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https://www.courtlistener.com/api/rest/v3/opinions/8489246/ | FINDINGS AND CONCLUSIONS
JOSEPH A. GASSEN, District Judge.'
The Preliminary Findings and Conclusions entered October 19, 1981 are incorporated herein. 15 B.R. 79, Bkrtcy. At the subsequent hearing on damages, held November 2, 1981, counsel confirmed that the parties have stipulated to all facts set forth in the Preliminary Findings and Conclusions which had not been specifically proven at trial. Counsel also stipulated that the amount deposited by Maryland Casualty in the registry of the court is the full balance of the amount it owes on its insurance obligation.
At the November 2, 1981 hearing, Westinghouse submitted an affidavit of costs it incurred in connection with the several liti-gations over this security agreement, (Westinghouse’s Exhibit No. 5) and a summary of additions to and reductions from the balance owed to Westinghouse by Hanson since November 15, 1977 when Westinghouse commenced the first litigation (Westinghouse’s Exhibit No. 6). Barbara Williams, district credit manager, James Foster, attorney for Westinghouse, and Terrence Russell, expert witness on attorneys’ fees, also testified for Westinghouse. No other party submitted any evidence.
The security agreement provided that the collateral would secure all indebtedness, including “all expenses, costs, and fees, including reasonable attorney’s fees, paid or incurred by Secured Party in connection with the collection of any indebtedness or the ... taking possession, realization upon, disposition or enforcement of any collateral” (Westinghouse’s Exhibit No. 2).
*737Upon consideration of the evidence, the court concludes that certain costs and a portion of the fees sought by Westinghouse cannot properly be awarded against Hanson, as will be set forth in detail below. In Westinghouse’s records of the account, (summarized on Westinghouse’s Exhibit No. 6) Westinghouse included default interest on certain amounts which this court is disallowing. No calculation was made and no evidence offered by which the court might make its own calculations, and therefore, none of the default interest included by Westinghouse is being allowed.
Foster testified as to the number of hours spent on each separate litigation, but no further break down was provided. There was no written summary, and the firm’s invoices to Westinghouse were not offered in evidence by either party. Foster testified that the hours billed to Westinghouse included paralegal and associate time, although these portions were not distinguished in the hourly summaries. At the inception of the litigation in 1977, Foster billed Westinghouse at $70-$75 per hour. At some point between then and the present, the rate was raised to $80 per hour. The Westinghouse agreement with Foster is that Foster will also receive any additional fees awarded by a court to Westinghouse. Paralegal work is presently billed at $25 per hour, and other lawyers in his firm are billed at a rate lower than $80 per hour.
The hours expended by Foster’s firm, as testified to, were as follows:
30.3 hours — State court replevin action against Capeletti, and sale of one drag-line.
10.4 hours — Intervention in Hanson’s state trial court action against Maryland Casualty.
10.6 hours — Intervention appeal.
17.3 hours — Bankruptcy court proofs of claim and complaint and motion for adequate protection and to lift stay.
29.6 hours — State court action against Hanson before bankruptcy and after stay was lifted.
52.9 hours — Defense of this interpleader action until the November 2, 1981 hearing.
10 hours — Estimated time spent on the day of the further hearing.
All these matters came within the terms of the security agreement because, at the time each was undertaken, it was necessary or reasonable for the protection or enforcement of the security agreement.
The litigations occurred in Bro-ward, Dade and St. Lucie counties. The attorney employed by Westinghouse maintains his office in Orlando. While there may be a saving to Westinghouse (and therefore to Hanson) in using only one attorney, rather than having two or three acquaint themselves with the facts, there is also an additional cost in attorney’s time and travel expenses, especially as here, where none of the litigation was in Orlando. The evidence is insufficient to determine what proportion of the hours billed is related to travel, and the court will assume that the considerations balance out as to hours spent. However, attorney travel expenses will not be allowed. Similarly, although a creditor cannot be penalized simply because collection procedures are expensive, the court cannot ignore a consideration of the result achieved by an attorney for his creditor-client. Here the loan balance at the time litigation commenced was approximately $20,000, and Westinghouse seeks attorneys’ fees of $18,000. Upon consideration of all these factors, fees will be allowed in the following amounts:
$2,250 — Replevin and sale.
$1,500 — Intervention in trial court and on appeal.
$1,500 — Bankruptcy Court adequate protection action.
$2,000 — State court action against Hanson (default judgment).
$2,500 — Bankruptcy Court interpleader action.
The costs enumerated in Foster’s affidavit (Westinghouse’s Exhibit No. 5) include the totals of $3,030 and $1,578 shown on Westinghouse’s Exhibit No. 6, although no dates are given on either exhibit. There are, additionally, plane fare, rental car, expert witness fee, court reporter, and repos*738session costs listed on Westinghouse’s Exhibit No. 6. Certain of the items listed have insufficient information to determine whether they were necessary or related expenses, such as “George Black/mileage” and others will be disallowed because the court concludes that there is no reason for them to be allocated as an expense against Hanson. All items for photocopies, telephone, postage, car rental, plane fare and hotel will be disallowed.
Ms. Williams testified that costs connected with the sale of the second dragline, in the amount of $1,937, were deducted prior to the application of net proceeds of $14,062 against the Hanson debt. She also testified that there were “repossession costs” of $1,600, which amount is listed on Westinghouse’s Exhibit No. 6. This does not provide the court sufficient information to determine that the $1,600 of costs are allowable, and since Westinghouse already deducted the costs of sale, the $1,600 item will be disallowed. For the same reason, the cost of advertising in the Miami Herald the notice of sale, for $321.76, (listed on Westinghouse’s Exhibit No. 5) will be disallowed, because Ms. Williams testified that it related to the sale of the dragline.
The costs from Westinghouse’s Exhibit No. 5 which will be allowed are itemized below:
Clerk Circuit Court/filing fee $ 30.00
Clerk Circuit Court/bond approval fee 5.00
Sheriff, Broward Co./service 12.00
Sheriff, Dade Co./service 7.50
Sheriff, St. Lucie Co./service 7.50
Sheriff, Broward Co./service 24.00
Bond premium 1,700.00
Clerk Circuit Court — appeal fee 12.00
Clerk District Court 50.00
Clerk Circuit Court, Bro-ward Co./filing 44.00
Sheriff Broward Co./service 36.00
Insurance Commissioner 5.00
Clerk Bankruptcy Court/filing fee 77.00
Old South Detectives 325.00
Evert Hanson/witness fee 10.00
Ron Prekup — service of Hanson Subpoena 20.00
Corp. Info. Services/UCC search 14.00
Broward Reporting 184.15
Sheriff, Broward Co./docket execution 10.00
Clerk/Broward — record Final Judgment 7.00
Clerk/certified copy of Final Judgment 3.00
Corp. Info Services— UCC search 22.50
Clerk Circuit Court/certified copies 7.00
Tim Wesloski/witness fee & mileage 52.25
Clerk/certified copy 2.00
U. S. Marshal/service of subpoena 5.60
Bankruptcy Court/copies of opinion 5.50
The costs on Westinghouse’s Exhibit No. 6 which are allowed are expert witness fees of $350 and court reporter expenses of $169.92.
On the basis of the court’s findings, attorneys’ fees totaling $9,750 and costs totaling $2,678 will be included in the Westinghouse lien. Westinghouse had calculated the total debt, to the date of the last hearing, as $29,852.74. Subtracting from that figure $8,250 in fees and $3,724 in costs (from both Exhibits Nos. 5 and 6 of Westinghouse) which Westinghouse included but the court is disallowing, the amount of the debt on the date of the last hearing was $17,878.74. Interest for the period November 3 — December 31, 1981 at ten percent is $289, making the total amount of Westinghouse’s lien $18,167.74.
Under any theory, Casteel’s charging lien would amount to more than the balance remaining in the registry of the court. Therefore the court does not determine the exact, full amount he would otherwise be entitled to. This is without prejudice to a later determination of the extent of Cas-teel’s unsecured claim if such a determination is necessary.
Maryland Casualty has sought attorneys’ fees and costs. It has shown no basis and the court knows no basis of an award of attorneys’ fees. No evidence was presented as to either fees or costs. Therefore the court will award Maryland Casualty Com*739pany costs of $60 for the interpleader filing fee.
Pursuant to B.R. 921(a), a separate Final Judgment incorporating these Findings and Conclusions is being entered this date.
FINAL JUDGMENT
This cause came before the court on the complaint in interpleader of Maryland Casualty Company and the cross-claim of Westinghouse Credit Corporation. Preliminary Findings and Conclusions were entered on October 19,1981 following the original trial of this matter, 15 B.R. 79, Bkrtcy. and Findings and Conclusions are being entered this date, following the further hearing which was set by the court. These Findings and Conclusions are incorporated herein.
The court finds that in connection with Policy # CM-69655267 issued by Maryland Casualty Company for the bulldozer described as one (1) used 1974 Caterpillar D-5 Tractor, Serial No. 96J 4443, ROPS, Power Shift, All Guards, Draw Bar, the lien of Westinghouse Credit Corporation has a first priority on the proceeds, and the attorneys’ charging lien of Cabot, Wenkstern & Casteel has priority over the trustee.
The total amount of the Westinghouse lien is $18,167.74, and it is entitled to be paid that full amount. The lien of Cabot, Wenkstern & Casteel is no less than the remaining balance of the proceeds. Maryland Casualty Company will be awarded $60 in costs. It is, therefore,
ORDERED and ADJUDGED that the Clerk of this Court shall disburse to Westinghouse Credit Corporation, c/o James E. Foster, Esquire, 170 East Washington Street, Orlando, Florida 32801, the sum of $18,713.19; to Cabot, Wenkstern & Casteel, 2190 S.E. 17th Street, Suite 225, Fort Laud-erdale, Florida 33316, the sum of $8,500; and to Maryland Casualty Company, c/o Paul Regensdorf, Esquire, Post Office Drawer 7028, Fort Lauderdale, Florida 33338, the sum of $60. Interest, if any, earned on the funds in the registry of the court shall be paid to the United States government.
The interpleader sought by Maryland Casualty Company is granted, and Maryland Casualty Company be, and it is hereby, discharged from any further liability to or claims by Westinghouse Credit Corporation, in connection with Policy # CM-69655267.
The trustee is directed to execute a satisfaction of all judgments rendered in favor of Hanson Dredging, Inc., and against Maryland Casualty Company and United States Fidelity & Guaranty Co. in the action styled “Hanson Dredging, Inc., a Florida corporation, Plaintiff vs. Maryland Casualty Company, Defendant,” in the Circuit Court of the Seventeenth Judicial Circuit in and for Broward County, Florida, Case No. 76-10806, within twenty-one (21) days of the date of this Final Judgment.
The court retains jurisdiction of this cause for the purpose of entering such other and further orders as may be necessary to effectuate the intent of this Final Judgment. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489247/ | FINDINGS OF FACT AND CONCLUSIONS OF LAW AS TO COMPLAINT NUMBER 81-0611-BKC-SMW-A (EXCLUDING COUNTS III AND IV) AND COMPLAINT NUMBER 81-0379-BKC-SMW-A (COUNT II OF THE OHIO CASUALTY INSURANCE COMPANY’S COUNTERCLAIM)
SIDNEY M. WEAVER, Bankruptcy Judge.
THIS CAUSE having come before the Court upon a Complaint filed by the Debt- or-in-Possession, Number 81-0611-BKC-SMW-A, excluding Counts III and IV which have been severed for later determination, against the First Federal Savings and Loan Association of the Florida Keys (herein First Federal) and Count II of The Ohio Casualty Insurance Company’s (herein Ohio) Counterclaim in Adversary Proceeding Number 81-0379-BKC-SMW-A, with said cases having been consolidated for purposes of trial by an Order dated November 16, 1981, in adversary proceeding number 81-0611-BKC-SMW-A, and the Court having heard the testimony and examined the evidence presented; observed the candor and demeanor of the witnesses; considered the arguments of counsel and being otherwise fully advised in the premises does hereby make the following findings of fact and conclusions of law:
1. This Court has jurisdiction of the parties hereto and the subject matter hereof, pursuant to Title 28 § 1471 of the United States Code.
FINDINGS OF FACT
2. The Plaintiff, Monroe County Housing Corporation, Inc. (Debtor-in-Possession), *743is a Florida corporation not-for-profit, and is the owner of a real estate project consisting of approximately 16.74 acres of real property and 130 units of low income housing located in Marathon, Florida.
3. The Defendant, First Federal, is a United States corporation, and is the construction lender for the project.
4. The Counterclaimant, The Ohio Casualty Insurance Company, is an Ohio corporation and is the Performance and Payment Bond Surety for the project.
5. All housing units of the project have qualified for, and will be the recipient of rental assistance payments under Section 8 of the United States Housing Act of 1937.
6. Financing for the project has been provided through construction and permanent loans made by First Federal and other participant lenders. This financing consists of a $4,725,000 thirty year loan at TU% per annum interest (tax free) and a $650,000 twenty-eight year and nine month loan at 10V2% per annum interest (also tax free).
7. First Federal is holding approximately $265,896.79 in undisbursed funds from the subject loans in a construction loan account.
8. First Federal and the Debtor entered into a construction loan agreement of even date with the $4,725,000 mortgage, which was incorporated into later modifications, and which provided in paragraph 2 thereof, as to the construction loan proceeds, in material part, as follows:
2. Funds represented by the aforesaid mortgage indebtedness shall be disbursed by the mortgagee at the times and under the terms and conditions following:
(a) Subject to the provisions hereof, such funds shall be disbursed or advanced from time to time as construction of the improvements has progressed as follows: * * * * * *
3. The balance of the net loan proceeds shall be payable upon full completion of the project and subject to final inspection approval by the mortgagees, and final acceptance and approval by HUD.
(b) All monies disbursed hereunder shall be used solely on account of construction costs for the improvements on the hereinabove described property and expenses of the construction loan and no such monies shall be diverted or borrowed for use on any other project.
9. Both the Debtor and First Federal are obligees under the Performance and Payment Bond issued in connection with the project by The Ohio Casualty Insurance Company, the Surety.
10. Pursuant to an alleged default of the contractor during the construction, the Surety undertook to complete the construction of the housing project in accordance with the provisions of the Performance and Payment Bond.
11. At no time material hereto did First Federal indicate that the Balance of the construction loan account would not be available for the costs of completion of the project and did in fact give verbal and written assurance to both the Surety and the Debtor that funds remained in the construction loan account to pay the costs of completion of the project.
12. First Federal made affirmative representations to the Surety, both prior and subsequent to the surety’s undertaking to complete the project, that sufficient funds existed in the construction loan account to complete the project.
13. The Surety relied upon the existence of construction loan funds and has expended in excess of $299,000 in costs of completion beyond payment received from the lender or owner.
14. At no time material hereto did First Federal ever notify the Debtor or the Surety of an acceleration or maturity of the obligations but did, after the asserted maturity dates, in fact, continue disbursing interest to itself, continued paying other costs of the project to other parties and made construction draw payments to the Surety from the construction loan account.
15. It is uncontroverted that the project is complete subject to a minor punch list; *744the certificates of occupancy have been issued and the project is occupied.
16. It is uncontroverted that the appraisal value of the project far exceeds the total amount of the construction loans.
17. No evidence was presented by First Federal to give any subcontractor, laborer or materialman any right to file a lien upon the subject property or make any claim against the undisbursed funds in the construction loan account.
18. The $265,896.79 balance in the construction loan account constitutes property of not inconsequential value to the estate of the Debtor.
19. The Debtor has cured the incident of default in the mortgages and notes triggering the alleged maturities by tendering to First Federal the executed HUD Housing Assistance Payment Contract (HAP), effective October 6, 1981 and has demonstrated the ability to pay all past due mortgage payments under its plan. The notes provide for amortizing payments of both principal and interest to begin the month after execution of the HAP Agreement.
CONCLUSIONS OF LAW
On the bases of the foregoing facts the Court makes the following conclusions of law:
AS TO THE OHIO CASUALTY INSURANCE COMPANY:
20. First Federal asserted that there exists no construction loan funds because of the maturity dates of the notes and mortgages dated February 25, 1981 and April 1, 1981 and further urged that the Surety was not entitled to rely upon the representations which it made as construction lender concerning the availability of funds. The cases relied upon by First Federal do not involve a Surety relationship, as here, where the construction lender is a named obligee and further do not involve loans upon which there remains undisbursed construction loan funds. The authorities relied upon by First Federal are distinguishable.
21. The doctrine is well established that a Surety having made good under its contract of suretyship has an equitable right of subrogation against any sums remaining in the hands of a person for whose protection the contract of suretyship was given. Pearlman v. Reliance Ins. Company, 371 U.S. 132, 83 S.Ct. 232, 9 L.Ed.2d 190 (1962); Henningsen v. United States Fidelity & Guaranty Company, 208 U.S. 404, 28 S.Ct. 389, 52 L.Ed. 549 (1908); Prairie State Nat. Bank v. United States, 164 U.S. 227, 17 S.Ct. 142, 41 L.Ed. 412 (1896); Trinity Universal Insurance Company v. United States, 382 F.2d 317 (5th Cir. 1967); Midtown Bank of Miami v. Travelers Indemnity Company, 366 F.2d 459 (5th Cir. 1966); and McAtee v. United States Fidelity & Guaranty Company, 401 F.Supp. 11 (N.D.Fla.1975).
22. First Federal has received and enjoys the benefits of the security anticipated by the construction loan and to allow First Federal to hold the funds and continue to retain the full security anticipated by the construction loans is unequitable and would effectively afford to the Bank an unjust enrichment. Upon analogous facts, Florida Courts have held that a Contractor is entitled to an equitable lien against the undisbursed construction loan proceeds. The Surety is entitled to all of the rights of its Principal and Contractor and therefore is entitled to the funds remaining in the hands of First Federal against the claim of the Bank to retain those funds. See, Blosam Cont., Inc. v. Republic Mortg. Inv., 353 So.2d 1225 (Fla. 2d DCA 1977) and Morgen-Oswood & Assoc., Inc. v. Continental Mortgage Investors, 323 So.2d 684 (Fla. 4th DCA 1975).
23. Although not necessary to the conclusion herein reached, First Federal is estopped to rely upon the maturity dates since its conduct in assuring the Surety of the existence of funds and continuing to fund the construction constitutes action which affirmatively misled the Surety to induce it to continue to work and complete the project at substantial unreimbursed costs. Cf., J. G. Plumbing Service, Inc. v. Coastal Mortgage Co., 329 So.2d 393 (Fla. 2d DCA 1976).
*745AS TO THE DEBTOR-IN-POSSESSION:
24. First Federal has benefited substantially from the increase in the value of its security resulting from the expenditure of the construction loan funds. First Federal would be unjustly enriched if it were permitted to enjoy the benefits of both the $265,896.79 fund and the increase in value of its security resulting from the labor of the Debtor in completion of the project.
25. The actions of First Federal in continuing to disburse funds in accordance with the executory mortgages and in representing to the Debtor that the balance in the construction loan account would be available for completion of the project induced the Debtor to continue to work toward completion of the project. It would therefore be inequitable to deprive the Debtor of the use of the funds in the construction loan account for payment of costs of completion.
26. Section 105 of the Bankruptcy Code provides that the Bankruptcy Court may issue any order, process, or judgment that is necessary or appropriate to carry out the provisions of Title 11 of the United States Code.
27. Section 105 is a broadly phrased provision intended to form the basis for an extensive exercise of judicial power during the course of administration of a case under Title 11. See In the Matter of R. S. Pinellas Motel Partnership v. Ramada Inns, Inc., 2 B.R. 113, 1 C.B.C.2d 349 (M.D.Fla.Bkrtcy.1979); Matter of Aurora Cord and Cable Co., 2 B.R. 342, 1 C.B.C.2d 486, 491 (N.D.Ill.Bkrtcy.1980).
28. A turnover of the $265,896.79 pursuant to Section 542 of the Bankruptcy Code under the authority of Section 105 is particularly appropriate in this case, since the use of the balance of the funds in the construction loan account was intended by all parties, at all material times, to be used in connection with the completion of the project.
AS TO BOTH DEBTOR-IN-POSSESSION AND SURETY:
29. Based on the testimony and evidence as reflected by the foregoing Findings of Fact, the acts and conduct of First Federal precludes the asserted effect of the maturity of the mortgages and notes as claims by First Federal.
30. This Court reserves ruling on the Debtor-in-Possession’s request that First Federal be declared unimpaired under its plan, although the Court recognizes that even though First Federal may have had accelerated or matured mortgages prior to the filing of the Chapter 11 petition, the Bankruptcy Code authorizes deacceleration if defaults are cured and maturities reinstated pursuant to § 1124(2).
31. The Court need not determine here whether First Federal had accelerated or matured mortgages by reason of the fact that § 1124(2) would authorize reinstatement of the obligations since the only defaults demonstrated such as the lack of execution of the HUD Housing Assistance Payment Agreement have been cured already and since the payment of all past due payments has béen provided for in the Debtor’s plan of reorganization.
32. The uncontroverted evidence indicates that reinstatement of the maturity of First Federal’s mortgages in accordance with the Bankruptcy Code would not otherwise damage or otherwise alter First Federal’s contractual rights, and that Congress intended mortgage maturities to be reinstated in situations such as the one presently before the Court in § 1124(2).
33. First Federal’s claim was filed in an accelerated or matured amount and that claim is disallowed in favor of a claim for all payments actually unpaid under the mortgages, which claim is allowed.
34. The Debtor-in-Possession’s objections to certain interest payments and objection to the claim regarding participant lenders contained in the Complaint were not relied on by the Debtor-in-Possession at the trial and need not be the subject of any decision here.
*74635. The Debtor-in-Possession must arrange to pay all past due interest payments under First Federal’s mortgage and must pay amortizing payments of both principal and interest beginning November 1, 1981 and all subsequent months.
36. These Findings of Fact and Conclusions of Law and the Partial Final Judgment of even date address themselves only to Complaint Number 81-0611-BKC-SMW-A, excluding Counts III and IV, and Complaint Number 81-0379-BKC-SMW-A only as to Count II of The Ohio Casualty Insurance Company’s Counterclaim.
37. These Findings of Fact and Conclusions of Law and the Partial Final Judgment as to the remaining portions of the Complaints do not decide the issue of whether the Debtor-in-Possession or The Ohio Casualty Insurance Company is entitled to the $265,896.79 balance in the construction loan account. The Court reserves ruling upon that question, pending resolution in a separate adversary proceeding and the main proceeding.
A judgment will be entered in accordance with these findings and conclusions.
PARTIAL FINAL JUDGMENT AS TO COMPLAINT NUMBER 81-0611-BKC-SMW-A (EXCLUDING COUNTS III AND IV) AND COMPLAINT NUMBER 81-0379-BKC-SMW-A (COUNT II OF THE OHIO CASUALTY INSURANCE COMPANY’S COUNTERCLAIM)
In conformity with the Findings of Fact and Conclusions of Law of even date, in Case Number 81-0611-BKC-SMW-A, excluding Counts III and IV which have been severed for later determination, against First Federal Savings and Loan Association of the Florida Keys and Count II of The Ohio Casualty Insurance Company’s Counterclaim in Adversary Proceeding Number 81-0379-BKC-SMW-A, it is:
ORDERED, ADJUDGED AND DECREED:
1.That First Federal Savings and Loan Association of the Florida Keys turn over to the Debtor-in-Possession the sum of $265,-896.79, with said sum representing the balance of funds in the construction loan account, to be held in escrow in an interest bearing account pending further Order of this Court.
2. First Federal Savings and Loan Association of the Florida Keys’ claim in its accelerated or matured amount is disallowed and the Debtor-in-Possession shall pay all past due interest payments and amortizing payments of both principal and interest beginning November 1, 1981 and all subsequent months.
3. The Debtor-in-Possession’s Counterclaim Counts III and IV will be considered in separate final judgments. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489248/ | ORDER ON APPLICATION FOR TURNOVER OF TITLE WITH LIEN CANCELLED
R. J. SIDMAN, Bankruptcy Judge.
Arnold and Verdell Phillips, Chapter XIII debtors, have made application to this Court to require Germain, Inc. to release its lien on the Ohio certificate of title to a 1974 Mercury owned by Verdell Phillips and to turn the title to the vehicle over to the debtors. A stipulation of facts has been entered into by the parties which provides:
1. On October 18,1978, the debtors filed a Chapter XIII Wage-Earner Plan.
2. Germain, Inc. was a creditor properly listed and noticed of the Wage-Earner Plan.
3. Germain, Inc. did not file a timely secured proof of claim in this Chapter XIII proceeding.
4. Germain, Inc. was denied, by this Court on September 11, 1979, permission to file a late proof of claim.
5. The debtors successfully completed their Wage-Earner Plan and were released from all dischargeable debts on February 23, 1981, including the debt formerly owed this creditor.
*7776. Through various letters and phone calls debtors, through counsel, unsuccessfully attempted to have Germain, Inc. voluntarily release the lien in question.
7. Debtors previously made application to this Court for an order directing Ger-main, Inc. to release its lien on the 1974 Mercury owned by Verdell Phillips.
8. On September 11, 1979 that application was denied by this Court because of the “absence of adequate authority cited” and because of this Court’s refusal “to speculate as to what authority may or may not support this motion.”
9. Debtors herein have again made application to this Court for an order directing Germain, Inc. to release its lien on the 1974 Mercury owned by Verdell Phillips on September 18, 1981.
The debtors contend that their successful completion of their Chapter XIII plan should result in a release of the lien of Germain on the 1974 Mercury automobile. The defense of Germain is, essentially, that this Court’s failure to rule in favor of the debtors on an earlier similar application should bar any consideration of the debtors’ present application, and that, in any event, there exists no legal authority for the granting of the application as filed.
Germain freely admits that had it properly filed its claim in the Chapter XIII cases of the Phillips it would have been appropriately paid the value of its collateral during the course of the Chapter XIII cases and would have no reason not to release the lien on the vehicle owned by Verdell Phillips. Not only did Germain miss the time period provided for in Rule 13-302(e)(l) for the filing of a secured claim, it further failed to file a claim within the six-month time period provided for in Rule 13-302(e)(2) of the Rules of Bankruptcy Procedure. This Court ruled, in an order dated August 8, 1979, that Germain’s failures in this regard were not excusable in any respect, and thus the Court denied the right to Germain to file any claim in the Chapter XIII cases. As a result, Germain received no dividend from the Chapter XIII trustee, a result for which it has only itself to blame.
Germain seeks to soften the impact of its failure to file a proof of claim in the Phillips’ Chapter XIII cases by now refusing to remove its lien from a certificate of title on the 1974 Mercury automobile owned by Verdell Phillips. This Court finds that the confirmation of the Phillips’ Chapter XIII cases was binding on all creditors, and especially on any secured creditor who failed to file a timely proof of claim. See General Finance Corp. v. Tatum (In re Tatum), 1 B.C.D. 1374 (M.D.Ga.1975). In addition, it has also been held that post-Chapter XIII discharge attempts to enforce lien rights of a secured creditor can be contemptuous. See In re Person, 1 B.C.D. 642 (E.D.Va.1975). It hardly seems an acceptable result to allow a creditor to frustrate the effect of a Chapter XIII discharge by failing to release its lien which remains unpaid only because of its unexcused default in filing a proof of claim.
This Court finds that the issues raised by the debtors at this time are not res judicata by reason of this Court’s prior order of September 11, 1979 — that ruling, while denying a previously filed motion seeking similar relief, plainly did not deal with the merits of the motion but merely indicated that in the absence of appropriate authority the Court would not at that time grant the relief requested in the motion. This Court hereby finds that §§ 657 and 660 of the Bankruptcy Act of 1898 (formerly 11 U.S.C. §§ 1057 and 1060, now repealed) are sufficiently broad in scope to permit this Court, under its equitable powers, to order Germain, Inc. to cancel its lien on the 1974 Mercury owned by Verdell Phillips and to turn over the free and clear certificate of title to Verdell Phillips. This Court so orders Germain, Inc. in this case.
The Court hereby declines to award any costs or attorneys’ fees in favor of either party in this matter.
IT IS SO ORDERED. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489249/ | MEMORANDUM
CLIVE W. BARE, Bankruptcy Judge.
In this Chapter XI Bankruptcy Act case, filed November 1, 1971 (No. 71-844, Eastern District of Kentucky), the debt- or/Foundation has objected to the allowance of two claims: (1) the claim of Dr. Ernest Earl Musgrave, Jr., in the amount of $1,563,400.00; (2) the claim of Florene Mus-grave Simpson (Mrs. Musgrave), in the amount of $2,000,000.00. In addition, the debtor seeks affirmative relief against Dr. Musgrave in the amount of $8,582,837.18; *876Mrs. Musgrave in the amount of $6,246,561.01.1 The Musgraves’ claims arise from the sale of a hospital and related properties to the Jenkins Clinic Hospital Foundation, the debtor (hereafter, debtor or Foundation), in 1969. The debtor’s counterclaims allege violation of Kentucky Blue Sky laws; Rule 10(b) promulgated by the Securities and Exchange Commission; fraud; misrepresentation; and breach of fiduciary duties. Trial was held August 3, 4, and 5, 1981. Post-trial briefs have been filed.
I
In April 1957 Dr. Ernest Earl Musgrave, Jr. began the practice of medicine in Jenkins, Kentucky, a small town in Southeastern Kentucky near the Kentucky-Virginia border. In June 1962 he opened the first wing of the Jenkins Clinic Hospital, a facility with 20 beds, a delivery room, operating room, scrub room, and recovery room. According to Dr. Musgrave, the hospital was unique in that it was Kentucky’s first all-electric hospital. Subsequently, a second and a third wing were added which increased capacity to 106 beds.
Between 1962 and 1963 three corporations were formed by Dr. and Mrs. Mus-grave to control the operations and property of the hospital.2 The hospital was owned and operated by Jenkins Clinic Hospital, Inc. The hospital’s laboratory was owned by Jenkins Clinic Laboratory, Inc. The real property including several residences were owned by E & F Realty Company, Inc. The stock of these corporations was principally owned by the Musgraves.3 Dr. Musgrave served as the president of the corporations and Mrs. Musgrave served as secretary-treasurer. In addition, the Musgraves constituted the boards of directors, holding periodic board meetings.
Dr. Musgrave served as medical director of the hospital until 1969. From 1969 until 1973, he worked at the hospital as a staff physician. On August 19, 1971, he filed a petition in bankruptcy (No. 71-831, Eastern District of Kentucky). Herman Dotson was appointed and continues to serve as trustee. Since 1973, Dr. Musgrave has practiced medicine in Paintsville, Kentucky.
Mrs. Musgrave served as hospital administrator from the creation of the hospital until August 1970. Since that date, she has had no further connection with the hospital. The Musgraves were divorced in February 1969.
II
In July 1966 Congress established the Medicare program to provide medical insurance for aged and disabled persons. In July 1967 Kentucky developed its Medicaid program which operated under the same “reimbursement rate” as the Medicare program. The Jenkins Clinic Hospital participated in these programs. Periodic payments would be made to the hospital based on a per diem rate fixed by Medicare. At the end of each fiscal year, after an audit was completed, an “allowable cost” figure was determined. This “allowable cost” figure was then used to determine the amount of reimbursement the hospital was entitled to receive for that year. If a greater amount had been advanced by Medicare during the year, the hospital was required to refund the overpayment.
Prior to 1969, the hospital had experienced difficulty with the Medicare/Medicaid program. As a result of an audit conducted by Medicare, certain hospital costs were disallowed.4 Medicare requested that these overpayments be refunded. After an *877administrative hearing in Chicago in February 1970 the hospital was found to owe Medicare/Medicaid in excess of $400,000. No appeal from this administrative determination was taken by the hospital.5
In 1969 the hospital was experiencing cash flow problems. According to the Mus-graves, the major cause was the delay encountered in obtaining Medicaid/Medicare payments. In addition, the Musgraves had been unable to obtain long-term financing for the various additions to the hospital. As a result, construction had been financed by the use of short-term borrowing.
Ill
Prior to 1969 Dr. Musgrave became aware that the Medicaid/Medicare organizations disapproved of the private ownership of hospitals. See Coll.Ex. 11, July 14, 1966, letter from Duane Harper to Florene Musgrave. Similarly, Medicare had expressed disapproval of the separation of the Jenkins Hospital into three separate corporations, all owned by the Musgraves. The problems with Medicare/Medicaid, the failure to obtain long-term financing, and probably other reasons, which are not too clear from the record, resulted in a decision by the Musgraves to transfer the assets of the hospital corporations to the Jenkins Clinic Hospital Foundation, Inc., which previously had been operated by them as a home health care service. Dr. and Mrs. Musgrave apparently constituted the Board of Trustees.
Telephone calls and personal contacts were made by the Musgraves and others with individuals who would constitute a new and enlarged Board of Trustees. These contacts resulted in a meeting in October 1969 with prospective members of the new Board.
Those invited to become trustees included Ray Mullins, the Superintendent of Industrial Relations for Beth Elkhorn Corporation; James M. Caudill, a county judge and banker; Dr. Arthur Nash, a practicing physician at the hospital; Joe Eversole, a pharmacist and owner of • a local drug store; Elsworth Knight, an engineer; Raymond Collins, a businessman, legislator and preacher; William Hettisheimer, an insurance man who had assisted the hospital with its insurance program; Bill Clarke, a pharmacist; and Richard Cooper, an attorney who served only about a month.
In October 1969, when the new Board was organized, Dr. and Mrs. Musgrave resigned from the Board.
The evidence is conflicting as to whether the financial condition of the hospital and its related facilities were discussed at the October meeting. Witnesses testifying on behalf of the Foundation generally state that financial conditions were not discussed either at the October meeting or at a subsequent meeting in November. They also insist that the hospital’s problems with Medicare/Medicaid were not brought up. Witnesses testifying on behalf of the Mus-graves insist that the contrary is true — both the financial condition of the hospital and the Medicare/Medicaid problems were fully discussed.
On November 20,1969, a stock agreement was executed by the Musgraves and Joseph Mellot, the stockholders of the three corporations, and by Arthur Nash as President of the Jenkins Clinic Hospital Foundation, Inc. The agreement provided for the purchase of the hospital facilities and required the Foundation to deliver to the stockholders promissory notes for the $2,000,000 purchase price. Ex. 1. Mrs. Musgrave received a promissory note in the amount of $433,000, Ex. 9, and Dr. Musgrave received a note for $1,563,400, Ex. 8. The purchase price was subject to adjustment on the basis of an appraisal “to be made by such appraisers as are acceptable to the Foundation and its Stockholders.” Ex. 1.
The new Board took over the hospital and related facilities on December 1, 1969. Shortly thereafter, the Board of Trustees employed Joe P. Gorman, an experienced real estate agent and appraiser from Haz*878ard, Kentucky, to conduct an appraisal of the hospital, the real estate, and the residences. After a meeting with the board, Mr. Gorman inspected the property and, after this inspection, appraised the property at $1,910,800.00. Ex. 1, June 10, 1981, Deposition of Joseph P. Gorman.
Subsequently, in January 1970, new notes were executed by the Foundation to replace the former notes given to the Musgraves, each being in the amount of $997,300.
IV
In 1971 the Jenkins Clinic Hospital Foundation, Inc. filed a petition for an arrangement under Chapter XI of the former Bankruptcy Act. 11 U.S.C. § 701, et seq. (Repealed 1978). Thereafter, Mrs. Mus-grave filed a proof of claim in the amount of $2,000,000. Herman Dotson, as trustee in bankruptcy for Dr. Musgrave, filed a proof of claim in the amount of $1,563,-400.00.6
On March 22 and August 23, 1978, the Foundation filed objections to the Mus-graves’ claims. In addition, the Foundation filed counterclaims against Mrs. Musgrave seeking judgment in the amount of $6,246,-561.01, and against Dr. Musgrave seeking judgment in the amount of $8,582,837.18.
The Foundation maintains that in the sale of the hospital facilities to the Foundation, Dr. and Mrs. Musgrave fraudulently and intentionally misrepresented certain material facts and omitted other material facts. The Foundation alleges these misrepresentations and omissions were relied upon by the Foundation to its detriment. Specifically, the Foundation insists that the Musgraves either omitted information or provided false information to Joe Gorman, the appraiser, concerning the assets, liabilities and earnings of the hospital so that the appraisal given by Gorman was based on false and incomplete information. The Foundation says the Musgraves also understated the amount claimed by Medicare/Medicaid. The Foundation also argues that, while acting in a fiduciary capacity, Dr. Musgrave authorized payment of corporate funds to himself and others in the amount of $87,401.63, and that Mrs. Mus-grave authorized payments to herself and others in the amount of $37,053.00. According to the Foundation, the Musgraves also violated their fiduciary duty by authorizing the transfer of a $40,000 house owned by the Foundation to Joe Eddie Eversole for $15,000. In addition, the Foundation claims that Dr. and Mrs. Musgrave are indebted to the Foundation in the amount of $29,385.55 and $18,508.01, respectively, for unauthorized disbursements to themselves and to other persons while acting in a fiduciary capacity.
The Foundation insists that the notes executed to the Musgraves for the purchase of the hospital facilities were executed as the result of false representations; that said notes resulted from the use and means of instrumentalities of interstate commerce and the mails of the United States, in violation of Rule 10(b) of the Securities Exchange Act of 1934.
Similarly, the Foundation contends that the Musgraves’ omissions and untrue statements of material facts operated as a fraud and deceit upon the Foundation in violation of Kentucky’s Blue Sky Law. K.R.S. § 292.320. The Foundation seeks damages pursuant to K.R.S. § 292.480.
The Foundation asks that the Musgraves’ claims be disallowed, that judgment be rendered against Dr. Musgrave in the amount of $8,582,837.18, and that judgment be rendered against Mrs. Musgrave in the amount of $6,246,561.01.
The Musgraves deny they are guilty of any fraud, deceit, or breach of fiduciary duty. In addition, both Dr. and Mrs. Mus-grave argue that the relief requested in the debtor’s counterclaim is barred by the statute of limitations, estoppel, waiver, and laches. Also, Mrs. Musgrave in a third party complaint against the Foundation alleges that it had defaulted on its obligations to her under the stock purchase agreement *879and that she should be restored to ownership of the assets transferred to the Foundation.7 In addition, Mrs. Musgrave seeks judgment against the Foundation in the amount of $1,995,000.00, with SV‘¿% interest per annum from December 1, 1969. Dr. Musgrave, in a third party complaint, also seeks judgment in the amount of $1,563,-400.00, plus interest at the rate of 8V2% per annum from December 1, 1969.
V
In order for fraud to be actionable, there must be a material representation which is false and which is known to be false at the time it is made, or which is made recklessly without knowledge of its truth. Further, the statement must have been made with the intention of inducing someone to act, and that person must, in fact, have acted in reliance upon the statement and be injured thereby. Scott v. Farmers State Bank, 410 S.W.2d 717 (Ky.App.1966).
An affirmative falsehood is not required to support a finding of an actionable misrepresentation. Minish v. Huey, 482 F.2d 500 (6th Cir. 1973). The courts of Kentucky have held that concealment of the facts can constitute actionable fraud.
“... [M]ere silence with respect to something related to a transaction is not necessarily misrepresentation and does not itself constitute fraud. However, it is otherwise when the circumstances surrounding a transaction impose a duty or obligation upon one of the parties to disclose all the material facts known to him and not known to the other party. The suppression or concealment of the truth under such circumstances may constitute a means of committing a fraud as well as misrepresentation openly made. Since the beginning of our jurispurdence, the principle has been consistently adhered to that the concealment by a seller of a material defect in property being sold, or the suppression by him of the true conditions respecting the property, so as to withhold from the buyer information he is entitled to, violates good faith and constitutes deception which may relieve the buyer from an obligation or may permit him to maintain an action for damages or to vacate the transaction (citations omitted).” Hall v. Carter, 324 S.W.2d 410, 412 (Ky.App.1959).
The case of Hall v. Carter, supra, illustrates that, when the sale of real estate is involved, the Kentucky courts impose an affirmative duty on the seller to tell the salient facts within his knowledge. In that case, Carter purchased an apartment house and lot from Hall and Reynolds. Carter left a check for the $17,000 purchase price with an officer of the bank who was also holding an executed deed. Carter notified the bank not to deliver the check when he learned there was a dispute as to the back boundary of the lot; i.e., whether the lot was 60 feet in depth as per the deed, or 56 feet in depth as claimed by the adjoining landowner. In fact, prior to the transaction with Carter, Hall and Reynolds had been “evicted ... ‘from about a four foot strip of land’ ” by the adjoining landowner. The court concluded that, due to the failure of the vendors to reveal the claim of the adjoining landowner and their failure to reveal that the lot was only 58 feet deep as opposed to 60 feet deep, Carter was entitled to stop payment on the check and rescind the agreement. While the vendors may have believed their lot had a depth of 60 feet, they had an obligation to reveal the true facts of the unsettled controversy with their neighbor. Carter, therefore, was permitted to rescind his contract.
In the present case the Foundation maintains that it has sustained its burden by proving that the stock purchase agreement and the contract for the sale of the real estate were executed as the result of fraud and misrepresentation on the part of the *880Musgraves. The first element which must be proved is the existence of a material representation that is false. The Foundation contends that proof of such material false statements is evident from the testimony of three trustees of the Foundation. Each of these trustees testified at trial regarding the October and November 1969, meetings of the Foundation’s Board of Trustees when the members of the Board were selected and the contracts were approved.
Ray Mullins, who was appointed to the Board of Trustees in November 1969, testified that Dr. Musgrave was the first to speak at the October meeting. According to Mr. Mullins, Dr. Musgrave explained the purpose of the meeting; i.e., that it was necessary to create a nonprofit hospital corporation to own and operate Jenkins Clinic since “it was frowned upon for individuals to — to own a hospital and make money from taking care of sick people... . ” Transcript of Proceedings, p. 94 (hereafter cited as Tr.). In addition, Mullins testified that both Joseph Mellott, the hospital’s accountant, and Bernard Long, a Washington attorney who had represented the hospital in its dispute with Medicare/Medicaid and who drafted the legal documents involved in this controversy, spoke at the October meeting. Mullins stated that Bernard Long talked about the structure of the Foundation. Tr. 98. Joseph Mellott talked about the financial condition of the hospital, referring to the earnings of the hospital during previous years as approximately $100,-000 per year. Tr. 98.
On direct examination by counsel for the Foundation, Mullins testified the Medicare dispute was discussed by Joseph Mellott:
“A. It (the discussion) was — as I recall there — the dispute, as I said, involved cost or charges from billings of the Jenkins Clinic. It specifically involved charges related to an airplane ....
Q. Was there any indication to you about the size of the controversy in terms of money?
A. As I remember, it was something like — $400,000 sticks to my mind. I can’t recall the exact numbers, but it was a sizeable sum of money.” Tr. 98, 99.
However, after a recess, Mr. Mullins amended his testimony to indicate that, in fact, no amounts were discussed during the October meeting. Tr. 99.
Mr. Mullins also described the second meeting of the Board in November 1969. Without being specific, Mullins stated that in the November meeting “it was indicated that it (the hospital) was a going thing, that they had sufficient monies to pay their bills and that kind of thing.” Tr. 102. Once again, the $100,000 yearly profit was mentioned. Tr. 102. Finally, Mullins testified that the Board was not informed of any existing “financial emergency,” that members of the Board only discovered the gravity of the situation after the transfers had occurred and the Foundation became unable to meet its payroll and pay for supplies. Tr. 105, 108.
Mr. Mullins testified on cross-examination that he could not remember if each Board member had been given a copy of the stock purchase agreement at the November meeting, or if Bernard Long discussed the Agreement in detail. Tr. 117. In addition, Mullins was unable to recall the details of the Medicare/Medicaid dispute referred to in Exhibit C attached to the stock purchase agreement. Tr. 117.8
Raymond Collins was elected to the Board of Trustees in 1969 and attended both the October and November meetings. Collins denied that Joseph Mellott made any specific statement regarding the approximate earnings of the hospital:
“Q. Did he make any representations with respect to the approximate earnings of the hospital for the period prior to the meeting?
*881A. No. Just — just that it was making good money.” Tr. 239.
Further, Collins testified there was no mention of the Medicare/Medicaid dispute at the first two or three meetings of the Board of Trustees. Tr. 239.
According to Collins, he understood the hospital to be in good financial condition. No information was presented at the October or November meetings to indicate the hospital was in bad financial condition. Tr. 241.
Collins further testified there was no mention of the Medicare/Medicaid dispute at either of the first three board meetings. Tr. 239. He stated, however, that he would probably have approved the purchase of the hospital even if he had been aware of potential liability to Medicare of “more than $500,000.” Tr. 241.
The final member of the Board of Trustees to testify was Dr. Arthur Nash. Dr. Nash had been on the hospital staff some eight or nine years prior to 1969 and became president of the new Board of Trustees in November 1969. He resigned from the Board in 1974. Dr. Nash testified that the financial condition of the hospital was discussed at the October 1969 meeting; that he was unable to remember the details of the discussion but recalls that the hospital was portrayed as being in sound condition. Tr. 206. As a result of this discussion and a discussion concerning the past earnings of the hospital, Dr. Nash stated that he understood the hospital was in “sound condition.” Tr. 206. Nor was this impression corrected at the November meeting of the Board. Tr. 208. Similarly, Dr. Nash testified that he did not become aware of the Medicare/Medicaid dispute until “several months” after the October meeting. Tr. 207.
While Dr. Nash could not remember specifically, he did not deny that each member of the Board was furnished a copy of the stock purchase agreement. Dr. Nash also could not specifically remember but he did not deny that Bernard Long discussed the proposed agreement extensively during the November meeting. Tr. 217.
Mrs. Musgrave was also present at the October meeting. She testified that Bernard Long discussed in general terms the reason why the transfer to the Foundation was contemplated. Tr. 512. Mrs. Mus-grave also testified that at the November meeting Mr. Long presented the stock purchase agreement and that it was discussed “thoroughly.” Tr. 513. In addition, Mrs. Musgrave stated that at the November meeting Joseph Mellott discussed the hospital’s financial condition and gave each member of the Board a copy of the latest balance sheet for the hospital. Tr. 513.
Mrs. Musgrave further testified that she spoke with several members of the Board prior to the November meeting. Specifically, she testified that she discussed the financial condition of the hospital with Bill Clarke, a part owner of a local pharmacy who had been concerned about delays in receiving payment from the hospital. Tr. 510. Similarly, she had explained the cash flow difficulties of the hospital to William Hettesheimer in a discussion as to why insurance premiums had not been paid every 30 days. Tr. 511.
Dr. Musgrave also testified but was unable to recall specifics concerning the October and November meetings of the Board. He emphatically disputed, however, Dr. Nash’s assertion that he had been led to believe the hospital was in sound financial condition. According to Dr. Musgrave, the hospital’s cash flow problems had been discussed with Dr. Nash “almost on a daily basis.” Tr. 439. Dr. Musgrave’s testimony is supported by the testimony of Ms. Cora Lea Rabón, formerly the Assistant Administrator of the hospital. Tr. 332.
Ms. Rabón stated she was present at conferences held over a period of several years when cash flow problems were discussed. Dr. Nash was also present at some of these conferences, and, specifically, had attended at least two conferences between Dr. and Mrs. Musgrave and Bernard Long. Tr. 348, 349.
The testimony of Ms. Rabón and the testimony of Bernard Long negate the Foun*882dation’s contention that the members of the Board of Trustees were not informed of the Medicare/Medicaid dispute or the possible extent of the hospital’s financial difficulties at the October and November meetings. Ms. Rabón testified that Mr. Long briefly discussed the Medicare dispute at the October meeting; i.e., he explained that several costs had been disallowed by Medicare, specifically the costs allocated to the airplane, televisions, and telephones. Tr. 338, 339. Similarly, Ms. Rabón testified that the stock purchase agreement was presented in detail during the November meeting by Mr. Long; further, that the members of the Board were given copies of the Agreement. Tr. 353. In addition, Ms. Rabón testified that she had discussed the Medicare dispute separately with several members of the Board. Specifically, she recalled speaking with Mr. Hettesheimer over the phone:
“I called him the day that we received the letter from Mr. Harper, and I read the letter to him over the telephone on the disallowed costs. He had been involved in insurances at the hospital in the past.
“He had been told by myself and Doctor and Mrs. Musgrave in my presence of the situation with Medicare and Medicaid and what contingencies we would be up against possibly.” Tr. 363.
According to Ms. Rabón, Judge Caudill had also been informed of the Medicare dispute:
“Q. Had you talked with Judge Caudill?
A. Judge Caudill was at one of the meetings, and also I talked to him between the two meetings; and that’s at the time about the situation with problems at the hospital. Judge Caudill was still a little leery of becoming a member of the Board and at that time stated that possibly one of the inducements that might make him decide that he wanted to become a member — he was the President of the First Security Bank of Whitesburg and Neon, Kentucky — was if we would switch our account from our current checking account to his bank.
Q. Did you tell him of the problems, or did anybody else tell him of the problems that the hospital was experiencing in your presence? Was he told, not did he know but was he told.
A. He was told at the meetings. Yes.” Tr. 364.
Between the October and November meetings Ms. Rabón was asked about the Medicare dispute by Elsworth Knight, who had been invited to become a member of the Board of Trustees. Ms. Rabón testified that she told Mr. Knight that the decision to disallow certain hospital costs had been appealed and that “no one would know the exact figure until after the hearing was held.” Tr. 364, 365.
Bernard Long testified that each member of the Board was presented a copy of the stock purchase agreement. Mr. Long stated that during the November meeting he read every word of the agreement to the Board, after which a general discussion was held. The Medicare/Medicaid dispute was discussed on an “issue basis”:
“In other words, it’s my recollection that we talked about what the issues were pending at the medicare hearing which had been — I’m not sure if it had been scheduled at that time or not, but pending as a result of Medicare audits. In terms of — well, I know the issues were discussed, the significant issues, the— problems with the related corporations so to speak, the — the salaries and so on and so forth.” Tr. 480, 481.
Long’s testimony, supported by the testimony of others, and the fact that “Exhibit C” was attached to the stock purchase agreement at the time the agreement was executed, convinces this court that the Board of Trustees was informed of the Medicare/Medicaid dispute prior to the execution of the agreement. It is true that the maximum liability to Medicare/Medicaid is shown in “Exhibit C” as $100,000; however, the testimony of Bernard Long discloses how this figure was reached:
*883“[M]y recollection as to how that — that particular number was arrived at is not entirely clear; but I was involved in it in terms of estimating what I estimate— what I felt would be the ultimate chances of success on the various issues that we were faced with, and by that I mean through court, through this — through the administrative process — that the Bureau of Health Insurance or Social Security, or whatever it was, had set up — through court review after that and perhaps political assistance after that — whatever. We tried to — I tried to make an estimate of where I thought the equities were in these issues and where I felt we would ultimately — ultimately end up, and Mr. Mellott — I know I worked with Mr. Mel-lott on this and we tried to get from Mr. Mellott an estimate of what the dollar amounts were potentially with respect to each issue up to that period of time; and so it’s — it was really a combination effort of at least the two of us. I don’t — I don’t recall specifically anybody else being involved at that point. It’s possible, but—
Q. Do I understand your testimony to be that you and Mr. Mellott worked on this and — as a projection and that’s what you came up with, the $100,-000.00 figure?
A. That was our estimate at the time. We — we felt that, at least for purposes of the Contract that something out of these scores — what it could have been was a — was a — no—this is 1969 — I had been practicing law for three years; and maybe my — my optimism isn’t relevant, but I — my— feeling was that we had very legitimate cases to present on all of these issues and that ultimately we would prevail on several of them. By ultimately I mean in the long run, and that’s where the numbers came from.” Tr. 481, 482.
While the ultimate liability was considerably in excess of the $100,000 amount specified in Exhibit C, the testimony of Bernard Long indicates that the $100,000 figure represented a valid estimate at that time. No proof has been produced to indicate that either Dr. or Mrs. Musgrave in any way intentionally misrepresented the facts to Bernard Long to induce him to arrive at a lower Medicare liability. The court concludes that the estimate of liability shown in Exhibit C resulted from the exercise of independent professional judgment by Bernard Long. It is, therefore, the finding of the court that the Musgraves did not mislead the Board of Trustees concerning the Medicare/Medicaid dispute. Nor did they conceal information. The representation that the ultimate liability would not exceed $100,000 was not made with an intent to deceive. See Bolling v. Ford, 213 Ky. 403, 281 S.W. 178 (1926); Johnson v. Cormney, 596 S.W.2d 23 (Ky.App.1979).
It is also the finding of this court that the Foundation has failed to show that the Musgraves fraudulently and intentionally misrepresented the financial condition of the hospital when the sale occurred.
VI
On December 13,1969, the Board of Trustees appointed Joe P. Gorman to appraise the hospital, laboratory, and real estate. Gorman thereafter inspected the property and placed a valuation for the real estate and for the hospital as a going concern at $1,910,800.00. In making this appraisal, Gorman used the audited financial statements for the prior five years. This information was provided by Joseph Mellott. The Foundation contends that the Mus-graves and Joseph Mellott. “fraudulently, wrongfully and intentionally provided inaccurate and incorrect information to Joe P. Gorman in order to secure an inflated appraisal .... ” Para. 9, Plaintiff’s Complaint.
In order to sustain this position, the Foundation introduced the testimony of Leslie Baynham, a CPA from Lexington, Kentucky, who has been the accountant for the Foundation since 1978. See Order of October 9, 1978. After reviewing the general ledgers and other documents, and the audited financial statements prepared by Joseph Mellott for the years 1966-1969, Mr. *884Baynham made certain adjustments to the income statements prepared by Mellott. The largest adjustments represent costs that were disallowed by Medicare in the amount of $360,148 and Medicaid in the amount of $234,848. These amounts were deducted from the net income shown on the income statements prepared by Mellott. However, the adjustment for Medicare was based upon a letter dated December 11, 1971, from Roy Whisman, an accountant for Medicare, to Roger Watkins, the hospital administrator. Coll. Ex. 11; Tr. 159, 160. The adjustment for Medicaid was made as a result of an April 13, 1972, letter from Ronnie Cohorn to Betty Hunsaker, Assistant Administrator and Comptroller of the Foundation. The testimony of Bernard Long indicates that in 1969 when the stock transfer occurred Mr. Long was unsure of the amount of the liability to Medicare/Medicaid. In fact, at that time Long estimated the maximum liability to be $100,000.
The only mention of the Medicare/Medicaid dispute in the financial statements prepared by Joseph Mellott appears in the certified audit of January 29, 1969.9 A footnote in the financial statement indicates the possibility of liability to Medicare/Medicaid.10 The June 10, 1981, deposition of Joseph Mellott indicates the contingent liability to Medicare/Medicaid was not footnoted in an earlier financial statement because at the time the earlier statements were prepared Mellott was of the opinion that the hospital would prevail in the dispute. The footnote appeared in the January 29, 1969, Statement because at that time Mellott had become convinced the hospital might not prevail. Deposition of Charles J. Mellott, pp. 81-84.
Mr. Mellott explained that, when attempting to place a value on a contingent liability,
“you attempt to get some definition from some outside source on the — the best source available. If it’s a litigation, you try to get it from a lawyer, what he-thinks the possible outcome will be and how much it may cost, or if he can’t determine it, he says he doesn’t know, so you put that down. ■ If it’s somebody else, an insurance claim, or something like that, you try to get it from an outside authority.” Deposition p. 24.
Mr. Mellott relied upon the advice of Bernard Long and the correspondence that had passed between the hospital and the Medicare/Medicaid representatives.
The court is unable to conclude that the income statements prepared by Mellott are incorrect as to the income actually received from Medicare/Medicaid. Further, the court is unable to conclude that the contingent liability to Medicare/Medicaid was fraudulently concealed. At the time the statements were prepared, the disallowance of certain specific costs was being challenged by the hospital. The liability was contingent and did not become “final” until after the statements were prepared. The Foundation has produced no evidence to show that Mellott’s treatment of the contingent liability to Medicare/Medicaid was done with any fraudulent intent or that the Musgraves had anything to do with the preparation of the statements.11
*885In its effort to discredit the appraisal of the property made by Mr. Gorman immediately after the transfer, the Foundation introduced as a witness Mr. Charles B. Gates of Marshall & Stevens, Appraisers. Mr. Gates testified that in 1971 his company was contacted by Roger Watkins to appraise the Foundation’s properties. Tr. 296. Mr. Gates participated in the appraisal to the extent that he initially prescribed the “specifications” for the appraisal and then assigned Mr. Evan Jones to the project. Mr. Gates later reviewed Mr. Jones’ work and after discussions with him approved the appraisal. Ex. 35. The appraisal purports to fix the value of the hospital properties as of December 1, 1969, at $1,138,000.00. This appraisal is on an “assumed debt-free basis.” Tr. 300.
Some ten years later, in 1981, Mr. Gates was again requested by the Foundation to “value the entire hospital business [of the Foundation] ... as of December 1, 1969.” Mr. Gates reviewed various statements of earnings and combined balance sheets prepared by Mr. Baynham for the years 1965-1969, together with cost reports from Medicare and Medicaid, and fixed the “going concern value” of the hospital as of that date, December 1, 1969, at $175,000.00. Tr. 302. This appraisal was not prepared from an examination of the property but from information furnished to him by Mr. Watkins, Mr. Baynham, and the cost reports prepared by Medicare and Medicaid.
Thus, the Foundation is now attempting to substitute for the original appraisal prepared by Mr. Gorman the later appraisals (1971 and 1981) of Mr. Gates. This court cannot and will not overlook the undisputed fact, however, that the Board selected Mr. Gorman. There is no credible evidence in this record to indicate that the Musgraves in any way attempted to influence the Board to select Mr. Gorman, or that they attempted to influence Mr. Gorman’s appraisal. Mr. Gorman was not contacted by the Musgraves but by Mr. Ever-sole. He also talked to Mr. Collins. At the time he made the appraisal, he “did not know Doctor or Florene Musgrave Simpson.” June 10, 1981, Deposition of Joe P. Gorman, p. 29. The only time he saw Dr. Musgrave was when he “delivered the appraisal.”
This court declines to substitute appraisals made long after the transaction was consummated for one made by an appraiser selected by the Board at the time the agreements were entered into.
The second adjustment made by Baynham was a $92,587.03 reduction in the net income shown on the statement for the year ending September 30,1969. Mr. Baynham explained that this adjustment was made to eliminate a gain that had been realized from a sale and leaseback transaction. According to Baynham, the gain from the transaction should not have been recorded on the books. Tr. 163. The third adjustment was for accounts payable. The fourth adjustment was to eliminate an accounts receivable from E & F Construction Company, a corporation owned by the Musgraves. The final deduction was to eliminate the sale and leaseback security deposits. According to Mr. Baynham, these adjustments were made because those items had received improper treatment on the books of the three entities. While these adjustments may have been made to correct errors on the part of Joseph Mellott, as is contended by the Foundation, the Foundation has not met its burden of showing clearly and convincingly that the errors were made with the intent to mislead the board. Smith v. Barton, 266 S.W.2d 317 (Ky.App.1954). Nor has any evidence been introduced to indicate that the Musgraves “provided” false information to Mellott in order to secure an inflated appraisal of the property.
VII
The Foundation alleges that the Mus-graves violated the provisions of the Blue Sky Law of Kentucky. In relevant part, that statute provides:
“It is unlawful for any person, in connection with the offer, sale, or purchase of any security, directly or indirectly:
*886(a) To employ any device, scheme, or artifice to defraud;
(b) To make any untrue statement of a material fact or to omit to state a material fact necessary in order to make the statements made, in light of the circumstances under which they are made, not misleading; or
(c) To engage in any act, practice, or course of business which operates or would operate as a fraud or deceit upon any person.” K.R.S. § 292.320.
The Kentucky statute further provides that anyone who offers or sells a security by means of any untrue statement of a material fact or the omission to state a material fact is liable to the buyer for
“the consideration paid for the security, together with interest at six percent (6%) per annum from the date of payment, costs, and reasonable attorney’s fees, less the amount of any income received on the security, or for damages if he no longer owns the security.” K.R.S. § 292.480.
The Foundation argues that the Mus-graves violated these statutes; therefore, the Foundation should recover “damages pursuant to K.R.S. § 292.480 in the face amount of said indebtedness with interest thereon.... ” Plaintiff’s Complaint, Paragraph 31. In addition, the Foundation seeks to recover $4,000,000 punitive or exemplary damages from the Musgraves.
A reading of K.R.S. § 292.480 which authorizes civil liabilities for the violation of Kentucky’s Blue Sky Law does not support the Foundation’s request. Under that statute the measure of recovery is the consideration paid by the purchaser for the security plus other costs less “any income received on the security,” provided the security has not been returned to the seller. The purchaser may recover damages only if he no longer owns the security.
In the present cases, with the exception of several interest payments, no payments have been made by the Foundation to either of the defendants. The Foundation, however, has received considerable income from the property transferred to it.12 Further, the Foundation has never offered to return the stock and properties to the Mus-graves.
Even if the Blue Sky Law of Kentucky applies, the finding by this court that the Foundation has failed to establish any actionable fraud or misrepresentation on the part of the Musgraves effectively forecloses. any basis for relief under the Kentucky statute.
VIII
The plaintiff also relies on 15 U.S.C. § 78j(b), which makes it unlawful for any person to make use of an instrumentality of interstate commerce in connection with the purchase or sale of a security in violation of rules prescribed by the Securities Exchange Commission. As does K.R.S. § 292.320, Rule 10b-5 makes it unlawful
“for any person, directly or indirectly, by the use of any means or instrumentality of interstate commerce, or of the mails or of any facility of any national securities exchange,
(a) to employ any device, scheme, or artifice to defraud,
(b) to make any untrue statement of a material fact or to omit to state a material fact necessary in order to make the statements made, in the light of the circumstances under which they were made, not misleading, or
(c) to engage in any act, practice, or course of business which operates or would operate as a fraud or deceit upon any person, in connection with the purchase or sale of any security.” 17 C.F.R. § 240.10b-5.
The Foundation maintains the transactions in question had sufficient contact with interstate commerce so that Rule 10(b) ap*887plies.13 As a result, the Foundation seeks damages against each defendant in “the full amount of the debt claimed and interest,” and, in addition, punitive or exemplary damages in the amount of $2,000,000 from each defendant.
Prior to 1976 the decisions were in conflict as to whether a showing of scienter was required in order to impose civil liability for violation of the antifraud provisions of the Securities Exchange Act. See 69 Am.Jur.2d, Securities Regulation-Federal, § 474. In Ernst & Ernst v. Hochfelder, 425 U.S. 185, 96 S.Ct. 1375, 47 L.Ed.2d 668 (1976), the customers of a brokerage firm who had invested in a fraudulent securities scheme commenced an action for violation of Rule 10(b) against Ernst & Ernst, the accounting firm that had audited the books of the brokerage firm. Plaintiffs contended that Ernst & Ernst “aided and abetted” the broker’s 10(b) violation through its negligence in failing to discover the fraudulent scheme. The court concluded with respect to Rule 10(b) that
“use of the word ‘manipulative’ is especially significant. It is and was virtually a term of art when used in connection with securities markets. It connotes intentional or willful conduct designed to' deceive or defraud investors by controlling or artificially affecting the price of securities.” Ernst & Ernst v. Hochfelder, 96 S.Ct. 1375, 1384.
Further, after considering the legislative history and overall Congressional purpose of the 1933 and 1934 Acts, the Court concluded that 10(b) was intended to provide a remedy for practices that involve “some element of scienter and cannot be read to impose liability for negligent conduct alone.” Id. 96 S.Ct. at 1385.
For reasons discussed previously, this court is unable to conclude that either of the Musgraves engaged in “intentional or willful conduct designed to deceive or defraud investors by controlling or artificially affecting the price” of the Jenkins Clinic stock. The Foundation’s claim for damages for violation of Rule 10(b) will be denied.
IX
The Foundation argues that Dr. Mus-grave, as medical director, and Mrs. Mus-grave, as hospital administrator, were acting in a fiduciary capacity; that this fiduciary relationship was violated by Dr. Mus-grave and by Mrs. Musgrave when they caused the Foundation to make unauthorized payments to themselves and to other persons. The Foundation alleges that Dr. Musgrave prevailed upon Mrs. Musgrave to make unauthorized payments in the amount of $87,401.63. Similarly, the Foundation alleges Mrs. Musgrave made other unauthorized payments in the amount of $37,-053.00. In addition, the Foundation claims the Musgraves violated their fiduciary duty by “fraudulently and wrongfully” causing a house worth $40,000 to be sold to Joe Eddie Eversole for $15,000.
The evidence presented at trial concerning the value of the house conveyed to Joe Eddie Eversole is conflicting. Dr. Nash, who donated the house to the Foundation, testified that he had caused the house to be appraised by Joe Eversole, a member of the Board,14 and by Jess Bates, a local judge. Their appraisal is contained in a letter dated October 8, 1969, which reads as follows:
“TO WHOM IT MAY CONCERN:
We have examined the residence and lot of Dr. Arthur J. Nash and Sheila Nash on 20 September 1969. In our opinion, the Fair Market Value of this property would be $40,000.” Ex. 29.
*888However, the Foundation produced no evidence regarding the qualifications of either Joe Eversole or Jess Bates. Similarly, no evidence was produced to indicate what methods they used in appraising the property-
The house also was appraised by Joe Gor-man, an individual engaged in real estate sales and appraisals. In a written appraisal, Gorman states that based “on similar sales and local market data” the house had a market value of $20,000 as of January 14, 1970. June 10, 1981, Deposition of Joe P. Gorman, Ex. 1.
Dr. Nash claimed an income tax deduction for his donation of the house to the Foundation in the amount of $40,000, arrived at on the basis of the appraisal by Eversole and Bates. The IRS first proposed to allow $15,000, but ultimately allowed $24,000. Dr. Nash says he lost “$8,000.00 worth of income tax.” Tr. 232. He conceded that one reason for his donation of the house was to take an income tax deduction. Tr. 230.
At the time of the sale of the house by the Board, the Musgraves were not members of the Board.15 Dr. Musgrave was still the Medical Director and Mrs. Musgrave was Hospital Administrator but her authority had been greatly reduced. While it is true that the Musgraves had a duty to act in good faith, with due care and diligence, the Foundation has presented no proof that would indicate either of the defendants failed to do so or that they profited from the sale. In fact, Dr. Nash testified that the sale of the house was necessary in order for the hospital to meet its January, 1970, payroll. Tr. 210. The court concludes that the Musgraves violated no fiduciary duty with regard to the sale of the house by the Board to Joe Eddie Eversole for $15,000.
Cora Lee Rabón testified as to the procedures followed for writing checks after the transfer to the Foundation occurred. The checks were prepared by Ms. Rabón and signed by Mrs. Musgrave. However, all checks in excess of $500.00 were required to be co-signed by the Secretary of the Board. Tr. 359.
The Foundation introduced a series of checks which it contends represents disbursements which were not authorized by the Board. The Foundation says these payments represent a breach of fiduciary obligations on the part of the Musgraves. See Paragraph 20, Plaintiff’s Complaint Objecting to Allowance of Claim of Herman Dotson, Trustee; Paragraph 19, 20, Plaintiff’s Complaint Objecting to Allowance of Claim of Florene Musgrave. Exhibit 10 consists of 21 checks payable to Florene (Musgrave) Simpson. Each check is written in the amount of $1350.00. Mrs. Musgrave’s signature appears on only one of the checks, however, and even that check is also signed by James M. Caudill, a member of the Board of Trustees. The parties have stipulated that, with the exception of one check representing a salary payment, all of the checks were interest payments on the note held by her.
During the first four months of 1970, six checks were written to the Jenkins Construction and Supply Co., a corporation controlled by the Musgraves. Each check is signed by Florene Musgrave and “Joe Ever-sole Sec’y. and Treasurer.” The Foundation argues that it was not indebted to the Jenkins Construction and Supply Co.; thus, these payments constitute a breach of fiduciary duty. The accounts payable ledger for Jenkins Clinic Hospital and the successor Foundation, however, does not support this allegation. To the contrary, the ledger indicates that, at the time each payment was made to Jenkins Construction, a debt was owing to that company.16 The court *889finds no breach of a fiduciary duty when a debt is reflected in the Foundation’s books and was paid by an authorized officer of the Foundation.
The Foundation also introduced nine cheeks written to Dr. Musgrave in the first three months of 1970. Ex. 14. All but three of these checks bear a notation indicating the purpose for which the check was written; two of the three checks were countersigned by Joe Eversole. The remaining checks clearly show the purpose for which they were written — either to reimburse Dr. Musgrave for expenses, or to pay an obligation pursuant to a particular invoice. Two of the checks were written in payment of debts owing to Jenkins Construction for the lease of laundry equipment. The accounts payable ledger for the Foundation bears the following notation:
“Make CK payable to Dr. Musgrave.” The ledger reflects that the Foundation was indebted to Jenkins Construction at the time each payment was made. Four other checks bear notations that indicate they were issued to reimburse Dr. Musgrave for his payment of a specific invoice. Thus, these checks appear on their faces to be legitimate expenditures. The Foundation has produced no proof to the contrary.
The Foundation introduced two $500.00 checks payable to Edwin Bentley, apparently the operator or owner of B & J Coal Company. Mrs. Musgrave’s signature appears on these checks but so does the signature of “Joe Eversole, Sec’y. and Treasurer” of the Foundation. Ex. 15.
Finally, the Foundation introduced one check dated January 14, 1970, in the amount of $57.75, payable to Dr. Musgrave, signed by Mrs. Musgrave. Although the check does not show the reason for which it was issued, the court declines to “presume” that any fraud was involved. The Board authorized Mrs. Musgrave to issue checks in payment of obligations of less than $500.00. The Foundation cannot be heard to complain some 12 years later. Further, the amount involved is de minimis.
x
Lastly, the Foundation seeks an award of punitive damages against the Musgraves for fraud and misrepresentation. In Keck v. Wacker, 413 F.Supp. 1377 (D.C.E.D.Ky.1976), the court stated that under Kentucky law punitive damages may be given in a cause of action for fraud only when the representations in question were
“done wilfully, maliciously, wantonly, or oppressively. Without such evidence, punitive damages cannot be granted. The conduct must be outrageous, so that the Court may punish the offender and deter others . .. (citations omitted) or such damages may be granted where there is proof of gross neglect or disregard for the rights of others.... ” (Citations omitted). Id. at 1383, 1384.
The facts of the present case wholly fail to justify any award for punitive damages.
XI
The debtor’s/Foundation’s objections to the claims of the Musgraves will be denied. The claims, as amended, will be allowed. All other relief requested by both the debt- or/Foundation and the Musgraves will be denied.
This Memorandum constitutes findings of fact and conclusions of law, Bankruptcy Rule 752.
. The debtor’s objections and counterclaims were filed August 23, 1978, and March 22, 1978, respectively.
. In addition, the Musgraves created Jenkins Construction Co. A portion of the hospital construction was done by this corporation.
. Initially, the stock had been owned by the Musgraves and others. However, with the exception of one share of stock held by Joseph Mellott, all of the stock was thereafter acquired by the Musgraves.
.It is sufficient for present purposes to note that the disallowed items included the cost of patient telephones, televisions, and a DC-3 airplane owned by the hospital.
. The attorney for Herman Dotson, trustee, insists that the time for appeal has not expired. It is not necessary to consider that matter in the present Memorandum, however.
. Subsequently, the claims of both Dr. and Mrs. Musgrave were amended: Mrs. Musgrave’s claim to $777,836.37; Dr. Musgrave’s claim to $925,067.00.
. Paragraph 10 of the Stock Purchase Agreement states as follows:
“In the event of a default in payment hereunder, the Stockholders have the right to declare the Agreement null and void and to receive such assets of the Foundation as are attributable to the Hospital and the Lab.” Ex. 1.
. The pertinent part of Exhibit C states as follows:
“2) Medicare overpayment for Fiscal Years ended 1966-1969 (contingent) — estimated at maximum of $100,000.00. The amount payable to Stockholders shall be reduced by the amount of this liability as finally determined.”
. Rouse, Rankin, Brammell & Mellott, Certified Public Accountants.
. Note 3 — “We are assured by the Management that all known liabilities were entered and no contingent liabilities, other than those noted on the balance sheet, were reported to or discovered by us, with the exception of purchase commitments in the course of business, and any liability which may arise from examination by Federal and State Tax authorities, and any liability which may result from audits by Medicare and Medicaid auditors.” Ex. 37. Note 3.
.The testimony of the Foundation’s auditor, Mr. Baynham, is enlightening:
“. .. [A]ny accountant in rendering an opinion or a statement refers to the reasonableness of the statement rather than the accuracy. The accuracy is something that is never pinpointed to a point. It’s just a word that accountants rarely use in reference to a statement. I would say that this statement [combined balance sheet, November 30, 1969] renders a fair presentation reasonably of the financial position at that time.” Tr. 154.
. At trial it was indicated that the Foundation at this time has liquid assets of some $1,500,-000.00. The financial affairs of the Foundation appear to have improved immeasurably after the employment of Roger Watkins as hospital administrator in 1971.
. The defendant Dr. Musgrave contends that the Kentucky Court of Appeals in City of Owensboro v. First U. S. Corp., 534 S.W.2d 789 (1975), held that the sole remedy for defrauded purchases of securities is Kentucky’s Blue Sky Law; therefore, the Securities Exchange Act and Rule 10b-5 are inapplicable. City of Owensboro, supra, cannot be used to support that proposition. Since that case involved claims under both the Securities Exchange Act and Kentucky’s Blue Sky Law, the case is clearly inapplicable.
. Joe Eversole is the father of Joe Eddie Ever-sole.
. Dr. Nash, a member of the Board, voted against the sale. Tr. 231. See Ex. 29.
. The amount of each check and the balance owing as of that date as per the accounts payable ledger is as follows: | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489251/ | FINDINGS OF FACT AND CONCLUSIONS OF LAW
SIDNEY M. WEAVER, Bankruptcy Judge.
THIS CAUSE came on for trial upon an Adversary Proceeding filed by the Trustee of NAILITE WEATHER SHIELD PRODUCTS, INC., (hereinafter “Debtor”), against LIFEGUARD INDUSTRIES, INC. (hereinafter “Defendant”), seeking recovery of Twenty-two Thousand Four Hundred Nineteen and 22/100 Dollars ($22,419.22) based upon accounts stated and goods sold and delivered. The Court having heard the testimony and examined the evidence presented, observed the candor and demeanor of the witnesses, considered the pleadings and arguments of Counsel, and being otherwise fully advised in the premises, hereby makes the following Findings of Fact and Conclusions of Law:
On or about April 15,1981, the Defendant ordered Twenty-seven Thousand Four Hundred Eighty-two and 06/100 Dollars ($27,-482.06) worth of building materials from the Debtor. The Debtor thereafter sent such materials to the Defendant and issued an invoice to the Defendant for the sum of Twenty-seven Thousand Four Hundred Eighty-two and 06/100 Dollars ($27,482.06). On or about June 8, 1981, the Debtor delivered to the Defendant Thirty Dollars ($30.00) worth of building materials, and invoiced the Defendant for same. On or about June 29, 1981, the Debtor sent to the Defendant additional materials which value was Nine Thousand Five Hundred Seven and 86/100 Dollars ($9,507.86), for which the Defendant was thereafter invoiced. The Defendant made a payment on account to the Debtor in the sum of Fourteen Thousand Dollars ($14,000.00), on or about July 28, 1981, and received a credit from the Debtor on July 31,1981, for materials to be used as display by the Defendant in the sum of Six Hundred Dollars ($600.00).
The Defendant seeks comfort from relief prayed by the Plaintiff on the basis that the goods sold and delivered by the Debtor were allegedly obsolete and not fit for their intended use. The Court finds that the Debtor manufactured several series of materials, and that the materials sent to the Defendant were currently being shipped to other customers without objec*907tion. The Court also finds that the Defendant made no objection to the goods delivered by the Debtor until time of trial. Therefore, the Court finds that the materials delivered to the Defendant were not obsolete, or unfit for their intended use. The Defendant also seeks to bar Plaintiff’s recovery based upon an alleged breach of an exclusive arrangement between the Defendant and the Debtor for the sale of the Debtor’s products in the Defendant’s marketing area. The Court finds that there was no exclusive agreement or arrangement between the Debtor and the Defendant, and that even if such an agreement did exist, the Defendant has failed to prove any resulting damages which would ban or diminish Plaintiff’s recovery in full.
The Court also finds that sufficient sample cases were delivered to the Defendant by the Debtor to enable the Defendant to sell the materials it had received from the Defendant.
Rendering an account stated is prima facie evidence of the correctness of the items contained thereon, and liability of the party to whom the account stated is rendered. See Gendzier v. Bielecki, 97 So.2d 604, 608 (Fla.1957). Any objections to an accounts stated must be raised in a timely manner. An objection raised at the time of trial is not made within a reasonable time. Dudas v. Dade County, 385 So.2d 1144 (3rd Dist., Fla.App.1980). In the case before me, the Debtor, rendered accounts stated to Defendant for a total indebtedness of Thirty-seven Thousand Nineteen and 92/100 Dollars ($37,019.92). The Defendant made a Fourteen Thousand Dollar ($14,000.00) payment on the account and received a Six Hundred Dollar ($600.00) credit. The Defendant made no objection to the account until the time of trial. Therefore, this Court finds that the Defendant is indebted to Plaintiff in the sum of Twenty-two Thousand Four Hundred Nineteen and 22/100 Dollars ($22,419.22) plus interest from June 29, 1981 at the applicable rate. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489252/ | *968MEMORANDUM
DAVID L. CRAWFORD, Bankruptcy Judge.
Ruby Camacho brought this adversary proceeding alleging two causes of action against defendant Beneficial Finance Company of Sterling. The first cause of action seeks to avoid a prepetition judgment lien on real estate and its subsequent foreclosure as a preference under 11 U.S.C. § 547. The second cause of action seeks to avoid the judicial lien under 11 U.S.C. § 522(f)(1). In neither cause of action may the plaintiff prevail, given the facts which are stipulated.
Plaintiff filed her Chapter 7 petition on March 28, 1980. Prior to that date, she had executed a promissory note on March 4, 1976, to the' defendant, Beneficial Finance. Beneficial Finance later sued Mrs. Camacho and obtained a judgment against her on February 16, 1979, for the unpaid amount due on the note. The stipulated facts provide that on February 28, 1979, Beneficial Finance registered its judgment in the Scottsbluff District Court, thus obtaining a judgment lien against Mrs. Camacho’s real estate. After two ineffective attempts at execution sales, on March 6, 1980, another execution sale was conducted and the sale completed and on March 25, 1980, an order was issued by the District Court of Scotts Bluff County, Nebraska, confirming the sale. On March 27, 1980, the real estate was conveyed by sheriff’s deed on execution sale to Beneficial Finance and this deed was recorded on March 27, 1980, the day before the filing of the Chapter 7 petition in bankruptcy.
As noted, plaintiff’s first cause of action alleges a preference was made to Beneficial Finance which I gather is premised on the execution sale and sheriff’s deed which occurred immediately before the filing of the petition for relief herein. However, § 547 specifically provides that, with regard to real estate, a transfer is deemed to have occurred when it is effective against a bona fide purchaser. 11 U.S.C. § 547(e)(1)(A). For the purpose of the Bankruptcy Code, 11 U.S.C. § 101(40) defines transfer as:
“. . . every mode, direct or indirect, absolute or conditional, voluntary or involuntary, of disposing of or parting with property or with an interest in property, including retention of title as a security interest.”
Accordingly, under the broad definition of “transfer”, the transfer of the debt- or’s interest for the purpose of any possible preference to a creditor on behalf of an antecedent indebtedness occurred when the transfer was so far completed that it was effective as against a bona fide purchaser. Under Nebraska Recording Statutes relative to real estate, that was at the point when the judgment lien became a lien on real estate which is stipulated in the facts to be February 28, 1979, approximately 11 months before the petition for relief was filed. Accordingly, since the reachback period under 11 U.S.C. § 547 is ninety days with regard to anyone except an “insider” (a term of art not relevant here), no preference can be said to have occurred with regard to Beneficial Finance. In other words, the enforcement of the judgment lien, insulated because it occurred more than ninety days before the petition for relief, is not the transfer which § 547 would avoid.
The plaintiff’s second cause of action is premised on 11 U.S.C. § 522(fXl) which authorizes the avoidance of judicial liens which impair exemptions applicable to debtors. Again, the facts presented establish no cause of action in favor of Mrs. Camacho. Under the facts, the judicial lien had been completely enforced through a sheriff’s sale and delivery of a deed to the purchaser and its recording, all prior to the petition for relief being filed. Accordingly, no judicial lien existed on the date of the filing of the petition for relief. In other words, the judicial lien had been extinguished through its enforcement by sale and delivery of deed.
Accordingly, since there is no transfer within the ninety-day reachback period which can be avoided as an involuntary preference and since there was no judicial lien in existence on the date of the filing of *969the petition for relief, plaintiff must fail on both her first and second causes of action, A separate judgment is entered in accord-anee with the foregoing. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489253/ | *973MEMORANDUM AND ORDER
ROBERT L. EISEN, Bankruptcy Judge.
This matter came to be heard on defendant’s, Commerce and Industry Insurance Company’s (Commerce), motion for summary judgment. The parties have argued the motion and supplied this court with briefs and memoranda. This court having carefully considered counsel’s arguments, the briefs and memoranda filed and the fruits of its own research, does hereby make the following findings of fact and conclusions of law.
FINDINGS OF FACT
Earl Little & Sons, Inc. and James R. Little (Little — Both Earl Little & Sons, Inc. and James R. Little will be referred to as “Little” because they are indistinguishable for the purpose of this motion) are the plaintiff-debtors in the business of real estate construction and development. In 1971, the debtors purchased an insurance policy, no. SMP 600-79-13 from Commerce. The policy was purchased to protect Little from potential claims arising from the construction and maintenance of the Hil’Crest Apartments.
The Hil’Crest Apartments were completed sometime during 1972. Some three years later, on September 1, 1976, James A. Yesaitis filed a lawsuit against Little in Circuit Court alleging that the Yesaitis had suffered property damage to their residence as a result of the negligent construction of the Hil’Crest Apartment buildings and adjacent parking lots.
Sometime after the filing of the above suit, the debtors sought relief in Bankruptcy Court by filing a Chapter XI petition under the Bankruptcy Act of 1898. The Yesaitis then filed a Complaint for Declaratory Relief in this court. Little tendered the defense of the Yesaitis claim to Commerce under the policy. Commerce refused to defend and filed the instant motion for summary judgment.
The policy covers some types of hazards and excludes others. One of the exclusions is for hazards occurring after the project is completed. The exclusion language is as follows:
It is agreed that the insurance does not apply to . .. property damage included within the Completed Operations Hazard
The excluded term, “Completed Operations Hazard,” is defined under the subject policy as follows:
“Completed Operations Hazard” includes ... property damage ... after such operations have been completed .... “Operations” include materials, parts or equipment furnished in connection therewith. Operations shall be deemed completed at the earliest of the following times:
1 * * *
2 * * *
3. when the portion of the work out of which the injury or damage arises has been put to its intended use by any person ....
Operations which may require further service or maintenance work or correction, repair or replacement because of any defect or deficiency or which are otherwise complete shall be deemed completed ....
Commerce also rejected Little’s tender of defense based on a Loss from Water Damage exclusion. It is not necessary to examine this exclusion based on the court’s finding that the damage was included within the Completed Operations Hazard Exclusion and therefore uninsured by the policy.
In his affidavit in support of his response, Little states he obtained the policy to protect his company from claims arising from negligent construction of the apartment complex. He does not recall discussing the completed operations exclusion with Commerce and would not have agreed to the clause if he had known the meaning of the completed operations exclusion. Little indicates that before he obtained the policy, he explained to Commerce the “type of coverage he desired” and was assured by the agent that the policy would cover his company and himself from claims based on negligent construction. Little does not make *974reference to specific statements made by the agent which would suggest the coverage extended beyond completion of the project.
The evidence fails to show whether Little was or was not continuing to pay policy premiums in 1976 when the Yesaitis’ claim arose.
DISCUSSION
The function of summary judgment is to avoid useless trial. Trial is unnecessary and summary judgment is proper where there is no genuine issue of material fact. 6 Moore’s Federal Practice ¶ 56.15. FRCP 56(c). The instant case is an appropriate case for summary adjudication because there is no genuine issue as to any material fact.
Commerce refused to accept the Little’s tender of defense and moves for summary judgment because it maintains that the policy’s exclusion endorsement, entitled “Completed Operation and Products Hazards”, specifically excludes this type of claim.
Little and the Yesaitis contend that the damage sustained to the Yesaitis property arose because of negligent construction of the complex. They contend that it would be against public policy if insurance companies could exculpate themselves from covering such claims by arguing that the completed operation exclusion disallowed claims for negligent construction the day after the construction is completed.
Little argues that where there is an ambiguity in an insurance policy, as in any contract, the court must consider the intent of the insured by examining the “subject matter of the contract, the facts and circumstances attending its execution, the situation of the parties, and the predominant purpose of the contract.” Great Central Insurance Co. v. Bennett, 40 Ill.App.3d 165, 171, 351 N.E.2d 582, 587 (2d Dist. 1976); Brady v. Highway Comm’r., 24 Ill.App.3d 972, 975-76, 322 N.E.2d 236 (3rd Dist. 1975). To determine whether an ambiguity exists, the court should consider, among other factors, whether the words of the terms are sufficiently clear for a layman to understand. Goetze v. Franklin Life Insurance Co., 26 Ill.App.3d 104, 108, 324 N.E.2d 437, 441 (2d Dist. 1975).
In the instant case there is no such ambiguity and the words of the contract are to be given their plain, ordinary and popular meaning. Goetze, supra at 108, 324 N.E.2d 437. Weiss v. Bituminous Casualty Corp., 59 Ill.2d 165, 170-71, 319 N.E.2d 491 (1974). In the Exclusion Endorsement, the contract clearly states that the policy “does not apply to . .. property damage included within the Completed Operations Hazard.” The definitions attached to the policy explain that “Completed Operations Hazard”, comprises property damage claims arising after completion of the operation. Completion is defined as occurring when the work is put to its intended use by someone other than the contractor or subcontractor. Completion also includes work which may require further service, maintenance work, correction, repair or replacement because of a defect, but which is otherwise complete.
Recently, the 7th Circuit interpreted a similar insurance contract containing a Completed Operations Hazard Exclusion. Hanover Insurance Co. v. Hawkins, 493 F.2d 377 (7th Cir. 1974). The defendants, a custom camper company, installed a gas heater in a camper owned by Stewart. Although the installation was not completed, Stewart paid for the heater, with the promise that defendants would complete the installation whenever Stewart returned. The heater exploded the following morning and Stewart sued. When purchasing their insurance policy, the defendant company told the agent it “wanted liability insurance to cover everything.” Id. at 381. The agent assured them that he would take care of it. The court held that without a showing of either actual or implied knowledge of any misrepresentation by the agent, the insurance company could not be held liable for misrepresentation on such a general request. Id. at 382. The 7th Circuit did not find any misrepresentations made by the agent and turned to the actual words of the policy. The 7th Circuit held that the words *975of the Completed Operations Hazard Exclusion meant the Camper Company was not covered by the policy, “whatever the cause of injury, ... if the heater had already been put to its intended use.” Id. at 380.
Similarly, in the case at bar, the apartment complex was completed in 1972 and had been put to its intended use. At the time of completion, the exclusion for Completed Operations Hazard came into effect. The Yesaitis complaint was filed in 1976, over three years after completion. Thus, Commerce had no duty to defend Little in the Yesaitis suit since the Yesaitis’s claims were explicitly excluded from coverage under the policy.
CONCLUSION
The language of the policy is clear and excludes coverage after the Hil’Crest Apartments were completed and put to their intended use. Commerce no longer had a duty to defend Little after completion. Because there is no ambiguity in the language of the policy, Little’s intent is not relevant to the motion for Summary Judgment.
WHEREFORE, IT IS HEREBY ORDERED that the motion for Summary Judgment by Commerce & Industry Company be and hereby is granted. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489254/ | MEMORANDUM OPINION
MARK B. McFEELEY, Bankruptcy Judge.
This chapter 13 confirmation was heard January 28, 1982. The debtors were present in person and through their counsel, Anthony F. Avallone. Shelter America Corporation was represented by its counsel, Lloyd Bates. First National Bank of Dona Ana County was represented through its officer, Prue Creel, and Chilton Finance was represented by its counsel, John A. Darden III.
The debtors filed their petition on March 9, 1981. The original chapter 13 plan was filed with the Court March 9, 1981, and since then it has been amended twice. This hearing was to consider the Second Amended Plan which was filed July 17, 1981. Creditor Chilton Finance, Inc. (hereinafter “Chilton Finance”) objected to the second amended plan on the ground that it failed to provide payment to it as a secured creditor.
The questions before the Court are, as between debtors and Chilton Finance, is Chilton Finance a secured creditor and does the asset securing its alleged secured debt have sufficient value to allow the claim to be classified as a secured claim herein.
Chilton Finance asserts that its claim is secured by a properly perfected security agreement and promissory note on a 1977 Medallion mobile home. Testimony indicated that the Chilton Finance debt also was secured by a 1970 Mercury Cougar. However, prior to filing the bankruptcy, the vehicle was sold by the debtors and no longer is property of the estate. The controversy herein is whether the mobile home secures the debt.
The debtors contend that the mobile home is not security for Chilton Finance’s debt, thereby causing the debt to be unsecured. Debtors argue that under New Mexico law, to obtain security in a mobile home, a specified procedure must be followed. In this case, Chilton Finance failed to follow that procedure which resulted in its failing to hold a perfected security interest.
Debtors properly cite the Court to New Mexico law governing perfection of liens on mobile homes. Pursuant to § 66-3-l(G), NMSA 1978, “every house trailer shall be subject to the registration and certificate of title provisions of the Motor Vehicle Code.” The Motor Vehicle Code, § 66-3-201, NMSA 1978, sets out the exclusive manner for perfecting security interests on vehicles of the type required to be registered and titled under the same. To perfect a security interest in a mobile home, the secured creditor must file its security agreement with the Motor Vehicle Department. Subsequently, a certificate of title is issued reflecting on its face all liens filed on the subject vehicle.
After reviewing the exhibits admitted into evidence and comparing them to the requirements to perfect a security interest in a mobile home in New Mexico, this Court finds:
*9971. That Chilton Finance has a valid security interest in the mobile home.
2. That Chilton Finance has failed to perfect said security interest since the Court finds no evidence indicating that the certificate of title on the mobile home reflects a Chilton Finance lien.
3. That Chilton Finance is an unsecured creditor insofar as it is a claimant against the debtors.
Even if Chilton Finance had properly perfected its security interest in the mobile home, this Court finds that under 11 U.S.C. § 506(d)(1) (1978), the secured lien of Chil-ton Finance would be void. The only testimony presented as to value of the mobile home was that of the debtors who said that the Chilton Finance lien on the mobile home exceeded the value of the collateral. Chil-ton Finance failed to request the Court to determine and allow or disallow its claim under Section 502, as dictated by the above-mentioned section of the Bankruptcy Code. Therefore, its secured lien would be void.
Having found that Chilton Finance is an unsecured creditor, the debtors’ Second Amended Chapter 13 Plan appears to meet all requirements set out in 11 U.S.C. § 1325 (1978). Therefore, the chapter 13 plan is confirmed.
An appropriate order shall enter. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489255/ | OPINION
EMIL F. GOLDHABER, Bankruptcy Judge:
The issue at bench is who is entitled to a seven-story steel structure: the purchaser of that structure, though the time for its removal under the agreement of sale has expired, or the owner of the realty on which the structure is situated. We conclude that, although the time for removal has elapsed, the purchaser of the structure should be permitted to remove it but must pay the landowner damages for the deprivation of the use of the land during the time that the structure remained there.
*5The facts of this case are as follows:1 On June 10,1977, the Alan Wood Steel Company (“the debtor”) filed a petition for an arrangement under chapter XI of the Bankruptcy Act (“the Act”).2 As part of those proceedings, the debtor conveyed certain real property located in Plymouth Township, Montgomery County, Pennsylvania (“the premises”) to the Montgomery County Industrial Development Authority (“the Authority”). The Authority thereafter entered into a long term agreement of sale with the Fourtees Company (“Fourtees”) for the sale of the premises.
About the same time, the debtor also sold certain personal property, which was located on the above premises, to another party, the Sharon Steel Corporation (“Sharon”).3 Our Order approving the sale of the personalty provided that Sharon must remove the property from the premises before September 13, 1981. The deed which conveyed the premises from the debtor to the Authority also contained an easement granting Sharon the right to come onto the realty for the purpose of removing the personal property before September 13, 1981. We retained jurisdiction over this matter in the event that any controversy arose over Sharon’s right to remove the personalty from the premises sold to the Authority.4
By October, 1980, Sharon had removed part of the personalty from the premises but there remained the seven-story steel structure in which most of that personalty had been contained. At that time Sharon began negotiations with Fourtees about the possibility of an extension of the September 13, 1981, deadline in order to allow Sharon more time to sell the structure in a way that would maximize its profits. In addition Sharon filed a complaint against Four-tees in this court in June, 1981, seeking a declaratory judgment that it had the right to remove the structure even after the deadline while acknowledging that it would be liable to Fourtees for damages for the time the structure remained on the premises beyond the deadline. In answer to that complaint, Fourtees asserted that if the steel structure remained on its property beyond the September 13,1981, deadline then Sharon would lose the right to remove that structure and would, consequently, forfeit all rights in that structure. Fourtees also asserted that, in such an event, Sharon would be liable to it for damages, including the cost to Fourtees of removing that structure, the fair rental value of the realty for the time the structure remained there beyond the deadline as well as punitive damages for Sharon’s allegedly willful disregard of Fourtees’ rights by leaving the structure on the premises beyond the deadline.
The parties agreed that the court should address first the threshold issue of who has the right to remove the structure, leaving the determination of the amount of damages due Fourtees for a further trial. The parties also agreed to the following: (1) the structure in dispute does have some positive value, if not as a standing structure, at least as scrap metal and (2) the structure must be removed from Fourtees’ land as soon as possible.
Given those facts, we see no reason why Sharon should not be permitted to remove the structure. Even if, as Fourtees asserts, Sharon lost its right to remove the structure by failing to do so before the deadline, someone is going to have to remove it now. By allowing Sharon to do it, we would be sparing Fourtees the expense of having it *6done, thereby mitigating the damages caused by Sharon. Furthermore, we do not believe that Sharon’s actions were such as to cause it to forfeit all of its rights in the structure in question. Sharon paid a considerable price for the structure and the other personalty which it bought.5 To hold that Sharon lost all interest in the structure because it failed to remove that structure before the deadline would be an excessive forfeiture penalty, which is unwarranted given the facts of this case. Sharon did not simply ignore Fourtees’ rights by leaving the structure on its property. Rather, Sharon requested an extension of time well in advance of the deadline and negotiated to that end up until the time of the trial herein. Such actions do not, we believe, necessitate a finding that Sharon has forfeited all its rights to the structure. Furthermore, if we were to find such a forfeiture, the result would be a windfall to Fourtees amounting to the value of the structure. We find that such a windfall would be inequitable, if not unconscionable, in these circumstances.
Consequently, we conclude that Sharon should be permitted to remove the structure within a reasonable time.6 The question of the amount of damages to be awarded Fourtees will be decided at a trial to be held after the structure has been removed.
. This opinion constitutes the findings of fact and conclusions of law required by Rule 752 of the Rules of Bankruptcy Procedure.
. While the Bankruptcy Act has been superseded by the Bankruptcy Code as of October 1, 1979, the provisions of 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).
. The personalty which Sharon purchased included the basic exygen furnace and the seven-story structure which housed it and is the subject of the instant controversy.
. See our order of October 30, 1978, approving the sale of the personal property to Sharon.
. The total price paid for those assets was $2,300,000. See our order of October 30, 1978, approving that sale.
. On the question of what is a reasonable time, the parties are apparently in agreement that such a time would be anywhere from four to six months depending on the weather. We agree that that appears to be a reasonable time given the size of the structure. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489829/ | MEMORANDUM OPINION AND ORDER
EDWARD B. TOLES, Bankruptcy Judge.
This cause came to be heard upon the motions of MANUFACTURERS HANOVER TRUST CO. and CITIBANK, N.A. [Banks], represented by LEVY & ERENS, requesting the Court to make additional findings of fact and, by separate motion, requesting the Court to enter certain relief which would permit the Banks to appeal this Court’s Order of March 19,1984, which allowed the first request for interim compensation and reimbursement of expenses filed by counsel for Debtors, SCHWARTZ, COOPER, KOLB & GAYNOR, CHTD. [Debtors’ counsel]; and the Court having reviewed the pleadings filed in this matter, and the memoranda of law filed by counsel for the respective parties, and having on April 23, 1984, afforded the parties an opportunity for hearing, and being fully advised in the premises;
The Court Finds:
1. On March 19, 1984, this Court entered an order which, inter alia, awarded interim compensation and reimbursement of expenses in the amount of $498,604.29 to the law firm of SCHWARTZ, COOPER, KOLB & GAYÑOR, CHTD. counsel for Debtors in these proceedings. This Order was docketed two days later, on March 21, 1984. The Banks, in proceedings conducted on February 28, 1984, had objected to Debtors’ counsel’s first request for interim compensation.
2. On March 26, 1984, counsel for the Banks filed a document, accompanied by affidavits, which was captioned as the Banks’ “Submission of Additional Evidence and Proposed Findings of Fact” pertaining *192to Debtors’ counsel’s first request for interim compensation.
3. On April 10, 1984, counsel for the Unsecured Creditors’ Committee moved the Court to reconsider its March 19, 1984, Order awarding interim compensation to Debtors’ counsel. Counsel for the objecting Banks, who claim that they learned of the Court's March 19,1984, Order only as a result of the Unsecured Creditors’ Committee’s motion to reconsider, filed on April 12, 1984, a motion captioned as a “Motion for Order Requiring Repayment of Fees by Schwartz, Cooper, Kolb & Gaynor, Chtd., for Certification, and for Other Relief.”
4. On April 16, 1984, the Banks filed a notice of appeal from the portion of this Court’s March 19, 1984, Order which granted Debtors’ counsel’s first request for interim compensation and reimbursement of expenses.
5. In their motion to'submit additional evidence and proposed findings of fact, the Banks contend that Debtors’ counsel’s first request for interim compensation should be denied in its entirety, based upon certain oral representations allegedly made by Malcolm Gaynor, a member of the law firm representing Debtors, to the effect that such law firm would not file a request for interim compensation during the Debtors’ impending Chapter 11 proceedings. This allegation is supported by the affidavits of John S. Belisle and Patricia W. Wilson, which are attached to the Banks’ motion to' submit additional evidence and proposed findings of fact.
6. The Banks’ April 12, 1984, motion requested the entry of four separate measures of relief respecting this Court’s March 19, 1984, Order. The motion is not, per se, a motion to reconsider that Order.
First, the Banks request that this Court enter an order directing the Clerk of the United States Bankruptcy Court to “correct” the docket entry for this Court’s March 19, 1984 Order awarding interim compensation to Debtors’ counsel, to reflect the docketing of such order “between April 4 and April 6, 1984.”
Second, the Banks seek the Court’s leave to file notice of appeal from the March 19, 1984, Order instanter.
Third, the Banks ask this Court to certify the relevant portion of its March 19, 1984, Order for review by the United States District Court pursuant to Section e(2)(a)(ii) of that court’s General Order of December 20, 1982.
Finally, the Banks seek an order requiring Debtors’ counsel to repay to Debtors any monies received by them pursuant to this Court’s March 19, 1984 Order, pending the Banks’ appeal of that Order.
The Court Concludes and Further Finds:
1. The Banks’ motion to submit additional evidence and proposed findings of fact will be denied. At the hearing in this cause conducted on February 28, 1984, the Court refused to permit the Banks to adduce evidence of certain oral representations alleged to have been made by Malcolm Gaynor, one of the attorneys for Debtors. The Court expressed an opinion at that hearing, and is of the same opinion now, that even if Mr. Gaynor’s alleged oral representations could have some legal impact on the propriety of counsel’s interim fee request, that question would be immaterial to and beyond the scope of the Banks’ formal objection to Debtors’ counsel’s first interim request for compensation.
2. The Banks could have amended their objection in advance of the February 28, 1984, hearing, to properly place the question of Mr. Gaynor’s alleged oral representations regarding interim fees before the Court. They did not. The Court’s March 19, 1984, Order represents the Court’s disposition of the factual and legal issues relating to Debtors’ counsel’s first interim fee request, which were properly before the Court at that time. The Banks are not entitled, at this late date, to specific findings by this Court regarding a controversy which the Banks failed to properly place at issue.
3. It is the further judgment of this Court that the Banks’ April 12, 1984, “Mo*193tion for Order Requiring Repayment of Fees ... for Certification, and for Other Relief” shall be denied in part, with the remaining issues to be continued until May 10, 1984, for consolidation with the Unsecured Creditors’ Committee’s motion to reconsider. In particular, however, several items of relief requested in the Banks’ April 12, 1984, motion shall be dismissed because these requests are premature.
4. Bankruptcy Rule 8002(b) provides:
Rule 8002. Time for Filing Notice of Appeal
* * * * * *
(b) Effect of motion on time for appeal
If a timely motion is filed in the bankruptcy court by any party: (1) for judgment notwithstanding the verdict under Rule 9015; (2) under Rule 7052(b) to amend or make additional findings of fact, whether or not an alteration of the judgment would be required if the motion is granted; (3) under Rule 9023 to alter or amend the judgment; or (4) under Rule 9023 for a new trial, the time for appeal for all parties shall run from the entry of the order denying a new trial or granting or denying any other such motion. A notice of appeal filed before the disposition of any of the above motions shall have no effect; a new notice of appeal must be filed. No additional fees shall be required for such filing.
The effect of Bankruptcy Rule 8002(b) was to toll the running of the ten-day appeal time upon the filing of the Banks’ March 26, 1984, motion to submit additional evidence and proposed findings of fact. This appeal time will not commence to run anew until the remaining motions of the Banks and the Unsecured Creditors’ Committee are disposed of. Also, by the express terms of Rule 8002(b), the notice of appeal filed by the Banks on April 16, 1984 is a nullity. For these reasons, there appears no need for the Court to direct the Clerk of the United States Bankruptcy Court to “correct” the docket, or authorize the Banks to file notice of appeal instanter, as requested by the Banks. That portion of the Banks’ April 12, 1984, motion which requests the entry of these items of relief is denied.
5. For similar reasons, it is considered that the Banks’ request that this Court certify certain portions of its March 19, 1984, Order for review pursuant to Section e(2)(a)(ii) of the General Order entered by the United States District Court on December 20, 1982, is as yet premature. The Banks are granted leave to renew their motion for certification, if necessary, at the hearing of the Unsecured Creditors’ Committee’s motion to reconsider scheduled to occur on May 10, 1984.
6. The Court does not consider itself bound to resolve at this time the Banks’ motion to require Debtors’ counsel to repay any interim compensation which it has received in this case. If the provisions of Federal Rule of Civil Procedure 62(a) are applicable to this contested matter1, and if Debtors’ counsel’s receipt of interim compensation from Debtors prior to the expiration of the ten-day stay constitutes a violation of that Rule, it remains that the Unsecured Creditors’ Committee’s motion to reconsider the Court’s March 19, 1984, Order is still pending. Indeed, in the absence of such a pending motion, the Court would possess authority to reconsider an interim attorneys’ fee award at any time prior to the conclusion of the bankruptcy proceedings. See In re Den-Col Cartage & Distribution, Inc., 20 B.R. 645, 647 (D.Colo.1982) (Interim attorney fee awards “are almost subject to review and revision by the bankruptcy judge at any time until final judgment is entered”). For the sake of judicial economy, the Court considers it best to defer resolution of this question of repayment until such time as the Court may determine whether to grant or deny the Unsecured Creditors’ Committee’s motion to reconsider.
*194IT IS THEREFORE ORDERED, ADJUDGED AND DECREED that the motion of MANUFACTURERS HANOVER TRUST CO. and CITIBANK, N.A., to submit additional evidence and findings of fact be, and the same is hereby, denied.
' IT IS FURTHER ORDERED, ADJUDGED AND DECREED that the motion of MANUFACTURERS HANOVER TRUST CO. and CITIBANK, N.A. for an order requiring SCHWARTZ, COOPER, KOLB & GAYNOR, CHTD. to repay interim compensation, for certification, and for other relief, be, and the same is hereby, denied in part as set forth in this Order. The remaining matters requested in such motion are to be continued on the Court’s motion to May 10, 1984, at 11:00 a.m. at which time those matters shall be heard in connection with the motion to reconsider filed by the Unsecured Creditors’ Committee.
. See Bankruptcy Rules 7062, 9014. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489830/ | MEMORANDUM OF DECISION DENYING DEBTORS’ DISCHARGE
BARRY RUSSELL, Bankruptcy Judge.
INTRODUCTION
Tales of debtors operating businesses, filing bankruptcy and immediately re-opening the same businesses have been often told.
The matter presently before the Court presents such a course of events and more.
On November 2, 1983, the debtors Claude Anthony Sherman and Theresa Rene Sherman filed their joint Chapter 7 petition indicating being associated with (aw) Sherman Pet Enterprises, Inc. and formerly doing business as ,(fdba) Tony’s Pets, and Dog & Cat Laundromat.
On February 3, 1984, the plaintiff Helen R. Johnson filed her Complaint objecting to the Debtors’ discharge pursuant to § 727(a)(2) & (4) alleging that the debtors (1) fraudulently transferred, sold and concealed certain assets not listed in the schedules, and (2) fraudulently failed to include certain assets and debts in their schedules.
By attempted sleight of hand, now you see it, now you don't, and by outright deceit the debtors tried to paint a picture of their business affairs quite at odds with the truth.
TONY’S PETS # 1
In August, 1980, the debtors purchased Mrs. Johnson’s pet shop, The Plush Poodle at 2030 South Atlantic Blvd., Monterey Park, California for $54,000.00. The name was later changed to Tony’s Pets.
The debtors made payments of only about $15,000.00 and in October, 1983, Mrs. Johnson obtained a judgment for $57,-043.78 against the debtors for failure to pay for the pet shop.
The debtors scheme was to discharge Mrs. Johnson’s debt and to simply move the business to the new location.
Mr. Sherman testified that he conducted the business at 2030 South Atlantic Blvd. until October 31, 1983, and yet the schedules signed on October 28, 1983, and filed on November 2,1983 indicate that the debtors’ had no inventory, office equipment, furnishings, or supplies.
In fact, the only indication that the debtors were remotely connected with a business at the time of filing their petition on November 2, 1983, was the listing on Schedule B-2-T of:
“Petitioner was engaged in business through ownership of 50 percent of the stock of SHERMAN PET ENTERPRISES, INC., a corporation. The value of my stock is about_$100.”
The Statement of Affairs reflects that the debtors operated the pet store from August 20, 1980 to February 24, 1982, and on February 25, 1982, began a new business Sherman Pet Enterprises, Inc. located at 2211 South Atlantic Blvd., Monterey Park, California.
In fact, the new business was merely a closely held corporation with a small office, across the street from Tony’s Pets, with a few files and two desks. Mr. Sherman testified that when the bankruptcy was filed, this so called corporate office had already been abandoned.
The Schedules and Statement of Affairs were cleverly designed to give the impression that Tony’s Pets had ceased to do business in 1982 and that the debtors were merely stockholders in a worthless corporation.
DOG & CAT LAUNDROMAT
In September, 1981, the debtors began operating the Dog & Cat Laundromat at 727 E. Valley Blvd., San Gabriel, California. As the name implies, people brought in their dogs and cats to be washed.
As was the case with Tony’s Pets, the Statement of Affairs reflects that the *210Laundromat ceased doing business on February 24, 1982.
In fact, Mr. Sherman testified that they operated the Laundromat until December 31, 1983, almost two (2) months after the filing of the petition even though the Schedules and Statement of Affairs are totally silent regarding any on going business operation.
Although the debtors listed on Schedule B-l, a worthless leasehold interest in their apartment in Monterey Park, they failed to list the lease on the Laundromat.
During the first week in December, 1983, the debtors offered to sell the Laundromat to Phyllis Garcia for $23,000.00. At the time the location was stocked with grooming supplies as well as tubs, driers and other equipment used in grooming dogs and cats.
Mrs. Garcia testified that in early January, 1984, Mr. Sherman told her that he had closed the Laundromat and had opened a new pet store in Monterey Park.
Mr. Sherman testified the landlord let him out of the lease and that he moved the inventory to the new pet shop.
TONY’S PETS # 2
Mr. Sherman told Mrs. Garcia that he had been operating Tony’s Pets at a new location, 127 S. Garfield Avenue, Monterey Park about three miles from Tony’s Pets # 1, since October, 1983.
He also told her that he had consolidated the assets of the Laundromat and Tony’s Pets at the new location and offered to sell her the new Tony’s Pets for $50,000.00.
Mr. Sherman was firm on the $50,000.00 price and on January 16, 1984, Mrs. Garcia and Mr. Sherman entered into a escrow for the sale of Tony’s Pets at 127 S. Garfield Avenue for $50,000.00.
Mrs. Garcia first learned of the debtors’ bankruptcy in the middle of February, 1984, and cancelled the escrow on February 29, 1984, due to a number of reasons including tax problems the Shermans had with the State Board of Equalization and that stock and inventory of the pet shop was not being replenished after the escrow was opened.
Tony’s Pet Shop # 2 is still being operated by the debtors.
Although Mr. Sherman testified that the new store opened for business on November 23, 1983, one of his customers, Ada Bacon testified that on October 22, 1983 (more than one week prior to the bankruptcy filing) she went to the new location and that it was opened for business.
Mrs. Bacon also testified that Mrs. Sherman told her that the Shermans kept pet supplies at their home.
Mr. Sherman testified that the new location had previously been a newspaper office and needed a great deal of work to modify it for use as a pet shop. He stated that he started to work on the new location in September, 1983, and spent approximately $9,000.00 in the process.
He also testified that in September, he borrowed $5,000.00 from his brother which was used for new plumbing at the new shop. Mr. Sherman’s brother was not listed in the Debtors’ schedules.
Mr. Sherman also stated that in November, after the filing, he cashed in a Certificate of Deposit for $2,300.00 which was listed in their schedules at $1,200.00.
According to Mr. Sherman, he did not want to be bothered with moving the assets of Tony’s Pets # 1 and also needed money to make the necessary improvements at the new location, so he had a clearance sale the entire month of October, 1983.
On cross-examination Mr. Sherman admitted that he was still using the same cash register at Tony’s Pets # 2 that was used while operating Tony’s Pets # 1 and that the Tony’s Pets electric sign was moved to the new shop from the old store.
Another customer, Faith C. Ward testified that she visited Tony’s Pets # 1 in the middle of September, 1983, and although she was told that they were moving to the new location, the shop was fully operational with inventory of approximately $10,-000.00.
*211Even if Mr. Sherman were to be believed, the debtors basically milked the old pet shop of all of its assets in order to make improvements on the new Tony’s Pets.
CONCLUSION
It is clear to the Court that the discharge of the debtors must be denied pursuant to 11 U.S.C. § 727(a)(2) and (4) because they falsified their schedules by omitting valuable assets including, the Dog & Cat Laundromat, the assets of Tony’s Pets # 1 and the assets of Tony’s Pets # 2 and by concealing these same assets.
IT IS SO ORDERED. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489831/ | ORDER DENYING DEBTOR’S MOTION TO AMEND SCHEDULES
JOSEPH A. GASSEN, Bankruptcy Judge.
THIS CAUSE came before the Court on the motion of the debtor, Edward J. Zibro, Jr., for leave to amend his schedules to include a creditor, William Dunne. On December 9, 1983, this Court, 35 B.R. 875, entered its order reopening the case and setting an evidentiary hearing. The evi-dentiary hearing was held on January 9, 1984, at which time the Court heard testimony from both the debtor and Mr. Dunne, received documents into evidence, and heard argument of counsel. For the reasons stated below, the Court denies the debtor’s motion.
The chronology of relevant events, as stipulated by the parties, is set forth below:
May 28, 1981 Voluntary Chapter 7 Petition filed
August 25,1981 Last date for filing objections or exceptions to discharge
September 2, 1981 October 26,1981 Debtor’s discharge signed Order approving Trustee’s report of no distribution and closing estate
December 26,1981 Last date for filing proofs of claim
Early in 1983, William Dunne, who was not listed as a creditor in the debtor’s bankruptcy schedules, sued the debtor in New York. In his lawsuit, Dunne seeks damages in the principal amount of $28,557.80 arising out of a pre-petition transaction. The parties have stipulated that Dunne did not have actual or constructive knowledge of the debtor’s bankruptcy before December 26, 1981 (the last date for filing proofs of claim) and this was supported by the evidence at the hearing.
On July 25, 1983, as a result of Dunne’s lawsuit, the debtor filed the instant motion for leave to amend his schedules to include Mr. Dunne as an unsecured creditor. As noted above, the Court has reopened the case for the purpose of considering this motion.
*26911 U.S.C. § 523(a)(3)(A) provides, in relevant part:
(a) A discharge under Section 727 ... of this title does not discharge an individual debtor from any debt—
(3) neither listed nor scheduled under § 521(1) of this title, 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 had notice or actual knowledge of the case in time for such timely filing; ...
Under this section, the debtor’s indebtedness to Dunne is not discharged because Dunne had no actual knowledge or notice of the case in time to file a timely proof of claim. However, the debtor has asserted that “exceptional circumstances” exist which would justify the Court, in its discretion, in allowing the debtor to amend his schedules and thereby obtain a discharge of his debt to Mr. Dunne. Cf. Robinson v. Mann, 339 F.2d 547 (5th Cir.1964). In Robinson, the court stated:
[W]e hold that the proper rule is that an amendment by the bankrupt may be allowed [after the bar date for filing proofs of claim] but only in exceptional circumstances appealing to the equitable discretion of the bankruptcy court.... In exercising this discretion, the Referee should, of course, consider such factors as may be offered in justification of the failure to originally list the creditor in question. In this case these will also include the circumstances attendant to the failure of counsel to have originally listed the creditor, the degree of disruption which would result from allowing the amendment, and whether any creditor including the unlisted creditor would be prejudiced thereby.
Id. at 550.
The evidence at the hearing established that the debtor is the former president and sixty-five percent shareholder of E.J. Zibro Tire & Appliance, Inc. (“EJZ, Inc.”). For many years, EJZ, Inc. had purchased its insurance from Dunne’s insurance company.
In June, 1979, EJZ, Inc. owed $27,118.24 in past due insurance, premiums to Dunne’s company. In order to eliminate this receivable, Dunne, who had long been a personal friend of the debtor, arranged for a loan from Marine Midland Bank to EJZ, Inc. On June 29, 1979, EJZ, Inc. executed a demand note in favor of Marine Midland Bank in the principal amount of $28,000. The debtor signed this note on behalf of EJZ, Inc. On the reverse side of the note, the signatures of the debtor and Dunne, in that order, appear as guarantors of the obligation.
EJZ, Inc. made none of the monthly payments required under the note, which immediately went into default. On December 3, 1979, Dunne, who had been required to honor his guaranty, paid Marine Midland the sum of $28,557.80. It is this payment for which Dunne seeks contribution or indemnification from the debtor in the pending New York lawsuit.
At the hearing, the debtor testified that he had become ill in the fall of 1980 and had delegated control over EJZ, Inc. to his attorney, Lawrence Conners. Dunne testified that, after paying the note in December, 1979, he mentioned the obligation to the debtor on several occasions. Dunne also conferred with attorney Conners about all of the outstanding obligations, including the Marine Midland obligation, both before and after the debtor’s departure from the company. The Court received into evidence a statement dated May 13, 1980 (more than one year before bankruptcy was filed) which referenced the Marine Midland obligation and which was delivered to the debtor’s attorney.
Applying the Robinson guidelines to these facts, the Court finds that exceptional circumstances do not exist and that it would be inequitable to allow the debtor to amend his schedules at this late date. The debtor had both actual knowledge (by virtue of his execution of the Marine Midland note and his conversations with Dunne) and constructive knowledge (through his attor*270ney) of his obligation to Dunne in connection with the Marine Midland note. The Court finds that the debtor was aware that the sole purpose of this borrowing was to enable EJZ, Inc. to retire its outstanding account balance with Dunne’s insurance company.
Dunne, on the other hand, is an innocent party who has suffered financial loss as a result of the debtor’s conduct. Dunne would be further prejudiced by being belatedly added to the debtor’s schedules in that he has now incurred the additional expense of commencing the New York lawsuit against the debtor. The Court finds insufficient justification for the debtor’s failure to originally schedule Dunne as a creditor. The Court finds that it would be inequitable under the circumstances of this case to allow the debtor to obtain a discharge of his indebtedness to Dunne by amending his schedules more than two years after obtaining his original discharge.
Accordingly, the debtor’s motion to amend his schedules is denied and Dunne’s claims against the debtor are unaffected by the debtor's discharge. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489832/ | MEMORANDUM
KEITH M. LUNDIN, Bankruptcy Judge.
The trustee seeks a declaratory judgment of entitlement to the proceeds from the sale of the debtors’ land. The issues are: (1) whether postpetition perfection of the bank’s security interest by payment of state recordation taxes and statutory penalties relates back to perfection of the original deed of trust to protect the bank’s security interest from avoidance by the trustee; and (2) if the bank’s security interest is avoided by the trustee, whether the debtors can claim an exemption in the sale proceeds. The court finds that the bank’s postpetition payment of recordation taxes and penalties did not perfect a security interest superior to the trustee, and the debtors have no exemptable interest in the sale proceeds.
The following constitute findings of fact and conclusions of law as required by Rule 7052 of the Bankruptcy Rules.
The facts are not disputed. On April 24, 1979, James Allen Johnson and Donna Jane Johnson (“debtors”) borrowed $15,000 from The Farmers Bank (“Bank”). The loan was secured by a deed of trust on real property. The deed of trust was recorded on June 13, 1979 and the required state recordation tax was paid on the $15,000 indebtedness. The debtors thereafter obtained two additional loans from the Bank in the principal amounts of $10,116.66 on July 1, 1980 and $8,289.84 on February 20, 1981. The two subsequent loans were secured by the same real property and there is an undisputed future advances clause1 in the original deed of trust. The Bank did not pay the state recordation tax on the additional indebtedness.
On March 23, 1982, the debtors filed a voluntary Chapter 7 petition. The debtors scheduled the Bank as a secured creditor holding a claim of $42,493.44. On April 9, 1982, after receiving notice of the pending bankruptcy, the Bank paid the recordation tax and a double tax penalty on the additional $27,000 indebtedness.
The real estate was sold at auction in August of 1982 for $27,000. The Bank received the principal and interest owing on the original $15,000 loan. The surplus $5,735.15 has been held by the trustee in an interest-bearing escrow account. The trustee filed this complaint for a declaratory judgment on October 12, 1982.2
I. POSTPETITION PAYMENT OF RECORDATION TAXES
The Bank’s failure to pay recordation tax on the future advances renders the Bank unperfected on the date of the petition in any amount above the original $15,-000 indebtedness. T.C.A. § 67-4-409(b) requires that a recordation tax be paid before a deed of trust may be recorded to perfect a security interest in real property:
(b) MORTGAGES, DEEDS OF TRUST AND OTHER INSTRUMENTS. Prior to the public recordation of any instrument evidencing an indebtedness, including but not limited to mortgages, deeds of trust, conditional sales contracts, financing statements contemplated by the Uniform Commercial Code and liens on personalty, other than on motor vehicles, there shall be paid a tax, for state purposes only, of ten cents (10c) on each one hundred dollars ($100) or major fraction thereof of the indebtedness so evidenced.
On similar facts, the Tennessee courts have recognized that payment of the recording *360tax is a prerequisite to perfection of a security interest. The Tennessee Court of Appeals after exhaustive analysis of legislative history, Tennessee case law, case law from other jurisdictions and underlying policy considerations in American City Bank v. Western Auto Supply Co., 631 S.W.2d 410, 422-423 (Tenn.Ct.App.1981) concluded that:
We believe that in Tennessee no one may claim to be perfected by the filing of a security interest for any amount in excess of the privilege tax paid upon that filing. The payment of the privilege tax on filing financing statements is a condition precedent to filing. ... The effect of the failure to pay the tax is clear on the face of T.C.A. § 67-4102, which expressly declares that a filing is prohibited unless the tax first be paid. As a result, we believe that the effectiveness of any financing statement as an instrument of priority is limited in that respect to the amount upon which the privilege tax is paid. Beyond that it is a nullity, (emphasis added).
See also HGS Technical Associates, Inc., 14 U.C.C.REP. 237 (E.D.Tenn.1972) aff'd, 14 U.C.C.REP. 247 (E.D.Tenn.1973) (security interest limited to amount of indebtedness reflected on financing statement); Jackson County Bank v. Ford Motor Credit Co., 488 F.Supp. 1001, 1009 (M.D.Tenn.1980) (failure to pay recordation tax caused contract to be illegal and unenforceable).3 A bankruptcy trustee’s lien creditor status on the date of the petition defeats the interests of the holder of an unperfect-ed security interest. 11 U.S.C.A. § 544(a) (West 1979).
The Bank cannot claim the benefit of any “good faith” exception to the recording tax requirement. The Bank asserts that Commerce Union Bank v. Possum Holler, Inc., 620 S.W.2d 487 (Tenn.1981) created a “good faith” exception to excuse noncompliance with the recordation statute. The Bank argues that it acted in “good faith” by paying the tax in April of 1982 and should receive priority over the trustee. In Possum Holler, a bank made a series of loans and paid the required recordation tax on each transaction. The bank actually overpaid the required tax because of the consolidated nature of the loan arrangements. Several of the loans, however, were made after á state tax lien had been imposed on the collateral. The Commissioner of Revenue argued that the bank’s security interest was limited to the amount on which the recording tax had been paid before the state’s lien attached. The Tennessee Supreme Court rejected the state’s argument and held that the payment of recordation tax contemporaneously with *361the giving of future advances, despite the intervention of a state tax lien, created a security interest superior to the intervening tax lien. Without specifying whether the perfection “related back” to the original loan, the court held that the payment of taxes simultaneously with the giving of future advances, allowed the bank to be continuously perfected from the date of the first loan. In the instant case, the Bank did not make a contemporaneous effort to comply with the recordation statute. The Bank did not pay even a portion of the tax at the time of making additional loans but waited 22 months on one advance and 14 months on the other before paying the required tax. Even then, the tax was not paid until after receiving notice of the bankruptcy.4 On these facts it cannot be said that the Tennessee courts would afford the Bank the special considerations found in Possum Holler.
The “escape hatch” provisions of T.C.A. § 67-4-217 are no help to the Bank’s position. The Bank argues that T.C.A. § 67-4-217 allows the late payment of taxes and statutory penalties to remedy previous noncompliance and protect otherwise valid security interests.
T.C.A. § 67-4-217 provides:
No contract heretofore made, or hereafter made, by persons engaged in a business or occupation subject to a license or privilege tax, under this part and parts 3-6 of this chapter or any other act, shall be invalid or unenforceable in the courts because of the failure of such person to have paid such license tax at the time such contract was made or was performed; provided, that such person shall prior to the date of adjudication in the court of original jurisdiction pay double the tax due at the time the contract was made and in addition thereto the penalty prescribed by law.
The Bank contends that this section limits the trustee’s avoiding powers as provided by 11 U.S.C.A. § 546(b) (West 1979):
(b) The rights and powers of the trustee under section 544 ... of this title are subject to any generally applicable law that permits perfection of an interest in property to be effective against an entity that acquires rights in such property before the date of such perfection.
By its terms T.C.A. § 67-4-217 does not have the profound effect offered by the Bank. The section is titled “contracts by unlicensed persons” and merely allows the parties to a contract to cure an illegality caused by failure to pay appropriate taxes in order that otherwise valid contracts may be enforced between the parties. T.C.A. § 67-4-217 does not purport to create a special “relation back” period to extend perfection for security interests. The statute does not address perfection or priorities of security interests and cannot be used to elevate the priority of a creditor unsecured on the date of the petition.
Section 546(b) is a special limitation on the bankruptcy trustee’s avoiding powers which validates specific state statutes allowing a later-perfected security interest to have priority over the bankruptcy trustee. See, e.g., T.C.A. § 47-9-301(2) and T.C.A. § 47-9-312(4) (purchase money security interest has priority if perfected within 20 days after the collateral comes into possession of the debtor). T.C.A. § 67-4-217 does not protect an unsecured creditor on the date of petition from the trustee’s avoiding powers under § 544. The United States District Court for the Eastern District of Tennessee recognized this in Ford Motor Credit Co. v. Ken Gardner Ford Sales, Inc., 23 B.R. 743 (E.D.Tenn.1982):
The Tennessee “escape statute” § 67-4015 does not provide that the late payment of the privilege tax acts to perfect a security interest against an earlier interest holder.... In the bankruptcy setting, the trustee’s standing as a lien creditor pursuant to 11 U.S.C. § 544 allows him to avoid interests not perfected until after the action has commenced, so pay*362ment of the penalty tax under T.C.A. § 67-4105 after the petition in bankruptcy has been filed is of no effect.
Ford Motor Credit Co. v. Ken Gardner Ford Sales, Inc., 23 B.R. at 745-746.
Policy considerations support the conclusion that the Bank’s security interest is inferior to the status of the bankruptcy trustee. As the Tennessee Court of Appeals observed:
As a matter of public policy, those who violate the laws of this state should not be rewarded. No only are the citizens and their state treasury short-changed, but the creditors who pay the required tax are placed at a competitive disadvantage ... Fairness requires that we deny rewards to those who ignore the requirements of obtaining the privilege of filing. Further, the only real way of enforcing this tax is by refusing to give the benefits of priority to those who are found to have not paid it as they should.
American City Bank v. Western Auto Supply Co., 631 S.W.2d at 425. Although the stated result imposes a special burden on creditors engaged in future advances financing, it is not the responsibility of this court to second guess the legislative intent in providing the present procedure:
To the extent this presents a dilemma it is political, not judicial. The legislature has provided for the privilege of perfecting security interests ... Clearly that body is entitled to prescribe the conditions precedent that must be met to obtain legislatively conferred privileges. To obtain the benefits, creditors must bear the burdens and pay the required tax.
American City Bank v. Western Auto Supply Co., 631 S.W.2d at 425.
For all these reasons, the trustee prevails in his contest with the bank.
II. THE DEBTORS’ EXEMPTION CLAIM
The debtors may not claim an exemption in property recovered by the trustee through avoidance and preservation of a creditor’s unperfected security interest. Under 11 U.S.C.A. § 551 (West 1979) the trustee may preserve for the benefit of the estate any transfer avoided under § 544:
Any transfer avoided under section 522, 544, 545, 547, 548, 549, or 724(a) of this title, or any lien void under section 506(d) of this title, is preserved for the benefit of the estate but only with respect to property of the estate.
This court has previously noted that:
A trustee may bring an unperfected secured creditor’s interest into the estate pursuant to 11 U.S.C. ... [§ 551] after having successfully pursued his rights under 11 U.S.C. § 544(a), but there is a provision which specifically prohibits a debtor from exempting that interest out of the estate. 11 U.S.C. § 522(g).
In re Morgan, 6 B.R. 701, 703 (Bkrtcy.M.D.Tenn.1980). Because the trustee may preserve the secured (but unperfected) interest of the Bank for the benefit of the estate, the debtor does not possess any exemption right in the sale proceeds recovered by the trustee.
Accordingly, the trustee is entitled to the sale proceeds and interest held in escrow.
An appropriate order will be entered.
. We have addressed the enforceability of such clauses in In re Bates, 35 B.R. 475, 478 (Bkrtcy.M.D.Tenn.1983) and Third National Bank v. Johnson, 9 B.R. 713, 715 (Bkrtcy.M.D.Tenn.1981).
. This matter was pretried on February 9, 1983 and the parties were directed to file briefs on or before March 28, 1983. Neither party filed a brief and the matter remained dormant until discovered in a year-end review. The parties subsequently submitted the required briefs on January 31, 1984.
. The Jackson County Bank holding that a security interest upon which the proper tax has not been paid is void and illegal is questionable after the Tennessee Supreme Court’s interpretation of the recordation tax statute in Commerce Union Bank v. Possum Holler, Inc., 620 S.W.2d 487 (Tenn.1981). The two opinions are, however, reconcilable. The court noted in Possum Holler that:
Our holding is an implicit rejection of the rationale employed in Jackson County Bank to the effect that a security agreement is an illegal contract to the extent it secures advances in excess of the amount upon which the tax was paid. We do not intend to intimate, however, whether or not if faced with the same facts as Jackson County Bank we might reach on other grounds the same result reached by the Federal District Court.
Commerce Union Bank v. Possum Holler, Inc., 620 S.W.2d at 492 n. 5. The Tennessee Court of Appeals has also noted the complimentary aspects of the opinions:
We do agree with defendant's interpretation that our supreme court is unwiling to say that when less than the full amount of tax is paid it will not deem the contract to be illegal, as did Judge Morton in Jackson County Bank, supra. However, we do not read Possum Holler to say that when the first secured creditor only alleges a security interest of a specified amount and pays the privilege tax thereon, that a bona fide second secured creditor who pays the proper tax is not entitled to priority above the maximum amount upon which the first secured creditor pays the tax. To the contrary, it seems to us that the supreme court is suggesting that if the proper tax is not paid and there is no excuse for non-payment ... that the Jackson County Bank result is likely correct.
American City Bank v. Western Auto Supply Co., 631 S.W.2d at 432.
. Although not addressed by the parties, the Bank’s postpetition payment of taxes may be a violation of the automatic stay. See Ford Motor Credit Co. v. Ken Gardner Ford Sales, Inc., 10 B.R. 632, 641 (Bkrtcy.E.D.Tenn.1981). 11 U.S. C.A. § 362(a)(4) (West 1979) prohibits any post-petition act to create, perfect or enforce a security interest against property of the estate. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489833/ | MEMORANDUM OPINION
IN RE CLAIM OF NON-DISCHARGEABILITY
ALEXANDER L. PASKAY, Chief Judge.
THIS IS a Chapter 7 liquidation case, and the matter under consideration is a claim of non-dischargeability, asserted by Nicholas Themalakes (the Plaintiff), who instituted the above-captioned adversary proceeding. The claim of non-dischargeability of a debt *382allegedly owed to the Plaintiff by James Sponheim (the Debtor/Defendant), is based on the contention that it represents a liability of the Debtor resulting from a willful and malicious injury to the person of the Plaintiff, therefore, it should be excepted from the overall protective provisions accorded by the general bankruptcy discharge, by virtue of § 523(a)(6) of the Bankruptcy Code.
The record, as established at the final evidentiary hearing, reveals the following facts germane and relevant to the matters under consideration and they can be briefly summarized as follows:
At the time pertinent, the Defendant/Debtor was a duly licensed bail bondsman by the State of Florida, residing in Dade City, where he maintained his place of business and operated as a bail bondsman, basically in Pasco County, Florida. In 1978 the Plaintiff, apparently a citizen of Greece, although a resident of Tarpon Springs, Florida, was arrested and charged with issuing two checks, both of which were dishonored by the drawee banks for insufficient funds. The Plaintiff was released on a bond pending trial. The bond, in the amount of $2,500 was posted by the Defendant. Since the Plaintiff failed to appear at the duly scheduled trial date, the bond posted by the Defendant was forfeited by the Court.
It further appears from the record that the Defendant published a flyer and caused the same to be posted at several police stations in Pasco County, including at the police station of Tarpon Springs, Florida. The poster offered a $200.00 reward to anyone who would apprehend and deliver the Plaintiff to the Defendant. It appears that the Plaintiff left the country shortly after his release on bond and remained outside of the country, apparently in Greece, until he returned the following year to Tarpon Springs, Florida in March.
It further appears that on March 23 he was spotted by a police officer of the City of Tarpon Springs who recognized him from the flyer posted at the police station. While it is unclear that the police officer did, in fact, arrest the Plaintiff, it is without dispute that he was taken by the officer to the police station who, upon their arrival, immediately contacted the Defendant by phone and inquired whether or not the reward offered by the Defendant, as stated in the flyer, was still outstanding and whether or not it will be still honored. Having been assured that the reward was still outstanding and will be honored, the officer told the Defendant that he had the Plaintiff in custody and would hold him until the Defendant arrives and takes him in custody. Based on this assurance, the Defendant and one of his assistants immediately left Dade City and headed toward Tarpon Springs. They arrived at the Tarpon Springs police station shortly before 1:00 P.M. Upon their arrival, the Plaintiff, who up to that point was not physically restrained, was immediately handcuffed and placed in leg irons and put in the car driven by the Defendant. The journey took at least an hour and a half, covering a distance which ordinarily would not take more than one-half of that time. Testimony supports the fact that the Defendant stopped during the journey for lunch or for refreshments. In any event, there is no doubt that during this stop, Plaintiff was left in the car still shackled. Upon their arrival in Dade City, the Plaintiff was kept in chains in the office of the Defendant, although there is evidence, if believed, that he was at times permitted to move around; he was permitted to use a bathroom and, most importantly, make some phone calls.
This last fact assumes significance, especially in light of what transpired the following morning. It appears that he was permitted to place phone calls to some of his friends in New York in order to raise sufficient funds to pay off the Defendant for his loss resulting from the forfeiture of the bond. In addition, the following morning the Plaintiff was driven by the Defendant to a restaurant where he was served breakfast, which he had to consume handcuffed and, thereafter, he was driven to a bank in order to open a joint bank account in his name and the name of the Defendant, for *383the purpose of receiving funds to be transferred by friends of the Plaintiff from New York in order to pay off the Defendant. It is unclear whether or not this was really ever accomplished. Be as it may, it is clear that it was not until the evening following his apprehension by the police officer, later by the Defendant and his assist, when he was ultimately turned over to the police in Dade City, and incarcerated and kept in custody for bail jumping.
Based on the following facts, the Plaintiff claims that he is entitled to obtain a declaration of non-dischargeability of his claim against the Defendant by virtue of § 523(a)(6) of the Bankruptcy Code, which in pertinent parts, provides as follows:
§ 523 Exceptions to Discharge
(а) A discharge under section 727, 1141 or 1328(b) of this title does not discharge an individual debtor from any debt—
(б) for willful and malicious injury by the debtor to another entity or to the property of another entity.
To except a debt from discharge under § 523(a)(6), the wrongful act must have been both willful and malicious. The term willful means deliberate or intentional. H.R.Rep. No. 95-595, 95th Cong., 1st Sess. 363 (1977), U.S.Code Cong. & Admin.News 1978, p. 5787. The act is malicious if the injury arises from a willful act done wrongfully and without just cause or excuse. McElhanon v. Greer (In re Greer), 21 B.R. 763 (Bkrtcy.D.Ariz.1982). Hatred, spite or ill-will is not required to support a finding of non-dischargeability under § 523(a)(6). Webster City Production Credit Assoc. v. Simpson (In re Simpson), 29 B.R. 202, 212 (Bkrtcy.N.D.Iowa 1983).
It is clear that the right of a bail-bondsman to arrest his principal after the bond has been forfeited is specifically granted by Chapter 903.29 Fla.Stat. It is equally clear, however, that this right to arrest the Defendant was granted solely for the purpose of surrendering the Defendant to the authorities. While the Statute does not use the term “promptly surrender”, it is evident that the Statute was never designed by the Legislature to authorize bailsbondmen to keep defendants in custody for the purpose of extorting monies and for an unreasonable length of time.
In light of the foregoing, the conclusion is inescapable and this record leaves no doubt that the Plaintiff was effectively incarcerated and kept in custody against his wishes from 1:30 p.m., March 23,1981 until he was surrendered to the authorities at least as late as 7:00 p.m. the following day or approximately 30 hours. While there is conflict in the testimony as to any threats on his life, it is clear that the purpose of this detention, which is totally unwarranted, was done solely for the purpose of enabling the Plaintiff to obtain funds to pay the Defendant for the amount of monies the Defendant had to pay when the bond posted by him was estreated. Contrary to the contention of the Defendant, this Court rejects the proposition that he was kept in chains and handcuffs at times at his request and the intimation by the Defendant that he preferred to remain in custody of the Defendant rather than go to jail must be rejected as being absurd.
Neither research of counsel nor independent research found any authorities to support the proposition that false imprisonment without physically touching a person would be the type of liability Congress intended to exclude from the overall protective provisions of the discharge by § 523(a)(6). This Court is satisfied, however, that under the facts of this ease, there is no doubt that the Plaintiff did suffer injuries to his person as the result of the unjustified forceful detention and actual incarceration for a totally unreasonable length of time solely for an illegitimate purpose.
This being the case, this Court is satisfied that he was falsely imprisoned and restrained against his wishes in excess of 30 hours; this conduct was done for the express purpose of extorting funds from him to buy his freedom and, therefore, the claim of non-dischargeability has been es*384tablished with the requisite degree of proof.
Unlike the pre-Code law, c.f. § 17(e)(3) or pre-Code Bankruptcy Rule 409(b), neither the Code nor the Bankruptcy Rules require this Court to proceed and render judgment after it has determined a non-dischargeability characteristic of the liability if no pre-petition judgment has been entered. This being the case, it is appropriate to modify the automatic stay in order to permit the Plaintiff to liquidate its claim which is now declared to be non-dischargeable by this Court in a non-bankruptcy forum.
A separate final judgment will be entered in accordance with the foregoing. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489835/ | MEMORANDUM
KEITH M. LUNDIN, Bankruptcy Judge.
The issue is whether a security interest in a semitrailer is perfected by filing with the Secretary of State or by notation on a certificate of title. Tennessee law controls. After consideration of the briefs, arguments, stipulations, and applicable authority, the court holds that a security interest in a semitrailer is perfected by filing with the Secretary of State.
The following constitute findings of fact and conclusions of law as required by Rule 7052 of the Bankruptcy Rules.
The facts are stipulated. On August 24, 1982, Wallace Leon and Alberta Dean Johnson (“debtors”) granted a security interest in a 25-ton “lowboy” trailer to Liberty State Bank (“Bank”) as collateral for a loan. The “lowboy” trailer is a “semitrailer” as defined by TENN. CODE ANN. *479§ 55-1-1051 and is “equipment” as defined by TENN. CODE ANN. § 47-9-109(2).2 The debtors used the semitrailer in their landscaping business to transport a bulldozer. On September 14, 1982, the Bank filed a UCC-1 identifying the semitrailer as collateral with the Tennessee Secretary of State. No certificate of title has ever been issued for the semitrailer.
On February 3, 1983, the debtors filed a voluntary Chapter 7 petition. The Bank was scheduled as a creditor with a security interest in the semitrailer. On August 5, 1983, the trustee moved to set aside the Bank’s security interest. The motion was subsequently converted to a complaint to determine the validity and priority of the Bank’s security interest. The matter is before the court on cross-motions for summary judgment.3
The trustee argues that filing with the Secretary of State is inadequate to perfect a security interest in a semitrailer because security interests in certain collateral can only be perfected by notation of the lien on a certificate of title. TENN. CODE ANN. § 47-9-302 provides in relevant part that:
(3) The filing provisions of this chapter do not apply to a security interest in property subject to a statute:
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(b) of this state which provides for central filing of, or which requires indication on a certificate of title of, such security interests in such property.
(4) A security interest in property covered by a statute described in subsection (3) can be perfected only by registration or filing under that statute or by indication of the security interest on a certificate of title or a duplicate thereof by a public official, (emphasis added).
The trustee asserts that the “Tennessee Motor Vehicle Title and Registration Law” requires registration and titling of semitrailers and, therefore, provides the exclusive method of perfecting a security interest in a semitrailer. The Bank responds that the semitrailer is not subject to the certificate of title requirement and that a security interest in a semitrailer used as equipment can be perfected by filing a UCC-1 with the Secretary of State. The parties have stipulated that if filing with the Secretary of State is appropriate, the Bank has the superior interest in the semitrailer and that if noting the lien on a certificate of title is required, the Bank is unperfected and the trustee wins pursuant to 11 U.S.C.A. § 544 (West 1979).4
*480The “Tennessee Motor Vehicle Title and Registration Law,” TENN. CODE ANN. § 55-1-101 et seq. does not explicitly require certificates of title for semitrailers. Only “motor vehicles” are facially subject to the certificate of title requirement.5 Semitrailers are, however, required by Tennessee law to be registered.6 At least one federal court has concluded that all vehicles subject to registration in Tennessee must also be titled.7 The holding is premised upon TENN. CODE ANN. § 55-3-103(a) which provides that:
(a) Every owner of a vehicle, subject to registration hereunder and for which no certificate of title has ever been issued by the division, shall make application to the county court clerk of the county wherein the vehicle is to be registered. (emphasis added).
The United States District Court for the Eastern District of Tennessee held that “hereunder” as used in § 55-3-103(a) means that any vehicle required to be registered under any of the subchapters of the “Tennessee Motor Vehicle Title and Registration Law” must also have a certificate of title. Fruehauf Corp. v. Sexton, 18 B.R. 733, 734 (E.D.Tenn.1982). The trustee urges this interpretation.8
*481Since the decision in Fruehauf Corp. v. Sexton, the Tennessee Court of Appeals, in a case involving “lowboy trailers,” has held that “T.C.A. § 55-3-101, et seq. pertains only to motorized vehicles and there is no requirement that detachable trailers be separately titled in this state.” Williams v. Williams Brothers, Inc., 9 TAM 14-24 slip op. at 4, (Tenn.Ct.App.1984).9 This interpretation of the confusing (if not contradictory) Tennessee title and registration laws by an appellate court of the State of Tennessee is entitled to great deference. Bell v. State of Maryland, 378 U.S. 226, 84 S.Ct. 1814, 12 L.Ed.2d 822 (1964); Gwinn v. Deane, 613 F.2d 1, 3 (1st Cir.1980); United States v. City of St. Louis, 597 F.2d 121, 124 (8th Cir.1979); Hall v. Wainwright, 493 F.2d 37, 39 (5th Cir.1974). Analysis of the statutory scheme supports the view that the certificate of title requirement was not intended to apply to semitrailers.
A review of the Tennessee law is guided by recognized principles of statutory construction. Interpretation of a statute should not hinge on an isolated clause in a particular section, but should encompass the entire statute as well as the policies and objectives behind the statute. Philbrook v. Glodgett, 421 U.S. 707, 95 S.Ct. 1893, 44 L.Ed.2d 525 (1975); Kokoszka v. Belford, 417 U.S. 642, 650, 94 S.Ct. 2431, 2436, 41 L.Ed.2d 374 (1973); Richards v. United States, 369 U.S. 1, 11, 82 S.Ct. 585, 592, 7 L.Ed.2d 492 (1962); Environmental Defense Fund v. T.V.A., 468 F.2d 1164, 1173 (6th Cir.1972). A statute should be interpreted to foster the purpose of the legislation, Owen of Georgia, Inc. v. Shelby County, 648 F.2d 1084, 1091 (6th Cir.1981); Jackson v. T.V.A., 462 F.Supp. 45 (E.D.Tenn.) aff'd, 595 F.2d 1120 (6th Cir.1979), and should not be extended or enlarged by implication so as to embrace matters not specifically covered. Owen of Georgia, Inc. v. Shelby County, 648 F.2d 1084, 1091 (6th Cir.1981); National Life & Accident Insurance Co. v. United States, 381 F.Supp. 1034 (M.D.Tenn.) aff'd, 524 F.2d 559 (6th Cir.1974). An interpretation may be within the letter of the statute, yet not appropriate because outside the intention of the enacting body. Philbrook v. Glodgett, 421 U.S. 707, 714, 95 S.Ct. 1893, 1898-99, 44 L.Ed.2d 525 (1975); Church of the Holy Trinity v. United States, 143 U.S. 457, 459, 12 S.Ct. 511, 512, 36 L.Ed. 226 (1892).
The scope of Chapter 3 of Title 55 of the Tennessee Code is limited to titling requirements for “motor vehicles.” The use of the term “motor vehicle” rather than “vehicle” applies the registration requirement to a class smaller than all the possible vehicles. Other subsections of Chapter 3 indicate that the Tennessee legislature did not intend to require certificates of title for all registered vehicles:
1. Tennessee law requires a certificate of title to contain information descriptive of most “motor vehicles” but meaningless or unavailable for semitrailers. TENN. CODE ANN. § 55-3-114 provides in relevant part:
(b)(1) All certificates of title shall be numbered numerically and shall contain upon the face thereof a description of the vehicle including the make, model, type of body, serial number of the vehicle and the engine or other number of the vehicle and, in addition thereto, a statement of the owner’s title and of all liens and encumbrances upon the vehicle therein described, whether possession is held by the owner under a contract of conditional sale or other agreement and the number of the last certificate of title issued for the same vehicle and such other informa*482tion as may be determined to be necessary by the commissioner.
2. TENN. CODE ANN. § 55-3-102 makes it a misdemeanor to operate off-highway motor vehicles, mobile homes, and house trailers without certificates of title, but makes no mention of untitled semitrailers.
3. TENN. CODE ANN. § 55-3-118 provides guidelines for the transfer of certificates of title for “motor vehicles” but not other types of vehicles.
4. TENN. CODE ANN. § 55-3-123 provides for delivery of a certificate of title upon which a lien is noted only for “motor vehicles:”
When any new lien, other than a lien dependent solely upon possession, or a lien of the state for taxes established pursuant to chapter 60 of title 67, is placed on any motor vehicle coming within the title provisions of chapters 1-6 of this title in a transaction not involving any change of ownership, the owner shall deliver, his certificate of title, if in his possession, on to the lienor who shall forward the same, together with the required fee for noting his lien thereon, (emphasis added).
5. TENN. CODE ANN. § 55-3-126 provides that noting the security interest on the certificate of title is the exclusive method of perfection only for “motor vehicles” and other specific collateral.
(b) Notwithstanding any provisions of the law to the contrary, the method provided in this section and § 55-3-125 of certifying a lien or incumbrance upon a motor vehicle, mobile home, house trailer or other mobile structure, whether or not taxed as real property, subject to the provisions of chapters 1-6 of this title relative to the issuance of certificates of title shall be exclusive except as to liens depending upon possession and the lien of the state for taxes, (emphasis added).
6. TENN. CODE ANN. § 55-3-110 provides that “prior to the issuance of a certificate of title for the motor vehicle, the division ... shall determine, by computer or otherwise, if the vehicle has been stolen” but requires no similar investigation with regard to other types of vehicles.
7. TENN. CODE ANN. § 55-3-105 makes it unlawful for the Division of Motor Vehicles to accept an application for a certificate of title without proof of the sales tax, but the provision is limited to “motor vehicles.”
8. TENN. CODE ANN. § 55-3-106 provides that the certificate of title requirement shall not apply to “motor vehicles” of the United States, the State of Tennessee, or non-profit institutions, but does not exempt other “vehicles” owned or operated by these entities.
9. TENN. CODE ANN. § 55-3-107 governing the issuance of certificates for use in lieu of sales tax receipt is limited to “motor vehicles.”
Considering the statutory scheme as a whole, the most reasonable interpretation is to apply the certificate of title requirement only to motor vehicles. The phrase “subject to registration hereunder” in § 55-3-103(a) should not be given exaggerated significance by expanding the certificate of title requirement to all “registered” vehicles.
Accordingly, the court holds that a security interest in a semitrailer used by a debt- or as equipment need not be noted on a title but may be perfected by filing a UCC-1 with the Secretary of State. Therefore, the Bank’s security interest is superi- or to the interest of the trustee under 11 U.S.C.A. § 544 (West 1979).
An appropriate order will be entered.
.TENN. CODE ANN. § 55-1-105 provides in relevant part that:
(b) The word "semitrailer" shall mean every vehicle without motive power and not a motor vehicle as herein defined, other than a pole trailer, designed for carrying persons or property and for being drawn by a motor vehicle and so constructed that some part of its weight and that of its load rests upon or is carried by another vehicle.
"Vehicle” and "motor vehicle” are separately defined in TENN. CODE ANN. § 55-1-103:
(a) The word "vehicle" shall mean every device in, upon, or by which any person or property is or may be transported or drawn upon a highway, excepting devices moved by human power or used exclusively upon stationary rails or tracks.
(b) The words "motor vehicle” shall mean every vehicle which is self-propelled excluding motorized bicycles and every vehicle which is not propelled by electric power obtained from overhead trolley wires. The words "motor vehicle” shall also mean any mobile home or house trailer as hereinafter defined in § 55 — 1—105(d).
A "semitrailer" is a subset of “vehicle” but not of “motor vehicle.”
. TENN. CODE ANN. § 47-9-109 provides in pertinent part that:
Goods are:
******
(2) “equipment" if they are used or bought for use primarily in business (including farming or a profession) or by a debtor who is a nonprofit organization or a governmental subdivision or agency or if the goods are not included in the definitions of inventory, farm products or consumer goods.
. The semitrailer was delivered to the Bank pending the outcome of this proceeding.
. 11 U.S.C.A. § 544 (West 1979) provides that:
(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—
*480(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.
. TENN. CODE ANN. § 55-3-101(a) provides that:
(a) Every motor vehicle or motorized bicycle, as defined in chapter 8 of title 55, when driven or moved upon a highway, and every mobile home or house trailer when occupied shall be subject to the registration and certificate of title provisions of chapters 1-6 of this title.
. TENN. CODE ANN. § 55-4-113(6) provides that:
Freight trailers and semitrailers used primarily for hauling freight shall be registered and in addition to the tax herein prescribed for trucks and truck tractors there shall be imposed on vehicles so classified a registration tax of ten dollars ($10.00). (emphasis added).
The Bank argues that the semitrailer is not subject to the registration requirements because not used primarily for hauling freight. The semitrailer is used principally to transport a bulldozer to various jobsites in the debtors' business. "Freight” is broadly defined in TENN. CODE ANN. § 55-1-118.
The word "freight” shall mean any kind of property which may be carried by motor vehicle over the streets and highways by either public or private carrier.
The bulldozer is "freight” as contemplated by the statute. The registration section does not provide that only common carriers hauling freight are subject to the registration requirements. All vehicles that transport any object classifiable as "freight" must be properly registered.
. This court has not previously addressed whether semitrailers are required to have certificates of title and whether perfection can only occur by lien notation. In cases where the certificate of title requirement was not raised by the parties, however, the court has noted that filing with the Secretary of State is appropriate to perfect security interests in semitrailers used as equipment. See Coble Systems, Inc. v. Coors of the Cumberland, Inc., 19 B.R. 313, 320 (Bkrtcy.M.D.Tenn.1982); Cookeville Production Credit Association v. Frazier, 16 B.R. 674, 682 (Bkrtcy.M.D.Tenn.1981).
.The Attorney General for the State of Tennessee has considered this position and concluded that "there exists a confusion in the meager case law in this area.” Opinion of the Attorney General of Tennessee, 22 U.C.C.Rep.Serv. (CALLAGHAN) 210, 213 (Nov. 19, 1976). The confusion is illustrated by the case law from the United States District Court for the Eastern District of Tennessee. The district court held that filing with the Secretary of State is inadequate to perfect a security interest in a semitrailer. Fruehauf Corp. v. Sexton, 18 B.R. 730 (Bkrtcy.E.D.Tenn.1981) aff'd, 18 B.R. 733, 734 (E.D.Tenn.1982). Fruehauf, however, neither cites nor expressly overrules the contrary holding in In re Lakeland Homes, Inc., 11 U.C.C.Rep.Serv. (CALLAGHAN) 247 (E.D.Tenn.1972) (under Tennessee law, a lowboy trailer used by a manufacturer to transport boats is not subject to the certificate of title provisions of Tennessee law and consequently, the bank's security interest was perfected by filing a financing statement with the Secretary of State). In frustration, the Attorney General concluded that "the perfection of a security interest in semi-trailers and freight-trailers would require both a notation of lien on the certificate of title and the filing of a UCC-1 financing statement." 22 U.C.C.Rep.Serv. (CALLAGHAN) at 214. (emphasis added). Although it would be prudent, considering the mobile nature of the collateral, for a secured party to file with the Secretary of State and note the lien on the certificate of title, this court finds no *481such dual filing requirement in the Tennessee statutes. As indicated infra., the earlier decision of Judge Bare in Lakeland. Homes, Inc., appears to be the correct interpretation.
. The court also noted in its opinion that:
The Defendants also called the county clerk who testified that although there was no requirement in Tennessee for trailers to be licensed or titled, this was a requirement in other states. It was the practice in Tennessee to get a title to a trailer if the owner desired a license plate for use in other states.
Williams v. Williams Brothers, Inc., 9 TAM 14-24 slip op. at 4 (Tenn.Ct.App.1984). | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489836/ | *493ORDER
WILLIAM A. HILL, Bankruptcy Judge.
The State Bank of Towner filed on December 6, 1982, a Complaint seeking turnover of funds collected by the Debtor’s employer pursuant to a garnishment commenced by the Bank prior to the Debtor’s filing for bankruptcy relief. Trustee for the Debtor, Phillip D. Armstrong, filed on December 30, 1982, an Answer asserting that the money withheld from the Debtor’s wages is properly property of the Debtor’s bankruptcy estate. The Debtor, in his Answer filed with the Court on January 6, 1983, claims that the entire sum withheld from his wages prior to the commencement of his bankruptcy proceeding is exempt property and should be returned to the Debtor. The Debtor’s employer, Norman Selland, in his Answer filed with the Court on December 21, 1982, requests that the Court determine the proper party to which he may deliver the garnished funds. This matter came on for hearing before the Honorable Harold O. Bullís on June 15, 1983, at Minot, North Dakota. The parties have consented to this Court rendering its decision on the basis of the record in this matter. After a review of the entire record of pleadings and proceedings, this Court finds the following:
FINDINGS OF FACT
In an effort to collect on its claim against the Debtor, the State Bank of Towner mailed letters to Clifford Heilman giving notice that a garnishment would be commenced if the claim was not settled in the near future. The letters were dated September 3, 1981; April 22, 1982; and September 1, 1982. The Bank did not introduce affidavits of service by mail for those letters. The Debtor testified that he didn’t recall receiving the notices of pending garnishment action, and that generally he had been having trouble with receipt of his mail. On May 7,1982, Allan Latozke, Sheriff of Pierce County, served on Norman Selland a Garnishment Summons and Affidavit. On May 12, 1982, a Garnishment Disclosure was served on Norman Selland by Jeff White, Deputy Sheriff for Pierce County. The Deputy Sheriff also left with Norman Selland on May 12, 1982, copies of all documents which had been served on Norman Selland and requested that Selland deliver the copies to Clifford Heilman. Pursuant to the Garnishment, Norman Sel-land withheld from the wages of Clifford Heilman for pay periods beginning May 1st and ending August 14th, 1982, the sum of $1,048.95. Clifford Heilman filed for relief under Chapter 7 of the Bankruptcy Code on September 7, 1982, before any of the garnished sums could be transferred by Selland to the State Bank of Towner.
CONCLUSIONS OF LAW
Before a garnishment action is commenced, the creditor must serve upon the debtor notice of the possibility that a garnishment summons may be issued. N.D.Cent.Code § 32-09.1-04 (Supp.1983). The notice must in fact be served not less than ten days prior to the date the garnishee summons is issued. The Court construes the issuance of the garnishee summons to be the date the summons is served upon the Debtor’s employer. Section 32-09.1-04 of the North Dakota Century Code specifies that “[t]he notice shall be served personally or by first class mail.” If the creditor fails to follow the service requirements of section 32-09.1-04, any subsequent garnishment action commenced by that creditor is void. In the present instance, the Bank has introduced notices which were prepared for service upon the Debtor. The Debtor, however, does not recall receiving the notices. Further, the Bank has offered no proof that the notices were indeed served, either personally or by mail. The Court is not convinced, therefore, that the proper service required by Section 32-09.1-04 of the North Dakota Century Code was made. As a result, the entire garnishment action is void.
Once a creditor gives notice of a pending garnishment action, that creditor commences the garnishment by serving upon the garnishee a garnishee summons. N.D.Cent.Code § 32-09.1-08 (Supp.1983). *494Where the creditor is 'garnishing wages, the garnishee is the debtor’s employer. Section 32-09.1-08 of the North Dakota Century Code also directs that “[a] copy of the garnishee summons and copies of all other papers sérved on the garnishee must be served personally upon the defendant not later than five days after service is made upon the garnishee.” Id. The creditor must personally serve upon the debtor all documents which were served upon the garnishee. In the present instance, the Bank merely deposited copies of all the documents with Heilman’s employer and requested that they be delivered to Heil-man. Rule 4(d) of the North Dakota Rules of Civil Procedure provides, in part:
Service of all process may be made: within the state by any person of legal age not a party to nor interested in the action; and outside the state by any person who may make service under the law of this state or under the law of the place in which service is made or who is designated by a court of this state.
N.D.R.Civ.P. 4(d)(1) (emphasis added). Norman Selland, as garnishee in this particular garnishment action, was an interested person and therefore not qualified under the rules to personally serve papers upon-the Debtor, Defendant in the garnishment action.
The Court must find that the Bank commenced the garnishment action against Heilman with ineffective service of both the notice of pending garnishment action and the garnishee summons upon the Debt- or. Without proper service, the Bank was wholly without jurisdiction to proceed with the garnishment action. Since the garnishment action was ineffective from the outset, the wages withheld by Heilman’s employer remained property of the Debtor which on September 7, 1982, became property of the bankruptcy estate. The Debtor has claimed the garnished wages as exempt property and no objection to that claim of exemption has been filed.
Accordingly, for the reasons stated,
IT IS ORDERED:
The turnover of funds requested by the State Bank of Towner in its Complaint is denied.
Norman Selland is directed to turn over to Clifford P. Heilman the $1,048.95 of wages withheld during the Summer of 1982. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489259/ | ORDER ALLOWING FILING OF PLAINTIFF’S COMPLAINT.
LEONARD C. GARTNER, Bankruptcy Judge.
On October 20,1981 plaintiff filed a complaint to determine the non-dischargeability of its debt against the debtor pursuant to 11 U.S.C. § 523(a)(2).
Said complaint was filed six days after the last day fixed for the filing of complaints to determine dischargeability (October 14, 1981) as stated in the notice and order for the § 341 meeting of creditors (July 30, 1981). Defendant filed a motion on November 5, 1981 to dismiss said complaint for failure to file on time.
The Court has previously dealt with the question of late filing of a dischargeability complaint in the Matter of Parker, 5 B.R. 666, 667 (Bkrtcy.S.D.Ohio, 1980).
The Court sees no reason not to follow its earlier ruling and will permit the filing of plaintiff’s complaint.
The order and notice of July 30,1981 does cut off the time for filing complaints pursuant to 11 U.S.C. § 523 et seq., but that is an act of the Court rather than pursuant to Code, and hence vulnerable to changes for good cause. This Court would prefer to have controversies resolved on the merits (trial) rather than a dismissal on grounds which, while legal are not equitable.
SO ORDERED. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489262/ | MEMORANDUM OPINION AND ORDER
RICHARD L. SPEER, Bankruptcy Judge.
This cause came before the Court upon the oral Motion of First Federal to allow an increase in the Debtor’s mortgage interest rate or in the alternative to allow First Federal to complete its foreclosure proceedings through sale.
FACTS
The Court finds the following facts:
1.) The mortgage deed held by First Federal secures real property which is the Debtor’s principal residence. Such deed was executed and delivered by the Debtor on June 19, 1975. On June 20, 1975, the mortgage deed was recorded in the Recorder’s Office of Lucas County, Ohio.
2.) Debtor filed his Petition in Bankruptcy under 11 U.S.C., Chapter 13 on December 1, 1980.
3.) Debtor’s Amended Chapter 13 Plan, confirmed on December 30, 1980, proposed to pay any arrearages due First Federal on this mortgage within the Plan. The Debt- or’s current monthly payments ($450/month) were to be made outside the Plan.
4.) As of September 1, 1981, the Debtor was delinquent in his payments to First Federal in the amount of Two Thousand One Hundred Sixty-Two and no/100 Dollars ($2,162.00). The approximate amount owed to First Federal is Forty-Three Thousand Fifty-Six and 29/100 Dollars ($43,056.29) plus interest at the rate of nine percent per annum.
5.) First Federal believes its interest is not being adequately protected, and has sought relief from this Court.
6.) Prior to First Federal’s Complaint For Relief From Stay filed September 11, 1981, three Motions for dismissal of this case for failure to meet required payments were filed by First Federal, Ohio Citizens and the Trustee. Those Motions are still pending.
7.) This Court has previously lifted the stay of both First Federal and Ohio Citizens to the extent that they may proceed with the foreclosure actions in state court up to the point of sale.
The issue presented is whether First Federal may negotiate an increase in the interest rate of this mortgage contract, or in the alternative, that it be allowed to complete the foreclosure proceedings in the state court through sale.
First Federal proposes that even though the confirmed Amended Plan did not modify its rights, the actual execution of the Plan does modify them. First Federal asserts that this modification is contrary to the provision in the Bankruptcy Code which protects them, Section 1322(b)(2).
Section 1322(b)(2) states the following:
“(b) Subject to subsections (a) and (c) of this section, the plan may—
(2) modify the rights of holders of secured claims, other than a claim secured only by a security interest in real property that is the debtor’s principal residence ...”
As stated earlier, the Debtor’s plan proposes to pay all the arrearage due to First Federal under the Plan, and all current payments outside the Plan. This would bring the Debtor’s payments current in the three year period.
The Debtor has not been able to keep up either payment. The Trustee’s report dated December 2, 1981, indicates that of the *153Four Thousand Nine Hundred Seventeen and 85/100 Dollars ($4,917.85) owed to the Plan, to date the Debtor has only paid One Thousand Five Hundred Twenty-Four and 60/100 Dollars ($1,524.60), leaving a deficiency of Three Thousand Three Hundred Ninety-Three and 25/100 Dollars ($3,393.25). The Debtor’s proposed monthly payments are Two Hundred Eighty-Five and no/100 Dollars ($285.00). Since the commencement of his plan, the only month in which the Debtor was able to at least meet this monthly obligation was January of 1981. In fact there have been four months, including December, 1981, in which the Debtor has tendered no payment at all.
At prior hearings, the Debtor explained that for a time he had been laid off, therefore no payment was tendered to the trustee.
However, it also appears that the Debtor has been making current payments to Federal National Mortgage Association for a mortgage it holds on rental property of the Debtor. These payments are being made to the detriment of First Federal, Ohio Citizens and all of the Debtor’s unsecured creditors.
The Court has further been notified by the Debtor’s employer, that the Debtor was injured on the job and therefore is on industrial leave. It is uncertain at this point when he will be able to return. No contact has been made by the Debtor to the Court or the Trustee on this current problem.
This Court has attempted to give Mr. Emery reasonable time in which to get his problems in order since he is representing himself. It appears the Debtor is valiantly trying to make his plan work; however, it is clear that the funds are just not available. The question comes down to whether it is feasible for this plan to succeed given the income of the Debtor. So far, the Debt- or has not been able to make the payments as proposed in the Plan. He could probably not meet the payments if First Federal was allowed to increase its mortgage interest rate.
Even though the appraised value of the Debtor’s residence (which may or may not be valid in today’s housing market) appears to exceed the amount owed First Federal, this cushion is being, rapidly eroded since the Debtor can not meet his payments within or outside his Chapter 13 Plan.
For the foregoing reasons, it is
ORDERED that First Federal’s Motion to increase the mortgage interest rate is hereby denied, and it is further
ORDERED that First Federal’s Complaint For Relief From Stay be granted. First Federal may conclude its foreclosure proceedings in the state court. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489263/ | ORDER ALLOWING EXEMPTION
THOMAS C. BRITTON, Bankruptcy Judge.
This debtor has claimed exemptions as “the head of a family” under Article X, § 4, Florida Constitution. The claimed exemptions include a homestead at 20445 N.W. 45 Avenue in Miami. The trustee objects to the claimed exemption of the real property. The matter was heard on February 24.
The facts are not disputed. The debtor is not married. She has maintained a household with her unmarried younger sister and her sister’s two minor children since 1978. The home claimed as exempt is owned by the debtor and her sister as tenants in common. The debtor works to support this family unit of the three individuals. The debtor has testified on the record before me that she makes the decisions for the family concerning all matters relating to their welfare. This communal arrangement was agreed to by the sisters. The debtor promised to support the family while her sister would be responsible for the home.
The debtor’s entitlement to claim “head of family” status to exempt this property under 11 U.S.C. § 522(b) is determined by Florida law. The rule which has been uniformly followed in this state is:
“When the natural relation of husband and wife or parent and child, or that of being in loco parentis, does not exist, the relation should be one in which an established and continuing personal authority, responsibility, and obligation actually rests upon one as the ‘head of a family’ for the welfare of the others who, in law, should, or in fact, do, recognize and observe a family relation to the one as ‘the head of a family’.” In re Kionka’s Estate, Fla.App.1959, 113 So.2d 603, 606, aff’d, Fla.1960, 121 So.2d 644.
The debtor’s communal living arrangement with her family is under such circumstances that the debtor is the one who is recognized as “the person in charge.” Solomon v. Davis, Fla.1958, 100 So.2d 177, 178. The blood relationship has been recognized as a basis for creating a moral obligation to support. Smith v. Stewart, Fla.App.1980, 390 So.2d 178, 180. I view the circumstances here as more than a mere collection of individuals living together.
The trustee’s objection is overruled and the debtor’s claimed exemption is allowed. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489264/ | MEMORANDUM AND ORDER
BILL H. BRISTER, Bankruptcy Judge.
Robert B. Wilson, Trustee, filed complaint against Texas Department of Human Resources (“DHR”) and Texas Department of Health, after first obtaining permission1 from the Legislature to sue the State. The Trustee seeks to recover from the State of Texas the sum of $130,390.33. Nonjury trial was conducted on January 26,1982. The following summary constitutes the findings of fact required by Rule 752.
In November 1979, approximately one year prior to the time that the petition for order for relief was filed in this case, the debtor leased from the owners a facility in Wichita Falls, Texas, known as the Wood Convalescent Center. That facility became one of approximately 25 convalescent centers and nursing homes operated by the debtor over a wide area, primarily in West Texas.
The State of Texas, by virtue of its duty to protect public health and welfare, is charged with monitoring the operation of nursing home and convalescent centers. The duties of two separate state agencies are germane to the issues in this case. The Texas Department of Health is required to insure that health standards of the operation are met before a license can be issued to the facility. Among other duties the Department of Human Resources is the agency responsible for administering the medical assistance program under the Social Security Act, known as the Texas Nursing Facility Vendor Program. Under that program DHR, with matching federal funds, pays to certified intermediate care facilities an amount of money equal to the actual costs to that facility of providing services to MEDICAID eligible residents. Before a facility can be certified to participate in the Texas Nursing Facility Vendor Program it must be licensed by the Texas Department of Health and, in addition, it must meet the standards required by DHR and by the federal government. The Texas Department of Health has survey teams in the field to make the required investigations precedent to the issuance of a license. DHR has no survey personnel in the field, but legislation was adopted by the State which permits the investigatory personnel of the Department of Health to make the required survey or investigation for DHR.
Prior to the time Wood Convalescent Center was leased by debtor in November 1979 it had been licensed by the Texas Department of Health and had been certified to participate in the Texas Nursing Facility Vendor Program by DHR. Neither the license issued by Texas Department of Health nor the contract with DHR is trans-ferrable or assignable. The leasing of the facility by debtor from the licensed and certified operators effected a “change of ownership” and required debtor to make new application to State Department of Health for license and new application to DHR for certification of eligibility to participate in the Texas Nursing Facility Vendor Program.
Debtor’s lease from the owners of the Wood Convalescent Center was effective December 1, 1979. On December 14, 1979, debtor made the applicable application for licensing to Texas Department of Health and the application to DHR for certification for participation in the Texas Nursing Facility Vendor Program. Pursuant to its standing operating procedures DHR requested the investigatory personnel of the *196Department of Health to make the required survey.
On January 2, 3 and 4, 1980, the Quality Standards Division of the Texas Department of Health conducted the “change of ownership” survey of Wood Convalescent Center. The team concluded that the Wood Convalescent Center was not maintaining the minimum standards required for participation as an intermediate care facility and advised the administrator of the home of 14 deficiencies which adversely affected certification. By letter dated January 17, 1980, the director of the Quality Standards Division notified the administrator of Wood Convalescent Center that his department was proposing denial of initial certification under the “change of ownership” and further advised him that an administrative hearing, at which representatives of debtor could appear and be heard, would be conducted on that action in Austin, Texas, on Wednesday, January 30,1980. The director of the Claims Payment Section, Special Medical Services Division of DHR, supplemented the letter from the Department of Health with his letter of January 23, 1980, confirming that if certification was denied by Texas Department of Health after hearing on January 30, 1980, the application for participation in the DHR program would be denied also.
The administrative hearing was conducted by Texas Department of Health as scheduled. The recommendation of the Quality Standards Division was accepted, certification was denied, and a new survey was ordered. The Department of Health hearing officer advised the representatives of debtor that if the resurvey was favorable to certification he would consider making the certification retroactive to January 5, 1980, the day following the completion of the initial survey.
The second survey was conducted by the same team from Department of Health on February 20, 21, 22, and 25, 1980. That team reported that there was no improvement in the deficiencies from the first survey and, in fact, that there had been deterioration in health care. The director of the Quality Standards Division, Texas Department of Health, by letter dated March 10, 1980, advised debtor’s administrator of the results of the resurvey and again afforded debtor an opportunity to be heard at an administrative hearing scheduled for March 28, 1980. This time, however, there were no provisions2 for retroactive application if resurvey was favorable to debtor. The director of the Claims Payment Section of DHR supplemented the letter from Texas Department of Health with his letter of March 19, 1980. That letter reminded the administrator of Wood Convalescent Center that if the decision at the hearing on March 28, 1980, was to deny certification, participation in the DHR program would also be denied and, in addition, that debtor would be required to complete another application for participation.
In the interim between the Department of Health letter of March 10, 1980, and the DHR letter of March 19,1980, there was an occurrence which gave rise to the litigation in these proceedings. Notwithstanding non-certification of the facility, the Commissioner of Texas Department of Human Resources spontaneously executed a “contract” with Wood Convalescent Center for that facility to participate under the Texas Medical Assistance Program as an intermediate care facility. The “contract” on its face reflected that it was effective retroactively to December 14, 1979, and would terminate on September 10, 1980. It cited, erroneously, that “the facility has been certified for participation with deficiencies and therefore, notwithstanding any other provision herein, this contract shall automatically terminate on the 30th day of May, 1980, if the deficiencies noted by the survey agency have not been corrected within the time required by the survey agency and allowed by federal regulations.”
*197The Commissioner of DHR did not testify at the trial of this case and the precise reason for the execution of that “contract” was never fully developed. Eschewing chivalry those officials of DHR who testified attempted to claim that the snafu was caused by error on the part of clerical employees in the office. However, the Commissioner is charged with the non-delegable responsibility of executing contracts for DHR only after proper certification, with or without deficiencies, has been established. Whether or not clerical error might have been involved the responsible person did, in fact, execute the “contract”. The real issue to be resolved is whether that “contract” can be given any validity.
Presumably the executed “contract” was received by the administrator of Wood Convalescent Center a day or two prior to his receipt of the letter of March 19,1980, from the director of the Claims Payment Section of DHR, reminding him of the administrative hearing scheduled for March 28, 1980. Wood Convalescent Center immediately took the position that the issuance of the “contract” required no further certification proceedings and so notified DHR and Department of Health. According to the testimony at the evidentiary hearing, the officials of DHR then discovered that the “contract” had been improvidently signed and delivered.
None of the parties were comfortable with their respective positions. The parties participated in the administrative hearing before the hearing officer of Texas Department of Health conducted as scheduled. Again, the decision of the Department of Health was to deny certification. However, debtor submitted a new application for certification which was immediately approved on April 8, 1980. Since April 8, 1980, the debtor has been receiving the vendor payments. DHR denies any liability for payment to debtor for services which debtor provided to MEDICAID eligible patients prior to April 8, 1980.
The parties have stipulated that the value of the services rendered by debtor to MEDICAID Patients during the period commencing December 14, 1979, (the date of initial application for certification) and ending on April 8, 1980, (the date when debtor became lawfully certified and commenced receiving vendor payments) is the sum of $130,390.33. The debtor filed petition for order for relief under Chapter 11 on October 15, 1980. The Trustee has succeeded to the claim against the State of Texas and has brought this complaint, seeking recovery of that sum of $130,390.33.
The Trustee urges that he should recover under the “contract” which specifically provided for payment retroactive to December 14, 1979. In the alternative, he contends that he should recover in quantum meruit or on an implied contract theory. Trustee contends that even if Texas Department of Health, the survey agency, did not certify the facility DHR itself had authority to certify a facility “with deficiencies” pursuant to 42 C.F.R. § 442.105.3 The “contract” reflected on its face that the facility had, in *198fact, been “certified with deficiencies” and thus the trustee insists that he should recover. In addition, he claims that the debt- or had provided the services to MEDICAID eligible patients during the period for which he seeks payment and that the State of Texas is unjustly enriched if it is not required to compensate the debtor.
Stripping all of the “window dressing” from the arguments and theories advanced by each of the parties there are certain basic facts which cannot be ignored. The evidence adduced at earlier hearings in this case reflect that the debtor was no neophyte in the health care area, but, to the contrary, was a very experienced leader in the nursing home and convalescent home field. Debtor’s officials knew, and had reason to know, the requirements imposed upon DHR and the procedures which must be followed concerning certification. The receipt of the executed “contract” was a bit of serendipity which did not mislead the debtor for any length of time. It’s officials knew that the State Department of Health had not certified the facility and they knew that until that certification had been obtained DHR could not validly contract with it. It was not mislead into continuing to keep MEDICAID eligible patients in its home. The decision to keep those patients in the home was made by the officials of debtor alone, because from experience those officials knew that when MEDICAID eligible patients left the home they were not likely to return. Debtor kept those patients in the home during the entire interim period, hoping that the facility would be certified retroactively. Under the circumstances the State of Texas was not unjustly enriched.
The salient fact is that the federal regulations require a home to be certified by the State before matching federal funds can be paid. 42 C.F.R. § 442.12. The Texas Constitution, in Article 3, § 51a provides in part:
“The Legislature shall have authority to enact appropriate legislation which will enable the State of Texas to cooperate with the Government of the United States in providing assistance to and/or medical care on behalf of needy persons, in providing rehabilitation and any other services included in the federal laws making matching funds available to help such families and individuals attain or retain capability for independence or self-care, to accept and expend funds from the Government of the United States for such purposes in accordance with the laws of the United States as they now are or as they may hereafter be amended, and to make appropriations out of state funds for such purposes; provided that the maximum amount paid out of state funds to or on behalf of any needy person shall not exceed the amount that is matchable out of federal funds.” (emphasis added)
That article effectively prevents the use of state funds from being paid to needy persons unless there are matching federal funds available. Until the facility was properly certified neither federal funds nor state funds could properly be paid to the facility. The regulatory framework within which the State and federal MEDICAID agencies operate was established for the protection of public health and welfare. It is the duty of the Court to decline to give validity to any “contract” which involves the doing of an act prohibited by statutes intended for the protection of public health and welfare. Peniche v. AeroMexico, 580 S.W.2d 152, 156 (Tex.Civ.App. — Houston, 1979), no writ. The Commissioner did not have the power to enter into the challenged “contract” and thus no contract ever existed in fact.
Debtor is precluded from recovering in quantum meruit for the same reason. Because DHR was without power and authority to enter into any agreement with the debtor during the period of noncertification there can be no recovery in quantum meru-it. Foster v. City of Lubbock, 412 S.W.2d 376 (Tex.Civ.App. — Amarillo, 1967) writ ref. n. r. e.; Ochiltree v. Hendrick, 366 S.W.2d *199866 (Tex. Civ.App.-Amarillo, 1963) writ ref. n. r. e. There was no consideration upon which to base recovery on an implied contract theory.
Thus while the questionable “mistake” argument advanced by the defendants lacks persuasiveness, the clearly dispositive theory in this instance is that the contract entered into by DHR was done so illegally. The federal regulations make it clear that no federal MEDICAID payments are to be disbursed by a State MEDICAID agency to an uncertified convalescent facility. The survey agency, at all times relevant to this case, found that conditions at Wood Convalescent Facility were such that the minimum requirements necessary for certification were not met. No federal funds could be provided to the facility and, absent federal funds, payment of state funds would be violative of the Texas Constitution.
I conclude, therefore, that the “contract” executed by DHR on March 18, 1980, and delivered to debtor was entered into illegally and is void. I conclude, also, that the debtor has demonstrated no detrimental reliance upon that “contract” and is not otherwise entitled to recovery on an implied contract theory nor in quantum meruit.
LET JUDGMENT BE ENTERED ACCORDINGLY.
. Senate concurrent resolution number 67 of the 67th Legislature, Regular Session, 1981.
. The letter from the director stated: “Please be advised that the effective date of any new certification can be no earlier than the date our representatives verify, by on-the-site inspection, that corrections are made on all deficiencies which were the basis for denial of certification.” (emphasis added)
. § 442.105 Certification with deficiencies: General Provisions.
If a survey agency finds a facility deficient in meeting the standards specified under Subpart D, E. F. or G of this part, the agency may certify the facility for Medicaid purposes under the following conditions:
(a) The agency finds that the facility’s deficiencies, individually or in combination, do not jeopardize the patient’s health and safety, nor seriously limit the facility’s capacity to give adequate care. The agency must maintain a written justification of these findings.
(b) The agency finds acceptable the facility’s written plan for correcting the deficiencies.
(c) If a facility was previously certified with a deficiency and has a different deficiency at the time of the next survey, the agency documents that the facility—
(1) Was unable to stay in compliance with the standard for reasons beyond its control, or despite intensive efforts to comply; and
(2) Is making the best use of its resources to furnish adequate care.
(d)If a facility has the same deficiency it had under the prior certification, the agency documents that the facility—
(1) Did achieve compliance with the standard at some time during the prior certification period;
(2) Made a good faith effort, as judged by the survey agency, to stay in compliance; and
(3) Again became out of compliance for reasons beyond its control.
*198(e) If an ICF or ICF/MR has a deficiency of the types specified in § 442.112 or § 442.113 that requires a plan of correction extending beyond 12 months, the agency documents that the conditions of those sections are met. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489267/ | *238OPINION AND ORDER ON COMPLAINT TO RECOVER PROPERTY
R. J. SIDMAN, Bankruptcy Judge.
This matter is before the Court on the merits of a Complaint to Reclaim Property filed on June 19, 1980, by Michael Gerken (“Gerken”) against F. L. Ross Enterprises, Inc. (“Ross Enterprises”), a Chapter XI debtor. The gravamen of the complaint is that certain shares of stock of Pro-Energy Services, Inc. (“Pro-Energy”) are subject to an express trust agreement between Gerken and Ross which requires the re-transfer of such stock by Ross to Gerken. The complaint was amended on July 10,1980, to add WNGC, Ohio Inc. (“WNGC”), Thomas P. Guisti, Receiver (“Guisti”), and Western Natural Gas Co. (“Western”) as parties defendant. By agreement of all parties, a second amended complaint was filed on October 2, 1980, adding Fred L. Ross (“Ross”) individually, as a defendant, and on October 2, 1980, defendants Western, WNGC, Guisti and Ross Enterprises were voluntarily dismissed as parties defendant. Following an answer and counterclaim filed by Ross, and a reply to counterclaim filed by Gerken, the matter was tried to the Court. Post-trial briefs were submitted by both parties and the matter is now before the Court for decision. The Court finds the following facts. These factual findings will speak to time periods relevant to the contested issues in this case, even though such facts may have changed subsequently by virtue of events occurring in relation to confirmation of the Chapter XI Plan of Reorganization of Ross Enterprises and its related entities and otherwise.
The parties to this suit were engaged in several business enterprises, either jointly, individually or in concert with other individuals. These enterprises include J. T. Gerken Trucking (“Gerken Trucking”), Petroleum Purchasers Inc. (“PPI”), Olanco, Pro-Energy Services, Inc. (“Pro Energy”), Federal Petroleum Lease Services Inc. (“FPLS”), and Olanco Gas Transmission Co. The organization, operation, function and interrelationships among these various entities will be set out in an attempt to understand the allegations contained in the complaint.
Gerken Trucking was a trucking business in which Gerken owned approximately 25% of the stock and served as secretary-treasurer at a salary of approximately $15,000-$18,000 per year. The attorney for Gerken Trucking was David Pemberton, and the company filed in another bankruptcy court in 1977 a Chapter XI proceeding under the provisions of the Bankruptcy Act of 1898. Gerken Trucking had a 5% minimum limited partnership interest in one of the Pro-Energy oil and gas programs.
FPLS was a company whose ownership was not clear and which does not appear important for purposes of this suit. Both the plaintiff and the defendant had interests in FPLS however.
Olanco Gas Transmission Co. was a short-lived company, solely owned by Gerken. Its function, which is not important in this lawsuit, was to build a pipe line.
Petroleum Purchasers Inc. (“PPI”) was an oil brokerage firm which bought oil from producers and sold it to refineries. It bought oil from various independent producers and delivered it mainly to Pennzoil and occasionally to other refiners. Gerken, who was the president of PPI, was unsalar-ied but was paid expenses. Gerken executed contracts for the purchase of crude oil which PPI’s employees picked up from producers and delivered to refiners. Gerken owned 75% or more of PPI’s stock at any given time, although his increasing involvement with Gerken Trucking caused him to leave progressively more of PPI’s management to other employees. PPI bought its crude oil from various Pro-Energy limited partnerships as well as from 30 to 40 other companies and then sold the oil principally to Pennzoil.
In late 1974 or early 1975, PPI negotiated with Armco Steel for a contract to buy Armco’s production from 20-30 wells. In preparation for the execution of this proposed contract, PPI made certain expenditures, including securing at least one $25,-*239000 loan from Gerken Trucking. The contract with Armco failed to materialize and as a result, PPI suffered large losses. Following those losses in 1975 and other financial difficulties, PPI was put into state court receivership on February 3,1976. Included in the debts scheduled in the receivership, as shown on the somewhat confused company books, was a debt owed to Pro-Energy for oil picked up in December, 1975 and January, 1976. The actual amount of this debt has been stipulated to be $25,-018.65. Although Pro-Energy filed a claim in the state court receivership, the only funds disbursed by the state court receiver were to the Internal Revenue Service.
Olanco was a company whose primary function was to secure oil and gas leases from farmers and landowners and perform “turnkey” operations for Pro-Energy. Pro-Energy would raise the money from investors to drill a given well, based upon Olan-co’s cost estimates, and Olanco, with advances on these funds from Pro-Energy, would then actually drill the well and prepare it for production. When the well was completed, it would be turned back to Pro-Energy which would pay Olanco for its services. The amount of funds raised by Pro-Energy to drill a well was based upon Olanco’s estimates, and the risk of underestimation fell upon Olanco. Ownership of Olanco was split between Gerken and Ross with each having 250 shares. Olanco also owned some shares of PPI.
Pennzoil made three loans to Olanco of $25,000 each for well completion costs. Olanco repaid some of these loans and some payments remain to be made from production of wells Olanco still has in production. Although Gerken, as the negotiator of the loans from Pennzoil and the unsalaried president of Olanco, probably had personal liability for these loans, and Ross, as half owner, may have had personal liability, Pennzoil has never made any demand upon Gerken personally for repayment of any of the $75,000.00. Pro-Energy did repay some of the debt to Pennzoil, however. Olanco further made personal loans to Gerken and his brother at various times.
Pro-Energy, the most significant entity in this proceeding, was organized to raise money from investors for drilling oil and gas wells. Pro-Energy actually served as the general partner and agent of the many limited partnerships which owned individual wells based upon payment of the required monies needed to fund a well program as estimated by Olanco. Five hundred shares were issued in Pro-Energy originally — 250 to Gerken and 250 to Ross with Gerken serving as unpaid president and both Gerken and Ross serving as signatories for checks issued from Pro-Energy. Pro-Energy operated the wells following turnover from Olanco and served as agent for the distribution of the proceeds from the sale of the oil and gas produced from such wells when paid by PPI. In turn, Pro-Energy received a share from each limited partnership for its services as general partner and had its expenses paid.
Normally PPI paid Pro-Energy and Pro-Energy paid its investors within 30-45 days after the oil or gas production was picked up, but there was no formal agreement regarding the timing of such payments. Ross individually was also a limited partner in several of the Pro-Energy limited partnerships packages.
Allen Blue served as attorney for the incorporation of Pro-Energy and for setting up the various limited partnerships, and David Pemberton completed some of the incorporation documents. Pro-Energy derived 96% of its income from the sale of oil and 4% from the sale of gas with its oil being sold exclusively to PPI and its gas to Newzane.
At the time PPI went into receivership, PPI owed money to Pro-Energy. The exact amount of that debt, stipulated at $25,-018.65, was eventually written off as a bad debt by Pro-Energy. Pro-Energy did pay some of the money owed to Pennzoil, however. Michael Wright (“Wright”), who later became a shareholder of Pro-Energy, made a personal loan either to Ross or Pro-Energy to cover the debt owed to Pro-Energy from PPI so that investors would not fail to receive the amounts due them. *240Wright later became a shareholder of Pro-Energy, presumably as repayment of this loan obligation. After the stock transfer, Ross also changed the terms of his compensation, and the records reflect that in 1976 Ross had a salary of $85,200, in 1977 his salary was $65,000 and commissions were $66,000.
This background information regarding the various companies and ownership rights in each is necessary to understand the allegations contained in the complaint to reclaim property and to assess the significance of the chronological events entered into the record.
The issue in this proceeding involves the circumstances under which stock of Pro-Energy was transferred from Michael Gerken to Fred Ross. Gerken alleges in his complaint that the transfer of Gerken’s one-half ownership of Pro-Energy was made under an agreement of express trust by which Ross was to hold those shares in trust for the benefit of Gerken for a minimum of six (6) months until Gerken could get all the difficulties with PPI worked out and until his involvement with Pro-Energy as an owner would be acceptable to customers of Pro-Energy. All the shares then held by Ross were subsequently transferred to F. L. Ross Enterprises, Inc. and were eventually transferred to WNGC, Ohio Inc., a subsidiary of Western, Natural Gas Co., the proponent of the Chapter XI Plan of Arrangement confirmed in In re F. L. Ross Enterprises, Case No. B-2-78-2746 (S.D.Ohio). Gerken seeks 50% of the original shares of Pro-Energy now held by WNGC, Ohio Inc. which represents the shares he transferred to Ross in early 1976 minus the 5% later transferred to Wright. Ross, in his answer, denies the existence of a trust arrangement, and asserts various defenses based upon the statute of limitations, estoppel, parol evidence and laches. He also asserts a counterclaim against Gerken for breach of a promise to pay for oil and services purchased from Pro-Energy.
The Court finds the following events, in the chronological sequence set out, to be significant findings of fact in the reconstruction of the events which led up to the transfer of Pro-Energy stock from Gerken to Ross.
Gerken and Ross first met in 1973. On December 24, 1974, they, each with 50% ownership of 500 shares for each company, together formed the companies known as Pro-Energy and Olanco. By May of 1975, Ross had become very involved in the day to day operations of Pro-Energy and, at that same time, throughout 1975, Gerken was serving as president of PPI, secretary-treasurer of Gerken Trucking, president of Olanco, and president of Pro-Energy.
In October of 1975, Mr. and Mrs. Gerken and Mr. and Mrs. Ross went to Spain. They all returned to the United States (Boston) on the evening of October 24, 1975. This date is significant only as it relates to the dates of execution denoted on several of the corporate documents and as it substantiates the testimony that several of these documents, which were shown on their faces as having been executed on October 24, 1975, by Ross and Gerken, were, in fact, backdated by their attorney. To the extent relevant to the disposition of the merits of Gerken’s claim in this case, the Court finds that the primary motivating factor in backdating these various documents was to assure Pennzoil, which was upset over Gerken’s involvement with Pro-Energy' because of PPI’s financial defaults, that Gerken was no longer involved with Pro-Energy and had not been for some time. The backdating did not relate to any factors involving PPI’s state court receivership.
Sometime in November of 1975, PPI’s payments to its creditors were becoming slow, some bad checks had been issued, and its financial problems were increasing. Gerken testified that by December, 1975 he had become aware of PPI’s dire financial straits, and between January 1, 1976 and January 15, 1976, he decided to file a state court receivership for PPI. January 16, 1976 was the last date PPI actually picked up any production, and the state court receivership was initiated on February 3, 1976. At that time PPI was being paid by Pennzoil, but these monies went into gener*241al accounts, and Pro-Energy was not paid some cf what it was owed. The amount of this debt was stipulated at $25,018.65.
Sometime either in November, 1975, January 7 or 8, 1976, or January 11 or 12, 1976 (by various portions of Ross testimony), Ross and Gerken, with no other parties present, met at the Imperial House, a motel/restaurant located near the then office location of Pro-Energy. Ross testified that he told Gerken they would have to go their separate ways, and Gerken then agreed to sell his shares of Pro-Energy to Ross for $150.00 which was never paid. Ross testified that Gerken at first insisted on an agreement that Pro-Energy sell all its oil to PPI, but that Gerken later dropped that demand. After the financial plight of PPI became fully known to Ross, Ross also offered to forego suing Gerken for breach of his fiduciary duty in buying oil he couldn’t pay for in his capacity as president of PPI, Olanco and Pro-Energy in exchange for Gerken’s shares in Pro-Energy. The Court has substantially discounted most of Ross’ testimony regarding these various meetings because, in the first instance, the events are not directly relevant to whether an express trust agreement was later entered into between Ross and Gerken, and because, in assessing the credibility of the evidence this Court finds that it is not likely that such meetings, with the attendant conversations, ever took place. More specifically, this Court finds that Ross’ threat of suit for breach of fiduciary duty was not a factor in the Ross-Gerken discussions at that time, but only later became a convenient reason for Ross to use in explaining the Gerken stock transfer. This conclusion is reached, in part, by virtue of the Court’s examination of a deposition given by Ross in the state court lawsuit over this same issue, a deposition which this Court finds admissible into the record of this case. See Rule 32(a)(1), Fed.R.Civ.P., and Rule 801, Fed.R.Evid.
In his concern over the financial plight of PPI, Gerken went to see attorney David Pemberton, who had also served as attorney for Gerken Trucking. Pemberton recommended that Gerken see another attorney regarding mutual assignments needed to cancel loans and straighten out PPI’s affairs on its books. No mutual assignments were executed to or from Pro-Energy as a part of the procedure, but there were mutual assignments executed between Gerken Trucking, PPI, and Olanco.
It is not clear why the Pro-Energy and Olanco corporate books were updated. Ross testified that Gerken needed the updating to “take care of” some priority problems in PPI’s receivership. Gerken denied this and stated that the updating was done merely to bring the books up to date. In either case, on January 21, 1976, Gerken took the minute books of Pro-Energy and Olanco to Pemberton for the necessary updating. The uncompleted status of the various documents in the corporate books and the manner in which such documents were completed was the subject of much testimony.
Later in the evening of January 21,1976, about 8:00 p. m., according to Gerken’s testimony, Ross went to Gerken’s home. At this meeting Ross told Gerken, in the presence of Gerken’s wife, that some customers of Pro-Energy, especially Pennzoil, because of PPI’s problems, refused to deal with Pro-Energy as long as Gerken was connected with Pro-Energy in any way. Therefore, Ross wanted Gerken to turn over his stock to Ross for a period of six months to one year until matters cooled down. Gerken agreed to turn over his stock and to resign and thereupon signed some papers to reflect this agreement. The stock transfer was to be entered into the corporate minute books in such a manner as to show that Ross was in control of Pro-Energy and Olanco. Gerken testified that the agreement was that Ross was to hold the stock in trust for Gerken until the problems with PPI were settled and some time had elapsed, and then Ross would transfer the stock back to Gerken or to anyone Gerken chose. According to Gerken, they also agreed that Ross was to be paid $18,000.00 per year for his handling of Pro-Energy, and any earnings above the $18,000.00 were to be split fifty-fifty between Ross and Gerken. Ross testified, on the other hand, that by October or *242November, 1976, he was authorized to take $50,000.00 per year as salary from Pro-Energy. Gerken further stated that he signed his letters of resignation from Pro-Energy and Olanco on that evening of January 12, 1976, even though they were dated October 24, 1975.
On January 23, 1976, the new documents prepared for the Pro-Energy corporate minute book by Pembererton were completed. These included specifically the December 24, 1974 Minutes of Actions of Sole Incorporator (backdated), the Consent and Authorization of Shareholders dated January 21, 1976, the Director Minutes dated December 24, 1974 (backdated), the Stock Certificate specimen, the two Actions by Written Consent of Directors, dated October 24, 1975 (backdated), and the original of stock certificates # 1 and # 2. Gerken signed the stub to stock certificate # 1 and all the other documents where his signature was needed and forwarded the documents to Ross except for stock certificate # 1 which he kept.
To the extent helpful to an understanding of the dealings between Ross and Gerken, and to the minimal extent relevant to a determination of the basic issues in this case, the Court finds that documents in the corporate minute book of Pro-Energy were prepared as follows:
1. Corporate Documents.
The Articles of Incorporation and the original Appointment of Agent, prepared by Allen Blue, were dated December 24, 1974, and were in the corporate minute book before January 21, 1976. The receipt for $525.00 dated February 19, 1976, was paid by Pro-Energy and was not in the book as of January 21, 1976, as was also true of the certificate from the Secretary of State dated February 18, 1976. The Certificate of Amendment to the Articles of Incorporation, dated February 12, 1976, was not in the book on January 21, 1976, and was prepared by Allen Blue after that date.
2. Shareholder Minutes.
The Minutes of Actions of Sole Incorporator, dated December 24,1974, were actually prepared at a later date by David Pember-ton and backdated to a time when the actions occurred. These minutes were not in the book on January 21, 1976. The Consent and Authorization of Shareholders, dated December 24, 1974, was not in the book on January 21, 1976, and was prepared by Pemberton in late January 1976 and backdated. The Action of Written Consent of Shareholders, dated October 24,1975, which states the date of Gerken’s resignation and fixes the number of directors at one, was not in the book on January 21, 1976, and was not prepared by Pemberton. The letter, dated October 24, 1975, to Fred Ross from Gerken stating that Gerken was resigning as officer and director of Pro-Energy was not in the book on January 21,1976, was backdated, but was not prepared by David Pemberton. The actual date it was signed by Gerken and how it got into the book are disputed. The Minutes of Actions Taken in Writing by the Sole Shareholder of Pro-Energy Services, Inc., dated January 5, 1976, were also not in the book on January 21, 1976, but were prepared later by Attorney Blue. The date of insertion is not clear. The Minutes of Actions Taken in Writing by the Sole Shareholder, dated February 2, 1976, were not in the book on January 21, 1976, but were prepared later by Blue or Ross. The remainder of the sole shareholder minutes were all prepared subsequent to January 21, 1976, and were not in the book at that time.
3.Other Documents.
The Code of Regulations was in the book on January 21, 1976, and was prepared before that date by Attorney Blue.
The first entry in the Director Minutes, dated December 24, 1974, was not in the book on January 21, 1976, but rather was prepared by Pemberton and backdated to coincide with the date of incorporation. The Stock Certificate specimen (Exhibit A) was prepared by Pemberton and was not in the book on January 21, 1976. The Certified Resolution, dated December 24, 1974 (Exhibit B), is thought to have been already *243in the book on January 21, 1976, but this fact is not certain. The Actions by Written Consent of Directors, dated October 24, 1975, was prepared by Pemberton, and was not in the book on January 21, 1976. This document was backdated, but the actual date of preparation and signature is not clear. Likewise the second Actions by Written Consent of Directors, dated October 24, 1975, was also not in the book on January 21, 1976, and was backdated. The Minutes of Actions Taken in Writing Without a Meeting by all the Directors of Pro-Energy Services, dated January 5, 1976, were not in the book on January 21, 1976, and were not prepared by Pemberton at the time the corporate books were being updated. The same is true of the Actions by Written Consent of Director, dated January 5, 1976. The remainder of the Actions of the Sole Director, contained in the corporate minute book, and the Pro-Energy Services Executive Medical Care Plan are subsequent to the relevant dates in this suit.
The Stock Ledger section of the Pro-Energy corporate book has several entries of interest to this suit. First is a list of shareholders of Pro-Energy with the certificate number, name of the shareholder and number of shares. This document was not in the book on January 21, 1976, and was not prepared by Pemberton, nor by Blue, according to his testimony. Its origin is somewhat uncertain. Stock Certificate # 1 for 250 shares to Michael Gerken was not in the book on January 21,1976, but the original was prepared by Pemberton. The copy admitted into evidence is not an exact copy of the original, and Pemberton denies preparation of the copy. It is dated December 30, 1974, and Pemberton had his secretary write “cancelled" on the original document after January 24, 1976, when the stock was transferred to Ross. The transfer certificate for this stock certificate was not in the book on January 21, 1976, although it is dated October 24, 1975. Stock Certificate # 2 with 250 shares to Ross was prepared by Pemberton, and the stub was filled in by Pemberton’s secretary. Pem-berton did not recall that the stub on the back of this certificate was filled in when saw the book on January 21, 1976. The certificate stub, dated December 30, 1974, was not in the book on January 21, 1976. Stock Certificate # 3 and the stub with the transfer dated December 30, 1974, and an original issue date of October 24, 1975, showing 250 shares issued to Ross from Gerken is not correctly dated and was not in the book on January 21, 1976. Rather it was prepared in February of 1976 by Pemberton’s secretary. The remainder of the stock certificates numbered 4 and higher and the compensation agreement dated January 1, 1977, post-date the time of this dispute and are therefore not relevant. he
Although there was much testimony concerning the dates of these various documents, who prepared them, and what their actual dates of execution were as compared to the dates shown on the documents themselves, much of this date is not actually contested and may not be especially relevant to the decision of this proceeding. And while this Court’s recitation of these matters may be somewhat confusing, it does serve to illustrate the rather cavalier approach of both Gerken and Ross to matters of import and the difficulty thus imposed upon this Court in sorting out the actual events in their proper sequence. Also, to the extent the parol evidence rule was asserted by Ross to strike all testimony that may have tended to contradict the actual dates on the various documents, the Court hereby overrules the objection. See 30 Am.Jur.2d Evidence § 1039. Parol evidence may be introduced to vary a date on an instrument where the date is material to resolution of the issues of the case. See Shelton v. American Insurance Union, 41 Ohio App. 512, 181 N.E. 497 (1931).
Sometime between January 24, 1976 and February 4, 1976, Gerken talked with Pemberton by phone regarding his agreement to turn his stock in Pro-Energy over to Ross for a limited period of time so that Pro-Energy could satisfy Pennzoil’s wishes that Gerken not be connected with Pro-Energy. Pemberton testified that he advised Gerken either to get a written trust agreement, to get a buy-sell agreement simultaneous with *244the transfer, or at least to get a transfer endorsed in blank, which would not appear on the company books, that Gerken could keep in his possession so that he could control the transfer if there were a failure of consideration.
On February 3, 1976, PPI actually filed for a state court receivership. On the following day Gerken went to the Pro-Energy offices and had his Stock Certificate # 1 endorsed and witnessed. This was backdated to December 30, 1974, but actually was executed on February 4,1976. Gerken then mailed certificate # 1 with the stub and with a memo to Pemberton’s secretary to transfer the stock to Ross with an endorsement on the back: “I hereby sell, assign and transfer unto Lawrence T. Gerken and to Michael T. Gerken shares etc.” Following this, he left for a trip to Florida.
February 5, 1976, the next date for consideration, is a focal date in this lawsuit. Gerken testified that he received a call from Ross on that day saying that the Pennzoil audit was imminent and that the stock matter needed to be cleared up. Gerken told Ross the stock certificate had already been mailed to Pemberton’s office with instructions to have the stock representing certificate # 1 transferred to Ross and endorsed back to L. Gerken (Michael Gerken’s brother) and M. Gerken. Ross was upset over this arrangement and insisted that the transfer be without the endorsement on back, and that Gerken should trust him. Gerken agreed to do as Ross requested and called Pemberton’s office and told Pemberton to transfer the stock clean, even though this was against Pemberton’s advice and even though certificate # 3 with its transfer back to L. and M. Gerken had already been prepared. Gerken reasoned that Pro-Energy was worthless without the Pennzoil contract and if Ross insisted on a “clean transfer” to preserve the Pennzoil account, Gerken was willing to go along with this with the understanding that the stock would be retransferred to him after 6 months had passed or Gerken’s involvement had become acceptable.
Following preparation as directed, Ross came into Pemberton’s office and picked up the certificate and cover letter. He also picked up the Pro-Energy corporate minute book, and Pemberton performed no more services for Pro-Energy after February 5, 1976.
Pemberton’s secretary, Margaret West, testified that Ross first became aware of the provision of transfer back to L. and M. Gerken when he called her on February 5 to see if the certificate had been prepared. She stated that Ross became very angry and that later in the day Pemberton told her to destroy the first prepared certificate # 3 and fill one out without the transfer language. After preparing the new certificate # 3 and typing the cover letter dictated by Pemberton, she called Ross to tell him it was ready. Ross then picked up certificate # 3 and the cover letter as well as the Pro-Energy corporate minute books which Ross took to attorney Blue’s office.
Through oversight, the original of certificate # 1 remained in the file at Pember-ton’s office and was not included with the corporate minute book which was picked up by Ross on February 5. How a purported copy of certificate # 1, which is not an exact copy of the original certificate # 1, actually got into the minute book as introduced into evidence, has not been explained to the Court. Pemberton did not speak with Ross personally on February 5, according to his testimony, and the minute books of Pro-Energy and Olanco were never returned to his office.
Ross’ account of the events of February 5,1976, is that Pemberton asked him to sign the certificate transferring the stock back to L. and M. Gerken and that he refused and threatened to start a new company. Then Pemberton called Gerken in Florida after which Pemberton asked his secretary to prepare another certificate without the transfer to L. and M. Gerken. Regardless of which account of February 5 is believed, however, it is clear that Gerken initially intended to transfer his stock with a re-transfer to L. and M. Gerken. When this became unacceptable to Ross, the retransfer *245was removed, and the stock was transferred without it.
On February 18, 1976, attorney Blue amended Pro-Energy’s Articles to authorize issuance of 10,000 shares. Michael Wright was to then get 1,000 of these and an interest in Pro-Energy # 1 limited partnership in return for a loan of capital to Pro-Energy. This action essentially gave Wright 10% ownership in Pro-Energy (the other 90% was transferred to Ross) and the transfer to Wright is not disputed by Gerken or Ross. Gerken testified that he and Ross had agreed, probably in the fall of 1975, to each give Wright 5% of their shares. On March 15, 1976, Blue prepared certificate # 5 transferring 10% of the company’s shares to Wright.
In late August of 1976, Gerken talked with Pemberton regarding some legal fees Pemberton was owed for services for Olanco, Pro-Energy and Olanco Gas Transmission Co. Pemberton and Gerken met at the Hilton Inn North in late August, 1976, and then went to the nearby Pro-Energy offices to see Ross. Gerken wanted Pemberton to go with him to discuss the stock retransfer since six months had lapsed and he had heard that Pennzoil now had new monies. Ross was not in the office, but they left a message for him to call Pemberton. Ross, upon calling Pemberton, agreed to personally pay Pemberton’s fees for services to the various companies. At that same time, Ross told Pemberton that Gerken had no shares in Pro-Energy. Ross did indicate he might pay a nominal amount for any equitable interest Gerken had in the shares, but no monies were ever paid. On August 27 Pemberton wrote Gerken a letter relating to Gerken what Ross had told him concerning Gerken’s lack of any claim to either Pro-Energy or Olanco stock and sent on to Gerken a letter Pemberton had received from Ross dated August 25,1976. Pember-ton’s letter also stated that Ross insisted that Pemberton had not handled the Pro-Energy transfer but only the Olanco transfer and that any testimony Pemberton might give would be for naught. Ross then disclaimed, in this letter of August 25th, any knowledge of a trust transfer. In late 1976 or early 1977, when Gerken had decided litigation would be necessary, Pemberton sent Gerken to another attorney since Pem-berton knew he would have to testify regarding the facts surrounding the stock transfer.
In June of 1978 Gerken talked with John Duffey, his present attorney in this action, and on July 29, 1978, the complaint of Michael Gerken against Fred L. Ross over the stock transfer was first filed in Franklin County Common Pleas Court.
The Court must decide which conflicting variations of this sequence of events to believe. Were the shares of Pro-Energy transferred to Ross from Gerken subject to an express trust agreement or were they simply transferred free and clear of any claims by Gerken in exchange for Ross’ forebearance in bringing a suit against Gerken for alleged breaches of fiduciary duty?
The Court, after studying the testimony of the parties and the various witnesses, considering their demeanor and noting the contradictions found in certain portions of the testimony, believes and finds that an agreement of express trust had been arrived at prior to the transfer of the stock. The agreement for such trust was reached on January 21,1976, when Ross and Gerken met at Gerken’s home. The elements necessary for the creation of an express trust are present. The circumstances and the testimony have shown the Court in a clear and convincing fashion that a trust arrangement was intended. The existence of a trust arrangement is the fair and reasonable interpretation of the acts of both Gerken and Ross. Ross needed Gerken out of the Pro-Energy operation to appease Pennzoil, but the effect of PPI’s troubles upon Pro-Energy was considered temporary by both parties, and it was intended that Gerken’s Pro-Energy stock be retransferred to him following the passage of sufficient time for the PPI matter to be forgotten. No bad feelings or disagreements between the parties prior to the problems with PPI were testified to. The intention of Gerken *246was to transfer his shares of Pro-Energy stock to Ross for Ross to hold in trust for Gerken. Gerken had the required capacity to create such a trust, the terms and the subject matter of the trust were clear, Gerken himself was the intended beneficiary, and the oral creation by agreement was sufficient. The creation took place on January 21, 1976, at Gerken’s home, and the delivery occurred on February 5, 1976, when Ross took the executed transfer of the shares of Pro-Energy stock. No consideration was needed. Repudiation of the trust then occurred on August 25, 1976, the date of Ross’ letter to Pemberton which stated that no trust arrangement existed.
The Court finds, however, that the record is far from clear on establishing a further agreement between the parties, Gerken and Ross, that Fred Ross was to be paid a salary of $18,000.00 per year while he served as president and chief officer of Pro-Energy and that any net profit above that amount was to be divided fifty-fifty between the two parties. Thus, any further discussion of the express trust agreement will be confined to the single element which has been clearly established, the agreement to re-transfer the 250 shares back to Gerken. However, the Court also finds that Gerken and Ross consented to the 10% ownership of Pro-Energy subsequently issued to Dr. Wright and that any discussion of damages must take this transfer into account.
The various defenses to the finding of an express trust arrangement advanced by Ross include a statute of limitations bar, a statute of frauds problem, accord and satisfaction, the parol evidence rule and assertion of various equitable doctrines. The Court will attempt to deal with these defenses on their merits.
STATUTE OF LIMITATIONS (Statute of Frauds)
Based upon the previous findings of fact made by this Court, the relevant dates to be considered in evaluating the merit of Ross’ defense of the statute of limitations are: (1) January 21, 1976 — the date the express trust agreement was made; (2) February 5, 1976 — the date of delivery of the res of the trust agreement, the 250 shares of Pro-Energy stock; (3) August 25, 1976 — the date of the Ross letter repudiating the trust agreement; (4) July 29, 1978 — the date upon which. Gerken filed a complaint against Ross in the Court of Common Pleas of Franklin County, Ohio, over the stock transfer dispute; (5) December 7, 1978 — the date upon which an original petition under Chapter XI of the Bankruptcy Act of 1898 was filed by Pro-Energy, Ross Enterprises and other related entities; (6) June 19, 1980 —the date of filing of the present adversary proceeding which named only Ross Enterprises as a defendant; (7) September 29, 1980 — the date of an agreed entry (including the agreement of the attorney for Ross) by which Gerken was given leave to file a Second Amended Complaint joining, for the first time, Ross as a new party defendant, and further providing that the Court had subject matter jurisdiction over the Gerken-Ross dispute and that Ross voluntarily entered his personal appearance in the action; (8) October 2, 1980 — the date of Gerken’s Second Amended Complaint naming Ross as a new party defendant and the date of the voluntary dismissal by Gerken of all other defendants previously named; and (9) October 16, 1980 — the date of Ross’ answer to the complaint.
Ross asserts that any one of several possible statutes of limitations bars Gerken from obtaining the relief requested. The statutes include § 2305.09 of the Ohio Revised Code (4 years on an action based in fraud), § 1707.43 of the Ohio Revised Code (2 years on an action based upon an unlawful sale of securities), or § 1335.05 of the Ohio Revised Code (1 year on an action based on an oral contract not to be performed within one year — the Ohio Statute of Frauds).
Gerken asserts that none of these limitations applies and that the proper statute is § 2305.07 of the Ohio Revised Code, a six-year statute for contracts not in writing.
The Court hereby finds that Gerken’s present action is not barred by any applicable statute of limitations. Because the four-year limitation contained in § 2305.09 applies only to actions based in fraud, and *247because fraud is not the basis for recovery asserted in Gerken’s complaint, Gerken’s action is not barred by that statute. Further, the two-year limitation contained in § 1707.43 applies to purchases of unlawful securities only. This case only incidentally involves a security because a security was the trust res. In no fashion can it be successfully asserted that any statute of limitations contained in any securities laws (state or federal) has applicability to the present action for enforcement of an agreement of express trust. Finally, the Ohio Statute of Frauds (§ 1335.05) is also inapplicable. Trust agreements are not specially mentioned in such statute, and the trust agreement in any event was to be completed within one year and in fact was repudiated only seven months after it was made. See Winder v. Scholey, 83 Ohio St. 204, 93 N.E. 1098 (1910). The Court hereby finds that the six-year statute of limitations on oral contracts is applicable in this case, and thus, based upon the January 21, 1976, date of the oral contract, and the October 2, 1980, date of the naming of Ross as a new party defendant in this lawsuit, Gerken’s claim is not barred by such statute.
The Court, however, even if it were inclined to apply a shorter statute of limitations in this case, would be persuaded that the July 29, 1978, initiation of a state court suit against Ross would have tolled the running of any statute, and that the conduct of Ross in agreeing (and perhaps even seeking) to have this dispute heard in this Court may estop him from asserting as a defense any statute of limitations which hadn’t run as of July 29, 1978. See 51 Am.Jur.2d, Limitations of Actions, §§ 438-452. It should also be observed that the Joint Plan of Arrangement confirmed by this Court in the F. L. Ross Enterprises, et al. Chapter XI proceeding was specifically agreed to by Fred Ross. That Joint Plan contained the provision that:
“As Disbursing Agent Western Natural Gas Company shall forthwith do the following:
1. Deposit with a trustee designated by the Official Creditors’ Committee the sum of 200,000 shares of its common stock in the name of Carolyn A. Ross and Fred L. Ross pursuant to the terms of Paragraph V.A. (5) of the Joint Plan of Arrangement. A portion of said shares shall be designated as the shares claimed by Michael Gerken pursuant to Paragraph V.A. (6)(e) of the Joint Plan of Arrangement and shall be held by the trustee pending a determination by a court of competent jurisdiction of the validity and amount of Michael Gerken’s claim to said shares.”
It is obvious that Ross expected the Gerken claim to the shares of Pro-Energy to be litigated. And while his agreement to the Joint Plan of Arrangement does not, per se, constitute a waiver of defenses by Ross to the Gerken claim, it does evidence an understanding that, to the extent Gerken’s claim (then pending in state court) affected the distribution of Western Natural Gas shares under the Chapter XI Plan, the matter would be resolved in a court of law. This Court perceives no prejudice to Ross that this resolution is made in the bankruptcy court without regard to the time lapse occurring since the July, 1978, filing of the lawsuit in state court.
ACCORD AND SATISFACTION
Ross claims that Gerken turned over his shares in Pro-Energy to him in satisfaction of the dispute relating to funds alleged to be owed by PPI to Pro-Energy. This Court has already determined, as a matter of fact and based upon the credibility of the testimony on this matter as judged by the Court, that the PPI obligation to Pro-Energy (stipulated at $25,018.65) did not form a basis for the stock transfer from Gerken to Ross. While it may have been true that Ross blamed Gerken for the loss resulting to himself, Pro-Energy and related entities as a result of PPI’s failure to pay that obligation, nothing in the record persuades this Court to find that the consideration for the stock exchange was the forgiveness of this debt, especially since the debt was owed by PPI, a separate legal entity from Gerken, the transferor of the stock. The Court further finds that the counterclaim *248asserted by Ross against Gerken has not been proved. No liability for any loss (even the existence of a loss is speculative based upon the meager evidence in the record) to Ross can be attributed to Gerken personal-iy.‘
“CLEAN HANDS” DEFENSE
The essence of Ross’ defense of “clean hands” is that Gerken bears some culpability for the financial collapse of PPI, the subsequent troubles of Pro-Energy with Pennzoil, and the need to disassociate himself with the Pro-Energy operation. Because of this, Ross claims, Gerken ought not now benefit by the return of the trust property — the shares of Pro-Energy. Gerken, however culpable he may have been in the PPI matter, does not bear the burden of proving his innocence before recovery can be allowed on his complaint. It may be deemed proved that the transfer of the Pro-Energy stock by Gerken to Ross was indeed part of a ruse to convince a major customer of Pro-Energy that Gerken was no longer involved in that company. That fact does not, however, in this Court’s opinion, so taint Gerken that he should be barred from seeking the return of his shares from Ross upon the subsequent breach of the Ross-Gerken trust agreement.
DAMAGES
Having found the existence of a trust agreement, and having found no meritorious defense to the enforcement of that agreement, the Court turns to the remedy to be fashioned in order to place the parties in as nearly the same posture as if the agreement had been fully performed. Gerken’s complaint contains the following prayer for relief:
“WHEREFORE, plaintiff Gerken prays:
1.For an order imposing a constructive trust upon those shares, or the right to shares, of Western Natural Gas Company held by the Trustees under the Joint Plan of Arrangement for the benefit of Fred L. Ross, equal number to that which is proportionate to or represented by 50% of all outstanding shares of Pro-Energy Services, Inc.
2. For an order imposing an equitable lien on all other shares, or the right to shares, of Western Natural Gas Company held by the Trustees under the Joint Plan of Arrangement for the benefit of Fred L. Ross, to secure personal judgment against defendant Fred L. Ross.
3. For .personal judgment against defendant Fred L. Ross for at least $250,-000, or such other amount as may be found due and payable to plaintiff as a beneficiary of the trust, plus attorney fees, costs and expenses.”
The Court has already determined that the only provision of the trust agreement properly proved is the holding of the 250 shares of Pro-Energy by Ross for the benefit of Gerken. Money damages, then, to the extent that they relate to salaries and/or commissions received by Ross (which were, in fact, substantial during the years 1976 and 1977) are not appropriately awarded to Gerken.
There has been no evidence placed in the record by which this Court can credibly determine the actual value of Gerken’s 250 shares of stock at the time of the February 5, 1976, transfer to Ross. Nor is there credible evidence in the record to establish the value of such shares at the time of Ross’ repudiation of the trust agreement in August of 1976. The value of Pro-Energy has apparently always been a matter of conjecture, with Ross at times touting its value when the sale of limited partnership interests in oil and gas wells to be sponsored by Pro-Energy was at stake, and with Ross at other times bemoaning the fact that Pro-Energy was worthless.
The value of Gerken’s 250 shares can only be fairly determined by measuring what those shares have meant in the allotment given to shareholders in the Joint Plan of Arrangement. Some tracing of those shares is necessary in analyzing the proper remedy to be fashioned in this case. At the time of the February 5, 1976, transfer, Gerken’s 250 shares represented a one-half ownership in Pro-Energy. Ross owned the other 250 shares at that time. The evidence *249establishes, however, that a pre-existing agreement with a Dr. Wright would have allocated a one-tenth ownership of Pro-Energy to Dr. Wright, thus making the Ross/Gerken interest in Pro-Energy at 90%, with 45% attributed to Ross and 45% attributed to Gerken.
Shortly after Gerken transferred his shares, Ross increased the number of authorized shares of Pro-Energy from 500 shares to 10,000 shares. Ross was issued 9,000 shares, and 1,000 shares .were issued to Dr. Wright.
After the apparent transfer of another 10% interest in Pro-Energy to another shareholder (McClellan), Ross transferred his remaining 80% interest in Pro-Energy stock to F. L. Ross Enterprises, Inc., an Ohio corporation solely owned by Fred Ross.
Gerken argues that his share of Pro-Energy should not be subject to dilution or diminution by the various Ross-controlled events, and that his original 50% share (or 45% if the Dr. Wright transfer is deemed to have been consented to by Gerken) should be traced and preserved without regard to the many events which may have intervened to affect the number and value of these shares. The Joint Plan of Arrangement, confirmed in the Chapter XI cases of F. L. Ross Enterprises, et al., contained the following provision:
“V. ACQUISITION OF INTERESTS OF SHAREHOLDERS
Western Natural Gas Company as part of this Plan of Arrangement proposes to acquire the stock of the Debtors on the following terms and conditions:
A. Stock of Fred L. Ross and Carolyn Ross. As hereinbefore stated Fred L. Ross and Carolyn Ross (hereinafter referred to as “Ross”), own ninety percent (90%) of the stock of F. L. Ross Enterprises, Inc., the parent of the other Debtor corporations. Western Natural Gas Company shall acquire said ninety percent (90%) of the stock of F. L. Ross Enterprises, Inc. (including all of the stock of the other Debtor corporations owned by F. L. Ross Enterprises, Inc.), from Ross, upon the following terms and conditions:
(1) The consideration to be paid by Western Natural Gas Company to Ross shall be 200,000 shares of its common stock valued at $3.00 per share for a total consideration of $600,000.00.
(2) Ross shall be entitled to an augmentation right (the right to receive additional shares of common stock of Western Natural Gas Company), based upon the value of certain assets and reserves of Debtors reduced by the total liabilities of all Debtors herein as reflected in the final statement of indebtedness in these Chapter XI proceedings. The present value of said assets shall be determined by agreement or appraisal and the present value of the reserves shall be determined by a study conducted by an independent geologist selected by mutual consent of Ross and Western Natural Gas Company.
(3) Should the present value of ninety percent (90%) of said assets and reserves in excess of the total liabilities of Debtors exceed the sum of $600,000.00, then in that event, Ross shall be entitled to additional shares of Western Natural Gas Company common stock on the basis of one (1) share for each three dollars ($3.00) of excess value. No additional shares shall be issued nor shall Ross be required to return shares to Western Natural Gas Company should the total liabilities exceed the value of ninety percent (90%) of said assets and reserves.
(4) In addition to the augmentation right hereinabove described relating to the net value of the assets and reserves of the Debtors, Ross shall be entitled to the same augmentation rights afforded to Class A and Class C creditors based upon the value in three (3) years of Western Natural Gas Company stock, as set forth in detail in Paragraph III hereof.
(5) Notwithstanding any provision of this plan, the 200,000 shares of Western Natural Gas Company to be delivered to Fred L. Ross and Carolyn Ross pursuant to this Part Y shall be delivered to a trustee designated by the official credi*250tors’ committee to be held and distributed as follows:
(1) If before the third anniversary date of issuance of the stock by the transfer agent, the augmentation rights have been discharged in accordance with Part III of the Plan; or
(2) On the third anniversary date of the issuance of the stock by the transfer agent, the exercise of the augmentation rights provide Class C creditors with stock having a market value equal to 100% of their allowed claim,
then said trustee shall deliver the 200,000 shares to Fred L. Ross and Carolyn Ross. If neither condition (1) nor (2) of this paragraph are met, the 200,000 shares shall be distributed pro-rata to Class C creditors originally receiving shares.
(6) As additional consideration to Western Natural Gas Company for the stock of F. L. Ross Enterprises, Inc., owned by Ross, Ross shall accomplish the following:
(a)Ross shall cause Ohio Energy Resources to transfer to Western Natural Gas Company upon confirmation of this Plan, the total working and overriding royalty interests of Ohio Energy Resources in the following programs:
In exchange therefor, the Debtors and Western Natural Gas Company will release any and all claims which any of them may have against Ohio Energy Resources.
(b)Ross upon confirmation of this Plan shall cause his general partnership interests in the programs Cambridge # 1, Cambridge # 2, Cambridge # 3, Cambridge # 4 and Cambridge # 5 to be assigned and conveyed to Western Natural Gas Company.
(c)Prior to confirmation of this Plan of Arrangement, Ross shall obtain the release from Michael Gerken (“Gerken”), a former business associate of Fred Ross, of Gerken’s claim of ownership of one-half (V2) of the outstanding shares of F. L. Ross Enterprises, Inc. or any other Debtor. If Ross cannot obtain said release of Gerken prior to confirmation of this Plan of Arrangement, then, in that event, Western Natural Gas Company shall deposit with the Court sufficient shares of its common stock which were to be delivered to Ross, to satisfy the alleged claim of Gerken. The Court shall then determine Gerken’s claim to one-half (V2) of the stock of F. L. Ross Enterprises, Inc. or any other Debtor, and consequently, his right to stock of Western Natural Gas Company.”
It is not clear to this Court what portion of the 200,000 shares referred to in the above-quoted passage represents what originally was the 45% ownership of Pro-Energy to which this Court has found Gerken has a meritorious claim. There is no other measure of damages supported in the record other than a tracing of the trust asset and the ordering of a turnover of that asset, in whatever form it may now exist, to its rightful owner. Gerken suggests in a trial brief that this asset is now represented by 45,000 shares of Western Natural Gas Company, those shares being part of the 200,000 shares now being held by a trustee under the provisions of the joint plan.
It is generally held that where there has been an unauthorized disposition of trust property, the trust follows such property into the hands of the transferee, unless the transferee is a bona fide purchaser for value. This tracing process can accommodate not only a change in the identity of the trust property (caused by sale or otherwise) but can also accommodate improvement to or value-enhancement of the trust property. 76 Am.Jur.2d, Trusts, §§ 254-255; 54 O.Jur.2d, Trusts, § 224, and § 202 Restatement of Trusts, Second.
*251The trust res in the present ease is the 250 shares of Pro-Energy stock transferred from Gerken to Ross in February of 1976. At that time, these shares represented a 50% ownership interest in Pro-Energy. As has been previously noted, Ross’ subsequent actions in increasing to 10,000 the amount of authorized and issued Pro-Energy shares, and in transferring a 10% interest in Pro-Energy to Michael Wright (as previously agreed to by Gerken), converted the trust res to 4,500 shares of Pro-Energy. While it is clear that subsequently the shares of Pro-Energy were exchanged for shares of F. L. Ross Enterprises, Inc., a parent company, there is little direct evidence in the record to establish what portion of the F. L. Ross shares can be traced to the trust res of 4,500 shares of Pro-Energy.
However, a further portion of the Joint Plan of Arrangement gives this Court a standard by which to convert the trust res to an equivalent number of Western Natural Gas Company shares. The Joint Plan provides, with respect to the 10% ownership interest of Michael Wright in Pro-Energy, that:
“D. Stock of Dr. Michael Wright. As hereinbefore stated Dr. Michael Wright (hereinafter referred as “Wright”), owns ten percent (10%) of the stock of Pro-Energy Services, Inc., a subsidiary of F. L. Ross Enterprises, Inc., which owns eighty percent (80%) of said stock. Western Natural Gas Company shall acquire said ten percent (10%) of the stock of Pro Energy Services, Inc., from Wright, upon the following terms and conditions:
(1) The consideration to be paid by Western Natural Gas Company to Wright shall be 10,000 shares of its common stock valued at $3.00 per share for a total consideration of $30,000.00.
(2) Wright shall not be entitled to an augmentation right for the sale of his shares of Pro Energy Services, Inc., based upon the value of the net assets and reserves of Pro Energy Services, Inc. Wright shall be entitled, however, to the same augmentation right afforded to Class A and Class C Creditors based upon the value in thre (sic) (3) years of Western Natural Gas Company stock, as set forth in detail in Paragraph III hereof.”
Under this provision of the Joint Plan, Wright is to receive 10,000 shares of Western stock for his 1,000 shares of Pro-Energy stock. The conversion ratio thus established for the exchange of Western shares for Pro-Energy shares is ten to one. Applying this ratio, then, to the trust res of 4,500 shares of Pro-Energy, the Court finds that the trust res can be traced to and expressed as 45,000 shares of Western stock.
The Court hereby finds that the damages to be awarded to Gerken on account of Ross’ breach of their express trust agreement shall be the imposition of a constructive trust upon 45,000 shares of Western Natural Gas Company which, under the provisions of the Joint Plan of Arrangement, might otherwise be issued to Ross. This constructive trust will be subject to all the terms and conditions that might otherwise be a part of the Joint Plan of Arrangement, and this issuance of Western shares (with any “augmentation rights” that may be accrued) shall be made to Gerken only when Ross’ rights to such shares shall mature under such Joint Plan. No other damages are considered proved or appropriate in this case and none are awarded.
A judgment shall issue forthwith.
IT IS SO ORDERED. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489268/ | MEMORANDUM DECISION
FREDERICK A. JOHNSON, Bankruptcy Judge.
This proceeding commenced with the complaint of the Chapter 11 debtor, filed July 31, 1981, seeking to sell Hamlet Coach Park1 free and clear of liens and encumbrances with valid liens and encumbrances to attach to the proceeds of said sale. Due to serious disputes between the various lien creditors and the inability of the debtor or others to find a purchaser for the property at a price that would satisfy secured claims, the proceeding has remained on the adversary docket since that time.
On February 11, 1982, Defendant Union Mutual Life Insurance Company filed a motion with this court to set aside a certain portion of the property to it free and clear of liens and to determine the amount of a bond needed to secure liens asserting priority over the lien of Union Mutual.
A hearing was had on said motion March 22,1982. The motion was aggressively contested by the debtors, the City of West-brook, Casco Bank and Trust Company, the Creditors’ Committee and Roger Hale, a creditor holding an alleged mechanics’ lien in excess of $200,000.2
The main thrust of the objection to Union Mutual’s motion is that Union Mutual seeks clear title to Phase I of the park, which is the section of the park most nearly completed and that portion of the park with the greatest value, leaving for the estate and other creditors the uncompleted portion, which is of very limited value. The objecting parties also point out that Union Mutual has negotiated a private sale of Phase I to a third party át a price substantially lower than the price at which the park had been offered to others. Now that other prospective purchasers realize that the property may be obtained for substantially less than the price originally demanded there may be additional prospective buyers or investors for the entire parcel.
Counsel for the City of Westbrook pointed out that when Hamlet Coach Park was approved by the Westbrook Municipal Officers it was contemplated that the park *298would consist of one entire integrated unit and that the municipal officers did not intend that the park would be split into a Phase I and a Phase II. It was also pointed out that other secured creditors, in particular mechanic lien creditors, assert a lien on the entire parcel and not just Phase I or II. Furthermore, certain common areas and facilities are intended for use by tenants of the entire park.
In the face of these objections and in view of the present posture of the case, the court concludes that it would be an error to vest clear title to Phase I in Union Mutual at this time and in this summary manner.3
The court is not ruling on the merits of Union Mutual’s position. The court simply feels that an action with such possible adverse impact upon the estate, other creditors, the City of Westbrook and tenants in the park would not be proper, without an opportunity for other creditors, the debtor, the public and other prospective purchasers or investors, to investigate and act upon alternative plans.
An appropriate order will be entered.
. Hamlet Coach Park is a substantial mobile home park situated in Westbrook, Maine.
. Hale also claims some additional interest in the park by virtue of his agreement with the debtor.
. It should be observed that Union Mutual seeks, by its motion, immediate clear title to Phase I, with no redemption period or further notice to the public, creditors or anyone. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489270/ | MEMORANDUM DECISION
(Bankruptcy Rule 752)
SIDNEY M. WEAVER, Bankruptcy Judge.
THIS CAUSE came on for trial upon Complaint and Answer, and the Court having heard and received the testimony and evidence thereon, and being otherwise fully advised in the premises, the Court finds as follows:
1. The Court has jurisdiction of the parties hereto and subject matter hereof.
2. The Defendant, Diplomat Purchasing & Finance Service Club, Inc., filed a Petition under Chapter 11, Title 11, U. S. Code, on October 20, 1981, and the same is pending and has not been dismissed.
3. At the time of the filing of the Chapter 11 Petition, the Defendant was indebted to C.I.T. Corporation in the sum of $23,-430.51.
4. On May 30, 1978, Consolidated Plating Corporation purchased certain personal property from the Plaintiff, Allied Plating Supplies, Inc., for a purchase price of $62,-025.08, payable in sixty (60) monthly installments of $1,033.76.
5. On May 30,1978, the Plaintiff, Allied Plating Supplies, Inc., as Seller, and Consolidated Plating Corporation, as Purchaser, entered into a written Security Agreement whereby the Purchaser granted to the Seller a security interest in the above-mentioned personal property to secure payment of the aforementioned purchase price.
6. On January 8, 1980, Consolidated Plating Corporation entered into a written transfer agreement with the Defendant, wherein Consolidated Plating Corporation transferred all its rights, title and interest in and to the subject personal property to the Defendant.
7. The Plaintiffs approved in writing the above-described transfer of title to the subject personal property and they assigned their respective security interest to C.I.T. Corporation on May 30, 1978.
8. C.I.T. Corporation is and was the owner and holder of the aforementioned Security Agreement, dated May 30, 1978, since January 8, 1980.
9. A Financing Statement was filed with the Secretary of State, State of Florida, on June 19, 1980, bearing filing No. 899873, relating to the said Security Agreement.
10. On January 8, 1980, Plaintiff, Frank X. Marinello, executed the aforesaid transfer agreement as a guarantor of the obligations due under the Security Agreement of May 30, 1978.
11. The Plaintiff, Allied Plating Supplies, Inc., as the original secured party, received the full payment of $62,025.08 from C.I.T. Corporation in consideration of its assignment of the aforedescribed Security Agreement to C.I.T. Corporation.
12. That sometime during the month of June 1980, a portion of the subject personal property was destroyed in a fire that occurred on the Defendant’s premises, which was covered in part by insurance.
13. A settlement was reached between the Defendant, as owner, C.I.T. Corporation as secured party, and the insurance company, as it related to the fire loss incurred, and the sum of $29,000.00 was paid to the Defendant and secured party, which reduced the indebtedness to the secured party by a like amount.
14. The Defendant is still indebted to the secured party (C.I.T. Corporation) in the sum of $23,430.51, under the terms of the Security Agreement of May 30, 1978.
15. The secured party, C.I.T. Corporation, has elected to pursue its rights and remedies against the Guarantor, to-wit: Frank X. Marinello.
UPON the foregoing findings of fact, the Court concludes, as a matter of law, as follows:
*5231. The Court has jurisdiction of the parties hereto and subject matter hereof.
2. C.I.T. Corporation is the owner and holder of the security interest on the subject personal property.
3. That the Plaintiffs, jointly and severally, have failed to establish any security interest in and to the subject personal property.
4. That the Plaintiffs, jointly and severally, have failed to carry their burden of proof on the issues framed by the Complaint and Answer.
WHEREFORE, upon the foregoing findings of fact and conclusions of law, the Court directs that a judgment be entered in accordance with this Memorandum Decision, pursuant to Bankruptcy Rule 752. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489271/ | MEMORANDUM OPINION
JOHN M. KLOBUCHER, Bankruptcy Judge.
This matter came before the Court for trial on complaint to declare a debt non-dis-chargeable. The essential facts were previously tried before the Superior Court of the State of Washington, County of Spokane. That Court determined and entered the following Findings of Fact:
I.
On April 22, 1977, the plaintiff was beneficial owner of real property in the State of Idaho upon which standing timber was grown.
II.
On said date the defendant, FRANK ROBINSON, entered into a Contract with the plaintiff wherein he, the defendant, on behalf of himself and the marital community consisting of himself and his wife, agreed to log timber from plaintiff’s property. The Agreement stated that the defendant was to pay to the plaintiff Sixty Dollars ($60.00) per One Thousand (1,000) board feet of lumber taken from said property.
III.
The logging by the defendant on plaintiff’s property continued from about the end of June, 1977 through November of 1977 and into 1978.
*534IV.
On March 21, 1978 the plaintiff demanded an accounting of the defendant. The defendant, at that time, made an accounting for 905,000 board feet of timber cut and gave to the plaintiff his Promissory Notes totaling Forty-Four Thousand Three Hundred Fifty Dollars ($44,350.00) allegedly representing the full and complete accounting of timber taken by the defendant.
V.
At said time and place a false representation was made by the defendant, which representation was fraudulent in that at the time of the alleged accounting the defendant represented that the figures he gave to the plaintiff to account to the plaintiff for plaintiff’s lumber taken from plaintiff’s land was, in fact, an accurate accounting. Said accounting was not accurate in that the defendant failed to account for 256,740 board feet of timber that he actually took from the land of the plaintiff under the Contract referred to herein, which said 256,740 board feet was not accounted for at the time the alleged full and complete accounting was made. Because of the circumstances defendant knew, or should have known, that the accounting was not accurate and correct and complete and because at said time and place the defendant knew he did have the proper information to make an accurate and complete and correct accounting, but due to the circumstances then existing between the parties, the defendant was bound and is bound by the falsity of the representations so made.
VI.
The plaintiff is entitled to additional compensation for the timber for which he had not received a true and correct accounting, together with interest on the Notes previously given, together with attorney’s fees and his costs and disbursements.
The plaintiff, Parish, seeks to have the debt declared non-dischargeable to the extent of $15,354.40, which is the amount of money he was to receive from the timber not accounted for by the bankrupt, Robinson, in the accounting rendered March 21, 1978.
These proceedings were commenced prior to the enactment of the Bankruptcy Reform Act and are therefore governed by the provisions of the prior Act. Section 17 of the prior Bankruptcy Act (11 U.S.C. § 35) provides in pertinent part as follows:
a. A discharge in bankruptcy shall release a bankrupt from all of his provable debts, whether allowable in full or in part, except such as . ..
(2) are liabilities for obtaining money or property by false pretenses or false representations, ... or for willfull and malicious conversion of the property of another;
(4) were created by his fraud, embezzlement, misappropriation or defalcation while acting as an officer or in any fiduciary capacity;
Obviously, the first part of the subsection referred to above is not applicable because Robinson did not “obtain” either the timber or the money as a result of the fraudulent misrepresentations found by the State Court Judge.
However, this Court believes the facts to substantiate a willfull and malicious conversion of Parish’s property in the form of proceeds received from sale of the lumber and further believes the facts to substantiate a fraud, embezzlement, misappropriation or defalcation while acting in a fiduciary capacity.
The Court is not unmindful of those cases submitted by the defendant which indicate that failure to render an accounting on a contractual obligation does not of itself fulfill the requirements of nondischargeability. I believe the relationship between the parties in each of those cases, however, to be distinguishable from the case at bar.
The Court believes that the contract in question inherently anticipates that Parish was to be paid from the proceeds of sale of the timber.
*535Finding V. specifically refers to “... plaintiff’s lumber taken from plaintiff’s land
Although the precise terms of the contract were somewhat vague as presented at trial such contracts are not uncommon in the trade in this community. The nature of the contract leads this Court to the conclusion that Robinson was an agent for the purpose of cutting the timber and selling the resulting lumber. He was to remit a portion of the sale proceeds to Parish and was to retain the remainder. His personal retention and use of the entire proceeds constituted a willful conversion of the funds belonging to Parish.
Parish, by accepting the promissory notes in the amount of $44,350.00 admittedly waived the conversion as to that amount and does not seek to avoid its dischargeability by this action. He did not, however, waive his right to challenge the discharge-ability of the proceeds that were deliberately concealed by Robinson.
Robinson’s failure to account for those funds constituted a misappropriation while acting in a fiduciary capacity. Relief as prayed for will be granted to the plaintiff.
In light of the foregoing which the Court adopts as its Findings of Fact and Conclusions of Law pursuant to Federal Rules of Bankruptcy Procedure 752 it is:
ORDERED that counsel for the plaintiff submit an Order in conformity with the foregoing. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489272/ | MEMORANDUM DECISION
MERLIN S. YOUNG, Bankruptcy Judge.
Pursuant to the verbal stipulation of counsel, the above-entitled matter has been submitted to the court upon the pleadings of the parties. The undisputed pleadings establish the following facts.
Shirlene Lewis, debtor herein, on February 21, 1975, for herself and as the personal representative of the estate of Emaline Barrington, entered into a contract to sell real property situated in Bingham County, Idaho, to defendants Kenneth A. Thornley and Stella B. Thornley for a purchase price of $14,200. The contract is a typical real estate sales contract used generally in Idaho whereby a deed is placed in escrow pending payment of the purchase price of the property. The property in question is a dwelling house which has been and is still occupied by defendants Thornley as their residence.
On the third day of March, 1980, Shirlene Kay Lewis assigned the seller’s interest in the above described real estate contract to one Ricky T. White. Although Mr. White was served by plaintiff, he has not responded and he is in default.
Shirlene Lewis became a debtor under the Bankruptcy Code when she filed a voluntary petition for relief on June 16, 1981. Plaintiff, as trustee, seeks to avoid the transfer of debtor’s interest in real property involved in the contract to defendants Thornley on the ground that said transfer was not perfected under the law of the State of Idaho by recordation and that, due to his hypothetical status as a bona fide purchaser under Section 544(a)(3) of the Code, said transfer is void as against him. In his second cause of action, trustee alleges that the assignment of the seller’s interest in the real estate contract is invalid because it contains a defective description of the property and was not acknowledged as is required by Idaho law. In his third cause of action, he also contends that the assignment is a fraudulent transfer made to delay or hinder the creditors of the estate or is a preferential transfer.
Counsel for trustee argues that because Section 544(a)(3) states that the trustee is a bona fide purchaser of real property without regard to any knowledge of the trustee or any creditor, the transfer of the contract interest in the property had to be recorded under Section 55-812, Idaho Code, which provides as follows:
“Unrecorded conveyance void against subsequent purchasers. — Every conveyance of real property other than a lease for a term not exceeding one (1) year, is *550void as against any subsequent purchaser or mortgagee of the same property, or any part thereof, in good faith and for a valuable consideration, whose conveyance is first duly recorded.”
While this argument is ingenious and seems valid on its face, I am of the opinion that section 544(a)(3), which provides that a trustee shall have the rights and powers of “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”, requires the application of local nonbankruptcy law to the bona fide purchaser situation.
It has long been established in Idaho that a purchaser under an unrecorded real estate contract of the type involved in this case who is in physical possession of the property purchased will prevail over a subsequent purchaser of the property from the original seller. Fajen v. Powlus, 96 Idaho 625, 627-8, 533 P.2d 746 (1975); Langroise v. Becker, 96 Idaho 218, 220-1, 526 P.2d 178 (1974); Paurley v. Harris, 75 Idaho 112, 117, 268 P.2d 351 (1954); Froman v. Madden, 13 Idaho 138, 88 P. 894 (1907). In effect, the Idaho Supreme Court has held that possession by the purchaser is equivalent to recording the earlier conveyance under Section 55-812 of the Idaho Code, since in each case prospective purchasers are put on inquiry and have constructive notice of the prior interest. Or, to put it another way, where a purchaser of real estate is in possession of the property, there can be no “bona fide” purchaser from the vendor. In this context then, the language “without regard to any knowledge of the trustee or of any creditor” in Section 544 must be read as referring to actual notice which would defeat an otherwise “bona fide” purchase.
I therefore find for the defendants Thornley upon plaintiff’s complaint. Counsel for these defendants is asked to prepare a formal judgment in favor of his clients. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489273/ | FINDINGS OF FACT AND CONCLUSIONS OF LAW
SIDNEY M. WEAVER, Bankruptcy Judge.
THIS CAUSE coming on to be heard upon an Adversary Complaint for Damages in the amount of Nineteen Thousand Four Hundred Twelve Dollars and Seventeen Cents ($19,412.17) filed herein and the Court having considered the facts as stipulated by the parties, examined the evidence presented, 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:
That this Court has jurisdiction of the parties hereto and the subject matter hereof.
The facts, as stipulated to by the parties are as follows:
The debtor, William George Williams (debtor) intercepted various checks totalling Thirty Two Thousand Four Hundred and Seventy-Six Dollars and Twenty-Two Cents ($32,476.22) that rightfully belonged to his employer and deposited them under forged endorsements into his personal checking account at the Fulton National Bank, now known as Bank of the South (the Bank), the defendant in this action. Soon after discovering this misconduct, the employer notified the Bank of its claim to the checks and on June 18, 1980, after learning of the employer’s claim, the Bank, without the debtor’s permission, placed a hold on the debtor’s account, debited the account in the amount of Twenty Two Thousand Six Hundred Twenty Dollars and Seventy-Six Cents ($22,620.76) * and placed the funds in escrow pending further investigation. At the time a hold was placed on the debtor’s account and it was debited, the employer had not made formal demand for payment on the Bank although the Bank had knowledge of the employer’s claim and the alleged wrongdoing of the debtor. A portion of the debit of June 16,1980 was applied to offset Three Thousand Two Hundred Eight Dollars and Thirty-Nine Cents ($3,208.39) owed to the Bank by the debtor on account of a MasterCharge debt he had accrued with the Bank. This transaction is not being disputed here. On or about September 11, 1980, the Bank paid the remainder of the debt, Nineteen Thousand Four Hundred Twelve Dollars and Seventeen Cents ($19,-412.17) to the employer pursuant to its formal written demand. Subsequent to these transactions the debtor filed for bankruptcy under Chapter 7 of Title 11 of the United States Code. The instant action, was commenced by the plaintiff, trustee of the estate of the debtor, to recover the alleged damages resulting from the debit and ultimate disbursement of this amount to the debtor’s employer.
The issue presented by these facts is whether the Bank acted within its rights in freezing the funds in the debtor’s account, placing these funds in escrow and ultimately disbursing the funds to the original payee of the checks without the consent of the debtor who deposited the checks in his account. The Court finds that the Bank was authorized under the applicable Georgia law to take such action.
The trustee argues that the Bank exercised its right of set-off improperly and that under the fácts of this case, the necessary elements triggering a right to set-off are not present. This might be a valid argument if it were not for the fact that any discussion of set-off assumes that the depositor has a right to the funds on deposit which the Bank is usurping. In the case at hand, the debtor had no such right having repeatedly breached the statutory warranty of good title by forging the endorsement on the checks as they were deposited. The *592Uniform Commercial Code as enacted in Georgia (Georgia Code Annotated Section 109A-3-417) provides in pertinent part as follows:
(1) A person who obtains payment or acceptance .. . warrants to a person who in good faith pays or accepts that (a) he has good title to the instrument or is authorized to obtain payment or acceptance on behalf of one who has good title;
The debtor did not have good title to the checks deposited as he was not the designated payee nor was he authorized by the designated payee to accept payment on its behalf. Thus, the trustee’s argument as to set-off is without merit under the facts of this case.
The question presented by the facts of this case is whether the Bank was authorized to debit the debtor’s account upon receiving information of possible illegal deposits. The Georgia courts have decided this issue in a case strikingly similar to the case sui juris. In Adams v. Trust Company Bank, 244 S.E.2d 651, 145 Ga.App. 702 (CA Ga.1978), the defendant Bank, suspecting that a depositor might be converting his employer’s checks by depositing them in his own account, seized the balance remaining in the account and began its investigation to determine the true ownership of the funds. The Adams court held that “the bank was authorized to remove the funds remaining in Adams’ account immediately upon learning that the . . . check had not been properly endorsed. Although this check was apparently paid by the drawee bank through normal checking processes, the proceeds remained the property of [the payee] ... Since Adams had acquired no apparent title to the checks, the bank acted within its rights in seizing the proceeds from the checks until it could determine whether he had converted the funds.”
The instant case is sufficiently similar to the Adams case to persuade the Court to find that Adams controls the result reached here. In each case, the bank had some knowledge that checks deposited by its customer had been done so under forged endorsements. In both cases, the banks debited the accounts in which the converted checks were deposited and held the funds pending an investigation to determine the true ownership of the proceeds of the checks in question. In the instant case, the funds were turned over to the debtor’s employer after an investigation by the Bank and the F.B.I. resulted in a guilty plea by the debtor to the charges against him. The Court finds that, in the instant case, the debtor never acquired title or rights to the checks deposited by him under a forged endorsement. The Court further finds, as enunciated in the Adams case, that the Bank was authorized to debit the debtor’s account and hold the proceeds of the illegally deposited checks pending an investigation to determine true right and title to such proceeds before turning them over to their rightful owner.
The Court will enter a separate order denying the plaintiff’s prayer for damages.
The balance of the debtor’s account on June 13, 1980 was Twenty Two Thousand Six Hundred Forty Dollars and Eighty-One Cents ($22,-640.81) as evidenced by the debtor’s bank statement of that date. The amount debited on June 16, 1980 appears to represent the balance on hand on that date although no evidence was presented to that effect. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489274/ | OPINION
EMIL F. GOLDHABER, Bankruptcy Judge:
The issue involved in this case is a simple one, made complex only by the refusal of the attempted appellants to comprehend the clear and unequivocal opinions of the district courts and the courts of appeals.
This has never been a complex case. But it has been a case in which the losers have never been satisfied with their losses. And so they have, virtually each step of the way, lost and appealed, and lost and appealed, ad infinitum. In some cases their loss (at the *600level of the bankruptcy court) was appealed to the district court (where they lost again). In some of these cases they appealed to the Court of Appeals (and lost). And in at least one instance, they endeavored to appeal to the United States Supreme Court, but were denied certiorari.
One might think that enough is enough. One might think that, the issues and the parties involved being the same, the doctrine of res judicata would apply. But the appellants refuse to bow to the inevitable, and seek again to appeal. This time they have erred procedurally and, we hold, fatally-
These are the simple uncontroverted, inescapable facts.1 On February 5, 1982, we entered an order dismissing objections filed by Michael Daroff and the bankrupts (“the objectors”) to the trustee’s final account and to the various applications for allowances. 17 B.R. 631, Bkrtcy. This order was mailed on the date of its issuance to all parties in interest, including the objectors’ counsel. Rule 802(a) of the Rules of Bankruptcy Procedure provides that:
The notice of appeal shall be filed with the referee (the bankruptcy judge) within 10 days of the date of the entry of the judgment or order appealed from . ..
That 10-day period expired on February 15, 1982. No appeal was filed on or before that date. Instead, the objectors sought additional time by invoking the provisions of Rule 802(c) which reads
The referee (the bankruptcy judge) may extend the time for filing the notice of appeal by any party for a period not to exceed 20 days from the expiration of the time otherwise prescribed by this rule. A request to extend the time for filing a notice of appeal must be made before such time has expired, except that a request made after the expiration of such time may be granted upon a showing of excusable neglect if the judgment or order does not authorize the sale of any property.
It is clear that the attorney for the objectors misread this section because, on March 8, 1982 (the very last day of the extension period) he filed, not a notice of appeal, but a motion for “an extension of time to appeal the opinion and order of the Hon. Judge Goldhaber, dated February 5, 1982.”
The objectors concede (in Paragraph 4 of their Motion for Extension of Time to File an Appeal) that they failed to “file a notice of appeal within the 10-day time limitation mandated by the Bankruptcy Rules. However (they argue) the Bankruptcy Rules permit the filing of a motion for an additional twenty (20) days to file a notice of appeal, provided there is a showing of excusable neglect.”
The objectors’ claim of “excusable neglect” turns out, upon examination, to be the product of sophistry and specious reasoning. Lest it lose something in our translation, we quote verbatim from Paragraphs 5 and 6 of the motion for an extension of time to file an appeal filed by the objectors’ attorney:
5. The order by its terms was signed on February 5, 1982 and presumably immediately mailed out to this office. February 5, 1982 was a Friday. If the United States Postal System was working at peak efficiency it may have been received in my office no later than February 8, 1982. Assuming that it was received in my office, unfortunately I did not retain the envelope it would have taken me at least one (1) day to review the opinion and then contact my clients. This is perhaps a danger of long distance litigation, but the Bankruptcy Court’s territorial jurisdiction creates long distance litigation.
6. The court having mailed its decision on February 5, 1982 not sure that it would arrive in New York any earlier than the 8th or the 9th should have been aware that by the following weekend February 12th through the 15th was a *601four (4) day holiday celebrated by both the State of New York and the Federal Government. It would have been impossible to file a notice of appeal on February 15, 1982 under the “ten (10) day” jurisdictional rule. In effect, the mailing of the court’s decision on February 5th keeping in mind the inconsistencies of our mailing system and the four (4) day holiday that was to follow gave my client approximately three (3) days to review the opinion and come to a decision as to whether they would.or would not appeal.
We hold as a matter of law that the facts set forth in the above motion, do not constitute “excusable neglect.” On the contrary, we find that they constitute inexcusable neglect.
But assuming, arguendo, that the facts stated by the appellants’ counsel do constitute excusable neglect, there exists an even more compelling reason for denying the appeal. It is their failure to file a notice of appeal within the 10-day original and the 20-day extension period. This very issue has been decided, time and again, by the appellate courts and is crystal clear to all except the objectors in this case.
The third Circuit case of Dyotherm Corporation v. Turbo Machine Company, 434 F.2d 65 (CCA3, 1974) is precisely on point. In that case, involving an appeal from an order by the district court, the appellant had 30 days in which to appeal. It filed no appeal but, instead, filed a motion for an extension of time to file an appeal. Said the court:
However, within the succeeding 30 days plaintiff filed what amounted to a motion for an extension of time to file a notice of appeal. It alleged excusable neglect . . . To the extent the extension exceeded 30 days ... it was a nullity . . . The appeal must therefore be dismissed unless, as plaintiff contends, its application for an extension of time for filing a notice of appeal can itself be considered such a notice. We think it cannot.
The Court of Appeals for the Second Circuit, in In re Orbitec Corporation, 520 F.2d 358 (CCA2, 1975), and the Court of Appeals for the Ninth Circuit, in Selph v. Council of Los Angeles, 593 F.2d 881 (CCA9, 1979) expressly cited Dyotherm in ruling that, unless a Notice of Appeal is filed within the extension period, no appeal can be taken no matter how excusable the neglect. What is more, all three Courts of Appeals unequivocally held that an application for an extension of time to file an appeal cannot be considered as the equivalent of a Notice of Appeal.
Because we find that there was no excusable neglect which would entitle the objectors to an extension of time to file an appeal, because we are bound by the Third Circuit decision in Dyotherm, because we are impressed by the rationale in [In re] Garthwaite, [15 B.R. 305] Selph and Orbitec, and because we conclude as a matter of law that no appeal has ever been filed in this case, we sustain the trustee’s Motion to Dismiss the motion of the objectors for an extension of time to file a Notice of Appeal of our order of February 5, 1982.
. This opinion constitutes the findings of fact and conclusions of law required by Rule 752 of the Rules of Bankruptcy Procedure. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489275/ | MEMORANDUM OPINION AND ORDER
RICHARD L. SPEER, Bankruptcy Judge.
This cause came before the Court upon Defendant’s Motion for Partial Summary Judgment filed in the above captioned case. Defendants allege that Plaintiff’s mechanic’s lien on the real estate at 1230 Conant Street, Maumee, Ohio is invalid because Plaintiff failed to properly complete the forms required by Ohio Revised Code § 1311.04.
FACTS.
The Court finds the following facts:
1.) An oral agreement existed between Plaintiff, Frederick D. Wittkop, (hereafter Wittkop) and Defendants Danny and Dale Johnson and Johnson, Inc. (hereafter John-sons) for improvements on the property located at 1230 Conant Street, Maumee, Ohio.
2.) Wittkop did work on the property by adding an addition to the building, provid-*707¡ng a new fascia, and all new glass windows. Defendants dispute whether or not the property was indeed improved.
3.) Wittkop employed certain material-men in connection with this work performed, including Con Air, Johns-Manville, Spans Metal-Texas, and Ohio Plate.
4.) Plaintiff did not specifically include the names of these materialmen in the Affidavit of Contractor which was supplied to Defendant. In fact, the materialmen listed in the affidavit are “none”.
5. Under the section of the affidavit marked “Certificate of Materialmen”, there is no information supplied nor are there any waivers attached; the section is blank.
The issue presented is whether the Plaintiff’s failure to specifically name the mate-rialmen, even though presumably paid, was a material error thereby invalidating the mechanic’s lien.
LAW
This issue has been repeatedly addressed by the Ohio Courts, however, the law is still a bit vague. The principal question that has plagued the courts is whether the mechanics lien statutes are to be treated as remedial and therefore are to be construed liberally, or whether they are to be strictly construed as being in derogation of the common law. (See discussion 36 Ohio Jurisprudence 2d Mechanics’ Liens § 14.) The Supreme Court of Ohio indicates that neither of these broad rules is satisfactory, for the statutes must be strictly construed in some respects and liberally construed in others. Furthermore, this Court must follow the construction given by the Supreme Court of Ohio in determining the validity of the mechanic’s lien in question.
The controlling statute here is Ohio Revised Code § 1311.04 which in pertinent part states the following:
Ҥ 1311.04 Statement of original contractor to owner before payment; affidavit
Whenever any payment of money becomes due from the owner, ... or whenever the original contractor desires to draw any money from the owner, . . . such contractor shall make out and give to the owner, ... a statement under oath, showing the name and address of every laborer in his employ who has not been paid in full and also showing the name and address of every subcontractor in his employ, and of every person furnishing . . . material, . . . and giving the amount which is due or to become due to them, . . . for work done, .. . material furnished to him, which statement shall be accompanied by a certificate signed by every person furnishing ... material, ... to him .. .
MATERIALMEN
Said affiant further says that the following shows the names and address of every person furnishing .. . material, . . . giving the amount which is due, or to become due, ... for ... material . . . under said contract ... .
CERTIFICATE OF MATERIALMEN
... In lieu of such certificate, there may be furnished a written waiver of lien, release, or receipt . ..
Until the statements are made and furnished in the manner and form provided for in this section, the contractor has no right of action or lien against the owner, ... on account of such contract, and the subcontractor has no right of action or lien against the owner, . . . until he has furnished such statements, and any payments made by the owner, . .. before such statements are made or without retaining sufficient money, ... to pay the subcontractors, laborers, or materialmen, as shown by the said statements and certificates, are illegal and made in violation of the rights of the persons intended to be benefited by sections 1311.01 to 1311.-24...”
Section 1311.24 provides:
“Sections 1311.01 to 1311.24, inclusive, of the Revised Code are to be construed literally to secure the beneficial results, intents, and purposes thereof; and a sub*708stantial compliance with said sections is sufficient for the validity of the liens under said sections, provided for and to give jurisdiction .to the court to enforce the same.”
In interpreting the above statute, the Ohio Supreme Court stated in C. C. Constance & Sons v. Lay, et al., 122 Ohio St. 468, 172 N.E. 283 (1930), “[t]his statute confers an extraordinary right in derogation of the common law, and, though liberality with reference to errors in procedure is permissible, the steps prescribed by statute to perfect such lien must be followed, and in that respect the law is strictly construed and applied.” at 469. That Court further addressed a fact pattern very similar to the case at bar in the case of J. G. Laird Lumber Co. v. Teitelbaum, 14 Ohio St.2d 115, 236 N.E.2d 531, 43 O.O.2d 176, (1968). In that case, the contractor stated that “all bills for labor and materials, . . . have been fully paid and satisfied, to date, and that there is no possibility of any mechanics’s lien being filed against said property.” The Supreme Court reversed the Court of Appeals judgment by stating in pertinent part the following:
“Section 1311.04, Revised Code, clearly requires the contractor to list in his affidavit every materialman and to obtain certificates from them, (emphasis theirs) . . . “If ... an affidavit does not negate the existence of materialmen, but merely states that all materialmen were paid, and then does not list them, and is not accompanied by certificates from them, it should be apparent to the owner that compliance has not been made with the form required by Section 1311.04, Revised Code. Under such circumstances, . . . the owner is not justified in relying upon the affidavit.”
Strict compliance with these statutory requirements is needed to perfect such a lien. In the case at bar, Wittkop did not completely comply with the requirements of Section 1311.04, since it failed to list the materialmen or offer certificates or waivers from them. Therefore, the lien must be declared invalid.
The Court is not sure that this conclusion gives an equitable result in cases such as the one presented here; however, it appears that the law is quite clear in Ohio on this subject and the state interpretation must be followed by this Court. It is therefore
ORDERED ADJUDGED and DECREED that the mechanic’s lien of Plaintiff Frederick D. Wittkop is hereby declared invalid and Defendants’ Motion for Partial Summary Judgment is Granted, thereby dismissing Plaintiff’s Second Cause of Action. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489277/ | MEMORANDUM AND ORDER
BILL H. BRISTER, Bankruptcy Judge.
Thomas J. Griffith, Trustee for the estate of Charles W. Strickel and Linda Strickel, debtors, filed a complaint against Texas Farm Bureau Mutual Insurance Company by which he seeks to recover damages and attorney’s fees under two fire insurance policies. Nonjury trial was conducted on October 30, 1981. The following summary constitutes the findings of fact required by Rule 752.
Charles W. Strickel, in connection with the acquisition of a business in Plainview, Texas, which he conducted under the common name and style of “The House of Carpets,” insured the contents of his business for $50,000.00 and insured a Yale 4000 Forklift for an additional sum of $6,500.00. The policies of insurance were issued on June 26, 1980, by Texas Farm Bureau Mutual Insurance Company on Texas Standard forms with loss-payee clause in favor of First National Bank of Plainview, a lien-holder against the insured properties. The contents of the store were destroyed, and the Yale Forklift was damaged, by a fire which was discovered at approximately 1:00 o’clock A.M. in the early morning hours on August 20, 1980.
On August 19, 1980, the day preceding the fire, a carpet installer who was operating out of the debtor’s business spilled some pad cement on the floor of the building and on some tack strips which were stacked against a wall of the building. Strickel was unsuccessful in his efforts to scrape the cement from the tack strips. During his lunch hour he went to his home and brought back to the store a one gallon can of gasoline which he had used to operate his lawnmower at the home. He used the gasoline in an unsuccessful attempt to dissolve the pad cement or to loosen it from the tack strips. At closing time he left the one gallon can of gasoline in the storeroom and left the air conditioner running in an effort to exhaust the fumes from the gasoline and from the cement from the store. At approximately 1:30 A.M. on the following morning he was awakened by the police who advised him that his store was on fire.
The parties agree that the policies of insurance were in effect, that all premiums had been paid, and that proper notice of loss was given. The major thrust of the defense advanced by the insurance company is twofold — the insurance company pleaded a limitation on liability in each of the policies and, in addition, contends that the fire was intentionally set. In the alternative the insurance company challenges the amount of damages and entitlement to attorney’s fees claimed by the trustee.
Each of the subject fire insurance policies contained a limitation on liability which stated:
“Unless otherwise provided in writing added hereto, this company shall not be liable for loss occurring:
(a) while the hazard is increased by any means within the knowledge and control of the insured, providing such increase in hazard is not usual and incidental to the occupancy as herein described.”
The insurance company contends that the hazard was increased by means within the knowledge and control of Strickel, its insured, when he brought the gallon of gasoline on the premises and when he poured it on the tack strips. The insurance company contends further that the use of gasoline in that manner is not usual and incidental to the occupancy of the premises for the purpose of conducting a carpet sales and installation business.
A threshold issue is concerned with the burden of proof.
Rule 94, T.R.C.P. reads in pertinent part, as follows:
“. . . . Where the suit is on an insurance contract which insures against general hazards, but contains other provisions limiting such general liability, the party suing on such contract shall never be required to allege that the loss was not due to a risk or cause coming within any of the exceptions specified in the con*742tract, nor shall the insurer be allowed to raise such issue unless it shall specifically allege that the loss was due to a risk or cause coming within a particular exception to the general liability; provided that nothing herein shall be construed to change the burden of proof on such issue as it now exists.” (emphasis added)
Prior to the adoption of Rule 94 a plaintiff suing upon an insurance contract was required to allege and prove that the facts the plaintiff relied on for recovery did not come within any of the contract exceptions exempting the issuing company from liability. Rule 94 changed the burden of pleading. There are presently no such burdens of allegation and proof on the part of the plaintiff, except where the insurer alleges that the loss was due to a risk or cause coming within a particular exception to the general liability. Shaver v. National Title and Abstract Company, 361 S.W.2d 867 (Tex.1962). Therefore, while the rule was changed as to the burden of pleading, a plaintiff still has the burden of proving that his case does not come within the exceptions from liability in the insurance policy sued on when the insurer alleges the loss was due to a risk within such exceptions. Commercial Travelers Life and Accident Company v. Bruce, 405 S.W.2d 634 (Tex.Civ.App.-Corpus Christi, 1966) writ ref. n.r.e.; Sublett v. American National Insurance Company, 230 S.W.2d 601 (Tex.Civ.App.-Eastland 1950) writ ref. n.r.e.
However, the real issue in this case is whether the limitation on liability in the subject policies is an exception or exclusion (upon which the insured has the burden of proof when it is raised by the insurance company) or whether it is a condition subsequent (upon which the insurance company retains the burden).
In Knoff v. United States Fidelity and Guaranty Company, 447 S.W.2d 497 (Tex.Civ.App.-Houston 1969), no writ, the heirs of an insured brought suit under a fire policy issued on the insured’s residence. The fire insurance policy contained the following clause:
“Unless otherwise provided in writing added hereto, the company shall not be liable for loss occurring:
(a) while the hazard is increased by any means with in the knowledge and control of the insured, provided such increase in hazard is not usual and incidental to the occupancy as hereon described.. . . ”
The Court concluded that the subject provision was not an exclusion, but rather was a condition subsequent which would avoid liability on the part of the insurance company. Therefore it placed the burden on the insurer to plead and prove the occurrence of the condition.
Similarly, in Dixie Fire Insurance Company v. Henson, 277 S.W. 756 (Tex.Civ.App.-Amarillo, 1925), aff’d 285 S.W. 265 (Tex.Com.App., 1926), it was stated that the burden rests on the insurer to plead and prove a breach of a condition and that such breach increased the hazard insured against.
In R. B. Company, Inc. v. Aetna Insurance Company, 5th Cir. 1962, 299 F.2d 753, the Fifth Circuit had occasion to deal with a fire insurance policy which contained the following provision:
“Conditions Suspending or Restricting Insurance. Unless otherwise provided in writing added hereto, this company shall not be liable for loss occurring.. . .
(a) while the hazard is increased by any means within the knowledge and control of the insured, provided such increase in hazard is not usual and incidental to the occupancy as hereon described.. . . ”
The insurance company sought to show an increase in hazard by showing that the activities for which the building was used far exceeded the hazards contemplated by the insurer, as evidenced by the “building use” description on the face of the policy. The evidence regarding the increase in hazard was established by expert testimony and by evidence of the high rates commanded by the Insurance Commission manual for coverage of the uses which the insureds were making of the buildings covered by the policy. In this regard the court, citing Dixie Fire Insurance Company v. Henson, *743supra, noted: “The insurer, in asserting these defenses did not shirk from the burden imposed by Texas law of sustaining them.”
The clause that is the subject of controversy in the instant case is substantially similar to the clauses in the Fifth Circuit case, R. B. Company v. Aetna Insurance Company, and the Knoff case discussed above. Accordingly, the burden is on the insurance company to prove the condition subsequent — that the hazard insured against was within the knowledge and control of the insured, and that the increase in hazard was not usual and incidental to the occupancy which was described on the face of the policies.
The insurance company in this case has established that the gasoline which was brought on the premises was within the knowledge and control of the insured. The evidence is undisputed that Strickel brought the gasoline on the premises. Although there were flammables on the premises at the time the policies of insurance originally issued, and at all relevant times thereafter, the bringing of gasoline on the premises and using it in the manner in which it was used in this case does increase the hazard. However, the testimony from the insured’s expert witness that the use of gasoline and similar solvents are customarily used in the industry to clean spills was substantially unchallenged. The case of Hartford Fire Insurance Company v. Dorroh, 63 Tex.Civ.App. 560, 133 S.W. 465 (1911) states some rules of law which may be helpful in resolving the issue. In that case the policy contained a clause which stated: “This entire policy shall be null and void if the hazard be increased by any means within the control or knowledge of the insured.” The insured had received an anonymous letter from which he arguably could have inferred the threat of arson, yet he did not report this fact to the insurance company. Ultimately a fire was deliberately set to the adjacent building which caused the insured’s building to burn. The appellate court noted:
“It is also the established rule that whether there has been an increase in the hazard or not must be determined by a comparison with the conditions existing at the time the policy was written. Until it is shown that a new danger has arisen that did not exist at the time the policy was written and delivered which augmented the general risk, there is no basis for the claim of forfeiture by reason of an increased hazard. . . Here the insurer undertakes to indemnify the insured against the possibility of a loss by fire for an agreed consideration paid in advance. The hazard here referred to evidently means the possibility of a loss by fire created by the sum of all dangers resulting from the recognized exposures. . . . It is also well known that many fires are of incendiary origin, and that in the transaction of their business insurance companies must take into consideration the dangers arising from that source in estimating the extent of the hazard they assume in all ordinary risks. ... Hence it follows that a loss resulting from the in-cendiarism for which the insured cannot be held responsible is one of the dangers against which he secures protection by the general terms of the policy. It is one of the dangers which the company assumes when it makes the contract of insurance and not one which it may claim arises subsequently and adds to the original hazard.”
The insurer has not met its burden to establish the condition subsequent — that is, that the use of the gasoline in the manner of this case was not usual and incidental to the occupancy of the premises as a carpet store.
Next the insurance company contends that the fire was a result of arson. However, arson is also an affirmative defense upon which the insurer bears the burden of proof. Aetna Casualty and Surety Company v. Clark, 427 S.W.2d 649 (Tex.Civ.App.-Dallas, 1968), no writ; Payne v. Hartford Fire Insurance Company, 409 S.W.2d 591 (Tex.Civ.App.-Beaumont, 1966), writ ref. n.r.e.; State Farm Fire and Casualty Company v. Ulteig, 367 S.W.2d *744898 (Tex.Civ.App.-Waco, 1963) writ ref. n.r.e.
There was no proof whatsoever that, if the fire was intentionally set, the debtor Strickel had anything to do with it. No motive or opportunity on his part was reflected by the testimony. In fact, the evidence from the insurer’s expert casts serious doubt on the fire being caused in any manner by the gallon of gasoline which the debtor had brought on the premises. The report of the expert employed by the insurance company, which was received into evidence with responses to interrogatories designated by plaintiff, reflected that “large quantities of flammable liquid accelerants (2 to 4 gallons) was splashed onto the rear walls running down the wall to the floor behind the tack strips.” That testimony is persuasive that the fire was caused by other means than the mere one gallon of gasoline which Strickel had brought to the premises.
The insurance company has failed in its burden to exempt coverage in this case. The trustee for the debtor is entitled to recovery under the two fire policies. However, there is an issue as to the amount of recovery to which he is entitled.
The measure of damages for damage to or loss of personal property, if market value is capable of being established, is difference between market value immediately before the injury and its market value immediately after the injury. Mobile Housing Inc. v. Moss, 483 S.W.2d 56 (Tex.Civ.App.-Tyler, 1972), no writ. The evidence adduced that the value of the forklift immediately before the fire was $4,500.00 and that its salvage sold for $2,400.00. Thus the amount which the trustee is entitled to recover under the fire policy insuring the forklift is the sum of $2,100.00.
The salvage value of the carpet inventory and office furniture was $50.00. The value of the office furniture, fixtures, tools and supplies immediately prior to the fire was $8,682.00. An issue exists, however, concerning the standard to be employed in determining the “market value” of the carpet inventory immediately preceding the fire.
The cost of that inventory was $38,544.40. The trustee contends that he should recover as “market value” the additional sum of $13,865.19, representing the “mark up” on the inventory. The insurance company cites provisions in the subject policies, which limits liability to “the actual cash value of the property at the time of the loss, ascertained with proper deduction for depreciation; and. .. (shall not).. . exceed the amount it would cost to repair or replace the property with material of like kind and quality within a reasonable time after the loss....” Thus, the insurer insists that its liability, if any, is limited to the replacement value of the carpet.
Texas cases which have treated the subject appear to set the relevant value at what the goods would have sold for in bulk or in convenient lots. Shield Company, Inc. v. Cartwright, 172 S.W.2d 108, 113 (Tex.Civ.App.-Fort Worth, 1943) aff'd. 142 Tex. 324, 177 S.W.2d 954 (1944); Missouri, K. & T. Ry. Co. of Texas v. Cadenhead, 164 S.W. 395 (Tex.Civ.App.-Texarkana, 1914) error dism’d. No testimony was adduced at the trial which reflected that value. However, those cases were cited, with many citations from other states, in J&H Auto Trim Company Inc. v. Bellefonte Insurance Company, D.C., M.D.Fla., 1980, 501 F.Supp. 942, 951 for the proposition that “when there is no market value for a stock in trade which has been lost or destroyed, according to the great weight of authority, the proper measure of damages is the wholesale cost of the stock in trade, plus freight, and not the retail selling price.”
I find, therefore, that the trustee should recover from the insurance company under the fire insurance policy on the forklift the sum of $2,100.00.
I find, further, that the damages recoverable under the policy insuring the inventory of carpet and the furniture, fixtures, tools and supplies totals $47,226.40. The insurance company is entitled to setoff in the sum of $31,448.16 for payments to *745First National Bank of Plainview as loss-payee on the policy and an additional setoff of $50.00 for salvage value. Thus, the recovery which the trustee shall make under the policy insuring the inventory and furniture, fixtures, tools and supplies is the sum of $15,728.24.
The trustee had been permitted to act as his own attorney. His claim of entitlement to attorney’s fees for prosecuting the action against the insurance company under the two subject policies presents an interesting question.
Article 3.62 of the Insurance Code provides that when a policy loss occurs and a life insurance company, accident insurance company, life and accident, health and accident, or life, health and accident insurance company fails to pay within thirty days after demand for payment, it is liable, in addition to the amount of the loss, for 12% thereof as damages, and also for a reasonable attorney’s fee for the prosecution and collection of the loss. That statute was held to be highly penal, thus requiring strict construction. McFarland v. Franklin Life Insurance Company, 416 S.W.2d 378 (Tex.1967).
For approximately fourteen years subsequent to its enactment, the statute was held not to apply to claims against fire insurance companies. Standard Fire Insurance Company v. Fraiman, 588 S.W.2d 681 (Tex.Civ.App.-Houston, [14th Dist.], 1979), writ ref. n.r.e.; First Preferred Insurance Company v. Bell, 587 S.W.2d 798 (Tex.Civ.App.-Amarillo, 1979) writ ref. n.r.e. Plaintiffs seeking to recover attorney’s fees on fire insurance complaints sought other statutory support for the recovery.
In January, 1981, the Fifth Circuit, in Reynolds v. Allstate Insurance Company, 5th Cir. 1981, 633 F.2d 1208 addressed the issue:
“§ 7 of the Unfair Claim Settlement Practices Act seems to cover almost every type of insurer that can exist, in order to enable the Texas Board; of Insurers to guard against deceptive practices by any of these companies. We find it extremely difficult to believe that the Texas Legislature intended the exclusion provision to prevent the award of fees on all insurance contracts in all cases except those brought under the Unfair Claims Act of the Board of Insurers. Rather, it seems more sensible that the legislature excluded from the scope of coverage of Article 2226 suits brought under those acts — such as the Unfair Claim Settlement Practices Act- — -which themselves specify conditions for awarding attorney’s fees. Thus, we deem it more logical that the exclusion provision of Article 2226, quoted above, was intended to increase, not decrease, the availability of fees to plaintiffs. Yet, for the time being, it seems that the “plainer” language of Article 2226 and the case of Standard Fire Insurance Company v. Fraiman, 588 S.W.2d 681 (Tex.Civ.App.-Houston 1979), require the conclusion that fire insurers, among many others, are excluded from even the “liberally construed” scope of Article 2226 and that attorney’s fees should not have been awarded in the present case.”
One month later, on February 27, 1981, the Court of Civil Appeals in Texarkana handed down the case of Prudential Insurance Company of America v. Burke, 614 S.W.2d 847 (Tex.Civ.App.-Texarkana, 1981). In that case the insured under a life insurance policy filed suit against the insurer because the insurer had refused to change the designated beneficiary in accordance with the insured’s instructions and sought recovery of attorney’s fees incurred as a result of institution of the lawsuit. The insurer had refused to make the change on the grounds that the named beneficiary had a vested interest in the policy. In discussing the propriety of awarding attorney’s fees, the Court, in its main opinion, stated the following:
“The insurance policy involved here contains no provisions for the recovery of such fees. Tex.Rev.Civ.Stat.Ann. art. *7462226, which provides for the recovery of such fees in many types of cases, expressly excludes claims against insurance companies which are subject to the provisions of Texas Insurance Code Annotated Arts. 21.21, 21.21-2 (Supp.1980) and 3.62. Article 21.21 of the Insurance Code applies to any person or corporation engaged in the business of insurance in Texas. J. Freeman Company v. Glenn Falls Insurance Company, N.D.Tex.1980, 486 F.Supp. 140; yet none of the Insurance Code provisions allowing a recovery of attorney’s fees applies to this type of case. Neither does the Declaratory Judgment Act allow for the recovery of attorney’s fees, unless they are recoverable by virtue of other statutory or contractual provisions (citations omitted). The judgment of the district court is reformed to delete the provisions awarding attorney’s fees.” Id. at 850.
On rehearing, the Texarkana court reversed itself on the issue of attorney’s fees, concluding that Mr. Burke was in fact entitled to this recovery.
Note the following language:
“In our case Mr. Burke prayed for specific performance of Prudential’s contractual obligation to change the beneficiary of his policy and the trial court in its judgment ordered Prudential to comply.. . . If a suit to specifically perform a contract to convey real estate authorized a recovery of attorney’s fees under Article 2216 (referring to Jones v. Kelley, 614 S.W.2d 95 (Tex.1981), a Supreme Court case in which this was the holding), there appears to be no reason why such a recovery should not be allowed in this suit unless it be considered that the statute excludes all insurance contracts. Upon further consideration we have concluded that, in excluding contracts of insurance companies subject to the Insurance Code’s Unfair Claims and Settlement Practices Act, the Unfair Competition and Unfair Practices Act, and § 3.62 of the Insurance Code, the purpose of Article 2226 was to exclude only those claims against insurance companies where attorney’s fees were already available by virtue of other specific statutes, as they are in those which Article 2226 specifically mentions. In view of the Supreme Court’s extension of Article 2226 to suits on written contracts involving other than monetary claims, and in view of the legislative mandates that Article 2226 is liberally construed, we hold attorney’s fees were properly awarded.” Id. at 850.
In a per curiam opinion delivered by the Texas Supreme Court on September 28, 1981, the decision of the Texas Court of Civil Appeals was affirmed. Prudential Insurance Company of America v. Burke, 621 S.W.2d 596 (Tex.1981).
Accordingly, Texas law appears to permit recovery of attorney’s fees on fire insurance policies where, as here, recovery under Article 2226 is sought. The amount of reasonable attorney’s fees to be so awarded to the trustee will be determined in accordance with the mandate of Johnson v. Georgia Highway Express, 5th Cir. 1974, 488 F.2d 714, and its progeny. Accordingly, the trustee shall file a chronological statement, setting out in detail not only the hours spent in prosecuting this action, but detailing how each of those hours was spent. The Johnson factors will be analyzed by the Court and an appropriate award will be made.
LET JUDGMENT BE ENTERED ACCORDINGLY. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489278/ | MEMORANDUM AND ORDER
ALAN H. W. SHIFF, Bankruptcy Judge.
This matter is before the court on Waterbury Teachers Credit Union’s Motion For Relief From Judgment.
On September 1, 1981, the trustee instituted an adversary proceeding against the defendant, Waterbury Teachers Credit Union, pursuant to 11 U.S.C. § 547 to avoid an alleged preferential transfer of $5,000.00 made by the debtor to the defendant in satisfaction of a promissory note. On October 22, 1981, the parties stipulated that judgment enter in favor of the plaintiff, and it was so ordered. Thereafter, the defendant proceeded against an unidentified co-maker of the note. In the course of that activity, the defendant found evidence which, it argues, demonstrates that the avoided transfer did not, in fact, involve funds of the debtor’s estate. That evidence consists of a $5,000.00 check drawn by the debtor’s father, made payable to the debtor, endorsed by the debtor, and paid by the debtor to the defendant in the ill-fated transfer.
On December 16, 1981, the defendant filed a motion, pursuant to Rule 60 of the Federal Rules of Civil Procedure, for relief from judgment. Apparently, the defendant invokes F.R.Civ.P. 60(b)(2) which provides: “On motion and upon such terms as are just, the court may relieve a party or his legal representative from a final judgment, order, or proceeding for the following reasons: (2) newly discovered evidence which by due diligence could not have been discovered in time to move for a new trial under Rule 59(b).”
The plaintiff objects to the defendant’s motion on the basis that it is time-barred, since it was not filed within ten days of the judgment from which relief is sought. The plaintiff further contends that the “newly discovered evidence” could have been discovered with due diligence. Lastly, the plaintiff contends that the $5,000.00 which had been transferred by the debtor to the defendant should be deemed a part of the debtor’s estate, even if the $5,000.00 check were considered “newly discovered evidence.”
The plaintiff’s first ground for objection lacks merit. Rule 924 of the Bankruptcy Rules makes F.R.Civ.P. 60 applicable in bankruptcy cases with certain exceptions *812which are of no relevance in the instant proceeding. See generally, 7 Moore’s Federal Practice ¶ 60.18[7] (2d ed. 1948). F.R. Civ.P. 60 does not impose a ten day limitation on filing for relief after judgment has been entered. There is some question, however, concerning the applicability of Rule 60(b)(2) where there has been no trial. Westerly Electronics Corporation v. Walter Kidde & Company, 367 F.2d 269, 270 (2d Cir. 1966).1 Assuming, arguendo, that the motion is applicable here, the motion must nevertheless fail.
The defendant has not shown nor has he attempted to show why the check could not have been discovered with due diligence. There is no claim, for instance, that the defendant sought evidence of the source of payment but was thwarted because such evidence was “hidden at the time of judgment.” Ryan v. United States Lines Company, 303 F.2d 430, 434 (2d Cir. 1962). Where the moving party could have readily discovered the evidence by the time of the original order or judgment, relief pursuant to Rule 60(b)(2) is inappropriate. See Greenspahn v. Joseph E. Seagram & Sons, 186 F.2d 616, 619 (2d Cir. 1951).
Moreover, I am not persuaded that the additional evidence would alter the judgment from which the defendant seeks relief. The test for deciding whether a transfer is preferential, when the transferred funds can be traced to a third party, has been described in this circuit as follows:
There is no evidence that [the third party] conditioned this loan . . . upon the payment of any particular creditor or that he cared who was paid. We believe the arrangement was such that [the bankrupt] rather than [the third party] designated the creditor to be paid and controlled the application of the loan which it secured from its landlord. The existence of this control determines whether the payments were preferential transfers by the bankrupt or were payments by a third party who did not make the loans generally but made them only on condition that a particular creditor receive the proceeds.
Smyth v. Kaufman, 114 F.2d 40, 42 (1940).
In the instant proceeding the “newly discovered evidence” ($5,000 check) offers no support for the defendant’s contention that the debtor’s father designated that the defendant be paid. For example, there is no evidence that the debtor’s father was the surety on the note from which such designation might be inferred. See Id. Here nothing rebuts the conclusion that the debt- or had unqualified control of the funds. Even if it is true, as the defendant argues, that the debtor borrowed the money from his father specifically to pay the defendant, the debtor’s intent is no basis for imposing a trust on the borrowed funds which would separate them from the debtor’s estate. This result can only be based on the conditions which the third party imposes. Since the evidence which the defendant offers pursuant to F.R.Civ.P. 60(b)(2) is insufficient to alter the original judgment, the motion should be denied. See O’Brien v. Thall, 283 F.2d 741, 743 (2d Cir. 1960).
For the above reasons, it is ORDERED that the defendant’s Motion For Relief From Judgment is denied.
. In discussing this question, the appellate court distinguished Westerly, in which some evidence was introduced before the order, from those cases in which no evidence was previously introduced. Westerly at 270 n. 1. In the instant proceeding no evidence was introduced before the order. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489281/ | OPINION
WILLIAM A. KING, Jr., Bankruptcy Judge.
This case reaches the Court on a complaint for a preliminary injunction filed by the trustee. The trustee sought to impose an injunction to prevent transfers from a bank account in Continental Bank under the name of Legis, Inc. The trustee alleged that these funds were the property of the debtor, Frederick C. Sturm, III. The Court entered a Temporary Restraining Order on March 19, 1982, after a hearing at which counsel for Legis appeared. Subsequently, Legis acquired new counsel and vigorously contested the imposition of an injunction. The trustee filed a complaint to pierce the corporate veil of Legis, Inc., alleging that Legis was a mere sham and the alter ego of the debtor. Both of these matters were heard together and testimony was taken over a period of several days. During the course of this proceeding, two (2) motions to intervene in the action were granted. At the conclusion of the testimony, the Court held the case under advisement, pending the outcome of settlement negotiations. No settlement agreement was filed, therefore, it became necessary for the Court to render a prompt decision. The preliminary injunction was imposed by Order of this Court on April 12, 1982. This Opinion is being filed in support of the Order. Furthermore, this Opinion constitutes the findings of fact and conclusions of law required by Rule 752 of the Rules of Bankruptcy Procedure and Rule 65(d) of the Federal Rules of Civil Procedure.
I.FINDINGS OF FACT
1. On or about December 9, 1981, Frederick C. Sturm, III, filed the above-captioned voluntary petition under Chapter 11 of the Bankruptcy Code. Title 11 U.S.C. § 101 et seq.
2. Plaintiff, James J. O’Connell, Esquire, is the Interim Trustee in the above-captioned Chapter 7 proceeding, having been appointed by Order of the Court on February 16, 1982. This was subsequent to the conversion of the case to Chapter 7.
3. Defendant, Legis, Inc., is a Pennsylvania corporation which maintains its principal place of business at 330 Spruce Street, Philadelphia, Pennsylvania.
4. Legis maintains a bank account (Account Number 44-1-754-9) at Continental Bank.
5. Upon complaint of the trustee (Adversary Number 82-0665K) this Court entered a Temporary Restraining Order on March 19, 1982, and a Preliminary Injunction on April 12, 1982, placing the approximately $11,659.69 in the Continental Bank Account in suspense.
6. On March 29, 1982, the trustee filed a complaint (Adversary Number 82-0764K) alleging that Legis, Inc., and Legal Protection Systems are controlled by and are in-strumentalities of the debtor, Frederick C. Sturm, III.
7. The complaint (Adversary Number 82-0764) seeks to piece the corporate veil of Legis, Inc. and prays for an order of turnover of all funds and assets in the possession of defendants, Legis, Inc. and Legal Protection Systems.
8. The trustee has requested relevant bank data from Continental Bank but presently has not received such information.
*9679. The trustee has requested cancelled checks from the Legis, Inc. account but presently has not received them from Continental Bank. The delay results from the fact that batches of microfiche must be searched by hand.
10. Data from Central Penn Bank, the former depository of the defendants, has not yet been turned over to the trustee.
11. Debtor’s premises at 330 Spruce Street, Philadelphia, Pennsylvania, has been inspected by the trustee and members of his staff.
12. The trustee’s investigation failed to discover checkbooks for Legal Insurance, Inc. or Legal Protection Systems at 330 Spruce Street.
13. Bank statements and cancelled checks of Legis, Inc. are missing from that location.
14. Approximately 65 out of 500 checks, or at least 13% of all Legal Protection System’s cancelled checks are missing from the checks found at 330 Spruce Street, Philadelphia, Pennsylvania.
15. The trustee has been unable to contact or locate Howard Shull, an alleged member of the board of directors of Legis, Inc., for examination.
16. The trustee wishes to examine Mr. Shull regarding the transfer of corporate funds to casinos, the whereabouts of assets of the estate, and the workings of Legis, Inc.
17. The trustee is unable to locate any deposit slips from any of the relevant bank accounts.
18. The trustee caused a subpoena requesting books and records of the corporate entities to be served upon Cheryl Staffin, Chairperson of Legis, Inc.
19. With one exception, no books or records were presented to the trustee pursuant to that subpoena. A single confirmation of deposit statement from Merrill Lynch was presented to the trustee on the date of the trial.
20. The trustee caused a subpoena requesting books and records of the debtor and related entities to be served upon Frederick C. Sturm, III. Almost no books and records were presented to the trustee pursuant to this subpoena.
21. The trustee’s review of the debtor’s bankruptcy schedules failed to disclose any interest of the debtor in bank accounts.
22. Bank statements mailed to the debtor were diverted by the postmaster to the trustee and indicated the existence of an account in the debtor’s name at Merrill-Lynch and an account in the name of Legis, Inc. at Continental Bank. These accounts are the subject of litigation in this Court.
23. The investigation of the trustee failed to uncover any books of original entry of Legis, Inc. or Legal Protection Systems on the premises at 330 Spruce Street, Philadelphia, Pennsylvania.
24. The trustee testified that it is his belief that it is in the best interests of the estate to continue the status quo by a continuance of the preliminary injunction pending completion of his investigation.
25. There are no books or original entry nor cash receipts journal, cash disbursements journal, general journal, nor any ledger of Legis, Inc. in existence; with the sole exception of the corporate check book.
26. The chairperson and chief executive officer of Legis, Inc. is not aware of what happened to missing checks of the Legis, Inc. account.
27. Frederick C. Sturm, III, is the incorpo-rator of Legal Insurance, Inc.
28. Sturm owned all stock of Legal Insurance, Inc. at its inception.
29. The stock of Legal Insurance, Inc. was issued in March of 1981 to Cheryl Staffin in consideration of certain research and investigative services performed on behalf of Frederick C. Sturm, III, in the case of United States v. Frederick C. Sturm, III, in the United States District Court for the Eastern District of Pennsylvania.
30. At the time of the transfer of ownership and the issuance of stock by Sturm to Staffin, both Sturm and Staffin lived at 330 Spruce Street, Philadelphia, Pennsylvania. *96831. Checks were drawn on the Legal Insurance Account at Central-Penn National Bank to Western Savings Bank for the monthly mortgage on property owned by Sturm and his wife. This property was owned by Sturm and his wife as tenancy by the entireties and the address of the property is 2320 Parrish Street, Philadelphia, Pennsylvania.
32. Sturm testified that he rented the Parrish Street property to three (3) unnamed individuals who then paid rent to Legal Protection Systems. No receipts evidencing such rental payments have been produced. Nor has a lease been produced.
33. Checks were drawn on the Legal Insurance Account at Central-Penn to the Bureau of Accounts for alimony pendente lite payments to Andrea Sturm, wife of Frederick C. Sturm, III.
34. The alimony or support payments by Legal Insurance, Inc. to Andrea Sturm are not obligations of Legal Insurance, Inc.
35. Checks were drawn on the Legal Insurance account to F. Emmett Fitzpatrick, Esquire, for appeals fee and investigative costs incurred in a proceeding where he represented Sturm.
36. Legis, Inc. was incorporated on or about September 23, 1981, by Cheryl Staf-fin.
37. On or about December 10, 1981, 1,000 shares of stock in Legis, Inc. were issued to Cheryl Staffin.
38. No money was delivered to Legis, Inc. by Cheryl Staffin in exchange for the issuance of stock.
39. Staffin contributed the contracts of Legal Protection Systems to Legis, Inc. in exchange for the issuance of stock, although no documentation evidencing such transfer apparently exists. No such documentation was produced at the hearing to substantiate this claim.
40. Staffin is the chairman of the board and the chief executive officer of Legis, Inc.
41. Legal Protection Systems was a division of Legal Insurance, Inc. and is now a division of Legis, Inc. This relationship has never been fully or satisfactorily explained.
42. There was an attempt to incorporate Legal Protections Systems but the articles of incorporation were rejected and it has never been successfully incorporated.
43. Checks were drawn on the Legal Protection Systems, Inc. account at Central-Penn National Bank to the Philadelphia Family Court for support payments to Andrea Sturm, wife of Frederick C. Sturm, III.
44. Checks were drawn on the Legal Protection Systems, Inc. account to Prudential Insurance Company and Western Savings Bank in payment for the insurance coverage and the mortgage obligation on property owned by Frederick C. Sturm, III, and his wife at 2320 Parrish Street.
45. The check drawn on the Legal Protection Systems, Inc. account to Manges-Renzi, Inc. for Staff in’s hospital expenses was a personal expense of Staffin.
46. Checks were drawn on the Legal Protection Systems, Inc. account to Postal Instant Press for services rendered in connection with Sturm’s appeal in a criminal matter in which he was personally involved.
47. Checks were drawn on the Legal Protection Systems, Inc. account to Bamber-ger’s as payment for the purchase of suits for Frederick C. Sturm, III.
48. A check drawn on the Legal Protection Systems, Inc. account in the amount of $200.00 to the United States Bankruptcy Court was undated but was processed on December 18, 1981.
49. The Court takes judicial notice that the filing fee for a Chapter 11 bankruptcy petition is $200.00 and concludes that this check was used to pay for the filing fee for Frederick C. Sturm, Ill’s petition.
50. Staffin testified that she ratified or authorized all personal expenses of Sturm which were paid with corporate funds subsequent to the issuance of the checks.
51. There was never any written ratification of these checks which were issued for personal expenses.
52. Staffin’s testimony that she authorized all personal expenses of Sturm lacks credi*969bility. Even if true, these actions show a complete disregard for the corporate entity.
53. Frederick C. Sturm, III, signed all checks of Legis, Legal Protection Systems and Legal Insurance.
54. Staffin reviewed the check book and had no questions or objections to the many checks that were issued.
55. Staffin also testified that she questioned all expenses over $50.00.
56. Staffin had previously testified at a Rule 205A examination conducted before this Court that she had never questioned Sturm’s expenses.
57. Staffin also testified that expenses and disbursements were reviewed by her twice a month as chief executive officer.
58. Neither the chairperson of Legis, Inc. nor anyone else requires verification of expenses from Sturm prior to his issuance of a Legis, Inc. check in payment of such expenses.
59. Prior to reimbursement, there is no policy requiring any documentation to be submitted in support of the amount sought.
60. Staffin testified that she bore the responsibility for verifying that a Legis, Inc. or Legal Protection Systems reimbursement check was a proper business expense and, furthermore, that this responsibility had not been delegated to anyone.
61. Sturm testified that either Cheryl Staffin, Howard Shull, or Tom Licourish reviewed his expenses after the issuance of the check.
62. The whereabouts of Shull and Licourish are unknown and the trustee has been unable to subpoena them for examination.
63. The many inconsistencies in the testimony of Staffin and Sturm lead to the conclusion that the testimony regarding review of expenses is entirely untrustworthy.
64. As chairperson and chief executive officer of Legis, Inc., Cheryl Staffin spends only two (2) hours a week at the corporation’s place of business.
65. Staffin testified that she reviewed expenses on the weekends or on a few occasions that Sturm brought her the checkbooks since July of 1981.
66. Sturm was a director of Legal Insurance, Inc. along with Cheryl Staffin and Howard Shull.
67. Sturm was in charge of the day-to-day operations of both Legal Protection Systems, Inc. and Legis, Inc.
68. All employees of any of these entities were accountable directly to Frederick C. Sturm, III.
69. Sturm manages and supervises five (5) fulltime employees and an undisclosed number of parttime employees of Legis, Inc. during the work week.
70. With the exception of a bank account opened only two (2) weeks before trial, Frederick C. Sturm, III, is the sole signatory on bank accounts of Legis, Inc. and all other related entities.
71. Frederick C. Sturm, III, was also the sole signatory on Legal Protection Systems, Inc. bank accounts.
72. Frederick C. Sturm, III, had maintained a residence at 330 Spruce Street.
73. Legis, Inc. is located and doing business at 330 Spruce Street. Legal Protection Systems, Inc. is located and doing business at 330 Spruce Street. Legal Insurance, Inc. is located at 330 Spruce Street.
74. The telephone lines for 330 Spruce Street, which number 12 or 13, are titled in the name of Frederick C- Sturm, III.
75. The lease for the premises known as 330 Spruce Street is in the name of Frederick C. Sturm, III.
76. Sturm lived rent free at 330 Spruce Street.
77. Initially, Legal Insurance, Inc. paid the rent for 330 Spruce Street. Subsequently, the rent was paid by Legal Protection Systems, Inc. This entity, Legal Protection Systems, Inc., has been a division of both Legal Insurance, Inc. and Legis, Inc. This relationship, of whatever nature it may be, has never been explained to the Court.
78. Legis, Inc., at some unknown date, commenced payment of both a monthly rental and the utilities on the premises at 330 Spruce Street.
*97079. Sturm has the use of a 1979 Cadillac and an Alpha Romeo which are owned by Legis, Inc.
80. Staffin formerly maintained her residence at 330 Spruce Street.
81. Frederick C. Sturm, III, and Cheryl Staffin are both currently residing at 225 South 18th Street, Philadelphia, Pennsylvania.
82. The testimony of Staffin as to authorization of Sturm’s expenses is not credible, in light of the minimal amount of time she devotes to the business and her close relationship with Sturm. Furthermore, there is the fact that no written authorization or ratification presently exists nor is there any evidence that such authorization or ratification ever existed.
83. Sturm and Staffin have failed to observe corporate formalities.
84. Sole ownership of all stock in Legal Insurance, Inc. and Legis, Inc. has been held by either Cheryl Staffin or Frederick C. Sturm, III.
85. There is a shocking absence of corporate records.
86. There is a dissipation and diversion of corporate funds by the controlling entity, Frederick C. Sturm, III. This activity can only be to the detriment of both corporate creditors and creditors of the bankruptcy estate.
87. Frederick C. Sturm, III, is in complete control of the defendant, Legis, Inc.
88. Frederick C. Sturm, III, has apparently used the assets of Legis, Inc. completely as his own.
89. Frederick C. Sturm, III, seems to have attempted to conceal assets, which properly are property of the bankruptcy estate, in Legis, Inc.
II. CONCLUSIONS OF LAW
The Court will enter an order continuing the preliminary injunction pending the completion of the trustee’s investigation and disposition of the trustee’s complaint. The trustee has raised serious allegations concerning the conduct of this debtor and the very existence of Legis, Inc. The evidence presented at the hearings has made it apparent to the Court that Legis, as a corporation, has not had a separate existence from the debtor. The evidence, however, is not complete. The trustee, therefore, will be ordered to continue his investigation and will be directed to file a report with the Court within forty-five (45) days.
The trustee’s complaint (Adversary Number 82-0764K) will be held in abeyance pending the filing of the trustee’s report. The Court has also requested counsel to file briefs or memoranda of law on the issues raised by the trustee in his complaint. When these documents are all available to the Court, a decision will be rendered on those issues.
This matter came before the Court on an expedited basis because of the time constraints imposed by the Federal Rules of Civil Procedure on injunctive proceedings. There has not been an opportunity for orderly litigation. If additional testimony should prove necessary, any party may file an application to reopen the proceeding for the purpose of placing additional evidence before the Court.
The Court will continue the injunction as regards the Continental Bank account. A decision on the final disposition of these funds will be rendered contemporaneously with the decision on the trustee’s complaint. The Court is compelled to enter this injunction because of the lack of credibility and trustworthiness demonstrated by Sturm and Staffin, the principals of Legis. If the injunction were dissolved, the Court is certain that these funds would be immediately dissipated. If a subsequent decision were rendered in favor of the trustee, he would have no means of recovering these funds.
In conclusion, the Court will enter an Order continuing the preliminary injunction, directing the trustee to continue his investigation and requiring the trustee to file a written report within forty-five (45) days. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489282/ | *1018MEMORANDUM OPINION
MARK B. McFEELEY, Bankruptcy Judge.
This matter came before the Court January 15, 1982, on Trustee’s Complaint to Bring Property into the Bankruptcy Estate. Plaintiff and defendants have stipulated to the following facts:
1. The debtor’s mother, Avah Lane, resides at 4782 East Simpson Street, Fresno, California.
2. The residence was purchased entirely with proceeds from a condemnation sale of Mrs. Lane’s former residence, in which the debtor had no interest.
3. At the time of the purchase of the residence at 4782 East Simpson Street, Fresno, California, defendant Lane was in poor health and sought to facilitate the eventual probate of her estate by naming her only daughter, the debtor, as a joint tenant, thus allowing the residence to pass directly to the daughter upon Mrs. Lane’s death.
4. At the time of execution of the deed to the property at 4782 East Simpson Street, Fresno, California, Mrs. Lane had no present intention of conveying any present interest in the property to her daughter. Neither Mrs. Lane or Wanda Riley believed that Ms. Riley was given any interest in the property when the deed was recorded, and neither party believed that Wanda Riley had any present interest in the property.
Plaintiff contends that the debtor has all legal and equitable interest of a joint tenant and that he, as trustee, should be allowed to sell that interest and distribute the proceeds to the creditors. The defendants argue that the debtor has no legal or equitable interest in her mother’s residence and that the relief sought should be denied.
This Court finds as follows:
11 U.S.C. § 541 provides that property of the estate includes all legal and equitable interests of the debtor in property as of the commencement of the case. § 70 of the Bankruptcy Act, which this section (§ 541) replaced, provided that, when so recognized by the local jurisdiction, the interest of joint tenancy is subject to execution and separate sale under the jurisdiction of the bankruptcy court. Mangus v. Miller, 317 U.S. 178, 63 S.Ct. 182, 87 L.Ed. 169 (1942), reh’g denied, 317 U.S. 712, 63 S.Ct. 432, 87 L.Ed. 567 (1943). Accordingly, the exact issue before this Court is whether a judgment lien creditor in California, in whose shoes the trustee stands by virtue of 11 U.S.C. § 544, could execute on the property in question by virtue of the joint tenancy stated on the face of the deed.
It is clear that a judgment lien attaches only to the actual interest which a debtor has in property. Wilkinson v. Wilkinson, 124 Cal.Rptr. 870, 51 Cal.App.3d 382 (1975), Anderson v. Southern Pac. Co., 70 Cal.Rptr. 389, 264 Cal.App.2d 230 (1968), Russell v. Lescalet, 56 Cal.Rptr. 399, 248 Cal.App.2d 310 (1967). It follows that where there is naked title with no equitable interest, there is no usable interest to which the judgment lien may attach. Riverdale Mining Co. v. Wicks, 14 Cal.App. 526, 112 P. 896 (1910); Parsons v. Robinson, 206 Cal. 378, 274 P. 528 (1929); Spear v. Farwell, 5 Cal.App.2d 111, 42 P.2d 391 (1935).
Plaintiff argues that the Parsons decision, supra, requires this Court to find that Wanda Riley possessed a joint tenancy with all applicable interests. However, in that case, the property was transferred by the husband to wife specifically so that the wife could act as his bail bondsman, which by definition required that she have more than naked legal title. Parsons v. Robinson, supra, 274 P. at 530.
More factually on point, however, is Spear v. Farwell, supra. In that case, the wife was concerned that, upon her death, her husband be able to obtain funds to run her household until her estate could be settled. To that end, she opened a savings account and both she and her husband signed the deposit agreement which named them as joint tenants with rights of surviv-orship, the account being subject to withdrawal by either. The evidence in that case showed that all the money deposited in the account was the wife’s separate property, that the husband never made withdrawals from the account, and that both the hus*1019band and wife believed that the husband had no rights in the funds in the account unless and until the wife died. Id. 42 P.2d at 392. The Court in Spear went on to point out that there was nothing in the record to suggest that credit was extended to the husband on the basis of the account or that the judgment creditor knew about the account. Based on these facts, the Court found that the husband held only naked title and that a judgment lien could not attach. The court affirmed the district court, which found that the wife was the owner of the account and released the account from the creditor’s claim.
The facts in the ease before us are very close to those in Spear. All of the funds used to purchase the residence in question were Mrs. Lane’s separate property. Both she and her daughter believed that her daughter’s name appeared on the deed simply to facilitate probate upon Mrs. Lane’s death, and neither believed that the. debtor had any interest in the property at the time of the filing of the deed or at any time prior to Mrs. Lane’s death. Also important is the failure of the record to suggest that any credit was extended to the debtor upon a representation by her that she had any interest in the property.
This Court finds that defendant Wanda Claudine Riley has no interest in the residence at 4782 East Simpson Street, Fresno, California, other than naked title, and that since in California a judgment lien against the debtor could not attach to the property, the trustee’s status as the ideal judgment lien creditor gives him no right or interest in the property. The trustee’s Complaint to Bring Property into the Bankruptcy Estate will be dismissed with prejudice. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489839/ | MEMORANDUM OF DECISION
CALVIN K. ASHLAND, Bankruptcy Judge.
BACKGROUND
Silver Lakes Association asked relief from the automatic stay to collect overdue association fees from the debtors. The fees were assessed pursuant to the Declaration of Covenants and Restrictions of Silver Lakes resort community. The association alleged that it was providing maintenance, security and improvement services to the resort community, and that the debtors as owners of parcels in the resort were not paying their share of the services. The association also alleged that if relief was not granted, it would have difficulty in providing further services to the resort.
At a pre-trial hearing on the complaint of the association I ruled that the assessments due the association were entitled to administrative priority pursuant to Section 503(b)(1)(A). The attorneys for the debtor asked leave to submit post hearing briefs to discuss the priority issue further. A memorandum of decision was entered on July 29, 1983 and an order based upon the memorandum was entered October 7, 1983. The debtors filed a timely request for reconsideration of the memorandum and order.
DISPOSITION
The motion for reconsideration is granted and the order entered October 7, 1983 is vacated.
FACTS
Robert A. "Felburg and Adams Canyon Development Corporation are debtors and debtors in possession. Each debtor owns an unimproved parcel of real property in the Silver Lakes resort community. The association was created by and is operated pursuant to a set of deed restrictions which is recorded in the land records of San Ber-nardino County, California. The deed restrictions are designated as the Declaration of Covenants and Restrictions of Silver Lakes (CC & R).
Pursuant to the CC & R, the association operates and maintains two lakes of a combined surface area of 288 acres; a 210 acre 27 hole golf course with driving range, clubhouse and appurtenances; a main recreation center consisting of a pool, tennis courts, paddleboard courts, restaurant facilities, and other amenities; a six acre equestrian center with barns, rings and trails; a 32 acre wildlife preserve and park; and various other park and recreational facilities. The association provides by means of an Environmental Control Committee quality and aesthetic control of the construction and the maintenance of improvements at the facilities. The association provides 24 hour security, fire protection, public facilities, maintenance and upkeep.
The association is funded by means of assessments against each parcel of real property at the development. The lots owned by Felburg and Adams Canyon, being Lot 2 of Tract 8314, and Lot 288 of Tract 8316, respectively, are also assessed. As of June 20,1983 Lot 2 was delinquent in the approximate amount of $12,650; and Lot 288 was delinquent in the approximate amount of $110,000. Assessments continue to accrue.
The association has filed and duly recorded liens for delinquent assessments, together with interest, costs and attorneys fees against each of the lots. The association’s liens are second only to purchase money deeds of trust on the lots. The association has stipulated that its right is adequately *593protected by the equity cushion in the property. The association contends that its operation budget cannot afford the continued failure and refusal to pay the assessments as they become due.
The association is required to perform certain duties and furnish certain services to the members of the association. It seems obvious that various members partake of these services differently. The association furnishes, and could not refuse to furnish to Felburg and Adams Canyon, the following benefits:
1. Protection of their properties by 24 hour security which protection includes fire and police type security.
2. The saleability of the debtors’ two parcels of property is increased because of the amenities and facilities maintained by the association at the development.
3. The debtors are entitled to the use, enjoyment, and benefit of the common areas and community facilities at the development. Their guests are entitled to these privileges also.
4. The architectural control of the planned community increases the fair market value of the property.
DISCUSSION
It is not necessary to evaluate the services furnished to the debtors because of my conclusion that the assessments need not be paid on a current basis even prospectively. The association agrees that its right to payment is adequately protected by the equity cushion in the property. The only question is when the association will get paid. Because the debtor agrees that the assessments are secured by the lien on the property payment will occur upon sale of the property.
The assessments are determined and levied pursuant to a formula in the CC & R. The debtors suggest that the “Association could cut its costs by IV2 of 1 percent or could increase assessments to other homeowners by a similar de minimis percentage.” The association must meet its cash needs which in part will arise from the non-payment of assessments by some homeowners. The association is empowered by the CC & R to include in its periodic assessments reasonable provision for contingencies. One contingency is that some homeowners will not pay their assessments on a current basis. The association is also empowered to levy a further assessment if at any time during any fiscal year the general assessment proves to be inadequate. In either event, the assessment would be levied equally against all property owners. Any unpaid increased assessments would also become liens upon the property of the debtors.
It is a business decision of the association to meet the needs of its operating budget to cover the cash requirements occasioned by unpaid assessments.
For the reason that the equity in the property adequately protects the interest of the lien of the association, it is not necessary to determine whether or the extent to which the assessments are entitled to administrative priority.
This memorandum of decision shall constitute findings of fact and conclusions of law pursuant to Bankruptcy Rule 7052. A separate order will be entered. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489284/ | ORDER DISMISSING APPEALS
On January 4, 1982, the Trustee filed a motion to dismiss appeal number 81-9028 because of Appellant’s failure to timely file a brief. On January 7, 1982, Appellant filed a renewed motion for extension of time to file its brief.1 In that motion, and in its response to the Trustee’s motion to dismiss, the Appellant alleged that the record on appeal is not complete, and that certain unspecified transcripts which were ordered have not been received. In response, on March 15, 1982, the Panel issued an order to show cause. We noted that, pursuant to Rule 7 of the First Circuit Rules Governing Appeals from Bankruptcy Judges to District Courts and Appellate Panels, it was “Appellant’s duty to order the requested transcripts and make satisfactory arrangements for payment of their cost.” We further noted that “nothing in the record [indicates] that the Appellant has ordered specific transcripts which have not been received. . . . ” Appellant was ordered to show cause why the appeal should not be dismissed for failure of Appellant to timely file its brief.
Appellant’s response merely repeated that it had made a timely order of the transcript of proceedings, and had not yet received the same. We therefore issued a second show cause order in which we
ORDERED that on or before April 8, 1982, Appellant provide by affidavit and supporting documentation, an offer of proof naming the specific transcripts (by *1023date of proceeding) it has ordered but not received, the date said transcripts were ordered, how and from whom they were ordered, the arrangements made for their cost including proof of payment if made, and any other information relevant to showing why this appeal should not be dismissed.
(Emphasis in original).
Appellant responded with an unsworn statement and copies of two letters which, disclose that in August, 1981, Appellant ordered transcripts of proceedings held on September 24, 1980, January 22, 1981, and May 21, 1981, and that Appellant has not received the May 21, 1981 transcript. Appellant has failed, however, to show what arrangements, if any, were made for payment of its cost.
Rule 7 states in part: “If the record designated by any party includes a transcript of any proceeding or a part thereof, he shall immediately after the designation, order the transcript and make satisfactory arrangements for payment of its cost." (Emphasis added). Appellant has been specifically ordered to show what arrangements were made, and has failed to do so. It appears that appellant, in fact, did not make timely2 satisfactory arrangements with the reporter for payment of the cost of the transcript. Therefore, Appellant’s renewed motion for an extension of time to file briefs is denied, and the Trustee’s motion to dismiss for failure to timely file a brief is granted.3 See Rule 2(a)(1), First Circuit Rules.
Appellant filed its notice of appeal in appeal number 81-9046 on October 5, 1981. On February 1, 1982, Anthony R. Martin-Trigona purportedly filed a motion for extension of time to file briefs. By order dated March 5, 1982, we noted that Martin-Trigona does not represent Appellant, and we dismissed his motion.4 We further ordered Appellant to show cause on or before March 24, 1982 why the appeal should not be dismissed for failure of Appellant to timely file its brief.
Appellant has filed no response in appeal number 81 — 9046 to our order. However, it appears that Appellant’s responses to our show cause orders in appeal number 81— 9028 were intended to apply also to number 81-9046, and we so treat them. As discussed above, it appears that Appellant did not make timely arrangements for payment of the cost of the missing transcript, nor has it filed a brief. Appellant is not aided by his argument that Martin-Trigona was entitled to move for an extension of time. See Note 4, supra. We dismiss appeal no. 81-9046 because of Appellant’s failure to timely file its brief.
. The Panel denied Appellant’s first motion for extension of time.
. Appellant ordered the transcript by letter dated August 17, 1981.
. Appellant has not filed a brief.
. Appellant would have gained nothing had we granted Martin-Trigona’s motion, since the ef-feet would have been to extend the time for Martin-Trigona, not Appellant, to file briefs. We express no opinion as to whether Martin-Trigona had either the duty or the right to file briefs in this proceeding. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489285/ | STATEMENT
The above-styled adversary proceeding, as to the aspect of it which is involved here, was brought by the trustee in bankruptcy for recovery of the value of a 1975 model Chevrolet pick-up truck, allegedly converted by the defendants named above, and was tried before the Bankruptcy Judge, without a jury, at Anniston, Alabama, on March 25, 1980.
FINDINGS OF FACT
From the pleadings and the evidence received by the Court, the Bankruptcy Judge finds the facts to be as follows:
1. The bankrupt purchased a 1975 model Chevrolet pick-up truck (hereinafter “1975 truck”) from George Sutherlin Chevrolet, Inc., in January, 1978.
2. In January, 1978, an application for a Certificate of Title was prepared by George *2Sutherlin Chevrolet, Inc., for the 1975 truck, on which General Motors Acceptance Corporation (hereinafter “GMAC”) was listed as the first lienholder, with the date of its lien shown as January 16, 1978.
3. Hubert H. Thompson, father-in-law of the bankrupt, was shown on the application for the Certificate of Title for the 1975 truck as the co-owner; however, Mr. Thompson was an accommodation co-signer and made no payment on the 1975 truck.
4. The bankrupt filed a petition in bankruptcy on March 14, 1978.
5. The application for the Certificate of Title was received by the State of Alabama Department of Revenue on April 14, 1978, one month after the date of bankruptcy.
6. The bankrupt had been in possession of and exercised complete control over the 1975 truck at all times since his purchase of it in January, 1978, to the date of bankruptcy, and until he traded it to Cooper Chevrolet, Inc., (hereinafter “Cooper”) for a 1978 model Chevrolet pick-up truck (hereinafter “1978 truck”).
7. In February, 1979, the bankrupt purchased the 1978 truck from Cooper, and at that time, the bankrupt traded in the 1975 truck to Cooper. Cooper gave the bankrupt a trade-in value for the 1975 truck of $2,465.00.
8. Part of this credit of $2,465.00 was used to pay-off GMAC, and part was applied against the purchase price of the 1978 truck, with the balance financed by a new loan from GMAC.
9. The bankrupt did not present, and Cooper did not require, a Certificate of Title prior to the transaction between them in February, 1979, and Cooper in no way relied upon any Certificate of Title prior to this transaction.
10. In February, 1979, Cooper paid GMAC $1,018.54 in full satisfaction of the claim that GMAC had against the bankrupt and for which GMAC had taken a security interest in the 1975 truck as collateral.
11. Neither GMAC (which had notice of Warren’s bankruptcy) nor the bankrupt told Cooper that the bankrupt had filed a petition in bankruptcy.
12. In February, 1979, Cooper prepared an application for a Certificate of Title for the 1978 truck, to show GMAC as the first lienholder and the bankrupt as the owner; and
13. On February 24, 1979, without authorization from the trustee in bankruptcy, Cooper sold the 1975 truck to Baggett Pontiac in Pell City, Alabama, for $1,425.00, which was the fair market value of the vehicle at that time.
CONCLUSIONS BY THE COURT
The Court concludes from the facts found and from the applicable law as follows:
1. At the date of bankruptcy, GMAC was a creditor of the bankrupt, holding an unperfected security interest in the 1975 truck,1 which security interest was not enforceable against the plaintiff, as trustee in bankruptcy; 2
2. The sale of the 1975 truck by the bankrupt to Cooper constituted a conversion of property as to which the plaintiff, as trustee in bankruptcy, held title and as to which he held the lien of a creditor;
3. GMAC was a participant in the conversion (but mostly a silent one), to the extent of furnishing information as to the sum required to satisfy its lien on the property (which is to be presumed), by accepting the payment of the debt secured by the lien, and by financing the balance of the purchase price of the 1978 truck purchased by the bankrupt to replace the 1975 truck, while not informing Cooper of the pending bankruptcy case;
4. The bankrupt’s participation in the conversion of the 1975 truck is obvious in his trading of this vehicle to Cooper and Cooper’s participation (although in ignorance) lies in its taking possession of the *31975 truck and treating it as being its property, as shown in the subsequent sale to Baggett Pontiac;
5. All three, being participants in the conversion of property, as to which the trustee held title and on which the trustee held a creditors lien, are liable to the trustee in bankruptcy, for the fair market value of the property; and the trustee is entitled to a judgment against these defendants in the sum of $1,425.00.
ORDER OF THE COURT
In view of the foregoing, it is ORDERED by the Court that a judgment be entered in accordance with these findings and conclusions and that a copy hereof be sent through the United States mails to the following (which shall be sufficient service and notice hereof): the bankrupt, his attorney, the trustee, GMAC, its attorneys, Cooper, and its attorneys.
. Code of Alabama § 32-8-61(a), (b) (1975, Amend. 1977).
. Bankruptcy Act § 70(a, c) (formerly, 11 U.S.C. § 110(a, c). | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489287/ | MEMORANDUM AND ORDER
CHARLES J. MARRO, Bankruptcy Judge.
The Complaint of the Plaintiff to modify the automatic stay in order to permit it to foreclose on a real estate mortgage on property of the Debtors filed April 1, 1982, came on for hearing, after answer by the Defendants.
From the records in the case, the testimony adduced at the hearing and the exhibits received, the following facts are established:
The Defendants, in consideration of and upon receipt of the sum of $12,000.00 from the Plaintiff, executed and delivered to it an installment note in the principal sum of $12,000.00 dated August 4, 1977 payable with interest at 12% per annum in monthly installments of $158.59 commencing on the 4th day of September, 1977. This note was secured by a real estate mortgage on property situated at Martins Pond, so-called, in the Town of Peacham, Vermont, consisting of a cottage and land. The mortgage was dated August 4, 1977 and in addition to the aforesaid promissory note of $12,000.00, secured the following:
“. . . any and all other notes, with interest, at any time and from time to time hereafter, executed by said Mortgagors to the Bank, and (3) shall also pay, when due all future advances and indebtedness, with interest, whether evidenced by promissory notes or otherwise, directly created between said Mortgagors, exclusive of any deceased tenant by the entirety, and said Bank and an assignee of said' Bank, after assignment, ...”
*38The Defendants defaulted in the payment of said note and the balance due as of April 6,1982 was $8,177.23. The value of the real estate securing this note is $23,000.00.
The Defendants were also principals in a corporation known as “Morgani Electric, Inc.,” whose business was that of electrical contracting. On September 24, 1979 this corporation borrowed the sum of $35,000.00 from the Plaintiff and, in consideration therefor, executed and delivered to the Plaintiff a demand note in the sum of $35,-000.00 payable with 14% interest. In addition, each of the Defendants, Salvatore Morgani and Kathleen Ann Morgani, in consideration of the granting of a line of credit to said corporation, did on September 6, 1978 execute and deliver to the Plaintiff written guarantees for the payment of the corporation note to the Plaintiff.
The Corporation has defaulted in the payment of said note in the principal sum of $35,000.00 and the balance due to the Plaintiff as of April 6, 1982 was $26,509.26.
MEMORANDUM AND CONCLUSIONS
The Plaintiff contends that the Defendants as guarantors of the corporation note brought themselves within the scope of the “future indebtedness” clause of the real estate mortgage and, therefore, the mortgage not only secured the $12,000.00 balance due under the note, but also the balance due under the corporation note amounting to $8,177.23 and $26,509.26, respectively. Such being the case, the Plaintiff argues that the total indebtedness secured by the mortgage is $34,686.49 and, since the value of the property is only $23,-000.00, the Debtors as Defendants have no equity in it and, therefore, the automatic stay prescribed by § 362 of the Bankruptcy Code should be lifted and it should be permitted to proceed in State Court with foreclosure.
On the other hand the Defendants claim that there was no intention on the part of the respective parties at the time of the execution of the mortgage to include the $35,000.00 corporation note and their liability as guarantors within the scope of the “future indebtedness” clause in the mortgage. Failing this, the balance due under this corporation note was not covered by the mortgage. Such being the case, they argue, there is equity in the real estate since the balance due under the $12,000.00 note is $8,177.23 and the property is worth $23,000.00. This Court agrees. There was no testimony adduced at the hearing to establish that there was any intention on the part of the parties to include within the scope of the future indebtedness clause any liability which would accrue by virtue of the guarantee by the Defendants of a corporation note.
It would appear that for a determination of the rights of the parties under the real estate mortgage resort would have to be had to nonbankruptcy law. 4 Collier on Bankruptcy, 15th Edition, § 541.07, page 541 — 28. Under the prior Bankruptcy Act the existence of all liens, claims and equities in property was a matter to be determined by the appropriate state law as expounded by the decisions of the state courts. 4B Collier, 14th Edition, 774.
There appears to be no change under the Bankruptcy Code. In this state a mortgagee under a mortgage also covering future debts due the mortgagee from the mortgagor must, to obtain a secured position under the mortgage as to future debts, show that the parties intended the subsequent debt to be secured by the mortgage. Bloom v. First Vermont Bank and Trust Company, et al., 133 Vt. 407, 340 A.2d 78 (1975). In the instant case there was no such showing. Therefore, liability incurred by the Defendants under their guarantee of the corporation note is not covered by the real estate mortgage and the balance due of $26,509.26 under this note cannot be added to the mortgage indebtedness. With the value of the real estate at $23,000.00 and the balance due of $8,177.23 under the original $12,-000.00 note, there is considerable equity in the property. This being the case, the Plaintiff is not entitled to relief from the automatic stay.
§ 362(d) of the Bankruptcy Code provides that the court shall grant relief from a stay *39of any act against property if (A) the debt- or does not have any equity in such property and (B) such property is not necessary to an effective reorganization. Since the Debtors do have substantial equity the Plaintiff is not entitled to the relief requested.
ORDER
Upon the foregoing,
IT IS ORDERED that the Complaint of the Plaintiff for relief from automatic stay filed April 1, 1982 is DISMISSED. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489289/ | DECISION AND ORDER
CHARLES A. ANDERSON, Bankruptcy Judge.
PRELIMINARY PROCEDURE
This matter is before the Court on Plaintiff’s Motion to Remand the instant adversarial proceeding to the Municipal Court of the City of Dayton, Ohio. The Court considered the Motion at a pretrial conference held on 4 January 1982. At the pretrial, the parties decided that the Court could render decision based upon the record. Defendant also indicated at the pretrial that he would submit a memorandum contra to Plaintiff’s memorandum, attached to the Motion, within fourteen days of the pretrial. The Court notes that to date no memorandum has been filed on Defendant’s behalf. The following decision is based upon Plaintiff’s memorandum and the record.
FINDINGS OF FACT
This proceeding was commenced by the filing of a Complaint in Forcible Detainer (Case No. 81-CVG-8153) by Plaintiff in the Municipal Court of the City of Dayton, Ohio, on 31 July 1981. The action is essentially an eviction action whereby Plaintiff prays for restitution of the premises, an apartment complex known as Hampton Square, from Defendant, the “lessee.” The Court notes that this Complaint was filed subsequent to the filing date of Debtor’s bankruptcy petition (5 March 1981).
On 30 October 1981, Defendant filed an Application for Removal to this Court. Defendant contends that Debtor possesses equitable title to the subject property, and that this Court therefore possesses exclusive jurisdiction over the res, and concurrent jurisdiction over the action. 28 U.S.C. § 1471(b) and (e). Apparently, Defendant contends that its leasehold interest, created through arrangements indicating that *124Plaintiff is legal titleholder, was, in substance, intended to constitute equitable title to the subject property, and that Debtor is a subsequent transferee of the alleged equitable title. The Court notes that there are no proceedings before the Court for determination of Debtor’s interest in the subject property.
In response, Plaintiff filed the instant Motion to Remand on 16 November 1981. Plaintiff initially contends that the matter should be remanded for noneompliance with Interim Bankruptcy Rule 7004, specifically for failure to remove within thirty days of the filing of a post-petition complaint, and failure to provide bond. Interim Rules 7004(a)(2) and (b), respectively. Plaintiff further contends that, in addition to the alleged procedural defects, the Court should remand the proceeding on substantive and equitable grounds alleged, as follows: Debtor is not a party to the instant proceeding; Defendant has provided no documentation of the Debtor’s alleged interest in the subject property; the proceeding is unrelated to, and can be decided independently of, any determination that this Court may render in the future in regard to Debtor’s interest in the subject property; only state law questions are at issue; and this matter does not necessitate resolution by this Court in order to protect Debtor’s estate.
DECISION AND ORDER
I
The initial question before the Court is whether Bankruptcy Rule 906 affords the discretion to permit removal to this Court after expiration of the thirty day period prescribed in Interim Rule 7004(a)(2).
Interim Rule 7004(a)(2) is a rule of local bankruptcy procedure. As such, it is not determinative of this Court’s jurisdiction over a removed matter, but instead merely establishes the guidelines for removal. As a procedural matter, it is the opinion of this Court that it may be deemed permissive, at the discretion of the Court.
This Court is cognizant of case law which has interpreted the thirty day provision of Interim Rule 7004(a)(2) as mandatory. In Re Alton Telegraph Printing Co., Inc., 15 B.R. 367 (Bkrtcy.S.D.Ill.1981); In Re McCallum, 7 B.R. 76, 6 B.C.D. 1223 (Bkrtcy.C.D.Cal.1980); and Matter of Northern Pipeline Construction Co., 6 B.R. 928, 6 B.C.D. 1277, 3 C.B.C.2d 456 (Bkrtcy.D.Minn.1980). This case law is rooted largely in federal case law dealing with removal to district courts under 28 U.S.C. § 1446, which some courts have read in pari mate-ria with Interim Rule 7004(a). In Re Alton Telegraph Printing Co., Inc., supra, at 370; and In Re McCallum, supra, at 77.
This Court, however, is of the opinion that the concerns pertaining to timely removal to a district court are markedly different from those regarding the exercise of bankruptcy court jurisdiction over a removed proceeding. Generally, removal to district court is a’ right afforded to defendants who may otherwise be prejudiced by the plaintiff’s choice of a local state forum or by unequal docket backlogs in the two forums. In the context of the district court, therefore, the basic function of the right of removal is to abate the potential abuse resulting from what would otherwise be a plaintiff’s prerogative in choosing between forums with concurrent jurisdiction. The circumstances for exercise of district court jurisdiction over cases removed untimely are, therefore, generally not compelling since district court refusal to accept removal jurisdiction does not leave the parties without a competent forum for adjudication of the questions raised. The removal provisions to a district court under 28 U.S.C. § 1446(b) are statutory and jurisdictional.
In the context of bankruptcy court litigation, however, the circumstances for exercise of jurisdiction over a proceeding removed by an untimely application may be considerably more compelling. Foremost, acceptance of an untimely application for removal may be necessary to enable the expeditious and effective administration of the bankruptcy proceeding, particularly if the proceeding is dispositive of property rights within the exclusive jurisdiction of *125the bankruptcy court. 28 U.S.C. § 1471(e). Circumstances may exist in which a bankruptcy court’s automatic decline of the exercise of jurisdiction over a removed matter on the ground of procedural untimeliness may have substantive ramifications, including the potential complete halt of administration of a debtor’s estate, concerns which are not presented in the typical refusal by a district court to exercise jurisdiction over a removed proceeding because of procedural untimeliness.
Given these sui generis concerns, it is the determination of this Court that statutory limitations in 28 U.S.C. § 1446 should not be read in pari materia with Interim Rule 7004. It is the further finding of the Court that the “mandatory” and “strict application” by district courts of the time period for removal to district court, (See, for example, Albonetti v. GAF Corporation-Chemical Group, 520 F.Supp. 825 (D.C.Tex.1981); and Perrin v. Walker, 385 F.Supp. 945 (D.C.Ill.1974)), would be an unwise approach for consideration of untimely removed proceedings by bankruptcy courts, and that bankruptcy courts should exercise discretion under Bankruptcy Rule 906(b)(2) pertaining to enlargement of time limitations in the Rules, there being no jurisdictional limitation under 28 U.S.C. § 1478 and see Matter of Circle Litho, Inc., 12 B.R. 752, 8 B.C.D. 64, 4 C.B.C.2d 1204 (Bkrtcy.D.Conn.1981).
II
The Court similarly finds that “noncompliance” with the bond requirement of Interim Rule 7004(b) does not preclude exercise of jurisdiction over a proceeding removed to this Court. It is the determination of the Court that noncompliance with the bond requirement should not operate to effect an automatic forfeiture of the right of removal, but instead may be remedied by the removing party, adjusted by the Court, or waived by the parties. Furthermore, under local Interim Bankruptcy Rule 7004(b), a bond would not be mandatory as to a debtor in possession.
III
The proper procedure for removal beyond the thirty day period established in Interim Rule 7004(a)(2) is to file an application under Bankruptcy Rule 906 with the Court for a grant of leave to remove outside of the thirty day period. The Court notes that no such application was filed instanter. The key criterion in ruling upon the application should be the necessity of bankruptcy adjudication of the proceeding in the context of administration of the debtor’s estate, taking into account any resulting prejudice to the nonremoving parties. If the Court determines that litigation of the matter by this Court is not compelling, then the Court should determine whether the removing party’s neglect in filing untimely is excusable. Bankruptcy Rule 906. The Court notes that in the event leave is not granted, the parties can nevertheless institute an identical proceeding in the bankruptcy court without reference to the state court action. Matter of Northern Pipeline Construction Co., supra.
IV
In the instant matter, it is the determination of the Court that Defendant has failed to establish that bankruptcy court adjudication is compelling, or that Defendant’s untimely removal should be deemed excusable neglect. On the facts, Debtor does not appear to be a party to the instant proceeding, and, further, is not a party to any proceeding before this Court for determination of Debtor’s alleged property interests in the subject property. Resolution of the instant dispute may ultimately implicate Debtor’s estate, but this effect would be the indirect result of the disposition of separable state law issues between parties not involved in proceedings before this Court, regarding rights which Defendant alleges were transferred to Debtor, but which Debtor has not asserted in formal proceedings before this Court. As the proceedings involving Debtor stand, resolution of the case at bar would have no effect on Debtor’s bankruptcy estate, and any effect could only be accomplished through the in*126stitution of separate proceedings for determination of Debtor’s “transferee” status, proceedings not presently before the Court and, even if filed, separable from the proceeding instanter. Speculation by this Court as to the effect the instant proceeding may have on Debtor’s estate, when such effect is itself based upon speculation as to future actions by interested parties, is an insufficient basis for acceptance of removal jurisdiction by either timely or untimely application. See nexus criteria for removal to this Court as delineated in I.L.C. Inc. v. Ebrights Refrigeration Equipment et al., 13 B.R. 546, 4 C.B.C.2d 1543 (Bkrtcy.1981).
IT IS HEREBY ORDERED, ADJUDGED AND DECREED that the instant proceeding be remanded to the Municipal Court of the City of Dayton, Ohio. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489290/ | ORDER
CHARLES W. BAKER, Bankruptcy Judge.
This matter comes on before the Court for a hearing on April 30, 1982. The Findings of Fact and Conclusions of Law which the Court makes are as set forth below:
At issue is the validity of an Order entered by this Court pursuant to 11 U.S.C. § 1325(b) directing the debtor’s employer, State Boat Corporation, to deduct from the debtor’s salary and remit to the trustee the amount which the debtor proposes to pay under his Chapter 13 plan. Section 1325(b) states as follows:
After confirmation of a plan, the Court may order any entity from whom the debtor receives income to pay all or any part of such income to the trustee, (emphasis added).
The language of this section fails to designate any exception to the authority granted the Bankruptcy Court to elicit payments from a debtor’s income.
State Boat Corporation contends that they are prevented from complying with the Order because of the provisions of 46 U.S.C. § 601 pertaining to the “attachment or arrestment” of wages due a seaman. The parties have not denied that the debtor, while in the employ of State Boat, is a seaman, but even with this fact admitted the Court does not find the employers’ argument persuasive. The provisions of § 601 were designed to prevent involuntary court ordered garnishments and attachments and not the prevention of voluntary deductions. Chapter 13 is a voluntary adjustment of debts by consumers and small businessmen, and the Order of this Court directing the employer to deduct payments is a result of the debtor’s voluntary submission of his income to the jurisdiction and control of the Bankruptcy Court. In fact, the debtor, through his attorney, has during the course of this hearing requested that the deduction be made.
Further, it is noted that the Bankruptcy Code was enacted subsequent to the passage of the pertinent provisions of 46 U.S.C. § 601, had Congress desired to create an exception for seamen, it would have done so when § 1325(b) was drafted. Since Congress did not choose to do so, this Court does not have authority to create that exception in the face of such explicit statutory language.
*155State Boat also cites in support of its motion the case of X—L Finance Company v. Bonvillion, 257 La. 899, 244 So.2d 826 (1971). The Court likewise finds this argument unpersuasive because it is a ruling handed down prior to the effective date of the Bankruptcy Code and it is a matter of state law which would conflict with the authority granted the Bankruptcy Court under § 1325. It is, therefore, not binding on this Court and must succomb to the Federal legislation.
Accordingly, the Motion of State Boat is overruled and, on request of State Boat, an Order shall issue contemporaneously with this opinion requiring the employer to remit the debtor’s entire salary to the trustee who will retain the amount of the debtor’s payment and forward the balance to the debt- or. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489291/ | MEMORANDUM DECISION AND ORDER
MERLIN S. YOUNG, Bankruptcy Judge.
Plaintiff trustee filed the present cause of action against the State of Washington under 11 U.S.C. § 542 seeking turnover of $12,211.69 allegedly improperly retained by the state and transferred to a third party after debtor filed for relief under Title 11 U.S.C.
The pleadings indicate that the debtors and the State of Washington entered into a public works contract in 1978. In August 1979, the debtors were terminated as contractors and its surety, Allied Federal Insurance Company, assumed debtors’ contractual obligation and completed the project in June 1980. Prior to termination, the state withheld, allegedly pursuant to state statute, approximately $14,500 due to debtors on the contract and, in August 1980 following the project’s completion, released $2,264.46 to the Washington Department of Revenue for taxes, penalties, and interest. The debtors filed for relief under the Bankruptcy Code on January 14, 1981, and the state, some 10 months later, released the remaining withheld funds in the amount of $12,211.69 to the surety.
The matter is presently before the court upon the state’s motion to dismiss. The state contends this court is barred from the exercise of its bankruptcy jurisdiction against the State of Washington, because of the 11th Amendment, which provides:
*161“The judicial power of the United States shall not be construed to extend to any suit in law or equity, commenced or projected against one of the United States by citizens of any other state, or by citizens or subjects of any foreign state.”
Upon review and analysis of the authorities presented by both parties, I am persuaded the state’s contentions are well founded and the motion to dismiss must be granted. Thus, the related but legally distinct issue of common law sovereign immunity and its application to the situation herein need not be addressed. Similarly situated are issues concerning waiver of sovereign immunity, estoppel, subject matter jurisdiction of the court and the like raised and argued by the parties.
Were the defendant herein a private party, I would have little difficulty in determining that plaintiff sufficiently alleged a prima facie case. The property involved is property of the estate under 11 U.S.C. § 541 and the transfer, 10 months after the debtors filed for relief, clearly violated the 11 U.S.C. § 362 stay. The trustee in such a situation is authorized to seek relief as against the party so transferring property of the estate or the transferee. See e.g. 11 U.S.C. §§ 542, 543, 549 and 550.
However, as the State of Washington properly notes, the 11th Amendment affirmatively bars suit against the state by citizens of another state in a federal court, the exact situation existing here. The only exceptions to the operation of the amendment arise when the state consents to such suit or waives the protection of the 11th Amendment, which Washington has not done here, or when the state is not a real, substantial party in interest. While the state might be seen as a mere custodian or stakeholder, the relief sought against it in this action is direct and affirmative making the state a real and substantial party in interest. See Edelman v. Jordan, 415 U.S. 651, 94 S.Ct. 1347, 39 L.Ed.2d 662 (1974); In re Regal Const. Co., Inc., 18 B.R. 353 (BC D.Md.1982); In re Ramos, 12 B.R. 250, 7 BCD 1114, 4 CBC2d 1016 (BC N.D.Ill.1981); In re Kahr Brothers, Inc., 5 B.R. 765, 6 BCD 1163 (BC D.N.J.1980). Cf. In re Visiting Home Services, Inc., 643 F.2d 1356 (9th Cir. 1981); Kennedy v. Powell, 366 F.2d 346 (9th Cir. 1966); In re Reiber’s Inn of Westchester, Inc., 3 B.R. 706 (S.D.N.Y.1980).
ORDER
NOW, THEREFORE, the motion to dismiss is granted and plaintiff’s complaint is dismissed without prejudice to file suit in a proper forum. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489293/ | FINDING AS TO DISCHARGEABILITY
H. F. WHITE, Bankruptcy Judge.
This action is one filed by Plaintiff, United States of America, against Defendant-Debtor, Calvin Cole, wherein Plaintiff seeks to have it determined that a judgment debt owed by Defendant to Plaintiff is nondis-chargeable in bankruptcy. Plaintiff relies upon 11 U.S.C. Sections 523(a)(2) and 523(a)(6) for its argument of nondischarge-ability.
Plaintiff has filed a motion for Summary Judgment on that part of its complaint alleging that the debt is nondischargeable pursuant to 11 U.S.C. Section 523(a)(6). Both parties have submitted briefs and affidavits on the motion. At the request of this Court at the hearing upon Plaintiff’s Motion for Summary Judgment, both parties submitted further briefs discussing the application of Spilman v. Harley, 656 F.2d 224 (6th Cir. 1981) to the instant case.
FINDING OF FACT
I. Plaintiff, United States of America, and Virginia International Testing Laboratories, Incorporated (hereinafter referred to as “VITL”) were parties to a contract whereby VITL agreed to test tires. Defendant-Debtor, Calvin Cole, (hereinafter referred to as “debtor”) was President of said company.
2.VITL assigned to First National Bank and Trust Company of Western Maryland its rights to all monies due under the contract.
3. General Services Administration erroneously issued a check dated September 20, 1974 in the amount of $69,894.08 to VITL for payment under the contract. GSA discovered its error and inquired of Debtor as to whether VITL had received the check.
4. On or about October 24, 1974, debtor, as president of VITL, endorsed and deposited the check in a VITL bank account. VITL wrote several checks and made withdrawals on the GSA check so that the funds were totally disbursed within several days after the deposit. The check was paid out by GSA upon deposit by debtor.
5. Due to the assignment by VITL to First National Bank and Trust Company of Western Maryland and federal law dealing with such assignments, GSA was required to issue a second check in the amount of $69,894.08 to the Bank. GSA has never recovered any of the monies received by VITL due to the erroneously issued check.
6. Debtor was indicted by a federal grand jury on three charges based on his endorsement and deposit of the check in question. Debtor was tried by a jury in the United States District Court for the Eastern District of Virginia on two of the violations — the first brought pursuant to 18 U.S.C. Section 641 and the second, pursuant to 18 U.S.C. Section 287. Debtor was convicted of a violation of 18 U.S.C. Section 641.
7. Plaintiff, United States of America, commenced a civil action in the United States District Court for the Eastern District of Virginia for the recovery of the monies in question. The complaint therein alleged that the acts of endorsement and deposit of the check were a conversion of funds. It was further alleged that debtor had been unjustly enriched and that the acts were in violation of the False Claims Act, 31 U.S.C. 231. Double damages were requested pursuant to 31 U.S.C. Section 231.
8. Plaintiff’s Motion for Summary Judgment in the civil action based on colláteral estoppel was granted on all three claims. *172Judgment was rendered against debtor in the amount of $139,788.16.
9. An involuntary petition in bankruptcy was filed in this court by certain of debtor’s creditors on October 8, 1980. An Order for Relief pursuant to chapter 7 of the Bankruptcy Reform Act was entered on November 10, 1980.
10. This complaint to determine the nondischargeability of the judgment debt was commenced on July 10, 1981.
ISSUE
The issue is whether collateral estoppel may be applied herein so as to find that the debt owed by debtor to Plaintiff is due to a willful and malicious injury and thus non-dischargeable pursuant to 11 U.S.C. Section 523(a)(6).
LAW
Plaintiff’s Motion for Summary Judgment is based on the grounds of collateral estoppel. It is argued that those facts which necessarily had to be found by the jury in order to establish a criminal conviction, as well as those facts which had to be found to support civil liability, also establish that the débt is nondischargeable pursuant to 11 U.S.C. Section 523(a)(6).
Debtor argues first that collateral estop-pel should not be applied as it was Congress’ intent that the Bankruptcy Courts have exclusive jurisdiction over the issue of debt dischargeability. It is also argued that collateral estoppel does not apply as it was not found in the prior proceedings that debtor converted the funds with the actual intent to harm Plaintiff or its property. Debtor argues that 11 U.S.C. Section 523(a)(6) requires an actual intent to harm.
A.
In Spilman v. Harley, 656 F.2d 224 (6th Cir. 1981), the Sixth Circuit Court of Appeals had before it a case dealing with the use of collateral estoppel in a dischargeability proceeding in the Bankruptcy Court. The Court therein recognized that, in granting jurisdiction to the Bankruptcy Court to make dischargeability determinations, it was Congress’ intent that the Bankruptcy Court be the exclusive forum for such a decision. Spilman v. Harley, supra, at 226.
The Court nonetheless states that:
However, that Congress intended the bankruptcy court to determine the final result — dischargeability or not — does not require the bankruptcy court to redetermine all the underlying facts. Spilman v. Harley, supra, at 227.
The application of collateral estoppel was stated to be logically consistent with the decision in Brown v. Felsen, 442 U.S. 127, 99 S.Ct. 2205, 60 L.Ed.2d 767 (1979) and the exclusive jurisdiction of the Bankruptcy Court. It was therefore held that, where the requirements of the same were met, collateral estoppel was to preclude the relit-igation of factual issues. Spilman v. Harley, supra, at 228.
The holding in Spilman conclusively answers the first of debtor’s arguments. Collateral estoppel may be applied in a dischargeability proceeding. Such an application is not inconsistent with Congress’ intent to grant exclusive jurisdiction over debt dischargeability to the Bankruptcy Courts.
Whether or not collateral estoppel may be applied in a particular case requires a Court to determine: “that the precise issue in the later proceedings have been raised in the prior proceeding, that the issue was actually litigated, and that the determination was necessary to the outcome.” Spilman v. Harley, supra, at 228; In re Matter of Merrill, 594 F.2d 1064 (5th Cir. 1979); In the Matter of Ross, 602 F.2d 604 (3d Cir. 1979). In order to make these determinations, the Bankruptcy Court must look to the entire record from the prior court proceeding. Spilman v. Harley, supra.
Debtor’s first argument must be rejected. Where all requirements are met, collateral estoppel may be applied in a dischargeability proceeding in the Bankruptcy Court. In order to so apply it, a court must first look to the entire record from the prior proceeding. If then appropriate, it may be applied.
*173B.
Debtor’s second argument is to the effect that summary judgment should not be granted due to the fact that the prior proceedings did not establish the necessary element of “malice”. Debtor defines this term to mean an actual intent to harm.
11 U.S.C. Section 523(a)(6) excepts from discharge “any debt . . . for willful and malicious injury by the debtor to another entity or to the property of another entity ...” 1 The term “willful” is defined in the Legislative History for the Bankruptcy Reform Act as meaning “deliberate or intentional”. H.R.Rep.N0.95-595, 95th Cong., 1st Sess. at 365 (1977), U.S.Code Cong. & Admin.News 1978, p. 5787. Debtor has not attempted to argue that the element of “willfulness” was not established in the earlier proceedings.
There are two lines of cases which have arisen dealing with the meaning of the term, “malicious”. Under the first view, a creditor must show that the debtor had the actual intent to harm the creditor or his property in order for the injury to have been malicious. In Re Hawkins, 6 B.R. 97, 6 B.C.D. 1054 (Bkrtcy.W.D.Ky.1980); In Re Hinkle, 9 B.R. 283, 7 B.C.D. 349 (Bkrtcy.D.Md.1981); In Re Gumieny, 8 B.R. 602 (Bkrtcy.E.D.Wis.1981). It is on this line of cases which debtor relies for his argument that collateral estoppel may not be applied herein. Debtor contends that neither of the two prior proceedings dealt with the issue of actual intent to harm the Plaintiff or its property.
Under the second line of cases, no actual intent to harm is necessary. Instead, the action must be wrongful, without just cause or excessive. 3 Collier on Bankruptcy, 15th Ed. ¶ 523.16[1] (1981). Personal hatred, spite or ill will towards the injured or his property is not required. Collier on Bankruptcy, supra.; In Re McCloud, 7 B.R. 819 (Bkrtcy.M.D.Tenn.1980); In Re McGiboney, 8 B.R. 987 (Bkrtcy.N.D.Ala.1981).
Debtor has made no argument that the prior proceedings did not establish the element of “malice” under the second definition. Accordingly, the Court finds that the injury to Plaintiff was malicious in the sense that the Debtor’s acts were “wrongful, without just cause and excessive”.
This Court does not need to determine in this case which view it will follow as to the meaning of malicious. The Court has reviewed the entire records from the prior proceedings. In so doing, it is this Court’s determination that the findings necessary to the criminal conviction and civil judgment are the same as those necessary to a finding in a dischargeability proceeding that a debtor had the actual intent to harm a creditor or that creditor’s property. Such a determination is, of course, necessary in order to apply collateral estoppel. Spilman v. Harley, supra.
Debtor was convicted of a violation of 18 U.S.C. Section 641, Embezzlement.2 Following a jury trial on that charge and a separate charge brought under 18 U.S.C. *174Section 287,3 the District Court fully instructed the jury as to the elements necessary to find debtor guilty of the charges.
In particular, and as to the former charge (18 U.S.C. Section 641), the judge instructed the jury that:
The statute under which the count of the indictment is drawn provides that whoever embezzles, steals, purloins or knowingly converts to his use or the use of another any record, voucher, money or thing of value of the United States or any department or agency of the United States shall be guilty of an offense against the laws of the United States.
Three essential elements, then, are required to be proved beyond a reasonable doubt in order to establish the offense charged in count 1 of the indictment: First, the act of embezzling, stealing, purloining or knowingly converting to his own use or the use of another any record, voucher, money or thing of value of the United States.
Second, the doing of such act willfully. And, third, although it is not a contested issue in this case, that the value of the article or thing taken exceeds $100. . .
The word “steal” as used in the statute and in the indictment means any dishonest transaction whereby one person obtains that which rightfully belongs to another and deprives that other of the rights and benefits of ownership. And the term is used, the term “steal” is used in a broad sense so as to include the obtaining of money to which a person is knowingly not entitled.
The word “purloin” is but an old-fashioned word for steal and means to wrongfully deprive the owner or the person entitled to that property of its property.
An act is done — and the word “embezzle” has been charged, and to embezzle means willfully to take or to convert to one’s own use property of another which came into the wrongdoer’s possession lawfully by virtue of that person’s office or employment or position of trust.
An act is done willfully if it is done voluntarily and intentionally with a specific intent to do something the law forbids, that is, with a purpose to either disobey or disregard the law.
Knowingly also means voluntarily and intentionally but it means not because of mistake or accident or other innocent reason.
Additionally, in the civil action, the District Court found debtor to be liable to the government under 31 U.S.C. Section 2314. Such a holding necessitated that the Court find that the debtor had knowingly made a false, fictitious or fraudulent claim upon the Government. The Court in the civil action relied upon the earlier criminal conviction and the doctrine of collateral estop-pel to support its holding of liability.
In the prior proceedings, it was thus found that debtor had the specific intent to violate the law by converting money belonging to Plaintiff. The conversion was made without just reason and by knowingly presenting a claim to the Government which claim was false, ficitious or fraudulent. This Court is of the opinion that such findings are the practical equivalent of a finding that the debtor actually intended to harm the Plaintiff or his property. No conclusion can flow from a wrongful and knowing conversion, done with the specific intent to violate the law, but that the person in question intended to harm the person whose goods he was converting.
*175As the various issues before this Court were twice previously litigated by and between the parties, said issues being necessary to a determination in those earlier cases, it is this Court’s holding that collateral estoppel should be applied herein.
Collateral estoppel also applies to the defense raised by debtor that Plaintiff owes VITL monies under the contract. A counterclaim, raising this same issue, was filed by debtor against Plaintiff in the District Court civil action. The counterclaim was dismissed on the grounds that the party attempting to bring the counterclaim was not a party to the action. The issue has now been raised as a sort of defense and setoff.
Collateral estoppel may be applied equally as well to defenses as to the cause of action itself. In Re Allen, 3 B.R. 355 (Bkrtcy.W.D.N.Y.1980), citing 46 Am.Jur.2d Judgments Section 415 (1969). As the issue regarding whether Plaintiff owes VITL contract monies has already been necessarily and adversely decided against debtor, debtor may not now raise the issue.
As collateral estoppel applies herein, there is no genuine issue of material fact to be litigated between the parties. The debt in question is one arising from a willful and malicious injury to Plaintiff or his property.
Therefore, it is the conclusion of this Court that the debt owed by debtor, Calvin Cole, to Plaintiff, United States of America, in the sum of $141,788.16, plus interest, is nondischargeable in bankruptcy pursuant to 11 U.S.C. Section 523(a)(6).
. Where shown to be willful and malicious, the conversion of property is included within this section. In Re Weiss, Case No. 580-1837, Adv. No. 581-0425 (Bkrtcy.N.D.Ohio 1981); In Re Hodges, 4 B.R. 513, 6 B.C.D. 531 (Bkrtcy.W.D.Va.1980). Debtor has not disputed the fact that a willful and malicious conversion is intended to be covered by 11 U.S.C. Section 523(a)(6).
. 18 U.S.C. Section 641 provides that:
“Whoever embezzles, steals, purloins, or knowingly converts to his use or the use of another, or without authority, sells, conveys or disposes of any record, voucher, money or thing of value of the United States or of any department or agency thereof, or any property made or being made under contract for the United States or any department or agency thereof; or
Whoever receives, conceals, or retains the same with intent to convert it to his use or gain, knowing it to have been embezzled, stolen, purloined or converted—
Shall be fined not more than $10,000 or imprisoned not more than ten years, or both; but if the value of such property does not exceed the sum of $100, he shall be fined not more than $1,000 or imprisoned not more than one year, or both.
The word ‘value’ means face, par, or market value, or cost price, either wholesale or retail, whichever is greater.”
. Said charge was voluntarily dismissed by the United States of America after the jury indicated that it could not reach an agreement as to the guilt or innocence of the Debtor thereon.
. 31 U.S.C. Section 231 provides, in part that:
“Any person. . . who shall make or cause to be made, or present or cause to be presented, for payment or approval . . . any claim upon or against the government of the United States . . . knowing such claim to be false, fictitious, or fraudulent . . . and with intent to defraud the United States . . . shall forfeit and pay to the United States the sum of $2,000, and, in 'addition, double the amount of damages which the United States may have sustained . . . together with the costs of suit.” | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489295/ | OPINION
VOLINN, Bankruptcy Judge:
The issue before us is whether a Chapter 11 debtor’s postbankruptcy earnings derived from services are subject to the claims of creditors despite the provisions of 11 U.S.C. § 541(a)(6) excluding such earnings from “property of the estate”.
I.
On July 21, 1980, the appellant, Edward R. Fitzsimmons, filed a voluntary petition under Chapter 11 of the Bankruptcy Code. The debtor is a lawyer practicing in Oakland, California. He remained in possession of his assets and practice until October 22, 1980, when the court, upon application of the creditors’ committee, entered an order appointing a trustee. That order was supplemented by another order entered November 18, 1980, which imposed restraints upon the operation of the debtor’s law practice. The latter order asserts the court’s jurisdiction and control over all funds received from the debtor’s law practice. One of its provisions allows the debtor payment from earnings of the law practice, not to exceed $3,500 per month for personal living expenses.
On November 26, 1980, the debtor filed a motion seeking modification of the order of November 18, 1980. The proposed modification would have permitted the debtor to retain all postbankruptcy earnings of his law practice. On January 8, 1981, the court entered an order denying debtor’s motion. In that order, the bankruptcy court concluded:
“. . . as a matter of law, that earnings of the debtor’s law practice, whether generated by services performed before or after the date of filing the petition herein, and whether those services were performed by the debtor himself or by employees of said practice, constitute property of the estate herein, to be held by the trustee.”
II.
The trustee-appellee centers his case on 11 U.S.C. § 1108 which authorizes him to operate the debtor’s business. He contends that, since he is operating the business, he is entitled to its proceeds; stating: “It would make little sense to allow the debtor to receive those very proceeds for his own benefit, without benefit to the estate.” While there is an appearance of logic to such a position, it fails to take into account the basic orientation of Chapter 11 and its relationship to § 541.
Chapter 11 is a descendant of Chapter X, dealing with corporate reorganization, Chapter XII, dealing with real estate arrangements, and Chapter XI, dealing generally with arrangements. These chapters necessarily or practically involved property owned by the debtor at the time of bankruptcy — or income derived from that property. The only chapter of the former Bankruptcy Act involving post-bankruptcy earn*239ings for services by an individual debtor was Chapter XIII dealing with wage-earners which has now, as Chapter 13, been enlarged to include self-employed individuals with regular income. The essential issue is whether Chapter 11 can, as does Chapter 13, place an individual debtor’s post-bankruptcy earnings from services within the reach of the estate and its creditors. This, in turn, involves an examination of what becomes property of the estate.
III.
Chapters 1, 3, and 5 (which includes § 541) of the Code apply to cases filed under Chapters 7, 11, or 13. 11 U.S.C. § 103(a)(1). This section states that “(a) The commencement of a case under Section 301, 302 or 303 of this title creates an estate.” Thus, in any of said chapters, the definition of the estate, the property which it includes, and its creation are encompassed by § 541 unless specifically altered by a section of the applicable chapter.
The definition of property interests which are part of the debtor’s estate under § 541 is specific and extensive. § 541(a)(6) provides that the estate includes certain post-bankruptcy accruals to property with a significant exception:
“Proceeds, product, offspring, rents and profits of or from property of the estate, except such as are earnings from services performed by an individual debtor after commencement of the case.” (Emph. supp.)
One would assume, given the clarity and specificity of the exception and provision for its application to Chapter 11, that if it is to be modified, the modification would be commensurately explicit. Such a modification has been made in Chapter 13, § 1306, which modifies § 541(a)(6):
“(a) Property of the estate includes, in addition to the property specified in section 541 of this title—
* * * * * *
(2) Earnings from services performed by the debtor after the commencement of the case but before the case is closed, dismissed or converted to a case under chapter 7 or 11 of this title, whichever occurs first.”
While it may be contended that because of the prospective character of Chapter 13, the change was necessary, it cannot be gainsaid that where a change was required, the drafters knew how to make the change and did so. The specific provision for this alteration in Chapter 13 demonstrates that had the same exception been desired in Chapter 11, it could have been similarly stated.
IV.
The provisions of Chapter 11 relating to property of the estate give no support to reading § 1108 as requiring neutralization of the exception in § 541(a)(6).
The essential purpose of Chapter 11 is to provide a plan which will be acceptable to creditors, 11 U.S.C. § 1123. This section does not require the submission of § 541(a)(6) post-bankruptcy earnings to creditors. Indeed, it provides that the debt- or may retain “all or any part of the property of the estate.” 11 U.S.C. § 1123(a)(5)(B). Section 1123(a)(5)(D) provides for sale or distribution “of all or any part of the property of an estate.” The property referred to is necessarily defined by § 541. It is not reasonable to conclude that, without expressly so stating, as it did in § 1306, Congress intended that the foregoing language would not carry with it the exception to § 541(a)(6).
There are further contra-indications to any intention that post-bankruptcy earnings be involuntarily submitted to creditors. § 1112(d)(1) provides that a case under Chapter 11 may be converted to a case under Chapter 13 (the purpose of which is to submit post-bankruptcy earnings) “only if. . . the debtor requests such conversion ...” If not, Chapter 7, where § 541(a)(6) applies, would be the alternative.
It should also be noted that Chapter 11 proceedings may be involuntarily commenced, 11 U.S.C. § 303. In such a case, the debtor may not convert to Chapter 7, *240§ 1112(a)(2). If the trustee’s position is correct, application of § 1108 in such event would involuntarily subject the debtor’s post-bankruptcy earnings to the trustee’s reach despite § 541(a)(6). Conversely, a debtor who files under Chapter 7, anticipating the benefit of § 541(a)(6), could be involuntarily propelled into Chapter 11 by virtue of § 706(b) which provides that “on request of a party in interest and after notice and a hearing, the court may convert a case under this chapter to a case under chapter 11 of this title at any time.” However, because of concern that post-bankruptcy earnings may not be involuntarily impounded, § 706(c) provides: “The court may not convert a case under this chapter to a case under chapter 13 of this title (where § 541(a)(6) has been modified) unless the debtor requests such conversion.” It is not likely that it was intended that a debtor’s future income would be subject to involuntary conversion in Chapter 11 but not in Chapter 13. Presumably, if Chapter 11 had stated the modification present in § 1306, an equivalent condition as to involuntary conversion from Chapter 7 to Chapter 11 would have been provided. There not having been such a modification, the voluntary reservation of § 706(c) as to Chapter 11 is not needed.
In sum, the application of § 541(a)(6) to Chapter 11, despite its involuntary character, affords the debtor a fresh start free of pre-bankruptcy debt. There is no reason, logically or practically, why § 541(a)(6) should not be as implicit in a voluntary case as it would be in an involuntary one.
CONCLUSION
The consistency of the foregoing provisions of the Bankruptcy Code demonstrate implementation of a policy designed to prevent involuntary submission to the bankruptcy estate of post-petition earnings from services of an individual. This is consonant with the spirit, if not the letter, of the Thirteenth Amendment to the United States Constitution prohibiting involuntary servitude.
We REVERSE the decision of the trial court, insofar as it holds that post-bankruptcy earnings from services performed by an individual debtor are property of the estate in a Chapter 11 case. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489296/ | LASAROW, Bankruptcy Judge,
dissenting:
All post-petition earnings from the operation of a law practice in a Chapter 11 case should be property of the estate. It should make no difference that all or part of those earnings are due to the post-petition services of an individual Chapter 11 debtor.
I agree that 11 U.S.C. § 541(a)(6), standing alone, would cause the debtor’s post-petition earnings arising from his personal services to be excluded from property of the estate. However, to apply that general rule to this case ignores the conflicting provisions of Chapter 11 and especially 11 U.S.C. § 1108.
It appears that the majority would have ruled differently in this appeal if § 1108 had expressly included those post-petition earnings as property of a Chapter 11 estate as does § 1306(a)(2) for Chapter 13 cases. The majority opinion recognizes that the conflict between § 541(a)(6) and § 1306(a)(2) should be resolved in favor of § 1306(a)(2) for application to Chapter 13 cases. But the majority reasons that the absence of a similar Chapter 11 provision overriding § 541(a)(6) leaves § 541(a)(6) as the applicable statute to the earnings in question.
Although not apparent from the language of the statute, a conflict between § 541(a)(6) and § 1108 is clearly implied. A logical analysis leads to the conclusion that § 1108 provides that the earnings of a debt- or’s business including those derived from his personal services are property of the Chapter 11 estate. As a result of this conflict with § 1108, that portion of § 541(a)(6) concerning post-petition earnings should be inapplicable in Chapter 11 cases for the same reason that a conflict with § 1306(a)(2) renders § 541(a)(6) inapplicable in Chapter 13 cases.
*241The following analysis should show that § 1108 is in direct conflict with § 541(a)(6) concerning post-petition earnings. Section 1108 provides: “Unless the court orders otherwise, the trustee may operate the debtor’s business.” Section 323(a) (11 U.S.C. § 323(a)) provides: “The trustee in a case under this title is the representative of the estate.” It follows that the trustee’s operation of the debtor’s business as the representative of the estate is for the benefit of the estate. Such benefit to the estate would include the earnings of the operation. Therefore all earnings from the operation of the debtor’s business should be included in the property of the estate. The risk of loss from the operation is borne by the estate, and actual losses are charged against the estate by way of administrative claims. It would be incongruous and unfair to creditors to impose upon the estate the risk of loss from the operation of the business while excluding the income from the property of the estate.
The trial judge authorized compensation at $3500 per month payable to the debtor for. his services to the law firm. The rate of compensation is subject to modification in accordance with changes in circumstances as the case proceeds. The debtor does not contend that the rate of compensation is unreasonable, but he argues that all of the earnings of the law practice should be his, free of the jurisdiction of the bankruptcy court.
The debtor asserts that depriving him of the earnings in question subjects him to involuntary servitude in violation of the 13th Amendment of the United States Constitution. That argument fails to consider that the debtor is not compelled to assist in the operation of the law firm under the jurisdiction of the bankruptcy court. He may find other employment or establish a new law firm, thus obtaining a fresh start. However, in doing so he would lose the advantage of continuity of his law practice and would not have the use of pre-petition accounts receivable and other non-exempt business assets for his new enterprise. It is apparent that by choosing to continue to assist in the operation of his law practice under Chapter 11, the debtor is avoiding a partial liquidation of the assets of his law firm, a disruption of his practice, and the impairment of his chances for a successful reorganization. The debtor, having this choice, is not the victim of involuntary servitude.
I would affirm the decision of the trial court. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489297/ | *247ORDER OF DISMISSAL
JOSEPH C. ELLIOTT, Bankruptcy Judge.
On this the 5th day of November, 1979, came on to be considered the Complaint Seeking Relief from Stay filed in the above styled and numbered cause.
After carefully considering the Complaint; the testimony adduced at the hearing; the statements of counsel and the entire file and record, the Court makes the following findings.
The Court finds the Debtors in this proceeding filed a petition in bankruptcy in Cause No. SA 79-BK 44 on January 19, 1979, and discharge was granted on April 3, 1979.
The Court finds that the Chapter XIII Petition in this case was filed on June 6, 1979, less than 64 days after the Debtor received a discharge in Cause Number SA 79-BK 44. The debts scheduled were not newly incurred after the debtors’ April 3, 1979 discharge, but were the debts owed against property originally claimed as exempt and the only nondischargeable debts remaining after bankruptcy.
The Complaint alleges that the Debtors have failed to make payments to secured creditors for a period going back to December, 1978, and secured creditors have rejected the proposed Wage Earner Plan.
The Chapter XIII plan is intended to give the wage earner a reasonable opportunity to arrange installment payments to be made out of his future earnings, and provides a highly desirable method for dealing with the financial difficulties of individuals. It creates an equitable and feasible way for the honest and conscientious debtor to pay off his debts rather than having them discharged in bankruptcy. Perry v. Commerce Loan Company, 383 U.S. 392, 396, 86 S.Ct. 852, 855, 15 L.Ed.2d 827.
In the Perry case, supra, the Court held that a Debtor could properly file a Wage Earner Plan within six years of a discharge in bankruptcy, because the purpose of a Wage Earner Plan is to provide an honorable and equitable way of achieving financial rehabilitation. The case before this Court has gone far beyond the financial rehabilitation envisioned by Perry, supra. Under one Chapter of the Act he has discharged virtually all of his indebtedness. He then implements another Chapter to defer payment on those few remaining financial obligations. The evidence shows that the debt- or, by virtue of the various statutory automatic stays, has had the unfettered use of two cars, and his home, without a single payment to creditors for an extended time. This Court cannot sanction or tolerate such a payment avoidance scheme under the guise of “financial rehabilitation.” The Debtor has received a discharge in bankruptcy in a prior proceeding, and 64 days later with the threat of foreclosure and repossession looming on the horizon, he again appears before the Court seeking to stay his creditors from rightfully recovering exempt property the payments on which had become deliquent in the interim.
“The unmistakeable purpose of the six year provision of Section 14(c)(5) of the Bankruptcy Rules was to prevent the creation of a class of habitual bankrupts— debtors repeatedly escape their obligations as frequently as they chose by going through repeated bankruptcy.” Perry, 383 U.S. 392, 399, 86 S.Ct. 852, 856, 15 L.Ed.2d 827.
The debtor has filed an extension plan under the provisions of Chapter XIII which stays any action of foreclosure which could be taken by creditors. A Wage Earner Plan may not be confirmed unless it has been accepted by all of the secured creditors whose claims are dealt with by the plan. Terry v. Colonial Stores Employee’s Credit Union of Atlanta, 411 F.2d 553 (5th Cir. 1969.) The Fifth Circuit held in Terry, supra, that the plan could not be confirmed because the secured creditors were materially and adversely affected by the reduction in the monthly payment.
Payments under the instant plan, like Terry, would impair the creditors security by accumulating arrearages that could not be regained without undue delay mate*248rially and adversely affecting the security. The value continues to depreciate as the arrearages accumulate, and are compounded by delay. The plan filed in this instance causes undue delay and prejudice to the creditors to the extent they are materially and adversely affected thereby, and does not meet the requisite showing of good faith as required by the Bankruptcy Act. See In the Matter of Cassidy, 401 F.Supp. 757 (E.D.N.Y., 1975). In such an instance the Court must find that the delay and prejudice render the Plan unfeasible and that said Plan fails to meet the requisite good faith standard set forth in Hallenbeck v. Penn Mutual Life Insurance Company, 323 F.2d 566, 572 (4th Cir. 1963). See also In re Pizzolato, 281 F.Supp. 109, 110 (W.D.Ark.1967).
Therefore, it is the opinion of this Court that the plan is not feasible because the undue delay materially and adversely affects the secured creditors interest; the rehabilitative purposes of the Federal Wage Earner Plan are not met; and the filing of a Wage Earner Plan so closely upon the heels of bankruptcy allows the Debtor to purge himself of his unsecured debts while staying any action by the secured creditors.
Parenthetically, it should be noted that Section 1307 of the New Bankruptcy Act allows dismissal of a Plan for prejudice caused by undue delay created by the actions of the Debtor. This provision is similar to Sections 656 and 666 of the Bankruptcy Code, effective prior to October 1, 1979, and accordingly, the Plan is hereby DISMISSED. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489298/ | ORDER ON PRETRIAL CONFERENCE
ALEXANDER L. PASKAY, Bankruptcy Judge.
THIS IS a Chapter 11 case under the Code and the matter under consideration is an adversary proceeding commenced by Property Management & Investment (PMI).
The complaint as amended sets forth five Counts. In Count I, PMI sues Ellen Fowler and charges that Ellen Fowler, a practicing attorney, was negligent in performance of her services by failing to advise PMI of certain matters of significance and as a result, PMI sustained damages. Therefore, PMI demands a money judgment against Ellen Fowler.
In Count II, PMI sets forth a claim charging the law firm of Johnson, Blakely, Pope, Bokor & Ruppel, P.A. (the Law Firm) and realleges that the Defendant, Ellen Fowler, was an associate of the Law Firm and at all times acted on behalf of the Law Firm and, therefore, the Law Firm shall be held liable for the negligent performance of Ellen Fowler. In this Count, PMI seeks money judgment against the Law Firm for the damages which it allegedly suffered as a result of a negligent performance by the Defendant, Ellen Fowler.
The claim set forth in Count III is based on 42 U.S.C. § 1983 (Civil Rights Act) and charges that the Defendant, Gerald A. Lewis acting in conjunction with Michael A. Gross, Michael Winn and Edward Kim Ba-kos, acting under colour of state law, deprived PMI of rights, secured by the Constitution and the laws of the United States. PMI also seeks a money judgment against the Defendants named in this Court jointly and severally and seeks costs and attorney fees. In addition, PMI also seeks injunctive relief restraining any further interference by the Defendants named in this Court with the business activities of PMI.
Count IV names the same Defendants as they appear in Count III and charges that the Defendants wrongfully obtained the imposition of the receivership by a state court to the detriment of PMI and as a result of which, PMI suffered loss of its business reputation, profits and income. PMI seeks money judgment against the Defendants jointly and severally in this Count.
The claim set forth in Count V of the complaint is against Thomas R. Spencer, the Receiver appointed by the State Court and charges that the Receiver presented numerous false reports to the State Court before and after his appointment; failed to truthfully perform his duties; and as a result of the misrepresentations and omissions PMI suffered damages including loss of profits, loss of reputation and the cost of Receivership. PMI seeks money judgment against the Receiver for the alleged damages it suffered.
Counts I and II of the complaint are attacked by counsel for Ellen Fowler and counsel for the Law Firm by a Motion to Dismiss. The Defendants contend that the complaint fails to state a claim for which relief can be granted because the alleged failure of Ellen Fowler to advise PMI properly had no casual connection with the ultimate imposition of the Receivership. Counsel also urges that the pleading is defective because it sets forth two inconsistent premises. In the first, PMI contends that the mortgages sold by PMI were securities subject to the securities regulations of the *321State of Florida, Fla.Stat. Ch. 517, in the second, if they were, they were securities exempt from regulation by the State.
The Court heard argument of counsel for Ellen Fowler and the Law Firm and response by PMI and is satisfied that the Motion is not well taken and the claims set forth in Counts I and II do set forth a claim for which relief could be granted; therefore, the Motion to Dismiss addressed to Counts I and II shall be denied.
In Count V, it is important to consider first PMI’s right to sue the Receiver without leave of Court. It is well to state at the outset that the Receiver can neither sue nor be sued without the consent of the court which appointed him. 27 Fla. Jur. Receivers, ¶ 52 at page 638. While this generally correctly states the law, there is a well recognized exception which is applicable if the Receiver acted outside of the scope of his authority or when the wrongful conduct was committed by him in his personal capacity as distinguished from his capacity as a Receiver. Relying on this exception, PMI contends that the case of Murtha v. Steijskal, 232 So.2d 53 (Fla. 4th DCA 1970), governs the present situation and PMI is not required to obtain the leave from the state court before he can sue the receiver. The reliance of PMI on the holding in Murtha, supra is misplaced and furnishes scant, if any, support for the proposition urged by PMI. In Murtha, supra the complaint alleged that the Receiver improp erly administered the estate, failed to enforce the rights of the corporation, failed to timely file his final accounting and when that was ultimately filed, his final accounting was improper. The Fourth District Court of Appeals in Murtha, supra held that no action can be brought against the Receiver without leave of the court which appointed the receiver because the wrongful conduct charged was committed by the receiver in performing his duties as receiver. Applying the rationale of Murtha, supra to the case at bar, it is clear that Murtha, supra, rather than supporting the position of PMI, speaks strongly in favor of the contention of the Receiver that he cannot be sued without leave of court. All the allegations set forth in Count V of the complaint relate to its alleged negligent performance of the duties of the Receiver. There is no allegation that he acted outside of his scope of authority or that he acted in his personal capacity. Thus, just like in the case of Dunscombe v. Loftin, 154 F.2d 963 (5th Cir. 1946), the Receiver in the instance case is only charged with the negligent performance of his duties and, therefore, cannot be sued without leave of court which appointed him.
The legal sufficiency of the allegations set forth in Count V are also challenged by the Receiver on the ground that the pleading lacks the specifics to plead fraud required by FRCP 9 as adopted by Bankruptcy Rule 709. PMI charges in Count V that the Receiver made numerous representations which were not true, but PMI fails to identify what those representations were and in what respect they were fraudulent. PMI also charges in Count V that the Receiver failed to reveal and omitted certain material facts, but again fails to identify which facts were omitted and to what extent they were material. To overcome the obvious deficiency of Count V, PMI contends that Count V does not really attempt to set forth a claim based on fraud, but a claim for violation of 42 U.S.C. § 1983 (Civil Rights Act). It is clear that there is not a single allegation in Count V which even remotely resembles a charge of Civil Rights violation. While it is true that Count V incorporates by reference the allegations set forth in paragraphs 1 through 23 and paragraphs 17 through 23 appearing in Count II and Count III purport to set forth a claim based on 42 U.S.C. § 1983, nowhere is there a charge in these paragraphs that the Defendant, Thomas R. Spencer, committed any of the acts allegedly constituting civil rights violations, nor is the Receiver named as a defendant in those Counts.
None of the Defendants named in Count III and Count IV appeared although they had received a notice of the hearing. Subsequent to the conclusion of the hearing, *322this Court was notified by counsel that he inadvertently overlooked the notification on the Summons that all pending motions will be held on the date indicated and they now seek a continuance.
In light of the ruling on the motions which were heard, this Court is satisfied that the rescheduling of the Motion filed by the Defendants, named in Count III and Count IV would not prejudice PMI or any other party.
In accordance with the foregoing, it is
ORDERED, ADJUDGED AND DECREED that the Motion to Dismiss Counts I and II filed by counsel for Ellen Fowler and the law firm of Johnson, Blakely, Pope, Bokor and Ruppel, P.A. be, and the same hereby is, denied and said Defendants shall, within 15 days from the date of entry of this Order, file their Answer to said Counts. It is further
ORDERED, ADJUDGED AND DECREED that the Motion to Dismiss or for More Definite Statement filed by Gerald A. Lewis, Michael A. Gross, Michael Winn and Edward Kim Bakos be, and the same hereby is, deferred to be held at the rescheduled hearing. It is further
ORDERED, ADJUDGED AND DECREED that the Motion to Dismiss the claim by Thomas R. Spencer be, and the same hereby is, granted and said count is dismissed without prejudice and PMI shall seek and obtain leave from the State Court to proceed with the action against the State Court Receiver within 20 days from the date of entry of this Order and in the event PMI is unable to obtain such a consent, Count V of the complaint against the Receiver shall stand as dismissed with prejudice. It is further
ORDERED, ADJUDGED AND DECREED that in the event PMI is able to obtain such a consent, it shall file an amended complaint by pleading with particularity the facts upon which a claim against Thomas R. Spencer is based. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489300/ | ON COMPLAINT TO DETERMINE EXTENT AND VALIDITY OF MORTGAGE LIEN AND FOR PERMISSION TO FORECLOSE.
OPINION
WILLIAM LIPKIN, Bankruptcy Judge.
The Debtor herein, Dorothea M. Stepan-ski (Debtor), filed a petition for relief on November 2, 1981 under the provisions of Chapter 13 of the Bankruptcy Code and Robert M. Wood, as standing Trustee of Chapter 13 cases, thereby became involved in the Estate of the Debtor.
The Debtor is the owner in fee of real estate, being her principal residence, known as Route 322, Box 97, Richwood, Harrison Township, Gloucester County, New Jersey. The plaintiff, Beneficial Finance Co. of New Jersey (Beneficial) has a mortgage dated October 25, 1979, thereon, recited as due the sum of $30,214.34, with interest at 17% payable over a period of 180 months, which mortgage was recorded on October 31, 1979 in Book 906 of mortgages, page 664, in the Clerk’s Office of Gloucester County, New Jersey. The mortgage instrument recites therein that the property is subject to another mortgage given to Farmers National Bank in the principal sum of $15,000.00, dated July 27, 1976, recorded in Book 826 of mortgages, page 877.
Beneficial filed a complaint in this cause of action seeking to have the automatic stay of proceedings imposed by reason of the provisions of Section 362 (11 U.S.C. 362) vacated and to permit it to proceed with its foreclosure action in the State Court of New Jersey, against the defendants, the Debtor and Trustee; and for counsel fees to be paid to counsel for the plaintiff out of the Debtor Estate; and that the Debtor turn over to the plaintiff any and all rents, issues and profits collected by the Debtor from any occupants of the premises described in the supporting papers attached to the complaint.
The Debtor opposes the complaint on the ground that the loan is illegal and void and is subject to forfeiture as Beneficial paid off the first mortgage and thereby became the first mortgage holder and illegally charged higher interest rates purportedly as a second mortgage lender.
The testimony and exhibits reveal the following facts leading up to the execution on October 25, 1979 by the Debtor of the mortgage in issue to Beneficial.
Prior to October 21, 1979 the Debtor was indebted to Farmers National Bank on a first mortgage on her home in the sum of $12,893.02. She was then indebted to Beneficial in the sum of $9,187.47 secured by a second mortgage on her home to Beneficial.
*401The interest rate on the first mortgage was 9Vi% and the interest rate on the second mortgage was 15%. In addition she had outstanding unsecured trade and charge card creditors:
Postal Finance $ 1,974.00
First Peoples Bank 338.19
Chase Manhattan 506.57
Chase Manhattan 1,397.76
Sears Roebuck 231.16
City Bank 419.13
Strawbridge 112.72
Strawbridge 98.11
M & F Fences 324.43
Peoples Bank & Trust 388.11
First Pennsylvania Bank 2,051.59
$ 7,841.77
Prior to October 25, 1979 the Debtor contacted Beneficial through its manager, Daniel O’Neil, with whom she had had previous dealings to obtain loans, and she discussed with him a loan to consolidate her bills. Beneficial is a licensed secondary mortgage lender and agreed, through Mr. O’Neil, to grant the Debtor a loan to be secured by a second mortgage on her home under the provisions of the “Secondary Mortgage Loan Act”.1
O’Neil testified that he knew that Beneficial had no legal right to lend money secured by a first mortgage and he therefore suggested and prevailed upon the Debtor to accept funds to pay off all debts, including the first mortgage, except for $98.32 to remain due on the first mortgage. Mr. O’Neil had the Debtor sign a Second Mortgage Loan Note and Mortgage in the amount of $30,214.34. O’Neil supplied funds to pay $7,841.77 for the trade and charge card creditors, a pay off by book entry of the second mortgage which it already held and $12,775.00 to the first mortgage and gave the Debtor the remainder of the fund of the so called new second mortgage in the sum of $268.07. Then within one or two months the Debtor paid off the small sum still due on the first mortgage whereby Beneficial became the first mortgagee on the property of the Debtor.
Beneficial seeks to justify its conduct in manipulating the financial affairs of the Debtor and thus obtained a first mortgage position by stating that it was in the interest of the Debtor. The new mortgage called for monthly payments of $465.00 per month for 180 months (15 years), upon the loan for $30,214.34 at 17% interest. The total interest over the 180 months (15 years) period was computed to be $53,485.66, making a total sum to be paid by the Debtor of $83,700.00. Mr. O’Neil testified her monthly payments before the consolidated loan would have been $953.00 out of an income of $1,620.00 per month, leaving her $667.00 a month for other purposes. He testified his refinancing of all debts, whereby she would pay $465.00 per month for 15 years, reduced the Debtor’s debt ratio from 58% of her income to 39% of her income.
The Debtor had another personal loan of $1,644.00 with Beneficial which carried an interest charge of 22%. When queried why that loan was not included, the response was that the equity in the Debtor’s home was not large enough to include that obligation, though the home had a forced sale value of $40,000.00, with a market value of $42,000.00. His testimony on this point, based upon the value of the property and her income and disbursements, is not creditable.
The testimony and exhibits before me establish that the manager of Beneficial knew that Beneficial had no right under the Secondary Mortgage Act to make first mortgage loans. He disclosed that fact to the Debtor and arranged for a loan to her that would circumvent the provisions of the Act. Mr. O’Neil had the Debtor pay off a first mortgage which carried a 9 Vi% interest rate on the principal then due of $12,893.02. She then became obligated to pay 17% thereon, plus an increase of 2% interest on the sum then due on the second mortgage of $9,187.47, which Beneficial already held. It was recognized by Mr. O’Neil that the Debtor was obliged to pay 12% to 18% interest on the trade and charge card creditors set forth above. It stands to reason that *402the pay off time for the trade and charge card creditors would not take 15 years and the ultimate interest payments to such creditors would be far less than the amount she would be obliged to pay for interest to Beneficial over 15 years.
The Debtor did have money left after paying living expenses from her $1,620.00 monthly income to make payments on her debts then in existence. The activity of O’Neil was not as noble in her interest as he would have the court believe.
Regardless of the moral and equitable factors in this Estate, which reflect sharp dealings by Beneficial when it had the Debtor execute the second mortgage under the facts set forth above, the right of Beneficial to have a consensual valid second mortgage depends upon its strict compliance with the provisions of the Secondary Mortgage Loan Act. From the evidence before me I do find that Beneficial has obtained a mortgage on the Debtor’s property in violation of the Secondary Mortgage Loan Act and therefore it is void.
The sections of this Act pertinent to this cause of action are:
N.J.S.A. 17:llA-35. Definitions
As used in this act, the following words and terms shall have the following meanings:
a. “Secondary mortgage loan” means a loan made to an individual . .. which is secured in whole or in part by a lien upon any interest including a mortgage, indenture, or any other similar instrument or document, which real property is subject to one or more prior mortgage liens and which is used as a dwelling, ... (3) is at an interest rate which is not in excess of the usury rate in existence at the time the loan is made, as established in accordance with the law of this State, and on which loan the borrower has not agreed to pay, directly or indirectly, any charge, cost, expense or any fee whatsoever other than said interest; .... (Underlining added)
Section 17:11A^44 fixes the amount of interest that may be charged by a licensee,
... at an annual percentage rate not exceeding 15%, computed by the actuarial method (United States rule) and; provided further, the Commissioner of Banking, with the advice of a special advisory board constituted as hereinafter provided, may by regulation adopted, amended and rescinded from time to time, provide that the interest which may be taken for any such loan shall be more than 15% per annum but not more than 18% per an-num, as shall be prescribed in such regulation.2
(1) No interest shall be paid, deducted, or received in advance. Interest shall not be compounded and shall be computed only on unpaid principal balances.
Section 17:llA-45 requires the licensee to keep detailed records of the transaction with the borrower or 'applicant for a loan even to the extent as required in (7) of an “[¡Individual file in which the borrower’s application for a loan and any correspondence, including collection letters, memorandums, notes or any other written information pertaining to the borrower’s account, shall be kept.”
Subsection j requires that the licensee “[g]ive to the borrower, without charge, a copy of every instrument, document or other writing the borrower signs.” See also City Consumer Services, Inc. v. Dept. of Banking, 134 N.J.Super 588, 342 A.2d 540 (A.D.1975).
Of particular significance are the provisions of 17:llA-46, “Prohibitions”, which provides:
f. Make a secondary mortgage loan until such time as the licensee has obtained:
(1) A written statement signed by the borrower that the holder of every other *403existing mortgage on the real property offered as security for the secondary mortgage loan has declined to make a loan in the desired amount or;
(2) A written statement signed by the borrower that the terms offered by the holder of every other existing mortgage on the real property offered as security for the secondary mortgage loan are not acceptable to the borrower.
Section 17:llA-58, dealing with “ Unen-forceability of loan not in compliance with law” provides therein:
Any obligation on the part of a borrower arising out of a secondary mortgage loan shall be void and unenforceable unless such secondary mortgage loan was executed in full compliance with the provisions of this act. (Underlining added)
Finally of interest in this matter is the law of the State of New Jersey which fixes the rate of interest for first mortgages as set forth in N.J.S.A. 31:1-1; 31:1-1.1. Briefly stated, these sections provide that the Commissioner of Banking of the State of New Jersey may, be regulation, establish the rate of interest on loans secured by a first lien on real property as described therein.3 and 4 The Debtor’s property falls within such description. The rate on such loans fixed as of October 5, 1979 by the Commissioner was 10'/2%, which date was immediately prior to the loan herein involved, i.e., October 25, 1979.
Beneficial, knowingly with intent, violated the provisions of the Secondary Mortgage Loan Act, 17:llA-34, sequi, when it made the loan now in issue to the Debtor. The agent of Beneficial, Mr. O’Neil, submitted at the trial the printed form of Beneficial, designated “Certification” as required in section 46f(2) of the Act set forth above signed by the Debtor wherein the Debtor by a check mark therein represented compliance to the effect:
With respect to a request for additional financing in the amount requested, secured by another mortgage upon the same real property which now is being offered to you as security for a secondary mortgage loan, the terms offered by the holder of the prior mortgage on such real property are not acceptable to the undersigned.
The printed portion on the form, which related to compliance with 46f(l) was not checked off. That section would reflect whether the Debtor had determined from the holder of the prior mortgage on the property that that holder would not make a loan in the amount requested of Beneficial. Neither Beneficial nor the Debtor had ever inquired of the first lien holder of terms for a loan which would be acceptable to the Debtor, nor did the Debtor inquire of the first mortgagee for a loan in the amount given by Beneficial to the Debtor.
Beneficial had the Debtor sign the Certification, giving lip service to the critical requirement of the Statute. The Debtor owed the first mortgagee only a sum of approximately $13,000.00, with interest thereon of 9V4%, which was secured by a mortgage on property worth over $40,-000.00. That mortgagee could have granted a mortgage bearing an interest rate of 10V2%. Beneficial did not even go through the motion to have the Debtor inquire whether the first mortgagee would increase its mortgage on the heavily oversecured property or extend the loan to the Debtor upon acceptable terms. Beneficial merely checked with the first mortgagee upon the amount due and then wrapped up its loan transaction in the most expeditious way to serve its purpose and obtained a first mortgage on the Debtor’s property in violation of the Secondary Mortgage Loan Act, as well as the Statute dealing with usury.
The fact that the Debtor signed the Certification handed to her by Beneficial, ostensibly to satisfy the requirement of section 46f(l) and (2), does not raise an estop-pel against her defense of violation of the Secondary Mortgage Loan Act.
*404Furthermore, to indicate almost venal action by Beneficial in addition to violating the provisions of the Secondary Mortgage Loan act was its conduct in the obtaining of a first mortgage on the Debtor’s property in violation of the Statute.5 Beneficial had, after the execution of the secondary mortgage at the maximum rate of 17%, given the Debtor money to pay off the remaining piddling sum due of $98.32 on the first mortgage, so that it ended up with a first mortgage for over $30,000.00 at a 17% interest rate, payable over a period of 15 years. As stated above, it even improved its own position by discharging the secondary mortgage it already held at 15% by incorporating it into the new mortgage at 17% interest.
The constitutionality of the Secondary Mortgage Loan Act was established in Crescent Investment Co. v. Commissioner of Banking and Insurance of the State of New Jersey, 103 N.J.Super 11, 246 A.2d 493 (Ch.1968). Therein the court stated, page 18, in dealing with the legislative history of the Act,
.... It was to protect New Jersey residents from this misleading advertising and exorbitant charges and fees that the Secondary Mortgage Loan Act was enacted. This legislation is very restrictive regarding fees to be charged, safeguards around the transaction itself, location of the place of business, keeping books and records, and the like. In short, this legislation was a remedial measure designed to give the State a very tightfisted control over the secondary mortgage loan business. (Underlining added)
See also Stubbs v. Security Consumer Discount Company, 171 N.J.Super. 67, 74, 407 A.2d 1269 (A.D.1979).
It is clear from the evidence before me that Beneficial has knowingly engaged in an usurist transaction at the expense of the Debtor and in violation of the provisions of the Secondary Mortgage Loan Act. The fact that the Debtor signed the Certification as above set forth which purposely left unpaid a few dollars in the first mortgage for 30 or so days does not estop the defense raised by the Debtor.
As stated in HIMC Investment Co. v. Siciliano, 103 N.J.Super. 27, 38, 246 A.2d 502 (Law Div.1968):
The strong policy of the act may not be dissipated by the facts asserted to establish the estoppel. To hold otherwise would sanction the circumvention of the salutary benefits afforded by the law by means never contemplated by the statute which promulgated the policy.
Where the lender perpetrates deliberate violations of the provisions of the Secondary Mortgage Loan Act, it is not relieved of its consequences by the execution of any untrue supporting papers by the Debtor and where the mortgage is executed whereby it, in effect, becomes a first mortgage, it is executed without “full compliance” with the act and is “void and unenforceable under N.J.S.A. 17:11A-58. Stubbs v. Security Consumer Discount Company, 171 N.J.Super. 67, 75, 407 A.2d 1269 (A.D.1979) (Underlining added). City Consumer Services, Inc. v. Dept. of Banking, 134 N.J.Super. 588, 595, 342 A.2d 540 (A.D.1975) wherein the court refers to the requirements set forth in the Secondary Mortgage Act to protect against, “[t]he temptation to divert what normally might be a first mortgage loan into the more profitable service corporation’s second mortgage loan portfolio ...”
The usual attendant result in dealing with usurious loans of disallowing the interest factor and permitting payment of the sum received, Ferdon v. Zarriello Bros. Inc., 87 N.J.Super. 124, 128, 208 A.2d 186, does not apply in treating with loans which violate the provisions of the Secondary Mortgage Act. As was stated in HIMC Investment Co. v. Siciliano, supra, page 39, 246 A.2d 502, when the lender sought to recover the sum actually borrowed and received:
*405There is no doubt that the consequences to the lender of the violation of the act are drastic, although it should be noted that they are not as harsh as the penalty imposed by the Small Loan Law, N.J.S.A. 17:10-1 et seq., whereby the borrower is additionally “entitled to recover from the lender any sums paid or returned to the lender by the borrower on account of or in connection with the loan.” N.J.S.A. 17:10-14.
The Secondary Mortgage Loan Act is penal as to the lender and remedial as to the borrower. Cf. Ryan v. Motor Credit Co. Inc., 130 N.J.Eq. 531, 541 [23 A.2d 607] (Ch.1941), affirmed 132 N.J.Eq. 398 [28 A.2d 181] (E. & A. 1942). In the “run-of-the-mill” case arising under this act, barring any collusion as was present in Ryan, or other inquitable conduct, since the note and mortgage are not enforceable the court will usually grant the request of the borrower to have the (now unenforceable) mortgage cancelled.
In this case I find no extenuating circumstances or facts such as took place in Ryan6 or HIMC whereby the Debtor is to be charged with conduct on her part to minimize her right to relief. In Ryan the borrower was a businessman who obtained many loans on cars over a period of time and in HIMC the borrower had obtained return of $500.00 which was part of the money covered by the mortgage. In HIMC the mortgage was to be cancelled of record upon payment to the lender of the $500.00 with interest thereon received from a third party. The Debtor in this case was the victim of Beneficial’s high handed conduct.
I must, therefore, find that the debt and mortgage to Beneficial is void under the provisions of the Secondary Mortgage Loan Act. An Order shall be entered in accordance with the foregoing findings of fact and conclusions of law.
. N.J.S.A. 17:llA-34 et seq. Secondary Mortgage Loan Act.
. For interest formula and tables see N.J.A.C. 3:18-33; Interest regulations N.J.A.C. 3:18-9.1; Prohibition of other charges than legal interest and lawful fees N.J.A.C. 3:18-3.4. The maximum rate established by the Commissioner and Advisory Board between the period November 24, 1978 through January 14, 1980 on Secondary mortgage loans was 17%. That was the rate charged by Beneficial to the Debtor.
. Exemptions in favor of certain lending institutions are set forth in 31:l-l(e)(2).
. N.J.A.C. 3:1-1.1.
. There was not “full compliance” with the Secondary Mortgage Loan Act as required in 17:llA-58; with the provisions of 17:llA46f(l) and (2) requiring inquiry of or denial by prior mortgagees to obtain the funds as set forth above; and there was violation of N.J.S.A. 31:1-1, sequi, fixing the maximum interest rate at 10‘/2% for first mortgages set by regulation of the Commissioner of Banking.
. Ryan v. Motor Credit Co., Inc., 130 N.J.Eq. 531, 23 A.2d 607 (Ch.1941) affirmed 132 N.J.Eq. 398, 28 A.2d 181 (E & A 1942), dealing with the Small Loan Act, is an excellent exposition of the law relating to usury and the general rules of equity and pari-delicto of the lender and borrower, and that in dealing with small loans the exception to the rule of pari-delicto is usually applied because in such cases it is presumed that the borrower is always the oppressed victim of circumstance, the slave of the lender, and is not therefore, in pari-delicto. Of academic interest is the statement, page 556, 23 A.2d 607, that the presumption of rion-pari-delicto is a mere fiction of law,
“This fiction had its origin in the archaic rule which prohibited all interest, excluded the usurer from the altar, denied him absolution in the hour of death and a Christian burial after death. It also finds support in that peculiar doctrine, advanced by some of the Fathers of the Church in the fifteenth century, that ‘Jews might be allowed to take interest since they were to be damned in any case, and by giving them a monopoly of the business the souls of Christians might not be lost.’ See Liegois, Histoire de L”Usure. 82, cited in Marshall v. Beeler, 104 Kan. 32, 178 P. 245 (which see for an interesting discussion of the ancient rules applicable to usury (interest) and the development of the modern law of usury).”
The reference to Jews being allowed to take usurious interest is a canard, fostered by some of the religious bigots of the time, because as early as the fifth or sixth century B.C. the Mosaic law was declared in Leviticus XXV — 36 and 37, wherein it is stated “Thou shalt not take of him any usury or increase; but thou shall be afraid of thy God, that thy brother may live with thee; thy money shall thou not give him upon usury, nor lend him thy victuals for increase.” | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489301/ | MEMORANDUM AND ORDER
DAVID L. CRAWFORD, Bankruptcy Judge.
Plaintiffs, debtors in this action, come before the Court on a complaint to avoid fixing of a lien pursuant to § 522(f)(2)(A) of the United States Bankruptcy Code. The facts preceding the filing of this adversary proceeding are these. On May 29, 1980, the debtors filed a petition seeking relief under Chapter 7 of the Bankruptcy Code. A no asset report was filed by the trustee in June of that same year and a discharge was entered October 8, 1980, by the Court. On or about December 31,1980, the defendant Avco Financial Services International, Inc., (Avco) filed a petition for replevin in the Municipal Court of Omaha, Douglas County, Nebraska, praying for the return of its collateral which secured a validly perfected security interest. An order for replevin was issued by that court in January of 1981 granting to Avco the right to take possession of the debtors’ personal property, the subject matter of this action. Approximately one week after the replevin order issued, this adversary proceeding to avoid the fixing of the Avco lien upon the debtors’ household goods was filed.
It is the contention of the debtors that § 522(f) of the Bankruptcy Code permits the avoidance of certain consensual non-possessory non-purchase money liens on the debtors’ household goods to the extent that such lien impairs an exemption to which the debtor would have been entitled. Additionally, the plaintiffs argue, and this Court has agreed in its decision In re Hart, 16 B.R. 78 (Bkrtcy., D.Neb.1981), that the Congressional scheme of fresh start should be read to allow the fullest application of the Bankruptcy Code provisions and that post-discharge use of exemptions through lien avoidance should be permitted.
It is the contention of defendant Avco that the order of discharge entered in October of 1980 by this Court effected a lifting of the automatic stay under § 362, that the subsequent replevin action in Municipal Court was proper, and that that court’s order and delivery of household goods to Charles E. Burns, Constable of Municipal Court on February 23, 1981, may not be overturned by later bankruptcy litigation. Avco asserts that the avoidance of a lien under § 522(f) is permissive and requires that parties seeking to avoid liens pursuant to that section affirmatively and timely act to bring themselves under the protection of the statute.
A variety of factors in this case mandate my decision in favor of the defendants. Section 362(c)(2)(C) provides that the automatic stay continues in a Chapter 7 case until the time a discharge is granted or denied. Discharge in this instance occurred in October of 1980. Accordingly, the automatic stay had been lifted and the creditor was free to pursue its cause of action in a court of competent jurisdiction. This Avco did in its replevin action in Municipal Court. Final judgment having been entered in that lawsuit, the debtor is precluded by res judi-cata from collaterally attacking any issue which was or could have been determined by the outcome of that trial. An issue litigated in the state court was the right to possession. The right to avoid the lien which would destroy Avco’s right to possession could have been raised as a defense. It was not. The debtors are, therefore, precluded here from raising the issue of whether or not Avco is entitled to replevin, at least at this time. Accordingly, it is
ORDERED that the plaintiffs/debtors’ motion for summary judgment be, and hereby is, denied and it is further
ORDERED that the plaintiffs’ complaint to avoid fixing of a lien be, and hereby is, denied. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489303/ | ORDER GRANTING MOTIONS TO DISMISS
GEORGE L. PROCTOR, Bankruptcy Judge.
Plaintiffs filed two adversary complaints against defendants arising from the same set of facts. Plaintiffs state in their complaints that defendants made a loan to them of $75,000.00. As security for the loan, plaintiffs and defendants executed two agreements, namely, a mortgage on real property and a limited partnership agreement. Plaintiffs seek to have this Court rescind both agreements. Defendants have filed motions to dismiss in response to the complaints.
A party desiring to rescind agreements “must abide by the equitable principle that he who seeks equity must do equity.” 9 Fla.Jur.2d Cancellation, Reformation, and Recission of Instruments § 34 (1979). Defendants assert that this means that the plaintiffs, as the parties seeking rescission, must restore the defendants as nearly as possible to the position which they occupied before entering into the agreements with the plaintiffs. If such restoration is not possible, rescission should be denied.
The plaintiffs acknowledge that as a general rule where restoration is not possible the courts will not permit agreements to be rescinded. Furthermore, plaintiffs do not believe that it is possible for them to restore defendants to the position they occupied prior to execution of the agreements because to do so would require removing *497$75,000.00 from the estate of a debtor in bankruptcy to pay a prepetition creditor in full. However, plaintiffs take the position that the defendants are merely unsecured creditors of their estate, and as such are only entitled to an accounting. The Court, plaintiffs argue, could order rescission of the agreements and grant defendants a money judgment against plaintiffs. This would result in defendants having an allowed, unsecured claim against plaintiffs’ estate. The defendants would then receive their pro-rata share as unsecured creditors along with all the other unsecured creditors.
Courts have diverged from the general rule of denying rescission where restoration was impossible, and have permitted rescission based on an accounting; but only when it is apparent from the facts of the case that an “accounting will balance the equities between the parties O’Donnell v. Novak, Fla.App., 183 So.2d 884, 886 (1966); Accord, Janeczek v. Embry, Fla. App., 330 So.2d 837, 838 (1976). This Court does not believe that an accounting will effectively balance the equities between plaintiffs and defendants. The plaintiffs received a loan from defendants in the form of hard cash. The plaintiffs now seek to relegate defendants to the status of unsecured creditors of plaintiffs’ estate who must take their chances as to the amount of distribution they receive. Clearly, for this Court to place defendants in such a precarious position would not be to do equity.
For all of the above reasons, it is ORDERED as follows:
1. Defendants’ motions to dismiss are granted;
2. Plaintiffs will have twenty (20) days from the date of this order to amend their complaints. The defendants shall plead to the amended complaints in twenty (20) days after receipt. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489306/ | OPINION
KATZ, Bankruptcy Judge.
This is an appeal from the denial of a motion for summary judgment. We affirm.
The debtors/appellees commenced a proceeding under Chapter 13 of the Bankruptcy Code. Western Equities, appellant, is the holder of a note secured by a deed of trust on the debtors’ residence. The note and deed of trust were in default and Western Equities filed a complaint for relief from the automatic stay of § 362 of the Code.
After trial, the court below continued the stay concerning the debtors’ residence conditioned upon four events:
“a. Debtors shall file an amended plan providing for sufficient funds to pay plaintiff $100 per month to be applied to curing the arrearage including plaintiff’s expenses in connection with enforcement of its rights.
“b. Payments on the note secured by the first deed of trust on the real property herein involved and upon plaintiff’s note shall be kept current outside the plan.
“c. Payments to the trustee under the plan shall be kept current.
“d. Funds heretofore tendered and rejected by plaintiff shall be paid over to plaintiff without prejudice to its right to maintain its contention that debtors are in default and the stay should be lifted.”
The court below further held that:
*659“it (the court) may entertain and act upon a motion for summary judgment to lift the stay in the event that plaintiff wishes to present such motion upon the ground that defendant debtors have failed to comply with the conditions.... ”
Thereafter, plaintiff appealed that decision to the United States District Court for the Northern District of California, which affirmed the court below.1
The debtors have complied with all of the conditions imposed upon them by the trial court, including payment of $4,450, out of $5,000 due, to the trustee. The trustee, however, has not paid the $100 per month on the arrearage because plaintiff failed to file a proof of claim, a refusal that is carried forward to this time.
Not having received any payments on their arrearage, plaintiff filed a motion for summary judgment which was denied. This appeal follows.
Appellant argues that it need not file a proof of claim because it is not a creditor of the debtors. We agree that appellant need not file a proof of claim. The court’s order of April 8,1980, by which the stay was continued, fixed the exact amount of the arrearage at $2,843 with interest thereon at % of 1% per month payable through the debtors’ plan as a secured claim. That made this creditor a part of the plan and should have been enough to result in payments being made to the creditor by the trustee. Apparently it was not. The failure to receive money by the creditor is due to an administrative problem between it and the trustee. It is not the result of a default by the debtors of any of the provisions of the April 8, 1980 order. Therefore, the denial of the summary judgment motion is affirmed.
When this creditor, after the appeal to the district court was concluded, found he would not be paid by the trustee unless he filed a claim, he arbitrarily determined not to file one. The current problem of nonpayment is strictly due to the creditor’s unwillingness to comply with the simple expedient of filing such a claim, which would have resulted in payments commencing to it.
While we agree that the filing of a claim, under the facts of this case, was unnecessary, expediency and practicality would have dictated another approach to the problem. Instead, the appellant continued the litigation by filing a summary judgment motion, and after having it denied, filing this appeal.
We think the appellant’s actions here were vexatious and border on abuse of process and harassment. We conclude that appellees are entitled to an award of reasonable attorney’s fees and costs and therefore remand this matter to the trial court to permit it to fix the fees and costs to be allowed herein.
. The appeal was filed prior to December 1, 1980, the date upon which Bankruptcy Appellate Panels were designated for the Northern District of California by the Circuit Council of the Ninth Circuit of Appeals, pursuant to 28 U.S.C. § 160. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489307/ | OPINION
HUGHES, Bankruptcy Judge:
Rameo Industries appeals from a judgment which dismissed its complaint for relief from the automatic stay imposed by 11 U.S.C. § 362 “on the merits.” We construe the judgment as a determination that appellant is not stayed from enforcing its rights, if any, in the subject property and affirm.
I
In many respects, this case is similar to In re Preuss, 15 B.R. 896 (9th Cir. 1981), in which we held that plaintiff creditor was entitled to an order giving relief from stay in a chapter 7 case once it was apparent that there was no equity in the property of benefit to the bankruptcy estate. 11 U.S.C. § 362(d)(2)(A).
The debtor, Beverly Ann Moore, took property in her name as an accommodation to her son. As her attorneys argued to the trial court, the transaction “was a sham, intended only to circumvent any claims” her son’s “estranged wife might make on the property, and further to circumvent .. . rights” which she believed the sellers had to enforce a due-on-sale clause in their deed of trust. Prior to bankruptcy, but after Ram-eo had acquired a judgment lien on any interests she had in the real property, Mrs. Moore deeded the property to her son. Only Mrs. Moore filed bankruptcy.
Saying it did so out of an abundance of caution, Rameo filed a “complaint for relief from stay” and prayed that “the automatic stay in effect be modified to permit plaintiff to enforce its judgment against the. . . real property...” Mrs. Moore answered and prayed that the court “declare the interest of plaintiff. .. [in] the subject real property... to be nothing, and that the plaintiff be permanently stayed and enjoined from any execution or sale of the subject property...”
Mrs. Moore testified that it was never her intention to own the property, that none of her money was used to acquire it and that she conveyed whatever title she had to her son long before bankruptcy.
The trustee in Mrs. Moore’s bankruptcy notified Rameo, as well as the court, that he did not intend to administer the property in the bankruptcy case and “will not be contesting the relief you seek...”
II
Understandably, the court found that Mrs. Moore had no interest in the property, from which it concluded that “there is no § 362 stay and therefore the plaintiff’s complaint should be dismissed.”
Less understandable is why Rameo felt obliged to appeal from the judgment “that the plaintiff take nothing and that this adversary proceeding be dismissed on the merits,” or what rights Mrs. Moore sought to preserve in resisting the appeal. It appeared from statements of counsel at oral argument that the parties believed that the judgment somehow precluded Rameo from executing on its judgment lien.
While the judgment of dismissal plainly did no more than dismiss a simple complaint for relief from stay, the court’s use of the term “on the merits” is no doubt a source of ambiguity. This conclusion is supported by the court’s discussion in its memorandum of decision of Ramco’s interest in the property vis a vis the son and its statement: “I hold that Michael Moore owns the subject property free and clear of Rameo’s judgment lien.”
*672III
Mrs. Moore (her son is not a party to the appeal although her counsel conceded they represent Michael as well) asserts that the holding as between Rameo and Michael is within the court’s jurisdiction. We do not reach that question because we conclude that the court’s observation on the relative rights between Rameo and Michael, neither of whom are in bankruptcy, pertained to matters outside the issues in the relief from stay action.
Unlike in Preuss, supra, the trustee in this case asserts no interest in the property and, indeed, expressly did not contest relief from stay. Accordingly, Rameo was entitled as a matter of law to relief from stay insofar as it protected the estate. 11 U.S.C. § 362(c)(1).
The only other party afforded protection by the automatic stay is Mrs. Moore, the debtor, but she asserted no interest in the property either.
The issues framed by the pleadings— Ramco’s complaint for relief from stay and Mrs. Moore’s answer praying that the stay remain in effect — were confined to granting or denying the specific relief sought. There was no occasion to deny relief (except, as the court did, to hold that no stay existed) or to rule on issues outside the pleadings.
Treating the observations as to the relative interests of Rameo and Michael in the memorandum as surplusage, and reading the judgment as holding that Rameo is not subject to an automatic stay, we affirm. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489309/ | ALEXANDER L. PASKAY, Bankruptcy Judge.
MEMORANDUM OPINION ON COMPLAINT TO MODIFY THE AUTOMATIC STAY
THIS IS a Code Chapter 11 case and the matter under consideration is the right of Certified Mortgage Corp. (Certified), the *788Debtor involved in this business reorganization case to continue to enjoy the protective provision of the automatic stay imposed by § 362(a) of the Bankruptcy Code. Certified’s right to continuation of the automatic stay is challenged by Bankers Life Company (Bankers), the Plaintiff who, by virtue of an assignment (Pi’s Exh. # 3), is a holder of a mortgage on a property involved in this controversy. Bankers seeks to be relieved from the constraint of the automatic stay, pursuant to § 362(d) of the Bankruptcy Code, in order to institute a foreclosure action. The subject property is a single family residential unit with 1,041 square feet of living area located in the subdivision. The property is currently rented by the Debtor who receives monthly rent of $350. Bankers did not seek and the Debtor did not offer any adequate protection; thus, Bankers right to relief shall be determined solely with reference to the record and the proof presented in support of and in opposition of the relevant issues under § 362(d)(2). The valuation placed on the property by the respective experts ranges from $37,500 to as high as $45,000. It is without dispute that the Debtor has been attempting to sell this subject property since last fall without any success and has yet to present any real prospect for the sale of this property. While it is true that the property was not on multiple listing until recently, it is now listed. It is without serious dispute that the real estate market at this time is extremely soft and the likelihood of an early sale, contrary to the contention of the president of the Debtor, is not very strong.
In an action to lift the automatic stay by virtue of § 362(g) the burden to establish lack of equity is on the plaintiff but on any other issues, the burden is on the Debtor who opposes the lifting of the stay. This burden includes not only the burden of going forward, but also the burden of ultimate persuasion. Taking into consideration the expert testimony, the equity of the Debtor in the subject property, if there is any, is at most marginal. Considering the recent sales in the area, it is fair to conclude that the value of this property is slightly under $40,000 and considering the balance due and the daily accrual of interest on the mortgage, any substantial delay would soon wipe out any equity which might have existed in favor of the Debtor at one time. The efforts of the Debtor to liquidate its property were to say, at least, less than vigorous which might be understandable in light of the fact that the Debtor enjoys the benefit of the income derived from the property without meeting its obligation to service the mortgage. The testimony offered in support of the proposition that this particular piece of property is needed for an effective reorganization is not particularly persuasive although the president of the Debtor indicated that the need for reorganization is based on the fact that if the property is sold it might produce surplus cash which could be used to fund the reorganization in part. Of course, this proposition is persuasive only if one accepts the proposition that there is, in fact, a meaningful equity which would produce these surplus funds. The fact that the Débtor derives income from the subject property is significant only in the context of the Debtor’s present ability to function as a business, but has no impact on the Debtor’s overall ability to effectuate a reorganization. This being the case, this Court is satisfied that there is no justification to extend the protection of the automatic stay for any substantial length of time. The petition for relief in this case was filed on March 19, 1981 or over a year ago. Although the Debtor filed a plan of reorganization, it has yet to file a disclosure statement which, of course, is a condition precedent before the plan of reorganization can be considered for approval pursuant to § 1125 of the Bankruptcy Code.
In light of the foregoing, it is appropriate to lift the automatic stay and authorize the Plaintiff to commence a foreclosure action provided, however, that the Plaintiff shall not proceed further than to obtain a summary final judgment and further provided that the Plaintiff shall not apply for and conduct a foreclosure sale without further relief of this Court.
*789A separate final judgment will be entered in accordance with the foregoing. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489310/ | MEMORANDUM
KEITH M. LUNDIN, Bankruptcy Judge.
This matter is before the Court on the motion of the plaintiff/trustee to impose sanctions on the defendant for failure to comply with discovery orders. This is the second motion for sanctions against this defendant under Rule 37 of the Federal Rules of Civil Procedure.1 The prior Rule 37 motion was granted by order dated September 30, 1981.2 15 B.R. 52. This second motion seeks further sanctions for the alleged failure of the defendant to comply with the order of September 30, 1981. For the reasons stated below, the trustee’s second request for sanctions is granted in part and denied in part.
The procedural history of this case prior to September 30, 1981 is accurately discussed in this Court’s order of September 30, 1981. In this second motion for sanctions, the trustee contends that the defendant has failed to comply with two3 specific *927provisions of the order of September 30, 1981:
1. That portion of the order which required that “the defendant should4 furnish the trustee within 15 days of the date of this order with a list identifying all persons with significant information concerning this matter and the nature of that information.”
2. That portion of the order which stated “that the trustee should recover attorneys’ fees from the defendant’s attorney in the amount of $750.”
In support of this second motion, the trustee exhibits a letter to defendant’s counsel dated March 2, 1982 in which the trustee demanded compliance with the September 30, 1981 order. In addition, the trustee submits an affidavit stating that, as of April 26, 1982, the trustee had not received the list of names or the attorneys’ fees called for in the order.
At the hearing on June 3, 1982, the trustee, Robert H. Waldschmidt,5 and Harlan Dodson, III, counsel for the defendant, appeared and each gave testimony. Mr. Dodson testified that he appealed the order of September 30, 1981, but that no stay has been sought or granted of that order or of the District Court’s order affirming the decision of the Bankruptcy Court. Mr. Dodson introduced exhibits indicating communications with the trustee during October of 1981. Mr. Dodson stated his impression that the trustee did not wish to carry out the discovery provisions of the September 30th order because the trustee intended to proceed with a motion for summary judgment. The trustee filed his first motion for summary judgment on November 12, 1981. That motion for summary judgment was denied on December 17, 1981. On January 14,1982, the trustee filed his second request for admissions and his third set of interrogatories to the defendant. Answers to the trustee’s second request for admissions and to the third set of interrogatories were filed by the defendant on February 19,1982. By notice dated March 1, 1982, trial was reset for June 3, 1982.6 On April 2, 1982 the trustee filed a second motion for summary judgment. Mr. Dodson stated that at no time was he informed that his client was failing to provide anything required by the September 30th order.
Mr. Waldschmidt testified that he filed no formal discovery requests between the order of September 30, 1981 and the decision denying the first motion for summary judgment on December 17,1981. However, following the denial of the first motion for summary judgment, Mr. Waldschmidt sought discovery by filing the second request for admissions and the third set of interrogatories on January 14, 1982. Mr. Waldschmidt testified that he sent the March 2, 1982 letter to Harlan Dodson, III, demanding compliance with the September 30, 1981 order and asking Mr. Dodson for documentation concerning the further appeal of the September 30th order to the United States Court of Appeals for the Sixth Circuit. Mr. Dodson testified that he never received Mr. Waldschmidt’s letter. Mr. Waldschmidt recalled that some days after the letter of March 2,1982 he received the requested documentation. At no time has Mr. Waldschmidt received the $750 attorney’s fee. Except for the period between September 30,1981, and the denial of the first motion for summary judgment on December 17,1981, Mr. Waldschmidt stated he has never acquiesced in noncompliance *928with the discovery provision of the September 30th order.
This second motion for sanctions was filed on April 27, 1982. On May 27, 1982 a pre-trial conference was held in chambers. By pre-trial order dated May 28, 1982, trial was rescheduled to begin June 16, 1982 and yet another schedule for discovery was established. On May 28, 1982, the defendant finally provided the trustee with a list of the names, etc., of persons having knowledge of this matter, as required by the order of September 30, 1981.
The trustee is correct that this is an appropriate case for the imposition of sanctions pursuant to Rule 37 of the Federal Rules of Civil Procedure. This Court’s order of September 30,1981 was an order “to provide or to permit discovery” within the provisions of Rule 37(b)(2) of the Federal Rules. Rule 37(b)(2) states explicitly that Rule 37 may be used to impose sanctions for the failure to comply with a prior Rule 37(a) order. The courts have broadly recognized the use of Rule 37 to impose sanctions for disobedience of valid discovery orders. See, e.g., Ohio v. Arthur Anderson & Co., 570 F.2d 1370 (10th Cir.), cert. denied, 439 U.S. 833, 99 S.Ct. 114, 58 L.Ed.2d 129 (1978); Von Brimer v. Whirlpool Corp., 536 F.2d 838 (9th Cir. 1976); Local 251, International Brotherhood of Teamsters v. Town Line Sand & Gravel, Inc., 511 F.2d 1198 (1st Cir. 1975). Mr. Dodson contends that the portion of the September 30th order which required him to pay $750 to the trustee is an order which can only be enforced by application for contempt. This argument is without merit. Rule 37(b)(2)(D) specifically contemplates the use of contempt powers in matters arising under Rule 37(b). The $750 awarded by this Court against Harlan Dodson, III, personally, was an order authorized by Rule 37(a)(4) of the Federal Rules of Civil Procedure. Such order was an order under Rule 37(a), violation of which may be sanctioned pursuant to Rule 37(b)(2).7
At least two portions of the order of September 30, 1981 are “self-executing” in the sense that no further action or request by the trustee was necessary to require some action or compliance by the defendant.8 The September 30th order states that the trustee “should recover attorneys’ fees from the defendant’s attorney in the amount of $750.” There is no dispute that this provision of the September 30th order has not been complied with by Mr. Dodson. Once the fact of nonpayment was established by Mr. Waldschmidt, the burden was on Mr. Dodson to explain why he ignored the Court order. No explanation or excuse has been offered. Mr. Dodson could have sought a stay of the order of September 30, 1981, but did not. He has simply chosen instead to disregard the order. This Court cannot tolerate the refusal to obey Court orders by a member of the bar. Although willfulness is not required for the imposition of sanctions, Mr. Dodson’s lack of diligence and complete failure to comply, without explanation, is evidence of willfulness on his part. See Societe Internationale Pour Participations Industrielles v. Rogers, 357 U.S. 197, 78 S.Ct. 1087, 2 L.Ed.2d 1255 (1958); Rohauer v. Eastin-Phelan Corp., 499 F.2d 120 (8th Cir. 1974). The Court finds that the failure of Harlan Dodson, III to comply with the provisions of the September 30th order regarding payment of $750 to the trustee is appropriately treated as a contempt of court pursuant to Rule 37(b)(2)(D) of the Federal Rules of Civil Procedure. 28 U.S.C. § 1481 authorizes the *929bankruptcy court to punish civil contempts.9 It is the decision of this Court that Mr. Dodson shall pay to Mr. Waldschmidt within ten (10) days of the entry of this order the $750 owed to the trustee plus $10 per day for each calendar day between September 30, 1981 and the date upon which Mr. Dodson makes full payment to Mr. Waldschmidt. The Court admonishes Mr. Dodson that it intends to use the full range of remedies available in the punishment of contempts in the event Mr. Dodson persists in his disregard of valid Court orders.10
The second “self-executing” portion of the order of September 30, 1981 required the defendant to “furnish the trustee within 15 days of the date of this order with a list identifying all persons with significant information concerning this matter and the nature of that information.” Mr. Wald-schmidt contends that this provision of the September 30, 1981 order was not complied with until a month after the second motion for sanctions. Mr. Dodson argues alternatively that his October 1981 letters to Mr. Waldschmidt constitute substantial compliance with the September 30th order, or that the actions of the trustee excused defendant’s compliance.
A review of Mr. Dodson’s October, 1981 correspondence with the trustee demands rejection of the contention that these letters constitute compliance with the order of September 30,1981. Exhibit 1, Mr. Dodson’s letter of October 12,1981, contains nothing more than a promise to “have my people provide you whatever other information you need.” Nowhere does the letter identify who “my people” are. Nowhere does the letter comply with the Court order to list persons with information about this case and to describe the information such persons may have. Likewise, Exhibit 2, Mr. Dodson’s letter of October 27,1981, contains an offer to have “someone from our general counsel’s office” come discuss the case with Mr. Waldschmidt. Exhibit 2 does not comply with the listing requirement.
Defendant explains its failure to supply the list by arguing that the trustee never asked for the list and in fact excused noncompliance by seeking no further discovery after the entry of the September 30th order. At the threshhold, the Court rejects defendant’s contention that a further request for discovery was a necessary precondition to the defendant’s obligation to supply the list within 15 days. By the clear terms of the order, there were no preconditions to supplying the list within 15 days. Similarly, the Court finds no merit to defendant’s argument that the parties could by their actions alter or amend the explicit requirement that defendant supply the list within 15 days. No court at any level can allow attorneys to disregard or modify lawful orders at their convenience. Had the defendant perceived or desired a modification of the September 30th order, counsel for the defendant had at his disposal the procedural devices to bring the order before the Court. Only a stay or a superseding court order could alter, amend or suspend the explicit terms of the September 30th order.
This Court rejects defendant’s view that the trustee “waived” its right to the list by proceeding with a motion for summary judgment before seeking furthér discovery. It is inconceivable to the Court that a counsel as experienced as defendant’s counsel would interpret the filing of a motion for summary judgment as excusing *930compliance with discovery orders. Moreover, the Court observes that the logic of defendant’s position dissolves with the denial of the trustee’s motion for summary judgment on December 17,1981. Thereafter, it cannot be contended that the defendant was awaiting the outcome of the trustee’s motion for summary judgment before complying with the September 80th order. On January 14, 1982, the trustee filed his second request for admissions and third set of interrogatories. Defendant and defendant’s counsel cannot contend that they remained unaware of the trustee’s desire to continue discovery. The Court is compelled to accept the testimony of Mr. Dodson, an officer of this Court, that he did not receive the letter sent by Mr. Waldschmidt on March 2, 1981. However, it cannot be maintained that the defendant was unaware of the trustee’s desire to enforce compliance with the September 30, 1981 order after the filing of this second motion for sanctions on April 27, 1982. At that time, the defendant knew that trial was set for June 3, 1982. Nonetheless, on May 27, 1982, at the pre-trial conference — one week before trial, one month after the filing of this motion and nearly eight months after the order of September 30th — the defendant had still failed to comply with the order that it provide a list of all persons having information about this matter.
The Court finds that sanctions should again be assessed against the defendant under Rule 37. The effect of defendant’s noncompliance with the September 30th order has been to require further discovery actions by the trustee and to again cause the rescheduling of trial at substantial expense and inconvenience to the administration of this case and to the Court. Notwithstanding the efforts of the plaintiff, several conferences with the Court, the ordering of discovery and the imposition of sanctions and fines, the defendant and defendant’s counsel have successfully avoided discovery and avoided trial for over 20 months. The trustee asserts that the appropriate sanction is the entry of a default judgment against the defendant.11 See NHL v. Metropolitan Hockey Club, Inc., 427 U.S. 639, 96 S.Ct. 2778, 49 L.Ed.2d 747 (1976); Paine, Webber, Jackson & Curtis, Inc. v. Inmobiliaria Melia de Puerto Rico, Inc., 543 F.2d 3 (2d Cir. 1976), cert. denied, 430 U.S. 907, 97 S.Ct. 1178, 51 L.Ed.2d 583 (1977). However, the Court will allow the defendant its day in Court, in spite of its contemptuous behavior, and will instead treat the failure to comply with prior orders as a contempt of court.
The defendant has been in contempt since the 15th day following September 30, 1981. However, the Court will compensate the trustee and will assess a penalty against defendant from the filing of this second motion for sanctions — when it would be apparent to even the most obtuse litigant that he should obey the Court’s order. Therefore, for each day since the filing of this second motion for sanctions, and continuing through the day on which defendant supplied the list of all persons with significant information concerning this matter, the Court orders the defendant to pay $100 per day to the trustee.
The Court determines that, pursuant to the provisions of the last subparagraph of Rule 37(b)(2)(E) of the Federal Rules of Civil Procedure, this is an appropriate case in which to require the defendant to pay reasonable expenses, including attorneys’ fees caused by the defendant’s actions. The trustee shall submit to the Court and to the defendant an affidavit and itemization of all fees and expenses incurred in connection with this second motion for sanctions, including the costs and expenses of additional discovery caused by the defendant’s failure to comply with the September 30th order. The Court further finds from the documents and testimony at the hearing that Harlan Dodson, III was both a party failing to obey a court order and “the attorney advising” the defendant on the matters here at issue and thus assesses the reasonable expenses and attorneys’ fees described in this paragraph against the defendant and Mr. Harlan Dodson, III, personally.
*931The provisions of this order shall supplement, but not supersede, alter or affect in any way the discovery orders or sanctions previously ordered by this Court. Specifically, but without limitation, this order shall not be interpreted to relieve the defendant or the defendant’s counsel of any obligation created by the order of September 30, 1981 or by the pre-trial order entered on May 28, 1982.
Judgment shall enter accordingly.
. Applicable herein pursuant to Rule 737 of the Federal Rules of Bankruptcy Procedure.
. The defendant appealed the order of September 30, 1981 to the United States District Court for the Middle District of Tennessee. By order dated February 10, 1982, the District Court affirmed the order of September 30, 1981. Defendant noticed its appeal to the United States Court of Appeals for the Sixth Circuit on February 26, 1982. No stay has been sought or granted of the order of September 30, 1981.
. The trustee’s motion suggests a third ground for sanctions — failure to comply with that portion of the September 30th order which required defendant to make certain persons available for examination upon 20 days’ notice from the trustee. At the hearing of this matter on June 3, 1982, the trustee stated that the “20 days’ written notice from the trustee” required by the September 30 order was contained in the trustee’s letter of March 2, 1982 to Harlan Dodson, III, counsel for the defendant. Acknowledging a dispute concerning receipt by Mr. Dodson of this letter of March 2, 1982, the *927trustee abandoned this third ground and relied principally upon the two stated grounds.
. This Court rejects defendant’s suggestion that the use of the word “should” instead of the word “shall” renders the September 30th order unenforceable under Rule 37. From the context and other language of the September 30th order, it cannot be doubted that these provisions were mandatory, compulsory and with the force of court orders.
. By order dated February 12, 1980, Mr. Waldschmidt was authorized to represent himself pursuant to 11 U.S.C. § 327(d).
. The trial of this matter has been set and reset innumerable times since the original trial date of September 25, 1980.
. Defendant suggested for the first time at argument on June 3, 1982 that this Court should not act on the trustee’s second motion for sanctions because there was no finding in the opinion of September 30, 1981 that Harlan Dodson, III “advised” the defendant on the matters at issue in that order. Mr. Dodson admitted to the Court that this argument was not advanced as an issue on appeal. Given that the Septem-her 30th order is now on further appeal to the United States Court of Appeals for the Sixth Circuit, this Court declines to reconsider its order on the basis offered by Mr. Dodson.
. Both Mr. Waldschmidt and Mr. Dodson acknowledged the “self-executing” features of the September 30th order at the hearing on June 3, 1982.
. The enactment of 28 U.S.C. § 1481 expanded the contempt powers available to bankruptcy courts under the old Act. The specific $250 limitation contained in old Rule 920 of the Federal Rules of Bankruptcy Procedure is not carried into the Code and is inconsistent with 28 U.S.C. § 1481. The legislative history of § 1481 fully supports this view. H.R.Rep.No. 595, 95th Cong., 1st Sess. 13, 448, reprinted in 1978 U.S.Code Cong. & Ad.News 5787, 5974, 6404. See In re Lowe, 18 Bankr. 20, 24 (Bankr. N.D.Ga.1981) (the $250 limitation in Bankruptcy Rule 920(a)(3) is inconsistent with the Bankruptcy Reform Act of 1978 and therefore is inapplicable in contempt cases thereunder). See also 1 L. King, Collier on Bankruptcy ¶ 3.01 (15th ed. 1982).
. It is noted that the contempt powers available to the Bankruptcy Court include the power to imprison.
. Such a judgment, if granted, would be entered in the principal sum of $262,039.65. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489311/ | OPINION
WILLIAM A. KING, Jr., Bankruptcy Judge.
This case reaches the Court on the debtors’ request for a preliminary injunction to enjoin the Philadelphia Gas Works from discontinuing service to their apartment complex known as North Towne Apartments.1 A hearing on the matter was held on June 17, 1982, at which time the debtors were twelve (12) months behind in payments to the PGW with total arrears in excess of $46,000. Plaintiffs seek this injunction pursuant to Rule 65 of the Federal Rules of Civil Procedure, as incorporated by Rule 765 of the Rules of Bankruptcy Procedure. A temporary restraining order was issued for the plaintiff by this Court on June 7, 1982, at which time a hearing was set for a preliminary injunction. The debtors seek injunctive relief to prevent PGW from continuing with the cut-off of service.2
*997The debtors allege that they are presently negotiating the sale of an interest in their business to complete a successful Chapter 11 reorganization. The debtors have testified that the sale of the part interest of the corporation may be imminent, and that negotiations include the proviso that the purchaser pay-off all arrearag-es to PGW. The injunctive relief sought by the debtors will maintain the status quo in regard to their account with PGW until such time that the sale is reached, finalized, and approved by this Court.
The debtors contend that if injunctive relief is denied they will suffer irreparable harm, when PGW discontinues gas service to the debtors’ apartments. The debtors foresee the result of such discontinuance to be (a) an exodus of a large number of tenants, (b) the withholding of rent by tenants, and (c) an unwillingness for other persons to deal with the debtors’ business. The cumulative effect of which would be to reduce the debtors’ cash flow. The end result would be to force the liquidation of the debtors’ business and assets.
Debtors also contend that a large turnover in tenants has ■ brought to North Towne Apartments more desirable and credit-worthy tenants, thus producing higher occupancy rates and improving the debtors’ cash flow. This turn of events enables the debtors to make present payments to PGW when the injunction would take effect. The effect of the injunction would thus be to preserve the status quo, and to allow the debtors an opportunity to effectuate a successful reorganization under Chapter 11. The debtors have offered payment of $4,000.00 to PGW to manifest their good faith intention of paying the debt to PGW should the injunction be entered. Without the issuance of an injunction, PGW would not be able to collect this money at all since its claim is unsecured.
In balancing the respective harm to the parties, this Court finds the irreparable harm the debtors would suffer if the injunction is denied would far outweigh the harm to PGW. The failure to impose an injunction would result in the immediate loss of gas service to the debtors’ apartment units. The PGW, on the other hand, will receive current payments throughout the injunction time period from the debtors, placing PGW in no worse of a position than it is already exists.3
The Court will enjoin PGW for sixty (60) days from discontinuing gas service to North Towne Investors, The North Towne Apartments, and that North Towne Investors will be directed to turn over to PGW, within five (5) days of the issuance of this Order, the amount of $4,000.00. North Towne Investors will also be Ordered to pay PGW for current services billed throughout this sixty (60) day period from the date this Order is entered.
. This Opinion constitutes the findings of fact and conclusions of law required by Rule 752 of the Rules of Bankruptcy Procedure.
. Rule 765 adopting Rule 65 of the Federal Rules of Civil Procedure provides in relevant part...
In case a temporary restraining order is granted without notice, the motion for a preliminary injunction shall be set down for hearing at the earliest possible time and takes precedence of all matters except older matters of the same character; and when the motion comes on for hearing the party who obtained the temporary restraining order shall proceed with the application for a preliminary injunction and, if he does not do so, the court shall dissolve the temporary restraining order.
. The Court finds that PGW’s position would be enhanced due to the $4,000.00 payment that the debtors are willing to pay on account of cumulated arrearages. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489313/ | OPINION
Before GEORGE, KATZ and VOLINN, Bankruptcy Judges.
VOLINN, Bankruptcy Judge:
Appellant, Edward R. Fitzsimmons, is attorney for the debtor-appellee, Alexis M. Yermakov. The subject matter of the appeal is appellant’s claim for attorney’s fees based on a written contingent fee agreement executed by the parties on September 26, 1978, more than one year prior to this Chapter 11 case, which was filed on February 4, 1980. The agreement provided that appellant’s compensation was to be contingent on the improvement or “enhancement” of debtor’s circumstances relating to certain property over which existed at the time of its execution. The contingent fee was set at 35% of the enhancement, to be secured by a lien thereon.
At the hearing on his claim, appellant contended that as a result of his efforts, *7particularly the litigation instituted by him and ultimately settled, debtor’s position was enhanced to a point where all his creditors were paid in full, and further, the debtor had use of property, and obtained title to part thereof, all of which had a total value of some $4,500,000 to which the 35% contingent fee should attach. The court allowed appellant, as compensation, the sum of $100,000, whereupon this appeal ensued.
INTRODUCTORY
The schedules prepared and filed by the debtor provide some measure of the scale of his holdings. Schedule B-l (E.R. p. 261 et seq.) describes the real property, valued at $25,000,000, as:
“Westerly Stud Farm — approximately 4,000 acre facility in the business of raising, breeding, training, and selling of thoroughbred horses located at 5699 Happy Canyon Road, Santa Ynez, California...”
The total of the debtor’s B-2 personal property schedules showed some $10,742,-000, the major components thereof being the machinery, fixtures, equipment and supplies of the stud farm, some $7,000,000 in horse inventory, and some $3,000,000 in cash deposits with various banking institutions. A substantial portion of the foregoing deposits, approximately $2,000,000, were being held pursuant to order of the Santa Barbara Superior Court.
Secured claims totalled some $5,700,000. Claims of general unsecured creditors amounted to some $25,000. The schedules thus show assets in a total of some $35,700,-000 as against debts totalling some $5,730,-000.
These figures raise the question as to why the debtor had recourse to Bankruptcy Court. Some indication as to the reason is given by the answer to question 12(a) of the statement of affairs which states:
“Case entitled Alexis and Katherine Yermakov vs. Johnstons, et al, filed in the Santa Barbara Superior Court, Case No. SM25850. The matter is an action to set aside the sale on foreclosure of Westerly Stud Farms; for fraud and failure to comply with statutory foreclosure, and for damages. The complaint prays for a total of $42,000,000.”
It may thus be inferred that the debtor had lost his interest in Westerly Stud Farms by foreclosure sale and had instituted a state court action to set aside the sale. How did this come to pass?
THE PURCHASE OF WESTERLY
Westerly Stud Farms, one of the outstanding stud farms in the United States, consisting of some 3,700 acres of grassland in the Santa Ynez Valley near Solvang, California, was offered for sale in 1974 by the Bank of America, which was administering the estate of Fletcher Jones, owner of Westerly. The debtor purchased the farm for some $5,760,000, executing a promissory note and deed of trust for the balance of the purchase price, $3,000,000, which was due on or about February 15, 1979, five years from date of purchase. During this period of time, interest payments of $240,000 a year, payable quarterly, were required.
About one year later, in February, 1975, the debtor purchased several hundred thoroughbred horses from the Johnston family for some $2,100,000 with an option to purchase more race horses subsequently. A promissory note of some $1.5 million, with a second deed of trust to secure same, was executed by the debtor for the balance of the purchase price of the horses. For reasons to be later discussed, it should be noted that while the agreement for the purchase of the horses provided that the second deed of trust would attach to all of Westerly, the property description in the second deed of trust omitted a 210 acre parcel on which was located the debtor’s residence, a complete breeding facility, and various other improvements.
In July, 1975, the debtor exercised the option to purchase race horses, providing the Johnstons with a promissory note in the sum of some $1,200,000 for the purchase thereof. The latter promissory note was to be secured by the already executed second deed of trust.
*8ONSET OF FINANCIAL PROBLEMS
The debtor was able to make the first payment of $1,000,000 in April, 1976, but in 1977 was unable to make the second annual payment nor the interest payments. The Johnston family, in November, 1977, gave notice of default and election to sell under the second deed of trust. When the debtor and his wife failed to meet payments due in April, 1978, the holder of the first deed of trust also gave notice of default and election to sell under deed of trust.
The debtor and his wife negotiated with the holders of the first deed for further time, which was granted, one reason having been the omission from the second deed of trust of the 210 acre parcel, for which a corrected deed of trust was executed including same. Ultimately, on September 12, 1978, the foreclosure sale on the second deed of trust, as corrected, was held. There were 19 bids. The successful bid was made by a group of individuals (“The O’Brien Group”) for $4,500,000 subject to the first deed of trust which secured the $3,000,000 note. The two notes held by the Johnstons were paid. The debtor and his wife received the remaining balance of some $1,930,000.
The debtor and his wife negotiated with the O’Brien Group for time to remain at Westerly. They were granted until November 4, 1978, provided that the debtor relinquish certain personal property at Westerly worth approximately $300,000. At this point the debtor and his wife had lost Westerly, and as a price for having approximately six weeks to remove or liquidate 150 race horses worth millions, were forced to relinquish personal property of considerable value.
THE CONTINGENT FEE AGREEMENT
The debtors, through their attorney, Paul Halme, contacted appellants, Edward Fitz-simmons and Richard Wheldon. As a result, appellants and the Yermakovs entered into a contingent fee agreement under the date of September 26 (E.R. 112). The agreement is in the form of a letter from appellant to Mr. and Mrs. Yermakov, outlining the difficult circumstances which existed at the time.1
LITIGATION IN STATE COURT
Appellant concluded that litigation should be instituted to set aside the foreclosure sale on the second deed of trust, alleging defects in the proceedings because the original failure to include the 210 acre parcel, as well as fraud on the part of counsel for the Johnstons and the purchasers (The O’Brien Group) in the conduct of the foreclosure sale. The complaint thereon was filed on September 28, 1978, in the California State Court. A cross-complaint was filed seeking substantial damages plus $3,000 per day as long as the Yermakovs remained at Westerly. The O’Brien Group also filed an unlawful detainer action which, on motion of appellant, was consolidated with the com*9plaint to set aside the foreclosure. Appellant successfully resisted a motion for summary judgment, whereupon extensive discovery ensued. In September, 1979, the O’Brien Group engaged in a flanking maneuver, purchasing the $3,000,000 first deed of trust which was substantially in default. Appellant moved to restrain foreclosure thereof since it would have rendered moot, proceedings directed to vacating foreclosure of the second deed of trust. Initial success in obtaining a temporary injunction was vitiated by dissolution of this injunction on January 8, 1980. Further effort at the appellate level also failed.
At this point, the debtor was faced with loss of all further possibility for maintaining the litigation. In a last effort to keep the set-aside litigation alive, on advice of counsel, he filed, on February 4, 1980, a Chapter 11 bankruptcy petition.
LITIGATION IN BANKRUPTCY COURT
On May 12, 1980, the Bankruptcy Court entered an order denying debtor’s motion to remand to the Santa Barbara Superior Court the state court litigation which had been previously removed to the Bankruptcy Court. In the course of entering this order, the court required the turnover to the trustee in bankruptcy in the instant proceedings, various sums of cash or negotiable instruments which had been tied up in the Superior Court litigation, to-wit, the principal and interest on certificates of deposit totalling approximately $2,000,000.
The bankruptcy trustee formally entered the litigation as a party defendant on the eve of trial, on or about June 10, 1980 (E.R.377).
The matter went to trial, appellant having presented substantial testimony as a witness. During trial, on June 12, 1980, negotiations resulted in the settlement discussed below.
The trustee, (E.R.379) described the settlement as follows:
“Your trustee is informed and believes that by virtue of the settlement, the debt- or will have real property with a value in excess of $2,000,000, under one settlement alternative, or $12-40,000,000 under another settlement alternative, with which to protect creditors and to pay in full secured and unsecured creditor debt to-talling less than $1,000,000. In addition, thereto there exists personal property consisting of farm equipment and equipment relating to the horse training and breeding operation, which the debtor believes is worth in excess of an additional $.5 million. Added to the value of the assets aforementioned, are approximately 150 thoroughbred horses, the value of which the debtor has estimated to be at $7,000,000.”
DISMISSAL OF CHAPTER 11 CASE
On or about August 6, 1980, Mr. Yerma-kov, the debtor, wrote to his Chapter 11 attorney, Richard M. Moneymaker (E.R. 415) as follows:
“Dear Mr. Moneymaker:
As we discussed on the telephone August 6, 1980 and earlier, I would like you to take steps to immediately dismiss the Chapter 11 bankruptcy proceeding. I am willing to pay all outstanding obligations listed by me in the bankruptcy proceedings and to pay all costs of administration as per ordered by the court.
Please bring on the necessary proceedings as soon as possible. Thank you.
Sincerely yours,”
The trustee, on September 10, 1980, replied and objected to the application for dismissal stating that he would not oppose eventual dismissal of the proceedings but that such dismissal would be premature pending completion of certain formalities such as the filing of tax returns, resolution of certain sales tax questions “and the determination of the amounts owed creditors and administrative expenses.” It also appears that appellant objected to dismissal of the proceedings until his fee was determined.
On June 12, 1980, the court approved final settlement of the complaint to vacate the foreclosure sale. The court’s judgment of approval, entered on July 11, 1980 (E.R. 1) is appended and includes a transcript of this aspect of the proceeding, numbering 57 pages. Appellant appeared there repre*10senting both Alexis M. and Katherine K. Yermakov. The final settlement between the parties was worked out in open court.2
The transcript of the settlement meeting, among other things, demonstrates clearly that all concerned, the trustee, his lawyer, counsel for the various parties, and the court were cognizant of the fact that the Yermakovs themselves were reluctant to settle. The trial court observed that this reluctance or “intransigentism” was a great problem in resolving the case without a full trial and the area in which the trustee made a significant contribution. To put it otherwise, the court was impressed with the ability of the trustee and his counsel in persuading the Yermakovs to settle.3 As indicated, Fitzsimmons, as counsel for the Yer-makovs, advised them, and in their presence and with their consent, stipulated for the settlement which resulted in the court’s judgment disposing of the lawsuit.
ENHANCEMENT
The court below indicated that the term or concept of enhancement was indefinite and that, in any event, there was no demonstrable enhancement of the debtor’s position brought about by appellant. This finding or conclusion is not warranted by language4 or by the record which supports a contrary result. The debtor’s position, on the date of the contingent fee agreement, September 26, 1978, provided a clear baseline. He had lost record title to all of Westerly Stud Farms and was to be evicted therefrom by November 4, 1978, with a consequent loss, as a result of remaining there until that time of personal property valued at some $300,000. As a result of the eviction, he would have been deprived of the use of the premises for a stud farm which the court, in finding the reasonable value of administrative rent, determined to be $43,000 a month, plus $60,000 a quarter, for a total of $58,000 per month (the counterclaim contended that the reasonable value of the farm was $3,000 per day of $90,-000 per month).
Thus, as a result of the litigation instituted and prosecuted by appellant and settlement thereof, the debtor, instead of losing Westerly in November, 1978, obtained clear title to a 210 acre parcel thereof, on which was located improvements of considerable value, including a substantial family home and breeding facilities which the debtor had valued at some $3,000,000. In addition, the debtor had the use of Westerly for a period of 23 months which, based on the court’s finding as to administrative rent, should be in the value of $1,250,000. Appellants therefore contend that they should be awarded record title to 35% of the 210 acre parcel, plus the sum of $437,500. They have pointed to other items of enhancement but have focused on these two items. In the light of this record, the court’s finding of no enhancement was clearly erroneous.
VALIDITY OF THE CONTINGENT FEE AGREEMENT
I.
There seemed to be some question in the court below as to the validity, per se, of *11the contingent fee agreement. Such agreements, while looked at askance in other systems of law, have become acceptable, and in various areas, the conventional basis for agreements between clients and attorneys relative to compensation. It may be noted that contingent fee agreements are sanctioned by the Bankruptcy Code, 11 U.S.C. § 328. The court below, as justification for questioning the contingent fee, pointed to Ethical Consideration 2-20 of the Code of Professional Responsibility which authorizes contingent fees, subject to the concern the clients not be overreached.
The facts do not establish or support an unconscionable overreaching of a client by an attorney. The contingent fee agreement and the record in this case make it clear that, while the Yermakovs had substantial property and close to $2,000,000 in cash as a result of the deed of trust sale, they were aware that further litigation would be long term, substantial, and had concluded that the resulting attorneys’ fees could be so great that further risk was not warranted. Consequently, they contracted to shift the financial burden of litigation to appellant. Fitzsimmons thereafter expended substantial amounts of time and professional ability, as it turned out, approximately 2,000 hours,5 in protracted, complex litigation, his compensation to be derived only from an enhancement over the Yermakov’s position measured against what it was on September 26, 1978.
In this context, there was no overreaching such as is implicit in the cited provision of the Code of Professional Responsibility. That the parties knew of the rough road ahead is amply confirmed by the record. The trustee, his counsel, and the court recognized this and described explicitly the complexity and risk attending the litigation. Considering the circumstances existing at the time, the agreement was reasonable. The court’s finding as to un-conscionability was therefore clearly erroneous.
The court, however, considered the overriding difficulty to have been the settlement:
“Until the settlement was announced and approved, it appeared to me that the debtor and his wife were intransigent. They wanted the farm for no consideration.
The intransigentism of the debtor and his wife possibly may be explained by their unrealistic expectations of the outcome of their case. Another factor may have been the fee arrangement with their attorneys.” (E.R. 260)
On this basis, the court concluded that because the trustee and his counsel had prevailed on Yermakov to settle, appellant’s efforts were not sufficient to warrant compensation on a similar scale, let alone commensurate with the contract. However, Yermakov’s extreme reluctance to settle is hardly a reason for devaluation of appellant’s efforts in formulating and prosecuting the lawsuit without which there would have been nothing to settle.
II.
There is an aspect to this case which does not usually attend bankruptcy fee litigation. This aspect bears on the lack of creditor involvement. The policy of the law, particularly in bankruptcy, is that fee applications by officers of an estate be reviewed by a court so as to inhibit or prevent excessive charges. Here, there are no creditors, nor, in effect, is there an estate for anyone other than the debtor who litigates, not as trustee for the benefit of creditors, but as a private party for no one’s benefit but his own. The court has jurisdiction over the dispute because of the fortuitous circumstance that there remains for resolution, after satisfaction of all bankruptcy-related claims, a contest between the debtor and his counsel as to the nature and extent of their fee agreement.6 The issues, therefore, *12should be considered in the light of the debtor being the real party in interest, In re Cummins, 15 B.R. 893, 8 B.C.D. 537 (9th Cir. Bkrtcy.App.1981).
Viewing this case from this perspective, it would be appropriate to examine what California courts would hold under similar circumstances. Setzer v. Robinson, 57 Cal.2d 213, 18 Cal.Rptr. 524, 368 P.2d 124 (1962) held that the reasonableness of contingent fee agreements is to be judged not by hindsight, but by the situation as it was when the agreement was entered into. It also stated that contingent fee contracts for one-third of the recovery have been frequently upheld.
In upholding a $1,000,000 contingent fee agreement for services, which, because of a settlement, consisted only of filing a petition for certiorari with the Supreme Court, it was stated in Brobeck, Phleger & Harrison v. Telex Corp., 602 F.2d 866 (9th Cir. 1979), after a review of California law:
“Whether a contract is fair or works an unconscionable hardship is determined with reference to the time when the contract was made and cannot be resolved by hindsight.”
III.
The provision for a lien is valid and enforceable. In re Pacific Far East Lines 654 F.2d 664 (9th Cir. 1981). That case, citing and discussing California decisions, is authority for according to an attorney a lien on the proceeds of settlement, during bankruptcy, of a case instituted prior to bankruptcy where the contingent fee agreement provided for the lien. The lien takes effect from the date it was created. Upon the fund’s production, the lien attaches to the specific asset. Here, virtually all of the time expended by appellant was prior to bankruptcy. This factor, coupled with the considerations previously stated, makes it unnecessary to distinguish between pre- and post-bankruptcy services, a concern in Pacific.
CONCLUSION
We conclude that, under the circumstances, appellants and appellees entered into a fair contract which should be enforced. We therefore REVERSE and REMAND with directions that counsel be awarded 35% of the reasonable value of the rental property for the 23 month period of occupancy and use of the stud farm and 35% of the value of the farm itself, together with a lien against any available assets including the stud farm to secure said 35% contingent fee which lien shall be superior to any lien or mortgage placed on any or all property acquired as a result of the settlement of the litigation instituted by appellant.
. The letter, in part, states:
“Negotiations conducted by your attorney, Paul Halme, and Katherine, assisted by staff members and your accountant, have led to the purchasers offering that you can stay over at Westerly until November 4, 1978, but that any property on Westerly thereafter will be deemed abandoned by you, and title will pass to the purchaser of the second deed of trust.
A list of equipment, which is partial, has been the subject of an offer to purchase for $300,000, and that agreement — prepared by the purchasers of the second deed of trust— would require you to confirm title in them. You have declined this offer and have elected to proceed to protect your legal rights by litigation. Paul Halme, who has served you well, is witness to many of the important proceedings and hence cannot handle this litigation for you.
We have offered to serve you on a fee basis, but desiring not to pay any ongoing attorneys’ fees, save and except the retainer described below, after consultation with Paul Halme, you have elected on your own judgment — with no representations from us — to proceed on a contingent fee agreement.
In part, this clearly reflects your understanding of the extreme difficulty of this matter at this time.
You, and each of you, agree that we shall have, and are hereby granted, a thirty-five percent (35%) contingent fee of any enhancement on your present position, whether due from trial, settlement or sale. Said fee is subject to a lien which you, and each of you, hereby grant to us and which is irrevocable.”
. Mr. Fitzsimmons actively participated in these final negotiations on behalf of and in the presence of the Yermakovs. At p. 60 of the transcript (E.R. 52) Mr. and Mrs. Yermakov were directly asked if they understood the discussions and if they had any questions. The following colloquy took place:
“Mr. Yermakov: We fully understand and we have no further questions.
Mrs. Yermakov: Yes. We do, we do.
Mr. Rothman: Mr. Fitzsimmons?
Mr. Fitzsimmons: May I just ask my clients: Are all of the terms and conditions of this matter which have been presented acceptable to you each and will you be bound by it?
Mr. Yermakov: Yes. We understand it and will be bound by it.
Mr. Fitzsimmons: Are you also bound by it?
Mrs. Yermakov: Yes.
Mr. Fitzsimmons: Thank you. If my clients are bound, I am bound by it.”
. As of September 30, 1980, counsel had expended 474 hours for which a fee of $61,048 was requested. There was an estimate as to expenditure of further time of 30-40 hours justifying an additional fee of $5,000, for a total of $66,048, or approximately $120.00 per hour which was allowed by the court.
. Definition 3a of Webster’s 3rd New International Dictionary defines “enhance” as follows:
“To increase the worth or value of (an estate enhanced by careful management)...”
. Appellant kept no contemporaneous time record because of the contingent fee contract. The record as to time was estimated and furnished to the court in connection with the fee application.
. Whether the court has the power to review this agreement (executed more than one year *12prior to bankruptcy) is subject to question in view of 11 U.S.C. § 329(a) providing for review of fees or fee agreements concluded within one year prior to bankruptcy. However, in view of the disposition of this matter, discussion of § 329(a) is unnecessary. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489314/ | OPINION
WILLIAM A. KING, Jr., Bankruptcy Judge.
This adversary proceeding is brought before this Court by Country Store Products, Inc. seeking an order to compel the defendant to turn over to the plaintiff certain candle manufacturing equipment. Specifically, the plaintiff, a debtor-in-possession, having filed a voluntary petition pursuant to Chapter 11 of the Bankruptcy Code on July 25, 1980, contends that it possesses rights in special taper-making equipment. Conversely, defendant responds, in conjunction with the intervening defendant, Continental Bank, that the aforesaid claimed rights of the plaintiff in the machinery are superced-ed by a perfected security interest of Continental Bank in the assets of Cornucopia Candles.1
To resolve this conflict, the sole issue before the Court today, therefore, is whether the equipment in question was leased to the defendant by the plaintiff or whether Country Store sold this equipment to Cornucopia. If only a lease existed Continental Bank’s perfected security interest is worthless because Cornucopia itself lacked an interest in the equipment which it could pledge as security to the Bank. If a sale occurred, however, the plaintiff’s request for turnover would be denied because of Continental Bank’s superior security interest. Based on the evidence and testimony presented to this Court, we hold that a sale of said taper-making equipment has transpired. Therefore, plaintiff’s request for turnover of said equipment must be denied.
Prior to 1980, Country Store was an importer of merchandise in the gift business which included the manufacture of candles for distribution to retailers. However, in January of 1980, Country Store began to experience financial difficulties. In an effort to improve its cash flow situation, Country Store, directed by Robert Ball and Richard Ball, ceased manufacturing candles. Subsequently, an agreement was reached between the Balls, Roy Rhodes (manager of the candle department) and Robert Riley (another employee) in which Country Store permitted Rhodes and Riley to use their candle-making equipment; the only compensation sought by Country Store was to be supplied with a steady source of candles.
During this time, Country Store actively pursued a buyer for this equipment. Robert Riley negotiated with Country Store until February of 1980 when it was agreed that should he be able to secure certain accounts, the plaintiff would sell the equipment to him. When Riley was in fact able to secure the specified supply contracts in early February of 1980, arrangements were made through which Riley (now operating in a 50-50 partnership with Roy Rhodes and trading as Cornucopia Candles) would purchase the taper-making equipment.
Under the terms of this agreement, the purchase price of the taper-making equipment, valued in excess of $113,000, was to be paid over a period of time, from merchandise shipped by Cornucopia to the plaintiff. Specifically, whenever Cornucopia shipped candles to Country Store, it was agreed that the plaintiff would pay only 75 per cent of the total invoice, crediting the remainder toward the total purchase price of the equipment. The parties utilized this system of payments to reduce the outstanding debt from $109,000 to $45,981 during the period from February of 1980 through January of 1982. Although the plaintiff *30does not deny that these payments were made, it contends that these payments were not installments reducing the balance of the purchase price, but instead, rental payments. While the plaintiffs argument appears plausible on the surface, it is highly improbable when viewed in light of the evidence.
Perhaps the most damaging evidence which contraverts the plaintiff’s position arises out of the original complaint which unequivocally stated that a sale had transpired. According to paragraph three (3) of the complaint, the plaintiff agreed to sell to the defendant all of the plaintiffs candle-making equipment which formerly had been located at the plaintiff’s place of business.2 Based on this agreement plaintiff’s initial complaint prayed for turnover of the equipment because of the failure of defendant to remit payment.
Most interesting, however, was the fact that this complaint was accompanied by a sworn affidavit subscribed to by Richard G. Ball, the Secretary-Treasurer of the plaintiff-corporation. This affidavit stated that the “facts contained in the foregoing complaint are true and correct to the best of my information, knowledge and belief.” It must be stressed that, in his capacity as Secretary-Treasurer, no one should be more qualified and knowledgeable of Country Store’s financial transactions and relationship with Cornucopia than Richard G. Ball.
Why then did the plaintiff amend this complaint at trial which completely altered its alleged right of recovery from that based on a default of an executed sale to violation of a lease agreement? Quite simply, Continental Bank (in July of 1981) advanced over $90,000 to Cornucopia and secured the loan by a security agreement and financing statements executed by Cornucopia and duly filed, covering Cornucopia’s machinery and equipment. Even if the plaintiff could establish the existence of a sale, its rights to this equipment, as an unsecured creditor, now were inferior to those of Continental Bank a secured creditor with a perfected security interest. Accordingly, the only way to circumvent the perfected security interest of Continental Bank was to claim that a lease existed. Such irresponsible conduct is abhorrent to the Court.
Even assuming, arguendo, that the foregoing conduct was proper, the plaintiff has utterly failed to meet its burden of proof that a lease existed. In fact, the weight of the evidence and testimony submitted before this Court, support the defendant’s contention that a sale occurred, which the plaintiff has been unable to rebut with any degree of credibility. Specifically, there is the cancelled check for $1,000 which was tendered by Cornucopia as a deposit on the equipment and acknowledged as such by the plaintiff in correspondence dated February 15, 1980.3 There is an invoice dated February 26,1980 4 which sets forth in writing the sale of the disputed equipment from Country Store to Cornucopia for the agreed price of $109,239.32. The plaintiff’s only rebuttal is feeble at best; this document only represented a memo or a so-called “pro forma” invoice. And finally, there is the plaintiff’s attempt to convince this Court that a lease for three (3) months should be viewed as operational for the duration of Cornucopia’s candle-manufacturing enterprise.5 This is an affront to the Court. The lease in question was to run from October 1, 1980 to December 31,1980 and was to include the use of both the equipment and *31the building. It is inconceivable that this lease could apply to the rental of the taper-making equipment either for the period of ten (10) months prior to its creation or for the twelve (12) months subsequent to the termination of the lease. What is even more incredible is that, even if a lease was in existence to cover this time span, Country Store would allow the defendant to use its equipment (valued at over $100,000) for almost two (2) years free of charge. However, in reality, Country Store did not enforce the “lease” not because of Cornucopia’s precarious financial predicament, but because Country Store was already withholding at least twenty-five (25%) per cent of the payment due on Cornucopia’s monthly shipment of candles pursuant to the financing agreement discussed above.
The actions of the parties also aid in verifying the existence of a sale of the taper-making equipment. The courts of Pennsylvania have consistently held that the acts of the parties may be utilized in ascertaining not only the existence of a contractual relationship, but the terms and conditions of their agreement as well. “The existence of a contractual relation, the terms of the oral contract and the assent of the parties to it may be shown by their acts and the attending circumstances as well as by the words they have employed.” Yezbak v. Croce, 370 Pa. 263, 266, 88 A.2d 80 (1952).
Numerous such acts and activities existed in the case at hand. In addition to the $1,000 deposit check and an invoice documenting the sale as previously discussed, Cornucopia filed financial statements at the end of 1980 which delineated this taper-making equipment as an asset and documented the payment obligation as a note payable,6 neither of which would have been true if the equipment was merely leased. Also, Cornucopia applied for and received a loan of more than $90,000 from Continental Bank which was protected by a security agreement in the subject equipment. The purpose of this loan was to undertake the expensive and arduous task of installing the taper-making equipment on Cornucopia’s new site, hardly an activity that would be undertaken if such equipment had been rented. When viewed in the aggregate, these activities clearly evidence the existence of a contract of sale for this equipment.
As a footnote, the Statute of Frauds argument which the plaintiff espouses is inapplicable. Even assuming that the contract does not satisfy the criteria set forth in U.C.C. 2-201(1) which requires “some writing sufficient to indicate that a contract for sale has been made and signed”7 (the existence of which has been proven) this transaction would still be valid as it clearly fits within the exceptions set forth in U.C.C. 2-201(3)(c). This provision states that a contract which does not meet the standards of 2-201(1) is enforceable “with respect to goods for which the payment has been made and accepted or which have been received and accepted.”8
Finally, the plaintiff has attempted to impress upon the Court that a lease did exist previously through the testimony of Roy Rhodes, a fifty (50%) percent partner in Cornucopia Candles. However, while this testimony was introduced previously to undermine the defendant’s contention of a sale, it has in fact proved to be more damaging to the plaintiff. Because of gross inconsistencies, we have been unable to confer any credibility upon Rhodes’ testimony.
Prior to trial, Roy Rhodes considered the taper-making machinery unequivocally to be the property of Cornucopia. Proof of this position was evidenced in the financial statement of Cornucopia for the period ending December 30,1980. As discussed above, although Roy Rhodes personally reviewed the balance sheet which indicated over $113,000 in machinery assets (the value of the taper-making equipment), he never no*32tified the accounting firm, or anyone else that this entry was erroneous.9 In addition, Rhodes failed to take similar action with respect to a note payable documented in the same financial statement owed to Country Store. This action, or lack thereof, was tantamount to an acknowledgment by Roy Rhodes, who was intimately involved in the operations of Cornucopia, that a purchase obligation rather than a rental agreement existed.
At trial, however, Rhodes claimed that the taper-making equipment was rented, not purchased. This Court finds this complete reversal to be largely attributable to the vested interest that Rhodes has in a judicial finding that Country Store is the rightful owner of the disputed equipment. As adduced from the testimony, Rhodes presently has an arrangement with Country Store whereby he will become plaintiff’s primary supplier of candles.10 In addition, he has removed certain equipment from the Cornucopia factory (after Cornucopia filed a Chapter 11 Bankruptcy Petition, in violation of the Bankruptcy Code) and has delivered that equipment to plaintiff’s place of business.11 Rhodes’ avowed intent is to utilize the very equipment which is in issue.12 It is apparent, therefore, that Roy Rhodes has a very keen interest in the disposition of this equipment and has tailored his testimony accordingly. As a result, this Court finds that his testimony lacks any degree of credibility.
For these reasons, therefore, we must deny plaintiff’s prayer for relief. This Court finds that a sale of taper-making equipment had occurred. After the sale, the intervening defendant, Continental Bank, acquired and perfected a security interest.
An appropriate Order will be entered.
. This Opinion constitutes the findings of fact and conclusions of law required by Rule 752 of the Rules of Bankruptcy Procedure.
.Paragraph 3. The sale was made pursuant to the following terms:
(a) The machinery was to be delivered by the plaintiff to defendant at the defendant’s place of business.
(b) Defendant was to pay plaintiff for the machinery by manufacturing candles without charge to plaintiff, pursuant to plaintiffs written orders. With each shipment of candles received by plaintiff, defendant’s indebtedness to plaintiff would be reduced by the agreed number, 25 (25%) per cent of the amount of each invoice.
. Submitted into evidence as D-3.
. Submitted into evidence as P-1.
. Submitted into evidence as P-2. Also, see Notes of Testimony from hearing held on January 21, 1982, page 86.
. Submitted into evidence as 1-1.
. 13 Pa.Cons.Stat.Ann. § 2201(a) (Purdon 1982).
. 13 Pa.Cons.Stat.Ann. § 2201(c)(3) (Purdon 1982).
. Notes of Testimony from hearing held on February 9, 1982, pages 174-177.
. Notes of Testimony from hearings held January 21, 1982 and February 9, 1982, pp. 103, 105-106, 162-162.
. Notes of Testimony from hearings held January 21, 1982 and February 9, 1982, pp. 103, 105, 167-168.
. Notes of Testimony from hearing held January 21, 1982, p. 106. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489315/ | MEMORANDUM OPINION AND ORDER
RICHARD L. SPEER, Bankruptcy Judge.
This cause came before the Court upon a Motion for Reconsideration On Debtor’s *91Motion for Partial Summary Judgment filed by Frederick D. Wittkop, dba Monroe Glass. This Court in its Memorandum Opinion and Order, dated January 8, 1982, granted Defendants’ Motion for Partial Summary Judgment and declared that the mechanics lien of Wittkop was invalid. 19 B.R. 706 (Bkrtcy.).
The Court will review the findings of fact:
1.) An oral agreement existed between Plaintiff, Frederick D. Wittkop (hereafter Wittkop), and Defendants Danny and Dale Johnson and Johnson, Inc. (hereafter John-sons) for improvements on the property located at 1230 Conant Street, Maumee, Ohio.
2.) Wittkop furnished materials and labor for the construction of an addition to the building, providing a new fascia, and all new glass windows. Defendants disputed whether or not the property was improved, and refused to pay Wittkop the balance of the contract price in the amount of Fourteen Thousand Two Hundred Eleven and 12/100 Dollars ($14,211.12), plus interest.
3.) Wittkop employed certain material-men in connection with this work performed, including Con Air, Johns-Manville, Spans Metal-Texas, and Ohio Plate.
4.) On or about February 9, 1980, Witt-kop furnished Johnsons with what purported to be a sworn Affidavit of Contractor. Plaintiff did not specifically include the names of the above mentioned materialmen in the Affidavit of Contractor which was supplied to Defendant. In fact, the materi-almen listed in the affidavit are “none”.
5.) Under the section of the affidavit marked “Certificate of Materialmen”, there is no information supplied nor are there any waivers attached; the section is blank.
6.) Wittkop filed in the office of the Recorder of Lucas County, Ohio, an Affidavit of Lien. Such Affidavit was filed on February 12, 1980, which was within sixty (60) days of the date upon which the last labor was performed (January 16, 1980).
7.) On May 23, 1980, Wittkop filed a foreclosure action in the Court of Common Pleas, Lucas County, Ohio.
8.) Johnsons answered the action on August 21, 1980, and asserted the defense of Wittkop’s noncompliance with the Ohio mechanics’ liens statutes.
9.) Wittkop claims its lien is perfected and seeks to be treated as a secured creditor by the Bankruptcy Court in the Chapter 11 case of Johnson, Inc.
10.) Johnsons deny the validity of the lien by'asserting that the mechanics’ lien statute regarding perfection of the lien was not followed.
ISSUE
The issue is whether the failure of Witt-kop to specifically name the materialmen involved in the Affidavit of Contractor, even though they were presumably paid, was a material error invalidating its mechanic’s lien.
Section 1311.04 et seq. of the Ohio Revised Code governs mechanics’ liens in Ohio. Those sections pertinent to this discussion are set forth as follows:
Ҥ 1311.04 Statement of original contractor to owner before payment; affidavit
Whenever any payment of money becomes due from the owner, ... or whenever the original contractor desires to draw any money from the owner, ... such contractor shall make out and give to the owner, ... a statement under oath, showing the name and address of every laborer in his employ who has not been paid in full and also showing the name and address of every subcontractor in his employ, and of every person furnishing . .. material, . .. and giving the amount which is due or to become due to them, ... for work done, ... material furnished to him, which statement shall be accompanied by a certificate signed by every person furnishing ... material, ... to him ...
MATERIALMEN
Said affiant further says that the following shows the names and address of *92every person furnishing . . . material, ... giving the amount which is due, or to become due, . .. for ... material . . . under said contract ...
CERTIFICATE OF MATERIALMEN
... In lieu of such certificate, there may be furnished a written waiver of lien, release, or receipt ... Until the statements are made and furnished in the manner and form provided for in this section, the contractor has no right of action or lien against the owner, ... on account of such contract, and the subcontractor has no right of action or lien against the owner, ... until he has furnished such statements, and any payments made by the owner, ... before such statements are made or without retaining sufficient money, ... to pay the subcontractors, laborers, or materialmen, as shown by the said statements and certificates, are illegal and made in violation of the rights of the persons intended to be benefited by sections 1311.01 to 1311.-24...”
Section 1311.24 provides:
“Sections 1311.01 to 1311.24, inclusive, of the Revised Code are to be construed literally to secure the beneficial results, intents, and purposes thereof; and a substantial compliance with said sections is sufficient for the validity of the liens under said sections, provided for and to give jurisdiction to the court to enforce the same.”
In reviewing the statutes and Ohio cases dealing with these liens, it is clear that this Court should follow the construction and interpretations given to the statute by the Ohio Courts.
The Ohio state courts in the past have been divided on whether to treat the mechanics’ lien statutes as remedial requiring a liberal construction, or whether to construe them strictly as being in derogation of the common law. (See discussion in 36 Ohio Jurisprudence 2d Mechanics’ Liens § 14.) The Supreme Court of Ohio concluded that both rules must be applied; the statutes must be strictly construed in some respects and liberally construed in others. Specifically the Court determined that the:
“statute confers an extra-ordinary right in derogation of the common law, and, though liberality with reference to errors in procedure is permissible, the steps prescribed by statute to perfect such lien must be followed, and in that respect the law is strictly construed and applied.” C. C. Constance & Sons v. Lay, et al., 122 Ohio St. 468, 172 N.E. 283 (1930).
In effect, mechanics liens on their face must show compliance with all the statutory requisites for validity. A lien will not be created until perfection is made by complete compliance with the statute. (See discussion of cases, DeMann, DeMann’s Ohio Mechanic’s Lien Law (2d ed. 1953) § 2.2, p. 32 et seq.)
In order to determine if Wittkop failed to follow the statutory requirements, the character of Wittkop must first be defined. According to the Ohio Revised Code, a contractor is one who contracts directly with the owner or authorized agent to complete all or part of an improvement to property and to furnish labor or labor and materials. A subcontractor is one who undertakes to construct or improve any part of a structure under a contract with anyone other than the owner (emphasis added). A mate-rialman is one who furnishes machinery, material, or fuel — without labor. Since Wittkop furnished both material and labor, it is either a contractor or a subcontractor; further, since Wittkop contracted with the owners, Johnsons, Wittkop is a contractor.
According to Ohio Revised Code § 1311.-04, Wittkop as a contractor was required to do the following acts before payment from the owner was allowed:
1.) Make out and give to Owner a statement under oath showing:
a.) The name and address of every person furnishing material, and,
b.) The amount due or to become due to him.
2.) Give the owner a certificate signed by every person furnishing material or a waiver of lien, release, or receipt.
*93The statute is clear that until such requirements are met in the manner and form as provided by the statute, the contractor has no right of action or lien against the owner.
Wittkop attempts to exclude itself from the strict compliance of the statute by stating that the Ohio Supreme Court in J. G. Laird Lumber Co. v. Teitelbaum, 14 Ohio St.2d 115, 43 O.O.2d 176, 236 N.E.2d 531 (1968), allowed an incomplete mechanics lien to be upheld since the owner could have reasonably relied on the affidavit of contractor; and that strict compliance with the statutory requirements was needed only to defeat a materialman’s lien and not to perfect it.
It appears that there is some confusion of the facts of the Laird case, so this Court will attempt to clarify them.
The property owner was presented with an affidavit from the contractor. This affidavit did not comply with the Ohio mechanics’ lien statute in that it merely stated that all bills for labor and materials had been fully paid; no names of subcontractors or materialmen were listed. Further, there were not attached to this affidavit any certificates of materialmen or written waivers.
The owner relied upon the incomplete affidavit and paid the contractor. The contractor did not then pay J. G. Laird Lumber Company (Laird) the amount due.
The issue of the case is not, as Wittkop believes, whether or not the mechanics’ lien of the materialman was valid. That question never arose. The issue was whether a property owner obtains the protection of the mechanics’ lien law against a material-man’s lien, if he pays the contractor in reliance upon affidavits of the contractor which purport to comply with the Statute, but which neither list materialmen nor negate their existence and which are not accompanied by any certificates from materi-almen. (Laird, 43 O.O.2d at 178, 236 N.E.2d 531).
The Court stated that the owner receives no protection from the statute unless complete compliance is made with the formal requirements of the statute. Laird, 43 O.O.2d at 178, 236 N.E.2d 531, emphasis supplied. Complete compliance was not made by the contractor; by listing the ma-terialmen used or by offering waivers or receipts from them. Because of this critical error by the contractor, and the owners incorrect reliance on the insufficient affidavit, the owner was liable to J. G. Laird for the amount due, even though he had included that amount in the payment to the contractor. Presumably, if the owner had not relied upon the affidavit and had not paid the contractor, any subsequent lien filed by the contractor would not have been held valid because the statutory requirements were not met.
Like the Laird case, Wittkop gave the Johnsons an affidavit of contractor. Instead of stating that all had been paid, Wittkop answered “none” to the requirement of naming every person furnishing material to him and giving the amount, if any, which is due or to become due under the contract. (See Defendants’ Motion for Partial Summary Judgment and Memorandum in Support — Exhibit A, Page 2). Further, the certificate of materialmen was not filled out, nor were there waivers attached.
It appears that the Ohio Supreme Court allows less than strict compliance with the statute, if it appears that all material has been taken from stock and paid for which would negate the existence of any material-men. Durrel Paint and Varnish Co. v. Arnold, 105 Ohio App. 172, 5 O.O.2d 455, 152 N.E.2d 9. In the case at bar, Wittkop falsely implied in the affidavit that there were no materialmen when in fact there were, so Wittkop does not fall within the exception of the Durrel Paint case.
Johnsons could not have relied upon the affidavit of Wittkop especially since they knew of the existence of materialmen. Wittkop did not supply certificates of mate-rialmen nor waivers from them in order to clarify its affidavit. Assuming arguendo that if Johnsons had paid Wittkop in reliance upon the affidavit supplied, and Wittkop then failed to pay one of the mate-rialmen, the conclusion would be just as found in the Laird case, assuming the mate-*94rialman had followed the statutory requisites in perfecting its lien. Johnsons would then have had to pay twice.
For the foregoing reasons, this Court therefore concludes that Wittkop, because it did not comply with the requirements set forth in the Ohio Revised Code, does not have a valid mechanics’ lien and should not enjoy the status of secured creditor in this case.
Wittkop argues that Ohio law holds that “where a materialman sells material to individuals and looks to them only for payment the materialman is not entitled to a mechanics lien on the premises where the material is used even though such individuals specified when and where the material was to be delivered.” (See Additional Memorandum in Support of Motion for Reconsideration on Debtors’ Motion for Partial Summary Judgment of Wittkop, p. 2).
A crucial point is missed in this line of cases. The cases deal with materialmen supplying to other materialmen. Botzum Bros. Co. v. The Brown Lumber Co., et al., 104 Ohio App. 507, 150 N.E.2d 485 (1957); Ivorydale Lumber Co. v. Cincinnati Union Terminal Co., 45 Ohio App. 353, 187 N.E. 126 (1933); Capitol City Lumber v. Ellerbrock, 177 Ohio St. 159, 203 N.E.2d 244 (1964); Choteau v. Thompson, 2 Ohio St. 114 (1853). It was stated earlier that by definition, Wittkop is not a materialman, but is a contractor. This Court is in agreement with Johnsons, if Wittkop were a materialman, these cases might have some bearing, however, Wittkop as a contractor must list his suppliers.
Wittkop’s final argument is that even if the statute was not complied with, Johnsons waived Wittkop’s compliance because John-sons did not raise the issue of noncompliance until two years after the filing of the affidavit of lien. The facts show, that in Johnson’s Answer to Wittkop’s initial Complaint for Foreclosure, the defense of noncompliance was raised. This defense was raised within ninety (90) days of the Complaint For Foreclosure. Therefore, Wittkop has no basis for contending that Johnsons waited two years before raising the defense.
As stated in this Court’s original Order of January 8, 1982, the Court is not sure that this conclusion gives an equitable result in cases such as this. However, it appears that the Ohio case law is quite clear that strict compliance with the statute is a condition precedent to the creation and perfection of a mechanics’ lien. Such state court interpretation must be followed by this Court.
In so reaching these conclusions, the Court has considered all the evidence presented whether or not referred to specifically in the opinion above.
It is therefore ORDERED, ADJUDGED and DECREED that the mechanics’ lien of Plaintiff Frederick D. Wittkop is hereby declared invalid and Defendants’ Motion for Partial Summary Judgment is GRANTED, thereby DISMISSING Plaintiff’s Second Cause of Action.
It is FURTHER ORDERED that service of this Order shall be made by the Deputy Clerk of this Court mailing copies of same to all parties in interest and counsel of record. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489316/ | MEMORANDUM
CLIVE W. BARE, Bankruptcy Judge.
The trustee seeks judgment against the defendant for conversion of funds belonging to the estate, the avoidance of transfers of corporate assets to an insider, and the turnover of a vehicle. Trial was held May 5-6, 1982.
FINDINGS OF FACT
On December 14, 1981, the debtor, Waites Company, Inc., a Tennessee corporation, filed a petition seeking relief under Chapter 7 of Title 11 of the United States Code. At all relevant times herein Bobby G. Waites was the president and person in control of the corporation. In addition, on May 18, 1981, he owned seventy-five percent of the outstanding shares issued by the corporation.
On May 18, 1981, Waites Company, Inc., transferred a 1978 Ford Pickup, VIN No. F375CBB0145, and a 1976 Ford Pickup, VIN No. GNA77330, to third party purchasers. The purchasers paid the sum of $7,100.00 in cash for the vehicles, which were unencumbered. Bobby G. Waites accepted on behalf of the corporation the sums of purchase and, of those sums, applied $3,671.21 to discharge a corporate indebtedness owing to the First Tennessee Bank, which indebtedness was secured by a third corporate vehicle, a 1979 Ford Ranche-ro, VIN No. 9H48H136416. Bobby G. Waites further applied $714.00 of the sales proceeds to discharge other obligations of Waites Company, Inc., but converted the balance of the sales proceeds of $2,714.79 either to his own personal use or was unable to account for the proceeds. None of the sale proceeds were deposited to corporate accounts or appeared in any form on the books and records of the corporation. Bobby G. Waites thereupon obtained the transfer of title of the 1979 Ford Ranchero from Waites Company, Inc. to himself individually, the transfer also occurring on May 18, 1981.
On May 18, 1981, Waites Company, Inc. was indebted to Bobby G. Waites in an amount not less than $2,308.38. Waites’ retention of this sum from the proceeds of the sale of the vehicles, however, constitutes an impermissible preference under the Bankruptcy Code. A debt to Waites existed on May 18, 1981. The retention of the funds by him constituted a payment on this antecedent debt. The Waites Company, Inc. was insolvent on May 18, 1981, which date was between ninety days and one year before the date of the filing of the petition in bankruptcy by the corporation.
Bobby G. Waites, an “insider”, 11 U.S.C. § 101(25), as chief executive officer and the person in control of the corporation, had reasonable cause to believe that the debtor corporation was insolvent at the time of the transfer.
On or about December 30, 1981, Bobby G. Waites solicited and obtained from Larry Dotson, the sum of $24.00 which sum was owing to the corporation prior to the filing of the Chapter 7 petition in bankruptcy on December 14, 1981. On or about January 30, 1982, Bobby G. Waites solicited and obtained from Judy McLain, the sum of $25.00 which sum was owing to the corporation prior to the filing of the Chapter 7 petition in bankruptcy.
CONCLUSIONS OF LAW
The receipt of $2,714.79 of corporate funds and the title to the unencumbered 1979 Ford Ranchero by Bobby G. Waites was a transfer for or on account of an antecedent debt owed to Waites as a credi*107tor of the corporation, and, to the extent indicated, a transfer which enabled Waites to receive more than he would receive if the case were a case under Chapter 7 of Title 11 of the United States Code; the transfer had not been made; and Waites received payment of such debt to the extent provided by Title 11. The transfer was made while the corporation was insolvent and Waites had reasonable cause to believe that the corporation was insolvent. Accordingly, the transfers of money and title may be set aside under 11 U.S.C. § 547(b) as a voidable preference to an insider and 11 U.S.C. § 548(a) as fraudulent conveyances. Accordingly, the trustee is entitled to recover possession of the 1979 Ford Ranchero and to a money judgment in the amount of $2,714.19.
The act of Bobby G. Waites individually contacting debtors of the bankrupt corporation after the filing date of December 14, 1981, and his act of collecting sums owing by the debtors to the corporation in the amount of $49.00, were post-petition conversions of corporate assets which the trustee may recover.
This Memorandum constitutes findings of fact and conclusions of law, Bankruptcy Rule 752. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489318/ | MEMORANDUM DECISION
GEORGE L. PROCTOR, Bankruptcy Judge.
The debtor, Tuttle/White Constructors, Inc. (“Tuttle/White”) filed a voluntary petition under Chapter 7 of the Bankruptcy Code on May 29, 1981. Jules S. Cohen (the *116“Trustee”), the defendant herein, was appointed Trustee by this Court shortly thereafter. The plaintiff, Federal Insurance Company (“Federal”) was and is the surety for Tuttle/White on most of the debtor’s uncompleted construction projects. Federal was apprised of the debtor’s impending petition approximately two days prior to the filing of the petition and moved rapidly to review the debtor’s records to determine the status of the bonded projects.
Federal’s attorneys met with the Trustee in an attempt to convince the Trustee that he should reject two of the most critical Tuttle/White projects, viz., the Marriott at Hilton Head, South Carolina, and the Holiday Inn Surfside at Clearwater, Florida. Federal’s most urgent concern with respect to these two projects was to be able to deal with them as a completing surety, without being under any danger that the Trustee might exercise his option under 11 U.S.C. § 365(d)(1) to assume the debtor’s contracts and to interfere with the surety’s discharge of its obligations. The Trustee offered to release to Federal those two projects for either $78,000.00 or $90,000.00, an offer which was rejected by Federal. Federal thereupon filed an adversary action seeking to compel the Trustee to choose between assumption and rejection as to those two projects and an additional project, viz., Mar-bella Club Condominiums at Marco Island, Florida.
During the week which followed the initial contact between the Trustee and Federal, the parties met two or three more times. The scope of these subsequent meetings, however, was much wider than the two projects initially discussed. The testimony of each witness is uniform in that Federal’s expressed objective was to reach an agreement whereby the Trustee would, for a single consideration, relinquish ail his rights in twenty-two (22) specific projects and would thereby cease to constitute a threat present or potential to Federal’s financial interest in these projects. In their negotiations, Federal made available to the Trustee and explained to him its assessments of the status of each of the projects, including the amounts Tuttle/White owed to the subcontractors and suppliers on each of the projects and the amount left to complete on each, and the ultimate surplus or loss to Federal on each. The Trustee was given access to Federal’s construction consultant, Roy Adams, and in fact had a separate conference with him wherein Mr. Adams explained the factors that comprised Federal’s projections. The Trustee was provided with a project status summary and extensive back up documentation for each of the twenty-two (22) projects.
The Trustee finally proposed to enter into an agreement whereby Federal would pay to the estate the sum of $260,000.00. What the Trustee was to convey to Federal or forbear from doing in consideration for the $260,000.00 occupies the center of the controversy between the parties. An agreement was entered into (“the Agreement”) and objections to the compromise (largely based on the mistaken impression that the Agreement absolved Federal of its obligations to third parties on its bonds) were overruled. The Trustee received the $260,-000.00 and the adversary proceeding was dismissed. Shortly thereafter the Trustee began filing adversary proceedings to set aside allegedly preferential transfers under 11 U.S.C. § 547(b). To date the Trustee has filed in excess of twenty (20) such proceedings, and intends to file some seventy-seven (77) more. The great majority of these preference actions seek to recover payments from subcontractors or suppliers to Tuttle/White on the twenty-two (22) projects comprehended by the Agreement. There is no dispute that recovery by the Trustee of preferences from such subcontractors and suppliers would have the effect of increasing Federal’s exposure on its surety bonds, since the preference actions are directed against payments by Tuttle/White to suppliers and subcontractors which the surety had counted on as having been paid (and remaining paid) at the time of the disclosure to the Trustee of the status of the projects and the making of the Agreement. There is no question that the actions by the Trustee, if any are successful, will increase the payables and the cost to com-*117píete of one or more of the twenty-two (22) projects; additionally, Federal will be required to defend suits on the bonds brought by the subcontractors and suppliers against whom preference actions are brought. In fact, in most of the preference actions begun to this date by the Trustee, the preference defendants have filed third party actions against Federal seeking recovery on Federal’s surety bonds. Federal has testified, through one of its attorneys, Mr. Jesse Williams, that the preference actions filed by the Trustee have additionally damaged Federal in that several of the subcontractors against which preference actions have been filed have slowed down and have not been zealous in the prosecution of the work and that this conduct is directly linked to the Trustee’s filing of preference actions.
The resolution of this matter depends upon an analysis of the Agreement and of the circumstances surrounding its execution. The Agreement, in consideration of the payment to the Trustee of $260,000.00 contained the following provisions for performance by the Trustee:
2. The Trustee will convey and assign to Federal all the right, title, and interest of the debtor’s estate and of the Trustee in the following manner:
a. The executory contracts for Tut-tle/White’s projects listed in Schedule A attached hereto and incorporated herein by reference;
b. Any contract balances (including earned and unearned balances and re-tainages for those contracts listed in Schedule A;
c. Any materials stored or located upon the projects listed in Schedule A;
d. All job records on projects listed in Schedule A of every kind and description, including file cabinets, plans, blueprints and diagrams located at the project sites or at Tuttle/White’s main office in Altamonte Springs, Florida, or wherever they may be found;
e. Any claims of Tuttle/White which may arise from or concerning any of the projects listed in Schedule A.
3. Federal makes no claim on the operating equipment of Tuttle/White.
4. None of the foregoing is intended to preclude, diminish, or adversely affect any claim Federal may submit as a creditor.
5. The Trustee will file a report and notice of this compromise with the Bankruptcy Court. Upon no objection or request for hearing being filed within ten (10) days after receipt of the notice by parties in interest or upon the overruling of such an objection by the Bankruptcy Court, the Trustee and Federal will stipulate to a dismissal, with prejudice of the aforesaid adversary proceeding between Federal and the Trustee, (emphasis supplied)
The evidence supports and this Court finds that the Agreement was intended by Federal to foreclose the Trustee from any further interference of any kind in the twenty-two (22) projects covered by the Agreement. The Trustee was well aware of Federal’s interpretation of the Agreement, and testified that he (the Trustee) was not intending to give up preferences by this Agreement. Neither Federal nor the Trustee openly discussed preferences. The Trustee probably knew that if he brought up the subject of preferences, Federal would not have entered into the Agreement nor paid the estate $260,000.00. The Trustee freely admits that he intentionally kept silent so that he “could achieve a certain result,” i.e., the obtaining of the $260,-000.00.
The Trustee’s rationale for the assertion of his power under 11 U.S.C. § 547(b) to avoid preferences is that preferences are not specifically conveyed in the Agreement, nor can he as Trustee assign his power to avoid preferences to third parties. Federal concedes that the Trustee cannot assign the right to avoid preferences as such to third parties, but asserts that the Trustee can and did compromise his right by entering into the Agreement. Federal’s argument is essentially that the Trustee impliedly agreed to forbear from the exercise of his avoiding powers.
*118The Court is of the opinion that the Agreement taken in the totality of the circumstances in which it was reached, precludes the Trustee from maintaining preference actions to Federal’s detriment. The Trustee was careful enough to preserve in the written language of the Agreement his claim to the operating equipment of Tut-tle/White; good faith dealing would require him to at least bring up or demand exclusion for any category of claim that was intended to fall outside the broad language of the Agreement, including preference claims. The Trustee cannot rely on his silently held intention to preserve his preference action rights, as the objective manifestation of all parties was that the Agreement was to end all involvement of the Trustee in the twenty-two (22) projects covered by the Agreement. The Trustee, by his conduct and silence must be held to have assented to Federal’s expressed understanding of the Agreement. Davis v. Evans, 132 So.2d 476 (1st DCA Fla. 1961); see also Gendzier v. Bielecki, 97 So.2d 604 (Fla. 1957). The same silence must also preclude the Trustee from making a successful argument based on the lack of adequate consideration, as he should have openly specified what the consideration was for in the Agreement if his understanding differed from that of Federal. The Court concludes that the Trustee could and did impliedly agree to compromise his potential claims for preferences in making the Agreement with Federal, see 11 U.S.C. § 323(a); 2 Collier on Bankruptcy (15th Ed.) ¶ 323.01; and Florida Trailer and Equipment Company v. Deal, 284 F.2d 567 (5th Cir. 1960). Accordingly, the Trustee is now estopped from contending otherwise. Camp v. Moseley, 2 Fla. 171 (1848); Davis v. Evans, supra. Federal is entitled to the entry of an appropriate injunction to effectuate the Agreement and to» insure specific performance therewith.
Final Judgment will be entered separately for the plaintiff. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489320/ | FINDINGS OF FACT AND CONCLUSIONS OF LAW
JON J. CHINEN, Bankruptcy Judge.
A Complaint for Relief from Stay was filed by plaintiff Bache Halsey Stuart Shields, Incorporated (hereafter “Bache”) on March 10, 1982, pursuant to 11 U.S.C. § 362(d), on the grounds that the debtor K & H Enterprises, Ltd., (hereafter “K & H”) had no equity in the leasehold interest to certain premises located at 1944 Kalakaua Avenue, Honolulu, Hawaii; that the leasehold was not necessary to an effective reorganization; and that Bache was not adequately protected. Bache prayed for an order lifting the stay to permit Bache to foreclose on the debtor’s interest in said leasehold. Bache also prayed for the appointment of a trustee pursuant to 11 U.S.C. § 1104.
A preliminary hearing was held on April 8, 1982 and trial on the matter was held on May 3rd and 4th, 1982. On May 4, 1982, after counsel had been given an opportunity to file memoranda and present oral argument on the issue of whether the default judgment obtained by Bache against K & H in state court was res judicata in bankruptcy court proceedings, the Court held that res judicata applied.
Based upon the evidence adduced at trial, the arguments of counsel, the memoranda, and the records and files herein, the Court makes the following Findings of Fact and Conclusions of Law:
FINDINGS OF FACT
1. Plaintiff Bache Halsey Stuart Shields, Incorporated is a Delaware corporation doing business in the State of Hawaii.
2. George Hong Yung Young and Ellen Ching Young as Trustees, (hereafter the “lessors”) are the owners and lessors of that certain real property located at 1944 Kala-kaua Avenue, Honolulu, Hawaii, TMK 2-6-*16414-4. Said property was leased to Jesse H. Hotchkiss pursuant to a Master Lease for a term of 15 years from October, 1967 to October 14, 1982.
3. On or about August, 1978, an Amendment of Lease (hereafter “Amendment”) was executed by the lessors, Pacific Innkeepers Corporation, lessee, and K & H, purchaser, of said lease whereby the lessors granted the lessee or purchaser an option to renew said lease for two four-year periods provided that the lessee or purchaser complied with all the covenants of the Master Lease and made improvements on the property prior to the expiration of the lease term as provided in paragraph 3 of the Amendment.
4. Paragraph 3 of the Amendment provided as follows:
Construction of Improvements. Prior to the completion of the present term, and as a condition to any extension, Lessee or Purchaser shall be obligated to construct improvements on the property at an invoice cost of not less than $75,-000.00 or an appraised value of $150,-000.00 based upon either replacement value or a capitalization of increased earnings produced. Appraisal shall be by a licensed MAI.
5. On or about January 13, 1981, Pacific Innkeepers Corporation assigned all its right, title and interest in the lease to K & H.
6. On or about 1978, by an Agreement of Sale, K & H purchased the business operated at 1944 Kalakaua Avenue, Honolulu, Hawaii, known as the “Tiki Torch” and operated said business on the premises until June, 1981. The “Tiki Torch” ceased operating in June, 1981.
7. Bache sued K & H and Gary Henig in the Circuit Court of the First Circuit, State of Hawaii, Civil No. 62240, and obtained default judgment on September 5, 1980 against K & H in said civil proceedings. The default judgment was entered in the total amount of $22,377.00, plus interest, costs and reasonable attorney’s fees.
8. Said default judgment was filed with the Assistant Registrar of the Land Court, State of Hawaii, and registered on Transfer Certificate of Title No. 196,418, on November 6, 1981. Transfer Certificate Title No. 196,418 is the TCT for the Debtor’s property situated at 1944 Kalakaua Avenue, Honolulu, Hawaii.
9. On or about January 12, 1982, K & H moved in state court to have said default judgment set aside. Said motion was denied; no appeal was taken therefrom and the appeal period has expired.
10. Sometime in December 1981, K & H tore down or caused to be torn down, all but two walls of the building on the premises. K & H poured concrete in the area where the building formerly stood and began repainting, reroofing and renovating the remaining portion of the building.
11. The leased premises is situated in the Waikiki Special Design District in an area designated as a Waikiki Gateway. As such, the premises are governed by the strict building and design requirements of City and County Ordinance No. 4573.
12. In order to construct a building or structure on the premises, K & H is required to obtain a building permit. K & H is also required to obtain a Development Conformance Certificate (DCC) prior to construction. In order to obtain a DCC, K & H must submit design and building plans.
13. K & H failed to submit building and design plans to the City and County prior to construction and failed to apply for and obtain a DCC.
14. K & H has been informed of the requirements of Ordinance No. 4573 but to date has not filed design or building plans nor applied for and obtained the necessary DCC and building permit.
15. On or about February, 1982, the City and County of Honolulu filed a motion in the Circuit Court of the First Circuit in S.P. 5737 for a temporary restraining order against the lessors and K & H to prevent further construction on the premises. On or about February 25, 1982, K & H entered into a stipulation whereby it agreed to be permanently enjoined from constructing or making further improvements on said premises without obtaining a DCC and a building permit.
*16516. The City and County has also alleged in those proceedings that the property encroaches approximately 7 feet onto city property along Niu Street.
17. K & H is presently prohibited from utilizing the premises for commercial use until it has applied for and obtained the necessary permits from the City and County of Honolulu.
18. The Debtor intends to use the subject property to create a flea market. Under this plan, the Debtor will rent spaces on the subject property to individual tenants. If this plan is fully implemented, the Debt- or expects to realize $24,000.00 per month in gross receipts from rentals.
19. A sheriff’s sale of K & H’s leasehold interest was scheduled for February 19, 1982. On February 17, 1982, K & H filed a voluntary petition for reorganization pursuant to Chapter 11 of the U. S. Bankruptcy Code.
20. The only asset of the Debtor corporation is K & H’s leasehold interest in said property.
21. In January, 1982, an appraisal was performed of K & H’s leasehold interest in said property by a licensed appraiser, Norman K. F. Mau. The effective date of the appraisal was March 1, 1982.
22. In a written report the appraiser concluded that the value of the leasehold, with and without two four-year option provisions, was “marginal” or “0”; that any commercial use of the premises was limited to that of either parking lot or open storage; and that the construction then in progress would not satisfy the requirements of paragraph 3 of the Amendment.
23. The appraiser testified that the term “improvements” in Paragraph 3 of the Amendment means an increase in the value of the property and not merely money expended to repair, maintain, or reconstruct portions of the premises. He further testified that the destruction of the building had decreased the value of the property in the amount of $16,206.00.
24. The appraiser concluded that it was very unlikely that K & H would be able to exercise the first four-year option.
25.These Findings of Fact insofar as they are Conclusions of Law, are incorporated in the Conclusions of Law as hereinafter stated.
CONCLUSIONS OF LAW
1. The default judgment obtained by Bache in Bache Halsey Stuart Shields Incorporated v. Gary D. Henig and K & H Enterprises, Ltd., Civil No. 62240 in Circuit Court of the First Circuit is res judicata in proceedings before the U. S. Bankruptcy Court, pursuant to 11 U.S.C. § 362(d).
2. In Riehle v. Margolies, 279 U.S. 218, 49 S.Ct. 310, 73 L.Ed. 669 (1929), the United States Supreme Court stated that “[a] judgment of a court having jurisdiction of the parties and of the subject matter operates as res judicata, in the absence of fraud or collusion, even if obtained upon a default.” Id. at 225, 49 S.Ct. at 313. K & H has not asserted the existence of any fraud or collusion in the state court action.
3. Bache became a lien creditor of K & H as of November 6,1981, and as such is a “party in interest” with standing to seek a relief from the automatic stay pursuant to 11 U.S.C. § 362(d).
4. Although the pleadings indicate that tax liens have been filed against K & H, there was no competent testimony presented by K & H which establishes that lien notices were duly recorded, that the amount of said liens exceeded the value of the leasehold interest, or that said liens are based on valid assessments. Hence, proof is insufficient for the Court to make any finding other than that Bache’s lien on the leasehold property is the only valid unpaid lien.
5. Based on the evidence, Bache is the only duly recorded secured creditor with respect to the leasehold interest of K & H in the premises at 1944 Kalakaua Avenue, Honolulu, Hawaii, as evidenced by TCT No. 196,418.
6. Under Section 362(d)(1), a party in interest may request relief from the automatic stay “for cause, including the lack of adequate protection of an interest in property of such party in interest.” Thus, *166Bache is entitled to be adequately protected and no proof was adduced by K & H to establish that Bache has been given such protection.
7. There is no equity in the subject property since the appraiser concluded that the value of the property is marginal, i.e., between $0 to perhaps a high of $10,000.00, and Bache has a lien on the property exceeding $22,377.00. Furthermore, interest continues to accrue on the judgment.
8. There also is no reasonable likelihood that K & H will be able to make the necessary improvements on the premises to enable it to exercise the first four-year option on October 14, 1982.
Judgment will be rendered for Bache on its complaint and the stay shall be lifted in order to permit Bache to proceed with its foreclosure sale of the leasehold interest.
The Court will defer ruling on the request for appointment of a trustee until after the scheduled hearing is held on this matter. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489322/ | *297MEMORANDUM OPINION
FREDERICK J. HERTZ, Bankruptcy Judge.
This cause of action involves a complaint by the Trustee in Bankruptcy, David L. Tomchin (hereinafter referred to as Trustee), seeking to avoid a transfer of a certain personal property interest to Alfred Braun, Sr. (hereinafter referred to as defendant), pursuant to Section 548 of the Bankruptcy Code.
The Trustee’s complaint is based on a transfer made to the defendant on December 23, 1980 by the defendant’s son, Alfred H. Braun (hereinafter referred to as debt- or). Approximately four weeks after that transfer, the debtor filed a voluntary petition in bankruptcy, on January 23, 1981.
The transfer in question involves a twenty-five percent (25%) interest in an Illinois land trust held by defendant, Cosmopolitan National Bank. The sole asset of that land trust is a four unit apartment building located at 6443 N. Winchester Ave., Chicago, Illinois. Consequently, the defendant’s 25% interest is equivalent to one of the four units of the apartment building.
In April of 1977, the defendant and his wife assigned their beneficial interest in the land trust to their son, the debtor, for no consideration. This interest in the land trust constituted the principal asset of the defendant. Moreover, this transfer took place at a time when the defendant’s wife was near death. The defendant, himself, had an uncertain life expectancy due to advanced age and serious illness. Despite the assignment to the debtor, the defendant continued to live in the apartment until January of 1982, when his physical condition required that he move to a nursing home. The defendant paid all expenses relative to maintaining the apartment, including taxes, electricity, mortgage and redecorating expenses.
The debtor, after receiving the interest in the land trust, reassigned the property in October of 1980 to his then fiancee. The debtor feared that his current wife would receive his interest in the land trust as a result of divorce proceedings. Fearing the conveyance to his fiancee would be deemed fraudulent, the debtor caused an assignment from his fiancee back to the defendant on December 23, 1980, again for no consideration. It is this conveyance to the defendant which the Trustee seeks to avoid as a fraudulent conveyance pursuant to Section 548 of the Bankruptcy Code.
Section 548 of the Bankruptcy Code provides:
(a) The trustee may avoid any transfer of an interest of the debtor in property, or any obligation incurred by the debtor, that was made or incurred on or within one year before the date of the filing of the petition, if the debtor — . . .
(2)(A) received less than a reasonably equivalent value in exchange for such transfer or obligation; and
(B)(i) was insolvent on the date that such transfer was made or such obligation was incurred, or became insolvent as a result of such transfer or obligation;
11 U.S.C. § 548(aX2). It has been stipulated that the debtor, a claims adjuster, was insolvent at the time he assigned the beneficial interest in the land trust to his fiancee as well as at the time he caused the beneficial interest to be reassigned to the defendant and that the debtor received no consideration for either assignment. Therefore, the conveyance to the defendant satisfies the requirements of a fraudulent conveyance under Section 548(a)(2) if the beneficial interest which was transferred, constitutes property includable in the debtor’s estate under Section 541 of the Bankruptcy Code.
The defendant alleges that the beneficial interest should not be considered as part of the debtor’s estate because the original conveyance to the debtor in April of 1977 was intended to be temporary, pending the defendant’s successful recovery from surgery. Thus, the defendant reasons that a resulting trust was created for his benefit, precluding the Trustee from avoiding the December 23, 1980 assignment. The Trustee, on the other hand, argues that the property *298is part of the debtor’s estate because the transfer in April of 1977 was intended to be a gift. The primary purpose of such gift was to avoid probate proceedings upon the death of his father, the defendant. Consequently, the sole issue to be decided by this court is whether the original transfer in April of 1977 constituted a gift, so that the conveyance of the property to the defendant on December 23,1980 would be a transfer of the debtor’s property made within one year before the filing of the debtor’s petition for less than adequate consideration while the debtor was insolvent.
Under Illinois law, there is a presumption that an assignment between a father and his son is a gift. Scanlon v. Scanlon, 6 Ill.2d 224, 229, 127 N.E.2d 435, 438-439 (1955). However, as the court in Scanlon stated:
This presumption of fact is not conclusive. The intention of the parties governs .If the proof discloses that it was not the intention of the parties that the conveyance was to be deemed a gift or advancement, equity will effectuate the intention of the parties by declaring a resulting trust. Id. (Citations omitted).
The intent which will sustain the finding of a resulting trust must have existed at the time of the conveyance. Carlson v. Carlson, 74 Ill.App.3d 673, 676, 30 Ill.Dec. 607, 609, 393 N.E.2d 643, 645 (1979). Furthermore, the party seeking to establish the trust has the burden of proving its existence by clear, convincing and unmistakable evidence. Id.
This clear and convincing standard is a factual determination to be decided by the court. Hocking v. Hocking, 76 Ill.App.3d 29, 31 Ill.Dec. 451, 394 N.E.2d 653 (1979). In applying this standard, the Court in Compton v. Compton, 414 Ill. 149, 111 N.E.2d 109 (1953), failed to impose a constructive trust even though the plaintiff had transferred his entire estate. The facts in Compton are similar to those now before the court. In Compton the father, wishing to provide for his son in case of his death, conveyed all of his real property (his home and a farm) to his son. The father continued to live in the home and pay the necessary expenses. Subsequently, the father had a dispute with the son and brought suit to have a constructive trust imposed. Despite the transfer of the father’s entire estate, the court held that the father’s conveyance was a gift because the father failed to prove his intention in a clear and convincing manner. Id. at 159-61, 111 N.E.2d at 114-15.
Carlson v. Carlson, 74 Ill.App.3d 673, 30 Ill.Dec. 607, 393 N.E.2d 643 (1979) is an example of being able to overcome the presumption of a gift. In Carlson, the plaintiff met with the defendant and the defendant’s attorney to determine a way in which she could avoid a judgment creditor and still keep her house. After consultation between the parties, the plaintiff caused her house to be transferred to the defendant for a sufficient period until the parties felt that the house would be safe from the judgment creditor. Subsequently, a dispute arose between the parties, and the plaintiff brought suit to have a resulting trust imposed. The Court held the plaintiff had proved in a clear and convincing manner that her intention at the time of the transfer was to have the house temporarily held for her benefit. Id. at 675-76, 30 Ill.Dec. at 609, 393 N.E.2d at 645. See also, Pool v. Phillips, 167 Ill. 432, 47 N.E. 758 (1897) (the totality of circumstances mandates whether a constructive trust should be imposed).
In the case at bar, the defendant in an attempt to satisfy the clear and convincing standard argues that he and the debtor made an oral agreement whereby the beneficial interest was to be reassigned at the defendant’s request. The defendant argues that this agreement was evidenced by several factors: (1) the transfer of the beneficial interest constituted a transfer of substantially all of the defendant’s estate, and (2) the defendant occupied the apartment after the assignment and paid for its necessary expenses. However, neither of the above factors is conclusive to determine whether a resulting trust was in fact intended.
*299First, the defendant cites Pool v. Phillips, 167 Ill. 432, 47 N.E. 758 (1897), to support the assertion that a transfer of the defendant’s entire estate rebuts the presumption of a gift. However, as stated above, the Pool court in making its decision considered not only the transfer of the entire estate, but the totality of the circumstances surrounding the transfer. Id. at 440-41, 47 N.E. at 759-60. See also, Compton, supra, (court ruled against imposition of a constructive trust even though the plaintiff’s entire estate had been transferred).
Second, while the court has considered factors such as continued occupation of the home and payment of taxes, mortgage and expenses, as tending to overcome the presumption of a gift, Scanlon v. Scanlon, 6 Ill.2d 224, 229, 127 N.E.2d 435, 438-49 (1955) (citing Cook v. Blazis, 365 Ill. 625, 629, 7 N.E.2d 291, 293 (1937)), the Illinois Supreme Court has clearly stated that the existence of such post-transfer evidence does not conclusively overcome the presumption of a gift. Pool, 167 Ill. at 440, 47 N.E. 759-60. See also, Compton, supra, (court failed to impose constructive trust even though father continued to live in home after its conveyance to his son); Scanlon, supra, 6 Ill.2d at 229, 127 N.E.2d at 438-39.
Considering all factors surrounding the April, 1977 assignment, this court finds no conclusive evidence of an oral agreement to rebut the presumption of a gift. This conclusion is based on the following factors which indicate that a permanent transfer was intended by the parties in April, 1977. First, at the time of the April, 1977 assignment, defendant’s wife was near death, and the defendant was unsure of his own future life expectancy. Moreover, the defendant admitted in his testimony that the purpose of this assignment was to avoid probate proceedings. These factors taken together support the inference that defendant made a gift of his property interest in order to prevent this property from being subject to probate proceedings upon his death. Second, the defendant also admitted at trial that he did not ask for the property to be returned to him on December 23, 1980. This factor, at the very least, creates a doubt as to whether any provision was made for the return of the assignment in April of 1977. See Suwalski v. Suwalski, 88 Ill.App.2d 419, 424, 232 N.E.2d 64, 67 (1967), reversed on other grounds, 40 Ill.2d 492, 240 N.E.2d 677 (1968) (transactions subsequent to transfer can be considered for the light it might influentially shed upon the question of what the parties’ intention had been at the time of the transfer).
Accordingly, this Court holds that the assignment in April of 1977 was intended as a gift to the debtor. Thus, the twenty-five percent interest in the land trust is property includable in the debtor’s estate under Section 541 of the Bankruptcy Code. As a result, the assignment of the partial interest in the land trust by the debtor to the defendant on December 23, 1980 was a fraudulent conveyance under Section 548(a)(2) of the Bankruptcy Code and is properly voidable by the Trustee.
The Trustee is to furnish a draft order in accordance with this opinion within 5 days. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489323/ | MEMORANDUM
CLIVE W. BARE, Bankruptcy Judge.
In this adversary proceeding, the plaintiff trustee attempts to recover two separate payments made to the defendants, Patricia Castle and Linda Fletcher, in the amount of $12,996.90 each. The plaintiff contends that the payments are transfers which are *330voidable preferences under 11 U.S.C. § 547(b).1 In addition, the plaintiff contends that the payments represent fraudulent transfers which may be avoided by the plaintiff, as trustee, pursuant to 11 U.S.C. § 548(a)(2).2
I
On February 11, 1978, the debtor’s father, W. C. Stewart, a resident of Sullivan County, Tennessee, died testate. Under the terms of the will, the debtor was named executor of his father’s estate, and on March 14, 1978, Letters Testamentary were granted. W. C. Stewart was survived by three children: Bill J. Stewart, the debtor, and Patricia Castle and Linda Fletcher, who are the remaining defendants herein.3 The will of W. C. Stewart provided that his estate was to be divided equally among his three children. However, Stewart’s second wife, Gladys Garland Stewart, contested the will. That contest was resolved in the fall of 1980.
In his capacity as executor, Bill J. Stewart, liquidated his father’s estate and accumulated cash proceeds. Thereafter, Stewart, as executor, loaned money from his father’s estate to Mall Auto and Trailer Sales, Inc., a corporation wholly owned by him. These loans were evidenced by a series of notes executed by Mall Auto and Trailer Sales, Bill Stewart, President, and co-signed by Stewart in his individual capacity. These notes reflect that Stewart individually pledged one hundred (100) shares of stock of the J. T. Parker Insurance Company, a company of which he was a one-third owner, as collateral. Stewart, however, had previously pledged this stock to the First National Bank of Sullivan County, which actually held the certificates.
On December 12, 1980, Stewart sold the Parker Insurance stock for approximately $125,000. From the proceeds of this sale, he paid $90,000 to the First National Bank of Sullivan County and $6,056.46 to Parker Insurance Company. Stewart received the balance of the funds in the form of a cashier’s check. The receipt of this check was entered in the “W. C. Stewart Estate Cash Log Journal.” Two cashier’s checks were then obtained in the amount of $12,996.90 each — one payable to Linda Fletcher and one to Patricia Castle.
On January 19, 1981, United Security Bank of Mount Carmel, a creditor of Bill J. Stewart, filed an involuntary bankruptcy petition against Stewart. On April 23, 1981, an order for relief was entered. Ward Huddleston, Jr. was appointed trustee, and he subsequently initiated this adversary proceeding, asserting that the payments to Patricia Castle and Linda Fletcher of $12,996.90 each represent voidable preferences pursuant to 11 U.S.C. § 547 and fraudulent transfers under 11 U.S.C. § 548.
*331The defendants insist that the payments were their share of the final distribution of their deceased father’s estate. According to the defendants, the trustee has failed to show the existence of a debtor/creditor relationship between the debtor and the defendants. The defendants also insist that, under the facts and law of this case, no fraudulent transfer is involved.
II
A trustee in bankruptcy may avoid a transfer of the debtor’s property to or for the benefit of a creditor and for or on account of an antecedent debt owed by the debtor before the transfer was made, if the transfer was made while the debtor was insolvent and within 90 days4 of the filing of the bankruptcy petition. 11 U.S.C. § 547(b).
In the present ease, the plaintiff has failed to establish that the property which he seeks to recover was transferred “to or for the benefit of a creditor ... for or on account of an antecedent debt owed by the debtor . ...” The plaintiff simply has not proved that Stewart was indebted to the defendants on the date of the transfer other than in his capacity as executor of the estate of W. C. Stewart. The plaintiff’s requested relief under § 547 must be denied.
III
Section 548(a) permits the trustee in bankruptcy to avoid a transfer of an interest of the debtor in property made or incurred within one year before the filing of the bankruptcy case, if the debtor-transfer- or received less than “reasonably equivalent value” for the transfer. Value is defined as “property, or satisfaction ... of a present or antecedent debt of the debtor .. ..” 11 U.S.C. § 548(d)(2)(A). Additionally, the debtor must either have been insolvent on the date the transfer was made or he must have become insolvent as a result of the transfer. 11 U.S.C. § 548(a)(2), (B)(i). Therefore, if the debtor in the instant case received less than reasonably equivalent value for the transfer of $25,993.80 to the defendants, the relief sought by the plaintiff must be granted, assuming arguendo that an interest of the debtor in property was involved in the payments to the defendants.
Beginning in August of 1978, Bill J. Stewart executed a series of notes as president of Mall Auto Sales. The notes were also co-signed by Bill Stewart, thereby creating personal liability on his part. The notes were given to the estate of W. C. Stewart in exchange for loans to Mall Auto and Trailer Sales in the total amount of $47,323.09.5 Thus, the debtor did receive consideration from the estate in excess of the amount of $25,993.80 which he transferred to the estate.
The journal for the estate of W. C. Stewart contains an entry dated December 12, 1980, reflecting the receipt of $28,526.09. The entry indicates that the funds represent “Loans — Cash Payment On.”
The journal also contains two entries dated December 13, 1980. One reflects a payment in the amount of $12,996.90 to the defendant Patricia Castle, whereas the second entry reflects a payment in the identical amount to the defendant Linda Fletcher. The cashier’s checks whereby these payments were made reflected that the payment was from “Bill J. Stewart.” The cashier’s checks should have reflected that they were from “Bill J. Stewart, Executor of the Estate of W. C. Stewart,” according to the debtor’s testimony at the trial. It follows that the plaintiff may not avoid the *332payments to the defendants, Patricia Castle and Linda Fletcher.
In summary, the payments to the defendants are neither voidable preferences nor fraudulent transfers. The debtor, in his capacity as executor of his father’s estate, loaned money to his wholly-owned corporation and executed notes in consideration of these loans. The notes were secured by an unperfected interest in the debtor’s stock in the J. T. Parker Insurance Company.6 Nonetheless, the payments are not voidable as preferential because there was no debt- or-creditor relationship between the individual debtor and the defendants. The payments are also non-fraudulent because a value in excess of “reasonably equivalent value” was given in consideration of the payments (i.e. the loans from the proceeds of the decedent’s estate to the debtor’s corporation).
This Memorandum constitutes findings of fact and conclusions of law, Bankruptcy Rule 752.
. ... 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. 11 U.S.C. § 547(b).
. The trustee may avoid any transfer of an interest of the debtor in property, or any obligation incurred by the debtor, that was made or incurred on or within one year before the date of the filing of the petition, if the debtor—
(2)(A) received less than a reasonably equivalent value in exchange for such transfer or obligation; and
(B)(i) was insolvent on the date that such transfer was made or such obligation was incurred, or became insolvent as a result of such transfer or obligation; .... 11 U.S.C. § 548(a)(2).
. An Order of Dismissal, with prejudice, resolving all controverted matters between the Trustee and the First National Bank of Sullivan County was entered on February 12, 1982. An Agreed Judgment was entered on the same date documenting the settlement of the controversy between the plaintiff and J. T. Parker Insurance Agency.
. If the creditor-transferee is an “insider,” as defined in 11 U.S.C. § 101(25), the period of time is one year as opposed to 90 days.
. The date of each note and the amount received is shown as follows:
August 10,1978 $ 5,000.00
January 25, 1980 1,200.00
June 30, 1980 15,000.00
October 1, 1980 8,852.79
October 13, 1980 3,200.00
October 16, 1980 1,750.00
November 3, 1980 2,920.30
November 7, 1980 4,000.00
November 14,1980 5,400.00
. The stock certificates are instruments as defined in T.C.A. 47-9-105(g). A party may perfect an interest in instruments only by possession, except as provided in T.C.A. 47-9-304(4) and (5). T.C.A. 47-9-304(1). The First National Bank of Sullivan Co. had possession of the stock certificates. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489324/ | CHARLES A. ANDERSON, Bankruptcy Judge.
This matter is before the Court upon the “Complaint Objecting to Confirmation of Chapter 13 Plan and Requesting Modification of Stay” filed on 18 March 1982 by Merchants and Mechanics Federal Savings and Loan Association, (the mortgagee). The matter was tried on 24 May 1982, at which time the parties agreed to consolidate this matter for decision with the five other objections to confirmation of Debtor’s Plan. These objections, (Case 3-82-00483, Adv. (A), (B), (C), (D) and (E)) were raised by the Trustee in Bankruptcy and various creditors, and all request denial of plan confirmation, dismissal of Debtor’s Chapter 13 proceeding, and/or conversion of this proceeding to Chapter 7.
The Debtor filed a petition for relief under Chapter 13 on 22 February 1982.
The Proposed Plan in summary, provides that secured creditors shall be paid pro rata the value of their secured claims, shall retain their liens until completion of payments under the Plan, and shall be treated as unsecured on the unsecured portions of their claims. Secured claims would bear interest of 10%. Unsecured claims would be paid pro rata subsequent to secured claims at 3 per cent of their claims. Debtor who is a realtor, also doing business as Jack D. Lewis Realty, Inc., a corporation not dissolved, which is employed in banking and for personal expenses.
On 17 March 1982 two objections to confirmation were filed and on 18 March 1982 a third objection to confirmation was filed and on 1 April 1982 a fourth objection to confirmation was filed. Two adversary proceedings were filed on 18 March 1982 and 29 March 1982 objecting to confirmation and seeking relief from the automatic stay.
The Debtor testified that he anticipates sufficient income to fund the plan payments of $1,950.00 monthly, and to sell various parcels of real estate within 6 months or consent to liquidation. Unfortunately, at the present time his estate shows a “negative cash flow” from rentals, not even sufficient to make regular mortgage payments.
It is the determination of the Court that the evidence of record indicates that Debt- *345or’s proposed Plan is not feasible. Furthermore, there is insufficient potential in the estate to justify exercise of court jurisdiction to protect the value of the estate for only 3% distribution to unsecured creditors. It is further finding of the Court that the mortgagee's interest is inadequately protected, conformably to this Court’s opinions in First Investment Company v. Custer, et al., 18 B.R. 842, 8 B.C.D. 1067 (Bkrtcy.1982), and Percy Wilson Mortgage and Finance Corporation v. McCurdy, et al., - B.R. - Case 3-82-00361, Adv. 3-82-0115 (June 25, Bkrtcy.1982).
IT IS THEREFORE ORDERED, ADJUDGED AND DECREED that Merchants and Mechanics Federal Savings and Loan Association is granted relief under 11 U.S.C. §§ 362(d) and 1301(c)(3) to proceed with the foreclosure suit now pending in the Common Pleas Court of Greene County (Ohio).
IT IS FURTHER ORDERED that confirmation of Debtor’s Plan is denied conforma-bly to 11 U.S.C. § 1325 and the previous decisions by this Court cited herein. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489326/ | ORDER OF REMAND
PER CURIAM.
The Appellant, the City of East Providence, appeals from an order entered by the Bankruptcy Court for the District of Rhode Island Bkrtcy., 17 B.R. 765 which preliminarily enjoined the City of East Providence from refusing to renew the liquor license of the Debtor, F.G.M. Associates, Inc.
The bankruptcy court entered the preliminary injunction on February 19, 1982, pending a determination of state court appeal by the debtor of the refusal to renew the liquor license.
The panel has been advised of two significant changes in circumstances since the initial order of the bankruptcy court. These circumstances are:
(1) The Chapter 11 has been converted to a Chapter 7.
(2) The Chapter 7 trustee has advised the panel that he does not plan to pursue the state court appeal.
These changes in circumstances may now moot the need for the restraining order. Therefore, we remand this proceeding to the bankruptcy court so the court may, within the next 45 days, dissolve the preliminary injunction or make additional findings which would support a continuation of the injunction. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489328/ | MEMORANDUM OPINION AND DECISION
VINCENT D. MAGGIORE, District Judge.
This matter is before the Court on the Motion for Summary Judgment of Plaintiffs, Norman I. Gaynes and Elaine N. Gaynes, his wife (herein “the Gaynes”) and the Cross-Motion for Summary Judgment of Defendants, Winfield Scott, et ux., James F. Cramer, et ux., John Braddock, et ux., and Donald Tyler, et ux. (hereinafter severally and collectively “the Investors”). In oral argument and in the motion papers submitted, the Gaynes and the Investors agreed the case, as between them, was ripe for summary disposition. They further granted that a resolution of their dispute rests in the main on the interpretation and meaning of two basic provisions contained in a written preincorporation agreement dated March 30, 1978.
The motion papers, depositions of the parties, depositions of witnesses, and the record in general, reveal the following situation, which, although somewhat complex, must be understood if the respective legal positions of the movants and cross-movants are to be dealt with fairly.
Norman I. Gaynes (herein “Norman”) is a chemist by profession. He is a specialist in the technical development of paint coatings and processes. The Gaynes moved to Arizona from New Jersey in the summer of 1977. Prior to the move, Norman had been employed in a research and technical capacity for several eastern paint manufacturers.
Shortly after his move to Arizona, Norman looked for a manufacturing business he could purchase. Norman did not have sufficient capital to either fund the purchase or finance the operation of a manufacturing business.
In late 1977, Norman saw a newspaper advertisement soliciting prospective buyers to purchase the assets of an established paint manufacturing business called Lupton Bros. Paint Manufacturing (herein “Lupton Bros.”). The advertisement reflected an asking price of $250,000.00, payable on terms. Lupton Bros, appealed to Norman.
Norman engaged Defendant, PCA Management Corporation (herein “PCA”), a management consulting firm, to help raise the needed capital to fund the purchase. Defendants, Warren Freeman (herein “Freeman”) and Leo Sroka (herein “Sro-ka”), are the principal officers, directors and stockholders of PCA.* Norman, aided by PCA, made a written offer dated January 17, 1978 to purchase Lupton Bros, for $250,000.00. Norman’s offer was accepted.
Thereafter, Norman and PCA scurried about to find a lender who would give Norman the money necessary to complete the purchase. Every institutional lender they approached refused to loan any money to Norman.
Sroka was an insurance agent. He had sold insurance for many years and was involved in several business ventures. Sroka had sold insurance to each of the Investors. Sroka convinced the Investors to advance $174,000.00 and become associated with Norman in the paint business. The Investors’ $174,000.00 was insufficient to satisfy the $250,000.00 purchase price and allow for start-up capital.
Norman successfully renegotiated the sales price for Lupton Bros. The sales price was reduced to $176,365.00. A cash payment of $115,513.30 was required to be paid to Lupton Bros, at closing. The unpaid balance of the purchase price ($60,851.70) was to be satisfied on a deferred payment basis. The Lupton Bros, sale closed in late March 1978.
The Investors, the Gaynes and PCA entered into a pre-incorporation agreement *506dated March 30, 1978. Their purpose was to define their business relationship. The agreement provided, inter alia, for the organization of a corporation under the name Lupton Paint Manufacturing Corporation of Arizona (herein “Desert Knight”).** The Investors agreed to subscribe for 1,950 common voting shares, of Desert Knight at $10.00 per share. The Gaynes subscribed for 2,250 shares.1 PCA was to receive 800 shares in lieu of the payment of a commission. The agreement further provided that Norman, the Investors and Freeman would serve as Desert Knight’s Board of Directors, and that Norman would serve as Desert Knight’s President, Freeman as Secretary-Treasurer, and each of the Investors as a Vice President. Norman was to manage the day-to-day affairs of Desert Knight at an annual salary of $24,000.00.
It was additionally agreed that Desert Knight would be capitalized by a total borrowing of $153,000.00 from the Investors. The borrowing was to be evidenced by Desert Knight’s promissory note to each of the Investors in the amount of his individual loan.2 Each note was to mature on or before March 31, 1981. Interest on the principal was to accrue at the rate of 18% per annum. Desert Knight’s borrowing from the Investors was to be secured by Deeds of Trust encumbering four parcels of real estate owned by the Gaynes.
For the purposes of this case, the critical provisions of the agreement are paragraphs 7 and 10. Paragraph 7 reads in pertinent part:
“7. Loans by Certain Shareholders:
(a) Within thirty days after the incorporation of the Corporation, the following named Shareholders hereby agree to loan to the Corporation the following amounts, such amounts to be repaid as indicated and at the indicated annual interest rate as hereinafter described:
Party Amount Annual Term of Interest Rate Loan
J. Braddock $25,500.00 18% 3 yrs.
J. Cramer $51,000.00 18% 3 yrs.
W. Soctt $51,000.00 18% 3 yrs.
D. Tyler $25,500.00 18% 3 yrs.
(b) The loans to be made to the Corporation as herein provided shall be evidenced by promissory notes of the Corporation payable to Braddock, Cramer, Scott and Tyler (the ‘Noteholders’) and shall be repayable by the Corporation in monthly payments commencing May 1978.”
Paragraph 10 reads:
“10. Security for Notes : Gaynes, in order to ensure that the Corporation shall satisfy its obligations to the Noteholders, hereby agrees to prepare and deliver to the Board of Directors of the Corporation a promissory note in the amount of $150,-000 (the ‘Secured Note’) payable to the Corporation, without interest, due March 31, 1981 and secured by a Deed of Trust covering the following parcels of real estate situated in Pima County, Arizona, and owned in fee simple absolute by Gaynes:
Parcel 1 (160 Acres): Lot 5-6-7-8, Section 30, Township 10 South, Range 12 East of the Gila and Salt River Base and Meridian, Pima County, Arizona. Parcel 2 (160 Acres): Southeast Quarter (Vi) of Section 30, Township 10 South, Range 12 East of the Gila and Salt River Base and Meridian, Pima County, Arizona.
Parcel 3 (67 Acres): All that part of the West one-half (V2) of the Southwest QuarterfPA) (sic) of Section 11, Township 16 South, Range 16 East of the Gila and Salt River Base and Meridian, Pima County, Arizona, lying southerly of Colossal Cave Road, as established in *507the records of the Pima County, Arizona Recorder’s Office.
Parcel 4 Residence located at Scarborough, Maine.
In the event that the promissory notes, including interest thereon, referred to in Section 7 hereof are not paid in accordance with Section 7, and remain unpaid as of March 31,1981, then the proceeds of the Secured Note shall be used to immediately satisfy the unpaid obligations of the Corporation to the Noteholders.”
In accordance with paragraph 10, the Gaynes delivered their “Secured Note” dated March 31, 1978 for $150,000.00 to Desert Knight, payable on or before March 31, 1981. The Gaynes also executed, acknowledged and delivered for recording, Deeds of Trust encumbering Parcel 1 (160 acres), Parcel 2 (160 acres), and Parcel 3 (67 acres). The Gaynes did not furnish any Deed of Trust encumbering Parcel 4, the Scarborough, Maine residence.3
The Gaynes and their daughter, Debbie Gaynes, commenced managing and operating Desert Knight’s wholesale and retail paint business. The business proved unprofitable from the start. The Investors attribute Desert Knight’s failure to Norman’s poor management. Norman asserts that Desert Knight was undercapitalized from the start. Norman also claims that PCA, Freeman and Sroka did not adequately appraise the value of the assets purchased from Lupton Bros. Accordingly, accounts receivable thought to be collectible were either non-existent or bad. A discussion of the reasons for the failure of Desert Knight’s business is presently immaterial.
In July 1980, the Gaynes filed suit in the Superior Court of Pima County, Arizona, against the Investors, PCA, Freeman and Sroka. The Gaynes’ Complaint asserted multiple claims for relief, including a claim to quiet title in the Gaynes, to Parcels 1, 2 and 3. On September 29, 1980, the Pima County Superior Court granted the Investors, PCA, Freeman and Sroka’s Motion for Change of Venue. The case was transferred to the Maricopa County Superior Court.
On January 27, 1981, the Gaynes filed a debtor’s petition in this Court pursuant to 11 U.S.C. Chapter 13. On May 4, 1981, this Court entered an order enjoining the Investors and Desert Knight from proceeding against Parcels 1, 2 and 3. On May 28, 1981, the case was removed from the Superior Court to this Court pursuant to 28 U.S.C. § 1478.
The Gaynes have amended their Complaint on four occasions. The Gaynes Fourth Amended Complaint alleges five separate claims for relief. The only claim alleged by the Gaynes against the Investors is set forth in the Gaynes’ First Claim for Relief. Claims for Relief Two through Four are against only PCA, Freeman and Sroka.
The Gaynes’ claim against the Investors is brought under the Declaratory Judgment Act. It seeks an adjudication of the rights of the Investors to the property encumbered by the Deeds of Trust against Parcels 1, 2 and 3.4 It essentially alleges that the Deeds of Trust, pursuant to the terms of the pre-incorporation agreement, are assets of Desert Knight, and were not given to secure any of the Investors’ loans. It argues that the Investors are general creditors of Desert Knight and are not entitled to any preferential right against the encumbered parcels over Desert Knight’s other creditors.
In their answer, the Investors alleged, inter alia, that paragraphs 7 and 10, read pari materia, plainly indicate that the Gaynes’ interest in the four parcels was intended to secure the Investors’ loans to *508Desert Knight. The Investors counterclaimed against the Gaynes. The Investors’ Counterclaim is couched in seven separate and distinct counts. The first four are in the nature of shareholders derivative claims. The Investors, as shareholders, sued on behalf of Desert Knight. The four counts essentially charged the Gaynes with mismanagement of Desert Knight’s business, breach of the subscription agreement in failing to pay Desert Knight for the 2,250 shares the Gaynes received, and misappropriation of Desert Knight’s assets. Counts Five, Six and Seven are brought in the names of the Investors. They generally allege that the Investors were fraudulently induced to advance $150,000.00 to purchase stock of Desert Knight by the Gaynes' representation that the loan would be secured by Parcels 1, 2, 3 and 4. The remedies sought are a declaration of an equitable lien against the real estate and the finding of a constructive trust for the benefit of the Investors. The Investors also cross-claimed against PCA, Freeman and Sroka.5
The Gaynes filed their Summary Judgment Motion on February 24, 1982. The Investors answered and cross-moved for summary relief on April 2, 1982. The quintessence of the Gaynes’ Motion is that pursuant to the terms of the pre-incorporation agreement, Desert Knight holds the Deeds of Trust and any proceeds realized from the real estate for the benefit of Desert Knight’s general creditors, including the Investors. The Gaynes’ Motion additionally argues that the Investors are precluded from proceeding against the real estate to the exclusion of other general creditors of Desert Knight by force of A.R.S. § 10— 048(A)(3).
The Investors’ Cross-Motion reasons that paragraph 10 of the pre-incorporation agreement clearly furnishes them with a security interest in the property in the event of Desert Knight’s default on its loan to them. The real estate, the Investors say, was to be held by Desert Knight as security for the exclusive benefit of the Investors in order to satisfy the debt owed them by Desert Knight. It is incontestable that Desert Knight defaulted on its loan commitment to the Investors.
During oral argument, the Gaynes’ counsel and the Investors’ counsel were in agreement that the language in paragraphs 7 and 10 was unambiguous. Parol evidence was unnecessary they said, to explain what the Gaynes, the Investors and PCA intended by their agreement. No extrinsic evidence was offered or brought to the attention of the Court. Both counsel expressed their willingness to rely on the Court’s interpretation of the meaning intended by paragraphs 7 and 10.
It is meaningful to note that during oral argument, the Gaynes’ counsel maintained that neither the Gaynes, nor the debtors’ estate had any claim or interest in the real estate.
As can be seen, the Court has been presented with a complete and undisputed factual situation. The preceding outline of the undisputed facts, pleadings, and the parties’ respective contentions, both depicts the background of the controversies sought to be adjudicated and reveals the questions presented by the competing Motions. The Motions are to be decided upon Count One of Gaynes’ Fourth Amended Complaint, the Investors’ Answer, and more importantly, upon an interpretation of the meaning of paragraphs 7 and 10 read pari materia of the pre-incorporation agreement.
The question to be herein decided can be simply stated. It is whether paragraph 10 of the pre-incorporation agreement gives the Investors a security interest in the real estate.
The Summary Judgment procedure provided by Rule 56, Fed.R.Civ.P. was used as a procedural device in bankruptcy courts before the recent enactment of the new rules governing bankruptcy procedure. Beall v. Pinckney, 132 F.2d 924 (5th Cir. *5091943); Cohen v. Eleven West 42nd Street, Inc., 115 F.2d 531 (2nd Cir. 1940); In Re Yellow Transit Freight Lines, Inc., 207 F.2d 602 (7th Cir. 1953).
Further, Rule 756, Rules of Bankruptcy Procedure, expressly provides:
“Rule 56 of the Federal Rules of Civil Procedure applies in adversary proceedings.”
The admonition uttered in Doehler Metal Furniture Co. Inc., v. United States, 149 F.2d 130, 136 (2nd Cir. 1945) that the “court should go slow about making haste by a summary judgment” has been weighed. Nonetheless, when assertions are relied upon solely because of the terms of a written agreement and the parties agree that the language is unambiguous, and do not propose to offer any evidence tending to interpret the terms, it becomes the duty of the court to examine the agreement to determine whether it says, in legal effect, what the parties assert it says. Here, the agreement upon which the Gaynes rely is before the Court by common consent. It speaks for itself, but not as asserted by Gaynes.
Paragraph 7 confirms the Investors’ loan and the terms of repayment by Desert Knight to the “Noteholders”. Paragraph 10 is free from obscurity. Its meaning is plain. Its intention was to provide a mechanism to secure the Investors’ loan to a new enterprise attendant with risk. To induce the Investors to loan the monies and join the enterprise, the Gaynes agreed to pledge their properties “in order to ensure that the Corporation shall satisfy its obligations to the Noteholders.” It is pellucid from the wording used that Desert Knight was to hold the Deeds of Trust for the Investors’ benefit, in the event Desert Knight defaulted under its promissory notes to the Investors. Thus, paragraph 10 expressly provides that:
“In the event that the promissory notes, including interest thereon, referred to in Section 7 hereof are not paid in accordance with Section 7, and remain unpaid as of March 31, 1981, then the proceeds of the Secured Note shall be used to immediately satisfy the unpaid obligations of the Corporation to the Noteholders.”
The effect of the preceding language was to make the Investors secured creditors of Desert Knight.6 The real estate was to constitute a special fund to be held for the benefit of the Investors in the event Desert Knight could not satisfy its debt obligation to the Investors.
The Gaynes contend that the Investors are general creditors of Desert Knight who have no priority claim against the real estate over other creditors because of their relationship to the corporation. This is unsupported in law.
There is no general prohibition against a shareholder contracting with his corporation. 18 C.J.S. Corporations, § 489 (1936). Accordingly, a shareholder may lawfully loan money to his corporation and receive security therefor.
Even officers and directors may, in a good faith transaction, loan money to the corporation they serve and take security therefor. See, e.g., 3 W. Fletcher, Cyclopedia of the Law of Private Corporations, § 952 (1975); Monroe v. Scofield, 135 F.2d 725 (10th Cir. 1943); Standard Lumber Co. v. Interstate Trust Co., 82 F.2d 346 (5th Cir. 1936); R. J. Enstrom Corp. v. Interceptor Corp., 555 F.2d 277 (10th Cir. 1977); Intertherm, Inc. v. Olympic Home Systems, Inc., 569 S.W.2d 467 (Tenn.App.1978).
No reason exists in law for subordinating a secured loan made to a corporation by a shareholder, officer or director to the claims of its general creditors in the absence of bad faith, fraud or overreaching.
*510In Intertherm, Inc. v. Olympic Home Systems, supra, general creditors brought suit against an insolvent corporation, Olympic Home Systems (“Olympic”), and three of its shareholders, Bailey, Langley and Clayton. The plaintiffs sought to avoid a security interest in personal property given by Olympic to secure a loan made to Olympic by shareholders Langley and Clayton. The plaintiffs urged that Langley and Clayton were not entitled to priority in the secured property over the general creditors.
In the summer of 1973, the promoters of Olympic had approached Langley and Clayton and solicited them to invest in Olympic’s business of manufacturing and selling mobile homes. A pre-incorporation plan had been formulated. It provided, among other things, that Langley and Clayton each subscribe for 15% of Olympic’s stock and loan Olympic $42,500.00. Olympic’s borrowing from Langley and Clayton was to have been evidenced by a promissory note with interest payable on the principal at 8% per annum. Olympic’s note was to have been secured by an agreement granting a security interest in Olympic’s:
“Accounts receivable, inventory, merchandise, work in process, building materials and all other materials and supplies used by Debtor in its manufacturing operations.” (569 S.W.2d 469)
Olympic had become insolvent approximately two years after its organization. A receiver had been appointed at the request of the plaintiffs to take charge of Olympic’s assets. The receiver had conducted a sale of Olympic’s inventory. The sale had realized cash proceeds of $11,172.00. After deducting the expenses of sale, the receiver had been left with a net amount of $9,254.02.
Langley and Clayton petitioned for an order requiring the receiver to remit the net sale proceeds to them by reason of their security lien against the inventory sold. The trial court found that Langley and Clayton were not entitled to priority over the general creditors because their loan to Olympic had in fact been a contribution to capital. The trial court further determined that the Langley-Clayton loan to Olympic had not constituted an arms-length transaction.
The Tennessee Appellate Court reversed. It recognized the general rule that shareholders, officers and directors may lawfully loan money to their corporation and receive security therefor, provided the loan is made in good faith.
The court found that the rule of close scrutiny did not apply to Langley and Clayton because neither owned:
“a majority of stock, [n]or is shown to dominate or control the corporation to a significant degree in some other way.” (569 S.W.2d 472)
Moreover, there was no evidence that Langley and Clayton participated in the corporation’s everyday affairs. The court concluded that Langley and Clayton had a valid security interest in the property described in the security agreement “and that no reason appears for subordinating that interest to the claims of Olympic’s general creditors.” (569 S.W.2d 474). The Court determined that the evidence:
“in this case is insufficient to sustain a finding of fraud or lack of good faith against defendant shareholders, Langley and Clayton.” (569 S.W.2d 474)
A lack of good faith or fraud was non-existent because:
“The loan in question was made when the corporation was begun, before it became insolvent, and before it had any general creditors. There is no evidence that defendants misrepresented the corporation’s financial structure to creditors, or that they acted in bad faith in any way.” (569 S.W.2d 474)
The Court sees no reason why in all fairness and good conscience, the Investors should be deprived of their security for a loan fairly made to Desert Knight. The loaned funds were necessary to capitalize the corporation at inception. The assets of Lupton Bros, could not have been purchased without the Investors’ investment and loan to Desert Knight. The Investors enhanced the value of the corporation and its assets. *511At the time the Investors made the secured loan, Desert Knight was solvent and had no trade creditors. There is no evidence in this record and the Gaynes have presented none indicating that the Investors were guilty of overreaching, bad faith or fraud in the secured loan transaction.
Further, it is beyond dispute that the Gaynes family managed and controlled the daily business affairs of Desert Knight. There is no evidence showing that the Investors interfered or participated in the day-to-day business of Desert Knight. Thus, there is no evidence that the Investors dominated or controlled Desert Knight in any manner.
Under these circumstances, it would be difficult, if not impossible, to find that the Investors acted in bad faith and fraudulently secured the real estate to themselves to the detriment of Desert Knight’s creditors. Under the facts and the law, the Court is constrained to conclude that the Investors are secured creditors of Desert Knight and have priority over any claims of its general creditors.7
The Gaynes argue that A.R.S. § 10-048(A)(3) is pertinent and precludes the Investors from proceeding against the security. The statute provides:
“A. In addition to any other liabilities imposed by law upon directors of a corporation:
* * * * * *
3. The directors of a corporation who vote or assent to any distribution of assets of a corporation to its shareholders during the liquidation of the corporation without the payment and discharge of, or making adequate provision for, all known debts, obligations, and liabilities of the corporation shall be jointly and severally liable to the corporation for the value of such assets which are distributed, to the extent that such debts, obligations and liabilities of the corporation are not thereafter paid and discharged.”
The statute prevents directors from using their position of gaining an unfair advantage by distributing assets to themselves and the shareholders of a corporation that has outstanding creditors.
The statute is inapposite under the facts presented herein. There is nothing in the statute that prevents a stockholder to whom a company is heavily indebted from undertaking fair proceedings to collect a secured debt.
There is nothing in the record that shows that the Investors distributed Desert Knight’s assets to themselves. The Investors have simply sought to realize on the security held for their benefit by Desert Knight pursuant to the terms of paragraph 10.
The effect of this decision is that the Investors’ Motion for Summary Judgment is granted. The Gaynes’ Motion for Summary Judgment is denied. The restraining order entered May 4, 1981 enjoining the Investors and Desert Knight from proceeding against the real estate is hereby dissolved because the Gaynes concede that neither the Gaynes nor their debtors’ estate has any interest or rights therein. The statutory stay of proceedings pursuant to 11 U.S.C. § 362 is also lifted as against the Investors and Desert Knight.
By force of this Opinion, the remaining issues between the Gaynes and the Investors to be tried arise under the Investors’ counterclaims. Counsel for the Investors has advised the Court that the Investors have agreed to voluntarily dismiss their counterclaims against the Gaynes in view of the granting of the Investors’ Motion. Counsel for the Investors shall prepare a written judgment consistent with this Opinion.
The action brought by the Gaynes against PCA, Freeman and Sroka still pends in this Court. The Motions considered herein do not concern or affect the outcome of the Gaynes’ claims against PCA, Freeman and Sroka.
The name of the corporation was later changed to Desert Knight Coatings and will, therefore, hereinafter be referred to as “Desert Knight.”
. One of the derivative claims brought by the Investors charges that Gaynes breached the agreement by never paying for the shares issued to them. In deposition, Norman testified that Sroka had advised the Gaynes that they had no obligation to honor the subscription agreement.
. Although the agreement expressly provided for a $153,000.00 loan, it is undisputed that the actual advance was in the sum of $150,000.00.
. The Gaynes sold the Scarborough, Maine residence. Norman testified in deposition that the Maine property had never been intended to constitute security for Desert Knight’s borrowing from the Investors. The Investors, PCA, Freeman and Sroka dispute the Gaynes’ claim in this respect. This factual dispute does not affect the Motions presently considered.
. The Gaynes dropped their claims against the Investors alleged in the Superior Court litigation for conspiracy to defraud, sale of fraudulent securities, common law fraud and quiet title.
. The Investors cross-claimed for damages against PCA, Freeman and Sroka. The Court has been advised by counsel for the Investors and by counsel for PCA, Freeman and Sroka, that the dispute between their respective clients has been settled and compromised.
. Even if parol evidence were to be considered in this case, it is to be noted that Freeman, Sroka, Braddock, Scott, and Cramer uniformly testified in depositions and Rule 56(e) affidavits, that the parties, during the negotiations leading to the pre-incorporation agreement agreed to secure the Investors’ loans to the corporation by the Gaynes’ four parcels. In a deposition taken of Norman in December 1980, Norman admitted that it was his intent to encumber his interest in the real properties to Desert Knight in order to secure its borrowing from the Investors.
. Desert Knight has been joined as a party in these proceedings by reason of the Investors’ shareholders’ derivative claims against the Gaynes. Desert Knight is, in essence, represented by the Investors herein. The Court questions the Gaynes’ standing and the Court’s power to make any order protecting the general creditors of Desert Knight. Neither Desert Knight nor its general creditors have invoked this Court’s jurisdiction and requested protection under the bankruptcy laws. This Court is reluctant to extend its jurisdiction over absent parties who have not invoked the power of this Court. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489329/ | OPINION
WILLIAM A. KING, Jr., Bankruptcy Judge:
The issue before the court is whether a binding agreement to settle litigation involving an alleged breach of a contract of sale of real property was entered into by counsel for the parties. We conclude, from the facts presented, that no such agreement was reached between the counsel for the parties.1
The facts of the instant case are as follows: 2 On June 5, 1979, William E. Butler (“Butler”) entered into an agreement of sale with Thomas F. White (“White”) for the sale of the real property located at 1806-14 Green Street, Philadelphia, Pennsylvania (“the Green Street property”). When that sale was not consummated, White instituted a suit against Butler in the state courts to compel specific performance of that agreement of sale. Thereafter, negotiations were held between counsel for Butler and White in an attempt to settle that litigation.
Subsequently, on April 30, 1981, Butler filed a petition for an adjustment of his debts under chapter 13 of the Bankruptcy Code (“the Code”). On June 23, 1981, Butler filed the instant adversary proceeding against White asserting that an agreement had been reached between the parties to settle the state court litigation for $25,-000.00 and requesting the court to subordinate White’s claim in that amount pursuant to § 510(c) of the Code.3 White answered that complaint by denying that any agreement had been reached by the parties.
In the interim, the Green Street Limited Partnership, the assignee of a mortgage on the Green Street Property, filed a complaint against Butler seeking relief from the automatic stay to permit it to foreclose its mortgage on that property.4 The parties to the automatic stay litigation agreed to continue that adversary proceeding pending a decision on the complaint of Butler against White. In particular, Butler agreed that, if he lost in his action against White, the Green Street Limited Partnership would be entitled to an order granting it relief from the stay.5
From the evidence presented herein, we conclude that it is insufficient to sustain Butler’s assertion that an agreement was reached between him and White. To support his contention, Butler offered the testimony of his attorney, Sheldon A. Goodstadt. *570Goodstadt testified that he had been involved in the negotiations for the settlement of the state court negotiations with White’s attorney, Vito F. Canuso. Good-stadt stated that on April 27, 1981, he contacted Canuso and asked him to contact White and determine what White would take to settle the outstanding state court litigation. Goodstadt testified further that Canuso later called him back (on April 30, 1981) and stated that White would settle that litigation for $25,000.00 and that, after Goodstadt had spoken with Butler, Good-stadt told Canuso that that figure was acceptable. Goodstadt thereafter sent a letter on May 11, 1981, enclosing a form of a settlement agreement to Canuso with the terms they had discussed.6
In addition to Goodstadt’s testimony, Butler offered the deposition of Richard Max Bockol, the attorney for certain third parties7 who had been negotiating with Butler to purchase the Green Street property at the same time that Butler and White allegedly entered into an agreement to settle their state court litigation. Bockol stated that, some time between April 21 and 28, 1981, he met with Goodstadt who stated that a settlement agreement had been reached between Butler and White. Bockol stated that, in order to confirm that information, he contacted Canuso on that day and was told that an agreement had been reached containing the terms that Good-stadt had specified. Bockol stated that, based on those conversations, he had an agreement prepared for the purchase of the Green Street property by his clients. That agreement contained a sales price which was calculated to include the $25,000.00 settlement figure between Butler and White and was signed by Butler and Bockol’s clients on April 28, 1981.
In rebuttal, White offered his own testimony and the testimony of his attorney, Canuso. White testified that, although he had discussed the possibility of a settlement with Canuso, he had never authorized Canu-so to enter into any settlement of the state court litigation on his behalf. Canuso testified that on April 28, 1981, Goodstadt called him and made an offer on behalf of Butler to settle the litigation for $25,000.00.8 Ca-nuso stated that he told Goodstadt at that time that he would discuss that offer with his client. Canuso also stated that he did receive a call from Bockol inquiring about a settlement between Butler and White but that that call occurred after April 28, 1981, and that he told Bockol that he had only received an offer from Goodstadt. Canuso testified further that Bockol told him at that time that an agreement had already been reached between Butler and Bockol’s clients. Canuso stated further that, when he received the proposed settlement agreement from Goodstadt, it contained terms different from those that had been discussed by him and Goodstadt on the phone. However, he stated that he sent the document to his client, White, who subsequently rejected it.
If the only evidence before the Court was the contradictory testimony given by the parties and their attorneys, our decision would be extremely difficult. However, there are several factors, in addition to the testimony of White and Canuso, which lead us to conclude that White’s assertion that no settlement agreement was reached is correct. First, the letter sent by Goodstadt to Canuso enclosing the alleged settlement agreement supports Canuso’s testimony rather than Goodstadt’s testimony as to whether an agreement had been reached.9 In particular, that letter states that enclosed is “an original and two copies of the proposed Settlement Agreement”10 That letter concludes “Kindly review the proposed Settlement Agreement and if accept*571able as drawn, kindly have your client execute same and return the original and one copy to me for execution by my client.” 11 We conclude that the language used by Goodstadt in that letter provides support for White’s contention that no agreement had been reached between the parties at that time.
Second, we find that the fact that an agreement was reached between Butler and Bockol’s clients does not lead us to conclude that an agreement had previously been concluded between Butler and White. Not only did Canuso testify that he told Bockol that no such agreement had been reached, but Goodstadt testified that no agreement had been reached between Butler and White until April 30, 1981, which was two days after Butler and Bockol’s clients had executed their agreement of sale. Therefore, Bockol’s testimony that he had been told, before April 28, 1981, that an agreement had been reached between Butler and White and that, based on that information, he advised his clients to sign the sales agreement on April 28, 1981, was contradicted by both Canuso and Goodstadt and is, therefore, not credible evidence that Butler and White had entered into a settlement agreement as of that date.
Based on all of the above evidence, we conclude that no settlement agreement had been reached between Butler and White to settle their state court litigation and that, consequently, the relief requested by Butler in the instant adversary proceeding should be denied. Furthermore, in light of the parties’ agreement, we will also enter an order in the adversary proceeding brought by the Green Street Limited Partnership against Butler granting relief from the stay.12
. Two other issues raised by the parties herein were: (1) whether counsel for the defendant, White, had been authorized by White to enter into an agreement settling the litigation and (2) whether, if White’s counsel had such authority and if such an agreement had been reached, the claim of White arising from that agreement is an unsecured claim which should be subordinated to other creditors under § 510(c) of the Bankruptcy Code. Because we conclude that no agreement was reached, we find it unnecessary to reach the other issues presented.
. This opinion constitutes the findings of fact and conclusions of law required by Rule 752 of the Rules of Bankruptcy Procedure.
. Section 510(c) of the Code provides in part:
(c) Notwithstanding subsections (a) and (b) of this section, after notice and a hearing, the court may—
(1) under principles of equitable subordination, subordinate for purposes of distribution all or part of an allowed claim to all or part of another allowed claim or all or part of an allowed interest to all or part of another allowed interest.
11 U.S.C. § 510(c)(1).
. See, Green Street Limited Partnership v. William E. Green and James J. O’Connell, Standing Trustee, Adv. No. 81-0728 (filed June 29, 1981).
. See N.T. at 9-10 (Adv. No. 81-0728G, July 27, 1981) and N.T. at 2-3 (Adv. No. 81-0691G, August 24, 1981). If Butler won his complaint against White, he asserted that he would be able to sell the Green Street property to certain third parties (see note 6 infra) and pay off the mortgage debt owed to the Green Street Limited Partnership.
. See Exhibits P-1 and D-2.
. Those third parties were Patricia Horwitz, Harry Horihan and Dennis Mitchell.
. In support of his testimony, Canuso produced the note which he had made at the time of the phone conversation with Goodstadt which stated “4-28-81 Goodstadt Offer to Settle for $25,-000.” See Exhibit D-l.
. See Exhibit P-1.
. Id. at ¶ 1.
. Id. at ¶ 4.
. See notes 4 and 5 and accompanying text supra. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489347/ | OPINION
PER CURIAM:
This is an appeal from a judgment entered on a debt found to be excepted from discharge pursuant to 11 U.S.C. § 523(a)(2). We affirm.
I
Appellant-debtor Marx sold certificates evidencing ownership of 4000 shares of Par-adyne Corp. stock to appellee Laughlin for $25,500. There is no dispute that appellant *48obtained these certificates from Paradyne fraudulently.
Appellee, without knowledge that the certificates were valueless, thereafter entered into a series of agreements with appellant, whereby he received a number of promissory notes and finally stock in a second corporation, Central States Professional Services, Inc.
Appellee then filed a state court action against appellant in Illinois for violations of state securities laws as to the Central States stock and obtained a judgment for the amount of his loss plus interest and attorney’s fees. Appellant thereafter instituted bankruptcy proceedings in the Central District of California, to which appellee responded with a complaint to determine the dischargeability of his debt.
The trial court found the debt nondis-chargeable but, because the Illinois judgment included attorney’s fees awarded under state law that would be dischargeable in bankruptcy, a new judgment limited to principal and interest in the amount of $37,-016.85 was entered. The present appeal was thereafter filed.
Appellant has made two contentions on appeal. First, he claims that the trial court erred in failing to find a novation of the fraudulently induced stock transaction by the subsequent agreements. Second, he claims that the Illinois judgment was based only upon the Central States Professional Services stock transaction and therefore the appellee had waived the right to complain of fraud in the original Paradyne stock transaction for purposes of a nondischarge-ability in bankruptcy.
II
Appellant contended at trial, as he does now, that the transactions occurring subsequent to the original stock transactions acted as novations, thereby replacing and su-perceding the initial fraudulent transaction. Appellee contended that the subsequent transactions were made in addition to the initial stock transaction and each succeeding promissory note merely replaced the previous note, not the original stock transaction.
The trial court found that the promissory notes and second stock transaction were agreements for additional security and did not supercede or replace the original agreement. Appellant claims that the judge erred in failing to find a novation because two of these subsequent agreements contained a clause stating that the agreement “supercedes and replaces” all previous agreements between the parties.
The subsequent agreements were entered into in Illinois. As appellant points out, Illinois law regarding novations is substantially similar to California law. The key to an effective novation in both states is that both parties must intend to extinguish the original agreement and replace it with the new agreement. California Civil Code § 1531, Hunt v. Smyth, 25 Cal.App.3d 807, 101 Cal.Rptr. 4 (1972). Kiefer v. Reis, 331 Ill. 38, 162 N.E. 157 (1928).
In order to overturn the lower court judge’s findings on appeal, they must be shown to be clearly erroneous. Bankruptcy Rules 752, 810, Purer and Co. v. Aktiebolaget Addo, (9th Cir. 1969) 410 F.2d 871, Cert. Den. 396 U.S. 834, 90 S.Ct. 90, 24 L.Ed.2d 84.
The record on appeal contains evidence and testimony showing that the parties did not intend to extinguish the original Paradyne stock transaction. We cannot say that the finding to this effect was clearly erroneous.
Ill
Appellant’s second contention is that appellee waived his right to complain of fraud in the original stock transaction for purposes of nondischargeability in bankruptcy when he obtained the Illinois judgment based only upon the Central States Professional Services stock transaction. Appellant argues that appellee cannot now go behind the judgment to assert fraud in the original transaction.
The Supreme Court in Brown v. Felson, 442 U.S. 127, 138, 99 S.Ct. 2205, 2213, 60 *49L.Ed.2d 767 (1979), refutes this contention by its holding that “.. . the bankruptcy court is not confined to a review of the judgment and record in the prior state court proceeding when determining the dis-chargeability of [a] debt.” In the present case, the Illinois judgment represents one form of the debt owed by appellant to ap-pellee. The bankruptcy court was not barred from noting that the debt was fraudulently induced, notwithstanding the fact that the debt had taken the form of a judgment which is not based on the original fraud.
Affirmed. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489348/ | MEMORANDUM AND ORDER
ROBERT L. EISEN, Bankruptcy Judge.
This matter came to be heard on two separate motions filed by the defendants, Alloy Automotive Company and Continental Illinois National Bank and Trust Company, to dismiss the adversary complaint filed by the plaintiff-debtor, Wesco Products Company. The court having carefully considered the memoranda filed by the parties and being fully advised in the premises, does hereby grant defendant’s motions dismissing the plaintiff’s adversary complaint.
In support of their motion, defendants contend the following: 1) that the plaintiff has failed to state any claim upon which relief can be granted under F.R.C.P. (12)(bX6); and 2) that the plaintiff’s complaint fails to plead fraud with particularity as required by F.R.C.P. (9)(b). The plaintiff contends that it has stated valid claims as to breach of contract, breach of fiduciary duty, fraud, negligence, conversion and breach of a sales contract.
FACTUAL BACKGROUND
Plaintiff-debtor Wesco Products Company, filed a petition for reorganization under Chapter 11 of the Bankruptcy Code on or about October 6,1980. On October 14,1980 defendant Alloy and the debtor through its sole shareholder, Donald Horwitz, entered into an agreement whereby Alloy agreed to provide funds to the debtor in connection with its reorganization proceedings and agreed to acquire either all of Wesco’s outstanding stock or certain of Wesco’s assets. In exchange for Alloy’s promises, Donald Horwitz, Wesco’s sole shareholder, granted Alloy an irrevocable proxy to vote all of Weseo’s shares. The October 14, 1980 agreement was conditioned on an order confirming a plan of reorganization which would incorporate the agreement’s terms.
*112A plan of reorganization containing said agreement was never confirmed by this court. However, in March of 1981 a new agreement was entered into between the parties in which Alloy agreed to purchase certain of Wesco’s assets and obtain a license for use of Wesco trademarks and trade name in connection with certain products. This court did approve the March 1981 agreement.
On February 3,1982 the plaintiff filed its amended adversary complaint against Alloy and Continental Bank, the debtor’s largest secured creditor, alleging breach of contract, breach of fiduciary duty, fraud, negligence, conversion and breach of sales contract, as outlined previously.
DISCUSSION
It has long been recognized in the Federal Court system that the standard by which to measure sufficiency of pleadings is not a rigid one. Neither absolute clarity nor absolute precision is required. However, a complaint must at least inform a defendant with reasonable particularity of a legally cognizable claim against him. In the present case the plaintiff has asserted as causes of action, breach of contract, breach of fiduciary duty, fraud, conversion and negligence. The complaint alleges these claims in a very general and conclusory fashion providing neither the court nor defendants with no real clue as to the particular basis for its claim.
The United States Supreme Court has established that a complaint should not be dismissed for failure to state a claim unless it appears beyond doubt that the plaintiff can prove no set of facts in support of his claim that would entitle him to the relief requested. Cruz v. Beto, 405 U.S. 319, 322, 92 S.Ct. 1079, 1081, 31 L.Ed.2d 263 (1972); Conley v. Gibson, 355 U.S. 41, 45-6, 78 S.Ct. 99, 101-2, 2 L.Ed.2d 80 (1957). While this court concedes that we must accept as true all material facts well pleaded in the complaint, and we must view the alleged facts and make all reasonable inferences in the light most favorable to the plaintiff, we are not required to accept legal conclusions either alleged or inferred from the pleaded facts. Mescall v. Burrus, 603 F.2d 1266 (CA 7 1979). The inherent problem in plaintiff’s complaint is that it lacks the well pleaded facts necessary to inform this court of the factual basis of its claims and the reasonable likelihood that it can prove any set of facts in support of its claims. The plaintiff’s complaint is little more than a set of conclusions.
The plaintiff in its breach of contract action does recognize that in order to sue on a contract which has been superceded by another agreement, it must allege that the second agreement is a nullity. However, the plaintiff alleges no facts nor legally cognizable theories as to how the Court approved agreement of March 13, 1981 could be declared void. Therefore, plaintiff has failed to state grounds on which this court could consider issues bearing on the October 1980 agreement which it apparently seeks to resurrect.
The allegations of a breach of fiduciary duty on the part of both Alloy and Continental Bank again state legal conclusions which cannot sustain such a finding. The complaint alleges that Alloy, by virtue of its “take over” of Wesco, became a fiduciary and thus had a duty as such to Wesco. However, beyond the conclusory allegation that Alloy was a fiduciary the plaintiff alleges nothing which could lead a finder of fact to believe the parties were operating in anything but an arms length relationship. The complaint also alleges that Continental became a fiduciary as a result of its position as a major secured creditor. Beyond this conclusory allegation, the complaint again fails to set forth anything which could form the basis of proof that such a relationship existed.
The negligence allegations against Alloy and Continental suffer from the same inherent defects as its fiduciary duty claims. In order to establish a claim for negligence, the complaint must set out the nature and existence of a duty owed by the defendant to plaintiff, a breach of that duty and an injury proximately resulting there*113from Cunis v. Brennan, 56 Ill.2d 372, 308 N.E.2d 617 (1974), Chesapeake & Ohio Ry. v. Nixon, 271 U.S. 218, 46 S.Ct. 495, 70 L.Ed. 914. The complaint alleges that Alloy, with full consent of Continental, was in total control of Wesco’s operations and by virtue of said relationship owed a duty to plaintiff to refrain from negligent conduct. Plaintiff’s allegation as to duty does not go beyond the mere conclusion that defendants were owed such. Without more, the plaintiffs have failed to plead the minimum facts necessary to properly assert a duty under a negligence theory and withstand the defendant’s motion to dismiss. It is not necessary for this court to consider the rest of the negligence elements.
The complaint’s conversion allegations and breach of 26 Ill.Rev.Stat. 9-207 seem to be contingent on a determination of the posture of the March 1981 court approved contract. Since plaintiff, as stated previously, has stated no colorable claim regarding the March 1981 contract, its conversion and 9-207 claims are pure conclusions.
Finally, as to the allegation that Alloy is guilty of fraudulent conduct, F.R.C.P. 9(b) recognizes that fraud is a special pleading matter and requires that it shall be stated with particularity. In order to properly allege fraud the plaintiff must allege that the defendant has made a representation to plaintiff in regard to a material fact; such representation must have been false; this falsity must have been known by the defendant to be so; defendant must have intended that plaintiff would rely on the representation and act on it; and unaware of the falsity of the representation plaintiff must have relied on the representation and acted on it to its detriment. Southern Development Co. v. Silva, 125 U.S. 247, 8 S.Ct. 881, 31 L.Ed. 678, Bouxsein v. Granville National Bank, 292 Ill. 500, 127 N.E. 133 (1920).
While the complaint does state some facts alleging that representations were made to it by Alloy, plaintiff fails to particularize what type of representations were made and how they were false. Furthermore, the allegations fail to particularize the necessary element of reliance and its causal connection with detriment. Plaintiff repeatedly asserts that Alloy “took control” of Wes-eo. However, there are no facts asserted that such position was improperly obtained without knowledge or acquiescence of plaintiff. Perhaps plaintiff believes it did not get what it bargained for but absent greater particularity in the pleadings the court cannot infer such details and cannot detect a validly plead claim for fraud.
CONCLUSIONS
F.R.C.P. 12(b)(6) permits defendants to move to dismiss claims for relief when they fail to state a claim upon which relief can be granted. Inherent in F.R.C.P. 12 is the requirement that a complaint for relief, while not required to plead all possible facts and theories with absolute clarity and precision, must at least inform a defendant with reasonable particularity of a legally cognizable claim against him. The allegations of breach of contract, breach of fiduciary duty, negligence, conversion and 9-207 claims assert mere conclusory allegations. Therefore, the complaint fails to state a cause of action upon which relief may be granted and must be dismissed.
Furthermore, F.R.C.P. 9(b) requires that fraud be stated with particularity to sustain a motion to dismiss. While plaintiff does attempt to state a valid fraud claim it does not do so with enough particularity to meet the requirements of F.R.C.P. 9(b). As a result, the fraud claim must also be dismissed.
WHEREFORE, IT IS HEREBY ORDERED that the motions of the defendants Alloy Automotive Company and Continental Illinois Bank & Trust Company to dismiss the plaintiff’s adversary complaint be and are hereby granted. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489349/ | OPINION
WILLIAM LIPKIN, Bankruptcy Judge.
The three above named proceedings involve a common thread of facts and conclusions of law to be attached thereto.
Upon conclusion of the three trials a decision was rendered orally thereon identical *133in finding of fact and law. The defendant has filed a Notice of Appeal and this written opinion is rendered upon all three estates.
Briefly, the facts are as follows:
On October 1, 1981 the Debtors, William Sands, Jr. and Anna Theresa Sands, filed a Petition for Relief1 under the provisions of Chapter 7 of the Bankruptcy Code.2 John F. Rodgers, Jr. was designated as the Interim Trustee by the United States Trustee.3 Mr. Rodgers, upon his application, was appointed as attorney for the trustee, pro se.
The Petition does not name an attorney for the Petitioners. However, of critical interest is the “Revised statement of compensation” as required under the provisions of Rule 219(b) attached to the Petition for Relief.4
The statement sets forth the following information:
The undersigned, pursuant to Rule 219(b), Rules of Bankruptcy Procedure, states that the compensation paid or promised by the debtor(s), to the undersigned, is as follows:
For legal services rendered (including spouse if both file), Debtor agreed to pay .$ “None”
Prior to the filing of this Statement, Debtor (and spouse if applicable) has paid the undersigned.$ “160.00”
Balance due.$ “None”
The filing fee - has not been paid “Installment Application Filed”
The services rendered or to be rendered include the following:
(a) Analysis of the financial situation, and rendering advice and assistance to the client in determining whether to file a petition under title 11, United States Code. “None”
(b) Preparation and filing of the petition, schedules of assets and liabilities, and statement of affairs.
“Yes: Payment for typing of forms by my direction.”
(c) Representation of the client at the first meeting of creditors. “None”
The undersigned further states that the source of monies paid by the Debtors) to the undersigned was and is, earnings, wages and compensation for services performed, and
“Typing Service. Bradford Arthur, Box 211, Ardmore, Pa. 19003”
*134The undersigned further states that the undersigned has not shared, or agreed to share with any other person, other than with members of undersigned’s law firm, any compensation, except as herein after set forth.
“None”
Typed at the bottom of the Statement were the words, “Pro-Se”.
The Petition for Relief under Chapter 7 was filed by Kenneth C. Robinson on October 2, 1981.5 The questions in the Statement required by Rule 219(b) was filled in substantially as in the Sands’ Petition by Bradford Arthur, wherein he set forth that he was paid $160.00 prior to the filing of the Statement and that his services did not include an analysis of the financial situation and advice in determining whether to file a Chapter 11 petition instead of a Chapter 7 petition. He set forth that his “services rendered or to be rendered include the following:” on the printed statement,
Preparation and filing of the petition, schedules of assets and liabilities, and statement of affairs.
“Yes: Typing of (b) (forms) by direction of petitioner acting pro-se.” Representation of the client at the first meeting of creditors “None”
The undersigned further states that the source of monies paid by the Debtors) to the undersigned was and is, earnings, wages and compensation for services performed, and
“Compensation for typing service.”
The reference in the Statement as to whether the filing fee has or has not been paid was not completed either way.
The Petition for Relief under Chapter 7 was filed by Charlotte R. Short on September 30, 1981.6
The Statement required by Rule 219(b) reveals that it was submitted by Bradford Arthur. The answers to the queries in the Statement in this Estate are the same as in the Robinson Estate, to wit, he was paid $160.00 and he typed in the same responses that his services included typing of the forms by direction of petitioner acting prose and as to source of moneys was “compensation for typing services”.
He indicated in the Statement that the filing fees were paid in this Estate.
Bradford Arthur gave as his address in all three Estates, Box 211, Ardmore, Pa. 19003.
John Rodgers, Jr. was designated as the Trustee in all three Estates by the United States Trustee, Hugh M. Leonard.
The Trustee has filed a complaint in all three Estates against Bradford Arthur wherein he stated:
4. It is the belief of the Trustee that the Defendant, BRADFORD ARTHUR acted as the attorney for the Debtors and that he is not authorized to practice law in the State of New Jersey and therefore, the $160.00 should be turned either over to the Trustee or to the Debtor.
5. Should the Court determine that MR. BRADFORD ARTHUR did not act as the attorney for the Debtor, but only as a “consultant”, it is the belief of the Trustee, that the $160.00 is an unreasonable fee for “typing” the Petitions.
WHEREFORE, Judgment is demanded against the Defendant:
a. requiring the Defendant to turn over to the Trustee $160.00;
b. whatever remedy the Court sees reasonable and just.
In each of these cases in which the Debt- or filed a Petition for Relief the machinery to file a Petition was generated by an advertisement in the Camden Courier Post newspaper whereby the reader was invited to call a number whereby the reader could obtain relief from their debts. The Debtors in the three Estates herein involved7 called *135the telephone number listed in the advertisement and inquired thereof, and subsequently they were all visited at their respective homes by Bradford Arthur, the defendant herein.
In each case he reviewed with them the names of their creditors, the real estate and personal property they owned and the value of such assets and had them pay him one half of his fee and he made lists of such facts. He told them his charge or fee, however it was called, was $160.00 and in each Estate he was then paid $80.00. He departed their respective homes and then returned with the Petition and Schedules completely typed up including the schedule which set forth their exemptions. In each of the Estates the exemptions consumed all of the assets set forth in the schedules.
Each of the Debtors then paid Arthur the balance of $80.00 and he was paid $60.00 by Sands and Robinson and Short for the filing fees.
The defendant, Bradford Arthur, is not a member of the Bar of New Jersey.8 He would have this court accept his contention that he was not engaged in the practice of law when he advertised in the leading newspaper of the central and southern portion of New Jersey for engagement of his services by individuals who desired to be discharged of their debts, but only that he acted as a typing medium for individuals. His defense to the complaints of the Trustee on that ground is totally without reason and credibility. The execution of petitions to be relieved of debts by individuals is more than a ministerial act. The person who counsels a petitioner must know the law relating to ownership of real estate and liens thereon, as to who are “prior” creditors such as tax claimants and entry of such claimants on the proper schedules and whether an individual is actually a creditor. The Petitioner is informed as to ownership of personal property and rights thereto. Particularly important under the Code, effective October 1, 1979, are the exemptions to which a Petitioner is entitled. It is clear from the testimony and the schedules actually filled in by Arthur that he took advantage of the exemptions afforded to the Petitioners. He went over with the Petitioners their assets and liabilities. Then he made them out for each of the Petitioners— the Petition, the Schedules and Statement of Affairs, plus the Bankruptcy Rule 219 Statement. Arthur outdid his canniness when he, in order to try to establish that his only function was as a typist, answered the query in the Rule 219 statement of the source of the fund from which he was paid as “typing service”.
It is clear from the facts in these cases that Arthur was engaged in the unauthorized practice of law in this State. His activity in this State clearly fell within the parameters defined by Judge King in the decision rendered against him in the case of In the Matter of Bradford Arthur, 15 B.R. 541, 8 B.C.D. 459, 460 (Bkrtcy.E.D.Pa.1981) wherein services of a legal nature:
. . . include: (1) advising and counseling “clients” as to the various provisions of the Bankruptcy Code, [2] including exemptions, dischargeability and the automatic stay, (2) advising and counseling members of the general public on the relative advantages of filing a petition for liquidation under Chapter 7 of the Bankruptcy Code (the Code) versus filing a petition for an adjustment of debts under Chapters 11 or 13 of the Code, (3) actually (and almost exclusively) preparing and filing Chapter 7 petitions and (4) preparing and filing applications to pay filing fees in installments. For the reasons set forth below, we hold that the *136various services which the respondent performs constitute the practice of law. The proper protection of the members of the public demands that no person be permitted to perform these legal services in connection with a bankruptcy proceeding unless he is a member of the bar and is subject to the requirements and regulations of the legal profession. Accordingly, the respondent is hereby directed to comply fully with the Order of this Court. Failure to comply, with any provision of this Order will result in the imposition of sanctions.
The decision then cites a decision of Judge Goldhaber dated March 18, 1981, involving the conduct of the same defendant, Bradford Arthur, and whether it was established that he was engaged in the unauthorized practice of law, page 461, sequi. The conclusions of law reached by Judge Gold-haber, page 462, are well founded to the effect that Arthur was actively in their court, engaged in the unauthorized practice of law, and I do find that his conduct in this State was of the very same nature.
For an individual to practice law in this court the individual must comply with local Bankruptcy Rule 1 which relates to admission of attorneys. Rule 1 provides:
(a) The Bar of this Court shall consist of:
(1) any attorney admitted to practice before the United States District Court for the District of New Jersey, and the Local Rules of the United States District Court governing practice by attorneys shall apply;
(2) Local Rules of the District Court number 4 and number 5 are incorporated herein by reference
Briefly stated Rule 4 and 5 of the Local Rules for the United States District Court for the District of New Jersey provide that the bar of this court will consist of members admitted to practice before that court or may be hereafter admitted. The District Court Rule 5 requires that a member of the court who does not have an office within the District of New Jersey must in each cause in which he appears file an appointment of a member of the bar of this court who does maintain an office upon whom pleadings and orders may be served and who may be obliged to attend before the court, etc.
The Rules of our Court are, in effect, to give litigants the protection to which they are entitled when they engage the services of an attorney. It is not for the economic benefit of members of our Bar. Arthur has engaged himself in the unauthorized practice of law in this State and is not subject to sanctions that are normally available to the judges and litigants that must appear in the courts of our State, in the event of wrongdoing on the part of such advocate. The expert advice of such persons may be faulty and ill conceived.
The court would not be able to control the conduct of Arthur should he not be a member of this Bar. Consequently he was not privileged to practice law in this District. Since he did engage in the unauthorized practice of law, he had no right to collect fees arising out of such activity.
Bankruptcy Rule 220(a), set forth above, permits the court to examine into the payment of money by a bankrupt to an attorney for services rendered or to be rendered and, as set forth in 220(c), may order repayment for the benefit of the Estate or to the Debtor. The defendant, Bradford Arthur, has rendered legal services to the Debtors in violation of our Rules. He should not be able to retain such funds at the expense of individuals he had no right to represent. It was not necessary for him to appear in court upon their behalf in order to constitute unauthorized legal representation. Clearly, if this court has jurisdiction to review fees of attorneys admitted to practice law in this District, it has jurisdiction to pass upon and prevent collection of fees by persons who engage in the unauthorized practice of law in this District. I am of the opinion that the Debtors have been wronged rather than the Estate of the Debtor and, therefore, the fees paid by them to Arthur must be returned by him to them for their benefit.
*137I have heretofore orally, at the time of the trial, ordered that the conduct of Arthur in engaging in the unauthorized practice of law is to be reported by the Trustee to the Unauthorized Practice of Law Committee of the New Jersey State Bar.
For the foregoing findings of fact and conclusions of law, a judgment shall be entered that Bradford Arthur pay to each of the Debtors herein the sum of $160.00.
. The date of execution of the Petition by the Debtors was August 20, 1981.
. As disclosed in the Statement of Affairs, question 7, relating to “Prior Bankruptcy”, the Debtors had filed a Petition in Bankruptcy under the Code on July 25, 1980 in this District, and had as their attorney David Daniels, a member of the Bar of New Jersey.
. The District of New Jersey is a Pilot State under the provisions of 28 U.S.C. § 581 and Interim Trustees of all Estates are appointed by the United States Trustee, Hugh M. Leonard.
. Bankruptcy Rule 219(b) provides:
Disclosure of Compensation Paid or promised to Attorney for Bankrupt. Every attorney for a bankrupt, whether or not he applies for compensation, shall file with the court on or before the first date set for the first meeting of creditors, or at such other time as the court may direct, a statement setting forth the compensation paid or promised him for the services rendered or to be rendered in connection with the case, the source of the compensation so paid or promised, and whether the attorney has shared or agreed to share such compensation with any other person. The statement shall include the particulars of any such sharing or agreement to share by the attorney, but the details of any agreement for the sharing of his compensation with a member or regular associate of his ¡aw firm shall not be required. (Underlining added).
Rule 220 provides:
Examination of Bankrupt’s Transactions with his Attorney
(a) Payment or Transfer to Attorney in Contemplation of Bankruptcy. On motion by any party in interest or on the court’s own initiative, the court may examine any payment of money or any transfer of property by the bankrupt, made directly or indirectly and in contemplation of the filing of a petition by or against him, to an attorney for services rendered or to be rendered.
(c) Invalidation of Unreasonable Payment, Transfer, or Obligation. Any payment, transfer, or obligation examined under subdivision (a) or (b) of this rule shall be held valid only to the extent of a reasonable amount as determined by the court. The amount of any excess found to have been paid or transferred under subdivision (a) or (b) may be recovered for the benefit of the estate or the bankrupt, as their interests may appear ....
.The Petition and moving papers including the ■ 219(b) Statement were executed by Debtor on August 28, 1981.
. The Petition and supporting papers were executed by the Debtor on September 4, 1981.
. I take judicial notice that other Petitions have been filed which were prepared by Bradford *135Arthur after he consulted with such other Debtors. Under Rule 220(a) set forth above the court, “... on the court’s own initiative, the court may examine any payment of money . . . by the bankrupt, made directly or indirectly and in contemplation of the filing of a petition by or against him, to any attorney for services rendered or to be rendered.”
. Though Arthur gave as his address, Ardmore, Pa., he is not a member of the Bar of Pennsylvania and has been enjoined from the unauthorized practice of law in Pennsylvania by engaging in the same activity as in the State of New Jersey, as above set forth. See In the Matter of Bradford Arthur, 15 B.R. 541, 8 B.C.D. 459 (Bkrtcy.E.D.Pa. 1981, B.J. King). | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489350/ | ORDER ON PRELIMINARY INJUNCTION
ALEXANDER L. PASKAY, Chief Judge.
THIS IS a Chapter 11 case and the matter under consideration is a complaint which seeks a preliminary injunction against James A. Helinger, Sr., d/b/a Jim Helinger, Sr. Companies (Helinger), the Debtor involved in the above-captioned proceeding. The complaint is filed by the National Football League Properties (NFLP) and Tampa Bay Area NFL Football, Inc. d/b/a “Tampa Bay Buccaneers” (Buccaneers). The request for preliminary injunction was scheduled in due course at which time the Court heard testimony of witnesses and now having considered the record together with the proposed Findings of Fact, Conclusions of Law submitted by counsel for the respective parties now finds and concludes as follows:
The NFLP is a corporation jointly owned in equal shares by 28 Member Clubs of the NFL. It is a corporation organized and existing under the laws of the state of California and maintains its principal place of business at 410 Park Avenue, New York, New York. The Buccaneers is a Florida corporation and is the owner of a franchise located in Tampa, Florida of a professional football team known as the Tampa Bay Buccaneers. Helinger is a Debtor who originally sought relief under Chapter 13 of the Code but has not been able to achieve confirmation of his plan under that chapter and converted his case to a Chapter 11 case which is still pending. Helinger owns and operates a business enterprise located at 2646 Central Avenue, St. Petersburg, Florida and is engaged in the general advertising business. It appears from the record that the Member Clubs of the league, including the Buccaneers, adopted and have used, and still use, various names, terms, symbols, emblems, designs and colors and other identifying marks. Many of these have been registered in the United States Patent and Trademark Office under the provisions of the Lanham Trademark Act, § 1 et seq., 15 U.S.C. § 1051 et seq. Some of these items are also protected by similar provisions of various state laws under the common law trademark protection. The protection to Member Clubs extends to the names by which the Member Clubs are *141known by the public, in this instance, the name Buccaneers, or Bucs, and the logos used by the Bucs identify the team by the helmet design and team colors. The Buccaneers did register certain of their trademarks under the provisions of federal and state laws. For instance, the Buccaneers obtained and hold a registration for the marks “Tampa Bay Buccaneers”, “Buccaneers” and “Bucs”. (Plf’s Exh. 15, 16, 17, 20, 22, 23 & 24). The trademarks of the Buccaneers are known to the public, especially to the fans of the team but also to public in general who live in the Tampa, St. Petersburg metropolitan area. Due to extensive advertisement and promotions by the Member Clubs is magazines, newspapers, radio and television broadcasts and extensive television coverage, there is no doubt that these trademarks are well known to the public in general.
The NFLP was formed in 1963 for the purpose of representing Member Clubs and for the purpose of marketing commercially certain novelty items carrying the symbols, logos and colors of the respective clubs. In order to achieve this, each Member Club entered into an agreement with NFLP whereby each club licensed the NFLP to use their respective trademarks for commercial purposes and also to carry on certain other promotional activities on behalf of the Member Clubs. When the Buccaneers joined the National Football League in 1976, it also entered into such an agreement with NFLP. These agreements generally provide that NFLP has an exclusive right to use the trademarks of the Member Clubs for promotional purposes to protect the trademarks from infringement, dilution or misappropriation and generally to protect the interest of NFL and the Member Clubs by publishing catalogs and establishing promotional programs, approved by the Member Clubs. As a result of promotional activities of NFLP, the trademarks became commercially valuable. When the trademarks appear on articles of merchandise, members of the public perceive that such merchandise has been sponsored or authorized by the NFL and by the Member Clubs. Members of the public, especially football fans, who desire to associate themselves with the respective Member Clubs, purchase merchandise bearing the trademarks in the belief that the NFL and the Member Clubs approve of and vouch for the quality of such merchandise.
NFLP has entered into numerous agreements with manufacturers and distributors of articles of merchandise, by which it has licensed such manufacturers and distributors to use the trademarks in the advertising and sale of licensed goods, the quality of which is supervised and controlled by NFLP on behalf of the Buccaneers and the other Member Clubs. For example, NFLP has entered into agreements with manufacturers and distributors of such items as T-shirts, sweatshirts, football games, novelty items, sports equipment, home furnishings and other products for sale and distribution to the public.
NFLP has granted a number of licenses to third parties for the use of the trademarks on novelty items such as flying saucers, automobile license plates, bumper stickers, cigarette lighters, key chains, lamps, mugs and glassware (collectively “novelties”). All novelties produced and sold by third parties under license from NFLP are subject to the approval of NFLP, which sets quality standards with respect to such merchandise and which engages in other activities designed to insure that all novelties bearing the trademarks are of high quality and accurately depict the trademarks.
Novelties bearing the trademarks and manufactured by NFLP’s licensees are made available for sale and are sold at various retail outlets throughout the United States, including many in the State of Florida and in the Tampa-St. Petersburg metropolitan area.
The Member Clubs have established a foundation known as NFL Charities, a charitable trust which provides funding to a wide variety of charities, including the United Way and like causes. Each Member Club, with the exception of the Oakland Raiders, has entered into agreements *142whereby the royalty payments otherwise payable to the Clubs go instead to NFL charities. Tampa Bay signed a pledge agreement upon entry into the NFL in 1976 whereby it pledged its licensing revenues to NFL charities. NFLP’s contributions to NFL charities amounted to approximately $1,400,000 in 1981. The sole source of revenue for NFL charities is royalty payments from the sale of licensed merchandise bearing the trademarks.
The record further reveals that Helinger did operate in the past a business which offered for sale, a variety of novelty items many of which bore the official team colors of the Buccaneers and its registered marks. There is no doubt that Helinger copied the trademarks and the official team colors of the club from licensed novelties such as bumper stickers, megaphones, license plates and flying saucers (frisbees). In addition to using the trademarks and colors of the Buccaneers, Helinger also identified the particular merchandise by his own signature. An investigator of the NFLP did, in fact, purchase these items from Helinger in March, 1982 and there is no question that Helinger is not now and has never been licensed by NFLP to use the trademark of the Buccaneers or the trademark of any other Member Club. Helinger also offered for sale and sold some licensed merchandise bearing the trademark of the Buccaneers and produced by third parties licensed by the NFLP.
When NFLP first learned about Helinger’s activities in September, 1980, it demanded that Helinger cease or desist to sell any unlicensed merchandise carrying the trademark of the Buccaneers. Helinger refused to comply although at one time agreed in a telephone conversation that he would not sell any unlicensed merchandise. Upon promise of Helinger and upon relying on his statement that his company would be going out of business, NFLP agreed to settle the matter and sent a settlement agreement to Helinger for execution. Shortly after the settlement agreement was sent to Helinger, Helinger filed his petition under Chapter 13 and Helinger never returned an executed agreement. During the fall football season, Helinger continued to manufacture and sell novelty items bearing the trademark of the Buccaneers to retailers in the Tampa and St. Petersburg area. NFLP again demanded that Helinger cease and desist to sell unlicensed merchandise but Helinger never responded to the demand. However, there is no evidence in this record that Helinger is still engaged and will engage in the activity complained by NFLP that is in the manufacturing and selling of unlicensed merchandise. The fact of the matter is that there is no evidence in this record that Helinger has any unlicensed merchandise left in his possession, that is merchandise which carries the protected trademark, symbols and team colors of the Buccaneers.
These are the relevant facts as presented at the evidentiary hearing which, according to NFLP, justify the relief sought: the issuance of a preliminary injunction. In the trademark infringement case, the Plaintiff who seeks the injunctive relief must establish the following elements:
1. that there is a substantial likelihood that the Plaintiff will prevail on the merits;
2. that there is a substantial threat that the Plaintiff will suffer irreparable harm if the injunction is not granted;
3. that the threatened injury to the Plaintiff outweighs the threatened harm an injunction may cause to the alleged infringer; and
4. that granting the preliminary injunction will be in the public interest or granting the preliminary injunction will not dis-serve the public interest. Southern Monorail Co. v. Robbins & Myers, Inc., 666 F.2d 185, 186 (11th Cir. 1982).
There is no question that Helinger did, in fact, copy the registered trademark of the Buccaneers, the official team colors and sold unlicensed merchandise. The difficulty with NFLP’s position, however, is that injunctive reliefs operate prospectively and are designed to prevent future activity and not to punish past conduct. Dombrow*143ski v. Pfister, 380 U.S. 479, 85 S.Ct. 1116, 14 L.Ed.2d 22 (1965) and Rondeau v. Mosinee Paper Corp., 422 U.S. 49, 95 S.Ct. 2069, 45 L.Ed.2d 12 (1975). The fact alone that one infringed in the past furnishes insufficient basis to conclude that he will do so in the future unless enjoined. As noted earlier, in this instance, Helinger did sell unlicensed merchandise to the investigator of the Plaintiff on March 6 but there is no proof in this record that he still has unlicensed merchandise which he intends to sell. Moreover, the sales activities in this field basically do not commence until the Member Clubs open their training camps and put on their exhibition games. This will not occur until August. Thus, it is hard to conclude, based on the foregoing, that there is a threat of immediate harm to NFLP. Accordingly, to issue a preliminary injunction at this time is unwarranted.
Based on the foregoing, it is
ORDERED, ADJUDGED AND DECREED that the request for preliminary injunction sought by the Plaintiffs, National Football League Properties, Inc. and Tampa Bay Area NFL Football, Inc. d/b/a “Tampa Bay Buccaneers” against the Defendant, James A. Helinger, Sr., d/b/a Jim Helinger, Sr., Companies be, and the same hereby is, denied with prejudice. It is further
ORDERED, ADJUDGED AND DECREED that the final evidentiary hearing for permanent injunction and other relief be, and the same hereby is, scheduled to be heard before the undersigned on August 18, 1982 commencing at 2:00 p. m. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489353/ | MEMORANDUM OF DECISION
JAMES A. GOODMAN, Bankruptcy Judge.
The plaintiff, Richard A. Davis, filed a “Complaint for Relief from Stay” on May 28, 1982. A pre-trial conference was held on June 16, 1982 and the final hearing was held on June 24, 1982. Both parties filed briefs thereafter.1
The debtor, Crescent Beach Inn, Inc., is a corporation in the hotel and restaurant business. It owns an ocean-front inn plus several cabins. The plaintiff claims to hold several mortgages on the debtor’s real estate, and seeks relief from the automatic stay of 11 U.S.C. § 362(a) to foreclose upon his mortgages.
The plaintiff argues only that he is entitled to relief from stay pursuant to 11 U.S.C. § 362(d)(2), which states in part:
the court shall grant relief from the stay ... 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 court finds that the value of the debtor’s real estate is $385,000, accepting the debtor’s estimate. That estimate was based upon an informal appraisal of the debtor’s property made in November, 1981, plus certain improvements made to the property after the appraisal.
For the purposes of this decision only, the court finds that the real estate is encumbered with the following security interests:
Depositors Trust Company $211,916.44 2
Town of Cape Elizabeth 7,500.00
B-D Food Services, Inc. 2,442.97
Internal Revenue Service 22,528.62
Subtotal $244,388.03
In addition to the above, the plaintiff argues that he holds secured claims of approximately $167,000, and that Barbara Davis holds a secured claim of $30,000.
The plaintiff holds four mortgages on the debtor's real estate. The first mortgage, dated December 13, 1980, was granted in return for plaintiff’s guarantee of the debt- or’s $60,000 secured loan from Depositors Trust Company. The court has included the $60,000 security interest of Depositors Trust Company in the subtotal above, and therefore will not also include plaintiff’s $60,000 mortgage securing, in effect, the same debt.
The plaintiff has three other mortgages on the debtor’s real estate, each accompanied by a $50,000 promissory note. These mortgages and notes are dated and the mortgages were recorded as follows (the date of filing of debtor’s chapter 11 petition was March 15, 1982):
Dated Recorded
1st Mortgage , January 2,1981 January 13,1981
2nd Mortgage March 30,1981 June 18,1981
3rd Mortgage December 7,1981 December 30,1981
It appears that the transfer of the second and third mortgages may be preferences under 11 U.S.C. § 547. Pursuant to 11 U.S.C. § 547(e)(2)(B), a transfer is made at the time it is perfected, if the transfer is perfected more than 10 days after it takes effect between the transferer and the transferee. Here, the second mortgage was transferred on June 18, 1981, within one year of the date of filing. The third mortgage was transferred December 30, 1981, within 90 days of the date of filing. The plaintiff appears to be an insider as defined in 11 U.S.C. § 101(25). Pursuant to section 547(b), both transfers may be preferences.3 *163In order to avoid a transfer as a preference, however, it is necessary to show, inter alia, that the transfer was made while the debt- or was insolvent. 11 U.S.C. § 547(b)(3). A debtor is presumed to be insolvent during the 90 days preceding the date of filing. 11 U.S.C. § 547(f). The court is not persuaded 4 that the plaintiff’s mortgage dated December 7, 1981 and recorded on December 30, 1981 is enforceable, and therefore does not include it in computing the debt- or’s equity in the real estate. For the purposes of this opinion only, the court determines that the plaintiff’s secured interest in the debtor’s real estate is $100,000 plus interest and attorney’s fees.
Barbara Davis, also an insider of the debtor, holds a mortgage on the debtor’s real property dated April 30,1980, securing a debt of $30,000. This mortgage was recorded on June 18,1981 (within one year of filing). The evidence indicates, however, that the debtor received no consideration from Barbara Davis in return for this mortgage.5 Rather, Barbara Davis loaned money to Donald Davis which he used to purchase the debtor’s stock. Allegedly, to secure this personal loan, the debtor granted Barbara Davis a mortgage on corporate owned real estate. For purposes of this opinion only, the court is not persuaded that Barbara Davis holds an enforceable security interest in debtor’s real estate.
Even assuming that plaintiff’s secured claim approximates $125,000 including interest and attorney’s fees, the secured debt totals approximately $370,000, less than the value of the property. The court concludes that plaintiff has failed to prove lack of equity for the debtor in the real estate.
Assuming, however, that the debtor had no equity, the court would find that the real estate is necessary for an effective reorganization. The plaintiff concedes that no reorganization of the debtor will be possible without the real estate, but argues that the debtor failed to prove that there is a reasonable probability of an effective reorganization. See In re Clark Technical Associates Ltd., 9 B.R. 738, 740, 3 C.B.C.2d 905 (Bkrtcy.D.Conn.1981); In re Hutton-Johnson Co., Inc., 6 B.R. 855, 860 (Bkrtcy.S. D.N.Y.1980). In determining this issue, the court notes that there are serious questions as to whether much of the alleged secured debt discussed above could be avoided as preferences, or be equitably subordinated. Should these transfers be set aside, the secured debt would be substantially reduced. Donald Davis’ testimony indicates that there is a reasonable probability that the debtor could service such a reduced debt. The court finds that the real estate is necessary to an effective reorganization.6
While the plaintiff has not argued the issue of adequate protection, the court finds that the plaintiff is adequately protected. The court notes that Depositors Trust Company’s mortgages are secured not only by the debtor’s real estate, but by all the debtor’s property.7 More importantly, the debtor is making monthly payments on the Depositors Trust Company mortgages, and there is no evidence that the debtor’s real property is depreciating. Thus, it ap*164pears that plaintiff’s collateral is neither decreasing in value nor being consumed during the stay. See In re Pine Lake Village Apartment Co., 19 B.R. 819, 8 B.C.D. 1402 (Bkrtcy.S.D.N.Y.1982).
The plaintiff’s Complaint for Relief from Stay is denied. Enter order.
. Consolidated with Richard Davis’ Complaint for Relief from Stay is the debtor’s Complaint for Declaratory Relief. This opinion decides only the former.
. Depositors Trust Company’s security interests cover all of the debtor’s assets. See Debt- or’s Petition, Schedule A-2.
.Each note recites that it is secured by a real estate mortgage of even date, and further states it is given “for value received.” The court treats the consideration given by plaintiff underlying these notes as the antecedent debt owed by the debtor on account of which the mortgages were transferred.
. The plaintiff has the burden of proving lack of equity in the debtor’s property. 11 U.S.C. § 362(g)(1).
. The court here takes judicial notice of judicial actions previously undertaken in these proceedings. See In re Maplewood Poultry Co., 2 B.R. 545, 546 (Bkrtcy.D.Me. 1980). In particular, see this court’s Memorandum of Decision In re Crescent Beach Inn, Inc., 22 B.R. 155, 156 (Bkrtcy.D.Me. 1982).
. The court notes that any party-in-interest, including the plaintiff, is now free to file a proposed plan of reorganization. The court agrees with plaintiff that in this case “[g]ood, old fashioned competition between the Debtor and other interested parties for the filing of a plan .. . [will] clearly serve the fair and efficient administration of justice.” The fact that any party may now file a plan strengthens the court’s estimation that an effective plan of reorganization is reasonably probable.
.Evidence was introduced showing that the debtor owns other assets worth over $30,000. Any amount realized from these assets by Depositors Trust Company would reduce its interest in the real estate. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489354/ | *165FINDINGS OF FACT, CONCLUSIONS OF LAW AND MEMORANDUM OPINION
ALEXANDER L. PASKAY, Chief Judge.
THIS IS an Act case and the matter under consideration is a counterclaim filed by the Defendant, June Allore, in the above-captioned adversary proceeding. By way of the Counterclaim, the Defendant seeks leave from this Court to pursue a previously filed civil action in the Circuit Court in and for Brevard County, Florida, Case No. 80-6494-CA-F. The facts upon which this matter can be resolved are without dispute and can be summarized as follows:
In September of 1977, the Debtor and his wife borrowed $6,000 from the Defendant, who is the wife’s sister, and signed a promissory note for that amount plus interest at 93A%. In August of 1978, the Debtor filed his petition in bankruptcy and named the Defendant as a creditor. Prior to the filing, the Debtor told the Defendant of his intent to file bankruptcy, but reassured her that he would continue paying on the debt regardless of the bankruptcy proceeding. In keeping with that reassurance, the Debtor did in fact make payments to her from September of 1978 until November of 1977, during the pendency of his bankruptcy proceeding. In November of 1979, the Debtor discontinued payments. Sometime during this period, the Debtor and his wife divorced.
In October of 1980, on the basis of this alleged reaffirmation of the debt and breach thereof, the Defendant brought suit for collection of the debt in the Circuit Court in and for Brevard County, Florida. The Debtor then filed a Complaint for Enforcement of Discharge in this Court seeking an order enjoining the Defendant from further action to collect the debt, and finding the Defendant in contempt. The Defendant answered and counterclaimed. A final judgment was entered on the Complaint enjoining further action by the Defendant and finding her in contempt of violating the permanent injunction imposed by § 14(f) of the Bankruptcy Act. This left for consideration the Defendant’s counterclaim.
The Debtor contends that if there was, in fact, a reaffirmation, it was only oral and, therefore, unenforceable. Furthermore, he claims it unenforceable for lack of consideration. The Defendant, of course, contends that the new promise is enforceable although oral and that no new consideration is required.
The Bankruptcy Act did not provide for revival or reaffirmation of debts discharged in bankruptcy, nor did it deal with the effect of a reaffirmation. Accordingly, the validity and enforcement of reaffirmations are governed by the applicable state law. The majority of states hold that a discharged debt may be revived by a new promise. 1A Collier on Bankruptcy, ¶ 17.33 (14th ed. 1981).
It is well settled that a discharge destroys only the remedies normally available to a creditor, but does not cancel the debt. Zavelo v. Reeves, 227 U.S. 625, 33 S.Ct. 365, 57 L.Ed. 676 (1913). On this basis, most states, including Florida do not require new additional consideration to support the reaffirmation. As the Florida Supreme Court stated in Silva v. Robinson, 115 Fla. 830, 156 So. 280 (1934), “The obligation being'a continuing one, the consideration continues with it, and just so long as the moral obligation exists the obligation is a sufficient consideration for a new promise. If, therefore, a new promise to pay a discharged debt is made, the defense of want of consideration cannot exist.”
Florida also follows the majority, recognizing that the new promise may be made orally and a writing is not necessary. Silva, supra; 1A Collier on Bankruptcy, ¶ 17.35 at 1759 (14th ed. 1981).
The only question remaining is whether the Debtor did in fact reaffirm the debt to the Defendant. The Debtor admits that he told the Defendant “not to worry” and that he would continue paying the debt regardless of the bankruptcy proceeding and discharge. The Debtor’s ex-wife and *166the Defendant both testified that the Debt- or met with the Defendant several times and orally reaffirmed the debt subsequent to the commencement of these proceedings. Although the Debtor denies this, he admits that he continued the payments to the Defendant for over a year, totalling more than $1,000. Furthermore, the Defendant claims that she filed no claim against the Debtor’s estate in reliance on that alleged promise. However, to be enforceable, the new promise must be express, distinct and unambiguous. Allen v. Ferguson, 85 U.S. (18 Wall.) 1, 21 L.Ed. 854 (1874). Mere acknowledgement of the debt is not sufficient to revive it after discharge, nor is an expression of hope or expectation of later payment. Even partial payment of the debt does not create an enforceable reaffirmation or operate as a new promise. Allen, supra. This is not changed by the fact that the creditor neglected to file a claim against the Debt- or’s estate, even if she so acted in reliance on the Debtor’s communications or his suggestion. See Collier, supra at ¶ 17.34. In light of these principles, the Court is satisfied that the Debtor’s comments or reassurances were less than what is required to revive the discharged debt and did not operate as a reaffirmation. Therefore, the debt remains discharged and unenforceable by the Defendant.
In accordance with the foregoing, it is
ORDERED, ADJUDGED AND DECREED that final judgment on the Defendant’s Counterclaim be, and the same hereby is, entered in favor of the Plaintiff and against the Defendant, and the Counterclaim be, and the same hereby is, dismissed. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489356/ | MEMORANDUM OPINION
BENJAMIN E. FRANKLIN, Bankruptcy Judge.
This matter came on for trial on February 4 and 5, 1982, upon plaintiff-debtor’s complaint to recover an account receivable of $19,756.01 plus interest and costs. Defendant answered and counter-claimed for $35,948.16 in damages, plus interest and costs. Plaintiff-debtor, John Gruss Co., Inc. (Debtor) appeared by its attorney, Byron C. Loudon, of McDowell, Rice & Smith, Chartered. Defendant, Paragon Energy Corporation (Paragon) appeared by its attorneys, Jeffrey B. Rosen of Miller & Glynn, P. C. and James M. Sheeley, local counsel. Also appearing were: John Gruss, debtor’s president; and Alan Cunningham, Paragon’s president.
FINDINGS OF FACT
Upon reviewing the evidence, statements of counsel, pleadings, briefs and exhibits, and the file herein, this Court finds as follows:
1. That this Court has jurisdiction over the parties and the subject matter; and that venue is proper.
2. That prior to June, 1981, Debtor and Paragon had several discussions regarding Debtor entering into a sub-contract to fabricate heating and cooling ductwork for Paragon, which was general contractor on a renovation of a Veteran’s Administration hospital in Coatesville, Pennsylvania. They apparently agreed on a price. It is unclear whether they discussed or agreed to any other terms.
3. That on June 4, 1981, Paragon sent Debtor a notice of intent to issue a purchase order (Pl.Ex. ‡‡ 1) and on June 9th (Pl.Ex. # 3), Paragon sent the purchase order, quoting a price of $134,118.00. Debtor received the order on June 16th and immediately called Paragon to advise that the order was not acceptable because the quoted price was not in accordance with their previous discussions. Paragon asked Debtor to return the order, so that it could revise the price to $141,618.00, as agreed.
4. That on the same date, Debtor mailed the order back to Paragon. In an attached letter (Pl.Ex. # 4A), Debtor proposed three additional terms: (a) a $7,500.00 discount if Debtor completely delivered the order before November 25, 1981 and received full payment before December 31, 1981; (b) invoices were to be paid 2% in 10 days, 1% in 20 days, net 30 days; and (c) if an invoice remained unpaid after 30 days, Debtor could cease further fabrication.
*2385. That Debtor began fabrication on June 16th, relying on the oral agreement of price and the June 9th purchase order terms. Most of the purchase order terms were in a standardized form attached to and incorporated in the order, entitled “General Conditions and Instructions”.
6. That Paragon revised the order by correcting the price and adding the $7,500.00 discount provision. Paragon did not accept the other two proposed terms.
7. That Debtor received the revised purchase order (Pl.Ex. #2) on June 26, 1981. Debtor called Paragon regarding revision of still another term, involving shop drawings. Paragon agreed to revise that term and debtor approved the revised purchase order, in its final form, on July 2, 1981.
8. That the pertinent terms of the final revised purchase order were:
(a) $141,618.00 price with the $7,500.00 discount provision;
(b) Timely delivery of the materials was of the essence, and in the event of untimely delivery, Paragon could cancel all or part of the order, without penalty;
(c) a merger clause, meaning that the order was a final and complete integration of their agreement, all prior agreement or negotiations were merged into the order, and the order could not be modified or rescinded unless in writing and signed by both parties;
(d) Debtor agreed to comply with all federal laws;
(e) Debtor “... shall furnish all necessary lien waivers, affidavits or other documents, required to keep the Owner’s premises free from liens or claims for lien, arising out of the furnishing of the material and equipment herein, as payments are made from time to time under this purchase order.”
(f) “Payment and discount periods shall commence only upon receipt of both the material and proper invoice or invoices.. ”
9. That Debtor began fabricating on June 16th and shipped the first installment of material on June 19th, with an invoice for $2,540.71 (Pl.Ex. #5). Debtor called Paragon several times after July 19th regarding payment of the invoice. Debtor finally received payment on August 3rd.
10. That Debtor shipped four other installments to Paragon, between July 7 and July 31st. Invoices (Pl.Exs. ## 6-9) on these installments totalled $19,765.01 and to date, Paragon has not paid.
11. That on July 20, 1981, Debtor filed for Chapter 11 relief herein.
12. That on August 6th, Debtor called Paragon regarding payment of the July 7th invoice. Eric Bretzel, a Paragon employee, promised to deliver payment on August 7th.
13. That Paragon refused to pay on August 7th because it was on notice of Debt- or’s bankruptcy and was concerned that Debtor had not been paying its employees and suppliers.
14. That on August 11th, Paragon’s president hand delivered to Debtor’s president, a letter (Pl.Ex. # 10) demanding affidavits from Debtor’s suppliers and employees and any other potential claimants against Paragon’s payment bond. Debtor refused to supply affidavits from employees or suppliers.
15. That on August 12th, Debtor sent Paragon a letter (Pl.Ex. #11) terminating the contract for non-payment, and advising Paragon that Debtor would pursue collection within the Chapter 11 proceeding.
16. That on August 25th, Paragon sent Debtor a letter (Pl.Ex. #12) advising that it would obtain another subcontractor and charge Debtor for all consequential damages.
17. That on August 27th, Debtor filed an application to reject the executory portion of the contract; said application was sustained on November 6, 1981.
18. That Paragon hired a new subcontractor, after a delay of 19 working days. The new subcontractor, William Sobbe, Inc., charged no more than the balance of Debt- or’s contract price.
19. That in the 19-day interim between Debtor’s termination and Sobbe’s com*239mencement, Paragon had to reschedule its laborers to jobs not in the most efficient sequential order. Typically, the ductwork would have been installed first, before pipe-fitting, floors and ceilings, carpentry and painting. Paragon did not have to lay off any laborers, however. Paragon contends that the 19-day delay in ductwork fabrication cost it $35,948.16 plus interest in overhead costs, supervisory wages, and administrative costs. An independent contractor at the site testified that some of Paragon’s problems could not be attributed to Debt- or’s termination, but to other common and inherent difficulties in renovation projects of that kind.
CONCLUSIONS OF LAW
At the outset, it should be clarified that this is a problem of contract interpretation. There is no dispute that the parties entered into a valid written contract on July 2,1981, when Debtor accepted the final revised purchase order. Prior to July 2nd, the parties operated on an understanding derived from the terms of the June 9th purchase order and agreed modifications thereof.
The Court finds that the issue herein is who materially breached the contract. Debtor contends that Paragon breached the contract by failing to timely pay the five invoices. Paragon contends that Debtor breached the contract by failing to provide affidavits; and that Debtor’s duty to provide affidavits was a condition precedent to Paragon’s duty to pay. Debtor’s response is that the affidavit term is devoid of meaning or effect; and in the alternative, that Debtor complied with the affidavit term.
I.
There is no dispute that Paragon did not timely pay the five invoices. Because the contract was silent as to when payments were due1 the parties adopted the payment term supplied by the Uniform Commercial Code. K.S.A. 84-2-310 states:
“Unless otherwise agreed (a) payment is due at the time and place at which the buyer is to receive the goods even though the place of shipment is the place of delivery.”
Thus, the parties concluded that payments were immediately due upon Paragon’s receipt of each shipment and invoice.2
Paragon paid the June 19th invoice on August 3rd. The July 7th, July 21st and two July 3rd invoices were unpaid on August 12th when Debtor rescinded the contract. The evidence was that it took two days to ship (by truck) materials from Debt- or’s premises to the VA job site. Invoices were mailed on the same date as the shipment. The Court concludes and finds that at the latest, payments were due five days after the date of the shipment and invoice, and that, Paragon did not pay any invoice within said 5 days.
What then was the effect of Paragon’s failure to comply with the payment term? Paragon contends that its duty to pay never arose. Debtor contends that Paragon’s failure to timely pay was a material breach of the contract. The effect of Paragon’s failure to timely pay turns on the meaning of the affidavit term and whether it was a condition precedent to Paragon’s duty to pay.
II.
The threshold question is how should the affidavit term be interpreted? Paragraph 21 of the General Conditions and Instructions states “Seller shall furnish all necessary lien waivers, affidavits or other documents required to keep the Owner’s premises free from liens or claims for liens arising out of the furnishing of the material and equipment herein, as payments are made from time to time under this purchase order.”
*240The General Conditions and Instructions is a standardized form incorporated in Paragon’s construction contracts. Paragraph 21 was apparently drafted for contracts between the owner of the premises and Paragon, as prime contractor. Essentially, its purpose was to assure the owner that Paragon had paid its suppliers and laborers, so that said suppliers and laborers could not encumber the owner’s property with mechanic liens.
The instant contract is between Paragon, as prime contractor and Debtor, as subcontractor. Debtor contends, therefore, that Paragraph 21 should be ignored, as inapplicable surplusage. First, the paragraph is inapplicable because the owner is not a party to the contract. Secondly, even if the owner were a party to the contract, the paragraph would be inapplicable. No supplier or employee of a prime contractor or of a subcontractor can encumber United States property with a lien. F. D. Rich Co. v. Industrial Lumber Co., 417 U.S. 116, 122, 94 S.Ct. 2157, 2161, 40 L.Ed.2d 703 (1973).
In spite of the apparent inapropos use of Paragraph 21 in the instant contract, Paragon urges the court to give the paragraph a meaningful interpretation. Paragon’s position is that the clause means that Debtor must provide affidavits verifying that Debtor has paid its suppliers, employees and any other potential claimants against Paragon’s payment bond.
Where faced with a choice of finding a term meaningless or meaningful, the court will opt for the latter. Restatement (Second) of Contracts § 229 states:
“In the interpretation of a promise or agreement or a term thereof, the following standards of preference are generally applicable: (a) an interpretation which gives a reasonable, lawful and effective meaning to all terms is preferred to an interpretation which leave a part unreasonable, unlawful or of no effect."
In a typical construction contract, unpaid suppliers and employees of a contractor or subcontractor can seek relief by encumbering the owner’s property with mechanic liens. The standardized affidavit term in Paragraph 21 was drafted to avoid such a situation. Paragraph 21 requires that the prime contractor give the owner evidence that the suppliers and employees have been paid. Thus, the owner can pay the prime contractor free from apprehension that it will also have to pay unpaid suppliers or employees of the prime contractor or subcontractor, in order to avoid mechanic liens against its property.
In a construction contract involving United States property, however, unpaid suppliers and employees are precluded from perfecting liens against the property. Their remedy lies in the Miller Act, 40 U.S.C. § 270a et seq. The Miller Act requires the prime contractor to furnish payment and performance bonds to the United States. Unpaid suppliers and employees must sue on the payment bond for relief. See 40 U.S.C. §§ 270a and 270b.
The position of Paragon is analogous to that of a private owner. Both could be faced with double liability under the contract, that is, payment to the other contracting party and payment to suppliers and employees of the other contracting party. Since Paragraph 21 was originally drafted to protect an owner from double liability, it should be interpreted analogously to protect Paragon, as prime contractor, from double liability. The court therefore adopts Paragon’s interpretation. Paragraph 21 means that Debtor must furnish all necessary lien waivers, affidavits, or other documents required to keep Paragon free from claims against the payment bond.
Furthermore, Debtor should be bound by this interpretation, in spite of its protests to the contrary. Restatement (Second) of Contracts § 227(2) states:
“Where the parties have attached different meanings to a promise or agreement or a term thereof, it is interpreted in accordance with the meaning attached by one of them, if at the time the agreement was made ... (b) that party had no reason to know of any different meaning attached by the other, and the other had reason to know the meaning attached by the first party.”
*241The evidence showed that Paragon had no reason to know that Debtor considered Paragraph 21 devoid of meaning; but Debt- or did have reason to know of Paragon’s interpretation. Debtor’s president testified to his familiarity with government contracts and the Miller Act. Surely Debtor knew about the payment bond required of prime contractors and the potential for double liability. Surely Debtor knew that a prime contractor could demand some sort of protection from double liability in consideration of its payment of the subcontractor. The Court finds that Debtor knew the intended meaning of the language of Paragraph 21, albeit inapropos language.
III.
Given that Debtor had a duty to provide affidavits, the next issue is whether the fulfillment of that duty was a condition precedent to Paragon’s duty to pay.
A condition precedent is an act or event, other than the lapse of time, which must exist or occur before a duty of immediate performance of a promise arises. In the event a condition precedent is not satisfied, the duty of the other party under the contract to perform is discharged. Restatement (Second) of Contracts §§ 250 and 251(1).
Whether a provision in a contract is a condition, the nonfulfillment of which excuses performance, depends upon the intent of the parties, to be ascertained from a fair and reasonable construction of the language used in the light of all surrounding circumstances. 5 Williston on Contracts (3d ed.) § 663.
Here Paragon agreed to pay Debtor with the understanding that Debtor would pay its own expenses, including suppliers and employees. An essential part of Paragon’s bargain was its right to a continuing sense of reliance and security that Debtor was paying any potential claimants against Paragon’s payment bond, so that Paragon would not be exposed to paying twice for the same goods. The reasonable inference is that Paragon wanted affidavits enclosed with each invoice. Paragon could then pay each invoice with the assurance that the suppliers and laborers on that particular invoice had been paid. Otherwise, the affidavit term would be of no value to Paragon. If Debtor could send affidavits at any time, Paragon would be forced to pay the invoices upon receipt, without any assurance that potential bond claimants had been paid. The Court concludes, therefore, that Debtor’s duty to provide affidavits was a condition precedent to Paragon’s duty to pay each invoice. As aptly enunciated in Murray on Contracts § 148, at 293-294 (1974):
“Frequently a provision in a contract will be of no practical value to the party for whose benefit it was included, unless it be interpreted as a condition. . . In such a case the provision will normally be interpreted as a condition, so that it may have real effect."
IV.
Debtor’s alternative argument was that it complied with the affidavit term. The Court heard two versions of what transpired at the August 11th meeting between the parties’ presidents. Paragon contends that Debtor refused to provide affidavits then and in the future, but orally assured Paragon that suppliers were paid c.o.d. and that employees were paid promptly because they were unionized.
Debtor contends that it offered a personal affidavit from John Gruss, but not affidavits from suppliers and employees. Debtor felt that neither supplier nor employee affidavits were necessary; and Paragraph 21 only called for “necessary” affidavits. Debtor further contends that supplier affidavits were unnecessary because no supplier could trace his sheet metal to the ductwork supplied to the VA. However, a supplier need only have a good faith belief that his materials were used in the project to recover under a payment bond. U. S. for Use and Benefit of Carlson v. Continental Cas. Co., 414 F.2d 431 (5th Cir. 1969).
Debtor also contends that employee affidavits were unnecessary because un*242ion employees were always paid promptly and because none of its employees actually worked at the VA job site. With respect to the first contention, written evidence of payment of employees is a reasonable request in light of a prime contractor’s potential for double liability. See Naylor Pipe Co. v. Murray Walter, Inc., 421 A.2d 1012, 120 N.H. 696 (1980). A prime contractor shouldn’t have to rely on oral assurances. With respect to the second contention, an employee of a subcontractor can recover against the prime contractor’s payment bond whether the employee worked at the construction job site or not. See 40 U.S.C. § 270b.
The Court finds that Debtor refused to provide anything. The fact that Debtor failed to offer affidavits from itself or from potential bond claimants in any of its subsequent communications with Paragon indicates that Debtor never made such an offer in the first place. In its termination letter of August 13th, Debtor called Paragon’s demand for affidavits a “sham and lame excuse”. In its letter of August 27th, Debt- or told Paragon that it was willing to resume performance upon receipt of full payment for past invoices, yet Debtor did not offer any affidavits. The Court thus concludes that Debtor breached the affidavit term, first by failing to provide affidavits with each invoice, as required by the contract; and secondly, by refusing Paragon’s demand for adequate assurance of future performance.
At the August 11th meeting, Paragon, on notice of Debtor’s bankruptcy and being skittish about Debtor’s failure to provide affidavits, demanded affidavits before it would pay the invoices. This was Paragon’s right, pursuant to K.S.A. 84-2-609, which states in pertinent part:
“Right to adequate assurance of performance.
(1) A contract for sale imposes an obligation on each party that the other’s expectation of receiving due performance will not be impaired. When reasonable grounds for insecurity arise with respect to the performance of either party the other may in writing demand adequate assurance of due performance and until he receives such assurance may if commercially reasonable suspend any performance for which he has not already received the agreed return.
* * # * #
(4) After receipt of a justified demand failure to provide within a reasonable time not exceeding thirty days such assurance of due performance as is adequate under the circumstances of the particular case is a repudiation of the contract.”
The Debtor unequivocally indicated in its letter of August 12th that it would not comply with Paragon’s demand for affidavits. That constituted a repudiation entitling Paragon to suspend performance and resort to any remedy for breach. K.S.A. 84-2-610. Paragon chose the remedy of cover, K.S.A. 84-2-712, and so notified Debtor by letter on August 25th.
V.
The final issue is that of damages. Paragon owed Debtor $19,756.01 for the July 7, July 21 and July 30 invoices. Paragon argues, however, that its liability is totally offset by Debtor’s liability for consequential damages arising from Debtor’s breach of the contract. Paragon contends that such consequential damages total $35,-948.16.
When a buyer chooses the remedy of cover, under K.S.A. 84-2-712, its damages are the difference between the contract price and cover price, plus any incidental or consequential damages, but minus any expenses saved in consequence of the breach. Incidental and consequential damages are defined in K.S.A. 84-2-715 as follows:
“(1) Incidental damages resulting from the seller’s breach include expenses reasonably incurred in inspection, receipt, transportation and care and custody of goods rightfully rejected, any commercially reasonable charges, expenses or commissions in connection with effecting cover and any other reasonable expense incident to the delay or other breach.
*243
(2) Consequential damages resulting from the seller’s breach include
(a) any loss resulting from general or particular requirements and needs of which the seller at the time of contracting had reason to know and which could not reasonably be prevented by cover or otherwise; ...”
Nineteen working days after Debtor’s repudiation, Paragon secured a substitute subcontractor. The cover price was no greater than the balance of the original contract price. (See Pl.Ex. # 14). Paragon contends, however, that the 19-day delay in ductwork fabrication forced it to alter its manner, method and sequence of work, causing additional supervisory and administrative expenses, and extending field overhead for 19 days.
Apparently, ductwork installation was one of the first steps in the renovation. However, the absence of ductwork did not stall all work on the project. Paragon admittedly did not layoff anyone, but rescheduled all laborers into productive work.
Paragon’s $35,948.16 counterclaim breaks down as follows:
1) Additional supervisory labor to reschedule laborers (2 foremen @ 24 hrs. of labor).$1,003.68
2) Additional administrative costs to reschedule laborers (salaries, telephone, mailings) .$4,750.00
3) Field overhead for addt’l 19 days .$30,194.48
This Court has no qualms with the first two damage items. The evidence showed that Debtor’s repudiation necessitated rescheduling, because ductwork was an initial stage of the project. The Court questions the third item of damage, however. There was no evidence whatsoever that the 19-day delay in ductwork fabrication in effect extended the overall completion time of the project by 19 days. In fact, Paragon did not demonstrate that the ductwork delay caused any delay in the overall completion of the project. By Paragon’s own admission, productive work continued during those 19 days, albeit less cost efficient work. In fact, work continued as scheduled in the hospital rooms. Since the ductwork was to be installed only in the hallways, only work on the hallways had to be rescheduled.
Moreover, there was evidence of other delays. At the time Debtor became subcontractor, the project was running behind due to a breach by a prior ductwork subcontractor. After Debtor’s repudiation, unrelated problems caused still further delay.
Accordingly, this Court finds that the evidence does not support Paragon’s claim for extended field overhead of 19 days. Paragon’s counterclaim will be allowed in the amount of $5,753.68 and disallowed in the amount of $30,194.48. Debtor’s claim for $19,756.01 is therefore offset by Paragon’s counterclaim in the amount of $5,753.68. Accordingly, $14,002.33 remains due and owing to Debtor from Paragon. Judgement is granted to Debtor in the amount of $14,002.33 plus 12% interest. Costs will not be assessed against either party.
THIS MEMORANDUM SHALL CONSTITUTE MY FINDINGS OF FACT AND CONCLUSIONS OF LAW UNDER BANKRUPTCY RULE 752 AND RULE 52(a) OF THE FEDERAL RULES OF CIVIL PROCEDURE.
. Paragraph 12 of the General Conditions and Instructions states that payment periods commence upon Paragon’s receipt of each shipment and corresponding invoice, but failed to state the length of said payment periods.
. Debtor had contended that payments were due within 30 days of each invoice, but abandoned that contention at trial. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489357/ | ORDER DENYING MOTION FOR APPOINTMENT OF COUNSEL
BURTON PERLMAN, Bankruptcy Judge.
The above captioned adversary proceeding concerns the dischargeability of debt and claims for fraud and securities law violations. The present motion was filed by James A. Mierop (“movant”), a third party defendant in this action, who is presently incarcerated in a state penal institution. Movant alleges that he is indigent and seeks appointment of counsel by this Court.
Neither the Sixth Amendment to the United States Constitution nor the due process clause of the Fifth Amendment requires appointment of counsel to a litigant in an ordinary civil action. Hullom v. Burrows, 266 F.2d 547 (6th Cir., 1959); Potashnick v. Port City Const. Co., 609 F.2d 1101 (5th Cir., 1980).
The motion is denied.
SO ORDERED. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489358/ | *247ORDER DENYING MOTION TO DISQUALIFY
BURTON PERLMAN, Bankruptcy Judge.
Following our decision disqualifying original plaintiffs’ counsel in the case, successor counsel William Singer, Esq. of Santen, Santen and Hughes took over the representation of plaintiffs. Third party defendant Buddhdev moves for disqualification of successor counsel. The basis for the motion is stated to be that original counsel turned his files over to Singer “and extensively briefed him on the case.”
The matter came on for hearing at which time Buddhdev called as witnesses both Hunt, original counsel, and Singer. The evidence was that Hunt had indeed turned his entire files over to Singer. The evidence was further that the contacts between counsel otherwise was nominal, and we find as a fact that Singer was not extensively briefed by Hunt on the case.
We concluded that it was necessary for us to examine in camera the files which had been turned over to Singer by Hunt. Our purpose particularly was to see whether there was any memorandum or other reference to the offending conference between Hunt, Rubin and Buddhdev upon which our prior decision of disqualification rested. Our examination disclosed no such written material. Furthermore, our examination of the contents of the files disclosed nothing prejudicial to Buddhdev. There is reference in the files to the Trivedi deposition and the responses of Trivedi with regard thereto. This material certainly is not work product and having been the subject of deposition is not even confidential.
Buddhdev argues that disqualification of Singer is required by First Wisconsin Mortgage Trust v. First Wisconsin Corporation, 74 F.R.D. 625 (E.D.Wis., 1977), contending that that case by prohibiting access by successor counsel to original counsel’s work product mandates disqualification where original counsel indiscriminately turns over his entire file to his successor. Buddhdev’s counsel characterizes this conduct as tainting successor counsel with the fruit of the poisoned tree. First Wisconsin, however, was reversed at 584 F.2d 201 (7th Cir., 1978) after an en banc hearing. The Court of Appeals held that to warrant disqualification a showing must be made of some improper advantage, such as access to confidential information. Applying such a test in the case before us, disqualification is not warranted.
The motion to disqualify Singer, successor counsel, is overruled.
SO ORDERED. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489359/ | FINDINGS OF FACT, CONCLUSIONS OF LAW, MEMORANDUM OPINION AND FINAL JUDGMENT
ALEXANDER L. PASKAY, Chief Judge.
THIS IS an adversary proceeding and the matter under consideration is a complaint filed by Albert and Peter J. Diez and Olga Alfonso, Plaintiffs, against A Sound Investment Car Stereo, Inc., (Sound Investment), the Debtor in the above-captioned proceeding which filed its petition for relief under Chapter 11 of the Code on January 29,1982. The complaint filed in this matter seeks to evict Sound Investment from business premises owned by the Plaintiffs.
Based on the evidence adduced at trial and the record in this matter the Court finds as follows:
On March 12, 1981, the Plaintiffs leased to Sound Investment, certain business premises located on North Dale Mabry Blvd. in Tampa, Florida. At that location, Sound Investment was, and still is, presently engaged in the retail sale and installation of automobile stereo equipment. Recently, Sound Investment expanded its operation to include the sale and installation of cruise control devices. In addition, the principals of Sound Investment have formed another corporation, called Polyglycoat of Tampa Bay, Inc., which uses the leased premises as its business address and for storing and wholesaling its product, but it is not selling its product at retail.
During the middle of November, 1981, the Plaintiff, Albert Diez, heard rumors that Sound Investment was in financial difficulty. In an effort to substantiate or dispel these rumors, Mr. Diez confronted Mr. Green, the President of Sound Investment. Green informed him that the rumors concerned the Clearwater and not the Tampa store. At this meeting Green also broached the subject of a possible assignment of the lease to Polyglycoat. Mr. Diez replied he had “no problem with it” but he wanted to talk with his brother and sister, his co-lessors. Viewing that response as a conditional acceptance, Mr. Green had his attorney draft an assignment and consent agreement. Although that agreement was mailed to the Plaintiffs on November 25, 1981, it was never executed by them.
On November 30,1981, Sound Investment permitted its fire and extended coverage insurance to lapse. The lapse occurred because the insurer advised Sound Investment that it could not obtain replacement coverage. A few days later, on December 4, 1981, the premises was insured by a different company. However, that insurance was written for Polyglycoat and not for Sound Investment. Although the insurance agent attempted to replace the previous coverage, it turned out he was mistaken and the building itself was not insured against the casualty of fire. On March 1, 1982, the property was also insured under the name of Sound Investment. From the testimony of Mr. Diez, it is also clear that, upon learning of the lapse, he too obtained insurance coverage on the premises.
On December 4, 1981, Sound Investment received a letter from the lessors’ attorney stating that they would not consent to an assignment to Polyglycoat. This was the first indication to the Defendant that the lessors would not consent to an assignment. That letter also notified Sound Investment that because of the lapsed insurance, the lease was being cancelled. It also instructed the Defendant to vacate the premises by December 15, 1981.
*301The terms and conditions of the lease prohibit an assignment without the prior written consent of the lessors, limit the use of the premises to the retail sale of automobile radio and stereo equipment and require the lessee to maintain fire and extended coverage insurance. The Plaintiffs contend that the Debtor breached these provisions of the lease and, therefore, they are entitled to evict the Debtor from the premises.
At the outset it should be noted that as a Court of equity, this Court has the power to relieve a tenant from forfeiture of its leasehold. Rader v. Prather, 100 Fla. 591, 130 So. 15 (1930). In the context of this Chapter 11 proceeding, it is clear that the loss of the leasehold will severely impair, if not destroy, the Debtor’s ability to reorganize. Moreover, the loss of this valuable asset will deprive other creditors of the possibility of a meaningful repayment.
It also bears mentioning that the Debtor has been making his rental payments in a timely fashion. Thus, this is not a case where the continued occupancy is accompanied by ever-increasing arrearages. With respect to the default for failure to insure the premises, the evidence demonstrated that there had been previous problems with insurance but that the lessors had permitted Sound Investment to cure the defaults. Thus, in light of the past dealings between the parties, it is not surprising that the Debtor assumed it would have a reasonable opportunity to cure the insurance default.
It is also evident that the proposed assignment to Polyglycoat, if it was a breach it was insignificant and merely a technical one caused by a misunderstanding. This does not mean, however, that the assignment was effective. There can be no doubt that in the absence of the lessors written consent to the assignment, no assignment could occur. At the same time, it would be unfair to visit the penalty of forfeiture upon the Debtor for what appears to be a mutual misunderstanding concerning the assignment.
Finally, the Court is satisfied that the sale and installation of cruise control devices is not a material variance from the use restriction in the lease. However, the use of the premises by Polyglycoat as a wholesale distribution center is not in accord with either the assignment or use provisions in the lease. Therefore, the Debtor shall have 30 days from the entry of this order to discontinue the Polyglycoat aspect of its business at the leased premises. In addition, since the Debtor has been relieved of the forfeiture, it must now determine whether or not it will accept or reject the executory portion of the lease.
Accordingly, it is
ORDERED, ADJUDGED AND DECREED that the principals of the above-captioned Debtor shall have 30 days from the date of entry of this order to discontinue the Polyglycoat business at the leased premises. It is further
ORDERED, ADJUDGED AND DECREED that the above-captioned Debtor shall have 60 days from the date of the entry of this order to assume or reject the executory portion of the lease. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489360/ | OPINION
EMIL F. GOLDHABER, Bankruptcy Judge:
The issue at bench is whether we have jurisdiction under the Bankruptcy Act to determine the bankrupt’s complaint against its surety and the State of New Jersey for a turnover of certain checks or funds which were allegedly due the bankrupt as of the date it filed its petition in bankruptcy. We conclude that we do not have jurisdiction over the instant complaint (1) because the property in question was not in the actual or constructive possession of the bankrupt on the date of the filing of its petition and (2) because the defendants did not consent to our jurisdiction.
*304The facts of the instant case are as follows: 1 On August 23, 1978, John S. Gar-chinsky, Inc. (“the bankrupt”) filed a voluntary petition in bankruptcy under the Bankruptcy Act (“the Act”).2 Prior to that time, the bankrupt had been engaged in the business of installing traffic signals, lighting and intersection improvements for, among others, the State of New Jersey, Department of Transportation (“New Jersey”). In July of 1978, the bankrupt had, pursuant to one of its contracts with New Jersey, presented a request for payment for work which it had completed and for materials which it had supplied on that job prior to that time. In early August, New Jersey processed that request and prepared two checks dated August 17, 1978, payable to the bankrupt and totaling $28,545.13. However, New Jersey put a hold on those checks and they were never issued.3 Ultimately, New Jersey cancelled those checks and issued new checks in the same amounts to the American Insurance Company (“American”) which was the surety of the bankrupt on the contract with New Jersey and which was obliged to complete that contract after the bankrupt filed its petition.
Upon learning of the existence of the two checks dated August 17,1978, the substitute trustee of the bankrupt’s estate 4 filed the instant complaint against New Jersey and American seeking a turnover of those checks or the funds represented by them. Both American and New Jersey have objected to the jurisdiction of this court to hear that complaint. We conclude that that objection is well founded.
Under the Bankruptcy Act, the bankruptcy court had jurisdiction to adjudicate summarily all rights and claims pertaining to controversies concerning property in the actual or constructive possession of the bankruptcy court.5 However, where a controversy was one involving property in the actual or constructive possession of a third person asserting a bona fide adverse claim thereto, then the bankruptcy court had no jurisdiction over that controversy absent the consent of the adverse claimant.6
In the instant case, the substitute trustee asserts that although the property in controversy (i.e., the checks or the funds represented by those checks) was in the possession of a third party, New Jersey, as of the date of the filing of the bankruptcy petition, New Jersey had no bona fide claim to that property. However, American and New Jersey argue that New Jersey did have a bona fide claim to that property under the holding of National Shawmut Bank of Boston v. New Amsterdam Cas. Co., Inc., 411 F.2d 843 (1st Cir. 1969), aff’g, 290 F.Supp. 644 (D.Mass.1968). In that case the United States Court of Appeals for the First Circuit held that progress payments which were earned by a contractor but not paid prior to default belonged to the government (and thus to the surety who was subrogated to the government’s rights).7 The substitute trustee contends, nevertheless, that the instant case is not governed by the holding in the Shawmut case because, he asserts, the funds in ques*305tion were paid to the bankrupt prior to any default. We disagree. Assuming that the cheeks were prepared before any default was declared, as the substitute trustee argues,8 we find that the funds were nonetheless never paid because those checks were never delivered to the bankrupt. As a result, we conclude that New Jersey had a bona fide claim to the checks which it held on the date of the bankrupt’s filing9 and, consequently, that we lack jurisdiction to decide the rights of the parties to that property absent their consent to our jurisdiction.
It is well settled that in all cases where a party is entitled to the determination of his rights in a plenary action, he may nevertheless consent to the exercise of summary jurisdiction by the bankruptcy court and in that manner have his rights adjudicated.
Consent, as hereafter demonstrated, may be (1) express; (2) by waiver through failure to raise the proper objection, or (3) implied from any act indicating a willingness on the part of the party that his claim or interest be determined summarily by the bankruptcy court.10
In the instant case, however, we conclude that neither New Jersey nor American have consented to our exercising jurisdiction over the instant controversy. Neither have expressly consented to our jurisdiction nor have they failed to raise a proper objection to that jurisdiction. In fact, both promptly objected to our jurisdiction of this complaint. Finally, we conclude that there has been no act by either New Jersey or American indicating a willingness on their part to have their claim or interest in the property in question determined by the bankruptcy court. Although American did file a proof of claim in the bankruptcy proceedings, we conclude that it did not thereby consent to our jurisdiction over the instant controversy. Some courts have held that by filing a proof of claim a creditor consents to the jurisdiction of the bankruptcy court to determine the amount and validity of that claim as well as any defenses raised in opposition to that claim.11 However, in In re Industrial Associates, Inc.,12 the United States District Court for the Eastern District of Pennsylvania held that where the creditor clearly objects to the summary jurisdiction of the bankruptcy court over a claim made by the trustee against the creditor, the creditor could file its proof of claim against the bankrupt without submitting to the court’s jurisdiction. Consequently, we conclude that American has not consented to our exercising jurisdiction over the instant complaint because notwithstanding the fact that it filed a proof of claim in the bankruptcy proceedings, it has clearly objected to our jurisdiction over this complaint.
Based on all of the above, we will dismiss the instant complaint for lack of jurisdiction.
. 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).
. Specifically, the New Jersey Department of Transportation processed the request for payment and authorized the Department of the Treasury to prepare the checks. However, the Department of Transportation also notified the Department of the Treasury that the checks were not to be sent to the bankrupt but were to be sent to the Department of Transportation to be held pending a determination of whether the name of the payee was to be changed, apparently on the request of the bankrupt.
. The substitute trustee is Eugene C. DiCerbo.
. See 2 Collier on Bankruptcy ¶ 23.04[2] at 453 n. 11 (14th ed. 1976) and cases cited therein.
. Id. at ¶ 23.04[2] and ¶ 23.08 and cases cited therein.
. 411 F.2d at 848.
. The substitute trustee contends that there was no default until New Jersey notified the bankrupt of such on September 1, 1978, while the checks were prepared on August 17, 1978. New Jersey and American assert, on the other hand, that the default occurred in early August, 1978. Because we conclude that we lack jurisdiction even if the facts are as the substitute trustee asserts, we find it unnecessary to resolve this factual issue.
. It is unnecessary to determine whether New Jersey would prevail on the merits of its claims, it is only necessary to determine whether that claim is more than merely a colorable claim of an interest in that property. See 2 Collier on Bankruptcy ¶ 23.06[1] at 500 (14th ed. 1976).
. Id. at ¶ 23.08[1] at 532 and 536 (footnotes omitted).
. See, generally, 2 Collier on Bankruptcy ¶ 23.08[6] at 552-60 (14th ed. 1976) and cases cited therein.
. 155 F.Supp. 866 (E.D.Pa.1957). | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489361/ | MEMORANDUM
DAVID L. CRAWFORD, Bankruptcy Judge.
This matter comes before the Court upon joint motion by the debtors and Dial Finance Company (Dial), a secured creditor, to vacate an order of confirmation of the debtors’ amended Chapter 13 plan which through administrative error was entered prior to a hearing on Dial’s timely objection *364to confirmation. Alternatively, the parties seek an order prohibiting the Chapter 13 trustee from making further payments under the plan until resolution of this dispute. The parties have submitted the alternative motions and objection to the Court upon stipulation, pleadings, and briefs.
Dial’s objection is founded upon § 1325(a)(5) of the Bankruptcy Code. That section provides that the holder of each allowed secured claim must have accepted the plan, must be allowed to retain its lien and be paid the present value of its claim in an amount equalling at least the value of the collateral, or must receive possession of the property securing its claim. The debtors respond to this objection by stating that the value Dial is to receive under the amended plan is equivalent to the amount of its claim. That single claim is represented, according to the debtors, in part by a new loan advance secured by a mortgage of the debtors’ principal residence and in part by a second refinancing of an earlier note secured only by exempt household goods.
The parties have stipulated the following facts: Larry Leigh and Margaret Cecilia Brown, debtors in this Chapter 13 proceeding, applied for and received a loan from Dial on February 21,1979. That loan in the principal amount of approximately $3,000 was secured by household goods. A refinancing loan plus an additional advance was applied for and received on November 28,1979. The principal amount of approximately $3,000 was again secured by the debtors’ household goods. A third and final loan was received by the debtors from Dial on February 28, 1980. The principal amount was $6,631.48 plus interest of $4,528.52 at 19% annual interest rate. This third loan was a refinancing of the debtor’s previous balance of $2,956.83 plus an additional advance of $3,674.65 and was secured not only by household goods but a second mortgage on the debtors’ residence. As of the date of filing of the Chapter 13 petition, the Browns were indebted to Dial in the principal sum of $5,924.76.
The debtors’ attempt in their amended plan to sever the security interest in household goods and avoid that interest to the extent the lien impairs an exemption to which they are entitled [522(f)] from the portion of the third note represented by a real estate second mortgage is premised upon the language of § 1322(b)(2) of the Code. That section provides that a Chapter 13 plan may modify the rights of holders of secured claims other than a claim secured only by a security interest in real property that is the debtors’ principal residence. The third note, being secured by both household goods and the debtors’ primary residence, is, the debtors contend, modifiable.
While I agree that such a claim may be modified by a Chapter 13 plan [see Collier on Bankruptcy par. 1322.01 (15th ed.) 1322-8; 3 Norton Bankruptcy Law and Practice, § 76.06 (1981)], confirmation of the plan will depend upon the application of § 1325(a)(5) in each particular case. Collier, Ibid. The parties have stipulated that as of the time of filing of the debtors’ petition, the debtors owed a principal sum to Dial Finance in the amount of $5,924.76. A proof of claim was filed pursuant to the provisions of § 501 of the Bankruptcy Code. In accordance with 11 U.S.C. § 502(a), because a party in interest has not objected to the 501 proof of claim, the claim is allowed as filed. Accordingly, I find the amount of the allowed secured claim represented by the debt due and owing Dial Finance to be $5,924.76. The debtors’ proposed severance of an amount represented by the mortgage and an amount represented by a security interest in household goods is inconsistent not only with the statutory language of § 1325(a)(5) but with the documents related to that loan agreement as well. Although a portion of the debtors’ third note is indeed a refinancing of prior debt, the note, security agreement, and real estate mortgage, all executed concurrently, indicate that the loan is secured by either household goods or a second mortgage on the debtors’ real estate or both. There can be no severance such as the debtor has attempted here. The present value of the entire amount of the allowed secured claim must be provided for under the plan.
*365Because the debtors’ amended plan filed January 4, 1982, provides for the value to be distributed under the plan of an amount less than the allowed secured claim and for the further reasons that the holder, Dial Finance Company, has not accepted the plan nor has the debtor surrendered property securing such claim to the creditor as required by § 1325, the plan as amended cannot be confirmed. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489362/ | *374OPINION
WILLIAM A. KING, Jr., Bankruptcy Judge.
This case reaches the Court on a complaint to compel turnover filed by Norman Ackerman, Esquire, Trustee in the Chapter 7 Bankruptcy case of J & B Delivery Corporation. William G. Sablich, Jr., President of the J & B Delivery Corporation, filed a petition for voluntary relief under Chapter 7 of title 11 on April 18,1980, and the Court appointed Norman Ackerman, Esquire, as Trustee. The plaintiff contends that it sold J & B Delivery Corporation to the defendant for $10,800.00, which included the businesses’ goodwill, a 1974 truck, J & B deliveries’ accounts receivables and furniture pads. The Trustee alleges to have attempted to collect from the defendant the unpaid balance of $7,500; but he has been unsuccessful. Evidence submitted by the defendant provided that the truck, when sold to the defendant, was titled in Sablich’s name individually, and not as president of the corporation. A copy of the agreement for sale made between Sablich, president of the debtor corporation, and the defendant, was also submitted to the Court by the defendant, which was signed by William G. Sab-lich, Jr., individually. The issue involved in the case at bar is whether the agreement for sale executed by Sablich was made in behalf of the J & B Delivery Corporation (in which the estate would have an interest), or individually. This Court finds that the agreement, when looked at as a whole, evidences that it was executed by Sablich in the name of J & B Delivery Corporation. Judgment will be entered in favor of the trustee in the amount of $7,500, representing the unpaid balance of the purchase price.1
Pennsylvania Corporate law, 15 P.S. § 402, provides as follows:
Any note, mortgage, evidence of indebtedness, contract, or other instrument of writing, or any assignment or endorsement thereof, executed or entered into between any corporation organized or doing business within the Commonwealth and any other person, copartnership, association, or corporation, when signed by the president or vice-president and secretary or treasurer of such corporation, shall be held to have been properly executed for and in behalf of such corporation. 1925, May 12, P.L. 615 § 2.
Pennsylvania law furthermore provides in relevant part in 15 P.S. § 1305:
.Any form of execution provided in the by-laws to the contrary notwithstanding, any note, mortgage, evidence of indebtedness, contract, or other instrument of writing, or any assignment or endorsement thereof, executed or entered into between any corporation and any other person, copartnership, association or corporation, when signed by the president or vice president and secretary or assistant secretary or treasurer or assistant treasurer of such corporation, shall be held to have been properly executed for and in behalf of the corporation. Except as otherwise required by act of Assembly, the affixation of the corporate seal shall not be necessary to the valid execution, assignment or endorsement by a domestic or foreign business corporation of any instrument in writing. 1933,. May 5, P.L. 364, art. Ill, § 305; 1966, Jan. 18, P.L. (1965) 1305, § 13.
Although William G. Sablich, Jr., did not provide this Court with the by-laws of J & B Delivery Corporation, and even though the agreement of sale was signed by William G. Sablich, Jr., individually, a contract by a corporate officer or agent need not be made and signed in the name of the corporation if it was the intention of the parties to bind the corporation. MacDonald v. Winfield Corporation, 82 F.Supp. 929, D.C.Pa. (1949). Evidence of the intention of the parties to bind J & B Delivery Corporation and not William G. Sablich, Jr., indi*375vidually, can be elicited from the agreement itself,2 which states as follows:
Agreement made this - day of September, 1979 by and between William G. Sablich, Jr., hereinafter referred to as the Seller, and George W. Huston, Jr., hereinafter referred to as the Buyer.
WHEREAS, Seller is engaged in the delivery business as J & B Delivery Corporation, a Pennsylvania Corporation and Buyer is desirous of purchasing the said business, equipment and goodwill; .. .
These clauses provide and establish that the Seller, William Sablich, Jr., is engaged in the delivery business trading as J & B Delivery Corporation and evidences that it is the corporation which is to be sold by Sab-lich, President of the Corporation, who, along with his wife, Joanne, are the sole stockholders of J & B Delivery Corporation. It is not contested that William G. Sablich, Jr., has the authority to sell the corporation, but what is contested is the manner in which he signed the agreement. Pennsylvania ease law has held that a contract between corporations is not rendered illegal because the execution clause fails to indicate the titles or offices of the parties signing where the instrument itself designates the offices of the signers and the corporate seal is attached. Union National Bank of Pittsburg v. Dillsburg Borough Authority, 81 D & C 404 (1953). In the instant case, the agreement of sale, as noted above, does in fact refer to Sablich as President, and a seal was attached.
Furthermore, Pennsylvania Law has held that a corporation is a legal entity separate and distinct from its stockholders, directors and officers, and such corporate entity must be upheld unless specific unusual circumstances call for an exception. Vespe Contracting Co. v. Anvan Corp., 433 F.Supp. 1226 (D.C.Pa.1977); George A. Davis, Inc. v. Camp Trails Co., 447 F.Supp. 1304 (D.C.Pa.1978).
As a result, this Court holds that the agreement meets 15 P.S. § 402 and 15 P.S. § 1305 in that Sablich did have the authority to sell these assets of J & B Delivery Corporation. This Court further finds that the agreement for sale was executed with the intentions of both Sablich and Huston to sell the assets of J & B Delivery Corporation, and that the signature of Sablich, although not signed by him as President of J & B, was sufficient to bond the corporation because Sablich’s official title was stated in. the agreement. Under Pennsylvania Statutes, a contract signed by the President and Secretary or certain other general officers must be held to have been properly executed for and in behalf of the corporation. Integrity Trust. Co. to Use of Integrity Trust Co. v. Nestor Building & Loan Assoc., 14 A.2d 331, 340 Pa. 216 (1940).
Pennsylvania contract law also holds that when a contract is suspectible of an interpretation making it lawful and one making it unlawful, the interpretation making it lawful is preferred. Bau v. Wilkes-Barre & E. R. Co., 167 A. 230, 311 Pa. 510 (1933). The preference of the courts is for the construction which gives a reasonable, lawful, and effective meaning to all manifestations of the parties’ intentions. Rothstein to Use of H. Rothstein & Sons v. Jefferson Ice Mfg. Co., 137 Pa.Super. 298, 9 A.2d 149 (1939); Armstrong v. Standard Ice Co., 129 Pa.Super. 207, 195 A. 171 (1937). As a result, it is the duty of this Court to carry out what it determines to be the parties’ intentions.
Norman Ackerman, Esquire, also requested at trial that he be compensated for attorney’s fees totalling $540.00 for services rendered in behalf of the Debtor-Corporation, as provided in the agreement of sale.3 *376This request was made at trial. Rule 7(b)(1) of the Federal Rules of Civil Procedure, as incorporated by the Rules of Bankruptcy Procedure, allows motions to be raised at trial.4 The Trustee, however, has failed to adequately detail, for the Court, those services provided for the J & B Delivery Corporation. As a result, the Court grants Norman Ackerman, Esquire, Trustee in the above-captioned case, ten (10) days to amend his motion for attorney’s fees in accordance with the specificity that this Court requires.5
. This Opinion constitutes the findings of fact and conclusions of law in accordance with Rule 752 of the Rules of Bankruptcy Procedure.
. The agreement referred to is Defendant’s exhibit No. 1.
. The agreement of sale, paragraph 7, marked as Defendant’s Exhibit No. 1, provides:
_In consideration for Buyer’s right to pay the contract price of Ten Thousand Eight Hundred Dollars ($10,800.00) in monthly installments of Three Hundred Dollars ($300.00) on the first day of each consecutive month commencing with November 1, 1979, Buyer hereby agrees that if the monthly amount due under this contract remains unpaid for sixty (60) days past the date upon which the same is due under this contract, Buyer hereby empowers any Prothonotary, Clerk of Court or attorney of any Court of Record to appear for Buyer in any and all *376actions which may be brought for said arrears of monthly payments due under this contract, and/or to sign for Buyer an agreement for entering in any competent court an amicable action or actions for the recovery of the said amounts due and payable under this contract, and in said suits or in said amicable action or actions to confess judgment against Buyer for all aforesaid payments due under this contract plus interests and costs, together with an attorney’s commission of five percent (5%).
. Federal Rule 7(b)(1) provides:
.(1) An application to the court for an order shall be by motion which, unless made during a hearing or trial, shall be made in writing, shall state with particularity the grounds therefor, and shall set forth the relief or order sought. The requirement of writing is fulfilled if the motion is stated in a written notice of the hearing of the motion.
. In re Meade Land and Development Co., Inc., 577 F.2d 858 (1978); In re Hotel Associates, 10 B.R. 668 (Bkrtcy.E.D.Pa.1981); In re Hotel Associates, 15 B.R. 487 (Bkrtcy.E.D.Pa.1981); In re Barsky, 17 B.R. 396 (Bkrtcy.E.D.Pa.1982) and In re Nation/Ruskin Inc., 22 B.R. 207 (Bkrtcy.E.D.Pa. 1982). | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489363/ | FINAL JUDGMENT FINDING DEBT IS NOT EXCEPTED FROM DISCHARGE
GEORGE L. PROCTOR, Bankruptcy Judge.
This is an action concerning discharge-ability of a debt under 11 U.S.C. § 528(a)(3).
Atlantic National Bank of Florida, plaintiff, obtained a Final Judgment against Daniel W. Jones and Evelyn G. Jones, defendants, in a civil action in the Circuit Court of Orange County, Florida, on March 7, 1980. Defendants filed a petition under Chapter 7 of the Bankruptcy Code on February 26, 1981, and were discharged on June 8, 1981. On their schedules as originally filed defendants failed to list plaintiff as a creditor. Plaintiffs knowledge of this bankruptcy was obtained June 17, 1981, when plaintiff received a Notice of Discharge from the Clerk of the Bankruptcy Court. Said Notice contained a list of names of debtors who were discharged and was sent to plaintiff with reference to another estate in which this plaintiff was listed as a creditor. Upon reviewing the Notice, plaintiff discovered the names of defendants.
On July 29, 1982, defendants amended their schedules to include plaintiff. By Order of the Court dated August 11, 1981, plaintiff was notified of defendants’ bankruptcy and was given additional time to file a complaint to except a debt from discharge, object to the discharge, and file a proof of claim against defendants’ estate. Plaintiff contends that defendants’ debt to it is non-dischargeable because plaintiff was not added as a creditor in time to effectively exercise its right to participate in the administration of the affairs of defendants’ estate.
Plaintiff cites as authority for its position the case of Birkett v. Columbia Bank, 195 U.S. 345, 25 S.Ct. 38, 49 L.Ed. 231 (1904), which was decided by the United States Supreme Court under the Bankruptcy Act. In Birkett the Court decided that the mere failure of a debtor to list a creditor on its original schedules was a basis for a determination of non-dischargeability of a debt despite the fact that the Court made no findings that the rights of the creditor were prejudiced, nor that the debtor was guilty of fraud or deceit in making the omission. Since the express intent of Congress in enacting § 523(a)(3) of the Bankruptcy Code was to overrule Birkett, it is not dispositive of the issues before this Court. 124 Cong. Rec. H-ll, 095-6 (daily ed. Sept. 28, 1978); S-17, 412-13 (daily ed. Oct. 6, 1978); also, See 3 Collier on Bankruptcy, § 523.13, at 523-81 (15th ed. 1981).
Plaintiff’s complaint as to the non-dis-chargeability of defendants’ debt can only be sustained upon a showing that its rights as a creditor were prejudiced by its being added to defendants’ schedules at a later date. Although plaintiff did not have an opportunity to examine defendants at a § 341 meeting, this lack of opportunity could easily have been remedied by an examination of defendants pursuant to Rule 205 of the Bankruptcy Rules of Procedure. In addition, plaintiff received notice of defendants’ bankruptcy well within the six month period following the § 341 meeting to enable plaintiff to file a timely proof of claim and to participate in any distribution to be made from defendants’ estate. Finally, the Court extended the time period for plaintiff to file an exception or objection to discharge, thereby affording plaintiff a full opportunity to file such a complaint. The Court cannot find that the rights of plaintiff as a creditor have been prejudiced in any way.
For all of the above reasons, this Court finds that defendants’ debt to plaintiff is discharged in bankruptcy pursuant to 11 U.S.C. § 524(a). | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489389/ | ORDER DENYING DEBTORS’ MOTION FOR RECONSIDERATION
DENNIS J. STEWART, Bankruptcy Judge.
Formerly, on August 9, 1982, this court issued its written order, 22 B.R. 600, abstaining from these chapter 11 proceedings under the provisions of § 305 of the Bankruptcy Code and accordingly dismissing them with prejudice. It was, in quintessential substance, the determination of the court that the debtors had unfairly and without ostensible excuse delayed the chapter 11 proceedings when the files and records in this case showed that the creditors may have benefitted from immediate liquidation, through chapter 7 proceedings or otherwise, and the chapter 11 proceedings themselves were inaugurated for the purpose of frustrating the attempts of one creditor to assert his rights in the state courts. The abstention and dismissal was entered by the court as the direct result of the debtors’ failure and refusal to respond to an order of the court directing them to show cause why the court should not abstain from and accordingly dismiss this case.
Now, after refusing any material disclosure throughout the pendency of these chapter 11 proceedings up to and through the time of dismissal of this case, the debtors move for reconsideration of the order of abstention and dismissal, citing the hardships which have been suffered by the debtors and requesting that the dismissal be “without prejudice” rather than “with prejudice.”
It must be observed at this point that it seems to the court that the debtors, if they are presently suffering from some or all of the hardships which they cite in their motion to reconsider, have brought the abstention and dismissal on themselves through the long, repeated, and virtually unrelieved refusal to obey the rules and orders of the court. In the end, as the court has detailed in its order of abstention and dismissal, the *79repeated refusal to respond to the court’s orders permitted the court no other alternative except to abstain from and dismiss the action. The delay and prejudice which has been worked to creditors, and which provided the basis for the court’s order of abstention and dismissal, should not now be further extended after the already overlong extension of the case.
This is so even though the debtors, as they now contend, may be suffering privation. The bankruptcy court has as its fundamental purpose the opening of its doors to those who suffer economic privation. But the door can be kept only so long as those who seek the court’s protection obey the rules and orders designed to keep that protection consistent with notions of fairness and justice — to the creditors as well as to the debtors. Therefore, debtors who do not abide by the rules and orders of fairness must necessarily find that they. have excluded themselves from the relief which is normally offered by the court.
To invoke any other rule would be to give notice that debtors may file chapter 11 proceedings, prolong them unnecessarily and in violation of the rules and orders of court, allow those proceedings to be dismissed by failing even to respond to an order of the court to show cause why the proceedings should not be dismissed, and then, by citing some hardships, have that dismissal set aside so that the proceedings might continue to be prolonged. Chapter 11 proceedings and title 11 proceedings in general, under such circumstances, could have no end. All one would need to do to keep his creditors at bay — without any duties or responsibilities whatsoever — is to file a chapter 11 proceedings and then refuse to do another thing, even though the court may reasonably direct that certain necessary duties and responsibilities should be carried out.
Abuse of the court’s processes, however, cannot be rewarded, regardless of the merit otherwise of these who abuse the process. If the abuse which has been committed in this case were shown or confessed to be solely the failure of counsel or that of some other party, reconsideration might well be appropriate. But that has never been suggested or stated or shown. The court, otherwise, cannot presume that such derelictions are attributable to an officer of the court. The law cannot exist to protect and reward those who flout it.
The debtors devote a considerable portion of their motion to reconsider to pointing out that the lien of the creditor Castera has been voided as preferential. But that alone does not wipe out Mr. Castera’s underlying claim nor the merit of it. The good faith or bad faith, motive or intent of a preferential transferee is something that is not adjudicated in determining a preference. Katz v. First National Bank of Glen Head, 568 F.2d 964, 970 (2d Cir. 1977). Therefore, it cannot be presumed that Mr. Castera’s claim is any less meritorious than any other creditors’ claims.
It is therefore, for the foregoing reasons,
ORDERED, that the debtors’ motion for reconsideration be, and it is hereby, denied. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489390/ | FINDINGS OF FACT AND CONCLUSIONS OF LAW
SIDNEY M. WEAVER, Bankruptcy Judge.
THIS CAUSE, coming on to be heard upon an Amended Complaint to Recover Accounts Receivable and for Declaratory Judgment and the Counterclaims filed thereto herein, the Court having heard the testimony and examined the evidence presented; observed the candor and demeanor of the witnesses; considered the arguments of counsel, and the Court having jurisdiction over the parties and subject matter of this action, and being otherwise fully advised in the premises, does hereby make the following findings of fact and conclusions of law:
The Complaint of Plaintiff/Counterde-fendant, GUARDIAN EQUIPMENT CORPORATION, f/k/a GUARDIAN SECURITY EQUIPMENT, INC., Debtor in Possession (hereinafter referred to as “Debtor”), seeks recovery of accounts receivable due and owing from FIRST FEDERAL SAVINGS & LOAN OF LAKE WORTH (hereinafter “LAKE WORTH”) for goods provided and services rendered pursuant to certain leases and contracts existing between the Debtor and LAKE WORTH. The Debtor’s Complaint further seeks Declaratory Judgment determining the priority, validity and extent of the lien filed against LAKE WORTH by HAWKEYE ALARM COMPANY (hereinafter “HAW-KEYE”).
LAKE WORTH has counterclaimed, seeking an Order of Interpleader with LAKE WORTH as stakeholder and the Debtor and HAWKEYE as claimants. LAKE WORTH’S Counterclaim seeks direction from the Court as to which claimant is entitled to the monies which it is holding.
*128LAKE WORTH additionally has cross-claimed against HAWKEYE, disputing the validity of the HAWKEYE lien pursuant to Florida Statutes, Chapter 713. The matter was tried before this Court on June 24, 1982.
The Court has entered a preliminary Order of Interpleader in the case sub judice, approving the stipulated amount determined to be due and owing to the Debtor by LAKE WORTH in the sum of $6,260.99. Said preliminary Order further directs LAKE WORTH to segregate said amount in the authorized trust account of McGee, Jordan, Shuey, Koons & Schroeder, P.A. Thus, the only issue remaining to be determined by this Court is the priority, validity and extent of the lien filed by HAWKEYE upon which it bases its claim • to the $6,260.99 interpled by LAKE WORTH.
The only factual dispute arising at the trial of this matter concerned the date on which employees of HAWKEYE commenced work on the Plantation Center office of LAKE WORTH. LAKE WORTH introduced evidence supporting its contention that representatives of HAWKEYE first appeared on the premises and began work on April 12, 1981. HAWKEYE, however, presented testimony by its president, detailing all work done and the number of employees present at the Plantation Center office of LAKE WORTH during the time of the subcontracting services. According to testimony by HAWKEYE’S president, subcontracting work on the holdup and burglary alarm system was commenced on June 13, 1981.
The remainder of the material facts are undisputed. HAWKEYE filed its Notice to Owner on LAKE WORTH on July 28,1981, finished work on the Plantation Center office on August 17, 1981, and filed its Amended Claim of Lien on September 23, 1981. Further, there is no dispute by LAKE WORTH concerning the satisfactory completion of all labor and services.
The Court finds the testimony of the president of HAWKEYE detailing the daily work, time and labor to be the most clear and convincing evidence of the time when work was actually commenced, thereby determining June 13, 1981, to be the commencement date. Therefore, since HAW-KEYE has complied with the Mechanic’s Lien Statute (Florida Statutes, Chapter 713) in filing its Notice to Owner within forty-five (45) days of commencing work pursuant to Florida Statutes, § 713.06(2)(a), and further complied with Florida Statutes, § 713.08(5), by filing its Claim of Lien within ninety (90) days of August 17, 1981, the date upon which the work was. completed, the Court finds the HAWKEYE lien in the amount of $8,842.40 to be valid.
Having found that the lien filed by HAWKEYE is valid and, accordingly, that HAWKEYE stands in a secured position to the extent of the stipulated indebtedness of $6,290.99 and an unsecured position for the $2,581.41 balance, the Court now turns its attention to effectuating a release of the lien filed by HAWKEYE against LAKE WORTH.
11 U.S.C., § 105(a), which encompasses a broad grant of powers to the Bankruptcy Court, provides that the Bankruptcy Court may issue any order, process or judgment that is necessary or appropriate to carry out the provisions of this title. Pursuant to said provision, this Court finds that in order to achieve a fair and equitable resolution of this matter, HAWKEYE shall release the lien filed against LAKE WORTH in the amount of $8,842.40, thereby providing LAKE WORTH with free and clear title upon payment into escrow of the stipulated indebtedness of $6,260.99. Said funds will be segregated pursuant to the Order of Interpleader entered herein in the trust account of McGee, Jordan, Shuey, Koons & Schroeder, P.A. Upon disbursement of funds under the Debtor’s Plan of Reorganization, HAWKEYE will share in the distribution of the Estate pursuant to to the order of priority under § 507 of the Bankruptcy Code (11 U.S.C., § 507) as detailed in the Debtor’s Plan of Reorganization.
In accordance with the foregoing, LAKE WORTH will be ordered to segregate the *129stipulated indebtedness of $6,260.99 in its trust account, pending further Order of this Court. The Court will further order that HAWKEYE will hold a secured position in the amount of $6,260.99 and an unsecured position in the amount of $2,581.41, with distribution to be made, if at all, at the time of funding of the Debtor’s Plan of Reorganization. Further, the Court will order that HAWKEYE release its lien of record on the property of the Plantation Center office of LAKE WORTH.
A separate Final Judgment shall be entered in accordance with these Findings of Fact and Conclusions of Law. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489391/ | MEMORANDUM OPINION AND ORDER
RICHARD L. SPEER, Bankruptcy Judge.
This cause came before the Court upon the Motions to Dismiss for Lack of Jurisdiction filed by the Defendants; the Motion of Plaintiff Opposing the Motions to Dismiss; and the Motion of Plaintiff to Advance Trial Date.
The Defendants propose that the holding of the Supreme Court in the case of Northern Pipeline Construction Co. v. Marathon Pipeline Company, - U.S. -, 102 S.Ct. 2858, 73 L.Ed.2d 598 (1982), clearly divests the Bankruptcy Court of the necessary jurisdiction required to proceed with the case at bar. Specifically, they allege that because the Northern Pipeline case declared unconstitutional the Bankruptcy Court’s exercise of plenary jurisdiction, as established by Section 241(a) of the Bankruptcy Act of 1978, this Court forfeits its subject matter jurisdiction over the immediate action.
The Plaintiff opposes the Motions for several reasons. Plaintiff argues that at the outset, the Defendants’ Motions are premature because the implementation date of the Northern Pipeline Order is not until October 4, 1982; until that time this Court retains subject matter jurisdiction. Furthermore, the Plaintiff argues that the Court should retain jurisdiction of this case because it was informally consolidated with other cases which the Court will maintain jurisdiction over after the October 4, 1982 deadline. Since all of these cases require introduction of virtually the same evidence, Plaintiff argues that in the interests of efficiency, expediency, and expense, this Court should deny the Motions to Dismiss.
Upon reviewing the memoranda filed and the oral arguments of the parties, the Court finds the following: The Complaint which initiated this action was filed pursuant to the Ohio Fraudulent Conveyances Act, specifically Ohio Revised Code Sections 1336.-04, 1336.05, 1336.06, and 1336.07; and common law fraud.
The Supreme Court, in holding the Bankruptcy Court’s jurisdiction unconstitutional, stated in pertinent part the following:
“We hold that the Bankruptcy Act of 1978 carries the possibility of such an unwarranted encroachment. Many of the rights subject to adjudication by the Act’s bankruptcy courts like the rights implicated in Raddatz, are not of Congress’ creation. Indeed, the case before us, which centers upon appellant Northern’s claim for damages for breach of contract and misrepresentation, involves a right created by state law, a right independent of and antecedent to the reorganization petition that conferred jurisdiction upon the bankruptcy court. Accordingly, Congress’ authority to control the manner in which that right is adjudicated, through assignment of historically judicial functions to a non-Art. Ill “adjunct,” plainly must be deemed at a minimum. Yet it is equally plain that Congress has vested the “adjunct” bankruptcy judges with powers over appellant’s state-created right that far exceed the powers that it has vested in administrative agencies that adjudicate only rights of Congress’ own creation.” Northern Pipeline, supra, at -, 102 S.Ct. at 2878.
It appears clear that the case sub judice is one which was contemplated by the Supreme Court’s decision. It is highly improbable that this complex case could be tried and decided prior to October 4, 1982. Although this particular federal court will not have the subject matter jurisdiction to continue the case, the case could be tried and resolved in the District Court for the Northern District of Ohio, Western Division pursuant to its jurisdictional grant in 28 U.S.C. Section 1332. Rather than dismiss *160this case under Federal Civil Rule 12(h)(3), and to afford the parties an opportunity to have this case tried before an Article III Court as required by the Northern Pipeline case, this Court believes that it would be in the best interests of the Creditors and the Debtor to more appropriately transfer this case to the District Court for the Northern District of Ohio, Western Division.
It is therefore ORDERED, ADJUDGED and DECREED, that the Defendants’ Motions be DENIED, and that this case be transferred pursuant to this Order.
It is FURTHER ORDERED that the Motion of Plaintiff to Advance Trial Date is hereby DENIED.
It is FURTHER ORDERED that service of this Order shall be made by the Deputy Clerk of this Court mailing copies of same to all parties in interest and counsel of record in the above adversary proceeding. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489392/ | OPINION
WILLIAM A. KING, Jr., Bankruptcy Judge.
This ease reaches the Court on a complaint for relief from the automatic stay filed by First Pennsylvania Bank, N.A. and a counterclaim filed by the debtor.1 At the trial on the merits, the facts were largely undisputed. The debtor retained over $80,-000 equity in hér home, despite the existence of two (2) mortgages. The first mortgage with an outstanding balance of approximately $20,000, was held by either Clarke Mortgage Company or First Pennsylvania Bank. Although First Pennsylvania brought the action, the mortgage attached to the complaint named Clarke as the mortgagee. Plaintiff’s counsel never clarified this matter in any fashion. The facts also showed that the debtor was only nineteen (19) days in default on a single payment when the plaintiff filed the instant complaint under § 362 of the Bankruptcy Code.
After review of this evidence, the Court finds that, under these circumstances, it would be impossible to grant relief from the stay. In the first instance, the equity cushion retained by the debtor is for (4) time the amount due the mortgagee whether it be Clarke or First Pennsylvania. Secondly, the default of a single monthly mortgage payment cannot be found to constitute cause for granting relief from the stay. It would be unconscionable for this Court to grant relief on this basis. In light of the vast amount of equity and the minimal arrearage accrued since the filing of the petition, the complaint for relief from the stay will be denied.
Even if the Court found a more serious basis for the complaint, relief would have to be denied. First Pennsylvania Bank was never proven to be the proper plaintiff. The mortgage instrument lists the Clarke Mortgage Company as the mortgagee. No evidence of an assignment was ever introduced. The failure to prove any relationship existed between the plaintiff and the debtor will cause the Court to dismiss the complaint.
The counterclaim by the debtor addressed several additional issues. The debt- or requested that the plaintiff bear their own fees and costs in bringing this action. The Court is in agreement with this request. It would be a travesty if the plaintiff and his counsel or any other entity would charge the fees and costs stemming from this action as part of the debtor’s mortgage obligation. The Court will enter an Order directing the mortgagee, whichever company it may be, not to add any fees, costs, or other charges to the debtor’s mortgage account in connection with the instant adversary proceeding.
The debtor’s attorney also requested an allowance of $750.00 in counsel fees as part of the counterclaim. The Court is uncer*224tain as to the legal basis for this prayer. The Court, therefore, will request counsel for the parties to address this issue in brief memoranda of law. Counsel for the debtor will also be requested to supply the Court with an itemized statement of the legal services rendered in this action.
An appropriate Order will be entered.
. This Opinion constitutes the findings of fact and conclusions of law required by Rule 752 of the Rules of Bankruptcy Procedure. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489393/ | FINDINGS OF FACT AND CONCLUSIONS OF LAW
SIDNEY M. WEAVER, Bankruptcy Judge.
This Cause having come on to be heard upon a Complaint to Recover Preferences filed herein and the Court, having heard the testimony and examined the evidence presented; observed the candor and demeanor of the witnesses; considered the arguments of counsel and being otherwise fully advised in the premises, does hereby make the following findings of fact and conclusions of law:
That this Court has jurisdiction of the parties hereto and the subject matter hereof.
On September 4, 1981, the debtor filed a petition for relief pursuant to Chapter 7 of the United States Bankruptcy Code.
Within 90 days prior to the filing of the petition, the defendant, William F. Lone, who is the chief executive officer of the debtor, received checks from the debtor corporation as repayment of loans. These transfers are now being challenged by the trustee on the grounds that they are preferential transfers subject to avoidance pursuant to 11 U.S.C. § 547(b). In this regard, the Court finds that the payment of funds by the debtor to the defendant Lone from the debtor’s corporate checking account constitute “transfers of property of the debtor” as contemplated by § 547(b).
Bankruptcy Code § 547(b) sets forth the five (5) elements of a preferential transfer. The first element requires that the transfer be “to or for the benefit of a creditor”. Defendant Lone was a creditor as defined in 11 U.S.C. § 101(9)(A), since he was an entity with a claim against the debtor at the time of or before the order of relief. As a creditor, defendant Lone was benefit-ted by the repayment of his loans from the debtor.
The second element requires that the transfer be for or on account of an antecedent debt. The transfers to defendant Lone were made in repayment of loans extended by the defendant Lone to the debtor months earlier, and therefore, constitute transfers on account of an antecedent debt.
The third element requires that the transfers be made while the debtor was insolvent. The debtor is presumed to be insolvent during a 90 day period immediately preceeding the date on which the petition is filed (§ 547(f)). The presumption was not rebutted and as the said transfers were made within 90 days of the filing of the petition they are deemed to be made during insolvency.
The fourth element of a preference requires the challenged transfers be made within 90 days before the filing of the petition. The said transfers satisfy this element.
*230The fifth element requires that the transfers must enable the creditor to receive a greater percentage of his claim than he would receive under the distributive provisions of the Bankruptcy Code. According to the debtor’s balance sheet, its liabilities exceed its assets, yet defendant Lone received the full amount of his unsecured claim immediately as a result of the challenged transfers. The amount received by defendant Lone exceeds the amount he would receive through ordinary Chapter 7 distribution.
Since all elements of a preference as set forth in Bankruptcy Code § 547 are satisfied, the transfers to defendant Lone are preferential and may be avoided by the trustee.
The trustee’s complaint also challenges transfers of funds from defendant Lone, and on behalf of the debtor, to Balbu-sa Studios, Bundy Sign, Inc., and Charles Trumble on the grounds that the transfers are avoidable preferences pursuant to 11 U.S.C. § 547.
Bundy Sign failed to answer the trustee’s complaint or otherwise defend the lawsuit, and, pursuant to Bankruptcy Rule 755, the Court will enter a default judgment against Bundy Sign.
In his complaint, the trustee named Balbusa Studios as a defendant in this adversary proceeding, when in fact the trustee intended to proceed against Joseph T. Balbusa individually.
Mr. Balbusa did not file a responsive pleading but he did correspond with the trustee with reference to the claim against Balbusa Studios.
In his correspondence Balbusa admitted to the allegations as properly made by the trustee. The Court finds that the funds transferred to Mr. Balbusa may be recovered by the trustee.
The property which is the subject matter of the trustee’s claim against Charles Trumble was surrendered to the trustee, therefore the Court finds that the trustee’s claim against defendant Charles Trumble is moot.
The trustee’s complaint challenges a transfer of funds by defendant Lone, on behalf of the debtor, to Commercial Bank of Hollywood, also on the grounds that the transfer was preferential.
After reviewing the evidence and hearing argument of counsel, the Court finds that in receiving the funds the Bank acted in good faith and therefore it is relieved of all responsibility with reference to the funds.
The Court will enter a judgment in conformity with these findings of fact and conclusions of law. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489395/ | MEMORANDUM OPINION
FREDERICK J. HERTZ, Bankruptcy Judge.
The issues brought before this court involve the validity of certain claims filed against David Van Dyke and his wife, Carol (hereinafter referred to as debtors).
*419In November of 1977, the debtors formed an Illinois limited partnership, Century Coal Enterprises, for the purposes of mining coal in the state of Kentucky. As general partners, they solicited capital in return for an interest in the limited partnership. The debtors raised approximately $750,000.00 in capital from investors who apparently were fellow church members and residents of the Peoria, Illinois area. By September of 1978, however, the debtors elected to terminate the operation of Century Coal Enterprises.
Several months later, on or about December 15, 1978, David Van Dyke sent a letter, prepared by his counsel, to each investor offering to repurchase his interest in the limited partnership for the original purchase price, plus six percent (6%) interest. (A copy of such letter is attached as appendix to this opinion.) Within several days of the offer to repurchase, the debtors sent another letter to each investor. This letter stated that in return for their shares in Century Coal and a release of all liability stemming from the sale of the shares in the limited partnership, the investor would receive an interest in Skyview Investment Ltd., also an Illinois limited partnership.
The alternate proposal was accepted by many of the investors. However, the claimants in this adversary proceeding, in one form or another, elected to accept the original offer of repurchase. Eventually, on June 22, 1979, the debtors filed a petition under Chapter XI of the prior Bankruptcy Act.
The following is a list of the claimants involved in this proceeding:
GROUP A
Claim Number Name Amount
S-6 Bruce Sutton $10,000.00
B-6 Jerry & Judith Borton 10,000.00
G-5 Joseph Goebel 10,000.00
J-5 Gene Johnson 5,000.00
L-4 Anthony Laskowski 10,000.00
S-7 Elmer Schaufelburger 10,000.00
V-2 H. Dale Vick 7,500.00
GROUP B
J-4 Elling Johnson 10,000.00
L-3 Bobby Lovell 5,000.00
P-3 Ronald Parkins 7,500.00
The debtors stipulated that the amount listed after each claimant represents the amount each originally invested in Century Coal Enterprises. The claimants in both groups accepted and notified the debtors within 15 days after receipt of the offer to repurchase.
The claimants in Group A, while accepting the offer of repurchase, still retained their certificates of interest in Century Coal Enterprises. Those in Group B sent the certificates of interest in Century Coal, along with their acceptances, to the debtors. The debtors do not dispute that each claimant in some form communicated their wish to accept the repurchase offer within the 15 day period.
The debtors argue that validity of the claims is controlled by the Illinois Securities Law of 1953, Ill.Rev.Stat. Ch. 121%, § 137.1 et seq. (1981). Section 13 of the Illinois Securities Law is particularly pertinent. It provides as follows:
§ 13. Civil remedies. A. Every sale of a security made in violation of the provisions of this Act shall be voidable at the election of the purchaser exercised as provided in subsection B of this Section; and upon tender to the seller or into court of the securities sold or, where the securities were not received, of any contract made in respect of such sale, the issuer, controlling person, underwriter, dealer or other person by or on behalf of whom said sale was made, and each underwriter, dealer or salesperson who shall have participated or aided in any way in making such sale, and in case such issuer, controlling person, underwriter or dealer is a corporation or unincorporated association or organization, each of its officers and directors (or persons performing similar functions) who shall have participated or aided in making such sale, shall be jointly and severally liable to such purchaser for (1) the full amount paid, together with interest from the date of payment for the securities sold at the rate of the interest or dividend stipulated in the securities *420sold (or if no rate is stipulated, then at the legal rate of interest) less any income or other amounts received by such purchaser on such securities and (2) the reasonable fees of such purchaser’s attorney incurred in any action brought for recovery of the amounts recoverable hereunder.
B. Notice of any election provided for in subsection A of this Section shall be given by the purchaser, within 6 months after the purchaser shall have knowledge that the sale of the securities to him is voidable, to each person from whom recovery will be sought, by registered letter addressed to the person to be notified at his last known address with proper postage affixed, or by personal service.
C. No purchaser shall have any right or remedy under this Section who shall fail, within 15 days from the date of receipt thereof, to accept an offer to repurchase the securities purchased by him for a price equal to the full amount paid therefor plus interest thereon and less any income thereon as set forth in subsection A of this Section. Every offer of repurchase provided for in this subsection shall be in writing, shall be delivered to the purchaser or sent by registered mail addressed to the purchaser or sent by registered mail addressed to the purchaser at his last known address, and shall offer to repurchase the securities sold for a price equal to the full amount paid therefor plus interest thereon and less any income thereon as set forth in subsection A of this Section. Such offer shall continue in force for 15 days from the date on which it was received by the purchaser, shall advise' the purchaser of his rights and the period of time limited for acceptance thereof, and shall contain such further information, if any, as the Secretary of State may prescribe. Any agreement not to accept or refusing or waiving any such offer made during or prior to said 15 days shall be void.
Ill.Rev.Stat. Ch. 12U/2, § 137.13(A), (B), (C) (1981) (emphasis added).
In order for Section 13 to be applicable, the certificates of interest in the partnership must constitute a security. In Illinois, a security is defined as:
any note, stock, treasury stock, bond, debenture, evidence of indebtedness, certificate of interest or participation in any profit-sharing agreement, collateral-trust certificate, prereorganization certificate or subscription, transferable share, investment contract, investment fund share, face-amount certificate, voting-trust certificate, fractional undivided interest in oil, gas, or other mineral lease, right, or royalty, option, put, call, privilege, indemnity or any other right to purchase or sell a contract for the future delivery of any commodity offered or sold to the public and not on a registered contract market, or, in general, any interest or instrument commonly known as a security, or any certificate of deposit for, certificate of interest or participation in, temporary or interim certificate for, receipt for, guarantee of, or warrant or right to subscribe to or purchase, any of the foregoing.
Ill.Rev.Stat. Ch. 121%, § 137.2-1 (1981) (emphasis added).
The Illinois courts in interpreting this definition have held that the sale of certificates of interest in a limited partnership constitutes a “security” transaction as governed by the Illinois Securities Law of 1953. Anvil Investment Limited Partnership v. Thornhill Condominiums, Ltd., 85 Ill.App.3d 1108, 41 Ill.Dec. 147, 407 N.E.2d 654 (1st Dist. 1980) (sale of unregistered interests in real estate limited partnerships was unlawful). See also, Curtis v. Johnson, 92 Ill.App.2d 141, 234 N.E.2d 566 (4th Dist. 1968) (limited partnership interest is a “security” under Illinois Securities Law of 1953). Based on these decisions, this court holds that the certificates of interest in Century Coal Enterprises constitute securities. Consequently, the Illinois Securities Law of 1953 is applicable to the controversy herein.
The debtors argue that the acceptance of each claimant in Group A was not effective because these claimants did not *421tender their certificates of interest in Century Coal Enterprises to the debtors within the fifteen day statutory period. Thus, this court must decide whether the Illinois Securities Law of 1953 requires the physical tender of the securities in addition to the communication of acceptance in order to effectively accept an offer of repurchase.
In support of their position that the tender of the securities is necessary for a valid acceptance, the debtors refer to the case of Tobey v. Sundling, 25 Ill.App.3d 205, 323 N.E.2d 30 (1st Dist. 1974). In Tobey, the court held that a vendee must tender the stock back to the vendor in order for the vendee to rescind his purchase of the stock.
The court in the case at bar, however, does not find the decision in Tobey to be persuasive. Tobey involved a vendee’s suit to rescind a sale of securities under Section 13(A) of the Illinois Securities Law. In that case, the securities could not be tendered to the vendor because the vendee had sold them to a third party. See also Shofstall v. Allied Van Lines, Inc. 455 F.Supp. 351 (N.D.Ill.1978) (prospective plaintiff cannot satisfy statutory requirement of tender under Section 13(A) if the shares have already been sold); Rotstein v. Reynolds, 359 F.Supp. 109 (N.D.Ill.1973) (plaintiff who sold all of the subject securities he had purchased cannot allege tender under Section 13 of the Illinois Securities Law of 1953).
The controversy herein involves the acceptance of an offer of repurchase under Section 13(C). The offer of repurchase was initiated by the debtors, pursuant to the urging of the Securities Division of the Secretary of State. The claimants in Group A have not sold their certificates of interest to third parties, but have merely held on to the certificates pending the resolution of their claims against the debtors. Moreover, the certificates apparently are worthless because the partnership ceased operating in 1978.
Section 13(C) requires only that “a purchaser must accept the offer of repurchase within 15 days from the date of receipt.” This section does not mention the need to tender the securities to the seller, as provided in Section 13(A). This court has been unable to find any case law interpreting or applying Section 13(C), but this provision has been considered to be a means whereby a securities law violator may reduce the period in which he may be sued by a buyer. Loss, The Conflict of Laws and the Blue Sky Laws, 71 Harv.L.Rev. 209, 241 (1957). Since the claimants in Group A accepted the offer to repurchase within the fifteen day period, the intent of Section 13(C) to allow only timely claims has been satisfied. Considering that the Illinois Securities Law of 1953 is paternalistic in nature and designed to protect the investing public from fraud, Silverman v. Chicago Ramada Inn, Inc., 63 Ill.App.2d 96, 99, 211 N.E.2d 596, 598 (1st Dist. 1965) (quoting Miehsner v. Runyon, 23 Ill.App.2d 446, 456, 163 N.E.2d 236, 241 (2d Dist. 1960)1. this court will not read into Section 13(C) an additional requirement that the buyers must tender their securities to the seller within the fifteen day period. Thus, this court holds that the acceptance made by the claimants in Group A was effective to comply with Section 13(C).
The debtors also argue that the claim of Bruce Sutton (S-6) should be disallowed because he failed to appear in court to testify as to his claim. Mr. Sutton, however, was excused from appearing in court to testify, pursuant to a stipulation of the parties and a draft order by this court dated September 10, 1981. Moreover, Mr. Sutton’s position was explained satisfactorily by the testimony of Mr. Van Dyke and fellow investors with identical claims. Consequently, this court holds that Mr. Sutton’s claim against the debtors is allowed.
Finally, the debtors contend that the claims of the claimants in Group B should be disallowed because the debtors’ offer to repurchase was conditional on Century Coal Enterprises’ having the money to repurchase the claimants’ interest. The debtors argue that since the claimants knew that Century Coal had no funds, the claimants’ only viable choice was to exchange the *422shares of Century Coal Enterprises for interests in Skyview Investments, Ltd. (As previously stated, the claimants in Group B not only accepted the offer of repurchase within the fifteen-day statutory period, but also tendered their securities to the debtors at the same time.)
The debtors’ theory of conditional rescission is based on the 1869 case of Ellington v. King, 49 Ill. 449 (1869). In Ellington, the plaintiff exchanged a horse for defendant’s mare, with the defendant’s son acting on behalf of the defendant. When the mare proved to be unsound, the plaintiff requested that the defendant’s son return the horse. The court ruled that although the defendant’s son was empowered to sell the mare, he was not empowered to rescind the contract at a subsequent time. Id. at 450.
This court finds the Ellington decision to be unpersuasive, because the holding was based primarily on principles of agency law, not securities law. Moreover, this court’s research indicates that there is no recorded case which uses the theory of conditional rescission for the proposition asserted by the debtors.
With regard to the inability of Century Coal Enterprises to repurchase the interests of the claimants in Group B, testimony during the court hearing indicates that the claimants in Group B were aware that the debtors (personally) had a substantial income. General partners are personally liable for claims against a limited partnership. Bayles v. Bennett, 22 Ill.App.3d 144, 316 N.E.2d 792 (4th Dist. 1974) (partners are jointly and severally liable for partnership debts). See also Delaney v. Fidelity Lease Ltd., 526 S.W.2d 543, 546 (Tex.1975) (general partner is personally liable for claims against a limited partnership). Accordingly, the claimants in Group B had reason to believe that their acceptance of the offer to repurchase could be satisfied by either the partnership or the debtors. Also, the offer to exchange the claimants’ interest for interests in Skyview Investment, Ltd. was an alternate proposal; the original offer of repurchase was not revoked. Thus, even if conditional rescission is a viable theory, the elements of that theory have not been satisfied in this case. Consequently, this court holds that claims of the claimants in Group B are allowed.
The claimants are to furnish a draft order in accordance with this opinion within five (5) days.*
APPENDIX
Century Coal Enterprises
P. 0. Box 2084
East Peoria, IL 61611
Ph. 309-694-6414
Dear Sir:
On the 24th day of March. 1978, The Century Coal Enterprises sold to you Limited Partnership Units at the price of $10.000 for 1 unit.
The sale of these securities appears to have not been in compliance with The Illinois Securities Law of 1953 and accordingly, by virtue of Section 13 thereof, is voidable by you at your option. Therefore, Century Coal Enterprises hereby offers to rescind and set aside this sale and to refund to you the entire purchase price paid therefore together with interest at the rate of 6 percent from 3/24/78. the date of sale of said securities, to date.
Should you decide to accept this offer of rescission, kindly return the above described securities to this office together with a written notice of your election to accept said offer of rescission and the purchase price plus interest will be refunded to you.
This offer is good for fifteen (15) days after your receipt of this letter; and if you *423fail to accept it within that period, your rights to recover under The Illinois Securities Law of 1953 will be extinguished.
Very truly yours,
/s/ David C. Van Dyke
David Van Dyke
Century Coal Enterprises
This decision is entered in compliance with the stay of enforcement until October 4, 1982 of the United States Supreme Court decision in Northern Pipeline Construction Co. v. Marathon Pipe Line Co., - U.S. -, 102 S.Ct. 2858, 73 L.Ed.2d 598 (1982), the General Order of the United States District Court for the Northern District of Illinois (July 14, 1982), and the decision of the United States Court of Appeals for the Seventh Circuit in Farmers Union Central Exchange, Inc. v. Hertz, No. 82-2211 (7th Cir. August 13, 1982). | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489396/ | MEMORANDUM
ROBERT L. TAYLOR, District Judge.
Transport Acceptance Corp. (Transport) appeals from a judgment of the United States Bankruptcy Court for the Eastern District of Tennessee. The Bankruptcy Court held that defendants-appellees, Interstate Contract Carriers Corp. and its subsidiary Carrier Rentals, Inc. (hereinafter referred to collectively as Carrier) have a security interest in a 1975 Chevrolet tractor superior to Transport’s interest. Bkrtcy., 19 B.R. 436. The issue on appeal is whether Carrier’s security interest in the tractor is superior to the security interest of Transport. The answer to the question depends upon whether Oklahoma law or Tennessee law controls the perfection of the security interest in the tractor. We hold that Oklahoma law controls.
The facts of the case are not in dispute. On October 1, 1979, Samuel C. Crosby, the debtor in bankruptcy, executed a Tennessee Security Agreement, granting a security interest in the 1975 tractor to Carrier. The tractor was originally titled in Tennessee. *515Carrier, however, transferred the title to Oklahoma for tax purposes. Due to an oversight, the Oklahoma title was issued without notation of Carrier’s lien. The debtor therefore received a clear title. He then defaulted under the agreement with Carrier. On or about January 29, 1980, Carrier took possession of the tractor in Knoxville, Tennessee. Carrier executed an Oklahoma Repossession Affidavit on March 25, 1981, over a year after taking possession.
The debtor and Transport executed a retail installment contract on August 5, 1977. The debtor pledged several commercial vehicles as collateral for the debt. In March 1980, Transport refinanced the account. Transport released one vehicle from the agreement, and the 1975 Chevrolet tractor was substituted as security. On March 28, 1980, Transport caused its interest in the tractor to be properly noted on the Oklahoma certificate of title. This was approximately two months after Carrier had repossessed the tractor.
On January 23, 1981, the debtor filed a petition in bankruptcy under Chapter 13 of the Bankruptcy Code. Transport filed an adversary proceeding on July 13, 1981, claiming rights in the Chevrolet tractor. The Bankruptcy Court held that Tennessee law controlled the perfection of the security interests in the tractor. That Court then found that Carrier’s possession gave it priority under Tennessee law.
The transactions between the debtor and Transport and Carrier bear a substantial relation to Tennessee. The security agreements were entered into here and Carrier repossessed the tractor in Tennessee. We therefore look initially to the Tennessee Commercial Code for the controlling legal principles. Tenn.Code Ann. §§ 47-1-105, 47-9-101. The Code at § 47-9-102 provides as follows:
Policy and scope of chapter. — (1) Except as otherwise provided in § 47-9-103 on multiple state transactions and in § 47-9-104 on excluded transactions, this chapter applies so far as concerns any personal property and fixtures within the jurisdiction of this state:
(a) to any transaction (regardless of its form) which is intended to create a security interest in personal property or fixtures including goods, ...
Section 47-9-103(4) provides the following exception:
Notwithstanding subsections (2) and (3), if personal property is covered by a certificate of title issued under a statute of this state or any other jurisdiction which requires indication on a certificate of title of any security interest in the property as a condition of perfection, then the perfection is governed by the law of the jurisdiction which issued the certificate, (emphasis added).
An Oklahoma certificate of title covered the tractor during the term of Carrier’s and Transport’s security interests. Under Oklahoma law the sole method of perfection of a security interest in a motor vehicle is by notation of the interest on the certificate of title. Okla.Stat. tit. 47, § 23.2b. The Oklahoma Motor Vehicle Statute provides as follows:
Any person creating a security interest in a vehicle that has been previously registered in the debtor’s name and on which all taxes due the state have been paid shall surrender the certificate of title to the secured party. The secured party shall have the duty to record the security interest as provided in this section and shall, at the same time, obtain a new certificate of title which shall show the secured interest on the face of such certificate of title.
Id. § 23.2b(B)(5). The title is filed and indexed,
.... so that at all times it will be possible to trace the title to the vehicle designated therein, identify the lien entry form, and the names and addresses of secured parties, or their assignees, so that all or any part of such information may be made readily available to those who make legitimate inquiry of the Commission as to the existence or nonexistence of security interest in the vehicle.
Id. § 23.2b(C).
The Oklahoma version of the Uniform Commercial Code provides as follows:
*516Compliance with a statute or treaty described in subsection (3) of this section is equivalent to the filing of a financing statement under this Article, and a security interest in property subject to the statute or treaty can be perfected only by compliance therewith . . .
Okla.Stat. tit. 12A § 9-302(4). Subsection (3) refers to statutes which require indication on a certificate of title of security interests in the property. Id. This would include the Oklahoma Motor Vehicle Act, title 47 § 23.2b.
The Oklahoma provision requiring notation as a condition of perfection is the type of statute contemplated by Tenn.Code Ann. § 47-9-103(4). The Tennessee Code requires deference to the Oklahoma provision in this case. The § 47-9-103(4) exception applies even though relevant transactions take place primarily in Tennessee and the property is in Tennessee. Otherwise, the exception would be meaningless. Parties may not agree that the law of another state, including Tennessee, shall govern, in contravention of this Tennessee choice of law rule. Tenn.Code Ann. § 47-1-105. Transport is the only secured party who indicated its interest on the certificate of-title. Because it was the only party to perfect under the Oklahoma rules, Transport’s rights in the tractor are superior to the rights of Carrier.
We note that this case is substantially similar to the recent Sixth Circuit case, In Re: Angier, 684 F.2d 397 (6th Cir., 1982). In Angier the Court construed a provision of the Michigan Uniform Commercial Code that is identical to the Tennessee certificate of title perfection rule, Tenn.Code Ann. § 47-9-103(4). The Sixth Circuit reaffirmed an earlier holding that the provisions of this section, Mich.Comp.Laws § 440.9103(4), “plainly supercede” other provisions of the code “when a foreign jurisdiction issues a certificate of title.” In Re: Angier, at 399. The Bankruptcy Court did not have the benefit of Angier or the earlier decision, In re Paige, 679 F.2d 601 (6th Cir., 1982), when it rendered its decision in the instant case on April 13, 1982. As we now hold, the language of the Tennessee statute mandates a consistent interpretation under Tennessee law.
Carrier contends that it acquired all of the debtor’s interest in the truck by taking possession on January 28, 1980. Pursuant to this argument, the debtor could not have granted Transport a security interest in March 1980. The Oklahoma perfection requirements would therefore not apply to the ease.
Contrary to Carrier’s assertion on appeal, the Bankruptcy Court did not find that Carrier’s mere possession deprived the debt- or of all interests in the collateral. The Bankruptcy Court only held that Carrier’s prior possession would give it priority under Tennessee perfection rules. Transport perfected its interest on March 28,1980. As of that date, Carrier had not initiated judicial foreclosure proceedings or caused a public or private sale pursuant to the security agreement or the Tennessee Commercial Code. Neither had Carrier given written notice to the debtor that it proposed to retain the collateral in satisfaction of the obligation. See Tenn.Code Ann. § 47-9-505. The debtor retained the clear Oklahoma title issued in his name. On these facts, the debtor could transfer an interest in the tractor to Transport in March 1980. Accordingly, Carrier’s position in this regard is without merit.
For the foregoing reasons, it is ORDERED that this case be, and the same hereby is, remanded to the Bankruptcy Court for entry of judgment that the rights of plaintiff-appellant, Transport Acceptance Corp., are superior to the rights of defendants-appellees, Interstate Contract Carrier Corp. and Carrier Rentals, Inc., in the 1975 Chevrolet tractor.
Order Accordingly. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489398/ | FINDINGS OF FACT AND CONCLUSIONS OF LAW
JON J. CHINEN, Bankruptcy Judge.
On June 22,1982, Plaintiff Hilton Hawaiian Village Joint Venture (hereafter “Hilton”) filed a Complaint to Vacate Stay and for Order Directing Turnover of Possession of Premises and for Administrative Rents. At the hearing on Debtor’s Motion to Dismiss for Failure to State a Claim on August 6, 1982, it was agreed between the parties that the instant action should proceed solely on the issue of whether Plaintiff is entitled to a vacation of the automatic stay imposed under § 362(a) of the Bankruptcy Code.
Hearings in regard to Hilton’s complaint were held on August 16 and 18, 1982. J. Stephen Street and Susan Tius represented Hilton and Edward C. Kemper represented Les Femmes Magnifique, Inc. (hereafter “Debtor”). Based upon the evidence adduced, the record of this action and in Adversary No. 82-0077, and arguments of counsel, the Court makes the following Findings of Fact and Conclusions of Law.
FINDINGS OF FACT
1. Debtor entered into an Agreement with Hilton dated January 8, 1981, under which Debtor was to use the Long House of the Hilton Hawaiian Village to present a certain specified cabaret show. The term of the Agreement is for two (2) years, commencing on February 1, 1982 and ending January 31, 1983. Effective August 21, 1981, Hilton and Debtor entered into an Addendum amending the January 8, 1981 Agreement.
2. The terms of the Agreement, as amended, include inter alia, the following provisions:
(a) Debtor “will produce and present a show in the LONG HOUSE patterned after the ‘Crazy Horse’ show of Paris and substantially as depicted on those certain video tapes given to HILTON.”
(b) “[T]he content of the show shall at all times be subject to the approval of HILTON and its approval or disapproval shall be within its sole discretion.... ”
*582(c) On a monthly basis the Debtor shall pay Plaintiff lease rent of $3,138.00, pay the cost of any operating losses for beverage services plus a guaranteed minimum monthly beverage profit of $4,000.00, and reimburse Plaintiff for all its utility charges, which cost between $900.00 and $1,400.00 per month.
(d) A party shall be deemed to be in default where “he has received notice of the alleged default and has failed to rectify notice of the alleged default within fifteen (15) days of receipt of said notice, except, however, that any continued production following a disapproval by HILTON of the Show content, costuming, or staging, as provided in paragraph 1, supra, shall constitute an immediate default and HILTON shall have the right to terminate this agreement without further notice.”
(e) Debtor “shall be responsible at its sole expense to provide all property, sets, lights, lighting and sound systems and equipment, costumes, props and all other physical aspects, effects and accoutrements used in and for the production, and upon termination of this agreement, if COMPANY is not then in default, may remove all such property and equipment and upon HILTON’s request shall restore the premises to the condition that existed prior to commencement of this agreement. If COMPANY’S property is not removed within fifteen (15) days after the termination of this agreement, it shall become the property of HILTON.”
3. After a series of discussions between September, 1981 and January, 1982 concerning the Les Femmes show and after Debt- or’s failure to make payments according to the Agreements, Hilton gave written notice, by letter of April 14, 1982, of Debtor’s breach of its Agreement with Hilton. By letter of April 19,1982, Debtor was advised that, if it did not make payment of amounts then due and owing, the Agreement would be terminated and the last show would be performed on April 30, 1982.
4. As of March 31, 1982, Debtor was in default of its Agreement with Hilton for failure to pay rents, utility charges, beverage costs and minimum beverage profits during February and March in the amount of $36,904.55. The Debtor’s schedule of liabilities allows Hilton’s pre-bankruptcy claim as of April 30,1982 in the amount of “$45,-000.00 approx.”
5. Debtor filed its petition for relief under Chapter 11 on April 30,1982 but did not inform Hilton until May 1, 1982. At that time Hilton took the position that it was not bound to continue to provide, without payment, the services specified in its January 8,1981 Agreement, as amended, such as host services, ticket collection, waiters, waitresses, and bartenders, nor was it bound to continue to provide liquor and other beverages beyond the noticed termination of its Agreement with Debtor.
6. At hearings on May 4, 11, and 13, 1982, this Court provided for continued performances of the Les Femmes show with required payments by Debtor to Hilton for its out-of-pocket expenses for labor and beverages, but not for electricity, administrative expenses necessary for the production of the show, rents and minimum beverage profits. The Court required on May 13, 1982 that these out-of-pocket expenses payment be made daily to Hilton.
7. The Les Femmes show continued to be performed until May 21, 1982 when it was voluntarily suspended by Debtor. And thereafter, no show has been performed in the Hilton Long House, and Hilton has been unable to use the Long House for other purposes because of the pendency of this action.
8. Mr. Suresh Jhaveri, President of Les Femmes, testified that post-bankruptcy the show was turned over to an individual named Mr. Bernard Drisang, whom Mr. Jhaveri did not supervise directly, and who was supposed to make up any operating losses sustained by the show from his own assets. Mr. Jhaveri testified that Mr. Dri-sang left Hawaii without paying the performers.
9. Since bankruptcy was filed, no rent has been paid by Debtor to Hilton for the months of May or June, 1982. Rents were *583paid for July and August, 1982 pursuant to court order. Mr. Jhaveri testified that the source of these rental payments was India Imports International, Inc. No minimum beverage profit payments ($4,000.00 per month) have been made for any month post-bankruptcy.
10. Hilton’s manager, Mr. Bruce Ulrich, testified that Hilton is harmed not just by financial losses due to continued occupation by Les Femmes of the Hilton Long House. He testified that the injury to Hilton goes also to Hilton’s good will in being unable to fully serve its guests. He testified that the dark and idle Long House could be expected to damage Hilton’s image as an alive and vital hotel and that the current uncertainty as to its use damages Hilton’s business reputation.
11. Mr. Ulrich testified that the Long House could be alternatively utilized for banquets generating gross revenues of $15,-000.00 to $20,000.00 per month, twenty percent of which would be profit to Hilton. Additionally, Mr. Ulrich testified that the Long House could also be utilized for meetings and exhibits, generating additional revenues with minimal overhead expenses. Mr. Ulrich also testified that consideration had been given to the Long House as a site for an electronic gameroom or for retail shop space.
12. The Les Femmes show has not been profitable as conceded in Mr. Jhaveri’s testimony and as evidenced by Debtor’s $778,-353.88 in debts to India Imports International, Inc., another company of which Mr. Jhaveri is president and from which Mr. Jhaveri authorized repeated substantial loans to meet operating losses.
13. Mr. Jhaveri testified that he had recently contacted others concerning putting different shows on in the Long House. Among the shows he proposed putting on as the means of reorganizing were a) Les Femmes show, as modified by choreographer, Mr. Jeffrey Kutash (Les Cabaret), which show had been performed from mid-April, 1982 until May 21, 1982; b) a show also choreographed by Mr. Kutash, known as the Dancin’ Machine; or c) a show called Lullaby of Swing.
14. The Debtor offered into evidence a letter from Mr. Kutash indicating an interest in performing a two week engagement of his show, the Dancin’ Machine, in the Hilton Long House; however the letter did not outline terms and conditions of any performance.
15. Debtor also presented Messrs. Spurr and Sullivan who have produced a show called Lullaby of Swing in Hawaii for the past ten (10) months and who expressed an interest in performing their show in the Long House. They also indicated a willingness to produce any one of a number of other shows, including the Dancin’ Machine.
16. The terms of all plans outlined by Mr. Jhaveri rely entirely on ticket sales to pay current operating expenses, with any profits thereafter used to pay pre-bankrupt-cy and unpaid post-bankruptcy expenses. However, profits for the Les Femmes show historically has been non-existent.
17. The terms of the Hilton-Les Femmes Agreement, as amended, require payment by Debtor to Hilton of $4.19 per ticket sold for Hilton to provide two (2) standard beverages and the host, bartender, and other services to provide such beverages. Additionally, a minimum beverage profit was agreed upon to assure payment of Hilton’s out-of-pocket service associated with the show, irrespective of attendance of the show. Out-of-pocket beverage service costs to Hilton associated with Les Femmes show averaged in excess of $500.00 per night. Thus, in order for Debtor to perform a show, it must be prepared to pay Hilton’s operating losses for the services provided, plus a minimum profit of $4,000.00 per month.
18. Neither Mr. Spurr nor Mr. Sullivan had seen a copy of the January 8, 1981 Agreement or the August 21, 1981 Addendum. The Budget submitted by Mr. Spurr and Mr. Sullivan for the production of a show in the Long House did not include any payment for utilities which had cost Les Femmes between $900.00 and $1,400.00 per month. Nor did the Budget include any *584minimum beverage profit as provided in Hilton’s Agreement with Debtor. Mr. Sullivan also acknowledged that the Budget understated expenses by making no provision for expenses of workers compensation costs, and employer’s contributions to social security.
19. Mr. Sullivan testified that the Lullaby of Swing show had averaged 80 to 100 guests per night at its last show place. He acknowledged that a new show in the Hilton Long House would lose $1,000 per week if it attracted only 100 persons per night under the Budget submitted as Exhibit D-3, even without consideration of utility costs and other expenses omitted from that Budget.
20. Attendance figures for the Les Femmes show introduced as P-1 demonstrate the difficulty in securing sufficient attendance for a new show to be profitable to even to pay show expenses.
21. Mr. Sullivan testified that his group would set up a new corporation to perform this show and that his group would not personally guarantee any payment of rents or other costs to Hilton of services associated with production of a new show.
22. The Lullaby of Swing show left its first showroom, the Oceania, in a financial dispute with its landlord and without advising anyone, allegedly to avoid attachment of equipment. A lawsuit has been filed by Lullaby of Swing’s Oceania landlord, alleging over $125,000.00 in unpaid rents, advertising fees, and maintenance fees associated with the performance of Lullaby of Swing.
23. Debtor’s representatives testified that the original expenditures to convert the Hilton Long House into a showroom were between $200,000 to $400,000.00. No evidence was presented by Hilton or Debtor concerning any salvage value of the fixtures, equipment or personal property within the Long House.
24. Mr. Ulrich representing Hilton testified that for Hilton to remove fixtures and restore the Long House to its former condition would cost Hilton between $75,000.00 and $100,000.
25. As part of the August 21, 1981 Addendum to the Hilton-Les Femmes Agreement, provision was made for a $20,000.00 deposit against Hilton’s supplying liquor and other beverages and services. Hilton and Les Femmes agreed:
That Hilton retain the $20,000 deposit provided pursuant to Paragraph 4 of the August 21, 1981 Addendum throughout the continued performance of the Les Femmes show. Such deposit or any part of its may be applied at any time by Hilton, at its option, to any unpaid balances or other liabilities of Les Femmes Magnifique, Inc.
26. Debtor claims that the Long House badly leaked and caused damages to the interior of the building. It also alleged that Hilton illegally closed the premises after the petition had been filed and that Hilton “defamed” Debtor and its show.
CONCLUSIONS OF LAW
1. Hilton’s request for relief from the automatic stay is governed by 11 U.S.C. § 362(d), which states:
(d) On request of a party in interest and after notice and a hearing, the court shall grant relief from the stay provided under sub-section (a) of this section, such as by terminating, annulling, modifying, or conditioning such stay—
(1) for such 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.
Hilton alleges two alternative grounds for relief from the automatic stay: (1) lack of adequate protection of their interest in the property, and, alternatively; (2) that the Debtor does not have any equity in the property and the property is not necessary to an effective reorganization.
*585RELIEF UNDER SECTION 362(d)(2)
2. Under Section 362(d)(2), the Court must find that Hilton has no equity in the property in question and that the property is not necessary to an effective reorganization prior to lifting the automatic stay. And under Section 362(g)(1) Hilton has the burden of demonstrating that Les Femmes has no equity in the property.
3. Hilton did not present any evidence as to the value of the Agreement. On the other hand, Les Femmes presented two groups who showed interest in utilizing the Long House. Both groups felt that the Long House was ideally situated to present a show and that they only wanted assurance that the Long House was available before committing themselves. In addition, Hilton did not present any evidence concerning the value of the furniture, equipment, and other personal property in the Long House.
4. The Court finds that Hilton has failed to prove that there is no equity in the property. Thus, Hilton is not entitled to relief under Section 362(d)(2).
RELIEF UNDER SECTION 362(d)(1)
5. Under the Agreement, as amended, Debtor is required to pay to Hilton a monthly rent of $3,138.00, cost of any operating losses for beverage services plus a guaranteed minimum monthly beverage profit of $4000.00 and to reimburse Hilton all utility charges.
6. Debtor schedules of liabilities show a prepetition debt owing to Hilton as of April 30, 1982 in the approximate sum of $45,-000.00. And, since the filing of the petition, Debtor has not paid any rent for May or June, and it has not made any of the minimum beverage profit payment of $4,000.00 per month.
7. Hilton contends that, if it regains possession of the Long House, it may be able to use the premises for banquets, for meetings and exhibits. Hilton contends that the Long House could also be used for an electronic gameroom or for retail shop space.
8. As offsets to the foregoing claims of Hilton, Debtor claims that it has a deposit of $20,000.00 with Hilton and that it has claims for damages against Hilton because of the leaks in the Long House, by virtue of being locked out of the premises for a while and because Hilton had defamed Debtor and the show.
9. Debtor further contends that, because of this dispute concerning the amount of liabilities, until the matter is resolved, Debtor should be permitted to remain on the premises to generate income to pay its creditors.
10. The Court finds that, under the Agreement as amended, Hilton is entitled to a monthly rent of $3,138.00 guaranteed beverage profit of $4,000.00, plus expenses. The beverage profit has not been paid since the filing of the petition. If the Long House is returned to Hilton, Hilton has various plans to generate income. By retaining possession of the premises, Debtor is denying Hilton an opportunity to generate that income. To adequately protect Hilton, Debtor must pay to Hilton post-petition amounts as provided for in the Agreement.
11. The Court will continue the stay on condition that Debtor pay to Hilton within 7 days from the date hereof all post-petition rents, the $4,000.00 a month guaranteed beverage profit and all expenses incurred by Hilton in connection with the shows. Thereafter, Debtor must make all payments as provided for in the Agreement. Otherwise, on the filing of an Affidavit to show non-compliance by Debtor, the Court without a hearing will issue an order lifting the stay. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489399/ | MEMORANDUM OPINION
JOHN C. FORD, Bankruptcy Judge.
On August 24,1982, a hearing was held in the Bankruptcy Court to determine whether assets were fraudulently acquired by the Debtors prior to the commencement of these proceedings. If assets were acquired by fraud, then a trust ex maleficio in the nature of a constructive or involuntary trust would take those assets out of the Court. Assuming the cestui que trust could successfully identify and trace the fraudulently acquired assets, then the Court would be obligated to release the assets to the rightful equitable owners. In the case at bar, it is the finding of this Court that the subject assets were not acquired by fraud. The following Findings of Fact and Conclusions of Law are presented in accordance with Bankruptcy Rule 752.
FINDINGS OF FACT
A. Procedural History of These Proceedings.
This proceeding is just one in a number of complicated controversies arising out of the Chapter 11 cases filed by the Debtors on January 5,1982. A previous decision in this case, styled In re Wellington Resources Corporation, et al. v. State of Texas, 20 B.R. 64 (Bkrtcy., N.D.Tex.1982), contains detailed background information about the Debtors which will be incorporated into this opinion.
The State of Texas brought an Application to Release Funds alleging that the Debtors, Wellington Resources Corporation (“Wellington”), and Whitehall Mining Co., Inc. (“Whitehall”), acquired funds of investors by fraudulent means. Specifically, the State of Texas alleges that the gold mining investment program conducted by the Debtors until shortly before these proceedings were commenced, was a fraudulent scheme to lure money out of the pockets of innocent investors by willful misrepresentation and other illegal means. The State alleges also that the failure of the Debtors to register the investment program with the State Securities Board constituted, along with the failure of the Debtors’ salesmen to register as security salesmen, a violation of the State Securities law. The State further contends that findings of fraud by this Court will take the assets in question out of the jurisdiction of the Bankruptcy Court for disposition elsewhere.
The instant controversy was brought before the Court on the First Amended Application to Release Property filed by the State of Texas. Paragraphs five and six of the State’s amended application recite that the determination of fraud is to be made under Texas law. In addition, the State says that under the Bankruptcy Code, the existence of a constructive trust, or trust ex maleficio, is determined according to Texas law. The Court agrees and finds that the State’s pleadings require an evidentiary hearing as to allegations of fraud to be made by this Court pursuant to Texas law. At the hearing on August 24, 1982, after announcing ready, the State of Texas contended that the only question before the Court was a question of law. The Court disagrees. The State must be held to the *598pleadings filed with the Court. Those pleadings are clear and unequivocable as to the necessity for a evidentiary hearing to determine the allegations of fraud. As soon as the Court made known its intention to proceed with the evidentiary hearing, the State of Texas withdrew its announcement of ready. After reciting into the record the facts leading up to the August 24th hearing, I then proceeded to allow the Debtors to put on testimony. I took this step despite the withdrawn announcement of ready because the State of Texas had several months in which to prepare for the hearing in this case. The pleadings in this case are clear as well as the fact that the State of Texas had ample opportunity to prepare and present its case. Moreover, on August 11, 1982,1 had held a hearing to determine the State’s Motion to Stay the August 24, 1982 hearing and decided to deny the requested relief. I then gave the State of Texas leave to file a Notice of Appeal of the interlocutory order, which was heard and decided by the District Court on August 13, 1982. In deciding to allow the August 24 hearing to proceed and to deny the State’s Application for leave to Appeal, the District Court stated that “the State has made no showing that any harm will result from allowing the August 24 hearing to proceed as scheduled.” The Debtors presented five witnesses and introduced twenty exhibits into the record at the August 24 hearing. The State of Texas was provided ample opportunity to cross-examine the witnesses and did so.
B. The Wellington/Whitehall Investment Program.
According to testimony by Arthur Espy, President of Wellington, the premise behind the Wellington/Whitehall program is to reopen mines which had been closed around the turn of the century. Espy, who is president of Wellington, proposed the idea that when gold was selling for twenty dollars an ounce it was not profitable to operate mines that required complicated or expensive extraction processes to recover mineral ore. However, with gold selling today for well above the four hundred dollar mark per ounce it was thought that played-out mines could be reworked to provide a sizeable return on investment.
At the hearing, evidence was presented that the Debtors were organized in the Spring or early Summer of 1981 by Mr. Espy and Mr. Thomas. On two separate occasions, Espy and Thomas put into the business money aggregating a total of $30,-000.00 each in order to start up the business. Both Espy and Thomas had been associated with a similar mining operation known as Omni which had operated in several states including New Mexico. Although the record is somewhat vague on this point, it appears that Omni was shut down by the New Mexico State Securities Commission for various violations of the New Mexico securities laws. Wishing to avoid similar problems in Texas, Espy and Thomas approached the Dallas law firm of Baker, Miller, Phillips & Murray to discuss their proposed plans to offer the Wellington/Whitehall investment program. For a sizeable fee in excess of ($200,000.00) Two Hundred Thousand Dollars, Baker, Miller proceeded to draft and finalize a brochure entitled “Ore Mining for the Miner” and provide letter opinions concerning various tax, securities and legal questions about the program. At this same time, the Debtors contracted with an economic analyst for the preparation of an economic study of mining and also prepared a list of contractors and suppliers of mining operations in the Southwestern United States. In addition to the aforesaid preparations, the Debtors retained the national accounting firm of Alexander & Grant to handle the accounting procedures of the Debtors.
Office space was obtained in Campbell Center in Dallas whereupon Espy and Thomas began to hire employees. John Sandy, who has a masters in geology was hired to investigate potential mining sites and to estimate the profitability of development of those sites. Mr. MacGregor was hired to help in the investigation of mining sites and brought to the operation over twenty years of work experience managing mines. Dr. Kovassar, who possesses a Ph.D *599in economics, was hired to study the economies of developing mining operations in what had been marginal mines.
Soon after having opened the Campbell Center offices, the Debtors purchased a LHD Mining Machine, and a large number of four-wheel drive vehicles for overland travel to the several proposed mining sites. Testimony presented at trial established that One Hundred Fifty-nine Thousand Dollars ($159,000.00) was spent purchasing the aforementioned pieces of equipment. In line with the Debtors testimony that they were interested in acquiring old leases for reworking, the Debtors spent Sixty Thousand Dollars ($60,000.00) to purchase option leases on old mining sites in New Mexico, Colorado, Arizona, Nevada, and California. The Debtors also expended appreciable sums of money on acquiring a sophisticated computer system and other office equipment.
The money used to purchase the various enumerated items came out of investor funds. The Debtors had been quite successful in raising significant sums of investor money and had accumulated over 1.14 million dollars in cash by the time these proceedings were commenced. An additional sum of five million dollars was raised in promissory notes which the Debtors were hoping to discount with U.S.J.I.G. at the time these reorganization proceedings were commenced. Although Two Hundred Twenty Three Thousand Dollars ($223,-000.00) was paid in fees to sales agents of the Debtors, this amount was only 4% of the total of six million in cash and notes raised by the salesmen.
The Court attached great weight to the testimony of Mr. Richard Holmes, a C.P.A. who has had much experience investigating the financial affairs of numerous debtors who have appeared before this Court. Mr. Holmes is a highly respected accountant who was engaged by the Debtors to examine the financial records of the Debtors and to determine if any financial wrongdoing or defalcation could be discovered from the books of the Debtors. Mr. Holmes reported that he had undertaken a complete examination of the Debtors’ books and records, and he could not find any evidence of misappropriation of monies. Moreover, Mr. Holmes indicated that all the money reported to have been raised from investors was accounted for and used in the way indicated in the Debtors’ books. In addition, Mr. Holmes reported that books and records were kept separately for Wellington and Whitehall, including records of all receipts and disbursements.
The Court was also impressed with the testimony of Mr. O’Neil. Mr. O’Neil is an investor in the Wellington/Whitehall program who has no connection with the Debtors other than his investment with them. Mr. O’Neil is a computer specialist who appeared to be a quite intelligent and sophisticated person. Mr. O’Neil has actively followed developments in the Wellington/Whitehall case and has volunteered to serve on the creditors’ committee established in these proceedings. Mr. O’Neil testified that he purchased a share in the program sometime in August 1981. He apparently spent some time prior to actually investing his money inquiring into the legitimacy and the financial implications of investing in the Wellington/Whitehall program. He has attended the section 341 creditors meeting in these proceedings, he has talked with Mr. Hart, the Assistant Attorney General handling the State’s securities violations case, and he has attended most of the Court hearings to date. He testified that to this day he does not feel lied to or misled by anyone in making this investment. Moreover, Mr. O’Neil would like to proceed with the mining program as originally planned because he still feels there is a chance that significant quantities of ore will be produced.
As can be inferred from reviewing the evidence presented at trial, the Wellington/Whitehall investment program is somewhat unique. What distinguishes the Wellington/Whitehall program from deceptive schemes to invest in non-existent gold mines is the apparently serious effort on the part of the organizers of the Debtors to lay the framework for a legitimate busi*600ness. Sufficient credible evidence was presented at trial to show that the Debtors were attempting to present a legitimate business enterprise to potential investors. The attempt to present a legitimate business opportunity does not excuse the failure of the Debtors to register their offering according to State regulatory requirements. What is at issue here is the question whether the Debtors committed common law fraud in offering this investment opportunity to investors. The evidence presented at trial does not support such a finding.
The August 24th hearing reinforced the Court’s opinion that Mr. Espy and Mr. Thomas have embarked on this gold mining venture in a businesslike manner. It is no surprise to the Court, after having reviewed Mr. Espy’s credentials including an M.B.A., and more than twenty years experience as a businessman and a stockbroker that he and Mr. Thomas sought the advice of legal and accounting professionals prior to embarking on this program. The premise of reworking old gold mines is, in the eyes of the Court, analogous to today’s practice of reworking old oil wells that were capped when the price of oil was only two dollars a barrel instead of today’s price of thirty-five dollars a barrel. Although the Debtors may have violated securities regulations in making the offering in the manner in which it was made, those violations are not fraud. This Court does not find the Debtors, or the officers of the Debtors guilty of any fraud. Therefore, the Court finds that all property, other than property which was recognized by the Debtors as held in trust at the time they filed their petitions herein, is vested with both legal and equitable title in the Debtors.
CONCLUSIONS OF LAW
At the time a Chapter 11 petition is filed with the Bankruptcy Court, a bankruptcy estate is created comprising all real, personal and intangible property in which the Debtor has either a legal or equitable interest, or both. See 11 U.S.C. § 541. The Debtor’s interest in an item of property will be determined by nonbankruptcy law. In the case at bar, the laws of the State of Texas as to the Debtors’ legal and/or equitable title to property will be applied.
At the time the petitions were filed in these proceedings, the Debtors had legal title to the funds in question. The question left to be determined is whether the debtor participated in some wrongdoing that would create a trust ex maleficio for the victims of the Debtors’ allegedly wrongful acts. The State of Texas alleges that the property held in legal title by the Debtors was fraudulently obtained. The proper test to apply as to whether there is fraud is the common-law test of fraud. Common-law fraud is usually defined as requiring material misrepresentations made in bad faith which were relied upon to the detriment of the tort victim. In the case of Rio Grande Oil v. State of Texas, 539 S.W.2d 917 (Civ.App.Hou.1976), Judge Peden states:
“that articles 581-4F and 581-32 (of the Texas Blue Sky Laws) extend the definition of common-law fraud to the practices enumerated in them and that reliance is not a necessary element of them.”
Although Judge Peden may have been referring only to proceedings involving temporary injunctions of securities law violators,- it may be appropriate to apply a test in the case at bar requiring proof only of material misrepresentations made in bad faith causing damages. I find that based upon the evidence presented in this case that the Debtors have not made material misrepresentations to the potential investors in the program described herein. The brochure distributed by the Debtors is not unlike those distributed in registered securities offerings. It contains information warning of the speculative nature of the investment and also warns the investor of the possibility that the tax benefits of the investment program may never be realized by the investor. The evidence as to the significant amount of time spent exploring mining sites and purchasing equipment was indicative of the good faith of the Debtors and their officers in offering this program. It should be mentioned that the Court had *601an opportunity to examine the demeanor of the witnesses and was impressed with their candidness and apparent sincerity. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489400/ | FINDINGS OF FACT, CONCLUSIONS OF LAW AND ORDER
JON J. CHINEN, Bankruptcy Judge.
These Findings of Fact and Conclusions of law are with reference to the amended complaint of the City and County of Honolulu to vacate the order of this Court tolling the running of time to perform under a building permit.
A hearing was held on the amended complaint on August 17, 1982, at which time there were present attorneys representing the City and County, the Trustee, Waikiki Hobron Associates, Central Hobron Associates, and Domain Corporation. Based upon the evidence adduced, the records in the case and arguments of counsel, the Court renders the following Findings of Fact and Conclusions of Law:
FINDINGS OF FACT
On May 18, 1979, a chapter XII petition was filed by Waikiki Hobron Associates, hereafter “Debtor”. At that time, the major assets of Debtor consisted of certain real estate, plans and building permits for a condominium in Waikiki.
On July 6, 1979, Debtor filed a motion to toll the running of the remaining time under Building Permit No. 73126 for the construction of improvements on the property owned by Debtor in Waikiki, Honolulu, Hawaii, hereafter identified as “Waikiki Ho-bron Property”.
In its motion, the Debtor alleged:
This motion is based in part upon
5. The general equitable powers of this Court to protect and preserve the property and property rights of the Debt- or where not to do so would defeat the primary purpose of the entire Chapter XII proceedings; that is, to rehabilitate a financially-troubled Debtor.
This motion is made on the ground that the aforesaid Building Permit is due to expire on or about April 1980 and without a tolling of the running of the times within which to perform under said Building Permit, Debtor may be unable to propose a feasible plan of arrangement because it will very likely be unable to obtain reasonable construction financing.
Following a hearing, on July 12,1979, the Court orally ruled that it had jurisdiction over the property and the permit and that it was
[tolling] the running of the time during the proceeding while the project is in this Chapter XII proceedings.
Then, on August 2,1979, an Order Tolling Running of Time to Perform Under A Building Permit was filed. A portion of said Order read as follows:
It Is Hereby Ordered That all times allowed for performance under or pursuant to Building Permit Nos. 73126, 114510, and 105742 (109742) issued by the Building Department of the City and County of Honolulu for the construction of improvements on the property of the Debtor in Possession identified by Tax Maps Key 2-6-12:47 to 52 and a portion of 43, be and hereby are tolled during the penden-cy of this action.
After a protracted hearing, on October 29, 1979, this Court confirmed Debtor’s First Modified Real Property Arrangement.
*650Under Article IV of said confirmed plan, the mechanic and lien holders were permitted to enforce their liens in the state courts. As a result, Dynamic Industries, Inc., hereafter “DIC”, enforced its lien rights in the state court and on July 24, 1981, obtained an Interlocutory Decree of Foreclosure, whereby a commissioner was appointed to sell Debtor’s Waikiki Hobron property.
Before the commissioner appointed by the state court was able to sell Debtor’s Waikiki Hobron property, on October 15, 1981, the Debtor filed an Ex Parte Application for Adjudication, stating that it was unable to consummate the confirmed Plan of Arrangement and that it was in the best interests of the Estate that this Court enter an order adjudicating the Debtor a Bankrupt. On the same date, the Court adjudicated the Debtor a bankrupt.
On February 23,1982, the City and County of Honolulu, hereafter, “City and County”, filed its Complaint to Vacate Order Tolling Running of Time to Perform under A Building Permit, followed by its First Amended Complaint filed on March 12, 1982.
On June 17, 1982, William K. M. Chee, the Trustee in Bankruptcy, filed a Motion for Summary Judgment with reference to the City and County’s amended complaint to vacate the order tolling the running of time to perform under a building permit. Following a hearing on July 16, 1982. The Motion for Summary Judgment was denied.
The trial on the amended Complaint was heard on August 17, 1982. The City and County requested that the Order tolling the running of time be lifted so that the City and County may enforce its police and regulatory powers to promote the general welfare, health, happiness, safety and aspirations of the public, and to provide adequate protection to the public.
The Trustee, Central Hobron Associates and Domain Corporation requested that the City’s Complaint be denied because this Court’s Order tolling the running of time is the “law of the case” and that the building permit is necessary, not only to formulate a feasible plan of arrangement but to sell the Waikiki Hobron property. The Court took the matter under advisement.
CONCLUSIONS OF LAW
When the Court issued its order tolling the running of time on the building permit on August 2, 1979, the Debtor was in a Chapter XII proceeding, wherein it requested this Court to toll the running of time so that it may be able to propose a feasible plan of arrangement, In order to allow the Debtor to obtain reasonable construction financing, the Court issued the Order tolling the running of time.
On October 29,1979, Debtor’s First Modified Real Property Arrangement was confirmed. Though Debtor paid the mortgagees in full pursuant to the confirmed Real Property Arrangement, it was not able to pay the mechanic and materialmen lienors. Thus, DIC, a lienor, pursuant to the provisions of the Real Property Arrangement, enforced its lien rights in the state court. Before the state court-appointed commissioner was able to sell Debtor’s Waikiki Hobron property, Debtor, ex parte, on October 15,1981, sought adjudication as a bankrupt, stating that it was not able to consú-mate its modified Real Property Arrangement and that adjudication was in the best interest of the estate.
When the Debtor converted the proceedings from Chapter XII to Chapters I-VII, it no longer intended to propose a feasible plan of arrangement. Thus, there appears to be no further need for a tolling of the running of time on the building permit to grant Debtor time to obtain reasonable construction financing.
The enforcement of building and zoning matters involve the exercise of state police powers. Euclid v. Ambler Realty Co., 272 U.S. 365, 47 S.Ct. 114, 71 L.Ed. 303 (1926).
However, the Ninth Circuit Court of Appeals has stated that “[i]f regulatory proceedings threaten the assets of the estate, the decision to issue a stay can then be made on a discretionary basis.” In re Bel Air Chateau Hospital, Inc. v. N.L.R.B., 611 F.2d 1248, 1251, 104 BNA LRRM 2976 (9th Cir. 1979).
*651On August 2, 1979, this Court used its discretion and tolled the running of time on Debtor’s building permits to give Debtor an opportunity to obtain financing and to submit a plan of arrangement. On October 29, 1979, Debtor’s Modified Real Estate Arrangement was confirmed.
Almost three years have elapsed since the confirmation of Debtor’s Modified Real Estate Arrangement. Debtor has had ample time, but has been unsuccessful in consummating the Arrangement. The building in question now consists of a mere foundation and Debtor is without any firm commitment of financing. With Debtor now in Chapter I-VII proceedings, this Court finds that the purpose for the tolling of time on the building permit no longer exists.
ORDER
The Order Tolling Running of Time to Perform Under A Building Permit filed herein on August 2, 1979 is hereby vacated. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489402/ | OPINION
WILLIAM A. KING, Jr., Bankruptcy Judge.
This case reaches the Court on the motion of Victor M. Snyder to set aside a default judgment entered in the Court of Common Pleas in Philadelphia County. The state Court proceeding was subsequently removed to this Court under Interim Rule 7004. See, In re Vic Snyder, Inc., 22 B.R. 332 (Bkrtcy.E.D.Pa.1982).
After removal, this Court filed an Opinion determining that the motion to vacate the default judgment was subject to federal, and not state procedure. The Court, therefore, set a hearing date for the introduction of evidence. This Opinion will address the issues raised at the hearing held on August 17, 1982.1
The plaintiff in this case is Bruce Stern, a disgruntled former employee of Vic Snyder, Inc. In May of 1980 he obtained a judgment in excess of $100,000 against the Corporation. The corporation, a local plumbing business, filed a petition for reorganization under Chapter 11 in October of 1981. Undaunted, Bruce Stern brought action in state court against the principals of the corporation. Counsel for the debtor filed an application to remove that action from the Court of Common Pleas to this Court. Before removal could be effectuated, however, default judgment was taken against Victor M. Snyder. The issue before the Court is whether this judgment should be vacated. The Court will rule in favor of Victor M. Snyder, order the judgment va*681cated and set the matter down for trial on the merits.
In order for the Court to set aside a default judgment, the moving party must show:
(1) that the nondefaulting party will not be substantially prejudiced by the reopening, (2) that the defaulting party has a meritorious defense, and (3) that the default was not the result of inexcusable or gross negligence or willful act.
Reid v. Liberty Consumer Discount Co. of Pa., 484 F.Supp. 435, 438 (E.D.Pa.1980). See, also, Trachtman v. T.M.S. Realty and Financial Services, 393 F.Supp. 1342, 1347 (E.D.Pa,1975); Wokan v. Alladin International, Inc., 485 F.2d 1232 (3d Cir. 1973); Tozer v. Charles A. Krause Milling Co., 189 F.2d 242 (3d Cir. 1951). In applying these factors to a particular case the Court must grant the defendant the benefit of any doubt. The Court of Appeals for the Third Circuit has held that:
a standard of “liberality,” rather than “strictness” should be applied in acting on a motion to set aside a default judgment, and that “[a]ny doubt should be resolved in favor of the petition to set aside the judgment so that cases may be decided on their merits.” Tozer v. Charles A. Krause Milling Co., 189 F.2d 242, 245-46 (3d Cir. 1951).
Medunic v. Lederer, 533 F.2d 891, 893-4 (3d Cir. 1976).
In applying these standards to the case at bar the Court finds that the default judgment must be set aside. The first factor the Court must consider is whether the plaintiff will be substantially prejudiced by the reopening of the judgment. The only prejudice which the Court can determine is that he will be forced to proceed to trial on the merits. This minor prejudice is not sufficient to bar reopening of the judgment. Thorne v. Commonwealth of Pennsylvania, 77 F.R.D. 396 (E.D.Pa.1977).
The second factor is whether the defendant will be able to assert a meritorious defense. The plaintiff, Bruce Stern, seeks recovery under the Pennsylvania Wage Payment and Collection Law. 43 Pa.Stat.Ann. 260.1 et seq. (Purdon). The memoranda of law submitted by the parties raise substantial issues of both law and fact. In this situation, the weight of authority would dictate that the judgment be opened. Medunic, supra.
Finally, the Court must determine whether the default was the result of inexcusable or gross negligence or a willful act. In this case, counsel for the defendant acted promptly and expeditiously to have the default judgment set aside. A petition to open judgment was promptly filed in state court. This motion, furthermore, was vigorously prosecuted once the case was removed to this Court. The default, therefore, was not taken as a result of any negligence on the part of the defendant. The Court will enter an Order setting aside the default judgment and scheduling the matter for trial.
A collateral issue is also before the Court. The debtor, Vic Snyder, Inc., has moved to intervene in this action. The transaction which is the subject of the plaintiffs complaint so intimately involved this corporation that the Court will allow the intervention of the debtor as a necessary party defendant. F.R.Civ.P. 19(a) and 24(a).
An appropriate Order will be entered.
. This Opinion constitutes the findings of fact and conclusions of law required by Rule 752 of the Rules of Bankruptcy Procedure. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489403/ | OPINION
Before GEORGE, ELLIOTT and VOL-INN, Bankruptcy Judges.
ELLIOTT, Bankruptcy Judge:
Petitioner Klose petitions for relief from a contempt order issued by respondent trial judge.
The debtor, Christian Life Center, operated a church. Members of the church were asked to deposit their money, at interest, with the church. The State Superintendent of Banks investigated and decided that the church was operating a bank without appropriate government permission and issued a cease and desist order. This was apparently followed by a “run on the bank” and the debtor sought protection of the bankruptcy court.
Former members of the church filed a fraud action against the debtor and its pastor in state court. The debtor removed the case to the bankruptcy court. The pastor subpoenaed petitioner Klose, a newspaper reporter who had written extensively about the debtor’s problems with the state. Klose is not a party to the litigation.
Mr. Klose refused to respond to preliminary questions propounded by Judge Brown. The questions Klose refused to answer are as follows:
1. Did you cause another employee of the Press Democrat (Klose’s employer) to deposit a hundred dollars in the trust?
2. Did you try to get the Corporations Commissioner to investigate the Christian Life Center Trust Fund?
3. If yes, did he refuse?
4. Did you ask the Superintendent of Banks to investigate or did you file a complaint?
Newsman Klose’s refusal to answer was based upon Federal Rule of Evidence 501, California Evidence Code § 1070 and case law developing therefrom. Los Angeles Memorial Coliseum v. National Football League, 89 F.R.D. 489 (1981), interpreting Rule 501 and discussing § 1070 as well as the First Amendment and the California Constitution is dispositive. As stated by the court at Page 494,
*771In civil eases, courts faced with motions to enforce or to quash subpoenas directed against non-party journalists have refused to enforce such subpoenas, absent a showing: (1) that the information is of certain relevance; (2) that there is a compelling reason for the disclosure; (3) that other means of obtaining the information have been exhausted; and (4) that the information sought goes to the heart of the seeker’s case.
The defendant pastor has not satisfied the standards set forth in the Coliseum case. Whether Klose called the matter to the attention of the authorities by inquiry or complaint is of uncertain relevance at best, and the information clearly does not go to the heart of the seeker’s defense.
There has been no showing that the information sought by questions 2, 3 and 4 put to reporter Klose could not be obtained from other sources. Indeed, the petitioner has submitted affidavits by the Commissioner of Corporations and the superintendent of Banks that supply answers to the trial court’s questions.
The California Code of Evidence and the Federal common law, as set forth in Branzburg v. Hayes, 408 U.S. 665, 92 S.Ct. 2646, 33 L.Ed.2d 626 (1972), allows the preliminary questioning of a reporter to determine if he was an instigator or participant (as opposed to a mere reporter) of the illicit activity in question. The Branzburg case, however, involved grand jury investigation of criminal activity. The court in the Coliseum case remarked, 89 F.R.D. at Page 493,
Courts have emphasized that the public interest in protecting journalists’ confidential sources is even stronger in civil cases than it is in criminal cases, [citing case], ‘in civil cases ... the public interest in non-disclosure of a journalist’s confidential sources outweighs the public and private interest in compelled testimony.’
We reverse and remand to the trial court with instructions to vacate the citation and order holding Klose in contempt. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489404/ | GEORGE, Bankruptcy Judge,
dissenting:
I cannot agree with the reasoning of my brethen in this matter. Like the majority, I am seriously troubled with the apparent irrelevancy of Mr. Klose’s testimony to the issues raised by the pleadings in these proceedings. In this regard, an examination of the record given us would suggest that Christian Life Center seeks to defend against the Plaintiff’s claims of fraud by merely transferring liability for the latter parties’ damages to the person who reported that fraud to the state authorities. No known principle of law would support such a defense. Evidence to that effect would, therefore, be irrelevant, as a matter of law.
Nevertheless, appellate courts are generally reluctant to participate in an interlocutory review of relevancy issues. Often, trial courts permit a limited amount of questioning in areas which may seem, at first, to be irrelevant, simply to lay a groundwork for making a better-informed final relevancy determination. Indeed, the sample questions proposed by the trial court would all seem to be foundational in nature. It is true that these particular questions do not go fully to the issue of whether Mr. Klose did more than simply report the suspected violations of Christian Life Center to the proper state authorities. Still, these queries could provide a necessary introduction for additional inquiry into whether Mr. Klose may have purposely misled the California Superintendent of Banks into issuing a cease and desist order against the Christian Life Center. Such evidence may, in turn, be relevant in evaluating whether the Defendants were guilty of intentional misstatements to the Plaintiffs. Although I join my brethen in doubting that such a defense can be established, I would not, on relevancy grounds alone, deny the trial court the discretion to explore this line of inquiry.
Similarly, I do not feel that the Panel should look to the balancing requirements of Federal Rule of Evidence 403 in examining the trial court’s actions. No objection has been made to the admissibility of Mr. Klose’s testimony on that ground. More*772over, the use of this rule to exclude relevant evidence is highly discretionary. Given that the Panel has not been fully apprised of what further questions may be asked of Mr. Klose, we are not in a position to determine whether the final thrust of Mr. Klose’s testimony would counterbalance any harm done the jury, should that evidence eventually prove irrelevant.
In short, I am not now prepared to find that the trial judge abused his discretion in permitting this line of questioning. Therefore, if we are to find that the trial court’s contempt order and its refusal to quash Mr. Klose’s subpoena were improper, we must do so in response to the “reporter’s privilege” ground raised by the petitioner.
Clearly, if the testimony sought to be elicited from the petitioner is privileged, nothing would preclude the Panel from interposing its jurisdiction, by interlocutory review, to prevent the trial court from imposing sanctions against Mr. Klose. In asserting such a privilege, the petitioner has referred the Panel to three sources: a) the news reporter’s privilege established by Fed.R.Evid. 501. and Cal.Evid.Code § 1070; b) the reasoning of Branzburg v. Hayes, 408 U.S. 665, 92 S.Ct. 2646, 33 L.Ed.2d 626 (1972) and subsequent cases; and c) the interpretation of Branzburg given in Los Angeles Memorial Coliseum v. National Football League, 89 F.R.D. 489 (C.D.Cal.1981) and its supporting cases.
None of these bases for asserting a reporter’s privilege, however, protects a newsman from all inquiries under oath. Branz-burg v. Hayes, supra; Garland v. Torre, 259 F.2d 545, 548 (2d Cir.), cert. denied, 358 U.S. 910, 79 S.Ct. 237, 3 L.Ed.2d 231 (1958); Altemose Const. v. Bldg. & Const. Trades Council, 443 F.Supp. 489, 491 (E.D.Pa.1977). More importantly, in light of the alleged facts of this case, a reporter may not claim a privilege from having to testify where his testimony will deal with something other than a news-gathering or reporting function. See, e.g., Rosato v. Superior Court of Fresno County, 51 Cal.App.3d 190, 218-19, 124 Cal.Rptr. 427, 446 (1975), cert. denied, 427 U.S. 912, 96 S.Ct. 3200, 49 L.Ed.2d 1204 (1976) (newsman’s privilege does not avoid testimony as to own participation in or observation of criminal activity), citing Branzburg v. Hayes, supra 408 U.S. at 691-92, 92 S.Ct. at 2661-62.
In the Los Angeles Memorial Coliseum case, for example, Judge Pregerson was careful to note, in his statement of the facts of that case, that “[njeither reporter [had] participated in any transaction that involve^] the subject matter of [the] lawsuit.” The newsmen in Los Angeles Memorial Coliseum had simply collected information and disseminated a portion of that information to the public. Each of the cases cited in Los Angeles Memorial Coliseum, in support of the four-part threshold inquity it would require in civil cases, involves a -similar fact situation. See Silkwood v. Kerr-McGee Corp., 563 F.2d 433 (10th Cir. 1977); Baker v. F & F Investment, 470 F.2d 778 (2d Cir. 1972); Garland v. Torre, supra; Zerilli v. Bell, 458 F.Supp. 26 (D.D.C.1978); Gulliver’s Periodicals, Ltd. v. Chas. Levy Circulating Co., 455 F.Supp. 1197 (N.D.Ill.1978); Altemose Const. v. Bldg. & Const. Trades Council, supra; Gilbert v. Allied Chemical Corp., 411 F.Supp. 505 (E.D.Va.1976).
In the instant proceeding, the defendants do not seek to uncover the petitioner’s sources or any of the additional information he may have obtained concerning the subject matter of the litigation at hand. Rather, they are ostensibly attempting to demonstrate that it was Mr. Klose’s non-reportorial actions, not their alleged misconduct, which were the legal cause of the plaintiffs’ losses.
In this regard, a reporter’s protected duties do not include either the manufacturing of news or its orchestration. They are simply the purveyors of existing information. To be sure, there may be circumstances in which a reporter’s personal actions will be so intertwined with his news-gathering pursuits that the First Amendment may give rise to a privilege which would preclude inquiry into any of his activities. It was, perhaps, this concern which prompted the trial court to propose sample *773questions to guide the defendants’ counsel around any areas of constitutionally-protected conduct. I do not find that the questions proposed by the trial judge delve, unduly, into any such areas. Rather, they merely address possible efforts by Mr. Klose to initiate a state investigation of the defendants. Although such actions may have been entirely proper, even laudable, they were not part of a newsman’s constitutionally-protected reportorial duties.
Cal.Evi.Code § 1070 similarly protects only the news-gathering activities of newsmen. By its provisions, a newsman may not be held in contempt “for refusing to disclose ... the source of any information procured while so connected or employed for publication in a newspaper, magazine or other periodical publication, or for refusing to disclose any unpublished information obtained or prepared in gathering, receiving or processing of information for communication to the public.” Cal.Evi.Code § 1070 (West Supp.1982) (emphasis supplied). See also Rosato v. Superior Court of Fresno County, supra.
As stated earlier, I am far from convinced that Mr. Klose’s alleged actions will transfer liability from the defendants or that his testimony is relevant to the issues raised below. Still, I would not, by interlocutory appeal, find an abuse of discretion by the trial court in allowing this line of questioning. Similarly, I do not believe that the questions permitted by the trial court inquire into activities of the petitioner which are protected under the First Amendment or the federal and state privilege rules. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489405/ | MEMORANDUM AND ORDER AS TO SUMMARY JUDGMENT
CHARLES J. MARRO, Bankruptcy Judge.
The Debtor as Plaintiff commenced an adversary proceeding against the Defendant by a Complaint filed March 27, 1981 to recover a preference in the aggregate sum of $55,000.00 pursuant to § 547(b) of the Bankruptcy Code. The amount claimed represents alleged preferential payments made by the Defendant to the Plaintiff for the period from November 21,1980 through February 2, 1981, which is within 90 days next preceding the filing of its Petition for Relief under Chapter 11, which occurred on February 9, 1981.
The Defendant filed an Answer on June 2, 1981 which, in effect, was a general denial and included four Affirmative Defenses. On March 23, 1982 the Plaintiff filed its Motion for Summary Judgment. and the Defendant filed a Motion in opposition on April 5, 1982. Both Motions were heard on June 2, 1982 and Memoranda of Law in support of the relative positions of the Plaintiff and Defendant have been filed.
The Plaintiff’s Motion is predicated on Rule 56 of the Federal Rules of Civil Procedure of which sub-paragraph (a) reads as follows:
“(a) For Claimant. A party seeking to recover upon a claim, counterclaim, or cross-claim or to obtain a declaratory judgment may, at any time after the *813expiration of 20 days from the commencement of the action or after service of a motion for summary judgment by the adverse party, move with or without supporting affidavits for a summary judgment in his favor upon all or any part thereof.”
Under paragraph (e) of this Rule the supporting and opposing affidavits shall be made on personal knowledge which shall set forth such facts as would be admissible in evidence and which shall show affirmatively that the affiant is competent to testify to the matters stated therein.
The Plaintiff in its Memorandum in support of its Motion for Summary Judgment has attached the Affidavit of Cornelius D. Hogan, president and chief executive officer of the Plaintiff, in which he swears that from September 1, 1980 until the Debtor filed its Petition for corporate reorganization on February 9, 1981, it was unable to pay its debts as they became due and that it had suffered such heavy losses that the company’s assets were of insufficient value to meet its liabilities. It would appear that these statements are based on financial data which Affiant Hogan must have obtained from the accountant of the Plaintiff Debtor and, therefore, they were not made on personal knowledge and that Hogan is not competent to testify upon those matters. This Affidavit under which the Plaintiff seeks to establish insolvency as one of the requirements for the avoidance of the alleged preference does not come within the scope of Rule 56(e) and for that reason should not be considered in support of the Motion for Summary Judgment.
Under paragraph (c) of Rule 56 the Summary Judgment sought by the Plaintiff shall be rendered if the pleadings, depositions, answers to the interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law.
An examination of the pleadings and all of the documents in support of the Plaintiff’s Motion as well as of the Memorandum of Law filed by the Defendant clearly indicates that there are at least two genuine issues as to material facts which must be determined before summary judgment may be granted. In the first place, although there is a' presumption of insolvency in favor of the Plaintiff, it is subject to rebuttal by the Defendant and it cannot be determined without the introduction of the necessary evidence. Then again, before the Plaintiff would be entitled to avoidance of the alleged preference it must show that the Defendant as a creditor would receive more from the payments made on antecedent debts than it would receive if the case were one under Chapter 7 of liquidation and the transfer had not been made. This is an issue which requires the introduction of testimony for determination by the Court.
From the pleadings, the representations of counsel, and the Memoranda submitted by the parties, it does appear without substantial controversy that the Plaintiff-Debtor did make payments aggregating $55,000.00 during the 90-day preference period on antecedent debts of which the sum of $2,627.00 the Plaintiff concedes is not a preference since it represents payments for value received at the time that they were made. These payments will require no proof at the hearing.
ORDER
Now, therefore, upon the foregoing,
IT IS ORDERED that the Motion of the Plaintiff for Summary Judgment is DENIED. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489406/ | MEMORANDUM OPINION
THOMAS M. TWARDOWSKI, Bankruptcy Judge.1
In this Chapter 11 bankruptcy case, the plaintiffs are certain minority shareholders, debenture holders and unsecured creditors who have opposed the confirmation of the Plan of Reorganization and the Modification of Plan of Reorganization (hereinafter “Modified Plan”), which were filed by the debtor, Spirited, Inc., on February 17, 1982 and September 1, 1982, respectively. Also filed by the debtor on September 1, 1982 was a document captioned: “Application For (1) Determination That Modifications Of Debtor’s Plan Do Not Require A New Vote, (2) That the Disclosure Statement Contains Adequate Information, And (3) That Debtor’s Plan, As Modified, Be Confirmed” (hereinafter “Application”). A hearing on the Application was scheduled to be held on September 22,1982. The debtor included in an exhibit to its Application a Proxy Statement containing a Plan and Agreement of Merger, dated August 31, 1982, between the debtor and Wine Country, Inc., both of which are controlled by the same individuals. Also included in the exhibit was a notice of a special meeting of the debtor’s shareholders to be held on September 20, 1982 to consider and vote upon the proposed merger.2
On September 15, 1982, the plaintiffs filed a Complaint Seeking Injunctive Relief against the debtor. In the Complaint, the plaintiffs requested a temporary restraining order and a preliminary and permanent injunction enjoining the debtor from “proceeding with or continuing in any manner the proceedings on the so-called Amended Plan of Reorganization as well as the Proposed Plan of Merger and the Shareholders Meeting of September 20, 1982.” In short, the plaintiffs alleged that it was improper for the debtor to proceed with its Modified Plan because, following extensive evidentia-ry hearings and argument by the parties on the issue of the confirmation of the original Plan of Reorganization and given the fact that many of the same issues were involved regarding both the original Plan and the Modified Plan, the debtor should be required to await the Court’s decision on the issue of the confirmation of the original Plan. With regard to the proposed merger, the plaintiffs alleged, in essence, that the merger was unfair to the minority shareholders and should not be permitted to take place outside of the bankruptcy proceedings.
The debtor filed an Answer to the plaintiffs’ Complaint on September 17, 1982.
On September 20, 1982, following a hearing, the Court entered a temporary restraining order in which we granted the relief requested by the plaintiffs and scheduled a hearing on the preliminary injunction for September 28, 1982.
On September 28, 1982, the Court heard plaintiffs’ request for a preliminary injunction as well as hearing oral argument on the debtor’s Application. We took both matters under advisement, with the temporary restraining order to remain in effect until further order of the Court.
In our accompanying Opinion and Order, dated today, we have ruled on the debtor’s Application by denying confirmation of the Modified Plan. Therefore, of course, our temporary restraining order enjoining proceedings on the Modified Plan has been terminated and the plaintiffs’ request for a preliminary injunction in this regard has become moot.
In our aforementioned accompanying Opinion and Order, we discuss the case of Valley National Bank of Arizona v. Trustee, 609 F.2d 1274 (9th Cir.1979), as it pertains to the relationship of bankruptcy proceed*1010ings and corporate mergers. The Valley case permits merger proceedings to take place during the pendency of bankruptcy proceedings under certain circumstances. Therefore, with regard- to any possible further actions by the debtor on its proposed merger, we shall not enjoin the debtor from so proceeding insofar as its actions are not inconsistent with Valley, supra.
. This opinion constitutes the findings of fact and conclusions of law as required by Rule 752 of the Rules of Bankruptcy Procedure.
. However, the debtor intentionally omitted from its Modified Plan any mention of the proposed merger, which was to take place upon the effective date of the Modified Plan, if confirmed. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489407/ | FINDINGS AND CONCLUSIONS
JOSEPH A. GASSEN, Bankruptcy Judge.
This adversary proceeding was commenced by the filing of a complaint for non-dischargeability of a debt, based on the debtors’ use of a false financial statement in applying for a loan. No answer was initially filed by the defendants and they appeared at trial without counsel. Upon an ex-parte motion for default, an order of default was entered prior to trial (C.P. No. 9). Plaintiff also filed a motion for summary judgment (C.P. No. 10) which was heard on the date set for trial. At that time the court gave defendants ten days within which to file a motion to set aside default, an answer, and responses to plaintiff’s discovery. Defendants complied, but not to plaintiff’s satisfaction, and plaintiff filed a motion to compel discovery, (C.P. No. 19) a motion for rehearing on motion for summary judgment, (C.P. No. 20) and responses to defendants’ pleadings. At the hearing on these motions an order was entered requiring defendants to adequately respond to discovery and deferring plaintiff’s motion for summary judgment and motion for attorney’s fees to a later date (C.P. No. 23).
The court does not lightly view the defendants’ failures or take this step easily, but it concludes that the default should be set aside and the dischargeability of defendants’ debt be affirmed.
Defendants appeared on the original trial date without counsel, stating that they could not afford the additional attorney’s fees. They stated that they viewed the complaint as mere harassment because it was entirely without basis and they therefore believed that it would be sufficient for them to appear at trial. Defendants are well educated high school teachers with multiple graduate degrees. The language of the summons is not only clear, but set forth in bold face capitals. The defendants’ belief in the frivolity of the suit, if true, does not justify their ignoring a summons from the court, as well as the legitimate discovery requests of plaintiffs. Nevertheless, the court cannot fail to consider the economic situation of a debtor in bankruptcy and the debtors’ understandable attempt to handle the litigation themselves, incon-, venient as it may be to this court and to a plaintiff. The errors were subsequently cured, and the disputes regarding discovery (continuing to the ultimate trial date) were not of such magnitude as to require judgment for plaintiff on a procedural basis. Plaintiff’s motion for summary judgment is denied as well as all motions to rehear orders previously entered.
*9Turning to the merits of the complaint, the evidence was in conflict. Three loans are in question. The first two were made consecutively to defendant, Patricia A. Fraught Walker, prior to her marriage to Robert Walker. The documents relating to each of these loans are in evidence as Plaintiffs Composite Exhibits Nos. 1 and 2, respectively. The third loan was made to both defendants. Its documentation was admitted as Plaintiffs Composite Exhibit No. 3, but defendants dispute the accuracy of that exhibit, contending that only the half of the loan application applying to Robert Walker is included in the exhibit, and that Patricia Walker execute a separate application showing substantially more debt.
Each subsequent loan was, in effect, a rollover and extension of the previous loan. However, plaintiffs witness testified that each loan was considered a separate transaction and in issuing each loan the plaintiff looked only to the application made for that loan. The middle loan is not at issue but as to the first and third, plaintiff contends that the applicant(s) made a material misstatement on the loan application by omitting substantial other indebtedness. Plaintiffs witness testified that it is the practice of the plaintiff never to grant a loan where the borrower’s debt payments would be greater than fifty percent of its monthly disposal income. Plaintiff argues that the debt/loan ratio on the first and third loans would have been in excess of fifty percent at the time the applications were made, and the loans would not have been made, had plaintiff been apprised of the true state of defendants’ indebtedness.
As to the first loan, defendants offered testimony disputing the alleged inaccuracies. However, the court makes no findings on that issue because the first loan indebtedness is moot. Plaintiffs own evidence was that each loan was considered separately, so only the misrepresentations on the last of the series of loans would be material. Further, the first loan was paid by the proceeds of the second one, so there is currently no indebtedness outstanding as to which discharge could be denied.
Turning to the third loan, there is a complete contradiction of testimony between the parties. Defendants testified that Patricia Walker first filled out a loan application and the loan was denied on that basis. An employee of plaintiff then suggested that her husband join with her and, on a later occasion, he returned with her and completed a supplemental application showing his additional income and debts. It is the defendants’ testimony that the loan was issued on the combined applications. They can give no explanation why Patricia Walker’s application was not included in the documents held by plaintiff, but they were given no copy of the application and therefore have no documentary evidence of their own. Plaintiff’s witness had no personal knowledge of the issuance of the loan to these defendants and testified only as to the general practice of the company. He has no explanation as to why the application included in Plaintiffs Composite Exhibit No. 3 was completed by Robert Walker only whereas the loan was issued to both of them and the previous two loans had been in Patricia’s name only. Under his calculation the true debt/loan ratio would have been fifty-three percent. The court believes that the defendants’ testimony regarding the issuance of the loan is credible, and therefore finds that there was no reliance by plaintiff on' the incomplete statement of debts which is shown on the credit application which is part of Plaintiff’s Composite Exhibit No. 3. The requirements of 11 U.S.C. § 523(a)(2)(B)(iii) have not been satisfied. Therefore, the relief requested in the complaint will be denied.
Jurisdiction will be retained to consider any application for attorney’s fees and costs in view of the ultimate disposition of this case.
Pursuant to Bankruptcy Rule 921(a), a separate Final Judgment incorporating these Findings and Conclusions is being entered this date. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489408/ | FINDINGS AND CONCLUSIONS
JOSEPH A. GASSEN, Bankruptcy Judge.
This adversary proceeding was tried on the amended complaint objecting to the discharge of defendant-debtor Michael Yolich (C.P. No. 19) and defendant’s answer to amended complaint (C.P. No. 29). Defendant Collette Moran was subsequently dismissed from the complaint, as was plaintiff’s request that a transfer to Collette Moran be avoided. Plaintiff, a creditor of the debtor, seeks to prevent the discharge of the debtor under 11 U.S.C. § 727(a)(2)(A), (a)(3), and (a)(4)(A). The complaint is centered on three acts of defendant: His transfer of his Wisconsin property and his failure to show that transfer on the schedules, his failure to list his condominium as an asset on his schedules, and his failure to keep records in his previous business. The court concludes that defendant’s discharge should be denied on the basis of his treatment of the Wisconsin property.
Prior to January, 1980, Yolich resided in Illinois. He was in business as a piping contractor, constructing water and sewer improvements in new real estate developments. Plaintiff issued a payment *11and performance bond for the performance of the corporation Pro-Mech Systems, Inc., (Plaintiff’s Exhibit No. 1) and the defendant personally indemnified the plaintiff (Plaintiff’s Exhibit No. 2). When Pro-Mech failed to complete construction, plaintiff was forced to make payments under the bond totalling over $50,000.
Collette Moran is defendant’s sister. Both the debtor and Ms. Moran testified that, in an attempt to save the business, the debtor requested and eventúally borrowed $6,000 in cash from Collette Moran. They testified that the debtor typed the written agreement dated October 4,1979 evidencing this loan (Plaintiff’s Exhibit No. 6). While the circumstances under which Ms. Moran obtained the funds were somewhat unusual, and plaintiff argues that the testimony regarding the circumstances surrounding the loan is inconsistent and not credible, the court finds that this loan was, in fact, made by Collette Moran to Michael Yolich. The loan was non-interest bearing and although payments on principal were to commence immediately, the debtor never made any payments to his sister.
During approximately the same period, Yolich was undergoing a non-amicable divorce. Under the divorce settlement, defendant’s wife received the couple’s residence in Lake Villa, Illinois and defendant received a one-bedroom condominium in Schaumberg, Illinois and a number of acres of undeveloped rural property near Goodrich, Wisconsin. The deed to Yolich from his ex-wife for the Wisconsin property was delayed following the divorce and the defendant testified that his attorney in the divorce action was involved in a disciplinary proceeding and there was confusion in the completion of the documentation. That deed to Yolich was executed on December 9,1980 (Plaintiff’s Exhibit No. 4). On April 29, 1981 defendant deeded the same property to Collette Moran (Plaintiff’s Exhibit No. 5). Both deeds were recorded on May 22, 1981. Defendant testified that it was his unilateral decision to deed the property to his sister because he had been unable to pay her in any other way. She testified that she was very upset at his non-payment and had called him numerous times and they became on unfriendly terms over it. Both testified that Collette Moran would rather have had the money than the property and that she has made no attempt to sell it.
The only evidence of the value of the Wisconsin property was the testimony of defendant who stated that it was purchased for approximately $7,000 in 1973 and that a year and one-half or so ago it “hadn’t increased that much” and was worth about $7,500. Defendant’s schedules made no reference to the Wisconsin property or to loan and the transfer to his sister although the transfer occurred in April, 1981 and the bankruptcy petition was filed in September, 1981.
The court concludes that the omission of any reference in his schedules to this transfer was a deliberate omission. For at least several years prior to the filing of the bankruptcy, defendant had an ownership interest in only three parcels of real property. Rights to the property were strongly litigated during the divorce and subsequently there was either litigation or threatened litigation by the defendant’s ex-brother-in-law regarding the Wisconsin -property. In view of those circumstances, it is not reasonable to believe that the defendant overlooked the transfer in preparing his schedules. Even by defendant’s own testimony the property is worth substantially more than the debt he sought to repay by the transfer. He himself admits that the decision to transfer it was a unilateral one, and there is no question that his sister did not particularly want the property. In view of these combined circumstances, including the failure to list the transfer on the bankruptcy schedules, it must be concluded that the defendant made the transfer with the intent to hinder, delay or defraud his creditors within one year before the date of the filing of the petition. The defendant’s discharge must be denied under § 727(a)(2)(A) and under (a)(4)(A).
The court does not find that discharge should be denied for defendant’s failure to list the Schaumberg condominium *12as an item of property. Reference was made to it' as property which had been foreclosed upon. Although the mortgagee had done nothing more than send a warning letter, and the debtor is in an occupation where he must be very much aware of the procedures in real estate foreclosures, it is possible that in his own mind he considered the property “gone”, especially since he must have known that he was not in a financial position to save it. Similarly the court concludes that the discharge should not be denied on the grounds that defendant failed to keep adequate records. There was no evidence of concealment or destruction of records and although his business records were apparently insufficient and may have been in themselves a contributing factor to the bankruptcy, the court concludes that the insufficiency was not such as to deny the debtor his discharge on those grounds.
Pursuant to Bankruptcy Rule 921(a), a separate Pinal 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/8489409/ | MEMORANDUM AND ORDER
CHARLES J. MARRO, Bankruptcy Judge.
The above-named Debtor filed for Relief under Chapter 13 of the Bankruptcy Code on May 4, 1981.
She lists the First Inter-State Bank under the Schedule of Property as a secured creditor holding a mortgage in the sum of $35,-136.42 on the home place of the Debtor in the Village of Fairlee, Vermont. The § 341 meeting of creditors was held and closed on June 5, 1981. The First Inter-State Bank filed its secured claim in the sum of $35,-*38136.42 with interest of $7.95 per diem from October 23, 1980 together with actual attorney’s fees and costs incurred in the institution of a Complaint of Foreclosure on July 2, 1982.
It is evident that the Proof of Claim was not filed before the conclusion of the § 341 meeting of creditors.
13-302(e)(l) of the Rules of Bankruptcy Procedure provides as follows:
“Secured Claims. A secured claim, whether or not listed in the Chapter XIII Statement, must be filed before the conclusion of the first meeting of creditors in the Chapter XIII case unless the court, on application before the expiration of that time and for cause shown, shall grant a reasonable, fixed extension of time. Any claim not properly filed by the creditor within such time shall not be treated as a secured claim for purposes of voting and distribution in the Chapter XIII case. Notwithstanding the foregoing, the court may permit the later filing of a secured claim for the purpose of distribution by the debtor, the trustee, or a codebtor.”
In this case the Debtor did not make application and the Court did not grant a reasonable extension of time for the filing of its secured claim. Therefore, under ordinary circumstances, pursuant to the above Rule, the claim should not be treated as secured for the purposes of voting and distribution in this Chapter 13 case.
Since this Rule was promulgated prior to the enactment of the Bankruptcy Code, the question has been raised as to whether it is now applicable to cases filed under the Code. The argument has been advanced that the Rule may be inconsistent with the Code. A number of cases have been decided relative to the application of this Rule to Code cases and the majority opinion seems to be that the Rule is consistent with the Code and is, therefore, applicable. See Matter of Brown, 14 B.R. 233 (Bkrtcy.N.D.Ill.1981); Matter of Louie, 10 B.R. 928, 7 B.C.D. 678 (Bkrtcy.E.D.Mich.1981); In Re Foster, 11 B.R. 476, 4 C.B.C.2d 763 (Bkrtcy.S.D.Cal.1981); In Re Remy, 8 B.R. 40, 7 B.C.D. 200, B.L.D. ¶ 67856, 3 C.B.C.2d 698 (Bkrtcy.S.D.Ohio 1980); In Re Hines, 7 B.R. 415, 6 B.C.D. 1356, 3 C.B.C.2d 367 (Bkrtcy. D.S.D.1980); In Re Webb, 3 B.R. 61, 5 B.C.D. 1379, B.L.D. ¶ 67449 (Bkrtcy.N.D.Cal.1980); In Re Rush, 6 B.C.D. 139, B.L.D. ¶ 67415 (Bkrtcy.S.D.Fla.1980); In Re Pollock, 6 B.C.D. 1280, 2 C.B.C.2d 314 (Bkrtcy.S.D.Fla.1980); and In Re Price, 5 B.C.D. 1115, B.L.D. ¶ 67287 (Bkrtcy.N.D.Cal.1979).
On the other hand the following few cases have held that the Rule is inconsistent and, therefore, inapplicable to the Code. See In Re Musgrove, 4 B.R. 322, 6 B.C.D. 402, 2 C.B.C.2d 238 (Bkrtcy.M.D.Fla.1980); and In Re Busman, 5 B.R. 332, 6 B.C.D. 683 (Bkrtcy.E.D.N.Y.1980).
In the recent case of In Re Hines (Bkrtcy.S.D.Ohio, W.D.1982), 20 B.R. 44, 47, the Court pointed out the purpose of the Rule as follows:
Bankruptcy Rule 13-302(e)(l) was enacted to enable the identification of all of the secured creditors early in a bankruptcy proceeding. Under the Bankruptcy Act, as was interpreted in the Sixth Circuit, secured creditors possessed “life and death” control of a bankrupt’s Chapter XIII plan. §§ 651 and 652 of the Bankruptcy Act of 1898; In Re Worley, CCH Bankr.L.Rep. ¶ 64283 (E.D.Mich.1970), aff’d sub nom. Worley v. Budget Credit Union, CCH Bankr.L.Rep. ¶ 64285 (6th Cir.1971), cert. denied, 406 U.S. 907, 92 S.Ct. 1613, 31 L.Ed.2d 817 (1972); In Re Pappas, 216 F.Supp. 819 (S.D.Ohio 1962). Under the Act, any secured creditor dealt with by a Chapter XIII plan filed in this Court had to accept the plan in writing before the Court could confirm the plan. In Re Pappas, supra, at 882. As a practical matter, the bankrupt was therefore required to deal with any rejecting secured creditor outside of his plan, or else the plan could not be confirmed by the Court. It was therefore imperative under the Act that all secured creditors be required to file early in the proceeding in order to permit efficient processing of Chapter XIII plans. This concern regarding secured creditors “veto” power over a Chapter XIII plan is no longer relevant to *3911 U.S.C. Chapter 13 plans. § 1325(a)(5). 11 U.S.C.
Even though the Hines Court indicated that the “veto” power of secured creditors over a Chapter 13 plan is no longer relevant to Code cases it felt that the Rule was not inconsistent and, therefore, still applicable.
Notwithstanding the requirement under the Rule for the filing of a secured claim prior to the conclusion of the first meeting of creditors the Rule does permit the later filing of a secured claim for the purpose of distribution by the debtor, the trustee or a co-debtor. This, in effect, means that the Court still has discretion to permit a late filing by a secured creditor.
In the instant ease the Debtor in its Schedules recognized the claim of First Inter-State Bank as secured. The Trustee has no objection to the secured status of the claim. The Plan of the Debtor provides for equal treatment of secured and unsecured claims and it cannot be consummated without the sale of the homestead property of the Debtor in which there appears to be substantial equity. Therefore, it appears that the allowance of the Bank’s claim as secured would not jeopardize the interest of any party. Such being the case, the Court would be exercising sound discretion in permitting the late filing of the Bank’s claim and allowing it as secured.
The Bank’s Motion for late filing is supported by In Re Hart Ski Mfg. Co., Inc. (U.S. Bankruptcy Court, District of Minn.), 5 B.R. 326. In this case the Court pointed out that the filing of a claim is a ministerial act and that if there is a sufficient showing upon the record prior to the expiration of time for filing a claim of the existence, nature and amount of the claim, the claimant should be permitted to amend its claim to conform with the technical requirements. The Hart case involved the filing of an unsecured claim outside of the six-month period prescribed by § 57(n) of the Bankruptcy Act. The same principle applies under the Code. The Hart Court in support of its decision cited Collier on Bankruptcy (14th Ed.) § 57.11(3) as follows:
It is well settled that if there is upon the record in the bankruptcy proceedings, within the six months prescribed by § 57n, anything sufficient to show the existence, nature and amount of a claim, it may be amended even after the expiration of the period.’ This Court believes that in the interest of equity this rule should continue under the new Code.” 5 B.R. 326, 328.
In the case of In Re Remy (Bkrtcy.S.D. Ohio, 1980), 8 B.R. 40, the Court pointed out that Rule 13-302(e)(l) is not inconsistent with the Bankruptcy Code and, therefore, a secured claim must be filed before the conclusion of the first meeting of creditors. However, even though the Court felt that the Rule was harsh it pointed out that the harshness is softened by the ability of the debtor, co-debtor or trustee to waive the bar date. It referred to the last sentence of the Rule under which the Court may permit the later filing of a secured claim for the purpose of distribution by the debtor, the trustee or a co-debtor.
Under all of the circumstances in this case, the Court in the exercise of its discretion, feels that the late filing should be permitted and the claim allowed as secured.
ORDER
Now, therefore, upon the foregoing,
IT IS ORDERED that the claim of the First Inter-State Bank in the sum of $35,-136.42 with interest at $7.95 per diem from October 23, 1980 and actual attorney’s fees and costs incurred in the institution of a Complaint of Foreclosure is deemed as timely filed and should be allowed as secured. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489410/ | MEMORANDUM AND ORDER ON CLAIM OF LUDLOW-RUTLAND GENERAL ELECTRIC EMPLOYEES CREDIT UNION
CHARLES J. MARRO, Bankruptcy Judge.
The Debtors filed a Petition for Relief under Chapter 13 of the Bankruptcy Code on June 6, 1982 and the § 341 meeting of creditors was held and closed on July 20, 1982.
G.E. Credit Union (same as Ludlow-Rut-land General Electric Employees Credit Union) is recognized as a secured creditor with the collateral described as a 19.79 Pontiac Bonneville Station Wagon. The Credit Union filed its claim on August 6, 1982. Rule 13-302(e)(l) provides as follows:
“Secured Claims. A secured claim, whether or not listed in the Chapter XIII Statement, must be filed before the conclusion of the first meeting of creditors in the Chapter XIII case unless the court, on application before the expiration of that time and for cause shown, shall grant a reasonable, fixed extension of time. Any claim not properly filed by the creditor within such time shall not be treated as a secured claim for purposes of voting and distribution in the Chapter XIII case. Notwithstanding the foregoing, the court may permit the later filing of a secured claim for the purpose of distribution by the debtor, the trustee, or a codebtor.”
Under ordinary circumstances the claim would be filed out of time. However, neither the Debtors nor the Trustee have any objection to the allowance of the claim as secured and having it deemed as filed on time.
Under the last sentence of the Rule the Court may, “Notwithstanding the foregoing . . . permit the later filing of a secured claim for the purpose of distribution by the debtor, the trustee, or a codebtor.” This, in effect, gives the Court discretion to permit a late filing and to allow the claim as secured. Since there is no objection by any party in interest and it appears that no party is being prejudiced, the Court feels that it should exercise its discretion and permit the late filing and allowance of the secured claim of the Credit Union. This position has support in the case of In Re Hart Ski Mfg. Co., Inc., (Bkrtcy.D.Minn.) 5 B.R. 326, which was decided under the Bankruptcy Code. There appears to be no reason why the rationale of this case should not apply under the Code. In the Hart case the Court pointed out that the filing of a claim is a ministerial act and that if there is a sufficient showing upon the record prior *41to the expiration of time for filing a claim of the existence, nature and amount of the claim, the claimant should be permitted to amend its claim to conform with the technical requirements. The Hart case involved the filing of an unsecured claim outside of the six-month period prescribed by § 57n of the Bankruptcy Act. The same principle applies under the Code. The Hart Court in support of its decision cited Collier on Bankruptcy (14th Ed.) § 57.11(3) as follows:
“ ‘It is well settled that if there is upon the record in the bankruptcy proceedings, within the six months prescribed by § 57n, anything sufficient to show the existence, nature and amount of a claim, it may be amended even after the expiration of the period.’ This Court believes that in the interest of equity this rule should continue under the new Code.” 5 B.R. 326, 328.
Under the circumstances in this case the Court in the exercise of its discretion feels that the late filing should be permitted and the claim allowed as secured.
ORDER
Now, therefore, upon the foregoing,
IT IS ORDERED that the claim of the Ludlow-Rutland General Electric Employees Credit Union in the sum of $7,254.03 is deemed as timely filed and should be allowed as secured. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489411/ | ORDER AS TO COMPLAINT FOR RELIEF FROM STAY AND RECOVERY OF PROPERTY AND DEBTOR’S REQUEST FOR AVOIDANCE OF LIEN
CHARLES J. MARRO, Bankruptcy Judge.
The Plaintiff filed a Complaint for Relief from Stay and recovery of personal property and the Debtor filed his Answer and added an affirmative defense claiming that the personal property consisting of tools used by the Debtor in his trade is exempt under 12 V.S.A. § 2740 and that pursuant to § 522(f)(2)(B) of the Bankruptcy Code the lien of the Plaintiff on these tools may be avoided. These matters came on for hearing, after notice.
From the testimony adduced at said hearing the following facts are established:
The Debtor for a period of years up until six years ago was employed as a mechanic. He then became a maintenance man and truckdriver after which he was unemployed. In connection with his job as truckdriver, he also worked as a mechanic in maintaining his truck. He never gave up his occupation as a mechanic.
*49He filed his Petition for Relief on May 7, 1982 at which time he was unemployed or had just started working as a mechanic. Two or three months ago he became employed as a mechanic by Munson Earth Moving and he is now so employed.
The list of property attached to the Complaint of the Plaintiff for Relief from Stay consists of tools which are used by the Debtor in his trade as a mechanic. The obligation of the Debtor to the Plaintiff as a secured creditor arises from a loan made to him by the Plaintiff but it did not involve purchase money for the tools. Therefore, the Plaintiff does not hold a purchase money security interest.
Under 27 V.S.A. § 2740 a debtor is entitled to exempt from attachment and execution, inter alia, such tools as may be necessary for sustaining life and one tool chest kept for use by a mechanic. It follows that the personal property which the Plaintiff seeks to recover is in fact exempt and, pursuant to § 522(f)(2)(B) of the Bankruptcy Code, the Debtor is entitled to avoid the lien of the Plaintiff since it impairs an exemption to which the Debtor is entitled, such lien being a non-possessory non-purchase .money security interest in the tools of the trade of the Debtor.
Now, therefore, upon all proceedings had before me, it is
ORDERED as follows:
1. The Complaint of Beneficial Finance Company of Vermont filed on June 15,1982 to modify stay and for recovery of property is DISMISSED.
2. The claimed security interest of the Plaintiff, Beneficial Finance Company of Vermont in the personal property described in the Schedule attached to its Complaint is hereby avoided pursuant to § 522(f)(2)(B) of the Bankruptcy Code. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489414/ | FINDINGS OF FACT AND CONCLUSIONS OF LAW
SIDNEY M. WEAVER, Bankruptcy Judge.
THIS CAUSE coming on to be heard upon a Complaint filed herein and the Court, having heard the testimony and examined the evidence presented; observed the candor and demeanor of the witnesses; considered the arguments of counsel and being otherwise fully advised in the premises, does hereby make the following findings of fact and conclusions of law:
This Court has jurisdiction of the parties hereto and the subject matter hereof.
Harry Brummer became a debtor pursuant to an involuntary proceeding brought against him on January 4, 1980. Jeanette Tavormina, the plaintiff herein, was appointed interim trustee and subsequent to the entry of the Order for Relief she became the permanent trustee. After re*94peated efforts by the trustee and creditors, the debtor filed schedules which did not indicate any interest whatsoever in the property which is the subject matter of this lawsuit. Furthermore, the debtor has offered no valid explanation why this property or an .interest in same was not listed as his property. Accordingly, the Court finds that the property that is the subject matter of this lawsuit was fraudulently concealed from the debtor’s pre-petition creditors. During an earlier proceeding, the debtor waived the right to a discharge from his debts, rather than disclose certain material evidence.
This adversary proceeding concerns the avoidability of certain post-petition transfers. The trustee commenced this proceeding by filing a complaint seeking injunctive relief and a separate motion seeking a temporary restraining order.
In support of her motion for a temporary restraining order, the trustee offered a contract between Brummer and the Three Island Corporation which called for a sale of the property to the Three Island Corporation for Two Million Eight Hundred Thousand Dollars ($2,800,000.00). The contract stated that Brummer was the beneficial owner of a parcel of real property located at 6400 Collins Avenue, Miami Beach, Dade County, Florida.
The Court entered a temporary restraining order restraining Brummer, Sylvia Sie-gal Inc., Sylvia Siegal individually, and Harry Smith, (a land trustee) from transferring any interest in the real property and certain personal property. Subsequently, the temporary restraining .order was merged into a preliminary injunction which remains in full force and effect to this date. To preserve the status quo, the preliminary injunction tolled the expiration of an option to purchase the land in favor of Sylvia Siegal, Inc. An express condition of the injunction was that the trustee should file an Amended Complaint which would state with particularity her claim for relief concerning the subject property.
The trustee filed an Amended Complaint which joined the additional named defendants, Samuel Friedman Management Company Inc. and Acofin Investment, Inc. The Amended Complaint sought relief on two grounds:
A. Against the defendants Sylvia Sie-gal, Inc., Samuel Friedman Management Company Inc. and Acofin Investment, Inc., as partners in the joint venture, (Buckingham Place) for a post-petition transfer of property valued in excess of One Million Dollars ($1,000,000.00).
B. Against Sylvia Siegal, Inc., Sylvia Sie-gal individually and Harry Brummer for recovery of a sum in excess of Two Hundred Fifty Thousand Dollars ($250,000.00) representing proceeds from the allegedly concealed property to which the debtor obtained access.
For the purpose of clarity, the foregoing theories for the trustee’s recovery will be discussed in separate portions of this Order and will be referred to hereinafter as the (a) “liability of Buckingham Place” and (b) “liability of Sylvia Siegal and Sylvia Siegal, Inc.” The rights, duties and liabilities of the land trustee, Smith, will also be discussed separately.
The remaining pleadings framing the issues are the answers of the various named defendants and a crossclaim filed by the debtor against Samuel Friedman Management Company, Inc., and Acofin Investments, Inc. and a separate counterclaim against the trustee which was severed.
The facts which are common to the liability of all parties are set forth as follows:
At the commencement of the involuntary proceedings, the debtor was the purchaser of certain real estate under three executory deposit receipt contracts which are described as follows:
A. A contract with Frank and Jean May, dated August 4, 1979, concerning the following described real property:
Lots 58 and 59 of Block 7 and Second Oceanfront amended plan, Plat Book 28, Page 28, Miami Beach, Florida.
B. A contract with Herbert Rockwell, dated October 13, 1979, concerning:
*95Lot 9 jn Block 7 of Second Oceanfront Subdivision, according to the Plat thereof as recorded in Plat Book 28, Page 28 of the Public Records of Dade County, Florida.
C. Agreement to acquire the stock of Sixty-Fifth Street Corporation which owned:
Lots 8, 56, and 57 in Block 7 of the amended Plat, of Second Oceanfront Subdivision as recorded in Plat Book 28, Page 28 of the Public Records of Dade County, Florida.
Collectively these lands are the properties that are set forth in the contract for sale to the Three Island Corporation, and in totality constitute the real property which is the subject matter of the preliminary injunction. This land was to be the underlying real estate for a project which the debtor had been developing for several years called “Buckingham Place”.
On March 13, 1980, while the involuntary petition was pending, a joint venture agreement was signed by and between the defendants Sylvia Siegal, Inc., Acofin Investment, Inc. and Samuel Friedman Management Company, Inc. Pursuant to this agreement, but without transfer of legal title, the aforestated land become the property of the joint venture. The evidence reflects and the Court finds that Sylvia Siegal, Inc., paid no money for the deeds and was acting solely as the agent for Brummer in accepting the title to these lands. At trial the remaining joint venture partners denied liability on two grounds:
A. They had no knowledge that Sylvia Siegal, Inc. was acting for Brummer.
B. They had no knowledge that Brum-mer was engaged in Bankruptcy proceedings.
Concerning the defendants first contention, the Court finds that all of the joint venture partners knew or should have known that Sylvia Siegal, Inc., was acting for Harry Brummer. This is clear from the evidence presented which is summarized as follows:
1. The initial discussion concerning the Buckingham Place “project” was conducted by Samuel Friedman, principal of Samuel Friedman Management Company, Inc. and an authorized agent of Acofin Investment, Inc., and Harry Brummer. Many of these discussions took place in the fall of 1979, prior to the commencement of the bankruptcy proceedings.
2. The negotiations which resulted in the Agreement of March 13, 1980, were principally conducted between Brummer and Friedman, and Brummer was the indispensable party to said negotiations. This fact is supported by the following evidence:
a. The negotiations were suspended while Brummer made a trip to Canada.
b. The Agreement between May and Brummer which was ultimately closed in the name of Dale Heckerling, a land trustee, (for the benefit of the joint venture) was never assigned by Brummer.
c. The joint venture agreement (which was never executed by Brummer) provides in paragraph 14 for various services to be rendered by Brummer without compensation and which services Brummer did render.
d. The minutes of the partnership meeting held April 1, 1980 clearly state that Brummer was the party who sold this transaction to the joint ventures.
e. Various agreements which were negotiated by the three joint venture partners, with a view towards termination of the joint venture, were conducted by Samuel Friedman and Brummer.
As to the defendants’ second contention, the Court need not reach a decision because the Court finds the consideration paid for the property was insufficient. The evidence reflects that at the time the joint venture acquired the property the net value of its equity interest in the land was One Million Two Hundred Seventy-Six Thousand Two Hundred Fifty-Three Dollars ($1,276,253.00). The evidence also reflects that the sole consideration paid by the joint venture in conjunction with the acquisition of the land was Sixty Thousand Dollars *96($60,000.00). The Court finds that the joint venture did not pay fair equivalent value for the acquisition of the land.
Bankruptcy Code Section 549(c) protects a good faith purchaser who, without knowledge of the commencement of the case, acquires property for present fair equivalent value. This exception to the trustee’s avoidance power is not available to the defendants since they did not pay fair equivalent value.
The Court finds that the transfer between the debtor and Buckingham Place, a joint venture, is a post-petition transfer avoidable pursuant to Section 549 of the Bankruptcy Code.
Liability of Buckingham Place (Joint Venture)
As a “joint venture”, Buckingham Place falls within the definition of a partnership which is an association of two or more persons to carry on a business for profit as co-owners. (FS 620.585). The partnership has been made a defendant to this action by the joinder of all three joint venture partners, to wit Sylvia Siegal Inc., Samuel Friedman Management Company, Inc. and Acofin Investment, Inc. According to Florida Law, which controls in this instance, “a partnership is bound to make good a loss when the partnership, in the course of business receives money or property of a third person and the money or property so received is misapplied by a partner while it is in the custody of the partnership.” (FS 620.625(2)) All partners are jointly and severally liable in such a situation. (FS 620.63)
After the acquisition of title by the joint venture, various disputes arose among the debtor and the three joint venture partners resulting in the ostensible dissolution of the partnership and in the title being placed in the name of Harry Smith, Land Trustee, as attorney and agent for two of the partners, Samuel Friedman Management Company, Inc. and Acofin Investment Inc. Dissolution of the partnership does not effect the liability of the joint venture to any creditor including a trustee in bankruptcy when applicable. (FS 620.735).
Section 550 of the Bankruptcy Code dealing with Transferee Liability applies in this case and provides that:
“To the extent that a transfer is avoided under Section 549 (inter alia) the trustee may recover for the benefit of the estate, the property transferred, or if the Court so orders, the value of such property from any immediate or mediate transferee of such initial transferee”
Since the title to the property is no longer in the name of the joint venture, the trustee is entitled to recover the value of the property from the three named defendants (Sylvia Seigal, Inc., Samuel Friedman Management Company, Inc. and Acofin Investment, Inc.) in the amount of One Million Two Hundred Seventy-Six Thousand Two Hundred Fifty-Three Dollars ($1,276,253.00) less the Sixty Thousand Dollars ($60,000.00) paid for the property to May for a total recovery of One Million Two Hundred Sixteen Thousand Two Hundred Fifty-Three Dollars ($1,216,253.00). Since the liabilities of the debtor estate may be substantially less than this sum of money, the recovery by the trustee will be limited to the amount of the allowable claims against the debtor estate, it being the specific intention of the Court to prohibit the Debtor from obtaining a liquidating dividend, or to otherwise profit from his acts.
Liability of Sylvia Siegal and Sylvia Siegal, Inc.
Sylvia Siegal, and a corporation which she controls, Sylvia Siegal, Inc. were each joined as Defendants. At the conclusion of the trustee’s case the Court granted a Motion to Dismiss against Sylvia Siegal individually since no evidence was presented indicating that any of the funds utilized in this transaction passed to Sylvia Siegal individually. At the time of closing argument, the trustee asked the Court to reconsider this ruling which was taken under advisement. That request is now denied. The count against Siegal was to recover an approximate sum of Two Hundred Sixty Thousand Dollars ($260,000.00) which was *97received by Sylvia Siegal, Inc. and turned over to the debtor. This amount is included in the amount of One Million Two Hundred Sixteen Thousand Two Hundred Fifty-Three Dollars ($1,216,253.00) for which Sylvia Siegal, Inc. is jointly and severally liable and accordingly no further relief will be ordered against Sylvia Siegal, Inc.
Liability of Harry Smith, Land Trustee
In May of 1981, the joint venturers, pursuant to various agreements to terminate the joint venture, conveyed legal title to the property to Harry Smith, Land Trustee. Harry Smith took title for no new consideration and solely as agent for two of the joint venturers. Since the real property transferred to Smith remains partnership property, the preliminary injunction issued is to remain in full force and effect and the Trustee, Jeanette Tavormina, is, by the terms of the Final Judgment, granted leave to sell said property. In conjunction with the title held by Smith, Land Trustee, the record indicates that various payments may have been made by Smith or his principal, which have a tendency to “improve” the land, as contemplated by Section 550(d). Section 550(d) provides that a party who is a good faith transferee shall have a lien on the property to secure the lesser of the cost of any improvement less the amount of profit realized by such transferee and any increase in value as a result of such improvement. The Court concludes that it is premature to determine the validity and priority of this lien, vis-a-vis the rights of the Bankruptcy Trustee, until the property is sold with notice to parties in interest.
The Crossclaim of Brummer
The debtor, Harry Brummer, has filed a erossclaim against the defendants, Smith, Friedman and Acofin, which seeks a determination of the validity and priority and amount of various competing liens. The Debtor has no interest in any proceeds of this lawsuit nor will he be granted any. Furthermore, the lien rights of these prospective parties have been determined herein (other than those issues which have been deferred). Any additional issues raised by the crossclaim have either been decided or are moot. Therefore the Final Judgment will provide that the Debtor’s Crossclaim for Declaratory Relief is denied. Pursuant to Rule 921(a) of Rules of Bankruptcy Procedure a separate Final Judgment will be entered in accordance herewith. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489415/ | OPINION
EMIL F. GOLDHABER, Bankruptcy Judge:
The first of three issues before us is whether a complaint for an accounting and imposition of a constructive trust filed by the chapter 11 trustee against one of the defendants in this case, Nancy K. Murray, should be granted. We conclude that the trustee has established, by the supporting affidavits which he has presented and by the admissions of the said defendant in her answer and pleadings, that there is no genuine issue of fact with respect to the defendant’s liability as a constructive trustee and that the trustee in bankruptcy (the plaintiff herein) is, therefore, entitled to summary judgment on that issue.
The facts of the instant case are as follows: 1 The Fidelity America Financial Corporation (“FAFCO”) and the Fidelity America Mortgage Company (“FAMCO”) filed a petition under chapter 11 of the Bankruptcy Code (“the Code”) in February, 1981. On September 9, 1981, Howard I. Green, the chief executive officer of FAF-CO and FAMCO resigned his post whereupon the defendant, Harvey P. Murray, Jr., became the sole remaining senior officer of both companies.
On or about September 15, 1981, Harvey P. Murray instructed the office manager of FAFCO-FAMCO to draw a check for $26,-000.00 against certain funds belonging to FAMCO which were at that time in a Philadelphia Savings Fund Society (“PSFS”) account belonging to the Fidelity Financial Corporation (“FFC”), a wholly owned subsidiary of FAFCO. On Harvey P. Murray’s express directions, the payee of the check was listed as “Nancy K. Murray, Agent for Realty General Associates.”2 Nancy K. Murray is the wife of Harvey P. Murray. In her answer, Nancy K. Murray admitted that the check in question was made pay*119able to her, but did not allege that any moneys were due her. On September 16, 1981, Nancy K. Murray endorsed the aforesaid check and deposited it into her personal account. Within two days after this deposit, she issued checks amounting to $14,-000.00.3
On or about September 16, 1981, the defendant, Realty General Associates, Ltd. (“RGA”), allegedly executed a capital note4 to FFC wherein RGA promised to pay FFC $26,000.00. This note, the chapter 11 trustee alleges, was executed for RGA by Harvey P. Murray in his capacity as authorized agent for RGA.
The chapter 11 trustee moves for partial summary judgment against Nancy K. Murray for the relief demanded in count one of the complaint wherein the chapter 11 trustee asks that the money in question be held in constructive trust and that the defendant, Nancy K. Murray, be required to account to the chapter 11 trustee for all benefits received from the use of said money. Fed.R.Civ.P. 56 provides in pertinent part:
(a) For Claimant. A party seeking to recover upon a claim, counterclaim, or cross-claim or to obtain a declaratory judgment may, at any time after the expiration of 20 days from the commencement of the action or after service of a motion for summary judgment by the adverse party, move with or without supporting affidavits for a summary judgment in his favor upon all or any part thereof.
* * * * * *
(c) Motion and Proceedings Thereon. The motion shall be served at least 10 days before the time fixed for the hearing. The adverse party prior to the day of hearing may serve opposite affidavits. The judgment sought shall be rendered forthwith if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law. A summary judgment, interlocutory in character, may be rendered on the issue of liability alone although there is a genuine issue as to the amount of damages.5
See Federal Rules of Civil Procedure, 28 U.S.C.
Counsel for the defendant, Nancy K. Murray, incorrectly cites Kohr v. Kohr, 271 Pa.Super. 321, 413 A.2d 687 (1979), for the proposition that in order for a constructive trust to exist under Pennsylvania law, there must be a conveyance of property resulting from fraud, duress, undue influence or abuse of a confidential relationship and an actual promise by the transferee to hold the property in trust. Quite to the contrary, Kohr expressly holds that, under Pennsylvania law, a constructive trust may be decreed under two different theories, under one of which there is no requirement that there be any promise made. Id. at 328, 413 A.2d at 690. The Kohr court, citing the Restatement of Restitution § 160, stated that a constructive trust may arise “where a person holding title to property is subject to an equitable duty to convey it to another on the grounds that he would be unjustly enriched if he were permitted to retain it.” Id. at 329, 413 A.2d at 691.
In the instant case, we conclude that the defendant, Nancy K. Murray, has been unjustly enriched, thus requiring the decreeing of a constructive trust, because the clear and convincing evidence shows that: (1) the $26,000.00 at issue belonged to FAM-CO;6 (2) a check representing the aforesaid *120$26,000.00 was drawn, at Harvey P. Murray’s instruction, to Nancy K. Murray,7 and deposited into Nancy K. Murray’s personal bank account;8 and, most importantly, (3) Nancy K. Murray has made no claim that the $26,000.00 belongs to her or that she has any proprietary interest whatsoever in the aforesaid money. Consequently, we conclude that the present record unequivocally demonstrates that there is no genuine issue of material fact regarding the issue of unjust enrichment. Justice (then Judge) Cardozo, in describing the use and purpose of a constructive trust, stated that “[a] court of equity in decreeing a constructive trust is bound by no unyielding formula. The equity of the transaction must shape the measure of relief.” Beatty v. Guggenheim Exploration Co., 225 N.Y. 380, 389, 122 N.E. 378, 381 (1919) cited in Chambers v. Chambers, 406 Pa. 50, 55, 176 A.2d 673, 675 (1962). Accordingly, we will grant the trustee’s motion for partial summary judgment against the defendant, Nancy K. Murray, and impose a constructive trust upon the moneys9 transferred from the FAMCO funds into the personal bank account of Nancy K. Murray. We find her to be the constructive trustee of the aforesaid sum and will require her to account for any and all expenditures of those moneys. We have drawn no factual inferences in favor of the trustee and have not resolved any issue on the basis of credibility. On the contrary, and as heretofore pointed out, we conclude, on the basis of the uncontroverted affidavits and pleadings, that there is no genuine issue of fact as to whether Nancy K. Murray has been unjustly enriched.
The second issue at bench is the defendant RGA’s motion for summary judgment in its favor wherein it alleges that the facts of the instant case indicate, as a matter of law, that:10 (1) Harvey P. Murray was not an authorized agent of RGA; (2) Nancy K. Murray was not an authorized agent of RGA; and (3) only $4,100.00 was paid by Harvey P. Murray to creditors of RGA and that therefore the facts do not support the establishment of a constructive trust against RGA. We conclude that the pleadings and supporting affidavits filed by both the chapter 11 trustee and defendant RGA clearly establish that there are genuine issues of fact as to each of the aforesaid allegations and that the defendant RGA is, therefore, not entitled to summary judgment.
RGA, in its motion for summary judgment, avers that Harvey P. Murray was not, during the time in question, an agent of RGA. To the contrary, the trustee has alleged that Harvey P. Murray was at all times relevant to this dispute an authorized agent of RGA.11 The agency status of Har*121vey P.-Murray is clearly a contested matter which must be resolved at trial.
Additionally, RGA alleges that Nancy K. Murray was not, during the time in question, authorized to act as an agent for RGA. In support of its contention, RGA alludes to the indictment of Harvey P. Murray by the United States Attorney wherein the United States Attorney alleges that Nancy K. Murray was never authorized to act as an agent for RGA.12 We conclude, however, that an indictment for probable cause is not conclusive, for purposes of this summary judgment motion, or the issue of the agency status of Nancy K. Murray. This is especially true when viewed in light of the fact that the check was expressly drawn to “Nancy K. Murray, Agent for Realty General Associates,” and in light of the further fact that Nancy K. Murray utilized her bank account to conduct business on RGA’s behalf.13
As to whether any part of the $26,000.00 in question was used to satisfy the debts of RGA, we also conclude that genuine issues of material fact remain. RGA admits that Harvey P. Murray was indebted to it for $4,900.00 and that part of a debt owed by RGA to one of its creditors was to be partially satisfied by the repayment by Harvey P. Murray of all or a substantial portion of his $4,900.00 indebtedness to RGA. In any event, RGA admits that at least $4,100.00 of its debts were paid by Harvey P. Murray through the use of the $26,000.00 in issue.14 Consequently, we conclude, based on the pleadings and affidavits submitted by both the trustee and RGA, that genuine issues of material fact remain as to the following issues: (1) the agency status of Harvey P. Murray, Jr.; (2) the agency status of Nancy K. Murray; and (3) the amount of benefit received, if any, by RGA from the funds taken by Harvey P. Murray. Accordingly, we deny RGA’s motion for summary judgment.
The final issue before us is the chapter 11 trustee’s motion to dismiss RGA’s counterclaim wherein RGA apparently sets forth a claim for abuse of process or wrongful use of civil process. As District Judge James T. Giles stated in Sheridan v. Fox, 531 F.Supp. 151 (E.D.Pa.1982):
Wrongful use of civil proceedings and abuse of process are different torts. The gravamen of wrongful use of civil proceedings is the baseless or reckless prosecution of a suit, while the gravamen of abuse of process is use of proceedings for an improper purpose. Essential elements of wrongful use of process, such as lack of probable cause and prior termination, are not required for an abuse of process .... [but] arrest or seizure continues as an essential element of abuse of process.
* * * * Sfc *
It is hornbook law that termination of a prior proceeding in plaintiff’s favor has always been prerequisite to a wrongful-use-of-process suit.
531 F.Supp. at 153, 154.
We therefore conclude that RGA’s counterclaim for wrongful use of process must be dismissed since the aforesaid prerequisite that there be a termination in favor of the person against whom the suit was brought is lacking in this case.15 Likewise, even if RGA’s counterclaim is more in the nature of a claim for abuse of process, that counterclaim would also have to be dismissed since the above-mentioned precondition that there be an arrest of a person or the seizure of property is also not present.16 Conse*122quently, we conclude that RGA’s counterclaim fails to state a claim upon which relief can be granted and, accordingly, we will dismiss its counterclaim.
. This opinion constitutes the findings of fact and conclusions of law required by Rule 752 of the Rules of Bankruptcy Procedure.
. The defendant avers in her answer that she is not a principal of Realty General Associates and that she is only a shareholder therein. See defendant’s answer at ¶ 3(b).
. See plaintiffs motion for partial summary judgment at p. 4.
. See Exh. C to plaintiffs complaint.
. Rule 756 of the Rules of Bankruptcy Procedure provides that Rule 56 of the Federal Rules of Civil Procedure applies in adversary proceedings. See Rules of Bankruptcy Procedure, Rule 756, 11 U.S.C.
.See uncontroverted affidavit of Kurt Schaefer at ¶ 3 attached as Exh. A to the plaintiff’s motion for partial summary judgment; uncon-troverted affidavit of Helen Lorenz at ¶ 3 attached as Exh. B to the plaintiffs motion for *120partial summary judgment; uncontroverted testimony of Harvey P. Murray before the Securities and Exchange Commission at p. 187 attached as Exh. C to the plaintiffs motion for partial summary judgment.
. See uncontroverted affidavit of Kurt Schaefer at ¶ 7; uncontroverted affidavit of Helen Lorenz at ¶ 4; uncontroverted testimony of Harvey P. Murray before the Securities Exchange Commission at p. 189; Exh. D to plaintiff’s motion for partial summary judgment.
. See Exh. D to plaintiff’s motion for partial summary judgment.
. On or about September 28, 1981, a bank treasurer’s check in the amount of Five Thousand (5,000) dollars, payable to “Norman M. Kranz-dorf, Trustee of FAMCO,” was received by the plaintiff from the co-defendant Harvey P. Murray. Consequently, the sum in controversy is reduced to $21,000.00. See trustee’s complaint at ¶ 14.
. Fed.R.Civ.P. 56, made applicable to adversary proceedings in bankruptcy pursuant to Rule 756 of the Rule of Bankruptcy Procedure, provides in pertinent part:
(b) For Defending Party. A party against whom a claim, counterclaim, or cross-claim is asserted or a declaratory judgment is sought may, at any time, move with or without supporting affidavits for a summary judgment in his favor as to all or any part thereof.
See Federal Rules of Civil Procedure, 28 U.S.C.
. See affidavit of Kurt Schaefer attached as Exh. A to the plaintiff’s answer to defendant’s motion for summary judgment; affidavit of Helen Lorenz attached as Exh. B to the plaintiffs answer to defendant’s motion for summary judgment; testimony of Harvey P. Murray before the Securities Exchange Commission attached as Exh. C to plaintiff’s answer to defendant’s motion for summary judgment.
. See Exh. B to defendant RGA’s motion for summary judgment.
. See Exh. E to plaintiffs answer to defendant RGA’s motion for summary judgment.
. See defendant RGA’s brief in support of motion for summary judgment at p. 3.
. Under 42 Pa.Cons.Stat.Ann. § 8351(a)(2) (Purdon Pamphlet 1982) an essential element of a wrongful use of process cause of action is that “[t]he proceedings have terminated in favor of the person against whom they are brought.” Id. § 8351(a)(2).
. The “English Rule” requires there be either an arrest of the person or a seizure of property in order to state a cause of action for abuse of process. See Sheridan v. Fox, 531 F.Supp. 151, 154 (E.D.Pa.1982). | 01-04-2023 | 11-22-2022 |
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