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https://www.courtlistener.com/api/rest/v3/opinions/8489539/ | MEMORANDUM AND ORDER
CHARLES J. MARRO, Bankruptcy Judge.
SUMMARY OF CASE
Ulric and Holly Tremblay, as a partnership, filed a petition for relief to reorganize under Chapter 11 of the Bankruptcy Code on December 20, 1982. On January 18, 1983, the Debtors filed an Application for an Order Permitting Debtor to Assume Ex-ecutory Contract and to Set Further Terms. This application was made in regards to an agreement to purchase certain real property described in Schedule B-l of the Debtors’ petition. This property is specifically described as 45 acres of land, more or less, owned by Cashie Earl Lyons and Antoinette Lyons, being located in the Town of Washington, Vermont. An Order permitting such assumption was accordingly entered, and simultaneously an Order to Show Cause why the transaction of the execution of a mortgage deed from the Debtors-in-Possession to the Lyons and the execution of a warranty deed from the Lyons to the Debtors-in-Possession should not take place.
On February 8, 1983, a hearing was held on the Show Cause Order of January 18, 1983, at which time the Lyons filed their Opposition to Debtors Petition to Assume Executory Contract. The Lyons in making their opposition have raised the defense of the Statute of Frauds as incorporated in 12 V.S.A. § 181. Testimony and evidence was submitted by both parties, and it is on the basis of this that the Court now makes its findings of fact and conclusions of law.
FINDINGS OF FACT
Around or about September of 1980, Ulric Tremblay approached Cashie Lyons to inquire about the purchase of 45 acres of pasture land located in the Town of Washington, Vermont. While making this inquiry, Ulric Tremblay and Cashie Lyons came to an oral agreement whereby Trem-blay was to pay Lyons the sum of $18,000.00 for the purchase of the land. This sum was to be paid by way of installments over a period of three years with the principal bearing interest at the rate of 5% per an-num. In coming to this agreement, the parties also decided that the Tremblays would be responsible for the payment of taxes on the parcel during the installment period.
Subsequently, the parties executed a writing to evidence the payments made in accordance with their 1980 agreement. This writing reflected a payment of *498$1500.00 from Ulric Tremblay to Cashie Lyons on September of 1980; a payment of $1000.00 on October 8, 1980; and, a $300.00 payment for taxes on October 8,1980. This writing was signed by both Ulric Tremblay and Cashie Lyons, and was admitted by both parties to be their written contract in accordance with the oral agreement reached in September 1980 for the sale of the 45 acre parcel.
Ulric Tremblay made additional payments toward the purchase price of the land as evidenced by a check drawn on the Granite Savings Bank and Trust Company of Barre, Vermont, for $2500.00 on September 13, 1980; and two subsequent payments in October and November 1981 for the amounts of $2500.00 and $317.00. These later payments were to be applied toward the principal and the taxes, respectfully. In 1982, the Debtors-in-Possession failed to make the installment payment toward the principal and confusion surrounded the payment of the taxes as a result of a misunderstood transaction concerning the purchase and sale of a lawn tractor and mower.
The Debtors-in-Possession have made total payments of $7500.00 toward the purchase price of the 45 acre parcel. The Debtors-in-Possession have also made payments in the total sum of $617.00 for the taxes on the land which was the subject of the agreement. The outstanding balance due and owing on the principal is $10,-500.00, plus the 5% interest accrued, as well as, the payment of 1982 and 1983 taxes. Under the agreement entered by the parties, these sums must be tendered on or before September 1983.
LAW
Ulric Tremblay and Cashie Lyons have both testified that a written contract was executed by the parties for the sale of 45 acres, more or less, of pasture land located in the Town of Washington, Vermont. It is apparent to the Court that the contract the parties have entered lacks the polish and form as would be present if the agreement had been prepared with the assistance of legal counsel. However, the written document still evidences notation of the parties agreement for the purchase and sale of pasture land.
As required by 12 V.S.A. § 181(5), and recited in pertinent part:
An action at law shall not be brought in the following cases unless the promise, contract, or agreement upon which such action is brought or some memorandum or note thereof is in writing, signed by the party to be charged therewith ... (5) a contract for the sale of land, tenements or hereditaments, or of an interest in or concerning them...
In the instant case, the contract was for the sale of land, i.e. 45 acres of pasture land; the sale was evidenced by a note, i.e. Plaintiffs exhibit # 1; and, such note was signed by the party being charged therewith, being Cashie Lyons. As such, the Statute is satisfied, and the Court finds that the agreement is in the nature of a contract for deed in which the final obligation or installment was to become due in September 1983.
The doctrine of equitable mortgages applies to agreements denominated as a contract for deed. Tremblay v. Dacres, 135 Vt. 335, 339, 376 A.2d 753 (1977). As further stated in Dacres:
The prospective purchaser occupies the premises and makes the payments until the point of delivery of the deed and execution of the mortgage is reached. Since the payments are applied to the purchase obligation as they accumulate, an equity, though perhaps small, comes into being. It is this interest that is referred to as the equitable mortgage interest that requires foreclosure. Aldrich v. Lincoln Land Corp., 130 Vt. 372, 294 A.2d 853 (1972), See also Jacobs v. Jewett, 122 Vt. 5, 7, 162 A.2d 925 (1960).
An analogous interest is present in the instant case, and that interest must be similarly foreclosed.
The Lyons are presently prevented from initiating or commencing such a foreclosure by the automatic stay provisions of the Bankruptcy Code. 11 U.S.C. § 362. This *499stay will remain in effect until the earliest" of the time that the case is closed; the time the case is dismissed; or when the discharge, if applicable, is granted or denied. 11 U.S.C. § 362(c)(2). However, if the Lyons choose to seek a course of action prior to any of the above, they must first seek and obtain relief from the stay as allowed by § 362(d). This relief has not yet been sought.
IT IS SO ORDERED. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489540/ | OPINION
WILLIAM A. KING, Jr., Bankruptcy Judge:
The issue at bench is whether the debtor has completed all the terms and fulfilled all of the conditions of a contract with the defendant for certain paving work to entitle the debtor to the final payment due under that contract. We conclude that the debtor has completed all the terms and fulfilled all the conditions of the contract and is, thus, entitled to the final payment.
The facts of the instant case are as follows: 1 On June 27,1979, Slaw Construction *542Company (“the debtor”) and Warren A. Brady, Jr., t/a Warren A. Brady Excavating (“Brady”) entered into a written agreement wherein the debtor agreed to perform certain paving work at a parking lot under construction for the sum of $62,900.00. In addition to the aforesaid agreement, the debtor rented equipment to Brady during the period of June 6,1979, through June 19, 1979, pursuant to a separate oral agreement. On June 20, 1979, the debtor commenced work under the terms of the written paving contract and finished the work on July 7,1979. The debtor thereafter rendered its invoices to Brady for the paving work in the amount of $62,900.00 and for the rental of equipment in the amount of $4,245.23. Brady paid $3,683.63 to the debt- or for the equipment rental. However, when the debtor demanded payment of the $62,900.00 from Brady, he advised the debt- or that he had not been paid by his contractor, Anthony DiAntonio, Inc. (“DiAntonio”), but that arrangements had been made to have DiAntonio pay the debtor directly and DiAntonio would, in turn, charge Brady’s account for the $62,900.00.2 The debtor received two (2) checks from DiAntonio, one dated July 31, 1979, in the amount of $40,-000.00 and another check post-dated August 16, 1979, for $22,900.00. The debtor presented the $40,000.00 check for payment, but said check was returned to the debtor marked “payment stopped.” The debtor then informed Brady that the $40,000.00 check from DiAntonio had not been honored and Brady thereafter delivered to the debt- or a certified check for $40,000.00 and said check was cashed. Brady then advised the debtor to present the second DiAntonio check for $22,900.00 for payment but when the debtor did so, that check was also returned marked “payment stopped.” Consequently, the debtor demanded that Brady pay the balance due of $22,900.00, but was told by Brady that he would pay when he collected funds he claimed were due him from DiAntonio. On July 28, 1980, the debtor filed the instant complaint against Brady demanding judgment against Brady in the amount of $23,261.60,3 plus interest and costs. On September 4, 1980, Brady filed an answer wherein he alleges that the debtor agreed to look to DiAntonio for payment for the paving and that DiAntonio agreed to make said payment. The answer also contained “third party claim” against “additional defendant” DiAntonio alleging that DiAntonio is alone liable or liable over to Brady for the amount if any, due the debtor.
At the outset, we note that the debtor and Brady are the only signatories to the paving contract,4 which provides, in pertinent part:
(1) the lump sum price is $62,900.00
* * * * * *
(6) Billing to be once a month, payment within 5 days, 10% retainage
(7) Retainage to be paid within 30 days of satisfactory completion of this contract. Payment of retainage must not be effected by work or conditions not covered by this contract
* * * * * *
Nevertheless, Brady maintains that the aforesaid contract required: (1) that the debtor look to DiAntonio for payment for the work done; and (2) that the work performed by the debtor was subject to approval and acceptance by DiAntonio. Brady so contends despite the fact that the paving contract makes absolutely no mention of DiAntonio and contains no provision for third party acceptance of the work performed. The Supreme Court of Pennsylva*543nia, in East Crossroads Center, Inc. v. Mellon-Stuart Co., 416 Pa. 229, 230-31, 205 A.2d 865, 866 (1965), has held:
When a written contract is clear and unequivocal, its meaning must be determined by its contents alone. It speaks for itself and a meaning cannot be given to it other than that expressed. Where the intention of the parties is clear, there is no need to resort to extrinsic aids or evidence.
This is precisely the case at hand. The paving contract is precise and unambiguous and the only two parties who signed it are bound “by its contents alone.” Since the paving contract made no provision for third party acceptance of the work done or for payment from a third party, we conclude that the paving contract obligated Brady to pay the debtor $62,900.00 upon satisfactory completion of work performed within the time specified therein.
In addition, we are unable to conclude that the paving contract was in any way modified to change the result reached above. Brady testified, regarding the payment-within-5-days provision contained in paragraph six (6) of the paving contract, that he told the debtor’s president that “I can’t pay you in five days because I don’t have that kind of money. When I get paid you’ll get paid” (N.T. 10/26/81 at 32). Brady further testified that the debtor’s president replied “Fine. It’s a formality” (N.T. id.). While we are mindful that parties may modify a written contract which they previously have entered into by subsequent oral agreement,5 we can find no evidence of any modification of the paving contract involved herein other than the testimony of Brady recited above. This testimony, standing alone, does not constitute adequate proof that Brady and the debtor agreed to modify the five-day provision contained in paragraph six (6) of the paving contract.
As to Brady’s contention that the work done by the debtor was not, in fact, performed satisfactorily, we are unable to find any evidence in the record, beyond Brady’s allegations, which establishes that the paving project was not properly completed. To the contrary, the debtor introduced photographs of the work in question which show, to our satisfaction, that the paving was performed and completed in a workmanlike manner.6 In any event, we find it disposi-tive that Brady produced no photographic evidence of faulty workmanship or expert testimony establishing the same. In short, Brady adduced no credible evidence to contradict the debtor’s demonstration that the paving work was satisfactorily completed. To the contrary, Brady himself tendered a certified check for $40,000.00 to the debtor for the alleged “unsatisfactory work”.7
We next consider the debtor’s contention that it is owed a balance of $361.60 for the equipment rental. Brady testified that his check to the debtor for $3,683.63 represented payment in full under the oral equipment rental agreement (N.T. 10/26/81 at 34). The record establishes that Brady and the debtor did, in fact, modify the rental agreement to reflect a $200.00 credit given to Brady by the debtor for fuel supplied by Brady to run a rented bulldozer (N.T. 10/26/81 at 18). This modification is evidenced by an appropriate notation on the $3,683.63 check deducting the $200.00 from the amount owed for the bulldozer rental. Brady maintains that the rental agreement was also modified to evidence the cancellation of a $725.00 bill for the rental of a grader which had allegedly broken down. According to Brady, the debtor agreed not to charge Brady for the rental of the grader (N.T. 10/26/81 at 34). We conclude that no such modification occurred. To the contrary, the $3,683.63 check drafted by Brady plainly states that the cheek is being presented in payment for the bulldozer rental less $200.00 for fuel and for one-half *544the bill for the rental of the grader.8 If the parties had indeed agreed upon this additional modification, it follows that Brady would, as he did regarding the fuel adjustment for the bulldozer rental, have duly noted that payment was being made in full satisfaction under the equipment rental agreement and that the bill for the grader rental had been cancelled. This is especially true in light of the fact that the check was drafted after the paving project was completed and after any alleged compromise had been reached with regard to the rental of the grader. Consequently, we will also enter judgment in favor of the debtor in the amount of $361.60.
Brady additionally contends that DiAntonio was a necessary and essential party to this case and that he was substantially prejudiced because the hearing was held without DiAntonio being joined as a party thereto. In his answer, Brady asserted a “third party claim” against “additional defendant” DiAntonio. However, Brady did not make a formal motion, pursuant to Rule 719 of the Rules of Bankruptcy Procedure, to join DiAntonio. Nevertheless, Brady, in his answer, demands judgment in his favor on his “third party complaint” against DiAntonio. The record discloses that Brady did not file a third party complaint against DiAntonio. Notwithstanding Brady’s failure to join DiAntonio, the bankruptcy court has the power, pursuant to Rule 719(a), to order that DiAntonio be made a party if any of the reasons set forth in subsection (a) exist. Rule 719(a) provides:
(a) Persons to be Joined if Feasible. A person who is subject to service of process shall be joined as a party in the proceeding if (1) in his absence complete relief cannot be accorded among those already parties, or (2) he claims an interest relating to the subject of the proceeding and is so situated that the disposition of the proceeding in his absence may (i) as a practicál matter impair or impede his ability to protect that interest or (ii) leave any of the persons already parties subject to a substantial risk of incurring double, multiple, or otherwise inconsistent obligations by reason of his claimed interest. If he has not been so joined, the court shall order that he be made a party. If he should join as a plaintiff but refuses to do so, he may be made a defendant, or, in a proper case, an involuntary plaintiff.
See Rules of Bankruptcy Procedure. 11 U.S.C. Rule 719(a).
The instant proceeding involves a complaint filed by the debtor against Brady for breach of contract arising out of a fully integrated agreement signed only by the debtor and Brady and which makes no reference whatsoever to DiAntonio. In fact, joinder of DiAntonio would have been tantamount to the consideration of extrinsic evidence and this would, we believe, have been improper by reason of our holding that the meaning of the contract at hand was to be determined by its contents alone. The express terms of the paving contract make no provision for any third party involvement. And, in view of our determination that the project was satisfactorily completed, no basis exists whereby Brady could deny his contractual obligation to pay the debtor directly the balance due under the paving contract. Any claim that Brady may have against DiAntonio can not arise out of the paving agreement in question since Brady and DiAntonio simply did not expressly contract for an exchange of benefits and burdens thereunder nor can such a transfer be reasonably implied. Certainly, the non-joinder of DiAntonio has no bearing on the debtor’s claim against Brady for monies due under the equipment rental agreement.
In any event, Brady testified that he had, as of the date of the hearing in this matter, instituted a separate suit against DiAntonio in another forum (N.T. 10/20/81 at 46). Consequently, any claim that Brady may have against DiAntonio can and should be resolved in that forum. Our ruling today bears no impact on the rights and liabilities existing between Brady and DiAntonio under other agreements executed between themselves.
*545Finally, the debtor contends that it is entitled to recover damages on account of Brady’s delay in making the final payment due under the contract. In In re Slaw Constr. Corp. v. Abt., 14 B.R. 175 (Bkrtcy.E.D.Pa.1981), Judge Goldhaber held that:
Under Pennsylvania law, a party may be compensated for damages incurred by the failure of another to remit a specific sum of money due and owing under a contract.9 While some courts have held that the measure of damages in such a case is the prevailing market rate of interest at the time the money became due and owing,10 Pennsylvania courts provide that the measure of damages is determined by the legal rate of interest (i.e., 6%).11
14 Bankr. at 179.
Consequently, since we have held that the debtor was entitled to the final payment of $22,900.00 as of July 12, 1979, five (5) days after completion of the paving, Slaw is entitled to interest damages thereon for failure of Brady to remit that payment at the rate of 6% per annum. Similarly, Slaw is entitled to interest damages for failure of Brady to pay the $361.60 due and owing on the equipment rental. Since the date of the partial payment for the equipment rental was July 18, 1979,12 interest will accrue on the $361.60 from that date at the rate of 6% annually.
. This opinion constitutes the findings of fact and conclusions of law required by Rule 752 of the Rules of Bankruptcy Procedure.
. The record does not establish, nor does Brady so contend, that the debtor, under this arrangement, waived its contractual right to demand payment from Brady for the paving work performed. This is especially apparent in light of the fact that Brady did, in fact, subsequently tender a $40,000.00 check to the debtor in partial satisfaction of the debt owing under the paving contract.
. The $23,261.60 figure represents the balance due on the paving contract ($22,900.00) plus the $361.60 allegedly owed under the equipment rental agreement.
. See Exh. P-1.
. See Wagner v. Graziano Construction Co., 390 Pa. 445, 136 A.2d 82 (1957); Knight v. Gulf Refining Co. 311 Pa. 357, 166 A. 880 (1933).
. See Exhs. P-9(a), (b), (c), (d).
. See Exh. P-6.
. See Exh. P-5.
. See, e.g., Hussey Metals Div. v. Lectromelt Furnace Div., 417 F.Supp. 964 (W.D.Pa.1976); Formigli Corp. v. Fox, 348 F.Supp. 629 (E.D.Pa.1972); Aviation Associates v. The Dixon Co., Inc., 333 F.Supp. 982 (M.D.Pa.1971), and cases cited therein.
. See, e.g., Clarke Baridon Inc. v. Meritt-Chapman & Scott Corp., 311 F.2d 389, 399 (4th Cir.1962).
. See cases cited in note 9 supra.
.See Exh. P-5. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489541/ | OPINION
WILLIAM A. KING, Jr., Bankruptcy Judge.
This matter comes before the Court on the complaint of Girard Bank seeking relief from the automatic stay. The debtor filed an answer raising preliminary legal matters which must be decided prior to any determination concerning the termination of the stay. After discussion of these matters, the Court will set the matter for trial on the complaint.1
The case was set for hearing on December 14, 1982. At that time, the parties appeared and informed the Court that the case could be decided on briefs. Memoran-da of law were duly filed, however, the Court does not find the issues discussed therein to be fully dispositive of the case.
The complaint of Girard Bank requested the Court to grant relief from the automatic stay, consolidate two (2) bankruptcy proceedings, and to disallow the exemptions claimed by the debtor. These two (2) latter issues are not properly before the Court.
In an automatic stay proceeding, the Court must limit itself to a- narrow frame of inquiry. While no direct position on the matter is taken in section 362, other than by inference from the brief time periods of section 362(e), the legislative history is quite clear. The comment to section 3.62(e) states, in part:
At the expedited hearing under subsection (e), and at all hearings on relief from the stay, the only issue will be the claim of the creditor and the lack of adequate protection or existence of other cause for relief from the stay.
H.R.Rep. No. 95-595, 95th Cong., 1st Sess. 344 (1977); S.Rep. No. 95-989, 95th Cong., 2d Sess. 53, 55 (1978), U.S.Code Cong. & Admin.News 1978, pp. 5787, 5841, 6300.
On the basis of this authority, the Court will dismiss the complaint of Girard Bank insofar as it requests the Court to entertain objections to exemptions or to substantively consolidate the two (2) estates. These matters are not appropriately raised in an adversary proceeding; rather, an appropriate pleading should be filed in the bankruptcy case. The instant complaint is a separate and distinct proceeding which does not involve any aspect of the general administration of the case.
Now we turn to a discussion of such issues as are properly before the Court. No evidence or stipulation of facts has been presented to the Court to delineate these issues. The only legal issue raised in the memoranda of law filed by the parties concerns the validity of the mortgage held by Girard Bank. This issue will be addressed in the remainder of the Opinion. The trial on the complaint will be rescheduled to allow counsel to raise such further matters as they deem necessary and appropriate.
In the answer to the complaint, the debt- or admits that the mortgage was executed and recorded. The debtor, however, denies the validity of the mortgage. The acknowledgment on the mortgage is allegedly improper and, therefore, Girard should not be *575entitled to rely on this mortgage as granting a perfected security interest.
Although the debtor has raised an interesting argument, the Court finds that the debtor is estopped from raising this technical defect in the mortgage. The recording act only serves to protect third parties. Duff v. Patterson, 159 Pa. 312, 28 A. 250 (1896); Tate v. Clement, 176 Pa. 550, 35 A. 214 (1896); Davis v. Monroe, 187 Pa. 212, 41 A. 44 (1898). A mortgage is always enforceable against the makers, regardless of technical defenses which could be asserted by third parties. Girard Trust Co. v. Baird, 211 Pa. 41, 61 A. 507 (1905); In re Fortescue, 122 F.Supp. 883 (E.D.Pa.1954). Once the mortgagor has received the consideration for the granting of the mortgage, he is estopped from claiming that the acknowledgment is faulty. Adam v. Mengel, 8 A. 606 (Pa.1887); In re Hogan’s Estate, 181 Pa. 500, 37 A. 548, 549 (1897).
In conclusion, we find that Girard Bank holds a valid mortgage lien on the property located at 747 Bennington Street, Folcroft, Pennsylvania. Therefore, the Court will deny the debtor’s request to dismiss the complaint and set the matter for trial.
. This Opinion constitutes Findings of Fact and Conclusions of Law as required by Bankruptcy Rule 752 of the Rules of Bankruptcy Procedure. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489543/ | MEMORANDUM AND ORDER
ALAN H.W. SHIFF, Bankruptcy Judge.
This matter is before the court on the defendant’s motion for a new trial.
I.
On August 31, 1978, Herbert A. Bahre filed a petition for relief and was adjudicated a bankrupt under the Bankruptcy Act of 1898. On September 12, 1978, the plaintiff was approved as trustee of the bankrupt’s estate and on September 21, 1978, he instituted the above-captioned proceeding to set aside a transfer of real property from the bankrupt to the defendant on the basis that the transfer was for less than fair consideration and rendered the bankrupt insolvent. The matter was originally scheduled to be heard on November 1, 1978, and after a continuance was partially tried on April 10, 1979 before Judge Trevethan. Ultimately, however, the matter came on for a trial de novo, and on October 5,1982, judgment was entered in favor of the plaintiff. 23 B.R. 460. On October 15, 1982, the defendant filed a notice of appeal to the district court. Thereafter, on January 4,1983, the defendant filed the instant motion for a new trial pursuant to Rule 60(b)(2) of the Federal Rules of Civil Procedure.1
II.
A.
JURISDICTION
In In re Levensaler, the bankruptcy court for this district outlined the procedure to be followed when a Rule 60(b)(2) motion is made subsequent to an appeal to the district court. 13 B.R. 140 (Bkrtcy.Conn.1981). There the court, analogizing to the procedure involving the district court and court of appeals,2 concluded that “although [the bankruptcy] court lacks jurisdiction to grant [the Rule 60(b)(2)] motion prior to remand from the district court, it has jurisdiction, and is required, to make a preliminary finding as to whether or not it would grant such a motion upon remand.” Id. at 143.
B.
MERITS OF THE DEFENDANT’S MOTION
The Second Circuit Court of Appeals has recently stated that “in order to succeed on a motion pursuant to Rule 60(b)(2), the movant must present evidence that is ‘truly newly discovered or ... could not have been found by due diligence.’ ” United *611States v. Potamkin Cadillac Corporation, 697 F.2d 491, 493 (1983), quoting Westerly Electronics Corp. v. Walter Kidde & Co., 367 F.2d 269, 270 (2d Cir.1966).
Here the “newly discovered evidence” offered by the defendant consists of various documents and potential witnesses that would allegedly demonstrate that the bankrupt was not insolvent at the time of the ill-fated transfer. A review of the documents attached to the defendant’s and his attorney’s affidavits in support of the motion for new trial indicates that most of the “newly discovered evidence” was accumulated during October and November of 1982.
The defendant explained the late discovery of the information as follows:
“My efforts to unearth this information were extremely hampered by the fact that these events took place nearly seven years ago, and my father did not maintain any record of these transactions. Furthermore, since I reside in Maryland, it has proven to be very difficult for me to make any type of concentrated effort to investigate these facts.”3
These representations do not satisfy the defendant’s burden of proving that the evidence could not have been discovered with due diligence.
It should first be observed that while some of the events occurred nearly seven years ago, the trial in this matter was first scheduled for 1978 and actually tried in part in 1979. Thus, the defendant’s claim that it was difficult to discover relevant records seven years after the events only emphasizes that he did not begin his search for them in a diligent manner. Moreover, the information itself cannot be considered to have been hidden or for any other reason unavailable to the defendant. For example, the “newly discovered evidence” includes the following: information collected from the Canton town records, a letter from an attorney of the defendant’s father, and a check made payable to the defendant’s father apparently drawn by the defendant’s brother. There is no claim that the defendant’s father, who lived in Canton, Connecticut at the very property which is the subject of the instant litigation, would not or could not assist the defendant in his search for the evidence.
In sum, this is not a case in which key evidence was unavailable for reasons beyond the defendant’s control.
I next address the defendant’s contention that the interests of justice override any possible question of his lack of diligence. The defendant’s argument is based primarily on the authority of Ferrell v. Trailmobile, Inc., 223 F.2d 697 (5th Cir.1955).
As a general proposition, even newly discovered evidence which would probably produce a different result would not in and of itself justify a new trial under Rule 60(b)(2). Under those circumstances, the moving party must also show due diligence. See Champion Spark Plug Co. v. Gyromat Corp., 88 F.R.D. 526, 527 (D.Conn.1980), aff'd., 636 F.2d 907 (2d Cir.1981). However, the court in Ferrell v. Trailmobile, supra, recognized an exception to the due diligence requirement where the movant for a new trial produces “practically conclusive evidence.” In that regard the court stated: “In such a case, the needs of justice may require granting a new trial even though proper diligence was not used to secure the evidence for use at trial, [citations omitted]” Id. at 698. That exception to the due diligence requirement has not been expanded to cases in which the evidence is less than “practically conclusive.” Shook & Fletcher Insulation Company v. Central Rigging & Contracting Corporation, 684 F.2d 1383, 1385 n. 2 (11th Cir.1982); Neidland v. United States, 338 F.2d 254, 260 (3rd Cir.1964). Here, I do not find that the newly discovered evidence rises to the level necessary to supersede the due diligence required under Rule 60(b)(2).
I previously found that at the time of the subject transfer, the bankrupt’s liabilities exceeded his assets by approximately $30,-000. 23 B.R. at 464. The testimony of the *612defendant’s newly discovered witnesses would allegedly show that the bankrupt had received approximately $15,000 during the year of the transfer.4 Such testimony, even if credited in its entirety, would fall short of rebutting the plaintiff’s case. Another potential witness would apparently testify that during 1972, the bankrupt received $85,000 in settlement of three lawsuits.5 That testimony, again giving it full credit, cannot be considered as conclusively proving that the bankrupt had such funds in 1976, especially in light of the bankrupt’s acknowledged life-style.6
In view of the foregoing, the defendant’s motion for a new trial should be, and hereby is, denied.
. Fed.R.Civ.P. 60 provides in pertinent part:
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).
Fed.R.Civ.P. 60 is made applicable to bankruptcy cases by Bankruptcy Rule 924.
. See Ryan v. United States Lines Company, 303 F.2d 430 (2d Cir.1962).
. Affidavit of Herbert J. Bahre at ¶ 3.
. Affidavit of Ira B. Charmoy, Esq. at ¶ 8(a); Affidavit of Herbert J. Bahre at ¶ 8.
. Affidavit of Ira B. Charmoy at ¶ 8(c).
. See 23 B.R. at 463. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489544/ | DECISION
BURTON PERLMAN, Bankruptcy Judge.
Defendant in this case is a debtor who filed a personal Chapter 7 bankruptcy case. *696He was at that time a vice-president of W.D. Kuhlman, Inc. Kuhlman is in the business of selling heating and air conditioning equipment. Plaintiff in this adversary proceeding is a supplier of Kuhlman. Kuhlman is presently a Chapter 11 debtor in this Court. Plaintiff here sues defendant as guarantor of the debt of Kuhlman to plaintiff.
Defendant filed his bankruptcy case June 3,1980. Plaintiff in this case was not listed as his creditor in his bankruptcy schedule. He received his discharge on July 10, 1981, and his case was closed December 7, 1981. Thereafter plaintiff herein filed suit against defendant in the Hamilton County Municipal Court to recover the amount of the balance due plaintiff from Kuhlman, $7,824.50, which plaintiff says was guaranteed by defendant. Defendant then applied to reopen his case in this Court, and after notice to plaintiff, and hearing at which plaintiff made no appearance, we permitted the case to be reopened.- Defendant then removed the case to this court from the State Court. The case came on for a bench trial at the conclusion of which we reserved decision.
The complaint alleges that $1,100.00 has been paid towards said note, but no payments have been received after October 1, 1980. It alleges that the principal balance due is $6,159.53 with accumulated interest of $1,664.97, for a total of $7,824.50 recited in the prayer.
The chief piece of evidence in the case is promissory note dated June 17,1980 for the principal amount of $7,516.83 (PX-1). The maker of the note is W.D. Kuhlman Inc. At the bottom of the page the signature appearing is that of defendant along side an “X”. On the reverse side of the note at the top of the page is a provision that the undersigned “hereby guarantee the prompt payment of the within note at maturity”. The signature of defendant appears beneath that language. The balance of the reverse side of the note contains a payment schedule for the note. The only witnesses at the trial were defendant and Dennis Bryll, controller of plaintiff. Bryll entered the employ of plaintiff only subsequent to the events with which we are here concerned, and his only function was to present a verification of the balance due plaintiff on the note.
During his testimony, defendant stated that he received the note after he had filed his own bankruptcy. The circumstances surrounding the signing were that Ostrow-sky, the account manager of plaintiff, telephoned, stated that he was concerned about the account of Kuhlman and it was agreed that an arrangement such as that embodied in PX-1 would be entered into between the parties. Defendant said that he would sign a note as an officer of Kuhlman. Defendant testified that he scratched out “I/We” and “et al.” on the first line of the note in order to avoid any notion that he was undertaking a personal liability. He testified that after the conversation with the account manager, three notes were received in the mail. Two others which were not executed were intended for defendant’s signature and that of another officer of Kuhl-man. These were not signed because neither of them wanted to undertake any personal liability.
Defendant testified that Kuhlman had made purchases of plaintiff after the execution of the promissory note. He did not recall the terms of such further purchases, but he did indicate that at that time Kuhl-man was in financial difficulty and was on a cash basis with most suppliers.
The shape of the case is that by presenting the note and the current state of the account, plaintiff believes that it has made its case. Defendant argues in opposition, first, that there was a mutual mistake, in that defendant did not intend to undertake any personal liability and did not understand that he was doing so. Defendant testified that he had indicated this to personnel of plaintiff at the time, and it is a telling point that plaintiff has failed to present the testimony of the account manager who was the one with whom the defendant dealt on behalf of Kuhlman, to testify in person or by deposition to the contrary.
*697Defendant argues in the alternative that this note was a reaffirmation which, without the approval of the Court, cannot be given effect. Plaintiff dispositively counters this position by the observation that the note was not executed until after defendant filed his bankruptcy, so that no reaffirmation is involved. The question of consideration was discussed. On its face, it would appear that there was no consideration for the guarantee. Plaintiff maintains, however, that the benefit to Kuhlman of the forbearance to file suit by plaintiff against Kuhlman, that is the benefit to a third party, is sufficient consideration to support the undertaking by defendant.
While defendant contends that he is entitled to succeed because there was a mutual mistake of fact, this appears to be a mis-characterization of the situation. The evidence shows that plaintiff was interested in getting a personal guarantee from defendant, for, in addition to the instrument here in issue, PX-1, which defendant did sign, plaintiff also sent a separate instrument which would have directly and explicitly committed defendant personally. An inference which flows from this fact is that there was no mistake on plaintiffs part; it did desire defendant’s personal guarantee. It is equally clear that there was a mistake on the part of defendant when he signed the guarantee, a unilateral mistake, for he did not wish to undertake a personal guarantee. He destroyed the separate instrument which would have committed him personally. He struck through language in PX-1 which he thought could have been interpreted as binding him personally. He signed the personal guarantee on the reverse of the promissory note by mistake. We find this to be a fact. Everything that defendant testified to supports his position that he signed the guarantee without realizing that he was committing himself personally and contrary to that intention. We find his testimony to be credible, and there is no evidence to the contrary. We are, then, concerned with a unilateral mistake, and the question becomes whether and under what circumstances one may be entitled to relief for a unilateral mistake.
The general rule is that the contract of one who was mistaken as to a material fact is voidable if (1) it would be unconscionable to enforce the contract, or (2) the other party had reason to know of the mistake. Restatement 2d, Contracts, Section 153. 17 C.J.S. Section 143, Mistake of One Party Only, at p. 891. It would be unconscionable to enforce defendants guarantee notwithstanding his mistake in executing it, because there was no indication that plaintiff required his guarantee in order to continue to do business with his company, coupled with the fact that defendant at the relevant time was himself in a personal bankruptcy, the object of which was to relieve him of his personal obligations and give him a fresh start. The alternative basis for relief from the consequences of a unilateral mistake, that the other party knew of the mistake, is also true here. Defendant testified that prior to the sending of the promissory note by plaintiff to Kuhlman, defendant had discussed matters with Ostrowsky, an agent of plaintiff, and had made it clear that he was agreeable, but only in his role as a corporate officer, to the arrangement contained in the note which he signed. Further tipping the equities in favor of defendant is the fact that there is no evidence whatever that plaintiff did anything in reliance upon the guarantee signed by defendant, and reliance is a factor which has been recognized as being of significance in this context. 38 Am.Jur.2d 1059.
Because we find the foregoing grounds sufficient to decide the case, we do not reach the question of consideration. We find the issues in favor of defendant and will dismiss the complaint.
The foregoing constitutes our findings of fact and conclusions of law. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489545/ | DECLARATORY DECISION
CHARLES A. ANDERSON, Bankruptcy Judge.
PRELIMINARY PROCEDURE
These adversarial matters were combined for disposition upon request of attorneys for the parties.
At the pretrial conference, the facts were stipulated and the trial dates cancelled. Briefs were submitted in both proceedings prior to the entry on January 10, 1983, of the following order, to-wit:
This matter is an action by the Trustee for money judgment. The controversy involves application of a penalty provision' under state law. The matter was submitted prior to expiration of the United States Supreme Court’s stay of its opin*732ion in Northern Pipeline Construction Co. v. Marathon Pipe Line Co., - U.S. -, 102 S.Ct. 2858, 73 L.Ed.2d 598 (1982), (hereinafter Northern Pipeline), and is presently pending for final judgment.
The proceeding is now before the Court sua sponte as required by law for review of this Court’s jurisdiction in light of the Northern Pipeline decision. As elaborated in this Court’s opinion in The Schear Realty and Investment Co., Inc., 25 B.R. 463 (Bkrtcy.1982), the Court’s jurisdiction over this type of litigation is uncertain.
To avoid undue prejudice to the litigants by further delay, the Court hereby informs the litigants that, subject to further order of the Court, no decision will be rendered in this case until Congress enacts remedial legislation as necessitated by the Northern Pipeline decision. The Court, however, will proceed to decision if the parties either, to the extent permitted by the Constitution, waive, by stipulation, all jurisdictional questions under Northern Pipeline or the Order of the Judicial Council for the Sixth Circuit and the Order of the District Court of the Southern District of Ohio pursuant thereto, or move to dismiss on the basis of a lack of jurisdiction for a determination by the Bankruptcy Court.
Subsequently, the following stipulation was filed in behalf of the litigants, to-wit:
In response to this Court’s order entered January 10,1983 the parties herein waive all jurisdictional questions arising out of the Northern Pipeline case, Order for the Judicial Court Council for the Sixth Circuit and Order for the District Court of the Southern District of Ohio and hereby consent to this Court proceeding to decision on the matter submitted for decision previously.
FACTS
The operative facts in each case are fairly identical, except as to dates of the various transactions (which will be omitted herein), as follows:
The Debtors executed and delivered to Defendant Society National Bank of the Miami Valley, successor by merger to The Springfield Bank (“Society” herein), their promissory notes.
To secure the notes Debtors executed and delivered to Defendant Society installment loan disclosure statements and security agreements, granting Defendant Society a security interest in motor vehicles.
The Debtors defaulted in payment of the promissory notes according to their terms.
As a result of the defaults Defendant Society repossessed the motor vehicles.
Defendant Society mailed a notice of repossession and sale to Debtors by certified mail, which were received.
Notice of Defendant Society’s sale of the motor vehicles was published in the Springfield Daily News, a paper of general circulation in Springfield and Clark County, Ohio. The publication, however, was less than ten days before the sale.
The repossessed automobiles were sold at public auction.
Defendant Society then mailed to Debtors the deficiency letters.
John R. Butz, is the duly acting Trustee in both cases having been appointed on March 19,1982 in Clark and May 21,1982 in Latham.
DECISION
The facts present the question as to whether or not Defendant was required to comply with Ohio Revised Code § 1317.16 in disposing of its collateral taken by nonjudicial repossession. The Trustee urges that Defendant was thereby required to publish, “at least ten days prior to the sale, a notice of such sale listing the items to be sold, in a newspaper of general circulation in the county where the sale is to be held.” The Trustee relies primarily on a previous decision by this Court in Warren, Trustee v. The Springfield Bank (In the Matter of Bryan) (1976) 2 B.C.D. 959, 1 B.R.W. 752. He argues, as follows:
*733In that case this Court analyzed the inner relationship between O.R.C. § 1309.47 and O.R.C. § 1317.16. In that case involving the repossession sale of a mobile home the Court concluded that a public sale of the mobile home as seemingly would have been required by O.R.C. § 1317.16 was not required because of the provisions of O.R.C. § 1317.01(P) which is a definition section and which specifically defined “a consumer transaction.” At the time the definitional section specifically excluded the sale of motor vehicles and mobile homes from its definition of consumer transactions and for that reason the Court concluded that the requirements of O.R.C. § 1317.16 were not applicable. However, in 1977 the definition section, O.R.C. § 1317.01(P) defining consumer transaction was amended and the exceptions previously mentioned were deleted. Following the Court’s rational in the above mentioned case, there seems to be no question that now a ten day notice in a paper of general circulation is a requirement of a secured party in disposition of collateral after default when the collateral is a motor vehicle such as in the case at hand.
O.R.C. § 1309.50 provides that if a secured party does not proceed in accordance with O.R.C. § 1309.44 to 1309.55 inclusive, “the debtor has a right to recover in any event an amount not less than the credit service charge plus ten percent of the principal amount of the debtor or the time price differential plus ten percent of the cash price.” In the within matter the defendant clearly did not comply with O.R.C. § 1309.47 as it incorporates O.R.C. § 1317.16 and therefore, the trustee is entitled to recover a sum computed in accordance with the formula set out in O.R.C. § 1309.50.
In behalf of Defendant it is countered that, “Plaintiffs’ reliance on this Court’s prior decision ... is misplaced. This Court never reached a conclusion as to whether Ohio Revised Code Chapter 1317 applied to the case under review. Rather, the Court came to its decision by applying the standards of Sections 1309.47 and 1309.50, Ohio Revised Code, to the facts of the case.”
Defendant’s argument is elaborated, as follows:
“1. The provisions of Chapter 1317, Ohio Revised Code, do not apply to the sale of the repossessed collateral in this action because Defendant Society National Bank of the Miami Valley (hereinafter referred to as ‘Society’) is not a retail seller as defined in Sections 1317.01(H) and 1317.01(1), Ohio Revised Code.
Section 1317.16(A) provided as follows:
A secured party whose security interest is taken pursuant to Section 1317.071 (1317.07.1) of the Revised Code may, after default, dispose of any or all of the collateral only as authorized by this section.
Section 3117.01.1 provides in part, as follows:
No retail seller, in connection with a retail installment contract arising out of a consumer transaction, shall take any security interest other than as authorized by this section.
‘Retail seller’ is defined in Section 1317.-01(1), Ohio Revised Code, as a ‘seller who is a party to a retail installment sale.’ ‘Seller’ is defined in Section 1317.01(H), Ohio Revised Code, as a ‘person who sells or agrees to sell goods.’ (Emphasis supplied.)
Thus, the standards of Section 1317.16 regarding disposition of collateral apply only to secured parties who are sellers in a retail installment sale. This Court has before it no fact showing that Society was a retail seller. In fact, the cars were purchased from third party car dealers, and Society merely financed the purchasers. Society did not participate in the dealings between the sellers and purchasers of the automobiles. Since, by definition, Chapter 1317 does not apply to Society as a secured creditor in these cases, Society’s disposition of the repossessed collateral is governed only by section 1309.47, Ohio Revised Code.
2. The repossession sales were conducted by Society in a commercially rea*734sonable manner as required by Section 1309.47, Ohio Revised Code. The stipulated facts prove that the sale was public and that all required notices were sent to and received by the debtors. The only issue of commercial reasonableness raised by Plaintiff’s Complaints involves the manner used by Society in advertising the public sale of the repossessed collateral.
Section 1309.47(C), Ohio Revised Code, which is UCC Section 9-504 as adopted by the State of Ohio, provides as follows:
(C) Disposition of the collateral may be by public or private proceedings and may be made by way of one or more contracts. Sale or other disposition may be as a unit or in parcels and at any time and place and on any terms but every aspect of the disposition including the method, manner, time, place, and terms must be commercially reasonable. Unless collateral is perishable or threatens to decline speedily in value or is of a type customarily sold on a recognized market, reasonable notification of the time and place of any public sale or reasonable notification of the time after which any private sale or other intended disposition is to be made shall be sent by the secured party to the debtor if he has not signed after default a statement renouncing or modifying his right to notification of sale. In the case of consumer goods no other notification need be sent. In other cases, notification shall be sent to any other secured party from whom the secured party has received, before sending his notification to the debtor or before the debtor’s renunciation of his rights, written notice of a claim of an interest in the collateral. The secured party may buy at any public sale and if the collateral is of a type customarily sold in a recognized market or is of a type which is the subject of widely distributed standard price quotations he may buy at private sale.
Although actions taken by a secured party to publicize an intended sale of repossessed collateral have been recognized as important factors to be considered along with other circumstances of the particular case in determining whether all aspects of the sale were commercially reasonable, no Ohio court has defined specifically how much notice of the sale must be given to the public. That a secured party sufficiently asvertised the sale of repossessed trucks to the public was considered by the Court, together with other circumstances, in reaching its conclusion that the secured party had complied with the commercial reasonableness standard of Section 1309.47(C) in disposing of the trucks. Liberty Bank v. Greiner (1978), 62 Ohio App.2d 125, 16 O Ops 3rd 291, 405 NE2d 317.
Other jurisdictions have considered the issue of sufficient advertisement more specifically in interpreting UCC Section 9-504. In Fedders Corp. v. Taylor (1979, DC Minn), 473 F.Supp. 961, the Court held that the secured party had acted in a commercially reasonable manner, as required by UCC Section 9-504, in disposing of collateral where the secured party-published notices of public sales in newspapers at various times during the week preceding each sale. The Court noted that publication of a notice in newspapers has frequently been approved as a proper method of providing public notice of a repossession sale. In Credit Alliance Corp. v. David O. Crump Sand & Fill Co. (1978, SDNY), 470 F.Supp. 489, a secured creditor who advertised its intended public sale of repossessed dump trucks in newspapers three days preceding the sale was held to have complied with the commercially reasonable standard of UCC Section 9-504.
Plaintiff has presented no evidence to show that any third party was prevented from bidding on the collateral because of lack of notice of the sale, that the price received for the repossessed collateral was inadequate, that the time and place of sale were unreasonable, or that the auction sale was conducted in an unlawful manner. The facts show that Society conducted the repossession sales in a commercially reasonable manner.”
*735A transaction, although subject to provisions of the Uniform Commercial Code Article 9 as adopted in Ohio, is also subject to the Ohio Retail Installment Sales Act O.R.C. §§ 1317.01-1317.99, and in the case of conflict, the provisions of the latter control. Ohio Revised Code § 1309.14(D) (UCC 9-203).
As articulated by the Trustee, the rationale of the decision by this Court in the Bryan case would now apply to motor vehicles because the definition of “a consumer transaction” under Revised Code § 1317.-01(P) was amended in 1977 to delete the exception of motor vehicles and mobile homes.
Nevertheless, this Court is constrained to concur with the proposition that the decision in Bryan does not apply under all circumstances. Although the decision of the Ohio Court of Appeals for Auglaize County in First National Bank v. Turner, (1981) 1 O.B.R. 463, 1 Ohio App.3d 152, 439 N.E.2d 1259 is not binding in a federal court, we find the ratio decidendi persuasive in part.
If the Defendant Bank had merely acted in a lending capacity, the provisions of Revised Code Chapter 1317: Retail Installment Sales would not be applicable. That is, there is a proper distinction to be drawn between “lenders” and “retail sellers.” The proviso of § 1309.47(F) (added to UCC 9-504) that “This section is subject to the limitations of Section 1317.16 of the Revised Code,” should not be applied to repossession sales by lending institutions per se and repossession sales would be governed by § 1309.47 (UCC 9-504).
In these instant cases, however, the Defendant was not merely a “lender.” it is noted that it was also assignee or successor in interest of the automobile sales agencies contracts. In fact, the Defendant is a party to the original agreement which covenants that, “1. The Debtor will pay to the order of The Springfield Bank ... the indebtedness evidenced by the Instalment Loan Note attached thereto, herein called the ‘Note,’ to-wit.... ” The agreement also recited that the extension of credit had been arranged directly between’ the dealers and the Defendant Bank.
Further, even though not controlling, it must be noted that the sales agreement (Installment Loan Disclosure Statement and Security Agreement) expressly covenants that, “Any holder of this consumer credit contract is subject to all claims and defenses which the debtor could assert against the seller of goods or services obtained pursuant hereto or with the proceeds hereof. Recovery hereunder by the Debtor shall not exceed amounts paid by the Debtor hereunder.”
This Court is constrained to believe that the protective aspects adopted by the Ohio General Assembly for “consumer transactions” cannot be avoided as to any party to the sales agreement by the fiction of an immediate assignment of the agreement to a “lender,” which is in privity of contract. Hence, it is concluded on the facts that the Defendant Bank is more than a mere “lender.” The Bank as assignee of a sellers’ contracts would either have the option of enabling the dealer as seller to sell conform-ably to Ohio Revised Code §§ 1309.47 and 1317.16 or to comply itself as a party to the original agreement. Any other rationale would emasculate the intent and purpose of the Ohio Retail Sales Act as it is implemented in the ordinary course of business and the realities of the market place.
Having declared the decision of this Court, however, we are constrained to repeat a truism from Norton Bankruptcy Law and Practice, The Aftermath of Northern Pipeline: Bankruptcy Jurisdiction Under Local Court Rule (1983), at pages 58-59, as follows:
Without jurisdiction — the power to speak the law — courts can do little more than make benign pronouncements. Jurisdiction of a federal court must be derived from an Act of Congress, except for those rare cases in which the Constitution itself confers jurisdiction. This principle is so strong that a federal court is presumed to be without jurisdiction unless its existence affirmatively appears.
Waiver, consent, estoppel, passage of time and other similar equitable consider*736ations generally are unavailing as a source of federal judicial power to act. Further, a lack of subject matter jurisdiction may be raised at any time, even after a party’s appearance and participation or on appeal, subject, however, to the principles of res judicata that may bar renewal of a jurisdictional challenge after jurisdiction has been adjudicated and upheld. [citation omitted]
Neither the “model” Rule, nor the emergency that it attempts to address, can by itself create judicial power. The exercise of such power would be tantamount to judicial legislation. That rule belongs to Congress. The Rule cannot do more than supply a procedure to facilitate the exercise of jurisdiction otherwise validly granted and existing. But the Rule does much more. It creates bankruptcy jurisdiction and divides it between two courts, the bankruptcy and district courts. It regulates the manner in which such jurisdiction is to be exercised after categorizing and allocating the various bankruptcy and non-bankruptcy claims for relief upon which those courts are to be pronounced judgment. It is judicial legislation.
A judgment entry journalizing the decision herein will be held under advisement pending resolution of the jurisdictional questions pertaining to Bankruptcy Court judgments until the Congress by legislation confers jurisdiction on the Bankruptcy Courts which can bear constitutional muster. If the litigants herein can reach a satisfactory settlement agreement in the interim based upon the ratio decidendi herein, such agreement should be reduced to writing and submitted to the Court for filing in the adversarial files. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489546/ | OPINION
WILLIAM A. KING, Jr., Bankruptcy Judge.
This case comes before the Court on a complaint to determine the dischargeability of a debt. The Plaintiffs claim that the debtors were guilty of defalcations while acting in a fiduciary capacity and, therefore, the debt should not be discharged. After trial held and upon submission of briefs by counsel, the Court finds that this debt should be discharged in bankruptcy.1
The source of the instant controversy is an agreement of sale executed by the parties on February 17, 1976. At that time, John D. Keown was the head of Gesko Homes, Ltd. which was in the business of residential home construction. The Williams approached him concerning the construction of a home in a subdivision he was developing. After choosing the style of home desired, the Williams signed an agreement of sale prepared by Mr. Keown. At the signing of the agreement, the plaintiffs placed a deposit of $4,670.00 with Mr. Keown. Subsequent to the execution of the agreement, Mr. Williams was offered a position in Washington, D.C. This new position required the Williams to move to the Washington area and, therefore, they sought to be released from the agreement of sale.
The Williams contacted an attorney, D. Laurence Rubini, Esquire, who had correspondence with Mr. Keown relating to return of the deposit money. According to the testimony of Mr. Rubini, Mr. Keown orally agreed to release the debtors’ deposit. The funds, however, were never returned to the Williams.
Subsequent to proceedings in State Court, the Keowns filed for relief under the Bankruptcy Code. After an unsuccessful attempt at reorganizing their finances, the Keowns converted their case to a straight *951bankruptcy proceeding under Chapter 7 of the Bankruptcy Code. The Williams subsequently filed the instant complaint to determine dischargeability of the debt. The rights of the parties in the instant case stem from the agreement of February 17, 1976.2 A careful examination of this document must be made before any determination of dischargeability can be rendered by the Court. A review of said agreement unveils a significant provision.
In paragraph 8 of the agreement, it was agreed that:
8. Deposits or hand monies shall be paid to agent for Seller, who shall retain the same until consummation or termination of this agreement in conformity with the Real Estate Brokers License Act of 1929, as amended, and Regulations thereto or hereafter published by the State Real Estate Commission.3
The plaintiffs argue that this provision imposes a fiduciary obligation on the Keowns. The Real Estate Brokers License Act of 1929 requires brokers to hold funds in a trust fund account and to be accountable for said funds at the consummation or termination of a real estate transaction. 63 Pa.Stat.Ann. § 440 (Purdon). The Williams argue that the Keowns misused funds which were to be held in escrow. The funds were never returned to the Williams and, therefore, the fiduciaries have defaulted on their obligation. See, 11 U.S.C. § 523(a)(4).
Initially, the Court will dismiss the complaint insofar as it seeks to bar the discharge of this debt as to Mrs. Keown. At the trial, counsel for the defendants moved for summary judgment on her behalf.4 Counsel for the plaintiff agreed that the complaint should be dismissed as to Mrs. Keown.5
The Court will now turn to determining the liability of Mr. Keown. There is no dispute that Mr. Keown did not place these funds in an escrow account. The Williams’ deposit money was placed in the general account for Gesko Homes.6 Mr. Keown probably felt this to be sound practice. He signed the agreement and was, in fact, the president of Gesko Homes. In addition, Mr. Keown was acting on the advice of counsel.7 Neither is there any dispute that the money was never returned to the Williams. Gesko Homes filed a petition for relief under Chapter XI of the Bankruptcy Act of 1898 in mid-1976. The attempted arrangement was unsuccessful and the case was eventually dismissed.8
Subsequent to the dissolution of Gesko Homes, the Williams brought action against Mr. Keown individually. After proceedings of both civil and a criminal nature in the Court of Common Pleas for Bucks County, the Keowns executed a promissory note and repayment agreement in settlement of the matter in July of 1979.9
Although the agreement of sale requires Mr. Keown to hold the deposit in an escrow account, the Court questions whether the plaintiffs are entitled to assert that they are the beneficiaries of such a trust. In paragraph 11 the agreement provides:
11. The said time for settlement and all other times referred to for the performance of any of the obligations of this agreement are hereby agreed to be of the essence of this agreement. Should the Buyer fail to make any additional payments as specified in paragraph # 3, or violate or fail to fulfill and perform any of the terms or conditions of this agreement, then and in that case all deposits and other sums paid by the Buyer on account of the purchase price, whether required by this agreement or not, shall be retained by the Seller, either on *952account of the purchase price, or as liquidated damages for such breach, as the Seller may elect, and in the latter event, the Seller shall be released from all liability or obligation and this agreement shall become null and void and all copies will be returned to Seller’s agent for cancellation.
There is no relevant clause in the agreement providing for the release of the funds to the buyer in event of default.
A review of the agreement reveals that the Williams did not comply with the provision requiring them to obtain mortgage financing within a fixed period of time. Indeed, the Williams never applied for a mortgage on this property,10 nor did the Williams ever consummate the sale. In April of 1976, the Williams moved to the Washington, D.C. area.11
The defendant asserts that the Williams defaulted on the agreement and that therefore, the deposit should be forfeited in accordance with paragraph 11 of the contract and any further liability of Mr. Keown should be extinguished.
As an additional defense, the defendant alleges that the purported release obtained by Mr. Rubini cannot be asserted through operation of the Statute of Frauds. This is an interesting and meritorious argument. As a general proposition, the Statute of Frauds requires a contract for the sale of real estate to be in writing. Simon v. Beeck, 300 Pa. 384, 150 A. 640 (1930); Wally v. Wally, 286 Pa. 413, 133 A. 627 (1926). Contracts required by a Statute of Frauds to be in writing may not be modified by parol. Brown v. Aiken, 329 Pa. 566, 198 A. 441 (1938); Edelstein v. Carole House Apts., 220 Pa.Super. 298, 286 A.2d 658 (1971).
The defendant also asserts that the Real Estate Brokers License Act of 1929 does not impose civil liability upon him.12 The only sanctions available under the Statute are fines or actions against the broker’s license by the Pennsylvania State Real Estate Commission.13 No provision of this Act specifically imposes personal liability on the individual.
On the other hand, the Act does prescribe a course of conduct for real estate brokers. As such, a blatant violation of its provisions may be sufficient grounds for objecting to a discharge in bankruptcy. In re Sherman, 24 B.R. 507 (Bkrtcy.E.D.Pa.1982). The Act requires deposits paid to real estate developers to be held in escrow. 63 Pa.Stat.Ann. § 436c(d). The Williams’ deposit was never placed in an escrow account.14 Therefore, we can only conclude that the Act has been violated.
If the Williams were entitled to the return of their deposit, the Court would consider excepting this debt from discharge. The plaintiffs, however, have not convinced this Court that Mr. Keown is liable for these monies. There is a substantial question in our mind as to whether the Williams have defaulted under the agreement. Furthermore, the Statute of Frauds places the viability of the purported release in issue.
The debt of the Keowns to the plaintiffs, however, does not arise solely on the contract. Subsequent to the failure of the agreement, both civil and criminal proceedings were instituted in the Court of Common Pleas for Bucks County. The upshot of these cases was that John and Kate Keown executed a promissory note15 and a repayment agreement16 in favor of the Williams in July of 1979. This note and agreement were executed in settlement of the pending state court litigation. The plaintiff, however, has produced neither allegation nor proof that these documents were *953executed with any fraudulent intent.17 Indeed, the testimony of all parties was that the Keowns were unable to meet their obligations as evidenced by the filing for relief under Title 11. This Court, therefore, concludes that neither the note or the repayment agreement were executed with fraudulent intent.
An Order will be entered denying the complaint to determine nondischargeability of the debt.
. This Opinion constitutes Findings of Fact and Conclusions of Law as required by Bankruptcy Rule 752 of the Rules of Bankruptcy Procedure.
. Exhibit P-1.
. Id.
. Notes of Testimony, page 93.
. Notes of Testimony, page 94.
. Notes of Testimony, page 104.
. Id.
. Notes of Testimony, page 123.
. Exhibit, P-8 and D-3.
. Notes of Testimony, page 16.
. Notes of Testimony, page 17.
. 63 Pa.Stat.Ann. 431 et seq. (Purdon) Trott v. Hild, 190 Pa.Super. 85, 151 A.2d 832 (1959).
.Id.
. Notes of Testimony, page 104.
. Exhibit P-8 and D-3.
. Exhibit P-7.
. Paragraph 9 of the Complaint. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489547/ | OPINION
WILLIAM A. KING, Jr., Bankruptcy Judge.
This case reaches the Court on a complaint by the Internal Revenue Service (I.R.S.) for relief from the automatic stay imposed by § 362 of the Bankruptcy Code. The Debtors have filed a motion to dismiss the complaint which will be granted.1
In April of 1980, the I.R.S. levied upon two (2) pieces of real property owned by the Debtors located in Cherry Hill and Wild-wood, New Jersey.
These properties were scheduled for tax sale on November 10, 1981, however, the filing of the instant petition for relief under Chapter 11 of the Bankruptcy Code stayed the sale. The I.R.S. alleges that a total of $82,375.67 is due from the Debtors. It is *964the position of the I.R.S. that the pre-petition seizure of the Debtors’ property in and of itself, constitutes grounds for relief from the stay on the basis that such property is no longer property of the Debtors’ estate under § 541 of the Code. The Debtors, on the other hand, contend that the complaint fails to state a cause of action upon which relief can be granted under § 362(d) of the Code. The Debtors rely on the Opinion of the Second Circuit of Appeals in U.S. v. Whiting Pools, Inc., 674 F.2d 144, 8 B.C.D. 1138 (2d Cir.1982), wherein the Court of Appeals held that property subject to an I.R.S. levy is property of the estate so long as the property has not been actually sold.
For the reasons set forth herein, this Court will grant the Debtors’ motion to dismiss the complaint. Aside from the Whiting Pools case, the only other circuit court to address the issue presented by this case has been the Fourth Circuit Court of Appeals. In re Cross Electric Company, Inc., 664 F.2d 1218 (4th Cir.1981). In Cross, the I.R.S. levied upon an account receivable of the debtor prior to the date on which the tax payer filed a petition for reorganization under the Bankruptcy Code. The Bankruptcy Court, over the objection of the I.R.S., issued an order “dissolving” the tax levy and directing the holder of the account receivable to turn over the funds to the debtor in possession. Although the district court affirmed the order of the bankruptcy court, the Court of Appeals reversed. The Fourth Circuit recognized that §§ 541 and 542 of the Code require all property of the debtor, wherever located, to be delivered to the trustee. The question addressed by the court was whether the accounts subject to the levy were subject to this turn over requirement. In simpler terms, the issue is whether the debtor retained any legal or equitable interest in the accounts once levy had been duly made. The court found that although the debtor retained the right to redeem the property after the levy, this right was contingent upon payment of the amount of the levy plus costs. The court also noted that there was minimal likelihood that any surplus would remain after satisfaction of the claim of the I.R.S. The court concluded, therefore, that:
Since it is thus plain that the trustee is in no position to exercise any of the limited rights it may have to redeem the property levied upon there was no authority in the bankruptcy court to “dissolve” the I.R.S. levy or to order the delivery of the account levied upon by the I.R.S. to the trustee and the government is entitled to collect the account pursuant to its levy.
Cross, at p. 1221.
In addressing a similar factual situation, however, the Court of Appeals for the Second Circuit reached a contrary result. In Whiting Pools, supra, the debtor in possession appealed from an order of the District Court for the Western District of New York denying the debtor’s motion to require the I.R.S. to turn over property seized pursuant to a levy for unpaid withholding and F.I.C.A. taxes. The Circuit Court reversed the District Court; holding that an I.R.S. levy on property in which the debtor has equity does not divest the debtor of all property interests by transferring title to the government.
In the instant case, the record contains no evidence as to the value of the properties seized by the I.R.S. The burden of proof on the issue of the debtors’ equity in the properties, or lack thereof, must be borne by the party seeking relief from the stay. 11 U.S.C. § 362(g)(2). Because the I.R.S. has not met this burden, the Court must assume that the debtors do have equity in the properties subject to the levy. Therefore, this case is analogous to the factual situation in Whiting Pools and distinguishable from the Cross Electric case.
In its brief, the I.R.S. argues that the case sub judice is distinguishable from Whiting Pools, on the basis that in Whiting Pools, the I.R.S. seized all of the debtor’s equipment, vehicles, inventory and supplies. In the instant case, the I.R.S. levied upon a beach house and a residence only. The theory of the I.R.S. is that the property *965subject to the levy in Whiting Pools was necessary for an effective reorganization, while the property subject to the levy in this case is not necessary for reorganization. Although the argument is facially attractive, no such requirement is present in §§ 541 and 542 of the Bankruptcy Code. Section 541 provides for the creation of an estate comprised of “... all legal or equitable interests of the debtor in property.” 11 U.S.C. § 541(a)(1). This provision does not distinguish between property necessary for reorganization and that which is unnecessary for effective reorganization.
The next argument advanced by the I.R.S. is more thought provoking. As stated above, § 541 defines property of the estate as all legal or equitable interests of the debtor in property, not all property in which the debtor has an interest. The I.R.S., therefore, asserts that the debtor cannot acquire greater rights in the property than that which existed prior to the filing of the petition. Because the debtors’ interests were limited to the right to redeem the properties upon full payment of taxes, to receive notice of the sale, and to receive any surplus proceeds, the I.R.S. argues that these are the only rights that should pass to the estate. This Court recognizes that many other courts have found this reasoning persuasive. See e.g. In re Avery Health Center, Inc., 8 B.R. 1016 (D.C.W.D.N.Y.1981); Parker GMC Truck Sales, Inc. v. United States, 12 B.R. 667, 6 B.C.D. 899 (Bkrtcy.S.D.Ind.1980); In re Winfrey Structural Concrete Co. v. I.R.S., 5 B.R. 389, 6 B.C.D. 695 (Bkrtcy.D.Colo.1980).
However, many other courts have taken the contrary view expressed by the Court in Whiting Pools. See, e.g., Matter of Aurora Cord and Cable Co., 2 B.R. 342 (Bkrtcy.N.D.Ill.1980); In re Alpa Corp., 11 B.R. 281, 7 B.C.D. 791 (Bkrtcy.D.Utah 1981); Matter of Bristol Convalescent Home, Inc., 12 B.R. 448, 7 B.C.D. 1151 (Bkrtcy.D.Conn., 1981); Troy Indus., Catering Service v. State of Michigan, 2 B.R. 521 (Bkrtcy.E.D.Mich.1980).
This Court has previously ruled upon a similar issue in the case of In re Barsky, 6 B.R. 1216 (Bkrtcy.E.D.Pa.1980). In Barsky, this Court Ordered the Commonwealth of Pennsylvania to turn over to the estate all property which had been seized pursuant to a tax levy prior to the filing of the bankruptcy petition. This Court relied on the Aurora and Troy Opinions. These cases rejected any analysis which examined whether any party had a greater interest in the property. As we stated in Barsky:
The taxing authority is an attaching lien creditor in constructive possession of the property. The debtors, however, have not lost their interest in the property.
Id, at 1218.
Therefore, we will follow our ruling in Barsky which is consistant with the Opinion of the Second Circuit Court of Appeals in Whiting Pools. We hold that the pre-petition levy by the I.R.S. or any taxing authority is insufficient in and of itself to divest the estate of all interests in the property.
In its brief, the I.R.S. asks the Court to impose an adequate protection requirement in the event this Court should decide the aforementioned issue in a matter adverse to the I.R.S. We note, however, that this relief is not appropriate. The I.R.S. did not raise the issue of adequate protection in the complaint. Any question of lack of adequate protection is, therefore, not properly before the Court. An Order will be entered dismissing the complaint.
. This Opinion constitutes the findings of fact and conclusions of law in accordance with Bankruptcy Rule 752. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489551/ | CONVERSION ORDER
THOMAS C. BRITTON, Bankruptcy Judge.
A creditor’s motion to convert this chapter 11 case to chapter 7 together with the debtor’s motion for voluntary dismissal, were heard on March 29. A trustee had been appointed after the motions, but two weeks before the hearing.
The debtor argues that a case should be dismissed where the creditors will have speedy and adequate relief in the state court. Matter of Oak Winds, Bkrtcy.M.D. Fla.1980, 4 B.R. 528, 531. I do not disagree. However, that is not the situation here.
The debtor operated a restaurant. He obtained the benefit of the automatic stay on October 12, 1982, forestalling the landlord’s eviction proceeding. Rent continues to accrue. Taxes and insurance have gone unpaid. There is not the slightest prospect of rehabilitation. The debtor has remained in possession, because the landlord was slow to react, until the landlord moved for a trustee on March 3.
If the case is dismissed, the trustee will be eliminated. The debtor will regain possession. More bills will accrue. This will continue for three months, because it will take the landlord that long to get a hearing before the state court judge. In the meantime, the debtor can continue to operate at the expense of his creditors.
If the case is converted, the trustee will close the operation at once.
In this instance, as is frequently the case, the state court remedy is neither speedy nor adequate. The landlord, whose state remedy was interrupted by the automatic stay, ought not now be denied the prompt remedy available here. The bankruptcy code is not designed solely for the benefit of debtors.
The case is converted to chapter 7. Daniel Bakst, remains as trustee. Bond is waived. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489552/ | ORDER ON MOTION TO STAY PROCEEDINGS AND MOTION TO DISMISS
ALEXANDER L. PASKAY, Bankruptcy Judge.
THE MATTERS under consideration are raised by a Complaint filed by the University State Bank (the Bank) which seeks relief from the automatic stay imposed by § 362 of the Bankruptcy Code. The Complaint is filed in a Chapter 11 case in which the Bank seeks relief from the automatic stay in order to be authorized to proceed to enforce through foreclosure action its alleged mortgage lien against properties owned by William 0. Davenport, Jr., the Debtor, who now seeks relief under Chapter 11 of the Bankruptcy Code.
The claims for relief of the Bank set forth in Count I, II and III relate to the right of the Bank to enforce certain mortgage liens allegedly encumbering real properties owned by the Debtor. The claim for relief set forth in Count IV relates to certain corporate stock in a corporation known as Key Energy (a non-debtor) which stock is owned by the Debtor which, according to the Bank, was pledged as additional collateral by the Debtor as security for all the outstanding obligations owned by the Debt- or to the Bank.
The immediate matters under consideration are a Motion to Dismiss the Complaint and a Motion to Stay the Proceedings, both filed by the Debtor.
In order to put the issues raised by the two Motions in proper perspective it is necessary to briefly consider the similar or almost identical issues raised in a companion adversary proceeding involving the same antagonists. On November 9, 1982, the Bank filed a complaint, Adversary Proceeding No. 82-884, in which the Bank seeks a determination of non-dischargeability of a debt allegedly owed by the Debtor to the Bank. In that adversary proceeding, the Debtor promptly filed a Motion to Stay the entire proceeding and also sought a *138Motion for Protective Order in order to prevent the Bank from commencing or conducting any discovery proceedings in that adversary proceeding. The Motions were, just as the Motions filed in the instant proceeding, based on the contention of the Debtor that the persons who are purported to act on the Bank and their attorneys who filed both adversary proceedings have no authority and power to act on behalf of the Bank because they are not representative of the duly authorized Board of Directors of the Bank. Consequently, no further proceedings should be conducted until it is determined who has a right to function and act on behalf of the Bank, including who has the right to make a decision to prosecute or not to prosecute these adversary proceedings. Both Motions are based on the following alleged, but yet to be established, facts as set forth in the Motions.
First, it is the contention of the Debtor that a new Board of Directors of the Bank was elected at a special shareholders meeting on December 1,1982; that the Board of Directors elected at that meeting has not authorized the Law Firm to act on behalf of the Bank in any manner, but has selected the law firm of Register and Park, P.A. to act as general counsel to the Bank. However, so contends the Debtor, he should not be required to defend against the claim set forth in this adversary proceeding until and unless the new Board has an opportunity to decide to pursue or not to pursue this litigation.
In opposition, the Bank contends that there has been no change in the Board of Directors of the Bank since April, 1981; that the purported December 1, 1982 election was illegal; and that the Law Firm was properly employed by the Board of Directors who are presently in control of the Bank and who have remained in control of the Bank since this action was commenced and the Law Firm was and still is authorized to represent the Bank and to prosecute this proceeding.
At a duly scheduled and noticed hearing, counsel for the Bank also contended that the Debtor has no standing to question the authority of the acting Board to pursue this adversary proceeding. Having considered argument of counsel and after having considered controlling authorities, this Court is satisfied that the contention is without merit simply because FRCP 9(a) specifically provides that a party may raise an issue concerning the authority of the opposing party to sue in a representative capacity if he does so by specific negative averment. The Debtor’s motion and affidavit includes sufficient supporting particulars to satisfy FRCP 9(a).
The threshold issue to be resolved in the present controversy is which Board of Directors has authority to act in a representative capacity on behalf of the Plaintiff. The Defendant would like this Court to determine as a matter of law that the Board elected at the specially called December 1, 1982 meeting is the duly elected Board, and, therefore, stay all proceedings in this controversy pending a decision of that Board to pursue this litigation. On the other hand, the Bank asks this Court to determine that as a matter of law the December 1,1982 election was illegal; that the Board elected in April of 1981 is the duly elected Board and continues to have authority to act in a representative capacity on behalf of the Bank; that the Law Firm was duly authorized by that Board to represent the interests of the Bank in this adversary proceeding; and that the Defendant’s Motion to Stay Further Proceedings in this matter, including discovery, should, therefore, be denied, allowing the Plaintiff to commence and to conduct discovery proceedings at once.
At a subsequent hearing in a closely related adversary proceeding between the same parties, it was revealed that the annual meeting of shareholders in the Plaintiff Bank was scheduled to take place on March 22,1988. At this meeting, the shareholders were to elect a Board of Directors. The meeting of shareholders was held as scheduled, but again, due to lack of quorum no action was taken concerning the election of a new Board of Directors. In this connection it should be pointed out that the De*139fendant, together with one Rebecca Doyle, appeared to hold the controlling stock interest in the Bank. It now appears that the annual meeting will be rescheduled for April, 1983.
In that adversary proceeding, this Court granted Defendant’s Motion to Stay Proceedings and Motion for Protective Order. The Complaint in that adversary proceeding sought a judicial determination that the debt owed by the Defendant to the Plaintiff is non-dischargeable under § 523(a)(4) of Title 11 U.S.C. In that context the issue of which Board of Directors is authorized to represent the Bank should be resolved before this Court proceeds to make a determination on the dischargeability issue. The Complaint in this adversary proceeding, however, seeks relief from the automatic stay and the only relevant issues involved are whether the Debtor has equity in the properties and whether the properties are needed for effective reorganization. § 362(d)(2) of the Bankruptcy Code. Should this Court find in the negative on both issues, it would be proper to lift the stay to permit the parties to litigate the underlying issues in another forum.
Accordingly, it is
ORDERED, ADJUDGED AND DECREED that the Defendant’s Motion to Stay Proceedings and Motion to Dismiss be, and the same hereby are, denied. It is further
ORDERED, ADJUDGED AND DECREED that the final evidentiary hearing in this adversary proceeding will be held on April 7, 1983 at 2:00 p.m. in Room 703, 700 Twiggs St., Tampa, Florida. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489694/ | MEMORANDUM OPINION
C.E. LUCKEY, Bankruptcy Judge.
Plaintiff-debtor filed his voluntary Chapter 7 petition in bankruptcy February 17, 1981, and on June 1, 1981, filed this adversary proceeding seeking to have this Court determine an obligation allegedly due his former spouse, Janice Smith, as awarded her in divorce proceedings for support of their minor children in the sum of $7,721.28, and an obligation due the Department of Human Resources of the State of Oregon as the result of assignment of the award to the state agency as a result of public assistance provided her with a balance of $1,245.95, dischargeable. Trial was held November 19, 1982.
*397The plaintiff and defendant Smith were divorced in 1971 in the Circuit Court of the State of Oregon for Lane County. One hundred and twenty-five dollars ($125.00) per month support money for each of two children was awarded the plaintiff in the marriage dissolution proceedings.
In late 1973, Janice Smith applied to the Lane County District Attorney’s Office for assistance in enforcing the child support obligation of Richard Rombold. At that time, Mr. Rombold lived in the State of Montana and the District Attorney’s Office initiated a Uniform Reciprocal Enforcement of Support Action petition requesting that the State of Montana assist the State of Oregon in the enforcement of Mr. Rom-bold’s child support obligation. The District Attorney’s Office continued to monitor the case until 1975 when the public assistance grant first opened. At that time, the District Attorney’s Office deactivated their case and the Support Enforcement Division opened its collection file. In August of 1976, the public assistance grant closed on a final basis and the enforcement responsibility for the case was returned to the District Attorney’s Office. The District Attorney’s Office maintained enforcement responsibilities for the case until May of 1978, when they were advised by Janice Smith that the children had been adopted by her present husband. The District Attorney’s Office closed their file at that time, however, there is no indication of whether or not the closure was at Janice Smith’s request. Throughout the period from 1973 through the final closure of the enforcement file by the District Attorney’s Office, the primary support enforcement activities were conducted by the State of Montana under the Reciprocal Act. The State of Oregon, Support Enforcement Division, first became aware that the children had been adopted by Janice Smith’s present husband during the course of the debtor’s bankruptcy case.
During 1975 and 1976, the defendant, now Janice Smith, received the public assistance and to receive it assigned to the State of Oregon support rights against the plaintiff pursuant to Section 402(a)(26) of the Social Security Act. The State of Oregon claims only the unrecovered balance of the public assistance provided, $1,245.95.
The parties have presented as one issue for decision the effect of Section 523(a)(5) of the Bankruptcy Code because of the assignment of the support obligation. At the time of the filing of the debtor’s petition and the filing of this adversary proceeding Section 523(a)(5) was unmodified. Congress by P.L. 97-35 on August 13, 1981, modified the law relating to assigned support money obligations as follows:
“SEC. 2334. (a) Section 456 of the Social Security Act is amended by adding at the end thereof the following new subsection:
‘(b) A debt which is a child support obligation assigned to a State under section 402(a)(26) is not released by a discharge in bankruptcy under title 11, United States Code.’.
(b) Section 523(a)(5)(A) of title 11, United States Code, is amended by inserting before the semicolon the following: ‘(other than debts assigned pursuant to section 402(a)(26) of the Social Security Act)’.
(c) The amendments made by this section shall become effective on the date of the enactment of this Act.”
Plaintiff urges that his rights should be determined by the date of filing his petition in bankruptcy. The State of Oregon urges the time of this Court’s decision should control.
Another issue presented is the effect of the assignment relating to the obligation due the former spouse for arrearages not affected by the public’s assistance granted.
On the facts, this Court concludes the assignment apart from the public assistance was for collection purposes only, and does not mandate dischargeability. See Matter of Beggin, 19 B.R. 759 (Bkrtcy.W.D.Wash.1982); Matter of Sturgell, 7 B.R. 59 (Bkrtcy.S.D.Ohio, 1980). This being so, the obligation due the former spouse is not affected by the time of the filing of the petition and the effect of enactment of Public Law 97-35.
*398The Court is mindful of the general bankruptcy principle that the rights of the parties are determined as of the time of filing, of the bankruptcy case, and apart from special, unusual circumstances not present in this proceeding, that time should establish the rights of the parties. See In re Morris, 21 B.R. 816 (Bkrtcy.N.D.Iowa, 1982). See also In re Littell, 6 B.R. 85 at 88 (Bkrtcy.D.Or.1980) regarding problems of retroactive application of statutes generally-
It was the sense of Congress for a brief time generally to discharge obligations assigned for the purpose of public assistance. That policy was reversed in the passage of P.L. 97-35. Congress, however, did nothing to indicate intended retroactive application. The Court must therefore conclude that the obligation due the defendant Department of Human Resources is dischargeable in the plaintiff’s bankruptcy because of the assignment, but that the obligation due the plaintiff’s former spouse, having been assigned for purposes of collection only is non-dischargeable.
The plaintiff asserts that on the basis of a number of cases beginning with In re Warner, 5 B.R. 434 (Bktcy.Utah, 1980) that even if the debt was originally imposed on the basis of the need of the spouse or children, the debt cannot be non-dischargeable unless at the time of filing there exists a present need by the spouse or children that the debt be paid. This Court must respectfully disagree with the Warner case and those that follow it.
The present need requirement cannot be reconciled with the rights of government agencies which have previously rendered public assistance found in the amendment of Section 402(a)(26) of the Social Security Act by P.L. 97-35. Also see In re Comer, 27 B.R. 1018 (Bktcy.App. 9th Cir.1983).
A well-stated basis for rejecting the present-need test is to be found in In re Nelson, 20 B.R. 1008 (M.D.Tenn.1982) wherein the court has written at pages 1011-1012:
“[3] By creating an exception to the general rule of discharge, Congress, implicitly, resolved the balancing of the very interests considered by the court below in favor of the spouse. Congress did not, in any manner, manifest an intention that the bankruptcy courts should embark upon their own balancing of these policies.3 Under section 523(a)(5), the bankruptcy courts are free to determine whether a debt characterized by a state court as alimony, support, or maintenance is in fact just that. Upon finding that a debt is in fact support, alimony, or maintenance, however, the bankruptcy court is not free to discharge the debt. Section 523(a)(5) states clearly that such debts are not to be discharged. Consequently, upon finding the debt to be maintenance, support, or alimony in fact, the bankruptcy court below should have excepted that portion of the debt from discharge. Because it did not, its decision in this respect must be reversed.
The structure of section 523(a)(8) reflects Congressional intent to permit bankruptcy courts to use a balancing process when determining whether or not to except an educational loan from discharge. The structure of section 523(a)(5) does not reflect such an intent. Instead, as noted infra, judicial discretion under section *399523(a)(5) is limited to determining whether a particular debt is in fact in the nature of alimony, maintenance, or support. See H.R.Rep. No. 95-595, 95th Cong., 1st Sess. 264, reprinted in [1978] U.S.Code Cong. & Ad.News 5787, 6320. See generally 24 Cong.Rec. 1791 (1978) (remarks of Rep. Ertel, sponsor of the amendment that is now codified as Section 523(a)(8) 124 Cong.Rec. 1793 (1978) (remarks of Rep. Dodd).”
It is therefore the opinion of this Court that plaintiff is entitled to judgment that the sum of $1,245.95 for which he is obligated to the defendant, Department of Human Resources of the State of Oregon is dis-chargeable in his proceedings and the defendant Janice Smith is entitled to judgment that the obligation due her for arrear-ages of child support as fixed by the Circuit Court of the State of Oregon for Lane County in the amount of $7,721.28 is a non-dischargeable obligation in the plaintiff’s bankruptcy case, and that each party should bear his, her or its own attorney’s fees and costs in these proceedings. This Memorandum Opinion contains the Court’s Findings of Fact and Conclusions of Law and pursuant to Bankruptcy Rule 752 they will not be separately stated.
Separate Judgment consistent herewith will be entered.
Comparison of section 523(a)(8) and section 523(a)(5) illustrates two alternative approaches that were available to Congress when considering the bankruptcy act: (1) to create absolute exceptions to discharge, as in section 523(a)(5); or (2) to permit bankruptcy courts to weigh various factors when determining whether to discharge a debt, as in section 523(a)(8). Section 523(a)(8) applies to educational loans. It provides:
A discharge under section 727, 1141, or 1328(b) of this title does not discharge an individual debtor from any debt—
(8) for an educational loan made, insured, or guaranteed by a governmental unit, or made under any program funded in whole or in part by a governmental unit or a nonprofit institution of higher education, unless—
(A) such loan first became due before five years (exclusive of any applicable suspension of repayment period) before the date of the filing of the petition; or
(B) excepting such debt from discharge under this paragraph will impose an undue hardship on the debtor and the debtor’s dependents; ... (emphasis added). | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489695/ | MEMORANDUM AND ORDER
CHARLES J. MARRO, Bankruptcy Judge.
INTRODUCTION
On October 18, 1982, the debtor’s trustee in bankruptcy commenced this adversary proceeding to determine, pursuant to § 505 of the Bankruptcy Code, the debtor’s liability with respect to the unsecured priority tax claim of the defendant, Town of Putney (the Town). The Town filed a proof of claim on June 5, 1980, as amended November 15, 1982. On November 4, 1982, the United States moved to intervene as a party plaintiff and the motion was granted with no objections made. On May 12,1983, the debtor’s trustee moved for summary judgment.
At issue on the motion are property tax assessments for the calendar years 1979 to 1983, inclusive, on the lands and buildings which comprise the campus of Windham College (the College) excluding the Fine Arts Building accorded tax exempt status by the Town pursuant to Vermont Statutes, title 16, section 3859 (1982). The amount at issue appears to exceed $1,000,000.00 consisting of real estate taxes as assessed, interest thereon at 1% per month from the date of assessment, and a statutory late-payment penalty of 8% of the assessment.
*410The motion for summary judgment came on for a hearing after notice. The record on motion establishes that there is no genuine dispute as to the facts set forth below.
FACTS
Beginning in the mid-1960’s the debtor, Corporation of Windham College (the Corporation), operated the College as an educational institution exempt from taxation pursuant to Vermont Statutes, title 32, section 3802(4). The College suspended normal operations in December 1978. On April 3, 1980, the Corporation filed a petition for relief under Chapter 7 of the Bankruptcy Code (Code).
Prior to filing for relief, the Corporation defaulted on certain indenture obligations to the Vermont National Bank (the Bank) arising out of indenture agreements entered into by the Corporation, the Bank and the United States. The Corporation’s indenture obligations were secured by senior mortgages on most of the improved real property on the College campus (a legal description of the premises hypothecated by the Corporation to the Bank in connection with the indenture agreements appears in Exhibits D and E of the Statement of Financial Affairs attached to the Corporation’s petition for relief). (The real estate comprising the campus consists of the hy-pothecated premises; additionally, the Fine Arts Building; additionally, other real property. The hypothecated premises consist primarily of seven dormitories and three academic buildings. The other real property consists primarily of some improved land with fixtures including tennis courts and blacktop, and some buildings including a craft barn, an art shack, and a maintenance shop). In November, 1979 the Bank as indenture trustee for the United States foreclosed the mortgages of the hy-pothecated premises and foreclosure decrees were entered in Windham County Superior Court. In March, 1980 the Bank as indenture trustee took possession of the hypothe-cated premises and recorded a notice of possession by the United States on the land records of the Town of Putney, Vermont.
On August 8,1979, the Town amended its grand list to assess the taxes at issue. A Grievance Day Appeal by the Corporation and by the Bank as indenture trustee was heard by the Town’s Board of Listers, and was denied. An appeal to the Board of Civil Authority of the Town followed; this appeal was also denied. A further appeal in the Windham County Superior Court was pending at the time the Corporation filed for relief. The administrative appeal decisions of the Town involved the taxation of both real and personal property; however, only the matter of the real estate taxation is currently before the Court.
DISCUSSION
Bankruptcy Rule 756, which governs summary judgment procedure, invokes Rule 56 of the Federal Rules of Civil Procedure. Rule 56 provides:
(c) Motion and Proceedings thereon.. .. 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....
The record which the court may consider on motion for summary judgment includes the pleadings, depositions, answers to interrogatories, admissions and affidavits. The court may not consider statements of fact presented in motions, memoranda of law, or other papers because these materials, denominated “Motions and Other Papers” under Rule 7(b) of the Federal Rules, are not pleadings under Rule 7(a) or Bankruptcy Rule 707 and are by the language of Rule 56 not made part of the record on motion for summary judgment. Goldman v. Summerfield, 214 F.2d 858 (D.C.Cir.1954) (legal memoranda not part of record on motion for summary judgment); Sardo v. McGrath, 196 F.2d 20 (D.C.Cir.1952) (memoranda of law expressly not made part of record on motion for summary judgment); Schering Corporation v. Home Insurance Company, (2d Cir. 6/21/83) 712 F.2d 4 (trial court may *411properly consider documents set forth in Rule 56(c) — pleadings, depositions, affidavits, answers to interrogatories, and admissions — in ruling on motion for summary judgment). The reason for excluding motions and other papers from the record on motion for summary judgment is that such materials do not have the solemnity of pleadings or the dignity of statements made under oath. See generally, J. Moore, A. Vestal & P. Kurland, Moore’s Manual: Federal Practice and Procedure [hereinafter cited as Moore’s Manual] § 17.08 and cases cited at page 17-21 n. 22 (1981) and at page 1284 n. 10 (1967). Despite the court’s inability to observe the affiant’s or deponent’s demeanor, the availability of cross-examination during sworn testimony, in depositions or interrogatories, in effect, is adequate protection of the parties’ rights. 6 Moore’s Federal Practice 56.15[4] at 56-513 (1976).
This court, therefore, has stated that summary judgment is appropriate, “... when the pleadings, depositions, answers to interrogatories, admissions, and affidavits show there is no genuine issue as to any material fact.” In Re D’Avignon, 25 B.R. 838, 840 (Bkrtcy.Vt.1982); accord, Bryant v. Kentucky, 490 F.2d 1273 (6th Cir.1974).
By expressly providing that requests for admissions may be considered, Rule 56 invokes Rule 36 of the Federal Rules. Rule 36, applicable to bankruptcy cases through Bankruptcy Rule 736, provides:
(a) Request for Admission. A party may serve ... a written request for the admission ... of the truth of any matters ... set forth in the request that relate to statements or opinions of fact or of the application of law to fact. . .
Each matter of which an admission is requested ... is admitted unless, within 30 days after service of the request ... the party to whom the request is directed serves upon the party requesting the admission a written answer or objection addressed to the matter...
(b) Effect of admission. Any matter admitted under this rule is conclusively established ... for the purpose of the pending action...
Rule 36 serves two vital purposes: to narrow the issues for trial by eliminating issues with respect to which there is no dispute, and to facilitate the proof at trial with respect to issues that cannot be eliminated from the case. Fed.R.Civ.P. 36, advisory committee note. As an instrument of discovery, the purpose of requests for admissions is not necessarily to obtain information but to narrow the issues for trial. Webb v. Westinghouse Electric Corp., 81 F.R.D. 431 (E.D.Pa.1978), cited in Matter of Manley, 3 B.R. 97, 98 (Bkrtcy.S.D.N.Y.1980). An admission under the rule is comparable to an admission in pleadings; but where a denial contained in the pleadings is inconsistent with an admission under the rule, the admission under the rule supersedes the denial contained in the pleadings. Fed.R. Civ.P. 36 advisory committee note; see generally, Moore’s Manual, § 15.12. Summary judgment may be granted where material facts are established as uncontroverted by reason of an admission under the rule. Id. at page 15-110 n. 35 (1982) and cases cited therein; see, In Re Hess, 21 B.R. 465, 467 (Bkrtcy.W.D.Va.1982).
Rule 56 of the Federal Rules further provides:
(e) ... Defense Required.... When a motion for summary judgment is made and supported as provided in this rule, an adverse party may not rest upon the mere allegations or denials of his pleading, but his response, by affidavits or as otherwise provided in this rule, must set forth specific facts showing that there is a genuine issue for trial. If he does not so respond, summary judgment, if appropriate, shall be entered against him.. . .
Once a motion is made and supported as provided under the rule, the role of the pleadings in disposing of the motion is destroyed. Moore’s Manual, § 17.10(2) and cases cited at page 17-34 nn. 3, 4 (1981). When the moving party, unaided by presumptions in his favor, establishes facts which entitle him to a judgment, a duty is cast on the opposing party to bring forth *412evidence to show that there is a genuine issue of fact. In Re Flagstaff Foodservice Corp., 25 B.R. 844, 853 (Bkrtcy.S.D.N.Y.1982), citing to United States v. Pent-R-Books, Inc., 538 F.2d 519, 529 (2d Cir.1976), cert. den., 430 U.S. 906, 97 S.Ct. 1175, 51 L.Ed.2d 582 (1977); see, Moore’s Manual, § 17.10(3). Under Rule 56(e) the opposing party may not rest upon mere conclusary allegations or denials but must set forth supporting arguments or facts in opposition to the motion. SEC v. Research Automation Corp., 585 F.2d 31 (2d Cir.1978); Schering Corp. v. Home Insurance Co. at 9. A failure to discharge this duty entitles the movant to summary judgment if appropriate under the standards of Rule 56. First National Bank v. Cities Service Corp., 391 U.S. 253, 88 S.Ct. 1575, 20 L.Ed.2d 569 (1968); see, Moore’s Manual, § 17.10[3] and cases cited at page 17-37 n. 13 (1981), and at page 1292 n. 9 (1972). This court noted the policy reason behind Rule 56(e) in In Re D’Avignon, 25 B.R. at 840: “Summary judgment is a procedural device for promptly disposing of actions in which there is no genuine issue of any material fact even though such issue might have been raised by formal pleadings.” Accord, Mintz v. Mathers Fund, Inc., 463 F.2d 495 (7th Cir.1972).
On motion for summary judgment the court does not try issues of fact; it only determines whether there are issues to be tried. Heyman v. Commerce and Industry Co., 524 F.2d 1317, 1320 (2d Cir.1975). The key is issue-finding, not issue-resolution. United States v. One Tintoretto Painting Entitled “The Holy Family with Saint Catherine and Honored Donor”, 691 F.2d 603, 606 (2d Cir.1982). In ruling on the instant motion, the court considers only materials of record: the pleadings, answers to interrogatories, admissions and affidavits (No depositions appear in the record.). The court may also take judicial notice of its own public records in this bankruptcy proceeding. United States v. Philadelphia, 140 F.2d 406 (3d Cir.1944); Fletcher v. Evening Star Newspaper Co., 133 F.2d 395, cert. den., 319 U.S. 755, 63 S.Ct. 1163, 87 L.Ed. 1708, reh. den. 319 U.S. 785, 63 S.Ct. 1432, 87 L.Ed. 1728 (D.C.Cir.1942). The admissions and answers to interrogatories are those of the Town; the Town did not conduct discovery. The affidavits were submitted by the United States and the Corporation. If the uncontroverted affidavits and discovery material establish the nonexistence of any genuine issue for trial, the court should render summary judgment on the whole case despite the allegations and recitals contained in the Town’s pleadings. If summary judgment is not rendered on the whole case, the court may proceed under Rule 56(d) to determine some issues and to set down for trial the remaining issues. In Re Medico Associates, Inc., 23 B.R. 295, 300 (Bkrtcy.D.Mass.1980).
The basis of the Town’s tax claims for the years 1979 through 1983, inclusive, is that the Corporation owned or as mortgagor was in possession of the College campus on April 1 of each of these years but that during these years the College was not used for educational purposes. Before examining the matter of the Town’s tax claims with respect to the real property not hy-pothecated in connection with the indenture agreements, the court considers the matter of the tax claims with respect to the hy-pothecated premises. The relevant provisions of Vermont law are Vermont Statutes, title 32, Sections 3651 and 3652. Section 3651 provides: “Taxable real estate shall be set in the list to the last owner or possessor thereof on April 1 in each year....” Section 3652 provides: “When real estate is mortgaged, the mortgagor shall be deemed the owner thereof for the purpose of taxation, until the mortgagee takes possession, after which the mortgagee shall be deemed the owner.... ” Thus, no real estate tax with respect to the hypothe-cated premises is assessable to the Corporation for any year in which on April 1 the Corporation did not own the hypothecated premises or as mortgagor had been superseded in the possession thereof by the mortgagee.
The uncontroverted facts are that before April 1980: (1) the Bank in its representative capacity as indenture trustee for the *413United States foreclosed the mortgages on the hypothecated premises; (2) foreclosure decrees were entered in Windham County Superior Court; and (3) the Bank took possession of the hypothecated premises and caused to be recorded a Notice of Possession by the United States on the land records of the Town of Putney, Vermont. Affidavit of Kenneth v. Fisher (Fisher) at page 2, paras. 2, 3. On April 1, 1980, the Corporation did not own nor was in possession of the hypothecated premises, having been superseded in possession by the United States as mortgagee. Fisher at page 2, paras. 3,4; Affidavit of John R. Davidson at page 1, para. 2; Statement of Financial Affairs for Debtor at pages 8, 9,13,16,17 and at Form 8 statement of financial affairs, page 3, question 16. Therefore, the Corporation did not own the hypothecated premises for 1980 tax purposes, 32 Vt.Stat. § 3652, and no real estate tax with respect to the hypothe-cated premises is assessable to the Corporation for that year, id. § 3651. Moreover, real estate owned by the United States is exempt from taxation, 32 ViStat. § 3803(1), and the town does not dispute that property in the possession of the United States as mortgagee is not taxable (Answer No. 14 to Interrogatories of the United States). As to the years 1981 through 1983, inclusive, the uncontroverted facts are that the Corporation neither redeemed nor repurchased the hypothecated premises. Affidavit of Kenneth v. Fisher at page 2, para. 2; prior records of the court in this bankruptcy proceeding. Therefore, no real estate tax with respect to the hypothecated premises is assessable to the Corporation in 1981, 1982 or 1983. 32 Vt.Stat. §§ 3651, 3652.
The court now focuses on 1979. The Town has admitted that the United States took possession of the hypothecated premises in March 1979. Request to Admit at page 2, para. 6 (deemed admitted under Rule 36(a) by reason of the Town’s failure to respond). This admission, however, is inconsistent with the information supplied by affiant Fisher to the effect that the United States took possession in March 1980. Rule 36 does not require that the court accept an admission inconsistent with the facts of record. On this basis the United States took possession of the hypothecat-ed premises in March 1980 notwithstanding the Town’s admission that the United States took possession in 1979.
The court now considers the matter of the 1979 tax assessment on the hypothecat-ed premises. On April 1,1979, the Corporation as mortgagor was in possession of the hypothecated premises. Thus the Corporation was the owner of the hypothecated premises for 1979 tax purposes. 32 Vt.Stat. §§ 3651, 3652. Therefore, the controlling issue with respect to the 1979 tax on the hypothecated premises is whether the Town’s August 1979 amendment to its grand list, rescinding the College’s tax exempt status, carries with it the authority of Vermont law. This issue requires two lines of inquiry: (1) whether there is a sufficient factual basis for the Town’s amendment, and (2) whether the Town assessed the disputed taxes in technical conformity with Vermont law.
With respect to whether the Town assessed the disputed taxes in technical conformity with Vermont law, the United States and the Corporation have raised the objection that the Town failed to personally examine the taxed real estate prior to rendering its tax assessments thereon. The relevant provision of Vermont law, Vermont Statutes, title 32, section 4041, provides that “[o]n April 1 the listers shall . .. make such personal examination of the property which they are required to appraise as will enable them to appraise it at its fair market value.” The bare wording of the statute is susceptible of two interpretations: (1) that the assessor’s personal examination is always required prior to the assessment of tax, or (2) that a personal examination is required only if the assessor is unable otherwise to fairly appraise the value of the property. Vermont courts construe the statute with a view towards its purpose, viz.: to protect the taxpayer individually and collectively from property taxation based on arbitrarily determined appraisal values. Viewed in this light, the *414Town’s failure to make a personal examination of the College campus prior to rendering its tax assessments thereon is alone not fatal to the Town’s tax claims. The United States and the Corporation, however, maintain also that the disputed taxes were assessed on the basis of arbitrarily high appraisal values. Were the United States’ and the Corporation’s assertions to this effect supported by uncontroverted facts of record, their objection that the Town as assessor did not meet the technical requirements of Vermont law might be fatal to the Town’s tax claims.
Turning to the matter of the sufficiency of the factual basis underlying the Town’s amendment to its grand list, the controlling issue is whether the College was used for educational purposes. The Town admits that the only reason it amended its grand list was that it had determined that the College was not used for educational purposes between January 1 and April 1, 1979. Request to Admit at page 2, para. 2 (deemed admitted under Rule 36(a)). The controlling issue therefore is whether the College was used for educational purposes during the first three months of 1979. If during the first quarter of 1979 the College was used for educational purposes, the Town amended its grand list without the requisite factual basis to do so with authority under Vermont law and taxes assessed on the basis of the amendment would not be due under Vermont law. Alternatively, if the College was not used for educational purposes during the first quarter of 1979, objections to the grand list amendment on the ground that it is unsupported by a sufficient factual basis would not withstand scrutiny, in which case the 1979 tax on the hypothecated premises may be due. (As a further matter, if the 1979 tax on the hy-pothecated premises is due, the 1979, 1980, 1981, 1982 and 1983 taxes on the other real property comprising the College campus may also be due. The argument would be that the College, properly stripped of its tax-exempt status in 1979, did not subsequently regain that status).
Whether the College was used for educational purposes between January 1 and April 1,1979, is a mixed question of law and fact. By resting on its pleadings, the Town admits there is no genuine issue with respect to the statements of fact set forth in the affidavit submitted by the Corporation. Matter of Magnafici, 16 B.R. 246, 248 (Bkrtcy.N.D.Ill.1981). The affiant’s factual statements do not however, resolve the ultimate fact of whether during the first quarter of 1979 the College was used for educational purposes, the affiant’s averments as to this ultimate fact notwithstanding. Further, although the affidavit submitted by the Corporation states that an “intercession course” was conducted at the College in January 1979, the Town, in answering plaintiffs’ written interrogatories, stated: “Subsequent to the closing of the school in December 1978 ... events occurred which indicated the school was not to reopen...” The inference to be drawn from the interrogatory answer is that the College was not used for educational purposes after December 1978. Adickes v. S.H. Kress & Co., 398 U.S. 144, 90 S.Ct. 1598, 26 L.Ed.2d 142 (1970) (on motion for summary judgment, inferences drawn from record must favor party opposing the motion); United States v. Diebold, 369 U.S. 654, 655, 82 S.Ct. 993, 994, 8 L.Ed.2d 176 (on motion for summary judgment, inferences must be viewed in light favorable to party opposing the motion). Thus, the ultimate fact of whether the College was used for educational purposes during the first three months of 1979 is disputed even though the Town concedes that a mini-course was conducted at the College in January 1979. The issue of whether the College was used for educational purposes between January 1 and April 1, 1979, should be resolved at trial.
CONCLUSION
Statements of fact of record made by the Corporation and the United States, and un-controverted by the Town, establish that there is no issue for trial with respect to the following facts and matters:
*415(1) The Corporation as mortgagor of the hypothecated premises was not in possession thereof on April 1 of each of the years 1980 through 1983, inclusive, having been superseded in possession by the United States as mortgagee. On this basis the Corporation was not the owner of the hy-pothecated premises for 1980, 1981, 1982 and 1983 tax purposes. It follows that the Corporation bears no liability for real estate taxes with respect to the hypothecated premises for these years.
(2) The Corporation as mortgagor of the hypothecated premises was in possession thereof on April 1, 1979. On this basis the Corporation was the owner of the hypothe-cated premises for 1979 tax purposes. It follows that the Corporation may bear liability for real estate tax with respect to the hypothecated premises for 1979 if the College was not used for educational purposes between January 1 and April 1, 1979.
(3) There is no dispute as to the immateriality to the determination of this action of events occurring after April 1, 1979, with respect to any property owned, mortgaged, hypothecated as security, or sold by the Corporation.
(4) There is no dispute as to the immateriality to the determination of this action of events occurring at the College after April 1, 1979.
The issue for trial which survives the motion for summary judgment is whether the College was used for educational purposes between January 1 and April 1, 1979.
ORDER
Upon the foregoing, the motion of the debtor’s trustee for summary judgment is,
GRANTED in favor of the corporation with respect to taxation of the hypoth-ecated premises for the years 1980, 1981, 1982 and 1983;
DENIED with respect to taxation of the hypothecated premises for the year 1979; and
DENIED with respect to taxation of the other real property comprising the campus. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489696/ | FINDINGS OF FACT, CONCLUSIONS OF LAW AND MEMORANDUM OPINION
ALEXANDER L. PASKAY, Chief Judge.
THIS IS a Chapter 11 reorganization case and the immediate matter under consideration is an action for damages filed by the Debtor, B.J. Thomas, Inc., against American Cyanamid Company (Cyanamid). The Debtor initiated this adversary proceeding upon filing a Complaint for Damages set forth in four separate counts. All four counts of the Debtor’s complaint are based on the alleged existence and termination of an oral contract. The Debtor seeks damages for termination of the alleged contract in Count I, damages for wrongful termination in Count II, damages for premature termination in Count III, and damages for failure to give reasonable notice in Count IV. A final evidentiary hearing was conducted by this Court for the sole purpose of determining the existence of liability, with the understanding that another evidentiary hearing would be scheduled on the issue of damages upon a finding of liability on the part of Cyanamid.
The matter before the Court clearly represents a “related proceeding” as defined by subclause (d)(3)(A) of the Emergency Rule and, therefore, pursuant to sub-clause (d)(3)(B), the Bankruptcy Judge may not enter a judgment or dispositive order absent consent of the parties. The parties to this proceeding did not consent to the entry of a judgment by this Court, therefore, findings of fact, conclusions of law and a proposed judgment shall be submitted to the District Judge as provided by Emergency Rule (d)(3)(B).
The Court heard argument of counsel, received testimony of witnesses and documentary evidence, considered the record and finds as follows:
Cyanamid is in the business of phosphate mining in central Florida. In the operation of its business, Cyanamid is involved in substantial earth moving, dam and settling pond construction, land reclamation and road building. The major earth moving *419operations, i.e. dam construction, are accomplished through the use of rented labor and equipment.
Prior to 1978, the Debtor performed clearing and cleaning services for Cyanam-id, but was not engaged in earth moving operations. In August 1978, Cyanamid’s purchasing agent, J.C. Stewart, approached B.J. Thomas, the president of the Debtor and inquired as to whether Thomas had any interest in providing earth moving services. Although Cyanamid had engaged the earth moving services of C. Wilson for the past twenty-five years, the Cyanamid field personnel sought to hire another contractor who would provide upgraded equipment.
Thomas expressed an interest in expanding his operations, although admitting that he had no experience in earth moving, and sought assurances that if he made the investment necessary to acquire the appropriate equipment, there would be sufficient, continuing work. Steward assured him that there was ample work for at least five years. Shortly thereafter, Thomas leased the equipment specified by Cyanamid and immediately commenced the delivery of earth moving services.
During the next two years, both Thomas and Wilson were retained by Cyanamid to complete different projects. It appears that the major difference between the two contractors stemmed from the type of equipment each employed in the performance of his duties. Wilson used and continues to operate with a “621” pushloader, a piece of equipment which must be loaded with a bulldozer. Thomas, on the other hand, leased the “623” self loaders (which operate without additional equipment), because they were preferred by the Cyanamid field personnel and the Cyanamid projects given to Thomas specified the use of “623” self loaders.
Under apparent pressure by the lessor of the earth moving equipment, the Debtor purchased the equipment which he had previously leased, however, before purchasing the equipment, Thomas again requested assurance of continued work with Cyanamid. Once again, Thomas was told that the work would continue for years and they (the field engineers and field supervisor) saw no reason why the Debtor would not be assigned the work in light of its past performance. It appears that the work which had been performed by the Debtor was very satisfactory.
In March 1980, Cyanamid replaced its chief executive officer with Robert Leitz-man, whose responsibilities included the reduction of overall cost overuns on Cyanam-id projects. In time, Leitzman ultimately concluded, as a result of his own independent inquiry, that the “623” self-loaders are not more efficient than the “621” push-loaders and, therefore, the additional expense for the “623’s” used by the Debtor could not be justified from an economic point of view.
In mid-February 1981, Leitzman instructed his deputy plant manager that the Wilson equipment rather than the Debtor’s equipment should be used on the new DL dam project, a project which Leitzman felt would substantially overrun its budget. For whatever reason, Leitzman’s instructions to discharge the debtor were not, at that time, communicated to Thomas.
On Friday, February 20, 1981, Thomas concluded his work at the previous work site (The EL dam site) and was instructed by Stewart to relocate at the DL Dam site, to commence work on Monday, February 23. Upon learning that Thomas was working at the DL dam site, Leitzman, who had not approved his employment, ordered that Thomas stop work and Wilson commence in his stead. Thomas was informed of the termination on Wednesday, February 25, and directed to stop all operations by Friday, February 27. Although Thomas offered to reduce his rates in an attempt to stay on the job and avoid filing bankruptcy, Leitzman maintained his earlier position and substituted Wilson at the DL dam site.
Considerable testimony was introduced by the Debtor to establish that Leitz-man’s decision to terminate the Debtor was unwise and unwarranted. However, the Court is of the opinion that the decision by *420Leitzman represents a “business judgment” and as such is irrelevant to the resolution of this controversy. Martens v. Barrett, 245 F.2d 844, 846 (5th Cir.1957); see also, Empire Life Insurance Co. v. Valdak Corp., 468 F.2d 330 (5th Cir.1972); Erlich v. Glasner, 418 F.2d 226 (9th Cir.1969).
The Debtor contends that there was a contractual relationship between the parties, the essential terms of which required the Debtor to perform earth moving services for Cyanamid in a commercially reasonable manner and required Cyanamid to pay the Debtor an agreed amount for services rendered. The Debtor further contends that the contractual relationship arose from an oral agreement between B.J. Thomas and J.C. Stewart, Cyanamid’s purchasing agent in August, 1978. It is without dispute that a written agreement was never executed and terms of duration and termination were never established. Thus, the Debtor contends that the alleged contract must be construed to be a contract of indefinite duration, and under Florida law, a contract terminable at will upon giving reasonable notice.
It is the primary contention of Cyanamid that there simply existed no enforceable oral contract and at best, the Debtor and Cyanamid developed a working relationship over a period of years which was terminable at the will of either party.
The Debtor has the burden of establishing the existence of an oral contract by more than a preponderance of the evidence. Tipton v. Woodbury, 616 F.2d 170, 176 (5th Cir.1980), citing Sultan v. Trade Winds Construction Corp., 277 So.2d 574, 576 (Fla. 3d DCA 1973) cf. Transammonia Export Corp. v. Conserv. Inc., 554 F.2d 719 (5th Cir.1977). It is the opinion of this Court that the Debtor has failed to carry its burden for the following reasons:
Although the Debtor relies upon the existence of an oral contract indefinite in duration, the Debtor has failed to establish any mutuality of obligation between the parties. While the testimony supports a finding that Cyanamid expected to conduct mining operations which would require earth moving services for at least five years, there was never a direct representation on the part of any Cyanamid employee that the Debtor was guaranteed employment. At most, Thomas was assured that Cyanamid had plenty of work and there was no reason to believe that the Debtor would not be contracted for some of Cyan-amid’s earth moving requirements. Certainly, these statements fail to rise to the level of a promise of future employment. In this connection it should be pointed out that there is no evidence to support the position that the Debtor promised to perform services for Cyanamid in the future. In fact, it appears that the parties, though engaging in a business relationship, were free to discontinue that relationship at any time. In this vein, it should be recognized that “[wjhere the term of employment is discretionary with either party or indefinite, then either party may terminate it at any time and no action may be maintained for breach of the employment contract.” DeMarco v. Publix Super Markets, Inc., 384 So.2d 1253 (Fla.1980) (citing DeMarco v. Publix Super Markets, Inc., 360 So.2d 134 at 136) (Fla. 3d DCA 1978).
The actions of Thomas during the course of the business association between Cyan-amid and the Debtor further belie the existence of any binding oral agreement. More than once, Thomas sought assurances of the continued need of his services by Cyanamid. Clearly, had Thomas believed that he had entered into a binding contract which guaranteed employment if he continued to perform satisfactorily and maintained his equipment to Cyanamid specifications, he would have been unlikely to seek advice as to the probability of his continued employment.
It should be pointed out that all services whether provided by the Debtor or another contractor were supplied pursuant to written purchase orders which were generated by the purchasing department after a requisition, specifying services to be performed or equipment to be leased, was approved by a company official. Both individual purchase orders and “blanket” purchase orders *421were issued. In regard to the “blanket’ purchase order, which was given annually to certain regular contractors, the language on the purchase order stated,
“Furnish rental equipment with operator and necessary labor as requested by proper maintenance and production supervisor during the year 1981.” (emphasis supplied)
Implicit in the statement is the fact that Cyanamid was not bound by the “blanket order” to engage the contractor, although in practice it usually did.
The language on the back of the purchase orders further supports a finding of short term or “job by job” agreements as opposed to a long-term oral contract.
“This document contains all terms of the Parties’ Agreement concerning the materials or services described on the face hereof. It may not be added to, modified or superseded except by a written instrument signed by an authorized representative of Buyer. Different or additional terms are hereby objected to and no subsequent conduct by Buyer shall be deemed to be an acceptance thereof.”
Because the Court, for reasons stated earlier, is satisfied that no enforceable oral agreement existed, it is unnecessary to engage in a discussion of integration clauses and parole evidence. Rather, it is sufficient to note that Cyanamid’s use of the work orders and the language contained therein provide further evidence that the Debtor is unable to prove the existence of an oral long-term contract.
Finally, the Debtor is unable to recover on a theory of promissory estoppel and detrimental reliance. There is no showing that the Debtor relied to his detriment on any promises or positive representations by the Defendant. Again, the Debt- or purchased the equipment used in his operation upon pressure exerted by the lessor and upon representations by agents of Cyanamid that they knew of no reason why the Debtor would not continue to be engaged by Cyanamid.
In light of the foregoing, this Court can only conclude that the Debtor was engaged by Cyanamid on a job by job basis, and at the time of his discharge, he had been performing services which were unauthorized for a period of two days. Therefore, the two day notice of termination afforded by Cyanamid, under the circumstances, was reasonable.
A proposed final judgment along with the Findings of Fact, Conclusions of Law and Memorandum Opinion shall be transmitted to the United States District Court in accordance with Emergency Model Rule (d)(8)(B). | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489697/ | MEMORANDUM AND ORDER
CHARLES J. MARRO, Bankruptcy Judge.
Vermont Real Estate Investment Trust (VREIT) as debtor in possession, and its Shareholders Committee, gave notice under Bankruptcy Code Section 363(b) of an intention to sell real estate with improvements, as follows: (1) real property located at 267-271 Pearl Street, Burlington, Vermont; (2) real property located at 1306 Ethan Allen Drive, Colchester, Vermont.
The matter came on for a hearing after notice. No objection was made to the sale of the Pearl Street Property. However, Jerome F. O’Neill, Esquire, appearing for the Howard Bank as Administrator for the Estate of Thomas Sawyer, Douglas J. Wo-linsky, Esquire, appearing for the unsecured creditors committee, and William B. Gray, Esquire, appearing for Margaret L. Baird, objected to the sale of the Colchester property on the ground that the Colchester sales agreement between VREIT and Terre Enterprises (Terre) serves the interests of the VREIT equity security holders at the expense of the unsecured creditors. They supported this position by comparing the terms of the Terre purchase offer with the terms of a purchase offer by one Mr. Kaushal (Kaushal), which offer was rejected by the VREIT trustees.
The terms of the two purchase offers are as follows:
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Thus the Terre proposal would (1) yield $35,000 more on sale than the Kaushal proposal (line 5), but (2) require VREIT to finance $165,000 of the purchase price (line 7), and (3) produce no cash on sale as opposed to a $78,000 production of cash under the Kaushal proposal (line 9).
The discussion of the proposals revealed that Terre’s broker reduced his fee from $65,000 to $50,000 to consummate the sales agreement but that no similar concession was asked of Kaushal’s broker, and that the debtor’s fix-up costs estimate ran from a high of $20,000 to a low of $15,000. The objecting parties argued that an accounting of the proposals should reflect these facts as well as the discount factor with respect to the present value of the $165,000 note. Such an accounting might read as follows:
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A major characteristic of the Terre deal is that it produces no cash on sale; the only cash generated by this sale goes to pay the *423broker’s fee. A consummation of the Kaushal deal, on the other hand, would in all probability produce cash on sale in the neighborhood of $100,000 (based on costs of sale as adjusted immediately above); such cash, were it obtained, might be used in distribution to unsecured creditors upon confirmation of VREIT’s plan of reorganization. Thus, it appears to the Court that the position of the unsecured creditors would be prejudiced by a consummation of the Terre proposal when proposals such as that of Kaushal seem to be available in the current market. In any event, the court is of the opinion that VERIT should actively pursue the Kausahl offer and/or other offers to determine whether a transaction less prejudicial to the interests of the unsecured creditors might be consummated.
The court would like to see a sale of the property consummated but not through a sale which disadvantages unsecured creditors while protecting the interest of equity security holders. As a court of equity this forum is mindful that, in ruling on whether to permit the VREIT-Terre deal to go through, the interests of VREIT’s equity holders must be balanced against the interests of VREIT’s creditors in general and VREIT’s unsecured creditors in particular. When it is realized that the discount on the $165,000 note is figured conservatively (at market for U.S. Treasury notes) and, alternatively, that the pay-down on a second mortgage is assured only when received, it becomes clear that the interest of VREIT’s creditors would be better served at this time by VREIT’s return to the marketplace and seller-buyer negotiating table than by VREIT’s sale of the Colchester property to Terre Enterprises under the current proposal.
ORDER
In accordance with the foregoing, it is ordered,
(1) that the sale of the Pearl Street property be and hereby is APPROVED; and
(2) that the sale of the Colchester property be and hereby is DISAPPROVED. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489698/ | MEMORANDUM OPINION AND SUPPLEMENTAL JUDGMENT ORDER
C.E. LUCKEY, Bankruptcy Judge.
Plaintiff-debtor-in-possession, Kolob Lumber Co., Inc. (Kolob), sought and received judgment and an order of turnover for $2,677.80 against Coliman Decorating, Inc. (Coliman), defendant, in this matter for lumber products delivered by plaintiff to defendant. The parties segregated and reserved the issue of awardability of attorney fees and costs and requested time to brief the Court. All timely memoranda are now before the Court.
The judgment was entered as tendered, after allowing time for the defendant to object to the form thereof, and reserved for the future determination by the Court the allowability and amount of attorney fees and costs.
The defendant contends, and no contrary supported position is offered by the plaintiff, that the defendant was engaged only in the service of staining wood, not in the buying and selling thereof.
Awardability of attorney fees and costs in this case depends on the effect of the stamped phrase on the invoices sent to Coli-man by Kolob with the delivery of the lumber which provided, “all accounts past due the date of invoice will be charged a finance charge of llh% per month, which is an annual rate of 18%. All costs incidental to the collection of past due accounts to be *427borne by purchaser, which costs include all reasonable attorney and collection fees.” Plaintiff contends that ORS 72.2070 and/or ORS 72.2080 are operative to render the additional terms stamped on the invoices part of the parties’ bargain.
ORS 72.2080 involves construction of a course of dealing between parties to a contract of sale involving repeated occasions for performance and is not applicable to the case at bar.
ORS 72.2070 provides:
“72.2070 Additional Terms in Acceptance or Confirmation
(1) A definite and seasonable expression of acceptance or a written confirmation which is sent within a reasonable time operates as an acceptance even though it states terms additional to or different from those offered or agreed upon, unless acceptance is expressly made conditional on assent to the additional or different terms.
(2) The additional terms are to be construed as proposals for addition to the contract. Between merchants such terms become part of the contract unless:
(a) the offer expressly limits acceptance to the terms of the offer;
(b) they materially alter it; or
(c) notification of objection to them has already been given or is given within a reasonable time after notice of them is received.
(3) Conduct by both parties which recognizes the existence of a contract is sufficient to establish a contract for sale although the writings of the parties do not otherwise establish a contract. In such case the terms of the particular contract consist of those terms on which the writings of the parties agree, together with any supplementary terms incorporated under any other provisions of this Act.”
ORS 72.2070(2) applies only to transactions “between merchants.” “Merchant” is defined in ORS 72.1040(1) which states:
“(1) ‘Merchant’ means a person who deals in goods of the kind or otherwise by his occupation holds himself out as having knowledge or skill peculiar to the practices or goods involved in the transaction or to whom such knowledge or skill may be attributed by his employment of an agent or broker or other other intermediary who by his occupation holds himself out as having such knowledge or skill.”
On the facts of this case defendant was not a merchant. See Playboy Clubs International, Inc. v. Loomskill, Inc., 13 UCC Rep. 765 (NY Sup.Ct., 1974). See also All-States Leasing Co. v. Ochs, 42 Or.App. 319, 600 P.2d 899, 909-910 (1979).
The Court finds that the terms of this stamped phrase on the invoices are not binding on Coliman and no attorney fees or costs are awardable to Kolob based upon them. This Memorandum Opinion constitutes the Court’s Findings of Fact and Conclusions of Law and pursuant to Bankruptcy Rule 7052 they will not be separately stated. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489943/ | MEMORANDUM
RALPH H. KELLEY, Bankruptcy Judge.
Background
For a number of years Harold M. Lasa-ter, Sr., operated several grocery stores in the Chattanooga area. Upon his death his wife became the Executrix of his estate. She sold three grocery stores to H.W. Smith, Ernest Whitfield and Alfred He-watt. The debtor corporation, Bubba’s of Tennessee, Inc., was formed to own and operate the grocery stores. The new business was not successful. An involuntary petition under chapter 11 of the Bankruptcy Code was filed against debtor corporation.
A trustee was appointed in the chapter 11 case. He employed attorneys and accountants and made every effort to reorganize the business.
The business was in disarray. The trustee had difficulty in obtaining books and records or other assets. He immediately sought the turnover of funds from several banks. It was necessary for the trustee to go to Snellville, Georgia in an effort to obtain books and records, and to seek an accounting from the principal officers of debtor corporation.
The debtor corporation was short of operating capital. The trustee, with the assistance of his attorney and accountants, procured short term financing in order to keep the grocery stores open.
The trustee also sought an order to be authorized to use cash collateral in the ordinary course of business and the proceeds of such cash collateral to be subject to any interests in the collateral.
The principal officers of the corporation did not file schedules and it was necessary *84for the court to order them and the trustee to file schedules. The trustee took the depositions of Alfred Hewatt and Ernest L. Whitfield, who were the principals of the debtor corporation.* The trustee had to seek an order from the court requiring Ernest L. Whitfield and Alfred Hewatt to appear and show cause why they should not be held in contempt of court for failure to turnover assets.
It quickly became apparent to the trustee that the grocery store in Kimball, Tennessee needed to be liquidated. The trustee employed an auctioneer to sell the equipment in the store, but he moved the inventory of groceries to the other two stores in Chattanooga.
The trustee, through his attorneys, filed complaints and won large judgments against Alfred Hewatt and Ernest L. Whitfield in an effort to recover preferential transfers.
The trustee struggled for months trying to reorganize the business and to save the jobs of a number of employees. Finally he was exhausted and filed a motion for instructions with respect to continued operation of debtor’s business. The trustee was allowed to continue operating the business but the matter was set for rehearing.
In an effort to recover assets of debtor the trustee commenced an adversary proceeding against Caroline T. Smith, widow of H.W. Smith, a deceased principal, to recover salary which he alleged was wrongfully paid to her. The case was settled for $12,000.00.
The trustee finally concluded that he was unable to continue operating the business. He filed an application to sell the inventory, fixtures, and equipment in the 23rd street store. The next month he filed an application to sell the inventory, fixtures and equipment of the Alton Park store.
All of the assets of debtor were sold and the trustee has a fund on hand. The purpose of the litigation before the court is to determine if there is a lien on the fund.
Four allegedly “secured” claims were filed against the bankruptcy estate. They were: Claim no. 40, in the amount of $164,-507.92, by the Estate of H.M. Lasater, Sr., Geraldine F. Lasater, Executrix; Claim no. 68, in the amount of $125,221.87, by J.L. Lester & Sons, Inc.; Claim no. 77, in the amount of $122,682.36, by Carolyn Teese Smith, Administratrix of the Estate of H.W. Smith; and Claim no. 79, in the amount of $66,180.71 by Super Valu Stores, Inc. The alleged liens exceeded the amount of the total fund on hand.
Upon advice of counsel the trustee filed this complaint to determine the extent, nature, validity and priority of each lien asserted.
The trustee prayed:
1. That process issue and be served on each of the defendants, requiring them to answer or otherwise plead in the time and manner required by law.
2. That the Court find that the defendant, Super-Valu Stores, Inc., has a valid lien on the inventory of the debtor to the extent of Fifteen Thousand Dollars and No/100 ($15,000.00), and declare the balance of Super-Valu’s claim to be unsecured, pursuant to T.C.A. § 67-4102, Item S(b).
3. That the Court determine the nature, extent and priority of the lien of the defendant, J.L. Lester & Son, Inc., on the debtor’s fixtures located in Marion and Hamilton Counties, and declare that Lester be unsecured as to any liens on the inventory of the debtor, for failure to comply with T.C.A. § 47-9-401.
4. That the Court determine the nature, extent and priority of .the secured position of the defendant, Caroline T. Smith, administratrix of the H.W. Smith estate, as assignee of certain pro-rata interests of the defendant Lester in Property of the debtor.
5. That the court determine the nature, extent and priority of the lien of the defendant, Geraldine F. Lasater, adminis-tratrix of the H.M. Lasater estate, on the debtor’s fixtures located in Marion and *85Hamilton Counties, and declare that La-sater be unsecured as to any interest in the inventory, machinery, equipment and accounts receivable of the debtor, pursuant to T.C.A. § 47-9-402(1), or alternatively, pursuant to 11 U.S.C. § 547.
Some months after commencing the adversary proceeding the trustee filed an application to approve a settlement of the lawsuit.
The trustee filed a memorandum in support of the settlement and alleged:
Following the filing of answers to the complaint by all four defendants, settlement negotiations were initiated to attempt to compromise the dispute among the parties, and various meetings were held where settlement proposals were discussed. Finally, on May 21, 1981, a meeting was held in Chattanooga with attorneys for all parties to the litigation being present. At that meeting, a firm settlement proposal was made by the attorney for the Trustee, and counsel for the four defendants promised to take this offer back to their clients and seek approval of the same.
Following the May 21st meeting, counsel for defendants, Super-Valu Stores, Inc. and Caroline T. Smith, administra-trix of the H.W. Smith Estate, quickly informed Trustee’s counsel that the proposed settlement was acceptable to their clients. Some time after this, the attorney for Geraldine F. Lasater, administra-trix of the H.M. Lasater Estate, assented to the settlement upon his client’s advice and so informed the Trustee’s attorney.
At the May 21st meeting, Marson Dun-away, attorney for J.L. Lester & Son, Inc., informed those in attendance that he wanted to research the law of Tennessee on the nature and validity of his client’s security interest in certain assets of the debtor, and that based upon his research he would make a recommendation to this client on whether or not to accept the proposed settlement. Some weeks after this meeting, counsel for the Trustee began making efforts to contact Mr. Dunaway by telephone, and was finally able to reach him. During this conversation, Mr. Dunaway expressed his opinion that if his client accepted the proposed offer, it might result in the discharge from liability of the H.W. Smith Estate on certain liabilities of the debtor to J.L. Lester & Son, Inc., which had been guaranteed by the Smith Estate. Counsel for the Trustee informed Mr. Dunaway that he believed this concern could be satisfied and should not be permitted to totally spoil the settlement, and promised to contact Mr. A.L. Mullins, attorney for the Smith Estate. Trustee’s counsel did contact Mr. Mullins, and informed him of Mr. Dunaway’s concern with the proposed settlement. Mr. Mullins assured the Trustee’s attorney that he would agree with Mr. Duna-way that the acceptance of the settlement in the instant case would not be raised as a ground for discharging the Smith Estate for any liability it may have to Mr. Dunaway’s client, J.L. Lester & Son, Inc. The Trustee’s attorney asked Mr. Mullins if he would contact Mr. Dun-away directly and make the same assurance to him, and Mr. Mullins stated that he would do so.
A few days after Mr. Mullins’ conversation with the Trustee’s attorney, the Trustee’s attorney once again contacted Mr. Dunaway and asked him if he would accept the proposed settlement. Mr. Dunaway advised that he had talked to Mr. Mullins and that he had researched Tennessee law on the validity of his client’s security interest in property of the debtor, and based upon these events he would accept the settlement as it had been originally proposed.
On July 24, 1981, following Mr. Duna-way’s oral acceptance of the settlement which had been proposed at the May 21st meeting, a letter was sent to attorneys of record for all parties to the lawsuit, attaching a copy of a proposed application of settlement. A copy of this letter is attached hereto as Exhibit A. In this letter, counsel for the Trustee asked all attorneys to review the settlement document and advise him by July 29 if the *86settlement agreement was not satisfactory. By July 29, Trustee’s counsel had not heard from Mr. Dunaway or any other of the attorneys involved, and accordingly on that date filed the settlement application. On July 30, 1981, counsel for the Trustee received a letter from Mr. Dunaway dated July 27, 1981 and postmarked July 28, 1981 informing him that he would not accept the proposed settlement, but instead made alternative demands for settlement.
After notice and hearing the court approved the settlement as to all parties except J.L. Lester & Son, Inc. The order provided:
Following argument of counsel for the Trustee in support of the settlement, the Trustée, pursuant to Rule 68, Federal Rules of Civil Procedure, offered judgment to the defendant, J.L. Lester & Son, Inc., in the amount said defendant was to receive under the settlement application, $2,500.00. Said offer of judgment was rejected by J.L. Lester & Son, Inc., and the Court accordingly severed this portion of the adversary proceeding from the rest of the case and ORDERED that the Trustee’s complaint against said defendant be set for trial on October 30, 1981 at 9:30 a.m. It was FURTHER ORDERED by the Court that the provisions of Rule 68, Federal Rules of Civil Procedure, concerning payment of costs shall be invoked if J.L. Lester & Son, Inc. shall recover less than the $2,500.00 offer of judgment made by the Trustee.
* * * * * 5k
The approval of this settlement shall be without prejudice to defendant, J.L. Lester & Son, Inc. to litigate its dispute with the Trustee, pursuant to the provisions set forth above.
If the defendant, J.L. Lester & Son, has a validly perfected security interest, which has priority over other creditors, in all or part of the items sold by the trustee, then J.L. Lester’s lien would attach to the proceeds of each item sold.
Findings of Fact
There is attached to trustee’s adversary proceeding “collective exhibit C” which consists of three security agreements wherein the defendant, J.L. Lester & Son, Inc., is granted a security interest in:
“All of the trade fixtures, furniture, equipment and stock of goods, wares & merchandise in bulk but changing in specifics located in maker’s place of business ...”
Almost identical security agreements were given for the two stores in Chattanooga and the store located in Kimball, Tennessee.
“Collective Exhibit D” to the trustee’s adversary proceeding consists of three U.C.C. Form 1, Financing Statements, which were filed in the county where each store is located.
The debtor in each case is described as follows:
1. Whitfield, Ernest L. Jr. and H.W. Smith & Food Giant, Kimball, Tennessee & BUBBA’S OF TENN. INC., a corp. Kimball, Tenn.
2. Whitfield, Ernest L. and H.W. Smith & Food Giant Alton Park 3719 Alton Park Blvd. Chattanooga, Tennessee
BUBBA’S OF TENN., INC. same address
3. Whitfield, Ernest L. Jr. and H.W. Smith & Food Giant 23rd Street, 23rd Street, Chattanooga, Tennessee & BUBBA’S OF TENN., INC. same address
It is undisputed that no U.C.C. Form 1, Financing Statements, were ever, filed with the Office of the Secretary of State of Tennessee.
The court finds that the defendant has no perfected lien on the debtor’s inventory and equipment because it failed to properly perfect its security interest in accordance with T.C.A. § 47-9-401, which requires a financing statement to be filed with the Tennessee Secretary of State’s *87Office. Subsection (c) of § 47-9-401(1) provides for the central filing of financing statements covering equipment and inventory: “In all other cases, in the Office of the Secretary of State.” Comment 4 to § 47-9-401 makes this clear:
In a state which has adopted either the second or third alternative (second alternative adopted in Tennessee), central filing would be required when the collateral was any kind of goods except consumer goods, farm equipment or farm products (including crops); documents; chattel paper; and accounts, contract rights and general intangibles, unless related to a farm.
If a creditor’s obligation is secured by inventory or equipment not used in a farming operation, the creditor must file the financing statement with the Secretary of State. A locally filed financing statement is not sufficient to perfect such an interest. The defendant does not have a perfected security interest in the debtor’s inventory or equipment by filing locally with the Registers of Hamilton and Marion Counties, Tennessee.
Local filings are sufficient to perfect a security interest in the debtor’s fixtures. In Tennessee, “fixtures” are narrowly defined. In order for collateral to be characterized as a fixture the goods must be so attached to the freehold so that their removal would cause substantial harm to the premises. In re Belmont Industries, 1 B.R. 608 (Bkrtcy.E.D.Tenn.1979).
In the above case the court stated:
Generally, an article annexed to realty will be held to be a fixture if it cannot be removed without material physical injury to the freehold ... In this case there is little problem with the test. Except for the boiler, the machines may be removed without substantial damage to the building and the building will be useable for other purposes. 1 B.R. 612.
In Harry J. Whelchel Co. v. King, 610 S.W.2d 710 (Tenn.S.Ct.1981) the Supreme Court held that grain storage bins do not become fixtures when erected on real property.
In Tennessee only those chattels that are so attached to the freehold that, from the intention of the parties and the uses to which they are put, they are presumed to be permanently annexed, or a removal thereof would cause serious injury to the freehold.
610 S.W.2d 712 citing Hechmon v. Booth, 131 Tenn. 32, 173 S.W. 438 (1914).
In Tennessee two rules may be set forth as being determinative on the fixtures issue: (1) to perfect a security interest a secured party must file centrally if the collateral is characterized as a fixture; and (2) the collateral in question will be characterized as equipment unless its removal would cause substantial damage to the freehold and the parties intended such collateral to be permanently annexed to the freehold.
In the present case the trustee sold cash registers, check-out counters, meat counters, produce counters, frozen food counters, gondolas, grocery carts, meat cutters, grinders, steak tenderizing equipment, grocery shelves, freezer equipment and related personal property items found in a retail grocery store. The court finds that the items sold were equipment and not fixtures. In the testimony of James L. Lester, an officer in the defendant corporation, Mr. Lester was asked: “... in the practice of the trade when knowledgeable grocery people refer to fixtures in a contract, could you tell the court what that refers to in groceryman’s language?”
Mr. Lester replied: “Well over the thirty-six years we have always said fixtures, equipment and furniture and that was something that could be moved.”
The trustee’s three witnesses who supervised the auctioning of the equipment, testified that all the equipment which was sold could be removed from the buildings in one day without damage to the freehold.
Summary
The court finds that because the defendant failed to make a central filing of each U.C.C.-l financing statement, it is unse*88cured as to the debtor’s inventory and equipment. Defendant would be secured as to any fixture because of its local filing, but the evidence presented at trial clearly demonstrates that there were no fixtures in the grocery stores sold by the trustee.
The creditor in this case is a wholesale grocery company which does most of its business in the State of Georgia. The creditor’s lawyer is licensed to practice in Georgia.
At the trial, Jimmy Lester, secretary of the creditor company, was asked, “Do you know anything about a central filing in Tennessee?”
He replied, “No sir, we don’t have them in Georgia so we filed here in the county.”
Apparently, the creditor was never advised that Tennessee law regarding place of filing is different from Georgia. An examination of the record shows that had the creditor perfected its security interest by proper central filing, it would have prevailed over the other creditors.
In conclusion, the extent, nature and priority of creditor’s asserted lien against property of the debtor’s estate is, unfortunately, zero.
This memorandum constitutes findings of fact and conclusions of law. Bankruptcy Rule 7052.
Following the trial of this cause the attorney for creditor filed a motion to reopen the trial. The motion will be dealt with by a separate memorandum and order.
ON MOTION TO REOPEN
The trustee filed suit in this bankruptcy proceeding to determine the extent, nature, validity and priority of each lien asserted. Final orders of settlement were entered as to all lien claimants, except J.L. Lester & Son, Inc.
The court has just entered a memorandum and order finding that J.L. Lester & Son, Inc., has no validly perfected lien against property of the estate.
Following the trial, but before the court entered its memorandum and order, J.L. Lester & Son, Inc., filed a motion asking among other things:
... for an order to reopen the trial in order for said defendant to place in evidence additional testimony and documents which were excluded by the court
In support of the motion, the defendant filed a brief with the following allegations:
1. Bubba’s of Tenn., Inc. did not acquire the assets purportedly purchased from Mrs. Geraldine Lasater on November 27, 1979 because there was no compliance with the Bulk Sales provisions of the UCC, and there was no compliance with the order of Chancery Court of Hamilton County, Tenn. which purportedly approved the sale to Bubba’s of Tenn., Inc. Therefore, although Lester’s financing statements were not filed in the places required by Tennessee law still Lester was a secured creditor of the H.M. Lasater estate, the secured status and agreement were specifically known to Bubba’s of Tenn., Inc. and Bubba’s took no title or interest in the property which is the subject of this litigation superior to Lester’s claims.
2. The conveyance from Mrs. Lasater to Bubba’s was the product and result of fraud on the part of Bubba’s and Mrs. Lasater.
Movant shows that although the management contracts between the Lasater estate and Smith, Whitfield and Hewatt and the petition for and order of court and bills of sale approving and consummating the sale were allowed in evidence by the court, still Lester was entitled to examine Mrs. Lasater as to whether, and the manner in which, the provisions of the agreement and order were or were not carried out.
Wherefore, movant shows that the evidence required and tendered by Lester on the issues were erroneously cut short and that the court does not have before it the evidence required to make a legal ruling on the issues, and the motion to reopen the evidence should be sustained.
*89Lester argued that Whitfield and Smith were acting as agents of Mrs. Lasater when they executed the security agreements and as a result Lester acquired a security interest in the store furnishings and old inventory as property of the Lasater estate. Lester then argues that the store furnishings and old inventory remained subject to the claims of the Lasater estate’s creditors because the property was not sold in accordance with the bulk sales law. Since Mrs. Lasater sold the property as executrix of her husband’s estate and subject to court approval, the bulk sales law did not apply. Tenn.Code Ann. § 47-6-103(4).
Contrary to Lester’s argument, the agreement approved by the chancery court did not require compliance with the bulk sales law. It allowed the parties to agree on an “appropriate method of compliance” and in the circumstances no compliance was the appropriate method. Furthermore, failure to abide by the sales agreement would be a breach of contract that Mrs. Lasater might pursue but would not necessarily give her any interest that Lester’s purported security interest might attach to.
The trustee did not deny that Lester had a security interest or that it would have had priority over the trustee’s rights if it had been perfected. The trustee simply argued that Lester’s security interest was unperfected and subordinate to his rights as a judgment lien creditor without knowledge of Lester’s interest. 11 U.S.C. § 544; Tenn.Code Ann. § 47-9-301(l)(b). No fraud by Mrs. Lasater, by the debtor, or by the debtor’s principals deprived Lester of a security interest with priority over the trustee’s rights. Lester lost that priority because of its own negligence in failing to determine the Tennessee law and file financing statements as required by it.
The question of priority between Lester and any parties other than the trustee and the question of whether fraud affected Lester’s priority as to those other parties are irrelevant.
Finally, even if fraud causes a creditor to have an unperfected security interest, that does not mean the security interest will be treated as perfected against the lien of a judgment creditor who has no knowledge of the security interest. See Chattanooga Brick & Tile, Inc. v. Agnew, 18 U.C.C.Rep. 1063 (Tenn.App.1976); In re Jerome, 31 B.R. 266, 37 U.C.C.Rep. 331 (Bankr.D.Vt.1983).
The evidence excluded by the court was irrelevant to the questions at hand and was properly excluded. The motion to reopen the proof is therefore denied.
H.W. Smith had died. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489944/ | MEMORANDUM
RALPH H. KELLEY, Bankruptcy Judge.
The plaintiff filed a complaint against the debtor, John Phillip Ryans, alleging that he owes the plaintiff a debt that cannot be discharged in bankruptcy. The plaintiff relies primarily on Bankruptcy Code § 523(a)(2)(A) which provides:
(a) A discharge under section 727, 1141, or 1328(b) of this title does not discharge an individual debtor from any debt—
(2) for obtaining money, property, services, or an extension, renewal, or refinance of credit, by—
(A) false pretenses, a false representation, or actual fraud, other than a statement respecting the debtor’s or an insider’s financial condition; ...
In the summer of 1981 the debtor sold the plaintiff a business known as The Sports Shop, which was located in East Ridge, Tennessee. The plaintiff paid the defendant $36,588.16 for the business.
Two documents were executed as part of the sale. One is entitled “Bill of Sale” and provides as follows:
The undersigned does hereby warrant that said property is free and clear of all debts, taxes, and all other liens or en-cumberances as of the date of this instrument.
The bill of sale is signed by the debtor.
The other document is signed by the plaintiff and the debtor. It provides:
Buyer shall pay all debts, taxes, liens or other encumberances which are created against the stock, merchandise, equipment, fixtures, furnishings and all other personal property located at “THE SPORT SHOP”, 5611 Ringgold Road, East Ridge, Tennessee 37412, beginning July 27, 1981 and buyer shall be responsible for all accounts payable prior to July 27, 1981.
The plaintiff testified that he worked at the store as a sales clerk for three months before he purchased it. He did not order merchandise or pay bills. When he bought the store, he was 28 years old. He was to pay $36,000 cash and assume $10,400 in accounts payable. He twice asked the debtor to give him the accounts payable but didn’t find out the exact amount. The debtor told him they were $10,400. The plaintiff did an inventory check before buying the business and valued the inventory on hand at $30,000. He also asked the debtor to provide him a profit and loss statement, which he did provide. The accounts payable were in fact more than $20,-000. Paying the unexpected debts used up the plaintiff’s operating capital, caused the *91business to fail and put the plaintiff himself into bankruptcy.
Gary Ballou testified that he talked to the debtor about the business in the summer of 1981 before plaintiff bought the business. The debtor told him that the business’s accounts payable were about $10,000. Mr. Ballou said that the business seemed profitable as far as he knew, but he did not buy.
The debtor testified that he told the plaintiff that the business was making a profit. He also testified that he furnished the plaintiff any information that he requested. He further testified that he didn’t tell the plaintiff that the accounts payable totaled any certain amount. In summary, the defendant testified that the plaintiff agreed to buy a going business, with $30,000 in inventory, and pay the business’s debts, whatever they were.
The court finds it unbelievable that the plaintiff would have agreed to buy the business without some representation of the approximate amount of the accounts payable. The court believes that the debt- or intentionally misrepresented the amount of the accounts payable in order to sell the business to the plaintiff and as a result the plaintiff suffered damages. The result is that the debtor owes the plaintiff a debt that is not dischargeable in bankruptcy.
The debtor has argued that the debt is dischargeable because oral misrepresentations of his financial condition are not a ground for excepting a debt from discharge under § 523(a)(2). See Blackwell v. Dabney, 702 F.2d 490, 10 B.C.D. 442 (4th Cir.1983); In re Pollina, 31 B.R. 975 (Dist.Ct.D.N.J.1983); In re Patch, 22 B.R. 970 (Bankr.D.Md.1982). The sole proprietor of a business is personally liable for its debts and a misrepresentation of the amount of the business’s debts is a misrepresentation of the amount of the sole proprietor’s debts. However, when the sole proprietor is selling the business, it can be viewed as property being sold and an oral misrepresentation of the amount of its debts is not for purposes of § 523(a)(2)(A) purely an oral misrepresentation of the sole proprietor’s financial condition. The buyer is not interested in the sole proprietor’s financial condition as such but is interested in the business’s financial condition. The court therefore rejects the debtor’s argument in this case.
The plaintiff alleged that the nondis-chargeable debt is $9,677.88, though the total damages were more. The court finds in favor of the plaintiff and will enter an order holding the debtor liable for a nondis-chargeable debt in the amount of $9,677.88.
This memorandum constitutes findings of fact and conclusions of law. Bankruptcy Rule 7052. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489945/ | MEMORANDUM
CLIVE W. BARE, Bankruptcy Judge.
At issue is whether a judgment debtor, Tennesco, Inc., the original payee of certain promissory notes, has any interest in the notes after sale and endorsement which may be garnished where it retained physical possession of the notes as servicing agent for sixteen savings and loan associations, purchasers of participatory interests collectively totaling one hundred percent of the face value of the notes. Plaintiff, trustee of Southern Industrial Banking Corporation, the debtor in a chapter 11 reorganization case, contends that either notice to the original debtors of the transfers or delivery of the notes to the savings and loan associations was required to defeat its rights as an intervening lien creditor. The savings and loan associations insist that the judgment debtor is merely a trustee without any equitable interest in the contested funds. Amici curiae maintain the controversy is governed by Tenn.Code Ann. § 48-2-201 (1984).1
I
The facts have been stipulated. Plaintiff is the original trustee in bankruptcy for Southern Industrial Banking Corporation (SIBC), formerly an industrial loan and thrift company. Defendant Tennesco, Inc. was organized and owned by a group of savings and loan associations seeking to make commercial mortgage loans outside their normal service area. When the organizing savings institutions sold their stock to third parties, Tennesco became an independent mortgage company. Tennesco continued its business of making original mortgage loans and selling participations in notes to financial institutions in the secondary mortgage market. The sixteen intervening defendant savings and loan institutions are purchasers of participation interests in six promissory notes originally payable to Tennesco.
On August 10, 1983, plaintiff obtained a judgment in the United States district court against Tennesco in the amount of $544,-646.82. In an effort to enforce this judgment, plaintiff applied for writs of execution and attempted to garnish payments to Tennesco by the payors of the six notes collectively purchased by the defendant savings and loan associations.2 Each garnishee filed an answer or response. While the validity of the notes is not disputed, two garnishees deny they are indebted to Tennesco. A third garnishee stated that he *99does not know who holds his note to Ten-nesco.
Prior to service of the writs of garnishment, each defendant savings and loan association, for a valuable consideration, entered into a loan participation agreement with Tennesco. Although the terms of these agreements are not all identical, they generally provide for the sale by “Seller” (Tennesco) to “Buyer” of an undivided participating ownership of first mortgage loans, to be identified in a certificate of participation, and retention of legal title to the mortgage loans by Tennesco as trustee for the participating financial institutions. Further, the agreements provide that Ten-nesco is a trustee with fiduciary duties in its servicing of the mortgage loans; the loan participation agreement is a trust agreement between the parties; and the transfer of interest in the mortgage loan(s) constitutes a sale which will be evidenced by Tennesco’s endorsement of the notes sold. Each note, in question was endorsed by Tennesco “without recourse, as their interests may appear, pay to the order of [participants]” at the time of purchase.3
The defendant savings and loan associations have purchased participation interests totaling one hundred percent of the face value of the six notes subject to the garnishment writs.
Pursuant to its duties under the loan participation agreements, Tennesco collected payments on the notes sold to the participating financial institutions. These payments, less a service fee, were transferred to the participants in proportion to their interest. Tennesco retained physical possession of the notes in question until November 9, 1983, when the notes were delivered to Metropolitan Federal Savings and Loan Association (Metropolitan).4 By letter dated November 10, 1983, Tennesco notified the six garnishees that Metropolitan had been substituted as servicing agent for their notes.
II
With exceptions immaterial, Tenn.Code Ann. § 47-9-102(1) (1979) enacts in relevant part:
[T]his chapter applies so far as concerns any personal property ... 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 ... including ... instruments_
The transfers of Tennesco’s interest in the six notes at issue through the issuance of participation certificates constitute sales. The loan participation agreements expressly provide for the “sale” of undivided ownership interests in mortgage loans. Throughout the loan participation agreements the parties are identified as “Seller” and “Buyer.” No debtor-creditor relationship arose between Tennesco and any defendant savings and loan association as a consequence of the purchase of the notes. Manifestly, Tennesco and the defendant savings and loan associations did not intend to, nor did they, create a security interest through or in conjunction with Tennesco’s transfer of the notes. Accordingly, Chapter 9 of Title 47 of the Tennessee Code is inapposite, and it was not necessary for the savings and loan associations to take possession of the notes to perfect their interest.5
Tenn.Code Ann. § 26-2-202 (1980) recites:
Property, debts and effects liable to satisfy judgment. — All property, debts and effects of the defendant in the possession of the garnishee, or under his *100control, shall be liable to satisfy the plaintiff’s judgment, from the service of the notice, or from the time they came to his hands, if acquired subsequent to the service of notice, and before judgment.
Also, Tenn.Code Ann. § 29-7-101 (1980) provides:
Assets subject to garnishment. —Where property, choses in action, or effects of the debtor are in the hands of third persons, or third persons are indebted to such debtor, the attachment may be by garnishment.
Obviously, only Tennesco’s interest in the notes was subject to garnishment when the writs of execution were served. But the six notes were all endorsed by Tennesco to the order of various savings and loan associations prior to service of the garnishment writs. Thus, the notes were payable to the endorsee savings and loan associations, previous to garnishment, and could not have been negotiated without their endorsements. Tenn.Code Ann. § 47-3-204(1) (1979).
As a garnishor, plaintiff’s rights against the garnishees are no greater than those of Tennesco. See J.C. Mahan Motor Co. v. Lyle, 167 Tenn. 193, 67 S.W.2d 745 (1934). Tennesco had neither a beneficial nor equitable interest in the six notes when the respective garnishment writs were served. Tennesco merely held legal title to the notes when the writs were served and could have enforced payment only as trustee for the benefit of the endorsee savings and loan associations.
Property and funds owned by, or due to, defendant as a trustee are not subject to garnishment for his individual debts_ A bare legal title in defendant is insufficient where the equitable or beneficial interest is in another. (Footnotes omitted).
38 C.J.S. Garnishment § 81 (1943). See also Nashville Trust Co. v. Weaver, 102 Tenn. 66, 50 S.W. 763 (1899) (corporate stock held by debtor as a trustee not subject to execution against him individually). Hence, plaintiff may not garnish the payments on the six notes because these payments are not property of Tennesco.6
This Memorandum constitutes findings of fact and conclusions of law, Bankruptcy Rule 7052.
. Participation certificates in bonds or notes secured by mortgages on realty. — Persons issuing and selling participation certificates in bonds or notes secured by mortgages or deeds of trust on land in this state shall hold legal title to such bonds or notes in trust for the use and benefit of bona fide purchasers of such certificates to the extent of the interest assigned to such purchasers.
. Plaintiff attempted to garnish payments against the following notes:
Original Date of Principal Service Date of Payor Note Amount Garnishment Writ
Finley-Moss, III- 10/31/77 $1,025,000 11/3/83 Golden Gallon,
Original Date of Principal Service Date of Payor Note Amount Garnishment Writ
Gardens, Ltd. 3/1/77 $2,650,000 10/24/83
Ogle's of 10/1/73 $300,000 Gatlinburg, Inc. 12/5/83
Reuben N. Pelot 6/9/77 $200,000 10/21/83
Southern Package 11/19/76 $600,000 & Storage Co. 10/21/83
Wayside Health Care Center, 9/14/77 $750,000 12/1/83
. This finding is based on the parties’ stipulation. Out of the six notes in question, only four of the copies accompanying the stipulation of facts as exhibits reflect Tennesco’s endorsement.
. Two of the notes, the Pelot and Ogle’s notes, were delivered by Tennesco to Metropolitan and Cookeville Federal Savings and Loan Association, respectively, previous to plaintiffs levy of execution.
.Compare Peoples Bank v. McDonald (In re Maryville Savings & Loan Corp.), 743 F.2d 413 (6th Cir.1984) (assignee of deed of trust notes failed to perfect interest because it did not secure possession of the notes).
. This case is not controlled by 11 U.S.C.A. § 541(d) (1979) because Tennesco is not a debt- or in bankruptcy. However, the court’s conclusion is clearly consonant with the purpose underlying the enactment of Code § 541(d). See In re Columbia Pacific Mortgage, Inc., 20 B.R. 259 (Bankr.W.D.Wash.1981) (interest of participating savings and loan association in notes left in debtor’s possession not property of debtor mortgage company’s estate). | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489947/ | MEMORANDUM
JAMES A. PUSATERI, Bankruptcy Judge.
This is a proceeding in which the Coats State Bank objects to the debtors’ repeated attempts to change their claimed homestead exemption in order to include property that subsequent to filing they have discovered to be most valuable.
The Coats State Bank is represented by Dale L. Somers of Eidson, Lewis, Porter & Haynes, Topeka, Kansas, and the debtors are represented by Dan E. Turner, Topeka, Kansas. Also appearing are the debtors, Huey P. and Ann P. Grey, and the trustee, Beau Williams, Topeka, Kansas.
FINDINGS OF PACT
At the hearing on this matter, the debtors presented the following plat of the land they wish to exempt:
*438
The tract is outside any city limits, contains 160 acres and partitioned out of the rest of the land owned by the debtors. It includes one irrigated circle (the octagon at right of the diagram), a corridor apparently about 150 feet wide and 1,500 feet long through which runs the irrigation system, and a rectangular tract approximately 1,500 feet by 523 feet containing the debtors’ home. The boundary of the tract is further complicated by rectangular parcels jutting off the octagon and the irrigation corridor. Debtors, after their bankruptcy filing, have drilled five oil wells. At the hearing the debtor, Huey Grey, stated that he is sure that two of the wells are within the claimed homestead parcel, and as for the other three, if they aren’t included, “they are real close.”
Shortly after the hearing, debtors submitted the following diagram accompanying a “corrected survey report”:
*439
The reason which necessitated the correction is not stated. The configuration of the property has changed only slightly and now excludes part of the irrigation circle while including more corner area.
CONCLUSIONS OF LAW
The law of Kansas is that in order to qualify as a homestead, the land must contain the debtors’ residence. Peak v. Bank, 58 Kan. 485, 489, 49 P. 613 (1897). Separate parcels may comprise the homestead, but only if the parcels are contiguous and therefore comprise a single tract or body of land. Randal v. Elder, 12 Kan. 257, Syl. HIT 1, 3 (1873). Parcels are not contiguous if they merely corner on each other. Linn County Bank v. Hopkins, 47 Kan. 580, 582, 28 P. 606 (1892).
No reported Kansas case has considered the problem of a homestead exemption claim which consists of tracts which are contiguous but form a parcel of highly irregular shape. The only pronouncement of a Kansas appellate court that gives any guidance in such a situation is contained in the case of Lenora State Bank v. Peak, 3 Kan.App. 698, 44 P. 900 (1896). In holding that a farmer was not entitled to his claimed homestead exemption because it did not include his residence, the court noted that the selection of homestead “must ... be made in a reasonable manner; and regard should ordinarily be had for recognized subdivisions of sections, so that the value of the remaining lands be not unreasonably affected.” 3 Kan.App. at 702, 44 P. 900, citing Railroad Co. v. Winter, 44 Tex. 597, 611 (1876); Todd v. Gordy, 28 La.Ann. 666, 666 (1876). The Kansas Supreme Court reversed the final result in that ease, holding that under the special circumstances presented, the debtor ought to be given a chance to reselect his homestead exemption in such a way that his residence and the desired farm land would be in contiguous parcels. Peak v. Bank, 58 Kan. 485, 49 P. 613 (1897). The following diagram shows the sort of tract that the Kansas Supreme Court said would be reasonable. 58 Kan. at 490, 49 P. 613. Note that it is a far cry from the oddly shaped tract suggested by the debtor in this case.
*440
The Supreme Court's suggestion does not follow “recognized subdivisions of sections,” if by this the Court of Appeals was referring to quarter sections (160-acre tracts). The parcels the Supreme Court suggested, however, are 40-acre tracts, in themselves parcels of considerable size and which leave for the disposition of creditors lands of reasonable shape and useful dimension. Consequently the Supreme Court’s opinion is not inconsistent with the rule announced by the Court of Appeals against unreasonably affecting the value of the remaining lands. No Kansas case indicates that a contrary rule is the law of this state.
Oddly shaped homesteads have been proposed in jurisdictions other than Kansas. The touchstone in nearly every decision has been the right of creditors and other third parties not to have their interest impaired by the debtor’s reservation of the most valuable pieces of land for himself through creation of oddly shaped tracts.
Hanchett v. McQueen, 32 Mich. 22 (1875) involved a homestead described by the Michigan Supreme Court as follows: “seventy-five feet square in the center of the block, with a strip sixteen feet wide running out to the street on one side of the block. This parcel cut considerable portions out of four lots, and greatly damaged them.” The court denied the homestead exemption on other grounds, but expressed stern disapproval of the selection of the homestead exemption, noting that “[t]he house was so situated that it greatly impaired the value of several of the lots as separate parcels, and the location of the enclosure was still more injurious.” 32 Mich, at 25-26.
In Sparks v. Day, 61 Ark. 570, 33 S.W. 1073 (1896), the homestead claimed was roughly the south half of a city block with a two-foot wide walk to the stable located in the northeast corner of the block and another two-foot wide walk to the servant’s house located in the northwest corner of the block. The parcel remaining after the homestead claim was laid off had no access to any street, only access to the alley. The diagram accompanying the case is reproduced below.
In declaring that the selection was null and void, the Arkansas Supreme Court quoted a treatise writer, Waples, with approval:
Creditors are interested in the parts of a tract which are not exempt; and it never was the intent of the legislature to cut them off from this remedy against nonexempt property, while protecting a limited quantity as a homestead. While *441the confinement of a homestead to the regular shape of * * * city lots is not a rule, because not everywhere practicable, it may be laid down as a rule that one authorized to select, declare, and record a homestead with a quantitative limitation cannot be permitted to carve it out of his land in such form as to leave the remainder worthless, or to impair its value, so that creditors shall be impaired.
The Alabama Supreme Court in Jaffrey (et al.) v. McGough, 88 Ala. 648, 7 So. 333 (1890) described a homestead claim brought before it as follows:
In the selection of his homestead the appellee did not select the lands immediately contiguous to his dwelling, but selected the amount in a very zigzag manner, having no regularity in the selection, and making a very remarkable plat of land.
Regarding the limits on the debtor’s discretion to select his homestead, the court stated:
A homestead, if we could suppose such a case, fenced in the shape of an animal, a bird, a flower garden, or other fantastic shape, would not cease to be exempt from execution on this account, provided it be of lawful area and value, and the entire tract owned was in this particular form; although it is manifest that a selection in these quaint forms, made from a larger tract of land, would be unreasonable and capricious, and not allowable.
The court was aware of a debtor’s understandable desire to select the most valuable parcel as his homestead. In this connection, it noted:
It may be urged that a selection by contiguous 40’s would often operate unjustly in compelling the selection by a debtor, a widow, or a guardian of land of inferior quality and insignificant value, and thus prevent the equal distribution of the more valuable lands. This is no doubt true. But the main object in view is the dwelling house; a place of shelter and residence for the debtor; a home for the widow and children. As observed in a recent case by the supreme court of Texas, answering such a suggestion: “The object of the constitution was not to protect the home with 200 acres of the most valuable land that might be in a large tract, but to protect the house and the farm, tan-yard, mill, gin, or whatever had been used in connection with the residence, to make a support for the family.” Winter’s Case, 44 Tex. 597, 611, supra.
Then the court quoted Thompson on Homesteads and Exemptions:
“a person in laying off his homestead, will not be permitted to gerrymander through- different public surveys, making a tract irregular and unusual in shape, in order to bring within it land of a peculiar value, when to do so will work a fraud on those who have innocently purchased from him.” Thomp.Homest. & Ex. § 120.
In holding that the selection proposed to it was improper, the court concluded:
An inspection of the remarkable diagram of the homestead attempted to be selected in this case, — running, as its boundaries do, in a zigzag direction, and shifting towards every possible point of the compass, shapeless in its capricious irregularity, and without apparent design except to take unjust advantage, — a most casual inspection of it, we repeat, is the surest demonstration that such a thing cannot be tolerated by the law. It stamps itself as a freak of unbridled discretion, arbitrary and capricious in character, unreasonable in mode, and unjust in consequence. It wrongs the adjacent owners, whose lands are disfigured in shape and mutilated in their boundaries, and, if permitted, would establish a rule of law which would become the ready instrument of fraud and injustice. It would be a reproach to our jurisprudence to recognize any principle which would allow it to stand, or which would tie the hands of a court of conscience so as to prevent its being effectively remedied.
*442Albeit in dicta, the Florida Supreme Court has stated:
“It may be that in a case where a man resides with his family upon a very large farm, and is called upon to select his homestead that the remainder may be subjected to his debts, he would be restrained by a rule requiring a reasonable exercise of the right from selecting his homestead in narrow strips of land running through the entire tract in fanciful, queer, whimsical contortions, making a grotesque figure, but there is no reason why the owner of a homestead which lies in a compact unusual body may not sell such parts of it as he may desire and retain the remainder for his homestead ...” Shone v. Bellmore, 75 Fla. 515, 78 So. 605, 608 (1918).
Also in dicta, the Nebraska Supreme Court stated that “a homestead claimant will not be permitted to lay off or select the homestead in an arbitrary, capricious or unreasonable shape, so as to occasion loss or damage.” In Re Thomas’ Estate, 178 Neb. 578, 134 N.W.2d 237, 242 (1965).
The Wisconsin Supreme Court foresaw the irregular shape problem when in Kent v. Agard and Others, 22 Wis. 150 (1867) it stated: “[t]here can be no doubt that ... it was the design of the statute to allow [an owner of a homestead right] to select, without regard to the government survey, any forty acres, in reasonable shape, that would include his dwelling.” 22 Wis. at 152 (emphasis added).
The Oklahoma Supreme Court kept the rights of creditors in mind when it stated that the owner had the right to select 160 acres of his land as a homestead, “provided such selection included the residence or home of the family and was not manifestly made in disregard of the rights of others.” Elliot v. Bond, 72 Okla. 3, 176 P. 242, 243 (1918), citing Jaffrey (et al) v. McGough, 88 Ala. 648, 7 So. 333 (1890); Sparks v. Day, 61 Ark. 570, 33 S.W. 1073 (1896).
The parcel selected by the debtors in this case is not a permissible homestead exemption in Kansas under the rule of the Peak cases. The dimensions on the survey map provided by the debtors show that the eastern portion of the tract is an irrigated circle with a diameter of approximately one-half mile, containing approximately 130 acres. The strips of land comprising the remainder of the debtors’ requested exemption total 30 acres, more or less. Such a small area fashioned into two narrow rectangles is not the sort of parcel that was approved by the Supreme Court in Peak. It is clear that the value of the remaining lands would be “unreasonably affected” by the proposed partition. The four corners lying just outside the irrigated octagon are dry land and furthermore too small for productive use. Similarly, the areas north and south of the irrigation corridor and those tucked away in the corners created by the perimeter of the proposed tract would be of little or no value to a farmer other than the debtor because of their size and the fact that they are partially enclosed by the debtors’ parcel. The debtors have apparently made an effort to draw their exemption claim so as to retain the most valuable portions of their property, including the residence and its appurtenances, the irrigation well and lines, the irrigated land, and some if not all of the oil wells. It is clearly the debtors’ intention to leave only the least valuable land to the disposition of their creditors.
The proposed parcel is of the same sort as the parcels which have been held to be improper homestead exemptions in Michigan, Arkansas and Alabama. If the claimed homestead exemption were allowed, the creditors in this case would be damaged because the value of the remaining land would be greatly impaired. Therefore, it is the opinion of this Court that the correct interpretation of Kansas homestead exemption law is that the exemption claimed by the debtor cannot be allowed. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489948/ | OPINION AND ORDER
WALTER J. KRASNIEWSKI, Bankruptcy Judge.
This matter is before the court upon the motion of the Plaintiff, Judith Brandstadt for summary judgment against the Defendant, William John Brandstadt to find a debt incurred by the debtor under the terms of a divorce decree nondischargeable under § 523(a)(5) of the Bankruptcy Code and upon defendant’s cross motion for summary judgment.
The plaintiff contends that defendant’s debt is nondischargeable because it “actually was in the nature of alimony, maintenance, or support.” The court finds that the debt arose from a property settlement and furthermore that there was never any intention that it provide spousal support. Thus the plaintiff’s motion for summary judgment must be denied. There being no genuine issue of material fact, the court finds that defendant is entitled to judgment as a matter of law, and plaintiff’s complaint should be dismissed with prejudice.
FACTS
The parties were married on June 6, 1959. The couple had three children all of whom are now emancipated. When the parties were divorced on October 1, 1981 the youngest child was 16 and she was put in the custody of her mother under the divorce decree.
At the time of the divorce both parties were working. Judith Brandstadt, Plaintiff held a teaching position in the Shawnee Consolidated School System and William Brandstadt, Defendant owned and operated the McKee Tool and Supply Company.
The extensive and detailed divorce decree did not have a separate section covering alimony. It did have sections titled: separation, marital duties, custody, visitation, child support, medical expenses, tax exemptions, real estate, household goods and furnishings, motor vehicles, personal effects, life insurance, expenses and debts, employment benefits, future debts, intangible property and other payments. The plaintiff claims that the debt listed in the “other payments” section was actually an alimony payment. The other payments section provides as follows:
*540OTHER PAYMENTS
In full and final satisfaction of any and all claims and rights that the Wife may have, the Husband shall pay to the Wife the sum of Thirteen Thousand Eight Hundred Seventy-Five Dollars (13,875.-00). Said sum shall be payable in sixty (60) equal monthly installments of Two Hundred Forty-four Dollars and 69/100 ($244.69) each, which sum includes the interest on the unpaid principal balance at the rate of Twelve Percent (12%) and one final payment of Two Thousand Eight Hundred Seventy-Five Dollars (2,875.00). After the payment of the 60th consecutive monthly installment of Two Hundred Forty-four Dollars and 69/100 ($244.69), the Husband will have reduced the principal balance by Eleven Thousand Dollars ($11,000.00) and the Husband shall pay the principal balance of Two Thousand Eight Hundred Seventy-five Dollars ($2,875.00) on the 30th day of the sixty-first month.
The defendant argues that the debt represents a property settlement, not alimony. Mr. Brandstadt claims that because his wife was employed at a salary of approximately $17,500.00 per year, healthy, receiving child support for one child at the rate of $125 per week and settled for assets and a note worth $81,125.00 that alimony was never considered.
Defendant in support of his proposition that this debt represents a property settlement, points out that he received assets valued at $94,970.00 while the plaintiff took property with an agreed value of $67,-250.00. To equalize the difference of $27,-720.00 the defendant gave the plaintiff a note in the amount of $13,875.00 the details of which are incorporated in the divorce decree under the heading “other payments.”
The defendant filed bankruptcy in August 1982. At that time he had made 10 payments, leaving a balance due of $12,-765.37. This balance was scheduled as a secured debt in defendant’s bankruptcy petition. The plaintiff now claims that this balance is nondischargeable under § 523(a)(5) of the Bankruptcy Code.
Both parties have filed motions for summary judgment claiming there is no genuine issue as to any material fact, therefore asking the court to enter judgment as a matter of law on the pleadings.
DISCUSSION
The sole issue in this case is the dis-chargeability of a debt owed by the defendant to his ex-spouse the plaintiff, as a result of their divorce. The determinative statutory provision is 11 U.S.C. § 523(a) which excepts from discharge, payments:
(5) to a spouse, former spouse, or child of the debtor, for alimony to, maintenance for, or support of both spouse or child, in connection with a separation agreement, divorce decree, or property settlement agreement, but not to the extent that—
(A) such debt is assigned to another entity, voluntarily, by operation of law, or otherwise (other than debts assigned pursuant to section 402(a)(26) of the Social Security Act); or
(B) such debt includes a liability designated as alimony, maintenance, or support, unless such liability is actually in the nature of alimony, maintenance or support.
Therefore this Court must determine whether the debt in question is merely a property settlement which is dischargeable or if it represents alimony, maintenance or support, which is nondischargeable.
A three part test to determine the dis-chargeability of a debt incurred pursuant to a divorce proceeding was provided by the United States Court of Appeals for the Sixth Circuit in Long v. Calhoun (In re Calhoun), 715 F.2d 1103 (1983). The first inquiry is “whether the state court or the parties to the divorce intended to create an obligation to provide support ...” Id. at 1109. If the answer is negative then the discussion ends and the debt is dischargea-ble. The second part of the test begins “if the bankruptcy court finds, as a threshold matter, that assumption of the debts was *541intended as support it must next inquire whether such assumption has the effect of providing the support necessary to ensure that the daily needs of the former spouse and any children of the marriage are satisfied.” Id. Again, as with the first part of the test, if a negative answer results which indicates the assumption of the debt is not necessary to provide support, the inquiry ends and the debt is dischargeable. The third step is “having found that the loan assumption has the effect of providing necessary support, the bankruptcy court must finally determine that the amount of support represented by the assumption is not so excessive that it is manifestly unreasonable under traditional concepts of support.” Id. at 1110. Furthermore, the court in Calhoun reminds us that the burden is upon the ex spouse to establish nondis-chargeability.
To determine whether the state court or the parties to the divorce intended to create an obligation to provide support through the assumption of a debt or incurring a direct obligation to pay the ex spouse, “the bankruptcy court may consider any relevant evidence including those factors utilized by state courts to make a factual determination of intent to create support.” Id. at 1109. Calhoun lists various factors considered by bankruptcy and state courts in considering whether or not the parties intended to create an obligation for support as follows:
the nature of the obligations assumed (provision of daily necessities indicates support); the structure and language of the parties’ agreement or the court’s decree; whether other lump sum or periodic payments were also provided; length of the marriage; the existence of children from the marriage; relative earning powers of the parties; age, health and work skills of the parties; the adequacy of support absent the debt assumption; and evidence of negotiation or other understandings as to the intended purpose of the assumption.
Id. at 1108 n. 7. Additional factors considered by other bankruptcy courts are “the amount of support the state court would have reasonably granted” (citations omitted) and “whether some provision is made for termination of the debtor’s sole responsibility for the assumed obligation upon remarriage of the former spouse or age of majority in the children.” (citations omitted) Id. at-1108. This court has considered all of the aforementioned factors in searching for the actual intent of the parties when they agreed to the “other payments” section of the divorce decree which represents a debt for $13,875.00.
Unfortunately the plaintiff must have lost sight of the fact that for this debt to be held nondischargeable under § 523(a)(5) she bears the burden of proving that it was intended as alimony or support because at no time did she allege this debt was intended to replace alimony payments. Instead plaintiff’s assertions consisted of the following: 1) that to discharge this debt would make a mockery of the law of contracts, 2) that the court should inquire into the defendant’s lifestyle because he might belong to a country club, 3) that she admits the amount of the debt was based on the property evaluation but says it was done for tax purposes, 4) that there was a disparity of income at the time of divorce, 5) that she depended on these payments, 6) that she negotiated away her alimony, 7) that if she had known her ex husband would declare bankruptcy she wouldn’t have let him sign a promissory note. Plaintiff’s last assertion is certainly the most credible.
On the one hand plaintiff readily admits that the debt represents the difference in value of the property each spouse received and that she gave up any rights to alimony. Yet on the other hand she claims to have depended on the payments. Of the many and varied declarations the only ones relevant to this case are the claims of disparity of income and dependence on the payments but plaintiff did not provide any evidence to support these claims.
Plaintiff merely states she was dependent on the payments. She did not offer any budget, or other statements that *542would show financial need. On the issue of disparity of income plaintiff relies on a 1980 income tax return which shows the defendant earning $88,900.00 and her income at $17,569.00. Those figures alone do not supply the court with the information it needs to find an intent to provide support. Raw income data does not accurately reflect the financial status of the parties. The defendant recognizing this admits the disparity on the income sheet but then goes on to fill in the picture by explaining that along with the assets he received he also assumed all of the debts of the marriage which were considerable. In fact when the defendant’s debts as well as his income are compared with plaintiffs salary, interest income and child support, the plaintiff may have had more disposable income than the defendant.
Unlike the plaintiff, the defendant through his counsel focused his motion on the issue of intent. Defendant asks the court to find this debt was merely a property settlement which was never connected with alimony or support and he substantiates his claim with affidavits.
First Mr. Brandstadt illustrates the basis of the $13,875.00 note. Defendant states in his motion “under the division of property finally agreed upon by the parties the defendant took assets valued at $94,970.00 and the plaintiff received property with an agreed valuation of $67,250.00. To equalize the difference of $27,720.00 the defendant gave the plaintiff a note in the amount of $13,875.00 amortized over 5 years at 12% annum in 60 equal installments of $244.69 and one (1) final payment of $2,875.00.” As previously noted the plaintiff admits in her motion that the note was based on a property settlement.
Next the defendant argues that the short term of the note should indicate that it was intended as a property settlement and not for the purpose of providing support. While the note called for payments to be made over a 5 year period the defendant’s attorney for his divorce stated in an affidavit that originally the plaintiff demanded a lump sum payment and that only after weeks of negotiation was the longer period agreed upon. Courts have considered the nature and duration of payments finding that short term payments are more likely to indicate a property settlement than payments made over a substantial period of time. See Shaver v. Shaver, 736 F.2d 1314, 1316 (9th Cir.1984).
Traditionally the courts and the I.R.S. in an effort to differentiate between support payments and property settlements have considered what terminates the debt. Certainly if a party is concerned about receiving payments to provide for the basic necessities they would not agree to terminate them until something occurred which would alleviate their need. Often times the terminating event has been death or remarriage but these are by no means totally inclusive of all the possibilities. Conversely a debt for property settlement is for a fixed sum over a shorter period of time. In this case the only terminating factor was the final payment of a definite sum representing a property division. In this case it clearly indicates that the debt was not intended to provide alimony or support. See Shaver, supra at 1316.
The defendant has consistently denied that alimony was ever considered by him and if it ever was the intent of the plaintiff it was waived because of other assets received in the divorce decree. In support of this assertion the defendant refers to a letter addressed to defendant’s attorney for the divorce, James King dated August 21 from plaintiff’s attorney Lawrence Huffman which states as follows: “you stated you do not feel this is an alimony case. Without arguing that matter out or conceding your opinion we are willing to compromise the alimony issue by fixing the child support at $150.00 per week. In light of Jill’s birthday, December 11, 1965, Mr. Brandstadt would be free of all alimony and support obligations in just over two years.” Plaintiff in her motion for summary judgment admits that her right to alimony was negotiated away. On the foregoing facts it is impossible for the court to find *543anything but that the debt did not represent alimony.
Finally, the defendant lists some of the reasons why he never considered that his ex spouse would need alimony. Defendant’s reasons coincide with the factors considered by the court in In re Hoover, 14 B.R. 592, 596 (N.D.Ohio W.D.1981) when it was trying to determine the nature of a promissory note given to a former spouse. Among those considerations were 1) disparity of earning power, 2) business opportunities, 3) level of education, 4) physical health and 5) provable need for future support.
In the present matter the plaintiff was earning approximately $17,500.00. Her salary coupled with child support payments of $6,500.00 and additional income from her stocks and other real estate provided her with a disposable income equal to or in excess of the defendant’s. The plaintiff holds a degree in education and has done work toward a masters degree. Furthermore she is in good health and no longer has any unemancipated children at home. Considering all of the previous factors and plaintiff’s failure to dispute them the court cannot find that the plaintiff depended on these payments for her support.
Taking all of the various factors into consideration the court finds that the plaintiff never met her burden of proving the debt was intended as alimony or support and that the defendant demonstrated conclusively that the promissory note was based on a property settlement and was thus dischargeable. According to Calhoun the inquiry stops once it is established that the obligation was not intended as alimony or support. However, it is interesting to note that the plaintiff is a teacher earning at least $17,500.00 per year, with no dependents from this marriage, is now remarried, and still has all the assets she received from the divorce decree while the debtor lost all of his assets that he took according to the divorce, earns less than $1,000 a month on commissions and lives in an apartment. From these facts it appears the plaintiff wouldn’t have fared any better had she made it past the threshold question of intent.
In light of the foregoing reasons, it is hereby,
ORDERED that plaintiff’s motion for summary judgment be, and it hereby is, denied. It is further,
ORDERED that plaintiff’s complaint be, and it hereby is, dismissed with prejudice. It is further,
ORDERED that defendant’s debt to plaintiff be, and it hereby is, discharged. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489553/ | FINDINGS OF FACT AND CONCLUSIONS OF LAW
SIDNEY M. WEAVER, Bankruptcy Judge.
This Cause having come before the Court upon a Complaint to Avoid Fixing of a Judicial Lien on Exempt Property and the Court having considered the arguments of counsel and being otherwise fully advised in the premises, makes the following Findings of Fact and Conclusions of Law.
The stipulated facts are as follows:
At all relevant times the debtor has been the owner of a condominium apartment more particularly described as
Unit 1401 in Tower 4 of Quadomain of QUADOMAIN TOWER I and IV, a Condominium, according to the Declaration of Condominium thereof recorded in Official Book 5556, Page 902, Public Records of Broward County, Florida.
Prior to May, 1981, the debtor and his spouse at that time resided at the condominium apartment. In May, 1981, the debt- or was divorced but continued to live at the condominium. In February, 1982, a judgment in favor of the defendant was recorded in the public records of Broward County, Florida, creating a judicial lien upon debt- or’s condominium apartment. In June, 1982, the debtor remarried.
The plaintiff contends that the judgment lien impairs the debtor’s homestead exemption and thus may be avoided pursuant to Bankruptcy Code Section 522(f)(1).
Pursuant to Section 522(b)(1) the Legislature of the State of Florida has opted to allow debtors the exemptions provided by state law. See: Fla.Stat. Section 222.20. Fla. Constitution Article X Section 4 provides for homestead exemption and requires that the party seeking to qualify for the homestead exemption must be the owner of the property and head of a family.
The Court finds that the debtor, although the owner of the property, was not the “head of a family” as contemplated by Florida law at the time that the lien was created and thus was not entitled to a homestead exemption at that time.
*215Bankruptcy Code Section 522(f) provides that “the debtor may avoid the fixing of a lien on an interest of the debtor in property to the extent that such lien impairs an exemption to which the debtor would have been entitled under subsection (b) of this section, if such lien is (1) a judicial lien...” (emphasis added) Since the debtor was not entitled to an exemption at the time the lien was created, the lien cannot be avoided pursuant to Section 522(f) and thus the relief sought by plaintiff must be denied.
A separate Final Judgment will be entered in accordance with these Findings of Fact and Conclusions of Law. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489554/ | MEMORANDUM
CLIVE W. BARE, Bankruptcy Judge.
Although the gravamen of this adversary proceeding concerns questions of contract law, there is an auxiliary issue involving the propriety of plaintiff’s attachment, pursuant to Tenn.Code Ann. § 29-6-101(2) (1980), of defendant’s bank account. Defendant contends plaintiff’s affidavit, required by Tenn.Code Ann. § 29-6-113 (1980), was insufficient to support the issuance of the writ of attachment. Defendant also contends plaintiff either knew or should have known the averments in its supporting affidavit, furnished by A.G. Campbell, president of the plaintiff, were untrue. While disputing the latter contention, plaintiff also maintains defendant waived any objection to the sufficiency of its affidavit by filing an answer to the merits of the complaint and failing to object to the sufficiency of the supporting affidavit. Furthermore, citing Tenn.Code Ann. § 29-6-124 (1980), plaintiff contends any deficiency in its affidavit is a matter of form, not substance, which may be corrected by amendment. This Memorandum is limited to the issues associated with the validity of the attachment of defendant’s bank account.
I
On June 11,1982, plaintiff A.G. Campbell & Co., Inc., a pipe fabricator in Chattanooga, filed its complaint in Hamilton County Chancery Court against defendant Chemical Separations Corporation (Chem Seps), a manufacturer of waste and water treatment systems. The affidavit of A.G. Campbell, dated June 18, 1982, in support of plaintiff’s petition for an ancillary writ of attachment was filed on June 21, 1982. This affidavit recites in material part:
5. That Plaintiff is advised the Defendant is attempting to cease operations at its Knoxville, Tennessee location and that its equipment, some of which is for a project in Mississippi, part of which has been fabricated by Plaintiff, is about to be removed from Tennessee.
6. Deponent prays that Plaintiff be granted an attachment of One Hundred Six Thousand Four Hundred Eight Dollars ($106,408), together with costs, upon the personal property of Defendant in its bank accounts and at its facilities at One Technology Drive, Knoxville, Knox County, Tennessee, to answer for the indebtedness due Plaintiff in such amount arising from work, labor and services rendered at Defendant’s specific request by Plaintiff, which is a just claim and for which attachment should issue under TCA § 29-6-101(2).
*242On June 21,1982, based on the averments in Campbell’s affidavit, the chancellor in Hamilton County issued a writ of attachment to the Knox County Sheriff, who thereupon attached a bank account of defendant Chem Seps at the former United American Bank of Knoxville. Because there were several outstanding checks issued against and payable from the attached account, defendant necessarily had to either furnish a sufficient bond to obtain a release of the attachment or contend with the payees of the outstanding checks and the concomitant, adverse effect upon its credit reputation. Defendant proffered a surety bond in the amount of $110,000.00 for the discharge of the attachment against its bank account. (The surety on the bond is Federal Insurance Co.) An order was entered, by the chancellor, on June 28, 1982, providing for the release of the attachment.
Defendant Chem Seps filed its answer and counterclaim in the chancery proceeding on August 20, 1982. Defendant does not deny it was indebted to plaintiff when the attachment was issued. However, in its counterclaim, defendant alleged no legitimate ground existed for the issuance of the writ of attachment because plaintiff either knew or should have known the statements in A.G. Campbell’s supporting affidavit were false. As damages for the allegedly wrongful attachment, defendant requested judgment against plaintiff in the amount of $50,000.00.
On or about October 15, 1982, defendant filed its motion to quash the ancillary attachment and release its surety bond. For the first time, defendant specifically raised the issue of the sufficiency of Campbell’s supporting affidavit. According to defendant, the affidavit is deficient because Campbell states only that he is affiant is advised defendant’s equipment is being moved out of the state, as opposed to asserting such removal as a fact based upon personal knowledge. A request was made that defendant be permitted to withdraw the surety bond.
In response, a motion to amend the affidavit given in the ancillary attachment proceeding and a second affidavit of Campbell were filed. This second affidavit recites in material part:
2. That the affidavit of deponent, dated June 18, 1982, was for the purpose of affirmatively stating to this Court that defendant was about to remove its equipment from the State.
3. That deponent did not intend to modify or otherwise affect the true and full import of his statement concerning the removal of defendant’s equipment from the State by the word “advise” as suggested by the instant motion’s papers. Rather, it was deponent’s purpose to state he was advised defendant was attempting to cease operations at Knoxville. A clerical error omitted the semicolon which should have followed “location” in paragraph “5” of the deponent’s affidavit of June 18, 1982.
An affidavit dated October 28, 1982, of Carl R. Hazen, president of defendant Chem Seps, was offered in support of defendant’s motion to quash the ancillary attachment and release the surety bond. Essentially, Hazen averred: (1) defendant Chem Seps did not own any property on or about June 18, 1982, (the date of A.G. Campbell’s first affidavit) which was about to be removed from the State of Tennessee; and (2) the equipment which defendant was preparing to ship to Mississippi, a portion of which had been fabricated by plaintiff, actually belonged to TVA and was merely stored on defendant’s premises pursuant to a contractual agreement.
Plaintiff, in reply to Hazen’s affidavit, submitted an affidavit dated November 1, 1982, of Leon Riggs, vice-president of operations for defendant Chem Seps from April 27, 1981, until June 25, 1982. In apposite part Riggs’ affidavit states:
4. On June 18, 1982, to deponent’s personal knowledge, equipment was being shipped to the Caterpillar Company in Lafayette, Indiana, and other parts were about to be shipped. Such shipments were continuous until and after deponent left his employee [sic]. This equipment had a value of $50,000.
*243In addition, Chem-Seps equipment was being fabricated and assembled for shipment to Container Corporation in Fer-nandina Beach, Florida, of a value of $200,000. This equipment was about to be shipped on June 25, 1982, when deponent left Chem-Seps regular employ, and he has personally returned to Chem-Seps plant since June 25,1982, and verified the equipment was in fact shipped.
In an effort to clarify the inconsistencies between the averments in the affidavits of Hazen and Riggs, a second affidavit of Carl R. Hazen was submitted by defendant. Hazen’s second affidavit, dated February 25, 1983, provides in part:
3. On the 28th day of October, 1982,1 made an affidavit in which I stated that on or about June 18,1982, the Defendant, Chem Seps owned no property which was about to be removed from the State of Tennessee. This statement was addressed to whether or not sufficient of Chem Seps’ property was about to be removed from the State of Tennessee such that a statutory ground authorizing the issuance of an attachment would exist pursuant to T.C.A. § 29-6-101(2). The statement was not intended to apply to the work product of Chem Seps which it had contracted with its various customers to design, fabricate and deliver, and which work product was being delivered both to its out-of-state customers and instate customers in the ordinary course of business. Most of Chem Seps’ customers are located outside the State of Tennessee.
4. On or about June 18, 1982, Chem Seps was in the process of finalizing the fabrication of equipment and preparing the same for delivery to its customers Caterpillar Company in LaFayette, Indiana, and Container Corporation in Fer-nandina Beach, Florida, all of which was being done in the ordinary course of Chem Seps’ business and pursuant to its contractual obligations to those customers.
Hazen further averred: (1) the delivery of equipment sold by the defendant generated an account receivable or cash in an amount of greater value to defendant’s creditors than the equipment itself; (2) the assets of defendant available in the State of Tennessee at all times when shipments were being made to Caterpillar Company and Container Corporation were more than sufficient to satisfy the claims of creditors.1
On October 15, 1982, previous to the submission of the affidavits of Hazen, Riggs, and the second affidavit of Campbell, a voluntary chapter 11 bankruptcy petition was filed by defendant Chem Seps. An application to remove the instant adversary proceeding to this court was filed by defendant on December 2, 1982. See 28 U.S. C.A. § 1478 (Supp.1982).
II
The fundamental issue before the court concerns the sufficiency of A.G. Campbell’s affidavit to support the writ of attachment. If the affidavit was insufficient for its purpose, the court must determine whether the insufficiency is either a matter of form cured by corrective amendment or if defendant waived its right to object to the insufficiency by filing an answer to the merits of the complaint without objecting to the sufficiency of the affidavit.
Although the Tennessee attachment statutes are to be liberally construed as a general rule, a strict construction is afforded to the attachment statutes insofar as prescribed causes for which attachment may issue. Willshire v. Frees, 184 Tenn. 523, 529, 201 S.W.2d 675, 677-78 (1947). However, avoidance of an attachment on the basis of a mere technicality appears to be contrary to public policy in Tennessee. *244See McEwan, Gearinger, Banks & Hutcheson v. Lookout Mountain Hotel, Inc., 207 Tenn. 197, 204, 338 S.W.2d 601, 604 (1960).
Tenn.Code Ann. § 29-6-101 (1980) (Grounds for attachment) provides in relevant part:
Any person having a debt or demand due at the commencement of an action, or a plaintiff after action for any cause has been brought, and either before or after judgment, may sue out an attachment at law or in equity, against the property of a debtor or defendant in the following cases:
(2) Where he is about to remove, or has removed, himself or property from the state....
It is unnecessary for a plaintiff to establish fraud or injury as a consequence of the removal to sustain an attachment on this ground. Freidlander, Stick & Co. v. S. Pollock & Co., 45 Tenn. (5 Cold.) 490 (1868).
Tenn.Code Ann. § 29-6-113 (1980) (Plaintiffs affidavit) enacts:
In order to obtain an attachment, the plaintiff, his agent or attorney, shall make oath in writing, stating the nature and amount of the debt or demand, and that it is a just claim; or, if the action is for a tort, that the damages sued for are justly due the plaintiff or plaintiffs, as affiant believes, but that the true amount of such damages are not ascertained; and, also, that one or more of the causes enumerated in § 29-6-101 exists.
Paragraph 5 of the Campbell affidavit, supra, is susceptible to two quite different interpretations:
(1) Plaintiff is advised both that defendant Chem Seps is attempting to cease its operations in Knoxville and that a portion of its equipment is about to be removed from the State of Tennessee.
(2) Plaintiff is advised that defendant Chem Seps is attempting to cease its operations in Knoxville. A portion of defendant’s equipment is about to be removed from Tennessee.
Under the first interpretation, averments regarding the cessation of defendant’s business and the removal of its equipment are based on Campbell’s being advised thereof by another party. The second interpretation is distinguished by the fact the affirmation concerning the imminent out-of-state removal of defendant’s equipment is averred as a fact, implicitly based upon Campbell’s personal knowledge. The distinction is significant.
Nelson v. Fuld, 89 Tenn. 466, 14 S.W. 1079 (1891), involved an attachment issued upon the following allegation: “[T]hat complainant is informed and believes that said Fuld & Co. have fraudulently disposed of, or are about fraudulently to dispose of, their property.” Id. at 467, 14 S.W. at 1079. Since the allegation did not include an averment that the defendant company either had fraudulently disposed of its property or was about to do so, the attachment was quashed for insufficiency by the chancellor. The Supreme Court affirmed the chancellor’s decision in a brief opinion, which included this observation:
The statement is only that the information had been had, and the belief exists .... Again, it may be true that a complainant is informed and believes that a defendant is about fraudulently to dispose of property, but it could not be sufficient to sustain an attachment to show that he had such information, and believed it without proof, and if proving the allegation made could not sustain the attachment, the allegation is insufficient.
Nelson v. Fuld, 89 Tenn. 466, 468, 14 S.W. 1079 (1891).
Applying the Nelson decision in the instant case, it is evident that proof of the verity of Campbell’s averments under the first possible interpretation would be insufficient to establish grounds for the writ of attachment. Whether A.G. Campbell was in fact advised defendant was removing or about to remove its equipment out of the state is inconsequential insofar as whether defendant was in fact either removing or about to remove its equipment beyond the state’s borders.
*245Assuming arguendo that the former of the two possible interpretations is adopted, may plaintiff correct the deficiency through its motion to clarify and to amend Campbell’s first affidavit? Tenn.Code Ann. § 29-6-124 (1980) (Correction of defects) enacts:
The attachment law shall be liberally construed, and the plaintiff, before or during trial, shall be permitted to amend any defect of form in the affidavit, bond, attachment, or other proceedings; and no attachment shall be dismissed for any defect in, or want of, bond, if the plaintiff, his agent, or attorney will substitute a sufficient bond.
This section permits the amendment of any defect in the form of the supporting affidavit, but it does not authorize an amendment affecting the substance of the affidavit. Watt & Co. v. Carnes, 51 Tenn. (4 Heisk.) 532 (1871).
Keller v. Federal Bob Brannon Truck Co., 151 Tenn. 427, 269 S.W. 914 (1925), was an action in tort involving damage to plaintiff Keller’s automobile as a consequence of the allegedly negligent operation of an automobile belonging to the defendant. Concurrently with the institution of Keller’s suit, he sued out a writ of attachment which was levied against the automobile involved in the collision with his vehicle. Keller filed a declaration averring the proximate cause of the accident was “the negligent driving of defendant’s automobile ... at a greater rate of speed than 20 miles per hour, in violation of chapter 173, Acts of 1905.” Keller, 151 Tenn. at 429-30, 269 S.W. at 915. A motion to quash the attachment was filed by the defendant on the basis the attachment did not reflect defendant’s automobile was run in excess of 20 mph on a public thoroughfare at the time of the accident and that, even if it were, it is not alleged defendant’s automobile was willfully operated in excess of 20 mph. Defendant’s motion was overruled temporarily. During the trial of this case, Keller moved to amend the writ of attachment to insert the very language defendant had contended was fatally omitted from the attachment writ. The trial court permitted the amendment. On appeal, the Tennessee Supreme Court, interpreting a predecessor of Tenn. Code Ann. § 29-6-124 (1980), decided allowance of the amendment was improper because the amendment went to the substance of the attachment writ, not merely to the form.
In New York Casualty Co. v. Lawson, 160 Tenn. 329, 24 S.W.2d 881 (1930), Lawson caused an attachment to be issued based on an affidavit which merely included allegations of an indebtedness owing to him for injury to his automobile caused by another automobile. When a motion was filed to quash the attachment on several grounds, including the absence of any statement in Lawson’s affidavit of grounds for issuance of the attachment, Lawson sought and obtained permission to amend the attachment. Thereupon, Lawson amended to allege “that at the time of the injury the Buick car was being willfully run in excess of 30 miles per hour upon the highway, and that the defendant to the attachment was about secretly to move his property out of the county.” New York Casualty Co., 160 Tenn. at 333, 24 S.W.2d at 882. The Tennessee Supreme Court had no difficulty finding no cause for attachment had been stated in Lawson’s initial affidavit. Citing Keller, the court also found the amendment should not have been allowed since amendments are only allowable to cure defects of form, not to substitute a valid affidavit for one which is void.
McEwan, Gearinger, Banks & Hutcheson v. Lookout Mountain Hotel, Inc., 207 Tenn. 197, 338 S.W.2d 601 (1960), involved an attachment of funds in a Tennessee bank account of the debtor, a Georgia corporation. The theory behind the attachment was the nonresidency of the debtor. The bond which the plaintiff creditor was required to furnish was signed: “Southern Broadcasters, Inc., Prin. By: James L. Banks, Trustee.” The debtor filed a plea in abatement alleging the creditor and the debtor were both Georgia corporations and that the attachment therefore violated Tenn.Code Ann. § 29-6-109 (1980) (former*246ly Tenn.Code Ann. § 23-609).2 The plea in abatement was sustained by the sessions court, but an appeal to the circuit court was prosecuted by the creditor. The debtor renewed its previous plea of abatement in the circuit court. The creditor responded by alleging it was a domestic partnership of attorneys, not a foreign corporation. Further, the creditor filed a motion to correct the patently “clerical mistake” in the attachment bond to identify the partnership of attorneys as the principal, instead of Southern Broadcasters, Inc., also a Georgia corporation. The circuit court, finding that the action involved a dispute between two Georgia corporations and that the assignment by Southern Broadcasters, Inc. of its claim against the debtor to the Tennessee partnership of attorneys was a sham to procure an attachment, denied the motion to correct and dismissed the attachment. On appeal, the state supreme court noted former Tenn.Code Ann. § 23-624, presently codified as Tenn.Code Ann. § 29-6-124 (1980), clearly evidenced “the public policy of the State that attachments of non-residents of this State have been liberalized to such an extent that they [members of the state legislature] don’t want non-residents to get away on a mere technicality or technical defect.” Lookout Mountain Hotel, Inc., 207 Tenn. at 204, 338 S.W.2d at 604. The court held the motion to correct should have been permitted, offering the following explanation:
We are doing this for the simple reason that the cause should be tried on its merits and the correction of the errors, mistakes and negligence of those preparing this pleading, when the true facts are made to appear prior to the time it is finally disposed of below, should have been allowed and the parties to try the case on the true facts of the situation, rather than on some mere technical error. This was the purpose of Section 23-624, T.C.A.
Lookout Mountain Hotel, Inc., 207 Tenn. at 205, 338 S.W.2d at 605.
Plaintiff’s motion to amend Campbell’s supporting affidavit preceded the conclusion of the trial of this action, as required by Tenn.Code Ann. § 29-6-124 (1980). The only question is whether the requested amendment is a matter of form or substance. Plaintiff’s request to amend merely involves the insertion of a punctuation mark (a semicolon) to clarify Campbell’s averment concerning the imminency of the removal out of the state of defendant’s equipment. This request is supported by A.G. Campbell’s sworn affidavit that his former supporting affidavit “was for the purpose of affirmatively stating ... that defendant was about to remove its equipment from the State.” Plaintiff’s motion to amend is clearly more limited in scope than the amendments sought in both Keller and New York Casualty Co. Given the susceptibility of the averment in question to two different interpretations, the desirability of the resolution of disputes upon the merits as opposed to technicalities, Lookout Mountain Hotel, Inc., and the credibility the court believes due the averments of A.G. Campbell in his November 1, 1982, affidavit, the motion to amend Campbell’s June 18, 1982, supporting affidavit should be granted.3
The question remains whether the amount of defendant’s property either being removed or about to be removed was sufficient to support plaintiff’s attachment. The removal of an insignificant amount of a debtor’s property will not support an attachment. Freidlander, Stick & Co. v. S. Pollock & Co., 45 Tenn. (5 Cold.) 490 (1868).
*247It is not possible to define by precise words, the amount of property removed, or about to be removed, which will bring the debtors within the scope of the statute. It need not be all his property, nor will a comparative little suffice. It must be an amount, of substantial consequence in reference to the ability of his estate to bear honestly, the withdrawal of the amount away from his liability, in the domestic court, to his creditors.
Friedlander, 45 Tenn. (5 Cold.) at 493-94.
The creditors in J.H. Wrompelmeir & Co. v. Moses, 62 Tenn. 467 (1874), held three unmatured notes of the debtor in the amount of approximately $900.00. An attachment bill was filed wherein it was alleged the debtor was about to remove his stock of goods, being all of his worldly goods, outside of the State of Tennessee. The attachment bill was dismissed by the chancellor because of a failure to prove the creditors’ allegations. On appeal, the Tennessee Supreme Court observed the record reflected the debtor owned unencumbered real estate situated in Nashville, Tennessee, and having a value of $10,000.00. The court held that creditors were not entitled to an attachment under the circumstances even if the debtor were about to remove his entire stock of goods from the state. Moses, 62 Tenn. at 476.
The affidavit of Leon Riggs clearly supports plaintiff’s assertion that property of the defendant was about to be removed beyond the borders of the State of Tennessee when plaintiff sought a writ of attachment. As previously noted, Riggs, former vice-president for operations for the defendant, avers that equipment of a value of $50,000.00 was either shipped on June 18, 1982, or was about to be shipped, to Indiana, and that equipment of a value of $200,-000.00 was about to be shipped to Florida on June 25, 1982, when Riggs left the employ of defendant Chem Seps.
Defendant does not deny its ownership of this equipment. Instead, defendant contends the attachment was wrongful because the amount of its property removed, assuming arguendo a removal occurred, fails to satisfy the Freidlander test. Defendant submits its assets substantially exceeded its liabilities at or about the date of the attachment, as evidenced by the June 1982 balance sheet attached to Hazen’s affidavit of February 25, 1983, reflecting total assets and liabilities in the respective amounts of $8,267,696.82 and $7,448,168.65. However, the bankruptcy schedules of the debtor filed some four months later, on October 28, 1982, reflect liabilities of $5,389,993.40 and assets having a value of only $3,991,509.04. Yet, the schedules further reflect:
(1) repayments on loans and installment purchases between June 1, 1982, and September 30, 1982, total only $50,-068.76;4
(2) no transfer was made other than in the ordinary course of business during the year preceding the date of the bankruptcy filing;
(3) no fire or theft losses were experienced during the year preceding the date of the filing of the bankruptcy petition.
Under these circumstances it is difficult to understand how the debtor’s financial condition declined in a period of four months from a positive equity of $819,528.17 to a negative equity of $1,398,484.36. The figures in the June 1982 balance sheet are rejected by the court as unreliable. Considering the information furnished in the defendant’s bankruptcy schedules, the court finds an amount of defendant’s property of substantial consequence was either being removed or about to be removed when plaintiff sought the attachment writ, when tested against defendant’s ability (or inability) to pay plaintiff’s debt.
Defendant Chem Seps also insists the equipment it shipped out of the state during June 1982 represented its work product shipped pursuant to contractual obligation in the ordinary course of its business. Defendant further insists the ship*248ments out of the state create accounts receivable of greater value to its creditors than the equipment shipped. The following query is raised by the defendant:
Can it be that the law of this state is that a business with out-of-state customers which is performing its contractual obligations to those customers in the ordinary course of its business is subjected to prejudgment confiscation of its property simply at the bidding of one of its creditors?
Reply Memorandum of Defendant in Support of its Motion to Quash Ancillary Attachment at 9.
Initially, the court observes that an attaching creditor must furnish a bond, payable to the defendant, providing that, upon failure to prosecute the attachment with effect, the creditor will pay the defendant all costs adjudged against him and all damages sustained as a consequence of any wrongful attachment. Tenn.Code Ann. § 29-6-115 (1980). The amount of the bond required is prescribed by Tenn.Code Ann. § 29-6-116 (1980). These statutes obviously reduce the probability of any frivolous attachment.
In answer to defendant’s query, the court observes Tenn.Code Ann. § 29-6-101(2) (1980) makes no exception based on the character of the debtor’s property either removed or about to be removed. The creation of an account receivable certainly does not assure subsequent, voluntary payment by the seller to his unpaid creditors. Instead, in interstate sales, it may become necessary for the Tennessee claimant or creditor to prosecute his claim in a foreign forum, remotely situated in some cases, to obtain payment of his debt. This court declines to fashion a judicial exception to Tenn.Code Ann. § 29-6-101(2) (1980) immunizing the removal out of the state of a debtor’s inventory property.
Grounds for attachment pursuant to Tenn.Code Ann. § 29-6-101(2) (1980) did exist when plaintiff filed its petition for an ancillary writ of attachment on June 21, 1982, against defendant Chem Seps.
This Memorandum constitutes findings of fact and conclusions of law, Bankruptcy Rule 752.
. In support of Hazen’s assertion regarding the presence in Tennessee of assets having a value in excess of liabilities, a balance sheet for the period of June 1982, was attached to his second affidavit. This balance sheet reflects total assets and liabilities in the respective amounts of $8,267,696.82 and $7,448,168.65. However, as observed by plaintiff, this same balance sheet reflects trade payables in the amount of $2,258,778.74 and cash on hand of only $34,-326.46.
. Tenn.Code Ann. § 29-6-109 (1980) enacts:
Parties residents of same foreign state. —When the debtor and creditor, tort-claimant and tort-feasor, are both nonresidents of this state, and residents of the same state, the creditor or claimant shall not have attachment against the property of his debtor, or the tort-defendant unless he swear that the property of the latter has been fraudulently removed to this state to evade the process of law in the state of their domicile or residence.
. The court had the opportunity to observe the testimony of A.G. Campbell during the course of the two-day trial of this adversary proceeding and believes his sworn affidavit is entitled to credibility.
. This figure includes $12,568.76 in payments for the defendant’s lease of a telephone system. The schedules do not reflect any repayments on either loans or installment purchases after September 30, 1982. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489555/ | MEMORANDUM OF OPINION
JOHN F. RAY, Jr., Bankruptcy Judge.
This matter came before the Court on the objections of debtor-in-possession to a number of claims, the responses of certain claimants, oral hearing, evidence and briefs.
Findings of Fact
1. The Yoder Company, debtor and debtor-in-possession herein, filed its petition under Chapter 11 of the Bankruptcy Code on March 10, 1981.
2. On June 5, 1981, this Court entered an order setting July 13, 1981 as the last day to file proofs of claim.
3. On June 19, 1981, notice was mailed to every creditor, informing them of the July 13, 1981 bar date.
4. The June 19, 1981 notice was mailed by Cleveland Letter Service in franked court envelopes, pursuant to this Court’s order.
5. No notices were returned to the Court as undeliverable.
6. On June 8,1982, debtor filed its application regarding objections to claims.
7. The claims objected to by debtor were product liability cases and related claims, all of which were listed in debtor’s amended schedules as disputed, contingent and unliq-uidated claims. These claims can be divided into three categories:
*301(a) Claims for which proofs of claim were timely filed (Exhibit A to debtor’s application);
(b) Claims for which no proofs of claim were filed or for which proofs of claim were filed after the July 13, 1981 bar date (Exhibit B to debtor’s application); and
(c) Claims of which debtor had no notice until after the filing of its petition and after the making of the bar date notices to scheduled creditors (Exhibit C to debtor’s application).
8. Debtor objects to all of the product liability claims on two grounds: first, debt- or contends that all product liability claims are without merit, and are for amounts for which the debtor is not liable; second, debt- or contends that claims for which proofs of claim were not filed or were untimely filed ought to be expunged for failing to comply with the Court’s orders.
9. This Court set the debtor’s application for hearing on July 9, 1982.
10. At the hearing on July 9,1982, debt- or withdrew its objections to the following three claims listed in debtor’s Exhibit A to the application:
(a) Michael E. Goebel and Vicki Goebel;
(b) Richard Stupak; and
(c) Jackie Taylor.
11. The following creditors failed to answer debtor’s objection to their claims, and failed to appear at the July 9,1982 hearing:
(a) Douglas Daily;
(b) Phillip Bateson;
(c) Ronald Beach;
(d) Edward Mercado;
(e) Liberty Mutual Insurance Co. (Adrian Bullard/Formed Tubes No. 6);
(f) Miguel Torres;
(g) John Spirauskas;
(h) William Brown;
(i) Aetna Casualty and Surety Division (Michael Wilcox);
(j) Larry R. Nabonne;
(k) Frick Company;
(7) Aetna Life and Casualty (Wilson Vernon);
(m) Liberty Mutual Insurance Company (Daniel Nicol);
(n) Jeffrey Balio;
(o) Daniel P. and Stella Bernal;
(p) Allen E. and Earlene D. Hartong;
(q) Robert Mackey;
(r) Robert Peters.
12. The claim of Martinian Gonzalez was settled by debtor after the July 9,1982 hearing.
13. The claim of Barbara James was never filed, although she did claim, through her attorney, that she never received notice of the July 13, 1981 bar date.
14. Mark Bratton’s proof of claim was filed in March, 1982, almost eight months after the July 13,1981 bar date. Mr. Brat-ton claims that he was neither properly scheduled nor received notice of the bar date.
15. Alexander T. Ornstein, Mark Brat-ton’s attorney, received notice at his office of the July 9,1982 hearing. A copy of that notice was with him when he testified before this Court.
16. Notice was also sent to Mark Brat-ton’s attorney, Alexander T. Ornstein, of the July 13, 1981 bar date.
Discussion
The claims of the creditors who failed to answer debtor’s objection to their claims or failed to appear at the July 9, 1982 hearing before this Court can be disposed of easily. All claims in this application were product liability claims which were listed on debtor’s amended schedules as disputed, contingent and unliquidated claims. These claimants had an affirmative duty to timely file their proofs of claim and appear at the July 9, 1982 hearing. Since they have failed to do so, debtor’s allegations and evidence must be considered accurate by this Court, and their claims shall be disallowed.
Once the claimants who failed to file or to appear have been removed from the list of claims in debtor’s application, the Court is left with two claims over which there is *302still a dispute. In both claims, the claimants, through their attorneys, alleged they never received notice of the July 13, 1981 bar date set by this Court in its June 5,1981 order. At the hearing on July 9, 1982, and the continued hearing on July 23, 1982, the Court heard evidence relating to these two proofs of claim.
At the July, 1982 hearings, debtor proved notices of the July 13, 1981 bar date were mailed to all product liability claimants listed in debtor’s amended schedules. The debtor’s mailing of these notices raises a rebuttable presumption that the notices were received by the addressees. See Matter of Heyward, 15 B.R. 629 (Bkrtcy.E.D.N.Y.1981); In re Gumieny, 8 B.R. 602 (Bkrtcy.E.D.Wis.1981). Federal Rule of Evidence 301 states that:
In all civil actions and proceedings not otherwise provided for by Act of Congress or by these rules, a presumption imposes on the party against whom it is directed the burden of going forward with evidence to rebut or meet the presumption, but does not shift to such party the burden of proof in the sense of the risk of nonpersuasion, which remains throughout the trial upon the party on whom it was originally cast.
A presumption, therefore, does not change the burden of proof, but it can change the burden of going forward with the evidence. When the other party puts in evidence tending to disprove the ultimate fact supported by the presumption, authorities have disagreed about the continuing effect of the presumption. According to the note of the Advisory Committee on Proposed Rules, Federal Rule 301 rejects the so-called “bursting bubble” theory, under which a presumption vanishes upon the introduction of evidence that negates the existence of the presumed fact. According to the Federal Rule, when evidence is put forth negating the fact that the presumption tends to support, the presumption still continues and is evidence to be weighed and considered with all of the other evidence in the case.
In the present case, no evidence was presented on behalf of Barbara James to rebut the presumption that she received notice of the July, 1981 bar date. At the hearing on July 9, 1982, her attorney appeared on her behalf, and merely stated to the Court that she did not receive notice of the bar date and was not properly scheduled. Debtor, on the other hand, put forth testimony and exhibits establishing that Barbara James was scheduled as having a disputed, contingent and unliquidated claim, that notice of the bar date was mailed to Barbara James and that the notice was not returned to the Court as having been undeliverable. In the absence of any evidence to support her attorney’s allegations, this Court presumes that Barbara James received notice of the July, 1981 bar date and of the amount and manner in which her claim was listed in debtor’s amended schedules. Barbara James’ failure to file a proof of claim on or before the bar date is, therefore, inexcusable, and she is barred from participating as a creditor in these proceedings.
The claim of Mark Bratton presents a more complex determination. The attorney for Mark Bratton offered evidence that no notice of the bar date was received by him, and that he was not properly scheduled. An examination of debtor’s amended schedules reveals that Mark Bratton’s notice was sent to the law firm which was handling his product liability case against debtor. This notice, sent to his attorney, was reasonably designed to bring the matter in the ordinary course to the creditor’s attention. See North American Car Corp. v. Peerless W. & V. Mach. Corp., 143 F.2d 938 (2nd Cir.1944); and In re Torres, 5 CBC 2d 950 (Bkrtcy.E.D.N.Y.1981). Mark Brat-ton was, therefore, properly scheduled on debtor’s amended petition.
The testimony of Mark Bratton’s attorney also did not establish that the notice sent was not received by his law firm. The Court is entitled to presume that notice has been received once a proper mailing is made, even though the intended recipient testifies that the notice never really came. Matter of Heyward, 15 B.R. 629, 632 (Bkrtcy.E.D.N.Y.1981); In re Torres, 5 CBC *3032d 950, 953 (Bkrtcy.E.D.N.Y., 1981). The Court notes that Mr. Bratton’s law firm did receive and respond to the notice setting debtor’s objection to his claim for hearing on July 9, 1982. It seems most likely that the notice of the July, 1981 bar date was probably mislaid or lost at the law firm. The Court, therefore, finds that no excusable neglect exists which would justify Mr. Bratton’s untimely filing of his proof of claim.
Conclusions of Law
1. By showing that notices of the July 13, 1981 bar date and notices of the July 9, 1982 hearing were properly mailed, with no undeliverable returns, debtor created a legal presumption that all notices were received.
2. The following claims listed on debt- or’s amended schedules as having disputed, contingent and unliquidated claims, are disallowed for failing to answer debtor’s objection to their claims and for failing to appear at the July 9, 1982 hearing on debtor’s objection to their claims:
(a) Douglas Daily
(b) Phillip Bateson
(c) Ronald Beach
(d) Edward Mercado
(e) Liberty Mutual Insurance Co. (Adrian Bullard/Formed Tubes No. 6)
(f) Miguel Torres
(g) John Spirauskas
(h) William Brown
(i) Aetna Casualty and Surety Division (Michael Wilcox)
(j) Larry R. Nabonne
(k) Frick Company
(l) Aetna Life and Casualty (Wilson Vernon)
(m) Liberty Mutual Insurance Company (David Nicol)
(n) Jeffrey Balio
(o) Daniel P. and Stella Bernal
(p) Allen E. and Earlene D. Hartong
(q) Robert Mackey
(r) Robert Peters
3. By showing that notices of the July 13, 1981 bar date and notices of the July 9, 1982 hearing were properly mailed, with no undeliverable returns, debtor caused the burden of going forward with evidence to rebut the presumption that all notices were received to shift to creditors who claimed they never received notice.
4. Barbara James did not meet her burden of going forward with evidence to rebut the presumption that all notices were received by her attorney’s unsupported allegations in Court.
5. Barbara James’ failure to file a proof of claim on or before the July 13, 1981 bar date cannot be excused, and she is, therefore, barred from participating as a creditor in these proceedings.
6. Mark Bratton was properly scheduled on debtor’s amended petition so that notice sent to the address scheduled was reasonably designed to bring the matter in the ordinary course to his attention.
7. The presumption of receipt that debt- or created when it showed notices of the July 13, 1981 bar date and notices of the July 9, 1982 hearing were properly mailed, with no undeliverable returns, did not disappear against Mark Bratton when he submitted evidence of non-receipt. The Court is thus still able to consider the evidence of proper mailing as relevant to whether or not Mark Bratton received timely notice of the bar date.
8. Mark Bratton’s failure to file a proof of claim on or before the July 13, 1981 bar date cannot be excused, and he is, therefore, barred from participating as a creditor in these proceedings. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489556/ | MEMORANDUM OPINION
EUGENE J. RAPHAEL, Bankruptcy Judge.
On August 3, 1979, the bankrupt, Jordan Industries, Inc. (hereinafter called Jordan), filed its petition for an arrangement under chapter XI of the Bankruptcy Act of 1898, as amended.
On October 15,1979, plaintiff, Emery Air Freight Corporation (hereinafter called Emery), filed its proof of claim for air freight charges in the sum of $16,840.74.
There appears in the jacket file of this case a document entitled “Objection to Al*325lowance of Claim of Emery Air Freight Corp.”, dated October 31, 1979, bearing the corporate signature of Jordan. Presumably said objection was lodged with the other papers in this case promptly after the date shown on said objection, but it was not marked “filed”.
On November 15,1979, the bankrupt, Jordan, filed its motion for leave to file an amended objection to the allowance of the claim of Emery and a counterclaim to said claim. The said “Amended Objection to Allowance of Claim of Emery Air Freight Corporation and Counterclaim” were marked filed on November 15, 1979, apparently through inadvertence, but the court ratified such filing by its order entered on November 28, 1979, granting said motion for leave to file an amended objection and a counterclaim. The prayer of said counterclaim was “That Jordan Industries, Inc., have judgment against Emery Air Freight Corporation in the amount of $35,898.01 less any credits to which Emery Air Freight Corporation may be entitled”.
On December 19, 1979, plaintiff, Emery, filed its answer to the counterclaim of Jordan.
On March 25, 1981, this court conducted the trial of the said objection and of the said counterclaim. At the conclusion of the trial the court reserved its decision and permitted counsel for the respective parties to file briefs. On August 26, 1981, Jordan filed its brief, and on January 4, 1982, Emery filed its brief. By letter received by the court on January 7,1982, Jordan elected not to file a reply brief to that of Emery; and the issues were submitted to the court.
During the months of May, June and July, 1979, Jordan, defendant and counter-claimant herein, delivered to Emery, plaintiff, various quantities of skate board components, etc., for shipment to Jordan’s customer, Viraflex C.A., at Caracas, Venezuela. It was Jordan’s contention that all of said merchandise was delivered to and accepted by Emery under an agreement that all air freight charges would be invoiced to Jordan on an open account basis. Various documents such as invoices, way bills, letters, etc., were introduced in evidence in an effort to corroborate Jordan’s view of such agreement. On the other hand, Emery pointed out that numerous ambiguities appeared in such documents. For example, copies of letters of instruction as to open account billing for freight charges were attached to some of the invoices, but other invoices were introduced without attached copies of such letters. On some of the documents the terms “F.O.B. Booneville, Miss.” were printed without alteration, but on other invoices the term “F.O.B.” was obliterated and on other invoices the “FOB” remained while “Booneville, Miss.” was obliterated. There was also typewritten just below said printed terms the symbol “C.I. F.” on several of the invoices. On some of the invoices there also appeared below the description of the merchandise the language “F.O.B.-C.I.F.” On none of the invoices was a geographical location named adjacent to the term “CIF”. One of Emery’s Miami, Florida, employees testified that a longstanding unwritten company policy required that when such delivery terms were in doubt, the air freight should nevertheless go forward on a collect basis to the consignee. Whatever may have been the agreement, if any, between the parties, some of the subject air freight charges were handled on an open-account basis, but others were handled on a basis that required collect payment on delivery from Jordan’s customer, Viraflex C.A. The payments handled on such collect basis aggregated $35,-898.01. Viraflex C.A., having been required by Emery to pay the said collect freight charges, demanded of Jordan that it require Emery to refund said sum of $35,898.01 to Viraflex C.A. or else Viraflex C.A. would take credit therefor on its account with Jordan. Such demand was made in Caracas in late July, 1979. The record is unclear as to whether or not any credits were so taken before the filing of the chapter XI petition on August 3, 1979. Indeed, there is no specificity of evidence in this record to show the precise dates and amounts of the taking of such credits, if any. It is uncontradicted, however, that Emery did not refund any portion of said sum of $35,898.01.
*326Emery made a prima facie showing as to its claim for unpaid air freight charges by introducing its proof of claim in the amount of $16,840.74. There is no contradiction as to the accuracy of the amount of such claim asserted by Emery. The question for resolution herein is whether or not Jordan has sustained its burden of proof as to the counterclaim, which is predicated on the theory that the facts in this record show a preferential transfer violative of the Bankruptcy Act of 1898, as amended.
The long established and controlling legal principles are aptly stated in the following cited authorities:
In In Re Nizolek Furniture and Carpet Company, 71 F.Supp. 1012 (1947), The United States District Court for the District of New Jersey stated, inter alia, at pp. 1014 and 1015:
“[1] Section 60 of the Bankruptcy Act, and particularly subdivisions a and b, 11 U.S.C.A. 96, subs, a and b, is determinative of the question raised by the first ground. This section defines a preference as a “transfer, * * *, of any of the property of a debtor to or for the benefit of a creditor for or on account of an antecedent debt, made or suffered by such debtor while insolvent and within four months before the filing by or against him of the petition in bankruptcy, * * * the effect of which transfer will be to enable such creditor to obtain a greater percentage of his debt than some other creditor of the same class." (Emphasis by the Court.) It seems reasonably clear, upon proper construction of this section, that there can be no preference in the absence of any one or more of the elements.
[2] The contemporaneous assignments of the accounts receivable were not made in payment of or as security for an antecedent debt, and the relationship between the Bankrupts and the Corporation at the time of the assignments was not that of debtor and creditor. The essential elements of a preference, as defined in the Act, were obviously lacking...
[3] The transfer of property in the usual course of business for a present adequate consideration, and not in payment of or security for an antecedent debt, is not a preference... Such a transfer does not effect a depletion of the bankrupt’s property to the injury of other creditors, an essential element of a preference, ... but enhances the bankrupt’s assets to the extent of the consideration advanced...
[4, 5] It is well recognized that a preference may be avoided under Section 60, sub. b of the Bankruptcy Act, 11 U.S.C.A. 96, sub. b, only “if the creditor receiving it * * * has, at the time when the transfer is made, reasonable cause to believe that the debtor is insolvent.” ... Proof of this prerequisite is significantly absent in the instant case. (Emphasis supplied)
[6] There is evidence from which it may be inferred that the Corporation was suspicious of the Bankrupts' precarious financial condition in December of 1941, and perhaps prior thereto. The evidence, however, will not support an inference that the Corporation had a reasonable cause to believe that the Bankrupts were insolvent. Ibid. The term “reasonable cause to believe,” as used in the Act, presupposes a knowledge of such facts as would produce in the mind of a reasonably intelligent person a well founded belief, as opposed to a mere suspicion, that the bankrupt was insolvent at the time of the transfer. Ibid.” (Emphasis supplied)
In In re Zaferis Bros. & Co., Limited, 67 F.2d 140 (1933), the Circuit Court of Appeals for the Ninth Circuit held, inter alia, at p. 141:
“ While appellant received a sum of money from Zaferis which satisfied part of the debt owed it by the bankrupt, other creditors did not suffer thereby. Two creditors were substituted for one, but bankrupt’s total indebtedness was unchanged. Its estate was therefore unaffected by the transaction.
[1,2] Appellee urges, however, that the corporation note evidences a borrowing by it from James Zaferis and therefore, *327though James Zaferis dealt directly with appellant, there was nevertheless a moment at which the sum loaned was in bankrupt’s control; and that thus the payment to the bank was in law made by bankrupt.
The contention is untenable.. .
It therefore lacked the primary element of a preference, that of a transfer of the bankrupt’s property... It is well settled that payments by third parties of their own money do not constitute preferences. ..” (Emphasis supplied)
In a scholarly work on this subject, Fraudulent Conveyances and Preferences, Rev.Ed. (1940), Vol. II, as supplemented, author Glenn Garrard wrote in section 403 at page 690:
“The idea, that a preference means diminution of the debtor's estate has been stated so often as the test of a preference, that a footnote reference will suffice. And, inasmuch as the test is the same with both fraudulent conveyance and preferential transfer, the reader, is referred to the earlier chapter which outlines various methods of diminishing a debtor’s estate. To that discussion, we have only to add several points, which are of peculiar interest in the case of a pre-feree. One will be discussed forthwith, and the others will feature sections that immediately follow.
The first thought is that a payment cannot be a preference unless the debtor makes it, or some one makes it for the debtor, and out of his estate. In other words, a payment made by a third person with his own money cannot be the debt- or’s preference because it does not come from the debtor’s estate, which necessarily remains of the same size after the payment as it was previously. Even if the person who makes the payment acquires thereby a right to reimbursement, that does not increase the debtor’s liabilities, for the new claim replaces an old one that otherwise could have been asserted, and so the dividend rate will remain the same...” (Emphasis supplied)
Assuming, arguendo, that the agreement between Jordan and Emery was exactly as contended for by Jordan; and assuming further, arguendo, that Emery violated the agreement in the instances wherein Emery collected the air freight charges from the consignee instead of billing them on open account to Jordan; the foregoing quoted authorities nevertheless refute the idea that there was a preferential transfer or that there were preferential transfers occasioned by the actions of Emery. The facts do not support a proper showing of an antecedent debt. Affirmatively, the facts show collections of contemporaneous charges for air freight shipments by Emery. The adequacy or reasonableness of the air freight charges or consideration has not been attacked herein. There is insufficient evidence to show that Emery possessed any facts which would give rise to reasonable cause to believe that Jordan was insolvent during the course of Emery’s dealings with Jordan. As a matter of fact, the evidence did not even show any basis for suspicions of insolvency during pertinent periods of time. The only effect of the payments of the collect air freight charges by the consignee was that the consignee replaced Emery as a creditor for such charges against Jordan. The payments by the consignee were simply payments by a third party of its own money, not that of the bankrupt.
Beyond that, however, counterclaimant Jordan did not sustain its burden of proof as to the alleged agreement as to the handling of the said shipments. Any supposed verbal understanding in that regard was rendered totally ineffectual by a multiplicity of ambiguous and contradictory written shipping terms set forth on the faces of large numbers of shipping documents. This court is of the opinion that Emery was forced into the improvisation of shipping some items collect because of the exigent circumstances related to time elements shown by the record. Jordan has shown no legal duty on the part of Emery to seek additional verbal interpretation on top of the varying written markings on the invoices. Time demands as to individual shipments did not permit the obtaining of clari*328fying written stipulations. By relying on long standing company policy (albeit unwritten) and international trade rules, Emery was simply performing its primary duty to deliver the air freight within extant time constraints. In this court’s opinion, no preferential transfers have been shown.
An appropriate judgment will be entered. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489557/ | MEMORANDUM OPINION
EUGENE J. RAPHAEL, Bankruptcy Judge.
On June 26, 1980, debtor, Paul W. Walker, filed his voluntary chapter 7 petition in bankruptcy under the Bankruptcy Code of 1978. Under schedule A-3 attached to said petition debtor listed as a creditor having an unsecured claim without priority, inter alia, the aforementioned Kargo, Inc., plaintiff herein, for a claim in the amount of $2,100.00.
On August 11,1980, plaintiff, Kargo, Inc., filed its complaint to determine the dis-chargeability of the aforementioned scheduled unsecured debt. The brief allegations of said complaint are as follows:
"1. Plaintiff is a Creditor of the Debtor.
2. Defendant induced Plaintiff to absorb nonsellable inventory and replace with new new inventory by false pretenses — 11 USC 523(a)(2).
3. Said transaction occurred within ninety (90) days of Debtor’s Petition in Bankruptcy.
4. Said Debtor obtaining property by fraud, knowing of Debtor’s own insolvency with intention to file for Bankruptcy and with no intent whatsoever to recompense Plaintiff for goods delivered — 11 USC 523(a)(4).”
Said complaint included the following prayer for relief:
“WHEREFORE, Plaintiff prays that the Court determine that the debt owed by the Debtor to it is non-dischargeable; that the Court determine the remaining issues and render judgment for Plaintiff for the amount of its debt; plus interest and attorney’s fees; and that it have such other and further relief as is just.”
On September 3, 1980, debtor/defendant filed his answer to said complaint.
On February 12, 1981, the trial of this adversary proceeding was conducted by the court. The court reserved its decision.
For some period of time prior to 1980, and continuing from January, 1980, at least through the month of April, 1980, defendant/debtor did business as Burnsville Auto Parts, a retail outlet for auto parts and related merchandise. Throughout said period of time defendant purchased wholesale auto parts and supplies from plaintiff/creditor, Kargo, Inc., as well as from another supplier called PDW. During the earlier portion of that time period, defendant purchased more supplies from PDW than from plaintiff. However, plaintiff’s salesperson called on defendant at intervals approximating once each two weeks and sold to defendant approximately $200 worth of merchandise on the average at each such visit. Until approximately mid-April defendant might get behind from thirty to sixty days in his payments to plaintiff, but he would always catch up his payments and remain current on his payments until a controversy developed between the parties in or about the month of April.
In the meantime, plaintiff became dissatisfied with the slow moving sales of the brands of merchandise which he had purchased from “PDW”. Defendant had discussed this problem with one of plaintiff’s salesmen in late 1979, and he continued his discussions with another of plaintiff’s sales*357men in early 1980. In March, 1980, defendant negotiated with one of plaintiff’s salesmen for plaintiff to remove the slow moving PDW merchandise from defendant’s auto parts place and to credit defendant’s account in the amounts of the discounted values of such slow moving “offbrand” merchandise. At the same time defendant negotiated with plaintiff’s said salesman for the purchase of popular brands of new merchandise from plaintiff in hopes that the better known brands, etc., would sell faster and enable defendant to improve his profit margins. Defendant placed an order for slightly in excess of $2,000.00 worth of such new merchandise and the new merchandise was delivered during the early part of April, 1980.
PDW filed one or more lawsuits against defendant soon after the new merchandise had been delivered by plaintiff. Such litigation compounded the growing financial problems of defendant. Defendant’s assúr-ances of payment to plaintiff for the fairly large order of new merchandise did not result in full payment of said account. However, either by virtue of credits for the slow moving merchandise aforementioned or by some other credits, the claim of $2,100.00 mentioned in the bankruptcy schedule was reduced to a balance of $1,828.58 by the time of the aforementioned trial of this adversary proceeding.
A conference between defendant, one of plaintiff’s salesmen and a corporate officer of plaintiff in late April, 1980, resulted in an assurance by defendant that the subject account would either be paid by May 10 or else the merchandise would be returned to plaintiff. When such conference was conducted in late April, plaintiff knew that the store was no longer doing business and most of the parts inventory had been removed from the premises. Plaintiff contended at the trial that defendant had wasted such inventory, but defendant contended that he stored the principal part of the inventory in his garage. The record is silent as to the ultimate disposition of such inventory. Plaintiff did not have a security interest in said inventory, however.
Defendant signed his bankruptcy petition . on May 9, 1980, but did not file same until June 26, 1980.
Plaintiff has predicated its allegation of false pretenses on 11 U.S.C. section 523(a)(2), the pertinent portion of which reads as follows:
“(a) A discharge under section 727, 1141, or 1328(b) of this title does not discharge an individual debtor from any debt — .. .
(2) for obtaining money, property, services, or an extension, renewal, or refinance or credit by—
(A) false pretenses, a false representation, or actual fraud, other than a statement respecting the debtor’s or an insider’s financial condition; ...”
Plaintiff has predicated its allegation of fraud on 11 U.S.C. section 523(a)(4), which reads in pertinent part:
“(a) A discharge under section 727, 1141, or 1328(b) of this title does not discharge an individual debtor from any debt — . ..
(4) for fraud or defalcation while acting in a fiduciary capacity, embezzlement, or larceny; ...”
This court has considered the totality of facts and circumstances in this record, and has concluded that plaintiff has not sustained the heavy burden of proof which reposes on one seeking to prove false pretenses or fraud. Inasmuch as defendant was continuing to pay for his purchases from plaintiff up until the final purchase was made to replace slow moving inventory provided by another supplier, there is no showing that defendant was in such severe financial straits before the replacement merchandise was installed as to make imminent the filing of bankruptcy. Such developments as the institution of litigation by the other supplier after the new merchandise was in place seem to have precipitated the financial difficulties that ultimately led to the filing of the bankruptcy petition approximately two months later. Indeed, even after signing the bankruptcy petition on May 9, 1980, defendant did not file his bankruptcy petition until over six weeks later. This court is not convinced that either false pretenses or fraud has been es*358tablished by the requisite standard of proof. The prayer for non-dischargeability of plaintiff’s claim should not be granted.
An appropriate order dismissing said complaint with prejudice will be entered. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489558/ | VOTOLATO, Chief Judge.
The appellant, John J. Slavin Contracting, Inc. (Slavin), appeals from an order of the bankruptcy judge denying the appellant’s motion to alter and amend a judgment entered pursuant to an agreement for judgment signed by the parties.
Appellant Slavin filed a Chapter 11 petition on February 22, 1982. On June 10, 1982, appellee Gardner Savings Bank filed a complaint for relief from the automatic stay provided for in 11 U.S.C. § 362, and for authority to proceed with foreclosures of three mortgages covering real estate owned by Slavin. A hearing on the complaint was scheduled for August 4, 1982. Prior to that hearing, the parties reached a settlement, and on September 8 an agreement for judgment was signed by the parties. A consent judgment was entered by the bankruptcy judge on September 27, 1982.
The consent judgment authorized the bank to foreclose the mortgage on a parcel located in New Hampshire immediately, and to foreclose the mortgages on two par*445cels located in Lowell1 and Southboro, Massachusetts, at any time on or after October 5, 1982.
On October 4, 1982, Slavin filed a plan of reorganization, a disclosure statement, and a motion to alter and amend the September 27 order. The motion requested the bankruptcy court to postpone the effective date of the bank’s relief from the stay until October 19, 1982. Slavin filed an amended motion on October 18, seeking to extend the effective date of relief from the stay until October 29,1982.2 A hearing on the motion to alter and amend judgment was held on October 29, and the bankruptcy judge granted the parties one week in which to submit memoranda.
On December 1, 1982 the bankruptcy judge entered an order denying the motion to alter and amend judgment. The bankruptcy judge found that, pursuant to the September 27 order, the bank had conducted a foreclosure sale of the Massachusetts properties on October 5; that the disclosure statement and plan were not filed until October 4, the day before the foreclosure sale was to occur and almost one month after the parties had signed the agreement for judgment; and that no changed circumstances were demonstrated that would cause the court to alter the agreement into which Slavin had freely and deliberately entered.
This appellate panel “shall accept the bankruptcy judge’s findings of fact unless they are clearly erroneous.” Rule 16, First Circuit Rules Governing Appeals from Bankruptcy Judges to District Courts, Appellate Panels, and Court of Appeals. In this case the appellant has failed to designate a record on appeal that is sufficient to enable this appellate panel to make a meaningful determination whether the bankruptcy judge’s findings are clearly erroneous. The brief filed by Slavin addresses only procedural issues pertinent to a motion filed by the bank to dismiss this appeal. In its designation of the record on appeal, appellant Slavin failed to designate its amended motion to alter and amend judgment.
We have no brief from the appellant alleging in what manner the bankruptcy judge abused his discretion in denying the motion to alter and amend judgment.3 It is only in a memorandum filed by Slavin in opposition to the bank’s motion to dismiss this appeal that the grounds for the appeal are apparent. The appellant contends that the bankruptcy judge erred in denying the motion to alter and amend the September 27 judgment because Slavin allegedly had obtained purchasers for the property and filed a plan proposing a 100% dividend to creditors. In the same memorandum, the appellant urges this panel to deny the ap-pellee’s motion to dismiss the appeal so that the panel could consider “the briefs of the parties to be filed on the issues involved in the appeal.”
We have previously noted that the appellant’s brief discusses only procedural matters and not the issues involved in this appeal. Accordingly, in the absence of any *446cogent demonstration by the appellant of error committed below, we may not disturb the order of the bankruptcy judge.
AFFIRMED.
. On April 5, 1983, with the consent of the appellee, this appellate panel dismissed so much of this appeal as affects the foreclosure of Slavin’s property in Lowell, Massachusetts.
. It is possible that the motion to alter and amend the judgment of September 27, 1982 became moot before the bankruptcy judge issued the order denying that motion. The amended motion sought to delay the lifting of the automatic stay only until October 29, 1982. That date passed long before the bankruptcy judge denied Slavin’s motion (on December 1, 1982) and before this appeal was filed. We need not decide the issue of mootness, however, because we affirm the order of the bankruptcy judge on other grounds.
.It appears that in pursuing this appeal long after foreclosure sales of the property in question took place, the appellant seeks to vacate those sales which were held pursuant to the consent judgment. In similar cases, however, appellate courts have held that bankruptcy courts erred in setting aside foreclosure sales which were not in violation of the § 362 stay or the stipulations of the parties. E.g., Collateral Funding, Inc. v. Herrera (In re Herrera), 23 B.R. 796, 10 B.C.D. 79 (Bkrtcy.App. 9th Cir.1982); Miller v. Shaw (In re Shaw), 16 B.R. 875, 8 B.C.D. 952 (Bkrtcy.App. 9th Cir.1982). See also Crown Life Ins. Co. v. Springpark Assoc. (In re Springpark Assoc.), 623 F.2d 1377 (9th Cir.1980) (permitting party to circumvent settlement agreement irreparably harms judicial process). | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489560/ | MEMORANDUM OPINION
C.E. LUCKEY, Bankruptcy Judge.
Plaintiff-trustee seeks to recover payments made by the debtor to The Oregon Bank (Bank) totalling $61,340.17 as voidable preferences under 11 U.S.C. Section 547. The Bank, relying on 11 U.S.C. Section 547(c)(2) and (4) has moved for summary judgment. At a hearing on the Bank’s motion the parties agreed that no genuine issue as to any material fact existed and agreed to submit the matter by providing additional memoranda. All memoranda are now received and the record reveals the following facts.
The debtor herein purchased goods from S and J Cedar Products, aka Veneta Cedar Products, Inc. (Veneta). The Bank and Ve-neta had a financing arrangement which was described in an affidavit of the Bank’s branch manager Carolyn Nading as follows:
“Veneta Cedar Products, Inc. (‘Vene-ta’), formerly operated under the assumed business name of S & J Cedar Products, was, and for some time prior to the events hereinafter referred to had been, a customer of the Bank.
The Bank had made both a term loan and an operating loan to Veneta. The balance owing on the operating loan on April 1, 1980, when bankruptcy No. 680-06277, entitled ‘In re Lonnie Ray Bag-well, dba P & L Distributors Shake & Cedar Products, L.B. Shake Co. and Little L.B. Mill, and Phyllis Lorene Bagwell, Debtors’, was commenced was $50,115.00.
The arrangements between Veneta and the Bank provided for the making of advances by the Bank to Veneta against invoices covering materials and lumber products sold by Veneta to the Debtor. Each such invoice was assigned by Vene-ta to the Bank, a stamped assignment being imprinted upon the invoice which directed that the payment of the invoice be made directly to the Bank.
Upon the receipt by the Bank of payment of a particular invoice, the amount received was credited first against the advance against the particular invoice, and the balance, if any, credited to Vene-ta’s bank account. At all times hereinafter mentioned, the indebtedness of Ve-neta to the Bank exceeded any amount received by it on any particular invoice in excess of the advance against that invoice.”
Veneta sold goods to the debtor covered by the invoices set out in the following chart, against which the Bank made advances, on the dates and for the amounts indicated. Payments made by the debtor to the Bank are listed with dates and payment amounts indicated.
*459
The debtors filed their voluntary Chapter 7 petition April 1, 1980. The total amount of payments by debtors to Bank which the trustee seeks to recover is $61,340.17. The sum of unpaid invoices representing goods shipped subsequent to payments which the trustee seeks to recover is $53,482.14.
The Bank contends that the payments received on Invoices Nos. 1199 and 1203 which total $12,907.78 were not voidable by the trustee on the basis of 11 U.S.C. Section 547(c)(2) because payment was made within 45 days after the invoice dates. The Bank further contends that the goods shipped to the debtors represented by Invoices Nos. 1205, 1207, 1208, 1209, 1210 and 1214 constitute “new value” as defined in Section 547(a)(2) of the Code and more than offset the aggregate amount of the three invoices paid more than 45 days after their dates under Section 547(c)(4) of the Code.
The trustee contends that the assignments of the accounts to the Bank by Vene-ta were absolute and that the Bank thereby became the owner of the indebtedness represented by the invoices putting the Bank in the position of an unsecured creditor of the debtors which received payments on antecedent debts totalling $61,340.17 during the 90 days preceding the order for relief in the debtors’ bankruptcy. The trustee further contends that the debts were incurred by the debtors through the purchase of cedar products and thus not incurred in the ordinary course of business of the Bank as required by Section 547(c)(2) of the Code. As to the Bank’s Section 547(c)(4) contention, the trustee asserts that the Bank, as the creditor receiving the alleged preferential payments, never supplied any new value to or for the benefit of the debtor and consequently is not aided by Section 547(c)(4).
The parties frame the basic issue for the Court’s resolution as characterization of the relationship between the Bank and the debtors, i.e. whether the Bank, as assignee, owned the accounts and received payments for its own benefit, or whether Veneta was the creditor of the debtor and the Bank received payments for Veneta’s benefit, as the accounts comprised collateral security for the Bank’s loans to Veneta or whether under the Bankruptcy Code the Bank, as transferee, was entitled to defenses which would be available to the assignor.
The trustee urges technical interpretation of the language of the Bankruptcy Code coupled with a misplaced reliance on the notice of assignment stamped on each invoice assigned to the Bank in urging the Court to deprive the Bank of the Code’s exceptions to preferential transfer avoida-bility which would be applicable to its assignor, Veneta. The language of the Code as applied to the facts of this case is troublesome, but no reasonable basis has been offered or appears to exist to deprive the assignee-transferee the defenses which would be available to the debtors’ true creditor-assignor.
The trustee’s contention that the legend stamped on the individual invoices assigned amounted to an absolute assignment and sale of the accounts they represented misplaces emphasis on the language of what is basically only a notice of the assignment to the account debtor Bagwell.
O.R.S. 80.010 provides:
“80.010 Assignment of chose in action; payment by debtor without notice. Any bona fide assignment of a chose in action by way of sale or pledge made in writing for a good, valuable and adequate consideration is deemed completed at the time the writing is executed by the assignor and takes effect at the time of execution according to the terms of the writing without the giving of notice to *460the debtor therein mentioned unless such notice is required by statute; but if notice is not given to a debtor, and such debtor, without knowledge of the assignment pays or discharges in whole or in part his obligation to the assignor or to any subsequent assignee of the chose in action who has given notice, such payment constitutes a discharge of the debt- or to the extent thereof without prejudice to any right or remedy between the several assignees.”
The document creating the assignment of accounts from Veneta to the Bank is the security agreement between the parties which provides in relevant part:
“In consideration of an extension of credit by THE OREGON BANK, an Oregon Banking Corporation (secured party, hereinafter called ‘Bank’), to Veneta Cedar Products, Inc. (hereinafter called ‘Debtor’), and as security for payment of all sums due or to become due or owing by Debtor to Bank, including: All promissory notes outstanding under a $50,-000.00 line of credit. Debtor hereby grants, transfers and assigns to Bank a lien upon and security interest in the following property (hereinafter called ‘Collateral’):
2. In all of Debtor’s accounts, chattel paper, documents, Instruments and general intangibles, now existing or hereafter arising, and in all proceeds thereof; and
11. That Debtor does hereby designate and appoint Bank, its successors and assigns, its true and lawful agent and attorney, with powers irrevocable, for it and in its name, place and stead, to ask, demand, receive, receipt and give acquittance for any and all amounts which may be or become due by any other party in connection with any of said Collateral, and at its option to file any claim or take any action or proceeding, either in its own name, or in the name of Debtor, or otherwise, which to Bank or any successor assignee thereof may seem necessary or desirable in order to collect or enforce payment of any and all amounts which may become due or owing on account of any of said collateral and to perform any of Debtor’s duties and obligations in connection with any of said Collateral, in order to prevent the default of Debtor in connection therewith. The acceptance of this assignment by Bank shall not obligate it to perform any duty, covenant or obligation required to be performed by Debtor in connection with any of said Collateral.
13. That this Security Agreement shall not be qualified or supplemented by course of dealing. No waiver or modification by Bank of any of the terms and conditions hereof shall be effective unless in writing signed by Bank. No waiver or indulgence by Bank as to any subsequent required performance or other obligations of Debtor hereunder.”
The terms of the assignment reflect, not a purchase of accounts but an assignment for collateral security and provision for collection. The Bank, as secured creditor of Veneta, has the rights granted to it in the security instrument. Payments made by the debtor to the Bank pursuant to the assignment were applied to reduce Veneta’s indebtedness to the Bank and are for the benefit of Veneta. Existence of security between the Bank and Veneta is not to confuse the fact that no security existed against the debtor-transferor.
The trustee’s restrictive interpretation of Section 547(c)(2) and (4) of the Code appears to have no support in the legislative history or case law. On the contrary, the policies underlying the exceptions are furthered by construction allowing the Bank to avail itself of the exceptions. Section 547(c)(4) is intended to promote fairness among preferred unsecured creditors and to encourage new extensions of unsecured credit to financially shaky debtors. With regard to Section 547(c)(2) the legislative history states:
*461“The purpose of this exception is to leave undisturbed normal financial relations, because it does not detract from the general policy of the preference section to discourage unusual action by either the debtor or his creditors during the debtor’s slide into bankruptcy.” H.R.Rep. No. 595, 95th Cong. 1st Sess. 373 (1977), U.S. Code Cong. & Admin.News 1978, pp. 5787, 6329. (Hereinafter referred to as House Report)
These exceptions are part of the Bankruptcy Code’s substantial modification of the treatment of preferences under the old Bankruptcy Act of 1898 intended to modernize the preference provisions and bring them more into conformity with commercial practice and the Uniform Commercial Code. House Report, supra, at page 372, U.S.Code Cong. & Admin.News 1978, p. 6328.
The method of invoice financing utilized by Yeneta and the Bank is a usual and integral part of commercial practice within the lumber industry. As a court of equity, this Court cannot equitably interpret the Code to deny the assignee Bank the right to stand in the shoes of its assignor Veneta for purposes of Section 547(c)(2) and (4). See, In re Church Buildings and Interiors, Inc., 14 B.R. 128 (Bkrtcy.W.D.Okl.1981).
Consequently, based on the record before the Court, the payments the trustee seeks to recover from the Bank are not avoidable as preferences pursuant to 11 U.S.C. Section 547(c). Payments made on Invoices Nos. 1199 and 1203 were made within 45 days of delivery of the goods and '^otherwise satisfy the requirements of Section 547(c)|$) and the delivery of goods represented by Invoices Nos. 1205, 1207, 1208, 1209, 1210 and 1214 shipped to the debtor subsequent to the alleged preferential payments constitute new value for purposes of Section 547(c)(4) the aggregate value of which more than offsets the amount of payments sought by the trustee which were not within the ambit of Section 547(c)(2). The trustee’s complaint is denied. Separate Judgment for the Bank consistent herewith shall be entered with each party to bear his or its own costs and attorney fees in these proceedings. Pursuant to Bankruptcy Rule 752 this Memorandum Opinion contains the Court’s Findings of Fact and Conclusions of Law and they will not be separately stated. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489562/ | ORDER ON REMAND
THOMAS C. BRITTON, Bankruptcy Judge.
An Order Transferring Proceeding entered July 28,1981,13 B.R. 144, (C.P. No. 7) in this ancillary adversary proceeding was appealed to the District Court. On January 26, 1983, the matter was remanded by the District Court, Judge Eaton:
“. .. for a determination of the jurisdictional issue under the Bankruptcy Court’s view of the present state of the law bearing on this case and for the entry of any further order not inconsistent with this ruling.”
The Order of Remand reached this court on January 28, but was not brought to my attention by the clerk or the parties.
I hold that this court had and has jurisdiction of both the parties and the subject matter of this adversary complaint. I was then and am now persuaded by the authorities previously cited in the 1981 Order, although several bankruptcy courts have reached a contrary conclusion. See also In re Burley, bkrtcy, C.D.Cal.1981, 11 B.R. 369, 378, aff’d 27 B.R. 603 Bkrtcy.App., 9 Cir.1982; and In re National Shoes, Inc., Bkrtcy, D.Me.1982, 18 B.R. 507, 508, 8 B.C.D. 1190, which cites three other similar holdings.
Since December 25, 1982, in light of the holding in Northern Pipeline Construction Co. v. Marathon Pipe Line Co., - U.S. -, 102 S.Ct. 2858, 73 L.Ed.2d 598 (1982), this court’s jurisdiction is no longer derived from 28 U.S.C. § 1471, but is derived solely from the emergency rule drafted by the Judicial Conference and adopted by the District Court at the direction of the Judicial Conference of 11th Circuit Court of Appeals. By the explicit provisions of paragraphs (c)(1) and (d)(1) of that Rule this court has subject matter jurisdiction of this matter. By definition, this adversary proceeding for stay relief under 11 U.S.C. § 362(d) is not a “related proceeding” within the terminology of that Rule. § (d)(3)(A) of the Rule.
Although serious questions may be presented as to the validity of the emergency rule, I am bound by the provisions of the Rule. A rule directed by the Judicial Council of this Circuit is, I am convinced, no less binding on me than a rule of decision announced by a panel of that court. Dills v. City of Marietta, Ga., 11 Cir.1982, 674 F.2d 1377, 1380.
One effect of Northern Pipeline and the substitution of the emergency rule for the provisions of 28 U.S.C. § 1471 is to eliminate the provisions of 28 U.S.C. § 1471(c) and (e) which presented a question of this court’s jurisdiction two years ago, as was noted in the 1981 Order.
The venue of this proceeding is clearly inappropriate for the reasons stated in the 1981 order. 28 U.S.C. § 1473. The venue statute is, of course, unaffected by Marathon and the emergency rule. However, the transfer to the bankruptcy court with appropriate venue, the Western District of Pennsylvania, is no longer appropri*491ate because of the provisions of 11 U.S.C. § 362(e)(2):
“(e) Thirty days after a request under subsection (d) of this section for relief from the stay of any act against property of the estate under subsection (a) of this section, such stay is terminated with respect to the party in interest making such request, unless the court, after notice and a hearing, orders such stay continued in effect pending, or as a result of, a final hearing and determination under subsection (d) of this section. A hearing under this subsection may be a preliminary hearing, or may be consolidated with the final hearing under subsection (d) of this section. If the hearing under this subsection is a preliminary hearing—
(1) the court shall order such stay so continued if there is a reasonable likelihood that the party opposing relief from such stay will prevail at the final hearing under subsection (d) of this section; and
(2) such final hearing shall be commenced within thirty days after such preliminary hearing”.
Although the 1981 Order was so worded as to avoid automatic termination of the stay, I did not then anticipate either an interlocutory appeal of that Order nor that, if one were taken, it would be authorized retroactively after the 30 day deadline had expired. Of course, under these circumstances, neither the parties nor the transferee court could comply with transfer provisions of the 1981 Order. It would be unconscionable to permit plaintiff to achieve stay relief solely by the delay occasioned by plaintiff’s appeal. I hold that plaintiff is estopped to assert that position.
To avoid any further question as to the effect of delay in the disposition of this proceeding in light of the quoted statute, this ancillary adversary proceeding is now dismissed without prejudice to its reinstitution by plaintiff in the Bankruptcy Court for the Western District of Pennsylvania. In re Whitehorn, Bkrtcy.N.D.Ga.1981, 9 B.R. 404, 7 B.C.D. 394. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489563/ | FINDINGS OF FACT, CONCLUSIONS OF LAW AND MEMORANDUM OPINION
ALEXANDER L. PASKAY, Chief Judge.
THIS IS a contested discharge proceeding and the matter in controversy is the *492dischargeability, vel non, of a debt allegedly owing to Dr. Richard Rodgers, the Plaintiff who instituted the above-captioned adversary proceeding. The claim of non-dis-chargeability is asserted against Francis Stewart Fallon, Jr., the Debtor, who seeks relief under Chapter 7 of the Bankruptcy Code. Inasmuch as this is a civil proceeding arising in a case filed under Title 11 of the Bankruptcy Code, by virtue of the Emergency Local Rule (d)(2) it can be resolved by the entry of a final dispositive order by this Court which will become effective upon the entry by the Clerk of the Bankruptcy Court, unless stayed on an appropriate motion either by the undersigned Bankruptcy Judge or by a District Judge.
It is the contention of the Plaintiff that the Debtor obtained money from the Plaintiff under false pretenses or by actual fraud. Thus, according to the Plaintiff, the debt owed by the Debtor to the Plaintiff should be excepted from the protective provisions of the general bankruptcy discharge by virtue of § 523(a)(2)(A) of the Bankruptcy Code.
The facts relevant and germane to the resolution of this factually complicated controversy, as established at the final eviden-tiary hearing, can be summarized as follows:
The Plaintiff, Dr. Rodgers, is a practicing physician and investor in various properties, primarily properties that qualify as tax shelters. The Defendant, Mr. Fallon, was a principal in numerous corporate entities including the three most relevant to this controversy, Blackhawk International Corp., Blackhawk Productions, Inc., and Global Films, Inc. The Defendant was the president and controlling stockholder of Black-hawk International and of Blackhawk Productions. He was also one of four organizers of Global Films, a corporation formed to purchase the film, “The Intruder,” and with the intent of making additional purchases in the future for resale to investors seeking tax shelters.
Intruder Ltd. (Intruder) is a limited partnership in which Chris Robinson, a well-known movie actor was a general partner. Intruder was the owner and producer of a full-length motion picture entitled “The Intruder,” starring Mickey Rooney, Yvonne DeCarlo, Ted Cassidy and Chris Robinson.
On May 7, 1976, Global purported to grant a 90 day option to purchase “The Intruder” to D.C.T.I. (Pi’s Exh. # 5). D.C. T.I. is a Florida limited partnership composed of physicians and formed primarily to acquire properties to be used as tax shelters. Global, however, did not actually acquire an option from Intruder until May 5, 1976, three days after the Global-D.C.T.I. option agreement (Pi’s Exh. # 13). Furthermore, the option obtained by Global from Intruder was a 60 day option; Global, however, purported to assign a 90 day option to D.C.T.I.
The Defendant learned of Plaintiff’s interest in purchasing “The Intruder,” and arranged a showing of the film. On July 14, 1976, after Global’s 60 day option had expired, and after Global had already assigned its option to D.C.T.I., Blackhawk International Corp. entered into an acquisition agreement whereby it purported to convey all right, title and interest in “The Intruder” to the Plaintiff (Pi’s Exh. # 1). In addition, Blackhawk unequivocally warranted that Blackhawk:
“is the exclusive and sole owner of all right, title and interest in the film and the territory, including, without limitation, all rights in and to the physical properties, the literary, dramatic and musical material contained in the film, and the right of distribution, marketing and exhibition of the film; and seller is able, without restrictions, to enter into the within agreement for the purchase of all of seller’s rights, as herein set forth."
It is without dispute that at the time this acquisition agreement was signed, Black-hawk had no cognizable legal or equitable ownership interest in “The Intruder.” The assignment by Intruder to Global was no longer in force at the time Global purported to assign its interest in the option to Black-hawk. The fact of the matter is, and it is without dispute, that at the time the acquisition agreement was signed there was still *493an outstanding valid option in favor of D.C. T.I. Be that as it may, even if one assumes that Blackhawk still had some form of option to purchase “The Intruder,” there is no question that Blackhawk did not own the film “The Intruder.”
It further appears that Global’s right to obtain “The Intruder” (Exh. # 13), was not co-extensive with the terms under which “The Intruder” was sold to the Plaintiff by Blackhawk (Exh. # 1). The acquisition agreement (Pi’s Exh. # 1) gave the Plaintiff the following principal rights:
(a) Dr. Rodgers was to have the sole right to distribute or select the distributor for “The Intruder,” (Section 3F);
(b) Dr. Rodgers was to receive the first $261,000 net proceeds from the movie before any retirement to pay any monies to Intruder Ltd. and when such monies were to be paid, Dr. Rodgers would be entitled to receive 55% of the net proceeds whereas Intruder, Ltd. would only receive 45% of the net proceeds (Section 5C).
It is without dispute that, in spite of the foregoing requirements of the contract, the film could not be conveyed to the Plaintiff simply because contrary requirements contained in the option granted by Intruder to Global (Exh. # 13), provided that Pyramid Pictures (Pyramid) should be the guaranteed distributor of “The Intruder,” as opposed to the provision in the acquisition agreement which granted the Plaintiff the sole right to select the distributor (See paragraph 5 at page 5 of Exhibit # 13). In addition, the option further provided that immediately upon the payment of the theater rentals, Intruder Ltd. and the Plaintiff would split the income on a 50/50 basis, which is again contrary to the provisions in the acquisition agreement which provided that the Plaintiff should receive the first $261,000 net income after the theater rentals generated by “The Intruder” with a 55/45 split thereafter (See paragraph 5 at page 5, Exhibit # 13).
It is without dispute that Plaintiff paid as downpayment for the film the sum of $170,000 to Blackhawk. While it is unclear from the record whether or not the monies paid by the Plaintiff were paid directly to Blackhawk International or Productions or to some other entity controlled by the Debt- or, there is no question that the Debtor was the controlling principal in all these entities, including Global, the original holder of the option to purchase “The Intruder.”
In spite of the Plaintiff’s inability to obtain a satisfactory resolution of this problem, the Plaintiff maintained further contact with the Debtor and negotiated the purchase of another motion picture entitled “Combat Killers,” which was supposed to be the replacement for “The Intruder,” provided the Plaintiff would pay an additional $15,000. It appears that “Combat Killers” was not a new picture. It had been on the market for three or four years before, without success of any sale or sale of distribution rights in the United States and could have been obtained in the open market for about $25,000 plus brokerage and other fees.
The Plaintiff, having failed to obtain a satisfaction from the Defendant, filed an action in the Circuit Court of the 13th Judicial Circuit of the State of Florida in and for Hillsborough County, naming as Defendants Blackhawk International Corp., Blackhawk Productions, Inc., R.C. Johnson, Benjamin E. Crosby and the Debtor, F.S. Fallon, Jr. This action was tried on the following issues:
1. Whether Blackhawk is able, at this time, to convey “The Intruder” to the Plaintiff, Dr. Rodgers and, if so, is the Plaintiff entitled to specific performance?
2. If Blackhawk is unable to perform, is the Plaintiff entitled to refund of the $170,000 paid?
3. What is the personal liability of the Defendant, if any, to the Plaintiff?
Thus, it appears that while the State Court action resolved the question of liability of the Debtor, it did not resolve the issue of fraud ih the sense which would warrant the finding that the question of discharge-*494ability is laid to rest by the State Court judgment and operates as res judicata, thus foreclosing any further inquiries as to the character of the liability represented by the State Court judgment.
The claim of non-dischargeability is based on § 523(a)(2)(A) which provides as follows:
(a) A discharge under section 727, 1141, or 1328(b) of this title does not discharge an individual debtor from any debt—
(2) for obtaining money, property, services or an extension, renewal, or refinance of credit, by—
(a) false pretenses, a false representation, or actual fraud, other than a statement respecting the debtor’s or an insider’s financial condition;
Under this Section, it is a burden on the Plaintiff to establish the requisite degree of proof that the Defendant did obtain the money or property by false pretenses or by actual fraud.
The record in this case is replete with evidence and there is hardly any doubt that the Debtor knowingly misled the Plaintiff by representing to him that Blackhawk had the right to sell “The Intruder.” There is ample evidence in this record that the Debt- or deceived the Plaintiff concerning Black-hawk’s ownership interest in “The Intruder” and that he deceived the Plaintiff by intimating that D.C.T.I. waived or released its option, thereby removing the roadblock to the sale of “The Intruder” to the Plaintiff.
The only question remaining is whether or not the Debtor obtained money from the Plaintiff, or whether the money was obtained by one of his fellow co-defendants or by one of the corporate entities involved in this confusing and complex deal.
Contrary to the contention by counsel for the Debtor, it is not the Plaintiff’s burden to establish that the Defendant has personally received the property obtained through fraud. While this proposition has some support, the better view seems to be that it is not necessary that the property be actually procured by the Debtor himself. 3 Collier on Bankruptcy, ¶ 523.08(1) (15th ed. 1982). There is no question, in this instance, as noted earlier that the Debtor had direct and immediate control of all aspects of the business of Blackhawk International and Black-hawk Productions. While it is true that Crosby and Johnson also received monies out of the funds obtained from the Plaintiff, the Debtor, through his corporation, did receive $25,000 immediately after the receipt of the $170,000 from the Plaintiff. This entity, controlled by the Debtor, performed no identifiable services. The Debt- or also paid with corporate funds $9,780 to purchase a 1974 Jaguar, which automobile was placed in his own name. The Debtor took several trips to Europe, all of which were paid by corporate funds and there is no showing in this record that they were, in any way, legitimate business trips. It appears to the contrary that the trips were for personal reasons. The Debtor also purchased a 35 foot yacht with corporate funds and paid all the maintenance and upkeep for the yacht with corporate funds. This yacht was ultimately sold. There is no evidence that the proceeds of this sale were ever actually obtained by Blackhawk. There are numerous other instances which appear from the deposition and Exhibits that during the time relevant, the Debtor received checks in varying amounts for payment of his personal expenses.
In sum, it is clear that the Debtor, using his dominant position in these entities, had the benefit of the majority of the funds obtained from the Plaintiff, inasmuch as it is clear that neither Blackhawk Productions nor Blackhawk International had any income whatsoever from any source other than the monies paid by the Plaintiff for the purchase of “The Intruder.” Accordingly, it is evident that these corporate entities were merely conduits through which the funds were channeled to the ultimate recipient, the Defendant.
The record is clear that the Debtor was the Chairman of the Board, the President and controlling stockholder of Blackhawk International and Blackhawk Productions. He was also one of the organizers and one of the moving forces in Global. While there is evidence in this record to show that, *495in addition to the Debtor, his co-defendants, Johnson and Crosby, as well as some other parties were actively involved in this entire plot to deceive the Plaintiff, there is no doubt that the corporate entities did obtain monies from the Plaintiff directly and from the Debtor indirectly. In addition, this issue has been resolved with finality by the entry of a final judgment against the Debt- or by the State Court in the principal sum of $170,000, therefore, it is no longer subject to any further inquiry.
Pursuant to Fla.Stat. § 687.02 (1981), interest on judgments accrues at the rate of 8% per annum and would accrue on the entire balance until a judgment is satisfied. In this instance, it appears that the Plaintiff was able to levy and execute on the judgment on the home of the Defendant. The house was ultimately sold at a sheriff’s sale on December 31, 1981. At that time, the Debtor became entitled to a credit in the amount of $170,000, giving credit against the judgment and adding the earned and accrued interest as of the date of September 25,1982, the date of the final evidentia-ry hearing. Thus, the Debtor is still indebted to the Plaintiff in the amount of $68,-255.71.
The Plaintiff in Count 3 of his complaint seeks a determination of non-dischargeability based on § 523(a)(4) which provides that debts based on fraud or defalcation while acting in a fiduciary capacity, embezzlement or larceny, are non-dischargeable debts. While this Court is satisfied that the Plaintiff did establish the requisite degree of proof of the claim of non-dischargeability based on § 523(a)(2) of the Bankruptcy Code, this record would not warrant the finding that the Defendant is guilty of larceny. Thus, the claim of non-dischargeability under § 523(a)(4) cannot be sustained.
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/8489566/ | FINDINGS OF FACT AND CONCLUSIONS OF LAW
SIDNEY M. WEAVER, Bankruptcy Judge.
This cause came on to be heard upon an Amended Complaint for an exception from discharge filed herein and the Court having heard the testimony and examined the evidence presented, having observed the candor and demeanor of the witnesses and having considered the arguments of counsel and being otherwise duly advised in the premises, does* hereby make the following Finding of Fact and Conclusions of Law.
The debtor, Levine, filed a petition under Chapter 7 of the Bankruptcy Code listing the plaintiff, Burger King Corporation (Burger King) as an unsecured creditor stemming from monies owed to Burger King in connection with his association with a Burger King franchise.
During the late 1970’s, Levine and a former patient of his, Jose Gomez,1 agreed to undertake a joint venture in the fast food business and entered into negotiations with Burger King to obtain a Burger King franchise. Levine became interested in a franchise through Jose Gomez (Gomez) who had ten years of managerial experience with various Burger King franchises. Gomez had experience in managing Burger King restaurants but neither Gomez nor Levine had any experience in the financial aspects of a franchise operation.
When they met with Burger King representatives during their negotiations for the franchise, Levine and Gomez were given estimated financial figures and debt-to-equity ratios and thereafter executed a capitalization form incorporating all of the above which became a permanent part of their application for the franchise. Levine testified, and the Court so finds, that he relied upon Burger King’s expertise when he executed the forms.
Burger King entered into a franchise agreement with Levine and Gomez under which they were licensed to operate a Burger King restaurant located in San Bernardi-no, California (the franchise). Simultaneously, G & T Trading Company (G & T) executed a sublease agreement with Levine and Gomez and contracted with Burger King to manage the subject property.
Subsequently, Levine and Gomez decided to operate the franchise as a corporate entity and with the full knowledge and written consent of Burger King, they assigned their interests in the franchise and sublease agreements to HGC, Inc., a California corporation, while retaining a controlling interest in that corporation and remaining personally liable for any indebtedness to Burger King.
The franchise was not a profitable operation and became delinquent on payments to Burger King for rent, royalties, materials and supplies. Accordingly, Burger King sued Levine, Gomez and HGC, Inc. in Dade County seeking money damages for sums due and owing pursuant to the franchise and sublease agreements, said suit now being stayed by bankruptcy proceedings. Levine and Gomez dissolved HGC, Inc. and continued to operate the franchise as a partnership, in which they retained a controlling interest.
Subsequently, Burger King notified Levine and Gomez that due to their alleged default under the franchise and sublease agreements the franchise agreement was terminated. The propriety of termination was disputed by Levine and Gomez and they continued to operate the franchise and remained in possession thereof. At all times Burger King continued to do business with the franchise and supplied it with Burger King products and materials with the Burger King logo.
Burger King contends that Levine’s unsecured indebtedness to Burger King should *523be excepted from discharge pursuant to 11 U.S.C. Section 523(a)(2)(4) and (6).
An underlying policy of bankruptcy law is to provide debtors with a “fresh-start". Courts analyzing exceptions to discharge have generally held that any and all exceptions to discharge should be strictly and narrowly construed. Danns v. Household Finance Corporation, 558 F.2d 114 (2d Cir.1977); Gleason v. Thaw, 236 U.S. 558, 562, 35 S.Ct. 287, 289, 59 L.Ed. 717 (S.Ct. 1915); First and Merchants National Bank of Radford v. Jones, 3 B.R. 410,412 (Bkrtcy.W.D.Va.1980). See Sweet v. Ritter Finance Company, 263 F.Supp. 540 (D.Va.1967). An objector to discharge must sustain his burden of proof with clear and convincing evidence. First and Merchants National Bank of Radford v. Jones, at 412.
Burger King alleges that; 1) the debtor intentionally and fraudulently misrepresented financial information; 2) the debtor committed acts of misconduct with reference to his relationship with Burger King and 3) the debtor’s actions were committed willfully and maliciously.
In order to obtain an exception from discharge pursuant to 11 U.S.C. Section 523(a)(2), the plaintiff must demonstrate that Levine acted with the intent to deceive. In re: Douglas Magnusson, 14 B.R. 662 (Bkrtcy.N.D.N.Y.1981), Levander Vert Hippier d/b/a Van’s Shoe Store, Bankrupt, 278 F.Supp. 753 (W.D.La.1968). In the case of Southern Discount Company v. Mausser, 4 B.R. 728 at 729 (Bkrtcy.S.D.Fla.1980), this Court, confronted with an exception to discharge sought under Section 523(a)(2), held that even though “the written statement submitted to the plaintiff was materially false, that such statement was made in reference to (the debtor’s) financial condition, and the plaintiff relied thereon ..., the Court finds that the defendant did not submit the materially false written statement with the intent to deceive”.
Burger King has not presented clear and convincing evidence that Levine sought to intentionally deceive Burger King in the procurement of the franchise contract. Burger King has also failed to establish that the capitalization form, which it maintains was the primary written statement relied upon in determining whether to grant the debtor a franchise, was reasonably relied upon or that it was materially false. Burger King’s allegations of misrepresentation, misconduct and deceit are also unsupported by the record.
Based on the totality of circumstances, Burger King does not appear to have relied upon the financial information which the franchisee provided, and the record does not support its contentions that the financial information was either false or misleading, that the debtor’s conduct constituted a fraud or defalcation, and that actions of the debtor resulted in “willful and malicious injury” to Burger King.
This Court concludes based upon its findings that Levine did not intentionally submit inaccurate or false financial reports to Burger King for the purpose of deceiving Burger King into extending credit to the franchise not did the debtor commit a fraud or cause a willful and malicious injury to Burger King. The plaintiff has failed to meet its burden of proof under 11 U.S.C. Section 523(a)(2), (4) or (6) and therefore the plaintiff is not entitled to have its debt excepted from the debtor’s discharge.
. Levine is a Dentist licensed to practice in the State of Florida. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489567/ | FINDINGS OF FACT, CONCLUSIONS OF LAW AND MEMORANDUM OPINION
ALEXANDER L. PASKAY, Bankruptcy Judge.
THIS IS a Chapter 11 case involving James P. Haas, the Debtor and the matter *567under consideration is the dischargeability, vel non, of a debt admittedly owing by the Debtor to ComBank/Seminole County (ComBank), the Plaintiff who instituted this adversary proceeding. The claim of non-dischargeability is based on the charge set forth in the complaint filed by ComBank that the Debtor obtained money from Com-Bank through actual fraud, therefore, according to ComBank, the same shall be declared to be non-dischargeable pursuant to § 523(a)(2)(A) of the Bankruptcy Code.
The facts relevant to the resolution of this controversy as established at the final evidentiary hearing are as follows:
During the years 1970 through 1976, the Debtor acquired a number of limited partnership interests in an entity known as “Pe-tro-gearch Exploration Corporation” (Pe-tro-Search). On December 11, 1979, the Debtor entered into a transaction by executing an “Exchange Offer Letter of Acceptance and Proxy” whereby he agreed to exchange his interest in this limited partnership for 899 shares of Howell Petroleum Corporation (Howell) common stock. The Exchange Offer Letter of Acceptance and Proxy was received by Texas Commerce Bank, the stock transfer agent (Transfer Agent) for Howell on December 17, 1979. On or about January 10,1980, in accordance with the Exchange Offer Letter of Acceptance and Proxy, the Transfer Agent mailed stock certificate number HS1878 representing 899 shares of Howell common stock to the Debtor.
Prior to January 11,1980, the Debtor had several telephone conversations with one Robert Ward, a stock broker who at that time was employed in the Denver, Colorado office of E.F. Hutton and Co. The conversation related to a possible exchange of his partnership interest in Petro-Search for the 899 shares of Howell common stock. Prior to January 11, 1980, the Debtor advised Ward on the telephone that he was to receive 899 shares of Howell stock in exchange for his interest in the limited partnership of Petro-Search and directed Ward to sell 800 shares of his Howell stock. Ward, acting as a broker for E.F. Hutton, proceeded to do so, even though at that time he had no possession of any stock certificate. The settlement date for completing the stock sale of the 800 shares in the Howell common stock was scheduled for January 18, 1980, but the Debtor failed to deliver the Howell stock to E.F. Hutton by the settlement date. Ward called the Debt- or prior to the settlement date and sought to determine whether or not the Debtor did mail the stock certificates and he informed the Debtor that as of that date, he had not received the stock certificates yet.
On January 28, 1980, the Debtor approached ComBank and inquired about the possibility of obtaining a loan from the Bank and represented to the officer of the Bank that he was the owner of 899 shares of stock in Howell, which he could pledge as collateral for the loan. On January 28, 1980, the Debtor obtained a loan from the Bank in the principal amount of $25,000 and executed the pledge of the Howell corporate stock, certificate number HS1878, which represented the 899 shares of Howell common stock. In fact he had already delivered the stock certificate to an officer of the Bank. In addition, the- Debtor also executed a security agreement which specifically stated that the Debtor was the owner of the collateral, i.e. the pledged stock, free of any adverse liens or claims, security interests, or encumbrance.
Of course, this representation was false since the Debtor had already sold 800 shares of his Howell common stock earlier through E.F. Hutton. At no time prior to the time the loan was made did the Debtor inform the Bank that he had already sold 800 shares and had only 99 shares of Howell common stock left.
On February 6,1980, the Debtor wrote to the Transfer Agent stating that he has not yet received his Howell stock; that he had good reason to believe that the stock certificates had been lost or destroyed. This letter was written only nine days after the same stock certificate was pledged by him as collateral for the loan. He further stated to the Transfer Agent that it was his desire to have the stock certificate cancelled *568and the new stock" certificate reissued as soon as possible. Thereafter, the Debtor executed an affidavit stating that he never received the Howell stock certificate number HS1878 and mailed the affidavit to the Transfer Agent, who in due course issued a new stock certificate number HS8761 representing 899 shares of common stock in Howell. The Transfer Agent also placed a stop order on Howell’s stock certificate number HS1878. Upon receipt of same, the Debtor mailed the new stock certificate number HS8761 to E.F. Hutton in order to permit the broker to complete the sale of the stock which he had ordered to be sold earlier on January 11, 1980 before he applied and obtained the loan from ComBank. On August 6, 1980, E.F. Hutton mailed a check in the amount of $14,873.19 representing the proceeds from the sale of the 800 shares of the Howell stock.
On February 6, 1981, the Debtor again approached ComBank and sought a renewal of the loan obtained from ComBank on January 20, 1980. At the time the Debtor approached ComBank regarding the renewal of the loan, the loan was already in default. On. February 6, 1981, the Debtor executed an installment note, a disclosure statement, a security agreement in favor of ComBank in order to renew the loan originally made on January 28, 1980. In these instruments, the Debtor stated the collateral for the renewal of the loan to be the 899 shares of Howell stock represented by Howell stock certificate number HS1878. The statement further indicated that the Debtor warranted that he was the owner of the collateral free and clear of all liens and encumbrances. This representation was false, of course, since the Debtor had already reported to the Transfer Agent that that particular certificate was lost and, as noted earlier, he had already obtained a replacement certificate. The Debtor never informed ComBank that he had reported the stock originally pledged as lost or that he obtained a replacement stock certificate.
On December 21, 1981, during the pend-ency of this proceeding, this Court granted relief from the automatic stay and authorized ComBank to proceed against the collateral for the loan which the Debtor procured based on his representation of ownership of stock certificate number HS1878 to Com-Bank. On the following day, ComBank proceeded to sell the stock and received a total of $12,094.48 for the stock after the deduction of the broker’s commission. Shortly thereafter, ComBank learned for the first time that a stop order had been placed on certificate number HS1878 by the Transfer Agent who refused to recognize the transfer and confiscated the stock certificate number HS1878, the collateral pledged by the Debtor for the loan granted by ComBank. As a result, ComBank was required to purchase 899 shares of common stock on the open market in order to fulfill its committment to sell the stock. During the period between the original sale and the date ComBank was required to purchase 899 shares of Howell stock, the price of the stock had risen in value and ComBank was to pay for the stock. ComBank used its own funds to purchase the stock and, therefore, as a result of the transaction Com-Bank clearly sustained a loss of $3,945.84.
In addition, the claim of ComBank which originally was intended to be, and seemingly was, a fully secured loan secured by the stock certificate pledged by the Debtor, ComBank has nothing but an unsecured claim in this proceeding. The amount due on the installment note dated February 6, is $12,766.83 principal together with accrued interest of $627.83 making a total of $13,-394.42.
The claim of non-dischargeability is based on § 523(a)(2)(A) which provides as follows:
“(a) A discharge under section 727, 1141, or 1328(b) of this title does not discharge an individual debtor from any debt—
(2) for obtaining money, property, services or an extension, renewal, or refinance of credit, by—
(A) false pretenses, a false representation or actual fraud, other than a statement respecting the debtor’s or an insider’s financial condition;”
Under this Section, it is a burden on the plaintiff to establish with the requi*569site degree of proof that the defendant did, in fact, obtain money or property by false pretenses or by actual fraud from the plaintiff. Section 523(a)(2)(A) does not materially differ from the corresponding Section of the pre-Code law, § 17(a)(2) of the Bankruptcy Act of 1898. As noted in Colliers, the fraud embraced by this Section involves “moral turpitude or intentional wrong.” 3 Colliers on Bankruptcy, § 523.08 (15th ed. 1982). Indeed, a showing of implied fraud or conduct which only creates a suspicion of fraud is legally insufficient. Sweet v. Ritter Finance Co., 263 F.Supp. 540 (W.D.Va.1967); Friendly Finance Service Mid-City, Inc. v. Windham, 240 So.2d 26 (La.App.1970).
Applying these legal standards to the facts as established in this case, this Court is satisfied that ComBank did establish with the requisite degree of proof all the operating elements of the claim of non-dischargeability under this Section and, therefore, is entitled to the relief it seeks. There is no doubt and the record is crystal clear in this instance that the Debtor did obtain money from ComBank; that not only did he obtain money, but obtained money by the false representations that he was the owner of the 899 shares of common stock in Howell; that he owned those stocks free and clear of any liens, claims or encumbrances and ComBank, in reliance on that statement, accepted the common stock as collateral and granted the loan requested by the Debtor.
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/8489568/ | ON REMAND
AMENDED
FINDINGS OF FACT AND CONCLUSIONS OF LAW
SIDNEY M. WEAVER, Bankruptcy Judge.
This cause originally came on to be heard upon an Amended Complaint filed by the Trustee to recover for unjust enrichment from the defendants. The matter was tried *590before this Court and Findings of Fact and Conclusions of Law were rendered which determined that the defendants owed the debtor’s estate the sum of $67,900. A Final Judgment was rendered in accordance with said finding.
The defendants brought an appeal to the District Court which entered an order vacating this Court’s findings and remanded the matter to the Bankruptcy Court with instructions for further proceedings. Pursuant to said order and the instructions contained therein-, this Court conducted these proceedings. The instructions provided that the Court was required to determine:
1. Whether the issues to be tried herein should be reframed, and if so, the Bankruptcy Court should require delineation of same by the parties, in written form, prior to commencement of further evi-dentiary proceedings;
2. In view of any amendment of the issues to be tried, such testimony should be allowed as either party would address to such issues after due notice;
3. Whether, during the time he served as general contractor on the project, Defendant, Turner advanced sums of money to 18th Avenue in furtherance of the project as Defendants claim, and if so, the amount of such advances;
4. What the language in the closing statement relating to “Deposits prior to closing” in the amount of $72,600 was intended to mean, and whether this language constitutes an acknowledgement that there had been setoffs allowed as claimed by the Defendants; and
5. Whether Defendant Turner misappropriated funds through the inclusion of “extras” or “upgrades” in the Turner home, and the amount of any such misappropriation;
and thereupon enter Amended Findings of Fact and Conclusions of Law, and Final Judgment in accordance therewith.
Following the remand, the plaintiff filed a Second Amended Complaint. The defendants filed their Answer to that Complaint in the form of a general denial. No affirmative defenses were raised. These pleadings framed and “delineated” the issues for further trial. At the trial, the parties were given an opportunity to submit evidence and testimony regarding these issues. The Court having heard the testimony and examined the evidence presented, having observed the candor and demeanor of the witness and having considered the arguments of counsel and being otherwise duly advised in the premises, does hereby make the following Findings of Fact and Conclusions of Law.
The defendants contracted with the debtor to purchase a home (“home”) at the debtor’s project in North Miami Beach, Florida, called “The Village”. Defendant, JAMES N. TURNER, was the principal of Turner Construction Company (the “Company”) engaged by the debtor as the general contractor for construction of the Village. When the defendants and the debtor closed on the contract for the “home”, they executed a closing statement which stated “[DJeposits prior to closing .. . $72,600”. In his Second Amended Complaint, the trustee alleged that these funds were never received by the debtor or the debtor’s estate either from the defendants or a third party-1
The defendants claimed that based upon an alleged oral agreement with the principal of the debtor, they would be entitled to a set-off or credit against the purchase price of the “home” due to alleged transfers of funds from the defendants to the debtor through the Company and that this formed the basis of the “deposits prior to closing.”
The defendants introduced evidence reflecting loans allegedly obtained on behalf of the debtor, the funds from which were purportedly disbursed to the debtor through the Company’s bank accounts prior to the closing on the “home”. However, the evi*591dence reflects that the Company comingled the funds it received and paid out on the debtors project with funds from its other projects. The defendants were unable to prove that the funds from said loans were disbursed to the debtor and they failed to provide this Court with any documentary evidence reflecting a transfer of funds from the Company to the debtor. The defendants failed to establish a mutuality of obligation between the debtor, the Company and themselves. Gibson v. Central National Bank of McKinney, 171 F.2d 398 (5th Cir.1948). Without this mutuality there can be no right to set-off.
Defendant James Turner’s testimony at trial regarding the alleged transfer of funds from the Company to the debtor contradicted his prior testimony during deposition. In January 1980, Mr. Turner testified that he placed approximately $300,000 of his own money into the debtor’s project. At trial, he testified that the amount allegedly loaned to the debtor was approximately $151,000. He further testified that the Company maintained two, bank accounts, one for the debtor’s project and one for the Company’s other projects. This contradicted his prior deposition testimony that the Company maintained only one bank account.
The language “deposits prior to closing” is ambiguous. The Court concludes that based on the evidence presented, this did not constitute an acknowledgment that there were set-offs allowed by the seller as claimed by the defendants. The defendants claimed that the “deposits prior to closing” related to advances made by them for the benefit of the seller and these were credits or “deposits” to be set-off at the closing. The defendants were simply unable to tie together any mutuality of the obligation as between themselves and the Company. Although there was a comingling of funds in the construction company, it has not been demonstrated to the Court’s satisfaction that they were entitled to any credits at the time of closing. Admittedly, they did not deposit cash on account of the purchase price to be credited in the closing statement under the category “deposits prior to closing”.
This Court has considered issue number 5 as set forth in the order of the District Court. At the trial, the plaintiff presented no further evidence except that which had previously been considered by this Court with regard to the upgrades or extras in the Turner home. In view of the evidence presented and the conclusion of this Court, this Court finds that there was insufficient evidence to sustain the plaintiff’s positions that upgrades and extras were unaccounted for in the purchase price.
The Court concludes as a matter of fact and law that the defendants owe the plaintiff the amount of $72,600. Judgment will be entered in accordance with these findings.
. In his Second Amended Complaint, the trustee alleges that the sum of $67,900 was not paid. However, testimony at trial, together with a review of the closing statement indicates that the correct sum is $72,600. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489569/ | MEMORANDUM DECISION
FREDERICK A. JOHNSON, Bankruptcy Judge.
Joseph and Donna Gallant filed a joint petition under chapter 7 on September 9, 1982. On November 10, 1982, the plaintiff, Balboa Insurance Company, Inc., filed a complaint to determine the dischargeability of a debt pursuant to 11. U.S.C.A. § 523(a)(2) (1979) against the debtors and J.H. Gallant & Son, Inc. The debtors and Gallant & Son moved to dismiss; they assert that the court lacks jurisdiction over the corporate defendant and that the complaint fails to state a claim under applicable law.1
The plaintiff alleges that it reasonably relied on a materially false bond application completed by Joseph Gallant when it issued a labor and material payment bond and a performance bond to Gallant & Son. It asserts that Gallant & Son defaulted on a construction contract and caused the plaintiff to incur losses for which both debtors are liable under an indemnity agreement. The plaintiff requests the court to determine that the debt is nondischargeable and to render judgment for the plaintiff in the amount of the debt.
*609The defendants move to dismiss on four grounds. First, the defendants assert that the complaint fails to state a claim against Joseph Gallant because he signed the allegedly fraudulent bond application in his capacity as an officer of Gallant & Son and not in his individual capacity. Under Maine law, a corporate officer may be held individually liable for his fraudulent acts on behalf of a corporation. In Eastern Trust & Banking Co. v. Cunningham, 103 Me. 455, 461, 70 A. 17 (1908), in a deceit action, the Maine Supreme Judicial Court found a treasurer personally liable for a check “kiting” scheme perpetrated by him on the corporation’s behalf. Thus, the plaintiff has stated a cause of action under section § 523(a)(2) against Joseph Gallant.
The second ground for dismissal is the court’s alleged lack of jurisdiction over Gallant & Son, the corporate defendant, after the United States Supreme Court’s decision in Northern Pipeline Construction Co. v. Marathon Pipe Line Co., - U.S. -, 102 S.Ct. 2858, 73 L.Ed.2d 598 (1982). Effective December 25, 1982, the Rules of the United States District Court for the District of Maine were amended to add new Rule 41. Rule 41(c)(1) provides: “All cases under Title 11 and all civil proceedings arising under Title 11 or arising in or related to cases under Title 11 are referred to the bankruptcy judges of this district.” Thus, under Rule 41, bankruptcy courts retain the extensive jurisdiction given to them by the Bankruptcy Code of 1978. Pennels v. Barnes (In re Best Pack Seafood, Inc.), Adv. No. 281-0277, slip op. at 3 (Bankr.D.Me. Jan. 10, 1983). The court has jurisdiction over Gallant & Son in this proceeding, which arises in a case under title 11.
Third, the defendants move to dismiss on the grounds that the corporation, not the debtor, obtained the bond, that the bond is not property under section 523(a)(2), and that the plaintiff did not allege that the fraudulent bond application caused the plaintiff’s losses.
In Levy v. Industrial Finance Corp., 276 U.S. 281, 283, 48 S.Ct. 298, 72 L.Ed. 572 (1927), the United States Supreme Court held that a bankruptcy court could deny a discharge “to a man who has fraudulently obtained a loan to a corporation which is owned by him and in which his interests are bound up.... ” In this proceeding, the plaintiff has alleged that the debtor fraudulently obtained a bond for his own corporation. This allegation states a claim against the debtor.
In Fidelity & Deposit Co. of Maryland v. Arenz, 290 U.S. 66, 68-69, 54 S.Ct. 16, 17, 78 L.Ed. 176 (1933), the United States Supreme Court held that a bond constitutes property. Finally, in the complaint, plaintiff alleges that it issued the bonds in reliance on the fraudulent bond application and that it incurred losses while honoring the bonds. This statement is a sufficient allegation that the fraudulent bond application caused the plaintiff’s losses.
Finally, the defendants move to dismiss on the ground that plaintiff failed to allege the conditions which must occur to constitute a default under the bonds. An allegation that a default occurred is sufficient to state a claim and to withstand a motion to dismiss. See 2A J. Moore & J. Lucas, Moore’s Federal Practice ¶ 12.08 (2d ed. 1982).
An appropriate order will be entered.
. The court has already granted the motion to dismiss the plaintiff’s complaint against Donna Gallant. Any reference to the debtor will refer to Joseph Gallant. The court has also granted defendants’ motion to dismiss the complaint to the extent that the complaint seeks a modification of the automatic stay. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489570/ | MEMORANDUM OPINION AND ORDER
WILLIAM B. LEFFLER, Bankruptcy Judge.
The debtor-in-possession in this ease filed a Chapter 11 Petition on April 7, 1983, and an Application to Clarify § 362 Stay and for Expedited Hearing on April 18, 1983. The debtor requests that the Court enjoin the Internal Revenue Service from collecting future rents that the I.R.S. had levied on prior to the filing of the Chapter 11 Petition.
The partners of BAM Partnership are Billy Gwinn Mitchell and his two sisters, Mary Jane Query and Alma Jean Williams. The assets of the debtor mainly are properties inherited by the above-named partners from their deceased parents. The partners’ father, H.S. Mitchell, died in 1972, and their mother, Alma Mitchell, died in 1976. The estates of the decedent parents are still open and pending in Probate Court. Estate taxes in the amount of $520,000 are presently owed to the I.R.S., and withholding taxes in amount of $60,000 are presently owed by the debtor to I.R.S.
The deceased parents had leased certain commercial properties to a number of individuals, and the I.R.S. prior to the filing of the Chapter 11 Petition, filed notices of levy on these individual lessees for the rents due. The debtor receives approximately $10,000 per month in rent from the lessees.
The debtor contends that the automatic stay provisions under 11 U.S.C. § 362 enjoin the debtors from proceeding with the collection of the rent. The I.R.S. argues that the rental payments are not property of the estate and, in the alternative, that if the rental payments are property of the estate, then the automatic stay provisions of the Bankruptcy Code still do not apply because the rental payments are in the nature of intangible personal property, contract rights or choses in action.
The debtor is not seeking the recovery of prepetition rents collected by the I.R.S. and concedes that the I.R.S. is entitled to those rental payments collected. The debtor is seeking immediate relief to stay post-petition collection of the rents by the I.R.S.
The general rule is that rent which is due at the time of death of the lessor passes to his executor or administrator for administration as an asset of the decedent’s estate, while rent which becomes due after that time becomes property of the heirs or devisees who are entitled to the reversion, as an incident thereof. 49 Am.Jur.2d, Landlord and Tenant, § 550 (1970).
The Tennessee Supreme Court in 1931 in Schmid v. Baum’s Home of Flowers, 162 Tenn. 439, 37 S.W.2d 105, 75 A.L.R. 261 (1931) stated the following in regard to rent due after the death of a lessor:
Rent accruing to the lessor of real estate under the terms of his lease is said to *644be incident to the lessor’s reversion. It is not a debt within the classification of choses in action, whether evidenced by a promissory note of the lessee or not. This right to future rents is not personal property, and upon the death of the lessor, or owner of the reversion, passes to the heirs at law with the reversion. Combs v. Combs, 131 Tenn. 66, 173 S.W. 441. Rent is said to be “one of the ten principal incorporeal hereditaments known to the ancient English law.” 50 Corpus Juris, p. 758, citing Blackstone Comm., 21.
It is, however, universally recognized that rent is severable from the reversion and that the owner of the reversion may effect this severance by granting or transferring the rent to another.
In the present case the reversionary interests in the property, and therefore the right to the rental payments, were transferred from the decedents to the partners as devisees at the date of the decedents’ deaths. Since the deaths occurred in 1972 and 1976 and the Chapter 11 Petition was filed in 1983, the rental payments are clearly property of the estate.
There is presently a split of authority as to whether property seized prior to the filing of a bankruptcy petition must be turned over to the estate. The Second Circuit (United States Court of Appeals) in U.S. v. Whiting Pools, 674 F.2d 144 (2nd Cir.1982), cert. granted, - U.S. -, 103 S.Ct. 442, 74 L.Ed.2d 599 (1982), decided that the Bankruptcy Court may order the turnover of such property, while the Fourth Circuit in U.S. v. Cross Electric Company, Inc., 664 F.2d 1218 (4th Cir.1981) decided that such a turnover could not be ordered.
The I.R.S. maintains that the Court should adopt the decision in Cross Electric, supra. In Cross Electric an account receivable of the debtor was subjected to a pre-petition levy of a federal tax lien. The Fourth Circuit held that the account receivable was not property of the estate because the levy operated as a virtual transfer of the debtor’s property to the government and that the only right remaining to the debtor was to redeem the property by paying the tax due.
This Court, however, finds the Second Circuit’s reasoning in U.S. v. Whiting Pools, supra, sound and more germane to such bankruptcy cases and the intention of Congress in the Bankruptcy Code. In Whiting Pools, the I.R.S. levied upon and seized all of the debtor’s tangible property, but prior to the sale of the property, the debtor filed a Chapter 11 Petition. The Second Circuit held that the tangible property which was seized but not sold was property of the estate and subject to turnover.
Although the Whiting Pools decision was limited to tangible property, two Bankruptcy Courts have addressed the question of whether Bankruptcy Courts can issue a turnover order when there is a pre-petition levy on intangible property and have applied the same basic analysis of Whiting Pools, supra, to a levy on intangible property. In Matter of Bristol Convalescent Home, 12 B.R. 448 (Bkrtcy.D.Conn.,1981), the Bankruptcy Court held that monies owed a Chapter 11 debtor by the State of Connecticut were property of the estate and were subject to turnover. In a case cited by counsel for the debtor, In re Debmar Corp., 21 B.R. 858 (Bkrtcy.S.D.Fla.1982), a panoptic opinion on the turnover issue, the Bankruptcy Court ruled that pre-petition levies on an account receivable and a bank account by the I.R.S. were property of the estate and should be turned over to the estate.
For the reasons stated in Whiting Pools, Bristol Convalescent Home, and Deb-mar Corp., cases cited supra, the Court concludes that all the post-petition rental payments are property of the estate and thus the automatic stay provisions of 11 U.S.C. § 362 apply to enjoin the I.R.S. from further collection of the rental payments.
IT IS, THEREFORE, ORDERED that the Order RE I.R.S. Levy entered by this Court on April 28, 1983, is hereby incorporated herein by reference as a part of this Memorandum Opinion and Order. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489571/ | *825ORDER
GEORGE C. PAINE, II, Bankruptcy Judge.
This matter is before the court on the plaintiff Commerce Union Bank’s motion to amend findings of fact and conclusions of law pursuant to Bankruptcy Rule 752(b), motion to alter or amend judgment pursuant to Bankruptcy Rule 923 and Federal Rule of Civil Procedure 59(e) and motion for a new trial pursuant to Bankruptcy Rule 923 and Federal Rule of Civil Procedure 59(a). Commerce Union essentially contends that the court’s previous judgment erroneously found that Commerce Union had converted a check made payable to the debtor in the amount of $63,118.37. Upon consideration of the court’s prior judgment and memorandum, briefs of the parties and the entire record, the court concludes that the plaintiff’s motions should be denied.
The facts surrounding this proceeding are set forth in the court’s prior memorandum dated October 28, 1982. Commerce Union Bank v. Welch, 29 B.R. 819 (Bkrtcy.M.D.Tenn.1982). In brief, the debtor and John Dillon, an officer with Commerce Union Bank, had been engaged in ongoing discussions concerning the debtor’s repayment of certain outstanding loan commitments to Commerce Union. As a result of these conversations, the debtor agreed to entrust to Dillon a check which the debtor was to receive through a profit sharing plan with the apparent understanding that an undetermined portion of the check would be used to satisfy the debtor’s loan obligations. Dillon thereafter received a check in the amount of $63,118.37 which was made payable to the debtor. The debtor and Dillon then met again but could not agree as to how much of the check would be applied to the debtor’s loan. Following this meeting Dillon, without obtaining either the debtor’s approval or endorsement, deposited the unendorsed check in the debt- or’s demand account at Commerce Union and immediately setoff $55,000.00 in this account in partial payment of the debtor’s loan to Commerce Union. The debtor subsequently filed a Chapter 7 bankruptcy petition in this court. The trustee initiated this adversary proceeding to recover the money in question on the basis that Commerce Union’s actions constituted a conversion of the debtor’s check. The court found the trustee’s position to be correct and therefore ordered Commerce Union to turn over to the trustee the sum of $63,-118.37.
Commerce Union relies on § 47-3-201 of the Tennessee Code in requesting that the court’s prior decision be amended to find that Commerce Union was not guilty of conversion. Tenn.Code Ann. § 47-3-201 (1979) provides in pertinent part:
“Transfer — Right to endorsement — (1) Transfer of an instrument vests in the transferee such rights as the transferor has therein...
(3) Unless otherwise agreed any transfer for value of an instrument not then payable to bearer gives the transferee the specifically enforceable right to have the unqualified endorsement of the transfer- or. Negotiation takes effect only when the endorsement is made and until that time there is no presumption that the transferee is the owner.”
In its previous opinion, the court found Commerce Union’s reliance on this statutory provision to be without merit. The court concluded that, since the check in question was not endorsed, no transfer under § 47-3-201 had occurred. The court specifically stated that “the transfer for value of an instrument not then payable to bearer does not occur until the transferee endorses the instrument.” Commerce Union Bank v. Welch, 29 B.R at 823.
Commerce Union now asserts that the court erred in equating the term “negotiation” as used in § 47-3-201(3) with the term “transfer.” The Bank submits that, even though its failure to obtain the debt- or’s endorsement on the check prohibited a negotiation from occurring pursuant to § 47-3-201(3), the debtor still transferred *826the instrument to the Bank and pursuant to § 47-3-201(3) such transfer vested in the transferee Bank all rights possessed by the transferor debtor. Commerce Union further contends that these rights would encompass the debtor’s status as holder of the instrument and thus the Bank could endorse the check on behalf of the debtor.1 Commerce Union cites several cases as support for this proposition, including the First Circuit Court of Appeals’ decision in Bowling Green, Inc. v. State Street Bank and Trust Co., 425 F.2d 81, 83-84 (1st Cir.1970).
This court nevertheless remains unpersuaded by Commerce Union’s analysis. The First Circuit’s opinion in Bowling Green has been subjected to sharp criticism as regards this particular issue. See, e.g., United Overseas Bank v. Veneers, Inc., 375 F.Supp. 596, 603-605 (D.Md.1974); Security Pacific National Bank v. Chess, 58 Cal.App.3d 555, 129 Cal.Rptr. 852, 19 U.C.C.Rep. Serv. (Callaghan) 544, 549-552 (1976); 2 U.C.C.REP.SERV. (M.B.) § 3.10 . (1982). The better view is that, in any transfer for value.-of an instrument not then payable to bearér, the transferee must obtain the endorsement of the transferor in order to acquire the status of a holder.2 This interpretation is consistent with the provisions and purposes of § 47-3-201. Comment 7 to § 47-3-201 specifically provides that no effective negotiation occurs until the trans-feror’s endorsement is obtained and that “[U]ntil that time the purchaser does not become a holder.” To accept the Bank’s contrary argument would eviscerate the clear statement of comment 7 that negotiation and the concomitant holder status is acquired solely by the transferee obtaining the transferor’s endorsement of the instrument. Furthermore, if, as the Bank contends, a transferee could always supply a transferor’s missing endorsement, then the language in § 47-3-201(3) granting the transferee the unqualified right to have the transferor’s endorsement would be rendered meaningless. The drafters of the Uniform Commercial Code could not have intended to create such a disharmonious result. As the District Court aptly explained in United Overseas Bank v. Veneers, Inc., 375 F.Supp. at 605:
“Moreover, the Bowling Green court’s assertion that one who takes from a holder by transfer is a holder due to § 3-201(1) seems clearly at variance with the meaning of the Code. Under § 3-201(1), a ‘[tjransfer of an instrument vests in the transferee such rights as the transferor has therein.... ’ That section allows a transferee to assert the rights of his transferor against another party; to hold, however, as did the Bowling Green court, that § 3-201(1) enables the transferee of a holder to become a holder who is then able, other conditions being met, to be a holder in due course, would be to render the other sections previously discussed nugatory. There is nothing in the U.C.C. to indicate that § 3-201(1) is to apply differently to depository banks than to other transferees and thereby permit such an anomalous and inconsistent result.”
Accord Wear v. Farmers and Merchants Bank, 605 P.2d 27, 28 U.C.C.Rep.Serv. 410, 413, (Alaska 1980); National Bank of North America v. Flushing National Bank, 72 App.Div.2d 538, 421 N.Y.S.2d 65, 27 U.C.C. Rep.Serv. 1029, 1030 (N.Y.App.Div.1979); *827Security Pacific National Bank v. Chess, 58 Cal.App.3d 555, 129 Cal.Rptr. 852, 19 U.C.C.Rep.Serv. at 549-552; Northside Building & Investment Co. v. Finance Co. of America, 119 Ga.App. 131, 166 S.E.2d 608, 6 U.C.C.Rep.Serv. 345, 348 (1969).
Even assuming Commerce Union is correct and a transferee can become a holder without first obtaining the transferor’s endorsement, the court would still find that no transfer occurred in the present case. The proof is abundantly clear that the debt- or never intended to part with rights represented by the check in question. The debt- or merely entrusted the check to an officer of Commerce Union until an ultimate decision could be reached as to what portion of the check would be applied to the debtor’s outstanding loan commitments. The Bank subsequently, without obtaining either the debtor’s endorsement or approval, placed the check in the debtor’s deposit account and immediately setoff $55,000.00 in partial satisfaction of the debtor’s loan to Commerce Union. The bank officer’s actions not only created an impermissible right of setoff but also represented a total disregard of the fiduciary relationship which exists between a bank and its customer. In its previous decision, this court held that the loan officer’s conduct clearly constituted a conversion of the debtor’s property under Tennessee law. Commerce Union Bank v. Welch, 29 B.R. 819, at 822-824 (Bkrtcy., M.D. Tenn.1982). The court has found no reason to alter this result. Accordingly, Commerce Union’s various motions seeking an amendment of the court’s previous judgment and memorandum or a new trial are denied.
IT IS, THEREFORE, SO ORDERED.
. Tenn.Code Ann. § 47-3-301 defines the rights of a holder as follows:
"Rights of a holder. — The holder of an instrument whether or not he is the owner may transfer or neogitate it and, except as otherwise provided in § 47-3-603 on payment or satisfaction, discharge it or enforce payment in his own name.”
. Section 47-4-205 creates an exception to this rule when a depository bank has taken an un-endorsed item for collection. Under these circumstances, the Uniform Commercial Code expressly provides that the depository bank may supply the missing endorsement of the customer to the check. This court in its previous decision found that the debtor in this case had not delivered the check to Commerce Union’s loan officer for the purpose of collection and therefore held that § 47-4-205 was inapplicable to this case. Commerce Union Bank v. Welch, 29 B.R. at 822-823, Commerce Union has not now questioned the validity of this finding. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489573/ | FINDINGS OF FACT AND CONCLUSIONS OF LAW
SIDNEY M. WEAVER, Bankruptcy Judge.
This matter comes before the Court for resolution upon consolidation of two separate adversary proceedings. The Trustee brought an action pursuant to 11 U.S.C. § 542 to recover approximately Twenty Thousand Dollars ($20,000.00) as property of the estate. This sum represents the. amount owed to the debtors pursuant to the provisions of an option contract relating to property owned by the debtors. A conveyance of the property in conformity with the option contract took place prior to the filing of debtors’ petition in this matter. Due to a dispute as to priorities the funds had not been disbursed prior to the initiation of this action. Subsequently, a Complaint for Declaratory Relief, Case No. 82-1073 — BKC-SMW-A, was filed asking that the Court enter a judgment determining the rights and obligations of all the parties relative to these proceeds. Prior to trial these cases were consolidated for all purposes.
The Court, having heard the testimony and examined the evidence presented, observed the demeanor of the witnesses, considered the arguments of counsel, and being otherwise fully advised in the premises, does hereby make the following findings of facts and conclusions of law.
FACTS
Frank Ippolito (hereinafter “Ippolito”) contracted to build a home for the debtors, Norman and Ida M. Savel (hereinafter “Savels”) in July of 1979. The Savels could not honor the purchase price, and in consideration of a reduction in the purchase price of the home, they gave to Ippolito an option to purchase the subject property. This option contract was recorded in the public records of Broward County, Florida on September 26, 1979. A warranty deed from Ippolito to the Savels was recorded contemporaneously.
The option contract provided that Ippoli-to could purchase the property for the sum of Two Hundred Fifty Thousand ($250,-000.00) Dollars, with Ippolito to pay to the Savels in cash the difference between that amount and the principal balance of an existing first mortgage in favor of Dade Federal Saving and Loan Association. The option contract further stated that “Owners of the subject property shall not further encumber the subject property and any attempt to do so shall be void and of no effect.”
Prior to the exercise of the option in June of 1982, Ippolito’s attorney conducted a title search of the subject property. This search revealed that the Savels had executed a second mortgage in favor of City National Bank of Miami (hereinafter “City”) in an approximate amount of Five Hundred Thousand Dollars ($500,000.00). City’s mortgage is dated May 1, 1981, and was recorded May 4, 1981. At the time of the granting of the second mortgage the attorney for City prepared a second mortgage on the Savels’ home, examined title to the subject property and rendered an opinion to City as to the status of the title to the property. City’s attorney reported the status of the title to the bank prior to the funding of the loan giving City knowledge of both Ippolito’s option to purchase and the Savels’ promise not to encumber the property contained therein. Thereafter City’s attorney rendered his written title opinion to City.
*860Ippolito exercised his right to purchase under the option contract in June, 1982, and the property was conveyed by the Savels to Ippolito by warranty deed. This exercise of the option occurred within ninety (90) days of the Savels filing their Chapter 7 petition. The balance of the proceeds from the sale of the property, approximately Twenty Thousand Dollars ($20,000.00), is the cash above the existing First Mortgage in favor of Dade Federal. At the time of the conveyance, a dispute arose as to who was entitled to the $20,000.00. The proceeds are currently held in escrow. The Savels have abandoned any claim of right or interest to these proceeds. Ippolito also makes no claim to the proceeds presently being held in trust.
Both the Trustee and City claim superior right to these proceeds. City relies on its recorded Mortgage. The Trustee claims the right to the proceeds of sale for the estate.
CONCLUSIONS OF LAW
The rights of the parties in the subject property and to the proceeds of its sale are governed by Florida law. The Florida courts have ruled that real estate option contracts, supported by valid consideration and duly recorded, create valid interests and encumbrances on real property. State Road Dept. v. Tampa Bay Theaters, Inc., 208 So.2d 485 (Fla.2d DCA 1968). See Denco Inc. v. Belk, 97 So.2d 261, (Fla.1957); Florida Yacht Club v. Renfroe, 67 Fla. 154, 64 So. 742 (Fla.1914). Because such options create valid encumbrances upon real property, one that has notice of an option to purchase takes the property subject to that option, and the optionee may enforce it against third parties having notice. See Welch v. Gray Moss Bondholders Corp., 128 Fla. 722, 175 So. 529 (Fla.1937);
While the above cases concern an option where there was an existing possessory interest incident to the option, the principles stated therein were extended to a bare option to purchase in Hansen v. Five Points Guaranty Bank, 362 So.2d 962 (Fla. 1st DCA 1978). In Hansen, the Court held that a recorded option to purchase real estate created a valid encumbrance upon the property, the notice and terms of which were chargeable to a subsequent mortgagee, and that the interests of the optionee were superior to those of a subsequent mortgagee. Hansen, 362 So.2d at 965.
The Court finds that City had both constructive and actual knowledge of the option agreement and its prohibition against further encumbrances. The purchaser of an interest in land is charged with notice of, and takes subject to, liens or encumbrances that are reflected in the public records. Fla.Stat. § 695.01 (1981).
The Court further finds that as to the rights of the optionee, Ippolito, and the subsequent mortgagee, City National Bank of Miami, the optionee has priority and takes his interest in the property free and clear of any claims or interests of the mortgagee. The issue remains, however, as to which party is entitled to share in the proceeds of sale.
Since Ippolito nor the Savels claim an interest in these proceeds, the potential recipients of these funds are the Trustee and City National Bank of Miami. The Trustee claims entitlement to these proceeds in the alternative in either the capacity as successor in interest to the property of the debtor under 11 U.S.C. § 541 or as lien creditor and successor to certain creditors and purchasers under 11 U.S.C. § 544.
The evidence demonstrates that City National had undertaken a title review and was given a verbal title report by its agent prior to closing on the loan transaction or recording its mortgage and is therefore charged with full knowledge of the option agreement arid its specific terms.
The Court finds that the option agreement and the restriction contained therein was a valid and effective agreement, that City National Bank of Miami was charged with knowledge of this prior to the recording of its mortgage. City National thereby assumed the risk that in the event that the option was exercised, City National’s rights to have a second lien on the property and any proceeds thereof would be extinguished *861and become null and void. The Court finds that the option was exercised and that upon the exercise of the option, the option’s provision prohibiting further encumbrances was effective to extinguish any right or claim in either the property or the proceeds on the part of City National Bank of Miami.
The Court finds that the Trustee in his capacity as a hypothetical lien creditor pursuant to § 544 is entitled to the turnover of the Twenty Thousand Dollar ($20,000.00) proceeds pursuant to its adversary complaint and thus need not address the issue of whether the Trustee would also succeed to the proceeds under Section 541. The Trustee shall recover as property of the estate the remaining proceeds from the option contract.
The Court will enter a separate Final 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/8489574/ | MEMORANDUM OF DECISION
ROBERT L. KRECHEVSKY, Bankruptcy Judge.
I.
The question here, the facts being undisputed, is whether payments to a creditor pursuant to an assignment of payments executed by the debtor prior to the preference period but received by the creditor when the debtor was insolvent and within the preference period are avoidable under 11 U.S.C. § 547.1
II.
The debtor, E.P. Hayes, Inc., owned and operated a fleet of school buses providing pupil transportation services to a number of Connecticut towns. On July 30, 1982, the debtor filed a petition under chapter 11 and on August 24, 1982, the court ordered the appointment of a trustee. By complaint filed October 1, 1982, the trustee alleged that the defendant, International Harvester Credit Corporation (IHCC), received two payments within the preference period totaling $92,752.36 from funds of the debtor. In its answer, IHCC admitted that it received the payments but denied that they constituted preferences. IHCC alleged that the payments were made pursuant to an assignment executed by the debtor on October 22, 1979 which transferred the debtor’s rights to earnings under a bus service contract with the Board of Education for the Town of Enfield, Connecticut (town) and that the payments were not property of the debtor’s estate at the time of receipt by IHCC.
III.
At trial the parties established the following facts. On October 22, 1979, the debtor and IHCC executed a refinance agreement for $2,934,085.50 then due from the debtor to IHCC. This agreement granted IHCC a security interest in numerous motor vehicles of the debtor and contained the following covenant by the debtor to assign contract payments:
Furthermore, in consideration of this Refinance Agreement and for the purpose of additionally securing payments of the indebtedness herein described, Debt- or, for itself, its successors and assigns, shall assign to IHCC, its successors or assigns, the sum of $65,201.90 per month being those payments, or a portion of *909those payments, becoming due under its Pupil Transportation Contract with the Board of Education for the Town of En-field, County of Hartford, State of Connecticut dated August 30, 1977 and any extension or replacement thereof, and Debtor shall authorize said Board of Education to pay monthly said sum of $65,-201.90 due under said Pupil Transportation Contract or any extension or replacement thereof to IHCC to meet the Obligations of Debtor to IHCC pursuant to the provisions of this Refinance Agreement.
The debtor also executed an assignment which, in pertinent part, states:
E.P. Hayes, Inc. ... (hereinafter referred to as “Assignor”), for value received, does hereby for itself, its successors and assigns, assign to INTERNATIONAL HARVESTER CREDIT CORPORATION, a Delaware Corporation, (hereinafter referred to as “Assignee”), its successors and assigns, the sum of $65,201.90, per month, being a portion of those payments becoming due under its Pupil Transportation Contract with the Board of Education for the Town of En-field County of Hartford, State of Connecticut, dated August 30, 1977 and as extended by instrument dated [blank] for the period commencing September 1, 1978, and authorizes said School District to pay monthly said sum of $65,201.90 due thereon under said Contract to Assignee to meet the obligations of E.P. Hayes, Inc. to the Assignee pursuant to the provisions of the Retail Installment Contract being dated September 10, 1979 and attached hereto and made a part hereof.
The town consented in writing to the assignment.2
Edward Hayes, Jr., the president of the debtor, testified that under its contract with the town the debtor periodically invoiced the town for pupil transportation services as rendered.3 After the execution of the refinance agreement, the town would issue a check payable to IHCC and send it to the debtor,4 who would then forward the check to IHCC. If the amount due the debtor on the invoice was greater than the amount assigned for that month to IHCC, the town issued a second check for the difference payable to the debtor. On six occasions between December 14, 1981 and July 26, 1982, Hayes sent a letter to the town requesting it not to pay all the monies due IHCC but to send a portion of those monies by check payable to the debtor or to other persons as directed by Hayes. The town complied in each instance. Hayes did not contact IHCC before seeking these payment diversions, and IHCC did not question the diversions until May of 1982. The payments to IHCC from the town occurred in April and May of 1982 in the amounts of $49,494.82 and $43,257.54, respectively.
IV.
Preference avoidance fulfills the original purpose of bankruptcy law — equality of dis*910tribution to creditors of the assets of a debtor. Section 547 is directed toward bringing back into the estate property of the debtor transferred during the preference period. The specific issue present here is whether the transfer of the debtor’s property took place in April and May of 1982 as the trustee contends, or on October 22,1979, as IHCC alleges. The trustee bases his position on § 547(e)(3) which mandates that for preference purposes, “a transfer is not made until the debtor has acquired rights in the property transferred.” He says that the payments to IHCC in April and May, 1982 were the transfer dates because prior thereto the debtor had no right to these payments since it had not performed the services giving rise to the right to receive the payments. In effect, the trustee is claiming that § 547(e)(3),5 resurrects a distinction which since 1976 has been eliminated in the Uniform Commercial Code as enacted in Connecticut. Prior to 1976, Conn. Gen.Stat. § 42a-9-106 distinguished between rights to a payment already earned and rights to a payment yet to be earned by distinguishing between an “account” and a “contract right.” An “account” was defined as “any right to payment for goods sold or leased or for services rendered which is not evidenced by an instrument or chattel paper.” A “contract right” was defined as “any right to payment under a contract not yet earned by performance and not yet evidenced by an instrument or chattel paper.” As presently enacted, § 42a-9-106 has eliminated these distinctions and defines an “account” as “any right to payment for goods sold or leased or for services rendered which is not evidenced by an instrument or chattel paper, whether or not it has been earned by performance.”6
Under the Bankruptcy Act of 1898, a properly perfected assignment of a contract right was immune from attack by a trustee. “Assignment of rights under an existing executory contract is effective from the time when the assignment is made, and payments subsequently made to an assignee cannot be attacked as voidable preferences even though at the time of the payments all the conditions of a voidable preference exist.” 1 G. Gilmore, Security Interests In Personal Property § 7.10 at 234 (1965). In Rockmore v. Lehman, 128 F.2d 564, rev’d on rehearing, 129 F.2d 392 (2nd Cir.1942), the court of appeals of this circuit had occasion to examine a security arrangement similar to the one at hand. The debtor in Rock-more had entered into three contracts to furnish and maintain advertising signs, the customer agreeing to make installment payments therefor. The debtor then assigned these contracts to secure financing for the construction of the signs. Initially, Judge Augustus Hand, writing for the majority, held that, at most, the assignee had an equitable lien upon future contractual payments which were avoidable by the trustee under § 70 of the previous Act. Upon rehearing, Judge Hand, writing for a unanimous court, reversed this holding, concluding instead that the “date of the assignments governed the imposition of the liens on any sums due .... ” 129 F.2d at 893. See also Selby v. Ford Motor Co., 405 F.Supp. 164 (E.D.Mich.1975), aff’d, 590 F.2d 642 (6th Cir.1979); Malone v. Bolstein, 151 F.Supp. 544 (N.D.N.Y.1956), aff’d, 244 F.2d 954 (2nd Cir.1957).
The question, therefore, is whether the reasoning of Rockmore still holds under the Bankruptcy Code. Under the trustee’s theory, § 547(e)(3) turned each payment under the Enfield contract into a discrete transfer unrelated to the date of the assignment since the debtor had no right to these pay*911ments until it performed the services for the town. He cites In re Diversified World Investments, Ltd., 12 B.R. 517, 8 B.C.D. 28 (Bkrtcy.S.D.Tex.1981) in support of this proposition. An examination of the purposes behind the inclusion of § 547(e)(3) in the Bankruptcy Code, however, negates the trustee’s reasoning.
Section 547(e)(3) was a legislative response to such decisions as DuBay v. Williams, 417 F.2d 1277 (9th Cir.1969) and Grain Merchants of Indiana, Inc. v. Union Bank & Savings Co., 408 F.2d 209 (7th Cir.1969).7 See Levin, An Introduction to the Trustee’s Avoiding Powers, 53 Am. Bankr.L.J. 173, 187 (1979). Both DuBay and Grain Merchants dealt with the effect of after-acquired property clauses in security agreements and concluded that a bankruptcy trustee could not avoid the creditor’s lien on collateral acquired by the debtor during the preference period. These cases reasoned that since the secured creditor’s rights in the after-acquired collateral could not be defeated by a judicial lien levied after perfection, neither could the trustee defeat such rights. The enactment of § 547(e)(3) overcomes this result by providing “that a transfer is not made, no matter when it is perfected nor when it takes effect between the parties, ‘until the debtor has acquired rights in the property transferred’ ... [E]ach time the debtor adds to his inventory or accounts, he concurrently transfers a security interest in the new acquisition to the secured creditor. Accordingly, each addition to inventory or accounts constitutes a preferential transfer, because the debt that the transfer secures is an antecedent debt.” Levin, supra at 189.
Against this background, no basis exists for construing § 547(e)(3) as affecting settled law beyond its effect on after-acquired property clauses. Under Rockmore, the payments received by IHCC under the En-field contract are not after-acquired property. Section 547(a)(3) acknowledges the continuation of such financing arrangements by defining “receivable”, for purposes of the preference section, as a “right to payment, whether or not such right has been earned by performance.” This definition is essentially the same as that of an “account” under the Uniform Commercial Code and includes the former separate concept of a “contract right.”8 The Enfield contract was an existing executory contract when the debtor assigned its rights to payment to IHCC. The debtor’s receivable was acquired at the time of contract execution, even though not yet earned by performance. In short, the debtor acquired its rights to the payments from the town on August 30, 1977; these rights were transferred on October 22, 1979 to IHCC; and receipt of the payments by IHCC in April and May, 1982 do not constitute transfers avoidable by the trustee under § 547. 1A Bender’s Uniform Commercial Code Service Secured Transactions § 9C.06[6] at 9C-100 (1963).
V.
The trustee has not sustained his burden of proving all the essential allegations of his complaint, and judgment will enter for the defendant. This Memorandum shall constitute Findings of Fact and Conclusions of Law pursuant to Rule 752 of the Rules of Bankruptcy Procedure.
. Section 547(b) allows the trustee to “avoid any transfer of property of the debtor” to or for the benefit of a creditor, for or on account of an antecedent debt, made while the debtor was insolvent, and within 90 days before the petition, and that enables the creditor to receive more than such creditor would receive if the debtor were liquidated under chapter 7, absent the transfer.
. IHCC perfected its interest in the Enfield contract by filing a financing statement which describes the covered property as follows:
All of the Debtor’s right, title and interest in and to $65,201.90 of the payments due and to become due under (a) the Agreement for Transportation of Town of Enfield School Children dated August 30, 1977, as the same may be amended from time to time, between the Debtor and the Board of Education of the Town of Enfield, Connecticut, and (b) any and all other public transportation contracts between the Debtor and boards of education and/or town, which may be assigned by Debtor to the secured party in accordance with the terms of the Refinance Agreement between Debtor and the Secured Party dated October 22, 1979.
The trustee raises no issue as to the wording of the financing statement.
. Mr. Hayes’ testimony is confusing as to whether the debtor billed the town monthly or “bi-monthly”, but it is clear that the debtor would regularly invoice the town for the services performed under the contract. Although the contract and the bills were not introduced into evidence, it appears that the April and May, 1982 payments were for services recently performed.
. On February 19, 1980, another assignment was executed which changed the assigned amount from $65,201.90 to $64,495.18, and by letter dated August 27, 1981, the debtor and IHCC further agreed to a modified schedule of monthly payments which varied from $59,-056.00 to $96,035.00 for the months between October, 1981 and July, 1982.
. Section 547(e)(3) had no predecessor in the Bankruptcy Act of 1898.
. The comments promulgated by the committee responsible for the 1972 revision of the Uniform Commercial Code state, in part, that the term contract right has proved troublesome by creating a “proceeds” problem in cases in which contract rights become accounts by virtue of performance and in cases in which the secured party inadequately described its collateral in a financing statement by merely claiming “accounts” or “general intangibles” when the financing statement should have included a claim for “contract rights.” National Conference of Commissioners on Uniform State Laws, Uniform Commercial Code 934 app. II (9th ed. 1978).
. Legislative history specifically states that the section was enacted to overrule these cases: “[plaragraph (3) specifies that a transfer is not made until the debtor has acquired rights in the property transferred. This provision, more than any other in this section, overrules DuBay and Grain Merchants, and in combination with subsection (b)(2), overrules In re King-Porter Co., 446 F.2d 722 (5th Cir.1971).” H.Rep. No. 595, 95th Cong., 1st Sess. 374-75 (1977); S.Rep. No. 989, 95th Cong., 2nd Sess. 89 (1978), U.S.Code Cong. & Admin.News 1978, pp. 5787, 5875, 6330.
. Many of the language changes in § 547 were made to effect a coordination with the Uniform Commercial Code. Report of the Commission of the Bankruptcy Laws of the United States, H.R.Doc. No. 93-137 (Pt. II), 93d Cong., 1st Sess. 169 (1976). | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489575/ | MEMORANDUM OPINION
FREDERICK J. HERTZ, Bankruptcy Judge.
This controversy involves two interrelated complaints. With the consent of the parties and by order of this court, the complaints were consolidated to further judicial economy.
On October 16,1981, Albert Di Piazza, Jr. (hereinafter referred to as debtor) filed a petition under Chapter 7 of the Bankruptcy Code. Jeffrey Firestone (hereinafter referred to as Trustee) was appointed as Interim Trustee. The debtor was formerly employed by NL Industries, Inc. On March 1, 1974, the debtor’s employment with NL Industries was terminated.
During the course of debtor’s employment with NL Industries, he participated in both a pension plan and profit-sharing plan. Metropolitan Life Insurance Company (hereinafter referred to as Metropolitan) administers the pension plan. The Trustee alleges that the debtor, during the course of his employment with NL Industries, contributed $2,000.00 into this pension plan. First Jersey National Bank (hereinafter referred to as FJNB), is trustee of the trust that administers the funds of the profit-sharing plan. The Trustee alleges that the debtor has a right to approximately $5,271.63 under the terms of the profit-sharing plan.
The parties agree that both the profit-sharing plan and the pension plan satisfy the requirements of the Employee Retirement Income Security Act of 1974, 29 U.S.C. § 1001 et seq. (1979) (hereinafter referred to as ERISA). The parties further agree that the plans are qualified for tax purposes under Section 401(a) of the Internal Revenue Code, 26 U.S.C. § 401 (1979).
ERISA Section 1056(d) and Internal Revenue Code Section 401(a)(13) require a retirement plan to contain an anti-alienation and assignment clause in order to maintain its qualified status for tax purposes. The favorable tax treatment granted by ERISA allows an employee to deduct contributions made to the plan from his gross income on his Federal Income Tax Return in the year of contribution. Thus, an employee can defer income earned under a qualified plan until the corpus of the plan is withdrawn. Noncompliance with the anti-alienation requirements results in a forfeiture of the favorable tax treatment. Consequently, an employee’s incentive to contribute to a retirement plan would be eliminated. Each of the plans involved in this controversy contain the necessary anti-alienation clauses.1
Metropolitan, FJNB, and NL Industries allege that the debtor, who is currently 56 years old, wishes to defer his right to draw from both plans until he reaches the age of 65. At that time, under the terms of the plans, the debtor would periodically receive payments based upon his past contributions. The parties to this suit agree that the debt- or’s interests in both plans are fully vested.
The Trustee brought an amended complaint, pursuant to court order, joining the debtor, NL Industries, Metropolitan, and FJNB as defendants (hereinafter referred to as the defendants). The Trustee seeks to *918have the debtor’s interest in the ERISA plans turned over to the estate pursuant to Section 541(a) of the Bankruptcy Code, 11 U.S.C. .§ 541(a) (Supp. IV 1980). The defendants have countered by bringing a motion to dismiss the amended complaint. The defendants base their motion for dismissal on two alternative sections of the Bankruptcy Code, Sections 541(c)(2) and 522(b).
Consequently, this court must determine two issues: (1) whether Section 541(c)(2) excepts the ERISA plans from being property of the debtor’s estate, and (2) if the ERISA plans are property of the debtor’s estate, whether Section 522(b) exempts all, or a portion of, the debtor’s interest in the plans.
The Bankruptcy Code defines property of the debtor’s estate as “all legal or equitable interests of the debtor in property.” 11 U.S.C. § 541(a)(1). The Bankruptcy Code further provides that a debtor’s interest in property becomes property of the estate “notwithstanding any provision ... that restricts or conditions transfer of such interest by the debtor . . . .” Id § 541(c)(1)(A). Section 541 replaced former Section 70(a)(5) of the Bankruptcy Act. Under former Section 70(a)(5), it was necessary to determine whether, under the applicable state law, the debtor’s personal property had been “transferred or ... levied upon and sold under judicial process,” or could have been “otherwise sized, impounded, or sequestered,” at the time the petition was filed. See 4 Collier on Bankruptcy ¶ 541.08, at 541-38 (15th ed. 1982).
Thus, the Code broadens what is included in the bankruptcy estate by eliminating Act concepts of leviability, transferability, vested title and fresh start. See Rendleman, Liquidation Bankruptcy Under the ’78 Code, 21 Wm. & Mary L.Rev. 575, 594-95 (1980). See also 4 Collier on Bankruptcy, ¶ 541-22, at 541-84 (15th Ed.1982). (“Section 541(c)(1) further emphasizes the increased independence of the Code from nonbankruptcy law concerning property of the estate”). Section 541(a)(1) reflects the congressional intent to include all property of the debtor in the estate (even property necessary for a fresh start). S.Rep. No. 989, 95th Cong., 2d Sess. 82, reprinted in 1978 U.S.Code Cong. & Ad.News 5787, 5868.
Against this general background, the defendants argue that Section 541(c)(2) excepts both plans from being included as property of the estate. Section 541(c)(2) provides that “[a] restriction on the transfer of a beneficial interest of the debtor in a trust that is enforceable under applicable nonbankruptcy law is enforceable under a case under this title.” 11 U.S.C. § 541(c)(2) (Supp. IV 1980).
The Legislative History pertaining to Section 541(c)(2) reveals that this provision was intended to cover spendthrift trusts. See H.R.Rep. No. 595, 95th Cong., 2d Sess. 369, reprinted in 1978 U.S.Code Cong. & Ad.News 5963, 6325 (“Paragraph (2)of subsection (c), however, preserves restrictions on transfer of a spendthrift trust to the extent that the restriction is enforceable under applicable nonbankruptcy law.”). See also S.Rep. No. 989, 95th Cong., 2d Sess. 83, reprinted in 1978 U.S.Code Cong. & Ad. News 5787, 5809. Under the Bankruptcy Code, it is well-settled that a debtor’s interest in a valid spendthrift trust is not to be included as property of the estate. In re Wood, 23 B.R. 552, 555 (Bkrtcy.E.D.Tenn.1982); In re Kelleher, 12 B.R. 896, 897 (Bkrtcy.M.D.Fla.1981).
The defendants argue that since qualified ERISA plans must contain anti-alienation provisions, ERISA plans constitute a type of spendthrift trust which Section 541(c)(2) explicitly excepts from inclusion into the estate. Since the plans in this suit are qualified under the terms of ERI-SA, the defendants conclude that the Trustee’s complaint for turnover should be dismissed.
This court must examine Illinois law to determine if ERISA plans are spendthrift trusts. In re Witlin, 640 F.2d 661, 663 (5th Cir.1981); In re Klayer, 20 B.R. 270, 272 (Bkrtcy.W.D.Ky.1981). Generally, a spendthrift trust is a trust created in order to provide a fund for maintenance of *919another, while protecting the fund against the intended beneficiary’s improvidence or incapacity. Newcomb v. Masters, 287 Ill. 26, 32, 122 N.E. 85, 87 (1919); Von Kesler v. Scully, 267 Ill.App. 495, 503 (1st Dist.1932). “The provisions against alienation of the trust fund by the voluntary act of the beneficiary, or in invitum by his creditors, are usual incidents of such trusts.” Von Kesler, 267 Ill-App. at 503. Cognizant of the above principles, this court has been unable to find any Illinois case law which directly addresses the issue of whether an ERISA plan is to be considered in the nature of a spendthrift trust as contemplated by the drafters of the Code under Section 541(c)(2).
Defendants cite two recent Illinois Appellate Court cases to support their position that a bankruptcy trustee cannot reach a participant’s interest in a qualified ERISA plan. See Peoples Finance Company v. Saffold, 83 Ill.App.3d 120, 38 Ill.Dec. 534, 403 N.E.2d 765 (3d Dist.1980); Christ Hospital v. Greenwald, 82 Ill.App.3d 1024, 38 Ill.Dec. 469, 403 N.E.2d 700 (1st Dist.1980). This court finds that neither Saffold or Green-wald is applicable to the present situation. In both Saffold and Greenwald, the issue was whether a judgment creditor could garnish a debtor’s pension plan receipts. Both courts held that the ERISA anti-alienation provisions preempted the Illinois garnishment statute by virtue of ERISA Section 1144(a). Saffold, 83 Ill.App.3d at 124, 38 Ill.Dec. at 537, 403 N.E.2d at 768; Greenwald, 82 Ill.App.3d at 1028, 38 Ill.Dec. at 473, 403 N.E.2d at 704.
The present controversy is factually distinguishable from both Saffold and Green-wald. Here, a trustee is seeking turnover of a debtor’s interests in two ERISA plans pursuant to provisions of the Bankruptcy Code. The Supreme Court of the United States in Kokoszka v. Belford, 417 U.S. 642, 651, 94 S.Ct. 2431, 2436, 41 L.Ed.2d 374 (1974), explicitly stated that a trustee’s right to seek turnover of a debtor’s property is distinguishable from a creditor’s garnishment proceeding.2 Consequently, neither Saffold or Greenwald is of precedential value for determination of the present controversy. Since Illinois case law has not addressed the issue, this court must refer to the relevant Legislative History and case law of other jurisdictions to aid in determining whether a debtor’s interest in a qualified ERISA plan conforms to the requirements of Section 541(c)(2) and thus is not to be considered as property of the estate under Section 541(a)(1).
Congress enacted ERISA to “establish a comprehensive federal regulatory scheme designed to protect the growing number of employees who were participating in private pension plans.” In re Parker, 473 F.Supp. 746, 750 (W.D.N.Y.1979). The purposes of the legislation were described as follows in the House Report:
One of the most important matters of public policy facing the nation today is how to assure that individuals who have spent their careers in useful and socially productive work will have adequate incomes to meet their needs when they retire. This legislation is concerned with improving the fairness and effectiveness of qualified retirement plans in their vital role of providing retirement income.
H.Rep. No. 807, 93rd Cong., 2d Sess. (1974), reprinted in 1974 U.S.Code Cong. & Ad. News, pp. 4639, 4670, 4676.
In determining whether qualified ERISA plans should be considered as property of the estate, one must also look to the purposes of the Bankruptcy Code. See Segal v. *920Rochelle, 382 U.S. 375, 379, 86 S.Ct. 511, 515, 15 L.Ed.2d 428 (1966) (In determining whether a tax loss carryback was property of the estate, the Court stated that the purposes of the Bankruptcy Act “must ultimately govern.”).
The twofold purpose of the Bankruptcy Code is similar to the purpose of the prior Bankruptcy Act. These two conflicting goals were stated by the Supreme Court in Burlingham v. Crouse, 228 U.S. 459, 33 S.Ct. 564, 57 L.Ed. 920 (1913): “It is the twofold purpose of the Bankruptcy Act to convert the estate of the bankrupt into cash and distribute it among creditors and then to give the bankrupt a fresh start with such exemptions and rights as the statute left untouched.” Id. at 473, 33 S.Ct. at 568. Consequently, in order to resolve the present controversy, this court must balance the conflicting aims and purposes of the Bankruptcy Code with those of ERISA.
While the case law addressing the ERISA issue has not been uniform, the courts have utilized two major criteria. The first criterion is the type of relief the debtor has sought under the Code. The Chapter 13 concept of property seems to be more expansive than the Chapter 7 concept of property. See Regan v. Ross, 691 F.2d 81, 85 (2d Cir.1982) (The Court noted that Congress explicitly expanded the coverage of Chapter 13 to include pension and welfare recipients who would otherwise be forced to file straight bankruptcy petitions. This was one of the principles the court used to find that benefits under a New York state employment retirement system were not excepted by Section 541(c)(2) from inclusion into the estate. Moreover, this result was reached despite the presence of an ERISA anti-alienation clause).
The idea that the Chapter 13 concept of property is more expansive than that of Chapter 7 is also borne out by decisions reached in other jurisdictions. See In re Dawson, 13 B.R. 107, 109 (Bkrtcy.M.D.Ala. 1981) (state disability benefits part of Chapter 13 debtor’s estate); In re Howell, 4 B.R. 102, 106-7 (Bkrtcy.M.D.Tenn. 1980) (payments under Federal Employee’s Compensation Act); In re Buren, 6 B.R. 744, 746-47 (Bkrtcy.M.D.Tenn.1980) (payments under Social Security Act).
The rationale behind this more expansive reading of property in Chapter 13 cases is premised on several notions. First, a proceeding under Chapter 13 is in contemplation of a “continuing process of financial rehabilitation of the debtor, rather than a static and isolated transfer of assets from the estate of the debtor to his creditors.” In re Wood, 23 B.R. 552, 554 (Bkrtcy.E.D.Tenn.1982).
Second, the concept of fresh start in a Chapter 7 case is essentially different from the same concept in a Chapter 13 case. In a Chapter 7 case, the debtor receives a fresh start by the immediate extinguishment of debts incurred prior to the filing of the petition in bankruptcy. Id. at 558. All income received thereafter is immune from the claim of creditors, providing there is no close nexus with the pre-bankruptcy period. In a Chapter 13 case, however, the debtor does not receive a fresh start until after the completion of his plan, which entails the payment of post-bankruptcy income to satisfy listed creditors.
The above factors must be weighed against the extent of dominion and control a debtor has over the corpus of an ERISA plan. The debtor’s dominion and control is the second important criterion used in ERI-SA cases. KEOGH plans, under which a participant has a complete right of withdrawal over corpus, have been held to be property of the estate pursuant to Section 541(a)(1) despite the inclusion of anti-alienation clauses. See In Re Witlin, 640 F.2d 661 (5th Cir.1981); In re Baviello, 12 B.R. 412 (Bkrtcy.E.D.N.Y.1981). The rationale of both courts was premised on the notion that the complete right of withdrawal destroyed the spendthrift trust exception provided by Section 541(c)(2). Witlin, 640 F.2d at 663. See also, In re Watson, 13 B.R. 391 (Bkrtcy.M.D.Fla.1981) (debtor’s interest in a cooperative investment plan, which was qualified under ERISA, was not insulated from the trustee because of the complete termination right enjoyed by the debtor).
*921In accordance with the above principles, a Bankruptcy Court in Iowa recently held that a debtor’s interests in a qualified pension plan was not insulated from the trustee because of the debtor’s dominion and control over the corpus. In re Graham, 24 B.R. 305, 314 (Bkrtcy.N.D.Iowa 1982). In Graham, the debtor was the sole shareholder, director, and officer of a professional corporation. During the course of the debtor’s employment, the corporation contributed $150,000.00 to a qualified ERISA pension plan. The plan contained the necessary anti-alienation clause. Subsequently, the debtor filed a Chapter 7 petition. The court rejected the debtor’s contentions that his interests in the plan was excepted pursuant to Section 541(c)(2). The court noted that the traditional definition of spendthrift trust did not include a situation where the settlor, beneficiary, and trustee were one and the same person. Id. at 310-11. In reaching its decision, the Graham court rejected the formalities of the trust arrangement to obtain an equitable result. Accord In re Klayer, 20 B.R. 270 (Bkrtcy.W.D.Ky.1981) (qualified ERISA pension plan includable in a Chapter 7 estate where settlor, beneficiary and trustee were the same person).
The defendants cite In re Turpin, 644 F.2d 472 (5th Cir.1981) and In re Parker, 473 F.Supp. 746 (W.D.N.Y.1979) for the proposition that qualified ERISA pension plans are immune from the reach of a Chapter 7 trustee. This court finds Turpin and Parker to be inapplicable to the present situation because in each case the debtor had filed a petition under Chapter YII of the prior Bankruptcy Act. As mentioned previously, the Code’s definition of property is much more expansive than that of former Section 70(a)(5) of the Bankruptcy Act. The intention of Congress in enacting Section 541(a)(1) was to eliminate the emphasis of non-bankruptcy law and to create a much broader definition of property than that provided under the Act. Accordingly, the Legislative History reveals that the Section 541(c)(2) exception was to apply only to spendthrift trusts.'
Defendants cite the case of Clotfelter v. Ciba-Geigy Corp. (In re Threewitt), 24 B.R. 927 (D.C.D.Kan.1982) (hereinafter referred to as Clotfelter) to support the proposition that Section 541(c)(2) does not pertain only to spendthrift trusts. In Clotfelter, the debtor participated in a contributory type pension plan which was qualified under ER-ISA. The debtor subsequently filed a petition under Chapter 7. The trustee sought turnover of the corpus of the plan even though the debtor was only partially vested. Under the terms of the plan in Clotfelter, the debtor had a virtually unlimited right to withdraw the corpus of the trust. The District Court, reversing the Bankruptcy Court, held that Section 541(c)(2) was not limited to spendthrift trusts. Id. at 929. The rationale of the District Court was centered on two principles: (1) that Congress did not explicitly include spendthrift trust in Section 541(c)(2), and (2) that under non-bankruptcy law creditors could not reach a debtor’s interest in a qualified ERI-SA plan.
This court does not find the District Court’s analysis in Clotfelter to be persuasive. The Legislative History behind the enactment of Section 541(c)(2) explicitly referred to the exception of only spendthrift trusts. See text supra. Consequently, in light of the Legislative History and prior case law interpreting Section 541(c)(2), the District Court’s interpretation is overly broad. Additionally, the District Court ignores the distinction between a trustee’s turnover order and a creditor’s garnishment action as stated by the Supreme Court in Kokoszka v. Belford, 417 U.S. 642, 650-51, 94 S.Ct. 2431, 2436, 41 L.Ed.2d 374 (1974) (prior Bankruptcy Act did not limit bankruptcy trustee’s right to treat tax refund as property of debtor’s estate).
In the case at bar, both the debtor (an employee) and NL Industries (the employer) contributed to the pension plan administered by Metropolitan. The debtor contributed $2,000.00 to the pension plan and has a right to withdraw at any time his contribution plus 5% accumulated interest (computed from January, 1976). Early withdrawal, *922however, causes a forfeiture of the deferred retirement benefits contributed by NL Industries.
This court finds that the pension plan herein does not satisfy the definition of a spendthrift trust, as established in Illinois. Since the debtor can reach the pension plan contributions at any time, the plan does not comport with a spendthrift trust’s prohibition against voluntary alienation of a trust’s corpus. While realizing that a turnover of the pension plan would cause a forfeiture of the debtor’s deferred retirement benefits and that the forfeiture evidences a lack of dominance and control on behalf of the debtor, this court nevertheless finds that the weight of the evidence indicates that the pension plan in question is not a traditional spendthrift trust as contemplated by Congress under Section 541(c)(2). Consequently, this court finds that the pension plan is property of the debtor’s estate pursuant to Section 541(a)(1). This court does not believe a per se rule which would except ERISA plans from being included in a debtor’s estate would satisfy the two-fold purposes of the Bankruptcy Code as stated by the Supreme Court in Burlingham v. Crouse, 228 U.S. 459, 473, 33 S.Ct. 564, 568, 57 L.Ed. 920 (1913) (the two-fold purposes being the conversion of the debtor’s estate into cash for distributing to listed creditors and the provision of- an unencumbered fresh start to the debtor).
To demonstrate this point, this court needs only to refer to a Graham, supra, type of situation where a debtor has contributed a large amount of money to a qualified ERISA plan. If the hypothetical debtor wereto file a subsequent Chapter 7 petition then, under the defendants’ line of reasoning, the debtor’s contributions would be immune from his creditors. This result would defeat one of the prime purposes of the Code, which is the marshalling of the debt- or’s assets to his creditors in satisfaction of their claims. Moreover, Section 541(a) was intended to be broad. Consequently, enlarging the scope of Section 541(c)(2) would dilute the intended application of Section 541(a). Further, one can inferentially conclude that since Congress created a separate exemption, for pension plans under Section 522(d)(10)(E), Congress did not intend that the Section 541(c)(2) exception be extended to ERISA plans. See Regan v. Ross, 691 F.2d 81, 86 (2d Cir.1982).
With respect to the profit-sharing plan under which FJNB is trustee, the debtor has a right to withdraw the corpus at any time. Even though the profit-sharing plan is a non-contributory plan (i.e. NL Industries made all contributions), the crucial factor is the debtor’s unqualified right of withdrawal. Consequently, this court holds that the profit-sharing plan is not a traditional spendthrift trust as contemplated by Congress in enacting Section 541(c)(2) and thus is property of the estate pursuant to Section 541(a)(1).
Defendants argue that if this court allows the trustee to reach the debtor’s interests in the profit-sharing and pension plans, both plans would be disqualified from receiving favorable tax treatment under Internal Revenue Code Section 401(a)(13). This result, it is argued, would harm thousands of employees currently employed by NL Industries. In further support of this argument, defendants offer as persuasive authority a recent Private Letter Ruling (81-31020 May 5, 1981) issued by the Internal Revenue Service. Private Letter Ruling 81-31020 indicated that a Bankruptcy Court Order which directed a pension plan to turnover a specified percentage of a retiree’s monthly benefits to a trustee under a Chapter 13 case, would cause disqualification of the plan under the tax provisions of Internal Revenue Code Section 401(a)(13).
Addressing this argument, this court notes that ERISA Section 1144(d) provides in relevant part that “Nothing in this sub-chapter shall be construed to alter, amend, modify, invalidate, impair or supercede any law of the United States....” 29 U.S.C. § 1144(d) (1979). Since this court has ruled that the ERISA plans in question do not fall under the exceptions permitted by Section 541(c)(2), the normal anti-alienation requirements of ERISA conflict with Section *923541(c)(1)(A) of the Bankruptcy Code. Section 541(c)(1)(A) provides: “Except as provided in paragraph (2) of this subsection, an interest of the debtor in property becomes property of the estate under subsection (a)(1), (a)(2), or (a)(5) of this section notwithstanding any provision — (A) that restricts or conditions transfer of such interest by the debtor;” Consequently, this court holds that to the extent that the provisions of the Bankruptcy Code and ERISA conflict, Section 541(c)(1)(A) implicitly amends the normal anti-alienation provisions of ER-ISA. See Regan v. Ross, 691 F.2d 81, 87 (2d Cir.1982) (“to the extent Congress evidenced clear intent to include pension benefits in the property of a Chapter 13 estate” —a matter which the Ross court found to exist in an ERISA situation similar to the one before this court — “it necessarily amended § 401(a)(13) and applicable Treasury Regulations accordingly”). See also Clotfelter v. Ciba-Geigy Corp. (In re Threewitt), 20 B.R. 434, 439 (Bkrtcy.D.Kan.1982), rev’d 24 B.R. 927 (D.Kan.1982). Additionally, this court is not bound by the private letter ruling mentioned previously, 26 U.S.C. § 6110(i)(3) (1976), and in any event, this court does not agree with the position taken by the Internal Revenue Service therein. See Regan v. Ross, 691 F.2d at 87. Consequently, this court holds that an order by a bankruptcy court directing a pension plan to pay over a debtor’s interest in an ERISA plan to a Chapter 7 trustee does not disqualify a plan from receiving favorable tax treatment pursuant to Internal Revenue Code Section 401(a)(13).
Moreover, this court recognizes that explicit exceptions to the anti-alienation provisions of ERISA plans have been carved out by courts in several areas, such as child support and alimony payments. See American Telephone & Telegraph Co. v. Merry, 592 F.2d 118, 121 (2d Cir.1979); Cody v. Riecker, 594 F.2d 314, 315 (2d Cir.1979), Another exception to the anti-alienation provision is found on the face of Internal Revenue Code Section 401(a)(13), which allows a “voluntary and revocable assignment of not to exceed 10 percent of any benefit payment... ”. See In re Wood, 23 B.R. 552, 559-60 (Bkrtcy.E.D.Tenn.1982).
Defendant’s last argument is that if Section 541(c)(2) does not serve to except the pension plans in question, Section 522(b) will exempt them. Section 522(b)(2)(A) provides in relevant part that “Notwithstanding section 541 of this title, an individual debtor may exempt from property of the estate ,.. any property that is exempt under Federal law ... or state or local law that is applicable...” 11 U.S.C. § 522(b)(2)(A) (Supp. IV 1980).
Illinois, however, has chosen to provide exemptions for debtors other than those provided in the Code. Ill.Rev.Stat. ch. 110 § 12-1201 (effective July 15, 1982). Pursuant to the exemption provisions of Illinois, Section 12-1001(g)(5) exempts a payment under any pension plan “to the extent necessary for the support of the debtor and any dependent of the debtor.” Ill.Rev.Stat. ch. 110 § 12-1001(g)(5) (effective July 15, 1982).
In the case at bar, the debtor is 56 years old and presently receives a very small income. Furthermore, at the time of his petition, the debtor had scheduled liabilities in excess of $32,000.00 and scheduled assets of less than $1,000.00. Moreover, the debtor’s interest in the retirement plans in question approximates $8,000.00.
The record and pleadings, however, present conflicting information about the debtor’s representation by counsel in this adversary proceeding. Moreover, the record also presents conflicting evidence with respect to the debtor’s wishes to seek exemption of his interests in the ERISA plans. Consequently, this court does not have sufficient evidence to rule on the second issue herein, i.e. whether Section 522(b) (by operation of the Illinois exemptions) exempts all, or a portion of, the debtor’s interest in the ERISA plans. The parties are to institute an evidentiary hearing, at which the debtor can present evidence of his financial condition and be given an opportunity to seek exemption of his interests in the ERI-SA plans. See 4 Collier on Bankruptcy § 541.06, at 541-26 (15th ed. 1982). (An *924individual debtor or a dependent of the debtor must claim the exemptions available under Section 522 in order to have it effective. Otherwise, the exemptible property will remain property of the estate.)
The defendants are to prepare a draft order in accordance with this opinion with five (5) days.
. The pension plan contains the following restriction on alienation and assignment clause:
Except as any of the following provisions may be contrary to the law of any state having jurisdiction in the premises, no Participant, Contingent Member, or Beneficiary shall have the right to assign, transfer, hy-pothecate, encumber, commute or anticipate his interest in any payments under this Plan, and such payments shall not in any way be subject to any legal process to levy upon or attach the same for payment of any claim against any Participant, Contingent Member, or Beneficiary.
The profit-sharing plan contains a substantially similar clause.
. Kokoszka dealt with the issue of whether a tax refund was to be considered as property of the estate under Section 70(a)(5) of the Bankruptcy Act. The Court first addressed the issue of whether a tax refund was property of the estate. The court held that a tax refund was sufficiently rooted in the pre-bankruptcy past so as to constitute property under Section 70(a)(5). The debtor then argued that 75% of his refund was exempt pursuant to the Consumer Credit Protection Act, which allowed a creditor to garnish only 25% of a debtor’s wages. The Court rejected this prong of the debtor’s argument, stating in part that there were different concepts behind bankruptcy and garnishment. Garnishment law was enacted to prevent bankruptcy. Once a bankruptcy petition was filed, different considerations prevailed. Id. at 650-51, 94 S.Ct. at 2436. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489576/ | OPINION
EMIL F. GOLDHABER, Bankruptcy Judge:
The issue in the case sub judice is whether certain funds held by a bank as *976retainage under a paving contract executed between the debtor and the defendant, is now due and owing to the debtor. We conclude that the aforesaid retainage is presently owing to the debtor because the release of the retainage, despite the defendant’s contention, is not conditioned upon either the posting of a two-year maintenance bond or the dedication of a paved road to the township in which the paving was done.
The facts of the instant case are as follows: 1 On October 20,1978, Slaw Construction Corporation (“the debtor”) and George Washington Industrial Park, Inc. (“GWIP”) entered into a contract whereby the debtor agreed to perform certain paving work for GWIP in West Norriton Township, Pennsylvania (“the township”). When the work was completed, the township informed the debtor, by a letter dated April 14,1980, that the work performed met the township’s specifications. The total amount due under the contract was $135,548.45, of which $116,957.56 had been paid by GWIP. The balance, $18,590.89, is the amount allegedly owed to the debtor by GWIP which is being held by First Pennsylvania Bank, N.A. (“the bank”) as retainage. GWIP has refused to authorize the bank to release the said retainage to the debtor because it contends that certain conditions of the contract have not been met by the debtor. On April 11, 1980, the debtor filed a petition for relief under chapter 11 of the Bankruptcy Code (“the Code”). On April 8, 1981, the debtor filed the instant complaint to compel payment of the $18,590.89 balance plus interest thereon.
GWIP initially contends that the contract terms require that the debtor first post a two-year maintenance bond before the re-tainage can be released. Paragraph 24 of the contract, upon which GWIP relies, provides:
24. The Contractor warrants the work to be performed and the materials and equipment to be furnished under this Agreement against defects in material and workmanship for a period of two (2) years from the date of final acceptance of the completed work by Owner and dedication to the appropriate municipal or governmental authority or agency. The Contractor agrees to perform the work in accordance with the Engineer’s directions and the plans and specifications pertaining to the work in the best and most workmanlike manner by qualified, careful and efficient workers. Unless otherwise specified, all materials and equipment furnished hereunder shall be new. Within a reasonable time after receipt of written notice thereof, the Contractor shall, and will also require its subcontractors (if any) to make good any defects in materials or workmanship which may develop during said warranty period and any consequential or incidental damage or injury caused by such defects or the repairing of same, at its own expense and without cost to Owner. Contractor’s obligations pursuant to this Paragraph 24 shall be secured by delivery to Owner of a two-year “maintenance bond” in a form satisfactory to Owner and the appropriate municipal or governmental agency or authority and issued in favor of Owner, or such agency or authority, or such other parties as Owner shall designate (emphasis added).
See Exh. P-la at ¶ 24.
While paragraph 24 may obligate the debt- or to post a maintenance bond at some time, it does not, as GWIP contends, make the posting of said bond a condition precedent for the release of the retainage. On the contrary, the paragraph relating to the maintenance bond (paragraph 24) has no apparent connection with the paragraph relating to the release of the retainage (paragraph 32). Rather, paragraph 24 merely fixes the date from which the debtor’s warranty and the maintenance bond should run. Paragraph 32 provides as follows:
*97732. The retainage as described under payments to the Contractor shall be released 30 days after final payment to the contractor subject to reasonable completion of all punch list items and acceptance by the Owner, Township and lending institution (emphasis added).
GWIP next contends that the contract terms make payment of the retainage contingent upon the township’s acceptance of the “dedication” of the road as opposed to the township’s mere approval of the debt- or’s workmanship. In other words, GWIP argues that the debtor must await dedication of the road to the township before it can receive the balance owing under the contract. The debtor, on the other hand, maintains that the contract provides for the release of the retainage upon “acceptance” by the township (and others)2 of the work performed and that there is no requirement of dedication to the township before payment of the retainage. Our immediate focus, therefore, is on the interpretation of the word “acceptance” as it appears in the pertinent provisions of the contract. Moreover, since we are of the opinion that the word “acceptance” is susceptible of different meanings in the instant case, we will consider the words of the contract, the alternative meanings suggested by counsel and the objective evidence offered in support of those suggested alternative meanings in our interpretation of that word. Mellon Bank, N.A. v. Aetna Business Credit, 619 F.2d 1001, 1011 (3d Cir.1980).
GWIP asserts that, in the context of this case, “acceptance” can only be interpreted as meaning acceptance of the dedication of the road. We disagree.
At the outset, we note that there is no use of the word “dedication” in paragraph 32. Rather, the only place where that word appears in the contract is paragraph 24 and paragraph 24 does not speak about contract payments. Moreover, assuming, arguendo, that we were to construe “acceptance” as meaning “acceptance by dedication,” paragraph 32 would stand for the proposition that the road was to be dedicated to “the Owner, Township and lending institution” and not just the township. In any event, we find it dispositive that paragraph 24 is carefully drafted to read “acceptance” by the owner (GWIP) and “dedication” to the township whereas paragraph 32, the section of the contract dealing exclusively with the release of the retainage, contains no such differentiation.3
GWIP also alludes to the “Special Conditions” to the contract, which provide:
After final inspection and acceptance by the Owner of all work under the Contract, the Contractor shall prepare this requisition for final payment. The total amount of the final payment due the Contractor under this contract shall be the amount computed as described above less all previous payments. Final payment to The Contractor shall be made subject to his furnishing the Owner with the “CONTRACTOR’S RELEASE” and “STATEMENT OF SURETY”.
See Exh. P-lc at SC-4.
We fail to see what relevance these special conditions have to the issue of whether the retainage is presently due and owing. GWIP offered no evidence that the “CONTRACTOR’S RELEASE” and the “STATEMENT OF SURETY” are in any way related to the two “conditions” upon which GWIP relies as a basis for withholding the retainage — namely, the posting of the maintenance bond and the dedication of the *978road to the township. In addition, the evidence presented established that no mechanic’s liens have been filed by the debt- or’s subcontractors since the paving work was completed and GWIP agrees that it is now too late to file any such liens. Therefore, it would appear that there are no liens to be released.
We find it unnecessary to decide whether the debtor is still obligated to post the two-year maintenance bond under the present circumstances for two reasons.4 First, the narrow issue before us is whether the $18,590.89 retainage is presently due and owing and, as we have previously determined, the release of the retainage is not contingent upon the posting of the maintenance bond. Second, GWIP contends that the debtor is required to provide a maintenance bond once the township accepts the dedication of the road.5 In this regard, it is undisputed that the road has not yet been dedicated to the township. Therefore, according to GWIP’s own argument, the debt- or would not yet have to post the bond because the road has still not been dedicated to the township.
Finally, the debtor contends that it is entitled to recover damages on account of GWIP’s failure to authorize the bank to release the retainage upon completion of the paving job. In In re Slaw Constr. Corp. v. Abt, 14 B.R. 175 (Bkrtcy.E.D.Pa.1981), we held that:
Under Pennsylvania law, a party may be compensated for damages incurred by the failure of another to remit6 a specific sum of money due and owing under a contract. While some courts have held that the measure of damages in such a case is the prevailing market rate of interest at the time the money became due and owing,7 Pennsylvania courts provide that the measure of damages is determined by the legal rate of interest (i.e., 6%).8
14 B.R. at 179.
Consequently, since we have held that the debtor was entitled to the $18,590.89 balance as of April 14, 1980, the date of the township’s approval of the debtor’s workmanship, the debtor is entitled to interest thereon for GWIP’s failure to authorize the release of said balance.
. This opinion constitutes the findings of fact and conclusions of law required by Rule 752 of the Rules of Bankruptcy Procedure.
. See Exh. P-la at ¶ 32.
. GWIP relies on Exh. P-3, a letter from the West Norriton Township Superintendent of Highways to the debtor, and the Pennsylvania First Class Township Code in support of its view that the “acceptance” means acceptance of the dedication of the road and that no other type of acceptance by the township was contemplated by the parties to the contract. However, neither the Township Code nor the letter represent communications of and between the parties to the contract, namely, the debtor and GWIP. In any event, we conclude that any variation of the written words of the contract would not be justified by the aforesaid letter and the Township Code. Therefore, our holding today is based on the words of the contract between the debtor and GWIP and not the extrinsic evidence thereto.
. The debtor maintains that even if the maintenance is and was, at one time, an enforcible obligation under the contract, it is now unenforceable because the road has been so abused that dedication of the road in its present condition to the township is impossible. Further, the debtor argues that, given the “unreasonable” length of time that has passed since the road was completed, it should not be required to post the maintenance bond.
. See GWIP’s brief at 5.
. See, e.g., Hussey Metals Div. v. Lectromelt Furnace Div., 417 F.Supp. 964 (W.D.Pa.1976); Formigli Corp. v. Fox, 348 F.Supp. 629 (E.D.Pa.1972); Aviation Associates v. The Dixon Co., Inc., 333 F.Supp. 982 (M.D.Pa.1971), and cases cited therein.
. See, e.g., Clarke Baridon Inc. v. Meritt-Chapman & Scott Corp., 311 F.2d 389, 399 (4th Cir.1962).
. See cases cited in note 6 supra. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489577/ | MEMORANDUM OPINION
JOHN C. FORD, Bankruptcy Judge.
On December 21,1982, the duly appointed interim trustee Philip I. Palmer, Jr., filed an Application to sell, free and clear of liens, 130.352 acres of undeveloped land in Tarrant County, hereinafter the 130 acres, representing substantially all of the debt- or’s assets. The debtor, Seychelles Partnership, was formed in the Summer of 1979 to acquire, own, hold, and develop the 130 acre tract of land located north of Dallas Fort Worth Airport. Two interrelated issues are presented by this case: the authority of the interim trustee to conduct such a sale in light of the attempted conversion of the case from Chapter 7 to Chapter 11 by Genius Corporation; and whether the sale at a price of Six million nine hundred thirty seven thousand one hundred forty nine dollars ($6,937,149.00) should be approved. Upon consideration of the pleadings on file, the arguments of counsel, the briefs submitted, and the testimony at the two hearings, pursuant to Bankruptcy Rule 752, the Court enters the following Findings of Fact and Conclusions of Law.
FINDINGS OF FACT AND CONCLUSIONS OF LAW
An involuntary Chapter 7 petition was filed against the debtor by two of its fourteen general partners, Banyan Corporation, and Robert L. Wheelock, III, on November 23, 1982. An Order for Relief was entered by the Court on December 16, 1982. An interim trustee was appointed on December *7621, 1982, and Notice of this appointment was filed on December 23, 1982. Then on December 23,1982, Genius Corporation, one of the nonpetitioning general partners of the debtor allegedly acting as managing general partner of the debtor, filed a “Notice of Conversion.” On January 7, 1983, the Seychelles, purportedly acting as “debt- or in possession” moved this Court to dismiss the interim trustee’s application for sale free and clear of liens citing, inter alia Section 348(e) of the Bankruptcy Code, claiming the interim trustee lacked authority to proceed now that the case was converted to a Chapter 11 case. Alternatively, it was argued that there was no urgency to the sale and that a continuance should be granted. The Court denied the motion for continuance since there was adequate notice and no surprise to the parties.
The question of conversion of the case is thoroughly considered in the companion opinion in this case, Case No. 382-01580. For simplicity, however, the Court notes here that it determined that the attempted conversion was not proper; therefore, the interim trustee has authority to go forward with the contemplated sale of the property. Even assuming arguendo that the Court is wrong on the question of conversion, the instant sale is approved because the case is either a Chapter 7 or a liquidating Chapter 11. It is apparent that the partnership can not agree on the disposition of the land, nor could it agree on a Plan of Reorganization under Chapter 11 even if one could realistically be funded. Therefore, a sale at fair market value, now, of the major asset of the debtor is in the best interest of the estate.1
On January 11, 1983, a hearing was held on the interim trustee’s application to sell free and clear of liens, notice having been given to all parties, and an Order shortening time to answer having been entered on December 21, 1982. On January 14, 1983, the Seychelles, filed a Motion for Rehearing alleging that not all the facts were before the Court at the prior hearing, that the conversion to Chapter 11 was proper, and that there was fraud committed by Banyan Corporation upon the Debtor. The Court considering all these factors, at a hearing on January 17, 1983, denied the Motion for Rehearing.
The Court reaffirmed its ruling on the conversion issue, and the approval of the sale. The court had sufficient reliable evidence before it at the first hearing to determine that the cash sale price of $6,937,-149.00 was equivalent to the fair market value and that the sale should be approved. Moreover, if the allegations raised in the Motion for Rehearing as to the alleged fraud of Banyan Corporation on the debtor, and the invalidity of Republic Bank’s second lien claim secured by a second lien deed of trust on the 130 acres, were shown to be true,2 the contemplated sale would *77still be proper since it is at a fair market value. Since all valid liens will attach to the proceeds of the sale and any claims of fraud may be likewise recovered from such proceeds, these allegations of fraud and questioned validity of the lien of Republic Bank are simply irrelevant to the issue of whether the sale should be approved.
The interim trustee presented a $6,937,-149.00 cash offer made by the Rosewood Corporation for the 130 acres. This offer is a net price out of which no commission and no expenses of sale are to be paid. The offer, by amendment to the original contract of sale provides for acceptance until 5:00 p.m. on January 18 with closing to occur on or before January 20,1983. There are no other offers by any party at present. The sum of $6,937,149.00 is sufficient to cover the costs of administration and the debtor’s two outstanding promissory note obligations secured by deeds of trust on the property. These promissory notes: one payable to the order of First National Bank of Amarillo in the principal amount of Four million dollars ($4,000,000.00) plus Five hundred thousand dollars ($500,000.00) interest, secured by a first lien on the 130 acres, and the second note assigned to Republic Bank of Dallas in the principal amount of Two million three hundred seventy five thousand dollars ($2,375,000.00) plus One hundred twenty five thousand dollars ($125,000.00) interest, secured by a second lien deed of trust, are now fully matured and due.
The interest on the notes held by the First National Bank of Amarillo and Republic Bank is accruing at a rate of Two thousand five hundred dollars ($2,500.00) a day. Since interest or a period of six months would total Four hundred fifty thousand dollars ($450,000.00), an offer for the 130 acres, if obtainable, at Seven million five hundred dollars ($7,500,000.00) (which is within the range of values suggested by the appraiser for the debtor, Mr. Toland), six months from now would leave the debt- or just about where it stands under the present offer. (See “Exhibit A” attached to Debtor’s Motion for Rehearing). Therefore, delaying the present sale in anticipation of a better offer would be improvident.3
Mr. Robert L. Wheelock, III, the Chief Executive Officer and Chairman of the Board of Banyan Corporation, testified that even though the $6,937,149.00 cash sale price would result in a One hundred thousand dollar to Two hundred thousand dollar ($100,000.00 to $200,000.00) short fall which Banyan Corporation will have to cover, he felt the sale should go forward since it was the only way for the debtor to cut its losses. This figure of $100,000.00 to $200,000.00 does not include the One million three hundred sixty thousand dollar ($1,360,000.00) investment which investors in the debtor partnership stand to lose — One Million dollars ($1,000,000.00) of which was invested-by Genius Corporation, owner of 50.64% of the debtor. Mr. Wheelock owns 8.8% (per cent) of Banyan Corporation, and he personally, and the shareholders of Banyan Corporation jointly and severally guaranteed the debtor’s note to the First National Bank of Amarillo. The shareholders of Banyan Corporation guaranteed the second note held by Republic pro rata according to their interests in Banyan Corporation. Mr. Wheelock negotiated the Rosewood Corporation offer. He is an experienced businessman who has, over the last ten years, negotiated over Fifty million dollars ($50,-000,000.00) in real estate transactions. Moreover, Mr. Wheelock stated he has been continuously attempting to sell the 130 acres and has had numerous discussions with brokers over the past six (6) months, producing no other firm offers.
*78Similarly, David Robert Fransen, a licensed real estate salesman and real estate broker who has worked for three years with David Davidson Real Estate Company, testified about his attempts to locate buyers for the 130 acres, and about other sales of unimproved properties in the airport area. Although Mr. Fransen is not a licensed appraiser, the court found his testimony to be straight-forward and factual. Unlike an appraiser, Mr. Fransen is a broker and worker who makes his living from sales of ■property, at least seven of which in the past three years have been of undeveloped property similar to the 130 acres in question. Mr. Fransen in stating his opinion that the Rosewood Contract was equal to fair market value for the property, also testified that in the airport area based on comparable sales, the fair market value of land would be $1.10 to $1.50 a square foot which would give a range of values of Six million two hundred twenty nine thousand eighty dollars to Eight million four hundred ninety four thousand two hundred dollars ($6,229,-080.00 to $8,494,200.00) for a 130 acre tract of land. The Rosewood contract is approximately $1.22V2 cents per square foot, or Fifty three thousand three hundred sixty eight dollars and sixty eight cents ($53,-362.68) per acre.
For all the foregoing reasons, the court finds that the cash net price of $6,937,149.00 is a fair price for the sale. The Court reiterates that should it be reversed on its ruling on the motion to quash conversion that it would still conclude, that the sale be approved as being fair and the best price this debtor can obtain for a sale of the 130 acres on a cash basis, whether this debtor is in a Chapter 7 case or a Chapter 11 case.
. See In Re Alpine Lumber and Nursery, 13 B.R. 977 (D.Bkrtcy.S.D.Ca.1981). In that case, the court responding to the debtor’s contention that a conversion from an involuntary Chapter 7 to a voluntary Chapter 11 was a conversion within § 706 which resulted in the termination of the interim trustee pursuant to § 348(e) held “that a voluntary request for entry of an Order for Relief in Chapter 11 is not a conversion of the case under 11 U.S.C. § 706 and therefore § 348(e) does not remove the interim trustee from possession of the debtor’s estate.” Id. at 979.
Although not exactly on point, since in the instant case the interim trustee was appointed after the Order for Relief was entered, Alpine, is instructive in finding that an interim trustee may, in some circumstances, even after a conversion from Chapter 7 to Chapter 11, continue serving until further order of the court if necessary to preserve the assets of the estate. As the court in Alpine notes,
“A reading of 11 U.S.C. § 348(e) as urged by the debtor would permit a debtor, whose assets were found to require the appointment of a trustee for their safekeeping, to circumvent the nature and purpose of an involuntary petition by simple expedient of agreeing to the entry of an Order for Relief under Chapter 11 of the Code.” Id.
Analogously, in this situation, where the partners admittedly are unable to agree to a sale of property, the court could, conceivably, determine that even if converted to a Chapter 11 under § 706(a) and § 706(b) the interim trustee should continue to serve to preserve the estate.
. The Court specifically makes no finding on the issue of fraud or the extent of validity of the lien of Republic Bank. The Court notes that the parties appear to agree that Amarillo *77National Bank is an innocent party holding a bona fide valid first lien on the 130 acres.
. Under § 70(f) of the Bankruptcy Act the court was authorized to approve sales of real property when such a sale was within seventy-five percent (75%) of its appraised value. Parenthetically, the court notes that the sale price contemplated herein, while not only fair market value, is well within this 75% benchmark even if the court were to find the debtor’s appraisal to be accurate, and even without considering the real value of a net price cash sale out of which no expenses or commissions are deducted. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489578/ | MEMORANDUM DECISION
THOMAS C. BRITTON, Bankruptcy Judge.
The trustee seeks the avoidance, under 11 U.S.C. § 547(b), of the transfer of 19 townhouses to the defendant corporation. The matter was tried on April 1. At trial, the trustee dismissed count 2, the only charge against the individual defendants.
On November 18, 1980, the debtor construction company quit-claimed the townhouses to the defendant corporation without consideration in an effort to refinance a bank’s construction loan. The parties had earlier entered into a joint-venture agreement with defendant advancing $125,000 toward completion of the project. The debtor had exhausted his construction loan and all other resources. It was heavily in debt. Only four units neared completion. Eight units were only half completed. During the three months before the transfer, when work was suspended, the properties were severely vandalized.
At the time of trial, defendant had sold five units and had invested over $200,000 since the transfer toward its completion.
It is defendant’s position that the 19 units at the time of transfer were not worth the outstanding liens against the property (at least $935,000),. therefore, defendant received nothing. The joint venture has earned no profits and there is no present indication that it ever will.
It is the trustee’s burden to establish each of the five elements in this purely statutory cause of action. § 547(b). I find that it has carried its burden with respect to elements (1) and (3). The transfer was to a creditor and it was made when the debtor was insolvent.
*91I also find that element (4)(B) has been proved. The transfer occurred ten months before bankruptcy to a corporation dominated by an attorney who served as the debtor’s attorney, mortgage broker, title examiner and joint-venturer. I find that the defendant corporation was an “insider”, for the purposes of § 547, and that it had reasonable cause to believe the debtor was insolvent at the time of the transfer. The statutory definition of an insider, § 101(25)(B), is not helpful, but this is an inclusive not an exclusive definition. The test of an insider in this context is whether he or it had such a relationship with the debtor that their dealing with one another could not be characterized as an arm’s length transaction. Matter of Montanino, Bkrtcy.D.N.J.1981, 15 B.R. 307, 310. That was clearly the case here.
However, the trustee has completely failed to prove either element (2) or (5). As has been noted, the transfer was not “for or on account of an antecedent debt”. The evidence is without conflict that the transfer was incident to the joint-venture effort to obtain new funds to complete the stalled project. It did not reduce the antecedent debt one cent and was never intended to by either party.
Similarly, there is no basis in this record to find element (5), that defendant received more than it would receive through a chapter 7 liquidation of the debtor’s assets. This is so because there was no equity in the property at the time of transfer. In fact, defendant received less than nothing.
The trustee tried to prove this element with opinion evidence that the 19 units when completed and sold at retail would produce $1.2 or $1.3 million. The difference between wholesale and retail value of such property is, of course, substantial. He then offered proof that under contracts negotiated six months before transfer it would cost $110,850 to complete 15 of the units. His estimated completion costs were based on the condition of the units in August, 1980, three months before the transfer during which they were completely vandalized. It is unrealistic to assume that the earlier contract prices would have been available during the six months required for completion.
It was the trustee’s burden to prove the value of the property as a unit, at the time of transfer, less the existing liens and encumbrances. He never did so. His star witness, the debtor’s principal, candidly admitted he did not know the value of the property at the time of transfer. Its value cannot be inferred from the sketchy and inclusive proof here.
It follows that the complaint must be dismissed with prejudice. As is required by B.R. 921(a), a separate judgment will so provide. Costs may be taxed on motion. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489580/ | *183FINDINGS, CONCLUSIONS, PROPOSED ORDER, AND CERTIFICATION OF NEED FOR IMMEDIATE REVIEW BY THE DISTRICT JUDGE
CHARLES A. ANDERSON, Bankruptcy Judge.
PRELIMINARY DISCUSSION OF PROCEDURE
These matters, as two of numerous similarly delayed cases, are before the Court sua sponte for determination of the proper procedure for the handling of such cases under the “Emergency Model Rule” for “Operation of the Bankruptcy Court System” (hereinafter the Rule or the Model Rule). See the Rule reprinted in White Motor Corp. v. Citibank, N.A., 704 F.2d 254, 10 B.C.D. 392 (6 Cir., 1983); and also reprinted in this Court’s opinion in Winters National Bank and Trust Company of Dayton v. Schear Group (Matter of Schear Realty and Investment Co., Inc.), 25 B.R. 463, 465, 9 B.C.D. 1210, B.L.D. ¶ 68,949 (Bkrtcy.Ohio 1982), hereinafter Schear Realty. In Schear Realty, this Court expressed concern and doubt regarding the validity and prudence of the Model Rule’s contemplated exercise by this Court of “fictional” jurisdiction over causes of action derivative from the common law or state statutory law. See Schear Realty, and discussion therein which is incorporated herein for purposes of brevity. In White Motor, the Sixth Circuit explicitly disagreed with the concerns expressed in Schear Realty, and further, in effect, declared authority to the bankruptcy judges to proceed with common law and state causes of action in accordance with the provisions of the Rule in the manner elaborated within the White Motor opinion.
The implied mandate to exercise such authority, however, places this Court in an uncomfortable position of having to reconcile the Model Rule with conflicting Rules enacted by the United States Supreme Court. 28 U.S.C. § 2075 grants to the Supreme Court general rule-making powers in cases under Title 11 in the manner prescribed as follows:
The Supreme Court shall have the power to prescribe by general rules, the forms of process, writs, pleadings and motions, and the practice and procedure in cases under Title 11.
Such rules shall not abridge, enlarge or modify any substantive right.
Such rules shall not take effect until they have been reported to Congress by the Chief Justice at or after the beginning of a regular session thereof but not later than the first day of May and until the expiration of ninety days after they have been thus reported.
The present Bankruptcy Rules (hereinafter the Bankruptcy Rules or the Supreme Court Rules) became effective on 24 April 1973 pursuant to the Supreme Court’s rule-making powers granted within 28 U.S.C. § 2075, and in compliance with the reporting requirement therein. See the Supreme Court Bankruptcy Rules reprinted at 411 U.S. 991-1103. See also additional rule amendments and additions at 415 U.S. 1004-1053, and 421 U.S. 1027-1074, and 1089-1122. In addition 28 U.S.C. § 2075 further provides that, “Such rules shall not abridge, enlarge, or modify any substantive right,” thereby codifying the general rule that a court may not extend or limit jurisdiction by rule. See Rule 82 of the Federal Rules of Civil Procedure; Rule 928 of the Bankruptcy Rules of Procedure; United States v. Sherwood, 312 U.S. 584, 61 S.Ct. 767, 85 L.Ed. 1058 (1941); Abbott v. Brown, 241 U.S. 606, 36 S.Ct. 689, 60 L.Ed. 1199 (1916); Matter of Mobil Steel Co., 563 F.2d 692 (5th Cir.1977); and American Brake Shoe and Foundry Co. v. Interborough Rapid Transit Co., 1 F.Supp. 820 (D.N.Y.1932).
Supreme Court Rule 927 provides, in pertinent part, that:
Each district court by action of a majority of the judges thereof may from time to time make and amend rules governing practice and procedure under [title 11 of the United States Code] not inconsistent with these rules.... In all cases not provided for by rule, the district court may regulate its practice in any manner not inconsistent with these rules. [Emphasis added.]
*184This specific prohibition that local district court rules may not be inconsistent with the Supreme Court Rules is impliedly incorporated into the Model Rule itself, which provides in paragraph (a), “The purpose of this rule is to supplement existing law and rules
Supreme Court Rules 802 and 803 contemplate that, unless appealed, all judgments and orders issued by the bankruptcy judges shall be final. The finality of a bankruptcy judge’s findings is further emphasized by Supreme Court Rules 752(a), 801 and 914, all of which provide that findings of fact by bankruptcy judges are only reversible if “clearly erroneous.” See also, Norton and Lieb, “The Aftermath of Northern Pipeline; Bankruptcy Jurisdiction under Local Court Rule,” Supplement to Norton Bankruptcy Law and Practice at 51-54 (1983). The Model Rule appears inconsistent with Supreme Court Rules "752(a), 803, 810 and 814 because the Model Rule provides that district judges shall review all bankruptcy judges’ orders and judgments if issued in a related proceeding, regardless whether an appeal was perfected, and further that the district judge “... need give no deference to the findings of the bankruptcy judge” which are “proposed” rather than formally entered into the record. Model Rule (e)(2)(B) and (3).
Furthermore, the requirement in the Model Rule that the district court automatically conduct a compulsory “review” (with the discretion to proceed de novo) apparently uproots the appellate process codified by Congress in 28 U.S.C. § 160(a), 1293(b), 1334 and 1482, as incorporated into Supreme Court Rule 801 and all Rules in Part VIII of the “Interim Rules of Bankruptcy Procedure,” effective 1 February 1980 in this District.
In essence, the procedure adopted by the Model Rule for “related proceedings” compels initial review by a district judge, whose review within his discretion may be de novo, thereby obviating the district courts’ appellate functions as contemplated within Supreme Court Rules 752(a), 810 and 914, and also thereby extinguishing the option of direct appeal to either the Circuit Courts of Appeal or one of the Bankruptcy Appellate Panels (where applicable).
The above concerns are accentuated by the fact that on 25 April 1983 the United States Supreme Court issued new Bankruptcy Rules pursuant to 28 U.S.C. § 2075 which are structured entirely around a procedural system contemplating only appellate functions by the district courts. See Part VIII of the “Bankruptcy Rules,” (hereinafter the proposed Rules), reprinted at 51 U.S.L.W. 4461-4490, 4481-4485. The proposed Bankruptcy Rules take effect 1 August 1983 and continue the established procedure wherein the bankruptcy courts are the sole trial forum for all bankruptcy related matters. See Parts VII and VIII of the proposed Rules, 51 U.S.L.W. at 4478-4484. In addition, the proposed Supreme Court Rules specifically provide that findings by a bankruptcy judge may only be reversed by a district judge if deemed “clearly erroneous.” See proposed Rules 7052 and 9014.
These proposed Rules are also contrary to the Model Rule in numerous respects. Most significantly, Model Rule (c)(2) provides that, within the discretion of either the district judge or any litigant, the district court may function as a trial forum for any bankruptcy matter. This dual trial forum option would appear wholly inconsistent with Parts VII.and VIII of either the current or proposed Rules. See this Court’s opinion in Benchic v. Century Entertainment, (Matter of Century Entertainment), 25 B.R. 502 (December 7, 1982), hereinafter Century Entertainment. Also noteworthy, proposed Rules 9015 and 9020 provide for jury trials and criminal contempt proceedings, apparently in direct contravention to Model Rule paragraphs (d)(1)(D) and (B) respectively.
Even though in this district litigation involving “related proceedings” has been directly (and indirectly) stalemated because attorneys have been awaiting Congressional clarification of the proper forum to exercise jurisdiction, the instant Complaints are actions for money judgments initiated by the *185Trustee of the respective Debtors’ estates, and the rights of the litigants should by clarified without further compounding of the expenses of litigation.1 The instant proceedings were consolidated because they involve identical issues of state law; namely, the proper application of a state law penalty provision to similarly conducted sales of Debtors’ property repossessed and sold by Defendant Bank allegedly in violation of Ohio Revised Code Sections 1317.16 and 1309.47. The Court notes that, but for the respective Debtors’ filings of Petitions in bankruptcy, the district courts apparently would not have jurisdiction over these proceedings under traditional diversity or federal question jurisdiction, or otherwise. Note Model Rule (d)(3)(A).
These Complaints were both filed on 26 August 1982, prior to expiration of the United States Supreme Court’s stay of its opinion in Northern Pipeline Construction Co. v. Marathon Pipe Line Co., (hereinafter Northern Pipeline), - U.S. -, 102 S.Ct. 2858, 73 L.Ed.2d 598, 9 B.C.D. 67, 6 C.B.C.2d 785, B.L.D. ¶ 68,698, issued 28 June1 1982, but stayed until 4 October 1982 and again until 24 December 1982. In the Northern Pipeline decision a majority of Justices held that the grant in 28 U.S.C. § 1471(c) of jurisdiction to bankruptcy courts of “the stuff of the traditional actions at common law” was violative of Article III of the United States Constitution. Northern Pipeline, supra, 102 S.Ct. at 2881, 6 C.B.C.2d at 809 (Rehnquist, J., concurring). See also this Court’s discussion in Schear Realty and Century Entertainment. Only a plurality of Justices deciding Northern Pipeline, however, appeared to find that, absent Congressional action, such jurisdiction divested from the bankruptcy courts would not vest in district courts of which the bankruptcy courts are “adjunct.” 28 U.S.C. § 151(a); Northern Pipeline, 102 S.Ct. at 2880, n. 40, 6 C.B.C.2d at 807, n. 40 (hereinafter Footnote 40). This plurality view is presented in Footnote 40, as follows:
It is clear that, at the least the new bankruptcy judges cannot constitutionally be vested with jurisdiction to decide this state-law contract claim against Marathon. As part of a comprehensive restructuring of the bankruptcy laws, Congress has vested jurisdiction over this and all matters related to cases under title 11 in a single non-Art III court, and has done so pursuant to a single statutory grant of jurisdiction. In these circumstances we cannot conclude that if Congress were aware that the grant of jurisdiction could not constitutionally encompass this and similar claims, it would simply remove the jurisdiction of the bankruptcy court over these matters, leaving the jurisdictional provision and adjudicatory structure intact with respect to other types of claims, and thus subject to Art. Ill constitutional challenge on a claim-by-claim basis. Indeed, we note that one of the express purposes of the Act was to ensure adjudication of all claims in a single forum and to avoid the delay and expense of jurisdictional disputes. See H.R.Rep. No. 95-595, supra, p. 43 — 48; S.Rep. No. 95-989, p. 17 (1978). Nor can we assume, as THE CHIEF JUSTICE suggests, that Congress’ choice would be to have this case “routed to the United States district court of which the bankruptcy court is an adjunct.” We think that it is for Congress to determine the proper manner of restructuring the Bankruptcy Act of 1978 to conform to the requirements of Art. III, in the way that will best effectuate the legislative purpose.
The two concurring Justices declined to address the broad question of the constitutionality of 28 U.S.C. § 1471 in toto, though strong argument exists to indicate that the rationale of the concurrence leads to the conclusion that Footnote 40 represents the possible majority view regarding the jurisdiction of the district courts under 28 U.S.C. § 1471. See Rhodes v. Stewart, (hereinafter Rhodes), 705 F.2d 159 (6th Cir.1983), as discussed below, and see citation therein; *186See also Schear Realty and the scholarly and thoughtful views presented by Countryman, “Emergency Rule Compounds Emergency,” 57 Bankr.L.J. 1 (1983); Vihon, “Delegation of Authority and the Model Rule: The Continuing Saga of Northern Pipeline,” 88 Commercial L.J. 64 (1983); and Norton and Lieb, “The Aftermath of Northern Pipeline: Bankruptcy Jurisdiction under Local Court Rule,” supplement to Norton Bankruptcy Law and Practice (1983).
On 10 January 1983, this Court therefore issued an Order informing the instant litigants, as follows:
As elaborated in this Court’s opinion in The Schear Realty and Investment Co., Inc., jurisdiction over this type of litigation is uncertain.
To avoid undue prejudice to the litigants by further delay, the Court hereby informs the litigants that, subject to further order of the Court, no decision will be rendered in this ease until Congress enacts remedial legislation as necessitated by the Northern Pipeline decision. The Court, however, will proceed to decision if the parties either, to the extent permitted by the Constitution, waive, by stipulation, all jurisdictional questions under Northern Pipeline or the Order of the Judicial Council for the Sixth Circuit and the Order of the District Court of the Southern District of Ohio pursuant thereto, or move to dismiss on the basis of a lack of jurisdiction for a determination by the Bankruptcy Court.
In response to this Order, on 17 January 1983, the parties, by joint indorsement of counsel, then filed a “Stipulation,” whereby:
In response to this Court’s order entered January 10,1983 the parties ... waive[d] all jurisdictional questions arising out of the Northern Pipeline case, Order of the Judicial Court Council for the Sixth Circuit and Order of the District Court of the Southern District of Ohio and hereby consent to this Court proceeding to decision on the matter submitted for decision previously. [Note Bankruptcy Rule 915.]
On 8 March 1983, this Court then issued a “Declaratory Decision” wherein the Court concluded that the Trustee’s prayers should be granted. The decision, however, was not journalized. Instead, the Court advised, as follows:
A judgment entry journalizing the decision herein will be held under advisement pending resolution of the jurisdictional questions pertaining to Bankruptcy Court judgments until the Congress by legislation confers jurisdiction on the Bankruptcy Courts which can bear constitutional muster. If the litigants herein can reach a satisfactory settlement agreement in the interim based upon the ratio deciden-di herein, such agreement should be reduced to writing and submitted to the Court for filing in the adversarial files.
To date, no further filings have been made by the parties in either adversarial proceeding, and this Court has made no further determination of record whether jurisdiction lies over the instant proceedings.
As aforementioned, on 1 April 1983, the Sixth Circuit issued its decision in White "Motor wherein the Sixth Circuit explicitly disagreed with Schear Realty. White Motor, 704 F.2d at 258, 10 B.C.D. at 396. The opinion of April 1, based its reasoning on the conclusion that, “... under [28 U.S.C.] §§ 1471(a) and (b) and the old § 1334, the district courts may adjudicate bankruptcy proceedings filed after December 24, 1982.” In White Motor, the Sixth Circuit further found that the Model Rule was properly adopted by the district courts through the district courts’ local rule-making powers, and further that the Rule’s automatic referral of factfinding and adjudicative duties in Model Rule (d)(3)(B) is neither in conflict with the Northern Pipeline decision, nor violative of Article III of the United States Constitution. The Court notes that the White Motor opinion does not address or provide a basis to resolve the apparent conflict between the Model Rule and the Rules of Bankruptcy Procedure issued by the United States Supreme Court.
Subsequently, on 11 April 1983, the Sixth Circuit issued its opinion in Rhodes. In *187Rhodes, the Sixth Circuit, apparently as dicta, addressed the question of the sever-ability of the unconstitutional grant of Article III jurisdiction in 28 U.S.C. § 1471(c) from the remainder of the jurisdictional grant in 28 U.S.C. § 1471. In its April 11 opinion, the Sixth Circuit determined that, “[A] plurality of six justices concluded that the jurisdictional grant of [28 U.S.C.] § 1471 was unconstitutional in toto and could not be redeemed through division or severance of offending exercises of jurisdiction.” In so holding, the Sixth Circuit cited three decisions. Two of these cited opinions appear to elaborate that the reasoning of a majority of the Justices-who decided Northern Pipeline concluded the Northern Pipeline rationale divests even the district courts of their “nonseverable” jurisdiction under 28 U.S.C. § 1471(a) and (b). See (as cited in Rhodes, at 160), In re Cumberland Enterprises, Inc., 22 B.R. 626, 680-631 (Bkrtcy.M.D.Tenn.1982), holding that, “This court is persuaded by ... a reading of Northern Pipeline that six justices of the Supreme Court concurred in the judgment that 28 U.S.C. § 1471 (West Supp.1982) is unconstitutional in its entirety”; and In re Otero Mills, Inc., 21 B.R. 645, 647 (Bkrtcy.D.N.M.1982), reasoning that, upon lifting of the stay of Northern Pipeline, “... the unavoidable effect would be that no court presently existing could administer the bankruptcy laws.” The third cited opinion, In re Cherry Pond Coal Company, 21 B.R. 592, 593 (S.D.W.Va.1982), appears only to question whether the bankruptcy courts’ traditional jurisdiction granted through 28 U.S.C. § 1471(c) could be “severed” from the expanded jurisdiction of related matters also granted through 28 U.S.C. § 1471(c). In Cherry Pond, the Bankruptcy Court concluded that the Northern Pipeline decision divested the bankruptcy courts of any jurisdiction granted by 28 U.S.C. § 1471(c) in toto, without referring to the possible “non-severable” divestiture of the jurisdictional grant in 28 U.S.C. § 1471(a) and (b) to the district courts.
In light of the implied direction in White Motor to proceed under Model Rule (d)(3)(B), this matter is now before the Court for journalizing an appropriate “proposed judgment or order” to supplement the Court’s Declaratory Decision of 8 March 1983. In this regard, the Court notes that the rendering of a judgment or final order is tantamount to a determination that jurisdiction exists, unless such order proposes dismissal for lack of jurisdiction. See generally, 46 Am.Jur.2d Judgments § 23.
FINDINGS, CONCLUSIONS, AND PROPOSED JUDGMENT
The instant cases are “related proceedings” under 28 U.S.C. § 1471(b) and as defined in Model Rule (d)(3)(A). Specifically, the Court notes that the instant cases involve only Ohio litigants and only questions of Ohio law. Citing the language of Rule (d)(3)(A), “in the absence of a petition in bankruptcy,” these matters “could have been brought [only] in state court.”
28 U.S.C. § 1334 provides that,
The district courts shall have original jurisdiction, exclusive of the courts of the United States, of all matters and proceedings in bankruptcy.
In White Motor, the Sixth Circuit specifically determined that 28 U.S.C. § 1334 has continued vitality despite either the subsequent enactment of 28 U.S.C. § 1471 or the opinions in the Northern Pipeline decision. In the words of the Sixth Circuit,
Even if we were to accept the view that Congress did not intend that § 1334 continue in force simultaneously with § 1471, under long-standing principles of statutory construction, § 1334 is “revived” by the invalidation of the new § 1471. It has long been held that a statute which is unconstitutional does not repeal a prior statute on the subject when a contrary construction would create a void in the law which the legislative body did not intend. The prior statute is “revived” to avoid a chaotic hiatus in the law. [Citation omitted.] White Motor, 704 F.2d at 261, 10 B.C.D. at 398.
The “revival” of 28 U.S.C. § 1334 in White Motor is apparently intended to provide an alternate basis for district court jurisdiction *188if the Supreme Court clarifies that its opinion in Northern Pipeline leads to the conclusion that 28 U.S.C. § 1471 is invalidated in toto.
28 U.S.C. § 1334, however, is not pertinent to typical “related proceedings” under 28 U.S.C. § 1471(b) and as defined in Model Rule (d)(3)(A). See 1 Collier on Bankruptcy Chapter 1 (15th Ed.1981). The “revival” of 28 U.S.C. § 1334 does not historically grant the district courts jurisdiction over the instant “related” proceeding since the instant proceeding involves “plenary” jurisdiction traditionally beyond the scope of the district courts and thus not traditionally capable of reference to a referee (or to a bankruptcy judge as an “adjunct” judge). See discussion in Northern Pipeline, 102 S.Ct. at 2862 and 2863, 6 C.B.C.2d at 786 and 787. In this context, the Court notes that “revival” of 28 U.S.C. § 1334 arguably “revives” the vitality of Bankruptcy Rule 915 which provides that litigants may consent to bankruptcy court adjudication of plenary matters. Although this rule was superceded by 28 U.S.C. § 1471(b), and is therefore presumably inapplicable in light of White Motor, the Court specifically notes that any application that Rule 915 may have in a present context would likely be imprudent in light of the rationale of the Supreme Court’s opinion in Northern Pipeline, and in particular the plurality’s admonishment that, “... [the referee’s] functions, which represent the culmination of years of gradual expansion of the power and authority of the referee, have never been explicitly endorsed by this Court.” Northern Pipeline, 102 S.Ct. at 2876, n. 31, 6 C.B.C.2d at 802, n. 31, citation omitted.
If jurisdiction over the instant matters exists in a bankruptcy forum, such jurisdiction is thus derivative only from 28 U.S.C. § 1471(b). The nature of jurisdiction under 28 U.S.C. § 1471(b) is somewhat complicated by the Sixth Circuit’s apparent conflicting decisions regarding the severability of § 1471(a) and (b) from (c). In White Motor, the Sixth Circuit Court of Appeals unequivocally posited that 28 U.S.C. § 1471(a) and (b) are “severable” from (c) insofar as the rationale of the Northern Pipeline decision is concerned.2 In Rhodes, the Sixth Circuit Court of Appeals subsequently determined that “the jurisdictional grant of § 1471 was unconstitutional in toto and could not be redeemed through division or severance of offending exercises of jurisdiction.” Rhodes, at 160.
It is the opinion of this Court that the Sixth Circuit’s views expressed in White Motor should guide this Court in its determination whether the District Court possesses jurisdiction over the instant Complaints. Although the Rhodes opinion is unclear whether its discussion of severability is limited to the nonseverability of the unconstitutional grant to bankruptcy courts of jurisdiction over Article III matters from the jurisdictional grant to bankruptcy courts in toto, the Court in Rhodes, by way of footnote, limited the scope of the decision by indicating that the opinion in Rhodes “... does not address the legal consequences of Northern Pipeline....” Rhodes, at 161, n. 1. This disclaimer would appear to indicate the discussion in Rhodes is intended to be limited only to that particular type of case without any stare decisis implication instanter. Note 20 Am.Jur.2d Courts § 232, “Overruling by implication.” Further, it appears that the discussion of severability in Rhodes could be interpreted as dicta with thus only limited impact upon the Sixth Circuit Court’s previous rationale applied when addressing the precise issue in question. Note again, 20 Am.Jur.2d Courts § 232, “Overruling by implication.”
The threshold question in any court litigation is whether that Court possesses jurisdiction. In this case, this Court is, in essence, presented with the question of the scope of this Court’s “jurisdiction” to adjudicate a case within only the District Court’s jurisdiction. See White Motor and Rhodes. Essentially, this Court is requested to resolve an Article III controversy as a forum created by local district court rule *189adopted without Congressional input or approval, and despite the lack of any residual valid statutory authority granting this Court the authority to exercise adjudicative functions over such Article III matters. Distinguish U.S. v. Raddatz, 447 U.S. 667, 100 S.Ct. 2406, 65 L.Ed.2d 424 (1980), and note Countryman, supra, and Norton and Lieb, supra.3 This Court notes that a court may not extend or limit jurisdiction by rule. See Rule 82 of the Federal Rules of Civil Procedure; Rule 928 of the Bankruptcy Rules of Procedure; United States v. Sherwood, supra; Abbott v. Brown, supra; and American Brake Shoe and Foundry Co., supra.
An appellate court has the inherent power in extreme circumstances to permit a lower court to proceed without valid jurisdiction. Northern Pipeline. As stated in this Court’s opinion in Century Entertainment, 25 B.R. at 504 and 505:
It is axiomatic that the Court is under a duty to inquire sua sponte into the jurisdiction of all matters before it, and that the rendering of a judgment is itself tacit assertion of jurisdiction by the Court. The specific purpose of the Supreme Court’s stay of its own judgment until 24 December 1982, however, was to relieve the Bankruptcy Courts of such duty to make inquiry beyond the determination that a pending matter is within the jurisdictional grant of 28 U.S.C. § 1471. Further, it is not clear that the Northern Pipeline rationale would effect a divestiture of the jurisdictional grant in 28 U.S.C. § 1471 in toto, or “merely” invalidate the use of the Bankruptcy Courts as a trial forum as contemplated in 28 U.S.C. § 1471(c).
It is the opinion of this Court that the Sixth Circuit’s determination in White Motor that the District Court validly referred by rule its jurisdiction to proceed under 28 U.S.C. § 1471(b) similarly relieves this Court of the duty to inquire into jurisdiction beyond the determination that a matter falls within the jurisdictional grant of 28 U.S.C. § 1471(b), and further immunizes (or arguably indemnifies) this Court from any allegation of personal liability resulting from actions taken by this Court under the implied mandate to proceed under the Model Rule. Note Schear Realty, and see also Stump v. Sparkman, 435 U.S. 349, 98 S.Ct. 1099, 55 L.Ed.2d 331 (1978), and In re Tip-pa-hans Enterprises, Inc. t/a Franklin Electrical Supply, 27 B.R. 780, 10 B.C.D. 85 (Bkrtcy.W.D.Va.1983).4 Further, it is argu*190able that, under the Model Rule, a finding of jurisdiction is only completed by the journalizing of a final order by the district judge, thereby absolving the bankruptcy judge entirely since he is merely “recommending,” as opposed to “adjudicating.” But see detailed and convincing discussion in In re Tip-pa-hans Enterprises, Inc., supra, 27 B.R. at 785,10 B.C.D. at 88. In this regard, this Court notes that Interim Rule (e)(2)(B) and White Motor appear to have “overruled” the Supreme Court Rules 752(a), 810 and 914 of the Bankruptcy Rules of Procedure.
This Court, is constrained to follow the teaching of the Sixth Circuit Court of Appeals that jurisdiction over this matter is duly vested in the District Court by virtue of the District Court’s jurisdiction over “related matters” granted in 28 U.S.C. § 1471(b) and as discussed in White Motor. The Court notes that both cases involve litigants who are debtors with petitions filed in this district, and that the causes of action appear to constitute property of the respective estates. 11 U.S.C. §§ 101(4) and (12) and 541, and 28 U.S.C. § 1471(b) and (e). Note also 28 U.S.C. § 1473.
The present function and duty of this Court, therefore, is to proceed in the role of a “quasi-master commissioner” under Model Rule (d)(3)(B). Note Rule 53 of the Federal Rules of Civil Procedure. Therefore, the Court hereby incorporates by reference the Declaratory Decision of 8 March 1983 to serve as this Court’s “findings and conclusions,” as required by Model Rule (d)(3)(B). In addition, this Court proposes that an Order be entered pursuant to Model Rule (e)(2)(B) granting Plaintiff’s prayers as requested.
IT IS HEREBY PROPOSED that Plaintiff-Trustee be granted judgments by the district court in both instant Adversarial Proceedings, numbered 3-82-0571 and 3-82-0572, to be calculated under the terms of Ohio Revised Code Section 1309.50.
CERTIFICATION OF NEED FOR IMMEDIATE REVIEW BY DISTRICT JUDGE
The Court HEREBY CERTIFIES, pursuant to Model Rule (e)(3) and the White Motor opinion, that the instant matters require IMMEDIATE REVIEW for resolution of the apparent inconsistencies between the Model Rule and the Supreme Court Rules in order to determine the proper procedure to be utilized for the journaliz-ing of the above proposed judgment. The clerk of the court is ordered to transmit the files and records of the instant matters together with said findings, conclusions and proposed order to the District Court.
. See however, Countryman, “Emergency Rule Compounds Emergency,” 57 Bankr.L.J. 1 (1983), indicating that even if the Model Rule is valid it is unworkable.
. As discussed above, the severability of paragraph (a) and (b) was not considered by the White Motor Court for purposes of “revival” of 28 U.S.C. § 1334.
. In fact, pending resolution of the bankruptcy courts’ jurisdiction by the United States Supreme Court, it could arguably be malpractice not to preserve a client’s appellate right to object to jurisdiction by appeal of a “close call.” The possibility of large numbers of cases pending on appellate court dockets, whether bona Gde or merely for tactical delay, creates the possibility of a mass invalidation of judgments by United States Supreme Court. This possibility should make state forums with concurrent jurisdiction the more appealing forum in many instances, particularly if the validity of a property title is involved, since use of the state court forums would obviate the possibility of either collateral or direct attack of the present jurisdictional basis. In fact, such option may warrant the exercise of abstension in some matters since abstension in the bankruptcy context is statutory rather than doctrinal and thus considerably more discretionary. 11 U.S.C. §§ 105 and 305; 28 U.S.C. § 1471(d).
. In this regard the Court notes that it would appear that state courts possess exclusive jurisdiction over suits in which federal judges are sued individually and personally for liability allegedly resulting exclusively from state law causes of action (e.g. negligence, slander or defamation). Brinkman v. Drolesbaugh, 97 Ohio St. 171, 119 N.E. 451 (1918); Truesdell v. Combs, 33 Ohio St. 186 (1877). As stated in Maxey v. Gather, 94 Ohio App. 115, 121, 114 N.E.2d 607 (Ct.App. Summit 1952), “where acting without jurisdiction or beyond their official duties, judges are, of course, accountable in same manner as private citizens.” The concern that state courts may conclude differently than the Sixth Circuit about the validity of the bankruptcy or district courts’ jurisdiction in a suit alleging personal liability of a bankruptcy or district judge, or “merely” in the context of a collateral attack of a judgment entered against a nonappearing party, however, would appear to be largely theoretical in light of a district judge’s discretion to remove the case for determination of the state issue in a federal forum and also the general injunctive powers of the district court. 28 U.S.C. §§ 1442(a) and 2283. The “theoretical” problem of collateral attack would rapidly become very practical, nevertheless, if the United States Supreme Court were ultimately to conclude that the *190Model Rule impermissably creates an unconstitutional forum for Article III matters in derogation of legislative prerogative, and the very terms of 28 U.S.C. § 1471(c) that only bankruptcy judges exercise jurisdiction as “adjuncts” over the substantive law enacted by the Bankruptcy Code. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489582/ | *234ORDER ALLOWING CLAIMED EXEMPTIONS
THOMAS C. BRITTON, Bankruptcy Judge.
The debtor has claimed as exempt from creditors a home in Boca Raton and various items of personal property which she has valued at exactly $1,000. The exemptions are claimed under Article X, § 4, Florida Constitution, and Chapter 222, Florida Statutes. To be entitled to these exemptions, the debtor must be the “head of a household” within the ambit of those provisions. The debtor’s ex-husband has objected (C.P. No. 24) on the ground that the debtor does not qualify as the head of a household. The matter was heard on April 5 and 26. Without objection from the parties, the hearing of April 26 was combined with a hearing on the ex-husband’s objection to the debtor’s discharge.
On the date of bankruptcy, December 30, 1982, which is the critical date for the purposes of this case, the debtor resided in the house she claims to be exempt, with an 18 year old son and a 16 year old daughter, each of whom acknowledged and accepted her role as head of the household unit.
Applying the principles of Florida law, the determination of whether the legal status as the head of a household exists depends upon whether the person asserting that status has the legal or moral duty to support, care for, and train members of the family group. In re Kionka’s Estate, Fla. App.1959, 113 So.2d 603, 608.
Under Florida law, a divorced wife with custody of a minor child may qualify as the head of a household if at least part of the support provided for the child is provided by the wife. Anderson v. Anderson, Fla.1950, 44 So.2d 652, 654; Vandiver v. Vincent, Fla.App.1962, 139 So.2d 704, 710. It is not clear to me whether the degree of support provided must be at least half of the support (as is suggested in Vandiver), but the degree of support must at least approximate that amount. If the principal support is provided by the divorced father, he is the head of the household, and in Florida at least under these provisions, there can only be one “head of the household”. In computing this equation, credit may be given to the value of the mother’s services.
The debtor is a seamstress who was unemployed at the time of bankruptcy. Her total earned income for each of the two calendar years preceding bankruptcy was $4,000 as a telephone receptionist. She filed no income tax returns for either of those years because “little or no income was earned”. There is no evidence that either she or her family had significant independent assets. She was last employed in August, 1982. She estimated that the monthly household expenses for the family total $2,000. She receives $411 a month from the ex-husband and $478 a month from a former husband, the children’s father. Neither child contributes significantly to the household income.
It is clear that the ex-husband was not the head of the household by the support test. Nor was the children’s father. It is not clear from this record how the balance of the support was provided.
As stated in Vandiver:
“The homestead exemption laws should be interpreted liberally and so as to shelter and preserve the family and family home so long as they are not interpreted in such manner as to become an instrument of fraud.” (at page 709).
The burden is on the debtor to establish her entitlement to the homestead exemption. Smith v. Stewart, Fla.App. 1980, 390 So.2d 178, 180; 29 FlaJur.M, Homesteads § 81. By reason of the degree of financial support received from the two ex-husbands, this is a close ease.
The debtor and her two children comprise the only intact household for which one head can be recognized under Florida law. I find that no person other than the debtor occupies the role of head of this household for purposes of providing services, care and training. This factor weights sufficiently in the debtor’s favor to find that she is entitled to the exemptions. Matter of Hersch, Bkrtcy.M.D.Fla.1982, 23 B.R. 42.
*235The objection is overruled and the claimed exemptions are allowed.
At the time of bankruptcy, a partition proceeding for the marital home was pending in the State court. Both parties had sought partition. By a separate proceeding, the automatic stay has been modified to permit that litigation to continue in the State court. Nothing said in this order is intended to prevent or affect the outcome of that litigation. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489583/ | MEMORANDUM OF DECISION
JAMES A. PUSATERI, Bankruptcy Judge.
In this chapter 11 proceeding, upon the debtor’s motion for reconsideration, issues of notice are presented.
The issues presented for determination are:
1. Was proof of mailing shown by the debtor, sufficient to create a presumption that notice was received.
2. Was notice that the debtor was disputing the creditor’s claim constitutionally sufficient to bar filing of a claim after September 9, 1980.
FINDINGS OF FACT
The debtor filed a chapter 11 petition in bankruptcy on March 5, 1980. The Court file does not contain a certificate of service indicating the Johnson County Board of County Commissioners (The Board) was sent notice of the chapter 11 proceeding until August 22,1980. This Court held that the September 9, 1980 deadline for filing claims was insufficient time after the August 22, 1980 notice to allow the Board to file a timely claim. See the Order in this casé issued on February 4, 1983.
The debtor filed a motion for reconsideration and at a hearing held March 11, 1983 the following evidence was adduced:
All notices and mailings in this case were done by Electronic Processing, Inc. (EPI). R. Pete Smith, an officer and director of EPI testified concerning EPI procedures for mailings. Mr. Smith testified that all creditors listed on EPI’s computer printout creditor register (exh. 2C) were mailed notice of the bankruptcy proceeding together with a Proof of Claim form. This mailing occurred on April 7,1980. The Johnson County Treasurer was included on the creditor print-out list. Creditors on the computer register were mailed notice of the bankruptcy proceeding in the numerical sequence in which their claims were assigned *237in the computer register. Proof of claims were filed on the forms provided to creditors by this mailing by both the Douglas County Treasurer and the Reno County Treasurer. Douglas County was number 45 on the computer register and Reno County was number 37. Johnson County was number 39. Thus, creditors preceding and following Johnson County on the computer register received the notices mailed on April 7, 1980 and in fact timely filed claims.
Mr. Smith testified that mail sent to the Johnson County Commissioners was never returned.
Mr. Smith testified that in the regular course of EPI’s business all mail processed by EPI’s computer service was mailed. Furthermore, creditors immediately before and after Johnson County received the April 7, 1980 notice. Thus, the Court believes the debtor has shown that the April 7 mailing was made and it was mailed to Johnson County in the regular course of EPI’s business.
The Board offered an affidavit of Lyndus A. Henry, County Counselor of Johnson County. Mr. Henry stated that his
records do not show, nor do I have any independent recollection thereof, of receipt of any notice of the above-referenced bankruptcy proceeding until a few weeks prior to the filing of my Proof of Claim.
Mr. Henry also stated:
I customarily and habitually file Proofs of Claim within a few weeks of receipt thereof.
Mr. Henry did not file a proof of claim until July 8, 1981. Thus Mr. Henry is stating that he did not learn of the bankruptcy proceeding until just before July 8, 1981. The Court has already found that the Board was sent the notice of August 22, 1980. (See order of February 4, 1983). Furthermore, notice and proof of claims were not directed to Mr. Henry by the debtor, but rather were sent to the County Treasurer. Thus, Mr. Henry’s affidavit only shows that the County Treasurer did not forward the notice to the County Counselor, and does not show the County Treasurer failed to receive notice.
Mr. Henry and the Board do not allege the address used by the debtor was incorrect.
The debtor’s schedules contained in the Court file listed all debts, including the Board’s, as “unliquidate.” The April notice alleged by the debtor to have been mailed to the Board did not state that the Board’s claim was unliquidated, disputed or contingent. Notice that debts were “unliquidate” or that claims were disputed was not specifically directed to each creditor, and was not specifically directed to the Board until the August 22, 1980 notice was mailed. The August 22, 1980 notice informed the Board that its claim was listed as “disputed” (in fact the Board’s claim was listed as “unliq-uidate,” not disputed) and that the Board had until September 9,1980 to file its claim. The Board filed its claims on July 8, 1981 (claims # 46 and 47).
The disclosure statement was approved on December 23, 1981 and the plan was confirmed on March 31, 1982.
CONCLUSIONS OF LAW
1. Notice
When mail is properly addressed, stamped and deposited in the mail system, there is a presumption it was received by the party to whom it was sent. See, e.g., Legille v. Damn, 544 F.2d 1 (D.C.Cir.1976). Proper mailing, however, must be proved before the presumption is activated. Id. Simpson v. Jefferson Standard Life Ins. Co., 465 F.2d 1320 (6th Cir.1972). Proof of custom of mailing is sufficient to carry the burden of proper mailing, see Simpson v. Jefferson Standard Life Ins. Co., 465 F.2d 1320 (6th Cir.1982); Gulf Coast. Invest. Corp. v. Secretary of Housing and Urban Devel., 509 F.Supp. 1321 (E.D.La.1980); J.I. Case Co. v. Sinning Bros. Motor Co., 137 Kan. 581, 21 P.2d 328 (1933), and proof of customary and usual computer procedures is sufficient to show adherence to a usual and customary procedure. Gulf Coast Invest. Corp. v. Secretary of H.U.D., 509 *238F.Supp. 1321 (E.D.La.1980). The mailing employee need not testify. J.I. Case Co. v. Sinning Bros. Motor Co., 137 Kan. 581, 583, 21 P.2d 328, 330 (1933).
If the proper and correct address was not used the presumption cannot be activated. Illinois Central R.R. v. Ready Mix Concrete, Inc., 323 F.Supp. 609 (E.D. La.1971).
Denial of receipt does not, as a matter of law, rebut the presumption, but rather creates a question of fact. See, e.g., Swink & Co. v. Carroll McEntee & McGinley, Inc., 266 Ark. 279, 584 S.W.2d 393 (1979).
The Court holds the evidence presented by the debtor was sufficient to establish proper mailing in April, 1980 to the Johnson County Board of County Commissioners. Therefore, there is a rebuttable presumption that the Board received notice of the debtor’s chapter 11 proceeding in April, 1980. The evidence in the form of an affidavit presented by the Board was unconvincing because a strong inference to be drawn from the affidavit was the Board received notice but did not properly forward it to its attorney. Therefore, the Board’s evidence was insufficient to rebut the presumption of receipt upon proof of mailing.
2. Dispute of Claims
In chapter 11,
A proof of claim or interest is deemed filed under section 501 of this title for any claim or interest that appears in the schedules filed under section 521(1) or 1106(a)(2) of this title, except a claim or interest that is scheduled as disputed, contingent, or unliquidated.
11 U.S.C. § 1111(a).
Collier states:
Section 1111(a) serves one simple function. It relieves a holder of a claim . .. from having to file a proof of claim ... in a chapter 11 case provided that (i) the list of creditors ... referred to in section 521(1) has been filed, and (ii) the particular claim or interest is correctly scheduled and is not scheduled as disputed, contingent, or unliquidated.
5 Collier on Bankruptcy ¶ 1111.01[3] at 1111-5 to -6 (15th Ed.1982).
In Dresser Indus., Inc. v. Rite Autotronics Corp., (In re Rite Autotronics Corp.), 27 B.R. 599, 10 B.C.D. 316 (Bkrtcy.App. 9th Cir.1982), the bankruptcy court found the debtor’s schedule disputed all claims under 11 U.S.C. § 1111(a). The appellate court held:
where a debtor questions the quality of a claim thereby placing the creditor in a position of potential default and loss, due process would call for specific notice to the creditor. Filing of schedules at a place frequently far removed from the location of the creditor, as a practical matter, is not an optimal method for providing the creditor with an opportunity to learn that there is a dispute or question concerning his claim.
27 B.R. 599, 10 B.C.D. at 318 (emphasis added). The appellate Court went on to state:
The problem here has been brought about by the debtor contending that it filed schedules which disputed appellant’s claim (together with those of all unsecured creditors allegedly because of accounting problems). If the claims were not disputed, appellant would not have been required to file a claim, since it would have been deemed filed by virtue of it being scheduled without indication as to it being disputed, contingent, or unliquidated. 11 U.S.C. § 1111(a) ....
Id. 27 B.R. 599, 10 B.C.D. at 319.
In the instant case, the debtor scheduled all claims as “unliquidate.” Specific notice to creditors that debts were “unliquidate,” thus requiring that claims had to be filed to be allowed under 11 U.S.C. § 1111(a), was not sent by the debtor until August 22, 1980. In its previous Order, the Court found that this notice was mailed and the Board received this notice. A certificate of service of this mailing is included in the Court file. Thus, the debtor proved mailing and receipt of the August 22, 1980 *239notice is presumed. The presumption was rebutted only by a denial of receipt. For the same reasons that the Court found the presumption of receipt for the April notice was not rebutted, the Court holds the Board did not rebut the presumption that the August notice was received. Therefore, the Court holds the August notice was in fact sent to and received by the Board.
In its previous Order, the Court also found the August notice was nevertheless constitutionally deficient. A creditor has the right to assume that proper, adequate, and constitutional notice will be provided before its claim is forever barred. New York v. New York, N.H. & Hartford R.R., 344 U.S. 293, 297, 73 S.Ct. 299, 301, 97 L.Ed. 333 (1953); In Re Intaco Puerto Rico, Inc., 494 F.2d 94, 99 (1st Cir.1974). Certainly constitutional due process requires that notice must be fundamentally fair and reasonably calculated to apprise interested parties. Mullane v. Central Hanover Bank & Trust Co., 339 U.S. 306, 70 S.Ct. 652, 94 L.Ed. 865 (1950); International Shoe Co. v. Washington, 326 U.S. 310, 66 S.Ct. 154, 90 L.Ed. 95 (1945), 4 C. Wright & A. Miller, Federal Practice and Procedure § 1074 at 301 (1969).
The Court holds that the notice of the bankruptcy proceeding mailed in April, 1980 was constitutionally insufficient to notify the Board that its claim must be filed. In Re Rite Autotronics Corp., supra. The Court further holds that the August 22, 1980 notice to the Board informing the Board for the first time that its claim was disputed and thus requiring the Board to file a claim was constitutionally insufficient to forever bar the Board’s claim after September 9, 1980 because only a short period of time was allowed for claims to be filed. As the Court stated in a previous order:
[I]t is clear that it was not fundamentally fair to require Johnson County to file a proof of claim within 15 days. It is patently clear that the September 9, 1980 filing date should not have applied to claims filed by the Board.
(Order of February 4, 1983 at pg. 6).
The debtor’s objection to the Board’s claim was that it was untimely filed. As the Court ruled on February 4, 1983, the Board’s claim filed in July, 1981 was not untimely because notice that the Board’s claim must be filed by September 9, 1980 was not sent by the debtor until August 22, 1980.
Upon reconsideration, the Court holds the Board’s claim was no bound by the September 9, 1980 deadline. Therefore, the claim having been filed before the ultimate bar date approval of the disclosure statement on December 23,1981, the claim was timely filed. See Local Bankr.Rl. 3001(b)(3). The debtor’s objection must be overruled, and the claim is allowed as filed.
The foregoing constitutes Findings of Fact and Conclusions of Law under Bankruptcy Rule 752 and Rule 52(a) of the Federal Rules of Civil Procedure. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489584/ | ORDER ON REQUEST FOR INSTRUCTIONS
BURTON PERLMAN, Bankruptcy Judge.
In this Chapter 11 case, a § 341 meeting of creditors was held March 22, 1983. Pre*267siding at the meeting was Barbara A. Ull-mann, acting estate administrator. Ms. Ullman has filed Request for Instructions regarding an appointment to the creditors committee based upon certain facts. Such facts relate to statements made at the meeting by Carl Morgenstern, Esq., an attorney representing a number of creditors. Morgenstern made statements to the effect that he and his clients would object to any plan the debtor proposes and would just as soon see the case proceed as a Chapter 7 liquidation, for they feel that debtor would not live up to anything. Attorney for the debtor then, at the meeting, objected to Morgenstern and any of the creditors he represents serving on the creditors committee. Morgenstern and counsel for debtor both have filed memoranda, though neither has produced any authority for the guidance of the court in this matter.
Initially we note that debtor does have standing to challenge the composition of the creditors committee. In re Penn-Dixie Industries, Inc. 9 B.R. 986 (D.C., S.D. N.Y.1981).
The Bankruptcy Code, however, states no standards regarding who may serve on a creditors committee. All that appears is that the committee of unsecured creditors “shall ordinarily consist of the persons, willing to serve, that hold the seven largest claims against the debtor...”. 11 U.S.C. § 1102(b)(1). A party in interest may ask the court to change the membership or size of a committee “if the membership of such committee is not representative of the different kinds of claims or interests to be represented.” There is nothing in the statute which would prevent service of the creditors committee of a creditor unsympathetic to the efforts of a debtor to reorganize. See Matter of Schatz Federal Bearings Co., Inc. 2 C.B.C.2nd 741, 747, 11 B.R. 363 (Bkrtcy.S.D.N.Y.1980).
Accordingly, we will overrule the objection of debtor presently made. Several further remarks, however, are necessary. The creditors committee is made up of creditors or their representatives. It follows from this observation that we will not approve the appointment of Morgenstern to the creditors committee as representative of sixteen different creditors; any such appointment must be as representative of a specific creditor. In addition, we will not appoint a creditors committee consisting of a single creditor, for that is inherently inconsistent with the notion of a committee. Any single creditor ought to look after its rights in its own name. Finally, with respect to service of attorneys on creditors committees, it is our policy to encourage creditors to designate persons engaged in their businesses to serve on a creditors committee, our thought being that such persons have greater insight into business affairs and this will be more useful in fulfilling the function of a creditors committee. We do not, however, bar the service on a creditors committee of an attorney if a creditor, aware of the just stated policy suggestion of the court, wishes that such a person be its representative.
SO ORDERED. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489586/ | MEMORANDUM OPINION
ALEXANDER L. PASKAY, Chief Judge.
INTERNATIONAL FOOD Corp. of America (International Food) is a Debtor currently involved in a Chapter 11 Reorganization Case. The matters under consideration are two adversary proceedings, the first styled “Maxwell W. Wells, Jr. as Trustee vs International Food Corp. of America,” Adv. No. 83 — 262. The second is an adversary proceeding styled “James E. Thomas, CPA as Trustee, for Class 10 Unsecured Creditors of Florida Peach Corp. vs International Food Corp. of America,” Adv. *307No. 83-0265. To further complicate the matter, Allius Moran Arosemena filed a Motion for Leave to Intervene and a Motion to Consolidate. Both Motions were filed in both adversary proceedings by Arosemena who is the Curador for the estate of Florida Peach Corp. of America, International Division, a Panamanian corporation which is currently involved in an involuntary bankruptcy proceeding in the Fourth Circuit Court in the Republic of Panama. A Cura-dor is the Panamanian equivalent to a Chapter 7 Trustee appointed under the Bankruptcy Code. Arosemena also intervened in another adversary proceeding in which International Food filed a complaint seeking leave to sell certain of its land holdings free and clear of all claims and liens. Arosemena was permitted to intervene in that adversary proceeding basically because Arosemena contends that the transfer from Florida Peach to International Food was a voidable, fraudulent transfer. In addition, there appears to be an ancillary proceeding pending in the Jacksonville Division of the Middle District of Florida which is an ancillary proceeding to a foreign proceeding instituted by Arosemena pursuant to § 304 of the Bankruptcy Code.
At the preliminary hearing scheduled to consider the complaint filed by Thomas and Wells, the Court also heard the Motion to Consolidate and the Motion to Intervene filed by Arosemena. The Court announced at the conclusion of the hearing that inasmuch as both of these adversary proceedings are merely complaints to modify the stay in order to permit the Plaintiffs to enforce their mortgage liens against properties owned by the Debtor, it would be inappropriate to permit Arosemena to intervene in these proceedings inasmuch as these proceedings do not involve any adjudication of the merits of the controversy between the parties. The narrow question presented is whether or not the stay should be lifted either for lack of adequate protection pursuant to § 362(d)(1), or in the alternative, on the ground that the Debtor has no equity in the subject properties and that these properties are not needed for effective reorganization and the stay should be lifted pursuant to § 362(d)(2).
Ordinarily, a proceeding pursuant to § 362(e) would not involve any complicated questions since the issues as set forth by the Code are narrow. However, this is a very unusual case and in order to put these two adversary proceedings in the proper posture, it is necessary to recite briefly the historical background of the controversy and the origin of these two mortgages which Wells and Thomas seek to enforce. Robert Lurie, who is the president of International Food, was apparently involved as a principal in a corporation known as Florida Peach Corp. of America, International Division, a Panamanian corporation (Florida Peach). Robert Lurie, in his capacity either as Trustee for the planting program or in his capacity as a principal officer or executive of Florida Peach executed three notes and three mortgages, the first on March 27, 1981, the second on April 30, 1981, and the last on May 21,1981 in favor of Maxwell W. Wells, Jr. It appears that this mortgage was executed to secure advances made by Wells in the then pending Chapter 11 case involving Florida Peach in order to assist the Debtor, Florida Peach, to complete its peach planting and harvesting program. The total amount advanced by Wells in three different installments was $150,000. This amount is secured by the mortgages executed by Lurie either in this capacity as Trustee or as principal for Florida Peach. The mortgage executed in favor of Wells encumbers 110 acres of property known as the Pedro tract. It further appears that nothing was repaid on the Wells mortgage, and Wells now seeks, through this adversary proceeding, No. 83-0262, to obtain relief from the automatic stay on the ground of lack of equity and lack of adequate protection; or in the alternative, lack of equity and that the property is not needed for effective reorganization. It further appears that the Chapter 11 ease of Florida Peach was ultimately dismissed, and the plan of reorganization was never confirmed. The property subject to the Wells mortgage was later transferred by Lurie, on behalf of Florida Peach, to International Food, the *308Debtor currently involved in a Chapter 11 case in this Court.
The record further reveals that during the pendency of the Florida Peach Chapter 11 case in the Jacksonville Division as part of the reorganization plan, Florida Peach executed a note and mortgage in favor of James E. Thomas, CPA in his capacity as trustee for the Class 10 Unsecured Creditors of Florida Peach. It is without dispute that Florida Peach received no consideration for the note and mortgage, and the note was executed to secure pre-petition obligations of Florida Peach as part of the overall reorganization plan. However, neither the Plan nor the execution of the note and mortgage was ever approved and the reorganization case involving Florida Peach was ultimately dismissed.
The property mortgaged to Thomas is also located in the Pedro tract. Thomas has a first mortgage on 20 acres in Section 36 and a second mortgage on 20 acres in Section 38. The total properties encumbered in favor of Thomas as Trustee comprise 40 acres of agriculture land. The properties encumbered in favor of Wells consist of 110 acres located in the Pedro tract and 40 additional in the Lowell tract for a total of 150 acres. It further appears from the record that the total encumbrance in favor of Wells is $219,770 including principal and interest and that mortgage earns per diem interest at the rate of $91.81. The balance due on the Thomas mortgage is $405,585.50 principal plus $62,989.84 earned interest. The combined obligations earn an interest of $88.90 per day. It is without dispute that International Food has not made any payments on either of these two mortgages.
The expert testimony indicates that the property encumbered in favor of Wells which has a value of $259,080 against an outstanding indebtedness of $219,770 has an approximate net equity in favor of the Debtor in the approximate amount of $30,-000.
Expert testimony at the final evidentiary hearing indicates that the 110 acres land in the Pedro tract has a value of $2,250 per acre if it is exposed on the open market for a sufficient length of time, i.e. a minimum of six months to possibly one year. On a quick sale, however, according to the expert, the per acre value of the property is only $2,045 which would produce net proceeds to the seller of $1,738 per acre. This would include, of course, a deduction from the purchase price of real estate commission, cost of sale and incidental items such as closing costs and the like. Accepting the later figure, that would indicate that the 110 acres of Pedro tract is worth $191,180.
The 40 acres located in the lower tract which is also encumbered by the Wells mortgage has a value of $2,400 per acre if it is exposed for sale on the open market for a sufficient length of time. However, on a quick sale basis, according to the expert, it has a value of $2,000 per acre. Again, deducting the closing costs and incidental items, it would produce net proceeds to the seller of $68,000. Thus, the combined two figures: $191,180 and $68,000 on a quick sale would indicate a combined value of $259,180 for the properties located in the Pedro tract and in the lower tract encumbered by the Wells mortgage. Taking these figures against the indebtednéss due on the Wells mortgage, it is clear that even if one accepts the quick sale valuation rather than a sale in the ordinary course of business, the Debtor has substantial equity in the properties, therefore, it would not be appropriate at this time to lift the automatic stay to permit Wells to proceed to foreclose the mortgage.
This is, however, not the case concerning the Thomas mortgage encumbering 40 acres of land located in the Pedro tract. Thomas has no interest in the lower tract and it occupies only the first position on the 20 acres securing a debt of $468,575.34. Thus, it is evident that the Debtor has no equity whatsoever in the properties encumbered by the Thomas mortgage. Therefore, Thomas shall be entitled to the relief it seeks. In this connection it should be emphasized, however, that this is merely a determination of the properly raised issues in the complaint to lift the stay and this decision to lift the stay shall not be con*309strued to intimate that the Thomas mortgage is a valid encumbrance on this property. On the contrary, the validity of this mortgage is questionable inasmuch as it is clear from the record that there was no present consideration for the execution of this mortgage and that the mortgage and note were executed only as part of the overall plan of reorganization, a reorganization which never achieved confirmation. This question, however, shall be resolved in the context of a mortgage foreclosure action in the State Court and not by this Court.
The matters under consideration are not “related” matters as defined by the Emergency Local Rule (d)(3)(A) and, therefore, by virtue of subclause (2) of the Emergency Local Rule, a separate final judgment entered in these two adversary proceedings shall be effective upon entry by the Clerk of the Bankruptcy Court unless stayed by the Bankruptcy Judge or by a District Judge. Accordingly, two separate final judgments shall be entered in the respective adversary proceedings. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489587/ | OPINION AND REPORT OF BANKRUPTCY JUDGE SUR ORDER OF REFERENCE DATED FEBRUARY 10, 1983
WILLIAM A. KING, Jr., Bankruptcy Judge.
Pursuant to the Order of February 10, 1983, the undersigned Bankruptcy Judge was directed by the Honorable James T. *310Giles, District Judge, to file a report on the issue of whether the District Court should enter an order appointing a guardian ad litem to represent prospective asbestos claimants. My recommendation is that the debtor’s Application to Appoint such a guardian be denied and, in support thereof, the following Report and Recommendations are hereby submitted.
A. PROCEDURAL HISTORY
1. On November 1,1982, Amatex Corporation filed a petition for relief under Chapter 11 of Title 11 of the United States Code.
2. A committee of unsecured creditors (the “trade committee”) was appointed by the Court.
3. An additional Creditors’ Committee was formed and petitioned the Court for appointment as an official committee. This second committee is composed of parties holding claims against Amatex arising from the so-called “asbestos litigation”. (The “plaintiff’s committee”).
4. The Debtor filed an application for the appointment of a guardian ad litem to protect the interest of future asbestos claimants.
5. The plaintiffs’ committee objected to the appointment of a guardian and filed a motion to withdraw the reference to the Bankruptcy Court with the District Court for the Eastern District of Pennsylvania.
6. On February 10, 1983, the matter was referred to the undersigned Bankruptcy Judge to conduct any necessary hearings and to prepare a report containing findings of fact, recommendations to the Court, and a proposed order.
7. Hearings on this issue were held on February 22nd, March 3rd, March 9th and March 16, 1983.
8. In addition, the subject has been constantly raised by counsel at other hearings in their Chapter 11 proceeding.
9. A stipulation of facts was filed on March 16, 1983.
10. At the hearing on March 16, 1983, the plaintiff’s committee sought to introduce the testimony of a witness who would testify that in asbestos related diseases, a cause of action would not arise until discovery of the disease.
11. Counsel for the Debtor strenuously objected to the introduction of such evidence on the basis that it was irrelevant.
12. This Court held the matter under advisement and requested the parties to file briefs on the issue of relevancy. The decision of the Court is set forth in Section D of this Opinion and Report.
B. FINDINGS OF FACT
1. American Asbestos Textile Corporation was incorporated under the laws of Pennsylvania on October 23, 1950.
2. The name of the company was changed to Amatex Corporation on September 15, 1972.
3. Amatex manufactures and sells industrial textile products.
4. The following Amatex products contain asbestos: thread, tape, yarn, rope, tubing and cloth.
5. Industrial textiles containing asbestos are widely used in the industry.
6. In excess of 16,000 lawsuits have been filed against asbestos companies on a nationwide scale as of November 1, 1982.
7. Amatex was named as a defendant in 9,843 of these cases.
8. These suits seek damages from the asbestos companies on the basis that exposure to or ingestion of asbestos fibers caused asbestosis or other physical ailments in the plaintiffs.
9. Amatex has been named as a defendant in 287 complaints filed in 25 different jurisdictions since the filing of the petition.
10. The diseases associated with asbestos have a latency period, that is to say, a time period between exposure to the substance and the time when medically diagnosable symptoms of the asbestos-related diseases appear.
11. This latency period may be as short as 3 years or as long as 40 years.
*31112. No evidence of the nature and extent of the Debtor’s assets has ever been introduced.
C.THE ISSUE PRESENTED
1. The issue before the Court has never been clearly defined by the parties.
2. The Debtor asserts that a guardian should be appointed to represent the interests of claimants whose symptoms have not yet manifested themselves.
3. The Debtor asserts that these claims will undoubtedly arise for years to come.
4. The Debtor asserts that the claims of these unknown parties may be dealt with in the instant Chapter 11 reorganization.
5. The Debtor asserts that a guardian must be appointed to represent the interests of these future, unknown claimants before any determination of whether such claims may be affected under Title 11 is made.
6. The plaintiff’s committee, on the other hand, asserts that the appointment of a guardian would serve no purpose if these future unknown claimants could not be affected by the plan of reorganization.
7. The plaintiff’s committee argues that the threshold issue is whether these claims may be included under the plan. If so, the Court should then address the issue of the appointment of a guardian.
8. The Court is in agreement with the view set forth by the plaintiff’s committee. The issue of whether future claims may be included under a plan of reorganization must be resolved prior to any determination of the issue of appointing a guardian ad litem.
D.RELEVANCY OF THE TESTIMONY OF MARTIN GREITZER, ESQUIRE
1. At the hearing of March 16, 1983, the plaintiff’s committee sought to introduce the testimony of Martin Greitzer, Esquire.
2.As an offer of proof, the plaintiff’s committee asserted that Mr. Greitzer would testify concerning his experience and research in the field of asbestos litigation. The crux of his testimony would be that in no jurisdiction of the United States does a cause of action arise from an asbestos-related ailment until the symptoms have manifested themselves.
3. The Debtor strongly objected to the introduction of any testimony on this issue on the grounds that it was irrelevant.
4. All parties filed extensive and well-written briefs.
5. At a hearing held on May 3, 1983, the Debtor stipulated to the substance of Mr. Greitzer’s testimony. By no means, however, did the Debtor withdraw the objection as to relevancy.
6. In view of the issue presented by this unique and complicated matter, this Court finds Mr. Greitzer’s testimony to be most relevant.
7. The stipulated testimony of Mr. Greit-zer, as set forth in paragraph 2, supra, will be admitted into evidence over the objection of the Debtor.
E.DISCUSSION OF RELEVANT PROVISIONS OF TITLE 11 OF THE UNITED STATES CODE
1. The threshold issue before the Court is whether future asbestos claims may be affected by a plan of reorganization. An examination of relevant provisions of Chapter 11 is necessary.
2. The Bankruptcy Code contains several provisions which regulate the contents and confirmation of Chapter 11 plans.
3. Section 1123 dictates, at some length, what must be provided in a plan:
§ 1123. Contents of Plan.
(a) A plan shall—
(1) designate, subject to section 1122 of this title, classes of claims other than claims of a kind specified in section 507(a)(1), 507(a)(2), or 507(a)(6) of this title and classes of interests;
(2) specify any class of claims or interests that is not impaired under the plan;
*312(3) shall specify the treatment of any class of claims or interests that is impaired under the plan;
(4) provide the same treatment for each claim or interest of a particular class, unless the holder of a particular claim or interest agrees to a less favorable treatment of such particular claim or interest;
(5) provide adequate means for the plan’s execution, such as—
(6) provide for the inclusion in the charter of the debtor, if the debtor is a corporation, or of any corporation referred to in paragraph (5)(B) or (5)(C) of this subsection, of a provision prohibiting the issuance of nonvoting equity securities, and providing, as to the several classes of securities possessing voting power, an appropriate distribution of such power among such classes, including, in the case of any class of equity securities having a preference over another class of equity securities with respect to dividends, adequate provisions for the election of directors representing such preferred class in the event of default in the payment of such dividends; and
(7) contain only provisions that are consistent with the interests of creditors and equity security holders and with public policy with respect to the manner of selection of any officer, director, or trustee under the plan and any successor to such officer, director, or trustee.
(b) Subject to subsection (a) of this section, a plan may—
(1) impair or leave unimpaired any class of claims, secured or unsecured, or of interests;
(2) subject to section 365 of this title, provide for the assumption or rejection of any executory contract or unexpired lease of the debtor not previously rejected under section 365 of this title;
(3) provide for—
(A) the settlement or adjustment of any claim or interest belonging to the debtor or to the estate; or
(B) the retention and enforcement by the debtor, by the trustee, or by a representative of the estate appointed for such purpose, of any such claim or interest;
(4) provide for the sale of all or substantially all of the property of the estate, and the distribution of the proceeds of such sale among holders of claims or interests; and
(5) include any other appropriate provision not inconsistent with the applicable provision of this title.
11 U.S.C. § 1123. (emphasis and deletions by the undersigned). As can be seen from the emphasis added by the writer, this provision of the Code clearly envisions that a plan may affect only claims or interests. 4. Section 1129 sets forth, again at some length, the requisites for confirmation of a Chapter 11 plan:
§ 1129. Confirmation of plan.
(a) The court shall confirm a plan only if the following requirements are met:
(1) The plan complies with the applicable provisions of this chapter.
(2) The proponent of the plan complies with the applicable provisions of this chapter.
(3) The plan has been proposed in good faith and not by any means forbidden by law.
(4)(A) Any payment made or promised by the proponent, by the debtor, or by a person issuing securities or acquiring property under the plan, for services or for costs and expenses in, or in connection with, the case, or in connection with the plan and incident to the case, has been disclosed to the court; and
(B)(i) any such payment made before confirmation of the plan is reasonable; or
(ii) if such payment is to be fixed after confirmation of the plan, such payment is subject to the approval of the court as reasonable.
*313(5)(A)(i) The proponent of the plan has disclosed the identity and affiliations of any individual proposed to serve, after confirmation of the plan, as a director, officer, or voting trustee of the debtor, an affiliate of the debtor participating in a joint plan with the debtor, or a successor to the debtor under the plan; and
(ii) the appointment to, or continuance in, such office of such individual, is consistent with the interests of creditors and equity security holders and with public policy;
(B) The proponent of the plan has disclosed the identity of any insider that will be employed or retained by the reorganized debtor, and the nature of any compensation for such insider.
(6) Any regulatory commission with jurisdiction, after confirmation of the plan, over the rates of the debtor has approved any rate change provided for in the plan, or such rate change is expressly conditioned on such approval.
(7) With respect to each class—
(A) each holder of a claim or interest of such class—
(i) has accepted the plan; or
(ii) will receive or retain under the plan on account of such claim or interest property of a value, as of the effective date of the plan, that is not less than the amount that such holder would so receive or retain if the debtor were liquidated under chapter 7 of the title or such date; or
(B) if section 1111(b)(2) of this title applies to the claims of such class, each holder of a claim of such class will receive or retain under the plan on account of such claim property of a value, as of the effective date of the plan, that is not less than the value of such creditor’s interest in the estate’s interest in the property that secures such claims.
(8) With respect to each class—
(A) such class has accepted the plan; or
(B) such class is not impaired under the plan.
(9) Except to the extent that the holder of a particular claim has agreed to a different treatment of such claim, the plan provides that—
(A) with respect to a claim of a kind specified in section 507(a)(1) or 507(a)(2) of this title, on the effective date of the plan, the holder of such claim will receive on account of such claim cash equal to the allowed amount of such claim;
(B) with respect to a class of claims of a kind specified in section 507(a)(3), 507(a)(4), or 507(a)(5) of this title, each holder of a. claim of such class will receive—
(i) if such class has accepted the plan, deferred cash payments of a value, as of the effective date of the plan, equal to the allowed amount of such claim; or
(ii) if such class has not accepted the plan, cash on the effective date of the plan equal to the allowed amount of such claim; and
(C) with respect to a claim of a kind specified in section 507(a)(6) of this title, the holder of such claim will receive on account of such claim deferred cash payments, over a period not exceeding six years after the date of assessment of such claim, of a value, as of the effective date of the plan, equal to the allowed amount of such claim.
(10) At least one class of claims has accepted the plan, determined without including any acceptance of the plan by any insider holding a claim of such class.
(11) Confirmation of the plan is not likely to be followed by the liquidation, or the need for further financial reorganization, of the debtor or any successor to the debtor under the plan, unless such liquidation or reorganization is proposed in the plan.
11 U.S.C. § 1129(a). (Emphasis added). Again, we see the clear emphasis which the Code places on claims in bankruptcy cases.
*3145. The most significant provision, however, is section 1141 which addresses the effect of the confirmation of a plan:
§ 1141. Effect of confirmation.
(a) Except as provided in subsections (d)(2) and (d)(3) of this section, the provisions of a confirmed plan bind the debtor, any entity issuing securities under the plan, any entity acquiring property under the plan, and any creditor or equity security holder of, or general partner in the debtor, whether or not the claim or interest of such creditor, equity security holder, or general partner is impaired under the plan and whéther or not such creditor, equity security holder, or general partner has accepted the plan.
(b) Except as otherwise provided in the plan or the order confirming the plan, the confirmation of a plan vests all of the property of the estate in the debtor.
(c) After confirmation of a plan, the property dealt with by the plan is free and clear of all claims and interests of creditors and of equity holders, and of general partners in the debtor, except as otherwise provided in the plan or in the order confirming the plan.
(d)(1) Except as otherwise provided in this subsection, in the plan, or in the order confirming the plan, the confirmation of a plan—
(A) discharges the debtor from any debt that arose before the date of such confirmation, and any debt of a kind specified in section 502(g), 502(h) or 502(i) of this title, whether or not—
(i) a proof of the claim based on such debt is filed or deemed filed under section 501 of this title;
(ii) such claim is allowed under section 502 of this title; or
(iii) the holder of such claim has accepted the plan; and
(B) terminates all rights and interests of equity security holders and general partners provided for by the plan.
(2)The confirmation of a plan does not discharge an individual debtor from any debt excepted from discharge under section 523 of this title.
(3) The confirmation of a plan does not discharge a debtor if-—
(A) the plan provides for liquidation of all or substantially all of the property of the estate;
(B) the debtor does not engage in business after consummation of the plan; and
(C) the debtor would be denied a discharge under section 727(a) of this title if the case were a case under chapter 7 of this title.
(4) The court may approve a written waiver of discharge executed by the debt- or after the order for relief under this chapter.
11 U.S.C. § 1141 (Emphasis added). In this section, more than any other, we see that the Chapter 11 plan affects holders of claims or interests, creditors and parties with ownership interests.
6. The foregoing terms must now be defined. The Bankruptcy Code contains a definitional section which provides much guidance. Section 101 provides as follows:
(4) “claim” means—
(A) right to payment, whether or not such right is reduced to judgment, liquidated, unliquidated, fixed, contingent, matured, unmatured, disputed, undisputed, legal, equitable, secured, or unsecured; or
(B) right to an equitable remedy for breach of performance if such breach gives rise to a right to payment, whether or not such right to an equitable remedy is reduced to judgment, fixed, contingent, matured, unmatured, disputed, undisputed, secured, or unsecured;
(9) “creditor” means—
(A) entity that has a claim against the debtor that arose at the time of or before the order for relief concerning the debtor;
(B) entity that has a claim against the estate of a kind specified in section 502(f), 502(g), 502(h) or 502(i) of this title; or
*315(C) entity that has a community claim;
(11) “debt” means liability on a claim;
11 U.S.C. § 101. (Emphasis added).
7. In the instant case, the order for relief concerning the debtor is deemed to be the date of the filing of the petition. 11 U.S.C. § 301.
8. Valuable information may be gleaned from an examination of the legislative history of the foregoing Code provisions. Concerning the definitions of the terms “creditor” and “debt”, the legislative history provides as follows:
“Creditor” is defined to include only holders of prepetition claims against the debtor. However, it also encompasses certain holders of claims that are deemed to arise before the date of the filing of the petition, such as those injured by the rejection of an executory contract or unexpired lease, certain investment tax credit recapture claim holders, “involuntary gap” creditors, and certain holders of the right of setoff. The term also includes the holder of a prepetition community claim. A guarantor of or surety for a claim against the debtor will also be a creditor, because he will hold a contingent claim against the debtor that will become fixed when he pays the creditor whose claim he has guaranteed or insured.
“Debt” is defined in paragraph (11) as a liability on a claim. The terms are coextensive: a creditor has a “claim” against the debtor; the debtor owes a “debt” to the creditor.
[House Report No. 95-595, 95th Cong. 1st Sess. 309-310 (1977); See Senate Report No. 95-989, 95th Cong.2d Sess. 22-23 (1978), U.S.Code Cong. & Admin.News 1978, pp. 5787, 5808-09, 6266-67.] (Emphasis added).
9. In view of these provisions, this Court can only conclude that a Chapter 11 plan may not affect future asbestos claims.
10. By defining the terms “creditor”, “claim”, and “debt” to be coextensive, Congress clearly intended that only prepetition claims could be affected by bankruptcy proceedings. (¶ 8, supra).
11. Every pertinent Chapter 11 provision speaks only of “claims” and “creditors” being affected by Chapter 11 plans. There is no question that the term “interests” used liberally in Chapter 11, refers solely to some form of ownership interest.
12. It is most important to note that § 1141(d)(1)(A) of the Code provides that a debtor is only discharged from debts which arose prior to confirmation of the plan. (¶ 5, supra).
13. In this regard, I find Mr. Greitzer’s testimony extremely relevant. His stipulated testimony shows that no cause of action for asbestos related injuries arises until the symptoms have appeared.
14. Therefore, I must conclude that this group of unknown, future, asbestos claimants do not hold “claims” as defined by the Bankruptcy Code. 11 U.S.C. § 101(4).
15. I further conclude that the members of this group are not “creditors” as defined by the Bankruptcy Code. 11 U.S.C. § 101(9).
16. I further conclude that the debtor owes no “debt” to these unknown parties. 11 U.S.C. § 101(11).
17. I further conclude that the debtor’s Chapter 11 plan, or any proposed in future proceedings in this case, would not discharge these future claims. 11 U.S.C. § 1141(d)(1)(A).
F. RECOMMENDATION TO THE COURT
1. After thorough review of this case, and for the reasons discussed in section E, supra, I would recommend that the debtor’s application to appoint a guardian ad litem be denied.
2. Although the debtor’s analysis and reasoning concerning the equitable power of the Court to appoint such a representative may be well-taken, I would urge the Court *316to consider the fact that the alleged claims that this person would represent are not cognizable under the Bankruptcy Code.
3. If this class of unknown, future claimants may not be affected by the plan of reorganization, no purpose would be served by appointing a guardian to protect their interest.
4. The debtor argues persuasively that a guardian is necessary to protect these interests on the basis that if the company fails to rehabilitate itself and is liquidated, these claims will have no recourse against any future fund. I cannot conceive how this guardian could improve the business climate to such an extent so as to guarantee that the company would continue to operate profitably and survive the current difficulties. Indeed, appointing a guardian would impose another administrative cost upon the debtor. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489588/ | MEMORANDUM OPINION
ALEXANDER L. PASKAY, Chief Judge.
THIS CAUSE came on for final eviden-tiary hearing upon a Complaint for Dam*317ages filed by American Pre-Cast Corp., the Debtor in the above-styled Chapter 11 business reorganization ease against Blosam Contractors, Inc., B, L & M Construction Company and National Fire Insurance Company. The Complaint set forth in four Counts, with Counts I, II and III seeking damages in the amount of $6,981.66 plus interest, cost and attorneys fees from Blo-sam and B, L & M. Although set forth in three separate Counts, the allegations and relief sought in Counts I, II and III are substantially similar and shall be treated as one Count. Count IV, also an action for damages in the amount of $6,981.66 plus interest, costs and attorneys fees demands judgment against National Fire Insurance Company, a non-debtor. The Court having heard argument of counsel, considered the record and finds as follows:
At the time relevant to the controversy, American Pre-Cast Corp. was a supplier of materials on certain construction jobs on which the Defendant, Blosam Contractors (Blosam), was the general contractor. The job was a bonded job and American PreCast, the Debtor involved in the above-styled Chapter 11 case, furnished certain materials to B, L & M Construction Company (B, L & M).
In either late December 1981 or early January 1982, B, L & M defaulted on the contract and was removed from the job by Blosam. A representative of Blosam contacted a representative of the Debtor and requested that the Debtor continue to furnish materials on the job in order that they could complete the job. Blosam agreed to pay for all materials furnished, including the materials previously furnished to B, L & M, some of which were already used and some were still on the job site at the time this conversion took place.
It is without dispute that all materials furnished to Blosam after the general contractor was removed were paid in full. The matter in controversy is the outstanding balance due and owing to the Debtor for materials originally furnished to B, L & M which admittedly was not paid and still remains unsatisfied.
While there is some evidence in the record that the son of the President of the Debtor accepted a check in payment for the materials furnished to Blosam in March and in conjunction with this transaction filed a waiver of lien, there is no evidence in this record that he was either authorized to sign the waiver of lien or the waiver intended to waive all lien rights including those which might have been based on the material previously furnished to B, L & M. It is clear that there was an understanding of the parties that unless Blosam agreed to pay all outstanding bills incurred in connection with furnishing material to the subject president, they would not have agreed to furnish additional material to Blosam in order to enable Blosam to complete the project. This being the case, this Court is satisfied that Blosam impliedly assumed the obligation to pay for the bills including the bills incurred by B, L & M, therefore, it is liable for the balance which remains unpaid as it appears from Exhibit # 1, to wit: the total sum of $7080.83.
This being a “related” case as the term is defined by the Emergency Local Rule (d)(2), this Court can only enter a final dispositive order and judgment if the parties consent to the jurisdiction. Inasmuch as Counsel for the Defendants, National Fire Insurance Company and Blosam Contractors, Inc. consented to the entry of a final dispositive order, the judgment to be entered can only be challenged by a timely filed Notice of Appeal pursuant to B.R. 802. Final Judgment shall also be entered in favor of the Plaintiff, American Pre-Cast and against the Defendant, B, L & M Construction Company.
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/8489589/ | FINDINGS OF FACT AND CONCLUSIONS OF LAW
SIDNEY M. WEAVER, Bankruptcy Judge.
This Cause having come on to be heard upon a Complaint for Declaratory Judgment 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:
Plaintiffs are Chapter 11 debtors in the above styled case. The amended plan of reorganization filed by the debtors proposes to sell certain parcels of real estate belonging to the debtors and use the proceeds of the sales to pay creditors. Pursuant to the amended plan of reorganization an auction was arranged to sell the property known as the Jolean Motel, located at 30201 South Federal Highway, Homestead, Florida. On the premises of the property is a restaurant which was leased by the plaintiffs to the defendants pursuant to a lease agreement. Paragraph 10 of the lease agreement provides that in the event of sale of the leased property, the defendants agrees to vacate the premises upon receipt of 60 days written notice.
At the time of the auction, a representative of the defendants appeared with a purported copy of the lease in which the 60 day *333notice of said provision had been allegedly-cancelled by drawing lines through the said provision and by insertion of the word “omit” between the first and second paragraphs of the provision. The “cancellation” was allegedly initialed in the margin by the plaintiffs and defendants.
The defendants contend that at the time the lease was executed the plaintiffs agreed to strike paragraph 10 from the lease and that after striking the provision, the plaintiffs and the defendants thereupon placed their initials in the margin beside the provision. The plaintiffs contend that they never agreed to strike the 60 day notice provision from the lease and deny that they placed any initials in the margin of the lease by the 60 day notice provision.
Based upon the evidence presented and resolving all conflicts in connection therewith, this Court finds that the initials in the margin of the above mentioned lease agreement are not the initials of the plaintiffs and are of no legal effect. This Court further finds that the 60 day notice of sale provision found within paragraph 10 of the lease agreement is in effect.
A final judgment will be entered in accordance with these findings and conclusions of law. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489949/ | ORDER
WALTER J. KRASNIEWSKI, Bankruptcy Judge.
This cause came on to be heard upon the Plaintiff/Trustee’s Motion for an Order Compelling Production of Documents, etc., Trustee’s Motion for Leave to File Interrogatories, Defendant’s Motion for a Protective Order, etc., Defendant’s Motion for an Order Compelling Discovery, and the Court’s Order of September 7, 1984 requiring, in part, that discovery status reports be filed on October 24, 1984 and all discovery impasses not resolved between the parties be set for hearing on November 2, 1984 at 11:00 a.m. The status reports were filed, advising of the narrowed discovery disputes remaining between the parties, and the court conducted a hearing on November 2, 1984, with each party represented by counsel.
The two major issues before the court concern which party must bear the cost of searching for and copying the documents in question and to what extent the bank needs the confidentiality of its materials protected. The court finds that the defendant, St. Joseph Bank must provide the materials requested by the plaintiff without charging for any costs incurred in searching for them and the plaintiff will pay for the cost of any copies he requests. Furthermore the court finds that the plaintiff’s representative shall be allowed to examine all of the defendant’s documents so as not to hamper his case but that such representative shall accord confidential treatment to the documents examined to all others including the trustee concerning information unrelated to this case.
The scope of discovery is set forth in Rule 26(b) of the Federal Rules of Civil Procedure. In general, a party to a civil action may obtain discovery regarding any matter which is relevant to the subject matter in the cause before the court. This rule, like all federal rules pertaining to discovery, is to be accorded broad and liberal treatment. In re Richardson-Merrel, Inc. 97 F.R.D. 481 (S.D.Ohio 1983). The rule has been construed to encompass any matter that bears on, or that reasonably could bear on, any issue that is or may be in the case. Oppenheimer Fund, Inc. v. Sanders, 437 U.S. 340, 351, 98 S.Ct. 2380, 2389, 57 L.Ed.2d 253 (1978). Following this trend of liberal discovery courts have held that an unwieldy record-keeping system, which requires heavy expenditures in money and time to provide relevant records, is simply not an adequate excuse to frustrate discovery. In re Richardson-Merrel, Inc., 97 F.R.D. 481, 483 (S.D.Ohio 1983); Baxter Travenol Laboratories, Inc. v. LeMay, 93 *545F.R.D. 379, 383 (S.D.Ohio 1981); Dunn v. Midwestern Indemnity, 88 F.R.D. 191, 197-98 (S.D.Ohio 1980); Isaac v. Shell Oil Co., 83 F.R.D. 428, 431 (E.D.Mich.1979); Kozlowski v. Sears, Roebuck & Co., 73 F.R.D. 73, 76 (D.Mass.1976); 4A Moore’s Federal Practice, § 34.19[2] at 34-106 (2d ed. 1981). However the right to discovery is not absolute.
Protective orders are available pursuant to Rule 26(c) to protect a party from annoyance, embarrassment, oppression, or undue burden or expense. An overly broad request for discovery which constitutes no more than a fishing expedition will not be allowed Isaac v. Shell Oil Co., 83 F.R.D. 428, 431 (E.D.Mich.1979).
The Isaac case clearly illustrates the boundary where the request for discovery is not within the scope of Rule 26(b)(1). In Isaac the plaintiff was stricken with cancer. He claimed it was caused by chemicals he had come into contact with at his place of employment. The plaintiff never alleged which chemicals or that certain chemicals caused the cancer. The plaintiff requested discovery from General Motors because they sent some machinery to be repaired to his work place. Plaintiff merely felt that there might be some chemical residue on the machines which may be linked to cancer and so demanded that General Motors spend over $50,000 to search their records to reveal what chemicals had been put on the machines in the last 10 years. This request was so tenuously related to the original claim that the court declared the following two part test for issuing a protective order. “Where a plaintiff has shown not even reasonable grounds to support his allegations of liability, and where the discovery costs faced by the defendant are substantial, justice requires that a protective order be granted.” 83 F.R.D. 432.
In the ease before the court it cannot be said that trustee’s cause of action is as illusory as that made in Isaac. Neither can the costs be considered so great as to cause a protective order to be issued. According to the cases, cost alone (especially when the expense is a result of the parties’ own record keeping system) should not be the determinative factor. See Baxter Travenol Laboratories, Inc. v. LeMay, 93 F.R.D. 379 (S.D.Ohio 1981). Only after a question of relevancy has been raised should cost be considered in any form of balancing test.
Originally this Court was swayed by what appeared to be monumental costs to the defendant. The claim that years of work and the expenditure of hundreds of thousands of dollars appeared to be so extreme that the plaintiff should bear some of the cost of searching for the documents. However in light of new evidence provided by defendant’s answers to plaintiff’s first set of Rule 33 Interrogatories, the court now believes that extreme burden no longer exists. Therefore, the court follows the well established law that allows for liberal discovery and that does not penalize the party seeking discovery for the other parties unwieldy bookkeeping system by forcing them to pay the costs of discovery. However to help mitigate the costs to the bank the plaintiff shall pay for the costs of copying the documents it selects.
The bank in an effort to protect the confidentiality of its customers has suggested a protective order to this Court. To the extent it is tailored to protect third parties unrelated to this case it has been adopted by this Court as part of the body of the order which follows.
For good cause shown, it is,
ORDERED that plaintiff is granted leave to file Trustee’s First Set of Rule 33 Interrogatories, which Interrogatories are to be modified as described herein; it is,
FURTHER ORDERED, that defendant shall respond to Interrogatories Nos. 1, 2 and 4 of Trustee’s First Set of Rule 33 Interrogatories on or before November 12, 1984; it is,
FURTHER ORDERED that within ten (10) days of receipt of defendant’s answers to interrogatories Nos. 1, 2 and 4 of the Trustee’s First Set of Rule 33 Interrogate-*546ríes, Plaintiff shall file a modified interrogatory corresponding to Interrogatory No. 3 of the Trustee’s First Set of Rule 33 Interrogatories, specifically identifying and specifying with particularity, the microfilm/microfiche documents which plaintiff desires defendant to produce as may reference the debtor and his account activities; it is,
FURTHER ORDERED that within ten (10) days after receipt of modified Interrogatory No. 3 as referenced above, defendant shall respond to said modified Interrogatory No. 3 by identifying which documents sought by plaintiff reference or may reference the debtor and his account activities, and any loans, advances, extension of funds or credit the debtor applied for, sought or obtained from defendant; it is,
FURTHER ORDERED that plaintiff shall only be required to pay for copies of any documents on microfilm/microfiche which plaintiff requests, and that defendant bear the burden of searching and producing the documents; it is,
FURTHER ORDERED that plaintiff may have one representative present during the search for the documents requested in plaintiffs modified Interrogatory No. 3 but that said representative is prohibited from revealing in any way to anyone, including the Trustee, any information whatsoever contained on said microfilm/microfiche and the documents otherwise produced, or using any such information in the prosecution of this case or in any other matter, except such information as may be contained on the microfilm/microfiche and/or documents produced regarding the debtor directly, i.e., the debtor’s account numbers, status of debtor’s accounts, analysis of debtor’s accounts, etc. Specifically, the designated representative for the Trustee shall not use in any way or reveal to anyone the name, account number, status of account, analysis of account, etc., of any person, firm or corporation, except debtor, which may appear on or be revealed by the aforementioned microfilm/microfiche
and/or documents, and any documents produced or copies regarding said search shall not reveal the identity in any way of any person, firm or corporation other than the debtor; it is,
FURTHER ORDERED that plaintiff shall respond to Defendant’s Interrogatories and Request for Production of Documents Directed to Plaintiff Quentin M. Der-ryberry, II, Trustee, on or before December 17, 1984, it is,
FURTHER ORDERED that plaintiff shall file his Memorandum in Opposition to Defendant’s Motion to Dismiss and For Summary Judgment on or before January 31, 1985, and defendant shall thereafter determine if it desires to file a reply thereto, and if so, within what period of time; it is,
FURTHER ORDERED that the Court’s Order filed September 7, 1984 which stayed all further discovery be, and hereby is, vacated. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489950/ | ORDER
WALTER J. KRASNIEWSKI, Bankruptcy Judge.
This matter is before the court as a . result of this Court’s Order that plaintiff show cause within 10 days from November 9, 1984 why this action should not be dismissed against the Defendant, Christine A. DeSanctis for want of prosecution for failure to file proof of service of summons upon said defendant and upon plaintiffs memorandum in compliance with show cause order.
Plaintiff sought to join Christine A. De-Sanctis as the surety under Defendant/Trustee’s bond in the Lucretia Miller case. Since the commencement of this case over one year ago the plaintiff was unable to make service on two summons issued by this Court. In August of 1983 plaintiff requested a third summons but the clerk did not respond. After three months had elapsed since his last request and upon the court’s show cause order the plaintiff now asks the court to issue the summons. The court refuses to issue the summons and dismisses this action without prejudice.
The court recognizes the duty of the clerk to issue a summons pursuant to F.R. C.P. 4. However, the clerk’s responsibilities do not stand alone. F.R.C.P. 41(b) places an affirmative duty on attorneys to take responsibility for the progress of their cases. In light of F.R.C.P. 41(b), the fact that this case is now over a year old, the delay to the other parties in the case who are now ready to proceed and the fact that this defendant is nonessential to this action, this Court feels it must dismiss the action against Christine A. DeSanctis without prejudice.
Certainly plaintiff’s attorney after a casual glance at his case file should have been aware that this Court did not have jurisdiction over Christine A. DeSanctis because she was never served with a summons. The concurring opinion of Judge Hincks in Messenger v. United States, 231 F.2d 328 (2d Cir.1956) expresses the attitude of this Court toward the lawyer’s obligation when he should know service has not been made. Judge Hincks stated “In that situation I think the plaintiff was chargeable with knowledge that the rule had not been complied with and that due diligence required plaintiff to move for the issue of fresh process with reasonable promptitute after the filing of the marshal’s return.” And furthermore “Since he was not entitled to proceed with the prosecution of his action until he had caused the defendant to be brought into the jurisdiction of the court, and since his failure so to do continued to the very time that he was found with a motion of dismissal, I think dismissal was imperatively required under Rule 41(b).” Messenger v. United, supra at 333. The court is mindful of the fact that in Messenger the clerk was not responsible for the summons not being issued.
Since the failure of the clerk to issue a summons was not attributable to the plaintiff, it would be to harsh to dismiss with prejudice. Yet the time delays that would occur, and the nonessential character of this defendant coupled with plaintiff’s abili*555ty to have pursued this matter months ago warrant this Court in dismissing the case.
For the foregoing reasons, it is hereby,
ORDERED that Christine A. DeSanctis be, and she hereby is, dismissed as a party defendant without prejudice. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489952/ | OPINION
WILLIAM A. KING, Jr., Bankruptcy Judge.
The question presented herein is whether the spouse of the debtor is entitled to a *622protective order shielding certain documents and records from discovery in an adversary proceeding brought by a creditor to determine the dischargeability of a debt. For reasons cited herein, we will allow the deposition to be taken and deny the motion for a protective order.
The facts of this case are as follows:1 Fidelity and Deposit Company of Maryland (“plaintiff”) obtained a $150,000.00 judgment against Joseph R. Mulhern (“debtor”) as a result of the debtor's personal guaranty of a performance bond. Shortly thereafter, on September 12, 1983, the debtor filed a voluntary petition under Chapter 7 of the Bankruptcy Code. On October 4, 1983, the plaintiff filed a complaint to determine the dischargeability of the debt owed to the plaintiff pursuant to 11 U.S.C. §§ 523(a)(2)(A) and 523(a)(2)(B). The complaint alleges that the debtor induced the plaintiff to renew the performance bond through written statements which were materially false. In addition, it is alleged that the debtor removed or concealed certain property at various times before and after filing of the petition, with intent to defraud creditors. Finally, it is alleged that the debtor knowingly made false statements in his bankruptcy schedules regarding the existence of liabilities and creditors.
As part of the discovery process in this adversary proceeding, the plaintiff seeks to depose the wife of the debtor (“movant”) and the production of certain documents and records.2 The debtor’s wife has moved for a protective order pursuant to Fed.R. Civ.P. 26(c). The motion requests that the deposition be prohibited on the grounds that the documents requested are the personal affairs of Sara Mulhern, and not relevant to the affairs of debtor or his estate, and that the deposition was “scheduled for the purpose of annoyance and harassment” imposing an “unreasonable and oppressive burden” on Sara Mulhern.
Fed.R.Civ.P. 26 is applicable to this proceeding through Bankruptcy Rule 7026. Fed.R.Civ.P. 26(b)(1) defines the scope and limits of discovery:
(b) Discovery Scope and Limits. Unless otherwise limited by order of the court in accordance with these rules, the scope of discovery is as follows:
(1) In General. Parties may obtain discovery regarding any matter, not privileged, which is relevant to the subject matter involved in the pending action, whether it relates to the claim or defense of the party seeking discovery or to the claim or defense of any other party, including the existence, description, nature, custody, condition and location of any books, documents, or other tangible things and the identity and location of persons having knowledge of any discoverable matter. It is not ground for objection that the information sought will be inadmissible at the trial if the information sought appears reasonably calculated to lead to the discovery of admissible evidence.
In Oppenheimer Fund, Inc. v. Sanders, 437 U.S. 340, 98 S.Ct. 2380, 57 L.Ed.2d 253 (1978), the Supreme Court identified the key phrase in Rule 26 as “relevant to the subject matter involved in the pending action” and noted the broad construction of the language “to encompass any matter that bears on, or that reasonably could lead to other matters that could bear on, any issue that is or may be in the case.” Id. at 351, 98 S.Ct. at 2389. Consistent with this liberal approach is the distinction in the Rule between relevancy for discovery pur*623poses and relevancy for admissibility at trial purposes. The standard is whether the information sought “appears reasonably calculated to lead to the discovery of admissible evidence.” It has been argued that relevancy should not be measured solely by the pleadings, but by general relevance to the subject matter of the action. 4 J. Moore, J. Lucas and G. Grotheer, Moore’s Federal Practice 11 26.56(1) (2d ed. 1984).
Although the language of Rule 26 and caselaw interpreting it support a liberal approach to discovery, the Rule is not without limitations. See McClain v. Mack Trucks, Inc., 85 F.R.D. 53 (E.D.Pa.1979). Subsection (c) of Rule 26 provides for the issuance of a protective order for good cause shown:
(c) Protective Orders. Upon motion by a party or by the person from whom discovery is sought, and for good cause shown, the court in which the action is pending or alternatively, on matters relating to a deposition, the court in the district where the deposition is to be taken may make any order which justice requires to protect a party or person from annoyance, embarrassment, oppression, or undue burden or expense, including one or more of the following: (1) that the discovery not be had; (2) that the discovery may be had only on specified terms and conditions, including a designation of the time or place; (3) that the discovery may be had only by a method of discovery other than that selected by the party seeking discovery; (4) that certain matters not be inquired into, or that the scope of the discovery be limited to certain matters; (5) that discovery be conducted with no one present except persons designated by the court; (6) that a deposition after being sealed be opened only by order of the court; (7) that a trade secret or other confidential research, development, or commercial information not be disclosed or be disclosed only in a designated way; (8) that the parties simultaneously file specified documents or information enclosed in sealed envelopes to be opened as directed by the court.
Under Fed.R.Civ.P. 26(c), the burden is on the person seeking to avoid discovery to point to a specific reason for denial of discovery. See Zenith Radio Corp. v. Matsushita Electric Industrial Co., Ltd., 529 F.Supp. 866 (E.D.Pa.1981); Essex Wire Corporation v. Eastern Electric Sales Company, Inc., 48 F.R.D. 308 (E.D.Pa.1969). In order to show cause for entry of a protective order, the moving party must provide a “particular and specific demonstration of fact, as distinguished from a stereotyped and conclusory statement.” United States v. Purdome, 30 F.R.D. 338, 341 (W.D.Mo.1962). The determination of whether good cause does or does not exist must be based on appropriate testimony and other factual data, not the unsupported contentions and conclusions of counsel. Apco Oil Corp. v. Certified Transportation, Inc., 46 F.R.D. 428, 432 (D.C.Mo.1969). Where a motion for a protective order was based on the intended deponent’s advanced age and questionable health, the Court denied the motion because the extent and severity of the party’s afflictions did not appear of record. In re Pasco Tobacco Co., Inc., 41 B.R. 394 (E.D.Pa.1984); see also Rifkin v. U.S. Lines Co., 177 F.Supp. 875 (D.C.N.Y.1959).
In the ease at bench, we find that the movant has not met her burden of proving cause. The assertions of undue burden, harassment, etc. set forth in the motion are lacking in specificity. Although movant states that the items requested “are the personal affairs of respondent [sic movant] and are not relevant to the affairs of the debtor or his estate,” no evidence is presented to support these assertions. The statements of the movant herein are conclusory in nature and unsupported by specific facts. Moreover, in view of the allegations of thq plaintiff that the debtor transferred, removed and/or concealed property, the information sought by the plaintiff from movant appears most relevant. We noted earlier that the test of relevancy for discovery purposes is more easily satisfied *624than the test of relevancy for admissibility purposes.
Finally, movant has not met her burden of proving how it would be burdensome for movant to produce the requested documents. If the documents are not already in movant’s possession, presumably they can be obtained from the banking institution of the movant or the appropriate county offices.
Because we find that the movant is not entitled to a protective order, it is unnecessary for us to address the plaintiffs arguments regarding standing to seek the order and defective notice. An appropriate order denying the relief requested follows.
. This Opinion constitutes the findings of fact and conclusions of law required by Rule 7052 of the Rules of Bankruptcy Procedure.
. The subpoena and notice served on movant requests her deposition and a production of the following documents or records:
1. all documents relating to the sale of an Ocean City, New Jersey property transferred from Mulhern to Sara Mulhern in 1979,
2. copies of all checking and savings account statements from January 1, 1982 to the date of deposition for any and all accounts, personal or joint, of Sara Mulhern, and
3. copies of all documents relating to any interest in real property, wherever situated, held by Sara Mulhern. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489953/ | OPINION
WILLIAM A. KING, Jr., Bankruptcy Judge.
The debtor commenced the instant adversary action to recover an alleged preferen*625tial payment from Philadelphia Electric Company (“PECO”). Cross-motions for summary judgment have been filed by both the debtor and PECO. Upon due consideration of the memoranda of law filed by the parties, we find that triable issues of fact exist with regard to the establishment of a preference. Therefore, summary judgment will be denied.
The facts of the controversy are as follows:
In April 1984, Joan Kennedy (“debtor”) applied for a fuel assistance grant from the Department of Public Welfare (“DPW”) of the Commonwealth of Pennsylvania under the Low Income Energy Assistance Program (“LIEAP”). The program is designed to assist low-income households with energy costs.1 In Pennsylvania, a low-income resident may apply for assistance with fuel bills during the heating season. Upon a determination that certain eligibility requirements have been met, the DPW makes one annual payment to the utility company in a designated amount on behalf of that household.
In this case, the DPW found the debtor eligible for a $246.00 LIEAP grant and made the payment directly to PECO on May 2, 1984. PECO applied the payment toward the pre-petition debt owed by the debtor.
On May 18, 1984, the debtor filed a voluntary petition under Chapter 7 of the Bankruptcy Code (“Code”). The $246.00 payment to PECO was listed as an asset on Schedule B-2 and was claimed as exempt on Schedule B-4, pursuant to 11 U.S.C. § 522(d)(5).2 Upon the filing of the bankruptcy petition, PECO assigned a new account number to the debtor.
The debtor commenced this action on July 10, 1984 to recover the $246.00 payment from PECO as a preferential transfer under section 547 of the Code. The debtor argues that PECO’s application of her LIEAP grant to her pre-petition debt constitutes a preference under section 547 and, furthermore, that the LIEAP grant should be applied instead to her post-petition account with PECO. In PECO’s answer to the complaint, PECO claims that LIEAP grants paid to utilities on behalf of eligible households are not part of a debtor’s estate and should not be listed as assets on Schedule B-2. Thus, PECO argues, its application of the debtor’s LIEAP grant toward the satisfaction of her pre-petition debt does not constitute a preference under section 547 and may not be exempted under 11 U.S.C. § 522(d)(5).
Section 547(b) of the Code permits the trustee to avoid any transfer of property of the debtor if the following five (5) requirements are established:
(1) the transfer was to or for the benefit of a creditor;
(2) the transfer was for or on account of an antecedent debt owed by the debtor before such transfer was made;
(3) the transfer was made while the debt- or was insolvent;
(4) the transfer was made
(A) on or within 90 days before the date of the filing of the petition; or
(B) between 90 days and one year before the date of the filing of the petition, if such creditor, at the time of such transfer—
(i) was an insider; and
*626(ii) had reasonable cause to believe the debtor was insolvent at the time of such transfer; and
(5) the transfer enables the 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).
Section 522(h) of the Code allows the debtor to avoid a transfer of property of the debtor ... to the extent that the debtor could have exempted such property under subsection (g)(1) of section 522 if the trustee had avoided such transfer, if
(1) such transfer is avoidable by the trustee under section ... 547 ... and (2) the trustee does not attempt to avoid such transfer.
11 U.S.C. § 522(h).
Fed.R.Civ.P. 56, made applicable to this proceeding through Bankruptcy Rule 7056, governs requests for summary judgment. Pursuant to Fed.R.Civ.P. 56(c), summary judgment should be granted if the pleadings, depositions, answers to interrogatories, admissions and affidavits indicate that there is no genuine issue as to any material fact and the moving party is entitled to judgment as a matter of law.
On a motion for summary judgment, it is the function of the Court to determine whether a triable issue exists, rather than to resolve the issue. Lockhart v. Hoenstine, 411 F.2d 455 (3d Cir.1969), cert. denied, 396 U.S. 941, 90 S.Ct. 378, 24 L.Ed.2d 244 (1969). The fact that cross-motions for summary judgment are presented does not change the standard and does not warrant the granting of summary judgment unless one of the moving parties is entitled to judgment as a matter of law on facts that are not generally disputed. Manetas v. International Petroleum Carriers, Inc., 541 F.2d 408 (3d Cir.1976), citing Rains v. Cascade Industries, Inc., 402 F.2d 241 (3d Cir.1968); F.A.R. Liquidating Corp. v. Brownell, 209 F.2d 375 (3d Cir.1954).
The instant action by the debtor to recover a preferential payment from PECO is premised on the inclusion of fuel assistance grants such as the one received by the debtor in this case within the definition of property of the estate under 11 U.S.C. § 547(b). At the time of the filing of the cross-motions for summary judgment, the issue of whether a LIEAP grant to an eligible person is includible within that person’s bankruptcy estate for the purposes of title 11 was on appeal in the case of In re Morris, 32 B.R. 635 (Bankr.E.D.Pa.1983). PECO moved for summary judgment and dismissal of the debtor's complaint on the basis that the debtor's LIEAP grant was not includible within her bankruptcy estate and thus could not be recovered as a preference.
United States District Judge Lord recently decided the issue of whether a LIEAP grant is includible within the definition of property of an estate in the affirmative. See Morris v. Philadelphia Electric Company, 45 B.R. 350 (E.D.Pa.1984). Judge Lord held that LIEAP funds paid to a utility for the benefit of a debtor are property of that debtor’s estate, stating:
Both the clear language of the Code and the relevant case law support plaintiff’s contention that their LIEAP payments are property under the Code. The Code’s broad definition of property includes all legal or equitable interests in property and there is no reason to think that it does not include property interests recognized by the Constitution.
Id. at 352.
In making the above determination, Judge Lord observed that the LIEAP funds in the Morris case, which involved a plaintiffs’ class action suit, should be applied to the debtors’ post-petition accounts with PECO:
Once plaintiffs filed for bankruptcy they were no longer under a legal obligation to pay PECO the pre-petition debt they *627had incurred. By applying plaintiffs’ LIEAP payments to plaintiffs’ discharge-able utility bills, PECO defeated the underlying purpose of the LIEAP. Instead of LIEAP funds being used to pay post-petition debts which plaintiffs still have an obligation to satisfy, the funds were used to offset debts plaintiffs had no legal obligation to pay. PECO collected on an otherwise uncollectable debt, while plaintiffs gained no relief in meeting their legal obligations. Far from being “fully compensated” plaintiffs were not compensated in the least when their LIEAP funds were used to offset their pre-petition obligations to PECO.
Id. at 354.
There is a factual distinction between the Morris case and the case at bench in that the LIEAP payments in Morris were made to PECO and PECO credited the payments to the debtors’ pre-petition accounts after the petitions in bankruptcy were filed. In the case at bench, the LIEAP payment to PECO and the crediting of the debtor’s pre-petition account occurred prior to the filing of the bankruptcy petition. This distinction necessitated the filing of a complaint by the debtor in this case to recover the $246.00 payment as a preference and placed the burden on the debtor to prove the five (5) elements of a preference under 11 U.S.C. § 547(b). The answer of PECO to the complaint denies the preference allegations in the complaint solely on the basis that the LIEAP grant was not property of the estate, never addressing the five (5) elements of a preference action under 11 U.S.C. § 547(b). Since there may be triable issues of fact regarding the establishment of the five (5) elements of section 547(b) now that the issue of whether LIEAP grants are to be considered property of a debtor’s estate has been settled, we conclude that neither the debtor nor PECO is entitled to judgment as a matter of law. In order to delineate the issues, we will direct PECO to file an amended answer setting forth the issues in controversy and direct the Clerk of the United States Bankruptcy Court for the Eastern District of Pennsylvania to schedule the matter for trial.
. The LIEAP provides for direct grants to states from a federal appropriation for the purpose of giving financial assistance to eligible households to offset the cost of energy. The program is implemented by regulations promulgated by the Secretary of the Department of Health and Human Services. As a condition precedent to a state receiving funds under the LIEAP, the state must submit to the Secretary a plan outlining the state’s intended scheme for implementation of the program. In Pennsylvania, the plan was submitted and became effective on November 12, 1980.
. At the time of the filing of the petition, section 522(d)(5) of the Code provided as follows:
The following property may be exempted under subsection (b)(1) of this section:
(5) The debtor’s aggregate interest, not to exceed in value $400 plus any unused amount of the exemption provided under paragraph (1) of this subsection, in any property. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489591/ | ORDER ON MOTION FOR REHEARING
ALEXANDER L. PASKAY, Chief Judge.
THIS CAUSE came on for hearing upon a Motion for Rehearing filed by Guaranty National Bank (Guaranty), a creditor of the Chapter 7 Debtor in the above-styled case. *347Guaranty seeks reconsideration of this Court’s order entered April 12, 1983 in which the Court refused to enlarge the time for Guaranty to object to the Debtor’s claim for exemption of his real property situated in the State of Florida.
Guaranty contends that inasmuch as this Court previously enlarged the time for Guaranty to object to discharge and dis-chargeability in the Order entered May 17, 1982, upon a finding of excusable neglect, that same excusable neglect should justify enlargement of the time in which to object to the Debtor’s claim of exempt property. The two concepts, however, are not interchangeable. While the Court has discretion to enlarge the time to object to discharge or dischargeability after the specified period when the failure to timely object was due to excusable neglect, the Court has no such discretion to enlarge the time to object to the Debtor’s claim of exempt property.
Bankruptcy Rule 906(b) specifically forbids extending time for taking any action under Bankruptcy Rule 403(c). Rule 403(c) fixed fifteen (15) days as the time within which to object to the Debtor’s claim of exemption. This Rule has been superceded by § 522 of the Bankruptcy Code which does not specify a time for filing objections to the Debtor’s claim of exemptions. This matter, therefore, is covered by Local Rule 4005(c), which fixes the time to file objections to the Debtor’s claim of exemptions as within fifteen (15) days after the schedules are served on the Trustee unless the time is enlarged within the fifteen (15) day period. There is no provision for enlarging the time after the fifteen (15) day period has passed. It appears, therefore, that the philosophy of Bankruptcy Rule 403(c) which sought a prompt and conclusive determination of the Debtor’s right to exemption continues in Local Rule 4005(c).
The Debtor filed his Petition for Relief on October 23, 1981 and the Trustee was appointed that same day. November 22, 1981 was fixed as the last date to object to the Creditors claim of exemptions and that time period was not further enlarged within the fifteen (15) day period. This Court, therefore, is unable and without discretion to enlarge the time to object to the Debtor’s claim of exemptions at this time.
Accordingly, it is
ORDERED, ADJUDGED AND DECREED that the Motion for Rehearing filed by Guaranty National Bank be, and the same hereby is, denied. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489592/ | OPINION
EMIL F. GOLDHABER, Bankruptcy Judge:
The issue presented herein is whether a mortgagee which foreclosed on the debtors’ realty, and a buyer which purchased said property at a sheriff’s sale, are entitled to relief from the automatic stay provisions of section 362(a) of the Bankruptcy Code (“the Code”) in order to permit the buyer to perfect its title to said property. We conclude that the mortgagee and the buyer are entitled to such relief because we find that the mortgagee’s interest in the subject property is not adequately protected because the debtors have not made any payments to the mortgagee since May 1, 1980, and because the debtors have failed to make the necessary payments under their chapter 13 plan.
The facts of the instant case are as follows: 1 On January 5, 1981, the premises located at 7102 Stenton Avenue, Philadelphia, Pennsylvania, and owned by George and Denise E. Wilson (“the debtors”) were sold at sheriff’s sale to S.M.J. Investment Company (“the buyer”) for $27,600.00 as a result of a mortgage foreclosure action begun by Federal National Mortgage Association (“the mortgagee”). On February 4, 1981, the buyer settled with the title company by paying the balance of the purchase price and all title costs and by executing and delivering all the necessary documents. On February 5, 1981, the title company *372concluded the settlement with the Sheriff of Philadelphia County. One day later, on February 6, 1981, before the Sheriff could issue his deed and before that deed could be acknowledged and recorded, the debtors filed a petition for an adjustment of their debts under chapter 13 of the Code. The Sheriff thereafter refused to issue the deed because he felt constrained by the automatic stay provisions of § 362(a) of the Code. Notwithstanding his earlier refusal, the Sheriff did issue the deed which was acknowledged and recorded. After the deed was issued and recorded, the buyer commenced eviction proceedings in the state courts against the debtors. On April 9, 1982, we held that all the actions taken by and for the Sheriff of Philadelphia County on and after February 6, 1981,2 in connection with the debtors’ property were null and void as being in violation of the automatic stay provisions of section 362 of the Code.3 On May 18, 1982, the mortgagee and the buyer4 filed a joint complaint for relief from the automatic stay against the debtors in order to allow the buyer to perfect its title to the debtors’ property, by having the deed to said property issued, acknowledged and recorded.5
Section 362(d) of the Code provides when relief from the stay shall be granted:
(d) On request of a party in interest and after notice and a hearing, the court shall grant relief from the stay provided under subsection (a) of this section, such as by terminating, annulling, modifying, or conditioning such stay—
(1) for cause, including the lack of adequate protection of an interest in property of such party in interest; or
(2) with respect to a stay of an act against property, if—
(A) the debtor does not have an equity in such property; and
(B) such property is not necessary to an effective reorganization.
11 U.S.C. § 362(d).6
The trustee testified that, as of the date of trial, the total amount paid by the debtors under their chapter 13 plan, which was filed on February 17, 1981, was $2,860.00 (N.T. 6/3/82 at 5). Of that amount, a lump sum of $2,700.00 was paid on March 17, 1982. However, on May 27, 1982, the debtors filed an “application to remit arrearag-es” accumulated under their chapter 13 plan. Said application, which was approved by the trustee, was granted. At the trial of this case, the trustee testified that his approval of the application to remit the ar-rearages was in error (N.T. 6/3/82 at 6).
*373It is undisputed that the debtors have not made any payments to the mortgagee since May 1, 1980. At the time the debtors filed their petition for relief, they were ten months in arrears on their mortgage payments. Moreover, during the sixteen month period that elapsed between the filing of the debtors’ plan and the instant trial, the mortgagee received no payments whatsoever and the trustee, as previously mentioned, accumulated a grand total of $2,860.00 in his account. According to the debtors’ plan, the monthly payment due the mortgagee is $248.37.7 Using this figure, the arrearages owed by the debtors to the mortgagee when the petition was filed was $2,483.70 (ten months in arrears) and the amount that should have been paid in current mortgage payments from the date the plan was filed until the time of trial is $4,811.04.8 Furthermore, the debtors maintain that both the arrearages and the current payments owed the mortgagee are to be paid under the plan. Ordinarily, we would not hesitate to grant relief from the stay under these circumstances. However, the debtors argue that their virtually nonexistent payment history should be excused and that, since they are now ready to resume making regular plan payments, the relief sought should be denied.9
Even if we were to reaffirm our approval of the debtors’ application to abate the ar-rearages accumulated under their plan, we find that there is ample cause to modify the stay. The debtors were ten months in arrears on their mortgage payments when they filed their petition. The debtors are now sixteen months behind in their post-petition payments to the mortgagee. The trustee holds but $2,860.00 in his account and there are priority claims against the debtor totalling $2,877.12.10 To hold that the mortgagee is adequately protected by permitting the debtors to resume making regular plan payments and, in effect, “catch-up” on twenty-six monthly payments that are long past due would be an abuse of the protection given by the Code.11 Rather, these facts establish that there is sufficient “cause”12 to permit modification of the stay and we conclude, therefore, that the mortgagee and the buyer are entitled to relief from the automatic stay.13
. This opinion constitutes the findings of fact and conclusions of law required by Rule 752 of the Rules of Bankruptcy Procedure.
. This was the date on which the debtors filed their petition.
. See In re Wilson, 19 B.R. 45 (Bkrtcy.E.D.Pa.1982).
. It is apparent that S.M.J., as the purchaser at the sheriffs sale, has an interest in the property in question. See, e.g., Marx Realty and Inv. Co. v. Boulevard Center, Inc., 398 Pa. 1, 156 A.2d 827 (1959); Pennsylvania Co. for Ins. on Lives and Granting Annuities v. Broad Street Hosp., 354 Pa. 123, 47 A.2d 281 (1946).
. In our previous opinion, we ruled:
We have held only that the actions taken by the Sheriff after the filing of the debtors’ petition are null and void as a violation of the automatic stay. Those actions which were taken before the filing of the debtors’ petition (namely, the sheriffs sale itself and the settlement by S.M.J.) are not so avoidable. Consequently, any interest in the property which S.M.J. received as a result of that sale and settlement is not, we conclude, affected in any way by our decision herein. Furthermore, as we stated above, there is apparently nothing to prevent S.M.J. from now seeking relief from the automatic stay to permit it to continue with whatever actions are necessary to perfect its title in the property which it purchased at the sheriffs sale and to seek to evict the debtors.
See In re Wilson, n. 3 supra at 48.
.Section 362(g) allocates the burden of proof in a complaint for relief from the stay as follows:
(g) In any hearing under subsection (d) or (e) of this section concerning relief from the stay of any act under subsection (a) of this section—
(1) the party requesting such relief has the burden of proof on the issue of the debtor’s equity in property; and
(2) the party opposing such relief has the burden of proof on all other issues.
11 U.S.C. § 362(g).
. See debtors’ chapter 13 statement at ¶ 11.
. See n. 11 infra.
. The debtors filed their petition on February 6, 1981, and their plan on February 17, 1981. Up until March of 1982, the debtors paid only $186.00 to the trustee. A lump sum payment of $2,700.00 was made in March of 1982 to the trustee. The debtors’ explanation for this payment history is that, in September of 1981, they were both hospitalized, the debtor-husband for a period of seventeen days and the debtor-wife for a seven day period. The debtor-husband returned to work for two weeks after his hospitalization in October of 1981 but has been unemployed, up until two weeks before the instant trial, since October 30, 1981 (N.T. 6/3/82 at 29).
. According to the debtors’ plan, the trustee should have received, as the day of trial, $4,811.04 with which to pay the mortgagee ($370.08 X 13 months) and $1,038.96 with which to pay priority claims ($79.92 X 13 months). The standing order was entered on May 5, 1981.
. While “adequate protection” is not defined in the Bankruptcy Code, the legislative history of § 361 reflects the intent of Congress to give the courts the flexibility to fashion the relief in light of the facts of each case and general equitable principles. See H.R.Rep. No. 95-595, 95th Cong. 1st Sess. 339 (1977), reprinted in 1978 U.S.Code Cong. & Ad.News 5787. It has been held that the failure to make current mortgage payments for a period of ten months is cause for modifying the stay. See In re Hinkle, 14 B.R. 202 (Bkrtcy.E.D.Pa.1981).
. See 362(d)(1) of the Code cited in the text supra.
. Section 362(d) permits modification of the automatic stay upon alternative grounds. Relief may be granted under § 362(d)(1) upon a finding that a debtor’s interest in property is not adequately protected or under § 362(d)(2) upon a finding that the debtor has no equity in the property and that that property is not necessary to an effective reorganization. See In re Schramm, 12 B.R. 608 (Bkrtcy.E.D.Pa.1981); In re Heath, 9 B.R. 665 (Bkrtcy.E.D.Pa.1981). | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489593/ | MEMORANDUM OPINION
THOMAS M. TWARDOWSKI, Bankruptcy Judge.
In this adversary proceeding, presently before the Court is defendant Leonard M. Cohn’s motion for reconsideration of his application to remand this proceeding to the Court of Common Pleas of Northampton *404County, Pennsylvania. For reasons hereinafter given, we shall deny his motion.1
This proceeding concerns a pre-petition legal malpractice action brought by the debtor against the debtor’s former attorney, Leonard M. Cohn, in the Court of Common Pleas of Northampton County, Pennsylvania. Subsequently, on January 2, 1981, the debtor filed a voluntary petition in bankruptcy under Chapter 11 of the Bankruptcy Code and filed a petition for removal of the legal malpractice action from the Common Pleas Court to our Court pursuant to 28 U.S.C. § 1478(a). Defendant Cohn filed an answer to the petition for removal. The parties then agreed to treat the defendant’s answer as an application to remand to the Common Pleas Court pursuant to 28 U.S.C. § 1478(b).
On October 6, 1981, after full consideration of the matter, we issued an Opinion and Order by which we denied the defendant’s application to remand based upon our findings that we had jurisdiction over the cause of action in question, that the debtor had properly removed the action to our court, and that there was no equitable ground upon which to justify a remand to the Common Pleas Court. 14 B.R. 482 (Bkrtcy.1981).
On July 13, 1982, defendant Cohn filed the instant motion for reconsideration of our Opinion and Order of October 6, 1981. The motion for reconsideration is based solely upon the Supreme Court’s decision in Northern Pipeline Construction Co. v. Marathon Pipe Line Co., - U.S. -, 102 S.Ct. 2858, 73 L.Ed.2d 598 (1982). Defendant Cohn alleges that Northern Pipeline has deprived bankruptcy courts of the power to hear actions arising solely under state law such as the present legal malpractice action. However, the Supreme Court specifically held in Northern Pipeline that its decision shall apply only prospectively. 102 S.Ct. at 2880, 2882. The Northern Pipeline decision was issued on June 28, 1982 and the judgment was stayed until December 24, 1982. Thus, the Northern Pipeline decision cannot provide a basis for our reconsidering and rescinding our Opinion and Order of October 6, 1981, as requested by defendant Cohn. In this regard, see United States v. Security Industrial Bank, - U.S. -, -n. 5, 103 S.Ct. 407, 410 n. 5, 74 L.Ed.2d 235, 240 n. 5 (November 30, 1982), wherein the Supreme Court stated that “[bjecause our decision in Northern Pipeline is prospective only ... and because we have stayed the issuance of our mandate in that case to December 24, 1982, ... that decision does not affect the judgment in this case.” Also see the Memorandum and Order of Judge, Norma L. Shapiro of the United States District Court for the Eastern District of Pennsylvania in the case of In re Jay Newlin and Carol T. Newlin, 29 B.R. 781 (Bkrtcy.1983), in which Judge Shapiro determined that the Northern Pipeline decision, because of its prospectivity, could have no effect upon an order entered by the bankruptcy judge in January 1982. To the same effect, see Gray v. Snyder, 704 F.2d 709, 10 B.C.D. 566 (4th Cir.1983). We further note that our decision today is not inconsistent with Coastal Steel Corp. v. Tilghman Wheelabrator Ltd., 709 F.2d 190 (3d Cir.1983).
Therefore, we shall deny defendant Cohn’s motion for reconsideration.
. This Memorandum Opinion constitutes the findings of fact and conclusions of law as required by Rule 752 of the Rules of Bankruptcy Procedure. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489594/ | MEMORANDUM OPINION
WILLIAM A. SCANLAND, Bankruptcy Judge.
Plaintiff, Transamerica Occidental Life Insurance Company, hereinafter referred to as “Occidental Life”, filed an adversary proceeding against the defendants seeking a declaratory judgment as to the rights, if any, of the defendants in the proceeds of a life insurance policy. Defendant, Dorothy I. Daly, filed an answer and crossclaim seeking a permanent injunction against other defendants as well as plaintiff from continuing or taking any action to collect or recover any claimed debt due from Dorothy I. Daly. She also sought a declaration that a judgment heretofore taken against her be declared void. Defendants Development Assistance Corporation and Stucky filed a counterclaim seeking either proceeds of the life insurance policy or damages from plaintiff for failure to pay such proceeds to them.
The insured, Robert R. Daly, died on May 3, 1982, and was the owner of an insurance policy issued by Occidental Life. The debt- or, Dorothy I. Daly, was the beneficiary of this policy. On or about May 7, 1982, defendants, Development Assistance Corporation, hereinafter called “Development”, and Conrad C. Stucky and Patricia J. Stucky, caused a writ of garnishment to be served upon Occidental Life. Occidental Life answered the writ of garnishment on May 14, and stated it was not indebted to Robert or Dorothy Daly. On May 24,1982, Occidental Life paid the insurance proceeds of the policy of $32,443.05 to the beneficiary, Dorothy I. Daly. Evidence of proof of death was provided Occidental Life by Dorothy I. Daly on May 20, 1982, as required by the policy. All parties have consented to this Court’s jurisdiction in the matter. This Court believes that the issue before it is: when did the debt arise from Occidental Life to Dorothy I. Daly.
A.R.S. § 20-1215 (1956) provides that “There shall be a provision that when a policy becomes a claim by the death of the insured settlement shall be made upon receipt of due proof of death . ... ” This provision is in the policy itself.
Arizona courts have held that at the time a writ of garnishment is served there must be a clear, ascertainable and unconditional debt owing by the garnishee to the judgment debtor, a debt not contingent upon any other events. See, Reeb v. Interchange Resources, Inc., 106 Ariz. 458, 478 P.2d 82 (1970). See also, Gillespie Land & Irrigation Co. v. Jones, 63 Ariz. 535, 164 P.2d 456 (1945); O’Leary v. Superior Court, 104 Ariz. 308, 452 P.2d 101 (1969); Weir v. Galbraith, 92 Ariz. 279, 376 P.2d 396 (1962). It is also clear that in Arizona the rights of a garnishor creditor in the hands of a garnishee creditor are no greater than the rights of the defendant-debtor to those assets. Webster v. U.S. Life Title Co., 123 Ariz. 130, 598 P.2d 108; Wolf Corp. v. Louis, 11 Ariz.App. 352, 464 P.2d 672 (1970).
This Court believes that the statute itself settles the matter and that its provision has been sustained that payment on a life insurance policy is not due when the claim arises by reason of the death of the insured. See, A.R.S. § 20-1215 (1956). In other words, the courts distinguish between the claim to be made by a beneficiary and the time when payment under a contract of insurance must be made by the insuror.
Development’s and Stuckeys’ attorneys argue, however, that a garnishee defendant is obligated to retain funds upon the service of a writ of garnishment until the matter can be sorted out, citing Sackin v. Kersting, 105 Ariz. 566, 468 P.2d 925 (1970). This case does not support this legal principle. Here we have a situation where the gar-nishor was stayed by the automatic stay, 11 U.S.C. § 362, and the plaintiff’s answer in garnishment was not controverted until after it had paid the beneficiary of the policy.
Sackin only discusses the due process problem arising when an answer to a writ of garnishment is controverted by the garnishing creditor. This Court holds that the right to payment to the beneficiary did not arise until proof of death was submitted to *627the company at its home office. This Court believes it is the determining factor in the matter, and that at the time of the writ or service of garnishment no debt was due the beneficiary under the insurance contract. A claim did arise in her favor.
Defendants also argue that they should be permitted to controvert the answer and the determination made as to whether or not the insurance carrier must pay the proceeds of the insurance contract.
This Court does not believe that this is the law in view of the Bankruptcy Code. Upon the filing of the petition for relief and the granting of a discharge, all judgments heretofore taken against the debtor are void. See, In re Warren, 1 B.R. 201 (1980); In re Scott, 24 B.R. 738 (1982). 11 U.S.C. § 524(a) reads as follows: “A discharge in a case under this title voids any judgment at any time obtained, to the extent that such judgment is a determination of the personal liability of the debtor with respect to any debt discharged under section 727 .... ” In other words, upon the granting of the discharge on September 28, 1982, the judgment of Development and Stucky was void and could not be enforced. The garnishor was stayed from acting until the date of discharge. Any act taken in the face of the discharge would be void. See, In re Scott, supra.
Even if this were not true because of the filing of the petition, had Occidental Life paid Stucky and Development under a judgment in garnishment, such would have been a preference under the Bankruptcy Code and subject to being recovered by the trustee in bankruptcy under 11 U.S.C. § 547. See, In re DeVault Mfg. Co., 1 B.R. 710 (Bkrtcy.E.D.Pa.1979); In re Burnham, 12 B.R. 286 (Bkrtcy.N.D.Ga.1981). This section is the same as Section 67 of the old Bankruptcy Act cases which support the proposition that payment under a writ of garnishment based upon a garnishment served within the preference period is subject to attack by a trustee. See, Thompson v. Fairbanks, 196 U.S. 516, 25 S.Ct. 306, 49 L.Ed. 577 (1905).
For the foregoing reasons this Court holds that Development Assistance Corporation and Stucky are not entitled to judgment as prayed for, and that they have no rights to proceeds of the insurance policy carried by Occidental Life on the deceased, Robert R. Daly.
IT IS FURTHER ORDERED that an injunction shall issue on behalf of Dorothy I. Daly barring Development Assistance Corporation and Conrad C. Stucky and Patricia J. Stucky from attempting to recover such moneys from her.
This shall serve as findings of fact under Section 752 of the Bankruptcy Rules of Procedure. Plaintiff’s counsel and Dorothy I. Daly’s counsel are given fifteen (15) days to submit an appropriate form of judgment. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489595/ | MEMORANDUM OPINION AND ORDER
RICHARD L. SPEER, Bankruptcy Judge.
This cause came before the Court upon the Trustee’s Complaint to Revoke Discharge. The parties agreed to submit the issue to the Court upon memoranda.
FACTS
The Court finds the following facts:
1.) John J. Hunter is the duly qualified and acting Trustee in this case.
2.) On January 26, 1981, the Debtors were Ordered to file 1980 Federal and State income tax returns, and to supply copies of them to the Trustee.
3.) The Debtors have failed and refuse to supply to the Trustee copies of these returns.
4.) The Debtors contend that they cannot give the Trustee copies of the returns because they do not have the returns; in fact, no returns were filed.
5.) The reasons given by the Debtors for the returns not having been filed are the following:
a.) Debtor Karen Ferris alleges that her Gross Income for the year 1980 was such that she was not required to file a State or Federal Income Tax Return.
b.) Debtors allege that they were not entitled to a tax refund for 1980, and that they would have offered the Trustee copies of their W-2 forms to establish this fact.
c.) Debtor Charles Ferris alleges that he is an associate member of the Belanco Reli*748gion and is thereby exempt from filing tax returns.
LAW
The issue before the Court is whether or not the Debtors’ discharge should be revoked for failing to follow the Orders of this Court pursuant to Bankruptcy Code Section 727(e)(2) and 727(a)(6)(A). Specifically, the Trustee contends that the Debtors’ failure to file an income tax return as Ordered by the Court on January 26, 1981, was sufficient to subject them to the consequences of revocation pursuant to Section 727(a)(6)(A), refusal to obey a lawful order of the Court.
The Debtors contend that their noncompliance with this Court’s Order is justifiable, and that the justification expressed should be considered by the Court in deciding whether or not revocation is applicable.
Before considering the defenses proposed by the Debtors, it is necessary to emphasize a basic concept propounded by the Supreme Court. That concept was advanced in the case of United States v. Kras, 409 U.S. 434, 93 S.Ct. 631, 34 L.Ed.2d 626 (1973).
“There is no constitutional right to obtain a discharge of one’s debts in bankruptcy. The Constitution, Art. I, § 8, cl. 4, merely authorizes the Congress to ‘establish ... uniform Laws on the subject of Bankruptcies throughout the United States... ’ [T]his obviously is a legislatively created benefit, not a constitutional one, ... The mere fact that Congress has delegated to the District Court supervision over the proceedings by which a petition for discharge is processed does not convert a statutory benefit into a constitutional right of access to a court.” at 446-7, 93 S.Ct. at 638-639.
Although the issue of the Kras case is different from that which has been presented to this Court, it is critical to keep in mind the philosophy behind the remedies of Title 11. While it is true that a debtor is entitled to a fresh start, it must also be remembered that these Debtors voluntarily submitted themselves to this Court’s jurisdiction upon the filing of their petition. They sought the protection of this Court, and by that action, they also must submit themselves to the rules of the Court.
The Bankruptcy Code delineates the rights and duties of the trustees and debtors. Those rules were written for the express purpose of facilitating the complete and orderly administration of the Bankruptcy estates. If the parties do not comply with the rules, that purpose is frustrated. The pertinent rules include, but are not limited to, the following sections of the Bankruptcy Code.
“Section 323. Role and capacity of trustee.
(a) The trustee in a case under this title is the representative of the estate....” “Section 521. Debtor’s duties.
The debtor shall—
... (2) if a trustee is serving in the case, cooperate with the trustee as necessary to enable the trustee to perform the trustee’s duties under this title;
(3) if a trustee is serving in the case, surrender to the trustee all property of the estate and any recorded information, including books, documents, records and papers, relating to property of the estate; .... ” (emphasis added)
(The definitional section of the Bankruptcy Code, Section 102, states that the terms “includes” and “including” are not limiting.)
“Section 727. Discharge
(a) The court shall grant the debtor a discharge, unless—
... (6) the debtor has refused, in the case—
(A) to obey any lawful order of the court, other than an order to respond to a material question or to testify;
(B) on the ground of privilege against self-incrimination, to respond to a material question approved by the court or to testify, after the debtor has been granted immunity with respect to the matter concerning which such privilege was invoked; or
(C) on a ground other than the properly invoked privilege against self-incrimi*749nation, to respond to a material question approved by the court or to testify;
. . .(d) on request of the trustee or a creditor, and after notice and a hearing, the Court shall revoke a discharge granted under subsection (a) of this section if— ... (3) the debtor committed an act specified in subsection (a)(6) of this section.
(e) The trustee or a creditor may request a revocation of discharge—
... (2) under subsection (e)(2)
or (d)(3) of this section, before the later of—
(A) one year after the granting of such discharge; and,
(B) the date the case is closed.” (emphasis added)
One of the Trustee’s primary duties is to collect any nonexempt or abandoned asset with value, reduce it to cash, and distribute the proceeds to the unsecured creditors in a share proportionate to the amount owed each creditor. The trustees have a consistently large case load, and frequently get paid very little to administer these eases. It is essential that the debtors assist the trustee in the administration of their cases. Since the debtors are generally in possession of most, if not all of the information required by the trustees, by law, they must assist him by providing information, or as in this case, filing an income tax return in order to determine the allowable tax refund due the estate.
The Debtors in this case allege that the facts are exceptional, and that notwithstanding the above Code requirements, they should not be required to file an income tax return for the reasons previously delineated.
I. DEBTORS NOT ENTITLED TO TAX REFUND.
The Debtors state that according to their calculations, they would not be entitled to Federal or State income tax refunds. It is the Trustee’s position, after having examined the Debtors and their available records, that the Debtors would be entitled to a substantial refund. The Trustee further believes that the refunds would be much greater than that amount allowed to the Debtors under the Ohio exemption law. Accordingly, this would result in a probable dividend to the unsecured creditors. As previously stated, the Trustee, as an officer of the Court, has the obligation to collect any asset of the estate which he believes would enure to the benefit of the unsecured creditors. In this case the Trustee intends to collect the probable income tax refund for the benefit of the estate. However, unless the income tax returns are filed, there is no possibility of recovery.
It is .this Court’s Opinion that the first justification of the Debtors for not filing a return, as Ordered by this Court, is not a sufficient defense to their failure to follow this Court’s Order.
II. DEBTOR CHARLES FERRIS AS BELANCO MEMBER EXEMPTED FROM FILING RETURN.
Charles Ferris alleges that he is a member of the Belanco Religious Order (which apparently characterizes him as a church), and as such, he claims that he is exempt from filing a return.
The tax courts have consistently held that a person who seeks to assert an exemption from taxation, has the burden to prove that he has such a right. Matter of Fox, 609 F.2d 178 (5th Cir.1980); State v. Bankhead Mining Company, 279 Ala. 566, 188 So.2d 527 (1966); Title Guarantee Loan & Trust Co. v. Hamilton, 238 Ala. 602, 193 So. 107 (1940).
No evidence has been offered to this Court beyond the bold statement that being member of the Belanco Religious Order entitles Mr. Ferris to an exemption from filing a return. On the contrary, the case law indicates that individuals claiming to be churches, as Mr. Ferris claims, are not exempt from filing returns, nor are they exempt them from tax withholding. McGahen v. Commissioner of Internal Revenue, 76 T.C. 468 (1981); Stephenson v. Commissioner of Internal Revenue, 79 T.C. 995 (1982).
Furthermore, the Debtors do not support with evidence the assertion that the Belan-*750co Religious Order is itself an exempt organization. According to the Cumulative List of Organizations Described in Section 170(c) of the Internal Revenue Code of 1954, published by the Department of Treasury for the years of 1978 through July 1982, the Belanco Religious Order is not included as an exempt organization.
Accordingly, Debtors having failed to sustain their burden of proving that they qualify for an exempt status, and Debtors further having failed to show cause why they should not be required to follow this Court’s Order, it is therefore
ORDERED, ADJUDGED and DECREED that the Debtors have failed to follow this Court’s Orders and therefore their Discharge is hereby REVOKED.
In so reaching these conclusions, the Court has considered all the evidence presented, whether or not referred to specifically in the Opinion above. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489600/ | MEMORANDUM OPINION AND DECISION
LOREN S. DAHL, Bankruptcy Judge.
October 2, 1981, Placida S. Miguel and Leon R. Miguel filed a joint voluntary petition for relief pursuant to Chapter 11 of the Bankruptcy Code of 1978. On November 4, 1981, Paco Financial, Inc., and Linden Financial, Inc. [plaintiffs hereinafter], filed an adversary “Complaint for Reclamation” against Placida Miguel and Leon Miguel and against Leonidas, Inc., a corporation owned solely by Leon and Placida Miguel.
The primary allegation of plaintiffs’ complaint is that Leonidas, Inc.-, transferred title to real property in Yolo County designated in these proceedings as the Aldersen Convalescent Hospital and sometimes Countryside Nursing Home [hereinafter The Hospital] from Leonidas, Inc., to the Migu-els in their individual capacities. The Plaintiffs allege that this transfer of title took place for the sole purpose of hindering and delaying plaintiffs in their efforts to foreclose on The Hospital on which they held a second deed of trust. Plaintiffs seek relief from this Court in the form of an order directing all defendants to deliver the real property to the court or the court’s agent to be held for a Trustee’s Sale together with an award of attorney’s fees, costs, interest, late charges, all rents received from the property, and exemplary and punitive damages.
Prior to the date of trial, Leon Miguel died. Since that time Placida Miguel has been before the court in her capacity as an individual and as the executrix of the will of Leon Miguel. Trial of the matter was had on March 2, 1982, and the matter was taken under submission by the court on that date. The pleadings of the parties as well as the testimony and documentary evidence presented at trial disclosed the following facts.
STATEMENT OF FACTS
Leon and Placida Miguel formed Leonidas, Inc., in 1962 as a viable corporate entity whose primary business purpose was to own and operate convalescent hospitals. Since the inception of Leonidas, Inc., to the time of Leon Miguel’s death, October 24, 1981, Leon and Placida Miguel were the sole shareholders, directors, and officers of the corporation. Since Leon Miguel’s death, Placida Miguel has continued in her corporate capacity and has functioned as the *891executrix of Leon Miguels will. Title to The Hospital, which is the subject of the present controversy, was held by Leonidas, Inc., until October 2, 1981, when Leonidas, Inc., transferred title to The Hospital to Leon and Placida Miguel in their individual capacities.
Leon and Placida Miguel also owned two ranches whereon they conducted farming operations in their individual capacities. These two properties are known as the Lower Honcott Road Ranch and the Central House Road Ranch.
The present controversy between the plaintiffs and Placida Miguel arises from the following scenario of events.
During the year of 1979, the Miguels approached Mr. Frank Galli, Sr., to procure the necessary financing for that year’s prune crop. Mr. Galli received a security interest in the crop and was fully paid at the year end from the crop proceeds. In 1980, Placida Miguel again approached Mr. Galli, Sr., to request a loan for the family farming operations. The 1980 loan was consummated on March 12, 1980 by Paco Financial, Inc., Frank Galli, Sr., the president and sole shareholder, for one-half the loan amount, and Linden Financial, Inc., the sole shareholder being Frank C. Galli, Jr., son of Frank Galli, Sr., for the other one-half. After initially agreeing to loan the money to the Miguels and taking back a security interest in the 1980 prune crop, as was successfully done in 1979, Mr. Galli, Sr., demanded additional security in the form of a deed of trust on The Hospital. The 1980 loan was made to Leonidas, Inc., as owners of The Hospital, with the hospital and the prune crop as security. This transaction, as structured by Mr. Galli, Sr., is of great interest to the court in light of his very direct testimony that since November of 1979 the usury limitations were not applicable to his loan since it was secured by real property. The only reason given for the subsequent demand for additional security was a vague assertion of an inability to fund the loan without it, but no change in circumstances from the prior year, when such a loan had been made, were shown to the court.
Thus the loan was made by the plaintiffs to Leonidas, Inc., who executed a promissory note for $82,500.00 at 16 percent interest, secured by a deed of trust on The Hospital. However, Placida Miguel testified that the loan was always treated as a loan to her and her husband as individuals; that Leonidas, Inc., never received the loan proceeds; and with the crop assignment given by them in their individual capacities, as the primary security for the loan. On cross-examination, Frank Galli, Sr., testified that it was his expectations that the loan would be repaid from the assignment of payments on the prune crop, as had occurred in 1979.
The actual loan transaction between the plaintiffs and Leonidas, Inc.., is indicative of the unequal bargaining positions of the parties. In March of 1980, plaintiffs loaned $82,500.00 to the Miguels. The transaction was negotiated solely by Mr. Frank Galli on behalf of the plaintiffs. Paco Financial, Inc., loaned one-half of the loan amount and Linden Financial, Inc., loaned the remaining one-half of the loan amount. The plaintiffs charged a “loan brokerage fee” of 20 percent for making the loan which came to an amount of $16,500.00. This amount was taken one-half by PACO and one-half by Linden before the loan proceeds were transmitted. Thus, the Miguels actually received only $66,000.00.
As evidence of this obligation, Leonidas, Inc., became the payor on a straight note in the amount of $82,500.00. This note accrued interest at the rate of 16 percent per annum. It was payable to “Paco Financial, Inc., as to an undivided lh interest; and Linden Financial, Inc., as to an undivided lk interest”.
When the prune crop of the Lower Hon-cott Ranch was sold, the plaintiffs received $58,389.00. Of this amount, $48,470.55 was credited to principal on the loan. (Plaintiffs’ Exhibit 8 — Plaintiffs’ Loan Payment Ledger.) This left a balance due and owing on the note of $34,510.55. When the Migu-els were unable to repay this amount, the plaintiffs filed notice of default and elec*892tion to sell under their deed of trust on The Hospital. The notice of default was recorded on June 11,1981, by the plaintiffs and on September 17, 1981, a notice of trustee’s sale was recorded.
On October 1, 1981, Leonidas, Inc., conveyed title of The Hospital to Leon and Placida Miguel by corporation grant deed which was recorded October 2,1981. Placi-da Miguel stated in her testimony that there was no consideration given for this transfer. However, her testimony indicated that the reason for the transfer was to strengthen their ability to repay the plaintiffs, as well as to protect the corporation.
ISSUE
The primary issue is whether the transfer of title to The Hospital from Leonidas, Inc., to the Miguels in their capacities as individuals, was made for the purpose of hindering, delaying and defrauding their creditors, in particular, the plaintiffs.
DISCUSSION
In his deposition, Prank Galli, Sr., testified that in February 1980 Mrs. Miguel called him, advising that she was in need of funds and “I said, no way could I interest anybody in a loan to them as individuals or on that property”. (Page 11, line 5.) Mr. Galli also testified in his deposition that the crop assignment was extra security on the loan that was made on the convalescent hospital. (Page 12, lines 2-8.) Neither of these statements are worthy of belief and are contrary to the credible testimony of Mrs. Miguel. It seems quite obvious to the court that the satisfactory experience from the loan in 1979 must have been an important item of consideration which caused Mr. Galli, Sr., (Paco), together with his son (Linden Financial, Inc.) to make the 1980 loan.
The court believes and so finds that plaintiffs agreed to make the 1980 loan to defendants as needed in their farming operations. After the initial agreement to make the loan, the plaintiffs requested a deed of trust on The Hospital property. Because title to that property was vested in Leonidas, Inc., it was necessary that the officers of Leonidas, Inc., Mr. and Mrs. Miguel, sign the promissory note and deed of trust.
Mr. Galli, Sr., testified that he expected they would be paid from the crop proceeds on which they had an assignment; that he had in mind that the crop loan of the prior year had worked out very well and that he got fully paid from crop proceeds.
He also testified that since November 1979, loans secured by real property were removed from the Usury Statute and that licensed real estate brokers could charge loan fees even if they were loaning their own money.
It may very well be that the true reason plaintiffs requested the deed of trust in addition to the crop assignment was not as additional security, but rather as an attempt to bring the loan transaction within the exceptions to the ten percent interest maximum as proscribed by Article 15, Section 1, of the California Constitution. (Commonly called the Usury Law.)
He testified that he had a real estate broker’s license and it was lodged with Paco Financial, Inc. The last amendment to this section of the California Constitution became effective November 6,1979, consistent with Mr. Galli’s testimony. The ten percent interest maximum on a loan for personal, family or household purposes as proscribed in Section 1 of said Article was amended to exclude loans for purchase, construction or improvement of real property from that Section.
Section 2 then fixed the maximum interest rate for all other loans (including loans on real property) at the higher of ten percent or five percent plus the Federal Reserve Bank discount rate to member banks. Section 2 also excluded from the Sections’ maximum ten percent rate any loan made or arranged by a licensed real estate broker and secured in whole or in part by a lien on real property.
The note was for one year; interest at 16 percent on $82,500.00 amounts to $13,200.00. Adding to that the $16,500.00 charged as a broker’s fee for which there is no recitation *893of services rendered would total $29,700.00 as the interest or charge for the use of the money loaned for one year. This equals a rate of 36 percent per annum, well in excess of the maximum provided in Article 15, Section 2, of the California Constitution.
Further, plaintiffs received $58,389.00 from the crop assignment, a portion of which was applied for foreclosure costs, $750.00 to late charges at the rate of $50.00 per month, $8,800.00 to interest, $48,470.55 to principal.
Additionally, defendants had paid them $5,500.00 in interest prior to the harvest of the crops.
In other words, plaintiffs have thus far received $14,300.00 in interest and $16,-500.00 in loan charges, for a total of $30,-800.00, which amounts to 37Vs percent of the entire loan. They claim to be owed an additional $34,510.00 as of April 12, 1981, plus interest thereon at 16 percent annum.
However, the issue of usury is not before this court in this proceeding and no ruling will be made thereon. The above discussion is relevant to understand the entire transaction, security interest obtained, and the subsequent conduct of the parties.
It appears, and the court finds, that debtors had a legitimate purpose in causing a conveyance of title of The Hospital real property from their corporation, Leonidas, Inc., to themselves. That purpose was to strengthen their ability to pay creditors. From the evidence presented, there was no intent on the part of Mr. and Mrs. Miguel to hinder, delay or defraud any creditors, particularly plaintiffs. In fact, by conveying the property to themselves it became subject to the jurisdiction of this court when they subsequently filed their Chapter 11 petition, thereby making it available for administrative and creditor application subject to the rights of plaintiffs.
The plaintiffs have not had their substantive rights injured in any manner that exceeds- the rights of debtors to avail themselves of the protections of the Bankruptcy Laws.
Accordingly, the judgment must be entered for the defendants.
This Memorandum Opinion and Decision shall constitute Findings of fact and Conclusions of Law. Counsel for the defendants is requested to prepare and submit a Judgment consistent herewith. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489601/ | MEMORANDUM OPINION AND DECISION
LOREN S. DAHL, Bankruptcy Judge.
The present motion for relief from a judgment was argued by the parties at a regularly scheduled hearing on January 24, 1983, and thereafter was submitted on written briefs. The judgment was granted to the plaintiffs, after making an offer of proof, because of the failure of the defendants or counsel to appear at the noticed trial on December 8, 1982. The defendants were represented by Marvin B. Kapelus, Esq., in filing their answer and pretrial communications with the plaintiff’s counsel. Attorney Kapelus is also named as one of the two defendants. It is alleged by the defendants that they associated Susan Be-auvais, Esq., of Sacramento, California, as local counsel to litigate the underlying matter. They allege that Ms. Beauvais on numerous occasions represented that pre-trial interrogatories were served, preparation for trial was satisfactory, and all pre-trial motions were timely made — though none were actually done. She further advised them that their attendance at the trial was not necessary because she believed that the underlying action, which turned on the interpretation of the contract, could be argued solely on written documents. Ms. Beauvais later explained her nonappearance at the trial and the adverse judgment as being caused by highway construction between Fresno and Sacramento, California, (her office then being located in Fresno, California) and that she would try and get the judgment set aside.
The plaintiff responds by stating that while such events may very well be true, the judgment was caused by a lack of diligence by the defendants, including Mr. Ka-pelus who was the attorney of record for all of the defendants. No documents were filed with the court associating Ms. Beau-vais for representation of the defendants and Ms. Beauvais’ only appearance before the court in this matter was a special appearance for Mr. Kapelus at the trial setting. Plaintiff contends that Mr. Kapelus was active as attorney for the defendants as late as November 17, 1982, aware of the actual trial date, and had been the only attorney in communication with the plaintiff. Further, that failure to attend the trial was the result of defendants own lack of diligence and that relief from said judgment is not therefore warranted. The busi*895ness and legal sophistication of the defendants made the blind reliance they placed in Ms. Beauvais unreasonable. The tactical decision not to have the defendants appear at the trial would have resulted in an un-controverted case by the plaintiff and thus should have been examined closely by Mr. Kapelus, if not rejected out of hand.
The numerous citations by defendants in their written briefs to cases that allow for the setting aside of a judgment center on a common theme — an innocent defendant was denied the opportunity to have a trial on the merits due to the failure of his/her attorney to complete the acts delegated to him. It is the innocent party who is unknowingly deprived of effective representation that is protected by setting aside a judgment and not the party that created the confusion and circumstances that lead to or contributed to the entry of the judgment. A party to civil litigation must be diligent and take reasonable steps to advance that litigation and prepare for trial. This is even more applicable when one of the defendants is an attorney representing both of the defendants.
Having reviewed the facts, arguments, and written briefs, this court does not believe that sufficient grounds exist for disturbing the finality of the judgment it has previously entered on December 21, 1982. Mr. Kapelus had actively represented the defendants throughout the pre-trial phase and was the attorney of record. Merely because Mr. Kapelus desired to associate another attorney does not relieve him, nor the other defendant of the obligation to be diligent. It is the unusual case where one of the defendants is acting as the attorney of record and in such a situation that attorney cannot suddenly plead ignorance when events turn sour. Because of the intimate familiarity with the case and the law, the alleged reliance on the vague assurances that everything was proceeding properly when nothing was occurring was unreasonable. Mr. Kapelus should reasonably have inquired into the case to insure that it was properly proceeding. This failure to act reasonably does not allow the defendants to claim ignorance and innocence as an injured party. The innocent defendant is an important requirement in the cases that set aside default judgments because of inaction by the attorney. See Ben Sager Chem. Int. v. E. Targosz & Co., 560 F.2d 805 (7th Cir.1977), and Greenspun v. Bogan, 492 F.2d 375 (1st Cir.1974).
Although this was a judgment after trial with the defendant not appearing and therefore not a default judgment per se, a recent case before the Ninth Circuit Court of Appeals discussed factors to be considered in setting aside a default. Fasson v. Magouirk, 693 F.2d 948 (9th Cir.1982). Two factors to be considered were the prejudice to the plaintiffs and the court itself. With the extremely crowded calendars in the Federal Courts of this district, failure to appear at a scheduled trial is an egregious waste of time which could be much better spent on those concerned with litigating their various matters. Prejudice has also occurred to the plaintiff due to the preparation for trial at the scheduled time. When this is viewed in light of the defendant’s responsibility for the failure to appear, an element considered by the court in Magour-ik, id., remedies short of allowing the judgment to stand would be inequitable for the court and the plaintiffs. The defendants were not denied an opportunity to have the underlying issues determined on their merits by circumstances beyond their control but instead chose to abdicate all responsibility.
Therefore, defendants request to set aside the judgment entered by this court against them on grounds of excusable neglect, mistake, inadvertence, surprise, or any other reason justifying relief from the operation of the judgment, as specified in Rule 60(b), Federal Rules of Civil Procedure, is denied and the judgment is final. This court finds that it was the conduct of the defendants that contributed in a substantial part to the judgment and that they failed to act in a reasonable manner in the handling of their case.
This Memorandum Opinion and Decision shall constitute findings of fact and conclu*896sions of law. Counsel for the plaintiff shall prepare and submit an Order consistent herewith. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489602/ | MEMORANDUM DECISION
M.S. YOUNG, Bankruptcy Judge.
This matter is before the court following trial. Plaintiff trustee in her first count seeks authorization to sell real property pursuant to 11 U.S.C. § 363 free and clear of liens and other interests with any valid liens to attach to the proceeds of sale. All defendants have either consented to such action or are in default.
Plaintiff has also attacked a number of mechanics’ and materialmens’ liens claimed on property of the estate under Title 45, Chapter 5 of the Idaho Code. Other interests claimed in the property have also been attacked by the trustee as preferential or post-petition transfers avoidable under the Bankruptcy Code.
All defendants appearing at trial have conceded the accuracy of an “index” prepared by plaintiff which consists of photocopies of the various defendants’ mortgages, liens, or other claimed interests. There are no fact issues raised in regard to any appearing defendant. Based upon this record, and the briefs of counsel, I reach the following conclusions. By appendix, I have stated my ultimate conclusion in regard to plaintiff’s contentions as to each defendant.
The primary. contention of plaintiff is that all the mechanics’ and materialmens’ liens claimed under the above noted title of the Idaho Code are invalid and avoidable by the trustee under 11 U.S.C. § 544(a), or are claims unenforceable against the debtor under 11 U.S.C. § 502(b)(1), on the ground that such liens violate due process guarantees of the Idaho and United States Constitutions.1 In addition, plaintiff has asserted *967a number of other grounds for holding various liens invalid as a result of noncompliance with the statutory provisions for recor-dation of such liens.
Plaintiff, in support of finding that due process is violated by the Idaho statute, relies upon Sniadach and progeny.2 See also Wonderlich, “Are Due Process Requirements Met Under Idaho’s Mechanics’ and Materialmens’ Lien Statute?”, 15 Idaho Law Review 115 (1978). However, I conclude that as an adjunct to the U.S. District Court within the Ninth Circuit, I am governed by the following cases.
In Spielman-Fond, Inc. v. Hanson’s, Inc., 379 F.Supp. 997 (D.Ariz.1973), a three-judge district court held that the impairment of a property owner’s right to free alienation of property which occurs upon the filing of a mechanics’ lien is not the taking of a significant property interest protected under the 14th Amendment as interpreted by the U.S. Supreme Court. This was the sole issue determined and the sole conclusion reached by that court. Spielman-Fond was summarily affirmed on appeal by the U.S. Supreme Court.3
Plaintiff asserts correctly that a summary affirmance is an affirmance of the judgment of the lower court but not necessarily its reasoning, and that such action does not renounce earlier Supreme Court holdings. However, inferior federal courts are not at liberty to disregard the fact that an affirmance has occurred, and is on the merits. See Hicks v. Miranda, 422 U.S. 332, 343-5, 95 S.Ct. 2281, 2289-2290,45 L.Ed.2d 223 (1975). The Court of Appeals for the Ninth Circuit has recognized the binding effect of the Spielman-Fond affirmance in In the Matter of Northwest Homes of Chehalis, Inc., 526 F.2d 505 (9th Cir.1975), cert. den. sub nom. Hansen v. Weyerhaeuser Co., 425 U.S. 907, 96 S.Ct. 1501, 47 L.Ed.2d 758 (1975). In that case, the Washington state attachment statute was held constitutional based upon the fact that the limited deprivation of real property interests due to such attachments was equivalent to that caused by the filing of mechanics’ liens and that, based upon Spiel-man-Fond, that deprivation was not constitutionally cognizable. The conclusion reached by that court is that the summary affirmance of the Supreme Court has binding effect upon the federal courts when considering the issue of whether the “taking” of property due to the filing for record of statutory liens is significant enough to rise to constitutional proportions. See also the discussion in Chrysler Corp. v. Fedders Corp., 670 F.2d 1316, 1322-25 (3d Cir.1982). This conclusion of the Ninth Circuit Court of Appeals governs the issue presented herein and binds this court.
I therefore conclude, under the Supreme Court’s ruling in Spielman-Fond and the Ninth Circuit’s reliance thereon in Northwest Homes, that the filing of a lien under the Idaho mechanics’ and materialmens’ lien statute is not a violation of due process since there is no taking of a significant property interest. None of the defendants’ liens, therefore, are invalid on this ground.
Plaintiff has, as noted above, asserted a number of other grounds why certain of the liens should be avoided or declared invalid. The contention of plaintiff which affects the largest number of the liens is that claims of liens filed under Title 45, Chapter 5 of the Idaho Code must be acknowledged in accord with I.C. 55-805 before they are *968entitled to be recorded, and thus enforceable against a trustee under I.C. 55-812 and 11 U.S.C. § 544. I.C. 55-805 states:
“Acknowledgement necessary to authorize recording. — Before an instrument may be recorded, unless it is otherwise expressly provided, its execution must be acknowledged by the person executing it, or if executed by a corporation, by its president or vice-president, or secretary or assistant secretary, or other person executing the same on behalf of the corporation, or if executed in name of the state of Idaho or any county, political subdivision, municipal, quasi-municipal, or public corporation, by one (1) or more of the officers of such state, county, political subdivision, municipal, quasi-municipal, or public corporation executing the same, or if executed in a partnership name, by one (1) or more of the partners who subscribed the partnership name thereto, or the execution must be proved and the acknowledgment or proof, certified in the manner prescribed by chapter 7 of this title; provided, that if such instrument shall have been executed and acknowledged in any other state or territory of the United States, or in any foreign country, according to the laws of the state, territory or country wherein such acknowledgment was taken, the same shall be entitled to record, and a certificate of acknowledgment endorsed upon or attached to any such instrument purporting to have been made in any such state, territory or foreign country, shall be prima facie sufficient to entitle the same to such record.” [Emphasis added]
Although § 45-507 governing the filing of a claim of lien does not itself require an acknowledgment as a condition precedent to filing, the omission of such a requirement does not constitute an “express” exception to the requirements of § 55-805, which is clear and unambiguous.
Defendants assert that “verification” under § 45-507 and “acknowledgment” serve the same purpose or function. This is not the case; a verification is a sworn statement of the claimant that the claim is “just” while the requirement of acknowledgment provides a sworn statement of a public official, usually a notary public, that the identity of the party and the fact of execution have been proven to him. It is true, as defendants uniformly assert, that the Idaho Supreme Court has declared that the lien statutes are to be liberally construed in favor of the claimants in order to effect the purpose of the statute to protect persons who by labor or supplying of materials have improved the property of another. See, e.g., Pierson v. Sewell, 97 Idaho 38, 539 P.2d 590 (1975). However, I conclude liberal construction of Title 45 cannot eliminate an express and unequivocal requirement of Title 55 Idaho Code. These claims of lien encumber the property and cloud the title thereto. The policy function served by acknowledgment of instruments affecting real property, such as deeds and mortgages, is the same with regard to such statutory liens. With no definitive ruling by the Idaho Supreme Court on this question4, it appears that the Idaho Legislature has unequivocally spoken. Until the statute is amended, the requirement of acknowledgment appears absolute.
I therefore conclude that acknowledgment is required and those liens herein not acknowledged, or acknowledged but where the certificate of acknowledgment does not substantially comply with Title 55, Chapter 7, Idaho Code,5 are avoidable by plaintiff. My conclusions in regard to each *969such lien are set forth in the appendix hereto.
Due to the conclusion reached immediately above, plaintiff’s arguments in regard to the failure of various liens to contain verification, to name the owner or reputed owner in the body of the claim as well as the caption6, and so on, need not be addressed.
Plaintiff has raised arguments in regard to liens or other interets not encompassed within the above rulings, to wit, that a lien of the Elkhorn Property Owners Association is invalid as being recorded post-petition, that the recording of a judgment by Decker Hardwood constitutes a preference under § 547(b) of the Code, and that the recording of a judgment by Sawtooth Door similarly constitutes a preferential transfer.
The record indicates that the judgments of Sawtooth Door and Decker Hardwood were recorded on July 7, 1982 and August 3, 1982 respectively.7 Trustee has established a prima facie case under the elements of § 547(b) and this showing is unrebutted by these defendants.8 The liens created by recordation of these judgments are therefore avoidable.
Plaintiff seeks to avoid the “special assessment lien” of the Elkhorn Property Owners Association recorded on November 11, 1982, one month subsequent to the petition for relief. No defense to this action under § 544(a) of the Code has been shown. It appears, however, that an “assessment lien” recorded by this defendant on June 10, 1982 is not attacked by plaintiff and is not subject to avoidance in this action even though the latter lien is avoidable. As is true in regard to the other liens avoided herein, plaintiff is entitled to preservation of those liens’ position for the benefit of the estate under § 550.
Plaintiff does not contest the validity of the interests of defendants Jacobson, State of Idaho, First Interstate Bank or Evans Financial Corporation.
The foregoing is adopted as findings of fact and conclusions of law. Plaintiff may submit a judgment in accord with the foregoing and the appendix hereto.
APPENDIX
Thomas J. and Bonnie B. Jacobson No cause of action asserted. Defendants in default.
Evans Financial Corp. Deed of trust recorded May 5,1981. No cause of action asserted by plaintiff.
First Interstate Bank Deed of trust recorded April 26, 1982. No cause of action asserted by plaintiff. Defendant presently in default.
Elkhorn Property Owners Assn. Assessment lien recorded June 10, 1982 not attacked by plaintiff. Special assessment lien recorded November 1, 1982 avoidable under 11 USC 544(a).
Anderson Lumber Co. Claim of mechanics’ lien recorded April 6, 1982 attacked by plaintiff for lack of acknowledgment. Lien contains no acknowledgment and is avoidable under § 544(a).
Edwards, Howard & Martens Claim of mechanics lien recorded March 9, 1982 attacked by plaintiff for late filing (after 90 days of ending services), lack of verification, failure to bring suit within 6 months, and lack of acknowledgment. Defendants presently in default.
Thomas Perry & Dennis Williams (Total Electric) Mechanics’ lien recorded March 17, 1982 attacked for lack of acknowledgment. Lien contains jurat only and avoidable under § 544(a).
Bill Flanagan Mechanics’ lien recorded March 26, 1982 attacked for lack of acknowledgment and contains jurat only; lien avoidable under § 544(a).
Sawtooth Door Co. Claim of mechanics lien recorded April 5,1982 attacked for lack of verification and lack of acknowledgment. The acknowledgment does not substantially comply with the Idaho *970Code and claim not verified and lien avoidable under § 544(a). Default judgment recorded July 7, 1982 attacked as a preferential transfer with 90 days of the October 5, 1982 petition. Elements of § 547 met and judgment avoided.
Blake Barrymore and Dave Stanley Claim of mechanics’ lien recorded April 6, 1982 attacked for lack of acknowledgment. Only jurat exists and it is confused and combined with verification. Lien avoidable under § 544(a).
Lars C. Hanson Claim of mechanics’ lien recorded April 8,1982 attacked for lack of acknowledgment. Only jurat exists and it is confused and combined with verification. Lien avoidable. Defendant is in default.
Lee W. Gehrke Claim of mechanics’ lien recorded April 9,1982 attacked for lack of acknowledgment and failure to name owner in body of claim. Only jurat exists and lien avoidable under § 544(a).
H. Michael Levy Claim of mechanics’ lien recorded April 9,1982 attacked for lack of acknowledgment and failure to name owner in body of claim. Only jurat exists and lien avoidable under § 544(a).
David A. Woodham Claim of mechanics’ lien recorded April 9,1982 attacked for lack of acknowledgment and failure to name owner in body of claim. Only jurat exists and lien avoidable under § 544(a).
Donald A. Newman Claim of mechanics’ lien recorded April 9, 1982 attacked for lack of acknowledgment and failure to name owner in body of claim. Only jurat exists and lien avoidable under § 544(a).
Scott J. Redd Claim of mechanics’ lien recorded April 9,1982 attacked for lack of acknowledgment and failure to name owner in body of claim. Only jurat exists and lien avoidable under § 544(a).
Jayme C. Johnson Claim of mechanics’ lien recorded April 12, 1982 attacked for lack of acknowledgment and failure to name owner in body of claim. Only jurat exists and lien avoidable under § 544(a).
Jim Redman Claim of mechanics’ lien recorded April 12, 1982 attacked for lack of acknowledgment and failure to name owner in body of claim. Only jurat exists and lien avoidable under § 544(a).
Barclay Barnett Claim of mechanics’ lien recorded April 12, 1982 attacked for lack of acknowledgment and failure to name owner in body of claim. Only jurat exists and lien avoidable under § 544(a).
Jeff Monro Claim of mechanics’ lien recorded April 13, 1982 attacked for lack of acknowledgment and failure to name owner in body of claim. Only jurat exists and lien avoidable under § 544(a).
Russell Holloway Claim of mechanics’ lien recorded April 14, 1982 attacked for lack of acknowledgment and failure to name owner in body of claim. Defendant in default.
Allen Brooks (Brook’s Welding) Claim of mechanics’ lien recorded April 14, 1982 attacked for lack of acknowledgment. Only jurat exists and lien avoidable under § 544(a).
Dan R. Edgerly Claim of mechanics’ lien recorded April 15, 1982 attacked for lack of acknowledgment. Only jurat exists and lien avoidable under § 544(a).
R. Mark Parham Claim of mechanics’ lien recorded April 16, 1982 attacked for lack of acknowledgment. Only jurat exists and lien avoidable under § 544(a).
Phil Poynter Custom Masonry & Supply, Inc. Claim of mechanics’ lien recorded April 23, 1982 attacked solely on grounds of unconstitutionality of statute. Lien valid.
Gene Lanctot Claim of mechanics’ lien recorded May 7,1982 attacked for lack of acknowledgment and failure to name owner in body of claim. Defendant in default.
Christopher Filer Claim of mechanics’ lien recorded May 11,1982 attacked for lack *971of acknowledgment and failure to name owner in body of claim. Only jurat exists and lien avoidable under § 544(a).
Robert D. Lutz (Lutz Rentals) Claim of mechanics’ lien recorded May 13, 1982 attacked for lack of acknowledgment. Only jurat exists and lien avoidable under § 544(a).
Michael Cullen (Cullen Title Co.) Claim of mechanics’ lien recorded April 12, 1982 attacked for lack of acknowledgment and for failure to verify. Only jurat exists and lien avoidable under § 544(a).
Decker Hardwood Lumber, Inc. Judgment recorded August 3, 1982 attacked as preferential transfer, as is re-recordation of same judgment on August 9, 1982. Defendant is in default.
Wood Riyer Rubbish Co., Inc. Claim of mechanics’ lien recorded August 2,1982 attacked for lack of acknowledgment and failure to verify. Defendant is in default.
State of Idaho Tax lien is not challenged by plaintiff. The defendant is in default.
. U.S. Constitution, 14th Amendment, Section 1; Idaho Constitution, Article 1, Section 13. The Idaho Supreme Court has not utilized an independent analysis of the Idaho due process *967clause but has rather used federal standards. See, e.g., Massey-Ferguson Credit Corp. v. Peterson, 96 Idaho 94, 524 P.2d 1066 (1974). See also Jones v. State Board of Medicine, 97 Idaho 859, 865, 555 P.2d 399 (1976) (“.. . we deem the differences between the standard applied under Idaho’s due process clause and the standard applied under the federal due process clause to be negligible.”)
. Sniadach v. Family Finance Corp., 395 U.S. 337, 89 S.Ct. 1820, 23 L.Ed.2d 349 (1969); Fuentes v. Shevin, 407 U.S. 67, 92 S.Ct. 1983, 32 L.Ed.2d 556 (1972); Mitchell v. W.T. Grant Co., 416 U.S. 600, 94 S.Ct. 1895, 40 L.Ed.2d 406 (1974); North Georgia Finishing, Inc. v. DiChem, Inc., 419 U.S. 601, 95 S.Ct. 719, 42 L.Ed.2d 751 (1975).
. Spielman-Fond, Inc. v. Hanson’s, Inc., aff. mem. 417 U.S. 901, 94 S.Ct. 2596, 41 L.Ed.2d 208 (1974).
. I am aware that a mechanics’ lien containing a jurat but no acknowledgment was set forth in Layrite Products Co. v. Lux, 86 Idaho 477, 388 P.2d 105 (1964), and that the Idaho Supreme Court stated the “lien meets the statutory requirements”. However, I read this statement as referring to the requirements of § 45-507; the issue of acknowledgment was not presented to the court or addressed. I feel no binding ruling can be extracted from the case. No other Idaho case has been provided this court on the issue.
. See I.C. 55-709; In re Ferdig, 81 IBCR 55 (BC D.Id.1981); Anderson Land Co. v. Big River Grain, Inc., (Memorandum Decision and Order), No. 81-0223 (D.Id. March 8, 1983), reversing 82 IBCR 161 (BC D.Id.1982).
. White v. Mullins, 3 Idaho 434, 31 P. 801 (1892).
. The judgment of Decker Hardwood was apparently re-recorded on August 9, 1982.
.Decker Hardwood has not answered and is in default. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489603/ | MEMORANDUM DECISION
PEDER K. ECKER, Bankruptcy Judge.
The trustee filed complaints to determine the validity, priority, and extent of the creditor’s liens on the debtors’ vehicles. The complaints came on before the Court for pre-trial conference and the parties agreed to present the matters to the Court on a stipulation of facts. The captioned cases have been consolidated for decision of common issues. The facts are uncontro-verted.
At the time of filing a Chapter 7 petition, the debtors owned a 1979 Chevrolet pickup truck, vehicle No. CCS349Z148479, and a 1974 Ford pickup truck, vehicle No. F10HKT11542. The pickup trucks were purchased in Colorado and certificates of title were issued by the State of Colorado. Nepco Federal Credit Union (“Nepco”) held liens on both vehicles which were noted on each of the Colorado certificates of title in the amount of $11,191.50.
Subsequently, the debtors moved from Colorado to South Dakota. The 1979 pickup truck was registered in South Dakota and the South Dakota Department of Public Safety issued a certificate of title on the vehicle. The lien of Nepco was noted on the certificate of title by the Department of Public Safety by insertion of the computer code “110” in the space provided for amount of lien on the face of the title.
At the time of filing the bankruptcy petition, the debtors had not applied for a certificate of title for the 1974 pickup truck. The vehicle had been in South Dakota in excess of ninety (90) days.
*32On March 12, 1982, the debtors entered into a reaffirmation agreement on the two vehicles with Nepco. The Court approved the reaffirmation agreement on March 24, 1982, at the time of the debtors’ discharge hearing. The trustee appeared at the discharge hearing to orally object to the approval of the reaffirmation agreement.
The trustee filed complaints against Nep-co on May 24, 1982, to determine the validity, priority, and extent of liens on the 1979 pickup truck and the 1974 pickup truck. A pre-trial conference was held before the Court on June 22, 1982, and the matters submitted to the Court.
This case presents two issues: whether the notation of a lien on a motor vehicle certificate of title in a coded amount is sufficient to perfect a security interest and whether the debtors’ failure to obtain a new certificate of title after moving into a state invalidates the lien perfected in the state from which the debtors moved.
The 1979 pickup truck securing Nep-co’s lien was originally titled in Colorado. It was titled in South Dakota after the debtors moved into the state from Colorado. The trustee argues that because the certificate of title issued by the South Dakota Department of Public Safety used a coded entry of “110” in the blank entitled “amount” on the face of the title instead of an actual dollar amount of the lien, Nepco’s lien is perfected only in the amount of $110. The Court finds the trustee’s argument unpersuasive.
Notation of a lien on a certificate of title is for the purpose of putting any party on notice that a prior encumbrance exists. South Dakota law requires that a lien be noted on the face of the certificate of title for the lien to be valid against a subsequent claimant. South Dakota Codified Laws 32-3-41 (1976 Rev.). There is no requirement under statute specifying what lien information must be set forth on the title, but only that the Secretary of the Department of Public Safety may set the standards for lien notation. S.D.C.L. 32-3-55. In the instant case, Nepco’s name and address were noted on the certificate of title issued for the debtors’ 1979 pickup truck by the South Dakota Department of Public Safety. Instead of a dollar amount of lien, the Department inserted a computer code. The lien information on the certificate of title provided notice of the existence of a lien. The trustee does not contest that he had notice of the encumbrance and could prudently investigate the amount of such lien. There is no requirement under South Dakota law that the dollar amount of a lien be noted on the title nor is there any prohibition against using a computer code. Therefore, the Court concludes that Nepco has a validly perfected security interest in the 1979 Chevrolet pickup truck.
In the second matter before the Court, the trustee seeks to invalidate Nep-co’s lien on the debtors’ 1974 Ford pickup truck on the basis that the debtors did not obtain a South Dakota certificate of title within ninety (90) days of bringing the vehicle into the state. While the uncontro-verted facts support the trustee’s contention that no South Dakota title had been issued on the 1974 pickup within ninety (90) days of the vehicle being brought into the state, the law does not support the conclusion that Nepco’s lien is therefore invalidated.
S.D.C.L. 32-3-5 prohibits a person from bringing into this state.and using a motor vehicle in excess of ninety (90) days unless that person obtains a South Dakota title certificate. There is no requirement that a lienholder obtain the certificate and no penalty is imposed on the lienholder if the debtor does not comply with S.D.C.L. 32-3-5. The person operating the vehicle in South Dakota without obtaining the required certificate of title is the one penalized. S.D.C.L. 32-3-12 (Supp.1978). The trustee does not contest the fact that Nepco has a valid lien noted on the Colorado certificate of title. Since the debtors have not obtained a South Dakota certificate of title, the Court concludes that Nepco’s lien on the 1974 Ford pickup perfected under Colorado law remains valid.
*33Based on the foregoing, the reaffirmation agreement between the debtors and the Nepco Federal Credit Union as secured creditor on the 1979 and 1974 pickup trucks is approved. This Memorandum Decision shall constitute Findings of Fact and Conclusions of Law. Counsel for Nepco shall provide an appropriate order within ten (10) days. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489604/ | MEMORANDUM DECISION
PEDER K. ECKER, Bankruptcy Judge.
This matter is before the Court pursuant to a complaint filed by the Sioux City Foundry Company requesting a modification of the automatic stay in order to proceed with a state court action against the president of the debtor corporation. Pursuant to the January 20, 1983, trial held on such complaint and the memorandums of law subsequently filed by counsel for the parties, the Court hereby submits its findings of fact, opinion, and conclusions of law.
The facts are uncontroverted. Sioux City Foundry Company obtained a default judgment against Dakotas’ Farm Manufacturing Company in state court on January 19, 1982. Following entry of the judgment, Sioux City Foundry Company unsuccessfully attempted to execute upon the judgment. On April 7, 1982, Sioux City Foundry Company commenced an action to pierce the corporate veil of Dakotas’ Farm Manufacturing Company against Obert Penrod, Jr., personally, and Happy Hog Equipment by D.F.M., Happy Hog Stop by D.F.M., and Happy Hog Equipment, Inc. Obert Penrod is the salesman, general manager, and president of Dakotas’ Farm Manufacturing Company. Happy Hog Equipment, Inc., has been dismissed as a defendant in the state court action and Sioux City Foundry Company sought to dismiss the other named defendants with the exception of Obert Penrod, Jr. Dakotas’ Farm Manufacturing Company, a corporation, d/b/a D.F.M., Inc., Happy Hog Stop by D.F.M., Happy Hog Equipment by D.F.M., and D.F.M. Happy Hog Country, filed for relief under Chapter 11 of the Bankruptcy Code on November 30, 1982. The state court did not grant the *94request to dismiss the defendants Happy Hog Equipment by D.F.M. and Happy Hog Stop by D.F.M. pending a determination by this Bankruptcy Court on the application of the automatic stay under 11 U.S.C. § 362 to such dismissal. The state court also declined to order the deposition of Obert Pen-rod, Jr., and examination of documents to go forward without a ruling from the Bankruptcy Court permitting it to do so.
On December 16,1982, Sioux City Foundry Company filed a complaint to modify the stay in this Court against Obert Penrod, Jr., individually and d/b/a Happy Hog Equipment by D.F.M. and Happy Hog Stop by D.F.M., requesting a determination of the application of the automatic stay under 11 U.S.C. § 362 to the pending state court proceedings.
In this matter, the Court need look no further than the automatic stay provided under 11 U.S.C. § 362 to decide whether or not the plaintiff should be allowed to proceed in state court. Section 362 is explicit in its prohibition against any act or proceeding against a debtor or the property of the estate of a debtor. In the state court action, Sioux City Foundry Company seeks to pierce the corporate veil of Dakotas’ Farm Manufacturing Company and hold Obert Penrod, Jr., personally liable for an unsecured debt of Dakotas’ Farm Manufacturing Company. Obert Penrod, Jr., is the salesman, general manager, and president of the debtor. Mr. Penrod has not filed for relief under the Bankruptcy Code in his individual capacity. Mr. Penrod is not co-obligor or guarantor of the debt. Under these narrow facts, it is clear that neither the debtor herein nor the debtor’s property is affected by the state court proceedings against Obert Penrod, Jr. Therefore, this Court finds that the automatic stay provided by 11 U.S.C. § 362 does not prohibit the continuation of the action in state court by Sioux City Foundry Company against Obert Penrod, Jr.
The automatic stay does apply to prohibit any continuation of the state court action against Happy Hog Equipment by D.F.M. and Happy Hog Stop by D.F.M. as these entities are included in the Chapter 11 petition filed by Dakotas’ Farm Manufacturing Company. Therefore, it is appropriate that the plaintiff’s request to dismiss these entities as defendants in the state court action could be granted by the state court without violating § 362. 11 U.S.C. § 362.
The plaintiff further requests the opportunity to inspect and copy the books and records of the debtor corporation for the purpose of pursuing its state court action against a party who is not before the Bankruptcy Court. Plaintiff, as a creditor of the debtor corporation, does not deny that it had notice and opportunity to examine the books and records of the debtor at the meeting of creditors. 11 U.S.C. § 341. Plaintiff did not avail itself of this opportunity nor does it deny that it had the opportunity to examine Obert Penrod at such meeting of creditors but did not do so. It is also uncontested that Mr. Penrod has been deposed once in the course of the state court proceeding.
This Court has no authority to compel testimony nor production of documents in non-bankruptcy cases. While this Court has no jurisdiction over Mr. Penrod, it certainly has jurisdiction over the property of the debtor corporation. 11 U.S.C. § 541. The Court may modify the automatic stay for cause where there is a lack of interference with the pending bankruptcy case. 11 U.S.C. § 362(d)(1); H.R.Rep.No. 95-595, 95th Cong., 1st Sess. 343-4 (1977); cf. S.Rep.No. 95-989, 95th Cong., 2d Sess. 52-3 (1978), U.S.Code Cong. & Admin.News 1978, p. 5787. The Court will modify the stay provided there is no interference with the debtor’s Chapter 11 proceeding resulting from the plaintiff’s request for production of documents. Balancing the plaintiff’s request and failure to pursue that request at the meeting of creditors against the cost to the debtor dictates that the plaintiff bear all copying expense and the salary of any clerical assistance employed on behalf of the debtor in providing the copies. This Court can see no basis for the debtor bearing such expense when the unsecured creditors in the Chapter 11 proceed*95ing ultimately pay these costs. This cannot be justified in a state court action to which the debtor is not a party. The automatic stay will be modified to allow the plaintiff to acquire copies of the documents required as conditioned herein.
The last matter before the Court is the debtor’s claim that this Court lacks jurisdiction to modify the automatic stay because relief should have been sought by motion instead of complaint. This claim is clearly without basis in law or rules of procedure. Pursuant to Section 362 of the Bankruptcy Code, Rules 701 and 703 of the Bankruptcy Rules of Procedure, and Interim Rule 4001(b), a complaint and not a motion must be filed to modify the automatic stay. Plaintiff properly brought this action by complaint.
This Memorandum Decision shall constitute Findings of Fact and Conclusions of Law. Counsel for the plaintiff shall submit an appropriate order within ten (10) days. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489606/ | OPINION
EMIL F. GOLDHABER, Bankruptcy Judge:
The issue before us is whether we should direct the Clerk of the United States Bankruptcy Court for the Eastern District of Pennsylvania (“the clerk”) to pay over to the trustee of the debtor’s estate the sum of $20,000.00 which sum represents the payment of a fine by the debtor herein for its civil contempt of this court. Because the proceeds used to pay the fine in question were assets belonging to the debtor’s estate, we will direct the clerk to pay the aforesaid $20,000.00 to the said trustee.
The facts of the instant ease are as follows: 1 On August 14, 1981, Palm Underground & Marine, Inc., formerly known as Barlong Equipment Co., Inc. (“the debtor”), filed a petition for relief under chapter 11 of the Bankruptcy Code (“the Code”). On August 23, 1982, we appointed Samuel Al-per as trustee (“the trustee”) for the debt- or’s estate. Prior to said appointment, on May 28,1982, we entered an order requiring the debtor to assemble certain equipment and surrender possession of same to ITT Industrial Credit Company (“ITT”). The debtor failed to comply with the aforesaid order and, on June 10, 1982, we found the debtor in civil contempt of this court and ordered it to pay to the Clerk of the Bankruptcy Court, the sum of $250.00 per day from June 4, 1982, until it complied with our order of May 28, 1982.2 The debtor paid a total of $20,000.00 to the clerk pursuant to said order. On January 10,1983, the trustee filed an “application for payment of debtor’s contempt fine to the estate.” No answer was filed in response to the trustee’s application nor was any objection lodged at the hearing on said application.
Counsel for the debtor stated at the hearing on the instant application that the debt- or used proceeds from the rental of the very equipment it had repeatedly been ordered to turn over to ITT to pay the $20,000.00 in question. In addition, counsel for the trustee stated in his application that George Long, the principal of the debtor, informed him that the funds for the $20,000.00 came from the rental of the same equipment. It appears obvious, therefore, that the $20,-000.00 paid to the Clerk of Court, came from the assets of the estate.
*133Section 105(a) of the Code provides that “[t]he bankruptcy court may issue any order, process, or judgment that is necessary or appropriate to carry out the provisions of this title.” 11 U.S.C. § 105(a). Accordingly, since the monies used to pay the $20,-000.00 in question came from the rental of equipment belonging to one of the debtor’s creditors and because said creditor has been made whole, we conclude that the $20,-000.00 initially paid to the clerk should be paid over to the trustee for the debtor’s estate.
. This opinion constitutes the findings of fact and conclusions of law required by Rule 752 of the Rules of Bankruptcy Procedure.
. In addition, on June 16, 1982, we found George Long (“Long”), the principal and sole operating officer of the debtor, in contempt for failing to obey our June 10, 1982, order and, under Rule 920(a)(4) of the Rules of Bankruptcy Procedure, we certified the facts to the United States District Court for the Eastern District of Pennsylvania (“the district court”). On August 24, 1982, the district court also held Long in contempt. According to the trustee, the equipment in question was eventually turned over to ITT, which was paid in full and made whole (N.T. 2/15/83 at 5). | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489607/ | MEMORANDUM AND ORDER
CHARLES J. MARRO, Bankruptcy Judge.
This adversary proceeding was brought by Robert V. Perrott on March 7, 1983 for relief from the automatic stay prescribed by § 362(a) of the Bankruptcy Code and for adequate protection of his interest in real estate which is subject to a mortgage he may seek to foreclose in the event that the stay is lifted.
FACTS
From the records in the case, the testimony adduced at the hearing and the exhibits admitted the following facts have been established:
The Debtor filed a petition for an adjustment of her debts under Chapter 13 of the Bankruptcy Code on January 4, 1983. She is a tavern operator and landlord and in her schedules she lists 16 creditors with the following debts:
Priority $10,100.00
Secured $121,850.00
unsecured $2,988.00
TOTAL $134,938.00
She values her assets at $159,800.00, her total income at $7,486.00 with expenses of $6,991.00 leaving a balance in her monthly budget of $114.00. As part of her assets she has listed a bar together with real estate at 135 Depot Street, Bennington, Vermont with a value of $60,000.00, but subject to liens in the sum of $50,250.00 leaving a net equity in said property as claimed by her, of $9,750.00. The liens include a mortgage listed by her in favor of Richard V. Perrott in the sum of $45,850.00.
The restaurant and bar premises at the corner of River and Depot Street in Ben-nington were purchased by the Debtor from the Plaintiff on or about October 23, 1981. In July of 1981 these premises had been damaged by fire and the insurance proceeds to be received from the insurance coverage were to be credited to the Debtor as part of the purchase price. As part of the consideration for the purchase of said premises by the Debtor she executed and delivered to Mr. Perrott on October 23,1981 a Promissory Note in the principal sum of $81,215.00 payable with interest at 12% in monthly installments of $1,000.00 beginning November 23,1981 with a balloon payment for the entire sum due on said note within one year from the date thereof. The principal of said note included $1,215.00 for additional expenses previously incurred by Mr. Perrott at the subject premises and upon receipt by Mr. Perrott of the insurance proceeds for the damage to the building the principal amount of said note was to be reduced by the amount received but in no event, less than $29,000.00. This note was secured by a real estate mortgage from the Debtor to Mr. Perrott covering the subject premises and recorded October 23, 1981 in Book 0-237 Page 6 of the land records of the Town of Bennington. The Debtor has defaulted in the payment of the mortgage note with the last payment made by her in October, *2041982 and the balance owing under the mortgage as of December 28, 1982 was $45,-850.99 with interest accruing from said date at the rate of 12%. In addition there are due and owing to the Town of Bennington taxes and water rent which constitute an underlying lien against the subject premises amounting to $3,886.00. Since the date of purchase the Debtor has permitted the bar and restaurant building to deteriorate so much so that the inside is in dire need of repair, the kitchen is in a deplorable condition and, by permitting the watchdog to roam throughout the building, it has become a health hazard. In addition, half of the bar equipment is not in good working order and the Debtor has been denied a liquor license by the Bennington Board of Alderman. With her Vermont license in suspension she has been operating a bar in North Hooskick, New York running it part time while at the same time transporting patrons from Bennington to the New York bar in a bus driven by her. Her committed payments for the New York bar are $500.00 monthly and they are current. The liquidating value of the bar and restaurant premises is between $28,000.00 and $30,-000.00 whereas the market value is not more than $35,000.00.
With a view of paying off the mortgage indebtedness to Mr. Perrott and that on the Pine Street property in the City of Rutland which is subject to a mortgage in favor of the Marble Savings Bank, the Debtor has contacted three banks and she has been refused loans by each of them. In addition she has been working on an application for funds from the Small Business Administration but has been advised that they would not consider processing such an application unless she could get a commitment from Mr. Perrott to set the sum of $30,000.00 in full satisfaction of his mortgage. She has not received any commitment from the Small Business Administration and Mr. Per-rott will not accept $30,000.00 in settlement of the amount due under the mortgage.
In a collateral proceeding in this Court the Marble Savings Bank filed a Complaint for Relief from Stay so that it could proceed with foreclosure of its mortgage from the Debtor on property situated at 46 Pine Street in the City of Rutland.
DISCUSSION
Section 362(d) of the Bankruptcy Code deals with the termination or modification of the automatic stay and reads as follows:
“On request of a party in interest and after notice and a hearing, the court shall grant relief from the stay provided under subsection (a) of this section, such as by terminating, annulling, modifying, or conditioning such stay—
“(1) for cause, including the lack of adequate protection of an interest in property of such party in interest; or
“(2) with respect to a stay of an act against property, if—
“(A) the debtor does not have an equity in such property; and
“(B) such property is not necessary to an effective reorganization.”
It seems clear from the foregoing subsection that the Plaintiff would be entitled to a termination or modification of the stay for cause if he establishes lack of adequate protection of his interest in the mortgage property or shows that the Debtor has no equity in the property and that it is not necessary for an effective reorganization. The Plaintiff has the burden of establishing lack of equity whereas the Debtor in opposing relief has the burden of proof on all other issues, § 362(g).
There is no precise definition in the Code for the term “adequate protection.” However Section 361 indicates that adequate protection may be provided by:
(1) requiring ... periodic cash payments ... to the extent that the stay ... results in a decrease in the value of such entity’s interest...
(2) providing to such entity an additional or replacement lien to the extent that such stay ... results in a decrease in the value of such entity’s interest ...
(3) granting such relief ... as will result in the realization by such entity of the *205indubitable equivalent of such entity’s interest. ..
At the hearing the Debtor offered no testimony as to how she was going to furnish adequate protection and, in the absence of such proof, she has not sustained the burden required by her under Section 362(g) of the Code. As a matter of fact it seems clear from the record and testimony in this case that she is in no position to furnish the Plaintiff adequate protection to which he is entitled if the automatic stay is to remain in effect. Her own optimistic statement of monthly income and expenses filed with her petition indicates that she would have monthly income of $7,600.00. However, the license for the restaurant and bar in Bennington has been suspended and, as a result, she is receiving little or no income from that operation. Further, she has been unable to obtain any financing either through banks or the Small Business Administration which would aid her in making payments to the Plaintiff under the terms of the mortgage note. Recently, she had an eye operation and incurred medical bills of $8,000.00, the payment of which will cause an additional drain on her income. Under the circumstances the Court is satisfied that she cannot furnish the Plaintiff with adequate protection as required under Section 362(d) of the Code.
Although the Debtor testified that the restaurant and bar premises could be sold for $70,000.00 to $80,000.00 the Court feels that this is nothing more than a rash statement. On the other hand the Court feels that the testimony of the Plaintiff who has been a real estate broker for about 40 years is worthy of credibility. Since the market value is no more than $35,000.00 and the mortgage and tax liens amount to more than $49,000.00 there is no equity in the subject property.
Besides a lack of equity the other requirement in the alternative constituting cause for relief from stay is that the property is not necessary for an effective reorganization. As to whether Section 362(d)(2) relating to the necessity for an effective reorganization applies to Chapter 13 cases, there is a divergence of opinion. Some cases have held that this subsection does not apply to Chapter 13 filings. In Re Feimster, 3 B.R. 11 (Bkrtcy.N.D.Ga.1979), In Re Sulzer, 2 B.R. 630 (Bkrtcy.S.D.N.Y.1980), In Re Youngs, 7 B.R. 69 (Bkrtcy.D.C.Mass.1980). The contrary has been held in other cases. In Re Crouse, 9 B.R. 400 (Bkrtcy.S.D.Tex. 1980), In Re First Conn. Small Business Investment Co. v. Ruark, 7 B.R. 46 (Bkrtcy. D.C.Conn.1980), In Re Zellmer, 6 B.R. 497 (Bkrtcy.N.D.Ill.1980). However, regardless of the difference of opinion, if subsection 362(d)(2) is applied in the instant case, the Plaintiff would still be entitled to relief from stay for the reason that the Debtor has failed to sustain her burden that the property is necessary for an effective reorganization. The basic premise for reorganization is recited in the case of In Re Dublin Properties, 12 B.R. 17, 4 C.B.C.2d 885, 889 (Bkrtcy.E.D.Penn.1981), as follows:
“... that in order for property to be necessary for an effective reorganization of a debtor it must be demonstrated that an effective reorganization is possible. If no reorganization of a debtor is feasible, then no property of that debtor can be necessary for that end. See e.g. In Re Riviera Inn of Wallingford, Inc., 7 B.R. 725 (Bkrtcy.D.Conn.1980).” (Other citations omitted.)
From the evidence and proceedings in this case the Court is satisfied that the Debtor cannot implement a viable plan under which she can be rehabilitated or reorganized. On the contrary, the Court feels that the Chapter 13 petition was not filed by the Debtor in good faith but merely for the purposes of avoiding foreclosure proceedings under mortgages given by her to the Marble Savings Bank to the Plaintiff. Accordingly, the Plaintiff is entitled to relief.
ORDER
Now, therefore, upon the foregoing.
IT IS ORDERED that the automatic stay prescribed by Section 362 of the Bankruptcy Code is terminated and the Plaintiff is *206authorized to proceed with foreclosure of his mortgage. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489609/ | MEMORANDUM OF DECISION DENYING PLAINTIFF’S FIRST AMENDED COMPLAINT
RUSSELL B. SEYMOUR, Bankruptcy Judge.
INTRODUCTION
This adversary proceeding was filed on April 9, 1982, by plaintiff Brooks Iwakiri. The Complaint alleges breach of contract, breach of warranty, interference with prospective advantage, and interference with contractual relationship. Plaintiff named as defendants Carol Ewing, Executrix of the Estate of Harry Engelson, Lloyds Bank, J. Ridley Lewis Co., Carlyle Michelman, Trustee in the bankruptcy case at bar, and Robert H. Stopher, Trustee in the bankruptcy case of Hamilton Equipment Leasing Corporation (Case No. SA-80-03330 AP).
Plaintiff alleges in his Complaint that he had a contract with the defendants to purchase a 12-pocket Muller-Martini Gathering Line (hereinafter referred to as “pockets”) and that the defendants subsequently breached the contract by failing to consummate the agreed-upon sale.
Iwakiri contends also that because of defendants’ intentional interference, he was unable to consummate a resale of the pockets to Real Times Systems (RTS), allegedly resulting in lost profits to him in the amount of $30,000.
FACTS
1. On June 20,1980, in the matter of El Camino Press, a California corporation (an adjudicated Chapter XI proceeding under the Bankruptcy Act), the Bankruptcy Court authorized the trustee, Carlyle Michelman, to sell the physical assets of the debtor’s estate at public auction. On October 21, 1980, pursuant to the trustee’s application of October 17, 1980, an order was entered authorizing the employment of Harry En-gelson as auctioneer. Said order provided that all property was to be sold free and clear of liens, provided the bids exceeded the claims of lessors and secured parties. *342The pockets were included among the personal property being offered at the auction.
2. Hamilton Equipment Leasing Corporation (hereinafter referred to as “Hamilton”) was the original owner of the four sets of pockets. Hamilton, as lessor, leased the pockets to El Camino Press pursuant to a July 24,1978, equipment lease. Hamilton, in turn, assigned the lease to Lloyds Bank as security for loans made by Lloyds to Hamilton.
3. On November 14, 1980, one week pri- or to the sale, Hamilton filed a Chapter 7 bankruptcy petition in the United States Bankruptcy Court, Central District of California. Robert R. Stopher was appointed trustee in the Hamilton proceeding. No order lifting the stay as to the sale of the pockets was ever granted in Hamilton.
4. At the outset of the auction on November 21, 1980, Engelson announced that any property subject to liens would be sold only if the bids thereon exceeded the liens; otherwise, the sale would be consummated only with the consent of the secured parties. Engelson announced also that if for any reason a sale to the highest bidder would not occur, the prospective buyer’s only remedy would be the return of his 25 percent deposit.
5. At the auction sale, bidder No. 123 offered $12,000 for the pockets. The bid, which was less than the aggregate of the liens on the pockets, was accepted subject to the consent of the secured parties.
6. Defendants allege that bidder No. 123 was not Brooks Iwakiri, but American Technical Supply (ATS). Defendants contend that Iwakiri registered for the sale by presenting a business card of ATS, identifying Iwakiri as its agent. Consequently, defendants ask that the action be dismissed because Iwakiri is not a real party in interest.
7. Iwakiri contends that he was acting solely on his own behalf at the sale and that he presented an ATS card because he had left his own business cards at home.
8. Iwakiri alleges that Lloyds, Michel-man, and Engelson represented to those present at the sale that Lloyds had authorized Harry Engelson Auctioneers (hereinafter referred to as “HEA”) to sell the pockets free and clear of all encumbrances and that Lloyds would terminate their security interest upon the pockets being sold. Subsequently, Iwakiri bid $12,000 and delivered a blank check to HEA representing his bid. The check was never negotiated and HEA refused to surrender the pockets to the plaintiff. Subsequent to the auction, after receiving the approval of Hamilton, Lloyds sold the pockets to S. Ridley Lewis Company for $15,000.
9. Defendants allege that the drop of the hammer by Engelson did not complete the sale; and they further contend that the sale was “with reserve.” Additionally, defendants allege that the plaintiff’s bid was a mere offer and was not binding until both Lloyds, as holder of the security, and Sto-pher, as trustee of Hamilton, had consented to the sale.
10. Plaintiff contends that Lloyds was present at the sale and approved the bid. Furthermore, he contends that a contract existed at the moment Lloyds confirmed the sale and that Hamilton’s consent was not required because Hamilton had assigned all of its rights as a secured party to Lloyds Bank.
11. In the alternative, plaintiff argues that should the property be part of the Hamilton estate, the sale would not be void as to Hamilton because it had only an “expectancy interest” in the sale of the pockets and, as such, the pockets were not part of the estate. Consequently, the only rights reserved by Hamilton would be those created by a surplus if any should arise out of the sale of the pockets.
DISCUSSION
12. The case at bar presents this Court with two major issues. First, whether the plaintiff complied with the conditions of the auction sale and, secondly, assuming there was a valid sale to plaintiff, whether such a sale would be void absent a court order granting relief from the automatic stay.
*34313. The plaintiff’s Complaint for breach of contract must ultimately succeed or fail with an initial determination as to the existence of a binding contract between the plaintiff and defendants.
14. The burden rests with the plaintiff to demonstrate that his bid at the auction sale was an effective offer which met all conditions imposed by the auctioneer and was accepted by the seller.
15. The weight of authority indicates that when an auctioneer presents an article for sale at auction and asks for bids, he is ordinarily not making an operative offer. Instead, the auctioneer is asking for offers to be made to him; and the bids made in response thereto are offers that can be revoked by the bidders prior to acceptance by the auctioneer. Consequently, this procedure creates no power of acceptance in the bidder. See, Corbin on Contracts, § 108.
Section 28 of Second Restatement of Contracts states, in part:
“At an auction, unless a contrary intention is manifested, (a) the auctioneer invites offers from successive bidders which he may accept or reject.”
16. The evidence adduced at trial was uncontroverted that the auction was “with reserve.” At the outset of the November 21, 1980, auction, Harry Engelson announced:
“The items that are liens cannot be delivered until we get approval, obviously, by the secured party...”
17. Additionally, California Commercial Code, § 2328(3), states:
“Such a sale is with reserve unless the goods are in explicit terms put up without reserve. In an auction with reserve, the auctioneer may withdraw the goods at any time until he announces completion of the sale...”
18. This Court is satisfied that the property involved in the November 21, 1980, auction was clearly not offered “without reserve.” The remaining question is whether the reserve conditions were met and whether the sale was completed.
19.Plaintiff concedes that the auction-er’s fall of the hammer alone did not complete the sale to plaintiff. However, plaintiff alleges that the condition necessary to bind the sale was the approval of the secured lender, Lloyds Bank. Plaintiff further alleges that the sale was complete at the time of confirmation by Lloyds Bank; consequently, at that moment a contract existed. Additionally, plaintiff contends that Hamilton had assigned all of its rights as a secured party to Lloyds; hence, Hamilton’s consent to the terms of the sale was not required.
20. However, this Court is not persuaded by the plaintiff’s logic. The evidence is uncontroverted that Lloyds consented to the sale at the auction, but Hamilton did not. The evidence advanced at trial indicated only that Hamilton was not represented by any party or agent at the November 21, 1980, sale. No consent to the sale was obtained from the trustee for Hamilton. Absent the consent of both Lloyds Bank and Hamilton, the reserve condition was never met and the sale could not be completed by the auctioneer.
21. The plaintiff fails to recognize the trustee’s rights which vested by operation of law upon the filing of Hamilton’s petition in bankruptcy on November 14, 1980. The trustee, Robert H. Stopher, succeeded to all the debtor’s rights under the master agreement for non-recourse assignment of leases. Subject to permission from the Hamilton Court, Stopher acquired the option to permit a sale to occur or to cure past defaults. Stopher retained a residual interest in any surplus generated by the sale. Without the trustee’s consent, a binding contract could not be made with the plaintiff.
22. In Re Dulman v. Martin Fein & Co., Inc, 25 UCC Reporting Service, 431, 431-32, a New York Supreme Court addressed the issue of the completion of an auction sale by the fall of the auctioneer’s hammer. The Court noted that in the sale of an assignee’s security interest the auctioneer may condition the sale subject to the confirmation of *344the assignee without violating UCC, § 2-328(2).
23. Although UCC § 2-328(2) provides, in part that, “... a sale by auction is completed when the auctioneer so announces, by the fall of the hammer, or in other customary manners,” such a narrow interpretation is not controlling. The Uniform Commercial Code mandates a broad reading of Subsection (2) of § 2-328. The Code is not designed to fetter businessmen with artificial formalities, but to encourage expansion of commercial practices. The inclusion of the condition was a fair and reasonable term not precluded by § 2-328.
24. The instant case dealt also with a conditional sale by the auctioneer Engelson, subject to the approval of the secured lenders, Lloyds and Hamilton. The Court does not interpret these conditions as unreasonable or violative of California Commercial Code § 2-328.
25. In Dona Sly and Bobby Jones v. First National Bank of Scottsboro, 387 So.2d 198 (Ala.1980), the Alabama Supreme Court held that in a public sale, subject to bank approval, the bidder may not impose a contract on the seller. The Court stated, in part:
“Because under § 7-2-328(3), plaintiffs bid was an offer, defendant was free to accept or reject plaintiffs bid. No contract existed until defendant accepted and at no time did the bank accept Dona Sly’s bid. There is no breach of contract unless there was previously an offer and acceptance.”
26. In Eugene Stud & Veneer, Inc. v. State Board of Forestry, 3 Or.App. 20, 469 P.2d 635 (1970), pet. for reh. denied, the Court stated, in part:
“Furthermore, where a right is reserved in the seller to reject any and all bids received, the right may be exercised by the owner even after the auctioneer has accepted a bid ...”
Engelson’s affirmation or acknowledgement of plaintiffs high bid was ineffective to confirm the sale in light of an absence of consent from the Hamilton Court.
27.The second major issue of dispute concerned the effect the Hamilton bankruptcy had upon the auction sale and whether the auction violated the automatic stay provisions of 11 U.S.C. § 362. The Hamilton filing clearly triggers § 362 of the Code as to “property of the estate.” The only question remaining is whether the 12 pockets are “property of the estate” subject to the automatic stay provisions of § 362(a). “Property of the estate” under § 541(a) includes:
“Such estate is comprised of all the following property, wherever located: (1) ... All legal or equitable interests of the debtor in property as of the commencement of the case.”
28. This Court is convinced that Hamilton Equipment Leasing Corporation, as lessor, maintained an interest in the pockets, as defined by § 541(a) of the Code. Evidence adduced at the trial indicated that Hamilton maintained a residual interest in the property subject to the master agreement for non-recourse assignment of leases. Stopher, the trustee for Hamilton, retained the option to permit a sale of the pockets or to cure any past default. Should a sale be permitted, any surplus generated would inure to the benefit of the Hamilton trustee. Such an interest would become property of the estate and fall within the confines of § 362.
29. The law as promulgated in In Re Parker GMC Truck Sales, Inc., 12 B.R. 667 (Bkrtcy.Ind.1980), has largely been eroded in United States v. Whiting, - U.S. -, 103 S.Ct. 2309, 76 L.Ed.2d 515 (1983). In Parker, the Court denied the trustee’s request for turnover of property that had been seized by the IRS pursuant to a tax lien and ruled that the seized property did not become part of the estate; only the rights of the debtor in the collateral would become part of the estate.
30. In Whiting, the Court notes that Section 541(a)(1) speaks in terms of the debtor’s interests in property rather than property in which the debtor had an interest.
*345“Although these statutes could be read to limit the estate to those ‘interests of the debtor in property’ at the time of the filing of the petition, we view this as a definition of what is included in the estate rather than as a limitation.”
Clearly, the pockets were part of the estate as envisioned under Section 541(a). The legislative history suggests that any attempt to restrict the scope of Section 541(a)(1) would frustrate the rehabilitation effort of the debtor. Whiting solidifies the position of the Hamilton trustee in respect to the “pockets.” Any legal or equitable interest that resided in the “pockets” vested in the Hamilton trustee pursuant to Section 541(a) and Section 542(a) of the Bankruptcy Code.
31. The plaintiff has requested a total of $500,000 in his prayer for punitive damages arising out of his Second and Third Causes of Action. However, no showing of malice by any of the defendants towards the plaintiff has been established in any of the claims.
32. For the foregoing reasons, plaintiff’s First Amended Complaint for breach of contract, warranty, interference with a prospective advantage, and interference with a contractual relationship should be denied in all respects.
The foregoing shall constitute findings of facts and conclusions of law within the purview of Rule 52(a) of the Federal Rules of Civil Procedure, and Rule 752(a) of the Rules of Bankruptcy Procedure.
If either party desires different or additional Findings of Fact and Conclusions of Law, same shall be submitted within ten (10) days from this date. Thereafter, attorney for the defendants will submit a proposed Judgment. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489610/ | MEMORANDUM AND ORDER ON OBJECTION TO CLAIMS
ALAN H.W. SHIFF, Bankruptcy Judge.
At the duly noticed Final Meeting of Creditors in the above-captioned case, I reserved decision on the trustee’s objections to the general claims of Greenwich Green Condominium Association, Inc. (Condominium Association) and to the claim of Badger, Fisher Cohen & Barnett (Badger). For the reasons set forth below, the trustee’s objections are sustained.
I.
BACKGROUND
The relevant background common to both objections may be stated briefly.1 On March 22, 1979, the bankrupt, Greenwich Green, Incorporated, filed a petition under Chapter XI of the Bankruptcy Act of 1898.2 On May 2, 1979, pursuant to a petition for conversion to bankruptcy filed by the debt- or, there was an adjudication of bankrupt*362cy. Thereafter, on May 4, 1979, this court, (Trevethan, J.) scheduled the first meeting of creditors for May 29,1979, and, in accord with Bankruptcy Rule 302,3 stated: “Claims which are not filed within 6 months after ... the first meeting of creditors will not be allowed, except as otherwise provided by law.” On May 30, 1979, the trustee was appointed.
On February 7, 1980, subsequent to the passing of the above bar date and prior to the filing of the claims in dispute, the trustee filed a “petition for order approving proposed stipulation for settlement,” which is central to the instant controversy. The petition alleged in essence that the estate’s only property was twenty-eight unsold condominium units; that the property was subject to various encumbrances, which exceeded the property’s market value; that two foreclosure actions against the property were pending in Connecticut Superior Court; that in conferences held before a judge of the superior court, the parties in interest compromised their diverse claims; and finally, that the subject stipulation for settlement (Stipulation) was in the best interest of the bankrupt estate “inasmuch as it [was] likely to convert the same from a no-asset estate to an estate with assets, sufficient to fully pay all claims filed to date and not otherwise satisfied under the term of said Stipulation.”4 The Stipulation was annexed to the petition. On the date the petition was filed, this court (Treveth-an, J.) approved the Stipulation and authorized the trustee to enter into and sign the Stipulation on behalf of the bankrupt estate. In pertinent part, the Stipulation provided that a fund was to be created by a foreclosure sale of the debtor’s property and an order of distribution was established for the proceeds.
The payment of those proceeds are now mired at the sixth level of distribution where the trustee has received.the funds “for payment of all proven and allowed claims in Bankruptcy case Number B-79-164.” Stipulation ¶ 8.f. The next level of distribution is provided by stipulation ¶ 8.g. which reads:
“Any proceeds then remaining shall be the property of GG, shall be deemed to be Shareholder Equity and shall be paid over to Disbursing Agent as agent for GG for distribution in accordance with the procedures set forth in paragraph 10 hereof.”
Paragraph 10 initially divides the funds equally between stockholders5 and secured creditors. The stockholders and secured creditors were to withdraw their claims from the bankruptcy court pursuant to the Stipulation.
A.
Condominium Association’s Claim
Condominium Association’s predecessor in interest, “De Facto Owners’ Association,” was a signatory to the Stipulation. On January 19, 1981, some eleven months after entering into the Stipulation, it filed a claim in the amount of $231,638.00 for breach of contract. On the same date, it filed a motion for extension of time for filing a claim against surplus. On February 6, 1981 this court (Schwartzberg, J.) granted Condominium Association’s motion.6 In granting the Condominium Association’s motion, Judge Schwartzberg emphasized that the claim could only be allowed if a surplus existed.
B.
Badger’s Claim
Unlike Condominium Association, Badger was not a party to the Stipulation. On or *363about August 21, 1980, Badger filed an application for permission to file a late claim in the amount of $28,028.53 for legal services. On October 24,1980, Judge Schwartz-berg permitted Badger to file a late claim in the amount of $28,028.53, “[s]aid claim being limited pursuant to Rule 302(5) [sic] of the Bankruptcy Rules to a claim against remaining surplus, if any.”7 Badger filed its claim on October 30, 1980.
II.
DISCUSSION
The arguments presented by both claimants may be summarized essentially as follows: First, a provision found in the Stipulation requires that their claims be allowed; Second, a surplus exists within the meaning of Bankruptcy Rule 302(e)(5) from which they must be paid; and Third, to the extent the Stipulation offends the order of priority governing claims under bankruptcy law, the Stipulation cannot be followed. I will address these contentions seriatim.
A.
The claimants first rely on paragraph 8.f. which, as noted, calls for a distribution to the bankruptcy trustee “for payment of all proven and allowed claims in Bankruptcy case number B-79-164.” The claimants emphasize that this provision contains no reference to time, and therefore argue, that their claims fall within the class of “proven and allowed claims.” I do not agree.
Absent the applicability of one of the statutory exceptions, claims not filed within six months of the first meeting of creditors cannot be allowed. Bankruptcy Rule 302(e). In this case, both claimants point to the exception provided by Bankruptcy Rule 302(e)(5). That exception provides
“If all claims allowed have been paid in full, the court may grant a reasonable, fixed extension of time for the filing of claims not filed within the time herein-above prescribed against any remaining surplus.”
(emphasis supplied)
Thus, the Bankruptcy Act draws a sharp distinction between timely and untimely filed claims. The latter cannot be allowed, until the former have been paid in full, and then only if a surplus exists. Indeed, contrary to the general rule disallowing post-bankruptcy interest, Vanston Bondholders Protective Committee v. Green, 329 U.S. 156, 163, 67 S.Ct. 237, 240 (1946), creditors may receive interest on their claims before a tardy claimant is entitled to any surplus. Hammer v. Tuffy, 145 F.2d 447 (2d Cir. 1944); In re Kingsboro Mortgage Corp., 514 F.2d 400, 401 n. 1 (2d Cir.1975).
Here, there is no reason to conclude that Paragraph 8.f. of the Stipulation merges timely and untimely claimants who, in the first instance, possess distinct rights. In that regard, as noted above, the trustee represented to Judge Trevethan that the Stipulation should be approved because the resulting funds were likely to satisfy “all claims filed to date and not otherwise satisfied under the term of said Stipulation.” (emphasis supplied).
In sum, the disputed claims cannot be considered allowed unless there is a surplus within the meaning of Bankruptcy Rule 302(e)(5), which issue I next address.
B.
Here, the question of surplus arises in a somewhat anomolous context. It is apparent that but for the Stipulation, the estate would have had no assets, and the property in all likelihood would have been abandoned by the trustee. Certainly, no surplus existed at the time the bankruptcy court approved the Stipulation. Even now, various secured creditors will not be paid in full, although by virtue of the Stipulation, certain unsecured creditors and stockholders will receive funds.
It is arguable that the Stipulation, forged with the aid of a Connecticut Superior Court Judge and approved by the bankruptcy court, is the governing order of distribution here, and consequently, there can be a *364surplus in the bankruptcy sense only after all payments contemplated by the Stipulation are made. Even if one conceded, however, that a surplus could exist prior to the Stipulation being completely satisfied, in this case a surplus, as intended by Bankruptcy Rule 302, does not exist. A surplus is simply funds that are distributable to the debtor because they remain after all creditors have been fully paid. The record shows that there are secured creditors of the bankrupt whose claims are not to be fully satisfied pursuant to the stipulation. In fact, the amount that the stockholders might receive appears to be considerably less than the amount which will remain owing the secured creditors. The fact that paragraph 8.g. of the Stipulation allows shareholders to receive a portion of the proceeds does not magically create a surplus for the late claimants.
C.
The last of the claimants’ arguments is that payment in accordance with the Stipulation would do violence to the order of distribution required under the Bankruptcy laws, because the claims of the stockholders may be partially paid pursuant to Stipulation ¶ 10, and those claims should allegedly be equitably subordinated. In particular, claimant Badger refers to sections 726(a) and 510, apparently of the Bankruptcy Reform Act of 1978. Those sections are inapplicable because the subject bankruptcy case was commenced under the Bankruptcy Act of 1898. See footnote 2, supra. Nevertheless, the principles contained in those sections were also found in the former law and the claimants’ argument will therefore be discussed.
The claimants essentially argue that the court approved Stipulation should be partially set aside, at least as regards payments to the stockholders. While the request appears late for either claimant, it seems particularly inappropriate for the Condominium Association, because its predecessor in interest was a signatory to the Stipulation. After the passing of the bar date for filing claims, diverse parties reached an accord in the best interests of the estate, and with the bankruptcy court’s approval, acted in reliance thereon. Who can say what expectations would be thwarted if the Stipulation were now altered three years after its court approval?
Although disregard of the Stipulation might create inequities, adherence to the Stipulation will leave the general creditors, Badger and Condominium Association, with nothing less than they would have been entitled to absent the Stipulation. • Without the Stipulation, there would not have been a colorable claim of surplus. Moreover, as noted, pursuant to the Stipulation, the unsatisfied claims of certain secured creditors exceed the amount that the stockholders will receive. Thus, the payments to the stockholders are in essence made at the expense of the secured creditors, who entered the Stipulation, and not at the expense of the untimely general creditors, Badger and Condominium Association. In short, the normal order of distribution, even assuming the basis for equitable subordination could be shown, is not meaningfully distorted.
III.
Accordingly, it is ORDERED that the trustee’s objections to the claims of Condominium Association and Badger be, and hereby are, sustained.
. The parties at the final meeting did not formally offer evidence. The material facts necessary for the resolution of the issues raised herein were gleaned from briefs, the court’s own file, a transcript of an earlier proceeding, and information provided by the parties at the hearing.
. This case is governed by the provisions of the Bankruptcy Act and not the Bankruptcy Code. Section 403(a) of the Bankruptcy Reform Act of 1978, Pub.L. 95-598 provides
A case commenced under the Bankruptcy Act, and all matters and proceedings in or relating to any such case, shall be conducted and determined under such Act as if this Act had not been enacted, and the substantive rights of parties in connection with any such bankruptcy case, matter, or proceeding shall continue to be governed by the law applicable to such case, matter, or proceeding as if the Act had not been enacted.
.Bankruptcy Rule 302 provides in pertinent part:
(a) Manner of Filing. In order for his claim to be allowed, every creditor, including the United States, any state, or any subdivision thereof, must file a proof of claim in accordance with this rule ...
(e) Time for Filing. A claim must be filed within 6 months after the first date set for the first meeting of creditors, except ...
. Petition For Order Approving Proposed Stipulation For Settlement, ,¶ 9.
. The debts owing the stockholders are apparently for reimbursement of payments they made as guarantors of the debtor.
. Transcript of court hearing on February 6, 1981.
. Order entered October 24, 1980. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489611/ | MEMORANDUM DECISION
ROSS M. PYLE, Bankruptcy Judge.
Donald and Barbara Wilson the plaintiff-debtors, filed a joint petition under Chapter 7 of the Bankruptcy Code (11 U.S.C. § 101 et seq., hereinafter, “Code”) on January 20, 1982. An order discharging the debtors from their obligations was entered on June 7, 1982. Prior to discharge, the Wilsons brought this action pursuant to 11 U.S.C. § 522(f) to avoid the defendant, John Otto’s, judicial lien, alleging that Otto’s lien impairs the Wilsons’ scheduled homestead exemptions.
Schedule B^4 of their Petition reflects that the Wilsons chose to take advantage of *393both the federal and state homestead exemptions on their residence. Barbara Wilson claimed a $7,500 exemption under § 522(d)(1) of the Code, and Donald Wilson claimed a state exemption of $45,000 under California Civil Code Section 1237.
The parties stipulated to the following pertinent facts: (a) that a judgment was entered in the Municipal Court of California in favor of Otto against Donald Wilson, in the sum of $597.51 on August 7, 1979, and that an abstract of judgment was duly recorded on September 27, 1979; (b) that the recorded abstract of judgment constituted a lien on all the real property of the judgment debtor; and (c) that the market value of the Wilsons’ home is $140,000 subject to encumbrances in the following priorities:
First Trust Deed Coastal Savings $87,000
Judgment John Otto $ 7501
Judgment Joseph Vanni, Sr. $20,5002
Judgment Bank of America $40,0002
The question presented to the Court concerns Donald Wilson’s state homestead exemption. The Wilsons claim that the correct amount of the California exemption is $45,000; Otto argues that it is $40,000. The determination of this issue will ultimately be dispositive of the case. The stipulated facts show that, excluding judicial liens, there is $53,000 of equity in the residential property. Subtracting the two uncontested federal exemptions leaves us with $45,200.3 Since Otto’s lien is for $750, if the correct amount of the California exemption is $45,-000, the exemption is impaired and § 522(f)(1) would operate to nullify the lien; if the proper amount is $40,000, Otto’s lien does not impair the Wilsons’ homestead exemptions and would remain valid.
Otto argues that the allowed state exemption should be $40,000, the amount that was provided in California Code of Civil Procedure Section 1237 at the time his judicial lien arose in 1979.4 The Wilsons claim entitlement to the larger current exemption amount, as scheduled, because no objection was filed within the 15 day limitation period set forth in this District’s Local Bankruptcy Rule 32. They assert that Otto is barred from now raising any objection to the claimed amount as a defense to the complaint to avoid lien, citing as authority Judge Meyers’ decision in In re Skipwith, 9 B.R. 730 (Bkrtcy.S.D.Cal.1981).
DISCUSSION
Amount of Cal. Civil Code Section 1237 Homestead Exemption
The Wilsons argue that under Skipwith, supra, “it is clear that the debtors can take advantage of the increase in homestead exemption unless challenged by a creditor” (Plaintiff’s Trial Brief, p. 3, 11.2-4), and that in this case there was no challenge since Otto did not comply with Local Bankruptcy Rule 32. Judge Meyers in Skipwith, supra, determined that a trustee has no powers under § 544(a) which support a challenge to an increase in an exemption occurring prior to the filing of a petition. Skipwith, supra at 737. However, as alluded to by the Wilsons, Judge Meyers specifically refrained from “foreclosing the possibility that individual pre-existing creditors might maintain their own cause of action based on retained rights they may have to attack the increase.” Skipwith, supra at 738.
*394Otto is the pre-existing creditor anticipated by Judge Meyers. Therefore, the only real issue is: Does Otto’s failure to comply with this Court’s Local Bankruptcy Rule 32 preclude him from asserting his rights as a pre-existing creditor by affirmative defense in a lien avoidance adversary proceeding brought by the Debtor.
Section 522(7) of the Code provides as follows:
“The debtor shall file a list of property that the debtor claims as exempt under subsection (b) of this section. If the debtor does not file such a list, a dependent of the debtor may file such a list, or may claim property as exempt from property of the estate on behalf of the debtor. Unless a party in interest objects, the property claimed as exempt on such list is exempt.”
No time period for objection is specified in this section. However Local Bankruptcy Rule 32 sets a limitation period of 15 days from the conclusion of the § 341(a) meeting within which a party in interest can object to a Debtor’s claim of exemptions. It is conceded that no objection was filed within this 15 day period. Local Bankruptcy Rule 32 was adopted to establish necessary procedures for the efficient administration of cases under the Code, and more particularly, to effectuate the intent of § 522(7).
While recognizing the important function of its Local Rules, this Court holds that the existence of Rule 32 does not preclude Otto’s challenge to the Wilsons’ California homestead exemption in the procedural context of this case.
The Bankruptcy Court in Martine v. Cipa, 11 B.R. 968 (Bkrtcy.W.D.Penn.1981) was faced with a similar situation. There a Debtor attempted to avoid a creditor’s lien under § 522(f), asserting that the creditor was barred from objecting to the amount of the Debtor’s exemption because she had failed to file her objection to the claimed amount of exemption within the time period specified in the Court’s previous order.5 Judge Gibson excused the creditor’s delay, basing his decision on the equities in the case, stating that the delay did not prejudice the Debtor in any way, and that a refusal to consider the merits would be extremely unfair to the creditors of the Debtor’s estate. Cipa, supra at 970. Although in Cipa there was no local rule analogous to this Court’s Rule 32, the equities dictate a similar result in this case.
Local Rules are promulgated primarily to promote the efficiency of the enacting court, and that court has a large measure of discretion in applying those rules. United States v. Simmons, 476 F.2d 33, 35 (9th Cir.1973); Telemart Enterprises Inc., 524 F.2d 761, 766 (9th Cir.1975); Lance, Inc. v. Dewco Services, Inc., 422 F.2d 778, 783-784 (9th Cir.1970). In this case, Local Rule 32 was intended to promote the speedy definition of the amount of property in the Debt- or’s estate. This decision does not hinder that policy.
It is essential to note the context in which Otto is objecting to the Wilsons’ claim of exemption. The objection is asserted in a defensive posture. The Wilsons are attempting to avoid Otto’s lien, claiming that it impairs their $45,000 state homestead exemption. Otto counters with the defense that the Wilsons are not entitled to $45,000, but only $40,000 in exempt status, the amount statutorily prescribed at the time his lien was recorded. If Otto prevails, the only result is that his lien remains intact. It would be inequitable to strip Otto of this legitimate defense in this procedural context. Therefore, I hold that Otto’s challenge to the amount of state homestead exemption is not precluded by his non-compliance with Bankruptcy Local Rule 32, and the asserted defense is an appropriate objection within the purview of § 522(7) of the Code.6
*395Once any procedural barriers are lifted against Otto’s objection to the Wil-sons’ exemption, a determination of the proper amount of the Wilsons’ state homestead exemption is relatively simple. An increase in the statutory exemption of property cannot be applied retroactively to a creditor in existence prior to the increase, since such an application would constitute an impairment of the obligation of contract. In re Rauer’s Collection Co. Inc., 87 Cal. App.2d 248, 253, 196 P.2d 803 (1948). Rauer remains good law in the context of an individual creditor’s challenge to a Debtor’s exemption. It follows, then, that the proper amount of the Wilsons’ homestead exemption under California Civil Code Section 1237 is $40,000.
CONCLUSION
As previously mentioned, the value of the Wilsons’ residence was stipulated to be $140,000 subject to non-judicial liens of $87,000, leaving equity in the amount of $53,000. As determined here, the Wilsons are entitled to homestead exemptions totall-ing $47,800.7 Therefore, Otto’s $750 judicial lien does not impair the Debtors homestead exemptions. Judgment is for the defendant. The lien remains.
The foregoing shall constitute Findings of Fact and Conclusions of law pursuant to Bankruptcy Rule 752. Counsel for the Defendant shall submit an appropriate judgment within ten (10) days. A copy of this Decision and the judgment shall also be served upon the Trustee in this case.
Dated: June 30, 1983.
. The Stipulation of Facts submitted by the parties refers to different figures for Otto’s lien, $597.51 and $750. However since both parties briefed and argued the issues using the $750 figure, the Court considers that figure to be the correct amount of the lien for purposes of this complaint.
. The judgments in favor of Joseph Vanni, Sr., and Bank of America are also the subject of separate lien avoidance adversary proceedings filed by the Wilsons.
. Barbara Wilson’s claim to the $7900 exemption allowable under sections 522(d)(1) and 522(d)(5) have not been challenged.
. The California Legislature increased the amount of exemption under California Civil Code section 1237 from $40,000 to $45,000, effective January 1, 1981.
. In Cipa the limitation period was also 15 days from the conclusion of the section 341(a) meeting.
. It should be noted that this result which benefits one creditor is contra to the long accepted policy of benefitting all creditors through the use of the Trustee’s avoiding powers, though based upon the status of one creditor. [See Moore v. Bay, 284 U.S. 4, 52 S.Ct. 3, 76 L.Ed. 133 (1931)]. However, in the case at bar, the *395Trustee is not asserting any avoiding power based upon Otto’s status, so the issue before Judge Meyers in Skipwith, supra, is not presented for this Court’s consideration. The further question as to whether this lien is a “transfer” avoidable by the Trustee under § 549(a) is expressly not decided here and to the extent it might be considered a “transfer” is not “authorized” by the Court within the meaning of § 549(a)(2)(B).
. Cal.Civ.Code = $40,000
11 U.S.C. § 522(b)(1), (d)(5) = $7,500
11 U.S.C. § 522(b)(1), (d)(1) = $300 | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489612/ | DECISION AND ORDER
CHARLES A. ANDERSON, Bankruptcy Judge.
PRELIMINARY PROCEDURE
This matter is before the Court upon Complaint filed on 2 December 1982 for relief from the automatic stay imposed by 11 U.S.C. § 362(a). The Plaintiffs do not oppose confirmation of Debtor’s proposed Chapter 13 Plan which would pay unsecured creditors 100% of their claims after payment of various secured claims. The Court heard the matter on 20 December 1982. The parties subsequently submitted legal memoranda. The following decision is based upon the evidence adduced at the hearing, and the record, inclusive of the parties’ memoranda, and also the record in Debtor’s estate file, numbered 3-82-02749 which is judicially noticed herein.
FINDINGS OF FACT
The pertinent facts are not in controversy. Plaintiffs are creditors secured by real estate owned by Debtors. On 15 June 1982, Plaintiffs filed a prepetition state court foreclosure action. On 19 August 1982, the state court issued an Entry ordering foreclosure of the property. On 23 August 1982, the state court then issued an Order of Sale of the subject property. The property was appraised at $160,000.00, and the sale was set for 10:00 A.M., on 1 October 1982.
Debtors filed their Petition under 11 U.S.C. Chapter 13 on 30 September 1982. The subject property was duly scheduled as property of the estate. Debtor’s Chapter 13 Plan proposes that Debtor cure Plaintiff’s accelerated debt, and that “Robert W. Fisher ... be paid upon the sale of real estate, outside the Plan.”
The next day the sale was duly held at 10:00 A.M., and Defendant Nicholas R. Cag-netti purchased the real estate for $110,-000.00.
At 10:05 A.M., five minutes after the sale was completed, the Sheriff conducting the sale received actual notice of the bankrupt*398cy filing from Edward L. Olah personally. Mr. Olah testified that he thought the notice was actually given prior to the time of the sale.
Plaintiffs filed the instant Complaint on 2 December 1982 requesting that this Court grant relief from stay to permit the foreclosure sale to “proceed.”
Debtors respond that the property is worth considerably more than the price obtained at the foreclosure sale, and that this Court should vacate the sale.
DECISION AND ORDER
This Court has previously determined that the sale of property at a sheriff’s foreclosure sale effects a termination of a debtor’s equity of redemption in such property, and further precludes any action to defeat the property rights of any bona fide purchaser for value. See Lomas & Nettleton Co. v. Smith, 24 B.R. 403 (Bkrtcy. 1982). The only issue before the Court in this case is whether the fact that the sale was conducted the day after a bankruptcy petition filing, but without actual knowledge of the petition filing, operates to except the instant sale from the principles established in Lomas & Nettleton v. Smith.
An action taken in violation of this Court’s automatic stay is void ab initio. Nevertheless, absent compelling circumstances, this Court will not vacate a duly completed sale of real estate under the auspices of state court and without actual notice of this Court’s jurisdiction. The state court sale was accomplished with unquestioned due process of state law. Debtor essentially argues that, despite the fact that Debtor had considerable advance notice of the sale and yet was unable to give even actual notice of her bankruptcy filing to the Sheriff prior to the sale, Debtor’s “eleventh hour” filing should operate to rescind a completed sale for the purpose of seeking a private sale of the property under the auspices of this Court. It is the determination of the Court that the facts and circumstances of the instant case do not justify such conclusion or an exception to prior opinions of this Court as to the vesting of the rights of a bona fide purchaser for value.
There is ambiguity and a conflict in the evidence as to whether the Sheriff was orally notified on the day of sale of the filing of a Chapter 13 Petition prior to the sale. Furthermore, the purchaser testified that he is no longer prepared to proceed with the sale and that he had stopped payment on his check delivered to the Sheriff. The Sheriff testified that the order of sale issued by the Common Pleas Court had not to date been returned to that Court.
It is the opinion of this Court that the validity of the state court foreclosure sale is a question exclusively within the jurisdiction of the state court. If there is, in fact, no bona fide purchaser to be adversely affected by the bankruptcy court jurisdiction and, consequently, the equity of redemption is yet available to Debtor as a matter of state law, the Debtor’s proposed Plan should be confirmed for the benefit of all creditors.
It is, therefore, ORDERED, ADJUDGED AND DECREED that Plaintiffs should be provisionally denied Relief from the Stay. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489613/ | FINDINGS OF FACT AND CONCLUSIONS OF LAW
SIDNEY M. WEAVER, Bankruptcy Judge.
This Cause having come on to be heard upon a Complaint for Determination of Dis-chargeability of Debt 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:
The facts of this case are disputed. The plaintiff contends that the debtors engaged the services of his law firm to file a bankruptcy petition on an emergency basis to stay the Sheriff of Broward County from levying against office equipment on Mr. Kinsey’s business premises. The parties dispute the sum of fees agreed to be paid to plaintiff for his services but there is no dispute that Mr. Kinsey met with members of the plaintiffs law office for the purpose of filing a bankruptcy petition and that at *429that time Mr. Kinsey gave a check in the sum of $360.00 ($300.00 for attorney fees, $60.00 filing fee) to the plaintiff’s office. The debtors contend that the check represented the total payment for plaintiffs services. Subsequently Mr. Kinsey stopped payment on the check on the grounds that he had terminated the plaintiff’s employment due to his dissatisfaction with the quality of the plaintiff’s services.
The plaintiff contends that the debtors never intended to pay the fees and as such obtained the services of the law firm under false pretenses making the liability for payment of the fees nondischargeable pursuant to Bankruptcy Code Section 523(a)(2)(A).
Based on all the evidence the Court finds that the debtor, Mr. Kinsey, hired the plaintiff to prepare his bankruptcy filing on an emergency basis to stop a Sheriff’s levy. The Court further finds that the debtor agreed to pay the plaintiff for his services but after an initial payment of $360.00 Mr. Kinsey was dissatisfied with the plaintiff’s performance and decided to terminate his employment and stopped payment on his check.
The Court finds that the element of intent necessary to find that the services were obtained under false pretenses is absent and balancing the equities finds that the debt sought to be discharged is dis-chargeable with the exception of $60.00 representing the filing fee. The Court awards the plaintiff a total of $34.00 representing expenses incurred by the plaintiff in this lawsuit. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489614/ | CHARLES A. ANDERSON, Bankruptcy Judge.
PRELIMINARY PROCEDURE
This matter is before the Court upon Complaint filed on 12 January 1983 by Jack W. Pickrel, Chapter 7 Trustee. The Court heard the Complaint on 7 February 1983, at which time the parties agreed to submit the matter for decision based upon the record, inclusive of stipulated facts and legal briefs which were subsequently filed. The following decision is, therefore, based upon the instant record, inclusive of the parties’ briefs and stipulations of fact, and also the record in Debtor’s estate file, numbered 3-81-02812, which is judicially noticed herein.
FINDINGS OF FACT
Debtor, a retailer of consumer goods, filed a Petition under 11 U.S.C. Chapter 11 on 6 October 1981. Subsequent to Debtor’s Petition filing, Defendant “consigned” merchandise worth $120,000.00 to Debtor in Possession based upon Orders by this Court dated 19 October 1981 and 3 December 1981 authorizing Debtor in Possession to enter into consignment arrangements with Defendant for up to $500,000.00 worth of merchandise. The Orders specifically further ordered that Defendant’s extension of credit by consignment would be “adequately protected” by a first lien in all the consigned merchandise, as permitted in 11 U.S.C. § 364(d), and also by a grant of priority over all administrative expenses, as permitted by 11 U.S.C. § 364(c). Pursuant to the order, Defendant delivered merchandise to Debtor in the total amount of $121,-470.31.
Debtor sold part of the consigned merchandise by continued sales in the ordinary course of business. The balance of the consigned merchandise was then sold in a bulk sale of all of Debtor’s remaining inventory upon order dated 18 March 1982 to a separate affiliated Debtor in a “companion” case also before this Court. The Order directed that the proceeds from sale of said merchandise be paid to priority creditors, including Defendant. Debtor was not, however, fully paid for its inventory in the bulk sale. See discussion in this Court’s opinion in Matter of R & R Distributing, Inc., 3-81-02813 (unreported, 6 October 1982). In consequence, Debtor was unable to reimburse Defendant fully from the sale of the consigned merchandise. The present outstanding balance owing Defendant based upon the consignment arrangement is approximately $51,000.00.
On 2 August 1982, Debtor converted to a request for relief under 11 U.S.C. Chapter 7. Plaintiff-Trustee was then appointed by Order dated 8 September 1982.
*532On 20 September 1982 and 1 October 1982, two checks, written by Debtor’s controller on the Debtor in Possession’s checking account for $3,000.00 and $2,000.00, respectively, were sent to Defendant as payment on the consigned goods. The Trustee had no knowledge of the checks, and their issuance was directly contrary to his instructions to Debtor’s management in regard to the issuance of checks.
The Trustee then demanded return of the $5,000.00, but Defendant refused. The instant Complaint requests that this Court order that the $5,000.00 be returned to the Trustee.
The Trustee essentially argues that the transfer of the $5,000.00 was ultra vires because it was accomplished without either the Trustee’s or the Court’s approval. The Trustee further emphasizes that the moneys were paid from a general account, and it appears undisputed that Defendant’s lien is not directly traceable to either the fund from which the moneys were paid or any existing funds.
Defendant’s responses are threefold. First, Defendant argues that, since it is entitled to super priority over even administrative claims, any payment made, even if arguendo erroneous, does not deplete the estate or prejudice creditors. Second, Defendant argues that Debtor’s failure to pay Defendant for the consigned goods constitutes misconduct, justifying the creation of a trust by operation of law. Defendant contends that the questioned payment is, therefore, in essence, simply payment by Debtor upon a trust obligation which the Trustee would himself have had to perform on behalf of Debtor, derivatively. Third, Defendant argues that the Trustee’s “claim” against Defendant is postpetition and, therefore, may be setoff against Defendant’s mutual postpetition claim based upon the subject consignment.
DECISION AND ORDER
I.
Although the circumstances instanter may warrant “creation” of a constructive trust (specifically a trust ex maleficio), the record is incomplete regarding the alleged misconduct, i.e. the alleged “wrongful” disposition of Defendant’s merchandise and the proceeds from sale thereof. If Debtor failed to reimburse Defendant from the proceeds from sale of the subject consigned goods “merely” because a third party buyer of the consigned goods failed to pay for the goods after receipt from Debt- or, then Debtor’s conduct would not appear to warrant a determination of misconduct. On the other hand, if knowledge that the third party buyer was unable to pay was recklessly disregarded or could have easily been obtained or could be imputed to Debt- or because of the parties’ close financial relationship, or if Debtor acted irresponsibly with those proceeds actually received, then Debtor’s conduct could arguably justify creation of a constructive trust. See generally, 76 Am.Jur.2d Trusts §§ 221, et seq.; and 4 Collier on Bankruptcy (15th Ed.) ¶ 541.13. The Court, however, is unable to make any final determination in this regard based upon the instant record. Furthermore, even if the Court were to determine that the circumstances warrant imposition of a fiduciary trust over the subject proceeds, no evidence of record traces the subject proceeds to any account or specific property. Furthermore, there is no evidence of record tracing any proceeds to the general account from which the subject moneys were paid. In addition, even if the subject proceeds were traceable to the subject checking account, there is no evidence of record for the Court to determine the “lowest intermediate balance” of the subject account. See generally, 4 Collier on Bankruptcy (15th Ed.) ¶ 541.13.
II.
By virtue of this Court’s orders of 19 October 1981 and 3 December 1981, Defendant’s claim has priority ahead of all administrative claims. 11 U.S.C. §§ 364(c) and 507. It would appear from the instant record that liquidation of Debtor’s estate will result in payment to Defendant of more than the amount in question, and that such payment should not be reversed merely to be administratively repaid. The instant record, however, does not indicate the *533aggregate amount of moneys available for distribution, nor the aggregate amount of other claims granted priority ahead of administrative claims and thus entitled to distribution pro rata with Defendant. The Court is therefore unable to determine as a matter of fact that Defendant has not “merely” received an inadvertant advance payment on its claim.
III.
Regardless of the ultimate conclusions as to distribution, it appears to the Court that the Trustee’s interest, as representative of Debtor’s estate, is, at this point, nominal only. Any return of moneys by Defendant would inure no benefit to Debtor’s estate, but instead would merely be an act of accounting. The real parties in interest in any cause of action for direct return of the moneys would appear to be either the other secured creditors or other super-priority creditors. In this case, the Trustee has not alleged any benefit to the estate justifying a return of the subject moneys.
Furthermore, 11 U.S.C. §§ 362(a)(7) and 553 are inapplicable to post-petition transactions, and Debtor’s common law rights of setoff and recoupment are thus assertable in this situation. See generally, 20 Am. Jur.2d Counterclaim, Recoupment and Set-off §§11 and 12. Therefore, any interest the estate may have in seeking return of the funds improperly administratively paid should be asserted against Debtor’s employees or officers alleged to have improperly disbursed the subject funds, particularly in light of likely detrimental reliance by Defendant subsequent to receipt of moneys unknowingly wrongfully paid and now rightfully setoff.
If the Court were to order return of the subject funds in this setting, such return of the funds to an essentially disinterested party would further encourage a multiplicity of suits with the Trustee acting as an unnecessary intermediary between the real parties in interest. The law does not require the doing of such a needless act.
To order the payments delivered to the Trustee would constitute more than a vain administrative complexity. There is an overriding concern implicit; namely, the integrity of the judicial process in the operation of a business under court auspices. The consignment sale was made only upon assurance that proper protection was afforded by previous court authorization. The very nature of the operation of a business undergoing reorganization by the Chapter 11 process mandates that credit extensions bearing court imprimatur not be jeopardized by a change in circumstances for which a consignor is not responsible and contradictory to prior court protective orders. Under the facts and issues sub judice, the effect of the court protective orders must be maintained as to the consignor and the Trustee must look to the liability of any third parties or corporate officers responsible for misapplication of funds to the extent of damage or to the bankruptcy estate from any defalcations.
IT IS HEREBY ORDERED, ADJUDGED AND DECREED that the Trustee’s Complaint is DENIED. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489615/ | OPINION
EMIL F. GOLDHABER, Bankruptcy Judge:
The issue sub judice is whether the debt- or and his wife failed to comply with the terms of a stipulation executed by the mortgagee, the debtor and the debtor’s wife thereby permitting the mortgagee to exercise its rights thereunder and proceed with mortgage foreclosure against the residence in question. We conclude that the unambiguous provisions of the stipulation have been complied with by the debtor and his wife and, therefore, the automatic stay provisions of section 362(a) of the Bankruptcy Code (“the Code”) remain in full force and effect.
The facts of the instant case are as follows: 1 On January 12, 1982, David Kalk-stein (“the debtor”) filed a petition for an adjustment of his debts under chapter 13 of the Code. On June 8, 1982, Main Line *535Federal Savings and Loan Association (“the mortgagee”) filed, inter alia, a complaint for relief from the automatic stay provisions of section 362(a) of the Code against the debtor. On July 15,1982, the aforesaid parties stipulated that Ellen Kalkstein (“the debtor’s wife”) be permitted to intervene in the adversary proceeding brought by the mortgagee. On October 8, 1982, the mortgagee, the debtor, and the debtor’s wife negotiated a settlement of the adversary proceeding and entered into a stipulation which we approved on November 23, 1982. Said stipulation provided:
I. Commencing October 1, 1982 and for eleven (11) consecutive months thereafter debtor shall pay to Association the sum of $1,097.11. Commencing October 1, 1983 and for eleven (11) consecutive months thereafter debtor shall pay to association the sum of $1,172.11. Commencing October 1, 1984 debtor shall pay to association the sum of $1,222.11 monthly. All payments to be made on or before the first day of each and every month until the delinquency on the account including all costs and fee incurred in the foreclosure proceeding which the parties agree is in the total sum of $10,930.38 have been paid in full.
Said sums shall be first applied to the regular monthly payment due on the note and mortgage[s] made, executed and delivered by David Kalkstein and Ellen Judith Kalkstein, his wife ... to Main Line Federal Savings and Loan Association. ...
******
The balance if any shall be applied on account of the delinquent principal, interest, late charges, escrow, costs and fees due on the aforesaid notes and mortgages which the parties agree is in the total sum of $10,930.38.
In the event the escrow for real estate taxes assessed against the premises is insufficient to pay the taxes in full during the discount period, then the above mentioned payment shall be adjusted accordingly.
However, by letter dated January 10, 1983, Main Line made demand upon counsel for the debtor for an immediate payment of $740.00 to pay the 1982 real estate taxes and an adjustment of the monthly payments to provide funds for the 1983 real estate taxes.2 The mortgagee contends that the debtor and his wife failed to comply with the terms of the stipulation by neglecting to make the payments for said real estate taxes thus permitting it to exercise its rights pursuant to the stipulation, which provides:
In the event that debtor fails to make said payment in full on or before the last day of any month during which said payment is due, then the automatic stay of all proceedings provided under section 362 of the Bankruptcy Reform Act of 1978, 11 U.S.C. Section 362 is modified without any further notice or demand whatsoever to allow plaintiff to proceed with éxecution process through Sheriff’s sale regarding the aforesaid premises in the matter of Main Line Federal Savings and Loan Association v. David Kalkstein and Ellen Judith Kalkstein, his wife, Common Pleas Court of Montgomery County, # 81-19254.
Consequently, on April 13, 1982, the mortgagee filed an “application for order modifying automatic stay under sections 362(a) and 362(e) of the Bankruptcy Code.” On April 22, 1983, we granted said application and modified the automatic stay to allow the mortgage to proceed with mortgage foreclosure in the Court of Common Pleas of Montgomery County. However, on May 2, 1983, the debtor’s wife filed a petition to vacate our order of April 22, 1983, on the ground that said order was entered in violation of Local Interim Bankruptcy Rule 9003 of this district.
At the outset, we conclude that we must vacate our April 22, 1983, order, which was entered in response to the mortgagee’s application to modify the stay filed nine days *536previous thereto, because said order was entered in violation of Local Interim Rule 9003, which provides in paragraph (f):
Any party opposing the motion or application shall, within ten (10) days after service of the motion (with an additional three (3) days if service of the motion was made by mail), file an answer or other response as may be appropriate. In the absence of a timely response, the motion may be treated as uncontested.
The mortgagee contends that the stay was modified, notwithstanding our April 22, 1983, order, pursuant to the terms of the stipulation “without any further notice or demand whatsoever” when the debtor failed to make the demanded real estate tax payment. Therefore, the mortgagee concludes, no additional demand for relief had to be made by it (although it filed an application to modify the stay on April 13, 1983) and, consequently, interim rule 9003 does not apply to the instant situation.3 We disagree. Assuming, arguendo, that the stipulation itself modified the stay, the fact remains that the mortgagee chose to seek the imprimatur of this court and, by so doing, it consented to abide by the rules of procedure adopted by this court. Unfortunately, the April 22, 1983, order granting the mortgagee relief from the stay was prematurely entered. We must, therefore, vacate said order.4
It is a well-settled principle of contract interpretation that a written document must be construed most strongly against the party who drafted it. Galligan v. Arovitch, 421 Pa. 301, 219 A.2d 463 (1966); Heidt v. Aughenbaugh Coal Co., 406 Pa. 188, 176 A.2d 400 (1962). Consequently, the stipulation and, in particular, the paragraph dealing with the real estate taxes, must be strictly construed against Main Line, the party that drafted the stipulation. Furthermore, we are of the opinion that said paragraph is ambiguous and susceptible of different meanings in the instant case and, accordingly we will consider the words of the stipulation itself, the alternative meanings suggested by counsel and the objective evidence offered in support of those suggested alternative meanings in our interpretation of that paragraph Mellon Bank, N.A. v. Aetna Business Credit, 619 F.2d 1001, 1011 (3d Cir.1980).
We agree with the position taken by the debtor’s wife that the aforesaid paragraph, which does provide for an adjustment of the monthly payment for real estate taxes, could not apply to the collection of real estate taxes for 1982 since any “discount period” for the year 1982 would have expired by the time the stipulation was executed in October of 1982 and approved by us in November of 1982. With regard to the 1983 real estate taxes, we conclude that stipulation does provide for an adjustment of the monthly payments to include any increase in real estate taxes over and above the amount set aside for those taxes in the escrow fund. Accordingly, we will order the debtor to continue making the monthly payments called for in the stipulation to the mortgagee together with any adjustments thereto which are necessary to cover the real estate taxes assessed against the premises for 1983.
We are aware of the fact that the mortgagee, on January 10, 1983, notified the debtor of the fact that, in its opinion, the real estate taxes for 1982 and 1983 were due and payable. Sol Koppel testified that he wrote a letter to the mortgagee on February 17, 1983, asking it to restructure the loan to allow for payment over a period of time of the alleged amount due (the real estate taxes) (N.T. 5/19/83 at 37) and that *537said request was refused.5 Furthermore, the debtor testified that, in April of 1983, he offered to pay the mortgagee the amount it demanded for payment of the 1982 and 1983 real estate taxes. While both this tender by the debtor and the efforts of Sol Koppel transpired more than thirty days after the mortgagee’s January 10,1983, notice and demand, we do not find the failure to pay the amounts demanded within thirty days to constitute an event of default under the stipulation in light of our finding that the language governing the payment of the real estate taxes was ambiguous. This is not the case where a debt- or makes an untimely tender of a payment or payments clearly due and owing. Rather, the testimony adduced at trial established that the debtor has tendered every monthly payment called for in the stipulation from the time of its execution until the day of trial, with the exception of the disputed real estate tax payments.
. This opinion constitutes the findings of fact and conclusions of law required by Rule 752 of the Rules of Bankruptcy Procedure.
. See Exh. P-1.
. The mortgagee further contends that we lack jurisdiction over the instant matter because the stay has already been modified by operation of the stipulation.
. Sol Koppel, an attorney, was involved in the negotiation and finalization of the stipulation in question.
. The debtor’s wife filed her motion to vacate the April 22, 1983 order within the time parameters set forth in paragraph (h) of interim rule 9003, which provides that “[m]otions for reconsideration or reargument shall be served within *537ten (10) days after the entry of judgment, order, or decree concerned.” | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489616/ | FINDINGS AND CONCLUSIONS
FOLGER JOHNSON, Bankruptcy Judge.
In the adversary proceeding of Northwest Livestock Production Credit Association v. Coast Trading Co., The Oregon Bank, and The Bank of Nova Scotia, No. 82-0708, the Court makes the following findings and conclusions:
There is no dispute as to the facts which have been stipulated in the pretrial order. In brief, L2 obtained a nonrevolving line of credit from plaintiff on November 25, 1981, in the amount of $1,451,005.00 and granted plaintiff a security interest in crops, livestock, equipment and goods and products and proceeds thereof. The printed form restricted the borrower from encumbering the assets to anyone else and from permitting sale or removal of the security without the written consent of plaintiff.
L2 sold and delivered to Coast at Burbank, Washington, on March 3 and 4, 1982, some 5,000 bushels of white wheat. L2 did not obtain plaintiff’s written consent to the sale, but it had been the custom of the parties over years of dealing not to observe this requirement before sale.
Coast sent L2 a check for $18,501.00 in payment. L2 delivered the check to plaintiff, and it was presented for payment on April 8. The bank refused to honor it as Coast had filed its Chapter 11 on April 7. Plaintiff returned the check to L2 and Coast has not paid for the wheat otherwise.
Coast sold wheat to Bunge in Oregon which included the comingled wheat received from L2 and received $361,800.00 from Bunge on March 22. This was placed in Coast’s regular bank account in the U.S. National Bank of Oregon. All of this money was spent by Coast before the end of March. Bunge did not pay the balance of $51,056.16 owed Coast for the wheat until June 10.
It was agreed in the pretrial order that L2 was never in default on the loan from plaintiff, nor did it fail to perform any covenant in the security agreement.
Plaintiff renewed L2’s line of credit November 24, 1982, and returned the 1981 *672promissory note. L2 has been similarly financed for 18 years, with any unpaid balance from one year being included in the next year’s promissory note.
Plaintiff seeks reclamation of the wheat or its proceeds and claims conversion by the two banks as Coast has turned over substantial receipts from accounts receivable to the banks — primarily The Oregon Bank, which had also seized money in Coast’s bank account under its right of set off about the time of the filing of the Chapter 11. The wheat is now gone, and the claim is against the proceeds only.
By agreement of the parties, the court has not considered any question of marshaling nor of the right to the assets between the two banks and Coast’s trustee.
The wheat is a crop and the crop is a farm product and L2 was engaged in farming operations. The sale to Coast in Washington was therefore an exception to the rule that a buyer in the ordinary couse of business takes free of a security interest created by the seller whether or not he knows of its existence. UCC 9-301(1). If plaintiff has not lost its right to follow the wheat into Roast’s hands, its security interest continues also in identifiable proceeds.
The $361,800.00 paid by Bunge on March 22 and placed in Coast’s bank account was completely spent, and Coast had overdrawn its account by March 30. Coast then borrowed one million dollars from The Oregon Bank. What was left of this was seized by the bank on April 5 when the bank felt its position was insecure. The court does not accept plaintiff’s trust theory to give it a replacement interest in the funds borrowed from the bank, and holds that no identifiable proceeds from the Bunge payment remained at the time of the Chapter 11 filing either in the hands of Coast or the bank.
Bunge did not make the final payment of $51,056.16 for the wheat until June 10,-1982, and Coast’s bank account has never been below $20,000.00 since then. Since the total sale to Bunge was over $412,000.00, it is obvious that the L2 wheat was a very small part of such sale. Other growers, the banks, and the trustee also have a claim to the proceeds, and if plaintiff has not lost its security interest, it should be valid only as to that portion of the proceeds that the L2 wheat bears to the total sale. If the court finds in favor of plaintiff in following its security interest this far, the exact apportionment can be determined by stipulation of the parties.
Having recognized that the plaintiff’s claim, at best, is limited to less than $5,000.00, let us now consider the arguments as to whether it should be allowed at all. There are several hurdles the plaintiff must clear.
Since there are other PCA cases awaiting the outcome of this one, the court believes it desirable to touch on several of the questions raised. L2 delivered the wheat in the state of Washington, and absent a waiver of certain provisions in the security agreement, the wheat was still subject to the security interest of plaintiff.
Has plaintiff waived its security interest by permitting L2 to sell wheat without obtaining the prior written consent of plaintiff as provided in the security agreement? Plaintiff had been doing business with L2 for 18 years and never required L2 to obtain such consent before selling. It was understood that L2, upon receipt of the proceeds from the sale would turn over such payment to plaintiff, and L2 regularly did so. Their relationship was a very satisfactory one for both.
UCC 9-306(2) provides:
“Except where this Article otherwise provides, a security interest continues in collateral notwithstanding sale, exchange or other disposition thereof unless the disposition was authorized by the secured party in the security agreement or otherwise, and also continues in any identifiable proceeds including collections received by the debtor.” [emphasis added.]
While disposition was not authorized by the security agreement, defendants assert that it was authorized by the course of conduct. Plaintiff claims that the sale was authorized only on condition that the proceeds therefrom be turned over to plaintiff *673and hence there could be no waiver before receipt of payment. Coast did give L2 a check in payment which was turned over to plaintiff, but plaintiff failed to negotiate it in time to clear before Coast’s Chapter 11, and plaintiff returned the dishonored check to L2. There had, therefore, been no payment for the wheat.
In the recent Ninth Circuit Bankruptcy Appellate Panel decision, March 15,1983, of Halperin v. Tri-State Livestock Credit Corp., 28 B.R. 13, arising out of Arizona in the Ellsworth Chapter 7, the facts were almost identical to our present case. The panel followed the Tenth Circuit decision in First National Bank v. Iowa Beef Processors, 626 F.2d 764 (10 Cir.1980), and held that Tri-State’s security interest terminated when the cattle were transferred to Ells-worth with Tri-State’s authorization even though it was conditioned on subsequent receipt of the proceeds by Tri-State. The court distinguished between conditions precedent to authorization and conditions subsequent. The latter, in essence, make the buyer an insurer of acts beyond its control. This reasoning has merit, and the Washington Court of Appeals reached the same result in Southwest Washington Production Credit Ass’n v. Seattle First National Bank, 19 Wash.App. 397, 577 P.2d 589 (1978). Such decision, however, was reversed by the Washington Supreme Court a year later, 92 Wash.2d 30, 593 P.2d 167, holding that the secured creditor did not lose its interest in crops by conditioning its assent to sale on such creditor’s receipt of the proceeds. The Oregon case of Baker Production Credit Ass’n v. Long Creek Meat Co., Inc., 513 P.2d 1129 (1973), takes a similar position.
This was a Washington sale to Coast, and even though it can be argued that those cases are distinguishable, the court believes the rulings to be broad enough to cover the Coast situation and therefore feels constrained to follow the law as interpreted by the Supreme Court of Washington and find that there was no waiver of plaintiff’s security interest. Such interest, therefore, followed the wheat to Oregon and continued to remain superior to the general security interests of The Oregon Bank and The Bank of Nova Scotia on Coast’s inventory and accounts receivable.
Plaintiff never perfected its security agreement in Oregon by filing a financing statement there. What effect did that have? Plaintiff had no right to follow the grain into the hands of Bunge. As far as Coast is concerned, only the payment received on June 10 is involved. This was less than four months after removal of the wheat to Oregon. It was stipulated that the balance in the bank account in which Coast deposited the last Bunge payment has never been less than $20,000.00 since then. To protect its interest in such cash proceeds was plaintiff still required to file a financing statement in Oregon after June 10 but before the end of the four months? The purpose of the four-month rule is to protect purchasers and new creditors acquiring an interest in the collateral without knowledge of the security interest in the other state and still give the first creditor reasonable opportunity to protect its security. It was not designed to provide a windfall for the debtor who removed the property subject to the security agreement, but the debtor-in-possession or trustee is a different party. To preserve its interest in the proceeds against the two banks which held valid, but up to then, inferior interests in such proceeds, and against the debtor-in-possession or trustee, filing in Oregon was necessary within the four-month period. When plaintiff failed to do so, its lien was lost. It is possible that had plaintiff filed suit in the bankruptcy court within the four-months to recover the proceeds, it might have been sufficient to preserve its lien as to those defendants named in the suit. But the court does not have to decide this as no complaint was filed until September 23.
A request has been made that any judgment in this proceeding be signed by a district judge since this falls within the category of “related” proceedings in which the jurisdiction of the Bankruptcy Court was struck down by the U.S. Supreme Court in the renowned Marathon Oil case. *674Should review of the bankruptcy judge’s findings by a district judge also be requested, and should such judge reverse those findings that are adverse to plaintiff, then that portion of the Bunge June 10 payment which is allocable to the L2 wheat would be traceable into Coast’s present bank account under the lowest intermediate balance rule. Plaintiff would be entitled to recover that sum from Coast as a secured creditor. Since none of that money would be deemed to have gone to the two banks, plaintiff’s case for conversion against the banks would fail, and the complaint should be dismissed as to the banks.
In the event that the district court in a “review de novo” should find for plaintiff on all questions previously discussed, an additional point should be considered. Defendants claim that plaintiff lacks standing to sue them. They argue that this is basically a reclamation, replevin, or conversion case, and plaintiff must have the right to immediate possession of the security to bring such suit. Under the security agreement between plaintiff and L2, plaintiff would be entitled to the security only if L2 could be deemed in default under paragraph (9) of such agreement. There was no such default. In the pretrial order it was stipulated that L2 had never been in default and had never failed to perform any covenant in the security agreement. L2 might well have preferred that plaintiff bring suit against Coast rather than do so itself, but having failed to reclaim the grain within 10 days after sale, L2 had only an unsecured claim and assignment of this to plaintiff could carry no right to claim the grain. L2 may have chosen to make payments from other sources to keep the loan current. Plaintiff did not feel itself insecure and made no attempt to declare a default or accelerate the loan.
The court therefore finds that plaintiff does not have standing to bring this suit and has no direct cause of action against defendants. The complaint should therefore be dismissed. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489617/ | DECISION AND ORDER
CHARLES A. ANDERSON, Bankruptcy Judge.
FACTS
Debtors filed a joint petition for relief under Chapter 7 of the Bankruptcy Code on 29 November 1982. They scheduled ownership in certain real estate located in Bra-denton, Florida, valued at $59,900.00 and encumbered for $50,997.03. They also scheduled miscellaneous household goods and furnishings; a 1977 Chevrolet Van, valued at $2,500.00 unencumbered; and by later amendment, an income tax refund of $2,427.00.
The original schedules claimed as an exemption the automobile pursuant to Ohio Revised Code § 2329.66(A)(2); and, on 23 March 1983, the schedules were amended to claim as exempt a cash income tax refund in the amount of $2,427.00 pursuant to Ohio Revised Code § 2329.66(A)(4)(a), “by application of the unused $5,000.00 exemption for real or personal property under O.R.C. § 2329.66(A)(1).” The Debtors did not assert a claimed homestead exemption in the real estate.
On 30 March 1983 Milton L. Sprowl, Trustee in Bankruptcy, filed an “opposition” to the exemption claimed in the tax refund and motor vehicle, “for the reason that same are not in conformance with the applicable provisions of the Ohio Revised Code,” without further documentation,' which Debtors contested. The controversy came on for hearing on 27 June 1983.
The issues are narrowly drawn and have been submitted upon the basis of a proposed statutory interpretation, no pertinent case precedents or other substantiating authorities having been submitted.
The question is whether or not the homestead exemption of $5,000.00 provided by the applicable Ohio statute may be carried over as an exemption in lieu of homestead in personal property to the extent not claimed in real property. In behalf of Debtors it is urged as follows:
“The Debtors’ argument is grounded in a question of statutory interpretation. Under the 1954 edition of Title 23 the exemption provisions were not codified in a single statute, but rather spanned many Sections of the Revised Code, §§ 2329.62-.81 to be exact. In 1979, the Legislature sought to remedy this profusion of exemption law by codifying all of the above statutes into a single unified exemption statute, which is now known as § 2329.66. Under former § 2329.81 it was held that a debtor was entitled to a personal property exemption in lieu of a homestead exemption, thereby according non-property owners the same rights as fee holders. Indeed, it was held that an income tax refund due to a bankrupt as a result of wages withheld by his employer, was exempt under this Section. In re Johnson, 27 Ohio Op.2d 448, 232 F.Supp. 681; In Re Perry, 26 Ohio Op.2d 469, 225 F.Supp. 481.
An examination of the original language of House Bill 674, which was en*918acted as O.R.C. § 2329.66 is most instructive on this count. The composition of §§ 2327.26 [sic] and 2329.66 clearly reveal a legislative intent to transfer the purpose and meaning of former § 2329.81 into Sub-Section (A)(1) of the new unified exemption statute. (See Baldwin’s 1979 Laws of Ohio at 5-308).
That a personal property in lieu of real property exemption is intended to be made applicable to other sections of said unified exemption statute, is directly reflected in the punctuation of Sub-Section (A)(1), which is followed by a colon, unlike all of the following Sub-Sections, which are punctuated with semi-colons.”
The pertinent sections of the Ohio Revised Code read, as follows:
§ 2329.66 [Exempted interests and rights]
(A) every person who is domiciled in this state may hold property exempt from execution, garnishment, attachment, or sale to satisfy a judgment or order, as follows:
(1) The person’s interest, not to exceed five thousand dollars, in one parcel or item of real or personal property that the person or a dependent of the person uses as a residence:
(2) The person’s interest, not to exceed one thousand dollars, in one motor vehicle:
(4)(a) The person’s interest, not to exceed four hundred dollars, in cash on hand, money due and payable, money to become due within ninety days, tax refunds, and money on deposit with a bank, building and loan association, savings and loan association, credit union, public utility, landlord, or other person.. This division applies only in bankruptcy proceedings. This exemption may include the portion of personal earnings that is not exempt under division (A)(13) of this section.
(b)Subject to division (A)(4)(d) of this section, the person’s interest, not to exceed two hundred dollars in any particular item, in household furnishings, household goods, appliances, books, animals, crops, musical instrument, firearms, and hunting and fishing equipment, that are held primarily for the personal, family or household use of the person.
(c) Subject to division (A)(4)(d) of this section, the person’s interest in one or more items of jewelry, not to exceed four hundred dollars in one item of jewelry and not to exceed two hundred dollars in every other item of jewelry.
(d) Divisions (A)(4)(b) and (A)(4)(c) of the section do not include items of personal property listed in division (A)(3) of this section.
If the person does not claim an exemption under division (A)(1) of this section, the total exemption claimed under division (A)(4)(b) of this section shall be added to the total exemption claimed under division (A)(4)(c) of this section and the total shall not exceed two thousand dollars. If the person claims an exemption under division (a)(1) of this section, the total exemption claimed under division (A)(4)(b) of this section shall be added to the total exemption claimed under division (A)(4)(c) of this section and the total shall not exceed one thousand five hundred dollars.
(17) The person’s interest, not to exceed four hundred dollars, in any property except that this division applies only in bankruptcy proceedings.
Counsel for the Debtors has presented a question of first impression which apparently has not been analyzed as to the Ohio statutes in any reported judicial case precedent. No legislative history of statutes in Ohio is available for reference.
The present Ohio statutes pertaining to exemptions of property from levy of execution, garnishment, attachment, or sale by judicial process, codified into one unified Chapter multifarious and random preexisting Ohio statutes. The belated revision of antiquated statutes, many over 100 years old, was precipitated by the enactment of the Bankruptcy Code of 1978 on November 6, 1978; and, in fact, constitutes merely a *919variation of provisions patterned directly upon 11 U.S.C. § 522. The net result of the Ohio enactment made effective 28 September 1979, was to narrow and restrict the exemptions for debtors as provided by federal law, and to deny a debtor a choice of the § 522(d) exemption system. Ohio R.C. § 2329.662, and 11 U.S.C. § 522(b)(1). See 5 Day.L.Rev. 461 (1980). The states of Florida, Missouri, Ohio and Virginia “opted out” of the federal exemptions immediately, to be followed by twenty-nine other states by 1982. One bankruptcy court has held that the state statute (Louisiana) need not specifically negate or prohibit the use of the homestead exemption by non-homeowners to “opt out” of the stacking benefit afforded by 11 U.S.C. § 522(d)(5). See Re Kimball (Bkrtcy.La.1980), 2 B.R. 560, 5 B.C.D.2d 520, CCH Bankr.L.Reptr. ¶ 67,343.
One of the major alterations of the federal exemptions by the Ohio Statutes pertains to the homestead exemption. Assuming that there, in fact, existed a viable homestead exemption in Ohio prior to the 1979 statutes, the effective amount exempt was only $500.00 (a $1,000.00 provision being practically impossible) and provision was made by former Ohio Revised Code § 2329.-81 (repealed effective 9-28-79) for an exemption of $500.00 “in lieu of homestead.” This was interpreted to be a “catch all” exemption limited in scope by excluding such items as moneys, salary or wages due, and passenger automobiles. There was by judicial interpretation authority to claim as exempt income tax refunds despite the statutory exclusion and exception of “moneys due” to a debtor from a person, firm or corporation. See In Re Perry, 225 F.Supp. 481, 26 Ohio Op.2d 469.
Thus to interpret the Ohio statute it is necessary initially to advert to the legislative history of 11 U.S.C. § 522 and to the historical precedents therein codified, to determine whether the literal provisions of the Ohio statute are susceptible to judicial gloss or the requested judicial expansion of literal provisions.
It is important to observe that the federal exemption specifically digresses from the provisions of the Uniform Exemption Act and the Bankruptcy Commission Bill of 1973 by including a $7,900.00 “grubstake” exemption. See 9 Am.Jur.2d Bankruptcy § 323; and Norton, Bankruptcy Law and Practice § 26.11. The Ohio statute not only demonstrates no intention of granting a similar “catch all” exemption; but, it very clearly deletes this feature.
The deletion of any such exemption stacking by the Ohio legislature in tracking the federal statute, as a factor, is further emphasized by reference to other provisions contained in the Ohio statutes. For instance, it must be noted that § 2329.-66(A)(4)(b) and (c) specifically addressed the stacking exemption, as follows:
“If the person does not claim an exemption under division (A)(1) of this section, the total exemption claimed under division (A)(4)(b) of this section shall be added to the total exemption claimed under division (A)(4)(c) of this section and the total shall not exceed two thousand dollars. If the person claims an exemption under division (a)(1) of this section, the total exemption claimed under division (A)(4)(b) of this section shall be added to the total exemption claimed under division (A)(4)(c) of this section and the total shall not exceed one thousand five hundred dollars.” ■
The critical section and terminology contained in the federal statutes (11 U.S.C. § 522(d)(5)) (the phrase “... plus any unused amount of the exemption provided under Paragraph (1) of this subsection [the $7500.00 homestead exemption] in any property”) was deleted from the Ohio statutes. The section of the Ohio statutes (R.C. § 2329.66(A)(17)) which primarily tracks this crucial federal statute reads, as follows, to add:
“The person’s interest, not to exceed four hundred dollars in any property, except that this division applies only in bankruptcy proceedings.”
See opinion by this Court In Matter of Reynolds, 24 B.R. 344 (Bkrtcy.Ohio 1982), as to the unconstitutionality of this section.
Rather than to labor the obvious, it is important to note traditional principles of statutory construction which justifiably re*920move courts from the process of indulging in so-called “judicial legislation.” Obviously, this Court cannot by either decision or dictum under the guise of “liberal interpretation” of the intent of the legislature create a right to an exemption not found in the plain wording of the statute. Since the Ohio statues do not provide for a $7,900.00 “grubstake” stacking of specific exemptions, the courts cannot supply such a lacking. See Morris Plan Bank v. Viona, 122 Ohio St. 28, 170 N.E. 650. In statutory construction, the maxim, “expressio unius est exclusio alterius” applies. Generally, see 73 Am.Jur.2d, Statutes §§ 210, 211. The Ohio legislature in confronting the federal exemption statutes and electing to “opt out” expressed the clear purpose of expunging the full $7,900.00 grubstake exemption.
Hence, the exemptions as claimed by Debtors must be denied, sustaining the objection by the Trustee in Bankruptcy. The exemption allowable to the Debtors in a motor vehicle cannot exceed $1,000.00 (R.C. § 2329.66(A)(2)) and the exemption allowable to Debtors under the catch-all exemption cannot exceed $400.00 (R.C. § 2329.-66(A)(17). The same principles apply to the exemption claimed pursuant to Ohio Revised Code § 2329.66(A)(4)(a) so that any unused portion of the $400.00 exemption therein to be applied to the income tax refund cannot exceed $400.00. Hence, the maximum exemption applicable to the income tax refund cannot exceed $800.00 and to the extent not applied to other property. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489619/ | FINDINGS AND CONCLUSIONS
JOSEPH A. GASSEN, Bankruptcy Judge.
This matter was tried on a complaint objecting to the discharge of the debt of the debtor, Roy P. Schoenfeld, to Martin Tom-berg. The court concludes that the debt is non-dischargeable under 11 U.S.C. § 523(a)(6).
At the time of the events in question the debtor was a shareholder of Cole-Roy, Inc., together with Mr. and Mrs. Louis Cole. The debtor managed a store which was operated by the corporation and Cole kept the books and handled the bank accounts. In 1981 a similar store, Wholly Harvest, began operation in the same shopping center after reaching an agreement with Cole-Roy, by which Wholly Harvest would make payments to Cole-Roy (see Plaintiff’s Exhibit No. 2). Cole-Roy was already in serious financial trouble, and so at the same time, in June, 1981, the corporation obtained a loan from Mr. Cole’s cousin, Martin Tomberg (Plaintiff’s Exhibit No. 3). The promissory note was signed by Schoenfeld and Cole in their individual capacities as well as on behalf of the corporation. The loan was for $8,000 and payment was to commence in-September. The corporation was due to receive $8,000 from Wholly Harvest in September. In conjunction with the loan, the payments due from Wholly Har*10vest were assigned to Tomberg (Plaintiffs Exhibit No. 4). Wholly Harvest was not given any notice of the assignment because Cole convinced Tomberg that it was undesirable to make the matter public.
The $8,000 loan was spent within a few days to pay creditors. The debtor then prevailed upon Wholly Harvest to pay $5,000 immediately, rather than in September. Five hundred dollars was paid to the debtor to fund his vacation, and the other $4,500 was deposited into the corporate checking account. Schoenfeld did not inform Cole that he had obtained the money, because he wanted to “surprise” him. During that period (and for over a year) the checking account had been almost continuously overdrawn, up to an amount of $20,-000. As a result, Cole checked on the account almost every day, and was indeed surprised to find the extra money in the account. Cole testified that he did not know the money was from Wholly Harvest until after it had been spent, but he also testified that he knew there must have been a mistake, and the court finds that he was equally at fault with the debtor for spending the money rather than repaying Tomberg.
Schoenfeld admitted that he knew it was wrong to get and use the money from Wholly Harvest when its debt had been “sold” to Tomberg. However, he was desperate to save the store, and September, when payment was due to Tomberg, was a long way off. Although he stated that he intended to pay Tomberg from other sources in the fall, he admitted that the summer was the slowest period for the store, and he did not come up with any explanation as to where he expected to obtain the money from over the summer.
Although the debtor did not pay back the $500 to Cole-Roy, as such, he subsequently lent the company $3,700 from life insurance policies he cashed, and there may have been another later loan to the company. At the time he “borrowed” the $500, the corporation was indebted to him for at least $30,-000, although it was very thinly capitalized at that time. However, even if Schoenfeld had wrongfully deprived the corporation of the $500 which this court does not find, it would be irrelevant to plaintiff’s case because it was a matter between the debtor and the corporation and could not affect the transaction with Tomberg which had previously been completed.
The note to Tomberg was partially repaid from store receipts but no payments were ever made by Schoenfeld or Cole individually, although checks may have been written from Cole’s personal account after cash was taken from the day’s receipts.
Plaintiff asserts that the debt is non-dis-chargeable because it was obtained by fraud (§ 523(a)(2),) or is a debt for willful and malicious injury (§ 523(a)(6).) The evidence entirely fails to show any evidence of fraud in the obtaining of the loan from Mr. Tomberg. Cole arranged for the loan and there was not a hint that it was done as part of a scheme to defraud Tomberg.
The decision on the second point is more difficult. However, the debtor fully intended to permanently deprive Tomberg of a valuable right, his right to look to the payments from Wholly Harvest if Cole-Roy failed to pay its debt to him. Although the court concludes that Schoenfeld did not intend any permanent injury to Tomberg, he did know that he was taking away Tom-berg’s security, and that Cole-Roy would have to repay Tomberg out of funds which were very doubtful of receipt as of the date the Wholly Harvest funds were taken. This constituted a conversion which is non-dischargeable under § 523(a)(6).
The debtor argues that there was no valid assignment to Tomberg and that therefore Tomberg was not deprived of anything by the debtor’s action. Although the assignment is inartfully drawn, it is quite clear that the Wholly Harvest payments were being assigned to Tomberg as security. If there is any ambiguity in the document, the debtor’s testimony clearly indicates that that was the intention of all involved. The debtor also asserts the lack of perfection of the assignment as a defense. This is not a defense between a *11debtor and its secured creditor, but can only be raised by a third party.
The debt of Schoenfeld to Tomberg as a result of the debtor’s conversion, in the amount of $8,695.25, will not be discharged.
It may be inequitable that Tomberg made no challenge to the dischargeability of Cole’s liability in his cousin’s bankruptcy. But the wrongdoing of one debtor, or even his cooperation with a joint creditor against his co-debtor, does not alleviate the effect of a debtor’s own acts.
Pursuant to 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/8489620/ | FINDINGS OF FACT AND CONCLUSIONS OF LAW
SIDNEY M. WEAVER, Bankruptcy Judge.
THIS CAUSE came before the Court upon an Adversary Complaint for Relief from Automatic Stay, and Complaint to Determine Amount, Validity, Priority and Extent of Liens, and the Court having considered the evidence and testimony presented, having heard argument of counsel, and being fully advised in its premises, hereby enters this its Findings of Fact and Conclusions of Law.
Diamond Sales Company Of Miami, Inc. (hereinafter “the Debtor”), was a Debtor-in-Possession pursuant to a Voluntary Petition filed under Chapter 11 on June 4, 1982. This matter was converted to a proceeding under Chapter 7 on January 21, 1983, and a Trustee was appointed.
The Bank Of Miami, Inc. was dismissed as a Defendant pursuant to its Motion to Dismiss, based upon the assignment of its interest to the United States of America on behalf of its agency, Small Business Administration (hereinafter “United States”). The Bank Of Miami, Inc. and thus its as-signee, the United States, has a secured lien in the equipment, machinery, inventory, accounts receivable, contract rights and proceeds therefrom. Such Security Agreement is perfected and constitutes a first lien on said assets by virtue of being the first security interest on the assets of the Debtor recorded with the Secretary of State of Florida. The United States is owed $44,878.01’ principal, interest from *22February 28, 1982, costs and a reasonable attorney’s fee.
Lilli Of Miami, Inc. (hereinafter “Lilli”) had a security interest in certain inventory of the Debtor based upon consignment memorandums and a Financing Statement which was filed with the Secretary of State of Florida. However, this security interest does not extend beyond the specific inventory which was consigned to the Debtor. All of the inventory which was consigned to the Debtor by Lilli has either been paid for or returned to Lilli, or the proceeds used by the Debtor prior to June 4, 1982. Thus, Lilli does not have a security interest in the presently existing inventory or assets of the Debtor and is an unsecured creditor of the Debtor.
Constellation Of Florida, Inc. (hereinafter “Constellation”) also claims to have had a security interest similar to that of Lilli. However, Constellation did not file a Financing Statement with the Secretary of State of Florida as required by the Uniform Commercial Code in order to perfect its security interest and thus is an unsecured creditor of the Debtor.
Bank Leumi Trust Company Of New York (hereinafter “Leumi”) is a secured creditor of the Debtor having a security interest in all present and future accounts, chattel papers, instruments and all present and future goods by virtue of a Security Agreement and Financing Statement filed with the Secretary of State of Florida. Leumi is owed $188,000.00 principal, interest from June 1, 1982, costs and a reasonable attorney’s fee. Said security interest is a second lien on the assets of the Debtor since the lien of the United States is superi- or by virtue of its prior perfection.
The Motion of Leumi and the Trustee to require the United States to marshall its assets by virtue of its Mortgage on the property of Lilli Swaebe, wife of the President of the Debtor, is hereby denied. Lilli Swaebe was not liable to the Bank Of Miami, Inc. and thus marshalling, which requires the existence of a common debtor, is not applicable.
The assets in which the United States and Leumi have a security interest are not necessary to the effective reorganization of the Debtor and the Trustee and Debtor have no equity in such property. Furthermore, the United States and Leumi are not being adequately protected and thus are entitled to relief from the automatic stay provisions of the United States Bankruptcy Code. Therefore, the automatic stay is hereby modified to permit the United States and Leumi to foreclose their respective security interests.
Pursuant to Bankruptcy Rule 921(a), a Final Judgment incorporating these Findings of Fact and Conclusions is being entered this date.
FINAL JUDGMENT
In conformity with the Findings of Fact and Conclusions of Law of even date, it is:
ORDERED AND ADJUDGED:
1. That Lilli of Miami, Inc., and Constellation of Florida, Inc. have unsecured claims in the estate of Diamond Sales Company of Miami, Inc., Debtor herein.
2. That the United States of America has a secured lien on the equipment, machinery, inventory, accounts receivable, contract rights and proceeds therefrom of Diamond Sales Company of Miami, Inc. in the sum of $44,878.01 principal, interest from February 28, 1982, costs and a reasonable attorney’s fee superior to any lien of any of the Defendants herein.
3. That Bank Leumi Trust Company of New York has a secured lien in the present and future accounts, chattel papers, instruments and goods of Diamond Sales Company of Miami, Inc. in the sum of $188,000.00 principal, interest from June 1, 1982, costs and a reasonable attorney’s fees which is subordinate to the lien of the United States, but is superior to the claims of any of the other Defendants herein.
4. That the automatic stay is hereby modified to permit Bank Leumi Trust Company of New York and the United States to enforce their security interests in the collateral in accordance with applicable law.
*235. This Court retains jurisdiction to award costs and a reasonable attorney’s fee upon proper application. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489621/ | ORDER OF DISMISSAL
THOMAS C. BRITTON, Bankruptcy Judge.
In this chapter 11 case, a confirmation hearing on the debtor’s plan was held on March 15. Ruling was reserved until April 19 to give debtor a further chance to come up with the money required under its plan to be deposited before confirmation. B.R. ll-38(a). (C.P. No. 55).
The debtor failed to comply and, instead, moved on April 14 for an indefinite postponement pending the harvest of a crop expected on June 15 and worth $50,000.
Following a hearing on that motion, held April 26, the deadline for the deposit was extended to July 15. (C.P. No. 57).
The debtor has not complied and at a hearing held on July 19 announced it was still unable to come up with the pre-confir-mation deposit.
Each of the foregoing Orders gave notice that:
“This case has now been pending over a year and confirmation will be denied and this case will be dismissed if the debtor does not meet this deadline.”
Notice had been given before the confirmation hearing that dismissal or conversion would be considered if confirmation were denied. I believe that at least one creditor has requested dismissal during this case. If not, I recede from an earlier contrary view and join many of my colleagues in concluding that this court has inherent discretion to dismiss a chapter 11 case under the circumstances here. Coram Graphic Arts (Bkrtcy.E.D.N.Y.1981), 11 B.R. 641.
This debtor has had the benefit of the automatic stay since March 8, 1982. It either lacks the capability of carrying out its plan or it is not acting in good faith. In either event, confirmation must be and is denied. B.R. ll-38(a); § 1129(a)(3) and (11).
The case is dismissed under § 1112(b)(3) and (5). Dismissal is with prejudice to the filing of any other bankruptcy proceeding by this debtor earlier than one year after this order becomes final. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489625/ | FINDINGS AND CONCLUSIONS
JOSEPH A. GASSEN, Bankruptcy Judge.
A trial was held on March 14,1983 on the complaint of Cardell Enterprises Corp. to determine the dischargeability of a debt to it. The debt arose out of the consignment of an automobile by plaintiff to Automobile Showcase, the debtor’s auto sales company. The court concludes that the debt is nondis-chargeable.
In early 1981 Carmine Dellapietro, vice president of plaintiff Cardell, consigned a 1967 jeep to Automobile Showcase for resale (Plaintiff’s Exhibit No. 1 and Defendant’s Exhibit A). The defendant did not personally accept the consignment. That aspect of the transaction was handled by Henry Davis, who worked for the defendant, and with whom Mr. Dellapietro subsequently had some correspondence. Only Dellapietro and Armeni testified at trial. There are substantial fact issues in this case and to a large extent the court has had to base its findings on its assessment of the credibility of each witness’s story.
It is undisputed that the jeep was sold by defendant for $2,500 to a purchaser from the Bahamas. Because a new certificate of title could be issued in the Bahamas from the bill of lading, plaintiff was never required to deliver its certificate of title. The proceeds of the sale were deposited in the debtor’s general business checking account which was depleted without any payment to plaintiff.
Plaintiff contends that the defendant had no authorization to sell the auto for $2,500. Dellapietro testified that he signed the consignment form leaving the asking price blank, and that the amount “$2,500 or best offer” was filled in later without authorization. Dellapietro explained that he did not receive a copy of the consignment form at the time he signed it but that the copy was mailed to him later. Although Armeni testified that the jeep was hardly worth $2,500 and that no consignment form would be signed in blank, he had no personal knowledge regarding the signing of the form. *82While some aspects of Dellapietro’s story raised questions, it is supported by photocopies of letters he wrote to Davis protesting the insertion of the $2,500 price and discussing a price that would be acceptable to plaintiff. (Plaintiff’s Exhibits Nos. 3 and 4). It cannot be discerned from an examination of the physical evidence whether or not the amount was inserted later. Taking all the conflicting evidence into consideration, the court finds that plaintiff did not authorize the jeep to be sold for $2,500 at the time the consignment form was signed or at any time prior to the sale. A letter was sent to plaintiff confirming that the auto had been sold (Plaintiff’s Exhibit No. 5) but the letter makes no reference to any approval by plaintiff prior to the sale.
The court concludes that the debt is non-dischargeable under § 523(a)(6) as a debt “for willful and malicious injury ... to the property of another entity” because of the debtor’s failure to segregate the funds, whether or not he had the intention from the inception of the transaction of depriving plaintiff of the funds. It was an intentional act by the debtor which could have and ultimately did deprive plaintiff of funds that belonged to it and were only being held for it by the debtor. Because the court finds that plaintiff had not agreed to the price at which the car was sold, it is necessary to determine the actual value of the jeep, which would be the amount of the debt owed to plaintiff. In addition to the two witnesses’ own evaluations of the worth of the auto, Dellapietro testified that Automobile Showcase had received an offer of $3,500 prior to the sale which was completed. Although Armeni denies that, Del-lapietro’s letter refusing that offer lends credence to Dellapietro’s testimony (Plaintiff’s Exhibit No. 4). The circumstances of the sale, including the convenient fact that the sale was made to a purchaser who did not require a transfer of title, lead the court to conclude that the sale was made at a price lower than that which might otherwise have been obtained. The court finds that the reasonable value of the automobile was $3,500 but that defendant’s ten percent commission should be deducted from that amount because plaintiff clearly desired that the jeep be sold, and had agreed to defendant’s commission. The debt of Anthony Armeni to Cardell Enterprises Corp. in the amount of $3,150 will not be discharged.
Pursuant to 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/8489627/ | ORDER ON OBJECTION TO CLAIM
WILL G. CAFFEY, Jr., Bankruptcy Judge.
This matter having come on for hearing upon the Objection of Robert H. Ching, Jr., Trustee, to Claim No. 8 filed by Household Finance Corporation (HFC) in the amount of $3,000.66 as an unsecured claim; due notice of hearing having been given; and the matter having been submitted upon the pleadings and arguments of counsel;
Now, therefore, the Court finds, concludes and orders as follows:
FINDINGS OF FACT
The debtors filed a voluntary petition under Chapter 7 of the Bankruptcy Code on November 14,1979. Robert H. Ching, Jr. is the duly appointed, qualified and acting Trustee.
The Order of the Court fixing the meeting of creditors for December 10,1979 stated that the case appeared to be a “no asset” case and that it was unnecessary for creditors to file claims. Subsequently, on October 20, 1981 creditors were notified by mail that assets had come into the estate and that December 21, 1981 was fixed as the last day for the filing of a proof of claim.
On December 31,1981 Household Finance Corporation filed Claim No. 8 herein as an unsecured claim in the amount of $3,000.66.
The answer filed herein by HFC alleges that it received the notice sent by the Court, but failed to file its claim within the time allowed because at the time it was experiencing a change of personnel, including its local manager.
CONCLUSIONS OF LAW
Under Bankruptcy Rule 302(e)(4), in a Chapter 7 case where notice of “no dividend” has been given to creditors and subsequently the payment of a dividend appears possible, the Court is required to grant creditors a reasonable fixed time for the filing of claims, of not less than 60 days after the mailing of the notice or 6 months after the first date set for the first meeting of creditors, whichever is the later.
Bankruptcy Rule 302
The time fixed by the Court was within the limits fixed by the rule.
Rule 906(b) which empowers the Court, with certain restrictions to grant extensions of time within its discretion, specifically provides that it does not apply to the limitations imposed by Bankruptcy Rule 302(e).
Bankruptcy Rule 906
It is the opinion of this Court that the time limitation fixed by the Court for the filing of claims is mandatory; and that the claim of Household Finance Corporation is due to be disallowed as a timely filed claim, but allowed as a tardy claim, entitled to a subordinated status established by Bankruptcy Code Section 726(a)(3). In re Oakton Beach & Tennis Club Real Estate Limited Partnership 9 B.R. 201 (ED, Wis, Bkrtcy.—1981); In re Valiy Fair Corp. 4 B.R. 564 (SD, NY, Bkrtcy.—1980).
ORDER
Now, therefore, it is ORDERED, ADJUDGED and DECREED that the Objection of Robert H. Ching, Jr., Trustee, to the claim of Household Finance Corporation, being Claim No. 8, be, and it hereby is, *91SUSTAINED; and said claim is hereby DISALLOWED as a timely filed claim herein; but ALLOWED as a tardily filed claim entitled to subordinated payment under Section 726(a)(3) of the Bankruptcy Code. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489628/ | ORDER ON VALIDITY AND PRIORITY OF CLAIM OF ASSOCIATES COMMERCIAL CORPORATION
JOSEPH A. GASSEN, Bankruptcy Judge.
At a pretrial conference held in these consolidated cases, it was agreed that the issue of the validity of Associates Commercial Corporation’s security interest in property of the debtor Dolphin Knitting was a pure question of law. The parties submitted memoranda of law and filed a written stipulation of facts (C.P. No. 45). The issue to be decided is whether Associates’ security agreement is unperfected because of Associates’ failure to pay the Florida documentary stamp tax prior to the filing of the financing statements or whether, instead, Associates was not required to pay the tax on the transaction in question.
In March of 1980 Dolphin Knitting Mills entered into a Maturity Factoring Agreement with the First National Bank of Dallas. In 1981 the parties executed an Equipment Security Agreement, which is the basis of Associates’ alleged security. Both agreements, as well as amendments, were signed and accepted by the bank in Texas after they had been signed by Dolphin in Florida. The factoring agreement provides that it is to be performed in Texas, and both documents recite that they are to be' governed by Texas law. The agreements were subsequently assigned by the First National Bank to Associates Commercial. All aspects of the assignment were completed in Texas except that Dolphin consented in Florida to the assignment to Associates. Although not included in the stipulation, it was not disputed that a financing statement was filed in Florida and no issue about that filing was raised except as to the failure to purchase and affix documentary stamps.
This court has previously concluded that the failure of a creditor to purchase and affix documentary stamps to financing statements prior to recording, when required to by the Florida statutes, will prevent perfection of the creditor’s security interest. Associates Commercial Corporation v. Sel-O-Rak Corporation, In re Sel-O-Rak Corporation, 26 B.R. 223 (Bkrtcy.1983), on appeal. The reasoning of that case is adopted here.
The question in this case, however, is whether or not Associates was required to pay the tax, where all material aspects of the overall transaction occurred outside the state of Florida except for the filing in question. The court concludes that the Florida legislature intended the inclusion of this transaction.
Florida Statutes, § 201.01, provides generally for an excise tax on various documents. Section 201.08 provides specifically for a tax on notes and other obligations and on mortgages and security agreements. Both sections make provision for transactions which include both an obligation to pay and some type of security agreement, so that the tax is paid only once on the total transaction.
Section 201.01 provides that the tax is to be paid “by any person who makes, signs, executes, issues, sells, removes, consigns, assigns, records, or ships the same, or for whose benefit or use the same are made, signed, executed, issued, sold, removed, consigned, assigned, recorded, or shipped in the state.” (Emphasis added). The provision for documents recorded in the state was added by amendment in 1977. Section 201.-08 provides for a tax on “mortgages, trust deeds, security agreements, or other evidences of indebtedness filed or recorded in this state”. (Emphasis added). This sentence was also added by amendment in 1977.
On the face of the statute it seems clear enough that the tax is to be paid on security agreements filed with the Florida Secretary of State. Where a transaction includes both the lending of money and the giving of security, the statute as amended requires that the stamps be affixed onto the security instrument at the time of recording, probably for the pragmatic reason that the tax is *102more likely to be collected in that manner. The statute does not address generally the question of its application in situations where the lending of money is completed outside the state and recording is within the state. However, the significance attached by the legislature to the recording aspect of the transaction is demonstrated by the part of § 201.08 which concerns future advances. It provides that the tax is to be paid as each advance is made regardless of where it is made, so long as the financing statement was originally filed in Florida. This seems to show that the legislature intended to tax the process of recording or filing in Florida no matter where the loan was made.
One sentence of the statute (§ 201.08) does refer to multi-state transactions: “Mortgages, including, but not limited to, mortgages executed without the state and recorded in the state, which incorporate the certificate of indebtedness, not otherwise shown in separate instruments, are subject to the same tax at the same rate.” This statement succeeds the sentence setting forth the tax rate for mortgages, trust deeds, and security agreements, and precedes the sentence which provides for situations where there is both a mortgage, trust deed or security agreement and a [separate] note or obligation. The quoted sentence is the only one in § 201.08(1) which referred to mortgages (or any type of security instrument) in the pre-1977 version of the section, and its slight inconsistency with the surrounding paragraph appears to be due more to an inartful amendment process than to legislative intention. In the context of the entire statute the sentence cannot be interpreted to imply an exclusion from taxation (by omission from specific reference) of security agreements when they have separate instruments of indebtedness which were executed outside the state.
Cases involving security instruments which were decided on the basis of the statute before its amendment to include the word “recording”, such as Rainey v. Department of Revenue, 354 So.2d 387 (Fla.App.1977), are not controlling. The court has not found any post-amendment Florida case which addresses the specific issue to be decided here. Similarly, cases which have decided whether or not certain notes or contracts were made in Florida are not on point because we are dealing here only with a question of recording.
Associates argues that even if the statute is applicable to the security agreement in question, it is not enforceable because it is an unconstitutional burden on interstate commerce. This court agrees.
A recent expression by the Supreme Court of the principles to be applied is found in Maryland v. Louisiana, 451 U.S. 725, 753, 101 S.Ct. 2114, 2132, 68 L.Ed.2d 576, 600 (1981):
[A] state tax is not per se invalid because it burdens interstate commerce since interstate commerce may constitutionally be made to pay its way.... (citations omitted) The State’s right to tax interstate is limited, however, and no state tax may be sustained unless the tax: (1) has a substantial nexus with the State; (2) is fairly apportioned; (3) does not discriminate against interstate commerce; and (4) is fairly related to the services provided by the State, (citations omitted).
The tax which is the subject of this case is imposed on the process of filing financing statements with the Secretary of State of Florida. The filing is necessary only for the perfection of a security interest in property within the state of Florida, and can benefit a creditor only to the extent of the value of the Florida collateral. But the tax is imposed on the total amount of the indebtedness, even though the loan was, as a matter of law, completed outside the state.
On these facts the court concludes that the tax is unconstitutional because it goes beyond any interest the state has in the transaction, and beyond the services that the state provides — a legal system for the enforcement of rights in collateral within the state. It could also lead to multiple taxation if other states have the same type of taxing statute and the loan is made in one state while collateral exists in several states.
*103Because the tax is unconstitutional as applied to Associates in this case, this court will not penalize Associates for its noncompliance with the statute by preventing perfection of Associates’ security interest. All other requirements for perfection were complied with and Associates has a perfected security interest in the equipment of Dolphin which is not defeated by the filing for reorganization and the status of the debtor-in-possession as a hypothetical lien creditor as of the date of filing. At trial the amount of the claim was determined to be $116,846. (See Findings and Conclusions entered separately.) It is, therefore
ORDERED and ADJUDGED that Associates Commercial Corp. has a valid secured claim in the amount of $116,846. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489629/ | ORDER TRANSFERRING ADVERSARY PROCEEDING
THOMAS C. BRITTON, Bankruptcy Judge.
The debtor (Hospitality) and a third party have sued the debtor’s landlord seeking relief by mandatory injunction. In March, this court authorized the debtor to assume this lease, assign it to a vendee (Burger King) and sell its interest to the vendee for a substantial sum. The application was unopposed and the proposed terms and conditions of the sale were routinely approved by this court.
The purchase was conditioned upon the landlord approving certain plans for renovating the property. The landlord has refused his approval. Plaintiff alleges that the landlord’s refusal is arbitrary and unreasonable and, therefore, seeks coercive relief.
The property is in Dallas. The defendant is in Dallas. The issues are controlled by Texas law. There is no connection between the issues presented here and any background information acquired by this court. Defendant seeks a transfer of the matter to Dallas.
*105It is plain, therefore, under the doctrine of forum non conveniens that the trial of this matter should be transferred to the Bankruptcy Court in Dallas. Wright & Miller, Cooper Federal Practice and Procedure: Civil § 3828. These principles govern the exercise of this court’s discretion under 28 U.S.C. § 1475.'
I am also convinced that the proper venue for this adversary proceeding, which is based on a claim arose after the commencement of the bankruptcy and arising from the operation of the debtor’s business, was in Dallas rather than Miami. 28 U.S.C. § 1473(d). For this reason also, therefore, the case should be transferred.
Defendant’s motion for transfer is, therefore, granted.
Defendant’s motion to dismiss for lack of jurisdiction presents a closer question. I believe that I will better assist both the parties and my colleague in Dallas by deferring disposition of that motion to that court. There is some indication that defendant would consent to have the matter heard at home rather than in Florida. For that reason, this court abstains from consideration of the motion to dismiss. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489631/ | DECISION AND ORDER
CHARLES A. ANDERSON, Bankruptcy Judge.
FACTS
On 17 August 1981 Joe Frederick Bilberry and Valerie Edith Bilberry filed a joint Petition for relief in accordance with Chap*198ter 13 of the Title 11, United States Code, and proposed a Plan, with several subsequent modifications, to be funded from the operation of a business operated under the name of Bilberry Printing and Lithographing. The case was subsequently converted to a Chapter 7 administration by order for relief on 7 February 1982 and George W. Ledford was appointed as Trustee who then proceeded to liquidate the estate assets.
In connection with the estate liquidation the Trustee filed on 8 June 1982 an adversarial proceeding for sale of a parcel of real estate, the record title of which was vested in Joe F. Bilberry, and for rejection of an installment land contract purchase agreement with Thomas McKinney and Carolyn McKinney, husband and wife as purchasers, dated 6 November 1973 and duly recorded on 12 November 1973 in the Montgomery County Mortgage Records. The purchase price was $14400.00 bearing interest at 7¥4% per annum, payable by a payment of $500.00 upon execution, and the balance by monthly installments of $134.00. This real property was encumbered on 18 July 1973 by a mortgage to Gem Savings Association and by liens for delinquent real estate taxes and junior liens against Debtors to the State of Ohio and the United States. Carolyn McKinney is the successor in interest of her husband, Thomas McKinney, who died January 18, 1980. Carolyn McKinney ceased to reside in the property upon the death of her husband and the premises have since then been rented as investment property.
Carolyn McKinney has maintained all payments to Gem Savings Association and its mortgage is current, with a balance owing of $13,025.00. In addition to the mortgage payments, she has accounted for investments in improvements for new wiring, furnace repair and replacement, and the basement in the amount of $3050.00.
The current fair market value of the property is $15000.00; and, the present balance due on the land contract is about $500.00 less than the balance due on the mortgage to Gem Savings. The mortgage was in the original amount of $14,400.00 and the McKinneys made the mortgage payments directly to the mortgagee in lieu of the $134.00 land contract installments to the Bilberrys.
No evidence has been adduced as to the amount of the liens of the State of Ohio and the United States, or the validity and priority thereof.
After the submission of the issues instanter on 11 July 1983, upon request of the Debtors, an order was entered in the case file for conversion of the Chapter 7 case to a Chapter 13 administration; and- a proposed Plan was filed on 19 July 1983.
DECISION
The Trustee and the attorney for Defendant, Carolyn McKinney, have requested a bifurcated determination of the legal rights as to a rejection of the land contract and sale of the property by the Trustee before proceeding with a determination of the distribution of sale proceeds. Several complicated questions have been posed as to who as a matter of law is “in possession” and whether the assumption by the purchasers of the balance due on the Gem Savings mortgage as a practical matter constituting payment of the balance due on the land contract renders the land contract as no longer “executory.” The parties appear to overlook the necessity for resolution of precedent issues, which obviate the philosophical legal questions propounded.
The gravamen of any action by a Trustee to sell estate property, or the rejection or assumption of executory contracts is the question of benefit to the estate. The Trustee did not assume the contract within 60 days after the order of relief; hence, it is deemed rejected as of that date and constitutes a “breach” giving rise to an appropriate claim for damages. 11 U.S.C. § 365(d)(1). Since the Trustee did not assume the contract, the damages accrue as of the date of the breach. Treating the purchaser as not being in possession, she has a lien on the interest of the debtor for the recovery of the portion of the purchase price paid. 11 U.S.C. § 365(g). There is no evidence that the property can be sold for *199more than its current valuation of $15,-000.00. The amount paid on the purchase price is at least $500.00 plus reducing the first mortgage balance by at least $1325.00
From these general computations, after payment of the balance due on the first mortgage and the lien of the purchaser, any benefit to the estate, which is problematical, would be nominal, at best. Assuming a nominal realization, the expenses of sale would create a negative effect on the estate. It would serve no purpose further to rationalize the legal effect of the cost of improvements added to the property by the purchasers in the amount of $3050.00, although it probably is not a part of the purchase price lien.
In summary, the court is constrained to deny the request to sell the subject real property because such a sale would be burdensome to the estate, even assuming that there are no other liens or expenses of sale not of record herein. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489632/ | CHARLES A. ANDERSON, Bankruptcy Judge.
PRELIMINARY PROCEDURE
This matter is before the Court upon Complaint filed on 3 May 1983 requesting relief from the automatic stay of 11 U.S.C. § 362(a). The Court heard the matter at a preliminary hearing held 2 June 1983, and a final hearing held 21 July 1983. Note 11 U.S.C. § 362(e). The following decision is based upon the record, including the parties' joint pretrial order approved by the Court on 19 July 1983, and the evidence adduced. The Court also takes judicial notice of Debtor’s case file, numbered 3-83-00466.
FINDINGS OF FACT
The pertinent facts are not in dispute. Debtor purchased the subject four-unit apartment building for $21,500.00 in early April of 1982. Debtor’s deed dated 12 April 1982 and a mortgage were duly recorded on 15 April 1982 to secure a loan Plaintiff made to Debtor in the principal amount of $17,200.00.
On 2 March 1983, Debtor filed a Petition under 11 U.S.C. Chapter 13. Debtor scheduled Plaintiff’s claim as $1,400.00 in arrears and estimated the value of the subject real estate at $20,000.00. Debtor’s Plan proposes 100% payment of Plaintiff’s claim.
On 22 March 1983, Plaintiff duly filed a Proof of Claim indicating that, as of that date, the principal amount owing was $17,-043.94 and interest owing was $1,972.66 for an aggregate claim in the amount of $19,-016.60.
By Order dated 11 April 1983, Debtor commenced monthly payments to the Chapter 13 Trustee, conformably to this Court’s standard Interim Order. To date, Debtor’s Plan has not been confirmed by the Court because of the instant pending adversary proceeding.
Plaintiff filed the instant Complaint on 9 May 1983. Plaintiff prays for relief from this Court’s automatic stay to enable Plaintiff to foreclose on its mortgage on the subject property. In the alternative, Plaintiff requests that this Court order Debtor to modify her Plan to require Debtor to accept an offer by a real estate dealer solicited by Plaintiff to purchase the subject apartment building for $21,500.00. A copy of the offer to purchase is attached to Plaintiff’s Complaint. The Court notes that paragraph 7 of the offer to purchase provides that “this offer is to remain open for acceptance to and including the 10th day of April 1983.” The Court also notes that the Complaint does not formally object to confirmation of Debtor’s Plan.
Plaintiff essentially argues that Debtor does not possess equity in the subject property and that Plaintiff’s secured claim is not adequately protected. Plaintiff further argues that it is “not proper to have a Four-Family Apartment in Chapter 13.”
Debtor responds that there is equity in the subject property which adequately secures Plaintiff’s claim. Plaintiff also emphasizes that the income from the rental units is necessary for an effective reorganization.
*266Two of the apartments are presently rented, one of which was rented at the day of the hearing. Debtor does not reside in the apartment building. The present aggregate monthly income from the two rented apartments is approximately $370.00. Debtor has scheduled the approximate monthly rental income, apparently based upon full occupancy, at $835.95. She testified all utilities payments are kept current.
Debtor’s proposed monthly plan payments are $400.00. Debtor’s Plan payments, however, are to be funded entirely by employer deduction from her salary ($924.50 monthly “take home”) as a nursing assistant at the Veterans’ Administration Medical Center. Debtor’s payments, to date, are current con-formably to this Court’s Interim Order, and the Trustee has accumulated these funds without making any disbursements.
Debtor proposes that the remainder of her income be applied to current living expenses and payment of a third party’s secured claim outside the plan. These expenses are estimated at $1242.00 aggregate monthly. Apparently a large portion of the rental income is applied directly to utility expenses accruing at about $225.00 monthly-
Plaintiff argues that the rental income is not proposed to be directly applied to plan payments, and therefore the property should not be deemed necessary for effective reorganization.
DECISION AND ORDER
It is the determination of the Court that the instant Complaint should be provisionally denied. It appears that Debtor presently possesses marginal equity in the property, and that much of the depletion of Debtor’s equity is due to the fact the instant Complaint has forestalled Chapter 13 distribution of moneys accumulated by the Trustee. The existence of equity, however, is in itself merely a threshold requirement. Instead, the critical factor in the use of collateral by a debtor is whether that debt- or is capable of sustained retirement of the underlying debt.
In this case, it appears that Debtor’s salary and rental income, when aggregated, approximate Debtor’s aggregate payments for monthly expenses and plan payments. It is the determination of the Court that Debtor’s rental income is thus not surplus-age and appears, in fact, necessary to effective reorganization. Unless the Court orders otherwise, the Debtor may operate the business subject to statutory and court imposed limitations. See 11 U.S.C. § 1304(b).
The court is constrained to disagree with the thrust of Plaintiff’s argument that the failure to fund the Chapter 13 Plan from income from the apartment business demonstrates ipso facto that the property is not' necessary for an effective rehabilitation. The Debtor is as such also an entity and is not subject to fragmentation into a business debtor and a wage earner debtor. 11 U.S.C. § 101(12) and (14). The best interests of creditors and the feasibility of a proposed plan contemplate court scrutiny of all legal or equitable interests of the debtor in property as of the commencement of the case. 11 U.S.C. § 541(a)(1).
By the same rationale, the argument of Plaintiff bears weight in an altered context. Here the Debtor, even though funding her proposed plan by nonbusiness income, cannot thereby avoid the legal ramifications of a debtor engaged in business. She must perform the duties imposed by statute on a liquidating trustee, such as filing with the court and with governmental tax collection authorities periodic reports and financial statements of the business operations, including statements of receipts and disbursements. 11 U.S.C. §§ 704(7) and 1304(c).
Debtor’s Plan proposes 100% payment of Plaintiff’s claim and Debtor’s payments into the Plan are current. Given these circumstances, plus the existence of equity in the property if accumulated payments are applied to the deficiency on Plaintiff’s claim as provided below, it is the opinion of the Court that relief from stay should be provisionally denied if Debtor modifies her proposed Plan to provide for payment of all prepetition delinquencies upon confirmation *267of the Plan, and all postpetition delinquencies conformably to the Plan when and if confirmed as feasible.
IT IS HEREBY ORDERED, ADJUDGED AND DECREED that the instant Complaint is provisionally DENIED.
IT IS FURTHER ORDERED that Debt- or is GRANTED ten days LEAVE to modify her present plan to provide adequate protection by payment of all prepetition delinquencies upon confirmation of the Plan, and all postpetition delinquencies on or before October 15, 1983.
' IT IS FURTHER ORDERED that the Chapter 13 Trustee is authorized to pay Plaintiff net existing funds on deposit pursuant to the Interim Order toward such payments.
IT IS FURTHER ORDERED that the Debtor file bimonthly profit and loss statements, beginning 60 days after confirmation of a Plan. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489634/ | OPINION
EMIL F. GOLDHABER, Bankruptcy Judge:
This opinion embraces two contested matters. One involves the issue of whether the debtors’ application for authority to use cash collateral pursuant to section 363 of the Bankruptcy Code (“the Code”) should be granted. The other, if said application is denied, requires us to determine whether the complaint of Commercial Credit Business Loans, Inc. (“CCBL”) against the debtors for relief from the automatic stay provisions of section 362(a) of the Code should be granted. Because we conclude that CCBL does not presently have adequate protection of its security interest and because the debtors have not demonstrated that CCBL’s security interest will be adequately protected if the debtors are permitted to use the cash collateral, we will deny the debtors’ application for authority to use the cash collateral and grant CCBL’s complaint for relief from the automatic stay.
The facts of the instant case are as follows: 1 On May 3, 1983, Philadelphia Consumer Discount Company and Philadelphia Acceptance Corporation (hereinafter collectively referred to as the “debtors”), filed petitions for relief under chapter 11 of the Code. On May 6, 1983, an order of joint administration of both cases was entered, CCBL is a commercial lender who extended credit to the debtors pursuant to a loan agreement dated June 18,1976. Under said agreement, the debtors granted to CCBL a security interest in all of their receivables. Before the commencement of the instant bankruptcy proceedings, the debtors defaulted on their payment obligations to CCBL. Consequently, the loan agreement was not renewed but, in lieu of foreclosing on its collateral, CCBL permitted the debtors to engage in an orderly “liquidation” whereby the debtors began to turn over to CCBL the cash proceeds of the receivables as they were collected. CCBL, therefore, had no contractual duty to continue to loan *324money to the debtors on the date the bankruptcy petitions were filed. Rather, at that time CCBL possessed the right to the immediate payment of the cash proceeds. The debtors are indebted to CCBL in the amount of approximately $998,000.00 and the debtors represent that the actual value of the collateral, i.e., the receivables, is approximately $700,000.00. Accordingly, it is undisputed that there is presently no equity cushion which might adequately protect CCBL’s security interest. Nevertheless, on June 13, 1983, the debtors filed an application for authority to use cash collateral pursuant to section 363 of the Code to which CCBL objected and, on June 16,1983, CCBL filed a complaint for relief from the automatic stay against the debtors pursuant to section 362 of the Code.
The use of cash collateral is governed by section 363 of the Code, which provides:
(a) In this section, “cash collateral” means cash, negotiable instruments, documents of title, securities, deposit accounts, or other cash equivalents in which the estate and an entity other than the estate have an interest.
* * * * ♦ ifc
(2) The trustee may not use, sell, or lease cash collateral under paragraph (1) of this subsection unless—
(A) each entity that has an interest in such cash collateral consents; or
(B) the court, after notice and a hearing, authorizes such use, sale, or lease in accordance with the provisions of this section.
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(e) Notwithstanding any other provision of this section, at any time, on request of an entity that has an interest in property used, sold, or leased, or proposed to be used, sold, or leased, by the trustee, the court shall prohibit or condition such use, sale, or lease as is necessary to provide adequate protection of such interest. In any hearing under this section, the trustee has the burden of proof on the issue of adequate protection.
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11 U.S.C. § 363.2
The debtors seek the use of cash collateral which, in the instant case, represents the proceeds of the receivables in which CCBL has a security interest, to make new loans and renew existing loans and thereby fund its plan or reorganization. As adequate protection for CCBL’s security interest in the receivables, the debtors propose to make monthly payments of $10,-000.00 to CCBL from funds presently available in reduction of CCBL’s claim of nearly $1,000,000.00. In addition, the debtors contend that by using cash collateral to make new loans and renew old loans and by following “prudent lending practices”, it can “substantially increase” the value of CCBL’s collateral.
The debtor relies heavily on the case of In re Stein, 19 B.R. 458 (Bkrtcy.E.D.Pa.1982) wherein our colleague, Judge Twardowski, authorized the use of cash collateral. In that case, the secured party held a first lien on a debtor-farmer’s crops, livestock and equipment and proceeds therefrom. After finding that the value of the secured creditor’s collateral would increase as the herd reproduced and as the crops were harvested, Judge Twardowski made available to the debtor-farmer cash proceeds against which the secured party had a lien. The instant debtors somehow construe the Stein decision as being on “all fours” with the present case. We strongly disagree. While crops and livestock represent tangible collateral which possess a reasonable certainty of sale in the market place, speculative loan arrangements — “collateral” backed by “prudent lending practices” yet to be demonstrated by the instant debtors — are not. In short, the debtors have fallen far short of carrying their burden of demonstrating that CCBL will be adequately protected if access to cash collateral is granted.3 Rath*325er, the record suggests that the more supportable conclusion is that CCBL’s secured position will in fact be completely dissipated as soon as all the receivables are collected and the proceeds used to fund office operations and make new or renewed loans. The speculative protection offered by the debtors against said dissipation mandates that the debtors’ application be denied.4
With respect to CCBL’s complaint for relief from the automatic stay provisions of section 362(a) of the Code, we find it dispositive that the debtors admit that they have no equity in the subject receivables.5 And, as was the case with their application for authority to use cash collateral, the debtors have failed to establish that CCBL is otherwise adequately protected in order to justify the continuation of the stay.6 We conclude, therefore, that CCBL is entitled to relief from the automatic stay pursuant to section 362(d)(1) of the Code.7
. This opinion constitutes the findings of fact and conclusions of law required by Rule 752 of the Rules of Bankruptcy Procedure.
. Section 1107(a) of the Code grants the debtor in possession all the rights and powers of a trustee appointed in a case under chapter 11 of the Code. 11 U.S.C. 1107(a).
. See § 363(e) cited in the text supra.
. While “adequate protection” is not defined in the Bankruptcy Code, the legislative history of § 361 reflects the intent of Congress to give the courts the flexibility to fashion the relief in light of the facts of each case and general equitable principles. See H.R.Rep. No. 95-595, 95th Cong. 1st Sess. 339 (1977), reprinted in 1978 U.S.Code Cong. & Ad.News 5787.
. Section 362(d) of the Code provides when relief from the stay shall be granted:
(d) On request of a party in interest and after notice and a hearing, the court shall grant relief from the stay provided under subsection (a) of this section, such as by terminating, annulling, modifying, or conditioning such stay—
(1) for cause, including the lack of adequate protection of an interest in property of such party in interest; or
(2) with respect to a stay of an act against property, if—
(A) the debtor does not have an equity in such property; and
(B) such property is not necessary to an effective reorganization.
11 U.S.C. § 362(d).
. Section 362(g) allocates the burden of proof in a complaint for relief from the stay as follows:
(g) In any hearing under subsection (d) or (e) of this section concerning relief from the stay of any act under subsection (a) of this section—
(1) the party requesting such relief has the burden of proof on the issue of the debtor’s equity in property; and
(2) the party opposing such relief has the burden of proof on all other issues.
11 U.S.C. § 362(g).
. Section 362(d) permits modification of the automatic stay upon alternative grounds. Relief may be granted under § 362(d)(1) upon a finding that a debtor’s interest in property is not adequately protected or under § 362(d)(2) upon a finding that the debtor has no equity in the property and that that property is not necessary to an effective reorganization. See In re Schramm, 12 B.R. 608 (Bkrtcy.E.D.Pa.1981); In re Heath, 9 B.R. 665 (Bkrtcy.E.D.Pa.1981). | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489636/ | DECISION and ORDER
ELLIS W. KERR, Bankruptcy Judge.
This matter is before the Court upon Defendant’s “Motion to Dismiss” and “Motion for Definite and Certain” [sic].
Branch I of Defendant’s motion requests the Court to dismiss Plaintiffs’ complaint on the ground that Plaintiffs have failed to file a proof of claim in Defendant’s bankruptcy case and “have waived any right that they may have to now do so since the statutory time for filing such proof of claims has now passed and therefore the Complaint to Determine Dischargeability of Debts should be dismissed with prejudice by this Court.” Defendant offers no legal authority for this proposition.
Without commenting on the theoretical merit of Defendant’s motion, We merely note that the factual foundation upon which Branch I is based is incorrect. According to the “Order for Meeting of Creditors,” the first meeting of creditors was to be held on October 23, 1981 and proofs of claims were to be filed within six months of that meeting. The deadline for filing proofs of claims was, therefore, approximately three and one-half months subsequent to the filing of Defendant’s present motion (January 5, 1982). Further, Court records reveal that a proof of claim was filed with the Court by Plaintiff Richard Groves on December 7, 1981 (a month prior to Defendant’s present motion being filed).
In Branch II of his motion, Defendant moves the Court for an order requiring Plaintiffs to set forth in specific detail their claim against the debtor. Defendant asserts that “The Plaintiffs have set forth several pages of documents without specifying what their claim in reality or in actuality is and this debtor is unable to determine what allegations or what claim the Plaintiffs are making against the debtor.”
Fed.R.Civ.P. 12(e), applicable to this adversary proceeding by virtue of Bankruptcy Rule 7012, reads as follows:
MOTION FOR MORE DEFINITE STATEMENT: If a pleading to which a responsive pleading is permitted is so vague or ambiguous that a party cannot reasonably be required to frame a responsive pleading, he may move for a more definite statement before interposing his responsive pleading. The motion shall point out the defects complained of and the details desired. (Emphasis Supplied)
Although Plaintiffs’ complaint is somewhat unusual in that it incorporates by reference a copy of a pleading (attached to Plaintiffs’ complaint) previously filed in state court, it nevertheless gives Defendant notice of the nature of Plaintiffs’ claims and does not appear to the Court as being so vague or ambiguous that Defendant cannot reasonably be required to frame a responsive pleading. Briefly, the complaint alleges that Defendant breached a contract for services entered into by Plaintiffs and Defendant; that Defendant executed a false affidavit concerning his performance under the contract; that as a result of Defendant’s actions, liens were placed on Plaintiffs’ property by third parties; that Plaintiffs suffered damages in satisfying those liens; and that debts owing to Plaintiffs by Defendant should be found to be nondischargeable under certain paragraphs of 11 U.S.C. § 523.
*370It is not clear what Defendant is requesting of Plaintiffs in his motion. A motion for a more definite statement must state the grounds for relief, i.e. it must point out the defects complained of and the details desired. Defendant’s motion falls far short of this requirement. A motion for a more definite statement is not a substitute for the discovery devices contained in the Federal Rules of Civil Procedure.
We find Defendant’s motion to be without merit.
We further find that action on matters filed after this motion had to be held in abeyance until decision on this motion; that if there is no appeal of this decision an Order will issue as to the procedure to be followed. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489637/ | GEORGE, Bankruptcy Judge:
Appeal has been taken from a judgment of the lower court holding that attorneys’ fees and costs, incurred by secured creditors in seeking relief from the automatic stay herein, became a lien against the real property securing their debt and they had to be paid by the appellants in curing the default on these obligations. We AFFIRM.
I. BACKGROUND
Prior to the filing of its petition under Chapter 11 of the Bankruptcy Code, the debtor, REX KING PROPERTIES & INVESTMENTS, INC. (“Rex King, Inc.”), was involved in the ownership and/or management of some 453 parcels of residential real property. Although most of these *398properties were owned entirely by the debt- or, some 82 parcels were owned by limited partnerships, in which Rex King, Inc. and its principal, Rex King, each owned a one-percent interest as a general partner. The appellants, BERT S. KOSUT and W. JANE KOSUT, were limited partners in the two limited partnerships named above as defendants.
Immediately prior to the filing of the debtor’s Chapter 11 petition, each of the plaintiff/appellees herein was in the process of foreclosing upon the real property owned by one of the defendant limited partnerships. Shortly after the filing of the debt- or’s petition, a trustee was appointed to manage all of the debtor’s real properties, including those involved in this appeal. In light of the debtor’s interest, though nominal, in the limited partnerships which owned the subject real properties and the fact that the trustee was in possession of the properties, the plaintiff/appellees thought it necessary to obtain a lifting of the automatic stay prior to continuing their foreclosure actions. Adversary proceedings seeking this relief were thus brought against each of the above-named limited partnerships.
Eventually, the appellees’ proceedings for relief from the automatic stay were settled by a curing of the limited partnerships’ defaults. Under protest, the appellants paid not only the sums in default, but also the appellees’ attorneys’ fees and costs in seeking relief from the automatic stay. These fees and costs were demanded pursuant to a provision in each of the promissory notes and deeds of trust executed by the defendant limited partnerships. The appellants, however, argued that the complaints to lift the automatic stay had been unnecessary and that the fees and costs incurred in that effort were, therefore, unreasonable expenses and should not have been charged in the amount due to cure the defaults in question. A request was thus made of the trial court to resolve this conflict.
On April 6, 1982, the bankruptcy court entered a judgment and a memorandum in support of that judgment, holding that the plaintiff/appellees’ actions in seeking to lift the automatic stay had been reasonable, in light of the circumstances surrounding the possession of the real properties in question. The trial court further found that the attorneys’ fees and costs, incident to the filing of the complaints to lift stay, were reasonable and necessary. These fees and costs were thus held to be allowable under the plaintiff/appellees’ respective deeds of trust and, until paid, they would become liens against the subject real property. The instant appeals followed.
Following the pattern below, the appeals in these proceedings have been consolidated.
II. ANALYSIS OF THE FACTS AND THE LAW
As stated above, the principal contention of the appellants is that the complaints by the plaintiffs/appellees to lift the debtor’s automatic stay were unnecessary aspects of their attempted foreclosures. In this regard, the appellants do not question that the relevant deeds of trust allow the plaintiffs/appellees to be compensated for attorneys’ fees and costs, incurred as the result of reasonable efforts to realize upon their collateral, following default. Neither do they allege that the actual fees and costs charged are excessive for the services performed.
Instead, they note that the debtor’s relationship to these real properties was limited to its role as a general partner of the limited partnerships which owned the properties. They then observe that this general partnership position gave the debtor — and, subsequently, the trustee — three types of rights in the real properties. First, they claim that the debtor had a potential right of co-ownership under the California partnership laws. Second, they assert that, under the limited partnership agreement, Rex King, Inc. had a subordinated one percent (1%) capital interest in the limited partnership, which had no value. Finally, they agree that the debtor had the right to participate in the management of the partnership and, therefore, of its assets.
*399The appellants maintain that these three “interests” in the subject real properties were insufficient to call into effect the automatic stay provided by 11 U.S.C. § 362(a) to prevent foreclosure against the properties. Therefore, they argue that the efforts of counsel for the plaintiffs/appellees to lift the debtor’s automatic stay were unnecessary and, thus, unreasonable.
We cannot agree with the appellants’ method of analysis. In the case at bar, the trustee had assumed control of these properties. The bankruptcy court was administering the affairs of each real property parcel. Although the plaintiffs/appellees would have undoubtedly agreed with the present appellants’ contentions that the debtor’s automatic stay should not have prevented their foreclosure attempts, it was not a wasteful extravagance for them to protect the integrity of their clients’ respective foreclosure sales by seeking relief from the bankruptcy court which was exercising actual custody and apparent jurisdiction over these parcels.
III. CONCLUSION
We find that the attorneys’ fees and costs, incurred by the plaintiffs/appellees in seeking a lifting of the automatic stay in this case, were reasonable and that they could have been charged, as a lien, against the real property herein. Moreover, the payment of these fees and costs was necessary to cure the defaults under the terms of the notes and deeds of trust executed by each of the defendant limited partnerships. This being the same conclusion which was reached by the court below, we must AFFIRM. , | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489638/ | MEMORANDUM OF DECISION
JAMES A. GOODMAN, Bankruptcy Judge.
The trustee seeks by this action to avoid an attachment by International Harvester Credit Corporation against real property of the debtors in the amount of $100,000.00 authorized by the Maine Superior Court in May of 1979. That attachment was recorded in the Kennebec County Registry of Deeds on May 30,1979. International Harvester obtained a judgment against the debtors for $215,862.75 in state court on July 1, 1981.- The debtors filed their petition in bankruptcy on September 23, 1981.
The trustee’s complaint seeks to have “any attachment, lien or other encumbrance on real property of the Debtors ... declared null and void....”1 The debtors’ schedules reveal that the only real estate *507they own is their residence in Oakland. By notice filed May 25,1983, the trustee abandoned the Oakland property pursuant to 11 U.S.C. § 554(a). Having abandoned the real estate, the trustee no longer has any interest in whether or not International Harvester’s attachment is a preferential transfer. Because it appears “that whether or not the requested relief is granted, the bankrupt estate would remain unaffected,” the trustee’s complaint shall be dismissed as moot. See In re REA Express, Inc., 2 B.R. 730, 732 (S.D.N.Y.1980); see also Commonwealth of Pennsylvania, Department of Environmental Resources v. Smith (In re Zacherl Coal Co., Inc.) 9 B.R. 952 (W.D.Pa.1981).
. Count I of the complaint, while unclear, may allege that entry of the July 1st judgment itself constituted an avoidable preference. But see Young v. Nadelson Displays, Inc. (In re Lucasa International, Ltd.), 14 B.R. 980, 8 B.C.D. 444 (Bkrtcy.S.D.N.Y.1981). If so, the trustee has failed to pursue that argument in his brief, and the Court treats it as abandoned. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489639/ | MEMORANDUM OPINION AND ORDER
HELEN S. BALICK, Bankruptcy Judge.
At the time of bankruptcy, defendant, Northeast Loan Systems, Inc., held a perfected security interest in the debtor’s automobile. Three days after he filed his petition, the debtor turned over the automobile to Northeast who sold it for $4,000. The Trustee seeks these funds for the bankruptcy estate on the basis that debtor’s transfer of the security interest is avoidable as a preferential transfer under 11 U.S.C. § 547(b). Northeast does not dispute that the transfer is not excepted from the Trustee’s avoiding powers under subsection (c)(3) because its lien was not perfected within 10 days after the security interest attached. However, Northeast contends that the concept of an equitable lien should arise in its favor. Shortly before trial, the parties’ request that the matter be considered on stipulated facts and briefing was granted.
Northeast had loaned the debtor the money to buy the automobile on February 11, 1982. Loan papers and a notarized application for certificate of title noting the lien were signed at that time. The debtor requested and because he had been a previous customer was given the loan proceeds upon the understanding that the title would issue on February 18 without the lien being noted. It was further understood that as soon as practicable Northeast’s lien would be recorded. Northeast sent the appropriate documents for recording its lien to the Division of Motor Vehicles on March 5. The certificate of title noting Northeast’s lien issued March 11.
On the one hand, Northeast argues that it was an uncooperative recalcitrant debtor who prevented it from perfecting its lien within the ten days after the security interest attached. This behavior together with the debtor’s voluntary filing of a bankruptcy petition on May 21, bringing the perfection within the 90 days preceding bankruptcy, was intended to defeat Northeast’s right as a secured creditor.
On the other hand, Northeast appears to be saying that since both it and the debtor intended the automobile as security for the loan, it would be inequitable for the Trustee to recover the $4,000 for the benefit of unsecured creditors.
Thus, Northeast contends that the lien should be deemed to have been perfected within the grace period so that it is entitled to the proceeds of sale of its collateral.
The application of the equitable lien doctrine is appropriate only if the creditor has done everything within its power to perfect its lien but is prevented from doing *525so as the result of debtor’s improper behavior. Metal Cleaning & Processing, Inc., et al. v. Standard Havens, Inc., D.Del., BK-77-49 (1978); In re Trim-Lean Meat Products, 10 B.R. 383 (D.C.Del.1981).
Not only did Northeast take no steps to speed up the lien recording process, it expressly agreed to delay recording its lien. Its only instruction to the debtor, made the day it gave the loan proceeds to him, was that the lien be recorded “as soon as practicable.” It was not concerned about the lapse of time between February 18 and March 5 when it mailed debtor’s title and other documents to the Division of Motor Vehicles thereby adding another six days before its lien was recorded. Nor did it show that debtor’s timing in filing his petition was a deliberate act to defeat Northeast’s rights as a secured party. Debtor’s turnover of the automobile to Northeast negates that assertion.
The purpose of a Trustee’s avoiding power is to recapture a debtor’s assets to facilitate equality of distribution among all of the debtor’s creditors. A creditor during the slide into bankruptcy may have received a benefit to the detriment of other creditors by overzealous action on his part or favoritism on the part of the debtor. To permit this would result in unfair treatment of the other creditors. But not all transfers are of a kind that should be subject to avoidance so specific exceptions to the Trustee’s powers were promulgated. One of these exceptions was designed to protect the lender in an enabling loan situation such as the transaction between Northeast and debtor. If that creditor fails to satisfy the exception requirements as did Northeast, the unsecured creditors reap a “windfall”. That result may seem harsh but is what was intended by the drafters of the Code. The Trustee must prevail. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489640/ | ORDER DENYING MOTION TO DISMISS
HELEN S. BALICK, Bankruptcy Judge.
New Castle Shellfish Co. is a debtor in a Chapter 7 proceeding filed in May 1982. Richard G. Elliott, Jr., as trustee filed an action against John Smith and Irene Smith on December 22, 1982, alleging usurpation of a corporate opportunity. The Smiths have filed a motion to dismiss the complaint on the ground that the bankruptcy court does not have subject matter jurisdiction.
The Third Circuit Court of Appeals has ruled on this question. The nature of the dispute in Coastal Steel Corporation v. Tilghman Wheelabrator, Ltd. and Wheelabrator-Frye, Inc., 709 F.2d 190 (3d Cir.1983) initially required a determination of whether there was subject matter jurisdiction in any federal court. It held that despite the Northern Pipeline case, the grant of district court subject matter jurisdiction in § 1471(b) survived and the New Jersey local rule providing the manner for the continued exercise of that jurisdiction is consistent with the Code and the Northern Pipeline decision.
Thus, the District Court of Delaware and this court through Revised Rule No. 1, dated December 23, 1982, which provides for referral of bankruptcy cases and proceedings has jurisdiction over not only the Chapter 11 proceeding but also related proceedings, subject to various restrictions; and
IT IS ORDERED that John and Irene Smith’s motion to dismiss the complaint is DENIED. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489642/ | MEMORANDUM AND ORDER
ROBERT L. EISEN, Bankruptcy Judge.
This cause comes to be heard on defendant Allied Van Lines’ (“Allied”) motion for involuntary dismissal of plaintiff-debtor, Federal Storage & Moving Company’s (“Federal”) adversary complaint, pursuant to Section 41(b) of the Federal Rules of Civil Procedure. Federal’s complaint essentially alleges that the various agreements it had with Allied constituted a contractual relationship and that Allied breached said contract. The court, having heard to conclusion Federal’s evidence and having carefully reviewed all of said evidence as well as the memoranda filed and applicable statutory and case law, makes the following findings of fact and conclusions of law.
FINDINGS OF FACT
Defendant Allied is a corporation engaged in the business of hauling household goods, etc. on a nationwide basis through numerous contract hauling agents among which was the plaintiff Federal. The essential relationship between Federal and Allied arises out of a “non-carrier” agency contract executed on July 20, 1973. Under said contract, Federal became the agent of Allied entitled to handle moving assignments on behalf of Allied and under Allied’s complete and exclusive control. In addition, on that same date, Federal entered into a lease arrangement with Allied and subsequently on July 30, 1973, Federal and Allied entered into an amendment to the agency contract. Pursuant to the agency contract, Allied promulgated rules and regulation to which Federal was subject. In addition Federal, at all times relevant, was a shareholder of Allied and thus Allied’s by-laws applied to and affected Federal. Finally, Allied’s Board of Directors from time to time approved revisions of the Allied transportation policy, created the concept of a committed fleet and established and revised a seasonal proportionate hauling program.
The rules and regulations promulgated by Allied established a policy whereby Allied’s dispatch office, as far as practical, would assign, distribute and route equipment and shipments upon a basis which would reduce empty and light-loaded van mileage. Arti-*661ele I, Section (2)(c) of Allied’s by-laws provided in part that the company would “seek to foster the interests of the agents in every lawful way, and in a fair and reasonable manner.”
The above agreements, rules and regulations and by-laws constituted the contractual relationship that existed between the parties. Allied contracted to employ Federal as its agent to haul shipments on behalf of Allied and as from time to time, directed by Allied. Federal in turn agreed to haul said shipments, commit and lease certain equipment to Allied for this purpose and conform said equipment to Allied’s current equipment specifications as well as I.C.C. regulations.
Federal’s complaint against Allied involves the years 1975-1979. The conduct that Federal is complaining of did not arise until 1975 when Allied centralized its entire dispatch system. Prior to 1975 Allied’s system involved local dispatch offices who would dispatch loads to the various Allied agents. However, in 1975 Allied moved its dispatch operations to Omaha, Nebraska and computerized their system.
After the 1975 centralization of the dispatch system, all jobs booked by Allied’s agents as well as by Allied itself went into the central dispatch computer. The computer then would assign the loads to various Allied agents in an effort to fill vans and reduce light and less profitable loads. To obtain a load, an agent would have to have a committed unit * available and so advise Allied. Both Federal and its drivers on the road would contact Allied and advise Allied of its availability to carry a load. Allied’s computer would then check for the availability of a load and assign accordingly.
Essentially, from the start of the centralized dispatch system, Federal complained to Allied that it was not getting good and profitable shipments. In fact, the comparative sales and hauling statistical summaries submitted into evidence do indicate that the value of the average long haul shipment hauled by Federal was under that of the other Chicago area Allied agents. However, in examining the statistics in more detail, the following is found:
1. The average value of a shipment assigned to Federal from Allied which Federal did not book itself was at or above the average for all other Chicago area agents.
2. The average value for a shipment assigned to Federal which was actually booked by Federal (self-haul) was below that of the average for all other Chicago area agents.
3. The average value of the shipments booked by Federal which were actually hauled by Federal was less than the average value of those shipments booked by Federal which were assigned by Allied’s system to other agents.
4. The average value of the shipments actually booked by other Chicago area agents, whether or not they hauled them, was consistently higher than those that Federal was booking.
As a result, the statistics indicate that the disparity between Federal’s average line haul and that of Allied’s other Chicago area agents stems from the value of Federal’s self haul. It is Federal’s contention that Allied kept the good hauls that Federal had booked for itself and other agents and only gave back to Federal the less profitable self-hauls. Federal, however, presented no evidence to verify this claim. Only through the court’s own examination of the documents submitted, did the court learn that the hauls booked by Federal which were kept by Allied were slightly more valuable than those self-hauled by Federal. However, that examination also revealed that all of Federal’s bookings, both self-hauled and kept by Allied, were below the average of the total bookings done by other Chicago agents. Also, Federal was permitted to self haul an above average number of bookings in comparison to other Chicago area agents.
In addition to the general assertions by Federal regarding Allied’s conduct from 1975-1979, Federal specifically points to the off-season of 1978-1979 as being the most *662detrimental to its business. In the 1978-1979 off-season as in many others, Allied instituted a seasonal proportionate hauling program. The program was developed to provide Allied’s agents with a right to earn hauling compensation during the off-season (Nov. 1 — May 15) in approximate proportion to the hauling compensation earned by the agent in the peak season in ratio to the total of hauling compensation earned by all hauling agents in the preceding peak season. An agent’s applicable hauling compensation to be used during the off-season was to be converted to off-season point credits. Off-season tonnage under the program was to be assigned to agents in such a manner as to attempt to insure that, at the end of every month, each agent would have used the same approximate percentage of its season’s total allotted point credits as any other hauling agent.
In the 1978-1979 off-season Federal had five committed long haul units in the Allied points program. Federal was allocated by Allied a total of 9,245 points. Except for November of 1978, however, Federal did not receive enough business from Allied to use up even 50% of its eligible points. Meanwhile, the other Chicago area agents were receiving a significant percentage of the haulings they were eligible to receive.
Federal’s two principle officers and its former mechanic all testified that except for a few brief suspensions they always had tractors, trailers and drivers ready, willing and able to carry loads during the 1978-1979 off season. Federal’s officers testified that they contacted Allied a number of times about the lack of assignments and Allied responded that things were slow and there was no business for them.
However, cross-examination disclosed that Federal’s real problems in 1978-1979 were more likely in communication or (or lack of it) with Allied’s dispatch computer and in its inspection reports in Allied’s files. Federal’s former mechanic, Mr. Svec, testified that all of the units were inspected whenever necessary and a copy of any inspection report made was sent to Allied. He also testified that he personally kept a copy of the report and Federal also kept one in its file.
Federal’s copies of the inspection reports as well as Mr. Svec’s copies, however, have been misplaced or lost. At the same time, Allied’s files do not reflect that all of the necessary inspection reports were filed in the 1978-1979 off season. In fact on February 6, 1979 Allied sent a letter to Mr. Chambers at Federal which indicated that four out of Federal’s five committed vans were out of service for a period of over 30 days and thus had to be removed from the committed fleet. Mr. Chambers does not recall receiving said letter but did admit it was addressed to him at the correct address.
Although various explanations are feasible, it appears that the February 6, 1979 letter was triggered by the fact that Allied’s computer showed that no inspection reports had been filed after they were due on four out of Federal’s five committed vans. In addition, during the 1978-1979 off season Federal drivers were suspended three times, two drivers left the company before the end of 1978 and one more left in February, 1979.
Finally, as a result of Federal’s lack of assignments, for whatever reason, in October or November of 1978 Federal began to show debits on its statements from Allied due to lack of payments on various loans made to Federal by Allied and Allied advised Federal that it could no longer participate in the National Account Financing Program. Also, in February of 1979, Federal was put on C.O.D. status which meant that Federal could not participate in any haulings where there was collection upon delivery. In order to carry a C.O.D. shipment, an agent would have to put up 80% of the value of the shipment in advance of the haul. Eventually, this situation led to Federal having essentially all of its equipment repossessed or sold to satisfy creditors in April of 1979.
DISCUSSION
It is Federal’s contention that the various agreements it had with Allied constituted a contractual relationship and that Allied is *663guilty of a breach of that contract. Specifically, Federal contends that Allied had a duty to assign and route equipment and shipments upon a basis which reduced empty and light-loaded vans and could not favor one agent over another when making assignments. Federal alleged that Allied breached its duty in the following ways: 1. During the 1975-1979 peak season, Allied favored other agents over Federal; 2. During the 1975-1978 off-seasons, Allied tendered far fewer hauling assignments to Federal than Federal was entitled to receive by virtue of the points program set up, in spite of the fact that Allied could have made a sufficient number of such assignments to Federal for which it was eligible; and 3. That during the 1978-1979 off-season Allied was contractually bound to tender hauling assignments so as to produce approximately the number of points allocated to Federal and did not do so. Federal contends that it was ready, willing and able to accept hauling assignments for all of the relevant periods in question and that as a direct result of Allied’s preference of other agents over Federal, Federal suffered a severe drop in revenue, lost drivers, had equipment repossessed and was eventually forced to cease operations entirely.
Additionally, Federal in its response to Allied’s Section 41(b) motion, for the first time, asserted that Allied may have violated the Illinois Franchise Disclosure Act or the Automobile Dealer’s Day in Court Act. The coui't, however, does not view either act as applying in this case.
Section 41(b) of the Federal Rules of Civil Procedure states in relevant part that “After the plaintiff, in an action tried by the court without a jury, has completed the presentation of his evidence, the defendant, without waiving his right to offer evidence in the event the motion is not granted, may move for a dismissal on the ground that upon the facts and the law the plaintiff has shown no right to relief.”
There is no dispute as to the purpose of a section 41(b) motion or the standards the court must use to decide the motion. The idea behind a Section 41(b) motion is that the plaintiff had a full and fair opportunity to present his case and has simply shown no right to relief. In deciding a Section 41(b) motion, a court must view the evidence in an unbiased way and accord it such weight as the court believes it is entitled to receive. Sanders v. General Services Administration, 707 F.2d 969 (7th Cir.1983); Patterson v. General Motors Corp., 631 F.2d 476 (7th Cir.1980); Allred v. Sasser, 170 F.2d 233 (7th Cir.1948). Where plaintiff’s evidence is conflicting or presents questions of creditability, the judge must evaluate the testimony and decide how to weigh such conflicts of evidence or assess the creditability of such evidence. Gary Theatre Co. v. Columbia Pictures Corp., 120 F.2d 891 (7th Cir.1941). The court may not consider the evidence in the light most favorable to the plaintiff. Sanders, supra, James Burrough Ltd. v. Sign of Beefeater, Inc., 540 F.2d 266 (7th Cir.1976).
The question for this court to resolve, therefore, is whether or not the evidence establishes a right to relief on Federal’s claim. It is essentially Federal’s contention that it had a contractual relationship with Allied and Allied breached its duty under that contract. Allied claims that the agreements between the parties do not constitute a contract. The court without going into detail finds that a contractual relationship between the parties did exist. However, the duty of Allied under said contract was not as Federal would have the court believe. Allied was not obligated to specifically guarantee a certain number of shipments to Federal either during the peak or off seasons. Instead, Allied was simply liable to foster the interests of each of its agents in every lawful way and treat each agent in a fair and reasonable manner when assigning shipments thereto.
In deciding whether or not Federal has shown a right to relief for its claim, the court must examine the evidence to determine whether or not Federal made a showing as to breach of duty by Allied and resulting liability. It is Federal’s contention that from 1975-1978 Allied discriminated against Federal in its hauling assign-*664meats. Specifically, Federal contends that Allied took the better hauls that Federal booked and assigned them to other Allied agents and only allowed Federal to self-haul the less valuable loads. The evidence reveals that Federal’s average line haul each year was indeed less than that of other Chicago area agents. An examination of the breakdown of this statistic indicates that the value of Federal’s self-haul is the reason for their lower average line haul. The statistics do indeed reveal that the bookings of Federal kept by Allied were slightly more valuable than those it allowed Federal to self-haul. However, those statistics also reveal that Federal was allowed an above average number of self-hauls but that both the bookings it self-hauled and those kept by Allied were below the average of those booked by all other Chicago area agents.
Federal presented no evidence to indicate that Allied acted in bad faith or was guilty of unfair dealing. In fact, if the court had not on its own examined in detail the Comparative Sales and Hauling Statistical Summaries it would not have known that the values of the Federal bookings kept by Allied were slightly higher than those it allowed Federal to self-haul. However, this fact alone does not prove any culpable conduct on the part of Allied. While Federal would have the court believe that Allied purposely kept all of the good hauls for itself, the court could just as easily come to the conclusion that Federal booked below average business and no matter how hard Allied tried to give Federal bookings from other agents which were valuable, Federal’s own poor business practice and bookings dragged the company down. Allied could have actually taken some of Federal’s valuable bookings and assigned them to others because of where and when there were vans to fill and in exchange given Federal even more valuable bookings.
The above possible explanation for what happened with Federal’s business is just as feasible as Federal’s contention of wrongdoing on the part of Allied. In order to overcome the granting of a 41(b) motion, Federal must show facts and proof to substantiate its claim against Allied. However, the evidence does not reveal facts from which the court could draw the conclusion that Allied was guilty of any specific conduct which adversely affected Federal’s average line haul.
As far as the off season 1978-1979 goes, the evidence clearly indicates that except for November of 1978 Federal received substantially less business than it was eligible to receive under the points program. Federal asserts that Allied was contractually liable to provide Allied with enough shipments to utilize all of its points. Furthermore, Federal asserts that it was ready, willing and able at all times to carry loads for Allied.
However, the Seasonal Proportionate Hauling Program Bulletin which constituted the specific contractual relationship with Federal for the off season, however, did not constitute a guarantee that Federal would receive all of the points allocated to it. Instead the program simply gave a right to Federal to earn hauling compensation during the off season in proportion to that it earned during the peak season. Allied still needed loads to assign and Federal needed to have eligible units available to haul such loads.
Federal’s witnesses testified that they had drivers and vans ready and willing at all times to haul loads during the 1978-1979 off season. Federal’s mechanic testified that he made all inspections necessary and directed that said inspection reports be sent to Allied. However, Federal’s copies of said reports have apparently been misplaced or lost and the evidence clearly showed that Allied and more importantly Allied’s .central dispatch computer did not know that four out of Federal’s five vans were available and properly inspected. Allied’s files, in fact, showed that one unit’s reports lapsed in July 1978, another in October 1978 and a third in December 1978. In addition, during the same off season period, the records indicated that Federal had drivers suspended three times, two drivers left the compa*665ny before the end of 1978 and one more driver left in February 1979.
It is Federal’s position that Allied in the off-season 1978-1979 willfully refused to load Federal’s vans and in so doing breached its duty to Federal. The evidence, however, does not substantiate Federal’s claim. While Federal’s explanation for why it did not get loads in the off season is one possibility no evidence has been presented to substantiate said claim. In fact, the evidence reveals that as far as Allied’s computer goes, Federal was not ready or able to accept loads to haul.
Therefore, Federal has presented no evidence to indicate that Allied knowingly or willfully breached their duty under the off-season points program. In addition, Federal’s attempt to dismiss the importance of the missing inspection reports is a weak one. Federal states that although I.C.C. rules prohibit uninspected vehicles or drivers from hauling, they do not prohibit Allied from directing that an inspection be made so an assignment may be made. Mr. Chambers testified that on occasion Allied would contact Federal and tell them to get a unit inspected because they had an assignment for it. However, whether or not this was the case after Allied centralized and computerized its dispatch system is unclear. How Allied’s computer dealt with these situations is also unclear. The court concludes that there is insufficient evidence to show liability on Allied’s part for the great decline in business in the 1978-1979 off-season.
CONCLUSIONS OF LAW
Section 41(b) of the Federal Rules of Civil Procedure provides that a defendant after a plaintiff has completed its presentation of evidence in a non-jury trial, may move for dismissal of the case on the ground that upon the facts and the law the plaintiff has shown no right to relief. In deciding a Section 41(b) motion, a court must view the evidence in an unbiased way and accord it such weight as the court believes it is entitled to receive.
Federal’s claim against Allied is essentially one for simple breach of contract. Federal had the burden of proving that: 1. A contract existed; 2. Under said contract Allied owed Federal a certain duty; 3. Allied through no fault of Federal’s, breached that duty; and 4. As a result of Allied’s breach, Federal was injured.
While a feasible argument was made by Allied as to the lack of a contractual relationship the court in examining the documents does find a contractual relationship existed. Under said contractual relationship, the parties mutually promised to use good faith in interpreting their agreements and good faith and fair dealing in carrying out their purposes. However, in interpreting said agreements, the court comes to the conclusion that the duty Allied owed Federal did not extend so far as to guarantee Federal a certain number or value of loads during the peak or off-seasons. Allied was only liable to use its best efforts to provide business to Federal and all other agents in a fair and reasonable manner.
The essential proof that was missing from Federal’s case is that indicating a breach of Allied’s duty to Federal under their contractual agreements. While Federal did prove that its business from 1975-1978 was not as good as that of its fellow Chicago agents and that its business declined drastically in the 1978-1979 off season eventually leading Federal to cease operations, Federal did not prove that it was a breach of duty on the part of Allied which was responsible for the situation.
Therefore, Federal did not prove the essential elements necessary to establish a breach of contract claim or entitlement to relief under its claim on any other theory of law. As a result, Allied’s Section 41(b) motion must be granted.
WHEREFORE, IT IS HEREBY ORDERED that Allied’s motion under Section 41(b) of the Federal Rules of Civil Procedure is granted and Federal’s compláint is dismissed.
A committed unit consists of a truck, trailer and qualified driver. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489643/ | MEMORANDUM AND ORDER
ROBERT L. EISEN, Bankruptcy Judge.
This matter comes before the court on creditor Howard Concrete’s motion, subsequently joined and adopted by Meadow Equipment Sales and Service, to declare certain orders of the Circuit Court of Du-Page County void and in violation of the automatic stay of 11 U.S.C. 362. The court having carefully considered the pleadings and memoranda filed and being fully advised in the premises, makes the following findings.
FINDINGS OF FACT
Christian Henning is the owner and designated officer of the debtors, C.C.L. Construction Company and Christian Company, Ltd. In July 1975, Henning entered into a joint venture agreement with the Janatta Development Company for the purpose of developing a thirty acre tract of land known as the Highland Lakes Property. Pursuant to this agreement, the beneficial interests in land trusts holding title to the Highland Lakes Property were assigned to the joint venture with Henning and Janatta each retaining fifty percent interest in the trusts.
On November 4, 1977 Henning made an assignment of his interest in the joint venture to Metrodyne, Inc. for $250,000 in cash. Janatta, as required by the joint venture agreement, consented to the assignment. Metrodyne’s interest was properly recorded in DuPage County where the property was located.
On December 2, 1977 Henning attempted a second assignment of the same interest in *695the joint venture to Christian Company, Ltd., a Henning owned company. Hen-ning’s other company, C.C.L. Construction Co. was at this time serving as the general contractor responsible for the construction of apartments and offices on the Highland Lakes property.
On June 28, 1978, the movant, Howard Concrete Company, entered into an agreement with the Henning owned C.C.L. Construction Co. to perform work on the Highland Lakes Property which, at least according to the agreement between the parties, was owned by Christian Co., Ltd. As a result of non-payment for work done under that contract, Howard on November 13, 1978 filed a claim for a mechanics’ lien in the amount of $35,000 against the Highland Lakes Property. See, Ill.Rev.Stat, 1979 ch. 82 par. 1 et seq.
On December 29, 1978 Janatta, Christian Company, Ltd., Metrodyne and Christian Henning entered into an amendment of the joint venture agreement. This amendment, although ambiguous, recognized that Me-trodyne retained, on the basis of Henning’s earlier assignment, a one-half interest in the joint-venture.
On October 2, 1979 both the general contractor, C.C.L. Construction and the alleged owner of the property, Christian Co., Ltd. filed a voluntary petition for relief under Chapter 11 of the Bankruptcy Code. Christian Henning, the original partner with Ja-natta, owned 100% of C.C.L.’s stock which in turn owned 100% of Christian Co., Ltd. stock. The schedule of assets submitted with the petition listed Christian Co., Ltd. as having a 50% beneficial interest in land trusts holding the Highland Lakes Property. An involuntary petition under Chapter XI of the Bankruptcy Act had been filed against Christian Henning, individually, on August 10, 1979.
On October 19,1979 the mortgagee of the Highland Lakes Property, American Heritage Savings and Loan, instituted a foreclosure action in the Circuit Court of DuPage County, Illinois. The case was captioned American Heritage Savings and Loan v. Janatta, No. 79-671. Among the many defendants named in the suit were Janatta, the owner of the property, C.C.L. and Christian Co., Ltd., the debtors in bankruptcy and Howard and Meadow, the subcontractors with mechanics’ lien against the property. All parties were properly served with copies of the complaint.
On November 14, 1979 Howard having not answered the state court foreclosure complaint, filed a proof of claim for its mechanics’ lien against the debtors in Bankruptcy Court. Howard’s proof of claim was filed within the thirty day period in which Howard had to timely file an appearance and answer to the foreclosure complaint in state court.
On January 30, 1980 an adversary proceeding was instituted in bankruptcy court by the debtors C.C.L. and Christian Co., Ltd. against Janatta and Metrodyne seeking a turnover of the Highland Lakes Property as well as a temporary restraining order enjoining American Heritage from proceeding with the foreclosure in state court. See, Christian Company, Ltd. v. Metrodyne, Inc., No. 80 A 111. On February 4 a hearing on the motion was held in front of Judge James. The record does not reflect whether Howard or Meadow were given notice of the hearing. However, the attorney for the Creditors’ Committee was notified and present at the hearing. The debtor contended at the hearing that the foreclosure action which was underway in state court was in violation of the automatic stay because debtor possessed an interest in the property. Christian Henning testified as to his assignments to both Metro-dyne and Christian Co., Ltd. At the conclusion of the hearing, Judge James dismissed the motion of the debtors refusing to enter either a temporary restraining order or a turnover order. In so doing, the court found that neither debtor had an interest in the Highland Lakes Property sufficient to stay the mortgage foreclosure in state court.
Thereafter, on May 24,1980 Judge James entered orders converting C.C.L. and Christian Co., Ltd. cases to Chapter 7 liquidation proceedings and appointed a trustee for the *696estates. Pursuant to the trustee’s motion, the adversary complaint against Metrodyne was dismissed.
On May 18, 1982 the Circuit Court of DuPage County entered a default judgment against Howard in the foreclosure action for failure to answer the complaint. As a result, Howard lost its mechanics’ lien against the Highland Lakes Property. Howard received no prior notice of Janat-ta’s motion for default judgment prior to entry of the order by the Circuit Court and Howard did not move to vacate the default judgment until August 30, 1982. The Circuit Court denied Howard’s motion to vacate the default judgment and in so doing, rejected Howard’s contention that the proceeding was stayed by 11 U.S.C. Section 362 and that Howard reasonably relied on this stay in not answering the complaint. Meadow was similarly dismissed on a motion by Janatta. C.C.L. Construction, Christian Co., Ltd. and Henning also failed to appear or answer the foreclosure complaint and default judgments were entered against them.
In fact, Janatta was successful in obtaining judgments against all but four claimants in the state court foreclosure suit. Thereafter, Janatta entered into extensive negotiations and subsequently paid in excess of $100,000 to settle the remaining claims. To fund said settlements, Janatta obtained a second mortgage on the Highland Lakes property from American Heritage. In relation thereto and on request of the title company, Janatta on August 13, 1982 obtained a formal court order removing the property from the debtor’s estates. On September 12, 1982 Howard again unsuccessfully attempted in the state court to vacate the default judgment.
DISCUSSION AND CONCLUSION
Howard now seeks relief in this court asking that the Circuit Court actions and judgments be declared void and in violation of the automatic stay of Section 362 of the Bankruptcy Code. In order to make the determination of whether or not the automatic stay was in fact violated, it is necessary to determine whether or not the Highland Lakes property, held in various land trusts, was includable in either the Christian Co., Ltd. or the C.C.L. Construction Co. estates. The movant, Howard maintains that Christian Co., Ltd. was a 50% beneficial owner of land trusts holding title to the Highland Lakes property that were transferred to the joint venture by Christian Henning and that C.C.L. Construction retained an equitable interest in the trust property for (contracted) improvements made on the property. Janatta, on the other hand, contends that the property was never part of the estate since Christian Henning prior to his conveyance to Christian Co., Ltd. made an absolute assignment of his beneficial interest in the land trusts to Metrodyne. Janatta further asserts that C.C.L. Construction Co.’s interest, if any, lies not in the property itself but in the right to receive payment for improvements made on the land.
After a thorough examination of the pleadings and exhibits submitted by the parties, it is the determination of this court that the debtors Christian Co., Ltd. and C.C.L. Construction did not have an interest in the Highland Lakes property at the time the petition for bankruptcy was filed. Section 541(a)(1) of the Code provides, in relevant part, that the debtor’s estate shall include all legal and equitable interest of the debtor in property as of the commencement of the case. The scope of the estate is unquestionably broad and includes any rights or interests the debtor may have in real property. When the debtors filed their petitions for bankruptcy, they possessed neither legal title to nor a beneficial interest in the Highland Lakes property. Christian Henning, the original owner of the beneficial interest of the land trusts holding the Highland Lakes property and the purported transferor of this interest to Christian Co., Ltd. had, prior to the attempted transfer to Christian Co. made an absolute assignment of his interest to Metrodyne for $250,000 cash.
The critical factor in this determination is the testimony heard by Judge James and *697the conclusions drawn therefrom at the hearing on the debtor’s adversary complaint in early 1980. In that proceeding, the debtors sought to enjoin the mortgagee from proceeding in the same foreclosure action which Howard now argues was in violation of the automatic stay. The threshold element which a party moving for a restraining order must initially prove is possession of a protectable property interest. Implicit in Judge James’ refusal to enjoin the foreclosure action was a finding that the debtors possessed no interest in the Highland Lakes property. Had the debtors been able to demonstrate an interest in the property, the court would have taken steps to protect the debtors’ as well as the creditors’ interests and rights. In addition, the debtors’ subsequent failure to answer the state court complaint and their acquiesence to an entry of default judgment against them is further proof that the debtors had no interest in the Highland Lakes property.
The instrument evidencing the assignment to Metrodyne expressly provides that the transfer was of Henning’s entire interest in the joint venture agreement which consisted of his 50% beneficial interest in the land trust. Neither the restatement of the joint venture agreement, nor Henning’s testimony establishes Howard’s assertions that the assignment was only as collateral for security on a loan or that the assignment pertained only to a tract of land known as Phase I and not to the land which Howard performed work on. Finally, while Christian Henning did possess and attempt to exercise a repurchase option on the transferred interest, such a repurchase was never consummated.
Howard, in relying on Christian Co., Ltd.’s schedule of assets which listed a 50% beneficial interest in the Highland Lakes property and C.C.L.’s representation in its contract that Christian Co., Ltd. was the owner of said property, took the position that the automatic stay was in effect to protect its interest as against the state foreclosure action. Howard’s position was not an unreasonable one to take but it was not a position which could be maintained with blind reliance. First, property scheduled by the debtor as part of its assets is not conclusive evidence that the property is includable in the debtors’ estate and subject to the automatic stay. Matter of Johnson, 16 B.R. 193, 195 (Bkrtcy.M.D.Fla.1982). Secondly, Howard obtained a secured position by filing a mechanics’ lien on the Highland Lakes property. To perfect said lien, Howard was required and did record it in DuPage County where the property was located. At the time Howard recorded its mechanics’ lien, Henning’s assignment to Metrodyne was completed and also duly recorded in DuPage County. Therefore, Howard had constructive notice of the transfer to Metrodyne.
However, even if the debtor had an interest in the property, the automatic stay could not be asserted to void the state court action. While the automatic stay was intended to prevent creditors from obtaining superior interests in property of the debtor to the detriment of other creditors, it was not designed to permit creditors named as defendants in a state court action to sit idly by and allow that action to proceed to completion without taking appropriate action to protect their interest. Howard should have either appeared in the state court action and answered the complaint or informed the state court of the pending bankruptcy.
Alternatively, Howard could have sought protection from the bankruptcy court through a motion for a restraining order. A mechanics’ lien is a security interest which attaches to and runs with land. It does not restrict the alienability of the property. Where a creditor holds a mechanics’ lien on property of a bankruptcy debtor and is named as a defendant in a foreclosure action on the property to insure that its lien is protected, the 'creditor must at a minimum, appear in th'e bankruptcy action to determine whether the debtor unbeknownst to the creditor has transferred the property or that the bankruptcy court has not released the property from the estate as is common when the debtor holds *698title but no equitable interest in the property-
Howard, when served with a complaint in the state court foreclosure action, in reliance on the debtor’s schedule of assets, filed a claim in bankruptcy court. Howard took no further action between November 14, 1979 and August 30, 1982 to protect its security interest despite the receipt of the state court complaint which was clear evidence that the state court action was indeed proceeding. If Howard had taken any of the aforementioned steps, it would have been cognizant of the fact that the debtor possessed no interest in the Highland Lakes property and it could have preserved its interest.
The court notes that it' was the representations and actions taken by the debtor that induced Howard’s reliance and coupled with Howard’s inaction resulted in the loss of the security interest. Janatta, the party from whom Howard seeks redress was neither culpable or negligent in proceeding with an action which did not involve the estate of the debtor. The state court action resulted in a negotiated, court approved settlement of claims on the property and the refinancing of the property via a second mortgage. Principles of law and equity require that these orders remain intact and that the motion of Howard be denied. Howard, at best, is left with an unsecured claim against the debtor’s estate.
WHEREFORE, IT IS HEREBY ORDERED that Howard’s motion to declare certain orders void and in violation of the automatic stay is denied. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489644/ | MEMORANDUM DECISION AND ORDER GRANTING SUMMARY JUDGMENT
M.S. YOUNG, Bankruptcy Judge.
Plaintiff brought the instant action seeking to enforce a security interest in a number of golf carts sold to defendant by Larry Roberts, dba Highland Golf Cars of Idaho. Defendant has counterclaimed under § 544(a) and also raises the affirmative defense that it was a buyer in the ordinary course under Idaho Code 28-9-307 and that, as such, it takes the carts free and clear of any interest of Treasure Valley Bank therein. Defendant has moved for summary judgment and the matter is before the Court at this time upon that motion.
Idaho Code 28-9-307 provides in pertinent part:
“(1) A buyer in the ordinary course of business (subsection (9) of section 28-1-201) other than a person buying farm products from a person engaged in farming operations takes free of a security interest created by his seller even though *911the security interest is perfected and even though the buyer knows of its existence.”
Though otherwise contested, for the purposes of this motion defendant concedes that plaintiff had a security interest in the thirty golf carts and two dumpsters at issue, that this security interest was perfected, and that the defendant had knowledge of the existence of the security interest.
As relevant to this action, a “buyer in the ordinary course of business” is defined in I.C. 28-1-201(9) as:
“... a person who in good faith and without knowledge that the sale to him is in violation of the ownership rights or security interest of a third party in the goods buys in the ordinary course from a person in the business of selling goods of that kind.... ‘Buying’ may be for cash or by exchange of other property or on secured or unsecured credit....”
Thus, in order for the defendant herein to be a protected buyer in the ordinary course, it appears that these elements must be etablished:
(1) that Larry Roberts, dba Highland Golf Cars of Idaho, was a person in the business of selling golf carts;
(2) that defendant acted without knowledge that the sale to him by Roberts was in violation of any interest of plaintiff; and
(3) that defendant acted in good faith.
Plaintiff contends that Roberts was not in the practice of advancing credit and that generally 85% of his sales of golf carts were to individuals and only 15% were, as here, to a golf course. However accurate this may be, Roberts was undoubtedly engaged in the business of selling goods of this kind. Though it may not have been a typical sale for Roberts, the requirement of the statute is met.
Plaintiff also argues that defendant knew that the sale was in violation of the security interest of the bank. As stated in Comment 2 to § 28-9-307:
“This section provides that such a buyer takes free of a security interest, even though perfected, and although he knows the security interest exists. Reading [§§ 28-9-307(1) and 28-1-201(9) ] together, it results that the buyer takes free if he merely knows that there is a security interest which covers the goods but takes subject if he knows in addition that the sale is in violation of some term in the security interest not waived by the words or conduct of the secured party.
The limitations which this section imposes on the person who may take free of a security interest apply of course only to unauthorized sales by the debtor. If the secured party has authorized the sale in the security agreement or otherwise, the buyer takes free without regard to the limitations of this section.” [Emphasis added.]
Directly related to the issue of knowledge is plaintiff’s allegation that defendant did not act in good faith in the purchase of the carts as required by § 28-1-201(9). As noted by White and Summers, Uniform Commercial Code, Sec. 25-13 at p. 1069 (2d Ed.1980), exactly what the good faith requirement adds to the analysis of whether an entity is a buyer in the ordinary course is “unclear”, though it does appear to incorporate the U.C.C. definition of good faith as “honesty in fact in the conduct or transaction concerned.” § 28-1-201(19).
Though admittedly an elusive concept, I conclude that “good faith” in this particular type of situation refers to the buyer’s knowledge that the sale of goods was in contravention or violation of the underlying security interest between the seller and his secured party. Though some courts discuss it as an analytically distinct concept, it is essentially redundant in light of the other requirement of § 28-1-201(9), and adds little to the resolution of such litigation as presented here. See generally Martin Marietta Corp. v. New Jersey Natl. Bank, 612 F.2d 745, 27 UCC Rep. 1153 (3d Cir.1979), reversing 25 UCC Rep. 1458, see 1462, n. 4.
On the record before the Court at this time, and construing all available inferences most favorably to plaintiff, I find no *912genuine issue of material fact presented in regard to defendant’s knowledge that the sale transaction was in some manner viola-tive of the agreement between plaintiff and Roberts or otherwise in bad faith. Though it is probable that defendant knew the bank was involved with Roberts in some manner, at least in regard to earlier financing if not in regard to the subject transaction, there is nothing in the record which indicates that defendant knew that any portion of the agreement running between Roberts and the bank was being violated. In short, I find no conflict in the evidence presented on this issue.
Having found that the record supports the elements identified above and that defendant was a buyer in the ordinary course as defined under state law, I conclude summary judgment should be granted as requested.
IT IS SO ORDERED. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489645/ | MEMORANDUM OPINION
FREDERICK J. HERTZ, Bankruptcy Judge.
This matter concerns a plaintiff’s complaint to determine the dischargeability of certain debts. Specifically, Judith Wellman (hereinafter referred to as plaintiff) and Glenn Wellman (hereinafter referred to as debtor) entered into a marital settlement agreement on December 1, 1979. The plaintiff claims that the debtor incurred *975certain obligations under the agreement which are nondischargeable pursuant to 11 U.S.C. § 523(a)(5) (Supp. V 1981).
The marital settlement agreement provided that custody of the parties’ three children was to remain with the plaintiff. Additionally, the agreement provided that the debtor was to provide certain payments to the plaintiff for alimony and child support. The relevant provisions pertaining to the debtor’s child support and alimony obligations are as follows:
ARTICLE IV
MEDICAL, DENTAL, OPTICAL AND RELATED EXPENSES OF THE CHILDREN
1. The [debtor] shall pay and be solely responsible for all extraordinary medical, hospital, surgical, optical and extraordinary dental care for the minor children of the parties ...
ARTICLE VIII
PERIODIC ALLOWANCE FOR SPOUSE
2. The [debtor] shall pay to the [plaintiff] as and for her support and maintenance an amount equal to the first mortgage (principal, interest, taxes and insurance), assessments (on the condominium in which the plaintiff and the parties’ three children currently reside, and charges for one parking space per month.
ARTICLE IX
INSURANCE
3. The [debtor] shall obtain and maintain life insurance on his life in the amount of $100,000.00. Said insurance shall be maintained for the benefit of the minor children of the parties .
ARTICLE X
CHILD SUPPORT
4. The [debtor] shall pay to the [plaintiff] as and for child support of the three minor children of the parties, the sum of $800.00 per month, ..., commencing December 1, 1979, ...
Subsequently, on February 28, 1980, the Circuit Court of Cook County, Illinois, County Department — Domestic Relations Division, entered a judgment for the dissolution of the parties’ marriage (79 D 845). The debtor thereafter began falling behind on his alimony and child support payments due to the plaintiff. Eventually, on August 19, 1982, the debtor filed a petition for relief under Chapter 7 of the Bankruptcy Code.
The plaintiff then brought the aforementioned complaint against the debtor (83 A 0981). The thrust of the complaint contends that Section 523 operates so as to render the child support and alimony payments as nondischargeable debts. The plaintiff contends that all attorney fees that may be incurred by her relative to her support and maintenance are similarly non-dischargeable.
The debtor admitted all of the relevant facts. However, the debtor denied that his obligations under the marital settlement agreement are in the nature of “alimony” or “support.” The debtor offered no further proof in support of his position. Thereafter, the plaintiff brought a motion for summary judgment and submitted a memorandum of law in support of her position relative to the nondischarge-ability issues. Thus, this court must determine whether Section 523 exempts the aforementioned obligations from the normal discharge provisions provided under the Bankruptcy Code.
Section 523 provides in relevant part that:
(a) A discharge under Section 727,1141 or 1328(b) of this title does not discharge an individual debtor from any debt . (5) to a spouse, former spouse, or child of the debtor, for alimony to, maintenance for, or support of such spouse or child, in connection with a separation agreement, divorce decree, or property settlement agreement, but not to the extent that ...
*976(A) such debt is assigned to another entity, voluntarily, by operation of law, or otherwise; or
(B) such debt includes a liability designated as alimony, maintenance, or support, unless such liability is actually in the nature of alimony, maintenance, or support; ...
11 U.S.C. § 523 (Supp. V 1981). It is well settled in this Circuit that if an obligation is a debt for alimony, maintenance, or support of a spouse or a child in connection with a divorce decree, it is nondischargeable in bankruptcy. Matter of Woods, 561 F.2d 27, 30 (7th Cir.1977). However, if the divorce decree merely divides the marital property, the ensuing indebtedness is dischargeable in bankruptcy. Matter of Coil, 680 F.2d 1170, 1171 (7th Cir.1982).
The debtor denied plaintiff’s allegations relative to the characterization of the child support and alimony obligations. ■ This court necessarily assumes, since the debtor offered no further explanation, that the debtor’s position is that the settlement agreement merely constituted a division of property and thus is dischargeable in bankruptcy. Thus, an examination of the pertinent factors and circumstances is in order to determine the true nature of the child support and alimony payments.
Such an examination revolves around the interpretation of what “alimony” is. In making this determination, this court must look to the relevant federal standards. See In re Renzulli, 28 B.R. 41, 43 (Bkrtcy.N.D.Ill.1982) (In determining what constitutes alimony, maintenance, or support for purposes of dischargeability, this court is not bound by the label which the state courts place upon such a decree, but must make the determination in accordance with the federal standards.); See also H.R.Rep. No. 595, 95th Cong., 1st Sess. 364 (1977), reprinted in (1978) U.S.Code Cong. & Ad.News pp. 5963, 6320. The relevant case law which has interpreted the alimony issue provides that payments are to be considered as alimony if they are actually in the nature of support for a former spouse. In re Wells, 8 B.R. 189, 192 (Bkrtcy.N.D.Ill.1981), citing Nichols v. Hensler, 528 F.2d 304, 307 (7th Cir.1976); See also In re Tilmon, 9 B.R. 979, 987 (Bkrtcy.N.D.Ill.1981)
Turning to the instant case, the agreement states that several conditions must be fulfilled by the plaintiff as a predicate to receiving the alimony and child support payments. The relevant restrictions and conditions relative to the receipt of the alimony and child support payments are as follows:
ARTICLE IV
MEDICAL, DENTAL, OPTICAL AND RELATED EXPENSES OF THE CHILDREN
... 2. The [debtor’s] obligation with respect to said minor children shall terminate upon each child’s attaining the age of majority or finishing college, whichever shall last occur.
ARTICLE VIII
PERIODIC ALLOWANCE FOR SPOUSE
... 5. The payments to the [plaintiff] of maintenance shall continue with the first to happen of the following events:
(a) The death of the [plaintiff];
(b) The remarriage of the [plaintiff]; (e) The cohabitation by the [plaintiff] with another person on a resident, continuing conjugal basis;
(d) The emancipation of the minor children of the parties;
(e) The sale or lease of the condominium unit;
(f) The mutual agreement of the parties hereto.
ARTICLE X
CHILD SUPPORT
The debtor’s obligation for the support of each of the minor children of the parties, shall continue until the first to happen of any of the following events:
(a) The marriage of said child.
*977(b) The child attaining the age of majority.
(c) The death of a child.
(d) The child having a permanent residence away from the permanent residence of the custodial parent. A residence at boarding school, camp, trade school, college or professional school is not to be deemed a residence away from the permanent residence of the custodial parent.
(e) Full emancipation of the child, but excluding as a measure thereof part time or summer time employment.
ARTICLE XIII
MISCELLANEOUS PROVISIONS
The [debtor] agrees that the [plaintiff] shall be entitled to be employed and to earn up to FIFTEEN THOUSAND DOLLARS ($15,000.00) per year net income without prejudice to her right to receive the aforedescribed payments; and neither her employment nor any of her earnings, unless they exceed FIFTEEN THOUSAND DOLLARS ($15,000.00) per year net income, shall be considered to be a change in circumstance in connection with any Petition for Modification of support for the minor children of the parties.
This court reviewed the relevant paragraphs of the marital agreement relating to the child support and alimony payments. Upon such review this court concludes that the debtor’s obligations with respect to child support and alimony payments are clearly in the nature of “support” and “alimony” which Section 523(a)(5) serves to exempt from discharge. This finding is bolstered by the disparity in financial earning power that exists as between the debtor and the plaintiff.
The debtor’s schedules indicate that he is a plant manager for an industrial company. The debtor’s income for 1981 was listed as $35,000.00. The plaintiff, on the other hand, is restricted to earning $15,000.00 per year. The economic disparity existing between the parties is further widened when one considers that the plaintiff has custody of the parties’ three children.
Consequently, this court necessarily concludes that the child support and alimony payments are of the nature that the drafters of Section 523(a)(5) contemplated as exempting from the normal discharge provisions of the Code. See In re Maitlen, 658 F.2d 466, 467 (7th Cir.1981). (Obligation on part of debtor to make mortgage payments on real estate awarded to wife was not dischargeable in bankruptcy where terms of settlement agreement indicated that the obligation was “support” rather than “a property division”). Thus, this court grants the plaintiff’s motion for summary judgment relative to the dischargeability of the debt- or’s child support and alimony obligations.
This court must then determine whether attorney fees that may be incurred by the plaintiff in future periods relative to her maintenance and support of the children are nondischargeable under Section 523(a)(5). Plaintiff has not specified what type of attorney services are contemplated. Nor does the plaintiff specify what the fees might amount to.
This court is cognizant of the case law in this district which states that attorney fees are treated as a type of alimony and thus are nondischargeable in a bankruptcy proceeding. See In re Wells, 8 B.R. 189, 192 (Bkrtcy.N.D.Ill.1981) (An award of attorney’s fees in an Illinois divorce proceeding is ordinarily in the nature of support and this is a nondischargeable debt), In re Pelikant, 5 B.R. 404, 407-408 (Bkrtcy.N.D.Ill.1980) (Attorney fees awarded to a debtor’s ex-wife in an Illinois divorce action constituted debt in the nature of alimony and is thus not dischargeable even though the fees were payable directly to the attorney rather than the debtor’s ex-wife).
The present situation is factually distinguishable from the above line of cases. The attorney fees which the debtor seeks to have rendered nondischargeable are only prospective and not definitely ascertainable at this point in time. Consequently, this court is not in a position to determine whether the contemplated fees fit within *978the requisite category of “alimony.” See In re Abitaa 18 B.R. 674, 675 (Bkrtcy.N.D.Ill.1982) (debtor’s obligation to pay attorney fees incurred in a contempt proceeding does not fit within any category of nondis-chargeable debts as those debts are defined by bankruptcy courts). Thus, this court denies the plaintiffs motion seeking a finding of nondischargeability for future attorney fees that may be incurred by the plaintiff.
Summarizing, this court finds that the debtor’s obligations relative to the child support and alimony payments are in the nature of “alimony” and thus are nondis-chargeable pursuant to 11 U.S.C. § 523(a)(5) (Supp. V 1981). Consequently, plaintiff’s motion for summary judgment as to these two matters is granted.
The portion of plaintiff’s motion which requests that future attorney fees be classified as nondischargeable obligations is denied. At this stage of the proceeding, this court does not possess the relevant facts necessary for making an appropriate decision.
Plaintiff is to furnish a draft order in accordance with this opinion within five days. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489647/ | ALAN H.W. SHIFF, Bankruptcy Judge.
MEMORANDUM AND ORDER ON COMPLAINT OBJECTING TO DIS-CHARGEABILITY OF DEBT, 11 U.S.C. § 523(a)(5)
I.
This matter is before the court on the complaint of Maureen Soderholm, objecting, pursuant to 11 U.S.C. § 523(a)(5),1 to the discharge of a debt owed by her former husband, the debtor, Roger J. Soderholm, to the Citizens’ National Bank of Fairfield.
The following facts provide the findings necessary for the resolution of this issue:
1. The parties were married on April 5, 1962. Their marriage was dissolved by a decree of the Connecticut Superior Court on November 19,1980. At the time their marriage was dissolved, the parties had three children, ranging from fourteen to eighteen years of age, who resided in the family residence known as 260 Woodbine Lane, Fairfield, Connecticut.
2. Prior to the dissolution of their marriage, the defendant obtained a loan from the Citizens’ National Bank of Fairfield (bank). Upon the defendant’s failure to pay the promissory note in connection with that loan (note), the bank instituted suit, obtained a judgment against the defendant and filed a judgment lien on the defendant’s interest in the Woodbine Lane property. The plaintiff was unaware of the loan or note until the bank commenced collection activities.
*843. Pursuant to the Stipulation Re Judgment (stipulation) entered into by the parties on November 19,1980 and incorporated by reference into the November 19, 1980 decree of the Connecticut Superior Court, the defendant conveyed his interest in the Woodbine Lane property by quit claim deed to the plaintiff. At that time, the Woodbine property was incumbered by a first and second mortgage as well as the bank’s judgment lien.
4. The stipulation further provided that the plaintiff was to pay and indemnify the defendant from any obligations arising out of the first and second mortgage, and that the defendant was to pay and indemnify the plaintiff from any obligations arising out of his debt to the bank in connection with the note.
5. At the time the parties entered into the stipulation, the plaintiff’s monthly gross income was approximately $1,400.00 and the aggregate monthly mortgage payment was $1,030.00.
6. At the time the parties entered into the stipulation, they reviewed and discussed the plaintiff’s income and her post dissolution expenses. Both parties were aware of the consequences of a foreclosure action by the bank to satisfy its judgment and both parties unequivocally testified that maintaining the family residence for their three teenage children was their principal objective.
II.
Code section 523(a)(5)(B) governs the dis-chargeability of debts arising in connection with a divorce decree. It provides “(a) A discharge under section 727 ... of this title does not discharge an individual debtor from any debt
(5) to a spouse, former spouse, or child of the debtor, for alimony to, maintenance for, or support of such spouse or child, in connection with a separation agreement, divorce decree, or property settlement agreement, but not to the extent that—
(B) such debt includes a liability designated as alimony, maintenance, or support, unless such liability is actually in the nature of alimony, maintenance, or support”.
The issue of whether a particular debt is a support obligation or part of a property settlement is a question of federal bankruptcy law not state law. In re Williams, 703 F.2d 1055, 1056 (8th Cir.1983); In re Warner, 5 B.R. 434, 440-41, 6 B.C.D. 788, 792 (Bkrtcy.D.Utah, 1980); see H.R.Rep. No. 595, 95th Cong., 1st Sess. 364 (1977); S.Rep. No. 989, 95th Cong., 2d Sess. 79 (1978), U.S.Code Cong. & Admin.News 1978, p. 5787. The fact that a debt is payable to a third party is not determinative of its classification. As the Williams court observed, supra, at 1057
Debts payable to third persons can be viewed as maintenance or support obligations; the crucial issue is the function the award was intended to serve. E.g., In re Spong, 661 F.2d 6 (2d Cir.1981); Poolman v. Poolman, 289 F.2d 332 (8th Cir., 1961); In re Jensen, 17 B.R. 537 (Bkrtcy.W.D.Mo.1982). Though we of course regard the decisions of the state courts with deference, bankruptcy courts are not bound by state laws that define an item as maintenance or property settlement, nor are they bound to accept a divorce decree’s characterization of an award as maintenance or a property settlement. E.g., In re Lineberry, 9 B.R. 700, 704 (Bkrtcy.W.D.Mo.1981).
It is apparent from the evidence adduced at trial that the parties intended the plaintiff and their three teenage children to live in the family residence; that the bank’s judgment lien was a potential threat to such continued use; and that the plaintiff’s income, supplemented by the defendant’s periodic, unallocated alimony and child support obligations, was not likely to provide sufficient funds to satisfy the bank’s judgment. I am accordingly persuaded that the function of the defendant’s obligation under the state court decree was to furnish support for the plaintiff by relieving her of the burden of satisfying the bank’s judgment in order to save her home.
The same result is reached by considering the defendant’s obligation in the context of *85the child maintenance and support provisions of Code section 523(a)(5). As noted, it was the parties’ principal objective to maintain the family home for their children. In that sense, the defendant agreed with the plaintiff that he would pay the entire bank debt so that the bank would not institute foreclosure proceedings which might terminate the children’s use of the premises. Thus it would appear that the defendant intended to provide for the maintenance and support of his children and that his agreement to pay the bank debt was intended to accomplish that purpose.
Although the plaintiff’s complaint failed to allege that the defendant’s debt to the bank was actually in the nature of child maintenance or support, evidence was offered on that subject without objection. Under Rule 15(b) F.R.Civ.P.,2 made applicable in this proceeding by Bankruptcy Rule 7015, such uncontroverted evidence may be considered by the court even in the absence of an amendment of the complaint to conform to the evidence. Accordingly, I conclude that the defendant’s debt to the bank is actually in the nature of child maintenance and support.
For the above reasons, it is hereby ORDERED, that the defendant’s debt to the bank, arising out of a loan and note which were the subject of a judgment in favor of the bank and a judgment lien on the premises known as 260 Woodbine Lane, Fair-field, Connecticut, is excepted from discharge and judgment may enter accordingly.
. For text of Code section 523(a)(5) see page 84, infra.
. (b) Amendments to Conform to the Evidence. When issues not raised by the pleadings are tried by express or implied consent of the parties, they shall be treated in all respects as if they had been raised in the pleadings. Such amendment of the pleadings as may be necessary to cause them to conform to the evidence and to raise these issues may be made upon motion of any party at any time, even after judgment; but failure so to amend does not affect the result of the trial of these issues. If evidence is objected to at the trial on the ground that it is not within the issues made by the pleadings, the court may allow the pleadings to be amended and shall do so freely when the presentation of the merits of the action will be subserved thereby and the objecting party fails to satisfy the court that the admission of such evidence would prejudice him in maintaining his action or defense upon the merits. The court may grant a continuance to enable the objecting party to meet such evidence. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489648/ | MEMORANDUM OF DECISION
JOHN D. AYER, Bankruptcy Judge.
In Fasson v. Magouirk, 693 F.2d 948 (9th Cir.1983), the Ninth Circuit laid down an explicit standard to govern extensions of time for appeals from the bankruptcy court. The Court in Magouirk said that the rule governing extensions of time “is very strictly construed.” Id. at 950. In this proceeding, the Internal Revenue Service (“IRS”) seeks relief to extend time within which to file a notice of appeal. Finding that the IRS must prevail even under the very stringent standard of Magouirk, I grant the extension as requested.
The underlying case concerns the tax obligations of a bankruptcy estate. The sums in controversy run into hundreds of thousands of dollars, and the IRS asserted at oral argument that the case involves an important point of law. But none of that is strictly material to the present dispute. The dispute here centers on the application of the rules governing bankruptcy appeals, particularly former Bankruptcy Rule 802,1 which provides that the notice of appeal from a bankruptcy judgment shall be filed within 10 days of the entry of judgment. The rule also provides that the time for filing the notice may be extended. But it says that if the extension is sought after the time has expired, then there must be a showing of “excusable neglect.” See also former Bankruptcy Rule 922.
The Court of Appeals in Magouirk said that “excusable neglect” in this context “re*88quires (1) a finding that the party failed to learn of the entry of judgment, or (2) a finding of extraordinary circumstances, where excusing the delay is necessary to avoid injustice.” Magouirk, 693 F.2d at 950. In this case, it seems to me that the IRS establishes both grounds — first that the IRS failed to learn of the entry of judgment and, second, that delay is necessary to avoid injustice.
A chronology will put the matter in focus. The parties filed cross-motions for summary judgment in September, 1982. The Court held the matter under submission until March 10, 1983, when it sent a letter to counsel saying that the trustee’s motion for summary judgment “is granted.” The letter also directed the trustee to prepare findings of fact and conclusions of law, and an order. The trustee did so and lodged them with the Court on March 16. Receiving no response, the trustee, on April 7, sent a letter to the Court asking what had become of them. The IRS for its part contacted' the docket clerk with the same inquiry on April 12. Still hearing nothing, the IRS local counsel, on April 28, forwarded to Washington , a recommendation that the government take an appeal in the case. The recommendation bore the notation “Time Limit:” — “Judgment not yet entered.”
Still hearing nothing, the IRS local counsel, on June 14, sent a law clerk to the office of the court clerk to review the file. The law clerk spoke to the courtroom deputy in charge of the file. The law clerk’s declaration explains:
She checked in several places, including the file room, and was unable to locate the file. She then suggested that I go to the Clerk of the United States District Court to see if the file was there. It was not. Next, I checked with [the judge’s] secretary to determine whether the file was in chambers. She could not locate it. She suggested that I try the Records window in the Bankruptcy Clerk’s Office. The clerk there pulled a file to which was attached on the outside a large red card reading ‘File Out.’ Inside the file were the Summary Judgment and the Findings of Fact And Conclusions of Law with notations to the effect that they were signed by [the judge] and filed on April 13, 1983, and entered on April 19, 1983.
In other words, she had arrived two months late. But that was not the end of things:
On June 28,1983,1 again checked with (the court clerk) to ask her for a copy of the Findings Of Fact And Conclusions Of Law which we still had not received. At that time, she realized that the Notice Of Entry form was not properly completed because a copy was not attached to the Findings Of Fact And Conclusions Of Law, and apparently, not mailed to counsel. She also was not able to determine whether the entry had properly been made because the docket card could not be located.
In fact, the trustee had received conformed copies of the findings and conclusions of law, and the judgment, although the IRS never did. The IRS, having discovered that the judgment had in fact, been entered, brought this motion to enlarge time for filing its appeal.
It may be useful now to pick up the story from a different perspective. It so happened that while this motion was pending, the judge who had decided the case left the bench, and I took over his cases. The first I knew of the case was when I was reviewing files the night before the scheduled argument on the motion. At that time, the clerk’s office was unable to provide me with a complete file. Among other documents lacking, I found I did not have a copy of the very motion I was supposed to hear (though I did have a copy of the trustee’s response). A deputy clerk brought me the case file itself the morning of the hearing, though it, too, was incomplete. She indicated that the case had been marked “closed” and sent to storage.
In court, counsel favored me with a copy of the docket sheet, which he had only recently been able to procure. The docket sheet did, in fact, appear to indicate that the judgment had been “docketed” on April *8919 — although later, in searching the file, I found another, somewhat inconsistent, docket sheet, marked “DUMMY” and bearing the handwritten notation “closed.” This second docket sheet did not indicate that the judgment had ever been entered, although it appears to have been left incomplete as of April 13, 1983.
In reviewing the file with me after court, my own calendar clerk said it appeared to her that copies of the notice of entry never had been sent to counsel. She also noted that the file bore an “Adversary” case number. She called my attention to the fact that this case arose under the Bankruptcy Act of 1898, but that, according to the practice of the Clerk’s office, cases under the 1898 Act were not supposed to have “adversary” case numbers. She offered her opinion that the presence of an adversary number on an 1898 Act case was enough in itself to create confusion over the file in the clerk’s office.
The trustee concedes substantially all of this. Nonetheless, he argues that the IRS knew that something was in the wind after March 10, and that after that, it was up to the IRS to be diligent in checking the files. See generally In re Butler’s Tire and Battery Co., Inc. v. Ferrous Financial Services, 592 F.2d 1028 (9th Cir.1979).
I cannot accept the reasoning in this case. Under the circumstances, it seems probable that the Judgment was never sent to the IRS. Moreover, it seems abundantly clear that any confusion in the case emanated from the clerk’s office and that it would have taken extraordinary effort for anyone to disentangle it. Hence, I hold that the “neglect” of the IRS was “excusable” within the language of Rule 802. To hold otherwise would mean that any attorney, once he suspected that an order was imminent, would be under an impulse to deluge the clerk’s office with inquiries, lest some judge find later that he should have learned something that was not obvious in the ordinary course of events. I think this policy would add to the burdens of an already overburdened clerk’s office, enhancing the likelihood that even more judgments would disappear into the file without notice. The IRS’ motion shall be granted, and the IRS shall have 10 days from the entry of the order accompanying this Memorandum of Decision to notice its appeal in this case.
. The former Bankruptcy Rules were Supplanted by new Bankruptcy Rules in August 1, 1983, but all parties agree that the former Rules apply to this case. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489650/ | ORDER ON MOTION TO HOLD DEFENDANT IN CONTEMPT OF COURT
ALEXANDER L. PASKAY, Chief Bankruptcy Judge.
THIS CAUSE came on for hearing upon a Motion to Hold Defendant in Contempt of Court filed by Diane L. Jensen, the Chapter 7 Trustee in the above-styled case. The Chapter 7 Trustee contends that the Defendant, Elizabeth Ann Hall, individually *157and as Trustee of a trust (The Hall Trust) created by John A. Hall (the Debtor) and his wife, Elizabeth Ann Hall on October 27, 1976, should be held in contempt of court for violating the terms of a stipulation which was entered into by the Chapter 7 Trustee and Elizabeth Ann Hall, in her capacity as the Hall Trustee on February 16, 1982, and approved by this Court on February 19,1982. The Plaintiff also alleges that Elizabeth Ann Hall violated the final judgment entered in this cause on September 14, 1982 which in pertinent part ordered all trust assets be frozen. After the entry of the final judgment, the Defendant cashed a mortgage check and allegedly failed to disburse the proceeds to the Trustee in Bankruptcy or in any way account for the same. Jensen seeks not only a citation for contempt, but also a court order directing Elizabeth Ann Hall to turn over $2,949.38, an amount equal to the mortgage payment, to restore all sums by which the trust has been diminished as a result of acts in violation of the September 14, 1982 court order and to pay the Plaintiffs attorney fees.
The Court heard argument of counsel, considered the record and finds as follows:
On July 31,1981, John Hall filed a Voluntary Petition for Relief pursuant to Chapter 7 of the Bankruptcy Code. Diane Jensen was appointed trustee of the Chapter 7 estate and in that capacity filed a Complaint to Set Aside Fraudulent Transfer pursuant to § 544(b) of the Bankruptcy Code. The Complaint alleged that on October 27, 1976, the Debtor and Elizabeth Ann Hall as settlors, executed a Trust Agreement naming Elizabeth Ann Hall as Trustee and the Debtor and his wife as primary beneficiaries. Throughout 1976, the Debtor and his wife transferred both real and personal property to Elizabeth Ann Hall in her capacity as Trustee of the Hall Trust. Jensen asserted and the Court, after a final evidentiary hearing, concluded that the transfers were voidable by creditors under the applicable non-bankruptcy law and, therefore, subject to avoidance by the Chapter 7 trustee pursuant to Bankruptcy Code § 544(b).
Prior to the final evidentiary hearing on the Trustee’s complaint; Jensen and Elizabeth Ann Hall entered into a stipulation for the stated purpose of preserving the trust assets while enabling the Debtor and his wife to use a portion of the income and principal of the trust for living expenses and enabling the Trustee to engage in good business practices during the pendency of the litigation. The stipulation which was approved by the court on February 19,1982, provides in pertinent part:
3. The Defendant may use the sum of $4,146.75 which represents the balance in a corporate bank account of Aberco Enterprises, Inc. as of September 26, 1981, and the sum of $3,414 which sum represents the balance in the bank account of Highlander Enterprises, Inc. as of October 2, 1981 for the reasonable business practices of the trust, since the trust represents the sole shareholder of said corporations. No further sums shall be added to either corporate account, however, without the consent of the Trustee and order of this Court, except those sums which have previously been deducated (sic) per the corporate records, (emphasis added)
4. ...
5. The Defendant acknowledges that as of October 12, 1981, the Trust savings account at Gulf Coast National Bank held the sum of $16,124.31 of which $7,000 has been transferred to Aberco or Highlander Account. Plaintiff and Defendant stipulate that said savings account may be diminished by the maximum sum of $1,000 for every 30 day period beginning this date ...
6. Defendant acknowledges that as of October 12, 1981, they had $40,000 in Treasury Bills. Defendant agrees to reinvest the proceeds of said Treasury Bills as they become due and agrees not to mortgage, pledge, transfer, assign, release, hypothecate or in any other way dispose of or encumber the sums represented by such treasury bills without the *158consent of the Trustee and Order of this Court.
As noted above, the Court conducted a final evidentiary hearing on the Complaint to Set Aside Fraudulent Transfer and entered a final judgment on September 14,1982. The Court ruled that all conveyances by the Debtor and his wife to the Hall Trust were void; ordered Elizabeth Ann Hall to render an accounting; directed Elizabeth Ann Hall to execute documents to implement the judgment and prohibited Elizabeth Ann Hall as Trustee from any further use, disposition, or otherwise, of any trust assets. Elizabeth Ann Hall timely submitted the accounting and turned over control of all trust assets to the Chapter 7 Trustee in compliance with the final judgment.
It is undisputed that Elizabeth Ann Hall in her capacity as Trustee of the Hall Trust did technically violate the terms of the stipulation and the final judgment by performing the following acts between February 16, 1982 and September 28,1982: (1) in contravention of Paragraph 35 of the Stipulation, the Trustee used corporate funds and made substantial deposits to the corporate accounts without the consent of the Trustee and approval of the Court; (2) the Trustee withdrew sums in excess of $1,000 from the Trustee Savings Account on May 7, 1982; June 7, 1982; June 17, 1982; July 2, 1982; and August 6, 1982 in violation of Paragraph 5 of the Stipulation; (3) the Trustee failed to reinvest $10,000 in treasury bills upon maturity of a treasury bill, but rather deposited the $10,000 proceeds into the savings account to be applied to the business operations of Highlander Enterprises in violation of Paragraph 6; (4) finally, the Trustee cashed the September 15, 1982 mortgage payment generated from the Naples Park Mortgage, a trust asset, and applied the proceeds to the payment of living expenses of the Debtor and his wife as provided by the Stipulation, although prohibited by the final judgment entered by this Court September 14, 1982.
There is no doubt that Elizabeth Ann Hall violated the terms of the Stipulation and as a result of these violations, the trust suffered a reduction of $59.03, an amount which Elizabeth Ann Hall has returned to the estate. The Hall Trustee also technically violated the final judgment rendered on September 14, 1982 by cashing the mortgage payment check and applying the proceeds to the payment of the personal living expenses of she and her husband. The evidence reveals, however, that the check was received by the Trustee on September 15, 1982 one day after the entry for the final judgment and before the Trustee had notice of the same. Elizabeth Ann Hall cashed the check, as allowed by the stipulation, without knowledge that the judgment had been entered. Clearly, there exists no willful violation. Upon consideration of this record, the Court finds that as a result of the technical violations of the stipulation and final judgment, Elizabeth Ann Hall must pay over to the estate the total sum of $2,949.38 representing the post-final judgment mortgage payment in the amount of $2,949.38. It is the opinion of the Court, however, that a citation for contempt is neither justified nor warranted. While there is no question that the technical violations occurred, there is no showing of damage to the Chapter 7 estate or to creditors. In addition, the Trustee acted in good faith to preserve the trust assets and any violation of a court order was neither willful nor malicious.
In light of the foregoing, the Motion for Contempt filed by Diane Jensen must be denied. Accordingly, it is
ORDERED, ADJUDGED AND DECREED that the Motion to Hold Defendant in Contempt of Court filed by Diane Jensen be, and the same hereby is, denied. It is further
ORDERED, ADJUDGED AND DECREED that Elizabeth Ann Hall be, and the same hereby is, directed to pay over to the Chapter 7 Trustee the sum of $2,949.38 to be applied to the Chapter 7 estate and the sum of $250 for attorney’s fees. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489651/ | MEMORANDUM OPINION
ALEXANDER L. PASKAY, Chief Bankruptcy Judge.
THIS CAUSE came on for pre-trial conference upon a Complaint Seeking Revocation of Discharge filed by Diane Jensen, the Trustee in bankruptcy against John A. Hall, the Chapter 7 Debtor in the above-styled case. It is the contention of the Trustee in bankruptcy that the Debtor in conjunction with Elizabeth Ann Hall, his wife, individually and as Trustee of the Hall Trust, violated a Court order dated February 19, 1982. Thus, the Trustee in bankruptcy seeks a revocation of the Debtor’s discharge pursuant to § 727(a)(6)(A) and (e).
The Court considered the record and finds as follows:
On July 31, 1981, John A. Hall filed a Voluntary Petition for Relief pursuant to Chapter 7 of the Bankruptcy Code. Approximately five years earlier, the debtor and his wife, Elizabeth Ann Hall executed a trust agreement, naming Elizabeth Ann Hall as Trustee and the Debtor and his wife as primary beneficiaries of the Trust. Upon the filing of the Chapter 7 Petition, Diane Jensen was appointed Chapter 7 trustee and in that capacity, filed a Complaint to Set Aside Fraudulent Transfer pursuant to § 544 of the Bankruptcy Code, based on the allegation that the transfer of property by the Debtor and his wife to the trust were illegal pursuant to the applicable state law and, therefore, voidable by creditors and void as to the trustee in bankruptcy. (Jensen v. Hall, (Bkrtcy.M.D.Fla.1983), 33 B.R. 156).
After the Chapter 7 Trustee filed the Complaint, but prior to resolution of this matter, Elizabeth Ann Hall, as the Hall Trustee and Diane Jensen, as Chapter 7 Trustee, entered into a stipulation agreement regarding the use and control of the trust funds during the pending of the adversary proceeding.
In due course, the cause came on for final evidentiary hearing and this Court ruled that the transfers were, in fact, fraudulent as to creditors under applicable state law and, therefore, null and void as to the Trustee in bankruptcy pursuant to § 544(b) of the Bankruptcy Code. In addition, the Court ordered Elizabeth Ann Hall to render an accounting to the Chapter 7 trustee, execute all documents to implement the judgment and refrain from selling, pledg*160ing, leasing, assigning, disposing or encumbering any assets of the Trust.
On October 14,1982, the Trustee in bankruptcy filed a Motion to Hold Defendant (Elizabeth Ann Hall) in Contempt of Court for violating the terms of the stipulation and for violating the final judgment in Adversary Proceeding No. 81-456. On the same day, the Trustee instituted this adversary proceeding by filing a Complaint Seeking Revocation of Discharge of the Debtor pursuant to § 727(a)(6)(A) and (e) of the Bankruptcy Code. A duly scheduled pretrial conference was conducted in this cause, at which time all parties agreed that a finding by this Court that a citation for contempt as against Elizabeth Ann Hall was not warranted in Adversary Proceeding No. 81-456 would be dispositive of this cause.
Subsequently, the Court determined that the actions of Elizabeth Ann Hall did not justify a finding of contempt. Therefore, the Debtor’s discharge must remain intact and this adversary proceeding must be dismissed.
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/8489655/ | MEMORANDUM OPINION
HENRY L. HESS, Jr., Bankruptcy Judge.
This matter came before the court upon the complaint of BIC Financial Services, Inc. (“BIC”) requesting relief from the automatic stay and the complaint of the debtors objecting to BIC’s secured claim. Pursuant to a stipulation of the parties, both adversary proceedings were consolidated for trial on June 17, 1983.
The facts of the proceedings are as follows: On February 12, 1981, the debtors executed and delivered a promissory note to BIC in the amount of $19,231.69 plus interest of 19% per annum. On the same date, the debtors granted BIC a security interest in real property located at 10555 SE Sweet-gum Way, Portland, Oregon, to secure the note. As a part of the transaction, BIC gave the debtors notice of their right to rescind the transaction and the debtors acknowledged receipt of the notice.
On December 16,1982, the debtors filed a voluntary petition under chapter 13 of the Bankruptcy Code. On April 5, 1983, the debtors sent to BIC a notice of rescission of the February 12,1981 loan transaction. On April 13,1983, BIC responded by sending a letter which stated that the release of the debtors’ security agreement would be conditioned upon return of the proceeds of the loan.
The debtors’ first amended plan was filed on April 12, 1983. It does not treat BIC as a secured creditor and it provides for a 20% composition to unsecured creditors. On May 17, 1983, BIC filed an objection to the debtors’ proposed plan on the grounds that it should be treated as a secured creditor rather than as an unsecured creditor. Subsequently, the two complaints which brought this dispute before the court, the relief from stay action filed by BIC and the objection to claim filed by the debtors, were filed. A hearing on confirmation of the debtors’ plan was adjourned until after the court rules on the present matter.
The debtors contend that BIC failed to provide them with a notice of rescission in accordance with the requirements of the Truth-in-Lending Act, (“Act”) 15 U.S.C. § 1635, and the regulations implementing the Act, Federal Reserve Board Regulation Z, 12 CFR 226.9(b). Thus, they argue that they were entitled under the provisions of the Act to exercise their right to rescind the February 12, 1981 loan transaction. The debtors contend that upon exercise of their rescission rights, BIC lost its security interest in the subject property. They further assert a right to civil penalties under 15 U.S.C. § 1640 based on: (1) the allegedly improper form of the notice of rescission; and (2) BIC’s subsequent unwillingness to void their security interest.
It is BIC’s position that the notice of rescission it provided to the debtors does comply with the requirements of the Act and the regulations implementing the Act. BIC contends that even if the court holds that the notice of rescission is inadequate, the debtors’ rescission of the loan transaction was properly conditioned upon their repayment of the amount of the loan to BIC. BIC further contends that the debtors have no right to civil penalties both because the claim is barred by the statute of limitations and because BIC was entitled to condition rescission on repayment.
The issues before the court are: (1) whether the notice of rescission given by BIC to the debtors complies with the requirements of the Act and its implementing regulations; and (2) if the notice of rescission does not so comply, (a) whether the debtors’ rescission of the transaction may be conditioned upon return of the consideration received; and (b) whether the debtors are entitled to civil penalties.
At the trial the parties agreed that the burden is on the debtors to establish that the notice of rescission did not comply with the Act and implementing regulations. See Fort v. First Citizens Bank & Trust Co., 526 *238F.Supp. 22 (DCNC 1981), aff’d, 673 F.2d 1309 (4th Cir.1981).
It is clear that on the date of the transaction, February 12, 1981, BIC was required under the Act and Federal Reserve Board Regulation Z to furnish the debtors with a notice of rescission as set forth in 12 CFR 226.9(b):
“Notice to customer required by Federal law: You have entered into a transaction on (date) which may result in a lien, mortgage, or other security interest on your home. You have a legal right under Federal law to cancel this transaction, if you desire to do so, without any penalty or obligation within three business days from the above date or any later date on which all material disclosures required under the Truth-in-Lending Act have been given to you. If you so cancel the transaction, any lien, mortgage, or other security interest on your home arising from this transaction is automatically void. You are also entitled to receive a refund of any down-payment or other consideration if you cancel. If you decide to cancel this transaction, you may do so by notifying (Name of creditor) at (Address of creditor’s place of business) by mail or telegram sent not later than midnight of (date). You may also use any other form of written notice identifying the transaction if it is delivered to the above address not later than that time. This notice may be used for that purpose by dating and signing below.
I hereby cancel this transaction.
(date! (customer’s signature!”
Section 226.9(b) further requires that the creditor furnish the Consumer with two copies of this notice.
The notice provided by BIC to the debtors was as follows:
“Notice To Customer Required By Federal Law: You have entered into a transaction on the date of loan shown above which may result in a lien, mortgage, or other security interest on your home. You have a legal right under federal law to cancel this transaction, if you desire to do so, without any penalty or obligation within three business days from the above date or any later date on which all material disclosures required under the Truth in Lending Act have been given to you. If you so cancel the transaction, any lien, mortgage, or other security interest on your home arising from this transaction is automatically void. You are also entitled to receive a refund of any down-payment or other consideration if you cancel. If you decide to cancel this transaction, you may do so by notifying the Lender whose name and address appears above by mail or by telegram sent not later than midnight of the above stated rescission date. You may also use any other form of written notice identifying the transaction if it is delivered to the above address not later than that time. This notice may be used for that purpose by dating and signing below.
I hereby cancel this transaction.
(date) (customer’s sismatureV’
The text of the notice given by BIC did not contain its name and address, the date of the transaction or the date when the rescission period ended. However, the text refers the consumer to this information which is provided directly above the text of the notice, and is clearly labeled. (See Appendix A). Neither the regulation nor Federal Reserve Board Commentary require the creditor to place this information directly in the text of the notice of rescission.
The purpose of the Truth-in-Lending Act is to promote “the informed use of credit” by assuring “meaningful disclosure of credit terms” to consumers. 15 U.S.C. § 1601. Congress was prompted to enact such a law to remedy the complete lack of uniformity among lenders in the disclosure of the cost of credit. By the Act, Congress sought to standardize credit terms so that consumers would be able to make meaningful comparisons of available credit alternatives. 15 U.S.C. § 1601.
Thus, it is not surprising that there are several case's which have held that the requirements of the Act are to be strictly enforced where a lender uses a credit term which deviates from a credit term pre*239scribed in the Act. Mason v. General Finance Corp. of Va., 542 F.2d 1226 (4th Cir. 1976) (disclosure statement mixed state and federal disclosure terms); Pennino v. Morris Kirsehman & Co., 526 F.2d 367 (5th Cir.1976) (use of term “balance” instead of “new balance”); Ives v. W.T. Grant, 522 F.2d 749 (2nd Cir.1975) (use of term “amount financed” instead of “unpaid balance”). See also Walker v. College Toyota, Inc., 519 F.2d 447 (4th Cir.1975) (failure to disclose “deferred payment price”).
In their memorandum, the debtors cite the Oregon district court case of Woods v. Beneficial Finance of Eugene, 395 F.Supp. 9 (D.Or.1975), for the proposition that there are no technical violations of the Truth-in-Lending Act. In Woods, the court found that the finance company’s disclosure statement violated the Act in several respects. As a preamble to its holding, the court noted that although the regulations enacted to implement the “meaningful disclosure” standard of the Act are rather technical, the remedial nature of the Act demands strict compliance. The disclosure statement before the court clearly violated the following requirements of the Act:
(1) that a creditor include the cost of credit life and credit disability insurance within the finance charge unless the fact that insurance coverage is not a factor in extending credit is clearly disclosed in writing and the consumer gives specific affirmative written indication of his desire to obtain coverage after written disclosure of the cost of the insurance;
(2) that a creditor include the cost of household contents insurance within the finance charge unless the creditor gives the consumer a clear, conspicuous and specific statement in writing setting forth the cost of the insurance if obtained through the creditor and stating that the consumer may choose the person through which the insurance is to be obtained;
(3) that a creditor disclose and fully explain any right of acceleration; and
(4) that a creditor clearly identify the property covered by a security interest.
In Woods, the court held that the failure to meet these requirements misled the consumer and prevented her from making an informed decision about the credit transaction in question.
In the present case, there is no deviation from prescribed terminology, no lack of explanation, and no ambiguity in identification. All the information required by law to be contained in a notice of rescission is contained in the notice given by BIC to the debtors. Thus, the court finds that the notice in question does comply in full with 12 CFR 226.9(b). It follows that pursuant to the February 12, 1981 loan transaction between the parties BIC holds a valid security interest in the debtors’ property located at 1Q555 SE Sweetgum Way, Portland, Oregon.
Having found that no violation of the Truth-in-Lending Act or its implementing regulations has occurred, it is not necessary to decide whether a creditor may condition a debtor’s exercise of his rescission rights under the Act by a demand for repayment of the amount loaned. Nor is it necessary to reach the question of the debtors’ entitlement to civil damages had a violation occurred.
Nonetheless, the court will point out that the Ninth Circuit has allowed rescission to be conditioned upon repayment of the funds advanced where violations of the Act were not egregious and equities heavily favored the lenders. LaGrone v. Johnson, 534 F.2d 1360 (9th Cir.1976); LJepava v. MLSC Properties, 511 F.2d 935 (9th Cir.1975); Palmer v. Wilson, 502 F.2d 860 (9th Cir.1974).
Based on the foregoing, it appears that the debtors’ objection to BIC’s proof of claim on the grounds that it is not secured must be denied. BIC’s request for relief from stay will also be denied until the debtors are given an opportunity to amend their chapter 13 plan to conform with the court’s memorandum opinion. An order will be entered herein denying the relief requested in adversary proceedings 83-0608 and 83-0851.
*240This memorandum opinion shall constitute findings and conclusions under Bankruptcy Rule 752.
APPENDIX A
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Notice To Customer Required By Federal Law:
You have entered into a transaction on the date of loan shown above which may result in a lien, mortgage, or other security interest on your home. You have a legal right under federal law to cancel this transaction, if you desire to do so, without any penalty or obligation within three business days from the above date or any later date on which all material disclosures required under the Truth in Lending Act have been given to you. If you so cancel the transaction, any lien, mortgage, or other security interest on your home arising from this transaction is automatically void. You are also entitled to receive a refund of any downpayment or other consideration if you cancel. If you decide to cancel this transaction, you may do so by notifying the Lender whose name and address appears above by mail or by telegram sent not later than midnight of the above stated rescission date. You may also use any other form of written notice identifying the transaction if it is delivered to the above address not later than that time. This notice may be used for that purpose by dating and signing below.
I hereby cancel this transaction.
(Cutiomer’s tigoature l | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489656/ | MEMORANDUM OPINION
MARK B. McFEELEY, Bankruptcy Judge.
This matter came before the Court on December 14, 1982, for a hearing on plaintiff’s Request for Relief from Automatic Stay and Other Remedies. The Court has previously ruled on the other counts but reserved ruling on the plaintiff’s claims involving unjust enrichment.
The facts are as follows. Defendant debtor Cunningham and plaintiff maintained a month-to-month lease on property. The debtor stayed current in rent payments until July 1, 1982, and filed a petition in bankruptcy on July 9, 1982.
From that date, plaintiff was required to store numerous items of equipment on his premises. These items were claimed by other defendants (hereinafter referred to as secured creditors). After the filing of the petition in bankruptcy, the plaintiff was instructed not to remove the described items; that these items were to be stored on the premises. The plaintiff was unable to rent his office space while the secured creditors’ property occupied the premises.
The plaintiff alleges that the equipment was uninsured and that he was unduly exposed to liability for the safety and protection of the secured creditors’ property. He further alleges that his storage and safekeeping of the property unduly enriched the secured creditors and the estate to his detriment. He asserts that these circumstances created a bailment on the property of the secured creditors in his possession and requests the Court to find that he is entitled to a fee for the reasonable value of his services in protecting and storing the secured creditors’ equipment.
The issue before this Court is whether a landlord is entitled to compensation for protection and storage of secured creditors’ personal property while the creditors are prevented from collecting their property by the automatic stay provisions of the Bankruptcy Code. 11 U.S.C. § 362.
1. The plaintiff alleges that he was exposed to increased liability as a consequence of the uninsured property stored on his premises. This claim for assuming liability is not recognized in New Mexico. “The general rule of law is that a bailee is not an insurer of goods bailed to him unless a statute or an express contract states otherwise.” Vigil v. Rush, 96 N.M. 667, 634 P.2d 689 (1981). This rule precludes plaintiff from being compensated for the extra liability he assumed for protection of the personal property. He was only required to exercise reasonable care for the property while it was on his premises.
2. The plaintiff asserts that he is entitled to a fee for storage of the property of the secured creditors. He was unable to rent his space during the pendency of the automatic stay. The landlord became a bailee of the equipment solely by operation *288of the stay provision of the Bankruptcy Code. The New Mexico Court of Appeals considered the question of what constitutes an involuntary bailee or constructive bailment of personal property in Hertz Corporation v. Paloni, 95 N.M. 212, 619 P.2d 1256 (N.M.Ct.App.1980). Paloni, the operator of a truck stop, came into the possession of a vehicle stolen from Hertz when it was abandoned on his premises. Paloni notified the Albuquerque Police Department when he discovered the vehicle, and then stored it. Nine months later, Paloni notified the Bernalillo County Sheriffs office, which found the vehicle on its stolen car list and notified Hertz.
Hertz sued Paloni in district court for damages arising from lost revenue and use of its vehicle. Hertz replevied the car from Paloni and dismissed its suit before Paloni could answer the complaint. Paloni was allowed to reopen the case. Hertz amended its complaint and prayed for damages from Paloni for unlawfully detaining the vehicle and depriving Hertz of its use. Paloni counterclaimed for storage charges. The trial court awarded summary judgment to Paloni for storage charges and dismissed Hertz’ complaint with prejudice. The Court of Appeals reversed. It found that Paloni was an involuntary bailee and not entitled to storage fees either under New Mexico statutes or under common law.
The court stated that Paloni’s claim for storage fees was based on common law:
A person who, in the absence of a mutual contract of bailment, lawfully acquires the possession of another’s personal property is generally considered to be a constructive bailee. Mack v. Davidson, 55 App.Div.2d 1027, 391 N.Y.S.2d 497 (1977); United States Fire Insurance Co. v. Paramount Fur Service, Inc., 168 Ohio St. 431, 156 N.E.2d 121 (1959). A constructive bailee is a person who acquires possession of another’s property by mistake, accident or through force of circumstances under which the law imposes upon him the duties of a bailee. Armored Car Service, Inc., v. First National Bank of Miami, 114 So.2d 431 (Fla.App.1959); Capezzaro v. Winfrey, 153 N.J.Super. 267, 379 A.2d 493 (1977). Such bailment is ordinarily considered gratuitious, Paramount Fur Service, if there is no reasonable basis for implying an intent of mutual benefit. Armored Car Service.
Hertz Corp. v. Paloni, supra.
Abbott, under the facts of the case before this Court, is a constructive bailee. He came into the possession of the secured creditors’ personal property neither unlawfully nor by mutual agreement, but through operation of law. The plaintiff is not entitled to storage fees by statute nor at common law.
This Court is bound to follow the New Mexico decision in Hertz Corp. v. Paloni. Accordingly, we find that there was a bailment of the secured creditors’ personal property to the plaintiff, but this was a constructive bailment, for it arose out of operation of law. The plaintiff’s services, therefore, were gratuitious. He has no cause of action for storage fees or for other services to the secured creditors’ property. His request for such fees on the basis of unjust enrichment is denied.
This memorandum opinion shall constitute findings of fact and conclusions of law. Bankruptcy Rule 7052. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489657/ | MEMORANDUM OPINION AND ORDER
WILLIAM B. LEFFLER, Bankruptcy Judge.
I
In this Chapter 11 proceeding the Co-Trustees of the debtor, G. Weeks Securities, Inc. (hereinafter “plaintiffs”), filed a complaint against the defendant, San Diego Navy Federal Credit Union. The complaint alleges that the defendant breached a standby contract by failing to take delivery of Two Million Dollars ($2,000,000.00) of Government National Mortgage Association eight percent (8%) mortgage bonds at a price of 99.5% of par on March 20, 1980.
The defendant maintains that it did not breach the above-mentioned contract because the plaintiffs failed to give timely, written notice of intent to deliver the bonds as required by the contract.
II
The parties entered into a contract on August 7, 1978, whereby the debtor, G. Weeks Securities, Inc., in consideration of paying a $100,000.00 commitment fee, purchased an option to sell the defendant $2,000,000.00 — 8% Government National Mortgage Association (“GNMA”) backed bonds at a price of 99.5% of par for settlement (delivery) on March 20, 1980.
This option was evidenced on a form prepared and drafted by the debtor which contained, inter alia, the following two provisions:
Written notice of intent to deliver securities under this optional delivery commitment must be received by February 20, 1980.
No term or provision of this agreement may be waived or modified unless in writing and signed by each of the parties hereto. Time is of the essence.
The debtor filed a Chapter 11 Petition on November 6, 1979. After the Chapter 11 Petition was filed, the Creditors’ Committee retained the firm of UMIC Government Securities to provide the expertise required to complete the above-mentioned transaction and other similar transactions. Francis J. Scott (hereinafter “Scott”) who was the manager of UMIC Government Securities, was on February 7, 1980, appointed Co-Trustee in this Chapter 11 case. Scott was authorized to act as a consultant to advise the Co-Trustees and their attorneys on completing transactions that were still open.
On or about January 18, 1980, Scott called and spoke to the defendants’ agent, John Barnish (who is now deceased), by telephone. In that telephone conversation Scott advised Barnish that he intended on fulfilling the transaction, but the contract requirement of written notice was not mentioned by either individual.
On February 28, 1980, which was eight days after the defendant was to have received the required written notice of intent to deliver the bonds, Scott telephoned Bar-nish and was informed by Barnish that the defendant would not accept delivery of the bonds since written notice to exercise the option was not received by the defendant on or before February 20,1980. As a result of the telephone conversation on February 28, 1980, Scott sent a Mailgram which notified the defendant that it was a confirmation of their prior telephone conversation wherein the defendant was notified of the debtor’s intent to deliver the bonds.
*315The parties in this case also had one other transaction which occurred before the above-mentioned transaction. In this earlier transaction the debtor and the defendant entered into an optional delivery contract in June, 1978, whereby the defendant agreed to take delivery of Two Million Dollars ($2,000,000.00) in ®/ñ> GNMA bonds at a price of 99.4375 on January 18, 1980. In consideration for the defendant agreeing to “standby” to take delivery of these bonds, at the option of the debtor, the defendant received $100,000.00 as a commitment fee. This June, 1978 contract (hereinafter referred to as the “first transaction”) contained similar written provisions as the second transaction and required that a written notice of intent to deliver the bonds be sent to the defendant on or before December 18, 1979.
In a telephone conversation in June, 1979, the parties agreed to modify the first transaction to increase the yield on the bonds. In accord with that telephone conversation, the debtor sent a letter dated July 18,1979, to the defendant which reflected the modifications and informed the defendant that the debtor intended to deliver the bonds on January 18, 1983.
Because the debtor was experiencing severe cash flow problems, the debtor telephoned the defendant in October, 1979, and requested an acceleration of the settlement of the bonds under the first transaction, as modified, from January 18,1980 to October 19, 1979. The defendant agreed to the acceleration after certain modifications were made to reflect an early withdrawal penalty, and the debtor purchased and delivered to the defendant $2,000,000.00 — %lk% GNMA bonds on October 19, 1979.
The Complaint at bar, however, involves an alleged breach of contract in the second transaction. The first transaction is an entirely separate transaction and is introduced by the plaintiffs in this case to show the earlier course of dealing of the parties.
Ill
The gravamen of this cause is whether the defendant breached the option contract by failing to take delivery of the GNMA bonds or whether the plaintiffs failed to exercise the option because they did not send a timely, written notice of intent to deliver the bonds to the defendant.
IV
The option at bar contains the following written provision:
This agreement shall be deemed to have been made in the State of New York and shall be construed, and the rights and liabilities of the parties determined, in accordance with the laws of the State of New York.
Generally, courts have given effect to a contractual choice of law clause, such as the one above, which calls for the governance by the laws of a particular state. See Matter of Penn-Dixie Industries, Inc., 22 B.R. 794 (Bkrtcy, S.D.N.Y.1982); Guaranty Mortgage Co. v. Z.I.D. Associates, Inc., 506 F.Supp. 101, 108 (S.D.N.Y.1980); Reger v. National Association of Bedding Manufacturers Group Insurance Trust Fund, 83 Misc.2d 527, 541, 372 N.Y.S.2d 97, 115-16 (Sup. St. Westchester County 1975); Restatement (Second) of Conflict of Laws § 187(2) (1971).
Consequently, the substantive law of New York applies in this case.
V
First, the plaintiffs contend that actual notice of intent to deliver the bonds was given to the defendant and that the defendant waived the requirement of written notice through Barnish’s telephone conversations with Scott in January, 1980.
An option is an irrevocable offer for a specified period of time and, like an offer, it ripens and matures into a contract the moment the person to whom the option was given notifies the party giving the option that he will accept it. § 5-1109 General Obligations Law of New York; 1020 Park Ave., Inc. v. Raynor, 97 Misc.2d 288, 411 N.Y.S. 172 (1978); Gorham v. Jackson, 177 N.Y.S. 80, aff’d 232 N.Y. 579, 134 N.E. *316579 (1921). When an option is properly accepted by the offeree, the requisite mutuality of assent has been attained, and the unilateral offer becomes a mutually binding contract. 1020 Park Ave., Inc., supra; Silverstein v. United Cerebral Palsy Association, 17 A.D.2d 160, 232 N.Y.S.2d 968 (1962).
The acceptance of an option is not proper unless it corresponds with the offer in every respect, neither falling short of or going beyond the terms proposed, but exactly meeting them at all points. Therefore, where the offer specifies the time, place and mode of acceptance, an acceptance after that time, or at any other place or in any other manner, is not an effective acceptance. Spratt v. Paramount Pictures, 178 Misc. 682, 35 N.Y.S.2d 815, 817 (1942); Barber-Greene Co., Inc. v. M.F. Dollard, Jr., Inc., 239 App.Div. 655, 269 N.Y.S. 211 215.
It is well settled that a notice exercising an option is ineffective if it is not given within the time specified. JNA Realty v. Cross Bay Chelsea, Inc., 42 N.Y.2d 392, 396, 366 N.E.2d 1313, 397 N.Y.S.2d 958 (1977). If the acceptance of an offer is not within the time specified then it merely becomes a counter offer which in turn must be accepted by the original offeror to create a contract. Williston on Contracts, 3d ed. §§ 92, 93; Restatement, Law of Contracts, §73; 22 West Main St., Inc. v. Boguszewski, 34 A.D.2d 358, 311 N.Y.S.2d 565, 567 (1970); Bridge v. O’Callahan, City Ct., 118 N.Y.S.2d 837.
In the present case the written notice of intent to deliver the bonds was not sent to the defendant within the time specified in the option contract. In applying the above principle of law, the late notice would have, thus, resulted in the option never ripening into a contract. Moreover, since the written notice was late and was hence a counter offer and since the defendant never accepted the counter offer, the defendant was at no time under a legal obligation to take delivery of the GNMA bonds.
Also, after applying the principles referred to heretofore, the oral notice of intent to deliver that the plaintiffs allege was given to the defendant in the January, 1980 telephone conversation between Scott and Barnish would not be a valid exercise of the option since the plaintiffs did not comply with the contract provision requiring written notice.
VI
The plaintiffs maintain that the contract provision requiring written notice was waived during the telephone conversation in January, 1980, between Barnish and Scott, and so the plaintiffs contend that the oral notice of intent to deliver that was provided by Scott to Barnish in the telephone conversation was sufficient notice.
As mentioned above, the option at bar contained a provision which stated that no term or provision of the option contract could be waived or modified unless it is done so in writing.
New York Obligations Law § 15-301(1) bars the enforcement of an oral modification in the following language:
A written agreement or other written instrument which contains a provision to the effect that it cannot be changed orally, cannot be changed by an executory agreement unless such executory agreement is in writing and signed by the party against whom enforcement of the change is sought or by his agent.
This statute protects parties to a written agreement who have included a proscription against oral modification in the agreement and on its face bars recovery by any party to a written agreement who attempts to enforce an oral modification of the written terms. In re Tele/Resources, Inc., 21 B.R. 358 (Bkrtcy., S.D.N.Y.1982).
In Rivers v. Calagna, 229 N.Y.S.2d 643, 645 (1962), a case dealing with a claimed oral modification of the exercise of an option, the court held that even if it were “to find that the plaintiffs or their attorneys had orally agreed to extend the time within which the defendant could exercise his option to purchase the property, such oral modification, being executory, could not be enforced by the defendant since the written *317contract expressly provides that it cannot be changed orally.”
In the present case the Court cannot find that the defendant modified or waived the contractual provision requiring a written notice of intent to deliver. Even Scott testified that he never mentioned to Bar-nish that the written notice would not be sent and Barnish never told Scott-that the requirement of written notice would be waived. Nevertheless, even if it was found that the defendant had orally waived the provision in the contract calling for a written notice, the Court could not hold that the oral modification of the contract was valid when a written modification was required.
VII
The plaintiffs also allege that the defendant induced Scott into believing that written notice would not be insisted upon which caused it to change its position in reliance on Barnish’s statements, and therefore the plaintiffs contend that the defendant is equitably estopped from claiming that the plaintiffs did not validly exercise the option.
New York Courts have found that a party claiming estoppel must establish: (1) conduct by the estopped party which amounts to concealment of material facts; (2) the intention of the estopped party that such conduct shall be acted upon by the other party; (3) the estopped party’s knowledge of the real facts; (4) the other party’s ignorance of the facts; (5) the other party’s reliance upon the conduct of the estopped party; and (6) the other party’s change of position to his prejudice. Orth-O-Vision, Inv. v. Home Box Office, 474 F.Supp. 672, 680 (S.D.N.Y.1979); Gratton v. Dido Realty Co., Inc., 89 Misc.2d 401, 391 N.Y.S.2d 954, 955 (Sup.Ct.1977), aff’d 63 App.Div.2d 959, 405 N.Y.S.2d 1001 (1978).
The proof in this case does not show the requisite elements of equitable estoppel. There was no proof that the defendant in any manner concealed material facts from the plaintiffs. There is also nothing in evidence to indicate that the plaintiffs didn’t have knowledge of certain facts.
In the January, 1980 telephone conversation so heavily relied upon by the plaintiffs, Scott informed Barnish of the intent to deliver the bonds to the defendant. No mention was made by either party as to fact that a written notice was required. Scott did not ask if the written notice requirement would be waived nor did he inform Barnish that the oral notice would suffice. Barnish did not indicate that the defendant would waive the written notice requirement but instead merely stated that the defendant would be ready to accept the delivery of the bonds.
In Rose v. Spa Realty Assoc., 42 N.Y.2d 338, 341, 366 N.E.2d 1279, 397 N.Y.S.2d 922, 925 (1977), the Court held that the doctrine of equitable estoppel can be used to validate an oral modification only when the conduct of the estopped party is such as to induce “another’s significant and substantial reliance upon an oral modification.” The discussions between Scott and Barnish do not provide the Court with evidence of the plaintiffs’ significant and substantial reliance.
VIII
The plaintiffs also maintain that the conduct of the defendant in the first transaction resulted in a waiver of the written notice requirement in the second transaction or that the parties’ course of dealing in the first transaction should be utilized by the Court to estop the defendant from alleging that no written notice was given. The first transaction was an entirely separate and distinct contract. Moreover, nothing in the course of performance of the parties in the first transaction serves as a basis for invoking the doctrines of waiver or estoppel. In the first transaction the written modification in the letter dated July 18, 1979, contained a written notice of an intent to deliver so there was actual written notice in compliance with the contract provisions in, the first transaction. Also, the fact that the first transaction was modified in writing after a telephone con*318versation between the parties should, if anything, imply an intent to only modify the contract through a written modification.
IX
The crux of this case centers on one unfortunate fact which is that the plaintiffs neglected to send a written notice to the defendant. Although the circumstances in this case are unfortunate, the Court is not omnipotent with its powers of equity. This is especially true in a case, as this, where the law is clear that an oral notice or an oral modification which is made when a written one is required is invalid unless there is a strong showing of conduct warranting the invocation of the doctrines of waiver and estoppel.
IT IS, THEREFORE, ORDERED that the relief prayed for in the Complaint filed by the plaintiffs, Francis J. Scott and T. Harold Craig, Co-Trustees of G. Weeks Securities, Inc., against the defendant, San Diego Navy Federal Credit Union, is hereby denied. | 01-04-2023 | 11-22-2022 |
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