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https://www.courtlistener.com/api/rest/v3/opinions/8489662/ | FINDINGS, CONCLUSIONS AND PROPOSED JUDGMENT
CHARLES A. ANDERSON, Bankruptcy Judge.
PRELIMINARY PROCEDURE
This matter is before the Court upon Complaint filed by the Chapter 7 Trustee on 26 December 1981. The Court held pretrial conferences to consider the matter on 30 April 1982 and on 25 June 1982. The Court heard the matter on 20 August 1982. The following findings and conclusions are based upon the record, the evidence adduced at the hearing, and the parties’ joint pretrial order which includes the pertinent documents as exhibits attached thereto without any objection to their authenticity or admissability. The Court also takes judicial notice of Debtor’s case file, numbered 3-81-03414.
FINDINGS, CONCLUSIONS AND PROPOSED JUDGMENT
The instant Complaint essentially requests money judgment against Defendant based upon a “Note” dated 8 October 1981 whereby Defendant agreed to pay Debtor $12,000.00 plus 12% annual interest in monthly payments of $172.17 commencing 8 November 1981. Defendant paid only two payments, and the parties have agreed that the present balance of the principal owing is $11,895.14.
The underlying obligation was based upon the sale of Debtor’s business, known as “Newt Oliver’s Froshop Drive-In,” to Defendant. The sale was consummated by joint indorsement of a written “Contract” dated 24 August 1981. The Contract provides, in pertinent part, as follows:
1. Purchaser agrees to pay for said premises the sum of Sixteen Thousand *457dollars and 00/100 Dollars ($16,000.00) Cash on delivery of deed, payable on the following terms: $4,000.00 Down payment, balance on purchase price subject to security agreement for the balance of $12,000.00. Terms: 12% Interest, at 172-17 per month including principal and interest. Payments based on 10 years, monthly declining balance. Entire principal balance due on 5h anniversary. * * see Paragraph “8”.
2. The property passing under this contract shall include the following now on the premises. IN THEIR PRESENT CONDITION: all fixtures and equipment — paper-food and drink inventory.
8. OTHER CONDITIONS: Down payment $2,000.00 due upon closing within 10 days of acceptance, balance of $2,000.00 in 30 days from acceptance of this offer. This offer subject to obtaining a satisfactory lease from Real Estate owner. In the event of business failure seller will take back business and chattels for balance owed by purchasers. Purchaser may immediately (upon acceptance of this offer) enter premises to paint and repair inside and out.
12. If Purchaser defaults in completing this contract, the deposit shall be paid to the Seller without limitation on any additional claim of Seller against Purchaser.
The record is indefinite regarding Defendant’s handling of the business. Although the business is a seasonal business, at its peak during the summer months, Defendant began operating the business “about” September of 1981. (The Court notes that the date of Debtor’s Petition filing was 2 December 1981.) Defendant operated for about two or three months, but then ceased operations “for the holidays” and never reopened. Defendant testified that he lost money every week he was in business (largely because of the wage expense for two employees). He also testified that he invested about $1,000.00 in repairs, and that, including his initial $4,000.00 downpayment, he lost about $6,000.00 during the brief period he operated the business.
The basic issue before the Court is whether ¶ 8 of the Contract dated 24 August 1981 is operative to excuse Defendant from payment on the Note dated 8 October 1981. The Court notes that the Trustee has not alleged that the Debtor either fraudulently conveyed the business or entered into an illusory contract, or that either party acted in bad faith. The Court also notes that the parties apparently do not dispute that the business has, in fact, “failed” as that term was contemplated within ¶ 8 of the Contract.
It is the determination of the Court that Defendant may assert ¶ 8 of the Contract as a defense to any obligation owing by Defendant on the Note. The Court further finds that the above determination is this Court’s conclusion regardless whether the Note is deemed a negotiable instrument or “merely” a consensual contract.
The instant Note appears to fulfill the requirements of Article 3 of the Uniform Commercial Code for instruments to be negotiable and thus within the scope of Article 3. See O.R.C. § 1303.03(A) and (B)(4) [U.C.C. 3-104]. It is not necessary, however, for the Court to determine the negotiability of the Note because the Trustee does not allege (nor appear to possess) the rights of a holder in due course, and therefore “takes the instrument subject to all defenses of any party which would be available in an action on a simple contract.” O.R.C. § 1303.35(B) [U.C.C. 3-306], Note also O.R.C. §§ 1303.31(C)(2) [U.C.C. 3-302] and .36(C) [3-307],
Regardless whether the instant Note is deemed negotiable, the ultimate question before the Court, therefore, is whether the underlying contract provides Defendant with an excuse from performance. It is the opinion of the Court that the Contract and Note may be tacked for purposes of determining the terms of the underlying contract as intended by the parties. As stated in 180. Jur.3d Contracts § 151:
*458Although they do not expressly refer to each other, several writings, though executed at different times, may be construed together for the purpose of ascertaining the terms of a contract. Thus, different papers containing parts of a contract will be construed together. A contract should be construed in the light of a previous contract which is evidently designed to control the relations of the parties for a period covered by the latter contract, unless the latter contract is manifestly an abrogation of the former, [annotations omitted]
In this regard, it is the finding of the Court that the Note is apparently consonant with the terms of the Contract.
Based upon a reading of the Note and Contract construed together, it is the determination of the Court that it was the intention of the parties that Defendant’s obligations cease in the event of business failure.
As aforementioned, it is the further determination of the Court that Defendant’s defense of no liability based upon an allegation of business failure may be asserted against any party, including the Trustee, who does not hold the Note in due course. It is the further determination of the Court that the record does not substantiate the applicability of ¶ 12 of the Contract nor any damages assertable thereunder.
As elaborated in this Court’s opinion of Matter of Clark, Case No. 3-82-00546, Adv. Proc. 3-82-0571 (May 4, 1983), IT IS HEREBY PROPOSED, in accordance with Model Rule (d)(3)(B) and White Motor Corp. v. Citibank, 704 F.2d 254 (1983), that the district court enter a Judgment providing that instant Complaint be DENIED.
JUDGMENT
CHARLES A. ANDERSON,
Bankruptcy Judge.
IT IS ORDERED AND ADJUDGED That the plaintiff take nothing, that the action be dismissed on the merits, and that the defendant, Robert H. Hayes, recover of the plaintiff James R. Warren, Trustee in Bankruptcy, his costs of action. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489954/ | MEMORANDUM OPINION AND ORDER
STEPHEN B. COLEMAN, Bankruptcy Judge.
Steve Edward Bodnar filed a voluntary petition under Chapter 7 on June 3,1981, in *647which he, in Schedule A, listed Iron and Steel Workers Credit Union as a secured creditor on one 1975 Ford car. He also scheduled, as an unsecured creditor, Janet Coggins with a judgment for $11,668. No claims were filed, no non-exempt assets were scheduled, and John P. Whittington, the Trustee, filed a No-Asset Report on August 7,1981, listing the perfected security interest of Iron and Steel Workers Credit Union on the 1975 Ford Elite which was abandoned with a value of $1500. In due course, and on the 25th day of June, 1982, the Debtor was given his discharge in bankruptcy with no exceptions.
Thereafter, a Motion to re-open the case was filed on October 17, 1984, which recited “The Iron & Steel Workers Credit Union has recorded a judgment in the District Court of Jefferson County, Case No. DY 79-07911 for the very same debt as was listed in petitioner schedule of creditors. A copy of the Certificate of Judgment was recorded in the Probate Court on January 25, 1980 at Real 1872 at Page 9. WHEREFORE, Petitioner requests this Honorable Court under the provisions of § 522F to have the above said judgment and recording declared null and void.” This Motion was set for hearing on the 13th day of November, 1984, and an Order entered reopening the case upon the payment of a filing fee of $60.
Thereupon this matter, after the re-opening of the case, was set for hearing on January 7, 1985, upon the Motion of the Debtor to have “judgment of Iron & Steel Workers Credit Union set aside.” The Debtor attempted to file a pleading styled “Bill to Quiet Title” but this was withdrawn and never re-filed.
After discharge granted, Steve Edward Bodnar purchased real estate which he now occupies as a home. He obtained a title policy from American Title Insurance Company which reflected a judgment obtained and recorded prior to bankruptcy in favor of Iron and Steel Workers Credit Union. Before American Title Insurance Company would issue a policy insuring the title of Steve Edward Bodnar, the title company required him to post with them $5,000 cash in lieu of a bond, on the assumption and theory that the judgment of Iron and Steel Workers Credit Union and/or judgment of Janet Coggins were valid or potential liens on the real estate acquired by the Debtor post-petition and after bankruptcy.
The purpose of this hearing was to ascertain and declare the validity of such reputed liens and whether they actually exist and survived bankruptcy to the extent that they constitute an encumbrance or a cloud on the title of Steve Edward Bodnar in the real estate described in the title policy and acquired by Debtor after bankruptcy. Notice and process was issued to the said Iron and Steel Workers Credit Union in care of its attorney of record, Maurice Rogers, who did not appear, defend, or file an answer asserting any lien or claim against the real estate involved in this hearing. They have made no appearance in this case.
The real purpose of the Debtor is to recover the deposit, with interest, made with American Title Insurance Company, upon a judicial determination that no such judgment liens existed against the property of Steve Edward Bodnar.
The Alabama Supreme Court in the case of Butler Cotton Oil Co. v. Collins, 200 Ala. 217, 75 So. 975 (1917) had occasion to deal with this very same problem. Judge Mayfield settled this question and we quote:
In all of these cases, however, the property had existence, and the lien had attached before the right of action on the debt was barred or cut off by the statutes or by adjudication of bankruptcy. Here this action could not have been maintained when the bankrupt was discharged, because the property had no existence, actual or potential; it was, at most, a mere expectancy of possession in the future, and which, whatever might be its nature or character, could not have been enforced at any time prior to the discharge in bankruptcy. There was then no lien because there was nothing to which it could attach.
*648To allow the provable debts of the bankrupt to exist after his discharge, so as to be enforceable against all property he may subsequently acquire, would defeat the very purpose of the bankruptcy law. Debtors in the condition of this bankrupt (who had mortgaged all he should produce on his homestead), and those having recorded judgments against them, would practically get little, if any, relief against their provable debts....
We must in this case deal with the status which existed when this equitable right could have attached. When it could have first attached, there was no enforceable debt or demand for it to secure. While courts of equity enforce liens after personal action to enforce the debt is barred, they will not enforce those which come into existence after such actions are barred. To do so would in effect defeat the bankrupt laws and the statute of limitations.
Although jurisdiction of this Court to enter this Order has not been challenged, it seems proper to quote from the case of Browne v. San Luis Obispo National Bank, 462 F.2d 129 (9th Cir.1972), and to remark that jurisdiction over exempt and homestead property is even more unquestioned today since the rationale of Lockwood v. Exchange Bank was overruled by the inclusion of exempt property as property of the estate by the adoption of the Bankruptcy Code in 1978.
However, Mrs. Browne’s property is not totally exempt as a homestead. She listed the property’s value at $25,000; but as the head of a family, she may claim a homestead exemption not exceeding $20,-000. California Civil Code § 1260(1). The excess formed part of her bankruptcy estate and was not exempt. Lockwood does not oust the bankruptcy court from jurisdiction to determine the validity of a lien against this excess portion of Mrs. Browne’s estate. Cf. In re Moore, 288 F.Supp. 887, 888 (C.D., Cal., 1968). Under Local Loan Co. v. Hunt, 292 U.S. 234, 54 S.Ct. 695, 78 L.Ed. 1230 (1934), the bankruptcy court has jurisdiction to hear what is essentially an ancillary and supplemental bill in equity to enforce a discharge granted to a bankrupt. However, the Supreme Court cautioned that this ancillary jurisdiction should be limited to “unusual circumstances”; where the legal remedy afforded by state adjudication “would be inadequate to meet the requirements of justice,” the bankruptcy court could and should exercise its ancillary jurisdiction. Local Loan, supra, at 241, 54 S.Ct. at 698. See 1 Collier’s pp. 341-348 and 1A Collier’s pp. 1728-1731.
The essence of the present controversy is the interpretation and effect of the discharge order. The Bank has no lien against Mrs. Browne’s property, as is discussed in III below. Even if the Assignment and Agreement created a lien, Mrs. Browne has not breached the terms of either the agreement assigning her rents or the agreement not to encumber or convey her land. She does not rent the property. She has not sold it, and her homestead declaration is not an encumbrance. Tahoe National Bank v. Phillips, 4 Cal.3d 11, 21, n. 14, 92 Cal.Rptr. 704, 710, n. 14, 480 P.2d 320, 328, n. 14 (1971).
Thus, the Bank’s sole cause of action stems from the promissory note, which was listed on Mrs. Browne’s schedule of debts. The bankruptcy court has jurisdiction to ensure that the discharge it granted to Mrs. Browne is not circumvented. See, e.g., Local Loan, supra; Beneficial Finance Company of Oklahoma v. Sidwell, 382 F.2d 275 (10th Cir.1967). The requirements of justice require the exercise of jurisdiction in this case. Mrs. Browne’s state remedy is inadequate. Major clarifications in the California law have rendered the state decision clearly erroneous. The cases discussed in part III below indicate that the Bank could not have a valid encumbrance which would allow it to comply with California Civil Code § 1241, which places restrictions upon forced sales of homestead properties. Finally, the Bank, a listed bankruptcy creditor, did *649not appear in the bankruptcy proceedings, but sat on its “lien” for two years after the discharge before seeking to enforce it. Cf. In re Cleapor, 16 F.Supp. 481 (N.D.Ga., 1936). The integrity of the homestead law and the bankruptcy discharge require the bankruptcy court to assume jurisdiction in this case. Underlining in lieu of italics. Browne, supra, at 132 and 133.
IT IS, THEREFORE, FOUND, DETERMINED AND DECREED That neither Iron and Steel Workers Credit Union nor Janet Coggins has a lien interest or right in and to the real property, of the Debtor, described in the title policy issued by American Title Insurance Company, and there being no right of liens to protect nor reason exists for American Title Insurance Company to retain the deposit demanded of the Debtor, and such deposit should be promptly refunded and paid to the Debtor forthwith.
The Debtor suggests that he is also entitled to a remedy under § 522 f of the Bankruptcy Code because the alleged liens constitute a cloud on his title to real estate and impair his right of exemption to claim the property as a homestead.
Since the Court finds that no liens exist, no ruling is required on this alternate contention of the Debtor as that contention becomes moot.
Copies of this Order shall be served on Iron and Steel Workers Credit Union and its attorney of record, Maurice Rogers, and Janet Coggins and her attorney, Judy Carol Whalen, and shall be recorded in the Probate Court of the county where the land lies. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489663/ | ORDER ON DEBTORS’ EMERGENCY MOTION FOR DETERMINATION OF AMOUNT AND VALIDITY OF LIEN
THOMAS C. BRITTON, Bankruptcy Judge.
The emergency motion of these chapter 11 debtors (C.P. No. 7) was heard on August 16.
The debtors are selling certain Wisconsin property under a contract which requires a closing on August 21. This court’s order of July 5 in this adversary proceeding (C.P. No. 6) provided, in part, that:.
“not later than September 6, 1983, the debtors shall pay the entire sum due the plaintiffs as recited by that certain judgment entered in Case No. 80-CV-1350, Circuit Court of Walworth County, Wisconsin on September 9, 1982. If the parties are unable to agree as to the exact figure owed as to costs and other sums included in the judgment, then, this Court shall make that determination at a hearing to be held on September 6,1983.”
The parties have been unable to agree on one point, but do agree that the emergency justifies this accelerated determination.
The Wisconsin judgment provides, in pertinent part:
“If defendants Van Brock be late on any payment under the terms of the land contract and the provisions of this decree, the plaintiffs may have judgment against said defendants upon petition and without notice to the defendants for the amount then due, ... and any additional amount due on taxes occasioned by taking the entire balance in one lump payment instead of annual installments... ”.
The parties agree that a federal tax and a Wisconsin tax will be increased as a result of taking the entire balance in one lump payment instead of annual installments by the aggregate amount of $23,322. Plaintiff demand that sum from the closing. The debtors argue that because 11 U.S.C. § 506(b) makes no provision for a secured creditor to recover such damages as a part of his secured claim in bankruptcy, this sum should not be allowed.
I disagree with the debtors and agree with the plaintiffs that the sum in question is payable to the plaintiffs from the proceeds at closing, because the Wisconsin judgment is a consent decree reflecting the mutual agreement of the parties and because this court’s order of September 9 was also a stipulated order. It is clear that the parties’ agreements require the foregoing result. I find nothing in § 506(b) or anywhere else that would prohibit the parties from consenting to the terms agreed upon in this instance or that would render such an agreement unenforceable.
DONE and ORDERED at Miami, Florida, this 22nd day of August, 1983. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489664/ | ORDER OF DISMISSAL
THOMAS C. BRITTON, Bankruptcy Judge.
This matter was tried before me on August 30. The only issue framed by the pleadings was the debtors’ intent in creating an inter vivos revocable trust on July 22, 1982. The evidence of the parties was received.
Exchange National Bank of Chicago, a creditor, seeks avoidance of an alleged fraudulent transfer under 11 U.S.C. § 548. That statutory cause of action may be asserted only by a trustee or, under § 1107(a), by a chapter 11 debtor in possession. Plaintiff is neither. Accordingly, this complaint is dismissed without prejudice to any similar action instituted by the appropriate plaintiff.
DONE and ORDERED at Miami, Florida, this 1st day of September, 1983. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489666/ | MEMORANDUM OPINION AND ORDER
RICHARD L. SPEER, Bankruptcy Judge.
This cause came before this Court on the Complaint to Determine Dischargeability filed by the Plaintiff-Debtor. A Pre-Trial was held on this Complaint on March 2, 1983, and the parties agreed to have this Court render a decision in this case based solely upon the record. Although the Court granted a period of time for counsel to file briefs, no briefs were submitted.
FACTS
The Plaintiff and the Defendant were granted a divorce decree by the Lucas County Court of Common Pleas, Domestic Relations Division, on June 2, 1981. On October 22, 1982, the Defendant received a judgment from that same Court on her motion to show cause for failure to comply with the terms of the separation agreement which was incorporated with the divorce decree. This entry was a lump sum judgment based upon the Plaintiff’s failure to make certain payments on the parties house and payments connected with the sale of the real estate. The divorce decree provided that:
“. .. the real estate, which is jointly owned by the parties ... shall be sold and the net proceeds from said sale shall be divided equally ... that the ... [Plaintiff] shall pay all bills of the marriage incurred to date and he shall indemnify and save harmless the ... [Defendant] therefrom.”
On the motion to show cause, the Domestic Relations Division awarded the Defendant One Thousand Four Hundred Forty-one *619and 04/100 Dollars ($1,441.04) which represents certain arrearages on the mortgages, one-half the attorney’s closing fees, and one-half the net proceeds. That Court also awarded the Defendant One Hundred and no/100 Dollars ($100.00) in fees and court costs in connection with the show cause motion, and ordered that the Plaintiff remain current on his payments on the second mortgage. Although the record is unclear, the property appears to have been sold prior to the entry of the show cause judgment. Also unclear are the terms of the ownership and the sale.
LAW
The dischargeability of certain types of debts is addressed by 11 U.S.C. § 523(a)(5) which states in pertinent part: “523. Exceptions to discharge.
... (a) A discharge under section 727, 1141, or 1328(b) of this title does not discharge an individual debtor from any debt...
(5) to a spouse, former spouse, or child of the debtor, for alimony to, maintenance for, or support of both spouse or child, in connection with a separation agreement, divorce decree, or property settlement agreement, but not to the extent that
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(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..
An award of support, maintenance, or alimony is not dischargeable in bankruptcy, whereas a property settlement obligation would be dischargeable. Matter of Jensen, 17 B.R. 537 (Bkrtcy.W.D.Mo.1982). The question as to the Domestic Relations Court’s characterization of the debts as support or property settlement does not arise in this case, inasmuch as no such categorization is made in the divorce decree. Therefore, the only question before this Court is whether the judgment of the Domestic Relations Court is a property settlement or an award in the nature of support. It should be noted that the divorce decree, in a separate provision, requires the Plaintiff to pay a specific amount of child support, and that the Defendant waived her right to alimony.
It appears from the terms of the divorce decree that the parties intended to sell the real estate as a part of their impending separation. This is evidenced by the fact that the decree required a sale of the house and an equal division of the proceeds. The assumption of all the debts of the marriage by the Plaintiff would include the arrearages and closing costs, inasmuch as they were debts resulting from or incident to the marriage. It appears that the intention of this provision is to require the Plaintiff to compensate the Defendant for what she expended in proceeding with the sale of the house. This provision relates to the parties’ primary objective regarding a settlement of their interests in the house. The terms of these provisions reflects the parties’ intent to achieve a resolution of their marital affairs and the desire to conclude their dealings once the divorce became finalized. With such an intent it must be concluded that the terms of the divorce decree, on which the subsequent show cause judgment was founded, constitutes a property settlement between the parties. Consequently, the obligations imposed by that judgment, so far as they are listed in the Plaintiff’s Complaint, would be dischargeable.
In reaching this conclusion this Court has considered the entire record, regardless of whether or not all items therein are specifically referred to in this Opinion.
It is ORDERED that the judgment of the Domestic Relations Division of the Lucas County Court of Common Pleas for One Thousand Four Hundred Forty-one and 04/100 Dollars ($1,441.04) be, and it is hereby, held DISCHARGEABLE. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489667/ | OPINION
EMIL F. GOLDHABER, Bankruptcy Judge:
The problem in this case is whether the trustee of one of the above chapter 11 corporate debtors, Fidelity America Mortgage Co., (“FAMCO”), can avoid a mortgage under 11 U.S.C. § 544(a)(3) on a parcel of real property owned by a corporation, all of whose corporate stock is owned by a subsidiary of FAMCO. The issue arises by virtue of an objection to the approval of an agreement which seeks to transfer the realty in question. For the reasons stated herein we find that the mortgage is not avoidable since, under § 544, the granting of the mortgage was not a transfer of property of FAMCO, but rather a transfer of a subsidiary’s property.
The facts of the case are as follows:1 FAMCO filed for relief under chapter 11 of the Bankruptcy Code (“the Code”) on February 4, 1981. FAMCO is the sole general partner in a limited partnership known as Dresher Associates and is the owner of 100% of the stock of Dalk Corporation (“Dalk”). Prior to October 20, 1978, Olga Kralovec, (“Kralovec”), the objector in this controversy, owned virtually all of the shares of Dalk. However, on that date she sold her stock to FAMCO in exchange for a mortgage secured by a parcel of realty owned by Dalk. In negotiating this transaction the parties agreed that Dalk would change its name to “3364 Corporation.” Relying on this agreement, Kralovec recorded the mortgage under the name of “3364 Corporation” rather than “Dalk.” Dalk never took the necessary measures to effect the name change under state law. Immediately prior to Kralovec’s sale of the stock, Dalk leased the property to Dresher Associates.
After the filing of the debtor’s petition for relief under chapter 11 the trustee filed an application for approval of an agreement which sought, inter alia, to convey the realty from Dalk to Dresher.2 Kralovec objected to the agreement on several bases, the first of which is predicated on the uncertain status of her mortgage. The trustee responded to this objection by alleging that the mortgage should be avoided pursuant to 11 U.S.C. § 544.
We initially note that this controversy has curiously evolved into an action for lien avoidance under § 544(a)(3)3 which states as follows:
§ 544. Trustee as lien creditor and as successor to certain creditors and purchasers
(a) The trustee shall have, as of the commencement of the case, and without regard to any knowledge of the trustee or *625of any creditor, the rights and powers of, or may avoid any transfer of property of the debtor or any obligation incurred by the debtor that is voidable by—
* * * * * *
(3) a bona fide purchaser of real property from the debtor, against whom applicable law permits such transfer to be perfected, that obtains the status of a bona fide purchaser at the time of the commencement of the case, whether or not such a purchaser exists.
The trustee asserts that he can avoid Kra-volec’s mortgage under this provision due to his status as a bona fide purchaser. He contends such a purchaser would not take the property in question subject to the Kra-lovec mortgage since it was recorded under the name 3364 Corporation rather than Dalk. On the other hand, Kravolec contends that the trustee cannot avoid the mortgage since it was made by Dalk and not the debtor. The trustee counters this by asserting that “ownership of all the stock of a corporation carries with it effective ownership of the corporate assets, including the property of the corporation.”
In addressing the subject at hand, a learned treatise on corporate law states the following:
§ 5100. Shares of stock as an interest in corporate property.
It follows as a necessary conclusion from the nature of a share of stock, that, while it represents a proportionate interest or aliquot part in the capital stock, property and assets of the corporation, and this is equally true of no-par value stock, the value of which is measured by, and corresponds proportionately to, the value of the corporate capital, property and assets, the owner thereof does not, in any strict legal sense, own any part of the corporate capital and has not’ the legal title to, and is not the owner, or entitled to the possession of, any portion of its property or assets.
11 W. Fletcher, Cyclopedia of the Law of Private Corporations, § 5100, at 79 (rev. perm. ed. 1971). This principle has been adopted in Pennsylvania as indicated by Barium Steel Corp. v. Wiley, 379 Pa. 38, 47, 108 A.2d 336, 341 (1954) which states as follows:
It is well established that a corporation is a distinct and separate entity, irrespective of the persons who own all its stock. The fact that one person owns all of the stock does not make him and the corporation one and the same person, nor does he thereby become the owner of all the property of the corporation. The shares of stock of a corporation are essentially distinct and different from the corporate property [.]
Id.; See also Glazer v. Cambridge Industries, Inc., 281 Pa.Super. 621, 625, 422 A.2d 642, 644 (1980). Since the ownership of the stock differs from the ownership of the property of a corporation, the property at issue is held by Dalk and not by FAMCO. Consequently, the trustee cannot avoid a mortgage under § 544(a)(3) on property which is owned by an entity other than the debtor. In Re Minton Group, Inc., 27 B.R. 385 (Bkrtey.S.D.N.Y.1983). Accordingly, we will sustain Kralovec’s objection to the agreement. This result makes it unnecessary for us to address Kralovec’s other grounds of objection.
. This opinion constitutes the findings of fact and conclusions of law required by Bankruptcy Rule 7052 (effective August 1, 1983).
. The agreement is among the trustee, Dresher Associates, Randall Maisano Realty, Inc., Susan Randall and Genette Maisano. Dalk is not a party to the agreement, apparently due to the trustee’s belief that while he is acting as holder of 100% of its shares, Dalk does not need to be joined.
.Although Bankruptcy Rule 7001(2) and 7003 provide that an action is commenced by the filing of a complaint, Bankruptcy Rule 1001 states that “[t]hese rules shall be construed to secure the expeditious and economical administration of every case under the Code and the just, speedy, and inexpensive determination of every proceeding therein.” Due to the unique development of this action we think it appropriate to treat this as an adversary proceeding. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489668/ | OPINION
EMIL F. GOLDHABER, Bankruptcy Judge:
The issue in this case is whether we should grant the debtors’ “petition”1 to compel the trustee to turn over a debtor’s homestead exemption. For the reasons stated herein, we will deny the relief requested.
The facts of the case are as follows:2 Albert J. Leo and Barbara A. Leo, the debtors, purchased a residence as tenants by the entireties in 1972. In the midst of financial difficultires in 1975 the debtors sought to refinance the mortgage on the home. The mortgagee refinanced it after Albert Leo complied with the creditor’s request to transfer his interest in the property to his wife. Barbara Leo subsequently conveyed a one-half interest in the property back to her husband for consideration of $1.00 on September 11,1980. At that time, the liens on the property exceeded its fair market value. The debtors executed a petition for relief under chapter 7 of the Bankruptcy Code on September 11, 1980, and filed it seven days later. In the petition both debtors claimed an exemption in the realty. The petition failed to reflect the transfer of property which occurred on September ll.3 The transfer was effected with actual intent to defraud creditors.
Shortly after the filing of the petition the trustee gave Barbara Leo her exemption in the realty but refused to give her husband his. The debtors commenced the instant action to compel the trustee to turn over the exemption. The trustee has refused, citing 11 U.S.C. § 548 and Pa.Stat. Ann. tit. 39, § 351 et seq. (Purdon). In pertinent part § 548 states as follows:
§ 548. Fraudulent transfers and obligations
(a) The trustee may avoid any transfer of an interest of the debtor in property, or any obligation incurred by the debtor, that was made or incurred on or within *627one year before the date of the filing of the petition, if the debtor—
(1) made such transfer or incurred such obligation with actual intent to hinder, delay, or defraud any entity to which the debtor was or became, on or after the date that such transfer occurred or such obligation was incurred, indebted; or
♦ Us * s(; s}:
The trustee contends that the transfer of property immediately prior to the filing of the petition was effected with intent to defraud creditors. Although there is little direct evidence of the debtors’ intent to defraud their creditors, a finding of fraud can be predicated on circumstantial evidence since direct proof of fraudulent intent will rarely be available. Consove v. Cohen, 701 F.2d 978, 984 (1st Cir.1983). We find that the circumstantial evidence in this case supports a'finding of fraudulent intent. The transfer of property occurred on the same day that the debtors signed the petition for relief which was filed one week later. Prior to the transfer the husband had no ownership interest in the property upon which an exemption could attach.
In support of their position the debtors cite the principle that a “debtor may convert nonexempt property into exempt property immediately before the commencement of the case under title 11 of the United States Code. An eleventh hour acquisition of exempt property will not require disallowance of an exemption in such property.” 3 Collier on Bankruptcy ¶ 522.-08[4], at 522-36 to 522-37 (15th ed. 1982) (Footnotes omitted). The case at bench is not a situation where the debtor merely converted a nonexempt asset into an exempt one. Here the debtor fraudulently acquired an asset for nominal consideration. Thus, the rule cited in Collier is inapposite.
Consequently, the conveyance of a one-half interest in the realty from Barbara Leo to her husband will be avoided. Following the avoidance Albert Leo will have no ownership interest in the property upon which to predicate his exemption and thus his exemption claim on this asset will be denied. This result will necessarily entail a denial of the debtors’ request for turnover of the exemption.
. The term “petition” has disappeared from the lexicon of bankruptcy terminology (except when used in the phrase “petition for relief.”).
. This opinion constitutes the findings of fact and conclusions of law required by Bankruptcy Rule 7052 (effective August 1, 1983).
. The debtors’ petition contained the following two questions which the debtors answered in the negative: “Have you made any gifts, other than ordinary and usual presents to family members and charitable donations, during the year immediately preceding the filing of the original petition herein?”; and “Have you made any other transfer, absolute or for the purpose of security, or any other disposition, of real or tangible personal property during the year immediately and preceding the filing of the original petition herein?” | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489670/ | MEMORANDUM OPINION AND ORDER
RICHARD L. SPEER, Bankruptcy Judge.
This cause comes before this Court upon the Motion filed by the Defendant, St. Clair Mills, Inc. to Dismiss the Complaint for Lack of Subject Matter Jurisdiction.
*652FACTS
The Debtor-In-Possession in this case is engaged in the business of processing live turkeys and preparing them for market. The Complaint in this adversary proceeding was filed by the Debtor-In-Possession and asserts two causes of action. The first cause alleges that the Defendant, Kalmbaeh Feed, Inc., breached a contract with the Debtor-In-Possession as a result of the Defendant’s failure to provide the required number of turkeys for processing. The second cause of action alleges that the Defendant, St. Clair Mills, Inc., induced the aforementioned breach of contract in an effort to reduce the value of the Debtor-In-Possession’s business. St. Clair Mills, Inc., has been a prospective purchaser of the Debtor’s business for some time. The present motion includes a motion to dismiss, a motion to abstain, and a motion for a more definite statement. For the reasons set forth below, only the motion to dismiss will be addressed by this Opinion.
LAW
The movant argues that based upon the decision in Northern Pipeline Construction Co. v. Marathon Pipe Line Co., - U.S. -, 102 S.Ct. 2858, 73 L.Ed.2d 598 (1982), this Court is not empowered to hear this case. Specifically, it argues that because these causes of action are founded on principles of law that exist independently of a proceeding in bankruptcy, this Court may not preside over the action because it does not have Article III standing. The Plaintiff opposes the Motion and argues that the Defendants have voluntarily submitted to the jurisdiction of this Court by virtue of their prior participation in the case and by the filing of their proofs of claim
As a result of the dilemma which exists as a result of the ruling in Northern Pipeline Construction Co. v. Marathon Pipeline Co., supra, the Courts have adopted an emergency or interim rule to handle the administration of bankruptcy cases. The use of this rule has been approved by the Circuit Court of Appeals for this Circuit, see, White Motor Corp. v. Citibank N.A., 704 F.2d 254 (6th Cir.1983). It reads in pertinent part:
“(c) Reference to Bankruptcy Judges
(1) 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.
(2) The reference to a bankruptcy judge may be withdrawn by the district court at any time on its own motion or on timely motion by a party.
(d) Powers of Bankruptcy Judges
(3)(A) Related proceedings are those civil proceedings that, in the absence of a petition in bankruptcy ... could have been brought in a district court or a state court.”
Under this rule the Bankruptcy Court may conduct all proceedings arising in or related to a case brought pursuant to Title 11 of the United States Code.
Upon the motion of a party, a proceeding may be removed to the District Court. These related proceedings are defined in the rule as proceedings that could have been brought by or against a party to the bankruptcy proceeding without necessarily requiring that the party be in bankruptcy. This definition addresses the types of actions which were permitted to be brought in the Bankruptcy Court under the provisions of 28 U.S.C. § 1478 prior to Northern Pipeline. The provision of the Interim Rule allowing for removal of such related civil actions provides the parties with the opportunity to have those related proceedings heard by an Article III court. The Interim Rule does not appear to contemplate that the Bankruptcy Court be divested of authority to hear those related proceedings, unless an objection is raised.
The allegations in the present complaint set forth causes of action for breach of contract and interference of contract. These are actions which arise from common law and tort law theories of liability. See, 17 Ohio Jur.3d Contracts § 262, 52 Ohio Jur.2d Torts § 13. They do not require the initiation of a bankruptcy case prior to their own commencement. Accordingly, they would be the type of actions that fall within the scope of Interim Rule (d)(3)(A) and *653which may be removed to the District Court upon request.
The Defendant’s motion asks that this Court dismiss this action on the grounds that it does not have subject matter jurisdiction. A review of 28 U.S.C. § 1478, as it was applied prior to Northern Pipeline, finds that civil actions involving a debtor may be brought in the Bankruptcy Court for adjudication. The Interim Rule continues that ability until an action is removed to the District Court based upon a proper objection to jurisdiction or the existence of a demand under Interim Rule (d)(1).
As previously discussed, this case is one which should be removed now that an objection has been raised. It should not be dismissed based upon the absence of subject matter jurisdiction. Subject matter jurisdiction addresses a Court’s authority to entertain an action. The absence of subject matter jurisdiction only results from the lack of Article III status, not as a result of the nature of the action. The provisions of the Interim Rule give the parties the opportunity to have the case heard before an Article III Court, thereby giving the parties that which they lacked in the Bankruptcy Court. In this respect there is no lack of subject matter jurisdiction. Since this Court is allowed to hear this case until an objection is raised, and inasmuch as the Interim Rule only provides for removal upon objection, dismissal would be improper.
The movant argues that the District Court is not entitled to hear this action since there is no substantial federal question or diversity of citizenship as required by 28 U.S.C. §§ 1331 and 1332. However, dismissal on those grounds would require certain factual determinations which, in the absence of subject matter jurisdiction, this Court is not permitted to make. It is even unclear whether jurisdiction under 28 U.S.C. §§ 1331 and 1332 would be required in order for a District Court to hear a case brought in the Bankruptcy Court under the auspices of 28 U.S.C. § 1478 and removed pursuant to the Interim Rule. However, that question is not before this Court and a decision thereon would be improper.
The Plaintiff argues that the Defendants have submitted to the jurisdiction of this Court as a result of their participation in the case up until this time. While such action may constitute a concession of personal jurisdiction, it does not forfeit their right to have the action litigated before a Court vested with proper constitutional authority. In addition, it is axiomatic that parties to an action cannot consent to subject matter jurisdiction where none exists.
Therefore, it must be concluded that this action is a related proceeding as defined by Interim Rule (d)(3)(A) and that it should be transferred to the District Court for further proceedings. In reaching this conclusion this Court has considered all the arguments of counsel, regardless of whether or not they were specifically referred to in this Opinion.
It is ORDERED that this adversary proceeding be, and it is hereby, transferred to the United States District Court, for the Northern District of Ohio, Western Division. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489671/ | MEMORANDUM
KEITH M. LUNDIN, Bankruptcy Judge.
The issue presented is the effect of Rhodes v. Stewart, 705 F.2d 159 (6th Cir.1983), on debtors in this district with pending cases in which timely objections have been made to the election of federal exemptions. After consideration of the briefs and arguments and applicable authority, the court finds that the objections to the use of federal exemptions in these consolidated cases should be sustained.
The following constitute findings of fact and conclusions of law as required by Rule 7052 of the Bankruptcy Rules.
Thomas Lee and Linda Little Frye filed a voluntary Chapter 7 petition on January 31, 1983 and elected the federal exemptions pursuant to 11 U.S.C.A. § 522(d) (West 1979). A meeting of creditors was held *655April 11, 1983. The trustee objected to the debtors’ choice of the federal exemptions on April 26, 1983.
Billy Bob and Minnie Hibdon petitioned under Chapter 7 on April 7, 1983 and elected the federal exemptions. A meeting of creditors was held April 25, 1983 and the trustee objected to the-debtors’ use of federal exemptions on April 27, 1983.
Douglas Eugene and Sherrie Lonna Moyer filed a voluntary petition under Chapter 7 and elected the federal exemptions on April 5, 1983. A meeting of creditors was held May 9,1983 and the trustee objected to the debtors’ use of federal exemptions on May 18, 1983.
Wayne and Pamela Marshall filed under Chapter 7 on April 11, 1983. The debtors exempted $1,300 in personal property pursuant to the federal exemptions. On May 6,1983 the debtors amended their schedules to also exempt $1,100 of garnished wages. The debtors’ meeting of creditors was held May 16, 1983. On May 26,1983 the trustee objected to the debtors’ use of federal exemptions.
On April 11,1983 the United States Court of Appeals for the Sixth Circuit filed its decision in Rhodes v. Stewart, 705 F.2d 159 (6th Cir.1983) (“Rhodes II”) holding that the Tennessee legislature had successfully “opted-out” of the federal exemptions in 1980 and reversing the contrary decision of this court in Rhodes v. Stewart, 14 B.R. 629 (Bkrtcy.M.D.Tenn.1981) (“Rhodes I”).1 The decision in Rhodes I was never stayed by this court or by the court of appeals.
These consolidated cases were filed on or before the day the Sixth Circuit denied Rhodes II and timely objections have been filed in each case to the use of the federal exemptions. The objecting trustees contend that Rhodes II forbids a Tennessee debtor from claiming federal exemptions where timely objection has been made and preserved, though the debtor may have *656filed during the appeal of Rhodes I. The debtors argue that they should be allowed to utilize the federal exemptions because Rhodes I was the law in this district when their petitions were filed and application of Rhodes II to their cases would cause prejudice.
Application of a judicial decision that overrules prior precedent to cases pending when the decision is rendered is a matter to be determined by the courts on a case-by-case basis. No universal rule is mandated by constitutional analysis. The United States Supreme Court has developed guidelines for evaluating when an overruling decision may be applied to pending cases: (1) whether the announced decision is one of first impression and not foreshadowed by other case law; (2) whether application would further or retard the development of the new rule; and (3) whether application of the decision would result in substantial inequity or hardship. Chevron Oil Co. v. Huson, 404 U.S. 97, 106-107, 92 S.Ct. 349, 355-356, 30 L.Ed.2d 296 (1971).
1. UNFORESEEABLE DEVELOPMENT
Overruling decisions will not be applied to pending cases where the new decision was unforeseeable and a vested reliance was established in the contrary rule of law. Although Rhodes II was an appellate decision of first impression in this circuit, the debtors’ asserted reliance on Rhodes I is not reasonable. Reasonable reliance may develop where a decision or series of decisions identifies a rule of law that has withstood the tests of time, appeal, or both. Rhodes I had been tested in neither respect. The debtors were aware (or should have been aware) that Rhodes I was on appeal and was subject to reversal or modification at any time. Many other states had enacted “opt-out” legislation2 and several decisions from other courts had sustained such enactments, contrary to the outcome of Rhodes I.3 Reversal of Rhodes I was not unforeseeable. Justifiable reliance is not spawned from the announcement of a single recent decision which is still on direct appeal.
II.DEVELOPMENT OF NEW RULE
Overruling decisions will not be applied to pending cases if the new rule will not be advanced by such application. Application of Rhodes II to pending cases appears to further the underlying principle of Rhodes II that the Tennessee legislature effectively defined the exemptions available to Tennessee debtors when it opted-out of the federal exemption scheme in 1980. By enacting § 522(b)(1), Congress invited states to enact exemptions tailored to the “needs” of their respective citizens. The Tennessee legislature adopted a specific schedule of exemptions and declared those exemptions adequate to satisfy the needs of Tennessee residents. By applying Rhodes II to pending, as well as future, cases these debtors will receive the exemptions intended by the Tennessee legislature.
III.SUBSTANTIAL HARDSHIP
Overruling decisions will not be applied to pending cases if such application will create a substantial hardship. The Supreme Court has recognized that “hardship” sufficient to preclude the application of an overruling decision to pending cases does not normally occur where final action has not been taken:
Significant hardships would be imposed on cities, bondholders and others connected with municipal utilities if our decision *657today were given full retroactive effect ... Therefore, we will apply our decision in this case ... only, where, under state law, the time for challenging the election result has not expired, or in cases brought within the time specified by state law for challenging the election and which are not yet final.
Cipriano v. City of Houma, 395 U.S. 701, 706, 89 S.Ct. 1897, 1900, 23 L.Ed.2d 647 (1969). In each of the cases before the court, the trustee filed a timely objection to the exemption election and, therefore, the debtors’ exemption election was never finalized. This court will apply Rhodes II to all cases in which timely objections have been raised.4
Accordingly, the trustees’ objections to the debtors’ use of federal exemptions are sustained, and the debtors shall have thirty (30) days in which to file amended exemption schedules consistent with the decision in Rhodes II.
Appropriate orders will be entered.
. 11 U.S.C.A. § 522(b) (West 1979) provides in relevant part that:
(b) Notwithstanding section 541 of this title, an individual debtor may exempt from property of the estate either—
(1) property that is specified under subsection (d) of this section, unless the State law that is applicable to the debtor under paragraph (2)(A) of this subsection specifically does not so authorize, (emphasis added).
In 1980, the Tennessee legislature amended the Tennessee exemption statute to include the following section disallowing the use of the federal exemptions:
EXEMPTIONS FOR THE PURPOSE OF BANKRUPTCY. The personal property exemptions as provided for in this part, and the other exemptions as provided in other sections of the Tennessee Code Annotated for the citizens of Tennessee, are hereby declared adequate and the citizens of Tennessee, pursuant to Section 522(b)(1), Public Law 95-598 known as the Bankruptcy Reform Act of 1978, Title 11 U.S.C., section 522(b)(1), are not authorized to claim as exempt the property described in the Bankruptcy Reform Act of 1978, Title 11, U.S.C. 522(d).
Tenn.Code Ann. § 26-2-112 (1980). Application of the Tennessee “opt-out” statute, however, was shortlived. This court held in Rhodes v. Stewart, 14 B.R. 629 (Bkrtcy.M.D.Tenn.1981) (“Rhodes I”) that:
The court cannot perceive of a way to construe the Tennessee exemption statutes so as to avoid the conflict with this federal standard as the Fourth Circuit was able to do with the Virginia exemption statutes. Accordingly, the court is of the opinion that in enacting § 26-2-112 of the Tennessee Code the General Assembly exceeded whatever authority may have been granted it in 11 U.S.C. § 522(b)(1) since the scheme of exemptions provided the citizens of this state by §§ 26-2-101, et seq., conflicts with the standards established by 11 U.S.C. § 522. Section 26-2-112 of the Tennessee Code is invalid. Residents of this state continue to have the option of exempting property from their bankruptcy estates pursuant to 11 U.S.C. § 522(d). (emphasis added).
Id. at 634-635. Rhodes I was appealed by agreement to the United States Court of Appeals for the Sixth Circuit which reversed and noted that:
When the bankruptcy court in the case at bar adjudged that Tennessee could not promulgate a homestead exemption less beneficial to debtors than that of its federal counterpart, said court effectively reduced § 522(b)(1) to an exercise in legislative futility. As T.C.A. § 26-2-112 is constitutional as challenged, the judgment of the bankruptcy court is REVERSED and this action is REMANDED for further proceedings consistent with this opinion.
Rhodes v. Stewart, 705 F.2d 159, 164 (6th Cir.1983) (“Rhodes II”).
. The following states have enacted legislation prohibiting their respective citizens from electing the federal exemptions contained in § 522(d): Alabama, Alaska, Arizona, Arkansas, California, Colorado, Delaware, Florida, Georgia, Idaho, Illinois, Indiana, Iowa, Kansas, Kentucky, Louisiana, Maine, Maryland, Missouri, Montana, Nebraska, Nevada, New Hampshire, New York, North Carolina, North Dakota, Ohio, Oklahoma, Oregon, South Carolina, South Dakota, Tennessee, Utah, Virginia, West Virginia, and Wyoming.
. See, e.g., McManus v. Avco Financial Services, 681 F.2d 353, 356 (5th Cir.1982); In re Sullivan, 680 F.2d 1131, 1137 (7th Cir.1982); Kosto v. Lausch, 16 B.R. 162, 165 (D.M.D.Fla.1981); Centran Bank v. Ambrose, 4 B.R. 395 (Bkrtcy.N.D.Ohio 1980).
. Although the court has reservations whether Rhodes II can be applied to cases in which objections have not been timely filed and still satisfy the guidelines announced in Chevron Oil Co. v. Huson, that issue is not before the court and is neither addressed nor decided. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489672/ | PRELIMINARY PROCEDURE
CHARLES A. ANDERSON, Bankruptcy Judge.
This matter is before the Court for disposition of Plaintiff-Debtor’s Complaint seeking to have his obligation to Defendant-Creditor determined dischargeable pursuant to 11 U.S.C. § 523(a)(8)(A) and (B). The Court held a continued pretrial conference on August 30, 1982. On July 14, 1983 the parties filed an agreed joint Pretrial Order with the Court. The matter was tried on August 24,1983. The Plaintiff submitted a post trial memorandum on 1 September 1983; and, the Defendant on 2 September 1983. The following decision is based upon the Pretrial Order, the pleadings, the evidence adduced at trial and the post trial memoranda of the parties.
FINDINGS OF FACT
Plaintiff-Debtor filed a Petition for relief under 11 U.S.C. Chapter 7 on April 26,1982 listing obligations of $6,587.19, of which, at the time the Petition was filed, $3,327.19 was alleged by Plaintiff-Debtor to be due Defendant-Creditor. Defendant-Creditor avers the sum of $3,393.35 to be due. Both sums apparently include interest accrued to an unspecified date, not completely clarified by the evidence adduced.
The Proof of Claim filed in the case on 12 July 1982 by the Defendant is the only definite evidence. It claims a principal amount due in the amount of $2,618.18, plus accrued interest of $775.17, prima facie established.
The $2,000.00 note provided for repayment, in pertinent part, as follows:
“I/We agree to repay the principal and interest of this loan over a period commencing nine months from the date on which the student borrower ceases to be enrolled on at least a half time basis (as determined by the educational institution) at an institution of higher education approved by the United States Commissioner of Education and extending over a period of not less than five (5) or more than ten (10) years after such date but in no event over a period in excess of fifteen (15) years from the execution of this note, and the total of of the payments during any year of the repayment period with respect to the aggregate amount of all loans of the student borrower insured or guaranteed under the provisions of the Higher Education Act of 1965, as amended, shall not be less than $360 or the balance of all loans insured or guaranteed under the provisions of the Higher Education Act of 1965, as amended, (together with interest thereon) whichever amount is less. I/We further agree to execute a new promissory installment note on PHEAA Form 600R covering all unpaid principal and interest prior to the commencement of the repayment period.
I/We further agree to pay in addition to the principal and interest due any insurance premiums that the lending insti-tuís required to pay PHEAA in order to obtain insurance coverage on the principal amount and interest due on this note.
The due date of this note shall be extended for a period not in excess of three years during which the student borrower is a member of the Armed Forces of the United States, serves as a volunteer under the Peace Corps Actor serves as a full-time volunteer in service to America under Title VIII of the Economic Opportunity Act of 1964, and extension of this note during such periods shall not be included in determining the period during which repayment must be completed. This note may also be extended by mutual agreement of the Lending Institution and PHEAA if the student borrower becomes sick or is temporarily disabled. It is further agreed that during all periods that principal payments are not required, interest shall accrue and be paid.
In the event of the death or permanent and total disability of the student borrower, PHEAA shall discharge the stu*761dent borrower’s liability by paying to the holder the amount of principal and interest due on this note.
No extensions of time for the payment of all or any part of the amount owing hereunder at any time shall effect my/our liability with respect hereto. Demand and presentment for payment and dishonor of this note are hereby expressly waived.
The $1,000.00 note provided for repayment in essential part the same as the foregoing, with minor modifications.
The amount due was derived from two Notes executed by the Plaintiff-Debtor in favor of Second Federal Savings and Loan Association of Pittsburg, Pa. One note dated November 21,1975 was for two thousand dollars ($2,000.00) and the other, dated August 12, 1977, was for one thousand dollars ($1,000.00). Both bear interest at 7% per annum, computed as simple interest. Plaintiff-Debtor’s obligation to Defendant-Creditor, as claimed by both parties, includes interest accrued to the date of filing and, according to Plaintiff-Debtor, reflects principal payments previously made in the amount of $381.82.
Both notes represented the loan of funds to the Plaintiff-Debtor, used for educational expenses at the Art Institution of Pitts-burg, where Defendant enrolled in a photography program. The Debtor obtained an Associate’s Degree and after graduation was periodically employed in the photographic field without marked financial success. He enlisted in the Navy as one way to make his income more assured. Plaintiff-Debtor ceased to be enrolled at the Art Institution of Pittsburg in September, 1977, and both parties agree the Notes are in default.
Plaintiff-Debtor has been serving in the United States Navy for several years and recently reinlisted for an enlistment period expiring in January 1987. He holds a rating relating to photography work and is stationed in the Washington D.C. Area. According to his testimony, which is uncon-tradicted, his specialty in the area of photography is one which does not command special service grades or additional income.
At the time of filing his Chapter 7 petition, Plaintiff-Debtor was married and had a small child. He also has a child from a former marriage and makes monthly payments to his ex-wife for support of that child.
Plaintiff-Debtor’s monthly take-home pay is approximately $920.00. His living expenses are in the range of $600.00 to $1,000.00 per month based on trial testimony which is imprecise and somewhat contradictory. The living expenses, which appear to total around $800.00 to $900.00 monthly, include $300.00 for rent, $146.00 for current and arrearage child support, and other usual and basic living costs. Therefore, the income at least covers Plaintiff-Debtor’s expenses.
Plaintiff-Debtor filed the instant complaint on June 9, 1982. Plaintiff-Debtor alleges that his debt to Defendant-Creditor does not qualify for an exemption from dischargeability pursuant to 11 U.S.C. § 523(a)(8)(A) and in the alternative said debt should be discharged pursuant to 11 U.S.C. § 523(a)(8)(B).
In response, Defendant-Creditor asserts that Plaintiff-Debtor is not entitled to a discharge under 11 U.S.C. § 523(a)(8)(A) because his student loan debt did not become due until June 1, 1978, (a date nine months after his “school expiration” date of September 1, 1977), which due date was not prior to five years before the date of the filing of Plaintiff-Debtor’s petition. Defendant-Creditor further responds that Plaintiff-Creditor is not entitled to a discharge under 11 U.S.C. § 523(a)(8)(B) because he has not averred information sufficient for a determination that a repayment of the student loan debts would impose an undue hardship. Defendant-Creditor, therefore, requests that this Court deny Plaintiff-Creditor’s request that Plaintiff-Creditor’s student loan debt is dischargea-ble within the provisions of 11 U.S.C. § 523(a)(8)(A) and (B).
A Pretrial Order issued July 14, 1983, pursuant to pretrial conferences, eliminated *762the issue of whether the Defendant-Creditor qualified for an exemption, as Plaintiff-Debtor’s loan did not first become due before five years before the date Plaintiff-Debtor filed his Petition under 11 U.S.C. Chapter 7.
The Plaintiff has ■ demonstrated good faith in attempting to cope with the student loan obligation. Likewise, the Defendant has demonstrated a proper consideration to the problem in endeavoring to cooperate with the Debtor to mitigate the proven hardship. The mutually agreed repayment rate by the parties was $30.00 per month. This Court finds that the maximum amount the Debtor can currently pay is the minimum contract payment of $360.00 per an-num.
DECISION AND ORDER
The issue now before the Court is whether a determination that Plaintiff-Debtor's student loan debt to Defendant-Creditor should be excepted from discharge under 11 U.S.C. § 523(a)(8) because it will impose an undue hardship on the Plaintiff-Debtor and his dependents.
In the Matter of John Henry Yarber, 19 B.R. 18 (Bkrtcy.S.D.Ohio, W.D.1982) this Court observed that (i) “undue hardship” is discretionary with the Bankruptcy Court, (ii) the inquiry is whether payment of the debt will cause undue hardship and defeat the underlying “fresh start” policy inherent in the Bankruptcy Code, and (iii) in determining the dischargeability of liability for a student loan, the “totality of the circumstances” approach is appropriate.
The Plaintiff-Debtor’s income at least covers his projected basic expenses as they are now determinable. His future income, together with probable cost of living adjustments, is substantially assured through January 1987, when his current Navy enlistment terminates.
As a general rule, claims for post petition interest accrued on unsecured debts are not allowable pursuant to 11 U.S.C. § 502(b)(2). Household Finance Corp. v. Hansberry, 20 B.R. 870 (Bkrtcy.S.D.Ohio, 1982). Defendant-Creditor avers that Plaintiff-Debtor’s debt is in the amount of $3,393.35, of which $2,618.18 is principal and $775.17 is interest, accrued as of an unspecified date. (This total amount claimed to be due is at variance by a relatively small amount with $3,327.19 which Plaintiff-Debtor’s complaint alleged.)
If Plaintiff-Debtor’s debt owing to Defendant-Creditor is stabilized to an amount certain, without the continuing burden of further interest accruing on the debt, and Plaintiff-Debtor is discharged from his other prepetition debts, he would essentially have a “fresh start” and be able to make payments on Defendant-Creditor’s debt.
Requiring the Plaintiff-Debtor to repay this student loan debt might constitute some hardship, even without the burden of continuing interest costs. However, such a requirement will not place upon him a hardship which is “undue” within the meaning of the Bankruptcy Code. This Court adopts the ratio decidendi followed in opinions, such as In the Matter of Densmore, 8 B.R. 308 (Bkrtcy.N.D.Ga.1980), 7 B.C.D. 271, 3 C.B.C.2d 471.
It is the finding of the Court that Plaintiff-Debtor’s student loan debt to Defendant-Creditor, to the extent of monthly payments of $30.00 ($360.00 per annum) on the unpaid principal and interest accrued to the date of Plaintiff-Debtor’s filing of his Chapter 7 Petition, will not impose an undue hardship on the Plaintiff-Debtor and his dependents.
The Court is constrained to conclude that the accrual of interest at the contract rate over a period of 10 (or 15) years interferes with the “new start” contemplated by the order for relief granted herein and constitutes an undue hardship in light of the demonstrated facts of present and possible future income of the Debtor from his training and trade. Without compounding, the remaining principal debt would be reduced each year by only $122.47. The interest (not compounded) at the end of 15 years would total the amount of $1,837.05.
*763Certainly, a discharge in bankruptcy and a “fresh start” does not contemplate perpetual indebtedness on student loans beyond a reasonable repayment period.
IT IS ACCORDINGLY ORDERED, ADJUDGED AND DECREED, that Plaintiff-Debtor’s student loan debt to Defendant-Creditor, to the extent of unpaid principal and interest accrued to the date of Plaintiff-Debtor’s filing of his Chapter 7 Petition, should be excepted from discharge under 11 U.S.C. § 523(a)(8)(B) but the interest accruing upon the debt upon maturity at the end of 10 years constitutes an undue hardship to the extent deferred payments total more than $3,600.00.
IT IS FURTHER ORDERED that Plaintiff-Debtor is granted two weeks leave to amend his Petition to proceed under 11 U.S.C. Chapter 13, as to the nondischargeable debt upon maturity of $3,600.00. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489673/ | OPINION
EMIL F. GOLDHABER, Bankruptcy Judge:
In the case at bench, the Official Limited Partners Committee (“the committee”) of Citadel Associates (“the debtor”) seeks to avoid a lien held by Bank Leumi Le-Israel, B.M. (“the bank”) against a certain apartment premises owned by the debtor situated on real property owned by the debtor’s general partner. Because the amount of the bank’s lien exceeds the fair market value of the subject premises, we will grant the committee’s amended complaint to avoid the bank’s lien pursuant to section 506(d) of the Bankruptcy Code (“the Code”).
The facts of the instant case are as follows: 1 In the summer of 1980, the bank loaned the sum of $500,000.00 to Fidelity America Mortgage Company (“FAMCO”), the debtor’s general partner. On August 25, 1980, FAMCO caused to be recorded in Kentucky a mortgage in the bank’s favor on the Citadel Apartment Premises (“the apartment premises”), the debtor’s sole operating asset, to secure FAMCO’s indebtedness of $500,000.00 (“the mortgage”). In October of 1980, Old Kentucky Real Estate Investment Trust (“Old Kentucky”), the holder of two mortgage interests against the apartment premises, instituted mortgage foreclosure proceedings in the Kentucky state court and, on January 5, 1981, the Kentucky state court appointed a state court receiver to collect the rents and supervise the operation of the apartment premises pending outcome of the foreclosure proceedings. However, on February 4, 1981, FAMCO filed, in this court, a petition for reorganization under chapter 11 of the Code and simultaneously filed similar petitions for the debtor and for other of the FAMCO partnerships and related entities. The state court receiver was permitted to continue functioning and he has filed monthly operating statements in this court. On October 1, 1982, Old Kentucky filed a complaint for modification of the automatic stay provisions of the Code in order to proceed with mortgage foreclosure proceedings in Kentucky. However, Old Kentucky, the debtor, the FAMCO trustee and others entered into a stipulation, approved by this court on July 28,1983, continuing the hearing on the complaint pending the debtor’s plan of reorganization. Said plan contemplates the conveyance of the apartment premises to a new general partner, free and clear of all liens, except for the interests of the first and second mortgagees. To this end, on December 30, 1982, the committee, acting on the debtor’s behalf,2 filed a “complaint to determine secured status and to avoid lien” against the bank, Charles Fox (“Fox”), Howard I. Green (“Green”) and *979United States Management Corporation (“USMC”) (Fox, Green and USMC,' collectively referred to as “USMC”). The bank and USMC filed motions to dismiss said complaint but, on June 23, 1983, said motions were denied by Judge Twardowski, who directed that the committee file an amended complaint with the FAMCO trustee joined as a party thereto.3 The amended complaint was duly filed by the committee and trial on the issues set forth in said complaint was scheduled. At a pretrial conference held two days prior to trial, counsel for USMC was asked whether he would be calling an appraiser or other witnesses at trial to which counsel responded that he could not say at that time whether he was going to call any witnesses or present evidence. Consequently, on September 28, 1983, we made a finding which concluded:
(f) The refusal of Green to appear and testify at depositions, the failure of Green to plead in reasonable detail to the Amended Complaint, and the failure to make available the writings of counsel for all of the parties to the Bank Leumi loan transaction, compounded by the refusal at today’s PreTrial Conference to indicate whether Green and U.S. Management would present experts or other witnesses at trial two days hence, constitutes a course of action thwarting the purposes of the Discovery and Pre-Trial Rules set out in the Bankruptcy Rules and in the Federal Rules of Civil Procedure, especially in view of the statements of the Supreme Court accompanying in the Amendments and promulgating Orders effective August 1, 1983 which emphasize the determination to prevent such abuse;
and we entered an order which provided, inter alia:
4. Howard I. Green and U.S. Management Corporation are prohibited from introducing expert witnesses or other
evidence which they had reason to believe prior to today’s Pre-Trial Conference they might wish to present at trial, although they shall have the right to cross examine and otherwise contest the matters at issue.
The committee seeks to avoid the bank’s mortgage lien pursuant to sections 506(a) and (d) of the Code, which respectively provide:
(a) An allowed claim of a creditor secured by a lien on property in which the estate has an interest, or that is subject to setoff under section 553 of this title, is a secured claim to the extent of the value of such creditor’s interest in the estate’s interest in such property, or to the extent of the amount subject to setoff, as the case may be, and is an unsecured claim to the extent that the value of such creditor’s interest or the amount so subject to setoff is less than the amount of such allowed claim. Such value shall be determined in light of the purpose of the valuation and of the proposed disposition or use of such property, and in conjunction with any hearing on such disposition or use or on a plan affecting such creditor’s interest.
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(d) To the extent that a lien secures a claim against the debtor that is not an allowed secured claim, such lien is void, unless—
(1) a party in interest has not requested that the court determine and allow or disallow such claim under section 502 of this title; or
(2) such claim was disallowed only under section 502(e) of this title.
11 U.S.C. § 506(a), (d) (1979).
USMC contends, essentially, that the committee has no standing to object to the bank’s claim because the bank, according to USMC, is not a creditor of the debtor but is rather a creditor of FAMCO;4 and therefore, only a party in interest (such as the *980FAMCO trustee) would have a right to object to the bank’s claim in the bankruptcy proceeding of FAMCO, not in the instant proceeding.5 In support of its position that the bank is not a creditor of the debtor, USMC relies on paragraph eighteen (18) of the amended complaint, which provides:
18. Citadel Associates is not, and has never been, indebted to Bank Leumi and did not receive any of the proceeds of the loan secured by the Bank Leumi mortgage nor any benefit from said loan.
Nevertheless, while it is true that USMC has admitted the aforesaid allegations in its answer, we find it dispositive that the bank has seen fit to deny those averments in its answer. Moreover, Judge Twardowski, in ruling on USMC’s motion to dismiss the original complaint for failure to state a claim upon which relief could be granted (because of the debtor’s alleged lack of standing) has previously held:
The mortgage instrument at issue contains a detailed description of the parcel of real estate used as collateral for the loan obligation in question [the $500,-000.00 loan from the bank to FAMCO] and said description is followed by the words:
Also known as:
Citadel Apartments 7301 Preston Highway Louisville, Kentucky
The mortgage document further provides:
Together with all and singular . .. Improvements, Hereditaments and Appurtenances, whatsoever thereunto belonging, or in any wise appertaining, and the Reversions and Remainders, Rents, Issues and Profits thereof, under and subject to easements and conditions of record.
We find that the aforesaid language, standing alone, burdens the debtor, the entity that owns the buildings constituting the Citadel Apartments premises.
Official Ltd. Partners Comm. v. Bank Leumi Le-Israel, B.M. (In re Citadel Assoc.), 31 B.R. 56, 59 (Bkrtcy.E.D.Pa.1983). In light of the above and on the present state of the record, we conclude that the bank possesses a claim against the debtor and is, therefore, a creditor of the debtor. As such, the debt- or plainly has standing to attempt to alter the rights of one of its creditors.
At trial of the instant complaint, the committee’s expert appraiser testified that the fair market value of the premises in question is $1,137,500.00, which appraisal we found to be credible. Therefore, even if we accept USMC’s finding that the debtor is indebted to the second mortgage (Old Kentucky) in an amount not more than $1,162,192.80, the fact remains that the value of the bank’s interest in the subject property following the prior lien position of Old Kentucky is dissipated. Therefore, assuming, arguendo, that the bank could prove a claim against the debtor’s estate,6 *981said claim would not be entitled to secured status in accordance with section 506(a) of the Code. Consequently, since the bank would not, in any event, have an “allowed secured claim” under section 506(a), the lien securing said claim is avoided by operation of section 506(d) of the Code.
. This opinion constitutes the findings of fact and conclusions of law required by Bankruptcy Rule 7052 (effective August 1, 1983).
. On September 7, 1982, we entered the following order authorizing the committee:
[T]o act on behalf of and in the interest of the debtor and of the Bankruptcy Estate in gathering and preserving the assets of the Citadel Associates Chapter 11 Estate, and to take all actions necessary to that end, including the filing of Adversary Proceedings to recover property of the Estate and preferential or fraudulent transfers.
. See Official Ltd. Partners Comm. v. Bank Leumi Le-Israel, B.M. (In re Citadel Assoc.), 31 B.R. 56 (Bkrtcy.E.D.Pa.1983).
. Throughout the history of this adversary proceeding, USMC has maintained that it was sub-rogated to the bank’s claim against FAMCO and that therefore it is a creditor of FAMCO. There is nothing in the record of this proceed*980ing, other than USMC’s repeated assertions, establishing a right to subrogation on the part of any of the USMC defendants.
. In this regard, we note that Judge Twardow-ski, in his previous opinion, ordered the committee to join the FAMCO trustee as a party defendant to the committee’s amended complaint and in all future pleading involving the debtor’s reorganization. The FAMCO trustee, who would represent FAMCO’s interest in the land underlying the apartment premises, was so joined and in his answer to the committee’s amended complaint, the FAMCO trustee requested that we enter an order granting the relief requested by the committee in its amended complaint. More specifically, the FAMCO trustee has not opposed the committee’s efforts to avoid the bank’s lien against the apartment premises.
. Our pre-trial order of September 28, 1983, provided:
3. At the first trial (the claim and lien avoidance issues), by agreement of its counsel, Bank Leumi will neither oppose the claims of the plaintiff, nor introduce evidence.
Nevertheless, the bank made it clear at trial (N.T. September 28, 1983, at 12, 28) that its agreement not to contest was limited to count six (6) of the amended complaint only, which provides:
38. Plaintiff incorporates herein by reference paragraphs 1 through 28 above as if the same were here set forth at length.
39. The Committee avers that the current market value of the Property is not in excess of the total amount of indebtedness secured by the Old Kentucky Vendor’s Lien and Third Mortgage and that, therefore, the Bank Leu-mi Mortgage, even if properly obtained and recorded, is of no value and subject to avoid*981ance pursuant to Section 506 of the Bankruptcy Code.
Consequently, for purposes of this opinion, we proceed under the assumption that the bank had agreed not to contest the committee’s claims if trial on the merits was limited to the following issue — assuming that the bank had proven a claim against the debtor’s estate, is the lien which secures said claim otherwise avoidable under section 506(d) of the Code? | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489675/ | FINDINGS OF FACT, CONCLUSIONS OF LAW AND MEMORANDUM OPINION
ALEXANDER L. PASKAY, Chief Judge.
THIS IS a Chapter 7 liquidation case and the matter under consideration is the dis-chargeability, vel non, of a debt admittedly owed by the Debtor, David Anthony Wilson, to Winifred O’Reilly (O’Reilly), the Plaintiff who instituted the above-styled adversary proceeding. O’Reilly seeks a determination that the debt in the amount of $12,500 owed by Wilson is non-dischargea-*8ble because it represents a liability resulting from a fraudulent inducement by Wilson to lend him $12,500 by promising to marry her after his financial affairs were stabilized.
The Court heard argument of counsel, considered the record in its entirety and finds as follows:
In September of 1979, O’Reilly received a telephone call from a representative of an insurance company who asked her if she would like to purchase credit mortgage insurance. O’Reilly responded that she was interested and shortly thereafter the Debt- or, who was a representative of the insurance company, appeared at her home to make a presentation to her about the insurance. O’Reilly bought the insurance and began to see the Debtor socially. After dating throughout September and October of 1979, the Debtor asked O’Reilly to marry him and she agreed. The Debtor told O’Reilly that he was divorced and had five children. Since O’Reilly had two children, they began looking for a new house because her house was not large enough to accommodate seven children. In connection with looking for a new home and discussing the necessary financing, O’Reilly mentioned to the Debtor that she had savings accounts at First Federal Savings and Loan Association of Tampa.
Shortly thereafter, the Debtor informed O’Reilly that he had an opportunity to invest in the insurance agency where he was employed. He told her this would secure their financial future together. On October 25, 1979, they drove to Brooksville and she obtained a check drawn on First Federal Savings and Loan Association of Brooks-ville payable to the Debtor in the amount of $5,000 from her account. On or about November 13, 1979, O’Reilly went to Fidelity Federal Savings and Loan Association of Tampa and obtained a check payable to the Debtor in the amount of $7,500 from her account. The Debtor cashed both checks, received the proceeds and thereafter stopped calling O’Reilly. When O’Reilly called the Debtor’s office, she learned that he was married and still living with his wife. She also learned that he had not invested the money she had given him in the insurance agency. The Debtor finally informed her that he had used a large portion of the money to pay off pre-existing debts he had incurred in Utah and that he intended to remain married to his wife. Later, the Debtor repaid O’Reilly the sum of $1,526.
The claim of non-dischargeability is based on § 523(a)(2)(A) of the Bankruptcy Code which in pertinent provides as follows:
“A discharge under § 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 debtors or an insider’s financial condition; or ...”
It is well established that it is the burden of the Plaintiff to establish with the requisite degree of proof of all the operating elements of this Section which, if established, would warrant excepting the particular obligation from the overall protective provisions of the general bankruptcy discharge. In order to prevail, the Plaintiff must establish that the Defendant did in fact obtain the money by either false pretenses or false representations or by actual fraud. Although the Section does not spell out the requirement of reliance, it is well established, and is without doubt, that before the Plaintiff can prevail, the Plaintiff must also establish that it relied on the false representations; and as a result, suffered damages.
Applying the foregoing to the facts as established by the record in this case, there is no question that the representations made by this Defendant to the Plaintiff were materially false, that the Plaintiff in good faith believed and relied on the same and as a result, parted with funds. For this reason, it is clear that the Plaintiff did establish with the requisite degree of proof its claim of non-dischargeability. *9Therefore, the Plaintiff is entitled to the relief it seeks.
Accordingly, it is the findings and conclusions of this Court that the debt owed by the Defendant to the Plaintiff in the amount of $10,974 is non-dischargeable by virtue of § 523(a)(2)(A) and, therefore, the Plaintiff is entitled to a judgment in said amount in her favor and against the Defendant and also in addition, a declaration that the obligation represented by the judgment is non-dischargeable.
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/8489676/ | ALEXANDER L. PASKAY, Chief Judge.
ORDER ON MOTION TO DISMISS FOR LACK OF SUBJECT MATTER JURISDICTION
This is a Chapter 11 reorganization case and the matter under consideration is a Motion to Dismiss the Chapter 11 case, filed by Great Southwest Corporation (Great *18Southwest). The Motion is based on the contention of Great Southwest that by virtue of the decision of the Supreme Court in Northern Pipeline Construction Co., Inc. v. Marathon Pipe Line Co., 458 U.S. 50, 102 S.Ct. 2858, 73 L.Ed.2d 598 (1982), this Court lacks subject matter jurisdiction, therefore, the entire case should be dismissed, particularly because the Emergency Model Rule as adopted in this District as a Local Rule under which this Court now functions is unconstitutional and invalid. •
Particularly, it is the contention of Great Southwest that neither Sections 28 U.S. 1331 nor 1334 furnishes any statutory basis for the exercise of jurisdiction by a United States District Court over matters of bankruptcy, consequently it lacks power to delegate jurisdiction it does not possess to the Bankruptcy Courts.
This last contention, advanced for the first time by counsel, is novel and has not been raised previously. It is based on the proposition that Section 405 of Title IV of the Bankruptcy Reform Act of 1978, Public Law 95-598, 92 Stat. 2549, effectively removed any jurisdiction over matters in bankruptcy on the trial level from the United States District Courts, and if there is any jurisdiction left with the District Courts, it is only appellate jurisdiction, pursuant to the provisions of Section 238 of 11 U.S.C., an amendment of 28 U.S.C. 1334 by the Bankruptcy Reform Act of 1978, P.L. 95-598, 92 Stat. 2549.
In support of this last contention, counsel for Great Southwest cites In the Matter of International Horizons, Inc., 689 F.2d 996 (11 Cir.1982), in which the Circuit Court of Appeals for the Eleventh Circuit noted in a footnote that by virtue of Section 405(c)(2) of the Bankruptcy Reform Act, 28 U.S.C. § 1334, as amended by the Bankruptcy Reform Act, is operative even during the transition period and the jurisdiction of the district courts granted by 28 U.S.C. 1334 is only appellate jurisdiction and lacks power to function as a trial court in matters of bankruptcy during the transition period. Counsel for Great Southwest, therefore, contends that the District Court lacks the power' to promulgate Local Rules on the subject of bankruptcy.
Reliance of counsel on this statement in the footnote in the case cited is misplaced. First, the statement was mere dictum and had no meaningful relevance to the issues which were involved in that particular case. International Horizons involved only the question of the jurisdiction of the Court of Appeals to review an interlocutory order of the Bankruptcy Court. This being the case, it is evident that International Horizons, supra furnishes scant, if any, support for this newly advanced contention of counsel for Great Southwest.
This leaves for consideration the additional contention of counsel for Great Southwest to the effect that since the District Court lacks the jurisdiction, it equally lacks power to promulgate the Emergency Rule as a Local Rule. The validity of the Emergency Model Rule has been challenged repeatedly, but so far every Court of Appeals which was presented with this issue rejected the challenge. White Motor Corp. v. Citibank, N.A., 704 F.2d 254, 8 C.B.C.2d 274 (6th Cir.1983); and Coastal Steel Corp. v. Tilghman, 709 F.2d 190 (3d Cir.1983). Any attempt to obtain a review from the Supreme Court by way of certiorari was equally unsuccessful and so far all Petitions for the Writ were denied. In re Braniff Airways, Inc., 700 F.2d 214 (5th Cir.), cert. denied, - U.S. -, 103 S.Ct. 2122, 77 L.Ed.2d 1302 (1983); First National Bank of Tekamah, Nebraska v. Hansen, 702 F.2d 728, 10 B.C.D. 280 (8th Cir.) cert. denied, -U.S.-, 103 S.Ct. 3539, 77 L.Ed.2d 1389 (1983).
This Court is not aware of any decision which considered the validity of the Model Rule in this Circuit. It should be noted, however, there are several appeals pending at this time the question of this Court’s jurisdiction. Thus, unless a challenge on the validity of the Emergency Model Rule is sustained in this district, either by a District Court or a Court of Appeals, this Court is constrained to uphold the validity of same, even though its validity is questionable and doubtful. See Vern Countryman, *19“Emergency Rule Compounds Emergency,” 57 Bankruptcy Law Journal (Winter 1983).
In accordance with the foregoing, it is
ORDERED, ADJUDGED AND DECREED the Motion to Dismiss for Lack of Subject Matter Jurisdiction of this Chapter 11 case be and the same is hereby denied. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489677/ | FINDINGS OF FACT, CONCLUSIONS OF LAW AND MEMORANDUM OPINION
ALEXANDER L. PASKAY, Chief Judge.
THIS IS a Chapter 7 liquidation case and the immediate matter under consideration is the dischargeability, vel non, of a debt admittedly owed by the Debtor, Edward Taylor to his former wife, Helen Long, who instituted this adversary proceeding. The Plaintiff seeks a judicial determination that the debt in the amount of $15,800 is a non-dischargeable debt pursuant to Bankruptcy Code Sections 523(a)(5), 523(a)(2)(A) or 523(a)(4).
The Court having considered the record, including testimony of witnesses, now finds and concludes as follows:
On November 1, 1975, the Debtor and Helen Long were married and approximate*20ly three weeks later, the Debtor, Long and Long’s mother borrowed $11,800 from Security Pacific Finance Corporation. The loan was secured by a second deed of trust on Long’s home. Although the Debtor and Long resided in the home during their marriage, the home belonged to Long before her marriage and the Debtor never acquired any interest in the same.
It is clear that from the total amount of $11,800, which the parties borrowed from Security Pacific Finance Corporation, approximately $10,640.44 was paid out to creditors of the Debtor. In fact, it appears that the proceeds of this loan were applied to obligations which the Debtor incurred during a previous marriage. The original loan has been twice refinanced and the Deed of Trust remains on the property.
On March 24, 1980, the Debtor and Long entered into a Marital Settlement Agreement whereby both parties agreed to waive “any and all spousal support and other rights to support ...” In addition, the parties agreed that the “... Husband shall pay for and discharge the Promissory Note secured by the second (junior) Deed of Trust in said residential property and hold Respondent harmless therefrom ...”
In accordance with the Marital Settlement Agreement, the Debtor made all payments on the Deed of Trust from April, 1980 to February, 1982. On April 10, 1982, the Debtor filed a voluntary petition for relief pursuant to Chapter 7, listed Long as an unsecured creditor and ceased making the payments.
Bankruptcy Code § 523(a)(5) provides: “(a) A discharge under section 727, 1141 or 1328(b) of this title does not discharge an individual debtor from any debt— (5) to a spouse, former spouse, or child of the debtor, for alimony to, maintenance for, or support of both spouse or child in connection with a separation agreement, divorce decree, or property settlement agreement, but not to the extent that— (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(a)(5). The legislative history provides, “Section 523(a)(5) is a compromise between the House Bill and the Senate Amendment.... If the debtor has assumed an obligation of the debtor’s spouse to a third party in connection with a separation agreement, property settlement agreement, or divorce proceeding, such debt is dischargeable to the extent that payment of the debt by the debtor is not actually in the nature of alimony, maintenance or support of debtor’s spouse, former spouse, or child, (emphasis supplied) 124 Cong.Rec.H. 11,-095-6 (Sept. 28, 1978); S. 17,412-13 (Oct. 6, 1978). Thus, the question before the court is whether the obligation incurred by the Debtor by virtue of the Marital Settlement Agreement is in the nature of alimony, maintenance or support.
What constitutes alimony, maintenance and support within the meaning of § 523(a)(5) is to be determined under bankruptcy law and not state law. Wiser v. Wiser (In re Wiser), 22 B.R. 381, 382 (Bkrtcy.M.D.Fla.1982); Newman v. Newman (In re Newman), 15 B.R. 67 (Bkrtcy.M.D.Fla.1981). In addition, the label placed on the obligation by the parties is not necessarily determinative of its actual character. Wiser v. Wiser, supra.
Having considered the entire record, this Court is of the opinion that the $15,800 debt is in the nature of support rather than a property settlement. In this case, Long was debt-free when she entered the marital relationship with the Debtor. The home, which became the marital residence, was owned by Long individually, before and during the marriage. In addition, Long executed a second deed of trust on the residence in order to borrow money to satisfy obligations which the Debtor incurred during a previous marriage. Long then waived her rights to alimony or support only upon the Debtor’s agreement to assume the second mortgage payments. *21Clearly, the obligation serves a support function by providing for the preservation of Long’s personal residence, and is, therefore, non-dischargeable pursuant to § 523(a)(5).
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/8489679/ | MEMORANDUM DECISION
THOMAS C. BRITTON, Bankruptcy Judge.
The issue here is whether a security interest is perfected under Florida law by recor-dation before documentary stamps are purchased and placed on the document. I hold that it is.
The trustee seeks the avoidance of a security agreement in the amount of $813,012 as voidable preference under § 547 because defendant did not place documentary stamps on the promissory note until April 8, 1982, which was within 90 days of bankruptcy. Defendant has answered. The matter was tried on October 6. The facts are stipulated.
It is conceded that if this lien was not perfected more than 90 days before bankruptcy, it is a voidable preference under § 547(a). It is undisputed that the security -agreement was recorded with the Secretary of State on February 11,1982, more than 90 days before June 30,1982, the date of bankruptcy. Fla.Stat. § 201.01, which imposes an excise tax on documents, provides in part that:
“The documentary stamp taxes required under this chapter shall be affixed to and placed on all recordable instruments requiring documentary stamps according to law, prior to recordation.”
Notwithstanding that provision, defendant recorded the note in question here with the Secretary of State, the appropriate office, and that office accepted the document without the required documentary stamps. It is conceded that the document was subject to the stamp tax. The tax was subsequently paid and the stamps were affixed to the document before bankruptcy but within the 90 day interval before bankruptcy-
There is no provision in the Florida Statute nor is there any reported Florida decision indicating that the failure to comply with the documentary stamp tax statute nullifies the effect of recordation. The penalty prescribed by Florida for failure to pay this tax is payment of the tax, together with a specified penalty or conviction and punishment as a misdemeanor of the second degree. § 201.17. Statutes imposing taxes must be construed strictly in favor of the taxpayer. There is no basis to conclude that defendant’s failure to pay the tax before recordation nullified the effect of the recordation. Fla.Stat. § 679.403(1) provides to the contrary:
“Presentation for filing of a financing statement and tender of the filing fee or acceptance of the statement by the filing officer and recording in compliance with § 679.4011, where required, constitutes filing under this chapter.”
It is clear to me that the U.C.C. perfection of defendant’s security interest occurred on February 11, 1982, when the document was accepted for recordation.
In Kotzen v. Levine, 678 F.2d 140, 141 (11th Cir.1982) the court affirmed the dismissal without prejudice on a motion for a directed verdict of an action on promissory notes because the documentary stamp tax had not been paid on the notes. The court’s discussion is confined to whether the dis*41missal was properly without prejudice. The court held that it was where the case was dismissed “because of a technical failure of proof.” The district court based dismissal on Fla.Stat. § 201.08. In the matter before me, we are not concerned with the time when the note held by defendant became enforceable but only with the date that it became perfected.
I have not overlooked the directly contrary conclusion reached by my colleague, Judge Gassen, in Matter of Sel-O-Rak Corp., 26 B.R. 223 (Bkrtcy.S.D.Fla.1982). That decision was reversed by the district court on September 2, 1983, in- an as yet unpublished memorandum opinion.
As is required by B.R. 9021(a), a separate judgment will be entered dismissing this complaint with prejudice. Costs may be taxed on motion. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489680/ | 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 to (1) recover property and (2) avoid a lien as a preferential transfer pursuant to § 547 of the Bankruptcy Code. The Complaint was originally filed against the law firm of Pino, Knox & Smith, P.A. (Firm) by Great Western Meats, Inc.; Reds Market, Inc.; Merton, Inc.; Carr Brothers Institutional Foods & Paper Co.; Carr Brothers Frozen Foods, Inc.; John Sexton & Co.; and Graham Jones Paper Co., all creditors who filed an Involuntary Petition on July 7, 1982 against Lord Chumley’s Pub, Inc., the Chapter 11 Debtor. The Debtor has since been substituted as Plaintiff and seeks, by way of this adversary proceeding, to avoid a lien which the Debtor granted to the law firm of Pino, Knox and Smith, P.A. to secure the payment of attorneys fees incurred pre-petition, and to recover certain inventory transferred to the firm as part payment for attorney fees.
The Court heard argument of counsel, testimony of witnesses, considered the record in its entirety and finds as follows:
Pino, Knox and Smith, P.A., the Defendant is the law firm which provided legal services to the Debtor between the approximate dates of September 15, 1981 and July 27, 1982. The Debtor became indebted to the law firm for legal services performed pre-petition, executed a $30,000 promissory note in favor of the firm on June 29, 1982 and on June 30, 1982 granted a security interest in all fixtures, equipment, rents and profits and general intangibles. The Firm perfected its security interest by filing a UCC 1 both locally and with the Secretary of State.
Due to the impending action by the above-mentioned creditors, it was clear that the Debtor required further legal services which the law firm refused to perform absent either payment or additional security. It appears that the only items owned by the Debtor which had any value at all consisted of a liquor inventory, which on July 3, 1982 was turned over to the law firm. On July 7, 1983, the involuntary case was filed in this Court.
There is no doubt, based on the facts and it is conceded by the parties that the transfers involved must be set aside as preferential. There remains, however, disagreement as to the number of liquor bottles originally turned over to the law firm, the number of bottles currently in the firm’s possession, and the value of any missing bottles.
It is the Debtor’s contention that the liquor inventory which was turned over by the Debtor to the law firm consisted of 704 bottles more than are currently in the firm’s possession, that the missing bottles are restaurant sized bottles and that the cash value of the missing liquor is approximately $5,748.90. Accordingly, the Debtor seeks not only the return of the inventory currently held by the firm, but also reimbursement of the cash value of the missing bottles. In support of its position, the Debtor produced a list of liquor inventory which was prepared by an officer of the Debtor, assisted by a firm employee, at the time of and simultaneous with the transfer of the liquor to the firm (Pi’s Exh. # 1).
The firm attempted to refute the Debt- or’s evidence and testimony by submitting a *49list of the inventory which was prepared by the firm in preparation for litigation, well after the transfer and while the liquor was in the firm’s possession. In addition, the firm offered some testimony that the bottles were of varying sizes and not capable of valuation.
The Court is of the opinion that the law firm has failed to refute the Debtor’s evidence and testimony with any degree of reliability and, therefore, the Debtor is entitled to recover the inventory currently in the firm’s possession as well as the value of the missing inventory in the amount of $5,748.90.
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/8489681/ | MEMORANDUM OPINION
ROBERT C. McGUIRE, Bankruptcy Judge.
Randazzo, Inc. filed this voluntary Chapter VII petition in October, 1977. D.M. Lynn, Trustee in bankruptcy for Randazzo, Inc., (“Trustee”), plaintiff, moves for summary judgment, asserting that the Internal Revenue Service’s (“IRS”) pre-petition collection of tax penalties in the amount of $1,129.11 from Debtor is avoidable as a fraudulent transfer under § 67d(2) of the Bankruptcy Act of 1898, as amended, (“Act”), and seeks recovery of the amounts paid to the IRS. The IRS’s Motion for Summary Judgment asserts that its pre-pe-tition collection of tax penalties from Debt- or is not avoidable, and hence, the amounts paid to the IRS cannot be recovered by Trustee. The Motion of the IRS will be granted, and that of Trustee will be denied.
The record reflects that, prior to its filing on October 13,1977, Debtor was engaged in the manufacture of clothing. The affidavit of Emmet J. Schayot reflects that, prior to Debtor’s petition, he was employed by the IRS as a Revenue Officer Advisor on the Special Procedures Staff in Dallas, Texas; that he was personally familiar with the assessment and collection of taxes and penalties from Debtor; that Debtor’s tax returns of the last quarter of 1976 and the first two quarters of 1977 reflected its failure to deposit and pay certain employee withholding taxes; that a computer was used to calculate and assess the tax penalties due from Debtor; and that Debtor voluntarily paid the penalties after demand was made by the IRS. The pleadings of the parties establish that Debtor paid $1,129.11 in tax penalties approximately four months prior to the filing of its bankruptcy petition. Trustee brought this action to recover the $1,129.11 in April, 1980, alleging that the pre-petition payment was either a preference, or a fraudulent transfer, and therefore, recoverable under the Act. By the parties’ stipulation agreement of November *781,1980, approved by this Court and entered on the docket November 14, 1980, Trustee limits his cause of action to the recovery of a fraudulent transfer under § 67d(2) of the Act, and abandons his allegation that the transfer constituted a preference. Trustee and the IRS admit that Debtor had creditors of the classes necessary to support a cause of action by Trustee under § 67d(2); and that, at the time of the transfer, Debt- or was “insolvent”, and Debtor and the IRS acted in “good faith” as those terms are used and defined in § 67d.
Trustee asserts that Debtor did not receive fair consideration from the IRS in exchange for the $1,129.11 payment. Section 67d(2)(a) of the Act requires, as an element of a fraudulent transfer, that a transfer be made without “fair consideration”. Subsection (l)(e) defines “fair consideration” as being the “fair equivalent” of the thing given by Debtor. (11 U.S.C. 107(d)) (as amended). See Durrett v. Washington National Ins. Co., 621 F.2d 201 (5th Cir.1980). Trustee argues that Debtor did not receive “fair equivalent” value for its payment to the IRS because the IRS’s claim for tax penalties would have been disallowed by § 57j of the Act had such remained unpaid at the time Debtor filed its petition, and hence, would have been valueless at that time. I do not agree.
The critical time for determining the fairness of the consideration under § 67d(l)(e) of the Act is at the time the transfer is made. Neither subsequent depreciation nor appreciation in the value of the consideration given affects the question of its original fairness. Hofler v. Marion Lumber Co., 233 F.Supp. 540, 542 (E.D.S.C. 1964) (citing 4 Collier on Bankruptcy (14 Ed., 1962) p. 351). See Klein v. Tabatchnick, 610 F.2d 1043, 1047 (2nd Cir.1979) (fairness of consideration to be determined at the time of the transfer because of extreme fluctuations in value of the volatile securities given to Debtor); In Re Dibble Enterprises, Inc., C.C.H. Bankruptcy Law Reporter, ¶ 65,418 (W.D.Mich.1974). Section 67d(l)(e) specifies that the satisfaction of an antecedent debt constitutes “fair equivalent” value. Valued at the time of the transfer, the IRS’s forgiving Debtor’s indebtedness in exchange for the receipt of $1,129.11 is found to be fair equivalent value.
Trustee also asserts that the authority of Simonson v. Granquist, 369 U.S. 38, 82 S.Ct. 537, 7 L.Ed.2d 557 (1962), requires the IRS to return the penalties collected from Debtor. In Simonson, the United States Supreme Court held that § 57j of the Act applied equally to prohibit the collection of secured and unsecured governmental penalty claims, stating that the “enforcement of penalties against the estate of bankrupts ... serve[s] not to punish delinquent taxpayers, but rather [punishes] their entirely innocent creditors”. (Emphasis added). 369 U.S. at 41, 82 S.Ct. at 539. However, the IRS does not seek the enforcement of any penalty here, because the penalty has already been paid. Section 57j merely directs that once funds become part of the bankruptcy estate, they may not be used to pay tax penalties. State Board of Equalization v. Stodd, 500 F.2d 1208, 1210 (9th Cir.1974). I hold that the authority of Si-monson is inapplicable to the facts at hand, and consequently, the IRS’s Motion for Summary Judgment will be granted, and the Motion of Trustee denied. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489682/ | ORDER TO REMAND
ALEXANDER L. PASKAY, Chief Judge.
THIS IS an adversary proceeding originally commenced by a complaint filed by George R. Hoover and Kathleen D. Hoover, his wife, in the Circuit Court of the Fifth Judicial Circuit in and for Citrus County, Florida. The complaint was filed on March 5, 1982. The Defendant,. Betty R. Long, after an unsuccessful attempt to obtain a dismissal of the complaint, filed an answer and a pleading entitled “Counter-Complaint.” Thereafter, the parties commenced discovery proceedings and the matter was set for trial by an order entered in the state court on July 29, 1982 for October 4, 1982. The Defendant/CounterPlaintiff, pursuant to the pre-trial order, furnished the names of sixty-six (66) prospective witnesses to be called at the upcoming trial. She also filed a schedule of exhibits and documents which the Defendant/CounterPlaintiff intended to use at the trial.
■Betty R. Long, the Defendant/Coun-terPlaintiff filed a petition for relief under Chapter 13 on September 29, 1982 and on October 1, 1982, or three days before the scheduled trial in the state court, she filed an application to remove the civil action to the Bankruptcy Court. On October 8, 1982, this Court entered an order on the Debtor’s application for removal, approved the application and directed the Defendant/Coun-terPlaintiff to transfer the entire record of the removed case to this Court. On October 20, 1982, the Plaintiff/CounterDefendant filed a motion to remand which was heard in due course and on December 14, 1982, this Court entered an order and denied the motion to remand and rescheduled the matter for pre-trial conference on February 2, 1983.
On February 8, 1983, this Court entered an order concluding the pre-trial conference and directed that the parties shall complete discovery by March 4, 1983 and scheduled the final evidentiary hearing for April 20, 1983. The order also directed the parties to exchange names and addresses of. witness on or before March 11,1983. On March 11, 1983, this Court entered an order and continued the trial date and rescheduled the same for June 21, 1983. On June 3, 1983, the Court rescheduled the final evidentiary hearing for August 1, 1983 and on July 13, 1983, counsel for the Plaintiff/CounterDe-fendant filed a motion for continuance on the ground that the witness list furnished by the Defendant/CounterPlaintiff in the state court, comprised of sixty-six (66) witnesses, rendered it impossible for counsel to prepare for trial. On July 18, 1983, the Defendant/CounterPlaintiff filed a supplemental witness list by adding two additional names to the list. On August 16, 1983, the Plaintiff/CounterDefendant also filed an amendment to their witness list.
It appears that there was a motion to strike and a motion for summary judgment filed in the state court of which there was no disposition prior to the removal. Therefore, these matters were rescheduled for hearing on September 15, 1983. On September 20,1983, this Court entered an order which dismissed Count II of the Defendant/CounterPlaintiff s counterclaim on the assumption that the same was abandoned, but denied the motion for extraordinary relief and the motion to remand and gave the parties 10 days to file their respective briefs on the motion for summary judgment. On October 7, 1983, this Court entered an order and denied the motion for summary judgment filed by the Plaintiff/CounterDefendant and scheduled the final evidentiary hearing for November 10, 1983. The Defendant/CounterPlaintiff filed a motion for rehearing on September 23, 1983 and sought a modification of the order of September 20, 1983 relating to a dismissal of a count based on rescission. On October 11, 1983, the Plaintiff/CounterDe-fendant filed a motion to compel the Defendant/CounterPlaintiff to submit a list of witnesses who actually will be called in order to depose them. This motion is scheduled to be heard on October 26, which, because of absence of counsel for the Plaintiff/CounterDefendant from the state, was *87continued and rescheduled for November 1, 1983.
Due to the pendency of this proceeding, the Chapter 13 case of the Defendant/CounterPlaintiff made no progress and was rescheduled for confirmation from time to time. The last confirmation hearing was scheduled for October 25, 1983 and because of the unresolved status of the litigation it became apparent that the plan cannot be considered for confirmation. At the confirmation hearing, it was called to the Court’s attention that the motion filed by the Plaintiff/CounterDefendant which sought an order compelling the Defendant/Coun-terPlaintiff to furnish a list of witnesses she actually intends to call at trial is still pending. Counsel for the Defendant/Coun-terPlaintiff stated its unwillingness to furnish such a list. In light of this statement, it became apparent that the trial cannot be held on the scheduled date because the Plaintiff/CounterDefendant was not given an opportunity to conduct a sensible discovery. This is so because it is quite obvious that it is absurd to bombard a litigant with a list of an army of prospective witnesses without specifying which of them will actually testify. In such a situation, the litigant is faced with two choices, both of them unfair. He either takes the chance and guesses which of them will actually testify and depose them or not to take this chance and depose all of them, in this instance, sixty-six (66) persons. The discovery Rules of FRCP as adopted by the Bankruptcy Rules were designed to secure the just, speedy and inexpensive determination of every act. FRCP 1 (emphasis supplied) The discovery Rules were designed to eliminate a battle of wits and a trial by ambush.
In light of this development, counsel for the Plaintiff/CounterDefendant renewed his motion to remand the proceeding to the state court.
It is without dispute that the court denied two motions to remand filed by the Plaintiff/CounterDefendant. The first was made while the stay granted by the Supreme Court in Northern Pipeline Construction Company v. Marathon Pipe Line Co., 458 U.S. 50, 102 S.Ct. 2858, 73 L.Ed.2d 598 (1982) was still in effect and the jurisdictional grant by the Bankruptcy Reform Act of 1978 by § 241(a) of the Judicial Code, 28 U.S.C. 1471 et sq. including the Section dealing with removals, § 1478, were intact and unaffected by the decision of the Supreme Court in Northern Pipeline, supra. The second was made after the expiration of the stay, but while the Emergency Model Rule controls the jurisdiction of this Court. There is no question that this adversary proceeding is a “related proceeding” as that term is defined by the Emergency Model Rule (d)(3)(A). Thus, in the absence of a consent to the jurisdiction, none of which is appearing from this record, this Court is prohibited by the Emergency Model Rule to enter a judgment or a dispositive order, but shall submit findings, conclusions and a proposed final judgment to a District Judge pursuant to Emergency Model Rule (d)(3)(B). This being the case, this case might have to be tried twice, if it is retained. Emergency Model Rule (e)(A)(iii).
In light of the fact that this proceeding was ready for trial in the state court before it was removed, it would be unjust to further delay the resolution of this controversy by retaining the proceeding and the interest of both the Plaintiff/CounterDefendant and the Defendant/CounterPlaintiff would be better served by remanding this proceeding to the state court.
Accordingly, it is
ORDERED, ADJUDGED AND DECREED that the oral motion to remand the above-captioned adversary proceeding made by counsel for the Plaintiff/CounterDefen-dant be, and the same hereby is, granted and the civil action be, and the same hereby is, remanded to the Circuit Court for the Fifth Judicial Circuit in and for Citrus County, Florida. It is further
ORDERED, ADJUDGED AND DECREED that the Motion for Rehearing filed by the Defendant/ OounterPlaintiff be, and the same hereby is, granted and ordering paragraph number one of the order entered September 20,1983 be, and the same hereby *88is, changed to reflect that the Defendant/CounterPlaintiff, Betty R. Long, merely abandoned her claim for rescission, but not the factual allegations set forth in Count II of the complaint as they relate to the claim for damages. It is further
ORDERED, ADJUDGED AND DECREED that all hearings scheduled in the above-captioned adversary proceeding are cancelled. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489683/ | MEMORANDUM AND ORDER
CHARLES J. MARRO, Bankruptcy Judge.
On April 15, 1983, the Debtor filed a petition for relief under Chapter 13 of the Bankruptcy Code (Code). On May 10,1983, plaintiff, International Harvester Credit Corporation (Harvester), brought this adversary proceeding to lift the stay imposed by § 362(a) of the Code upon the Debtor’s filing, of his petition for relief. The complaint came on for hearing after notice. From the records in the case and the testimony adduced at trial, the facts set forth below have been established.
FACTS
The Debtor is a trucker who works as an independent contractor, primarily under contract with a haulage broker on an “as needed” basis. Under the broker’s contract, the Debtor is guaranteed $0.80 per loaded mile and a lesser fee per empty mile but is not guaranteed a monthly minimum number of paid miles. The Debtor has no source of income other than that generated by haulage. The Debtor operates two tractor cabs, but could continue business operations with only one cab.
Harvester holds a purchase money security interest in one of the two cabs (hereinafter referred to as “the truck”) under a retail installment contract of sale executed by the Debtor and assigned to Harvester on June 24, 1982. The deferred payment price of the truck was $89,600.16 on a cash price of $68,200.00 less downpayment of $14,-700.00 yielding an unpaid cash balance of $53,500.00. The contract of sale requires 48 successive monthly installment payments of $1,560.42 each beginning July 21,1982. The truck is owned by the Debtor subject to Harvester’s lien in the amount of $74,-900.00.
The Debtor made four payments under the installment contract: In July, August, September and October, 1982. Delinquent as of the date of the petition for relief were five installments totaling $6,802.10 and interest thereon at the maximum rate allowed by law. Under the acceleration clause of the contract, the outstanding balances as of the date of the petition for relief were: Principal, $50,328.23, and interest as financed, $18,330.25, less a partial *143interest refund based on the “sum-of-the-digits” computation method. Valuation tables used in the trucking industry indicated an average retail worth not exceeding $44,-225.00 on June 1, 1983, for the vehicle, model and year, corresponding to the Debt- or’s truck. Depreciation continues prospectively at an average monthly rate of $850.00.
Since filing his petition for relief, the Debtor has liquidated selected assets to reduce his debt service; sale proceeds of approximately $4,250.00 free and clear have been deposited in a trust account. The Debtor continues his efforts to convert selected assets-in-use to current assets, but it is not certain that such conversion will produce proceeds free and clear. The Debtor has nominal or negligible balances in his checking and savings accounts. The Debt- or’s monthly cash flow excluding debt service and excluding the cost of running his two tractor cabs is summarized below:
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The Debtor proposes to use the balance available of $7,440.00 to run his tractor cabs and to meet payments under his Plan of Reorganization (Plan).
DISCUSSION
Section 362(d) of the Code provides that relief from the stay imposed pursuant bo § 362(a) shall be granted, “(1) ... for cause including the lack of adequate protection of an interest in property ... or (2) the debtor does not have an equity in such property and such property is not necessary to an effective reorganization.”
There is a divergence of opinion as to whether Section 362(d)(2) applies to Chapter 13 proceedings. Some cases have held that the 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.1981); 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). If subsection 362(d)(2) is applied in the instant case, Harvester nevertheless is entitled to relief from stay for the reason that the Debtor testified at the hearing that the truck is not necessary for an effective reorganization; in addition, Harvester established that the Debt- or is $12,042.00 short of having any equity in the truck:
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Under the straight-line method of depreciation for an asset-in-use, the Debtor still has no equity in the truck;
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As the Debtor has no equity in'the truck and the truck is not necessary to consummate an effective reorganization, the stay imposed by '§ 362(a) should be lifted. Assuming, arguendo, that the Debtor did have equity in the truck, the stay should still be lifted in that the Debtor is in no position to give Harvester adequate protection during the Debtor’s reorganization.
There is no precise definition in the Code for the term “adequate protec-' tion” but the legislative intent inherent in the term is that the holder of an interest in property affected by the § 362(a) stay be provided with the “indubitable equivalent” of his interest in the stayed property. Code § 361(3). Adequate protection is compensa*144tory in nature. In Re Murel Holding Corporation, 75 F.2d 941 (2d Cir.1935) (Learned Hand, J.). To give Harvester adequate protection the Debtor may be required to make periodic cash payments or provide additional or replacement liens to the extent that the § 362(a) stay results in a decrease in value of Harvester’s property interest. Code § 361.
The Debtor has no excess or surplus capital and is relying on future cash flow to meet the expenses or running his tractor cabs and of making payments under the Plan. He is not guaranteed work, but if all goes well he will realize' business proceeds in the neighborhood of $7,440.00 monthly. He intends to pay $4,000.00 monthly under the Plan; but $4,000.00 monthly will not meet current payments to secured creditors, much less cure arrears, even less compensate adequately unsecured creditors. Assuming some assets are liquidated and disbursements to unsecured creditors are made from the Debtor’s $4,000.00 monthly payment under the Plan, the Debtor still has only $3,440.00 with which to pay taxes and operate his two tractor cabs. It costs the Debtor in excess of $2,600.00 monthly to operate the Harvester truck. As a practical matter, there are insufficient funds left with which to pay taxes and to operate the other tractor cab. If the other tractor cab is not operated, gross receipts drop by up to 50%, similarly impairing the Debtor’s ability to make payments under the Plan.
It does not appear likely that, as things stand, the Debtor will effectively consummate reorganization. Under these circumstances, the Debtor’s postulation of payment under the Plan is not adequate protection as to Harvester. Further, Harvester would have to receive more than the monthly installment payment provided for the Plan to be adequately protected with respect to ongoing depreciation and finance and interest carrying costs. Besides the bare promise of periodic cash payments under the Plan, the Debtor could provide Harvester with junior liens on other assets-in-use. However, the Debtor’s other assets-in-use are subject to purchase money security interests and these assets, if liquidated, would in all probability yield little if anything in the way of sale proceeds in excess of the amount of the purchase money security interests. The Court is not inclined to view a junior lien on such encumbered property as adequate protection. It therefore appears that even had the Debtor any equity in the truck, he could not provide Harvester with adequate protection during his proposed reorganization.
ORDER
In accordance with the foregoing,
IT IS ORDERED, that the automatic stay imposed pursuant to § 362(a) of the Bankruptcy Code is TERMINATED. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489684/ | *205MEMORANDUM AND ORDER
CHARLES J. MARRO, Bankruptcy Judge.
This matter came on for hearing on the Motion of First Vermont Bank and Trust Company for a Preliminary Injunction to enjoin the Debtor-in-Possession from removing certain assets from the State of Vermont.
Martin E. Keller, president and executive officer of the Debtor, was improved as a witness, and from his examination the following facts were established:
The Debtor, who filed a Petition for Relief under Chapter 11, was an ongoing concern and as of September 30, it shut down its operation and laid off all of its employees except one. At that time the total number was ten.
In addition, Keller is a principal in the Debtor corporation and has a financial interest in other corporations.
It has been the practice in the past to exchange equipment for use between or among other corporations operated by the Debtor. In this particular case, the Debtor caused to be removed from its premises in Bennington, Vermont certain equipment to be operated by the Keller Roofing Corporation in Whitehall, New York.
When these items of equipment were removed they were charged out by tally sheets from the possession of Monument Roofing & Sheet Metal Corp. and charged in at the corporation where they were to be put to use. They were still considered as part of the assets of the Debtor corporation. As a matter of fact, as of the date of the hearing, a large and expensive piece of equipment had been charged out of the Keller Corporation and was being used by the Debtor.
It is undisputed that there was no intent on the part of the Debtor to remove the property from the State of Vermont so that it would not be available secured property in which the First Vermont Bank and Trust Company has a security interest.
The Debtor was instructed to furnish the First Vermont Bank and Trust Company with an inventory of the physical property which is subject to a security interest in favor of the First Vermont Bank and Trust Company.
ORDER
Now, therefore, upon the foregoing,
IT IS ORDERED that the Motion of the First Vermont Bank and Trust Company for a preliminary injunction is DENIED. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489685/ | MEMORANDUM AND ORDER
CHARLES J. MARRO, Bankruptcy Judge.
The issue in this case is whether Snow and Son, Inc., a mortgagee, is entitled to *206interest on money advanced by it for the payment of property taxes.
The debtor filed a plan for reorganization under Chapter 11 of the Bankruptcy Code which provided for the sale of its real and personal property with distribution of the proceeds received to be made to creditors and equity holders as classified. Under “class b” the debtor proposes to pay taxes, including property taxes advanced by Snow & Sun, Inc. on behalf of the debtor. However, there is no provision for the payment of interest amounting to $373.00 which has accrued since the date of payment by Snow & Sun, Inc. as mortgagee.
The debtor contends that this obligation for taxes is a priority claim which is payable without interest. As such a claim interest is chargeable only to the date of the filing of the petition for relief which occurred on March 15, 1983. See § 502(b)(2) Bankruptcy Code; City of New York v. Saper, 336 U.S. 328, 69 S.Ct. 554, 93 L.Ed. 710.
The debtor’s position, insofar as it is willing to concede interest to the date of filing, is sound provided that the claim is considered strictly as one for taxes. However, Snow & Sun, Inc. is claiming interest as a secured creditor. The obligation of the debtor springs from a covenant in the real estate mortgage held by the claimant which provides that in case of the failure of the mortgagor to pay taxes and assessments, they may be paid by the legal holder of the mortgage, adding the proper expense thereof to the principal sum secured under the mortgage. As a secured creditor Snow is entitled to reimbursement for the amount paid for taxes plus interest from the date of payment. The Code so provides. See § 506(b) reading as follows:
“To the extent that an allowed secured claim is secured by property the value of which, after any recovery under subsection (c) of this section, is greater than the amount of such claim, there shall be allowed to the holder of such claim, interest on such claim, and any reasonable fees, costs, or charges provided under the agreement under which such claim arose.” Underscoring supplied.
The applicability of this section of the Code to Chapter 11 proceedings is recited in 3 Collier 15th Ed. 506-35 § 506.05:
“Consequently, the determination of the allowability of postpetition interest and fees, costs and charges generally arises in the context of determining the amount to be paid to the holder of a secured claim out of distributions from an estate in a chapter 7 case, either after sale of the collateral or at the time of general distribution from the estate, or in the context of determining the amount of the secured claim for purposes of inclusion in a chapter 11 or 13 plan. Thus, postpetition interest may accrue until payment of the secured claim or the effective date of a plan.”
ORDER
In sum, the claimant is entitled to interest. Therefore,
IT IS ORDERED that under Class b of the plan the debtor shall pay to Snow & Sun, Inc. the taxes advanced by it plus $373.00 interest. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489687/ | FINDINGS OF FACT AND CONCLUSIONS OF LAW
CLIVE W. BARE, Bankruptcy Judge.
On June 29, 1983, an involuntary chapter 7 proceeding was commenced against the debtor by three petitioning creditors. An order for relief was entered on August 22, 1983. Prior to the entry of the order for relief, on August 4, 1983, the Bank of Wil-liamsburg, a Kentucky banking corporation, filed its petition to join the involuntary petition as an intervening creditor, 11 U.S. C.A. § 303(c) (1979). Trial on this intervening petition was held on September 23, 1983.
FINDINGS OF FACT
The Bank of Williamsburg (Bank) is the payee of a note dated January 30, 1981, in the principal amount of $125,000.00, from General Equipment Company (now known as Valley Machinery Corporation). A guaranty agreement, also dated January 30, 1981, was executed by the debtor contemporaneously with the execution of the General Equipment note. The indebtedness on this note has been reduced to judgment in Case No. CIV. 3-83-154 in the United States District Court for the Eastern District of Tennessee, Northern Division; an order for judgment in the amount of $135,024.30 against General Equipment Company and Valley Machinery Corporation was entered on July 6, 1983.
The Bank is also the payee of a note dated April 5, 1980, in the principal amount of $225,000.00, executed by the debtor as president of JFB Petroleum & Land Company, a Tennessee corporation. This note is also secured by a guaranty agreement of the debtor executed contemporaneously with the corporate note. The indebtedness on this second note has likewise been reduced to judgment in Case No. CIV. 3-83-155 in the United States District Court for the Eastern District of Tennessee, Northern Division; an order for judgment in the amount of $249,625.00 against JFB Petroleum and Land Co., Inc; was also entered on July 6, 1983.
Both notes include a term providing for extension or renewal “from time to time as the holder may desire without thereby releasing any party hereto.” Extensions of time for payment were apparently routinely granted by the Bank on both notes.1
Both notes were in default when the aforementioned orders for judgment were entered. No payment had been made against either judgment as of the trial date of the Bank’s intervening petition.
*237The debtor’s guaranty agreement of the General Equipment Company note recites in part:
For good and valuable consideration the receipt of which is hereby acknowledged, and in order to induce the Bank of Williamsburg (hereinafter called the “Bank”) to extend credit to General Equipment Company (hereinafter called the “Borrower”), the undersigned jointly and severally, hereby guarantee to the Bank, absolutely and unconditionally, the payment of all the Borrower’s liabilities, obligations and indebtednesses, whether direct or indirect, absolute or contingent, (hereinafter collectively called “Liabilities”) to the Bank.
The undersigned agree that with or without notice or demand, the undersigned will reimburse the Bank to the extent that such reimbursement is not made by the Borrower for all expenses (including attorney’s fees) incurred by the Bank in connection with the Liabilities of the Borrower or the collection thereof.
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The undersigned hereby consent that from time to time ... the Liabilities of the Borrower ... may be changed, altered, renewed, extended, continued, surrendered, compromised, waived or released, in whole or in part ... and the Bank may ... extend further credit in any manner whatsoever to the Borrower ... and the undersigned shall remain bound under this guaranty notwithstanding any such exchange, surrender, release, alteration, renewal, extension, continuance, compromise, waiver, inaction, extension of further credit or other dealing.
With respect to all of the Borrower’s Liabilities, or the notes evidencing same, the undersigned hereby ... (c) waives all defenses to the payment thereof; (d) consents to any extension or postponement as to the time of payment without limit as to the number of such extensions, or the period or periods thereof; (e) consents to any other indulgence.... (Emphasis added.)
Identical terms are included in the debtor’s guaranty agreement pertaining to the $225,000.00 note of JFB Petroleum & Land Company.
It has been stipulated that the debtor maintained his principal residence and principal place of business in the Eastern District of Tennessee within the 180-day period immediately preceding the filing of the involuntary petition; that the debtor is a “person,” 11 U.S.C.A. § 101(30) (1979), against whom an order for relief may be entered; and that the debtor is generally not paying his debts as they become due.
CONCLUSIONS OF LAW
The Bank of Williamsburg is the holder of a noncontingent, unsecured claim, 11 U.S.C.A. § 101(4) (1979), against the debtor. The extensions of the due date by the Bank of the General Equipment Company and JFB Petroleum & Land Co. notes guaranteed by the debtor did not nullify, release, or otherwise affect the debtor’s guaranty of those obligations. The Bank of Williams-burg is entitled to join in the original involuntary petition with the same effect as if the Bank were an original petitioning creditor. 11 U.S.C.A. § 303(c) (1979).
. The General Equipment Company note was due on April 30, 1981, but seven extensions were granted on this note. (See Exhibit 9.) The JFB Petroleum & Land Company note was a renewal note payable on demand. However, the Bank’s records reflect five “extensions” on this note. (See Exhibit 14.) | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489688/ | FINDINGS OF FACT, CONCLUSIONS OF LAW AND MEMORANDUM OPINION
ALEXANDER L. PASKAY, Chief Judge.
THIS IS a business reorganization case, initiated by a voluntary Petition for Relief, under Chapter 11 of the Bankruptcy Code, filed by John D. Kaylor (the Debtor). The matters under consideration are claims asserted by Anne H. Kaylor (the Plaintiff), the estranged wife of the Debtor, who is currently involved in a hotly contested divorce proceeding involving her marriage to the Debtor.
The claims of the Plaintiff are presented for this Court’s consideration in a three count complaint in which the Debtor and Dungan E. Kaylor, his father, are named as Defendants. It is the contention of the Plaintiff, set forth in Count I of the Complaint, that the Debtor is, in fact, a beneficial owner of certain real property located in Polk County, Florida; that although the legal owner of the property is the father of the Debtor, both the Debtor and his father are in the process of selling the subject property and unless they are restrained, the Plaintiff will suffer irreparable harm.
In Count II of the Complaint, the Plaintiff alleges that since the Defendant now disclaims any interest, beneficial or otherwise in the subject property, this Court should enter a declaratory judgment determining that the Debtor is, in fact, the owner and holder of a beneficial interest in the subject property, therefore, the property is property of the estate.
Lastly, it is alleged in Count III of the Complaint that the Debtor received certain funds in connection with the proposed sale of the subject property and, therefore, they should be ordered to account for the funds received, which according to the Plaintiff, are funds belonging to the estate of the Debtor.
In order to prevent the disposition of the subject property, pending the resolution of this law suit, the Plaintiff filed a Lis Pen-dens in the Public Records of Polk County where the subject property is located. In due course, both Defendants filed their respective Answers to the Complaint denying all material allegations of the Plaintiff. The Defendants also filed Motions to Dissolve the Lis Pendens. The Motions filed by the Defendants were based on the ground that the Complaint fails to show and allege that the claims asserted by the Plaintiff are founded on a duly recorded instrument or on a claim for mechanics or materialman’s liens and, therefore, not entitled to Lis Pendens protection by virtue of § 48.23 of Fla.Stat. The motions to dissolve the Lis Pendens were heard in due course and were denied. Shortly thereafter, the matter was set down for Final Evi-dentiary Hearing, but because of the illness of the Defendant, Dungan E. Kaylor, the hearing was continued and rescheduled. At the rescheduled trial, the Court heard testimony of witnesses, received certain matters in evidence and having considered the entire record now finds and concludes as follows:
John D. Kaylor, the Debtor involved in the above-captioned Chapter 11 proceeding, one of the Defendants, is a practicing attorney and was at the time relevant to this present controversy and still is married to the Plaintiff, Anne H. Kaylor, also a practicing attorney. As noted earlier, the Plaintiff and the Debtor are separated and *256are parties involved in the still pending divorce proceeding. The Defendant, Dun-gan E. Kaylor, is the father of the Debtor.
Prior to July 1, 1980, the Debtor was a member of a professional association known as King, Kaylor and Thornhill, P.A. He also served, together with Mr. King, as trustee for King, Kaylor and Thornhill, P.A. Pension Trust, a trust organized and set up by the professional association. On July 1, 1980 Mr. King and the Debtor executed a warranty deed conveying the subject property to the Defendant, Dungan E. Kaylor. The total purchase price agreed upon was $80,000 although it appears there was no down payment. As part of the transaction, Dungan E. Kaylor executed a note in the face amount of $80,000 and a mortgage encumbering the subject property in favor of King, Kaylor and Thornhill, P.A. Pension Trust, representing the purchase price. The note is an installment note and calls for equal monthly installments of $880.87. It is further without dispute that the subject property was immediately leased by Dun-gan E. Kaylor on a monthly basis to King, Kaylor and Thornhill, P.A. According to the agreement, the law firm was to pay rent in the amount of $800 per month. Sometime after January 1, 1981, this amount was changed to $1,000 per month.
It is without dispute that in September 1981 the professional association of King, Kaylor, and Thornhill, P.A. was dissolved and, according to the dissolution agreement, the rent paid to the Defendant Dungan Kaylor was divided as follows: $333.32 was payable by the Debtor, John D. Kaylor, $666.67 by the remaining professional association composed of Mr. King and Mr. Thornhill, known as King and Thornhill, P.A. According to the agreement, the two law firms were also required to pay the taxes and the insurance on the subject property.
The record reveals that sometime thereafter, the professional association composed of Mr. King and Mr. Thornhill vacated the premises and the entire premises were occupied solely by the Debtor who, as of December 1981, was to receive the total amount of the mortgage payments from his father and, in turn, pay the monthly rent on the subject property. It is without dispute that the Debtor’s P.A. did, in fact, make the monthly payments up to and including August 1982 to his father.
It further appears that Dungan E. Kaylor entered into a contract to sell the subject property to one Joel D. Mercer and his wife, Charlotte Mercer. According to the terms of the contract, the original closing was scheduled to be held on October 1,1982, but because of the pendency of this litigation and the Lis Pendens, this transaction is not yet consummated.
There is no doubt that the original transfer of the subject property from Mr. King and the Debtor to Dungan Kaylor on July 1, 1980 lacks the indicia of a bona fide sale. The alleged purchase did not involve any down payment; the note given to the seller in the amount of the full purchase price calls for monthly payments equalling the amount which the seller, who remained on the premises as a tenant, was required to pay in rent. In addition, it is clear that the subject property which was originally an asset of the Pension Trust was to be distributed to John Kaylor upon the dissolution of the P.A. When the sale was consummated on July 1, 1980, it is clear that the title to the property was placed in the name of Dungan Kaylor, the Debtor’s father only, in order to escape adverse tax consequences, rather than to convey full legal and equitable title to him. It further appears that when the P.A. was dissolved in September, 1981, the Debtor received his share of the firms assets, including the subject property, albeit, in the form of a note and mortgage generated from the earlier conveyance by the Pension Trust to Dungan Kaylor.
There is no doubt that due to the Debt- or’s developing domestic difficulties and the pendency of a bitterly contested dissolution of marriage proceedings, the Debtor now disclaims any interest in the property and Dungan Kaylor claims absolute ownership in order to prevent the Debtor’s wife from reaching the subject property. Despite this unfortunate turn of events, the transaction *257must be viewed in the context of the facts and circumstances which existed at the time of the original conveyance from King and the Debtor to Dungan Kaylor, and the Debtor’s desire to insulate the subject property from the reach of his wife as part of the property settlement in the divorce proceeding is understandable, however, it is no justification to disregard the true intent of the parties at the time the subject property was conveyed.
This being the case, this Court is satisfied that the Debtor does have an equitable interest in the subject property and the Defendant, Dungan Kaylor, received and now holds nothing but bare legal title. In fairness to the extent Dungan E. Kaylor made payments, first to the law firm composed of King, Kaylor and Thornhill and, after the dissolution of this law firm, to the remaining professional association composed of Mr. King and Mr. Thornhill, he shall have an equitable lien, and upon disposition of the property, shall be entitled to be reimbursed for those payments.
A separate Final Judgment shall be entered in accordance with the foregoing. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489689/ | ORDER ON OBJECTION TO REMOVAL AND MOTION TO REMAND
ALEXANDER L. PASKAY, Chief Judge.
THE MATTER under consideration is an objection to the removal and a motion to remand a civil action originally commenced by Sidney B. Levy in the Circuit Court for the Twelfth Judicial Circuit in and for Sarasota County, Florida. The Defendants named by the Plaintiff in that action are Gary L. Blum, Chancey H. Levy, Robert L. Ruback and John R. Marvin, individually and as co-partners doing business as Levy, Levy and Ruback; Leon Finley, Steven Kumball, Robert Wagner, Andrew H. Heine, Neil Underberg, Gary L. Blum and Barry Simmet, individually and as co-partners doing business in Florida as Finley, Kumble, Wagner, Heine, Underberg, Manley & Casey, and doing business in New York State as Finley, Kumble, Wagner, Heine, Underberg, Manley & Casey, jointly and severally.
On August 3,1983, Gary L. Blum, the law firm of Finley, Kumble, Wagner, Heine, Underberg, Manley & Casey, Robert L. Ru-back and the law firm of Levy, Levy & Ruback filed a verified application for removal of the civil action described earlier.
*268On August 9, 1983, this Court entered an order on the application for removal and granted the application. The Order further provided, however, that any objection to the removal or any motions to remand must be filed within 10 days from the date of the Order. On August 15, 1983, the Plaintiff filed an objection to the removal and also a motion to remand the civil action described earlier.
In order to put the matter in proper focus, a brief summary of the civil action sought to be remanded to the state court should be helpful.
The Complaint filed by the Plaintiff, Sidney B. Levy, consists four counts. In Count I, the Plaintiff seeks damages for an alleged breach of agreement between the Plaintiff and the named Defendants. In Count II, the Plaintiff seeks an accounting from the Defendants. In Count III, the Plaintiff charges that the Defendants converted funds which rightfully belong to him. Count IV seeks an action to impose a constructive trust on certain monies received by and held by the Defendants.
The factual background and history which gives rise to these claims stems from a pre-Code Chapter XI arrangement proceeding involving Overmyer Co., Inc. and its numerous affiliates which is still pending in the Southern District of New York. The law firm of Levy, Levy & Ruback appeared as counsel of record for the Debtors and for its related companies in that case. The Plaintiff who was at one time a member of that law firm contends that as a result of his earlier association with that law firm, he is entitled to share on any fees allowed by the Bankruptcy Court to his former law firm which later on merged with the law firm of Finley, Kumble, Wagner, Heine, Underberg, Manley & Casey. It appears that after the merger, the Finley law firm was retained as counsel for the various Overmyer entities pursuant to an order entered by the Bankruptcy Court in the Southern District of New York and some time later on, that Court approved an interim allowance of $585,000 to the Finley law firm. This amount was, in fact, paid by the Debtor and was deposited in the Finley’s firm account. The claims asserted by the plaintiff relate solely to these funds received by the Defendants as an interim allowance and is not related to any assets comprising the estates of the various Over-myer debtor corporations.
It is the contention of the Plaintiff that the removal of this cause from the state court to the Bankruptcy Court was improper because pursuant to 28 U.S.C. § 1478(a), a case cannot be removed if the Bankruptcy Court does not have jurisdiction over the claim or cause of action. In this connection, it is the contention of the Plaintiff that this Court lacks jurisdiction because this controversy between the Plaintiff and these Defendants is neither a proceeding arising in, under or related to any case under Title 11. In addition, it is the contention of the Plaintiff that in any event, this civil action should be remanded to the state court based on equitable grounds.
At the duly scheduled and noticed hearing, this Court, rather than considering the grounds for remand urged by the Plaintiff, indicated that it had serious doubts as to the propriety of this removal not on the grounds urged by the Plaintiff, but simply on the ground that 28 U.S.C. § 1478 does not apply to this case because this is a bankruptcy case filed pursuant to Chapter XI of the 1898 Act, therefore, none of the provisions of the Bankruptcy Reform Act of 1978 and, in turn, 28 U.S.C. § 1478(b), apply. Neither the Plaintiff nor the Defendants considered this aspect of the problem at all and because the Defendants professed that they had no opportunity to research the issues raised by the Court, requested time to research the matter in order to furnish authorities to this Court in support of the conclusion that the removal was proper and the objection to the removal and motion to remand should be denied.
Initially, it was the contention of the Defendants that the suit removed from the state court involves a federal question, therefore, by virtue of 28 U.S.C. § 1331, this Court has jurisdiction of the subject matter, and therefore, the removal was *269proper and by virtue of the automatic reference which currently governs administration of bankruptcy case, it would have been proper for the District Court to refer the matter to the Bankruptcy Court. In response to this argument, the Court pointed out that 28 U.S.C. § 1331 gave subject matter jurisdiction to the United States District Courts and not to the Bankruptcy Courts. There is an additional difficulty with this contention. As noted earlier, this is a pre-Code case and the reference provisions of the pre-Code law and the pre-Code Bankruptcy Rules refer to references of “cases,” not “proceedings” and since there is no case pending in this District, the United States District Court for the Middle District of Florida could not refer an arrangement proceeding which is pending in the Southern District of New York.
The Defendants, realizing the difficulty with the logic of their argument, urge that the transition provisions of the Bankruptcy Reform Act of 1978, Title IV, § 401 et seq., would warrant a retention of this case for the following reasons: § 404(a) of Title IV defines the “court of bankruptcy” during the transition as the courts of bankruptcy as defined by § 1(10) of the Bankruptcy Act and created by § 2(a) of the Bankruptcy Act of 1898 and as existed on September 30, 1979. This Section also provides that the pre-Code bankruptcy courts shall continue to function as courts of bankruptcy up to the end of the transition; that is, up to March 31, 1984, for the purpose of the Bankruptcy Act of 1898.
Based on this premise, counsel contends that since § 405(b) of Title IV of the Bankruptcy Reform Act provides that all amendments made by § 241 shall apply to the courts of bankruptcy during the transition including the removal provisions of the Bankruptcy Act, 28 U.S.C. § 1478, therefore, the removal was proper.
The difficulty with this argument should be evident, of course, when one considers the savings proviso of the Bankruptcy Reform Act of 1978 which provides that 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, i.e. the Bankruptcy Reform Act, had not been enacted and the substantive rights of the parties in connection with any such bankruptcy case, matter or proceeding shall continue to be governed by the law applicable to such case, the matter or proceeding as if the Act has not been enacted. Thus, it is evident that all cases filed prior to October 1, 1979 are governed by the Act of 1898 and not by any provisions of the Bankruptcy Reform Act of 1978. This being the case, it is evident that since the Act of 1898 contains no provision for removal and there is no statutory authority to remove a civil suit from the state court to the Bankruptcy Court even if the same is related to a bankruptcy case filed under the Act of 1898.
In a last ditch effort to keep this civil suit out of the state court and keep it in this Court, counsel for the Defendants urges as an alternative solution, to transfer this proceeding to the United States District Court. This contention is based on pre-Code Rule 915. This Rule authorizes this Court, rather than dismiss the case for lack of jurisdiction, to transfer the same to the United States District Court. There is no question that Bankruptcy Rule 915 does apply to pre-Code eases. Bankruptcy Rule 915(b) does authorize a transfer of a civil case to the District Court in the event the Bankruptcy Court sustains a timely objection to the jurisdiction of the Bankruptcy Court. The difficulty with this proposition is, however, that this Rule deals with matters which are originally brought in the Bankruptcy Court in which the Defendant objected to the plenary jurisdiction of the Bankruptcy Court. This Rule was not designed and cannot be applied to any civil action which was improperly removed to the Bankruptcy Court and did not belong in the Bankruptcy Court in the first place.
This being the case, this Court is constrained to conclude that the removal was improper and, therefore, the objection to the removal shall be sustained and the motion to remand shall be granted.
*270Accordingly, it is
ORDERED, ADJUDGED AND DECREED that the Motion to Remand the civil action filed by the Plaintiff be, and the same hereby is, granted and the civil action styled “Sidney B. Levy v Gary L. Blum,” Case No. 83-2872-CA-01 be, and the same hereby is, remanded to the Circuit Court for the Twelfth Judicial Circuit Court in and for Sarasota County, Florida. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489690/ | OPINION
EMIL F. GOLDHABER, Bankruptcy Judge:
There comes a time in almost any judge’s life when someone challenges his fairness and impartiality. Unfortunately, for me, after seventeen years, our time (to our utter surprise) has come. The defendant in this adversary proceeding has moved that we recuse ourself. He also seeks to dismiss the trustee’s complaint for lack of subject matter jurisdiction. For the reasons stated hereafter, we will deny both of these motions.
The facts of this case are as follows:1 The bankrupt, Pasco Tobacco Co., Inc., filed a petition in bankruptcy under the Bankruptcy Act of 1898 on December 26, 1978. A first meeting of creditors was thereafter held, at which we presided. At that meeting the bankrupt’s president, William Ro-senthal (“Rosenthal”), was asked to testify to the bankrupt’s financial affairs. However, he declined to do so, exercising his Fifth Amendment right to refuse to answer certain questions although we offered him a broad grant of immunity. After hearing Rosenthal’s testimony, we directed the trustee in bankruptcy to report the facts of the case to the United States Attorney and the Federal Bureau of Investigation since it appeared that Rosenthal may have been involved in violations of federal criminal *297law. Subsequently, the trustee commenced the instant adversary proceeding to recover certain funds which Rosenthal allegedly misappropriated from the bankrupt.
The motion to disqualify ourself is predicated upon 28 U.S.C. §§ 455(a) which provides as follows:
§ 455. Disqualification of justice, judge, or magistrate
(a) Any justice, judge, or magistrate of the United States shall disqualify himself in any proceeding in which his impartiality might reasonably be questioned.
Rosenthal contends that this court’s impartiality might reasonably be questioned since the court directed the trustee to report the facts of the case to the United States Attorney and the Federal Bureau of Investigation. Our direction to the trustee was mandated under § 3057 of the United States Criminal Code which states as follows:
§ 3057. Bankruptcy investigations
(a) Any judge, receiver, or trustee having reasonable grounds for believing that any violation under chapter 9 of this title or other laws of the United States relating to insolvent debtors, receiverships or reorganization plans has been committed, or that an investigation should be had in connection therewith, shall report to the appropriate United States attorney all the facts and circumstances of the ease, the names of the witnesses and the offense or offenses believed to have been committed. Where one of such officers has made such report, the others need not do so.
(b) The United States attorney thereupon shall inquire into the facts and report thereon to the judge, and if it appears probable that any such offense has been committed, shall without delay, present the matter to the grand jury, unless upon inquiry and examination he decides that the ends of public justice do not require investigation or prosecution, in which case he shall report the facts to the Attorney General for his direction.
18 U.S.C. § 3057.
In his motion, Rosenthal objects to matters which occurred while we were acting in our official judicial capacity. No personal or extrajudicial bias is alleged. The case law construing § 455(a) holds that “familiarity with defendants and/or the facts of a case that arises from earlier participation in judicial proceedings is not sufficient to disqualify a judge from presiding at a later trial.” In Re Corrugated Container Antitrust Litigation, 614 F.2d 958 (5th Cir.1980), cert. den. 449 U.S. 888, 101 S.Ct. 244, 66 L.Ed.2d 114. In Corrugated Container the motion for recusal in a civil anti-trust action was raised after the same trial judge had conducted a criminal antitrust action which resulted in a guilty verdict. As stated in Corrugated Container, “We have long disclaimed any notion of no-deposit/no return judges, disposable after one use.” Id. at 966 (quotes omitted). Accordingly, we will deny the motion for recusal.
Rosenthal’s motion to dismiss is based upon Northern Pipeline Const. v. Marathon Pipe Line Co., 458 U.S. 50, 102 S.Ct. 2858, 73 L.Ed.2d 598 (1982), in which the Supreme Court held that the power given to bankruptcy judges under the Bankruptcy Reform Act of 1978 was unconstitutionally broad. Although the case at bench arises, not under that Act, but the Bankruptcy Act of 1898, it must therefore be decided within the more limited jurisdictional scope afforded under the Bankruptcy Reform Act of 19782 despite Rosenthal’s contention that Marathon applies by analogy to the 1898 Act to divest us of power to decide this dispute.
In deciding Marathon the Supreme Court stated the question presented as “whether the assignment by Congress to bankruptcy judges of the jurisdiction granted in § 241(a) of the Bankruptcy Act of *2981978, 28 U.S.C. § 1471 (1976 ed. Supp. III), violates Art. Ill of the Constitution.” 102 S.Ct. 2862. This language indicates that the court squarely addressed the 1978 Act rather than the previous one. Although this does not preclude the inference from Marathon that the 1898 Act is unconstitutional, we find that the differences between the two statutes as outlined in the plurality opinion leads us to conclude that the earlier act is not unconstitutional. As stated by the court:
We note, moreover, that the 1978 Act made at least three significant changes from the bankruptcy practice that immediately preceded it. First, of course, the jurisdiction of the bankruptcy courts was “substantially expanded by the Act.” H.R.Rep. No. 95-595, supra, p. 13 (1977). Before the Act the referee had no jurisdiction, except with consent, over controversies beyond those involving property in the actual or constructive possession of the court. 11 U.S.C. § 46(b) (repealed). See MacDonald v. Plymouth Trust Co., 286 U.S. 263, 266, 52 S.Ct. 505, 506, 76 L.Ed. 1093 (1932). It cannot be doubted that the new bankruptcy judges, unlike the referees, have jurisdiction far beyond that which can be even arguably characterized as merely incidental to the discharge in bankruptcy or a plan for reorganization. Second, the bankruptcy judges have broader powers than those exercised by the referees. See infra at 2878-2879; H.R.Rep. No. 95-595, supra, p. 12 and nn. 63-68. Finally, and perhaps most significantly, the relationship between the district court and the bankruptcy court was changed under the 1978 Act. Before the Act, bankruptcy referees were “subordinate adjuncts of the district courts.” Id., at 7, U.S.Code Cong. & Admin.News 1978, p. 5698. In contrast, the new bankruptcy courts are “independent of the United States district courts.” Ibid.; Collier on Bankruptcy, ¶ 1.03, at 1-9 (15th ed. 1981). Before the Act, bankruptcy referees were appointed and removable only by the district court. 11 U.S.C. § 62 (repealed). And the district court retained control over the reference by his power to withdraw the case from the referee. Bkrtcy.Rule 102. Thus even at the trial stage, the parties had access to an independent judicial officer. Although Congress could still lower the salary of referees, they were not dependent on the political branches of government for their appointment. To paraphrase Justice BLACKMUN’s observation in [U.S. v.] Raddatz, supra, the primary “danger of a ‘threat’ to the independence of the [adjunct came] from within, rather than without the judicial department.” 447 U.S. 667, at 685, 100 S.Ct. 2406, at 2417, 65 L.Ed.2d 424 (concurring opinion).
102 S.Ct. 2876, n. 31. See also Weick v. Heltzel (In Re Metro Equipment & Rental Corp.), 28 B.R. 579 (Bkrtcy.N.D.Ohio 1983) (holding that Marathon does not apply to the 1898 Act).
An alternative basis for upholding our jurisdiction is Bankruptcy Rule 9153 which states in part as follows:
Rule 915
OBJECTION TO JURISDICTION OF COURT OF BANKRUPTCY
(a) Waiver of Objection to Jurisdiction. Except as provided in Rule 112 and subject to Rule 928, a party waives objection to jurisdiction of an adversary proceeding or a contested matter and thereby consents to such jurisdiction if he does not make objection by a timely motion or answer, whichever is first served.
This rule is derived from § 2a(7) of the 1898 Act [former 11 U.S.C. § 11(a)(7) ] which, in essence, states the substance of Rule 915. Since the first document Rosenthal filed in this proceeding was his answer, which did not contain an objection to the court’s juris*299diction, he is deemed to have waived that objection. 1 Collier on Bankruptcy ¶ 2.40[1], at 263 (14th ed. 1974). Thus, we find that we have jurisdiction to hear this action and we will deny the motion to dismiss.
. This opinion constitutes the findings of fact and conclusions of law required by Rule 752 of the Rules of Bankruptcy Procedure.
. The Bankruptcy Reform Act of 1978, Pub.L. No. 95-598, § 403(a), 92 Stat. 2549, 2683 (1978), states the general rule that cases arising under the 1898 act shall be resolved as if the 1978 act had not been passed.
. Rule 915 is one of a series of Bankruptcy Rules which were promulgated in the early 1970’s. New Bankruptcy Rules became effective on August 1, 1983, and superceded the earlier rules for those cases arising under the 1978 Act. But the earlier rules are still applicable to cases filed under the 1898 Act. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489958/ | DECISION AND ORDER
CHARLES A. ANDERSON, Bankruptcy Judge.
Presently before the Court is the complaint of the Chapter 13 Trustee seeking money damages for an alleged breach of contract arising out of a court ordered sale of real estate from the estate. This matter was heard by the Court on September 19, 1984, with ensuing briefs filed on October 29 and November 2. A partial Stipulation of Facts was attached to the pretrial statement dated August 8, 1984. The parties stipulated at bar before the trial that this Court resolve the matter including the application of state law. The issues involved are resolved as questions of fact, rather than of law, as to the quantum of damages as a core proceeding under 28 U.S.C. § 157(b)(2)(N) and (0).
FACTS
On March 22, 1983, Robert E. Mann filed with this Court his petition seeking relief under Chapter 13. An agreed order abandoning property and modifying the automatic stay was filed wherein that portion of Mann’s estate consisting of an interest in certain real property was abandoned and the parties were relieved from the automatic stay to effect a sale thereof. (Lienhold-ers on this realty included the Federal Land Bank Association of Eaton, Ohio as first mortgagee, and Miami Valley Production Credit Association, as second mortgagee.) By agreement of the parties, and upon motion and order of this Court, the realty was later ordered sold by public sale on July 23, 1983. Plaintiff-Trustee acted as the mortgagees’ agent in selling the realty and, pursuant to Court order, employed David Kessler as auctioneer and agent for the Trustee, to effect the sale.
The realty was sold at public auction on July 23, 1983. Defendant Paul Terrill was the highest bidder, offering $165,120.1 Paul and the Trustee signed on that same day an Offer to Purchase reciting the bid amount, requiring $18,500 as earnest money, and setting the date for the closing at “not later than 60 days of the date hereof.” This Offer to Purchase also stated, “The sale is subject to approval of the United States Bankruptcy Court, Dayton, Oh.”
Later on that day, July 23, defendant Dixie Terrill, Paul’s wife, not as a party to the Offer but solely in Paul’s behalf tendered her check for $18,500 as the earnest money. Thus, the Trustee, by accepting a check from a non-party, should have been aware that Paul might have financial problems. Such notice was reinforced when on the next day, July 24, Dixie stopped payment on her check.
Notwithstanding the stopped payment, the Trustee requested and obtained confirmation of the sale from this Court by order dated September 8, 1983. The Trustee notified Paul of this confirmation order by letter dated September 13, 1983. This letter also set the date for closing at September 21, 1983, and requested payment of the $165,120 by cash, certified check or cashier’s check. The Trustee further wrote, “If you fail to appear for the closing, I will consider it a breach of the contract, I will proceed to attempt a sale of real estate, and will seek legal damages against you if *757I sell the real estate for less than $165,-120.00.” This letter was served on Paul by special process server.
Apparently, Paul tried to negotiate for an extension of time because of difficulty in obtaining a loan. In light of the stopped payment on the earnest money check, the Trustee refused such extension.
At the trial, Paul testified that he never told anyone that he did not want to purchase the property. However, he failed to appear at the designated time for the closing and admittedly never fulfilled the requirements of the Offer to Purchase, which required closing within 60 days.
The Trustee proceeded to sell the realty to the next highest bidder. This sale was confirmed by the Court on December 8, 1983. On December 30, 1983, the second highest bidder settled for the purchase of the property for $160,992, which was then distributed on January 9, 1984. Paul alleges that he was never notified of this sale.
At trial, testimony was heard establishing that $4,138.66 was paid to the mortgagee Federal Land Bank between September 23, 1983, and January 9, 1984 and that additional real estate taxes of $1,855.99 accrued during that interim.
Also at trial, Kessler, the auctioneer who conducted the sale, testified that he is also an appraiser, that he believed Paul’s bid represented the fair market value of the property and that he had attempted to contact Paul after the stopped payment but was unable to do so. This evidence is relevant only as it pertains to the failure of the buyers to comply with the court orders. The fair market value of the property prior to and at the time of the public auction is not otherwise relevant or a justiciable issue. The subsequent sale was duly confirmed by the Court.
DECISION
In their brief, the defendants argue only as to the appropriate measure of damages, thus tacitly admitting breach of the contract to purchase the realty and the confirmation order of this Court. In any event, Paul’s breach of his Offer to Purchase is established by the evidence and admitted by.jhis own testimony. The only remaining question for the Court to consider concerns damages.2
In instances of a breach of contract, the non-breaching party is to be made whole, i.e., to be put in that position as if there had been no breach. Defendants in their brief cite 54 O.Jur.2d, Vendor and Purchaser § 181 at pp. 731-32: “In Ohio, the ordinary measure of damages for breach of a contract to buy land is in [sic] the difference between the contract price of the land and the fair market value at the time of the breach of contract.” This is correct for the ordinary measure. The very next sentence of the O.Jur section cited nevertheless excepts contracts made in connection with a judicial sale (as was the case here), as follows:
The vendor has no right to resell at the purchaser’s risk, i.e., the measure of damages is not the difference between the contract price and the price obtained at a resale at least where there is no averment of an agreement by the vendor to be answerable for such difference and where the vendee’s contract was not made in connection with a judicial sale or a sale in the nature thereof.
. In this age of mysterious and bifurcated jurisdiction impeding the resolution of controversies arising in the bankruptcy court context, perspectives are critical and most often fatal to effective judicial administration. In the case sub judice emphasis by the litigants on the enforcement of a contract of purchase arising out of the judicial sale and the true valuation of the subject property before and after the defalcation somewhat distorts the basic nature of the legal process instanter as a core proceeding.
The focus and emphasis should be upon the fact that a judicial sale is the *758nexus of the action. Inasmuch as both the sale and the resale were lawfully ordered and duly conducted and confirmed by court orders, the defaulting purchaser thereby incurred liability for any difference between the sum bid and which he agreed to purchase at the first sale and the amount the property brought at the resale, together with the costs and expenses of the sale. See discussion at 47 Am.Jur.2d Judicial Sales § 392. Hence, the enforcement of such liability is a function of the bankruptcy court and within its jurisdiction over sales of estate property; and, an independent suit is not necessary to resolve the issues upon default in compliance with court orders. No separate or distinct contract of sale is involved because the confirmation of the sale is equivalent to a valid contract of sale. The Trustee could have instituted an action in contempt (which puts the defalcation in the proper jurisdictional focus). See 32A O.Jur.2d Judicial Sales §§ 135-136.
To put the non-breaching party, the Trustee, in the same position he would have been in had there been no breach, the Court orders the breaching party, Paul Terrill, to pay to Plaintiff-Trustee $4,128 for the difference in the sale amounts as the amount of damages Plaintiff-Trustee indicated he would seek against Paul in his September 13 letter. The time lapse between the date of the sale to Paul and the date of consummation of the distribution from the second highest bidder should not be attributed entirely to Paul’s defalcation and the ensuing expenses are not, as a matter of equity, assessed as damages against him herein. The sale should have been consummated more expeditiously.
Defendants argue that the second sale was on terms radically different than those of the first. The Court disagrees in that the Trustee sought and obtained permission from the Court to sell the subject realty at public auction to the highest bidder. That auction was held on July 23, 1983. When Paul Terrill removed his bid by breaching the Offer to Purchase, the bid for $160,992 then became the highest bid and the property was sold for that amount.
Peculiarly, Paul takes umbrage in that he was not notified of the sale for $160,992. The Court notes that in the Trustee’s letter of September 13, Paul was advised that if he failed to appear, the Trustee would consider it a breach, attempt a sale of the real estate and would seek legal damages. Thus, Paul was notified of the consequences of not appearing. Yet, he did not appear. Moreover, he offered no evidence that he ever tried to contact the Trustee after the closing date. In fact, the auctioneer tried to reach him on several occasions without success. Thus, the Trustee’s belief that Paul was no longer interested in the property can only be seen as reasonable.
The question of contempt of court for the consequences of the violation of the court’s orders authorizing and confirming the public sale in question was not properly and timely raised by the pleadings and the issue of proper sanctions or punitive damages is not now justiciable, even though the integrity of the judicial process has been invoked.
. On April 30, 1983, this realty had been appraised at $280,100.
. Since the property was abandoned, the Court notes that general creditors are not affected by the disposition of this adversary. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489959/ | MEMORANDUM OPINION
THOMAS M. TWARDOWSKI, Bankruptcy Judge.
A public sale of the Chapter 7 debtor’s personal property by the bankruptcy trustee realized a net sum of $5,138.00, which the trustee continues to hold in escrow. It is undisputed that all of the property sold was encumbered by a valid security interest held by the Bank of Pennsylvania (“Bank”) and served as security for the debtor’s debt to the Bank of approximately $19,000.00.
Presently before us is the Bank’s application requesting that the trustee be ordered to pay to the Bank the net proceeds of the sale. The only objection to the Bank’s application was filed by Ravin R. Mill (“Mill”), the debtor’s landlord. Mill has two separate grounds for objection. First, he claims that he held a lien on the property which was sold and that the lien was superior to that of the Bank. This claim is based upon Pennsylvania law, specifically 68 P.S. § 322 (Purdon). According to this statute, a landlord who has dis-trained for rent is entitled to a first priority lien on the proceeds of the sale of the tenant’s personal property under certain circumstances. Mill admits that he did not distrain for rent against the debtor, but merely had a judgment for possession and a judgment for delinquent rent against the debtor at the time the debtor filed his bankruptcy petition. Mill states that he would have proceeded to distrain for rent against the debtor had such action not been automatically stayed by 11 U.S.C. § 362(a) upon the debtor’s bankruptcy filing. He further states that his obtaining of a judgment for delinquent rent was a necessary prerequisite to his proceeding to distrain for rent against the debtor. Therefore, Mill argues that he had a “constructive distraint” upon the property of the debtor which the trustee sold and had a corresponding first priority lien on the sale proceeds under 68 P.S. § 322. However, Mill has cited no Pennsylvania authority in support of his “constructive distraint” theory, nor are we aware of any. The only case which Mill cites in this regard is In re DiToro, 22 B.R. 392 (Bankr.E.D.Pa.1982). However, DiTo-ro addressed the entirely separate issue of a mortgagee’s entitlement, under Pennsylvania law, to post-petition rental payments made by tenants of the debtor’s real property. Also, while the Court in DiToro found for the mortgagee under the particular facts of the case, the Court, contrary to Mill’s suggestion, specifically found that the Pennsylvania courts have not clearly recognized the theory that a mortgagee who has filed a pre-petition foreclosure complaint has “constructive possession” of a debtor’s real property for the purpose of entitlement to post-petition rental payments made by a debtor’s tenants. Therefore, Mill’s attempt to analogize between his own “constructive distraint” theory and DiToro’s alleged “constructive possession” theory is without merit, and we determine that Mill had no lien against the subject personal property under 68 P.S. § 322.
Mill’s other objection to the Bank’s application involves his claimed entitlement to compensation from the sale proceeds for allowing the debtor’s personal property to remain on the leased premises during the approximately four months between the debtor’s bankruptcy filing and the sale and for allowing the sale to take place on his premises. Mill contends that the Bank impliedly consented to Mill’s entitlement to *807such compensation by not requesting abandonment of the debtor’s personal property, by not providing alternative storage of the property, and by not objecting to the sale. Mill cites no authority for this contention, and we simply conclude that he is not entitled to any compensation from the sale proceeds on this basis. Mill has filed a formal proof of claim for “administrative rent”, which will be considered by this Court in conjunction with other such claims as part of the final audit of the estate.
For the foregoing reasons, we shall grant the Bank’s application and deny Mill’s objection thereto. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489960/ | MEMORANDUM AND ORDER
CHARLES J. MARRO, Bankruptcy Judge.
This matter is before the Court on the Motion of Richard Erdman for Relief from Automatic Stay and for possession of a belt pistol.
BACKGROUND
STN Enterprises, Inc., is a corporation which was organized on August 6, 1982. It has been engaged in the purchase and sale of collectible firearms and related collectibles doing business as “Atwater Arms.” Stephen T. Noyes was its president and sole stockholder. The directors were Stephen T. Noyes, Janice Noyes, his wife, and John W. Wilkinson. The driving force behind the corporate business was Stephen T. Noyes and it was conducted solely by him, although the corporation retained the services of Wayne D. Wetzel, Jr., as a consultant from October, 1983 until May, 1984. Noyes did all of the buying and selling and was in charge of all negotiations, whereas Wetzel took on the duties of an administrator supervising the accounting and insurance program and assisting Noyes in the investment program relating to the so-called San Antonio Collections involving the purchase of 77 individual antique firearms. Noyes died on May 5, 1984 as the result of injuries received in an automobile accident, and for several weeks prior to his death STN Enterprises, Inc., was having financial difficulties. These apparently precipitated the filing of a Petition for Relief under *943Chapter 11 of the Bankruptcy Code on June 28, 1984. The Schedules show total liabilities of $12,989,844.35 and assets of $5,284,415.05. Included in the assets are Bennington firearms inventory and Greenwich firearms inventory, listed at an estimated market value without forced sale of $2,500,000.00 and $1,500,000.00, respectively-
The business of the Debtor was conducted from the residence of Noyes in Benning-ton, Vermont, where he also maintained a room for display of firearms.
FACTS
Richard Erdman is a sculptor whose address is Williston, Vermont. He first became aware of Atwater Arms in 1983 through a friend, one Jim Ross of Armonk, New York. Ross presented to Erdman an investment opportunity with Atwater Arms concerning which he was very excited; whereupon, Erdman contacted Steve Noyes and requested information concerning the business of the Debtor. Noyes forwarded to Erdman a brochure entitled “Atwater Arms High Quality Investment Firearms” which contained detailed information concerning the nature of Atwater Arms, the investment opportunities, the marketing technique, and an example of a typical At-water Arms transaction.
After reviewing the brochure Erdman had his first business transaction with At-water Arms on or about September 1, 1983 when he transmitted to the Debtor a check drawn on E.F. Hutton Cash Reserve Management, Inc., account in the sum of $5,000.00 payable to the Débtor for the purchase of a Colt Revolver. As evidence of this transaction he received from Atwa-ter Arms a receipt dated December 28, 1983 for the sum of $5,000.00 representing the purchase of one Colt Single Action Army Revolver, Serial No. 108394, for the sum of $4,807.69 plus tax of $197.31. Erd-man never received the Colt Revolver, but understood that it would be resold by the Debtor and that he could expect a return on his investment which would average about 35%. The firearm was in fact sold by the Debtor and Erdman subsequently received from Atwater Arms a check dated January 14, 1984 in the sum of $6,850.00 which was earmarked “Return of Investment & Profit.” This check was forwarded by Noyes to Erdman with a covering letter dated January 16, 1984 in which Noyes pointed out that investment firearms were, without question, the strongest collectibles’ market in existence and concluding with the following:
“We believe that Atwater Arms offers one of the best and most unique investment vehicles to qualified clients. We appreciate your participation and look forward to a successful relationship.”
Shortly after the receipt of the check of $6,850.00 by Erdman from Atwater Arms, Erdman negotiated another transaction with the Debtor in the sum of $40,000.00 for the purchase of a “Colt Belt Paterson cased set, with extra cylinder and various accessories. No. 775. No. 2 Belt pistol. With rare inlaid bands on frame. Excellent to factory new condition.” As evidence of this transaction, Erdman received a receipt from Atwater Arms dated February 3, 1984 together with a letter from Noyes as president of Atwater Arms of the same date which had attached to it documentation of the transaction which, as pointed out by Atwater Arms, supported its attempt to collateralize each individual investment with an item (or items) that had a 50% greater market value.
The attachment indicated that the fair market value of the belt pistol was $55,-000.00 and the letter of February 3, 1984 contained the following language:
“The investor technically does not take title to the specific firearm and therefore is further protected by the U.C.C. In strictest definition this transaction must be construed as a loan and loan repayment plus interest.”
By letter dated May 18, 1984 to Richard Erdman, Steven M. Gates, Esquire, Counsel to Atwater Arms, reported on the creditors’ meeting which had been held on Monday night and outlined the company’s plan of action in view of the results of the *944meeting and indicating that Gates had confidence that Atwater Arms could effect a fair settlement with its creditors outside of immediate bankruptcy. A claim form was enclosed with this letter and Richard Erd-man submitted under date of May 24, 1984 to Atwater Arms a statement of his claim as follows:
“Date Paid Amount Type of Transaction (Purchase, Loan, etc.) Item (IP ANY)
Feb. 3, 1984 $40,000.00 loan and loan repayment plus interest (San Antonio Collection) see attached”
On July 10, 1984 Richard Erdman filed a Proof of Claim in this Court in the sum of $40,000.00 plus interest reciting the consideration as “the purchase of a gun (See Comments)” and the comments read as follows:
“Creditor owns a Colt Belt Paterson cased set with extra cylinder and various accessories and a No. 775 # 2 Belt pistol (with rare inlaid bands) These items were held by the debtor for purposes of resale. Alternatively, without prejudice to the rights of the creditor these items were collateral for the creditor’s investment.”
Erdman never took possession of the Colt Belt Paterson pistol and he never had any intention of doing so. No security agreement was ever executed by either the Debtor or Erdman, but the latter did receive a document from Stephen Noyes which was in fact a U.C.C. financing statement and, upon instructions from Noyes, Erdman signed it and sent it back. Erd-man understood from Noyes that the execution of the U.C.C. financing statement would further secure his investment. The financing statement was never filed either in the office of the Secretary of State in Montpelier or in the office of the Town Clerk of Bennington, Vermont, where the Debtor conducted its business.
Erdman had no control over any sale of the Colt pistol by the Debtor. He was to have no input as to whom the pistol would be sold and it was his understanding that the Debtor could sell the weapon to any party whom it chose as long as the Debtor remitted the proceeds received less a commission to be charged by the Debtor. In fact, any sale of. the pistol was strictly under the control and discretion of the Debtor through Noyes as its agent.
Erdman had neither a collection of guns nor a facility in which to store them. The receipt for $40,000.00 received by Erdman from the Debtor for the purchase of the Colt pistol contained a space for the inclusion of a sales tax, but it was left blank. Erdman knew that the Debtor was in the business of buying and selling firearms.
DISCUSSION
The issue in this case is whether Erdman is the owner of the Colt Belt Paterson pistol and is entitled to reclaim possession of the Debtor.
The nature of a creditor’s property rights in bankruptcy is defined by state law, not federal law. Butner v. United States, 440 U.S. 48, 54; 99 S.Ct. 914, 917, 59 L.Ed.2d 160; In Re Skelly Jr. (U.S. District Court—D. Delaware—1984), 38 B.R. 1000, 1001. State law also defines the nature and extent of debtor’s and therefore, the estate’s interest in property. Butner v. U.S., supra; In Re Abdallah (Bankr.D.Mass.1984) 39 B.R. 384, 386; In Re Ford (Bankr.Md.1980) 3 B.R. 559, aff’d 638 F.2d 14 (4th Cir.1981).
Erdman contends that he actually purchased the pistol and that title to it passed to him in accordance with the provisions of the Uniform Commercial Code, as adopted in this state, and specifically 9A V.S.A. § 2-401(1) under which title to goods passes from the seller to the buyer in any manner and on any conditions explicitly agreed on by the parties. Erdman claims that upon payment of $40,000.00 by him to the Debtor, the terms and conditions of the purchase of the pistol were complied with and all of this was in accordance with the receipt dated February 3, 1984 which specifically indicated that the sum was paid for the purchase of the pistol.
He further argues that even though no sales tax is shown on the receipt, this is *945immaterial for the reason that it is the obligation of the vendor under Vermont law to collect the sales tax.
The position taken by Erdman is disputed by the Debtor. It asserts that the $40,-000.00 transaction between Erdman and the Debtor was actually a loan with a resulting security interest being created in favor of Erdman. Since the Debtor retained possession of the weapon and there was a failure of the filing of a financing statement, the security interest was not perfected and, therefore, Erdman has no right to reclaim the pistol from the Debtor.
The Debtor’s position is supported by the letter of February 3, 1984, from Stephen T. Noyes to Erdman in which he specifically states that the investor does not take title to the specific firearm and, therefore, is further protected by the U.C.C. and that in the strictest definition, the transaction must be construed as a loan and loan repayment plus interest.
Further, in the claim submitted to the Debtor by Erdman on May 24, 1984, he refers to the transaction of February 3, 1984 in the amount of $40,000.00 as a “loan and loan repayment plus interest (San Antonio collection) See attached.” Likewise, in the proof of claim filed in this Court on July 10, 1984, Erdman while stating that he owned the Colt Belt Paterson pistol went on to recite that “alternatively without prejudice to the rights of the creditors these items were collateral for the creditor’s investment.” All of this would tend to establish that Erdman recognized this transaction as one involving a security interest.
From the testimony of Erdman the Court is convinced that he was not particularly interested in the forms of the transactions which he had with the Debtor, and this might have been a factor in his decision not to employ legal counsel. It appeared clear to the Court that his primary and only concern was in achieving profit from his investments with the Debtor. This was the bottom line.
The result is the same whether the $40,-000.00 transaction as to the Colt Belt Paterson pistol was in fact a loan resulting in a security interest in Erdman’s favor or a sale of the weapon by the Debtor to Erd-man with possession remaining with the Debtor for the purpose of resale. In either event, Erdman cannot prevail.
Under the Uniform Commercial Code as adopted in this state, a security interest can only be perfected by the filing of a financing statement both in the office of the town clerk where the debtor has its place of business (Bennington, Vermont) and in the office of the secretary of state. There was no such filing. As a result, a trustee in bankruptcy takes priority over an unperfected security interest. 9A V.S.A. § 9-301(3). Under § 544 of the Bankruptcy Code, a trustee becomes a lien creditor as of the date of the filing of the petition for relief. Since there was no filing of a financing statement by that date, the trustee as a lien creditor prevails over any rights in the pistol asserted by Erdman. The trustee’s position may likewise be maintained by the debtor, who, under § 1107 of the Bankruptcy Code acquires the same rights of a trustee in bankruptcy.
Likewise, even assuming that Erdman did in fact purchase the Colt Belt pistol from the Debtor and permitted it to remain in its possession for resale, he is not now entitled to reclaim it.
Under the Uniform Commercial Code, where goods are delivered to'a person for sale and such person maintains a place of business at which he deals in goods of the kind involved, under a name other than the name of the person making delivery, then with respect to claims of creditors of the person conducting the business the goods are deemed to be on sale or return. The provisions of this subsection are applicable even though an agreement purports to reserve title to the person making delivery until payment or resale or uses such words as “on consignment” or “on memorandum.” However, this subsection is not applicable if the person making delivery
*946(a) complies with an applicable law providing for a consignor’s interest or the like to be evidenced by a sign, or
(b) establishes that the person conducting the business is generally known by his creditors to be substantially engaged in selling the goods of others, or
(c) complies with the filing provisions of the article on Secured Transactions (article 9).
9A V.S.A. § 2-326(3).
Since Erdman knew that the Debtor was conducting business under its own name before he can reclaim the pistol he must establish that his ownership was evidenced by a sign or that the Debtor was conducting his business in a manner generally known by his creditors to be substantially engaged in selling goods of others or that he complied with the filing requirements relating to the financing statements. At the hearing he introduced no evidence tending to establish any of the foregoing alternatives and, therefore, he has not sustained the burden required of him.
The case law also supports the Debtor. See Manufacturers Acceptance Corporation v. Pennington Sales, Inc. (1971) 5 Wash.App. 501, 487 P.2d 1053; In Re International Mobile Homes of Johnson City, Inc. (Bankr.E.D.Tenn.) 1 B.C.D. 131, 134; In Re Maurice Lipsky Music Co., Inc., (Bankr.S.D.N.Y.1976) 2 B.C.D. 371; In Re Wicaco Machine Co., Inc. (Bankr.E.D.Pa.1984) 37 B.R. 463. See also 67 Am. Jur.2d 423 § 282.
Erdman has submitted for consideration in support of his position Allsop v. Ernst (Bankr.S.D.Ohio 1982) 20 B.R. 627; Manger v. Davis (Utah 1980) 619 P.2d 687; Newhall v. Haines (D.C.Mont.1981) 10 B.R. 1019. The Court has considered these cases and the facts in each of them are clearly distinguishable from those under consideration herein and for that reason are not apposite.
ORDER
In view of the foregoing,
IT IS ORDERED that the Motion of Richard Erdman for Relief from Automatic Stay and to reclaim possession of the Colt Belt Paterson pistol filed July 10, 1984 is DENIED. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489961/ | MEMORANDUM AND ORDER
CHARLES J. MARRO, Bankruptcy Judge.
The issue before the Court is whether Kenneth Cestone is entitled to recover from the Debtor two Colt Revolvers under his Motion for Reclamation filed July 31, 1984. Both the Debtor and the Committee of Unsecured Creditors oppose this Motion.
FACTS
The Debtor, STN Enterprises, Inc., was organized as a corporation on August 6, 1982 for the purpose of engaging in the purchase and sale of collectible firearms and related collectibles under the trade name of “Atwater Arms.” Stephen T. Noyes was its president, sole stockholder and the driving force behind the corporate business. The corporation also conducted an investment program which included the so-called San Antonio Collection involving the purchase of 77 individual antique firearms. Noyes died on May 5, 1984 as a result of injuries received in an automobile accident, and for several weeks prior thereto, the Debtor was having financial difficulties. These apparently precipitated the filing of a Petition for Relief on June 28, 1984 under Chapter 11 of the Bankruptcy Code. The Schedules show total liabilities of $12,-989,844.35 and assets of $5,284,415.05. Included in the assets are Bennington Firearms inventory and Greenwich Firearms inventory, listed at an estimated market value without forced sale of $2,500,000.00 and $1,500,000.00, respectively.
Kenneth Cestone is a practicing physician in Bennington, Vermont, and he had known Mr. Noyes for close to 20 years and, since they lived close to each other, Dr. Cestone would see Noyes at least every week. As a result of this acquaintanceship, Dr. Cestone became interested in the purchase and sale of firearms and prior to August 26, 1983, he had consummated about nine or ten transactions with the Debtor. These were all handled by Noyes under a loose arrangement whereby Dr. Cestone would tender money to Noyes for the purchase of firearms and a resale of them by the Debtor. These transactions commenced in 1982 and Dr. Cestone left the purchase and sale of the firearms entirely to the judgment of Noyes. Cestone never checked the price paid for the particular firearm. Noyes would arrange for the sale and several months later Cestone would receive a check which included the profit from the transaction. Cestone never saw the particular weapon purchased. He considered the transactions investments as he was trying to build up a college fund for his children.
On August 26, 1983, Cestone turned over to- the Debtor the sum of $20,000.00 as a participating share interest in a 5 Month— Combined Winchester Rifle/Colts SAA Revolver Collection. As evidence of this transaction the Debtor delivered to Cestone *948a receipt which carried the note “Item for Collateralization 1 — Colt SAA Revolver Serial # 259641” and indicated a charge of $19,230.77 for the share in the revolver with tax of $769.23 for a total of $20,-000.00.
At the same time, Cestone received a “Purchase Pact Sheet” from the Debtor indicating that the specific item covered was 1 — Colt SAA Revolver Serial # with the terms being 90% — 5 months and a 10% commission of resale. The total purchase was shown as $20,000.00 on 8-26-83 with a remittance date on or before 1-26-84.
Even though remittance was due on January 26, 1984, payment was not made by the Debtor until March 4, 1984 with Ce-stone receiving a check from it in the sum of $32,192.00 in return for his investment of $20,000.00. The payment was delayed due to the fact that Noyes had been in a plane crash and was hospitalized for some time. Cestone had no control over this transaction and he left it entirely to the discretion of Noyes.
On August 26, 1983, Cestone turned over to the Debtor the sum of $17,160.00 for the purchase of 1 — Colt SAA Revolver Serial # 336281 for the sum of $16,500.00 with tax of $660.00 representing a total of $17,-160.00. This payment was made by check dated 8/26/83 in the sum of $17,160.00 payable to Atwater Arms.
On March 7, 1984, Cestone turned over to the Debtor by check of the same date the sum of $20,000.00 for the purchase of 1 — Colt 1851 Navy Model Revolver Serial # 48106 engraved by Gustave Young Shop with only known inscription “Langdon’s Express.” On the same date the Debtor delivered to Cestone a “Purchase Fact Sheet” defining the item as “1 — Colt 1851 Navy Revolver Serial # 48106” with the terms “1 yr. plus program designed to provide a long-term positive gain through the resale of the aforementioned item” and commission of 10% of resale. The purchase price was given as $20,000.00 on 3-7-84 with a remittance date by 3-25-85.
On July 15, 1984, Cestone filed a Proof of Claim in this Court in the sum of $67,-160.00 with the consideration recited as “bills of sale for One 1851 Navy Colt Revolver, Serial No. 48106, one 1917 44-cali-ber Single Action Army Colt Revolver, Serial No. 336281 and a participating share interest in the purchase of a multi-unit percussion revolver collection, copies of which Bills of Sale are attached hereto.” This proof covered the purchase price of the aforesaid revolvers together with the payment of $30,000.00 by Cestone on March 7, 1984 for a participating share in the purchase of a multi-unit percussion revolver collection. The proof also recited that Cestone claimed a security interest under the writings constituting the bills of sale.
Cestone was fully aware that the Debtor was engaged in the purchase and sale of firearms; that Noyes maintained a showroom and office in the basement of his house in Bennington, Vermont, which he had visited on several occasions; that it was generally known in and around Ben-nington that the Debtor was engaged in the purchase and sale of firearms; that Noyes co-mingled guns; that there were about 75 guns on display in the showroom; that the guns which he purchased had no identification marks on them as to ownership.
Prior to Cestone’s transaction with the Debtor on August 26, 1983, for the purchase of a Colt Revolver, Cestone had received a profit on all of his previous transactions with the Debtor. No security agreements or financing statements were executed in connection with the foregoing transactions, and none was filed either in the office of the Town Clerk of Bennington where the Debtor conducted business or in the office of the Secretary of State in Montpelier.
The two revolvers claimed by Cestone are part of the inventory of the Debtor and there is nothing in its records to show that Dr. Cestone has any ownership interest in them.
DISCUSSION
Dr. Cestone is claiming title to the two revolvers as bailed property. He contends *949that the transactions involving these weapons were “true bailments.”
In bankruptcy, his rights in the guns as a creditor are defined by state law, not federal law. Butner v. United States, 440 U.S. 48, 54, 99 S.Ct. 914, 917, 59 L.Ed.2d 136; In Re Shelly Jr. (U.S. District Court—D. Delaware—1984), 38 B.R. 1000, 1001. State law also defines the nature and extent of debtor’s and therefore, the estate’s interest in property. Butner v. U.S., supra; In Re Abdallah (Bankr.D.Mass.1984) 39 B.R. 384, 386; In Re Ford (Bankr.MD.1980) 3 B.R. 559, aff’d 638 F.2d 14 (4th Cir.1981).
In this state, the pertinent sections of the Uniform Commercial Code, as adopted, control both the rights of Cestone and of the Debtor. These will be considered as they apply to the established facts.
Dr. Cestone testified that upon purchase of these two revolvers it was his intention to start a collection and that Noyes wanted him to take possession, which he declined to do because he did not want them around the house. Further, he felt that the Debtor had means of keeping them safely in the vault. The Court is not convinced that this in fact was the situation.
Dr. Cestone had known Noyes for about 20 years and he started dealing with him in 1982. He was on a very friendly basis with him and he saw him at least once a week. He trusted Noyes and the arrangement that he had with him was to turn over money for the purpose of purchasing weapons, giving Noyes complete authority to sell them and turn over whatever profit he received. The primary object of his investment was to realize sufficient profit to establish a college fund for his children and at the same time realize a tax shelter under the Internal Revenue Code.
On August 26, 1983, when Dr. Cestone purchased the Colt S.A.A. Revolver, he also invested $20,000.00 for a participating share interest in a five-month Combined Winchester Rifle/Colt S.A.A. Revolver Collection. The purchase fact sheet received by Dr. Cestone as to this purchase indicated that the remittance date would be on or before 1-26-84, but it was not until March 4, 1984 that he received a check from the Debtor in satisfaction of his investment in the sum of $32,192.00. He testified that he was not concerned in the delay of payment from January 26, 1984 because he trusted Noyes.
The course of dealing between the two parties clearly indicates that Dr. Ce-stone was actually not interested in the purchase of specific weapons to start a collection. He was merely concerned with the net result; i.e., profit, and the Court is convinced that he actually purchased the two revolvers which he seeks to reclaim for resale by the Debtor, although there was no purchase fact sheet delivered by Noyes to Dr. Cestone with the receipt for the Colt S.A.A. Revolver, Serial No. 336281, which indicated authorization for resale by the Debtor. The Court is convinced that such was the fact.
As to the Colt 1851 Navy Colt Revolver, Serial No. 48106, the purchase fact sheet received by Dr. Cestone from the Debtor clearly indicates that Dr. Cestone was involved in a one-year plus program designed to provide a long-term positive gain through the resale of the weapon with a commission of 10% of resale and a remittance date by 3-25-85. This clearly contradicts the testimony of Dr. Cestone that the weapon was purchased to be retained by him as part of a collection.
The Debtor did in fact engage in “true bailment” transactions with other parties. In these cases, Noyes did transmit to these parties written bailment agreements which were executed by both parties, and in proceedings against the Debtor instituted by some of them to reclaim the weapons, the Court has rendered decisions construing the transactions as true bailments and has ordered the weapons delivered by the Debt- or to the claimants.
If a true bailment were intended in each of the transactions relating to the two weapons under consideration, Noyes would have transmitted to Dr. Cestone a written bailment agreement to be executed by the *950parties, especially in view of the fact that they were on such a friendly basis. With this relationship, Noyes would have all the more reason to protect the ownership of the weapons by Dr. Cestone under such a written bailment agreement.
Under the circumstances, the Court is convinced that the transactions as to these two weapons were not true bailments.
Since the weapons were left in the possession by Dr. Cestone for resale, the transactions are governed by § 2-326(3) of the Uniform Commercial Code, which reads as follows:
“Where goods are delivered to a person for sale and such person maintains a place of business at which he deals in goods of the kind involved, under a name other than the name of the person making delivery, then with respect to claims of creditors of the person conducting the business the goods are deemed to be on sale or return. The provisions of this subsection are applicable even though an agreement purports to reserve title to the person making delivery until payment or resale or uses such words as “on consignment” or “on memorandum.” However, this subsection is not applicable if the person making delivery
“(a) complies with an applicable law providing for a consignor’s interest or the like to be evidenced by a sign, or
“(b) establishes that the person conducting the business is generally known by his creditors to be substantially engaged in selling the goods of others, or
“(c) complies with the filing provisions of the Article on Secured Transactions (Article 9).”
Under the above section if Dr. Ce-stone is to prevail he must establish that there is applicable law in this state providing for a consignor’s interest or the like to be evidenced by a sign, (The Court is not aware of any such law.) or that the person conducting the business is generally known by his creditors to be substantially engaged in selling the goods of others, or he has complied with the filing provisions relating to secured transactions. At the hearing Dr. Cestone introduced no evidence tending to establish any of the foregoing alternatives and, therefore, he has not sustained the burden required of him.
The case law also supports the Debtor. See Manufacturers Acceptance Corporation v. Penning’s Sales, Inc. (1971) 5 Wash.App. 501, 487 P.2d 1053; In Re International Mobile Homes of Johnson City, Inc. (Bankr.E.D.Tenn.) 1 B.C.D. 131, 134; In Re Maurice Lipsky Music Co., Inc. (Bankr.S.D.N.Y.1976) 2 B.C.D. 371; In Re Wicaco Machine Co., Inc. (Bankr.E.D.Pa.1984) 37 B.R. 463. See also 67 AmJur 2d 423 § 282.
Under Section 544 of the Bankruptcy Code a trustee in bankruptcy, as of the commencement of a case, has the rights and powers of a judicial lien creditor on all property on which a creditor could have obtained a judicial lien, whether or not such a creditor exists. By virtue of § 1107 a debtor in possession has the same rights. These place the debtor in a superior position to that of Dr. Cestone as to the two revolvers.
The Court does not agree with the Debt- or that the transactions between it and Dr. Cestone were “executory contracts,” and the Court has set forth the reasons for this conclusion in the Memorandum Opinion relating to the Motion of Fellers to reclaim firearms entered in this case on December 11, 1984.
Even though the Court does not consider the transactions “executory contracts,” the Debtor is entitled to prevail.
ORDER
In view of the foregoing,
IT IS ORDERED that the Motion of Dr. Kenneth Cestone to reclaim the 1851 Navy Colt Revolver, Serial No. 48106, and a 1917 44-Caliber Single Action Army Colt Revolver, Serial No. 336281, filed July 31, 1984, is DENIED. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489699/ | MEMORANDUM OPINION AND ORDER
C.E. LUCKEY, Bankruptcy Judge.
The debtor has claimed exempt under the provisions of O.R.S. Section 23.164 a travel trailer valued at $1,500.00 which is used by him as his residence. It is situated on property for which the debtor is paying rent for trailer space. He has occupied it as his home since a divorce in 1981. The trailer has a kitchen area, bathroom, bed and small additional living area. It is hooked up to power, water and septic system. It is on blocks.
The trustee has objected to the claim of exemption on the technical basis that other provisions of Oregon Revised Statutes (O.R.S.) characterize the property as a vehicle rather than a mobile home and that the van claimed by the debtor as an exempt vehicle precludes his also claiming this trailer as an exempt vehicle.
O.R.S. 481.021 defines various types of movable properties designed to provide facilities for human habitation. By the statutory definition a mobile home under the provisions of Chapter 481 is not a travel trailer. However, the statute limits the application of its provisions as follows in O.R.S. 481.021:
“... As used in this chapter and ad valorem tax laws of this state, except where the context otherwise requires ...” [emphasis added]
The provisions of the exemption laws are more elastic. O.R.S. 23.164(8) provides:
“As used in this section, unless the context requires otherwise, ‘mobile home’ includes, but is not limited to, a houseboat.” [emphasis added]
The use to which the property is put and the adaptability to the use are more appropriate standards to apply under the facts of this case to the debtor’s claim of exemption than statutory definitions designed for vehicle and movable property registration and regulation and for tax purposes.
Under the facts of this case, the Court finds the use made of the property is that of a stationary residence, and that the definitions of O.R.S. Chapter 481 do not require the Court to apply those definitions in construing the provisions of O.R.S. Chapter 23.
The objection of the trustee to the claimed exemption is overruled, and the claimed exemption ordered allowed. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489700/ | MEMORANDUM OPINION
C.E. LUCKEY, Bankruptcy Judge.
Plaintiff, Mildred A. Walker, seeks relief from the automatic stay imposed by 11 U.S.C. § 362 to proceed with foreclosure of a trust deed secured by property of the debtor herein, Gertrude C. Pliss. The parties represented at trial that a sale of the subject property was pending which would be sufficient to satisfy plaintiff’s interest. No such sale has materialized. The debtor, trustee, Paul Lansdowne, and Ms. Pliss’ conservator, Jill Golden, assert a defense of usury and contend the debtor has sufficient equity in the property to constitute adequate protection of plaintiff’s interest in the property.
The debtor signed a note in favor of plaintiff in the sum of $56,000.00 which was secured by a first trust deed on the subject property. Seven payments in the amount of $1,026.67 plus escrow collection fees were made on the note, the last payment made on September 3, 1981. On December 3, 1981, plaintiff commenced non-judicial foreclosure of the trust deed and the trustee’s sale was scheduled for April 29, 1982. The sale was stayed when the debtor filed her voluntary Chapter 7 petition on April 28, 1982.
Evidence established that Ms. Pliss had allowed her unencumbered residence property to be used as collateral for a loan to a Mr. Les Glover, a debtor in another Chapter 7 case, who was a close acquaintance of the niece of Ms. Pliss. The transaction was arranged by a Mr. Jerry Wyatt of Master Mortgage Corporation (Master Mortgage) who was engaged in the business of bringing borrowers and lenders together. Defendant Pliss had allowed her property to be used as collateral for a prior loan made by .Franko Oil to Mr. Glover which transaction had been arranged by Mr. Wyatt. Ms. Walker had loaned money to borrowers found by Mr.. Wyatt on previous occasions. Mr. Glover contacted Master Mortgage to see if a loan could be arranged using Ms. Pliss’ property as security, which then contacted plaintiff.
At the trial Ms. Pliss asserted that she had been over reached and not understood that her interest in her property was in jeopardy. The parties have not made this allegation an issue, and this is the second time such a transaction had been used by Mr. Glover and Mr. Wyatt to support a previous loan from another lender. Testimony of Lynne Clouse, a title company secretary, testified she fully explained the consequences to Ms. Pliss at the escrow closure.
The defendants’ affirmative defense of usury is based upon ORS 82.010 et seq. Although these statutes were significantly modified or repealed by the Oregon Legislature in 1981, the maximum rate of interest allowable under them on December 31, 1980, the date upon which the parties entered into the transaction, remains applicable to the transaction. Hazen v. Cook, 55 Or.App. 66, 637 P.2d 195, 199 (1981). The interest limit of ten percent (10%) per an-num applied to all loans in amounts less than $50,000.00. ORS 82.010(2), (4) (1979).
The note from Ms. Pliss to Ms. Walker for $56,000.00 is to bear interest at the rate of twenty-two percent (22%) per annum and included a fee to Master Mortgage in the amount of $7,400.00. The central issue in the usury defense in this case is whether the fee paid to Master Mortgage is properly considered interest on the loan to Ms. Pliss by Ms. Walker under the provisions of ORS 82.110(2) (1979), infra, thereby rendering the loan subject to the maximum allowable interest rate of 10% per annum should the loan itself then not be considered a loan in excess of $50,000.00.
ORS 82.110(2) (1979) provided:
“(2) If, pursuant to any arrangement, understanding or agreement, with the knowledge of the lender, either as a part of the contract of borrowing or collateral *434thereto, regardless of when made and whether it is made as a special arrangement or in conformity to a regular rule, regulation or practice, there is paid by or at the expense of the borrower to the lender, his broker, officer, director or agent, any commission, bonus, fee, premium, penalty or other charge, compensation or gratuity, whether in money, credit or other thing of value, as a consideration, compensation or inducement for obtaining any loan, or any renewal, extension or forbearance thereof, the same shall be deemed a part of the interest charged on such loan within the meaning of this chapter.”
The question is whether Mr. Wyatt was acting as Ms. Walker’s agent in procuring the loan. The general rule is stated in 52 ALR2d 703, 710 as:
“It has generally been held or recognized that a lender cannot be charged with usury on account of any commission or bonus paid by the borrower to his own agent, or to any independent broker, for services in negotiating or procuring the loan.”
Usury laws are not designed to protect a borrower from having to pay a commission to a third party who persuades the lender to make the loan. Investment Funds Corp. v. Bomar, 303 F.2d 592, 596 (5th Cir.1962). The court in Investment Funds Corp. v. Bomar, Id., elaborated on the purpose of statutes like ORS 82.110(2) (1979) at page 596:
“They are not designed to protect him from having to pay the legal rate for a loan plus a commission to a third party who persuades the lender to make the loan. In the latter case, the borrower pays for two things. First, he pays for the services of the third party, and second, for the loan itself. Where, however, the commission is paid to a party who is the agent of the lender and who can control the actions of the lender, it is not true that the borrower is paying for two distinct things. Since the agent, in such a case, need not persuade another to make the loan, but can himself make that decision, he has not performed any services for the borrower apart from the actual making of the loan. In that event, the commission paid to the agent is for the loan itself, and the amount of the commission can justly be added to the interest charged to determine whether the usury laws have been violated, [emphasis in original]”
The burden of proof is on the party alleging the agency relationship. Mills v. State National Bank, 28 Ill.App.3d 830, 329 N.E.2d 255 (1975).
Mr. Wyatt was in the business of bringing borrowers and lenders together and in such capacity acts to some extent as an agent for both borrowers and lenders. However, the facts of this case indicate Mr. Wyatt was an independent broker and not the sole agent of Ms. Walker. Ms. Pliss had signed an agency agreement with Mr. Wyatt and received the benefit of obtaining the loan for Mr. Glover.
Ms. Walker received no portion of the broker fee. There is no evidence to show that she knew what the charge was or how it was paid. It was clearly not a device for collection of additional interest as where the charge is made by the lender. Plaintiff had no pre-arrangement with Master Mortgage that permitted it to commit funds on her behalf. She parted with $56,000.00 cash and received a secured obligation to repay that $56,000.00 with interest. Not knowing the amount of the broker fee it was impossible for her to know whether the loan was subject to the interest rate limitation.
If the fact that a loan is usurious is not apparent from the face of the documents (in which case “corrupt intent” is presumed) then it must be established that the “additional charge” paid by the borrower was simply a camouflage for additional interest and, if so, whether the total interest charged exceeded the maximum rate permitted. Hazen v. Cook, supra 637 P.2d at 198. The loan herein is not usurious on the face of the documents. No “corrupt intent” on the part of Ms. Walker has been established.
*435The Court finds that the amount of the loan to Ms. Pliss by Ms. Walker exceeded $50,000.00 in amount and pursuant to ORS 82.010(4) (1979) is not subject to the 10% per annum maximum allowable interest limitation in ORS 82.010(2) (1979) and is therefore not usurious.
Ms. Pliss has continued to reside on the subject property and has made no payment to plaintiff since September 3, 1981. Since commencement of foreclosure, Ms. Pliss has not maintained fire and casualty insurance on the property. Plaintiff has paid for such insurance, including a payment of $199.00 on July, 1982. There are currently 1981-82 and 1982-83 real property taxes owing against the property in the total amount of $1,626.06, together with interest from February 2, 1983. The total outstanding indebtedness from defendant Pliss to plaintiff now exceeds $80,000.00 under the terms of the trust deed and note.
Defendants offer plaintiff no adequate protection aside from Ms. Pliss’ equity in the property which defendants claim exists. The only testimony of value came from Ms. Pliss who testified that the property has a barn on it and that she bought the property for $16,000.00 in 1975 after which she built and improved a house and she believed the value of the property at the time of trial to be $128,000.00. The property was listed for sale at that amount but she had been unable to sell it for that amount. The sale the-parties represented was pending was for $99,000.00, but it has not been consummated.
It is apparent that any equity Ms. Pliss has in the property is at best small and diminishing rapidly. In the absence of additional adequate protection the plaintiff cannot be expected to wait until her obligation exceeds the value of the collateral. Accordingly, plaintiff is granted relief from the automatic stay to foreclose its interest. This relief will be stayed for 30 days from the date of this Memorandum Opinion and separate Judgment to enable defendants to close any sale of the property in an amount sufficient to satisfy the interests of the plaintiff. Separate Judgment consistent herewith will be issued. This Memorandum Opinion contains 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/8489702/ | ORDER ON MOTIONS FOR RELIEF FROM STAY AND ORDER IN CERTAIN ADVERSARY PROCEEDINGS ALSO INSTITUTED FOR THE PURPOSE OF OBTAINING RELIEF FROM STAY
ALEXANDER L. PASKAY, Chief Judge.
THIS IS a Chapter 11 reorganization case, initiated by William 0. Davenport (the Debtor) and the matters under consideration are the rights of several creditors of the Debtor to proceed to liquidate a block of common stock held by them as collateral for debts in various amounts owed by the Debt- or to the creditors. The stock in question is the common stock of Key Energy Corporation, a Florida corporation, which at one time was controlled by the Debtor. The procedural posture of the immediate matters under consideration is somewhat confusing, due to the fact that some of the creditors sought the relief from the automatic stay imposed by Section 362 of the Bankruptcy Code by filing a complaint pri- or to August 1, 1983 which, of course, was the proper way to proceed. Some of the creditors sought relief by way of motion, which, of course, is again the proper way to proceed now, inasmuch as the Bankruptcy Rules which became effective August 1, •1983 now provide that litigation involving relief from the automatic stay is no longer an adversary proceeding but shall be presented by motion. Bankruptcy Rule 4001 et seq.
Even though, as noted, the method of proceeding to obtain relief from the automatic stay was presented in a different fashion, all of them present a common ground for relief and involve the same facts and law. For this reason, it was agreed by all creditors, with the exception of the University State Bank that, although there was no formal order of consolidation entered in this cause, the request for relief from the stay shall be handled as a consolidated matter and the order entered shall be binding on all parties, with the noted exception of the University State Bank. The creditors, who seek relief from the automatic stay and whose rights from the relief from the stay will be considered by this order, are the National Bank of Florida (NCNB) who presented its claim for relief by adversary proceeding (adversary proceeding # 83-399); a Motion for Rehearing on a previously entered order which continued the automatic stay in adversary proceeding instituted by the Federal Deposit Insurance Corporation, FDIC v. Davenport (adversary proceeding # 83-506); a Motion for Relief from the Automatic Stay filed by the First *461Bank and Trust Company, a Motion for Relief from Automatic Stay filed by Am-South Bank, N.A., a Motion for Relief from Stay filed by Gulf Coast Bank of Pinellas; and a Motion for Relief from Stay filed by the law firm of Bush, Ross, Gardner, Warren and Rudy. Although American Bank of Merritt Island, who is also a creditor holding a certain amount of Key Energy stock as collateral, did not file a motion to lift the stay, counsel for American Bank of Merritt Island appeared at the hearing and participated in the proceeding. All these secured creditors seek relief from the automatic stay, as noted, pursuant to § 362(d)(2), although some also seek relief pursuant to § 362(d)(1).
The hearing was initially noticed to include the Debtor’s Motion to Value Collateral for the purpose of determining the extent of the secured portion of the claims filed by the various creditors, as well as for the purpose of determining the value of collateral for the purposes of providing adequate protection, under § 362(d)(1), or for the purpose of considering the presence or lack of equity under § 362(d)(2). As the result of agreement of the parties, it was decided that the hearing would be limited to considering the valuation of the stock solely for the purpose of lifting or extending the automatic stay, and that a further hearing would be held, if needed, to value the stock, pursuant to § 606 of the Bankruptcy Code, i.e., to determine the amount of the secured claim. Inasmuch as all of the secured creditors seek relief under § 362(d)(2), the Court will first consider the issue of presence or lack of equity and the necessity of the subject stock to the Debt- or’s Chapter 11 reorganization efforts.
The stock at issue is common stock in Key Energy Corporation pledged by the Debtor as security for his obligations to various creditors. The stock is traded over the counter, but because it is legend stock, it is sold through private placements. The number of shares held by the various creditors is as follows: NCNB holds 200,000 shares; First Bank and Trust Company holds 100,000 shares; AmSouth Bank holds 273,-621 shares; Gulf Coast Bank holds 70,000 shares; the law firm of Bush, Ross, Gardner, Warren and Rudy holds 20,000 shares; FDIC holds 300,000 shares, which are at issue in this proceeding; and the American Bank of Merritt Island holds 100,000 shares.
The Debtor concedes that these secured creditors have possession of the subject stock and that the stock secures a debt which is owed.
On the date that the Debtor filed his Petition for Relief under Chapter 11 of the Bankruptcy Code, the stock traded at IV2 per share. There was a minimal trading activity in the stock during the pendency of the Chapter 11 case, although at one time it was traded close to $3.00 per share. On the date of the hearing, the stock traded at l3/4. There was evidence presented that over the past few months there has been a downward trend, and that there has been minimal trading considering the number of shares outstanding.
The Debtor has maintained through the pendency of his Chapter 11 case that, because he owns a substantial block of shares in Key Energy, the stock has a higher value than that which is reflected by prices bid or asked. While this contention initially had some merit because the stock held by the Debtor represented a substantial, if not controlling interest in Key Energy, this is no longer the case inasmuch as Key Energy has since increased the number of outstanding shares from 3.5 million to 8.3 million. It further appears from the record that shares of Key Energy sold in a block of two to three million shares, sold at a price substantially below the over the counter trading price or $.50 per share. In addition, it is without dispute that approximately 1.5 million shares of its preferred stock was transferred to the FDIC as part of a settlement unrelated to this Chapter 11 case. These preferred shares are convertible to common on a 1:1 ratio. Thus, if in fact, a substantial or controlling interest does enhance the value of a block of stock, the private placement and the settlement with FDIC consist*462ing of newly issued stock substantially diluted the Debtor’s interest in Key Energy and, therefore, the Debtor’s contention that the stock held as a block has a greater value, no longer has any merit. In the case at bar, there has been no evidence whatsoever the Debtor will be able to sell such a large block of Key Energy stock, let alone at the current trading price. In fact, the evidence is to the contrary. These are the undisputed facts which, according to the contention of the parties warrants the granting of the relief sought.
There is no question that a Debtor may fund a Plan of Reorganization through liquidation of some or all assets of the Debtor. Section 1123(a)(5)(D) of the Bankruptcy Code. The Debtor’s proposed Chapter 11 Plan of Reorganization provides that the Plan will be funded by the proceeds of sale of Key Energy stock which the Debtor intends to liquidate by an orderly sale over the next two years. Property may be necessary to an effective Chapter 11 reorganization even though reorganization is to be accomplished through liquidation of assets. Empire Enterprises, Inc. v. Koopmans (In re Koopmans), 22 B.R. 395, 402 (Bkrtcy.D.Utah 1982). However, there must be a reasonable likelihood that the Debtor will, in fact, be able to successfully utilize the subject property and reorganize within a reasonable time. Barclays Bank of New York, N.A. v. Saypol (In re Saypol), 10 BCD (CRR) 1057, 1061, 31 B.R. 796 (Bkrtcy.S.D. N.Y.1983). A “mere financial pipe dream” is insufficient to meet the criterion of § 362(d)(2), Frankford Trust Co. v. Dublin Properties (In re Dublin Properties), 12 B.R. 77, 81 (Bkrtcy.E.D.Pa.1981). In the present instances it is unlikely that a sale, even if possible, would produce sufficient monies to satisfy all secured creditors in full, let alone produce sufficient monies to pay anything to unsecured creditors. Therefore, it is apparent that the Debtor has failed to meet his burden of proof under § 362(g) and that the Key Energy stock is necessary to an effective Chapter 11 reorganization (emphasis supplied).
This leaves for consideration the question of the Debtor’s equity, or lack of it, in the subject stock held by each of the individual creditors. The First Bank and Trust holds 100,000 shares, securing a debt in the principal amount of $250,000; FDIC holds 300,000 shares of stock, securing a debt in the principal amount of $743,000. Therefore, this being the case, the FDIC and First Bank and Trust are entitled to relief from the automatic stay pursuant to § 362(d)(2). It is clear that the Debtor has no equity in the stock held by the First Bank and the FDIC even if the stock is valued at $1.75 per share.
Assuming for the purpose of determining the Debtor’s equity in the stock that the stock is valued at 1%’s as to all of the remaining secured creditors, except the University State Bank, it would appear, at first blush, that the Debtor has equity in the stock held by NCNB, AmSouth Bank and the law firm of Bush, Ross, Gardner, Warren and Rudy and Gulf Coast Bank. NCNB holds 200,000 shares securing a $200,000 debt; AmSouth holds 273,621 shares securing a $472,876 debt; the law firm of Bush, Ross, Gardner, Warren and Rudy holds 20,000 shares securing a $37,-420.75 debt; and Gulf Coast Bank holds 70,000 shares securing a $114,990 debt.
However, in valuing the subject stock, other factors must be taken into consideration in addition to the current over the counter trading price. There is substantial evidence indicating that the value of this stock is highly volatile, the trading activity is minimal, and the stock is a legend stock and cannot be marketed readily in large blocks. As noted earlier, two million shares were sold recently for $.50 per share which is substantially less than the current over the counter trading price. The evidence also indicates that the market for Key Energy stock is in a downward trend.
In light of these factors, it is apparent that the Key Energy stock held by remaining secured creditors cannot realistically be valued at 1%’s, and it is worth substantially less than the current trading price. This being the case, the Debtor has no equity in the subject stock, and all the remaining *463secured creditors are entitled to relief from the automatic stay pursuant to § 362(d)(2).
Accordingly, it is
ORDERED, ADJUDGED AND DECREED that the Motion for Relief from Stay filed by First Bank & Trust Company be, and the same hereby is, granted for the purpose of foreclosing its interest in the Key Energy Stock. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489703/ | MEMORANDUM OPINION and ORDER
C.E. LUCKEY, Bankruptcy Judge.
Raymond P. Thorne, Assistant Director for Employment, Department of Human Resources, State of Oregon has moved for an order of this Court granting relief from the automatic stay imposed by 11 U.S.C. § 362 to continue administrative proceedings pursuant to ORS 657.683 based upon 11 U.S.C. § 362(b)(4) and (5). Debtor-in-possession, Mazama Timber Products, Inc. (Mazama), opposes the motion contending the administrative proceedings movant seeks to pursue do not come within the exceptions to the automatic stay contained in 11 U.S.C. § 362(b)(4) and (5).
Following an audit by the Employment Division, Notice of Deficiency Assessment was served pursuant to ORS 657.681(3) upon Mazama on December 15, 1981. The assessment asserted obligation by Mazama for unemployment insurance upon remuneration paid to certain named individuals which had not been reported to the Employment Division in Mazama’s regular quarterly payroll.
Mazama requested an administrative hearing on the assessment, within the time allowed by ORS 657.681(5), contending in its Request for Hearing that the individuals in question were not employees of Mazama, but were instead “independent contractors” so that no unemployment taxes were due upon their remuneration. The matter was first scheduled for hearing on May 19,1982, but was postponed at Mazama’s request with consent of the Employment Division.
An Amended Deficiency Assessment was issued on May 14, 1982 to correct certain errors which occasioned the aforementioned postponement. Mazama responded with another Request for Hearing. The matter was again scheduled for hearing on June 15, 1983 by Notice of Hearing dated May 16, 1983. On May 18, 1983 the Employment Division received notice of the filing of the Chapter 11 petition of the debtor-in-possession which was filed on May 10, 1983. By notice and order of postponement dated May 20,1983, the pending hearing was postponed until further notice.
The parties frame the central issue in this adversary proceeding as whether the pending administrative proceeding to determine whether the debtor is liable for a deficiency in unemployment tax payments is subject to the automatic stay of 11 U.S.C. § 362. The focus of the parties’ legal arguments is on the question of whether proceedings under Chapter 657 of the Oregon Revised Statutes, the Oregon Employment Division Law, are an exercise of a governmental unit’s police or regulatory power within the ambit of the 11 U.S.C. § 362(b)(4) and (5) exceptions to the automatic stay. The Court does not need to reach and specifically does not reach or address that issue in this case because the Court finds that “cause” exists under 11 U.S.C. § 362(d)(1) to modify the stay to permit the Employment Division to proceed with administrative determination of the Amended Deficiency Assessment issued on May 14, 1982 with any collection remedies such as those contained in ORS 657.515, 657.525, 657.530, 657.540 and 657.642 as acknowledged by counsel for the Employment Division to remain stayed by 11 U.S.C. § 362.
This Court finds that the administrative agency established under state law to administer ORS Chapter 657 is particularly well-suited to resolve the issues involved in the contested Assessment. This Court defers to the state forum for determination of the validity of the Assessment pursuant to state law but retains this Court’s exclusive jurisdiction to determine matters of allowa-*558bility and dischargeability of any claim which may be made against the debtor-in-possession as a result of the determination by the state agency.
The thrust of the hearing pending is not the collection of a tax but a determination of the status of those parties Mazama asserts were not “employees” under statutes of Oregon.
Continuation of the stay as to any collection remedies is compatible with protection of the bankruptcy estate.
The suitability of the state forum and the absence of prejudice to the bankruptcy estate are a basis for finding “cause” under 11 U.S.C. § 362(d)(1) and the stay is ordered modified to permit the Employment Division to proceed with determination of the Amended Deficiency Assessment issued on May 14, 1982. Any collection remedies such as those contained in ORS 657.515, 657.525, 657.530, 657.540 and 657.642 remain subject to the automatic stay of 11 U.S.C. § 362. This Memorandum Opinion and Order contains 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/8489704/ | OPINION
EMIL F. GOLDHABER, Bankruptcy Judge:
At issue in the case at bench are the motions of both the plaintiff and the defendant for summary judgment based upon the plaintiff’s complaint for alleged violations of the Truth in Lending Act, (“the Act”), 15 U.S.C. § 1601, et seq., and § 9504 of the Uniform Commercial Code (“UCC”) of Pennsylvania. For the reasons stated herein we will grant in part the defendant’s motion.
Under Fed.R.Civ.P. 56(c) which is applicable in this proceeding by virtue of Bankruptcy Rule 7056, summary judgment may be entered only “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 courts “are to resolve any doubts as to the existence of genuine issues of fact against the moving parties.” Hollinger v. Wagner Mining Equipment Co., 667 F.2d 402, 405 (3d Cir.1981); Ness v. Marshall, 660 F.2d 517, 519 (3d Cir.1981).
The undisputed facts of this case are as follows: The son of the debtor, Christine Keller (“the debtor”), sought to purchase a 1973 model automobile on credit with the funds of the defendant, Fidelity Consumer Discount Company (“Fidelity”). Fidelity lent the necessary funds to the debtor and her son on April 17,1978, in exchange for a security interest in the car and a second mortgage on the debtor’s residence. The balance due on the loan was refinanced by the three parties on February 7, 1980, with the son receiving $37.62 in “fresh cash.” Due to the son’s subsequent default on the loan Fidelity repossessed the auto in January and sent notice of repossession to the son, but not to the debtor. The notice stated that the car could be redeemed by payment of the outstanding debt although it did not state the time and place where the car would be auctioned if the son failed to redeem it. Upon said failure to redeem the vehicle, it was sold at auction for $100.00 in February of 1981.
In October of 1981 Fidelity instituted foreclosure proceedings against the debtor’s mortgage. A default judgment was entered shortly thereafter and a sheriff’s sale was scheduled. Through counsel, the debt- or sent Fidelity notice on December 28, 1981, that she intended by that document to rescind her 1980 loan agreement with Fidelity due to alleged violations of the Act. Fidelity ignored the notice. The debtor then filed a petition for relief under chapter 13 of the Bankruptcy Code on February 1, 1982, which stayed the sheriff’s sale. In this proceeding Fidelity has filed a proof of claim against the debtor for $3,994.62 based upon her guarantee of her son’s debt. The debtor has objected to the proof of claim and has commenced the instant adversary proceeding to implement her purported right of rescission under the Act.
The Act is a federal statute which regulates the terms and conditions of consumer credit. Its congressionally declared purpose is to assure the informed use of credit through a meaningful disclosure of credit terms so that consumers can more readily compare different financing options and costs. 15 U.S.C. § 1601. For all loans *564which fall within its purview the Act requires the creditor to issue the debtor a disclosure statement summarizing certain information bound in the loan documents. The information which must be disclosed is defined in the Act and Regulation Z, 12 C.F.R. § 226.1, et seq. Upon a creditor’s failure to make the necessary disclosure, the Act provides a debtor with several remedies among which is the right, under certain circumstances, to rescind a consumer credit transaction in which the debtor has granted a security interest in his primary dwelling. 15 U.S.C. § 1635(a). Transactions in which the debtor granted a security interest to finance the acquisition or initial construction of the dwelling are exempted from the rescission provisions as are certain other transactions. § 1635(e) and (e)(1); 15 U.S.C. § 1602(w). The rescission period extends from the time of the consummation of the loan agreement until midnight of the third business day following such consummation. § 1635(a). The three-day period does not begin to run until the creditor has provided the debtor with all the necessary disclosures, although no rescission can be effected more than three years after the execution of the loan regardless of the lack of proper disclosure. Id.; § 1635(f). Rescission cannot be implemented unless the disclosure is materially deficient. § 1635(a); Bustamente v. First Federal Savings & Loan Assoc., 619 F.2d 360, 363 (5th Cir.1980).
In particular, the Act requires the disclosure statement to contain a description of all security interests granted by the loan documents. 15 U.S.C. § 1639.1 The regulations require that the “type of any security interest held or to be retained” must be disclosed. 12 C.F.R. § 226.8(b)(5) (1980). The debtor asserts that although the disclosure statement indicated that the creditor was retaining a “security interest” in her home it failed to identify the type of interest, i.e., a mortgage. The regulations in effect at the time of the refinancing define a security interest as follows:
(gg) “Security interest” and “security” mean any interest in property which secures payment or performance of an obligation. The terms include, but are not limited to, security interests under the Uniform Commercial Code, real property mortgages, deeds of trust, and other consensual or confessed liens whether or not recorded, mechanic’s, materialmen’s, artisan’s, and other similar liens, vendor’s liens in both real and personal property, the interest of a seller in a contract for the sale of real property, any lien on property arising by operation of law, and any interest in a lease when used to secure payment or performance of an obligation.
12 C.F.R. § 226.2(gg) (1980). A mortgage is clearly identified as a security interest and both terms necessarily connote the creditor’s right of recourse against the subject property in the event of default on the loan. The use of the term “mortgage” would have added little if anything to the value of the disclosure statement. As stated in Bustamante, supra, a failure to disclose is not material unless it “would affect the credit shopper’s decision to utilize the credit.” 619 F.2d at 364. Under this standard we find that Fidelity’s failure to disclose the exact nature of the security interest could not have been material and thus we will grant the defendant’s motion for summary judgment on this issue.
The Act also requires the disclosure statement to contain an itemized list of certain charges. As stated in part in 15 U.S.C. § 1639:2
(a) Any creditor making a consumer loan or otherwise extending consumer credit in a transaction which is neither a consumer credit sale nor under an open end consumer credit plan shall disclose each of the following items, to the extent applicable:
*565(1) The amount of credit of which the obligor will have the actual use, or which is or will be paid to him or for his account or to another person on his behalf.
(2) All charges, individually itemized, which are included in the amount of credit extended but which are not part of the finance charge.
(3) The total amount to be financed (the sum of the amounts referred to in paragraph (1) plus the amounts referred to in paragraph (2)).
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The debtor asserts that a $159.22 charge listed in longhand on the disclosure statement as “Lt. Chg.” apparently refers to “Late Charge” but is not clearly labeled and thus is not adequately itemized within the meaning of § 1639(a)(2). Although the sum is probably sufficiently identified as a “late charge” we need not reach this issue since the debtor’s reliance upon § 1639(a)(2) is misplaced. This subsection only requires itemization for charges which are included in the amount of the credit extended but which are not part of the finance charge. The disclosure statement reveals that the late charge was included in the finance charge and thus did not have to be specifically itemized. Since this sum augmented the finance charge, the interest rate on the loan necessarily reflected this inclusion. This interest rate3 is comparable to the interest rate of every other loan governed by the Act. Thus, the debtor’s contention that the failure of Fidelity to itemize properly the $159.22 charge “rendered impossible an informed comparison of the terms of the Fidelity loan to other sources of credit” is without foundation. Consequently, we will grant Fidelity’s motion for summary judgment on this issue.
The debtor’s final basis for relief under the Act is an alleged failure to compute properly the interest rate of the loan. The debtor concedes that relief on this allegation can only be granted upon the introduction of evidence not currently of record. Thus, summary judgment on this issue would be improper and both parties’ motions for such relief will be denied.
Lastly, the debtor asserts that after repossession of her son’s auto Fidelity failed to inform her of the impending sale of the vehicle in violation of § 9504 of the Pennsylvania UCC which states in pertinent part as follows:
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.
3 Pa.Cons.Stat. § 9504. The debtor contends that violations of § 9504(c) can be redressed under 13 Pa.Cons.Stat. § 9507(a) which states in part as follows:
§ 9507. Liability of secured party for failure to comply with chapter
(a) General rule. — If it is established that the secured party is not proceeding in accordance with the provisions of this chapter disposition may be ordered or restrained on appropriate terms and conditions. If the disposition has occurred the debtor or any person entitled to notification or whose security interest has been made known to the secured party prior to the disposition has a right to recover from the secured party any loss caused by a failure to comply with the provisions of this chapter. If the collateral is consumer goods, the debtor has a right to recover in any event an amount not less than the credit service charge plus 10% of the principal amount of the debtor or the time price differential plus 10% of the cash price.
*566In the case at bench the son is the primary obligor on the indebtedness while the debt- or is the guarantor. Neither party has addressed the propriety of awarding damages to a surety under §§ 9504(c) and 9507(a). Consequently, we will deny the motions for summary judgment on this issue.
. Section 1639 was repealed by the Truth in Lending Simplification and Reform Act, Pub.L. 96-221, 94 Stat. 168 (1980). The parties are in apparent agreement that § 1639 is applicable to the case at bench since the refinancing occurred prior to the repeal.
. See note 1.
. The interest rate is more commonly known as the A.P.R. (Annual Percentage Rate) which is determined according to 15 U.S.C. § 1606. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489705/ | MEMORANDUM
RALPH H. KELLEY, Bankruptcy Judge.
Lincoln County Bank brought this suit to deny the debtors a discharge in bankruptcy. In its complaint the bank alleges:
During October of 1981, and within one year of the date of the filing of the petition herein, the defendants transferred and conveyed certain contract rights unto Mr. Don Hall, the brother of the defendant, Isaac Elbert Hall, and can-celled obligations owing to the defendants by said brother for a nominal portion of the amount owed.
The proceeds received as said portion of the value of the total contract rights to which the defendants were entitled were placed in a banking institution outside of the state of Tennessee for the purpose of concealing same from the plaintiff, other creditors, and the Trustee in this case.
The defendants made the transfer of said contract rights and the cancellation of other obligations due them by Don Hall with the intent to hinder, delay, and defraud the defendants’ creditors, including the plaintiff herein.
In the alternative, the defendants made the transfer or cancellation of said contract rights with the intent to hinder, delay and defraud the Trustee of the estate herein.
In the alternative, the defendants entered into an agreement with said brother, Don Hall, pursuant to which only a portion of the value of the contract rights would be received prior to filing of petition in Bankruptcy, which sum could be concealed from creditors and the Trustee in this case, and the balance of the value of the contract rights could be obtained by the defendants at a future date, all for the purpose of concealing the existence and value of the debtors’ property from the plaintiff and/or the Trustee herein.
The discharge of the defendants should be denied under Section 727(a)(2).
Though Mrs. Hall is named as a defendant, the complaint did not allege that she committed any acts that would call for denial of her discharge and there was no proof of any such acts.
The bank relies on Bankruptcy Code § 727(a)(2), which provides:
*585(a) The court shall grant the debtor a discharge, unless—
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(2) the debtor, with intent to hinder, delay, or defraud a creditor . .. has transferred, removed, destroyed, mutilated, or concealed ....
(A) property of the debtor, within one year before the date of the filing of the petition ....
The court finds the facts as follows.
In 1975, the debtor borrowed money from the plaintiff to buy a. Western. Auto Store. The debtor gave the plaintiff a second mortgage on his house to secure the debt. The house was worth considerably more than the first mortgage debt.
The debtor later gave the plaintiff a second security interest in the inventory, equipment, fixtures, and accounts receivable of the Western Auto Store. Western Auto held the first security interest. Payments on the debt to the plaintiff were due quarterly (four times per year).
No fraud is alleged in connection with the loan. From time to time the loan was renewed by a new note.
The Western Auto business was a failure. Plaintiff’s brief and argument accused debtor of wrongfully retaining some inventory from the Western Auto store which was closed.
There is no proof that the debtor kept or disposed of the assets of the Western Auto store with intent to hinder, delay, or defraud a creditor, either the plaintiff or Western Auto. The debtor carried out an orderly liquidation of a failing business. Over a period of time the debtor simply sold out the inventory without restocking. He then sold the other assets. Anyone who ventured by the store could have seen that it was going out of business.
Before the debtor finally closed the Western Auto store in April of 1981, he started a television rental business. He continued this business up to the filing of his bankruptcy petition in April, 1982.
The complaint contains no allegations that debtor gave the bank a false financial statement upon which it relied. There was testimony, however, that the debtor in 1979 and 1980 gave the plaintiff-bank financial statements regarding an asset which he valued at $5,000.
The asset figures prominently in this dispute. The asset arose from a transaction which occurred a number of years earlier involving the debtor and other members of his family. They advanced the debtor’s brother, Don Hall, money that he used to acquire an interest in a cable television service. They understood that they would have an interest in the company in return for the money.
In 1981 the debtor’s brother sold his interest in the cable television service. On April 27, 1981, he entered into a settlement agreement with the debtor and other family members. Each was to receive $45,000 with interest paid in 48 quarterly installments of $2,140.08 each.
After receiving two installment payments the debtor started trying to sell his interest in the settlement contract or use it as collateral for another loan. The debtor’s Western Auto store was closed. Other business ventures were not doing well. The debtor even consulted an attorney about the possibility of bankruptcy.
In October, 1981, debtor sold his interest under the settlement contract to his brother, Don Hall, for $22,500. The debtor did not deposit all of this money with the plaintiff-bank. His loan agreement with the bank provided:
In the event of Default, the Lender may (when and where legally permissible), without demand or notice of any kind, set-off all or any portion of this Note against any balances, credits, deposits, accounts, monies or other property of the Borrower at any time held by the Lender.
The debtor deposited $17,500 of the money to a new account at First Alabama Bank, of Huntsville, Alabama, where he had no debts and the bank had no right of set-off. He deposited $4,800 of the money to his account with the plaintiff-bank. On November 2, 1981, the debtor withdrew $2,000 *586from the new account and deposited another $1,800 to his account with plaintiff-bank.
The note to plaintiff-bank was due on November 4, 1981. The debtor wrote a check on his account with the plaintiff and paid plaintiff $3,289.31. He renewed the balance.
The debtor testified that he used the account with First Alabama Bank to operate the television rental business, to pay creditors, and to pay living expenses. The debtor used all of the money in the account.
He filed his petition in bankruptcy on April 19, 1982.
Discussion
The settlement agreement came about long after the loan to- debtor. The debtor’s failure to reveal the settlement agreement to the bank under the facts of this case, would not be a violation of 11 U.S.C. § 727(a)(2).
The real issue in this case is whether the debtor sold his contract rights with intent to hinder, delay, or defraud a creditor. It appears that after business failures the debtor considered filing bankruptcy. No doubt his attorney advised the debtors of their exemption rights, but it must have been apparent that they would lose their home and a portion of the settlement.
The debtor then decided to sell his contract rights and use the money in his television rental business or some other business ventures in the hope that he could make enough money to support his family and pay his debts.
The debtor approached Peoples Bank of Elk Valley in Fayetteville, Tennessee, a Winchester bank, and several individuals regarding the purchase of his contract rights. Being unable to find another buyer, the debtor sold his contract rights to his brother for $22,500. The debtor had serious financial problems and this was as good a deal as he could make; but the bank questions the amount the debtor received.
The last paragraph of the contract with his brother provides:
The parties hereto do recognize that there are some slight contingencies and liabilities on the part of the Party of the First Part to the purchasers of the Franklin County, Tennessee CATV, Inc. These contingencies and liabilities could possibly result in a reduction in the amount of the future installments due to the Party of the First Part for the sale of his interest in the cable system. If the amount of the future installments due to the Party of the First Part is reduced by litigation or otherwise, then his obligation to the Parties of the Second Part under the terms of this agreement shall be reduced proportionately.
There was no evidence of fraud or collusion in the sale to his brother.
From the entire record the court finds that the debtor did not sell his contract rights to his brother with intent to hinder, delay, or defraud a creditor. The debtor simply decided that the best course of action was to use the settlement agreement to raise new business capital. This decision may have been unwise, but the court finds that debtor had no fraudulent intent.
The plaintiff-bank further complains that debtor put his settlement money in another bank. Of the $22,500 settlement, at least $6,600 ended up on deposit in the plaintiff-bank. It is the plaintiff’s contention that debtor intended to defraud it by putting money in the other bank.
Debtors in financial difficulty commonly try to keep assets for living expenses and as business capital in the hope that they may still succeed. A debtor may begin dealing in cash or at least deposit his money in banks that are not also creditors, since a deposit to a creditor bank might be set-off immediately. The statute must be narrowly construed lest most debtors be denied a discharge for concealing or transferring property with the intent to hinder or delay creditors. The degree of intent and the degree of hindrance or delay make a difference.
The failure to deposit money to an account with a creditor bank delays the creditor from collecting, since it could oth*587erwise set off the deposit. On the other hand, the statute does not require that a debtor always turn his money over to a creditor immediately in order to receive a discharge.
If the debtor not only fails to deposit the money with a creditor bank but also keeps the cash and hides it away, the bank is even more delayed and the debtor’s intent is clearer. The debtor in this case did not keep the cash. He opened an account with a nearby bank that was not a creditor. The account was active from the time of the deposit until the debtor’s bankruptcy six months later. The plaintiff apparently did not try to collect its debt during this time or even ask the debtor if he had bank accounts elsewhere. If it had, it might have found the account, which could have been attached almost as easily as an account in a local bank.
Though it is clear the debtor intended to keep the money from the plaintiff’s immediate possession, there was no showing that he did not intend to pay the plaintiff. The money was the capital on which he hoped to make a new, more successful start. The debtor tried for six months before he finally gave up. The debtor may have made bad investments. However, had he succeeded in business, he would have been able to pay his creditors.
This is a troublesome case. See Elliott v. Herrera, 401 F.2d 174 (9th Cir.1968). The court, however, hesitates to deny a discharge to a debtor whose overall intentions were not clearly fraudulent.
The party seeking to deny discharge has the burden of proof. The proof must be clear and convincing. In re Barlick, 1 B.C.D. 412 (Bkrtcy.R.I.1974); In re Russell, 18 B.R. 325 (Bkrtcy.E.D.Pa.1982); In re Lowinger, 19 B.R. 858 (Bkrtcy.S.D.Fla.1982); In re Klein, 20 B.R. 119 (Bkrtcy.E.D.Pa.1982); In re Forester, 28 B.R. 249 (Bkrtcy.W.D.Mo.1983).
Considering the remedial purpose of the bankruptcy laws, objections to discharge are strictly construed, and evidence is to be viewed in a light most favorable to the debtor.
Bankruptcy Rule 407 (in effect at the time of the hearing) provides that, at the trial on a complaint objecting to discharge, the plaintiff has the burden of proving the facts essential to his objection. In the case before this court the plaintiff has not carried that burden. The objections to discharge will be overruled. The discharge will be granted.
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/8489706/ | MEMORANDUM DECISION AND ORDER GRANTING MOTION TO AMEND
M.S. YOUNG, Bankruptcy Judge.
Plaintiff trustee brought the instant action under 11 U.S.C. 727(a) objecting to entry of defendant’s discharge.1 This action was filed approximately one week prior to the bar date set by order of this Court under Interim Rule 4004 and Rule of Bankruptcy Procedure 404(a). Count I of the complaint alleges failure of the debtor to obey an order of the Court requiring amendments to schedules to be made and a statement of affairs to be filed. Count II alleges defendant transferred, removed or concealed a number of assets of the estate with the intent to defraud creditors and further testified falsely concerning the same during a Rule 205 examination held in May, 1981.
Discovery has been extensive in this action since its filing in February, 1982. In December, 1982, following a number of continuances of trial settings due to the depth of discovery, plaintiff moved for an indefinite continuance based upon the fact that defendant had been indicted by a federal grand jury for aiding and abetting Mary Ellen Christensen in defrauding a federally insured bank. That motion was granted without opposition. Plaintiff indicated at that time that, should resolution of the criminal prosecution indicate other grounds existed for opposing discharge (plaintiff alleging defendant asserted at the time of *672the Rule 205 examination that the transactions with Christensen were normal and that he was not involved in any scheme to defraud the bank), amendment of the complaint would be requested.
In October, 1983, plaintiff moved to amend the complaint to assert Count III alleging that defendant made a false oath at the Rule 205 examination and during his deposition in this proceeding. The predicate of this allegation is the conviction of defendant in the criminal action following his plea of guilty.
Defendant has opposed the amendment of the complaint on a number of grounds. Argument was heard and counsel have submitted written authority. I reach the following conclusions.
Defendant contends the plaintiff is barred under the doctrine of laches. There was no unreasonable delay in plaintiff’s assertion of this claim. Plaintiff made his position known in December, 1982, at the time of indictment, and both parties have been fully apprised of the fact that the ongoing criminal prosecution may have a bearing on the discharge matters before this Court. I thus find no laches.
Defendant also urges that, since the time set by order of this Court for filing of complaints objecting to discharge has passed, plaintiff cannot amend his complaint to allege defendant’s false oath in regard to the bank fraud, because to do so is to allege a new claim after the bar date.
Plaintiff asserts that the amendment “relates back” to the date of the filing of the initial complaint pursuant to F.R.C.P. 15(c). That rule allows an amendment asserting an additional claim to relate back only when it “[arises] out of the conduct, transaction, or occurrence set forth ... in the original pleading.” Count II of the complaint alleges that defendant made false oath but does so in regard to his failure to disclose possession and/or transfer of a large number of assets. Though the legal basis of the Counts II and III is the same, and to a degree the complained of “conduct” of defendant is the same, it appears that plaintiff’s proposed additional claim does not arise out of the same “transaction or occurrence” as the original complaint.
Had a discharge been entered, which would have occurred if trustee had not brought the present adversary action, he could seek to revoke discharge under § 727(d)(1) based upon post-discharge discovery of defendant’s allegedly false testimony concerning the bank fraud.2
No case law has been presented to the Court or unearthed by research directly addressing the situation presented herein. The general rule that additional grounds are not to be presented by amendment of a § 727(a) complaint has been cited in a few cases, but each is distinguishable. The authors of 4 Collier on Bankruptcy (15th Ed. 1982) at ¶ 727.14[4], p. 727-88 through 727-90, state:
“Allowance of amendments lies in the discretion of the trial court, and refusal to permit amendment is not subject to review on appeal except for abuse of discretion. Nevertheless the courts are required to allow amendments freely, and refusal should be placed on some valid ground, such as that the party has not offered the amendment in good faith or that it will result in prejudice.
But, to be amendable, the complaint must have at least stated a ground of objection originally. Of course, if the amendment would be subject to a.motion to dismiss, it would be an idle gesture for the court to allow the amendment, and refusal to grant leave to amend in such a case has been held a proposed amendment. The mere fact that an amendment *673is offered late in the case is, however, not enough to bar it. When issues not raised by the pleadings are tried by express or implied consent of the parties, the pleadings may be amended to conform to the evidence upon motion made at any time, even after judgment.
But after expiration of the time fixed by the court for the filing of a complaint objecting to discharge, additional or new grounds of objection may not be added by way of amendment, unless the court first grants an extension of time or the debtor has concealed facts until that time, or the grounds would be sufficient for a revocation of the discharge. To permit an amendment which brings in a new ground of objection after the time fixed for filing complaints objecting to discharge under circumstances other than as noted above would tend to defeat Bankruptcy Rule 404(a) which is intended to compel diligent prosecution of objections and permit prompt disposition of the question of the debtor’s right to a discharge.” [Emphasis added.]
I find the emphasized language persuasive.
Here the gravamen of all counts asserted by the trustee is that defendant knowingly and intentionally concealed matters pertinent to the administration of. the bankruptcy estate and his right to a discharge, and did so not only by failing to file, after Court order, a statement of affairs but also through knowingly false testimony at the Rule 205 examination and thereafter.
I conclude, under the above circumstances, that the amendment should be granted. Though not precisely under the relation back doctrine of F.R.C.P. 15(c), the actions complained of were known to defendant. Plaintiff’s reliance on the grand jury indictment and the pending criminal prosecution was known to defendant some ten months prior to the motion to amend. The inter-relationship of the criminal prosecution and the bankruptcy discharge litigation is self-evident.
Most importantly, I find that the inability of trustee to raise this allegation was at least partially due to the concealment of the facts surrounding the bank fraud from the trustee. Had the trustee not had other grounds for opposing discharge, and discharge been entered, this concealment and the later knowledge imparted to the trustee by the fact of indictment would be sufficient grounds to seek revocation of that discharge under § 727(d)(1).
The motion of plaintiff is therefore granted.' An amended answer is to be filed within ten days of service of this decision and order.
IT IS SO ORDERED.
. Defendant’s wife and co-debtor was originally named as a party to this action but was subsequently .dismissed. All references are to defendant debtor Von E. Herbst alone.
. Section 727(d)(1) states:
“On request of the trustee or a creditor, and after notice and hearing, the court shall revoke a discharge granted under subsection (a) of this section if ... such discharge was obtained through the fraud of the debtor, and the requesting party did not know of such fraud until after the granting of such discharge.”
In my view, this reference to fraud includes, but is not limited to those specified grounds for denial of discharge sounding in fraud included in the ennumerated exceptions of § 727(a) including (a)(4)(A), that for false oath or account. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489707/ | MEMORANDUM AND ORDER
CHARLES J. MARRO, Bankruptcy Judge.
On October 1,1982 David M. Farrell (Farrell) filed a request under Bankruptcy Code (Code) section 362(d) for relief from the automatic stay of Code section 362(a). With the consent of the parties the hearing on the request was continued from time to time and the final hearing was held on June 30, 1983. Farrell seeks relief in order to bring an action in ejectment against the Debtor, Burlington Tennis Associates (BTA), which entity is Farrell’s lessee. Farrell also filed a request under Code section 363(e) for adequate protection of his interest in the premises leased to be BTA.
FACTS
In 1973 Farrell as lessor conveyed to Cross-Court Burlington Associates (Cross-Court) as lessee a term for years in land; Farrell and Cross-Court then mortgaged their interests in the land to Vermont Federal Savings and Loan Association (the Bank) as security for a construction loan. In 1977 Cross-Court with Farrell’s consent assigned the leasehold to BTA as a non-assuming assignee (BTA took the leasehold subject to the first mortgage but did not incur liability on the 1973 promissory note). In conjunction with the agreement, Farrell and BTA joined in signing (1) a notarized document amending and restating the lease; (2) an agreement inter se to execute and deliver as security for a construction *833loan sought by BTA, a second mortgage on the premises; and (3) the second mortgage deed. The amended and restated lease requires BTA to keep open a letter of credit in Farrell’s favor as security for rents, and contains an augmented rents clause which takes BTA’s gross receipts into account, but contains no language requiring BTA to pay either the 1973 note or the promissory note BTA executed in conjunction with the second mortgage deed and loan. (Farrell is a signatory of neither note). The second mortgage deed contains typed-in language as follows: “[Farrell] is executing this mortgage for the purpose of subordinating his ownership of the [premises] to the security interest being acquired hereby by [the Bank].”
Cross-Court defaulted on the 1973 note. BTA defaulted on the 1977 note. The letter of credit expired and was not renewed. Beginning in September 1978 BTA paid Farrell less rent each month than required by the lease. Farrell did not protest. Years went by. In May 1982 Farrell notified BTA that it was partially in arrears in rents for the previous 44 months. BTA tendered no cure. In July 1982 the Bank accelerated the 1973 and 1977 notes and subsequently instituted foreclosure proceedings against Farrell and BTA. On August 11,1982, BTA filed for relief under Chapter 11 of the Code. Farrell brought an action in ejectment against BTA the following day.
On December 3,1982, BTA filed a Plan of Reorganization (the Plan), which envisions BTA’s business use of the premises generating cash flow sufficient to pay the mortgage debt, allowed creditors claims and operations expenses. As to Farrell, the Plan provides for monthly payment of current rents with arrears to be paid off over time. During the pendency of this proceeding, BTA has paid rent at the current annual rate demanded by Farrell in May 1982.
DISCUSSION
Code section 362(d) provides that “... the court shall grant relief ... (1) for cause, including the lack of adequate protection of an interest in property ... or (2) if (A) the debtor does not have an equity in such property; and (B) such property is not necessary to an effective reorganization.” In that BTA must retain possession of the leasehold as a business property if it is to consummate reorganization, the Court may not grant relief under subsection 362(d)(2).
Subsection 362(d)(1) contemplates compensatory protection for creditors interests imperilled by the debtor’s performance. Roslyn Savings Bank v. Comcoach Corp., 7 Collier Bankr.Cas.2d 1191, 1992, 698 F.2d 571 (2d Cir.1983). To obtain relief under the subsection Farrell must demonstrate that he has a creditor's interest which is not adequately protected. Id. at 1192,1193, 698 F.2d 571. As mortgagor, Farrell has an equitable right of redemption should the Bank foreclose its mortgages on the premises. As lessor, Farrell has a reversion entitling him to injunctive relief or damages should waste to the premises occur. Neither of these interests is in issue today. However, Farrell as lessor also has a posses-sory interest in rents under the lease. As BTA is in arrears with respect to rents, Farrell has a creditor’s interest which may entitle him to relief from stay “for cause.”
The gist of Farrell’s first line of argument is that the amount due under the mortgages exceeds the fair market value of the premises. The Court notes that the argument is wide of the mark. It is a fundamental principle of jurisprudence that courts grant relief where the law affords redress. A corollary of this principle is that to obtain a remedy one must assert one’s own right; one cannot enforce the right of another. Since Farrell has mortgaged his reversion to the Bank, he may not be heard to complain that insufficient equity exists in the premises to protect the security interests of the Bank. Put simply, Farrell as mortgagor does not have standing to assert the interests of the Bank as mortgagee. It is understandable that Farrell does not wish to lose his land through foreclosure by the Bank; but it is not within the power of the Court to enlarge his rights under applicable non-bankruptcy law. In any event, it ap*834pears that there is equity in the premises sufficient to protect the Bank:
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There is an “equity cushion” even if Farrell’s figures are used:
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The gravamen of Farrell’s second line of argument for relief from stay is that his rights to the arrearages in rents and to the reasonable value of BTA’s use of the premises during the pendency of this proceeding are not adequately protected because BTA is not highly likely to accomplish rehabilitation. The Court observes that, at this early stage of the proceeding, BTA as debtor-in-possession has no burden to establish a high degree of likelihood that it can successfully reorganize. In Re Bermec Corporation, No. 71-B-291 (Bankr.S.D.N.Y.1971) (Asa S. Herzog, Referee). With reorganization barely underway, it is sufficient that BTA demonstrate a reasonable possibility that it can effectively consummate the Plan. In Re Bermec Corporation, 445 F.2d 367 (2d Cir.1971); In Re Yale Express System, Inc., 384 F.2d 990 (2d Cir.1967). However, Farrell goes on to suggest that BTA lacks any prospect of successful rehabilitation (his position is that the rents and arrears, the mortgage debt, the allowed creditors claims and BTA’s operations expenses present, cumulatively, an insurmountable obstacle to BTA’s effective reorganization). Farrell’s argument is relevant in so far as it is pertinent to the protection of his interests under Code subsection 363(e). Under the subsection, BTA has the burden of proof on the issue of adequate protection. In the context of Farrell’s challenge, BTA must establish that it has a reasonable possibility of rehabilitation.
As debtor-in-possession BTA has adopted new marketing and management programs and has published projections of income and expenses which if substantially realized will enable BTA to meet the mortgage debt, creditors claims, and operations expenses including rents and arrears. At the hearing, Farrell’s cross-examination of BTA produced testimony that BTA had not met its projections in the interim between publication and the hearing; but it was not demonstrated that the projections over time would be substantially defective. Balanced against these plausible projections and BTA’s best efforts to realize them are BTA’s financial obligations, past, present and future. These obligations are not as impenetrable a barrier to reorganization as Farrell makes them out to be:
(1) BTA must pay for the reasonable value of its use of the premises during the pendency of this proceeding, such value presumptively corresponding to the post-petition rents due under the lease, See, e.g., In Re Vermont Real Estate Investment Trust, 25 B.R. 809, 811 (Bkrtey.Vt.1982), but it is not a foregone conclusion that BTA as debtor-in-possession need pay, before assumption or rejection of the lease, the amounts, if any, due for the probationary period under the agumented rents clause of the lease. See, Palmer v. Palmer, 104 F.2d 161 (2d Cir.1939), cert. den., 308 U.S. 590, 60 S.Ct. 120, 84 L.Ed. 494 (1939) (“... the [Debtor-in-Possession] need not pay the rent during the probationary period, and the court will hold off the lessor and force him to be content with the value of the use and occupancy meanwhile...”); 2 Collier on Bankr. ¶365.03[2] at 365-24 n. 30, and at 365-25 n. 30, 31 (1980).
(2) Although BTA is obligated to pay off the rental arrearages, BTA may assume the lease before doing so, if the trustee provides adequate assurance of prompt cure, Code § 365(b)(1)(A). However, under the circumstances of this case, where Farrell without protest *835let the pre-petition arrears build up for 44 months, BTA may be able to avoid prompt cure following assumption of the lease; as a court of equity, the Bankruptcy Court is inclined to regard Farrell’s injury here as self-inflicted. (Thus it was held that, although the bankruptcy court must consider the “balance of hurt” in fashioning relief, 2 Collier on Bankruptcy ¶ 362.07[1] at 362-49 (1980),
where the harm to the creditor is self-inflicted, the Court will not lift the stay based on a finding of greater relative harm. The Plaintiff willingly tolerated nonpayment for the four years prior to the bankruptcy filing. It is not the purpose of the Bankruptcy Code to “balance the harm” and afford a creditor better protection after the bankruptcy filing than it was content to endure prior to the filing.
In Re Orlando Coals, Inc., 6 B.R. 721, 725 (Bkrtcy.S.D.W.Va.1980). The principal enunciated in Orlando Coals defuses Farrell’s call for quick payment of arrears if and when BTA assumes the lease.
(3)As to adequate assurance of future performance of the lease under Code section 365(b)(1)(C), it appears that Farrell has waived his right to collateralized security for rents, in that until 1982 he did not demand reinstatement of the letter of credit BTA in 1977 opened as security for rents, which letter of credit Farrell knew had expired shortly after it expired in 1978. Hughes et al. v. Farmers Nat. Bank and Fish, 83 Vt. 386, 395, 76 A. 33 (1910) (“... [lessor] could exercise ... right [re term of lease] only by acting promptly . .. two and three-forths years ... was too late for the right to be available.”), Van Dyke and Drew v. Cole, 81 Vt. 379, 385, 395, 70 A. 593 (1908) (“. .. acts once acquiesced in ... cannot afterwards afford a ground for terminating the contract.”); See, In Re Boogaart of Florida, Inc., 5 Collier Bankr.Cas. 1441, 1446. See, generally, In Re Sapolin Paints, Inc., 5 B.R. 412, 419 (Bkrtcy.E.D.N.Y.1980) and 2d Cir. cases cited.
(4) As of the date of the hearing state property taxes were current and not in default as Farrell has alleged.
(5) BTA has kept rent current since filing. It is not unreasonable to expect that BTA, current in taxes and not under the gun to promptly cure arrearages in rents or to reopen a letter of credit in Farrell’s favor as security for rents, may effectively consú-mate the Plan. As Farrell’s argument for relief from stay, boiled down, was that his rights to receive rents was in inadequately protected because BTA could not demonstrate a reasonable possibility of rehabilitation and as BTA has demonstrated a reasonable possibility of rehabilitation, there is, therefore, no reason for the court to lift the stay.
As to Farrell’s request for adequate protection, that protection is provided by BTA’s prospects for rehabilitation and by the rents provisions of the Plan (rents as they fall due, arrears over time). Although that protection may be little consolation to Farrell as he contemplates the possibility that BTA may not consummate reorganization, and that he may therefore lose his land, such loss, if it happens, will be injury without harm, injuria absque damno. Farrell mortgaged his reversion as part and parcel of a business transaction entered into for consideration at arms length. Now he would prefer to be free of BTA’s bargained-for rights. However, as Farrell is not entitled to relief from stay, and as his interest in rents is adequately protected, it is not within the power of the Bankruptcy Court to untie the shoes Farrell tied perhaps too tight.
ORDER
In accordance with the foregoing,
IT IS ORDERED that
(1) the instant request for relief from stay is DENIED, and
(2) the instant request for adequate protection is DISMISSED. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489708/ | MEMORANDUM
KEITH M. LUNDIN, Bankruptcy Judge.
The question presented is whether a “layaway” agreement on the back of a sales receipt creates a security interest where goods are delivered to the buyer at the time of sale but later returned to the seller. Secondarily, if the layaway agreement is insufficient to create a security interest, can the goods in the seller’s possession be recovered by a trustee under § 547 if the return was within 90 days of bankruptcy? After consideration of the exhibits, stipulations and applicable authority, the court concludes that the seller did not retain an enforceable security interest in the property, that the debtors’ return of the property constituted a preference, and that the trustee may recover the property and sell it for the benefit of all creditors.
*948The following are findings of fact and conclusions of law required by Rule 7052 of the Bankruptcy Rules.
The trustee seeks to recover three rings purchased by the debtors in three separate transactions. On October 20, 1980, Patrick Sealy (“Sealy”) purchased a solitaire diamond ring from Carson, Ltd. (“Carson”), a Cookeville, Tennessee jewelry retailer, for $1,260.03. On December 15, 1980, Sealy purchased a one-half carat man’s ring from Carson for $1,317.50 and on June 28, 1981, Sealy purchased a one-half carat diamond ring guard for $784.55. On February 22, 1982, the Sealys filed a Chapter 7 petition. The Sealys scheduled Carson as a secured creditor.
On June 16, 1982, the trustee filed a complaint against Carson and the Sealys to recover the rings and to avoid Carson’s alleged lien. The debtors filed an answer stating that prior to the filing of the complaint they had returned the rings to Carson. The proof is contradictory as to whether the rings were returned pre-bank-ruptcy or post-bankruptcy. Zora Sealy’s affidavit states that “after filing our bankruptcy petition [on February 22] but prior to the meeting of creditors on March 31, 1982,1 discussed our bankruptcy with Terry Eldridge Newton, an employee for Carson, Ltd. and attempted to negotiate a reaffirmation agreement.” She further states “[w]e were unable to reach an agreement regarding this matter and upon advice of counsel, my husband’s rings were returned to Carson, Ltd. on or about March 15, 1982. My wedding rings were subsequently returned to Carson, Ltd. on or about March 24, 1982.” Zora Sealy’s affidavit conflicts with the affidavit of Allen Gregory, treasurer of Carson, which states that Patrick Sealy returned the rings during the first week of February, approximately three weeks prior to filing bankruptcy. The trustee dismissed the complaint against the debtors on November 10, 1982.
On December 17, 1982, the trustee amended his complaint to assert that if the rings were returned pre-bankruptcy as claimed by Carson, the transfer constituted an avoidable preference under 11 U.S.C.A. § 547 (West 1979). The matter was submitted to the court on briefs, affidavits, and stipulations on June 28, 1983.
I. RETENTION OF SECURITY INTEREST
The trustee argues that Carson neglected to retain a security interest in the rings and, therefore, the trustee has superi- or rights in the rings under 11 U.S.C.A. § 544 (West 1979).1 Carson asserts that it retained a purchase money security interest in all three rings.2
TENN.CODE ANN. § 47-9-203(l)(b) (1979) provides that a security interest is not enforceable against either the debtor or a third party unless “the debtor has signed a security agreement which contains a description of the collateral.” TENN.CODE ANN. § 47-9-105(h) (1979) defines “security agreement” as an agreement “which creates or provides for a security interest.” While the enactment of Article 9 has eliminated many of the technical and archaic requirements for the creation of a security interest imposed at common law, certain minimum requisites must still be satisfied.
*949Judge Jennings of this court reviewed the elements of a security agreement in Cookeville Production Credit Association v. Frazier, 16 B.R. 674, 678 (Bkrtcy.M.D.Tenn.1981):
A security agreement must contain the following elements:
1. an agreement which creates or provides for a security interest [T.C.A. 47-9-105(l)(h) ];
2. the debtor’s signature [T.C.A. § 47-9-203(l)(b) ];
3. a description of the collateral [T.C.A. § 47-9-203(l)(b) ];
4. a description of the land concerned, where the collateral is crops or oil, gas or minerals to be extracted or timber to be cut. [T.C.A. § 47-9-203(l)(b)].
If these elements are found in an instrument or document then there is a security agreement, valid and enforceable between the parties. T.C.A. § 47-9-203(l)(b).
See UNIFORM COMMERCIAL CODE COMMENTARY AND LAW DIGEST, ¶ 9-203[A][6], 9-97 (1978). Most courts and commentators interpreting §§ 9-203 and 9-105 of the Uniform Commercial Code have concluded that a security agreement is valid and enforceable only if it contains language specifically creating or retaining a security interest in described collateral. See, e.g., Transport Equipment Co. v. Guaranty State Bank, 518 F.2d 377, 380 (10th Cir.1975); Shelton v. Erwin, 472 F.2d 1118, 1120 (8th Cir.1973); Daily v. Associates Financial Services Corp. (In re Walter W. Willis, Inc.), 313 F.Supp. 1274, 1277-1278 (N.D.Ohio1970) aff’d, 440 F.2d 995 (6th Cir.1971); Dubay v. Williams, 417 F.2d 1277, 1285 (9th Cir.1969); Mid-Eastern Electronics, Inc. v. First National Bank, 380 F.2d 355, 356 (4th Cir.1967); 4 Anderson, UNIFORM COMMERCIAL CODE 157 (2d ed. 1971). See contra 1 Gilmore, SECURITY INTERESTS IN PERSONAL PROPERTY, § 11.4 at 347-348 (1965).
Carson alleges its security interests were created by receipts tendered to the debtors each time a ring was purchased. The court rejects Carson’s contention that these receipts are sufficient to create an enforceable security agreement. The front of each receipt provides for the name and address of the purchaser, the date of the transaction, a description of the item purchased, and is signed by “Pat Sealy.” The reverse side of the receipts is titled “LAYAWAY AGREEMENT.” The agreement contains blank spaces for insertion of information as follows:
I understand this merchandise will be held for me and I agree to pay the balance due by_I agree to pay $- every [week or month]. I understand that if the merchandise is not fully paid for and called for on or before - it will be returned to stock unless special arrangements are made.
Carson relies on the language “I understand this merchandise will be held for me,” to assert the retention of a security interest. This language, however, is nothing more than a layaway purchase option offered by Carson. In the layaway purchase situation, the seller retains possession of the merchandise until payment is made. The layaway agreement has no obvious application in the context of an outright sale. The transactions at issue in this case were sales not layaways. One of the “layaway agreements” was partially completed to reflect a monthly payment of $100 and llh% interest on the unpaid balance. However, there is no language suggesting a retention of title by the seller or any condition on the sale which might constitute a security agreement. If Carson intended the layaway agreement to mean something different from its plain language, Carson had the burden of proving the circumstances or other intentions of the parties. See Roberts Furniture Co. v. Pierce (In re Manuel), 507 F.2d 990, 993 (5th Cir.1975); Delwood Furniture Co. v. Williams (In re Metzler), 405 F.Supp. 622, 625 (N.D.Ala.1975); Landaus of Plymouth, Inc. v. Scott, 5 B.R. 37, 39 (Bkrtcy.M.D.Pa.1980). . .Carson offered no proof that the parties contemplated that this language had any special significance or that the debtor acknowledged the language for any purpose other than as a sales contract. As one commentator explains, a *950provision in a sales contract fixing installment payments is generally insufficient by itself to establish a security agreement:
All selling “on time” is not the same. The common understanding is that the buyer loses his rights to the merchandise if he fails to keep up his payments. This, however, is not always the case.... [I]t is just possible that there has been a straight sale on credit with a stretched-out payment schedule ... If the buyer fails to pay up as promised, the seller is simply another unsecured creditor and must proceed accordingly. He has no special claim on the merchandise he sold even though it has not yet been fully paid for. Should the seller want to reclaim the merchandise on default, the “agreement” must technically fit the 9-105(a) description of a “security agreement.” The heart of this agreement is not the deferred payment schedule but the provision that covers the seller’s retention of “an interest in personal property .. . (to) secure payment” (1-201(37)). To put it another way, the buyer and seller must agree to share “property” rights in the goods sold. Failing this, the seller retains no “security interest” in the merchandise sold, much less a perfected security interest in that merchandise.
UNIFORM COMMERCIAL CODE COMMENTARY AND LAW DIGEST, 9-96-97, ¶ 9-203[A][6] (1978).
This case is similar to In re Nottingham, 6 U.C.C.REP.SERV. 1197 (E.D.Tenn.1969). In Nottingham, a retailer received a down payment and the buyer’s agreement to pay the outstanding balance in installments. The retailer also received a signed “buyer’s credit statement,” a sales contract, and a promissory note. The buyer filed bankruptcy and the trustee asserted that the instruments contained no words indicating the seller’s retention of title. Bankruptcy Judge Bare sustained the trustee’s position as follows:
A careful reading of the document relied upon by the seller in this case discloses no words that can reasonably be construed or interpreted as retaining title to the property in the seller or any words creating or providing a security interest therein. One-half of the document is the “Buyer’s Credit Statement” which furnishes information concerning his residence, employment, bank accounts, et cet-era. The second half is designated “Sales Contract Including Promissory Note,” and recites that the seller has sold to the buyer a color television set, reflects the cash sale price, down payment, time price differential, and time sales price, together with other provisions for payment of delinquency charges and attorney fees. It also provides for monthly payments of $26.35 each for 21 months beginning August, 1968. In other words, the document is exactly what it says it is — a sales contract and promissory note. It is neither a title retention contract nor a conditional sales contract. It does not create or provide for any security interest in the property. It is therefore my conclusion that such document does not meet the requirements of a security agreement.
There are no magic words that create a security interest. There must be language, however, in the instrument which when read and construed leads to the logical conclusion that it was the intention of the parties that a security interest be created. Just as the ancient mariner found water water everywhere but not a drop to drink, the seller in this case uses words and words but none that create a security interest. The requirements of the Code for creating a security interest are simple — an intention to create a security interest is all that need be shown — a dozen words or less are sufficient, but the security agreement must contain language that meets this simple requirement.
Nottingham, 6 U.C.C.REP.SERV. at 1198-99.
The second and third ring receipts are additionally deficient as security agreements because the reverse side of the receipt is not signed by the debtor. Although the debtor signed the “received by” blank on the front, the debtor did not sign the back of these two receipts containing the *951language relied upon by Carson. As the Georgia Court of Appeals noted in Food Service Equipment Co. v. First National Bank:
We do not believe the defendant received a signed security agreement from the debtor ... where the only signing appears on the face of the instruments. The placing of initials or signatures on the face shows nothing more than acknowledgment of receipt of the equipment. Furthermore, neither the sale order nor the delivery receipt makes any reference to the reverse side of the documents. Not only are the title-retention contracts devoid of any symbol which can be construed as being signed by the parties, but [the parties] did not complete any one of the vital blank spaces in the printed form, which if completed, might have given legal significance to an otherwise blank piece of paper. In short, the parties had no security agreement whatsoever.
121 Ga.App. 421, 174 S.E.2d 216, 7 U.C.C. REP.SERV. 878, 880, cert. denied, 4 U.C.C. L.L. 7 (1970).
II. PERFECTION BY POSSESSION
Carson argues in the alternative that even if it did not retain an enforceable purchase money security interest when the rings were originally purchased, it obtained a perfected possessory security interest pri- or to bankruptcy when the debtors voluntarily returned the rings. TENN.CODE ANN. § 47-9-203(l)(a) (1979) provides that a security interest is enforceable against the debtor and third parties if “the collateral is in the possession of the secured party.” 3 TENN.CODE ANN. § 47-9-305 states that a security interest in goods “may be perfected by the secured party’s taking possession of the collateral.” Carson argues through the affidavit of Allen Gregory that it acquired possession in the first week of February, three weeks prior to the filing of bankruptcy. The trustee denies that Carson obtained possession prior to bankruptcy and submits Zora Sealy’s affidavit that the rings were not returned until late March, one month after bankruptcy.
The court finds that the rings were returned after bankruptcy. Zora Sealy’s affidavit is more persuasive in the context of this case. The debtors have been released from liability and have no interest in the outcome of this litigation. Zora Sealy had personal knowledge of the events surrounding the bankruptcy and the return of the rings. Gregory did not become involved until this litigation commenced and does not claim any personal knowledge of the events. Carson proffered no affidavit from Tracy Newton, the store employee with whom the Sealys actually dealt. The debtors scheduled Carson as a creditor for the full •amount of the outstanding indebtedness— consistent with the debtors’ claim that they returned the property after preparing the petition and schedules. The court finds that Carson did not acquire possession until after the bankruptcy and that the trustee’s interest in the property is superior under 11 U.S.C.A. § 544 (West 1979).
III. AVOIDABLE PREFERENCE
Even if the court accepts Carson’s proof that the rings were returned prior to bankruptcy, the trustee may avoid the transfer of possession to Carson as a preference. 11 U.S.C.A. § 547(b) (West 1979) provides that:
(b) The trustee may avoid any transfer of property of the debtor—
(1) to or for the benefit of a creditor;
(2) for or on account of an antecedent debt owed by the debtor before such transfer was made;
(3) made while the debtor was insolvent;
(4) made—
*952(A)on or within 90 days before the date of the filing of the petition;
# sjs * * *
(5) that enables such creditor to receive more than such creditor would receive if—
(A) the case were a case under chapter 7 of this title;
(B) the transfer had not been made; and
(C) such creditor received payment of such debt to the extent provided by the provisions of this title.
The trustee bears the burden of proof on each of these elements. Waldschmidt v. Ford Motor Credit Co. (In re Murray), 27 B.R. 445, 447 (Bkrtcy.M.D.Tenn.1983). See also Steel Structures, Inc. v. Star Manufacturing Co., 466 F.2d 207, 216 (6th Cir.1972). The court finds that all the elements of an avoidable preference have been demonstrated. The return of the rings constituted a transfer.4 The transfer was made to and for the benefit of Carson, a creditor. The transfer if sustained would allow Carson to acquire a perfected security interest on the eve of bankruptcy and, thereby to receive a greater share of the bankruptcy estate than if the transfer had not been made. The transfer was made to satisfy antecedent debts. Considering the evidence in the light most favorable to Carson, the transfer was made no more than 21 days prior to the filing of the petition while the debtor was contemplating bankruptcy and was insolvent.5
Accordingly, the trustee is entitled to recover the rings under either 11 U.S.C.A. § 544 (West 1979) or 11 U.S.C.A. § 547 (West 1979) and sell the rings for the benefit of all creditors.
An appropriate order will be entered.
Entered this 23rd day of November, 1983.
. On the date the bankruptcy petition is filed, the trustee acquires the rights or a hypothetical lien creditor. 11 U.S.C.A. § 544(a) (West 1979) provides in relevant part that:
The trustee shall have, as of the commencement of the case, and without regard to any knowledge of the trustee or of any creditor, the rights and powers of, or may avoid any transfer of property of the debtor or any obligation incurred by the debtor that is voidable by—
(1) a creditor that extends credit to the debtor at the time of the commencement of the case, and that obtains, at such time and with respect to such credit, a judicial lien on all property on which a creditor on a simple contract could have obtained a judicial lien, whether or not such a creditor exists.
. There is no dispute that if a security interest was created it was a purchase money security interest within the meaning of TENN.CODE ANN. § 47-9-107 (1979) and as such is perfected without filing. TENN.CODE ANN. § 47-9-302(l)(d) (1979).
. Neither party has addressed the question whether an oral security agreement is a prerequisite to enforceability under § 47-9-203(l)(a). See Barton v. Chemical Bank, 577 F.2d 1329, 1334 (5th Cir.1978). Carson presented no proof of such an oral agreement and, as indicated above, no writing exists sufficient to constitute a security agreement. However, the outcome of this case would not be changed by proof of an oral security agreement.
. 11 U.S.C.A. § 101(41) (West 1979) provides: ‘Transfer’ means every mode, direct or indirect, absolute or conditional, voluntary or involuntary, disposing of or parting with property or with an interest in property, including retention of title or security interest.
. 11 U.S.C.A. § 547(f) (West 1979) creates a rebuttable presumption regarding the debtors’ insolvency for the purpose of proving a preference:
(f) For the purposes of this section, the debtor is presumed to have been insolvent on and during the 90 days immediately proceeding the date of the filing of the petition.
This presumption requires the party against whom the presumption exists to come forward with rebuttal evidence. Waldschmidt v. Ford Motor Credit Co. (In re Murray), 27 B.R. at 447, In re Rustia, 20 B.R. 131, 133 (Bkrtcy.S.D.N.Y.1982); Seidle v. Kwik Copy, Inc. (In re Belize Airways Ltd.), 18 B.R. 485, 487 (Bkrtcy.S.D.Fla.1982). Carson proffered no evidence to rebut the presumption. It should also be noted that Carson has not pleaded any of the defenses described in § 547(c), thus the availability of any defense under that subsection is not addressed. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489710/ | *15ORDER DENYING MOTION FOR RECONSIDERATION OF ORDER RE: APPLICATION BY ATTORNEY FOR CREDITORS’ COMMITTEE FOR COMPENSATION
JON J. CHINEN, Bankruptcy Judge.
By the instant Motion filed June 30,1983, Debtor requests reconsideration of this Court’s Order Approving Attorney’s Fees for Attorney for the Official Creditors’ Committee, which Order was entered herein on June 20, 1983. The motion is based on Rule 59 of the Federal Rules of Civil Procedure, entitled “New Trials; Amendment of Judgments,” section (a) of which states that a new trial may be granted “(2) in an action tried without a jury, for any of the reasons for which rehearings have heretofore been granted in suits in equity in the courts of the United States.”
The decision whether to grant a new trial is left to the judicial discretion of the Court. Moore’s Manual Federal Practice and Procedure, Vol. 2, Par. 24.01(1), p. 24r-4. In exercising its discretionary authority regarding a motion for reconsideration, the Court is guided by the following:
Just as at law, a rehearing in equity and its present counterpart, a new trial in a court action, will not lie merely to reliti-gate old matter; nor will a new trial normally be granted to enable the mov-ant to present his case under a different theory than he adopted at the former trial. As a practical matter, in equity formerly and in court actions now, three grounds for new trial are most common: manifest error of law or fact, and newly discovered evidence. Moore’s Manual Federal Practice and Procedure, Vol. 2, Par. 24.01(2), p. 24-9.
There is no allegation in the instant motion that any of the above grounds for granting the motion exist. The Affidavit of Mr. Souza attached to the motion states that Mr. Souza wishes to raise several issues and objections all of which have been heard and considered by this Court. In the Order Approving Attorney’s Fees for the Attorney for the Official Creditor’s Committee, this Court indicated that its decision regarding the requested fees was based on a review which included evidence and argument presented at hearings on April 19, 1982 and on October 18, 1982. Mr. Souza and his counsel, Mr. Gedan, were present for the former hearing and Mr. Gedan represented debtor at the latter hearing. The issues which Mr. Souza wishes to raise upon reconsideration were raised or could have been raised at these hearings. This Court has given ample time for argument on the application for fees and ha's considered the objections raised. There has been no offer of new evidence to be brought before the court.
The Court thus finding that no basis for reconsideration of this Court’s Order having been presented
IT IS HEREBY ORDERED, ADJUDGED AND DECREED that the Motion for Reconsideration be and hereby is DENIED. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489712/ | MEMORANDUM OPINION
WILLIAM A. SCANLAND, Chief Judge.
The Debtor, Michael Jacobson, filed a Chapter 13 proceeding in which he seeks the discharge to a fine of $2,500.00, imposed upon him after his plea of guilty to a criminal charge in the United States District Court, Tucson Division. An objection to this discharge was filed by the United States Attorney for the District of Arizona.
There is no question that 11 U.S.C. § 1328(a) provides that debts of a Chapter 13 debtor can be discharged upon the consummation of a plan with the exception of certain long-term debts, alimony and child support. The first question that occurs to this Court is whether or not this fine im*41posed in a criminal proceedings is a debt contemplated by the framers of the Bankruptcy Code. Consideration must be given to 11 U.S.C. § 1328 which provides for a discharge for a debtor in a chapter proceeding after completion of making all payments under the plan. The Court should also consider the effect of the stay under § 362(a) and the exceptions thereto contained in § 362(b)(1) which states, “... commencement or continuation of a criminal action or proceeding against the debtor” is not a stay. Subsection (b)(4) provides, “... commencement or continuation of an action or proceeding by a governmental unit to enforce such governmental unit’s police or regulatory power” is not stayed.
In a case that considered whether or not an order for restitution in a state court criminal proceeding created a dischargeable debt the court held that it did not. See, In re Newton, 15 B.R. 708 (Bkrtcy.Ct.N.D.Georgia 1981). In the case before us we do not have a situation of a restitution to a victim offended or damaged by the act of the debtor. In the instant case we have a fine imposed by the United States District Court as a criminal penalty to be discharged. The Newton case, supra, went on to hold that an order of restitution in a criminal judgment in state court would not be stayed by the filing of the petition in bankruptcy. They turned to the legislative history of this section, which reads as follows:
“The bankruptcy laws are not a haven for criminal offenders, but are designed to give relief from financial overextension. Thus, criminal actions and proceedings may proceed in spite of bankruptcy.” H.R.Rep. No. 95-595, 95th Cong., 1st Sess. (1977) 342-3; S.Rep. No. 95-989, 95th Cong., 2d Sess. (1978) 51-2, U.S.Code Cong. & Admin. News 1978, p. 5787. See, In re Newton, 15 B.R. 708 at p. 710.
The bankruptcy court located in the Phoenix Division of the District of Arizona, in In re Magnifico, 21 B.R. 800 (Bkrtcy.Ct.D.Az.1982), passed on this question, held that a restitution as ordered under criminal conviction under state law as a condition of probation was not a debt as contemplated by the Bankruptcy Code and therefore was not within the scope of a dischargeable debt.
Based on the foregoing, this Court finds that the Defendant was ordered to pay the fine to the United States in the amount of $2,500.00. This was as much of a penalty to the debtor as the imposition of a two-year probation period which was also ordered by the United States District Court. If, for any reason, the debtor fails to pay the $2,500.00 fine, this Court believes that the United States District Court, District of Arizona, could order his probation revoked.
This Court finds that the fine imposed by the United States District Court in the criminal proceeding CR-80-126-B-RMB is not a debt contemplated by the Chapter 13 proceedings to which a debtor is entitled to a discharge upon completion of his plan.
This Court further finds and holds that it has no jurisdiction to interfere with the criminal proceedings for the United States District Court. The sentencing in such matter is solely within the discretion of the United States District Court. U.S. v. Carson, 669 F.2d 216 (5th Cir.1982); Barnette v. Evans, 673 F.2d 1250 (11th Cir.1982). The United States District Court has the sole discretion under 18 U.S.C. § 3651 to set conditions of probation.
For such reasons the objection to the discharge of the fine of $2,500.00 imposed by the United States District Court for the District of Arizona, on the debtor, is sustained. The United States Attorney shall have twenty (20) days to file an appropriate form of order. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489713/ | MEMORANDUM
GEORGE C. PAINE, II, Bankruptcy Judge.
This matter is before the court on the trustee’s objection to the debtors’ claim of federal exemptions in the above-styled cases. Upon consideration of the evidence presented at the hearing, stipulations, exhibits, briefs of the parties and the entire record, this court concludes that the trustee’s objection should be sustained.
The following shall represent findings of fact and conclusions of law pursuant to Federal Rule of Bankruptcy Procedure 7052.
The 1978 Bankruptcy Reform Act permits debtors to exempt property under either § 522(d) of the Act or applicable state law unless a state expressly prohibits its citizens from electing the so-called federal exemptions. 11 U.S.C.A. § 522(b) (West 1979). In 1980, the Tennessee legislature enacted Tenn.Code Ann. § 26-2-112 (1980) to preclude the citizens of Tennessee from selecting the federal exemptions. This court subsequently held this “opt-out” statute invalid in Rhodes v. Stewart, 14 B.R. 629, 634-635 (Bkrtcy.M.D.Tenn.1981), but this decision was recently reversed by the United States Court of Appeals for the Sixth Circuit in Rhodes v. Stewart, 705 F.2d 159 (6th Cir.1983).
All the debtors in these cases elected the federal scheme of exemptions pursuant to this court’s Rhodes opinion. The trustee timely objected to these debtors’ exemptions when this court’s decision was reversed by the Sixth Circuit.
*63The issue presented has been addressed and resolved by Judge Keith M. Lundin of this court in the opinion of In re Frye, 33 B.R. 653 (Bkrtcy.M.D.Tenn.1983). In Frye, Judge Lundin held that the Sixth Circuit’s Rhodes decision would apply to all pending bankruptcy cases in which timely objections were raised. In re Frye, at 657. This court is convinced that the analysis and conclusion of Frye is correct and therefore will enter an order sustaining the trustee’s objection.
IT IS, THEREFORE, SO ORDERED. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489715/ | AMENDED MEMORANDUM DECISION
JON J. CHINEN, Bankruptcy Judge.
On January 20, 1983, Richard Barclay, Shurl Curci, John Curci, Steven Barclay, Mike Hollander and Victor Zaccaglin, hereafter “Movants”, who claim to be stoekhold-ers-creditors of Kilauea Volcano House, Ltd., filed a Motion to Alter or Amend Order approving Kilauea Volcano House, Ltd., Compromise of Controversy (As Compromise Relates to Creditor Claims of Debt- or’s Stockholders, Promised Plan of Reorganization to Be Proposed and Curci Guaranty Thereof), which Order had been filed on January 11, 1983.
Movants contend that the Order should be amended to show that Movants’ Schedule A-3 claim of $7,820,564 is “valid, subsisting and enforceable” and not subject to any subordination action on the part of the Unsecured Creditors’ Committee.
Movants further contend that the compromise did not in any way discuss Mov-ants’ Schedule A-2 claim for $2,370,000 and disallowance of said amount was beyond the scope of the compromise.
The Debtor and Debtor-in-Possession joined in the Motion of Movants.
A hearing was held on May 5, 1983 at which James M. Sattler, Esq. represented Movants, Arnold I. Quittner, Esq., represented Debtor and Debtor-In-Possession, Barton Marshall Watson, Esq., represented the Unsecured Creditors’ Committee and Don J. Gelber, Esq., represented Rampac, THI and C. Brewer.
Based upon the Memoranda filed, the record herein and arguments of counsel, the Court finds as follows:
*155Pertinent parts of the Joint Application of Debtor and of Secured Lenders To Compromise Controversy filed on August 11, 1982 read as follows:
6.... The stockholder guarantors have consented to the foregoing modification of the prior full release of the guarantees in order to provide a 12V2% cash dividend on confirmation of the KVH reorganization plan to the general unsecured creditors; that consent is conditioned upon acceptance by creditors and confirmation by final order of a 12y2% cash plan. Stockholder claims against KVH, more particularly described in the Schedule A-3, in the principal amount of $5,320,-564 as at December 31, 1981, shall be valid, subsisting and enforceable claims against KVH, but shall be subordinated to the claims of all other general unsecured creditors provided a 12V2% cash plan is accepted and confirmed by final order of the court.
At the hearing held on August 11, 1982, commencing at 8:35 a.m. Mr. Arnold Quitt-ner, in explaining a portion of the compromise stated:
“... As part of this package, the stockholders receive back from the secured lenders, who are being satisfied in other ways, the $2,500,000.00 note. So that the stockholders will have debt owing from KVH of approximately five million three plus two million five, or $7,800,000. This is a larger figure than I spoke to Barton about last night.” (page 6 of partial transcript).
“The stockholders, whose claims are $7,800,000, would, pursuant to the plan, subordinate their claims to the unsecured creditor in order to enable them to receive the 12% percent cash.” (page 11 of partial transcript)
After Mr. Quittner briefly explained the gist of the compromise, Mr. Gelber and Mr. Watson requested a recess so that they may study the application which had been handed to them shortly prior to the hearing. The Court granted a short recess.
Upon reconvening, both Mr. Watson, attorney for the Unsecured Creditors’ Committee, and Mr. Gary Lee, a member of said committee, acknowledged that, if Debtor were converted to Chapter 7 and liquidated, the unsecured creditors might not receive anything. Thus, their chief concern was a guarantee that the unsecured creditors would receive 12V2% on the dollar.
Mr. Lee expressed the concern of the committee when he stated at the hearing: (page 11 of partial transcript)
“What the unsecured creditors are looking at is — granted, on a liquidation, the unsecured creditors may not get anything and it really depends, I guess, on the fight of Kilauea Volcano House and whether the secured lenders do have a security position in that property. But, under this compromise, what we were told earlier was there was going to be another payment plan but there was going to be a guarantee. Now we’re being told we’re given this 12V2-percent cash plan but now we’re being told there’s no guarantee. In other words, what the unsecured creditors are looking at is there will be a plan, approve this compromise, but there’s no guarantee you’re going to get any money when the plan is confirmed. Because, if we take the $150,-000, it’s $75,000 and $75,000. It’s already been stated in court that the priority claims may exceed or be about $100,000. If that is so and if there are other claims that come before the unsecured creditors, that $150,000, as far as going to the unsecured creditors, may be zero. The only other money that this compromise talks about coming to KVH is another $150,-000, I think it’s over four or five years. Now, I don’t see, just based on this plan, how there can be a guarantee — if there’s a guarantee of the I2V2 percent to the unsecured creditors cash, which this thing — it doesn’t say guarantee' but it alludes to 12y2-percent cash plan. If there’s a problem. But, if there is no guarantee, then we stand in a position, even under this compromise, unsecured creditors may get zero and yet everybody else is getting something. Under liquidation, again, unsecured creditors may end *156up with zero but at least we’ve got a shot at something. That’s the quandry we’re in and that’s the reason for our position.
Following Mr. Lee’s statement, Mr. Curci guaranteed that, if the plan to be proposed by Debtor were confirmed, he would personally guarantee the 12V2% payment to the unsecured creditors.
After Mr. Curci gave his personal guarantee, Mr. Watson, on behalf of the Unsecured Creditors’ Committee, recommended that the compromise be approved.
The Court then approved the compromise, subject to approval by one of Mr. Gelber’s clients who was then travelling on the mainland. This approval was subsequently received.
At the hearing on May 5, 1983, Mr. Watson acknowledged that he had received a copy of the application to compromise controversy prior to the hearing on August 11, 1982. Although the period was extremely short, he had an opportunity to read the application to compromise controversy. If he lacked sufficient time to review the proposed compromise, Mr. Watson could have objected to the hearing scheduled for August 11, 1982. However neither Mr. Watson nor Mr. Lee, a member of the Unsecured Creditors’ Committee, objected to the hearing.
Though the matter of waiver of subordination of stockholders’ claim was never discussed among counsel for the various parties at the various conferences or at the hearing, the application to compromise controversy clearly stated:
“Stockholder claims against KVH, more particularly described in the Schedule A-3, in the principal amount of $5,320,564 as at December 31, 1981, shall be valid, subsisting and enforceable claims against KVH, but shall be subordinated to the claims of all other general unsecured creditors provided a 12y2% cash plan is accepted and confirmed by final order of the court.”
When the Unsecured Creditors’ Committee approved the application to compromise controvery, it recognized the validity of the stockholders’ claim of $7,800,000 and its subordination to the claims of the unsecured creditors, provided a 121/2% cash plan was accepted and confirmed. In return for such recognition by the Creditors’ Committee, the stockholders agreed to subordinate their claim if a 12x/2% cash plan was confirmed, and Mr. Shurl Curci guaranteed payment of the 121/2% cash upon final confirmation of a plan. The Creditors’ Committee cannot now seek to subordinate the stockholders’ claim beyond the terms of this agreement, since it had agreed to accept a 121/2% cash payment guaranteed by a stockholder, in return for its recognition of the stockholders’ claim to $7,800,000 against KVH.
With reference to the Movants’ claim for an additional sum of $2,500,000, some of them claim that they were not given notice of the August 11, 1982 hearing and were not represented at said hearing. Though Mr. Shurl Curci was present at the hearing, he contends that he represented himself and no one else.
At the hearing on August 11, 1982, Mr. Quittner stated:
“... As part of this package, the stockholders receive back from the secured lenders, who are being satisfied in other ways, the $2,500,000.00 note. So that the stockholders will have debt owing from KVH of approximately five million three plus two million five, or $7,800,000. This is a larger figure than I spoke to Barton about last night.” (page 6 of partial transcript).
When this representation was made, Mr. Curci was present in Court, but he did not object to such statement.
The Unsecured Creditors’ Committee recommended approval of the application to compromise controversy based on its understanding that the stockholders’ claim against KVH was limited to a total of $7,800,000.00 and the guarantee by Curci that the unsecured creditors would receive a 12x/2% cash return upon confirmation by the Court of a plan to be submitted by Debtor as discussed at the hearing on Au*157gust 11, 1982. Without the committees recommendation for approval, the application to compromise controversy would probably not have been approved on August 11, 1982, for the compromise involved assets to which the unsecured creditors had a possible claim.
When Mr. Quittner made the remarks concerning the $7,800,000.00 claim of the stockholders against KVH, it was the responsibility of Mr. Quittner and Mr. Curci to make it clear to all present at the hearing that the $7,800,000.00 was only a portion of the stockholders’ claim. This was not done, and any fault for misleading the Court and the unsecured creditors, though it may be unintentional, is on the part of Mr. Quittner who made the remarks concerning the $7,800,000.00 with the tacit consent of Mr. Curci.
The clear impression given to the Court was that the stockholders were claiming a total of $7,800,000 against KVH and no more. Apparently, this was also the impression given to the Unsecured Creditors’ Committee. This impression was based upon Mr. Quittner’s argument and statements in Court where he spoke as though he represented the stockholders, even though he stated he did not represent Mr. Curci or the stockholders.
Subsequent to the hearing held on August 11, 1982, an Order Approving Kilauea Volcano House, Ltd., Compromise of Controversy (Transfer of Hotel Properties) was filed on November 9, 1982. Said Order dealt with a portion of the compromise heard on August 11, 1982, and was approved as to form by Shurl Curci “on his own behalf and on behalf of all other KVH Shareholders.”
By this approval of the Order filed on November 9, 1982, the Court finds that Movants have approved the entire compromise of controversy as presented to the Court on August 11, 1982. Movants cannot approve only a portion of the compromise. They must approve the entire compromise or not at all.
The Court finds that the compromise agreement, though not perfect, is to the best interest of all concerned. Thus, the Court reaffirms its approval of the application to compromise controversy.
As for the Motion To Amend, the Court rules as follows:
1. The Unsecured Creditors’ Committee, in return for a guarantee of a 12V2% cash payment upon confirmation of a plan to be filed by Debtor as discussed at the August 11, 1982 hearing, recognized that the stockholders’ claim of approximately $7,800,-000.00 against KVH, “shall be valid, subsisting and enforceable”. Thus, the Unsecured Creditors’ Committee cannot now seek to subordinate the stockholder’s claim to those of the general unsecured creditors.
2. Movants’ contention that they were not represented at the hearing is without merit. They knew of the hearing and they allowed Mr. Shurl Curci to act and speak as though he represented all of them. Mov-ants had approved a portion of the compromise through Mr. Shurl Curci, as shown by the Order filed on November 9,1982. Thus, Movants are limited to a principal amount of $7,800,000.00.
An Order will be signed upon presentment. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489717/ | MEMORANDUM DECISION AND ORDER
JON J. CHINEN, Bankruptcy Judge.
On April 21, 1983, Ralph Aoki, Trustee for Gabriele & Co. Furniture, Inc., filed a Motion for Partial Summary Judgment, arguing that no issues of material fact existed in the Second Cause of Action in the Complaint and asked for judgment in the amount of $334,303.10.
On May 6, 1983, the defendants Charles Chang and Charles Heen filed a Memorandum of Points and Authorities in Opposition to Motion for Partial Summary Judgment, claiming that issues of material fact are present in the Second Cause of Action.
On May 11, 1983, the Motion for Partial Summary Judgment was heard before this Court with James Leavitt representing the movant Ralph Aoki and Michael O’Connor representing the defendants Heen and Chang, hereafter “Defendants”. The Court took the matter under advisement, requesting the Parties to file supplemental memorandum by May 23, 1983. Defendants submitted a Supplemental Memorandum of Points and Authorities in Opposition to Motion for Partial Summary Judgment on May 23,1983. Trustee submitted a Supplemental Memorandum in Support of Motion for Partial Summary Judgment on May 27, 1983. The Court, having considered the Memoranda, the records herein and the argument of counsel, makes the following Findings of Fact, Conclusions of Law and Order.
FINDINGS OF FACT
1.The Trustee herein filed a complaint against Defendants, alleging in eight causes of action that the Defendants had breached their fiduciary duties as shareholders by proposing and agreeing to the corporate repurchase of Heen’s stock by Gabriele & Co. Furniture, Inc., hereafter “Gabriele”. Heen, a twenty-five percent shareholder in Gabriele, had requested the corporation, on April 28,1980, to repurchase his stock interest for $200,000. On May 2, 1980, Gabriele accepted Heen’s proposal for the sale of his stock by giving Heen $150,000 worth of furniture. The wholesale value of the furniture which Heen eventually accepted was $113,784.92. At the time of the foregoing transaction, Heen also submitted his resignation from the corporation as Director and Treasurer.
2. In the motion presently before this Court, Trustee is seeking summary judgment on the second cause of action, in which he alleges that the corporate repurchase of Heen’s stock is in direct violation of the law.
3. Corporate repurchase of a shareholder’s stock is, in general, disallowed. HRS 416-28 explicitly states that:
A corporation shall not purchase, directly or indirectly, any shares of stock issued by it, except as permitted by this section.
HRS 416-28 permits stock repurchases under the following circumstances:
(1) To collect or compromise in good faith a debt, claim, or controversy with any stockholder or stockholders of the corporation; or
(2) From a stockholder or stockholders of the corporation who, by reason of dissent from any proposed corporate action, is or are entitled pursuant to statutory provisions to receive the value of the shares; or
(3) From officers or employees of the corporation who have purchased shares from the corporation under agreement reserving to the corporation the option to repurchase or obligating it to repurchase shares.
HRS 416-28 further states that:
A corporation may also purchase shares of stock issued by it by the use of any surplus of the corporation, including paid-in surplus created by a reduction of capital stock.
3. Trustee argues that, as a matter of law, Gabriele’s repurchase of Heen’s stock is a violation per se of HRS 416-28. Defendants counterargue that the share repur*165chase was made in accordance with the provisions of HRS 416-28 which allow such a transaction if surplus funds are used, or if the repurchase was made to “collect or compromise a debt, claim, or controversy.”
4. In order for partial summary judgment to be granted in accordance with FRCP 56, which is made applicable to bankruptcy proceedings by Bankruptcy Rule 756, the Court must determine if any factual dispute exists with regard to the following issues:
(1) whether surplus funds were available to Gabriele to repurchase the stock in question; and
(2) whether HRS 416-28, which allows repurchase of stock if. done to “collect or compromise a debt, claim or controversy”, is applicable to Gabriele’s repurchase.
5. This Court requested that supplemental memoranda be submitted by the parties on the proper interpretation of the phrase which allows repurchase of shares with surplus funds. Defendants argue that surplus is equivalent to retained earnings and that Gabriele had sufficient retained earnings to purchase Heen’s stock. Trustee does not provide a definition of the term surplus but contends that there clearly was no surplus in the corporation.
6. Defendants contend that HRS 416-28, which allows corporate repurchase “to collect or compromise a debt, claim or controversy” permits the transaction between Heen and Gabriele. Trustee claims that this provision is irrelevant to Heen’s repurchase.
7. Trustee has requested judgment for $334,303.10. Defendants argue that if they were found liable, then the wholesale value of $113,784.92 should be used to measure damages and not the retail figure of $334,-303.10. Trustee has indicated that he would accept judgment for the wholesale value of the furniture at present, and settle the issue of damages at trial. Trustee, however, has not amended his complaint with respect to the judgment he seeks.
8.Wherever these Findings of Fact are Conclusions of Law, they are hereinafter incorporated as such.
CONCLUSIONS OF LAW
1. In order for the trial court to grant a motion for partial summary judgment in accordance with FRCP 56 and Bankruptcy Rule 756, the Court must determine that (1) there is no genuine issue of any material fact or (2) when viewing the evidence and inferences which may be drawn therefrom in the light most favorable to the adverse party, the moving party is entitled to judgment as a matter of law. See e.g., Jones v. Halekulani Hotel, Inc., 557 F.2d 1308 (9th Cir.1977).
To justify the grant of a motion for summary judgment, the record must show the movant’s right to it with such clarity as to leave no room for controversy and must demonstrate that his opponent would not be able to prevail under any discernible circumstances. Nyhus v. Travel Management Corporation, 466 F.2d 440 (D.C.Cir.1972).
2. Disputes have arisen in the present case on the issues of (1) whether surplus funds were available for the repurchase of Heen’s stock; (2) whether the repurchase was made to satisfy a claim or controversy; and (3) what the correct measure of damages is if Trustee prevails.
3. Trustee has not demonstrated with “such clarity as to leave no room for controversy” that surplus funds were unavailable to Gabriele to repurchase Heen’s shares. HRS does not define the term surplus. Trustee has not provided the Court with a definition of the word and Defendants have argued that surplus is synonymous with retained earnings. The definition offered by Defendants is, however, inconsistent with that found in Black’s Dictionary. Black’s defines the term surplus of a corporation as:
the net assets of the corporation in excess of all liabilities including capital stock, Winkelman v. G.M.C., D.C.N.Y., 44 F.Supp. 960, 996; or what remains after making provisions for all liabilities of every kind, except capital stock, Insurance *166of North America v. McCoach, C.C.A.Pa., 224 F. 657, 658.
The definition and interpretation given the word surplus are in factual dispute and will have to be addressed at the trial.
4. Furthermore, Trustee has not presented evidence that would demonstrate that Defendants would be unable to prevail under any discernible circumstances on their argument that the stock repurchase was made to satisfy “a debt, claim or controversy.” If the repurchase was made to settle “a debt, claim or controversy” between Heen and Thomas Gabriele, President of Gabriele, as shareholders, it is not allowable within HRS 416 — 28. Spradlin, “Stock Repurchases to Preserve Control Under Hawaii Law,” 6 HBJ 81 (1969). Only when the dispute is between the corporation on one hand and the stockholder on the other can HRS 416-28 be successfully invoked. A factual dispute, therefore, exists in determining whether the “debt, claim or controversy” between Heen and Gabriele is viewed as one between shareholders or between the shareholder and the corporation.
5. There is also a factual dispute between the Trustee and Defendants over the amount of damages which should be awarded if Trustee prevails on the motion.
6. Issues of material fact remain to be resolved in the Second Cause of Action in Trustee’s Complaint. The motion for partial summary judgment must, therefore, be denied.
ORDER
Pursuant to FRCP 56 and Bankruptcy Rule 756 the Motion by Ralph Aoki for Partial Summary Judgment on the Second Cause of Action is denied. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489718/ | MEMORANDUM DECISION AND ORDER
JON J. CHINEN, Bankruptcy Judge.
On July 20, 1982, the Creditors, Trustees for the Hawaii Carpenters’ Health and Welfare Trust Fund, filed an involuntary petition for relief under Chapter 7 against the Debtor, Custom Millwork, Inc. On August 16, 1982, the case was converted from a Chapter 7 to a Chapter 11 proceeding. On December 3, 1982, the Creditors, the Petitioners herein, filed a request for the payment of administrative expenses, seeking a total of $2,441.76. In particular, the Creditors sought $1,644.80 in employee benefit contributions, $249.41 in liquidated damages, $473.55 in attorney’s fees, and $74.00 in court costs and expenses, incurred by Joseph Kinoshita, attorney for the Creditors, in pursuing this claim.
On December 17, 1982, the Creditors’ request for administrative expenses was heard before this Court with Howard Tana-ka representing Debtor and Ashley Ikeda of the law offices of Joseph Kinoshita representing the Creditors. The Court ordered the Debtor to pay all post petition employee benefit contributions and attorney’s fees within ten days and requested the parties to submit memoranda by January 7, 1983 on the issues of liquidated damages and court costs and expenses of Joseph Kinoshita, attorney for the Creditors. On January 14, 1983, the Debtor filed “Debtor’s Memorandum Re: Liquidated Damages vs. Penalty” and the Creditors filed a “Memorandum in Support of Request for Payment of Administrative Expenses.” The Court, having considered the Memoranda, the records herein and the argument of counsel, makes the following Findings of Fact, Conclusions of Law and Order.
FINDINGS OF FACT
1. Pursuant to the collective bargaining agreement between the Debtor and the United Brotherhood of Carpenters’ and Joiners of America, Local 745, AFL-CIO, the Creditors are authorized to collect employee benefit contributions, which are calculated upon the hours worked by the Debt- or’s employees.
2. The administrative expenses requested by the Creditors accrued after the filing of the Chapter 7 involuntary petition and after the filing of the order converting the case from Chapter 7 to Chapter 11.
3. The Creditors contend that pursuant to 11 U.S.C. §§ 303(f), 502(f), 503(b)(1)(A) and 507(a)(2) the administrative expenses are necessary to the preservation of the Debtor’s estate. If employee benefit contributions, attorneys fees, liquidated damages and other costs had not been paid as required by the collective bargaining agreement, the Creditors allege that the Debtor would have been unable or less able /to continue doing business.
4. At the December 17, 1983 hearing, the Debtor argued that the liquidated damages clause in the collective bargaining agreement was actually a penalty and therefore unenforceable and the $74.00 requested by Joseph Kinoshita, attorney for the Creditors, was not an expense or cost actual or necessary to the preservation of Debtor’s estate.
5. This Court must determine 1) whether the liquidated damages clause is actually a penalty and therefore void; and 2) whether the expenses of Joseph Kinoshita, attorney for the Creditors, should be allowed.
6. The “liquidated damages” clause in the collective bargaining agreement is described in a November 8, 1982 letter from the Creditors, which states, in pertinent part:
Mill Cabinet Contractors are required to make payment for Trust Fund contributions by the 20th day of the month immediately following the month for which the contributions are due. (All payments *173have to be paid or postmarked and mailed by the 20th day.) If payments are not made by the 20th day then they become delinquent and liquidated damages are assessed against the contractor. Liquidated damages will amount to 10% of the delinquent and unpaid contributions due to each fund (or $20.00, whichever is greater) for each monthly contribution that is delinquent
7. HRS 490:2-718(1) defines liquidation or limitation of damages as follows:
Damages for breach by either party may be liquidated in the agreement but only at an amount which is reasonable in the light of the anticipated or actual harm caused by the breach, the difficulties of proof of loss, and the inconvenience or nonfeasibility of otherwise obtaining an adequate remedy. A term fixing unreasonably large liquidated damages is void as a penalty.
The Comments to the Official Text of HRS 490:2-718(1) state that:
Under subsection (1), liquidated damage clauses are allowed where the amount involved is reasonable in the light of the circumstances of the case.
8. Debtor argues that the “liquidated damages” clause is a penalty and that the Creditors’ demands for payment should be rendered unenforceable. The Debtor contends that the amount stated as liquidated damages is an unreasonable estimation of the presumed injury which might occur as a result of a breach. The thrust of the Debt- or’s argument is that the alternative provision for damages of either 10% of the employee contribution benefits or $20.00, whichever is greater, is unreasonable when the liquidated damages are only necessary to cover the additional costs of handling delinquent payments. According to the Debtor, the fee for handling delinquent payments should be the same or nearly the same regardless of the amount that is being assessed for the breach. The “liquidated damages” provision in the collective bargaining agreement, however, results in fluctuating damages being collected. The Debtor also cites the title of Exhibit “Dl” as evidence that the Creditors regarded the clause as being a penalty. The Creditors had referred to “penalty assessments” and not liquidated damages.
9. The Creditors argue that the Debtor has failed to submit proof or any evidence as to the unreasonableness of the liquidated damages requested. The Creditors contend that the liquidated damages requested are sums justly due on behalf of the Debtor’s mill cabinet employees. It would be extremely difficult and impractical, the Creditors state, to fix the actual expenses and damages. The Creditors also rebut the Debtor’s contention that merely because Exhibit “Dl” refers to the liquidated damages clause as a “penalty assessment” it is void. The Creditors cite United States v. Bethlehem Steel Co., 205 U.S. 105, 120, 27 S.Ct. 450, 455, 51 L.Ed. 731 (1907) as support for the proposition that the use of the terms “liquidated damages” or “penalty assessment” are not conclusive in determining whether the clause is void.
10. The Debtor’s Memorandum does not discuss the issue of the Creditors’ request for $74.00 in court costs and expenses. The Creditors argue that, pursuant to the terms of its collective bargaining agreement, the Debtor was required to submit monthly reports. Because the Debtor did not submit these reports, the Creditors were required to take appropriate legal action. The Creditors conducted a Rule 205 Examination and issued Subpoenas in order to obtain information which should have been submitted by the Debtor in its monthly reports. Costs of $74.00 were incurred by the Creditor for which they seek reimbursement from the Debtor.
11. Wherever these Findings of Fact are Conclusions or Law, they are hereafter incorporated as such.
CONCLUSIONS OF LAW
1. This Court must decide 1) whether the “liquidated damages” clause in the collective bargaining agreement is void as a penalty; and 2) whether the expenses incurred by Joseph Kinoshita, attorney for *174the Creditors, were actual and necessary to the preservation of the Debtor’s estate.
2. This Court, in discussing the parameters of a liquidated damages clause, has stated in In Re Oahu Cabinets, Ltd.:
The general rule is that a provision for damages will be enforceable as a liquidated damages provision where 1) the anticipated damages in the event of breach of contract are difficult to ascertain, 2) the parties mutually intend to liquidate the amount of damages in advance, and 3) the amount stated as liquidated damages is reasonable and proportionate to the presumed injury which occurs as a result of any breach. The provision will not be enforced, however, where it is found to be a penalty designed to secure performance of the contract. Whether it is a substitute for performance or a penalty depends on the facts of each case and is a question of law. (Citations omitted).
12 B.R. 160, 165 (Bkrtcy.1981).
3. In In Re Oahu Cabinets, Ltd., this Court struck down the “liquidated damages” provision in the lease as a penalty. The Court found that the clause reading “plus a dollar amount equivalent to the higher of 4<t per dollar owed or $5.00 per billing rendered [whichever is greater]” was an effort to extract a penalty for late payment. 12 B.R. at 165.
Moreover, in In re Holiday Mart, Inc., this Court held that the five percent late charge on delinquent payments was void as a penalty because it was not a reasonable pre-estimate of the higher handling costs likely to result from a single late payment. 9 B.R. 99, 108 (Bkrtcy.1981). The Court distinguished the case of In re Max Sung Hi Lim, 12 B.R. 821 (Bkrtcy.D.Haw.1980), which upheld a two percent late charge. The Court stated that in In re Holiday Mart the purported liquidated damage rate was two and one-half times the rate in Max Sung Hi Lim, and it was applied to a base amount that was double that in Max Sung Hi Lim. 9 B.R. at 108.
In the instant case, this Court finds that the purported “liquidated damages” provision in the collective bargaining agreement is an unreasonable pre-estimate of the damages resulting from a late payment by the Debtor. The anticipated damages from the Debtor’s breach would be the cost of handling the delinquent payment, which would be a fixed amount, varying only slightly from month to month. The clause in the present agreement of 10% of the employee contribution benefits or $20.00, whichever is greater, will, however, conceivably result in damage awards fluctuating widely from one month to the next depending on the amount of employee contribution benefits. The liquidated damages provision is therefore disproportionate to the presumed injury which occurs as a result of the breach.
Furthermore, in light of In re Oahu Cabinets, Ltd., supra, and In re Holiday Mart, supra, the clause providing for 10% or $20.00, whichever is greater, functions as a penalty designed to secure performance of the contract instead of providing compensation for any resulting injury. This Court therefore concludes that the “liquidated damages” clause is void as a penalty.
5. The Court also concludes that pursuant to 11 U.S.C. § 503(b)(1)(A) the Debtor shall pay the $74.00 court expenses incurred by Joseph Kinoshita, attorney for the Creditors. By the terms of the collective bargaining agreement, the Debtor had agreed to pay all court and collection costs incurred by the Creditors if it became necessary for the Creditors to take legal action to enforce the terms of that agreement. Furthermore, these costs were actual and necessary to the preservation of the estate.
ORDER
Pursuant to HRS § 490:2-718(1) and 11 U.S.C. § 503(b)(1)(A) this Court holds that 1) the “liquidated damages” clause is void as a penalty and therefore the Debtor shall not have to pay the $249.41 demanded by the Creditors; and 2) the Debtor shall pay the legal expenses of $74.00 incurred by Joseph Kinoshita, attorney for the Creditors, since such a payment is necessary for the preservation of the estate. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489719/ | MEMORANDUM AND DECISION
JON J. CHINEN, Bankruptcy Judge.
This Memorandum Decision deals with whether Louis C. Harms (hereafter “Claimant”) is entitled to raise a pre-petition claim or seek damages from KIKI, Ltd. (hereafter “Debtor”) despite executing a compromise and settlement agreement (hereafter “agreement”). The agreement executed between Claimant and Debtor called for Claimant’s release of debts owed by Debtor in exchange for its common stock. This subject common stock of Debtor was to be issued from a new company to be formed by the merger of KIKI, Ltd., a Hawaii Corporation and Court Broadcasting Company, an Ohio corporation.
On January 29, 1982 the Trustee filed a Memorandum of Points and Authorities in Objection to Allowances of Claims, objecting to the claims of Claimant. Subsequently thereafter, on April 1,1982, a hearing on the matter was held before the undersigned Bankruptcy Judge with V. Spencer Page, Esq. appearing on behalf of the Trustee and Allan Van Etten, Esq. appearing on behalf of Claimant. Based on the records in the file and arguments of counsel, the Court finds as follows:
FINDINGS OF FACT
1. On March 13 and 16 of 1972, Claimant obtained judgments in Illinois against KIKI, Ltd., and Court Broadcasting Company, for several promissory notes due. The parties agree that the total amount of the judgments with statutory interest exceeds $68,058.49.
2. On February 11, 1974 Claimant signed a shareholders agreement with KIKI, Ltd., and Court Broadcasting Company. The purpose of the agreement was to *176effect a settlement of the above-mentioned judgments against both corporations. The agreement called for converting claims into shares of a corporation resulting from a merger between KIKI, Ltd., and Court Broadcasting Company.
3. The merger of Court Broadcasting and KIKI, Ltd. was accomplished on April 20, 1974. The resulting corporation, KIKI, Ltd. (Debtor) was registered in Hawaii and Ohio.
4. On April 1, 1975 Debtor filed a Chapter 11 petition in the United States Bankruptcy Court, District of Hawaii.
5. On May 12, 1975 Claimant filed a proof of claim on the above-mentioned judgments in the amount of $68,058.49.
6. On February 2, 1978 Debtor was adjudicated bankrupt, and on March 13, 1978 Mr. Yee Hee was appointed Trustee for Debtor. The qualification of Mr. Hee as Trustee was completed on May 3, 1978 by the filing of a verification certificate.
7. On January 29, 1982, an objection to Claimant’s claim was filed wherein Trustee argued that the shareholders agreement effected a settlement of all claims and reduced Claimant’s status to one of an equity shareholder. In addition, Trustee contended that the agreement is current and enforceable by this Court.
8. At the April 1, 1982 hearing, Claimant contended that the agreement was an executory contract which would only take effect when Claimant received $37,500.00 of Debtor’s common stock pursuant to the agreement. Claimant further took the position that this agreement had either been breached by Debtor or had been rescinded. Alternatively, Claimant contended that without Debtor’s performance, which was a condition precedent to Claimant’s duty, Claimant was under no duty to perform.
9. In response, the Trustee contended that the agreement should not fail despite non-performance, or non-delivery of the post-merger KIKI, Ltd. shares to Claimant. Trustee indicated that there existed case law to support the contention that the delivery of shares is a mere formality which does not invalidate a shareholders agreement. Further, Trustee took the position that Claimant was barred by estoppel since, as an equity shareholder, he had received benefits of Debtor’s continued post-merger operations and dividends. However, Trustee’s position remains unsubstantiated. To date, Trustee has neither cited cases supporting this position nor has shown that Claimant had received any benefit from the merger.
10. At the same hearing, Alan Peter Howell, former attorney for Debtor, testified that it was the understanding between Debtor and Claimant that Claimant would release any claims asserted after delivery of the post-merger KIKI, Ltd. shares. In addition, Mr. Howell testified that Debtor decided not to deliver the shares since relief was afforded by the filing of the Chapter 11 petition.
11. At the conclusion of the April 2, 1982 hearing, counsel for the Trustee agreed to submit a memorandum to support his position by April 21, 1982. Counsel for Claimant agreed to submit a responsive memorandum by April 23, 1982. The undersigned Judge then placed the matter under advisement pending receipt of both memoranda. To date, this Court has not received the requested memoranda.
12. Wherever these Findings of Fact are Conclusions or Law, they are hereafter incorporated as such.
CONCLUSIONS OF LAW
There are several issues before this Court:
1. Whether the compromise and settlement agreement constitutes an executory contract, and
2. If so, whether the executory contract has been rejected by Debtor.
The law is clear in determining whether the compromise and settlement agreement executed between Debtor and Claimant constitutes an executory contract. The appropriate test is whether:
*177[the] contract under which the obligation of both the bankrupt and the other party to the contract are so unperformed that the failure of either to complete the performance would constitute a material breach excusing the performance of the other. In Re Alexander, 670 F.2d 885, 887 (9th Cir.1982); See also In Re Knutson, 563 F.2d 916 (8th Cir.1977).
The court in In Re Alexander determined that a deposit receipt agreement was an executory contract as substantial performance still remained due—the buyer had to pay the remainder of the purchase price, and the debtor-seller had to give up possession and convey title. Furthermore, the court found that failure of either side to complete performance by giving up possession and conveying title, or paying the purchase price, would constitute a material breach.
In the present agreement both Debt- or’s future performance of issuing and delivering $37,500.00 common stock to Claimant and Claimant’s corresponding performance of releasing all claims asserted against Debtor remain completely unperformed. Clearly Debtor’s failure alone to deliver the shares, or Claimant’s failure to release all claims, constitutes a material breach excusing the other of performance. In light of In Re Alexander this Court finds that the agreement executed between Debtor and Claimant is an executory contract.
In addition, any further doubt as to finding an executory contract can be erased by looking to the language of the agreement. The language of the agreement as a whole calls for future performance:
2. ... As soon as practicable upon .,. merger of Court and KIKI ... in consideration of the issuance of such stock to said shareholders for their debt claims, each of said shareholders shall release and discharge KIKI and Court ...
4. Harms, KIKI, and Court and ... In consideration of receiving $37,500.00 of the common stock of KIKI, he will take all steps necessary to enter satisfaction ... appropriate general releases ... (emphasis added)
The law clearly states that a contract requiring future performance is executory. In Re San Francisco Bay Exposition, 50 F.Supp. 344, 346 (N.D.Cal.1943). Since the language here calls for future performance, there can be no doubt that the parties had intended the agreement to be executory.
In finding the compromise and settlement agreement to be an executory contract, the question then becomes whether Debtor has rejected or assumed said executory contract. See In Re Alexander, supra. Rule 607 of the Bankruptcy Rules requires the Trustee to file within 30 days following Trustee’s qualification a list of executory contracts assumed. In addition, an execu-tory contract will be deemed rejected by the debtor if not assumed within sixty days following Trustee’s qualification. 13 Collier on Bankruptcy ¶ 607.05, 14th ed.
In the instant case, Mr. Hee was retained as Trustee in the Chapter 7 proceedings by a Court Order dated April 6, 1978 and qualified on May 3, 1978. Since the Trustee, Mr. Hee, did not assume the executory compromise and settlement agreement within sixty days of May 3, this Court finds that the agreement had been rejected.
The rejection of the executory contract relates back to the date of the original petition under Chapter XI proceedings and the non-breaching party may seek to recover damages from the other party. 13 Collier on Bankruptcy ¶ 607.05, 3a Collier on Bankruptcy ¶ 70.43(a), 14th ed. 1976.
The Court will hold a further rehearing on this issue of damages. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489720/ | ORDER DENYING INTEREST AS ADDITIONAL COMPENSATION
JON J. CHINEN, Bankruptcy Judge.
The law firm of CHUN KERR & DODD, herein attorneys for the Trustee, hereafter “Applicant”, filed on August 16, 1983, an APPLICATION FOR ALLOWANCE OF INTEREST AS ADDITIONAL COMPENSATION, wherein a request is made for interest on their fees from the date of conversion to Chapter 7 on December 5, 1980 until the payment of the fees.
The Applicant served as attorney for the receiver during Chapter XI proceedings from August 4, 1978 through December 4, 1980. On April 3, 1981, Applicant submitted an Application for Final Allowance of Compensation requesting approval of total fees of $324,832.65, which constituted a request for $133,792.18 plus tax in addition to amounts which had been previously allowed as interim compensation. This application was heard in May of 1981 and on November 6, 1981, this Court awarded Applicant $16,025.90 beyond the amounts previously approved. The Trustee paid this amount on November 24, 1981.
On November 18, 1981, Applicant appealed this Court’s Order of November 6, 1981 to the U.S. District Court. On November 4, 1982, the U.S. District Court vacated and remanded this Court’s Order of November 6, 1981 with instructions for reconsideration of Applicant’s request. On December 13, 1982, Applicant filed with this Court documentation supporting final fees in the amount of $239,891.90 plus tax, which constituted a $31,825.53 plus tax increase over the amount approved in the November 6, 1981 Order.
On August 3, 1983, this Court entered its further Order on the final allowance due Applicant during the period of the Chapter XI proceedings and approved $19,025.10 plus tax beyond the amount approved in the November 6, 1981 Order. The Trustee has indicated that payment of this amount will be made on September 1, 1983.
By the instant application, Applicant requests that interest be awarded from debt- or’s estate on the $16,025.90 from the date of conversion from Chapter XI to Chapter 7 on December 5, 1980 until the amount was paid by the Trustee on November 24, 1981. In addition, Applicant requests that interest be paid from debtor’s estate on the $19,-025.10 from December 5, 1980 until payment is received on September 1, 1983. As support for this request, Applicant submits an Affidavit from the Trustee stating that the funds were invested during this period and earned a minimum 9% interest, and further stating that the Trustee is not opposed to this request.
This Court dismisses outright the contention that interest can be claimed from the time of the conversion until the fees were actually paid, especially since Applicant’s request for fees was not filed until four months after the conversion date or heard until five months later. The Court’s Order on the fees was entered eleven months after the conversion date. To claim that debtor’s estate is liable from the date of the services for interest on attorneys’ fees is an attempt by Applicant to set a “time clock” on the Court’s processing of *185fee applications at the expense of debtor’s estate.
No authority is claimed by Applicant to support the request that any interest be paid on fees. In In re Barceloux, 74 F.2d 288, 289 (1935), the Ninth Circuit Court of Appeals, in allowing interest on fees from the date of award by the referee, specifically relied on the terms of the supersedeas bond filed by the appealing creditor to cover any such damages caused by the delay of the appeal.
This Court agrees with the Third Circuit Court of Appeals in United States v. Larchwood Gardens, Inc., 420 F.2d 531 (3rd Cir.1970), and the Bankruptcy Court of the Eastern District of Pennsylvania in In re Meade Land and Development Co., Inc., 5 B.R. 464 (Bkrtcy.E.D.Penn., 1980), in distinguishing the Barceloux holding. “We see no reason to reward the party who is at least partially responsible for the delay with the accumulated interest.” Meade, supra, at 465. We are in agreement with the Court in Larchwood that the allowance of interest should be determined in accordance with equitable principles.
In the instant case, no supersedeas bond has been filed from which the requested interest would be paid. Applicant’s efforts in seeking approval of fees greatly in excess of that approved even on remand have contributed to the delay in award of final fees. It has been necessary for the Court to spend considerable time in carefully reviewing the time-sheets submitted by Applicant. This Court holds that justice and equity preclude awarding Applicant interest from debtor’s estate on fees from the date of conversion to Chapter 7 until the time of payment.
The Court finds, however, that from the time an award of fees and costs is made by the Court and the Trustee is allowed a reasonable time to pay said amount, the moneys involved rightly belong to the Applicant. Thus, interest earned on these fees, after a reasonable time for payment has passed, should rightly be passed on to the Applicant. Given the availability of funds to pay the awarded fees, a period of one (1) week is a reasonable time during which the Trustee could be expected to pay the amount awarded to the Applicant. Based on Applicant’s calculations that per diem interest on $16,025.90 at 9% equals $3.95 and that per diem interest on $19,-025.10 at 9% equals $4.69, and allowing the Trustee one week from the Court’s Order to pay the approved amount, the following amounts of interest are allowable:
$3.95/day for the period from November 13, 1981, until payment was made on November 24, 1981 (11 days) or $43.45.
$4.69/day for the period from August 10, 1983 until payment can be made.
The Trustee is hereby authorized and ordered to pay to Applicant the sum of $43.45 plus $4.69 per day from August 10, 1983 until the fees approved in the Order of August 3, 1983 are paid as interest on Applicant’s fees and costs. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489721/ | MEMORANDUM AND ORDER DENYING REQUEST TO CERTIFY MATTER FOR APPROVAL BY DISTRICT JUDGE AND SETTING OBJECTIONS FOR PRETRIAL CONFERENCE
WALTER J. KRASNIEWSKI, Bankruptcy Judge.
This matter is before the Court upon the request of the AmeriTrust Company (Amer-iTrust) for certification that circumstances require that a certain “Emergency Interim Order Authorizing Debtor-in-Possession to Incur Secured Debt” (hereinafter the “financing order”) entered September 21,1983 be approved by a district judge and upon objections to such order filed by Kripke-Tuschman Industries, Inc. (Kripke-Tusch-man) and the Ohio Edison Company (Ohio Edison). Ohio Edison also objects to an order entered September 22, 1983 granting Armco, Inc. a security interest in Debtor’s post petition inventory. Under the circumstances of this case, the Court will deny the request for certification. The objections, however, should be set for pretrial conference.
The Marion Steel Company (Debtor) filed its petition under Chapter 11 of the Bankruptcy Code, 11 U.S.C. § 1101 et seq., on *202September 12, 1983. On September 20, 1983 Debtor filed its “Motion for Emergency Order Authorizing Interim Authority to Borrow on Secured and Priority Basis” which motion was granted in the financing order, supra, entered September 21, 1983. On September 22, 1983, on the motion of Armco, Inc. (Armco) for a temporary restraining order and for relief from stay, the Court entered an order (hereinafter “the Armco Order”) which, among other things, granted Armco a security interest in Debt- or’s post petition inventory. By Order of the Court entered September 23, 1983, Debtor’s counsel was directed to mail copies of both the above orders to Debtor’s 20 largest creditors along with a notice that they had 20 days from the date of mailing thereof to file written objections and request a hearing, if they desired, to contest such orders. On October 3,1983, Ohio Edison initiated an appeal of both orders to the district court pursuant to 28 U.S.C. § 1334. On October 7, 1983, Kripke-Tuschman filed an objection to the financing order. Finally, on October 13, 1983, Ohio Edison filed objections to both orders.
AmeriTrust’s request for certification of the financing order to a district judge is made pursuant to Section (e)(2)(A)(ii) of General Order No. 61, “Emergency Rule for Bankruptcy Procedure” (hereinafter the “interim rule”) adopted on December 21, 1982 by the United States District Court for the Northern District of Ohio. AmeriTrust asserts such certification is necessary in light of the uncertainty created in the aftermath of Northern Pipeline Construction Co. v. Marathon Pipe Line Co., 458 U.S. 50, 102 S.Ct. 2858, 73 L.Ed.2d 598 (1982) in which the broad grant of jurisdiction conferred upon the bankruptcy courts under 28 U.S.C. § 1471(c) was declared unconstitutional. Certification is necessary, AmeriTrust asserts, in light of the large amounts of secured borrowings Debtor is permitted to utilize under the financing order and the resultant large secured position AmeriTrust is desirous of protecting. In the opinion of this Court, certification is inappropriate in this case for several reasons: first, the uncertainty created as a result of Northern Pipeline has been at least temporarily eliminated by the adoption of the interim rule and the decision of the United States Court of Appeals for the Sixth Circuit in White Motor Corp. v. Citibank, 704 F.2d 254 (1983) (upholding the validity of the interim rule); second, as a policy matter, routine certification of a financing order, which is not a “related proceeding” under the interim rule, should not be undertaken due to the unnecessary delay and waste of judicial resources it involves; and finally, certification is inappropriate in this case since, by virtue of the timely objections filed thereto by Kripke-Tuschman and Ohio Edison, these orders may subsequently be modified by order of this Court.
The objections and appeals of the above orders to one side, the request for certification raises the issue of the authority of the bankruptcy court to enter such orders in the first instance. In Northern Pipeline the Supreme Court held unconstitutional 28 U.S.C. § 1471(c) conferring direct, nonderi-vative, bankruptcy jurisdiction on the bankruptcy courts. See White Motor Corp. v. Citibank, supra, 704 F.2d at 255. Under 28 U.S.C. §§ 1471(a) and (b) and the old 28 U.S.C. § 1334, which remains effective until April 1, 1984 under § 402(b) of the Bankruptcy Reform Act of 1978, however, the district courts may adjudicate bankruptcy proceedings filed after December 24, 1982. White Motor, supra, 704 F.2d at 261. Furthermore, in White Motor, the controlling authority in this circuit has upheld the authority of the Article III judges in this district to implement a general order of reference to the bankruptcy judges of this district, pursuant to section (e)(1) of the interim rule, of “[a]ll cases under Title 11 and all civil proceedings arising under Title 11 or arising in or related to cases under Title 11”:
The district courts have both the authority to adopt the interim rule and the obligation to provide for the continuing orderly conduct of bankruptcy proceedings. We hold that the interim rule does not violate federal statutory and constitutional principles and does not conflict with *203the Supreme Court’s ruling in Northern Pipeline. Rather, the rule adhers as closely as possible, within the constitutional limitations announced in Northern Pipeline, to the structure of the bankruptcy system which Congress established in the 1978 Act.
White Motor, supra, 704 F.2d at 261. Thus, whatever uncertainty formerly existed over the jurisdiction of the bankruptcy judges in the aftermath of Northern Pipeline after the expiration of the stay of that decision on December 24, 1982, in the light of the continuing validity and effectiveness of the interim rule until Congress enacts appropriate remedial legislation or until March 31, 1984, whichever first occurs, the derivative jurisdiction of this Court to enter the order in question in the first instance seems settled.
Given the validity of the interim rule, however, the question remains as to the propriety of certification of the financing order under section (e)(2)(A)(ii) of the interim rule. Reproduced below, in addition to the section in question, are the various relevant provisions of the interim rule necessary to a determination of this issue:
Section (d) and (e)(1) and (2) detail the heart of the interrelationship between the district and bankruptcy court under the interim rule:
(d) Powers of Bankruptcy Judges
(1)The Bankruptcy judges may perform in referred bankruptcy cases and proceedings all acts and duties necessary for the handling of those cases and proceedings except that the bankruptcy judges may not conduct:
(A) a proceeding to enjoin a court;
(B) a proceeding to punish a criminal contempt—
(i) not committed in the bankruptcy judge’s actual presence; or
(ii) warranting a punishment of imprisonment;
(C) an appeal from a judgment, order, decree, or decision of a United States bankruptcy judge; or
(D) jury trials.
Those matters which may not be performed by a bankruptcy judge shall be transferred to a district judge.
(2) Except as provided in (d)(3), orders and judgments of bankruptcy judges shall be effective upon entry by the Clerk of the Bankruptcy Court, unless stayed by the bankruptcy judge or a district judge.
(3)(A) Related proceedings are those civil proceedings that, in the absence of a petition in bankruptcy, could have been brought in a district court or a state court. Related proceedings include, but are not limited to, claims brought by an estate against parties who have not filed claims against the estate. Related proceedings do not include: contested and uncontested matters concerning the administration of the estate; allowance of and objection to claims against the estate; counterclaims by the estate in whatever amount against persons filing claims against the estate; orders in respect to obtaining credit; orders to turn over property of the estate; proceedings to set aside preferences and fraudulent conveyances; proceedings in respect to lifting of the automatic stay; proceedings to determine dischargeability of particular debts; proceedings to object to the discharge; proceedings in respect to the confirmation of plans; orders approving the sale of property where not arising from proceedings resulting from claims brought by the estate against parties who have not filed claims against the estate; and similar matters. A proceeding is not a related proceeding merely because the outcome will be affected by state law.
(B) In related proceedings the bankruptcy judge may not enter a judgment or dispositive order, but shall submit findings, conclusions, and a proposed judgment or order to the district judge, unless the parties to the proceeding consent to entry of the judgment or order by the bankruptcy judge.
(e) District Court Review.
(1) A notice of appeal from a final order or judgment or proposed order or judgment of a bankruptcy judge or an *204application for leave to appeal an interlocutory order of a bankruptcy judge, shall be filed within 10 days of the date of entry of the judgment or order or of the lodgment of the proposed judgment or order. As modified by sections (e)2A and B of this rule, the procedures set forth in Part VIII of the Bankruptcy Rules apply to appeals of bankruptcy judges’ judgments and orders and the procedures set forth in Bankruptcy Interim Rule 8004 apply to applications for leave to appeal interlocutory orders of bankruptcy judges. Modification by the district judge or the bankruptcy judge of time for appeal is governed by Rule 802 of the Bankruptcy Rules.
(2)(A) A district judge shall review:
(i) an order or judgment entered under paragraph (d)(2) if a timely notice of appeal has been filed or if a timely application for leave to appeal has been granted;
(ii) an order or judgment entered under paragraph (d)(2) if the bankruptcy judge certifies that circumstances require that the order or judgment be approved by a district judge, whether or not the matter was controverted before the bankruptcy judge or any notice of appeal or application for leave to appeal was filed; and
(iii) a proposed order or judgment lodged under paragraph (d)(3), whether or not any notice of appeal or application for leave to appeal has been filed.
(B) In conducting review, the district judge may hold a hearing and may receive such evidence as appropriate and may accept, reject, or modify, in whole or in part, the order or judgment of the bankruptcy judge, and need give no deference to the findings of the bankruptcy judge. At the conclusion of the review, the district judge shall enter an appropriate order or judgment.
AmeriTrust has requested certification of the financing order under section (e)(2)(ii) of the interim rule. Under this section, the bankruptcy judge may certify that circumstances require either of the following types of orders be reviewed by a district judge: (1) an order or judgment entered by a bankruptcy judge in a proceeding which is not a “related proceeding”; and (2), an order or judgment in a “related proceeding” where the parties have consented to entry of the order or judgment by the bankruptcy judge under section (d)(3)(B) of the interim rule. Furthermore, this power may be exercised “whether or not the matter was controverted before the bankruptcy judge or any notice of appeal or application for leave to appeal was filed.”
The financing order in issue is not a “related proceeding” as that term is defined in section (d)(3)(A) of the interim rule. Related proceedings, under this definition, “are those proceedings that, in the absence of a petition in bankruptcy, could have been brought in a district court or a state court.” The authority for issuance of the financing order in question lies exclusively under the provisions of § 364 of the Bankruptcy Code. Thus, in the absence of a petition in bankruptcy, this proceeding could not have been brought in a district court or a state court, and it is not, therefore, a “related proceeding.” Furthermore, under the third sentence of section (d)(3) of the interim rule a “related proceeding” specifically does not include “orders in respect to obtaining credit.”
The financing order in question, not being a “related proceeding”, is thus within the scope of “traditional” bankruptcy proceedings such as the items listed in section (d)(3)(A) of the interim rule. Pursuant to section (d)(2) of the interim rule, orders or judgments entered by a bankruptcy judge in such matters are effective upon entry. White Motor, supra, 704 F.2d at 256. Although section (e)(2)(A)(ii) grants the bankruptcy judge the discretion to certify matters of this nature for approval by a district judge in appropriate “circumstances”, in the opinion of this Court, routine certification of these matters is neither necessary or appropriate under the interim rule.
The avowed purpose of the interim rule is to permit the bankruptcy system to continue without disruption in reliance upon juris*205dictional grants remaining in the law as limited by Northern Pipeline. Judicial Conference Resolution (Sept. 23, 1982). In White Motor, supra, the Sixth Circuit Court of Appeals determined that “[t]he district courts have both the authority to adopt the interim rule and the obligation to provide for the continuing orderly conduct of bankruptcy proceedings.” 704 F.2d at 261. Routine certification of orders of this nature would promote neither of these objectives and, in addition, would place unnecessary burdens on the district courts.
Bankruptcy Judge Harold F. White faced a similar situation in considering certification of a cash collateral order under § 363 of the Bankruptcy code in In re Seton-Scherr, Inc., 26 B.R. 563 (Bkrtcy.N.D.Ohio 1983). After certification of the fourth agreed order authorizing use of cash collateral between debtor and a bank, due to alleged emergency circumstances which precluded a finding relative to such order, Judge White concluded that, in the future, no such certification would be made “without a showing of unusual circumstances.” 26 B.R. at 565. As Judge White remarked:
To require the certification to and approval of the District Court on all cash collateral orders of the type filed in this case would place a burden on the District Court to assume the duties of the Bankruptcy Court and would become a routine part of virtually every order which this Court signs. The Ninth Circuit in its explanation of the Emergency Bankruptcy Rule, which is similar to the rule adopted by the Northern District of Ohio, stated:
It is contemplated, however, that this provision will not be routinely invoked. Whether or not to certify a case for review is committed to the discretion of the bankruptcy judge. Such review may be, but is not automatically, expedited pursuant to section (e)(3).
Therefore, certification to the District Court of cash collateral orders would effectively destroy the purpose of the emergency rule under which this Court now operates, which purpose is to ensure that bankruptcy matters are decided by the Bankruptcy Court in all but the unusual case, while only related proceedings obtain the studied review of an Article III Court as required by the emergency rule and the provisions of the Supreme Court’s decision in Northern Pipeline.
26 B.R. at 565. This Court concurs in the analysis employed by Judge White in declining certification of the financing order in this case in the absence of a showing of unusual circumstances. Furthermore, since Seton-Scherr, Inc., supra, even more compelling reasons exist now to follow such policy in light of the determination of the validity of the interim rule in White Motor Corp. v. Citibank, supra.
Further reason for denying the request for certification in this case exists, however, in light of the interlocutory nature of both the financing order and the Armco Order. More specifically, as indicated earlier, both orders in this case may be subject to modification in light of the objections thereto filed by Kripke-Tuschman and Ohio Edison. It seems incongruous to certify that a district judge shall review and approve such orders while simultaneously setting a hearing to consider grounds for modification of such orders. Thus, at least some of the purposes of the final judgment rule, see Wright, Miller & Cooper, Federal Practice and Procedure: Jurisdiction § 3907, militate against certification in this case. In particular, in the present case certification may involve a substantial waste of judicial and party resources.
For all the reasons referred to above, it is hereby,
ORDERED that the request of the Amer-iTrust Company that this Court certify that circumstances require this Court’s “Emergency Interim Order Authorizing Debtor-in-Possession to Incur Secured Debt” entered September 21, 1983 be reviewed and approved by a district judge be, and hereby is, denied. It is further,
ORDERED that the objections filed by Kripke-Tuschman, Inc. and the Ohio Edison Company to the “Emergency Interim Order Authorizing Debtor-in-Possession to Incur *206Secured Debt" entered September 21, 1983 and to the order entered September 22, 1983 granting Armco, Inc. a security interest in Debtor’s post petition inventory be set for pretrial conference on Wednesday, January 4, 1984 at 2:00 o’clock P.M., Courtroom No. 1, Room 103, United States Court House, 1716 Spielbusch Avenue, Toledo, Ohio. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489722/ | ORDER RE APPLICABILITY OF STAY
JON J. CHINEN, Bankruptcy Judge.
The Motion To Determine Applicability of Stay Or, In The Alternative To Obtain Relief From Stay filed by movant Hawaii National Bank, Honolulu, hereinafter “Hawaii National”, having duly come on for hearing before the undersigned Judge on November 21,1983, with Emmet White and Jonathan Chun, attorneys for Hawaii National and Enver W. Painter, attorney for Debtor Arbis Darrell Shipley, being present at the hearing; and
The Court, having considered the pleadings in this matter including the trial mem-oranda filed herein by the respective counsel, and the evidence, testimony and the representations of counsel presented at the hearing, being fully advised in the premises, hereby makes the following Findings of Fact and Conclusions of Law.
FINDINGS OF FACT
The leasehold interest in the property located at 278 Kaha Street, Kailua, hereafter “the property”, was acquired by Mr. and Mrs. A.D. Shipley as Joint Tenants by document dated January 31, 1979 filed as Land Court Document No. 922575. Then by instrument dated September 19,1980, filed as Document No. 1031853, the interest of Mr. Shipley was assigned to Mrs. Shipley.
On December 30, 1980, a document entitled Promissory Note Agreement Re Purchase of House located at 278 Kaha St., Kailua, Hawaii, was executed by Mr. and Mrs. Shipley. Portion of said Promissory Note Agreement read as follows:
It is agreed between A.D. Shipley and Yoshiko Shipley, husband and wife property consisting of one 5 bedroom house located at 278 Kaha St. Kailua, Hi.; that all interested [sic] and right to said property be vested into Yoshiko Nakasone Shipley except for A.D. Shipley’s interest of Fifty Thousand dollars ($50,000) in said property. Said Fifty Thousand dollars ($50,000) will become due and payable when said property in [sic] sold providing that property is sold for over One Hundred Seventy Five Thousand dollars ($175,000).
This document was not noted on the Transfer Certificate of Title.
About the time that Mr. and Mrs. Shipley acquired the leasehold interest, they executed a mortgage in favor of Hawaii National Bank by document dated January 17, 1979, filed as Land Court Document No. 922577.
Subsequent thereto, by document dated February 26, 1980, Mr. and Mrs. Shipley executed a mortgage in favor of Bank of Hawaii, filed as Document No. 999711.
For failure on the part of the Shipleys to pay attorneys’ fees and costs demanded by Hawaii National allegedly incurred in collecting back rents, Hawaii National brought foreclosure action against Mr. and Mrs. Shipley in the First Circuit Court, State of Hawaii, Civil No. 70116.
On or about November 4, 1982 Hawaii National obtained an interlocutory decree of foreclosure which ordered that the property be sold at public auction to satisfy all amounts owed to Hawaii National under its Note and Mortgage.
Before Hawaii National was able to sell the property, Mr. and Mrs. Shipley filed two joint Chapter 13 petitions for bankruptcy in *253the United States Bankruptcy Court for the District of Hawaii (BK. Nos. 82-00678 and 83-00244). The first was voluntarily dismissed by the Shipleys and the second was dismissed by the Court on the basis of bad faith on June 15, 1983.
Then, on September 26, 1983, one day prior to the scheduled auction sale of the property, Mr. Shipley filed a third bankruptcy petition, this under Chapter 11 of the United States Bankruptcy Code.
On October 5,1983, Hawaii National filed its Motion To Determine Applicability of Stay or In the Alternative To Obtain Relief From Stay.
On November 3, 1983, Bank of Hawaii filed its Joinder In Motion To Determine Applicability of Stay Or In the Alternative To Obtain Relief From Stay.
CONCLUSIONS OF LAW
The determination of whether a debtor has a legal or equitable interest in property is determined by applicable state law. In re Jeffers, 3 B.R. 49 (Bkrtcy.N.D.Ind.1980).
The subject property is a leasehold interest in registered land falling within the jurisdiction of the Land Court of the State of Hawaii. Hawaii Revised Statutes, Section 501-101, expressly states:
No deed, mortgage or other voluntary instrument, except a will and a lease for a term not exceeding one year, purporting to convey or affect registered land, shall take effect as a conveyance or bind the land, but shall operate only as a contract between the parties ... The act of registration shall be the operative act to convey or affect the land ... (emphasis added).
The “promissory note agreement” purportedly attempts to transfer a security interest in the property to the Debtor. However, this instrument is insufficient to convey such an interest affecting the property for it is not registered in the Office of the Assistant Registrar as required by HRS § 501-101. Therefore, under applicable state law the promissory note is effective only as “a contract between the parties” and does not convey or bind the subject property. The preliminary title report shows that no instrument purporting to transfer an interest in the property has been recorded subsequent to Debtor’s assignment to Mrs. Shipley.
All legal rights in and to the subject property are owned and held by Yoshiko Shipley, individually, and Debtor Arbis Darrell Shipley has no recognizable legal or equitable interest in and to said property.
Debtor Shipley’s presence on the subject property is by the consent and permission of the legal owner, Yoshiko Shipley, whose interest is being foreclosed upon in Civil No. 70116 by Hawaii National. Said presence of Shipley on the subject property is not an equitable interest includible in the bankrupt estate. Further, there is no evidence indicating that Mrs. Shipley is holding the property in trust for the benefit of Mr. Shipley.
Based on the foregoing, the Court finds that the property owned and held by Mrs. Shipley is not property of the estate of Mr. Shipley.
ORDER
Based on the above Findings of Fact and Conclusions of Law, this Court hereby orders and determines that the automatic stay under Section 362 of the Bankruptcy Code is not applicable to Hawaii National’s foreclosure sale in Civil No. 70116, against property owned and held by Yoshiko Ship-ley and therefore Hawaii National is not in violation of Section 362 of the Bankruptcy Code. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489723/ | *303MEMORANDUM OPINION
HELEN S. BALICE, Bankruptcy Judge.
At various times there was brought before this court for hearing, objections and motions with respect to the sale of property of the bankruptcy estate.
The trustee has now brought an adversary proceeding against Nicholas Hatzis and Frances Huang Lin alleging a cause of action arising out of the sale of that property. Mrs. Lin has filed a motion to transfer the proceeding to District Court under 11 U.S.C. § 1471(d). That is the abstention doctrine with respect to non-exclusive jurisdiction and not applicable. In effect, the motion is one asking me to recuse myself. The applicable rule is BR 5004, the statute is 28 U.S.C. § 455. Canon 3(c)(1)(a) of the Code of Judicial Conduct also speaks to the matter.
Mrs. Lin questions my impartiality. Her reasons are:
1. The large number of docket entries in the underlying bankruptcy ease.
2. My findings and conclusions entered of record in open court following an evidentiary hearing.
3. A newspaper account about the sale of the property based on public court records and interviews with private individuals.
A judge must disqualify herself, whether asked to do so or not, when her impartiality might reasonably be questioned. Yet, there is as much an obligation not to recuse when there is no occasion to do so as there is an obligation to recuse when there is. A potentially difficult and embarrassing proceeding is not a valid reason for recusal.
It is difficult to see how the number of docket entries in a case in and of themselves can be an indication of or create the appearance of impartiality. If it is Mrs. Lin’s contention that the number of entries will cause a judge to act in a prejudicial manner in the future, that argument has no merit. Any judge hearing a case must deal with the record. If she is contending that it is reasonable to question a judge’s impartiality because in the course of the proceeding that judge decided the matter contrary to what the person requesting the recusal wanted, that too is without merit.
The cases are clear that facts learned by a judge in her judicial capacity cannot be the basis for disqualification. The findings and conclusions entered of record at the hearing on Mrs. Lin’s motion for a TRO was based on evidence presented at that hearing and not from extra-judicial conduct or source.
The newspaper account is primarily a recitation of facts gleaned from public court records. It does state that I was disturbed with the parties’ behavior and the matter was being referred to the United States Attorney for investigation. This too was based on the evidence presented and not from other sources. Reference to the United States Attorney under these circumstances cannot be an indication of personal bias or prejudice because such reference is required by law under 18 U.S.C. § 3057. The excerpt of my concluding remarks at the TRO hearing attached to Mrs. Lin’s motion does not indicate any personal prejudice or bias.
For all of these reasons, I decline to re-cuse.
I have addressed the issue raised by Mrs. Lin’s motion even though the demand for jury trial appears to moot the issue. Under Revised Rule # 1(d)(1)(D) dated December 23, 1982 a bankruptcy judge may not conduct jury trials and states that the matter must be transferred to a district judge. However, a district judge may reassign the matter to a bankruptcy judge for conduct through the pre-trial period. This, of course, is discretionary with each district judge. It seemed appropriate to decide the issue raised by the motion in an attempt to economize on time and expenses in the event the matter should be reassigned following transfer. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489724/ | MEMORANDUM DECISION
CHARLES A. ANDERSON, Bankruptcy Judge.
This matter came on for hearing on October 31, 1983 on a “Motion for New Hearing on Confirmation” filed October 7, 1983, in behalf of William E. Curtis and Marvin E. Curtis.
Movants seek an order setting aside the Order Confirming Plan entered on September 27, 1983, pursuant to Rule 9023 of the Bankruptcy Rules and Rule 59 F.R.Civ.P. “on the grounds that the Curtises have recently discovered new evidence which could not have been discovered in the exercise of due diligence prior to the hearing on confirmation held on August 15, 1983, and which is material and of such character that if received at the hearing on confirmation it would have resulted in different findings by the Court.... ”
The motion requires consideration of two issues, one of which pertains to the question of whether the alleged newly discovered evidence requires the application of Rule 59 F.R.Civ.P., and the other which pertains to procedural due process concerning the rights of the vested interests of numerous interested parties arising out of the confirmation order entered on September 27,1983 after a full hearing on August 15, 1983. These interested parties are not now before the Court, which emphasizes the fact that Rule 59 matters ordinarily invoke just a few plaintiffs or defendants involved in the finality of a judgment entry, all of whom may be heard.
To determine the necessity of the submission of evidence, the court heard arguments of counsel in behalf of the movant and debtor in possession and reserved decision on the necessity of a new evidentiary hearing for newly discovered evidence pending *307the submission of the applicable Ohio statutes and the regulations of the Public Utilities Commission of Ohio (P.U.C.O.) pursuant thereto giving rise to the Order of the Commission on September 14, 1983, as appended to the motion.
Upon careful reading of the Order of the P.U.C.O. entered on September 14, 1983; the memorandum Contra Motion for New Hearing on Confirmation filed October 24, 1983, and the Reply Memorandum of William E. Curtis and Marvin E. Curtis filed on November 10, 1983; and after a review of the record of the hearing on confirmation of the Plan held on august 15, 1983, this court concludes that the motion for a new trial on the argument of newly discovered evidence should be denied for two reasons.
To constitute newly discovered evidence under Rule 59, such evidence must pertain to facts in existence at the time of the hearing and not to facts that have occurred subsequently. Furthermore, such evidence must be such that movant was excusably ignorant of the facts. The procedures applicable to the P.U.C.O. order on September 14, 1983, did not preclude evidence that was not discoverable by diligent search in light of the then existing knowledge of movants. The movants were before trial aware of sufficient facts to evaluate at least the gist of the proposed evidence and submit it to the court. See Toledo Scale Co. v. Computing Scale Co. (1923) 261 U.S. 399, 43 S.Ct. 458, 67 L.Ed. 719.
Assuming, arguendo that the evidence was truly “newly discovered”, a new trial would still not be warranted because it would not have affected the issuance of the confirmation order. According to the evidence as adduced at the hearing, the mov-ant is secured by other assets besides the P.U.C.O. Certificate. Uncontradicted testimony in behalf of the debtor indicated that the P.U.C.O. Certificate was not only valuable in nature, but also, that Class 14 had been benefitted by the surrender by Debtor of other assets involved in the purchase contract for trucking business of substantial value.
This was the only valuation evidence adduced, and brings into focus the more fundamental reason for denying to reopen the confirmation judgment order. Movants overlook the fact that they not only did not submit any valuation evidence to this court whatever to demonstrate that their claims were impaired by the plan, or to demonstrate that the plan discriminates unfairly and is not fair and equitable in light of the evidence in behalf of the debtors, but, also, their original objection had been dismissed because of failure to comply with the rule date.
After the hearing on August 15 the Debtors filed on September 8, a motion to dismiss the objection to confirmation by William E. Curtis and Marvin E. Curtis. The movants had not filed an objection within the rule date (August 5, 1983) pursuant to Bankruptcy Rule 3020(b) and they proffered no evidence at the hearing. Both the movants and the respondents have gratuitously argued in their written memoranda evidence which has never been adduced. Needless to add, the order of confirmation was entered on the basis only of the evidence adduced.
Even though counsel for the movants appeared and made represéntations by argument in open court, there was never any request for leave to file a late objection or to extend the time for filing. No evidence was proffered in any way to dispute the testimony in behalf of the plan, which was not extensive. Furthermore, the Curtis claims (Class 14) have been treated in the plan, as confirmed, as a “secured contingent and disputed claim” and was never by objection filed to the plan or otherwise ever allowed by the court as a valid claim against the Chapter 11 estate. The mov-ants never even filed a ballot rejecting the Plan. Consequently, the Curtis objection was dismissed in the order of September 27, 1983, sustaining the motion filed by debtors on September 8, 1983. • It is noted that the Curtis objection was not filed until August 29,1983, a full two weeks after the hearing.
It is important to emphasize that the motion now under consideration does not *308pertain to the substantive requirements necessary as prerequisites for confirmation of the plan. Even though such issues are not now reexamined, the dismissal of the objection did not preclude the examination of the record by the court sua sponte to ascertain that all requirements of 11 U.S.C. § 1129 had been met before the confirmation order. In this sense the objections were afforded full consideration, in connection with the court’s mandatory duties, even without an objection being duly filed as required by the court under Bankruptcy Rules 3020(b) and 9014. This court entertains any objection directed to the mandatory prerequisites of a Chapter 11 plan and filed before an order of confirmation is issued by the court, but the objection must be filed conformably to the rule date if evidence is to be submitted. The order of confirmation entered on September 27, 1983, was based upon the record and evidence as then before the court and the submission of additional evidence cannot now be entertained.
A motion for reconsideration of a judgment “upon newly discovered evidence,” just as a matter of pure logic and basic judicial due process cannot be permitted to serve as a device to circumvent the necessity of complying with procedural rule dates or for the presentment of proposed evidence which could not be presented even if the judgment be set aside.
It must be further emphasized that Federal Civil Rule 59 as to newly discovered evidence must be utilized in connection with an order of confirmation with more care and rigidity than in a typical adversarial suit, not only because of the innumerable vested interests which attach but, also, because any delay inflicted upon the consummation of a plan of reorganization portends usually fatal consequences as to other findings by the court. It can be contemplated, for instance, that the delay suffered already has jeopardized the. previous finding by the court back on September 27 that, “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.” In no other judicial proceedings can the temporal factor be deemed more crucial to success. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489725/ | ORDER RE COMPENSATION
HAROLD O. BULLIS, Bankruptcy Judge.
Pending before the Court are applications for fees by counsel for the Debtor and by counsel for the Creditors’ Committee in the above Chapter 11 proceeding. DeMars & Turman, counsel for the Debtor, filed an application for final compensation on November 26, 1982. Included in that application was a request for fees of $26,500.00 for services rendered subsequent to September 14, 1982. In addition, the application seeks an award of additional compensation for all services performed in these proceedings since its inception. It seeks total compensation of $150 per hour for 1,098 hours, for a total of $164,000.00 less that amount previously paid pursuant to interim applications.
Michael LeBaron, counsel for the Creditors’ Committee, in his final application, seeks compensation at the rate of $150 per hour for 449.85 hours of service rendered the Creditors’ Committee since these proceedings began. He too had previously received compensation through interim applications at his customary rate.
Objections to both applications were filed by the Debtor and by the United States Trustee. Neither of those objections objected to the final applications in so far as they requested compensation at $100 per hour for the time spent in these proceedings. The objections were only to the “pre*442mium” or “enhanced” compensation in excess of $100 per hour.
The Court, on December 16, 1982, pursuant to stipulation, entered an order allowing payment of that portion of compensation applied for and not objected to. In that order the Court allowed payment of fees to DeMars & Turman of $29,819.00 and to Michael LeBaron in the amount of $20,-372.50. In addition, both were allowed their expenses. The effect of that order was to allow both counsel compensation at the rate of approximately $100 per hour for all services rendered in these proceedings.
Remaining for consideration is whether the above applications should be allowed in so far as they seek “enhanced” or “premium” compensation. That matter was heard on December 29, 1982. Both parties have submitted briefs in support of their positions.
Both Mr. DeMars and Mr. Mr. LeBaron have set forth what they believe are the bases for the allowance of the additional compensation. Mr. DeMars points out that a Reorganization Plan has been filed and confirmed, and the significant assets of the estate have been liquidated, all within a period of one year. He suggests that because of skillful negotiations costly litigation has been avoided resulting in an enhancement of the estate for the benefit of shareholders.
Mr. LeBaron points out that the best possible results were achieved in these proceedings for the unsecured creditors who he represented. He suggests that these results were achieved only because of his persistence as counsel for the Creditors’ Committee. He also points out that because of the skillful manner the negotiations were handled in these matters, costly litigation was avoided.
Debtor, in its brief, contends that an oral contract was entered into between Debtor and Mr. DeMars that precludes recovery by Mr. DeMars of compensation at a rate greater than $100 per hour. The testimony of Ray Larson, President of Debtor, was that when Mr. DeMars was originally retained at a meeting of the Board of Directors of the Debtor corporation, Mr. De-Mars advised that he would be charging about $100 per hour. He stated he did not recall being advised that the Court could alter that figure. Mr. DeMars testified that during the original conference with the Debtor’s Board of Directors he advised Larson that the Court controlled the allowance of fees but did indicate that the normal fees of his office were about $100 per hour.
Both applications for the additional compensation will be denied. The Court is not denying the application of Mr. DeMars on the basis that an oral contract was entered into with the Debtor that precludes the award of additional compensation. The applications will be denied for the reason the Court feels both counsel have been adequately compensated for their services.
11 U.S.C. § 330 provides, in essence, that reasonable compensation shall be allowed based on “the time, the nature, the extent, and the value of such services, and the cost of comparable services other than in a case under this title; ... ”. The legislative history makes it clear that the concept of economy to the estate is outdated and has no place under the new Bankruptcy Code.
The reorganization proceedings here were essentially a “liquidation” proceedings. There was never any indication the estate was insolvent in the traditional sense. Consequently, the fact that the unsecured creditors received payment in full is not an unusual result. It is, in fact, something that ought to have been accomplished, and it was the duty of the Creditors’ Committee and its counsel to see that such occurred. Likewise, the fact that after all the claims have been paid there remains a sizeable residue for the benefit of the corporation shareholders, while an indication of dedicated service by counsel for the Debtor, is not necessarily an unusual result. The assets were present when the case was initiated. This Chapter 11 proceeding was necessitated because of improvident expenditures by Debtor’s management causing a severe cash flow problem making it impossible for the Debtor to pay its debts as they arose.
*443The Court recognizes that both Mr. De-Mars and Mr. LeBaron are competent counsel and possess a great deal of expertise in the field of bankruptcy and the fees approved in the Order of December 16, 1982, and prior orders approving interim compensation are fully justified. The Court recognizes, too, that both Mr. DeMars and Mr. LeBaron have performed well for their clients in this Chapter 11 proceeding. The Court finds, however, that both have been adequately compensated for the services rendered. The amounts approved are equal to and perhaps somewhat in excess of the normal billing rates of each and are on the upward edge of fees normally charged for comparable services other than matters involving bankruptcy in this geographical area.
For the reasons stated, the applications of DeMars & Turman and of Mr. LeBaron for additional compensation are DENIED. The Order of December 16, 1982, will stand as the final award of compensation. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489726/ | MEMORANDUM
CLIVE W. BARE, Bankruptcy • Judge.
At issue is whether lodging proceeds initially deposited in the debtor’s general bank account but subsequently transferred to a separate account are trust funds in which plaintiffs own the equitable interest, 11 U.S.C.A. § 541(d) (1979).
I
The facts have been stipulated. Plaintiffs are two Knoxville motels which were parties to separate reservation agreements, with different booking agents, for over*500night lodging during the 1982 World’s Fair. Debtor was the reservation booking agent for plaintiff Prince & Pauper Motel, Inc. and numerous other motels and hotels in the Knoxville area. Property Leasing & Management, Inc. (PLM), an affiliate of the debtor, served as a reservation booking agent for plaintiff Country-Uptown Motel, Inc.
PLM booked a reservation with Country-Uptown for a Florida high school group for either three or four nights, beginning September 19, 1982. After a representative of the group visited the premises of Country-Uptown on September 15, 1982, he informed PLM that the accommodations would not be satisfactory for his group. PLM thereupon offered the services of the debtor, which arranged accommodations for the group at the Prince & Pauper Motel. Net proceeds in the amount of $9,139.65 were paid to the debtor by the Florida group for lodging at the Prince & Pauper.
Country-Uptown was not notified of the switch in lodging for the Florida group. When the president of Country-Uptown contacted Reggie E. Castle, president of both PLM and the debtor, Castle told him monies were available to compensate Country-Uptown but that the Prince & Pauper had a claim for the same funds.1
When payment pursuant to its reservation agreement was not received from the debtor, a representative of Prince & Pauper, Ray Brann, promptly made inquiry of the debtor. Brann was advised that payment had been delayed because of the switch between the booking agencies. When Brann thereafter phoned the debtor’s attorney, he was told that the funds were on hand and that the debtor would be advised to make payment as soon as the two motels could agree on a disposition protecting the debtor from dual liability.
The lodging proceeds were initially deposited in the debtor’s general account, which had a balance in excess of $9,139.65, the amount in issue, at all times material herein. On November 23, 1982, the debtor opened an account in its own name at Valley Fidelity Bank consisting solely of the disputed proceeds. The purpose of the account was to sequester the proceeds until instructions for disposition thereof were received from the two claimants. No other funds received by the debtor have been treated in this manner.
The debtor’s chapter 11 bankruptcy petition was filed on December 1,1982. During or before March 1983, plaintiffs reached an agreement for a division of the controverted proceeds. Their complaint requesting a turnover of the funds by the debtor was filed on March 25, 1983.
II
With exceptions immaterial herein, property of a debtor’s estates consists, in part,2 of “all legal or equitable interests of the debtor in property as of the commencement of the case.” 11 U.S.C.A. § 541(a)(1) (1979). However, the interest of the estate in property of the debtor is limited to the interest enjoyed by the debtor. Bankruptcy Code § 541(d) recites:
Property in which the debtor holds, as of the commencement of the case, only legal title and not an equitable interest, such as a mortgage secured by real property, or an interest in such a mortgage, sold by the debtor but as to which the debtor retains legal title to service or supervise the servicing of such mortgage or interest, becomes property of the estate under subsection (a) of this section only to the extent of the debtor’s legal title to such property, but not to the extent of any equitable interest in such property that the debtor does not hold.
The reservation agreement between Prince & Pauper and the debtor recites in material part:
AGREEMENT made this 21 day of May, 1982, between P.L.M. HOTEL/MO*501TEL DIV., INC., Booking Agent (hereinafter called “P.L.M.”) and Prince & Pauper Motel (hereinafter called “Owner”).
WITNESSETH:
In consideration of the mutual promises and covenants herein contained, Owner and P.L.M. agree as follows:
(1) Owner hereby appoints and employs P.L.M. as the sole and exclusive booking agent of Owner’s premises (hereinafter called the “Property”), described as follows:
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(4) P.L.M. shall render to Owner a monthly statement of receipts, disbursements and expenses incurred.
(5) All monies received by P.L.M. for or on behalf of Owner shall be deposited by P.L.M. in a commercial bank. Such funds shall be disbursed by Agent in such amounts and at such times as the same are required to pay for obligations, liabilities, costs, expenses and fees including, without limitation, the compensation of P.L.M. hereinafter provided, arising on account of or in connection with this Agreement. All amounts remaining after the payment of expenses and fees shall be paid over to Owner monthly by the tenth (10th) of the following occupied month.3
Plaintiffs contend that the proceeds at issue are trust funds subject to their equitable ownership interest. Although the proceeds were commingled with funds in the debtor’s general account, plaintiffs assert that the funds may be traced. Moreover, plaintiffs maintain that the debtor’s intention to hold the proceeds in trust for them is “concretely manifested” by the transfer of an amount equivalent to the disputed proceeds from debtor’s general account into a new, segregated account consisting solely of the proceeds in issue.
The debtor concedes that it intended to act as a stakeholder when it opened the account at Valley Fidelity on November 23, 1982, with a deposit of the disputed amount. However, the debtor nonetheless asserts that its obligation to the plaintiffs arose previous to the commencement of the case and that the plaintiffs are merely unsecured creditors.
Two decisions under the Bankruptcy Act of 1898 are instructive. In re Morales Travel Agency, 667 F.2d 1069 (1st Cir.1981), involved an attempt by Eastern Airlines to recover the full amount of its claim against a bankrupt travel agency. The business relationship between Morales and the airlines for which it sold tickets was governed by the International Air Transport Association (IATA) Passenger Sales Agreement and resolutions of the IATA. A resolution pertaining to the collection of proceeds provided that the proceeds of sales “shall be the property of the Carrier and shall be held by the Agent in Trust for the Carrier or on behalf of the Carrier, until satisfactorily accounted for to the Carrier and settlement made.” Hence, Eastern argued that the proceeds from sales of its tickets were held in trust by the bankrupt, not property of the bankrupt’s estate. The First Circuit Court of Appeals rejected Eastern’s argument because there was not a genuine trust relationship between the bankrupt travel agency and Eastern. There was no restriction on the bankrupt’s use of proceeds from ticket sales; the bankrupt was not required to maintain a separate account for the proceeds. Furthermore, the proceeds were remitted at specified intervals (twice monthly), as opposed to upon either demand or receipt. Significantly the opinion recites:
The use of the word “trust” and the designation of the airline as titleholder, in a contract which is not publicly filed, would not save potential creditors from relying on such assets as ... a bank account solely in the name of the [bankrupt] agency. (Emphasis added.)
In re Morales Travel Agency, 667 F.2d at 1071.
*502Eastern was merely entitled to an unsecured claim without priority.
The second case, In re Penn Central Transp. Co., 328 F.Supp. 1278 (E.D.Pa.1971), involved a reclamation petition by Greyhound Lines, Inc. Greyhound sought to recover the net unremitted proceeds of bus tickets sold by Penn Central, pursuant to an agency agreement, previous to the filing of its reorganization petition. The agreement between the two transportation companies expressly permitted commingling of the proceeds of bus tickets with funds in Penn Central’s general account. Greyhound contended that the proceeds were trust funds. Finding the relationship between Penn Central and Greyhound to be merely that of debtor and creditor, the court dismissed the reclamation petition.
No express trust is created between the debtor and Prince & Pauper by their reservation agreement, which merely requires the deposit of proceeds in a commercial bank. Segregation of proceeds is not required under the terms of the agreement. Also, although a scheme for disbursement of proceeds is recited, no provision prohibiting or restricting the debtor from using the proceeds for purposes unrelated to the agreement is included.
The court must disagree with plaintiffs’ attempt to distinguish Penn Central from the instant case on the basis that the debtor in Penn Central was expressly authorized to commingle proceeds. The debtor herein was not restricted by the terms of the agreement from commingling funds and did in fact deposit the proceeds in its general account.
Furthermore, opening a separate account in an amount equal to the sum of the lodging proceeds received from the Florida group did not impress a trust upon the funds. The plaintiffs’ claim to the account are certainly not reflected by the records of Valley Fidelity since the account is established in the name of the debtor only with a mere parenthetical “Disputed Accts.”
III
The question remains whether the court should find that the proceeds are impressed with a constructive trust. Although the facts of this case do not correspond with the circumstances in which constructive trusts are generally recognized in Tennessee,4 it is evident from the legislative history of Code § 541 that Congress realized cases would arise in which the imposition of a constructive trust would be appropriate.
Situations occasionally arise where property ostensibly belonging to the debt- or will actually not be property of the debtor, but will be held in trust for another. For example, if the debtor has incurred medical bills that were covered by insurance, and the insurance company had sent the payment of the bills to the debtor before the debtor had paid the bill for which the payment was reimbursement, the payment would actually be held in a constructive trust for the person to whom the bill was owed.
H.R.Rep. No. 595, 95th Cong. 1st Sess. 368, reprinted in 1978 U.S.Code Cong. & Ad. News 5963, 6324.
The court, however, declines to recognize a constructive trust in this case. The invitation to do so is less compelling than the example of the medical insurance payment in the quoted legislative history. Unquestionably plaintiff Prince & Pauper ought to be paid for the accommodations furnished. Yet, there is a multitude of other creditors who likewise ought to be paid.
Plaintiffs could have protected their interest if they had established a different procedure creating a genuine trust relationship between themselves and the debtor. Because they failed to do so their rights are no greater than those of other unsecured creditors.
This Memorandum constitutes findings of fact and conclusions of law, Bankruptcy Rule 7052.
. The communication occurred either contemporaneously with the visit of the Florida group or immediately thereafter.
. A debtor’s estate is also comprised of certain interests acquired postpetition. See ll‘U.S. C.A. § 541(a)(3)-(7) (1979).
. The provision in the reservation agreement between Country-Uptown and the debtor’s affiliate pertaining to the remittance of proceeds differs immaterially.
. See Gibson’s Suits in Chancery, § 383 (6th ed. 1982). | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489727/ | MEMORANDUM AND ORDER
WILLIAM A. HILL, Bankruptcy Judge.
On February 22, 1983, the Debtor brought the instant adversary action seeking the turnover to the estate of a mobile oil drilling rig which the Defendant/dealer had allegedly repossessed after the bankruptcy petition had been filed. Recovery is sought pursuant to 11 U.S.C. § 542(a) and, in addition, the Plaintiff seeks damages occasioned by its loss of use. The Defendant in its answer admitted that it repossessed the rig but that such repossession was made in good faith without knowledge of the bankruptcy filing.
A trial was held on October 18, 1983.
The issues presented are whether the drilling rig is property of the estate and subject to turnover and whether the Debtor is entitled to damages.
1.
The facts as established at trial are as follows:
On December 12, 1980, the Plaintiff/Debtor purchased from the Defendant a mobile drilling rig mounted on a 1977 Ford truck model LN9000 for a total price of $210,000.00. By its terms, the Debtor paid $40,000.00 down with the $170,000.00 balance to be paid over the ensuing three years at a rate of $5,000.00 per month commencing January 15, 1981. The Debtor signed a promissory note for the balance and extended to the Defendant a security interest in the subject rig which security interest was duly recorded by means of a financing statement. The Plaintiffs fell behind in the monthly payments in July, 1982, and no payment has been made since Au*504gust, 1982. The present arrearage is $75,-000.00, and the pay-off balance is $97,-337.29.
The Plaintiffs continued to use the rig during the summer and fall despite their financial problems. The Defendant was aware of the Plaintiff’s financial difficulty and during this period, Ken Parr had conversations with Mike Welch concerning the past due payments and the possibility of repossession if payments were not forthcoming. The Defendant also periodically checked with the Clerk of Bankruptcy Court in Fargo to determine whether the Debtor had filed a petition. Up until November 5, 1982, no petition had been filed. The rig was regularly kept in a metal quon-set situated on the Welch property near Dickinson, North Dakota. Jack Stevens, the president of the Defendant company, testified that he made the decision to repossess the rig and flew into Bismarck, North Dakota, on November 3, 1982, where he rented a truck and on the same date drove to Dickinson, North Dakota. The next morning, November 4, 1982, he and Ken Parr drove out to the Welch place and watched the area all day. The next day, November 5, was a Friday and again they went out to observe the Welch yard. Through binoculars, they saw the rig being taken out of the quonset. Later that afternoon, Mr. Stevens saw the rig being put back in the quonset and noticed another individual other than Mike Welch going in and out of the building. This other person, according to Mike Welch, was Danny Moch who also had a key to the padlock. At 5:30 p.m. on November 5, Stevens and Parr went to the quonset and saw the door open about 1". He checked the rig and found the keys were in it. He then drove it out of the quonset and back to Texas, the company’s home base. Welch testified the door had a scratch on it, and it had the appearance of a forceable entry; however, he admitted another person had a key and could have gone back in. The Plaintiff testified that at the time the rig was taken he had to turn down four drilling jobs but on cross-examination admitted that in fact he was referring to opportunities to bid rather than actual jobs. He further testified that the oil field business became very competitive during this time making it difficult to estimate what his net profit from these jobs would have been. Things became apparently so difficult in North Dakota that the Plaintiff moved his operation to Texas in March of 1983 where he continues to operate. He estimated he lost three jobs in Texas at a net profit of $750.00 each and also felt he could have doubled the accounts receivable if he had had this rig available for use.
On November 5, 1982, the Plaintiff filed under Chapter 11 of the Bankruptcy Code. Stevens testified that he did check with the Clerk’s office on November 4, the day pre-ceeding, but apparently, because he spent all day at the Welch site, did not make a check on November 5.
2.
There is no question but that at the time of the repossession during the early evening of November 5, the rig was in the possession of the Debtor. The Defendant takes the position that the rig was being purchased under the terms of an executory contract which, according to § 365 of the Code, requires the trustee to either accept or reject and if he is to accept must provide adequate assurance. This argument will not be considered since the issue of adequate assurance is not properly before the Court. The Defendant did not in its answer allege the lack of adequate protection and even if it had, it would have the burden of establishing the extent of the Plaintiff’s equity or lack thereof. See § 362(g)(1). Although the Defendant in its brief questions whether the Plaintiff has any equity, there was no evidence of Fair Market Value introduced at trial. The only evidence on this issue is the amount set forth in the Plaintiff’s schedules which placed it at $160,000.00. The question of adequate protection is not properly before the Court.
The Defendant asserts that its repossession was made on the basis of its security interest and without notice of the bankruptcy filing. Irrespective of whether or not the Defendant had actual notice, it *505strongly suspected that a filing was imminent. The lack of notice in any event is applicable only in situations where there has been a good faith transfer without notice of the debtor’s property by an entity to another. This is not the situation before the Court. Here, the Defendant knew the Plaintiff was in serious financial difficulty, knew payments had not been made on the purchase contract for sometime and strongly suspected that the Plaintiff was going to file in bankruptcy.
The Court believes that section 542(a) is wholly determinative of the issue regarding the parties’ interests in the drilling rig. The language of the statute is absolute and mandates an immediate turnover unless the property is of inconsequential value and benefit to the estate. While an important factor in some instances, the manner of repossession is irrelevant where as here it was perfected after the Debtor filed his petition. The critical factor is that the rig was “property of the estate” as defined by § 541. This section is all inclusive and includes the rig in question. Under section 542(a), an entity in possession, custody or control of property of the estate shall deliver said property or its value to-the trustee unless of inconsequential value or benefit. From the testimony, it appears the Plaintiff could utilize the rig in his operation and, hence, it is of value and benefit.
As to the second issue of damages, the Court is of the opinion that whatever loss of income or business may have been incurred by the Plaintiff, it is too speculative. Hence, no damages will be awarded.
IT IS, THEREFORE, ORDERED that the Defendant shall turn over to the Plaintiff/Debtor the mobile drilling rig as described in the Plaintiff’s complaint. The property remains subject to the Defendant’s security interest.
IT IS FURTHER ORDERED that the prevailing party shall prepare and submit a judgment in conformity herewith. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489728/ | ORDER DENYING MOTION TO DISMISS
THOMAS C. BRITTON, Bankruptcy Judge.
The trustee seeks dismissal of this chapter 7 case because (a) the debtor/corporation was dissolved in December, 1981 and, therefore, was not eligible to be a debtor in bankruptcy and (b) the individual who signed the petition purportedly on behalf of the debtor had no authority to do so. (C.P. No. 19). The motion was heard on December 5.
Only a “person” may be a debtor in bankruptcy under chapter 7. 11 U.S.C. § 109(b). “Person” is defined in § 101(30):
“ ‘Person’ includes individual, partnership, and corporation, but does not include governmental unit.”
The debtor was a Florida non-profit corporation which was dissolved involuntarily. The Florida statute specifies that involuntary dissolution of a corporation:
“shall not take away or impair any remedy available to or against such corporation ... for any right or claim existing, or any liability incurred, prior to dissolution”
for a period of three years. Fla.Stat. § 607.297.
A number of bankruptcy courts have concluded that a corporation dissolved under essentially similar statutes continues to be a “corporation” within the scope of § 101(30) during the statutory post-dissolution grace period. E.g. In re Liberal Mack Sales, Inc., 24 B.R. 707 (Bkrtcy.D.Kan.1982). I cannot disagree.
The record before me is inconclusive as to whether the filing of this bankruptcy petition was authorized by a majority of the last directors of the corporation, who have authority to act for the dissolved corporation. Fla.Stat. § 607.301. We do not, however, reach this question here because the trustee lacks standing to challenge the authority of the agent who signed the papers for this debtor. Only the directors, stockholders or members of a nonprofit have standing to question that act. Collier on Bankruptcy (15th ed.) ¶ 301.20[3] n. 18.
The motion to dismiss is denied. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489729/ | MEMORANDUM DECISION
THOMAS C. BRITTON, Bankruptcy Judge.
The debtor is an attorney. His malpractice insuror, as a creditor, opposes his discharge under 11 U.S.C. § 727. The debt- or has answered. It is clear from the insurer’s allegations that it in fact seeks exception from discharge under § 523(a)(4). It has alleged no ground for denial of discharge. The matter was tried on December 8.
A client sued the attorney in State court for the recovery of money entrusted to him. • The malpractice carrier was joined as a defendant. The attorney’s defense was that the funds in question had been stolen from him. However, the jury returned an affirmative answer to the following special verdict interrogatory:
“Do you find that the greater weight of the evidence shows that FRANCIS A. CERTO was not robbed on December 4, 1980, but that he misappropriated the money?”
Judgment was entered for the client against the debtor in the amount of $24,281. The malpractice insuror escaped liability based upon the jury’s special verdict. The State court retained jurisdiction to assess costs against the debtor, including the malpractice carrier’s claim for costs. The filing of this bankruptcy proceeding has forestalled not only the assessment of costs by the State court but also disposition of the debtor’s motion for new trial.
At the trial before me, the plaintiff/malpractice carrier offered the entire State court record and rested. The debtor offered no evidence. The parties agreed that the automatic stay should be modified under 11 U.S.C. § 362(d) to permit the parties to proceed in that State court litigation to obtain a ruling on the pending motion and the assessment of costs and for the prosecution of any appeal that might ensue. I agree and it is so ordered.
It is conceded that the plaintiff/carrier will have at least a claim for court costs against the debtor. This court must, therefore, determine sooner or later whether that claim is dischargeable.
The debtor argues that plaintiff’s claim does not partake of the nature of the client’s claim which it defended. I disagree. Matter of Poss, 23 B.R. 487, 488 (Bkrtcy.E.D.Wis.1982).
*661Plaintiff concedes that the debtor was not “acting in a fiduciary capacity” within the scope of § 523(a)(4) when the client’s money was misappropriated. Collier on Bankruptcy (15th ed.) ¶ 523.14[l][c]. Therefore, the issue is whether the special verdict constitutes a determination that the client’s loss resulted from the debtor’s “embezzlement” as that term is used in § 523(a)(4).
I digress to observe that plaintiff is relying entirely here on the special verdict as collateral estoppel with respect to the factual issues plaintiff must prove here. Although Brown v. Felsen, 442 U.S. 127, 139 n. 10, 99 S.Ct. 2205, 2213 n. 10, 60 L.Ed.2d 767 (1979) did not decide whether collateral estoppel is available for that purpose, I accept plaintiff’s contention that it is. United States Life Title Ins. Co. v. Dohm, 19 B.R. 134, 136 (D.C.N.D.Ill.1982).
As was held in Dohm:
“Embezzlement, for purposes of 11 U.S.C. § 523, ‘is the fraudulent appropriation of property by a person to whom such property has been entrusted, or into whose hands it has lawfully come, and it requires fraud in fact, involving moral turpitude or intentional wrong, rather implied or constructive fraud’ ”. Id. at 138.
“Misappropriation”, however, is a broader term which includes acts which are not criminal and may include acts which are merely negligent. Collier on Bankruptcy (15th ed.) ¶ 523.14[l][b]; e.g., Bell v. Clinton Oil Mill, 129 S.C. 242, 124 S.E. 7, 11 (1924). In any event, reasonable doubt as to what was decided by a prior judgment should be resolved against using it as an estoppel. Kauffman v. Moss, 420 F.2d 1270, 1274 (3rd Cir.) cert. denied 400 U.S. 846, 91 S.Ct. 93, 27 L.Ed.2d 84 (1970).
Plaintiff has not, therefore, carried its burden of demonstrating that its claim is excepted from discharge under § 523(a)(4).
As is required by B.R. 9021(a), a separate judgment will be entered dismissing this complaint with prejudice. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489962/ | MEMORANDUM AND ORDER
CHARLES J. MARRO, Bankruptcy Judge.
This matter is before the Court on the Complaint of David Barr, et als., against the Debtor, STN Enterprises, Inc., to reclaim possession of certain firearms hereinafter described, their Motion for Relief from Stay, and their Objection to Sale of Firearms, each filed October 16, 1984. *952Both the Debtor and the Committee of Unsecured Creditors oppose the Complaint and Motion.
At the hearing held on November 6, 1984, Peter Willis, one of the plaintiffs in this action, was examined under oath, and at the conclusion of the examination it was agreed among the parties that the other plaintiffs would practically testify the same as Willis with reference to the nature of all of the transactions between the Plaintiffs and the Debtor. More specifically, the Attorney for the Committee of Unsecured Creditors posed the question that if the other plaintiffs as witnesses were asked the same questions both on direct and cross examination, whether the answers would be the same. The Attorney for the Plaintiffs so stated, and it was agreed that all parties be bound by this result. They would be bound as to the decision made by the Court subject to the right of appeal.
PACTS
The Debtor, STN Enterprises, Inc., was organized as a corporation on August 6, 1982 for the purpose of engaging in the purchase and sale of collectible firearms and related collectibles under the trade name of “Atwater Arms.” Stephen T. Noyes was its president, sole stockholder and the driving force behind the corporate business. The corporation also conducted an investment program which included the purchase of certain collections of antique firearms. Noyes died on May 5, 1984 as a result of injuries received in an automobile accident, and for several weeks prior thereto, the Debtor was having financial difficulties. These apparently precipitated the filing of a Petition for Relief on June 28, 1984 under Chapter 11 of the Bankruptcy Code. The Schedules show total liabilities of $12,-989,844.35 and assets of $5,284,415.05. Included in the assets are Bennington firearms inventory and Greenwich firearms inventory, listed at an estimated market value without forced sale of $2,500,000.00 and $1,500,000.00, respectively.
Peter Willis, one of the plaintiffs, was employed as a sales representative for a software company, and in 1984, he had his first contact with the Debtor through one Reid Williams, a friend, who talked to him about investing in firearms. Williams worked part time for the Debtor, and Willis, prior to April 5, 1984, made two investments in firearms through Williams. In these transactions he paid Williams for the firearms and several months later received a profit from the investments. These were strictly investment transactions and Willis never even saw the weapons which he purchased.
On March 27, 1984, Willis turned over to Williams a check in the sum of $10,000.00 drawn on the Bank of Boston as his part of an investment in the purchase of a presentation triple set from Col. Colt to Lt. Silas Bent, and so inscribed. As pictured in col- or on page 52 of THE COLT HERITAGE. Bent was best man at Col. Colt’s wedding and a close personal friend. Model 1851 Navy, Model 1849 Pocket, Model 1855 Side-hammer; the presentation inscription on the brass case lid plaque. Fine condition.
Willis participated in the investment which was for a total of $40,000.00 with Dave Barr and Jim McCann. Barr’s share was $20,000.00. McCann’s share was $10,-000.00. A total payment of $40,000.00 was made for the weapons hereinabove described and they received a receipt from the Debtor as evidence of payment of $40,-000.00. The firearms purchased were left with the Debtor to be stored in the vault maintained by it in Greenwich, Connecticut. The purpose of the purchase was an investment only and in the event that Willis and his partners were not satisfied with the return, they could take possession of the guns at any time. They were left with Atwater Arms as a matter of convenience.
As evidence of the nature of the transaction, both Willis, Barr & McCann as purchasers and Atwater Arms, through Stephen Noyes, did early in April in 1984, execute a bailment agreement reading as follows:
“Having purchased the firearm(s) listed below from Atwater Arms and realizing that improper or excessive handling *953can effect condition and thereby greatly reduce the value of my purchase, I wish to create a bailment, leaving my purchase in the care and custody of Atwater Arms. It is my understanding that At-water Arms will store this purchase, either in its secured showroom in Benning-ton or in “The Vault” in Greenwich, Connecticut. It is also understood that At-water Arms has sufficient insurance on both locations and coverage while in transit. I agree to pay, on an annual basis, a reasonable fee for insurance and storage while my purchase is in Atwater Arms’ care and custody.
“Triple Presentation Set with Case from Col. Colt to Lt. Silas Bent
“Model 1851 Navy Serial # 49962
“Model 1849 Pocket Serial # 149376
“Model 1855 Root Sidehammer Serial # 441.”
Willis never met Stephen Noyes personally, and he conducted his transactions solely through Williams. He never visited the showroom maintained by Noyes in Ben-nington, Vermont, but he assumed that the Greenwich, Connecticut vault was a safe place in which to keep the weapons.
On April 12, 1984, Daniele and Lorraine Audette, Carl Nelson, and Donald Audette, paid over to the Debtor c/o Mr. Reid Williams the sum of $26,000.00 for the purchase of revolvers hereinafter described in four bailment agreements executed by Carl E. Nelson, Daniele Audette, Donald G. Au-dette, and Lorraine Audette. These bailment agreements were all dated April 12, 1984 and read as follows:
“Having purchased the firearm(s) listed below from Atwater Arms and realizing that improper or excessive handling can effect condition and thereby greatly reduce the value of my purchase, I wish to create a bailment, leaving my purchase in the care and custody of Atwater Arms. It is my understanding that At-water Arms will store this purchase either in its secured showroom in Benning-ton or in “The Vault” in Greenwich, Connecticut. It is also understood that At-water Arms has sufficient insurance on both locations and coverage while in transit. I agree to pay, on an annual basis, a reasonable fee for insurance and storage while my purchase is in Atwater Arms’ care and custody.
“Rare cased and engraved pair of Plant revolvers, engraved by same engraver as responsible for the Stanton Henry rifle, and most of the Henry rifles engraved at the New Haven Arms Co. factory; silver plated, with pearl grips; rosewood casing. Serial no. 1215 and no. 1216. Excellent condition. ”
The transactions between Donald Au-dette, et ais., and the Debtor for the purchase of the revolvers for the sum of $26,-000.00 were similar to the one between Peter Willis, et ais., and the Debtor.
With the purchases of the firearms here-inabove described Noyes mailed to David P. Barr and to Daniele Audette descriptions of the firearms in letters dated April 5, 1984, and April 12, 1984, respectively, in which were recited appraisals at fair market value made by R.L. Wilson, noted author, collector and consultant to antique arms collectors, which appraisals showed the values at $40,000.00 and $26,000.00, respectively.
The firearms hereinabove described are in the possession of the Debtor.
DISCUSSION
The issue in this case is whether the Plaintiffs, Peter Willis, et ais., are the owners of the above-described weapons which they seek to reclaim and whether they are entitled to possession.
The nature of a creditor’s property rights in bankruptcy is defined by state law, not federal law. Butner v. United States (1979), 440 U.S. 48, 54, 99 S.Ct. 914, 917, 59 L.Ed.2d 136; In Re Shelly Jr. (U.S. District Court—D. Delaware—1984), 38 B.R. 1000, 1001. State law also defines the nature and extent of debtor’s and, therefore, the estate’s interest in property. Butner v. U.S., supra; In Re Abdallah (Bankr.D.Mass.1984) 39 B.R. 384, 386; In *954Re Ford (Bankr.Md.1980) 3 B.R. 559, aff'd 638 F.2d 14 (4th Cir.1981).
Under the Uniform Commercial Code, as adopted in this state, title to goods passes from the seller to the buyer in any manner and on any conditions explicitly agreed on by the parties. 9A V.S.A. § 2-401(1). In the instant case, it was the intention of the parties that title to the weapons would pass to Willis, et als., upon payment of the purchase price for them. This was evidenced by two receipts delivered by the Debtor to them with each purchase. Therefore, upon payment of the purchase prices, there was compliance with the manner and conditions agreed upon by the parties and title to the weapons passed from the Debtor to Willis, et als., and to Audette, et als.
It is clear that a “true bailment” was contemplated by the parties. A “bailment,” in its ordinary legal signification, imports the delivery of personal property by one person to another in trust for a specific purpose, with a contract, express or implied, that the trust shall be faithfully executed, and the property returned or duly accounted for when the special purpose is accomplished, or kept until the bail- or reclaims it. 8 Am.Jur.2d 738 § 2.
The agreements executed in April, 1984, clearly come within the parameters of “bailments.” They specifically state that the parties wish to create bailments leaving the purchases of the firearms in the care and custody of Atwater Arms to be stored in the Greenwich, Connecticut vault, for which the purchasers agreed to pay on an annual basis, a reasonable fee for insurance and storage while the purchases were in the custody and care of Atwater Arms. The special purposes of the bailments were safekeeping, and the firearms were to be kept by the Debtor until reclaimed by the Plaintiffs. 8 Am.Jur.2d 738 § 2.
Under bankruptcy law, absent state statutory enactment to the contrary, if property was in a debtor’s hands as bailee or agent, the trustee (in this case the debtor by virtue of § 1107) holds it as such, and the bailor can recover the property or its proceeds. 4 Collier 15th Ed. 541-40 § 541.-08. See also In Re Veon, Inc., (Bankr.W.D.Pa.1981) 12 B.R. 186, 188; Matter of Wright-Dana Hardware Co., 211 F. 908 (2d Cir.1914); In Re Keith 1 UCC Rep. Ser 347; In Re Cox Cotton Company (U.S. District Court E.D.Ark.1982) 24 B.R. 930, 935; Devita Fruit Co. v. FCA Leasing Corp., 473 F.2d 585 (6th Cir.1973); Allgeier v. Campisi, 117 Ga.App. 105, 159 S.E.2d 458 [5 UCC Rep 93] (1968). See also 8 Am.Jur.2d 831 § 98.
The Court does not agree with the argument made by the Debtor that the transactions between Willis, et als., and it constituted executory contracts for the reasons set forth in the recent Memorandum Opinion of the Court entered on December 11, 1984 on the Motion of Fellers in this case to reclaim possession of certain firearms. Likewise, for the same reasons as indicated in the Fellers Memorandum Opinion, the Court does not construe the receipts delivered by the Debtor to Willis, et als., as security agreements.
Since the transactions between Willis, et als., were in fact “true bailments,” the Plaintiffs are entitled to recover their firearms.
ORDER
Now, therefore, upon the foregoing,
IT IS ORDERED:
1. The automatic stay prescribed by § 362 of the Bankruptcy Code is TERMINATED.
2. The Debtor is enjoined from selling or otherwise disposing of the firearms hereinabove described.
3. The Debtor shall within ten days from the date of this Order deliver to the Plaintiffs, David Barr, et als., all of the firearms hereinabove described. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489731/ | MEMORANDUM OPINION AND ORDER
RICHARD L. SPEER, Bankruptcy Judge.
This cause comes before this Court upon the Plaintiff’s Motion for Summary Judgment. The Complaint in this case seeks to deny the Debtors’ Discharge.
FACTS
The Debtors filed their voluntary Chapter 11 petition on November 13,1981. The case was converted to a Chapter 7 proceeding on February 1, 1982. As a part of that case the Plaintiff filed an adversary Complaint which sought relief from the automatic stay. See, Clark Equip. Credit Corp. v. Sweigard, Case No. 82-0134 (Bkrtcy.N.D.Ohio 1982). A stipulated Judgment Entry was agreed upon by the parties in that case. That entry required the Debtor to turn over to the Plaintiff certain monies that were forthcoming to the Debtor from the State of Ohio.
The Complaint in the present case alleges that the monies were never turned over to the Plaintiff as required by the Order in the previous adversary proceeding. A Pre-Trial conference was held in this case on April 8, 1983. At that conference the Debtor admitted that he had not turned over the funds and had thereby violated the Order of this Court. This admission is offered into the record by way of an Affidavit of co-counsel for the Plaintiff which is attached to the present Motion. The present Motion is unopposed.
LAW
11 U.S.C. § 727 states in pertinent part:
“(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...”
The obligation imposed by this section to follow the orders of the Court is intended to facilitate the complete and orderly administration of the case. In re McDonald, 25 B.R. 186 (Bkrtcy.N.D.Ohio 1982). Without such a requirement a debtor would be able to frustrate the rights of creditors and impede the administration of the estate.
In the present case the Debtor was ordered to turn over the funds to the Plaintiff. This Order was an agreed entry and was signed by the Debtor’s counsel. By the Debtor’s own admission he has failed to follow that Order. In the absence of any showing of circumstances which would excuse this failure, it must be concluded that the Order has not been followed. Since the only element which is required by this section of the Bankruptcy Code has been demonstrated, there remain no material questions of law or fact which require this Court’s further consideration. Accordingly, it is
ORDERED that the Motion for Summary Judgment be GRANTED, and that the Debtors’ Discharge be, and it is hereby, DENIED. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489732/ | MEMORANDUM OPINION
MARK B. McFEELEY, Bankruptcy Judge.
This matter came before the Court on the complaint of the United States of America (Internal Revenue Service) seeking to modify the automatic stay to allow plaintiff to make a tax assessment and file a notice of federal tax lien. The debtor failed to file an answer to the Internal Revenue Service’s complaint, and did not appear on the hearing. Following argument by the Assistant United States Attorney, the Court entered an order modifying the stay to allow the Internal Revenue Service to make its assessment of taxes as described in the complaint, but took the matter of filing the tax liens under advisement.
First it should be noted that although the complaint states that the tax liens will only affect property which is “not property of the estate,” (which we take to mean exempt property), this is a corporate debtor which is not entitled to exemptions, and any tax lien filed against the debtor’s property would operate against all the property of the estate. We also note that the stay in this proceeding does not operate to bar the Internal Revenue Service from filing an assessment and lien against the officer or officers of the corporation responsible for trust fund taxes. The issue, then, is allowing the Internal Revenue Service to file tax liens against property of the estate when the debtor-in-possession does not object to those liens being filed.
Stay motions require notice only to the creditor seeking the relief and to the debt- or. Bankruptcy Rule 4001; Bankruptcy Rule 9014. Because of that the Court should always examine the full effect of the relief sought, particularly since a Bankruptcy Court is a court of equity. See generally, Meyer v. United States, 375 U.S. 233, 84 S.Ct. 318, 11 L.Ed.2d 293 (1963); Otero Mills v. Security Bank & Trust (In re Otero Mills), 21 B.R. 777 (Bkrtcy.D.N.M.1982), First National Bank of Louisiana v. Fidelity American Mortgage Company, et al. (In re Fidelity American Mortgage Co. and In re Whispering Brook Associates), 9 B.C.D. 22, 19 B.R. 568 (Bkrtcy.E.D.Pa.1982); Chrysler Credit Corp. v. Schweitzer (In re Schweitzer) 9 B.C.D. 583, 19 B.R. 860 (Bkrtcy.E.D.N.Y.1982); In re Stewart 5 C.B.C.2d 575, 8 B.C.D. 362, 14 B.R. 959 (Bkrtcy.E.D.Ohio 1981). Allowing the Internal Revenue Service to file a tax lien could put them in a better position than other chapter 11 priority creditors, and the improvement of one creditor’s position vis-a-vis another is something which this Court may consider in other equitable proceedings; see, for example, Meyer, supra, and Duck Trustee v. Wells Fargo Bank (In re Spectra Prism Industries Inc.), 8 C.B.C.2d 325, 10 B.C.D. 269, 28 B.R. 397 (Bkrtcy. 9th Cir.1983) in which the courts considered the effects of the equita*681ble doctrine of marshalling upon third parties. Additionally, should this case convert the filing of this lien could substantially affect how chapter 7 administrative expenses would be paid. These considerations take on special meaning in a case where trust fund taxes would be recoverable from the responsible corporate officers, thus giving the debtor little incentive to object strenuously to the Internal Revenue Service obtaining a better position than other creditors.
For these reasons this Court finds that although the stay matter is uncontested by the debtor, all of the relief sought by the Internal Revenue Service should not be granted. The stay having previously been modified to allow assessment it will not further be modified to allow the Internal Revenue Service to file tax liens.
This memorandum constitutes findings of fact and conclusions of law. Bankruptcy Rule 7052.
An appropriate order shall enter. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489734/ | MEMORANDUM OPINION AND ORDER
RICHARD L. SPEER, Bankruptcy Judge.
This cause came before this Court upon the Motion to Dismiss filed by the Defendant to this action. Inasmuch as the facts of this case are not in dispute the parties have agreed to have this Court reach a decisions based solely on the arguments of counsel.
FACTS
On December 13, 1981, the Debtor executed a promissory note and security agreement with the Defendant for the purchase of a 1980 Datsun automobile. At that time the Debtor was a resident of Illinois. Pursuant to the laws of that state, the Defendant perfected the security interest by noting the interest on the Illinois certificate of title. This certificate was retained by the Defendant. At some time later, the Debtor requested that the Defendant give him the certificate so that he could obtain an Ohio certificate of title and Ohio license plates. This the Defendant did. However, the Debtor never applied for an Ohio registration. Rather, he removed the car to Florida where he obtained a no-title registration. He then returned to Ohio where, on April 2, 1982, he filed his voluntary Chapter 7 bankruptcy petition. This adversary complaint, filed by the Trustee, seeks a determination as to the priority of the parties’ interests in the collateral.
LAW
The Trustee’s contention that he has a superior, interest in the collateral is based upon the provision of 11 U.S.C. § 544 which states in pertinent part:
“(a) The trustee shall have, as of the commencement of the case, and without regard to any knowledge of the trustee or of any creditor, the rights and powers of, or may avoid any transfer of property of the debtor or any obligation incurred by the debtor that is voidable by—
(1) a creditor that extends credit to the debtor at the time of the commencement of the case, and that obtains, at such time and with respect to such credit, a judicial lien on all property on which a creditor on a simple contract could have obtained a judicial lien, whether or not such a creditor exists...”
This provision allows the Trustee to prevail and to have priority over any claims, liens, or interests which are not fully perfected at the time the petition was filed. See, Matter of Midwestern Food Stores, Inc., 21 B.R. 944 (Bkrtcy.S.D.Ohio 1982). Both Illinois and Ohio have enacted Uniform Commercial Code § 9-103(2)(a, b) which states in part:
“(1) This division applies to goods covered by a certificate of title issued under a statute of this state or of another jurisdiction under the law of which indication of a security interest on the certificate is required as a condition of perfection.
(2) Except as otherwise provided in this division, perfection and the effect of perfection or non-perfection of the security interest are governed by the law, including the conflict of laws rules, of the jurisdiction issuing the certificate until four months after the goods are removed from that jurisdiction and thereafter until the goods are registered in another jurisdiction, but in any event not beyond surrender of the certificate.”
See, Ohio Revised Code § 1309.03, Ill.Rev. Stat. ch. 26, § 9-103. As this section indicates, a security interest in an article that requires a certificate of title must be noted upon the certificate in order to be perfected. This perfection will remain intact for four months after the property is removed from the original jurisdiction if the vehicle is re-registered in the new state within that time. After the four month period the *802original lien will be perfected, but only so long as the car is not re-registered. Subsequent registration will destroy the original perfection. However, the creditor’s lien will also become unperfected whenever he surrenders the certificate, regardless of when that occurs.
In the present case the Trustee has two grounds upon which to assert that the lien was unperfected on the date the petition was filed. First, he could assert that the issuance of a no-title registration by the State of Florida constitutes a re-registration for purposes of avoiding the Defendant’s perfection. However, a review of the facts reflects that four months had not yet elapsed between the time the Debtor purchased the car and the time he filed bankruptcy. As indicated in the statute, a creditor will remain perfected for four months regardless of whether a debtor re-registers the collateral in a new state within that time. Therefore, the Defendant had not lost his perfection based upon the issuance of the Florida no-title registration.
The statute also indicates that perfection of a security interest which is recorded on a title document will be lost when the creditor surrenders the certificate. The statute does not define or elaborate upon the meaning of “surrender” as it is used in this provision. In the present case the Defendant surrendered the certificate to the Debtor so that the Debtor could obtain an Ohio certificate of title. The Trustee argues that the release of actual physical possession of the certificate constitutes a surrender. The creditor contends that surrender should mean the presentment of the certificate to an official for an official purpose.
It appears that there are no prior decisions which directly address the interpretation of this term. In In re Singleton, 2 UCC Rep. 195 (Bkrtcy.E.D.Ky.1963), the Court referred to a surrender of the Ohio certificate of title to the Clerk of a county court in Kentucky by the Debtor personally. However, the issue in that case was whether or not an Ohio creditor, whose lien was noted on the Ohio certificate, became un-perfected when the Clerk of the Kentucky court issued a Kentucky title without noting the lien thereon. A similar situation existed in In re Hrbek, 18 B.R. 631 (Bkrtcy.D.Neb.1982), wherein the Court alluded to the Debtor’s transfer of the certificate from his personal possession to the county clerk in the removing state.
The Defendant has cited several sections of the Ohio Revised Code which indicate that a person must present proof of ownership or surrender a title from another state in order to accomplish certain facets of registration in Ohio. Although these provisions make it clear that the certificate must be surrendered to the clerk of courts for proper transfer, they are of little value in determining whether or not, for purposes of maintaining perfection of a security interest, the creditor “surrendered” the title.
In an attempt to interpret this term, analogies can be made to several other legal concepts. The first would be to that of perfection by possession. In order to remain perfected the creditor would have to retain actual possession of the certificate. The second analogy would be to that of a bailment. Under this theory the creditor would retain constructive possession of the title during the time the debtor had actual possession. See, 8 Ohio Jur.3d Bailments §§ 16, 20. Similarly, the relinquishing of actual title could be viewed in the nature of abandoned property, whereby the intent of the party .entitled to possession determines the character of the property’s availability. Finally, the situation could be compared to the provision of temporary perfection as set forth under UCC § 9-304(5)(b)(B), Ohio Revised Code § 1309.23(E)(2). This provision states that:
“(E) A security interest remains perfected for a period of twenty-one days without filing where a secured party having a perfected security interest in an instrument, a negotiable document, or goods in possession of a bailee other than one who has issued a negotiable document therefor:
*803(a) delivers the instrument to the debtor for the purpose of ... registration of transfer.”
While this provision appears dispositive, it should be noted that it only applies to the types of property listed earlier in that section. This listing does not include items covered by a certificate of title.
In Ohio an applicant is required to present evidence of ownership when applying for an Ohio certificate of title or when renewing the annual vehicle registration. Ohio Revised Code §§ 4505.06, 4503.01 et seq. While it is not a commercially sound practice to give up possession of the certificate of title, there are circumstances where the owner of the vehicle is required to have the title available to him. Therefore, the term “surrender” must be interpreted with regards to these pragmatic considerations.
If perfection by possession were to be applied, a creditor’s absolute retention of the title would prevent a debtor from performing duties that are required by law. Although a memorandum title is available, it is not required by law nor would it be sufficient to have a title issued in another state. See, Ohio Revised Code §§ 4505.06, 4505.12. It also would not be commercially practical to require that the creditor continually send the title to the various agencies which require presentation of the document. However, if the creditor were to accommodate the debtor by giving him the title he would run the risk of losing his first interest in the vehicle.
If giving the title to the debtor was construed as a bailment the creditor would then be free to issue the certificate to the debtor for whatever time and purpose the debtor chose. Since the purpose of perfection and notation of security interests is to guard against the possibility that a second lender could be deceived as to prior encumbrances, this view would not further that protection.
Under the concept of temporary perfection the creditor would be allowed to surrender the title to the debtor for a limited time and still retain a perfected status. It would also impose a duty on the creditor to insure that the debtor returned the title within a reasonable time. If the debtor did not return the certificate within such time the creditor would be responsible for taking whatever legal actions necessary to compel production of the certificate. These circumstances would accommodate the needs of both the creditor and the debtor without imposing any unreasonable responsibilities on either. In the view of the interests which must be both accommodated and protected, the term “surrendered” should be interpreted, for purposes of UCC § 9-103(2)(b), to mean that a creditor may give up actual physical possession of the certificate of title for a reasonable time without losing perfection of the lien.
It should be noted that this Court cannot, by way of judicial legislation, establish a twenty-one day limitation as the time in which a creditor must have the title returned. However, this Court may interpret the word “surrender” as it is used in the statute. Since the legislature has established a procedure to handle similar circumstances, involving other types of collateral it is only logical to interpret the legislature’s omission in a manner consistent with what it has already set forth.
In the present case there is no indications as to when the creditor gave up possession of the title to the Debtor. Without any information on that point there is no way this Court can determine whether or not the length of time between the relinquishment of the title and the date of the bankruptcy petition was a reasonable time.
Therefore, it is ORDERED that the parties will submit to this Court, within fourteen (14) days from the date of this Order, the date on which the Defendant gave the certificate of title to the Debtor.
In reaching these conclusions this Court has considered all of the evidence and arguments of counsel, whether or not they are specifically referred to in this Opinion.
OPINION AFTER ADDITIONAL EVIDENCE SUBMISSION
This cause comes before this Court upon the submission of additional evidence as *804requested by an Order of this Court dated October 25, 1983. In that Order the Court requested information as to the date on which the Defendant gave the certificate of title to the Debtor. This information was required in order to determine whether or not the creditor had lost the perfection of its security interest.
FACTS
In response to the Court’s request the Defendant has indicated that the title was turned over on March 9, 1982. The Plaintiff has indicated that he does not have personal knowledge of the date, but that he also believes it to be March 9, 1982. The Plaintiff has also offered additional evidence which he requests that the Court consider. The most relevant fact offered is that at the time the car was purchased, the Debtor was a resident of the State of Ohio. This contrasts with that fact that the car was purchased in Illinois, was titled in Illinois, and was initially registered in Illinois.
Although a person who resides in Ohio must obtain an Ohio automobile registration within thirty (30) days from the time that residence is established, he is not required to register the car in Ohio initially upon purchase. Similarly, the Ohio Revised Code does not dictate a requirement for a person’s residence when perfecting a lien on property covered by a certificate of title. Therefore, the fact that the Debtor was not a resident of Illinois at the time the lien was perfected is not dispositive of this case.
LAW
As indicated in the Court’s prior Order, this Court must determine whether or not the time between the filing of the petition and the time when the Defendant gave the certificate of title to the Debtor was a reasonable time. This determination is necessary in order to determine whether or not the creditor had “surrendered” the title, and thereby lost its perfected status. As previously discussed, the title was given on March 9,1982, and the petition was filed on April 2, 1982. Under the circumstances of this case, this Court finds that the time in which the Defendant was not in possession was not an unreasonable time. Consequently, the Defendant had not “surrendered” the title for purposes of Ohio Revised Code § 1309.03 and accordingly, has retained its perfected status.
In reaching this conclusion, this Court has considered all the evidence and arguments of counsel, regardless of whether or not they are specifically referred to in this Opinion.
It is ORDERED that this Complaint be, and it is hereby, DISMISSED. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489735/ | FINDINGS OF FACT AND CONCLUSIONS OF LAW RE APPLICATION FOR APPOINTMENT OF TRUSTEE
JON J. CHINEN, Bankruptcy Judge.
On March 16, 1988, Ibrahim Nemetnejad (Applicant) filed an Application for Appointment of Trustee. On April 18, 1983, Abraham Vischschoonmaker aka Abbie Vischschoonmaker, (Mr. V), Shalom Brothers, Inc., a New York Corporation, and Walter A. Yim and Associates, Inc., a Hawaii corporation, (hereafter jointly Co-Applicants) filed their Joinder of Co-Applicants *817For Appointment of Trustee, and Ralph S. Aoki, the former Trustee herein, filed his Joinder In Application For the Appointment of a Trustee.
Hearings on the application were held over several days. Present at the various hearings were V. Spencer Page, Esq., attorney for Applicant, Michael A. Yoshida, Esq., attorney for Ralph S. Aoki, former Trustee, Charles S. Lima, Esq., former attorney for Vischschoonmaker, Ossendryver Galleries International, Inc., (VOGI) and also attorney for Drakespur Antiquities, Ltd. (Drakespur), Joint Venture of July 11,1982, and Morice Lidchi; Ray A. Findlay, Esq., attorney for Morice Lidchi (Lidchi); V. Thomas Rice, Esq., attorney for Co-Applicants; • Paul A. Tomar, Esq., attorney for Beverly S. Nelson, (Ms. Nelson); and Richard H. Lachman, Esq., successor attorney for VOGI.
Based upon the evidence adduced, the memoranda and records in the file, and arguments of counsel, the Court enters the following Findings of Fact and Conclusions of Law.
FINDINGS OF FACT
In February 1979, Mr. Morice Ossendry-ver (Mr. O) and Mr. V formed VOGI, the Debtor corporation, with Mr. O and Mr. V each owning one-half (¥2) of the $30,000 shares of common stock issued. Ms. Nelson was the secretary-treasurer.
In 1980, the common shares of VOGI were converted to preferred shares with Mr. O and Mr. V holding equal shares, and ten shares of common stock, par value of $1.00 per share, were issued to Ms. Nelson. As part of this conversion, promissory notes held by Mr. O payable by VOGI were reaffirmed. These promissory notes included one note dated January 7, 1980, in the amount of $74,344.00, and another note of the same date, amended November 4, 1980, in the amount of $112,007.19.
Attorney Charles S. Lima and Ms. Nelson have filed affidavits in this case averring that on April 16, 1981, Mr. V executed a trust instrument in which the trust corpus consisted of Mr. V’s 15,000 preferred shares of stock in VOGI, and two promissory notes payable by VOGI to Mr. V, both dated January 7, 1980, with one being in the amount of $74,334.00, and the other $133,-021.12. Mr. Lima, who represented VOGI in the instant case from its outset until August 29, 1983, was named as the trustee of this trust. There was apparently another trust instrument executed contemporaneously by Ms. Nelson, with Mr. Lima as the trustee, the result of which was that the two trusts held all preferred and common shares of VOGI, as well as debt instruments payable by VOGI.
On September 21, 1981, to settle an ongoing controversy between Mr. O and Mr. V, an agreement was signed between VOGI and Mr. O. By this agreement, Mr. O surrendered to VOGI his 15,000 preferred shares of stock and the previously described promissory notes, in exchange for the issuance of a new promissory note in the amount of $70,000.00 and a quantity of Oriental carpets equal in value to the sum of $112,000.00. VOGI-owned carpets constituted the carpets conveyed to Mr. O as part of this agreement.
Although pursuant to the September 21, 1981 agreement Mr. O was to receive sixteen carpets previously traded in for VOGI carpets sold by Mr. O during March and April, 1980, the sixteen carpets had become VOGI property when they were traded in.
Also settled as part of the September 21, 1981 agreement was the claim of VOGI for any reimbursement for the storage, shipping, and insuring of a carpet known as the Hereke “S”, which apparently was not claimed as an asset of VOGI. In addition, VOGI also assumed certain debts to trade creditors incurred purportedly on behalf of VOGI by Mr. O, and indemnified Mr. O for any claims made by trade creditors.
A loose “holding” arrangement, whereby carpets ordered from the Applicant were sent to VOGI from Bermuda was also in existence during this period. In this “holding” arrangement, the disposition of the carpets and proceeds from the sales, if any, were never clearly defined through docu*818mentation between and among VOGI, Mr. V and Mr. 0.
In approximately January, 1982, Mr. 0 filed an action in the United States District Court for the District of Hawaii seeking to enforce the 1981 agreement. VOGI counter-sued in a separate action in the same court, seeking to enjoin Mr. 0 from using company customer listings and otherwise representing that he continued to act for the company in the sale of Persian carpets in his possession.
In the first week of April, 1982, Ms. Nelson, acting in her corporate capacity, transferred all of the carpet inventory of VOGI to an Isle of Jersey offshore corporation called Drakespur Antiquities, Ltd. which she had caused to be formed. This was a “paper” transaction, intended to allow the continued sale of the Persian carpets from VOGI without interference from Mr. 0 in the pursuit of his federal lawsuit against VOGI. Carpets transferred to Drakespur at this time were exclusively VOGI carpets.
At the time of the transfer of carpets to Drakespur, Drakespur was controlled by a board of directors in New Jersey, and Ms. Nelson was the spokesperson for the corporation. Cornelius Van Beek was listed as the chairman of Drakespur, as that title was used in describing the officers of an Isle of Jersey corporation; Mr. Van Beek was also a vice-president and a Director of VOGI. Drakespur was not registered as a foreign corporation doing business in the State of Hawaii with the then Department of Regulatory Agencies of the State of Hawaii.
At the time of the Drakespur transfer, Mr. V had a claim against part of the inventory pursuant to a divorce action between Ms. Nelson and himself in the family court of the State of Hawaii. Mr. Lidchi also had made a claim to two of the carpets which were in Ms. Nelson’s care at the time of the transfer.
During the period in which Drakespur marketed the VOGI inventory, proceeds accruing to Drakespur from the sale of Persian carpets were variously used to pay exhibition debts in Phoenix incurred by Mr. V, costs on exhibitions or auctions as part of Drakespur exhibitions, and also directly to VOGI indebtedness. A contemplated cost-of-carpet plus 20% net profit from these proceeds was never realized by VOGI because of VOGI’s large accrued indebtedness.
During the time Drakespur marketed the carpets transferred from VOGI, there were at least three separate accounts bearing Drakespur identity. These included the following:
a. An account with the Bank of Hawaii, for which Ms. Nelson was the sole signatory.
b. An account in Phoenix.
c. An account in Denver.
There was also a proposed account in Bermuda. Although subpoenae duces tecum had been issued from this Court addressed to VOGI and Ms. Nelson, individually, none of these account records were produced in Court.
From the time of the transfer of the VOGI carpets to Drakespur until the execution of a July 11, 1982 settlement agreement, 35 of a total of approximately 102 carpets were sold. Accounting for those sale proceeds used to pay-off VOGI accounts during this period was apparently through Drakespur accounts. No direct accounting was made via the VOGI account for the VOGI debts paid. Of the sales transactions effected under the auspices of Drakespur, one involved a transfer of $9000.00 in sale proceeds to VOGI, either directly or through indirect payments to creditors.
In settlement of the federal litigation, Mr. O, Ms. Nelson, and VOGI executed a Settlement, Release and Joint Venture Agreement (“Settlement Agreement”) on July 11, 1982.
The remaining inventory previously transferred to Drakespur by VOGI became the carpets which were contributed variously by Mr. O and Ms. Nelson described in the Settlement Agreement. These “consignments”, in the case of the carpets described as being contributed by Ms. Nelson, were *819the same carpets which had been transferred to Drakespur. The carpets described in Exhibit “A” of the Settlement Agreement on page 7 were carpets held by VOGI but variously claimed by either Mr. V or Mr. 0, but with no apparent title documents.
The purpose of the Settlement Agreement was to recover VOGI carpets which had been given to Mr. 0 as part of the prior September 11, 1981 agreement with Mr. 0, and to place the carpets into a pool to be sold to pay off VOGI’s debts.
The joint venture described in the Settlement Agreement as “Persian Carpets of Hawaii” was not registered with the Department of Commerce and Consumer Affairs (“DCCA”) of the State of Hawaii. The joint venture apparently did business as “Anglo-American Joint Venture”, and has sued Mr. 0 under the name “Anglo-American Art Consultancy, Ltd.” This joint venture, since its formation as part of the Settlement Agreement, has been represented by attorney Charles S. Lima, who has entered a formal appearance in this case on its behalf.
Under the terms of the Settlement Agreement, Ms. Nelson was to receive $35,-000.00 from an initial “cost deduction” of $70,000.00 to be paid to Mr. O. In addition 40% of proceeds from the sale of carpets contributed to the Settlement Agreement, after deductions for costs, was to be paid to Ms. Nelson attributable to the harassment inflicted on her, and for loss of business caused by Mr. O.
No records were produced of sales activity of the Settlement Agreement carpets between the execution of the agreement on July 11, 1982, and the filing of the Chapter 7 petition in this case, despite repeated issuance of subpoena compelling the production of the records in court.
Proceeds of post-petition sales of the Settlement Agreement carpets in the form of cash or post-dated checks, to the extent such proceeds exceeded the costs of sale deducted by Mr. 0, were paid into attorney Charles S. Lima’s office. Apparently thereafter, disbursements were requested by Ms. Nelson, and attorney Charles S. Lima acted as the disbursing agent.
Prior to the filing of the Chapter 7 petition in this case, Ms. Nelson had withdrawn from the assets of VOGI $15,000.00 in receivables, $5,000.00 in furniture, and $5,000.00 in carpets. These withdrawals were in payment of debts owed by VOGI to Ms. Nelson, and were made around April of 1982.
On August 25, 1982, VOGI filed a voluntary petition in this Court for relief under Chapter 7 of the Bankruptcy Code, and Ralph Aoki was eventually appointed trustee. Pursuant to his order of appointment, Mr. Aoki in seeking to locate, identify, and clarify the ownership of various assets of VOGI, began a series of actions, including Bankruptcy Rule 205 examinations of Mr. Cornelius Van Beek and Ms. Nelson.
Trustee Aoki received no cooperation in his efforts to marshall the records and assets of VOGI. He received only a small number of the corporate records of VOGI, although he had requested all corporate records. Although Mr. Aoki received keys to E-Z Access Storage so that he may have access to carpets the ownership of which was in dispute, he discovered that other persons had access to the carpets. Though Mr. Lima had represented that he would turn over post-dated checks to Mr. Aoki, the checks were not turned over. Trustee Aoki was further hampered in his efforts to mar-shall the assets of VOGI by the late-filing of VOGI’s Statement of Affairs and Schedules. The Schedules, filed December 21, 1982, revealed assets of approximately $40,-095.11 and liabilities totalling $359,627.24.
On February 28, 1982, VOGI moved, ex parte, for conversion of the Chapter 7 proceedings to Chapter 11, the order of conversion being filed March 7, 1983. The stated purpose of the conversion was to effect the Settlement Agreement of July 11,1982, and thereby pay off creditors of the estate.
Following conversion, Mr. Aoki filed a final account of the Chapter 7 proceedings, reporting at the time of conversion possession of an inventory of carpets valued at $117,251.31.
*820The records obtained by the Trustee from Ms. Nelson prior to conversion included a listing of carpets sold by the July 11, 1982 joint venture. This report showed gross sales in the amount of $157,700.00, with a joint cost of sales of $40,406.09.
As of May, 1983, the joint venture had entered into sales transactions of a total gross of $196,200.00, with a total cost of $63,229.18, although apparently approximately four of the sales actions were not concluded.
On August 1, 1983, Mr. Lidchi, the July 11, 1982 joint venture (“Anglo American Art Consultancy, Ltd.”), and Ms. Nelson filed a complaint in the Circuit Court of the Second Circuit, State of Hawaii, Civil No. 7158, entitled, “Morice Lidchi, Joint Venture of January, 1982, Beverly G. Nelson, and Anglo-American Art Consultancy, Ltd. v. Morice Ossendryver.” Although a signatory to and beneficiary of the Settlement Agreement, VOGI is not named in the suit. Part of this complaint alleges the failure of the Defendant, Mr. O, to account for proceeds and carpets which were part of the July 11, 1982, joint venture, and for breach of the agreement.
Pursuant to the Maui action, Ms. Nelson recovered from Mr. 0 part of the inventory originally delivered to Mr. O under the July 11,1982 settlement agreement. Mr. 0 continues to hold approximately eleven Persian carpets, which were originally VOGI inventory, which he refuses to release or return to Ms. Nelson.
As of the August 29, 1983 concluding hearing on the instant application, VOGI had not filed any accounting with this Court regarding proceeds from the joint venture or disposition of its inventory even though this Court had directed the filing of accountings as early as April 18,1983. Representations had been made to this Court at a May 11, 1983 hearing that an accountant had been retained, although not appointed by this Court, and that accountings would be filed with this Court.
CONCLUSIONS OF LAW
1. The July 11, 1982 Settlement Agreement was a preferential transfer among insiders, effected within 90 days of the filing of the Chapter 7 petition herein, at a time when the insiders participating had cause to believe that VOGI was insolvent.
2. From and after the filing of the Chapter 7 petition, principals of VOGI, including its attorney, failed to cooperate in the orderly marshalling of assets by the court-appointed trustee.
3. VOGI has failed to provide any Chapter 11 accountings to the Court, even though substantial sales have occurred during this period and proceeds have apparently been paid to attorney Lima.
4. The confused intermingling of substantial assets of VOGI and Drakespur, (the July 11, 1982 Settlement Agreement), Mr. O, Mr. V, and Ms. Nelson, with minimum property transfer documentation, requires that a disinterested third party review the operations of the corporation to establish the assets of VOGI, as well as determine the validity of claims of both insiders and arms-length creditors.
5. Under 11 U.S.C. § 1104, appointment of a trustee in this case must be justified under either of two standards:
a. For cause, including fraud, dishonesty, incompetence, or gross mismanagement of VOGI, either before or after the commencement of the case' ..., or
b. If the appointment is in the interest of creditors.
6. This Court finds that the actions of debtor herein described constitute cause for the appointment of a Trustee and that this appointment is in the interest of creditors. Therefore, appointment of a Trustee is necessary, and the Court hereby appoints Ralph S. Aoki as Trustee.
7. Upon presentation of an Order, this Court will issue appropriate injunctive relief requiring all principals and previous insiders of VOGI to refrain from any further disposition of carpets through either VOGI, or indirectly through the July 11, 1982 Settlement Agreement.
*8218. Ms. Nelson, attorney Charles Lima, and any other person or entity which has at any time held what had prior to such holding been VOGI assets, inventory, or property, shall be required to account fully for the disposition of the described assets, and/or any monies or other consideration received therefor.
An Order will be signed upon presentment. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489736/ | MEMORANDUM DECISION AND ORDER
JON J. CHINEN, Bankruptcy Judge.
This Memorandum Decision deals with the Complaint for Relief From Automatic Stay filed by Community Systems Corporation, hereafter “Community Systems”, on June 15, 1983, to which Complaint, Nordic Maui, Inc., hereafter “Nordic”, filed its Joinder In Complaint for Relief From Automatic Stay on October 7, 1983. The final hearing was held on October 18 and 19, 1983, at which were present Steven Chung, Esq., representing Iao Valley Resorts, Ltd., hereafter “Debtor”, James Wagner, Esq., representing Arthur Hannifin, James Duca, Esq., representing Community Systems, and Nicholas Dreher, Esq., representing Nordic. Based upon the evidence adduced, the mem-oranda and records in the file and arguments of counsel, the Court makes the following Findings of Fact and Conclusions of Law.
FINDINGS OF FACT
This chapter 11 proceeding was commenced by Debtor on February 9,1982. At that time, Debtor’s only asset was a parcel of real property and improvements thereon known as the Iao Valley Restaurant and Lodge, hereinafter “the Lodge”, consisting of a restaurant, a cafeteria, gift shops, meeting rooms and nine lodging units. The Lodge was encumbered by a first mortgage securing a promissory note in the principal amount of $707,223.57, bearing interest at the rate of 15% per annum, in favor of Nordic and a second mortgage securing a promissory note in the principal amount of $350,000.00, bearing interest at the rate of 12% per annum, in favor of Community Systems. Both notes are personally guaranteed by Arthur M. Hannifin, Debtor’s only officer and director. On the date of filing, the total principal obligations owed to these two creditors amounted to $1,180,-150.40.
The Lodge was first sold to Arthur Han-nifin by Nordic by Agreement of Sale dated January 31, 1979. The Agreement of Sale had an interest rate of 12% per annum and it called for monthly payments of $4,072.00, with the final payment due on January 31, 1984.
In January 1981, Debtor executed a mortgage in favor of Community Systems to secure a loan of $350,000.00 at a rate of 12% interest. At the same time, Debtor and Community Systems executed a “management contract” wherein Debtor was required to pay Community Systems $3,790.00 a month during the life of the loan from Community Systems to Debtor. On this management contract, Community Systems’, bookkeeper merely checked Debtor’s financial statement about once a month.
On February 6, 1981, Nordic and Debtor replaced the Agreement of Sale with a Deed from Nordic to Debtor and a promissory note for $707,223.37 due on February 28, 1982 from Debtor to Nordic, secured by a mortgage on the Lodge. The promissory note had an interest of 15% per annum.
The Lodge had not been operated by Debtor since June of 1981, when it was closed because of financial difficulties. At the time of closing, only the restaurant was being operated. The cafeteria, meeting rooms and lodging units were not in operation because Debtor did not have the necessary occupancy permit. In order to get the permit, Debtor had to install a sewer treatment plant, which was estimated to cost $40,000.00, and needed to make arrangements with C. Brewer and Company, the *840adjoining property owner, for access to the property. In addition, the Lodge did not have a liquor license.
Even before closing the Lodge, Debtor had attempted to find either someone to take over the operations as a partner or, alternately, to purchase the Lodge in its entirety. Among the entities and individuals whom Debtor approached were Burger King, Big Island Beef, Spencecliff Corporation, Robby Tebo, a restaurant chain operator, and the Hy’s Restaurant chain of Canada.
On September 25, 1981, Debtor entered into an agreement with TWA Real Estate Investment Corporation of Oahu, Inc., hereinafter “TWA”, which was owned by Hy and Geisala Hunter, whereby TWA agreed to purchase 51,000 shares of Debtor’s stock, representing a controlling interest in the corporation, from Mr. Hannifin. At that time, George Noguchi owned 40,000 shares of stock and Pino Monzo owned the remaining 9,000 shares. The shares owned by Mr. Manzo, incidentally, are pledged to Nordic.
In exchange for Mr. Hannifin’s stock, TWA agreed to assume all of Debtor’s obligations, including the notes in favor of Nordic and Community Systems. In January of 1981, the Lodge had been appraised at $1.8 million.
By late October or early November of 1981, however, Debtor became aware that TWA was not paying Debtor’s creditors. Mr. Hannifin, thus, attempted to cancel the sale. In the meantime, Community Systems and Nordic had filed Complaints in the Hawaii state court to foreclose their mortgages.
Convinced that a forced sale would not produce sufficient proceeds to pay all of Debtor’s creditors, both secured and unsecured, Debtor filed its Chapter 11 Petition. Debtor realized that a sale of the Lodge was the only viable plan. It was Debtor’s intention, thus, to find an interim operator for the Lodge, in order to produce income to defray administrative expenses, and to ultimately sell the Lodge to a qualified buyer. In order to do that, however, Debtor first had to clear title to the Lodge as an individual named Detleff Wolff was claiming that he had purchased the Lodge from TWA. Although Debtor contended that TWA had not performed its obligations under the September 1981 stock purchase agreement, Debtor, nevertheless, had great difficulty in clearing the title. Eventually, however, this was done, but not until after Mr. Wolff' had caused damage to the reputation of the Lodge.
With title to the Lodge cleared, Debtor negotiated an agreement with a restaurant operator who was willing to operate the Lodge on an interim basis. Debtor also found a Canadian company which was willing to pay Debtor $60,000.00 for a six-month option to purchase the Lodge for $1.5 million.
On May 6, 1982, three months after the original Chapter 11 Petition was filed, Debtor filed an application which sought approval to sell the Lodge to United Western, and on May 13, 1982, Debtor filed an application to lease the Lodge on an interim basis to Apple Annie’s, Inc. On May 14, 1982, at the hearing on these two applications, the lease to Apple Annie’s was approved. The sale of the option to United Western, however, was rejected and Mr. George Noguchi was granted for $60,000 a six-month option to purchase the property for $1.5 million.
Notwithstanding the option held by Mr. Noguchi, Debtor continued to use its best efforts to proceed with the reorganization, including efforts to make the Lodge more saleable. Debtor resolved the matter of the access to the property, installed a sewer treatment facility and restored the facilities to operating condition. Additionally, all of the income from Apple Annie’s, the interim lessee, and $35,000.00 in option payments made by Mr. Noguchi were turned over to Nordic, the first mortgagee.
In December of 1982, towards the end of the six-month option period, Mr. Noguchi paid Debtor $20,000.00 for a 60-day extension. His attempt to obtain a second 60-day extension, however, failed when his second check for $20,000.00 was returned unpaid *841because of insufficient funds. Nevertheless, on May 26, 1983, Mr. Noguchi wrote Debtor a letter indicating that he was exercising the option. On June 9, 1983, Debtor advised Mr. Noguchi that he had no right to exercise the option, but that Debtor was willing to try to work out an agreement to salvage the transaction.
On June 15, 1983, Community Systems filed its Complaint for Relief From Automatic Stay, alleging that its security interest was not adequately protected, that Debtor held no equity in the property described in the mortgage and that such property was not necessary to an effective reorganization. On October 7, 1983, Nordic filed its Joinder In Complaint for Relief From Automatic Stay.
Meanwhile, after much negotiation, Debt- or and Mr. Noguchi arrived at a second agreement under which Mr. Noguchi could purchase the Lodge. This new agreement was approved by the Honorable Samuel P. King at a hearing held on June 30, 1983. Under the new agreement, Mr. Noguchi was required to pay the full purchase price of $1.545 million which included payment of $45,000.00 for the sewer treatment plant. Payment had to be made within 44 days of July 22,1983, the date of entry of the order approving the sale. The order further declared that, if Mr. Noguchi defaulted on his obligation to purchase the Lodge, Debtor would have any remedy allowed it by law, including monetary damages.
On August 9,1983, at a preliminary hearing on the Complaint for Relief From Automatic Stay, the parties agreed that, if the sale to Mr. Noguchi which had been approved by Judge King on June 30, 1983 closed within 30 days from June 30, there would be no need for further proceeding on the Complaint for Relief From Automatic Stay. If the sale did not close in accordance with Judge King’s order, then Mr. Duca would request a final hearing to be scheduled within 30 days from such notification.
The sale to Mr. Noguchi did not close. As a result, a final hearing was held on October 18 and 19, 1983.
Nordic has contended that, as of June 30, 1983, Debtor owed it $770,000.00 in principal and $209,000.00 in interest, with the interest accumulating at $11,000.00 a month. Community Systems has contended that, as of the same date, Debtor owed it $350,000.00 in principal and $140,000.00 in interest, with interest accumulating at $115.00 per day. Thus, as of June 30, 1983, the claims of Nordic and Community Systems totalled $1,469,000.00.
At the final hearing, the Debtor for the first time raised the issue of usury as one of its defenses. Debtor contended that, because both mortgagees violated the Hawaii usury law, they were not entitled to interest. Debtor contended that, if interest is not owed to the mortgagees then, even if it is assumed that the market value of the Lodge is no more than $1.5 million, there is adequate protection for the mortgagees, for the collective debt to them, without interest, is $1,120,000.00.
Several issues are before the Court:
1. Is there adequate protection for the mortgagees?
2. Is there equity in the Lodge for Debt- or? Is the Lodge necessary for an effective reorganization?
3. Was the usury law violated by the mortgagees?
CONCLUSIONS OF LAW
Although Nordic and Community Systems did not present any appraiser to testify on the market value of the Lodge, they acknowledged that, based on Mr. Noguchi’s agreement to purchase the Lodge at $1.54 million, the value could be $1.54 million.
If $1.54 million is accepted as the fair market value of the Lodge and interest to Nordic and Community Systems is denied, the secured claim today will be less than $1.2 million. There would then be' equity on the Lodge for Debtor and adequate protection for both Nordic and Community Systems for the time being.
However, if interest is allowed to Nordic and Community Systems as provided for in *842the promissory notes and management agreement, the secured claim will now exceed $1.5 million. There would then be no equity for Debtor in the Lodge and no adequate protection for Nordie and Community Systems.
The matter of the usury law having been raised by Debtor for the first time at the final hearing on October 18,1983, all parties concurred that they lacked sufficient time to thoroughly litigate the usury issue and requested that the court rule on the Complaint without determining the matter of usury. This Court is of the opinion, however, that the usury issue is determinative of the Complaint and the Court is hereby continuing the stay until this Court rules on said issue.
Debtor contended that both United Western and Mr. Noguchi were willing to purchase the Lodge at $1.5 million at a time when the Lodge was not ready for full occupancy and operation. Subsequently, Debtor has obtained the occupancy permit and liquor license, installed the sewer treatment plant, and arranged for access to the Lodge. Debtor thus contends that the Lodge should now be more valuable than $1.5 million. However, no one so testified. The Court thus cannot now find the value of the Lodge to exceed the value of $1.5 million.
All parties seek to sell the Lodge, creditors through foreclosure and Debtor through a private sale. Thus the property is not necessary for Debtor’s reorganization, however, since the property is Debtor’s sole asset, the sale must be for a price sufficient to pay off the secured creditors and hopefully to bring excess proceeds into the estate.
Since the issues of usury and of value are central to any resolution, this Court hereby continues the stay until further order of this Court and sets a continued hearing on these issues for 8:30 a.m. on December 7, 1983. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489738/ | ORDER REOPENING CASE AND SETTING EVIDENTIARY HEARING
JOSEPH A. GASSEN, Bankruptcy Judge.
This matter came before the court on October 17, 1983 on the debtor’s motion to reopen the case to amend his schedules by adding a creditor not previously listed. The court concludes that it is bound by Robinson v. Mann, 339 F.2d 547 (5th Cir.1964), made binding precedent of the Eleventh Circuit through Bonner v. City of Prichard, 661 F.2d 1206 (11th Cir.1981). Further, the court concludes that the adoption of 11 U.S.C. § 523(a)(3) does not change the applicability of Robinson, which was decided under the Bankruptcy Act, although the legislative history is not entirely clear on this point. Under Robinson, a debtor may be permitted to amend his schedules beyond the date for filing claims, but such an amendment will only be allowed in exceptional circumstances in the equitable discretion of the court. Also, e.g., In re Souras, 19 B.R. 798 (Bkrtcy.E.D.Va.1982) and In re Holloway, 10 B.R. 744 (Bkrtcy.D.R.I.1981). An evidentiary hearing is necessary to determine whether the debtor here should be permitted to amend his schedules to list William A. Dunne as a creditor and whether exceptional circumstances exist. Counsel are urged to present to the court case law defining “exceptional circumstances” prior to the hearing date. It is, therefore,
ORDERED that:
1. The case be reopened, with payment of the filing fee waived until the next hearing, at which time it will be determined whether or not a filing fee is required.
2. A hearing is set on Monday, January 9, 1984, at 9:15 a.m., in the United States Courthouse, Courtroom No. 206A, 299 East Broward Boulevard, Fort Lauderdale, Florida, on the debtor’s Motion to Amend Schedule of Unsecured Creditors. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489740/ | *11MEMORANDUM AND ORDER
BILL H. BRISTER, Bankruptcy Judge.
Basin, Inc. (“debtor”), Michael Wisenbaker (“Wisenbaker”) a former officer and shareholder of the debtor, and Internal Revenue Service (“IRS”) each contests for ownership of an interest in a 1980 Sea Ray, a pleasure boat. The following summary constitutes findings of fact and conclusions of law after nonjury trial.
Some of the facts are uncontroverted. All parties agree that in May 1980 Johnie E. Findley and Michael Wisenbaker purchased the subject boat from Falcon Marine m Midland, Texas, for approximately $160,-000.00. At that time Findley was President of Basin, Inc. and the owner of 15% of its stock. Wisenbaker was Chairman of the Board of Directors of Basin, Inc. and owned one-third of the stock in GMW, Inc. which, in turn, owned approximately 65% of the Basin, Inc. outstanding stock. Although Wisenbaker concedes that on all occasions germane to the issues in this proceeding he had not used the boat there is no contention by the debtor that Wisenbaker and Findley in fact had purchased the boat for or on behalf of the corporation, Basin, Inc. The parties also agree that the certificate of title mandated by V.T.C.A. Parks & Wildlife Code, § 31.053(b) was issued to Findley and Wisenbaker and that the names of those owners have never been changed on the certificate of title. It is apparent that anyone making inquiry to the custodian of the records of ownership of motor boats, as reflected by the certificates of title, could conclude that Findley and Wisenbaker are the owners of the motor boat.
On a date subsequent to May 1981 Basin, Inc. filed petition for order for relief under Chapter 11 of Title 11, United States Code. As debtor it initiated the complaint in this adversary proceeding, contending that it had acquired ownership of the boat from Findley and Wisenbaker in February 1981. It claims that Findley and Wisenbaker agreed to convey the title to the boat to the debtor for the sum of $160,000.00 in cash, that checks on the corporation’s account were drafted to Wisenbaker in the sum of $80,000.00 and to Findley’s nominee, John A. Holman, in the sum of $80,000.00, but that those checks were never delivered. Debtor further claims that in February 1981, at the time it contends that it acquired ownership of the boat, it was having some cash liquidity problems and a decision was made that instead of paying Wisenbaker and Findley in cash their respective accounts owed to the corporation should be credited with that sum of $80,000.00. It adduced some exhibits at the trial, consisting of drafts dated February 11, 1981 on *12the Basin, Inc. Operating Account, payable to M.B. Wisenbaker in the sum of $80,-000.00 and to Findley’s nominee, John A. Holman, in the sum of $80,000.00, but with the signature torn from each draft and consisting also of some corporate records which it contends evidences the issuance of $80,000.00 credit each to Wisenbaker and Findley. Further, it points to the fact that soon after that date of February 11, 1981, the corporation obtained possession and assumed control of the boat by moving it from its moorage on the Gulf at Rockport, Texas, to Lake Amistad, an inland fresh water lake near Del Rio, Texas.
Wisenbaker vehemently denied that either he or Findley had agreed to sell or transfer the boat to Basin, Inc. and denied that in February 1981, when the alleged credit was supposed to have been issued, that he was indebted to Basin, Inc. in any amount of money. Notwithstanding the fact that he had never used the boat and had possibly seen the boat on no more than two or three occasions, he claimed that he never had any intention whatsoever to transfer the boat to Basin, Inc.
Findley, for reasons that remain obscure, did not appear at the trial. However, Internal Revenue Service, which had attached Findley’s alleged interest in the boat for a tax deficiency owed by Findley, claimed his interest in that boat.
THE INTERNAL REVENUE SERVICE CLAIM
IRS adopts the argument and defenses urged by Wisenbaker that Findley had not intended to convey his interest in the boat to Basin, Inc. However it primarily relies upon the fact that at the time it levied upon and seized the boat for nonpayment of taxes (alleged by it to be in excess of $700,000.00 due from Johnie E. Findley and Gerry R. Findley) one of the owners of the boat, as reflected by the certificate of title, was Findley. IRS posits further that Texas is a “certificate of title state” and that as far as IRS is concerned any purported sale of the boat from Findley to Basin, Inc., without the attendant transfer of title and ownership changes on the certificate, would be void.
There is a paucity of decisions interpreting the provisions of the Parks & Wildlife Code which mandate that one cannot acquire an interest in a motor boat until a certificate of title for the motor boat has been issued in the name of the purchaser. An analogous state statute is the Certificate of Title Act pertaining to motor vehicles, codified at V.A.T.C.S. art. 6687-1. Review of the cases construing the Certificate of Title Act where motor vehicles are involved indicates that when there has been no compliance with the Certificate of Title Act the purchasers, as between the purchaser and the seller, obtains equitable title, but the rights of third parties who rely, or who are entitled to rely, on ownership as reflected by the certificate of title are not adversely affected. In this case IRS falls into the category of an innocent third party who may rely upon ownership as reflected by the certificate of title. Regardless whether Findley did in fact agree to transfer the boat to Basin the certificate of title was never changed and, as far as the turnover complaint against^ IRS is concerned, IRS must prevail.
I must pretermit the debtor’s further argument that the imposition of the tax lien obtained by IRS as a result of its levy and seizure of the boat in December 1982 constitutes a preference under § 547 of the Code, because Findley allegedly filed petition for relief under the Bankruptcy Code in the Eastern District of Texas one month later in January 1983. Debtor contends that it is a creditor of the Findleys and that it might have the right to raise that preference issue or, under the Whiting Pools1 analysis, it could assert those avoiding powers or seek turnover relief. As far as the record reflects no such relief has been sought by the debtor, either in the Eastern District of Texas or elsewhere. Also, there is a valid question as to whether an individual creditor possesses avoiding powers that ordinari*13ly belong to the trustee or to the debtor-in-possession. In any event those issues are not properly before this court.
I conclude, therefore, that the turnover complaint by the debtor against Internal Revenue Service should be denied.
THE CLAIM OF MICHAEL WISENBAKER
Wisenbaker defends the turnover complaint on three separate bases. First, he vehemently denies that he was indebted to Basin, Inc. on February 1981 when the transaction allegedly took place and he denies that he had ever agreed to sell or otherwise transfer the boat to Basin, Inc. Second, he raises the certificate of title issue. Finally, he claims that in May 1982, a compromise settlement agreement between Basin, Inc., Walter Davis, GMW, Inc., and others was effected, forever resolving any disputes, including the issues surrounding the boat ownership controversy, between them.
The certificate of title argument advanced by Wisenbaker is rejected. If, in fact, he had agreed to transfer the boat to Basin, Inc. under the conditions claimed by the debtor, Basin, Inc. would have obtained equitable title from him. As between those parties compliance with the Certificate of Title Act would not have been of paramount importance.
The debtor has the burden of persuasion on the issue that Wisenbaker had agreed to the transfer of the boat to Basin in exchange for a credit of $80,000.00 against a debt owed by Wisenbaker to the corporation. The evidence adduced at the trial was something less than persuasive. Wisenbaker persisted in his denial that he owed the corporation anything in February 1981. The deposition testimony of Hill was inconclusive on the issue of whether Wisen-baker on any specific occasion agreed to the conveyance of the boat in exchange for merely crediting an indebtedness owed by him to the corporation. Of course, if Wis-enbaker owed no indebtedness to Basin his argument that the exhibits were contrived long after the transaction was alleged to have occurred would have some appeal.
However, I cannot completely separate that issue from the third defense raised by Wisenbaker .... that the boat ownership issue was resolved by the May 1982 settlement agreement.
Basin, Inc. was under new ownership when the settlement agreement was executed. Although Wisenbaker argues that he called to the attention of someone connected with the debtor that he wanted the return of his boat there is nothing in the record of this adversary proceeding which persuades me that the boat ownership issue was meaningfully raised in the settlement negotiations. If the new owners were in good faith relying on any corporate records which reflected that an $80,000.00 credit had been issued to Wisenbaker in February 1981 in exchange for the transfer of the boat then an $80,000.00 indebtedness from Wisenbaker to Basin, Inc., if any such indebtedness had existed at any relevant time, was not within the contemplation of the debtor in the settlement negotiations. The settlement agreement itself was received in evidence at the trial, but sufficient facts regarding the boat ownership issue and the $80,000.00 credit, if any, was not sufficiently developed.
I conclude, therefore, that the turnover complaint filed by the debtor against Wis-enbaker should be denied, without prejudice, however, to any right which the debtor might have to file new pleadings or otherwise develop any challenge which it might have that (1) Wisenbaker was indebted to Basin, Inc. in the sum of $80,000.00 in February 1981, and (2) the boat ownership issues and the $80,000.00 indebtedness, if any, were not, reasonably, within the contemplation of responsible officials of debtor during the negotiations or at the time of execution of the May 1982 settlement agreement.
It is, therefore, ORDERED by the Court that Basin, Inc., debtor, do have and recover nothing against Internal Revenue Service by virtue of its turnover complaint.
*14It is further ORDERED by the Court that the complaint for turnover filed by Basin, Inc., debtor, against Michael Wisen-baker and Alinda H. Wisenbaker be, and it is hereby, denied without prejudice.
LET JUDGMENT BE ENTERED ACCORDINGLY.
. United States v. Whiting Pools, Inc., — U.S. —, 103 S.ct. 2309, 76 L.Ed.2d 515 (1983). | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489742/ | JOSEPH A. GASSEN, Bankruptcy Judge.
SECOND PRELIMINARY ORDER ON CONFIRMATION
This cause came on to be heard on the confirmation of the Debtors’ chapter 13 plan, the objection of BARNETT BANK OF SOUTH FLORIDA (“BARNETT”) thereto, and Debtors’ motion to deny BARNETT’S objection on the grounds that BARNETT is not the holder of an allowed secured claim within. the meaning of 11 U.S.C. Section 1325(a)(5) and, therefore, may not object under Section 1325(a)(5) to Debtors’ plan. The Court having heard the testimony of witnesses and the oral argument of counsel, and having reviewed the memoranda of law of counsel, it is hereby:
ADJUDGED that the Court finds the following facts and law:
*49I. FACTS
A. In February 1981, RICARDO and YOLANDA FERNANDEZ took up residence at 12955 S.W. 56 Terrace, Miami, Florida (the “subject property”). Since then, MR. and MRS. FERNANDEZ have had continuous exclusive, open, and visible possession of, and have made improvements on, the subject property.
B. On March 26,1981, Debtors executed as Sellers a contract for sale of the subject property. MR. and MRS. FERNANDEZ executed said contract as Buyers, paid Debtors a cash deposits, and executed and delivered to Debtors a promissory note and mortgage. None of the aforementioned documents were recorded on the public land records of Dade County, Florida.
C. BARNETT obtained a judgment for $72,259.32 against Debtors on December 13, 1982 which was recorded on December 15, 1982 at Official Records Book 11639 at Page 1989 in Dade County, Florida.
II. LAW
A. The execution by Debtors and MR. and MRS. FERNANDEZ of the contract for sale and the taking back by Debtors from MR. and MRS. FERNANDEZ of an unrecorded note and mortgage constitute an actual sale of the subject property by the Debtors to MR. and MRS. FERNANDEZ. See First Federal Savings and Loan Association of Fort Myers vs. Fox, 440 So.2d 652 (Fla. 2d DCA 1983) where the Florida Second District Court of Appeal held that an agreement for deed is a transfer of an interest in real estate, and stated that the parties to an agreement for deed are in essentially the same position as a vendor who transfers legal title and takes back a purchase money mortgage, meaning, that a vendor under an agreement for deed transfers all of his interest in the property, except for bare legal title.
B. The exclusive, open, and visible possession of the subject property by MR. and MRS. FERNANDEZ put BARNETT on constructive inquiry notice of the interests of MR. and MRS. FERNANDEZ in the subject property and, thereby, defeated BARNETT’S security interest in the subject property. Bauman v. Peacock, 80 So.2d 365 (Fla.1955); Carolina Portland Cement Co. v. Roper, 68 Fla. 299, 67 So. 115 (1914); and, Humble Oil and Refining Co. v. Laws, 272 So.2d 841 (Fla. 1st DCA 1973); See also Tate v. Pensacola, Gulf, Land & Development Co. (1896) 37 Fla. 439, 20 So. 542, 53 Am.St.Rep. 251; Gamble v. Hamilton (1893) 31 Fla. 401, 12 So. 229; and Florida Land Holding Corp. vs. McMillen (1938) 135 Fla. 431, 186 So. 188. Without a security interest in property in the Debtors’ estate, BARNETT BANK is not the holder of an allowed secured claim and is not permitted to object under 11 U.S.C. Section 1325(a)(5) to the Debtors’ plan. 11 U.S.C. Sections 506(a) and 1325(a)(5).
Upon the foregoing, it is therefore:
ORDERED that BARNETT’S objection pursuant to 11 U.S.C. Section 1325(a)(5) to confirmation of the Debtors’ plan is denied, and that Debtors’ plan is confirmed subject only to satisfaction of the requirements of 11 U.S.C. Section 1325(a)(4) as set forth in this Court’s “Preliminary Order on Confirmation” dated December 22, 1983. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489743/ | MEMORANDUM DECISION AND ORDER
JON J. CHINEN, Bankruptcy Judge.
On November 18, 1983, the Fort Shafter Federal Credit Union, hereafter “Credit Union”, filed a Notice of Hearing; Application for Order Directing Eric and Audrey Lee to Deliver Automobile Transfer Documents to Beverly Ann Pearson and Fort Shafter Federal Credit Union, or, in the Alternative, for Order Directing Department of Motor Vehicle Registration, City and County of Honolulu, State of Hawaii, to Issue Title to Beverly Ann Pearson and Fort Shafter Federal Credit Union. On December 16, 1983, a hearing was held with Charles W. Loomis representing the Credit Union and Richard Lachmann representing Eric and Audrey Lee, hereafter the “Lees”, who retain possession of the Certificate of Ownership to the automobile in question. The Trustee, Gerald Fujita, and Beverly Ann Pearson, hereafter “Pearson”, who has *53actual physical custody of the car, were also present. The Court took the matter under advisement, requesting counsel to submit additional memoranda. On December 21, 1983, the Credit Union filed a Memorandum in Support of the Application and the Lees filed a Memorandum in Opposition. The Court, having considered the evidence presented, the memoranda, and the arguments of counsel, makes the following Findings of Fact, Conclusions of Law and Order.
FINDINGS OF FACT
1. The Credit Union made a loan to Pearson to finance her purchase of a 1976 Audi Fox automobile, serial number 846201966. Pearson purchased the car through the Debtor, Preferred Motor Cars, Ltd., who was acting as an agent for the Lees.
2. The appropriate documents, which were required to transfer the title from the Lees to the Credit Union and Pearson, were executed and payment was made to the Debtor’s representative. The Debtor, however, failed to deliver the title transfer documents to the Department of Motor Vehicles. Legal title to the automobile was therefore not transferred to Pearson, but remained with the Lees.
3. On July 28, 1983, the Credit Union filed an Application for Order Authorizing and Directing Trustee to Deliver Automobile Title Transfer Documents in which it sought to have title to the car transferred to Pearson. Eric Lee stated in an affidavit filed with this Court on September 6, 1983 that he did not assert any claims to the 1976 Audi Fox and did not object to the Trustee submitting the transfer title documents to the Department of Motor Vehicles. At the hearing on September 6, 1983, the Credit Union’s Application was granted and an Order Authorizing and Directing Trustee to Deliver Automobile Transfer Documents was entered on September 13, 1983. The Order was subsequently amended on January 5, 1984.
4. Pursuant to the Court’s Order, the Trustee delivered the automobile title transfer documents to the Credit Union who, in turn, delivered the documents to Pearson. When Pearson attempted to register the automobile at the Department of Motor Vehicles, she was informed that a duplicate Certificate of Ownership had been issued to the Lees and, as a result, all previous Certificates of Ownership and other related documents were invalid. The Department of Motor Vehicles refused to transfer title of the car unless it received the fully executed duplicate Certificate Title which the Lees had acquired.
5. The Lees admit that they are in possession of the duplicate Certificate of Ownership, but refuse to execute and release the duplicate to the Credit Union and/or Pearson. Pursuant to H.R.S. § 286-55, a duplicate Certificate of Ownership or Certificate of Registration may be applied for and obtained only upon the certification under oath by an applicant that the original certificate was lost, damaged, mutilated or stolen. The Lees, however, acquired a duplicate Certificate even though they knew that the original was held by the Trustee and was, therefore, not lost, damaged, mutilated or stolen.
6. Consequently, although Pearson has possession of the automobile, it remains unregistered and she has received citations for having an unregistered car on the military base where she resides and is employed. As a result, Pearson has incurred additional expenses and inconvenience.
7. Wherever these Findings of Fact are Conclusions of Law, they are hereafter incorporated as such.
CONCLUSIONS OF LAW
1. The Credit Union has requested the bankruptcy court to issue an order directing the Lees to execute and deliver the duplicate Certificate of Ownership and other title transfer documents relating to the 1976 Audi Fox to the Credit Union and Pearson. In the alternative, the Credit Union seeks an order from this Court directing the Department of Motor Vehicles to issue a Certificate of Ownership and/or Certificate of Registration to the Credit Union as legal *54owner of the car and Pearson as registered owner and invalidating all previous title documents concerning the car in which the Lees or any other party may claim an interest.
2. The bankruptcy court, however, is a court of limited jurisdiction. The Court must therefore decide whether the dispute between the Credit Union and the Lees over the ownership and transfer of title documents to the automobile is properly within its jurisdiction before it can consider the merits of the Credit Union’s application.
3. Since the Debtor and, subsequently, the Trustee had possession of the ownership and transfer of title documents, the Court did initially have jurisdiction over the dispute. Therefore, when the Credit Union filed an Application for Order Authorizing and Directing the Trustee to Deliver these documents to the Credit Union and/or Pearson, the Court had the necessary powers to hear and decide the matter. The Court granted the Credit Union’s application and issued an order with which the Trustee complied by delivering the necessary documents to the Credit Union.
4. The dispute which has since arisen between the Credit Union and the Lees, and which is the subject of this decision, does not involve the Debtor, the Debtor’s estate, or the Trustee. Rather the dispute centers on the apparent fraud perpetrated by the Lees in obtaining a duplicate Certificate of Ownership for the car when they knew that the original had not been lost, damaged, mutilated or stolen. The ultimate effect of the Lees’ action has been to prevent Pearson from registering her car. The Credit Union, therefore, is seeking relief from the Court to remedy this alleged injustice. The Court, however, does not have the jurisdiction necessary to render a decision on this related matter. See Northern Pipeline Construction Co. v. Marathon Pipeline Co., 458 U.S. 50, 102 S.Ct. 2858, 73 L.Ed.2d 598 (1982); In the Matter of Rules of Court, December 23, 1982.
5. Once the Court had granted the Credit Union’s initial application and the Trustee had complied, the bankruptcy court was essentially divested of its jurisdiction over the resulting dispute between the Credit Union and the Lees. In light of the Marathon Pipeline case, this court cannot transcend the powers which it has been given. The Credit Union and Pearson must, therefore, go to state court to obtain the remedy they seek.
6.Based on the above Findings of Fact and Conclusions of Law, the Court hereby dismisses the application ordering the Lees to deliver the ownership and transfer of title documents to the Credit Union and/or Pearson for lack of jurisdiction. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489744/ | FINDINGS OF FACT AND CONCLUSIONS OF LAW
SIDNEY M. WEAVER, Bankruptcy Judge.
THIS CAUSE having come on for trial on November 22, 1983, December 6, 1983 and December 20,1983, upon the Complaint of CONTROL POWER SYSTEMS, INC. (hereinafter CPS), against the Debtor, GLENN RICHARD REDDINGTON (hereinafter REDDINGTON), objecting to the dischargeability of the Plaintiff’s debt pursuant to various sections of 11 U.S.C. § 523, as well as objecting to the Debtor’s discharge pursuant to various provisions of 11 U.S.C. § 727, 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 Plaintiff’s Complaint was originally framed in six counts, the first three objecting to the dischargeability of the Plaintiff’s debt under 11 U.S.C. § 523(aX2)(A), (a)(6) and (a)(4), respectively, and the remaining three objecting to the Debtor’s discharge under 11 U.S.C. § 727(a)(2), (a)(3) and (a)(4), respectively. Counts II, III, V and VI were all either withdrawn voluntarily by the Plaintiff during the course of the trial or involuntarily dismissed by the Court during the course of the trial pursuant to timely motion by the Defendant. The only counts remaining for the Court’s determination herein are Count I, alleging false representations made to the Plaintiff, CPS, by the Defendant, REDDINGTON, concerning the financial condition of Ricca-Reddington Instruments, Inc. and the Debtor’s own financial condition as a violation of 11 U.S.C. § 523(a)(2)(A) and Count IV, alleging the transfer, removal or concealment of property of the Debtor’s estate within one year before the filing of the Voluntary Petition herein as a violation of 11 U.S.C. § 727(a)(2).
The Debtor, REDDINGTON, filed his Voluntary Petition Under Chapter 7 on May 25, 1983. Prior to that time, he had been an officer and stockholder in a company known as Ricca-Reddington Instruments, Inc. A major supplier and creditor of Ricca-Reddington Instruments, Inc. was the Plaintiff herein, CPS.
CPS had been, in fact, virtually the only source utilized by Ricca-Reddington Instruments, Inc. for the purchase of the manufactured products sold by the company and related services. On or about September 25,1981, CPS and Ricca-Reddington Instruments, Inc. entered into a contract for the purchase and sale of certain products and payment therefor, as well as settling the *64accounts between the companies. The agreement was guaranteed by the Debtor, REDDINGTON, as well as C. Brooks Ricca, the other principal of Ricca-Reddington Instruments, Inc. While substantial payments were made against the contract indebtedness at the time of execution and shortly thereafter, Ricca-Reddington Instruments, Inc. did not live up to the balance of its payment obligation under the contract resulting in the filing of litigation by CPS against Ricca-Reddington Instru-ménts, Inc. and the guarantors in January of 1982 and the termination of any further shipments of products to Ricca-Reddington Instruments, Inc. by CPS. This litigation ultimately resulted in judgment against the corporate defendant, Ricca-Reddington Instruments, Inc. as well as the guarantors, including the Debtor, REDDINGTON, and was, apparently a significant factor in the filing of the Voluntary Petition herein.
Dealing first with Count I of the Complaint, it is the contention of CPS that the Debtor, REDDINGTON, through the September 25, 1981 contract itself, made certain representations as to the financial condition of the corporation, Ricca-Reddington Instruments, Inc. as well as his own financial condition, and that these representations, which were alleged to be false, form a basis of a violation of 11 U.S.C. § 523(a)(2)(A). Based upon the evidence presented at trial, the Court finds that this burden of proof has not been sustained.
The Plaintiff contends that the ultimate failure to pay for the goods evidencing fraudulent intent at the time the contract was executed. No evidence was presented at trial which would support this contention of present intent. Without a showing of fraudulent intent as of the time the representations were made, a critical element of the cause of action is missing. In re Firestone, 26 B.R. 706 (Bkrtcy.S.D.Fla.1982). The ultimate failure to pay for the goods will not meet this burden, In re Drake, 5 B.R. 149 (Bkrtcy.D.C.Idaho 1980), especially where the only evidence of record shows that substantial payments were made on the outstanding balance following the execution of the agreement.
The Plaintiff, CPS, further failed to present evidence supporting another critical element of the cause of action in that no testimony was presented concerning the Plaintiff’s reliance on the allegedly false statements. See, In re Medow, 26 B.R. 305 (Bkrtcy.S.D.Fla.1982).
No evidence was presented dealing with the alleged representations as to the Debt- or’s own financial condition, all evidence relating to the corporation, Ricca-Redding-ton Instruments, Inc.
Based upon the foregoing, the Court finds and concludes that the Plaintiff, CPS, has failed to sustain its burden of proof as to Count I of the Complaint and a judgment should be entered on this Count in favor of the Defendant, REDDINGTON.
Count IV of the Complaint presents a different issue. As the Court understands the Plaintiff’s contentions at trial, it is alleged that the Defendant, REDDINGTON, depleted the value of his stock in the corporation, Ricca-Reddington Instruments, Inc., within the year preceding the bankruptcy, and that this is sufficient to sustain a violation of 11 U.S.C. § 727(a)(2). In support of this allegation, the Plaintiff presented evidence concerning the transfer of certain corporate assets of Ricca-Reddington Instruments, Inc., a Florida corporation, to a North Carolina corporation by the same name. Some of the assets were transferred for safe keeping and some of the assets were transferred outright to the North Carolina corporation. The evidence of record establishes that the Debtor had no financial interest in the North Carolina corporation. However, the North Carolina corporation was a substantial creditor of the Florida corporation, having taken over the manufacturing and service business previously provided by the Plaintiff, CPS, prior to the commencement of the litigation in January, 1982. The aforesaid transfers occurred in late 1982 and early 1983. The Plaintiff also presented evidence concerning the collection of certain accounts receivable of the Florida corporation-by the North Carolina *65corporation, although the monies collected were applied to the account of the Florida corporation’s indebtedness as shown by the uncontroverted evidence presented at trial.
The Court finds that the Plaintiff has failed to sustain its burden of proof with regard to Count IV in several respects. First of all, the evidence presented at trial establishes, at best, a preferential transfer by Ricca-Reddington Instruments, Inc. of Florida to a corporation which was a substantial creditor. While this may have worked to the detriment of the Plaintiff herein, it is clear that a mere preferential transfer is not the equivalent of a fraudulent transfer for purposes of an objection to discharge and would further not constitute evidence of actual fraud. In re White v. Brown Shoe Company, 30 F.2d 674 (5th Cir.1929). In re Ayers, 25 B.R. 762 (Bkrtcy.M.D.Tenn.1982). It should be further pointed out here that it is not the actual transfer of the corporation’s property which forms the basis of Plaintiff’s claim in that the Debtor must have some legal interest in the property to bring into effect the provisions of 11 U.S.C. § 727(a)(2). See, ex, Thompson v. Eck, 149 F.2d 631 (2nd Cir.1945). In re Gem Sleepwear Corp., 4 B.C.D. 314 (Bkrtcy.N.Y.1978). Thus, unless the Plaintiff can establish that the transfer, beside being fraudulent in nature, depleted the value of the Defendant’s stock interest therein, it cannot succeed in its objection to discharge on this basis.
The evidence of record is insufficient to establish that the Defendant’s stock had value at the time of the alleged transfers. The only testimony in evidence of record was based upon balance sheets incomplete as of the time of the transfers. However, the balance sheets and financial statements presented, which were admitted of record to be inaccurate, established a minimal net worth for the corporation at the time of the transfers which, when adjusted to include the reduction of inventory and increased indebtedness pointed out by various witnesses at trial would seem to indicate a negative net worth for the corporation. Certain evidence was ..presented as to alleged goodwill of the company but the Court is not convinced, given the source and basis of testimony, of its credibility. This is especially true in view of the fact that the company was having substantial financial problems and not servicing its accounts properly due to the infighting among the stockholders and substantial drain caused by the litigation with the Plaintiff herein.
Because the Plaintiff failed to meet its burden of proof in establishing the value of the property of the estate allegedly depleted, and because the Plaintiff failed to establish that the depletion was due to any fraudulent conduct on the part of the Defendant herein, the Court must find in favor of the Defendant, REDDINGTON, on this Count of the Complaint as well. In re Harris, 8 B.R. 88 (Bkrtcy.M.D.Tenn.1980). In re Hess, 21 B.R. 465 (Bkrtcy.W.D.Va.1982).
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/8489745/ | OPINION
EMIL F. GOLDHABER, Bankruptcy Judge:
The issue at bench is whether the plaintiff corporation, a builder, may recover in a suit against the debtor’s landlord either on the theory of an express contract or a quasi-contract. For the reasons stated herein, we hold that, under the facts of this case, it may not.
The facts of this case are as follows:1 B.Z. Corporation (“the debtor”) leased a certain business property from Barry San-drow (“Sandrow”) for the purpose of operating a restaurant. The building was damaged by fire on February 3,1979, and either Phillip Franco (“Franco”) or Marc Cohn (“Cohn”),2 who are principals of the debtor corporation, hired the firm of B.F. Davis, Inc. (“Davis”) on behalf of the debtor to undertake the necessary repairs. After the completion of the work the debtor’s insurer drafted a check payable to “B.Z. Corporation, T/A the Crooked Billet, Benjamin Franklin Savings & Loan Association [the mortgage holder], Loss Payee Barry San-drow and F.B. Davis, Contractor.” The check was endorsed by the named payees and given to Davis. Franco and Cohn, stating that the proceeds of the check were then needed to cover the costs of recommencing the operation of the restaurant, requested Davis to return the check. Davis complied in exchange for $5,000.00 in cash or check and a promise of future repayment of the balance. The balance has yet to be paid. To seek redress, Davis commenced this action in the state court, although it has since been removed to this court.
Under the first of its theories, Davis asserts that a contract, implied-in-fact, runs between it and Sandrow. Virtually the only evidence in support of such a contract is a statement by Sandrow to Davis that he was concerned that the wishes of Franco and Cohn be fulfilled. We find this insufficient to establish the existence of a contract.
Alternatively, Davis requests relief under the theory of quasi-contract. To recover under this theory, the plaintiff “must show that [the defendant] wrongful*67ly secured or passively received a benefit that it would be unconscionable for [the defendant] to retain.” Birchwood Lakes Community Association v. Comis, 296 Pa. Super. 77, 87, 442 A.2d 304, 309 (1982). Davis seeks recovery under this theory notwithstanding the fact that it executed an express contract with the debtor and its principals. On facts very similar to those of the case at bench the Pennsylvania Superior Court held that no action for quasi-contract could be maintained. Roman Masaic & Tile Co., Inc. v. Vollrath, 226 Pa.Super. 215, 313 A.2d 305 (1973). In that case Roman Mosaic & Tile Co., Inc. (“Roman”), installed a terrazzo tile floor in the Glenside Laundromat pursuant to a written contract signed by Paul Vollrath who, along with his wife, operated the laundry under the name of Vollrath Investments. Roman commenced an action against Vollrath Investments, as well as Vollrath and his wife.3 The court entered judgment against Vollrath Investments and Vollrath, but not against the wife, stating the following on Roman’s quasi-contract claim against the wife:
Nor has [Roman] substantiated its claim of unjust enrichment: The doctrine of unjust enrichment is clearly “inapplicable when the relationship between the parties is founded on a written agreement or express contract.” [Roman], however, is seeking to invoke the doctrine against a person who was not a party to the contract, i.e., Mrs. Vollrath. “It is elementary law that no person can be sued for breach of contract who has not contracted either in person or by an agent; or in other words who was not a party to the contract.” The doctrine of unjust enrichment cannot be used to circumvent this principle merely by substituting one promissor or debtor for another. It is not enough that Mrs. Vollrath received some benefit from the contract. To sustain the claim, [Roman] must show that she wrongfully secured or passively received a benefit that it would be unconscionable for her to retain. Thus, although [Roman] conferred a benefit on Mrs. Vollrath, since it was done pursuant to a contract with the corporation and her husband, [Roman] cannot secure relief from her unless she did something misleading or otherwise improper in connection with the contract.
Id., 226 Pa.Super. at 217-18, 313 A.2d at 307 (cites omitted). In the case at bench, since a contract on the repairs was executed among Davis, the debtor and its principals to which Sandrow was not a party, Davis cannot now seek relief against Sandrow on a theory of quasi-contract.4
. This opinion constitutes the findings of fact and conclusions of law required by Bankruptcy Rule 7052 (effective August 1, 1983).
. Cohn was not named as a defendant in this action apparently because he sold his interest in the debtor in September of 1979. Franco did not appear in this case and a default judgment was entered against him.
. Although the wife was not initially a defendant in the suit, she was subsequently added.
. We have considered Colish v. Goldstein, 196 Pa.Super. 188, 173 A.2d 749 (1961), and find that Davis’s reliance on it is misplaced. In Colish the court granted relief on the theory of quasi-contract largely upon misstatements made the defendant upon which the plaintiff justifiably relied. Colish thus falls within the exception announced in the final sentence of the above quotation from Roman. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489747/ | OPINION
ELLIOTT, Bankruptcy Judge:
Appellants appeal from a restraining order issued by the bankruptcy judge.
We hold that Rule 65, Fed.R.Civ.Pro. (incorporated into Bankruptcy Rule 765) is fully applicable and governs the issuance of restraining orders and injunctions, and reverse the order appealed from.
FACTS
The trustee of the debtors filed a complaint against the appellants and others on April 23,1982. On April 26, 1982 the trustee filed a formal application for a temporary restraining order (TRO). On the same day, the trial judge signed a TRO prepared by counsel for the trustee. The order restrained the appellants, their agents and employees from transferring or encumbering any real property or livestock owned by them, or in their possession or recorded in their names. The order also restrained appellants from transferring any personal property or money in any one transaction in which more than $1,000.00 in value is involved. The TRO also ordered the defendants to show cause, on May 24,1982, why a preliminary injunction should not issue.
Because of Rule 65(b) the TRO expired on May 6th, ten days after it was issued. Granny Goose Foods v. Brotherhood of Teamsters, etc., 415 U.S. 423, 94 S.Ct. 1113, 39 L.Ed. 435. In addition, the TRO violates Rule 65(b) in that it does not “... define the injury and state why it is irreparable and why the order was granted without notice, .... ” Farrell v. Danielson, C.A.9th (1961) 296 F.2d 39, 42.
At the show cause hearing on May 24, the court held that 11 U.S.C. § 105 gave him power to enter all necessary orders and that § 105 took priority over and superseded Fed.R.Civ.Pro. 65(b) and any other bankruptcy rule.
11 U.S.C. § 105(a) provides:
The bankruptcy court may issue any order, process, or judgment that is necessary or appropriate to carry out the provisions of this title.
The order of the U.S. Supreme Court dated April 24, 1973 promulgating the bankruptcy rules that governed the proceeding before the court recites that the rules govern practice and procedure under the Bankruptcy Act. Bankruptcy Rule 701 makes the rules in Part VII applicable to an adversary proceeding brought to obtain an injunction. One of the Part VII rules is Bankruptcy Rule 765. Therefore we cannot seriously entertain the trustee’s argument that Rule 765 does not apply. Rule 765 cannot be superseded by § 105 or otherwise affected by the section because the rule is not in any way inconsistent with the section. While § 105 grants power to the bankruptcy court to issue injunctions, Bankruptcy Rule 765 states the procedure for exercise of that power.
The trial court continued the TRO from time to time, taking evidence on June 9, July 13, July 20, July 21 and September 2, 1982. On September 2, 1982 the court took under submission the application for injunctive relief, continuing the TRO in full force and effect until further notice. This extraordinary order virtually prohibited all business activity by the appellants for 19 months (at the time the appeal was taken under submission). As stated in National Mediation Board v. Airline Pilots Assn., 116 U.S.App.D.C. 300, 323 F.2d 305 (1963):
It is because the remedy is so drastic and may have such adverse consequences that the authority to issue temporary restraining orders is carefully hedged in Rule 65(b) by protective provisions. And the most important of these protective provisions is the limitation on the time during which such an order can continue to be effective.
The order made at the order to show cause hearing continuing the restraining order on May 24, 1982 cannot stand as a preliminary injunction because of the lack of findings of fact and conclusions of law. In Sampson v. Murray, 415 U.S. 61, 94 S.Ct. *97937, 39 L.Ed.2d 166 the court stated, at 415 U.S. 86, at 94 S.Ct. 951,
The Court of Appeals whose judgment we are reviewing has held that a temporary restraining order continued beyond the time permissible under Rule 65 must be treated as a preliminary injunction, and must conform to the standards applicable to preliminary injunctions. We believe that this analysis is correct, at least in the type of situation presented here, and comports with general principles imposing strict limitations on the scope of temporary restraining orders. A district court, if it were able to shield its orders from appellate review merely by designating them as temporary restraining orders rather than as preliminary injunctions, would have virtually unlimited authority over the parties in an injunc-tive proceeding.
The order appealed from is REVERSED. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489748/ | OPINION
GEORGE, Bankruptcy Judge.
An appeal has been taken in this matter from a declaratory judgment permitting the plaintiff-appellee, CALIFORNIA THRIFT AND LOAN ASSOCIATION (“Cal Thrift”), to reinstate a note secured by a deed of trust on real property belonging to this debtor’s estate. This note and trust deed were held by the defendant-appellant, DOWNEY SAVINGS AND LOAN ASSOCIATION (“Downey Savings”). The lower court’s judgment was based upon a legal conclusion that the automatic stay in this case protected Cal Thrift, as a junior *98encumbrancer against the debtor’s real property. We disagree with this conclusion of law and, therefore, REVERSE the declaratory judgment based upon it.
I. BACKGROUND
There is no dispute as to the facts underlying the lower court’s decision. Prior to the filing of his petition under Chapter 7 of the Bankruptcy Code, the debtor was the owner of an apartment building in Santa Barbara, California. Among other encumbrances, a first deed of trust, held by the appellant, Downey Savings, and a second trust deed, in favor of the appellee, Cal Thrift, were recorded against this real property. (The other appellant, DSL SERVICE COMPANY (“DSL”), was the trustee under the first deed of trust.)
At the time of the commencement of the debtor’s case, on July 31, 1980, foreclosure proceedings had been initiated by DSL, on behalf of Downey Savings. At that time, however, the statutory pre-foreclosure reinstatement period, provided by Cal.Civ.Code § 2924c(a), had not lapsed.
On December 8, 1980, Downey Savings filed a complaint to lift the automatic stay in this case. This request was granted on May 20,1981. At no time prior to the filing of the trial court’s May 20, 1981 judgment did Cal Thrift attempt to reinstate the debtor’s obligation to Downey Savings.
On June 11, 1981, Cal Thrift filed a complaint requesting, among other things, a declaration that, notwithstanding the passage of 90 days since the commencement of the Downey foreclosure proceedings, it could cure the debtor’s default under the California reinstatement statute. Thereafter, on December 10, 1982, the trial court entered its judgment permitting a reinstatement of the debt owed to Downey Savings, to allow Cal Thrift to continue making periodic payments on that debt. 26 B.R. 41. Downey Savings subsequently filed a timely notice of appeal from the judgment.
II. ANALYSIS OF THE ISSUES OF FACT AND LAW
Much of the dispute in this appeal has revolved around the question of whether the automatic stay under 11 U.S.C. § 362 tolls the reinstatement and redemption periods provided by state foreclosure laws. There existed a significant disagreement on this issue, under the former Bankruptcy Act, which still seems to cause concern under the new Bankruptcy Code. Nevertheless, we see no need to address this issue at the present time.
In the recent case of In re Casgul of Nevada, Inc., 22 B.R. 65 (Bkrtcy.App. 9th Cir.1982), we held that the automatic stay provisions found in 11 U.S.C. § 362 protected only the debtor, his property, and the property of his estate, unless otherwise provided by statute. See also In re Related Asbestos Cases, 23 B.R. 523 (D.C.N.D.Cal.1982). At least one district court has, in a case similar to that now before us, held that the automatic stay under 11 U.S.C. § 362 does not toll the reinstatement period for a non-debtor junior encumbrancer. Triangle Management Services v. Allstate Sav. & Loan, 21 B.R. 699 (D.C.N.D.Cal.1982).
In its memorandum of decision, the trial court in the present matter rejected the reasoning of the. latter case. In so doing, it argued that the failure to protect a junior encumbrancer, to the same extent as a debtor, would usually lead to a “disordered result.” That is to say, it would cause a situation in which the junior lien holder would be forced to advance its own monies to cure defaults on senior liens, while being unable to proceed with its own foreclosure.
Although there is a certain intrinsic logic and fairness in this thinking, we must agree with the Triangle Management Services court that Congress simply did not intend for the automatic stay to protect junior lien holders from a tolling of the reinstatement period. Similarly, we can find no explicit statutory basis, under 11 U.S.C. § 362 or elsewhere, for extending the protections afforded by the automatic stay — whatever these might entail — to a non-debtor junior encumbrancer. There*99fore, since the trial court relied upon an overly-expansive assessment of the effect of 11 U.S.C. § 362 in rendering its declaratory judgment in this proceeding, we must overturn that decision.
III. CONCLUSION
This panel concludes that the trial court erred in extending the protections of the automatic stay in this case to a non-debtor junior encumbrancer. Inasmuch as the lower court’s declaratory judgment in favor of the appellee was based upon this improper extension of automatic stay rights, it must be REVERSED. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489750/ | ORDER GRANTING MOTION TO COMPEL DISCOVERY
JON J. CHINEN, Bankruptcy Judge.
This Order deals with the Motion for Order Compelling Discovery filed on February 22, 1983 by Z-R Corporation, Dora Kong, Stanley Shin, Trustee and CJMD Realty, Inc., hereafter “Plaintiffs”, against James Allyn, hereafter “Allyn”, Edwin Fu-jinaga, hereafter “Fujinaga”, John Critcher, hereafter “Critcher”, and Ralph Corn-uelle, hereafter “Cornuelle”.
As background to this procedural motion, it is helpful to give a brief summary of the extensive activity and filings accummulated in the short time since the initial filing. The action commenced with the February 1, 1983 filing by Z-R Corporation, Dora Kong and Stanley Shin, Trustee, hereafter “petitioners”, of a Complaint for Injunctive Relief and a Motion for a Temporary Retraining Order against Central Hobron Associates, hereafter “CHA”. The Motion for Temporary Restraining Order was initially heard on February 4, 1983, at which time this Court granted the Temporary Restraining Order enjoining SAJE Ventures II or CHA from disbursing $900,000 until a further hearing on February 7, 1983, without requiring that petitioners post security.
The hearing on the Motion for Temporary Restraining Order was continued to February 7,1983 and subsequently to February 8, 1983, and Amended Orders extending the Temporary Restraining Order were entered. On February 8,1983, counsel orally stipulated to continue the Temporary Restraining Order until the hearing on the Motion for Preliminary Injunction, scheduled for February 22, 1983. The Court then ruled that all parties could begin discovery once the Motion for Preliminary Injunction was filed. The written Order Granting Plaintiff’s Oral Motion to Commence Discovery was filed February 16, 1983.
On February 11, 1983, Plaintiffs filed various notices of Taking Deposition upon Oral Examination, regarding the depositions of several individuals scheduled for February 15, 16, and 19, 1983. Also on February 11, 1983, plaintiffs issued Subpoena to Witness and Subpoena Duces Tecum to the same individuals requesting their appearance and production of documents at the scheduled depositions.
On February 12, 1983, plaintiffs filed their motion for Preliminary Injunction.
Due to the refusal by Allyn, Fujinaga, Critcher, and Cornuelle and/or their counsel to answer questions at the scheduled depositions, the instant Motion for Order Compelling Discovery was lodged with the Court on February 18, 1983, filed on February 22, 1983, the same day on which the Motion for Preliminary Injunction was heard. At this hearing, an oral ruling granting the motion and setting a bond was made and subsequently a written Order Granting the Preliminary Injunction was filed on March 15, 1983. A hearing of the Complaint is set before the undersigned judge on June 21, 1983.
Against this background, the instant motion to compel discovery can be seen as part of a continuing struggle among the parties in the instant action, which has been fraught with procedural delays. In attendance at the May 12, 1983 hearing were Boyce R. Brown and Terry Day representing plaintiffs, William Dodd representing Allyn and Cornuelle, Patrick Taomae representing Fujinaga and Albert Evensen representing Critcher.
At this hearing, the attorneys for the witnesses stated that the deponants did not *110answer questions posed because the questions were not relevant to the issues in the Motion for Preliminary Injunction. As for the refusal to produce documents, the attorney contended that (1) the documents requested were not relevant to the issues in the Motion for Preliminary Injunction and (2) that the subpoena duces tecum was not the proper procedure for the production of documents for a deposition.
Attorneys for plaintiffs contended that the questions were relevant or may lead to relevant issues and thus were proper, and that a subpoena duces tecum may be used for the production of documents at a deposition.
The Court having reviewed the memoran-da and documents submitted in support of the motion, having heard the arguments of counsel at the hearing and having read the transcripts submitted as part of the record, makes the following findings;
No authority having been presented to the court for the claim that a Subpoena Duces Tecum is not a proper procedure for requiring production of documents at a deposition and given the antagonistic and dilatory tacts by counsel revealed in the transcripts herein, the Court finds that this argument is not dispositive. Plaintiffs have the right to request that documents relevant to their claim be produced through the discovery process and to require production through the subpoena process.
For the Court to grant a Motion for Preliminary Injunction, plaintiffs must show a likelihood of succeeding in their claim under the Complaint. In order to do this, plaintiffs herein must show that they are entitled to collect the balance allegedly owing them, that if CHA, Charles Pankow and/or SAJE Ventures II were permitted to disburse the money, plaintiffs would suffer irreparable injury. Questions relevant to these issues or which may lead to information relevant to these issues were properly part of the discovery plaintiffs sought to conduct, both by deposition and by production of documents.
Regarding the objections of Allyn and Fujinaga, the questions asked and the documents requested went to the merits of the claims raised in the Complaint. Given the plaintiffs’ burden of showing a likelihood of succeeding on the merits, the Court finds the failure to answer questions and to produce subpoenaed documents to be without properly sustainable excuse.
With reference to Critcher, because of the stipulation previously entered which limits the scope of the deposition, the Court finds no violation on the part of Critcher or Hawaii Escrow & Title. The Court nevertheless hereby directs Hawaii Escrow and Title to produce all the documents subpoenaed by Plaintiffs. The Court further finds that counsel for defendants unnecessarily interferred with Critcher’s deposition, for which counsel should be sanctioned. The Court directs that said counsel further refrain from such interference with plaintiffs’ discovery efforts.
With reference to Comuelle’s deposition, this Court finds it was not necessary to pay witness fees to Cornuelle’s counsel for a previous hearing in order to require that Cornuelle remain and be deposed. The time wasted in resolving this issue resulted in unnecessary delay which is compensable to plaintiffs’ attorneys.
The Court will award costs to plaintiffs for attorneys’ fees necessitated by defendant’s refusal to cooperate in the depositions upon the submission by plaintiffs’ attorneys of time sheets and an explanation for the need to have two attorneys at the deposition.
The Court further notes that counsel for Allyn and Cornuelle contended that the Motion to Compel became moot with the issuance of the Order Granting the Motion for Preliminary Injunction. As discussed above, since the information sought in the discovery process herein goes to the likelihood of plaintiff’s prevailing on the merits, and since the final hearing on the merits of the complaint is yet to be heard before this Court, the discovery sought remains relevant and necessary for plaintiffs and the *111Motion for Order Compelling Discovery is hereby granted. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489752/ | MEMORANDUM AND ORDER DENYING MOTION TO FILE THIRD-PARTY COMPLAINT
CLIYE W. BARE, Bankruptcy Judge.
The allowance of a third-party complaint, pursuant to Bankruptcy Rule 7014, against the majority shareholder of the debtor by the recipient of an allegedly preferential transfer, 11 U.S.C.A. § 547 (1979), is at issue.
Chemical Separations Corporation (Chem Seps) filed its chapter 11 bankruptcy petition on October 15, 1982. As a debtor in possession Chem Seps filed a complaint on June 2, 1983, against International Salt Company. Chem Seps alleges all the elements necessary to constitute a preferential *137transfer, 11 U.S.C.A. § 547(b) (1979), in connection with its payment of $21,283.27 to defendant on September 2, 1982.
In its answer of August 5, 1983, defendant denies both the alleged insolvency of Chem Seps at the time of the transfer and that the transfer enabled it to receive more than it would have received if: (1) the case was a case under chapter 7; (2) the transfer had not been made; and (3) defendant received payment to the extent allowable under the provisions of the Bankruptcy Code. Further, defendant contends that the transfer is unavoidable because: (1) the transfer was intended to be, and was in fact, a contemporaneous exchange for new value given to Chem Seps, 11 U.S.C.A. § 547(c)(1) (1979); and (2) defendant’s waiver of its lien, in consideration of the $21,283.27 payment by Chem Seps, constitutes new value not secured by an otherwise unavoidable security interest and on account of which Chem Seps did not make an otherwise unavoidable transfer to or for the benefit of defendant, 11 U.S.C.A. § 547(e)(4) (1979).
On September 20,1983, defendant filed a motion requesting permission to join Foster Wheeler Corporation, which owns approximately 88% of the outstanding shares of common stock in the debtor, as a third-party defendant. According to defendant, its third-party complaint against Foster Wheeler and the complaint of Chem Seps involve mutual issues of fact arising out of the same transactions. Further, defendant maintains that Foster Wheeler will not be prejudiced by joinder herein since it has had notice of similar claims against it by other creditors. Defendant also alleges that Foster Wheeler has disregarded the corporate form and separateness of Chem Seps. Alleging that Chem Seps is merely the alter ego of Foster Wheeler, defendant asks the court to combine the assets of the two corporations for the purpose of determining whether Chem Seps was insolvent on the date of the allegedly preferential transfer. Defendant also avers that promises and representations assuring payment to some or all of the Chem Seps creditors have been made by Foster Wheeler and that creditors have relied upon those promises and representations in continuing to extend credit to Chem Seps.
Bankruptcy Rule 7014 provides for the application in adversary proceedings of Fed.R.Civ.P. 14, which provides in part:
(a) When Defendant May Bring in Third Party. At any time after commencement of the action a defending party, as a third-party plaintiff, may cause a summons and complaint to be served upon a person not a party to the action who is or may be liable to him for all or part of the plaintiffs claim against him. The third-party plaintiff need not obtain leave to make the service if he files the third-party complaint not later than 10 days after he serves his original answer. Otherwise he must obtain leave on motion upon notice to all parties to the action. The person served with the summons and third-party complaint .. . [is] called the third-party defendant.. .. The third-party defendant may assert against the plaintiff any defenses which the third-party plaintiff has to the plaintiff’s claim. The third-party defendant may also assert any claim against the plaintiff arising out of the transaction or occurrence that is the subject matter of the plaintiff’s claim against the third-party plaintiff. The plaintiff may assert any claim against the third-party defendant arising out of the transaction or occurrence that is the subject matter of the plaintiff’s claim against the third-party plaintiff, and the third-party defendant thereupon shall assert his defenses ... and his counterclaims and cross-claims. . .. Any party may move to strike the third-party claim, or for its severance or separate trial. A third-party defendant may proceed under this rule against any person not a party to the action who is or may be liable to him for all or part of the claim made in the action against the third-party defendant.
Generally, the purpose of this rule is to eliminate duplicative suits by disposing of multiple claims arising from a single, or closely related, set of facts. See Dery v. *138Wyer, 265 F.2d 804 (2d Cir.1959). Granting permission to prosecute a third-party action is, however, a matter committed to the discretion of the trial court. Farmers and Merchants Mut. Fire Ins. Co. v. Pulliam, 481 F.2d 670 (10th Cir.1973); General Elec. Co. v. Irvin, 274 F.2d 175 (6th Cir.1960).
Defendant asserts that it is entitled to relief from Foster Wheeler because: (1) the corporate integrity of Chem Seps has been disregarded and the value of the assets of Foster Wheeler should be added to those of the debtor to determine whether Chem Seps was insolvent at the time of the transfer; and (2) Foster Wheeler made representations assuring payment of the debts of Chem Seps to some creditors who detrimentally relied upon such representations. These assertions interject issues wholly unrelated to the Chem Seps complaint to recover an alleged preferential transfer. Assuming arguendo that Chem Seps is the alter ego of Foster Wheeler, only the assets of the debtor, Chem Seps, are considered in determining whether it was insolvent when the transfer was made. 11 U.S.C.A. § 547(b)(3) (1979). Foster Wheeler has not filed a petition in bankruptcy; the value of Foster Wheeler’s assets is not a factor with respect to the solvency or insolvency of Chem Seps.
Defendant’s claim against Foster Wheeler is essentially reduced to an action to recover on the basis of detrimental reliance or misrepresentation. It is not appropriate to adjudicate those questions in the instant preference action. To do so would likely only further delay trial of the Chem Seps action.1
Defendant’s motion to join Foster Wheeler Corporation as a third-party defendant is DENIED.
IT IS SO ORDERED.
. Trial was originally scheduled for August 8, 1983. Upon defendant’s motion, the court extended the time for defendant’s response to the complaint and converted the August 8th hearing to a pre-trial conference. November 1, 1983, is the rescheduled date for trial. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489753/ | MEMORANDUM OPINION AND ORDER
EDWARD B. TOLES, Bankruptcy Judge.
This cause comes on to be heard upon the motion to transfer, pursuant to Rule 2.31 of the United States District Court for the Northern District of Illinois, the Chapter 11 proceeding of Michael Ziemba, Debtor, represented by Leonard Gesas, to the calendar of the Honorable Thomas James, Bankruptcy Judge, filed by V & J. Jares, represented by Jeffrey A. Kripton.
The court having examined the pleadings filed in this matter and having reviewed memoranda of law submitted by the parties, and being fully advised in the premises,
The Court Finds:
1. On March 4, 1983, the above-named Debtor, Michael Ziemba, filed a joint petition with his wife, Barbara Ziemba, for relief under Chapter 13 of the Bankruptcy Code. The case was assigned No. 83 B 3014 and assigned to the calendar of the Honorable Thomas James, Bankruptcy Judge. On the motion of the Trustee, Jack Me Cullough, this Chapter 13 proceeding was dismissed on June 13, 1983 and an order was entered closing the case on September 30, 1983.
2. On June 21,1983, the Debtor, Michael Ziemba, filed a joint petition with his wife, Barbara Ziemba, for relief under Chapter 13 of the Bankruptcy Code. The case was assigned No. 83 B 7686 and was assigned to the calendar of the Honorable Thomas James, Bankruptcy Judge. On the motion of the Trustee, Jack Me Cullough, this Chapter 13 proceeding was dismissed on October 13, 1983, and an order was entered closing the case on December 30, 1983.
3. On October 28, 1983, the Debtor filed a voluntary petition for relief under Chapter 11 of the Bankruptcy Code. The case was assigned No. 83 B 13322 and was assigned to the calendar of the Honorable Edward B. Toles, Bankruptcy Judge. On November 2, 1983, a motion to transfer this Chapter 11 proceeding was filed by V & J. Jares, a secured creditor of the Debtor. On November 14,1983, the Debtor filed a memorandum in opposition to the motion to transfer.
The Court Concludes and Further Finds:
1. Rule 2.21 D. 2. of the United States District Court for the Northern District of Illinois provides for the assignment of refiled cases that have previously been dismissed, as follows:
*3172.21 D.2. Refiling of Cases Previously Dismissed.
When a case is dismissed with prejudice or without, and a second case is filed involving the same parties and relating to the same subject matter, the second case shall be assigned to the judge to whom the first case was assigned. The designation sheet presented at the time the second case is filed shall indicate the number of the earlier case and the name of the judge to whom it was assigned.
2.The Debtor failed to comply with the requirement of the above-cited rule by not denoting on the designation sheet presented at the time his Chapter 11 petition was filed that two prior bankruptcy petitions had been filed and assigned to the Honorable Thomas James, Bankruptcy Judge.
IT IS THEREFORE ORDERED, ADJUDGED AND DECREED that the Chapter 11 proceeding of Michael Ziemba, filed on October 28, 1983, be and the same is hereby transferred to the Honorable Lawrence Fisher, Executive Bankruptcy Judge, for reassignment. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489754/ | MEMORANDUM
CLIVE W. BARE, Bankruptcy Judge.
Plaintiff, United American Financial Corporation (UAFC), seeks recovery on a note in the principal amount of $75,000.00 plus interest. Defendant, Financial Interstate Service Corporation, formerly United American Service Corporation, denies liability.1 The facts have been stipulated.2
On August 13, 1981, United American Service Corporation (UASC) executed a note in the amount of $75,000.00 payable to United American Bank in Knoxville. (UAB). The note, executed by two duly authorized UASC officers — Tom Sudman, president, and Rita 0. Dulin, secretary— was due in full on November 12, 1981. At the time of execution two of the four officers of UASC had authority to bind the corporation.
Prior to execution of the note of August 13, 1981, UASC and UAB were co-defendants in litigation commenced by the Wells Fargo Company over their use of the “express banking” logo. Both UASC and UAB were represented by J. Michael Winchester of the Ridenour law firm and the firm of Birch, Stewart, Kolasch & Birch, a Washington trademark law firm. A dispute arose between UASC and UAB over the division of legal fees, totaling $123,590.57, incurred in the Wells Fargo litigation. A meeting was held in either late March or early April 1981, to resolve the dispute. This meeting was attended by the attorneys for the parties, Ted Lamb, executive vice president of UASC, and Herbert Richardson, an officer of UAB. Although Tom Sudman was also present at the meeting, he did not stay the entire time and does not have any personal knowledge of the conclusion reached at the meeting. Two letters, both dated April 3, 1981, from J. Michael Winchester respectively addressed to Rita O. Dulin and to Richardson and Sudman reflect that an agreement was reached for UASC to pay one-third (%) and UAB to pay two-thirds (%) of all legal fees.3 On March 27, 1981, UASC paid Birch, Stewart, Ko-lasch & Birch $23,514.45 in attorney fees. UASC also paid $13,462.85 in attorney fees to the Ridenour firm on April 2, 1981. On May 14, 1981, $75,000.00 was deposited in the UASC checking account by UAB. No note was executed at that time, however. On the same date a cashier’s check for $75,000.00 was issued to the Ridenour firm; the remitter of this check is UASC. There is no question but that the $75,000.00 represented by the note dated August 13, 1981, *333was actually disbursed by UAB and paid to the Ridenour law firm by the cashier’s check.
The execution of the note apparently came about in this way. In August 1981, Mr. Sudman was advised by a representative of Mr. Jake Butcher that $75,000.00 had been paid to the Ridenour firm for payment of legal fees in connection with the Wells Fargo lawsuit and that UASC should sign a note to document that transaction. According to Sudman, the note was prepared and signed rapidly because examiners were in the bank and the documentation was needed to clean up the file. Subsequent to execution of the note, on November 18, 1981, UAB sold the note to UAFC for $79,294.80, which amount equaled the total principal plus accrued interest to that date. Robert Wheeler, president of UAFC, handled the purchase of the note from UAB. He had no knowledge of any agreement between UAB and UASC with respect to either payment of the note or the dispute over the attorney fees.
As defenses to liability for payment of the note defendant UASC asserts: (1) plaintiff UAFC is not a holder in due course; (2) the note was executed without corporate authority; (3) the note was executed under duress and upon the representation that it would not be treated as an obligation of UASC; (4) UAB and UASC were under common control at the time of execution of the $75,000.00 note; and (5) no consideration was given in exchange for execution of the note. Although the court agrees that UAFC is not a holder in due course, UASC has failed to prove any of the remaining asserted defenses.
II
To qualify as a holder in due course, among other requirements, a holder4 must take an instrument5 without notice that it is overdue. Tenn. Code Ann. § 47-3-302(l)(c) (1979). A purchaser is on notice that an instrument is overdue if he has reason to know that any part of the principal amount owing is overdue. Tenn. Code Ann. § 47-3-304(3)(a) (1979). The controverted note provides:
PAYMENT SCHEDULE: The balance owing hereunder is due and payable ... in full (term) 91 days after date ....
Since the note is dated August 13, 1981, it was due on November 12, 1981. Because the note was overdue when purchased by UAFC on November 18, 1981, UAFC is not a holder in due course of the note.6 This conclusion, however, merely enables UASC to assert defenses it could not have otherwise. See Tenn. Code Ann. § 47-3-305 (1979).
Tenn.Code Ann. § 47-3-306 (1979) enacts:
Rights of one not holder in due course. —Unless he has the rights of a holder in due course any person takes the instrument subject to:
(a) all valid claims to it on the part of any person; and
(b) all defenses of any party which would be available in an action on a simple contract; and
(c) the defenses of want or failure of consideration, nonperformance of any condition precedent, nondelivery, or delivery for a special purpose (§ 47-3-408); and
(d) the defense that he or a person through whom he holds the instrument acquired it by theft, or that payment or satisfaction to such holder would be inconsistent with the terms of a restrictive endorsement. The claim of any *334third person to the instrument is not otherwise available as a defense to any party liable thereon unless the third person himself defends the action for such party.
Although initially asserting a lack of corporate authority, UASC has since stipulated that Tom Sudman and Rita O. Dulin were duly authorized to execute the note in question. Electing to rely upon the parties’ Stipulations and exhibits attached thereto without proffering any additional evidence, UASC has failed to prove an absence of consideration, duress, or common control of UAB and UASC. There simply is no proof in the record to support any asserted defense which will exonerate UASC from liability on the note.
UAFC is entitled to judgment against UASC in the principal amount of $75,-000.00, plus $23,039.91 interest accrued through May 31, 1983, plus interest thereafter, plus costs and a reasonable attorney fee in the amount of $5,000.00. Although the note provides for a reasonable attorney fee of not less than 15% of the unpaid balance if the note is referred to an attorney, the court is not bound by this term of the note. Quaker Oats Co. v. Burnett, 289 F.Supp. 283, 287 n. 8 (E.D.Tenn.1968).
This Memorandum constitutes findings of fact and conclusions of law, Bankruptcy Rule 7052.
. After this action was commenced defendant changed its name to Data One.
. At all times pertinent to the transactions involved in this proceeding, Jake Butcher was president and chief executive officer of United American Bank in Knoxville (UAB), a director of United American Financial Corporation (UAFC) and a director of United American Service Corporation (UASC); Tom Sudman was both president and a director of United American Service Corporation (UASC) and an officer of United American Bank in Knoxville (UAB); C.H. Butcher, Jr. was a director of United American Service Corporation (UASC) and director and chairman of the board of United American Financial Corporation (UAFC).
.See Exh. D and Exh. E attached to the Stipulations of the parties filed November 14, 1983.
. “Holder” means a person who is in possession of a document of title or an instrument or an investment security drawn, issued or indorsed to him or to his order or to bearer or in blank. Tenn.Code Ann. § 47-1-201(20) (Supp. 1983).
. In Chapter 3 of Title 47 of the Tennessee Code Annotated “instrument” means a negotiable instrument. Tenn.Code Ann. § 47-3-102(l)(e) (1979).
.The note also recites that the instrument will be discussed with the lending officer at maturity. Nonetheless, UAFC had reason to know that the note was due and payable in full previous to its purchase of the note. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489963/ | MEMORANDUM AND ORDER
CHARLES J. MARRO, Bankruptcy Judge.
The Court has before it for consideration the Complaint of Warren Withered for Re*956lief from Stay and for Recovery of the Firearms hereinafter described filed on August 30, 1984. Both the Debtor and the Committee of Unsecured Creditors oppose the Complaint.
FACTS
The Debtor, STN Enterprises, Inc., was organized as a corporation on August 6, 1982 for the purpose of engaging in the purchase and sale of collectible firearms and related collectibles under the trade name of “Atwater Arms.” Stephen T. Noyes was its president, sole stockholder and the driving force behind the corporate business. The corporation also conducted an investment program which included the purchase of certain collections of antique firearms. Noyes died on May 5, 1984 as a result of injuries received in an automobile accident, and for several weeks prior thereto, the Debtor was having financial difficulties. These apparently precipitated the filing of a Petition for Relief on June 28, 1984 under Chapter 11 of the Bankruptcy Code. The Schedules show total liabilities of $12,-989,844.35 and assets of $5,284,415.05. Included in the assets are Bennington firearms inventory and Greenwich firearms inventory, listed at an estimated market value without forced sale of $2,500,000.00 and $1,500,000.00, respectively.
Warren Witherell is a retired headmaster of Burke Academy and chairman of its board of trustees, residing in East Burke, Vermont. In March, 1984, he began negotiation with Steve Noyes for the purchase of a Winchester rifle hereinafter described. Witherell had previously had an interest in guns for a long time and his father had become a collector. He first met Noyes on March 30, 1984, after he had been contacted by telephone by Noyes at the suggestion of a mutual friend, one Jim Ross, and after he had expressed to his cousin, also a friend of Noyes, his desire to purchase a firearm. He met Noyes at his residence in Bennington, Vermont. He was taken by Noyes down to his office in the basement where they had a conversation for about an hour and a half, most of which was consumed discussing the possible enrollment of Noyes’ son in Burke Academy, Noyes’ airplane accident, marathon running and a possible gift by Noyes to the school, as well as a contemplated speech by Noyes to the student body about the history of guns. Not more than ten minutes of this conversation was spent discussing the business of Atwater Arms.
From the display of firearms in the Noyes basement, Witherell picked one out which was of special interest to him and Noyes told Witherell that it was available for sale at a price of $95,000.00. Witherell did not commit himself to purchase the gun at that time, but indicated that he was very much interested and that, after a week’s trip to Florida, he would again contact Noyes about the purchase. Witherell inquired about storage and care of the gun since he did not have a secure place in which to keep it, and especially since he was moving from place to place at that time. Noyes informed Witherell that he could make provision for a bailment; that Witherell would receive a bill of sale prior to purchase as well as an appraisal from a Mr. Wilson together with a copy of his book on rifles. Witherell was very firm on a bailment arrangement.
Witherell returned from Florida on Friday, April 6, 1984, and he called Noyes on the 9th of April and told him that he would like to purchase the firearm which is identified by serial number 11218, but that he would need about ten days within which to arrange for payment. As a result of these negotiations, Witherell received the following documentation from Noyes, viz:
a. A notice on Atwater Arms stationery dated 4-10-84 signed by Noyes as “Steve” reading:
“Warren—
“We will send you the following items next week:
“1) R.L. Wilson’s newest book titled ‘Winchester The Golden Age of Gun-making and the Winchester 1 of 1000’
“2) The specific appraisal from Mr. R.L. Wilson on Serial # 11218.
*957“3) A bailment which you must sign and return to Atwater Arms — authorizing us to store your Winchester at our vault in Greenwich, Ct.”
b. A receipt from Atwater Arms dated April 10, 1984 addressed to Mr. Warren Witherell indicating receipt of $95,-000.00 for the purchase of:
“Finest known Model 1873 1 of 1000 rifle, in terms of condition; a rare early model, Serial no. 11218. Just discovered prox. 1981 in Northern California. Excellent plus condition.”
c. A bailment agreement dated April 18, 1984 addressed to Mr. Warren Withe-rell and executed by Warren W. Withe-rell as purchaser/owner on Apr. 20, ’84 and by Stephen C. Noyes of Atwater Arms. This bailment agreement reads:
“Having purchased the firearm(s) listed below from Atwater Arms and realizing that improper or excessive handling can effect condition and thereby greatly reduce the value of my purchase, I wish to create a bailment, leaving my purchase in the care and custody of Atwater Arms. It is my understanding that Atwater Arms will store this purchase either in its secured showroom in Bennington or in “The Vault” in Greenwich, Connecticut. It is also understood that Atwa-ter Arms has sufficient insurance on both locations and coverage while in transit. I agree to pay, on an annual basis, a reasonable fee for insurance and storage while my purchase is in Atwater Arms’ care and custody.
“Finest known Model 18731 of 1000 rifle, in terms of condition; a rare early model, Serial no. 11218. Just discovered prox. 1981 in Northern California. Excellent plus condition. ”
d. A letter dated April 10, 1984 signed by Stephen T. Noyes, president of Atwater Arms, addressed to Warren Witherell reading:
“Finest known Model 1873 1 of 1000 rifle, in terms of condition; a rare early model, Serial no. 11218. Just discovered prox. 1981 in Northern California. Excellent plus condition.
“This item has been appraised at fair market value of $95,000.00 by R.L. Wilson, noted author, collector and consultant to antique arms collectors. Books authored by Mr. Wilson include: THE BOOK OF COLT FIREARMS, THE BOOK OF COLT ENGRAVING, THE BOOK OF WINCHESTER ENGRAVING, and THE COLT HERITAGE.”
This letter also defined a Specific Purchase Program of Atwater Arms and concluded with this statement, viz:
“Since this item is currently stored in our vault at Greenwich, Connecticut, it will be necessary to discuss specific shipping instructions upon receipt of your check. At that time we will issue you a receipt to support your purchase.”
Payment of the rifle was made by Withe-rell by two separate checks dated 4/24/84 in the sums of $20,000.00 and $75,000.00 payable to the Order of “CSB” which represented the Citizens Savings Bank and Trust Company in which Witherell maintained his cheeking account, and the proceeds of these two checks were credited to the account of Atwater Arms in the total sum of $95,000.00 via a wire control report from the Federal Reserve Bank of Boston dated 4/24/84.
This is the only transaction which Withe-rell had with Atwater Arms and the purpose of the purchase was strictly to keep the rifle as a collector, and any decision by Witherell for a possible sale would be made by him, as he put it, sometime “down the road.” In the alternative, he could very well decide to keep the rifle for his daughters.
Although the receipt transmitted by At-water Arms to Witherell did not specifically show a sales tax, Witherell understood that it was included in the purchase price. Although Witherell knew that Noyes did in fact sell guns for his cousin, he never did in fact sell anything for Witherell, nor did Witherell engage Noyes to make any sale *958in his behalf. In the event that Witherell did decide to sell the rifle in the future, he would then discuss such a sale with Noyes, but he had no intention of selling the rifle at the time of purchase. After payment, it was left with Noyes for safekeeping under the bailment agreement.
The rifle purchased by Witherell is still in the possession of the Debtor.
DISCUSSION
The issue in this case is whether Withe-rell is the owner of the rifle hereinabove described and whether he is entitled to possession.
The nature of a creditor’s property rights in bankruptcy is defined by state law, not federal law. Butner v. United States (1979), 440 U.S. 48, 54, 99 S.Ct. 914, 917, 59 L.Ed.2d 136; In Re Skelly Jr. (U.S. District Court—D. Delaware—1984), 38 B.R. 1000, 1001. State law also defines the nature and extent of debtor’s and, therefore, the estate’s interest . in property. Butner v. U.S., supra; In Re Abdallah (Bankr.D.Mass.1984) 39 B.R. 384, 386; In Re Ford (Bankr.Md.1980) 3 B.R. 559, aff’d 638 F.2d 14 (4th Cir.1981).
Under the Uniform Commercial Code, as adopted in this state, title to goods passes from the seller to the buyer in any manner and on any conditions explicitly agreed on by the parties. 9A V.S.A. § 2-401(1). In the instant case, it was the intention of the parties that title to the weapon would pass to Witherell upon payment of the purchase price for it. This was evidenced by the receipt delivered by the Debtor to him with the purchase. Therefore, upon payment of the purchase price, there was compliance with the manner and conditions agreed upon by the parties and title to the weapon passed from the Debtor to Witherell.
It is clear that a “true bailment” was contemplated by the parties. A “bailment,” in its ordinary legal signification, imports the delivery of personal property by one person to another in trust for a specific purpose, with a contract, express or implied, that the trust shall be faithfully executed, and the property returned or duly accounted for when the special purpose is accomplished, or kept until the bail- or reclaims it. 8 Am.Jur.2d 738 § 2. See also Zweeres v. Thibault, 112 Vt. 264, 23 A.2d 529.
The agreement executed in April, 1984, clearly comes within the parameters of a “bailment.” It specifically states that the parties wish to create a bailment, leaving the purchase in the care and custody of Atwater Arms to be stored in the Greenwich, Connecticut vault, for which the purchaser agreed to pay on an annual basis, a reasonable fee for insurance and storage while the purchase was in the care and custody of Atwater Arms. The special purpose of the bailment was safekeeping, and the firearm was to be kept by the Debtor until reclaimed by the Plaintiff. 8 Am. Jur.2d 738 § 2, Zweeres v. Thibault, supra.
Under bankruptcy law, absent state statutory enactment to the contrary, if property was in a debtor’s hands as bailee or agent, the trustee (in this case the debtor by virtue of § 1107) holds it as such, and the bailor can recover the property or its proceeds. 4 Collier 15th Ed. 541-40 § 541.-08. See also In Re Veon, Inc., (Bankr.W.D.Pa.1981) 12 B.R. 186, 188; Matter of Wright-Dana Hardware Co., 211 F. 908 (2d Cir.1914); In Re Keith, 1 UCC Rep.Ser 347; In Re Cox Cotton Company (U.S. District Court E.D.Ark.1982) 24 B.R. 930, 935; Devita Fruit Co. v. FCA Leasing Corp., 473 F.2d 585 (6th Cir.1973); Allgeier v. Campisi, 117 Ga.App. 105, 159 S.E.2d 458 [5 UCC Rep 93] (1968). See also 8 Am.Jur.2d 831 § 98.
Even though the receipt for $95,000.00 and the bailment agreement were delivered by Atwater Arms to Witherell before actual payment was made on April 24, 1984, the transaction was intended by the parties and was in fact a true bailment. Generally speaking, matters of form are of slight significance so far as the validity of a bailment contract is concerned. So long as the lawful possession of the property is in the bailee, under circumstances that impose on *959him the duty to return or account for it, there appears to be no disposition on the part of the courts to regard it as any the less a bailment merely because the agreement is informal in character, oral, or implied in fact or in law. 8 Am.Jur.2d 795 § 58.
Both the oral agreement and the documentation executed by the parties clearly establish a “true bailment” under which Withered is entitled to recover the rifle hereinabove described.
ORDER
Now, therefore, upon the foregoing,
IT IS ORDERED:
1. The automatic stay prescribed by § 362 of the Bankruptcy Code is TERMINATED.
2. The Debtor shall within ten days from the date of this Order deliver to Warren. W. Withered the above described rifle, serial number 11218. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489964/ | MEMORANDUM OPINION
JOHN F. RAY, Jr., Bankruptcy Judge.
This matter came on for hearing upon the complaint of Borg-Warner Acceptance Corp. (“Borg-Warner”) to determine the dischargeability of a debt due by defendants-debtors, William T. Faller and Michelle Faller. At the close of plaintiff’s evidence, all counts of the complaint were dismissed as to Michelle Faller, and a directed verdict was granted in favor of William T. Faller (“Faller”) on plaintiff’s complaint to deny discharge under section 727(a)(3) of the Bankruptcy Code for failure to maintain adequate books and records. What remains for consideration by this court is plaintiff’s complaint under section 523(a)(6) of the Bankruptcy Code to hold Faller’s debt to Borg-Warner nondischargeable, on the grounds that Faller willfully converted property subject to Borg-Warner’s security interest. From the evidence and briefs of counsel, this Court makes the following findings of fact and conclusions of law.
Faller is a furniture sales consultant who has owned and operated various furniture stores as a sole proprietor or a substantial shareholder in several corporations. Borg-Warner financed the inventories of Faller’s stores, acquiring security interests in the inventories and personal guarantees from the Fallers. The relationship between Faller and Borg-Warner was ongoing from 1980 to September, 1983. Faller’s primary duties in the various stores were sales, marketing and promotion.
One entity in which Faller was involved was a Pennsylvania corporation known as Interiors By Design, Inc. (“IBD”). Faller was a 50 percent shareholder of IBD, along with Harry Evanko. Borg-Warner held a security interest in IBD’s inventory and a UCC-1 filing was made in October, 1981.
Advance Discount Furniture was a sole proprietorship owned by Faller and operating in Pennsylvania. In December, 1981, Faller granted Borg-Warner a security interest in “all inventory and accounts receivable” of Faller doing business as Advance Discount. This was done, in part, to secure financing for IBD. A UCC-1 finding was also made in Borg-Warner’s favor. In addition, William T. Faller and Michelle Faller signed personal guarantees for these advances.
In 1982, Borg-Warner began experiencing difficulty with the IBD account. In an attempt to recover its outstanding balance, Borg-Warner liquidated the inventory of IBD and of two other businesses, Rollins *95and Jouret’s, Inc., in which Faller held the primary interest. After liquidation, IBD still owed Borg-Warner approximately $46,-000.
C Furniture Corporation was an Ohio corporation doing business in Cleveland as successor to Century Furniture, a sole proprietorship operated by Faller until August, 1981. The C Furniture Corporation ceased doing business In June, 1982. Borg-Warner had security agreements and UCC-1 filings for both Century Furniture and C Furniture Corporation. Sometime in 1982, Advance Discount’s inventory was liquidated by Faller and shipped to C Furniture Corporation. Although conflicting testimony was introduced as to whether Faller told Borg-Warner he was transferring Advance Discount’s inventory to C Furniture Corporation, Borg-Warner had perfected security interests in the inventory of both stores. Faller testified Borg-Warner had notice the inventory was transferred, and that he had regular contact with Nicholas Arrington, the general manager of Borg-Warner’s Pittsburgh office. Arrington denies having been notified, but the fact remains that Borg-Warner’s security interest in Advance-Discount’s inventory was still perfected when that inventory was transferred to C Furniture Corporation.
Although counsel for Borg-Warner argued, and witnesses for Borg-Warner testified, that Faller misrepresented the value of the inventory, no evidence of the actual value was ever introduced. Borg-Warner did not conduct an appraisal of the inventory, and when it found that the inventory had been transferred, Borg-Warner never requested an audit or an accounting from Faller. Borg-Warner has simply failed to meet its burden of establishing that Faller concealed, or diverted for an improper use, the inventory of the Advance Discount store.
The second transfer of inventory which Borg-Warner alleges constituted conversion occurred later in 1982, when C Furniture Corporation ceased doing business. At that time, the remaining inventory of C Furniture Corporation was assumed by U.S. Freight Liquidators, Inc., an Ohio corporation in which Faller was an officer and a shareholder. U.S. Freight Liquidators, Inc. operated in the same location as C Furniture Corporation, but Borg-Warner had no general security interest or UCC-1 filing with regard to U.S. Freight Liquidators, Inc.
Borg-Warner maintains that Faller’s transfer of inventory to U.S. Freight Liquidators, Inc. constitutes conversion, since Borg-Warner lost its security interest in the inventory. The simple answer to this aspect of Borg-Warner complaint is that it is based on a misinterpretation of the Ohio Uniform Commercial Code. Under section 1809.25(B) of the Ohio Revised Code:
Except where sections 1309.01 to 1309.50 of the Revised Code otherwise provide, 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.
When C Furniture Corporation’s inventory was transferred to U.S. Freight Liquidators, Inc., the inventory so transferred remained subject to Borg-Warner’s security interest.
Since Borg-Warner has failed to show conversion by Faller, either in transferring inventory from Advance Discount to C Furniture Corporation or in transferring inventory from C. Furniture Corporation to U.S. Freight Liquidators, Inc., the debt due Borg-Warner is dischargeable. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8493315/ | MEMORANDUM-DECISION, FINDINGS OF FACT CONCLUSIONS OF LAW AND ORDER
STEPHEN D. GERLING, Chief Judge.
Presently under consideration by the Court is a motion filed by Cowen & Company 1 (“Defendant”) on December 22, 2000, seeking to dismiss the Amended Complaint of Richard C. Breeden, chapter 11 trustee (“Trustee”) of the consolidated estates of The Bennett Funding Group, Inc. (“BFG”) (collectively, the “Debtors”),2 pursuant to Rule 7012(b) of the Federal Rules of Bankruptcy Procedure (“Fed. R.Bankr.P.”) for failure to state a claim upon which relief may be granted and Fed.R.Bankr.P. 7009 for failure to plead fraud with particularity. Defendant also argues that the first, second, third, fourth, sixth and seventh causes of action asserted by the Trustee in his Amended Complaint are barred by the statute of limitations. Opposition was filed by the Trustee on February 5, 2001.
The motion was originally scheduled to be heard on January 11, 2001, in Utica, New York, and was adjourned to February 8, 2001. After hearing oral argument on February 8, 2001, the Court afforded the parties an opportunity to file additional memoranda of law on the issue of whether a party can amend a complaint that “should have been taken off the table” *449because Plaintiff had acknowledged that the Defendant had a valid affirmative defense for all the causes of action therein. The matter was submitted for decision on March 8, 2001.
JURISDICTIONAL STATEMENT
The Court has jurisdiction over the parties and subject matter of the adversary proceeding pursuant to 28 U.S.C. §§ 1334 and 157(a), (b)(1), (b)(2)(H), and (0).
FACTS
On March 27, 1998, the Trustee filed a complaint (“Original Complaint”) seeking to avoid certain transactions involving the Debtors and the Defendant. In the Original Complaint, the Trustee alleged, inter alia, that prior to the filing of the Debtors’ petitions, certain of the Debtors were involved in equipment leasing and financing. In this regard, the Trustee alleged that in order to finance their capital and cash flow needs, the Debtors conducted a Ponzi scheme at the direction of certain insiders. The lease streams were inadequate to pay investors and financial institutions. Those monies that were received by the Debtors, whether from lessees, investors or finance institutions, were commingled into what the Trustee describes as a “Honeypot.” The funds in the Honeypot were used to make payments to investors and others. In addition, the Trustee alleged that funds were “siphoned off from the Honeypot at the direction of certain of the Debtors’s [sic] insiders to their personal accounts or into investments by them.” See Original Complaint at ¶ 12. In his Original Complaint, the Trustee alleged that payments were made by one or more of the Debtors to the Defendant using monies from the Honeypot. See id. at ¶ 14. Attached to the Original Complaint as Exhibit “A” is a list of amounts and dates on which such transfers into two accounts (hereinafter “BFG Accounts”) allegedly occurred.3
On September 12, 2000, more than two years after filing his Original Complaint, the Trustee filed his Amended Complaint in which he specifically identified Patrick R. Bennett as one of the Debtors’ “insiders.” See Amended Complaint at ¶ 13. The Trustee also asserts that the siphoning, as referenced in the Original Complaint, “was in the form of checks and other negotiable instruments payable and belonging to the Debtors and various subsidiaries and affiliates thereof,” which the insiders allegedly deposited into their personal and partnership accounts maintained by Defendant. See id. The BFG Accounts referenced in the original complaint are no longer included in Exhibit “A”, attached to the Amended Complaint. Instead, the Trustee identifies three other accounts (hereinafter “Insiders” Accounts)4 in Exhibit “A”, attached to the *450Amended Complaint. Exhibit “A” lists the total amounts deposited into each of the Insiders’ Accounts but does not specify the dates of any deposits. The statutory bases for the first five causes of action in the Amended Complaint remain the same as stated in the Original Complaint. In those causes of action, the Trustee seeks pursuant to Code § 544 and § 548 to avoid alleged fraudulent transfers made to the Defendant by one or more of the Debtors and deposited into the Insiders’ Accounts.
In his Amended Complaint, however, the Trustee not only seeks to avoid the transfers involving the Insiders’ Accounts pursuant to Code § 544 and § 548, he also alleges in his sixth cause of action that the Defendant breached its contractual obligation to the Debtors by accepting for deposit checks belonging to the Debtors “over forged, altered, absent, invalid and/or otherwise fraudulent endorsements, and then collecting on said checks and other negotiable instruments.” See Amended Complaint at ¶ 59. Trustee alleges in his seventh cause of action that Defendant’s acceptance for deposit into the Insiders’ Accounts, as well as the collection and handling of the proceeds of the checks and other negotiable instruments, constituted conversion.
DISCUSSION
Before the Court considers the Defendant’s argument that the Amended Complaint should be dismissed pursuant to Fed.R.Bankr.P. 7009 and 7012, it is necessary to determine whether the filing of the Amended Complaint relates back to that of the Original Complaint. It is the Defendant’s position that the Trustee should not be permitted to substitute time-barred claims for causes of action the Trustee acknowledges have no viability based on the Defendant’s conduit defense.5 In response, the Trustee points out that the Original Complaint remains a valid pleading. The Defendant never moved for its dismissal or made a motion for summary judgment based on its conduit defense.
The Court must agree with the Trustee that until the Original Complaint was actually dismissed or resolved by an order granting summary judgment in favor of the Defendant, it could be amended. See In re Gaslight Club, Inc., 167 B.R. 507, 517 (Bankr.N.D.Ill.1994); Cf. Cooper v. Shumway, 780 F.2d 27, 29 (10th Cir.1985) (stating that “once judgment is entered the filing of an amended complaint is not permissible until judgment is set aside or vacated ... ”). In Gaslight Club the court entered an order granting summary judgment in favor of the creditors’ committee with respect to Count III of the original complaint. The order stated that “ ‘[e]xecution of the judgment shall be stayed until this Court disposes of [Fredericks’] pending counterclaim by final order.’ ” Gaslight Club, 167 B.R. at 517. The court concluded that because Count III was not resolved by final order the original complaint could be amended or supplemented. Id. In the case now before this Court, there has been no final order entered resolving the allegations in the Original Complaint and, accordingly, it could be amended.
*451The critical issue is whether the allegations found in the Amended Complaint are barred by the statutes of limitation or whether they relate back to the filing of the Original Complaint pursuant to Fed.R.Bankr.P. 7015, incorporating by reference Federal Rule of Civil Procedure (Fed.R.Civ.P.)15(c). Fed.R.Civ.P. 15(c) provides that “[a]n amendment of a pleading relates back to the date of the original pleading when ... (2) the claim or defense asserted in the amended pleading arose out of the conduct, transaction, or occurrence set forth or attempted to be set forth in the original pleadings ...” It is intended to allow a plaintiff to set forth facts with greater specificity that may have been unknown at the time the original complaint was filed. See Bank Brussels Lambert v. The Chase Manhattan Bank, N.A., 1999 WL 672302 at *2 (S.D.N.Y.1999) (citations omitted); In re Everfresh Beverages, Inc., 238 B.R. 558, 573 (Bankr.S.D.N.Y.1999); In re Gerardo Leasing, Inc., 173 B.R. 379, 388 (Bankr.N.D.Ill.1994). If, however, “ ‘a plaintiff attempts to interject entirely different conduct or different transactions or occurrences into a case, then relation back is not allowed.’ ” Miller v. American President Lines, Ltd., 1999 WL 1338082 at *3 (N.D.Ohio 1999), quoting F.D.I.C. v. Conner, 20 F.3d 1376, 1385 (5th Cir.1994).
The cases make it clear that the important consideration is whether the Original Complaint gave the Defendant adequate notice of what must be defended against in the Amended Complaint. See Stevelman v. Alias Research Inc., 174 F.3d 79, 86 (2d Cir.1999); Holdridge v. Heyer-Schulte Corp. of Santa Barbara, 440 F.Supp. 1088, 1093 (N.D.N.Y.1977) (citations omitted) (noting that the main inquiry under Fed.R.Civ.P. 15(c) is whether adequate notice has been given to the opposing party “by the general fact situation alleged in the original pleading.”); McCarthy v. Associated Clearing Bureau, Inc., 1999 WL 1995185 at *4 (D.Conn.1999) (citations omitted); Gerardo Leasing, 173 B.R. at 388; Gaslight Club, 167 B.R. at 517. Information provided by the parties in papers subsequently filed with the Court generally is not to be considered in its determination of whether there has been adequate notice. See Holdridge, 440 F.Supp. at 1094.
In both complaints herein, the Trustee alleges that the Debtors were operating a Ponzi scheme. The Trustee also alleges that there were a series of transfers made by the Debtors to the Defendant as part of that scheme to hinder, delay or defraud creditors. Where there are a series of transfers, it is necessary that the Court examine
whether the events are linked by some underlying conduct or transaction, so that the defendant may fairly be charged with notice that the plaintiff might amend his complaint to allege another event in the series after conducting discovery, or whether each event is truly an independent transaction.
In re Austin Driveway Services, Inc., 179 B.R. 390, 396 (Bankr.D.Conn.1995); see also Gerardo Leasing, 173 B.R. at 389 (stating that “[cjonsiderable difficulty arises when court[s] are confronted with an original complaint which pleads a transaction or series of transactions and amendments which seek only to add transactions similar to those already pleaded.”). Furthermore, when a series of events or transactions involves allegations of fraud,
“courts have struggled to find the appropriate balance between the certainty that statutes of limitations are intended to provide and recognizing the difficulty that plaintiffs often have in defining the extent and boundaries of fraudulent acts perpetrated against them.”
*452Everfresh Beverages, 238 B.R. at 574. The court in Everfresh Beverages concluded that the relationship back standard should be read broadly where there are allegations of fraud (citation omitted). Id.; see also I.L. G.W.U. Nat’l Retirement Fund v. Meredith Grey, Inc., 190 F.R.D. 324, 328 (S.D.N.Y.1999) (noting that “[t]he Second Circuit has held that this Rule [Fed. R.Civ.P. 15(c)] shall be ‘liberally construed.’” (citing Mackensworth v. S.S. American Merchant, 28 F.3d 246, 251 (2d Cir.1994))).
Applying even the most liberal standard to the Original Complaint, this Court has difficulty accepting that the allegations asserted therein would have put the Defendant on notice of the new claims asserted in the Amended Complaint. The transactions described in the two complaints have distinguishing features which raise doubts in the mind of the Court that they represent a single series of transactions in what the Trustee alleges was a single overall scheme of the Debtors, labeled by the Trustee as a “Ponzi” scheme.
In support of his argument that the Amended Complaint relates back to the filing of the Original Complaint, the Trustee cites to Gerardo Leasing. In that case the chapter 7 trustee commenced an adversary proceeding on behalf of the estate of debtor Gerardo & Sons seeking to avoid and recover several alleged fraudulent and preferential transfers. See Gerardo Leasing, 173 B.R. at 383. The transfers in question involved payments to Vito Gerardo of $1,500 per week by debtor Gerardo & Sons, from its account at Northwest Commerce Bank. See id. The trustee later learned of approximately 150 boxes of business and financial records that had been missing. Id. After review of the documents, the trustee moved to consolidate three bankruptcy estates, asserting that there was extensive intermingling of the debtors’ financial affairs. Id. The court granted the motion, and the trustee then sought to amend his original complaint. Id. at 383-84. In the amended complaint he alleged that Vito Gerardo received weekly payments of $1,500 from debtor Gerardo Leasing, beginning a week after receiving the last weekly payment from Gerardo & Sons. Id. at 384. Some of the checks were written on Gerardo Leasing’s account with Northwest Commerce Bank; others were written on Gerardo Leasing’s account at Parkway Bank & Trust. Id. The trustee took the position that the transfers were made as part of the same course of conduct and scheme. Id. at 390. The Defendants argued that the claims in the amended complaint should not relate back as the transfers involved were made by different debtors, through different accounts and at different times. Id. at 389. The court found that
[t]he timing between the end of the payments by Gerardo & Sons and the start of payments by Gerardo Leasing, coupled with the similarity in amount and frequency in payment; the possibility that these payments were made pursuant to an alleged service agreement; and the possibility that the various Debtors’ finances were intermingled, may well lead to a finding following trial that the additional payments were in fact part of one ongoing series of transfers. Thus, it appears that the evidence pertaining to the second set of claims could have been introduced under the original complaint, liberally construed.
Id. at 391 (citation omitted). The court concluded that the amended complaint should be deemed to relate back based on the finding that the trustee might be able demonstrate a common series of transactions involving identical payments to the same transferee from “in effect the same transferor.” Id.
*453This Court believes that the facts presented in Gerardo Leasing are distinguishable from those now before it. While the Trustee has skillfully crafted the Amended Complaint in such a way as to minimize the differences between the facts alleged in it and the Original Complaint, it is evident that there is not sufficient commonality between them to preclude an assertion by the Defendant of unfair surprise.
The Original Complaint identified transfers by the Debtors into the BFG Accounts on specific dates.6 Trustee alleges said transfers were made by the Debtors from the Honeypot. Rather than making the allegations in the Original Complaint more definite and precise in the Amended Complaint, those claims involving the BFG Accounts identified in Exhibit “A” of the Original Complaint have been abandoned completely by the Trustee in the Amended Complaint. In the Amended Complaint he seeks to avoid transfers of funds deposited into the Insiders’ Accounts. The Trustee alleges that the deposits into the Insiders’ Accounts were “wrongfully accepted” under forged, invalid or fraudulent endorsements by insiders such as Patrick Bennett. These allegations suggest the possibility that some, if not all, of the monies deposited into the Insiders’ Accounts may not have been transferred from the Honeypot, although perhaps intended for deposit therein. It also appears that the transfers described in the Original Complaint may have benefitted BFG; whereas, those described in the Amended Complaint inured to the benefit of insiders such as Patrick Bennett. In Gerardo the court found a common course of conduct in that all transfers were in the same amount to the same insider of the debtors who arguably was an active participant in their activities. There are no allegations that the Defendant was an insider of the Debtors or that it knew of the alleged Ponzi scheme and actively participated in it.
Paragraph 13 of the Original Complaint states that “[a]s a result of these fraudulent practices, the Debtors were insolvent at least as early as 1990.” Included in “these fraudulent practices” is the allegation in Paragraph 12 that funds were siphoned off from the Honeypot at the direction of certain of the Debtors’ insiders to their personal accounts. It is not until Paragraph 14 that the Trustee mentions the Defendant and alleges that one or more of the Debtors transferred monies from the Honeypot to the Defendant. There are no allegations in the Original Complaint directly tying the Defendant to any of the activities of Patrick Bennett and other insiders in siphoning monies from the Honeypot. Indeed, having read over the Original Complaint and the list of transfers deposited into the BFG Accounts, it is difficult to conceive how the Original Complaint would have provided the Defendant with notice that it maintained the very personal accounts referenced in Paragraph 13. Simply stating that insiders of the Debtors were involved with siphoning monies into their personal accounts or into investments by them, without more, does not, in the opinion of the Court, provide the Defendant with reasonable notice of a basis for potential liability with respect to the Insider Accounts. *454It is only in reading the Amended Complaint that the Defendant is given notice of the Insiders’ Accounts and the allegations that it accepted checks for deposit with forged or invalid endorsements. It is the Amended Complaint that provides the Defendant with notice of a possible connection between the alleged siphoning activities of insiders such as Patrick Bennett and the Insider Accounts maintained by the Defendant.7
In American President Lines, the original complaint alleged that the decedent plaintiff had been exposed “ ‘to asbestos and hazardous substances other than asbestos causing unspecified injuries.’ ” See American President Lines, 1999 WL 1388082 at *3. The amended complaint made no mention of asbestos, instead alleging that the plaintiff had been exposed to “ ‘benzene, benzene containing products and other hazardous substances’ which caused ‘injuries and losses, including, but not limited to Acute Myelogenous Leukemia.’ ” Id. The court found that the amendment did not relate back as it substantially altered the factual basis for the claim. Id. at *4. The court noted that exposure to benzene “does not occur or act in the same manner as exposure to asbestos.” Id. Thus, the court concluded that the defendants had received no notice of benzene claims by virtue of the original complaint. Id. It went on to comment that “[t]he Court would emasculate the statute of limitations requirement if it gave the phrase ‘hazardous substances other than asbestos’ the breadth the Plaintiff seeks.” Id.
So too in Holdridge a case cited by the court in American President Lines, the U.S. District Court for the Northern District of New York found that an amended complaint did not relate back to the filing of the original complaint. In the original complaint, the plaintiff sued for injuries related to an allegedly defective prosthesis implanted in her right breast in July 1971. The original complaint also made reference to a prosthesis that had been inserted in the plaintiffs right breast in May 1972 after the other one had been removed. See Holdridge, 440 F.Supp. at 1094. There were no allegations in the original complaint that the second prosthetic device was defective. The court found that the amended complaint, which sought to recover for injuries resulting from the insertion of prosthetic devices after July 1971, did not relate back to the filing of the original complaint despite the fact that there was reference to the prosthesis implanted in May 1972 in the original complaint. The court noted that although the defendant may have subsequently received notice of the additional allegations from the plaintiffs answers to interrogatories and from the plaintiffs memorandum of law in opposition to a motion for summary judgment, the original complaint did not provide adequate notice so as to allow for relationship back. Id.
In this case, the Trustee did provide factual background in his Original Complaint that funds had been “siphoned off from the Honeypot at the direction of certain of the Debtors’s [sic] insiders to their personal accounts or into investments by them.” However, it is difficult to discern how that particular statement/allegation in the Original Complaint would have provided the Defendant with notice that those “personal accounts” or “investments” in*455volved the Defendant directly, particularly when the accounts identified by the Trustee in the Original Complaint were accounts of BFG and not personal accounts of insiders.
Just as in American President Lines where the court found that the reference to “other hazardous substances” was not sufficient notice to the defendant that it would have to defend itself against injuries caused by benzene, as well as asbestos, the fact that the Trustee made reference to siphoning of funds by insiders into their personal and investment accounts in the Original Complaint does not open the door for the Trustee to use those allegations as a basis for now asserting that the Defendant had notice of the possibility that it would have to defend itself against claims with respect to transfers of monies ultimately deposited into accounts belonging to entities other than the Debtors under alleged forged or invalid endorsements. The allegation that certain aspects of the Debtors’ business may have been operated as a Ponzi scheme does not provide a basis for concluding that the Debtors’ and Defendant’s relationship was pursuant to some common course or scheme. As asserted by the Defendant, it is
not being sued because of any alleged involvement in any ponzi scheme or in the “honeypot.” The fact that those transactions may be a common theme in lawsuits prosecuted by the Trustee is nothing more than window dressing ... [and] are wholly extraneous to the Trustee’s purported claims against [the Defendant] for wrongful deposit of checks made out to the debtors into an account of the debtors’ insiders.
See Defendant’s Memorandum of Law, filed March 8, 2001, at 8-9.
The Court concludes that the Original Complaint failed to provide the Defendant with sufficient notice that the Trustee might in a subsequent pleading seek to avoid transfers made to the Defendant and deposited into the personal or partnership accounts of insiders of the Debtors, such as Patrick Bennett. Nor did the Original Complaint provide the Defendant with notice that the Trustee might seek to recover the monies under theories of breach of contract and conversion with respect to the alleged “wrongful acceptance” of certain checks deposited into the Insiders’ Accounts identified in Exhibit “A” of the Amended Complaint. Therefore, the Trustee’s first, second, third and fourth,8 as well as the seventh,9 causes of action in the Amended Complaint do not relate back to the filing of the Original Complaint and are time-barred. The Court is unable, based on the information provide in the Amended Complaint, to determine whether the sixth cause of action, which arguably may be subject to a longer statute of limitations as it is based on an alleged breach of contract, is also time-barred. Therefore, the Court will afford the Trustee an opportunity to amend the complaint *456filed on September 12, 2000, to provide specifics as to those transactions which may not be time-barred, consistent with state law limitations and the findings herein. Accordingly, the Court need not address the other arguments raised by the Defendant pursuant to Fed.R.Bankr.P. 7009 and 7012 with respect to the Amended Complaint at this time.
Based on the foregoing, it is hereby
ORDERED that the first, second, third, fourth and seventh causes of action set out in the Amended Complaint are time-barred and those claims cannot be maintained against the Defendant; it is further
ORDERED that the sixth cause of action set out in the Amended Complaint will be dismissed as untimely unless the Trustee amends the complaint, filed on September 12, 2000, and files said amended complaint with the Court and serves it on the Defendant within 20 days of the date of this Order providing specifics as to any transfers for which a viable cause of action based on breach of contract may still exist.
. Cowen & Company is a securities brokerage.
. The Debtors are eight related entities which filed for bankruptcy under chapter 11 of the United States Bankruptcy Code, 11 U.S.C. §§ 101-1330 ("Code"), between March 29, 1996, and July 25, 1997, on which date the debtor estates were consolidated pursuant to an order of this Court.
. Exhibit "A” refers to Account 6K81609 and identifies seven deposits made between 7/16/92 and 9/12/95, totaling $579,316.99. It also refers to Account 6K812794 and identifies ten deposits made between 11/15/95 and 12/4/95, totaling $1,000,000. According to the Defendant, Account 6K91609 represents an account held by Defendant and belonging to Bennett Funding Group 401k Profit Sharing Plan and Account 6K81279-4 represents an account held by Defendant and belonging to BFG. See Memorandum of Law of Defendant, filed March 8, 2001, at 1.
. Exhibit "A” of the Amended Complaint refers to Account 6K-81039 ($11,323,693 in transfers); 6K-81224 ($1,087,000 in transfers), and 6K-81547 ($1,116,677 in transfers). According to the Defendant, Account 6K-81039 was owned by Patrick R. Bennett, Account 6K-81224 was owned by Patrick Bennett and David Vinciguerra, and Account 6K-81547 was owned by Bennett Financial Associates, a partnership of which Patrick Bennett allegedly was general partner. See Defendant’s Memorandum of Law at 2-3 and Trustee’s Memorandum of Law, filed February 5, 2001 at 2. Apparently, it was the Trustee that *450discovered the existence of the Insiders' Accounts upon review of the Debtors' records and provided copies of three Investment Account Agreements and other documents to the Defendant. See id.
. "The ‘mere conduit' defense immunizes a good faith recipient of an otherwise avoidable transfer who acts as a mere intermediary and who cannot exercise dominion or control over the transferred property, where equitable principles justify such an exception.” In re Model Imperial, Inc., 250 B.R. 776, 801 (Bankr.S.D.Fla.2000) (citations omitted).
. As noted at Footnote 7, supra, one account belonged to BFG 401k Profit Sharing Plan and the other to BFG. Although this information was not provided in the Original Complaint, the Court may consider basic extrinsic facts known to both parties. See O’Loughlin v. National R.R. Passenger Corp., 928 F.2d 24, 27 (1st Cir.1991). In this case, both complaints identified the numbers of the accounts to which monies were deposited, and it is clear from the papers submitted to the Court that both the Defendant and the Trustee knew the identities of the account holders.
. The fact that the Trustee may have apprized the Defendant of those accounts and the possibility that the checks that were deposited in them may have contained forged or invalid endorsements after filing the Original Complaint during the course of discovery does not change the Court's analysis. In considering whether an amended pleading relates back to the original pleading, it is the notice provided by the latter that is crucial. See Holdridge, 440 F.Supp. at 1094.
. The first four causes of action in the Amended Complaint are based on Code § 544 and § 548. Pursuant to Code § 546, an action or proceeding under §§ 544 or 548 had to have been commenced no later than March 29, 1998 to be timely. The Amended Complaint was not hied until September 12, 2000.
. The seventh cause of action is based on allegations of conversion. Code § 108 provides that if the period within which a debtor may commence an action has not expired before the filing of the petition, the trustee is entitled to commence such action before the later of (1) the end of such period or (2) two years after the order for relief. The limitation period for conversion under New York law is three years. See N.Y. Civ. Prac.L. & R. § 214(3) (McKinney 1990 & Supp.2001). Although the Trustee does not specify the dates of the alleged prepetition conversions, they clearly occurred if at all, more than three years before the Amended Complaint was filed in September 2000. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489755/ | ON REHEARING
On January 11, 1984, the court entered judgment in the amount of $105,269.19, plus costs, in favor of the plaintiff and against defendant. A motion requesting rehearing, Bankruptcy Rule 8015, amendment of the court’s findings of fact and conclusions of law, and amendment of the judgment, Bankruptcy Rule 9023, was filed by the defendant on January 23, 1984. Defendant maintains that the court erroneously found that consideration existed for the execution of defendant’s note in the original principal amount of $75,000.00. Defendant further maintains that the court erred in finding that defendant failed to establish that United American Bank (UAB) and defendant were under common control at the time of the execution of the $75,000.00 note.
The court has re-examined the stipulations and exhibits filed on November 14, 1983, and reviewed defendant’s brief, filed January 23, 1984. Although defendant refers to proof submitted in the form of depositions, no depositions are included in the record. There is no question that two officers with authority to bind the defendant corporation executed the $75,000.00 note, dated August 13,1981. Further, there is no question that UAB disbursed $75,000.00 to the Ridenour law firm on May 14, 1981, through a cashier’s check identifying defendant as the remitter. This disbursement represents the consideration for the subsequent execution of the defendant’s note. It is not essential that consideration be directly received by the maker of a note. If UAB disbursed the $75,000.00 to the Ridenour law firm in a manner inconsistent with the interest and wishes of the defendant corporation the two corporate officers should not have executed the note. The fact remains that they did execute a note, on or about August 13, 1981, for $75,000.00 on behalf of the defendant. The court does not believe that it erred in finding consideration existed for the defendant’s note.
Although some of the officers and/or directors of UAB (Jake Butcher, C.H. Butcher, Jr. and Tom Sudman) were also directors of the defendant, only one of the four officers (Sudman) having authority to bind the defendant was an official of UAB. The proof, consisting only of the stipulations and the exhibits, fails to establish common control of UAB and the defendant.
WHEREFORE, defendant’s motion for rehearing and amendment of both the court’s judgment and its findings and conclusions is DENIED.
IT IS SO ORDERED. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489756/ | FINDINGS OF FACTS AND CONCLUSIONS OF LAW
CLIVE W. BARE, Bankruptcy Judge.
This matter was heard on November 8, 1983, and December 6,1983, upon the objections of the trustee and David Leonard Associates, P.C., a creditor, to Claim No. 3 filed by Loyce B. Franklin in the amount of $250,000.00.
The first objection alleges that the claim was not timely filed. A preliminary discussion, however, disclosed that the last day for filing claims .in this case fell on a Sunday; hence, filing of the claim on the following Monday constituted timely filing. Former Bankruptcy Rule 906; Fed.R.Civ.P. 6(a). Since the disputed claim was filed on the following Monday, the first objection was withdrawn.
The second ground of objection asserts that the proof of claim was executed by Loyce B. Franklin only, while the attached notes totaling $250,000.00 are payable to Loyce Franklin and wife, Patsy Franklin, and that no assignment by Patsy Franklin to Loyce Franklin is shown. Don Mason, attorney for the Franklins, informed the court that he, in effect, filed two claims in the amount of $250,000.00 each, one for Loyce Franklin and one for Patsy Franklin. Mr. Mason submitted an affidavit to this effect and no objections were made to the same. Although this objection was not formally withdrawn, it is stipulated by the parties that only one claim of $250,000.00 is to be considered.
FINDINGS OF FACT
(1) In the fall of 1978, Lon V. Boyd, Charles M. McNeil, and Loyce Franklin agreed to build a 186-bed convalescent home on a 6.52-acre tract owned by Loyce Franklin and his wife, Patsy Franklin, in Sullivan County, Tennessee, adjacent to Interstate 81 at the Tri-Cities Airport exit. A Tennessee Corporation, Airport-81 Nursing Home, Inc., the debtor herein, was chartered for that purpose. Lon V. Boyd, Charles M. McNeil, and Loyce Franklin were the officers, directors, and shareholders of the corporation.1
(2) On August 22, 1978, Loyce and Patsy Franklin transferred to the debtor corporation a 6-acre tract of real property. On October 19, 1978, the Franklins transferred a 0.52-acre contiguous tract to the corporation. The 6-acre tract is land-locked; ingress and egress is available, however, by way of the 0.52-acre tract.
(3) The debtor corporation executed two notes to the Franklins in the total amount of $250,000.00, one note being for $150,-000.00 payable in six months, the second note in the amount of $100,000.00 payable in five years. No payment was made by the debtor corporation at the time of the transfer. To secure the notes, the debtor executed a deed of trust on the 6-acre tract, but not the 0.52-acre tract.2
(4) Although the affidavit of Loyce Franklin in the deed conveying the property to the debtor recited that the value of the property was $250,000.00, there had been no appraisal of the property. The 6- and 0.52-acre tracts were part of a 43-acre tract originally purchased by the Franklins in 1963 for $14,000.00.
*372(5) The corporate resolution authorizing the purchase essentially provides as follows:
(a) Resolved that a 6.52 acre tract be purchased from Loyce Franklin and wife Patsy Franklin for the sum of $250,-000.00.
(b) That at least the sum $150,000.00 be paid for this land in the closing of the bond issue and that the corporation issue a note secured by a deed of trust for the payment of the balance.
(c) That a new contract be signed with Cassel Brothers (a wholly owned corporation of Charles M. McNeil) for $1,700,-000.00 for construction of a structure on the site with the proviso that, if the structure can be built for a lesser amount, the overage would be returned to the corporation.
The resolution is signed by Loyce Franklin, Charles M. McNeil, and Lon V. Boyd, “directors and stockholders.”
It was also agreed that the deed of trust securing the $250,000.00 indebtedness would not be recorded until after a construction loan in the amount of $100,000.00, also to be secured by a deed of trust, was recorded.3
(6) Mr. Boyd, secretary and treasurer of the debtor corporation, testified at the Code § 341 hearing on September 14, 1982, that the property in question was not worth the $250,000.00 which the corporation agreed to pay. When asked by the trustee at the hearing why there was such a huge discrepancy, Mr. Boyd answered —
A At the original conception of this, the idea was that the three of us were going to be involved in it, myself, Mr. Franklin and Mr. McNeil and that the money would be available to borrow the entire sum, 100% of the money on the project and that if it had approved the $250,000.00, Mr. Franklin was to receive that money from his property, I was to make my money off of attorney fees, Mr.
McNeil was to make his profit off of the building contract. That was the original idea behind it, but
Q But the property really isn’t worth $250,000.00?
A No sir ....4
Mr. Boyd further testified that the property had a minimum value of $70,000.00 and a maximum of $120,000.00 to $125,000.00. Although the questions asked of Mr. Boyd apparently referred to the 6-acre tract, it appears that his answers referred to both tracts of land, that is, the 6-acre and 0.52-acre tracts of land.
(7) The verified schedules executed by the debtor on August 26, 1982, signed by “L.B. Franklin, President,” and “Lon V. Boyd, Sec. Treas.,” reflect the value of the 6-acre tract at $100,000.00, the 0.52-acre “easement” at $15,000.00.
(8) On August 13, 1981, the Secretary of Housing and Urban Development issued a conditional endorsement for insurance under the provision of § 232 of the National Housing Act for the construction of a nursing home in the amount of $3,034,200.00. Attached thereto is a “Supplement to Project Analysis” reflecting “land investment (or cash required for land acquisition)” as $150,000.00.
(9) An appraisal prepared by William A. Miller was introduced. In Mr. Miller’s opinion, as of July 19, 1983, the fair market value of the six acres of land was $60,-000.00, the 0.52-acre tract $20,800.00, or a total value for the two tracts of $80,800.00.
(10) Pursuant to order of this court, the trustee sold the two tracts at public auction for the sum of $89,000.00.
(11) No other written appraisals were introduced. The Franklins, however, introduced an option on a larger tract of land which included the 6-acre tract of land fixing a value of $40,000.00 per acre. The *373option included road frontage which the six acres does not have. The option was never exercised.
(12) A letter from Douglas C. Smith, an appraiser from Nashville, Tennessee, was introduced concerning an adjacent 1-acre tract of land. The adjacent tract has road frontage, and the letter fixed a valuation on the property only if the nursing home was built. Since the nursing home was not built, the dollar figure given by Mr. Smith as to another tract of land does not establish the value of the land in question.
(13) The court finds that the $250,000.00 price the debtor corporation agreed to pay for the property bore no reasonable relation to the actual value of the property. The corporation was willing to pay Patsy and Loyce Franklin, a stockholder and officer of the corporation an inflated sum since the full amount of the agreed purchase price was to come from a third party lender whose debt would be insured by the Housing and Urban Development Corporation. Mr. Boyd was to receive his compensation through attorney’s fees5 and the third shareholder, Mr. McNeil, was to receive his profit from a building contract.6
(14) The court finds the value of the 6.52 acres transferred to the corporation by the Franklins to be $89,000.00, the amount for which the property was sold by the trustee at a public auction.7
CONCLUSIONS OF LAW
(1) Conclusions are limited to the third objection to the claim, that is, that the claim is without consideration.
(2) The sale of the property by the Franklins to the corporation was not an arm’s length transaction, Loyce B. Franklin being both a shareholder and officer of the corporation at the time the sale was negotiated. The secretary and treasurer of the corporation, Mr. Boyd, acknowledged that the property in question did not have a value of $250,000,00. The auction sale of the property substantiated Mr. Boyd’s minimum and maximum value estimates, in that it sold for a sum within the range of his estimates.
(3) TenmCode Ann. § 47-3-408 (1979) provides in part:
“Partial failure of consideration is a defense pro tanto whether or not the failure is an ascertained or liquidated amount.”
(4) The bankruptcy estate possesses the benefits of any defense available to the debtor as against an entity other than the estate, including such defenses as statutes of limitations, statutes of frauds, usury, and other personal defenses. 11 U.S.C.A. § 541(e) (1979).
(5) The purchase of the land, not being an arm’s length transaction, is without consideration as to that portion of the sale price over and above the actual value of the land.
(6) Courts of bankruptcy are essentially courts of equity and their proceedings inherently proceedings in equity. Local Loan Co. v. Hunt, 292 U.S. 234, 54 S.Ct. 695, 78 L.Ed. 1230 (1934). The Supreme Court on numerous occasions has held that a bankruptcy court has full power to inquire into the validity of any claim asserted against the estate and to disallow it if it is ascertained to be without lawful existence. See Lesser v. Gray, 236 U.S. 70, 35 S.Ct. 227, 59 L.Ed. 471 (1915). Further, a trustee may attack a claim against the estate if it is founded upon no real debt.
*374[This] equitable power also exists in passing on claims presented by an officer, director, or stockholder in the bankruptcy proceedings of his corporation. The mere fact that an officer, director, or stockholder has a claim against his bankrupt corporation or that he has reduced that claim to judgment does not mean that the bankruptcy court must accord it pari passu treatment with the claims of other creditors. Its disallowance or subordination may be necessitated by certain cardinal principles of equity jurisprudence. A director is a fiduciary. Twin-Lick Oil Company v. Marbury, 91 U.S. 587, 588, 23 L.Ed. 328. So is a dominant or controlling stockholder or group of stockholders. Southern Pacific Company v. Bogert, 250 U.S. 483, 492, 39 S.Ct. 533, 537, 63 L.Ed. 1099. Their powers are powers in trust. See Jackson v. Ludeling, 21 Wall. 616, 624, 22 L.Ed. 492. Their dealings with the corporation are subjected to rigorous scrutiny and where any of their contracts or engagements with the corporation is challenged the burden is on the director or stockholder not only to prove the good faith of the transaction but also to show its inherent fairness from the viewpoint of the corporation and those interested therein. Geddes v. Anaconda Copper Mining Company, 254 U.S. 590, 599, 41 S.Ct. 209, 212, 65 L.Ed. 425. The essence of the test is whether or not under all the circumstances the transaction carries the earmarks of an arm’s length bargain. If it does not, equity will set it aside. While normally that fiduciary obligation is enforceable directly by the corporation, or through a stockholder’s derivative action, it is, in the event of bankruptcy of the corporation, enforceable by the trustee. For that standard of fiduciary obligation is designed for the protection of the entire community of interests in the corporation — creditors as well as stockholders.
As we have said, the bankruptcy court in passing on allowance of claims sits as a court of equity. Hence these rules governing the fiduciary responsibilities of directors and stockholders come into play on allowance of their claims in bankruptcy. In the exercise of its equitable jurisdiction the bankruptcy court has the power to sift the circumstances surrounding any claim to see that injustice or unfairness is not done in administration of the bankrupt estate. And its duty so to do is especially clear when the claim seeking allowance accrues to the benefit of an officer, director, or stockholder. (Footnotes omitted.)
Pepper v. Litton, 308 U.S. 295, 306-08, 60 S.Ct. 238, 245-46, 84 L.Ed. 281 (1939).
(7) The Franklin claim will be allowed as an unsecured claim in the amount of $89,-000.00, the actual value of the property transferred to the debtor corporation.
. Franklin held 50% of the stock, Boyd and McNeil 25% each.
. This deed of trust was not recorded until February 17, 1982, within 90 days of the filing of an involuntary petition in bankruptcy against the debtor. In adversary proceeding No. 3-82-0909 this court avoided the transfer as a preference, 11 U.S.C.A. § 547(b) (1979). (See Judgment entered July 22, 1983.) Thus, any claim the Franklins have in this bankruptcy case is an unsecured claim.
. A $100,000.00 construction loan, obtained from the First National Bank of Sullivan County, was secured by a deed of trust on the 6-acre tract. This deed of trust together with a replacement deed of trust on the 6-acre tract were held by this court to contain defective acknowledgments and were subordinated to the lien rights of the trustee. In re Airport-81 Nursing Care, Inc., 29 B.R. 501, 507 (Bkrtcy.E. D.Tenn.1983).
. See Exh. 1 introduced at the hearing on December 6, 1983.
. In the bankruptcy case, Mr. Boyd filed a proof of claim in the amount of $135,000.00 for “legal fees” which, after hearing upon the trustee’s objections, was disallowed.
. McNeil’s Company, Cassel Brothers, was the subject of a state court liquidation proceeding. Charles M. McNeil filed a voluntary petition in bankruptcy on September 8, 1980, case No. 3-80-01159.
.On January 12, 1984, the trustee filed an adversary proceeding against Patsy Franklin et al, regarding another purported lien on the .52-acre tract, adversary proc. No. 3-84-0010. That action is awaiting answers of the defendants. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489758/ | MEMORANDUM DECISION AND ORDER
M.S. YOUNG, Bankruptcy Judge.
This matter is presently before the Court on cross-motions for summary judgment. The facts are not in dispute.
On September 1, 1978, defendants sold certain real property to Bear Lake West, Inc. pursuant to a contract of sale. Bear Lake West executed a deed of trust naming defendants as beneficiaries, which instrument secured performance of the purchase agreement including payment of $98,000.00. The property involved, described in both the contract of sale and the deed of trust, consisted of three parcels aggregating some 69.7 acres. The contract between the parties stated in Paragraph C. of section II:
“C. Waiver of Restriction. The parties hereby acknowledge the actual acreage of the property exceeds 20 acres and is not within the city limits of any incorporated village or city within the State of Idaho, and notwithstanding these facts, the parties desire to use a Deed of Trust covering said real property to secure all monies due to seller from purchaser and both
parties hereby represent and state that the statement in said Deed of Trust to the fact that the real property involved does not exceed 20 acres shall be conclusively binding upon the parties as specifically provided in Idaho Code, § 45-1502(5).”
The deed of trust, however, did not contain the necessary language under I.C. 45-1502(5)1 but, rather, reflected the actual size of the parcels as aggregated above. There is no doubt that, had it contained such language, the trust deed would be valid and enforceable.
Plaintiff, the reorganized debtor, filed this action seeking to avoid the secured interest of the defendants as a hypothetical bona fide purchaser under § 544(a)(3) of the Code. Idaho Code 45-1502(3) defines a trust deed as: “a deed executed in conformity with this act and conveying real property to a trustee in trust to secure the performance of an obligation of the grantor or other person named in the deed to a beneficiary.” Plaintiff argues that the instrument herein is not “in conformity with” the trust deed act since the property subject to conveyance to the trustee exceeds the 20 acre limit of, and fails to contain the “statement” bringing it within, I.C. 45-1502(5). Thus, plaintiff argues, the deed of trust is “void.”
There is nothing in Chapter 15 of Title 45 of the Idaho Code, nor case law, specifying the result flowing from the failure of a deed of trust to comport with the requirements of § 45-1502 in the particular manner as occurred here. The Idaho Legislature did not state in enacting the trust deed act that a deed under that act for an acreage in excess of the amount specified in § 45-1502(5) would be void, ineligible for
*415recordation, or ineffective to effect a pledge of the property for purposes of securing performance of the purchase obligation. To the contrary, the Idaho statute provides that acreage in excess of 20 acres may be pledged as security under the provisions of Chapter 15, Title 45, if the parties merely state that the acreage limitation has been observed regardless of the true state of the facts. This provision, whereby a conclusionary pro forma statement can effectively alter the “intended” limit on the scope of the trust deed act, led this Court to state in In re Ranchero Motor Inn, Inc., BK No. 70-640 (BC D.Id.1971):
“[t]hat the trust deed of Utah Mortgage Loan Corporation is a valid instrument entitled to be recorded under the laws of Idaho, and as such gave constructive notice to the lien creditors of its contents. My basic reason for so holding is that Section 45-1502(5), I.C., is so ambiguous that it must be read literally. It says that where the trust deed ‘states that the real property involved is within either of the above provisions, such statement shall be binding upon all parties and conclusive as to compliance with this act relative to the power to make such transfer and trust and power of sale conferred in the act.’ The deed in question stated that the property did not exceed 3 acres in size, thus the terms of 45-1502(5), I.C., are met. I am sure that the legislature may have intended to restrict the use of trust deeds to urban transactions and acreages under 20 acres, but they did not do so. The legislature did not say a deed for an acreage in excess of that amount would be void, or not eligible for recordation, or not effective for any purpose. The deed in question was properly acknowledged and met all the requirements of the recording statutes. As such, I conclude it was constructive notice of its contents.” [Emphasis in original]
That decision, and its holding that a trust deed so “stating” is effective even if the acreage involved is larger than that covered by the statute and/or outside an urban area, was affirmed by U.S. District Court Judge Ray McNichols. Judge McNichols
noted, as did I, that the statute does not make “void” trust deed instruments concerning acreage in excess of the statutory limit.
It is true that Ranchero, supra, concerned a situation where the trust deed contained the exculpatory language countenanced by I.C. 45-1502(5). The instrument herein does not, though it does incorporate by reference the contract of sale which itself ■clearly manifests the intent of the parties to come within that section. Though incorporated, the contract itself was not recorded.
It appears to me that the Idaho Legislature and the Idaho Supreme Court have approved three methods for effecting and documenting a lien on land: mortgages, trust deeds, and installment land purchase contracts. See Rush v. Anestos, 104 Idaho 630, 633-34, 661 P.2d 1229 (1983); Ellis v. Butterfield, 98 Idaho 644, 646-47, 570 P.2d 1334 (1977). The differences between the methods are, theoretically, clear. Id. The benefit of the trust deed process over mortgages is that the creditor is entitled to nonjudicial foreclosure, i.e., a power of sale, and elimination of the one year period of redemption provided to a mortgagor. See I.C. 45-1508; Roos v. Belcher, 79 Idaho 473, 321 P.2d 210 (1958). The limitation on use of the trust deed process stems from the agricultural constituency of the Idaho Legislature; there is a manifest intent that the requirement of judicial foreclosure and the right of one year redemption be retained for farm-sized parcels not within the boundaries of incorporated areas. Yet the legislature enabled parties desiring to use the trust deed process to waive the protection of the mortgage and foreclosure process requiring only that they allege the acreage and location limitations were met even though such was not the case. Thus, it would appear that, regardless of form, Idaho law conceives of the trust deed process as merely a contractual alternative to a mortgage. The Idaho Court has recently stated as much in the case of Long v. Williams, 105 Idaho 585, 671 P.2d 1048 (1983):
*416“The issue thus presented is whether a deed of trust conveys all legal title to the trustee, or whether the passage of title to that trustee is, for practical purposes, in the nature of a mortgage with a power of sale.”
Upon citing at length from Bank of Italy Nat. Trust and Savings Assn. v. Bentley, 217 Cal. 644, 20 P.2d 940, at 944 (1933), the court held:
“Therefore, we hold that, even though title passes for the purpose of the trust, a deed of trust is for practical purposes only a mortgage with power of sale.’’ [Emphasis added.]
Supra, 671 P.2d at 1050-51.
Though certainly not clear of doubt, I conclude that under Idaho law a trust deed defective in the manner presented here would be treated as a mortgage, the creditor losing only the right to nonjudicial foreclosure and the shorter 120 day period of cure as opposed to one year post-foreclosure period of redemption. Because I conclude the trust deed in question would be recognized as a mortgage by Idaho law, its recor-dation is constructive notice of the beneficiary’s lien, which would protect its rights as against subsequent purchasers or encum-brancers.
Plaintiffs motion for summary judgment will be and is hereby denied, and defendants’ motion for summary judgment granted. Counsel for defendants may prepare judgment accordingly.
IT IS SO ORDERED.
. I.C. 45-1502(5) provides:
“ ‘Real property’ means any right, title, interest and claim in and to real property owned by the grantor at the date of execution of the deed of trust or acquired thereafter by said grantor or his successors in interest. Provided, nevertheless, real property as so defined which may be transferred in trust under this act shall be limited to either (a) any real property located within an incorporated city or village at the time of the transfer, or (b) any real property not exceeding twenty (20) acres, regardless of its location, and in either event where the trust deed states that the real property involved is within either of the above provisions, such statement shall be binding upon all parties and conclusive as to compliance with the provisions of this act relative to the power to make such transfer and trust and power of sale conferred in this act.” | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489759/ | ORDER DENYING MOTION TO ALTER OR AMEND OR IN THE ALTERNATIVE FOR A NEW HEARING
JON J. CHINEN, Bankruptcy Judge.
By the instant Motion to Alter or Amend or in the Alternative for New Hearing, Robert W. Hall, debtor herein, seeks to have this Court amend its Order Granting Motion to Modify Stay entered January 17, 1984, or in the alternative to rehear the motion. Although the instant motion is brought before the Court pursuant to Federal Rules of Civil Procedure 62, made applicable in bankruptcy proceedings pursuant to Bankruptcy Rule 7062, Mr. Hall is apparently also requesting relief pursuant to FRCP 59(a) and (e), made applicable in bankruptcy proceedings pursuant to Bankruptcy Rule 9023.
Having reviewed the record herein, including the Motion to Modify Stay filed herein on January 9, 1984 by Randall Y.C. Ching, Esq., counsel for TransNational Airlines of Hawaii, Inc., and Swift Delivery and Air Freight, Inc.; the Trustee’s Posi*420tion Re Motion to Modify Stay, filed herein on January 13, 1984 by Erik R. Zen, Esq., counsel for Trustee Michael Anthony Marr; debtor’s Motion to Dismiss Ex Parte Motion to Shorten Time for Motion to Modify Stay and Motion to Dismiss Motion to Modify Stay, filed herein on January 16, 1984; the Order Granting Motion to Modify Stay, entered herein on January 17, 1984 after a hearing before the undersigned Judge on January 16, 1984, being fully apprised of the record and the issues herein, having heard the argument of counsel and debtor, the Court finds that debtor has not brought forth sufficient justification, as required under Rule 59(e) to amend or alter the Order or pursuant to Rule 59(a) to grant a new hearing.
Rule 59(e) provides for amendment of judgments for various types of relief, including ...
to alter the dismissal from one without prejudice to a dismissal with prejudice, and vice versa; to include an award of costs; in regard to time and conditions as to payment of a master; to include therein a conclusion of law previously adopted by the court; to vacate judgment of dismissal and amend the complaint; to vacate a dismissal for want of jurisdiction and amend the complaint to clarify the jurisdictional issue, and for other similar types of relief.
6A J. Moore, Moore's Federal Practice ¶ 59.12[1] (2nd ed. 1983) (footnotes omitted).
Rule 59(a) states that a new trial may be granted “(2) in an action tried without a jury, for any of the reasons for which rehearings have heretofore been granted in suits in equity in the courts of the United States.” The decision whether to grant a new trial is left to the judicial discretion of the Court, within the following guidelines:
Just as at law, a rehearing in equity and its present counterpart, a new trial in a court action, will not lie merely to reliti-gate old matter; nor will a new trial normally be granted to enable the mov-ant to present his case under a different theory than he adopted at the former trial. As a practical matter, in equity formerly and in court actions now, three grounds for new trial are most common: manifest error of law or fact, and newly discovered evidence. Moore’s Manual: Federal Practice, ¶ 24.01(2) (Yol. 2, 1983).
The Order which debtor seeks this Court to amend merely allows defendants, in a suit abandoned by the bankruptcy trustee and brought by debtor in state court, to raise counter claims in that action against debtor for determination in that forum, reserving for determination by the Bankruptcy Court the issue of dischargeability of any judgment against debtor and requiring the approval of the Bankruptcy Court for execution of any judgment resulting from the state court proceedings. The assertions made by debtor in the instant motion do not constitute grounds for amending or vacating the Order entered, and this Court hereby Denies the Motion to Alter or Amend or In The Alternative for New Hearing. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489760/ | MEMORANDUM OPINION
BENJAMIN E. FRANKLIN, Bankruptcy Judge.
This matter came on for trial on September 22, 1982, upon a Complaint to Determine Dischargeability under 11 U.S.C. § 523(a)(5). Debtor/defendant, Donald Eugene Benz, appeared in person and by his attorney, Byron C. Loudon, of McDowell, Rice & Smith, Chartered. Plaintiff, Kate B. Benz, appeared by her attorney, J. Bradley Short, of Nugent & Short, Chartered.
The parties did not present evidence and agreed to submit the matter on briefs. The issue herein is whether an award of attorney fees in a divorce decree is dischargeable under 11 U.S.C. § 523(a)(5). The parties have submitted memoranda and the matter is ready for resolution.
FINDINGS OF FACT
The facts are virtually undisputed. Based on the pleadings, file, statements of counsel, and taking judicial notice of the parties’ divorce proceedings in the District Court of Johnson County, Kansas, Case No. 83507, the Court finds as follows:
1. That this Court has jurisdiction over the parties and the subject matter pursuant to Rule 42 of the United States District Court, District of Kansas; and that venue is proper.
2. That Mr. Benz filed a Chapter 7 petition herein on May 27, 1982; and he received a discharge on October 28, 1982.
3.That Mr. & Mrs. Benz were divorced on March 13, 1981, after a protracted and bitterly contested proceeding.1 Mrs. Benz was granted custody of their two children. Other pertinent provisions of the divorce decree were as follows:
“5. Defendant is ordered to pay to the plaintiff, through the Office of the Trustee of the Johnson County District Court, the sum of $100.00 per month as alimony, said payments to commence on April 1, 1981, and to continue thereafter for a term of five years or until the plaintiff’s earlier death, remarriage or continuing conjugal cohabitation with a male person.
6. Defendant is ordered to pay to the plaintiff, through the Office of the Trustee of the District Court of Johnson County, Kansas, the sum of $180.00 per month, as child support for the minor children of the parties, commencing April 1, 1981, and continuing thereafter with an identical payment on the 1st of each and every month during the minority of the children, unless modified by further order of the Court.
7. Defendant shall forthwith obtain and shall thereafter maintain in effect, Blue Cross and Blue Shield Hospital and Medical Insurance coverage for the minor children of the parties, at defendant’sj expense. Any medical expenses of the children not payable by such insurance shall be paid 50% by each of the parties hereto. Defendant shall furnish proof of the existence of such insurance coverage to the plaintiff and shall supply her with any identification cards which may be necessary to obtain the benefit of such insurance for the children.
* * * * * *
10. The defendant is hereby awarded all of the interest of the parties in the business enterprise known as ‘Read-Rite Lamps, A Division of Benz Industries’, free and clear of any interest of the plaintiff.
11. The defendant is hereby ordered to pay, in a timely fashion, all of the
*493
debts of the parties existing on April 10, 1979, plus all debts incurred by the defendant since April 10, 1979, without contribution by the plaintiff.
13. Plaintiff is granted judgment against the defendant in the sum of $4,000.00 as partial reimbursement
2
of her legal fees expense in connection with this cause. In view of the defendant’s financial condition (and subject to further order of the Court upon a review of the defendant’s financial condition) execution upon this judgment shall be stayed so long as defendant shall pay not less than $25.00 per month to plaintiff’s attorneys, Nugent and Short, Chartered, of Overland Park, Kansas, in partial satisfaction of said judgment, said payments to commence April 1, 1981, and to continue thereafter at the rate of at least $25.00 per month on the first of each and every succeeding month until the full amount, together with accrued interest, shall have been paid.”
4. That Johnson County, Kansas District Court Judge Herbert Walton also filed a memorandum decision. Pertinent findings in his decision were as follows:
“6. The plaintiff has been deaf since birth and suffers from a condition known as ‘retinitis pigmentosa’ which restricts her peripheral vision, and which may, at some point in the future, result in the plaintiff’s blindness, although her condition appears to be relatively stable and non-progressive at this time.
12. Mr. Benz currently ‘draws’ $1,000.00 a month as ‘owner’ of Read-Rite Lamps. Mrs. Benz has never received a salary or ‘draw’ for her work in the business enterprise.
50. That the plaintiff receives disability income from the Social Security Administration of $399.00 a month and is working part time for the Unitarian All Souls Church where she makes approximately $50.00 a month. That she does have skills to find regular employment and would be a very dependable employee. However, her prognosis is guarded due to her deafness and to a limited degree by her vision problems that are presently in remission. Yet, she should be able to find a job to pay the minimum wage of $3.20 per hour. That plaintiff listed needs in her form 139 of $692.50 a month without apartment rental of $400.00 or a total of $1,092.50. That some of the items can be reduced on an austerity approach. Yet, her needs are approximately $900.00 a month. That she has been receiving some financial assistance from her aunt and her mother which she testified was not a gift but a loan that would have to be re-paid.
51. That the defendant listed needs of $964.00 a month. That he presently draws $1,000.00 a month from his corporation that is far in debt and is on a wage earner plan. The Court finds that his listed needs are reasonable but that he can modify same under a strict austerity life style of approximately $900.00 a month. In addition, there is the slim hope that the corporation will do better in the future and that he can provide more for the plaintiff and the minor children.
Section 7. Attorney Fees.
(b) Plaintiff’s Counsel. This aspect of the decision gave the Court considerable difficulty. The Court does not dispute the extensive time that Mr. Short has rendered in this case. However, there is simply not enough money or property in this case to justify that amount of an attorney fee. The Court has come to the conclusion that a total fee of $4,000.00 to be reasonable to be paid by defendant. At this time the defendant can not pay more than $25.00 a month on same and address the other obligations of this decision. As long as that amount is paid the
*494
Court will stay execution thereon subject to an examination of defendant revealing an improved financial condition.”
5. That in a Journal Entry and Order re Defendant’s Motion to Alter or Amend Judgment, Judge Walton added:
“1. The judgment granted to plaintiff against defendant for partial reimbursement of her legal expenses and costs in connection with this cause, in the principal sum of $4,000.00, shall bear simple interest at the rate of 8% per annum from March 18, 1981, until paid in full.
3. Plaintiff is hereby granted judgment against the defendant in the sum of $250.00 as partial reimbursement to plaintiff for her additional reasonable attorneys fees incurred in connection with defendant’s motion to alter or amend.”
CONCLUSIONS OF LAW
Section 523(a) states as follows:
Ҥ 523. Exceptions to Discharge.
(a) A discharge under section 127,1141, or 1328(b) of this title does not discharge an individual debtor from any debt—
(5) to a spouse, former spouse, or child of the debtor, for alimony to, maintenance for, or support of both spouse or child, in connection with a separation . agreement, divorce decree, or property settlement agreement, but not to the extent that—
(A) such debt is assigned to another entity, voluntarily, by operation of law, or otherwise; or
(B) such debt includes a liability designed as alimony, maintenance, or support, unless such liability is actually in the nature of alimony, maintenance, or support;”
Mr. Benz contends that the $4,250.00 in judgments against him for attorney fees is dischargeable because it is not in the nature of alimony, maintenance, or support and because it was assigned to Mrs. Benz’s attorneys.
With respect to the first contention, in determining the nature of an attorney fee award, this Court is not bound by the divorce decree or state law characterizations because “... What constitutes alimony, maintenance, or support, will be determined under the bankruptcy laws...” (H.R. 95-595, 95th Cong., 1st Sess., p. 364 (1977), U.S.Code Cong. & Admin.News 1978, pp. 5787, 6320. However, this Court looks to state law and particularly the decree, for guidance.
The applicable statute in Kansas is K.S.A. 1980 Supp. 60-1610(g). That section states:
“A decree in an action under this article
may include orders on the following matters:
(g) Costs and fees. Costs and attorneys’ fees may be awarded to either party as justice and equity may require.”
Kansas courts generally consider the parties’ relative financial abilities and needs, among other factors. See Moran v. Moran, 196 Kan. 380, 411 P.2d 677 (1966); Dunn v. Dunn, 2 Kan.App.2d 347, 595 P.2d 349 (1979); Neis v. Neis, 3 Kan.App.2d 589, 599 P.2d 305 (1979).
This Court has heretofore ruled that an attorney fee award is in the nature of alimony, maintenance or support when the recipient ápouse is in such dire financial need that that spouse can not pay the attorney fee and its basic living expenses. See In re Rank, 12 B.R. 418, 8 B.C.D. 76, CCH 168,400 (Bkrtcy.D.Kan.1981).
Here, Judge Walton of the District Court of Johnson County, Kansas found, in essence, that Mrs. Benz was in dire financial need. She had basic needs of $900.00 a month but income of $450.00. Mr. Benz, on the other hand, had needs of $900.00 a month and income of $1,000.00 a month from his business. Judge Walton found that Mr. Benz could pay $280.00 a month in alimony and child support. He further found that Mr. Benz should pay all joint marital debts and the children’s health insurance. Moreover, Judge Walton indi*495cated that the alimony and support was minimal, but limited by Mr. Benz’s financial circumstances:
“In addition, there is the slim hope that the corporation will do better in the future and that he can provide more for the plaintiff and the minor children.”
This Court concludes from Judge Walton’s detailed findings that Mrs. Benz was in such dire financial need that the attorney fee award was in the nature of alimony, maintenance, or support.
Mr. Benz contends that the attorney fee award was assigned to Mrs. Benz’s attorney and thus is dischargeable. This Court has previously ruled that an attorney fee award that is in the nature of alimony, maintenance or support is not rendered discharge-able simply because the divorce decree makes the fee payable to the attorney, rather than to the spouse. In re Rank, 12 B.R. 418, 8 B.C.D. 76, CCH ¶ 68,400. Although this Court had previously applied the assignment exception in § 523(a)(5)(A) to an attorney fee awarded directly to the attorney, (see In re Crawford, 8 B.R. 552 (Bkrtcy.D.Kan.1981), this Court explained in the Rank decision that Crawford was distinguishable because in Crawford, the attorney fee award was not in the nature of alimony, maintenance or support; and that, alone, made the attorney fee award dis-chargeable. Also see In re King, 15 B.R. 127, CCH ¶ 68,603 (Bkrtcy.D.Kan.1981).
As previously explained in Rank, this Court thinks that the substance of the debt rather than the form should control. When the debtor’s spouse is in such dire financial need that the attorney fee award is substantively alimony, maintenance or support, the fee award should not be rendered dischargeable because the divorce decree makes it payable to the attorney. Judges undoubtedly structure divorce decrees with the incompatibility of the parties in mind. It is simply more convenient and pragmatic to make the fee payable to the attorney rather than to the spouse; just as it is pragmatic to make child support payable through the office of the Trustee of the District Court. Such measures, designed to avoid delay or nonpayment, should not destroy the clear policy and mandate of the Bankruptcy Code that alimony, child support, maintenance and debts in the nature thereof are not dischargeable.
The assignment exception should only be applied when the debtor’s spouse expressly assigns the debt, for consideration, to another entity. Here there has been no express assignment. In fact, Mrs. Benz still owns the judgment. The divorce decree simply provides that as long as Mr. Benz pays $25.00 per month to her attorney, Mrs. Benz is stayed from executing on the judgment.
Accordingly, the $4,000.00 and $250.00 judgments against Mr. Benz for attorney fees are nondischargeable. However, this Court finds that the $4,000.00 judgment should not bear interest. Judge Walton found that Mr. Benz could only afford to pay $25.00 a month on that judgment. If interest were allowed Mr. Benz would never be able to reduce the principal amount of the judgment. Therefore, the accrued interest is discharged.
The Court finds that Mr. Benz must pay the $4,250.00 in judgments (less the total monthly payments made to date).
THIS MEMORANDUM SHALL CONSTITUTE MY FINDINGS OF FACT AND CONCLUSIONS OF LAW UNDER BANKRUPTCY RULE 752 AND RULE 52(a) OF THE FEDERAL RULES OF CIVIL PROCEDURE.
. Mrs. Benz was the plaintiff and Mr. Benz the defendant in the divorce proceedings.
. Mrs. Benz had paid part other attorneys’ fees with funds borrowed from friends and family. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489766/ | OPINION AND ORDER
WALTER J. KRASNIEWSKI, Bankruptcy Judge.
This matter is before the Court upon the motion of the Defendant/Trustee, Quentin M. Derryberry, II, to dismiss the complaint of The Toledo Trust Company for an injunction. Treating the Trustee’s motion as a motion for summary judgment under Rule 56 Fed.R.Civ.P., the Court finds that there is no genuine issue of material fact and that the Trustee is entitled to judgment as a matter of law.
FACTUAL BACKGROUND
The Debtors, James Ross Hartley and Sharon Lee Hartley, filed a voluntary petition for relief under Chapter 7 of the Bankruptcy Code on September 8,1981. Quentin M. Derryberry, II was appointed as trustee of the estate of the debtors under § 701 of the Bankruptcy Code and at all times herein relevant was the duly qualified and acting trustee.
Sometime after his appointment, the Trustee began an investigation into an alleged check kiting scheme involving debtors, as proprietors of a trucking business, and several banks from Ohio, Indiana, Illinois, and elsewhere. In September of 1982, at a meeting between the Trustee and representatives of several of the banks, the Trustee asserted that the banks allegedly involved in the check kiting scheme had liability to the estate for losses suffered by the creditors of the Hartleys’ estate. In a letter to Toledo Trust, successor by merger to the Peoples Bank of Carey, the Trustee made a claim against Toledo Trust for 5.6 million dollars based on the alleged involvement of the Peoples Bank of Carey in the check kiting scheme. If Toledo Trust failed to meet the Trustee’s demand, the letter indicated that litigation on the claim would be commenced in the United States District Court for the Western District of Pennsylvania.
On November 12, 1982 Toledo Trust filed the present complaint against the Trustee asserting that, by investigating and threatening to institute a lawsuit against Toledo Trust for which no relief can be granted, the Trustee is unlawfully dissipating assets of the estate in derogation of his duties *596under the Code. Toledo Trust, as a creditor of the estate, seeks a preliminary and permanent injunction prohibiting the Trustee from investigating, threatening to institute or instituting any action against Toledo Trust based on the allegedly deficient claim.
Earlier, in May of 1982, the Trustee filed an application for instructions and advice with the Court seeking authority to accept money from certain creditors of the estate for the purpose of pursuing certain litigation on behalf of the estate. After notice to all creditors of such application, the Court entered an order in June of 1982 which, among other things, authorized the Trustee to accept the proffered money as unsecured borrowings under § 364 of the Code entitled to administrative expense priority.
DISCUSSION
• The motion to dismiss states that the complaint fails to state a claim upon which relief can be granted. According to the Trustee, the complaint of Toledo Trust unlawfully seeks to enjoin the Trustee from performing his statutorily mandated duty under § 704(3) of the Bankruptcy Code of investigating the financial affairs of the debtors. Alternatively, the Trustee asserts that he has already received specific authority to initiate the investigation in question by virtue of the Court’s previously entered order pursuant to his application for instructions and advice.
Toledo Trust responds that it is not seeking to enjoin the lawful investigative activities of the Trustee, but the specifically threatened lawsuit arising out of the alleged check kiting activity. Toledo Trust asserts standing as a creditor of the estate to enjoin the lawsuit since, in its opinion, the threatened suit is legally insufficient and will result, through costs and expenses of litigation, in dissipation of estate assets. The Trustee, it is argued, should be required to show probable cause that he has a viable cause of action to assert. Arguing that any liability resulting from a check kiting scheme is one that belongs to specific creditors and is not enforceable on behalf of creditors by the Trustee, Toledo Trust asserts such probable cause can not be shown by the Trustee.
Although Toledo Trust has specifically denied that it seeks an injunction against any of the investigating activities of the Trustee, since such relief is prayed for in its complaint, the Court will briefly address this question. The Court is aware of no authority under the Bankruptcy Code that places limits on any lawful investigation by the trustee in bankruptcy. Section 704(3) mandates that the trustee investigate the financial affairs of the debtor. Furthermore, under the Bankruptcy Code, the trustee is to undertake such investigation “without any direction or order from the court ...” 4 Collier on Bankruptcy 1704.07 at 704-17 (15th ed. 1979). The Court therefore specifically rejects the notion that the trustee can be enjoined from pursuing any lawful investigatory activities.
The Court also rejects the claim that it can enjoin any threatened lawsuit resulting from an investigation or require the Trustee to show probable cause as a precondition to initiation of any such litigation.
This action poses the issue of whether a creditor can enjoin the trustee in bankruptcy from initiating a lawsuit absent a showing of probable cause. The question of whether the trustee in bankruptcy can maintain a cause of action against a creditor due to its asserted negligent or intentional involvement in a check kiting scheme involving the debtor is simply not before the Court. While the Court concurs that it is doubtful as a general proposition, that any criminal activities of the debtor can redound to the benefit of the estate, but see Buttrey v. Merrill, Lynch, Pierce, Fenner, and Smith, Inc., 410 F.2d 135 (7th Cir.1969) (trustee had cause of action against brokerage firm resulting from bankrupt’s unlawful conversion of his customer’s funds), this proposition is not so broadly established as to preempt such a claim under any circumstances. The trustee has broad powers under the Bankruptcy Code. Under § 544(b) *597of the Code, for instance, he may avoid any transfer of an interest of the debtor in property that is voidable under applicable state or federal law. The Court is not so conversant with the multitude of claims maintainable under this section that it can definitively reject as yet unasserted and undefined claim in an advisory opinion. The merits of the Trustee’s claim, if any, against a third party should be determined in whatever forum the trustee eventually initiates his claim, see, Palmer v. Travelers Insurance Co., 319 F.2d 296 (5th Cir.1963), and should not be preempted by this Court.
As a final matter, the Court rejects the assertion that the Trustee should be required to show probable cause as a precondition to initiation of any such lawsuit. The authorities relied upon by plaintiff for such assertion, while recognizing paramount concern of the bankruptcy courts for conservation of the assets of the estate, do not stand for the proposition that a trustee must make an affirmative showing of probable cause as a precondition to undertaking litigation on behalf of the estate. In In re Crutcher Transfer Line, Inc., 20 B.R. 705 (Bkrtcy.W.D.Ky.1982), the court noted the probable cause requirement in the context of reviewing the compensability of an award of attorney’s fees under the Code. In In re Meadows, Williams & Co., 181 F. 911 (D.C.N.Y.1910), the court recognized that the trustee should have probable cause before initiating potentially burdensome litigation in the context of denying the majority creditors’ motion that the trustee settle a pending case in state court. Neither of these authorities would require the Court to undertake a predetermination of the viability of a claim the trustee might assert or require the trustee to obtain prior court approval before instituting litigation on such a claim.
Requiring the trustee to make an affirmative showing of probable cause is nowhere supported in the Bankruptcy Code. On the contrary, requiring the trustee to obtain court approval prior to initiation of litigation is inconsistent with the changed role of the bankruptcy judge under the Code. “Under the Code the judge is no longer a supervisor and advisor for trustees, but an impartial arbitrator of disputes which are properly brought before him.” In re Zeus Management Consultants, Inc., 27 B.R. 853, 854 (Bkrtcy.N.D.Ohio 1983).
The Court should not and will not rule on the merits of the Trustee’s claim, if any, other than in an appropriate adversarial proceeding initiated on the claim. Although the Trustee used the Court’s previous order on his application for “instructions and advice” as a token of the Court’s approval of his investigation and any resulting litigation, this order should not be construed in any other sense than the mere grant of authority to borrow money to fund the investigation and litigation.
There being no disputed issues of material fact, the trustee is entitled to judgment as a matter of law.
SO ORDERED. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489767/ | MEMORANDUM
GEORGE C. PAINE, II, Bankruptcy Judge.
This matter is before the court on the debtor J.D. Jones Bi-Rite Grocery’s (hereinafter “Bi-Rite”) complaint to determine the nature, extent and validity of the creditor Robert Tarpley's lien in certain real property located in Rutherford County, Tennessee. Upon consideration of the evidence presented at the hearing, stipulations, exhibits and briefs of the parties, this court concludes that the debtor’s complaint is premature and therefore should be dismissed without prejudice.
The following shall represent findings of fact and conclusions of law pursuant to Federal Rule of Bankruptcy Procedure 7052.
The debtor filed a voluntary Chapter 11 petition in this court on August 11, 1982, and initiated this adversary proceeding on March 30, 1983. The debtor essentially seeks to have the court value the creditor’s interest in the collateral in which he possesses a second lien. The debtor has not attacked the facial validity of the lien itself.
Upon review of the debtor’s complaint, this court finds no reason to determine the status of the creditor’s lien at this time. The debtor has presented no compelling explanation why the court should now resolve this issue. It is a well established principle that the value of a creditor’s collateral may vary substantially during the course of a bankruptcy case. 3 Collier on Bankruptcy ¶ 506.04, at 506-21 (15th ed. 1982). As Collier explains:
“[T]he amount of any claim secured by collateral of changeable value must be regarded as a ‘moving target’ and, in view of the potential significance of such amount at different stages of a bankruptcy case, may be an important and recurring issue in the case.”
3 Collier on Bankruptcy ¶ 506.04, at 506-18 (15th ed. 1982).
Even if the court were to now find the creditor’s claim unsecured, which is apparently what the debtor seeks to establish, this finding would not be binding if the value of the collateral subsequently increased and thereby rendered the creditor’s claim partially secured. Absent circumstances requiring the court to determine the extent of the creditor’s secured status, such as a request for relief from the stay or the treatment of the creditor’s claim under a proposed Chapter 11 plan, this court is of the opinion that the debtor’s complaint to determine the extent of the creditor’s lien in the property in question is premature.
The court will accordingly ORDER that the debtor’s complaint be dismissed without prejudice to refile at a later date. The debtor shall not be required to pay an additional filing fee should it decide to file another adversary proceeding concerning this matter.
IT IS, THEREFORE, SO ORDERED. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489768/ | MEMORANDUM
GEORGE C. PAINE, II, Bankruptcy Judge.
This matter is before the court on the motion of the debtor George Glenn Jones to compel the trustee to comply with the terms and conditions of the order entered by the United States District Court for the Middle District of Tennessee on September 2,1981. Upon consideration of the evidence presented at the hearing, stipulations, argument of counsel and the entire record, this court concludes that the debtor’s motion should be GRANTED.
The following shall represent findings of fact and conclusions of law pursuant to Rule 752 of the Federal Rules of Bankruptcy Procedure.1
*606The debtor filed a voluntary Chapter IV liquidation petition in this court on December 13,1978, which petition is now entering its fifth year of administration. Sometime after the filing of the petition, the trustee initiated a complaint objecting to the debt- or’s discharge pursuant to § 14c(2) and (7) [former 11 U.S.C. § 32(c)(2) & (7) (1976)] of the Bankruptcy Act of 1898, which provides that:
[t]he court shall grant the discharge unless satisfied that the bankrupt has ... (2) destroyed, mutilated, falsified, concealed, or failed to keep or preserve books of account or records, from which his financial condition and business transactions might be ascertained, unless the court deems such acts or failure to have been justified under all the circumstances of the case; or ... (7) has failed to explain satisfactorily any losses of assets or deficiency of assets to meet his liabilities; ...
In an extensive and detailed opinion, Bankruptcy Judge Russell H. Hippe, Jr. denied the debtor’s discharge on the grounds that the debtor inexcusably failed to produce records from which his business transactions and financial condition might be ascertained and failed to explain satisfactorily the losses of his substantial assets. Waldschmidt v. Jones, 23 COLLIER BANKR. CAS. (MB) 159, 170 (Bankr.M.D. Tenn.1980). This holding was reversed by District Judge Thomas Wiseman, Jr. Waldschmidt v. Jones, No. 81-3262 (M.D. Tenn. Sept. 2, 1981). Judge Wiseman’s decision to grant the debtor a discharge was, however, conditioned upon the debtor’s completion of a plan of arrangement previously proposed by the trustee and agreed to by the debtor. Judge Wiseman specifically held that “upon successful completion of said plan of arrangement that George Glenn Jones be granted a discharge and relieved of all claims, creditors, and obligations, not otherwise provided for in said plan of arrangement.” Waldschmidt v. Jones, No. 81-3262, slip op. at 1. The terms of the “plan of arrangement” which Judge Wiseman adopted are as follows:
PLAN OF ARRANGEMENT
CLASSES OF CREDITORS
1. All administrative expenses, including the referee’s salary and expense fund, attorney’s fees, and trustee’s fees.
2. Wage claims.
3. Tax claims.
4. Secured creditors.
5. Unsecured creditors whose claims are based on actual loss.
6. Unsecured creditors whose claims are based on lost potential profits or missed show dates by George Glenn Jones.
PAYMENT OF FUNDS TO TRUSTEE
The bankrupt, by and through his agent, manager, or attorneys, will pay or cause to be paid to the trustee $5,000.00 per month to be held by the trustee in escrow for distribution to creditors.
Payment will be made by the trustee at least once each quarter, hereinafter set forth to creditors.
DISBURSEMENTS BY TRUSTEE
From the funds received by the trustee, distributions will be made according to the following priority:
1. All administrative expenses, including referee’s salary and expense fund, trustee’s fees, attorney’s fees, will be paid as they become due and payable. Attorneys’ fees will be paid upon application to the Court and approval by the Court, and the trustee’s fees will be set forth by the Court upon application by the trustee. The referee’s salary and expense fund will be paid quarterly from the funds received by the trustee.
3. [Sic] From the funds exceeding the priority class, distributions will be made in the following priority:
1. Wage claims.
*6072. Tax claims.
3. Unsecured claims based on actual loss.
4. Unsecured claims based on lost potential profits or missed show dates by George Glenn Jones.
All disbursements will be made per capita within each class, and no payment will be made to the lessor priority classes until each superior class is paid completely in accordance with the plan.
MISCELLANEOUS PROVISIONS
The Bankruptcy Court will continue to have jurisdiction over this proceeding upon remand and this plan of arrangement, and the trustee will be responsible for submitting quarterly reports to the Court in order to assure that the plan of arrangement is being successfully adhered to by the bankrupt. All applications for fees shall be made to the Court within one month subsequent to the entry of this Order permitting this plan of arrangement.
The trustee and the bankrupt will be given sixty days from the entry of this Order permitting this plan to file objections to any and all claims which have been filed with the Court, and only the properly allowable claims will be paid through this plan.
Nothing contained within this plan shall prevent the bankrupt from prepaying all or a portion of the creditors entitled to payment herein, nor shall anything contained in this plan prevent the bankrupt from compromising and settling any claims in a manner separate and apart from this plan of arrangement, so long as said creditor executes an agreement of withdrawal of claim.
In sum, Judge Wiseman instituted a plan of repayment, similar in several respects to plans of reorganization proposed under either Chapters 11 or 13 of the Bankruptcy Code, in lieu of the debtor’s liquidation petition. He then remanded the case to this court for administration and further adjudication as necessary. This court is, therefore, bound to insure that all parties comply with the provisions set forth in this plan.
The plan of arrangement, which has been in effect for more than two years now, has apparently proceeded without complication up until this time. According to the trustee, the debtor has paid $125,000 to the trustee pursuant to the plan. The record indicates that nearly all this sum has been distributed as provided for by the plan. The trustee has also received during the course of his administration money from other sources totaling over $31,000. The trustee has disbursed $2,506.35 of this fund and is currently holding the remaining amount, which is approximately $28,500. The trustee testified that he could not project the date of the completion of the debtor’s plan since two or three claims have not as yet been liquidated.
The issues presented by the debtor’s motion and the trustee’s response to this motion are twofold. The initial question is whether the funds obtained from sources other than the debtor’s payments into the plan should be distributed under the plan. A second question, indirectly raised in the debtor’s motion and set forth in the trustee’s response, is when claims should be paid under the plan. In particular, the trustee is concerned about when to pay administrative expenses, which he states cannot be accurately determined until the final meeting of creditors, and whether the plan of arrangement would permit this court to extend the time to file claims against any surplus funds contained in the estate pursuant to Federal Rule of Bankruptcy Procedure 302(e)(5).
In resolving these issues, the court is guided by the terms of the plan of arrangement itself, its perception of the purpose and goals of the plan and the provisions of the former Bankruptcy Act. Contrary to the allegations of the trustee, the court is convinced that the plan of arrangement was intended by Judge Wiseman to encompass the administration of the entire bankruptcy estate and, therefore, any funds received by the trustee, whether from the debtor or from other sources, should be *608distributed pursuant to the plan. The most convincing evidence of this intent are the provisions which provide that all administrative expenses incurred in the bankruptcy case and all allowed claims shall be paid under the plan. If all claims and expenses are paid under the plan, then any funds received by the trustee from sources other than the debtor’s payments would have to be turned over to the debtor upon completion of the plan. There is thus no reason why monies so received should not be used to fund the plan.
The trustee’s apprehension that insufficient funds will remain to pay administrative expenses is misplaced. The trustee need not disburse any money to creditors until he is certain that he has sufficient funds to pay all administrative expenses. The plan expressly provides that administrative expenses have first priority and no payment is to be made to lessor priority classes until these administrative expenses are completely paid. Waldschmidt v. Jones, No. 81-3262, slip op. at 3. Furthermore, the debtor has a strong incentive to contribute sufficient money to pay all administrative expenses in full because, if he does not, his discharge will be denied. The debtor has already paid $150,000 into the plan, and it is thus doubtful he will now default when the plan is so close to completion.
The remaining question concerning the possible allowance of presently unfiled claims is more difficult to resolve. Federal Rule of Bankruptcy Procedure 302(e)(5) provides that, if all allowed claims have been paid in full, this court may grant a reasonable, fixed extension of time for the filing of claims not filed against any remaining surplus in the estate. The problem in this case is that the funds available to the estate are undefinable. Pursuant to the plan, the debtor is required to pay the trustee $5,000 per month to be held in escrow for distribution to all creditors. The plan does not provide any date when such payments to the trustee shall end nor does it set a deadline for the filing of proofs of claims. Presumably, the deadline for the filing of claims is the one set under Federal Rule of Bankruptcy Procedure 302(e), which provides that all claims must be filed within six months after the first date set for the first meeting of creditors.
For a variety of reasons, this court concludes that creditors who have not yet filed claims in this bankruptcy case should be allowed an additional thirty-day period from the date of this order to file their proofs of claim. First and foremost, this court is convinced that Judge Wiseman intended the debtor to attempt to pay his creditors’ claims in full in order to receive the benefit of the discharge in bankruptcy. Secondly, at the time Judge Wiseman instituted this plan of arrangement in this liquidation case, the date for filing proofs of claim had long since past. The debtor’s first meeting of creditors was held on January 23, 1979, and the date for filing proofs of claim expired six months later. Creditors who, therefore, thought that there might be little or no dividend in this liquidation case and failed to file proofs of claim for that reason were never given the opportunity to file after Judge Wiseman instituted this plan of arrangement. Finally, since the plan does not specify a date when the debtor should cease payments to the trustee, this court can only assume that a surplus will always exist in the estate which would allow the court to extend the time for creditors who have not filed to file claims against the estate.
Therefore, pursuant to Rule 302(e)(5) and because of the uniqueness of this particular case, the court will enter an order allowing creditors who have not yet filed claims an additional thirty days from the date of this order to file a claim against the bankruptcy estate. Once this time period has expired, no further unfiled claims against this estate will be allowed. The court will further order that the debtor continue to pay the trustee $5,000 per month to be held by the trustee in escrow for distribution pursuant to the plan of arrangement. The trustee shall consider all funds he has obtained from whatever source subject to distribution under the plan and, as provided for by the plan, shall not be required to disburse *609any of these funds until he determines the exact amount of the administrative expenses incurred in this case. Once the additional period for filing of claims has expired and the trustee has determined the amount due on all filed claims, the trustee shall make a motion to this court to set the final meeting of creditors for this case.
IT IS, THEREFORE, SO ORDERED.
. Since this bankruptcy petition was filed under the former Bankruptcy Act, all procedural questions are governed by the former Rules of Bankruptcy Procedure instead of the new Bankruptcy Rules which apply in all cases initiated under the Bankruptcy Reform Act. See *606§ 403(a), 92 Stat. 2683; FED.R.BANKR.P. 1001. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489769/ | FINDINGS OF FACT, CONCLUSIONS OF LAW AND ORDER RE: CO-COMMISSIONERS’ COMPENSATION
JON J. CHINEN, Bankruptcy Judge.
There are two issues before this Court: (1) Whether State appointed co-commissioners should be compensated for their unsuccessful pre-petition efforts to sell a par*653cel of land pursuant to a decree of foreclosure.
(2) If the co-commissioners are deemed entitled to compensation, what should be the source and amount of the compensation.
A hearing was held on June 2, 1983. Present were Roy Kawamoto, Esq., and Franklin Tokioka, the co-commissioners, John Chanin, Esq., attorney for Debtor, Jerrold Guben, Esq., attorney for the Creditors’ Committee, John Moon, Esq., attorney for American Savings & Loan Association, Gregg Young, Esq., attorney for Orient Resources and Ronald Sakimura, Esq., attorney for Grosvenor International.
Based on the evidence adduced, the mem-oranda and records herein and arguments of counsel, the Court makes the following Findings of Fact and Conclusions of Law:
FINDINGS OF FACT
On August 18, 1981, Grosvenor International, hereafter “Grosvenor”, filed an action in the First Circuit Court, State of Hawaii, Civil No. 65917, to foreclose on its mortgage on the subject property. Grosve-nor requested that a commissioner be appointed and that he be authorized and directed to sell the subject property, which “will be used only for the purpose of developing and constructing thereon a condominium project of approximately 195 apartments. ...”
On September 9, 1981, the state court issued an Interlocutory Decree of Foreclosure which, among other things, (1) appointed Roy Kawamoto and Franklin M. Tokioka as co-commissioners, (2) ordered that the subject property “will be used only for the purpose of developing and constructing thereon a condominium project of approximately 195 apartments” and (3) that the subject property shall be sold at public auction with an upset price of $13,500,000 and that, if there were no bidders at the upset price, the property shall be sold at public auction, without an upset price, within thirty days after the first auction.
The first scheduled auction was held on October 23, 1981 with an upset price of $13,500,000 under the assumption that 195 units were the proper development capacity for the subject property. However, there were no bidders at this auction.
The second auction without an upset price was scheduled by the co-commissioners for November 23, 1981. However, four days prior to the auction, the Debtor applied for a temporary restraining order to stop the auction, alleging “erroneous advertising” on the part of the co-commissioners. Thereafter, an Amended Findings of Fact, Conclusions of Law, Order Granting Summary Judgment and for Interlocutory Decree of Foreclosure was filed on December 21, 1981. The amended form increased the number of possible condominium apartment units from 195 to 300 and expanded the possible use of the property to any use subject to approval by Wailea Development Company, the master owner, and the owner of the adjoining parcel. The auction was rescheduled for March 31, 1983.
Shortly before the rescheduled auction could be held, the Debtor filed for relief under Chapter 11 of the Bankruptcy Code. After a protracted proceeding, the subject property was sold at auction for approximately $6,500,000.00.
On July 6, 1982, the co-commissioners filed their Application by Co-Custodians for Interim Payment of Compensation and Costs requesting the sum of $45,524.00.
The creditors object to the co-commissioners’ application. They contend that the co-commissioners may be paid only for time spent in preserving the estate and, in the instant case, the co-commissioners did not preserve the estate.
The co-commissioners contend that they performed their duties to the best of their abilities pursuant to the orders of the state circuit court and, that they spent considerable time and money in an effort to auction the subject property.
CONCLUSIONS OF LAW
11 U.S.C. 503(b)(3)(E) provides that, after notice and a hearing, custodians pursuant to Sec. 543 may be allowed administrative ex*654penses. Sec. 543(c)(2) provides that reasonable compensation may be awarded custodians for services rendered and expenses incurred.
There is no dispute that a receiver appointed by a state court is a custodian within the meaning of 11 U.S.C. 101(10).” In re Left Guard of Madison, Inc., 11 B.R. 238 (Bkrtcy.Wisc.1981). Since the duties of a commissioner are substantially similar to those of a receiver, a commissioner is properly considered a custodian under the Bankruptcy Code.
The cases have held that custodians are to be compensated only for services that “preserve, protect or benefit” the estate. Randolph v. Scruggs, 190 U.S. 533, 23 S.Ct. 710, 47 L.Ed. 1165 (1933); In Re Med General, Inc., 17 B.R. 13 (Bkrtcy.Minn.1981).
The subject property is a vacant, unimproved lot, and as such there is not much to be preserved or protected. The co-commissioners, however, did advertise the subject property for sale and did contact various entities to emphasize the value of the property. To such extent, the co-commissioners did benefit the estate.
The Bankruptcy Court is a court of equity. 28 U.S.C. Sec. 1481. In the instant case, the proceedings in the state court were initiated by the creditors of Debtor and the' co-commissioners were appointed by the state court at the request of the creditors to sell the subject property at auction.
It was the creditors who stated that the subject property was subject to a limitation of 195 apartment units. The co-commissioners followed the recommendation of the creditors and the orders of the state circuit court. It is not now appropriate for the creditors to object to the fees requested by complaining that the co-commissioners had followed the orders of the state circuit court.
This Court in In Re Orchid Island Hotels, Inc., 18 B.R. 926 (Bkrtcy.Haw.1982), denied a receiver any compensation for pre-petition services. However, the Orchid Island case is distinguishable from the instant case in that, in the former, this Court found that the receiver had failed to perform his duties as required, mismanaged the estate’s fund and caused loss to the estate.
In the instant case, the co-commissioners in good faith, relying upon the orders of the state court, diligently expended time and effort to expose the subject property to the public in an attempt to obtain the best price possible. It is not their fault that the Debt- or filed its petition in the Bankruptcy Court on the day scheduled for the auction.
The Court finds that, under the circumstances of the instant case, the co-commissioners are entitled to a reasonable compensation for services rendered and expenses incurred.
The co-commissioners requested a total sum of $45,524.00 for a total of 185.55 hours for Kawamoto and 153.80 hours for Tokioka at $100.00 per hour. The Court, however, finds that the co-commissioners, in large part, duplicated the efforts of one another. Furthermore, much of the time listed was actually part of overhead expenditures. In particular, times for meetings and messenger services should have been included as overhead. Finally, there were also vague or improperly documented billings included in the timesheets.
Based on a review of the timesheets, the Court approves 120 hours for Kawamoto at $100.00 per hour for $12,000.00, plus $480.00 in excise tax, and 80 hours for Tokioka at $75.00 for $6000.00, plus $240.00 in excise tax. The Court also approves the expenses incurred in the sum of $12,000.00.
The Trustee is hereby authorized and ordered to pay the total sum as part of the administrative expenses. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489770/ | DECISION AND ORDER
CHARLES A. ANDERSON, Bankruptcy Judge.
PRELIMINARY PROCEDURE
This matter is before the court upon a complaint filed 18 February 1983, as amended on 29 March 1983, by Circle Management Services, Inc. (CMS) against Phillip Lawrence Wright, (the Debtor), et al.; the Answer filed by Debtor on 18 May 1983; the Case record and the evidence as stipulated and incorporated in a pretrial order entered 12 September 1983 and adduced at the trial on 17 October 1983.
FINDINGS OF FACT
The Debtor/Defendant filed a voluntary petition for relief pursuant to Chapter 13 of title 11, United States Code on 12 January 1983, proposing a Plan to pay over a period of 36 months the present value of all allowed secured claims and an amount not less than 3% to each allowed unsecured claim, to be funded by monthly payments of $250.00 each month. Seven creditors were scheduled with claims totalling $93,658.00, of which the total of $87,051.00 was unsecured. The major unsecured debts scheduled were $36,002.00 to CMS; federal income taxes of $3882.00 for 1980-1981 (payroll taxes), and $48,558.00 for 1970, 1976, 1978, 1979 (personal income taxes). Debtor lists employment as an accountant with take home pay $650.63 every two weeks. He previously was self-employed as a sales representative. He has three minor children dependents and a spouse who earns $1100.00 monthly. His submitted family budget lists monthly living expenses, not including debts to be paid under the plan, in the total amount of $2138.00.
The stipulation of uncontroverted facts by the parties reads, as follows:
“(a) That on or about September 28, 1977, Defendant, Phillip Lawrence Wright, was convicted of Grand Theft (Case No. 77-CR-931 Montgomery County, Ohio) for fraudulently obtaining over $20,000 from the Plaintiff as follows: (1) that in between February 26, 1976 and August 1, 1976, Plaintiff was requested by said Defendant to supply and payroll temporary personnel to work at H & H Broadcasters, Inc. dba WELX and WHBM radio stations. (2) that said Defendant during this time period advised Plaintiff that he would be supplying his own personnel and did in fact sign time cards and pay vouchers for eight individuals. (3) that Plaintiff did pay the salaries for these individuals based upon the representations of said Defendant. (4) that in truth there never was [sic] any individuals working for said Defendant and that he sign [sic] all the payroll checks and did use the proceeds therefrom for his own personal use with the exception of some $200 to $300 which was paid to various personnel by Defendant, (b) That on or about November 22, 1977, said Defendant received shock probation with the stipulation that he was to make restitution to the Plaintiff and that between November 22, 1977 and January 1, *6651983, he made 15 monthly payments to-talling $1,875 and still owes to Plaintiff approximately $35,996.69, which sum has been included in Defendant’s Chapter 13 Plan.”
Upon a guilty plea, the order in the criminal action sentenced the Debtor to imprisonment for “not less than two years nor more than five years”, effective October 6, 1977.
Jack E. Circle was sole stockholder of CMS, which he has since sold, netting only $10,200.00 therefrom. He testified that he has retired and his only current income is social security benefits. The debt owed by the Debtor was reduced to judgment in the state court on 21 January 1977; and the Chapter 13 petition was precipitated by a wage garnishment upon the judgment. Upon sale of his corporation after the Chapter 13 filing, Jack E. Circle became assignee of the judgment and is now the real party in interest. The restitution funds are desperately needed by him for living expenses, especially mortgage payments on his residence.
DECISION
The Debtor is obviously suffering from an impossible and imponderable financial situation arising from his previous business dealings, further complicated by the shock probation order, which leave insufficient economic means for the bare subsistence of himself and family. In the same vein, the failure of Debtor to make restitution as ordered by the state court has, in effect, placed in jeopardy payments by the victim (Jack E. Circle) on his home mortgage.
As a matter of factual interpretation, this court has on numerous occasions concluded that if a debtor meets the mandatory requirement of 11 U.S.C. § 1325(a)(4) that the plan be in the “best interests” of the unsecured creditors, good faith is not determined by the size of debt- or’s Chapter 13 contribution. Instead, there must also be submitted evidence aliunde of actual “bad faith”. See decision by this court in Matter of Berry, 5 B.R. 515, 6 B.C.D. 649, 2 C.B.C.2d 663 (Bkrtcy., S.D. Ohio 1980). We have also repeatedly held there are no mathematical formulas to determine good faith. St. Luke Parish Federal Credit Union v. Wourms, 14 B.R. 169 (Bkrtcy., S.D.Ohio 1981).
The nature of the debts must be considered, nevertheless, if only nominal repayment is contemplated. See decisions by this court in Wright State University v. Novak, 25 B.R. 459 (Bkrtcy.1982); Turpin v. Maupin, 26 B.R. 987, B.L.D. (CCH) ¶ 69102 (Bkrtcy.1983); and Margraf v. Oliver, 28 B.R. 420 (Bkrtcy.1983) involving adjudicated fraud (confirmation denied unless 100% repaid to the injured class).
The facts now sub judice demonstrate a critical situation confronting the Debtor who needs financial rehabilitation desperately. The amount of his Plan contributions from his earnings do not reflect upon his good faith, in light of his meagre earnings. Rather, questions of public policy and plan feasibility must be addressed.
He obviously has not complied with the restitution terms of the shock probation granted by the state criminal court. In light of the time lapse between the date of conviction (October 6,1977) and the date of filing under Chapter 13 (February 18,1983), there may be some constitutional prohibition to revocation of the probation after the expiration of the term of the sentence of imprisonment (two to five years). This question, however, should remain within the sphere of the state court jurisdiction. See annotation in 13 A.L.R. 4th 1240.
The facts demonstrate a socio-economic situation endemic in the bankruptcy court context, illustrating that relief from an overwhelming financial crisis may affect the lives of a debtor and his or her family more than incarceration for a definite and relatively short term. In this case the difference may be between less than two years (with probation) and literally a normal life span (already more than six years) of misery.
Obviously, the threat of revocation for an obvious and admitted failure to comply with the terms of the shock probation order *666reflects upon the feasibility of the plan payments of only 3% of the restitution debt. So long as the threat of revocation of probation is not resolved in the state court, the bankruptcy court should not make a finding that “the debtor will be able to make all payments under the plan and to comply with the plan”, conformably to the mandate of 11 U.S.C. § 1325(b).
In addition to this lack of feasibility, there is the necessity of considering the public policy aspects of confirming a Chapter 13 plan which countenances and condones the discharge of a sentence for a criminal act against the citizens of the State of Ohio. The shock probation on condition of restitution contemplated a rehabilitation process in lieu of incarceration for two to five years. An order of the bankruptcy court confirming a plan for payment of less than 100% of the criminal court sentence, as a class, before payment to secured creditors and other unsecured creditors, defeats the very purpose of rehabilitation as contemplated by both the criminal law and the Chapter 13 process. See decision by this court in Matter of Gaston, 25 B.R. 571, B.L.D. (CCH) 168.940 (Bkrtcy. 1982).
The generality of the public policy concept, although subject to semantical abuse, finds support in the teaching of the United States Court of Appeals of this circuit, in its opinion in Memphis Bank & Trust Co. v. Whitman 692 F.2d 427, 9 B.C.D. 1140 (CA-6, 1982). Quoting from page 432, the court broadly opined, as follows:
“Obviously the liberal provisions of the new Chapter 13 are subject to abuse, and courts must look closely at the debtor’s conduct before confirming a plan. We should not allow a debtor to obtain money, services or products from a seller by larceny, fraud or other forms of dishonesty and then keep his gain by filing a Chapter 13 petition within a few days of the wrong. To allow the debtor to profit from his own wrong in this way through the Chapter 13 process runs the risk of turning otherwise honest consumers and shopkeepers into knaves. The view that the Bankruptcy Court should not consider the debtor’s pre-plan conduct in incurring the debt appears to give too narrow an interpretation to the good faith requirement. See, e.g., Matter of Kull, 12 B.R. 654, 659 (S.D.Ga.1981) (among the facts a court should consider to determine whether a debtor has acted in good faith are “the circumstances under which the debtor contracted his debts and his demonstrated bona fides, or lack of same in dealing with his creditors.”)
One way to refuse to sanction the use of the bankruptcy court to carry out a basically dishonest scheme under Chapter 13 is to deny confirmation to the proposed plan. When the debtor’s conduct is dishonest, the plan simply should not be confirmed. Unless courts enforce this requirement, the debtor will be able to thwart the statutory policy denying discharge in Chapter 7 cases for dishonesty.”
The bankruptcy courts, despite the pervasive jurisdiction conferred, may interfere only as between private litigants to prevent the attempted abuse of the criminal process involving a bankruptcy court debt- or; but, this court has repeatedly held that “... it should not be the function and purpose of the bankruptcy court to interfere with the jurisdiction of the state court in criminal prosecutions, in the absence of any showing of ... the statutory criteria enunciated in aid of federal court jurisdiction by 28 U.S.C. § 2283.” Lawson v. Boczonadi, 22 B.R. 100 (Bkrtcy.1982).
The crucial element now pertinent is that there is no evidence that the debtor has been discharged by the state court. Until such has been accomplished, the fact that the personal judgment obligation now held by Jack E. Circle may be theoretically dischargeable through the Chapter 13 process is immaterial to the question of confirmation of the plan now sub judice. Even if a confirmable plan should be submitted, it should be noted that the Chapter 13 process would afford a maximum debt extension of only five years.
Hence, confirmation of the proposed plan should be denied and the case dismissed *667unless the debtor files a confirmable plan or a conversion to a proceeding under Chapter 7 of the Bankruptcy Code within, two weeks. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489771/ | MEMORANDUM OPINION
FREDERICK J. HERTZ, Bankruptcy Judge.
Plaintiff, Wieboldt Stores, Inc., filed this two-count complaint seeking injunctive and monetary relief against defendants, Duane V. Haas, Christopher A. Jansen, a/k/a Christopher Jankowski, d/b/a A.J. Christopher & Co., Arthur C. Reck, and Frank H. Gildner, Jr. In Count I Plaintiff charged that the Defendants, while engaged in a conspiracy and alleged scheme to defraud, violated Sections 10 and 14 of the Securities Exchange Act of 1934 (U.S.C. § 78j, 78n(a) (1981)), and Rules 10b-5 and 14a-9, promulgated by the United States Securities and Exchange Commission (SEC) pursuant to the above statutory provisions. 17 C.F.R. § 240.10b-5, 240.14a-9 (1983).
In Count II Defendants are alleged to have tortiously interfered with Plaintiff’s prospective economic advantage, in violation of Illinois common law. Jurisdiction of this court over Plaintiff’s securities law claims is predicated upon Section 27 of the Securities Exchange Act of 1934 (15 U.S.C. § 78aa (1981)). In addition, Plaintiff asserts that this court possesses pendent jurisdiction to entertain its state law claim against the Defendants.
Prior to the transfer of this litigation to this court,1 Defendants filed a motion to dismiss Plaintiff’s complaint for failure to state a claim upon which relief can be granted, or in the alternative, to strike certain portions of the complaint, and for a more definite statement, pursuant to Rules 12(b)(6), 12(e) and 12(f) of the Federal Rules of Civil Procedure. The issues pertaining to Defendants’ motion to dismiss are fully briefed, and the merits of that motion are now before this court for decision.
In Plaintiff’s complaint, it is alleged that the Defendants “conspired” to undertake various measures to defeat a proposed merger between Plaintiff and the QPO Corporation (QPO). That proposal was scheduled to be placed before Plaintiff’s shareholders for their approval at a special shareholders meeting set for May 28, 1982. Plaintiff’s former management solicited proxies approving the merger from Plaintiff’s shareholders on April 30, 1982.
Defendants, pursuant to their alleged conspiracy, distributed a counter-proxy solicitation in opposition to the merger to Plaintiff’s shareholders on May 12, 1982. Those counter-proxy solicitation materials are alleged to contain false or misleading statements, in violation of federal securities laws, which include:
1. an alleged false representation of QPO’s legal right to unilaterally terminate the merger proposal after receiving *687the outstanding shares of Plaintiff corporation without paying for those shares; 2. an alleged misrepresentation of the highest trading price of Plaintiff’s common stock in the first quarter of the company’s 1981 fiscal year (January 1980-January 1981);
3. an alleged misrepresentation that the merger proposal, as tentatively approved by QPO and Plaintiff’s management, would prevent Plaintiff from entertaining other “possible” merger/buy-out offers;
4. an omission of material fact, in that Defendant’s counter-proxy statement represented that no “participant” in the counter-proxy solicitation had been convicted “in any criminal proceedings of any sort during the past 10 years,” while in fact Defendant Christopher Jansen, an alleged paid consultant to Defendants, had been found to have breached certain anti-fraud provision of federal securities laws by an administrative law judge in October 1981;
5. an omission of material fact in that the Defendants’ counter-proxy solicitation failed to identify Defendants Haas, Jansen, and Reck as “participants” in the scheme to defeat “the Proposal”;
6. an alleged false representation that Defendant Jansen’s consulting fee in connection with the counter-proxy effort would be limited to $10,000 when in fact, Defendant Gildner publicly stated on May 24,1982, that the amount of Jansen’s fee was undetermined; and
7. that the counter-proxy statements, without basis in fact, attacked the impartiality of the firm of Duff and Phelps, Inc., which concluded in a report that the purchase price of $5.50 per share offered by QPO for Plaintiff’s outstanding common stock was a fair price.
Plaintiff requested both temporary and permanent injunctive relief under Count I, requiring Defendants to correct their alleged false representations to its shareholders at Defendants’ expense, and further restraining Defendants or their agents from making additional false statements to Plaintiff’s shareholders in connection with the merger proposal, “or any subsequent proposal that QPO may make.” In addition, Plaintiff requested an award of $400,-000 actual damages, representing both the cost of its original April 30, 1982, proxy solicitation in favor of the merger proposal, as well as a later solicitation mailed in response to Defendants’ proxy solicitation of May 12, 1981.
In Count II, Plaintiff alleged that in addition to the false and misleading statements contained in the counter-proxy solicitation materials, the Defendants employed other devices, including the filing of five sham lawsuits against the Plaintiff, QPO, and others, which suits are identified by docket number in Count II. Also, Defendants are alleged to have made false statements in the “media” to the effect that 1) Plaintiff’s management, motivated by conflict of interest, had rejected other bona fide offers of purchase for Plaintiff’s common stock; 2) that Plaintiff’s management had undervalued its corporate book assets, and that the $5.50 per share price offered by QPO in connection with the merger proposal was too low; and 3) that Defendants opposed the merger proposal in good faith.
These activities, according to Plaintiff, eventually led QPO to withdraw its proposal to merge with Plaintiff, apparently before Plaintiff’s shareholders had the opportunity to vote in favor or against the merger proposal. In their memorandum of law, Plaintiff contends that these activities of Defendants are chargeable under Illinois law as a tortious interference with Plaintiff’s prospective economic advantage. As damages under Count II, Plaintiff requested injunctive and monetary relief similar to that requested in Count I. In addition, however, Plaintiff has requested actual damages of $1,188,402.50, allegedly caused when the value of its common stock was depressed on May 28, 1982, allegedly as a result of the Defendants’ activities. Plaintiff further sought actual damages of $15 million, in the event Plaintiff became insolvent due to “financial problems which the [merger] Proposal was designed to solve.” *688Finally, Plaintiff requested punitive damages in the amount of $20 million on account of the “willful and fraudulent nature of defendants’ acts.”
DISCUSSION
The obligation of the court when reviewing a motion to dismiss is to examine the pleadings in a light most favorable to the non-movant, taking well pleaded allegations as true, and the motion should not be granted unless it clearly appears that plaintiff can prove no set of facts under its pleadings which would entitle it to the relief requested. Mathers Fund, Inc. v. Colwell Co.,, 564 F.2d, 780, 783 (7th Cir.1977); McIntosh v. Magna Systems, Inc., 539 F.Supp. 1185, 1189 (N.D.Ill.1982). Nonetheless, the above rule does not require that the parties proceed to trial where the cause of action alleged is substantively deficient. Havoco of America, Ltd., v. Shell Oil Co., 626 F.2d 549, 553 (7th Cir.1980). In this case, the court concludes that Plaintiff’s complaint is substantively deficient in several respects, and that the Defendant’s motion to dismiss shall be granted.
Section 10(b) and Rule 10b-5
In their motion to dismiss directed toward Count I, Defendants contend that such Count fails to state a claim under either Section 10(b) of the Securities Exchange Act of 1934 (the Act) or Rule 10b-5 as promulgated by the SEC, because that Count does not contain an allegation that Plaintiff was defrauded in connection with its purchase or sale of a security, by any action taken by Defendants. Defendants correctly observe that both Sections 10(b) and Rule 10b-5 were enacted to remedy fraud in connection with the purchase or sale of securities. Frischling v. Priest Oil & Gas Corp., 524 F.Supp. 1107, 1111 (N.D.Ill. 1981). Plaintiff does not allege in Count I that it was defrauded in its purchase or sale of securities by any misstatements of fact or false representations attributed to the Defendants. Absent such an allegation, Plaintiff would lack standing to sue Defendants under Section 10(b) of the Act, or Rule 10b-5, even if Plaintiff’s shareholders could take action against Defendants under those sections. Wright v. Heizer Corp., 560 F.2d 236, 246 (7th Cir.1977), cert. denied, 434 U.S. 1066, 98 S.Ct. 1243, 55 L.Ed.2d 767 (1978). Accordingly, Count I of Plaintiff’s complaint fails to state a claim upon which relief can be granted under Section 10(b) of the Act or Rule 10b-5, and that portion of Count I which is predicated upon those provisions is dismissed.
Section 14 and Rule 14a-9
In attempting to charge Defendants with violation of Section 14 of the Act as well as violation of Rule 14a-9, Count I of Plaintiff’s complaint suggests that the Defendants committed fraud, rather than negligence, in their inclusion of allegedly false representations and omissions of material fact in their May 13, 1982, counter-proxy solicitation materials. Defendants challenge the sufficiency of those allegations, contending that Plaintiff failed to plead its allegations of fraud with particularity, as required by Federal Rule of Civil Procedure 9(b).
Federal Rule of Civil Procedure 9(b) is applicable to an action arising under Section 14 and Rule 14a-9 where, as here, the allegations of the complaint sound in fraud rather than in negligence. Cf. Todd v. Oppenheimer & Co., Inc., 78 F.R.D. 415, 419 n. 4 (S.D.N.Y.1978); Billet v. Storage Technology Corp., 72 F.R.D. 583, 585-86 (S.D.N.Y.1976). The policy of Rule 9(b) is to: 1) inhibit the filing of a complaint as a pretext for discovery of unknown wrongs; 2) protect potential defendants from the harm that comes to their reputations when they are charged with the commission of acts involving moral turpitude; and 3) insure that allegations of fraud are particularized enough to give reasonable notice to the defendants of the conduct complained of. Adair v. Hunt International Resources Corp., 526 F.Supp. 736, 744 (N.D.Ill.1981). These policies are furthered by the requirement that when pleading fraud, the plaintiff must specify the time, place and contents of the false representations at issue, *689as well as the identity of the persons making the misrepresentations. Securities and Exchange Commission v. GSC Enterprises, Inc., 469 F.Supp. 907, 911 (N.D.Ill.1979); Rich v. Touche Ross & Co., 68 F.R.D. 243, 246 (S.D.N.Y.1975).
Where multiple parties are alleged to have conspired to undertake the illicit actions charged, it is not sufficient for the pleader merely to allege the existence of a conspiracy. Segal v. Gordon, 467 F.2d 602, 608 (2d Cir.1972); Frischling v. Priest Oil & Gas Corp., 524 F.Supp. 1107, 1111 (N.D.Ill. 1981). Instead, a plaintiff is required to provide multiple defendants with reasonable notice of the part each defendant is alleged to have taken in the scheme. Adair v. Hunt International Resources Corp., 526 F.Supp. 736, 744 (N.D.Ill.1981). In addition, the plaintiff should include an allegation respecting the object or benefit obtained by the co-conspirators as a consequence of the fraud. Fidenas AG v. Honeywell, Inc., 501 F.Supp. 1029, 1039 (S.D.N.Y.1980); Todd v. Oppenheimer & Co., Inc., 78 F.R.D. 415, 420-21 (S.D.N.Y.1978). If, due to the nature of the conspiracy, those specific facts are not within the personal knowledge of the plaintiff, it is nonetheless required that the pleader set forth in its complaint those facts which led it to conclude that the individual defendants were involved in the alleged scheme. Segal v. Gordon, 467 F.2d 602, 608 (2d Cir.1972); Stromfeld v. Great Atlantic & Pacific Tea Co., Inc., 484 F.Supp. 1264, 1270 (S.D.N.Y.); aff’d, 646 F.2d 563 (2d Cir.1980). In light of these case authorities, the court is compelled to conclude that Count I as it pertains to allegations under Section 14 and Rule 14a-9 does not satisfy the pleading requirements of Federal Rule of Civil Procedure 9(b).
As noted by Plaintiff, Count I does provide Defendants with fair and sufficient notice of the identity of the statements contained in Defendants’ counter-proxy materials which are alleged to be false and misleading. Those alleged false statements were distributed to Plaintiff’s shareholders on May 13, 1982, when the counter-proxy materials were mailed. The alleged fraudulent character and import of those statements is fully set forth in Count I.
Nor is Count I deficient for want of verification, as contended by Defendants. Rule 9(b) merely requires that allegations of fraud be stated with particularity. Verification by parties with personal knowledge of the matters alleged therein is not required. Fed.R.Civ.P. 9(b).
A more serious claim is raised by Defendants respecting the failure of Count I to differentiate amongst the four Defendants involved herein, regarding their individual participation in the alleged conspiracy. Paragraph 12 of Count I asserts in concluso-ry terms that the Defendants conspired “prior to April 30,1982” to defeat the merger proposal. Federal Rule of Civil Procedure 9(b) requires that reasonable notice be given to multiple defendants of the nature of their alleged individual participation in a conspiracy or fraudulent scheme. A blanket statement such as that found in Paragraph 12 of Count I, that all Defendants were responsible, at some time or another for the alleged fraudulent conduct, will not suffice. Segal v. Gordon, 467 F.2d 602, 608 (2d Cir.1972); Adair v. Hunt International Resources Corp., 526 F.Supp. 736, 744-45 (N.D.Ill.1981); Frischling v. Priest Oil & Gas Corp., 524 F.Supp. 1107, 1111 (N.D.Ill. 1981); Kennedy v. Nicastro, 503 F.Supp. 1116, 1121 (N.D.Ill.1980). For this reason, Defendants’ motion to dismiss Count I of Plaintiff’s complaint is granted. Plaintiff, however, is granted leave to file an amended complaint within 30 days following the entry of the order which accompanies this Memorandum Opinion.
In addition to these pleading questions, Defendants have interposed two further objections in their motion to dismiss Count I. First, Defendants question Plaintiff’s standing to complain of Defendants’ alleged violation of Section 14 of the Act and Rule 14a-9. Also, in their supplemental motion to dismiss, Defendants suggest that Plaintiff’s complaint for equitable and monetary relief is now moot, in light of events which have occurred since May 1982.
*690Defendants’ objection to Plaintiff’s standing to assert the Section 14 and Rule 14a-9 claims is not meritorious. Plaintiff, as the target corporation of a merger proposal, has standing to complain of Defendants’ alleged violation of Section 14 and Rule 14a-9 in connection with the merger proposal. See Studebaker Corp. v. Gittlin, 360 F.2d 692, 695 (2d Cir.1966); Calumet Industries, Inc. v. MacClure, 464 F.Supp. 19, 28 (N.D.Ill.1978); See generally J.I. Case Co. v. Borak, 377 U.S. 426, 431-33, 84 S.Ct. 1555, 1559-60, 12 L.Ed.2d 423 (1964).
Defendants’ suggestion of mootness, as it pertains to both counts of Plaintiff’s complaint, presents a number of more serious issues. Plaintiff’s complaint, distilled to its essence, charges Defendants with misconduct under both federal and state law, which misconduct ultimately led QPO to withdraw its offer to purchase all outstanding common shares of Wieboldt stock at $5.50 per share in connection with the proposed merger. Plaintiff requests injunctive relief requiring Defendants to correct their alleged false representations made concerning the QPO offer, and to prevent Defendants’ future interference with other buy-out offers QPO might make. However, shortly after the QPO offer was withdrawn, the price of Wieboldt common stock began to appreciate in value. Currently, Wieboldt stock has since sold at nearly twice the $5.50 price offered by QPO in Spring 1982.
In light of these developments, of which the court takes judicial notice, the court concludes that Plaintiff’s request for an injunction requiring Defendants to correct the alleged fraudulent representations contained in their counter-proxy solicitation is now moot. Sawyer v. Pioneer Mill Co., Ltd., 300 F.2d 200, 202 (9th Cir.1962). No legitimate interest can now be served by requiring Defendants to “correct” any false representations they may have uttered to Plaintiff’s shareholders in May 1982. Granting such relief now, almost two years following the withdrawal of the merger proposal by QPO, would constitute a punitive measure which this court is not inclined to impose.
As for the request for injunctive relief directed toward the future activities of Defendants respecting QPO, the court also considers such request to be moot. Nothing in the current record indicates that QPO presently intends to initiate any further merger/buy-out proposals respecting the Plaintiff. Nor does it appear of record that QPO has had any interest since May 1982, in taking such action. It is within this court’s discretion to deny a request for in-junctive relief where it is apparent that the conduct complained of is not likely to recur. Schutt Manufacturing Co. v. Riddell, Inc., 673 F.2d 202, 207 (7th Cir.1982); Jssacs Brothers Co. v. Hibernia Bank, 481 F.2d 1168, 1170 (9th Cir.1973). Plaintiff’s request in Counts I and II for injunctive relief is stricken with leave granted to Plaintiff to assert those claims anew if future circumstances require.
In addition, it appears that some portions of Plaintiff’s request for monetary damages in connection with Count I should be stricken. In that count, Plaintiff requested actual damages of $400,000 based upon the expenses of both its original proxy solicitation which issued April 30, 1982, as well as for its second solicitation effort which was issued in response to Defendants’ May 13,1982, counter-proxy solicitation. It is established that Plaintiff, in a case such as this, may be entitled to recover out-of-pocket damages occasioned by the Defendants’ alleged violation of federal securities laws. Madigan, Inc. v. Goodman, 498 F.2d 233, 239 (7th Cir.1974). However, only the cost of Plaintiff’s second proxy solicitation effort may properly be considered part of the potential out-of-pocket expense which may be recovered by Plaintiff in this action. See Maldonado v. Flynn, 477 F.Supp. 1007, 1010 (S.D.N.Y.1979). Plaintiff’s request in Count I for monetary damages attributed to its April 30, 1982, proxy solicitation effort is stricken with prejudice.
Intentional Interference with Prospective Economic Advantage
In its memorandum in response to Defendants’ motion to dismiss, Plaintiff
*691asserts that Count II of its complaint states a cause of action against Defendants under the Illinois tort of intentional interference with prospective economic advantage. Illinois has long recognized the tort of intentional interference with prospective economic advantage. See, e.g. Parkway Bank & Trust Co. v. City of Darien, 43 Ill.App.3d 400, 402, 2 Ill.Dec. 234, 236-37, 357 N.E.2d 211, 213-14 (1976). To establish such a claim proof is required that: 1) plaintiff has a valid business expectancy; 2) the defendant knows of the expectancy; 3) the defendant intentionally interferes and prevents the realization of the business relationships and 4) the defendant’s interference actually damages the plaintiff. Bank Computer Network Corp. v. Continental Illinois National Bank, 110 Ill.App.3d 492, 500, 66 Ill.Dec. 160, 166, 442 N.E.2d 586, 592 (1982); Belden Corp. v. Internorth, Inc., 90 Ill.App.3d 547, 552, 45 Ill.Dec. 765, 768-769, 413 N.E.2d 98, 101-102 (1980); Tom Olesker’s Exciting World of Fashion, Inc. v. Dun & Bradstreet, Inc., 16 Ill.App.3d 709, 713-14, 306 N.E.2d 549, 553 (1973), modified on other grounds, 61 Ill.2d 129, 334 N.E.2d 160 (1975). The conduct which constitutes the “interference” must be directed towards a specific third party or class of third parties with whom the plaintiff expects to do business. McIntosh v. Magna Systems, Inc., 539 F.Supp. 1185, 1193 (N.D.Ill.1982); DP Service, Inc. v. AM International 508 F.Supp. 162, 168 (N.D.Ill.1981); Parkway Bank & Trust Co. v. City of Darien, 43 Ill.App.3d 400, 403, 2 Ill.Dec. 234, 237-38, 257 N.E.2d 211, 214-15 (1976). In addition, the interference must be wrongful, Panter v. Marshall Field & Co., 646 F.2d 271, 298 (7th Cir.) cert. denied, 454 U.S. 1092, 102 S.Ct. 658, 70 L.Ed.2d 631 (1981), in the sense that the conduct of the defendants must constitute malicious (i.e., unjustified and wrongful) conduct. Meadowmoor Dairies, Inc. v. Milk Wagon Drivers’ Union, 371 Ill. 377, 382, 21 N.E.2d 308, 311-12 (1939); aff’d, 312 U.S. 287, 61 S.Ct. 552, 85 L.Ed. 836 (1941). Furthermore, Illinois law requires that as part of its prima facie case, plaintiff plead and prove that the defendant acted without legal justification in connection with defendant’s interference with plaintiff’s business expectancy. Panter v. Marshall Field & Co., 646 F.2d 271, 298 (7th Cir.), cert. denied, 454 U.S. 1092, 102 S.Ct. 658, 70 L.Ed.2d 631 (1981); Swager v. Couri, 77 Ill.2d 173, 184-85, 32 Ill.Dec. 540, 544, 395 N.E.2d 921, 925 (1979); Arlington Heights National Bank v. Arlington Heights Federal Savings & Loan Association, 37 Ill.2d 546, 551, 229 N.E.2d 514, 518 (1967). With these standards in mind, it becomes apparent that portions of Count II of Plaintiff’s complaint are defectively pleaded.
Initially, the court observes that the majority of the allegations found within Count II fail to meet the minimum requirements of Federal Rule of Civil Procedure 9(b). To the extent Plaintiff claims that the alleged false statements found in Defendants’ May 12, 1982, counter-proxy solicitation formed part of the Defendants’ intentional interference with its merger expectancy with QPO, those allegations are insufficiently pleaded for the same reasons discussed earlier: failure to differentiate between the alleged fraudulent conduct of the individual Defendants. To the extent Plaintiff alleges that Defendants made other false statements regarding the proposed merger in the “media” those allegations fail to sufficiently set forth the time and place of those utterances, as well as the identity of the parties responsible for making them.
It is also clear that the right to be free of interference in one’s business expectancies, under Illinois law, is a limited one, which is subject to the reasonable rights of others. Specifically, directors, officers and shareholders are privileged to intercede in the economic affairs of the corporation which they own, or which employs them. H.F. Philipsborn & Co. v. Suson, 59 Ill.2d 465, 474, 322 N.E.2d 45, 50 (1974); see generally Gasbarro v. Lever Brothers Co., 490 F.2d 424, 426 (7th Cir. 1973); Zeinfeld v. Hayes Freight Lines, Inc., 41 Ill.2d 345, 349, 243 N.E.2d 217, 221 (1968). Efforts by such parties to influence the conduct of their corporation lose their privileged status only upon a showing of actual malice. Zeinfeld v. Hayes Freight *692Lines, Inc., 41 Ill.2d 345, 349, 243 N.E.2d 217, 221 (1968).
In this case, it is acknowledged that Defendants Haas, Reck and Gildner were shareholders of Plaintiff in May 1982, and that Defendant Jansen was employed by those parties at that time as their agent, in connection with the counter-proxy solicitation effort. These parties were conditionally privileged to interfere with Plaintiff’s expectancy that the QPO merger proposal would be approved. Plaintiff was therefore required to allege that these parties acted with malice in connection with their counter-proxy solicitation effort. Although malice may be generally averred, Steam v. MacLean-Hunter, Ltd., 46 F.R.D. 76, 79 (S.D.N.Y.1969), Count II contains no allegation that Defendants Reck, Gildner, or Jansen acted with actual malice in connection with their alleged scheme. Indeed, the stated “object” of the Defendants-’ alleged scheme (to defeat the merger proposal), seems to be one which the Defendants, as shareholders of Plaintiff, were entitled to pursue with vigor. Absent an allegation that those parties proceeded with actual malice in their attempt to defeat the merger proposal, Count II fails to state a cause of action.
Notwithstanding the dismissal of Count II, several comments need be directed to Plaintiff’s request for injunctive and monetary relief under that count.
In Count II, Plaintiff requested injunc-tive and monetary relief similar to that requested in Count I. For reasons earlier set forth, Plaintiff’s request for injunctive relief in Count II is considered moot, and is stricken. Further, Plaintiff’s request for an award of actual damages representing the costs of its April 30,1982, proxy solicitation effort is also stricken for the same reasons earlier set forth.
Plaintiff has also requested an award of $1,188,402.50 in damages, representing the difference in price of Plaintiff’s common stock between the $5.50 offered by QPO in its merger proposal, and the closing price of Plaintiff’s common stock on the New York Stock Exchange on May 28,1982. In addition, Plaintiff requests damages “possibly as great as $15,000,000,” in the event that Defendants’ alleged interference with the proposed merger agreement with QPO would render Plaintiff’s common stock valueless. These requests for alleged actual damages are improper, wholly speculative, and must be stricken. Rubenstein v. IU International Corp., 506 F.Supp. 311, 316 (E.D.Pa.1980); Tonchen v. All-Steel Equipment, Inc., 13 Ill.App.3d 454, 461, 300 N.E.2d 616, 621 (1973). The court notes that if Plaintiff’s actual damages could properly be predicated upon fluctuations in the price of its common stock, then Count II would be subject to immediate dismissal with prejudice. A prima facie element of the tort of intentional interference with prospective economic advantage, is that the party injured must actually incur damage as a result of the interference. See Bank Computer Network Corp. v. Continental Illinois National Bank, 110 Ill.App.3d 492, 500, 66 Ill.Dec. 160, 166, 442 N.E.2d 586, 592 (1982). If damages are to be determined on the basis of open market fluctuations in Plaintiff’s stock, it would appear, with the steady appreciation in value of Plaintiff’s common stock, that Plaintiff accumulated more benefits than injuries as a result of the withdrawal of the QPO merger proposal.
Finally, it is noted that Plaintiff has requested an award of $20,000,000 in punitive damages against these Defendants in connection with Count II. Plaintiff correctly notes that punitive damages may be awarded in connection with the tort of intentional interference with prospective economic advantage. Defendants’ motion to strike Plaintiff’s request for an award of punitive damages would be denied.
CONCLUSION
The court concludes that Count I of Plaintiff’s complaint fails to state a claim upon which relief can be granted under Sections 10 and 14 of the Securities Exchange Act of 1934, and pursuant to Rules 10b-5 and 14a-9 as promulgated by the *693Securities and Exchange Commission. Count I is therefore dismissed with leave granted to amend in accordance with this opinion.
Count II of Plaintiff’s complaint is dismissed without prejudice. Defendants’ motion to strike Plaintiff’s request for equitable and monetary relief is granted in part and denied in part, as is set forth in this Memorandum Opinion.
. The cause, originally filed in the United States District Court for the Northern District of Illinois, Eastern Division, was transferred to this court by order entered October 4, 1983, when it was disclosed to the District Court that Defendant Duane V. Haas had filed a voluntary petition for reorganization under Chapter 11 of the Bankruptcy Code. 11 U.S.C. § 1101 et seq. (Supp. V 1981). | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489773/ | ORDER
J.D. TRABUE, Bankruptcy Judge.
At Alton, in said district, this matter having come before the Court pursuant to a complaint to avoid a preferential transfer filed by the Trustee and an answer to complaint filed on behalf of the defendant by its attorney, Clifford C. Emons; briefs having been filed by the respective counsel; after reviewing the briefs and researching the law, the Court states the facts as stipulated by the parties, and makes the following ruling:
1. The debtor filed a petition under Chapter 7 of the Bankruptcy Code on August 2, 1982. Steven N. Mottaz is the duly appointed trustee of debtor’s bankruptcy estate.
2. Debtor purchased the subject property, a 1976 International Tractor Trailer, Serial No. F237FGB14115, from Feld Truck Leasing Corporation on or about March 18, 1981.
3. Debtor borrowed the purchase price of the truck from the State Bank of Jersey-ville (the Bank) and executed a Note and Security Agreement on March 18, 1981.
4. Debtor received the certificate of title to the subject property assigned by Feld Truck Leasing Corporation on or about June 23,1982. The certificate of title in the name of Feld Truck Leasing Corporation reflected a lien to International Harvester, which was released June 26, 1981.
*7055. Debtor never applied for a certificate of title to the subject property, either in the State of Illinois or any other state. Several times the Bank requested debtor to sign an application for title but debtor refused, stating that the truck had current license plates on it and that he was unwilling to pay the costs associated with putting new plates on the vehicle.
6. Debtor defaulted under the terms of said Note and Security Agreement and the Bank filed a replevin action in the Illinois Circuit Court for Jersey County, cause No. 82-LM-20. The Bank obtained a Replevin Order and a Writ of Replevin was issued for the vehicle described on July 8, 1982. The Bank took possession of the vehicle on that date.
7. Debtor’s bankruptcy petition indicates that there are unsecured priority claims in the amount of $1,934.50 and general unsecured claims in the amount of $68,-118.01. In the event the Court rules that the Bank has a valid security interest, the unsecured creditors will not receive a distribution, for the instant proceeding will be a no-asset case.
8. The existing certificate of title was never delivered to the Illinois Secretary of State with an application for certificate of title, which contained the name and address of debtor and the lienholder, the date of the security agreement, and the required filing fee.
9. Debtor was in fact insolvent at the time the Bank obtained possession of the subject property.
The controlling statutes are set out here in relevant part for convenient reference:
11 U.S.C. § 547(b):
Except as provided in subsection (c) of this section; the trustee may avoid any transfer of property of the debtor—
(1) to or for the benefit of a creditor;
(2) for or on account of an antecedent debt owed by the debtor' before such transfer was made;
(3) made while the debtor was insolvent;
(4) made—
(A) on or within 90 days before the date of the filing of the petition; or
(B) between 90 days and one year before the date of the filing of the petition, if such creditor, at the time of such transfer—
(i) was an insider; and
(ii) had reasonable cause to believe the debtor was insolvent at the time of such transfer; and
(5)that enables such creditor to receive more than such creditor would receive if—
(A) the case were a case under chapter 7 of this title;
(B) the transfer had not been made; and
(C) such creditor received payment of such debt to the extent provided by the provisions of this title.
Ill.Rev.Stat, ch. 95%, § 3-203:
Security interest. If an owner creates a security interest in a vehicle:
(a) The owner shall immediately execute the application, in the space provided therefor on the certificate of title or on a separate form the Secretary of State prescribes, to name the lienholder on the certificate, showing the name and address of the lienholder and cause the certificate, application and the required fee to' be delivered to the lienholder.
(b) The lienholder shall immediately cause the certificate, application and the required fee to be mailed or delivered to the Secretary of State.
The sole issue in this case is whether the Court should exercise its equitable powers and allow a creditor with an unperfected security interest to defeat the Trustee’s status as a hypothetical lien creditor.
Under the facts stipulated by the parties, the Bank’s repossession of the subject property constitutes a voidable preference under § 547(b) of the Bankruptcy Code. Clearly, the Bank failed to perfect its security interest under Ill.Rev.Stat, ch. 95%, § 3-203(b). Consequently, it is the holder of an unper-fected security interest, inferior to the Trustee’s status as a lienholder. See, 11 *706U.S.C. § 544. Nevertheless, the Bank requests that the Court overlook the technical requirements of the Illinois law, and elevate its status above that of the Trustee.
The Bank contends that a strict reading of § 3-203 would work a substantial injustice in this case. Ostensibly, a recalcitrant debtor can prevent a creditor from perfecting its security interest in a vehicle by simply refusing to execute the application that must be forwarded to the Secretary of State for filing. The Bank takes the position that the Illinois legislature could not have intended the statute to be read to permit debtors to subterfuge the efforts of creditors to attain secured status.
The United States Court of Appeals for the Seventh Circuit has ruled on the precise issue that is before this Court. In re Keidel, 613 F.2d 172 (7th Cir.1980), the Seventh Circuit ruled as a matter of law that, regardless of any possible inequitable result— (1) § 3-203 is the exclusive means for perfecting a security interest in motor vehicles in the State of Illinois; and (2) under the Bankruptcy Act, the trustee is a hypothetical lien creditor whose claim prevails over the conflicting claim of a holder of an unperfected security interest. The court of appeals indicated that the statutory scheme of the Uniform Commercial Code requires a strict reading of § 3-203, despite some seemingly harsh results. In dealing with the creditor’s contention that the ruling produces a windfall for the debtor’s bankruptcy estate at the expense of the secured creditor, the court stated:
This may indeed be the result ..., but the Bank has only itself to blame for the failure to perform its statutory duty prescribing application for a new title. The Illinois law applicable to secured transactions in personal property, including motor vehicles, places a strong emphasis on the need for diligence in perfection of the security interest in accordance with the statutory method... The strong policy favoring diligence in perfection (and the consequent gain in certainty and regularity) outweighs the possibility here of “unjust enrichment” or a “windfall.”
In re Keidel, 613 F.2d at 175.
Keidel is the controlling authority in this jurisdiction on the matter at bar. The fact that the case was decided under the Bankruptcy Act is not significant. The only material difference between the instant case and Keidel is the applicability of § 547(b) of the Bankruptcy Code, rather than § 60 of the Bankruptcy Act. “The five elements of a preference as set out in § 547(b) are similar to the elements of a preference under the Act.” COLLIER PAMPHLET EDITION BANKRUPTCY CODE § 547, p. 297 (A. Herzog and L. King 1983). The Bankruptcy Reform Act of 1978 did nothing to change the vitality of Keidel. Accordingly, the Court finds good cause to enter judgment for the Trustee.
WHEREFORE, IT IS ORDERED that the transfer of the subject property to the State Bank of Jerseyville be, and the same hereby is, null and void.
IT IS FURTHER ORDERED that the State Bank of Jerseyville be, and the same hereby is, directed to turnover the subject property to the Trustee or, in the alternative, pay the Trustee the reasonable value thereof. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489774/ | ORDER
J.D. TRABUE, Bankruptcy Judge..
At East St. Louis, in said district, this matter having come before the Court pursuant to a motion to terminate the automatic stay filed on behalf of Sears, Roebuck & Company (Sears), by its attorney, R. Michael Kimmel, and a motion for avoidance of nonpossessory, nonpurchase money security interest, filed on behalf of the debtors, by their attorney, Benjamin J. Vasta, briefs having been filed by the respective parties’ counsel, the Court finds as follows:
1. Debtors filed the instant Chapter 7 petition on June 13, 1983.
2. Sears is listed in debtors’ Schedule A-3 as an unsecured creditor with a claim in the amount of $661.75 for a revolving charge account. Debtors’ brief indicates the debt includes a balance due for the purchase of a washer.
3. Sears filed a proof of claim in the amount of $661.75 as a secured claim. Attached to said proof of claim is a copy of the security agreement between Sears and debtors. The signature of George R. Tucker, Jr., appears at the bottom of the instrument.
4. The subject property has been abandoned from the bankruptcy estate by the Trustee.
Debtors filed a motion to avoid Sears’ lien on a washer purchased by debtor, George R. Tucker, Jr. Section 522(f) of the Bankruptcy Code states that a 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 which the debtor would have been entitled under ... [§ 522(b) ], if such lien is ... (2) a nonpos-sessory, nonpurchase-money security interest in any ... [consumer goods].” See, Ill.Rev.Stat, ch. 26, § 9-109(1). There is no dispute that the subject property is an item of consumer goods as indicated in § 522(f). Rather, the issue is whether Sears has a nonpossessory, nonpurchase-money security interest in the washer.
Debtors argue that Sears does not have a security interest in the washer under the *708terms of the security agreement. Debtors claim that George R. Tucker, Jr. did not intend to create a security interest in the washer when he purchased the property on credit. Furthermore, even if debtors granted Sears a security interest in the washer, debtors claim that the security interest has terminated under the agreement because substantial payments had been made prior to the filing of the instant Chapter 7 petition.
A second point of contention raised by debtors is that Sears is not entitled to a security interest in the property. Using an estoppel-type argument, debtors argue that Sears cannot assert its secured status because Sears did not object to being listed as an unsecured creditor. Finally, on equitable grounds, debtors assert that the washer cannot constitute security for a debt because its value de minimis.
The Court finds that the debtor granted Sears a security interest in the washer under the terms of the agreement set forth on the credit slip. Paragraph 7 of the security agreement states the following:
SECURITY INTEREST IN GOODS. Subject to applicable state law limitations, Sears has a security interest under the Uniform Commercial Code in all merchandise charged to the account. If I do not make payments as agreed, the security interest allows Sears to repossess only the merchandise which has not been paid in full. I am responsible for any loss or damage to the merchandise until the price is fully paid. Any payments I make will first be used to pay any unpaid Insurance or Finance Charge(s), and then to pay for the earliest charges on the account. If more than one item is charged on the same date, my payment will apply first to the lowest priced item.
Clearly, Sears has a purchase money security interest in the washer, because it gave “value to enable the debtor to acquire rights in or the use of the collateral.” Ill. Rev.Stat., ch. 26, § 9 — 107(b). Thus, under Ill.Rev.Stat., ch. 26, § 9-302(l)(d), Sears has a perfected security interest in the washer.
Sears is not estopped from asserting its secured status for failing to object to debtors’ listing Sears in their Schedule A-3. Sears properly filed its secured proof of claim. Under § 502(a) of the Bankruptcy Code, properly filed, a proof of claim is deemed allowed unless a party in interest objects. The Bankruptcy Code places the burden on debtors to reconcile any discrepancies between their schedules and claims filed against the estate when they list property as exempt. Since no objection has been raised, Sears’ claim must be allowed.
Debtors have misconstrued the terms of their security agreement with Sears. Debtors are under the impression that substantial payments toward the purchase of the subject property are sufficient to release Sears’ lien. They also believe that the small present value of the washer has somehow rendered the lien ineffective. The terms of the agreement are clear and unequivocal. Sears retains a lien on the washer until such time as the property is paid for in full. Since the debt has not been fully paid, the lien remains enforceable. Debtors have made a unilateral mistake as to the legal effect of the terms of the agreement. Unilateral mistake as to a matter of law is not grounds for reforming or rescinding an enforceable contract. Friedman v. Development Management Group, 403 N.E.2d 610, 614, 38 Ill.Dec. 379, 383, 82 Ill.App.3d 949 (1980).
The agreement between Sears and debtors is a valid and binding obligation granting Sears a security interest in the subject property. The Court will not entertain the motion that debtor George Ray Tucker, Jr. did not intend to create such a security interest when he signed the credit slip. Accordingly, the Court must deny debtors’ motion to avoid Sears’ lien, because Sears has a valid, enforceable purchase money security interest in the washer. Inasmuch as the foregoing inquiry is dispositive of the issues involved in Sears’ motion to lift the automatic stay, the Court finds good cause to grant said motion.
*709WHEREFORE, IT IS ORDERED, ADJUDGED AND DECREED that the debtors’ motion for avoidance of nonpossessory, nonpurchase-money security be, and the same hereby is, denied.
IT IS FURTHER ORDERED that the automatic stay in effect under 11 U.S.C. § 362 with respect to the subject property be, and the same hereby is, lifted. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489776/ | MEMORANDUM
GEORGE C. PAINE, II, Bankruptcy Judge.
This matter is before the court on the defendant Point Landing Fuel Corporation’s (hereinafter “Point Landing”) motion for summary judgment. The trustee commenced this complaint to avoid and recover two preferential transfers from Point Landing.1 After consideration of the evidence presented, the briefs of the parties, exhibits, stipulations, affidavits and the entire record, this court concludes that the motion for summary judgment should be GRANTED.
The following shall constitute findings of fact and conclusions of law pursuant to Federal Rule of Bankruptcy Procedure 7052.
The debtor H & S Transportation Company (hereinafter “H & S”) filed a voluntary Chapter 11 petition in this court on September 4, 1981. This complaint is one of many filed by the trustee to recover alleged preferential transfers made by the debtor prior to the filing of its bankruptcy petition. In this particular proceeding, Point Landing had for an extended period of time supplied fuel, other goods and services to the debtor on credit. Point Landing received two payments from the debtor on this credit account within the 90 day period preceding the filing of the debtor’s bankruptcy petition. The parties do not dispute that the debtor transferred to the defendant $27,-933.92 by a check dated June 29, 1981, and $31,440.57 by a check dated August 13, 1981. During this time, Point Landing continued to deliver fuel and render services to H & S. The record reflects part of the cost of these goods and services was as follows:
Date Amount
July 7,1981 - $ 16,320.29
July 18,1981 25,643.45
July 25,1981 19,492.42
July 30,1981 2,633.68
August 3,1981 27,400.30
August 11,1981 32,800.00
August 26,1981 42,614.37
$166,934.51
*718Point Landing does not deny that the two aforementioned transfers satisfy the essential elements of a preferential transfer set forth in 11 U.S.C. § 547(b).2 Point Landing does, however, allege that the subsequent advances given to the debtor constitute unsecured new value which should net out the amount of these preferential transactions under 11 U.S.C.A. § 547(c)(4) (West 1979), which provides as follows:
“(c) The trustee may not avoid under this section a transfer—
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(4) to or for the benefit of a creditor, to the extent that, after such transfer, such creditor gave new value to or for the benefit of the debtor—
(A) not secured by an otherwise unavoidable security interest; and
(B) on account of which new value the debtor did not make an otherwise unavoidable transfer to or for the benefit of such creditor; .... ”
In response, the trustee asserts that the new value advanced to the debtor was secured by maritime liens arising under 46 U.S.C. § 971 against vessels upon which the fuel and other supplies were placed.3 The trustee has not shown, however, to which vessels these liens would attach or whether sufficient equity exists in any such vessel to satisfy these liens.
In any event, the trustee’s contention is mooted by the May 23, 1983, affidavit of Rupert Surcouf, the Vice-President of Sales of Wood Resources Corporation, which is the successor of Point Landing. Mr. Sur-couf stated that Point Landing instituted proceedings to assert its maritime lien of $166,934.51, the aforementioned “new value” advanced to H & S, against the M/V MARTHA TROTTER for fuel placed on board the MARTHA TROTTER. The MARTHA TROTTER was ultimately sold and the entire proceeds went to satisfy the first mortgage of Ford Motor Credit Company.
Under these circumstances, no factual issues remain which are controverted by the parties and therefore this proceeding can be resolved by summary judgment. Point Landing has clearly established that it advanced sufficient unsecured new value to the debtor to offset the value of the two preferential transfers under § 547(c)(4). The court will accordingly enter an order granting Point Landing’s motion for summary judgment.
IT IS, THEREFORE, SO ORDERED.
. When this complaint was originally filed, Irwin A. Deutscher was trustee in this case. Mr. Deutscher has since been succeeded by C. Bennett Harrison, Jr.
. 11 U.S.C.A. § 547(b) (West 1979) provides:
“(b) Except as provided in subsection (c) of this section, the trustee may avoid any transfer of property of the debtor—
(1) to or for the benefit of a creditor;
(2) for or on account of an antecedent debt owed by the debtor before such transfer was made;
(3) made while the debtor was insolvent;
(4) made—
(A) on or within 90 days before the date of the filing of the petition; or
(B) between 90 days and one year before the date of the filing of the petition, if such creditor, at the time of such transfer—
(i) was an insider; and
(ii) had reasonable cause to believe the debtor was insolvent at the time of such transfer; and
(5)that enables such creditor to receive more than such creditor would receive if—
(A) the case were a case under chapter 7 of this title;
(B) the transfer had not been made; and
(C) such creditor received payment of such debt to the extent provided by the provisions of this title.”
. 46 U.S.C.A. § 971 (Law. Co-op. 1979) provides:
“Any person furnishing repairs, supplies, towage, use of dry dock or marine railway, or other necessaries, to any vessel, whether foreign or domestic, upon the order of the owner of such vessel, or. of a person authorized by the owner, shall have a maritime lien on the vessel, which may be enforced by suit in rem, and it shall not be necessary to allege or prove that credit was given to the vessel.” | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489777/ | FINDINGS AND CONCLUSIONS
JOSEPH A. GASSEN, Bankruptcy Judge.
This matter was tried on October 19,1983 on the complaint of the Pan American Bank objecting to the dischargeability of Robert Lilienfeld’s debt to it. The debtor appeared pro se in these proceedings.
The debt in question in this adversary arose from a Visa charge account which was opened on October 16,1981. The debt- *725or has never made a single payment on the account and exceeded his credit limit of $1,000 in the first month. The account was not revoked nor the card put on the “hot list” until May 22, 1982. Although an officer of the bank testified that it was the practice of the bank to send out warning letters as soon as the credit limit had been exceeded, he could not testify that such a letter was sent to the debtor in this case. A bank employee called the debtor in early May 1982 to tell him the account was can-celled, at which time the debtor said he would not surrender his card and that he did not have the money at that time, but that he would pay later. The testifying bank officer also called the debtor at about that time to tell him that the account was cancelled, but a letter of cancellation (Plaintiff’s Exhibit No. 2) was not mailed until June 17, 1982. There were a number of charges subsequent to that date, but the bank was reimbursed by merchants for most of them. The total debt to the bank, all of which the bank claims is non-dis-chargeable, is $10,875.65.
As evidence that the debtor intended to defraud the bank through the use of this credit card, the bank demonstrated that the statements for the debtor’s account (Plaintiff’s Composite Exhibit No. 1) show a pattern of most purchases being under $50 (with the inference that the debtor was avoiding having merchants call in to check on the credit card) and that many of these “small” charges occurred at the same locations on the same date. The bank also produced the former partner of the debtor, Peter Sandberg, who testified that the debtor had not been working, and, needing money during October to December of 1981, the debtor “sent away” for numerous credit cards, stating to Sandberg that he did not intend to pay and that he intended to take bankruptcy.
The debtor is an accountant who had a drug problem and was essentially not working during more than a year prior to his filing bankruptcy on August 27, 1982. In 1980 his adjusted gross income was $48,000 (Defendant’s Exhibit A). Lilienfeld testified that in 1981 to May 1 his income was $30,000 but that then he was divorced and began taking drugs and became unable to work. During May or June of 1981 he requested that his then-partner hire Peter Sandberg to handle the work which Lilien-feld was unable to do. Later the partner felt that Sandberg should be fired as an incentive to force Lilienfeld to work, and since Lilienfeld felt unable, he and Sand-berg entered into a partnership in August of 1981. Lilienfeld also testified that despite his being upset over the divorce which occurred in June, he continued to carry his share of the work and only slowed down in July or August of 1981.
Lilienfeld denies having the intention to file bankruptcy rather than repay his credit cards. He admits that the total amount he charged without repayment was “ridiculous” but testified that the bank, through its officer Fozzio, permitted him to make use of the card in this manner and that Lilienfeld had the intention of repaying the money when he was finally able to do so. He testified that he did not know what the dollar limit per charge was to avoid a merchant calling to have a charge approved, and he testified that he made numerous charges at the Four Ambassadors Hotel and at shops in the hotel because he lived there at the time. He conferred with an attorney about filing bankruptcy in April of 1982 but testified that at that time he hoped to solve his problems by merging with a C.P.A. firm which could handle his clients until he himself was able to. Only in August did he decide it was hopeless, and file bankruptcy.
Neither party produced Fozzio. Contrary to Lilienfeld’s testimony, Sandberg testified that when he and Lilienfeld went to the bank in October of 1981 in an attempt to obtain a loan for the business, Fozzio refused to see them and did not return their telephone calls.
The plaintiff alleges that the credit which the debtor received was obtained by fraud or false pretenses, and therefore the debt should not be discharged. 11 U.S.C. § 523(a)(2) excepts from discharge debts for obtaining an extension or renewal of *726credit by false pretenses, a false representation or actual fraud. If the false representation is contained in a financial statement, it is covered by § (B) which requires that there be a materially false statement regarding the debtor’s financial condition, that the debtor made the false statement with the intent to deceive, and that the creditor reasonably relied on the false statement. False representations not included in a financial statement are covered by § (A) which does not itemize the same elements as are listed in § (B), but case law under both this section and its predecessor under the Bankruptcy Act requires proof of the same elements.
Count 3 of the complaint alleges that the debtor made a false statement in his application for a credit card, but there was no evidence offered at trial regarding this application, so relief will be denied on Count 3.
The court finds that the debtor had the intent to defraud the creditor through the use of his credit card. There is a pattern of numerous purchases under $50, even up to a half dozen at a single location in one day. The court does not find credible the debtor’s testimony that he was not aware of the $50 limit. The inference that Lilien-feld’s practice of making many small purchases was so that no merchant would call the bank, is not sufficiently rebutted by the debtor’s explanation that he made numerous charges at the Four Ambassadors Hotel and its shops because he lived there. Even if the debtor’s charges were not calculated to avoid refusal, there can be no doubt that he knew at the time he made these charges that he was unable to pay and would be unable to pay at any time in the foreseeable future. As late as May of 1982 he told bank personnel that he was unable to pay at the time, although he did not want to surrender his credit card. Because of the circumstances as testified to by the debtor himself, as well as the testimony of his former partner, the court concludes that Lilienfeld had no present intention to pay at the time he initially applied for the credit card. The only direct evidence of the debt- or’s intent not to pay was the testimony of Peter Sandberg. Although the partnership was dissolved, there was no evidence of animosity between the partners and Sand-berg would have no other motivation for giving such specific testimony. Nothing emerged at the trial which would reduce Sandberg’s credibility. The debtor, on the other hand, not only has a strong motivation to see this debt discharged, but also admits himself that he was mentally incapacitated and forgetful throughout this period and until at least the summer of 1983. The court is therefore satisfied as to the element of intent.
Turning to the issues of exactly what the false representations were which were made by the debtor, and whether the lender reasonably relied on them, it has been recognized that bank credit card cases must be viewed somewhat differently from single transaction loans or extensions of credit. Cf. First National Bank & Trust Co. in Macon v. Stewart, In Re Stewart, 7 B.R. 551 (U.S.Bkrtcy.Ct., M.D.Ga.1980). There is no reliance by the creditor at the time the credit is actually extended, because at that time the debtor is dealing with a third party merchant. Similarly, because the creditor-bank does not become aware of a debtor’s breach of the terms of the credit arrangement, for example, when the debtor makes charges above the credit limit, the bank is unable to immediately protect itself or take actions which would prevent the appearance of its ratification of the debtor’s actions. It is the debtor’s representations regarding his ability and intention to pay, made when the credit card is obtained, on which the bank relies. However, because it is an ongoing credit arrangement, the debt- or’s intentions and ability to repay may change, and these are communicated to the bank through the debtor’s payment record. If it is, or should be, apparent to the bank that the debtor no longer has the intention or ability to pay, it cannot be said that the continued reliance by the bank on the original representations is reasonable. Further, if the debtor exceeds the credit limit set forth in the agreement, the bank may ac*727quiesce to the higher amount and, in effect, amend the agreement. Whether or not the bank has done so when it fails to take action against a debtor who has exceeded his credit limit is a fact question for the court. Therefore, even though a bank cannot be required to prove specific reliance at the time an individual charge is made, and cannot be bound by its course of action during the period in which it has no information about the charges made by a debtor, the actions which it takes or fails to take within a reasonable time will be considered by the court as to whether the bank reasonably relied on misrepresentations of the debtor in its continued extension of credit to the debtor.
In this case, although the debtor exceeded his credit limit in the first month, and never made a single payment, the bank took no action to revoke the extension of credit for six months, and it took them a month to notify the debtor by letter, after telephoning him. Under these circumstances there was no reasonable reliance by the bank after the initial period, and it must be concluded from its conduct that it waived its right to action on the misrepresentations made at the outset. Any charges made by the debtor subsequent to his receipt of the letter informing him that his account had been cancelled would be in a different category and would again be non-dischargeable. However, it is impossible to identify from the statements what, if any, charges were made by the debtor subsequent to that date that were not recouped by the bank from the party accepting the charge. Thus there is no evidence of any damages resulting to the bank from the charges in that category.
Therefore no amount will be held non-dis-chargeable.
Pursuant to Rule 9021(a) a Final Judgment incorporating these Findings and Conclusions will be entered this date. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489779/ | MEMORANDUM OPINION
JAMES E. YACOS, Bankruptcy Judge.
The issue presented in this case is whether this court has jurisdiction to issue a restraining order to stop a foreclosure sale of the Chapter 13 debtor’s farm and home property.
The foreclosing mortgagee asserts that the bankruptcy court lacks jurisdiction due to the Supreme Court’s decision in Northern Pipeline Co. v. Marathon Pipe Line Co., 458 U.S. 50, 102 S.Ct. 2858, 73 L.Ed.2d 598 (1982). It challenges as invalid the “Order For Interim Administration of the United States Bankruptcy Court For The District of New Hampshire”, entered on December 23, 1982 by District Judges Devine and Loughlin, which otherwise clearly does give this court the power to act directly on this basic “core” matter of preserving the debt- or’s estate pending further proceedings relating to his Chapter 13 petition and plan.
The mortgagee makes a three-part argument: (1) that the Northern Pipeline decision struck down the entire jurisdictional grant in 28 U.S.C. § 1471, including that pertaining to the district judges as well as to the bankruptcy judges; (2) that even if the district court continues to have bankruptcy jurisdiction it had no statutory or other authority to support the entry of the Order of December 23, 1982; and (3) that the interim procedures adopted by that Order (“... until Congress enacts appropriate remedial legislation in response to the Supreme Court’s decision in Northern Pipeline ... or until March 31,1984, whichever first occurs ... ”) once again attempts to give Article I bankruptcy judges powers which the Supreme Court held they can not constitutionally exercise.
*775The first and third arguments do not require any extended commentary. The contention that the district court no longer has any bankruptcy jurisdiction was demolished by District Judge Vining in his recent opinion in In re Seven Springs Apartments, Phase II, 34 B.R. 987,11 B.C.D. 170 (D.N.D. Ga.1983), in which he collects the cases. All district and circuit courts which have reached the issue have agreed.
The contrary position taken by a number of bankruptcy courts, on the question of continuing jurisdiction in the district courts, was succinctly answered by District Judge Carter in In re South Portland Shipyard Carp., 32 B.R. 1012, 10 B.C.D. 1385 (D.Maine 1983) as follows:
“For the most part, these [bankruptcy] courts base their analysis on congressional intent to eliminate a bifurcated system of bankruptcy jurisdiction by placing all bankruptcy jurisdiction in a single forum, the Bankruptcy Court. The jurisdictional grants to the District Courts in § 1471(a) and (b) are viewed as non-grants, mere legitimating devices which are insevera-ble from § 1471(c)’s grant to the Bankruptcy Courts of the exercise of ‘all of the jurisdiction conferred by this section on the district court.’ 28 U.S.C. § 1471(c). Without doubt Congress did intend to eliminate the bifurcated system of bankruptcy jurisdiction with the enactment of Section 1471(c). Congress’ far more fundamental intent, however, was to establish a functioning bankruptcy system. A determination that jurisdiction exists in the District Court is essential if that purpose is to be attained.” (Emphasis supplied)
This court likewise finds it inappropriate to strain to read into the Northern Pipeline decision any intent to strike down all jurisdiction of bankruptcy matters in the federal courts in the face of the dominant Congressional purpose.
The further contention that the district court’s December 23, 1982 Order requires an unconstitutional exercise of power by an Article I court simply does not fit the facts of the present case. The restraining order in question in no sense is a mere “related” matter such as the “state law” lawsuit that the Supreme Court held in Northern Pipeline must be tried by an Article III judge.
The matter at issue here is fundamental to administration of a bankruptcy estate, i.e., protection against its dismemberment while Bankruptcy Code proceedings are being pursued. Regardless of any intimations that may or may not be “sensed” from the numerous separate opinions and footnotes included in the Northern Pipeline plurality decision, it is quite clear that the Supreme Court to date has not held that an Article I bankruptcy judge can not exercise jurisdiction as to “core” bankruptcy matters.
Similarly, the citation by analogy to the recent decision by a Ninth Circuit panel in Pacemaker Diagnostic Clinic, Inc., v. Instromedix, Inc., 712 F.2d 1305 (9th Cir.1983), is inapposite to the present case since Pacemaker involved the entry of ordinary civil money judgments by the U.S. Magistrates. [Rehearing en banc has been granted in Pacemaker but no decision by the entire Court of Appeals has yet been reported.]
This brings us to the real crux of the matter, i.e., the validity of the referral of “core” bankruptcy matters to this court by virtue of the Order’of December 23, 1982.
The Order quotes the prior mandating action by the Judicial Council for the First Circuit:
“Acting pursuant to the authority vested in the Judicial Council by 28 U.S.C. § 332(d), the Judicial Council of the First Circuit concludes that the uniform effective and expeditious administration of justice within this circuit requires that the attached rule for the administration of the bankruptcy system in this circuit be adopted by the district courts of this circuit pursuant to 11 U.S.C. § 105.”
The Rule attached and adopted by the Order (hereinafter referred to as the “interim rule”) begins with the following “Emergency Resolution” subsection:
“The purpose of this rule is to supplement existing law and rules in respect to the *776authority of the bankruptcy judges of this district to act in bankruptcy cases and proceedings until Congress enacts appropriate remedial legislation in response to the Supreme Court’s decision in Northern Pipeline Construction Co., v. Marathon Pipe Line Co., 458 U.S. 50, 102 S.Ct. 2858 [73 L.Ed.2d 598] (1982), or until March 31, 1984, whichever first occurs.” “The judges of the district court find that exceptional circumstances exist. These circumstances include: (1) the unanticipated unconstitutionality of the grant of power to bankruptcy judges in section 241(a) of Public Law 95-598; (2) the clear intent of Congress to refer bankruptcy matters to bankruptcy judges; (3) the specialized expertise necessary to the determination of bankruptcy matters; and (4) the administrative difficulty of the district courts’ assuming the existing bankruptcy caseload on short notice.” “Therefore, the orderly conduct of the business of the court requires this referral of bankruptcy cases to the bankruptcy judges.”
The complete text of the interim rule is attached as an Exhibit to this Opinion.* It has been adopted in essentially the same language in all other federal districts in the nation. See 1 Collier on Bankruptcy, 15th Ed., Ch. 3 (special supp).
The bankruptcy courts generally (and two district courts) have found the interim rule invalid, as being without statutory authority, and also as being in conflict with the limitations on referrals to special masters provided in Rule 53 of the Federal Rules of Civil Procedure. See, In re South Portland Shipyard Corp., 32 B.R. 1012, 10 B.C.D. 1385 (D.Maine 1983) (dealing with a “core” bankruptcy matter); In re Romeo J. Roy, Inc., 32 B.R. 1008, 10 B.C.D. 1392 (D.Maine 1983) (dealing with a “related” bankruptcy matter); In re Matlock Trailer Corp., 27 B.R. 318, 8 C.B.C.2d 742 (D.M.D. Tenn.1983).
All other district and circuit courts which have reached this issue have found the interim rule valid. These decisions have found the rule valid not only under 11 U.S.C. § 105, but also under the rule-making powers provided in 28 U.S.C. §§ 332(d) and 2071, and Rule 83 of the Federal Rules of Civil Procedure. See cases collected in Seven Springs Apartments, supra, 34 B.R. 987, 11 B.C.D. at pp. 174-176.
This court finds most persuasive the position taken by Judge Yining in Seven Springs Apartments, supra, 34 B.R. 987, 11 B.C.D. at footnote 12, p. 175, in which he recognizes that Rule 53 is not involved in, or an adequate support for, the promulgation of the interim rule. Instead he finds justification in the rule-making authority cited above, and in a further inherent power of the district court:
“In addition to the defined statutory grants of power, the Article III district courts have an inherent equitable power ‘to provide themselves with appropriate instruments required for the performance of their duties.’ In re Peterson, 253 U.S. 300, 312 [40 S.Ct. 543, 547, 64 L.Ed. 919] (1920) (Brandéis, J.). The Local Rule is such an ‘appropriate instrument’ enabling the district court to exercise the powers invested in it by virtue of 28 U.S.C. §§ 1331, 1334, and 1471....”
“Other courts have upheld the Local Rule on the basis of this inherent authority. See Moody v. Martin, 27 B.R. [991] at 999 n. 4 [ (D.Wis.W.D.1983) ]; Braniff Airways, Inc. v. CAB, 27 B.R. [220] at 236-37 [ (Bkrtcy.N.D.Tex.1982) ]; Prudential Ins. Co. v. Stouffer Corp., 26 B.R. [860] at 1021 [ (D.E.D.Mich.1983) ].”
The fashioning of “appropriate instruments” to aid the district courts in the performance of their duties, as validated in Ex Parte Peterson, supra, obviously can not be extended to a complete displacement of the district court merely at the whim, and to suit the convenience of, the district judge. See La Buy v. Howes Leather Co., 352 U.S. 249, 256, 77 S.Ct. 309, 313, 1 L.Ed.2d 290 (1957).
In the case of the interim rule, however, we have an extraordinary situation in *777which the remedy selected has been strictly limited in time, i.e., to expire by March 31, 1984. It serves a public need fully consistent with the legislative intent evidenced by the transitional period provided under the 1978 Bankruptcy Code and by the failure of Congress to terminate the funding for the existing bankruptcy court structure following the lapse of the Supreme Court’s Northern Pipeline stay on December 24, 1982. This court also takes judicial notice that Congress allowed the stay to lapse in the context of publicized circulation of the proposed interim rule remedy by the Administrative Office of the U.S. Courts.
The Supreme Court has ruled that a “clear legislative base” may support the issuance of rules and regulations having the force of “a law of the United States” as phrased in the perjury statute, even though no other specific statute was involved. United States v. Hvass, 355 U.S. 570, 575, 78 S.Ct. 501, 504, 2 L.Ed.2d 496 (1958). While the present situation is not directly comparable, the Hvass ease demonstrates that Congressional authorization for the exercise of power by the federal courts may “jump the gap” of the lack of a specific authorizing statute where the Congressional purpose is otherwise clear.
In the final analysis it must be admitted that there is no direct precedent for the use of the rule-making powers of the district courts, or the “all-writs” powers under 11 U.S.C. § 105 or 28 U.S.C. § 1651, in a referral system as embodied in the interim rule. However, the one thing that Congress patently did not intend by its failure to enact new legislation by December 24, 1982 was that the existing bankruptcy court judges and their staff should sit and twiddle their thumbs, all the while drawing full pay, but having no jurisdiction to act in any bankruptcy matter whatsoever — even as to matters not within the actual holding in the Northern Pipeline case. This unreasonable result is compelled only if “jurisdiction” is conceived as some sort of metaphysical flow of energy beyond the powers of rational men to deal with on a rational basis in a truly extraordinary situation.
There is no danger here of an unlimited abdication by the district courts of their judicial functions on mere whim and caprice. The interim rule was set up to expire with the transition period provided by the 1978 Code. It avoids the obvious chaos of transferring hundreds of thousands of bankruptcy cases to the already-overcrowded dockets of the district courts by the sensible use of an existing, unrepealed, structure of bankruptcy courts and their supporting staffs and facilities.
The court accordingly concludes that the interim rule is a valid exercise of judicial power to implement a reasonably-perceived Congressional purpose regarding the adjudication of bankruptcy matters and therefore denies the mortgagee’s motion to dismiss for lack of jurisdiction.
The court derives some comfort in reaching this result from the fact of promulgation of the new Bankruptcy Rules by the Supreme Court, effective August 1, 1983, which contemplate throughout the continued exercise of jurisdiction in bankruptcy matters by the separate bankruptcy courts. As noted by the Second Circuit in Salomon v. Keiser, 722 F.2d 1574 (2nd Cir.1983), the Supreme Court would not be expected to issue such rules if it felt its Northern Pipeline decision had the broad invalidating effect as construed by some courts and commentators.
An appropriate restraining order is entered separately in this cause.
The interim rule exhibit was deleted for purposes of publication. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489780/ | OPINION
EMIL F. GOLDHABER, Bankruptcy Judge:
The matter in dispute is whether the issuance of a certificate of title for a van by the Pennsylvania Department of Motor Vehicles (“the DMV”) without a notation of an encumbrance constitutes a failure to perfect the security interest although the creditor fully complied with the filing requirements of the Motor Vehicle Code. The issue arises through the debtor’s objection to a secured creditor’s proof of claim. For the reasons stated herein we find that the encumbrance is properly perfected and we will overrule the objection.
The facts of this case are as follows:1 Thomas M. Lovell (“the debtor”) purchased on credit a van from Hillcrest Chrysler Plymouth, Inc. (“Hillcrest”). On the same day, Hillcrest assigned the debt and the security interest to Chrysler Credit Corporation (“Chrysler Credit”). Shortly thereafter Hillcrest applied to the DMV for the recordation of a security interest in the vehicle in favor of Chrysler Credit. In response, the DMV sent to Chrysler Credit an attestation reiterating all pertinent information contained in the application and stating that the department’s files listed the encumbrance of Chrysler Credit against the debtor. Although it is not clear from the record, apparently the DMV properly filed, recorded and indexed the security interest. In error, the DMV issued a certificate of title to the debtor which did not indicate that Chrysler Credit was a lien-holder. The debtor filed for the adjustment of his debts under chapter 13 of the Bankruptcy Code (“the Code”) on September 3, 1982. After the filing, Chrysler Credit obtained from the DMV a “duplicate” certificate of title which bore a notation of its security interest.
Although the Pennsylvania Uniform Commercial Code (“the UCC”) generally governs the creation and perfection of security interests in personalty in this state, 13 Pa.Cons.Stat. § 9302(c)(2) provides that the filing provisions of that statute do not apply to motor vehicles, excluding exceptions not pertinent here. As stated in 75 Pa.Cons.Stat. § 1132(b), perfection of a security interest in a consumer vehicle is generally perfected as follows:
(b) Method of perfection. — A security interest is perfected by notation thereof by the department on the certificate of title for the vehicle. In order to obtain such notation the lienholder shall deliver to the department the existing certificate of title, if any; an application for a cer*779tificate of title upon a form prescribed by the department containing the name and address of the lienholder; and any other information regarding the security interest as may be reasonably required and the required fee.
Although numerous cases hold that a security interest in a motor vehicle is hot perfected unless a notation of that interest appears on the certificate of title, these cases are inapposite since they arise where the creditor failed to file his security interest with the DMY. The parties have cited no Pennsylvania cases squarely dealing with the issue at bench.
But in the case of In re Royal Electrotype Corporation, 485 F.2d 394 (CCA 3rd, 1973) creditors caused to be filed a financing statement with the appropriate state and county which the state officials improperly indexed. Notwithstanding this error, Judge Aldisert ruled that:
Under prior law a question sometimes has arisen as to the effect of mistake by the filing officer, such as an error in the index. Is the filing nevertheless effective to protect the secured party, even though one who searched the records was misled; or should the Court say that the mistake prevented both constructive as well as actual notice, even though the secured party and the misled creditor were equally innocent?
The rule stated by Section 9-403(1) is that filing is complete and effective for all purposes of Article 9 when the financing statement has been accepted by the filing officer or when it is presented for filing accompanied by a tender of the fee. From either point on, the secured party is protected.
Although the Pennsylvania Motor Vehicle Code is less explicit than the UCC in defining the filing of a security interest, we hold that when a lienholder complies with all of the duties imposed on him by § 1132(b), filing is complete and the security interest is perfected. Cf. In Re Royal Electrotype, supra. The proper recordation of the encumbrance at the DMV provides constructive notice to the world of the existence of the lien. The notation of the encumbrance on the certificate of title is merely the execution of a ministerial act which typically serves to provide parties with actual notice of the encumbrance. Although those participating in the transfer of title of a motor vehicle in this state often do not look beyond the face of the certificate of title in ascertaining the encumbrances on the vehicle, in cases such as this a review of the files at the DMV would reveal further information. Consequently, this result is less surprising than that of In Re Royal Electrotype Corp. in which a review of the UCC files would not have uncovered the existence of the encumbrance since the debtor’s name was improperly indexed.
Since Chrysler Credit’s security interest is properly perfected, we will overrule the debtor’s objection to its proof of claim.
. This opinion constitutes the findings of fact and conclusions of law required by Bankruptcy Rule 7052 (effective August 1, 1983). | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489782/ | OPINION
EMIL F. GOLDHABER, Bankruptcy Judge:
In the case at bench the debtor objects to the proof of claim filed by the Federal National Mortgage Association (“FNMA”) and requests that the claim be reduced due to FNMA’s alleged violations of the Truth in Lending Act (“the Act”), 15 U.S.C. §§ 1601-1667e. For the reasons stated herein, we will deny the objection.
The facts of the case are as follows:1 FNMA holds a mortgage on the debtor’s realty which was granted on November 21, 1969. Following FNMA’s receipt of the *801debtor’s monthly payment for March of 1981, the debtor ceased servicing the debt. Through its agent FNMA presented the debtor with a “notice of default” and a “notice of intention to foreclose the mortgage” on July 8, 1981. Upon the debtor’s continuing failure to make payments, FNMA commenced a mortgage foreclosure suit in Philadelphia County, Pennsylvania, which was served on December 9, 1981. Judgment was entered in favor of FNMA on January 22, 1982. The scheduled sheriff’s sale of the property was stayed due to the debtor’s filing of a petition for the adjustment of his debts under chapter 13 of the Bankruptcy Code (“the Code”) on February 25, 1982.
The Act is a federal statute which regulates the terms and conditions of consumer credit. Its congressionally declared purpose is to assure the informed use of credit through a meaningful disclosure of credit terms so that consumers may more readily compare different financing options and costs. 15 U.S.C. § 1601. For all loans which fall within its purview, the Act requires the creditor to issue to the debtor a disclosure statement summarizing certain information found in the loan documents. The information which must be disclosed is defined in the Act and Regulation Z, 12 C.F.R. § 226.1 et seq. Upon a creditor’s failure to make the necessary disclosures, the Act provides a debtor with several remedies among which is an award of actual damages, attorneys’ fees and an additional award of up to $1,000.00.2 15 U.S.C. § 1640(a). In the case at bench the debtor asserts that FNMA failed to comply with the Act by neglecting to provide adequate disclosures at the origination of the loan in 1969 and by erring in deviating from Pennsylvania disclosure requirements in foreclosing on the mortgage. See, Pa.Stat.Ann. tit. 41, §§ 401-408. FNMA preliminarily asserts that we need not reach the merits of the action since it is an agency of the United States government and thus is free from liability due to 15 U.S.C. § 1612(b) which states as follows:
(b) No civil or criminal penalty provided under this subchapter3 for any violation thereof may be imposed upon the United States or any department or agency thereof, or upon any State or political subdivision thereof, or any agency of any State or political subdivision.
Although FNMA correctly contends that it was originally a governmental agency within the Department of Housing and Urban Development, it was transferred to the private sector on September 1, 1968, by Act of Congress. 12 U.S.C. § 1717(a)(1) and (a)(2). On that date the former FNMA was split into the current FNMA and the Government National Mortgage Association (“GNMA”) as provided by § 1717 and the following provision:
§ 1716b. Partition of Federal National Mortgage Association into Federal National Mortgage Association and Government National Mortgage Association; assets and liabilities; operations The purposes of this title include the
partition of the Federal National Mortgage Association as heretofore existing into two separate and distinct corporations, each of which shall have continuity and corporate succession as a separated portion of the previously existing corporation. One of such corporations, to be known as Federal National Mortgage Association, will be a Government-sponsored private corporation, will retain the assets and liabilities of the previously existing corporation accounted for under section 1719 of this title, and will continue to operate the secondary market operations authorized by such section 1719. The other, to be known as Government National Mortgage Association, will remain in the Government, will retain the assets and liabilities of the previously existing corporation accounted for under sections 1720 and 1721 of this title, and will continue to operate the special assistance functions and management and liquidat*802ing functions authorized by such sections 1720 and 1721.
12 U.S.C. § 1716b. Since the statute provides that FNMA will become a “Government-sponsored private corporation” while GNMA “will remain in the government,” FNMA is no longer a governmental agency but is a private one and thus is not immune from liability under 15 U.S.C. § 1612(b).
FNMA also asserts that the limitation of actions provided in 15 U.S.C. § 1640(e) bars the debtor’s claim. This section states as follows:
(e) Any action under this section may be brought in any United States district court, or in any other court of competent jurisdiction, within one year from the date of the occurrence of the violation. This subsection does not bar a person from asserting a violation of this sub-chapter in an action to collect the debt which was brought more than one year from the date of the occurrence of the violation as a matter of defense by re-coupment or set-off in such action, except as otherwise provided by State law.
As stated above, the debtor asserts that FNMA failed to make adequate disclosures in the original loan documents and in the notice to foreclose, both of which constitute ostensible causes of action arising more than one year prior to the filing of the action at bench. Nonetheless, we recently held that the filing of a proof of claim is an action to collect a debt under § 1640(e) which allows a debtor to file timely objection to that claim asserting a violation of the Act.4 Hanna v. Lomas and Nettleton Co. (In Re Hanna), 31 B.R. 424 (Bkrtcy.E.D. Pa.1983). Since the filing of the objection to the proof of claim was timely filed, we must proceed to address the merits of the action.
The debtor asserts that the original loan documents are defective in failing to express the annual percentage rate of the loan and the amount financed. Our review of the pertinent documents indicates that FNMA did make these necessary disclosures although the terms were not specifically denominated as such. Thus, this basis for the debtor’s objection to the proof of claim is without merit.
To strengthen the disclosure requirements of the Act for residential mortgages and foreclosures thereon the Pennsylvania legislature passed Pa.Stat.Ann. tit. 41, § 401 to 408 (Purdon). This statute requires a residential mortgage lender to provide the debtor with a notice of intention to foreclose the mortgage at least thirty days prior to the commencement of such foreclosure proceedings. As stated above the debtor contends that FNMA violated this statute in several ways. First, the debtor alleges that FNMA failed to comply with Pa.Stat.Ann. tit. 41, § 403(c)(3), which provides that the notice must “clearly and conspicuously state .. . [t]he right of the debt- or to cure the default ... and exactly what performance, including what sum of money, if any, must be tendered to cure the default.” The third section of the notice states that the debtor may cure the default by paying $619.66 within thirty-five days of said notice while section five of the notice provides that the default may be cured by paying a lesser sum if such sum is received within a shorter period of time. The reason for the discrepancy is the amount of an additional monthly mortgage payment which comes due within the thirty-five day period. Viewing the notice in its entirety, we find that this aspect of it complies with § 403(c)(3).
The debtor next contends that the notice is deficient since it states that if the default is not cured within the thirty-five day period, FNMA could then take possession of the subject premises, while in fact possession could not be taken until after the close of foreclosure proceedings. The debtor’s counsel has mischaracterized this provision of the notice which actually states that “[i]f [FNMA] do[es] not receive the required payments ... within thirty-five days ... *803[FNMA] may take possession of all or any part of your property as and when permitted by law.” (Emphasis added). The notice correctly states the law and this basis for relief is without merit.
The debtor also asserts that the notice is defective since it erroneously provides that, unless the default is cured within the thirty-five day period, certain actions might be taken without further notice to the debtor, although numerous notices are required by the state procedural rules governing foreclosure. Once again the text of the notice fails to support the debtor’s contention. The notice states that if the default is not cured in the thirty-five day period, “[FNMA] may, without any further notice to you, do any of the following: A. [FNMA] may accelerate the maturity date of the mortgage ... B. [FNMA] may begin legal proceedings ...; C. [FNMA] may take possession of all or any part of your property as and when permitted by law.” Provisions “A” and “B” may be undertaken without notice to the debtor and any objectionable language in “C” is nullified by the wording of that clause, which restricts the scope of actions which might be taken without notice to those authorized by law. We hold that this ground for relief is likewise without merit.
The debtor also asserts that the notice is deficient in that it “implies” that foreclosure might be stopped only if the debtor cured the deficiency within the thirty-five day period when, in fact, Pennsylvania law provides that foreclosure proceedings can be terminated by tendering the requisite sum at least one hour prior to the commencement of bidding at a sheriffs sale. Pa.Stat.Ann. tit. 41, § 404(a) (Purdon). We find no such implication in the notice.
Lastly, the debtor contends5 that “the notice leaves the debtor guessing, ominously stating only that all of [FNMA’s alternative courses of conduct] ‘may’ be taken.” We do not find that the Act requires the creditor to elect which option he will pursue when he provides the debtor with requisite Statutory notice and we therefore find this basis for relief without merit.
Accordingly, we will enter an order denying all of the requested relief and the objection to FNMA’s proof of claim will be overruled.
. This opinion constitutes the findings of fact and conclusions of law required by Bankruptcy Rule 7052 (effective August 1, 1983).
. Damages in class actions are allowed differently. See 15 U.S.C. § 1640(a)(2)(B).
. “[T]his subchapter” includes 15 U.S.C. §§ 1601 through 1667e.
. Contra, In Re Moses, 9 B.R. 370 (Bkrtcy.N.D. Ga.1981); Cf. General Motors Acceptance Corp. v. Audino (In Re Audino), 10 B.R. 135 (Bkrtcy.D.R.1.1981). (Truth-in-lending violation could not be heard when raised by debtor in response to creditor’s reclamation action).
. In support of this contention, as well as several others addressed above, the debtor has cited decisions from the common pleas courts of various Pennsylvania counties. We have considered these cases and find them unpersuasive in light of the language of the Act. We will follow our interpretation of the statute since the United States Supreme Court has stated that decisions, such as these cited by the debtor, which are without statewide precedent, are only entitled to “some weight” but are “not controlling” on the federal courts. King v. Order of United Sommercial Travelers of America, 333 U.S. 153, 160-161, 68 S.Ct. 488, 492-493, 92 L.Ed. 608 (1948) (construing Erie Railroad Co. v. Tompkins, 304 U.S. 64, 58 S.Ct. 817, 82 L.Ed. 1188 (1938) and the Rules of Decision Act currently found at 28 U.S.C. § 1652). | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489783/ | OPINION
EMIL F. GOLDHABER, Bankruptcy Judge.
In responses to our order of September 16, 1983, granting American Bank and Trust Company of Pennsylvania (“the Bank”) relief from the automatic stay, the trustee, the Bank and the debtors’ lessor have each filed motions seeking to amend our order and to reconsider our opinion in *824support thereof. The Bank has also moved for an order holding the trustee in contempt for failing to comply with the September 16th order. For the reasons stated herein we will deny each of the motions.
Although the facts were previously outlined in our original opinion in this case at 32 B.R. 969, we will reiterate them here for the sake of clarity and make such additional findings of fact as may be necessary:1 Am-pro Corporation (“Ampro”) and Ampro-Scully International, Inc. (“ASI”), are wholly owned subsidiaries of the debtor, Ram Manufacturing, Inc. (“Ram”). The principal offices of these three corporations are located in Montgomery County, Pennsylvania. Ram and Ampro filed for reorganization under chapter 11 of the Bankruptcy Code on January 7, 1983, and ASI filed under the same chapter shortly thereafter. The three debtors ceased conducting business on or about January 14, 1983. Several years prior to the filing of the foregoing petitions, the Bank loaned Ram $300,000.00. Subsequently this loan was increased to $500,000.00 and then to $700,000.00. In exchange for these loans Ram granted the bank a security interest in all existing and after-acquired accounts receivable, contract rights, chattel paper, machinery, equipment, inventory, general intangibles and proceeds thereof. In increasing Ram’s loan from $500,000.00 to $700,000.00, the Bank requested and received the written guarantees of Ampro and ASI which were secured by the same type of collateral as that held by Ram. Ram is also indebted to the Bank on a $440,000.00 loan granted under the aegis of the Montgomery County Industrial Development Authority (“MCIDA”). Under this loan the Bank holds a perfected security interest in Ram’s accounts, inventory, machinery, equipment, furniture, furnishings, subleasehold improvements and fixtures purchased with the loan money. The aggregate indebtedness under the $440,000.00 and $700,000.00 loans totalled $1,176,942.00; including principal, interest and late charges as of May 18, 1983. Ram, Ampro and ASI have been in default on the two loans for a substantial period of time while interest continues to accrue at a rate in excess of $346.00 per day. The value of the collateral available to the bank to satisfy the secured indebtedness is $643,815.00 which consists of the following: cash, $140,-000.00; inventory of component parts and finished goods, $330,000.00; consoles, $75,-000.00; and equipment and furniture, $98,-815.00.
The trustee has urged eight bases for amendment of the judgment, the first of which is that our order of September 16th did not modify the stay with respect to ASI. As the Bank aptly notes, the trustee waived this objection and consented to the jurisdiction of the court as evinced by the transcript of court proceedings on May 19, 1983. As provided in 11 U.S.C. § 323(a) the trustee is the legal representative of the bankruptcy estate and as such has the power to waive personal jurisdiction.2 Fed.R. Civ.P. 12(h); Bky.R. 7012(b). Our order granting relief from the stay was applicable to ASI, and we find no basis for modifying its scope.
The trustee also contends that we should amend our judgment and deny relief from the stay since “a real basis exists for controversy between the parties under state law.” The trustee’s elaboration of this allegation is unintelligible and thus we find that it fails to state a basis for reconsideration.
As a third basis for amendment of the judgment the trustee asserts that we erred in giving the estate’s assets a distress sale value rather than a fair market value. From our opinion the trustee imputes to us the erroneous rule “that one can sell assets on a going concern basis only when the assets are in fact currently used in operations.” On the contrary we did not state, *825nor did we intend to imply, such a rule of law. In the case at bench we made a factual determination that distress sale value was the proper standard. The trustee urges that this standard is erroneous since it was adopted in ignorance of numerous post-trial negotiations in which several parties expressed interest in purchasing some of the collateral at its fair market value. Since the trustee has failed to offer any legal support for allowing us to consider post-trial matters which, of course, are not of record, we find this basis for amendment devoid of merit.
The trustee also contends that the stay should not have been modified since the security interests granted by Ampro and ASI were without adequate consideration. Since the rendition of our opinion the trustee has filed a fraudulent conveyance action based on the granting of the security interest. In our previous opinion at 32 B.R. 973, we expressly found that adequate consideration was present, and consequently this allegation is without merit.
The trustee’s fifth assertion is that in considering whether relief from the stay was appropriate we erred in affording no value to certain lawsuits which were instituted by the trustee. In fact, even though some of the actions at issue are against the United States we stated that since “security interests in unrealized accounts receivable and pending lawsuits are predicated on a third party’s ability, or unsecured promise, to repay, they typically do not have sufficient integrity under § 361 to protect adequately a creditor’s eroding security interest in real property.” 32 B.R. at 972. Furthermore, although we did not previously establish the value of the lawsuits since we determined they are not relevant, we have reviewed them in light of the valuation procedure approved in Bittner v. Borne Chemical Co., Inc., 691 F.2d 134 (3d Cir. 1892).3 As stated in Bittner, “the bankruptcy court [can] estimate [creditor’s] claims according to their ultimate merits rather than the present value of the probability that they would succeed in their state court action [and] we cannot find that such a valuation method is an abuse of discretion conferred by section 502(c)(1).” Id. at 136. In each of the actions we find that the debtor will fail to carry its burden of proof and thus we afford each of the suits a value of zero.
The trustee’s sixth allegation is that the realty subject to bank’s security interest should not be released from the stay since the trustee has a claim against this property under 11 U.S.C. § 506(c) of the Code for the reasonable and necessary costs and expenses of preserving such property. Quite simply, the trustee has not previously raised this issue and a motion for reconsideration is not the proper way to introduce the issue.
The seventh contention, raising two ostensibly unrelated points, is that we erred in valuing certain electronic consoles and that the trustee should be allowed to pursue certain litigation with the costs of such litigation allowed as an administrative expense. We find this allegation unconvincing since the trustee has presented no persuasive rationale for us to redetermine the value of the consoles or to allow the pursuit of litigation while delaying relief from the stay.
The trustee’s last contention in support of its motion for reconsideration is that there was “no evidentiary basis for finding that [ASI] was domiciled in Pennsylvania,” although, in fact, it was incorporated in Florida. The trustee apparently believes that Pennsylvania was not the proper place for filing the financing statements on the collateral at issue here. In reviewing the evidence we find that Pennsylvania was the proper place for filing the financing statements since the collateral was located here. 13 Pa.Cons.Stat. § 9104. Consequently, this contention, as well as the trustee’s other seven, are devoid of merit and we will deny his motion for reconsideration.
Although we granted relief in favor of the Bank in our original opinion, it, too, seeks in the alternative an order directing the trustee to cooperate with the Bank in its efforts to foreclose its security interest *826and an order holding the trustee in contempt. We will deny the Bank’s motion since no evidence was produced at the hearing in support of either request for relief. Nonetheless, we note that the denial of a finding of contempt is without prejudice to the rights of the Bank and we will entertain such a request in the event the trustee fails to deal reasonably with the Bank in its efforts to foreclose its security interests.
Gulf + Western Manufacturing Company (“Gulf”), the debtors’ lessor, has also moved for reconsideration of our order of September 16th seeking a “clarification” that said order does not affect any claim it may have under § 506(c) of the Code against the Bank for recovery of the reasonable and necessary costs and expenses of preserving any collateral stored on the leased premises which the Bank may ultimately repossess. Gulf, like the trustee, has failed to raise previously this issue and it cannot now be initially addressed on a so-called motion for reconsideration.
We will enter an order denying relief on all of the motions filed by the trustee, the Bank and Gulf.
. This opinion constitutes the findings of fact and conclusions of law required by Bankruptcy Rule 7052 (effective August 1, 1983).
. Although objections to personal jurisdiction are waivable, objections to subject matter jurisdiction are not. FediR.Civ.P. 12(h); Bky.R. 7012(b).
. As stated in Bittner, a determination of the value of a lawsuit is a question of fact which is subject to reversal on appeal only if “clearly erroneous.” 691 F.2d at 136, n. 2. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489784/ | MEMORANDUM OPINION
GEORGE L. PROCTOR, Bankruptcy Judge.
This adversary proceeding to determine dischargeability of a debt under § 523(a)(6) of the Bankruptcy Code came before the Court for trial on December 15, 1983. The parties, at the request of the Court, have briefed limited issues.
It is undisputed that the Plaintiff filed, within the debtor’s bankruptcy case, a proof of claim for $12,875.14, which it characterized as, “unpaid balance due under an installment note, disclosure statement and security agreement.” It is undisputed from the evidence that the parties intended to create, and did in fact execute a security agreement within the meaning of F.S. 679.1-102; it is also undisputed that the plaintiff did not take the step necessary for the perfection of its security interest, i.e. the filing of a financing statement, F.S. 679.302. The Court finds as a matter of fact that prior to filing for bankruptcy, the debtor sold the security, a Soderham Model FOB, without consent of the Plaintiff, to a third party who was without knowledge of the existence of any security interest.
The issues briefed by the parties are whether the failure of the bank to perfect its security interest results per se in an invalidation of that interest, and whether the failure of the security agreement to prohibit unauthorized disposition of the collateral by the debtor, has impact on the dischargeability of the debt. For reasons discussed infra, while we emphatically do not find that failure to perfect a security interest in any way diminishes the interest as between the parties, in a bankruptcy context, a secured party’s failure to perfect its interest generally proves fatal to the survival of its security interest because of the operation of 11 U.S.C. § 544(a)(1). The second question briefed by the parties, i.e. the effect of the absence in the security agreement on a prohibition against selling the collateral, we have determined not to be material to the outcome, and that question will not be considered.
Clearly, the law of secured transactions (Article Nine of the Uniform Commercial Code, adopted in Florida as Florida Statutes Chapter 679) does not require that a security interest be recorded in order to create rights and liabilities as between the two parties. A fundamental and crucial distinction exists between the creation and attachment of a security interest (see, respectively F.S. 679.201 and 679.203) on the one hand, and its perfection, see F.S. 679.302, et seq., on the other. The latter places the perfecting secured party in a position superior to that of a wide range of hypothetical third parties, but does not enhance its position vis-a-vis the debtor. Conversely, failure to *841perfect does not in any way change the nature, nor diminish the extent of the secured party’s interest as against the debtor. However, as we shall demonstrate in our discussion infra, failure to perfect does have a significant effect on the rights of a secured party in the context of bankruptcy.
Under a purely state law analysis and without the intervention of bankruptcy, the Bank, as holder of an unperfected security interest in personalty which had been conveyed to a third party not in the ordinary course of business, would be limited to such remedies as it might be able to pursue against the debtor only, and not against the third party buyer, as the rights of a buyer not in the ordinary course of business are superior to those of the holder of an unper-fected lien, F.S. 679.301. If the plaintiff is to have any remedy beyond taking its position as a general unsecured creditor, it must establish that some portion of the debt is not dischargeable within the meaning of 11 U.S.C. 523(a)(6). That section provides that a general discharge does not act as a discharge from any debt, “... for willful and malicious injury by the debtor to another entity or the property of another entity.” This section has been construed to apply to situations involving unauthorized disposition of collateral by a number of courts which have determined that specific intent to injure is not required where injury to the property rights of the secured party is an inevitable and known result of the debtor’s action. See In re Howard, 6 B.R. 256 (Bkrtcy.M.D.Fla., 1980); In re Scotella, 18 B.R. 975 (Bkrtcy.N.D.Ill.1982); In re Donnelly, 6 B.R. 19 (Bkrtcy.D.Or., 1980); In re McCloud, 7 B.R. 819 (Bkrtey.M.D.Tenn., 1980). In this instance, however, the Court cannot find that the defendant’s action in any way diminished the plaintiff’s property rights, based on the unperfected status of his security interest. While we do not question that the interest was perfectly good between the parties, it was not good against third parties with superior rights, which category includes the bankruptcy trustee. Section 544(a)(1) of the Bankruptcy Code places the trustee in the position of a judicial lien creditor. Cases decided under the section with respect to unperfected security interests have uniformly held that holders of those interests are in a position inferior to that of the trustee and that their liens are thus avoidable by the trustee. See, e.g. In re O.P.M. Leasing Services, Inc., 23 B.R. 104 (Bkrtcy.S.D.N.Y., 1982); In re Midwestern Food Stores, 21 B.R. 944 (Bkrtcy.D. Ohio, 1982), et al.
If indeed the Bank’s lien would be worthless against the Trustee in that the Trustee’s “strong-arm” powers would clearly allow him to avoid the lien, then it cannot be said in any real sense that the defendant’s action injured the plaintiff’s property interests. The plaintiff had nothing more nor less than a lien good as to the defendant in a nonbankruptcy context, but totally avoidable by the trustee. Thus, given that the debtor did in fact file for bankruptcy under Chapter 7 of the Code and that the precedence of the trustee’s position as ideally situated hyphothetical lien creditor over the Bank would have been a foregone conclusion, nothing that the defendant did placed the plaintiff in a worse position than it would otherwise have occupied.
As we noted supra, under a non-bankruptcy scenario, the plaintiff would have merely had a lien inferior to that of the purchaser of the collateral, and thus for practical purposes no rights in the collateral (F.S. 679.301). Thus, were this Court to grant a non-dischargeable judgment in the amount of the security interest, we could well achieve the incongruous result of allowing a non-perfecting unsecured creditor better protection on the basis of the debtor having taken bankruptcy than he would otherwise have received. For these reasons, we must find that while, had the creditor perfected its security interest, the debtor’s conduct would have been a ground for a finding of non-dischargeability under § 523(a)(6) of the Code, failure to perfect must lead to a different result. We particularly emphasize that this ruling does not represent a retreat from the rule of In re Howard, supra, in that no issue of perfection was raised in that case.
*842A final judgment of dischargeability in accordance with this opinion has been entered this date. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489785/ | OPINION
EMIL F. GOLDHABER, Bankruptcy Judge:
The issue in the case at bench is whether a payment made to the defendant is avoidable pursuant to sections 522(g) and (h) and section 547 of the Bankruptcy Code (“the Code”). Since all the elements necessary to constitute a preference under section 547(b) have not been established, we conclude that the payment in question cannot be avoided by the debtor.
The facts of the instant case can be simply stated as follows:1 On September 14, 1983, Benjamin D. Garris (“the debtor”) filed a petition under chapter 7 of the Code. Approximately two weeks prior thereto, there had taken place a settlement of the conveyance of real estate owned by the *843debtor and his estranged wife. At said settlement, the sum of $659.81 was deducted from the debtor’s share of the proceeds of the sale by the title company handling the settlement, which transferred said sum to Sears, Roebuck & Company (“Sears”) in satisfaction of a judgment obtained by Sears against the debtor in the amount of $659.81 on May 5, 1982, in the Philadelphia Municipal Court. On October 14, 1983, the debtor filed a complaint against Sears to set aside the $659.81 payment as being a voidable preference within the purview of section 547(b) of the Code. Both parties have filed motions for summary judgment.
Section 522(h) of the Code provides:
(h) The debtor may avoid a transfer of • property of the debtor or recover a set off to the extent that the debtor could' have exempted such property under subsection (g)(1) of this section if the trustee had avoided such transfer, if—
(1) such transfer is avoidable by the trustee under section 544, 545, 547, 548, 549, or 724(a) of this title or recoverable by the trustee under section 558 of this title; and
(2) the trustee does not attempt to avoid such transfer.
11 U.S.C. § 522(h) (1979).2
As set forth in section 547(b) of the Code, five (5) elements must be satisfied in order to avoid any transfer of the debtor’s property:
(b) Except as provided in subsection (c) of this section, the trustee may avoid any transfer of property of the debtor—
(1) to or for the benefit of a creditor;
(2) for or on account of an antecedent debt owed by the debtor before such transfer was made;
(3) made while the debtor was insolvent;
(4) made—
(A) on or within 90 days before the date 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
(ii) had reasonable cause to believe debtor was insolvent at the time of such transfer; and
(5) that enables such creditor to receive more than such creditor would receive if—
(A) the case were a case under chapter 7 of this title;
(B) the transfer had not been made; and
(C) such creditor received payment of such debt to the extent provided by the provisions of this title.
11 U.S.C. § 547(b) (1979).3
Under subsection (b)(5) of section 547, a transfer is avoidable only if the creditor (Sears) receives more on account of the alleged preference than said creditor would have received if the debt in question was satisfied in a proceeding under chapter 7 of the Code. In the case sub judice, it is undisputed that Sears obtained a judgment against the debtor in the Philadelphia Municipal Court on May 5, 1982. Under Pennsylvania law, that judgment constituted a lien against the debtor’s real property.
*844(a) Real property. — Any judgment or other order of a court of common pleas for the payment of money shall be a lien upon real property ... when it is entered of record in the office of the clerk of the court of common pleas of the county where the real property is situated, or in the office of the clerk of the branch of the court of common pleas embracing such county.
42 Pa.Cons.Stat.Ann. § 4303 (Purdon Pocket Part 1983-84) (as amended 1982).4
The debtor has utterly failed to establish that Sears would have received a lesser payment of its debt in a distribution under chapter 7 of the Code if the alleged preferential transfer of $659.81 had not been made. Accordingly, the debtor’s complaint to set aside the $659.81 payment to Sears will be denied. See Sbraga v. Iacovelli (In re Sbraga), 27 B.R. 199, 201 (Bkrtcy.M.D.Pa. 1982).
. This opinion constitutes the findings of fact and conclusions of law required by Bankruptcy Rule 7052 (effective August 1, 1983).
. Section 522(g)(1) provides:
(g) Notwithstanding sections 550 and 551 of this title, the debtor may exempt under subsection (b) of this section property that the trustee recovers under section 510(c)(2), 542, 543, 550,
551, or 553 of this title, to the extent that the debtor could have exempted such property under subsection (b) of this section if such property had not been transferred, if—
(1)(A) such transfer was not a voluntary transfer of such property by the debtor; and (B) the debtor did not conceal such property;
11 U.S.C. § 522(g)(1) (1979).
. The burden of proof to establish each of the elements in § 547(b) by a preponderance of the evidence rests with the trustee or the debtor Denaburg v. Post Welding Supply Co., Inc. (In re Denaburg) 7 B.R. 274, 275 (Bkrtcy.N.D.Ala. 1980). See also American Nat’l Bank & Trust Co. v. Bone, 333 F.2d 984, 987 (8th Cir.1964); Mizell v. Phillips, 240 F.2d 738, 740 (5th Cir. 1957).
. The laws of Pennsylvania further provide that a “[judgment recovered in the Philadelphia Municipal Court shall be a lien upon property in the same manner and to the same extent that judgment recovered in the Court of Common Pleas of Philadelphia is a lien.”
42 Pa.Cons.Stat.Ann. § 1123 (Purdon 1981). | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489787/ | FINDINGS OF FACT AND CONCLUSIONS OF LAW
JON J. CHINEN, Bankruptcy Judge.
A hearing was held on January 3,1984 on Plaintiff’s Complaint, at which time, Raymond Okuma, Esq., represented Elaine S. Yamada, hereafter “Plaintiff”, and Eric Marn, Esq., represented Keith Mamoru Ya-mada, hereafter “Defendant”.
The issue before this Court is whether the debt incurred during marriage and assumed by the husband in a “Property Settlement Agreement” may be discharged in bankruptcy. Phrased differently, the issue is whether the debts assumed by the husband in the above agreement were assumed in lieu of payment of alimony and as such are nondischargeable pursuant to 11 U.S.C. § 523(a)(5).
11 U.S.C. § 523(a) excepts from discharge of an individual debtor any debt
(5) to a spouse, former spouse, or child of the debtor, for alimony to, maintenance for, or support of such spouse or *166child, 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; 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:
Pursuant to this section, debts resulting from an agreement by the debtor to hold the debtor’s spouse harmless on joint debts, to the extent that the agreement is in payment of alimony, maintenance, or support of the spouse and children will be held nondischargeable.
Defendant contends that his reconveyance of his interest in a parcel of land in Kapahulu, Honolulu, Hawaii, to Plaintiff’s parents was in lieu of alimony; and thus, because Plaintiff had waived alimony in the “Property Settlement Agreement,” he was entitled to discharge of those debts he assumed in the settlement. Plaintiff contends that the return of the property to her parents was unrelated to the waivor of alimony; she contends that the waivor of alimony and her agreement to a reduction in support money for the two children were in return for Defendant’s agreement to assume the larger portion of the family debts.
Based upon the evidence adduced, the memoranda and records herein and arguments of counsel, the Court makes the following Findings of Fact and Conclusions of Law.
FINDINGS OF FACT
On June 9, 1981, the parents of Plaintiff conveyed a %rd interest in a parcel of land situate at Kapahulu, Honolulu, Hawaii, to Plaintiff and Defendant, who were then husband and wife. As part of the consideration, Plaintiff and Defendant agreed to assume and pay the balance of the mortgage remaining on the property, to construct a new house and to look after Plaintiffs aged parents for the rest of their lives.
Defendant made one or two of the mortgage payments, made some minor repairs on the existing home and paid the utility bills totalling $600.00 over a period of six (6) months. However, Plaintiff and Defendant were not able to assume the mortgage and were not able to build a new home on the property. Sometime in November of 1981, Plaintiff’s father talked to Plaintiff and Defendant concerning the return of the property, to which Plaintiff and Defendant agreed. By Deed dated November 27,1981, recorded at the Bureau of Conveyances, State of Hawaii, in Liber 16008, page 53, the property was reconveyed to Plaintiff’s parents as tenants by the entirety.
Plaintiff, Defendant and their two children lived with Plaintiff’s parents for over two years without paying anything except for $100.00 in real property tax and $100.00 a month for electricity. Defendant did some minor repairs to the home.
Pursuant to the divorce proceedings commenced by Plaintiff against Defendant in the Family Court of the State of Hawaii, Plaintiff and Defendant entered into a “Property Settlement Agreement”. At the beginning, Plaintiff requested $150.00 per month for each of the two children for their support, maintenance and education. Plaintiff also requested that she and her husband were to be responsible for the family debt which totalled $16,125.72, with Plaintiff paying $350.00 per month and Defendant paying $400.00 a month towards the liquidation of the debts.
Following negotiations, it was agreed, inter alia, that Defendant was to pay $100.00 per month per child for their support, education and maintenance, and that, of the approximate $16,175.00 in family debts, Plaintiff was to be responsible for $3,220.78 and Defendant was to be responsible for the balance of approximately $12,905.07, all as set forth in the “Property Settlement Agreement.” Part of this agreement was *167Plaintiff’s consent to waive any claim for alimony.
CONCLUSIONS OF LAW
1. The Court finds that the payment of two mortgage payments, doing minor repairs and payment of the utility bills were in lieu of Plaintiff and Defendant paying rent to Plaintiff’s parents for use of the residence. Since there was no assumption of the existing mortgage, there was failure of consideration and Plaintiff’s parents were entitled to the return of the property. Thus, the return of the property to Plaintiff’s parents was not part of the “Property Settlement Agreement”.
2. As to the property settlement, it is clear that the agreement by Defendant to pay $12,905.07 or thereabouts of the joint debts of the marriage was in lieu of a larger amount initially requested by Plaintiff for the support, education and maintenance of the two children. Thus, this Court finds the agreement by Defendant to pay such debts to be in the nature of support, education and maintenance for the children and not in the nature of a property settlement. Pursuant to 11 U.S.C. § 523(a)(3) such debts are thus nondischargeable. See In re Mattern, 33 B.R. 566 (Bkrtcy.S.D.Ala.1983).
3. Based on the foregoing, the Court finds the debts assumed by Defendant in the “Property Settlement Agreement” to be nondischargeable.
4. A Judgment will be signed upon presentment. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489788/ | OPINION
EMIL F. GOLDHABER, Bankruptcy Judge.
The issue presented herein is whether a creditor can “amend” a proof of claim for a pre-petition debt which has been fully satisfied (as originally filed) by the debtors under the terms of their confirmed chapter 13 plan to include post-petition expenses incurred by said creditor in rectifying a variety of problems caused by the erroneous distribution of funds by the chapter 13 trustee. Because we find that the expenses currently sought by the creditor constitute a new and separate post-petition claim and since said claim does not fall within the ambit of section 1305(a) of the Bankruptcy Code (“the Code”), we will deny the creditor’s motion to amend its proof of claim.
The facts of the instant case are as follows:1 On March 18,1982, Jesse and Cecelia Bazela (“the debtors”) filed a petition for an adjustment of their debts under chapter 13 of the Code. Thereafter, American Bank and Trust Company of Pennsylvania (“American”) filed a secured proof of claim, dated July 6, 1982, in the amount of $1,692.04. All but $6.74 (late charges) of said sum constituted the amount of principal owed to the American by the debtors. On August 30,1982, we confirmed the debtors’ chapter 13 plan (“the plan”) pursuant to which American’s claim was to be paid in full by May 30, 1983, the date of the scheduled final payment to American.
At all times, the debtors were current on their scheduled payments to the chapter 13 trustee as provided for under the plan. However, the first ten (10) payments due American pursuant to the plan were mistakenly forwarded by the trustee to another secured creditor which was not to receive any payments under the plan. This error was eventually rectified and, on September 9, 1983, American received the monies mistakenly forwarded to the other secured creditor. On November 23, 1983, American received the final payment due it under the debtors’ plan and its claim, as originally filed, was fully satisfied.
Nevertheless, on August 10, 1983, thirteen (13) months after filing its original proof of claim and nearly a year after confirmation of the debtors’ plan, American filed a motion to amend its proof of claim on the theory that it was entitled to late charges and attorneys’ fees incurred on account of the erroneous disbursements of funds by the trustee and the efforts expended by American to correct the mishap. The debtors filed an objection to American’s motion and a hearing on said motion was held.
While American’s motion is couched in terms of “amending” its original proof of claim, we find that the late charges and attorneys’ fees that American now seeks to collect constitute a new and separate claim. Indeed, American concedes that the debtors were not in default prior to the filing of their petition and that it did not have a claim for late charges or attorneys’ fees when it filed its original proof of claim.2 As the court in In re Lanman, 24 B.R. 741, 743 (Bkrtcy.N.D.Ill.E.D.1982), stated:
*190Amendments are freely allowed for the correction of misdescriptions and minor inaccuracies in a statement of substantially the same claim, but not to permit new claims after the time for filing claims has expired (citation omitted). Motions to amend claims are generally allowed only where it is equitable to do so and where there is proof in the record of the bankruptcy case showing a timely assertion of a similar claim or demand against the bankrupt’s estate (citations omitted).
Accordingly, American can only prevail if its present claim constitutes the type of post-petition claim envisioned by the Code.
American relies on section 1305(a) of the Code in support of its contention that it be permitted to amend its proof of claim for the pre-petition debt owed it even though said claim, as it was originally filed, has been fully satisfied under the debtors’ confirmed plan. But that section merely provides that:
(a) A proof of claim may be filed by any entity that holds a claim against the debtor—
(1) for taxes that become payable to a governmental unit while the case is pending; or
(2) that is a consumer debt, that arises after the date of the order for relief under this chapter, and that is for property or services necessary for the debtor’s performance under the plan.
11 U.S.C. § 1305(a) (1979).
It is clear that “the congressional purpose behind section 1305 is to permit the same treatment of certain postpetition credit extended to the chapter 13 debtor as for a pre-petition claim for purposes of proof, allowance, and priority (emphasis added).” Collier on Bankruptcy, ¶ 1305.01 at 1305-3 (15th ed. 1983). Furthermore, we do not construe American as being a holder of a claim against the debtors which arose out of a “consumer debt” which was incurred by the debtors after the commencement of their chapter 13 case “for property or services” that were “necessary” for the debtors’ performance under the plan. See 11 U.S.C. § 1305(a)(2). As Collier’s explains:
The debtor often encounters unforseen circumstances which strain a marginal budget to the breaking point during the pendency of the chapter 13 plan. The only alternative to aborting the plan may be to obtain additional credit, such as for automobile repairs or hospital debts. Section 1305(a)(2) permits holders of post-petition claims of this nature to share with pre-petition creditors under the plan by permitting them to file proofs of claims (emphasis added) (all footnotes omitted).
Id. at 1305-8.
We recognize that the payments due American under the plan were delayed through no fault of its own and that it incurred attorneys’ fees in correcting the problem. However, it is manifest that the debtors too were entirely blameless. Indeed, the debtors made all their scheduled payments to the trustee. We can find no statutory authority, and American has pointed to none, for allowing the post-petition expenses currently sought by American. Consequently, we will deny American’s motion to amend its proof of claim.
. This opinion constitutes the findings of fact and conclusions of law required by Bankruptcy Rule 7052 (effective August 1, 1983).
. See American’s brief in support of its motion to amend at page 6. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489790/ | MEMORANDUM1
KEITH M. LUNDIN, Bankruptcy Judge.
The issue presented is when is a debt “incurred” for the purpose of determining the availability of 11 U.S.C.A. § 547(c)(2) (West 1979)2 as a defense in a preference action. For the reasons stated herein, the court holds that a debt is incurred for § 547(c)(2) purposes when the debtor becomes liable for the goods, services, or other performance rendered, and not on such subsequent date as the creditor may submit a bill or invoice to the debtor.
*266The debtor contracted with Management Assistance Corporation (“MAC”) prior to the filing of bankruptcy. The contract was never reduced to writing, but the oral understanding proven at trial was that MAC would provide management services and would be compensated at an hourly rate agreed upon by the parties. MAC agreed to bill the debtor monthly and the debtor agreed to pay during the month in which the invoice was received. Three invoices and three corresponding payments are at issue in this case:
[[Image here]]
For each of the above billings, the work subject to the invoice was performed during the immediately preceding month. The statement dated May 2, 1980 indicates that the services were performed during April of 1980. Similarly, the statement dated June 3, 1980 indicates the services were performed during May of 1980, and the statement tendered on July 1, 1980 indicates the services were performed during June of 1980.
MAC argues in support of its § 547(c)(2) defense that the debts were incurred when the statements were received by the debt- or.3 If MAC is correct, in Transaction No. 3, the debt was “incurred” on July 7, 1980, and the payment on August 15 or 16, 1980 would be within the 45-day period. The § 547(c)(2) defense would, therefore, be available.4 The trustee argues to the contrary that the debts were “incurred” when the debtor became obligated to pay MAC, i.e., when the management services were actually rendered. The trustee cites in support of this proposition the case of Sandoz v. Fred Wilson Drilling Co. (In re Emerald Oil Co.), 695 F.2d 833 (5th Cir.1983).
In Emerald Oil, the United States Court of Appeals for the Fifth Circuit, after an analysis of the relevant legislative history, the available case law, and numerous treatises held that:
In our view, for purposes of the “ordinary course of business” exception to avoida-bility created by section 547(c)(2), a debt is incurred when the debtor becomes obligated to pay it, not when the creditor chooses to invoice the debtor for his work or goods. This view is in accord with the most logical meaning of the statutory language in the light of statutory definitions in the Code as a whole, as well as with the apparent general Congressional intent in creating the exception.
695 F.2d at 837. The court noted that its interpretation of when a debt is “incurred” was consistent with 11 U.S.C.A. § 101(11) (West 1979), which defines a debt as a “liability on a claim,” and with 11 U.S.C.A. § 101(4) (West 1979) which defines “claim” as including “contingent, unmatured and disputed rights to payment.” Id. Finally, the court found as an administrative matter that the invoicing date is unnecessarily susceptible to discretionary manipulation. A creditor could predetermine the date an obligation was “incurred” by carefully timing the issuance of a bill. This alternative interpretation would unnecessarily promote *267the possibility of inequality and reward the creditor who realizes that a debtor is contemplating bankruptcy and secures preferential treatment. Id. The overwhelming majority of other courts that have considered the question have adopted the date services are provided as the appropriate onset of the 45-day period for purposes of the § 547(c)(2) defense. See, e.g., Barash v. Public Finance Corp., 658 F.2d 504, 511 (7th Cir.1981); Ford Motor Credit Co. v. Ken Gardner Ford Sales, Inc., 23 B.R. 743, 747 (D.C.E.D.Tenn.1982); Trauner v. Stephenson Associates, Inc. (In re Valles Mechanical Industries, Inc.), 20 B.R. 350, 352-353 (Bkrtcy.N.D.Ga.1982); Kampf v. Postal Finance (In re Keeling), 11 B.R. 361, 362 (Bkrtcy.D.Minn.1981); Bass v. Southwestern Bell Telephone Co. (In re Ray W. Dickey & Sons, Inc.), 11 B.R. 146, 147 (Bkrtcy.N.D.Tex.1980); Belfance v. BancOhio/National Bank (In re McCormick), 5 B.R. 726, 731 (Bkrtcy.N.D.Ohio 1980).5 This court is persuaded that the analysis and conclusion reached by the fifth circuit and these other courts is correct.
Accordingly, the court finds that the debts were “incurred” on the date that the goods, services, or other performance was provided and rejects the use of invoice dates for the purpose of determining the availability of § 547(c)(2) as a defense in a preference action.
An appropriate order will be entered.
. This adversary proceeding was decided and findings of fact and conclusions of law entered by the court from the bench after the close of proof on August 18, 1983. The issue discussed in this memorandum arose during the course of trial and this memorandum is filed to support the decision delivered from the bench.
. 11 U.S.C.A. § 547(c)(2) (West 1979) provides:
(c) The trustee may not avoid under this section a transfer—
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(2) to the extent that such transfer was—
(A) in payment of a debt incurred in the ordinary course of business or financial affairs of the debtor and the transferee;
(B) made not later than 45 days after such debt was incurred;
(C) made in the ordinary course of business or financial affairs of the debtor and the transferee; and
(D) made according to ordinary business terms.
. With respect to the transactions numbered 1 and 2 above, the creditor’s argument is to no avail. The May 2, 1980 statement was received on a date unknown, but was paid by check dated July 14, 1980. There is no proof in the record to indicate that the statement was received within 45 days of July 14. As to the statement dated June 3, 1980, the proof supports the conclusion that the statement was received on June 4, 1980 and paid by check dated August 1, 1980, well outside the 45-day period. (It does not matter whether the “transfer” for purposes of § 547(c)(2) took place when the check was issued or when the check cleared the bank because the 45-day period had run under either interpretation of the facts.) Thus, MAC’S argument is only relevant to the third transaction, where the statement is dated July 1, 1980, was received by the debtor on July 7, 1980 and paid by check dated August 15, 1980.
. All other elements of the § 547(c)(2) defense have been established. The only issue remaining to be addressed in this memorandum is the question whether the transfers occurred within 45 days of the debtor incurring the debt.
. The courts in both Valles Mechanical and Dickey explicitly rejected the creditor’s contention that the date of invoicing, rather than the date of obligation should be regarded as the date the debt was incurred. | 01-04-2023 | 11-22-2022 |
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