reorganization chapters of the Code.” Dewsnup, 908 F.2d 588 at 591.
It is common in Chapter 12 and 13 cases for debtors to propose plans which deal with and affect abandoned and/or exempted property, such as real property occupied as the homestead.... In such cases, even though the property may no longer be “property of the estate”, it nevertheless remains “property in which the estate has an interest.” ... Congress has provided numerous incentives to debtors choosing reorganization or rehabilitation under Chapters 11, 12 or 13, rather than liquidation under Chapter 7. It is believed that the availability of § 506 in connection with plans under those chapters which deal with exempt or abandoned property is simply another such incentive. Dewsnup, 908 F.2d 588 at 591-591, quoting In re Shrum, 98 B.R. 995, 1001 (Bankr.W.D.Okla.1989).
A review of reported Bankruptcy decisions reveals that presently there is only one other Ohio case addressing this issue. In In re Stephen J. Sills, 126 B.R. 974 (Bankr.S.D.Ohio 1991), the court thoroughly analyzed both the Gaglia and Dewsnup decisions and found that the Tenth Circuit’s reasoning in Dewsnup was the most persuasive: that the plain meaning of the language of § 506 is clear that it cannot be utilized to avoid or “strip down” a lien on property which has been abandoned by the Trustee of the estate.
This court agrees that the reasoning found in Dewsnup is the most persuasive. This court notes that the court in Gaglia was concerned that a lienor might impede a debtor's “fresh start” by waiting until a debtor had been discharged, then foreclosing and obtaining a deficiency judgment. Gaglia, 889 F.2d 1304 at 1308. However, in every bankruptcy where the debtor is granted a discharge and real property is abandoned, a mortgage holder has a right of foreclosure; but discharge orders generally state that “[a]ll creditors whose debts are discharged ... are enjoined from instituting or continuing any action ... to collect such debts as personal liabilities of the ... debtor.” (See debtors’ Discharge, Docket No. 33) This provision ensures that a debtor’s “fresh start” is not impeded. As Judge Clark succinctly stated: “The approach suggested by the Court does not impede the debtors’ fresh start. They can give up their interest in the property and obtain their fresh start. Moreover, any deficiency claim is clearly within the scope of the debtors’ discharge.” In re Dewsnup, 87 B.R. 676, 683 (Bankr.D.Utah 1988). Moreover, the language found in § 506 is unequivocal that in order to utilize this code section to avoid liens, the estate must first have an interest in the property. In this case, the estate does not have an interest in the Fairfield Drive property since it was abandoned on December 17, *1411990.2 Finally, this court observes that Congress had ample opportunity when enacting § 722 to include real property as an allowed redemption, but declined to do so. This court surmises that by enacting § 506 as it did, Congress intended to assist homeowners in obtaining additional financing by providing further protection to secondary lienholders.
Therefore, in accordance with the foregoing, this court concludes that debtors shall not be permitted to utilize § 506 to avoid the IRS’s lien on the Fairfield Drive property. A separate order in accordance with this Finding shall be entered.
IT IS SO ORDERED.
. Debtors have executed a Reaffirmation Agreement with NCB for the Fairfield Drive property. See Docket No. 18, filed September 5, 1990.
. This court notes that counsel for debtors approved the Order for Abandonment. (Docket A-2) | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8491314/ | DECISION AND ORDER GRANTING MOTION FOR CONTINUED DISCOVERY AND DENYING MOTION FOR PAYMENT OF DISCOVERY EXPENSES
WILLIAM A. CLARK, Bankruptcy Judge.
This matter is before the court upon the motion of the plaintiff to permit discovery pursuant to Bankr.R. 7056(f) and the Memorandum in Opposition to Plaintiff’s Motion to Permit Discovery and Defendant’s Motion for Payment of Expenses of Discovery. The motions of the parties were accompanied by memoranda of law.
The pretrial order was entered in this case on February 1, 1991, which detailed the framework for proceeding in this adversary proceeding. The pretrial order contemplated discovery and set a discovery cutoff date of June 30, 1991. The date for the final pretrial was set for June 26, 1991 at 9:30 a.m. Although the court has no recollection of a request for filing a motion for summary judgment by either party, the defendant filed a motion for summary judgment on April 22, 1991, with accompanying affidavit and memorandum.
While this court desires prompt attention by counsel to each adversary proceeding, the filing of the motion for summary judgment during the contemplated and agreed period for discovery in this case is premature. The period for discovery was contemplated to extend until June 30, 1991.
Summary Judgment is a valuable procedure to shorten and conserve litigation time and expense. As a result of the Supreme Court cases of Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986) and Celotex v. Catrett, 477 U.S. 317, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986) the use of summary judgment is encouraged. The parties must be aware that litigation can terminate suddenly if all of the requirements to defend against a motion for summary judgment are not taken advisedly by the party opposing the motion. The new significance of summary judgment procedure requires each party to present its evidence of the factual basis for a claim or defense by way of affidavit, depositions or a supporting document, or suffer the summary judgment. Explicit in the recognition of the elements necessary for the granting of a motion for summary judgment is the requirement that the nonmoving party have adequate time for discovery.
In this proceeding the period of time deemed necessary for discovery was ordered to end on June 30, 1991. The court deems it imperative that plaintiff have that time within which to complete discovery.
On the matter of the defendant's motion for payment of expenses of discovery, the court recognizes the principle stated in Melton v. McCormick, 94 F.R.D. 344, 346 (W.D.N.Y.1982), that “[t]he issue of allocation of costs is directed to the court’s discretion” as noted in the case of Pashman v. Chemtex Inc., 664 F.Supp. 701, 704 (S.D.N.Y.1987).
This court embraces the American rule concerning attorney fees that the cost of litigation should be borne by each litigant unless there is some contractual provision or egregious action by one party which justifies the imposition of legal expenses against that party. In this case the defendant has not shown authorization or requirement for the assessing of costs of discovery to the plaintiff. The court will assume and require that plaintiff be economical with his time and money and refrain from unnecessarily enhancing expense to the defendant. The necessity for the taking of a deposition and other discovery procedures by the plaintiff is apparent from the lack of information which the plaintiff has at hand. Such information is within the knowledge or possession of defendant. There is insufficient justification to require plaintiff to pay expenses of acquiring the information. Nothing in this proceeding indicates that plaintiff’s discovery actions are intended to increase the *143costs of discovery to defendant. Sanctions will not be imposed in the form of payment of discovery costs of the defendant.
The motion of plaintiff to permit discovery is granted. The motion of defendant for payment of expenses of discovery by the plaintiff is denied.
Further, the plaintiff is granted leave until 20 days after the discovery cutoff date within which to file his response to the motion for summary judgment.
IT IS SO ORDERED. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8491315/ | FINDINGS OF FACT, OPINION AND CONCLUSIONS OF LAW
J. VINCENT AUG, Jr., Bankruptcy Judge.
This matter is before the Court on the Debtor’s Complaint to Compel Turnover of *153Property or, in the Alternative, to Reject Executory Contract and Receive Immediate Return of Deposit (Adv. Doc. 1); the Debt- or’s Motion for Expedited Hearing On Debtor’s Turnover Complaint Against Cincinnati Gas & Electric Company or in the Alternative to Reject Executory Contract and Receive Immediate Return of Advance Payment (Adv. Doc. 3) and the Memorandum of the Cincinnati Gas & Electric Company (“CG & E”) in Opposition to Second Claim for Relief of KM Group, Inc. (Adv. Doc. 7).
Pursuant to the Complaint, the Debtor requested in its First Claim for Relief turnover of $70,000 being held by CG & E as the result of a Gas Main Extension Agreement (“Agreement”) which the Debtor signed with CG & E on February 3, 1989. Debtor requested the return of the funds on the grounds that the funds constituted an “advance payment” which Debtor contends is property it may use, sell or lease under 11 U.S.C. § 363. In its Second Claim for Relief Debtor requested approval to reject the Agreement as an executory contract under 11 U.S.C. § 365 and return of the funds. Debtor further sought an expedited hearing on the Complaint.
Pursuant to the agreement of the parties, the Second Claim for Relief was bifurcated from the First Claim and is being treated herein as a motion to reject an executory contract under 11 U.S.C. § 365(a). The parties further agreed to a hearing date of April 26, 1991. For the reasons set forth herein, the Court holds that the subject contract is not executory and, therefore, may not be rejected by the Debtor. The motion is DENIED.
The Court has jurisdiction over this matter pursuant to 28 U.S.C. §§ 157 and 1334 and this is a core proceeding pursuant to 28 U.S.C. § 157(b)(2).
The Debtor is a real estate developer. Prior to commencing this Chapter 11 case, the Debtor began construction on a development of residential homes known as “Black Horse Run.” In order to provide future home owners in Black Horse Run with the opportunity to receive gas service, the Debtor contacted CG & E regarding the extension of an existing gas main into the development. As a result, the Debtor and CG & E entered into the Extension Agreement on February 3, 1989.
Pursuant to the Agreement, CG & E agreed to extend its existing gas main a distance of 9,400 feet in order to enable purchasers of real property from the Debt- or and others to have access to gas service. The terms of the Agreement reflect CG & E’s “Rider X — Main Extension Policy” (“Rider X”). Rider X is contained within CG & E’s Tariff PUCO No. 18 which has been approved by Order of the Public Utilities Commission of Ohio (“PUCO”) effective January 30, 1986. Rider X reflects PUCO’s established policy regarding the allocation of risk and sharing of expenses incurred by CG & E in extending gas mains in excess of 100 feet per customer. It is based on the premise that a public utility should not bear the entire cost of extending a gas main for the development of new residential or commercial property. Ohio Rev.Code Ann. § 4905.54 requires CG & E to comply with all orders of the PUCO and CG & E is not permitted to depart from the terms and conditions imposed by Rider X without the approval of the PUCO.
As a public utility, CG & E recovers its significant capital expenditures to extend gas mains to a proposed real estate development by including that cost in its “rate base” for service supplied to its customers. CG & E is then compensated for its investment by the customers as part of their rates. The payments received from the Rider X applicant reduce the cost of providing service to the customers and are not recovered through CG & E’s rates except when the conditions of reimbursement have been satisfied. The addition of new customers increases the rate base over which the costs are spread. If, however, the real estate development fails and an insufficient number of customers are hooked up to the gas main, an additional burden is placed on CG & E and its customers. Thus, Rider X permits CG & E, at its option, to charge the applicant for the entire cost of extending the main over 100 feet.
*154In the instant case and in accordance with the provisions of Rider X, CG & E charged the Debtor $10 per foot of extension, or $94,000. CG & E’s costs to extend the gas main 9,400 feet were in excess of $298,000. CG & E funded approximately $204,000 or 68% of the extension costs.
With respect to reimbursement, Rider X provides as follows:
3. An applicant desiring an extension to a proposed real estate subdivision may be required to pay the entire cost of the extension. Each year for a period of up to but not exceeding six (6) years, which begins on the effective date of the main extension contract, the Company shall refund to the applicant, who paid for the extension, a sum equivalent to the cost of one hundred (100) feet of the extension installed for each additional customer connected during the year, but in no case shall the total amount refunded over the six (6) year period exceed the amount paid to the Company. There shall be no refunds after the end of the said six (6) year period.
According to CG & E, the rationale behind this reimbursement policy is that once a customer has been connected to the gas main there is a reasonable expectation that revenues will be forthcoming. Therefore, the applicant is entitled to reimbursement since the costs of the extension have been defrayed by the new customers. Under the terms of Rider X and the Extension Agreement, however, the applicant is entitled to reimbursement only upon completion of customer hookups.
At no time does the applicant have a legal or equitable interest in any funds or assets of CG & E. By the same token, Rider X does not obligate the applicant to obtain customer hookups.
At the time of the hearing on April 26, 1991 the Debtor had been reimbursed approximately $24,000 as the result of customer hook-ups. If an additional 70 customers are connected to the gas main within the time specified by the Agreement, the Debtor may be entitled to an additional $70,000 reimbursement.
Section 365(a) of the Bankruptcy Code provides that, “the trustee, subject to the court’s approval, may assume or reject any executory contract ... of the debtor.” While the term “executory contract” is not defined in the Bankruptcy Code, the Sixth Circuit Court of Appeals sets forth the standard to which this Court is bound in In re Terrell, 892 F.2d 469 (6th Cir.1989):
The Bankruptcy Code does not explicitly define the term “executory contract.” The legislative history, however, indicates that Congress intended the term to be defined as a contract “on which performance remains due to some extent on both sides.” S.Rep No. 95-989, 95th Cong., 2d Sess. 58, reprinted in 1978 U.S.Code Cong. & Admn.News 5787, 5844; H.R.Rep. No. 95-595, 95th Cong., 1st Sess. 347, reprinted in 1978 U.S.Code Cong. & Admn. News 5785, 5963, 6303. See also, In re Jolly, 574 F.2d 349, 350-51 (6th Cir.), cert. denied 439 U.S. 929, 99 S.Ct. 316, 58 L.Ed.2d 322 (1978).
Id. at 471.
The Debtor’s motion requests the approval of this Court to reject the Agreement as an executory contract under § 365(a). The Debtor asserts that as the result of its rejection of the Agreement it is entitled to obtain the balance of the unreimbursed funds paid to CG & E without complying with the reimbursement requirements in the Agreement for the following reasons: (1) the Agreement is executory because the Debtor has an obligation to use its best efforts to develop Phase One of the Black Horse Run development, sell the lots and have homes built on the lots which will connect to the gas main extension and thus entitle Debtor to obtain reimbursement; (2) the Agreement is a contract of adhesion because the Debtor was not free to negotiate the terms upon which the gas main would be extended; and, (3) the $94,000 payment is analogous to a security deposit on a lease to which the tenant is entitled.
CG & E argues that the Agreement is not executory because all material obligations of the parties under the Agreement have been performed and the only remaining aspect is the possible reimbursement of *155funds to the Debtor after specific action by non-parties to the agreement. CG & E further argues that even if the Agreement was determined to be executory, the rejection of the Agreement would not trigger any payment of funds to the Debtor by CG & E as a consequence of the rejection.
The Debtor asks this Court to consider the equities inherent in its attempt to restructure its business; however it has cited no legal or factual basis for the position that reimbursement would flow from the rejection of the Agreement.
The Agreement is not executory within the meaning of § 365(a) of the Bankruptcy Code. The Court finds no requirement under the Agreement that the Debtor sell lots in the development and obtain customers to hook up to the gas main to obtain reimbursement. The parties’ obligations under the Agreement are completed. The Debt- or’s entitlement to reimbursement is automatic under the terms of the contract and nothing further is required of the Debtor. Therefore the Agreement is not executory.
The Debtor also argues that it should be entitled to reject the Agreement because it is a contract of adhesion. The Debtor bases this argument on the contention that it was unable to negotiate the terms of the Agreement. The Debtor cites In re Public Service Company of New Hampshire, 107 B.R. 441 (Bankr.D.N.H.1989) in support of this proposition. In that case the court held that the nonresidential customers of the regulated monopoly power company were entitled to the repayment of their security deposits, even outside the confines of the customer’s applicable agreements. The court said in part:
The commercial user deposits here in question were not voluntary payments extended to the debtor on the basis of a risk assessment as to dealing with the debtor on an unsecured credit basis, as is generally true of trade creditors and unsecured debenture holders who must consciously make a determination whether to deal with the debtor on that basis, but instead were payments compelled by a regulated monopoly electric utility company acting under a tariff approved by the New Hampshire Public Utilities Commission. The tariff required such deposits as a condition of obtaining electrical service. * * * No other alternatives were available to such depositors and in no sense could they be deemed to have acted ‘voluntarily’ * * *.
Id. at 446.
The instant case can readily be distinguished. The payments herein were in the nature of risk assessment and cost sharing, not a security deposit. In addition, the Debtor voluntarily decided to provide gas rather than other forms of fuel to potential customers. Such decision was based on its apparent belief that gas would make the properties more attractive for sale. Furthermore, the provisions of the Agreement were established in accordance with the policies of Rider X. The Debtor was treated fairly and in a manner consistent with other similarly situated applicants for a gas main extension. The question here is not whether this Court has the power to address executory contracts as between a debtor and a regulated public utility, but rather, does this Court desire to establish special provisions or exceptions to the established policies of the public utility and the PUCO. The Court declines to do so and finds that the Extension Agreement is not a contract of adhesion.
Finally, the Debtor argues that the Agreement is tantamount to a lease and the unreimbursed portion of the funds used to share the costs of construction are tantamount to a security deposit. As stated previously, the Court does not view these funds as a security deposit. The payment from the Debtor did not constitute security for the Debtor’s obligations under the Agreement. It was a one-time obligation to share the costs of extending the gas main. Thus, the analogy of the Extension Agreement to a lease is inappropriate and does not form a basis upon which to reject the agreement.
For the reasons set forth above, which shall constitute this Court’s Findings of Fact and Conclusions of Law, the Court *156hereby denies the Debtor’s motion to reject the Extension Agreement.
IT IS SO ORDERED. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489109/ | M. S. YOUNG, Bankruptcy Judge.
Debtor Cow Valley Ranches has a confirmed plan of arrangement under chapter 11, of Title 11 U.S.C.
Vendor Lease Funding is the lessor of certain equipment acquired by debtor prior to the time it instituted its chapter 11 proceeding. Crocker Equipment Leasing, Inc. is also a lessor in a contract by which debtor acquired a potatoe storage building and certain grain bins prior to the start of its proceeding in Bankruptcy Court.
Under its plan of arrangement defendant debtor is to cure all defaults in the above named leases and pay the leases according to their terms. They are unimpaired claims. As such debtor must leave unaltered the contractual rights of the claimants, cure defaults in payment, reinstate the maturity of the debt and compensate the holder “for any damages incurred as a result of any reasonable reliance by such holder on any contractual provisions.”
Debtor does not dispute the sums due under the lease agreements and the dollar amounts necessary to cure the defaults. Both lessors, however, claim attorney’s fees and costs in addition to the payments necessary to bring the leases current. These costs were incurred when lessors employed attorneys to advise them of and protect their contract rights in this chapter 11 proceeding. The lease contracts of both parties provide that lessee shall pay any costs and expenses including attorney’s fees incurred by lessor in exercising any of its rights or remedies under the lease or in enforcing any of the terms and conditions of the lease. Debtor contends that the action taken by lessor in this proceeding through their attorneys was not to enforce any rights under the lease and that such action was unnecessary.
I conclude that the debtor’s objections to payment of attorney’s fees and costs are not well taken. If a debtor is to have the right to cure defaults which he could not have cured absent the Bankruptcy Code, the non-defaulting party has the right to be made whole as a condition of debtor’s right to do so. When the lessors herein employed counsel to advise them of their rights in this bankruptcy proceeding, they acted reasonably and the expenses thereby incurred were a damage incurred as a result of their reasonable reliance on their contractual right to be reimbursed for enforcing the terms of their lease in Bankruptcy Court.
The fees requested by counsel for both parties appear to be reasonable and they will be allowed. In order to assess its position and to determine whether it was adequately protected by its security, it was not unreasonable for Crocker Equipment Leasing, Inc. to obtain an appraisal of its security, thus this cost will also be allowed.
*5NOW, THEREFORE, IT IS ORDERED and this does ORDER that the debtor pay, as provided by its plan, all sums necessary to cure defaults plus claimed expenses by Crocker Equipment Leasing, Inc. and Vendor Lease Funding. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489110/ | FINDINGS OF FACT, CONCLUSIONS OF LAW AND ORDER ON MOTION FOR CIVIL CONTEMPT
GRADY L. PETTIGREW, Bankruptcy Judge.
From the evidence presented, this Court finds as follows:
1. Debtor, Peter J. Mullen, filed a voluntary petition in bankruptcy on April 24, 1980.
2. Debtor entered the U.S. Air Force in 1953 and was honorably discharged in 1957. He completed college in 1962, having served in the Air Force Reserves. In 1964, debtor returned to active duty status and completed Officer Training. On July 31, 1975, debtor was subject to a reduction in force and released from the Air Force. He was paid $15,000 readjustment pay at the time he was released because of the reduction in force. August 1, 1975, was debtor’s re-enlistment date, on which he was given the rank of sergeant. On March 1,1980, debtor retired from active duty in the Air Force.
3. Under the provisions of 10 U.S.C. § 687, debtor agreed that he would receive no retired pay, 10 U.S.C. § 8911, until he had repaid 75% of the $15,000.
4. The 75% of the $15,000 had not been paid when debtor filed his motion for civil contempt.
5. Debtor is entitled to receive retired pay subject to the duty to repay the 75% of the readjustment pay.
Conclusion of Law
From the foregoing, this Court concludes as follows:
1. Debtor has failed to carry the burden of proof and persuasion that the U.S. Air Force is liable for civil contempt.
2. This Court does not conclude that 11 U.S.C. § 362 compells a finding of civil contempt in light of the mandatory provisions of 10 U.S.C. § 687.
IT IS SO ORDERED. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489111/ | DECISION AND ORDER
ANDERSON, Bankruptcy Judge.
PRELIMINARY PROCEDURE
An involuntary petition in bankruptcy was filed on 19 January 1979 by Cincinnati Gas & Electric Company against Consumers Coal Company, a Kentucky Corporation, in the Eastern District of Kentucky; and transferred to the Southern District of Ohio on 6 April 1979 for trial and administration.
On 24 July 1979 pursuant to a Decision and Order, an adjudication in bankruptcy was entered.
On 3 August 1979 a petition was filed under Chapter XI of the Bankruptcy Act, and the Debtor in Possession authorized to continue operation of the business.
A plan of arrangement was duly filed by Debtor on 23 May 1980. The hearing on confirmation and objections filed in opposition thereto was continued, because of ancillary litigation. No continued hearing on the Plan of Arrangement was assigned; and, on 3 August 1981 an Amended Plan of Arrangement was filed which was set for hearing on 30 September 1981. The last date for objections to confirmation has been set as 20 September 1981.
On 8 May 1981 Plaintiff (Consumers) filed a complaint against Pellet Coal Export Company, Inc. (Pellet) for temporary, preliminary, and permanent injunctions restraining Pellet from any contact or communication with National Bank of Detroit relating to the affairs of Debtor and restraining Pellet from unlawfully interfering with Debtor’s attempt to effect a Plan of Arrangements, and from initiating any legal proceedings in any other court. Plaintiff also sought an order “restraining defendant from any contact or communication with any of plaintiff’s creditors.”
A temporary Restraining Order was issued on 11 May 1981.
The action is before the court upon the pleadings; a pretrial order finalized on 15 June 1981; the evidence adduced at a trial on 16 June 1981; and Plaintiff’s Post-Trial Brief filed 27 July 1981. Defendant has not filed a Post-Trial Brief.
FINDINGS OF FACT
On 20 March 1981, Consumers and Pellet entered into a contract, herein termed the “Pellet Sale Agreement,” including the accompanying Addendum, for the sale of all of Plaintiff’s assets to Defendant.
“B. CONDITIONS.
1. This Agreement is subject to (i) approval by the federal bankruptcy judge having jurisdiction over Seller and (ii) such approval by the Board of Directors and Shareholders of Seller and Purchaser as may be required by law, provided, however, that if said Agreement and this Addendum is not approved by the Board of Directors and Shareholders of both parties within 30 days from the date of
*70said Agreement and this Addendum, then both said Agreement and this Addendum shall be null and void.”
On 27 March 1981 Consumers and its major shareholders entered into an Agreement of Compromise and Settlement, resolving a series of ongoing disputes which had jeopardized efforts to seek confirmation of a plan of arrangement. By order under date of 22 May 1981, this Court approved the Shareholder Settlement Agreement to resolve the interference with the Chapter XI process (now pending on Appeal).
The first modification of the Settlement Agreement was executed between May 1 and May 5,1981. Prior to modification, the Agreement provided for sale by Consumers of all its assets to any purchaser who submitted an offer which complied with certain prerequisites, including the following:
(a) The offer had to be accompanied by a $300,000 down payment or a bank escrow deposit aggregating the cash portion of the purchase price.
(b) The price (and therefore the bank escrow deposit) had to be at least $15.5 million cash, net of commission, plus indebtedness due A&T Mfg. Co.
(c) The offer had to provide (if it were received and negotiated by Richard E. Hodson) that the purchaser would cause to be paid to Donald C. Graves and Gaylord S. Stacy the sum of $2,749,495.95 out of the purchase price proceeds.
(d) The purchaser had to provide written releases, in favor of plaintiff; Messrs. Hodson, Graves, Stacy and H. T. Mead; Mead Development Co; and Mead-Hodson, Inc., releasing them from any post-closing obligation or liability of any kind to the purchaser or the companies the purchaser was acquiring.
(e) The purchase price could not be subject to offset or reduction.
(f) The offer had to provide that its consummation was conditioned upon the Shareholder Settlement Agreement being approved by a final order of this Court entered on or before June 1, 1981.
(g)The offer had to provide that the “effectiveness and consummation thereof are in all respects subject to the approval of the Court .... ” (emphasis added)
The Pellet Sale Agreement did not comply with the following provisions of Article 6, to-wit:
(a) The requirement of a cash deposit or bank escrow or any demonstration whatever of any ability or means to make timely such a deposit.
(b) The requirement of express provision for payment of more than $2.5 million to Messrs. Graves and Stacy.
(c) The requirement of provision for written releases in favor of plaintiff and the other signatories to the Shareholder Settlement Agreement.
(d) The express detailed provisions pertaining to Court approvals.
(e) Defendant did not execute or return to plaintiff a rider sent to defendant with plaintiff’s counsel’s letter of April 8, 1981. This letter advised defendant that such rider to the Pellet Sale Agreement was necessary in order for there to be a Complying Offer under the Shareholder Settlement Agreement — in other words, for the Pellet Sale Agreement to be approved by Pellet’s shareholders. Defendant viewed this rider and the Complying Offer provisions of the Stockholder Settlement Agreement as an attempt by plaintiff’s shareholders to renegotiate the Pellet Sale Agreement.
(f) The basis for defendant’s conclusion that the Pellet Sale Agreement was approved by plaintiff’s shareholders is Article 6 of the Shareholder Settlement Agreement and Mr. Hodson’s assurance that the Shareholder Settlement Agreement was signed by the signatories thereto.
(g) Court approval of the Pellet Sale Agreement did not occur.
*71On 5 May 1981 Pellet sent a mailgram to National Bank of Detroit (NBD) threatening to file a $100,000,000.00 damage suit against Consumers because its officers and shareholders “refuse to honor their agreement” and that “this action will be filed the week of May 11.” NBD is the major creditor of Consumers and the confirmation of a plan of arrangement is in great part dependent upon its cooperation in restructuring loan agreements and advancing additional funds.
DECISION
This litigation is primarily a question of fact. The Plaintiff has studiously labored at great length the terms of the contract at issue and the fact that numerous conditions precedent had not been met by Pellet. It, also, is noteworthy that adequate payment was never timely tendered to Consumers by Pellet.
There is no doubt from the facts that there was never a consummated mutual agreement. This Court, nevertheless, does not even reach the issues raised as to the terms of the alleged sale agreement.
The issues may be resolved upon more fundamental principles.
Even if the agreement had not specifically provided that it is “subject to (i) approved by the federal bankruptcy judge having jurisdiction over” Consumers, the court jurisdiction could not be obviated or avoided. In fact, Court approval has never even been sought. The Debtor in Possession determined that the sale is not in the best interest of the Creditors, and could not and did not ever recommend approval by the Court.
Furthermore, assuming that the question of approval had been duly submitted to this Court, a meticulous search of the entire record has revealed that there is such a complete lack of the elements of mutuality for a binding contract that the correspondence with the National Bank of Detroit, threatening a $100,000,000.00 damage suit, can only be attributed as a malicious intent, in light of the Bankruptcy Court exclusive jurisdiction over both the Debtor and all of the assets. This blatant disregard of all legal principles is augmented by the fact that Defendant never even bothered to file a post-trial brief to assist the Court in reaching any other conclusion, or of mitigating the damages so inflicted.
Such blatant abuse of the judicial process and malicious interference in the Chapter XI case not only has delayed the rights and realization of payments to all of the creditors involved in the case; but also, it has imposed an unnecessary burden of litigation expenses, including attorneys’ fees, which bear a priority as administrative expenses over the rights of the estate creditors.
ORDERED, ADJUDGED AND DECREED,
(1) that no contractual relationship whatever exists between Consumers Coal Company and Defendant Pellet Coal Export Company, Inc.
(2) That Defendant is neither a creditor nor an interested party in the Chapter XI case and is permanently enjoined from any contact or communications with any creditors and interested parties of Consumers Coal Company, including National Bank of Detroit, and from any other attempts to interfere with the Chapter XI process and jurisdiction of this Court.
(3) That an evidentiary hearing be set for the purpose of the submission of evidence as to the costs of this action incurred by Plaintiff, including reasonable attorneys’ fees, conformably to Hall v. Cole, 412 U.S. 1, 93 S.Ct. 1943, 36 L.Ed.2d 702; Alyeska Pipeline Service Co. v. Wilderness Society, 421 U.S. 240, 95 S.Ct. 1612, 44 L.Ed.2d 141; Hutto v. Finney, 437 U.S. 678, 98 S.Ct. 2565, 57 L.Ed.2d 522; Monroe v. Board of Commissioners, 453 F.2d 259 (6th Cir.), cert. denied, 406 U.S. 945, 92 S.Ct. 2045, 32 L.Ed.2d 333; Bradley v. Richmond School Board, 416 U.S. 691, 696, 94 S.Ct. 2006, 40 L.Ed.2d 476; and Huecker v. Milburn, 538 F.2d 1241 (6th Cir.). | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489113/ | MEMORANDUM DECISION
THOMAS C. BRITTON, Bankruptcy Judge.
The trustee seeks judgment against the defendant for $7,000 based upon a final judgment in an enforcement proceeding arising out of a dissolution of marriage granted in Indiana in February, 1980. The trustee is proceeding under 11 U.S.C. § 542(b).
The defendant, ex-husband of the debtor, has answered. (C. P. No. 4).
The answer incorporates a motion to dismiss on the ground that the complaint fails to state a cause of action. The motion is denied.
The matter was tried before me on September 1. There was no appearance by or for the defendant, nor has any motion for continuance been presented. The trustee’s testimony was taken.
Defendant has admitted the judgment relied upon by the trustee, but has asserted a setoff in the amount of $1,240, based upon a support order entered by the same court in favor of the defendant. The trustee concedes that the debtor is indebted in that sum to the defendant and concedes the propriety of a setoff.
The answer further alleges that the debtor remarried before the dissolution decree became effective. A subsequent pleading by the defendant advises that on August 25,1981, defendant moved the Indiana court to vacate the judgment in question on the ground that the debtor lied during the trial on May 12, 1978 in Indiana by testifying that she was not being supported by *84any other individual. An attached copy of what purports to be a Florida marriage record suggests that the debtor remarried in Florida on February 19, 1978. Defendant has offered no explanation why it has taken over three years to uncover and present this issue to the Indiana court.
The issues brought to this court’s attention by defendant constitute alleged intrinsic misconduct or fraud which may or may not provide a basis for direct relief from the judgment under Indiana law. It does not constitute extrinsic fraud sufficient to support a collateral attack on that judgment in this action to enforce that judgment. Fidelity Standard Life Ins. Co. v. First National Bank & Trust of Vidalia, D.C.Ga. 1974, 382 F.Supp. 956, aff’d. 5 Cir., 510 F.2d 272, cert. den. 423 U.S. 864, 96 S.Ct. 125, 46 L.Ed.2d 94; Helgesson v. Helgesson, D.C. Mass.1961, 196 F.Supp. 42, aff’d. 1 Cir., 295 F.2d 37.
The fact that defendant is now seeking direct relief from that judgment does not, in itself, deprive that judgment of the full faith and credit to which it is entitled. McArdle v. Schneider, D.C.Mass.1964, 228 F.Supp. 506; see Lowman v. Falsetti, 5 Cir. 1964, 335 F.2d 632, 639, cert. den. 379 U.S. 966, 85 S.Ct. 659, 13 L.Ed.2d 560.
It follows that the trustee is entitled to judgment against the defendant in the amount of $5,760. As is required by B.R. 921(a), a separate judgment will be entered to that effect. Costs will be taxed on motion. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489115/ | ORDER DENYING CONFIRMATION
THOMAS C. BRITTON, Bankruptcy Judge.
This chapter 13 plan has been presented by a married man. The plan covers charge account debts incurred by both the debtor and his wife. The plan is based upon the assumption that the wife’s earnings, which approximate those of the husband, will be committed to the plan. However, the wife has not joined in this petition nor is she in any way legally bound by the plan.
To be confirmed, a plan must have been proposed in good faith and this court must find that the debtor will be able to make all payments under the plan and to comply with the plan. 11 U.S.C. § 1325(a)(3) and (6). I cannot make either finding with respect to this plan under the circumstances present here.
At the confirmation hearing, this court was advised that this debtor elects not to consider the joinder of his wife in this plan. There is, therefore, no purpose in granting the debtor an opportunity to modify this plan and no such opportunity is requested here. The debtor has advised this court that he elects conversion of this case to chapter 7.
Accordingly, confirmation of the plan presented by the debtor is denied and this *157case is converted to chapter 7. Robert Roth is appointed interim trustee under § 701(c). Bond is waived. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8491316/ | MEMORANDUM OPINION
JOHN H. SQUIRES, Bankruptcy Judge.
This matter comes before the Court on the fee application of Tinley Park Bank (the “Bank”) by and through its counsel, Ruff, Weidenaar & Reidy, Ltd. pursuant to 11 U.S.C. § 506(b) for the allowance of $10,000.00 in compensation for reimbursement of its attorneys’ fees. Proper notice was given to all creditors and parties in interest pursuant to Federal Rule of Bankruptcy Procedure 2002. An objection to the fee application was filed by the Debtor. For the reasons set forth herein, the Court hereby allows in full the requested compensation in the amount of $10,000.00.
I. JURISDICTION AND PROCEDURE
The Court has jurisdiction to . entertain this fee application pursuant to 28 U.S.C. § 1334 and General Rule 2.33(A) of the United States District Court for the Northern District of Illinois. This matter constitutes a core proceeding under 28 U.S.C. § 157(b)(2)(A) and (O).
II. FACTS AND BACKGROUND
Many of the relevant facts and background of the case are contained in earlier Opinions and need not be repeated for purposes of this matter. See In re Alberto, 121 B.R. 531 (Bankr.N.D.Ill.1990); In re Alberto, 121 B.R. 527 (Bankr.N.D.Ill.1990); In re Alberto, 119 B.R. 985 (Bankr.N.D.Ill. 1990). On April 5, 1990, the Debtor filed a Chapter 11 petition. The Debtor has operated as a debtor-in-possession pursuant to 11 U.S.C. §§ 1107 and 1108. Hotly contested litigation among the Debtor and various *168creditors, including the Bank, was pending in several forums which included the Seventh Circuit Court of Appeals, the District Court for the Northern District of Illinois and this Court. Such litigation has now been resolved by a global settlement which has been substantially consummated. The main issues litigated were whether the beneficial interest of the corpus of a land trust, including certain real property and improvements commonly known as 2424-2554 South Laflin Avenue, Chicago, Illinois (the “Laflin property”) was an asset of the Debtor’s estate, and what were the interests in and claims against same by the various parties.
The Bank is the holder of a first trust deed, dated June 10, 1983, encumbering the Laflin property. The trust deed secures an installment note of even date with a “due on sale clause” in the original principal amount of $303,783.95 made by the land trustee holding title to the Laflin property. The note matured on June 1, 1988. On June 10, 1983, the Debtor, as beneficiary, also collaterally assigned the beneficial interest under the land trust holding title to the Laflin property to the Bank. Moreover, on that same date, the Debtor personally executed a guaranty, and the land trustee executed a recorded assignment of rents in favor of the Bank, further securing the payment of the underlying indebtedness. Pursuant to the terms of the Debtor’s personal guaranty, the Bank is entitled to recover from the Debtor, “expenses (including attorneys’ fees and legal expenses) paid or incurred by the Bank in endeavoring to collect the Liabilities, or any part thereof, and in enforcing this guaranty.” The right of recovery, however, is limited to the principal amount plus interest. In addition, in a confession of judgment cognovit provision, the guaranty contractually limits the recovery of attorneys’ fees to fifteen percent of the unpaid amount.
The Bank timely filed its secured proof of claim on October 30,1990, in the amount of $110,414.70, plus interest at the loan contract rate of $38.60 per diem, plus all costs, expenses and attorneys’ fees (which latter amounts were not specified in the proof of claim). No objections thereto were filed. The claim for unpaid interest and principal has been paid out of the settlement leaving only the unpaid attorneys’ fees and costs to be determined and allowed by the Court. Pursuant to an agreement with counsel for the Debtor, the Bank has agreed to limit its fee request to $10,-000.00, notwithstanding its undisputed ov-ersecured status under section 506(a).
At the time of the initiation of the bankruptcy proceedings, the Bank’s loan had matured and was in default. As a result of litigation pending in the district court between the Debtor and The CIT Group/Equipment Financing, Inc. (“CIT”), the Bank was served with a citation to discover assets by CIT in aid of its judgment. Due to such action by CIT, the Bank was required to defend its interests and participate in those proceedings pending in that forum. The Debtor also initiated an adversary proceeding before this Court in which the Bank was made a party defendant. Moreover, in another matter before the Court in the core bankruptcy proceeding, CIT, the Debtor, and the Bank each claimed the right to all of the rental proceeds which accrued and were paid by tenants as a result of the post-petition use and occupancy of the Laflin property. This latter dispute was ultimately determined in favor of the Bank by agreed order.
Subsequently, on April 16, 1991, pursuant to a global settlement resolving all disputes in all forums, the Court approved the sale of the Laflin property and certain items of personal property, pursuant to 11 U.S.C. § 363, to the Debtor’s son for the sum of $1,225,000.00, with the various parties’ interests attaching to and being paid from the sale proceeds in amounts as the parties so agreed. The purchase agreement allocated a value of $1,050,000.00 to the real estate subject to the Bank’s first trust deed.
III. ARGUMENTS OF THE PARTIES
The Bank claims that because the Debtor and CIT vigorously pursued their respective theories as to whether the Laflin prop*169erty was or was not an asset of the estate, coupled with the claim of D & D Disposal for a mechanic’s lien therein and other parties’ claims of interest, the Bank was made a party defendant to an adversary proceeding and was required to appear, answer and defend its rights. The Bank contends that all time expended by its counsel was reasonable, fair and necessary in order to protect its security and to facilitate the ultimate resolution. A total of 81.45 hours by the Bank’s attorneys and 8.00 hours by their law clerks were expended for an aggregate fee of $10,311.25.
The Debtor argues that the time expended was excessive because the Bank’s security interest was never challenged and it was at all times fully secured. The Debtor further claims that the time spent was not reasonable and necessary to the representation of the Bank. The Debtor suggests that a fair and reasonable amount constitutes five percent of the amount of the indebtedness ($110,414.70) or approximately $5,500.00.
In response to the Debtor’s objection, the Bank states that there is no support in the Bankruptcy Code or applicable case law which justifies the Debtor’s conclusion that five percent of the Bank’s indebtedness is an appropriate standard for determining the allowance of attorneys’ fees. In addition, the Bank contends that the Debtor is unable to direct the Court to any time entries that suggest unnecessary or inflated billing. Furthermore, the Bank states no objection was raised to the $125.00 regular hourly rate charged by its primary counsel, which is within the standard billing range for experienced counsel in Chicago, Illinois. The Bank further asserts that its security interest was jeopardized by the “hair pulling contest” between the Debtor and other parties in interest.
IV. STATUTORY AUTHORITY
Section 506(b) of the Bankruptcy Code provides in relevant part:
To the extent that an allowed secured claim is secured by property the value of which ... is greater than the amount of such claim, there shall be allowed to the holder of such claim, interest on such claim, and any reasonable fees, costs, or charges provided for under the agreement under which such claim arose.
11 U.S.C. § 506(b) (emphasis added). To substantiate a claim for attorneys’ fees under section 506(b), the Bank must satisfy four requirements in order for its fees and costs to be allowed as part of its claim: 1) the Bank must have an allowed secured claim; 2) the Bank must be oversecured; 3) the underlying documents must provide for such fees and costs; and 4) the claim for fees and costs must be reasonable. See In re Josephs, 108 B.R. 654, 656 (Bankr.N.D.Ill.1989); In re Rutherford, 28 B.R. 899, 902 (Bankr.N.D.Ill.1983); In re Salazar, 82 B.R. 538, 540 (9th Cir.BAP 1987); In re Reposa, 94 B.R. 257, 259-260 (Bankr.D.R.I.1988). The Bank has an allowed secured claim of over $110,000.00 and is un-disputedly oversecured on property which sold for $1,050,000.00. Additionally, the underlying security documents provide for attorneys’ fees of up to fifteen percent of the unpaid balance owed, plus all collection expenses and costs. Thus, only the fourth requirement is at issue and contested by the parties, namely, whether or not the requested amount of fees are reasonable.
Section 506(b) provides that only “reasonable fees, costs or charges” are compensable. In making a determination of reasonableness, the Court does not look to state law, but rather makes an independent evaluation. See In re 268, Ltd., 789 F.2d 674, 677 (9th Cir.1986); Unsecured Creditors’ Committee 82-00261c-11A v. Walter E. Heller & Co. Southeast, Inc., 768 F.2d 580 (4th Cir.1985). The Court has broad discretion to determine what constitutes a “reasonable” fee. In re Mills, 77 B.R. 413, 419 (Bankr.S.D.N.Y.1987). The Court must review the fees to ensure that they are reasonable in scope and amount. In re Calzaretta, 35 B.R. 92 (Bankr.N.D.Ill.1983) lists several factors that must be considered when determining the reasonableness of fees under section 506(b). The criteria to be evaluated in determining reasonableness of fees are: 1) time and labor required; 2) novelty and difficulty of *170questions; 3) skill requisite to perform legal services; 4) preclusion of other employment by acceptance of the case; 5) customary fee; 6) whether the fee sought is fixed or contingent; 7) time limitations; and 8) the amount involved and results achieved. Id. at 94; see also In re Mid-State Fertilizer Co., 83 B.R. 555, 557 (Bankr.S.D.Ill. 1988). Moreover, only necessary services will be compensated. In re Wonder Corp. of America, 82 B.R. 186 (D.Conn.1988); Reposa, 94 B.R. at 260. Courts frequently disallow or reduce fees sought by secured creditors on finding that the work performed was unnecessary or excessive. See e.g., In re Kroh Bros. Dev. Co., 105 B.R. 515, 529-530 (Bankr.W.D.Mo.1989); Mid-State Fertilizer, 83 B.R. at 557.
Federal bankruptcy law should only modify state law contract rights to the extent necessary to accomplish bankruptcy goals. Butner v. United States, 440 U.S. 48, 99 S.Ct. 914, 59 L.Ed.2d 136 (1979). Justice O’Connor wrote a dissent in the Supreme Court’s 1989 decision United States v. Ron Pair Enterprises, Inc., 489 U.S. 235, 109 S.Ct. 1026, 103 L.Ed.2d 290 (1989), noting a concern for preserving the value of contract rights. She stated in part, “[w]hen the creditor extended credit, he relied upon the particular security given as collateral to secure both the principal of the debt and interest until payment and, if the collateral is sufficient to pay him, the contract between the parties ought not be abrogated by bankruptcy.” Id. at 254, 109 S.Ct. at 1037 (O’Connor, J., dissenting).
V. DISCUSSION
The Court has carefully reviewed the fee application and finds that full allowance of compensation is mandated, over the objection of the Debtor. The $10,000.00 requested amount is well within the fifteen percent ceiling of recovery under the terms of the guaranty expressly agreed to by the Debtor. The Court finds that the services rendered were reasonable, necessary and authorized by the loan documents. The time expended by counsel for the Bank was reasonable and necessary given the extent of litigation involved, as well as the polarity of positions taken by the various interested parties that potentially jeopardized the Bank’s secured position.
The Court has considered all the Calzar-etta factors. The time period of the services rendered covered June, 1990 through April, 1991. The total time expended of almost ninety hours is not excessive in light of the hotly contested litigation to which the Bank was made a party. Although the legal issues concerning the Bank’s interests were neither novel nor difficult, its attorneys skillfully and diligently rendered the services to protect its senior interest. While there is no showing or contention that the Bank’s attorneys were precluded from other employment by accepting the representation of the Bank’s interests, the fees charged are at the customary, usual and regular rates charged by its attorneys. In a broad sense, the fees, although on an hourly billing rate, are “contingent” because they are subject to review, determination and allowance by the Court in the exercise of its discretion under section 506. Finally, no time limitations were involved in the representation. The amount involved, however, is reasonable considering the principal and accrued, but unpaid interest components of the Bank’s claim and the excellent results achieved. The Bank’s underlying unpaid claim was paid in full and protected with the advocacy and assistance of the Bank’s attorneys. A prudent and equitable exercise of the Court’s discretion is to allow in full the requested fees, as slightly reduced by agreement of counsel.
The five percent figure that the Debtor sets forth without explanation of how that figure was determined to be reasonable and fair, contains no support in either the Bankruptcy Code or any cited case authority interpreting same under section 506(b). Hence, the Court will not follow the Debt- or’s recommendation. There are no compelling reasons or authorities not to allow the requested fees in full. Consequently, the Court hereby allows the fees in the amount of $10,000.00.
*171VI. CONCLUSION
For the foregoing reasons, the Court hereby reimburses Tinley Park Bank for its requested attorneys’ compensation in the amount of $10,000.00.
This Opinion is to serve as findings of fact and conclusions of law pursuant to Federal Rule of Bankruptcy Procedure 7052. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8491317/ | AMENDED MEMORANDUM OPINION1
STEPHEN J. COVEY, Bankruptcy Judge.
On April 25, 1991, the Debtors filed a petition for relief under Chapter 13 of the Bankruptcy Code. The Debtors listed their residence as an asset valued at $72,175.00 and subject to a first mortgage in favor of William J. Wade, Trustee, in the amount of $32,175.00.
The Debtors plan of repayment provided that all post-petition payments due on the mortgage would be paid direct to the Mortgagee as they became due. At the time of filing the petition for relief the Debtors were in arrears on their monthly payments in an amount of $1,513.80 and the Mortgagee had commenced foreclosure proceedings in the state court. The Debtors proposed to pay this arrearage, which they estimated to be $1,680.00, at $20.00 per month for sixty (60) months, with no interest. This was offered pursuant to Section 1322(b)(5) which provides in substance that a pre-petition default in the payment of a secured claim can be cured within a reasonable time (de-acceleration).
The Mortgagee objected to the confirmation of the plan because the plan did not propose to pay interest on the mortgage arrearages as follows:
Payments due: $1,513.80
Insurance advanced: 800.00
Taxes advanced: 61.07
Late fees: 60.00
Attorney fees advanced: 750.00
Court costs advanced 100.00
Total arrearages: 3,284.87
The Mortgage provides as follows:
1. If a monthly payment was not paid within fifteen (15) days the Debtors would be charged a late payment of Five Dollars ($5.00).
2. If the Mortgagee had to advance insurance or taxes such amounts would be added to the Mortgage debt and would bear interest at the rate of Ten Percent (10%).
3. If the Mortgagee incurs attorney fees and court costs in foreclosing on the Mortgage or attempting to collect the debt, these expenses would be added to the Mortgage indebtedness.
The Debtors contend that the Mortgagee is not entitled to interest on the arrearages because it was not provided for in the Mortgage.
Conclusions of Law
The majority rule is that Mortgagees are not entitled to interest on mortgage arrear-ages due and owing on the Debtors’ residence unless the mortgage provides for it. See In re Stamper, 84 B.R. 519 (Bkrtcy. N.D.Ill.1988); In re Terry, 780 F.2d 894 (11th Cir.1985); Appeal of Capps, 836 F.2d 773 (3rd Cir.1987); Collier on Bankruptcy, Volume 5, Section 1322.09(4). Contra, In re Colgrove, 771 F.2d 119 (6th Cir.1985); In re Thomas, 115 B.R. 305 (Bkrtcy. E.D.Okl.1990).
This Court expressly adopts the reasoning of Judge Ginsberg in Stamper.
Pursuant to these cases, the Court will allow interest on the $861.07 owed the Mortgagee for insurance and taxes, at ten percent (10%) interest, as provided for in the mortgage. This amount is to be paid by the Trustee over the sixty month life of the Plan. The unpaid pre-petition monthly payments in the amount of $1,513.80, plus the $60.00 late fee, will be paid by the Trustee over the sixty month life of the Plan without interest. A reasonable attorney fee, as allowed by this Court after a *240hearing, plus the $100.00 costs, will be paid by the Trustee over the sixty month life of the Plan without interest. Interest is not allowed on the past due payments, attorney fees and court costs, because it is not provided for in the mortgage.
The Debtor will pay directly to the Mortgagee the principal amount due on the mortgage on the date of bankruptcy, in monthly installments, at the contract rate of interest, over the term of the mortgage. In determining the principal amount due on the mortgage, the arrearages discussed above are not to be included because they are being paid as indicated.
SO ORDERED.
. This Amended Memorandum Opinion replaces the Memorandum Opinion entered herein June 25, 1991, and discussed in Court that day. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8491319/ | ORDER ON MOTION TO VACATE ORDER GRANTING AMADA LEASING CORPORATION’S REQUEST FOR EX PARTE TERMINATION OF THE AUTOMATIC STAY
ALEXANDER L. PASKAY, Chief Judge.
THIS is a Chapter 11 case and the matter under consideration is a Motion To Vacate Order Granting Amada Leasing Corporation’s Request for Ex Parte Termination of the Automatic Stay. In order to put the Motion under consideration into proper perspective, a brief recap of the procedural history should be helpful.
On September 10, 1990, Van Beck Metal Products, Inc. (Debtor), filed a Motion and sought authority to assume three exec-utory contracts relating to chattel leases with Amada Leasing Corporation (Amada). *269The first lease involved “[o]ne Amada Turret Punch Press, Model PEGA, s/n P3441244, with Spare Parts Package and Tooling Package complete with all attachments now owned or hereafter acquired.” The second lease involved “[o]ne Amada Press Brake, Model RG100, a/n 103251 with NC9EX Backgauge and one tooling package, complete with all attachments now owned or hereafter acquired.” The third lease involved “[o]ne Amada Mechanical Shear, Model M3060, s/n 30600472, complete with all attachments now owned or hereafter acquired.” The Motion stated the Debtor’s business is operated with the use of this equipment, without which the Debtor would be limited to the point of being unable to reorganize its business under Chapter 11 and, thus, the Debtor wished to assume said executory contracts under § 365(d)(1) [sic].
On October 10, 1990, Amada filed a response to the Debtor’s Motion To Assume in which it contended that the Debtor was in default on all three leases and the Debt- or should be compelled to “permanently” cure [sic] all arrearages and to compensate or provide adequate assurance that it will compensate Amada for actual pecuniary losses caused by its default. On December 17, 1990, this Court entered an Order and overruled Amada’s objection to the Motion To Assume and authorized the Debtor to assume all three leases, with the proviso, however, that the Debtor will continue to make all regular contractual payments as they become due and, in addition, it will pay the one month postpetition arrearages to Amada on the leases by dividing the contract payments by 12 and adding l/12th of the postpetition arrearage to each monthly lease payment called for by these leases.
On December 28, 1990, Amada filed a Motion to Reconsider the Order which authorized the assumption of these leases. In its Motion, Amada contended that the Order submitted by counsel for the Debtor was not consistent with this Court’s ruling announced from the bench. On January 25, 1991, the Debtor filed a response to Amada’s Motion for Reconsideration. Before these matters came on for consideration on February 6,1991, the Debtor filed a Motion To Assign and Sell Leased Property [sic]. However, this Motion was limited to an assumption and assignment of a lease involving only one of the three equipment items leased from Amada, the punch machine. On February 8, 1991, Amada again filed an Objection to the Motion To Assume and Assign contending that the Debtor does not provide for payment of all arrear-ages concerning all three pieces of equipment which were originally involved in the first Motion to Assume filed by the Debtor. On March 4, 1991, this Court granted a Motion for Reconsideration and scheduled a hearing for March 6 to consider the last Motion To Assume and Assign filed by the Debtor. Following that hearing, this Court entered an Order and granted the last Motion of the Debtor to assume the three leases, and to assign and sell the same relating only to the punch machine covered by Contract No. A637 0101. The Order provided the Debtor shall make all prepetition and postpetition payments on the lease covering this equipment within five working days from March 6, 1991. The Order also overruled Amada’s Objection to the assumption of the lease. In the last paragraph of this Order, this Court provided in the event the Debtor defaults or fails to comply with the conditions imposed by the Order, Amada would be entitled to apply for an ex parte order lifting the automatic stay after having given 48 hours telephonic notice to the Debtor’s attorney and filing an affidavit of default with the Court.
It appears that Amada filed an Affidavit of Default and gave telephonic notice to Debtor’s counsel, and since the Court did not receive any opposition and a request for hearing from Debtor’s counsel, on April 2, 1991, this Court terminated the automatic stay and authorized Amada to proceed and enforce its right against the equipment in question.
The present Motion is addressed to this Order and is based on the contention, inter alia, that the Debtor did, in fact, cure all the arrearages and therefore was not in default, and for this reason, it was inappropriate to lift the automatic stay to permit *270Amada to recover the equipment in question. It is without dispute that the total arrearages on the lease contract, which involved the punch press only, consist of seven monthly payments, which after adjustment for an increase of the sales tax is $4,305.71 per month. The proof presented to this Court indicates that the Debtor, in fact, paid Amada the total amount of $35,-642.04 which appears to be in excess of the arrearages on the lease for the punch press, which is only $30,139.97. However, it is the contention of Amada that it is entitled to late charges in addition to the monthly contract payments, costs and attorney fees and, therefore, the money received by Amada is insufficient to “cure” the arrearages. It further appears that some of the payments made by the Debtor may include the payments paid as adequate protection relating to the two other items of equipment which the Debtor now elects not to assume and is willing to surrender and turn over to Amada.
In light of this development, this Court is satisfied that while the Debtor did cure the contractual arrearages on the lease relating to the punch press, it did not compensate or provide adequate assurance that it will compensate the lessor for actual pecuniary loss, if any, resulting from the default, payment of which is also required by § 365(b)(1)(B) for assumption of executory contracts. Inasmuch as these amounts are yet to be established, it is impossible at this time to make a definite determination of that amount. Likewise, it is impossible to tell how much of the $35,642.04 paid by the Debtor represented an adequate protection payment on the leases that have not been assumed and are now going to be surrendered and returned to Amada.
Based on the foregoing, it is
ORDERED, ADJUDGED AND DECREED that the Motion for Emergency Hearing To Vacate Order Granting Amada Leasing Corporation’s Request for Ex Parte Termination of the Automatic Stay be, and the same is hereby, granted, this Court’s Order of April 2, 1991, lifting the automatic stay be, and the same is hereby, vacated and set aside. It is further
ORDERED, ADJUDGED AND DECREED that the Debtor shall file with the Court and furnish to counsel for Amada a statement indicating what portion of the total paid related to the nonassumed equipment, and what portion related to the actual contractual arrearage. Thereafter, the Court will enter an order determining the amount, if any, the Debtor is required to pay to Amada to cure arrearages pursuant to § 365(b). It is further
ORDERED, ADJUDGED AND DECREED that counsel for Amada shall furnish and serve a copy on counsel for the Debtor, a schedule of items of damages for which it seeks compensation pursuant to § 365(b)(1)(B), and unless the parties agree on these items, the Court shall schedule a hearing to determine the appropriate amount, if any, to be paid by the Debtor to Amada in addition to the sums already paid. It is further
ORDERED, ADJUDGED AND DECREED that Amada must accept any further lease payments turned over by the buyer of the equipment, including those which had been tendered earlier, in satisfaction of the contractual obligation under the lease contract relating to the equipment in question. It is further
ORDERED, ADJUDGED AND DECREED that the Motion for Relief from Automatic Stay imposed by § 362 be, and the same is hereby, granted to the extent necessary to permit Amada to recover possession of the two leased equipment items described in the original Motion that have not been assumed by the Debtor.
DONE AND ORDERED. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8491320/ | MEMORANDUM OF OPINION
DAVID F. SNOW, Bankruptcy Judge.
This chapter 11 proceeding was filed on January 27, 1988. The business was operated for a year and a half by the Debtor as debtor in possession. Subsequently on June 30, 1989 Philip Zimmerman was appointed trustee; he was succeeded on May 11, 1990 by Saul Eisen. Shortly thereafter Mr. Eisen concluded that the Debtor could not be reorganized as a going concern and that its business should be sold. Consistent with that decision, the trustee on November 7, 1990 filed a complaint to determine the validity, priority and extent of liens and a notice of his intent to sell at private sale.
Aneck Harold Green and Gus Estrate, former employees of the Debtor, objected to the sale and to the complaint on the ground that they were secured creditors of the Debtor and were owed substantial moneys. On December 20, 1990 the Court ordered the property sold and the liens transferred to the proceeds of that sale.
The Debtor contends that Messrs. Green and Estrate (collectively the “Employees”) are not secured creditors because they failed to perfect the security interests allegedly granted to them by the Debtor prior to its initiation of this chapter 11 proceeding. At the December pretrial it was agreed by the parties (and the Internal Revenue Service — the paramount secured creditor) that the Employees’ status as secured or unsecured appeared to depend on whether their failure to file financing statements with the Secretary of State of Ohio was fatal to their claim as secured creditors; the parties agreed to submit the matter on briefs.
Discussion
Harold Green worked for the Debtor as a commission salesman and was owed some $47,000 evidenced by three promissory notes at the time that his employment ceased shortly before the chapter 11 filing. According to the Employees’ brief, these three notes were “each secured by a Uniform Commercial Code Financing Statement providing a name, address and signature of the Debtor and Creditor as well as the following description of the collateral: ‘[a]ll corporate assets to the amount of [the amount of each particular debt].’ ” Mr. Estrate was also employed by the Debtor. His employment continued until terminated in connection with Mr. Eisen’s sale of the business. His claims also arise out of unpaid salary and are evidenced by the Debt- or’s promissory notes and by financing statements substantially identical to those of Mr. Green. Each of the Employees’ financing statements was duly filed for record with the Recorder for Cuyahoga County, but no filing was made with the Secretary of State of Ohio.
According to Ohio Revised Code section 1309.38(A)(4) (U.C.C. § 9-401), the proper place to file a financing statement is “in the office of the Secretary of State and, in addition, if the debtor has a place of business in only one county of this state, also in the office of the county recorder of such county,.... ” The Employees suggest that their failure to file with the Secretary of State of Ohio was not fatal because section 1309.38(B) provides:
A filing which is made in good faith and in an improper place or not in all of the places required by this section is nevertheless effective with regard to any collateral as to which the filing complied with the requirements of sections 1309.01 to 1309.50 of the Revised Code, and is also effective with regard to collateral covered by the financing statement against any person who has knowledge of the contents of such financing statement.
*489The first prong of this exception provides the Employees no help, however. Filings with the county recorder alone are sufficient in respect of certain equipment and personal property relating to farm products or farming operations and to consumer goods. (See O.R.C. § 1309.38(A)(1H3)). However, Debtor was a manufacturing concern and there is no suggestion that any of its assets were of a character that precluded the need for an additional filing with the Secretary of State of Ohio under section 1309.38(A)(4) of the Ohio Revised Code.
The Employees’ other argument is that the Debtor had knowledge of the filings and of the Employees’ security interest. However, the Debtor’s knowledge cannot be imputed to the trustee either under the Bankruptcy Code or under the Uniform Commercial Code. Section 544(a) of the Bankruptcy Code provides that:
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.
This language requires the Court to avoid an unperfected security interest at the trustee’s request without regard to the Debtor’s knowledge or the Employees’ reliance upon the Debtor to have properly perfected their interests. The trustee is a representative of all creditors; the thrust of the Bankruptcy Code is to treat creditors equally and unsecured unless their claimed security interests are fully perfected without regard to other equitable considerations. Section 1309.20 of the Ohio Revised Code (U.C.C. § 9-301) expressly provides that an unperfected security interest is subordinate to the right of a lien creditor, which includes “a trustee in bankruptcy from the date of the filing of the petition.” O.R.C. § 1309.20(A) and (C).
But even if the Employees’ failure to file their financing statements with the Secretary of State were not fatal, it appears doubtful that their papers created a valid security interest under Ohio law. It appears that there was no security agreement as distinguished from the financing statements described above. According to Silver Creek Supply v. Powell, 36 Ohio App.3d 140, 521 N.E.2d 828 (1987) a financing statement may not serve as a security agreement. Under this authority no security interest was ever created. But even if that hurdle were surmounted, it has been held generally that language such as that used in the Employees’ financing statements is inadequate to create a valid security interest. In In re Swanson, 104 B.R. 1 (Bankr.C.D.Ill.1989), the court noted that a description of the purported collateral as “all personal property” was plainly insufficient under section 9-110 of the Uniform Commercial Code (O.R.C. § 1309.08). Likewise, “all corporate assets” which appears in these financing statements is too general to reasonably identify the purported collateral.
Therefore, it appears that the Employees’ security interests, if any, in the debt- or’s assets were not perfected and are not enforceable against the Debtor’s trustee. Consequently, the Employees have no secured interest in the proceeds of the sale of those assets. The Court’s order in conformity with this opinion is attached.
ORDER
A memorandum of opinion having been entered on the issues presented in the Complaint and the Answers of Aneck Harold Green and Gus F. Estrate, and in accordance with that opinion,
IT IS ORDERED, ADJUDGED, and DECREED that the claims of Aneck Harold Green and Gus F. Estrate be, and they hereby are, determined to be unsecured. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8491321/ | MEMORANDUM OF OPINION
DAVID F. SNOW, Bankruptcy Judge.
The Debtor filed this adversary proceeding to avoid an alleged preferential transfer to the defendant. The parties have filed several motions and briefs, from which it appears that there is no factual dispute; the parties have agreed that the Court should decide this case on the basis of their briefs and the other relevant papers filed by them. These other relevant papers comprise pleadings and two judgment entries in an Ohio Common Pleas Court case styled Jerome P. Yurch, et al. v. James S. Beverley, et al., case number 153890 in the Court of Common Pleas of Cuyahoga County, Ohio (the “State Court Proceeding”). For clarity Yurch, the defendant in this case, is referred to as the plaintiff, his role in the State Court Proceeding.
Background
Plaintiff and the Debtor own adjoining parcels of land on a hillside in Brecksville, Ohio. The plaintiff’s property lies on the uphill side of the Debtor’s. The State Court Proceeding grew out of the Debtor’s effort to develop his parcel by constructing a driveway along the boundary separating his property from the plaintiff’s. In the course of that enterprise he not only encroached upon the plaintiff’s property but his excavation for his driveway resulted in a removal of support for the plaintiff's property, part of which slid downhill into the Debtor’s excavation.
This unhappy event resulted in two judgments in the State Court Proceeding — the first an Agreed Judgment Entry entered April 27, 1989 (the “Agreed Order”); the second a Supplemental Judgment Entry entered March 1, 1990 (the “Supplemental Order”). Pursuant to the Agreed Order the Court ordered the Debtor to remove the portion of his driveway that encroached on the plaintiff’s property, to remedy the loss of support to plaintiff’s property and to prevent further injury to the plaintiff’s property by erecting a retaining wall by January 24, 1989 [sic]. The Agreed Order authorized the plaintiff to enter on the *491Debtor’s property to effect the necessary work if the Debtor failed to do so. In that event the plaintiff was obliged to obtain bids for the work. According to the Agreed Order the cost of the work would be “recorded as a Judgment in favor of plaintiffs against defendants, jointly and severally, by way of a Supplemental Judgment Entry.”
In fact, the Debtor failed to perform the work ordered and the plaintiff invoked the right of self-help provided in the Agreed Order. The plaintiff went back to the state court, which on March 1, 1990 entered the Supplemental Order against the Debtor in the amount of $20,160 which was then filed as a judgment lien. This was the low bid obtained by the plaintiff pursuant to the bid procedure prescribed in the Agreed Order. The Supplemental Order also authorized the plaintiff and his construction company to enter upon the Debtor’s property to perform the work necessary to support the plaintiff’s property and to repair the damage done.
The issue in this case is whether the Supplemental Order, which was entered and recorded as a judgment lien some 50 days prior to filing of this chapter 13 case constituted a transfer avoidable as a preference under section 547 of the Bankruptcy Code. Debtor contends such is the case; plaintiff argues that the transfer was authorized in the Agreed Order entered long prior to the 90-day preference period. After reviewing the documents from the State Court Proceeding it appears that the plaintiff is correct.
Discussion
The State Court had jurisdiction over Debtor's property. That property was specifically described in both the Agreed Order and in the plaintiff’s complaint in the State Court Proceeding. Therefore under lis pendens principles any person dealing with Debtor’s property after the complaint was filed, including purchasers and creditors, would take subject to the plaintiff’s rights or claims to that property as determined by the court in the State Court Proceeding. See 66 O.Jur.3d, Lis Pendens § 16 (1986) and O.R.C. § 2703.26.
Section 547(e)(1)(A) of the Bankruptcy Code provides that for preference purposes a transfer of real estate “is perfected when a bona fide purchaser of such property from the debtor against whom applicable law permits such transfer to be perfected cannot acquire an interest that is superior to the interest of the transferee.” Therefore, to the extent that the Agreed Order can be characterized as the “transfer” at issue, the transfer would have been made and perfected long prior to the entry of the Supplemental Order and long prior to the preference period. But the essence of the Debtor’s argument is that there was at that point no transfer, whatever the status of the public record; there was simply an obligation on the Debtor to undertake certain work on his property for the benefit of the plaintiff’s property. He argues that the Agreed Order may have contemplated the possibility of a transfer, but that no transfer in fact was made until the entry of the Supplemental Order which created the $20,160 lien. Although the Debtor’s argument is plausible and has a certain logical appeal, it does not adequately reflect the nature of the relationship between the parties and their property.
That relationship is not primarily that of debtor and creditor; it is the relationship between owners of adjoining parcels of land. That relationship is primarily in rem, not in personam; this difference in focus is generally characterized by the statement that the obligation “runs with the land.” To absolve the Debtor’s property from its obligation to provide natural support for plaintiff’s property would constitute a windfall for the Debtor or his creditors not, as intended through preference recovery, the restoration of equality among creditors.
The Agreed Order grew out of and defined the support relationship between the plaintiff's land and the Debtor’s land and imposed on the Debtor the obligation to restore that support. If the Debtor failed to meet his obligation as owner, the Agreed Order spelled out the plaintiff’s self-help *492remedies which were to be secured in effect by a lien on the Debtor’s property. The fact that the lien ripened within the preference period does not constitute the sort of transfer which section 547 proscribes. The obligation of the Debtor’s property to the plaintiff’s predated the preference period and anyone dealing with the Debtor’s land from the time of the Agreed Order (in fact from the date that the plaintiff’s complaint was filed in the State Court Proceeding) took subject to that obligation. Therefore, the Court holds that the plaintiff’s interest in the Debtor’s land is not avoidable under section 547 of the Bankruptcy Code. The Court’s order in conformity with this opinion is attached.
ORDER
A memorandum of opinion having been issued on the Debtor’s preference complaint,
IT IS ORDERED, ADJUDGED and DECREED that the relief requested be, and it hereby is, denied. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8491322/ | OPINION AND ORDER ON OBJECTION TO CLAIM
BARBARA J. SELLERS, Bankruptcy Judge.
I.Procedural Background
This matter is before the Court after a hearing on the debtors’ objection to the proof of claim of Etna Battery Company (“Etna”). For the reasons which follow, the debtors’ objection to the secured status of Etna’s claim is sustained and Etna’s claim will be allowed only as unsecured for purposes of distribution in this Chapter 13 case.
The Court has jurisdiction in this matter under 28 U.S.C. § 1334(b) and the General Order of Reference entered in this district. This is a core proceeding which this bankruptcy judge may hear and determine under 28 U.S.C. § 157(b)(2)(B).
II.Facts
Etna filed a proof of claim for repair work it performed on the debtors’ 1984 Nissan Sentra Automobile (“Vehicle”). It is undisputed that the debtors owe Etna $1,078.95 for those repairs and Etna had the vehicle in its possession when this Chapter 13 petition was filed. Further, it is undisputed that Etna returned the Vehicle to Columbus Finance, Inc. (“Columbus”). Columbus had a security interest in the Vehicle which was noted on the certificate of title. Columbus has since sold the Vehicle. The dispute, therefore, centers on whether Etna has an allowed secured claim or whether its claim is unsecured.
III.Issue Presented
What are the relative priorities between the holder of a possessory artisan’s lien and the holder of a prior security interest noted on a motor vehicle’s certificate of title?
IV.Discussion
Although Etna uses the term “mechanic’s lien,” any lien which Etna may have on the Vehicle is an “artisan’s lien.” In Ohio, most artisan’s liens may be created by statute:
(A) Except as provided in division (E) of this section, a bailee for hire who performs services or provides materials with respect to any personal property, has a lien on the personal property to secure the reasonable value of the services he performs and the materials he provides. The lien shall be subject to prior recorded liens on the personal property....
* * * # * *
(E) This section does not apply to a bailee for hire who performs any service or provides any materials with respect to motor vehicles, as defined in section 4501.01 of the Revised Code_
Ohio Rev.Code § 1333.41(A) and (E).
By its terms this statute does not apply to motor vehicles. Thus, any artisan’s lien Etna may have is not a statutory lien, but is a common-law artisan lien.
Further, Ohio has adopted the Uniform Commercial Code which makes artisan’s liens (either statutory or common law) superior to any previously perfected security interest in the goods. See Ohio Rev.Code § 1309.29 (U.C.C. § 9-310) which provides:
When a person in the ordinary course of his business furnishes services or materials with respect to goods subject to a security interest, a lien upon goods in the possession of such person given by statute or rule of law for such materials or services takes priority over a perfected security interest unless the lien is statu*505tory and the statute expressly provides otherwise.
Priority is given because the provider of materials and services enhances or preserves the property’s value and thus also the secured party’s position. U.C.C. § 9-310 comment 3.
The interplay of these statutory provisions is further complicated by Ohio Rev. Code § 4505.13 which provides:
(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 the clerk of the court of common pleas on the face of the certificate of title, is valid as against the creditors of the debtor, whether armed with process or not, and against subsequent purchasers, secured parties, and other lienhold-ers or claimants. All security interests, liens, mortgages, and encumbrances noted upon a certificate of title take priority according to the order of time in which they are noted on the certificate by the clerk.
The Ohio Supreme Court attempted to reconcile these three separate statutory provisions in Commonwealth Loan Co. & Berry, 2 Ohio St.2d 169, 207 N.E.2d 545 (1965). The syllabus of Berry holds:
The specific priority granted in Section 4505.13, Revised Code, to liens noted upon the certificate of title of a motor vehicle makes such liens valid against other liens and prevails over the general provision of Section 1309.29, Revised Code, relating to artisan’s liens. (Sections 1309.29, 1333.41 and 4505.13, Revised Code, construed.
In Ohio the provisions of a specific statutory provisions prevail over more general provisions. Andrianos v. Community Traction Co., 155 Ohio St. 47, 97 N.E.2d 549 (1951). ¡Pursuant to Berry Ohio Rev. Code § 4505.13 grants specific priority to liens noted on motor vehicle certificate of title, and prevails over the more general provisions of Ohio Rev.Code § 1309.29. Thus, under Ohio law a subsequent artisan’s lien on a motor vehicle cannot prime a lien noted on the certificate of title whether or not the party claiming the artisan’s lien has possession of the vehicle. While Etna may have an common-law artisan’s lien against the Vehicle, that lien is junior to the lien of Columbus which has been previously and properly noted on the Vehicle’s certificate of title.
The Vehicle has been sold but the proceeds from that sale were insufficient to satisfy Columbus’ claim in full. Accordingly, there is not value in the Vehicle to which Etna’s claim could attach. Therefore, Etna has only a general unsecured claim in this case.
V. Conclusion
Etna has a common law artisan’s lien against the Vehicle. Under Ohio law that lien is junior to the prior perfected lien of Columbus’ which is noted on the Vehicle’s certificate of title. Because the Vehicle was sold for less than the total debt owed to Columbus, Etna has only a general unsecured claim. Therefore, the Debtors’ objection to the secured status of Etna’s claim is sustained and Etna’s claim of $1,078.95 is hereby allowed as a general unsecured claim.
IT IS SO ORDERED. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489118/ | MEMORANDUM DECISION
CONRAD K. CYR, Bankruptcy Judge.
The debtor, Maplewood Poultry Co. [Maplewood] has filed a motion for partial summary judgment on its complaint seeking recovery of certain finance charges from Thico Plan, Inc. [Thico], an insurance premium finance company. Insurance premium finance charges for premium years 1976, 1977 and 1978 were made by Thico in the total amount of $15,472. As an insur-anee premium finance company doing business in Maine, Thico failed to comply with the Maine licensing statute until April 4, 1978. See Me.Rev.Stat.Ann. tit. 9, § 4054. Maine law mandates the forfeiture of all finance charges and an award of counsel fees and costs in such circumstances. Me. Rev.Stat.Ann. tit. 9, § 4062(3). Thico does not deny that it must rebate to Maplewood all finance charges for the premium years 1976 and 1977, and for that portion of the 1978 premium year prior to April 4, 1978. See id. The court reserves for later determination whether Thico must rebate the finance charges attributable to the balance of the 1978 premium year.
In light of all of the criteria to be considered in awarding counsel fees, see, e. g., In re Dole, 244 F.Supp. 751 (D.Me.1965), the attorney fees and costs incurred by Maplewood’s attorney, in the amount of $4,134.61, in recovering the finance charges from Thico, are found to be reasonable.
Thico contends that any obligation it may have to Maplewood as a result of its noncompliance with the licensing statute should be set off against Maplewood’s indebtedness to Thico. Maplewood is indebted to Thico for unearned and return premiums due Maplewood from Underwriters of Lloyds as of August 3, 1979. With respect to this debt there is no mutuality of parties or obligations. The primary obligation in respect to these premiums is that of Underwriters of Lloyds. The obligation to rebate finance charges, counsel fees and costs arises by statute whereas whatever secured obligation may exist for the benefit of Thi-co in connection with unearned and return premiums arises by contract.
The motion for partial summary judgment is to be granted in part. The remaining issue raised by the motion must be the subject of further consideration of the court. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489119/ | FINDINGS AND CONCLUSIONS
JOSEPH A. GASSEN, Bankruptcy Judge.
This case was tried on the Amended Adversary Complaint of Prime Financial Sales (Prime) (C.P. No. 28A) in which the plaintiff sought the return of $70,500 from the trustee.
The debtor, Bengal Trading Corporation (Bengal), was a commodities futures commission merchant. Bengal created a product known as a Futures Long Term Advisory Program (FLT) by which a customer could pay one advisory fee which would cover the commission and all costs of trading of one futures contract at a time, as often as the customer desired, within a one year period. Bengal executed the trades, but contracted with other business entities which acted as sales agents for the FLT s. Prime was one of several such agents.
*245On May 15, 1980, Bengal and Prime executed a contract under which they first entered into a business relationship (Plaintiff’s Exhibit No. 2). Pursuant to that contract, Prime maintained its own offices and covered the expenses it incurred in making sales of the FLTs. At the time of purchase of an FLT, the customer would pay the initial margin costs for whatever futures contract he was then trading, plus an advisory fee of $1,800. Under the Bengal-Prime contract, the advisory fee was allocated as follows: $100 was a commission to Bengal, $1,400 was a commission to Prime, $200 was allocated to “Fund 1” and $100 was allocated to “Fund 2”. Bengal was to receive $20 per round turn trade for each FLT customer trade executed by Bengal, and Fund 1 was created to be the source of funds for these payments to Bengal. Fund 2 was a legal contingency fund. It did not have a clearly defined purpose, but was to be available in case of difficulties.
At the time a customer purchased an FLT from Prime, the customer sent his money, including margin funds as well as the $1,800 advisory fee, to Bengal. Bengal maintained an interest bearing segregated customers’ account as required by 7 U.S.C. § 6d. All customers’ funds were permitted to be, and were, combined in the one account. Paul Clancey, president of Bengal, stated that the $1,800 on the sale of each FLT was “excess” and was permitted to be removed from the segregated account. At the time the contract was executed, the parties contemplated that the $1,400 portion would be transferred to Prime and be used in its regular operating account as gross income to it; that the $100 portion to Bengal would be treated similarly; and that separate bank accounts would be established for the deposit of Fund 1 and of Fund 2. Paul Clancey and Terry Ziegler, principals of Bengal and Prime respectively, did go to a bank with the intention of opening a bank account or accounts to be held by Bengal and Prime jointly for this purpose. However, the bank required certain business documents from Prime which were not available at that time and no bank account was ever opened.
As it turned out, of each $1,800 advisory fee received by Bengal, only the $1,400 commission portion to Prime was removed from the customers’ segregated account. Paul Clancey explained that Prime needed those moneys to finance its operation, and there was no reason not to disburse them, so they were paid out of the account (via Bengal’s operating account) on a regular basis. Since there was no specific account available for depositing the contents of Fund 1 and Fund 2, Clancey left those funds in the total segregated account and also left Bengal’s $100 share until such time as a total disbursement could be made. However, Bengal’s accounting records allocated the funds as described above.
The trustee does not dispute Prime’s calculation of the amount due it, if the court should conclude that the funds are to be turned over to Prime. By taking the total number of sales times $300 (Fund 1 plus Fund 2), minus $20 for each of the 719 round turns processed by Bengal, Prime calculates that it is owed the balance of $77,420 from Fund 1 and Fund 2 moneys which were never disbursed to it.
On or about November 10, 1980, Paul Clancey learned that Bengal was not in compliance with the minimum financial requirements of the Commodity Futures Trading Commission (17 CFR § 1.17). As such it was required to cease doing business immediately and Clancey so instructed his personnel. Bengal’s voluntary petition in bankruptcy was filed and an interim trustee was appointed on November 12, 1980. Because bankruptcy intervened there was no intermediate, much less ultimate accounting between Bengal and Prime as to Fund 1 and Fund 2 and the money remains in the segregated account which the trustee took control of.
Funds from the customers of other sales agents of Bengal were initially deposited in the same segregated customers’ account as were the funds of the customers of Prime. At the time Bengal was required to cease trading, there were no advisory fees for non-Prime customers remaining in that *246account, except possibly for some which were still being processed.
The trustee relies entirely on 11 U.S.C. § 766 as the basis for his retaining these funds. But § 766, as its title indicates, prescribes the treatment of “customer” property. Common sense would suggest that Prime was not a “customer” of Bengal, and the definition of “customer” in § 761(9)(A) supports common sense:
(9) “customer” means—
(A) if the debtor is a futures commission merchant—
(i) entity for or with whom the debt- or deals and that holds a claim against the debtor on account of a commodity contract made, received, acquired, or held by or through the debtor in the ordinary course of the debtor’s business as a futures commission merchant from or for the commodity futures account of such entity; or
(ii) entity that holds a claim against the debtor arising out of—
(I) the making, liquidation, or change in the value of a commodity contract of a kind specified in clause (i) of this subparagraph;
(II) a deposit or payment of cash, a security, or other property with the debtor for the purpose of making or margining such a commodity contract; or
(III) the making or taking of delivery on such a commodity contract;
All aspects of the definition eventually connect back to the phrase “the debtor’s business as a futures commission merchant from or for the commodity futures account of such entity”. The funds in question have nothing to do with any commodity futures account of Prime which Bengal was handling. Prime is not a customer of Bengal and as such, any claim or property of Prime would not be “customer property” under the definition of § 761(10) and would not be controlled by § 766 which requires that customer property be distributed ratably to customers under the terms specified.
The court finds that under the terms of the Prime-Bengal contract (although the drafting leaves something to be desired) the contents of Funds 1 and 2 were to become the property of Prime immediately upon payment by each customer of the $1,800 fee. The continued retention in the joint control of both Bengal and Prime was to assure availability of the funds for payment of the contingent obligations to Bengal. As such, Bengal was merely a conduit for Prime’s funds, and continued to hold the funds in its account for reasons unrelated to the business of Bengal.
The trustee has not alleged that the retention of these funds in the customers’ segregated account violated regulations of the Commodity Futures Trading Commission, or asserted any estoppel against Prime on such a basis. Therefore this court must conclude that the funds in question belong to Prime and should be returned to it.
Pursuant to B.R. 921(a), a separate Final Judgment incorporating these Findings and Conclusions is being entered this date. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489120/ | SIDNEY M. WEAVER, Bankruptcy Judge.
THIS CAUSE coming on to be heard upon an adversary proceeding pursuant to Part VII of the Interim Bankruptcy Rules and 11 U.S.C. § 542 seeking damages for the conversion by the Defendant, JEAN M. ROBB, of certain property and equipment owned by the Debtor, and the Court, having heard the testimony and examined the evidence presented; observed the candor and demeanor of the witnesses; considered the arguments of counsel; and, being otherwise fully advised in the premises, does hereby make the following Findings of Fact and Conclusions of Law:
In May of 1977, the Defendant, pursuant to a signed Bill of Sale with an attached list of inventory property, sold the property in question to the Debtor. The Debtor/Lessee entered into a Lease Agreement with the Defendant/Lessor (the Defendant’s husband was a co-lessor), the term of which commenced on November 25, 1978, and expired on January 24, 1980. Under the terms of this lease, monthly rent was due until the 24th day of the succeeding month. Testimony revealed the existence of a purported second lease commencing on October 24, 1978, and expiring on October 23, 1980, however, this second lease was of no legal effect as it was never signed by the Debt- or/Lessee. The unequivocal testimony of both the Debtor and the Defendant was that the rent for January of 1980, has been paid by the Debtor and accepted by the Defendant. Late in February of 1980, the Debtor was locked out of the leased premises by the Defendant/Lessor. The testimony established that the Debtor never recovered the property in question from the business premises and the Defendant is presently unaware of its whereabouts or disposition.
It is clear that the only effective lease in this case expired on January 24, 1980. The Debtor had satisfied his rental obligation under this lease. Therefore, for the point in time the Debtor continued to occupy the premises after January 24,1980, up through and until the point in time when the Defendant locked the Debtor out of the premises, the Debtor and Defendant had implicitly entered into a month to month tenancy. Fla.Stat. § 83.01. To terminate this tenancy, the Defendant was required to give the Debtor fifteen (15) days’ notice. Fla.Stat. § 83.03. The testimony was clear that the Defendant failed to give the Debt- or such notice. Hence, it is clear that the Defendant wrongfully evicted the Debtor from the leased premises depriving the Debtor of its personal property and entitling the Debtor to damages for breach of the lease and wrongful eviction. See Vines v. Emerald Equipment Co., 342 So.2d 137 (Fla. 1st D.C.A. 1977).
Furthermore, and equally essential to the disposition of this case, is Section 545(3) and (4) of the Bankruptcy Code which states as follows:
“The Trustee may avoid the fixing of a statutory lien on the property of the Debtor to the extent that such lien .... is for rent; or ... (4) is a lien of distress for rent.”
Even if the Defendant, Landlord was entitled to rent for the period of time in February that the Debtor occupied the premises, the taking of the personal property in satisfaction of any purported Landlord’s lien under Fla.Stat. § 83.08(3) is voidable by the Trustee in this action. Accordingly, the taking of this property amounts to nothing more than a preferential, involuntary transfer to a general unsecured creditor which is voidable under 11 U.S.C. § 547. All of the elements of this section have been met.
The only testimony concerning the value of the personal property taken by the Defendant is that set forth on the exhibit to *350the Bill of Sale which was admitted into evidence. The Bill of Sale established a value of FIVE THOUSAND EIGHT HUNDRED SEVENTY-NINE DOLLARS AND 15/100 ($5,879.15) which was uncontrovert-ed by the Defendant. The Defendant being presently unaware of the location of said personal property, the Plaintiff, Trustee is entitled to judgment against the Defendant, JEAN M. ROBB, in the sum of FIVE THOUSAND EIGHT HUNDRED SEVENTY-NINE DOLLARS AND 15/100 ($5,879.15). A Final Judgment will be entered in accordance with these findings and conclusions. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489121/ | CHARLES A. ANDERSON, Bankruptcy Judge.
This case is before the Court on debtors’ “Motion for Change of Jurisdiction.” Debtors resided in Dayton, Ohio, at the time of their bankruptcy petition filing, but have subsequently relocated to within the confines of the Middle District of Florida, Orlando Division. Debtors now request that the Ohio proceeding be transferred to the jurisdiction of debtors’ current residence.
This Court has the authority to transfer cases under title 11 to a bankruptcy court of another district only if this Court determines that such transfer is “. . . in the interest of justice and for the convenience of the parties.” 28 U.S.C. § 1475, emphasis added. In this case, although the debtors have relocated to Florida, all of debtors’ scheduled creditors reside in Ohio. Further, in the event of an adversarial proceeding regarding debtors’ case, all the witnesses and evidence would likely come from Ohio. This Court finds that all of the interested parties, except the debtors, would be inconvenienced by transfer of the case, and that the interests of justice might be impinged upon in the event of an adversarial proceeding. See In Re Triton Chemical Corp., 46 F.Supp. 326, 50 Am. BR NS 727 (D.Fla.1942).
IT IS HEREBY ORDERED, ADJUDGED AND DECREED that debtors’ Motion for Change of Jurisdiction is denied and the case administration shall proceed under the Plan as heretofore confirmed. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489122/ | DECISION AND ORDER
CHARLES A. ANDERSON, Bankruptcy Judge.
PRELIMINARY PROCEDURE
This proceeding is before the court upon the Complaint filed on 10 July 1980 by Carol Dean Wilson and Mabel M. Wilson against Debtors, Ronald F. Gentis and Sue E. Gentis; the Answer of Defendants; a Pretrial Order entered May 7, 1981; evidence adduced at the trial on June 23,1981; Plaintiffs’ Proposed Findings of Fact and Memorandum of Law filed July 14, 1981; Defendants’ Proposed Findings of Fact and Memorandum of Law filed 7 August 1981; and Plaintiffs’ Reply Memorandum filed on August 13, 1981.
FINDINGS OF FACT
The Debtors/Defendants, husband and wife, filed their petition for relief under Chapter 7 of Title 11, United States Code, on 18 April 1980.
Plaintiffs owned a farm in Champaign County, Ohio of approximately 210 acres, which was operated since the early 1970’s by the Defendants (who are son-in-law and daughter of Plaintiffs), on a typical “share farming” arrangement. All expenses were shared equally between the Parties and the resulting crops or net proceeds were likewise divided equally. Plaintiffs regularly had joined in raising farming capital by encumbering personal assets, including the farm.
The contractual details were handled in a very informal manner, all parties residing on the “Wilson Farm,” although their residences were separated on different parts of the farm. The Defendants also received their residence rent free. No accounting methods or report requirements were documented by a written contract and apparently Ronald F. Gentis, who actually operated the farm, handled all funds with the understanding that there would be a “special farm account” to be used only for farm business purposes.
The harvested grain was stored in metal storage bins with an approximate capacity of 95,000 bushels and located about three hundred yards from the residence of Plaintiffs.
In late 1979, or early 1980, Defendant Ronald F. Gentis (hereinafter Ronald) sold all of the grain in the bins allocated to Plaintiffs, valued in the sum of $84,322.05, to a grain dealer, Faulkner Brothers of Urbana, Ohio. At the time, even though Defendants were in serious financial straits, they did not advise Plaintiffs of the disposition of the grain until about February, 1980, although Ronald had previously obtained $1,600.00 from Carol Dean Wilson *371on December 31, 1979, in payment for Plaintiffs’ share of the grain drying expense.
The grain sold was subject to a security interest to The Ohio Grain Company of Mechanicsburg, Ohio and to the U. S. Department of Agriculture, Agricultural Stabilization and Conservation Service (Commodity Credit Corporation), upon which obligations Plaintiffs were also jointly and severally liable. These encumbrances were not paid from the grain proceeds.
All of the proceeds from the sale of Plaintiffs’ grain, except approximately $3,000.00, was deposited in the usual “Farm Account,” a checking account with the First Central National Bank, St. Paris, Ohio. This account was entitled: “Ronald F. Gentis— Farm Account.” The deposits to the account for the month of December, 1979, are, as follows:
DATE AMOUNT OF DEPOSIT
December 3,1979 $ 13,784.71
December 5,1979 5,035.07
December 8,1979 2,000.00
December 15,1979 9.00
December 15,1979 325.44
December 15,1979 430.00
December 15,1979 2,500.00
December 15,1979 2,995.00
December 15,1979 4,000.00
December 15,1979 18,000.00
December 15,1979 25,000.00
December 21,1979 1,843.23
December 22,1979 3.00
December 22,1979 20,000.00
December 24,1979 5,000.00
December 28,1979 1,925.31
December 31,1979 1,550.00
Total Deposits December 1979 $ 104,420.76
In addition to the December deposits, there were deposits in November, 1979 of approximately $60,000.00; on January 8, 1980, in the sum of $21,930.74; and on January 15, 1980, in the sum of $25,000.00.
Ronald admitted that at the time he sold Plaintiffs’ grain he planned to repay for same by refinancing his farming operation through Miami Valley Production Credit Association as he had done in past years. When he sought such a loan in early 1980, the loan application was refused.
Ronald was forced into disclosing the disposition of the grain shortly before a “family” gathering called in February, 1980, precipitated by his failure to obtain a loan from Miami Valley Production Credit Association in early 1980 and a lawsuit against Carol Dean Wilson on his joint and several liability covered by the security interests on the grain.
Being a family business, all of the parties had conducted the business without the formalities and, accounting procedures usually in arms-length dealings. Ronald had during the years past always handled the grain sales. Furthermore, there is no evidence that Sue E. Gentis either participated in the dispositions, or was even aware of the sales until somewhat later.
The Defendants, in operating the farm, were afforded unlimited discretion as to purchases and sales for farm purposes. There is no evidence that the Plaintiffs required any consultation or explanation, despite overwhelming farm indebtedness. There is no evidence that the very inadequate business arrangements ever required the specific allocation of funds to any particular debts by Defendants. Also, various capital improvements were installed by Ronald on the Wilson farm from time to time.
During the course of the terminal business operations, leading to hopeless insolvency and bankruptcy, Ronald made numerous purchases from the “Farm Account” for strictly pleasure and family purposes, such as for snowmobiles for each member of the family.
Looking to the schedules filed in the case and the obligations listed, total secured claims are shown in the amount of $584,-429.18 (including those secured by the grain sold as collateral) and total unsecured claims without priority in the amount of $677,955.13 (including the amounts owed to Carol Dean Wilson and Mabel Darlene Wilson, listed at $215,000.00 to each).
The total of unsecured claims listed is in the amount of only $47,955.13 if the claims by Plaintiffs for sale of the grain are deleted.
*372There is no evidence whatever that Sue E. Gentis was directly involved in the farm management or had any particular knowledge of the operations, other than being the wife of Ronald F. Gentis and as such signing security agreements. She could not and did not draw checks on the “Ronald F. Gentis — Farm Account.”
The account records demonstrate that checks were drawn on this account from the proceeds of the sale of Plaintiffs’ grain; however, the purpose of each draw is not noted on the checks and it is somewhat tenuous to tabulate the exact monetary amounts and the respective purposes from the evidence. Such personal debts paid, nevertheless, total at least $10,900.00, as clearly demonstrated by the evidence.
The evidence likewise is not entirely clear as to the payment of expenses for a livestock business conducted independently by Ronald and the proper allocation of expenses attributable to this purpose. Hence, no findings of fact can now be made in this respect.
CONCLUSIONS OF LAW AND FACT
Plaintiffs urge that Defendants are not entitled to a discharge of indebtedness based upon the disposition of Plaintiffs’ share of grain, in the amount of $84,322.05, in violation of 11 U.S.C. § 523(a)(6) “for willful and malicious injury by the debtor to another entity or to the property of another entity.” It is also urged desultorily that removal of the grain from the bins was “larceny” as contemplated by 11 U.S.C. § 523(a)(4).
Defendants urge that the intent necessary to establish a willful and malicious conversion cannot be imputed or attributed vicariously to a spouse because of the actions of the other spouse, citing the decision of In Re Donald Ernest Cooper; Case No. 72-326-D (at Dayton) and 28 O.Jur.2d Husband and Wife, at § 103. Further, that the facts do not establish “malice and deliberation” as to either Defendant, as connoted in dischargeability litigation.
The almost impossible and impractical burden of proof imposed to show “willful and malicious” intent in the personal use of property, to the detriment of another entity’s interests, generally encompassed in civil litigation as a “conversion,” is not necessarily the sine qua non if 11 U.S.C. §§ 523(a)(4) and 523(a)(6) are read in pari materia to confront the multifarious situations contemplated by the Congress.
A
The conduct of the farm business operations substantiate the fact that sales of crops were handled in past years in the same fashion as the transactions now in litigation, by agreement of the parties, with only an accounting to Plaintiffs for their shares’ proceeds. In addition to these past business methods are the physical details that the grain storage bins were in easy view of the residence of Plaintiffs. There is no evidence whatever that Defendant, Ronald F. Gentis, was not authorized to market the grain for proper farm purposes. Hence, it must be concluded that the sale of Plaintiffs’ grain, as such, was not per se evidence of a willful and malicious injury to property.
Certain basic legal principles to be applied instanter have been discussed at length in the decision by this Court under the caption of Ohio Grain Co. v. Gentis, 10 B.R. 209 (Bkrtcy. Ohio 1981), and will not be labored herein. The Congress has overruled the “reckless” or “utter disregard” standards. Maliciousness no longer encompasses a standard of gross negligence as judicially interpreted under section 17(a)(2) of the Bankruptcy Act and Tinker v. Colwell, 193 U.S. 473, 24 S.Ct. 505, 48 L.Ed. 754 (1904). “Willful” under the Code, therefore, connotes “deliberate or intentional.” See H.R.Rep.No.595, 95th Cong., 1st Sess. 77-79 (1978).
Within the parameters of these relaxed standards the issue sub judice is to examine the established facts from which to deduce a “willful and malicious” intent.
The Bankruptcy Code exception from a discharge under 11 U.S.C. § 523(a)(6) *373for “willful and malicious injury” to another person or his property for practical purposes now requires an overt, objective act of both malice and intent (such as an assault and battery or a physical trespass), in light of the Congressional purpose to overrule Tinker v. Colwell (1904) 193 U.S. 473, 24 S.Ct. 505, 48 L.Ed. 754. We have already determined that the sale by Ronald of his own share of the grain was not with the requisite malice and intent to harm the secured parties, merely because the security interests were not paid.
Even though the “injury” under 11 U.S.C. § 523(a)(6) covers a willful and malicious conversion (See 95th Cong.Rec. H11096 (Sept. 28, 1978) Brk-L Ed. Legislative History § 81:3) the objective strictures mentioned previously dictate that such a category must be read in pari materia with 11 U.S.C. § 523(a)(4), covering “fraud or defalcation while acting in a fiduciary capacity, embezzlement, or larceny ...” to rationalize the type “injury” involved in most ordinary business transactions.
Hence, it is necessary to look beyond the mere fact of the sale of the grain of Plaintiffs (the injury) to the resulting benefits and ultimate purposes effected. In the instant case, payment of the farm indebtedness was the mutual end for both Plaintiffs and Defendants, thereby negating any special enrichment to Defendants or malice. Discounting capital improvements to the real estate accruing to Plaintiffs, as real estate owners, both profits and losses were to be shared equally. There was not only no contractual restraints on the disbursement of funds by Ronald as operator of the farm; but, also, there was a long and extensive practice of complete business discretion delegated by Plaintiffs. To a degree, Plaintiffs were participants in the resulting financial fiasco.
In fact, business was operated for many years more upon a foundation of faith among family members than sound accounting and business methods. Furthermore, the sale of the grain now in question was not the terminal act leading to bankruptcy; rather, conditions of insolvency had been long developing. It is unfortunate that the Parties make no effort now to face realities and restore family faith.
B
The term “defalcation” as employed in the statute connotes more than an act or instance of constructive conversion. It encompasses, in the opinion of this Court, also a failure to meet a promise or an expectation by a debtor acting in a fiduciary capacity. The Congressional purpose is not ambiguous in this regard. In changing Bankruptcy Act § 17(a)(2) and enacting Code § 523(a), “Paragraph (4) excepts debts for embezzlement or larceny. The deletion of willful and malicious conversion from § 17(a)(2) of the Bankruptcy Act is not intended to effect a substantive change. The interest is to include in the category of non-dischargeable debts a conversion under which the debtor wilfully and maliciously intends to borrow property for a short period of time with no intent to inflict injury but on which injury is in fact inflicted.” H.Rep.No. 95-595, p. 364, U.S.Code Cong. & Admin.News 1978, 5787, 6320.
Looking to the facts herein, we note that Defendant, Ronald F. Gentis, deliberately converted funds entrusted to his use as farm manager to his own personal use, concealing the fact from Plaintiffs under a scheme of borrowing funds to repay the amounts spent in bad faith before being discovered, with no intent to inflict injury. This Court deems such action and scheme to be within the clear meaning of Congressional intent, acknowledging the confusion of the Lewis Carroll semantics employed in traditional judicial interpretation of the statutory language. See 3 Collier on Bankruptcy (15th ed.) ¶523.14.
Ronald initially obtained control over the farm assets, including “Plaintiffs’ share,” by the owners’ consent. This consent extended to use of these assets to pay farm expenses. Such consent did not contemplate use of farm assets and the farm account for any other purpose such as personal family expenditures. The surreptitious sale and use of Plaintiffs’ share for *374personal gain evidences a willful and malicious design. The confused semantics traditionally employed in interpreting the applicable exceptions to a bankruptcy discharge are put in more practical focus by the statutory definition of “Theft” in Ohio (which includes conversion, embezzlement, larceny by trick, theft by deception, and similar prior statutory and common law offenses). The intent required is commensurate with the offenses described in 11 U.S.C. §§ 523(aX4) and 523(a)(6) for practical judicial application and implementation of the Congressional purpose. See Ohio Revised Code § 2913.02 which defines the offense, as follows:
§ 2913.02 Theft.
(A) No person, with purpose to deprive the owner of property or services, shall knowingly obtain or exert control over either:
(1) Without the consent of the owner or person authorized to give consent;
(2) Beyond the scope of the express or implied consent of the owner or person authorized to give consent;
(3) By deception;
(4) By threat.
This statutory definition of “Theft,” which covers a plethora of former offenses of which the gist was larceny, embezzlement, conversion, fraud or false pretense (See § 2913.02 Legislative History: 134 v H 511. Eff. 1-1-74 and Committee Comment), leads to a focus on the facts and obviates the persistent preoccupation with the question of distinguishing various fiduciary capacities and the niceties of definitions of the crimes of “embezzlement, or larceny.”
ORDERED, ADJUDGED AND DECREED, that the Complaint against Defendant, Ronald F. Gentis, seeking a judgment pursuant to 11 U.S.C. § 523(a)(6) for willful and malicious injury by the debtor to another entity or the property of another entity should be denied and dismissed.
ORDERED, ADJUDGED AND DECREED, that judgment should be awarded to Plaintiffs, Carol Dean Wilson and Mabel M. Wilson, against Defendant, Ronald F. Gentis, for the proceeds from the sale of Plaintiffs’ grain diverted to personal and family expenses from the “Farm Account,” pursuant to 11 U.S.C. § 523(a)(4).
ORDERED, ADJUDGED AND DECREED, that the Complaint against Defendant, Sue E. Gentis should be denied and dismissed for failure to sustain the burden of proof under both 11 U.S.C. § 523(a)(4) and (6).
ORDERED, that counsel for all parties meet with the court to journalize a proper judgment entry. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489123/ | CHARLES A. ANDERSON, Bankruptcy Judge.
This matter is before the court upon an application for change of venue to the United States Bankruptcy Court for the Southern District of New York pursuant to a decision and order entered herein on 5 August 1981. 13 B.R. 617. It was there determined that “. . . even though the case [in the state court] has been properly removed to the court of the district wherein originally filed [S.D.Ohio], the automatic stay of the original court [S.D.New York] remains in effect as to the parties pending determination of the venue question. . . . The stay remains unaltered, except as to the statutory right to removal.” This Court does not violate the stay order by granting a change of venue to the court which has jurisdiction over both the estate and stay order.
We are now constrained to concur with the attorney for Debtor-Defendant that in the interest of sound administration of the case venue properly should be transferred to the Southern District of New York conformably to 28 U.S.C. § 1475. *396That Court not only has exclusive jurisdiction over all property of the debtor; but, also, the public auction giving rise to Wes-Flo’s complaint filed in the state court was ordered by the Bankruptcy Court for the Southern District of New York. As previously determined, neither corporate litigant is an Ohio corporation. No local interest exists which dictates that the dispute should be litigated in the Southern District of Ohio. Various transactions involving administration of assets located in numerous of the United States are already subject to the primary jurisdiction and control of the Southern District of New York court. To cause the debtor to litigate disputes arising from disposition of its property in Ohio or other states in which such disposition occurs would impose upon the debtor’s estate an unnecessary and inordiante financial hardship to the detriment of all interested parties, and as has been urged, “thwart efficient and inexpensive administration of the estate.” The change of venue should, therefore, be granted. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489124/ | ORDER DENYING TEMPORARY RESTRAINING ORDER
JON J. CHINEN, Bankruptcy Judge.
On September 28, 1981, the Motion for Temporary Restraining Order filed by Oahu Cabinets, Ltd., hereafter “Plaintiff”, came on for hearing. Present at the hearing were Barry W. Marr and Stephen Chung on behalf of the Plaintiff, Dennis W. S. Chang and Gordon Miwa on behalf of United Brotherhood of Carpenters and Joiners of America Local 745, AFL-CIO, hereafter “Local 745”, and Miles N. Yasunaga on behalf of the Hawaii Carpenters’ Trust Fund.
Based on the memoranda submitted and the arguments of counsel, the Court finds as follows:
This Court has jurisdiction over this matter pursuant to 28 U.S.C. § 1471 which is made applicable during the transition period by Section 405(b) of the Bankruptcy Reform Act of 1978.
Basically the Norris-La Guardia Act, 29 U.S.C. § 104, forbids courts from interfering in labor disputes. In Boys Markets v. Retail Clerks Union, 398 U.S. 235, 90 S.Ct. 1583, 26 L.Ed.2d 199 (1978), however, the United States Supreme Court stated that under certain circumstances where a labor-management contract calls for arbitration procedures, courts may enjoin a union from striking against the employer. In applying equitable principles to determine whether or not the court should grant in-junctive relief in a labor-management dispute, the Ninth Circuit Court of Appeals in the case of Amalgamated Transit Union, Division 1384 v. Greyhound Lines, Inc., 529 F.2d 1073 (9th Cir. 1976), vacated on other grounds, 429 U.S. 807, 97 S.Ct. 43, 50 L.Ed.2d 68 on remand 550 F.2d 1237, cert. denied 434 U.S. 837, 98 S.Ct. 127, 54 L.Ed.2d 99 (1977), stated that if the party seeking injunctive relief can show that “[t]he position he will espouse in arbitration is sufficiently sound to prevent the arbitration from being a futile endeavor”, then the injunctive relief should be granted.
In the instant case, there is no dispute that there was a collective bargaining agreement between Oahu Cabinets, Ltd. and Local 745 at the time of confirmation of the plan. Article 33 Section B of that contract read as follows:
This agreement shall be deemed renewed from year to year thereafter unless either party serves written notice upon the other of its desire to terminate or to modify its provisions. The written notice must be served at least 60 calendar days prior to the last day of its original or any yearly extended term, but not more than 75 calendar days prior to the last day of its original or any yearly extended term.
This contract covered the period from August 1, 1978 to July 31, 1981. Pursuant to said Article 33 Local 745 sent Oahu Cabinets, Ltd. a letter on May 18, 1981, which read:
Gentlemen:
Pursuant to Article 33 of the Collective Bargaining Agreement currently in effect between your company and this Organization, and which expires July 31, 1981, you are, herewith, notified of our desire to modify and amend said Agreement.
Also, pursuant to said Agreement, we request that you meet with our repre*454sentative within ten (10) days’ from the above date, so that we may begin to discuss certain amendments and modifications.
Please contact this office, immediately, so that arrangements can be made.
Oahu Cabinets, Ltd. contends that there is a question of whether this letter is sufficient under the agreement to cancel or terminate said agreement. Oahu Cabinets desires this question to be presented to an arbitrator.
In Dillingham Corporation, dba Hawaiian Dredging and Construction v. Local 745, 519 F.Supp. 734 (D. Hawaii 1981), a situation similar to the case at hand was decided by Judge Walter Heen. In said case there were two collective bargaining agreements automatically renewable from year to year after September 1,1980, unless either party gave written notice of its desire to modify, amend or terminate. Both agreements also provided that written notice was to be rendered not less than 60 days and not more 90 calendar days prior to the expiration date and in the event that notice was given, negotiation for a new agreement would commence within 10 days after the notice is received by the other party.
In the Dillingham Corporation case, Local 745 sent a letter almost identical to the letter at hand to Dillingham Corporation dba Hawaiian Dredging and Construction, stating its desire to modify and amend the agreement.
Because there were two contracts in existence, the issue before the court was whether or not said letter covered one contract or two contracts and if one contract, then which contract — the DCLA agreement or the Dry wall Agreement. Judge Heen ruled that by the weight of the evidence, the letter in question applied to both agreements, but that if it could be construed to apply to only one agreement, then it must apply only to the Drywall agreement since that was the only agreement between Dill-ingham and Local 745. Judge Heen then stated that, upon receipt of that letter, the company was obligated to contact the Defendant for the purpose of negotiating a new agreement. Since no new agreement was negotiated, the agreement was in fact terminated.
In the instant case, the letter sent by Local 745 to Oahu Cabinets, Ltd. conformed with the provision of Article 33. When Oahu Cabinets, Ltd. made no effort to negotiate a new contract, the contract then in existence was effectively terminated by the letter sent by Local 745.
It is true that Oahu Cabinets, Ltd. is under the protection of the Bankruptcy Court. Under the plan of reorganization, Oahu Cabinets, Ltd. had made the contract in question a part of the plan. Oahu Cabinets, Ltd. did not modify the contract, but adopted it as it was. In other words, Article 33 was a part of that contract which was incorporated into the plan of reorganization. Therefore, Article 33 is effective under the plan of arrangement and Local 745 has the power to terminate the contract as provided under the contract terms.
In City of Anaheim v. Kleppe, 590 F.2d 285 (9th Cir. 1978), written by Circuit Judge Herbert Choy, the court sets forth the standard that the movant must establish the substantial likelihood of prevailing on the merits in order to support preliminary relief.
In the instant case, based upon Judge Heen’s ruling in 519 F.Supp. 734, that the letter effectively terminated the contract between the union and the company, this Court finds that it will be a futile gesture to refer the matter to an arbitrator. Plaintiff has failed to establish the likelihood that it will prevail on the merits. Thus, the Motion for Temporary Restraining Order is hereby denied. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489126/ | FINDINGS OF FACT AND CONCLUSIONS OF LAW
SIDNEY M. WEAVER, Bankruptcy Judge.
THIS CAUSE is before the Court upon Plaintiff’s Complaint to determine dis-chargeability of a debt, and upon this Court’s Order of August 18, 1981 setting the cause for trial on the merits on September 23, 1981; and the Court having heard the testimony and examined the evidence presented, and having observed the candor and demeanor of witnesses, and having considered the argument of counsel and being fully advised in the premises, the Court does hereby make the following Findings of Fact and Conclusions of Law.
FINDINGS OF FACT
1. On July 27, 1978 Defendant filed a Voluntary Petition in Bankruptcy in this Court under the Bankruptcy Act of 1898, as amended.
2. On October 16, 1978 Plaintiff initiated the present adversary proceeding by filing in this Court a Complaint to determine the dischargeability of a debt. Defendant joined issue by filing an Answer on December 5, 1978.
3. This cause was initially tried to the Court on January 5, 1979 on the issue whether the State Court Judgment on which Plaintiff’s debt was based was res judicata as to the non-dischargeability issues. On January 25, 1979 this Court entered its Findings of Fact and Conclusions of Law, determining that the State Court Judgment was not entitled to res judicata effect on the bankruptcy non-dischargeability claim and further providing that the Court would go behind the State Court Judgment and afford the parties the opportunity to adduce evidence on the facts underlying the dischargeability issue. Plaintiff took an appeal of this Order to the United States District Court for the Southern District of Florida; and on July 1, 1981 that Court entered an Order affirming this Court’s January 25, 1979 Order. Thereafter, this Court set the cause for trial before the Court on September 23, 1981.
4. At the trial on September 23rd, the Defendant failed to appear personally, although his counsel was present. The Court denied the Motion of Richard W. Smith to Withdraw as Counsel of Record, after determining that due notice of the trial had been provided to the Defendant, personally.
5. On September 5, 1972 Delta Excavation, Inc. and Development Corporation of America entered into an agreement in which Delta agreed to supply certain bulldozing services and DCA agreed to pay Delta the sum of Three Hundred and Three *471Dollars for each residential lot on which Delta had performed a total of six separate functions during the construction process. Although the agreement purported to expire, by its own terms, at the end of three years; the parties orally agreed to renew the agreement with every provision intact except as to its original term. In the months of January through May, 1976 the agreement appears to have been in full force and effect.
6. The above described agreement was apparently negotiated and signed by its President, DANIEL D. MONTAGUE, the Bankrupt herein. In fact, Mr. MONTAGUE was the only person with whom DCA dealt, during all times material, and no other person appears to have served as a representative of Delta Excavation at any time.
7. Beginning sometime in late December, 1975 or January, 1976 the Defendant began submitting weekly invoices to the Plaintiff in which Defendant claimed payment for services which it turns out had never been performed. Defendant was apparently able to effect payment of the overcharges by the Plaintiff as follows:
(a) Defendant would present to Plaintiff’s field superintendent an invoice along with a back-up statement of the specific lots as to which he had performed services. The field superintendent would initial, not the back-up sheet, but the face of the invoice, even though the field superintendent did not have any means to verify the price, and his role was limited simply to ascertaining whether the services were in fact performed.
(b) Afterwards, Defendant would take the initialled invoice, and either substitute the back-up statements or make corrections thereon, and then present it to Plaintiff’s accounting department for payment by the “accounts payable” section.
8. Defendant continued his scheme over a period of several months until sometime in early May, 1976 when an accountant in Plaintiff’s accounting department discovered an invoice on which the Defendant claimed to have done bulldozing services in an area where the accountant knew that Plaintiff had not yet begun any construction activity.
9. At all times during this period, Defendant alone acted as the representative of Delta Excavation, Inc. or Delta Sod, Inc. and handled all transactions with the Plaintiff. Defendant alone controlled the two corporate entities dealing with the Plaintiff.
10. As a result of the discovery by Plaintiff’s accountant, Plaintiff retained the services of a public engineering — land surveying firm to do a survey of the various construction projects, on a lot-by-lot basis to determine what lots had been billed for services and whether those services had been performed. The report prepared by the engineer-surveyor shows that ultimately Defendant billed Plaintiff, and collected from the Plaintiff, for more than Two Hundred and Fifty lots as to which no bulldozing services had been performed.
11. Following the preparation of the report, representatives of the Plaintiff met with the Defendant to discuss the situation, at which time Defendant did not dispute the fact of the overcharges, or indeed their amount, but blamed it on a switch-over from a manual bookkeeping system to a computerized one. At no time relevant did the Plaintiff ever receive any computerized billings from the Defendant or the companies he controlled, and all such invoices were handwritten.
12. The Court finds that the overcharges were effected by the Defendant with the specific intent of causing the Plaintiff to pay for work which in fact had never been performed, which was done by presenting the Plaintiff with invoices which were materially false, in an effort to induce the Plaintiff to pay for services which had never been performed, and in fact were paid by the Plaintiff to the Defendant or to his control.
13. The total amount of the overpayment collected by the Defendant from the Plaintiff amounted to One Hundred Thirty One Thousand Eight Hundred Thirty One Dollars and Six Cents.
*47214. Plaintiff filed an action in the Florida Circuit Court for the Seventeenth Judicial Circuit seeking a judgment against the Defendant, individually, as well as Delta Excavation, Inc. for recovery of the overcharges, accusing the Defendant of fraud in securing the overpayments. On January 27, 1978 the Circuit Court entered a money Judgment against the Defendant and Delta Excavation, Inc. in the principal amount of One Hundred Thirty One Thousand Eight Hundred Thirty One Dollars Six Cents together with accrued interest in the amount of Eighteen Thousand Nineteen Dollars Fifty Cents, and court costs in the amount of Four Hundred Seventeen Dollars and Sixty Cents. No appeal was taken from the Judgment.
15. Defendant obtained money from the Plaintiff by false pretenses and false representations as to work performed, when in fact Defendant did not perform such work, which false representations were given wil-fully and maliciously for the purpose of inducing the Plaintiff to pay money to the Defendant which Plaintiff would not otherwise have paid.
16. Defendant wilfully and maliciously converted the property of the Plaintiff by falsely representing to the Plaintiff that he had performed certain bulldozing work pursuant to the contract when in fact the work had not been performed.
CONCLUSIONS OF LAW
17. This Court has jurisdiction of the subject matter and the parties pursuant to § 2(a)(7) of the Bankruptcy Act of 1898, as amended and pursuant to 28 U.S.C. § 1471 (1979).
18. The Court has jurisdiction of the parties, and this adversary proceeding to determine dischargeability of a debt was timely brought under this Court’s Order of August 10, 1978.
19. Defendant is indebted to the Plaintiff by virtue of the Judgment of the Florida Circuit Court for the Seventeenth Judicial Circuit rendered on January 27, 1978 in the principal amount of One Hundred Forty Nine Thousand Eight Hundred Fifty Dollars Fifty Six Cents together with accrued interest at the rate of ten percent per an-num since the date of the Judgment.
20. Defendant’s debt to the Plaintiff constitutes a liability for obtaining money by false pretenses and false representations under § 17(a)(2) of the Bankruptcy Act of 1898. See United States v. McQuatters, 370 F.Supp. 1286 (W.D.Tex.1973).
21. Defendant’s debt to the Plaintiff is nondischargeable under § 17(a)(2) of the Bankruptcy Act, and Plaintiff is entitled to a decree so providing. The Court hereby finds and declares that the debt evidenced by the State Court Judgment owing to the Plaintiff by the Defendant is non-dis-chargeable under the Bankruptcy Act. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489127/ | OPINION
THOMAS M. TWARDOWSKI, Bankruptcy Judge.
The present proceedings concern the dis-chargeability of a debt obtained by use of a false financial statement. Plaintiff, Blazer Consumer Discount Company, successor to Personal Thrift Plan Consumer Company [hereinafter referred to as Blazer] seeks a determination pursuant to 11 U.S.C. § 523(c) (1979) that the debt based upon its loan to debtors is excepted from discharge. For reasons hereinafter given, we conclude that the debt is dischargeable.1
In March of 1979, the debtor borrowed $2,268 from Blazer for the purpose of refinancing a loan made in November of 1978, and to obtain additional capital. Debtors signed a note evidencing the debt, and granted Blazer a security interest in various household goods.
On October 30, 1980, Mr. and Mrs. Heil filed a voluntary petition seeking relief under Chapter 7 of the Bankruptcy Code. In the schedule accompanying their petition, they claimed as exempt certain household items valued at $332. Thereafter, Blazer filed this timely complaint, alleging that on November 27, 1978 and March 16, 1979, Mr. Heil signed applications for loans stating the value of his household goods as $8,000. Blazer alleged that debtors deliberately overstated the value of the household goods with the intention of deceiving Blazer with regard to their financial condition, and further alleged the loan was made in reasonable reliance upon the information provided on the applications.
Debtors answered, denying that they at any time represented the value of their household goods to be $8,000, but admitting that the value of these items on the date of entry of the order for relief was less than $8,000. Furthermore, debtors requested an *583award of reasonable costs and attorney fees pursuant to 11 U.S.C. § 523(d) (1979).2
11 U.S.C. § 523(a)(2)(B) (1979) excepts from discharge any debt obtained by the use of a materially false written statement. The purpose of the section is to prevent a debtor from retaining the benefit of property obtained by fraudulent means. Section 523(a)(2)(B) lists four elements that must be established in order for a debt to be deemed non-disehargeable: use of a statement in writing (i) that is “materially false”; (ii) respecting debtor’s financial condition; (iii) on which the creditor reasonably relied; (iv) that the debtor caused to be made or published with intent to deceive.
The term “materially false” has been interpreted by some courts to mean more than “actually false.” Those cases hold that in order for a creditor to prevail, it must establish that the debtor actually knew of the falsity of the representations when he made them, or that the materially inaccurate statement be intentionally false or made carelessly and with reckless disregard or indifference to the actual facts. See, e. g., In re McMillan, 579 F.2d 289 (3rd Cir. 1978); In re Weinroth, 439 F.2d 787 (3rd Cir. 1971).
We believe the phrase “materially false” in Section 523(a)(2)(B)(i) means no more than “actually false” or merely “false.” Because Section 523(a)(2)(B)(iv) contains an “intent to deceive” element, it is redundant to include a degree of intent within the meaning of materially false. Thus the creditor must show only that the statement is actually false, but that it was made with the requisite intent to deceive. The creditor has the burden of producing “clear and convincing evidence” with respect to each element. In re Barlick, 1 B.C.D. 412 (D.R.I.1974).
We now turn to the evidence presented in this case. Blazer introduced into evidence debtor’s loan application and disclosure statements pertaining to notes executed on November 27,1978 and March 16,1979 [Exhibits p-2 and p-3, p-4 and p — 5; Notes of Testimony at 3-7 (hereinafter cited as N.T.)]. On the face of the November 1978 application, debtors household goods are itemized, and following the printed words “customer’s estimated value” there is handwritten “8,000”, whereupon there is a “X” followed by Mr. Heil’s signature. Blazer did not present evidence to identify who wrote the figure “8,000” on the application, nor did they present evidence that when Mr. Heil signed the application the figure “8,000” appeared on the statement. Blazer’s only witness, Dominick Merlo, the assistant manager of Blazer, testified that he was unfamiliar with Blazer’s procedures or policy used in granting the loan to debtors, as he was not employed by Blazer at that time. [N.T. at 17]
Mr. Heil testified that he did not specifically value his household goods, either orally or in writing, when applying for the loans. Rather, he testified that he was asked the condition of the items, not their value [N.T. at 26]. He further testified that he did not fill in the applications, but that he was only requested to sign them, which he did. [N.T. at 27]. Mrs. Heil’s signature does not appear on either application [exhibit P-3, P-4; N.T. at 11].
In summary, Blazer has introduced into evidence a written loan application containing a statement which debtors admit is factually untrue. However, Blazer has failed to produce evidence that the misrepresentation appeared on the application when the debtor signed it. Nor has Blazer elicited such an admission from the debtors on cross-examination. Therefore, Blazer has failed to show that debtor signed a statement which was “materially false”. We conclude that because Blazer has failed *584to produce “clear and convincing” evidence of a “materially false” statement, the debt to Blazer is dischargeable.
Since this consumer debt has been determined to be dischargeable under Section 523(aX2), 11 U.S.C. § 523(d) (1979) suggests that the court grant judgment against the plaintiff and in favor of the debtor for costs and a reasonable attorney fee, unless to do so would be clearly inequitable. We will direct counsel for the parties to appear for a hearing on the merits of the debtors’ entitlement, if any, to attorney fees and costs connected with the defense of this proceeding.
Blazer’s complaint is DISMISSED.
. This opinion constitutes the findings of fact and conclusions of law required by Rule 752 of the Rules of Bankruptcy Procedure.
. Section 523(d) of the Bankruptcy Code provides:
“If a creditor requests a determination of dis-chargeability of a consumer debt under subsection (a)(2) of this section, and such debt is discharged, the court shall grant judgment against such creditor and in favor of the debtor, for the costs of, and a reasonable attorney’s fee for, the proceeding to determine dischargeability, unless such granting of judgment would be clearly inequitable.” | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489128/ | MEMORANDUM AND ORDER DENYING PEOPLES BANKING COMPANY’S MOTION FOR LEAVE TO FILE AN AMENDED COUNTERCLAIM
WALTER J. KRASNIEWSKI, Bankruptcy Judge.
This matter is before the Court upon the Motion of Defendant, Peoples Banking Company, (PBC) for leave to file an amended counterclaim. It is the decision of this Court that the motion is not well taken and should be denied.
On February 15, 1980 Plaintiff commenced this cause of action for a money judgment, and to foreclose its security interest on personal property of Defendants Donald J. Peckinpaugh and Betty M. Pec-kinpaugh, in the Court of Common Pleas of Hancock County, Ohio. Defendant PBC, along with nineteen other named defendants, was required to assert and set up its respective interest, lien, or claim against the property or to be forever estopped and barred therefrom. Plaintiff prayed that the property be sold, that the liens be mar-shalled, and that its security interest be found to be the first and best lien.
On March 17, 1980, PBC filed an answer and counterclaim denying the validity of Plaintiff’s lien, and asking that the liens be marshalled and its security interest in the personal property be found the first and best lien.
On March 28, 1980, the Defendants Donald J. Peckinpaugh and Betty M. Peckin-paugh filed a petition in this Court under Chapter 11 of the Bankruptcy Code. On April 25, 1980 the original civil suit filed in the Hancock County Common Pleas Court was removed to this Court by the Debt- or/Defendants pursuant to 28 U.S.C. § 1478. Thereafter, on August 6, 1980 the case was converted to a case under Chapter 7 and a Trustee was appointed.
Subsequent to removal to this Court, on December 3, 1980, an informal conference was held at which counsel for Plaintiff, the Trustee in Bankruptcy, and counsel for Defendant PBC were in attendance. Pursuant to agreement of the parties, an Order of Sale was entered April 24, 1981 requiring that the property be sold at public sale by a licensed auctioneer, and that the determination of the validity and priority of liens be postponed to a later date. If found to be valid, the liens would attach to the funds in the hands of the Trustee.
After the sale Plaintiff, on May 22, 1981, moved this Court for an order marshalling the various liens and assessing the costs and expenses of sale. This Court ordered a pre-trial conference on the motion and scheduled it for July 8, 1981.
Prior to the pre-trial conference, on June 9, 1981 PBC filed the present motion for leave to file an amended counterclaim. The reason for PBC’s motion is that apparently, through its own inadvertence or negligence, it had failed to discover that the date of the *694earliest perfection of its lien is allegedly December 20, 1976, and not February 14, 1978, as stated in the original counterclaim. It is the finding of this Court that justice does not require that leave be granted to amend under the circumstances of this case.
Rule 715 of the Rules of Bankruptcy Procedure provides, with exceptions not relevant herein, that Rule 15 of the Federal Rules of Civil Procedure applies in adversary proceedings. In relevant part Rule 15 provides:
(a) Amendments. A party may amend his pleading once as a matter of course at any time before a responsive pleading is served or, if the pleading is one to which no responsive pleading is permitted and the action has not been placed upon the trial calendar, he may so amend it at any time within 20 days after it is served. Otherwise a party may amend his pleading only by leave of court or by written consent of the adverse party; and leave shall be freely given when justice so requires.
Since more than 20 days have passed since PBC filed its original answer and counterclaim and Plaintiff did not file a reply within the limit set by Rule 12(a), the time within which PBC could amend its counterclaim as a matter of right has elapsed. The provisions of the second sentence of Rule 15(a) then, which provide that a party may amend his pleading “only by leave of court or by consent of the adverse party; and leave shall be freely given when justice so requires” govern.
It is well settled that the grant or denial of leave to amend pursuant to Rule 15(a) is a matter within the sound discretion of the trial court. Zenith Radio Corporation v. Hazeltine Research, Inc., 401 U.S. 321, 91 S.Ct. 795, 28 L.Ed.2d 77 (1971); Conklin v. Joseph C. Hofgesang Sand Company, 565 F.2d 405 (6th Cir. 1977); Hayden v. Ford Motor Company, 497 F.2d 1292 (6th Cir. 1974). In addition, the court’s decision on this issue is subject to reversal on appeal only for an abuse of that discretion. Ban-que de Depots v. National Bank of Detroit, 491 F.2d 753 (6th Cir. 1974); Troxel Manufacturing Co. v. Schwinn Bicycle Co., 489 F.2d 968 (6th Cir. 1973), cert. denied, 416 U.S. 939, 94 S.Ct. 1942, 40 L.Ed.2d 290 (1974).
In opposition to PBC’s motion for leave to file an amended counterclaim, Plaintiff asserts that the allowance of an amendment would prejudice its position in this lawsuit as the purported first and best lienholder, and that, in reliance on this position, it attended the April 24, 1981 sale and made no bid in anticipation of receiving the bulk of the proceeds.
PBC, although specifically granted leave to file a reply brief to Plaintiff’s memorandum in opposition to its motion, has failed to do so. Thus, this. Court is forced to decide this issue without any explanation of the circumstances constituting the alleged “excusable neglect” asserted in its original “Motion for Leave to Plead” filed June 9, 1981.
Prejudice to the opposing party is the most important factor considered by the courts in deciding whether leave to amend should be granted. See Foman v. Davis, 371 U.S. 178, 83 S.Ct. 227, 9 L.Ed.2d 222 (1962); Estes v. Kentucky Utilities Co., 636 F.2d 1131 (6th Cir. 1980). See generally, Wright & Miller, Federal Practice and Procedure; Civil § 1487 (1971). It is likely that Plaintiff’s position as asserted first and best lienholder would be less certain given the validity of the newly asserted filing date. Also, Plaintiff’s conduct at the sale of the personal property involved could have been significantly changed.
Furthermore, absent any explanation of the circumstances underlying the discovery of a new date of perfection, given the diligence of Plaintiff in bringing this case into its present posture, it is the opinion of this Court that justice requires the denial of leave to amend.
This suit had been pending nearly 16 months when PBC filed its motion seeking leave. Up to that point in time Plaintiff has been diligent in initiating and concluding actions protecting the various parties’ interests. For example, it obtained a tern-*695porary restraining order and preliminary injunction restraining Defendant/Debtors from prejudicing the parties’ security interests in the property and caused a State Court Receiver to be appointed. Further, Plaintiff moved this Court for an order marshalling the liens and assessing the costs of sale after cooperating with the Trustee in preparing an order of sale at public auction.
PBC has had ample time to investigate and plead the factual circumstances supporting its interests. It is incumbent upon it to do so with due diligence and care.
For the foregoing reasons it is hereby,
ORDERED that the motion of Peoples Banking Company for leave to file an amended answer and counterclaim be, and hereby is, denied. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489129/ | MEMORANDUM AND ORDER GRANTING MOTION FOR SUMMARY JUDGMENT
CLIVE W. BARE, Bankruptcy Judge.
At issue in this proceeding is whether an agreement executed between the plaintiff, Cassel Bros., Inc., and the defendant’s principal, United States Fidelity & Guaranty Company, should be declared null and void and a judgment for damages entered in favor of the plaintiffs. The defendant, Crump Associates, has moved for summary judgment on the grounds that there are no issues of material fact with respect to the plaintiffs’ claim.
I
Cassel Bros., Inc., a Tennessee Corporation, has operated as a construction contractor with its office and principal place of business in Kingsport, Tennessee. Charles M. McNeil is the president and principal stockholder of Cassel Bros.
United States Fidelity & Guaranty Company (USF&G) issues payment and performance bonds for building contractors. USF&G issued several bonds for Cassel Bros. On August 1, 1973, Cassel Bros, and Charles McNeil entered into an indemnity agreement (Master Surety Agreement) with USF&G under which they agreed to indemnify USF&G against liabilities and losses incurred by USF&G by reason of the execution of payment and performance bonds on behalf of Cassel Bros.
*699Crump Associates, an insurance agency located in Knoxville, Tennessee, executes bonds for USF&G and other companies. Beginning in 1978 Cassel Bros, obtained insurance, both general insurance and bonding, through Crump Associates. In 1978 and 1979 Crump Associates executed payment and performance bonds for USF&G on five projects in which Cassel Bros, was the general contractor.
In the fall of 1979 Cassel Bros, realized that construction of a project in Norton, Virginia, had not been performed according to specification. Also, Cassel Bros, began. experiencing cash flow problems.
In January 1980 McNeil informed Tom McCarley, an insurance agent with Crump Associates, that Cassel Bros, was encountering cash flow problems because of problems with the Virginia projects. McNeil informed McCarley that without financial assistance Cassel Bros, would be unable to continue in operation. McCarley stated that McNeil then asked whether assistance could be obtained from USF&G. McCarley advised McNeil to explain the problem to USF&G in the most exact terms possible. McNeil then asked McCarley to assist him in writing a letter to USF&G. On January 9, 1980, McNeil drafted a letter to USF&G, c/o Tom McCarley, and referred to Cassel Bros.’ “serious cash flow problems”; further, that Cassel Bros, required financial assistance to continue operations. USF&G was requested to provide such assistance.
Responding to the letter, Ed Kirsch, a senior examiner in USF&G’s Fidelity Surety Claim Division in Baltimore, Maryland, and Don Beasley, Superintendent of claims in USF&G’s Nashville, Tennessee, office, went to Kingsport, Tennessee, to evaluate the situation. In addition, other persons experienced in the construction business were contacted by USF&G to examine the projects bonded by USF&G. After USF&G reviewed Cassel Bros.’ records and the projects involved, and after conferences between the parties, McNeil on January 17, 1980, signed a letter turning over the five jobs in question to USF&G.
On March 1, 1980, Cassel Bros, and McNeil initiated proceedings against Crump Associates in the Chancery Court for Sullivan County at Blountville, Tennessee.1 Plaintiffs maintained that they were coerced by defendant’s principal, USF&G, to execute the letter which resulted in valuable contract rights being surrendered. According to plaintiffs, McNeil signed the letter after the defendant and USF&G threatened to induce a default by HUD, which had supplied the funds for several of the projects in question. Plaintiffs asserted they were unable to continue their business because the projects were turned over to others by USF&G and because of “Defendant’s general representations throughout the contracting community ... which ... operated to deprive Plaintiff ... of a bonding source.” Plaintiffs requested that the January 17, 1980, letter be declared void. In addition, plaintiffs sought judgment for the amount of damages to be proved at trial.
Defendant, Crump Associates, moved for summary judgment pursuant to Rule 56 of the Tennessee Rules of Civil Procedure,2 insisting there were no issues of material fact with respect to the defendant in that all of the acts upon which the complaint was based were the alleged acts of USF&G rather than Crump Associates.
On September 8, 1980, USF&G filed an involuntary petition in bankruptcy against McNeil, 11 U.S.C. § 303, and after trial, the bankruptcy court granted an order for relief, 11 U.S.C. § 303(h). Upon appeal, the order for relief was affirmed by District Judge Neese.
While the involuntary petition was pending, Crump Associates removed the chan-*700eery court action to this court. 28 U.S.C. § 1478(a), Interim Bankruptcy Rule 7004.3 The matter is now before this court on defendant’s motion for summary judgment.
II
A motion for summary judgment under Rule 56, Federal Rules of Civil Procedure, is properly granted when there are no genuine issues of material fact to be disposed of at trial.
“The purpose of our summary judgment rule is to expeditiously determine cases without necessity for formal trial where there is no substantial issue of fact and is in the nature of an inquiry to determine whether genuine issues of fact exist. If no factual dispute exists and the complaint does not state a cause of action, it should be disposed of by summary judgment rather than exposing the litigants to unnecessary delay, work and expense in going to trial when the trial judge would be bound to direct a verdict in movant’s favor after all evidence is adduced.” Chambers v. United States, 357 F.2d 224, 227 (8th Cir. 1966).
See 10 Wright & Miller, Federal Practice and Procedure: Civil § 2712 (1973).
After examining the depositions filed by Crump Associates in support of the motion for summary judgment, specifically the deposition of McNeil, the court concludes that McNeil brought an action against Crump Associates solely because of its agency relationship with USF&G. The acts upon which the complaint is based are the acts of USF&G, not the acts of Crump Associates.
It is clear that Crump Associates’ involvement is limited to the advice given by Tom McCarley regarding McNeil’s letter of January 9, 1980. According to McNeil, he asked McCarley how to get assistance from USF&G so that Cassel Bros, could continue in business. McCarley advised that the only way to get assistance would be for McNeil to write USF&G informing them of the situation.
In his deposition, McNeil admitted that Crump Associates did not act improperly with regard to the January 9 letter:
“Q. You did this [wrote the letter] on your own initiative and your own desire as the chief executive officer of—
A. I did this as a recommendation by a Crump representative who said, ‘this is the way to get them in there, and they won’t come unless you request them.’
Q. Now do you feel that Crump did anything wrong in abiding by your request?
A. Absolutely not.
Q. So you’re not faulting them; you’re not suing them for assisting you or for giving you an idea how to call on USF&G?
A. No.”
Deposition of Charles M. McNeil, pp. 47, 48.
McNeil’s deposition also indicated Crump Associates had no part in the subsequent actions of USF&G and McNeil. No representative of Crump Associates was present at the conferences involving Ed Kirsch and McNeil, including the conference at which the January 17 letter was drafted. Deposition pp. 34, 35. An action was filed against Crump Associates not because of its acts but because McNeil concluded that “I had dealt with Crump Associates totally in all my dealings and direct dealings ... they represented USF&G and as far as I’m concerned they are both one and the same.” Deposition p. 71.
While there is a dispute as to USF&G’s investigation of the financial affairs of Cas-sel Bros, and the subsequent takeover of the construction projects, the court con-*701eludes the dispute involves only Cassel Bros., McNeil, and USF&G. Even though Crump executed the bonds in USF&G’s name, Crump was acting only as USF&G’s agent. When a contract is signed by an agent for a disclosed principal, the agent may not be held liable on the contract unless personal liability was intended. Lake City Stevedores, Inc. v. East West Shipping Agencies, Inc., 474 F.2d 1060 (5th Cir. 1973); Hammond v. Herbert Hood Co., 221 S.W.2d 98 (Tenn.Ct.App.W.S.1948); Brown v. Mays, 241 S.W.2d 871 (Tenn.Ct.App.M.S.1949).
Crump Associates’ motion for summary judgment is granted.
IT IS SO ORDERED.
. Cassel Bros, and McNeil also instituted an action against USF&G. That action was removed to this court and is presently pending.
. “A party against whom a claim, counterclaim, or cross-claim is asserted or a declaratory judgment is sought may, at any time, move with or without supporting affidavits for a summary judgment in his favor as to all or any part thereof.” Tenn.R.Civ.Proc. 56.02.
. “Removal to the bankruptcy courts.
(a) A party may remove any claim or cause of action in a civil action, other than a proceeding before the United States Tax Court or a civil action by a Government unit to enforce such governmental unit’s police or regulatory power, to the bankruptcy court for the district where such civil action is pending, if the bankruptcy courts have jurisdiction over such claim or cause of action.” 28 U.S.C. § 1478(a). | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489131/ | SIDNEY M. WEAVER, Bankruptcy Judge.
THIS CAUSE coming on to be heard upon a Complaint filed herein to authorize the Trustee to sell certain property of the Debtor free and clear of liens and the Court having heard testimony and examining the evidence presented; observed the candor and demeanor of the witnesses; considered the arguments of counsel and being otherwise fully advised in the premises, does hereby make the following Findings of Fact and Conclusions of Law:
1. William D. Seidle (hereafter “Trustee”) is the authorized and acting Trustee of the Debtor.
2. The Trustee filed a Complaint naming as Defendants all lienholders of the Debtor’s property, wherein he requested this Court’s permission to sell a portion of the Debtor’s property otherwise described as “All lots in OAK HAVEN SUBDIVISION SECTION ONE, according to the Plat thereof, located in Plat Book 103, at Page 20, of the Public Records of Dade County, Florida, except Lots 1 through 5. All of OAK HAVEN SUBDIVISION SECTION TWO, according to the Plat thereof, recorded in Plat Book 105, at Page 75, of the Public Records of Dade County, Florida, except Lots 12 and 13”, free and clear of all liens and claims of interest.
3. A copy of the Complaint, together with summons and notice of trial has been served on each of the Defendants named in this cause. Due notice of the hearing held herein has been given to the Defendants.
4. The Trustee will be unable to convey marketable title to the above stated lots unless this Court permits the sale of said lots free of all claims, liens and interests.
5. The above stated lots constitute inventory of the Debtor and the sale of those lots is an activity within the normal and ordinary course of the Debtor’s business.
6. The Trustee is insuring that the highest possible price will be paid for the above stated lots by employing the assistance of a local realtor who is marketing and generating interest in the property. This method of selling the property consisting of lots and single family homes erected thereon, will result in a higher sales price for each unit, than if they were sold in bulk or at a foreclosure.
7. The Trustee will insure that the interest of all lienors, claimers and parties in interest will be protected by transferring all liens, claims and interest in said lots to the proceeds generated by the sale of said lots.
8. Section 363(c) of the Bankruptcy Code (11 U.S.C. Section 363) provides that the Trustee may sell property of the Debt- or’s estate in the ordinary course of business, where the Debtor’s business is operated by the Trustee. No notice is required.
9. Section 363(f) indicates that before the Trustee may sell property free and clear of liens under subsection (c) of Section 363, one of five conditions must be met. It is unreasonable to assume that the drafters of the Code would require that before any item of inventory could be sold by a Trustee in the ordinary normal course of the Debt- or’s business, it would be necessary that “the price at which such property is to be sold is greater than the aggregate value of the [interest attached thereto]”. (11 U.S.C. § 363(f)(3). Notwithstanding the question of price, it is clear that each and every Defendant herein “could be compelled, in a *864legal or equitable proceeding, to accept the money satisfaction of their interest.” (11 U.S.C. § 363(f)(5). By marketing the Debt- or’s property in an orderly fashion at the highest possible price, the Trustee is insuring that the interest of the above styled Defendants to the extent there is value of said interest, will be adequately protected. Their claims, liens and interests will attach to the proceeds of the sale.
10. I therefore conclude that the Trustee is entitled to an Order that will permit him to sell the lots in Sections 1 and 2 of Oak Park free and clear of liens, claims and interests and transfer said liens, claims and interests to the proceeds generated from the sale of said property. | 01-04-2023 | 11-22-2022 |
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