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https://www.courtlistener.com/api/rest/v3/opinions/8489132/ | OPINION AND ORDER ON COMPLAINT TO DETERMINE NONDISCHARGE-ABILITY OF A DEBT
ROBERT G. MOOREMAN, Bankruptcy Judge.
This adversary complaint, filed March 10, 1981, arises from the debtors’ voluntary petition filed under 11 U.S.C. Chapter 7, on December 10, 1980. Plaintiffs by their pleadings seek a determination of nondis-ehargeability of a debt pursuant to certain provisions of 11 U.S.C. § 523(a)(2)(A), and (a)(4) and (a)(6), the applicable provisions of which are set forth hereinafter.
(a) A discharge under section 727, 1141, or 1328(b) of this title does not discharge an individual debtor from any debt—
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*865(2) for obtaining money, property, services, or an extension, renewal, or refinance of credit, by—
(A) false pretenses, a false representation, or actual fraud, other than a statement respecting the debtor’s or an insider’s financial condition;
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(4) for fraud or defalcation while acting in a fiduciary capacity, embezzlement, or larceny;
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(6) for willful and malicious injury by the debtor to another entity or to the property of another entity; .... (Emphasis supplied)
A trial was held on August 31, 1981, and the matter was submitted to the court on the evidence and subsequent legal memo-randa by the parties from which the court finds and concludes as follows:
The debtors dba Arts Management Associates, an unincorporated association, were engaged in the business of promoting concerts and shows featuring various well known performers and celebrities such as George Burns, Helen Reddy, Red Skelton and the popular Country Western singer, Loretta Lynn.
After some preliminary negotiations, the debtor, Brad L. Fry, entered into a first contract on April 16, 1980 with the plaintiffs, under which he agreed to procure the performance of Loretta Lynn on September 10, 1980, at Grady Gammage Auditorium for which the plaintiffs paid the sum of $15,000. Under the contract, the plaintiffs were to receive 50% of the net profits derived from the performance and the debtors the remaining 50% of said venture. (A copy of the contract (Ex. 1) is appended and made a part of this opinion.)
Approximately two weeks later, on April 30, 1980, the debtor entered into a second contract with the American Diabetes Association Arizona Chapter (ADA) in which it was promised the promotion of the same concert featuring the same performer, Loretta Lynn, at the same time, September 10, 1980 (a copy of which is also appended as Exhibit 2). Under this second contract, the debtor received a $7,500 cash promotional fee and a $2,500 retainer from the ADA who received the profits from the performance which ultimately took place at Rawhide, Arizona on the scheduled performance date.
On April 18, 1980, between the two contracts in question, the debtor negotiated an agreement with United Talent, Inc., agents of Loretta Lynn, to secure the September 10, 1980 performance. Under this agreement, the debtor promised to pay $25,000 for Loretta Lynn to perform with the sum of $12,500 to be paid at that time and the balance to be paid on the day of the performance. Facts presented at trial indicate that the debtor utilized the $15,000 procured from the plaintiffs towards the $12,-500 payment to United Talent.
Subsequent to the above described contracts, the plaintiffs learned of the ADA performance by hearing a radio announcement advertising the Rawhide concert, and on August 7,1980, the debtor sent notification to plaintiffs by mailgram of his desire to discontinue the venture, and offering to return the $15,000 investment plus interest. However, this was not accomplished. On August 13, 1980, the debtor, Brad L. Fry, met personally with the plaintiff, Stephen Gerst, and as a result of this meeting, an affidavit was prepared and signed by the debtor in which he stated that he contracted with the ADA without the knowledge or consent of the plaintiffs and that he used the funds provided by them to secure the performance of Loretta Lynn. In addition, the debtor stated that he would provide security for the obligation which security later proved to be upon the debtors’ homestead and heavily encumbered and subject to forfeiture.
At no time prior to the double contracts time frame were the plaintiffs told by the debtor of his dealings with the ADA or his use of the $15,000 for procuring the performance contemplated under the first contract with the plaintiffs. In the complaint, two separate grounds were asserted as a basis for nondischargeability and later a *866third ground based on section 523(a)(6) was argued to the court upon the memoranda submitted and in conformance with the evidence of the trial. First, the plaintiffs have argued that the money was obtained by false pretenses, or actual fraud. This allegation was presumably based on 11 U.S.C. § 523(a)(2)(A). Second, the plaintiffs alternatively argue that the debtors committed fraud, or defalcation while acting in a fiduciary capacity, or alternatively, embezzlement or larceny. This allegation was presumably based on section 523(a)(4). The court finds that these first two grounds are inapplicable to this case and not supported by the evidence presented, and therefore, take up the third ground — that is, section 523(a)(6), supra.
The plaintiffs argue, based on the evidence, that the debtors’ acts constituted a “willful and malicious injury to property.” This allegation presumably follows from section 523(a)(6) of the Bankruptcy Code which prohibits a discharge for willful and malicious injury by the debtor to another entity or to the property of another entity. This section replaces section 17(a)(8) of the former Bankruptcy Act which also excepted from discharge debts of that nature. While willful and malicious conversion is not expressly specified under section 523(a)(6), it has been held that “willful and malicious injury” encompasses “willful and malicious conversion.” See 3 Collier on Bankruptcy, ¶ 523.16 (15th Ed. 1979), Davis v. Aetna Acceptance Co., 293 U.S. 328, 55 S.Ct. 151, 79 L.Ed. 393 (1934), In Re Meyer, 7 B.R. 932 (Bkrtcy.N.D.Ill.1981).
Therefore, the issue before the court is whether the specified acts of the debtors constitute a willful and malicious injury or conversion to the plaintiffs or to the property and are clearly proven by the evidence of the plaintiffs. This question must be answered in the affirmative upon the facts and law presented at the trial.
This conclusion is reached by an analysis of the following case law which presents factual patterns analogous to the instant case.
In the case of In Re Prenzi, 3 B.R. 165 (Bkrtcy.D.Ariz.1980) (Judge William A. Scanland), the debtors failed to comply with the terms of a written agreement which required them to execute a $3,000 promissory note and post it as a bond in the Superior Court as part of a settlement in a pending lis pendens action. The debtor failed to do this and later sought to have the debt discharged in bankruptcy. The bankruptcy court held the debt to be non-dischargeable finding that the debtors’ failure to execute the note was a willful and intentional act. While this case was decided under the former Bankruptcy Act § 17(a)(8), the same principles apply under the new Bankruptcy Code. In the instant case, the debtors herein as in Prenzi, knowingly failed to abide by an express agreement with the plaintiffs and in direct contravention of the agreement used funds obtained from the plaintiffs for the purpose of securing the performance of Loretta Lynn on behalf of the ADA. By this action the debtor caused direct injury to the plaintiffs by depriving them of their investment and selling the same performance to another party and after the plaintiffs’ funds had been used in procuring the artist’s performance for the benefit of another.
Also pertinent on the issue of discharge-ability is the case of In Re McCloud, 7 B.R. 819 (Bkrtcy.M.D.Tenn.1980). There the debtor, in direct violation of a written security agreement made with a bank, sold certain livestock that was pledged as security. The court found that this act constituted a willful and malicious conversion under section 523(a)(6). This decision was based on the fact that such a sale of collateral was unauthorized, that the bank had rights in the collateral, and that the bank was unaware of any likelihood that the collateral would be sold. These same factors are present in the instant case. No authorization was given to the debtors to seek an alternative and competing sponsor for the September 10, concert. Pursuant to the original contract between the parties, the plaintiffs had a vested interest in the performance. Finally, no evidence was presented indicating that the plaintiffs *867were timely notified by the debtor, Brad L. Fry, of his prior and subsequent negotiations and ultimate contract with the ADA. In fact, the first notice the plaintiffs received of the debtors’ dealings was by hearing a radio announcement advertising the September 10th concert on behalf of the ADA which was heard by the plaintiff Gerst on his car radio.
In summary, the court finds and concludes that the debtors’ acts fall within the definition of “willful and malicious injury” as applied in section 523(a)(6). As the court in the McCloud decision stated,
If an act of conversion is done deliberately and intentionally in knowing disregard of the rights of another, it falls within the statutory exclusion even though there may be an absence of special malice. See McIntyre v. Kavanaugh, 242 U.S. 138, 37 S.Ct. 38, 61 L.Ed. 205 (1916); Bennett v. W. T. Grant Co., 481 F.2d 664 (4th Cir. 1973).
Therefore, while the debtors may have entered into the agreement with the plaintiffs in good faith, the subsequent intentional conduct under the circumstances acted to deprive the plaintiffs of all property rights and profits connected to the September 10, 1980 performance of Loretta Lynn. This being the case, the court holds that the resultant debt is nondischargeable as to the debtors herein.
Pursuant to F.R.C.P. 52, this opinion and order shall constitute Findings of Fact and Conclusions of Law herein.
APPENDIX
EXHIBIT 1
AGREEMENT OF ASSOCIATION
The parties to this AGREEMENT are ARTS MANAGEMENT ASSOCIATES, INC., and STEPHEN A. GERST, MICHAEL J. COHEN and DAVID A. GRO-SECLOSE.
WHEREAS, Arts Management Associates, Inc., desires to accept an investor, and Stephen A. Gerst, Michael J. Cohen and David A. Groseclose desire to invest in an upcoming production promoted by Arts Management Associates, Inc., per proposal for the Loretta Lynn Show attached hereto and made a part of this Agreement;
THEREFORE, the parties have entered into the following Agreement:
1, In consideration of the promises contained herein, investors agree to invest the sum of $15,000.00 with Arts Management Associates, Inc.
2. In consideration for this investment capital, Arts Management Associates, Inc., agrees to pay to Stephen A. Gerst, Michael J. Cohen and David A. Groseclose fifty percent (50%) of the NET PROFITS from the Loretta Lynn concerts to be held on September 10, 1980, or return $15,000.00 with interest at eighteen percent (18%) per an-num from the date of this Agreement, whichever is greater.
(a) If the above concert is postponed for any reason, the parties agree that this Agreement may be cancelled at the option of the investors and the $15,000.00 together with interest at eighteen percent (18%) per annum, shall be refunded to them within thirty (30) days.
(b) The term NET PROFITS as used herein shall mean the sums remaining from Gross Income after payment of the expenses set forth in the attachment hereto and after reimbursement hereto investors of their initial $15,000.00 investment.
(c)Repayment to occur within thirty (30) days of settlement of concert proceeds with the Box Office. Investors are to receive a full accounting of all ticket sales, receipts and expenditures.
IN WITNESS OF THIS AGREEMENT, the parties have signed it below this 16 day of April, 1980.
ARTS MANAGEMENT ASSOCIATES, INC.
Michael J. Cohen Michael J. Cohen, Investor By Brad L. Fry BRAD L. FRY, President
Stephen A. Gerst Stephen A. Gerst, Investor By Brad L. Fry_ BRAD L. FRY, Guarantor
David A. Groseclose_ David A. Groseclose, Investor By Elizabeth Fry ELIZABETH FRY, Guarantor
Received From Stephen A. Gerst the sum of $16,000 on 4-16-80
Beverly F. Jewell (AMA, Inc.)
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*870[[Image here]] | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489133/ | OPINION AND DECISION
BERT M. GOLDWATER, Bankruptcy Judge.
This is an action by a landlord to vacate the automatic stay or, in the alternative, for assumption of a sublease covering the foyer of a restaurant and payment of rent. The defendant-debtor has counterclaimed for damages against the landlord-plaintiff arising out of the restaurant lease between the same parties.
Plaintiff (Ribeiro) and defendant (Joe’s) entered into a sublease for a restaurant on April 5, 1979.1 The lease contract provided for the construction of a restaurant building and parking on the leased premises.
For the first five lease years, rent of the restaurant area was at a base monthly sum of $1,838 for the land plus a building rental percentage applied to the “cost of construction” not exceeding $520,000. Until April 30, 1980, this was to be V12 per month computed upon the interim construction loan which was committed at 13V2% interest plus 1% making the rental IV24 per month times the loan. From May 1, 1980 through the end of the construction loan period, this was to be 1% plus the rate of interest in effect on the construction loan on that date. For the period from the end of the construction loan period through the end of the fifth lease year, the parties contemplated a new loan called a “permanent loan” on which monthly rental was to be computed on $520,000 at the rate of interest obtained plus 2%.2 The lessee was granted thirty days to secure a more advantageous loan for the landlord, else the loan proposed by the landlord would be accepted by the lessor.
On May 15, 1979, Ribeiro and Joe’s formed a partnership, R-T Enterprises (RT). The partnership subleased from Ribeiro an area of the restaurant lobby for the purpose of operating a slot machine concession. The rental was $1,838 per month which was 1% of the land value of $183,000 for the entire parcel of land owned by Ri-beiro and Arroyo.3 The partnership agreement provided that Ribeiro had an option to withdraw, in which event Joe’s was to purchase his interest at a price to be determined by the terms of the agreement. An initial contribution of $10,000 was to be made and the parties agreed on a percentage of contribution and partnership profits, 75% to Ribeiro and 25% to Joe’s.
*965The partnership applied for a gambling license in December 1979. The parties agreed June 29, 1979 to an amendment of the slot machine concession sublease that, in the event a gambling license was not approved, the restaurant lease would be deemed amended so as to increase the base rent in the latter lease from $1,838 to $2,297.50 the first year and additional amounts each year until the rent reached $3,676 (2 X $1,838) in the fourth year of the restaurant lease. A gambling license was received in January 19804 and the slot machine concession was operated in the restaurant foyer with a lease of the slot machines from Bally Company. Each partner contributed the required percentage of expense for coins, license fees, and incidental expenses. On August 21, 1980, Ribeiro demanded from Joe’s its contribution to the capital of the partnership of R — T to enable the partnership to pay its rent obligations (Exhibit CC). The partnership agreement provided that failure to make the contribution gave rise to a right of the other partner to purchase the partnership interest of the defaulting partner and if not purchased the partnership would be dissolved.
Ribeiro gave notice of withdrawal from R-T to be effective October 31, 1980, but the partnership had been dissolved by failure of Joe’s to make its contribution and Ribeiro to purchase its interest. The slot machines remained on the premises until April 1981. Bally applied all income from the slot machines on its rental agreement. No profit remained for the partners. No rent was paid to Ribeiro on the slot machine sublease but, until the machines were removed by Bally, jackpots were shared 75/25 between Ribeiro and Joe’s in the event the jackpot amount to be paid a winner exceeded the mechanical payout of coin in the machine.5
The parties assumed the slot machine concession would be profitable and Ribeiro would receive rent. No provision was made for rent in the event of dissolution or unprofitable operation. Joe’s contends there was no partnership because the requested capital contribution was not made and Ri-beiro’s interest was not purchased, thereby liquidating and dissolving the partnership pursuant to the partnership agreement.
In its counterclaim Joe’s seeks damages for breach of the restaurant lease because (1) failure of the landlord to repair defective construction and installation of mechanical air conditioning and heating, (2) for harassment and interference with the tenant’s business, (3) for adjustment of rent, and (4) for an injunction against further interference.
THE R-T PARTNERSHIP
The partnership commenced upon receipt of a gambling license in January 1980 with installation of slot machines in February. On August 21,1980, Ribeiro, by his attorney Maupin, demanded Joe’s contribution, stating Joe’s was liable for 25% of the expenses, rent to Ribeiro being the major share. When Joe’s failed to make the contribution as demanded, Ribeiro did not purchase Joe’s interest and the partnership was dissolved by its terms. It continued to wind up or “down” until the slot machines were removed by Bally in April 1981.
On Ribeiro’s complaint for damages:
1. Ribeiro’s attempt to withdraw in October 1980 was at a time when the partnership was already dissolved and winding up. Thus, the rent for R-T to Ribeiro is $1,838 per month from September 1979 until rejection of the lease in May 1981 of which 25% is a claim of Ribeiro against Joe’s for $9,649.50. In addition, rejection of the lease entitles Ribeiro to a claim for damages in the amount of rent reserved by the lease for one year from the date of surrender (25% X $1,838 X 12) or the sum of $5,514 pursuant to 11 U.S.C. § 502(b)(7)(A).
2. Ribeiro is entitled to the return of possession of the area reserved in the slot machine sublease because of the rejection and surrender of R-T in May 1981.
*966THE COUNTERCLAIMS
I. Breach of contract for construction of restaurant under lease
Ribeiro constructed the restaurant with a heating and air conditioning system which did not function satisfactorily for fifteen months. Joe’s complained constantly from the spring of 1980 until the system was properly repaired in May 1981. The problem involved an imbalance in the system and the failure of mechanical operation due to miswiring which caused malfunction. In turn, because Ribeiro had ordered but refused to pay a subcontractor for necessary work required by the Reno building code of installing pans under sewer lines in basement areas where food was handled, the subcontractor refused for some time in 1980 to perform any warranty work on the system.
The malfunction of the heating and air conditioning system caused the thermostats to receive hot and cold air and to use excessive amounts of electrical power. Expert testimony of a power company engineer was that there was expense for heating and cooling which varied on a monthly basis considering factors of outdoor weather temperature. No precise dollar amount could be determined but it was apparent that subsequent electrical energy bills after Ribeiro had attended to the required repairs compared with the fifteen month problem period showed a difference of at least $1,000 per month. In addition, there was a loss of business because of the unbearably warm temperature in the bar and restaurant during the summer of 1980 for a period of two weeks. Joe’s spent $2,292.60 (Exhibit GG) for repairs which were entirely the responsibility of Ribeiro under the lease because motors were not protected from changes of electric line flow in the phases of the motor. Joe’s also paid $758.13 (Exhibits EE and FF) for adjustments which were Ribeiro’s obligation.
Joe’s is entitled to its out-of-pocket expense of $3,050.73 plus damages for excessive electrical expense of $15,000.
II. Business Interference
Ribeiro harassed the owners of Joe’s unmercifully. He complained about the appearance of the yard without good reason. He expressed his unhappiness with his bargain on the lease and stated he would like to have the building returned so that he could convert it into an office building. The Thomases, who are the principals of Joe’s, have been met with rumors emanating from Ribeiro that they are not paying their bills. Ribeiro deliberately denied Joe’s twenty-one parking places by fencing the area so that it could not be used. Patrons were seen coming in but driving away for lack of parking. He deliberately refused to pay a subcontractor’s bill which was rightfully his obligation causing the subcontractor to refuse to service the warranty on the air conditioning. This type of conduct not only interfered with Joe’s business but also caused personal irritation and physical and mental illness to the owners.6
Damages for business interference is a well-settled rule of law. The right to carry on a lawful business is a property right and interference without just cause or excuse is ground for the award of damages and injunction. Guión v. Terra Marketing of Nevada, 90 Nev. 237, 523 P.2d 847 (1974). See also Fireman’s Fund Insurance Co. v. Shawcross, 84 Nev. 446, 442 P.2d 907 (1968).
However, compensatory damages for loss of business profits may only be awarded where there is some history of business activity from which it may be determined what loss of income resulted. Here there was little or no business history as the lessee was just getting underway. Compensatory damages in the form of lost profits are therefore incapable of determination. In Knier v. Azores Construction Co., 78 Nev. 20, 368 P.2d 673, 675 (1962), the court said:
Where the loss of anticipated profits is claimed as an element of damages, the business claimed to have been interrupted must be an established one and it must be shown that it has been successfully con*967ducted for such a length of time and has such a trade established that the profits therefrom are reasonably ascertainable.
Nevertheless, there is sufficient showing for actual general compensatory damages of $1,000 considering that the lessee was put to a running battle with Ribeiro that took time and money to recover parking, repair building deficiencies, meet unfounded charges, and remain in business in spite of the interference from Ribeiro.
Punitive damages are authorized in a proper case to punish and deter culpable conduct. N.R.S. 42.010. The amount lies in the discretion of the Court and need bear no fixed relationship to compensatory damages. In Alper v. Western Motels, Inc., 84 Nev. 472, 443 P.2d 557 (1968), where compensatory damages of $96 awarded by the lower court were increased by an additional $75, it was held that $1,500 punitive damages were not disproportionate and no particular proportion is required. The Nevada court cited with approval Finney v. Lockhart, 35 Cal.2d 161, 217 P.2d 19 (1950) which allowed $2,000 punitive damages as against $1 of compensatory. See also Midwest Supply, Inc., v. Waters, 89 Nev. 210, 510 P.2d 876 (1973), (an award of $100,000 punitive damages was not erroneous even though it exceeded the prayer of the original complaint). In Waters, the court held there need be no fixed relationship to compensatory damages, the amount of which was not stated in the decision.7
Ribeiro’s conduct was oppressive and constituted an intentional interference with business. Ribeiro filed suits for rent or recovery of the premises within a short time of a default. He showed no compassion and no interest in the success of the tenant. He did not testify and there is no contrary evidence. Joe’s is entitled to punitive damages which will punish Ribeiro. N.R.S. 42.010. Punitive damages are fixed at $20,000.8
III. Lease Agreement on Rent
Defendant contends that a "permanent loan” has not been made because it is only a five-year loan and that the terms of the original construction loan should be used to compute rent of the restaurant until there is a permanent loan. The broker who attempted to obtain a long-term loan testified that (1) it was at a time in 1979 when interest rates were rising and no bank or institution wished to commit itself for a long-term loan, (2) that the building is built for a restaurant which does adapt to any other use without a great expense and is not an attractive security, and (3) the restaurant business is notably a very risky business.
The rent issue depends upon the meaning of “permanent loan”. The lease is for a period of twenty-five years with three ten-year consecutive options. The precise terms of the five-year loan with Nevada National Bank was not established.9 Testimony was that it was “negotiable” at the end of the five-year term but the bank would not be bound for any longer term unless there was a new agreement between borrower and lender. Thus, the inference is that the interest is fixed for the first five years but the loan is not intended to be “permanent” in the sense that the cost of construction is to be amortized over the five-year life of the loan.
The sublease states: (Paragraph III.B. 3.a.)
*968Following the execution of this Restaurant Lease, Lessor shall submit to whatever lending institutions are selected by Lessor, in Lessor’s discretion, applications for a new loan (hereafter referred to as the “permanent loan” to be secured by Lessor’s interest in the premises. (Emphasis added.)
The parties thus defined permanent loan to mean the next succeeding or new loan after the construction loan. Hence, while the loan is not permanent in the sense of final, it is the permanent loan by definition in the sublease for the purpose of fixing the rental to commence with the calendar month in which the permanent loan is disbursed. (Para. III.B.2.)
Joe’s contends that the rate of interest should be 14%, because on November 15, 1979, Ribeiro’s counsel wrote the Thomases’ counsel: “If the proposal for Johnny to carry the permanent financing himself at 14% interest is unacceptable to the Thomas-es, then the construction loan with Nevada National Bank will be converted to a permanent three-year loan. Under the terms of the loan with the Nevada National Bank, the interest rate is 2% above the floating prime rate of interest. Based upon the current prime rate of interest, the rate of rent under the restaurant lease would be approximately 18% from May 1, 1980, until a more satisfactory permanent loan is obtained.”
No reply was made to this offer. Thom-ases’ then counsel believed that the proposal was a standing offer.10 Not having received an acceptance, Ribeiro on April 21, 1980 notified the Thomases that he was obtaining a commitment from Nevada National Bank and that they would have thirty days to obtain a more favorable commitment pursuant to the terms of the lease. The Thomases were unable to obtain more favorable terms.
An offer not accepted expires within a reasonable time. Mere silence does not constitute an acceptance. Milner v. Dudrey, 77 Nev. 256, 362 P.2d 439 (1961) holds that there must be a decision to an offer communicated within the period of an option. Where there is no fixed period the offer may be revoked at any time before acceptance. McCone v. Eccles, 42 Nev. 451, 181 P. 134 (1919).
Hence, it is clear that (1) a new loan called “permanent loan” has been made as agreed by the parties to the lease, (2) such loan terms were offered to Joe’s for thirty days to give Joe’s an opportunity to find a more favorable permanent loan, (3) Ribeiro’s offer in Maupin’s letter of November 15, 1979 to finance at 14% was never accepted, and (4) the rent as defined in the sublease of the restaurant commencing May 1, 1980 remains in full force and effect under the new loan called a “permanent loan” as agreed.
Let judgment be entered as follows:
1. Ribeiro is awarded (a) the return of possession of the property area under the R-T sublease and (b) damages in the sum of $9,649.50 plus $5,114.
2. Debtor-defendant is awarded general damages for breach of contract of the lease construction of $18,050.73.
3. Debtor-defendant is awarded damages for business interference of $1,000, general damages and punitive damages of $20,000.
4. The rent remains at the amount defined in the lease commencing May 1, 1980 under the new loan as a permanent loan.
. Plaintiff and one Joseph F. Arroyo are owners of the land. Plaintiff holds the master lease as sole tenant from himself and Arroyo.
. Computations for the effective rate of interest included adjustment for interest on fees and costs payable by the borrower.
.Ribeiro and Arroyo agreed on $8.00 per square foot value for 45,950 square feet or $367,600, one half of which would be $183,800.
. Thus rendering the amendment to the sublease moot because there was no alternative provided if the license was granted.
. Joe’s paid the cash required and was reimbursed 75% by Ribeiro.
. Mr. and Mrs. Thomas are not parties to this action seeking personal injury damages.
. Generally the absence of any compensatory damages will bar an award of punitive damages. See Alex Novack & Sons v. Hoppin, 77 Nev. 33, 359 P.2d 390 (1961); City of Reno v. Silver State Flying Service, Inc., 84 Nev. 170, 438 P.2d 257 (1968).
. There was no proof of Ribeiro’s financial condition but there was evidence of his willingness at one time in 1979 to personally finance the building ($600,000 cost), that he had made 100 substantial loans from banks and other Institutions, employs a full-time C.P.A., and enjoys the ownership of much property and a construction company.
.Exhibit C, a letter from Ribeiro’s attorney Maupin to debtor-defendant and its attorney Fahrenkopf under date of April 22, 1980 refers to a “copy of the loan commitment letter dated April 21, 1980” for a loan of $640,000.
. See Defendant’s Exhibits B, C, and D. Letters from Maupin to Fahrenkopf of November 15, 1979, April 22, 1980, and April 28, 1980. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489134/ | THOMAS C. BRITTON, Bankruptcy Judge.
Certification as to Special Charges and Referee’s Salary and Expense Fund
These Chapter X cases are governed by the provisions of the Bankruptcy Act of 1898 as amended, § 241(1) of which provides for “reasonable compensation for services rendered ... (1) by a referee”. That section further provides that the compensation of the referee shall not be governed by § 40 of the Act. Section 40 provides a percentage charge to be collected from the assets of all other bankruptcy cases for payment into the Referee’s Salary and Expense Fund administered by the United States Treasury to fund all bankruptcy courts. The application of the percentage fee stipulated in § 40 would produce a payment in excess of $5 million from this estate.
Section 241(1) dates back to the time when bankruptcy referees were fee officers and the charge contemplated was, no doubt, to be calculated on the basis of the time spent by the referee times an hourly rate determined in the same manner provided for the determination of all other fees allowable from the estate. In 1975, the Bankruptcy Rules provided for the reference of Chapter X cases to the bankruptcy judge and B.R. 10-103(a) now requires that this charge be fixed by the bankruptcy judge rather than the district judge. 6A Collier on Bankruptcy (14th ed.) ¶ 13.03[2].
These cases were filed in late 1975 and early 1976. A plan has been confirmed and consummated. It is now appropriate to fix this charge incident to the closing of the cases.
This consolidated case is the largest one filed so far in this state. It involved over 40,000 creditors and the plan distributed assets with an estimated value in excess of $255 million. Most of the case was administered by my late colleague, Judge Hyman, who died on October 1, 1979. I have reviewed the entire file in an effort to estimate the time spent on this matter by him as well as the time spent by me as his successor in this case. I estimate that a total of 2,200 hours approximately twenty percent of the court's time, was spent in the administration of this case.
There is no definite standard for fixing the hourly compensation to be provided in the allowance of this charge. If this charge were to be assessed by the same standards applied for the assessment of all other fees, a reasonable charge would be about $200,-000. The S.E.C., however, has consistently recommended in other Chapter X cases that the hourly rate to be used in this instance should be $20 per hour based on a work year of about 2,000 hours and a judge’s salary which averaged $42,500 per year during this interval.
I agree with the S.E.C. The allowance payable to the U.S. Treasury for the Referee’s Salary and Expense Fund in this case is $44,000.
The sum makes no provision for the government’s expense in providing clerical personnel and facilities to process the mountain of paper involved in the administration of a case like this one, but the only provision in Chapter X for reimbursement of these expenses is provided by § 40 c(3) of the Act of 1898. That section provides for the establishment from time to time of a schedule of specific charges for specific clerical tasks. The Clerk of this court reports and I certify that the special charges total $14,845.25. This sum is to be paid to the U.S. Treasury for the account of the Referee’s Salary and Expense Fund. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489144/ | ORDER
' SIDNEY M. WEAVER, Bankruptcy Judge.
THIS MATTER having come before this Court on the creditor, NATALIE BLOCK’S Objection to Exemptions, and after considering the evidence introduced, the testimony of the witnesses, and the demeanor and credibility of the witnesses, this Court finds as follows:
1. The debtor, BENJAMIN H. BENNETT, JR., filed a voluntary petition in bankruptcy on July 15, 1981.
2. At that time, the debtor, while being obligated to provide support to his two minor children pursuant to a final judgment of dissolution of marriage, had failed to make the payments on a regular basis and had accumulated an arrears of $4,551.00.
3. The debtor nevertheless claimed his exemption under Article X Section 4 of the Florida Constitution on the basis that he was the head of the family by providing the principal means of support for his mother, with whom he presently resides.
4. The debtor testified that he paid his mother approximately $500.00 per month, out of this sum she paid a car payment of $220.46 on a 1981 Thunderbird, which the debtor exclusively uses. Also, the debtor’s mother pays from the remaining sum the following expenses for the debtor’s benefit:
(a) Auto insurance $227.50 bi-annually
(b) Cable T.V. $ 34.00 per month
(c) Extra electricity $ 50.00 per month
(d) Extra food $100.00 per month
5. After considering the payments made specifically for the benefit of the debtor, by virtue of his residing with his mother, there remains $57.62 on a monthly basis to defer the remaining household expenses of both the debtor and his mother.
6. The debtor's mother has her own income from social security which totals $288.00 per month. This covers her normal monthly expenses.
7. With these facts considered and the fact that the debtor had previously testified that he considered the amount paid to his mother, over and above the monies necessary for the maintenance of the automobile, as rent, it is hereby
ORDERED that the debtor does not qualify as head of a family under Article X Section 4 of the Florida Constitution and the objections claimed by him shall be disallowed with the property or its value to be turned over to the trustee of this estate for liquidation. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489145/ | MEMORANDUM DECISION
CHARLES A. ANDERSON, Bankruptcy Judge.
FINDINGS OF FACT
Plaintiff, Citizens Federal Savings and Loan Association of Dayton (hereinafter *165Citizens Federal), filed its complaint on 17 September 1981 against Debtor, Betty Joyce Rose, (hereinafter Rose) and George W. Ledford, Chapter 13 Standing Trustee, seeking relief from the automatic stay to permit foreclosure upon real estate owned by Rose. Citizens Federal in its complaint recited it “has elected, and does now elect, to declare the whole balance of principal and interest due and payable, as provided by said note and mortgage.”
The Chapter 13 case was instituted by petition filed 9 July 1981. An order was duly entered On 17 August confirming without objections the Plan, which would pay all creditors 100% of their allowed claims. The Plan generally, in pertinent part, provides for payment of mortgage arrearages in the sum of $419.47 from estate funds, and payment of real estate mortgage installments accruing after filing outside of the Plan.
A proof of claim was filed by Citizens Federal on August 13, accepting the Plan “contingent on arrearage corrected to be $576.39,” and showing a principal amount due in the sum of $8,639.79. The proof of claim also lists the “... fair market value of the property on which the claimant has a lien ...” as $13,775.00.
The mortgage loan was made on July 23, 1965, for $13,850.00 with interest from date at the rate of 5VÍ percent, per annum, repayable in monthly installments of $72.17, and running until August 1, 1995.
On 14 August 1981 Rose made a payment of $129.00 to be applied on the post-petition mortgage installments. By letter, under date of August 18, 1981, the attorneys for Citizens Federal advised the attorney for Rose that the $129.00 had been “applied” and “... the total arrearage is $386.76. This assumes that Betty Joyce Rose will make her August payment, which is due no later than August 31, 1981.... We would also ask that you remind your client that if she fails to make her loan payments as agreed, that Citizens Federal will request the Plan to be dismissed and relief from stay granted.”
Rose was of the belief that the payment made August 14 was the August installment, since arrearages were to be paid through the Plan; but, all subsequent tenders of payment were refused by Citizens Federal.
The payments to the Trustee are being made currently, but there is no allegation (or proof) that the mortgage is not more than adequately protected by its security.
CONCLUSIONS OF LAW
Plaintiff in seeking relief from the stay asserts that “11 U.S.C. Section 1322(b)(2), does not permit a Plan to modify the rights of the holder of a secured claim, which is secured only by a security interest in real property that is the debtor’s principal residence...” There is no allegation by Citizens Federal of inadequate protection in the security, and no mention or issue has been raised as to the 5V4 percent interest rate or the motivation for acceleration of the balance due.
Defendant denies that Section 1322(b)(2) is applicable on the facts, citing Section 1322(b)(3), permitting “the curing or waiving of any default.”
The conclusion is obvious that the complaint must be dismissed. The evidence is clear that the payments to Citizens Federal are not in default through any blame of Rose.
Furthermore, if there is in reality any doubt or confusion created by the statutory sections cited, such a question cannot be raised at this late date. The only question now justiciable would be adequate protection to the mortgagee. The question of “modification” of the rights of the security interest in real estate should have been duly raised prior to the confirmation order, now res judicata. Furthermore, Citizens Federal, in fact, has already accepted the Plan and the modification, if any, is only contrived.
Furthermore, assuming, arguendo, a modification, we note that 11 U.S.C. § 1322(b)(5) alters the thrust of 11 U.S.C. § 1322(b)(2) (“not withstanding paragraph (2).. .”) and might even be the basis of a *166genuine modification of rights, on equitable principles. Analysis of the full thrust of Section 1322, nevertheless, would be superfluous and not appropriate instan ter.
ORDERED, ADJUDGED AND AGREED that Plaintiff is afforded adequate protection by the real estate mortgage and the confirmation of the Plan is no longer justiciable, except for fraud (11 U.S.C. § 1330). | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489146/ | MEMORANDUM AND ORDER
ROBERT L. EISEN, Bankruptcy Judge.
Debtor filed a petition for a Rule to Show Cause why Martin Rosene, a creditor, and his attorney should not be held in contempt of court. This court dismissed the Rule to Show Cause on October 15,1981. This matter came to be heard on debtor’s motion to amend the October 15 order.
On August 27, 1981 this court ordered that debtor’s employer turn over to debtor any money withheld from his wages. Rb-sene has filed a motion to vacate the August order.
In December 1967 debtor and Rosene executed and entered into an Articles of Agreement. Pursuant to the agreement Rosene contracted to sell certain residential real estate to the debtor. The agreement was a fairly typical land sale contract whereby debtor made a small down payment and subsequent monthly payments. The agreement provided that the buyer, debtor, would have no right, title or interest in the property until delivery of a deed or full payment of the purchase price. In 1973 debtor filed his Chapter XIII plan listing Rosene as a creditor. Rosene filed a claim for about $18,000 and the standing Chapter XIII trustee has paid him about $7,500 to date. Evidently, Rosene’s claim arose out of the land sale contract.
In 1977 debtor filed suit against Rosene in the Circuit Court of Cook County, # 77L19870. Rosene answered and filed a counter-complaint. After a trial Rosene moved for a directed verdict which was granted. The Circuit Court found in favor of Rosene on his counter-complaint, held that debtor owed Rosene $20,936.45 and held “that all interest in that certain agreement dated December 8, 1967 on behalf of plaintiff (debtor herein) is hereby forfeited.” The Circuit Court order containing the above holdings was dated November 27, 1978 and has not been vacated, modified or appealed. Subsequently, Rosene filed a petition for attorney fees in the Circuit Court case. On March 29, 1979 the Circuit Court granted Rosene $2,500 as and for attorney fees. In April 1981 Rosene obtained a wage deduction summons for the attorney fees and thereafter debtor’s employer began garnishing debtor’s wages.
Debtor filed his Rule to Show Cause in this court on August 27, 1981. Debtor’s rule prays for an order that any judicial lien or order resulting from Rosene’s counter-complaint in Circuit Court is null, void and in violation of the Bankruptcy Act. Debtor expects this court to hold null and void a valid, final order entered by the Circuit Court almost three years ago. Debtor would then have this court nullify the Circuit Court’s valid, final order granting Ro-sene attorney fees. Debtor’s petition totally lacks merit.
The equitable doctrine of laches precludes debtor from obtaining the relief he seeks through his petition. Debtor chose to sue Rosene in Circuit Court in 1977. Debtor now argues that the Circuit Court orders are null and void. Debtor had his day in court and lost. It would be a waste of judicial time and talent to allow debtor to retry any of the issues previously decided by the Circuit Court. Debtor’s petition is untimely, and if granted, it would seriously prejudice Rosene’s rights. It is much too late for debtor to challenge the jurisdiction of the Circuit Court or the propriety of its orders. The Circuit Court orders are entitled to finality and this court will respect their finality. The public surely would lose all respect for the judicial system if Federal Courts nullified State court orders well over two years after the entry of such orders. Debtor, without objection, was given leave in 1977 to sue Rosene in state court. An obvious risk of suit in any court is to come out on the losing side, or that the opponent will file a counter-complaint and win. Debtor’s reliance on Isaacs v. Hobbs Tie & Timber Co., 282 U.S. 734, 51 S.Ct. 270, 75 L.Ed. 645 (1931) and Local Loan Co. v. *263Hunt, 292 U.S. 234, 54 S.Ct. 695, 78 L.Ed. 1230 (1934) is misplaced. In both the above cases, the bankrupt or trustee objected to the dispute being heard in the non-bankruptcy forum. Debtor’s objections herein are untimely and if granted, would prejudice Rosene’s rights. Laches bars debtor from seeking relief in this court.
WHEREFORE, IT IS HEREBY ORDERED that debtor’s Petition for a Rule to Show Cause be and hereby is dismissed.
IT IS FURTHER ORDERED that this court’s August 27,1981 order be and hereby is vacated. Debtor’s employer shall hereby begin deducting debtor’s wages pursuant to the wage deduction summons obtained by Rosene in Circuit Court in April, 1981. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489147/ | MEMORANDUM
The question raised by this appeal is whether the bankruptcy court may permit a notice of appeal to be filed more than 30 days after entry of an order or judgment. We hold, on the authority of Selph v. Council of Los Angeles, 593 F.2d 881 (9th Cir. 1979), that it may not. Accordingly, we dismiss as moot the appeal before us.
I
This appeal is from an order made on September 17 denying debtors’ request for an extension of time to file an appeal from an order entered on August 14. The August 14 order dissolved the automatic stay of 11 U.S.C. § 362 and permitted foreclosure of debtors’ real property.
The August 14 order itself has not been appealed, apparently on the assumption that it could not be filed until an extension of time had been granted pursuant to Bankruptcy Rule 802(c).
That assumption was erroneous.
Bankruptcy Rule 802(a) provides a 10-day period from entry of judgment during which to take an appeal. This period may be extended by the trial judge for an additional 20 days. Bankruptcy Rule 802(c). As the Advisory Committee Note to Rule 802 states, “the maximum time allowable under this rule for filing a notice of appeal is 30 days after the entry of the judgment or order appealed from ...”
The 30-day period expired on September 14 (September 13 being a Sunday).
Debtors suggest that Rule 802 need not be read literally if (as here) the request *306for extension of time is not heard until after expiration of the 30-day period. They also suggest that their request for an extension (which was filed within the 30-day period) may be treated as a notice of appeal.
The same arguments were rejected in Selph, supra.
II
Bankruptcy Rule 802 is derived from Rule 4(a) of the Federal Rules of Appellate Procedure. The Selph court construed Rule 4(a) as mandatory and jurisdictional.
In Selph, a request for extension of time was heard after expiration of the maximum time allowable for taking an appeal. The trial court granted the extension even though no notice of appeal had been filed within the maximum period. The circuit court held that this order was invalid and that the trial court had no authority to grant it.
In so ruling the Ninth Circuit distinguished cases “in which a notice of appeal is submitted within the extension period of Rule 4(a) and later rendered timely by an order of the district court (made after the extension period had expired) to file it nunc pro tunc.”
The court of appeals also squarely rejected the contention in Selph that the motion for an extension of time should be deemed a notice of appeal.
Ill
Debtors’ failure to file a notice of appeal prior to expiration of the 30-day period having deprived the trial court of authority to extend the time, it is not necessary to address other contention of the debtors.
The appeal is dismissed. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489148/ | FINDINGS OF FACT, CONCLUSIONS OF LAW AND MEMORANDUM OPINION
ALEXANDER L. PASKAY, Chief Judge.
THIS IS a pre-Code arrangement proceeding, instituted by J. C. Investments, Inc. (JCI), a debtor who seeks rehabilitation under Chapter XI of the Bankruptcy Act of 1898. The matter in controversy is the extent of JCI’s liability for federal income taxes for the tax year of 1971 and the years up to and including 1975. According to the proof of claim filed in the proceeding by the Internal Revenue Service (Service), JCI is indebted to the U.S. Government in the amount of $3,756,007.44. In due course, JCI filed an objection to the claim contending that the computation of income taxes by the Service is incorrect as a matter of fact and law and that JCI is not indebted to the U.S. Government in any amount.
Due to the complex nature of this controversy, the court directed the parties to treat *394the matter as an adversary proceeding, to be governed by Part VII of the Bankruptcy Rules. After completion of extensive discovery by both sides, the matter was set down for trial and the record established at the final evidentiary hearing can be summarized as follows:
JCI is a Florida corporation formed in November, 1969, for the purpose of acquiring raw land, developing the same and selling it at retail on installment contracts, primarily to the residents of Puerto Rico where JCI maintains its principal place of business. The individuals who formed the corporation were Jaime Carlo and his brother, Miguel Carlo. The corporation selected its tax year and fiscal year ending August 31. Shortly after its formation, JCI embarked on a land acquisition program. The first acquisition involved the property known as Sunrise Acres located in Polk County, Florida. The tract contains 3,010 acres. The purchase price was $535 per acre or a total price of $1,600,000. The property was purchased on terms. Initially, JCI paid on the contract, $250,000 down which included $25,000 option price; a purchase money mortgage in the amount of $985,000 at a 6% annual interest. JCI also assumed an existing mortgage in the amount of $310,000.
The next property acquired by JCI in 1972 is known as Sunrise West. This tract contains 320 acres, also located in Polk County, Florida. The purchase price was $1,000 per acre or a total of $320,000. JCI paid $60,000 down, assumed two mortgages, one held by Federal Land Bank and the other by the previous owner, Mr. and Mrs. Fussell. The down payment on this purchase was obtained through a loan from one Miguel Ortiz in the amount of $40,000 and $20,000 from the cash flow of JCI generated through collections on the installment land sales.
The last property, known as Sunrise East, also located in Polk County, Florida, was acquired in September, 1973. It consists of 196 acres and was purchased at the price of $900 per acre or a total of $176,400. The down payment on this acquisition was obtained through a loan from one Mel Haber in the amount of $20,000 and JCI assumed a first and a second mortgage which already had encumbered Sunrise East.
JCI commenced its retail land sales in the fall of 1970 after having obtained an approval of its retail land sales program from Florida Land Sales Board. The properties were sold, as noted earlier, primarily to the residents of Puerto Rico through a wholly owned subsidiary of JCI, JC Properties, Inc. (Properties), which acted as a selling agent. The principals of Properties were the Carlo brothers. According to the commission arrangement, Properties was to receive 35% of the total price as a commission and was to receive 40% of the cash flow toward the payment of the commission. The brokers were to receive 25% of the gross sales price and 35% of the cash flow until the commission was paid in full. In turn, salesmen employed by the brokers were to receive a 15% commission including 9% out of the total 10% down payment and 25% out of the cash flow. The net effect of this arrangement was that JCI did not receive any money at all from the down payment on a completed land transaction and the bulk of the down payment and also early installment payments were to go to the salesmen and brokers.
JCI had no meaningful capitalization and was in dire need of funds from the very inception of its operation. Thus beginning 1971, JCI commenced very complex and highly unusual financing arrangements primarily with three Puerto Rican lending institutions: Banco Crédito (Crédito), Bank of San Juan (Bank) and Banco de Economias y Prestamos (Economias). The initial financing, not relevant to the matter under consideration, was with Economias and involved the purchase of Sunrise Acres.
On July 7, 1971, JCI signed a document entitled “Agreement on the Purchase — Sale of Conditional Sales Contracts.” (Literal translation from Spanish). According to this agreement, (Joint Exh. # 7) Banco Crédito would “purchase” from JCI installment land contracts under the following terms and conditions procured by Properties on behalf of JCI.
*395Banco Crédito would pay JCI 50% of the unpaid contract balance and collect the contractual monthly payments directly from the land purchaser. However, the 50% which was to be paid to JCI was not, in fact, paid to JCI at all but was deposited in a bank account called a “reserve account” opened in the name of' JCI, but totally controlled by Banco Crédito and was considered by the parties as “collateral” for the advances (Joint Exh. # 7, ¶ F). Banco Cré-dito had the option to refund to JCI any excess of 50% from this reserve account. The agreement further provided that in the event any of the land contracts fell in default to the extent of four months installment payments, JCI became obligated to pay the entire balance due under the contract to Banco Crédito. While this agreement called for the execution of an assignment of the individual land contracts, there was, in fact, no assignment ever executed. This arrangement lasted until 1973 when Banco Crédito decided not to advance any more funds against the land contracts in excess of $1 million which was ultimately repaid by JCI.
Next, largely as a temporary measure, JCI entered into an arrangement with Bank of San Juan on June 19, 1973. This transaction was cast in the form of a straight loan secured by the installment land contracts placed in escrow. There is no doubt that this was not a sale of the land contracts and the monies received under this arrangement were clearly loan proceeds and not proceeds of a sale of the land contracts. This arrangement was terminated when the outstanding loans reached $100,000.
In 1973, JCI entered into a new financing arrangement with Economías. Under this arrangement, JCI was to bring a prospective land purchaser to Economías who in turn would lend each land purchaser 50% of the unpaid balance on the contract. The balance of the loan proceeds, however, would not be turned over to the land purchaser but to JCI via a deposit in three different escrow accounts. The first escrow account was set up for the purpose of making payments on the Haber mortgage. Escrow # 2 was set up to make payments on the other mortgages and the third escrow account was set up to handle JCI’s operational needs and also considered to be additional security for monies due from JCI to Economías and for payments of brokers commissions.
Sales of lots sharply declined due to the recession, lack of operating monies and the loss of brokers. Heavy financing charges continued without cash flow to meet these charges. Numerous complaints were filed with the Florida Land Sales Board which obtained a cease and desist order prohibiting JCI to sell any more lots. As JCI funds were exhausted, all the employees were released, with the exception of several office personnel and all operations by JCI came to a standstill.
An analysis of the financial statements of the company reflects that it was spending more than it received during the years in question and needed continual borrowing in order to survive and meet its obligations.
A recap based on the accrual method of reporting (Joint Exh. # 6) indicates that by adding an adjustment for bad debt reserve and unpaid commissions, JCI suffered net losses for the years in question in the following amounts:
1971 $1,186,333
1972 263,168
1973 62,964
1974 (610,366)
1975 (836,990)
65,109
1970 (NOL) _
(46,843)
The recap just stated and the Plaintiff’s Exhibit # 6 reveals net profit of only $65,-109 over the subject five-year period and this net income is more than offset by the net operating loss experienced in 1970 making an overall loss for the five-year period in the amount of $46,843.
The claim filed by the Service is challenged by JCI who contends that the assessment of taxes by the Service for the tax years in question was erroneous as a matter *396of law and as a matter of fact. Particularly it is the contention of JCI that it was entitled to utilize the installment method of income reporting and even if not, it was entitled to deduct sales commissions conditionally earned, but not yet paid to brokers and salesmen, and deductions for bad debt reserve and lastly, the monies paid out by it on behalf of Properties.
In response to the objection interposed to the claim filed by the Service, the Service contends that JCI is not entitled to utilize the installment method of income reporting. First, because it received more than 30% in the tax years in question; and second, because JCI did not keep sufficiently adequate records which under the applicable regulations of the Commissioner is a prerequisite to the right to utilize the installment sale method of income accounting citing Treasury Regulations on Income Tax (1954 IRS Code) § 1.453 — 1(f), 26 CFR, § 1.453-1(f); see also Revenue Ruling, 54-111, 1954r-1 C.B. 76; Anderson v. Commissioner, TC Memo 1956-178 (1956) aff’d 250 F.2d 242 (5th Cir. 1957).
In addition, the Service contends that even under the accrual method JCI improperly claimed a deduction for sales commissions because such obligation did not meet the so called “all-events test” and a deduction claimed by JCI for bad debt reserve was also improper because it was never set up in the tax year in question and in any event, never received the approval of the Commissioner. Lastly, the Service contends that the deduction claimed by JCI for expenses and deductions paid on behalf of Properties was improper.
Considering the issues presented by the respective contentions of the parties, seriatim, it should be stated at the outset that JCI concedes, as it must, that the Service is correct in its position that the determination by the Commissioner of the tax liability carries a presumption of validity. JCI contends, however, that a taxpayer should be permitted to overcome this presumption by presenting persuasive evidence that the determination of a tax liability by the Commissioner was in error as a matter of fact, a matter of law, or both. In this connection, JCI contends that it is entitled to present parol evidence to establish the true nature and character of the transactions under scrutiny and that it is not bound by documentation and the language used therein by the parties. The Service, of course, does not accept this proposition and urges that a taxpayer is bound by the form of its own transaction and should not be permitted by parole evidence or by expert testimony to establish that the transaction was something different than that which is stated on instruments executed by the parties, citing Dixie Finance Co., Inc. v. United States, 474 F.2d 501 (5th Cir. 1973); Proulx v. United States, 594 F.2d 832 (Ct.Cl.1979); Spector v. Commissioner, 641 F.2d 376 (5th Cir. 1981). All these cases involved agreements structured by the parties after careful consideration of the tax consequences and after intense negotiations conducted at arm’s length. For instance, in Spector v. Commissioner, supra, the 5th Circuit held that just as the Commissioner in determining income tax liabilities may look through the form of a transaction to its substance, Commissioner of Internal Revenue v. Court Holding Co., 324 U.S. 331, 65 S.Ct. 707, 89 L.Ed. 981 (1945); Gregory v. Helvering, 293 U.S. 465, 55 S.Ct. 82, 79 L.Ed. 645 (1935), so as a general rule, he may bind a taxpayer to the form in which the taxpayer has cast a transaction.
In Spector, supra, the agreement involved a sale of a partnership interest in an accounting firm and it is clear that the transaction was carefully structured by accountants for the express purpose of assuming a bargained for tax posture thereby allocating the tax consequences flowing therefrom in an agreed upon manner. In Spector, supra, the agreement was arrived at after extensive bargaining and intense negotiations. Under these circumstances, it is evident that the taxpayer should not, after the fact, be permitted to disregard the form of the transaction he has selected. As stated by the Court in Spector, supra, that while the taxpayer is free to organize his affairs as he chooses, nevertheless, once *397having done so, he must accept the tax consequences of his choice and may not enjoy the benefit of some other route he might have chosen to follow but did not, citing Higgins v. Smith, 308 U.S. at 473, 60 S.Ct. 355, 84 L.Ed. 406 (1940).
On the other hand, there is a substantial body of authority to support the proposition that the courts will consider all facts which control the controversy and will not slavishly abide by the form of the agreement and disregard the substance of the transaction. Thus, there is a long line of decisions which hold that in determining tax liabilities, the tax authority must look through form and consider facts and substance of the transaction. Helvering v. Tex-Penn Oil Co., 300 U.S. 481, 57 S.Ct. 569, 81 L.Ed. 755 (1936); Eisner v. Macomber, 252 U.S. 189, 40 S.Ct. 189, 64 L.Ed. 521 (1919); Gregory v. Helvering, supra; W.S. Badcock Corp. v. C.I.R., 491 F.2d 1226 (5th Cir. 1974); Orlando Orange Groves Co. v. Hale, 119 Fla. 159, 161 So. 284, (1935); Lawyer’s Title Guaranty Fund v. United States, 508 F.2d 1 (5th Cir. 1975).
In the present instance, it is clear that the agreements with the Banks were not arrived at after “intense negotiations” and there is no doubt that JCI was not in any way bargaining for a tax position as were the taxpayers involved in the cases cited by the Service. First of all, the transaction by JCI and the Bank of San Juan was even on its face a loan agreement secured by land contracts and was not a sale of the land contracts. This being the case, the monies received by JCI from the Bank of San Juan represented loan proceeds which were ultimately paid by JCI and cannot be characterized as income and taxed as such.
Next, while it is true that the transactions with Banco Crédito and with Econo-mías appear to be agreements to sell the land contracts, the surrounding facts and circumstances cast serious doubt that the agreements were, in fact, to sell and to purchase. JCI never executed an assignment of the land contracts; the Banks never made any efforts to collect the installment payments from the land purchasers; the Banks never conducted a credit check as to the credit worthiness of the land purchasers; and the transactions were absolutely and pervasively controlled by the Banks. Moreover, the obligations undertaken by the land purchasers were not enforceable either by JCI or by the Banks; the land contracts did not impose a personal liability on the land purchasers; the funds advanced by the Banks were secured by mortgages on the land holdings of JCI and guaranteed by the Carlo brothers. It needs no elaborate discussion to demonstrate that as a matter of sound commercial practice, in the case of an absolute sale of an installment contract, the buyer of the contracts would insist on an assignment of the contracts; would investigate the credit worthiness of the purchaser and would not be able to obtain any security since in the case of an absolute sale there is no obligation to be secured simply because there is no requirement to repay the purchase price paid except under exceptional circumstances when a transaction is nullified either by agreement of the parties or through judicially allowed rescission.
This being the case, this Court is satisfied that the monies received by JCI from the Banks represented merely proceeds of loans, albeit at times disguised as proceeds of sale of land contracts, thus, not taxable income in the respective tax years. This being the case, it follows that JCI not having received more than 30% from the land contracts sold in any of the tax years in question was entitled to utilize the installment method of income reporting pursuant to § 164 of the Internal Revenue Code of 1954, 26 U.S.C. § 164.
Even assuming, but not admitting that JCI did not qualify for the installment method of income reporting because it did not keep sufficient and accurate records which under the regulations of the Service is a condition precedent for utilization of installment method of income reporting, the computation on the accrual method of taxes by the Service is also not entirely correct. JCI deducted unearned commissions and bad debt reserve from its gross income dur*398ing the respective tax years. The Service disallowed both. The first on the ground that since the deduction for unearned commissions did not meet the “all-events test”, therefore, it cannot be deducted; the second, on the ground that allowance for deduction for bad debt reserve is not a matter of right, but rests in the sound discretion of the Commissioner and since no allowance for deductions was granted, the deduction was improper.
JCI concedes, as it must, that as a general proposition the test for determining whether a liability may be accrued in a particular year for income tax purposes is the so-called “all-events test” which requires that before an item may be deducted in a given tax year all events necessary to determine both fact and amount of liability occurred. The corollary to this proposition is that as a general rule the existence of contingency in a taxable year with respect to liability or its enforcement for income tax purposes and deduction can only be claimed in a taxable year when the obligation to pay became conditionally fixed. Putoma Corp. v. Commissioner, 601 F.2d 734 (5th Cir. 1979) and Burlington-Rock Island Railroad v. United States, 321 F.2d 817 (5th Cir. 1963), cert. den., 377 U.S. 942, 84 S.Ct. 1349, 12 L.Ed.2d 306 (1964); United States v. Anderson, 269 U.S. 422, 46 S.Ct. 131, 70 L.Ed. 347 (1926). All of these cases involved a liability which was conditioned upon the future financial position of the taxpayer. For instance, in Burlington-Rock, supra, the railroad’s liability to pay interest was tied to its cash situation and the railroad was not required to make payments if its cash position did not reasonably permit the payment. The obligation to make payment of compensation to officers in Putoma, supra was equally tied to the financial ability of the corporation and was not due until the company accumulated sufficient cash reserves to pay the additional salary.
The only possible contingency on the liability of JCI to pay commission was the commercial risk of non-collection on the installment land contract from the purchasers. Considering a similar situation, the Fifth Circuit Court of Appeals in Badcock, supra and Lawyer’s Title Guaranty Fund, supra; Gillis v. United States, 402 F.2d 501 (5th Cir. 1968), held that this possible contingency would not necessarily destroy the applicability of the “all-events test.”
Based on the foregoing, this Court is satisfied that the disallowance of the deduction for commissions yet to be paid was in error as a matter of law.
However, this is not the case with regard to the disallowance of the bad debt reserve. As noted earlier, a taxpayer is not entitled to such a deduction as a matter of law and it is in the sound discretion of the Commissioner to permit the deduction. This being the case, since the Commissioner in this instance did not allow the deduction the disallowance was proper.
This leaves for consideration the last item in issue which is the propriety of claiming a deduction for monies paid by JCI on behalf of Properties.
In the tax year of 1975, JCI paid and claimed a deduction in the sum of $489,109 to Properties. Section 162 of the Internal Revenue Code permits a deduction for ordinary and necessary business expenses, but assumption of expenses of a subsidiary is not deemed to be an ordinary and necessary business expense and cannot be deducted unless the taxpayer has a legal obligation for the debt. Deputy v. Dupont, 308 U.S. 488, 60 S.Ct. 363, 84 L.Ed. 416 (1940); Zoby v. United States, 364 F.2d 216 (4th Cir. 1966).
The record reveals that it was not a formal, but a de facto merger between JCI and Properties in 1975. The accounting between the two corporations was at least “cloudy” and there is no adequate contemporaneous characterization of these payments which were characterized on a Statement of Changes for the Year Ended August 31, 1975 (Debtor’s Exh. # 5). The “Advances” absorbed by the subsidiary and the characterization of this transaction as an advance was, in reality, just another way to describe a loan and, of course, lending *399money is not a deductible expense. The claim of JCI that the payment of $489,109 was actually payment for commissions earned by Properties is an after the fact attempt to justify this deduction. JCI, on its return, had already deducted $757,352 for commissions (Joint Exh. # 6) and the proposition that annual commissions in the total amount sales of $1,246,461 is hard to believe.
This being the case, this Court is satisfied that the deductions of $489,109 was improper and the Service was correct.
A separate order allowing the readjusted amount should be submitted on notice by the Service. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489150/ | MEMORANDUM OPINION
EMIL F. GOLDHABER, Bankruptcy Judge:
The instant case is before us on a motion for reconsideration of our opinion, 14 B.R. 175 (Bkrtcy.1981) and order granting judgment for the debtor against the defendant or a motion for a new trial of the instant complaint. We conclude that there is no merit to either of the motions and will, therefore, deny them.
The facts are briefly:1 On April 8, 1981, Slaw Construction Corporation (“the debt- or”) filed a complaint against Richard J. Abt (“Abt”) seeking the final payment allegedly due under a construction contract. After a trial was held and briefs were filed, we concluded in an opinion and order dated September 22, 1981, that the debtor was entitled to judgment against Abt. On October 5, 1981, Abt filed the foregoing motions.
The first ground raised by Abt, in support of his motion for reconsideration, is that “In its Opinion and Order of September 22, 1981, this court inadvertently failed to consider defendant’s defense that, pursuant to the aforesaid section 1.8(3), defendant is contractually and legally entitled to withhold from plaintiff the $15,991.51.”
Abt is correct in his assertion that we failed to consider any defense based on section 1.8(3) of the General Conditions; however, that failure was not inadvertent. We did not consider that defense for two reasons: Firstly, the document referred to by Abt (the General Conditions) was never introduced into evidence and, consequently, was not before us. Although we stated this in our opinion with respect to Abt’s defense based on section 1.8(2) of the General Conditions,2 apparently we must do so again with respect to Abt’s defense based on section 1.8(3). Therefore, we reiterate: we will not consider any document which has not been formally introduced into evidence at the trial of this matter.
Secondly, even had that document been introduced into evidence, we would have held that Abt’s defense based on section 1.8(3) is without merit. As we stated with respect to section 1.8(2),3 the document called the “Supplement to Contract,” which was executed by the parties and was introduced into evidence, specifically states that it changes the terms of the parties’ general contract. Therefore, in our opinion we concluded that that Supplement, by its very terms, contains the only condition for final *463payment under the contract. Therefore, any defense of Abt based on the General Conditions which purports to place any condition on the debtor’s entitlement to the final payment is without merit.
One of the grounds raised by Abt— in support of his motion for a new trial — is that at the trial of the instant case we erroneously sustained, on the grounds of relevancy, the introduction of certain evidence by Abt on the issue of whether the prices charged by the debtor for the work done were fair and reasonable. We likewise find this contention to be without merit for several reasons. Firstly, as we stated in our opinion,4 we find that the contract of the parties was for a specific price which Abt agreed to pay. Further, we found that there was no evidence that Abt agreed to that price either under duress or as a result of fraud on the part of the debtor.5 In addition, we found that the price increases in that contract were not due to any fault of the debtor and were again accepted by Abt without duress or fraud on the part of the debtor.6 In the absence of any such evidence of fraud or duress, we decline to change the contract price agreed to by the parties.7
Secondly, other evidence which Abt sought to introduce was clearly irrelevant to the issues before us. This evidence related to a bid made by another contractor for the work done by the debtor.8 We still conclude that that evidence is irrelevant to the issue of what price is due under the contract between Abt and the debtor. Accordingly, we will deny Abt’s motions for reconsideration or a new trial.
.This opinion constitutes the findings of fact and conclusions of law required by Rule 752 of the Rules of Bankruptcy Procedure.
. See In re Slaw Constr. Corp., 14 B.R. 175 (Bkrtcy.E.D.Pa.1981), slip op. at 177.
. Id.
. Id. at 178.
. Id. at 178.
. Id. at 178.
. See id. at 178 n.6.
. N.T. at 49-50. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489151/ | *560MEMORANDUM OF DECISION
CALVIN K. ASHLAND, Bankruptcy Judge. .
The facts in this case are not in dispute. Debtors (Wallens) purchased a certain piece of residential real property which stood as security for a promissory note executed by the previous owners in favor of Fidelity Federal Savings and Loan Association (Fidelity) as beneficiary, and Gateway Mortgage Corporation, a subsidiary of Fidelity, as Trustee. Fidelity is a private mutual savings and loan chartered under the federal Home Owners’ Loan Act of 1933. This deed of trust contained a “due-on-sale” clause. When the property was transferred to the Wallens without Fidelity’s knowledge or consent, Fidelity declared the entire note to be due and payable pursuant to this clause. When the accelerated balance was not paid, Fidelity caused Gateway to commence foreclosure proceedings. The Wal-lens then filed an action in the state court to enjoin the foreclosure. Subsequently, the Wallens filed for relief under Chapter 13 of the Bankruptcy Reform Act of 1978. This action was removed to the bankruptcy court by Fidelity on August 7, 1981 in accordance with 28 U.S.C. § 1478 and Interim Rule R.7004.
The parties agree that the issue presented here is solely an issue of law: whether federal regulations permitting due-on-sale provisions in deeds of trust held by federally chartered savings and loan associations preempt state law prohibiting enforcement of due-on-sale clauses under certain conditions as embodied in Wellenkamp v. Bank of America, 21 Cal.3d 943,148 Cal.Rptr. 379, 582 P.2d 970 (1978), and subsequent related eases.
Each party filed a motion for summary judgment.
Preemption of state law by federal enactment and regulation may be explicit or implicit. In either ease, it is a matter of congressional intent. Jones v. Rath Packing Co., 430 U.S. 519, 97 S.Ct. 1305, 51 L.Ed.2d 604 (1977).
The source of the federal preemption argument in this case is the Home Owners’ Loan Act of 1933 (HOLA) and regulations promulgated by the Federal Home Loan Bank Board. 12 U.S.C. §§ 1461 et seq. (1933). The Act itself makes no mention of due-on-sale clauses. Congress made no explicit determination on this subject at all.
Although Congress has given broad authority to the Bank Board to promulgate regulations “to provide for the organization, incorporation, examination, operation and regulation of” federally chartered savings and loan associations, it is by no means clear that this rulemaking authority includes the power to supplant these individual debtors’ rights under state substantive law. 12 U.S.C. § 1464(a).
A congressional intention to preempt a certain field of law may be implied from the very pervasiveness of an enactment and its regulations or the federal interests at stake may be so dominant that it may be implied that Congress meant federal law to occupy the field. Rice v. Santa Fe Elevator Corp., 331 U.S. 218, 67 S.Ct. 1146, 91 L.Ed. 1447 (1947). But in this case, the debtors’ claim has its source in an area of the state law which has traditionally been the exclusive province of the state: real property and mortgage rights. The bulk of the applicable law in this area remains state law and is unchallenged by federal regulations. In practice, the activities and rights of federal savings and loan associations are governed in part by state law and in part by federal regulations.
Preemption may also be implied when the state law is in conflict with the federal requirements. Jones v. Rath Packing Co., supra. In this case, there is no actual conflict. The federal regulation is permissive. It allows but does not require the federal savings and loan associations to insert a due-on-sale clause into their contracts with borrowers. 12 C.F.R. § 545.8-3(f) (1980). California law also allows due-on-sale clauses. It merely restricts their enforcement to those cases in which “the lender can demonstrate that enforcement is reasonably necessary to protect against im*561pairment to its security or the risk of default.” Wellenkamp, 21 Cal.3d at 953, 148 Cal.Rptr. 379, 582 P.2d 970.
Furthermore, the California law is not in conflict with the purpose of the federal scheme. The Home Owners’ Loan Act of 1933 was enacted at a time when relief for homeowners was a primary concern. It created federal savings and loan associations but it was the homeowners who were the primary beneficiaries of this legislation. The Bank Board was authorized to oversee and provide for the regulation of the associations. 12 U.S.C. § 1464(a). The California law of due-on-sale clauses does not have a regulatory or supervisory purpose. It does not encroach upon the internal management of federal savings and loan associations which the Bank Board is authorized to regulate. See, e. g., People v. Coast Federal Savings & Loan Ass’n, 98 F.Supp. 311 (S.D.Cal.1951) [supervisory and regulatory authority not shared with state agencies]; Conference of Federal Savings & Loan Ass’ns v. Stein, 604 F.2d 1256 (9th Cir. 1979), aff’d, 445 U.S. 921, 100 S.Ct. 1304, 63 L.Ed.2d 754 [regulatory controls over credit discrimination]; DeSimone v. Warwick Federal Savings & Loan Ass’n, 482 F.Supp. 1190 (D.R.I.1980) [internal management distinction explicitly recognized]; Gulf Federal Savings & Loan Ass’n v. Federal Home Loan Bank Board, 651 F.2d 259 (5th Cir. 1981) [internal management distinction explicitly recognized].
In the Ninth Circuit several cases presenting a question of preemption by the Home Owners’ Loan Act of 1933 have been removed to federal court. In Meyers v. Beverly Hills Federal Savings & Loan Ass’n, 499 F.2d 1145 (9th Cir. 1974), the state law of prepayment penalties was found to be preempted by federal regulations under the HOLA. The applicability of this case to the present question is doubtful. This is particularly so in view of the Ninth Circuit’s later treatment of Meyers in Conference of Federal Savings & Loan Ass’ns v. Stein, in which the state regulatory control was preempted but the question of individual substantive rights was expressly reserved. (604 F.2d at 1260). With this one arguable exception these removal cases have dealt with truly internal matters and have been remanded for lack of jurisdiction to be decided according to state law.1
The Ninth Circuit has noted that to invoke federal jurisdiction, the claim must constitute “a direct and essential element of the plaintiff’s cause of action.” Smith v. Grimm, 534 F.2d 1346, 1350 (9th Cir.), cert. denied, 429 U.S. 980, 97 S.Ct. 493, 50 L.Ed.2d 589 (1976); Guinasso v. Pacific First Federal Savings & Loan Ass’n, 656 F.2d 1364 (9th Cir. 1981). In this case the complaint states a claim for relief that is entirely under state law. Thus, Fidelity’s federal preemption defense is insufficient as a ground for removal to federal court. Nevertheless, the bankruptcy court is in a special position. 28 U.S.C. § 1471(e) gives to the bankruptcy court “exclusive jurisdiction of all the property, wherever located, of the debtor, as of the commencement of the case.” This court has a duty to ensure orderly administration of the estate and, where possible, to promote consistent interpretation of the law.
This action is properly removed to the bankruptcy court. The source of plaintiff’s claim is in state law. Therefore, it is the task of this court to make its decision based on an interpretation of the law of the state of California.
In 1978, the California Supreme Court held that an institutional lender cannot enforce a due-on-sale clause in a promissory note or deed of trust upon the occurrence of an outright sale unless the lender can demonstrate that enforcement is reasonably necessary to protect against impairment to its security or the risk of default. Wellenkamp, 21 Cal .3d 943, 953, 148 Cal.Rptr. 379, 582 P.2d 970. Fidelity has neither alleged nor demonstrated such an impairment.
In recent cases before the state Courts of Appeal this rule was extended and held to *562apply to federally chartered savings and loan associations. Panko v. Pan American Federal Savings & Loan Ass’n, 119 Cal. Apip.3d 916, 174 Cal.Rptr. 240 (1981) [commercial property]; de la Cuesta v. Fidelity Federal Savings & Loan Ass’n, 121 Cal. App.3d 328, 175 Cal.Rptr. 467 (1981) [three consolidated cases dealing with both commercial and residential property].
In Panko and de la Cuesta, the Courts of Appeal gave careful attention to the defense of federal preemption by the HOLA and concluded that “the federal regulation leaves the rights and remedies of the parties intact under the terms of the loan contract. Thus, the enforcement of the due-on-sale clause rests upon conventional contract and property principles under state law.” Panko, 119 Cal.App.3d at 924, 174 Cal.Rptr. 240; de la Cuesta, 121 Cal. App.3d at 341, 175 Cal.Rptr. 467.2
The doctrine of preemption must not be used to displace state law without clear and unequivocable indications that Congress intended such a result. No such certainty exists in this case.3
CONCLUSIONS OF LAW
1. Applicant Fidelity has standing to remove the case entitled Wallen v. Fidelity Federal, et aL, Case No. C323505 from the Superior Court of the State of California for the Los Angeles County to the United States Bankruptcy Court, Central District of California by virtue of the Chapter 13 proceeding filed by the Wallens.
2. By virtue of Chapter 13 Case No. LA-81-07569(CA) on file with this court, this court has jurisdiction to consider the relief sought by the parties hereto.
3. Federal law, in the guise of the rules and regulations promulgated by the Federal Home Loan Bank Board, to-wit, 12 C.F.R. § 545.8-3(f) and (g) does not preempt the field of state real property and mortgage law.
4. The court does not find the decision inf Meyers v. Beverly Hills Federal Savings and Loan Ass’n, 499 F.2d 1145 (9th Cir. 1974), to be persuasive authority in this case.
5. This court is obligated under the decision of Erie R. R. v. Tompkins, 304 U.S. 64, 58 S.Ct. 817, 82 L.Ed. 1188 (1938), to apply substantive state law as it applies to the law of mortgages and real property.
6. California law under California Civil Code § 711, Wellenkamp v. Bank of America, 21 Cal.3d 943,148 Cal.Rptr. 379, 582 P.2d 970 (1978), Panko v. Pan American Federal Savings and Loan Ass’n, 119 Cal.App.3d 916, 174 Cal.Rptr. 240 (1981), and de la Cuesta v. Fidelity Federal Savings & Loan Ass’n, 121 Cal.App.3d 328, 175 Cal.Rptr. 467 (1981), prohibits the automatic enforcement of due-on-sale provisions in the absence of a showing of security impairment or the risk of default by the assuming owner.
7. Fidelity’s enforcement of the due-on-sale provisions contained within the subject note and deed of trust is in direct contravention of the law of California in that Fidelity has failed to demonstrate impairment to its security or risk of default arising from the transfer of the subject real property to the Wallens.
8. At present, there is no federal preemption of the due-on-sale laws of California by the HOLA.
9. Since there is no showing that Fidelity’s security is impaired, Fidelity may not enforce its due-on-sale clause against the plaintiffs.
This memorandum of decision shall constitute findings of fact and conclusions of law pursuant to Bankruptcy Rule 752. A separate judgment will be entered.
*563JUDGMENT
The motion of Fidelity Federal Savings and Loan Association (Fidelity) and Gateway Corporation (Gateway), and cross-motion of Robert A. Wallen and Barbara A. Wallen (Wallens) for orders granting summary judgment on each of their behalfs came on for hearing on October 26, 1981 at 2:00 p. m., in Courtroom “G”, 9th Floor, 312 N. Spring Street, Los Angeles, CA.
The court has considered the pleadings and arguments of counsel and grants the motion for summary judgment filed by the Wallens.
A separate memorandum of decision has been prepared to be entered concurrently with this judgment.
IT IS ORDERED THAT:
1. The foreclosure proceedings instituted by Fidelity and Gateway by reason of their exercise of the due-on-sale provisions contained in the subject note and deed of trust are declared to be unwarranted pursuant to California law;
2. That defendants Fidelity and Gateway, their officers and agents, are enjoined from:
a. Giving or causing to be given any notice of sale, pursuant to the due-on-sale clause, of the real property subject to the deed of trust recorded October 23, 1978 as Instrument No. 78-1173040 of the Official Records in the Office of the County Recorder of Los Angeles County, or
b. Selling or attempting to sell, or causing to be sold, said real property under the power of sale contained in said deed of trust or by foreclosure action by reason of the unconsented to transfer of the subject property to the Wallens.
3. Plaintiffs and defendants shall bear their own legal fees and costs incurred in connection with this adversary proceeding.
. There are several examples in plaintiff’s brief at pages 7 and 8. They are contained in unpublished memoranda of decision and therefore are difficult to cite.
. At the time the decision in this adversary proceeding was announced in court, the Court of Appeals’ decision in People v. Glendale Federal Savings & Loan, 122 Cal.App.3d 860, 176 Cal.Rptr. 353 (1981), stood in potential conflict. That decision has since been decertified for publication by the California Supreme Court.
. It is some indication of this lack of certainty that the Bank Board has announced that it will seek Congressional legislation to require federal preemption of state due-on-sale laws. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489152/ | DECISION
MOTION BY DEFENDANT FOR SUMMARY JUDGMENT SUSTAINED
ELLIS W. KERR, Bankruptcy Judge.
FACTS
The Trustee filed a Complaint alleging that the Debtor, Dexter Mobley, paid to the Defendant, Fort Hamilton Hughes Memorial Hospital Center, the sum of $300.00 and that such payment constituted a voidable preference under 11 U.S.C. § 547.
The Defendant asserts in its Answer that the $300.00 payment was made in advance of the services rendered and that, therefore, the payment was not for or on account of an antecedent debt owed by the Debtor before such transfer was made as required by 11 U.S.C. § 547.
The parties filed the following stipulation of facts with the Court:
“1. On February 29, 1980, Defendant Fort Hamilton Hughes Memorial Hospital Center, rendered medical services to Dexter Dwayne Mobley’s wife and child for which Dexter • Dwayne Mobley incurred an obligation to said Defendant in the amount of $1342.65.
2. On January 24, 1980, Dexter Dwayne Mobley paid $300.00 to Fort Hamilton Hughes Memorial Hospital Center which was applied to the baby’s account for the above stated services.”
The Debtor filed his Petition in Bankruptcy on March 19, 1980.
Both parties have filed Motions for Summary Judgment.
CONCLUSIONS OF LAW
§ 547(b) of the Bankruptcy Code reads as follows:
“Except as provided in subsection (c) of this section, the Trustee may avoid any transfer of property of the Debtor—
(1) to or for the benefit of a creditor;
(2) for or on account of an antecedent debt owed by the Debtor before such transfer was made;
(3) made while the Debtor was insolvent;
(4) made—
(A) on or within 90 days before the date of the filing of the Petition; or
(B) between 90 days and one year before the date of the filing of the Petition, if such creditor, at the time of such transfer—
*575(i) was an insider; and
(ii) had reasonable cause to believe the Debtor was insolvent at the time of such transfer; and
(5) that enables such creditor to receive more than such creditor would receive if—
(A) the case were a case under Chapter 7 of this title;
(B) the transfer had not been made and
(C) such creditor received payment of such debt to the extent provided by the provisions of this title.”
All five requirements of this section must be met in order for the Court to find a voidable transfer. The dispute in the instant case is whether or not the second requirement regarding an antecedent debt has been fulfilled.
Defendant maintains that the transfer of $300.00 was not made on account of a debt that existed prior to January 24, 1980 (the date of transfer) and therefore a voidable preference does not exist.
The Trustee in his memorandum argues that the $300.00 was transferred within 90 days of the filing, March 19, 1980 of the bankruptcy filing and that “therefore, it was a voidable preference.” This argument obviously overlooks the remaining four elements of a voidable preference.
The Trustee also states that “Since it is obvious that until medical services were rendered, Debtor owed no money to the Defendant because there was no consideration; therefore, a preferential transfer within 90 days of Bankruptcy exists. 11 U.S.C. § 547. Therefore, the debt was incurred on or about February 29, 1981, and the debt was paid by the $300.00; therefore, a preferential transfer within ninety days of the application for bankruptcy occurred.”
The Trustee’s conclusion does not seem to be logically consistent with his premise. In fact the opposite result is dictated. If the Debtor owed no money to the Defendant on January 24, 1980, it is clear that no antecedent debt existed on that date.
Implicit in the Trustee’s view is the position that services rendered followed by payment is legally equivalent to payment followed by services rendered. However, the Trustee offers no legal authority nor any rationale for such a proposition. Nor does he indicate why the Court should not follow a literal reading of the statute in regard to an antecedent debt.
Simply put, we find that the requirement of an antecedent debt has not been satisfied and that therefore no voidable preference exists.
Even if the Trustee is correct in his view that the elements of a preference exist, the transaction falls within an exception to the Trustee’s avoiding powers, namely 11 U.S.C. § 547(c)(1). This exception does not permit a Trustee to avoid a transfer that was intended by the parties to be a contemporaneous exchange for new value and was in fact substantially contemporaneous. Under the facts of the instant case the Court-would find the exchange to be “substantially contemporaneous” and therefore within the exception.
THEREFORE, judgment will be for the Defendant by a separate document as required by Rule 921(a), Rules of Bankruptcy Procedure. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489154/ | OPINION AND DECISION
BERT M. GOLDWATER, Bankruptcy Judge.
Debtor in Chapter 11 seeks an order enjoining defendant bonding company from *617cancellation of bonds upon the grounds that (a) the bonds are property rights, and (b) necessary for reorganization.
On August 24, 1979, defendant Aetna Casualty & Surety Co. (Aetna) bonded debt- or to the State of Nevada on one bond of $2,500 in favor of Nevada Industrial Commission (NIC) for the payment of premiums on employees wages for accident and health claims and $7,500 to Nevada Department of Taxation (NDT) for payment of sales tax and other Nevada taxes. The State of Nevada requires surety or cash bonds to engage in retail business for the payment of premiums to the NIC (NRS 616.220, et seq.) for employees and for payment of business taxes to NDT for sales and other taxable events (NRS 360.271, et seq.).
Aetna’s bonds provide the company may cancel upon thirty days notice. Aetna gave notice of intent to cancel both bonds. Pre-petition debt to NIC and NDT exceed the face limit of the bonds. Premiums have been paid through August 24, 1981; Aetna has refused to accept further premiums. No claim has been made against Aetna by the State of Nevada and Aetna has not paid out any amounts on the bonds.
These bonds do not provide for expiration. They are continuous obligations except if cancelled by the surety upon thirty days notice. In that respect they are unlike a bond or policy which by its terms expires on a date certain. Such latter bonds and policies may not be extended beyond the original terms. In re Cahokia Downs, Inc., 5 B.R. 529, 6 BCD 925 (Ill.1980), the Court denied cancellation of a fire policy while the term had not expired but said: “It is, of course, understood and not contemplated by this Court that the insurance policy . . . could be extended beyond its original term.”
The issue here is whether (1) the Court has the jurisdiction to enjoin the cancellation of a continuing obligation, and (2) whether the Court should enjoin the cancellation in this case.
The answer to both questions is yes.
The Bankruptcy Court has the jurisdiction and was given powers in the 1978 Bankruptcy Code to do all things necessary to protect the rights and remedies of the parties in interest including the debtor.
By 11 U.S.C. § 105 the Court may issue any process necessary to carry out the provision of Title 11. By 11 U.S.C. § 362 the filing of a proceeding in Title 11 stays any proceeding against the debtor. An attempt to cancel a bond is a proceeding.
It appears to the Court that Aetna gave notice of cancellation because debtor has filed under Title 11. Aetna is liable to the full extent of the bonds and the bonds are necessary for debtor’s reorganization. Debtor owes the State of Nevada an amount which exceeds the face of both bonds. Hence, Aetna was liable for a total of $10,000 before the filing of this case for prepetition debt of plaintiff to the State. No change has occurred but cancellation of the bond would result in refusal of the State of Nevada to cover the employees for accident or health and deny the operation of a retail business liable to the State for sales and other taxes.
Inasmuch as these bonds are continuous obligations in which Aetna has already reached the limit of its liability and there is no expiration date, there is every reason to enjoin cancellation which will not injure Aetna further1 and will aid the debtor in reorganization to propose a plan under Chapter 11.
Absent a showing that Aetna will be further harmed and because there is no expiration date, there is no reason to permit cancellation at this time. Good cause appearing,
IT IS ORDERED:
1. Aetna is enjoined from cancellation of the bonds to the State of Nevada.
2. To the extent that the debt of R.O. A.M., Inc., to the State of Nevada on either bond is reduced by payment of either Aetna or R.O.A.M. to an amount less than the face limit of the respective bond, Aetna is:
*618a. Released to the extent of such payment from further liability on the respective bond to the State and its maximum liability limited to the unpaid bonded amount. The debtor will then be required to furnish cash or other bond for the difference of the reduced bonded amount and the bonded amount required by the State of Nevada; and
b. To the extent Aetna shall pay the State of Nevada on demand by the State, Aetna shall be an unsecured creditor. See 11 U.S.C. § 507(d) providing:
An entity that is subrogated to the rights of a holder of a claim of a kind specified in subsection (a)(3), (a)(4), (a)(5), or (a)(6) of this section is not subrogated to the right of the holder of such claim to priority under such subsection.2 (Emphasis added.)
. Aetna is entitled to payment of premiums notwithstanding it has no additional liability.
. While the State of Nevada has priority under 11 U.S.C. § 507(a)(6) for taxes (including premiums on industrial insurance), Aetna will not have, such priority. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489155/ | *772IN PROCEEDINGS FOR AN ARRANGEMENT UNDER CHAPTER XI
JOHN C. FORD, Bankruptcy Judge.
OPINION AND MEMORANDUM OF LAW
Defendant’s motion to dismiss Plaintiff’s complaint for lack of jurisdiction brought the issues involved herein before the court for resolution. The Court, having considered the motion, briefs submitted by the parties, testimony and the pleadings on file, makes the following Findings of Fact and Conclusions of Law:
BACKGROUND
On March 8, 1976, the Debtor filed a petition for an arrangement under Chapter XI of the Bankruptcy Act1 in the United States District Court for the Northern District of Texas, Dallas Division. This Court then appointed A. M. Mancuso as Receiver of the Debtor on March 9, 1976. Prior to filing the petition, the Debtor was engaged in the business of drilling for and producing oil and gas from various properties. The Receiver is now operating the business and is to this day continuing to receive proceeds from oil and gas production.
This adversary proceeding2 is just one in a multitude of proceedings in a complex case consuming much of the court’s time. The familiarity of the Court with the complex history of this case is to be kept in mind when reading the following Findings of Fact and Conclusions of Law.
FINDINGS OF FACT
1.On or about April 21,1974, the Permian Corporation (“Permian”) entered into a Gas Sales and Purchase Contract (“Contract”) with Dallas Oil & Gas, Inc. (“Debt- or”). Permian maintained a gas gathering pipeline system in the Mingus field (“Mingus System”) servicing the Debtor’s wells located in the Mingus field.
2. By Contract of Sale dated December 1, 1976, Permian sold the Mingus System to W. E. Pope. An Order Authorizing Consent to Assignment was entered by this Court on January 7, 1977, and all of Permian’s rights and obligations under the Contract were assigned to Pope.
3. By Contract of Sale dated December 17, 1976, Pope conveyed the Mingus System to Dixie Natural Resources of Texas, Inc. (“Dixie”). An Order Authorizing Consent to Assignment was entered by this Court on February 2, 1977, and all rights and obligations under the Contract were assigned to Dixie.
4. Kings Point Corporation (“Kings”) acquired all right, title, interest, and obligations pertaining to the Mingus System from Dixie, pursuant to a non-judicial foreclosure on Dixie. (See Transcript, Recessed First Meeting, filed February 12, 1981, at page 12).
5. On April 3, 1979, Kings conveyed to Christie Gas Transmission Corporation (“Christie”) the Mingus System and assigned all rights and obligations under the Contract with Debtor to Christie.
6. The Receiver instituted this Adversary Proceeding by filing a Complaint to Recover Information against Dixie and Christie on September 24, 1979, requesting Gas Measurement Charts. Information from the Gas Measurement Charts was necessary in order to determine amounts due to the Debtor.
7. In its Answer to Complaint to Recover Information, filed October 15,1979, Dixie admitted all of Plaintiff’s allegations contained in the complaint of September 24, 1979, but denied possession of the requested information.
*7738. In Christie Gas Transmission Corp.’s Answer to Complaint to Recover Information, filed October 15, 1979, Christie denied possession of the requested information. No objection to the jurisdiction of this Court was stated in Christie’s answer.
9. Sometime subsequent to October 15, 1979, Dixie produced the requested Gas Measurement Charts. Utilizing the charts, an audit was performed in January 1980 by John P. Squires Co. of the February through July 1977 gas volumes from the Debtor’s wells. The audit demonstrated an alleged discrepancy of 10,096 MCF of gas between the volumes as reflected in the statements provided by Dixie to the Debtor and the actual gas volumes contained in Dixie’s Gas Measurements Charts for the same period. This alleged discrepancy may have resulted in a total underpayment to the Debtor by Dixie of $17,000.00.
10. Utilizing the information obtained from Dixie, the Receiver on August 14, 1980, filed a Complaint to Recover Natural Gas Underpayments naming Dixie and Christie as Defendants.
11. On September 12, 1980, Christie answered objecting to the summary jurisdiction of this Court and complaining of defective service of process. Christie moved to dismiss this proceeding for lack of jurisdiction.
12. The Receiver cured the defect in service of process by causing the issuance of a Summons and Notice of Pre-trial Conference on November 25, 1980.
13. On December 29, 1980, Christie filed another answer restating its objection to jurisdiction of this Court but omitting its complaint concerning defective service of process. On the same date Christie filed a brief on the jurisdiction question.
14. On January 21, 1981, a pre-trial conference and hearing was held wherein this Court denied Christie’s Motion to Dismiss for Lack of Jurisdiction.
15. From the inception of this case, the Debtor’s gas wells have been in the possession and control of the Receiver and this Court. These same gas wells are the subject matter of the contract between the Debtor and Christie.
16. It is undisputed that the $17,000.00 sued for in the Receiver’s Complaint filed August 14, 1980, is in the possession of this Court.
17. On September 14, 1981, an Order was entered by this Court stating in part “that this Bankruptcy Court has jurisdiction over the matters herein and that the Motion to Dismiss of Defendant Christie Gas Transmission Corp. is hereby denied.”
18. On September 24,1981, Christie filed its Notice of Appeal to District Court appealing the Order of September 14, 1981.
CONCLUSIONS OF LAW
It is undisputed that this Court has possession of the property in question. If not for the persistence of Defendant Christie, this opinion would be concluded at this point. However, in order to put the question to rest, a brief review of summary jurisdiction under the now repealed Bankruptcy Act (“Act”) will be set forth.
Under the Act, the power of a bankruptcy court to act summarily regarding controversies over property in its actual or constructive possession, and proceedings arising in the course of an administration, was not in any way restricted by the terms of Section 23.3 Collier on Bankruptcy, 14th ed. ¶ 23.03 at page 443.
*774Jurisdictional questions under the Act were divided into two broad categories: (1) those dealing with the bankruptcy court’s power to adjudicate all matters relating to the administration of the bankrupt’s estate and the property in the court’s possession, and (2) the jurisdiction of federal district courts sitting either as district courts at law or in equity or as courts of bankruptcy over independent suits brought by the bankruptcy receiver or trustee against third persons concerning property not in the possession of the bankruptcy court.4 Collier on Bankruptcy, 15th ed. ¶ 3.01 at page 3-22. The cases in the first category were classified as summary proceedings, those in the second as plenary suits. Thus a proceeding to determine the right to property in the possession of the bankruptcy court was “summary”. The bankruptcy court had exclusive jurisdiction of summary proceedings. Collier, supra at 3-19; see also Matter of Fontainebleau Hotel Corporation, 508 F.2d 1056, 1058 (5th Cir. 1975); Thompson v. Magnolia Petroleum Co., 309 U.S. 478, 481, 60 S.Ct. 628, 630, 84 L.Ed. 876 (1940) and Matter of Land Investors, Inc., 544 F.2d 925, 929 (7th Cir. 1976). In the case at bar, since the property in question is undisputedly in the possession of this Court, there is summary jurisdiction to hear this controversy.
Assuming arguendo that the property is not in the possession of the Court, there still is jurisdiction by consent to these proceedings. Numerous cases have held that if the disputed property is in the possession of an adverse claimant who has more than a colorable claim to it, the adverse claimant has a right to a plenary hearing but, nonetheless, may consent to submit his claim to the summary jurisdiction of the bankruptcy court. See Chandler v. Perry, 74 F.2d 371, 372 (5th Cir. 1934); Matter of Abraham, 421 F.2d 226 (5th Cir. 1975); and cases cited in Collier on Bankruptcy, 14th ed. ¶ 23.08.
Christie did not object to the jurisdiction of this Court in its first answer filed October 15, 1979. Pursuant to Bankruptcy Rule 915(a)5 and Section 2a(7)6 of the Act, Christie’s failure to make appropriate objection to the jurisdiction of the court at the very first opportunity7 constitutes a consent sufficient under the statute to support jurisdiction of this Court over this controversy. See In re Airmotive Suppliers, Inc., 519 F.2d 1102, 1104 (5th Cir. 1975).
Of course, in the case at bar, the Court is in possession of the property in question and has summary jurisdiction of this proceeding. The Order of this Court entered September 14, 1981, denying the Motion to Dismiss stands.
. The 1898 Bankruptcy Act has been repealed. See Title IV of the Bankruptcy Reform Act of 1978, Pub.L. 95-598, § 401. However, cases commenced under the 1898 Act continue to be “conducted and determined under such Act.” Ibid. § 403(a). Throughout this opinion, references to the 1898 Act are in the past tense, reflecting the decline into obsolescence of the Act.
. An adversary proceeding, in the Bankruptcy Court, is commenced by the filing of a complaint and may be instituted to recover money or property. Bankruptcy Rule 701 and 703.
. Section 23. (11 U.S.C. § 46) reads:
“a. The United States district court shall have jurisdiction of all controversies at law and in equity, as distinguished from pleadings under this Act, between receivers and trustees as such and adverse claimants, concerning the property acquired or claimed by the receivers or trustees, in the same manner and to the same extent as though such proceedings had not been instituted and such controversies had been between the bankrupts and such adverse claimants.
“b. Suits by the receiver and the trustee shall be brought or prosecuted only in the courts where the bankrupt might have brought or prosecuted them if proceedings under this Act had not been instituted, unless by consent of the defendant, except as provided in Sections 60, 67, and 70 of this Act.”
. The distinction between plenary and summary jurisdiction caused many problems and led to the adoption of the expanded jurisdiction of the bankruptcy courts under the Code. See Collier on Bankruptcy, 15th ed. ¶ 3.01 for a complete review.
. Rule 915(a) reads:
“(a) Waiver of Objection to Jurisdiction. Except as provided in Rule 112 and subject to Rule 923, a party waives objection to jurisdiction of an adversary proceeding or a contested matter and thereby consents to such jurisdiction if he does not make objection by a timely motion or answer, whichever is first served.”
. Section 2a(7) (11 U.S.C. § 11) reads in pertinent part:
“(W)here in a controversy arising in a proceeding under this Act an adverse party does not interpose objection to the summary jurisdiction of the court of bankruptcy, by answer or motion filed before the expiration of the time prescribed by law or rule of court or fixed or extended by order of court for the filing of an answer to the petition, motion or other pleading to which he is adverse, he shall be deemed to have consented to such jurisdiction.”
.It should be noted that § 2a(7) was amended in 1952 to add the wording cited in note 6, supra. Pub.L. 456 (S. 2234), 82d Cong., 2d Sess. (1952). The House Report on the bill explained that the amendment was necessary in order to reverse the effect of Cline v. Kaplan, 323 U.S. 97, 65 S.Ct. 155, 89 L.Ed. 97 (1944), wherein the Supreme Court held that a respondent is not to be deemed to have consented if he made formal objection to the summary jurisdiction at any time before entry of the final order in the proceeding. See Airmotive, supra, at 1104 for a complete discussion of the matter. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489156/ | MEMORANDUM
CLIVE W. BARE, Bankruptcy Judge.
At issue in this adversary proceeding instituted by a trustee in bankruptcy is whether the defendant holds a perfected security interest in goods (inventory) sold to the debtor by the defendant. When the goods were delivered to the debtor, the debtor or the debtor’s agent signed an “invoice” or “delivery ticket” containing a retention of title clause. The defendant asserts a valid security interest was created thereby. The trustee disagrees.
I
In 1978, and thereafter, Halls Furniture Mart was purchasing appliances from Cres-well & Co. for resale. On June 25, 1980, a meeting was held between E. L. Fielden, Jr., president of Halls Trading Post, and John Creswell, president and owner of Cres-well & Co. Also, present at this meeting were Billy Ray Hemphill, an employee of Halls, and Ben Young, sales manager of Creswell. According to Creswell the meeting was held because Creswell had been experiencing collection problems with Halls. However, Creswell still hoped to use Halls as an outlet for damaged and obsolete merchandise. Creswell stated at trial that he advised Halls that such an arrangement would require “special terms.”
The testimony of the parties as to the events occurring at the meeting or thereafter is conflicting, but either during the June 25 meeting or subsequently, Fielden signed a financing statement for Creswell. Fiel-den testified at trial that at the time of execution the financing statement was incomplete. According to Fielden the statement did not show either the debtor’s name or the secured party’s name. The financing statement was recorded in the office of the Secretary of State on September 10, 1980. Ex. 1.
On June 25 or 26 Ben Young, Creswell’s sales manager, unsuccessfully attempted to obtain Fielden’s signature to a security agreement. In August 1980 at another meeting Fielden placed a stamp on the agreement—
“Halls Trading Post, Inc.
Phone 922-1911”
but testified that he refused to sign the agreement because it contained a clause granting Creswell a security interest in all “present and hereafter acquired inventory of dealer.” Ex. 2.
Creswell shipped appliances to Halls Furniture Mart on at least ten occasions after the June meeting.1 Each shipment was accompanied by an invoice or delivery ticket containing a retention of title clause. These invoices or tickets were signed by either Mr. Fielden or Bill Hemphill, an employee of Halls.
*783On February 3, 1981, Halls Trading Post filed a petition in bankruptcy seeking relief under Chapter 7 of the Bankruptcy Code. On February 20, the trustee gave notice to all creditors of his intention to sell the inventory of the debtor. This was done and Creswell now asserts a security interest in $12,598.00 proceeds derived by the trustee from the sale. The trustee contends that Creswell does not hold a valid security interest in the goods sold and that its claim should be allowed only as an unsecured claim. The trustee argues that the “Halls Trading Post” stamp on the security agreement does not constitute a “signature.” See T.C.A. § 47-9-203.
At the trial on August 10, 1981, the trustee produced convincing proof that the “stamp” on the security agreement was not intended as a signature. Accordingly, the court announced that judgment would be entered in favor of the trustee. On August 21, 1981, Creswell filed a motion to alter or amend the judgment.2 Creswell now insists that the invoices or delivery tickets contain a retention of title clause which constitute the reservation of a security interest. The trustee denies that these documents constitute valid security agreements. According to the trustee, the documents were signed only for the purpose of acknowledging receipt of the goods, not for the purpose of granting a security interest.
II
In order to create an enforceable security agreement the debtor must have signed an instrument which grants a security interest and which contains a description of the collateral. T.C.A. § 47-9-203(l)(b).
Creswell, on ten different occasions, delivered appliances to Halls Furniture Mart. An invoice or delivery ticket went along with each delivery. Ex. 2. Appliances delivered were listed on the documents by model and serial numbers. In addition, at the top of each document the following clause appears:
“It is agreed and understood that the title to the below described property remain in the name of the seller, until fully paid for, and if collected by an attorney, by suit or otherwise, I, or we, agree to pay all fees and cost of collection. In case of default of any payment due and not paid, entire balance becomes due.”
Although all of the documents were signed, only three were actually signed by E. L. Fielden, Jr. The others bear the signature “Bill Hemphill.”
As heretofore stated, Creswell argues that the documents constitute valid security agreements. The trustee, however, asserts that the parties did not “intend” the documents to constitute security agreements. Further, the trustee argues that only three of the documents were signed by Fielden, the others being signed by a “delivery man” who had no authority to execute security agreements on behalf of Halls Trading Post, Inc.
“As a general principle, one who accepts a written contract is conclusively presumed to know its contents and to assent to them, in the absence of fraud, misrepresentation, or other wrongful act by another contracting party. Thus, ignorance of the contents of a contract expressed in a written instrument does not ordinarily affect the liability of one who signs it. . . .” 17 Am.Jur.2d Contracts § 149.
The Tennessee Courts have applied this rule on several occasions in cases in which one of the parties to the contract signed the contract without reading it. In Richardson v. McGee, 193 Tenn. 500, 246 S.W.2d 572 (1952), a real estate agent filed suit against the seller of a house to collect a commission provided for in the contract signed by the parties. The defendant/seller argued that he signed the agreement unaware of the existence of the clause. The defendant, being unable to read, had signed the contract without having it read to him. The court concluded that
“the rule is absolute, that in the absence of fraud or sharp dealing, one is estopped *784to repudiate his contract, or avoid the effect of the execution of a contract, when by negligence or indifference, he has failed to read it, or to have it read to him. In the absence of fraud or deceit, the rule is the same for those who can and those who cannot read, and the basis of the rule is one of estoppel, the test being negligence and indifference, and not illiteracy or incapacity.” Id. 246 S.W.2d at 574.
This holding was restated by the Tennessee Court of Appeals in Evans v. Tillett, 545 S.W.2d 8 (Tenn.Ct.App.E.S.1976). In that case the plaintiffs’ daughter was killed in an automobile accident. Plaintiffs filed suit against the two companies responsible for construction of the highway on which the accident occurred. Defendants filed a third party action against one of the drivers involved in the accident. However, the third party action was dismissed because of a release signed by the plaintiffs. Defendants then filed a motion for summary judgment, arguing the release had the effect of releasing the third party defendant and “all other persons liable. . .. ” The plaintiffs maintained they had signed the release after being told the instrument released only the third party defendant. Although the court held that the motion for summary judgment should not have been granted, the court did state that
“Ordinarily, one having the ability and opportunity to inform himself of the contents of a writing before he executes it will not be allowed to avoid the effect of it by showing that he was ignorant of its contents or that he failed to read it.” Id. at 11.
Even though the above cases do not involve the creation of security interests, T.C.A. § 47-1-1033 dictates that those cases be followed. The retention of title clause appears on each of the documents signed by Fielden and Hemphill. As to the three documents signed by Fielden, an officer of the debtor corporation, this court finds those documents grant to Creswell a security interest in the appliances delivered.4
The remaining documents were signed by Bill Hemphill, an employee of Halls. There is no proof in the record, however, that Hemphill was authorized to execute security agreements on behalf of Halls Trading Post, Inc.
“An agent may, of course, be given the express authority to contract on behalf of the principal, or he may have the implied or apparent power to enter into such a contract. In the absence of an agreement to the contrary, the authority of an agent to make a contract on behalf of the principal may be inferred from authority to conduct a transaction if the making of the contract is incidental to the transaction, usually accompanies it, or is reasonably necessary to its accomplishment. Authority to contract on behalf of the principal may arise from usage or a custom of business. Also, contracts made by the agent with third persons within the scope of the agent’s apparent authority are binding upon the principal where the principal has held him out as possessing such authority or has manifested in some way that such authority is the agent’s real authority.” 3 Am.Jur.2d, Agency § 84.
The evidence produced at the trial of this matter indicates only that Hemphill was the agent of Halls Furniture Mart for the purpose of picking up and delivering furniture. Absent proof that Bill Hemphill had any authority to sign contracts or security agreements, the documents signed by Hemphill will not be held to be valid security agreements.
*785Creswell, therefore, holds a valid security interest only in the appliances listed on the June 6, June 26, and July 9, 1980, documents. The proceeds derived by the trustee from the sale of those appliances, less expense of administration, will be turned over to Creswell. The balance of Creswell’s claim will be allowed as unsecured.
This Memorandum constitutes findings of fact and conclusions of law, Bankruptcy Rule 752.
. Shipments were made on the following dates: June 26, 1980 (two shipments), July 2, 1980 (two shipments), July 9, 1980, July 10, 1980, July 21, 1980, August 7, 1980, September 16, 1980, and October 6, 1980.
. Since no judgment had been entered at that time, the motion was premature. The court, therefore, considered the motion as a motion to make additional findings, Bankruptcy Rule 752.
. “Supplementary general principles of law applicable. — Unless displaced by the particular provisions of chapters 1 through 9 of this title, the principles of law and equity, including the law merchant and the law relative to capacity to contract, principal and agent, estoppel, fraud, misrepresentation, duress, coercion, mistake, bankruptcy, or other validating or invalidating cause shall supplement its provisions.” T.C.A. § 47-1-103.
. As noted heretofore, a financing statement previously had been filed in the office of the secretary of state. T.C.A. 47 -9 401(1 )(c). | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489157/ | *16ORDER
LEON J. HOPPER, Bankruptcy Judge.
The debtor filed a case under Chapter 13 of the Bankruptcy Code 1 in this court on September 18, 1980. The plan filed therewith was duly confirmed. The debtor moved to Texas where she is currently employed by Panhandle Eastern Pipeline Company (hereinafter Panhandle). The court issued an income deduction order to this employer as provided by Section 1325(b) of the Bankruptcy Code. This matter is now before the court on the motion of Panhandle requesting the court to rescind the income deduction order of August 11, 1981.
Panhandle argues that it is immune from such orders by virtue of Section 28 of Article 16 of the Texas Constitution which provides that wages for personal services are not subject to garnishment. An order from this court requiring an employer to withhold moneys from a debtor’s wages and forward them to the trustee to fund the debtor’s plan is not a garnishment. A garnishment is a legal proceeding by a creditor, auxiliary to a judgment in a principal action, to satisfy the judgment out of property or credits of the debtor in possession of a third person.
Chapter 13 of the Bankruptcy Code is a wholly voluntary rehabilitative vehicle for the debtor as Section 1307(b) of the Code provides that a debtor may have his or her Chapter 13 case dismissed at any time. Section 1322 requires that a debtor’s plan shall provide for the submission of all or such portion of future earnings or other future income of the debtor to the supervision and control of the trustee as is necessary for the execution of the plan. Thus, this debtor has voluntarily committed a portion of her income to the fulfillment of her plan.
Section 1325(b) specifically empowers the bankruptcy court to issue orders such as the one issued to Panhandle. This is a Congressional exercise of its constitutionally granted powers. U.S.Const. art. I, § 8, cl. 4. If there is any conflict between the provisions of the Bankruptcy Code and the laws of Texas, then the laws of Texas must yield to the supremacy of federal law. U.S.Const. art. VI, cl. 2; Marbury v. Madison, 5 U.S. (1 Cranch) 137, 2 L.Ed. 60 (1803).
It is clear that the provisions of the Code are superior to state or prior conflicting federal laws. Section 1325(b) has been held to be superior to federal laws barring assignment or attachment. In re Buren, 6 B.R. 744, 3 CBC 2d 48, CCH Bankr.L.Rep. ¶ 67,679 (Dist.Ct., M.D.Tenn.1980); In re Devall, 9 B.R. 41, CCH Bankr.L.Rep. ¶ 67,875 (Bkrtcy.M.D.Ala.1981); In re Howell, 4 B.R. 102, 2 CBC 2d 177 (Bkrtcy.M.D.Tenn.1980); In re Dawson, 13 B.R. 107, CCH Bankr.L.Rep. ¶ 68,246 (M.D.Ala.1981); and In re Penland, 11 B.R. 522, 4 CBC 2d 969 (Bkrtcy.N.D.Ga.1981).
The motion of Panhandle Eastern Pipeline Company requesting this court to quash and rescind its income deduction order of August 11, 1981, is due to be denied.
. 11 U.S.C. §§ 1301-1330. All chapters and sections cited, unless otherwise noted, are to Title 11, United States Code, the Bankruptcy Code. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489158/ | MEMORANDUM OPINION AND ORDER
RICHARD L. SPEER, Bankruptcy Judge.
This cause came before the Court upon the Debtors’ Motion for Judgment on the Pleadings.
It appears that the facts of this case are not in dispute. The Debtors entered into a security agreement with Household Finance Corporation on February 14, 1980. Debtors borrowed approximately Two Thousand Three Hundred Forty-Two and 65/ioo Dollars ($2,342.65), giving as collateral for this loan a security interest in certain personal property of the Debtors, more specifically household furnishings, household goods, appliances and furniture which were held primarily for the personal, family and household use of the Debtors and their dependents. Debtors’ interest in the aforementioned property does not exceed the prescribed limits for exemptable property as set forth in Ohio Revised Code Section 2329.661.
The issue concerning the constitutionality of the retroactive application of Section 522(f) of the Bankruptcy Code, has been challenged in virtually all jurisdictions. Cases are currently being considered by the United States Supreme Court as well as the Court of Appeals for the Sixth District on this issue.
The issue before this Court however, presents itself to the constitutionality of the prospective application of the statute. In essence, the existence of the statute is being challenged.
It appearing that no challenge has been made to the perfection or validity of the security interest, the Court will not address itself to that aspect.
It is the position of this Court, as stated in In re Marinski, 9 B.R. 579 (Bkrtcy.N.D.Ohio 1981), that in addition to the basic presumption of constitutionality which is to be applied to every statute, there is a principle of construction that where the validity of a statute is attacked, and there are two possible interpretations, by one of which would be unconstitutional and by the other *24it would be valid, the Court should adopt the construction with which it will be upheld. See 16 Am.Jur.2d, Constitutional Law Section 212, 219; 16 C.J.S., Constitutional Law § 97, p. 349, note 78.
As previously stated in Marinski, supra., Congress is not prohibited from enacting legislation which impairs the obligation of contract, though the states clearly are so prohibited. “Indeed every bankruptcy act avowedly works such impairment. While, therefore, the Fifth Amendment forbids the destruction of a contract it does not prohibit bankruptcy legislation affecting the creditors remedy for its enforcement against the debtor’s assets, or the measure of the creditor’s participation therein, if the statutory provisions are consonant with a fair, reasonable, and equitable distribution of those assets.” Kuehner v. Irving Trust Co., 299 U.S. 445, 57 S.Ct. 298, 81 L.Ed. 340 (1937).
Since this Court in Marinski determined that Section 522(f) is constitutional as applied retroactively, it will also be held constitutional as applied prospectively for the reason cited above.
It is therefore ORDERED that Debtors’ Motion for Judgment on the Pleadings is hereby GRANTED and the lien is hereby AVOIDED. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489159/ | ORDER ON COMPLAINT
WILL G. CAFFEY, Jr., Bankruptcy Judge.
At Mobile in said District on the 5th day of November, 1981, before Will G. Caffey, Jr., Bankruptcy Judge:
This matter having come on for hearing upon the Complaint of Daniel Edmund Har-tung, debtor herein, against Charles A. Graddick, as Attorney General, and Chris Galanos, as District Attorney for Mobile County, seeking to enjoin the defendants from revoking the debtor’s probation for failure to repay a certain indebtedness, more particularly described herein; summons and notice of trial having been regularly issued and served; and the debtor 'having appeared by and through A. Hollis Geer, his attorney; and the defendants having appeared by and through A1 Pennington, their attorney; and evidence having been presented;
Now, therefore, the Court finds, concludes and orders as follows:
FINDINGS OF FACT
On or about February 7, 1980 the debtor was involved in an automobile accident with John Doyle, Robert Turner and Charles Sergeant. He left the accident and was later charged with leaving the scene of an accident under Ala.Code Sec. 32-10-1 et seq. (1975). Thereafter, on May 23, 1980, the debtor filed his voluntary petition under Chapter 7 of the Bankruptcy Code; and listed each of the above-named persons a? creditors holding a contingent indebtedness. Notice of the bankruptcy petition was sent to each of those individuals; but they filed no claims herein, nor any Complaint seeking to have their debts determined to be non-dischargeable.
An order of discharge was entered herein on October 17, 1980; and on January 20, 1981 the debtor entered a plea of guilty to the offense of leaving the scene of an accident in the Circuit Court of Mobile County, Alabama. The Court sentenced the debtor to imprisonment for 6 months, and imposed a fine of $500.00 plus court costs. The imprisonment was suspended and the debt- or placed on probation on condition that he make restitution to the three (3) persons mentioned above, as follows:
Charles Sergeant $ 500.00
Robert Turner 4,840.81
John Doyle 2,170.00
At the time the sentence was imposed, the debtor advised the Presiding Judge that the debts arising out of the accident had been discharged in bankruptcy; but in compliance with the Alabama Statute, the Judge imposed the restitution conditions.
CONCLUSIONS OF LAW
The debtor seeks to enjoin the defendants from instituting or prosecuting proceedings to revoke the debtor’s probation for failure to pay the restitution awards as ordered by the Circuit Court of Mobile County.
The Alabama “Restitution to Victims of Crimes” Act, which became effective on May 28, 1980, provides inter alia:
“When a defendant is convicted of a criminal activity or conduct which has resulted in pecuniary damages or loss to a victim, the Court shall hold a hearing to determine the amount or type of restitution due the victim or victims of such defendant’s criminal acts. Such restitution hearings shall be held as a matter of course and in addition to any other sentence which it may impose, the Court *42shall order that the defendant make restitution or otherwise compensate such victim for any pecuniary damages. * * * ” Code of Alabama, 1975, Sec. 15-18-67.
The debtor contends that the application of the Alabama Restitution Statute is void to the extent that it requires payment of an indebtedness discharged in bankruptcy, in that it frustrates the full effectiveness of the federal statute. United States Constitution, Art. 6, Clause 2; Perez v. Campbell, 402 U.S. 637, 91 S.Ct. 1704, 29 L.Ed.2d 233 (1971).
In the case at bar, it is not necessary to determine the state-federal conflict in the statutes, because, under the factual situation existing in this case, the Alabama courts have already determined that the application of the Alabama Restitution Statute is unconstitutional under Article 1, Sec. 10 of the Constitution of the United States of America and under Article 1, Sec. 7, of the Constitution of Alabama 1901. Cox v. State, 394 So.2d 103 (Ala.Crim.App., 1981).
The “criminal activity or conduct” in which the debtor was involved occurred on February 7, 1980, while the Act became effective on May 28, 1980. Therefore, the sentencing of the debtor under the Act constituted an ex post facto application of the statute in violation of the constitutional provisions cited above. See: Beazell v. Ohio, 269 U.S. 167, 46 S.Ct. 68, 70 L.Ed. 216 (1925).
It is, therefore, clear that as to the debt- or, the application of the Alabama Statute is unconstitutional; and the State officials should be enjoined from any further attempts to enforce the restitution provisions of the debtor’s criminal sentence.
ORDER
Now, therefore, it is ORDERED, ADJUDGED and DECREED that the defendants, Charles A. Graddick as Attorney General of the State of Alabama, and his Assistants, Agents, or representatives, and Chris Galanos as District Attorney for Mobile County, and his Assistants, Agents, or representatives, be, and they hereby are, PERMANENTLY ENJOINED from instituting or prosecuting proceedings to revoke the probation of the debtor herein for failure to comply with the restitution conditions of his criminal sentence imposed on January 20, 1981 in the case of State of Alabama v. Daniel Edmund Hartung, No. CC-80-1625. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489160/ | ORDER
• RICHARD L. SPEER, .Bankruptcy Judge.
This cause came before the Court upon Debtor’s Objection to the Proof of Claim filed by Thorp Discount Inc. of Ohio.
At the hearing, both parties stipulated that the value of the Debtor’s real estate would be set at Thirty-Seven Thousand and no/100 Dollars ($37,000.00). The parties further agreed to a decision by the Court based upon the briefs submitted.
FACTS
The Court makes the following findings of fact:
1.) The Debtor, Delores Jean Smith, filed a Voluntary Petition in Bankruptcy under Chapter 13 on January 13, 1981.
2.) Thorp Discount Inc. of Ohio (hereafter Thorp) filed a proof of claim in this case in the amount of Twelve Thousand Five *59Hundred Forty Nine and 96/100 Dollars ($12,549.96) based upon a second real estate mortgage executed and delivered by the Debtor. This amount includes the principal, accrued and unaccrued interest, earned and unearned life insurance premiums, and earned and unearned disability insurance premiums. This Proof of Claim figure is arrived at by adding the following items:
Principal amount $9,879.43
Credit life insurance 229.03
Credit disability insurance 274.08
Precomputed contractual finance charge 2,167.42
$12,549.96
By its claim, Thorp asserts that the amount owed is Twelve Thousand Five Hundred Forty-Nine and 96/100 ($12,549.96) Dollars, not any lesser amount as indicated in its brief. Thorp asserts that it is a secured creditor of the Debtor because the value of the Debtor’s property exceeds the amount of the principal plus interest due. Furthermore, Thorp asserts that because of this status, it should be allowed interest on the claim plus reasonable fees, costs and charges as prescribed by § 506(b) of the Bankruptcy Code.
3.) A first mortgage on this real estate is held by the Kissel Company in the approximate amount of Twenty-one Thousand One Hundred, and no/100 Dollars ($21,100.00) plus seven percent interest.
4.) Debtor now objects to Thorp’s proof of claim.
Debtor alleges that Thorp is not entitled to its full interest claim because under Section 506(b) of the Bankruptcy Code, full interest claims are only allowed if the value of the secured property equals or exceeds the sum of the principal and interest due to the creditor. The Debtor believes that her equity in this real estate is less than the principal plus interest and therefore Thorp’s interest claim should be disallowed.
Section 506(b) of the Bankruptcy Code governs this issue and states in pertinent part the following:
“(b) To the extent that an allowed secured claim is secured by property the value of which, after any recovery under subsection (c) of this section, 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 under the agreement under which such claim arose.” (Emphasis added)
Thorp alleges that the Debtor has made erroneous computations which are crucial to this discussion. First, the Debtor erroneously included in the summation of principal and interest due, the amount of Five Hundred Three and 11/100 Dollars ($503.11) which is specifically designated as life and disability insurance premiums.
Secondly, the Debtor, in computing the closing costs in the sale of the property, used a seven percent real estate commission cost. Thorp alleges that the seven percent commission is excessive. To buttress this argument, attached to Thorp’s brief is an affidavit of a real estate broker for the firm of Theodore Schmitt Company, which states that the practice of his company is to charge a five percent sales commission.
Thorp further states that the Debtor’s Chapter 13 Plan as it stands, proposes to modify Thorp’s rights in that it attempts to deprive Thorp of its interest, and therefore the Plan should be amended.
The Court is in accord with part of Thorp’s discussion. Surely a real estate sales commission is negotiable. Within the current economic period, the Court believes that it may even be possible to find a real estate commission of less than the five percent shown in the affidavit. But for our purposes, the Court will recognize the five percent figure as reasonable.
The Court does not agree with Thorp’s allegation that the insurance charges were erroneously included in the computation of the Debtor. Thorp does not exclude, but includes in its claim the amounts of Two Hundred Twenty-Nine and 03/100 ($229.03) Dollars in credit life insurance and Two Hundred Seventy-Four and 08/100 ($274.08) Dollars in credit disability insurance. Section 506 states “to the extent that an allowed secured claim is secured by property the value of which ... is greater than the *60amount of such claim...” Nowhere does the Code specify that computation should be made solely upon principal plus interest. Thorp claims it is owed Twelve Thousand Five Hundred Forty-Nine and 96/100 Dollars ($12,549.96),. not Twelve Thousand Forty Six and 85/100 Dollars ($12,046.85), which is the amount of principal plus interest minus insurance premiums. It appears that Thorp not only wants this Court to honor its proof of claim in the entire amount, but conversely, it wants the Court to disavow a portion of the claim for the purposes of this computation.
The Court will not address the issue of whether or not the incidental expenses of a sale of the Debtor’s residence are to be included in the final computation of the status of secured claims since neither party presents it here. Thorp in fact, offered its own evidence of the probability of finding a real estate broker to accept a commission less than the seven percent offered by the Debtor. The Court will therefore accept as reasonable the Two Hundred and no/100 ($200.00) Dollars closing cost submitted by the Debtor and not disputed by Thorp, and the five percent real estate commission offered by Thorp.
Assuming the real estate is sold for the stipulated value of Thirty Seven Thousand and no/100 Dollars ($37,000.00), once the closing costs ($200.00), five percent real estate sales commission ($1,850.00), and the first mortgagee ($22,577.47), are paid the balance is approximately Twelve Thousand Three Hundred Seventy-Two and no/100 Dollars ($12,372.00). Thorp’s claim exceeds this amount by One Hundred Seventy-Seven and 43/100 Dollars ($177.43).
Since the claim of Thorp is secured by property the value of which is not greater than the amount of such claim, there shall not be allowed to Thorp, interest on the claim or any reasonable fees, costs, or charges as provided under the agreement under which such claim arose as required by Section 506 of the Bankruptcy Code. It is therefore
ORDERED that Debtor’s Objection to Thorp’s amended proof of claim is hereby sustained. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489161/ | ORDER DENYING PLAINTIFF’S REQUEST FOR RELIEF AS TO ENFORCEMENT OF MAINTENANCE OF LIFE INSURANCE; AND DETERMINING CHILD SUPPORT AR-REARAGE NON-DISCHARGEABLE.
LEONARD C. GARTNER, Bankruptcy Judge.
This cause came on to be heard upon the complaint filed by Christine G. Willet on August 11, 1981 to determine the discharge-ability of a debt pursuant to 11 U.S.C. § 523(a)(5)(B); upon the answer filed by the Debtor-Defendant, Jack A. Willet as therein alleged; upon the testimony and evidence.
The Court of Common Pleas, Hamilton County, Ohio entered a decree of divorce of the parties herein on November 29, 1972. The decree ordered defendant to pay child support at the rate of $100.00 per week. As of April 7, 1981, an arrearage exists in the amount of $4900.00. However, the non-dis-chargeability of such debt is not at issue herein and such fact has been stipulated by the parties.
The present controversy concerns a provision on page three of the divorce decree which states the following:
“IT IS FURTHER ORDERED that Defendant maintain the children of the parties as irrevocable beneficiaries on Fifty Thousand Dollars ($50,000.00) life insurance on Defendant’s life during the minority of the children and produce proof of compliance with said order to Plaintiff within sixty (60) days from journalization hereof.”
Defendant no longer carries a policy of life insurance. Plaintiff contends that such obligation or duty is in the nature of alimony, maintenance or support and is enforceable by this Court. However, this Court disagrees.
11 U.S.C. § 523(a)(5) excepts certain debts from discharge as follows:
“a) A discharge under section 727, 1141, or 1328(b) of this title does not discharge an individual debtor from any debt — * * *
(5) to a spouse, former spouse, or child of the debtor, for alimony to, maintenance for or support of both spouse or child, in connection with a separation agreement, divorce decree, or property settlement agreement, * * * ”
11 U.S.C. § 101(11) defines a “debt” as “a liability on a claim.” A “claim” is defined under 11 U.S.C. § 101(4) as follows:
“(4) “claim” means—
(A) right to payment, whether or not such right is reduced to judgment, liquidated, unliquidated, fixed contingent, matured, unmatured, disputed, undisputed, legal, secured, or unsecured; or
(B) right to an equitable remedy for breach of performance if such breach gives rise to a right to payment, whether or not such right to an equitable remedy is reduced to judgment, fixed, contingent, matured, unmatured, disputed, undisputed, secured, or unsecured;” Emphasis the Court’s.
Therefore, the type of debts which are defined under the Bankruptcy Code are limited to those which involve at some point a “right to payment”. A provision arising from a divorce decree which orders the debtor to maintain the children of his former marriage as beneficiaries on his life insurance policy involves no such “right”. It is not the type of obligation contemplated under 11 U.S.C. § 523 since a determination of non-dischargeability cannot be made by the Court as no debt exists to be considered.
The relief sought by plaintiff, to force the maintenance of debtor’s life insurance cannot be properly granted in this Court and such relief is denied.
*77Judgment will be entered in the amount of $4900.00 for child support owed by the defendant as of April 7, 1981. Further, the support which is accruing at $100.00 per week likewise, is non-dischargeable.
SO ORDERED. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489162/ | LEONARD C. GARTNER, Bankruptcy Judge.
This cause came on to be heard upon the plaintiff’s complaint filed September 17, 1981 to declare the debt of Jack A. Willet, former spouse, to be non-dischargeable, upon the answer of defendant, filed October 30, 1981 as therein alleged; upon the testimony, evidence, and the law:
The decree of divorce entered by the Hamilton County Common Pleas Court on January 12, 1981 provides in paragraph 15 the following:
“that as and for maintenance and support for Plaintiff and the minor child of the parties, that Defendant shall pay and hold Plaintiff harmless as to the following outstanding obligations.”
Seven debts are listed. Further, paragraph 16 provides:
“that Plaintiff shall pay and hold Husband [debtor herein] harmless...”
Six debts are listed therein. Paragraph 11 obligates defendant to pay attorney fees of $350.00 incurred in the divorce proceeding. Alimony is not provided for in the decree.
*78Plaintiff seeks a determination of non-dischargeability of the debts in question herein. Both parties agree as to the non-dischargeability of child support payments as they accrue and the current arrearage in the amount of $592.00 owed by the defendant.
An obligation to hold an ex-wife harmless as to certain debts is non-dis-chargeable to the extent that such obligation is actually in the nature of alimony or support. See, Matter of Sturgell, 7 B.R. 59, (Bkrtcy.S.D.Ohio, 1980). Generally, an ex-wife is relieved from paying the marital debts to provide her with greater economic security or maintenance.
The wording of the divorce decree “for maintenance and support,” and the fact that alimony is not provided for in the decree evidences the intention that the obligation be one in the nature of alimony or support.
However, on only one debt in question, Master Charge, are the parties jointly liable. A judgment in the amount of $800.00 was taken against plaintiff herein by the First National Bank for the above debt pursuant to an agreed entry between the parties. A discharge of this debt would derogate further from plaintiff’s maintenance and therefore is non-dischargeable. To the extent that the remaining debts in paragraph 15 of the decree are not joint obligations of the parties, or those which involve security held by the plaintiff, they are determined to be dischargeable.
As to the attorney issue, the Court views the award of fees against the ex-husband (debtor herein) to be in the nature of alimony, maintenance and support, and therefore non-dischargeable. See, In Re Diers, 7 B.R. 18 (Bkrtcy.S.D.Ohio, 1980); In Re Hauger, Bankruptcy No. 1-80-2487 (S.D.Ohio, 1981).
Hence, the Master Charge debt in the amount of $800.00, to the extent that plaintiff is forced to pay it, plus the $350.00 debt for legal fees, and the $592.00 owed for child support presently, and as it continues to accrue are determined to be non-dis-chargeable.
IT IS SO ORDERED. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489163/ | *89MEMORANDUM OPINION
EMIL F. GOLDHABER, Bankruptcy Judge:
The issue before the court is whether we should permit the taking of discovery by the intervenor in these proceedings. We conclude that, inasmuch as our order permitting intervention (and the District Court’s affirmation of that order) was based on the understanding that discovery would not be necessary, such discovery will not be permitted.
The history of this ease is briefly:1 On April 10, 1979, Devault Manufacturing Co. (“Devault”) filed a petition for an arrangement under chapter XI of the Bankruptcy Act (“the Act”).2 On June 15, 1979, Jefferson Bank (“the bank”) filed a complaint in reclamation against Devault in which it alleged that it held a valid security interest in certain equipment of Devault. In its answer, Devault asserted that the creation of the bank’s security interest was a voidable preference pursuant to § 60 of the Act. The matter was submitted to us on the basis of a stipulation of facts and, on March 28,1980, we held that the bank was entitled to reclaim the equipment because that stipulation contained no evidence of two elements necessary to a finding of a voidable preference: (1) Devault’s insolvency at the time of the creation of the bank’s security interest and (2) the bank’s knowledge of that insolvency. Shortly thereafter, the creditors’ committee filed a motion to intervene in the reclamation action for the purpose of offering additional evidence on those two points. In an opinion and order dated June 5, 1980, we granted the committee’s motion. That order was affirmed by Judge Louis C. Bechtle of the United States District Court for the Eastern District of Pennsylvania on July 31, 1981, 14 B.R. 536. Thereafter, the creditors’ committee filed interrogatories and requests for production of documents. When the bank filed a motion to strike those requests, the committee filed an answer to the motion to strike and a motion to compel discovery. After consideration of those motions and the briefs submitted in support thereof, we conclude that the bank’s motion to strike should be granted.
At the time when we granted the committee’s motion to intervene, we understood the committee’s'request to be based on the fact that it had available evidence relevant to Devault’s insolvency and the bank’s knowledge of that insolvency. In fact, our finding that the committee’s interests had not been adequately represented by De-vault’s counsel was based on the representation of the committee that Devault had had that evidence available before this case was decided, but that its counsel had failed to offer it into evidence or to have it made a part of the stipulation of facts.
Furthermore, Judge Bechtle was also apparently under the impression that, by its motion to intervene, the committee only sought the opportunity to introduce a limited range of evidence which was already available to it. This is evident from Judge Bechtle’s opinion wherein he found that the committee’s motion to intervene was timely because
. . . the existing parties to the litigation will suffer little, if any, prejudice as a result of the intervention of the Creditors’ Committee. The Creditors’ Committee seeks to intervene solely to introduce a limited range of evidence not presented heretofore. No discovery or other pretrial procedures are to be invoked which might further postpone resolution of Jefferson’s claim, nor does the Creditors’ Committee propose to introduce evidence repetitive of that which has already been introduced by stipulation.
In light of the above, we conclude that the creditors’ committee was permitted to *90intervene in this reclamation action only within the limited scope of introducing the evidence it had on the issues of Devault’s insolvency and the bank’s knowledge of that insolvency at the time of the creation of the bank’s security interest. Therefore, we conclude that the committee is not entitled to the discovery which it seeks, and we will grant the bank’s motion to strike.
For the same reasons, the motion of the creditors’ committee to compel the bank to respond to the committee’s first request for production of documents and the first set of interrogatories will be denied.
. This opinion constitutes the findings of fact and conclusions of law required by Rule 752 of the Rules of Bankruptcy Procedure.
. Although the Bankruptcy Act has been superseded by the Bankruptcy Code as of October 1, 1979, the provisions of the Act still govern petitions filed before that date. The Bankruptcy Reform Act of 1978, Pub.L.No.95-598, § 403, 92 Stat. 2683 (1978). | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8491324/ | MEMORANDUM OPINION
ARTHUR B. BRISKMAN, Bankruptcy Judge:
This matter came on for hearing on the Motion of the Debtor-defendant, Adam Jackson Whitley III, for Summary Judgment and Cross-motion of the Plaintiff, Tommy Cain, for Summary Judgment. After due deliberation on all testimony, pleadings, arguments and briefs subsequently filed, this Court concludes and orders as follows:
FINDINGS OF FACT
The Debtor, Adam Jackson Whitley III, filed a Chapter 7 petition in this Court on February 28, 1989. Prior to this filing, the Plaintiff, Tommy Cain, brought a complaint against the Debtor and others in the Circuit Court of Mobile County (“State Court”). The complaint arose from a dispute between the Plaintiff and the Debtor over a franchise agreement on a cruise ship. In the complaint, the Plaintiff charged the Debtor with three counts: Count I for conversion of $5,000.00; Count II for fraud, seeking $100,000.00 for compensatory and punitive damages; and Count III for breach of contract, seeking $5,000.00 for damages.
After the jury trial, the State Court entered a general verdict in favor of the Plaintiff for $100,000.00 on April 12, 1989. The Defendant filed a motion for new trial and remittitur, which the State Court denied, finding the jury verdict of $100,000.00 appropriate under the circumstances. This Court finds the general verdict to be based on the second count of the Plaintiff’s complaint for fraud, defined as willful or reckless misrepresentations of material fact made for the purpose of deceiving another. Code of Alabama, § 6-5-101 (1975).
On May 18, 1990, the Plaintiff filed a complaint with this Court to determine the dischargeability of the State Court’s judgment under 11 U.S.C. § 523(a)(2)(A). The *107Defendant filed a motion for summary judgment. The Plaintiff filed a cross-motion for summary judgment based on the State Court’s order.
CONCLUSIONS OF LAW
Section 523(a)(2)(A) prohibits discharge of a debt for money obtained by “false pretense, a false misrepresentation, or actual fraud....” In determining the dischargeability of such a debt, a bankruptcy court may apply collateral estoppel to avoid relitigating certain issues. In re Halpern, 810 F.2d 1061 (11th Cir.1987). The issue before this Court is whether collateral estoppel bars relitigation of certain issues in a dischargeability proceeding where the state court’s general verdict in favor of the Plaintiff is silent as to the legal grounds for the verdict.
Collateral estoppel bars relitigation of an issue only if three elements are met: 1) the issue at stake must be identical to the one involved in the prior litigation; 2) the issue must have been actually litigated in the prior proceeding; and 3) the determination of the issue in the prior litigation must have been critical and necessary to the judgment in the earlier action. In re Held, 734 F.2d 628, 629 (11th Cir.1984). In a dischargeability proceeding, collateral estoppel does not apply to the issue of dischargeability; rather, collateral estoppel resolves factual issues that would be evidence of dischargeability. Halpem, 810 F.2d at 1064. The bankruptcy court must “look to the entire record of the state proceeding, not just the judgment ...” to establish the factual issues decided by the state court. Balbirer v. Austin, 790 F.2d 1524, 1528 (11th Cir.1986), quoting Matter of Ross, 602 F.2d 604, 608 (3d Cir.1979). Both parties agree the elements of collateral estoppel were met by the State Court proceedings. However, the Debtor asserts that the State Court judgment of $100,000.00 is not based on actual fraud, as required by § 523(a)(2)(A), because the verdict was general and does not refer to the fraud count, therefore, the debt created by the judgment is dischargeable.
This Court looks to the records of the State Court and the briefs submitted by the parties to determine the suitability of applying the doctrine of collateral estoppel. The Plaintiff’s state court complaint contained a count of fraud requesting compensatory and punitive damages of $100,-000.00. The two remaining counts for conversion and breach of contract each demanded $5,000.00 in damages. The Debtor himself put the propriety of the jury’s award in question with his motion for re-mittitur and new trial. After reviewing the facts of the case, the State Court denied the Debtor’s motion and found the verdict to be supported by the evidence. Looking to the Plaintiff’s state court complaint, the only grounds for the jury’s verdict of $100,-000.00 is the second count for compensatory and punitive damages for fraud under § 6-5-101 of the Code of Alabama (1975).
Section 6-5-101 defines fraud as “misrepresentations of material fact made willfully to deceive, or recklessly without knowledge, and acted on by the opposite party_” Code of Alabama (1975). The State Court’s verdict under § 6-5-101 bars this Court from relitigating factual issues of fraud in this dischargeability proceeding under the doctrine of collateral estoppel. Halpern, 810 F.2d 1061 (11th Cir.1987). To find a debt non-dischargeable for actual fraud under § 523(a)(2)(A), the creditor must show: the debtor made a false representation with the purpose and intention of deceiving the creditor; the creditor reasonably relied on the representation; and the creditor sustained a loss as a result of the representation. In re Hunter, 780 F.2d 1577, 1579 (11th Cir.1986). Having found the State Court’s judgment to be based on factual findings of fraud for willful or reckless misrepresentation of material fact, this Court accepts the factual findings of fraud of the State Court verdict and finds the elements of § 523(a)(2)(A) to be met and the debt to be non-dischargeable.
Based on the foregoing, the Plaintiff’s cross-motion for summary judgment to declare the State Court judgment non-dis-chargeable is due to be granted, and the *108Debtor’s motion for summary judgment is due to be denied. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8491327/ | MEMORANDUM OF DECISION
JAMES H. WILLIAMS, Chief Judge.
This matter came before the court on the objection of the debtor, Mansfield Ferrous Castings, Inc. (Mansfield) to (1) the allowance of a claim by Bank One, Mansfield, N.A. as Trustee of the Mansfield Employee Stock Ownership Plan and Trust (ESOP Trustee) in the amount of $574,573.47 (ESOP Claim); and (2) the allowance of 94 claims filed by former employees of Mansfield (Employees), each in the amount of $4,000.00, plus 12% interest, as evidenced by a promissory note from the ESOP Trustee to each individual Employee (Employee Claims).
A consolidated hearing was held on December 19, 1990 at which the parties sub*244mitted testimony and various exhibits. The court instituted a briefing schedule and the parties’ briefs were timely filed. The court will refer to the previously submitted exhibits as Mansfield Exhibits 1-12 and Trustee Exhibits A-E.
The court has jurisdiction in this matter by virtue of 28 U.S.C. § 1334(b) and General Order No. 84 entered in this district on July 16, 1984. This is a core proceeding under 28 U.S.C. § 157(b)(2)(B). This Memorandum of Decision constitutes the court’s findings of fact and conclusions of law pursuant to Bankruptcy Rule 7052.
FACTS
Mansfield was formed as an Ohio corporation in October, 1984 for the purpose of acquiring the assets and continuing the operations of Ohio Brass Company. Seven hundred fifty (750) shares of no-par stock were authorized. In a memorandum dated November 15, 1984 to all employees (Mansfield Exhibit 4), Mansfield advised that it would be “owned solely by its employees” through an employee stock ownership plan (ESOP). (Mansfield Exhibit 4, p. 1) The ESOP would borrow funds to purchase Mansfield stock which, in turn, would be allocated equally to a separate account maintained by the ESOP for each eligible employee. A total of 4.58 million dollars was borrowed from the following sources: (1) 3.08 million dollars in cash made up by the following: (a) A 1.5 million dollar loan from a bank group; (b) a 1 million dollar credit line; and (c) $558,000.00 in employee loans.1 (2) 1.5 million dollars from the Ohio Brass Company.
As part of the formation of Mansfield and its ESOP, Mansfield and the ESOP Trustee executed an Employee Stock Ownership Plan and Trust Agreement (ESOP Trust Agreement) dated November 15, 1984. (Mansfield Exhibit 8) The purpose of the ESOP was to “enabl[e] eligible Employees of the Company to accumulate capital ownership in the Company.” (Mansfield Exhibit 8, para. 3) Mansfield was to make an annual contribution “of sufficient amount for the repayment by the Trust of indebtedness (including principal and interest) incurred from time to time for the purpose of the acquisition of Company stock.” (Mansfield Exhibit 8, para. 5A) However, the ESOP Trustee was under no duty to enforce the payment of contributions, and Mansfield had the sole authority to determine contributions made. (Mansfield Exhibit 8, para. 5A) In addition, Mansfield had the right to terminate contributions if “circumstances not now foreseen or ... beyond its control make it either impossible or inadvisable to continue to make its contributions.” (Mansfield Exhibit 8, para. 25) Even if no contributions were made, the ESOP could continue, although the board of directors had the option of terminating the ESOP by formal resolution. (Mansfield Exhibit 8, para. 26)
The funds, including the Employee contributions, were paid over by the ESOP Trustee to Mansfield and used in the business, which commenced December 3, 1984. On December 7, 1984, a shareholder certificate was issued to the ESOP certifying it as the registered holder of 500 shares of Mansfield stock. (Mansfield Exhibit 7) Those shares were pledged as collateral for the loans from the bank group and Ohio Brass. As the loans were repaid, the shares would correspondingly be released from encumbrance and allocated equally by the ESOP to the Employee accounts. (Mansfield Exhibit 4, p. 4)
Interest on the Employee loans was paid through August 31, 1987. No principal payments were made and all payments ceased after that date. Mansfield filed its voluntary petition for relief under Chapter 11 of the Bankruptcy Code on October 26, 1987. The ESOP Trustee was listed as a creditor in Mansfield’s bankruptcy schedules. Ninety-four Employees filed proofs of claim, and all Employee Claims were included in the proof of claim filed by the ESOP Trustee on April 28, 1988. (Trustee Exhibit F)
*245DISCUSSION
The court must decide three questions with regard to both the ESOP Claim and the Employee Claims. They are:
1. Is the claim one of a creditor for a debt, or one of an equity security holder for an interest?
2. Are the claims, or any of them, dupli-cative?
3. Is the claim allowable as either a claim of debt or of interest?
Analysis should begin with a review of the Bankruptcy Code definitions of debt and equity claims. A “claim” may be either a right to payment or a right to an equitable remedy for breach of performance which gives rise to a right to payment, “whether or not such right ... is reduced to judgment, fixed, contingent, matured, unmatured, disputed, undisputed, secured, or unsecured.” 11 U.S.C. § 101(4) “Debt” is a liability on a claim. 11 U.S.C. § 101(11) A “creditor” is an entity which has a claim against the debtor or the debtor’s estate. 11 U.S.C. § 101(9) “Equity security” is a share in a corporation or similar security, which need not be transferable or denominated as “stock.” 11 U.S.C. § 101(15) Finally, an “equity security holder” has its plain meaning, a holder of the debtor’s equity security. 11 U.S.C. § 101(16) Mansfield has based its objection to the claims on 11 U.S.C. § 502(b)(1), i.e., that the claims are unenforceable against the debtor and its property under any agreement or applicable law.
1.
The Employee Claims
There is little attention given to the Employee Claims in the ESOP Trustee’s brief, other than a bare statement that the Employee Claims arise from their status as third party beneficiaries to the allegedly breached ESOP Trust Agreement.2 Despite this apparent near-concession to disal-lowance, the court notes several other reasons why the Employees cannot bring individual claims against Mansfield. The notes given to the Employees, as exemplified by Mansfield Exhibit 12 and Trustee Exhibit A do not evidence any sort of debt or obligation owed by Mansfield to the Employees. Rather, the obligation of repayment is owed by the ESOP itself, a trust created under Ohio law separate and distinct from Mansfield. The Employees’ only recourse in the event of default is against the trust contributions, the collateral, and any attributable earnings. Mansfield owed no obligation to the Employees, but only to the ESOP, according to the terms of the ESOP Trust Agreement, and only the Trustee had the power to bring a claim on behalf of the ESOP. (Mansfield Exhibit 8, para. 18(e))
Consequently, the Employees cannot to be said to have a claim against Mansfield or its estate, in that any right to payment flowed from the Trust by virtue of the notes. They were not owed a debt by Mansfield, nor were they equity security holders because the shares were held and owned by the Trust. The Employees have shown no basis for their claims, as defined by the Code, and the Employee Claims must therefore be disallowed.
2.
The ESOP Claim
The Trustee bases its ESOP Claim, as a creditor of Mansfield, on Mansfield’s alleged breach of the ESOP Trust Agreement due to Mansfield’s failure to pay contributions into the Trust. The Trustee characterizes the ESOP’s standing as a party to a contract, not a shareholder. What the Trustee fails to address is that the ESOP Trust Agreement does not require Mansfield to make contributions to the ESOP. The ESOP Trust Agreement itself provides, in paragraph 25, that Mansfield has the right to terminate its contributions if circumstances warrant. The final distribution was made less than two months prior to the Chapter 11 filing. It is not difficult to discern that the prospect of insolvency is such a circumstance that would cause Mansfield to stop contributing to the ESOP, particularly in light of the fact that further contributions would have been prohibited under Ohio law, as dis-*246cussed subsequently. The Trustee cannot claim a breach of the ESOP Trust Agreement when Mansfield was legitimately exercising its rights thereunder.
It is undisputed that the ESOP was a holder of 500 shares of Mansfield stock. (Mansfield Exhibit 7) Ohio law recognizes the distinction between a creditor and a shareholder, and an entity “is either a stockholder or a creditor; he cannot, by virtue of the same certificate, be both.” Miller v. Ratterman, 47 Ohio St. 141, 154, 24 N.E. 496 (1890) The Bankruptcy Code also differentiates between creditors and equity security holders, both in its definitional and treatment provisions. See, e.g., 11 U.S.C. §§ 101(9), 101(16), 501(a). The Trustee even refers to itself in its brief as a “shareholder.” (Trustee Brief, pp. 4-5) The fact remains that the ESOP purchased and owned the shares of stock, and based on that purchase and ownership, the Trustee was granted the right under the ESOP Trust Agreement to receive contributions. The ESOP Claim must therefore be classified as a claim of an equity security holder.
The final issue is whether the ESOP Claim should be allowed as a claim of an equity security holder. Mansfield, in its brief, posits that the contributions to the ESOP are either dividends or distributions to its shareholder, or akin to a repurchase of the shares by virtue of freeing them from encumbrance so the Employees can receive the benefit. Because the ESOP Trust Agreement provides for payment of dividends, as well as contributions, it is unlikely that the contributions were intended as “dividends.” (Mansfield Exhibit 8, para. 11) However, under Ohio law, a corporation may also make “distributions” to shareholders in cash, property or shares. O.R.C. § 1701.33(A) (Page 1985). The majority shareholder may not compel a distribution; indeed, a distribution when the corporation is insolvent, or would be rendered insolvent by such payment, is prohibited. O.R.C. § 1701.33(C) (Page 1985); Cf. U.S. v. Byrum, 408 U.S. 125, 92 S.Ct. 2382, 33 L.Ed.2d 238 (1972) (under Ohio law the power to declare dividends rests solely in a corporation’s board of directors). The contribution process as described in the ESOP Trust Agreement is analogous to this statutory scheme. For example, contributions may be made in cash, property or shares. Mansfield, through its board of directors, could determine the amount of contribution, but could not be compelled by the Trustee to make such payment. (Mansfield Exhibit 8, para. 5)
Similarly, although in a somewhat more attenuated context, the contributions could be viewed as a “repurchase” of the shares by Mansfield, as the payment allows the shares to be freed from encumbrance and accrue to the benefit of the ESOP participants. A repurchase is permitted for the purpose of offering and sale to a corporation’s employees, pursuant to a plan adopted for such purpose. O.R.C. § 1701.-35(A)(4) (Page 1985) However, the court need not decide whether the contributions are distributions or repurchases, for the result is the same in either case. The last contribution was made in August, 1987. John Pollock, Mansfield’s president, testified that the company was in financial trouble in May, 1987, and it is undisputed that Mansfield was insolvent in October, 1987 when it filed its bankruptcy petition. Both distributions to shareholders and share repurchases are prohibited under Ohio law when a corporation is or would thereby be rendered insolvent. O.R.C. §§ 1701.33(C), 1701.35(B) (Page 1985) The Trustee has offered little rebuttal to Mansfield’s argument that the insolvency renders the ESOP Claim unenforceable under Ohio law, save for the arguments that the court has disposed of, and the statement that the contributions are an employee benefit rather than a dividend or purchase of shares.
In summation, the Employee Claims are disallowed because they do not qualify as creditors or equity security holders under 11 U.S.C. §§ 101(9), 101(16) and 501(a). The ESOP Claim is a claim of an equity security holder, but it is disallowed pursuant to 11 U.S.C. § 502(b)(1) because it is unenforceable under Ohio law.
. $4,000.00 from each of 139 employees, plus $2,800.00 from two additional employees. The remainder of the ESOP claim consists of accrued interest at 12%.
. While the Employees’ Committee is represented by counsel, it filed but a short memorandum joining the Trustee’s brief and urging allowance of the ESOP Claim. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489164/ | MEMORANDUM DECISION
FREDERICK A. JOHNSON, Bankruptcy Judge.
In this proceeding the Trustee seeks to recover an alleged preferential transfer from a foreign (Massachusetts) corporation. The transfer involved a payment by the Debtor to the Defendant in the amount of $1,583.71.
Service was made and proved pursuant to Bankruptcy Rule 704(c)(3) and 704(g).1
In response to the Trustee’s complaint the Defendant filed a motion to dismiss alleging lack of personal jurisdiction, improper venue, insufficiency of process, insufficiency of service of process and, for good measure, failure to state a claim.2
The thrust of the Defendant’s argument is that the requirements of Maine’s “long-arm” statute, 14 M.R.S.A. § 704-A, which requires “significant minimal contacts” with the State of Maine have not been met.
The Defendant misconceives the jurisdiction, venue, and process bases of this proceeding.
Jurisdiction is founded upon 28 U.S.C. § 1471(b) and (c), which grants to the Bankruptcy Courts both subject matter and personal jurisdiction over all civil proceedings arising out of a Title 11 case or arising in or related to a Title 11 case. See 1 Collier ¶ 3.01[c] (15th Ed.) for a discussion of the legislative history of Section 1471.
Venue is founded upon 28 U.S.C. § 1473(a) which provides that a trustee may commence a proceeding such as this in the Bankruptcy Court in which the case is pending.3 See 1 Collier ¶ 3.02[d] (15th Ed.) for a discussion of the legislative history of Section 1473.
Service of process in this proceeding is controlled by Bankruptcy Rule 704(f)(1).4 The Maine “long-arm” statute has no application. The Bankruptcy Rule provides that the summons, complaint, and notice of trial or pretrial may be served “anywhere within the United States.” See 13 Collier ¶ 704.09 [14th Ed.] for a discussion of Rule 704(f). This Court will take judicial notice of the geographical fact that Massachusetts is within the United States.
The Defendant’s Section 12(b)(6) argument (failure to state a claim) was not pressed in its Memo. Such argument is without merit in any event; the Trustee’s complaint clearly alleges facts which, if proved, admitted and not avoided, establish a voidable preference within the meaning and intent of Section 547 of the Code. 11 U.S.C. § 547.
The Defendant’s Motion to Dismiss must be DENIED. An appropriate order will be entered.
. Subsections (c) and (g) of Bankruptcy Rule 704 are not inconsistent with the Bankruptcy Code. See P.L. 95-598 Sec. 405(d).
. See Rule 12(b)(2)(3)(4)(5) and (6) F.R.C.P. and Bankruptcy Rule 712(b).
. Subsections (b) and (d) of Section 1473 contain exceptions which do not apply here.
. See n. 1 supra. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489165/ | OPINION
WILLIAM A. KING, Jr., Bankruptcy Judge:
The issue at bench is whether the debtors may avoid a judicial lien to the extent it impairs the exemption claimed in their real estate pursuant to § 522(f)(1) of the Bankruptcy Code (“the Code”) where that lien is based on a loan made by the creditor to enable the debtors to purchase that real estate. We conclude that § 522(f)(1) permits the debtors to avoid any judicial lien which impairs their exemptions, whether it is a purchase money lien or not, and, therefore, the debtors may avoid the lien in question.
*146The parties have stipulated to the facts which are as follows:1 In September, 1979, Thomas Keating and Carol A. Mignogna (“the debtors”) purchased property located at 1549 Daws Road, Norristown, Pennsylvania. In order to complete settlement on that property, the debtors borrowed $10,-000.00 from Central Montgomery Abstract Company (“Central Montgomery”) which money was used as a down payment on that property. To secure that loan, the debtors signed a judgment note which was subsequently recorded by Central Montgomery. On June 25, 1981, the debtors each filed a petition for relief under chapter 7 of the Code and their cases were consolidated. In their petitions, the debtors each chose the federal exemptions and thus each claimed $7,900.00 in the above real property under § 522(d)(1) and (5), for a combined exemption of $15,800.00 in that property.
On July 30, 1981, the debtors filed the instant complaint to avoid the judgment lien of Central Montgomery to the extent it impaired their exemptions in that property. At the time of the filing for relief by the debtors, the fair market value of the property was $65,000.00, the balance due on the mortgage was $45,000.00 and the total debt due to Central Montgomery was $10,991.00. As a result, the debtors asked that the lien of Central Montgomery be avoided to the extent it impairs their exemptions ($6,791.00) thus reducing the lien to $4,200.00.
While Central Montgomery did not dispute the debtors’ figures, it asserted that its lien should not be avoided to any extent (1) because its lien is a purchase money lien and should not be avoidable under § 522(f)(1) just as purchase money security interests in certain personal propérty are not avoidable under § 522(f)(2) and (2) because the money loaned by Central Montgomery to the debtors was used to purchase the real estate in question and, thus, its lien should be treated as a mortgage rather than as a judicial lien.
We find Central Montgomery’s assertions to be without merit. First, § 522(f)(1) permits a debtor to avoid any judicial lien which impairs an exemption. While § 522(f)(2) makes a distinction between purchase money security interests and non-purchase money security interests, § 522(f)(1) does not.2 Furthermore, the definition of a judicial lien given by the Code makes no such distinction either.3 Therefore, given the clear language of the Code, we conclude that there is no merit to Central Montgomery’s assertion that its judicial lien is not avoidable under § 522(f)(1) simply because it is a purchase money judicial lien.
Second, Central Montgomery’s contention that, because its lien is a purchase money one, its judicial lien should be treated as a mortgage is also without merit. In the instant case the only document executed by the parties was a judgment note. A mortgage and a judgment note are two distinct instruments, with different rights and duties arising therefrom. In this case, the parties chose a judgment note; had they intended to create a mortgage lien, they could have easily done so. We will not, therefore, change the bargain which *147the parties have made for themselves. See, e.g., Mellon Bank N. A. v. Aetna Business Credit, Inc., 619 F.2d 1001 (3d Cir. 1980); Brokers Title Co., Inc. v. St. Paul Fire & Marine Ins. Co., 610 F.2d 1174 (3d Cir. 1979); Transamerica Ins. Co. v. McKeesport Housing Authority, 309 F.Supp. 1321 (W.D.Pa.1970).4
Therefore, because we find that the lien of Central Montgomery is a judicial lien which impairs the debtors’ exemptions to the extent of $6,791.00, we conclude that that lien is avoidable to that extent pursuant to § 522(f)(1).
. This opinion constitutes the findings of fact and conclusions of law required by Rule 752 of the Rules of Bankruptcy Procedure.
. Section 522(f) states in full:
(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—
(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.
.See 11 U.S.C. § 101(27).
. We note that in this case the creditor, Central Montgomery, is a title insurance company and, as such, is certainly a sophisticated lender which knows the difference between a judicial lien and a mortgage and would have used the latter instrument had that been what the parties intended. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489166/ | ORDER OF DISMISSAL AND ORDER SUSTAINING OBJECTION TO CLAIM
ALEXANDER L. PASKAY, Bankruptcy Judge.
This is a pre-Code arrangement proceeding and the matter under consideration is *199the asserted right of the plaintiff, Brown & Williamson Tobacco Corporation (“Brown & Williamson”) to reclaim goods from defendant The Eli Witt Company (“Eli Witt”), the debtor. The matter is presented by a motion to dismiss filed by Eli Witt which seeks a dismissal of all six counts of the complaint of Brown & Williamson. Eli Witt also filed a motion to strike the prayer for interest contained in Brown & Williamson’s complaint. Also under consideration is Debtor’s Objection to that portion of the Claim of BROWN & WILLIAMSON, as amended, asserting a priority and secured status to the extent of one million, two hundred twenty-seven thousand, four hundred twenty-six and 73/100 dollars ($1,227,426.73) of the total indebtedness claimed due BROWN & WILLIAMSON from ELI WITT, that being one million, nine hundred eighty-seven thousand, one hundred forty-two and 06/100 dollars ($1,987,142.06). Debtor consents to the allowance of the claim in the amount of one million, nine hundred eighty-seven thousand, one hundred forty-two and 06/100 dollars ($1,987,142.06) as a general unsecured claim.
The claim set forth in Count I of the complaint of Brown & Williamson is based upon section 2-702 of the Uniform Commercial Code. In support of this claim, Brown & Williamson alleges that it sold to Eli Witt, on credit, certain goods in the amount of $1,227,426.73 within ten (10) days prior to the filing of Eli Witt’s Chapter XI proceeding herein; that at the time of the sale, Eli Witt was insolvent; that Brown & Williamson made a timely written demand upon Eli Witt at its corporate headquarters in Tampa, Florida, for the return of the goods; and that Brown & Williamson is entitled to reclaim the goods pursuant to the provisions of UCC § 2-702.
The claim set forth in Count II asserts that Eli Witt as debtor-in-possession in this proceeding sold a substantial portion of the goods; that Brown & Williamson had a property interest in the goods at the time of such sales; that such sales constituted conversion by the debtor of that property interest; and that as a result, Brown & Williamson is entitled to a priority claim as a cost of administration under § 64(a) of the Bankruptcy Act.
In Count III, Brown & Williamson asserts ■ that the sales by Eli Witt as alleged constitute a willful and malicious conversion of property of Brown & Williamson, giving rise to a nondischargeable debt pursuant to § 17(a) of the Bankruptcy Act.
In Count IV, Brown & Williamson asserts that the receipt by Eli Witt of the goods as alleged was by means of false pretenses or false representations, consisting of “implied-in-fact representations to plaintiff that defendant had the ability to pay its debts as they became due”, and that such false pretenses or false representations also consisted of “implied-in-fact representations to plaintiff that the total value of defendant’s assets then exceeded the total of defendant’s indebtedness.” By virtue of these alleged false pretenses or false representations, Brown & Williamson contends that Eli Witt’s debt to it is nondischargeable pursuant to § 17(a) of the Bankruptcy Act.
In Count V, Brown & Williamson asserts that it is entitled to a lien on all identifiable proceeds from the sale of the goods, and in Count VI, asserts that Eli Witt holds such proceeds as constructive trustee for the benefit of Brown & Williamson.
The complaint is attacked by Eli Witt, which seeks a dismissal of all six counts. The motion to dismiss is based upon the contention that none of the counts sets forth a cognizable claim upon which relief can be granted.
This is the fourth adversary proceeding brought within this Chapter XI case in which this court is called upon to consider claims of suppliers for reclamation of goods from this debtor. Although some different allegations are advanced here by Brown & Williamson, the court concludes that Eli Witt is correct and that this proceeding is not substantively different from the companion adversary proceedings styled North American Philips Corp. v. The Eli Witt Company, No. 79-896-Bky-T (M.D.Fla., Sept. 9, 1979), Philip Morris, Inc. v. The Eli Witt Company, 2 B.R. 492 (Bkrtcy.M.D.Fla.1980) and R. J. Reynolds Tobacco Company v. The Eli Witt Company, Case No. 79-896-Bky-T (M.D.Fla., Aug. 21, 1981). In all of these cases, this court held that the right of a seller of goods to reclaim property based on § 2-702 of the Uniform Commercial Code, adopted in the State of Florida as. Florida Statutes § 672.702, cannot be asserted against a debtor-in-possession. *200Without repeating all of the reasons stated in these three opinions, each of which is adopted and incorporated here by reference, this court is satisfied that the case of In re Samuels, 526 F.2d 1238 (5th Cir. en banc 1976), cert. denied 429 U.S. 834, 97 S.Ct. 98, 50 L.Ed.2d 99 (1976) is controlling and that the reclamation right of Brown & Williamson is subordinate to the rights of Eli Witt. The Fifth Circuit opinion in the Samuels case relies principally upon the fact that the judgment lien creditor status referred to in UCC § 2-702, which is accorded to a trustee in bankruptcy by virtue of § 70c of the Bankruptcy Act, is equally accorded to a debtor in a Chapter XI proceeding by virtue of § 341 of the Bankruptcy Act. This court is clearly bound by the Samuels decision. Bonner v. City of Prichard, 661 F.2d 1206 (11th Cir., 1981). In addition, and in response to the specific request by counsel for Brown & Williamson that the court address these matters, the court concludes as alternative bases for its holding that the asserted reclamation rights must also fail as invalid statutory liens, under § 67(c) of the Bankruptcy Act, as disguised state-created priorities which are in conflict with § 64 of the Bankruptcy Act, and as rights in the nature of an equitable lien which, under § 60(a)(6) of the Bankruptcy Act, may not be recognized because Brown & Williamson here failed to use an available means of perfecting a legal lien through a purchase money security interest perfected under Article 9 of the UCC. For all of these reasons, as set forth herein and in the opinions entered by the court in the companion cases, Brown & Williamson’s first count must be dismissed with prejudice.
Brown & Williamson’s second count seeks a declaration that the sales of goods by Eli Witt constituted conversion giving rise to a first priority claim under § 64(a) of the Bankruptcy Act. As a procedural matter, the court concludes that no such cause of action may properly be brought as an adversary proceeding under Bankruptcy Rule 701. Accordingly, this issue shall be considered within the context of ELI WITT’s Objection to BROWN & WILLIAMSON’S claim as amended, filed herein, which claim asserts a priority and secured status. At the hearing held on Eli Witt’s motion to dismiss, Brown & Williamson’s counsel stated that the priority sought to be asserted was as a cost of administration under § 64(a)(1) of the Bankruptcy Act. The court can conceive of no circumstance under which the sale of goods on credit prior to the filing of a bankruptcy petition could give rise to such a claim as a cost of administration. The sales by Brown & Williamson to Eli Witt occurred pre-petition. Had the sales been post-petition, of course, a claim for an administrative priority might be appropriate. Brown & Williamson’s assertion that an administrative priority is available here, however, can only be based upon what the court concludes is an incorrect belief that pre-UCC concepts of voidable title in the sale of that the seller completes the performance with regard to the physical delivery goods still exist under the Uniform Commercial Code. Section 2-402(2) of the Uniform Commercial Code provides to the contrary that, unless otherwise specifically agreed, title to goods passes to the buyer at the time and place of the goods. Thus, it is clear that upon delivery of the goods by Brown & Williamson, title passed to Eli Witt. Since conversion must be an intentional deprivation of or interference with the dominion and control over the property of another, the claim of conversion asserted simply cannot be recognized because the goods in question were no longer the property of Brown & Williamson. Concepts of voidable title in the sale of goods have been legislatively abolished by UCC § 2-401(2). This result must also obtain under the mandate of the Samuels case holding that there is no right to go after proceeds of goods whose reclamation is sought. In essence, Brown & Williamson’s assertion that it is entitled to a priority claim for the post-petition sale of goods delivered to it pre-petition on a conversion theory is nothing more than an effort to recover proceeds from the sale of goods, and to achieve indirectly that which is prohibited by the Fifth Circuit in the Samuels case. The second count of Brown & Williamson’s complaint must be dismissed with prejudice, and Eli Witt’s objection to the priority and secured status claimed by Brown & Williamson must be sustained.
The third count of the complaint asserts that Eli Witt’s post-petition sales of the goods delivered to it pre-petition constituted willful and malicious conversion of Brown & Williamson’s property, giving rise to a nondischargeable debt. As stated above, the court does not believe that the *201facts set forth in the complaint are sufficient to state a claim for conversion, a requisite of any cause of action for nondis-ehargeability by virtue of willful and malicious conversion. However, it is conceivable that some facts could be alleged which would state a claim for nondischargeability, and so the court will dismiss the third count, with leave to amend.
The fourth count asserts that goods were received through false pretenses or false representations, giving rise to a non-dischargeable debt under § 17(a) of the Bankruptcy Act. Under the case of Davison-Paxon Co. v. Caldwell, 115 F.2d 189 (5th Cir. 1940), such a cause of action requires allegation and proof of acts of moral turpitude or intentional wrong, none of which have been alleged here. The motion to dismiss must therefore be granted. However, it is conceivable that such facts could be alleged, and so the dismissal will be with leave to amend.
The fifth and sixth counts seek to recover proceeds from the disposition of the goods, under a lien or constructive trust theory. As noted above, the Samuels case is absolutely clear in its prohibition on the recovery of proceeds in this context. These two counts must be dismissed with prejudice.
In light of the foregoing disposition of the motion to dismiss and objection to claim, it is unnecessary to consider Eli Witt’s motion to strike the prayer for interest, since all six counts of the complaint are dismissed.
Accordingly, it is
ORDERED, ADJUDGED and DECREED that the motion to dismiss Counts I, II, V and VI of the complaint be, and the same hereby is, granted, and the said counts be, and the same hereby are, dismissed with prejudice. It is further
ORDERED, ADJUDGED and DECREED that the motion to dismiss Counts III and IV of the complaint, be and the same hereby is, granted, and the said counts be, and the same hereby are, dismissed without prejudice, and plaintiff Brown & Williamson Tobacco Corporation be, and the same hereby is, given leave to file an amended complaint as to Counts III and IV within 20 days'from the date of this order, failing which, Counts III and IV shall stand dismissed with prejudice. It is further
ORDERED, ADJUDGED AND DECREED that Debtor’s Objection to Claim is granted, and the claim of BROWN & WILLIAMSON is disallowed to the extend that the claim asserts a priority and secured status. However, the claim is allowed as a general unsecured claim in the amount of $1,987,142.06. A separate Order Amending and Allowing Claim shall be entered in the General Claim file. It is further
ORDERED, ADJUDGED and DECREED that the motion to strike the prayer for interest be, and the same hereby is, denied as moot. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489167/ | ORDER VACATING ORDER DENYING CONFIRMATION AND RESERVING RULING ON CONVERSION
THOMAS C. BRITTON, Bankruptcy Judge.
Confirmation of this debtor’s amended plan (C. P. No. 79) dated February 27, 1981, but filed March 2, was denied on October 5, 1981. (C. P. No. 134) That same order set a hearing on November 3 to consider conversion to chapter 7.
On October 14, the debtor moved for reconsideration of the order denying confirmation. (C. P. No. 139). The motion was heard on November 3.
Confirmation was denied, first, because: “The debtor’s report reflects that there was no acceptance for Classes 3, 4, 5 and 6.
“It has not been urged nor can I find on this record that these four classes are not impaired under the plan.”
*211Indeed, Article II, of the plan identifies only Class 9 as being unimpaired. However, the debtor’s belated motion points out that each of these four classes contain only one creditor and that the rights and remedies of three of these creditors had already been fixed by this court’s orders in separate proceedings in this voluminous case. For Class 3, see the Order of June 23, 1981. (C. P. No. 117). For Class 6, see the Order of October 16,1980. (Adv. No. 80-0252A, C.P. No. 20). For Class 7, see the Order of February 6, 1981. (C. P. No. 69).
The sole creditor in Class 5, by letter dated October 22, 1981, accepted the plan and filed an amended claim to conform to the plan. Although, this acceptance was received over 4 months late, it is apparent that the plan does not impair the rights of this creditor.
The second basis for denial of confirmation was a series of circumstances which “make it impossible for me to find now that this plan is feasible.”
Since that finding, the debtor has finally funded its plan. The debtor has also filed all but one of the required cashflow reports. The creditors’ committee has withdrawn its requests for conversion and the appointment of a trustee.
Under the foregoing circumstances, and recognizing that denial of confirmation would serve only to further weaken the creditors’ prospects of recovery from this debtor, the order of October 5, 1981 (C. P. No. 134) insofar as it denied confirmation is vacated. By a separate order, the debtor’s amended plan is being confirmed. Daniel L. Bakst, attorney for the creditors’ committee is appointed disbursing agent. Bond is waived. The debtor and its attorney are ordered forthwith to transfer to the disbursing agent the funds on deposit for the purpose of funding this plan.
The disbursing agent is authorized to proceed forthwith with distribution and consummation of the plan. In the event that the sums deposited and made available by the debtor in consummation of the plan prove insufficient, the disbursing agent is authorized and directed to withhold payment to the debtor’s co-counsel pro-rata in such amount as is necessary to effect all other immediate distribution called for by the plan, the withheld payments to be collected from the debtor.
The disbursing agent is directed to advise this court at once of any delay or failure on the part of the debtor to comply with the steps necessary to close this case. In this connection, jurisdiction is expressly retained to consider dismissal or conversion. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489168/ | MEMORANDUM DECISION
THOMAS C. BRITTON, Bankruptcy Judge.
A judgment creditor seeks a determination that the transfer on February 27,1980, by the debtor to City National Bank of Miami of real property in Broward County, the Fort Lauderdale Beach Club, was fraudulent. Plaintiff also seeks a determination that as between it and the debtor:
“Plaintiff should be found to have a secured claim against the property...”. (C.P.No. 17).
The debtor has answered. (C.P.No. 18). The matter was tried on December 17.
Plaintiff acknowledges that the conveyance to City National Bank was duly recorded in Broward County before judgment was entered in plaintiff’s favor and against the debtor on April 3, 1980 and before that judgment was recorded in Bro-ward County, April 23,1980. City National Bank is not a party to this adversary proceeding. Under these circumstances, this court cannot and will not undertake any determination whether the conveyance by the debtor to the bank was fraudulent.
Plaintiff’s judgment was entered and recorded before this debtor’s pending bankruptcy proceeding was filed on September *25630, 1980. These two events also occurred after an earlier bankruptcy proceeding involving this same debtor, Case No. 79-1109, had been dismissed on February 29, 1980. Therefore, the automatic stay resulting from the pendency of a bankruptcy proceeding neither prohibited nor nullified the entry of plaintiffs judgment or its subsequent recordation.
The debtor does not dispute its indebtedness to the plaintiff nor does it question the judgment or its recordation. It is the debt- or’s position that when the judgment was recorded, on April 23, 1980, title to the real property in question had already been conveyed of record to City National on February 27, 1980, and that a judgment lien at-tachs only to a legal interest as distinct from an equitable interest. Therefore, the debtor argues, the plaintiff never acquired and does not now have any lien against the Broward property.
It is the plaintiff’s contention that the conveyance to City National was in trust and that the sole beneficiary of that trust is the debtor and that the entire equitable ownership of the property is in the debtor. The debtor concedes this contention. Plaintiff argues further that it filed a creditor’s bill in August, 1980, one month before the present bankruptcy proceeding, and that fact creates a lien on the debtor’s equitable assets.
The recordation of the judgment, in and of itself, could not and did not impress any lien against the real property, the title to which was no longer in the debtor. However, a judgment creditor in Florida may seek in equity any equitable interest, including a trust interest, of his debtor in either land or personal property to which legal title is held by someone else. Little v. Saffer, Fla.1933, 148 So. 573; 13 Fla.Jur.2d, Creditors’ Rights, § 291. Furthermore, the filing of a creditors’ suit with service of process creates a lien on the equitable assets of the debtor. The lien is not dependent on the creditor’s obtaining an injunction or the appointment of a receiver. It at-tachs with the commencement of the equitable action. The lien is valid as against third parties. In re Porter, D.C.Fla.1933, 3 F.Supp. 582; 13 Fla.Jur.2d Creditors’ Rights, § 308. It follows, that plaintiff’s only lien in connection with the Broward property is his lien against the debtor’s equitable interest acquired during the month preceding bankruptcy. The existence and extent of that equitable interest, conceded by the debtor, has not been established insofar as the holder of the legal title is concerned.
I have assumed a critical fact, that service of process in the creditor’s bill was effected before bankruptcy. That fact is not in the record before me. The argument of the parties appears to presuppose that fact and the error of my assumption, if it be an error, could readily be rectified on rehearing.
A final comment should be made. The lien obtained by this plaintiff against the debtor’s equitable interest in this property could conceivably be voided as a preference under 11 U.S.C. § 547(b). Robinson v. Tischler, Fla. 1915, 67 So. 565; 13 Fla.Jur.2d, Creditors’ Rights § 308.
As is required by B.R. 921(a), a separate judgment will be entered in accordance herewith if and when it is established that plaintiff effected service of process on his creditor’s bill and the date of that service can be determined.
Costs will be taxed on motion. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489169/ | MEMORANDUM DECISION
FREDERICK A. JOHNSON, Bankruptcy Judge.
The Trustee in bankruptcy objects to the claim of the Merrill Trust Company1 on the grounds they were not timely filed. The Bank, in response, has requested the Court to reopen the time for filing proofs of claim permitting it to file its claims late. The Debtor’s Chapter 13 petition was filed on October 5, 1979. A meeting of creditors was set for December 17, 1979.2 Merrill’s proof of claim was filed January 9, 1981.
The delayed filing, the Bank claims, was attributable at first to its lack of knowledge of the pending petition and later to its belief that the Debtor’s petition had been dismissed.
A proof of claim may be filed by any entity that holds a claim against the debtor, 11 U.S.C. § 1305. But a claim must be filed timely. In the case of an unsecured claim, such as those of the Merrill Trust Company, the claim must be filed within six months after the first date set for the first meeting of creditors except if the Court, prior to the expiration of this date, grants a fixed time extension. Bankr. Rule 13-302(e)(2).3 Bankruptcy Rule 906(b) does not permit extension of time for filing proofs of claim after the time has expired. See In re Valley Fair Corp., 4 B.R. 564, 567 (Bkrtcy.S.D.N.Y.1980). Even if this were a discretionary matter, the record does not support the Merrill Trust’s contention that failure to timely file was excusable neglect.
An appropriate order will be entered.
. The Merrill Trust Company filed a proof of claim for three debts, each representing a separate transaction: a car loan in the amount of $1,225.20, and two personal loans in the amounts of $715.03 and $249.17.
. The Merrill Trust Company argues that it was not noticed of this meeting and was unaware of the bankruptcy until March 26, 1980. The Court’s records indicate it was notified of the meeting.
.Bankruptcy Rule 13-302(e) is applicable to cases filed under the Bankruptcy Code. See In re Hartford, 7 B.R. 914, 915 (Bkrtcy.D.Me.1981), 7 B.C.D. 145, 3 C.B.C.2d 761. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489170/ | MEMORANDUM OPINION
BENJAMIN E. FRANKLIN, Bankruptcy Judge.
This matter came on for trial on August 3 & 4, 1981, upon plaintiff’s Complaint under sections 67(d) and 60(b) of the Bankruptcy Act. Plaintiff also included a claim against defendant, All Freight & Associates, Inc., for an open account in the amount of $364.62, for services rendered. At trial, plaintiff withdrew his § 67d cause of action, and proceeded under the other two causes of action. Plaintiff, Robert A. Foth-ergill, trustee for Key Truck Leasing, Inc. was represented by James Yates. Defendants, All Freight & Associates, Inc., and Bernard W. Clark, d/b/a World Growers Alliance, were represented by Donald J. Quinn, and local counsel, William Tuley.
FINDINGS OF FACT
Most material facts are in dispute. After reviewing the pleadings, briefs, and file herein; and after evaluating a host of conflicting testimony, this Court finds as follows:
*4001. That this Court has jurisdiction pursuant to 11 U.S.C. § 46; and that venue is proper pursuant to Bankruptcy Rule 116.
2. That plaintiff is the trustee for debt- or, Key Truck Leasing, Inc. (Key Truck), a Delaware corporation engaged in the business of leasing trucks.
3. That defendants, All Freight & Associates, Inc., (hereinafter referred to as AFA) and Bernard W. Clark, d/b/a World Growers Alliance (hereinafter referred to as WGA) are interrelated. Clark is president and a major shareholder of AFA and a partner in WGA.
4. That a Key Truck invoice dated January 8, 1979, showed that $364.62 was due from All Freight Systems, 1026 S. 10th St., Kansas City, Kansas (Pl.Ex. # 8). Defendant, AFA, has the same address.
5. That in early October of 1978, AFA orally agreed to provide Key Truck with needed capital infusion. This agreement was formally documented in writing on October 27, 1978. (Pl.Ex. # 1). AFA invested $121,000.00 in Key Truck. In consideration of AFA’s investment, Key Truck agreed to: (1) give AFA 75% of Key Truck’s stock; (2) give AFA 5 out of 7 board of director positions; and (3) a loan by Lloyd Schumacher (president of Key Truck) to Key Truck in the amount of $50,-000.00.
6. That certain creditors of Key Truck refused to release tractors and trailers until they were paid for repairs on the vehicles. AFA realized that Key Truck could not operate profitably as long as it could not rent its trucks. AFA agreed to loan Key Truck the money to pay the repair bills. On October 19, 1978, WGA loaned Key Truck $5,000.00; and on October 20, 1978, AFA advanced $5,000.00 to Key Truck’s creditor. Thus, Key Truck received loans totalling $10,000.00. These loans were unsecured.
7. That the parties stipulated that Key Truck repaid the two loans on December 11, 1978, just three days before Key Truck filed its Chapter XI petition. Actually, AFA personnel wrote two checks on one of Key
Truck’s bank accounts; and paid AFA and WGA $5,000.00 each. AFA had Key Truck’s authorization to write checks on the account.
8. That Key Truck’s bankruptcy schedules showed liabilities of $1,985,731.62 and assets of $1,459,312.45.
9. That there are insufficient assets (existing or expected) in the estate to pay administrative expenses and priority claims. Unsecured creditors will receive nothing.
10. That from early October of 1978 to December 11, 1978, (when AFA abandoned the Key Truck operation), AFA personnel managed the day-to-day operations of Key Truck jointly with Lloyd Schumacher (president of Key Truck) and James Steider (vice president of Key Truck). The extent of AFA’s control of Key Truck operations was greatly disputed. The Court heard a lot of conflicting testimony; but the Court finds that AFA personnel: (a) helped with the repossession and reconditioning of trucks;
(b)scheduled payments of bills as they became due; (c) controlled and were authorized to write checks on two Key Truck bank accounts; and (d) had the opportunity for access to all books and records of Key Truck. The degree of AFA’s awareness of the severity of Key Truck’s financial condition was also greatly disputed.
The Court further finds that AFA personnel were fully aware of Key Truck's financial status before the December 11, 1978 payments for the following reasons:
(a) Raymond Miller, vice president of AFA, admitted that when the Key Truck operation was abandoned on December 11, 1978, it was his opinion that Key Truck’s liabilities exceeded its assets;
(b) Creditors that Key Truck had neglected to tell AFA about, called daily demanding payment;
(c) Anticipated used truck allowances in excess of $100,000.00 never materialized;
(d) Lloyd Schumacher reneged on his promise to loan Key Truck $50,000.00. When AFA demanded the $50,000.00, *401he offered $15,000.00, and then, only on a secured basis;
(e) Suppliers refused to give Key Truck credit; and
(f) On December 8, 1978, Key Truck’s attorney, R. Pete Smith, informed AFA that Key Truck was contemplating bankruptcy.
II. That on December 14, 1978, Key Truck filed its Chapter XI petition; on November 8, 1979, Key Truck was adjudicated a bankrupt; and on February 2,1981, plaintiff filed the complaint in this case.
ISSUES
I. WHETHER PLAINTIFF’S CLAIM FOR $864.62 ON AN OPEN ACCOUNT IS BARRED BECAUSE IT IS BROUGHT AGAINST THE WRONG PARTY AND BECAUSE THE STATUTE OF LIMITATIONS HAS RUN.
II. WHETHER PLAINTIFF’S § 60(b) CAUSE OF ACTION IS BARRED BY THE STATUTE OF LIMITATIONS.
III. WHETHER THE TWO $5,000.00 PAYMENTS WERE PREFERENCES WITHIN THE MEANING OF § 60(a)(1).
IV. WHETHER THE TWO $5,000.00 PAYMENTS WERE VOIDABLE PREFERENCES PURSUANT TO § 60(b).
CONCLUSIONS OF LAW
I.
AFA argues that plaintiff’s claim for $364.62 on an open account is barred for two reasons: first, AFA is not the debtor, All Freight Systems, Inc. is; and second, even if AFA owes the $364.62, plaintiff’s claim is barred by the statute of limitations.
With respect to AFA’s first argument, the Court finds that AFA is the real party in interest. Although Key Truck’s invoice statement recites “charge to All Freight Systems”, the back-up work sheet indicates that the account is for lettering on new trucks for AFA. Also, the address listed on the invoice sheet is that of AFA’s.
The applicable statute of limitations for an action by the trustee upon a claim of the debtor, is section 11(e) of the Bankruptcy Act (11 U.S.C. § 29). That section states in pertinent part as follows:
Ҥ 11. Suits By and Against Bankrupts.
e. A receiver or trustee may, within two years subsequent to the date of adjudication or within such further period of time as the Federal or State law may permit, institute proceedings in behalf of the estate upon any claim against which the period of limitation fixed by Federal or State law had not expired at the time of the filing of the petition in bankruptcy
Thus, the trustee can bring the action if: (1) it would not have been barred by a state statute of limitations on the date of the petition; and (2) it is brought within two years of the date of adjudication.
In Kansas, an action upon any agreement, contract, or promise in writing must be brought within five years. K.S.A. 60-511(1). Here we do not know when the agreement occurred, but the invoice is dated January 8, 1979. The invoice is dated after the time Key Truck filed its petition; thus, the Court finds that the agreement occurred around the same time, and under Kansas law, then, the action was not barred at the time the petition was filed. Furthermore, the trustee filed his original complaint on February 2, 1981, and amended it to include this cause of action, on April 29, 1981; therefore, the Court finds that the trustee brought this action within two years after the November 8, 1979, date of adjudication.
ACCORDINGLY, judgment is granted in favor of the plaintiff and against defendant, AFA, in the amount of $364.62, for an open account debt for services rendered.
II.
AFA argues that plaintiff’s § 60(b) cause of action is barred by the statute of limitations, as well. Section 11(e) applies to *402actions to avoid preferences. Herget v. Central Bank & Trust Company, 324 U.S. 4, 65 S.Ct. 505, 89 L.Ed. 656 (1945). Therefore, the § 60(b) action is not barred if (1) it would not have been barred by a state statute of limitations on the date of the petition; and (2) is brought within two years of the date of adjudication.
The applicable statute of limitations for an action upon a liability created by statute, other than a penalty or forfeiture, is three years in Kansas. (K.S.A. 60-512(2)). Plaintiff’s action is based on a liability created by statute. The Bankruptcy Act makes a creditor who received a voidable preference liable for the property or value of the property (§ 60(b)). Here, the alleged preferential transfers occurred on December 11, 1978. Key Truck filed its Chapter XI petition three days later. Thus, the action would not have been barred by the Kansas statute of limitations at the time the petition was filed.
The Court finds that Key Truck was adjudicated a bankrupt on November 8, 1979; and that the trustee filed the instant complaint on February 2, 1981; thus, the complaint was filed within two years after adjudication. Therefore, plaintiff’s § 60(b) action is not barred by the statutory limitations.
III.
The third ¡¿sue is whether or not the two $5,000.00 payments were preferences within the meaning of § 60(a)(1) of the Bankruptcy Act (11 U.S.C. § 96). That section states:
Ҥ 60. Preferred Creditors.
a (1) A preference is a transfer, as defined in this Act, of any of the property of a debtor to or for the benefit of a creditor for or on account of an antecedent debt, made or suffered by such debtor while insolvent and within four months before the filing by or against him of the petition initiating a proceeding under this Act, the effect of which transfer will be to enable such creditor to obtain a greater percentage of his debt than some other creditor of the same class.’’
Simply stated, there are five elements of a preference:
1. a transfer;
2. to a creditor for an antecedent debt;
3. made while insolvent;
4. within four months of the petition; and
5. which gives the creditor a greater percentage than other creditors in his class.
The trustee has the burden of proving each and every element. Vance v. Dugan, 187 F.2d 605, 606 (10th Cir. 1957).
The first element is a transfer of the debtor’s property. AFA wrote two $5,000.00 checks to repay itself and WGA. AFA argues that on these facts, no transfer occurred. AFA defines a transfer as a disposition by the debtor or one in control of the debtor.
“Transfer” is not defined in § 60(a); but it is defined in § 1(30) of the Bankruptcy Act (11 U.S.C. § 1). It includes direct, indirect, voluntary and involuntary dispositions of the debtor’s property. Furthermore,
“It is not necessary that the debtor have made a voluntary transfer. Equality of distribution among creditors is as much defeated by what a creditor takes or seizes as by what the debtor gives willingly. Congress has so recognized this in defining a preference as a transfer ‘made or suffered’ by the debtor. . . ” 2 Cowans on Bankruptcy Law and Practice 2d § 467 (1978) p. 17.
The Court, therefore, finds that for § 60(a)(1) purposes, a transfer occurred.
The second element is: to a creditor for an antecedent debt. Clearly, this element is satisfied. AFA and WGA were creditors of Key Truck by virtue of the $10,000.00 in loans to Key Truck. These loans were made in October of 1978; and Key Truck repaid the loans in December of 1978.
The third element is that the transfer was made while the debtor was insolvent. Insolvent is defined in § 1(19) of the Bankruptcy Act as “whenever the aggregate of his property, exclusive of any property *403which he may have conveyed, transferred, concealed, removed, or permitted to be concealed or removed, with intent to defraud, hinder, or delay his creditors, shall not at a fair valuation be sufficient in amount to pay his debts; ”.
On December 14, 1978, when Key Truck filed its Chapter XI petition, the aggregate value of its property was $1,459,312.45, and thus, insufficient to pay its debts of $1,985,-731.62. This Court therefore, finds that three days earlier, when the two transfers occurred, Key Truck was similarly insolvent. Furthermore, this Court heard testimony that Key Truck had been experiencing severe financial problems for some time.
The fourth element is that the transfer occurred within four months before the petition. Here, the transfers occurred just three days before the petition.
The fifth and final element of a preference is that the effect is to give the creditor proportionally more than other creditors of the same class. Here, AFA and WGA, unsecured creditors, received 100% of their loans. The Court finds that the other unsecured creditors will receive nothing.
This Court concludes, therefore, that the two transfers satisfy each of the five elements of a preference; and are preferential transfers within the meaning of § 60(a)(1) of the Bankruptcy Act of 1898.
The fourth issue is whether the two preferential transfers are voidable pursuant to § 60(b) of the Bankruptcy Act (11 U.S.C. § 96). That section states in pertinent part:
Ҥ 60. Preferred Creditors.
b. Any such preference may be avoided by the trustee if the creditor receiving it or to be benefited thereby or his agent acting with reference thereto has, at the time when the transfer is made, reasonable cause to believe that the debtor is insolvent. Where the preference is voidable, the trustee may recover the property or, if it has been converted, its value from any person who has received or converted such property, except a bona-fide purchaser from or lienor of the debtor’s transferee for a present fair equivalent value ...”
AFA argues that plaintiff has failed to show that it had reasonable cause to believe that Key Truck was insolvent, at the time of the transfer. This scienter requirement in § 60(b) has been the subject of much court interpretation. In McDougal v. Central Union Conference Ass’n, etc., 110 F.2d 939, 941 (10th Cir. 1940), the court said that each case must be viewed and interpreted in the light of its own facts, circumstances and surroundings.
In McDougal, the Court found that the defendant did not have reasonable cause to believe. There the defendant/creditor accepted realty in lieu of a $10,000.00 cash contribution to the church library fund. Although the defendant knew that the debtor was unable to pay cash as promised, the defendant also knew that the debtor was a large-scale contractor who had a history of making large charitable contributions to the church. On the surface, it appeared that the debtor was quite solvent. The court paid particular attention to the fact that the defendant was a church council composed of men unschooled in the intricacies of the business world.
In Holahan v. Gore, 278 F.Supp. 899 (D.C. E.D. La.1968), the court outlined factors in determining whether the creditor reasonably believed that the d'ebtor was insolvent:
1. The relationship of the parties;
2. The parties’ intimacy;
3. The usual or unusual nature of the transfer;
4. The opportunities of the creditor to obtain knowledge of the debtor’s condition;
5. The creditor’s participation in the debtor’s business; and
6. The fairness of witnesses as to disclosure of relevant facts within their knowledge.
Here, the facts are distinguishable from those in McDougal. Here, the facts readily fit into the Holahan factors indicating that the creditor had the requisite scienter. The Court finds that AFA was not an unsophis*404ticated, unknowledgeable creditor; that AFA controlled Key Truck, to some extent; and that AFA had the opportunity to examine Key Truck’s books and records, which were always on the premises.1
The Court further finds that AFA was in a position to ascertain detailed knowledge of Key Truck’s condition; AFA’s witnesses testified that during the period AFA personnel were stationed on Key Truck’s premises, a number of things were learned: They discovered that Key Truck had more creditors than it had represented to AFA, and those creditors called daily demanding payment; two anticipated assets never materialized, that is, the $50,000.00 loan from Lloyd Schumacher and the over $100,000.00 in used truck allowances; creditors had refused to deal with Key Truck other than on a cash basis; Key Truck’s attorney informed AFA that Key Truck was contemplating bankruptcy. The Court further finds that all of these facts were known to AFA before the December 11, 1978, transfers and that AFA was on sufficient notice to reasonably believe Key Truck was insolvent.
In Eureka-Carlisle Company v. Rottman, 398 F.2d 1015, 1018-19 (10th Cir. 1968), the court held for the trustee as follows, distinguishing its facts from the situation in the McDougal case:
“... the present case is the antithesis of the McDougal situation. Unlike the officers of the church in that case, Eureka was a very sophisticated company with 70 years' experience in dealing with trading stamp companies which bought stamps manufactured by it.... It knew Pioneer was concealing its financial condition but, instead of making adequate inquiry, it used the power of economic life and death which it had over Pioneer to obtain preferential payments on its long-delinquent account.
. . . Eureka argues that, if it had made a reasonably diligent inquiry, it could have obtained no information because knowledge of Pioneer’s insolvency could only be disclosed by Pioneer’s books, to which it had no access. But Eureka could and should have sent an experienced credit man to explore other avenues of information about Pioneer’s financial status; . . . A creditor may not wilfully close his eyes in order to remain ignorant of his debtor’s condition. . . . ”
Here, AFA was in a better position than Eureka to have and to obtain knowledge of its debtor’s financial condition. This Court concludes that AFA did have reasonable cause to believe that Key Truck was insolvent.
ACCORDINGLY, this Court holds that the preferential transfers of $5,000.00 each to AFA and WGA are voidable pursuant to section 60(b). The trustee is therefore, entitled to recover $5,000.00 from AFA, and $5,000.00 from WGA, costs to be assessed against the defendants.
THE FOREGOING CONSTITUTES MY FINDINGS OF FACT AND CONCLUSIONS OF LAW UNDER BANKRUPTCY RULE 752 AND RULE 52(a) OF THE FEDERAL RULES OF CIVIL PROCEDURE.
. AFA offered testimony that it was not in control of Key Truck, and that it did not have access to the books and records. This Court had the opportunity to observe the demeanor of the witnesses and has given more credence and weight to the testimony of plaintiffs witnesses. See Volis v. Puritan Life Ins. Co., 548 F.2d 895, 901 (10th Cir. 1977). | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489171/ | OPINION
EMIL F. GOLDHABER, Bankruptcy Judge:
The issue presented is whether the plaintiff has perfected, nonavoidable security interests in the automotive parts inventory and in the dealership assets and equipment of the debtor which secure the debt owed to the plaintiff under a wholesale security agreement by which the plaintiff financed the debtor’s purchase of cars for sale or lease by its dealership. We conclude that the plaintiff has such perfected and nonavoidable security interests and that those security interests secure the debt owed to the plaintiff by the debtor under the wholesale security agreement.
The facts of the instant case are as follows: 1 Teefy Pontiac Company (“the debt- or”) was in the business of selling and leasing new and used cars for almost 50 years before it filed a petition for a reorganization under chapter 11 of the Bankruptcy Code (“the Code”) on July 2, 1981. To finance that car dealership, the debtor entered into several agreements with General Motors Acceptance Corporation (“GMAC”). The Wholesale Security Agreement, executed by the debtor and GMAC on May 21, 1976, provided that GMAC would advance money to car manufacturers on behalf of the debtor for the acquisition of new and used cars and that GMAC would have a security interest in all such cars and the proceeds thereof for the money so advanced. On October 18, 1979, and again on January 20, 1981, the debtor and GMAC executed security agreements whereby GMAC obtained a security interest in the debtor’s automotive parts and accessories inventory and the proceeds thereof (“parts inventory”). That security interest was duly perfected on January 26, 1981. On October 18,1979, the parties also executed a security agreement whereby GMAC obtained a security interest in the debtor’s dealership assets and equipment, machinery and shop equipment, parts and accessory equip*427ment, furniture and fixtures, signs and small tools and miscellaneous supplies and the proceeds thereof (“the equipment”). That security interest was duly perfected on October 22, 1979.
On September 21, 1981, GMAC filed the instant complaint seeking, inter alia, relief from the automatic stay to permit it to foreclose its security interests in the parts inventory and the equipment of the debtor. The parties stipulated to several facts, including (1) that the value of the parts inventory is between $100,000.00 arid $130,-000.00 and (2) that the property in question is not necessary to the debtor’s reorganization because the debtor’s business has terminated. At the trial held herein, the witness for GMAC stated that the debt due to GMAC was $129,000.00 excluding attorneys’ fees and the costs incurred by it in selling the debtor’s inventory.2
In its answer and at the trial held herein, the debtor raised as defenses to the complaint: (1) that the security interest of GMAC in the parts inventory of the debtor did not secure the debt owed by the debtor to GMAC for the financing of new GM cars because there were no documents to support those transactions as required by the security agreement for the parts inventory; and (2) that the security interest of GMAC in the debtor’s equipment is voidable by the debtor pursuant to § 544 of the Code.
With respect to the debtor’s first defense, the relevant language of the security agreement in question provides that GMAC shall have a security interest in the parts inventory:
In consideration of GENERAL MOTORS ACCEPTANCE CORPORATION, hereinafter called GMAC, extending credit to Teefy by or through accepting, purchasing, discounting or otherwise acquiring any instrument or document, including (Without limiting the generality of the foregoing) any promissory note, draft, trust receipt or other form of security document, hereinafter collectively referred to as the obligation, executed in connection with GMAC financing of new or used products under the GMAC Wholesale Plan for the Dealer.
The debtor admits that the above language gives GMAC a security interest in the parts inventory to secure the financing by GMAC of used cars and cars acquired from the American Motors Corporation (“AMC”) because that financing was evidenced by certain written security documents. However, the débtor asserts that the above language does not give GMAC a security interest in that property to secure the financing of new General Motors (“GM”) cars because that financing was not evidenced by any written security documents. Instead, that financing was done exclusively by computer transactions between GMAC and GM.
We disagree with the debtor’s assertion because we find that it was the agreement of the parties that any debt owed to GMAC on account of the financing of any car under the wholesale security agreement was to be further secured by the security interest given to GMAC in the debtor’s parts inventory. This finding is evident from the testimony presented at the trial herein. The witness for GMAC stated that the security agreement in question (which was executed in 1979 and again in 1981) was intended to give GMAC additional security for all of its financing of the debtor’s car dealership. The president of the debtor conceded that GMAC had demanded such additional security and admitted that the majority of the debtor’s business was in GM ears (5 out of 6 cars sold or leased by the debtor were GM cars). In addition, the debtor’s president testified that, since 1976, under the terms of the parties’ wholesale floor plan financing arrangement, GMAC would provide financing for GM cars by computer transactions between GMAC and *428GM and that the debtor would receive evidence of that financing through monthly statements. The debtor at no time objected to that method of financing and never indicated (until the instant proceeding) that it understood the additional security agreement not to secure the majority of the debt owed by it to GMAC. Furthermore, we conclude that the Wholesale Security Agreement executed by the parties in 1976, which grants a security interest to GMAC in all of the debtor’s cars, is itself a “document ... executed in connection with GMAC financing of new or used products under the GMAC Wholesale Plan for the Dealer” so as to be within the scope of the security agreement covering the debtor’s parts inventory. In light of the above, we conclude that the security interest granted to GMAC in the debtor’s parts inventory secures the debt owed to GMAC for the financing of GM cars, as well as AMC cars and used cars.
With respect to the debtor’s second defense, we deduce that GMAC’s security interest in the debtor’s equipment is not avoidable pursuant to § 544(a) of the Code. That section 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 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 a judicial lien, whether or not such a creditor exists;
(2) a creditor that extends credit to the debtor at the time of the commencement of the case, and obtains, at such time and with respect to such credit, an execution against the debtor that is returned unsatisfied at such time, whether or not such a creditor exists; and
(3)a bona fide purchaser of real property from the debtor, against whom applicable law permits such transfer to be perfected, that obtains the status of a bona fide purchaser at the time of the commencement of the case, whether or not such a purchaser exists.
Because the security interest in question was duly perfected by GMAC before the debtor filed its petition for a reorganization, that security interest is superior to, and thus not avoidable by any hypothetical lien creditors or any bona fide purchaser referred to in § 544(a). See Pa.Stat.Ann. tit. 12A, §§ 9-301, 9-312 and 9-313 (Pur-don).
Nonetheless, the debtor argues that, because the security agreement covering the debtor’s equipment contains a subordination clause, the security interest granted thereby is avoidable by the debtor pursuant to § 544(a). The subordination clause in question provides:
Any rights created hereunder in favor of GMAC are subordinated to the rights of the intended purchaser of Teefy, it being the intention of the parties that in the event of closing of the purchase, this security agreement shall not prevent the passage of clear title to said purchaser.
The witness for GMAC testified that the above language was included in the security agreement because the debtor then had a potential purchaser for its entire business. GMAC therefore contends that, because that particular sale was not consummated, the subordination clause is no longer of any effect. The debtor asserts, on the other hand, that the language of that clause is broad and was intended to cover any sale of the debtor’s business. We agree with the debtor that that clause by its language is not limited to any particular time or to any particular purchaser. Even so, we conclude that the subordination clause does not enable the debtor, through § 544(a), to avoid GMAC’s security interest. We so determine because that clause provides that GMAC’s security interest is subordinate to the rights *429“of the intended purchaser of Teefy. We interpret that language to mean an intended purchaser of the entire business of the debtor not a lien creditor or a purchaser of only the real property of the debtor.3 There never having been a sale of the debt- or’s entire business, we conclude that GMAC’s security interest in the debtor’s equipment is not avoidable pursuant to § 544(a) of the Code.
In light of the above, we determine that GMAC is entitled to relief from the stay pursuant to § 362(d)(2) of the Code to permit it to foreclose on the parts inventory and equipment of the debtor in which it has valid and nonavoidable security interests.
. This opinion constitutes the findings of fact and conclusions of law required by Rule 752 of the Rules of Bankruptcy Procedure.
. As part of the stipulation resolving the other issues raised by the instant complaint, the parties agreed to a modification of the stay to permit GMAC to arrange for the sale of the debtor’s GM parts inventory to General Motors Parts Division and to allow for the payment to GMAC of the costs and expenses incurred by it in preparing, packing and transporting those parts.
. There was insufficient evidence presented at the trial herein to establish what real property, if any, the debtor did own. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489172/ | MEMORANDUM AND ORDER
ROBERT L. KRECHEVSKY, Bankruptcy Judge.
The question before me is whether a defendant has established cause pursuant to Rule 60(b)(1) of the Federal Rules of Civil Procedure for the granting of relief from a final judgment of default rendered against it.
I.
Cott Corporation (Cott), a nationwide wholesale supplier of beverages, filed a voluntary chapter 11 petition on June 24,1980. On or about February 6, 1981, Cott ceased operating its business and shortly thereafter sold, with court approval, a major portion of its assets. Between January 28, 1981 and February 4,1981, Cott had sold its products to Funke Dairy Supplies, Inc., located in Cincinnati, Ohio (Funke), for which it billed Funke the sum of $7,669.75. Funke failed to make payment of Cott’s invoices and Cott, on June 30, 1981, commenced an action in this court against Funke. A summons and complaint together with a notice of a pre-trial conference were duly served by mail on Funke on or about July 3, 1981. When these documents were received, Funke delivered them to Frederick L. Bena-dum, its attorney for the prior seven years. The pre-trial conference took place as noticed on August 10, 1981 at 10:30 a. m. at the United States Bankruptcy Court at Hartford, Connecticut. Only counsel for Cott appeared. A notice of trial next issued from the court on August 10, 1981, pursuant to which Funke was notified that a trial of the Cott complaint was scheduled for August 25, 1981 at 2:00 p. m. Funke, upon receipt of this trial notice, immediately turned it over to Attorney Benadum for handling. On the scheduled trial date, Cott appeared to prosecute the action, but Funke *527failed to appear and it had not previously filed any pleadings. At the request of Cott, and after receiving testimony from an officer of Cott, the court entered a judgment by default against Funke in the amount of $7,669.75 plus costs of $60.00. A copy of this default judgment was mailed to Funke and received by it on or about September 3, 1981. Funke thereupon retained new counsel in Cincinnati who, on September 30, 1981, filed the present motion to set aside the default judgment.1 With this motion, Funke filed one affidavit, that of its office manager, Galen Ryan. The affidavit, after reciting the foregoing facts as to Funke’s receipt of the various court documents and their disposition, further alleges that Funke has sustained monetary damages by reason of Cott going out of business in February of 1981. Funke has offered a proposed pleading to the Cott complaint, the main thrust of which is to set forth a counterclaim alleging damages sustained due to Cott’s failure to remain in business and fulfill its contract, or to deal in good faith with Funke. At oral argument on the instant motion, counsel for Funke conceded that there is no dispute as to the sums claimed by Cott in its complaint.
II.
There is no contention that Cott failed to proceed in accordance with the provisions of Bankruptcy Rule 755 with reference to the entry of the default judgment against Funke. Bankruptcy Rule 755(b) provides that such judgments may be set aside in accordance with Bankruptcy Rule 924. That rule, with exceptions not relevant to this matter, incorporates Rule 60 of the Federal Rules of Civil Procedure. Fed.R. Civ.P. 60(b)(1) provides that a court may relieve a party from a final judgment for reasons of mistake, inadvertence, surprise or excusable neglect. Funke argues that there has been mistake, inadvertence and neglect, all of which are attributable to Attorney Benadum and which should not be imputed to Funke. Funke also argues that its motion to set aside the default was made promptly, that Cott would not be prejudiced if it were granted, that there is a judicial policy of hearing matters on their merits if at all possible, and that even though no notice is required by Bankruptcy Rule 755 prior to the entry of a default judgment, such notice, in fairness, should have been given in this proceeding. Cott claims that under FRCP 60(b)(1), a party must not only demonstrate the justifiable grounds of mistake, inadvertence or excusable neglect, but must also demonstrate the existence of a meritorious defense. In re Stone, 588 F.2d 1316 (10th Cir. 1978). Cott contends that Funke has failed to make either of the required showings and that its motion should, therefore, be denied.
III.
With regard to the issue of whether Funke has proven mistake, inadvertence or excusable neglect, the court, as noted, has not been furnished with any information as to why Attorney Benadum did not contest Cott’s complaint. Neither Attorney Bena-dum nor any of Funke’s present attorneys has filed an affidavit to cast light on the circumstances surrounding Benadum’s failure to act. There has been no showing of anything that would justify the neglect of Benadum. There is abundant current authority, in this circuit as well as elsewhere, that on the record made by Funke, courts do not grant relief from a default judgment.
This circuit has rather consistently refused to relieve a client of the burdens of a final judgment entered against him due to the mistake or omission of his attorney by reason of the latter’s ignorance of the law or of the rules of the court, or his inability to efficiently manage his caseload.
United States v. Cirami, 535 F.2d 736, 739 (2d Cir. 1976). See also Ben Sager Chemicals Int'l, Inc. v. E. Targosz & Co., 560 F.2d 805 (7th Cir. 1977). Both the Cirami and Ben Sager courts emphasized that where parties are claiming that a default judgment had been entered as a result of attorney neglect, affidavits should be furnished *528containing reasons why the attorney neglected to comply with either the rules of the court or to otherwise properly defend the litigation. Both courts also point out that ignorance or carelessness on the part of the attorney will not provide grounds for relief under Fed.R.Civ.P. 60(bXl) quoting Mr. Justice Harland in Link v. Wabash R.R., 370 U.S. 626, 633-34, 82 S.Ct. 1386, 1390, 8 L.Ed.2d 734, 740 (1962):
There is certainly no merit to the contention that dismissal of petitioner’s claim because of his counsel’s unexcused conduct imposes an unjust penalty on the client. Petitioner voluntarily chose this attorney as his representative in the action, and he cannot now avoid the consequences of the acts or omissions of this freely selected agent. Any other notion would be wholly inconsistent with our system of representative litigation, in which each party is bound by the acts of his lawyer-agent and is considered to have “notice of all facts, notice of which can be charged upon the attorney.”
(citation omitted). Funke relies primarily upon Blois v. Friday, 612 F.2d 938 (5th Cir. 1980) where a default judgment against a plaintiff was vacated when it appeared that notice of a motion for judgment was untimely forwarded to the plaintiff’s attorney due to the attorney having changed his address. In this, as in other cases cited by Funke, the court was presented with the reasons for the attorney inaction. As noted, this is not the situation here. Funke has not sustained its burden of proving the claimed mistake, inadvertence or excusable neglect. American & Foreign Ins. Ass’n v. Commercial Ins. Co., 575 F.2d 980, 983 (1st Cir. 1978).
In view of this conclusion, there is no need to reach the issue of whether Funke’s counterclaim can constitute a meritorious defense to Cott’s claim.
Funke’s motion to set aside the default judgment must be, and hereby is, denied.
. The motion has been argued by Hartford counsel for Funke. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489173/ | OPINION
D. JOSEPH DeVITO, Bankruptcy Judge.
The Court considers two motions, that of the above plaintiff American Petrofina, Incorporated (Petrofina), seeking a remand of the above proceeding to the District Court for the District of New Jersey, the other the motion of the defendant Seatrain Lines, Inc. (Seatrain), seeking a transfer of the above proceedings to the Bankruptcy Court for the Southern District of New York. There follows the immediate procedural history essential to these considerations.
On December 9,1980, American Petrofina filed a complaint in the United States District Court for the District of New Jersey, naming as defendants Seatrain Lines, Inc. and eight other corporate and individual defendants. In its complaint Petrofina alleges, inter alia, antitrust and contractual violations against the named defendants.
On March 6, 1981, upon application of defendant Seatrain to the United States District Court for the District of New Jersey, the above proceeding was, pursuant to 28 U.S.C. § 1478[a], removed to this Court.
On March 20, 1981, Seatrain filed its motion for change of venue pursuant to 28 U.S.C. § 1475, specifically seeking a transfer of the above entitled proceeding to the Bankruptcy Court for the Southern District of New York.
On April 3, 1981, plaintiff Petrofina filed its motion to remand the above proceeding to the District Court for the District of New Jersey, similarly pursuant to 28 U.S.C. § 1478[b],
Factually, it appears that Seatrain is a debtor in possession in an involuntary Chapter 11 proceeding now pending before Judge Edward Ryan in the Bankruptcy Court for the Southern District of New York. Pending in those proceedings is a *542civil action commenced by Petrofina prior to the commencement of the instant suit entitled American Petrofina, Inc. v. East River Steamship Corp., General Electric Credit Corp. and Seatrain Lines, Inc., No. 79-6692. The factual background of that litigation coincides in part with that of the instant controversy.
Petrofina offers two equitable grounds in support of its requested remand. Specifically, counsel contends that notwithstanding the expanded jurisdiction of the bankruptcy court, a matter such as this, involving as it does extremely complex antitrust considerations, should be left to a court possessing particular expertise in that area. Counsel suggests that such course of action is clearly within the contemplation of the provision of 28 U.S.C. § 1471[d], permitting the bankruptcy court to abstain from hearing a particular proceeding under Title 11 or arising in, or related to a case under Title 11. Avoidance of bifurcated litigation is the second equitable ground advanced in support of remand, which Petrofina contends will occur because of the Court’s lack of jurisdiction over the subject matter of Count 5 of the complaint.
Addressing Count 5 of the instant complaint, the allegations therein are directed not against Seatrain, but against East River Steamship Corp. (East River) and Kings-way Tankers, Inc. (Kingsway), each alleged to have breached their respective contracts with plaintiff Petrofina. In considering the jurisdictional challenge relating to Count 5, this Court briefly probes the nature of the relationship between Seatrain and the two corporate defendants named in the fifth count and their relationship with the plaintiff.
East River and Kingsway had bareboat charters for two vessels, the Brooklyn and the Williamsburgh, respectively, each built by a subsidiary of Seatrain. The vessels were, in turn, time-chartered by East River and Kingsway to Petrofina. Seatrain has guaranteed East River’s obligations under the bareboat charter of the Brooklyn and has guaranteed Kingsway’s obligations under the bareboat charter of the Williams-burgh. Except for their respective rights under the bareboat charters and the time charters of the aforenoted vessels, neither company has any assets or potential earning capacity. At present neither company is conducting any business operations. East River has a working capital deficiency of 10 million dollars and a deficit net worth of 17 million dollars. Kingsway has a working capital deficiency of 12 million dollars and a deficit net worth of 16 million dollars.
Because of the foregoing, compounded by the provisions of their agreements with Seatrain restricting each from engaging in other businesses, the likelihood of either resuming business operations is extremely remote. Because of Seatrain’s guarantee of obligations contracted between East River, Kingsway and Petrofina, Seatrain will be liable to pay any judgments obtained by Petrofina against either company.
We begin by noting that the jurisdiction of the bankruptcy court under 28 U.S.C. § 1471 has been given an expansive interpretation in decisions under the Code. See Hurt v. Cypress Bank, 9 B.R. 749, 4 C.B. C.2d 26, 29 (Bkrtcy N.D. Ga.1981).
Section 1471, granting extensive jurisdiction of matters connected with cases under Title 11 to federal district courts, provides that such jurisdiction shall be exercised by the federal bankruptcy courts. 28 U.S.C. § 1471[b], [c]; In re Clawson Medical, Rehabilitation and Pain Care Center, 9 B.R. 644, 4 C.B.C.2d 73, 77 (Bkrtcy E.D.Mich.1981). Noteworthily,
the original jurisdiction of the district courts granted by section 1471[b] is vested ‘notwithstanding any Act of Congress that confers exclusive jurisdiction on a court or courts other than the district courts’ .... This provision is in accordance with the intent of Congress to bring all litigation within the umbrella of the bankruptcy court, irrespective of congressional statements to the contrary in the context of certain specialized litigation.
1 Collier on Bankruptcy 3-39 to 3-40 (15th ed. 1980) (construing 28 U.S.C. § 1471[b]).
Under 28 U.S.C. § 1471, the bankruptcy court has jurisdiction over all civil proceed*543ings arising under or related to cases under the Bankruptcy Code. In re Clawson, supra, 9 B.R. 644, 4 C.B.C.2d at 77; In re Colegrove, 9 B.R. 337, 3 C.B.C.2d 839, 842 (Bkrtcy N.D. Cal.1981). As stated in Collier:
The jurisdiction of the Bankruptcy Court has been transmuted from one which was basically in rem to one which is all-encompassing, limited only by whether the civil proceeding arises under, arises in, or is related to, the title 11 case.
1 Collier on Bankruptcy 3-49 (15th ed. 1980) (construing 28 U.S.C. § 1471[c]).
Mindful of the expansive interpretation given the jurisdiction of the bankruptcy court under the Code, and the effect of the instant litigation on Seatrain’s prospects for rehabilitation, this Court has no difficulty in concluding that the bankruptcy court is vested with jurisdiction over all the claims recited in Petrofina’s compláint. Since the contractual breaches alleged in Count 5 are alleged in Count 6 to be tor-tiously induced by Seatrain and Seatrain’s former president, the interrelationship between Count 5 and Count 6, over which the bankruptcy court’s jurisdiction is undisputed, clearly brings Count 5 within the jurisdiction of this Court.
The Court finds totally unpersuasive the arguments advanced in favor of remand. That the issues raised may involve extensive fact-finding and are allegedly numerous and complex offers little support for remand. Neither Under the Bankruptcy Act of 1898, nor under the Code have bankruptcy courts ever been regarded as specialty courts. Certainly, the expansive jurisdiction granted to the bankruptcy court by the provisions of the Code clearly answers any questions as to the nature of the court. This is so notwithstanding the Code’s purported modernization of federal bankruptcy law. The bankruptcy judge must apply to the many diverse and frequently complex fact patterns that arise in the typical bankruptcy case, general federal law, as well as bankruptcy law.
The variety of legal issues encountered is almost endless. [Bankruptcy] requires application of the broadest spectrum of other laws governing, for example, taxes, torts, negotiable instruments, contracts, spendthrift and other trusts, mortgages, conveyances, landlord and tenant relationships, partnerships, mining, oil and gas extraction, domestic relations, labor relations, insurance, Securities and Exchange Commission statutes, regulations and decisional law. . .. The issues resolved at the trial level in the bankruptcy court system are myriad. With the proposed expansion of jurisdiction granted under H.R. 8200 the scope of issues will surely grow.
H.Rep.No.95-595, 95th Cong., 1st Sess. 10, reprinted in [1978] U.S.Code Cong. & Ad. News 5787, 5963, 5971-72.
. We turn to 28 U.S.C. § 1475, which provides:
A bankruptcy court may transfer a case under title 11 or a proceeding arising under or related to such a case to a bankruptcy court for another district, in the interest of justice and for the convenience of the parties.
A change of venue appears clearly to be the indicated course of action under the circumstances here. Seatrain’s Chapter 11 proceeding, as well as another lawsuit instituted by Petrofina, referenced above, related to the instant action, are presently pending before the Bankruptcy Court for the Southern District of New York. Considerations of economy, efficiency and speed underlying the Bankruptcy Code, as well as the obvious convenience of having a court familiar with the entire record, past and present, adjudicate the matter, militate cogently for transfer.
We turn now to the constitutional issue raised by Petrofina and its contention that the allegedly questionable constitutionality of the grant of jurisdictional power in 28 U.S.C. § 1471 to bankruptcy judges, similarly militates in favor of remand. Indeed, a recent order issued by Judge Miles W. Lord of the United States District Court for the District of Minnesota specifically states that the § 1471 delegation of authority to bankruptcy judges is unconstitutional as *544conferring on Article I courts powers reserved under the Constitution to Article III judges. Marathon Pipeline Co. v. Northern Pipeline Constr. Co., 12 B.R. 946 (1981) (mem.).
This Court, mindful that Congress enacted the Bankruptcy Reform Act of 1978, Pub.L. No. 95-598 pursuant to Art. 1, Sec. 8, cl. 4 of the Constitution after considering and rejecting an earlier Congressional House proposal to establish the bankruptcy courts as Article III courts, recognizes that a long-standing “strong presumption” of constitutionality attaches to every Act of Congress, all the more when, as here, the Act in question violates no specific prohibition of the Constitution. United States v. Watson, 423 U.S. 411, 96 S.Ct. 820, 46 L.Ed.2d 598 (1976); United States v. Five Gambling Devices, 346 U.S. 441, 74 S.Ct. 190, 98 L.Ed. 179 (1953); United States v. Di Re, 332 U.S. 581, 68 S.Ct. 222, 92 L.Ed. 210 (1947); Ex Parte Mitsuye Endo, 323 U.S. 283, 65 S.Ct. 208, 89 L.Ed. 243 (1944); Willcuts v. Bunn, 282 U.S. 216, 51 S.Ct. 125, 75 L.Ed. 304 (1931).
As noted, Congress deliberated the precise point in question here, and determined that it would not create a new tier of Article III bankruptcy courts, but that under the new bankruptcy court structure scheduled to go into effect on April 1,1984, such courts would continue to function pursuant to Article I, Sec. 8, cl. 4. Under these circumstances, “the force of the presumption is at its maximum,” United States v. Five Gambling Devices, supra. This Court is not persuaded to conclude that a clear demonstration has been made in the present situation sufficient to override that presumption.
The Court further notes that the Minnesota District Court ruling to the contrary, referenced above, is not stare decisis, thus not binding on this Court; further, that even in the District of Minnesota, the effect of Judge Lord’s Order has been stayed pending appeal.
Defendant Seatrain’s motion to change venue is granted. Plaintiff Petrofina’s motion to remand is denied. Submit an Order in accordance therewith. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489175/ | FINDINGS OF FACT AND CONCLUSIONS OF LAW
SIDNEY M. WEAVER, Bankruptcy Judge.
This Cause came to be heard upon plaintiff’s Complaint Objecting to Discharge filed herein. The Court, having heard the testimony and 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.
This Court has jurisdiction of the parties and subject matter of this action under 28 U.S.C. Section 1471.
The debtor, prior to the filing of the bankruptcy petition had engaged the services of the plaintiff in this action, Mark London, P.A., to represent him in an action for dissolution of marriage. In the course of that employment, the debtor, Mitchell Snyderman, discussed the possibility of filing bankruptcy. It was decided, at that time, not to file a bankruptcy petition. Between that discussion and the filing of the voluntary bankruptcy petition by Mr. Sny-derman’s present attorney, Alan W. Kaback on April 9,1981 approximately one year had elapsed. In the interim, Mr. Snyderman had incurred additional expenses on credit which the plaintiff alleges were made with no intent to repay the debt. This allegation fails for lack of proof. It cannot be assumed, based on a conversation with his former attorney one year prior, that subsequent credit purchases of the debtor were made in anticipation of being discharged in-bankruptcy.
The plaintiff further alleges that the debtor had in his possession a cash fund of Ten Thousand ($10,000.00) Dollars which he transferred, removed or concealed with the intent to hinder, delay or defraud his creditors. The debtor admits that during the one year period in question he had approximately Eight Thousand ($8,000.00) Dollars which he used to pay his living expenses. The evidence presented by the plaintiff fails to support the allegations that the defendant misused funds with the intent to defraud his creditors.
In accordance with the foregoing, the relief sought by the plaintiff is hereby denied, and a judgment will be entered based upon these findings and conclusions. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489178/ | FINDINGS OF FACT AND CONCLUSIONS OF LAW
SIDNEY M. WEAVER, Bankruptcy Judge.
This Cause having come on to be heard upon plaintiff’s seven count Complaint filed herein, and the Court, having heard the testimony and 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 defendant/debtor, Stephen Dewey McDonald, filed his voluntary petition in bankruptcy on January 12, 1981. The plaintiff, Herbert S. Freehling, was appointed trustee and is presently acting in that capacity.
The debtor’s bankruptcy petition lists creditors in the amount of $10,500.00 with assets of $60.00 as of December 30, 1980. The principal creditor, in the amount of $8,500.00, is Alice E. Avera, a deaf mute, who is the grandmother of the debtor and of the co-defendant, Michael H. McDonald.
This case focuses upon the various transfers of property made by the debtor since 1979 in relation to his various liabilities and the findings of the Court are made with the intent of putting the transfers into a time sequence and to display the conduct of the defendants in relation thereto.
The debtor’s financial problems began in early 1979 when his painting business failed and he defaulted on his loan with a bank. Ms. Avera, as guarantor on the loan, was forced to liquidate property to pay off the outstanding balance in the sum of $8,249.05. Ms. Avera made demand for repayment of this sum from the debtor in June, 1979, to which he replied that she “would never be paid anything.” In the fall of 1979, Ms. Avera filed a suit in the State Court against the debtor for the said amount, which suit is still pending but halted by the within Bankruptcy proceedings.
*620In addition, during the period of time aforesaid, the debtor and his wife were having marital problems. (They were ultimately divorced in August, 1979.) As part of their settlement agreement the debtor’s wife agreed to give him her interest in their home (hereafter referred to as “the house”), and on July 25, 1979, the debtor and his wife conveyed the house to himself and his brother, Michael H. McDonald (hereafter referred to as Michael) as tenants in common. Michael paid no consideration for the house nor did he ever make any mortgage payments or improvements to the property. On December 10, 1979 the debtor conveyed his one-half interest in the house to Michael with the explanation to the Court that he could no longer afford the payments on the house. Again, Michael paid no consideration for this transfer.
Nevertheless, after the debtor transferred his one-half interest to Michael and until the house was sold in October, 1980, the debtor continued to pay the mortgage on the house personally from either his personal funds or the funds from rental of the property. Michael never lived in the house, never made mortgage payments or assumed the mortgage, never collected rents, never put the utilities in his own name, and made no arrangements to have the house sold.
The house was sold in October, 1980, for $54,900.00 to bona fide purchasers and the seller’s net cash at closing was $15,902.84. Of this money, Michael gave $2,000.00 to his mother, $6,900.00 to the debtor and used the remaining funds to have “a good time” and to repair a truck.
The debtor used the aforesaid funds to purchase a ear. The bill of sale was in the debtor’s name but the car title was put in Michael’s name. This 1979 Toyota automobile was and is used exclusively by the debtor. After Ms. Avera filed her separate adversary complaint against the debtor in the Bankruptcy Court, Michael mortgaged the car and the debtor is presently paying the mortgage and insurance exclusively out of his own funds. Michael used the mortgage proceeds for his own enjoyment.
By divesting himself of the house, the debtor was left with one asset of value, a 50% stock ownership in M & S Trucking, Inc., which the debtor also conveyed to Michael without consideration in mid-1980. M & S Trucking, Inc. was a business he and Michael stated in 1979 and still is an on-going business.
The debtor divested himself of any assets of appreciable value which would be for the benefit of creditors of the estate and this Court finds that the debtor and Michael conspired to perpetrate a fraud upon the creditors of this estate when the debtor conveyed the house, the 1979 Toyota, and the stock of M & S Trucking, Inc., to Michael with the specific intent to delay, hinder and defraud the creditors of this estate from collecting against these properties. But for the various transfers to and through Michael, the creditors of this estate would have been able to realize a repayment of their claims in full from the net proceeds of the house of $15,902.84, the 50% ownership of M & S Trucking, Inc. and the 1979 Toyota purchased free and clear for $6,900.00.
The debtor claims the house is homestead. While the property was the debtor’s homestead prior to July 25, 1979, the debtor is not entitled to claim the house as homestead after the transfer to himself and his brother. The property lost its status as homestead because of this transfer, the subsequent divorce, his no longer being head of the family, and his moving from the property and renting it on August 1, 1979.
The Court concludes that under Section 726.01 Florida Statutes, the debtor’s transfer of the house to himself and Michael in July, 1979, was not a fraudulent conveyance because at the time of the conveyance the property was the debtor’s homestead. However, the Court finds that the debtor’s conveyance of his one-half interest to Michael in December, 1979, was a fraudulent conveyance, and that the plaintiff is entitled to a money judgment in the amount of one-half of the net proceeds of the sale of the house.
*621One-half of the net proceeds of the October, 1980, sale amounts to $7,951.42. While the debtor’s fraudulent conveyance took place in December, 1979, the debtor retained a beneficial interest in the property until the sale to a bonafide purchase in October, 1980.
The Court also finds that the debtor was given $6,900.00, which he used to buy a 1979 Toyota and while he put legal title in Michael’s name, he demonstrated all the indicia of ownership. The vehicle was placed in Michael’s name to delay, defraud, and hinder the debtor’s creditors. Inasmuch as the plaintiff and creditors of the estate have no adequate remedy at law in recovering the vehicle placed in Michael’s name, the Court imposes a constructive trust on the car and enters an affirmative injunction to require Michael to convey the car to the plaintiff.
The Court finds that the 50% stock interest in M & S Trucking, Inc. was a fraudulent conveyance made to an insider within one year of the filing of the bankruptcy petition within the meaning of 11 U.S.C. § 548 and is avoided by the plaintiff. Michael is directed to convey the 50% stock ownership to the plaintiff.
The Court has considered the plaintiff’s prayer for imposition of punitive damages against Michael for his conduct in the transfer transactions herein but the Court declines to do so, finding that the plaintiff has failed to carry the burden of proof in regard thereto.
The Court has considered the plaintiff’s objection to the debtor’s discharge on the basis that the debtor failed to keep accurate books and records. While the plaintiff raised other objections to the discharge, the Court denies the debtor’s discharge on this basis and the Court does not need to consider the other grounds raised. The Court finds that the records introduced by the plaintiff, which were produced by the debtor pursuant to a notice to produce at trial, are deficient in that they are incomplete banking records from which it is impossible to determine the debtor’s financial condition or to substantiate the debtor’s business transactions within the last few years, namely the painting business failure, his transfer of various personal property, and his records of M & S Trucking, Inc. The debtor failed to present any evidence to rebut the incompleteness of the records submitted.
In summary, the plaintiff is entitled to a judgment against the defendant, Michael H. McDonald, for the sum of $7,951.42 representing one-half of the net proceeds of the sale of the house; the imposition of a constructive trust against the 1979 Toyota Célica with the vehicle being conveyed to the plaintiff; and the conveyance of 50% of the stock interest in M & S Trucking, Inc. Additionally, the debtor’s discharge is denied. A final judgment in conformity with these findings of fact and conclusions of law will be entered pursuant to Bankruptcy Rule 921 on this date. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489179/ | ORDER ON OBJECTION TO ALLOWANCE OF CLAIM
R. J. SIDMAN, Bankruptcy Judge.
The Chapter 13 debtors, Lloyd and Marjorie Clifton, have objected to the claim filed in this case by Herbert K. Spohn and Frances A. Spohn (“Spohns”) in the amount of $4,325.00. The matter was set for hearing by the Court, and there was no appearance or defense raised by the Spohns, other than a pleading addressed “To Clerk of Bankruptcy Court” in which the Spohns, without the benefit of legal counsel, set forth their reasons why their claim should be allowed. The Court makes the following findings of fact.
Lloyd Clifton had been an employee of Val Spohn & Son Roofing and Metal Contractors (Spohn Roofing) almost continuously since 1947. Lloyd Clifton is a roofer by trade, and in connection with his employment with Spohn Roofing had occasion to become familiar with, and establish a close relationship with, many of Spohn Roofing’s customers. In August of 1977, the Cliftons and the Spohns entered into an agreement by which the Spohns sold the roofing business to the Cliftons. The contract is brief and straightforward — the Spohns sold all their right, title, and interest in and to a business known as Val Spohn & Son Roofing and Metal Contractors, including all inventory, automobiles, equipment, good will, right to use the name of the company, and supplies, (with the exception of certain office furniture and equipment), and accounts receivable and records, to the Cliftons in consideration for the agreement by the Clif-tons to pay to the Spohns, or the survivor of them, $150.00 per week for and during the natural life of either or both of them. Lloyd Clifton testified that he was aware that the price to be paid for the business was, in effect, open-ended, depending upon the length of time the Spohns were to survive. The Cliftons, however, were not unaware of the nature and extent of the Spohn Roofing business and presumably made a reasoned choice to enter into the agreement. The Spohns, who are in their *628eighties, apparently have survived longer than the Cliftons anticipated, for the Clif-tons are now complaining that the price they have paid for the business is grossly in excess of its value. Specifically, the Clif-tons allege that the total value of assets conveyed to them under the terms of the agreement with the Spohns was $6,200.00 and that they have paid, to date, over $26,-000.00 to the Spohns, with payments continuing to accrue under the terms of the agreement. The Cliftons object to the claim of the Spohns and seek to have this Court declare that the agreement executed in August of 1977 is unconscionable and also that its enforcement should be excused for failure of adequate consideration.
The Cliftons rely upon the provisions of § 1302.15 of the Ohio Revised Code to support the avoidance of the claim of the Spohns on unconscionability grounds. This statute provides:
“If the court as a matter of law finds the contract or any clause of the contract to have been unconscionable at the time it was made the court may refuse to enforce the contract or it may enforce the remainder of the contract without the unconscionable clause, or it may so limit the application of any unconscionable clause as to avoid any unconscionable result.” § 1302.15(A), Ohio Rev.Code.
The reliance of the Cliftons on this statute is misplaced. Initially, there is some question as to whether or not the contract involved in the present situation, which is one for the sale of a business, is one which is covered under this provision of the Ohio Revised Code which concerns the sale of “goods”. While a transfer of goods was incident to the sale of the business, the contract contemplated more than a mere transfer of tangible assets, it contemplated the transfer of a “going concern” business and its attendant good will, customer lists, and other similar intangible items. These “intangibles” formed part of the consideration for the agreement and provide support for the position that the market value of the tangible assets is not a fair measure of the adequacy of the consideration. Secondly, as the statute clearly states, the Court must find as a matter of law that the contract, or any clause of the contract, was unconscionable “at the time it was made”. There is no evidence in the record before the Court that the contract was unconscionable at the time it was made. Lloyd Clifton testified that he understood the nature of the contract at the time it was signed, and it does not appear that the contract terms were then unreasonable. Subsequent events have apparently changed the perspective of the Cliftons on the fairness of the terms of the contract. However, the traditional view taken by courts of law is that competent adults may make contracts on their own terms provided they are neither illegal nor contrary to public policy.
“People should be entitled to contract on their own terms without the indulgence of paternalism by courts in the alleviation of one side or another from the effects of a bad bargain. Also, they should be permitted to enter into contracts that actually may be unreasonable or which may lead to hardship on one side. It is only where it turns out that one side or the other is to be penalized by the enforcement of the terms of a contract so unconscionable that no decent, fairminded person would view the ensuing result without being possessed of a profound sense of injustice, that equity will deny the use of its good offices in the enforcement of such unconscionability.” Carlson v. Hamilton, 8 Utah 2d 272, 332 P.2d 989 (Utah, 1958).
Given the benefit of hindsight, the Clif-tons may indeed honestly feel that they received a bad bargain from the Spohns. However, the evidence in this record is insufficient to cause this Court to invoke the extreme remedy of declaring the contract unconscionable and denying the enforcement of a claim arising under the terms of the contract. Again, the Cliftons were not strangers to the business and are presumed to know and understand the consequences of their acts. Without evidence of overt fraud, and none is in this record, the agreement should be enforced.
*629The Cliftons raise implicitly in their objection to the claim of the Spohns a question as to whether their interests were adequately represented by an attorney at law who was involved in the drafting of the contract. It is at least hinted that that attorney, while purporting to represent their interests, in fact represented the interests of the Spohns and thus any reliance or trust placed by the Cliftons in that attorney was ill-advised and to their detriment. Such a claim, if true, may be a reason for the Cliftons to assert some liability against that attorney; however, it does not alter the result in this case, that the claim of the Spohns is a valid and allowable one in this Chapter 13 case.
Based upon the foregoing, the Court hereby determines that the objection to the claim of the Spohns is without merit and it is hereby overruled.
IT IS SO ORDERED. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489180/ | FINDINGS OF FACT AND CONCLUSIONS OF LAW
SIDNEY M. WEAVER, Bankruptcy Judge.
THIS CAUSE having come on to be heard upon a Complaint alleging two sepa*630rate actions which constituted preferential treatment of creditors filed herein, and the Court, having heard the testimony and 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:
In the first action, it is alleged that the debtor corporation, Dinettes Etc., Inc., (hereinafter referred to as the debtor) distributed $2,100.00 to Richard Green for the prepayment of a loan to the debtor corporation. Evidence introduced at trial disclosed that Mr. Green was president, principal stockholder and a director of the debtor. At the time of the alleged disbursement, the debtor consisted of two stores involved in selling dinette sets and similar merchandise. On or about May 1, 1981, Mr. Green, acting in his capacity as officer of the corporation, issued a check from the debtor’s corporate account to himself in the amount of $2,100.00 and deposited the same in his own account. This amount was used by Mr. Green approximately two to three weeks later to pay the rent for the Ft. Lauderdale store of the debtor which was overdue.
The evidence presented has established to the satisfaction of this court that the debtor was not actually injured by the transaction. It is clear that the debtor’s classification of the transaction as a repayment of a loan, while perhaps technically correct, does not accurately describe the effect which was the simple payment of rent in a form acceptable to the landlord. Therefore, the court finds that, as a matter of fact, the $2,100.00 paid to the defendant, was not a preference within the contemplation of Section 547 of the Bankruptcy Code.
The second action involved in this case considers the effect of the release or turnover of $14,275.40 in merchandise to a creditor of the debtor within ninety days of the filing of the petition in bankruptcy. The co-defendant, Galaxy Furniture, Inc., (hereinafter referred to as Galaxy) supplied merchandise to the debtor on an open account with normal payment for goods delivered within ninety days. In addition to this agreement, the parties had entered into an oral arrangement whereby Galaxy could pick up and grant full credit to the debtor for goods supplied by Galaxy which has not sold within a certain period of time. The testimony of the Vice President and Sales Manager of Galaxy was that Galaxy has a similar “pick-up” arrangement with approximately forty percent of its customers. Over'the course of two and one-half years Galaxy had occasions to pick up merchandise from the . debtor approximately eight to ten times in amounts ranging from $480.00 to $1,876.00. On June 2, 1981, Galaxy picked up merchandise amounting to $14,275.40, which constituted over fifty percent of the inventory of the debtor at the time of pick-up. The debtor ceased operation approximately two weeks later and on June 29, 1981, filed a voluntary petition in bankruptcy.
At trial the defendant, Galaxy, attempted to dispute the value of the inventory picked up from the debtor and the fact that it had knowledge of the debtor’s insolvent situation. The evidence provided by the trustee at trial clearly showed that Galaxy stopped shipping merchandise to the debtor on April 7, 1981. According to a statement dated May 31, 1981, two-thirds of the outstanding balance owed to Galaxy by the debtor was over ninety (90) days old. Two days later on June 2, 1981, Galaxy sent a truck to the debtor corporation and picked up $14,275.40 in goods. This was the largest amount of merchandise picked up by Galaxy and over seven times the amount picked up on the previous occasion. An objective view of these facts and the actions taken by Galaxy indicate that Galaxy knew of the financial position of the debtor and was moving to protect its position.
On the question of value, Galaxy asked the court to believe that it credited the debtor with $14,275.40 for merchandise worth $3,500.00. The value of the inventory retrieved by Galaxy was determined to be the actual cost to the debtor and retail *631value would be closer to twice that amount. In view of the special arrangement which Galaxy has with 40% of its customers it is apparent that Galaxy would not enter into such arrangements if it did not honestly feel that the merchandise could be disposed of for that amount. To conclude otherwise would be to conclude that Galaxy expects to lose money on 40% of its customers.
Having found that $14,275.40 is the proper value of the inventory picked up by Galaxy and that Galaxy was motivated by a desire to protect its position, the court makes the following findings of fact and conclusions of law:
1) The payment by the debtor of $2,100.00 to co-defendant, Richard Green, did not constitute a preference as contemplated by 11 U.S.C. Section 547 in that the money paid was used for the benefit of the debtor in the form of rent on the Ft. Laud-erdale store.
2) On June 2,1981, co-defendant, Galaxy, received $14,275.40 in goods on account of an antecedent debt owed by the debtor to Galaxy.
3) The debtor filed a voluntary petition in bankruptcy on June 29, 1981.
4) The transfer of goods to Galaxy occurred within 90 days of the filing of the petition in bankruptcy.
5) The transfer of goods to Galaxy amounted to over 50% of the inventory of the debtor at the time of transfer.
6) The value of the goods received by Galaxy exceeded 50% of the debt owed to Galaxy by the debtor.
7) The transfer to Galaxy enabled it to receive more that it would have received had the transfer not been made and such creditor had received payment on the debt to the extent provided by the Bankruptcy Code and thus constitutes a preference as contemplated by the Code.
A Final Judgment will be entered in accordance with the above. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8491329/ | MEMORANDUM OPINION
STEWART ROSE, Chief Judge.
The ruling of the court is that Defendant Avnet received an avoidable preference under section 547 when it collected its judgment from the plaintiffs Silver. Silver could not have intended a contemporaneous exchange by payment of a judgment in exchange for a release of a judgment lien when he did not know of the existence of the judgment lien. One can not intend to make an exchange if he is unaware that he is receiving something.
Fact patterns in preference cases are quite often convoluted, see Jet Florida Systems, Inc., 861 F.2d 1555 (11th Cir.1988). That is not the case in this proceeding. However, the particular fact pattern in this case does appear to be unique.
The facts in this case are:
(1) On October 9, 1986 Avnet obtained judgment against Santa Fe Private Equity Fund (SFPEF) and Silver in the amount of $76,275 plus interest, cost and attorney fees. (Trial Exhibit 1).
(2) On October 31, 1986 Avnet, Silver and SFPEF agreed as follows:
(a) That Avnet’s costs and attorney fees were $6000;
(b) That Silver and SFPEF would give $120,000 of collateral as security within 5 days;
(c) That Silver and SFPEF would pay $90,000 in five (5) installments and if so paid Avnet would release its judgment and any liens and collateral therefor;
(d) That Silver and SFPEF waived any appeal;
(e) That if Silver or SFPEF failed to perform any portion of the agreement, Avnet could enforce its judgment, this agreement, or its rights in any security and that Avnet would be entitled to its costs and attorney fees in enforcing such rights;
(f) That as long as Silver and SFPEF complied with this agreement, Avnet would not levy execution. (Trial Exhibit 2).
*330(3) On November 6, 1986 Avnet recorded its judgment lien with the County Clerk of Santa Fe County, thereby creating a lien upon all the real property of Silver in that County. (Trial Exhibit 3).
(4) Thereafter Silver paid Avnet $25,000, but then failed to make the remainder of the payments called for under the agreement.
(5) On March 10, 1987 Avnet filed suit against Silver in the Santa Fe County District Court to foreclose its judgment lien. (Trial Exhibit 5).
(6) On March 11, 1987 a U.S. Marshall accompanied by Avnet’s attorney arrived at Silver’s home unannounced. They advised Silver that the Marshall was to proceed with the seizure of Silver’s property, principally household goods and furnishings, and that a moving van would arrive shortly.
(7) To avoid the seizure, Silver proposed to pay the balance of the judgment by his personal check and to arrange that the check be honored by Los Alamos National Bank. Avnet’s attorney agreed. Silver called Enloe, the bank president, to make arrangements and told Avnet’s attorney that the Bank agreed. The Marshall did not proceed with execution.
(8) Avnet’s Attorney took Silver’s check to the bank to exchange for a cashier’s check. Enloe told Avnet’s attorney that he needed to obtain Silver’s signature on certain documents to accomplish the transaction, and called Silver to come to the Bank for that purpose.
(9) Before Silver left his residence to go to the Bank he was served with the suit to foreclose the judgment lien. Silver testified that he did not read the complaint nor understand its contents.
(10) Silver went to the bank and signed the necessary documents. The Bank gave Avnet’s attorney a cashier’s check for the full amount of the judgment, $76,906.95 (Trial Exhibit 8), and agreed that the check would be honored upon presentment. (Trial Exhibit 9).
(11) On March 24, 1987, Silver’s attorney wrote to Avnet’s attorney suggesting, among other things, that since the judgment had been paid in full, Avnet should file a satisfaction and release any judgment liens. (Trial Exhibit 10).
(12) In compliance with this request and as soon as the cashiers check had been honored by the Bank, Avnet released its judgment lien.
The only issue that remained for trial was that raised by Avnet’s affirmative defense,1 under 11 U.S.C. 547(c)(1)(A). The court previously determined on motion or Avnet conceded all of the elements required of Silver to prove a preference. Thus, the court had already determined that Silver’s payment of the judgment to Avnet was a transfer of an interest of the debtor in property to a creditor, Avnet, on account of an antecedent debt, the judgment, while Silver was insolvent. Silver paid the judgment within 90 days before the filing of his petition in bankruptcy and the payment enabled Avnet to receive more than it would have received if this were a case under chapter 7, the transfer had not been made, and Avnet had received payment under the bankruptcy code.
11 U.S.C. 547(c)(1) provides:
The trustee may not avoid under this section a transfer—
(1) to the extent that such transfer was—
(A) intended by the debtor and the creditor to or for whose benefit such transfer was made to be a contemporaneous exchange for new value given to the debtor; and
(B) in fact a substantially contemporaneous exchange;
The evidence showed that Silver’s payment of the judgment required Avnet to release its judgment lien and that Avnet released *331that judgment lien as soon as the Bank’s cashier’s check was paid. This is a contemporaneous exchange as contemplated by subsection B. The evidence further showed that the release of the judgment lien was new value given to the debtor. New value is defined in 11 U.S.C. 547(a)(2), relevant to this transaction as follows:
“(2) ‘new value’ means ... release by a transferee of property previously transferred to such transferee in a transaction that is neither void nor voidable by the debtor or the trustee under any applicable law, ...”
Avnet released its unavoidable judgment lien in exchange for payment of its judgment,2 and did so in a contemporaneous exchange.
“The critical inquiry in determining whether there has been a contemporaneous exchange for new value is whether the parties intended such an exchange.” In Re Spada, 903 F.2d 971, 975 (3rd Cir.1990) quoting Matter of Prescott, 805 F.2d 719 (7th Cir.1986). The existence of intent is a question of fact. Id. The problem with Avnet’s proof in this case is that it failed to show that Silver intended to make a contemporaneous exchange for new value, that is, to obtain a release of Avnet’s judgment lien on his real property in exchange for payment of the judgment. Silver could not have intended to obtain the release of the judgment lien on his property, when he did not know of its existence. The court finds as a matter of fact that the transfer in this case does not come within the exception of 11 U.S.C. 547(c)(1)(A) since it was not intended by the debtor as a contemporaneous exchange for new value.
Upon payment of the judgment Avnet shall be entitled to an unsecured claim in the amount of its judgment as amended and/or its payment agreement with Silver. In Re Spada, 903 F.2d 971 (3rd Cir.1990).
The foregoing constitute the court’s findings of fact and conclusions of law as required by Bankruptcy Rule 7052. Counsel for the debtor-in-possession is requested to prepare the appropriate form of judgment within 10 days.
. 11 U.S.C. 547(g) provides:
"For the purposes of this section, the trustee has the burden of proving the avoidability of a transfer under subsection (b) of this section, and the creditor or party in interest against whom recovery or avoidance is sought has the burden of proving the nonavoidability of a transfer under subsection (c) of this section.”
. The release of a judgment lien is a transfer. See In Re Rodman, Inc., 792 F.2d 125 (10th Cir.1986): 11 U.S.C. 101(50). | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8491330/ | MEMORANDUM OPINION
ARTHUR B. BRISKMAN, Bankruptcy Judge:
This matter came on for hearing on the Complaint of the Debtor, Thomas A. Ladnier, to determine dischargeability of an indebtedness of the Defendant, Barbara Lad-nier Hinote, under 11 U.S.C. § 523(a)(5), and the Counterclaim of the Defendant to declare the debt to be nondischargeable under 11 U.S.C. § 523(a)(5) and § 523(a)(3). After due deliberation on the pleadings, arguments of counsel and briefs subsequently filed, this Court concludes and orders as follows:
FINDINGS OF FACT
The facts are undisputed. The Plaintiff/Debtor (“Plaintiff”), Thomas A. Ladnier, and the Defendant, Barbara Ladnier Hinote, were married from December 21, 1973 to December 28, 1981. The Defendant inherited approximately 160 acres of farm property from her father in 1973.1 After her marriage to the Plaintiff, the Defendant executed a deed to herself and the Plaintiff to accomplish joint ownership of the 160 acres. A part of the property was leased for agricultural purposes. The Defendant used a portion of the rental income received to acquire additional property, which she owned jointly with the Plaintiff, her brother and her mother. The remainder was deposited into her individual savings account and used for other expenses.
In 1980, the parties jointly pledged 40 acres of the 160 acres of farm property to Federal Land Bank to obtain funds to buy and/or equip a fishing boat for the Debtor. The Plaintiff and the Defendant were divorced in 1981. Under the terms of the divorce decree issued December 28, 1981, the circuit court granted the 160 acres of farm property to the Defendant and required the Plaintiff to:
convey to the Plaintiff [Ms. Hinote] all his right, title and interest in and to the jointly owned one hundred sixty (160) acres of land located in Baldwin County, Alabama, and the Defendant [Mr. Ladnier] shall be responsible for and pay the mortgage balance due on said property and hold the Plaintiff harmless therefore[;] ... the Defendant shall be allowed to use said property for the purpose of security for a loan he presently has for equipment for his shrimp boat.2
The Court finds this provision of the divorce decree to be a property settlement. After the parties’ divorce, the Defendant received annual rental income from leasing 35 of the 40 acres pledged to Federal Land Bank.
The Plaintiff failed to make the loan payments as required by the divorce decree. The Plaintiff filed a Chapter 7 petition on January 20, 1989. Notices dated February 1, 1989 informed the Plaintiff’s creditors that no assets were available for the estate and objections under 11 U.S.C. § 727 or complaints under 11 U.S.C. § 523(c) were to be filed by May 1, 1989. Subsequently, the Trustee, Theodore L. Hall, discovered assets of the estate. A second set of notices was sent to the Plaintiff's creditors on October 17, 1989. The *337deadline for filing proofs of claim was January 15, 1990.3 This Court allowed two claims for AmSouth Bank, N.A. in the amount of $11,297.42 and S.E.E., Inc. in the amount of $19,785.10. A total of $1,710.00 was available to creditors from the estate. The Plaintiff received a discharge in his bankruptcy proceeding on May 26, 1989.
Federal Land Bank instituted foreclosure proceedings on the mortgage in 1990. The Defendant was not listed as a creditor in the Plaintiff’s Chapter 7 proceeding, and was unaware of the bankruptcy until she received Federal Land Bank’s foreclosure notice in March or April 1990. To prevent the foreclosure, the Defendant borrowed $36,360.95 and repaid the loan.
The Plaintiff filed a complaint to determine the dischargeability of the debt owed the Defendant under 11 U.S.C. § 523(a)(5). The Defendant counterclaimed for $15,-907.92 declared nondischargeable under 11 U.S.C. § 523(a)(5) and § 523(a)(3).
CONCLUSIONS OF LAW
The issues before this Court are: 1) whether the debt owed Federal Land Bank under the divorce decree is in the nature of alimony, maintenance or support and therefore nondischargeable under § 523(a)(5)(B); and 2) whether the the debt is nondis-chargeable under 11 U.S.C. § 523(a)(3)(A) because the Plaintiff failed to list the Defendant as a creditor in his bankruptcy proceeding or to give the Defendant notice of the proceeding. Under Section 523(a)(5)(B) of the Bankruptcy Code, a debt to a former spouse or child of the debtor in connection with a divorce decree is nondis-chargeable if the debt is “actually in the nature of alimony, maintenance, or support ... ”. An unscheduled debt cannot be discharged under 11 U.S.C. § 523(a)(3)(A). This Court finds the debt to be in the nature of a property settlement; however, the debt is nondischargeable under § 523(a)(3)(A) of the Code to the extent of a pro rata share of the total amount distributed to the unsecured creditors in the Plaintiff’s bankruptcy.
When applying § 523(a)(5)(B), the bankruptcy court must only decide whether or not the debt can be legitimately characterized as support, rather than a property settlement. In re Harrell, 754 F.2d 902, 906 (11th Cir.1985). The language of § 523(a)(5)(B) does not require “precise inquiry into financial circumstances to determine precise levels of need or support; nor does the statutory language contemplate an ongoing assessment of need as circumstances change.” Id. The provision in the divorce decree is a property settlement on its face. Accordingly, this Court finds § 523(a)(5)(B) is not applicable to the Defendant.
Under § 523(a)(3)(A) of the Bankruptcy Code, a discharge under the Code does not discharge an individual debtor from any debt
neither listed nor scheduled under [11 U.S.C. § 521(1)], with the name, if known to the debtor, of the creditor to whom such debt is owed, in time to permit—
(A) ... timely filing of a proof of claim, unless such creditor has notice or actual knowledge of the case in time for such timely filing ...
The Defendant was neither listed nor scheduled as a creditor of the Plaintiff in his bankruptcy proceeding. The deadline for filing a proof of claim was May 1, 1989. The Plaintiff received a discharge on May 26, 1989. The Defendant had no notice or knowledge of the bankruptcy in time to make a timely filing.
The Eleventh Circuit has held that in no-asset bankruptcy cases, § 523(a)(3) does not deny discharge to a debtor who has failed to schedule a creditor for reasons other than fraud or intentional design. Matter of Baitcher, 781 F.2d 1529, 1534 (11th Cir.1986). The Eleventh Circuit maintained that to deny the debtor discharge for simply failing to list a creditor by inad*338vertence is inequitable. Baitcher, 781 F.2d at 1533. Crucial- to the Eleventh Circuit’s decision was the no-asset nature of the case. The creditor was not harmed by the debtor’s failure to list him because there were no assets for any distribution for the benefit of creditors; whether a creditor was listed or not, he still received nothing. See In re Anderson, 104 B.R. 427, 429 (Bankr.N.D.Fla.1989). Similarly, the Defendant as a creditor would have received only a portion of her present claim even if she had been listed and filed a claim in the Plaintiff’s bankruptcy. Despite the delay caused by the Plaintiff’s failure to list her debt, the Defendant has no greater claim than any other creditor to share in the estate. Balancing the debtor’s right to a fresh start with the creditor’s right to payment of a debt, this Court finds that equity demands the Defendant receive an amount equal to a pro rata share of the distribution to the creditors in the Plaintiff’s bankruptcy that she would have received if she had been given notice and had filed an allowable claim.
Including the Defendant’s claim of $36,-360.95, the Plaintiff’s total of allowed claims was $67,443.47. AmSouth Bank, N.A., had a claim of $11,297.42, and S.E.E., Inc.'s claim was $19,785.10. The total amount available to creditors was $1,710.00. If the Defendant had notice of the Plaintiff's bankruptcy and had an allowable claim of $36,360.95, the Defendant’s claim would have comprised 54 percent of the Plaintiff’s total allowable claims and the Defendant would have received $923.40. Based on the foregoing, the Defendant’s counterclaim for the determination of the nondischargeability is due to be granted in the amount of $923.40.
. The Defendant received from her father 40 of the 160 acres before her marriage to the Plaintiff and inherited the additional 120 acres two weeks after her marriage upon her father’s death.
. The 40 acres pledged to the Federal Land Bank are part of the 160 acres mentioned in the divorce decree.
. The notice stated proofs of claim were to be filed ninety (90) days from the date of the notice. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8491331/ | DECISION AND ORDER ON MOTION OF PLAINTIFF FOR STAY OF PROCEEDINGS
LEIF M. CLARK, Bankruptcy Judge.
CAME ON for consideration the Application For Stay Of Proceeding In Another Court And For Damages Pursuant To 28 U.S.C. § 1927 filed by Plaintiff Stanley W. Wright, Liquidating Trustee, and the response of Defendant Fidelity Deposit Company of Maryland.
FACTUAL BACKGROUND
This adversary proceeding concerns the liability of Fidelity and Deposit Company of Maryland (Fidelity”) on the bond of Robert James Moffitt, the former Chapter 11 Trustee in this case. Stanley W. Wright (“Wright”), the Liquidating Trustee under the confirmed plan in this case, sued on the bond on behalf of creditors of the estate, for damages arising from the alleged acts and omissions of Moffitt while he was acting as the trustee in the case.
Moffitt has himself filed for bankruptcy under Chapter 7 in the Southern District of Texas, Houston Division. In that case, Wright has objected to Moffitt’s attempt to discharge his obligations to this estate, including (1) the obligation of Moffitt to repay to this estate approximately $118,000 in fees which this court ordered repaid to the estate by way of a disgorgement, and a sanction of $25,000, and (2) damages incurred by the estate as a result of Moffitt’s malfeasance or misfeasance as a trustee. That action is brought pursuant to Section 523 of the Bankruptcy Code. Fidelity also objected to Moffitt’s discharging any debt which he might owe to Fidelity as a result of Fidelity’s having to pay on the bond, as a result of any judgment which might be entered in this adversary proceeding.
Fidelity has sought to intervene in Wright’s objection to dischargeability in the Southern District of Texas case. As part of that proposed intervention, Fidelity wishes to assert a counterclaim for declaratory relief, requesting the bankruptcy court in Moffitt’s bankruptcy to determine that Moffitt is not liable to Wright. The thrust of that counterclaim is to obtain precisely the same relief as Wright had already requested when he initiated this adversary proceeding in the Western District of Texas.
By this motion, Wright seeks to enjoin Fidelity’s attempt to raise by counterclaim in the Southern District of Texas adversary proceeding the same issues as have already been joined in this adversary proceeding in the Western District of Texas. Fidelity resists, on grounds of judicial economy.
ANALYSIS
A. The injunction of proceedings question.
“Generally, where a suit has been properly filed in one court, the filing of an identical suit in a second court does not deprive the first court of jurisdiction.” In re Burley, 738 F.2d 981, 988 (9th Cir.1984); see Kerotest Mfg. Co. v. C-O-Two Fire Equip. Co., 342 U.S. 180, 72 S.Ct. 219, 96 L.Ed. 200 (1952). See Fed.R.Bankr.P.Rule 9025 (“whenever the Code or these rules require or permit the giving of security by a party, and security is given in the form of a bond or stipulation or other undertaking with one or more sureties, each surety submits to the jurisdiction of the court, and liability may be determined in an adversary proceeding governed by the rules in Part VII”). Normally, the first court asked to adjudicate a matter has priority over a subsequent lawsuit involving the same facts. Orthmann v. Apple River Campground, Inc., 765 F.2d 119, 121 (8th Cir.1985) (courts follow a “first to file” rule that where two courts have concurrent jurisdiction, the first court in which jurisdiction attaches has priority to consider the case). See also Municipal Energy Agency of Mississippi v. Big Rivers Elec. Corp., 804 F.2d 338, 343 (5th Cir.1986) (relying on *484Cowden Manufacturing Co. v. Koratron Co., 422 F.2d 371, 372 (6th Cir.1970), cert. denied, 398 U.S. 959, 90 S.Ct. 2173, 26 L.Ed.2d 544 (1970)) (circuit court will reverse a district court’s decision not to enjoin another proceeding only if the district court abused its discretion).
The district courts clearly do have the discretion to enjoin filing of related lawsuits in other United States district courts. Kerotest Mfg. Co. v. C-O-Two Fire Equipment Co., 342 U.S. 180, 183-84, 72 S.Ct. 219, 221, 96 L.Ed. 200 (1952); Municipal Energy, 804 F.2d at 343; Schauss v. Metals Depository Corp., 757 F.2d 649, 654 (5th Cir.1985); cf. Donovan v. City of Dallas, 377 U.S. 408, 84 S.Ct. 1579, 12 L.Ed.2d 409 (1964) (pendency of an action in a state court is no bar to proceedings concerning the same matter in the federal court having jurisdiction). By virtue of Section 157(a), the bankruptcy courts have similar authority. 28 U.S.G. § 157(a). The general purpose is to avoid duplicative litigation. Municipal Energy, 804 F.2d at 343. However, “a careful considered judgment taking into account both the obligation to exercise jurisdiction and the combination of factors counselling against that exercise is required.” Colorado River Water Conservation District v. United States, 424 U.S. 800, 818-19, 96 S.Ct. 1236, 1247, 47 L.Ed.2d 483 (1976).1
When two actions involving the same parties and issues are pending in two districts, a court may also decline to enjoin the second proceeding, if “the balance of convenience” is sufficiently compelling to outweigh the priority otherwise afforded to prior actions. Unilease Computer Corp. v. Major Computer Inc., 126 F.R.D. 490 (S.D.N.Y.1989). The Unilease court isolated six factors it found relevant to making this determination, including (1) the adequacy of relief available in the alternative forum, (2) promotion of judicial efficiency, (3) the identity of parties and issues in two actions, (4) the likelihood of prompt resolution in alternative forum, (5) convenience of the parties, counsel, and witnesses, and (6) the possibility of prejudice to any party. Id.
Fidelity maintains that, in this case, judicial economy dictates that Fidelity be allowed to proceed with its counterclaim in Houston, on grounds that the same parties are involved in both actions, that the dis-chargeability action has to be decided by the Houston court anyway, that the same facts and transactions will be involved in the dischargeability action in Houston, that the same witnesses will have to be called in both cases, and that, therefore, it would be a more efficient use of judicial resources to try the entire matter before the bankruptcy judge in Houston.
Wright responds that the same facts will not necessarily be involved, as he merely seeks to obtain a nondischargeability determination as to the liability assessed by this court in its decision ordering disgorgement and assessing a sanction (an amount far less than the total damages suffered by this estate, according to Wright), and that the attempt to bring the action in Houston is thinly veiled forum shopping on the part of Fidelity, which hopes to avoid what it believes to be the presentiments of this court.
The court notes at the outset that both this court and the bankruptcy court in Houston are equally qualified to hear this action. Without a doubt, Judge Wheless has long experience with the obligations of trustees in bankruptcy cases and can as easily adjudicate the issue presented in this adversary proceeding as can this court. That is really not the question.2
*485The issue is whether the concerns set out in Unilease so predominate that, notwithstanding the well-settled rule that the first court whose jurisdiction is invoked should hear the case, the court should nonetheless permit the second action to proceed. In deciding that question, the court must at the outset keep firmly in mind the important policies which motivate the general rule against acceding to the alternative forum unilaterally selected by a party. See Kerotest Mfg. Co. v. C-O-Two Fire Equipment Co., 342 U.S. 180, 183-85, 72 S.Ct. 219, 221-22, 96 L.Ed. 200 (1952), and cases cited therein.
The Unilease decision suggests that deferring to the second action may be appropriate if there are compelling reasons for doing so. The court concludes that while there may be reasons, they are not sufficiently compelling to override the policy that favors the first forum selected by the plaintiff, the first court to have obtained jurisdiction over the dispute.3
1. Adequacy of relief available in alternative forum.
With regard to the first element cited in Unilease, the adequacy of the relief available in the alternative forum, the court has already adverted to the ability of another bankruptcy judge to decide such a question. However, that judge lacks the experience which this court has had with the bankruptcy case out of which the liability is said to have arisen, depriving that court of a good deal of the “feel” for the case which this court already has. In addition, as has been observed, there is some question whether that court would have jurisdiction over the subject matter of the counterclaim for declaratory relief, involving as it does a discrete dispute between two non-debtor parties which would not, in all likelihood, affect the administration of Moffitt’s bankruptcy estate. See note 2 supra. This court, by contrast, has clear jurisdiction over both the trustee (as the court which appointed the trustee) and over the bonding company (which is deemed to have submitted to the jurisdiction of the court which appoints the trustee). See Fed.R.Bankr.P.2010, 9025; see also In re Campbell, 13 B.R. 974, 976 (Bankr.D.Idaho 1981) (courts other than the trustee’s appointing court have no jurisdiction to entertain suits against trustee for acts done in trustee’s official capacity without leave of appointing court, citing Barton v. Barbour, 104 U.S. 126, 26 L.Ed. 672 (1881)). Adequacy of relief does not, in this case, stand as a compelling reason for deferring to the alternative forum unilaterally selected by Fidelity.
2. Judicial economy.
The second factor, that of judicial economy, upon which Fidelity most heavily relies, does not weigh so heavily in favor of Fidelity as it might first appear. Invariably, the parties in the Houston case would have to recreate the flow of this entire bankruptcy case for the Houston court, at great expense to all parties, in order to try the surety case. While the nondischarge-ability action, of itself, is a relatively simple (at least for an experienced bankruptcy judge) matter to resolve, liability on a trustee’s bond is quite another, considerably more drawn-out affair. It is hardly economical to add such freight to a nondis-chargeability action, delaying in the process Mr. Moffitt’s resolving whether he will receive his fresh start.4 Judicial econo*486my may therefore actually favor the forum selected by Wright, as the Houston bankruptcy court need not resolve this litigation in order to decide Wright’s nondischarge-ability action against Moffitt.5
To be sure, the litigation is going to take up Wright’s time and Fidelity’s time, but that is going to happen anyway. Also, to be sure, it will take up this court’s time, but, as the forum first selected by the plaintiff, this court has a duty to try the cases filed on its docket anyway. Colorado River Water Conservation District v. United States, 424 U.S. at 818, 96 S.Ct. at 1246. Notions of judicial economy therefore furnish no compelling reasons in this case why this lawsuit ought to be dumped into the lap of the Houston bankruptcy court.
3. Identity of parties and issues.
There is, of course, a facial identity of parties in both actions,6 but not necessarily an identity of issues. But for the counterclaim, the only issue before the Houston bankruptcy court in the Wright adversary is that of nondischargeability, a relatively narrow legal and factual issue. The counterclaim introduces the entire underlying litigation, already pending in this court, adding factual and legal issues not currently before that court.7 For example, the question of the level of culpability of Mr. Moffitt’s conduct raised in an action on the bond may not be the same as that required for a showing of nondischargeability. Compare Ford Motor Credit Corp. v. Weaver, 680 F.2d 451, 461 (6th Cir.1982) (personal liability only for acts wilfully and deliberately in violation of fiduciary duties) with United States ex rel. Willoughby v. Howard, 302 U.S. 445, 449-454, 58 S.Ct. 309, 311-314, 82 L.Ed. 352 (1938) (failure to exercise ordinary care in discharge of official duties raises liability of surety); United States ex rel. Bills v. Perkins, 280 F. 546, 549 (8th Cir.1922) (“[s]ureties on official bonds are liable for negligence or malfeasance of their principle in the performance of acts which are done virtute offi-cii”).8 Fidelity has not even established *487with a certainty that there even is an identity of parties and issues in this case, much less that such an identity is so compelling as to warrant permitting the second action to proceed in lieu of the adversary proceeding pending in this district.
4. Availability of prompt adjudication.
The question of prompt adjudication is evenly split. In this district, an adversary proceeding goes to trial within 120 days of the filing of the answer, unless the parties’ discovery needs necessarily lengthen the process. This court doubts that the Houston court is likely to reach trial any quicker than that, and any discovery needs which lengthen trial time in this court would similarly lengthen trial time in the Houston court. This issue does not in any compelling sense favor the Houston forum.
5. Convenience to parties, counsel and witnesses.
In terms of convenience to the parties, counsel and witnesses, only Mr. Moffitt’s residence favors the Houston forum, and even that advantage is undercut by the fact that Moffitt was willing to serve as a trustee in an Austin case for nearly a year notwithstanding his Houston residency. The lawyers for both Fidelity and Wright are located in Austin, a short drive from San Antonio (where this case is likely to be tried) and both frequently practice in this court. The witnesses are as likely to be drawn from this area as they are from Houston, while the documentary evidence is for the most part located in the Western District of Texas. This element does not compel deferring to the alternative forum selected by Fidelity.
6.Possibility for prejudice.
With regard to the possibility of prejudice, an action in Houston is more likely to result in an attempt at collateral attack on prior final adjudications than an action in San Antonio, with the potential for inconsistent judgments and questions about which jurisdiction’s orders are controlling. The only possibility of prejudice militating against this forum, though not articulated by the parties (at least not by Fidelity), but anticipated by this court, would be Fidelity’s fear that this court might already have made up its mind on the issues. That concern does not mandate overriding the policy of favoring the forum selected by the plaintiffs, however, for two reasons. First, if a party is truly concerned about bias, the proper remedy is to seek recusal pursuant to 28 U.S.C. § 455(a).9 Even a favorable ruling on such a motion would not result in trial of the case in Houston, however. Instead, the matter would simply be transferred to another judge in this district. Second, an action on a trustee’s bond involves fundamentally different questions from an action *488on a trustee’s fee application (the only action tried to judgment to date in this action). The level of culpability required for liability on a bond is higher than that which must be demonstrated to reduce a trustee’s fee. Compare United States ex rel. Willoughby v. Howard, 302 U.S. 445, 454, 58 S.Ct. 309, 314, 82 L.Ed. 352 (1938) (discussion of liability of surety of chapter 7 trustee) with Callaghan v. Reconstruction Finance Corp., 297 U.S. 464, 468, 56 S.Ct. 519, 521, 80 L.Ed. 804 (1936) (discussion of trustee compensation); see also In re Perelstine, 44 F.2d 62, 63-64 (W.D.Pa.1930), aff'd, 46 F.2d 1019 (3rd Cir.1931). Too, plaintiffs in an action on a bond must establish damages and causation, neither of which are directly at issue in the court’s consideration of a trustee’s application for fees. See In re Perelstine, 44 F.2d at 63-64; Goldberger v. Ralph Horan Transamerica Ins. Co. (In re Traffic Safety), 21 B.R. 669 (Bankr.E.D.Pa.1982). These questions have not even been tried in this court to date.
In short, if there is a possibility of prejudice in this case, it is most likely to emerge if the second action proceeds. The element thus cuts against favoring the second forum.
As the foregoing analysis demonstrates, the Unilease standard has not been met here, though even if it were, the decision to enjoin the second action under the general authority recognized in Municipal Energy and Orthmann would not be disturbed absent an abuse of discretion not likely to be found under the facts of this case.
One additional point needs to be made. As the cases now stand, we could easily be left with two courts trying the same lawsuit, solely because Fidelity initiated the second action knowing full well of the pendency of the first action. While it is true that the availability of a forum for the second action was created not by Fidelity but by Moffitt (i.e., by his filing bankruptcy in Houston), acceding to Fidelity’s unilaterally placing these two courts in the position in which they now find themselves is not a policy this court wishes to further. Mof-fitt’s bankruptcy, in terms of the forum opportunity it presented to Fidelity, was merely serendipitous. But for that, Fidelity would have had to have proceeded in this forum, for better or worse. Accepting Fidelity’s argument opens the door to bonding companies urging their trustees to file bankruptcy as a device for opening up alternative forums, whenever the forum in which the trustee served is perceived to be unfavorable to the surety (as it will in almost every case). If there is even to be such a door at all, it should be a small and narrow one, guarded by watchful judges, and opened for only the most compelling reasons. Those reasons are not present here.
This court, in aid of its jurisdiction, therefore deems it appropriate to enjoin further pursuit of Fidelity’s counterclaim in the Houston dischargeability proceeding. No compelling reasons have been presented to this court why the court should not so act to preserve its jurisdiction. In fact, the court notes that, by not acting, two actions would be left pending before two different courts, with all the potential that creates for inconsistent results and competing rulings.
B. The 28 U.S. C. § 1927 sanctions question.
The plaintiff has sought sanctions under 28 U.S.C. § 1927 against counsel for Fidelity. The exigencies of this case are such that sanctions are not appropriate. It is of course true that this provision is available to sanction attempts at forum shopping. In this case, however, counsel for Fidelity observed that it first sought relief from the automatic stay in the Houston bankruptcy case to join Moffitt as a third party defendant in this adversary proceeding, in the hopes of joining all issues, dischargeability and otherwise, before this court. Although the motion was unopposed, the Houston court denied the requested relief.10 Fidelity then sought to *489intervene in Wright’s dischargeability action. This course of action demonstrates an attempt by Fidelity to achieve the judicial economy which it now argues in this case, albeit misdirected.11 Accordingly, sanctions pursuant to Section 1927 are not appropriate.
CONCLUSION
Because this is the first forum where jurisdiction was sought, and because there are no compelling reasons why this court should not preserve its jurisdiction, this court concludes that it remains the most appropriate forum in which to determine the extent of liability of Fidelity to this estate. See Bankr.R. 9025; Orthmann, 765 F.2d at 121; Unilease, 126 F.R.D. at 490, et seq. Accordingly, this court enjoins any further action to bring this particular action before any other court, including by means of the counterclaim in the discharge-ability action currently the subject of Fidelity’s motion to intervene in the Wright non-dischargeability adversary proceeding now pending before the bankruptcy court for the Southern District of Texas in Mr. Moffitt’s bankruptcy case. Kerotest Mfg. Co., 342 U.S. at 183-85, 72 S.Ct. at 221-22; Municipal Energy, 804 F.2d at 343, For the reasons stated, no sanctions pursuant to 28 U.S.C. § 1927 will issue.
So ORDERED.
. An especial concern in this case is the possibility that forum shopping is at work here. Fidelity would have high motivation to seek an alternative to this forum in which to try its potential liability on its bond, given that this court has already issued a decision criticizing the bonded trustee’s handling of this case. The prospect of forum shopping is heightened by the fact that the duplicative litigation sought to be initiated in the Houston forum is peripheral to the main action (which involves Wright and Moffitt on the dischargeability of Moffitt’s personal liability to the NAOG estate, if any).
. There may be a question over whether the Houston court would have the jurisdiction to entertain the counterclaim, involving as it does a claim of Wright against Fidelity, the outcome *485of which is not likely to affect the administration of the Moffitt bankruptcy case, as Moffitt’s only real relation to the counterclaim is that of a witness. See Matter of Wood, 825 F.2d 90, 93 (5th Cir.1987). Though this court has no right to pass on whether the Houston court would in fact have subject matter jurisdiction over the counterclaim, the probable lack of jurisdiction tends to reinforce the conclusion reached by this court on this motion.
. See Matter of Village Properties, Ltd., 723 F.2d 441, 446 (5th Cir.1984), cert. denied, 466 U.S. 974, 104 S.Ct. 2350, 80 L.Ed.2d 823 (1984) (noting that forum shopping is discouraged); see generally In Re Burley, 738 F.2d at 981; Orthmann, 765 F.2d at 121.
. Even if the transactions which form the basis for liability were essentially the same, the non-dischargeability of Wright’s claims against Moffitt are neither contingent on nor determinative of Fidelity’s liability to Wright. Compare United States ex rel. Bill v. Perkins, 280 F. 546, 549 (8th Cir.1922) with Ford Motor Credit Co. v. Weaver, 680 F.2d 451, 461 (6th Cir.1982). While Fideli*486ty’s intervention in the Houston action is certainly not before this court, there seems to be considerable doubt that such intervention is necessary wholly apart from the counterclaim. As for judicial economy, the party who would have the most cause to complain about its lack is Wright, but he is not complaining.
. It may be that the outcome of Wright’s action against Fidelity will have some affect on Fideli-os nondischargeability action against Moffitt, but that is not the complaint in which Fidelity urged the counterclaim. In the interest of aborting any fetal thoughts that perhaps that course ought to be explored, the court has already concluded that the analysis applied in this decision would apply for the most part to any effort to urge the counterclaim in the Fidelity nondischargeability action as well.
. Actually there is not yet an identity of parties, as the Houston court has not yet permitted the intervention by Fidelity, hardly a foregone conclusion at this point. Apart from the counterclaim, Fidelity’s "intervention" seems to be premised on the notion that it matters to Fidelity whether Moffitt does or does not receive a discharge of Wright’s claims. So far as this court can determine, that notion seems not to be well-founded, as discharge of the bonded party does not appear to be a valid defense to liability of the bonding company. See generally Underhill v. Royal, 769 F.2d 1426, 1432 (9th Cir.1985) (discharge of the principal debtor in bankruptcy will not discharge the liabilities of co-debtors or guarantors); see, e.g., Mazur v. Stein, 314 Ill.App. 529, 41 N.E.2d 979 (1942); Pettus v. Cummings, 121 Okl. 271, 249 P. 740 (1926).
. The plaintiff has here argued that he has sought to amend his dischargeability suit to limit that action solely to the question of the dischargeability of this court's decision requiring disgorgement and assessing a sanction. If that amendment stands, then indeed the facts in the Western District action will be far more expansive in scope than the facts involved in the dischargeability action. However, that amendment has not yet been approved.
. In In re Reich, 54 B.R. 995, 999-1001 (Bankr.E.D.Mich.1985), Judge Spector criticizes the Sixth Circuit’s higher culpability standard announced in Ford Motor Credit Corp. v. Weaver, concluding that that circuit, along with the Tenth Circuit in Sherr v. Winkler, 552 F.2d 1367 (10th Cir.1977), misunderstood the holding of the Supreme Court in Mosser v. Darrow, 341 U.S. 267, 272, 71 S.Ct. 680, 682, 95 L.Ed. 927 (1951). Reich opts instead for the Ninth Circuit’s formulation in In re Cochise College Park, Inc., 703 F.2d 1339 (9th Cir.1983), which held that a trustee is subject to personal liability for not only intentional but also negligent violations of imposed upon him by law. Regardless of the level of culpability required to impose liability on a person who serves as trustee, how*487ever, once that person files bankruptcy, that liability will be measured against the standards of Section 523 to reckon dischargeability.
. The court notes in passing that mere familiarity with a case, and even adverse rulings on previous motions in a case, do not form a basis for recusal. Ouachita Nat. Bank v. Tosco Corp., 686 F.2d 1291, 1300 (8th Cir.1982); United States v. Mirkin, 649 F.2d 78, 81 (1st Cir.1981). Being persuaded is not the same thing as being partial.
The alleged bias and prejudice to be disqualifying must stem from an extrajudicial source and result in an opinion on the merits on some basis other than what the judge learned from his participation in the case.
United States v. Grinnell Corp., 384 U.S. 563, 583, 86 S.Ct. 1698, 1710, 16 L.Ed.2d 778 (1966); see In re Drexel Burnham Lambert, Inc., 861 F.2d 1307, 1314 (2d Cir.1988). Adds Wright, Miller & Cooper,
It is not enough that the judge has acquired from what has gone on in open court or in chambers a personal conviction as to the merits of the case. Nor is the judge disqualified merely because he has presided over some other case involving the same party or closely related facts. It is not enough that the judge has ruled adversely to the party at an earlier stage of the case or that he has ruled favorably to the opponent of the party who is seeking disqualification.
13A C. Wright, A. Miller & E. Cooper, Federal Practice and Procedure, § 3542 at 559 et seq. (1984) (citing numerous cases); see United States v. International Business Machines Corp., 618 F.2d 923, 930 (2d Cir.1980) (“[t]here is no authority for, and no logic in, assuming that either party to a litigation is entitled to a certain percentage of favorable decisions”).
. It is important to note that Mr. Moffitt, the respondent to that motion, was and is unrepresented by counsel, perhaps contributing to the Houston judge’s decision to deny the requested *489relief. In addition, that judge may have been as unwilling to have this court decide a discharge-ability question raised in Moffitt’s case as is this court to have another court decide Fidelity’s liability on its bond in this case. The court therefore in no way questions the wisdom of the Judge Wheless’ decision not to grant the relief from stay requested by Fidelity.
. The adversary proceeding which would have, under Fidelity’s theory, provided the best forum for adjudicating all disputes was not Wright’s nondischargeability action but Fidelity’s, for in that action, Fidelity’s nondischargeability claim is necessary only to the extent that Fidelity itself is found liable to the North American Oil & Gas bankruptcy estate. To obtain that "economy, however, Fidelity would have had to have obtained court permission to add Wright as a third party defendant, a move which would have more obviously looked like forum shopping and which would also have tended to trigger that court’s understandable concern that such a third party action might be beyond the jurisdiction of the Houston bankruptcy court to hear. See 28 U.S.C. § 1334(b). The court cannot of course guess at the mindset of the attorneys for Fidelity and would be reluctant to premise Section 1927 sanctions solely on such ruminations as these. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8491334/ | ORDER GRANTING MOTION FOR STAY AND DENYING MOTION TO DISQUALIFY
A. JAY CRISTOL, Bankruptcy Judge.
THIS CAUSE came before the Court upon the Debtor’s Pro Se Motion for a Stay of Proceedings Pending Appeal filed April 19, 1991 and Motion to Disqualify filed April 23, 1991.
The Court will first address Debt- or’s Motion to Disqualify. Per allegations asserted in his motion, the Debtor requests an order recusing this Court on the basis that the judge is disqualified. Federal Rule Bankruptcy Procedure § 5004(a) provides:
A bankruptcy judge shall be governed by 28 U.S.C. § 455, and disqualified from presiding over the proceeding or contested matter in which the disqualifying circumstance arises or, if appropriate, shall be disqualified from presiding over the case.
*617Pursuant to 28 U.S.C. § 455(a), a judge has a duty to disqualify himself when “his impartiality might reasonably be questioned.” The operative word in the statute is “reasonable.” See In re International Business Machines, 618 F.2d 923 (2d Cir.1980) (statute provides an objective standard for recusal, creating the so-called “appearance of justice” rule). In determining whether a judge should disqualify himself, one must ask what a reasonable person knowing all the relevant facts would think about the impartiality of the judge. In re Olcese, 86 B.R. 916 (Bankr.N.D.Oh.1988) (citations omitted).
The Debtor has alleged no factual basis for doubting the Court’s impartiality. In his motion, Debtor generally alleges “this judge has not been impartial, has openly countenanced attempted extortion, fraud, collusion, perjury, and other crimes, committed by various officers of- the court.” Debtor then asserts that “the entire record is replete with continuing evidence of ... crimes committed by ... [a certain creditor’s attorney, the trustee, and the trustee’s attorney].” However, the debtor simply relies on the filing of various motions and the entry of various orders in this case as his basis for asserting the commission of “crimes” by court officers.
Debtor’s motion is wholly insufficient in that it states no grounds on which this court should even consider entering an order disqualifying itself. To disqualify a judge pursuant to 28 U.S.C. § 455(a), one must allege bias derived from an extrajudicial source. United States v. Grinnell Corp., 384 U.S. 563, 583, 86 S.Ct. 1698, 1710, 16 L.Ed.2d 778 (1966). “The nature of the judge’s bias must be personal and not judicial.” In re Beard, 811 F.2d 818, 827 (4th Cir.1987). All of the facts offered in support of the Motion to Disqualify pertain to judicial decisions or proceedings and not to extra-judicial sources.
Section 455, Title 28, United States Code, is not intended “to enable a discontented litigant to oust a judge because of adverse rulings made, for such rulings are reviewable otherwise.” Berger v. United States, 255 U.S. 22, 31, 41 S.Ct. 230, 232, 65 L.Ed. 481, 483 (1921). Granting the Debtor the relief requested would certainly relieve this Court of any further duties pertaining to this estate; but, this Court has an obligation to hear all matters assigned to it “unless some reasonable factual basis to doubt the impartiality or fairness of the tribunal is shown by some kind of probative evidence.” In re Olcese, 86 B.R. at 918. This Court harbors no personal bias or prejudice with respect to Mr. Frottier or his case that would warrant recusal or disqualification, and Debtor alleges no such bias or prejudice. 28 U.S.C. § 455(a).
As for the Debtor’s Motion for a Stay of Proceedings Pending Appeal, this Court believes that cause exists to afford Debtor the relief he is requesting. Accordingly, it is
ORDERED that Debtor’s Motion to Disqualify filed April 23, 1991 is DENIED. It is further
ORDERED that Debtor’s Motion for Stay filed April 19, 1991 is GRANTED.
DONE and ORDERED. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8491335/ | ADJUDICATION
DAVID A. SCHOLL, Bankruptcy Judge.
A. FINDINGS OF FACT
1. The instant adversary proceeding is an accounts receivable action instituted by the Debtor, CRL..JTVE CONSERVATION, INC. t/a G & M HYDROGROW, a landscape and excavation contractor (“the Debtor”), on April 5, 1991, against the TOWNSHIP OF RIDLEY, a municipality located in Delaware County, Pennsylvania (“the Defendant”), in the course of the Debtor’s voluntary Chapter 11 bankruptcy case, which was filed on March 6, 1991. This proceeding was heard on a must-be-tried basis on a July 17, 1991, after two prior continuances.
2. The Debtor seeks an alleged balance of payments due from the Defendant arising from a written Proposal & Contract (“the Contract”) executed on or about September 24, 1990, and effected upon the Debtor’s successful sealed bid on the Contract. In its Complaint for Turnover of Property Pursuant to 11 U.S.C. § 542(b) (“the Complaint”), the Debtor requests payment in the amount of $12,404.00, plus interest. However, in its post-trial submission of Proposed Findings of Fact and Conclusions of Law (“the Debtor’s Findings”), the Debtor claims an unpaid balance of $12,998.80, as delineated below:
Amount billed: $22,943.00
Less payments received: ( — ) 10,539.00
Credit for work not completed: ( — ) 1,235.00
“Additional quantities” at agreed-upon unit prices: (+) 1,829.80
Total Balance $12,998.80
According to the testimony of one of two brothers who are the principals of the Debtor and who is employed as its financial officer, Mark Stein (“Mark”), the “additional quantities” referred to represented work *732performed by a subcontractor which was invoiced after the Complaint was filed but which, contrary to the recitation in the Debtor’s Findings, Mark agreed to waive during the course of the trial. These items were not proven or discussed further at trial. We will therefore not consider them in deciding this matter.
3.The Defendant set forth a different formulation of the account between the parties in its post-trial Proposed Findings of Fact, Discussion and Conclusions of Law, which thusly calculate that the Defendant is owed the amount of $3,906.00:
Amount of the Contract: $22,943.00
Amount paid: ( — ) 10,539.00
Amount paid to Aston Construction Company (“Aston”) by the Defendant to complete the Contract: ( — ) 10,510.00
Amount owed to the Defendant as liquidated damages for delay in performance: ( — ) 5,800.00
Amount Owed to Defendant $ 3,906.00
4.The services contemplated by the Contract were the extension of an existing storm sewer and the installation of piping and inlets at Brooke and Elder Avenues in the Defendant Township (“the Project”). Upon its execution, the Contract became the agreement between the parties, along with the Instructions to Bidders (“the Instructions”), the General Conditions, and the Special Conditions contained within the Specifications and Bid Documents for the Project (“the Specifications”) issued to all prospective bidders. Pursuant to the Contract executed by the Debtor, the Debtor bid $22,943.00 as the amount necessary for performance of the Contract.
5. Pursuant to the terms of the Contract, the Debtor was given thirty (30) “working days” from the date specified in the Notice to Proceed (“the Notice”), dated November 26, 1990, to complete performance of the Contract. In the Contract was a liquidated damages clause which assessed the Debtor $100.00 for every additional “working day” that the work under the contract was not completed beyond the thirty (30) day deadline. Pursuant to liquidated damages clauses in the Instructions and the General Conditions, the Debtor also was given notice of the potential assessment of liquidated damages for delay in performance.1 Also, pursuant to the terms of the Instructions and the Contract, the Debtor was required to examine the documents/drawings for the Project and visit the Project site.2
6. Mark testified that the Debtor did not begin work until the end of December, *7331990, and that he considered the 30-day period for completion of the Contract to have begun at this time. Mark claimed that the initial delay in commencement of the Project resulted from the forwarding of the wrong Contract form to the Debtor by the Defendant and from the Debtor’s failure to receive the Notice. Mark nevertheless admitted that delays also resulted after performance began, which he attributed to the Christmas/New Year holidays and very adverse weather conditions in both January and February, 1991.
Mark further testified that the last time that the Debtor was “on the job” was in the middle to the end of February 1991. He stated that he had received correspondence (“the Letter”) dated March 8, 1991, from counsel for the Defendant which states in pertinent part as follows:
The contract calls for $100.00 per diem liquidated damages and effective today these damages are being assessed against you for non-compliance with the contractual terms. Furthermore, if the project is not substantially completed by Friday, March 15th, the Township will consider you in default and will have the job completed by another contractor an charge the same to your account.
Mark stated that the Debtor had responded to the Letter by requesting an extension for ten (10) to fifteen (15) days to complete the Contract, claiming that it was not completed at that time due to weather conditions and other circumstances beyond its control. Mark testified that the Defendant’s counter-response was a further letter from its counsel advising the Debtor that it was removed from the Project, effective March 25, 1991.
7.Gary Stein, Mark’s brother and the co-principal of the Debtor who serves as its on-site supervisor (“Gary”), testified more specifically concerning the problems with which the Debtor had been confronted during performance of the Contract, including variant plan specifications and conflicting directions from the engineer and other inspectors as to what work should be performed under the Contract. However, his testimony indicated that the time lost due to the errors in the plan was confined to a total of only several hours.
8. Mark’s testimony regarding the severity of the weather conditions during January and February was countered by testimony from Steven V. Smith (“Smith”), a Project Inspector for Charles Catania, Sr., the Defendant’s engineer on the Project (“the Engineer”). Smith testified that there was not any unusual weather during the time of performance of the Contract, and that the Debtor’s work failed to progress on these occasions (not quantified) when Gary was personally absent from the Project site and left a foreman in charge.
9. Charles J. Catania, Jr. (“Catania”), an on-site employee of the Engineer, provided testimony which purported to fill out certain ambiguities in the Contract terms. Catania stated that “working days” constitute every Monday through Friday of a week, excluding holidays and any days on which significant rain or cold prevents work. In determining if weather conditions justified exclusion of a day as a “working day,” Catania referenced local climatological bulletins issued by the National Weather Service which the Engineer regularly received. Catania further stated that every day in which it rained a minimum of one-tenth of an inch or when the temperature was below 32°F, which rendered pouring concrete impossible, were not counted as “working days.”
From December 7,1990, when he claimed that the Debtor started work, until the end of December, Catania calculated, using these weather bulletins, that there were seventeen (17) possible working days, but only fourteen (14) were considered working days. In January, 1991, of twenty-two (22) potential working days, Catania determined that there 'were eighteen (18) actual working days. )With these calculations as a basis, and utilizing December 7,1990, when the Debtor first had materials on site, as the starting date, Catania concluded that the Debtor’s 30-day work deadline ended on January 29, 1991.
Finally, Catania testified that on January 29, 1991, his father, the Engineer’s principal, had sent a letter to the Debtor, stating *734that the 30-day deadline period had expired, although no such letter was introduced into evidence. Catania did not mention the Letter of March 8, 1991, from the Defendant’s counsel to the Debtor, although he did confirm that a notice of termination had been sent to the Debtor on March 25, 1991.
10.Catania also presented an Invoice which he sent to the Debtor in April, 1991, and which he testified provided an estimated itemization of the expenses anticipated to be incurred by the Defendant to complete the Project. This estimate, which Ca-tania based upon fees which he projected would be charged by Aston, a contractor under an annual bidded contract with the Defendant to provide miscellaneous maintenance services, was in the total amount of $13,715.00, itemized as follows:
1. Street Restoration Bituminous only (2%') 129 SY. — $1,000
Full (8" cone., 2Vb Bit.) 9 SY.450
2. Existing inlet repair. 50
3. Restoration from new curb @ existing inlet. 80
4. Concrete work @ # 703 Brooke Ave. 570
5. New inlet @ corner of Brooke & Elder. 320
6. New manhole. 350
7. Inlet rear of #706 Brooke. 50
8. Yard drain. 75
9. Lawn Restoration .8,320
10. Hedge relocation. 200
11. General.2,250
$13,715
11. Catania also produced billings from Aston, indicating that it actually completed work at the Project site for $10,510.00, which services, included certain matters not on the estimate, described at Finding of Fact 13, page 735 infra. However, neither these billings nor Catania’s testimony provided a line-by-line basis for Aston’s actual billings for the work to complete the Project.
12. Gary vigorously disputed all of the items on Catania’s estimate. Regarding the lawn restoration (Item 9), Gary testified that the area in question was a “mess” and “nothing but a mudhole” largely because the yards were in a low-lying area which retained water. The pictorial exhibits provided by the Defendant bear out Gary’s descriptive observations. In the original contract-bidding process, the Debt- or bid only $560.00 for 140 square yards of lawn restoration.
As to Item 11, Catania indicated that work in issue involved replanting a yard, flushing a pipe, and performing general clean-up construction material and/or debris. Catania testified that the “flushing” was necessary in order to remove construction debris, mud, and sediment which had gotten into lines. Gary, meanwhile, testified that, when the Debtor departed from the Project site in March, the pipe did not have to be flushed and was covered with “marify fabric” which should prevent debris and sediment from getting in the pipe. It is possible that, during the period between the Debtor’s departure from the Project site and the Project’s completion, debris, mud, or sediment could have gotten into the pipe. The Plaintiff's pictorial exhibits were inconclusive on the necessity for the pipe “flushing,” since all that the exhibits show is a trench covered by what could be the “marify fabric.”
Item 1 of the Invoice concerns street restoration. Gary testified that street restoration was a three-part item which required digging of the area to be restored, introduction of concrete of a particular height and strength, and the placement of temporary paving, the first two steps of which he claimed had been done by the Debtor. All the applicable pictorial exhibits show evidence of the installation of the sewer lines and open trenches dug by the Debtor’s employees. Gary had testified that there was minimal damage to the street.
Gary also presented testimony and pictures which supported his contentions that Items 2, 3, 5, 6, 7, and 8 on the estimate were completed.
His response to Item 4 appeared to be that, while the Debtor probably did damage the curb in issue, the curb was dilapidated prior to the job and therefore its restora*735tion should not have been the Debtor’s responsibility. With respect to Item 10, he agreed that the Debtor had dug out the hedges in question, and offered no reason why they would not have had to have been replaced at the conclusion of the work had the Debtor completed the Project.
13. Not listed in the estimate were Aston’s charges of $675.00 and $720.00 for the installation of a yard drain and the removal/replacement of a driveway, respectively. As to the $720.00 charge, Gary testified that the driveway in question was severely cracked prior to the Debtor’s work on the Project. Pictorial exhibits substantiated Gary’s testimony. As to the $675.00 charge, Gary testified that the Debtor had installed the drain. The installation of the drain was corroborated by a photograph.
14. Determination of allowable amounts for the eleven (11) items of damages recited in Catania’s estimated invoice is rendered problematic by the fact that the invoice is only an estimate of the cost of completion of the Project, and that the bill for services actually performed by Aston is not itemized on a line-by-line basis. Thus, a totally-accurate comparison between Gary’s testimony and the services billed by Aston is impossible. It is particularly difficult to analyze the appropriateness of the relatively low-cost invoice items, many of which were discussed very briefly at trial.
A perusal of the pictorial exhibits leads us to believe that the $560.00 figure set forth in the Debtor’s bid for restoration of 140 square yards of lawn does not appear sufficient to fix the “mess” created in the yard in issue. Nevertheless, Catania’s estimate of $8,320.00 (for 392 square yards of. lawn restoration, at $21.22 per square yard), appears excessive. Although Article 28 of the General Conditions permitted the Defendant to charge the Debtor for all “costs and charges incurred by the [Defendant] together with the cost of completing the work under the [Cjontract, [and] shall be deducted from any monies due,” it is unconscionable to charge the Debtor for the cost of lawn restoration for 392 square yards of restoration at the rate of $21.22 per square yard charged by Aston. The Debtor bargained at arms-length for restoration of 140, not 392, square yards of yard and, hence, should not be charged for the additional 252 square yards. This position is supported by Article 6 of the General Conditions which requires that any
[w]ork or materials of a character for which no price is named in the Agreement shall be considered as extra work which shall be done by the Contractor only upon written order signed by the Engineer, at a price to be previously agreed upon in writing by the Contractor and approved by the Owner ... if the Contractor shall fail or decline to perform such extra work as authorized in writing ... the Owner may then arrange for the performance of the work in any manner he may see fit ... [a]ny such extra cost to the Owner ... shall be deducted from the amount due to the Contractor under the terms of the Agreement. ...
In the instant record, there was no indication of written authorization for, or of the Debtor’s refusal to perform, an additional 252 square yards of lawn restoration. Therefore, it would be contrary to the terms of the Contract to permit the Defendant to recover anywhere near to the full amount set forth in Item 9. Thus, the ¿llowable amount to be deducted for the lawn restoration which was not done by the Debtor should be measured by reference to the total square yardage for which the Debtor was responsible, 140 square yards, and the amount Aston charged under the terms of its annual contract with the Defendant, approximately $21.22 ($21.22 X 392 = $8,320.00, the amount claimed owing in Item 9). We therefore determine that the amount allowable to the Defendant for lawn restoration damages is $2,970.80 (140 X $21.22).
Because of the inconclusiveness of the Debtor’s pictorial exhibits and because we find Catania’s testimony to be persuasive on this issue, see Finding of Fact 12, page 9 supra, we will allow the Defendant’s claim of $2,250.00 for the work included in Item 11.
*736As to Item 1 of the Invoice, we will disallow the deduction of the $1,450.00. There does not appear to be any indication, consistent with Article 9 of the General Conditions, which authorizes the Engineer to require the Debtor to remove and replace any defective work or materials at its own cost. Nor is there any indication that the work covered in Item 1 was defective. Also, there was no evidence tending to prove that the work was not completed, such that the Engineer and the Defendant in their own discretion could have the work completed by others, as it did with Aston, and charge the cost to the Debtor.
As to the $675.00 charge to install a yard drain, we will disallow deduction of this amount because it is unclear why this item would have been omitted from Cata-nia’s estimate if it really were an item which the Defendant felt confident should be included. Also, we find Gary’s testimony, and the corroborating pictorial exhibit, to be persuasive on the issue of its proper installation by the Debtor.
With respect to the $720.00 charge for the removal and replacement of the residential concrete driveway, we are similarly unable to understand why this item was not included by Catania in his estimate if it were a legitimate item of damage. Also, in light of Gary’s testimony, which we find persuasive on this point since it is supported by the pictorial exhibits, and the fact that this item does not appear to have been originally bid upon by the Debtor, we are reluctant to impose liability for such a charge upon the Debtor.
The Debtor provided no persuasive rebuttal to the Defendant’s claims of $570 for restoration of concrete work (Item 4) and $200 for hedge relocations (Item 10). Therefore, these items of damages, total-ling $770, should be allowed to the Defendant.
B. CONCLUSIONS OF LAW/DISCUSSION
1. In its Complaint, the Debtor alleged that the controversy before this court is a core proceeding. The Defendant denied this allegation in its Answer. However, at the commencement of the trial, both counsel expressly consented to the determination of this proceeding by this court. Therefore, irrespective of whether the proceeding is or is not core, we may determine it. See 28 U.S.C. § 157(c)(2); and Bankruptcy Rule 7012(b).
2. The principal legal issue presented by the instant proceeding is the enforceability of a contract clause providing that a governmental body is entitled to liquidated damages in the event of late performance, when, as here, no evidence of specific damage to the governmental body as a result of the tardy performance has been adduced. Compare In re Creative Conservation, Inc., Creative Conservation, Inc. v. West Manchester Sewer Authority, Bankr. No. 91-11276S, Adv. No. 91-0246S, slip op. at 8-10, 1991 WL 165675 (Bankr.E.D.Pa. August 22, 1991) (liquidated damage clauses are clearly enforceable by governmental units when they result in a sum not disproportionate to actual damages proven).
Under applicable Pennsylvania law, liquidated damages have been “accepted as a necessary part of the substantive law of contracts.” Bruno v. Pepperidge Farm, Inc., 256 F.Supp. 865, 869 (E.D.Pa.1966). Liquidated damages have been defined as
the sum a party to a contract agrees to pay if he breaks some promise, and which, having been arrived at by good faith effort to estimate in advance the actual damage that will probably ensue from the breach, is recoverable as agreed damages if occurs....
Commonwealth Dep’t of Environmental Resources v. Hartford Accident & Indem. Co., 40 Pa.Cmwlth. 133, 137 n. 2, 396 A.2d 885, 888 n. 2 (1979), citing In re Plywood Co. of PA., 425 F.2d 151, 154 (3rd Cir.1970). See also Bruno, supra, 256 F.Supp. at 865. Liquidated damage clauses have been deemed to be valid when they recite a sum which represents a “reasonable forecast as to just compensation for an injury that was difficult to estimate at the time [parties] entered into [a] contract....” Finkle v. *737Gulf & Western Mfg. Co., 744 F.2d 1015, 1021 (3rd Cir.1984).
Following from the latter definition, a liquidated-damages clause has been found unenforceable, because it is deemed to be in the nature of a penalty, when it requires payment of a sum, upon the non-performance, breach, or default of a contract, “that is disproportionate to the value of the performance promised or the injury that has actually occurred_” Id. See also Plywood Co., supra, 425 F.2d at 154; Bruno, supra, 256 F.Supp. at 869; In re Jordan, 91 B.R. 673, 680 (Bankr.E.D.Pa.1988) (and cases cited therein); Holt’s Cigar Co. v. 222 Liberty Associates, 404 Pa.Super. 578, 591 A.2d 743, 747-48 (1991); and Hartford, supra, 40 Pa.Cmwlth. at 137 n. 2, 396 A.2d at 888 n. 2.
Notwithstanding the above principles, several older Pennsylvania cases have carved out a special rule supporting the enforceability of liquidated-damages clauses in favor of governmental units. In Malone v. Philadelphia, 147 Pa. 416, 23 A. 628 (1892), a contract between the City of Philadelphia and the plaintiff contractors, regarding the erection of a bridge over the Schuylkill River at Market Street, contained a clause which required completion of the bridge within twelve (12) months after a Notice to Proceed was issued. Id., 147 Pa. at 418, 23 A. at 628. Also, the contract contained a liquidated damages clause which required the contractors to pay the City $50.00 for every day beyond the twelve-month period which it took to complete their engagement. Id. The contractors completed performance of the contract beyond the twelve month period, with the assurance by the chief engineer and surveyor that the twelve month completion clause, and the concomitant liquidated damages clause, would not be enforced against it. Id., 147 Pa. at 419, 23 A. at 628.
In affirming the lower court and, hence, enforcing the twelve-month completion and liquidated damages clauses, the Malone court noted (1) that the chief engineer and surveyor’s power to extend the contract’s completion time was exercisable only upon receipt of a specified notice from the contractors, which the court found had not been given; and (2) the grant of the extension of time had not been in writing and for a definite period. Id., 147 Pa. at 420-21, 23 A. at 629. Ignoring the contractors’ suggestion that the $50.00 per day liquidated damages clause was a penalty, the court stated that
the public convenience required the erection of the bridge, and that the loss resulting to the public from the want of it would amount to more than the cost of construction and maintenance ... how much more than the cost of construction the public inconvenience would amount to in dollars and cents it would be difficult, not to say impossible, to estimate. This difficulty brings the stipulation within the well-settled rule that it will be inferred that parties intended a sum agreed to be paid upon breach of a contract as liquidated damages, whenever the damages are uncertain and not capable of being ascertained by any satisfactory rule.
Id., 147 Pa. at 421, 23 A. at 629. This “public inconvenience” argument was similarly applied to validate the enforcement of liquidated-damages clauses in subsequent cases involving contractors and public bodies. See, e.g., Wells v. Philadelphia, 270 Pa. 42, 48, 112 A. 867, 869 (1921); Curran v. Philadelphia, 264 Pa. 111, 116-18, 107 A. 636, 638-39 (1919); Egolf v. York, 246 Pa. 455, 459, 92 A. 695, 696 (1914); and York v. York Rys. Co., 229 Pa. 236, 242, 78 A. 128, 131 (1910).
In more recent cases, a different analysis, albeit reaching the same conclusion as the “public inconvenience” argument, has been utilized by courts to validate liquidated-damages clauses in favor of governmental bodies, even where the damages assessed bear little or no relation to actual damages resulting from the non-performance, breach, or default of a contract. Cf. Thomas H. Ross, Inc. v. Seigfreid, — Pa.Super. -, -, 592 A.2d 1353, 1356-57 (1991) (similar reasoning upholding the enforceability of such a contract provision applied to a contract involving private parties).
*738In Sutter Corp. v. Tri-Boro Municipal Authority, 338 Pa.Super. 217, 487 A.2d 933 (1985), the Superior Court affirmed the lower court’s holding that the defendant municipal authority, a quasi-public body, should be awarded $59,300.00 in liquidated damages as a result of the plaintiff-contractor’s completion of a sewage treatment plant 296.5 days behind schedule. The plaintiff had entered into a contract with the defendant to construct an upgraded sewage treatment plant and pumping station. Id., 338 Pa.Super. at 220, 487 A.2d at 934. Included in the contract was a liquidated damages clause which required completion of the work within 365 days of the date stated in the Notice to Proceed, July 1, 1974. Id. If the plaintiff were unable to complete performance during the specified period, the defendant would be permitted to keep, as liquidated damages, $200.00 for each day, not including Sundays and holidays, that the work was delayed. Id., 338 Pa.Super. at 220-21, 487 A.2d at 934. Although the plaintiff was given an extension to October 31, 1975, it was still unable to complete performance until December 1, 1976. Id., 338 Pa.Super. at 221, 487 A.2d at 934. As a result of the plaintiff's delay, the defendant retained $59,300.00 as liquidated damages. Id., 338 Pa.Super. at 221, 487 A.2d at 935.
After finding that the plaintiff had not completed performance until December 1, 1976, and denying its argument that any assessed liquidated damages should be apportioned among other contractors involved in the project, the court found that the liquidated damages clause was not unconscionable and enforceable. Id., 338 Pa.Super. at 223, 487 A.2d at 936. This holding was premised upon two facts: (1) the plaintiff “was an experienced contractor which dealt with defendant at arms’s length;” and (2) the plaintiff's officers understood the terms of the contract. Id.
In Commonwealth Dep’t of Transportation v. Interstate Contractors Supply Co., 130 Pa.Cmwlth. 334, 568 A.2d 294 (1990), the Commonwealth Court based its finding that a liquidated damages clause was enforceable upon the holding in Sutter Corp. and upon an examination of the subject contract. In Interstate Contractors, the plaintiff contractor’s performance of a contract, involving the painting and cleaning of six bridges in Allegheny county, was delayed by inclement weather including flooding. Id., 130 Pa.Cmwlth. at 336, 568 A.2d at 294. Like the contract in Sutter Corp., there was a liquidated damages clause which provided the assessment of $200.00 per day liquidated damages for each day, beyond the contract deadline, that the plaintiff failed to complete the work under the contract. Id., 130 Pa. Cmwlth. at 336, 568 A.2d at 295. Therefore, taking into consideration a seven day extension granted by the defendant, the defendant imposed liquidated damages of $200.00 per day for forty-seven (47) days and partial liquidated damages of $50.00 per day for eight days. Id.
The Commonwealth’s Board of Claims (“the Board”) had found the imposition of the liquidated damages improper because they “were not an estimate of probable damages, but instead a form of punishment designed to prevent breach.” Id., 130 Pa. Cmwlth. at 337, 568 A.2d at 295. In overturning the Board’s ruling and finding that the liquidated damages were proper, the court concentrated on a reading of the contract, since it felt that,
[i]n determining whether a liquidated damages clause is an unenforceable penalty, one must examine the entire contract in light of its text, what it is about, the parties' intentions, and the facility of measuring or lack thereof, so as to arrive at an equitable conclusion.
Id., 130 Pa.Cmwlth. at 337, 568 A.2d at 295, citing Hartford, supra, 40 Pa.Cmwlth. at 138 n. 4, 396 A.2d at 888 n. 4.
The court noted further that, because the plaintiff’s performance was allegedly delayed by inclement weather and because of the existence of a contractual clause assigning the risk of damages, in the absence of language to the contrary, a contractor “is presumed to undertake the burden of unanticipated happenings, absent an Act of God, the law, or the actions of the other party.” 130 Pa.Cmwlth. at 338-39, 568 A.2d at 296. The court also thusly found *739the plaintiffs experience as a contractor to be highly significant:
[l]ike the contractor in Sutter, Interstate is an experienced contractor who should have known approximately how many working days it would have, due to the prohibition forbidding work on Sundays and holidays and the unpredictability of spring-time weather.
Id., 130 Pa.Cmwlth. at 339, 568 A.2d at 296. Finally, the court found the apparent absence of actual damages, as juxtaposed to the assessment of liquidated damages, not to be significant. Id. It felt the absence of actual damages did not make the liquidated damages clause a penalty and echoed Sutter Corp.’s holding that “in general, there is no requirement that actual damages be shown so that liquidated damages may be recovered.” Id.
3. In light of the foregoing state of the applicable Pennsylvania law, we find that liquidated damages may be properly assessed against the Debtor by the Defendant. We are not moved by Mark’s statements that weather severity prevented timely performance. Smith testified that the weather was normal for the season. Similar to the contractor at issue in Interstate Contractors, supra, 130 Pa.Cmwlth. at 338-39, 568 A.2d at 296, the Debtor, who had been in business for ten (10) years and had constructed approximately a dozen sewer systems in the past two and one-half (2%) years, should have known the approximate number of working days likely during the allotted period of performance under the Contract. Further, Pennsylvania law states that
a contractor is presumed, in the absence of an express provision to the contrary to have assumed the risk of unforeseen contingencies arising during the course of the work unless performance is rendered impossible by an act of God, the law, or the other party.
O’Neill Construction Co., Inc. v. Philadelphia, 335 Pa. 359, 361, 6 A.2d 525, 526-27 (1939). See also F.J. Busse, Inc. v. Department of General Services, 47 Pa.Cmwlth. 539, 544, 408 A.2d 578, 584 (1979); Buckley & Co. v. Commonwealth Dep’t of Transportation, 34 Pa.Cmwlth. 182, 185, 382 A.2d 1298, 1299 (1978); and General State Authority v. Osage Co., 24 Pa.Cmwlth. 276, 281-82, 355 A.2d 845, 848 (1976).
In the record of this case, there was a pertinent contractual provision which restricted the days to be counted in the contractual time-period to “working days,” which gave the Debtor some benefit for unforeseen contingencies. Compare West Manchester, supra, slip op. at 7-8 (weather conditions were expressly indicated as not being a basis for extension of the contract time-period; weather conditions could be considered).
Finally, this case is not as difficult for the Defendant to sustain its position as in Malone. No agent of the Defendant ever suggested that the Defendant would waive the liquidated-damages clause.
4. Nevertheless, the disputes over when the Debtor began the work; how “working days” are measured; and if weather and other factors interceded to justify eliminating certain dates as “working days” rendered uncertain the measurement of the time-period in which the Debt- or was subject to liquidated damages. The only objective statement of when the time-period for imposition of liquidated damages should run is included in the Letter from the Defendant’s counsel to the Debtor, which expressly stated that the time for the accrual of liquidated damages did not begin to run until March 8, 1991. We find counsel’s manifestation of the Defendant’s intention to accrue liquidated damages from March 8, 1991, forward to be clearer and more probative than the testimony of Catania who, with 20-20 hindsight, set the date earlier.
The Debtor can hardly complain about this result. Had we been compelled to attempt to calculate the commencement of this period without the benefit of the Letter, the date might well have been set earlier. No severe weather conditions or other significant factors justifying delay were proven by the Debtor to have occurred after March 8, 1991.
*740We also hold that the accrual of liquidated damages ended on March 25, 1991, the date which Catania testified was the date when a termination notice was sent to the Debtor. Thus, liquidated damages are assessed against the Debtor for only eighteen (18) days at $100 per day and amount to $1,800.00.
5. As per Finding of Fact 14, pages 735-736 supra, the Defendant is entitled to allowable damages of $2,970.80 for lawn restoration, $2,250 for clean-up yard work, and $770 for restoration concrete and hedge work, or a total of $5,990.80.
6. In summation of our foregoing Findings of Fact regarding damages due to the Defendant for non-completion, and our Conclusions of Law regarding the liquidated damages due to the Defendant for delay, the amount owed by the Defendant to the Debtor is $4,613.20, calculated as follows:
Contract price $22,943.00
Amount paid to Debtor ( — ) 10,539.00
Allowed damages ( — ) 5,990.80
Allowed amount owed from assessment of liquidated damages ( — ) 1,800.00
Net Sum Due $ 4,613.203
C. ORDER
AND NOW, this 29th day of August, 1991, after a trial of this proceeding on July 17, 1991, and upon careful consideration of the record made at the trial and of the post-trial submissions by the parties, it is hereby
ORDERED AND DECREED that judgment is entered in favor of the Plaintiff, CREATIVE CONSERVATION, t/a G & M HYDROGROW, and against the Defendant, TOWNSHIP OF RIDLEY, in the amount of $4,613.20.
. The liquidated damage clause language in the Instructions and the General Conditions varied, to some degree, from the language in the Contract. In the Instructions, the clause reads as follows:
The Agreement will include a stipulation that the Liquidated Damages will be established in the amount of:
One Hundred Dollars ($100.00) per calendar day after the agreed completion date that the Work is not fully certified by the Engineer as being Substantially Complete as that stage of completion is defined in the Conditions of the Contract.
In the General Conditions section of the Specifications, the clause read:
Where actual damages for any delay in completion are impossible of determination by reason of the Owner’s objection not to terminate the right of the Contractor to proceed, the Contractor and his sureties shall be liable for and shall pay to the Owner the sum of one hundred dollars ($100.00) as fixed, agreed, and liquidated damages for each calendar day of such delay after the date fixed for completion, until the work is completed or accepted. ...
There is a proviso to this clause, which states that the Owner may assess actual damages if it accepts the work performed by the Contractor and
if there has been some degree of completion as will in the Owner’s opinion make the project reasonably safe, fit, and convenient for the use for which it was intended.
. Pursuant to Paragraph five (5) of the Instructions, the Debtor was put on Notice that it was required to examine the documents/drawings for the project, to read all other specifications and contract documents, and to visit the site of performance of the Contract. A variation of this notice was included in the "Contractor’s Certification” section of the Contract: “[a]ll plans and specifications referred to above [those plans and specifications on file at the Ridley Township Municipal Building] and the site of work have been examined by the Contractor.” If the Debtor had any questions, or wished to point out any discrepancies, regarding the plans, specifications, or contract documents, Paragraph ten (10) of the Instructions afforded it the opportunity to voice such concerns prior to bidding.
. The figure is significantly less than the amount sought by the Debtor, i.e., $12,998.80. We therefore conclude that the sum due to the Debtor from the Defendant was not so clearly "fixed" as to entitle the Debtor to any pre-judgment interest in the judgment. Compare West Manchester, supra, slip op. at 12-13 (Debtor entitled to pre-judgment when it was awarded well over half of the amount prayed for and when the contract expressly provided for interest in the event of non-payment). See In re Creative Conservation, Inc., Creative Conservation, Inc. v. Lott Group, Inc., Bankr. No. 91-11276S, Adv. No. 91-0241S, 1991 WL 163739 (Bankr.E.D.Pa. August 21, 1991) (Debtor awarded only about $6,500 out of about $35,000 prayed for; no pre-judgment interest awarded). | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8493303/ | DECISION RE: OBJECTION TO EXEMPTION BY DOROTHY J. SIL-VRANTS TESTAMENTARY TRUST
WILLIAM L. EDMONDS, Bankruptcy Judge.
Neil Frederickson, as Personal Representative for the Dorothy J. Silvrants Testamentary Trust (hereinafter “Trust”) objects to debtors’ claim of exemption in real estate described as debtors’ homestead. Trial took place December 18, 2001 in Sioux City. Harold D. Dawson appeared as attorney for Trust. Donald H. Molstad appeared as attorney for the debtors, Tony C. and Mary E. Petersen. This is a core proceeding under 28 U.S.C. § 157(b)(2)(B).
Tony and Mary Petersen, husband and wife, filed their joint chapter 7 petition on July 10, 2001. They listed in their schedules real estate described as:
The East 622.23 feet of the North 350 feet of the Northwest Quarter of Section 9, Township 99 North, Range 37 West of the 5th P.M., Dickinson County, Iowa; the tract contains 5.00 acres inclusive of 0.47 acres of easement for county road on the North side thereoft [sic],
Petersens claimed the real estate exempt as their homestead under Iowa Code §§ 561.2 and 561.16.
Trust objected to the claim. At the time of filing, Trust had a pending claim in Iowa District Court asking for the imposition in its favor of a constructive trust or equitable lien against the property. Trust contends that because of its claim, debtors should not be able to exempt an interest in the real estate.
Findings of Fact
Petersens purchased the real estate in 1996. The property contained five acres, three of which were being farmed, and an old two-story farmhouse. The house needed a new foundation. Petersens wanted to have the house enlarged and the foundation repaired. The late Dorothy Silvrants was Mary Petersen’s mother. The two discussed the Petersens’ project. Mrs. Sil-vrants suggested that the couple construct a new home on the location of the old one. She offered to finance the construction. Mary Petersen says there was no written or verbal agreement with her mother re*589garding repayment of the money spent on the construction by her mother. She says the couple would not have been able to afford the construction. Mary Petersen believed that she would not have to repay her mother.
Petersens got estimates on the construction costs. Mary Petersen believed the new home would cost $150,000.00. Petersens decided that they would do as much of the work as they could in order to save money. Mary Petersen and Dorothy Silvrants visited the bank which held a mortgage against Petersens’ property. The mortgage debt at the time was approximately $60,000.00. The bank was concerned about the impairment of its mortgage interest because of the proposed removal of the existing farmhouse from the property. The banker asked Mrs. Sil-vrants to guarantee Petersens’ mortgage debt. She did so. She also may have signed a statement that she would be responsible for payment of construction costs on the new house.
Within the next six weeks, Petersens sold the old farmhouse, and it was moved off the acreage. Construction began. Sil-vrants paid the accruing construction costs. Some bills were sent directly to her; other bills were passed along to her by Mary Petersen.
At some point, the construction became a financial problem. Silvrants decided either that she could not or that she would not put any more money into the project. Silvrants was sued directly by some unpaid contractors and material suppliers. Contractors and materialmen filed mechanic’s liens against the property. Silvrants paid off some of these creditors and took assignments of the hens. Farmers Cooperative Elevator Company from Ruthven, Iowa sued the Petersens and various hen-holders to foreclose its claim against the property. Silvrants intervened in the action. Other creditors may have obtained hens against property in Spirit Lake owned by Silvrants.
Silvrants and Petersens were at odds. Sometime in 1999, they began discussing a settlement that would resolve the claims against the Petersens’ property and the dispute between themselves. Silvrants was represented by two attorneys — William T. Hedeen of Worthington, Minnesota and Daniel E. DeKoter of Sibley, Iowa. Petersens were represented by David L. Reinschmidt of Sioux City.
Silvrants and Petersens reached a settlement in November 1999. The agreement also involved settlement of the action brought by the Farmers Cooperative by a payment to the Coop of $80,000.00. Sil-vrants would pay $43,500.00 of that amount, and Petersens would pay the remaining $36,500.00. Also, Silvrants agreed that she would release the mechanic’s hens that had been assigned to her. Petersens agreed that they would pay any other hens and judgments against the property. Sil-vrants and the Petersens would exchange mutual releases of claims against one another.
It was further agreed that Petersens would list their property for sale, and that they would accept any reasonable offer of at least $187,000.00 for the property. Pet-ersens agreed to list the home for sale on or before April 1, 2000. Out of the proceeds of sale, Petersens agreed to pay Silvrants $33,750.00. They agreed to sign a promissory note to Silvrants for that amount. If Petersens paid Silvrants the amount due on or before April 1, 2000, they would not be obligated to list or to sell the property. The paragraph in the settlement agreement requiring the sale of the property stated the following:
4. In exchange for Dorothy Silvrants’ $43,500 payment, the Petersens agree that on or before April 1, 2000, they will *590list the home ... for sale. They further agree to accept any reasonable offer for fair market value should the house not sell on or before. A reasonable offer shall be deemed to be an offer equaling or exceeding the appraisal performed upon the real estate on May 28, 1999, which set forth a value of $187,000.00. The Petersens shall not be obligated to either list or sell the home if they have paid Dorothy Silvrants the payment set forth in paragraph # 6 below on or before April 1, 2000.
Exhibit 2. Paragraph # 6 stated that:
Upon the closing of the home ..., Dorothy Silvrants shall be paid at the closing Thirty-three Thousand Seven Hundred Fifty Dollars ($33,750.00). The Peter-sens agree to execute a promissory note to evidence their obligation to repay this $33,750.00. Upon this 33,750.00 payment to Dorothy Silvrants, Dorothy Sil-vrants and the Petersen’s [sic] shall execute mutual releases.
Exhibit 2.
Silvrants’ attorneys discussed the settlement in correspondence exchanged in October 1999. Hedeen and DeKoter agreed that Silvrants should get a second mortgage against the property to secure the note from Petersens. They were concerned that Petersens intended to file bankruptcy and that if they did, Silvrants’ claim against Petersens would be unsecured and discharged.
Reinschmidt wrote to Hedeen on October 6, 1999, advising him that Mary Petersen and Dorothy Silvrants had talked and had agreed that a mortgage was not necessary. Petersens were concerned that if they encumbered the property with a mortgage to Silvrants, they could not refinance their mortgage. They intended to obtain the money they needed to effectuate the settlement by refinancing their mortgage debt against the home. The settlement agreement, drafted by Reinsch-midt, did not provide for a mortgage to Silvrants. On October 14, 1999, DeKoter wrote Hedeen that he would not concur with any settlement that did not provide a mortgage from Petersens to Silvrants. Hedeen wrote to Silvrants on October 20, 1999, recommending that she not accept the agreement in its then-present form (Exhibit F).
In seven numbered paragraphs, Hedeen advised Silvrants as to the weaknesses of the agreement and of potential problems concerning its performance by Petersens. I will quote two paragraphs in particular:
1. There is no security for the $33,750.00 which you are to receive out of house sale proceeds. As a minimum there should be a note secured by a second mortgage on the property so that you have some control over the future disposition of the property and the repayment to you of the agreed amount.
2. Based on information developed during the course of this matter, it appears that both Mr. and Mrs. Petersen are presently insolvent. By filing bankruptcy (which is a very real possibility) they will effectively discharge the debt owing to you and there will be no recourse available.
Exhibit F.
Nothing was added to the proposed settlement agreement to provide a mortgage to Silvrants. She signed the agreement on November 1, 1999; Petersens signed it on November 22, 1999 (Exhibit 2). On or about November 16, 1999, Petersens signed a promissory note to Silvrants promising to pay her $33,750.00 in principal and $100.00 in interest on January 1, 2001.
Silvrants died on November 25, 1999 at the age of 76. Her will created the Dorothy J. Silvrants Testamentary Trust. The *591promissory note was assigned to the Trust. Petersens filed their bankruptcy petition July 10, 2001. They had put the house on the market in May 2001. They moved from the property in August 2001. The property has not yet been sold. The Trust, by its personal representative, filed a civil action against the Petersens in the Iowa District Court for Dickinson County asking that a constructive trust or equitable lien be established against the property in its favor.
Discussion
The Trust now asks this court to recognize a constructive trust or equitable lien in its favor on the property. It argues that the Petersens would be unjustly enriched if they were allowed to keep the equity in their homestead free of the Trust’s claim.
A constructive trust is “an equitable remedy courts apply to provide restitution and prevent unjust enrichment.... A constructive trust is a remedial device under which the holder of legal title to property is held to be a trustee for the benefit of another who in good conscience is entitled to the beneficial interest.” Berger v. Cas’ Feed Store, Inc., 577 N.W.2d 631, 632 (Iowa 1998); accord Regal Insurance Co. v. Summit Guaranty Corp., 324 N.W.2d 697, 704-05 (Iowa 1982).
An equitable lien is “a right not recognized at law, to have a fund or a specific property, or its proceeds, applied in whole or in part to the payment of a particular debt or class of debts.... The equitable lien is said to be a restitution concept applied by courts of equity to avoid injustice and particularly to avoid unjust enrichment.” Tubbs v. United Central Bank, N.A., 451 N.W.2d 177, 185 (Iowa 1990). Equitable liens and constructive trusts are remedial alternatives. Matter of Receivership of Hollingsworth, 386 N.W.2d 93, 96 (Iowa 1986). See also Robert A. Hillman, Contract Remedies, Equity, and Restitution in Iowa, § 3.3(B) (1979) (grounds for either remedy are similar; equitable lien gives the plaintiff a security interest, constructive trust makes plaintiff the beneficial owner of the property).
The imposition of a constructive trust on a bankruptcy debtor’s property gives the true owner an equitable interest superior to that of the debtor or trustee. N.S. Garrott & Sons v. Union Planters National Bank of Memphis (In re N.S. Garrott & Sons), 772 F.2d 462, 467 (8th Cir.1985). Only the property interest that remains with the debtor becomes property of the bankruptcy estate. Id. The existence of an equitable lien would have a similar effect. The property subject to the lien would not come into the bankruptcy estate to the extent of the creditor’s interest in the property. 11 U.S.C. § 541(d).
The removal of property from the estate conflicts with the bankruptcy principle of equitable distribution for all creditors. For this reason, the Sixth Circuit has concluded that, before a bankruptcy court may recognize a constructive trust, there must have been a pre-petition judicial decision creating the trust, whether or not the court used that term. McCafferty v. McCafferty (In re McCafferty), 96 F.3d 192, 196-97 (6th Cir.1996); XL/Datacomp, Inc. v. Wilson (In re Omegas Group, Inc.), 16 F.3d 1443, 1451 (6th Cir.1994).
In In re N.S. Garrott & Sons, 772 F.2d at 467, the Eighth Circuit determined that a fund of money did not become property of the debtor’s estate because, under Arkansas law, a state court would have recognized a constructive trust on the fund.
In Chiu v. Wong, 16 F.3d 306 (8th Cir.1994), the court applied Minnesota law. Because the debtor had used the proceeds *592of converted property to purchase her homestead, the creditor was entitled to enforce a constructive trust in the homestead. The property did not become property of the bankruptcy estate to the extent it was purchased with the proceeds of converted funds.
Thus, a bankruptcy court may determine whether, under equitable principles of state law, the creditor’s claimed interest ever became property of the estate. This court will examine whether Iowa law would recognize, for the Trust’s benefit, a pre-petition property interest in the Peter-sens’ homestead under constructive trust or equitable lien theories.
There are three categories of constructive trusts: those arising from actual fraud, those arising from constructive fraud, and those based on equitable principles other than fraud. Berger v. Cas’ Feed Store, 577 N.W.2d at 632. The party seeking the remedy must establish the right by “clear, convincing, and satisfactory evidence.” Id.
There has been no allegation of fraud by the Petersens. The Trust must establish its right to an equitable remedy on the basis of other equitable principles.
Circumstances justifying imposition of a constructive trust based on other than fraud include bad faith, duress, coercion, undue influence, abuse of confidence, or any form of unconscionable conduct or questionable means by which one obtains the legal right to property which they should not in equity and good conscience hold.
Id.
A few Iowa decisions have recognized a constructive trust in the absence of fraud. In Loschen v. Clark, 256 Iowa 413, 127 N.W.2d 600 (1964), plaintiff, an elderly man, gave his daughter and son-in-law money for the purchase of a farm. In return, they agreed to pay him $30 per month as long as he lived. The son-in-law later denied liability to continue the payments. A significant fact in the case was that the parties’ agreement was treated as one for the support of an elderly parent. The court affirmed that a constructive trust was created in favor of plaintiff, who was entitled to elect reconveyance of the farm.
In Matter of Chapman’s Estate, 239 N.W.2d 869 (Iowa 1976), a husband and wife made a joint and mutual will. After the wife’s death, the husband revoked the will. The court imposed a constructive trust on all of the husband’s property in favor of the beneficiaries of the prior will.
The Trust argues that Petersens will be unjustly enriched if they are allowed to exempt the equity in their homestead, because Silvrants provided substantial funds for construction of the house. The Trust is correct that a constructive trust or equitable lien may be an appropriate remedy against unjust enrichment. Loschen v. Clark, 127 N.W.2d at 603. The Trust has not shown, however, that Peter-sens have been unjustly enriched. Peter-sens received money from Silvrants for construction of them house; consequently, they owed debt to her. The parties settled all claims between themselves by agreement. Silvrants was aware that her agreement did not give her a mortgage in the homestead property. She was aware of the risk of bankruptcy. Although the Trust claims that Silvrants signed the settlement agreement under pressure, it has not shown by clear and convincing evidence that she signed under duress or coercion. She was represented by counsel who advised against accepting the agreement. Petersens believed that a second mortgage would make it more difficult for them to obtain financing to pay the debts required by the settlement agreement. *593Silvrants was aware of their concern. She voluntarily signed the settlement agreement after being advised of the risks. Any injustice under these circumstances is not the result of any wrongful conduct on the part of the Petersens. It is the result of the bankruptcy discharge, which Sil-vrants knowingly risked despite the advice of counsel.
The principle of unjust enrichment does not give a court a “roving mandate” to adjust every perceived unfairness that occurs in personal relationships. Atkinson v. Atkinson (Matter of the Estate of Atkinson), 1999 WL 823564 at *2 (Iowa App.1999) (quoting Slocum v. Hammond, 346 N.W.2d 485, 491-92 (Iowa 1984)). Iowa courts seem especially reluctant to find “unjust enrichment” when parties have voluntarily placed themselves in a situation or have failed to take action to put themselves in a better situation. See West Branch State Bank v. Gates, 477 N.W.2d 848, 852 (Iowa 1991) (debtor gratuitously transferred grain bin to brother; not unjust enrichment to permit foreclosure of remaining collateral); Estate of Atkinson, 1999 WL 823564 at *3 (woman took no action to establish interest in house despite knowing deed was not in her name and titleholder had not divorced his wife).
The cases cited by the Trust are not factually similar to the Petersens’ case. In one, the court applied the principle of unjust enrichment to establish liability for debt, a fact not at issue here. Credit Bureau Enterprises, Inc. v. Pelo, 608 N.W.2d 20 (Iowa 2000) (patient involuntarily committed to hospital was liable to pay for mental health services received).
The Trust cites Tubbs v. United Central Bank, N.A., 451 N.W.2d 177 (Iowa 1990) for the proposition that a constructive trust may arise by contract. The Tubbs ease is a factually complicated history of the demise of an unregulated bank, Exchange Bank. The owners operated the bank for their own benefit for many years and, through various means, hid its insolvent condition. Eleven days before the bank was put into receivership, another bank, UCB, recorded a mortgage on 4500 acres of farmland owned by Exchange Bank’s owners. The evidence supported the finding of an equitable lien on the farmland for the benefit of the failed bank’s depositors under an “express contract theory.” 451 N.W.2d at 185.
Over the years, Exchange Bank’s owners had made public statements and had recorded notices that the bank’s deposits would be backed by their property, including the farmland. The purpose of these notices was to assure customers that their deposits were safe, even though they were not covered by federal deposit insurance. Id. Moreover, the court held that the lien had priority over UCB’s mortgage, because UCB had actual knowledge that the land had been pledged for the security of the Exchange Bank’s customers. Id.
In the Tubbs case, the bank’s depositors did not have an opportunity to bargain for security. In contrast, Silvrants specifically considered whether she would insist upon a mortgage. She did not do so. This court should not now improve her bargain by providing security that she herself knowingly elected not to take.
In its brief, the Trust claims for the first time that it is entitled to be equitably subrogated to the rights of creditors whose claims Silvrants paid. The court will assume that Silvrants could have had a right of subrogation for payment of debt to the Farmers Coop and the claims of contractors and materialmen. It seems, however, that she waived any such right by settling with Petersens. Silvrants had already taken assignments of certain me*594chanic’s liens. She agreed to release the liens. She did not insist upon a mortgage to secure her claim. The settlement agreement shows an intent to release all claims against the property. The court concludes that the Trust is not entitled to any relief on the basis of equitable subro-gation.
IT IS ORDERED that the objection of the Dorothy Silvrants’ Testamentary Trust is overruled. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8493304/ | DECISION ON PLAINTIFF’S MOTION FOR SUMMARY JUDGMENT
PETER J. MCNIFF, Bankruptcy Judge.
On December 20, 2001, this case came before the court for hearing on the motion of the plaintiff, Randy Royal, for summary judgment on all claims stated in his complaint. The defendants, Lowell D. Baker and DonaBeth Baker, oppose the motion. The court has considered the pleadings of record, the arguments of the parties, and the applicable law, and is prepared to rule.
Jurisdiction
The court has jurisdiction over this adversary proceeding pursuant to 28 U.S.C. §§ 157 and 1334. This is a core proceeding within the definition of 28 U.S.C. § 157(b)(2)(H). The motion is brought under Fed.R.Civ.P. 56, made applicable in adversary proceedings by Fed. R. Bankr.P. 7056.
Findings of Fact
The following facts are basically undisputed. The defendants dispute the conclusions drawn by the plaintiff from the facts.
Lowell and DonaBeth Baker filed a voluntary chapter 7 petition for relief in the underlying bankruptcy case on March 7, 2001. The plaintiff, Randy Royal, is the chapter 7 trustee of the Bakers’ estate.
Balance Sheet: The Bakers are the borrowers on a promissory note to the Big Horn Federal Savings Bank (Big Horn Federal) dated March 6, 1998, in the principal amount of $155,000. One day after Bakers filed their voluntary chapter 7 peti*895tion in the underlying bankruptcy case, an auction sale was conducted of Bakers’ farm equipment, most of it collateral on the Big Horn Federal note. After application of the sale proceeds, the prepetition note balance, including interest, is $11,220.64.
Bakers are also guarantors of debts owed to Big Horn Federal by their son and daughter-in-law, Daniel and Shannon Baker (Daniel and Shannon). The Daniel and Shannon notes are secured by the debtors’ farm and other farm collateral owned by Daniel and Shannon. The Daniel and Shannon notes date back to 1992, with the most recent deferral agreements dated June 30, 1999. Bakers also guaranteed a September 23,1997 promissory note given to Big Horn Federal by George Bas-ham. The balance on the Daniel and Shannon notes in March 2001 exceeded $900,000. The value of the collateral securing the notes is estimated by Big Horn Federal to be $555,803.67.
The figures on Bakers’ schedule D show the Big Horn Federal notes are under-collateralized, with a deficiency of approximately $300,000. The plaintiff provided a balance sheet prepared by Big Horn Federal showing Bakers’ financial circumstances on June 13, 2000, August 22, 2000 and March 2, 2001 (the dates of the transfers in question). The balance sheet includes exempt assets, takes into account collateral owned by Daniel and Shannon, and values the Bakers’ real estate at $530,000. Bakers’ liabilities exceeded their assets on each of the stated dates.
Bakers have not refuted the balance sheet evidence. They both admit they were aware of Daniel and Shannon’s financial difficulties by 1999. In early 2000, Bakers consulted counsel regarding their financial problems.
Transfers: On January 16, 1997, Dona-Beth Baker purchased an annuity contract, Hartford Life Putnam Capital Manager V-Contract No. 710051085 (Hartford Annuity). The initial payment on the contract was $10,009.21. On January 27, 2000, Bakers received a dividend check of $6,190.59 from the Powell Bean Growers Association. From these patronage account funds, the Bakers made a $6,000 payment on February 7, 2000 to the Hartford Annuity. They also made a $1,000 payment on June 13, 2000.
On March 1, 2001, Bakers sold a rental house located in Powell, Wyoming for $55,400. The property was not encumbered. Bakers made a $51,790 payment to the Hartford Annuity on March 2, 2001 from the sale proceeds.
In August 2000, Bakers received $50,000 from Tim Latham to retire an installment land contract on real property owned by them, under which Mr. Latham was the purchaser. Neither the real property nor the installment contract was encumbered. On August 22, 2000, Bakers used the $50,000 to purchase another annuity contract, Anchor National Life Insurance Polaris II-Contract No. P37A0409075 (Anchor Annuity).
Bakers characterize the annuity contracts as investments. Neither the installment land contract, the rental unit, nor the bean growers’ patronage account was exempt from the Bakers’ creditors at the time those properties were liquidated.
Conclusions of Law
Summary judgment is appropriate when there is no disputed issue of material fact and the moving party is entitled to judgment as a matter of law. In re Baum, 22 F.3d 1014, 1016 (10th Cir.1994). Under Rule 56(c), summary judgment is proper only if the evidence, reviewed in the light most favorable to the party opposing the motion, demonstrates no genuine issue of any material fact. Frandsen v. Westing*896house Corp., 46 F.3d 975, 976 (10th Cir.1995).
A material fact is one that could affect the outcome of the suit, and a genuine issue is one where the evidence is such that a reasonable jury could return a verdict for the nonmoving party. Farthing v. City of Shawnee, Kan., 39 F.3d 1131, 1134 (10th Cir.1994). The court views the evidence in the light most favorable to the non-moving party, but that party cannot rest on the mere allegations in its pleadings and must come forward with evidence to raise a genuine issue. Id.
The trustee’s complaint states three claims for relief: to recover alleged fraudulent conveyances under 11 U.S.C. § 544 and the Uniform Fraudulent Conveyance Act (UFCA); to recover alleged fraudulent conveyances under 11 U.S.C. § 548; and an objection to Bakers’ claims of exemption in the Hartford Annuity and the Anchor Annuity.
Bakers’ defenses are: they received adequate consideration in return for funding the annuity contracts; they were acting on the advice of counsel when they liquidated assets and funded the annuity contracts, precluding a finding of actual fraud; and prepetition exemption and bankruptcy planning is permissible rather than fraudulent They also point out that fraudulent intent is a question of fact requiring a trial on the merits. Bakers provided no evidence in support of their response.
Section 544
Under § 544(b), the trustee is given the power to “avoid any transfer of an interest of the debtor in property ... that is voidable under applicable law by a creditor holding an unsecured claim that is allowable under section 502 of [title 11].” The applicable law is the Wyoming Uniform Fraudulent Conveyance Act, found at Wyo. Stat. Ann. §§ 34-14-101 through 34-14-113 (LexisNexis 2001).
The plaintiff/trustee contends Bakers did not receive fair consideration for the transfers to the annuity contracts. The UFCA provides: “[e]very conveyance made ... by a person who is or will be thereby rendered insolvent is fraudulent as to creditors without regard to his actual intent if the conveyance is made ... without a fair consideration.” Wyo. Stat. Ann. § 34-14-105. Under § 34-14-110, a creditor with a matured claim has standing to set aside a fraudulent conveyance under the UFCA. Big Horn Federal is such a creditor, and the trustee steps into its shoes under § 544.
The trustee has the burden of proof to show the elements of the claim. The burden for constructive fraud may be by clear and convincing evidence, as it is for actual fraud. Thomasi v. Koch, 660 P.2d 806, 811 (Wyo.1983). A debtor’s actual intent is irrelevant to a constructive fraud claim. Wyo. Stat. Ann. § 34-14-105.
Conveyance: First, Bakers seem to argue that a conveyance or transfer did not occur in this case because they merely changed the form of their own assets. A conveyance under the UFCA includes “every payment of money, assignment, release, transfer, lease, mortgage or pledge of tangible or intangible property[.]” Wyo. Stat. Ann. § 34-14-102(a)(ii). The definition is broad.
The New Jersey Supreme Court recently discussed the application of the Uniform Fraudulent Transfer Act to a factually similar case. Gilchinsky v. National Westminster Bank N.J., 159 N.J. 463, 732 A.2d 482 (1999). That court ruled the relevant inquiry is whether the debtor has put some asset beyond the reach of creditors which would have been available to them but for the conveyance. Id. at 488. The court concluded a transfer occurs *897when a debtor retains title and conveys nonexenapt property into exempt property, and that a debtor/transferor is an “insider” under such circumstances. Id. at 490.
A similar determination was reached by the Eleventh Circuit Court of Appeals in the case of In re Levine, 134 F.3d 1046 (11th Cir.1998). Applying Florida law which defined a transfer somewhat differently but as broadly as Wyoming’s law, the Levine court held that a transfer occurred when the debtor used nonexempt cash to purchase exempt annuity contracts. The investment characteristics of an annuity contract were persuasive to the Levine court because the debtor essentially lost control over the asset and became bound by the terms of the annuity contract. Id. at 1050.
In this case, Bakers also turned nonexempt cash into “investments,” subject to the contractual provisions of the annuities. The form of ownership and the nature of the assets were altered. The court concludes a conveyance occurred within the meaning of the UFCA.
Insolvency: The plaintiff/trustee must prove Bakers were insolvent at the time of, or as a result of, each conveyance. A transferor’s insolvency is determined by a balance sheet test, i.e., “when the present fair salable value of his assets is less than the amount that will be required to pay his probable liability on his existing debts as they become absolute and matured.” Wyo. Stat. Ann. § 34-14-103(a).
The trustee submitted a balance sheet prepared by Big Horn Federal to establish that Bakers were insolvent when they liquidated the bean contracts, the rental house, and the contract for deed, and were insolvent on the date they filed their chapter 7 bankruptcy case. There are no calculations as of February 7, 2000, the date of the $6,000 conveyance into the Hartford Annuity. Regardless, Bakers did not refute the evidence or the conclusion that they were insolvent at all relevant times. The court concludes the trustee has met his burden of proof on this issue.
Fair Consideration: Next, Bakers argue the annuity investments and their streams of payment, although difficult to value precisely, are reasonably equivalent in value to the cash funds. Fair consideration is given for property “when in exchange for such property ... as a fair equivalent therefore, and in good faith, property is conveyed or an antecedent debt is satisfied.” Wyo. Stat. Ann. § 34-14-104(a). Bakers’ analysis fails because fair consideration is determined from the standpoint of the creditors. Montana Ass’n of Credit Management v. Hergert, 181 Mont. 442, 593 P.2d 1059, 1064 (1979). The test applied by the Hergert court is whether or not the conveyance renders the debtor execution proof. Id.
A similar ruling was made by the United States District Court in a case decided under Michigan law, Craft v. United States, 65 F.Supp.2d 651, 658-659 (W.D.Mich.1999). That court held: without regard to fraudulent intent, a debtor cannot enhance entireties property at the expense of his creditors, because such action constitutes fraud in law under Michigan’s Fraudulent Conveyance Act. See, also, Gilchinsky v. National Westminster Bank N.J., 732 A.2d at 488 (effect on creditors is the relevant inquiry).
Here, Bakers took all of their available unencumbered assets, reduced them to cash and purchased annuity contracts claimed as exempt. From the perspective of their creditors, Bakers received no consideration in return. The court concludes the transfers made on February 7, 2000, June 13, 2000, August 22, 2000, and March 2, 2001 were fraudulent in law and are avoidable under the UFCA.
*898Exemptions
The debtors’ defenses to the complaint are tied to the permissibility of exemption planning. Therefore, even though the transfers are avoidable under the UFCA, the court deems it necessary to address the exemption question, a separate issue of Wyoming law.
For exemption purposes under the Bankruptcy Code, Wyoming is an “opt out” state. 11 U.S.C. § 522(b)(2)(A); Wyo. Stat. Ann § 1-20-109 (LexisNexis 2001). Bakers claim the annuity contracts exempt from execution and the bankruptcy estate pursuant to Wyo. Stat. Ann. § 26-15 — 132(a)(i) (LexisNexis 2001)which provides:
The benefits, privileges and options which under any annuity contract issued are due or prospectively due the annuitant, are not subject to execution nor is the annuitant compelled to exercise any such rights, powers or options. Creditors are not allowed to interfere with or terminate the contract, except:
(i) As to amounts paid for or as premium on the annuity with intent to defraud creditors, with interest thereon ... (emphasis provided).
The validity of the exemptions is determined in accordance with Wyoming law.
The exemption statute does not collaborate on what constitutes “intent to defraud creditors.” Nor is there any Wyoming case law interpreting that provision of the statute. In other states, courts have incorporated fraudulent conveyance law into similar exemption statutes in order to provide a framework for the analysis. Dona Ana Sav. and Loan Ass’n v. Dofflemeyer, 115 N.M. 590, 855 P.2d 1054 (1993); In re Tveten, 402 N.W.2d 551 (Minn.1987). In the court’s view, the UFCA is relevant to the determination of whether the annuity contracts were purchased with intent to defraud creditors.
Under the UFCA, actual fraud and fraudulent intent may be shown by circumstantial evidence, because direct evidence of fraud is generally unavailable. In re Estate of Reed, 566 P.2d 587, 591 (Wyo.1977). The indicia of fraud set forth in the Reed case include: a transfer of property without consideration in the face of litigation; the timing of the transfer in relation to creditor action; and the relationship of the transferee to the transferor (insider transactions). Id. at 590. Other indicia include: whether the debtor retained possession or control of the property after the transfer; a transfer of substantially all of the debtor’s assets; insolvency at the time of the transfer; the proximity in time to the incurrence of substantial debt; concealment of the transfer; pending or threatened litigation at the time of the transfer; and financial difficulties. In re Kelsey, 270 B.R. 776, 782 (10th Cir. BAP 2001); see, also, Craft v. United States, 65 F.Supp.2d at 657. Transfers to family members are subjected to particularly close scrutiny and, along with other circumstances, often provide compelling evidence of fraud. Id.
In this case, the undisputed facts satisfy many of the badges of fraud. When Bakers became aware of Daniel’s and Shannon’s financial problems and their own subsequent risk, they consulted counsel, liquidated unencumbered assets and funded the exempt annuities. The transfers were without consideration from the perspective of the creditors and were made to insiders, the debtors themselves. The debtors transferred all of their unencumbered assets to execution proof investments, while retaining control over the property. The bankruptcy filing occurred shortly thereafter.
Despite these facts, the debtors argue there was no intent to defraud their credi*899tors because they did not conceal the transactions, and they acted on the advice of counsel. The transfers in this case from cash to exempt annuities were made by Bakers in order that their creditors, particularly Big Horn Federal, would be unable to recover on their unsecured claims from unencumbered assets. Acting on the advice of counsel can be interpreted to show Bakers knew precisely what they were doing, rather than negating fraudulent intent.
The evidence is sufficient to establish that the payments into the annuities were made as a result of actual fraud, and as such those portions of the annuities are not exempt. Acting on the advice of counsel and open disclosing of the transactions are but two factors and are insufficient evidence to overcome the weight of the other indicia of fraud in this case.
Bakers also refer to the legislative history of the Bankruptcy Code and state an oft-repeated premise, that the conversion of nonexempt assets to exempt assets for the purpose of placing the assets outside the reach of creditors is not, without more, a fraudulent transfer. In the case of In re Carey, 938 F.2d 1073 (10th Cir.1991), the Tenth Circuit Court of Appeals discussed a conveyance of nonexempt to exempt assets in the context of a § 727 objection to discharge and ruled that the “without more” language requires proof of actual fraud. Actual fraud may be shown by the usual evidence of specific indicia, set forth in the Carey decision, and discussed infra. Id. at 1077.
Even if exemption planning is permissible under federal bankruptcy law, the exemptions in this case are claimed under a statute which specifically invalidates an exemption claim in the presence of actual fraud. The court does not believe that generalized statements in the legislative history of the Bankruptcy Code were intended to, or can, override specific provisions of Wyoming exemption law in an “opt out” state.
There may be circumstances where the purchase of exempt property from nonexempt assets is permissible exemption planning and not, in and of itself, fraudulent as to a debtor’s creditors. For example, payments which increase the value of a homestead exemption may be an exception to the court’s holding today. But when a debtor shields virtually all of his valuable assets from a specific creditor while insolvent, and shortly after files a chapter 7 bankruptcy case, reasonable assumptions can may be made. That conduct is not permissible exemption planning.
Other grounds exist to avoid the transfer as well. Under the UFCA, actions taken to hinder or delay creditors are also grounds for avoidance of a conveyance. Wyo. Stat. Ann. § 34-14-108; In re Estate of Reed, 566 P.2d at 590. Bakers deliberately funded the annuity contracts and then filed the bankruptcy case in order to prevent their creditors from obtaining unencumbered assets to satisfy claims. They don’t deny this. The action was taken to hinder creditors and establishes a claim under Wyo. Stat. Ann. § 34-14-108 without regard to fraudulent intent.
To the extent of the payments made to the Hartford Annuity on February 7, 2000, June 13, 2000, and March 1, 2001, the Hartford Annuity is not exempt, and the trustee’s objection is sustained. The exemption claimed in the Anchor Annuity is overruled in its entirety. The court will enter a judgment in the plaintiffs favor on the motion for summary judgment. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489181/ | ORDER OF DISMISSAL
THOMAS C. BRITTON, Bankruptcy Judge.
This chapter 13 case was filed on November 30,1981. The debtors’ mortgagee seeks dismissal. (C.P.No. 3). The motion was heard on December 30.
The debtors have never filed their schedules nor have they filed a plan. B.R. 13-201(a) requires that these papers be filed within 10 days.
There is only one creditor in this ease, the mortgagee. A foreclosure decree had been entered and a clerk’s sale had been held before bankruptcy. The only step which remained to extinguish the debtors’ interest in the mortgaged property was the clerk’s issuance of a certificate of title. Under Florida law, prior to the issuance of a certificate of title, the mortgagor has a limited right to redeem his property by payment in full of the total indebtedness. § 45.031, Fla.Stat.; Walters v. Gallman, Fla.App. 1973, 286 So.2d 275. The exercise of that right in this case would require the payment of over $40,000. There is no rational prospect that these debtors can exercise that right.
Under these circumstances, this case is dismissed with prejudice under 11 U.S.C. § 1307(c)(1) and (3).
This dismissal terminates the automatic stay. § 362(c)(2)(B). Therefore, the mortgagee is free to proceed with its foreclosure proceedings unless the debtors can avail themselves of their right to redeem under Florida law. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489183/ | ORDER ON CLAIMS 13 AND 23 (Sheridan, Inc.)
THOMAS C. BRITTON, Bankruptcy Judge.
The debtor-in-possession in this chapter 11 case has objected to Claim Nos. 13 and 23, filed by Sheridan, Inc. (C.P.No. 63, 65). The objections were heard oh January 5, 1982. At the hearing, the creditor abandoned Claim No. 13, which was superseded by Claim No. 23 ($86,231.50).
The claim is based on an equipment lease of a 55 ton press brake leased by Sheridan on December 5, 1980 to the debtor and a third party, Mercury Machine Tool & Supply Corporation, for five years at $1,487 a month, including tax. The objection is that the “claim is based on forged documents”.
In this court, Claim No. 23 constitutes prima facie evidence of the validity and amount of Sheridan’s claim. B.R. 301(b). The evidence offered by the debtor fails to overcome that prima facie evidence; therefore, the objection is overruled and the claim is allowed in full as a general unsecured claim.
The equipment lease was executed in Florida by the debtor, purportedly by its president, Larry Bryant, and is personally guaranteed, purportedly by Bryant and his wife. The lease bears a delivery certificate and acceptance receipt, acknowledging delivery and installation of and acceptance of the equipment, signed by the debtor, again purportedly by Bryant. These individuals have testified that neither signed the lease nor the acceptance and neither authorized any other person to sign their names. The execution by the other parties is admittedly genuine. The co-lessee/supplier, Mercury Machine, executed the document through its president, John W. Williamson. Each of the signatures was acknowledged before a Florida notary who has certified the debt- or’s execution of the document.
*725The debtor was not in financial distress at the time this lease was executed. Williamson was a director and vice-president of the debtor. This specific equipment was needed by and desired by the debtor which also required the financing provided by Sheridan. Bryant had numerous similar transactions involving other equipment and Mercury and Williamson at or about the same time. The equipment was never delivered to Bryant and the parties agree that if the corporate execution was unauthorized, it was done by Williamson as part of a device to defraud both Bryant and Sheridan. There is no evidence that his fraudulent intentions were known to the other officers at that time.
The debtor executed and delivered its check for $3,184 on November 26, 1980 to Sheridan as the initial deposit and advance rental for this equipment. That check was signed by another officer, the Secretary, and was admittedly authorized. It was executed in blank and given to Williamson with authority to insert the payee’s name when he had completed financing arrangements. As Bryant has testified, Williamson was “actively involved, very much so” in obtaining equipment for the company.
On December 8, 12 days after the notary’s certificate, Sheridan sent the debtor a copy of the lease by certified mail and it was received by the Secretary. Forty-six days later Bryant disavowed the lease and his signature. Bryant was then in financial difficulty. It has never requested return of the $3,184 payment.
Although U.C.C. §§ 3-403 and 3-404 (adopted by Florida in Chapter 673, Florida Statutes) would appear to be controlling, it is clear that they are not applicable in this instance, because the U.C.C. provisions relating to unauthorized signatures apply only to negotiable instruments, and an equipment lease is not such an instrument. This leaves us to be governed by Florida common law. European American Bank and Trust Co. v. Starcrete International Ind., Inc., 5 Cir. 1980, 613 F.2d 564.
It is settled in Florida that:
“When an acknowledgment appears to be regular on its face, and there is nothing in the instrument or the record thereof to indicate a failure to comply with any of the formal requirements as to the execution, acknowledgment, or record, the legality of such execution and acknowledgment may be assumed in the absence of notice or knowledge of any irregularity.” 1 Fla.Jur.2d Acknowledgments, § 24.
The burden is on the party asserting invalidity to do so by clear, satisfactory, and convincing evidence. The testimony of the parties alone is not legally sufficient to overthrow a prima facie valid certificate of acknowledgment except where there is an issue raised as to the officer’s jurisdiction to take the acknowledgment. Ibid. §§ 26, 27. No such issue is suggested here.
I find that the debtor has not carried its burden of overcoming the evidentiary effect of the acknowledgment here.
Secondly, the debtor by its conduct has estopped itself from denying Williamson’s authority to represent and bind the corporation in this transaction. Ruwitch v. First National Bank of Miami, Fla.App. 1974, 291 So.2d 650, 652, where the court held the corporation estopped and said:
“Appellants were officers and guarantors of the principal, Harmony. As between two innocent parties suffering from the fraud of a third, the party whose own negligence or misplaced confidence enabled the third party to consummate the fraud must bear the loss.”
Finally, I also find that Williamson had apparent authority to act in this instance for the debtor and that the debtor, through other officers, negligently reinforced that apparent authority to the point that Bryant became estopped to deny the corporation’s execution of the lease. American Lease Plans, Inc. v. Silver Sand Co., 5 Cir. 1981, 637 F.2d 311, 315. As the court there stated, dealing under Florida law with a fraudulently executed corporate truck lease:
“It is of no avail to argue that Surbaugh did not have the authority to certify falsely, or to guarantee fraudulently; most assuredly he did not. But, given the position Silver Sand placed him in, and the authority the company clothed *726him with, it is equally of no avail to argue under the law of Florida for an absence of agency-based liability on the part of Silver Sand. The issue, rather, is whether any circumstances were present which should have undermined American Lease Plan’s otherwise reasonable reliance on the appearance of Surbaugh’s authority.”
In our case, as in the case of Silver Sand, there was no clue that the corporate agent’s acts were unauthorized. I find, therefore, that the debtor would be liable to Sheridan, in any event, for the fraud practiced on it by Williamson in this instance if, as the debtor contends, the corporate signature was not authorized.
This claim was filed as a secured claim. It is at least tacitly acknowledged that the equipment, if it ever existed, cannot be found. Therefore, the claim has been allowed as a general unsecured claim.
It should also be noted that the issue of the Bryants’ liability on their purported guarantees is not before this court and, therefore, nothing said in this order is dis-positive of that issue. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489185/ | OPINION AND MEMORANDUM OF LAW
JOHN C. FORD, Bankruptcy Judge.
This is an adversary proceeding brought by the law firm of Burrow, Jones, Rowton, Cates & Reppeto to terminate the automatic stay in effect since the filing of the Chapter 11 petition by the Debtor on May 22, 1981. The plaintiff, (“Burrow”), is a professional corporation composed of attorneys licensed to practice law before the courts of the State of Texas and admitted to practice law before the courts of the Northern District of Texas. Texas Commerce Trust Company, (“TCTC”), the debt- or herein and a chartered trust company, derives its income from management fees charged for servicing common trust funds. This proceeding concerns the Texas Commerce Trust Company Short Term Trust for Qualified Employee Benefit Plans, (“E-Fund”), and TCTC in its representative capacity as trustee of the E-Fund.
Burrow is allegedly owed $34,088.16 in legal fees by either TCTC or the E-Fund. Burrow filed this adversary proceeding on September 3, 1981, with the intent of having the automatic stay lifted as per the E-Fund. If the stay was lifted Burrow could then seek collection of the legal fees in a court of competent jurisdiction.
After careful analysis of the pleadings on file and the testimony presented in this case, this Court holds that the relief sought by Burrow must be denied upon both equitable and legal grounds.
DISCUSSION
Lifting the stay would sever the trust relationship between TCTC and the E-Fund. The resultant loss to the debtor would be fatal as reflected in testimony by the president of TCTC which revealed that 95% of the trust fund assets serviced by TCTC belong to the E-Fund. Stripping the E-Fund assets from the jurisdiction of this Court would therefore gut the debtor and nullify any serious efforts to reorganize the debtor.
*739Lifting the stay would also result in a race to the courthouse whereby only the swiftest and most diligent contestants will cart away the remains of the E-Fund. Even if this debtor is not capable of a successful reorganization, the beneficiaries and creditors of the E-Fund will remain under the protection of this Court. In contrast, cutting loose the trust assets will result in a chaotic dissolution of the trust assets. The protection and eventual distribution of these trust assets are of utmost concern to this Court. On these and other equitable grounds the relief sought by Burrow must be denied.
In addition, the complaint to lift the stay must be denied as a matter of law. TCTC filed its Chapter 11 petition on May 22, 1981. As is the case with many debtors, the records of TCTC were in disarray at the time the petition was filed. Serious allegations have been made alleging commingling of trust funds and participation by the trustee in questionable transactions. In an effort to stem further breaches in the fiduciary relationship, this Court ordered the installation of new officers in TCTC and the appointment of special creditor committees and an examiner immediately after the commencement of this case. Accountants under the supervision of the examiner have been working long hours to unravel the chaotic financial records of the debtor and to reconcile the various trust fund accounts. It is impossible at this time to determine exactly what assets belong to the E-Fund. Even if this Court lifted the stay it would be the burden of the claimant to sufficiently trace and identify the trust assets. See Schuyler v. Littlefield, 232 U.S. 707, 34 S.Ct. 466, 58 L.Ed. 806 (1914) and cases cited in 4 Colliers on Bankruptcy (15th ed. 1979) ¶ 541.13, p. 541-67, note 3. No evidence has been presented by the plaintiff to establish which assets belong to the E-Fund. The plaintiff has therefore failed to carry his burden of proof.
This case is unique. The debtor is a chartered trust company deriving almost all its income from servicing fees. The plaintiff law firm provided pre-petition legal services to the debtor. It is uncontroverted that at least some of the legal services involved legal questions relating solely to the E-Fund. Burrow contends, however, that all the legal fees, amounting to $34,-088.16, were incurred solely for the benefit of the E-Fund. Burrow wants payment for those fees to come solely from the E-Fund. Evidence presented at the hearing on October 30, 1981, indicated that all the bills for legal work allegedly performed by Burrow for the E-Fund were presented for payment to TCTC. It appears that no effort was ever made to bill the E-Fund directly until after the Chapter 11 petition was filed by TCTC. It should be noted, however, that some of the pre-petition bills for legal fees were paid to Burrow, and the E-Fund account was sometimes debited in concert with those payments. The E-Fund does not exist as a separate entity with its own officers and employees. Whenever Burrow was retained to perform legal, work for the E-Fund it was always the officers of TCTC who actually contacted Burrow. This Court concludes that Burrow should look for payment of these fees to TCTC, as it has done in the past.
Burrow contends that payment of the legal fees is an obligation incurred by the E-Fund. As long as the E-Fund remains under the jurisdiction of this Court, Burrow cannot reach the assets of the E-Fund to satisfy the debt of $34,088.16. The effort to lift the stay is an attempt, therefore, by Burrow, to take the E-Fund assets outside the jurisdiction of this Court. It is the conclusion of this Court that Burrow has no standing as a matter of law to seek the removal of the E-Fund assets from the jurisdiction of this Court.
In order for Burrow to have standing to seek removal of the E-Fund assets, he must first prove that he is a beneficiary of the E-Fund. TCTC, by its own admission, holds no beneficial or equitable title to the E-Fund assets. TCTC does, however, hold legal title to the E-Fund assets as evidenced by the trust documents presented at the October 30, 1981, hearing. Pursuant to 11 U.S.C. § 541(d), the estate created by the *740commencement of a case under 11 U.S.C. § 301 includes property in which the debtor holds only bare legal title. There can be no serious question that the E-Fund assets are not part of the debtor’s estate. Of course, a debtor holding mere legal title to assets does not acquire any beneficial interest solely as a result of the commencement of the ease. Under the Bankruptcy Act, when it appeared that the debtor was a trustee holding bare legal title to trust assets, courts generally held that the debtor should turn the property over to its true owners where possible. See Todd v. Pettit, 108 F.2d 189 (5th Cir. 1939); In the Matter of Georgian Villa, Inc., - C.B.C.2d -, - B.C.D. -, 10 B.R. 79 (Bkrtcy., N.D.Ga.1981); 4 Colliers on Bankruptcy, (15th Ed. 1979) ¶ 541.13, p. 541-67. In Todd, supra, at 140, the Fifth Circuit affirmed the decision of the United States District Court for the Northern District of Texas, the Honorable James C. Wilson presiding, dismissing the bankruptcy trustee’s suit to collect monetary assets arising out of trusts administered in the bankruptcy of Harry Elliott. Although the Fifth Circuit affirmed the lower court ruling that the bankruptcy trustee lacked standing to seek the turnover of trust assets wrongfully held by the debt- or, they went on to say that two already appointed state receivers were the proper parties to seek the turnover of trust assets still held by Elliott. It should be noted that the trust assets were in the form of certificates evidencing unit ownership in oil properties. The Debtor Elliott held bare legal title to the trust assets. Moreover, the Court emphasized the fact that the unit certificate holders were equitable owners of the trust properties, not creditors of Elliott. Todd, supra, at 140. In practical terms, the bankruptcy trustee in Todd sought the turnover of trust assets in order to enlarge the bankruptcy estate available to pay creditors of the debtor Elliott. Had the bankruptcy estate been blessed with the addition of the trust assets wrongfully held by Elliott then all the creditors of Elliott would have received some small part of any eventual distribution from the trust assets. Although some of the equitable owners of the trust assets may have also been creditors of Elliott, not all creditors of Elliott were likely to be equitable owners of the trust assets. Allowing participation by both creditors and equitable owners in a distribution of assets would be to the detriment of the equitable owners. By affirming the lower court decision, the Fifth Circuit wisely assured the equitable owners of the trust assets that only they would receive any eventual distribution of trust assets still held by the debtor. In the case at bar, no evidence has been presented by Burrow establishing a beneficial or equitable interest in the E-Fund assets. Having established no equitable interest, Burrow is to be considered nothing more than an unsecured creditor holding a claim for pre-petition legal fees. By analogy to the bankruptcy trustee in the Todd case, Burrow has no standing to seek the turnover of trust assets in payment of his unsecured creditor claim.
Under the Bankruptcy Code, the estate created at the commencement of a ease is vested with all the rights that the debtor may have as a trustee, including the rights to servicing fees. See Colliers, supra, at p. 541-67. Barring an abandonment of the trust assets pursuant to 11 U.S.C. § 554, there is an implication in the Code that a debtor may retain its role as trustee assuming this is in the best interest of the beneficial owners of the trust assets. In the case at bar, the Court has maintained a careful and close watch over the attempt to reorganize TCTC. It appears to be in the best interest of the beneficiaries of the E-Fund assets to maintain the E-Fund assets within the jurisdiction of this Court. The committee representing the beneficial owners of the E-Fund assets appear satisfied with the current arrangement. They have even voiced their objection to lifting the stay. This Court finds, therefore, that it is within the best interest of the beneficial owners of the trust assets to continue the stay in full force and effect.
Burrow is not left without a remedy. Burrow can, if it wishes, file an unsecured claim with the clerk of this Court. Once a *741plan is filed and confirmed, Burrow may possibly receive a dividend along with other unsecured creditors.
The Order signed by this Court on November 9, 1981, stands. The complaint to lift the automatic stay is denied. The stay is to continue in full force and effect. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489186/ | MEMORANDUM OPINION AND DECISION
LOREN S. DAHL, Bankruptcy Judge.
CLEMMIE McMILLAN, MILLIE McMILLAN, and BILLIE McMILLAN, the defendants in this adversary bankruptcy action, filed a motion for partial summary judgment on October 8, 1981. This motion was brought in response to a complaint captioned, “Complaint to Invalidate a Preference”, filed by Ray Riehle, the Trustee in the bankruptcy proceedings of BILLIE McMILLAN, the son of the defendants, and his wife, JANETTE McMILLAN. The motion for partial summary judgment was filed after the defendants had filed their answer on September 21, 1981.
The relevant facts underlying the pending motion are concise. The bankrupts, BILLIE McMILLAN and JANETTE McMILLAN, executed a promissory note to CLEMMIE McMILLAN and MILLIE McMILLAN to evidence an indebtedness in the amount of $80,405.52. The bankrupts also executed a deed of trust on a piece of real property located in Plumas County known as the McMillan Supermarket, to secure the note. The deed of trust was recorded in the Plumas County Recorder’s office on October 10, 1978. The bankrupts executed a second deed of trust on the McMillan Supermarket on March 4, 1979. Then, on June 22, 1979, BILLIE McMIL-LAN and JANETTE McMILLAN filed separate voluntary petitions for relief under Chapter VII of the Bankruptcy Act. Plaintiff has alleged in his complaint that at the time these two deeds of trust were executed, the bankrupts were insolvent within the meaning of the Bankruptcy Act.
The plaintiff’s complaint is necessarily the focal point of this pending motion for partial summary judgment. The plaintiff’s complaint is captioned, “Complaint to Invalidate a Preference”,- a caption which suggests that the complaint contains a cause of action to invalidate a preference and nothing more. Also, the second paragraph of the complaint, which invokes the jurisdiction of the Bankruptcy Court, states, “This Court has jurisdiction pursuant to the provisions of § 23b and 60b of the Bankruptcy Act, 11 U.S.C. § 46b and § 96b.” Nowhere in the complaint are the provisions of section 67 of the Bankruptcy Act invoked. A thorough reading of the plaintiff’s complaint discloses that only in paragraph 4 is there even an allusion to a fraudulent conveyance. Nevertheless, plaintiff contends that the language of the complaint should be liberally interpreted so as to state a cause of action to set aside a fraudulent conveyance.
The language of paragraph 4 of the plaintiff’s complaint is, “At the time of transfer, the bankrupt was insolvent with in [sic] the meaning of the Bankruptcy Act in that the *747fair market value of his property, exclusive of the property which he may have conveyed, transferred, concealed or removed the intent [sic] to hinder, delay or defraud his creditors, was not at a fair market value sufficient in amount to pay his debts.” This language was evidently included within the plaintiff’s complaint to satisfy the requirements of section 60(b) of the Bankruptcy Act.
Even when this Court liberally construes the language of the plaintiff’s complaint so as to do substantial justice, as it is required to do by Federal Rule of Civil Procedure 8 and the case of First City Bank v. Blewett, 14 B.R. 840 (9th Cir.), it is clear that the substance of the complaint is and was intended to be a cause of action to invalidate a preference. To construe this complaint so as to state a cause of action to set aside a fraudulent conveyance pursuant to section 67 of the Bankruptcy Act would be to rewrite the plaintiff’s complaint. Furthermore, at no time either before the filing of the defendants’ motion for partial summary judgment or thereafter has the plaintiff sought leave to amend his complaint so as to add additional causes of action or to otherwise change his complaint. After a thorough perusal of the language of the complaint and its caption, it is evident that there is only one cause of action stated and that cause of action is one to invalidate a preference pursuant to section 60 of the Bankruptcy Act.
Under Bankruptcy Act, section 60(a)(1), “a preference is a transfer, as defined in this Act, of any property of a debtor to or for the benefit of a creditor for or on account of an antecedent debt, made or suffered by such debtor while insolvent and within four months before the filing by or against him of the petition initiating a proceeding under this Act .. . . ” In the instant case, the first deed of trust in question was recorded on October 10, 1978, a period of 255 days, or approximately eight and one-half months prior to June 22,1979, the date that the bankrupts filed their petitions in bankruptcy. Assuming, that all the allegations of the complaint are true for purposes of this motion for summary judgment, the cause of action to set aside a preferential transfer pursuant to Bankruptcy Act, section 60, must fail because the October 10, 1978, transfer was not made within the four-month period preceding the filing of the bankrupts’ petitions in bankruptcy. The March 4,1979, transfer, on the other hand, was made during the four-month period preceding the filing of the petitions in bankruptcy and thus it was not the subject of the defendants’ motion for partial summary judgment.
For the above stated reasons the defendants’ motion for partial summary judgment as to the deed of trust recorded October 10, 1978, is granted, and counsel for defendants will prepare and submit an appropriate order consistent with this opinion. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489187/ | MEMORANDUM DECISION
THOMAS C. BRITTON, Bankruptcy Judge.
The debtor seeks a determination of dis-chargeability under 11 U.S.C. § 523(a)(5) of a debt owed his ex-wife, and an injunction against the wife and her attorney for alleged continuing violations of the automatic stay. 11 U.S.C. § 524(a)(2). (C.P. No. 1). The wife has answered. (C.P. No. 5). The matter was tried on January 5.
There is no indication that either the wife or her attorney has acted in contempt of the automatic stay in the parties’ divorce proceedings, the basis for the requested injunction. That prayer is denied.
The debtor is an attorney who retired from the Judge Advocate General Corps after twenty years of service and entered private law practice in 1979. He borrowed $15,000 to set up his office. The parties were married at the time and the wife eo-signed the note in 1979.
The parties were divorced on December 19, 1980. The debtor filed for bankruptcy three weeks before the final decree. The note was listed among his debts and the wife was listed as a creditor with a contingent claim against the debtor for the unpaid note. The debtor received a discharge on March 3, 1981. Two weeks later judgment was entered against the wife for $19,-303 on the note.
It is the wife’s position that her claim is non-dischargeable under 11 U.S.C. § 523(a)(5), which excepts from discharge any debt:
(5) to a spouse, former spouse, or child of the debtor, for alimony to, maintenance for, or support of such spouse or child, in *771connection with a separation agreement, divorce decree, or property settlement agreement, but not to the extent that .. . (B) such debt includes a liability designated as alimony, maintenance, or support, unless such liability is actually in the nature of alimony, maintenance, or support.”
A Separation and Property Settlement Agreement between these parties was incorporated into the final decree entered shortly after bankruptcy and long before discharge. Paragraph XIII of the Agreement provides that:
“[e]ach of the parties hereto shall be responsible for the payment of all bills incurred by such party prior to the date this Agreement is entered into by both parties. ‘Bills’ are defined [in the Agreement] to be charge accounts and obligations which accrue and are incurred in the ordinary course of events on a daily basis by a Husband and Wife.”
Until the filing of this complaint, the debtor had always assured his wife that he would be responsible for office expenses. I find that he reaffirmed that obligation through the quoted provision. I also find that the reaffirmation requirements of § 524(c) and (d) were met in this instance.
The foregoing findings make it unnecessary to determine whether this debt falls within § 523(a)(5). However, I agree with the wife that it does. It is clear to me that the alimony and support provisions made by the divorce decree in this instance presumed that the wife would not be obliged to pay any bill incurred by the husband before the decree, much less a $19,303 bill for his law office. The wife would be forced to sell or mortgage the house which shelters her and their minor son. 3 Collier on Bankruptcy (15th ed.) ¶ 523.15[3] n. 14. To conclude that the debtor’s pre-bankruptcy commitment to hold her harmless from this joint obligation is now dischargeable would obviously defeat the clear purpose of § 523(a)(5). Matter of Crist, 5 Cir. 1980, 632 F.2d 1226, 1233.
If I am mistaken and the circumstances of the parties resulting from this decision are inconsistent with the intentions of the very able judge who decreed the level of support in this instance, that court has the means to adjust the provisions in the light of this or any other changed circumstance.
It has been suggested in argument that the wife could readily discharge this debt by also filing for bankruptcy and at one point she was urged to do so. This court cannot presume to advise the wife to file or not to file for bankruptcy. However, if she did so in this instance, the $19,303 loss would fall on an innocent third party rather than on the debtor, who occupied the law office the money paid for. On equitable grounds, I agree with her decision to resist this proceeding rather than to file for bankruptcy.
As is required by B.R. 921(a), a separate judgment will be entered denying the in-junctive relief sought by the debtor and declaring that the debtor has reaffirmed his obligation to pay the parties’ joint obligation to the First Bank and Trust of Palm Beach County or, alternatively, declaring that this obligation is non-dischargeable under § 523(a)(5). Costs will be taxed on motion. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489188/ | OPINION
WILLIAM A. KING, Jr., Bankruptcy Judge.
This case reaches the Court on a motion to intervene in an adversary proceeding.1 The plaintiff (Trefoil Capital Corporation) filed a complaint for relief from the automatic stay imposed by § 362 of the Bankruptcy Code. At the time of the filing of the complaint, a trustee had not yet been appointed. Several creditors,2 (junior lien-holders and members of an informal creditors’ committee), moved to intervene in the action as well as requiring the joinder of the trustee as a necessary party defendant. The Court, in a separate Order, has ordered that the trustee be served with a copy of the complaint and has granted the trustee an appropriate opportunity to enter his appearance in this matter.
The Court, however, is still confronted with the issue of whether the movants should be permitted to intervene in the adversary proceeding. The motion was argued on December 30,1981. Memoranda of Law have been submitted by the movants and the plaintiff, who is opposing intervention.
*804Regarding intervention, Rule 24 of the Federal Rules of Civil Procedure (made applicable herein by Rule 724 of the Rules of Bankruptcy Procedure) provides in pertinent part:
(a) Intervention of Right. Upon timely application anyone shall be permitted to intervene in an action .... (2) when the applicant claims an interest relating to the property or transaction which is the subject of the action and he is so situated that the disposition of the action may as a practical matter impair or impede his ability to protect that interest, unless the applicant’s interest is adequately represented by existing parties.
The movants seek to intervene in this action to raise substantive defenses to the plaintiff’s complaint for relief from the stay. Furthermore, the movants assert, in their memorandum of law, that they are junior lienholders. By holding such liens, their interests may not be protected in the within proceeding unless intervention is permitted.
The plaintiff strenuously objects to the proposed intervention. As a general matter, the plaintiff asserts that creditors do not have the right to participate in and be separately heard in proceedings against the estate. In re American Fidelity Corporation, 28 F.Supp. 462 (S.D.Calif.1939); In the Matter of Yale Express Systems, Inc., 6 B.C.D. 25 (S.D.N.Y.1980). The trustee is the representative of all unsecured creditors and is responsible for acting on their behalf. In re American Fidelity, supra; In re Nadler, 8 B.R. 330 (Bkrtcy.E.D.Pa.1980).
In the instant case, the Court has directed the plaintiff to serve the trustee with the complaint and has given the trustee an opportunity to be heard. Plaintiff alleges that the trustee’s opportunity to raise a defense provides the movants with adequate representation of their interest in accordance with F.R.Civ.P. 24. The plaintiff also asserts that a party seeking to intervene in an action has the burden of showing that his interest is not adequately represented. Heyman v. The Exchange National Bank of Chicago, 615 F.2d 1190, 6 B.C.D. 58 (7th Cir. 1980); In re Devault Mfg. Co., 4 B.R. 382 (Bkrtcy.E.D.Pa.1980).
In this case, however, the interest of the movants and the trustee do not coincide. Although these parties hold unsecured claims, it is also alleged that they hold liens on the property against which relief from the stay is sought. The trustee would not have the same interest in property as secured creditors. Indeed, the trustee represents the secured creditors only through his capacity as the custodian of property which is encumbered. In re American Fidelity, supra. In re Nadler, supra. Clearly one who claims to have an interest, such as a lien, in property which is the subject of a complaint for relief from the stay imposed on a creditor of the debtor’s has the right to intervene in that action and to be heard on the issue of the appropriateness of that relief. This is demonstrated by the fact that the automatic stay provisions of the Bankruptcy Code (“The Code”) are as much for the benefit of the creditors as for the debtor’s benefit. The legislative history to § 362(a) thus provides in part:
The automatic stay also provides creditor protection. Without it, certain creditors would be able to pursue their own remedies against the debtor’s property. Those who acted first would obtain payment of the claimed in preference to and to the detriment of other creditors. Bankruptcy is designed to provide an orderly liquidation procedure under which all creditors are treated equally. A race of diligence by creditors for the debtor’s assets prevents that.
H.R.Rep.No.95-595, 95th Cong., 1st Sess. 340 (1977); S.Rep.No.95-989, 95th Cong., 2d Sess. 49 (1978), U.S.Code Cong. & Admin. News 1978, pp. 5787, 6296, 5835.
It is also necessary that a motion to intervene be made in a timely fashion. F.R.Civ.P. 24(a); In re Devault, supra. In considering whether an application is timely, the Court must consider factors such as: how far the litigation has progressed, the length of the delay, and the prejudice to the parties to the action. In re Devault, supra; McClain v. Wagner Electric Corp., 550 F.2d *8051115 (8th Cir. 1977); Nevilles v. E.E.O.C., 511 F.2d 303 (8th Cir. 1975). The motion, in the instant case, was filed before the entry of a default judgment in this case. Such motion, having been made at the outset of the case, there seems little likelihood of prejudicing the rights of the plaintiff.
Therefore, the motion to intervene will be granted.
The intervenors filed a motion for a more definite statement contemporaneously with the motion to intervene. Upon examination of the complaint, the Court finds the allegations set forth therein to be sufficient. Therefore, the motion for a more definite statement will be denied. Pursuant to Rule 712 of the Bankruptcy Rules of Procedure, an answer must be filed within five (5) days of the entry of this Order. The Court will also set a hearing on the complaint for relief from the stay as expeditiously as possible, in order that the adversary proceeding not be unnecessarily delayed.
. This Opinion constitutes the findings of fact and conclusions of law required by Rule 752 of the Rules of Bankruptcy Procedure.
. The movants are Kurt O. Bauer, Judith K. Wizdo, Alvin J. Ivers, and Wayne A. Farren. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489191/ | DECISION AND ORDER
CHARLES A. ANDERSON, Bankruptcy Judge.
PRELIMINARY PROCEDURE
This case is before the Court upon a Complaint filed on 15 September 1981, by Avco Financial Services of Ohio, Inc., for a turnover order for a Morgan two-piece living room set and Phono Sonic 20th Century Fireplace Stereo Bar; or, in the alternative, a judgment for the fair market value, plus costs; the answer of Defendants filed 15 October 1981; and the evidence. The household furnishings in question had been purchased by the Defendants from Furniture Mart and a retail installment contract and a purchase money security interests executed and delivered therefore, which was subsequently purchased and assigned to Plaintiff. The debt was incurred in December, 1977, with a maturity date in December, 1980. The balance apparently due is in the amount of $1,018.27.
The two-piece living room set had been purchased for the grandmother of Barry Glenn after she had attempted to purchase the set for herself but could not obtain *13approved credit. The vendors were aware that this furniture would be in the possession of the grandmother, although the defendants were to be responsible for the payment of the contract installments. The stereo bar, after a very short period of usage, had deteriorated to a condition of uselessness and had been discarded because repair was economically impractical.
The quality of the stereo bar was discovered by debtors as quite inferior, after the purchase, and a complaint was lodged with Furniture Mart. The living room set also completely deteriorated and became totally worthless during usage by the grandmother, and for a short period of time, by a nephew. The testimony of Barry also indicated that the stereo was purchased at a considerably overpriced value since a few days after the purchase they saw the same item in another retail store at about Va the cost they had paid.
One item of collateral was used by the Defendants and then given to a relative prior to its being discarded as completely worn out and unusable. Defendants testified that there was no sale of the collateral, and there is no evidence presented to the contrary or that there was any intent to do malicious injury to Plaintiff. In fact, the evidence was uncontroverted that the Plaintiff had known that the grandmother of Barry was taking immediate possession of the collateral, for whom it was purchased, and that the Plaintiff would not approve the grandmother for credit but insisted upon the personal liability of Defendants to make the sale on credit.
It is, therefore, concluded as a matter of fact that the evidence does not establish a willful and malicious injury to the property of Plaintiff to support a judgment for monetary damages. The Plaintiff is, however, entitled to a turnover judgment for any items of the collateral in the possession of defendants on the date of filing the bankruptcy petition. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489192/ | FINDINGS OF FACT, CONCLUSIONS OF LAW, AND FINAL DECREE AND JUDGMENT ENJOINING RESPONDENT ARKANSAS KITCHEN CENTER, INC., FROM FURTHER PROSECUTING STATE COURT ACTION AND BARRING CLAIM OF RESPONDENT ARKANSAS KITCHEN CENTER, INC., AGAINST THE DEBTORS
DENNIS J. STEWART, Bankruptcy Judge.
The petitioners, former officers or employees of La Pettit Roche, one of the debt*23ors in these chapter 11 proceedings, have brought this action to restrain and enjoin the respondent Arkansas Kitchen Center, Inc., from further prosecution of an action against them in the Chancery Court of Pulaski County, Arkansas. It is the petitioners’ contention that the indebtedness sued upon is one of the debtor corporation rather than their own personal and individual debt. Alternatively, they contend that they are “at most” liable as codebtors and that the bankruptcy court should enjoin the further prosecution of the state court proceedings under the authority of § 105 of the Bankruptcy Code.1
A plenary evidentiary hearing was conducted on the factual issues thereby raised on May 8, 1981.2 Based on the evidence then adduced, this court has concluded that the debt which is the subject of the state court proceedings is one of the debtor corporation and not of the plaintiffs. Therefore, prosecution of the state court action is barred by the terms of the automatic stay, § 362 of the Bankruptcy Code.
I
FINDINGS OF FACT
In December 1980, when dealings began between the plaintiffs and Tom Humphries, president and managing officer of Arkansas Kitchen Center, Inc., the plaintiffs were the owners of their own corporation, Devark. They had commenced discussions and negotiations with Arch P. Pettit for making improvements in a building located at 313 Main Street in Little Rock, Arkansas, which was owned by Mr. Pettit, and for transferring that building to a corporation then to be formed in the future, La Pettit Roche. Thomas Coyne was to be the president of La Pettit Roche. La Pettit Roche, in turn, was to be wholly owned by Archangel Corporation, which was to be wholly owned by Arch P. Pettit. The petitioners, in December 1979, initially requested that the Arkansas Kitchen Center make certain improvements in a kitchen and a bathroom on the premises. They stated to Mr. Humphries that they had intentions of creating some condominiums in the building, but, at the outset, they apparently did not reveal to him the role of Arch P. Pettit nor that of the debtor corporations. Pursuant to this initial request, some $3,562.00 worth of work was done which was fully paid for out of the funds which Arch P. Pettit had placed in Devark Corporation for this purpose.
In January 1980, as scheduled, La Pettit Roche came into existence as a wholly owned subsidiary of the Archangel Corporation which in turn was wholly owned by Arch P. Pettit. The defendant Arkansas Kitchen Center, Inc., commenced to issue its billings in January 1980, to “La Pettit Roche” as well as to “Thomas Coyne and Lynn Janssen.” And in early March 1980, the petitioners Coyne and Janssen made it clear to Mr. Humphries that their orders were being given on the credit of the corporations owned by Mr. Pettit and pursuant to Mr. Pettit’s specific instructions. Mr. Humphries denies that the information which was then imparted to him was that specific, and states that he was only informed that Mr. Pettit was a “backer” of the enterprise. But the testimony of his employee, Cecilia Troupj>oli, was to the effect that Mr. Humphries returned from this meeting very upset and agitated, evincing a state of mind unlikely to be induced by the simple revelation that an additional backer was involved.3 And, otherwise, Mr. Hum-phries states in his testimony that he *24“doesn’t know” why he had begun to render bills to “La Pettit Roche,” and it appears that, in the absence of an intelligible explanation, the only palpable reason for this billing is that he knew that he was dealing with La Pettit Roche, a corporation which is now one of the debtors in this chapter 11 proceeding.
It was subsequent, furthermore, to this conversation in March 1980 that the improvements which provide the basis for the state court action were requested to be made and completed.4 The bill requesting payment therefor was rendered by Arkansas Kitchen Center, Inc., to “La Pettit Roche.”5
The sum due is $1,560.72. The improvements effected remain on the premises owned by the debtor Arch P. Pettit at 313 Main Street.
II
CONCLUSIONS OF LAW
The above and foregoing findings compel the conclusion that the debt which provides the subject of this proceeding and the state court proceeding is one of the corporation, La Pettit Roche. The plaintiffs, as officers and agents of that corporation, with respect to the particular indebtedness here in suit, dealt with Arkansas Kitchen Center, Inc., on account of La Pet-tit Roche and explicitly revealed the existence and status of La Pettit Roche as principal to the president and managing officer of Arkansas Kitchen Center, Inc. Under the general law ordinarily applicable to corporations, there is no provision for the 11a-bility of individual corporate officers in such circumstances. It is apothegmatic that officers are not ordinarily liable for corporate debts. “The directors or officers of a corporation are not from their status as such alone personally liable for its debts or undertakings, in the absence of a constitutional, statutory, or charter, provision imposing liability ... or of an agreement on their part to become liable ...” 19 C.J.S. Corporations § 839, pp. 262-3 (1940). No such constitutional or statutory provision or contractual agreement has been evidenced or adverted to in the action at bar. Otherwise, to create liability on the part of a corporate officer or director, the liability must be created, generally speaking, by the tortious act of the officer or director. “A director, officer, or agent is liable for the torts of the corporation or of other directors, officers, or agents when, and only when, he has participated in the tortious act, or has authorized or directed it, or has acted in his own behalf, or has had any knowledge of, or given any consent to, the act or transaction, or has acquiesed in it when he either knew or by the exercise of reasonable care should have known of it and should have objected and taken steps to prevent it.” Id., § 845, pp. 272-3. Such statutory liability as corporate officers may incur6 under state law may not apply when the federal, not state, law applies. In one bizarre case, In re Whitlock, 449 F.Supp. 1383 (W.D.Mo.1978), it was held, contrary to applicable state law, that a corporate officer is not liable for corporate debts created by his own tortious act.7 And no authority *25has been cited which would make the corporate officer or employee liable for corporate debts in a situation such as that at bar, which involves no tort and a full and fair opportunity for Arkansas Kitchen Center, Inc., to recover the debt through these chapter 11 proceedings. “There is simply no basis for allowing corporate debts to be asserted against an individual officer in this situation.” In re Whitlock, supra, at 1389.
Even if it were true that the incurring of the indebtedness involved some tort or other happenstance which would possibly make the plaintiffs jointly and severally liable for the debt which is the subject of the state court action,8 the holding in In re Whitlock, supra, is that, absent a personal gain or benefit to the corporate officers or employees, no personal liability can be imposed on them.9 In this action, the uncon-tradicted testimony of the plaintiffs was to the effect that the debtors received all the benefit from the installation of the improvements which form the basis of these actions. For those improvements remain on the premises of the debtor and, although the plaintiffs inhabit the apartment in which the improvements are located, they have traded their services as caretakers as the equivalent in value for being permitted by the debtor to inhabit the apartment. Thus, they have received no “gain” or “benefit” within the meaning of In re Whitlock, supra.
Finally, even if there is some joint and several liability on the part of the plaintiffs (and, for the foregoing reasons, this court holds that there is not), the relationship between the plaintiffs and the debtors which continued through the time of Arkansas Kitchen Center’s filing of the state action was one whereby some connection of principal and agent was retained. For, as noted above, the plaintiffs continued to inhabit the premises on which the improvements were installed up to and through the inception of these chapter 11 proceedings. Under the prior decision of the district court in First Federal Savings and Loan Association of Little Rock v. Pettit, 12 B.R. 147 (E.D.Ark.1981) such a relationship might well be a source of “pressure” upon the reorganization proceedings (as, indeed, this action itself evidences) if the Arkansas Kitchen Center, Inc., were allowed to proceed against the alleged “co-debtors.” 10 For this separate and independent reason, therefore, it is cpncluded that injunction against further prosecution of the state court proceedings is warranted.
The indebtedness of the debtors to the Arkansas Kitchen Center, Inc., is scheduled as a “disputed” debt. According to the terms of the confirmed plan of reorganization, “disputed” debts were required to be the subject of action taken timely by the affected creditor or the claim would be barred as against the debtors.11
It would appear that, in apparently not taking the action to relieve the dispute against their claim and in not seeking relief from the automatic stay, the Arkansas Kitchen Center, Inc., may have forfeited its right to have its claim allowed against the chapter 11 estate. If so, that would act *26independently as a discharge of the indebtedness so as to prohibit collection from the codebtors.12
Ill
For the foregoing reasons, the court issued its order on May 27,1981, directing the parties to show cause in writing why judgment should not be entered enjoining further prosecution in the state court action and barring Arkansas Kitchen Center’s claim in these reorganization proceedings.
The respondent Arkansas Kitchen Center, Inc., filed its response to the show cause order on June 10, 1981. In that response, none of the material findings of fact made above by this court are effectively denied.13 Otherwise, it is argued in the brief that, “[s]ince the corporation by approval of its Board of Directors and Shareholders never adopted the liabilities of its promoters, Petitioners cannot evade personal liability for the debt.” But the foregoing facts clearly demonstrate that the services and goods for which payment is now sought were rendered and conferred not only after incorporation, but after the principal officer of Arkansas Kitchen Center knew of the existence of that corporation, as well as of the petitioner’s status as its agents and of the corporation’s liability for the work to be done. The court has above specifically found that Mr. Humphries was told these facts in March 1980, before he undertook to perform the work for which charges are now sought to be exacted. Accordingly, the authorities now cited and relied upon by Arkansas Kitchen Center, Inc., are inappo-site.14
It is further argued, however, that, in the conversation of March 1980, “Petitioners didn’t tell Respondent that Pettit was a shareholder but a ‘financial backer’ of La Pettit Roche.” Use of the words “financial backer” in the March 1980 conversation, however, has little, if any, significance when the evidence demonstrates that, during this conversation, the petitioners clearly informed Mr. Humphries that La Pettit Roche, one of the debtors in these reorganization proceedings, was in existence and would be liable for the work subsequently undertaken.15
Next, the respondent argues that “[b]oth the Debtor and the Respondent [Arkansas Kitchen Center] believed that the debts incurred at 313 Main, due to work by Respondents understandably sought judgment against the Petitioners.” There is absolutely nothing in the evidence to support this factual contention. But even if it were so, the “belief” of the debtors and the respondent can hardly control this issue. The facts demonstrate that the petitioners acted with corporate authority in incurring the expenses and that the work accomplished *27conferred a benefit on the corporation, La Pettit Roche.
The respondent Arkansas Kitchen Center, Inc., also complains of the court’s joining the debtors as “respondents in this action thus evidencing the confused relationship of the parties.” This alignment of the parties, however, seemed appropriate to the court in view of the petitioners’ seeking at once to avoid suit by or liability in favor of the Arkansas Kitchen Center, Inc., and also to fix the same liability on the debtors. It does not seem to have represented or reflected any “confused relationship of the parties.”
For the foregoing reasons, the contentions of the Arkansas Kitchen Center, Inc., must be denied. The conclusions of law stated in Part II, supra, must accordingly be regarded as controlling.
IV
Finally, in respect to the issue of whether any liability of the chapter 11 estate should be barred for failure timely to file a claim in these chapter proceedings, the Arkansas Kitchen Center, Inc., argues as follows:
“If the Court finds that the debt was that of the Debtor corporation, then it should be paid as a priority administrative expense since the improvements were necessary for use by the co-debtor in managing the property for the preservation of the estate or as a statutory mechanics lien under Arkansas law. If the Court does not permit the Respondent to be paid, assuming the Order is issued as proposed, Respondent will not have been paid for its work despite its good faith belief that the Debtor and itself believed that the debt was of the Petitioners.”
As noted above, however, there is no evidence of this “belief” and, furthermore, it is not relevant to a determination of the issues in this case. Whatever the equities in this situation, the court has no power — except for governmental claims — to extend the time for filing claims in a case under title ll.16 And the equities are certainly not all in one direction in this action, wherein the evidence shows that the Arkansas Kitchen Center, Inc., with notice of the chapter 11 proceedings and their status as a potential claimant, spurned the opportunity to file any claim, or even a complaint for relief from the stay, in this court and instead sought to collect from the debtor’s agents in a state court when adequate investigation should have shown that the debt was that of one of the debtor corporations.
V
It is therefore, for the foregoing reasons,
ORDERED, ADJUDGED, AND DECREED that the defendant Arkansas Kitchen Center, Inc., be, and it is hereby, restrained and enjoined from further prosecution of its action against Thomas Coyne and Lynn Janssen in any other court except the bankruptcy court. It is further
ORDERED that the claim of the respondent Arkansas Kitchen Center against the debtors herein be, and it is hereby, time-barred.
. These contentions are set out at some length in the complaint for relief which has been filed by the plaintiffs.
. The plaintiffs appeared personally and by counsel for the hearing. The defendant Arkansas Kitchen Center, Inc., appeared by Thomas L. Humphries, its president, and by Ed Moody, Esquire, its counsel. The debtors appeared by Isaac A. Scott, Jr., Esquire.
.If only an additional backer was mentioned, it appears that this would be favorable information. But what appears to have happened is that the plaintiffs at this time disclaimed any personal liability for debts to the Arkansas Kitchen Center, Inc.
. The testimony is uncontradicted to the effect that the repairs and improvements which are the subject of the action at bar were made after the “afternoon” conversation, as it is referred to by Mr. Humphries, in March 1980.
. More precisely, the written bill of March 14, 1980, is to “Tom Coyne & Lynn Janssen — La Petite Roche.”
. It appears that' Arkansas may have a state law making corporate officers liable for negligence or mismanagement, but, to date, no assertion has been made that the law is applicable to this action.
.“Without the presence of evidence showing that the bankrupt-officer obtained some illegitimate benefit from his position, the debts remain those of the corporation.” 449 F.Supp. at 1388. As is noted in the text, this aphorism is contrary to the Missouri law on the subject, and to Kansas law (which might otherwise have been applicable in the Whitlock case), other federal cases, and the law generally. But it may have controlling effect in the action at bar in which the conduct of the plaintiffs is not shown to have reached the dimension of constituting a tort.
. See note 7, supra.
. See note 7, supra.
. It was the theory behind the decision of the district court in the First Federal Savings and Loan Association of Little Rock case that some degree of relationship between the debtor and codebtor may warrant the court in enjoining the proceedings to collect from codebtors in a nonbankruptcy court. The principle applied in that proceeding appears to have possible applicability in this action in which the defendant Arkansas Kitchen Center, Inc., appears deliberately to have foregone its opportunity to utilize these reorganization proceedings for collection of the debt in favor of bringing the state court action. Obviously, by reason of this proceeding, this has created “pressure” on the reorganization proceedings.
.In this regard, the plan of reorganization which was approved and confirmed by the court provides as follows: Disputed claims shall “receive no payment,” unless “such claims have ... been approved and allowed by the Court as members of another class on the Effective Date (of the plan).”
. See § 1141(d)(1)(A) to the effect that “the confirmation of a plan ... discharges the debt- or from any debt that arose before the date of such confirmation ... whether or not ... a proof of claim based on such debt is filed or deemed filed ...”
. The defendant Arkansas Kitchen Center, Inc., urges in response to the show cause order “that Petitioners were promoters and that La Pettit Roche, Inc. never adopted the original contract or modifications thereto by proper corporate resolution” and that, therefore, “the promoters liability continued since the corporation never adopted the debt.” But no evidence is adverted to which can support this contention, nor is any legal authority cited in support of the applicability of the term “promoters” to the petitioners. To the contrary, all the evidence in this action shows that the petitioners were acting as agents and employees of the corporation with explicit power from the president of La Pettit Roche to bind the corporation.
. See note 13, supra. The only authority cited in the response of the defendant Arkansas Kitchen Center, Inc., to the show cause order is the definition of “promoter” from “S.E.C. Rule 405, 17 C.F.R. section 230.405(q)(l)” as “a person who, acting alone or in conjunction with one or more other persons, directly or indirectly takes (the) initiative in funding and organizing the business or enterprise of an issuer.” This consideration is simply immaterial for the reasons stated elsewhere. See note 13, supra.
. And, as noted above, see note 13, supra, the evidence further shows without contradiction that the petitioners had express authority from the corporate president to bind the corporation.
. “A claim must be filed within 6 months after the date first set for the first meeting of creditors.” Rule 302(e) of the Rules of Bankruptcy Procedure. The files and records in this case show that the date first set for the first meeting of creditors was more than six months ago, August 25, 1980. Rule ll-33(b)(2) provides that a claim in a chapter 11 case must be filed before confirmation of the plan. Confirmation of the plan has also long since been accomplished. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489193/ | *32ORDER ON APPLICATION FOR AN EMERGENCY PRELIMINARY INJUNCTION TO RESTRAIN DEFENDANTS FROM SELLING MANDALAY SHORES APARTMENTS
ALEXANDER L. PASKAY, Chief Judge.
THIS IS a business reorganization case filed under Chapter 11 of the Bankruptcy Code by Mandalay Shores Cooperative Housing Association, Inc. (Mandalay Shores). The matter under consideration is an Application filed by Mandalay Shores, the Plaintiff, which seeks to enjoin the Defendants, United States Department of Housing and Urban Development (HUD) and Samuel R. Pierce, Jr., the secretary of HUD from proceeding with the opening of bids which HUD invited for the sale of the apartment house complex known as Mandalay Shores Apartments. The complaint was filed by a non-profit corporation who unsuccessfully sought, and is still seeking, the acquisition of the apartment house from HUD.
This present action is based on the proposition that HUD is the owner and operator of an apartment house complex which was constructed by using crysotile firable asbestos as the acoustic ceiling material throughout the building which substance is determined to be 25-40% asbestos in weight. The corporate Plaintiff alleges that the Defendant, HUD, violated Title 42, U.S.C. § 1441, § 2 of the Housing Act of 1949 and 12 U.S.C., §§ 1701 et seq., especially § 1701z-ll by failing to provide a decent home and a suitable living environment for the members of the Association and violated its duty to maintain its rental property in a decent, safe, and sanitary condition.
The Court heard argument of counsel for the respective parties and considered the record, including an affidavit submitted in support of the Application and the court is of the opinion that Mandalay Shores is not entitled to the relief it seeks at this time for the following reasons:
The action sought to be prohibited is the opening of the bids for the sale of the apartment complex invited by HUD. The record fails to disclose anything which would warrant the conclusion that opening the bids would result in irreparable harm or injury to the corporate plaintiff. The gravamen of this complaint is the alleged failure of HUD to maintain the apartment house complex in a decent, safe and sanitary condition as a result of permitting the asbestos to remain as the acoustic ceiling material. This, according to Mandalay Shores, presents a grievious threat to health of the tenants which would in turn justify the injunctive relief. The difficulty of this proposition, however, is not the tenants who are the plaintiffs who seek a relief, but a corporate debtor who, of course, is not capable to suffer a personal injury and whose health cannot be threatened by any noxious substance simply because it has no biological health although its economic health might be in great jeopardy not because of the presence of asbestos. This being the case, it is clear that this is just one other way which this corporate Debtor seeks to thwart the efforts of HUD to sell this property. The argument that a provision of the corporate charter of the Debtor states that one of the purposes of the corpo*33ration is to promote the health and welfare of its members grants the Debtor corporation a right to file this lawsuit is without foundation. To permit this would be tantamount to recognizing that the members are the alter egos of the corporate debtor and the corporate debtor can use its position as a debtor in a Chapter 11 proceeding to utilize this forum to enforce a right of its non-debtor members. The fact that the corporate debtor itself is a tenant in the complex is, of course, of no consequence since as noted earlier no amount of asbestos could possibly cause any irreparable harm or damage to the corporate debtor.
Thus even assuming that at the final evidentiary hearing it is established that due to the presence of asbestos there exists a substantial health hazard, which by the way, is litigated in a separate law suit filed by some of the tenants, this Court is not the proper forum to consider that matter because this corporate Debtor is not a party to that action.
Accordingly, it is
ORDERED, ADJUDGED AND DECREED that the Application for an Emergency Preliminary Injunction to Restrain Defendants from Selling Mandalay Shores Apartment be, and the same hereby is, denied. It is further
ORDERED, ADJUDGED AND DECREED that the complaint filed by Mandalay Shores Cooperative Housing Association, Inc. be, and the same hereby is, dismissed. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489194/ | *34ORDER ON ALL PENDING MOTIONS
ALEXANDER L. PASKAY, Chief Judge.
THIS IS a business reorganization case and the matters under consideration are the following Motions filed in the two above-captioned adversary proceedings: (1) Emergency Motion for Second Rehearing on Order on Application for an Emergency Preliminary Injunction to Restrain Defendants from Selling Mandalay Shores Apartments (sic); (2) Motion for Rehearing on Order on Application for an Emergency Preliminary Injunction to Restrain Defendants from Selling Mandalay Shores Apartments (Adv. # 81-294) filed by Mandalay Shores Cooperative Housing Association, Inc. (MSCHA); (3) Motion to Dismiss or to Abstain or in the Alternative Motion for Summary Judgment filed in Adversary No. 81-294; and (4) Motion to Dismiss filed in Adversary No. 81-281, both filed by United States Department of Housing and Urban Development (HUD) and Samuel R. Pierce, Jr., (Pierce) named as defendants in both Adversary Proceeding Nos. 81-281 and 81-294 respectively.
In Adversary No. 81-281, MSCHA and in Adversary No. 81-294, MSCHA, Mary Rie-del and Ralph Meyer, the Plaintiffs, seek an order to prevent the Defendant from selling an apartment housing complex known as Mandalay Shores Apartments located in Clearwater Beach, Florida.
Both complaints are attacked by the Defendants, HUD and Pierce. The complaint in Adversary No. 81-294 is attacked by a Motion to Dismiss or in the Alternative a Motion for Summary Judgment. The complaint in Adversary No. 81-281 is also attacked by a Motion to Dismiss included in the Answer. All Motions were set down for hearing with notice to all parties of interest and at the hearing, the Defendants, HUD and Pierce, also urged, in addition to their Motions to Dismiss, that this Court should abstain and dismiss the complaints pursuant to 28 U.S.C. § 1471(d) and not consider the claims set forth in both adversary proceedings.
The Court heard argument of counsel for the respective parties, considered the entire record together with the record of civil suits now pending in the United States District Court for the Middle District of Florida, Case No. 80-356 Civ.-TH and Case No. 81-288 Civ.-TK in both of which the District Court denied all relief sought by a member of MSCHA. Both orders of dismissal are now on appeal and pending before the Eleventh Circuit Court of Appeals. The Court of Appeals denied a stay pending resolution of the appeal, just as the District Court denied the stay pending appeal in both cases. The facts relevant to the resolution of the matters under consideration as appear from the record are as follows:
Adversary No. 81-294 filed by MSCHA, Riedel, and Meyer presents a claim in four counts. In Count I of the original complaint, the Plaintiffs seek a decree determining their rights, if any, vis-a-vis the Defendants HUD and Pierce, and a decree declaring whether or not the Defendants have any duties to perform for their benefit and also whether or not the Defendants have a mandate under Title 12, U.S.C. § 1701z-ll and 42 U.S.C. § 1441 to maintain the project in a “decent, safe, and sanitary condition.” The relief sought in Count II also seeks declaratory relief and a determination as to whether or not the Defendants violated certain rights allegedly granted to these Plaintiffs by 12 U.S.C. § 1701z-ll; 42 U.S.C. § 1441, the Older Americans Act of 1965, 42 U.S.C. § 3001 et seq., P.L. 89-73, Title I, § 101 (July 14, 1965), 79 Stat. 219, Subsection (3) of 42 U.S.C. § 3001. In Count III, the Plaintiffs seek an order directing HUD to reject all bids received. This claim is based on an alleged impropriety by HUD of soliciting *35and receiving sealed bids for the sale of the project. In Count IV, the Plaintiffs seek an order directing HUD to live up to certain alleged promises and agreements concerning the bid process and to compel HUD to consider an alleged pre-bid offer to purchase the complex submitted by Plaintiff, MSCHA.
Considering the Motion to Dismiss as addressed to these four counts, seriatim, it should be pointed out at the outset that it is evident and clear that this Court lacks jurisdiction over any controversy between the individual Plaintiffs, Riedel and Meyer, and the Defendants, HUD and Pierce. This is so because the controversy between the parties in no way “arises under or is related to” any proceeding under the Code which, by virtue of 28 U.S.C. § 1471(b), are the prerequisites of this Court’s jurisdiction. This Court is equally satisfied that MSCHA fails to state a justiciable “case or controversy” in the first two Counts of the complaint, therefore, this Court lacks jurisdiction over the claims set forth in these Counts.
Counts III and IV of the same complaint, although they appear to present a “case or controversy” and a claim, albeit, colorable, they certainly do not “arise” under the Code and their relation to the proceeding under the Code, that is, to the Chapter 11 case, is at most tangential and peripheral. I Collier on Bankruptcy, (15th ed.) ¶ 3.01, p. 3-49. This conclusion is based on the following:
It is without dispute that MSCHA never was and still is not engaged in business in the orthodox sense. It was formed for the sole purpose of preventing the sale of the complex to a business enterprise because of the fear and apprehension of the tenants in the complex that if such sale occurs, they will lose their highly advantageous right of occupancy of their respective apartments. The motivation of the members of MSCHA is understandable and bears no criticism. This goal, however, has slight, if any, resemblance to the rehabilitative aims sought by Congress by the enactment of Chapter II of the Code. There is hardly any doubt that this Chapter 11 case does not involve any property of the Debtor and that it was not filed for the purpose of adjustment of the respective rights of creditors of various classes, or to reorganize the ownership structure (there is none), but first for the obvious and sole purpose of invoking the powers of this Court to prevent the sale of the complex to an entity other than MSCHA and compel HUD to sell the complex to MSCHA, second for the purpose of preventing the dismantling and destruction of MSCHA through a state court receivership action instituted by some disillusioned and disgruntled members of MSCHA who sought to recover their contribution to MSCHA.
Considering the foregoing, this Court is satisfied that the Motion to Dismiss, addressed to the claims set forth in Counts I and II of the complaint in Adversary No. 81-294 filed by the Plaintiffs should be granted on the ground of lack of jurisdiction because the complaint merely seeks an advisory opinion in the guise of a declaratory judgment and does not present a justiciable “case or controversy.” In addition assuming but not admitting that there is a. subject matter jurisdiction this Court should abstain pursuant to 28 U.S.C. § 1471(d) for reasons stated in connection with the claims set forth in Adversary No. 81-294.
The complaint in adversary No. 81-281 sets forth a claim based on the Clean Air Act, 42 U.S.C., §§ 7601 et seq. claiming that the Defendants should be prohibited from selling the apartment complex under the terms proposed by the highest bidder because the complex contains toxic asbestos material which presents an imminent and clear danger to the health of the tenants of the complex, some but not all whom are members of MSCHA, which, as mentioned earlier, was formed by the tenants for the sole purpose of acquiring ownership of the apartment complex in order to prevent a possible conversion of the complex into a condominium. The claim for relief in this adversary proceeding is identical to the claim for relief asserted by one of the mem*36bers of MSCHA against the Defendants in Case No. 81-288 Civ.-TK, a claim which was rejected by the District Court and which is, as noted earlier, now pending on appeal. This Court initially entered an Order and dismissed this complaint on the ground that MSCHA had no standing to assert a claim under 42 U.S.C., §§ 7601 et. seq. (Clean Air Act), but upon a Motion for Rehearing, on October 19, 1981, this Court entered an Order and reinstated the claim but only that part of the complaint which asserted the claim based on 42 U.S.C. §§ 7601 et. seq. (Clean Air Act) and solely on the issue of standing and not based on any other issues involved. Warth v. Seldin, 422 U.S. 490, 95 S.Ct. 2197, 45 L.Ed.2d 343 (1975).
The claim set forth in the complaint in Adversary No. 81-294 is based on the National Housing Act and basically seeks to block the sale of the complex by HUD to an entrepreneur and to compel the Secretary to sell the complex to MSCHA. This is, again, basically the identical claim presented to the District Court in Case No. 80-356 Civ.-TH which claim was rejected by the District Court and is in front of the Eleventh Circuit on an appeal filed by MSCHA. While the complaint has two additional grounds, as noted, purporting to present new issues not presented to the District Court, it is still based upon the ultimate proposition that the Secretary has no right to sell the project to the highest bidder and must sell the complex to the Plaintiff.
Accordingly, it is
ORDERED, ADJUDGED AND DECREED that the Motion to Dismiss the complaint in Adversary No. 81-294 treated as a Motion to Abstain under 28 U.S.C. § 1471(d) be, and the same hereby is, granted and the complaint and each count thereof be, and the same hereby is, dismissed. It is further
ORDERED, ADJUDGED AND DECREED that the Motion to Dismiss Adversary No. 81-281 treated as a Motion to Abstain under 28 U.S.C. § 1471(d) be, and the same hereby is, granted and said complaint be, and the same hereby is, dismissed. The entry of this order, however, shall not be construed to be an adjudication of the merits of any of the claims asserted in Case No. 80-356 Civ.-TH and 81-288 Civ.-TK by the Plaintiff, claims which are now involved in the appeals pending before the Eleventh Circuit Court of Appeals. It is further
ORDERED, ADJUDGED AND DECREED that in light of the foregoing, the Motions for Preliminary Injunction are moot and, as such, denied. It is further
ORDERED, ADJUDGED AND DECREED that in light of the foregoing, it is unnecessary to rule on the Motion for Summary Judgment. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489195/ | ORDER DENYING OBJECTOR’S OBJECTION TO CONFIRMATION
DENNIS J. STEWART, Bankruptcy Judge.
The file and records in this case show that the court’s order confirming the debtors’ plan of arrangement under Chapter 13 of the Bankruptcy Code was entered on June 15, 1981; that, thereafter, asserting orally a claim that it had not received effective notice of the filing or confirmation of the plan or of the commencement or continuation of these Chapter 13 proceedings, the First National Bank of Blue Island, Illinois, filed a written “objection to confirmation” in which it raised the sole objection that:
“Debtor does not propose to pay the petitioners. The plan proposes no payment to the general creditors and therefore has not been filed in good faith.”
Pursuant to an order entered in this case on September 18, 1981, the court convened its hearing of the objection on October 7, 1981. The debtors then appeared personally and by Robert Batton, Esquire, their counsel. The objecting creditor appeared by James W. Stanley, Jr., Esquire, its counsel, and the Chapter 13 trustee, A. L. Ten-ney, also appeared.
Counsel for the objecting creditor first asserted, and then specifically withdrew, a claim that the First National Bank of Blue Island is a secured creditor. He announced to the court that the objecting party was relying only upon its right as an unsecured creditor to receive “meaningful” payments through the plan under the rule of In re Terry, 630 F.2d 634 (8th Cir. 1980). Under the law presently in effect in this district, however, payments to secured creditors of “the value, as of the effective date of the plan, . . . [of] the allowed amount of [the] claim” as required by § 1325(a)(5)(B)(ii) of the Bankruptcy Code are considered to satisfy the requirement of the Terry case, supra. Otherwise, according to the files and records in this case, the general, unsecured creditors would receive no distribution if this case were the subject of straight liquidation under Chapter 7 of the Bankruptcy Code. Therefore, as to them, the requirement of § 1325(a)(4) is met in that a zero payment to unsecured creditors 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 ...” It is therefore
ORDERED, that the objection of the First National Bank of Blue Island to confirmation of the plan of arrangement be, and it is hereby, denied. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489196/ | FINDINGS OF FACT, CONCLUSIONS OF LAW AND FINAL JUDGMENT DENYING PLAINTIFF’S COMPLAINT FOR RECOVERY OF AN ALLEGED PREFERENCE
DENNIS J. STEWART, Bankruptcy Judge.
The plaintiff trustee in bankruptcy seeks to recover an alleged preference conferred upon the defendant in the sum of $4,005.84. The defendant contends that any value was paid it on account of materials which the debtor installed in a customer’s property and upon which the defendant had a mate-rialman’s lien. Thus, it is asserted that it did not receive “more than [it] would receive if the case were [liquidated] under chapter 7 of this title”. See § 547(b)(5) of the Bankruptcy Code.
A hearing on the merits of the complaint and the issues thus joined by the pleadings was conducted by the court on October 8, 1981, in Harrison, Arkansas. The plaintiff trustee in bankruptcy then appeared personally and as his own counsel. The defendant appeared by its counsel, Henry Os-terloh, Esquire.
The evidence then adduced clearly demonstrated the following material facts: The debtors, Kenneth and Mary Bailey, filed their petition for relief under the Bankruptcy Code on May 6,1981. Prior to that date, the debtor, Kenneth Bailey, as a plumbing contractor, had performed some services in installing materials in the Flippin school building in Flippin, Arkansas. On this particular job, Mr. Bailey worked in the capacity of subcontractor with the Smith Brothers Construction Company of Yellville, Arkansas. He had installed certain materials for which, as of February 23, 1981, he was indebted to defendant in the sum of $9,445.14. On that date, Mr. Bailey conferred with Charles Oris Thornton, an officer of the defendant, and advised them that he could make no more payments on the account and that he was going to “take bankruptcy”. But he also informed Mr. Thornton that he had a “last draw” coming from the Smith Brothers Construction Company. Thereupon, at the urging of Mr. Thornton, Mr. Bailey and Mr. Thornton travelled to Yellville and received the “last draw” from Smith Brothers Construction Company in the form of a check in the sum of $4,005.84 made payable to “Kenneth Bailey”. Mr. Bailey forthwith endorsed the check to the order of the defendant. The Smith Brothers Construction Company, however, would not release the check to Mr. Bailey when he and Mr. Thornton called for it on February 23, 1981, until it was presented with the defendant’s written release of the mechanic’s lien on the materials provided by the defendant and installed by the debtor.
CONCLUSIONS OF LAW
Based on the foregoing facts, the court must conclude that the bankruptcy *52estate was not diminished by this payment. In substance, the payment was simply a payment on account of the materials which was owed on account of the materialman’s lien of the defendant. The debtor simply acted as a conduit for the payment, which, under the circumstances detailed above, must be regarded as paid only on account of the lien and for the express purpose of dissolving it. In determining whether a transfer has been a preference, a bankruptcy court must “look ... through form to substance, [and] treat the transaction according to its real nature.” Katz v. First National Bank of Glen Head, 568 F.2d 964, 970 (2d Cir. 1977). The court, in so ruling, is mindful of the debtor’s testimony that the check was issued to him as payee and that he regarded himself as holding it in his own right in the short period of time which elapsed between its being handed to him and his endorsing it over to the defendant. But this testimony cannot be viewed in isolation from the intention objectively manifested by all the parties to the transaction to the effect that the payment would not have been made except for the purpose of application against the bill for materials owed to the defendant. And the bill which was owed by Mr. Bailey to the defendant was the same as the bill paid by Smith Brothers to Bailey on account of the materials against which the lien would otherwise have applied.
Even if the bankruptcy estate could be said to be entitled to recover the money thus paid, the demands of equity and justice would require that the same money should be regarded as the proceeds of the material against which the defendant’s lien was initially asserted and therefore payable to defendant from the estate in satisfaction of the lien. Therefore, the defendant has not, by virtue of receiving the challenged payment, received more than it would have been entitled to receive in distribution under Chapter 7 of the Bankruptcy Code.
It is therefore, accordingly,
ORDERED AND ADJUDGED that the plaintiff’s complaint to recover a preference be, and it is hereby, denied. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489197/ | DECISION AND ORDER
CHARLES A. ANDERSON, Bankruptcy Judge.
Oak Manor Homes, Inc. (Defendant herein) filed a petition for reorganization under Chapter 11 on 28 April 1980. According to the Statement of Affairs, the Debtor had been engaged as general contractors in new home construction and remodeling since May, 1975.
As scheduled, Debtor was at the time of filing owner in fee and by land contract of 9 parcels of real estate of an estimated value of $889,110.00. Gem City Savings Association (now Gem Savings Association) held mortgage liens on six of these parcels.
On 26 August 1980 the Debtor in Possession filed an application for an extension of time to file a plan because “Debtor’s Accountant has not completed the financial analysis of the corporation” and because of a pending adversarial matter.
Debtor’s Plan and its Disclosure Statement was filed on 25 September 1980. There are non-priority, unsecured debts in the amount of $263,349.07 (79 creditors); and, a secured claim in the amount of $565,-750.24 as of April 28, 1980. The 1979 Federal Income Tax has not been prepared and no balance sheet was supplied. The Plan is to be funded only from funds “derived from the operations of the company.”
No financial reports, or any other financial data, has ever been filed in the case, in compliance with the Superintendency Order of the Court. There is no way for any *85interested party to ascertain income and expenses, or other handling of funds, by examining the court records, although testimony indicated funds have been collected and disbursements made.
On 30 September 1981 Plaintiff herein filed a complaint for relief from the stay imposed by 11 U.S.C. § 362 so as to file foreclosure suits on four of the parcels of real estate, placed at issue by answer of Defendant, and set for trial on November 16, 1981.
Opinions vary as to the potential market value of these four parcels. In light of the Proposed Plan and Disclosure Statement as filed, extensive analysis of the valuation evidence need not be labored. One residence is practically completed, upon which the mortgage balance as of 28 October 1981 is in the amount of $105,882.56, with a debt service charge of $28.08 per day. One residence will require $4,500.00 to complete, upon which the mortgage balance on 28 October 1981 was $116,661.67 with debt service charge of $21.12 per day. One residence dence will require $10,500.00 to complete, upon which the mortgage balance on 28 October 1981 is $85,854.93, with a debt service charge of $21.12 per day. One resident will require $25,000.00 to complete, upon which the mortgage balance on 28 October 1981 was $69,110.23, with a debt service charge of $16.96.
Hence, debt service charges on these four specific parcels (not including mechanics and materialmen liens) is at least $100.00 per day. The Disclosure Statement indicates no anticipation of additional capital contributions and there is slight if any potential for a successful reorganization, other than the proverbial boot-strap operation at the expense of third party risks (using modest terms and terminology).
Furthermore, the fact cannot be obviated that there has been no constructive change in circumstances or likelihood of reorganization after eighteen months of operation. At best, the ultimate goal can only be liquidation.
In short, the conclusion is inescapable that Gem Savings Association is not adequately protected as first mortgagee; and, the remedy sought should be granted.
Because of economic factors and legal principles and procedures discussed by this Court in Hunter Savings Association v. Georgetown of Kettering, Ltd., et al., 14 B.R. 72 (Bkrtcy.S.D.Ohio 1981), involving a state court foreclosure suit, the respective interests of all parties can be best advanced in the bankruptcy court.
ORDERED, ADJUDGED AND DECREED, that Gem Savings Association should be, and is hereby, granted leave to proceed with a suit in foreclosure and sale in the bankruptcy court. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489198/ | DECISION AND ORDER
CHARLES A. ANDERSON, Bankruptcy Judge.
PRELIMINARY PROCEDURE
This matter was instituted before the Court by Plaintiff’s “Complaint to Determine Dischargeability of Debt,” filed 19 December 1980. The Complaint alleges that Franklin D. Taulbee, one of the above-named Debtors, was the drawer of a check which named Plaintiff as payee for the sum of $1,500.00, and that Mr. Taulbee wrote the check with the knowledge that it would be dishonored. Mr. Taulbee’s wife, and co-Debtor in their Joint Petition, is not a party in the instant adversary. The Complaint also alleges that Mr. Taulbee. is in possession of personalty, a “range and refrigerator,” which belongs to Plaintiff.
By order entered 29 January 1981 Nick L. Weller was made “Third Party Defendant” and an Answer and Third Party Complaint filed in behalf of Franklin D. Taulbee, seeking dismissal of the complaint, attorney’s fees and damages in the amount of $25,-000.00 from Weller Realty and Nick L. Weller for “concurrent fraud, and misrepresentation . . . . ”
This Court held a pretrial conference on April 8, 1981. The parties submitted a Pretrial Order on June 29, 1981, and the Court held a trial to consider the matter on July 6, 1981. The following decision is essentially a factual determination based upon the Pretrial Order, the pleadings, and the evidence adduced at trial, without arguments or citations of authorities (having been waived by counsel for the parties).
FINDINGS OF FACT
The instant case centers around a “lease” arrangement between the parties whereby Debtors sold their home to Nicholas J. Weller, in his personal capacity; and, as part of the contract of sale, Mr. Weller leased the home back to Debtors for a term of one year, with a one-year option for Debtors to repurchase and with the right to extend the *91lease term. Plaintiff procured the arrangement to “help out” Debtors, who were named-Defendants in a pending foreclosure suit. An associate of Mr. Weller discovered this suit in a regular search of the state court records for such matters.
Upon conferring with Mr. Weller, the Debtors were apprised that the offer to “help out” contained numerous complexities and legal maneuvers or devices, and different “packages,” summarized as follows:
Defendant and his wife would agree to sign a listing contract with Weller Realty for one year; the real estate would be conveyed, however, to Weller, who would cure the arrearages; Defendant would pay $750.00 per month on this contrived “lease-purchase” which would be used to pay mortgage payments; Defendant would deposit another $750.00 as a “security deposit Defendant and his wife would further be granted an “option” to “purchase” at the price of $69,000.00.
The numerous legal instruments were prepared by Weller and there is no doubt that the Taulbees signed in desperation without a clear understanding of the legal ramifications, and without more than a token closing conference.
The contract of sale was signed by the parties on September 8, 1980. The contract specifically provided that Debtors were to deliver to Plaintiff a general warranty deed for the home no later than September 25, 1980. In exchange for the deed, Mr. Weller, the “purchaser” according to the terms of the contract, agreed to (1) assume Debtors’ home mortgage of $48,550.00 and pay all mortgage arrearages; (2) deposit $1.00 of “earnest money” with Weller Realty, Inc., referred to as Debtors’ “agent” in the contract; (8) lease the home back to Debtors for $750.00 per month with a $750.00 security deposit; (4) grant Debtors a one-year option to repurchase the home for $69,000.00; and (5) pay a pro rata share of the semi-annual installment of taxes and assessments, and operating expenses.
The contract of sale was then finalized by the parties. Debtors delivered a general warranty deed for the home on September 26, 1980, to Weller Realty, Inc. Three days later, Debtors wrote the check in issue to Plaintiff, as the Payee, for the sum of $1,500.00. This cheek was dishonored. Debtors vacated the home on October 27, 1980, taking with them the “range and refrigerator,” after Weller Realty, Inc. threatened a forcible entry and detainer suit, which was then filed on October 28, 1980 by Weller Realty, Inc.
On, or about, 7 November 1980, a sale and conveyance of the real estate to purchasers Stanley A Wyspianski and Nancy Kutnak Wyspianski was arranged for $70,000.00, upon assumption of the existing mortgage in the amount of $48,261.92, and paying off a second mortgage in the amount of $9,138.59, and a judgment lien of $34.23. Also to be charged was a real estate commission in the amount of $4,900.00 split by Roth Realty and Weller Realty, Inc. These buyers had been obtained prior to bankruptcy. After paying closing expenses, there remained a net cash balance of $6,902.33 which was to be disbursed to “sellers.” This sale was never consummated.
On 5 December 1980, John T. Ducker, Trustee in Bankruptcy, filed Notice of Sale of Trustee’s Interest in Real Property to prospective purchasers for $70,000.00, all liens to attach to the proceeds.
The Trustee in Bankruptcy, in light of the pending litigation and title questions, then quitclaimed his interest to Mr. Weller. The Trustee testified that he received the amount of $905.00 from Weller Realty, Inc. for his “equity,” and “paid” a 6% commission of $4,200.00 to Weller Realty, Inc. for the “sale.” This commission was paid even though initially the Trustee did not know that Mr. Weller himself was the purchaser, but had the impression that Weller Realty, Inc. was acting as an agent for an unknown third party purchaser.
The figures reported by the Trustee indicate that Debtors’ home was sold to Mr. Weller for $70,000.00. The closing statement indicates that, aside from the Trustee expense, no actual funds were transferred in the sale. Instead, Mr. Weller agreed to *92assume Debtors’ first and second mortgages on the home. These mortgages were listed on the closing statement as having balances of $52,421.35 (Ryan Financial Services) and $10,750.00 (TransAmerica (Pacific) Financial Services), respectively. The Court notes that these balances represent the amount due on the mortgages prior to any dealings between the parties, and that the actual outstanding balances had been reduced by payments made by Plaintiff as discussed below. The remainder of the $70,000.00 sale price constituted the $4,200.00 commission to Weller Realty, Inc., the $905.02 Trustee expense, and $1,723.63 of “costs to stay foreclosure and pay shortages” incurred by Plaintiff.
Plaintiff’s exhibits, uncontested by Debtors, document the following payments by Plaintiff;
—$6,749.67—payments toward Debtors’ first and second mortgages (TransAmeri-ca (Pacific) Financial Services and Ryan Financial Services) made prior to contract of sale with Trustee, dated December 9, 1980;
—$144.00—insurance payment made pri- or to the Trustee sale,
—$168.67—home repair made prior to the Trustee sale;
—$905.00—payment to the Trustee for his efforts in the Trustee sale;
—$65.25—payment to the Auditor in preparation for the pre-Petition “sale”; —$4.00—payment to the Recorder in preparation for the pre-Petition “sale”; —$350.00 payment to attorney for legal advice;
—$2,121.84—payments toward Debtors’ first and second mortgages made subsequent to the Trustee sale;
—$463.63-—utility payments made subsequent to the Trustee sale.
In the instant matter, Plaintiff alleges that Defendant defrauded Plaintiff by knowingly writing a check with insufficient funds and thereby wrongly inducing Plaintiff into leasing Debtors’ home back to them. Plaintiff argues that the debt represented by the check, therefore, should be found nondischargeable in accordance with 11 U.S.C. § 523(a)(2)(A). Plaintiff also requests that the Court grant “further relief as is just” regarding Debtors’ “wrongful” possession of “Plaintiff’s” range and refrigerator.
Debtors respond that, despite the literal terms of the contract, the arrangement was in substance an agreement by Debtors to list the home with Weller Realty, Inc. for a one-year period. Debtors deny having knowingly delivered deed to the property to Plaintiff, and argue that Debtors only acted because of misrepresentations by Plaintiff. Debtors contend that Debtors were pressured to sign the deed along with several other documents, without the opportunity to read the documents, and without the advice of counsel. On this basis, Mr. Taul-bee requests dismissal of the instant Complaint, along with attorney’s fees and exemplary damages.
DECISION AND ORDER
The basic task confronting the Court in this matter is determination of the proper distribution of the “proceeds” from the “sale” of Debtors’ home. The parties have agreed to submit the matter for factual findings of the Court, without submission or discussion of questions of law or legal authorities.
The initial question before the Court is whether the legal arrangements between the parties prior to the instant bankruptcy Petition filing effected an unqualified transfer of the title of the real estate in issue to Mr. Weller prior to Debtors’ filing. This Court finds that they did not. Instead, looking to the substance over the form of these arrangements, the Court finds that the instant pre-Petition arrangements constituted an artificial conveyance and offer of repurchase, and were, in fact, merely a security arrangement to enable the resale of the real estate by Weller Realty, Inc. and to protect the realtor for any advances. For the purposes of the instant adversary, therefore, the real estate in issue was correctly listed as Debtors’ property at the filing of Debtors’ Petition. No findings are *93necessary, therefore, as to the allegations that the deed was not executed in the presence of two witnesses and acknowledged properly before a notary public or that execution was influenced by misrepresentation.
The Court, acting on the basis of its equitable jurisdiction, however, finds that the proper resolution of the pre-Petition arrangements is to place the parties in the position they originally found themselves. To this end, the Court finds that Plaintiff is entitled to be “made whole” by prior claim to Debtor on any sale proceeds to the extent that Plaintiff made actual payments for Debtors’ benefit.
The methods of distribution, to be discussed below, can best be prefaced by a hypothetical distribution of the full value of the home to all the mentioned interested parties. Had the Trustee received $70,-000.00 in proceeds from the December sale of the home, as originally contemplated, the proceeds would be distributed in the following order:
(1) administrative expenses — ($905.02 for Trustee expense in handling the sale, and any allowed commissions);
(2) perfected security interests in the real estate as listed in the bankruptcy Petition —(the TransAmerica (Pacific) Financial Services and Ryan Financial Services mortgages), (Note here that any amounts paid by Weller Realty, Inc. to the mortgagees subsequent to the Bankruptcy Petition filing, and thus reducing the outstanding balances listed in Debtors’ schedules, are not considered a second time as due to the mortgagees. The total amount of the claims as of the moment of the Petition filing, however, are subtracted from the hypothetical $70,000.00 proceeds at this point, because, in essence, the mortgagees have received full payment; and the difference between the amount received from the proceeds and the amount received from all sources, who are now entitled to payment based on the secured status of the mortgagees, is calculated below — i.e., any mortgage payments made by Plaintiff prior to the Trustee sale are to be returned to Plaintiff below, and any payments made subsequent to the Trustee sale are accounted for in any net equity accumulated in the property);
(3) consideration paid prior to the Trustee sale by Plaintiff pursuant to the September “sale,” since this Court has deemed the “sale” to be a security agreement reformable and reversible by the Court’s equitable powers;
(4) up to $10,000.00 for the Debtors’ homestead exemption — see 11 U.S.C. §§ 522(b) and (d)(1), O.R.C. §§ 2329.-66(A)(1) and .662, (note that the Debtors were using the home as their residence at the time of the Petition filing);
(5) any overage to Debtors’ Estate for distribution to Debtors’ other creditors, with any remainder to the Debtors.
The instant facts, however, differ markedly from the above hypothetical distribution. The Trustee “sale,” in essence, constituted the Trustee’s transfer of a quitclaim deed in exchange for $905.00 for the Trustee’s expenses. Further, the purchaser, deemed by this Court to be an equitable secured creditor, provided consideration by the assumption of mortgages to prior secured creditors and an implied contribution of the purchaser’s prior expenditures on behalf of Debtor. Given this factual background, the initial task confronting the Court is the determination of the “consideration” provided by each party in the pre-Pe-tition arrangement in order to return each party to their respective prior positions.
Debtors’ consideration included: (1) listing the home with Weller Realty, Inc. for sale (2) conveying as security the home to Mr. Weller, (3) signing a lease agreement, and (4) naming Weller Realty, Inc. as payee of a check for $1,500.00, pursuant to the lease agreement. In order to place Debtors in the position they originally found themselves, this Court finds that a beneficial interest to the home remained with the Debtors, (though record title was subsequently transferred to Mr. Weller by the post-Petition Trustee sale), and that the $1,500.00 check should be returned to Debtors. In this regard, the Court further finds *94that the Debtors did not write the $1,500.00 check with an intent to obtain money by fraudulent means as alleged in the instant Complaint, but rather as a part of a scheme conceived by the realtor to remove title from insolvent debtors and then subject to legal action by creditors.
The consideration provided by Weller Realty, Inc., up until the Trustee sale on December 5, 1981, at which time Mr. Weller took title to the property because of a breakdown in the arrangements to the extent the evidence has been adduced, included: (1) mortgage payments to Trans America (Pacific) Financial Services and to Ryan Financial Services, (holding first and second mortgages), totaling $6,749.67, (2) an insurance payment for $144.00, (3) a repair expense of $275.00, and (4) the agreement to attempt to sell the home. The Court should note that this list explicitly excludes those expenses incurred subsequent to the Trustee quitclaim deed, specifically mortgage payments totaling $2,121.84 and utility payments totaling $463.63. These are omitted because, by reason of the Trustee’s quitclaim, Mr. Weller personally intended to take over the property, becoming personally responsible for “his own” utility bills (especially in light of the intent and attempt to evict Debtors from the premises) and for mortgage payments which, in essence, contribute to net equity in the home. The fact that Mr. Weller chose to pay these personal expenses through the conduit of a corporation bearing his name should not operate to permit reimbursement of post-Trustee sale expenses because of the terms of a prior pre-Petition sale, which this Court has found was intended to be a security arrangement. It is important to note the prior approval was never sought from this Court. The Court has also excluded from the consideration provided by Plaintiff, those expenses associated with the Trustee quitclaim which are typically assumed by the purchase, (i.e. the expenses for the Recorder, the Auditor and legal advice), and for which Mr. Weller, as “purchaser” under the terms of the contract of sale is thus personally responsible.
An ancillary question is whether Plaintiff is entitled to any broker commission^) from the artfully designed transactions. This Court finds that Plaintiff is not. The September “sale” did not include a commission by its own terms, and Plaintiff did not argue, and this Court does not believe, that a commission for the pre-Petition transactions was earned, or would be appropriate. Plaintiff does contend that it is entitled to a $4,900.00 commission to be split jointly with Roth Realty in regard to the unconsummated post-Petition Wyspian-ski sale. The Court again finds that awarding this commission would be inappropriate. Although it is true that Debtors did not fulfill their “rent” obligations under the pre-Petition security arrangement, Plaintiff did not keep the mortgages on Debtors’ home up to date as agreed in the arrangement. In short, the demise of the Wyspian-ski “sale” (which wisely resulted when the Wyspianskis’ discovered that the home was to be the subject of bankruptcy proceedings), was predestined by the conduct of both parties; and, in light of the fact that the sale was not consummated, the Court finds that the alleged commission was unearned. Plaintiff also argues that it is entitled to a commission of $4,200.00 for its part in the December Trustee quitclaim. This Court finds that Plaintiff should not be awarded a commission for the conveyance of Debtors’ home to Mr. Weller, especially in light of the fact that the sale was undertaken to give Mr. Weller title free of creditors’ claims and thus to enable Plaintiff to resell the home, at which time a commission would have been earned and chargeable.
Plaintiff also argues that Debtors have improperly retained possession of the “range and refrigerator” which were in the home prior to the instant transactions. The Court finds that none of the contracts in evidence cover the disposition of the range or refrigerator, and that, since the items were not fixtures (i.e. attached to the home), Debtors did retain title and possession.
The Court, however, finds that Debtors are not entitled to attorney’s fees *95or exemplary damages as prayed for in Debtors’ answer. In light of the factual circumstances, and, specifically, Debtors’ failure to abide by the terms of the pre-Pe-tition arrangements, the Court finds that an award of this nature would be unwarranted.
The final task before the Court is to coalesce all of the above reasoning into a final distribution of the “proceeds.” Since the Trustee received $905.02 as an administrative expense, this amount should be subtracted from the $70,000.00 sale price first, leaving $69,094.98 to be accounted for. Mr. Weller assumed Debtors’ mortgages of $52,-421.35 and $10,750.00 (a total of $63,171.35), leaving $5,923.63 left to account for. The mortgage balances used in the Trustee sale to calculate Mr. Weller’s consideration were based upon the balances due prior to payments by Plaintiff toward the mortgages under the pre-Petition arrangement. In other words, Plaintiff impliedly contributed any mortgage payments made on behalf of Debtors as consideration in the Trustee sale. Those mortgage payments made by Plaintiff on behalf of Debtors, therefore, are not recoverable from Debtors, but will be realized as Mr. Weller’s net equity upon future resale of the home. Debtor’s initial $1,500.00 payment to Plaintiff under the pre-Petition arrangement, however, was, in essence, to have been contributed by Debtors to Plaintiff so that Plaintiff could, in turn, use the $1,500.00 as a fund for Plaintiff’s mortgage payments in behalf of Debtors. Hence, although the $1,500.00 debt is dischargeable, as determined above, this amount is owed by Debtors to Plaintiff, as secured creditor, from any interest Debtors may have in any surplus from the $5,923.63. This $1,500.00 obligation can thus properly be treated as additional consideration provided by Mr. Weller in the purchase of Debtors’ home, leaving $4,423.63 to be accounted for. Plaintiff’s contribution of $1,723.63 of costs to stay the state foreclosure action is properly recoverable by Plaintiff since it will not be recouped by Mr. Weller in Mr. Weller’s future resale of the home, and thus also may be applied by Mr. Weller as consideration toward the purchase of the home. This leaves $2,700.00 unaccounted for in the Trustee sale. Since the Court has determined that the alleged $4,200.00 commission cannot properly constitute consideration toward the purchase of Debtors’ home, the Court finds that Mr. Weller is liable to the Trustee in the amount of $2,700.00, and that this amount should be collected by the Trustee for distribution conformably to future order of the Court. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489200/ | FINDINGS OF FACT, CONCLUSIONS OF LAW AND ORDER
JON J. CHINEN, Bankruptcy Judge.
The above-entitled complaint to lift stay having come on for trial beginning on October 19, 1981, and the Court, sitting without a jury, having considered the witnesses and evidence presented by the parties, makes the following findings of fact and conclusions of law.
1. Defendant Continental Properties, Inc. (hereinafter “Continental”) is a Hawaii corporation.
2. Plaintiff Blackfield Hawaii Corporation (hereinafter “Blackfield”) is a Hawaii corporation.
3. Intervenor Travelodge International Inc. (hereinafter “Travelodge”) is a foreign corporation authorized to do business in the State of Hawaii.
4. Blackfield holds the master lease to property located at Coconut Plantation, Kauai, Hawaii. On July 1, 1969, Blackfield subleased a portion of the master leased property to Travelodge. The property under said sublease is referred to herein as “Property”. The sublease required the lessee to build on the Property a first-class resort hotel which would consist of no less than 190 or more than 340 hotel rooms.
5. On October 3, 1978, Continental and Travelodge executed a DROA for the sale and purchase of Travelodge’s interest in the Property for $700,000.
6. The Court has heard and considered testimony of two appraisers, Irmgard Patterson on behalf of Blackfield, and Alan Conboy on behalf of Continental. The facts show that Mrs. Patterson, who is an MAI, spent considerable time in doing research studying the Travelodge lease and the economic conditions in Hawaii and arriving at her opinion as to the market value of the Travelodge lease.
7. In her appraisal report, Mrs. Patterson discussed the three methods of apprais*144al: the reproduction cost approach, capitalized value or income analysis approach, and the market comparison approach. Mrs. Patterson stated that the reproduction cost approach was not used in the instant case because the Property is a vacant site. She then went into a detailed analysis of the income analysis approach and the market data approach.
8. In the market data approach, to arrive at the value of the land, in fee simple, as though unencumbered by any lease, Mrs. Patterson set forth in her report six compa-rables. Three of the comparables are located within the Coconut Plantation resort.
9. Transaction No. 1, also known as the Hirano site, adjoins the property in question. That leasehold, owned by Mr. Hirano and Mr. Hayashi, has been on the market for over a year with an asking price of $600,000. However, it remains unsold. The owners of the lease offered to return the lease to Blackfield free, but Blaekfield has refused the offer, demanding payment for nonperformance.
10. Transaction No. 2 is also within the Coconut Plantation resort. A hotel has been constructed on the property and it is now under the management of the Sheraton chain.
11. The third comparable in the Coconut Plantation resort is Transaction No. 6. Mrs. Patterson pointed out that, although this property is not on the beach, it is relatively small, with a good potential for restaurant use, and in close proximity to hotels and other resort facilities.
12. Transactions 3 and 4 are at Hana-maulu, Kauai. These two sites are along a beach, but compared to the subject property, have narrow beach frontage.
13! Transaction 5 is at Kapaa and is a condominium project.
14.Based on a study of these transactions, Mrs. Patterson arrived at the following value per square foot for each of the comparables:
Transaction 1 — $3.78;
Transaction 2 — $6.69;
Transaction 3 — $5.30;
Transaction 4 — $8.60;
Transaction 5 — $5.29;
Transaction 6 — $6.68.
15. Based upon this market data analysis, Mrs. Patterson arrived at about $8.50 for the Property, giving it a fee simple, unencumbered value of $4,000,000. By capitalizing this $4,000,000 at 8.5 percent, Mrs. Patterson arrived at an average percentage ground rent of $350,000.
16. To check on the result of her comparative approach, Mrs. Patterson used the anticipated income analysis approach. She carefully reviewed various leases, economic conditions, and the condition of the tourist industry in the islands, and finally concluded that for 324 rooms on the subject site, a percentage rate of four for rooms, one for food, three for beverages, and ten for concessions was proper. Based on this percentage applied to the projected gross revenue, she arrived at an annual rental attributable to the land at $355,200.
17. Based on 190 rooms, Mrs. Patterson used a higher percentage rate of 6.821, 1.705, 5.116, and 17.052 for rooms, food, beverages and concessions. Based on this higher percentage rate, she arrived at an annual rental attributable to land at $358,-714.
18. Mrs. Patterson then compared the market data investigations and anticipated income analyses and estimated the ground rent to be $350,000. With this $350,000 as the estimated annual economic rent, Mrs. Patterson estimated the subleasehold interest to be $285,000 after the completion of the hotel on the site with a strong operator in charge.
19. She next analyzed the Hirano lease on the adjoining property where the lease had been on sale for $600,000 for over a year without any buyers.
20. Mrs. Patterson then pointed out that under the Travelodge lease the sublessee has the right to construct a building on the subject site. This right may have value. But she also is of the opinion that the sublease may be a liability in today’s .market. In today’s market it requires payment *145of minimum rent, $86,000 per annum, and real property taxes for a total of $100,000 a year. Because of the high cost of financing, high construction cost, and the weak tourist industry, especially on the neighbor islands, the sublessee may not obtain reasonable financing, and the sublease may become subject to default by reason of nonperformance. Thus, Mrs. Patterson is of the opinion in the instant case that the present value of the Travelodge lease is nominal, up to $10,000, especially because of the poor economic condition, the high rate of interest, high cost of construction, lack of reasonable financing, a short construction period in the lease, and the declining tourist industry, especially on the outside island.
21. Mrs. Patterson felt that, even if the subject property had been appraised on the basis of a condominium use, it made no difference in the result because of the present economic condition and other matters she has previously stated.
22. Mr. Conboy, a SRPA, and candidate for MAI, spent approximately 25 hours to arrive at the value of the Travelodge lease and turned in a one-page analysis in which he estimated the value of the Travelodge lease to be worth $905,870. However, in this one-page report, Mr. Conboy’s analysis is based on the wrong assumption. He has assumed that the subject property is already improved with a hotel with a base of income. He does not state the costs of constructing the hotel, nor the high rate of interest for financing.
23. In addition, in arriving at his opinion on the market value of the lease, Mr. Con-boy used the percentage rate based on the Waiohai lease on Kauai and the Hyatt Regency and Marriott leases at Kaanapali. The Waiohai lease is actually a lease between Amfac and Amfac. The lessee is controlléd 80% by Amfac. This is a sweetheart deal and does not appear to be comparable.
24. The situation at Kaanapali, Maui, is not similar to the situation at Kauai. Kaa-napali is a very successful resort area and has a greater percentage of tourists than Kauai. The Court does not find the leases for the Hyatt and the Marriott hotels to be proper comparables on Kauai.
25. Mrs. Patterson believes, and the Court agrees, that the lease for the Pacific Holiday Hotel in the Coconut resort area should be used as a comparable in this case, not the leases from Maui.
26. The Court notices that most of Mr. Conboy’s time was spent in analyzing and tearing apart Mrs. Patterson’s report. Mr. Conboy did not spend much time in preparing his own analysis.
27. Mr. Conboy criticized Mrs. Patterson’s report on several grounds. He contended that, though Mrs. Patterson acknowledged that the best use of the subject property could be for condominium use, she did not appraise the property based on such use; that she based the appraisal on the hotel use. Mr. Conboy also contended that in using Transactions 3 and 4 as compara-bles, Mrs. Patterson did not adjust for the physical characteristics of those two properties. Mr. Conboy pointed out that the property at Hanamaula, Kauai are long and narrow and have a narrow beach frontage, compared to the subject property which is rectangular with a wide beach frontage. However, Mr. Conboy did not say how the adjustment should be made and Mr. Conboy acknowledged that if he had done a full value report, covering approximately two weeks, he may have reached a different conclusion as to the value of the Travelodge lease.
28. In addition to the opinions rendered by Mrs. Patterson and Mr. Conboy, the Court notices that, in its schedule, Continental has listed the Travelodge lease at a value of approximately $500,000.
29. The Court also notices that Black-field offered to purchase the Travelodge lease from Continental for the sum of $200,-000.
30. Between Mrs. Patterson and Mr. Conboy, the Court finds that Mrs. Patterson has more thoroughly and more adequately researched, studied and analyzed the appraisal problem. The Court places more credence on her report.
*14631. After reviewing all of the evidence presented, the Court relies on Mrs. Patterson’s report. Because of the present economic condition, the high rate of interest, and decline in the tourist industry, a value of $8.50 per square foot for the subject parcel appears reasonable. Mrs. Patterson stated that Transaction No. 4 was negotiated when real estate prices were at their peak on Kauai. This Court feels that, because of the present poor economic situation, the declining tourism, and the high rate of interest, even if adjustment is made for the physical characteristics of the subject properties and even if we assume the highest advantage of the subject property is for condominium, $8.50 a square foot, or thereabouts, is a fair figure.
32. The Court also accepts Mrs. Patterson’s analysis of the income analysis approach, and the Court thus accepts Mrs. Patterson’s conclusion that the present market value of the Travelodge lease is nominal. The situation surrounding the property substantiates Mrs. Patterson’s opinion that the Travelodge lease has only nominal value. The Hirano lease is similar to the Travelodge lease. The Hirano property is adjoining the subject property, and both properties are very similar in physical characteristics. Hirano and Hayashi, who own the lease, are large developers in Hawaii, with good track records. However, they have not been able to put up a hotel or condominium on this property. They have offered the property for sale for over a year at $600,000 but have not received any offers to purchase. In fact, the Hirano lease has been offered to Blackfield to be returned without any cost.
33. The Court feels that the foregoing facts surrounding the Hirano property substantiate Mrs. Patterson’s opinion that, because of all the surrounding circumstances in the instant case, the high rate of interest, declining tourism, the general economic conditions, the subject Travelodge lease has only nominal value today. Since the Court finds the market value of the Travelodge lease to be nominal value, say $10,000, and since Continental must pay $700,000 to Tra-velodge for the lease, the Court finds there is no equity to Continental in the property.
34. As to whether or not the subject property is necessary to effective reorganization: Continental originally sought to reorganize itself with three leasehold properties, a Waikiki property, a Hilo property, and the subject Kauai property. However, this Court has earlier ruled that Continental has no interest in the Waikiki and Hilo properties. Without those two properties, Continental cannot formulate an effective plan of reorganization.
35. Though the subject property is necessary for any reorganization, under the facts of this case, the Court does not believe that Continental can present an effective reorganization.
36. Continental only asserted possible contingency plans. No definite plans have been submitted.
37. Finally, it is the burden of Continental to show adequate protection for Black-field. Continental has not presented any evidence to show how it would adequately protect Blackfield. It only stated that it will provide protection after Blackfield consents. There is no evidence to show that Continental can adequately protect Black-field. Mr. Luke of Continental acknowledged that, if Continental did not pay, Blackfield will lose money. Blackfield must continue to pay the fee owner, and it must pay taxes and other costs.
38. When the lease was executed in 1969, water was available. No one was concerned as to who was responsible for furnishing water. Thus, the lease was drafted accordingly. The lease and the amendment of 1970 clearly show that Blackfield was required to provide only the “facilities” for the utilities for the property, one of the utilities being water. The Court thus finds that Blackfield was not required to provide water when the lease was executed in 1969 and amended in 1970.
39. The Court further finds that Travel-odge and Continental had requested consent of Blackfield in 1978. At that time water was available for the property. However, Blackfield did not consent and in a State *147.trial a jury found the refusal to consent to be unreasonable. If this verdict is not reversed or overruled, the Court is of the opinion that Blackfield’s refusal has caused the present water problem. The Court finds that Blackfield is responsible for providing water, if the jury verdict stands.
40. However, the Court feels that the water issue has no bearing in the result of this case. Even if Blackfield is found responsible for supplying the well and water because of its failure to consent in 1978, the Court still finds there is no equity for Continental in the Travelodge lease.
CONCLUSIONS OF LAW AND ORDER
1. This Court has jurisdiction over this matter and over the parties in this action.
2. Under Section 362(d) of the Bankruptcy Code, there is no adequate protection for Blackfield as Continental failed to provide any evidence and carry its burden of proof to how it could adequately protect Blackfield.
3. Under said Section 362(d), the Court also concludes that there is no equity for Continental in the Travelodge lease in that Continental agreed to purchase the Travel-odge lease for $700,000 and appraisal testimony has shown the Travelodge lease to have only nominal value.
4. The Court also concludes that Continental has no effective plan of reorganization without the Hilo and Waikiki properties. Furthermore, Continental has no effective plan to reorganize by utilizing only the Kauai property.
5. Consequently, the Court concludes that the stay should be lifted and,
IT IS HEREBY ORDERED that it be lifted. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489201/ | MEMORANDUM DECISION
PEDER K. ECKER, Bankruptcy Judge.
The Court has reconsidered the matter pursuant to Motion of Trustee and has again examined the provisions of South Dakota law and the Supplemental Affidavits of Trustee and Defendant.
S.D.C.L. 32-20A-15 clearly states snowmobiles are not contemplated by the provisions of Chapter 32-3 except as that Chapter relates to title registration, annual registration, and license plates. If our legislature intended further exception of lien notation, they should have provided it. This Court will not perform a legislative function.
The three requirements made applicable to snowmobiles, excepting out the rest of 32-3 by strict interpretation, obviously are designed to provide police, regulatory, and identification of snowmobiles and their owners and operators, similar to the need for that information respecting automobiles, trailers, boats, trucks, and trailer houses.
The South Dakota courts have repeatedly held that lien laws are an artificial creature of commerce and must be strictly construed.
In this case, this Court’s strict construction applies to the benefit of the claimed lienholder rather than, as usual, to the detriment of those claiming the lien. Defendant Bank, therefore, has technically perfected its security in this instance in the only method recognized by a strict application of the South Dakota statutes by filing a financing statement in connection with the taking of a security agreement, treating the property as consumer goods.
Counsel for Defendant Bank is directed to provide the Court with the Supplemental Order denying reconsideration. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489203/ | DECISION AND ORDER
CHARLES A. ANDERSON, Bankruptcy Judge.
This case is before the Court upon Complaint for relief from automatic stay filed by Rikes, a Division of Federated Department Stores, Inc. on 11 August 1981 and the answer filed in behalf of Tambra Lee Henderson on August 28, 1981. The material facts are not complicated and in dispute. The Debtor filed a voluntary petition under Chapter 13 on 8 July 1981. Previous to that time, the Plaintiff Rikes had obtained a judgment in replevin on 3 April 1981 in the Municipal Court of the City of Dayton. The property involved is household goods described as “an 8 piece modular pit group (upholstered furniture) with 3-corner unit, two armless units, and 3 ottomans” purchased 22 June 1980 for $1,966.99 including taxes. The judgment in replevin from the Municipal Court granted possession to the Plaintiff, or in the alternative granted a monetary judgment against the Defendant in the amount of $1,253.98.
At the time of the filing of the bankruptcy petition, Defendant Henderson was still in possession of the personalty in question.
The debtor’s plan generally provides for payment of all secured claims on a prorata basis over a period of 36 months, plus interest at 12% per annum, or the contract rate, whichever is lower, until paid in full, and the unsecured claims approximately 37 percent thereafter. On 3 August 1981 Rike’s filed an objection to the valuation of the collateral at issue as scheduled by the debt- or in the amount of $600.00, alleging that “said property is reasonably worth the value of $1,200.00.” The evidence adduced does not justify a sound finding as to valuation. The witness for Rike’s had not viewed the collateral and based an opinion on valuation by deducting 40% after the first year of use concluding a “retail value” of $1,200.00. The debtor testified that there was defective material in the cushions, faulty rollers, buttons coming off after one month usage, etc. Debtor concluded she has no real idea of its value, but opined it could be worth perhaps $600.00 to $800.00. On several occasions, debtor tendered payments to Plaintiff for the collateral at issue, which payments were refused by plaintiff because the debtor was also delinquent on another account.
DECISION
Plaintiff argues that “it is entitled to possession... by virtue of a default judgment in replevin obtained against defendant in the Dayton Municipal Court some three months prior to defendant’s filing of her petition under Chapter XIII [sic] of the Code, and that by reason of such judgment the plaintiff should be permitted to pursue its remedies for execution under the provisions of Rule 70 of the Ohio Rules of Civil Procedure. . . . Alternatively, plaintiff seeks relief from the stay on the ground that defendant has no equity in the secured property.”
It should be noted that a replevin action only resolves the question of the right to possession. In the same vein, the complaint for relief from the automatic stay of 11 U.S.C. § 362(d) also raises the question of the right to possession. Obviously, until the writ of replevin has been *273executed, actual possession has not changed and action thereon is stayed.
Since the Defendant was still in possession on the date that the automatic stay attached, the questions raised are typical Bankruptcy Court questions and not the right to monetary judgment or other relief.
The judgment of the Municipal Court should be, and is, considered res judi-cata as to the question of monetary damages. The action of replevin, however, is a separate and distinct cause of action which determines only that a writ of possession (replevin) be issued and returned. The writ as such does not effect possession until duly served and executed, which was never accomplished. The judgment in replevin is res judicata only as to matters adjudicated and the issues made. Since the right of possession of Plaintiff in the state court and the right in the context of bankruptcy case administration are not the same issues, the mere issuance of the writ, as stayed, does and cannot constitute a determination of such bankruptcy court issues as adequate protection.
The judgment of the state court is not under collateral attack. Replevin actions (statutory in Ohio) litigate only the right of possession at a particular time frame. See 66 Am.Jur.2d Replevin §§ 1-8 et seq. for encyclopedic treatment of the subject. Rather, the issue now is whether the stay should be lifted to allow execution upon the judgment. “The judgment in an action of replevin is res judicata as to every matter adjudicated by it, but, as in the case of any other judgment, its effect depends to some extent upon the issues made.” 32 O Jur.2d Judgments § 290, citing Freeman on Judgments, 5th ed. § 842 p. 1876.
Upon default, plaintiff had the contract right to possession under the security agreement. The replevin action did not alter the respective rights of the parties in this regard; but, the debtor still retains possession subject to payment of a monetary judgment. The bankruptcy court jurisdiction does not alter, but perpetuates, this existing status to afford protection to all interests conformably to the purpose of the 11 U.S.C. § 362 stay. The possession of the collateral confers a statutory medium for payment of plaintiff’s judgment.
Hence, the primary question to be resolved is whether or not the lien of Plaintiff provides adequate protection in the bankruptcy law context. This question is a federal law question that has not been resolved by the state court action.
Inasmuch as the monetary judgment does constitute res judicata, even though the determination of a right to possession in plaintiff which has never been implemented by a return of a writ of replevin does not, the elements of adequate protection has been altered thereby. The terms of debt- or’s proposed plan are crucial.
Bad faith on the part of debtor in evoking the automatic stay after suffering a default judgment in the state court is not evident in light of the fact that efforts were made to pay plaintiff, which payments were arbitrarily refused.
The plan, however, attempts to reduce the contract rate of interest on the value of the collateral and thereby defeat the monetary judgment entered in the state court. If the right to possession is to be reexamined in the bankruptcy court, the proposed plan cannot alter the terms of the monetary judgment. Even though no informal decision can be rendered from the evidence as to the valuation of the collateral confirmation of the proposed Plan must be denied because of the failure to provide the indubitable equivalent and of adequate protection conformably to the requirements of 11 U.S.C. § 361. See decision of this Court in General Motors Acceptance Corporation v. Anderson, 6 B.R. 601, 6 B.C.D. 1155, (Bkrtcy.S.D.Ohio) which is followed herein, reiterating that this Court does not subscribe to the principal of dictating a “discount rate” for the plan of a debtor as followed in the well reasoned opinion In the Matter of Hyden, 10 B.R. 21, 6 B.C.D. 1892 (Bkrtcy.S.D.Ohio) and the cases so meticulously digested therein. The only function of a bankruptcy court is to determine whether or not a proposed plan meets statu*274tory muster to obtain indubitable equivalence for court confirmation; and, it is only the debtor in Chapter 13 who propounds a Plan.
IT IS THEREFORE ORDERED, ADJUDGED AND DECREED that confirmation of Debtor’s proposed Plan is DENIED. IT IS FURTHER ORDERED that Debtor is GRANTED two weeks LEAVE to file an amended plan, and that, contingent on the filing of an amended plan, Plaintiff’s request for relief from the automatic stay of 11 U.S.C. § 362 is hereby DENIED for lack of evidence of inadequate protection. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489204/ | ORDER ON OBJECTION TO CLAIM OF EXEMPTION
ALEXANDER L. PASKAY, Chief Judge.
THE MATTER under consideration is an objection to the exemption claim of M. Joan Williams, the Debtor involved in the above-captioned Chapter 7 case. The objection is interposed by Associates Financial Services (Associates), and is based on the proposition urged by Associates that the Debtor is not head of a household and therefore not entitled to any exemption under the laws of this state. Art. X § 4, Fla.Const.; Chapter 222.01 et. seq., Fla.Stat. At the duly noticed hearing, the Court heard testimony and the record as developed at the hearing reveals the following undisputed facts:
The Debtor is a single person who resides with her son, who is 21 years of age, in the home which is involved in this dispute and which the Debtor claims to be her homestead. The son is employed full time, suffers no mental or physical disability; he is not supported by the Debtor. There is no evidence in this record that the Debtor exercises any authority over her adult son; that she exercises any meaningful decision making effecting the life of her son; and, the Debtor and her son live together merely for their mutual convenience.
In order to qualify for the exemption accorded by the constitution and by the implementing statute of this state, Fla. Const. Chapter 222.01 supra, there must be at least two persons who live together in relation of one family and one of the two is recognized as, in fact, a person who exercises authority over the family unit. The family unit required may be family in law, i.e. a relationship of husband and wife, or child and parent. In each instance, however, there must be an established and continuing personal authority responsibility and obligation which rests upon one who is in charge of the welfare of others and who in fact is recognized and observed as head of the family. In re Kionka’s Estate, 113 So.2d 603 (Fla.D.C.A.1959). It is well established that the parties cannot stipulate as to the family relationship and personal authority and responsibility must rest upon one who has either a legal or a moral duty to take care and support a dependant. In re Kionka’s Estate, supra. While it is true that the exemption as a law of this state has been traditionally liberally construed, it is equally well established that it shall not be construed unfairly and for the purpose of obstructing just demands. In re Kionka’s Estate, supra.
*350Considering the undisputed facts as appear from the record in light of the foregoing legal principals which govern the right to claim the benefits of the exemption laws of this State, Art. X, Fla.Const. § 4, it is clear that M. Joan Williams, the Debtor, does not qualify to be head of household and for this reason, is not entitled to the claimed exemptions.
Accordingly, it is
ORDERED, ADJUDGED AND DECREED that the Objection to Claim of Exemptions filed by Associates Financial Services be, and the same hereby is, sustained and the claim of exemptions be, and the same hereby is, disallowed. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489205/ | MEMORANDUM OPINION AND ORDER DENYING APPLICATION TO REMAND
LOREN S. DAHL, Bankruptcy Judge.
This matter is before the court on the application of GOLDEN BEAR LEASING to remove Sacramento County Superior Court Action No. 299743 pursuant to 28 U.S.C. section 1478. GOLDEN BEAR is a creditor of SUNSET WHITNEY COUNTRY CLUB ASSOCIATES, the debtor in these bankruptcy proceedings, and GOLDEN BEAR is the named defendant in the Sacramento County Superior Court action. In response to the GOLDEN BEAR LEASING application to remove pursuant to 28 U.S.C. section 1478, the plaintiffs in the state court action, MARGARET N. KAVE-NEY, et al., have filed an application to remand Case No. 299743 to the Sacramento County Superior Court pursuant to 28 U.S.C. section 1478.
The named plaintiffs in the Sacramento County Superior Court action are: MARGARET N. KAVENEY, individually and doing business as SUNSET WHITNEY COUNTRY CLUB; SUNSET WHITNEY COUNTRY CLUB, a California Limited Partnership; ALTA SIERRA COUNTRY CLUB, a California Limited Partnership; AUBURN VALLEY GOLD CLUB, LTD., a California Limited Partnership; SAN BER-NARDINO INVESTORS, a California Limited Partnership; CALIFORNIA PROPERTY CONSULTANTS, a California Corporation; and GARY S. KAVENEY.
Each of the individual plaintiffs in the Sacramento Superior Court action are either debtors before this Court in their own individual bankruptcy proceedings, or they are entities wherein GARY S. KAVENEY is a general partner, or they are both.
The facts of this matter present a classic case for removal pursuant to 28 U.S.C. sec*367tion 1478. First, GOLDEN BEAR LEASING is the named party defendant in the state court action and it is a creditor of SUNSET WHITNEY in the instant bankruptcy case. Either of these statuses would qualify GOLDEN BEAR as a “party” under the provisions of 28 U.S.C. section 1478. Thus, GOLDEN BEAR has standing to bring the instant application for removal. Secondly, all of the issues in the state court action and those in the bankruptcy cases pending before this Court arise from a common nucleus of facts. Certainly the equitable considerations of the matter favor a resolution of all the issues, both state court and bankruptcy, in one trial before this Court. This procedure will avoid rather than create duplicitous litigation and it will expedite the completion of the bankruptcy cases presently pending before this Court.
Finally, this Court has jurisdiction over all of the party plaintiffs in the state court action either because they are debtors in their individual capacities before this Court or because GARY S. KAVENEY is a general partner in the entity.
Applying the facts of the instant case to the remand guidelines set forth in In the Matter of Ebright’s Refrigeration Equipment, Inc., Debtor, (S.D.Ohio 1981), 13 B.R. 546, the equitable considerations weigh most heavily in favor of removal. For the above-stated reasons, it is
ORDERED that the application to remand by MARGARET N. KAVENEY, et al., is denied. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489207/ | DECISION AND ORDER
CHARLES A. ANDERSON, Bankruptcy Judge.
PRELIMINARY PROCEDURE
This case is before the Court upon complaint objecting to modification of Debtors’ Plan filed August 18, 1981; and the answer of Debtors, Rolfe F. Anderson and Shirley A. Anderson, filed September 21,1981. The case was submitted upon the pleadings, evidence adduced at the hearing held October 28, 1981, and memorandum submitted by the parties. The question has been submitted primarily as a factual question, without citations of case precedents.
FINDINGS OF FACT
Under the proposed modification of the Plan filed by Debtors, the claim of Plaintiff, Sears, Roebuck & Company, would be reduced to a secured claim for the value of collateral alleged to be $500.00 and as an unsecured claim for the balance of the total claim due in the amount of $2,700.62.
In behalf of the Plaintiff, testimony was adduced to establish the present value of the collateral at a fair market value of $1,244.00 at a present cost value of $4,488.00. The testimony in behalf of the Plaintiff also would indicate that even under the most adverse circumstances of sale at the Plaintiff’s stores, the custom ordered drapes which constitute the collateral should bring about $1,324.00, roughly one-half of the value of the goods located in the Debtors’ home.
An expert witness who testified in behalf of the Defendants estimated the value of the customed drapes at $500.00. His valuation would be $150.00, if sold at a “garage sale.” The testimony in behalf of both Plaintiff and Defendants establishes the fact that the custom made draperies at issue are in good condition. They had been installed in June, 1979 at a cost of approximately $2,000.00, plus interest, making the total purchase cost $2,700.00. The sales price included also installation charges and hardware.
DECISION
The present condition of the collateral and the general tenor of the testimony in behalf of both parties is not materially in controversy. The main dispute concerns a proper valuation, depending upon what factors of valuation should be applied. The “market value” of Plaintiff is based upon a theoretical sale of such custom made draperies as used merchandise in a retail store. The proposed “market value” submitted in behalf of Debtors assumes that the collateral would be sold on a market conceived by debtors, such as in-home goods or at a proverbial “garage sale.”
The Court cannot concur entirely with the approach of either party. The collateral involved are customed draperies purchased by Debtors from Plaintiff for the particular purpose of installation in the home of Debtors. To a great extent such merchandise has a special use only for the aesthetic tastes of the Debtors. In such circumstances, such as works of art or other individualized property, the value of the Debtors far exceeds the value that can be realized by the sale to others whose aesthetics are entirely different. Hence, the value as collateral must be tempered somewhat by reality. At each initial inquiry the focus should be on 11 U.S.C. § 1325(a)(5)(B)(ii) which provides that the value of collateral *523securing a secured claim must be paid over the duration of the Plan. Turning to 11 U.S.C. § 506(a) "... Such value shall be determined in light of the purpose of the valuation and of the proposed disposition or use of such property.. .. ” Hence, the disposition of the collateral does not necessarily state the proper valuation to be applied in the administration of the Chapter 13 distribution. In this sense, the provisions of Ohio Revised Code § 1317.16 (disposition of collateral) do not necessarily provide the frame work for valuation, since Paragraph B of this statute provides “disposition of the collateral shall be by public sale only.”
It is the opinion of this Court that the Debtors should not be permitted to assume a valuation for the collateral which, in final analysis, is far less than they personally apply to the collateral for their special purposes. Hence, it is the opinion of this Court that the proper valuation for security purposes should be an amortized value, based upon the special use of the collateral over an anticipated useful life. That is to say, the collateral has been used in the home for the purposes originally fabricated since June, 1979, and is still in favorable condition. Using an estimated life of five years and using a valuation of $2,000.00, the Debtors should be willing to pay, as a security interest, for the balance of the reasonable useful life of the draperies. Using a useful life of five years, the draperies should be further amortized for an additional two and one-half years, at $400.00 per year, totalling a fair reasonable valuation of $1,000.00. For the purposes of the Chapter 13 proceedings, therefore, the Debtors would have two alternatives. One would be to pay to the Plaintiff, as a secured creditor, $1,000.00 plus a debt service charge of 12%, until this amount has been paid in full. The other alternative would be to permit the Plaintiff to take possession of the collateral and dispose of same as used merchandise, cancelling the entire indebtedness due and owing at the time of the institution of the Chapter 13 proceedings. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489208/ | MEMORANDUM DECISION
FREDERICK A. JOHNSON, Bankruptcy Judge.
The Chapter 13 Trustee, Gerald S. Cope, Esquire, has objected to the allowance of a claim by Sears, Roebuck & Co. in the amount of $1,825.25. The objection is predicated on the Sear’s failure to include the requisite claimant’s signature and itemized statement of the account. Sears filed a proof of claim on November 13, 1980, which in the space reserved for signature of claimant contained the type-written words “D.J. Reid.” There were no attachments to the proof of claim. The Trustee’s objection was filed on August 24, 1981, followed on September 10, 1981 by another proof of claim by Sears. This second proof of claim, while having a three page listing of the Debtor’s account status attached thereto, also failed *537to include a signature of the claimant. A proof of claim, with the signature of “H.R. Ayotte,” and a three page account status was filed on December 10, 1981.
A proof of claim must be executed by the creditor or his authorized agent, Bankr.R. 13-301.1 The standing trustee has standing and a duty to determine which creditors are to receive dividends under the Chapter 13 plan. In re Foster, 11 B.R. 476, 7 B.C.D. 1011, 1012 (Bkrtcy.S.D.Calif.1981). An objection may be based on noneompliance with the provisions requiring a signed claim and statement of account, Bankr.R. 13-301, and failure to timely file a proof of claim, Bankr.R. 13-302(e). See In re Foster, supra.
While Sear’s original proof of claim was filed timely,2 the amended claim3 containing the requisite signature and information was not.4 Technically the last proof of claim, the one filed by Sears on December 10,1981, was not timely filed and is validly objectionable. See In re Valley Fair Corp., 4 B.R. 564, 567 (Bkrtcy.S.D.N.Y.1980); Bankr.R. 906(b). The purpose of the objections by a trustee to claims is to enhance the smooth administration of the estate, to facilitate formulation of a plan, and to distribute funds to creditors within the plan. The filing of a technically defective proof of claim which is later amended to comply with the bankruptcy rules does not defeat this purpose. Throughout the administration of the estate the trustee has been aware of the claim, its amount, and its potential allowability. Administration of the estate is not hindered or injured by this claim. The claim should, therefore, be allowed; the trustee’s objection overruled.
Order to be entered.
. Bankruptcy Rule 13-301 is applicable to Chapter 13 cases. P.L. 95-598, Title IV, § 404(d).
. Bankruptcy Rule 13-302(e)(2) requires proofs of claim to be filed within 6 months of the first date set for the meeting of creditors. This meeting was set for November 21, 1980; Sears claim was filed on November 13, 1980.
. The Court finds the proof of claim filed on December 10, 1981 as an amendment to the original proof of claim filed timely on November 13, 1980.
. A third proof of claim was filed by Sears on December 10, 1981. See n. 2 supra. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489209/ | MEMORANDUM DECISION
FREDERICK A. JOHNSON, Bankruptcy Judge.
Counsel for the Debtor filed an application for attorney’s fees and disbursements in the amount of $836.87. This amount would augment an initial $500 retainer. A portion of the thirty-one hours expended by counsel was for services rendered after the Chapter XI debtor was adjudicated a bankrupt.1 Counsel’s hourly rate of $40 is certainly reasonable.
The trustee objects to the fees sought, claiming that any fees in excess of the $500 retainer should be disallowed because they did not benefit the estate, were a duplication of services rendered by other attorneys and that any services performed after adjudication were not authorized by the court.
Compensible administrative expenses must be actual and necessary. Rose Pass Mines, Inc. v. Howard, 615 F.2d 1088, 1090 (5th Cir. 1980); In re Dole, 244 F.Supp. 751, 754 (D.Me.1965); Bankruptcy Act § 62(a)(1). The amount of compensation must be .fair and reasonable, In re Dole, supra, thereby necessitating a review of all applications. See Watkins v. Sedberry, 261 U.S. 571, 43 S.Ct. 411, 67 L.Ed. 802 (1923). In reviewing counsel’s application for fees the bankruptcy court must protect the creditor’s interest in the debtor’s property, see Realty Associates Securities Corp. v. O’Connor, 295 U.S. 295, 299, 55 S.Ct. 663, 664-65, 79 L.Ed. 1446 (1935), while treating counsel with fairness, see Massachusetts Mutual Life Insurance Co. v. Brock, 405 F.2d 429, 432-33 (5th Cir. 1968).
The documentation accompanying Mr. Growe’s application does not contain a sufficient description of the nature, purpose and affect of the services provided. See In re York International Building, Inc., 527 F.2d 1061, 1069 (9th Cir. 1975); Inre J & S, Inc., 19 C.B.C. 822 (D.Vt.1979). Absent this information the court may proceed to determine the fees allowable based on information available. In re Hamilton Distributors, Inc., 440 F.2d 1178, 1180 (7th Cir. 1971).
A review of counsel’s application indicates that of the 21 hours provided the debtor-in-possession, 3 hours expended for unidentified “research” is not compensible. Of the ten hours provided the debtor after adjudication 6Vi hours were appropriately the function of debtor’s counsel and 3% hours should have been performed by the trustee or are too vague to make a judgment in favor of counsel.
The preparation of a final report is required by the debtor-in-possession by Bankruptcy Rule 122(7) and is compensible. The preparation of amended schedules of affairs and consultation with the trustee are reasonably expected to be performed by debt- or’s counsel. However, negotiations pertaining to state taxes and securities are clearly a function of the trustee.
Debtor’s counsel is allowed fees in the amount of $470 plus expenses of $96.87.
An appropriate order will be entered.
. This case was commenced under the old Bankruptcy Act. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489211/ | OPINION
STEPHEN B. COLEMAN, Bankruptcy Judge.
This Case involves a novel assertion of a security interest in crops grown in 1981 from soybean seed grown in 1980, which seed were subject to a valid and admitted security interest in the 1980 crop.
The Debtor in Chapter 11 is a farmer who grows crops on his own 57V2 acres of land and 120 more acres which he leases from others, all in Blount County, Alabama.
1980 was a disastrous year for farmers in that area due to unprecedented heat and drought and crops were generally a failure. To plant his 1980 crop, Debtor entered into a Soybean Production, Marketing and Security Agreement on April 28, 1980, with Farmers Mutual Exchange of Oneonta, Alabama for a named initial indebtedness of $18,000, creating a lien or security interest in the 1980 soybean crops on 152.6 acres of land described therein. Farmers Mutual Exchange transferred all or part of its interest to Gold Kist, Inc. There is no conflict or controversy presented between Farmers Mutual Exchange or Gold Kist, Inc. as secured parties and the landlords on the rented land, and presumably the crop was such a failure that the secured parties made no effort to enforce their rights to any soybeans grown in 1980.
Bruce B. Bentley, the Debtor, filed a Chapter 7 petition on May 8,1981, which he converted to Chapter 11 on May 22, 1981, prior to the 341 Meeting held June 18, 1981.
Gold Kist, Inc. filed claim marked “secured” for $15,038.99 which represents seed, fertilizer, herbicides, and supplies furnished during Spring of 1980 and which was used directly in the production of the 1980 soybean crop.
The Debtor, as was the custom, reserved and saved back enough seed from the 1980 crop to plant the 1981 crop. He used no fertilizer or other supplies to make the 1981 crop and neither borrowed nor received any advances from creditors during 1981. He did plant the seed from which he harvested the soybeans grown in 1981 and created the funds now in dispute.
*637The common marketplace for soybeans in that locality is Central Soya of Alabama, Inc. where Debtor marketed his beans. Central Soya upon advice from Gold Kist, Inc. issued three checks in the total sum of $6,441.51 for the beans purchased from Debtor, each payable jointly to Debtor and Farmers Mutual Exchange.
The matter comes before the Court on the Debtor’s petition for a rule to the parties named to determine the relative interest of each and to compel Central Soya to pay all the funds represented thereby to Debtor alone. No Trustee has been appointed in this ease.
All the parties named appeared and participated in the hearing on the Rule Nisi and Farmers Mutual Exchange, which seems to be the same as Gold Kist, Inc., asserted its claim to all the funds since its debts exceeded the amount of the checks.
Admittedly, the box denoting “proceeds” was not checked and creditor does not rely on the claim to “proceeds” as expressed in the security agreement. The creditor contends that since it had a security interest in the seed that it thereby and consequently owned the plants and crops produced thereby.
This is a novel contention and one of first impression.
The Court expressed to the attorney for the creditor the need for testimony or other scientific proof of his theory. The Court did agree that seed planted customarily produces crops but did not agree that the plants were themselves the seed. The creditor preferred to rely on assumptions of law and did not offer any evidence as a factual issue, except such as was a matter of common knowledge.
THE ISSUE
Does the security interest in seed continue and exist as a matter of law in plants grown from the seed? Do seed, after planting and germination, loose character as seed? The financial loss to the creditor entitles it to a serious consideration of these issues.
PRESUMPTIONS OF LAW
The answer to the above questions may be found in the Uniform Commercial Code. The Uniform Commercial Code provides:
§ 9-204. When security interest attaches; after-acquired property; future advances. — (1) A security interest cannot attach until there is agreement (subsection (3) of section 1 — 201) that it attach and value is given and the debtor has rights in the collateral. It attaches as soon as all of the events in the preceding sentence have taken place unless explicit agreement postpones the time of attaching.
(2) For the purposes of this section the debtor has no rights
(a) in crops until they are planted or otherwise become growing crops, in the young of livestock until they are conceived; . . .
(4) No security interest attaches under an after-acquired property clause
(a) to crops which become such more than one year after the security agreement is executed except that a security interest in crops which is given in conjunction with a lease or a land purchase or improvement transaction evidenced by a contract, mortgage or deed of trust may if so agreed attach to crops to be grown on the land concerned during the period of such real estate transactions;
§ 9-109. Classification of goods; “consumer goods”; “equipment”; “farm products”; “inventory”. — Goods are
... (3) “farm products” if they are crops or livestock or supplies used or produced in farming operations or if they are products of crops or livestock in their unmanufactured states (such as ginned cotton, wool-clip, maple syrup, milk and eggs), and if they are in the possession of a debtor engaged in raising, fattening, grazing or other farming operations. If goods are farm products they are neither equipment nor inventory; . . .
The Code of Alabama as to the rights of landlords, Title 35-9-32, provides:
*638Continuation of lien and attachment to crop of succeeding year.
When the tenant fails to pay any part of such rent or advances, and continues his tenancy under the same landlord, on the same or other lands, the balance due therefor shall be held and treated as advances to him by the landlord for the next succeeding year, for which the original lien for advances, if any remain unpaid, shall continue on the articles advanced, or property purchased with money advanced, or obtained by barter in exchange for articles advanced, and for which a lien shall also attach to the crop of such succeeding year. (Code 1876, § 3469; Code 1886, § 3058; Code 1896, § 2705; Code 1907, § 4736; Code 1923, § 8801; Code 1940, T, 31, § 17.)
The Text of Volume 5A of Benders Commercial Code Service found on Page 9-226 as paragraph 93.07 discusses the limitation of the security interest in crops and after-acquired farm products.
¶ 93.07 After-acquired Farm Products: Limitations
.... In keeping with the policy developed in some agricultural states, the Code restricts the security interest in future crops to those which become growing crops within one year after execution of the security agreement, thus protecting the farmer-debtor from “mortgaging” his assets too far into the future [sec. 9-204(4)9(a)]. But the Code forges or allows enough exceptions to this rule to dilute its ultimate effect.
The limitation is accomplished by use of the Code’s concept of attachment:
(1) The security interests cannot attach to crops until they are planted or otherwise become growing crops [sec. 9-204(2)(a)] and
(2) The security interest does not attach to crops which become growing crops more than one year after execution of the security agreement.
This, of course, encourages supplemental security agreements where the crop will clearly be planted over one year after the credit to be secured is extended to the farmer-debtor. For example, the canner who advances seed to the farmer to grow a crop under an output contract with the farmer will want to secure both the advance of or for seed and the ultimate delivery of the crop by a security interest in it. Often the contracts and hence the crops contemplated extend beyond one year. The canner, or any other secured party in like circumstances, has several alternatives open to him:
(1) Execute a new security agreement in advance of each growing season.
(2) Take other collateral, such as farm equipment, under a single, long-term security agreement.
(3) Execute a long-term security agreement with or without other collateral, obligating the debtor to execute periodic supplemental security agreements timed so as to include the crop as security for the antecedent obligations.
The first alternative precludes long-term business certainty since the debtor has no obligations beyond one season; the second may afford inadequate security; the third is dangerous in the event of the farmer-debtor’s bankruptcy since, except for clearly contemporaneous value, there is a transfer for an antecedent debt by each supplemental security agreement and a possible voidable preference under Section 60 of the Bankruptcy Act. Section 9-108, if effective at all against the provisions of the Bankruptcy Act, would not aid the secured party in this case since a security interest created in the original security agreement could not attach to the belated crop even though conceivably it was acquired by the farmer-debtor in the regular course of business; it may save the security interest, however, to the extent that new credit of whatever kind is given under the supplemental security agreement.
... Since provisions in the original security agreement and financing statements covering crops which become growing after one year would be ineffectual, additional financing statements would have *639to be filed for each supplemental security agreement.
The Court has not treated the contentions of the secured party as frivolous or utterly unfounded. However, upon consideration of all available references to the subject the Court finds that Farmers Mutual Exchange can demonstrate no claim to the funds due by Central Soya and a separate Order will issue. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489212/ | MEMORANDUM
CLIVE W. BARE, Bankruptcy Judge.
This is an action by the trustee in bankruptcy to avoid an alleged preference to a bank. 11 U.S.C. § 547. Trial was held September 18, 1981. The facts generally are not disputed.
I
On December 19,1979, the debtor, Robert Morgan Griffith, Jr. (Griffith), executed an unsecured installment note to the United American Bank, Johnson City, Tennessee (UAB), Note No. 3008339904, for $5,850.00. Ex. 1. On November 23, 1980, Griffith executed another unsecured note to UAB, Note No. 05208, for $16,836.64. Ex. 2.
In February 1981, Griffith, a builder, also had two or more secured construction loans with UAB. On February 3rd a bank official, either Mr. Bob Garnett or Mr. Charles Hurt, asked Griffith to come by the Bank. Griffith did as requested and was told that the two unsecured notes were delinquent. UAB thereupon wrote two checks payable to Griffith in the amounts of $16,661.09 and $3,297.80, charging these amounts as draws against two of Griffith’s construction loans — Lots 3 and 30 in the Whisperwood Addition. These checks were deposited to Griffith’s checking account.1 Griffith was then requested to draw two checks on his account payable to UAB in the amounts of $16,661.09 and $3,297.80. Griffith complied and UAB immediately credited these checks to Griffith’s two unsecured loans, which paid those loans in full. UAB knew at that time that Griffith was in financial difficulty and that materialmen’s liens had been filed against jobs that Griffith had under construction, including the properties against which UAB charged the February 3rd draws.
On March 12,1981, Griffith filed a voluntary petition in bankruptcy. 11 U.S.C. § 301.
II
11 U.S.C. § 547(b), with exceptions not pertinent, enacts that the trustee may avoid any transfer of property of the debtor—
“(1) to or for the benefit of a creditor;
(2) for or on account of an antecedent debt owed by the debtor before such transfer was made;
(3) made while the debtor was insolvent;
(4) made—
(A)on or within 90 days before the date of the filing of the petition;
(5) that enables such creditor to receive more than such creditor would receive if—
(A) the case were a case under chapter 7 of this title;
(B) the transfer had not been made; and
(C) such creditor received payment of such debt to the extent provided by the provisions of this title.
(f) For the purposes of this section, the debtor is presumed to have been insolvent on and during the 90 days immediately preceding the date of the filing of the petition.”
It will be noted that the undisputed facts set forth herein do not come within an ordinary preference action. The net effect of the transactions, however, in which Griffith acted only as directed by UAB, enabled UAB to obtain full payment of two unsecured loans. The fact that innocent parties could have been seriously harmed by UAB charging draws against wholly unrelated *690construction loans, knowing that those draws were not to be used to pay material-men with outstanding debts but to satisfy UAB’s unsecured loans, does not appear to have bothered UAB in the least.2
UAB deposited the funds to Griffith’s account. At that time the funds became the property of Griffith. UAB argues that there was no real transfer of funds. This is incorrect. There was a deposit to Griffith’s account. See Ex. 5. UAB also argues that the advances to Griffith on February 3rd on the construction jobs were, in effect, unsecured advances by virtue of the value of the property. This fact, if true, is immaterial. Nor was there any proof introduced as to the value of the properties. When the funds were deposited to Griffith’s account, he became the owner of those funds and could do as he pleased with them, UAB’s attempted “hold” notwithstanding. The transfer to UAB was effected by checks drawn on Griffith’s account.
Payment of the two unsecured loans to UAB on February 3,1981, in the amount of $19,958.89, constitutes an impermissible preferential transfer, 11 U.S.C. § 547(b), that should be avoided. The trustee is entitled to recover this sum. 11 U.S.C. § 550(a)(1). Judgment will be entered accordingly.
This Memorandum constitutes findings of fact and conclusions of law, Bankruptcy Rule 752.
. Mr. Hurt testified that a “hold” was placed on Griffith’s checking account. The records introduced do not support that testimony. See Exs. 4, 5, 6.
. UAB apparently overlooks the fact that serious consequences can follow the misapplication of contract payments by an owner, contractor, subcontractor, or other person. See T.C.A. § 64-1139, 1140, 1142. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489213/ | OPINION
THOMAS M. TWARDOWSKI, Bankruptcy Judge.
The plaintiffs seek an accounting of the proceeds realized from the defendant’s sale of certain trailers following their repossession from the plaintiff. For reasons hereinafter given, the defendant shall pay to the plaintiffs certain net proceeds in excess of the debt due defendant.1
The facts of this case are as follows:
An involuntary petition in bankruptcy was filed against the debtor-plaintiff, Modern Transfer Co., Inc., (hereafter referred to as “Modem”) in July, 1976. Modern filed a plan or arrangement on February 2,1978, which was confirmed by Order of this Court dated December 27,1978. The instant complaint was filed by Modern and its Receiver, Alan M. Black, against defendant Strick Corporation (hereafter referred to as “Strick”) on September 5, 1978. Although Strick had been duly notified of these proceedings, they have not filed any proof of claim.2
The complaint is based upon a series of contracts, agreements and transactions between the parties governing the sale of 245 trailers to Modern by Strick. The two original contracts were drawn up by Strick and executed by the parties on February 15, 1973. In these instruments, the language on the printed form which provides for the rebate of unearned finance charges by the seller in the event of buyer’s prepayment by the method commonly known as the Rule of *70678’s, is stricken by typewritten x’s. Payments were made under the first contract. The second contract was dated to commence on June 1, 1980, and it never went into effect.
The third contract was executed on June 4, 1976, and, along with the accompanying agreement of that date, it provided for the refinancing of 100 of the original 245 trailers and the repossession by Strick of the remaining vehicles. This third contract retained the form language pertaining to the Rule of 78’s. No payments were made under the third contract. During June and July, 1976, Strick repossessed all of the trailers that were the subject of the contracts. The trailers were resold through Strick Finance Company, the assignee of the contracts.
All of the contracts provided that Strick must account to Modern for the net proceeds of any post-repossession sale, after deducting Strick’s reasonable expenses of sale.
Strick submitted an accounting of the proceeds of this sale which computes the rebate due Modern for prepayment under the Rule of 78’s method. Strick deducted amounts for reconditioning, outside commission, and a 15% charge for selling expenses, also characterized as an overhead charge. Modern contends that its rebate must be computed by the straight line method. Modern has also challenged Strick’s right to the 15% selling expense deduction. Strick is seeking to retain an amount identified as interest due under the third contract, while Modern argues that this contract was rescinded and no interest is due. The parties have submitted a Stipulation of Facts and Issues as well as briefs; oral argument was held on October 20, 1981.
I
The threshold question before us is which of the contracts, if any, controls the method of rebating interest to Modern. The third contract (1976) was intended by the parties to modify the original contracts executed in 1973, with respect to the 100 trailers which were being refinanced. However, the agreement executed simultaneously with the third contract states:
if all of the terms and conditions herein are not fully met by the parties hereto, this agreement shall be null and void, and Contract Nos. 10-05517 and 10-05518 shall be in full force and effect.
No payments were made under this contract, therefore the 1976 contract is nullified and the 1973 contracts (Nos. 10-05517 and 10-05518) are deemed controlling.
To interpret these contracts we look to the established principles of Pennsylvania contract law. A party who seeks to strike down his written obligation must present evidence that is clear, precise and indubitable. Schoble v. Schoble, 349 Pa. 408, 411, 37 A.2d 604, 605 (1944). No evidence has been presented to this Court which would prove that Strick did not intend to be bound by the written manifestation of its assent. The affirmative striking of the Rule of 78’s clause became part of the contract. When the parties to an agreement reduce their understanding to a writing that uses clear and unambiguous terms, a court should look no further than the writing itself when asked to give effect to that understanding. In re Estate of Breyer, 475 Pa. 108, 115, 379 A.2d 1305, 1309 (1977). The essence of contract law is the objective intent of the parties and when there has been no allegation of mistake, fraud, overreaching or the like, it is not the function of the court to redraft a contract to be more favorable to a given party than the agreement he chose to enter. Brokers Title Co. v. St. Paul Fire and Marine Insurance Co., 610 F.2d 1174, 1181 (1979). See also Harris v. Dawson, 479 Pa. 463, 468, 388 A.2d 748, 750 (1978).
Strick has argued that it could not have intended to surrender its right to a Rule of 78’s rebate method because in so doing it would have denied itself the effective rate of interest on its loan. We note that the contracts were negotiated by parties of relatively equal bargaining power. Any ambiguity in the contracts will be con*707strued most strongly against the party who wrote it; in this case, Strick. Williston, Selections on Contracts, Student Edition, § 621; Restatement, Contracts § 236; In re F.H. McGraw & Co., 473 F.2d 465, 468 (1973). At best, the striking of the Rule of 78’s clause renders the contracts ambiguous. This ambiguity must be resolved in favor of Modern. Nor are we persuaded by Strick’s argument that Modern agreed to a modification of these contracts by accepting a rebate based upon the Rule of 78’s in one instance in 1975. Oral modification of a written contract must be of such specificity and directness as to leave no doubt of the intention of the parties to change what they had previously solemnized by a formal document. Gloeckner v. School District of Township of Baldwin, 405 Pa. 197, 199, 175 A.2d 73, 75 (1961).
For these reasons we find that a rebate based upon straight line calculation is due Modern from Strick.
II
The second issue raised by the parties is whether Strick is entitled to the 15% selling expense or overhead charge in the amount of $169,235.18 which it has deducted from the gross sales price realized by the resale of trailers. The language of the contract specifically allows Strick to deduct reasonable expenses of sale, retaking, repairing, reconditioning, keeping and storing of the equipment and attorney's fees. In the Stipulation of Facts and Issues, Strick has characterized the deduction in question as an overhead charge. Clearly, the contract does not include overhead charges as allowable claims against the gross proceeds. Strick contends in its brief that the deduction was a sales commission paid to Strick Finance, its outside agent on the sale. However, an item identified as commissions actually paid to third parties in the amount of $10,822.93 has also , been deducted from the gross proceeds. We find that the 15% charge made by Strick was not proper under the contracts.
Ill
The third issue presented to this Court is whether any interest is due to Strick under the third contract. This question is addressed by our initial finding that the third contract became null and void under its own terms when all of its conditions were not met. In effect, the parties agreed to rescind upon default and rely upon the 1973 contracts as dispositive of their rights. Pennsylvania recognizes that the surrender of mutual rights under an existing contract is sufficient consideration for the cancellation of one contract and the substitution of one with different terms. Kirk v. Brentwood Manor Howes, Inc., 191 Pa.Super. 488, 491, 159 A.2d 48, 52 (1960). Restatement, Contracts § 406 Comment A. The actions of the parties in effecting the transfer of possession of the trailers without reference to any right to payment due under the third contract are consistent with an intent to rescind according to the agreement. We find that no interest is due to Strick under the third contract.
IV
Our decisions on the foregoing issues in favor of Modern renders it unnecessary for us to reach the issue of whether Strick is barred from any recovery herein by its failure to file a proof of claim.
V
Based upon the foregoing, we adopt the accounting submitted by Modern as Exhibit “F” in the Stipulation, and find that Strick is indebted to Modern in the sum of $250,-052.14.
Exhibit “F”
per Modern
Contract No. 1 $1,172,888.45
Interest 492,613.15
1,665,501.60
Less Payments
on account 863,751.05
801,750.55
Less Interest 492,613.15
309,137.40
Add Interest
Straight Line 222,808.92
531,946.32
Add Principal
Contract No. 2 286,292.00
$ 818,238.32
*708Selling Price $1,128,234.60
Reconditioning - 49,119.11
Outside Commission - 10,822.93
Net Proceeds of Sale
of trailers after
deduction of commissions
and reconditioning costs $1,068,290.46
(260,062.14)
. This opinion constitutes the findings of fact and conclusions of law as required by Rule 752 of the Rules of Bankruptcy Procedure.
. Strick is now barred from filing a proof of claim due to 11 U.S.C. § 93(m) repealed 1978. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489215/ | OPINION
THOMAS M. TWARDOWSKI, Bankruptcy Judge.
The Petition of DMA Investments, Inc. requests that we set aside the sheriff’s sale of certain real property owned by the debtors-defendants. For reasons hereinafter given, we will dismiss the petition and sustain the sale.1
The debtor-defendants, Francesco and Anne Scardino (hereinafter “debtors”), filed a petition under Chapter 7 of the United States Bankruptcy Code on March 20, 1980. Upon motion of the first lienholder, Freedom Valley Federal Savings and Loan (hereinafter “Freedom Valley”), the automatic stay imposed by 11 U.S.C. § 362 was modified to allow real property owned by the debtors to be sold at sheriff’s sale. The second lienholder, Hamilton Bank was the only bidder at the sále and it acquired the property for $70,000. The petitioners, DMA Investments, Inc. (hereinafter “DMA”), had obtained assignment on the third lien position of Harold E. Trego.
DMA argues that the sheriff’s sale should be set aside because the sale price of $70,000 was grossly inadequate and there was an irregularity in the sale in that Hamilton Bank agreed to purchase a junior lien holder’s claim in exchange for their agreement not to bid. The power of the Court to set aside a sheriff’s sale is discretionary. We are guided by the principles of Pennsylvania law which require evidence of fraud or highly suspicious circumstances in order to justify, setting aside a sale. Farmer’s Trust Company v. Murray, 2 D. & C.3d 41 (1975).
*738In the case at bar, there was no proof that the Bank’s agreement with the junior lienors was fraudulent as to DMA. Nor was DMA deterred from bidding at the sale by the agreement. Under these circumstances, the disparity between the sales price of $70,000 and the appraised value of $120,000 is not, of itself, sufficient reason to overturn the sale. Union National Bank of Reading v. DeLong Furniture Corporation, 344 Pa. 583, 26 A.2d 440 (1942).
For the foregoing reasons, we dismiss the petition of DMA and the debtor-defendants and sustain the validity of the sale.
. This opinion constitutes the findings of fact and conclusions of law as required by Rule 752 of the Rules of Bankruptcy Procedure. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489216/ | DECISION
CHARLES A. ANDERSON, Bankruptcy Judge.
STATEMENTS OF FACTS
David Albert Sheehan and Robyn Lorene Sheehan, dba Sheehan Farms, instituted a case under Chapter 11 on January 13, 1981.
On February 2, 1981, an adversarial proceedings was filed by Miami Valley Production Credit Association (MVPCA) against Debtors seeking relief pursuant to 11 U.S.C. § 362(d), terminating the stay to permit continuation of a pending foreclosure action in state court to collect an indebtedness in an amount in excess of $460,000.00. The security interest asserted covered the major part of the business assets, both real and personal.
The hearing on the pleadings in that adversarial proceedings was assigned on the docket for hearing on February 26, 1981. On March 13, however, debtors filed a motion to convert to a Chapter 7 administration. Thereafter, MVPCA (Defendant herein) took a default judgment removing the automatic stay “in all respects as between Plaintiff and Defendants,” entered March 26, 1981.
On May 6, 1981 an order was entered converting the Chapter 11 case to one under Chapter 7; and on May 18, James R. Warren was appointed Trustee in Bankruptcy.
On June 12, 1981, MVPCA caused all of the assets of Debtors to be sold.
On December 4, 1981, the Trustee filed a complaint against MVPCA seeking a judgment for the turnover of a portion of the proceeds realized from the sale of certain specific farm chattels, in the amount of $11,005.00. The matter is now pending on a Motion to Dismiss on the grounds that “Plaintiff’s complaint is barred by the doctrines of res judicata and/or collateral es-toppel.”
CONCLUSIONS OF LAW AND FACT
Defendant argues that, “The action for relief from the automatic stay . .. had as material questions the validity of MVPCA’s security and the property subject to that security interest. ... The fact that the judgment was rendered by default does not prevent it from operation as a basis for application of the doctrine of res judicata."
The Plaintiff counters that the specific items of property set forth in his complaint were not covered by Defendant’s security interest; that they were not even owned by Debtors at the time of the agreement; and, that MVPCA did not furnish the consideration for the purchase of the items. The Trustee further urges that the default judgment is not effective as to him since he had not even been appointed and was not a party to the previous litigation to lift the stay.
*816Essentially, the Trustee urges his present cause of action arises under 11 U.S.C. § 544 as an execution creditor or as a lien creditor with a judicial lien who was not joined as a party in the previous relief from stay suit.
The question of whether or not the security interest is valid is not at issue. It is assumed, for disposition of the motion, that the security interest is invalid as alleged by the Trustee.
Upon such assumption, the motion to dismiss must be denied. It should be noted that only a portion of the Debtors’ assets as liquidated by the MVPCA are now involved and the Defendants’ security interest in the other assets is not questioned. Further, as to none of the assets was there any judicial determination of the validity of liens. Initially, the doctrines of res judicata and collateral estoppel are not dispositive of the issues, as a determination of the validity of security interests, because relief from the stay, as sought against the debtors, have been granted “for cause, including the lack of adequate protection of an interest in property of such party in interest.” 11 U.S.C. § 362(d)(1).
Assuming arguendo that the default judgment under 11 U.S.C. § 362 did involve the validity of liens, the motion still must fail as against the Trustee in Bankruptcy. Under former 11 U.S.C. § 110(c) the Trustee acquired the status of a lien creditor as of the time when petition was filed. Lewis v. Manufacturers Nat. Bank (1961) 364 U.S. 603, 81 S.Ct. 347, 5 L.Ed.2d 323. 11 U.S.C. § 544(a) of the Code adopts this fundamental concept and grants avoidance power “as of the commencement of the case and without regard to any knowledge of the trustee or of any creditor.... ”
Looking to the facts instanter, it is not even necessary to look back to the petition date .of January 13, 1981. The default judgment was not taken until after the motion by Debtors for conversion, on March 13. The sale of the Debtors’ assets was not made until June 12, 1981, after the Trustee had been appointed on May 18, 1981.
At this point, MVPCA had relief from the stay only to pursue valid lien rights. The Trustee’s lien was apparently ignored, even though adequate time was available to join the Trustee in the prior suit before sale to seek a marshalling of liens, including the Trustee’s statutory lien.
In conclusion, therefore, the question of validity and priority of liens is justiciable because the order for relief from the stay in the Chapter 11 case does not invalidate the Trustee’s lien in the subsequent Chapter 7 case after conversion. The Trustee was neither a party nor privy to the relief from stay action. See discussions in 46 Am. Jur.2d Judgments §§ 518, 519, and 532. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489217/ | MEMORANDUM DECISION
M. S. YOUNG, Bankruptcy Judge.
This matter is before the court upon the objection of First Security Bank of Idaho to the confirmation of debtor’s plan for adjustment of his debts under chapter 13 of the Bankruptcy Code. Debtor’s plan proposes to pay First Security Bank, hereinafter called bank, the sum of $7,800.00 plus interest as the allowed secured value of its collateral over a 36 month period. The plan also provides for the payments to Avco Financial Services as a secured creditor and proposes to surrender to it certain collateral. Debtor’s plan further provides for payment of long term indebtedness on residential property outside the plan. Unsecured creditors are to receive a pro rata share of any balance received by trustee after the secured creditors provided for in the plan are paid. Debtor’s payments are $190.00 monthly for six months, thereafter the sum of $250.00 per month for six months, followed by a sum of $335.00 per month for twenty-four months.
The bank objects to confirmation of the plan on several grounds:
“(a) As the debt is a long term obligation as defined by 11 U.S.C. 1322(b)(5), the plan has failed to provide for a cure of the debtor’s default and current payments under the debtor’s contractual obligation.
(b) The Plan fails to provide for adequate protection of this creditor’s secured claim in that (1) no insurance is being maintained on the vehicle as required by the *825contract (2) the Plan proposes insufficient payments at value alleged by the debtor, as 11 U.S.C. 6621 provides for 20% interest as of February 1, 1982, and at 20%, payments must be $289.89 per month, (3) the Plan proposes that some of the payments proposed are to be deferred for more than one year; only current payment of amounts required by 11 U.S.C. 1325(a)(B) affords adequate protection, and (4) the Plan is not sufficiently funded. The Plan proposes total payments of $10,680.00 ($190.00 for 6 months, $250.00 for six (6) months and $335.00 for twenty-four (24) months); after subtracting 10% administrative costs, the $9,612.00 remaining is insufficient to pay the proposed term of payment for secured creditors of $9,561.00 ($258.96 X 36 plus $6.64 X 36) and make any payments to unsecured creditors.
(c) The Plan fails to treat all creditors in the same class equally, as required by 11 U.S.C. 1322(a)(3). Specifically, creditors, Dawn L. Mattmiller and Timothy D. and Carrie Wells are creditors, either together or separately, with substantially similar claims as First Security Bank of Idaho, N.A., but the Plan proposes to pay each of these creditors their full monthly payments, and proposes only to pay allowable value to the First Security Bank of Idaho, N.A.”
At the hearing on confirmation of the plan, the bank agreed that the value of the vehicle which is collateral for its claim is $7,800.00. It was established that the vehicle is now insured. Thus, these objections are moot.
The bank’s primary ground of objection is that because the original contract for the purchase of the vehicle in question was a 48 month contract, on which the last payment would fall after the 3 year term of the plan, this indebtedness is nondischargeable under the terms of Section 1328(a)(1) and that the debtor in such a circumstance cannot modify the bank’s security interest under Sections 1322(b)(2) and 1325(a)(5)(B) of the Code. Section 1322(b)(2) says that a debtor may, in his plan, modify the rights of holders of secured claims, and § 1325(a)(5)(B) says that if the plan provides that the holder of an allowed secured claim retains the lien securing such claim and that the value, as of the effective date of the plan, of the property to be distributed under the plan on account of such claim is not less than the allowed amount of the claim, the plan must be confirmed. Section 1322(b)(5) states that, notwithstanding Section 1322(b)(2), a plan may “. . . provide for the curing of any default within a reasonable time and maintenance of payments while the case is pending on any unsecured claim or secured claim on which the last payment is due after the date on which the final payment under the plan is due.”
Section 1322(b) is a list of permissive plan provisions and clearly states that a plan “may” include any or all of the enumerated provisions plus any other appropriate provision not inconsistent with Title 11. Subsection (5) here relied upon by the bank may be useful to a debtor where he has long term indebtedness fully secured by an asset of substantial value and in which the debtor has an equity. In such circumstances, if a debtor cannot pay the allowed secured value of the asset within a 3 year term, he may be able to cure a default within such time, continue regular payments, and thus preserve his equity in the collateral. A debtor may also wish to use 1322(b)(5) in a situation where hé proposes a 100% payment plan which will pay his short term debt in 3 years, and his long term debt in full according to its terms. In such a situation, the debtor can cure defaults and continue the long term debt payments without harrassment.
In the absence of a plan providing for payment of long term debt, I find nothing in the Code which prevents discharge in either a chapter 7 or chapter 13 proceeding. If a discharge of such debt under chapter 13 is sought, the only obstacle is found in 1325(a)(4) which requires that the property or money to be distributed through the plan on behalf of unsecured claims must be not less than the amount that would be paid on such claims if the estate were liquidated *826under chapter 7. I do not read Section 1328(a)(1) to make 1322(b)(5) mandatory. It merely states that if a debtor elects to pay all or part of his long term debt by use of such a provision in his plan, it will not be discharged at the end of the 36 month period.
With regard to the adequacy of the payments, the bank has made no showing that the asset will depreciate at a rate in excess of the payments it will receive under debt- or’s plan. The value of the asset is fixed at $7,800.00 and I now fix the amount of the bank’s allowed secured claim as this sum plus interest over the term of the plan at the contract rate which in this case is 18% according to the bank’s security agreement.
The last objection deals with requirements of Section 1322(a)(3) relating to classification of claims. This section provides that, if the plan classifies claims, it must provide the same treatment for each claim within a particular class. Because secured creditors ordinarily have separate collateral and separate debt obligations due to them from the debtor, each secured creditor is itself a class and must be dealt with individually. The debtor does, in his plan, deal with each secured creditor individually and thus there are several classes of secured creditors. With regard to the bank’s unsecured portion of its debt, it is treated in the same manner as other unsecured creditors since all unsecured creditors’are treated as one class in the debtor’s plan. The bank’s unsecured claim will be $1,252.85.
The bank also asserts that the plan is not in good faith and relies upon cases holding that some substantial payment must be made to unsecured creditors. As stated above, I am of the opinion that unless the bank can show that it would receive a greater dividend on the unsecured portion of its claim under a chapter 7 liquidation than it will under debtor’s plan, the plan is in good faith unless it can be shown that the debtor is using the chapter 13 as a scheme to defraud creditors. See Lewiston Seaport Plumbing & Heating, Inc. v. Prine, 10 B.R. 87, 4 C.B.C.2d 51 (Bkrtcy.D.Idaho 1981).
I conclude that all of the bank’s objections to confirmation should be denied except the one contending that funding provided by debtor is insufficient to fund the plan. At this point, I do not have sufficient information to make a valid finding on this issue. Trustee is asked to submit a statement of what funds will be necessary to fund the plan to meet the requirements of the statute. Copies of this accounting are to be furnished to counsel for the parties. If it appears from trustee’s accounting that the plan can be funded so that priority claims, administrative expenses, and the bank’s claim can be paid in 36 installments, I will confirm the plan. If it cannot be so funded, I will not confirm it. As stated hereinabove, the bank’s allowed secured claim is $7,800.00 together with interest at the rate of 18% per annum over the 3 year period within which the bank’s allowed secured claim must be paid. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489218/ | ORDER ON MOTION TO STRIKE AFFIRMATIVE DEFENSES AND COUNTERCLAIM
ALEXANDER L. PASKAY, Chief Judge.
THIS IS an adversary proceeding filed by the Plaintiff, Laurence H. Kallen, against Michael and Margarita Caniglia, the Debtors, who now seek relief under Chapter 11 of the Bankruptcy Code. The Plaintiff, Mr. Kallen, is the duly appointed Trustee of 1202 Ridgewood Avenue Associates (Associates), an Illinois 1'imited partnership, which is the debtor in a Chapter 11 proceeding *859pending before the U.S. Bankruptcy Court for the Northern District of Illinois, Eastern Division.
The following facts were revealed at the hearing:
On October 19, 1979, the Debtors and Associates entered into a real estate exchange contract whereby the Defendants agreed to convey to Associates their interest in an apartment building located in Chicago, Illinois and Associates agreed to convey to the Defendants a motel known as the Holiday Lodge located in Daytona Beach, Florida. Since any conveyance of the motel required the prior consents of the first and second mortgagees, the parties executed a rider to the exchange contract wherein they agreed that the deed to the motel would be placed in a joint order escrow until the necessary consents were obtained. On October 26, 1979, the parties entered into a Management Agreement. Under the terms of this agreement, Associates as owner of the motel agreed to employ the Defendants as the managing agents of the motel. On this same date, the Defendants executed an Installment Note in the amount of $1,110,-450.58, representing the balance due to Associates for the purchase of the motel. Paragraph 7 of the Management Agreement further provided that a default under the note would terminate the managing agreement upon 30 days notice to the Defendant. The note is, what is commonly known as an Illinois cognovit note which contains a warrant of attorney authorizing any attorney, in the event of default, to appear for the defendants and confess judgment without process in favor of the payee.
Subsequent to the closing on October 26, 1979, the Defendants defaulted on their obligation by failing to make the payments pursuant to the terms of the note. On May 15, 1980, Associates commenced suit in the Circuit Court of Illinois and obtained a judgment by confession in the amount of $1,096,347.40 on May 29, 1980. On July 29, 1980, the Defendants were personally served in Florida with a copy of the summons to Confirm Judgment by Confession. The summons required the Defendants to file an answer within thirty days. The Defendants failed to respond. On September 2, 1980, the Circuit Court of Illinois entered its order confirming the default judgment. On December 8, 1980, the Defendants, through their attorney, presented a Petition to Vacate the Order Confirming Judgment. The petition was heard with notice to the Defendants who withdrew their petition because the circuit court judge found the petition defective. On December 19, 1980, the attorney for the Defendants filed a second petition which sought to vacate the same order. The circuit court heard argument and on January 28, 1981 entered an order denying, without prejudice, the relief requested in the petition on the ground that the petition should not be brought by the Defendants’ attorney, but rather by the Defendants.
On May 7, 1981, the Defendants, through a different attorney, filed a Motion to Vacate and Set Aside Void Judgment or in the Alternative, to Open Judgment Entered by Confession. After a hearing, the circuit court denied the motion with the stipulation that the judgment be reduced by $500 to $1,095,847.40.
In Count I of the complaint, the trustee seeks relief from the automatic stay of § 362(a) to proceed in the Illinois Bankruptcy Court with the sale of the subject motel pursuant to § 363 of the Code. In the alternative, Count II seeks a declaration that the Defendants have no interest or right in the motel and that the motel is not property of the estate in the above-captioned bankruptcy proceeding. The Defendants filed an answer which set forth several affirmative defenses and a counterclaim which demands, inter alia, that the Plaintiff deliver the deed held in escrow to the Defendants. On December 14,1981, the Plaintiff filed a Motion to Strike Affirmative Defenses and Counterclaim on the ground that the Illinois cognovit judgment is res judicata and bars the assertion of the affirmative defenses and counterclaim.
The question presented for this Court’s determination is whether the Illinois judgment and its subsequent confirmation is, *860under the Full Faith and Credit Clause of the U.S. Constitution, entitled to res judica-ta effect and, therefore, enforceable in Florida.
The Defendants contend that the Illinois judgment is void since it was obtained contrary to Florida law. Indeed, it is true that Fla.Stat. § 55.05 proscribes the use of a power of attorney to confess judgment made before an action is brought and declares any judgment so obtained to be null and void. The difficulty with the Defendants’ proposition is that it incorrectly assumes that Florida law controls this controversy. The Florida choice of law rule requires that the validity and effect of a power of attorney to confess judgment be governed by the law of the state where the power was given and the judgment was rendered. Carroll v. Gore, 106 Fla. 582, 143 So. 633 (1932); United Mercantile Agencies v. Bissonnette, 155 Fla. 22, 19 So.2d 466 (1944). Thus, under the instant facts, it is clear that Illinois law is controlling.
In Carroll, supra, the Supreme Court of Florida addressed the issue of the validity of an Illinois cognovit judgment. Unlike the case, sub judice, the Defendant in Carroll was never personally served prior to the entry of the final judgment. Notwithstanding the absence of service, the court held:
“[A] judgment entered under a warrant of attorney to confess judgment without process, authorized under the laws of the State where made, will not be denied enforcement in this state merely because the statutes of this state prohibit confessions upon warrant of attorney ..." at page 637.
In accordance with the foregoing, it is
ORDERED, ADJUDGED AND DECREED that the Motion to Strike the Affirmative Defenses and Motion to Strike Counterclaim, treated as a Motion to Dismiss the Counterclaim be, and the same hereby are, granted and the affirmative defenses raised by the Defendants and their counterclaim be, and the same hereby are, stricken and dismissed. It is further
ORDERED, ADJUDGED AND DECREED that the Plaintiff’s request for Relief from the Automatic Stay be, and the same hereby is, scheduled for final eviden-tiary hearing, to be held before the undersigned, on March 23, 1982 in Room 597, 80 N. Hughey, Orlando, Florida, at 1:30 p. m.
DONE AND ORDERED at Tampa, Florida on February 26, 1982. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489219/ | DECISION
L. WARDEN HANEL, Bankruptcy Judge.
This matter having come before the Court for trial on the plaintiff’s, Columbia Pacific Bank and Trust Company, complaint to lift the automatic stay pursuant to 11 U.S.C. § 362 and testimony having been heard and exhibits properly entered, the Court makes the following:
FINDINGS OF FACT
I.
On or about February 22, 1978 Jerry D. Smith personally purchased approximately 250 elk from Clifford Wolfs winkle, Ponde-rosa Ranch, Oregon.
II.
On March 1, 1978 Jerry D. Smith transferred ownership of the elk he purchased to Columbia Pacific Resources by Bill of Sale.
III.
Early in 1978 Jerry D. Smith personally purchased .Judith River Ranch located in Fergus County, Montana.
IV.
On or about March 21, 1978 Articles of Incorporation for Judith River Ranches, Inc. were filed with the Secretary of State, Helena, Montana.
V.
The 250 elk owned by Columbia Pacific Resources, Inc. were transferred from Ponderosa Ranch, Oregon to Judith River Ranch, Montana between March, 1978 and January 1, 1980.
VI.
On or about April 15, 1978 an agreement was entered into between Judith River Ranches, Inc. and American Deer Industries & Trading Company for the sale of antlers of elk located on Judith River Ranch with Columbia Pacific Resources as beneficiary of a letter of credit having an expiration date of July 30, 1978.
VII.
Subsequent letters of credit were provided by American Deer Industries & Trading Company with Columbia Pacific Resources, Inc. as beneficiary thereon.
VIII.
On August 1, 1978 an Application for License to Breed and Propogate Gamebirds, Game and Fur Bearing Animals was received by the Montana Department of Fish and Game from Judith River Ranches, Inc.
IX.
On January 1, 1979 the Montana Department of Fish and Game issued a License to Breed and Propogate Gamebirds, Game, and Fur Bearing Animals to Judith River Ranches, Inc.
X.
Columbia Pacific Resources, Inc. changed its name to Columbia Pacific Development, Inc. sometime between January 1,1979 and November 1, 1979.
XI.
On or about November 1, 1979 Jerry D. Smith and Lucinda J. Smith, by Deed transferred and conveyed Judith River Ranch from themselves to Judith River Ranches, Inc.
*873XII.
On or about November 8, 1979 a mortgage in favor of Travelers Insurance Company from Judith River Ranches, Inc. was recorded by the Fergus County Auditor, Montana, encumbering the Judith River Ranch real property.
XIII.
On or about February 4, 1980 an agreement was entered between Judith River Ranches, Inc., Columbia Pacific Development, Inc., Nana Development Corporation, and U-Jin Enterprises, Inc. providing financing from Nana Development Corporation and U-Jin Enterprises.
XIV.
As part of the agreement of February 4, 1980 Columbia Pacific Development (CPR) signed a security agreement granting Nana Development Corporation and U-Jin Enterprises, Inc. a security interest in all elk owned by Columbia Pacific Development, Inc. located on Judith River Ranch.
XV.
Nana Development Corporation and U-Jin Enterprises filed a UCC-1 Statement covering said elk with the Fergus County Auditor and the Montana Secretary of State on or about February 19, 1980.
XVI.
As part of the agreement of February 4, 1980 Judith River Ranches, Inc. granted a mortgage in favor of Nana Development Corporation and U-Jin Enterprises, encumbering the Judith River Ranch real property.
XVII.
Nana Development Corporation and U-Jin Enterprises recorded said mortgage on or about February 15, 1980 with the Auditor of Fergus County, Montana.
XVIII.
On or about March 10, 1980 Columbia Pacific Development, Inc., f/d/b/a Columbia Pacific Resources, sold the elk it owned located on Judith River Ranch to Judith River Ranches, Inc. subject to the encumbrances of Nana Development Corporation and U-Jin Enterprises, Inc.
XIX.
On or about June 17,1980 Jerry D. Smith, as an individual, and Columbia Pacific Bank and Trust Company entered into a settlement agreement.
XX.
As part of the agreement between Jerry D. Smith and Columbia Pacific Bank and Trust Company, Columbia Pacific Bank and Trust Company was granted a security interest in 125,000 shares of common stock in Judith River Ranches, Inc., a mortgage subject to the existing encumbrances on the real property held by Judith River Ranches, Inc., and a security interest in all livestock now or hereafter located on the Judith River Ranch, including various species of elk, deer, sheep and goats located thereon.
XXI.
During the negotiations between Jerry D. Smith and Columbia Pacific Bank and Trust Company leading up to the settlement of June 17, 1980, Columbia Pacific Bank and Trust Company was informed several times either by Jerry D. Smith or his attorneys of a prior existing security interest in the elk in favor of Nana Development Corporation and U-Jin Enterprises.
XXII.
During the negotiations between Jerry D. Smith and Columbia Pacific Bank and Trust Company, Columbia Pacific Bank and Trust Company received a copy of the mortgage between Judith River Ranches, Inc. and Nana Development Corporation and U-Jin Enterprises, Inc.
XXIII.
Prior to the entry of the settlement between Jerry D. Smith and Columbia Pacific *874Bank and Trust Company, Irving Potter, attorney for Columbia Pacific Bank and Trust Company, flew to Fergus County Montana to search the County Auditor’s UCC index.
XXIV.
On or about June 15, 1978 Mr. Potter searched the grantor’s index under the names of Jerry D. Smith and Judith River Ranches, Inc. and found no evidence of any security interest.
XXV.
On or about June 18, 1980 Columbia Pacific Bank and Trust Company filed a UCC-1 financing statement with the County Auditor of Fergus County, Montana covering their security agreement with Judith River Ranches, Inc., entered June 17, 1980.
XXVI.
On or about June 18, 1980 Columbia Pacific Bank and Trust Company recorded its mortgage with Judith River Ranches, Inc. with the County Auditor of Fergus County, Montana, encumbering the Judith River Ranch real property.
XXVII.
In 1978 through 1980 Jerry D. Smith’s customary operating procedure was to buy assets individually and transfer that asset to one of his corporations as soon as financing could be arranged by the corporation.
XXVIII.
During 1978 through 1980 Jerry D. Smith was the main shareholder in numerous corporations to which he left the day-to-day operations under the control of others.
From the foregoing Findings of Fact, the Court, without considering the questions as to any of the other collateral issues raised, and based on the stipulation of counsel as indicated on the record prior to the commencement of argument, this decision is confined to the question of the priority of the UCC-1 financing statements, the Court makes the following:
CONCLUSIONS OF LAW
I.
At the time Columbia Pacific Development, Inc. entered into the February 4,1980 agreement with Nana Development Corporation and U-Jin Enterprises, Columbia Pacific Development Corporation was the true and legal owner of all the elk located on Judith River Ranch.
II.
Nana Development Corporation and U-Jin Enterprises, Inc. properly perfected its security interest on February 19, 1980 in the elk pursuant to Article 9 of the Uniform Commercial Code as adopted by Montana.
III.
At the time Judith River Ranches, Inc. granted a security interest to Columbia Pacific Bank and Trust Company in all the livestock, etc., located on Judith River Ranch, Judith River Ranches, Inc. was the true and legal owner of all the elk located thereon subject to the encumbrance of Nana Development Corporation and U-Jin Enterprises, Inc.
IV.
Columbia Pacific Bank and Trust Company properly perfected its security interest on June 18, 1980 in the elk located on Judith River Ranch pursuant to Article 9 of the Uniform Commercial Code as adopted by Montana.
V.
The security interest of Nana Development Corporation and U-Jin Enterprises, Inc. is superior to the security interest of Columbia Pacific Bank and Trust Company in the elk on the Judith River Ranch.
From the Foregoing Conclusions of Law,
IT IS HEREBY ORDERED, ADJUDGED AND DECREED that the security interest of Nana Development Corpora*875tion and U-Jin Enterprises, Inc. in the elk located on Judith River Ranch in Fergus County, Montana is first in time and superi- or to the security interest of Columbia Pacific Bank and Trust Company, further
IT IS ORDERED, ADJUDGED AND DECREED that the complaint of Columbia Pacific Bank and Trust Company to lift the stay pursuant to 11 U.S.C. § 362 is hereby denied. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489221/ | DECISION AND ORDER
CHARLES A. ANDERSON, Bankruptcy Judge.
This matter is before the Court upon the “Trustee’s Objection to Exemptions Claimed by Debtor.” The parties basically disagree as to what extent Debtor may exempt the cash surrender value of a life insurance policy on Debtor’s life. The Court notes that since the policy names a non dependent relative, the Ohio exemption for life insurance contracts, which is more restrictive than the federal, is not available. 11 U.S.C. §§ 522(b)(1) and (d)(7); O.R.C. §§ 2329.66(A)(6)(b) and .662, and 3911.10. The parties do not dispute that Debtor may exempt $400.00 of the cash surrender value under the' “catch-all” provision of O.R.C. § 2329.66(A)(17). Instead, the issue at bar is whether Debtor may claim an additional $400.00 as exempt under O.R.C. § 2329.-66(A)(4)(a), which provides in relevant part:
The person’s interest, not to exceed four hundred dollars, in cash on hand, money due and payable, money to become due within ninety days, tax refunds, and money on deposit with a bank, building and loan association, savings and loan association, credit union, public utility, landlord, or other person.
The Trustee contends that Debtor may . not exempt the cash surrender value of the policy, “inasmuch as (the policy) does not constitute cash in hand in possession of the debtor....” Debtor responds that the cash surrender value should be found exempt under the language of O.R.C. § 2329.-66(A)(4)(a).
For purposes of calculation of Debtor’s exemption, Ohio law is controlling. 11 U.S.C. § 522(b)(1); O.R.C. § 2329.662. The Court agrees with the Trustee that the policy’s cash surrender value cannot be construed as “cash on hand.” The specific legal issue before the Court, therefore, is whether the cash surrender value constitutes “... money on deposit with a bank, building and loan association, savings and *899loan association, credit union, public utility, landlord, or other person.” O.R.C. § 2329.-66(A)(4)(a), emphasis ours.
Title 23 of the Ohio Revised Code does not define “person.” It is the determination of this Court that an insurance company is a person as the term is used in O.R.C. § 2329.66(A)(4)(a). The term, “other person,” appears in the Ohio statute as one alternative in a list of corporate entities. Further, Ohio commercial law defines “person” to include various business associates. O.R.C. §§ 1301.01(BB) and (DD).
In addition, the Ohio exemption statute is largely an adoption of the federal exemption statute in which the term, person, is defined to include partnerships and corporations. 11 U.S.C. §§ 101(30) and 522(d); O.R.C. § 2329.66.
It is the finding of the Court therefore that the subject cash surrender value constitutes “money on deposit” which is exempt under O.R.C. § 2329.66.
IT IS THEREFORE ORDERED that the Trustee’s Objection to Exemptions Claimed by Debtor is DENIED. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489222/ | FINDINGS OF FACT, CONCLUSIONS OF LAW, AND FINAL JUDGMENT GRANTING THE PLAINTIFF’S COMPLAINT FOR RELIEF FROM THE AUTOMATIC STAY TO RECOVER A CERTAIN ELEVATOR SYSTEM
DENNIS J. STEWART, Bankruptcy Judge.
The plaintiff distributor of elevator systems for installation filed its complaint herein on October 3, 1980, seeking, in substance, the reclamation of a certain elevator system which is currently located, uninstalled and still in the shipping crates, in one of the buildings owned by the debtors.
By agreement of the parties, an expedited trial of this matter was conducted by the court of bankruptcy on October 10, 1980, in Little Rock, Arkansas. The plaintiff appeared by counsel, Thomas P. Thrash, Esquire, and Allen Bird, Esquire. The defendants appeared personally and by Isaac A. Scott, Esquire, and John Tisdale, Esquire. Based upon the admissible and probative evidence then adduced, the following findings of fact are made.
I
On or about June 19, 1979, the plaintiff Otis Elevator Company contracted to sell an elevator system to one Thomas Coyne. The sale price was agreed to be $59,617.00, with the purchaser to make payments according to the following schedule: “20 per cent when the rails are ready for shipment; 50 per cent when the machine is ready for shipment; 20 per cent when the machine is in permanent position; and the remaining 10 per cent when the elevator is in running order.” According to the uncontradicted evidence, only $19,617.00 of that sum has been paid and a balance of $40,000 is currently owed.
After Mr. Coyne entered into this contract, he became an employee of one of the debtors’ corporations, La Pettit Roche, which had meantime purchased the building in which Mr. Coyne intended to install the elevator or cause it to be installed. He and Mr. Pettit then made plans to improve and utilize the building, which is located at 313 Main Street in Little Rock and to use the building thereafter for the purposes of the corporation.1 These plans were made in joint discussions and consultations between Mr. Coyne and Mr. Pettit, although the former was not a shareholder or officer of the debtors’ corporation, which was wholly owned by them.2 According to the uncon-tradicted testimony of Mr. Pettit, there was the possibility of Mr. Coyne’s in the future becoming a shareholder, and perhaps an officer, in the corporation if and when he obtained the capital to invest in it.
The elevator system was thereafter delivered to the building that the debtors had purchased. But there is no indication in any of the evidence that the plaintiff at this time knew anything of Mr. Coyne’s relationship with the debtors and their corporation.2a The evidence taken in the course of the hearing is further to the effect that Mr. Coyne never purported to make any transfer, conveyance, or gift, formal or informal, of his right, title, and interest to the debtors or their corporation insofar as the elevator system was concerned. Rather, according to the uncontradicted testimony of Mr. Pettit in this regard, the elevator system— in crates — was in the building when he pur*5chased it and he simply assumed that it was part of the building. In so assuming, however, he must have had knowledge of the circumstances attendant upon Mr. Coyne’s purchase of the elevator in his own name, for the debtors’ corporation, sometime prior to the order for relief herein, made a $500 payment on the elevator system to the plaintiff.
II •
Conclusions of Law
The facts, as found above, make it clear that neither the debtors nor their corporation can have any legal or equitable interest, within the meaning of sections 541 and 363 of the Bankruptcy Code,3 in the elevator system. It is simply within the building owned by the debtors — uninstalled and still in crates — and the debtors have, prior to the date of the petition for relief, made one payment on Mr. Coyne’s account with the plaintiff. These facts are not a sufficient basis upon which to predicate any interest in the elevator system. If that system were attached to the premises in such a fashion that it could actually be classified as a fixture, then a different result might conceivably be justified.4 The evidence warranting the above findings of fact, however, requires that the elevator system be treated as a non-fixture. And, as a non-fixture, the elevator cannot be regarded as subject to any interest of the debtor. It was Mr. Coyne, rather, who contracted to purchase the elevator on his own credit and on whose behalf all the $19,617 which was paid toward the purchase price was remitted. And it was Mr. Coyne who, according to the uncontradieted evidence, actually made all but $500 of those payments. Any equity which is owned in the building is thereby owned by Mr. Coyne. There is no available theory under which that equity or any other interest can be claimed. It is even admitted by Mr. Pettit’s testimony that Mr. Coyne in no manner purported to effect any transfer of that interest of the debtor.
It is true that, according to the debtors’ contentions, the fair market value of the elevator system is now greater than the price for which it was purchased from plaintiff by Mr. Coyne. But the evidence to this effect is somewhat halting and of dubious probative value.5 And, even if accepted, it cannot provide grounds for retention of property in which the debtors can claim no interest. The law of bankruptcy has always recognized the duty of a bankrupt *6or debtor to relinquish control of property which is wholly owned by others.6 And the concept of “adequate protection” under the new Bankruptcy Code cannot be stretched so far as to grant a debtor the right to use or sell property in which it can have no interest whatever. “The court shall grant relief from the stay if there is no equity and it is not necessary to an effective reorganization of the debtor.” Legislative History to § 362(d), Title 11, United States Code. And cf. § 363, relating to adequate protection in respect to “cash collateral,” which requires for its operation that “the estate and an entity other than the estate have an interest.” (Emphasis added.) And, in the property sub judice, the estate has no demonstrable interest, nor has it been demonstrated by any evidence that it is any manner necessary to an effective reorganization.7
It would run wholly counter to the fifth amendment’s recognition and protection, however minimal in the bankruptcy context, of property rights to hold that a debt- or in title 11 proceedings may arrogate to his use or benefit property in which it can claim no interest. It would also run counter to concepts of traditional justice and fairplay; and would enhance the opportunities for fraud and concealment.
The matter of ownership and rights in the property, it must therefore be concluded, is one between the plaintiff and Mr. Coyne. Accordingly, this court cannot grant reclamation of the property because the estate is not properly in custody of the property and, further, Mr. Coyne has not been made a party to this action. It is imperative, however, that relief from the automatic stay be granted pursuant to section 362(d)(1) of the Bankruptcy Code.8
It is therefore, for the foregoing reasons,
ORDERED, ADJUDGED AND DECREED that the plaintiff be, and it is hereby, granted relief from the automatic stay with respect to the abovementioned elevator system.
. According to Mr. Pettit's testimony, it was planned by he and Mr. Coyne to rent office space in the building, with apartments on the top floors.
. Mr, Pettit, in fact, testified that he alone owned 100% of the stock of La Pettit Roche. Coyne had “only a possibility to buy in.”
. According to the uncontradicted testimony of David Hopper, the branch manager of Otis Elevator Company, the Otis Elevator Company records did not reflect any payment as having come from La Pettit Roche.
. Generally, under the governing provisions of section 541 of the Bankruptcy Code, an estate “is comprised of . . . all legal or equitable interests of the debtor in property as of the commencement of the case.” See also section 363(d) of the Bankruptcy Code, which pertinently provides that a trustee or debtor “may use, sell, or lease property . .. only to the extent not inconsistent with any relief granted under section ... 362(d).” As is noted elsewhere herein, the section thereby adverted to, section 362(d), authorizes the granting of relief from the automatic stay with respect to property “if the debtor does not have an equity in such property; and ... such property is not necessary to an effective reorganization.” According to the legislative history under that section, the latter requirement is to provide for relief to the debtor involved in the business of renting and leasing the property which is sought to be returned to the creditor. As is elsewhere herein pointed out, there is no explicit proof that the property here involved is essential to the debtor’s reorganization.
. It was the uncertain testimony of Mr. Pettit in this regard that, at the maximum, the elevator was only “partially” installed and, substantially in total, was still in the crates in which it had been shipped. There was no evidence that removal would have required any considerable dismantling of the premises. If the elevator were installed and thereby attained the character of a fixture, it appears that the debtors’ contention that the elevator should “go with the building” may be well founded. See, e.g., Leawood National Bank v. City National Bank and Trust Co., 474 S.W.2d 641, 644, 645 (Mo.App.1971). But the evidence in this case only indicates that the elevator system is not a fixture.
.In a prior hearing conducted by the court, Mr. Pettit had conclusionarily valued the elevator at approximately $70,000. In the hearing of the action at bar, after initially disclaiming any expertise in the fair market value of elevator systems, Mr. Pettit testified that, installed, the elevator system should bring $65,000-70,000. No opinion was actually expressed as to what it would bring uninstalled.
. “It is well settled ... that property of a third person in the possession of a bankrupt . . . should not be included in the assets of the bankrupt’s estate.” 4 Collier on Bankruptcy para. 70.32 (1975).
. Although the court had observed in commencing the trial hereof that it appeared that the property may be essential to a reorganization, no explicit proof of the essential character of this alleged piece of property was tendered. Indeed, there has as yet been no evidence of the value of the property of the estate in general.
.See note 3, supra. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489223/ | ORDER DIRECTING DEBTORS TO SUBMIT AN AMENDED PLAN OF REORGANIZATION OR A CLARIFYING DISCLOSURE STATEMENT, OR BOTH
DENNIS J. STEWART, Bankruptcy Judge.
The plan of reorganization which has been previously submitted leaves several matters in doubt which, before the court can again circulate the plan and disclosure statement to the creditors who may be affected, should be resolved.
The first question which exists is one of vagueness and ambiguity in the rather complex plan of reorganization which has previously been filed by the debtors. It is one which the court has noted in its prior orders herein, to the effect that it is currently not made clear that, in respect of certain real properties, the proceeds of sale will be paid to the mortgagees as well as the Union National Bank of Little Rock. Thus, in its order filed herein on September 29, 1980, the court noted that:
“The crucial problem in this, however, is that the property here involved would, under the plan be liquidated (and defendants reported in the course of the hearing of September 12, 1980, that a contract exists, subject to judicial approval, for its sale) and the funds would first go to pay a favored secured creditor and any excess would go into a general fund for the payment of other creditors. Thus, the indebtedness on the ‘Durwood’ property (see note al, supra) is pursuant to paragraph IV(5) of the proposed plan of reorganization, to be sold and:
‘From the'proceeds of such sale, a payment of $44,000 will be made to the Union National Bank of Little Rock . .. which is the holder of a valid second mortgage . .. The remainder of the proceeds derived from these sales shall be paid to the Creditor Payment Fund.’
“These provisions may conceivably create a question of ‘unfair discrimination’ within the meaning of § 1129(b)(1), of that issue should ultimately come into focus. But that question may be, under circumstances in which there is an equity cushion and some promise of a successful reorganization, reserved to the confirmation hearing.”
Subsequently, in the abortive confirmation hearing conducted by the court on October 10, 1980, counsel for the debtors pointed out that Article One of the proposed plan of reorganization ensures that the first lienholders will be paid its balance before the remaining proceeds, if any, are paid to the Union Federal.
But the clear import of the article adverted to by the court in the above quoted passage is that the entire balance should be paid to Union National Bank. There is no cross reference to Article Five, supra. And the fact that oral clarification was necessary to dispel a conclusion contrary to the drafter's intention signals the necessity for clarification in this regard, either by amendment to the plan of reorganization or by means of a clarifying summation in the disclosure statement. Therefore, within 12 days or such additional time as the court may grant for good cause shown in writing, the debtors should amend the proposed plan of reorganization or disclosure statement, or both, to include a summary of the sources of money to defray the plan; how those sources will be reduced to cash; and precisely how and when that cash will be distributed to the creditors.
The recent decisions of this court in two adversary actions, Otis Elevator Company v. Pettit, 18 B.R. 3 (Bkrtcy.), and *8State of Tennessee v. Pettit, 17 B.R. 6 (Bkrtcy.), raise the question of whether there is sufficient potential for finding the amount of money which will be necessary to make the proposed plan pay out within a reasonable period of time.
Therefore, either in the proposed plan of reorganization or in the disclosure statement, the debtors should provide some detailed statement of the debts to be paid through the plan of reorganization and the total thereof; the value of the various properties which are to be sold to fund the plan; the amounts which can be reasonably be expected to be derived from their sale; and the facts which make that expectation reasonable; and of the sources of other monies which are to be marshaled to fund the plan.
It is therefore, for the foregoing reasons,
ORDERED that the debtors herein submit to the court within 12 days of the date of entry of this order or in such additional time as may be granted by the court an amended plan of reorganization or amended disclosure statement, or both, in accordance with the foregoing considerations. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489224/ | MEMORANDUM DECISION — TERMINATION
THOMAS C. BRITTON, Bankruptcy Judge.
This chapter 11 debtor-in-possession is being sued by its landlords, who seek a determination that the lease was already terminated before bankruptcy (Count II), or, alternatively, that the stay should be lifted under 11 U.S.C. § 362(d) (Count I) or that the debtor should be required to either accept or reject the lease under § 365(d)(2) (Count III). (C. P. No. 1). The debtor has answered. (C. P. No. 4). The matter was tried on February 2 at which time it was agreed that the threshold question of termination should be resolved before trial of the issues under Count I.
The debtor has announced its willingness to resume all payments due its landlords, mortgagee, and another lienholder now (commencing with all payments due in February) and to cure all defaults on or before May 1 by which time it will file its plan.
This is a 99 year lease executed in 1977. The debtor built a restaurant on the property using funds borrowed from a bank and secured by a mortgage. The landlords agreed to subordinate their rights to those of the mortgagee. The tenant is obliged to pay $1,250 a month, plus eight percent of its gross receipts, plus all payments due under the mortgage.
The landlords attempted to terminate the lease in accordance with its provisions on account of the tenant’s alleged failure to keep the mortgage payments current. They rely on § 21(a)(3) of the lease, which provides:
“(a) In the event any one or more of the following events shall have occurred and shall not have been remedied as hereinafter provided ... (3) Tenant’s failure to perform any of the other covenants, conditions, and agreements herein contained on Tenant’s part to be kept or performed and the continuance of such failure without the curing of same for a period of *78thirty (30) days after receipt by Tenant of notice in writing from Landlord specifying the nature of such failure and provided Tenant shall not cure said failure as provided in subsection (b) of this Section 21, then, Landlord, may, at its option, give to Tenant a notice of election to end the term of this lease upon a date specified in such notice, which date shall be not less than ten (10) business days (Saturdays, Sundays, and legal holidays excluded) after the date of receipt by Tenant of such notice from Landlord, and upon the date specified in said notice, the term and estate hereby vested in Tenant shall cease...”
Under Florida law, which is controlling in this instance, a contractual forfeiture provision like § 21(a)(3) of this lease, is enforceable. It is not affected by the statutory remedies, which are deemed waived by the stipulated contractual remedy. Hunt v. Hiland, Fla.App.1979, 366 So.2d 42, 44; 20 Fla.Jur., Landlord and Tenant, §§ 131-133. However, such forfeiture clauses are viewed with disfavor and, therefore, are to be strictly construed against the party seeking to invoke them. Texas Co. v. Pensacola Maritime Corp., 5 Cir. 1922, 279 F. 19, 26; Waits v. Orange Creek Turpentine Corp., 1936, 123 Fla. 31, 166 So. 449.
The clause in this lease requires two written notices, the first, “specifying the nature of such failure”, and the second, exercising the election to terminate the lease by specifying the date of termination. The landlords did neither in this case.
They rely on two letters which are dated September 14 (received September 15) and October 9, 1981, (received October 15) (Exhibits E and F). The first letter refers to a letter from the bank which is not attached “indicating that you are in arrears” and tells the tenant to cure that default within 30 days. The letter does not actually charge that any default exists on the day it was written nor does it specify the amount required to cure that default. The precise amount due is the essence of this notice. See Deauville Corporation v. Garden Suburbs Golf & Country Club, Inc., 5 Cir. 1947, 164 F.2d 430, 432, cert. denied, 333 U.S. 881, 68 S.Ct. 912, 92 L.Ed. 1156, (holding insufficient a similar statutory notice “naming no sum as that due”).
The second notice was dated and mailed before the expiration of the stipulated 30 day grace period which ended on October 15. It was premature and, therefore, ineffectual. Furthermore, it specified no termination date. Instead, the letter ambiguously recites:
“Accordingly, your lease terminates ten (10) days after the effective date of my letter dated September 14, 1981, namely, October 15, 1981.”
By “effective date” the landlords presumably meant the deadline to cure the default, October 15. The lease could not be terminated earlier than 10 working days after October 15 (October 29). That date, the essence of the second required notice, is not specified and is later than “ten (10) days after October 15.
In short, assuming the landlords can prove their allegations, they did not terminate this lease in strict accordance with its provisions. If the landlords had other grounds to terminate the lease or if they gave other notices which might have complied with § 21(a)(3), they are irrelevant in this action for they have not been alleged.
Count II is dismissed with prejudice.
The issues presented by Counts I and III will be tried on Thursday, February 18, 1982, at 9:30 a. m. in Courtroom 1406, 51 S.W. First Avenue, Miami, Florida. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489225/ | MEMORANDUM DECISION ' AND ORDER
HELEN S. BALICK, Bankruptcy Judge.
Thomas and Odetta Ashley who live in Port Deposit Maryland filed a Chapter 7 proceeding in the District of Maryland on July 2, 1981. The Bank of Delaware claims a perfected security interest in a 1980 Chevrolet Pickup Truck in the Ashley’s possession. The Bank’s complaint asking for relief from stay to proceed against the truck was filed in the District of Delaware. The Ashleys have objected to this court’s jurisdiction.
The bankruptcy courts’ jurisdictional grant appears as Chapter 90 in title 28 of the United States Code. Section 1471(a) and (b) gives to each and every district court original and exclusive jurisdiction over all bankruptcy cases as well as original, but not exclusive, jurisdiction over all civil proceedings arising under, in or related to eases under title 11 (bankruptcy cases). It is the bankruptcy court of the district where a bankruptcy case is commenced that exercises all of this jurisdiction (§ 1471(c)). What subsections (a)-(c) do for title 11 cases and civil proceedings, subsection (e) does for property; that is, it leaves no doubt as to the jurisdictional reach of the bankruptcy court in which the case is pending over property of the debtor that becomes property of the estate. These subsections reflect the Congressional intent that bankruptcy courts have comprehensive jurisdiction to handle everything that arises within a bankruptcy case.
Section 362(d) of title 11 provides the method for relief from the automatic stay imposed by § 362(a). A complaint filed by a secured creditor under subsection (d) is a civil proceeding arising under title 11 in a title 11 case. Thus, a bankruptcy court has subject matter jurisdiction.
The question then is one of venue. In accordance with the venue provisions of 28 U.S.C. § 1472(1), the Ashleys filed their petition in the district where they live. Under the plain language of § 1471(e), the Bankruptcy Court for the District of Maryland has exclusive jurisdiction over all of debtors’ property. The Bank argues that Congress could not have meant what it said because a literal interpretation makes much of § 1473 superfluous. That isn’t so.
Even if § 1471(e) did not exist, this proceeding does not fall within any of the exceptions to the general rule of § 1473(a) that the home court is the proper venue. Under three of the remaining subsections of § 1473, it is the trustee who is permitted certain other venue under specific circumstances or is permitted to use other venue for the benefit of the persons against whom he is proceeding. The fourth subsection provides for a choice of venue only to a holder of a claim that arose from the opera*218tion of a debtor’s business after the filing of a bankruptcy case. Consequently, under the venue provisions a party seeking relief from the stay must file an action in the bankruptcy court for the district where the debtors commenced their bankruptcy case. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489226/ | MEMORANDUM DECISION & ORDER
HAROLD O. BULLIS, Bankruptcy Judge.
Plaintiff-Debtors brought this action to avoid a nonpossessory, nonpurchase money security interest in household goods under § 522(f) of the Bankruptcy Reform Act. The security interest in question was granted Defendant Beneficial Finance Company, Inc. (BENEFICIAL) on September 13,1978, prior to the enactment of the Bankruptcy Reform Act on November 6, 1978. This Court previously ruled in an unreported decision, In re Stevahn, Bkrtcy. No. 80-05203 (Dec. 10, 1980) that a security interest perfected prior to the date of the enactment of the Bankruptcy Reform Act cannot be avoided under § 522(f). The Debtors contend, however, that Beneficial orally waived its right to object to the avoidance of the lien and, in addition, that an accord and satisfaction occurred in that Beneficial accepted $400.00 in full settlement of the debt.
*278Beneficial denies that it waived its right to foreclose on the lien in question and, if a waiver did in fact occur, such waiver was made under a mutual mistake of law and is not enforceable. Beneficial further denies that an accord and satisfaction took place with respect to the lien on Debtors’ household goods. It alleges, however, that an accord and satisfaction did occur with regard to certain recreational items.
The basic facts are as follows. Debtors filed a joint voluntary bankruptcy petition on March 6, 1980. On their B-4 schedule was expressed an intention to avoid all non-purchase money security interests in household furniture claimed as exempt property. Following the first meeting of creditors on June 12, 1980 a “hallway” conference took place between the Debtors, their counsel, and Clair Gard, a representative of Beneficial. During that conference the Debtors agreed to pay $400.00 to Beneficial. That amount was paid in installments, shown by checks in evidence as Plaintiffs’ Exhibits 2, 3, 4 and 5. The parties are not in agreement, however, as to the purpose of that $400.00 payment. Debtor Thomas Blair testified that during the conference his counsel informed him and his wife that Beneficial believed, since it could not repossess the furniture, it should get something for the two snowmobiles. He testified that one of the snowmobiles was worth $50.00 and that the other had a value of perhaps $150.00, and that he was willing to pay $400.00 if Beneficial was willing to forget the whole thing. He also stated that Gard made it clear during the creditors meeting that Beneficial would not go after their furniture. Darlene Blair also testified that her “feeling” as a result of the hallway conference was that if $400.00 was paid on the snowmobiles nothing would be owed on the furniture. Both Thomas and Darlene testified during rebuttal that Gard stated to them that the amount they were paying was a small amount to pay in settlement of a $3500.00-$3800.00 note. Debtors’ counsel, Jay Carlson, testified that during the creditors meeting Gard stated Beneficial was not interested in the household items but wanted a “settlement on the other items.” He further testified that Blair felt the value of the snowmobiles was $200.00, that Gard valued them at $600.00-$800.00, that a figure of $400.00 was agreed upon, and that it was his understanding that no further claim would be made by Beneficial to the household items.
Clair Gard testified that the only items discussed during the conference were the recreational items. He said he believed that the law was such that Beneficial could not go after the household items so there was no point in discussing those items, that he felt Beneficial was entitled to payment on the recreational equipment, and that the settlement reached dealt only with those items.
The Debtors obtained their discharge in bankruptcy on July 18, 1980. Thereafter Beneficial brought an action in state court seeking possession of the household items, triggering this action.
The Court cannot find from the evidence that either a waiver or an accord and satisfaction took place. The parties are apparently in agreement that North Dakota law is to be applied.
Section 1-02-28 of the North Dakota Century Code provides:
“Benefit of provisions of law may be waived. — Except when it is declared otherwise, the provisions of this code in respect to the rights and obligations of parties to contracts are subordinate to the intention of the parties, when ascertained in the manner prescribed by the chapter on the interpretation of contracts. The benefit thereof may be waived by any party entitled thereto, unless such waiver would be against public policy.”
Debtors argue that the oral statements of Beneficial’s agent to the effect that Beneficial could not reach the household goods of the Debtors, and its acceptance of $400.00 from the Debtors constitute a waiver of its right to enforce its lien on the household goods. They argue further that the waiver is not against public policy and should be enforced against Beneficial.
*279The evidence is clear, however, that the statements made by Beneficial’s agent, as well as the “hallway” agreement entered into following the creditors meeting, were made under a mutual mistake of law. The testimony at trial indicates that all parties including Debtors’ counsel, believed that Beneficial’s lien on the household goods claimed as exempt property had been avoided by § 522(f) and that Beneficial could not enforce its lien on the household goods. This Court did not rule until December 10, 1980 in Stevahn that § 522(f) could not be invoked to avoid liens perfected prior to the enactment of the Bankruptcy Reform Act.
Section 9-03-14 of the North Dakota Century Code provides:
“9-03-14. “Mistake of law” defined.— Mistake of law constitutes a mistake within the meaning of this title only when it arises from:
1. A misapprehension of the law by all parties, all supposing that they knew and understood it and all making substantially the same mistake as to the law; or
2. A misapprehension of the law by one party of which the others are aware at the time of contracting, but which they do not rectify.”
Since the oral statements of Beneficial’s agent, as well as agreement of the Debtors to pay Beneficial $400.00, were made while all parties were laboring under the impression that § 522(f) had avoided Beneficial’s lien on the household goods, this Court cannot find that Beneficial waived its right to enforce its lien.
Nor can the Court find that an accord and satisfaction took place. In Hochstetler v. Graber, 78 N.D. 90, 48 N.W.2d 15, 20 (1951), the Court stated, “There must be a mutual understanding in order to effect an accord and satisfaction. An essential element is an assent or meeting of the minds of the parties.” From the testimony presented, the Court cannot find the existence of a mutual understanding between the parties that would constitute an accord and satisfaction. The testimony of Beneficial’s agent was that his understanding was that the agreement to pay $400.00 dealt only with the recreational items. The testimony of the Debtors and their counsel was that they believed the payment of $400.00 was intended to satisfy the entire lien of Beneficial. Even if the Court could find that a meeting of the minds occurred, either as suggested by the Debtors or as testified to by Beneficial, as to what was intended under the agreement, the same mutual mistake of law that flawed any waiver Beneficial might have made would also flaw and make unenforceable that agreement.
The Court, therefore, cannot find that an accord and satisfaction as alleged by the Debtors occurred. Nor can the Court find that an accord and satisfaction was reached, as suggested by Beneficial, with regard to the recreational vehicles. Beneficial cannot deny that an accord and satisfaction occurred with regard to the household items because of a mistake of fact or law and contend, on the other hand, that an accord and satisfaction was reached with regard to the recreational items. If the parties were laboring under a misapprehension of law for one purpose, that misapprehension was present for all purposes.
The Court will therefore find that because of a mutual mistake of law no binding agreement was reached between the parties during the hallway conference that occurred after the first meeting of creditors on June 12, 1980. The parties will be restored to their positions as they existed prior to that date. Beneficial will be permitted to foreclose its lien on the household goods and recreational items. In order to do so, however, it must return to the Debtors the $400.00 paid to Beneficial as a result of that conference.
Any right the Debtors might have to redeem under § 722 of the Bankruptcy Code was not raised in the pleadings or at trial. The decision reached here does not in any way affect any such rights the Debtors may have.
JUDGMENT MAY BE ENTERED IN ACCORDANCE WITH THE FINDINGS MADE. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489227/ | MEMORANDUM OPINION
THOMAS M. TWARDOWSKI, Bankruptcy Judge.
This case is before us on debtor’s objections to creditor’s notice of voluntary dismissal of a complaint. For reasons hereinafter given, we will dismiss the debtor’s objections and allow the creditor to voluntarily dismiss its complaint.1
On July 29, 1981, the creditor, Gurit A.G. (hereinafter, Gurit), filed an action against the debtor, Plastic Dynamics Corporation (hereinafter, Plastic Dynamics) and its stock holder, William C. Miller, Jr., in the Court of Common Pleas of Lancaster County. On August 21, 1981, Plastic Dynamics filed a voluntary petition under Chapter 11 of the Bankruptcy Code, listing Gurit as a creditor. William C. Miller filed preliminary objections to the state court proceeding. Plastic Dynamics filed a notice of removal of the action from the Lancaster County Court to this Court on September 21, 1981. On October 9, 1981, Gurit filed a notice of voluntary dismissal of the action. *343Gurit also filed a proof of claim in the amount of four hundred thousand, two hundred twenty dollars ($400,220.00). Plastic Dynamics filed an application for a hearing to determine the effects of the notice of dismissal and the issue was submitted to the Court on briefs.
This case is governed by Bankruptcy Rule 741 and Rule 41 of the Federal Rules of Civil Procedure. Rule 741 provides that Rule 41 of the Federal Rules of Civil Procedure applies to the dismissal of adversary proceedings Rule 41(a)(1) states in pertinent part:
[An] action may be dismissed by the plaintiff without order of Court (1) by filing a Notice of Dismissal at any time before service by the adversary party of an Answer or of a Motion for Summary Judgment, whichever first occurs. . . Fed.R.Civ.Pro. 41(a)(1)
In the case before us, Gurit gave notice of dismissal before any responsive pleading had been filed by Plastic Dynamics. The fact that the co-defendant, William C. Miller, Jr., did file preliminary objections does not join the issue as between Gurit and Plastic Dynamics. Gurit has an absolute right to file a notice of dismissal under Rule 41(a)(1) until a responsive pleading by Plastic Dynamics, in effect, locks it into the litigation. Plastic Dynamics has indicated that it wishes to assert counter claims to Gurit’s complaint and is opposing the dismissal for this reason only. We note that Gurit has submitted itself to the jurisdiction of this Court by filing a proof of claim against Plastic Dynamics. Plastic Dynamics may initiate adversary proceedings against Gurit before us by filing its own complaint.
For these reasons, we deny Plastic Dynamics’ application and allow the voluntary dismissal of Gurit’s complaint.
. This opinion constitutes the findings of fact and conclusions of law as required by Rule 752 of the Rules of Bankruptcy Procedure. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489228/ | VOTOLATO, Chief Judge.
The Debtor, Smith Corset Shops, Inc., (Smith) has appealed a decision of the United States Bankruptcy Court for the District of Massachusetts, which held that the Ap-pellees, Laurent and Meredith Brodeur, did not convert Smith’s inventory. The issue is whether the findings of the bankruptcy judge are supported by the record.
Brodeur, Smith’s lessor, obtained an execution for possession on April 7, 1980, and pursuant to the execution had the inventory removed to a Providence warehouse. Smith asserts that the trespass and ejectment action which was commenced in the Rhode Island District Court violated the automatic stay which had been in effect since the filing of the Chapter 11 petition on March 21,1980. 11 U.S.C. § 362. Consequently, it is argued, the execution for possession was a nullity ab initio, and the removal of the inventory constituted a conversion notwithstanding the fact that Brodeur did not receive notice of the Chapter 11 filing until April 15, 1980. Smith also contends that even after learning of the bankruptcy Brod-eur did not make the inventory unconditionally available to Smith.
A careful review of the record discloses the following undisputed facts: (1) Between the time of the seizure of the inventory by Brodeur and the date of demand for *389the return of the property by Smith’s agent, Frances Bobkaitis, Smith filed a complaint in the Bankruptcy Court seeking damages resulting from the alleged conversion. (2) During the last three weeks in April, discussions took place between Bobkaitis and Brodeur’s attorney, Joseph DiGianfilippo, concerning who should bear the expense of transportation and storage, and whether Smith would dismiss its pending action for conversion. (3) Although DiGianfilippo authorized the warehouse to release the inventory to Smith, the authorization was always contingent upon the dismissal of Smith’s action for conversion. (4) DiGianfilippo at one point agreed to assume responsibility for the storage expense, but never retreated from his demand for dismissal of the pending action, nor from his insistence that Smith bear the cost of transporting the goods from storage to Smith’s Brockton store.
Notwithstanding this state of the record, the bankruptcy judge found that Brodeur satisfied all storage charges, that DiGianfi-lippo unconditionally authorized the release of the inventory from storage, and held that the goods were continually available to the Debtor. Based on these findings of fact, the Bankruptcy Court concluded that the transfer and storage of Smith’s goods was not an unwarranted interference with Smith’s rights, and accordingly, that no actionable conversion occurred. Smith Corset Shops Inc. v. Brodeur (In re Smith Corset Shops Inc.), 6 B.R. 324 (Bkrtcy.D.Mass.1980).
The record does not support the finding by the Bankruptcy Court that the inventory was unconditionally available to the Debtor at all times. DiGianfilippo vacillated in his position as to Smith’s obligation to pay storage costs, but he did not equivocate on his continued demand that the action for conversion be dismissed as a prerequisite to the surrender of the inventory. Since the finding of the bankruptcy judge that the inventory was unconditionally available to Smith is contrary to the evidence, his decision is erroneous in that respect.
The taking of personalty without consent and the exercise of dominion over it, inconsistent with the owner’s rights, is a conversion. Fuscellaro v. Industrial National Corp., 117 R.I. 558, 368 A.2d 1227 (1977). The absence of an intent to injure is irrelevant, Donahue v. Shippee, 15 R.I. 453, 455, 8 A. 541, 542 (1887); see also, Kaminow et al. v. Cooper-Kenworthy, Inc., 79 R.I. 352, 356, 89 A.2d 165 (1952); Berry v. Boat Giannina B., Inc., 460 F.Supp. 145, 148 (D.Mass.1978), as is the fact that in this case Brodeur realized no benefit either from taking or from retaining possession of the goods. Boston Educational Research Co., Inc. v. American Machine & Foundry Co., 488 F.2d 344, 348 (1st Cir. 1973). Based upon the undisputed facts in this case, and their application to the relevant authorities, Brodeur’s refusal to surrender the goods, unconditionally, upon learning of the bankruptcy or, at the latest, upon demand by Bobkaitis, constitutes conversion. See Terrien v. Joseph, 73 R.I. 112, 53 A.2d 923 (1947); Nestle-Lemur Co. v. Corrigan, 60 R.I. 312, 317, 198 A. 360, 362 (1938); Donahue v. Shippee, 15 R.I. 453, 454, 8 A. 541, 542 (1887). See also, Ludwig v. Kowal, 419 A.2d 297, 303 (R.I.1980).
Since the above ruling is dispositive of this case, we need not address Smith’s additional argument that the initial removal of property was a conversion because it violated the automatic stay.
The order of the bankruptcy judge is reversed, and the matter is remanded to the Bankruptcy Court for further proceedings consistent with this opinion. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489229/ | FINDINGS, OPINION, AND ORDER
L. CHANDLER WATSON, Jr., Bankruptcy Judge.
The above-styled case was filed by the debtor in this Court, under Chapter 7, Title 11, United States Code, on March 3, 1981, and is pending before this Court under said Chapter. The above-styled adversary proceeding was filed, and is pending, in said case. The plaintiff is a creditor which seeks to have this Court determine that the debt- or is indebted to it upon a nondischargeable debt, for a wrongful conversion or wrongful sale of one 1978 model MG “Midget” automobile, one 1974 model Dal Majic 16-foot boat, with an 85 horsepower Mercury motor, and a Tennessee boat trailer, constituting a portion of the collateral by which the debtor was to secure the payment of the plaintiff’s loan to her of the sum of $1,681.04, with which the defendant was to purchase the boat, motor, and trailer.
The debtor admitted that she had sold the automobile for the sum of $325.00, in September or October, 1979, after the loan was made, on June 13, 1979.
The debtor’s pro forma motion to dismiss was overruled or denied, and the controversy proceeded to a trial before the bankruptcy judge, without the intervention of a jury, on June 29, 1981. By direction of the Court, the proceeding was tried as if the defendant-debtor had answered by way of a general denial, except for the admitted sale of the automobile.
FINDINGS OF FACT
From a due consideration of the pleadings and proof, the bankruptcy judge finds the facts as follows:
1. At the date of the commencement of the case, the defendant was indebted to the plaintiff in the sum of $1,338.14, plus 6% interest thereon from February 4, 1981, court costs of $39.00, and attorney’s fees of $90.00;
2. On October 8, 1980, the plaintiff, in a suit on the loan debt, obtained a judgment *391in the state courts, against the defendant-debtor for the sum of $1,564.00 and $30.00 court costs;
3. The transaction between the plaintiff and the defendant began on June 13, 1979, when the plaintiff made a loan to the defendant in the sum of $1,681.04, repayable in the total sum of $2,040.00, over a period of 24 months;
4. The loan was made for the purpose of enabling the defendant to purchase one 1974 model Dal Majic 16-foot boat, with an 85 horsepower Mercury motor, and a Tennessee boat trailer;
5. As collateral to secure payment of the indebtedness, the defendant gave to the plaintiff a security interest in the boat, motor, and trailer, a security interest in one 1968 MG “Midget” automobile, and a security interest in two divans, two chairs, one lounge chair, one occasional chair, one three-piece “dble” bedroom suite, one five-piece kitchen set, a vacuum cleaner, a television set, and one “quadraphonic” radio;
6. After obtaining the loan, the defendant determined that the boat, motor, and trailer were not worth the price to be paid for them, determined not to make the purchase, and used the proceeds of the loan for other purposes;
7. Shortly thereafter, the defendant carried to the plaintiff’s loan office the serial number for the automobile and informed the plaintiff’s office manager of her decision not to make the purchase and was told by him that this would not cause any problem as long as she made the payments as required under her loan agreement;
8. In September or October, 1979, the defendant sold the automobile to a third party for the sum of $325.00; and
9. Except for the boat, motor, trailer, and automobile, the defendant had in her possession or in her control the remaining collateral for the debt, at the time of the trial.
CONCLUSIONS BY THE COURT
This is a proceeding which seeks to recover damages for the wrongful sale of a portion of the collateral which secured the debt owed by the defendant to the plaintiff, rather than a proceeding for a determination of the nondisehargeability of money obtained by false representations or false pretenses. The defendant never had the boat, motor, or trailer and never disposed of them, wrongfully or otherwise. The only property disposed of by the debtor was the 1968 model automobile. It not being shown that there was any consent by the plaintiff to the defendant’s sale of this automobile, it appears that the sale was wrongful, and the only measure of the value of the automobile was the sum of $325.00 received by the defendant as the fruits of this wrong. The bankruptcy judge concludes that the only recovery which the plaintiff could have against the defendant for a nondischargeable debt would be this sum of $325.00.
There is, however, an impediment to such a recovery by the plaintiff. This impediment might or might not have been removed by additional evidence. There was no evidence as to the value of the remaining collateral, and for aught that appears the plaintiff can collect the entire indebtedness by the exercise of its rights regarding the security interest which it holds in the debtor’s household furniture and appliances. It is not appropriate for the Court to speculate as to the saleable value of such collateral, and it will not do so.
During the trial, the plaintiff’s attorney attempted to make a point based upon a claim that the plaintiff’s security interest in the collateral had not been perfected, because of a failure to file a financing statement executed by the parties. This appeared to be irrelevant to the issue before the Court.
Section 523(d), Title 11, United States Code, provides for the Court to grant judgment for the debtor and against the creditor (unless clearly inequitable) when it is determined that the debt is discharged, in a proceeding brought under subsection (a)(2) of said section, upon a debt for obtaining money, property, services, etc., by actual or constructive fraud. As can be seen from its terms, Section 523(d) does not apply to the type of proceeding here.
*392JUDGMENT
In view of the foregoing, the complaint not being sustained, it is the judgment and order of this Court that the plaintiff’s complaint is denied and that it and this adversary proceeding are dismissed out of court. It is further ORDERED by the Court that a copy hereof be sent through the United States mails to each of the following (which shall be sufficient service and notice hereof): the plaintiff, its attorney, the debtor, her attorney, the case trustee, and the United States trustee. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489231/ | FINDINGS AND CONCLUSIONS
JOSEPH A. GLASSEN, District Judge.
This matter was tried before the court on October 19, 1981 on the plaintiff’s amended complaint objecting to the dischargeability of a debt (C.P. No. 5), the answer and affirmative defense (C.P. No. 6) and answer to defendant’s affirmative defense (C.P. No. n
Apparently the plaintiff is seeking to have the debt of the debtor to it declared non-dischargeable pursuant to 11 U.S.C. § 523(a)(2)(A) although there is no reference to that statute in the pleading. In its original complaint (C.P. No. 1) the plaintiff apparently objected to discharge under 11 U.S.C. § 747 without making reference to that section of the statute. 11 U.S.C. § 523(a)(2)(A) is the only section upon which plaintiff could possibly be relying and it is the section that was interpreted and applied by the Honorable Sidney M. Weaver in the case of Southeast Services, Inc. vs. Vegh, United States Bankruptcy Court, Southern District of Florida, Adversary Case No. 81-0254-BKC-SMW-A, under circumstances which have some similarity to the facts in this case.
The only evidence presented by the plaintiff was a composite exhibit (Exhibit No. 1) consisting of copies of statements on the defendant’s Master Charge account from April, 1980 through February, 1981 with the exception of the statement for December, 1980. We also take judicial notice of the schedules and statement of affairs filed by the debtor in her chapter 7 case (Case No. 81-00180-BKC-JAG).
The obligation of the defendant to the plaintiff in this case arises from the defendant’s use of a credit card issued to her and serviced by the plaintiff. Her credit limit on the use of said card was $1,000. Composite Exhibit No. 1 shows that in April, 1980, the balance which the defendant owed was slightly less than $700. The account was unremarkable through August, 1980, during which months the defendant made very few charges and paid each month the minimum required payment amounting to approximately five percent of the balance due. In September, 1980, the account was increased by $300 in the form of an actual cash advance from the plaintiff to the defendant. This (plus some small purchases) reduced by the minimum payment brought the account to slightly over $1,000 at the end of September, 1980. In October and November, 1980, the defendant made no Master Charge purchases on her account with the plaintiff but did pay the minimum monthly payment required in each of those two months. The balance due at the end of November, 1980 was $968.25. The statement for December, 1980 is missing but the statement for January, 1981 reflects a previous balance of $1,026.25 representing approximately a $58 increase from the end of November, 1980.
*402The crucial statement is the one with the closing date of January 26, 1981 in which there were twenty-five new purchases from December 15, 1980 through January 12, 1981, totaling $993.86 and with the finance charge of $23.90 raising the balance due to $2,044.01. That statement included the legend: “Your account is past due $51. The past due amount is included in the minimum payment. Please remit immediately.” The minimum payment reflected on that statement was $153.
The witness through whom the plaintiff established Composite Exhibit No. 1 also testified that the bank notified the defendant on January 23, 1981 that she was over her limit. The statements reflect that the defendant made no charges after January 12, 1981.
The statement for February, 1981 (closing date February 24, 1981) shows no further charges and no payments. It reflects the addition of a finance charge bringing the balance due to $2,074.10 and bears the legend: “Your account is past due $153. The past due amount is included in the minimum payment. Please remit immediately.” The minimum payment shown is $257.
No other evidence was presented in the case. From the evidence, the plaintiff asks us to conclude that the defendant’s debt to it should be excepted from discharge under 11 U.S.C. § 523(a)(2)(A) by reason of the unusual twenty-five purchases increasing the balance due by approximately $1,000 from mid-December, 1980 through January 12, 1981. The plaintiff asks us to infer that this unusual increase just before and just after Christmas was in contemplation of the defendant’s petition in bankruptcy which was filed on February 9,1981. The pattern of purchases during that particular interval was grossly in excess of the purchases which the defendant had made since the preceding April. However, there is no showing that it differs in any significant way from her purchases in December, 1979 and the court can make no inference where there is no evidence one way or the other.
The debtor-defendant was unemployed at the time she filed her chapter 7 petition but showed that she earned $13,000 during the year 1980. The length of her unemployment prior to filing her petition has not been shown and the court has no evidence as to the length of said unemployment. Therefore, there is no basis to conclude that the defendant was totally without the means of paying her account, or at least the minimum payment demanded by the plaintiff, at the time she incurred the charges which in effect doubled the balance due on her account from approximately $1,000 to approximately $2,000.
The plaintiff suggests that the showing made by it is sufficient to have this court except the obligation to it from discharge under the authority of Southeast Services, Inc. vs. Vegh referred to above. We disagree. In the Vegh case, the defendant-debtor used her two credit cards with the Southeast Services, Inc. to make six hundred seventeen separate purchases of items for her personal use aggregating more than $24,000. Each of those purchases was in an amount less than $50 (the amount shown in that case to be the threshold for the merchant to check with the bank before completing the sale). In the Vegh case, the debtor’s credit limit was $1,200 and by the time she filed her petition in bankruptcy she owed the complaining creditor $34,-573.18, approximately thirty times her credit limit, more than eighty percent of which had been incurred in one month. Yegh had averaged twenty purchases a day during the period of time involved in that case. In this case the defendant made only approximately one purchase per day during the crucial period. She made no purchases from January 12, 1981 to the date she filed her petition on February 9, 1981.
Therefore, we can not and do not find that this record depicts a conscious and willful scheme contrived and executed by the defendant-debtor to defraud the plaintiff-creditor as was found by Judge Weaver in the Vegh case.
The plaintiff has not carried its burden of proof to have the obligation to it excepted *403from discharge under § 523(a)(2)(A) of the Bankruptcy Code. Therefore, as required by B.R. 921(a), we are this date entering a separate Final Judgment denying the plaintiff the relief sought by it. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489232/ | FINDINGS AND CONCLUSIONS
JOSEPH A. GASSEN, District Judge.
This adversary case was tried before the court on November 2, 1981 upon the complaint of the plaintiff-trustee seeking declaratory relief, revocation of discharge and turnover, and on the answer of the defendants generally denying the crucial allegations of the complaint. Prior to the trial, the court entered a temporary injunction and restraining order enjoining and restraining Jerry Enos Rogers and Lila Rogers from collecting any rentals on the mobile homes which constitute the assets over which this litigation has been conducted (C.P. No. 9).
Lila Rogers is a chapter 7 debtor in this court through her filing of Case No. 80-00551 — BKC-SMW. Jerry Enos Rogers is a chapter 7 debtor in this court through his filing of Case No. 80-01524-BKC-JAG. Those two eases were consolidated and the plaintiff, James B. McCracken, was appointed trustee in both cases.
The defendants Ralph Rizzuto Jr. and Marsha Rizzuto, his wife, occupied one of the mobile homes. The Rizzutos filed no pleadings in this case and were not represented by counsel. However, Marsha Riz-zuto appeared at the trial and testified in the case.
This litigation was over transactions involving two mobile homes. One of the mobile homes was owned by Lila Rogers and a former husband. Apparently, no disposition was made of the title of that mobile home when Lila divorced her former husband. Therefore, she owned an undivided one-half interest in the mobile home upon her divorce. Lila’s position is that she transferred her undivided one-half interest in that mobile home to her father, Sidney Horn, for valuable and realistic consideration prior to the filing of her chapter 7 case *447and therefore did not schedule it as her asset in that proceeding.
The other mobile home had been owned by Jerry Rogers and in his chapter 7 case, he scheduled it as being his property. The title certificate (Plaintiff’s Exhibit No. 4) indicates Jerry and Lila held title to that mobile home as tenants in common. Both debtors are before the court as defendants in this adversary and both are subject to the jurisdiction of this court and bound by disposition of the issues herein by the court. It is this latter mobile home which has been occupied by the defendant Rizzutos, either as tenants or purchasers, under an agreement between them and the Rogerses.
The issues regarding the trailer owned by Lila and her former husband are the easier of resolution. The trustee takes the position that since there were no documents transferring Lila’s one-half interest to her father, Sidney Horn, no transfer did take place, and that asset is part, or should be part, of the Lila Rogers bankruptcy estate. The unrebutted evidence shows that Sidney Horn paid Lila $2,000 for her one-half interest in that mobile home on March 8, 1980 some two months prior to Lila’s filing her chapter 7 case. That money was deposited in the joint account of Jerry and Lila (Defendants’ Composite Exhibit B). Further, Sidney Horn, as landlord, leased that mobile home to Sharon Heilman and Mark McCoy prior to Lila filing her bankruptcy petition (Defendants’ Exhibit C).
There was an encumbrance on this mobile home and, of course, Sidney Horn took Lila’s interest subject to that encumbrance. The fact that no paper transfer of title was ever made was by reason of the naivete of the parties as will be fully discussed below. Jerry Rogers testified that he received authorization from Sidney Horn to collect the rent on that mobile home from his tenants (Defendants’ Exhibit A). The Rogerses did collect the rents, and make the mortgage payments and either remitted to or held the small difference on behalf of Sidney Horn.
Therefore, as to the mobile home, the one-half interest which the trustee asserts belongs to Lila Rogers’ bankrupt-estate, the court finds that that asset was not part of the estate. The $2,000 consideration paid by Sidney Horn was, in fact, paid and there is no evidence to countervail the testimony of Lila Rogers that the said $2,000 represents full value for her equity interest in that asset at the time it was transferred.
The transaction between the Rogers-es and the Rizzutos regarding the other mobile home is more complex, rendered so primarily by reason of the unbusinesslike manner in which the parties handled the transaction. The Rizzutos and the Rogerses impressed the court as being extremely naive and inexperienced in handling the most simple personal business matters. The manner in which this transaction was handled and the attitude of Jerry Rogers toward the Rizzutos, the trustee and the trustee’s attorney, understandably gave the trustee and his attorney much concern and made them extremely suspicious of all of the circumstances surrounding this transaction. The trustee and his attorney are to be commended for pursuing the interests of the estate in the mobile homes and the proceeds from the use or sale thereof and the fact that the court concludes that neither of these assets belonged to either of the debtors at the time their petitions were filed in this court in no way reflects on the sincerity of the trustee or his attorney in bringing this action.
In July, 1978, the Rizzutos commenced occupying the jointly titled trailer under a very inartfully drawn “option to purchase”. One copy of the option has been admitted into evidence as Plaintiff’s Exhibit No. 8 and another copy has been admitted into evidence as Plaintiff’s Exhibit No. 11.
It is undisputed that the Rizzutos commenced occupancy in July of 1978 and made payments pursuant to that occupancy thereafter. There is a dispute as to whether the option to purchase was exercised immediately upon the execution of the option itself or not until December, 1980. Marsha Riz-zuto testified unequivocally that the option was exercised in July of 1978. Lila Rogers was equally unequivocal in testifying that it *448was not exercised until December, 1980. Jerry Rogers dated his acknowledgment of exercise of the option December 13, 1980. However, a number of the receipts for payment are in evidence (Plaintiff’s Composite Exhibit No. 10). Several of those receipts were written by Lila Rogers and referred to the payment as a mortgage payment including one dated July 28, 1978. Therefore, the court concludes that the parties had fully understood and intended that the option to purchase had been exercised by the Rizzu-tos in July, 1978 and more than three years prior to the trial of this adversary case. Therefore, the trustee could acquire only the mortgagees’ interest in the mortgage resulting from the purchase by the Rizzutos from the Rogerses. That mortgage matured by its terms in July, 1981.
The trustee seeks revocation of the discharge of the debtors, Jerry Enos Rogers and Lila Rogers, in this proceeding. The court finds that the conduct of Jerry Rogers in bringing a landlord-tenant action against the Rizzutos and in attempting to collect payments from the Rizzutos, notwithstanding the appointment of the plaintiff as trustee, in the bankruptcy cases to be reprehensible and not to be condoned. Were Jerry Rogers a more intelligent and sophisticated person, the court would be inclined to deal harshly with him. However, the revocation of discharge and denial of discharge to a debtor such as Jerry Rogers, is too harsh a remedy when the court does not find the degree of wrongful intent on the part of the debtors to justify such a result.
Prior to the entry of the temporary injunction and restraining order, the Rogerses had improperly collected $897 in payments from the Rizzutos. This sum of money must immediately be paid to the trustee. If it is not, the court will reconsider the trustee’s request that discharge be revoked.
In accordance with Bankruptcy Rule 921(a), a separate 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/8489233/ | MEMORANDUM AND ORDER
CHARLES J. MARRO, Bankruptcy Judge.
The Complaint of Frank M. Gilman, et als., against the Debtor and Alan R. Medor, Esquire, Trustee, for relief of stay filed on November 12, 1981 came on for hearing, after notice.
The facts are undisputed. On June 6, 1980, Frank M. Gilman and Olive F. Gilman as lessors leased to the Debtor, Country Programmers International, Inc., as lessee certain lands and premises in the Town of Hartford, Vermont for a term of five years beginning July 1, 1980 up to and including June 30, 1985 with a monthly rent for the first year of $1,209.48, increased to $1,351.77 for the second year. As security for the payment of the rent under the lease, the Debtor executed and delivered to the landlords, Frank M. Gilman and Olive F. Gilman, a security agreement dated June 6, 1980 under which the Debtor granted to the Landlords a security interest in certain personal property, including two IBM typewriters. This security interest was perfected by the Landlords upon filing the necessary U.C.C. Financing Statements in the proper places.
On June 29, 1981 Frank M. Gilman and Olive F. Gilman assigned the aforesaid lease and all the rents for the premises which became due July 1, 1981 and after to the Valley Land Corporation. There was no specific assignment of the security interest held by the Gilmans.
The Plaintiffs are seeking relief from the automatic stay so that they may continue an action which was started in the Windsor Superior Court of the State of Vermont and thereby recover possession of the two IBM typewriters. This request for relief from automatic stay is resisted by the Trustee on the grounds that there was no assignment of the security interest by the Gilmans to the Valley Land Corporation which was entitled to the rent beginning July 1, 1981.
The Debtor has in fact defaulted under the lease, and on November 12, 1981, Frank W. Gilman and Olive F. Gilman, together with the Valley Land Corporation, filed a secured proof of claim in the sum of $4,471.67 consisting of unpaid rent, costs of repair, interest and legal fees. The Trustee has not interposed any objection to this claim.
At the hearing the parties stipulated that the Debtor did owe two months rent amounting to $2,703.54. The Trustee, in his Memorandum, recited that the personal property including two IBM typewriters which were subject to the security interest was collectively valued at $1,800.00. Hence, there appears to be no equity in the collateral.
The only issue for determination, therefore, is whether the Valley Land Corporation has a valid security interest in the typewriters.
*471The Trustee contends that Valley Land Corporation, by virtue of the assignment to it from the Gilmans merely received an assignment of the rent and not of the security interest in the personal property which was given by the Debtor to secure payment of rent and obligations under the lease. He contends that there is no language in the assignment referring to the security interest. He maintains that the assignment, by its own language, operates only as an assignment of the lease and not of the security interest. This Court does not agree.
It is generally recognized that all property and property rights that are comprehended by the terms used therein pass by an assignment, and such rights and remedies of the assignor as are incidents to the assigned property are vested in the assignee by virtue of the assignment. 6A C.J.S. Assignments § 74 pp. 714-715. This includes liens and security that is incidental to the subject matter of the assignment. See 6 Am.Jur.2d 302 § 121 as follows:
“The assignment of a debt ordinarily carries with it all liens and every remedy or security that is incidental to the subject matter of the assignment and that could have been used, or made available, by the assignor as a means of indemnity or payment, even though they are not specifically named in the instrument of assignment, and even though the assignee at the time was ignorant of their existence. Such rights will pass notwithstanding the assignment is not by any instrument in writing, or that the assignor retains possession of the collateral, his possession being considered in the nature of a trust for the benefit of the assignee of the debt.”
Cases cited including Newell Bros. v. Hanson, 97 Vt. 297, 123 A. 208 in which it was held that in the absence of any provision to the contrary, the unqualified assignment of a chose in action vests in the assignee an equitable title to all such securities and rights as are incidental to the subject matter of the assignment.
It follows, therefore, that the Valley Land Corporation did in fact acquire a security interest in the personal property, including the typewriters, by virtue of the assignment of the rents under the lease even though the transfer of the security interest was not specifically mentioned in the assignment. This security interest continued in the Valley Land Corporation even without any additional filing of financing statements under the Code. See 9A V.S.A. § 9-302(2) which provides:
“If a secured party assigns a perfected security interest, no filing under this article is required in order to continue the perfected status of the security interest against creditors of and transferees from the original debtor.”
See also Western Board of Adjusters, Inc. v. Newport Motor Yachts, Inc., 10 U.C.C. Rep. 893; Bramble Transp., Inc. v. Sam Senter Sales, Inc., 10 U.C.C.Rep. 939; 294 A.2d 97; In re Bennett, 6 U.C.C.Rep. 994; In re Davidoff, 10 U.C.C.Rep. 725.
The Valley Land Corporation having acquired a perfected security interest in the IBM Typewriters and there being no equity in this collateral, the Plaintiffs are entitled to the relief requested.
ORDER
Upon the foregoing,
IT IS ORDERED that the automatic stay which became effective under § 362 of the Bankruptcy Code upon the filing of the Petition for Relief in this case is hereby terminated, and the Plaintiffs are authorized to proceed in State Court to reclaim the two IBM Typewriters. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489235/ | OPINION
EMIL F. GOLDHABER, Bankruptcy Judge:
This case is before us on the application of the debtors to hold a creditor in contempt of court. We conclude that the creditor is in contempt of court for the actions taken by its collection agency in contacting the debtors for the purpose of collecting a prepetition debt.
The facts of the instant case are as follows: 1 On September 30, 1981, Ronald H. and Joyce B. Fultz (“the debtors”) filed a petition for an adjustment of their debts under chapter 13 of the Bankruptcy Code (“the Code”). In their schedules accompanying that petition, the debtors listed as a creditor the Philadelphia Gas Works (“PGW”). Thereafter, notice of the debtors’ filing under chapter 13 was sent, both by the court and by the debtors’ attorney to all of the debtors’ creditors, including PGW. Notwithstanding those notices, on or about December 21, 1981, Commerce Service Corporation (“CSC”), on behalf of PGW, wrote the debtors in an attempt to collect a pre-petition debt. The debtors thereupon filed two applications to hold PGW and CSC in contempt of court.2 At the hearing, the debtors’ attorney admitted that there was no evidence that CSC had notice of the debtors’ filing since it was not a creditor. Hence, the debtors withdrew their application as to CSC.
However, with respect to the application to hold PGW in contempt, we conclude that that application should be granted. In order to hold an alleged contemner in contempt, there must be a specific and definite order of the court, of which the accused had actual knowledge and which he has violated.3 We have already held that the automatic stay provisions of the Code are such a specific and definite order, the willful violation of which will be punishable by contempt.4 Section 362(a)(6) specifically prohibits “any act to collect, assess, or recover a claim against the debtor that arose before the commencement of the case under this title.” 11 U.S.C. § 362(a)(6). We find that PGW had actual knowledge of the applicability of the automatic stay to the debtors by virtue of the notices thereof sent to it by this court and by the debtors’ attorney. Furthermore, we conclude that PGW was in violation of § 362(a)(6) when it authorized or directed CSC, as its collection agency, to contact the debtors for the purpose of collecting the prepetition debt owed to PGW after the debtors had filed a petition under chapter 13 and after PGW had received notice of that filing.5
. This opinion constitutes the findings of fact and conclusions of law, required by Rule 752 of the Rules of Bankruptcy Procedure.
. Both CSC and PGW failed to file responses to the debtors’ applications and failed to appear at the hearing held thereon.
. See, e.g., Fidelity Mortgage Investors v. Camilla Builders, Inc., 550 F.2d 47 (2d Cir. 1976), cert. denied, 429 U.S. 1093, 97 S.Ct. 1107, 51 L.Ed.2d 540 (1977), citing In re Rubin, 378 F.2d 104 (3d Cir. 1967). See also, United States v. Christie Industries, Inc., 465 F.2d 1002 (3d Cir. 1972).
. In re Abt, 2 B.R. 323, 5 B.C.D. 1237 (Bkrtcy.E. D.Pa.1980).
. Cf. In re Benjamin, Bankr. No. 78-758EG (E.D.Pa. Aug. 14, 1979). | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489236/ | MEMORANDUM OPINION
MARK B. McFEELEY, Bankruptcy Judge.
This matter came on for hearing January 21, 1982, and was continued February 25, 1982, on plaintiff’s Complaint to Lift Automatic Stay and plaintiff’s Motion for Judgment on the Pleadings; plaintiff was represented by its counsel, Paul M. Fish, and defendant was present in person and through his counsel, Jennie Deden Behles. The Court previously ordered that the automatic stay remain in effect with certain modifications pending the resolution of the issues addressed herein.
Plaintiff is a Texas corporation which operates Kettle Restaurants across the country and confers the privilege of operating the same on others through franchise agreements. Defendant is a franchisee of plaintiff, operating two Kettle Restaurants in Albuquerque. The contractual relationship between plaintiff and defendant was established by two sets of three documents each — a lease of real property, a lease of personal property, and a franchise agreement.
On November 25, 1981, plaintiff sent a notice of default to defendant. Defendant filed a petition in bankruptcy under Chapter 11 of Title 11 of the United States Code on December 21, 1981.
Plaintiff contends that the documents la-belled “leases” are undoubtedly leases. Pursuant to the alleged leases, the mailing of the notice of default caused to begin a 30-day period of time, the expiration of which resulted in termination of the alleged leases unless the defendant cured the defaults set out in said letter. No action was taken with respect to the alleged defaults and plaintiff alleges that the leases terminated on or about December 25, 1981. Plaintiff asks this Court to lift the automatic stay so as to allow it to regain possession of the premises of said Kettle Restaurants. In the event that this Court finds the leases not terminated, plaintiff seeks lifting of the stay to allow it to terminate said leases due to defendant’s substandard operation of the restaurants.
Defendant, however, argues that the documents involved herein are not leases, but documents granting plaintiff a security interest in the premises and equipment of defendant’s restaurants. Such a classification is based on paragraph 23 of said franchise agreements, which allows the franchisee to convey his interest in the Kettle Restaurants to a third party so long as plaintiff is given the first right of refusal with respect to such a conveyance. Being characterized as a security interest of sorts, there was said to be no termination of interest of the defendant as a result of the notice of default sent to defendant November 25, 1981.
At the conclusion of the February 25, 1982, hearing, the Court reserved for judgment the following questions:
(1) Are the documents at issue herein in the nature of leases or in the nature of security instruments?
*532(2) Were these agreements terminated 30 days after the notice of default was sent to defendant?
The Court ruled from the bench February 25, 1982, that the franchise agreement and leases as to each store must be read as a whole rather than as separate documents. Therefore, resolution of the remaining issues will proceed on the basis that the documents with respect to each restaurant be read together. The remaining issues relate to construction of the documents. Consequently, this Court will rely on non-bankruptcy law for guidance in its analysis.
Paragraph 33 of each of the franchise agreements states that the document shall be governed in accordance with the laws of the State of Texas and this Court will do so. In final analysis, law of Texas and New Mexico on the remaining issues provides the Court with the same result, so that even if Texas law does not in fact govern resolution of these issues, the result is nevertheless the same under New Mexico law.
Lease or Security Instrument
The portion of the franchise agreement which allegedly creates a question as to whether the documents are leases or security instruments is paragraph 23(a) of each lease which reads, in pertinent part, as follows:
23. Restrictions of Change of Ownership (a) Franchisee shall not discontinue the operation of the Licensed Premises, or sell, transfer, assign, lease, sublet, convey or encumber any interest in the Licensed Premises or any part thereof, or in this Agreement without in each instance first offering to H.L.H. the exclusive right to purchase the same.
Plaintiff’s complaint, exhibits E and F.
The primary role of construction of an instrument is to ascertain and give effect to the intent of the parties by the language used in the agreement. If the instrument is worded so that it has a certain meaning or interpretation, it is not ambiguous and is not susceptible to modification through the introduction of parol evidence. However, if the instrument is susceptible to more than one meaning, it is said to be ambiguous and may be interpreted through the use of parol evidence. Howell v. Union Producing Co., 392 F.2d 95 (5th Cir. 1968); St. Paul Mercury Insurance Co. v. Price, 329 F.2d 687 (5th Cir. 1964); Wall v. Lower Colorado River Authority, 536 S.W.2d 688 (Tex.Civ.App.1976); Grayson County State Bank v. Osborne, 531 S.W.2d 846 (Tex.Civ.App.1975). The same rules apply in New Mexico. See Schaefer v. Hinkle, 93 N.M. 129, 597 P.2d 314 (1979); Brown v. American Bank of Commerce, 79 N.M. 222, 441 P.2d 751 (1968); Armijo v. Foundation Reserve Ins. Co., 75 N.M. 592, 408 P.2d 750 (1965).
The language of paragraph 23(a) of the franchise agreement is quite clear and unambiguous. From the language of the franchise agreement, it appears to the Court that the interest which the defendant may convey is only his interest in the “licensed premises,” whatever that might be. The “licensed premises” are defined according to the lease agreements. Therefore, the Court directs its attention to the lease agreements to determine just what the defendant has the power to convey.
As with other written instruments, the ends sought in the construction of leases is the ascertainment of the intent of the parties as revealed by the language used in the lease; parol evidence to be admitted only to explain ambiguities on the face of the writing. Ferrari v. Bauerle, 519 S.W.2d 144 (Tex.Civ.App.1975); Armstrong v. Skelly Oil Co., 81 S.W.2d 735 (Tex.Civ.App.1935). See also Gallup Gamerco Coal Co. v. Irwin, 85 N.M. 673, 515 P.2d 1277 (1973); Springer Corp. v. American Leasing Co., 80 N.M. 609, 459 P.2d 135 (1969).
Again, the language in the lease agreements which might be said to give defendant more than a leasehold appears in paragraph XVI. Said paragraph gives the lessee an opportunity to renew the lease for another term. The clear meaning of said paragraph is to merely give the lessee an option to renew the original leasehold; no ownership interest passes to the lessee upon exercising the option and the lessee continues to be liable for rental payments during the extended period of occupancy.
*533Therefore, construing the documents together, the rights which defendant could convey are necessarily only what he holds himself and nothing more. Since defendant owns a leasehold interest in the “licensed premises,” he may convey only a leasehold interest. This is no more or less true if the offer is made to plaintiff or some third party.
Even if the writings are ambiguous, the only extrinsic evidence relating to parties’ intent was testimony of the debtor, Ray F. Chavez, who stated that he understood that the only interest he could offer to another pursuant to the franchise agreement would be that of a lessee, nothing more.
Therefore, based on the above, this Court finds that the defendant has only a leasehold interest in the premises.
Termination of Lease
Whether the leases were terminated 30 days after defendant received plaintiff’s notice of default relates to paragraphs of the lease agreements which address rights of repossession by the lessor. The following represents what appears in each lease:
XIV.
RIGHT OF REPOSSESSION
In the event of default in any of the covenants stated herein, the lessor may enforce the performance of this lease in any manner provided by law or equity, and this lease MAY be forfeited at lessor’s discretion if such default continues for a period of thirty (30) days after the lessor notifies the lessee in writing of such default and of the lessor’s intentions to declare the lease forfeited. Whereupon, this lease may be terminated and the lessor or his agent shall have the right without further notice of demand to reenter. . . (Emphasis added.)
Plaintiff’s complaint, exhibit A.
Defendant’s argument hinges on the fact that the lease “may be forfeited” by the mailing of a notice of default and that in order to actually forfeit, the lessor need take some affirmative action beyond sending notice of default. Of course, plaintiff believes that mailing notice of default is sufficient to terminate the lease if lessee fails to cure the stated defaults. Additionally, the default letter sent to defendant “intends to declare the leases forfeited, if such defaults continue for a period of thirty days...” and, further states that:
You have thirty days from receipt of this notice within which to pay in full the above amounts, and cure the foregoing defaults of both Franchise Agreements. If you do not fully pay and cure said defaults within the thirty-day period, H.L.H. shall without further notice terminate the Franchise Agreements and will thereafter pursue all further remedies available to H.L.H. Enterprises, Inc., under law and as provided by the terms of said Franchise Agreements. And if you do fully cure the foregoing defaults within the thirty-day period, H.L.H. Enterprises, Inc., retains its right under Paragraph 25 of said Agreements to either reinstate or terminate those Agreements.
Plaintiff’s complaint, éxhibit G.
The Court finds such language ambiguous at best. Doubt as to the meaning of the language of a lease is to be resolved against the lessor. Parham v. Glass Club Lake, Inc., 533 S.W.2d 96 (Tex.Civ.App.1976); Ferrari, supra; Red Oak Fishing Club v. Harcrow, 460 S.W.2d 151 (Tex.Civ.App.1970); Golden Spread Oil, Inc. v. American Petrofina Co. of Texas, 431 S.W.2d 50 (Tex.Civ.App.1968); Sirtex Oil Industries, Inc. v. Erigan, 403 S.W.2d 784 (Tex.1966). See also Lommori v. Milner Hotels, 63 N.M. 342, 319 P.2d 949 (1957); Crecente v. Vernier, 53 N.M. 188, 204 P.2d 785 (1949). So too should an ambiguity in a default letter be construed against the lessor.
In construing the lease and default letter, the Court has no choice but to find that the lease was not terminated by plaintiff’s notice of default, but that the lease and default letter both contemplated some further affirmative action which was stayed by the filing of the petition herein.
*534Having found that the defendant has a leasehold interest, it is this Court’s opinion that reasonable adequate protection for plaintiff is for the defendant to continue making its lease and franchise payments by certified funds on the date said payments are due under the lease and franchise agreements until further order of the Court. Therefore, the automatic stay shall remain in full force and effect conditioned upon defendant’s making said required lease and franchise payments. In the event that defendant fails to make said payments and upon plaintiff’s filing an affidavit to that effect, the automatic stay shall be lifted with respect to the plaintiff without further order from this Court.
An appropriate order will enter. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489798/ | *680OPINION
ASHLAND, Bankruptcy Judge.
This is an appeal from an order of the bankruptcy court authorizing the debtor in possession to reject its contract with appellant.
We affirm.
FACTS
Appellant is an attorney at law. Aesthetic Specialties, Inc. (ASI) is in the business of manufacturing and selling alcoholic beverages in specialized decorative containers. In September, 1979 ASI retained appellant for the purpose of pursuing an alleged cause of action against several of ASI’s competitors. In August, 1980 appellant commenced a lawsuit in state court on ASI’s behalf. Trial preparation in that action was under way when this bankruptcy was filed in July, 1981.
Thereafter, ASI became dissatisfied with appellant’s services and decided to replace him with other counsel. Appellant terminated his services at the request of ASI and ASI retained other counsel to represent it in the state court action.
In November, 1982 ASI, as debtor in possession, applied to the bankruptcy court for an order authorizing it to reject its contract with the appellant. Appellant filed an opposition to ASI’s application. The bankruptcy court issued an order in December, 1982 granting ASPs application and authorizing it to reject the contract. Appellant now contests the appropriateness of the court’s order.
ISSUE
The appellant contends the trial court lacked “jurisdiction” to make an. order “to accomplish the forfeiture of appellant’s contract right.”
ANALYSIS
Appellant does not argue that the findings of the trial court are clearly erroneous. Rather he contends that the order of the trial court somehow unfairly deprives him of the compensation he may be entitled to under the contract. This is simply not the case; 11 U.S.C. § 365(g) preserves appellant’s remedy upon rejection of his contract. The trial court specifically stated on the record that it was not making any adjudication of the* appellant’s rights under the contract, but that it was merely allowing the debtor in possession to reject the contract pursuant to 11 U.S.C. § 365(a). The order of the trial court does not have the effect of precluding appellant from asserting any claim he may have against the debtor in possession for breach of the contract.
It is well settled in California that a client’s power to discharge his attorney, with or without cause, is absolute. Fracasse v. Brent, 6 Cal.3d 784, 790, 100 Cal. Rptr. 385, 494 P.2d 9 (1972). A discharged attorney is entitled to recover the reasonable value of his services rendered to the time of discharge. Id. at 792, 100 Cal.Rptr. 385, 494 P.2d 9. The discharged attorney’s cause of action to recover compensation for services rendered under a contingent fee contract does not accrue until occurrence of the stated contingency. Id. at 792, 100 Cal. Rptr. 385, 494 P.2d 9. The contingency stated in the agreement between appellant and ASI has not yet occurred. That fact distinguishes this case from Alioto v. Official Creditor Committee, 654 F.2d 664 (9th Cir.1981).
Thus, the appellant may have an immediate cause of action against the debt- or in possession for the reasonable value of services rendered to the time of his discharge. The trial court’s order does not preclude appellant from properly asserting such a claim. The appellant may also have a potential cause of action against the debt- or in possession based on the contingency *681fee portion of their agreement. However, any such cause of action will not accrue until the contingency in the contract has occurred. Again, the order of the trial court does not have the effect of precluding appellant from properly asserting any such claim.
CONCLUSION
For the foregoing reasons, the order of the trial court is affirmed. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8493305/ | RULING ON MOTION TO VACATE ORDER SUSTAINING OBJECTION TO CLAIM
ROBERT L. KRECHEVSKY, Bankruptcy Judge.
I.
The court, on October 2, 2001, after proper notice and a hearing, sustained an objection of Walter J. Leary, Jr., the debt- or in this Chapter 13 case, to the proof of claim filed by Ameriquest Mortgage Company (“the creditor”). By so doing, the court reduced both the creditor’s arrear-age claim on a mortgage which it holds on the debtor’s residence from $34,079.95 to $28,465.13, and the mortgage principal balance from $88,461.03 to $82,518.44. These reductions were based upon the disallowance of certain asserted late charges, attorney’s fees and property tax payments. The creditor had neither filed a response to the debtor’s objection nor appeared at the hearing.
The creditor, on October 18, 2001, filed a motion to vacate the court’s order contending the creditor had valid defenses to the debtor’s objection to claim. In its amended motion, filed January 2, 2002, the creditor asserted that its failure to attend the October 2, 2001 hearing was due to “excusable neglect.” At the January 24, 2002 hearing on the amended motion, the *315creditor submitted as its sole evidence an affidavit executed by Andy Valencia (“Valencia”), the creditor’s “bankruptcy specialist,” who had also executed the creditor’s proof of claim.1
The creditor acknowledges that it received a copy of the debtor’s objection to claim and notice of hearing on the objection. The debtor had sent these documents to the creditor by certified mail, properly addressed and to the attention of “Andy Valencia,” with a return receipt requested. The return receipt is signed by one “Amy Tsui” (“Tsui”) as “agent.”
Valencia’s affidavit avers that, notwithstanding that the objection and notice were mailed to his attention, he “never received the notice of the hearing or the objection,” and that if he had, he would have referred “the matter to legal counsel in order to defend the objection” as he was responsible for the handling of the debtor’s bankruptcy file. (Aff. ¶¶ 3-6.)
The debtor filed an objection to the creditor’s motion and argues that the creditor has failed to establish a sufficient basis for the application of the doctrine of excusable neglect. For the reasons that follow, the court agrees with the debtor.
II.
The creditor presumably brings its motion pursuant to Fed.R.Civ.P. 60(b)(1), made applicable in bankruptcy proceedings by Fed. R. Bankr.P. 9024, which provides, in relevant part, that the court may relieve a party from an order for reason of “excusable neglect.” The Supreme Court, in Pioneer Investment Services Co. v. Brunswick Associates, 507 U.S. 380, 113 S.Ct. 1489, 123 L.Ed.2d 74 (1993), dealing with Fed. R. Bankr.P. 9006(b)(1) and a matter involving a failure to meet a filing deadline, ruled that the determination of what sort of neglect will be considered excusable, includes the circumstances of “danger of prejudice to the debtor, the léngth of the delay and its potential impact on judicial proceedings, the reason for the delay, including whether it was within the reasonable control of the movant, and whether the movant acted in good faith.” 507 U.S. at 395, 113 S.Ct. 1489. It is generally accepted that this holding applies to all federal rules dealing with “excusable neglect.”
III.
In the present matter, the record reflects proper notice was given and received by the creditor, and for unexplained reasons, the creditor’s agent responsible for taking the necessary action did not receive the notice. No claim is made that Tsui is not an agent of the creditor. This bare record does not furnish a basis for finding excusable neglect. In Pioneer, the Supreme Court rejected as excusable neglect the fact that the creditor’s attorney “was experiencing upheaval in his law practice at the time of the bar date.” Id. at 398, 113 S.Ct. 1489. The creditor does not address the other Pioneer circumstances, and the court concludes that they are of neutral significance. On balance, the court concludes that the creditor has not carried its burden to establish excusable neglect and that its motion to vacate shall be denied. Cf. In re Roasters Corporation, No. 98-80704C-11D, 2000 WL 33673776, at *5 (Bankr.M.D.N.C. March 14, 2000) (where motion to extend time to appeal filed three days late, court ruled: “The fact that the attorney in the law firm primarily responsible for a matter is out of *316the office when an order or judgment is received by the law firm does not require a finding of excusable neglect.”); In re Herdmann, 242 B.R. 163, 166 (Bankr. S.D.Ohio 1999) (neglect of paralegal to promptly advise bankruptcy trustee of receipt of order does not constitute excusable neglect for failure to timely (two days) file a motion to extend time to appeal); Sibson v. Midland Mortgage Co. (In re Sibson), 235 B.R. 672, 676 (Bankr.M.D.Fla. 1999) (where complaint dismissed for plaintiffs attorney’s failure to file timely an amended complaint, excusable neglect was not established by attorney’s claim that he thought he had dictated instructions to secretary to file amended complaint); In re MRM Security Systems, Inc., 170 B.R. 192, 194 (Bankr.D.Conn. 1994) (finding that unfamiliarity with courtroom procedure is not a basis for excusable neglect). It is
SO ORDERED.
ORDER
The motion of Ameriquest Mortgage Company to vacate an order sustaining the objection of Walter J. Leary, Jr. to a claim filed by the movant having come on for hearing before the Court, Honorable Robert L. Krechevsky, Bankruptcy Judge, presiding, and the issues having been duly heard and a ruling of even date issued, it is
ORDERED AND ADJUDGED that the motion be denied.
. The court, on October 24, 2001, had confirmed the debtor’s Chapter 13 plan. The debtor, treating himself as solvent, under the plan pays all creditors in full plus interest over a term of sixty months. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8493307/ | MEMORANDUM ON MOTION TO TERMINATE AUTOMATIC STAY
RICHARD S. STAIR, Jr., Bankruptcy Judge.
On October 25, 2001, JCL Asset Management (JCL) filed a Motion to Terminate Stay, Confirm Foreclosure Sale and Require Debtor to Deliver Possession of Real Estate (Motion). The Motion was amended on November 13, 2001, to identify Bankers Trust Company (Movant or Bankers Trust) as the movant.
Bankers Trust asks the court to terminate the automatic stay of 11 U.S.C.A. § 362(a) (West 1993 & Supp.2001) to allow it to record a Substitute Trustee’s Deed and to obtain possession of the Debtor’s residence, which Bankers Trust allegedly purchased at a prepetition foreclosure sale. The Debtor opposes the Motion, contesting the validity of the foreclosure sale. A trial was held on February 20, 2002.
This is a core proceeding. 28 U.S.C.A. §' 157(b)(2)(G) (West 1993).
I
The Debtor filed a Voluntary Petition under Chapter 13 on August 3, 2001. On his Schedule of Real Property, the Debtor listed a house and lot located at 342 Sky Valley Circle in Seymour, Tennessee (Residence).1 Meritech Mortgage Services, Inc. (Meritech) is scheduled as the first mortgage holder on the Residence. The Meritech debt is allegedly evidenced by a Deed of Trust executed by the Debtor on March 6, 2000.2 The Debtor’s Chapter 13 Plan, which was confirmed on November 19, 2001, provides for Meritech to receive a monthly installment payment of $565.00 inside the plan, plus an additional $50.00 per month to satisfy a prepetition arrear-age.
On July 19, 2001 — prior to the Debtor’s Chapter 13 filing — the Residence was sold *493at a foreclosure sale conducted by Bankers Trust, which asserts that it is the assignee of the Deed of Trust. Bankers Trust was the successful bidder at foreclosure, placing a credit bid of $64,001.58 which allegedly corresponded to the amount owing on the debt. A Substitute Trustee’s Deed was recorded on August 13, 2001, in violation of the automatic stay, after the Debtor commenced his case.
II
The Debtor challenges the foreclosure and present Motion on three grounds:
1. Bankers Trust was not the assignee of the Deed of Trust and therefore did not have the authority to conduct the foreclosure sale;
2. Bankers Trust did not comply with the default notice provisions of the Deed of Trust; and
3. Bankers Trust did not comply with ' the notice of sale provisions of the Deed of Trust.
The Debtor correctly points out that the Movant has failed to provide proof of assignment. The best proof offered by Bankers Trust is an Appointment of Substitute Trustee recorded on June 11, 2001. That document was executed by Judy Johnson, Assistant Vice President of Meri-tech, “by Power of Attorney from Bankers Trust Company” and provides that Bankers Trust “as Trustee and as Custodian, declares itself to be the owner and holder of said Promissory Note so secured by said Deed of Trust[.]”
The self-proclamations contained within that document are simply insufficient proof that Bankers Trust was in fact the party entitled to foreclose on the Debt- or’s Residence. The record before the court includes no proof of assignment to show that either Meritech or Bankers Trust — which were the only two parties to the Appointment of Substitute Trustee— had any rights in the Deed of Trust whatsoever. The Movant’s failure to produce proof of assignment is striking and leads to but one conclusion — that the present Deed of Trust was never assigned to Bankers Trust.
Further, the Movant failed to produce proof of compliance with the default notice provisions of the Deed of Trust. Those provisions direct in material part:
Acceleration; Remedies. Lender shall give notice to Borrower prior to acceleration following Borrower’s breach of any covenant or agreement in this Security Instrument [with exceptions not relevant here]. The notice shall specify: (a) the default; (b) the action required to cure the default; (c) a date, not less than 30 days from the date the notice is given to Borrower, by which the default must be cured; and (d) that failure to cure the default on or before the date specified in the notice may result in acceleration of the sums secured by this Security Instrument and sale of the Property. The notice shall further inform Borrower of the right to reinstate after acceleration and the right to bring a court action to assert the non-existence of a default or any other defense of Borrower to acceleration and sale.
Deed of Trust, ¶ 21. Bankers Trust contends that it met the notice requirements through a June 5, 2001 letter from its foreclosing counsel, addressed to the Debt- or at his Residence.3 The court disagrees.
*494The letter, captioned “Notice Pursuant to Fair Debt Collection Practices Act 15 U.S.C. 1692,” states that the subject debt has already been “declared due and payable” and that a foreclosure sale has already been scheduled. Clearly, this document is not notice given “prior to acceleration” as required by the Deed of Trust.4 Additionally, the letter does not clearly set a date at least thirty days in the future by which the default must be cured (it does set a thirty-day deadline for contesting the validity of the debt) nor does it clearly convey the message required at paragraph 21(d). It also does not advise the Debtor of his “right to reinstate after acceleration” or his right to raise defenses to acceleration and foreclosure.
The Movant’s disregard for the Deed of Trust’s notice provisions invalidates its foreclosure purchase. Under Tennessee law, the notice requirements of a deed “must be followed strictly by the trustee, in order to deprive the makers of their title by means of a sale thereunder.” See Progressive Bldg. & Loan Ass’n v. McIntyre, 169 Tenn. 491, 89 S.W.2d 336, 336 (1936); cf. Henderson v. Galloway, 27 Tenn. 692, 1848 WL 1802, at *2 (Tenn. 1848) (If notice of sale is not provided to the grantor as required by the deed, “the sale is unauthorized and void and will communicate no title to the purchaser.”); Co-wan v. Child, 1993 WL 141552, at *4 (Tenn.Ct.App. May 5,1993) (same).5
In sum, the foreclosure sale purchase is void.6 Bankers Trust exhibited a blatant disregard for the Deed of Trust’s default *495notice provisions. See McIntyre, 89 S.W.2d at 336. Additionally, Bankers Trust was inexplicably unable to offer proof that it was in fact the assignee properly entitled to foreclose.7
Title to the Residence therefore remained in the Debtor and became property of his Chapter 13 estate under 11 U.S.C.A. § 541(a)(1) (West 1993). Bankers Trust is bound by the provisions of the Debtor’s confirmed Chapter 13 Plan (assuming, arguendo, that Bankers Trust is in fact a creditor as assignee of the Deed of Trust). See 11 U.S.C.A. § 1327(a) (West 1993).
The Motion to Terminate Stay, Confirm Foreclosure Sale and Require Debtor to Deliver Possession of Real Estate must therefore be denied.
. The address was incorrectly scheduled as 342 "Ski” Valley Circle.
. The Deed of Trust was executed in favor of Laguna Capital Mortgage Corporation (Lagu-na). On March 13, 2000, Laguna assigned the Deed of Trust to Chase Bank of Texas. Importantly, no documentation was produced at trial showing a subsequent assignment to either Meritech or Bankers Trust.
. The Debtor testified that he did not receive the letter. However, Bankers Trust offered the deposition testimony of Nikita Lizette Brown, a paralegal assistant to its foreclosing counsel, that the letter was properly addressed, mailed, and affixed with sufficient postage. "A presumption of the due receipt of a letter arises upon proof that such letter *494was deposited in the post office, properly stamped and correctly addressed.” Southern Region Indus. Realty, Inc. v. Chattanooga Warehouse & Cold Storage Co., Inc., 612 S.W.2d 162, 164 (Tenn.Ct.App.1980). "And a presumption that a letter was mailed may arise from the testimony of an officer of a corporation that he dictated and signed the letter and placed it in the regular course for mailing.” Id. The Debtor's testimony is insufficient to rebut the presumption that he in fact received the letter.
. In fact, Ms. Brown acknowledged that the letter was not sent for the purpose of complying with the Deed of Trust's notice requirements.
. Contrary authority arguably exists. The Court of Appeals of Tennessee has held that under TENN. CODE ANN. § 35-5-106 (which provides that a failure to give statutory notice of sale does not void a foreclosure) "a sale is not rendered void by failure to advertise as required by law or by the deed of trust." McSwain v. American Gen. Fin., Inc., 1994 WL 398819, at *3 (Tenn.Ct.App. July 22, 1994) (emphasis added). This court's research indicates that McSwain stands alone in support of the proposition that failure to comply with a deed of trust's notice provisions does not invalidate a foreclosure. McSwain’s holding is not supported by extensive analysis but rather by a citation to prior caselaw purportedly establishing that rule. See id. ("In Williams v. Williams, 25 Tenn.App. 290, 156 S.W.2d 363 (1941), this Court, following Doty [v. Federal Land Bank of Louisville, 169 Tenn. 496, 89 S.W.2d 337 (1936)], held ....”). The Williams and Doty decisions, however, like Tenn. Code Ann. § 35-5-106, speak only to the failure to comply with statutory requirements for notice of sale, see Williams, 156 S.W.2d at 369; Doty, 89 S.W.2d at 339, and therefore do not stand for the proposition for which they were cited by the McSwain court. Further, this court notes that Doty and McIntyre ("[T]he terms [of a deed of trust] must be followed strictly by the trustee, in order to deprive the makers of their title by means of a sale thereunder.”) were decided by the Supreme Court of Tennessee on the very same day. This court cannot read Doty (which plainly cites and addresses statutory notice provisions only) as undoing McIntyre’s clear holding regarding contractual provisions contained within a deed of trust. Accordingly, the court finds McSwain (and its citation to Doty) unpersuasive.
. Irrespective of whether Bankers Trust followed proper procedure at the foreclosure sale, see In re Williams, 247 B.R. 449 (Bankr.E.D.Tenn.2000), the sale itself was invalid.
. The Debtor also argued, unsuccessfully, that Bankers Trust failed to provide notice of the foreclosure sale as required by the Deed of Trust. A letter from Bankers Trust's foreclosing counsel, dated June 13, 2001, and addressed to the Debtor at his Residence, gives that notice. See Southern Region Indus. Realty, 612 S.W.2d at 164. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8493308/ | ORDER DENYING EXEMPTION
ELIZABETH E. BROWN, Bankruptcy Judge.
This matter is before the Court on the Chapter 13 Trustee’s Objection to one of the Debtors’ exemptions. After a non-evidentiary hearing, the parties submitted this matter to the Court, without asserting any dispute as to material facts. The Court has jurisdiction over this matter pursuant to 28 U.S.C. § 1334(b) and it is a core proceeding. 28 U.S.C. § 157(b)(2).
In their Schedule C, the Debtors have listed an exemption based on “a claim for negligence against Kessler Construction— dubious claim — value $650 for fire loss.” At the hearing, the parties stipulated that some of the Debtors’ household goods were destroyed in a fire caused by this construction company. The Debtors do not have an insurance policy of their own to cover these losses nor do they know if Kessler Construction has such coverage.
They have asserted their exemption under C.R.S. § 13-54-102(l)(e) (hereinafter “Subsection E”). Subsection E covers “household goods owned and used by the debtor or the debtor’s dependents to the extent of three thousand dollars in value.” The Debtors assert that the proceeds of these goods are covered by this subsection as well and that the Debtors’ chose in action against the construction company for their destruction represents “proceeds” from the household goods.
Our state constitution mandates the enactment of liberal homestead and exemption laws. Colo. Const, art. XVIII, § 1. The decisions of the courts of this state have construed our exemption statutes liberally in harmony with this policy. See, e.g., Martin v. Bond, 14 Colo. 466, 24 P. 326 (1890); Hawkins v. Mosher, 8 Colo. App. 31, 44 P. 763 (1896). Accordingly, this Court must not construe this exemption statute so strictly as to defeat its purpose and design. In order to discern the legislature’s intent, the Court must first look to the words of the statute itself, giving them their usual and ordinary meaning. United States v. Ron Pair Enters., Inc., 489 U.S. 235,109 S.Ct. 1026, 103 L.Ed.2d 290 (1989).
*539The term “household goods” is defined in C.R.S. § 13-54-101(4), and it includes such things as furniture, furnishings, dishes, televisions and the like. Recreational items, such as guns, are not within its scope. In re Greenlee, 61 B.R. 257 (Bankr.D.Colo.1986); In re Debias, 198 F.3d 257, 1999 WL 1032968 (10th Cir.1999)(unpublished disposition). Neither the definition nor Subsection E expressly include any reference to “proceeds” of household goods.
In other subsections of the exemption statutes, the legislature expressly refers to the “proceeds” of certain types of assets. C.R.S. § 13-54-102(l)(m) (“Subsection M”) exempts the “proceeds of any claim for loss, destruction, or damage and the avails of any fire or casualty insurance payable because of loss, destruction, or damage to any property which would have been exempt under this article to the extent of the exemptions incident to such property.” (emphasis added). The following subsection exempts the “proceeds of any claim for damages for personal injuries suffered by any debtor except for obligations incurred for treatment of any kind for such injuries or collection of such damages.” C.R.S. § 13-54-102(l)(n)(emphasis added). Similarly, subsection 1 refers to the “cash surrender value” of life insurance policies and the proceeds of certain life insurance policies payable on death. C.R.S. § 13-54-102(1)(Z). C.R.S. § 38-41-207 specifically extends the exemption to non-commingled proceeds from the sale of a debtor’s homestead, (to the extent of the homestead exemption which is presently $45,000), for a period of one year after the sale.
The fact that the legislature referred to proceeds in some instances and not others in these exemption statutes indicates that when exempt property is transformed into another form of property, it does not necessarily retain its exempt status. In re Gillespie, 41 B.R. 810 (Bankr.D.Colo.1984); but see In re Larson, 260 B.R. 174, 189 n. 16 (Bankr.D.Colo.2001).
In addition, C.R.S. § 13-54-102 is replete with references to items of property “kept and used” or “owned and used” by the debtor or the debtor’s dependents. Subsection E dealing with household goods employs the phrase “owned and used.” If goods are destroyed, by fire or otherwise, they can no longer be “used” by a debtor. The statute has limited its protection of a debtor’s right to these assets by requiring that they remain in the hands of the debt- or.
Finally, the legislature provided an exemption in Subsection M that covers the proceeds from any claim for the loss, destruction, or damage of exempt property. In response to the Court’s questioning at the hearing on this matter, the Debtors conceded that they probably could have asserted an exemption under Subsection M for the destruction of their household goods. To date, however, the Debtors have not amended their Schedule C, presumably because they would prefer to first obtain this Court’s ruling on their existing claim of exemption.
Interestingly, C.R.S. § 13 — 54—102(l)(j), which exempts motor vehicles, also contains no reference to proceeds and the exemption statutes do not specifically refer to the proceeds or avails of an automobile insurance policy. To the extent that the debtor’s car is damaged or the debtor suffers personal injuries, limited exemptions are available under C.R.S. § 13-54-102(l)(m) & (n), for damage to otherwise exempt property and for personal injuries, respectively. The Colorado Supreme Court has held that a debtor’s right to a defense and indemnification from its insurance company is not exempt property. Baker v. Young, 798 P.2d 889, 894 (Colo. *5401990). Thus, an injured non-debtor may seek to attach the debtor’s right to indemnification from his/her insurance company and thereby ultimately attach any proceeds payable for the benefit of third parties. Id. The omissions in these statutes, therefore, likely reflect countervailing public policy considerations, such as the protection of injured non-debtors.
In Guidry v. Sheet Metal Workers Nat’l Pension Fund, 39 F.3d 1078 (10th Cir. 1994)(en banc), a majority of the Tenth Circuit concluded, among other things, that a debtor did not lose his exemption under Colorado law to his pension funds after they were paid to him and deposited into a non-commingled bank account. This act of converting exempt property into another form did not cause the debtor to lose his exemption. The majority relied on Rutter v. Shumway, 16 Colo. 95, 26 P. 321 (1891), which extended a former statute’s exemption in wages to their funds on deposit. The Shumway court found any other construction of the statute “would be narrow and illiberal. It would compel the laborer to leave his earnings in the hands of his employer, or else forego the protection of the statute altogether.” Id., 26 P. at 322. The Tenth Circuit’s majority further relied on the Supreme Court’s interpretation of the Social Security Act’s prohibition against garnishment of “the moneys paid or payable” under the Act in Philpott v. Essex County Welfare Bd., 409 U.S. 413, 93 S.Ct. 590, 34 L.Ed.2d 608 (1973), which it held extends to the funds after they have been deposited into a bank account. The dissenting minority of the Tenth Circuit noted the language in other statutes that expressly provides continuous protection of pension funds following a distribution, which is absent from the statute under construction by the majority, and concluded that the legislature knew how to provide continuous protection when it wanted this result, but it chose not to include such language within the general earnings exemption.
This Court recognizes that superficially it appears to be adopting a construction of the exemption statute that follows the rationale of the dissent in Guidry, rather than the majority. Guidry, however, is distinguishable for at least two reasons. First, the court was construing language of “compensation paid or payable,” which clearly contemplates the conversion of the asset from a claim against an employer to some other asset, typically to a negotiable instrument, and ultimately to cash or a deposit of some kind. “Paid or payable” recognizes by its own terms this changing nature.
Secondly, construing Subsection E more narrowly, by not inferring that it includes “proceeds,” does not defeat the purpose of the statute. Undoubtedly, the legislature intended to leave the basic necessities of life in the hands of debtors. Subsection E, however, requires that the household goods be owned and “used” by the debtor to qualify for this exemption. Any other interpretation would render superfluous the term “used.” A debtor who sells his household goods assumes the risk of losing the exemption. Subsection M protects the debtor who suffers an involuntary loss of such exempt property. Thus, it is not necessary to interpret Subsection E to include proceeds of this exempt property in cases of loss or damage of property, and to do so would extend Subsection E’s protection beyond its intended scope.
For the foregoing reasons, the Court sustains the Trustee’s Objection and denies the Debtors’ claim of exemption in the destroyed household goods under C.R.S. § 13-54-102(l)(e). | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489237/ | MEMORANDUM AND OPINION
THOMAS M. TWARDOWSKI, Bankruptcy Judge.
This case is before us on the complaint of a creditor to modify the automatic stay under 362(d). For reasons hereinafter given, we will dismiss the creditor’s complaint and allow the stay to remain in effect.1
The debtor-defendants James Ronald Cressman and Ann Marie Cressman (hereinafter, “debtors”) filed a petition under Chapter 7 of the United States Bankruptcy Code on September 10,1981. The schedules filed by the debtors listed their interest in real estate located at 3245 Illinois Street, Easton, Pennsylvania. This real estate was encumbered by a mortgage and two judgment notes held by Lafayette Trust Bank (hereinafter, “the Bank”). The Bank filed a complaint to modify the automatic stay imposed by operation of 11 U.S.C. § 362. The debtors filed an application to avoid the Bank’s judgment liens. The matters were consolidated for trial and a hearing was held on March 3, 1982. We are issuing an Opinion and Order which allows the debtors to avoid the judgment liens.
The balance due on the mortgage at the date of the hearing was $55,790.10. The value of the real estate was estimated to be $66,500.00. Debtors have amended schedules B-4 to exempt the difference of $11,-290.00 under 11 U.S.C. § 522(d)(5) because *541the real estate is not being used as their principal residence. 11 U.S.C. § 362(d) grants this Court the power to modify the automatic stay on request of a party in interest under the following circumstances:
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.
The Bank has not demonstrated that its interest in the subject property is being detrimentally affected during the pendency of the stay. There is no evidence before us upon which to conclude that the value of the real estate is depreciating. As the Bank has the first mortgage position, it is not being prejudiced by the stay. We have determined that the debtors have equity in the property as a result of our decision that the Bank’s judgment notes are avoidable. For these reasons, we will dismiss the Bank’s complaint to modify the stay.
. This opinion constitutes the findings of fact and conclusions of law as required by Rule 752 of the Rules of Bankruptcy Procedure. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489238/ | DECISION AND ORDER
CHARLES A. ANDERSON, Bankruptcy Judge.
This matter is before the Court upon “Complaint to Object to Debtors’ Avoidance of Lien” under 11 U.S.C. § 522(f). The Court tried the matter on 22 October 1981. The following decision is based upon the parties’ briefs and the record.
This case presents the question of the constitutionality of the retroactive application of 11 U.S.C. § 522(f) to judgment liens which first arose during the “gap” period between the enactment and effective date of the Bankruptcy Code.* This Court has earlier held that retrospective avoidance of pre-Code judgment liens would violate the taking clause of the Fifth Amendment to United States Constitution if the collateral securing the judgment constitutes property with “genuine, tangible, monetary or economic value.” Matter of Lucas, 18 B.R. 179 (Bkrtcy.S.D.Ohio, 1982); Matter of Conley, 17 B.R. 387 (Bkrtcy.S.D.Ohio, 1982); Matter of Campbell, 8 B.R. 425 (Bkrtcy.S.D.Ohio, 1981); Matter of Rutherford, Jr., 4 B.R. 510, 3 B.L.D. ¶ 67,534 (Bkrtcy.S.D.Ohio 1980); and Matter of McCabe, 12 B.R. 20 (Bkrtcy.S.D.Ohio 1981). The Court believes, however, that specific mention should be made of the recent ease of Commonwealth National Bank v. U. S. (In re Ashe), 669 F.2d 105 (3d Cir. 1982) in which the Third Circuit concluded that 11 U.S.C. § 522(f) is constitutional without reference to the facts. For expansive discussion, see Conley, supra at p. 388.
It is ’ the determination of the Court that the facts in the case at bar do not justify deviation from this Court’s earlier decisions. Specifically, the record does not provide any basis for a finding that the instant judgment lien on real estate is distinguishable, (aside from the fact that it was filed during the “gap” period), from judgment liens earlier held to be nonavoida-ble. Conley, supra; Lucas, supra. This Court is of the opinion that retroactivity should be measured from a statute’s effective date, and not the date of its enactment. Although the Court is cognizant of a body of case law to the contrary, (see Matter of Ferguson, 14 B.R. 1004 (Bkrtcy.W.D.Pa.1981), and citations therein), this Court finds that the vesting of property rights should not be affected by enactment of a statute to be effective in the future. The Court further finds that even actual notice of a statute’s enactment cannot alter the existence or substantiality of a vested property right of a type which the statute’s future enforcement may impair.
IT IS HEREBY ORDERED that Plaintiff’s judgment lien is nonavoidable. IT IS FURTHER ORDERED that Debtors are granted two weeks leave to amend their Plan conformably with the above decision.
The Bankruptcy Code was enacted on 6 November 1978. Act of November 6, 1978, P.L. 95-598. The Code’s effective date was 1 October 1979. Act of November 6, 1978, P.L. 95-598, § 402(a), 92 Stat. 2682. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489239/ | OPINION
THOMAS M. TWARDOWSKI, Bankruptcy Judge.
This matter comes before the Court on a motion filed by defendant-appellant for a stay of our order in this case of February 18, 1982, pending appeal. 17 B.R. 737. For reasons hereinafter given, we will deny the motion for a stay.1
PROCEDURAL HISTORY
Our Order denied the petition of defendant-appellant, DMA Investment, Inc. (hereinafter, “DMA”) to set aside a sheriff’s sale of real property belonging to the debtors herein, Francesco and Anne C. Scardino. The property was bought by a junior lien-holder at sheriff’s sale scheduled by the first lienholder, Freedom Valley Federal Savings and Loan (hereinafter, “Freedom Valley”) for $70,000.00. Hamilton Bank submitted the only bid at the sale. DMA, which had purchased the third lienholder position within a few days prior to the sale, did not appear or submit a bid at the sale. At the hearing before us on this matter, the sole shareholder of DMA, Francis Albani, testified that he did not purchase the lien for purposes of bidding at the sale (N.T. 38-40, 9/28/81) and that he did not appear at the sale because the liens ahead of his judgment were so high that it would not have been profitable for him to be there (N.T. 13, 17, 9/28/81). In response to DMA’s petition to set aside the sheriff’s sale, we found that the disparity between the sale price of $70,000.00 and the estimated fair market value of $120,000.00 was not so gross as to require, in and of itself, that the sale be overturned. Following Pennsylvania case law, we held that mere inadequacy of price, absent proof of fraud or highly suspicious circumstances, does not justify the setting aside of a sheriff’s sale. DMA has appealed from our Order and has filed a motion for a stay pending appeal.
DISCUSSION
The test for a grant or denial of a stay in this context is the same as that for a preliminary injunction: 1) likelihood of success on the merits, 2) irreparable injury if the stay is not granted, 3) absence of substantial harm to other interested persons, and 4) absence of harm to the public interest. Hickey v. Commandant of Fourth Naval District, 464 F.Supp. 374, 376 (E.D.Pa.1979). Authority to grant the stay is found at Bankruptcy Rule 805. In exercising our discretion, we must engage in a “delicate balancing” of all four prongs of the test. Constructors Association of Western Pennsylvania v. Kreps, 573 F.2d 811, 815 (3rd Cir. 1978).
In determining the likelihood of success on the merits, we are placed in the anomalous position of second-guessing our own prior ruling. However, in this case, there appears to be very little likelihood that DMA will prevail on appeal. In its motion for a stay, DMA states that it is relying on Fenton v. Joki, 294 Pa. 309, 144 A. 136 (1928) as authority for the setting aside of the sale herein. We note that the trial court in Fenton v. Joki made a finding that the sale price of $3000.00 on a property valued at $9000.00 was grossly inadequate. This finding was coupled with the circumstance of lack of competitive bidding at the sale where one attorney represented three of the four lienholders, including the successful bidder. On appeal, the Pennsylvania Supreme Court held that the trial court had not abused its discretion in setting aside the sale. We agree with DMA that the principles enunciated in Fenton v. Joki *591are still a viable part of Pennsylvania case law; our opinion relies, in part, on a more recent case, Farmer’s Trust Company v. Murray, 2 D & C 3d 41 (1975), which cites Fenton v. Joki for the proposition that evidence of fraud or highly suspicious circumstances is necessary in order to justify the setting aside of a sheriff’s sale. We conclude that DMA has not produced this evidence, nor is the disparity between the purchase price and fair market value in the case at bar on a par with that in Fenton v. Joki. Because the facts of the two cases are so dissimilar, it is our determination that DMA’s reliance on Fenton v. Joki is misplaced. We find that there is little likelihood of success on the merits of this appeal.
On the question of irreparable harm to DMA if the stay is not ordered, we must consider the testimony of Francis Albani on the hearing in this matter cited above. DMA had the opportunity to appear and bid at the sheriff’s sale on March 20,1981. Mr. Albani’s reasons for not doing so were business judgments based upon facts which are in no way changed by our Order in this matter. The harm to DMA, if any, was self-incurred by its failure to protect its interest at the sale. Though this fact is not controlling in our decision on this issue, it should be noted that the business of DMA is speculation on liens and that it purchased its lien herein of $4000.00 for $1750.00 as balanced against the potential for a far greater loss on the part of the banks involved.
The third factor to be considered is that of absence of substantial harm to other interested parties. Both Freedom Valley and Hamilton Bank would be detrimentally affected by an Order staying action on the sheriff’s sale. The subject property is not presently insured and taxes are unpaid. The banks are losing the fair rental value of its use, as well as the interest on their investments. At the time of the sale, Freedom Valley’s lien was approximately $83,-500.00 and Hamilton Bank’s lien was $141,-000.00. The banks are not fully secured by the equity in the property. Until the deed is transferred, these sums continue to be at risk. We find that the further delay in closing the sale that would be occasioned by a stay of our order would cause substantial harm to Freedom Valley and Hamilton Bank.
The final prong of the test for a stay is harm to the public interest. DMA has presented no evidence on the effect of a stay on the public interest.- This factor does not appear to be relevant to our consideration of DMA’s motion. In balancing the other elements, we find that it is not likely that DMA will prevail on the merits of its appeal, that our decision not to stay the Order would not do irreparable harm to DMA, and that a stay would substantially injure other interested parties. For these reasons, we deny DMA’s motion for a stay pending appeal in this matter.
. This opinion constitutes the findings of fact and conclusions of law as required by Rule 752 of the Rules of Bankruptcy Procedure. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489240/ | MEMORANDUM AND ORDER
DAVID L. CRAWFORD, District Judge.
The issue before the Court is whether a “Rental Agreement” containing an option to purchase is a true lease or a security agreement. This action arises out of two purported rental agreements entered into December 21, 1979, between Plaintiff-Debtor, Sherry Willetta Elliott, and C.A.R.I. T.V. and Appliance Rental and Sales (CARI). The rental agreements cover two pieces of stereo equipment and provide that the agreements continue “. . . for successive ... weekly or monthly terms so long as weekly or monthly rental payments are made on or before the due date.” The documents further provide that “... in the event renter at his sole election chooses to rent this property at the rental rates set forth ... for 74 successive weekly terms or 17 successive monthly terms, owner will transfer the property to renter.”
The Debtor asserts that as a matter of law, a security interest was created by the two agreements and duly listed CARI in her voluntary petition for relief as a secured creditor to be included in the plan; CARI was to retain its lien. CARI argues that no such security interest in fact existed because there was no obligation to pay a definite purchase price. Although CARI admits to having received notice, CARI neither appeared at the first meeting of creditors nor objected to confirmation of the plan.
The Bankruptcy Code defines “security agreement” as an agreement that creates or provides for a security interest. 11 U.S.C. § 101(36). The legislative history of that section indicates that
Whether a consignment or a lease constitutes a security interest under the Bankruptcy Code will depend on whether it constitutes a security interest under applicable State or local law. H.Rep. No. 95-595, 95th Cong., 1st Sess. (1977) 314, U.S.Code Cong. & Admin.News 1978, pp. 5787, 6271.
In Nebraska, section 201 of the R.R.S. Nebraska, Uniform Commercial Code governs this situation and provides that the facts of each case will determine whether such a lease is intended as security. 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 leasee 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.
R.R.S. Neb. U.C.C. § 1-201(37)
The defendant asserts that the inclusion in the instrument of a § 201(37)(b) provision does not as a matter of law make the agreement a security transaction, citing Commercial Credit Equipment Corporation v. Colley, Mo.App., 542 S.W.2d 329 (1976). That case indicates that if the transferee is *604bound to pay the purchase price, the document will be a conditional sale. If on the other hand, the transferee is free to return the property in lieu of making payment, the instrument is a lease. CARI, then, would require an unconditional obligation to pay the full purchase price in order to find a security agreement. If the obligation is binding, there is a sale. While I would agree that an option-to-purchase provision does not of necessity create a security transaction, I cannot impose an unconditional obligation criteria to the Nebraska Uniform Commercial Code section.
This court has previously considered section 1-201(37) in Amarillo Equipment Leasing and Sales Corporation v. American Beef Packers, Inc., unreported, American Beef Packers, Inc., Bankruptcy No. BK75-0-17 (July 2, 1975) in which it was stated,
The intent to which U.C.C. § 1-201(37) refers is of the objective and not the subjective variety, with a possible exception where both parties subjectively intended the lease as security. Neither the presence nor the absence of the option to purchase is conclusive, except with respect to the type of option described in clause (b). Ibid., p. 2. See also 1 Gilmore, Security Interests in Personal Property, § 11.2, pp. 338-9.
In holding that the agreement in that case was a true lease and not a security agreement, I relied upon certain facts distinguishable from the typical consumer rent-to-own arrangements as found in the Elliott case. The parties in American Beef had at all times dealt with each other as lessor and lessee. The goods in that case were fungible and not specifically identified as the subject matter of the potential purchase option. Timely payments had not been made by the lessee, so that the lessor was entitled to immediate possession. The full value of the goods was not to have been paid by the termination of the agreement, an additional consideration would have been necessary to effect ownership. The parties to the agreement before me are a consumer and a merchant; the rent-to-own item has been identified from the inception of the relationship. During the course of the transaction, the “lessee” bore full risk of loss, theft, or destruction of the rented property. Other than the nomenclature of the document, the parties had not dealt with each other as lessor and lessee. In fact, in a prior identical transaction, Ms. Elliott had completed payments and had become owner of a “leased” television. Further, in the instant case, it is stipulated by the parties that the fair market value of the leased goods is $350. By the terms of the document, upon the natural termination of the agreement, the debtor will have made total payments of $760 in bi-weekly installments. As of the petition date, Ms. Elliott had made timely payments totalling $440, a value in excess of the fair market value of the goods. It is undisputed that the debtor will become owner of the goods upon expiration of the term if all payments have been made in a timely manner.
Here, the document establishes unambiguous parameters. Upon compliance with the terms of the lease, “. . . owner will transfer property to renter.” To disallow the security interest would contravene the statutory language of § l-201(37)(b), deny the debtor the protection of the automatic stay and deprive her of the capacity to protect her equity in the merchandise built up by conscientious timely payments.
Accordingly, I find that the document through which the debtor has acquired possession of the subject matter goods is a purchase money security agreement despite its designation on its face as a lease. It, therefore, is
ORDERED that the subject goods be included in the debtor’s Chapter 13 plan pursuant to the operative provisions of the Bankruptcy Code. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489241/ | MEMORANDUM OF DECISION
JAMES A. GOODMAN, Bankruptcy Judge.
Debtor in possession, American Trawler Corporation, seeks in its complaint to recover damages for breach of contract for goods sold and delivered. Defendant has not answered the complaint, but moves for a change of venue to the Eastern District of New York.
The parties do not dispute that venue properly lies in this Court pursuant to 28 U.S.C. § 1473(a), but defendant argues that justice and convenience of parties warrant removal of the proceeding to New York. See 28 U.S.C. § 1475; Bankruptcy Rule 782.
The party requesting change of venue has the burden of proof by a preponderance of the evidence. In re Whippany Paper Board Co., Inc., 4 C.B.C.2d 370, 376 (Bkrtcy.D.N.J.1981).
There is little evidence before the Court with respect to the relative difficulty and expense of the parties in the prosecution of their cases. To determine which forum is appropriate for the convenience of the parties and interests of justice, it is necessary to pinpoint the issues of the case and the evidence to be submitted by the parties in support thereof. In re North Star Packers, Inc., 3 BCD 457, 458 (Bkrtcy.D.Me.1977). A bare allegation of hardship in securing attendance of distant witnesses, on issues as yet undetermined, does not persuade this Court to transfer venue. Defendant shall be given 10 days within which to file its answer, setting forth in good faith the major issues in dispute. Thereafter, each party shall have 15 days to provide *624an offer of proof naming: (1) its witnesses; (2) the precise nature of each witness’s testimony necessary to relevant issues of the case; (3) its unwilling witnesses who are not subject to compulsory process; and (4) any other necessary, relevant evidence which would justify change of venue.
So ordered. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489242/ | OPINION
WILLIAM A. KING, Jr., Bankruptcy Judge.
This case reaches the Court on a motion for extension of time to perfect an appeal nunc pro tunc and for a stay pending disposition of the appeal. After hearing duly held and consideration of the briefs submitted by counsel, the Court finds that an extension of the appeal period should not be granted and that a stay should not be imposed.1
On November 24,1981, this Court filed an Opinion finding Bradford Arthur to be engaged in the unauthorized practice of law.2 An Order was entered on this date enjoining him from such practice and directing him to turn over all records pertaining to his practice to a Special Master to be appointed by the Court. Mr. Arthur was further directed to turn over all funds received from his unauthorized practice to the Special Master.
James J. O’Connell, Esquire, was appointed the Special Master by Order dated De*627cember 7, 1981. He was directed to investigate the unauthorized practice by Mr. Arthur, obtain all records relating to such practice, obtain an accounting of funds received by Mr. Arthur and obtain return of such funds.
Bradford Arthur filed a pro se appeal on December 14, 1981. Mr. Arthur later engaged counsel, Edward Rudley, Esquire, who filed a motion for a stay pending appeal and a motion for extension of time to file an appeal nunc pro tunc. Hearing on these motions was held on January 20,1982. The Special Master appeared and argued against the motions.
Appeals from Orders of the Bankruptcy Court are subject to the provisions of the Bankruptcy Rules.3 Under Rule 802, a notice of appeal must be filed within ten (10) days of the entry of the order.4 The ten-day period can be extended for twenty (20) additional days by filing a timely application for extension of time.5 The application must be filed within the ten-day period unless excusable neglect can be shown.6
Petitioner alleges that his delay in filing the appeal was a result of excusable neglect. The appeal was filed ten (10) days late. Mr. Arthur alleges that he was unable to engage the services of counsel until well after the expiration of the ten-day appeal period. The Court finds that these particular circumstances do not constitute excusable neglect. The Court entered the Order on November 24, 1981. Both the Opinion and Order were promptly mailed to Mr. Arthur and to Mr. Arthur’s counsel of record. The onus was upon the petitioner to obtain counsel to perfect his appeal or take whatever other steps as were deemed necessary. Furthermore, Mr. Arthur has claimed to be knowledgeable in bankruptcy law and procedure.7 He cannot now seek the benefit of ignorance. Delay in obtaining counsel cannot be deemed excusable neglect in this case. To rule otherwise would mean that appeals could be filed out of time and there would never be any finality to litigation. Therefore, the Court finds that the appeal was not brought properly, and the Order is a final Order pursuant to Rule 803.
Without a properly perfected appeal, the Court has no basis to grant a stay pending appeal. The reasoning and analysis, which the Court set forth in the Opinion filed on November 24, 1981, have not altered with the passage of these few months. There is no need for the Court to reiterate the concerns which moved the Court to issue that Opinion.
The record in this case does not reflect a scintilla of evidence of compliance by Bradford Arthur with the Order of this Court entered on November 24,1981. There is no showing that Mr. Arthur has begun compliance by submitting his records and an accounting of his unauthorized practice of law to the Special Master. Without the obedience of Mr. Arthur, the Special Master would be unable to fulfill his function and commence his investigation.
The Court will enter an Order directing Mr. Arthur to comply with the mandate of this Court. This Order will enumerate specific directions for Mr. Arthur to follow. If the Order is not obeyed, the Special Master shall file a motion with the Court requesting sanctions for contempt of Court, and the Court will re-convene to consider such sanctions as may be appropriate.
The Court will not countenance disobedience of any Order of the Court. All Orders and Judgments of Courts must be promptly complied with by the persons to whom they are directed. Maness v. Meyers, 419 U.S. 449, 95 S.Ct. 584, 42 L.Ed.2d 574 (1975); United States v. Stine, 646 F.2d 839 (3rd Cir. 1981). Defiance of a Court Order prior to a judicial determination of its invalidity will constitute civil contempt. Stine, supra.
. This Opinion constitutes the findings of fact and conclusions of law required by Rule 752 of the Rules of Bankruptcy Procedure.
. In the Matter of Arthur, 15 B.R. 541, 8 B.C.D. 459 (Bkrtcy.E.D.Pa.1981).
. Bankruptcy Rules 801 et seq.
. Rule 802(a).
. Rule 802(c).
. Id.
. See the Opinion of this Court, cited in note 2, for a more complete explanation of the facts in this case. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489243/ | MEMORANDUM
DAVID L. CRAWFORD, Bankruptcy Judge.
In this declaratory judgment action, I find that the plaintiffs, Business Development Corporation and Citizens State Bank, have a perfected security interest in the assets and operating rights of the debtor pursuant to the mandatory provisions of Nebraska Revised Statutes Section 21 — 2012 (Reissue 1977).
On January 23, 1981, the filing date of this Chapter 7 petition, debtor was in the trucking business pursuant to operating rights granted by the Interstate Commerce Commission and the Nebraska Public Service Commission. Prior to the extension of credit to the debtor, plaintiffs had requested from the office of the Nebraska Secre*629tary of State corporate documents and records concerning the debtor, which records showed the last registered agent of the debtor to be Glea Romans and the location of the debtor’s registered office to be 142 North 15th Street, Ord, Valley County, Nebraska. These records further disclosed that the debtor was not a corporation in good standing. Plaintiffs notified the debt- or that the corporate existence of Tri-Val-ley Transportation, Inc., would have to be revived prior to any extension of credit by the plaintiffs. In accordance with this request, on December 9, 1979, debtor filed with the Secretary of State of Nebraska a Certificate of Revival or Renewal of its corporate existence. The following day, a copy of the Certificate was filed with the Clerk of Valley County. The debtor designated in the certificate that its corporate registered agent and the address of the registered office had been changed to John T. Marcell of 5402 South 27th Street, Omaha, Douglas County, Nebraska. No such certificate was filed with the Clerk of Douglas County, Nebraska. Neither plaintiff had actual knowledge or notice of the change in registered agent or address at the time the extension of credit was made or the financing statements recorded.
On December 21, 1979, plaintiffs entered into a term loan agreement and agreed to extend financing to Tri-Valley in the amount of $100,000 in consideration of which the debtor contemporaneously executed a promissory note for that amount in favor of plaintiffs and granted plaintiffs, in four financing statements, a security interest in the assets including the operating rights of the debtor. On December 28, 1979, two financing statements (one listing Tri-Valley Transportation, Inc., the other listing Service Oil Company, the former corporate name of Tri-Valley as the debtor) were filed with the County Clerk of Valley County. On January 3, 1980, duplicate financing statements were filed with the County Clerk of Hall County, the location of the debtor’s principal place of business.
Plaintiff’s proof of claim indicates an indebtedness of $94,584.80 plus accrued interest. On several occasions, plaintiffs made demand upon the defendant to abandon the assets in which the plaintiffs claimed a perfected security interest. Defendant has refused to abandon and proposes to sell the operating rights at private sale for the sum of $23,085.36.
The first issue to be resolved is the debt- or’s authority to enter into the term loan agreement and to grant the security interest. Under Nebraska Revised Statutes Section 21-20,135, a corporation may renew its corporate existence by filing with the Secretary of State a Certificate of Renewal and Revival. A certified copy of the certificate is recorded in the office of the county clerk in and for the county in which the original articles of incorporation are recorded. Upon filing with the Secretary of State, the corporation shall be revived and renewed. Neb.Rev.Stat. sec. 21 — 20,136. The stipulated facts establish that the corporate existence was effectively renewed on December 9,1979. A copy of the certificate was filed with the clerk of Valley County. Accordingly, the debtor was a corporation in good standing when it executed the term loan agreement, promissory note, and financing statements. However, a problem arose because the debtor improperly attempted to change its registered agent in the Certificate of Renewal and Revival.
Revival of a corporation requires the initial registered agent to be set forth, and filing to be made, with the county clerk where the original articles are recorded. This had been done. The statutory procedure for changing a registered agent requires the filing of a statement which sets forth the name of the previously-designated registered office as well as the name of the successor registered agent and the street address of the registered office in duplicate with the Secretary of State. The duplicate statement is then recorded in both the former county of the registered office and the new county of the registered office. Neb. Rev.Stat. sec. 21-2012. In this case, the Certificate of Renewal or Revival containing the statement of change of registered agent was filed only in Valley County, the location of the former registered office. *630No filing was made in the county of the new registered office. Neb.Rev.Stat. § 21-2012 (Reissue 1977), applicable here, provides in pertinent part,
If the statement changes the location of the registered office to another county, the statement bearing the date of the filing in the office of the Secretary of State shall be filed in both counties. Id. (emphasis added).
If the statute is construed as directory, then filing in Douglas County was not essential to the changing of registered agent. If, however, the language is mandatory, then the attempt to change registered agent and registered office failed.
While no Nebraska ease has construed Section 21-2012, the Nebraska Supreme Court in 1967 did acknowledge that a corporation need only follow the law in effect at the time of change of registered agent. Busboom v. Gregory, 181 Neb. 246, 147 N.W.2d 626, 627-628 (construing the applicable provision in effect in 1963). The Seventh Circuit has interpreted a similar statute to be mandatory in Van Ausdall v. McCanon (In re National Mills, Inc.), 133 F.2d 604 (7th Cir. 1943). The Illinois statute involved in that litigation provided that when a corporation changes its registered office from one county to another, it must file a statement of change in duplicate with the Secretary of State. The corporation had the duty to file the duplicate original in the former county and a copy of the duplicate original in the new county of the registered agent and registered office. The change in registered agents did not become effective as to third parties until the certificate of change was filed in both counties. In re Mills, supra, at 607-09. The court based its opinion on the intent of the corporate statute as a whole, finding all the provisions which are for the protection of the public or third parties are mandatory. Accordingly, the provisions of recording in both counties in the sections of the Illinois Business Act (which are similar to the respective sections of the Nebraska Business Corporation Act) were found to be mandatory and thus essential to complete the change of the registered office.
Nebraska follows no universal test by which mandatory provisions are distinguished from directory provisions. The intent must, therefore, be determined from the statute as a whole. Anderson v. Board of Educational Lands and Funds, 198 Neb. 793, 256 N.W.2d 318 (1977). After considering all of its relevant provisions, I find the language of the statute to be mandatory. Because the debtor failed to comply with the express terms of the statute, the registered agent and registered office had not been properly changed. As of the filing date of the financing statements, the registered agent and the registered office remained Glea Romans of Valley County, the original agent and office of Tri-Valley.
The applicable statute for perfecting the security agreement when plaintiffs filed on December 28,1979, Neb.Rev.Stat. section 9-401(l)(c) Supp.1978 (amended 1980) provided for filing in the county where the office of the last appointed resident agent is located. Since the attempted change of registered agent and registered office failed, the last appointed agent was Glea Romans of Valley County, Nebraska. Proper filing of the security agreement could only have been accomplished in Valley County. Plaintiffs here did so properly file.
Accordingly, the plaintiffs were the holders of a properly perfected security interest at the time of the filing of the voluntary petition in bankruptcy on January 23, 1981, and as such are entitled to possession of the operating rights and other assets which are the subject matter of their security agreements. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489244/ | MEMORANDUM
DAVID L. CRAWFORD, Bankruptcy Judge.
The question before the court is the validity of a creditor’s lien upon the debtor’s motor vehicle. The parties have submitted the matter upon stipulation only, having waived oral argument. Unfortunately, it appears that the question cannot be answered on the facts as presented. An element is missing which is fatal to resolution of this proceeding.
The parties have stipulated that on January 25, 1979, Randall Hrbek, the defendant/debtor, purchased a 1979 Ford Bronco and executed a purchase money security agreement later assigned to Associates Financial Services (Associates). The vehicle was registered and titled in Cheyenne County, Nebraska. This title (Nebraska Title No. 39F7851) was surrendered to the Colorado Department of Motor Vehicles when the debtor, then a resident of that state, executed an application for title in Morgan County on April 16,1979. Colorado Title No. E143039 was issued and mailed, pursuant to the debtor’s request, to Associates.
Within three months, Associates applied for and was issued a substitute Colorado title, this one noting the purchase-money Associates’ lien. The preexisting Colorado title was relinquished with that application, the new Colorado Title (No. E145358) being currently in Associates’ possession.
On July 23,1979, Mr. Hrbek applied for a duplicate of his original Nebraska title based upon his assertion of Nebraska residency. The notarized application for duplicate title which the debtor executed states that the original certificate or title was lost or destroyed and that the vehicle was not encumbered by any liens. The title, in fact, had been submitted to the Colorado Depart*632ment of Motor Vehicles as requisite to receipt of valid title in that state. Duplicate Nebraska title (No. 39C-0362), without notation of the Associates’ lien, was issued on that same date.
The debtor, on August 6, 1979, transferred title to his relative without consideration. The Nebraska title resulting from that transfer similarly failed to note the Associates’ security interest as did a subsequent duplicate title requested by and issued to Mr. Hrbek’s brother.
On July 21,1980, the date the debtor filed his bankruptcy petition, title to the vehicle was in debtor’s relative. However, at the first meeting of creditors in September, the debtor agreed to turn the vehicle over to the trustee. Debtor’s relative conveyed the vehicle back to debtor and the debtor received Nebraska Title No. 39F — 1444e, which likewise did not reflect Associates’ lien.
Because the vehicle was conveyed within one year of bankruptcy without consideration and without noting Associates’ security interest on the numerous Nebraska certificates, the trustee would have been empowered to avoid the transfer under § 548 of the Bankruptcy Code. It appears from the stipulation that the parties have agreed that the vehicle is indeed part of the bankruptcy estate. At the least, the parties have stipulated that the debtor agreed to the turnover of the vehicle to the trustee who would upon verification of their lien status, deliver the vehicle to Associates. The trustee, however, now claims the vehicle to be free and clear of Associates’ lien.
The validity of the security interest is governed by U.C.C. § 9-103(l)(a) and (b) which has been adopted by both Colorado and Nebraska. (Colo.Rev.Stat.Ann. § 4-9-103(l)(a), (b) and Neb.Rev.Stat.U.C.C. § 9-103(2)(b).) The applicable Nebraska statutes (Neb.Rev.Stat.U.C.C. 9-103 and 9-302) in effect when the vehicle was removed from Colorado to Nebraska were amended, effective July 19, 1980, before the debtor’s filing. The result, however, is the same under either version.
U.C.C. Section 9-103(2) applies to goods covered by a certificate of title issued by a jurisdiction where the perfection of the security interest requires notation upon the certificate itself. Both Colorado and Nebraska are such jurisdictions. When the lien was noted on the Colorado certificate, therefore, Associates’ lien was perfected. Subsequently, the vehicle was taken from Colorado to Nebraska where a “clean” certificate issued. The problem here is that the dispositive fact according to the statutory language is duplicate registration of the vehicle and not duplicate certificates of title.
Under U.C.C. 9-103(2)(b), the existence of the Colorado certificate implied that Colorado law would determine perfection for at least four months after the vehicle was removed from Colorado and for a period of time thereafter until the vehicle was registered in another jurisdiction. After the expiration of the four-month period and after registration in another jurisdiction, neither Colorado’s certificate nor perfection statutes would apply. At that moment, had any other state issued a title when the vehicle was brought into that jurisdiction, that certificate and applicable state’s perfection law would be determinative. Colo. Rev.Stat.Ann. § 4-9-103(2)(a)(b) (1974); Neb.Rev.Stat.U.C.C. § 9-103(2)(a), (b) (Cum.Supp.1978) (amended 1980); In re Howard, 9 B.R. 957, 959; 5 B.R. 505, 508-09 (Bkrtcy.D.C.V.1.1980); In re Hartberg, 25 U.C.C.Rep.Ser. 1429, 1433 (E.D.Wis.1980); J. White and R. Summus, Handbook of the Law Under the Uniform Commercial Code at 978-79 (2d ed. West 1980); Coogan, “The New U.C.C. Article 9,” 86 Harv.L.Rev. 477, 549-550 (1973).
One court has found that the term “registration” as used in U.C.C. 9-103 contemplates issuance of a certificate of title and not a non-title registration. Strick Corp. v. Eldo-Craft Boat Co., Inc., 479 F.Supp. 720, 28 U.C.C.Rep.Ser. 514, 521 (W.D.Ark.1979). I decline to read the section as requiring a certificate. Specific reference is made in Official Comments to U.C.C. section 9-103 at 4(c) to the situation in which a vehicle is registered in a second jurisdiction without issuance of a new title, indicating that a *633distinction is to be made between registration of a vehicle and procurement of a certificate of title.
Under the facts presented for consideration here, and according to U.C.C. 9— 103(2)(b), the Colorado Certificate (No. E145358), which noted their lien, would give Associates a perfected security interest in the vehicle in Nebraska for at least four months after the removal of the vehicle from Colorado. If at any time after the removal the vehicle were properly re-registered in Nebraska, then either at the expiration of the four-month period if re-registration occurred during that time or upon the vehicle’s registration after the four-month period, the Colorado certificate would no longer govern. At that point, Nebraska Certificate No. 39C-0362 would become effective and Nebraska law would determine perfection. If proper registration has occurred, Nebraska law is determinative and Associates’ lien, not properly perfected by notation on the governing certificate, will fail.
Conversely, if the vehicle were never re-registered in Nebraska after its removal from Colorado, the Colorado certificate would have remained in force. The existence of clean Nebraska title would not, in that instance, be dispositive. Since the lien would be noted on the still-effective Colorado title, Associates’ lien would be properly perfected and enforceable.
Absent the necessary information regarding this vehicle’s registration in Nebraska, I cannot determine the secured status of Associates Financial Services. Accordingly, no order resolving this dispute can be issued. | 01-04-2023 | 11-22-2022 |
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