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https://www.courtlistener.com/api/rest/v3/opinions/8489791/ | ORDER ON MOTION FOR TEMPORARY RESTRAINING ORDER
ALEXANDER L. PASKAY, Chief Judge.
THIS IS a Chapter 11 case and the matter under consideration is a request for injunctive relief sought by B.O.S.S. Partners I, a limited partnership currently involved in the above-captioned reorganization case. In order to put the matter in the proper focus, a brief recap of the history of this litigation is in order.
On November 10, 1982, B.O.S.S. Partners I filed its Petition for Relief under Chapter 11. On May 26, 1983, Justin L. Tucker and Linda E. Tucker filed a Complaint and sought relief from the automatic stay. The matter was duly scheduled for a preliminary hearing, but prior to the preliminary hearing, counsel for the Debtor and counsel for Mr. and Mrs. Tucker entered into a joint stipulation.
It appears from the stipulation that Mr. and Mrs. Tucker and the Debtor had resolved their differences and agreed that there was no need for any further litigation; that the Debtor shall have until December 31, 1983 to sell the subject property to conclude the sale and to disburse to Mr. and Mrs. Tucker all monies owed by the Debtor to them. The stipulation also provided for a minimum sales price and for a pay-off figure of $67,876.50 plus costs, attorneys fees, charges and expenses. This stipulation was approved by an order of this Court which adopted the terms of the stipulation and also provided in Paragraph 4 that if the property is not sold prior to December 31, 1983, a final judgment shall be entered in favor of Mr. and Mrs. Tucker without any further notice and hearing modifying the automatic stay to permit Mr. and Mrs. Tucker to continue a foreclosure action which is still pending in the Hillsborough County Circuit Court.
Inasmuch as the Debtor has not been able to sell the property and the moratorium provided for by the stipulation was about to expire, the Debtor filed a Complaint seeking a preliminary and permanent injunction pursuant to § 105 of the Bankruptcy Code in order to prohibit Mr. and Mrs. Tucker from taking any action in the pending foreclosure proceeding. On December 30, 1983, the Debtor also filed a Motion for Emergency Hearing and for Temporary Restraining Order which is the precise matter under consideration at this time.
It further appears from the evidence presented that the subject property consists of three parcels, although contiguous, all carry a different zoning; that although the Debtor presented a contract for sale of the subject property, the contract has several contingencies, which are as follows: (1) the ability of the Debtor to obtain a unitary zoning after the conclusion of a site study, after the conclusion of which the buyer has a right to determine the best and highest use; (2) the ability of the Debtor to obtain a sewer hook-up; (3) and most importantly, the buyer has no obligation to close except 15 days after the final decision on the acceptable zoning which zoning must be procured within 45 days from the date of the contract.
There is evidence in this record which indicates that the time to obtain a zoning *350change might require as much as 100 days from the date of the submission of the application for rezoning. Although this very same property has been on the market for a year and a half now through multiple listing, no application for rezoning has been filed; no site studies have been conducted; and no arrangements have been made to obtain any hook-up for a sewer service, all of which were known requirements for a year and a half. Furthermore, it is clear that this contract is totally meaningless unless the Debtor is able to remove the contingencies mentioned.
In opposing any injunctive relief, Mr. and Mrs. Tucker urge that as a matter of law the Debtor is not entitled to any relief for the following reasons:
First, it is contended by counsel for Mr. and Mrs. Tucker that by virtue of the stipulation entered between the parties, a stipulation approved by this Court, the Debtor waived its right to any further relief and by virtue of the express terms of the stipulation, they shall be entitled to proceed forthwith to complete the pending foreclosure action. In support of this proposition, counsel for Mr. and Mrs. Tucker cite the case of In re Philadelphia Athletic Club, Inc., 20 B.R. 322 (Bkrtcy.E.D.Penn.1982) where Judge Goldhaber held that as the result of the stipulation negotiated and executed by the Debtor, the Debtor waived all defenses to the first mortgagee’s action. In this case, which was originally commenced as a Chapter 11 case, the holder of the first mortgage and the Debtor in Possession entered into a stipulation settling a complaint which sought a relief from the automatic stay. This stipulation expressly provided that in the event of a default, the debtor waived its right to stay a state court or federal court action against the property. Thereafter, the Court appointed a trustee for the estate pursuant to § 1104(a). The trustee failed to live up to the adequate protection provided for by the first stipulation and as a result, the holder of the first mortgage asserted it had a right to proceed with the foreclosure action. As a result of further negotiations, the trustee and the holder of the first mortgage entered into a second stipulation which provided, inter alia, that the first mortgagee would forebear continuing with the foreclosure action in order to give the trustee a chance to sell the property free and clear of the first mortgage and, of course, satisfy the first mortgage in full upon the conclusion of the sale. After several hearings, the Court concluded that the trustee was bound by the first stipulation and that there had been a default on the stipulation. In order to avoid the consequences of the default, the debtor filed a complaint and sought a permanent injunction against the first mortgage based on § 105 of the Bankruptcy Code. The Court, based on the record, concluded that by virtue of the specific terms of the stipulation, the Debtor has waived its right to raise any equitable or all legal impediments to the first mortgagee’s right to foreclose.
Based on the foregoing, it is contended by counsel that In re Philadelphia Athletic Club, supra is controlling and, therefore, it is unnecessary to consider any other matters. In addition, counsel for Mr. and Mrs. Tucker contend that in any event there is no independent right to relief under § 105 of the Code. Mr. and Mrs. Tucker claim § 105 merely grants the Bankruptcy Court the power to issue any order, process or judgment necessary to assist in the enforcement of any other right created by the Code and in this instance, a right to the protection of the automatic stay granted by § 362. Since that right no longer exists by virtue of the stipulation approved by this Court, the Debtor cannot resort to § 105 of the Code because there is no right which remains to be protected.
Considering these contentions, se-riatim, this Court is satisfied that the holding of In re Philadelphia Athletic, supra generally represents the law and this Court is in agreement with the principle that a stipulation freely entered into by the parties is binding on the parties. In the context of a stay litigation, such a stipulation operates as a waiver by the debtor of any right to obtain protection from the Court *351against proceedings instituted by a secured party for the purpose of enforcing its security interest. This proposition, however, is not etched in cement and should not be applied in an inflexible and pragmatic manner and under proper circumstances, the Court may use its equitable powers and grant further relief to a debtor pursuant to § 105 of the Code. For instance, if there is a radical and new development which drastically changes the economic picture and the value of the collateral, the liquidation of which assures a prompt satisfaction of the claim of the secured parties in full, it is clear that this Court may grant additional relief to the debtor by way of injunctive relief.
This leads to the next contention of counsel for Mr. and Mrs. Tucker which is based on the proposition that the power to grant an injunctive relief based on § 105 is merely an ancillary power which can only be used in connection with the protection of another right created by the Code. In this instance, according to counsel, the right sought to be protected is the protection accorded to debtors by the automatic stay of § 362. Once this protection expires, either because the stay was removed by the Court or by virtue of a stipulation of the parties, there is no longer a basis to exercise the powers granted by § 105 of the Code.
This proposition, while it might appear to be plausible at first glance, does not bear close analysis. The right to protection granted by the automatic stay is not the only right granted by the Code to debtors. The property in question is clearly property of the estate within the meaning of the term as used in § 541 of the Code. Thus, there is no question that under appropriate circumstances, the Court is entitled to use the injunctive power granted by § 105 to protect the property of the estate. Thus, the debtor may avail itself of appropriate circumstances to other remedies such as the protection of an injunction issued pursuant to § 105 of the Code. In re Sandmar Corporation, 16 B.R. 120, 8 BCD 639 (Bkrtcy.D.N.M.1981); In re Feimster, 3 B.R. 11, 6 BCD 131 (Bkrtcy.N.D.Ga.1979); In re Saez, 13 B.R. 605 (Bkrtcy.D.PR.1981); In re Fulghum Construction Corp., 5 B.R. 53 (Bkrtcy.M.D.TN.1980); In re Walker, 3 B.R. 213 (Bkrtcy.W.D.Va.1980). However, in order to invoke the injunctive remedy pursuant to § 105 of the Code, the burden is on the debtor to establish with persuasive evidence that the extraordinary remedy is warranted. As noted, such a showing may be made by establishing that subsequent to the expiration of the automatic stay, the situation drastically changed and the debtor is now in a position to furnish prompt and full satisfaction of the claim of a secured party either through liquidation of the collateral or through an arrangement of refinancing.
This case is a far cry from the example just stated. The evidence is uncontra-dicted that this property has been on the market on multiple listing with a large real estate firm who actively attempted in the past one and a half years to sell this property. As noted earlier, it was known for a year and a half that in order to market this property there will be a need to obtain a change in zoning in order to establish a uniform zoning for all three parcels. Notwithstanding this known fact, the debtor has failed to apply for rezoning. In addition, the present contingencies were also known to be present for the past year and a half, yet nothing has been done to remove them. Last, but not least, the likelihood that the debtor will be able to sell this property and satisfy the claim of these mortgagees, who have not received any monies whatsoever since June 17, 1982, cannot be assured or that they will receive any in the near future, since it is likely that it will take several months before the debtor is able to obtain a change in the zoning, if ever. In addition, Mr. and Mrs. Tucker paid $4,351.27 on the first mortgage to protect their interest and also paid real estate taxes in the amount of $581.28 for the year 1982. At no time did this debtor offer any adequate protection to these mortgagees and they are offering none now.
Based on the foregoing, this Court is satisfied that the Debtor failed to make an adequate showing which would justify the *352extraordinary remedy sought. Therefore, this Motion for Temporary Restraining Order shall be denied. However, in light of the foregoing, this Court is satisfied that although there is nothing pending to dismiss the entire complaint, it would not serve any useful purpose to process this complaint any further. Therefore, this Court is satisfied that the dismissal of the entire complaint is justified under the circumstances.
Accordingly, it is
ORDERED, ADJUDGED AND DECREED that the Motion for Temporary Restraining Order be, and the same hereby is, denied. It is further
ORDERED, ADJUDGED AND DECREED that the Complaint for Preliminary and Permanent Injunction be, and the same hereby is, dismissed. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489792/ | FINDINGS OF FACT, CONCLUSIONS OF LAW AND MEMORANDUM OPINION
ALEXANDER L. PASKAY, Chief Judge.
THIS IS a Chapter 11 case and the immediate matter under consideration is a Complaint filed by the Debtor, Gerald P. McGuire, who seeks pursuant to § 522(f)(1) to invalidate two judicial liens held by Manufacturers and Traders Trust Co. (Manufacturers). The liens total a sum of $12,749.62 plus interest accrued from the date of the entry of the judgments.
It is the contention of the Debtor that the judgment liens held by Manufacturers impair the exemption rights available to the Debtor pursuant to Art. X, § 4, Fla. Const, which provision immunizes the residence of a debtor from the claim of creditors provided that the property qualifies for homestead treatment. Ordinarily, the Debtor’s claim for relief would not present any particular difficulty but because of the peculiar circumstances in this case, the matters do not lend themselves to easy resolution.
The relevant facts as developed at the final evidentiary hearing either through testimony or by stipulation of the parties, are as follows:
The Debtor purchased his residence, located in Island Estates, Clearwater, Florida in 1971 and resided there with his wife and minor children until May 10,1983, when the property was sold. The total purchase price was $170,000 out of which the Debtor netted $61,216.59. It further appears from the testimony of the closing agent that out of the proceeds of the sale, $11,944.29 was paid to Frank McGuire, the Debtor’s brother, who apparently loaned that amount to the Debtor in order to enable the Debtor to make necessary repairs on the residence and thereby place the property in a saleable condition. It also appears that from the net proceeds, $42,471.12 was paid to the Debtor and $18,745.47 is still held on escrow pending the resolution of this controversy by the attorney who acted as the escrow agent. Should Manufacturers prevail in *366this matter, the sums held in escrow will be paid to satisfy the judgment liens in the principal amount of $12,749.62 plus accrued interest from the date of the entry of the judgments.
The record is devoid of any evidence as to the disposition of the funds received by the Debtor with the exception of $1,000 which the Debtor placed on deposit for the purchase of a lot located in a residential community known as East Lake Woodlands, after the sale of the principal residence.
The Debtor died on September 23, 1983 and the widow of the Debtor, though not formally substituted as party plaintiff, is the real party in interest. Although it was intimated at trial that a probate proceeding is pending, there is no. competent evidence in this record to establish either the existence of a probate proceeding or the extent of a probate estate, if any.
The Debtor’s widow and two minor children are currently residing with another son and she stated that she intends to purchase a home if she prevails in this litigation. There is no clear evidence in this record that at the time of the sale, the Debtor intended to reinvest the proceeds in another residence or that the proceeds from the sale were segregated for the purpose of reinvesting. Further, there is no evidence of the amount that the Debtor intended to reinvest in a principal residence even if an intent to reinvest can be inferred from the circumstances.
It is without dispute that Gerald McGuire was the head of the household at the time of his death and by virtue of § 222.19 Fla. Stat. (1981), that status, which qualifies the owner’s property for homestead exemption, inures to the benefit of his survivirig spouse who also enjoys the right to assert this complaint.
There is no doubt that if the Debtor had owned the residential property at the time of his death, the property would be untouchable by creditors. However, in this case, the Debtor conveyed the real property approximately four months prior to his death and the proceeds of the sale were not reinvested in a new dwelling. This leaves for determination the question of whether the proceeds from the voluntary sale of the homestead property retain the character of exempt property thereby removing them from the reach of creditors.
The Supreme Court of Florida addressed this precise question in the case of Orange Brevard Plumbing & Heating Co. v. La Croix, 137 So.2d 201 (1962). After a lengthy examination of the law of other jurisdictions and in recognition of the policy behind the homestead provision of the Florida Constitution, the Court held that the proceeds of a voluntary sale of a homestead are exempt from claims of creditors as is the homestead itself “. . . if, and only if, the vendor shows by a preponderance of the evidence an abiding good faith intention prior to and at the time of the sale of the homestead to reinvest the proceeds thereof within a reasonable time.” (emphasis supplied) Orange Brevard Plumbing and Heating Co. v. La Croix, supra. The Court also held that only that portion of the proceeds which are intended to be reinvested are exempt and those proceeds which are earmarked for reinvestment must be segregated from other funds of the seller. Orange Brevard, supra at 206.
There is no doubt, and the case law so provides, that the exemption laws are to be liberally construed in order to achieve the underlying policy aims of exemption laws. Drucker v. Rosenstein, 19 Fla. 191 (1882); Pasco v. Harley, 73 Fla. 819, 75 So. 30 (1917); White v. Posick, 150 So.2d 263 (Fla. 2d DCA 1953); Graham v. Azar, 204 So.2d 193 (Fla.1967). However, the Orange Brevard court was careful to point out that where there existed an established homestead up until the time of sale, “.. . the funds realized from such sale enjoy an exempt status provided the other requirements for such exemption as herein set forth are fully met.” Orange Brevard, supra at 207.
In the case at bar, the Debtor sold the homestead property on May 10, 1983. There is no evidence in the record that at the time of the sale, the Debtor had taken *367any steps to arrange for the purchase of a replacement residence or that he had any intent to do so. Further, although it appears that sometime between May 10, 1983 and September 23,1983, the Debtor entered into a contract and deposited $1,000 for the purchase of a lot in East Lake Woodlands, the record is devoid of any evidence which would support a finding that at the time of the sale the Debtor intended to construct a residence on the lot or that the purchase of the lot was in any way connected to the sale of the former homestead and the construction of a new residence.
As noted above, in order to retain the character of exempt property, proceeds from a voluntary sale of a homestead cannot be commingled with other funds. While the evidence reveals that at the time of the Debtor’s death the net proceeds minus the $1,000 deposit were held in a savings account, there is no evidence that the funds in the pass book account were generated solely from the sale of the property. In addition, the location of the proceeds at this time, if they in fact still exist, is unknown. Finally, no testimony was elicited regarding the portion of the proceeds, if any, which was to be devoted to the acquisition of a replacement residence.
Based on the foregoing, this Court is constrained to conclude that the proceeds from the voluntary sale of the Debtor’s homestead are not entitled to the protections provided by Art. X, § 4 Fla. Const.
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/8489794/ | MEMORANDUM
CLIVE W. BARE, Bankruptcy Judge.
The question before the court is whether the mail of defendant Patricia Shelby, the debtor’s former personal secretary, should be redirected. The trustee contends Shelby is the agent and alter ego of the debtor and that she has served as a conduit of funds on the debtor’s behalf since the filing of the involuntary petition. Denying she is the debtor’s alter ego, Shelby asserts that redirection of her mail would be an unjustifiably overbroad invasion of her privacy.
I
The trustee’s complaint seeking redirection of mail addressed to either the debtor or Patricia Shelby was filed on January 12, *4311984. After the court sustained Shelby’s motion for a more definite statement, the trustee filed an amended complaint in support of his allegation that she is the alter ego of the debtor. On February 10, 1984, the court entered a judgment authorizing the redirection of mail addressed to the debtor or any one of sixty-eight (68) entities presently being delivered to five different addresses.1 Such mail is to be received by a neutral third party, mail addressed to the debtor from any attorney currently or formerly representing him shall be turned over to him unopened, and any mail personal in nature and unrelated to property of the estate shall also be surrendered to the debt- or. According to the trustee similar relief is necessary with respect to Shelby’s mail.
An involuntary petition filed against the debtor on July 14,1983, was sustained when an order for relief under chapter 7 was entered on August 22, 1983. Prior to the entry of the order for relief, on August 16, 1983, the court entered an order prohibiting, among other actions, the debtor from engaging in any transaction involving property exceeding $1,000.00 in amount or value.
Shelby admits that she was authorized to sign checks against two of the debtor’s accounts with Valley Fidelity Bank & Trust Co. of Knoxville, Tennessee. The first account, the “DAC Rental Account,” was opened on June 1, 1983. Checks were issued against this account in payment of the debtor’s obligations. According to the trustee’s testimony, some checks against this account may have been issued in July 1983. There is no documentation pertaining to this account in the record. However, Shelby apparently wrote checks against the second account, known as the “PAS — Special Account,” through November 14, 1983, nearly three months after the entry of the order for relief. According to Shelby’s answer 2 the “PAS — Special Account,” opened on July 6, 1983, was opened at the specific instruction of the debtor. She further avers that all deposits and disbursements were made in accordance with the debtor’s specific instructions. The trustee testified that the checks written against the account appear to have been issued in payment of obligations of the debtor. Although the balance in this account was only $31.10 as of November 15, 1983, bank statements reflect that the sum of $35,259.01 was deposited to the account between July 6 and September 27, 1983.3
Shelby also concedes that she received some proceeds from the sale of a Ferrari automobile formerly owned by the debtor. She communicated with James Clifford, president of Classic Cars in Hilton Head, South Carolina, who apparently sold the Ferrari on behalf of the debtor. Shelby avers that upon the debtor’s instructions a check representing proceeds was made payable to her as agent.
According to the trustee’s testimony work orders for the reparation of a 43-foot boat, allegedly property of the debtor, were signed by Shelby on September 1, 1983. Admittedly Shelby was with the debtor when this vessel was left with Flagship Marine in Iuka, Mississippi. She also admits contacting Flagship Marine to determine whether progress had been made toward repair of the vessel. She maintains that she did so only upon instructions from the debtor and that he authorized the repair work on the vessel.
Shelby also concedes that she was formerly in charge of preparing the payroll for Norris Industries, Inc., a corporation in which the debtor has an ownership interest. However, she maintains that she is no longer employed with Norris Industries, Inc.
On cross-examination the trustee conceded he has no evidence that Shelby is either receiving or presently has documents relat*432ing to property of the debtor’s estate. The trustee likewise conceded that he has no evidence that monies in the Valley Fidelity accounts were diverted by Shelby for her own use.
II
The Fourth Amendment to the United States Constitution recites in material part: “The right of the people to be secure in their ... papers, and effects, against unreasonable searches and seizures, shall not be violated .... ” First-class mail is within the scope of protection afforded by this amendment. United States v. Van Leeuwen, 414 F.2d 758 (9th Cir.1969), rev’d on other grounds, 397 U.S. 249, 90 S.Ct. 1029, 25 L.Ed.2d 282 (1970).
Section 542(e) of Title 11 of the United States Code provides:
Subject to any applicable privilege, after notice and a hearing, the court may order an attorney, accountant, or other person that holds recorded information, including books, documents, records, and papers, relating to the debtor’s property or financial affairs, to disclose such recorded information to the trustee. (Emphasis added.)
There is no evidence that Shelby currently has possession of either property or recorded information relating to property of the estate. The very aim of mail redirection in a bankruptcy context is to obtain property and information pertaining to property of the estate. Some of Shelby’s postpetition actions.on the debtor’s behalf are clearly suspect and should be thoroughly investigated.4 However, she insists she no longer performs any business functions for nor receives any mail on behalf of the debtor. Moreover, she avers that she will refuse to accept any mail of the debtor attempted to be delivered to her at either her current or any other address.5
Redirection of Shelby’s mail would be a very substantial encroachment upon her constitutional right to privacy. Under the facts presented in this action, such an intrusion is unreasonable and not warranted, since less intrusive measures should adequately safeguard the trustee’s interest. The court, however, shall enter an order requiring Shelby to accept and immediately make available to a neutral third party to be appointed by the court any and all mail delivered to her which is addressed to either the debtor or one of the sixty-eight (68) entities enumerated in Exhibit A to the trustee’s complaint herein. Furthermore, any other mail, including but not limited to bank statements, addressed to Shelby relating to property which she even suspects may relate to property of the estate shall be made available and surrendered to the neutral third party appointed herein.
This Memorandum constitutes findings of fact and conclusions of law, Bankruptcy Rule 7052.
. Norwood v. Crabtree, 37 B.R. 426 (Bkrtcy.E.D.Tenn.1984).
. Patricia Shelby neither testified nor appeared personally at the trial held on February 10, 1984.
.The bank statements in the record reflect that the last deposit to the account was made in the amount of $1,538.46 on September 27, 1983.
. See 18 U.S.C.A. § 152 (Supp.1983).
. Patricia Shelby’s current address is 7240 Wellswood Lane, Knoxville, Tennessee. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489795/ | *544ORDER RE: MOTION TO AMEND “ORDER RE ‘MOTION FOR ORDER GRANTING RELIEF FROM AUTOMATIC STAY,’” FILED ON JANUARY 27, 1984
JON J. CHINEN, Bankruptcy Judge.
On August 17,1983, Commercial Finance, Limited, (hereafter “Commercial Finance”) filed herein a Motion for Order Granting Relief from Automatic Stay (hereafter “Motion for Relief”), thérein seeking relief pursuant to 11 U.S.C. § 362(d) from the automatic stay under 11 U.S.C. § 362(a) to allow the continuation of that certain foreclosure action pending in the Circuit Court of the First Circuit of the State of Hawaii (hereafter “Circuit Court”), the same being designated as Commercial Finance, Limited vs. Norfolk Investment Co., Ltd., et al., Civil No. 71594 (hereafter “Civil No. 71594”), including, but not limited to, the foreclosure sale of that certain real property identified by Tax Map Key (1) 2-9-24-01 and located on Waahila Ridge, Manoa Valley, City and County of Honolulu, State of Hawaii (hereafter “Property”).
Following several days of hearing, on January 27, 1984, this Court entered an Order Re: Motion for Order Granting Relief from Automatic Stay (hereafter “Order”), pursuant to which the automatic stay was terminated, vacated, lifted, and otherwise modified to allow the continuation of Civil No. 71594 against Development, Inc., Debtor above-named, and its interest in the Property, including, but not limited to, the foreclosure sale of the Property.
On February 6, 1984, Pacific Loan, Inc., (hereafter “Pacific Loan”), filed herein a Motion To Amend pursuant to Bankruptcy Rule 9023 and Rule 59(e) of the Federal Rules of Civil Procedure, moving this Court to amend the Order to:
1.Modify the automatic stay in order to permit Pacific Loan to foreclose on its Mortgage and Security Agreement (Assignment of Purchaser’s Interest Under Agreement of Sale) (hereafter collectively “Lien”) on the Property and appurtenant cluster development permit (hereafter “Cluster Permit”);
2. Allow the sale of the Property and Cluster Permit together; and
3. Provide that Pacific Loan is entitled to and should be paid in Civil No. 71594 the proportionate value of the Cluster Permit, to wit: one-third (Vs) of the value of the Property and Cluster Permit together.
Commercial Finance has filed a memorandum in opposition to Pacific Loan’s motion.
A careful review of the files and the memoranda herein shows that, at the hearing on Commercial Finance’s Motion for Relief, no evidence nor argument was presented concerning the ownership of the Cluster Permit. Commercial Finance, Pacific Loan and Debtor, all claiming ownership of the Cluster Permit, agreed that the matter of its ownership would be determined at a subsequent hearing. Since there was no determination of the ownership of the Cluster Permit, it is premature at this time for Pacific Loan to request modification of the order lifting the automatic stay to permit Pacific Loan to foreclose on the Cluster Permit.
Since Commercial Finance is foreclosing on Debtor’s real property on Waahila Ridge in the State Circuit Court, it would be more appropriate for the Circuit Court to consider and decide the issues of (a) whether the Cluster Permit is covered by Commercial Finance’s Mortgage and/or Pacific Loan’s Lien, (b) whether the Property and Cluster Permit should be sold together, and (c) whether the proceeds derived from the foreclosure sale thereof should be allocated as between Commercial Finance and Pacific Loan.
Further, this Court’s ruling concerning the value of the Cluster Permit was an estimate based upon the evidence presented at the hearing. The best evidence, however, of the value of a parcel of land with and without a Cluster Permit is the sale itself. Thus, this Court leaves to the State Circuit Court to determine the method of selling Debtor’s real property and to deter*545mine such value with and without the Cluster Permit.
Based on the foregoing, the Court denies Pacific Loan’s Motion to Amend “Order Re: ‘Motion for Order Granting Relief from Automatic Stay.’ ” | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489796/ | OPINION
HUGHES, Bankruptcy Judge.
This is an appeal from an order denying appellants’ motion to expunge two lis pen-dens. We affirm in part and reverse in part.
I
Mr. and Mrs. Erickson, two of the appellants, are principals of the two corporate appellants. The Ericksons and one corporation, Hotel San Maarten of Laguna Beach, Inc., entered into an agreement with Pacific Horizons, Inc., wherein Pacific Horizons would develop Hotel San Maarten’s property into time-share units. Pacific Horizons was responsible for obtaining approval of various governmental agencies. It was to receive 15% of the proceeds from the timeshare sales. The contract did not provide for Pacific Horizons to obtain any legal interest in the real property.
On the day following approval of the conversion by the City of Long Beach, Ho7 tel San Maarten and the Ericksons terminated the agreement. Pacific Horizons sued for damages and for specific performance of the agreement, at the same time recording a notice of pendency of action pursuant to Calif.Code Civ.Proc. § 409 et seq.
Later, Pacific Horizons added a cause of action that alleged a fraudulent conveyance of the hotel property to Laguna Beach Resorts, Inc. It also recorded an amended lis pendens to give notice of the fraudulent conveyance action against Resorts.
Meanwhile, Pacific Horizons filed bankruptcy.
Defendants unsuccessfully moved the bankruptcy court for an order expunging the lis pendens, and this appeal followed. We treat the notice of appeal as an application for leave to appeal an interlocutory order and we grant such leave to appeal.
II
California law requires expungement of a lis pendens if the action does not affect title to, or the right to possession of, the property described in the notice. Calif. Code Civ.Proc. § 409.1. Our inquiry is whether plaintiff’s action affects title or right to possession of the hotel property. Appellee concedes that the first four causes of action (breach of contract, bad faith breach of contract, tortious interference with contract and specific performance of contract) do not affect title. It contends that the specific performance count affects the right to possession, as used in section 409.1, because “it has a right of use and access to possession of the hotel in order for it to complete its part of the joint venture agreement.” It further contends that the fraudulent conveyance action affects title.
*655A
We agree only with the latter contention. A fraudulent conveyance action supports a lis pendens under California law because it affects title to real property. Ahmanson Bank and Trust v. Tepper, 269 Cal.App.2d 333, 74 Cal.Rptr. 774 (1969). The trial court’s order denying defendant’s motion to expunge the lis pendens insofar as it gave notice of the fraudulent transfer cause of action therefore must be affirmed.
That cause of action affected only one defendant, Laguna Beach Resorts, Inc., however. We turn now to the notice of pendency of the other counts.
B
As previously noted, appellee bases its lis pendens on its claimed right to “use and access to possession of the hotel.” The relief it seeks, however, is limited to money damages; it does not seek a decree establishing a possessory interest in the hotel.
Specifically, it prayed for general damages of $2.8 million on the first three counts and for punitive damages of $1 million on the second and third. It prayed in the fourth count “[f]or specific performance of the written contract allowing plaintiff to complete its obligations and ordering defendants ... to perform their obligations to convert the real property into time-share units, market those units for sale, and distribute plaintiff’s share of profits to plaintiff.” Thus the relief sought under even the fourth cause of action is a money judgment for profits and not a judgment granting a possessory interest in real estate.
Appellee relies on Kendall-Brief Co. v. Superior Court, 60 Cal.App.3d 462, 131 Cal. Rptr. 515 (1976) for the proposition that the right to possession “includes the right to have access to and to occupy such property.” Id, at 468, 131 Cal.Rptr. 519. Appellee alleges that it had a right of access to the hotel in its performance under the contract. We believe appellee misreads Kendall-Brief.
That case addressed the propriety of a lis pendens regarding an action over an easement to otherwise landlocked property. Although a right-of-way easement over servient property does not affect title to the dominant property, the court held that “the right of possession of the real property definitely would be affected inasmuch as access to such property would seriously be impaired.” Id, at 468, 131 Cal.Rptr. 519. The court thus held that a property interest in the form of an easement affected possession of the dominant property. Appellee’s right to manage and develop the hotel for marketing purposes did not give it an easement or any other property interest.
This case closely parallels Allied Eastern Financial v. Goheen Enterprises, 265 Cal.App.2d 131, 71 Cal.Rptr. 126 (1968) wherein plaintiff agreed to secure financing for proposed improvements on defendant’s land. In affirming an order expunging plaintiff’s lis pendens, the court noted that the contract did not give plaintiff a lien or encumbrance on defendant’s land and that money damages were sought. It concluded:
Plaintiff’s action here in no way relates to the real property and no judgment entered in it can affect that property. Thus the notice, even if permitted to remain of record, would have no legal effect but would serve only as a practical blackjack [because of title insurance company policies].
Id. at 134, 71 Cal.Rptr. 128.
We conclude that because appellee’s first four causes of action, including the specific performance count, will not lead to a judgment affecting real property, or a possessory interest in real property, the lis pendens must be expunged under Calif.Code of Civ. Proe. § 409.1.
C
The dissenting opinion holds that the lis pendens “is appropriate in this suit for specific performance of the agreement” because a decree of specific performance “would be a hollow right if ... the property necessary for the specific performance belonged to a stranger from whom it could not be retrieved.” While this consideration might justify injunctive relief, it does not appear to justify the recording of a lis *656pendens under Calif.Code of Civ.Proc. § 409. None of the cases cited in the discussion of specific performance involve lis pendens.
Ill
The order appealed is reversed and remanded for further proceedings insofar as it denies the motion to expunge the lis pendens regarding the first four causes of action. It is affirmed as to the fraudulent conveyance cause of action. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489799/ | DECISION
McMILLEN, District Judge.
Plaintiff is a bankrupt, and defendant has filed an appeal from a decision by Bankruptcy Judge Toles dated June 24, 1983, 37 B.R. 684, in which he found that *688plaintiff’s debt for an educational loan in the amount of $5,573.20 had been discharged. Specifically, Judge Toles found:
Plaintiff’s financial condition is such that she and her family are already living at poverty level. The fact that Plaintiff is attempting to repay a portion of her student loans is evidence of her good faith. Therefore, the Court finds that exception from discharge of the student loan obligation to the Illinois State Scholarship Commission would impose an undue hardship on this Debtor and her dependents.
The foregoing conclusion was arrived at after Judge Toles heard the testimony of the plaintiff, and his decision is final unless “clearly erroneous” under Rule of Bankruptcy Procedure 8013. Judge Toles applied 11 U.S.C. § 523(a)(8)(B) which allows discharge of an educational loan if the debt would “impose undue hardship on the debt- or and the debtor’s dependents.” The evidence supports Judge Toles’ findings of fact and conclusions of law. They are not clearly erroneous.
Therefore, the defendant’s appeal is dismissed with prejudice and the finding of the bankruptcy judge that plaintiff’s debt to the defendant is discharged is affirmed. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489800/ | ORDER ON FEE APPLICATIONS
THOMAS C. BRITTON, Bankruptcy Judge.
A confirmation hearing was held on January 9 upon this debtor’s chapter 11 plan. The plan has been confirmed. At the same time, two fee applications were heard.
The National Association of Credit Management of South Florida Unit, Inc., has filed an application (C.P. No. 70) for $3,750 for services:
“rendered in representing the Creditors’ Committee both unofficially and officially as Secretary.”
The application represents that 32.25 hours were spent “for professional services” during the period between August 2, 1982 (some eight months before this bankruptcy was filed) and the date of the application, November 28, 1983. The application recites that it is presented under 11 U.S.C. § 330 and B.R. 2016(a).
The application is denied.
Although a Creditors’ Committee is permitted to employ:
“one or more attorneys, accountants, or other agents, to represent or perform services for such committee”
with the court’s approval, there is no authorization to pay for those services from the debtor’s estate other than as authorized by § 330. That section authorizes award:
“to a professional person employed under section 327 or 1103.”
It is clear from the provisions of § 327 that the phrase “professional person” includes attorneys, accountants, appraisers, and auctioneers. The provisions of § 1103 add nothing to the definition. Although the designated “professionals” do not exhaust the category, there is no indication that a secretary falls in that category. I find and conclude that this applicant was not and is not a professional person within the scope of § 330.
Furthermore, there is no authority to reimburse any person, other than the debtor’s attorney, for services rendered before bankruptcy and before his employment has been approved by the court.
Finally, this applicant also seeks compensation for an additional 30 hours he anticipates will be spent in the future in making the disbursements required by the debtor’s confirmed plan. This court has appointed the debtor’s attorney to serve as the disbursing agent without further compensation. The task can be performed expertly and reliably by the designated disbursing agent. There is no occasion to anticipate and, therefore, to compensate this corporation for those services.
Jerry M. Markowitz, Esquire, has applied (C.P. No. 73) for compensation as *813counsel for the Creditors’ Committee. He seeks $13,312 for 78.75 hours of legal services already performed and an estimated additional ten hours. Like the services of the foregoing applicant, this applicant’s services began on August 2, 1982, and continued to the date of the application. The application represents and it is conceded by the debtor that the applicant’s services were valuable and instrumental in the formulation of the debtor’s plan. Mr. Markowitz is an experienced and able bankruptcy specialist. His valuation of his time for these services, which involved no litigation and achieved no extraordinary results, at an average of $150 an hour would normally be excessive in this area during the time these services were performed. However, in this instance, his compensation was contingent upon a successful reorganization, and giving consideration to that contingency, I find the rate of compensation reasonable.
However, I cannot agree that he is entitled to charge the debtor’s estate with compensation for services rendered before bankruptcy and before his employment was authorized by this court under § 327(a). Collier on Bankruptcy, (15th ed.) ¶ 327.02 n. 3. The application reflects that 31.25 hours were spent before employment was authorized. Compensation for this applicant’s services is authorized, therefore, in the amount of $8,625.
In addition, the applicant seeks reimbursement of expenses in the amount of $131.55. The application is reasonable and is approved. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489801/ | OPINION
THOMAS M. TWARDOWSKI, Bankruptcy Judge:
The issue before us is whether we should grant the trustee’s complaint against the defendant to collect accounts receivable for goods delivered. Assuming, arguendo, that the defendant accepted the goods in question, we find that the defendant effectively revoked its acceptance of the goods in question based on their nonconformity with the type of goods ordered by the defendant. Accordingly, we will deny the trustee’s complaint.
The facts of the instant case are as follows: 1 On April 30, 1980, H.P. Tool Manufacturing Corporation (“the debtor”), an entity engaged in the manufacture and sale of certain tools, parts and accessories, filed a petition for reorganization under chapter 11 of the Bankruptcy Code (“the Code”). Pri- or thereto, between October 10, 1979, and November 21, 1979, Bass and Sons, Inc. (“Bass”), a retailer/wholesaler of hardware supplies in California and a long-standing customer of the debtor, received several shipments of wrench kits (“the goods”) from the debtor. Upon receiving the goods, Bass, without opening the cartons containing the goods and inspecting same, placed the goods in inventory and shipped some of the goods to its customers in the unopened cartons. In December of 1979, Bass began to receive complaints from its customers regarding the quality of goods in question. Consequently, Bass informed the debtor of the problem via its local representative in California. Nevertheless, in March of 1980, Bass received a notice for payment for the subject goods from a bank which was collecting the debtor’s accounts receivable. Bass notified the bank of the defective nature of the goods and supplied the bank with samples of the non-conforming goods. Finally, on October 12, 1982, the trustee for the debtor filed a “complaint to collect accounts receivable” against Bass for the goods in question in the amount of $3,035.15. A hearing on said complaint was subsequently held.
Under the Uniform Commercial Code (“the U.C.C.”), a buyer may reject goods if “the goods or the tender of delivery fail in any respect to conform to the contract...” 13 Pa.Cons.Stat.Ann. § 2601 (Purdon Pamphlet 1983). However, the buyer must reject the goods in accordance with section 2602 of the U.C.C., which, in pertinent part, provides:
(a) Time and notice of rejection. — Rejection of goods must be within a reasonable time after their delivery or tender. It is ineffective unless the buyer seasonably notifies the seller.
13 Pa.Cons.Stat.Ann. § 2602 (Purdon Pamphlet 1983).2
The trustee contends that Bass failed to rightfully reject the goods received from the debtor because Bass did not inspect the goods within a reasonable time after their delivery. Therefore, the trustee argues that Bass’s failure to make an effective rejection (after having had a reasonable *887opportunity to inspect the goods) consti-. tutes an acceptance of the goods within the parameters of the U.C.C. We disagree. The trustee, relying on the case of Comfort Springs Corp. v. Allancraft Furniture Shop, Inc., 165 Pa.Super 303, 67 A.2d 818 (1949), maintains that Bass failed to exercise “due diligence” in inspecting the goods in question. In Comfort Springs, the Superior Court of Pennsylvania held that because the defects which the buyer complained of were readily ascertainable upon inspection and, since no such inspection was made by the buyer for a period of more than thirty (30) days after delivery, the buyer’s subsequent notification of recission was ineffective and, consequently, the buyer’s delay in notifying the seller of the defects was deemed to constitute an acceptance of the goods by the buyer. However, the Comfort Springs case is clearly distinguishable from the case sub judice. Bass’s president testified that when the subject goods were delivered to his company, they were either put in inventory or shipped out to waiting customers.3 He further testified that he did not instruct his employees to open up the cartons containing the goods and examine them and that this was the company’s normal policy.4 However, the goods at issue in Comfort Springs were sofa beds which arrived uncrated and which were bound together with bands or straps. In the instant case, the defect complained of is that the wrenches delivered to Bass, which were unpolished, did not conform to the type ordered which had a highly polished finish with the “Blue Line” label inscribed thereon.5 It appears from the record that the only way that Bass could have discovered the non-conformity was to have opened each carton and then unfold the wrench kits which were individually rolled up in a vinyl-like pouch.6 Therefore, we reject the trustee’s contention that the non-conformity should have been discovered immediately upon receipt of the goods. Rather, we find that Bass’s “acceptance” of the goods was reasonably induced because of the difficulty of discovering the non-conformity.
The trustee next asserts that the shipment by Bass to its customers constituted an act of dominion by Bass over the goods which prevents recission of the contract and cites the case of Marbelite Co. v. City of Philadelphia, 40 Pa.D. & C.2d 347 (C.P.Phila.1966), aff’d per curiam 208 Pa.Super. 256, 222 A.2d 443 (1966) in support thereof. We find this contention to be meritless. Mar-belite is plainly inapposite to the case at bench. In that case, the plaintiff-manufacturer sued the City of Philadelphia to recover the purchase price of various traffic signals and signal equipment which the city has used without complaint for a long period of time but for which it had never paid. When the plaintiff-manufacturer sued the city, the city claimed that it had not accepted the equipment because, inter alia, improprieties had taken place in the bidding process by which the plaintiff-manufacturer had obtained the contract and because the equipment failed to meet certain specifications. The trial court held'that the city’s use of the equipment was patently inconsistent with the seller’s ownership and that said use constituted acceptance under section 2606 of the U.C.C.7 The trial court, however, found it dispositive that the city *888had never sought to rescind the contract, never offered to return the traffic equipment and never sued for money damages.
In the instant case, however, Bass’s president testified that he first became aware that there was a problem with the goods when his customers began returning the goods to Bass in the middle of December, 1979.8 He further testified when the goods started to be returned, he called the debt- or’s salesman and informed him of the problem.9 Consequently, we find no similarity whatsoever between Marbelite and the case sub judice.
Consequently, even if we assume, arguen-do, that Bass did technically accept the goods, we are convinced that it effectively revoked said acceptance by informing the debtor’s salesman of the non-conformity after the return of the goods to Bass by its customers.10 Therefore, we will deny the trustee’s complaint.
ORDER
AND NOW, to wit, this 16th day of March, 1984, it is
ORDERED that the complaint of Fred Zimmerman, trustee for H.P. Tool Manufacturing Corporation, the debtor herein, against Bass & Son, Inc. (“Bass”) to collect accounts receivable be, and the same hereby is, DENIED; and it is further
ORDERED that Bass forthwith return any of the goods in question which it still has in its possession to the trustee.
. This opinion constitutes the findings of fact and conclusions of law required by Bankruptcy Rule 7052 (effective August 1, 1983).
. The terms “reasonable time” and “seasonably” are defined by the U.C.C. as follows:
* * * s{: sk
(b) Reasonable time. — What is a reasonable time for taking any action depends on the nature, purpose and circumstances of such action.
(c) Definition of “seasonably”. — An action is taken “seasonably” when it is taken at or within the time agreed or if no time is agreed at or within a reasonable time.
13 Pa.Cons.Stat.Ann. § 1204 (Purdon Pamphlet 1983).
. See notes of testimony, 3/1/83 at 30.
. Id.
. See Exhibits D-7 and D-8.
. Id.
. Section 2606 of the U.C.C. provides:
(a) General Rule. — Acceptance of goods occurs when the buyer:
(1)after a reasonable opportunity to inspect the goods signifies to the seller that the goods are conforming or that he will take or retain them in spite of their nonconformity;
(2) fails to make an effective rejection (section 2602(a)), but such acceptance does not occur until the buyer has had a reasonable opportunity to inspect them; or
(3) does any act inconsistent with the ownership of the seller; but if such act is wrongful as against the seller it is an acceptance only if ratified by him.
(b) Part of commercial unit. — Acceptance of a part of any commercial unit is acceptance of that entire unit.
13 Pa.Cons.Stat.Ann. § 2606 (Purdon Pamphlet 1983).
. See notes of testimony, 3/1/83 at 30.
. Id.
. Section 2608 of the U.C.C. provides:
(a)Grounds for revocation. — The buyer may revoke his acceptance of a lot or commercial unit whose nonconformity substantially impairs its value to him if he has accepted it:
(1) on the reasonable assumption that its nonconformity would be cured and it has not been seasonably cured; or
(2) without discovery of such nonconformity if his acceptance was reasonably induced either by the difficulty of discovery before acceptance or by the assurances of the seller.
(b) Time and notice of revocation. — Revocation of acceptance must occur within a reasonable time after the buyer discovers or should have discovered the ground for it and before any substantial change in condition of the goods which is not caused by their own defects. It is not effective until the buyer notifies the seller of it.
(c) Rights and duties of revoking buyer. —A buyer who so revokes has the same rights and duties with regard to the goods involved as if he had rejected them.
13 Pa.Cons.Stat.Ann. § 2608 (Purdon Pamphlet 1983). | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489802/ | MEMORANDUM
KEITH M. LUNDIN, Bankruptcy Judge.
The issue is whether a federal court jury verdict and judgment against the debtor for violation of the plaintiffs constitutional rights has collateral estoppel effect in this dischargeability proceeding pursuant to 11 U.S.C.A. § 523(a)(6) (West 1979). After review of the entire federal court record, as mandated in this circuit by Spilman v. Harley, 656 F.2d 224, 228 (6th Cir.1981), the court finds that the federal court judgment resolves all issues of material fact and that summary judgment should be entered in favor of the plaintiff.
The following constitute findings of fact and conclusions of law as required by Rule 7052 of the Bankruptcy Rules.
The plaintiff, Romie Vetters, Jr., (“Vet-ters”), filed a complaint in United States District Court for the Middle District of Tennessee on October 15, 1974 alleging that the defendant, James Leon Berry (“Berry”), in his capacity as deputy sheriff committed intentional violations of Vetters’ constitutional rights actionable under 42 U.S.C. § 1983. Vetters alleged that Berry “maliciously and without any provocation and certainly without any reasonable provocation cruelly and wantonly, beastially, wrongfully and unlawfully assaulted and beat the plaintiff, Vetters, striking him many times with [his] fists, clubs, feet, knocking him to the ground and stomping him, cutting gashes in his head and causing him to bleed profusely, and they wrongfully, maliciously, cruelly, and wantonly beat him.” (emphasis added). Berry denied that he injured Vetters without reasonable cause, and denied committing any willful or intentional act. The complaint demanded compensatory and punitive damages.
A jury trial conducted before the Honorable L. Clure Morton, Chief Judge of United States District Court for the Middle District of Tennessee on March 24, 25 and 29, 1976 resulted in an award of $520 compensatory damages and punitive damages of $25,000. The judgment was affirmed by the United States Court of Appeals for the Sixth Circuit. Vetters v. Berry, 575 F.2d 90 (6th Cir.1978).
On April 28, 1983, Berry filed a voluntary Chapter 7 petition. Vetters was scheduled as an unsecured claimant in the amount of $35,446.12.1 On May 17, 1983, Vetters filed a complaint objecting to the dischargeability of the debt pursuant to 11 U.S.C.A. § 523(a)(6) (West 1979). The matter is before the court on Vetters’ motion *994for summary judgment filed October 24, 1983.
Viewing the evidence in a light most favorable to the party opposing the motion, Smith v. Hudson, 600 F.2d 60, 63 (6th Cir.1979), summary judgment is appropriate only if the court finds no genuine issue of material fact. Felix v. Young, 536 F.2d 1126, 1134 (6th Cir.1975). To determine whether there are unresolved issues of material fact in this proceeding, the court must consider the collateral estoppel effect of the plaintiff’s federal court judgment.
This court recently reviewed the requirements for application of collateral es-toppel in Shelton v. Smith, 37 B.R. 996 (Bkrtcy.M.D.Tenn.1984). Under the doctrine of collateral estoppel, a judgment on the merits in a prior lawsuit precludes relit-igation of issues actually litigated and necessary to the outcome of the first action between the same parties though the later suit involves a different cause of action. Shelton v. Smith, at 997. The United States Court of Appeals for the Sixth Circuit has indicated that after reviewing the entire record of the first proceeding, the bankruptcy court must be satisfied that three elements are present before invoking the doctrine: (1) the precise issue sought to be precluded was raised in the prior proceeding; (2) the issue was actually litigated; and (3) the determination of the issue in the prior action was necessary and essential to the judgment. Spilman v. Harley, 656 F.2d at 227.
The federal court record establishes that collateral estoppel may be appropriately applied. 11 U.S.C.A. § 523(a)(6) (West 1979) provides that:
(a) A discharge under section 727, 1141, or 1328(b) of this title does not discharge an individual debtor from any debt—
(6) for willful and malicious injury by the debtor to another entity or to the property of another entity.
To be nondischargeable, the plaintiffs claim must result from an act by the debtor which was deliberate or intentional, and in knowing disregard of the rights of the injured party. Everwed Co. v. Ayers, 25 B.R. 762, 776 (Bkrtcy.M.D.Tenn.1982); Farmers Bank v. McCloud, 7 B.R. 819 (Bkrtcy.M.D.Tenn.1980).
The issues and facts alleged by the plaintiffs federal court complaint included claims that the debtor wrongfully, maliciously, and wantonly injured the plaintiff.
The jury instructions indicates that the jury considered the elements necessary to a finding of both “willfulness” and “maliciousness.” 2 Judge Morton instructed the jury that to find liability the jury must conclude that the defendant knowingly acted outside the scope of his lawful authority:
Before the jury can determine then whether or not the plaintiff was deprived by the defendants of any of his Federal Constitutional rights without due process, the jury must first determine, from a preponderance of the evidence in the case, whether the defendants—a defendant knowingly did the acts alleged, and, if so, whether, under the circumstances shown by the evidence in the case, the defendant acted within or without the bounds of his lawful authority under State law.
(Trial transcript, p. 386-387.) (emphasis added). Judge Morton also instructed the jury that punitive damages could be awarded only if the jury found Berry’s acts malicious, wanton or oppressive:3
*995Now, then, if you find for the plaintiff and award him against a defendant compensatory damages, you must then decide whether it appears from a preponderance of the evidence in the ease that the acts and conduct of a defendant towards the plaintiff at the time and place were malicious, wanton or oppressively done, and if you find they were maliciously, wantonly or oppressively done, then you may, if you so desire, go further and determine an amount of damages which are punitive in nature, which would be added to the compensatory damages as a punishment.
(Trial transcript, p. 394.) (emphasis added). The court continued:
However, if you think of the action of a defendant was so oppressive and wanton and willful, then you may, in your judgment, determine — award such amount as you think would punish that defendant and would operate as an example to others to prevent such future actions on the part of any police officer.
(Trial transcript, p. 395.) Having first found the debtor’s actions to be knowingly committed, the additional finding of either “maliciousness,” “wantonness,” or “oppressiveness”, would collaterally estop the debtor from relitigating the “maliciousness” element of this § 523(a)(6) action. The award of punitive damages fifty times the allowance of compensatory damages establishes the jury’s determination that Berry’s conduct was malicious, wanton, and oppressive to a substantial degree. Collateral estoppel precludes relitigation of these matters.
The trial transcript supports the finding that “willfulness” and “maliciousness” were actually litigated in the District Court. Vetters stated in his complaint that he had been deliberately kicked and beaten by Berry and so testified at trial. (Trial transcript, p. 37-39.) The photographs introduced as Exhibits 6, 7, and 8 reveal gruesome injuries to Vetters. Although there were denials and defenses proffered, the jury found Vetters’ testimony more credible.4 Berry was represented by counsel and had a full and fair opportunity to present any issues or evidence and cross-examine adverse witnesses.
Berry last argues that the size of the punitive damage award was not litigated in the district court and, therefore, the amount of the award constitutes a material fact preventing summary judgment and requiring adjudication in this proceeding. The issue of damages was fully litigated and decided by the trial court jury.5 An *996attack on the amount of damages was rebutted on appeal by the court of appeals.6 The debtor is attempting to “end-run” an unsuccessful appeal by seeking reconsideration of the damage award in the bankruptcy court.
The debtor’s conduct was, therefore, fully litigated in the federal court. Findings of willfulness and maliciousness were necessary and the issues resolved by the jury are identical to those in the dischargeability proceeding. Berry has alleged no other material issue which was not satisfactorily resolved in the federal court.7 The debtor is collaterally estopped to relitigate the factual issues in the bankruptcy court.
Accordingly, the court finds that summary judgment should be entered in favor of the plaintiff and the debt is determined to be NON-DISCHARGEABLE.
. This amount is the original judgment plus post-judgment interest awarded by the district court as adjusted for payments received through garnishment.
. The United States Court of Appeals for the Sixth Circuit reviewed Judge Morton's instructions and commented that:
An analysis of the Court’s instructions to the jury reveals a detailed and fair explanation of the law to assist the jury in its deliberations. This conclusion is substantiated by the fact that trial counsel for the plaintiff and trial counsel for each of the defendants took no exception to any part of the Court’s charge.
Vetters v. Berry, 575 F.2d at 95.
. The punitive damages instruction is consistent with the common law concept of “malicious" discussed by the United States Supreme Court in Tinker v. Colwell, 193 U.S. 473, 24 S.Ct. 505, 48 *995L.Ed. 754 (1904). The United States Court of Appeals for the Sixth Circuit has noted that “[i]t has been a general rule that liabilities arising from assault and battery are considered as founded on willful and malicious injures." (citations omitted). Smith v. Pitner, 696 F.2d 447, 449 (6th Cir.1982).
. The United States Court of Appeals for the Sixth Circuit reviewed the testimony and evidence on appeal and noted that:
The transcript of the testimony of the witnesses for both sides of the lawsuit discloses an abundance of conflicting evidence, and any such conflicts in the evidence are to be resolved by the trier of facts ... The version of the facts obviously accepted by the jury in returning a verdict of liability as to each defendant is amply supported by substantial evidence.
Vetters v. Berry, 575 F.2d at 95.
. Berry asserts that punitive damages were unjustified in light of the testimony and that evidence of Berry’s income, personal assets and general financial condition was not considered in making the determination. Berry notes that "in Tennessee the rule is that the financial condition of the defendant ... is relevant because what would be "smart money” to a poor man would not be, and would not serve as a deterrent, to a rich man.” Suzore v. Rutherford, 35 Tenn.App. 678, 251 S.W.2d 129, 131 (1952). This court agrees that the deterrent effect of punitive damages is affected by the particular defendant’s income and circumstances and is, therefore, relevant. The jury was cognizant of Berry’s position as a deputy sheriff. Financial condition of the defendant is only one of many factors that Tennessee courts indicate are to be considered by a jury to determine the amount of punitive damages — including the nature of the case, the nature and character of the act, the malice and wantonness of the act, the motive for the act, the manner in which the act was committed, the injury intended or likely to result, the character and the extent of the injury, and the character of the defendant. Suzore v. Rutherford, 251 S.W.2d at 131. It is clear from the court record and jury instructions that all of *996these factors were presented to and considered by the jury in arriving at their judgment. It appears that the $25,000 award constitutes a substantial and meaningful amount to Berry and, therefore, the deterrent value cannot be questioned.
. This issue was raised on appeal and the United States Court of Appeals for the Sixth Circuit observed that:
The jury here returned verdicts for compensatory and punitive damages after having been instructed by the trial judge in detailed and easily understandable language as to the type of proof necessary (guidelines) for the jury to consider in determining whether or not damages should be awarded to the plaintiff against dcfendant(s). The jury had listened to substantial evidence of the elements necessary to award both types of damages. Under these circumstances this Court will not invade the particular province of the jury in evaluating the value of plaintiff’s civil rights.
Vetters v. Berry, 575 F.2d at 97.
. The debtor makes no allegation in this proceeding that there are unpresented issues of fact or law which preclude application of collateral estoppel. There is no contention that the burden of persuasion is so different, that the quality of the proceedings are so in contrast or that an adverse impact on matters of public interest is present to avoid invocation of the doctrine. See IB J. MOORE, J. LUCAS, & T. CURRIER, MOORE’S FEDERAL PRACTICE ¶ .441 et seq. (3d ed. 1983); RESTATEMENT (SECOND) OF JUDGMENTS § 28 (1982). | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489804/ | OPINION AND ORDER
WALTER J. KRASNIEWSKI, Bankruptcy Judge.
This matter came on for trial on November 4, 1982 on the complaint of Glenn H. Varney to determine his interest in certain crops as against Quentin M. Derryberry, II, the trustee in bankruptcy. For the reasons discussed below, the Court finds that Plaintiff has no interest in the crops in question but is an unsecured creditor in this case under Chapter 7 of the Bankruptcy Code.
FACTUAL BACKGROUND
On March 6, 1982 Glenn H. Varney, the plaintiff, met with William V. Stroh, the debtor, to discuss a proposed arrangement whereby Stroh would farm certain land owned by Varney in Shelby County, Ohio. The meeting was arranged by James Titus, Varney’s brother in law. Titus had farmed Varney’s land on a share cropper basis for the past 15 years but, due to advancing years and other responsibilities, no longer wanted the responsibility of farming Var-ney’s land.
At the March 6 meeting the parties discussed, in general terms, their respective concerns and interests regarding the arrangement. Varney needed approximately $6,500 to $7,500 from the property in question to meet his obligations. This was within the range of what he had received from his brother in law in the past under their arrangement. Stroh, who farmed land on a cash rent basis with approximately 10 other farmers, generally paid his landlords about $100-$125 per acre for renting their land.
According to Stroh, the parties reached an agreement in principle that Stroh was to pay Varney $125 per acre as rental for the use of Varney’s land. Stroh was to have his attorney draw up a lease agreement, leaving the price per acre and number of acres blank, and this was to be submitted to Varney for his consideration and approval. The parties generally agreed that Var-ney had about 60 tillable acres available for farming.
Varney was less certain as to what agreement, if any, he had reached with Stroh on March 6, 1982. Although he acknowledged, in general, terms the context of the discussion with Stroh, he denied having reached an agreement with regard to the rental of his land. According to Varney, the net result of the March 6, 1982 meeting was that he was to examine and consider whatever written agreement Stroh submitted to him for approval. Varney was to receive the written agreement within two to three weeks from the parties’ first meeting.
When no agreement was sent to Varney, he made several phone calls to Stroh’s house to find out why the agreement had not been received. Each time Varney called, however, Stroh was unavailable. Instead Varney spoke to Stroh’s wife who explained that she and her husband were making continuing efforts to obtain the contract from their attorney. No written agreement ever materialized.
Despite the lack of any formal written agreement, in April and May of 1982, Stroh planted approximately 58 acres of corn on Varney’s land and continued to farm it throughout the summer. July came and went but Varney received no partial payment from Stroh as had been discussed at their initial meeting.
*97Finally, on September 11, 1982, the parties had a brief meeting in front of Stroh’s house. Among other things, the parties acknowledged that Stroh was experiencing financial difficulties due to a drop in the market price for corn. Varney urged Stroh to harvest the growing corn and to deposit the first $7250 of the proceeds of the corn, after expenses, into Varney’s name at a local grain elevator. Stroh acknowledges this discussion but denies ever having agreed to this arrangement since, among other things, he was unsure at the time whether the Metropolitan Bank had placed a lien on his crops.
In an effort to formalize his proposal, on September 13, 1982 Varney sent Stroh a letter (Defendant’s exhibit # 1) which provided, in relevant part, as follows:
I’m satisfied with the arrangement we put together last Saturday regarding the lease payments. Just to confirm; it is my understanding that you will shell our corn first and that the first $7250.00 of corn will be sold to Botkins Grain in my name. The $7250.00 is 58 acres time $125 per acre. The net amount is $7250.00 after all drying and other costs. Jim said he would be glad to help you transport the corn to Botkins.
Hopefully, this will work out for both of us. I’m currently in need of the cash.
Stroh never responded to either the proposal urged by Varney at their meeting on September 11, 1982 or the letter sent to him on September 13, 1982. Instead, Stroh filed a petition under Chapter 7 of the Bankruptcy Code and Quentin M. Derry-berry, II was appointed trustee.
DISCUSSION
Plaintiff has urged three alternative theories for a recovery of a portion of the crop in question. First, plaintiff argues that he had entered into a cropping agreement with Stroh under which he was owner of and was to receive the first $7250 of the proceeds of the crop harvested and sold to the grain elevator. Second, Plaintiff argues that, whether their relationship is characterized as that of owner and cropper or landlord and tenant, since plaintiff reserved as payment for the use of his land a portion of the crops to be grown on the land, the parties are tenants in common in the crop and the proceeds thereof by virtue of a line of decisions of the Ohio Courts. Last of all, under the so-called “advancement” theory, plaintiff claims that, since Stroh failed to make an installment payment to him, plaintiff can be said to have advanced money to Stroh to assist him in cultivation of the crops and that, under these circumstances, the Ohio courts have recognized that the parties are tenants in common in the crop.
In opposition, the Trustee urges that the parties’ relationship be characterized as a land lease and that, therefore, plaintiff has no claim or interest in the crop or the proceeds thereof but is an unsecured creditor for the amount of the rental due or $7250. In the opinion of the Court, under the circumstances of this case, the Trustee’s position more approximately characterizes the parties’ arrangement.
The question of whether Varney and Stroh had the relationship of “owner and cropper” or “landlord and tenant”, under the common law, was of critical importance in determining who held the title to the crops:
Relations between the owner of the land and one contracting to grow a crop thereon were generally classified at common law either by the terms ‘owner and cropper’ or ‘landlord and tenant.’ Where the relation was that of owner and cropper, the title to the whole of the growing crop was in the owner and subject to sale by him or to be levied on as his property. Where the relation was that of landlord and tenant, the title to the whole crop was in the tenant, with the full power of disposal, voluntary or involuntary.
Second National Bank v. Hyde, 29 Ohio App. 357, 362-63, 163 N.E. 587, 589 (1928). See also Stoner v. Markey, 63 Ohio App. 459, 27 N.E.2d 176 (1940). Thus, under the relationship of “owner and cropper”, the general rule is that the exclusive property in the crops is in the landowner until he has *98set apart the employee’s share. Contrariwise, under the “landlord and tenant” relationship, where the land is leased, the whole product of the land rented, the general rule is that the title to the crops is in the tenant until the share of the lessor is separated and delivered. See generally, 21A Am.Jur.2d, Crops, § 43.
Since the characterization of the arrangement may thus be of such paramount importance, it is thus useful to further define and distinguish a “cropper” from a tenant:
Where the landowner furnishes the land and supplies and other things of that sort, keeps general supervision over the farm, and agrees to pay a certain portion of the crop to the laborer for his services in raising the crop; such laborer is then a ‘cropper’; as elsewhere defined, a ‘cropper’ is a person hired by the landowner to cultivate the land and raise a crop thereon and to receive for his labor a share of the crop which he works to make and harvest. According to the prevailing view, a cropper has no estate in the land, nor as a general rule in the crop, until the landlord assigns him his share_ [T]he essential difference between a cropper and a tenant is that a tenant has an estate in the land for his term and, consequently, a right of property in the crop which he grows. If he pays a share of the crop as rent, it is he who divides the crop and turns the landowner’s share over to him, having, until such division, the entire property and right of possession of the whole. A cropper, however, is as much a servant as if his wages were fixed and payable in money, and his possession of the crop is only that of a servant, which is in law that of the landlord, who must set off to the cropper his share thereof.
21A Am.Jur.2d, Crops, § 35 at 644-646.
In determining whether the relationship of the parties was that of “owner and cropper” or “landlord and tenant”, the most important factor is the actual intention of the parties and the terms of the specific contract involved. As one authority has noted:
The general rule is that the question whether the relation of the parties is that of landlord and tenant, landowner and cropper, participants in a common venture, or some other relationship, must turn upon the actual intention of the parties as gathered from the entire contract, the language in which it is cast, and the circumstances surrounding its execution. If the import of the agreement is doubtful, the actions of the parties to it may furnish a satisfactory guide for its construction. In any event, where an agreement or contract to farm on shares is oral and informal and the evidence is conflicting, the question as to what legal relation was created is essentially a question of fact, (footnotes omitted).
21A Am.Jur.2d, Crops, § 38 at 647-649.
Plaintiff points to the September 13, 1982 letter from Varney to Stroh, certain discussion between the parties as to the time and manner of harvesting the crops, and the failure of Stroh to pay Varney an installment on the obligation in favor of interpreting this arrangement as a cropping agreement. The Court, however, as trier of fact, has interpreted the circumstances of this arrangement differently. Instead, the Court is persuaded that a number of circumstances militate in favor of finding a lease arrangement.
The letter of September 13, 1982, contrary to Plaintiff’s argument, does not evidence a cropping arrangement. Plaintiff argues that the references in the letter to “our corn”, the proposed price of $7250 “after drying and other costs”, and the offer to help transport the corn, as evidence of a cropping arrangement. The above references, however, focus on narrow details of the arrangement between the parties and ignore surrounding circumstances and actions of the parties leading to a contrary interpretation.
The parties never reached a formal written agreement. If they had an oral contract, the only clear evidence of an agreement is that Stroh agreed to pay Varney *99$125 per acre for his 58 acres of land. The parties agreed on little else.
The actions and conduct of the parties, under the circumstances, more nearly evidence their intentions. After Varney and Stroh met in early March of 1982, Stroh never provided Varney the written contract he promised. Instead, Stroh entered on the land and in the spring of the year commenced planting the crops in question. Although Varney was unsuccessful in obtaining a written agreement, having never attempted to remove Stroh from his farm, he apparently assented to Stroh’s continuing occupancy of his farm and the planting of the crop. Indeed, Plaintiff argues that he expected but never received a partial installment in July 1982 of the money Stroh was to pay him.
The only other time the parties communicated was on September 11,1982, about the time the crops were ready for harvest. Having neither written contract or money, Varney understandably made a desperate attempt to formalize an arrangement by which he would receive something, either money or crops, for the use of his land. The evidence shows, however, that beyond agreeing to pay $125 per acre for the use of the land, Stroh never assented to either the terms expressed at the meeting on September 11, 1982 or in the letter following on September 13, 1983.
The circumstances of the arrangement, on the contrary, more nearly comport to a lease than a cropping agreement. From the beginning Varney expected to obtain a “lease” from Stroh. He expected, but never received, a money payment in July which, again, more nearly evidences a lease. Finally, in his letter of September 13, 1982, Varney indicates he is “satisfied with the arrangement regarding the lease payments.” These words of demise, in conjunction with other circumstances in this case, strongly favor the finding of a lease. See generally 21A Am.Jur.2d, Crops, § 79; Annot. 95 A.L.R.3d 1013.
Despite the fact that the parties discussed the time when the crops were to be harvested and that Stroh agreed to leave the corn stalks in the field as silage for Varney’s beef cattle, Varney exercised paramount control in the manner in which the farming operation was conducted on the premises. As indicated earlier, Varney had no contact with Stroh from the initial meeting in March until harvest time was near in September. In addition, the record clearly reflects that Stroh only entered into lease arrangements in his farming operations since generally his lessors did not condone the large volume of fertilizer he employed in an effort to maximize his yield of crops. Stroh’s exercise of control, then, further evidences a lease.
Plaintiff contends that since Stroh did not make the July payment as expected, he can be said to have contributed necessary supplies to a cropping arrangement. There is no evidence, however, that, in fact, the parties acted in this manner. Stroh merely missed his payment. There is nothing to show that there was any money on hand to pay Plaintiff and that, instead of making the installment, Stroh used the money for labor costs, fuel, or anything else. On the contrary, the only evidence in the record is that Stroh furnished all the needed supplies and equipment that actually produced the crop.
The other factor urged by Plaintiff in support of the finding of a cropping arrangement, his offer to help transport the crops to the grain elevator for sale, does not change the Court’s view of the parties’ arrangement. In sum, the Court finds that notwithstanding the lack of a formal written agreement, considering all the circumstances, the parties through their actions established a landlord-tenant relationship. Ownership of the crop, therefore, was in Stroh and, since the filing of the petition in bankruptcy, the trustee.
Plaintiff argues that regardless of whether or not the parties’ relationship was characterized as “owner and cropper” or “landlord and tenant,” since plaintiff let his farm to Stroh reserving “rent in kind” in the form of a $7,250 share of the crop, by rule of the courts in Ohio, a tenancy in common in the crop was created. Further*100more, pursuant to the provisions of § 1917.34 Ohio Revised Code, it is argued that since plaintiffs interest is unassailable by a judgment creditor of the debtor, it is similarly immune from any claim of the trustee in bankruptcy. The Court, however, finds that neither the rule of the courts nor the statute in question are applicable in the case sub judice.
Plaintiff has accurately stated the rule, recognized by the Ohio courts, which, in certain circumstances, changes that common law rule governing ownership of crops between landowner and cropper, on the one hand, and landlord and tenant, on the other. As previously stated, the former relation created ownership of the crops in the landowner, the latter in the tenant. The Ohio courts, however, in certain circumstances, have recognized a different rule.
The manifest injustices that ensued led to legislation in some states, and in others to adjudications of the courts that tended to avoid the mischief that resulted from creating the farmer in one case and the owner in the other, a mere creditor of his associate in the joint enterprise. 1 Tiffany on Landlord and Tenant, 38 and 183, Sections 10 and 20; 2 Tiffany on Landlord and Tenant, 1648, Section 253.
As a result of these departures from the common law, it is the well-nigh universal rule that every form of contract by which the use of land is given to one who is to cultivate it and give the owner as compensation therefor a share of the crop, creates a tenancy in common in the crop, and this is so whether the agreement between the parties is a lease or a mere cropping contract. Second National Bank of Circleville v. Hyde, 29 Ohio App., 357 at 363, 163 N.E., 587. See, also, 98 Am.St.Rep., 959. (emphasis added)
Stoner v. Markey, 63 Ohio App. 459, 464, 27 N.E.2d 176, 179 (1940). Thus, notwithstanding whether the parties’ relation was characterized as owner and cropper or landlord and tenant, when the compensation for use of the land is paid as a share of the crop, the parties become tenants in common in the crop.
If this rule were applicable in this case, the interest of either landlord or tenant in the crops, as the case may be, would be protected from a judgment creditor of the other under the provisions of § 1917.34 Ohio Revised Code. The statute provides as follows:
When the lands have been let, reserving rent in kind, and the crops or emble-ments growing, or grown thereon, are levied on or attached by virtue of execution, attachment, or other process, against the landlord or tenant, the interest of such landlord or tenant against whom process was not issued is not affected thereby. The crops or emble-ments may be sold, subject to the claim or interest of the landlord or tenant against whom process did not issue.
Plaintiff in this case, however, cannot claim an interest in the crops as a tenant in common or claim the protection against a judgment creditor provided by § 1917.34 R.C. The rule of the courts creating the relation of tenants in common and the protection offered by the statute apply only where the compensation reserved for use of the land is “a share of the crop” or “rent in kind” respectively. As previously determined, the contract between the parties in the present case called for payment of rent in money. This case does not involve circumstances where either “a share of the crop” or “rent in kind” was reserved. As a result, Plaintiff is neither tenant in common nor entitled to protection against the trustee as a judgment lien creditor but is left with an unsecured claim.
Last of all, Plaintiff asserts the existence and application of the so-called “advancement theory” under Second National Bank v. Hyde, supra. See also, Case v. Hart, 11 Ohio 364 (1842); Liggett v. American Cigar Company, Ohio N.P. (n.s.) 28, 31 Ohio Dec. 10 (C.P.1918); Mouser v. Davis, 9 Ohio Dec. Reprint 237 (Pickaway Dist.Ct.1884); McLeary v. Snider & Co., 2 Ohio Dec. Reprint 59 (C.P.1859). Under this theory, Plaintiff argues, one who ad-*101vanees money, seeds, implements, or otherwise assists the farmer in cultivating a crop becomes a tenant in common with the cultivator in the crop and has an interest unassailable by the creditors of the cultivator. None of the cases cited in support of the so-called “advancement theory”, however, support its existence or application. In Second National Bank v. Hyde, supra, for example, the rule previously stated, which recognizes the existence of a tenancy in common in crops when the consideration for the use of land is a share of the crops, was stated and applied. The Court then applied section 10433 of the former General Code which parallels the provisions of § 1917.34 R.C., previously discussed, in upholding the landowner’s claim to crops as against an alleged third party judgment lien creditor. Thus, although the case involved an advancement of money, its holding rests on other legal grounds. Furthermore, even if the “advancement theory” plaintiff urges existed, as previously discussed, plaintiff made no advancement in this case of any kind, much less one of sufficient magnitude to bring this case within the realm of Hyde.
In sum, none of the theories advanced by Plaintiff being sufficient to sustain his claim to the interest of the crops in question, Plaintiff has an unsecured claim for $7,250.00.
For the foregoing reasons, good cause appearing, it is therefore,
ORDERED that Plaintiffs complaint be, and it hereby is, dismissed, and Plaintiff is hereby allowed a general unsecured claim in the amount of $7,250.00.
SO ORDERED. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489805/ | MEMORANDUM OPINION
FREDERICK J. HERTZ, Bankruptcy Judge.
I
The sole issue involved in this proceeding concerns whether an award of prejudgment interest should be entered. The prejudgment interest issue is an outgrowth of an order entered by this court on May 27, 1983. See, Schecter v. Acme Screw Co., et al. (In re Assured Fastener Products Corp.) 81 A 3870 (Bankr.N.D.Ill. May 27, 1983).
Through the aforesaid order, judgments were entered against the following defendants in the following amounts:
Acme Screw Company $26,155.35
Solar Screw Corporation $24,515.55
Southern States Fastener $41,906.48
(hereinafter collectively referred to as the “defendants”). The defendants had attempted to setoff the amounts due to Assured Fastener Products Corporation (“debtor”) pursuant to 11 U.S.C. § 553 (Supp.V 1981), with claims that a third party, Róseo Specialty Co. (“Rosco”) had against the debtor. Allegedly, Rosco had assigned its claims against the debtor to the respective defendants at some point prior to the institution of the debtor’s bankruptcy petition. Consequently, via the set-off provisions of Section 553, it was argued that the debtor’s claims against the defendants were extinguished.
However, this court did not find the defendants’ arguments to be persuasive and denied the affirmative claims for setoff. Thus, judgments were entered against the defendants in the aforesaid amounts. Thereafter, Joel Schecter, the Trustee of the debtor’s estate (“Trustee”), brought a motion seeking to modify this court’s May 27th order. The motion sought additional relief in the form of prejudgment interest and attorney’s fees.
This court declined to entertain the Trustee’s motion in the belief that it did not have jurisdiction because of an intervening appeal that had been filed by the defendants. The appeal was assigned to Judge Prentice Marshall. Judge Marshall, in turn, remanded the question of attorney’s fees and prejudgment interest to this court. See, Schecter v. Acme Screw Co., Inc., et al., 83 C 5114 (N.D.Ill. February 2, 1984). (A timely filed motion to amend a judgment divests an appellate court of jurisdiction to hear an appeal). Subsequently, the Trustee withdrew his request for attorney’s fees. Thus, the sole remaining question is whether prejudgment interest should be levied against the defendants.
*163II
The relevant statute in this proceeding is Section 6402 of Chapter 17 of the Illinois Revised Statutes. Section 6402 provides in pertinent part as follows:
“Creditors shall be allowed to receive at the rate of five (5) per centum per annum for all moneys after they become due on any bond, bill, promissory note, or other instrument of writing; ...; on money due on the settlement of account from the day of liquidating accounts between the parties and ascertaining the balance: _” (emphasis added).
Ill.Rev.Stat. Ch. 17, § 6402 (1982).
The trustee contends that the documentation presented thus far in this proceeding satisfies either one of two conditions for recovery of prejudgment interest. First, the trustee contends that the bills of lading and corresponding purchase orders introduced to support the aforesaid judgments constitute written instruments. Alternatively, the trustee argues that the prior nature of the parties’ business relationships, when viewed together with the introduction of various documents supports a finding that there were accounts stated. Thus, it is argued, liquidated account balances existed as between the parties, satisfying an alternative condition for recovery of prejudgment interest. The defendants, however, contend that the various documents that were introduced do not constitute instruments of writing as required under the statute. Additionally, the defendants contend that the asserted claims of setoff preclude the existence of accounts stated.
III
Under Illinois law, prejudgment interest is recoverable where the money due is a liquidated amount or subject to easy computation. North Shore Marine Inc. v. Engel, 81 Ill.App.3d 530, 535, 36 Ill.Dec. 588, 592, 401 N.E.2d 269, 273 (2d Dist.1980). Initially, the debtor contends that its invoices constitute instruments of writing. This court notes that while contracts and signed purchase orders clearly constitute other instruments of writing under the statutes, Foster Sportswear Co., Inc. v. Goldblatt Bros., Inc., 356 F.2d 906, 910 (7th Cir.1966), invoices of the debtor may be too self-serving. Additionally, one Illinois Court has stated that the phrase “other instruments of writing” should be construed under ejusdem generis to mean only other similar writings possessing the same legal attribute. Hamilton v. American Gage & Mach. Corp., 35 Ill.App.3d 845, 853, 342 N.E.2d 758, 765 (1st Dist.1976). This court, however, does not feel it needs to reach the issue of whether the invoices or bills of lading herein constitute instruments of writing as contemplated by the statute.
Instead, this court finds that the documentation and evidence that has been presented, when taken together, satisfies the account stated requirement of the prejudgment interest statute. As one Illinois court has stated: “Prejudgment interest will be granted although a good faith defense exists and even where the claimed right and amount due require legal ascertainment.” Servbest Foods, Inc. v. Emessee Indus. Inc., 82 Ill.App.3d 662, 667, 37 Ill.Dec. 945, 958, 403 N.E.2d 1, 13 (1st Dist.1980). Adequate justification to award prejudgment interest exists if the amount of damages which will be awarded is capable of easy determination. See, Williams Prejudgment Interest, 22 Trial Lawyers Guide, 4, 9, (1978) (to allow a mere denial of liability in the defendant’s answer to defeat an allowance of prejudgment interest would in effect preclude its award in almost every case).
An account stated was defined in Motive Parts Co. of America v. Robinson, 53 Ill.App.3d 935, 11 Ill.Dec. 665, 369 N.E.2d 119 (1st Dist.1977) as:
An agreement between parties who have had previous transactions of a monetary character that all the items of the accounts representing such transactions are true and that the balance struck is correct, together with a promise, express or implied, for the payment of such bal*164ance. Id. at 938, 11 Ill.Dec. at 668, 369 N.E.2d at 122.
This agreement requires a manifestation of mutual assent of the debtor and creditor. See, Canadian Ace Brewing Co. v. Swiftsure Beer Service Co., 17 Ill.App.2d 54, 60, 149 N.E.2d 442, 446 (1st Dist.1958).
The meeting of the parties’ minds upon the correctness of an account stated is usually the result of one party tendering a statement of account, Pure Torpedo Corp. v. Nation, 327 Ill.App. 28, 32, 63 N.E.2d 600, 602 (4th Dist.1945), and the other party retaining the statement beyond a reasonable time without objection to its accuracy. Malkov Lumber Co. v. Wolf, 3 Ill.App.3d 52, 54, 278 N.E.2d 481, 483 (1st Dist.1971). However, “usually” does not mean “invariably”. In the instant case, the defendants have stipulated to the accuracy of the debtor’s accounts receivable in an agreed order on February 11, 1983. In order to have an account stated there must be a mutual assent to the accuracy by both parties. Allied Wire Products v. Marketing Techniques, 99 Ill.App.3d 29, 41, 54 Ill.Dec. 385, 394, 424 N.E.2d 1288, 1297 (1st Dist.1981).
Clearly, the parties expressed their mutual assent through the agreed order. Furthermore, the bills of lading, invoices and unsigned purchase orders that were introduced lend additional support to this court’s conclusion that accounts stated were created. This court notes that the defendants’ setoff claim does not challenge the accuracy of the underlying account. The setoff claim simply asserts that the defendants are entitled to deduct the allegedly assigned amounts from the underlying, accurately stated accounts. Thus, the defendants’ setoff claim is not an objection to the accuracy of the account.
The debtor seeks prejudgment interest computed from the dates of its last transactions with the defendants. Prejudgment interest, however, should be allowed from the date the account was stated. The account was stated thirty days after the dates of the last transactions.
In conclusion, it is the opinion of this court that the trustee is entitled to a prejudgment interest award based on the finding that there are accounts stated. Thus, the defendants are ordered to pay to the debtor prejudgment interest at the statutory rate of five per centum. The prejudgment interest is to be computed from the following dates for the respective defendants: Acme Screw Co., Inc., May 11, 1980; Solar Screw Corp., January 4, 1980; and Southern States Fastener, Inc., April 30, 1980. The trustee is to prepare a draft order in accordance with this opinion within five (5) days. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489806/ | MEMORANDUM OF DECISION
JAMES A. GOODMAN, Bankruptcy Judge.
This matter comes before the Court on the trustee’s objection to Heritage Savings Bank’s claim of a perfected security interest in the debtor’s mobile home. At issue is the sufficiency of the financing statement filed by the Bank with the Secretary of State. The sufficiency of that financing statement is governed by Me.Rev.Stat.Ann. tit. 11, § 9-402(1), which states in part:
A financing statement is sufficient, if it gives the names of the debtors and the secured party, is signed by the debtor, gives an address of the secured party from which information concerning the security interest may be obtained, gives a mailing address of the debtor and contains a statement indicating the types, or describing the items, of collateral; provided that, for purposes of this section, if the collateral is a mobile home as defined in Title 10, section 1402, Subsection 2, the description of collateral shall include the location designated by the debtor in the security agreement as the place at which the mobile home is, or is to be located.
The parties have stipulated that the collateral at issue is a mobile home as defined in Title 10, section 1402, subsection 2. The financing statement meets all the requirements of section 9-402(1) except that it fails to include the location designated by the debtor in the security agreement as the place at which the mobile home is, or is to be, located.1
*184The Bank concedes that the location requirement is not met, but relies upon subsection 9-402(8), which states:
A financing statement substantially complying with the requirements of this section is effective, even though it contains minor errors which are not seriously misleading.
The sole issue before the Court is whether, despite the omission of the mobile home’s location, the financing statement substantially complies with the requirements of section 9-402.2
In order to resolve that issue, the Court must first ascertain the legislature’s purpose in requiring that location be included on the financing statement. In general, “case law makes it abundantly clear that a financing statement is intended merely ‘to put a searcher on notice that an underlying security agreement may be outstanding.’ ” In re Cushman Bakery, 526 F.2d 23, 29 (1st Cir.1975) cert. denied sub nom. Agger v. Seaboard Allied Milling Corp., 425 U.S. 937, 96 S.Ct. 1670, 48 L.Ed.2d 178 (1976) (quoting Bramble Transportation, Inc. v. Sam Senter Sales, Inc., 294 A.2d 97, 103 (Del.1971)). Thus, errors in the description of collateral, for example, are considered minor and not seriously misleading if the description will put a subsequent party on notice that there may be an outstanding security agreement covering the collateral at issue. See Cope v. United States (In re Merrill), 29 B.R. 531, 534 (Bkrtcy.D.Me.1983) (the description “farm equipment” does not give sufficient notice that collateral is a log skidder). Further inquiry from the parties concerned is expected of a diligent file searcher under Maine’s system of notice filing. See In re Reeco Electric Co., Inc., 415 F.Supp. 238, 240 (D.Me.1976) (test of the sufficiency of a financing statement is whether, under all the facts, the filing would have given a file searcher sufficient notice to justify placing a duty upon him to make further inquiry concerning the possible lien); John Deere Industrial Equipment Co. v. Blier Cedar Company, Inc. (In re Blier Cedar Company, Inc.), 7 B.R. 21, 22-23 (Bkrtcy.D.Me.1980) (minor errors in serial numbers of John Deere loader held not to be seriously misleading — “financing statement is sufficient to place the searcher under an obligation to make further inquiry-”); see also Me.Rev.Stat.Ann. tit. 11, § 9-402, Uniform Commercial Code Comment 2.
Certain requirements of section 9-402(1), however, serve statutory objectives in addition to or other than giving notice. For example, prior to 1977, section 9-402(1) required that the secured party sign the financing statement. The Maine Supreme Judicial Court held a financing statement ineffective because the secured party had not signed it, despite the fact that the secured party’s name and address appeared thereon. Maine League Federal Credit Union v. Atlantic Motors, 250 A.2d 497 (Me.1969). While acknowledging that the unsigned financing statement would have given adequate notice to file searchers, the Court discerned an additional purpose underlying the requirement, i.e., ensuring the authenticity of the document. Id. at 500. The typed-in name of the secured party was held insufficient to meet the legislature’s objective of preserving the integrity and reliability of the public record.3 Id. at *185501. Another example can be found in the case of In re Searles, 9 U.C.C.Rep.Serv. 538 (D.Me.1971). There the debtor’s mailing address was erroneously set forth on the financing statement. The Court determined that the purpose to be served by requiring inclusion of the debtor’s mailing address was to assure mail delivery under certain discovery procedures and resale notification procedures provided in the Uniform Commercial Code. Id. at 540-541. Because it was reasonably certain that a first class letter mailed to the address on the financing statement would in fact be delivered to the debtor, the Court held that the error was minor. Id. at 542.
The mobile home location requirement here at issue was added as an amendment to section 9-402(1) in 1978. See P.L. 1977, c. 702, § 1. Light may be shed upon the legislature’s purpose through an examination of the “Statement of Fact” attached to Legislative Document No. 2190, which introduced P.L. 1977, c. 702. See In re Breau, 17 B.R. 697, 698 (Bankr.D.Me.1982) (quoting Franklin Property Trust v. Foresite, Inc., 438 A.2d 218, 223 (Me.1981)) (“ ‘The “Statement of Fact” ... is a proper and compelling aid to ascertaining the legislative purpose and intent.’ ”). That document states, in part:
Finally, the bill relieves a problem frequently encountered by file searchers when looking for security interests in a mobile home whose new owner has moved from the municipality where he was living when he bought the mobile home to another municipality where the mobile home was placed after its sale.
Clearly, the legislature intended by this amendment to provide additional information to aid a file searcher in identifying the particular mobile home covered by a financing statement.4 The statute itself indicates that the designation of location is to be a part of the “description of collateral.” Me. Rev.Stat.Ann. tit. 11, § 9-402(1). Thus, the location designation is intended to further the Code’s general purpose of providing notice. The Bank’s financing statement must be examined to determine whether it serves that purpose by putting file searchers on notice of a possible security agreement covering the collateral at issue.
The Bank’s financing statement describes the collateral as follows:
1982 Skyline mobile home, 70' X 14'
S/N 0116-0266S
It also contains the debtor’s mailing address of Prospect Harbor, Maine. As noted above, Prospect Harbor is a part of the town of Gouldsboro. “Gouldsboro” is designated on the security agreement as the location at which the mobile home is to be located.5 Given this detailed description which even includes the mobile home’s serial number, and considering that the mobile home is in fact located in the town of which Prospect Harbor (the debtor’s mailing address) is a part, the Court concludes that, at the very least, this financing statement would give a file searcher sufficient notice to justify placing a duty upon him to make further inquiry concerning a possible lien in the collateral at issue. Under the facts of this case, the Court holds that the Bank’s financing statement substantially complies with the requirements of section 9-402(1), and that the omission of the designated location is not seriously misleading. The trustee’s objection shall be denied.
Enter Order.
. The parties have stipulated that the debtors designated "Gouldsboro, Maine” in the security agreement as the place where the mobile home would be located. The debtors’ address, as listed on the financing statement, is Prospect Harbor, Maine. The parties have stipulated that Prospect Harbor is one of eight geographical areas that comprise the political entity known as the Township of Gouldsboro. The trustee does not contend that the debtors’ address is insufficient to meet the requirements of section 9-402(1).
. As this Court has previously noted, in other jurisdictions mobile homes have on occasion been held to be fixtures subject to the fixture filing requirements of the Uniform Commercial Code. Bezanson v. Kennebunk Savings Bank (In re Ladd), 21 B.R. 579, 581 n. 2 (Bkrtcy.D.Me.1982). The trustee does not contend that the mobile home in this case is a fixture, and has offered no evidence on that issue. In fact, the trustee has conceded in his Memorandum of Law that "at issue is not a fixture filing....” (emphasis added). Therefore, the Court need not decide whether the Bank’s financing statements would suffice as a fixture filing under the Code. See Me.Rev.Stat.Ann. tit. 11, §§ 9-313, 9-402(5), 9-402(6).
. The same result has been reached where the debtor failed to sign the financing statement. See In re Industro Transistor Corp., 14 U.C.C. Rep.Serv. 522, 524 (E.D.N.Y.1973) ("absence of the Debtor’s signature cannot properly be construed as a minor error inasmuch as the stated purpose of the signature is not notice to third parties but rather to authenticate the statement.’’)
. The location designation would not aid a file searcher in finding the financing statement. Financing statements arc indexed not by location, but according to the name of the debtor. Me. Rev.Stat.Ann. tit. 11, § 9-403(4). Even assuming that filing in the appropriate county registry of deeds was required, a financing statement would be indexed not by location, but according to the names of the debtor, the secured party, and any owner of record. Id., §§ 9-403(4) & (7). The location designation is obviously not intended to aid the secured party in any way— the location which is required to be included on a financing statement is to be taken from the security agreement.
. Surprisingly, there is no evidence before the Court as to the actual physical location of the mobile home other than that it is in the Town of Gouldsboro. It may well be located in Prospect Harbor. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489807/ | MEMORANDUM DECISION
FREDERICK A. JOHNSON, Bankruptcy Judge.
The trustee seeks a determination that the security interest of defendant Amoske-ag Savings Bank in the debtor’s mobile home is unperfected. Both Amoskeag and the debtor argue that although the financing statement is not in absolute compliance with the statute, the document is sufficient because it adequately and accurately fulfills its notice function. The court concludes that Amoskeag’s security interest is perfected.
The facts are not disputed. On November 1, 1979, the debtor executed a security agreement with State Mobile Homes, Inc. The collateral is described in the written agreement as a new mobile home, to be located at 236 Deerwood Street, Hillcrest Mobile Home Park, Scarborough, Maine. Within a few days, the secured party assigned its security interest to Amoskeag. On November 9, 1979, Amoskeag filed a financing statement with the Secretary of State in Augusta, Maine. The document contains a detailed description of the collateral and the names and addresses of the secured party, the secured party’s assign-ee, and the borrower. Although the description of collateral itself did not include the mobile home’s location, as required by 11 M.R.S.A. § 9-402(1) (Supp. 1983-1984), the address given as the borrower’s was in fact at that time the location of the mobile home. Finally, the parties have agreed that the vehicle is a mobile home as defined in 10 M.R.S.A. § 1402(2).
The only issue in this proceeding is whether the bank’s financing statement perfected its security interest. Requirements for an adequate financing statement are set out in 11 M.R.S.A. § 9-402(1) (Supp. 1983-1984), which in relevant part reads:
A financing statement is sufficient, if it gives the names of the debtors and the secured party, is signed by the debtor, gives an address of the secured party from which information concerning the security interest may be obtained, gives a mailing address of the debtor and contains a statement indicating the types, or describing the items, of collateral; provided that, for purposes of this section, if the collateral is a mobile home as defined in Title 10, section 1402, subsection 2, the description of collateral shall include the location designated by the debtor in the security agreement as the place at which the mobile home is, or is to be, located.
(emphasis added). Although a document does not absolutely conform to the statute, it may still perfect a security interest:
A financing statement substantially complying with the requirements of this section is effective, even though it contains minor errors which are not seriously misleading.
*23611 M.R.S.A. § 9-402(8) (Supp. 1983-1984) (emphasis added). Since the parties agree that the description of collateral in the financing statement does not include the mobile home’s location, as required by the statute, the court must decide whether the document substantially complies with § 9-402 in that it contains only a minor error which would not be seriously misleading.
The function of a financing statement is to give notice to interested parties “ ‘that the secured party who has filed may have a security interest in the collateral described. Further inquiry from the parties concerned will be necessary to disclose the complete state of affairs.’ ” In re Circus Time, Inc., 641 F.2d 39, 42 (1st Cir.1981), quoting Me.Rev.Stat.Ann. tit. 11, § 9-402, Uniform Commercial Code, Comment 2. “A properly filed financing statement would thus serve its intended purpose if a subsequent party would have been put on notice of an outstanding security agreement.” In re Cushman Bakery, 526 F.2d 23, 29 (1st Cir.1975), cert. denied sub nom Agger v. Seaboard Milling Corp., 425 U.S. 937, 96 S.Ct. 1670, 48 L.Ed.2d 178 (1976); quoting Bramble Transportation, Inc. v. Sam Senter Sales, Inc., 294 A.2d 97, 103 (Del. 1971).
' This function is not altered by Maine’s nonuniform requirement in § 9-402(1) that the description of collateral for a mobile home include the address where the structure is or will be located. When it added this provision to the statute in 1978, P.L. 1977, c. 702, § 1, the legislature apparently perceived a problem needing rectification. An aid in discovering that problem and the legislature’s intent is the “Statement of Fact” attached to Legislature Document No. 2190, which introduced P.L.1977, c. 702. Franklin Property Trust v. Foresite, Inc., 438 A.2d 218 (Me.1981). The statement as relevant reads:
Finally, the bill relieves a problem frequently encountered by file searchers when looking for security interests in a mobile home whose new owner has moved from the municipality where he was living when he bought the mobile home to another municipality where the mobile home was placed after its sale.
Obviously the legislature believed that the notice provided by a financing statement could be enhanced if the searcher had access to the intended address of the borrower, not just the address where he resided while negotiating the purchase of his new home. No other function for this addition to the statute recommends itself.
The only error in the financing statement covering Amoskeag’s interest is the omission of the address of the mobile home as part of the collateral description. That address, however, is supplied as the address of the debtor.1 As respected commentators on Article Nine of the Uniform Commercial Code have observed, even a total omission of an address can be a minor error. The problem is a question of fact, the omission being fatal only if the notice function of the financing statement is undermined. J. White and R. Summers, Uniform Commercial Code § 23-16 at 961 (2d ed. 1980). See also Annot., 99 A.L.R.3d 807 (1980). In this case, a creditor could not seriously contend that he was misled by Amoskeag’s financing statement, which on its face, even if not in the proper position, shows the location of the mobile home. Every bit of information required by the legislature is supplied on the statement. Provided with these details, any reasonably diligent file searcher would have ample notice of a possible outstanding security interest. He would know the nature of the collateral and how to find both the secured party and the borrower to garner more information. Consequently, Amoskeag’s security interest was perfected.
An appropriate order will be entered.
. At some time after the filing of the security interest, the debtor moved his mobile home to another lot within the same mobile home park. This fact does not affect the court’s determination, as there is no statutory requirement that financing statements be revised when parties later change addresses. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489808/ | FINDINGS OF FACT, CONCLUSIONS OF LAW AND ORDER DENYING MOTION TO MODIFY STAY
JON J. CHINEN, Bankruptcy Judge.
A Motion to Modify Stay was filed by Clinton Lee, Robert Converse and Libations, Inc., (hereinafter jointly “Movants”) on January 19, 1984, pursuant to 11 U.S.C. *250§ 362(d), on the grounds that the debtors Mary Anne Bruno and Bruno Corporation, (hereinafter jointly “Debtors”) had no equity in the business assets of the University Pump Liquor Store, including the leasehold interest in the premises located at 1023 University Avenue, Honolulu, Hawaii; that the business assets, particularly the leasehold interest, was not necessary to an effective reorganization or that such reorganization was not likely to be effectuated; and that Movants were not adequately protected. Movants prayed for an order lifting the stay to permit foreclosure of Debtors’ interest in said leasehold and auction or liquidation of all other business assets.
A preliminary hearing was held on January 27, 1984 and the final hearing was held on February 28 and March 5, 1984. A Pre-Trial Order was entered on February 7, 1984, which required the Debtors to pay all pre- and post-petition interest due to Mov-ants by February 28, 1984.
Debtors submitted a Memorandum in Opposition to Motion to Modify Stay, as amended, on January 27, 1984. Hawaiian Telephone Co., Inc. filed a Memorandum in Opposition to Motion to Lift Stay on March 1, 1984.
Based upon the evidence adduced at trial, the arguments of counsel, the memoranda, records and files herein, the Court makes the following Findings of Fact and Conclusions of Law:
FINDINGS OF FACT
1. Clinton Lee and Robert Converse are residents of Honolulu, State of Hawaii, and Libations, Inc. is a Hawaii corporation. They are the sellers of the leased premises in dispute under that certain Agreement of Sale, dated May 1, 1980, and they also have a lien on all of the equipment, furniture, inventory and supplies on the leased premises by virtue of a pledge of stock and a recorded financing statement.
2. The purchasers under said Agreement of Sale were Mary Anne Bruno and Karl S. Bruno, in joint tenancy. Sometime after May 1, 1980, Ms. Bruno began operating the business on the leased premises as University Pump Liquors, under the name Bruno Corporation.
3. Under the terms of said Agreement of Sale, the principal balance of $125,000 was due on May 1, 1983 and remains unpaid. There is no dispute as to this amount due and in default.
4. Movants further claim attorneys’ fees and costs resulting from the default in the approximate sum of $15,000.00; however no evidence was submitted as to the extent of such claim.
5. The interest accrued on the principal balance has been paid and is current through the month of March 1984, and all insurance coverages required of the Debtors are current and effective through May, 1984.
6. The landlord, Thomas Square Development, Inc., claims delinquent rent in the sum of $13,000.00; but this amount is disputed by Debtors.
7. Debtor Bruno Corporation has entered into a new lease agreement with the landlord, under which the landlord reserves the “right to demolish said building” after December 31,1984. In the event of demolition, Debtor would be required to “peacefully surrender said premises to Lessor” at the end of a 180-day notice period.
8. The lease agreement, grants to Bruno corporation a “First Right of Refusal” for a new ten-year lease upon terms and conditions to be negotiated, at the completion of the existing lease term. The Debtors acknowledged that, because of this demolition clause in the new lease, it has been impossible to refinance Bruno Corporation, sell the property for an amount to repay the secured creditors, or acquire an equity partner.
9. No competent evidence was submitted by Movants to show that the Debtors are in default of post-petition taxes, for which the retail liquor license may be subject to suspension, nor that any tax lien has been filed or lien notice been duly recorded.
10. No evidence was submitted to show that the landlord has any intention of de*251molishing the building in which the leased premises is located, or has any plans, applications or financing for the same. To the contrary, Ms. Bruno testified that she was informed by Mr. J. Wong representing the landlord that, at present, there was no plan to demolish the building. Ms. Bruno testified that theirs is the last lease to have a demolition clause included, meaning that all tenants of Thomas Square Development, Inc. have this provision in their leases, and that this clause merely provides the landlord the option in the event that such demolition becomes feasible, which it is not under present zoning ordinances.
11. Movants submitted no competent evidence as to the fair market value of the business assets in question and the lack of equity in such assets. Instead, Movants relied upon the July 31, 1983 Balance Sheet of Bruno Corporation, prepared by Debtors’ accountant, which reported the assets to be worth $201,933 as of that date. Of said value, the item “Loans to stockholders” was incorrectly listed in that the amount listed was loans from stockholders which had been paid. The item listed as “Goodwill” was not clear to Ms. Takamine,' the representative of the CPA firm who prepared the Balance Sheet. She reported that this figure was not supported by work sheets, but was a mere carryover figure after the date of purchase, the purpose of which she could not recall.
12. In her testimony, Ms. Bruno, the president of Bruno corporation, reported that the cash on hand is now in excess of that in existence on July, 1983, as is the addition of another delivery truck, inventory, prepaid insurance and deposits. The president further reported that there was no entry of the value of the lease for amortization purposes and that, for convenience, this is what was carried over as “Goodwill”. The president further testified that substantial changes had been made in operations since July to reduce operating costs and increase the profit margin.
13. This Court finds that the figure $182,857, being the asset value of $201,933, less the amount of $19,076 listed as “Loans to stockholders”, may be used as the fair market value as of July 1983. The equity held by the Debtors, after deduction of the claim of Movants in the sum of $140,000.00, which sum includes attorneys’ fees and costs, is approximately $42,857.00.
CONCLUSIONS OF LAW
1. This Court has jurisdiction over the parties hereto, the subject property, and has authority under the Bankruptcy Code, § 362, to render a decision regarding the Motion to Modify Stay.
2. Under § 362(d), a party in interest may request relief from the automatic stay “(1) for cause, including lack of adequate protection of an interest in property of such party in interest; or (2) with respect to a stay of an act against property, if (A) the debtor does not have an equity in such property; and (B) such property is not necessary to an effective reorganization.”
3. The principal amount due and unpaid to Movants is $125,000, plus approximately $15,000.00 for attorney’s fees and costs.
4. It is uncontroverted that the Debtors are current in payment of all interest payments to Movants, insurance coverages as required and are not subject to any tax liens or notices of liens.
5. The Debtors are involved in pending court proceedings (Civil No. 75979, Circuit Court of the First Circuit, State of Hawaii) over the disputed lease which affects the amount of lease rent owing and the duration of the lease. Resolution of this dispute is necessary to any plan of rehabilitation and is in the best interest of all parties concerned.
6. Under Chapter 11 of the Bankruptcy Code, Debtors are authorized to continue the operation of their business and are granted an opportunity to reorganize the business to operate successfully in the future. As the Supreme Court of the United States stated in United States v. Whiting Pools, Inc., — U.S. -, -, 103 S.Ct. 2309, 2312, 76 L.Ed.2d 515 (1983):
*252By permitting reorganization, Congress anticipated that the business would continue to provide jobs, to satisfy creditors’ claims, and to produce a return for its owners. H.R.Rep. No. 95-595, p. 220 (1977). Congress presumed that the assets of the debtor would be more valuable if used in a rehabilitated business than if “sold for scrap.” Ibid. The reorganization effort would have small chance of success, however, if property essential to running the business were excluded from the estate. (Citations omitted.)
7. There is no evidence of any real or apparent threat of demolition by the landlord.
8. The Debtors have equity of $42,857 over and above the secured claim of Mov-ants and the business assets are deemed essential to an effective rehabilitation for which the Debtors have a reasonable likelihood of success. The Debtors have made substantial effort to reorganize the business operations and the costs thereof. The equities weigh in their favor to permit the ongoing process of rehabilitation.
9. In view of all the assets that are available to Movants, the Court finds that Movants are adequately protected so long as Debtors continue to be Current in their payments of interest and lease rents.
10. Since the Court finds that there is equity for Debtors in the property of the estate and that the property is necessary for an effective reorganization, Movants cannot prevail under 11 U.S.C. Section 362(d)(2).
11. Since the Court also finds that Mov-ants are adequately protected so long as Debtors are current in their interest and lease payments, this precludes relief from stay based on 11 U.S.C. § 362(d)(1).
12. For the foregoing reasons, the Court denies the Motion To Modify Stay. However, because of the threat of the landlord to proceed against Movants for the payments of the rents that are in dispute between the landlord and Debtors, and because of other possible changes in circumstances, the Court is granting Movants leave to request a further hearing at any time in the future when they feel that they are entitled to relief under Section 362.
IT IS HEREBY ORDERED that the Motion to Modify Stay is hereby denied. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489809/ | ORDER NOTING CHANGE OF PROCEDURE IN THIS COURT
STEPHEN B. COLEMAN, Bankruptcy Judge.
Congress having recently funded the United States Trustee Pilot Program until September 30, 1984, based on An Evaluation of the U.S. Trustee Pilot Program for Bankruptcy Administration, Findings and Recommendations, sponsored by the United States Department of Justice, Executive Office for U.S. Trustees, in which Congress accepted the statement of ABT Associates, 55 Wheeler Street, Cambridge, MA 02138, on page 129 in which it is stated:
... For example, in one district, both the U.S. Trustee and the court claim responsibility for auditing trustees’ final reports, proposed distribution orders, and the final distribution. In the court’s view, since the judge must sign the distribution order and close the case officially, the court has ultimate responsibility for the audit. The U.S. trustee argues that the Code requires him to monitor all aspects of the panel trustees’ performance, including the distribution of funds to creditors. In the words of this U.S. trustee, “The buck stops here. If this office is mandated by law to supervise the panel, staff must see that the money goes where it should. ” (Emphasis added.)
In view of this action, this Court rules that the payment and distribution of monies of the estate to creditors is the sole function and duty of the U.S. Trustee and not the concern of the Court and not to be approved or disapproved by the Court.
The Court therefore dispenses with requirements that Trustees file proposed distributions with the Court or request for Orders of Distribution or instructions.
IT IS ACCORDINGLY ORDERED:
1. That the request of the Trustee, by letter, for instructions be and the same is DENIED.
2. That should the United States Trustee elect to call a final meeting under Rule X-1006, the Clerk shall notice the meeting to be conducted by the U.S. Trustee or the Trustee.
3. That all final Orders closing estates and discharging the Trustee shall be in the form attached to this Order.
4. That copies of this Order be disseminated to Trustees and attorneys practicing in this Court.
ORDER APPROVING ACCOUNT, DISCHARGING
TRUSTEE AND CLOSING ESTATE
The United States Trustee having filed Certificate of Final Audit after Distribution *272and reporting to the Court that all funds on hand have been disbursed and that the Trustee has performed all other and further duties required of him in the administration of this estate, and having filed his cancelled checks with the Clerk of the Court.
Based on the action and recommendation of the United States Trustee.
IT IS ORDERED:
That said estate be and it hereby is closed; that the Trustee be and he hereby is discharged and relieved of his trust; and that the bond of said Trustee be and it hereby is cancelled and that the surety or sureties thereon be and they hereby are released from further liability thereunder, except any liability which may have accrued during the time such bond was in effect.
Dated this the - day of -, 19-
Stephen B. Coleman BANKRUPTCY JUDGE | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489811/ | MEMORANDUM
CLIVE W. BARE, Bankruptcy Judge.
The question before the court involves the ownership of a “refund” in the sum of $4,182.25 paid into the registry of this court by John Deere Company. The two contestants claiming the funds are Leon Steinberg, trustee of the estate of Suburban Lawn and Tractor,1 and East Tennes*338see Farm Equipment, Inc. The trustee contends that the funds are property of the debtor’s estate, 11 U.S.C.A. § 541 (1979), which should be turned over to him, 11 U.S.C.A. § 542(b) (1979). East Tennessee Farm Equipment, Inc. asserts that it is entitled to the funds pursuant to an assignment by James T. Richards, the president of Suburban Lawn & Tractor, Inc.
I
On March 21, 1981, James T. Richards, as a sole proprietor, commenced operation of a John Deere consumer products dealership under the trade name Suburban Lawn and Tractor. When Richards renewed his dealership agreement with John Deere on September 29, 1981, he indicated that Suburban Lawn and Tractor was a proprietorship.
During the fall of 1981, Richards’ accountant advised him that he should incorporate Suburban Lawn and Tractor. Application to the Tennessee Secretary of State was made on January 29, 1982, and a certificate of incorporation was issued to Suburban Lawn and Tractor, Inc. on April 15, 1982. The certificate was recorded in the Knox County Register’s office on May 17, 1982. Apparently, however, no stock certificates or documents purporting to transfer the proprietorship assets to Suburban Lawn and Tractor, Inc. were prepared. Further, contrary to the explicit terms of the dealership agreement, no notice of incorporation was given to John Deere by Richards until the assets of the Suburban dealership were sold on July 27, 1982.
When the Suburban dealership assets were sold, John Deere purchased the inventory items it had manufactured and resold them to a third party. The sale of Suburban’s assets included two hay balers previously purchased from East Tennessee Farm Equipment, Inc. by Richards, in his own name, for the purpose of resale by Suburban.2 These two hay balers were sold to another John Deere dealership.
On September 13, 1982, John Deere forwarded to Richards its check in the amount of $18,000.00 jointly payable to “Suburban Lawn & Tractor & 1st Tennessee Bank of Knoxville.” A letter accompanying the check recites in part: “The account balance at this time is $19,452.74. 'We are sending $18,000 and will send any additional credit as soon as pending charges and credits to your account are finalized.” The $4,812.25 at issue herein represents the Suburban account balance with John Deere as of on or about October 5, 1983, when an order was entered permitting deposit of the disputed funds in the registry of the court.3
Richards and Suburban Lawn and Tractor, Inc.4 concurrently filed separate chapter 7 bankruptcy petitions on October 22, 1982. Richards’ individual petition filed in this court was dismissed on February 14, 1983.5 Thereafter, East Tennessee Farm Equipment, Inc. sued Richards for the proceeds of the two hay balers which were transferred to another John Deere dealer. In addition to paying $5,000.00, Richards executed an assignment dated May 12, 1983, to East Tennessee Farm Equipment, Inc. of monies, if any, not exceeding $6,000.00, due him from the Suburban dealer reserve account with John Deere.
II
On May 10, 1983, two days previous to the Richards assignment to East Tennessee Farm Equipment, Inc., Steinberg filed a complaint seeking a turnover of the dealer reserve account funds. He contends that *339these funds are property of the corporate debtor’s estate. In contradistinction, East Tennessee Farm Equipment contends that Richards is the owner of the funds and that it is entitled to the monies by virtue of its assignment from Richards.
At trial Richards testified that he incorporated Suburban Lawn and Tractor in January 1982. However, de jure corporate existence could not have preceded April 15, 1982, when the Tennessee Secretary of State issued the certificate of incorporation.6 Although Richards had mentioned the possibility of incorporating Suburban to one or more John Deere officials, he did not notify John Deere of this change in status.7
Further, Richards continued to operate Suburban as a sole proprietorship. An amended financing statement filed on May 14, 1982, giving notice of Suburban’s change of address, reflects that the secured debtor is “James T. Richards d/b/a Suburban Lawn & Tractor.” John Deere is identified as the. secured party in this amended financing statement. Also, subsequent to incorporation, Richards continued using the same checking account used by Suburban as a sole proprietorship. Indeed, checks against this account written to John Deere in June and July 1982 neither reflect a corporate title nor signature in a corporate capacity. Sandra Shell, employed by Suburban from March 1982 until the cessation of its business, is the signatory of these checks to John Deere.8 She testified that Richards had not discussed the formation of a corporation with her; that she had no knowledge regarding the incorporation of Suburban; and that she had not been instructed to sign checks as a corporate agent or officer. Moreover, the John Deere check for $18,000.00 issued to “Suburban Lawn & Tractor” and First Tennessee Bank of Knoxville, dated September 13, 1982, reflects a stamped endorsement “FOR DEPOSIT SUBURBAN LAWN & TRACTOR.”
John Robert Brown, a district manager for John Deere responsible for dealing with Suburban, testified that Richards told him on one occasion that he was considering incorporation. Brown further testified that the only other conversation between them about the Suburban incorporation occurred when Suburban ceased doing business. According to Brown, Richards told him that no stock had ever been issued for Suburban Lawn and Tractor, Inc.; that the corporate charter had never been used; and that there were no corporate liabilities.
The evidence overwhelmingly establishes a complete disregard of Suburban’s corporate status. Clearly, Richards continued to operate Suburban as a sole proprietorship after the formation of Suburban Lawn and Tractor, Inc. There is no evidence of a corporate resolution to acquire the assets of the sole proprietorship; nor is there any other evidence of a transfer of the dealership assets to the corporation. Since the assets of the sole proprietorship were never transferred to the corporation, the controverted funds belong to Richards, subject to the assignment rights of East Tennessee Farm Equipment, Inc.9
This Memorandum constitutes findings of fact and conclusions of law, Bankruptcy Rule 7052.
. Although the statement of financial affairs rc-flccts that the debtor is a corporation, its corpo*338rate status is not reflected in the caption of the petition, which recites "In re Suburban Lawn & Tractor."
, The date Richards purchased the two hay balers is not disclosed in the record before the court.
. Henry M. Cook, a division credit manager for John Deere, testified on January 5, 1984, that the Suburban dealership reserve account is still open and that the balance in the account is approximately 51,100.00. The funds still in the custody of John Deere arc not presently at issue herein.
. Sec note 1, supra.
. See Case No. 3-82-01619.
. See Tenn.Code Ann. § 48-203 (1979).
. A personal guaranty of corporate obligations would have routinely been obtained by John Deere if it had been informed of the Suburban incorporation.
. See Exhibit 4 [Deleted for purposes of publication].
.If a transfer to the corporation involving an interest in the proprietorship assets was effected, the interest transferred is limited to that of legal title. The evidence conclusively establishes that Richards retained the equitable interest to the proprietorship assets. Thus, Suburban Lawn and Tractor, Inc. has no equitable interest in the funds at issue. See 11 U.S.C.A. § 541(d) (1979). | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489812/ | MEMORANDUM OPINION
STEWART ROSE, Bankruptcy Judge.
This matter comes before the Court upon the stipulation of the parties as to the facts. The issue to be decided is whether a non-purchase money security interest held by Sunwest Bank in furniture owned by the Debtor, but kept in storage, may be avoided under 11 U.S.C. § 522(f)(2).
*666In 1982, the Debtor obtained two loans from the Clovis National Bank, n/k/a Sun-west Bank, granting the bank non-purchase money security interests in his car and his household furniture.1 Later that year, the Debtor, who serves in the United States Air Force, was divorced from his wife, and, moved into a dormitory on Cannon Air Force Base. As the dormitory was furnished, he placed his household goods in storage in Clovis, New Mexico. Although the Debtor has “homesteaded” at Cannon, he- represents that he expects a transfer within approximately six months, at which time he will again put the furniture in to use.
The Debtor filed a Chapter 7 petition in August 1983, exempting the furniture under § 522(d)(3). There was no objection to the claim of exemption. He now seeks to avoid the Bank’s lien under § 522(f)(2), as impairing his exemption.
The Bank takes the position that because the furniture is -in storage, it is not, as § 522(f)(2)(A) requires, “... held primarily for personal, family or household use of the debtor ...” The Debtor argues that “held” has no connotation of time, therefore there is no requirement the furniture be in daily use. It is not disputed that the furniture, when in use, is used in the Debt- or’s household.
The language of § 522(f)(2)(A) is the same (with the addition of jewelry) as that is § 522(d)(3). Section 522(d) lists that property which may be exempted. Within § 522, sub-section (d)(1) allows the exemption of property used as a residence. Subsections (d)(3) and (d)(4) allow the exemption of certain items of property held by the debtor (emphasis added). Thus it appears Congress intended to distinguish between using property and holding property. “Holding” or “held” is defined neither in the Code nor the legislative history. Since Congress did not provide a specific definition, it must be assumed that a general definition was intended. Turning to Black’s Law Dictionary (5th ed. 1979), one is directed to “hold”, wherein the applicable definitions are: “1. To possess in virtue of a lawful title, common in grants, ‘to have and to hold’ or in that applied to notes, ‘the owner and holder’ ... 9. To keep; to retain; to maintain possession of or authority over.” Id. at 657-658.
The Debtor has retained title to the furniture, subject to the lien, and maintains possession of the furniture, albeit in storage. Therefore, the Debtor holds the property. This, coupled with the strong Congressional policy favoring the avoidance of non-purchase money security interests in household furniture, H.Rep. No. 595, 95th Cong., .1st Sess. 126-127 (1977), U.S.Code Cong. & Admin.News 1978, p. 5787, requires this Court to permit the Debtor to avoid the lien of Sunwest Bank on his household furniture. Counsel for the Debt- or shall submit an appropriate form of Order to this Court within ten days.
. The financing statement describes the collateral as:
Living Room Furniture: Schweiger Sofa 89" long
2 Kay Lounges Chairs
Coffee Table and 3 End Tables
Sofa Table
De Sota Dining Room Furniture
Table and 4 Chairs and China Cabinet | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489814/ | OPINION
EMIL F. GOLDHABER, Bankruptcy Judge:
The issue in the dispute before us is whether an entity who purchased realty from the trustee, relying on the erroneous figures given him by the mortgagee, can successfully urge the application of the doctrine of equitable estoppel against said mortgagee. The question arose out of negotiations for the private sale of the property when, in endeavoring to calculate the purchase price, the intended purchaser relied on the mortgagee’s erroneous understatement of the outstanding balance, due on its encumbrance. For the reasons stated herein we find that equitable estoppel bars the mortgagee from asserting that the balance on the mortgage is greater than what it previously indicated.
The facts of this case are as follows:1 The debtor filed for relief under chapter 11 of the Bankruptcy Code (“the Code”) on August 18, 1980, although the case has since been converted to chapter 7. After the filing of the petition, Samuel Rappaport (“Rappaport”), Samuel M. Brodsky, the trustee, and Marjorie 0. Rendell, Esquire (“Rendell”) as counsel for the Trustees of Central States, Southeast and Southwest Areas Pension Fund (“the Fund”) attended an auction of the debtor’s realty.2 No one having successfully bid at the auction, the trustee negotiated with Rappaport for its private sale. In the negotiations Rendell, as agent for the Fund, produced a letter drafted by her which stated that the outstanding balance on the Fund’s mortgage was $570,139.58. Rappaport and the trustee justifiably relied on this figure in executing a contract for the sale of said realty and in fixing the price of such realty at $780,000.00, which consisted of the sum of $570,139.58 mortgage, plus approximately $110,000.00 in other encumbrances on the property. In the contract of sale Rappa-port also agreed to pay the trustee $75,-000.00 for administering the property during the pendency of the bankruptcy. On the day of the auction Rappaport gave the trustee a deposit of $200,000.00 as a down-payment on the realty. Later that day Rendell became aware that her letter had understated the balance due on the mortgage by approximately $30,000.003 and she promptly informed the other parties of that fact. Several days later the trustee and Rappaport executed an addendum to the agreement of sale intending nothing more than a clarification of the previous contract. The parties had no intent to effect a novation or increase the amount of consideration that passed under the contract. The addendum merely memorialized the constituent elements of the purchase price which, of course, included the $570,139.58 figure given by Rendell to Rappaport and the trustee. The purpose of the addendum was to shift from the trustee to Rappaport the risk of loss if the court were to decide ultimately that the application of estoppel in this controversy would be improper. In part the addendum stated that the consideration for the sale was the sum of “the mortgage held by the Fund as calculated as *881of the date of closing of this sale less any monies paid by [Rappaport] prior to the date of closing of this sale, reported to be $570,139.58 as of August 31, 1982.” One copy of the addendum, which was sent to Rendell by a party other than Rappaport or the trustee, contained a blank space in lieu of the $570,139.58 figure. At the closing, Rappaport paid the full amount claimed by the Fund with the difference between the actual mortgage balance and the balance quoted by Rendell being placed in escrow. Rappaport has commenced the action at bench seeking possession of this fund.
Rappaport urges that this is a proper case for applying the doctrine of equitable estoppel to preclude the Fund from contending that the balance of the mortgage debt was greater than that previously stated by their counsel, Rendell. Under Pennsylvania law the elements of equitable estoppel have been stated as follows:
Equitable estoppel applies to prevent a party from assuming a position or asserting a right to another’s disadvantage inconsistent with a position previously taken. P.L.E. Estoppel § 21. When a party “by his acts, representations, or admissions, or by his silence when he ought to speak out, intentionally or through culpable negligence induces another to believe certain facts to exist and such other rightfully relies and acts on such belief, so that he will be prejudiced if the former is permitted to deny the existence of such facts ... the person inducing the belief in the existence of a certain state of facts is estopped to deny that the state of facts does in truth exist, aver a different or contrary state of facts as existing at the same time, or deny or repudiate his acts, conduct, or statements.” Northwestern National Bank v. Commonwealth Bank v. Commonwealth, 345 Pa. 192, 196-197, 27 A.2d 20, 23 (1942). See also Tallarico Estate, 425 Pa. 280, 288, 228 A.2d 736 (1967). It is well-established, however, that the burden rests on the party asserting the es-toppel to establish such estoppel by clear, precise and unequivocal evidence.
Blofsen v. Cutaiar, 460 Pa. 411, 417, 333 A.2d 841, 843-44 (1975). The facts of the case at bench meet the elements of the doctrine of equitable estoppel. As stated in Northwestern, supra, Rendell, as agent for the Fund, “intentionally” stated that the mortgage balance was $570,139.58, and such statement was made by her with the reasonable expectation that the trustee and Rappaport would rely upon it. Rappaport and the trustee rightfully relied and acted on Rendell’s statement in contracting for the sale of the realty. Rappaport will undoubtedly be prejudiced if the Fund can now assert the erroneous reporting of the mortgage balance, since Rappaport will have parted with an amount in excess of the contract price. Consequently, Rappa-port has proven a prima facie case for the application of the doctrine of equitable es-toppel based on a showing of “clear, precise and unequivocal evidence.”
The fund contends that the estoppel cannot applied in favor of one who has been harmed as a result of his own voluntary conduct rather than by the defendant’s actions. Northwestern, 345 Pa. at 197, 27 A.2d at 23. The Fund asserts that Rappaport, rather than the Fund, precipitated the resulting harm, since Rappaport and the trustee executed an addendum to the sale contract after having acquired knowledge of the actual balance on the mortgage. We find the Fund’s contention without merit since we determined above that the addendum worked only clarifying change in the contract of sale other than a shifting of the risk on the outcome of this proceeding.
We will enter judgment in favor of Rap-paport allowing him to collect the escrow fund.
. This opinion constitutes the findings of fact and conclusions of law required by Bankruptcy Rule 7052 (effective August 1, 1983).
. The property was located at 306-20 North Broad Street, 304 North Broad Street and 1409-11 Vine Street in Philadelphia, Pennsylvania.
.The amount in dispute is less than $30,000.00 since this figure will be netted against a tax fund of substantial amount which is currently held by the Fund. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489815/ | MEMORANDUM DECISION
THOMAS C. BRITTON, Bankruptcy Judge.
Plaintiff seeks a determination of the validity, priority and amount of its lien. (C.P. No. 4). Neither defendant has answered. At the trial, held April 3, after three continuances requested by the parties, the defendant answered orally, admitting all allegations of the amended complaint. The trustee answered orally admitting all factual allegations in the amended complaint, but denied that the plaintiff had perfected and, therefore, had a claim against the debtor’s accounts receivable superior to the claim of the trustee.
The debtor is indebted to the plaintiff for goods sold and delivered in the amount of $910,682. By the terms of its security agreement, it is entitled also to all fees, costs and expenses reasonably incurred in the collection of its account. It has offered no proof to support such a claim and, for that reason, no such allowance is considered.
Its written Security Agreement, dated January 8, 1981, and duly perfected on January 13, 1981, granted the plaintiff a security interest in all tires and tubes manufactured by the plaintiff or by one of its affiliates in the debtor’s possession at the debtor’s business address. By a duly perfected filing on October 7, 1983, before the commencement of this case, the security interest was amended by adding the following words:
“AND PROCEEDS THEREOF.”
The debtor’s inventory is insufficient to satisfy the plaintiff’s claim, but the debtor does have substantial accounts receivable, an estimated 95% of which were earned from the sale of the plaintiff’s products and which are, therefore, “proceeds”. Florida Statutes § 679.306(1), (U.C.C. § 9-306(1)).
Filing of a separate financing statement is unnecessary to perfect a security interest in these accounts receivable as they are:
“collateral in which a security interest may be perfected by filing in the office or offices where the financing statement (for the original collateral) has been filed ...” Florida Statutes § 679.306(3)(a), (U.C.C. § 9-306(3)(a)); Matter of Springfield Casket Co., Inc., 21 B.R. 223, 226 (Bkrtcy.S.D.Ohio 1982).
Section 679.306(4)(a), Florida Statutes, (U.C.C. § 9-306(4)(a)) also provides:
“In the event of insolvency proceedings instituted by or against a debtor, a secured party with a perfected security interest in proceeds has a perfected security interest only in the following proceeds: (a) In identifiable non-cash proceeds and in separate deposit accounts containing only proceeds...”
The case relied upon by the trustee, Matter of Frieze, 32 B.R. 194 (Bkrtcy.W.D.Mo.1983), is inapplicable as that case involved cash proceeds.
I conclude, therefore, that plaintiff has a security interest in those accounts receivable which are identifiable as being for the sale of plaintiff’s tires and tubes. See also Universal CIT Credit Corp. v. Prudential Investment Corp., 101 R.I. 287, 222 A.2d 571 (1966).
As is required by B.R. 9021(a), a separate judgment will be entered ordering that plaintiff’s security interest is superior to *945the trustee’s right, title and interest in such accounts receivable .and the collections, if any, received from such accounts receivable. There is no other party defendant, therefore, no determination is made as to whether any third party has or does not have a claim superior to that of the plaintiff.
The trustee is directed to account for and surrender to the plaintiff forthwith all property subject to the plaintiffs security interest as above defined. Costs may be taxed on motion. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489816/ | MEMORANDUM OPINION
FREDERICK J. HERTZ, Bankruptcy Judge.
I.
This proceeding arises from a motion of U.I.P. Engineered Products Corporation (“UIP”) for relief from the Section 362 automatic stay. 11 U.S.C. § 362 (Supp. V 1981). C.T.R., Inc. (“CTR”) as debtor-in-possession, LaSalle National Bank, as trustee of certain premises, and A.P. Machine and Development, Ltd. object to UIP’s motion. The issue before this court is whether UIP has an interest in the property in issue (cranes) sufficient to warrant relief from the stay.
II.
CTR was the subtenant of UIP of certain premises owned by LaSalle National Bank (“Bank”). Pursuant' to the terms of the sublease, CTR had the right to use certain cranes which were then owned by UIP. CTR, however, defaulted on the sublease. As a result, UIP obtained a money judgment against CTR and an order of replevin against the cranes.
On October 12, 1982, the parties reached an agreement settling the claims and vacating the judgment. As part of the agreement, UIP agreed to sell the cranes to CTR for approximately $15,000. The total settlement package was $76,493.21. Paragraph two of the settlement agreement provided that UIP would retain title to the cranes until CTR completely satisfied its obligations under the agreement. The cranes remained at the premises in the possession of CTR prior to and after the sale. After paying in excess of $40,000 under the agreement, CTR ceased making payments and thereby failed to fulfill its obligations. Thereafter, on October 5, 1983, CTR filed its petition in these proceedings. UIP has never filed a financing statement on the cranes under Article 9 of the Illinois Commercial Code. Ill.Rev.Stat. ch. 26, § 9-101 et seq. (1983). (Hereinafter only the specific sections of the Illinois Commercial Code will be cited).
On February 17, 1984, UIP filed a motion for relief from the automatic stay claiming that it had retained title to the cranes. Therefore, UIP reasons, it is entitled to have the stay lifted as to the cranes. CTR, however, argues that UIP is a general unsecured creditor and therefore has no basis to lift the stay. In support, CTR cites Sections 1-201(37) and 2-401 of the Illinois Commercial Code. These sections provide that any retention or reservation of title by a seller of goods is limited to a reservation of a security interest. By failing to file a financing statement on the cranes, it is argued that UIP is simply relegated to the status of unsecured general creditor.
In rebuttal, UIP presented two arguments. First, UIP argues that Article 2 is inapplicable because the cranes, having a “fixed nature”, were not “movable” and therefore not “goods” as defined in Section 2-105(1). Alternatively, UIP contends that *958the present facts require the application of Section 2-401(3)(a). Section 2-401(3)(a) provides:
Unless otherwise explicitly agreed where delivery is to be made without moving the goods, (a) if the seller is to deliver a document of title, title passes at the time when and place where he delivers such documents;....
Supporting the application of Section 2-401(3)(a), UIP claims that the delivery was made without moving the cranes and that the UIP-CTR agreement contemplated the delivery of a document of title to the cranes. UIP argues that it never parted with the title to the cranes. Accordingly, UIP claims that as title holder, it has a sufficient interest in the cranes to lift the stay.
The Bank argued that the UIP-CTR agreement gave rise to an Article 9 security interest which was never perfected. Therefore, the Bank claims that UIP is a general unsecured creditor and thus has an insufficient interest in the cranes to warrant a lifting of the stay.
III.
Section 362(d) of the Bankruptcy Code provides in pertinent part:
... on request of a party in interest and after notice and a hearing, the court shall grant relief from the stay provided under subsection (d) of this section, such as by terminating, annulling, modifying or conditioning such stay ... (emphasis supplied).
11 U.S.C. § 362(d) (Supp. Y 1981). This court must determine whether UIP has an interest in the cranes and, if so, whether the interest is sufficient to sustain a lifting of the stay.
Initially, UIP’s reliance upon Section 2-401(3)(a) is misplaced. This court finds as persuasive the rationale in Putterbaugh v. Fournier, (In Re Happy Jack’s Restaurant), 29 U.S.C.Rep.Svce. 653 (Bkrtcy. Maine 1980) (where seller purported to retain title to goods delivered without moving them, the question of title to goods delivered without moving them, the question of title was not material in resolving dispute between seller and buyer thereby rendering Section 2-401(3) inapplicable).1 Section 2-401(3)(a) specifically addresses the situation where the seller is to deliver a “document of title”. Section 1-201(15) defines a “document of title” in pertinent part as “... a document [which] must purport to be issued by or addressed to a bailee and purport to cover goods in the bailee’s possession...” (emphasis supplied). Section 7-102(l)(a) defines “bailee” in relevant part as “... the person who by a warehouse receipt, bill of lading or other document of title acknowledges possession of goods and contracts to deliver them.” (emphasis supplied).
UIP failed to introduce into evidence a purported document of title to the cranes. This is so because a document of title never arose in the UIP-CTR transaction. A document of title to the cranes requires a document addressed to a bailee who acknowledges possession of the cranes and contracts to deliver the cranes. It is un-eontested that the cranes remained at the premises throughout the relevant time period. Therefore, a bailee was never engaged to deliver the cranes to CTR.
Comment 15 to Section 1-201(15) is in agreement with this analysis. This comment cautions that:
... by making it explicit that the obligation or designation of a third party as “bailee” is essential to a document of title, this definition clearly rejects any such result as obtained in Hixson v. Ward, 254 Ill.App. 505 (1929), which treated a conditional sale contract as a document of title.
This court finds that a document of title in the cranes never arose in the UIP-CTR transaction. Accordingly, Section 2-401(3)(a) is inapplicable in the instant case.
Additionally, this court finds that regardless of whether Article 2 applies, Article 9 certainly applies. The broad language of Section 9-102(2) sweeps the UIP-CTR *959agreement within its ambit. Section 9-102(2) provides in relevant portion:
This article applies to security interests created by contract including pledge, assignment, chattel mortgage, chattel trust, trust deed, factor’s lien, equipment trust, conditional sale, trust receipt, other lien or title retention contract and lease or consignment intended as security. (emphasis supplied).
Clearly, the agreement in which UIP was to retain title to the cranes falls within Section 9-102(2). Title retention contracts have been found to be security contracts by Illinois Courts. See, Harney v. Spellman, 113 Ill.App.2d 463, 465, 251 N.E.2d 265 (4th Dist.1969) (title retention contract with respect to household items found to be “indubitably and purely a security contract”); See also, Mayor’s Jewelers v. Levinson, 39 Ill.App.3d 16, 17, 349 N.E.2d 475 (2nd Dist.1976) (conditional sale contract which retains title to jewelry in the seller creates a security interest); and Household Finance Corp. v. Mowdy, 13 Ill.App.3d 822, 827, 300 N.E.2d 863 (2nd Dist.1973) (an installment sales contract which retains title to a pool creates a security interest).
Moreover, Section 1-201(37) of the General Provisions of the Illinois Commercial Code defines a “security interest” as:
an interest in personal property or fixtures which secured payment or enforcement of an obligation. The retention or reservation of title by a seller of goods notwithstanding shipment or delivery to the buyer ... is limited in effect to a reservation of a security interest...
Furthermore, Section 9-202 of the Code dictates:
Title to Collateral Immaterial. Each provision of this Article with regard to rights, obligations and remedies applies whether title to collateral is in the secured party or in the debtor.
Therefore, the purported title retention of the UIP-CTR agreement is immaterial for purposes of ownership. The attempted title retention by UIP created a security interest in the cranes which required perfection under Section 9-401. By failing to file a financing statement, UIP failed to perfect its interest in the cranes.
Sections 544(a) and 1107 of the Bankruptcy Code vest the debtor-in-possession with the rights and powers of a hypothetical judgment creditor without notice under state law. 11 U.S.C. §§ 544(a) and 1107 (Supp. V 1981). In the same vein, Section 9-301(l)(b) provides that UIP’s unperfected security interest is subordinate to the rights of a person who becomes a lien creditor before the security interest is perfected. Under Section 9-301(3), a lien creditor includes a trustee in bankruptcy from the date of the filing of the petition. Thus, UIP’s unsecured interest in the cranes is subordinate to the claims of CTR as debtor-in-possession.
In conclusion, UIP retained merely a security interest in the cranes through the purported title- retention agreement. UIP, however, never perfected its security interest in the cranes. Therefore, UIP is simply a general unsecured creditor. As a result, UIP has no ownership or secured interest in the cranes. Accordingly, UIP has no basis upon which to warrant relief from the Section 362 automatic stay. Thus, UIP’s motion for relief from the automatic stay is denied. Counsel for CTR is to furnish a draft order in accordance with this opinion within five days.
. The relevant Maine sections of the Commercial Code are identical to the corresponding Illinois sections. Me.Rev.Stat.Ann.Tit. 11, § 1-201(15) § 2-401(3)(a) (1964). | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489819/ | MEMORANDUM OPINION
MARK B. McFEELEY, Bankruptcy Judge.
This matter came before the Court on plaintiff’s motion for summary judgment, pursuant to Federal Rules of Civil Procedure 56, Bankruptcy Rule 756, and Local Rule 31, as amended. The plaintiff, First National Bank in Albuquerque (FNBIA), seeks summary judgment on its Complaint to Determine Dischargeability of Debt. The debt is on a promissory note to FNBIA signed by the defendant-debtor John L. Zambrano (Zambrano). FNBIA seeks a finding of non-dischargeability under 11 U.S.C. § 523(a)(2) (1978). Having carefully examined the record, the Court denies FNBIA’s motion for summary judgment.
The relevant facts for the purpose of this motion are as follows. On about April 15, 1982, Zambrano went to FNBIA where he met with Richard Griego. Griego was a vice-president at FNBIA with the authority to approve loans for up to $25,000.00 without the approval of another bank officer. Zambrano completed a financial statement at Griego’s request. Griego instructed Zambrano how to complete the forms and supplied Zambrano with the specific information. Zambrano signed a promissory note to FNBIA with a principle amount of $25,000.00 at an 18.25% annual interest rate. Zambrano maintains that he was merely co-signing the note for his father. While Zambrano had taken out two loans before, he was not sophisticated in banking matters and had never co-signed a note before. Griego arranged for the $25,000.00 loan. Of the proceeds, Zambrano gave $15,000.00 in cash to his father and used $10,000.00 for his own benefit.
The evidence in the record is, unfortunately, limited by uncontrollable factors. Zambrano’s father, a central character to the underlying transaction, has since died. In addition, a federal criminal indictment alleging fraudulent activities in approving loans at FNBIA has been filed against *13Griego. Accordingly, Griego is protected by his Fifth Amendment rights against self-incrimination, and has not testified.
In determining the propriety of FNBIA’s motion for summary judgment, the Court must review the applicable state law, and review the record in the light most favorable to the non-moving party. In re Morga, 31 B.R. 356 (Bkrtcy.D.N.M.1983). Further the Court must resolve all inferences and doubts in favor of the opposing party. Id. Having done so, the Court concludes that FNBIA is not entitled to summary judgment.
The Court’s analysis for this motion must be limited in two respects. First, the uncontroverted facts show that Zambrano only benefitted from $10,000.00 of the funds disbursed by FNBIA. The remaining funds went to Zambrano’s father. Therefore, the Court only considers whether the $10,000.00 is dischargeable. Second, the Court need only consider the discharge-ability of the $10,000.00 under 11 U.S.C. § 523(a)(2)(B). Subsection (A) is clearly inapplicable because it expressly excludes statements concerning the debtor’s financial condition such as the financial statement in this case. See generally, 3 Collier on Bankruptcy II 523.08 (15th ed. 1983). Therefore, the Court limits its analysis to dischargeability under subsection (B). That subsection states, in relevant part:
(a) A discharge ... does not discharge an individual debtor from any debt ...
(2) for obtaining money, property, services, or an extension, renewal, or refinance of credit, by ...
(B) use of a statement in writing—
(i) that is materially false;
(ii) respecting the debtor’s or an insider’s financial condition;
(iii) on which the creditor to whom the debtor is liable for obtaining such money, property, services, or credit reasonably relied; and
(iv) that the debtor caused to be made or published with intent to deceive; ...
11 U.S.C. § 523(a)(2)(B) (1978).
It is uncontroverted that the financial statement is materially false insofar as it applied to Zambrano’s financial condition at the time he signed the promissory note. Yet on its face, the financial statement purports to reflect the debtor’s financial condition. Therefore, there is no genuine issue of material fact as to the first two elements of subsection (B), and the elements are satisfied.
The third element of subsection (B) requires that the creditor rely on the debtor’s written statement, and that reliance must be reasonable. H.R.Rep. No. 595, 95th Cong., 1st Sess. 363 (1977); S.Rep. No. 989, 95th Cong., 2d Sess. 77-79 (1978), U.S.Code Cong. & Admin.News 1978, p. 5787; see generally, 3 Collier On Bankruptcy ¶1 523.-09[4] (15th Ed.1983). The nature of the additional reasonableness requirement is well summarized as follows:
Since the purpose of the exception is to protect creditors who are actually misled by fraudulent statements of debtors, the requirement that reliance be reasonable is sensible. A creditor who ignores available information, or who fails to seek information from sources that are commonly used, should not be heard to complain about the debtor’s fraud. It is the creditor’s failing to comport with normal business practices, not the debtor’s fraud, that is the true cause of the loss.
Yaretsky, “The Fraud Exception to Discharge Under the New Bankruptcy Code,” 53 Am.Bank.L.J. 253, 262 (1979). Given the reliance requirements of subsection (B), the Court finds that a genuine issue of material fact exists as to FNBIA’s reliance on Zambrano’s financial statement.
The uncontroverted evidence shows that FNBIA relied only on its vice-president, Richard Griego. For the purpose of arranging the loan, Griego was FNBIA. Cf., Echols v. Ribble Co., 85 N.M. 240, 511 P.2d 566 (App.1973). Regardless of the information on Zambrano’s financial statement, testimony indicates Griego would have arranged the loan. It was Griego who supplied the information to Zambrano. In its own brief, FNBIA recognizes that Griego, *14not Zambrano, concealed the false information. The facts in the record provide no basis to impute FNBIA’s reliance on its own employee to Zambrano. Without more, the Court cannot find that FNBIA reasonably relied on Zambrano’s financial statement. In re Houk, 17 B.R. 192 (Bkrtcy.D.S.D.1982); accord, In re Ardelean, 28 B.R. 299 (Bkrtcy. ND Ill., 1983).
Furthermore, the Court finds that a genuine issue of material fact exists as to whether Zambrano made or published the financial statement with intent to deceive. From the facts in the record, the Court will not infer such an intent. To do so would allow FNBIA to use Griego’s Fifth Amendment rights as a sword against Zambrano. Clearly, the Fifth Amendment should not be used for such a purpose. Nor do the facts establish the existence of a conspiracy between Zambrano and Griego. See, (N.M.Stat.Ann. § 30-28-2 (Cum.Supp.1983).
The facts of this case are unique, and require further comment by this Court. As stated above, the record is unfortunately limited. The two people who likely know the most about the loan transaction, Griego and Zambrano’s father, either will not or cannot testify. Despite its findings, however, the Court in no way condones Zam-brano’s behavior in obtaining the loan proceeds. It must remain clear that the Court’s decision today should in no way affect any criminal proceeding stemming from the acts in question. Finally, the Court notes that its holding does not preclude FNBIA from other avenues of recovery. It can also seek to recover from Grie-go.
This memorandum constitutes findings of fact and conclusion of law. Bankruptcy Rule 7052.
An appropriate order shall enter. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489820/ | MEMORANDUM OPINION
MARK B. McFEELEY, Bankruptcy Judge.
This matter came before the Court upon the complaint of the Bank of Albuquerque (the Bank) to determine dischargeability of debt. At the trial on the merits the evidence showed that the debtor, Richard Leo Dow, Jr. (Dow) obtained a loan of $3,500 to do repairs to a residence which Dow then stated, by means of a financial statement dated January 31, 1983, that he owned. In fact, Dow planned to buy the residence from his mother, but circumstances later prevented that purchase. The evidence also showed that Dow over-stated his income and failed to list a $330.00 per month child support obligation on the financial statement. When the loan, granted February 2, 1983, became due and Dow could not meet the obligation, he went to the Bank asking that the loan be extended and that additional sums be loaned to him. At that time, late July 1983, the Bank, through its loan officer, learned that Dow did not own the real estate listed on the January 31, 1983, financial statement, but did not learn that the income listed on the financial statement was wrong and did not learn of Dow’s child support obligation. The Bank’s loan officer testified that had she known of these further inaccuracies she would not have renewed the note for an additional six month, but would rather have required payment or taken legal action. At trial, the Bank contended that the transaction of July 29, 1983, was merely an extension of the original note. Dow claimed it was a new loan which paid off the first. As support Dow pointed out that the terms of the notes were different, the first bearing interest at 16.75% per annum, the second at 18.25% per annum.
At the end of the trial on the merits the Court found that if the July 29, 1983, note was a new transaction, there was no reasonable reliance by the Bank on what remained of the financial statement. The Court found that the disclosure that Dow did not own the real estate listed put the Bank on notice of enough irregularity that it should have questioned the other information on the financial statement and should have required Dow to complete a new financial form. The only issue taken under advisement was whether the law would allow a looking back to the time of the original transaction for the point of reliance by the Bank, or whether the July 29, 1983, transaction was a new note and obligation, made with knowledge and without reasonable reliance on the January financial statement. The Court found at trial that even if the law allowed a relating back to the time of the first transaction, the bank would only be allowed its principal balance, interest due, and reasonable attorney fees as a non-dischargeable debt and that no punitive damages would not be awarded.
The Bank correctly cites the rule which binds this Court, stated by the Tenth Circuit Court of Appeals in First National Bank of Lea County v. Niccum, et al., (In re Permian Anchor Services, Inc.) 649 F.2d 763 (10th Cir.1981). That case states that the rule in New Mexico is that an extension note does not constitute a novation unless contrary evidence is shown. That case found that where four notes, each of which contained provisions for attorney fees, were renewed by one fifth note which did not address the attorney fees question, the fifth note continued in effect the attorney fee provisions of the original four notes. Plaintiff also cites the New Mexico case, First National Bank in Albuquerque v. Abraham, 97 N.M. 288, 639 P.2d 575 (1982) which holds that a renewal which extends only the time period *24for repayment does not extinguish the original debt. Plaintiff fails to note, however, that Abraham goes on to say that a change in the interest rate is a material alteration which changes the legal effect of a note and results in a new indebtedness. Accordingly, since the interest rate on the second note from the Bank to Dow was increased, it resulted in new indebtedness. Since at the time of that note, the Bank knew of misstatements in Dow’s financial statements, it cannot claim reasonable reliance in extending further credit.
This Court concludes that the Bank cannot assert that it reasonably relied on the false financial statements of Dow in executing the July note and based thereon further concludes that the debt owed by Dow to the Bank is dischargeable.
This memorandum constitutes findings of fact and conclusions of laws. Bankruptcy Rule 7052.
An appropriate order shall enter. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489821/ | MEMORANDUM OPINION AND ORDER
RICHARD L. SPEER, Bankruptcy Judge.
This cause comes before this Court upon the Motion for Summary Judgment filed by the Trustee-Plaintiff.
PACTS
The Complaint in this adversary case seeks a determination as to whether or not the Trustee should be able to sell two (2) parcels of real estate free and clear of liens. An adversary proceeding is required by Bankruptcy Rule 7001, inasmuch as the Debtor is the owner of the property. See, Bankruptcy Rule 7001(3). Named as defendants in the case are nine entities who are alleged to have an interest in this real estate. On November 21, 1983, this Court entered an Order authorizing the sale of the property, the sequestration of the proceeds, and the attachment of the liens to the proceeds.
The Motion presently before this Court seeks a determination as to the allegedly preferential character of a lien held by one of the defendants. This allegation is made pursuant and with specific reference to 11 U.S.C. § 547(b). However, there are no allegations as to the preferential nature of the lien in the Complaint. The only mention made in the Complaint as to the validity of the liens is made in the prayer, where it is stated that:
“[the] trustee prays this Court ... FOR A FURTHER ORDER determining the nature, extent, validity, and priority of the alleged liens, and for such other and further relief as may be just and equitable.”
The certificate of service attached to the Motion for Summary Judgment indicates that it has been served on all the defendants in the case.
LAW
A review of Bankruptcy Rule 7001 finds that it states in pertinent part:
“An adversary proceeding is governed by the rules of this Part VII. It is a proceeding in a bankruptcy court to recover money or property ... to determine the validity, priority, or extent of a lien or other interest in property.”
The Advisory Committee Notes which follow the Rule indicate that an action to avoid a preference under 11 U.S.C. § 547 must be brought as an adversary proceeding.
In the present case, the Motion for Summary Judgment addresses issues which are not directly pled in the Complaint. Therefore, the issue of whether or not the taking of the lien was preferential is not properly before this Court. Although the Motion for Summary Judgment was served on all the Defendants, it would still be improper for this Court to terminate the interests of the Defendant based solely on the Motion *33and the vague language in the prayer of the Complaint. Inasmuch as the Bankruptcy Rules regard an action to avoid a transfer of sufficient gravity so to warrant an adversary proceeding and all the inherent protections attendant thereto, this Court cannot justify a ruling on the issue of preference based on the record now before it. Even- if the Court were to consider the Motion as it presently has been submitted, there has been no showing that the creditor received any greater percentage of the debt owed than if the transfer had not secured. See, 11 U.S.C. § 547(b)(5). Accordingly,
It is ORDERED that the Motion for Summary Judgment be, and it is hereby, DENIED. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489822/ | ORDER DENYING MOTION TO RECONSIDER ORDER DISMISSING INVOLUNTARY PETITION
JON J. CHINEN, Bankruptcy Judge.
On January 5, 1984, this Court entered an Order Dismissing Involuntary Petition in the instant case, ending sixteen months of involuntary bankruptcy for the alleged debtor, 36 B.R. 265. The Court’s Order contained Findings of Fact drawn from protracted evidentiary hearings, and the Court’s conclusion, based on the evidence, that the claims of only two of the four petitioning creditors were valid, that these aggregated claims did not exceed $5000.00, and the remaining creditors did not meet the standings requirements of § 303(b) or the substantive requirements of § 303(h). *43In reaching this decision, the Court made specific findings of bad faith on the part of petitioning creditors Graff and Arashiro in rejecting the validity of their claims and their standing as petitioning creditors.
On January 16,1984, counsel for petitioner Graff filed a Motion to Reconsider, which was not supported by a memorandum. As the Court prepared to summarily dismiss the Motion to Reconsider for lack of any justification and as such, as a dilatory tactic, a memorandum supporting the Motion to Reconsider was filed herein on February 29, 1984. A Memorandum in Opposition to the Motion to Reconsider was filed herein on March 29, 1984, by counsel for the alleged Debtor. An Affidavit by Larry Graff in Support of the Motion to Reconsider was filed herein on April 18, 1984.
The Court having reviewed the memoran-da submitted and being fully apprised of the record herein finds no grounds given to reconsider the court’s previous findings that the alleged claims of petitioning creditors Graff and Arashiro were not good faith claims and would not be considered under either the procedural or substantive requirements of 11 U.S.C. § 303.
The Motion to Reconsider is hereby denied. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489825/ | MEMORANDUM OPINION AND ORDER
JAMES E. YACOS, Bankruptcy Judge.
This case presents the Court with the legal equivalent of a game of mirrors. The Veterans’ Administration of the United States (hereinafter “VA”), acting through its home-mortgage guaranty program, in January of 1983 approved mortgage financing for the debtors which permitted them to buy a home for $87,900 with little down payment. To cover the required monthly mortgage payments it was clear that the debtors would have to rely on 100 percent disability benefits that Mr. Ballengee was then receiving from the VA in his status as a disabled veteran of the Vietnam War.
In September of 1983 the VA, acting through procedures for annual review of the status of disabled aid recipients, reduced Mr. Ballengee’s disability status from 100 percent to 70 percent. Because of various weighting factors involved under the disability laws, this caused a reduction in disability payments to Mr. Ballengee from the prior $1,300 a month to $650 a month. No notice or warning was given with regard to this reduction. Mr. Ballen-gee presently has an appeal pending with the VA in Washington, D.C. regarding this action.
Mrs. Ballengee contacted the mortgagee, Inland Mortgage Corporation, and was advised that payments could be suspended for three months until the Ballengee’s had a chance to try to work out the problem with the VA. Mrs. Ballengee also proceeded to get a teaching job but her additional income, together with other pension benefits still retained by Mr. Ballengee was insufficient to make the monthly mortgage payments to Inland Mortgage Corporation. This situation will continue until, and if, the pending appeal with regard to the VA action is resolved in Mr. Ballengee’s favor.
The Ballengees did put the house up for sale and had a purchase offer for $103,000 from a broker in December of 1983. They thereupon moved out of the house into a condominium pending closing of the sale. However, it was discovered that there were problems with the sewerage system in violation of local ordinances which were undisclosed to the Ballengees by the prior owner. The sale fell through. A suit against the prior owner is pending. While the debtors were out of the house in January of 1984, showing good faith to the VA and the mortgagee in the circumstances, certain hot water pipes burst for an unexplained reason and caused extensive steam damage to the premises.
To add to the tale of woe, Mr. Ballengee suffered various physical and nervous problems associated with moving from the secluded house to the condominium. As a final irony, the VA originally installed various ramps in the house to alleviate the physical problems.
The debtors as a last resort filed a Chapter 13 petition in this court on February 22, 1984. The mortgagee, perhaps now mindful of its duty to pursue the collateral to preserve its guaranty from the VA, filed a motion for relief from stay to permit it to foreclose on the property.
The evidence submitted at that hearing establishes the present market value of the property at $96,600, by virtue of increases of value in the area and improvements to the property by the Ballengees costing some $12,000, and taking into account insurance proceeds to cover the steam damage now received and turned over by the debtor to the mortgagee.
*64The evidence on the mortgage debt, although sketchy, indicates a present secured debt, including interest to May 22, 1984, in an amount not exceeding $95,000. While this indicates equity in the property, the mortgagee argues that foreclosure nevertheless should be permitted because the record is clear that the debtors can make no payments on the loan until and if the disability benefits are restored.
It was represented to the court that the VA decision in Washington “will take seven or eight months or more.” The mortgagee therefore argues it would be improper to hold it off from realizing on the collateral for this period of time upon a mere conjecture of possible favorable action on the pension matter.
It should be obvious, however, that it is really the VA that is the party most directly involved in all aspects of this unfortunate case. The VA allowed the debtors to buy the house; the VA then removed their financial ability to pay for it; and now the VA through its requirements for foreclosure by its insured principal is demanding that the debtors be thrown out of the house.
Since it is in the power of the VA to expedite the appeal regarding the status of Mr. Ballengee’s disability condition, the court concludes that in equity the VA should bear the exposure for any loss that Inland Mortgage Company may suffer due to delay in realizing on its collateral while the debtors await the outcome of their disability appeal.
For the foregoing reasons the motion for relief from stay is denied, without prejudice to its re-assertion as further developments may warrant. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489826/ | MEMORANDUM OPINION AND ORDER ON REASONABLENESS OF ATTORNEY FEES
BENJAMIN E. FRANKLIN, Bankruptcy Judge.
This matter first came on for hearing before the Court on November 18, 1983, pursuant to an Application for additional attorney fees. John R. Stonitsch, of Kansas City, Missouri, represented the debtors; and Thomas M. Mullinix was local counsel.
The facts are not in dispute. On September 13, 1983, an original petition was filed under Chapter 13 of Title 11, United States Code; and the debtors filed an application to pay filing fee in installments which was approved by the Court in Order dated the same date.
The Court also granted a 15-day extension for the purpose of the debtors filing their Schedules and Statement of Affairs.
On September 30, 1983, the debtors filed an amended petition under Chapter 13, of Title 11, U.S.C., which included a Statement of Financial Affairs for Debtor Engaged in Business under the name of Jim Hansen Sales, d/b/a J. Han, Inc.
The disclosure statement was filed with amended petition showing that the attorney had been paid or agreed to be paid *69$1,968.00 from the debtors’ savings account.
On October 18, 1983, John R. Stonitsch, attorney for debtors, filed an Application for allowance of attorneys fee confirming that he had been paid a total of $1,968.00 and wherein he was requesting $1,500.00 over and above the $450.00 which this Court allows for routine filings under Chapter 13.
Mr. Stonitsch alleges in his motion that as of October 18, 1983, he had accumulated 16.3 hours of time in preparation and developing of this case; that between October 22, 1983, and January 5, 1984, he accumulated 11 hours for a total of 27.3 hours. He further alleges that due to the complexity of the case, tax problems, contact with I.R.S., release of garnishments and the fact that it was a business Chapter 13, that he is entitled to an additional $1,500.00 and his hourly rate of pay is $70.00.
The Court thereafter took this matter under advisement and on January 16, 1984, found that a reasonable fee was a total of $1,000.00, and pursuant to an application for reconsideration for allowance of balance requested, writes this opinion.
ISSUE INVOLVED
WHAT IS A REASONABLE ATTORNEY FEE IN THIS CASE?
CONCLUSIONS OF LAW
11 U.S.C. § 330 states in pertinent part as follows:
“(a) After notice to any parties in interest and to the United States trustee and a hearing, ... the court may award ... to a professional person employed under section 327 or 1103 of this title, or to the debtor’s attorney—
(1) reasonable compensation for actual, necessary services rendered by such ... professional person, or attorney, as the case may be, ... 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; and
(2) reimbursement for actual, necessary expenses.”
In Battle v. Anderson, 614 F.2d 251, 257 (10th Cir.1980), the following elements for determining the reasonableness of fees was adopted from a Fifth Circuit case and set out as follows:
1. The time and labor required;
2. The novelty and difficulty of the questions;
3. The skill requisite to perform the legal services properly;
4. The preclusion of other employment by the attorney due to acceptance of the case;
5. The customary fee in the locality for similar legal services;
6. Whether the fee is fixed or contingent;
7. Time limitation imposed by the client or circumstances;
8. The amount involved and results obtained;
9. The experience, reputation and ability of attorney;
10.The undesirability of the case.
Matter of Permian Anchor Services, Inc., 649 F.2d 763 (10th Cir.1981); Salone v. U.S., 645 F.2d 875 (10th Cir.1981); In re Brooks, 24 B.R. 447, 451, Bkcy.Ct.Kan. (1982).
In the Matter of David J. Olen, 15 B.R. 750, 753, Bkcy.Ct.E.D.Mich. (1981), it is stated:
"... cases have consistently held that the compensation paid by a debtor who contemplates filing a petition in bankruptcy covers payment only for services required to be rendered up to the filing of the petition in bankruptcy and for attending the section 341 meeting of creditors. In re Knickerbocker Leather & Novelty Co., Inc., 158 F.Supp. 236 (S.D.N.Y.1958), aff’d sub nom. Haar v. Oseland, 265 F.2d 218, (2nd Cir.1959); In re Buchanan, supra; In re Falk, 30 F.2d 607 (2nd Cir.1929). Any other approach would, in effect, be a signal to *70attorneys that they could charge whatever the traffic would hear with impunity. Limiting prepetition payment to services rendered or to be rendered in connection with the filing of the petition and attendance of the first meeting of creditors removes the temptation by an attorney to load his time sheets with time devoted to the resolution of post-petition problems that might conceivably arise but never materialize.”
Allowable compensation in this district for Chapter 13 petitions generally range between $450.00 and $600.00, keeping in mind that the compensation for whatever services are performed by an attorney is to be determined on a case by case basis.
In this case the attorney has listed telephone calls which in no way reveals the nature or substance of the calls.
Further examination of the time itemization listed by the attorney herein reveals that many of the services appear to be routine and ministerial coupled with the fact that counsel has failed to provide sufficient “details to enable the Court to determine the nature and value of the research” for said Court to determine whether or not it is compensable. In re Best Pack Seafood, Inc., 21 B.R. 852, 854 (Bkrtcy.Ct., Maine 1982); In Matter of Dee’s Resort Wear, Inc., 25 B.R. 591 (Bkrtcy.Ct.M.D.Fla.1982).
In Matter of David J. Olen, 15 B.R. 750, 753, the Court also stated:
“... In determining the reasonableness of compensation, the court must not only determine what services were performed, but that the services were necessary. § 330.” (emphasis added)
In the instant case counsel sets out in his itemized statement in a number of instances, that he had a conference but fails to state who with.
Further examination of the schedules herein revealed that the attorney accepted attorney fees in violation of Bankruptcy Rule 1006(b)(3) which states as follows:
“The filing fee must be paid in full before the debtor may pay an attorney for services in connection with the case.”
The attorney herein had his client sign the statement requesting leave to pay filing fees in installments and accepted $1,968.00 as his fee which was taken from the debtors’ savings account.
The Court, after having considered the complete record herein and the argument of counsel, finds that the $1,968.00 fee is excessive and that the $1,000.00 allowed is reasonable in this case.
IT IS THEREFORE, BY THE COURT, ORDERED, ADJUDGED AND DECREED That the $1,000.00 fee allowed on January 16, 1984, is reasonable.
IT IS FURTHER, BY THE COURT, ORDERED That the attorney for the debtors, John R. Stonitsch, be and he hereby is directed to remit the excess amount, to-wit: $968.00, to the trustee within fifteen (15) days of the entry of this Order. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489827/ | MEMORANDUM DECISION AND ORDER
WILLIAM A. HILL, Bankruptcy Judge.
Phillip D. Armstrong, Trustee of the estates of Larry Alexander and John and Norma Alexander, requests that his interest in various of the Debtors’ personal property be found superior to that of the Defendant, Farmers Home Administration. The Debtors filed petitions for relief under Chapter 7 of the Bankruptcy Code and were discharged in their bankruptcy proceedings on January 10, 1983. This matter came on for hearing before the Honorable Harold O. Bullís on February 9, 1983, at Minot, North Dakota. The parties have consented to this Court rendering its decision on the basis of the record in this matter. After a review of the entire record of pleadings and proceedings, this Court finds the following:
John Alexander testified at the hearing held February 9, 1983, that he had refinanced his farming operation in 1978 through the Farmers Home Administration. The Farmers Home Administration required, however, that John Alexander execute a partnership agreement with his son, Larry, before it would enter into the refinancing arrangement. Although the partnership agreement was drawn up by the Farmers Home Administration and signed at its request, John Alexander testified that he and his son actually maintained *111separate farming operations. Each of the Alexanders had his own machinery, had his own seed, paid his own operating expenses, and filed his own tax returns.
The Farmers Home Administration filed a financing statement with the Register of Deed’s office in Benson County, North Dakota, on February 6, 1979. The Debtors named in the financing statement were listed, as follows:
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The financing statement indicated that the Farmers Home Administration was claiming the following property as collateral for their loans:
Livestock, supplies, inventory, farm and other equipment and other farm products except growing and unharvested crops.
Armstrong contends that the financing statement filed by the Farmers Home Administration does not meet the requirements of NDCC § 41-09-41(1) and therefore is ineffective to perfect a security interest in the Debtors’ property.
Section 41-09-41(1) of the North Dakota Century Code provides, in part:
A financing statement is sufficient if it gives the names of the debtor and the secured party, is signed by the debtor, gives an address of the secured party from which information concerning the security interest may be obtained, gives a mailing address of the debtor, and contains a statement indicating the types, or describing the items, of collateral.
Section 41-09-41 of the North Dakota Century Code codified section 9-402 of the Uniform Commercial Code. The North Dakota Supreme Court indicated in Benson County Cooperative Credit Union v. Central Livestock Association, Inc., 300 N.W.2d 236, 240 (N.D.1980), that section 41-09-41 establishes a system of notice filing. The Eighth Circuit Court of Appeals, in a case involving the Minnesota statute codifying UCC § 9-402, stated that “a financing statement covers the collateral in question if it merely makes it reasonable for a subsequent creditor interested in the collateral to make further inquiries.” Thorp Commercial Corp. v. Northgate Industries, Inc., 654 F.2d 1245, 1252 (8th Cir.1981). A financing statement, therefore, must reasonably notify a creditor of prior interests in the Debtors’ property.
In this instance, the financing statement filed by the Farmers Home Administration is sufficient to perfect a security agreement in machinery owned separately by the two Debtors, John and Larry Alexander. Although the financing statement was indexed under the name Alexander Farms, the Court believes it reasonable that a creditor interested in the property of John and Larry Alexander within the largely rural county of Benson County, North Dakota, would examine all financing statements filed under the name Alexander. Further, the collateral listed in the financing statement of the Farmers Home Administration is not specified in overly broad terms. The term “farm and other equipment” is a reasonable notification that there may be a security interest claimed by FHA in the Debtors’ farm machinery.
For the reasons stated,
IT IS ORDERED that the financing statement of the Farmers Home Administration is sufficient notice to perfect any security interest it may claim in the property of the Debtors. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489828/ | MEMORANDUM OPINION
WILLIAM LIPKIN, Bankruptcy Judge.
The matter in issue before this court relates to a contest between the United States Internal Revenue Service (IRS) and the Trustee, whereby the trustee seeks to reduce a claim filed by the IRS based upon a disallowance by IRS of a carry back loss.
Understandably, the trustee and the IRS have submitted a Stipulation of Facts, because of the inability to develop a complete scenario of events after the initial happening of payment of a tax by a taxpayer and subsequent credit to a different named taxpayer. It is this credit which IRS now refuses to recognize as a valid carry back loss.
*162It is necessary that I consider the facts leading up to the filing of the claim by IRS which supplements the facts in the stipulation.
On July 10, 1979 an Involuntary Petition for adjudication as a bankrupt was filed against the debtor, J.H.I., Inc. Service could not be effected upon the debtor or its officers and after issuance of alias summons and service on the Secretary of State, the debtor, J.H.I., Inc. was adjudicated a bankrupt on January 30, 1980 and Richard Shaine was appointed Trustee. Mr. Shaine, as Trustee, filed schedules, as he reconstructed the records.
On April 3, 1980 a first meeting of creditors was held and the Trustee examined Charles E. Liggio, the Executive Vice-President of the Debtor. Of interest was his testimony, which was consistent with the Stipulation to be referred to later herein, that the debtor's name was Mach Industries when formed in 1972 in New Jersey, and during the year 1976 the name was changed to J.H.I. His testimony, also consistent with the stipulation, disclosed that Mach Industries was owned by Prel Corporation. He further revealed that Prel had undergone Chapter XI proceedings in “New York City” (which would be the United States Bankruptcy Court, Southern District of New York) and Mach Industries was spun off. The name of Mach Industries was changed to J.H.I. He further testified that J.H.I. (Mach Industries) assumed the debt to First National State Bank of New Jersey (Bank). That debt was secured to the Bank by all personal and real estate assets of the debtor. The debt totaled over $1,500,000.00.
The record, however, further reveals that the debtor was indebted to Central Corporation of Savings and Loan Association on a debt secured by a first mortgage on the debtor’s real estate in the sum of $1,550,-000.00. That creditor, by order of this court after notice and hearing, paid the trustee $15,000.00 for his interest in the real estate which was sold to it subject to the mortgages on the property including the debt to First National State Bank of New Jersey. Thus all assets have been disposed of and the Trustee presently has approximately $17,000.00 in his possession.
With this background of facts, I now set forth the pertinent facts which have been stipulated by the Trustee and IRS chronologically, but not verbatim, as set forth in the stipulation.
A corporation named Prel Corporation acquired the ownership of Mach Industries on May 3, 1972. This corporation ostensibly was not then engaged in the business of sale of lumber and building materials.
On September 21, 1972 Prel Corporation acquired the ownership of Mach Lumber Co., Inc. On that same date all of the assets of Lumber were transferred to Industries by statutory merger of Lumber into Industries.
On or about September 18, 1973 Lumber filed its income tax return for the period March 1, 1972 to and including September 21, 1972 in which it reported taxable income in the amount of $1,526,638.00 and a tax due thereon in the amount of $727,-786.00 which was paid. Thus the profit was by a corporation during a period when it had no identity with Prel or Industries.
Mach Industries therefore was the operator of the business from September 21, 1972 and Mach Lumber was not the tax entity thereafter.
On January 27, 1975 Prel Corporation and its subsidiaries, of which Mach Industries was one, filed a consolidated tax return for the year 1974 in which it reported a net operating loss in the amount of $8,054,954.00. On or about February 6, 1975 there was filed in the name of Mach Lumber Co., Inc., an application for tentative refund from carryback of net operating loss (Form 1139), in which of the reported loss of Prel Corporation and its subsidiaries for 1974, the sum of $1,328,262 was allocated to Mach Industries Inc. and carried back to the taxable period of Mach Lumber which ended September 21, 1972. As a result a refund of $637,565.00 was requested. On March 3, 1975 IRS tentatively allowed the loss carryback and paid *163to the debtor a refund in the amount requested with interest in the amount of $6,585.26.
The Stipulation of Facts Concludes as follows:
Subsequently, the IRS determined that the debtor was not entitled to the loss carryback and resulting refund. Accordingly, on October 9, 1980 the Internal Revenue Service filed with the court a proof of claim including income tax for the period that ended in September, 1972 in the amount of $687,565.00 with interest to the date of the petition in bankruptcy in the amount of $99,613.16. By amended proof of claim filed on or about May 3, 1983, the pertinent portion of the claim was amended to the amount of $637,565.00 with interest to the petition date of $279,991.46. The Internal Revenue Service claims a priority as to such sums. On December 30, 1982, the Internal Revenue Service assessed this tax against the debtor and, on the same date, mailed notice of the assessment to the trustee. In his motion, the trustee seeks reduction of the claim of the Service by the amount of this tax and interest.
To be noted is that the “carry back loss” refund, Form 1139, was filed by Mach Lumber Co., Inc. with explanation attached that it was acquired by Prel Corporation, Inc. on September 21, 1972 and Mach Industries Inc., the successor corporation to Mach Lumber Co., conducted all of the operations of the taxpayer subsequent to that date. For the year 1974 Prel filed a consolidated return in which it shows a net operating loss which can be carried back to the third preceding year. Attached also was the consolidated net operating loss apportionment by Prel Corporation which included the loss by Mach Industries, Inc.
The trustee relies upon the provision of 26 U.S.C. § 368 and particularly 368(a)(1)(F) whereby a carryback loss is permitted to a corporation other than the transferor paying corporation if the transferee claimant corporation is in effect the same as the paying corporation. The wording of the applicable section is as follows:
(a) Reorganization — (1) In general. — For purposes of parts I and II and this part, the term “reorganization” means — (F) a mere change in identity, form, or place of organization, however affected.
In conjunction with section 368 the right to carryover the loss for a period prior to or subsequent to the taxing year is provided for under the provisions of 26 U.S.C. § 381 wherein it is provided:
Carryovers in Certain corporate acquisitions (a) General rule. — In the case of the acquisition of assets of a corporation by another corporation — (2) in a transfer to which section 361 (relating to nonreor-ganization of gain or loss to corporations) applies, but only if the transfer is in connection with a reorganization described in subparagraph (A), (C), (D) (but only if the requirements of subpara-graphs (A) and (B) of section 354(b)(1) are met), or (F) of section 368(a)(1). underlining added.
These sections have been interpretated to mean that if the assets and the operation of the successor corporation are the same as the entity that paid the taxes then the carry back loss is available for tax purposes to the later reporting entity. Thus if the change of corporate entity is only one of name, or form, or place of organization the new entity succeeds to the rights of the prior entity.
The reason for such a provision in the tax laws, permitting corporations to spread losses over a period of time, is intended to equalize the tax treatment of a corporation whose income may fluctuate from year to year with that of other corporations whose income may be relatively constant. Aetna Casualty & Surety Company v. United States, 568 F.2d 811 (2nd Cir.1977). The right to carry back a loss' by the acquiring corporation must fall within the provisions of § 381 as defined by § 368. The rule is a hard and fast one, to prevent absorption by one corporation of the losses of another corporation unless the conditions mandated by § 381 are met.
*164The Statement in Aetna, supra, page 820, is significant wherein the court stated:
In 1954 Congress completely revised the Code. With the addition of Section 381 and the significance of Section 368(a)(1)(F) to the operation of the carry-back and accounting provisions of Section 381, it became more important to delineate the boundaries between a Section 368(a)(1)(F) reorganization and other types of reorganization than previously had been the case. Citing Reef Corp. v. Commissioner, 368 F.2d 125, 136 (5 Cir.1966), cert. denied, 386 U.S. 1018 [87 S.Ct. 1371, 18 L.Ed.2d 454] (1967).1
A review of cases bearing on the questions of applicability of Section 368(a)(1)(F) and 381 of the Internal Revenue Code all indicate identity of activity as required by the Code whereby all reorganizations were of mere changes of form as opposed to changes of substance, Movielab Inc. v. United States, 494 F.2d 693, 204 Ct.Cl. 6 (1974), and “one where the proprietary interest in the transferor and transferee is identical; and two when the business is not interrupted.” (emphasis in opinion). 494 F.2d page 698. Further, as stated in Movielab, page 699:
Cases which have denied “F” reorganization status do so on the basis that there has been a substantial shifting of proprietary interests or, secondly, that the same business is no longer being conducted in the new form. Obviously, when there is a substantial shift in ownership, it cannot be argued that the change has been merely of form. See Helvering v. Southwest Consolidated Corp., 315 U.S. 194, 202-203, 62 S.Ct. 546 [551-52], 86 L.Ed. 789 (1942). Further it is clear that “F” status cannot be had unless there is a continuation of the business enterprise. See Pridemark, Inc. v. Commissioners 345 F.2d 35, 42 (4th Cir.1965).
see also Performance Systems Inc. v. United States of America, 501 F.2d 1338 (6 Cir.1974): Associated Machine v. Commissioner of Internal Revenue, 403 F.2d 622 (9 Cir.1968) where stipulations were submitted of the material fact as to the identical ownership and non-interruption of the business. Finally, the principle that the merger of the transfer corporation, tax payer, into a shell corporation as transferee, carryback tax claimant, complies with 28 U.S.C. § 368(a)(1)(F) as “a mere change in identity, form, or place of reorganization” as long as the activity of the corporation is continued. See Bercy Industries Inc. v. Commissioner of Internal Revenue 640 F.2d 1058 (9 Cir.1981). The successor corporation may be the parent corporation which then suffers a net operating loss. As occurred in Bercy Industries, the parent corporation merged Mach Lumber, which it bought, into Mach Industries, which it already owned, and then showed a net loss on its consolidated statement of all its subsidiaries among which was Industries, under the changed name of J.H.I., Inc., the debtor herein. Bercy, page 1061, in dealing with such a reorganization stated it may be too complex to determine to which of several component corporations the loss of the surviving corporation is attributable, quoting the Senate Committee:
... the problem of allocating the loss is not involved, and it is suggested that in such cases, at least, there should be no limit in carrybacks. One is the case of a reincorporation of the same corporation in a different state, or upon expiration of its charter. Another instance is that if the wholly owned subsidiary which is liquidated into its parent, which parent suffers a net operating loss in the following year.
Bercy continues:
This language strongly suggests that when a reorganization generates no complex problems of post reorganization loss allocation, Congress intended that the surviving corporate taxpayer be able to carry back such losses without limitation.
*165However, here again, in Bercy it was stipulated that the same business generated the income and loss. Page 1062.
I have scrutinized the stipulation submitted by the parties in this case particularly as to the ownership of Mach Lumber by Prel on September 21, 1972 and the transfer by Prel of Mach Lumber assets on that day into its already owned subsidiary, Mach Industries, acquired May 3, 1972. The carry back loss for the year 1974 sustained by Mach Industries was sought from profits of Mach Lumber for the period March 1, 1972 to September 21, 1972 when Prel bought Lumber and transferred the assets to Industries. I am mindful of the spin off of Mach Industries, the present debtor known as J.H.I., Inc. as a result of the Prel Inc. Chapter XI proceedings. Nowhere is there a stipulation that Mach Industries, from September 21, 1972, was engaged in the same business as Mach Lumber with a resulting loss for the year 1974 that could be carried back, nor was there a stipulation that the stock ownership remained the same for Mach Industries associated with the ownership of Mach Lumber. The change of name from Mach Industries to J.H.I. Inc. in 1976 is not a critical factor to determine the right of J.H.I. (Mach Industries) to carry back the loss of 1974 to the profit of 1972 attributable to the operation of Mach Lumber. It is possible that identity of ownership and activity existed in 1972 through 1974 but there is no stipulation to that effect. Furthermore, who were the owners of Mach Lumber in 1972 when the profits were realized? Did such ownership continue as to the transferee corporation? Without such a stipulation, all of the requirements of 381 of the I.R.S. Code have not been met.
The IRS has raised the question as to who has the burden of proof to establish the validity of the tax assessment made by IRS arising out of the tax carry back payment.
The filing of an assessment for taxes by the IRS carries with it a presumption of correctness and it imposes a burden on the taxpayer of persuasion to disprove the validity of going forward with evidence. Psaty v. United States, 442 F.2d 1154 (3 Cir.1971). The taxpayer has the burden of proving by the preponderance of evidence that the deficiency was factually incorrect. United States of America v. Lease, 346 F.2d 696 (2d Cir.1965). The assessment by the IRS is presumed correct. The IRS has made an assessment against the debtor’s estate and the trustee was obliged to present proof, if not stipulated, by facts showing the identity of the ownership of the successor corporation Mach Industries, when the loss took place in 1974, to be the same as when the profit was made in 1972 by Mach Lumber and that the activity of the two corporations was the same. Furthermore, J.H.I., Inc., the present debtor claimant, was separated from Prel after 1974 as .a result of the Reorganization of Prel under the provisions of Chapter XI of the Bankruptcy Act. The trustee of the present debtor estate, as a claimant of the tax refund for the year 1974, may have a different entity identification to deal with than the corporate entity that existed in 1972-1974, with different tax consequences. The trustee has failed to carry his burden of persuasion and of going forward with his proof to overcome the presumption of correctness of the tax assessment for the year 1974 against the successor Mach Industries.
The trustee herein, as stated above, understandably because of the difficulty to gather together the proof of activity of the Debtor from its records, has failed to establish by the necessary proof that the carry back loss to corporations as permitted in 26 U.S.C. § 381 as defined in 26 U.S.C. § 368 should be allowed. The claim of the Internal Revenue Service is presumed correct and will be allowed.
For the foregoing findings of fact and conclusions of law an Order shall be entered denying the Trustee’s motion and the claim of the Internal Revenue Service is allowed.
. Reef Corporation presents the opposite side of the coin, wherein the court held the new corporation to be only a mere change in identity, form and place of reorganization under Section 368(a)(1)(D), (F) and therefore could not change it accounting methods. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489840/ | ORDER DENYING MOTION TO ALTER OR AMEND ORDER DISMISSING PROCEEDING
JON J. CHINEN, Bankruptcy Judge.
On May 7, 1984, during hearings on a Motion to Appoint Trustee or in the Alternative to Convert to Chapter 7 or to Dismiss, which motion in its various alternatives was joined by 13 creditors, this Court orally dismissed the instant proceedings due to debtor’s continued failure to comply *597with orders of this Court and provisions of the Bankruptcy Code, in spite of having enjoyed the protection of the automatic stay for over seven months. This dismissal was not based merely on debtor’s failure to timely comply with the Court’s most recent order that debtor file his schedules and statement of affairs by 4 p.m. on May 4, 1984, but was also based on the fact that this Court has heard ten (10) Motions for Relief from Stay without debtor having revealed to the Court or the creditors the extent of his assets. A great deal of Court time, not to mention that of creditors, has been needlessly expended in this matter.
On May 16, 1984, Counsel for one of the Secured Creditors filed the instant Motion to Alter or Amend the Order Dismissing Proceedings, arguing that the court-ordered sanctions are inappropriate because the effect is detrimental to creditors who will now suffer further delay in recovering their interests due to postponement of court-ordered sales scheduled for May 31, 1984.
The Court having reviewed the record herein and having found that there was no equity accruing to debtor’s estate from most of the units for which relief has been requested, but that the procedures whereby debtor would advertise and sell the units was arranged voluntarily among the parties mainly for the creditors’ benefit, finds that retaining jurisdiction in order to allow these sales to proceed is not sufficient reason to alter or amend the dismissal of this proceeding, which would further extend bankruptcy protections for debtor and continue the abuse of the bankruptcy process which has occurred herein.
The Motion to Alter or Amend Order Dismissing Proceeding is hereby Denied. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489841/ | OPINION
EMIL F. GOLDHABER, Bankruptcy Judge:
The issue before the bench is whether we should grant a creditor’s motion for relief from the automatic stay imposed by 11 U.S.C. § 362(a) of the Bankruptcy Code (“the Code”) to permit that creditor to continue prosecuting a civil action against the debtor and a third party. For the reasons expressed below, we will grant the motion.
The facts of this case are as follows:1 Prior to the filing of the debtors’ petition for relief under chapter 7 of the Code on December 30, 1983, the debtors’ home was damaged by fire. Several days after the fire the debtors contracted with the plaintiff, Empire Adjustment and Appraisal Service, Inc. (“Empire”), which agreed to assist the debtors in the adjustment of their fire claim' against the insurer of the structure, in exchange for which the debtors agreed to give Empire 25% of any amount paid by the insurer on the claim. The insurer issued checks totaling $11,150.00 which named as payees the debtors, Empire and Greater Delaware Valley Savings & Loan Association (“the S & L”) which was the debtors’ mortgagee on the home. Empire endorsed the check on the assurances of the S & L that Empire would be given its share of the checks. The S & L then obtained the debtors’ endorsements, cashed the checks and applied the money toward reducing the debtors’ balance on the mortgage. Empire has not yet been given its share of the insurance fund by the S & L. In state court Empire commenced an action against the debtors for failing to pay Empire’s portion of the set*613tlement fund, and judgment on that action has since been entered. Empire then commenced another action in state court against the S & L. The S & L then added the insurer and the debtors as third party defendants. Thereafter the debtors filed their petition for relief.
Immediately on the filing of a petition for relief under the Code a stay automatically arises which generally bars all debt collection efforts against the debtor or property of his bankruptcy estate. Empire, noting that the debtors had been joined in its action against the S & L as indemnitors, ceased prosecuting the action in light of the automatic stay, but it has now moved for relief from the stay in order to continue with its action.
Empire contends that the debtors are only nominal parties as to its action against the S & L in state court, and that its intention is merely to secure a judgment against the S & L and not obtain any relief against the debtors. In support of this allegation, Empire notes that it has already obtained judgment against the debtors on their failure to pay its bill. The debtors counter these charges with the suggestion that the state court may enter judgment against them on the S & L’s claim for indemnification.
We will grant relief from the stay under § 362(d)(1), “for cause,” since the debtors will not be subject to greater liability than they are at the present time. If the worst situation envisioned by the debtors is realized, then Empire will be awarded judgment on its action against the S & L and the court will enter judgment in favor of the S & L against the debtors on the indemnification claim. Although two judgments will have been entered against the debtors, only one satisfaction will be possible. Thus, the debtors plight will be no worse after resolution of the state court action. Alternatively, the legislative history of § 362(d) states that “a desire to permit an action to proceed to completion in another tribunal may provide another cause” for relief under § 362(d)(1). H.R.Rep. No. 95-595, 95th Cong., 1st Sess. 343 (1977), reprinted in 1978 U.S.Code Cong. & Admin. News 5787, 6300. Accordingly, we will enter an order granting relief from the stay.
. 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/8489843/ | FINDINGS OF FACT AND CONCLUSIONS OF LAW
JON J. CHINEN, Bankruptcy Judge.
The trial of the above case having come on for hearing on August 3, 5, 30, and September 3, 1982, before the Honorable Jon J. Chinen, Presiding Judge of the above-entitled Court, the Court having heard evidence and arguments of respective counsels, and based on the records of this case, the Court makes the following findings of fact, and conclusions of law.
FINDINGS OF FACT
1. The above-named Debtor-Defendant, is a resident of the City and County of Honolulu, State of Hawaii, and filed a Petition for relief under 11 U.S.C. Chapter 11 on May 18, 1982.
2. That above-named Debtor-Defendant and Betty Jean Bandy are the owners of all of the real property described in Exhibit “A” attached hereto and made a part hereof.
3. That GECC FINANCIAL CORPORATION and FINANCE FACTORS, LIMITED are Hawaii corporations, whose principal place of business is in the City and County of Honolulu, State of Hawaii, and that FIRST FEDERAL SAVINGS AND LOAN ASSOCIATION OF HAWAII is a federal corporation, whose principal place of business is in the City and County of Honolulu, State of Hawaii.
4. That under the Promissory Note attached to the Complaint Seeking Relief From Stay, filed herein on June 4, 1982, (hereinafter “Complaint”) as Exhibit “A”, there is due and owing to GECC FINANCIAL CORPORATION, hereinafter referred to as “GECC”, from Debtor-Defendant and Betty Jean Bandy, jointly and severally, the sum of $36,187.87 as of August 3, 1982, together with interest at the rate of $11.06 per day from August 4,1982 until paid, together with additional attorney’s fees and costs, the repayment of which is secured by the mortgage attached to the said Complaint as Exhibit “B”.
5. That under the Promissory Note attached to the said Complaint as Exhibit “C”, there is due and owing to FIRST FEDERAL SAVINGS AND LOAN ASSOCIATION OF HAWAII, hereinafter referred to as “FIRST”, from Debtor-Defendant and Betty Jean Bandy, jointly and severally, the sum of $57,316.77 as of August 3, 1982, together with interest at the rate of $11.06 per day from August 4,1982 until paid, together with additional attorney’s fees and costs, the repayment of which is secured by the mortgage attached to the said Complaint as Exhibit “D”.
*6756. That under the Promissory Note attached to the said Complaint as Exhibit “E”, there is due and owing to FINANCE FACTORS, LIMITED, hereinafter referred to as “FINANCE”, from Debtor-Defendant and Betty Jean Bandy, jointly and severally, the sum of $30,069.80, as of August 3, 1982 together with interest at the rate of $13.44 per day from August 4, 1982 until paid, together with additional attorney’s fees and costs, the repayment of which is secured by the mortgage attached to the said Complaint as Exhibit “F”.
7. That the aforementioned Exhibits “A”, “B”, “C”, “D”, “E”, and “F” attached to the said Complaint are true and correct copies of the particular document which it purports to represent and have been received into evidence.
8. That under a Judgment filed January 18, 1982 in the Circuit Court of the First Circuit, State of Hawaii, in Helene Esther Wallace vs. William S. Bandy and Betty Jean Bandy, Civil No. 63003, there is due and owing to Helene Esther Wallace from Debtor-Defendant and Betty Jean Bandy the sum of $14,285.71 as of August 3, 1982 plus per diem interest of $3.71 from August 4, 1982, the repayment of which is secured by a lien on the real property described in the aforementioned mortgages by reason of recordation of the Judgment at the Bureau of Conveyances of the State of Hawaii.
9. That the Debtor-Defendant and Betty Jean Bandy, have failed to keep their respective payments to GECC, FIRST, and FINANCE current, the combined monthly payments to GECC, FIRST, and FINANCE being $1,445.42, per month, and that the same have been delinquent since prior to the date of the filing of the Petition herein.
10. A state foreclosure action was commenced by FIRST, in the state court, in which GECC, FINANCE, and Debtor-Defendant were named as parties, in which FIRST, GECC, and FINANCE, sought judgments against Debtor-Defendant and Betty Jean Bandy, for their respective amounts due and owing them, a foreclosure of their respective mortgages, and a sale of the mortgaged property, which is described in Exhibit “A”.
11. That pursuant to such foreclosure action, Donald S. Nishimura was appointed as a Commissioner, to take possession of, and to sell, the property covered by said mortgages and described in Exhibit “A”.
12. That acting in his capacity as such Commissioner, the said Donald S. Nishimu-ra has advanced the sum of $871.94 and has incurred a fee of $3,330.00 as of August 2, 1982.
13. That the Debtor-Defendant is self-employed as a contractor and designer, having earned between $5,000.00 to $6,000.00 in 1981, and in the year 1982, has earned approximately $1,000.00, and the reason for the low earnings in 1982 has been that the Debtor-Defendant has spent most of his time in repairing and remodeling the improvements situate on the premises described in Exhibit “A”.
14. That the fair market value of the subject property, in its present condition, is $127,000.00, but if the improvements thereon are fully completed and remodeled, the fair market value thereof will be $140,-000.00.
CONCLUSIONS OF LAW
1. That the Court has jurisdiction over this adversary proceeding under 11 U.S.C. § 362 and other enabling provisions of the Bankruptcy Reform Act.
2. That the three Plaintiffs above-named, have valid and subsisting liens upon the real property described in Exhibit “A”, and as such are secured creditors of the Debtor-Defendant.
3. That even though the fair market value of the subject premises, even if the improvements thereon are fully completed and remodeled, may exceed the total secured indebtedness of the three Plaintiffs, there is insufficient equity cushion, in the subject premises, to give adequate protection to the Plaintiffs, since the equity cushion is being eroded daily by the accrual of the interest amounts to the Plaintiffs and other carrying charges.
*6764. That the Debtor-Defendant has failed to show that the Plaintiffs above-named are adequately protected within the meaning of 11 U.S.C. § 362(d)(1).
5. That the Plaintiffs above-named are entitled to relief from the automatic stay under 11 U.S.C. § 362(a).
ORDER TERMINATING AUTOMATIC STAY
Pursuant to the foregoing Findings of Fact, and Conclusions of Law,
IT IS HEREBY ORDERED, ADJUDGED, AND DECREED that the automatic stay under 11 U.S.C. § 362(a) be and the same is hereby terminated and annulled, with respect to the claims and liens of the Plaintiffs above-named, and that the Plaintiffs may proceed to enforce their respective claims and liens over the subject premises described in Exhibit “A”, in the state court.
EXHIBIT A
That certain Lease No. 16,408 dated July 1,1965 by and between the Trustees Under the Will and of the Estate of Bernice Pau-ahi Bishop, Deceased, as Lessor, and Helene Esther Wallace, unmarried, as Lessee, recorded in the Bureau of Conveyances of the State of Hawaii in Liber 8296, at Page 298, for a term of 58 years commencing July 1, 1965; said Lease being assigned by instrument dated February 24, 1972, from Helene Esther Wallace, unmarried, as Assignor, to William S. Bandy and Betty Jean Bandy, husband and wife, as Assignee, as Tenants by the Entirety, recorded as aforesaid in Liber 8665, at Page 135; consent thereto being given by the Trustees Under the Will and of the Estate of Bernice Pau-ahi Bishop, Deceased: said Lease demising the following described land:
All of that certain piece or parcel of land (part of AP. 30 of L.C. Aw. 7713, R.P. 4475 to Y. Kamamalu) situate in Maunalua, City and County of Honolulu, State of Hawaii, containing an area of 10,995 square feet and comprising Lot 5-A, of Block 2, Section “A”, Maunalua Beach Subdivision, as shown on Bishop Estate Map 1227C & D filed in the Office of the Lessors, and thus bounded and described as follows:
Beginning at a pipe at the Northwest corner of this Lot, the Northeast corner of Lot 6-A, Block 2, and on the Southeast boundary of Lot 4, Block 2, the coordinates of said point of beginning referred to Government Survey Triangulation Station “Koko Head ‘3’ ” being 5,517.43 feet North and 1,307.14 feet West, and running thence by azimuths measured clockwise from true South:
1. 259° 00'30.10 feet along Lot 4, Block 2, to a pipe;
2. 221° 45'32.46 feet along same, to a pipe;
3. 311° 45147.79 feet along the Southwest side of Kalanianaole Highway to a pipe; 00145.38 feet along Lot 14, File Plan 701
4. 79° and Lot 7, Block 2, to an “ ” cut on tile wall; 00'97.98 feet along Lot 6-A, Block 2, to
5. 169° the point of beginning.
Together with the right, in the nature of an easement, to install, maintain, operate, repair and remove an underground sewer pipeline with appurtenances, across, through and under a portion of Lot 6-A, Block 2, and being more particularly described as follows:
Beginning at the East end of this easement and on the common boundary of Lots 5-A and 6-A, the direct azimuth and distance to the Northwest corner of Lot 5-A being 169° 00' 12.50 feet, and running thence by azimuths measured clockwise from true South:
1. 79° 00’66.81 feet;
2. 34° 0014.85 feet;
3. 79° 00'55.50 feet to the Northeast side of Portlock Road.
SUBJECT, HOWEVER, to the following:
1. The reservation in favor of the State of Hawaii of all mineral and metallic mines.
2. A 15-foot building setback line along Kalanianaole Highway on the Southerly (front) boundary of Lot 5-A as shown on the map attached to Lease No. 16,408.
*6773. Terms, agreements, reservations, covenants, conditions and provisions contained in Lease No. 16,408. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489845/ | MEMORANDUM OPINION
JOSEPH A. GASSEN, Bankruptcy Judge.
This case was tried before me on April 20, 1983. Since the time of trial the Debtor corporation has had its reorganization confirmed and has been substituted as Plaintiff in this action by this Court’s order of July 8, 1983. For purposes of simplicity, however, the parties will be referred to as they stood at the time of trial.
This is an action by the Reorganization Trustee to recover from Defendants the sum of $120,473.36. The Trustee proceeds on two theories; one that the money was paid to the Defendants or one of them as a preference, which is exclusively a Trustee’s action. The other theory is the common law theory of money had and received which is an action that comes to the Trustee through the Debtor and is subject to any defenses that Defendants may have had against the Debtor.
The Court finds that the transaction giving rise to the lawsuit involved the purchase of all of the stock of Cubes, Inc., a corporation owned by Defendant, J.D. *865TAYLOR. The Court further finds that the stock was purchased by Walter Kellin, individually. This finding is based on the documents which were submitted into evidence by Defendants, including the Stock Purchase Agreement, the Security Agreement, and the Note evidencing the transaction. These documents conclusively establish that Kellin was the purchaser. Although Walter Kellin improperly used the Debtor, POLAR CHIPS INTERNATIONAL, INC.’s (hereinafter “POLAR CHIPS”), money to pay for the stock, that fact does not make POLAR CHIPS the purchaser of the stock when considered against the conclusive evidence of the sales documents themselves.
The Court finds that POLAR CHIPS eventually received from Walter Kellin the benefit of the Cubes, Inc. stock purchase, but that later receipt of the benefits from Walter Kellin did not make POLAR CHIPS the purchaser of the Cubes, Inc. stock.
Since POLAR CHIPS was not the purchaser of the Cubes, Inc. stock, there was never any debtor-creditor relationship between the Debtor and any of the Defendants, and therefore none of the Defendants were creditors of the Debtor.
The Court finds that the transaction in question was a secured transaction in that Defendant, JAMES TAYLOR, was completely secured for whatever monies were to be paid for him after the closing of the transaction; namely the $120,473.36 sought to be recovered here. The Court has considered testimony concerning various meetings between the parties but is unable to make findings in favor of or against any party from that testimony.
Finally, we find that Defendant, DENNIS J. BRYSON, acted at all times as an employee of J.D. TAYLOR and received no part of the $120,473.36 at issue here. Similarly, it is apparent that even though one of the checks was made to the JAMES TAYLOR CORP., that money was turned over to J.D. TAYLOR who, as the seller in the transaction, was its rightful recipient.
As a result, the Court concludes that the Trustee has not carried his burden under 11 U.S.C. § 547 of showing either that the Defendant, J.D. TAYLOR, was a creditor of POLAR CHIPS or that J.D. TAYLOR received more than he would have received if this were a case under Chapter 7, the transfer had not been made, and he received payment of his debt to the extent provided by the provisions of the Bankruptcy Code.
Because the Trustee has not carried his burden of proving that JAMES TAYLOR was a creditor, he fails to prove an essential element of § 547: That the transfer be “to or for the benefit of the creditor”. 11 U.S.C. § 547(b)(1) (emphasis supplied).
Because this Court finds that Defendant, J.D. TAYLOR, was secured at all times in this transaction, the Trustee has failed to carry his burden under subsection (b)(5) of § 547. Even if TAYLOR had been found to be a creditor he would not have received more than any other member of his class since he was secured. 4 Collier on Bankruptcy, § 547.35, n. 8. at 547-114 (15th Ed.) There was no proof adduced by the Trustee that the value of the collateral secured to J.D. TAYLOR was of lesser value than the $120,473.36 sought to be recovered. Id.
The law places upon the Trustee the unmistakeable burden of proving by a fair preponderance of all of the evidence every essential controverted element resulting in the preference. 4 Collier on Bankruptcy, at 547-160.117, n. 3 (15th Ed.) He has failed to prove two elements, and therefore cannot recover.
The Trustee, in his post-trial memorandum, has raised additional issues, including the assertion that the giving of a check creates a debtor-creditor relationship. That assertion is not accurate and the response in Defendants’ memo and the citations set forth therein are dispositive of the point.
Furthermore, set forth above, POLAR CHIPS, the Debtor herein, was not the purchaser in the transaction at issue. Even though Walter Kellin may have wrongfully taken the money from the Debtor to make a purchase in his own *866name, equity may not be used to make POLAR CHIPS the purchaser and then charge Defendants with a preference. This Court concludes that Defendants’ position is the correct one on all the preference issues raised by the Trustee in the post-trial exchange of memoranda.
The Trustee’s second count is based on the simple assertion that, since JAMES TAYLOR obtained POLAR CHIPS funds which he had no right to, those monies should be returned to their rightful owner, POLAR CHIPS. Although this position has some merit, an analysis of the equities leads to the conclusion that JAMES TAYLOR should prevail on this count.
The cases requiring return of consideration because of mistake do not assist the Trustee. There may have been fraud here, but there was no mistake. However, by paying his debt to JAMES TAYLOR with POLAR CHIPS funds, Walter Kellin converted POLAR CHIPS property. JAMES TAYLOR was on notice that it was POLAR CHIPS’ property because the payments were made with POLAR CHIPS’ checks. Converted property may be recovered from a party receiving it, particularly where that party was on notice. And money can be the subject of conversion were it is capable of identification. See Polar Chips International, Inc. v. Martin Essaid and V.N. A.R., Inc., Case No. 83-0323-BKC-JAG-A, Findings of Fact, Conclusions of Law, and Memorandum Opinion entered October 13, 1983.
But although the payment of POLAR CHIPS’ funds to JAMES TAYLOR was, in itself, wrongful, POLAR CHIPS received benefit from the consideration given by TAYLOR. It immediately received the benefit of expanded territory for its placement of new machines and sales to new investors, and it ultimately obtained whatever Walter Kellin had through the settlement with Kellin, if not previously. The consideration given by TAYLOR may or may not have been worth the amount paid for it, but it was property which POLAR CHIPS would, apparently, have been happy to have if Kellin had entered into the purchase transaction in a representative capacity on behalf of POLAR CHIPS instead of in his individual capacity.
As a result of all this, POLAR CHIPS was not actually deprived of the value of the converted property. What it was deprived of was the right to a potential preference action if it had been the outright purchaser. However, as discussed previously, because it was a secured transaction, the Trustee did not carry his burden of proof on the preference issue, even if POLAR CHIPS had been the purchaser.
Given all of these competing considerations, the end result is that there is no reason for a court of equity to compel the Defendant to return any of the monies received by him to POLAR CHIPS.
Pursuant to Bankruptcy Rules, a separate judgment will be entered in conformance with this opinion. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489846/ | MEMORANDUM
RALPH H. KELLEY, Bankruptcy Judge.
The trustee in bankruptcy for Billy Gene Mayfield brought this suit against City Bank and Trust to recover a promissory note and a real estate mortgage that secures the note. The note is payable to Mayfield, and he is the mortgagee.
Before Mayfield’s bankruptcy, he maintained a checking account with City Bank and Trust. White Brothers Poultry and Egg Company issued several checks to Mayfield, totaling about $45,000. When Mayfield deposited the checks to his account at City Bank and Trust, it credited the account. The bank honored Mayfield’s checks for at least as much as the amount of the deposit before it actually collected on the checks from White Brothers. Unfortunately for the bank, the checks from White Brothers were dishonored. Mayfield was not financially able to reimburse the bank. Mayfield had in effect already received payment of the checks.
In an effort to protect itself the bank had its attorney draw up a promissory note payable to Mayfield from White Brothers for the amount of the checks and a mortgage on real property to secure the note. These were duly executed by White Brothers and retained by the bank. Mayfield never had possession of either. The bank also retained the dishonored checks.
The trustee contends that the note and mortgage belong to Mayfield or are recoverable by the trustee as a judgment creditor of Mayfield, or that the transaction resulted in a preferential transfer to the bank.
Mayfield equivocated some in his testimony, but the court believes he understood that the note and mortgage were executed solely for the bank’s benefit. Mr. Mayfield had been paid and he knew that he was not supposed to have an interest in either the note or the mortgage. These were for the purpose of reimbursing the bank. Tim Pir-tle, the bank’s attorney in this transaction, said that Mayfield was supposed to endorse the note but failed to do so.
The early Tennessee cases are confusing on the question of how the lack of an endorsement affects the transferee’s title to an instrument payable to the order of a specific person. The later cases make it clear that when the transfer is for value the transferee acquires all the transferor’s rights. The transferee becomes the owner if the transferor was the owner but holds the instrument subject to all defenses and equities enforceable against the transferor. Spriggins v. Spriggins, 15 Tenn.App. 107 (1931); Jackson Bros. v. Harpeth National Bank, 12 Tenn.App. 464 (1930); Furst v. Freels, 9 Tenn.App. 423 (1928). Adoption of the Uniform Commercial Code did not change this rule. 11 Am.Jur.2d, Bills and Notes § 373 at 397-98 (1963).
The bank gave value for the note by paying Mayfield’s checks against the deposit of the dishonored checks. Tenn.Code Ann. § 47-4-208. The court concludes that the bank is and always has been the owner of the note. Mayfield had no interest in it at the time of his bankruptcy.
In the alternative, the court concludes that the bank has a perfected security in*902terest in the note. Possession is sufficient to perfect a security interest in a note and dispenses with the requirement of written security agreement. Tenn.Code Ann. §§ 47-9-203 & 47-9-305. Of course, there must still be an agreement to grant a security interest. Tenn.Code Ann. § 47-9-204. The court believes that Mayfield’s intent was sufficient to create a security interest, especially in the sense of a pledge of the note to the bank by delivery.
The trustee cannot recover as successor to Mayfield or as a judgment lien creditor of Mayfield. The question remains as to whether transfer of the note to the bank was a preference.
When White Brothers’ checks were dishonored and the bank had already honored Mayfield’s checks against the deposit, the bank acquired a claim directly against White Brothers. See, e.g., Commerce Bank v. EDCO Financial Services, 379 F.Supp. 293, 15 UCC Rep.Serv. 662 (E.D.Mo.1974); Bank of Costa Mesa v. Losack, 74 Cal.App.3d 287, 141 Cal.Rptr. 550, 22 UCC Rep.Serv. 1019 (1977); Long Island National Bank v. Zawada, 34 A.D.2d 1016, 312 N.Y.S.2d 947, 7 UCC Rep.Serv. 1037 (1970); Pazol v. Citizens National Bank, 110 Ga.App. 319, 138 S.E.2d 442, 2 UCC Rep.Serv. 330 (1964).
Furthermore, the transactions between the bank and Mayfield essentially had no effect on his other creditors. The result is that there was no preferential transfer to the bank.
The remaining question is what remedy should be given. The court believes it is sufficient to order Mayfield to endorse the note and assign the mortgage to the bank and also order the trustee to abandon any interest in the note and mortgage. However, the court will allow the bank five days to submit a suggested order. This decision also disposes of the issues raised by the third party complaint. An order will be entered accordingly.
This memorandum constitutes findings of fact and conclusions of law. Bankruptcy Rule 752. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489847/ | OPINION
EMIL F. GOLDHABER, Bankruptcy Judge:
The issue at bench is whether we have jurisdiction to entertain the creditors’ involuntary petition and enter an order for relief under chapter 7 of the Bankruptcy Code (“the Code”), in light of 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). For the reasons expressed herein, we conclude that we have jurisdiction and will grant the requested relief.
The facts of the case are as follows:1 The creditors, Prentice-Hall, Inc., Little, Brown and Co. and D.C. Heath (“the creditors”) filed an involuntary petition against the debtor, Sunshine Books, Ltd. (“the debtor”) under chapter 7 of the Code. The creditors charge the necessary prerequisites for both case commencement2 and entry of an order for relief3 under 11 U.S.C. § 303. The debtor admits the relevant averments, but requests an order dismissing the petition on the grounds that we lack subject matter jurisdiction over the case by reason of the Marathon decision and Congress’s failure to enact remedial legislation.
In response to the Marathon holding that the jurisdiction granted the bankruptcy courts under 28 U.S.C. § 1471 (1982) was unconstitutionally broad, Id. at 87, 102 S.Ct. at 2880, the United States district courts adopted an Emergency Rule for the administration of the bankruptcy system in December, 1982, and extended the time for its application in March, 1984. The rule provides for the operation of the bankruptcy system during the interim period until Congress enacts legislation superseding it.4 *932The United States Court of Appeals for the Third Circuit, in Coastal Steel Corp. v. Tilghman Wheelabrator Ltd., 709 F.2d 190 (3d Cir.), cert. denied, — U.S. —, 104 S.Ct. 349, 78 L.Ed.2d 315 (1983), addressed the issue of the continued vitality of the district courts’ subject matter jurisdiction under 28 U.S.C. § 1471:
... despite Northern Pipeline the grant of district court subject matter jurisdiction in section 1471(b) survives. We find nothing in Northern Pipeline opinions suggesting otherwise. Indeed the Northern Pipeline holding that article III judges must exercise the related proceedings jurisdiction rests on the assumption that the jurisdictional grant is operative. Id. at 200.
Because, under Coastal, the district courts retain subject matter jurisdiction over bankruptcy proceedings pursuant to 28 U.S.C. § 1471(b), we are bound by the Emergency Rule adopted by the United States District Court for the Eastern District of Pennsylvania. We therefore conclude that our jurisdiction to handle bankruptcy matters remains intact under the Emergency Rule, and that we may entertain the instant involuntary petition. Further, since the debtor does not challenge the conclusion that the petitioning creditors have established a prima facie case for the entry of an order for relief under § 303, we will grant the creditors’ involuntary petition.
. This opinion constitutes the findings of fact and conclusions of law required by Bankruptcy Rule 7052 (effective August 1, 1983).
. Section 303(a) and (b)(1) provides in pertinent part:
(a) An involuntary case may be commenced only under chapter 7 or 11 of this title, and only against a person, except a farmer or a corporation that is not a moneyed, business, or commercial corporation, that may be a debtor under the chapter under which such case is commenced.
(b) An involuntary case is commenced by the filing with the bankruptcy court of a petition under chapter 7 or 11 of this title—
(1) by three or more entities, each of which is either a holder of a claim against such person that is not contingent as to liability or an indenture trustee representing such a holder, if such claims aggregate at least $5,000 more than the value of any lien on property of the debtor securing such claims held by the holders of such claims;
. Section 303(h) provides in pertinent part:
(h) If the petition is not timely controverted, the court shall order relief against the debtor in an involuntary case under the chapter under which the petition was filed. Otherwise, after trial, the court shall order relief against the debtor in an involuntary case under the chapter under which the petition was filed, only if—
(1) the debtor is generally not paying such debtor’s debts as such debts become due;
. Section (a) of the Emergency Rule provides in pertinent part:
(a) Emergency Resolution
The purpose of this rule is to supplement existing law and rules in respect to the author*932ity 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. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489848/ | MEMORANDUM AND ORDER
WILLIAM A. HILL, Bankruptcy Judge.
On April 30, 1984, a hearing was held on a Motion For Relief From Stay brought by the United States of America pertaining to certain secured interests of its agencies, of Farmers Home Administration and Commodity Credit Corporation. The Government, by its Motion and pursuant to section 554(b) and section 362(d) of the Code, sought a lifting of the stay with respect to a security interest claimed perfected in all farm and other equipment owned by the Debtors who are farmers. The Trustee resisted the Motion, asserting the Government’s security interest was not properly perfected by filing in the proper county. The issue with respect to all equipment was resolved at the hearing except as regards the perfection of the Government’s security interest in two Behlen grain storage bins. These bins were financed through loans from the Commodity Credit Corporation and a U.C.C.-l Financing Statement denoting the security interest was filed on April 25, 1979, with the Register of Deeds for Bottineau County, North Dakota. At the time, the Debtors resided in Minot, North Dakota, which is in Ward County, but owned farm land in Bottineau County where the bins were located.
The U.C.C.-l statement as recorded specifically states on its face that, “the above goods are to become fixtures on SW lk 25-161-81”. This statement was signed by the Debtor.
Section 41-09-40 of the North Dakota Century Code (U.C.C. § 9-401). provides that when a financing statement is filed as a fixture and the collateral is goods which are or are to become fixtures the proper place of filing is the office where a real estate mortgage would be recorded. It is conceded by the Trustee that the Government’s interest in the grain bins is perfected if, in fact the bins are fixtures. The Trustee asserts, however, that the Debtors’ intent is unknown and that the bins may have been intended by him as personalty as opposed to fixtures.
It is the position of the court that the Debtors’ intent regarding the bins may be gleaned from the fact that he signed a financing statement clearly denoting the bins as fixtures. Moreover, the proper place of filing may also be determined in view of how equipment of this type is normally used by a farmer. See generally In re Burgess, 30 B.R. 364, 36 UCC Rep.Serv. 708 (Bankr.W.D.Okla.1983). The court is familiar with the use generally made of *1018steel grain storage bins and is also aware that bins of this size (14,767 bushels) are fastened to a concrete foundation either by bolts or by actually grouting the side walls into the concrete. This is necessary in order that a weather tight storage facility be obtained. With this type of attachment it is generally impractical and unduly expensive to disassemble the bins for removal and use anywhere else other than at the original placement site. It seems that for items such as grain bins, common sense and common understanding ought to prevail over what a debtor may later recall his intention to have been at the time' of signing either the security agreement or the financing statement. Application of common sense in this instance coupled with the rather obvious expression of intent contained on the face of the U.C.C.-l statement indicates to the court that the Debtor in the present case intended that the grain bins would become fixtures to his farm property situated in Bottineau County, North Dakota. Consequently, the United States of America is properly perfected in and to the two Behlen grain storage bins.
Further, it is the finding of the court that the Debtors are in default under the terms of the note secured by the above mentioned collateral and they are currently indebted to the United States in an amount in excess of $20,582.00. The value of the two grain storage bins is approximately $8,000.00 and the Government has not been offered any adequate protection for its interest in said collateral.
Accordingly, the stay is hereby lifted and the United States of America is allowed to proceed to take such action as may be necessary to enforce and foreclose upon its security interest in the two Behlen grain storage bins. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489849/ | OPINION
EMIL F. GOLDHABER, Bankruptcy Judge:
The issues raised by the defendants in this adversary proceeding are so simple as to merit no more than a Memorandum Opinion.
This is a chapter 11 ease in which the trustee seeks, under § 542 of the Bankruptcy Code, either to enjoin the defendants from using a parcel of realty allegedly owned by the debtors, or to recover a judgment arising out of a mortgage on said realty, or to permit foreclosure on the said mortgage.
The defendants have moved to dismiss the complaint for lack of the bankruptcy court’s jurisdiction or, failing in that effort, they request this court to abstain from exercising jurisdiction so that the issues may be raised in the state court. They first look for help to Northern Pipeline Construction Company v. Marathon Pipe Line Company, 458 U.S. 50, 102 S.Ct. 2858, 73 L.Ed.2d 598 (1982). But, momentarily frustrated by the adoption by the District Court of the Emergency Resolution, they contend that there was a technical flaw in that procedure. The flaw: the extension of the Emergency Rule was not “published” in The Legal Intelligencer (the court’s official publication). The defendants argue that, absent such publication, the extension issued by the Chief Judge of the District Court, is invalid. We know of no such legal proposition and the defendants’ counsel has cited no authority for this preposterous suggestion. We will, accordingly, deny the motion to dismiss.
As his second legal arrow the defendants’ counsel suggests that we abstain from hearing this matter because “of the uncertainty of jurisdiction in bankruptcy courts after March 31, 1984,” and because “the goal (sought by the trustee), — the sale of the real property and the improvements thereon”, — is “best served by state court proceedings.” As we have previously stated, only in the myopic view of the defendants’ counsel is there any “uncertainty” in this court’s jurisdiction.
Section 305 of the Bankruptcy Code provides that:
§ 305. Abstention
(a) The court, after notice and a hearing, may dismiss a case under this title, or may suspend all proceedings in a case under this title, at any time if—
(1) the interests of creditors and the debtor would be better served by such dismissal or suspension; or
(2)(A) there is pending a foreign proceeding; and
(B) the factors specified in section 304(c) of this title warrant such dismissal or suspension.
(b) A foreign representative may seek dismissal or suspension under subsection (a)(2) of this section.
(c) An order under subsection (a) of this section dismissing a case or suspending all proceedings in a case, or a decision not so to dismiss or suspend, is not reviewable by appeal or otherwise.
and the legislative history of this section states, in part, as follows.:
[T]he court is permitted, if the interests of creditors and the debtor would be better served by dismissal of the case or suspension of all proceedings in the case, to so order. The court may dismiss or suspend under the first paragraph, for example, if an arrangement is being worked out by creditors and the debtor out of court, there is no prejudice to the *1022rights of creditors in that arrangement, and an involuntary case has been commenced by a few recalcitrant creditors to provide a basis for future threats to extract full payment.
There is no reason, as we see it, to abstain. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489851/ | OPINION ON COMPLAINT TO DETERMINE RIGHTS IN ONE 1983 BEIGE AND GOLD LINCOLN AUTOMOBILE ID NO. 1MRBP97F6DY603560
RODNEY R. STEELE, Bankruptcy Judge.
On June 9, 1983, this court entered an order in this adversary proceeding in favor of the plaintiff and against the Dothan Lincoln-Mercury Company, Inc., a corporation, defendant, authorizing the plaintiff to proceed not only against inventory of this debtor in which the plaintiff had a security interest, but against one 1983 beige and gold Lincoln automobile, ID No. as above, *18which was apparently not in inventory at the time of the conversion of this case from Chapter 11 to Chapter 7.
By an amendment filed on October 25, 1983, the plaintiff added Robert E. Black, an individual, as a party defendant, and sought to recover from Robert E. Black the Lincoln automobile in question, and asserted that Mr. Black held the automobile subject to the valid and perfected security interest of the plaintiff, and that he ought to return the vehicle to the plaintiff or to pay the wholesale floorplan balance on said vehicle of $19,339.71, plus interest, costs and attorney’s fee.
By an order dated October 25, 1983, the court allowed the amendment and added Mr. Black as a party-defendant. Service was thereafter had upon Mr. Black, and on January 16, 1984, Mr. Black answered by his attorney, demurring generally, denying generally, and denying any indebtedness or that the plaintiff was entitled to any relief as against Black.
The matter came on for hearing on February 8, 1984, at Dothan, in accordance with a notice to the attorneys setting that time and place for the trial.
When the matter came on for hearing, there were present the attorney for plaintiff and a- representative of plaintiff, the defendant Mr. Black, and his attorney, the trustee in bankruptcy, and the attorney for the debtor.
Testimony was taken from Mr. Ed L. Gregory, a representative of Ford Motor Credit, from Mr. Bill Owens, the owner of the debtor, from Mr. Robert Black, the defendant, and from Mr. L.M. Adamson.
FINDINGS
Before this debtor went into Chapter 11 bankruptcy on November 19, 1982, it was operating a Lincoln-Mercury dealership at Dothan, Alabama.
Back in August of 1982, the defendant Black had requested the debtor to order him a new automobile, and it was ordered subject to his approval. It arrived sometime in late September, 1982. In October, Black approved the car, and agreed to take delivery sometime later. On November 19, 1982, the debtor filed a Chapter 11 proceeding in bankruptcy, and continued to operate the business as debtor in possession. Thereafter, on about November 30, or December 1, Black came to Dothan, and took delivery of the vehicle.
The circumstances of his taking delivery and of the payment for the vehicle are of utmost importance in this case. Mr. Black and Mr. Adamson, his "partner” had loaned $100,000.00 to Dothan Lincoln-Mercury in March of 1982, and the arrangement for repayment was in increments of $20,000.00, $5,000.00 of each payment being accountable as interest on the loan.
On November 30, or December 1, 1982, when Black was in Dothan and took delivery of the car, he was there for the purpose of discussing the financial difficulties of the debtor, and to discuss possible further extensions of credit by him and Adamson to the debtor, and the removal of the location of the dealership.
It had apparently been previously agreed, prior to the filing of the Chapter 11, that the debtor would accept as payment for the vehicle, a reduction in the $100,000.00 debt owed to Black and Adam-son, and Adamson and Black testified that some adjustments were made by set-off as between the partners Black and Adamson when payment was made in this manner.
The debtor had previously paid the $5,000.00 interest payment to Black. There was therefore due, as a past due payment at the time the car was delivered, the sum of $15,000.00 from the debtor.
But the debtor, in order to secure its attorney, Mr. Collier Espy, for the payment of his attorney’s fees, had delivered this vehicle to Mr. Espy, who had it in possession, and who insisted Mr. Black pay him the sum of $5,000.00, the amount of his fee from the debtor, before he released the car. Mr. Black thereupon delivered a cashier’s check to Mr. Espy, and took possession of the vehicle. He thereafter transported it to Florida, and received an Alabama certifi*19cate of title, which he immediately converted to a Florida certificate of title. Mr. Black lives in Florida.
Mr. Black thereafter gave the debtor a $15,000.00 credit on the outstanding balance owed to Adamson and Black.
ISSUE
The single issue in this case is whether Mr. Black, as a purchaser of this vehicle from the debtor, while the debtor was in Chapter 11, and was debtor in possession, is a “buyer in ordinary course of business” as that term is used in Section 7-9-307, and Section 7-1-201(9) of the Alabama Uniform Commercial Code. If he is a buyer in ordinary course, then he takes free and clear of the security interest of Ford Motor Credit. If, on the other hand, he is not a buyer in the ordinary course as that term is defined in the Code, then the Ford Motor Credit Company holds a valid and perfected security interest on that vehicle under Section 7-9-306(2) of the Alabama Uniform Commercial Code.
CONCLUSION
We must conclude that Mr. Black is not a buyer in the ordinary course of business as that term is used in the Alabama Code.
The Alabama UCC Section 7-9-307 provides:
(1) A buyer in ordinary course of business (subsection (9) of Section 7-1-201) other than a person buying farm products from a person engaged in farming operations takes free of a security interest created by his seller, even though the security interest is perfected, and even though the buyer knows of its existence.
(2) In the case of consumer goods, a buyer takes free of a security interest, even though perfected, if he buys without knowledge of the security interest, for value and for his own personal, family or household purposes, unless prior to the purchase the secured party has filed a financing statement covering such goods....
This latter subsection (2) has been defined by the Alabama courts as applying only if the goods involved are consumer goods in the hands of both the buyer and the seller. See First Dallas County Bank v. GMAC, 425 So.2d 460, affirmed, 425 So.2d 464 (1983).
Buyer in ordinary course of business is defined in Section 7-1-201 of the Alabama Code:
(9) “Buyer in ordinary course of business” means a person who in good faith and without knowledge that the sale to him is in violation of the ownership rights or the security interest of a third party in the goods, buys in the ordinary course from a person in the business of selling goods of that kind, but does not include a pawn broker ... “Buying” may be for cash or by exchange of other property or on secured or unsecured credit, and includes receiving goods or documents of title under a pre-existing contract for sale, but does not include a transfer in bulk or as security for or in total or partial satisfaction of a money debt.
We think the transaction in which Mr. Black purchased this automobile by a transfer for or in total or partial satisfaction of a money debt, exactly fits the definition and intention of the Alabama Uniform Commercial Code.
We cannot say that he' did not meet the test in the first portion of the definition of buyer in ordinary course, since his testimony and that of others lends support to the conclusion that he did buy in good faith and without knowledge that the sale to him was in violation of the ownership rights of Ford Motor Credit, or of its security rights, since he made inquiry not only of the owner, Mr. Owens, but of Mr. Espy, who assured him that the vehicle was not subject to the floorplan arrangement of Ford Motor Credit.
But it is without contradiction that he paid for the vehicle in large part by a reduction of the debt, which was owed to him by the debtor. This takes him out of the category of “buyer in ordinary course *20of business” and makes his rights to the vehicle subject to the rights of Ford Motor Credit. See Sterling National Bank and Trust Company of New York v. Southwire Co., (11th Cir., 1983) 713 F.2d 684, 36 UCC Reporting Service 1383. See also In re Mid-Atlantic Piping Products of Charlotte, Inc., 24 B.R. 314, (1982) 35 UCC Reporting Service 618; ITT Industrial Credit Co. v. H & K Machine Service Co., Inc., (1981) 525 F.Supp. 170, 33 UCC Reporting Service 400. Cf., First Dallas County Bank v. General Motors Acceptance Corporation, 425 So.2d 460, 33 UCC Reporting Service 128, (relating to the perfection of security interest in motor vehicles and the loss of that security interest).
The attorney for Black argues in brief that there is authority under the Uniform Commercial Code for the proposition that where any portion of the purchase price is not in satisfaction of a money debt, that the cash payment makes the purchaser a “buyer in the ordinary course of business.” He cites General Electric Corp. v. R.A. Heintz Construction Co., (D.C.Ore.1969) 302 F.Supp. 958, and other cases dating from 1939 and 1940, and decided under the Uniform Trust Receipts Act.
The only later ease which we are able to find concerning this argument is Walter E. Heller Western, Inc. v. Bohemia, Inc., (Ct. of App., Ore.1982) 61 Or.App. 57, 655 P.2d 1073, 35 UCC Reporting Service 1002. The court there specifically rejected the reasoning in Heintz, and held that fractionalizing could occur. But we are at a loss to see how fractionalizing can occur here in the case of one automobile. The purchaser Black was either a buyer in the ordinary course, or he was not. Such a holding would moreover be an obvious judicial amendment of clearly worded statutory language. We decline to follow this reasoning.
In the Sterling National Bank case, cited above, the court concludes that the purchaser could not take free and clear of the bank’s security interest in that case, because the seller violated the specific terms of the security agreement. The crux of the matter was not so much “buyer in the ordinary course,” as it was “sale in the regular course of business,” a contractually defined term.
But the court held, in the course of that decision, that under the Georgia Code, it was clear that the purchaser was not a buyer in the ordinary course of business. See 713 F.2d at 686.
In the Sterling case, the court moreover found that the purchaser was not entitled to set-off as between mutual debts, where the bank had a clear security interest.
We think the same reasoning, as it related to set-off, and as it relates to buyer in the ordinary course of business, is applicable in this case, and we conclude finally that the vehicle in the hands of Mr. Black is subject to a valid and perfected security interest in the hands of Ford Motor Credit Company.
An appropriate order will enter. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489852/ | MEMORANDUM AND ORDER ON THE DEBTOR-IN-POSSESSION’S APPLICATION FOR AUTHORIZATION TO REJECT EXECUTORY CONTRACTS
CHARLES J. MARRO, Bankruptcy Judge.
This matter is before the Court on the Application of the Debtor, Air Vermont, Inc., to reject two executory contracts for the purchase of aircraft from Ralph Cutillo. The instant application was filed on February 24, 1984, and came on for hearing March 2, 1984. No objection to the Application was filed, and it is on the basis of the testimony, exhibits and subsequent memoranda submitted by the parties that the Court makes its findings and determination.
BACKGROUND
The Debtor, Air Vermont, Inc., (hereafter “Air Vermont”), commenced business in September 1981, as a commuter airline operating from the International Airport at South Burlington, Vermont to various points primarily in the Northeast. During the airline’s rapid growth, the Debtor entered various agreements for the purchase and lease of many aircraft. However, due to its rapid expansion certain financial difficulties arose which necessitated the filing of a Petition for Relief under Chapter 11 of the Bankruptcy Code on January 31, 1984.
On February 2, 1984, this Court approved the employment of Air Vermont Management Company, a management team, to resume operation of the airlines, which operations had been suspended for a period prior to the filing of the Chapter 11 proceeding. Upon taking control, the management team attempted to reduce operating costs through the reduction of air flights and employees. However, after a short period of operation, the management team determined that an economically viable operation of the business is improbable and has withdrawn any commitment for additional financial support. On March 12, 1984, the Debtor filed a Disclosure Statement and Plan which seek an orderly liquidation of the business. It is in this context that the instant Application for Authority to reject the executory contract with Ralph Cutillo, (hereafter, “Cutillo”) was made.
FACTS
On November 28,1981 and May 19, 1983, respectively, Air Vermont entered two contracts of conditional sale with Cutillo for the purchase of two aircraft. Under the conditional sales contract of November 1981, the aircraft purchased was a 1974 Piper Chieftan, PA31-350, bearing Federal Aviation Administration (FAA) registration number N104AQ. The contract of May 1983 resulted in the purchase of another Piper Chieftan, but this aircraft was a 1979 model year bearing FAA registration number N3529A. Of these two aircraft, the only conditional sales contract or security conveyance recorded with the FAA Aircraft Registry was the conveyance of November 28, 1981. This conveyance was recorded on February 7, 1984, and this recording was subsequent to the filing of the petition in the instant case. Additionally, Air Vermont took no steps to record its interest in the aircraft with the FAA.
*63The 1974 Piper Chieftan, (hereafter “Aircraft N104AQ”) was purchased by Air Vermont for the sum of $165,000.00, of which $10,000.00 was paid upon delivery of the aircraft. The balance of the purchase price was encompassed under the terms of a promissory note concurrently executed with the contract. Under the terms of the note, Air Vermont was to make sixty monthly payments of $3687.50. From January 1982 through December 1983, Air Vermont made the required payments reducing the balance or payoff to $107,-613.32. However, since the payment of December 21, 1983, no other payment was made under the note, excepting one returned for non-sufficient funds in January 1984.
The 1979 Piper Chieftan (hereafter “Aircraft N3529A”) was purchased by Air Vermont for the sum of $170,000.00. The full purchase price was encompassed within a promissory note from Air Vermont to Cutil-lo, executed of even date of the May 1983 contract. This note similarly provided for sixty monthly payments, but in the sum of $3,868.95 instead. Air Vermont remitted the required payments through December 21, 1983. Like the note on Aircraft N104AQ, no further payments have been made on the May 1983 note. As such the accrued delinquencies under the notes exceed $22,000.00, through the date of the hearing.
John E. Porter, President of the Debtor, improved as a witness by the debtor, testified that Aircraft N104AQ and N3529A, as of his last viewing on or about January 15, 1984, were of a value equal or approximately the same as the indebtedness owed under the notes. However, as noted by Porter, the planes were no longer readily accessible for inspection since the aircraft were removed by Cutillo in early February. Once again, this action was taken after the filing of the petition.
DISCUSSION
Section 365 of the Bankruptcy Code provides for the assumption or rejection of executory contracts and unexpired leases. As stated in Section 365:
(a) Except as provided in section 765 and 766 of this title and in subsection (b)(c) and (d) of this section, the trustee, subject to the court’s approval may assume or reject any executory contract or unexpired lease of the debtor.
The Court will generally apply a “business judgment” test in determining whether an executory lease may be rejected, In re International Coins and Currency, Inc., 18 B.R. 335, 6 C.B.C.2d 309 (Bkrtcy.D.Vt.1982); and, a similar standard was reviewed summarily and restated as to the rejection of an executory contract in the recent Supreme Court of the United States’ decision of National Labor Relations Board v. Bildisco and Bildisco, Debtor in Possession, — U.S. —, 104 S.Ct. 1188, 79 L.Ed.2d 482 (1984); citing Group of Institutional Investors v. Chicago, Milwaukee, St. Paul & Pacific R. Co., 318 U.S. 523, 550, 63 S.Ct. 727, 742, 87 L.Ed. 959 (1943), and In re Mingus, 602 F.2d 38, 42 (2nd Cir.1979).
The application of the “business judgment” test must be exercised in a manner that allows flexibility, and that provides due deliberation to the interests of all creditors of the debtor. The Court in reviewing the “business judgment” as to acceptance or rejection, must further consider the substantive agreement; the subject matter of the agreement and its necessity to the debtor; and, the implications of such acceptance or rejection. Consideration of these factors follows below.
A. SUBSTANTIVE AGREEMENTS
The contracts of November 1981 and May 1983 between Air Vermont and Cutillo provide for the conditional sale of two aircraft for consideration of sums certain. Each of these agreements, by their nature as conditional sales contracts, provided for the reservation of title in Cutillo until such time as Air Vermont made all payments, and fulfilled all conditions due under the agreements. These contracts also provided *64that Cutillo was the absolute owner of legal title of the aircraft, except as to the purchase money security interests of Pioneer Credit Corporation (Aircraft N104AQ), and South Shore Bank of Quincy, Massachusetts, (Aircraft N3529A). However, in both contracts Cutillo was specifically bound to make all payments due under notes to Pioneer and South Shore Bank.
Cutillo argues that under the contracts before the Court, he should be regarded as owner of aircraft N104AQ and N3529A, and not as a secured creditor of the debtor. In support, Cutillo cites authority found in the decisions of Power and Combustion, Inc. v. Wilson, 298 F.2d 937 (4th Cir.1962); and Carina-Mercury, Inc. v. Igaravides, 344 F.2d 397 (1st Cir.1965). In further argument, Cutillo asserts that Air Vermont’s failure to make application to the FAA to record and register the ownership transfer of the aircraft precludes any ownership interest from vesting in the debtor. On the basis of title 49 of the United States Code, the Federal Aviation Act, it is suggested that registration is tantamount to ownership transfer, and that the Debtor’s failure to register will prevent the Trustee, or debtor by virtue of 11 U.S.C. § 1107 from asserting a defensible title.
The contracts between Air Vermont and Cutillo are substantively conditional sales contracts in which the retention of title was intended as security. Therefore, Cutillo’s argument as owner and not creditor is inap-posite. Equally inapposite are the decisions cited by Cutillo. Upon careful review, this Court notes that there was no potential infirmity in the perfection of the conditional sales contract in Power and Combustion, (see footnote 3 of that decision); and, the Court in Carina failed to recognize Congressional action regarding the definition of “transfer” under Section 1(30) of the Bankruptcy Act, as that definition effected conditional sales contracts. In re Markham, 254 F.Supp. 948 (W.D.Va.1966). As such, no weight may be afforded these cases.
Aircraft conditional sales contracts which title is retained as security are specifically addressed by 49 U.S.C. § 1403(a), and the validity of such an interest is determined by 49 U.S.C. § 1403(c). In the instant case, it appears that the only recordation of either the debtor’s interest or Cutillo’s interest was in aircraft N104AQ. This recordation occurred seven days after the filing of the petition for relief, and as a violation of the automatic stay, 11 U.S.C. § 362(a)(4) & (5), is clearly ineffective. In re George B. Kerr, Inc., 25 B.R. 2 (Bkrtcy.S.C.1981); In re Marta Group, Inc., 33 B.R. 634 (Bkrtcy.E.D.Pa.1983), stating, “[attempts to amend the financing statement (after the filing of the reorganization petition) are in violation of the automatic stay imposed by 11 U.S.C. § 362(a), in particular § 362(a)(4). As a general rule actions taken in violation of the stay are void and without effect. Kalb v. Feuerstein, 308 U.S. 433, 60 S.Ct. 343, 84 L.Ed. 370 (1940); 2 Collier on Bankruptcy ¶ 362.11 (15th ed. 1982).” 33 B.R. at 639.
As to the effect of registration on ownership, 49 U.S.C. § 1401(f) states, “[Registration shall not be evidence of ownership of aircraft in any proceeding in which such ownership by a particular person is, or may be, in issue.” Section 1401(f), itself, refutes Cutillo’s argument, but additional authority against Cutillo’s position is also found in case law. See North-Western Flyers Inc. v. Olson Bros. Mfg. Co., 679 F.2d 1264, 1270 (8th Cir.1982); Norris v. Insurance Co. of North America, 26 N.C.App. 91, 215 S.E.2d 379, 388 (1975); Johnston v. Simpson, 621 P.2d 688, 690 (S.Ct.Utah 1980), (“Ownership is therefore a totally separate question from registration.”)
Substantively, the contract between Air Vermont and Cutillo have a potential of rendering a benefit to the creditors of the debtor. It is clear that Air Vermont has an ownership interest in aircraft N104AQ and N3529A, which if appropriate actions are taken will render cash value to the estate that may be applied to the anticipated plan of liquidation.
*65B. SUBJECT MATTER — NECESSITY TO DEBTOR
The possession, ownership and use of the two Piper Chieftan aircraft was the subject matter of the contracts between Air Vermont and Cutillo. However, there appears to be no doubt that possession and use of the aircraft is no longer of necessity to the debtor. This determination is based upon the debtor’s surrender of the aircraft in early February, and its subsequent cessation of flight operations. However, a competing necessity arises from whether the contracts can render some cash value for the estate. On the basis of the record, the contracts appear to have a viable potential toward fulfilling this need, and a review of the contract in this context is warranted.
C. IMPLICATIONS OF ACCEPTANCE OR REJECTION
Section 1107 of the Bankruptcy Code provides that a debtor in possession shall have all the rights, powers and duties of a trustee. Included within these rights and powers is the ability of the debtor in possession to assume or reject an executory contract or unexpired lease. This power is specifically set forth in Section 365(d)(2), which states:
In a case under chapter 9, 11, or 13 of this title, the trustee may assume or reject an executory contract or unexpired lease of the debtor at any time before the confirmation of the plan, but the court, on request of any party to such contract or lease, may order the trustee to determine within a specified period of time whether to assume or reject such contract or lease.
In the instant casé, Cutillo has not requested the Court to set a date for which the debtor must assume or reject the contracts regarding N104AQ and N3529A, nor does it appear that confirmation of a plan is in the immediate offering. As such, the necessity of an immediate assumption or rejection by the debtor in possession is not apparent, other than to reduce accumulating payments under the contract.
Further, a chapter 11 debtor is not required to assume or reject an executory contract or unexpired lease within 60 days, as required of a chapter 7 trustee by virtue of Section 365(d)(1). It is this Court’s opinion that this omission was provided by the Code as to give the debtor or trustee under a chapter 11 proceeding a reasonable time to determine whether the contract will be necessary to the reorganization or of benefit to the estate. (See discussion of the “balancing of equities” as to'setting time for assumption or rejection in a complex case, Dallas-Fort Worth Regional Airport Board v. Braniff Airways Inc., 26 B.R. 628, 636 (N.D.Tex. — Fort Worth Div.1982).
Rejection of an executory contract under the Bankruptcy Code relates back prior to the filing of the Chapter 11 petition. 11 U.S.C. § 365(g)(1), In re Concrete Pipe Machinery Co., 28 B.R. 837 (Bkrtcy.Ia.1983). As a result of rejection, the contract is deemed breached and the party to the contract may file an unsecured claim for damages. 11 U.S.C. § 365(g); 11 U.S.C. § 502(g). As applied in the instant case, the contract would be deemed breached prior to the petition and Cutillo could file a claim for the installment payments due for January, February, and March 1984, without presently giving regard to Cutillo’s repossession in February.
However, the rejection and resulting breach must also be considered with regard being given to the other trustee powers vested in a debtor in possession by virtue of 11 U.S.C. § 1107 of the Code. The debt- or in possession has all the powers of a trustee, In re Brent Explorations, Inc., 31 B.R. 745, 747 (Bkrtcy.D.Colo.1983); which includes the ability to avoid transfers as a lien creditor, 11 U.S.C. § 544; and to avoid preferential transfers, 11 U.S.C. § 547, Brent at 748, 749.
In view of the Court’s prior discussion regarding the substantive nature of the agreements, it appears that the debtor, in order to fulfill the standard of “business judgment,” should review the contracts with regard to all of the powers which are vested by Section 1107.
*66ORDER
Now, therefore, upon the foregoing, the Debtor in Possession’s Application for Authorization tó Reject Executory Contract is DENIED. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489853/ | OPINION
EMIL F. GOLDHABER, Bankruptcy Judge:1
The first of two issues presented in the controversy at hand is whether we should grant a defendant’s motion to dismiss an interpleader action commenced under Fed. R.Civ.P. 22. Only if we deny that motion must we reach the second issue which is whether we should issue an injunction barring the defendants from continuing or commencing suits against the plaintiffs surety for payment under a performance bond. For the reasons expressed herein, we will grant the motion to dismiss, leaving the injunction issue moot.
The facts of this case are as follows:2 The plaintiff, Dan Rogers, Inc. (“Rogers”) executed a contract with the City of Bridgeton, New Jersey, whereby Rogers agreed to build a certain construction project in that municipality. Under the terms of the contract Rogers obtained a performance bond from Aetna Casualty & Surety Company (“Aetna”) for the protection of all parties supplying labor or materials for the construction of the project. Rogers entered into a contract with the debtor in which the latter became obligated to undertake all the electrical work. Dealing exclusively with the debtor, Billows Electric Supply Company (“Billows”) sold the debtor on credit certain electrical components costing $19,884.33.
The debtor filed a petition for relief under chapter 7 of the Bankruptcy Code (“the Code”) on June 10, 1983. Three or four months later Billows demanded that either Rogers or Aetna satisfy its debt. Rogers refused and directed Aetna not to pay on the bond. Apparently in an effort to foreclose Billows’ recourse against the surety, Rogers commenced the interpleader action at bench under Fed.R.Civ.P. 22, sought the injunction at issue and transferred to its attorney’s trust account $18,375.91 which it is prepared to deposit into the court’s registry, where such fund represents Rogers’ liability to the debtor for services or materials provided. At Rogers’ behest, the bankruptcy court entered an order to show cause why: (1) the defendants should not be permanently barred from instituting or prosecuting any action under the bond; (2) Rogers should not be discharged of all further liability “respecting said bond and contract” with the debtor; and (3) Rogers “should not be awarded a counsel fee and costs to be taxed.” Rogers then filed a motion “to enjoin other judicial proceedings,” due to Billows’ commencement of a *185civil action in the district court for the Eastern District of Pennsylvania against Rogers. Shortly thereafter Billows filed the motion at issue to dismiss the inter-pleader complaint.
Rogers filed its complaint for interpleader under Bankruptcy Rule 7022, which incorporates by reference Fed.R.Civ.P. 22 which is quoted in the below footnote.3 The nature and purpose of interpleader have been summarized below with an excerpt from a learned treatise on federal court practice.4
Billows asserts that we do not have subject matter jurisdiction over this dispute since there are no adverse claims to the interpleaded fund within the meaning of Fed.R.Civ.P. 22. We commence our discussion of this issue by noting that a plaintiff “ ‘is or may be exposed to double or multiple liability’ has always been interpreted to demand a showing that the plaintiff has been or may be subject to adverse claims to a particular fund.” General Electric Credit Corp. v. Grubbs, 447 F.2d 286, 288 (5th Cir.1971). 3A J. Moore, Federal Practice ¶ 22.08 (2d ed. 1984). In the typical situation the requirement of adversity is met in an interpleader action “when the stakeholder [interpleader plaintiff] is faced with two or more claims which are mutually inconsistent a decision in favor of one claimant necessarily requires a determination that the other claimants are not entitled to any part of the fund.” General Electric, 447 F.2d at 288. The device of interpleader has more recently been expanded to include a “second situation where the claims against the plaintiff are not technically inconsistent in the sense noted above. In this situation the plaintiff stakeholder is allowed the benefits of inter-pleader if he has a strictly limited liability and the claims asserted, although not mutually exclusive, are in excess of the limited liability.” Id., 447 F.2d at 289. An example of this second use of interpleader was sanctioned by the Supreme Court in State Farm Fire & Casualty Co. v. Tashire, 386 U.S. 523, 87 S.Ct. 1199, 18 L.Ed.2d 270 (1967). In Tashire numerous passengers on a Greyhound bus instituted suit against the driver of the bus due to a collision between the bus and another vehicle. The driver’s insurance carrier, State Farm, afforded coverage of $10,000.00 per person and $20,000.00 per occurrence. Realizing that the claims would exceed the $20,000.00 fund, State Farm successfully interpleaded *186that fund. Moore refers to this use of interpleader as “pie slicing,” since each prevailing claimant would receive his proportionate share. 3A J. Moore, Federal Practice ¶ 22.02[1], p. 22-8 (2d ed. 1984).
In the case at bench the facts do not comport with the first use of interpleader outlined above since the claims in the fund are not mutually exclusive. Although ostensibly the case at bench may appear to meet the requisites for the second use of interpleader noted above, on closer analysis we find that it does not. Moore has summarized the law in this field in the following language:
The requisite adverse claims have similarly been found to exist in cases involving contract sureties confronted by claims of subcontractors and material-men which, although not in theory mutually exclusive, are in the aggregate in excess of the surety’s contractual liability. Interpleader is thus appropriate under the federal Miller Act, under which the statutory surety is liable to the extent of its bond to all claimants as a group, pro rata, and not in that amount to each claimant. In these cases too, interpleader should be denied if the claims of subcontractors and material-men do not exceed the policy limits or if the “stakeholder” is not the surety but the contract debtor himself.
3A J. Moore, Federal Practice ¶ 22.08[1], at p. 22-56 (2d ed. 1984) (footnote omitted). The quoted material clearly indicates that the stakeholder in an interpleader may not be the contract debtor, although such a debtor has commenced the interpleader action at bench. Consequently, Rogers, as the contract debtor, is not a proper party to bring the interpleader suit. This conclusion and the quotation from Moore find ample support in the case law. General Electric, 447 F.2d 286 (Recourse to inter-pleader was unavailable where the plaintiff was the primary debtor.); Fulton v. Kaiser Steel Corp., 397 F.2d 580 (5th Cir.1968) (The court quoted approvingly the following language from Moore: “[I]nterpleader should be denied if the claims of subcontractors and materialmen do not exceed the policy limits or if the 'stakeholder' is not the surety but the contract debtor himself.” Id. at 583.) Libby, McNeil and Libby v. City National Bank, 592 F.2d 504 (9th Cir.1979); Bierman v. Marcus, 246 F.2d 200 (3d Cir.1957). Accordingly, we will grant Billows’ motion to dismiss the interpleader. This leaves the injunction issue moot.
. Specially designated to hear and dispose of cases in the United States Bankruptcy Court for the District of New Jersey in Camden.
. This opinion constitutes the findings of fact and conclusions of law required by Bankruptcy Rule 7052 (effective August 1, 1983).
. Rule 22, Interpleader
(1) Persons having claims against the plaintiff may be joined as defendants and required to interplead when their claims are such that the plaintiff is or may be exposed to double or multiple liability. It is not ground for objection to the joinder that the claims of the several claimants or the titles on which their claims depend do not have a common origin or are not identical but are adverse to and independent of one another, or that the plaintiff avers that he is not liable in whole or in part to any or all of the claimants. A defendant exposed to similar liability may obtain such interpleader by way of crossclaim or counterclaim. The provisions of this rule supplement and do not in any way limit the joinder of parties permitted in Rule 20.
(2) The remedy herein provided is in addition to and in no say supersedes or limits the remedy provided by Title 28, U.S.C. §§ 1335, 1397, and 2361. Actions under those provisions shall be conducted in accordance with these rules.
Fed.R.Civ.Pa. 22.
. [1] — Nature and Purpose of Interpleader.
Interpleader is a procedural devise which enables a person holding money or property, in the typical case conceded to belong in whole or in part to another, to join in a single suit two or more persons asserting mutually exclusive claims to the fund. The advantages of such a device are both manifest and manifold. A many-sided dispute is settled economically and expeditiously within a single proceeding; the stakeholder is not obliged to determine at his peril which claimant has the rightful claim, and is shielded against the possible multiple liability flowing from inconsistent and adverse determinations of his liability to different claimants in separate suits; even in those cases where there is little threat of multiple liability, the stakeholder is freed from the vexation of multiple lawsuits and may be discharged from the proceeding so that the true dispute will be settled between the true disputants, the claimants; the claimants are benefited as well, since search for and execution upon the debtor’s assets are obviated, the spoils of the contest being awarded directly out of the fund deposited with the court.
3A J. Moore, Federal Practice ¶ 22.02[1], at p. 22-4 to 22-5 (2d ed. 1984). (Footnote omitted). | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489854/ | ORDER GRANTING REQUEST FOR PRELIMINARY INJUNCTION OF PERFECTION AND FILING OF MECHANICS’ LIENS AGAINST CO-DEBTORS
JOSEPH A. GASSEN, Bankruptcy Judge.
THIS MATTER was before the Court on March 2, 1984, proper notice having been given to the parties herein, for hearing upon Plaintiffs’ request for a preliminary injunction, as set forth in their Amended Complaint for Temporary Restraining Order and Injunction of Proceedings Against Codebtors. On February 24, 1984, this Court granted, without notice, a Temporary Restraining Order (as amended by the Amended Temporary Restraining Order entered February 28,1984, nunc pro tunc, as of February 24, 1984), restraining and enjoining Defendants from filing mechanics’ liens against the properties listed on Exhibit “A” attached to the Complaint, and otherwise seeking to enforce their rights under Florida Statutes, Chapter 713, or under any other laws applicable hereto, against the owners of such properties, unless such lien rights would expire prior to March 5, 1984, in which event such restraint did not apply. This Court having reviewed the Court file, heard argument of counsel, considered the testimony presented, and being otherwise fully advised in the premises, finds as follows:
1. This Court has jurisdiction of this action to grant the relief sought herein under 11 U.S.C. § 105(a), 28 U.S.C. § 1471, and the Emergency Rule adopted December 22, 1982, by the United States District Court for the Southern District of Florida.
2. It appears from the record that the Debtors operate a substantial construction business, that there is a substantial likelihood of a successful reorganization within a reasonable time, and that a successful reorganization is in the public interest.
3. It further appears from the record that absent the granting of a preliminary injunction, there is a reasonable likelihood that Defendants, the subcontractors, sub-subcontractors, laborers, materialmen and professionals listed on Exhibit “A” attached to the Complaint, will file mechanics’ liens against the properties listed on Exhibit “A” to the Complaint and will otherwise seek to perfect and enforce their remedies under Florida Statutes, Chapter 713, and any other laws applicable hereto, against the owners of such properties. There is a reasonable likelihood that the filing of such mechanics' liens will pressure the owners and/or their lessees to stop making progress payments to the Debtors on the Debtors’ construction projects pend*313ing on such owners’ properties. Should this occur, the Debtors will be unable to effectively continue to operate their businesses, since such progress payments constitute the Debtors’ main source of operating revenues.
4. The Plaintiffs have no adequate legal remedy. Should the owners and/or their lessees cease making progress payments under their contracts with the Debtors as a result of the filing of mechanics’ liens by the Defendants, the Debtors’ efforts to effectively reorganize will be materially impaired and irreparable injury to the Debtors will result.
5. The irreparable injury to the Debtors in the absence of an injunction would outweigh any harm resulting to the Defendants if the Defendants receive adequate protection as required by Section 361 of the Code. Sections 361(1) and 361(2) state that such adequate protection may be provided in the form of periodic cash payments, or an additional or replacement lien, of equivalent value. The cash escrow fund to be established by the Debtors, together with substitute liens on all accounts receivable, inventory, machinery, equipment, other tangible personal property, and real property of the Debtors, as set forth below, provide such adequate protection to the Defendants and would thus minimize any harm that may otherwise result to the Defendants from an injunction limiting or terminating their lien rights under state law. Therefore, it is
ORDERED AND ADJUDGED as follows:
(a) A preliminary injunction is hereby entered enjoining and restraining the Defendants, their officers, directors, agents, servants, employees and attorneys from filing notices to owner and/or claims of lien against the properties listed on Exhibit “A” attached to the Complaint, and from otherwise seeking to perfect and/or enforce their rights under Florida Statutes, Chapter 713, and/or under any other laws applicable hereto, against the owners of such properties.
(b) The Debtors shall establish a cash escrow fund (the “Fund”) as follows:
(i) In order to determine the amount of the Fund, the respective Defendants shall file with the Clerk of this Court not later than Friday, March 16, 1984, a notice of claim in substantially the same form required for claims of lien under Florida Statutes § 713.08, setting forth their name and address, the value of their claims (excluding attorneys’ fees, costs and post-petition interest), the applicable commencement and completion dates, the date of service of notice to owner (if applicable), and a description of the property to which the claim relates. Such notice of claim shall be made under oath and notarized by a duly authorized Notary Public, but shall not be recorded and shall not be filed in any place except with the Clerk of this Court. Such claims shall be made in good faith, and all Defendants shall be subject to the same standards and penalties for making false statements as would be applicable to them under Florida Statutes, Chapter 713.
(ii) This Court shall retain jurisdiction to determine the amount, validity and enforceability of the Defendants’ claims under Florida Statutes, Chapter 713, and applicable law. If and for so long as this Court’s jurisdiction is terminated by operation of law, then the Plaintiffs may, at their option, file an appropriate action in a court of competent jurisdiction to seek a determination as to the amount, validity and enforceability of such claims.
(iii) The total amount of the Fund shall be equal to 118% of the total amount of claims for which notices of claims in the form described in subparagraph (b)(i) above were filed with the Clerk not later than March 16, 1984, and which are determined to be valid and enforceable under Florida Statutes, Chapter 713 and applicable law, to cover such claims and reasonable attorneys’ fees, plus $100.00 for each Defendant filing a timely, valid and en*314forceable claim to apply on any Court costs which may be taxed in this action. Any claims which are filed herein after March 16, 1984, which are not in proper form, contain false statements pursuant to the standards of Chapter 713, or are otherwise determined to be invalid or unenforceable, shall not be included in the determination of the amount of the Fund; and such claims shall be deemed not to be secured claims entitled to the benefits provided herein. However, Defendants asserting such claims shall be permitted to file timely unsecured proofs of claim in these reorganization proceedings.
(iv) Francis L. Carter, Esquire, counsel for the Debtors, and William H. Benson, Esquire, counsel for Defendant, Lones-tar Florida Inc. and designated representative of the Defendants, shall serve as joint escrow agents (the “Joint Escrow Agents”) for the Fund. The Joint Escrow Agents shall deposit the escrow funds in such interest bearing account or accounts at the highest available rate in a federally insured bank or savings and loan association in Dade or Broward County, Florida, within the maximum insured limit for any such account.
(v) The Debtors shall turn over to the custody of the Joint Escrow Agents not later than Monday, March 5, 1984, for deposit into the Fund, the sum of $100,000.00. Each succeeding Monday after March 5, 1984, the Debtors shall turn over to the Joint Escrow Agents the collected receivables remaining on hand on such day, after making allowance for and retaining all funds necessary for operations of the Debtors in the ordinary course of business, as reflected on the bi-weekly Debtor-in-Possession reports to be filed by the Debtors, each such amount in any event not to be less than $50,000.00, until the total amount of the Fund, as determined under subparagraph (b)(iii) above, has been deposited therein.
(vi) In the event that the Debtors shall fail to turn over to the Joint Escrow Agents any amount as set forth in subparagraph (b)(v) above, either of the Joint Escrow Agents shall file a notice of such default with the Court.
(vii) Upon the deposit of the full amount of the Fund as set forth in subparagraph (b)(iii) above, the Joint Escrow Agents shall file a. notice with the Court stating that such event has occurred and setting forth the amount of the Fund. The Fund shall,then be subject to the further jurisdiction of this Court, except as otherwise provided herein.
(viii) If and for so long as this Court’s jurisdiction is terminated by operation of law, then the Joint Escrow Agents may file an action for interpleader or other appropriate relief in a court of competent jurisdiction.
(c) In lieu of the Fund provided under paragraph (b) hereof, the Debtors may file with the Court a satisfactory surety bond in the amount set forth in subparagraph (b)(iii) above. In such event, the Joint Escrow Agents shall return all deposits then existing in the Fund, including all interest accrued thereon, to the Debtors.
(d) To further secure the positions of the Defendants determined to have valid and enforceable claims, the Debtors shall and do hereby grant to the Defendants the following substitute lien rights:
(i) a first lien on all existing accounts receivable of the Debtors and a floating first lien on all new accounts receivable arising after the date of this Order;
(ii) a second lien on all inventory of the Debtors, such lien being junior only to any first lien on such inventory which has been granted by the Debtors to Intercontinental Bank, or which may be granted by this Court to Intercontinental Bank, on the inventory of the Debtors or proceeds thereof;
(iii) a lien on all machinery, equipment and other tangible personal property of the Debtors, such lien being junior only to any existing first liens on such machín-*315ery, equipment and other tangible personal property of the Debtors;
(iv) a lien on the business premises owned by the Debtors and located at 8105 W. 20th Avenue, Hialeah, Dade County, Florida, as described more particularly in Exhibit “1” attached hereto; such lien being junior only to any existing first liens on such real property.
(v) The liens set forth in subparagraphs (d)(i), (ii), (iii) and (iv) above shall have priority over all claims for administrative expenses.
(vi) Debtors shall make all payments necessary to keep all senior liens, leases and other security interests in the inventory, machinery, equipment, other tangible personal property and/or real property set forth in subparagraphs (d)(ii), (iii) and (iv) above, in current status and good standing.
(e) Upon the deposit by the Joint Escrow Agents of the total amount of the Fund as provided in subparagraph (b)(iii) above, as evidenced by the filing by the Joint Escrow Agents of the notice pursuant to subpara-graph (b)(vii) above, or the filing- by the Debtors of a satisfactory surety bond of equal amount under paragraph (c) above, the substitute liens established under paragraph (d) above shall be deemed by this Court, without further notice and hearing, to be fully satisfied and no longer in effect.
(f) In the event that the Debtors default in the turnover of monies to the Joint Escrow Agents for deposit into the Fund as required under subparagraph (b)(v) above, as evidenced by a notice of default filed by either of the Joint Escrow Agents pursuant to subparagraph (b)(vi) above, upon application of a party in interest and expedited notice to the parties, this Court shall hold a hearing to determine whether the preliminary injunction entered herein shall be dissolved.
EXHIBIT “1”
LEGAL DESCRIPTION
PARCEL I: The South 61 feet of Tract 15 and the North 89 feet of Tract 16, less the West 140 feet thereof, of CHAMBERS LAND COMPANY’S SUBDIVISION, in the Northwest lk of Section 26, Township 52 South, Range 40 East, according to the Plat thereof, as recorded in Plat Book 2 at page 68 of the Public Records of Dade County, Florida.
PARCEL II: Tract 16, less the North 89 feet thereof, less the East 160 feet thereof, less the South 220 feet thereof, and less the West 140 feet thereof, as measured at right angles to the South and West lines of said Tract 16 of CHAMBERS LAND COMPANY’S SUBDIVISION, in the Northwest lh of Section 26, Township 52 South, Range 40 East, according to the Plat thereof, as recorded in Plat Book 2 at page 68 of the Public Records of Dade County, Florida. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489856/ | DECISION
ELLIS W. KERR, Bankruptcy Judge.
Plaintiff on November 10, 1983 filed “Memorandum in Opposition of Motion to Dismiss", In the first paragraph it is stated that at the Court Ordered Conference the Defendant raised the issue of whether this Court lacks subject matter jurisdiction and as such, such action was deemed to be a Motion to Dismiss. (This Judge was not present at that conference which had been set for Hearing with the Law Clerk to get settled, all possible preliminary matters as set out in a two page Order setting the Hearing.) Actually no such Motion filed. The memo filed thereafter by the Defendant did not object to this. Therefore, the Court will so consider it. From a practical standpoint it is not important. The issue is one of jurisdiction.
The memos cite In Re White Motor Credit Corporation, 23 B.R. 276 (N.D.Ohio 1982); White Motors Corp. v. Citibank, *479704 F.2d 254 and Rhodes v. Stewart, 705 F.2d 159, (decided after White.)
Whether we agree or disagree with White or Rhodes these are Sixth Circuit Decisions we must follow. If there appears to be or there is a conflict in these two decisions we need not concern ourselves. A Southern District of Ohio Decision, dated May 15, 1984 by Judge Spiegel abides by White. We consider ourselves bound by that decision as we are by Foreman v. G.M.A.C. 34 B.R. 712 (S.D.D.C.Ohio 1983) (Page 5 of Noland’s memo and page 8 of Defendant.
Having taken this position we deem it not only unnecessary, but inappropriate to burden this decision with analysis of the many cases cited by both Plaintiff and Defendant. We are indebted to these attorneys for very excellent and complete memos.
What is needed now is to establish a basis as simple as possible upon which to conduct further hearings or appeals as to be determined by the parties.
In the instant case, the Debtor In Possession is bringing suit against a creditor of the Debtor to determine if there were a preferential transfer. In Kuempel the Defendant was not previously a party to the Bankruptcy proceedings and rights under contract were in dispute. District Judge Spiegel held the Bankruptcy Judge has jurisdiction to submit findings, etc. to the District Judge.
We so find.
At the Indianapolis 500 the words, “Gentlemen, Start Your Engines” creates a thrill in the audience. We do not anticipate our words will create any thrill.
But “Gentlemen, Start Consideration” of whether:
1. Any party desires to appeal this decision, or
2. You desire to have the Bankruptcy Judge “submit findings, conclusions, and the proposed Judgment or Order to the District Judge, or
3.You desire to consent to Entry of the Judgment or Order by the Bankruptcy Judge.
ORDERED THAT the Bode-Finn “Motion to Dismiss” be and same is HEREBY overruled.
FURTHER ORDERED THAT the parties within fifteen (15) days from date notify this Court of which of the above mentioned three courses the party wishes to pursue. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489857/ | FINDINGS OF FACT, CONCLUSIONS OF LAW, AND ORDER DENYING MOTION FOR RELIEF FROM STAY
GEORGE L. PROCTOR, Bankruptcy Judge.
This matter is before the Court on Amoco Oil’s motion for relief from the automatic stay of 11 U.S.C. § 362. Amoco seeks to refuse to renew a lease and dealer supply agreement with respect to a service station on Emerson Street in Jacksonville with the debtor. The agreement, by its terms, will terminate on July 31, 1984.
In the absence of some overriding provision to the contrary, there would be nothing in the automatic stay compelling Amoco to remain in a contractual relationship with Pereau after the expiration of the contract. Because, however, the contractual relationship is between a petroleum refiner (Amoco) and a distributor (the debtor) their contractual relationship is to a large degree governed by Subchapter I of 15 U.S.C. 2801 et seq., the Petroleum Marketing Practices Act, which Subchapter deals with franchise protection. Section 2802(a) states the general proposition that a refiner may not refuse to renew a contractual relationship at the expiration of its term except under certain enumerated conditions and then only upon timely and proper notice to the franchise. Amoco relies on § 2802(b)(2)(C) which permits non-renewal upon occurance of
... an event which is relevant to the franchise relationship and as a result of which ... non-renewal of the franchise is reasonable, if such event occurs during the period the franchise is in effect and the franchisor first acquired actual or constructive knowledge of such occurrence-© not more than 120 days prior to the date on which notification of ... non-renewal is given ....
Subsection (c) defines the event described in subsection (b)(2)(C) as including, (2) declaration of bankruptcy or judicial determination of insolvency of franchisee, and (8) failure by the franchisee to pay to the franchisor in a timely manner when due all sums to which the franchisor is legally entitled.
With respect to Amoco’s argument that the debtor’s Chapter 11 filing constitutes sufficient cause not to renew, we find that Amoco did not give notice as required by § (b)(2)(A) of the Subchapter of intent not to renew the franchise and dealer service agreement. It is apparent from the record that no notice of intent not to renew was given until well after 120 days from the order for relief in the debtor’s bankruptcy ease, at which time Amoco, as a creditor, learned of the filing. Amoco does not argue that it gave notice within 120 days of its first knowledge having of bankruptcy but rather argues that each day that a franchisee is in bankruptcy constitutes a separate act under subsection (b)(2)(C) and thus that notice given within 120 days of any day that the franchisee is a debtor in bankruptcy court, complies with the statute. We cannot adopt this line of *502reasoning. The statute is explicit to the effect that notice must be given no longer than 120 days after the franchisor first learned of the behavior on the basis of which it wishes not to renew the relationship. There can be no doubt of when Amoco first learned of the debtor’s having filed bankruptcy nor can Amoco argue that the debtor’s conduct was in any way qualified or ambiguous.
The question of whether the debtor failed to give Amoco timely payments of amounts due does not appear to contain a notice problem but clearly raises issues of whether a material default existed and, assuming that it did, of Amoco’s acquiescence.
Amoco presented two witnesses who had dealt with the debtor’s orders and accounts since the filing of his petition. Their testimony established that since Pereau had filed a Chapter 11 petition he had been placed on a payment-on-delivery basis by Amoco and that the only forms of payment that Amoco would accept in return for gasoline deliveries were cashiers’ checks combined with credit card slips collected from customers. Their testimony gave no indication that any motive other than the filing of a bankruptcy petition existed for Pereau being placed on such a basis, i.e. there was no suggestion that Amoco had had difficulty being timely paid by Pereau under the credit arrangement which they previously had and which is customary with Amoco’s dealers. The testimony indicated, and Per-eau did not contest, that on some days the total of credit card slips and the cashiers’ check added up to less than the wholesale price of the gasoline he had ordered, which price had been quoted to him by Amoco the previous evening and sometimes amounted to more, but that the over and under-pay.ments cancelled each other out over time so that at the end of any given month, no amount was past due. Amoco does not maintain otherwise.
While Amoco forcefully argues that the magnitude or materiality to the refiner’s interest of conduct under § (b)(2)(C) is not a factor which it is proper for the Court to consider, the Court finds that the language of the provision, i.e. its specific reference for conduct which makes it reasonable for the franchisor not to renew, invalidates any argument that inconsequential defaults are intended by the statute to constitute a basis for non-renewal.
In any event, we do not find that Amoco declined to operate under the system of “approximate cash on delivery” which evolved between it and Pereau or that it did so much as object in writing to the manner in which Pereau was carrying out the cash-on-delivery system. In Wesley v. Mobil Oil Corporation, 513 F.Supp. 227 (1981), the Court denied the franchisor’s motion for summary judgment because it found that the franchisor had acquiesced in the dealer’s behavior on the basis of facts less favorable to the dealer than we consider those in this case to be.
In the context of reasonableness, we also seriously question whether the franchisee’s inability to operate correctly under a system of the franchisor’s own devising, which according to testimony was not applied at any other station in the metropolitan area, is not due to the inherent unreasonableness of calling for strict compliance under the terms of the payment system on which Amoco placed Pereau. The manager of Pereau’s station testified that policy requiring a cashiers’ check every day made it virtually impossible to make accurate payments. While we believe that the manager might, with some effort, have been able to improve his accuracy record, we believe that the system under which the station must operate is cumbersome at best.
For these reasons, the Court finds that Amoco is barred by the Petroleum Marketing Practices Act from refusing to renew its lease and agreement with the debtor, and that to the extent that the automatic stay is applicable to the matters raised in the motion it shall remain in effect. The motion is Denied. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489859/ | FINDINGS AND CONCLUSIONS
JOSEPH A. GASSEN, Bankruptcy Judge.
This cause came to be heard on August 1, 1983, upon the Complaint of the Plaintiff/Debtor, ALL TOOL RENTAL, INC., to Determine Nature, Extent or Validity of Lein.
ALL TOOL filed a Voluntary Petition in Bankruptcy under Chapter Eleven on August 13, 1982. Subsequently, on June 1, 1983, ALL TOOL filed this adversary proceeding under Rule 701, now Rule 7001, et al., Bankruptcy Rules, to determine the validity, priority, and extent of the secured status of the following three claims:
1. The claim of RALPH GEORGE FRENGEL, LOIS FRENGEL, and RALPH JAMES FRENGEL, (hereinafter referred to collectively as the FRENGELS), of a security interest in the three (3) outstanding shares of stock in the Debtor, and in the Debtor’s fixtures, equipment and rental inventory and leasehold estate, arising from a Security Agreement, dated May 2, 1974, between the FRENGELS and the Debtor. This Security Agreement is part of Composite Exhibit 1, before the Court at the August 1, 1983, hearing.
2. The claim of DONALD WELLS and VERONICA WELLS, (hereinafter referred to as the WELLSES), of a security interest in 1 and xk shares of stock in the Debtor and in the Debtor’s fixtures, equipment, rental inventory, lease and leasehold estate, arising from a Security Agreement dated February 29, 1980, between the WELLSES and the Debtor. This Security Agreement is part of Composite Exhibit 3.
3. The Claim of the UNITED STATES OF AMERICA of a lien for taxes owed by the Debtor to the Internal Revenue Ser*582vice, arising from the filing of notices of tax lien on September 25, 1980, and March 16, 1982. These notices were before the Court as attachments to the United States Proof of Claim, marked Exhibit 5.
Answers were filed by all the Defendants, each claiming a secured interest with priority over the others. A hearing was had on August 1, 1983, whereat all the parties, except the FRENGELS, appeared and presented testimony. The Court has considered that testimony as well as the arguments and memoranda of counsel.
FINDINGS OF FACT
The parties are in substantial agreement as to the facts upon which the Court bases its determination.
The FRENGELS were the owners of all the outstanding shares of the Debtor in 1974, when it was known as RALPH’S RENTAL SERVICE, INC. On May 2, 1974, the FRENGELS sold all their shares in the Debtor to JOSEPH KELLER and MARY KELLER, his wife, (hereinafter referred to as the KELLERS), and the WELLSES, and received in return a promissory note of even date secured, pursuant to a Security Agreement, by a lien on the stock and property of the Debtor. This agreement was modified by a Modification Agreement, dated May 1, 1975, and the FRENGELS were given a second promissory note of even date secured by the same Security Agreement and lien as the note of May 2, 1974. The FRENGELS security interest was perfected by the filing of a Uniform Commercial Code Financing Statement with the Florida Secretary of State on May 15, 1974. No continuation statement was ever filed, as provided by Section 679.-403, Florida Statutes. The parties stipulated at the hearing that a balance of $1500.00 remained owing from the Debtor to the FRENGELS on the notes.
On February 29, 1980, the WELLSES and the Debtor, now known as ALL TOOL RENTAL, INC., entered into -a buyout agreement under which the WELLSES sold their interest in the Debtor to the Debtor in exchange for, among other consideration, a promissory note secured by a lien on one-half the stock and all the property of the Debtor. In connection with this sale, the Debtor, through its President, JOSEPH KELLER, signed a Security Agreement and a Financing Statement which met all the requirements of the U.C.C. These documents were all before the Court as Com-posit Exhibit 3.
The Financing Statement, signed by KELLER, was filed with the Florida Secretary of State on July 22, 1980. Just how the Financing Statement came to be filed was never made clear to the Court.
Paragraph 6 of the Agreement for sale concerns the Financing Statement and its filing and reads as follows:
“6. As security for payment of the promissory note, ALL TOOL shall execute a Security Agreement in favor of WELLS on one and a half (IV2) shares of stock being sold to ALL TOOL in addition to all fixtures, equipment, rental inventory, lease and leasehold estate of ALL TOOL, and WELLS is authorized to file a Financing Statement with the Secretary of State. The parties understand and acknowledge that the one and a half (IV2) shares of WELLS stock being sold to ALL TOOL, as well as the fixtures, equipment, rental inventory, lease and leasehold estate of ALL TOOL are presently encumbered by a Security Agreement and Financing Statement in favor of Ralph G. Frengel, Lois Frengel and Ralph James Frengel, and said security interest shall remain until such time as the indebtedness to the Frengels is paid in full. Therefore, a Security Agreement, Escrow Agreement, and Financing Statement will be held in escrow by Atkinson, Golden, Bacen & Diner, P.A., hereinafter “ESCROW AGENT”, until such time as the indebtedness with the Frengel parties is paid in full and their security interest is cancelled. At such time as the Frengel indebtedness is paid in full, ALL TOOL shall direct the current Escrow Agent holding the stock certificates of ALL TOOL to forward same to the Escrow Agent under this Agreement, and upon receipt of same, Escrow Agent shall be authorized to record the *583Financing Statement with the Secretary of State, and the provisions of the Security Agreement and Escrow Agreement signed in accordance with the terms contained herein shall become in full force and effect. It is the parties (sic) intent to comply with the Security Agreement now issued in favor of the Frengel parties, and therefore, they desire to not further encumber the subject property until such time as the first Security Agreement is extinguished.”
At the hearing, the parties stipulated that the Debtor still owed $37,270.07 on the WELLSES’ promissory note.
THE UNITED STATES claims a total secured claim of $3,305.52, in favor of the Internal Revenue Service, which sum the parties have stipulated to be owing from the Debtor to the UNITED STATES. The total represents various taxes, penalties, and interest due as of the Bankruptcy petition date. The breakdown is unimportant, the operative fact being that the first notice of tax lien was filed on September 25, 1980.
The parties have stipulated at the hearing that the Debtor owns the following property with the following values:
1. Office equipment and furnishings $210.00
2. Rental inventory $10,000.00
The Debtor, therefore, has a total of $10,-210.00 of property against which these three claims could be secured. The evidence showed that $700.00 of the inventory was acquired after November 9, 1980, or 45 days after the filing of the first UNITED STATES notice of tax lien.
The issue for this Court’s determination is whether and to what extent each of these claims is secured as against the property of the Debtor and what priority each has as against the others.
CONCLUSIONS
1. The debtor-in-possession contends that it (standing in the shoes of a trustee) has priority over the FRENGELS because their perfection lapsed when they failed to file a continuation of their finane-ing statement before expiration of the five year effective period under Fla.Stats. § 679.403(3). This court agrees, and concludes that the FRENGELS are unsecured creditors only.
2. As to the WELLSES’ Security Agreement, the debtor-in-possession argues that there would have been no valid, perfected Security Agreement against it without the violation of the Escrow Agreement by the WELLSES and that therefore the Security Agreement and the perfection of it through filing a Financing Statement are void, and of no effect against it.
There is no dispute over the fact that All Tool Rental, through the KELLERS, signed a Security Agreement and Financing Statement which met all the requirements of the Uniform Commercial Code, and that the Financing Statement was filed with the Florida Secretary of State, as prescribed by the U.C.C. to perfect security interests of the type in question. The significant issue before this court is whether the Security Agreement “attached” under the provisions of the U.C.C., or whether, instead, the circumstances of the transaction prevented attachment.
Fla.Stats. § 679.203(2) provides: “A security interest attaches when it becomes enforceable against the debtor with respect to the collateral. Attachment occurs as soon as all of the events specified in subsection (1) have taken place unless explicit agreement postpones the time of attaching.” In this case no one contends that the events of subsection (1) did not take place.
The debtor and the IRS argue that documents released in violation of escrow are not effective, and that there was no delivery of the Security Agreement and Financing Statement here, because ALL TOOL never agreed to such delivery. However, the common law regarding the effect of violations of escrow agreements and delivery or the lack thereof is not operative here. It has been superseded by the statute quoted above. The effect of the U.C.C. provisions on secured transactions is to say that if a debtor and creditor take certain actions and create a certain type of docu*584ment, a security agreement exists. Whether the parties wish to call it that or not, under the U.C.C. it is a security agreement. If they wish to agree to having a security interest enforceable only at a future time they can either wait to execute the documents or they can comply with the statute and include an “explicit agreement” which postpones the time of attaching.
The Security Agreement which the parties signed here does not itself include any agreement, explicit or otherwise, that it not attach immediately. Instead, the giving of the security interest is phrased entirely in the present tense, and it provides that the secured party “is hereby authorized” to file a financing statement.
Section 679.203(2) does not state specifically whether or not the explicit agreement must be within the security agreement itself. It is logical that such an agreement should at least be incorporated by reference, in conformance with the intent of the U.C.C. to simplify, expedite, and make uniform commercial transactions. Assuming for the moment, however, that a completely separate document could contain the required explicit statement, the “Agreement” between ALL TOOL and the WELLSES must be examined. Considering the document in its entirety, but without reference to extrinsic evidence as to the intent of the parties, the court concludes that it does not provide the explicit agreement needed, because it has contradictory provisions which result in ambiguity. In Paragraph 6 it first states that ALL TOOL shall execute a Security Agreement, and WELLS “is authorized to file a Financing Statement”. Subsequently it provides that “a” Security Agreement, Escrow Agreement and Financing Statement will be held in escrow until the FRENGEL indebtedness is paid in full, and that the Security Agreement and Escrow Agreement “shall become in full force and effect” upon receipt by the escrow agent of the ALL TOOL stock certificates, which were to be directed to be released upon payment of the FRENGEL indebtedness. Finally Paragraph 6 states: “It is the parties (sic) intent to comply with the Security Agreement now issued in favor of the FRENGEL parties, and therefore, they desire to not further encumber the subject property until such time as the first Security Agreement is extinguished.” However, Paragraph 9 sets forth what acts will constitute default on the promissory notes, and states that WELLS shall be entitled to foreclose on his security interest upon default.
The nature of the defaults described are such that a default might have occurred immediately after execution of the promissory notes, and certainly before conditions occurred for the release of the escrow. A security agreement may be enforceable by a creditor against a debtor whether or not perfection has occurred, but only after attachment, (the act in question), has occurred, because that is the very definition of “attachment” under § 679.203. Therefore, this provision of the agreement is contrary to the escrow provision, even if one concludes that the beginning of Paragraph 6 was merely inartfully worded.
It is apparent that the parties had conflicting desires at the time of the execution of these documents. Although the WELLSES did not want to violate the FRENGEL Agreement, they wanted a security interest in the property in question. ALL TOOL wanted to give the security interest, to enable the purchase transaction to occur, but the KELLERS also did not want to violate the FRENGEL Agreement. From this document alone the court cannot conclude which desire the parties wished to prevail if they couldn’t “have their cake and eat it too”. Although there are fairly explicit statements that are equal to a statement that the Security Agreement should not attach, there are equally explicit statements to the contrary. The court cannot conclude that the “Agreement” provides the explicit statement required by § 679.203(2). Therefore, under that section the Security Agreement attached immediately.
This leaves the simpler question of perfection. Had there been no attachment of the Security Agreement there could *585have been no perfection, and therefore no enforceability against the debtor-in-possession. All other elements of perfection were completed, however, and since the court has found that the Security Agreement attached, it was also perfected. ALL TOOL argues that the filing could not be effective because the financing statement should not have been removed from escrow. This argument has even less merit as to filing than to attachment. It runs counter to every concept of Article 9 of the U.C.C. to say that all the steps necessary to create and perfect a security agreement may be completed but that the filing in the official records is a nullity because someone did not want it filed. Once the Debtor signed a financing statement it created the possibility that the document could be filed and be effective against it. If the Debtor was determined to sign such a document it could still protect itself by preventing attachment of the security interest under the methods discussed above. The entire structure of perfection would be undermined if third parties could not rely on the validity of a financing statement in the public record which on its face complied with all provisions for validity.
The court has found few cases providing guidance on the “explicit agreement” issue. Most involved stock pledge agreements with possibly ambiguous language, and found that there was no explicit agreement that a security interest not attach. However, the facts in these cases do not present as close a question as the facts in the case at bar, and are not particularly helpful. See Allegaert v. Chemical Bank, 657 F.2d 495 (2d Cir.1980); In Re Copeland, 531 F.2d 1195 (3d Cir.1976); Smith v. Dean Vincent, Inc., 47 Or.App. 887, 615 P.2d 1097 (1980); and Barton v. Chemical Bank, 577 F.2d 1329 (5th Cir.1978). In the case of In re Dolly Madison Industries, Inc., 351 F.Supp. 1038 (D.C.E.D.Pa.1972) the court found that no security agreement had been created. In that instance there was no separate document as a security agreement but an escrow agreement which the court found to be a true escrow agreement and not a present pledge of collateral. The purchase agreement contained the provision, “In the event that AFL shall be in default ... the escrow agent ... shall deliver the certificates to the seller, whereupon seller’s rights ... shall be those of a secured party holding collateral under the provisions of Article IX of the Uniform Commercial Code....” Since there was no other language creating a security agreement the court found that the parties intended that a security interest attach only upon an uncured default. The language of this agreement is quite different from the executed Security Agreement and the ambiguous “Agreement” of the case at bar.
The actions which occurred may very well have been a breach of the agreement between ALL TOOL and the WELLSES and also of the agreement between the parties and the FRENGELS. If so, the aggrieved parties may seek damages for the breach. This is an entirely separate issue from the question of the validity of the security interest, however.
3. The final issue is whether, and to what degree, a lien in favor of the Internal Revenue Service has priority over the WELLS security interest. The court is persuaded by the argument of the IRS that it has a prior lien in the amount of $700, and so finds and concludes. The first tax lien of the IRS was filed after the financing statement. Since the court has found that the financing statement perfected the WELLS security interest, they have priority as to collateral owned by the debtor prior to the filing of the tax lien. Under 26 U.S.C. § 6323(c)(1)(A)(i) and (c)(2) and Rice Investment Co. v. U.S., 625 F.2d 565 (5th Cir.1980), however, the IRS would have priority as to property acquired by the debtor subsequent to 45 days after the tax lien was filed. The evidence showed that $700 worth of inventory was acquired by the debtor subsequent to that date and the IRS lien has priority in the amount of $700.
Pursuant to Bankruptcy Rule 9021(a) a separate Final Judgment incorporating these Findings and Conclusions is being entered this date. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489860/ | PARTIAL OR PRELIMINARY FINDINGS AND CONCLUSIONS
JOSEPH A. GASSEN, Bankruptcy Judge.
This matter was tried on the Complaint of the Trustee against Defendant, SAMUEL FOOSANER, to compel turnover, requesting an accounting, seeking damages, and on the counterclaim of FOOSANER against the Trustee. Several other Defendants originally joined by the Trustee were dismissed prior to trial. (C.P. Nos. 41, 42, 43). The trial was held on two separate dates, and, upon the stipulation of counsel, the deposition of Laura Caprita was considered as evidence in the case, although the deposition was taken subsequent to the continued trial date.
After the trial of this adversary was completed the Trustee was discharged, and *587the Reorganized Debtor succeeded to the Trustee’s interest. For ease of understanding the ruling in relation to the pleadings, evidence, and transcript, these Findings and Conclusions will refer to the Trustee throughout.
The dispute here is over the ownership of ice vending machines which were placed in motels or public areas. The debtor, POLAR CHIPS INTERNATIONAL, which was operated at the time by its president and owner, Walter Kellin, was in the business of selling ice vending machines to investors who would lease the machines back to POLAR CHIPS. POLAR CHIPS would service the machines and, after making the lease payments, would retain the income from the machines. One of the causes of collapse of the Debtor was the apparent fraud of Walter Kellin, which included selling more ice machines than existed, and operating a ponzi scheme by making lease payments out of new investors’ money rather than from income generated by the ice machines.
Turning to the circumstances of FOO-SANER’s case, Defendant became acquainted with POLAR CHIPS through Joanne Darrow. Ms. Darrow was herself an investor, having purchased a number of ice machines with her husband. She further arranged a business relationship with POLAR CHIPS where servicing of POLAR CHIPS’ (owned or leased) ice machines was done by Controlled Ice, a company which she helped form and in which she had an interest through its partial ownership by Rockingham Enterprises, which she owned. Mario Cicotti was the other principal of Controlled Ice, and he not only handled the servicing of machines, but was also to receive a commission for obtaining new locations for the placement of POLAR CHIPS machines. Controlled Ice operated in the Orlando, Florida area and Kellin represented to Darrow and Cicotti that this area was to become the POLAR CHIP headquarters and that therefore the ice vending machine operations in the area would develop into a big business. All these grand plans arose and collapsed within the period of approximately January, 1981 to May, 1981.
In the meantime, FOOSANER learned of POLAR CHIPS, saw tax advantages to an investment, and decided to leap in. The documents are partially contradictory as to whom he contracted with, but the court concludes that he ultimately completed the purchase of fifty (50) ice machines from POLAR CHIPS, and leased them back to a related entity or individual. There are an additional fifteen (15) machines which FOO-SANER is claiming, and which will be discussed subsequently.
FIFTY FOOSANER MACHINES
As to the first fifty (50) machines there is no written contract for the purchase from POLAR CHIPS, but there is sufficient evidence to determine the substance of that agreement. FOOSANER was to purchase fifty (50) machines in contemplation of the leasing and servicing arrangement with POLAR CHIPS, but no specific machines were identified prior to the purchase. The evidence showed that POLAR CHIPS purchased component parts for the new machines from two (2) sources, and put them together to create the vending machines sold to investors. There were no serial numbers or other identifying marks on the machines as they came from the factory for delivery to the various locations. Because of the nature and use of the machines, purchasers would not take actual possession of the machines, but, instead, the machines would be delivered directly to the vending locations. Usually POLAR CHIPS procured the locations.
Although there was no contract for the purchase and sale, Defendant’s receipts in payment for fifty (50) machines were put into evidence, (Plaintiff’s Exhibit Nos. 6 and 13) and the Trustee does not dispute that FOOSANER paid for fifty (50) machines. There is greater, and, in fact, redundant, documentation of the leasing and servicing arrangement. On March 18, 1981, POLAR CHIPS, as Lessor and manager, entered into a Management and Lease Agreement with FOOSANER, as owner, in which Walter Kellin, individually, *588also agreed to guarantee the arrangement and provide additional security to FOO-SANER. (Plaintiffs Exhibit No. 9). On the same date an Identification and Lease Agreement (Plaintiff’s Exhibit No. 10), concerning the same machines (as revealed by testimony) was entered into between Kellin individually as lessee, and FOOSANER, as lessor. Finally, there is an untitled document executed by Walter Kellin on the same date (Plaintiffs Exhibit No. 12 reciting that the fifty (50) ice machines purchased by FOOSANER “from Kellin Enterprises” will be leased by Walter Kellin.
The Trustee’s primary argument in this case is that no sale to the Defendant was complete because all the machines are alike, and no particular machines were sold to FOOSANER. Two (2) sections of the Uniform Commercial Code have a bearing on the issue. Fla.Stats., § 672.401 provides, in pertinent part:
... Insofar as situations are not covered by the other provisions of this chapter and matters concerning title become material the following rules apply:
(1) Title to goods cannot pass under a contract for sale prior to their identification to the contract ...
(2) Unless otherwise explicitly agreed title passes to the buyer at the time and place at which the seller completes his performance with reference to the physical delivery of the goods ...
As to identification of goods, Fla.Stats., § 672.501(1) provides:
... [Identification can be made at any time and in any manner explicitly agreed to by the parties. In the absence of explicit agreement identification occurs:
... (b) If the contracts are for the sale of future goods ... when goods are shipped, marked or otherwise designated by the seller as goods to which the contract refers ...
Usually “identification” of goods under the UCC will serve to protect a buyer prior to delivery of the goods. Here, however, since the buyers would obtain only constructive possession of the ice machines, delivery and identification are intertwined.
FOOSANER attempted to guarantee that certain machines were designated as his, even though he did not reside in the geographical area where the machines were placed and, as stated above, would not have taken physical possession of the machines in any case. The evidence showed that he considered Joanne Darrow his agent and that she obtained serial numbers from Walter Kellin for FOOSANER’s machines, and in some, if not all instances, the number plates were supplied by Kellin. Mario Cicotti, who was servicing the machines, then attached the serial numbers to the machines and informed Darrow of the location of each machine according to the number it now showed. The serial numbers were listed on a document entitled Exhibit A (introduced into evidence as Plaintiff’s Exhibit No. 16), which the evidence showed was intended to be an attachment to the Identification Lease Agreement. This was executed by both Walter Kellin, as Lessee, and by FOOSANER. There was additionally a “Supplemental Exhibit A (Plaintiff’s Exhibit No. 17), showing the motel locations of each of the serial numbers from Exhibit A. This was not executed by FOOSANER, but was signed by Walter Kellin, as Lessee, and by Joanne Darrow. Cicotti’s deposition testimony showed that he had verified the locations and provided the information to Darrow. FOOSANER’s fifty (50) machines were purchased and shipped at two (2) different times, and the payments were receipted on March 11 and March 18,1981. The location identification list was sent by Joanne Darrow to POLAR CHIPS for Kellin’s signature on March 27, 1981 (Plaintiff’s Exhibit No. 15).
The trustee argues that this after-the-fact attachment of number plates by Cicotti could not serve to prove that these were the machines purchased by FOOSANER, and that even if the numbers and locations match, the exhibits showing they were executed in conjunction with the lease agreement (to which POLAR CHIPS was not a party, whoever the lessee was intended to *589be) and not in connection with the contract for sale.
A determination of the facts here is made more difficult, not only because of the contradictions in the documents, but because of the interrelationships of the parties. Joanne Darrow introduced FOOSANER to Kellin and POLAR CHIPS, and was used by FOOSANER as his agent, but also had a business relationship with POLAR CHIPS as to the same transactions. Likewise, Cicotti was Darrow’s agent on behalf of FOOSANER, but he was involved in other business relationships with Darrow and POLAR CHIPS, also involving the same transactions. Kellin was the moving force behind POLAR CHIPS and Walter Kellin Enterprises, and seemed to use those entities interchangeably as to some business matters, as well as entering into transactions in his individual capacity. As a result, it appeared to investors to be the same entity selling the machines, leasing them back, and servicing them.
Given all of these facts, the Court concludes that, at the time the machines were identified by number and location, they were sufficiently identified and delivered for title to pass to the buyer, FOO-SANER. When Cicotti attached the identification plates, he was acting as the joint agent of FOOSANER and Kellin, and under the circumstances of this case it must be concluded that Kellin was authorizing their identification on behalf of the seller, POLAR CHIPS, as well as on behalf of the lessee, especially since the numbers originated with Kellin and the identification of machines sold was in his control.
The Trustee’s next position is essentially that, even if there was a prima facie satisfaction of the elements required for the completion of a sale, title to the machines did not and could not pass to FOOSANER because POLAR CHIPS did not have title to sell, having sold the same machines many times previously. This is a much more difficult question, and the Court concludes that if there were clear evidence that the same goods had previously been sold, the Defendant would not be able to obtain good title to them from the purported seller. Cf., Shacket v. Roger Smith Aircraft Sales, Inc., 497 F.Supp. 1262 (N.D.Ill., 1980), in which the same aircraft was sold twice. However, the Court finds that the Trustee’s proof on this point is insufficient, and therefore we need not reach the question of whether the Trustee (rather than a competing prior purchaser) would be entitled to the property now.
There was a suggestion that POLAR CHIPS' personnel used the same serial numbers over and over, when asked by investors to specify machines, but the testimony of Trustee’s witnesses in this case does not clearly reveal that fact. (Because of the multitude of hearings and adversary proceedings in this bankruptcy proceeding, the Court is occasionally hard put to distinguish information gleaned in other hearings.) At any rate, there was no evidence that the actual serial numbers given to FOOSANER were also given to any other person.
Mr. Downey, manager of POLAR CHIPS after the bankruptcy, testified that he had concluded from company records that other buyers had been sold machines at the same locations as FOOSANER, and that the sales were necessarily duplicative, because there were not as many machines as there had been sales. This testimony alone is insufficient, however, to defeat FOOSANER’s title to the machines. Since Mr. Dow-ney was not present when the events occurred, his conclusions drawn from company records are of less probative value than the original records would have been. More serious, the testimony referred to no dates for the competing sales, so it can not be concluded that those were prior in time to the sales to FOOSANER. Finally, the evidence from other witnesses, in particular, Cicotti, showed that Kellin had Controlled Ice remove old “POLAR CHIPS” machines from many of the locations and put in new ones which were subsequently identified as belonging to FOOSANER. Therefore, where location was the only identifying factor, as in Downey’s testimony, it is quite conceivable that other buyers *590had purchased machines which were previously at the same locations as FOOSANER’s machines, but were not the same machines.
A further argument of the Trustee, although not as vigorously pursued, is that the Court must conclude, given the identity of the various parties and the interrelated business transactions, that there was no true sale and lease back, but that instead FOOSANER obtained only a security interest in the machines, or perhaps an investment in POLAR CHIPS. Although certain aspects of the transaction raise that possibility, the documents and actions of the parties as a whole leave no doubt that a true sale was consummated. FOOSANER declined to execute financing statements which Kellin forwarded to him, and there is no provision in the lease that the machines be repurchased by POLAR CHIPS after the term of the lease. Walter Kellin may very well have preferred that “investors” not become true owners of particular machines, but he acquiesced to the sale of specific machines to FOOSANER. FOO-SANER may have preferred the convenience of ownership of a mere investment in a business, but he required ownership of the machines themselves for his tax purposes, and he intentionally entered into an arrangement which gave him true ownership, while minimizing the operational involvement required of him.
Finally, the Trustee argues that if title was transferred to FOOSANER upon identification of the machines, as discussed above, it was a preferential transfer under 11 U.S.C. § 547 for or on account of an antecedent debt. There is no merit to this contention because the transaction cannot be construed to have consisted of the creation of an “antecedent” debt, and a later transfer of the equipment. Instead, it would come within § 547(c)(1)(A) as a transfer that was “intended by the debtor and the creditor to or for whose benefit such transfer was made to be a contemporaneous exchange for new value given to the debtor....” Under the circumstances of the transaction and the method of identification agreed to by both parties, the period between the payment of the consideration by FOOSANER and the identification of the machines sold was a very short period of time, and certainly qualifies as a “contemporaneous exchange”.
For these reasons the Court concludes that FOOSANER received title to the fifty (50) machines identified on Plaintiff’s Exhibit Nos. 16 and 17.
FIFTEEN DARROW MACHINES
Slightly different circumstances were involved with the additional fifteen (15) machines which are in dispute between FOO-SANER and the Trustee.
FOOSANER testified that when he first dealt with Walter Kellin, he felt that Kellin downgraded Darrow in their business relationships. FOOSANER conceived of the idea of having additional machines purchased in the Darrows’ names, to make it appear to Kellin that the Darrows were persons of more substantial means. FOO-SANER wished to do this to obtain better treatment for Joanne Darrow both as a friend and because she represented his interests. This was done, and the Darrows purchased an additional fifteen (15) machines from POLAR CHIPS, with the same leaseback arrangement as FOOSANER had (Plaintiff’s Exhibits Nos. 29 and 33). However, FOOSANER provided the funds for the purchase, and there was an agreement between FOOSANER and the Dar-rows that they were acting merely as Trustees for him (Plaintiff’s Exhibit No. 20). There is no dispute between the Darrows and FOOSANER, so although POLAR CHIPS believed the Darrows to be the purchasers, the Darrows’ rights can be asserted by FOOSANER.
Unfortunately for FOOSANER, the evidence as to these machines is insufficient to substantiate identification, either as to an acknowledgment by POLAR CHIPS of the identity, or as to which were the Dar-rows’ machines personally, and which were being held for FOOSANER. (The agreement between FOOSANER and the Dar-rows does not identify any machines.) *591There are several invoices from POLAR CHIPS to the Darrows, some with conflicting dates, and some earlier than the dates at which FOOSANER agreed to provide the money for the purchase of machines (Plaintiff's Exhibits Nos. 22-25). There are also two (2) memoranda listing serial numbers and locations (Plaintiffs Exhibits Nos. 32 and 33). The most serious problem with these, however, is that there is no execution or acknowledgment by POLAR CHIPS. In addition, the serial numbers by location do not correspond to the serial numbers or invoices, or to the memorandum which lists serial numbers assigned to the “Controlled Ice” machines (Plaintiffs Exhibit No. 33). Therefore the Court concludes that FOOSANER has not established his ownership of the machines listed on Exhibit No. 32. The Trustee’s Complaint for an accounting will be granted as to these machines. (Subsequent to the fall of Kellin’s empire, but before the Trustee obtained actual possession of the ice machines, FOOSANER received the vend from all sixty-five (65) machines which he claimed.)
It was agreed at trial that the issue of damages would be tried at a subsequent date if it became necessary as a result of this Court’s ruling on the ownership of the ice machines and as a result of the accounting. A final hearing on damages to be awarded the Debtor-in Possession as to these fifteen (15) machines will be set at the request of the parties.
COUNTERCLAIM
FOOSANER has counterclaimed for actual and punitive damages arising from the giving of two (2) bad checks by POLAR CHIPS, which caused him acute embarassment, and from alleged harassment by the Trustee in the Trustee’s insistence that FOOSANER did not have good title to the ice machines which he was claiming (C.P. No. 24). An ore terms motion by Defendant to increase the amount of damages claimed was granted. A further pleading denominated “Amended Counterclaim” (C.P. No. 50) was not properly filed, and was not considered by the Court as an amendment, although FOOSANER conceded that it primarily embodied the ore terms amendment which had been permitted previously. Among the actual damages claimed by FOOSANER was loss of profits, apparently for the loss of revenue from the ice machines after they were removed from their locations. Counterclaimant has entirely failed to carry his burden of proof on any issue in the counterclaim. The evidence as to loss of profits was purely speculative, and was not supported by other evidence at all as to bad faith which would form the basis for an award of punitive damages. Therefore, Defendant’s Counterclaim will be denied. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489861/ | MEMORANDUM AND ORDER
BILL H. BRISTER, Bankruptcy Judge.
Pride Fuels, Inc. filed complaint under §§ 523(a)(2)(A), 523(a)(2)(B), and 523(a)(4), seeking to except at least a portion of its debt from debtors’ discharge. The following summary constitutes findings of fact and conclusions of law after nonjury trial.
Jimmy Wayne Ogg, during all periods of time relevant to this memorandum, was a dealer and service station operator for Pride Fuels, Inc. Pride sold gasoline products to Ogg on a consignment basis whereby Pride would be paid by Ogg as the product was sold. Their method of operation contemplated that Ogg, on a predetermined basis of two or three times a week, would take to the Pride offices a report of his sales since the last reporting period and would immediately pay to Pride the amount of money which represented the sales price from Pride to Ogg of the products so sold during that period. Thus, with a reporting period of that frequency it was not likely that Ogg would ever get very far in debt to Pride because total sales at Ogg’s station averaged only $300.00 to $400.00 per day.
On February 1, 1982, Ogg made his scheduled report to Pride. On that occasion the Pride officials advised Ogg that he had missed the last reporting period and that their audit of his pumps reflected that he owed $1,469.44 for purchases and $24.62 rent. Ogg testified at the trial that he argued with those officials and told them that it was impossible for him to owe that much money because his daily gross did not exceed $400.00. Further he thought there might be a leak from his pumps. However he gave to Pride on that occasion $70.00 in cash and executed a check on the “Tascosa Gulf” account to Pride in the sum of $1,424.06. He claims that the Pride authorities told him that they wanted to hold the check as earnest money until they could check out the discrepancy. However it is clear that the check was deposited by Pride on February 2, 1982, but it was never paid by the bank because the debtors’ funds were insufficient to cover it.
More than one year later on February 21, 1983, a second check, this time on the personal account of Jimmy W. or Caren S. Ogg, was made payable to Pride Fuels, Inc. in the sum of $385.12. That check was not signed by either debtor, but was deposited by Pride Fuels, Inc. in its account at Amarillo National Bank. It was not paid because of insufficient funds. Thereafter three additional checks were executed on the personal account of Jimmy W. or Caren S. Ogg to the order of Pride Fuels, Inc., *611and signed by Caren S. Ogg, being a check in the sum of $92.40 on February 23, 1983, a check in the sum of $422.40 on March 7, 1983, and a check in the sum of $189.70 on March 14, 1983. None of those checks were paid by debtors’ bank because of insufficient funds.
Debtors filed petition for order for relief under Chapter 7 of Title 11, United States Code on April 19, 1983. The total debt owed by debtors to Pride Fuels, Inc. on date of bankruptcy was $13,114.14. Pride contends that at least $2,513.68 of that total debt should be excepted from debtors’ discharge. It contends that at least to that extent the debtors had obtained property from Pride by false pretenses or false representations, that the execution and delivery of each of the checks constitutes a statement in writing respecting the debtors’ financial condition which was materially false and which was reasonably relied upon by Pride, or that the debtors had committed fraud or defalcation while acting in a fiduciary capacity. Each of those challenges is rejected.
The thrust of the argument by Pride is that it relied upon debtors to furnish it with payments which would be honored by debtors’ bank and based upon that reliance it furnished gasoline and products to the service station for sale. However, its argument that there was detrimental reliance on its part is belied by the fact that the first insufficient funds check in the sum of $1,424.06 was executed on February 1, 1982, more than one year before the four subsequent checks were executed and delivered. That $1,424.06 check was never paid by debtors’ bank and Pride knew and had reason to know that at least on that occasion debtors had not paid for the products. The next insufficient funds check, executed and delivered by Caren S. Ogg the fact that both the unsigned check dated February 21, 1983 and the check dated February 23, 1983, had not cleared the bank account was known to Pride. Notwithstanding that knowledge Pride continued to do business with Ogg.
“Fraud” included in § 523(a)(2)(A) is that which involves moral turpitude or intentional wrongdoing. In re Patch, 22 B.R. 970 (Bkrtcy.M.D.1982); In re Montbleau, 13 B.R. 47 (Bkrtcy.D.Mass.1981); In re Byrd, 9 B.R. 357 (Bkrtcy.D.C.1981); In re Green, 5 B.R. 247 (Bkrtcy.N.D.Ga.1980). Fraud implied in law, which may exist without imputation of bad faith or immorality, is insufficient. Green, supra; Byrd, supra; 3 Collier on Bankruptcy, § 523.08 (pp. 523-40) (15th ed.). The words “or actual fraud” were added to § 523(a)(2) but had not been included in § 17a(2) of the Act. The addition of those words made no change in the law as it existed prior to enactment of the Code since false pretenses and representations were construed to mean acts involving moral turpitude or intentional wrong. Section 523(a)(2)(A) was intended to codify case law as expressed in Neal v. Clark, 95 U.S. 704, 24 L.Ed. 586 (1887) which interpreted fraud to mean actual or positive fraud rather than fraud implied in law.
Actual fraud has been construed in Texas as contemplating that the party charged therewith was inspired by a deliberate, fraudulent purpose to injure and deceive the party complaining. Land v. Marshall, 426 S.W.2d 841, 846 (Tex.1968); Archer v. Griffith, 390 S.W.2d 735 (Tex. 1964); Universal Life and Accident Insurance Co. v. Burden, 294 S.W.2d 855 (Tex. Civ.App. — Fort Worth 1956, no writ). In Texas a cause of action for fraud based upon false representations requires the plaintiff to show that (1) defendant made a false representation of a material fact, (2) plaintiff was entitled to rely thereon and, in fact, relied thereon (3) with resulting injury to the plaintiff. Candela v. Steidle, 457 S.W.2d 461 (Tex.Civ.App. — Corpus Christi 1970, writ ref’d n.r.e.); First State Bank of Corpus Christi v. Von Boeckmann-Jones Co., 359 S.W.2d 171 (Tex.Civ.App. — Austin 1962, no writ). For a fraudulent representation to be actionable it must be one of either a past or present material fact made with scienter on which the defrauded party relied to his detriment. Rumfield v. Rumfield, 324 S.W.2d 304, 306 (Tex.Civ.App.— Amarillo 1959, writ ref’d n.r.e.).
*612 In this case the debtor, Jimmy W. Ogg, acknowledges that he knew that there was not sufficient funds in the account on each occasion when he gave the checks. It is not necessary to resolve the issue on his contention that on each of those occasions he told the official at Pride to whom the check was given that he should “hold” the check for a few days before presenting it for payment, because Pride has failed to meet its burden to show by clear and convincing evidence that it relied to its detriment. Further, Pride’s reliance on § 523(a)(4) is misplaced. The exception to discharge created by fraud, embezzlement, misappropriation or defalcation while acting in any fiduciary capacity does not apply to fiduciary relationships arising out equitable or implied trusts but only to true trusts. Carey Lumber Co. v. Bell, 615 F.2d 370 (5th Cir.1980).
It is, therefore, ORDERED by the Court that the complaint filed by Pride Fuels, Inc. against Jimmy Wayne Ogg and Caren Sue Ogg, seeking exception of debt from discharge, be, and it is hereby, denied.
LET JUDGMENT BE ENTERED ACCORDINGLY. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489862/ | MEMORANDUM AND ORDER
BILL H. BRISTER, Bankruptcy Judge.
David R. Langston, Trustee, challenges prepetition transfers from the debtor, Glenn Armond Porter, to his father as being preferential within the meaning of § 547(b) of the Code. The following summary constitutes findings of fact and conclusions of law.
Debtor, Glen Armond Porter, at all relevant times prior to bankruptcy, was co-owner of Downhill Racer, a ski shop. That business closed several months prior to the filing by the Porters of their individual petition. For several months prior to the closing of Downhill Racer, and extending into the gap period between that closing and the filing of the bankruptcy petition, debtors depended to an extent on loans from Herman Porter, the father of Glenn Armond Porter, to make house payments, car payments, and other living expenses.
In late January 1982 debtors were in substantial need of money. Glenn Armond Porter owned a couple of diamond rings which he tried to sell.. When the purchase offers fell short of debtor’s notion as to the value of those rings his father offered to “buy” the rings and a watch by making payments of certain living expenses of the debtors. At that time debtors were already indebted to Herman Porter for payments made by him of their living expenses in 1980 and 1981, totalling $809.23. In exchange for the rings and watch, Herman *647Porter essentially gave his son, Glenn Ar-mond Porter, a line of credit of $3,700.00, representing the value1 to which Glenn Porter and Herman Porter had agreed for the rings and the watch, because in the ensuing period prior to bankruptcy Herman Porter made additional payments of house mortgage, car liens, and other living expenses of $2,935.69. When the pre-existing loans from Herman Porter to his son and daughter-in-law were considered the total debt to Herman Porter was $3,744.82.
The rings and watch were physically delivered by debtor to Herman Porter in January 1982. However, on October 28, 1982, only two weeks before the bankruptcy petition was filed on November 8, 1982, Glenn Armond Porter executed and delivered a bill of sale to those rings and the watch to his father. The trustee posits that the physical transfer of the rings and watch and the execution and delivery of the bill of sale each constitutes an avoidable transfer.
It is clear that execution of the bill of sale occurred within ninety days of the bankruptcy petition. However, I attach no real significance to the execution and delivery of the bill of sale. It served only to memorialize the earlier transfer of the jewelry from Glenn Armond Porter to his father, because the rings and the watch were actually delivered by Porter to his father in January 1982. That was a date within one year of bankruptcy which also is a prohibited period where, as here, transactions between insiders2 are concerned. On the date in January 1982 when those rings and the watch were actually transferred by Porter to his father he was indebted to his father in the sum of $809.23 on an antecedent debt. As far as those monies are concerned the transfer was preferential within the meaning of § 547(b). Unless debtors can demonstrate their entitlement to claim recovered monies as exempt property that sum of $809.23 should be recovered from Herman A. Porter. However the elements of neither a fraudulent transfer nor a preference exist for those monies advanced to or on behalf of the debtors after the rings and the watch were delivered to Herman Porter.
The second transaction between the parties which trustee challenged is concerned with the sale and transfer by Glenn Armond Porter to his father, Herman A. Porter, of a 1980 Yamaha Motorcycle for the sum of $1,000.00. On October 28,1982, debtor had determined to file petition in bankruptcy and had agreed to pay a retainer of $1,000.00 to his attorneys. He did not have the money for the attorney’s fees. He sold the motorcycle to his father on that date for $1,000.00 and immediately paid those monies over to the attorney. The amount paid by Herman A. Porter for the Yamaha Motorcycle represented its fair market value on that date, the transfer was intended by debtor and Herman A. Porter to be a contemporaneous exchange for new value given to debtor, and it was in fact a substantially contemporaneous exchange. I perceive that transfer to be neither fraudulent nor preferential and as far as the motorcycle is concerned the action by the trustee is denied.
The remaining issue is concerned with debtors’ contention that they have not exhausted their “spillover” or “wild card” exemptions under § 522(d)(5) and that they may claim as exempt property any monies recovered or to be recovered by the trustee against Herman A. Porter. In this case I have concluded that the trustee should recover the sum of $809.23 from Herman A. Porter. The debtors, stacking their exemptions as permitted by § 522(m),3 have not used all of the “wild card” or “spillover” permitted by § 522(d)(5). If debtors properly may claim as exempt property monies recovered by the trustee’s use of his avoid*648ing powers their unused “wild card” under § 522(d)(5) far exceeds $809.23.
Section 522(g) gives to the debtors the qualified right to exempt property recovered by the trustee as a result of the trustee’s use of his avoiding powers. The qualification which is particularly relevant to the issue before the Court is that the transfer which the trustee attacked must not be a voluntary transfer of property by the debtor. See § 522(g)(1)(A). The meaning of “voluntary transfer” is not defined in the Code. However a persuasive definition of that term is contained in In re Reaves, 8 B.R. 177, 181 (Bkrtcy.D.S.D.1981), wherein the court stated:
“For purposes of this decision, this bankruptcy court holds that an 11 U.S.C. § 522(g)(1)(A) voluntary transfer occurs when a debtor, with knowledge of all essential facts and free from the persuasive influence of another, chooses of her own free will to transfer property to the creditor. A voluntary transfer does not occur where a creditor has harassed, insulted, and shamed a debtor in transferring the property to the creditor. Nor has a voluntary transfer occurred where a creditor has concealed or failed to inform a debtor of essential facts necessary for the debtor to make an intelligent decision on whether to transfer the property to the creditor. This is especially true where a debtor can show that she would not have made the transfer had she been informed of all the essential facts.”
I have found above that the transfer of January 1982 was fraudulently made only to the extent of $809.23, the amount of the antecedent debt then owing by the debtors to Herman A. Porter. That transfer in January 1982 contained none of the incidences of “involuntariness.” In fact, any argument that the transfer was other than voluntary is spurious.
Therefore, I conclude that the trustee, by using his avoiding powers, should recover the sum of $809.23 from Herman A. Porter.
I further conclude that those recovered monies may not be exempted by the debtors.
It is, therefore, ORDERED by the Court that David R. Langston, Trustee, do have and recover of a,nd from Herman A. Porter the sum of $809.23 with interest thereon from date at the rate of 10.81%, the Coupon Yield Equivalent.
LET JUDGMENT BE ENTERED ACCORDINGLY.
. There is no evidence in the record which reflects that the sum of $3,700.00 reasonably did not represent the fair value of the two rings and the watch.
. § 101(25)(A)(i) defines "insider” as including a relative of the debtor if, as here, the debtor is an individual.
. See In re Cannady, 653 F.2d 210 (5th Cir.1981). | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489864/ | MEMORANDUM OPINION
JAMES E. YACOS, Bankruptcy Judge.
This case came before the court for a hearing on April 2, 1984 upon the Motions to Dismiss this Chapter 11 proceeding filed by Ashuelot National Bank and L.F. Trottier and Sons, Inc., secured creditors, and upon a number of complaints seeking relief from the automatic stay filed by those creditors, and by various additional creditors, in separate adversary proceedings in this case.
At the conclusion of the April 2, 1984 hearing the court continued all motions for thirty days to give the debtors a chance to file a revised Chapter 11 plan of reorganization that could be confirmed under the provisions of Chapter 11 of the Bankruptcy Code.
The debtors did file a revised plan on April 28,1984, and a continued hearing was held before the court on May 3, 1984. The creditors contend that the revised plan still could not be confirmed by the court and is nothing but a further attempt to thwart and delay them in the exercise of their lawful rights.
To consider and act on this matter the undersigned judge, who had his first exposure to this case at the April 2, 1984 hearing, has had to review and consider not only the testimony and evidence received at the aforesaid hearings, but has also been obliged to review the entire record in this case and in all adversary files relating thereto.
The debtors filed their Chapter 11 petition with this court on May 3, 1982. They operate a farm property known as “Great Meadows Farms” in Charlestown, Sullivan County, New Hampshire. The schedules filed by the debtors on June 1, 1982 list taxes owing of $9,300.00; secured claims of $177,900.00; and unsecured claims of $34,-950.00 — for total scheduled liabilities of $222,150.00. The samé schedules list real property assets at fair market value of $701,000.00; farming supplies and implements of $20,800.00; and claims against others of $5,150.00 — for total scheduled assets of $726,950.00.
Based upon the decided degree of solvency set forth by the debtor in the schedules, it should have been possible to formulate a successful plan of reorganization quickly in this case. The actual result, however, has been just the opposite. The case has dragged on through a series of plans and continued hearings before the prior bankruptcy judge, with the debtors having discharged their attorneys on several occasions immediately prior to scheduled hearings. The delay has not been based upon any serious economic problems the debtors would have in fashioning a normal plan of reorganization but rather upon their adamant refusal to accept the results of certain pre-bankruptcy litigation that they had in the state courts with several of their secured creditors. In effect they are seeking to relitigate in this court, in various adversary proceedings contemplated to con*852tinue under the revised plan of reorganization, a number of issues litigated with res judicata effect in the state courts up to and including the Supreme Court of New Hampshire.
The debtor’s controversy with the Ashue-lot National Bank started back in September 1975 when the Bank filed suit against the debtors and received and recorded a writ of attachment on their real estate in the amount of $15,000.00. The Bank obtained a judgment in the amount of its $12,500.00 debt, but for various reasons the Bank was not able to have the sheriff schedule a sale of the property until May 4, 1982, the day before the debtor’s Chapter 11 petition was filed. The Bank’s secured debt at this point, with accrued interest, is in excess of $16,500.00.
The debtor’s other key controversy was with a creditor named William F. Tempel who obtained a final judgment against them in the Sullivan County Court on March 10, 1980, which judgment was ultimately affirmed by the New Hampshire Supreme Court on December 2, 1980. The 1980 judgment was in the amount of $64,-979.04, and now totals in excess of $81,-000.00 with accrued interest. The judgment was entered upon Tempel’s claim that he suffered a deficiency after foreclosing earlier upon certain collateral he had for his debt. The debtors contended that he received full payment by virtue of the prior property foreclosed, and that accordingly he had no remaining claim against them. The debtors lost that battle in the state courts long before this Chapter 11 proceeding was commenced.
The debtors have not directly disputed the $12,500.00 debt that was owing to Ash-uelot National Bank but have resisted payment on that claim based on various allegations that the Bank interfered with their business operations and upon their realization on other assets. The debtors also contend, as set forth in a separate adversary proceeding in this case, that the Asheulot Bank should not be paid on its secured debt until it first seeks payment out of the assets foreclosed and now possessed by Tem-pel, inasmuch as Tempel held only a second lien on those assets, inferior to the Bank's first lien.
This novel attempt to use the “marshaling” doctrine to benefit the debtors, as opposed to a true marshaling of collateral between lienholders, has received no support in either the state or federal courts. Lessard v. Darker, 94 N.H. 209, 49 A.2d 814 (1946); Meyer v. United States, 375 U.S. 233, 236, 84 S.Ct. 318, 320, 11 L.Ed.2d 293 (1963). Moreover, the doctrine is never applied when to do so would unduly delay or cause increased expenses to the senior creditor. In re United Retail Corporation, 33 B.R. 150, 8 CBC 2d 600, 604, (D.Hawaii 1983).
The debtors through their then-counsel filed a plan of reorganization in this proceeding in November of 1982. However, when the plan came before the court on a hearing on the proposed disclosure statement on June 21, 1983, the debtors advised the court that they had discharged their counsel and had never authorized the plan that was filed notwithstanding their signing the same. At the conclusion of the June 21, 1983 hearing, Judge Betley continued the matter until July 19, 1983 to give the debtors an opportunity to obtain new counsel and to file an amended plan. The court noted at several points during the course of the June 21, 1983 hearing that the debtors had established a pattern of discharging their lawyers prior to scheduled hearings in the state courts — thus obtaining various continuances and delays during the 1977-1982 period — and that the Bankruptcy Court would tolerate no further such delays but nevertheless would give the debtors the opportunity to obtain new counsel and proceed with an amended plan.
At the hearing on July 19, 1983, the debtors had not obtained new counsel and had not filed an amended plan. Accordingly, the court entered an order on July 20, 1983 authorizing the appointment of a Chapter 11 trustee and including the following findings:
“At the July 19, 1983 hearing, the debtor appeared without counsel and *853launched into a long diatribe with the court concerning collusion between counsel for the secured creditors and various state courts which had heard prior cases concerning the debtor and the secured creditors over the past ten years.”
“This court informed the debtor that judgments entered by competent state courts were entitled to res judicata effect here. The court further informed the debtor on two occasions that if she continued to insult the integrity of the state courts it would find her in contempt.”
“The court is of the opinion that it is impossible to continue this ease in the posture of a Chapter 11 with Patricia Ahern in control. The court feels that a trustee could take control of this case and continue to pursue the plan of reorganization.”
The debtors appealed the order of July 20, 1983 but their appeal was subsequently dismissed, for failure to prosecute the same, by order of the District Court entered November 1, 1983.
The secured creditors continued to press their motions for relief from the automatic stay, and their motions to dismiss the Chapter 11 proceedings, after the dismissal of the appeal. The Chapter 11 trustee tried to formulate a new plan of reorganization agreeable to the debtors but concluded that the debtors would not consider any plan which would liquidate any of their assets to fund the same.
At the time of the April 2, 1984 hearing no amended plan had been filed and the debtors had not obtained new counsel. At the conclusion of the hearing, the court advised the debtors that in view of the substantial excess of assets over liabilities the court could not confirm any plan that was not “in the best interest of the creditors” in that context. Under Section 1129(a)(7) of the Code, a Chapter 11 plan cannot be confirmed over objection of creditors unless the creditors:
"... will receive or retain under the plan on account of such claim or interest property of a value, as of the effective date of the plan, that is not less than the amount that such holder would so receive or retain if the debtor were liquidated under Chapter 7 of this title on such date.”
See In re Featherworks Corp., 25 B.R. 634, 9 B.C.D. 1320 (E.D.N.Y.1982).
Since the plan before the court did not provide for any immediate cash distribution to creditors, but instead provided for their pay-out over a long extended period of time, it was obvious that their best interest would be better served by immediate liquidation and full payment upon their claims. Accordingly, the court advised the debtors that it would give them one final chance to amend their plan appropriately and scheduled a further hearing on any amended plan on February 3, 1984.
The revised plan filed by the debtors on April 28, 1984 does not make any significant changes in the defects noted by the court with regard to the prior plan. Basically, the revised plan provides for pay-out of the various classes of creditors over a period ranging from one to six years with interest rates ranging from eight to ten percent. The accompanying disclosure statement filed by the debtors lists administrative expense of $1,000.00; secured claims totaling $146,000.00; and unsecured claims of $40,000.00. The statement lists assets including land, timber, and buildings at $700,000.00; farm machinery and equipment of $25,000.00; vehicles of $3,000.00; and saw mill equipment of $9,000.00. Thus, total listed debt at the present time is given as $187,000.00 and total assets are stated at $737,000.00.
While it can be assumed that the market values of the real estate listed by the debtors would not be fully realized in liquidation sales, it does not appear that any reduction in realizable values would be sufficient to jeopardize a full pay-out of the creditors in the event of liquidation. Moreover, if the debtors can in fact establish that they realistically can operate and realize the net incomes projected in their plan, it would appear that they also should be able to obtain refinancing upon their otherwise unencumbered assets to fund an immediate pay-out plan for their creditors.
*854The debtors do not propose to infuse any new capital into the funding of the plan of reorganization or engage in any refinancing based upon their extensive assets. Instead, all payments are contemplated to be made out of projected farming and logging operations. The debtors conceded at the hearing that they had no real track-record in terms of logging to support the crucial projections on the proposed logging operation, but argue that their failure to mount an extensive logging operation during the course of these proceedings was caused by “interference” by various creditors and relatives. The court notes in this regard that this contention was made earlier in the proceedings and Judge Betley entered an order on August 10, 1982 clearly authorizing timbering operations by the debtor-in-possession.
Although the debtors were given an opportunity at the recent hearings to put forth evidence of specific instances of any such interference no credible evidence was received. The court therefore concludes that the allegations of “interference” with regard to the timbering or logging operation are simply one more tactic of delay and confusion adopted by the debtors in these proceedings. There is no substantial evidence before the court to support a finding that the projected logging operations could in fact be accomplished in a manner sufficient to produce the net income necessary to fund the plan of reorganization.
It appears from all of the foregoing that the revised plan of reorganization put forth by the debtors in this case could not be confirmed by the court pursuant to the standards set forth in Section 1129 of the Bankruptcy Code, and accordingly it would be a futile act to proceed further with the plan procedures contemplated under Chapter 11 of the Code. The record also establishes cause for dismissal under Section 1112 of the Code in terms of inability to effectuate a plan and unreasonable delay to creditors.
The court noted at the conclusion of the April 2, 1984 hearing that it would be tragic if the debtors did not avail themselves of the final opportunity being given them to come up with a realistic plan of reorganization involving some liquidation or refinancing of their extensive assets to pay off their debts in an orderly fashion. Unfortunately, they have instead chosen once again to try to relitigate long-settled issues in a new forum.
The debtors have insisted loudly and often in these proceedings that they demand “their rights” under the Bankruptcy Code. However, the record in this case establishes that they have been given all possible opportunities to adjust their debts and that any further continuance of this proceeding, further delaying creditors who have been already stalled in some instances up to ten years in obtaining payments on their debts, would amount to an abuse of the Chapter 11 process. Cf. Furness v. Lilienfield, 35 B.R, 1006 (D.Md.1983). Accordingly, an order will be entered dismissing this Chapter 11 proceeding and rendering moot all adversary matters in the case. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489865/ | MEMORANDUM OPINION
JOHN C. FORD, Bankruptcy Judge.
On June 13, 1984, the Court held a hearing on the Complaint of Compton Corporation and Gratex Corporation, by and through their duly appointed trustees, seeking preliminary injunctive relief against the United States Department of Energy. At the conclusion of the hearing, the Court entered its oral findings of fact and conclusions of law on the record and in open court granting the injunction. The purpose of this Memorandum Opinion is to supplement the Court’s oral findings and conclusions.
FINDINGS OF FACT
In May 1982, an involuntary petition under Chapter 7 of the Bankruptcy Code was filed against the Debtors. Thereafter, the Debtors converted to a Chapter 11 and attempted to carry on their business of oil purchasing and salt water hauling as usual. An interim trustee was appointed in August 1982 under Chapter 11 and liquidation of the assets of Debtor commenced. On or about January 7, 1983, the United States of America, Department of Energy (“DOE”) filed proofs of claim in this proceeding alleging overcharge liability to the DOE of $6,065,681.93. The Debtors filed an objection to the DOE claim on grounds that it should be subordinated to all other claims as a penalty. The DOE elected to initiate its own claim determination proceeding to collect these alleged overcharges by issuing a Proposed Remedial Order (“PRO”) on April 26, 1984. Notice of the Issuance of the PRO was published in the Federal Register on May 16, 1984. Paragraph VI(3) of the PRO requires that “Compton Gratex” deliver to the DOE a certified check in the amount of $8,851,300.93 plus interest for the alleged overcharges. If the Debtors fail to comply, they will be subject to daily fines and penalties and sanctions of $40,000 per violation or imprisonment. May 31, 1984 was the date set for filing Notices of Objection by the Debtors in order to avoid default judgment. This deadline was extended until June 15, 1984 by the DOE in order for this Court to conduct a hearing on the Debtor’s motion for preliminary injunction. A hearing was held on April 4, 1984 in which this Court ruled the DOE’s claim was a penalty and, therefore, subordinated to all other creditors’ claims in this case. A hearing was then held June 13, 1984 in which this Court ordered that the DOE be enjoined from pursuing its claim in the Office of Hearing, and Appeals and allowed the claim of $8,851,300.93, but subordinated it to all other creditors’ claims pursuant to the April 4, 1984 hearing.
CONCLUSIONS OF LAW
The Debtors object to the DOE claim and the administrative proceeding in the Office of Hearing and Appeals on the ground that they are in contravention to the automatic stay provisions of Section 362 of the Bankruptcy Code. Debtors argue that the DOE proceeding is in violation of the automatic stay provisions since that action was commenced after the filing of the bankruptcy petition and is not to enforce police or regulatory power. In response, the DOE *882argues that it is not subject to the automatic stay provisions since it is a governmental agency seeking to enforce a police regulatory power. DOE also contends that the Debtors are not entitled to injunctive relief because they neither allege nor establish the prerequisites for an injunction. Another DOE contention is that the Court cannot enjoin DOE under Section 105 of the Bankruptcy Code. DOE suggests that it would be contrary to the interests of all the parties to this case, as well as the public interest, for the Court to delay the liquidation claim for the alleged overcharges.
This Court will first consider the jurisdictional issue raised by the DOE concerning Section 105 of the Bankruptcy Code. The DOE argues that this provision does not provide a jurisdictional basis for this Court to issue injunctive relief against it. To the contrary, this Court may enjoin a proceeding by a governmental unit to enforce its regulatory powers pursuant to 11 U.S.C. § 105(a) according to the legislative history accompanying the enactment of that section and the legislative history accompanying 11 U.S.C. § 362(b)(4). Securities and Exchange Commission v. First Financial Group of Texas, 645 F.2d 429, 439-440 (5th Cir.1981). The bases for this Court’s injunctive powers are Section 105(a) and 28 U.S.C. § 1481. As a court of law and equity, this Court is vested with the power and authority to issue a wide range of injunctive relief. Ex parte Baldwin 291 U.S. 610, 54 S.Ct. 551, 78 L.Ed. 1020 (1934). This is particularly true, where in a case such as this, the DOE’s proceedings and liquidation of its claim will interfere with or threaten the assets of the estate. If the DOE’s claim of $8,851,300.93 were to be allowed and liquidated, it would substantially deplete the Debtors’ estate leaving almost nothing to thousands of creditors who have suffered an actual loss.
The DOE argues that its administrative proceedings are not subject to the automatic stay provision of the Bankruptcy Code, 11 U.S.C. § 362. It argues that since its proceedings are to enforce its police and regulatory powers that it is specifically exempted under Section 362(b)(4) of the Bankruptcy Code. This Court disagrees with the position argued by the DOE. It is this Court’s opinion that the continuation of the DOE proceedings under the circumstances of this case is contrary to the provisions of 11 U.S.C. § 362, since such proceedings were not commenced and are not continued to enforce police or regulatory power. Specifically, the pricing regulations alleged to have been violated by the Debtors were repealed long before the initiation of this case before this Court. Furthermore, Debtors are not being operated as a business and will not in the future operate as a business. Accordingly, the DOE is not regulating 4or policing any existing activity. The DOE, instead, seeks to recover fines and penalties related to alleged overcharges which occurred prior to the DOE commencing its proceedings.
The automatic stay provisions of Section 362 of the Bankruptcy Code is one of the most fundamental protective devices afforded to a Debtor. There is no doubt that its scope of protection is broad and designed to stay all proceedings, including administrative and judicial proceedings. Matter of R.S. Pinellas Motel Partnership, 2 B.R. 113 (Bankr.Fla.1979); In re Stack Steel & Supply Company, 28 B.R. 151 (Bankr.Wash.1983); Matter of Penn Terra, Ltd., 24 B.R. 427 (Bankr.Pa.1982); and In re Lee, 25 B.R. 135 (Bankr.Pa.1982). It was Congress’ intent as expressed in the legislative history of Section 362 to prohibit creditors, including governmental units, from taking any actions against the Debtor during the bankruptcy proceeding. Matter of Haffner, 25 B.R. 882 (Bankr.Ind.1982). The Debtors, “Compton-Gratex”, are entitled to have enjoined the administrative proceedings brought against them by the DOE. The Debtors and their creditors will be prejudiced if they are required to litigate the DOE matter before the Office of Hearing and Appeals which will hinder the continuation of their bankruptcy action. See In re Vantage Petroleum Corporation, 25 B.R. 471 (Bankr.N.Y.1982).
This Court does not seek to bury the DOE’s claim to ensure that it is not heard or liquidated in any forum. This claim was *883allowed in full in a hearing before this Court on June 13, 1984. The Court agrees that such a claim may exist, and if it does it must be subordinated to all other creditors’ claims. The DOE has an opportunity to collect its $8,851,300.93 claim after all the other true creditors of the Debtors have been paid their claims. The DOE’s right is, therefore, perfected and protected under the bankruptcy proceedings before this Court.
The DOE asserts that the Debtors have failed to allege and satisfy the prerequisites for a grant of injunctive relief under Rule 7065 of the Bankruptcy Code. Rule 65 of the Federal Rules of Civil Procedure which provides for injunctive relief is incorporated by Bankruptcy Rule 7065 and made applicable to adversary bankruptcy proceedings. Before injunctive relief can be granted, the Debtors must satisfy four requirements. Compton-Gratex must meet their burden of proof with respect to the following four elements:
(1) that the Debtors have a substantial likelihood of success on the merits;
(2) that a substantial threat exists that the Debtors will suffer an irrepr \.ble injury if the injunction is not granted;
(3) that the threatened injury to the Debtors outweighs the threatened harm that the injunction will cause the DOE; and
(4) that the granting of the injunction will not disserve the public interest.
These elements are followed in this district as required by the Fifth Circuit Court of Appeals, Commonwealth Life Insurance Co. v. Neal, 669 F.2d 300, 303. See In re International Crude Corporation v. United States Department of Energy, Case No. 182-00085, Adversary No. 184-1015, (Bankr.Abilene May 25, 1984) (unpublished opinion). The DOE contends that the Debtors, Compton-Gratex, have failed to satisfy any of the four elements. To the contrary, the Debtors have met their burden of proof. The case before this Court is similar to the In re International Crude Corporation, ease, supra, in which Judge Michael A. McConnell ruled that the debtors in that case had met the requirements for injunctive relief. This Court adopts Judge McConnell’s finding that as to the first element of proof, the probability of success on the merits, does not readily apply to the Compton-Gratex case. The first element of proof does not readily apply since the merits of the dispute herein involve jurisdictional issues and the authority of this Court to resolve issues relative to the allowability of claims against the bankruptcy estate of Compton-Gratex. The Debtors have already prevailed on the merits of the jurisdictional issues through the denial of the DOE’s Motion to Lift Stay. As discussed above, this Court has the jurisdiction to resolve an objection to claim and has the authority pursuant to Section 105 of the Bankruptcy Code to issue any order necessary to carry out that authority. The Court finds that Compton-Gratex has carried its burden of proof of establishing a reasonable probability of prevailing on the merits.
The facts and circumstances of this case clearly establish that a substantial threat exists that Compton-Gratex will suffer an irreparable injury if the injunction is not granted. The bankruptcy estate consists mostly of liquidated assets. Several thousand creditors claim approximately $10,-000,000 in this estate. These creditors will receive fifty percent of their investment if the DOE claim is not liquidated. However, if the DOE claim is liquidated, these real, living, suffering claimants will receive twenty-five percent or less on their returns. All funds marked for distribution will be withheld by the disbursing agent for several months or years before the DOE proceeding is concluded. The bankruptcy estate will remain in limbo until DOE holds its proceedings and then undertakes to identify all those individuals who have been allegedly overcharged by the Debtors. Then more proceedings will be required to determine whether these identified individuals, if any, were actually overcharged or whether the DOE gets to retain the full or part of the $8,000,000 in alleged overcharges. Additional proceedings and appeals will continue to keep the Debtors’ estate and their creditors in an uncertain position for a lengthy period of time. Moreover, *884these procedural delays may cause irreparable harm to the creditors of the bankruptcy estate of Compton-Gratex by delaying payments on their claims. In addition, the procedures of the Office of Hearing and Appeals does not insure that the claimants against Compton-Gratex will be entitled to intervene in the action before the DOE administrative tribunal. Without the right of intervention, the claimants of Compton-Gratex could be substantially harmed. It is this Court’s opinion that these claimants’ and the Debtors’ interests, and rights are best protected in the bankruptcy court and not in the Office of Hearing and Appeals.
The Court further finds that the threatened injury to Compton-Gratex outweighs any threatened harm to the DOE if the injunction is issued. This Court has jurisdiction to make a determination on the DOE allegation and it is the best forum to protect all the parties’ interests and rights.
The DOE argues that an injunction will disserve the public interest and welfare. In its briefs, the DOE suggests that a great number of unidentified individuals who were allegedly overcharged for oil will be harmed if an injunction is issued by this Court. Such action taken by the Court will circumvent DOE’s ability to protect the public from the Debtors. Compton-Gratex is defunct. The DOE seeks to protect the general public from a corporation that is on its last leg, surviving only to pay off the real and true claimants of the estate. This Court cannot see any way the public is harmed by granting injunctive relief. This Court, on the contrary, furthers DOE’s public policy by resolving the DOE claim more expeditiously than through the Office of Hearing and Appeals.
The Court finds that the recent Fifth Circuit case of Gary Aircraft Cory. v. United States, 698 F.2d 775 (5th Cir.1983) cited and relied on by the DOE is distinguishable to the case at bar. The Gary Aircraft case involved exclusive jurisdiction of the Court of Claims and proceedings initiated by the Debtor against the Armed Services Board of Contract Appeals prior to filing bankruptcy. Moreover, the only asset of the bankrupt’s estate in the Gary Aircraft case consisted of a $3,000,000 contractual claim against the United States government. In this case, the Office of Hearing and Appeals does not have exclusive jurisdiction. The sole purpose of the Office of Hearing and Appeals proceedings is to determine or liquidate the amount of the DOE’s claim against the Debtors. The Court has ruled that the DOE claim is allowed and that it will be liquidated after the true creditors of Compton-Gratex have been paid their returns.
The injunctive relief requested by the Debtors, Compton-Gratex, is hereby granted and the DOE claim is allowed, but subordinated to all other claims against the estate. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489866/ | DECISION
CHARLES A. ANDERSON, Bankruptcy Judge.
Jane Ellen Olah filed a voluntary petition for relief under Chapter 13 of the Bankruptcy Code on September 30, 1982. She scheduled five secured creditors with debts totalling $324,648.02, and a disputed unsecured claim.
Prior to filing in Chapter 13 the Debtor was a defendant in a foreclosure action in the Common Pleas Court of Logan County, Ohio, instituted on 15 June 1982 by Robert W. Fisher and Florence L. Fisher. A judgment had been taken in this action on 19 August 1982 and an order of sale was issued to the Sheriff. A public sale was conducted on 1 October 1982. On 2 December 1982 the Fishers filed a complaint in this Bankruptcy Court seeking relief from the automatic stay, alleging the property had been sold by the Sheriff.
On 30 June 1983 this court entered a Decision and Order holding that the fact that a foreclosure sale of debtor’s property was conducted one day after the bankruptcy petition filing did not ipso facto prevent termination by the automatic stay of debt- or’s equity of redemption in such property, but precluded any action to defeat the rights of a bona fide purchaser for value where the sale was conducted without actual knowledge of the bankruptcy petition. Whether or not such a bona fide purchaser in fact existed was relegated to state court determination. See, Matter of Olah, 31 B.R. 396 (Bankr.S.D.Ohio 1983).
The proposed Plan provides for payment of 100 per cent to unsecured claims, however, “subsequent to secured and priority claims.” The following creditors are to be paid “outside of the Plan, as follows: “Springfield Federal Savings & Loan by husband — Bellefontaine Federal Savings & Loan by Land Contract receipts — Miami Valley Bank to be paid from interest on Certificate of Deposit income.”
The Plan also proposes, in a separate class, “Robert W. Fisher to be paid upon the sale of real estate outside the Plan.” The proposed Plan further provides, as follows: “From the payments received, the Trustee shall make disbursement in the following order:
“(a) All secured claims, including amounts necessary to cure Debtors default on real estate mortgages as indicated in Paragraph 4 above, on a pro-rata basis. Secured claims, except for payment of arrearages on real estate mortgages and tax liens, shall be paid dividends based on the value of collateral set forth in Schedule 11(a), plus interest at the rate of 6% per annum on the unpaid balance or the contract rate reduced to simple interest (rounded to the nearest whole number), whichever is lower, until the secured claim is paid in full. Secured creditors shall retain their liens until completion by the Debtor of payment with interest as provided herein on the creditor’s secured claims at which time the security interests (liens) shall be discharged. Any amount of said claims over and above the value of the collateral shall be treated as an unsecured claim.”
The Debtor describes herself as a “Real Estate Investor and Homemaker” with no income other than interest income on a $15000.00 certificate of deposit at $2400.00 per annum and monthly receipts of $619.04 from two land contracts. Her husband pays all “living and housing expenses.”
The Farmers Banking Company, Lake-view, Ohio filed on 26 Oetot r 1982 a motion for transfer of the case to the Eastern *902Division; and, Robert W. Fisher, Florence L. Fisher and Springfield Federal Savings and Loan Association filed a joint motion to dismiss or transfer the case to the Eastern Division on 22 November 1982, both of which motions were denied on 2 December 1982.
On 29 December 1983 the Debtor objected to the claim of Robert W. Fisher and Florence L. Fisher “for the reason that said amount does not take into consideration certain set offs and/or adjustments and erroneous interest calculations.” On 26 March 1984 a “memoranda Contra Debtor’s Objection to claim of Robert W. Fisher/Florence L. Fisher” was filed to the effect that their claim is based upon a judgment rendered on 24 March 1982 by the Common Pleas Court of Logan County, Ohio, and a certificate of judgment filed the same date for $43,463.85 with interest at the rate of 15 per centum per annum from February 8, 1982. It is urged that this judgment is res judicata and that the alleged “set offs” are against another entity, Associated Real Estate Technicians, a separate debtor corporation in this court.
Hearing dates assigned by the court on these matters for 27 March 1984 and 17 April 1984 were continued upon request of the attorneys for the parties because of settlement discussions.
In the meantime the Fishers on 11 April 1984 again filed a motion for relief from the automatic stay to proceed with the state court foreclosure action, previously denied. The Debtor responded by refiling an objection to their claims, as previously filed on 29 December 1983. This offset, however, is based upon an account receivable from Associated Real Estate Technicians, Inc. in the alleged amount of $7847.66, to which debtor claims a derivative right as sole owner of the corporate entity.
OPINION
After over one and one half years litigation between the Debtor and the Fishers under the cloak and guise of a Chapter 13 case, this court is now constrained to require these parties to get down to basics. The parties have agreed that all other secured creditors are being paid currently “outside the plan,” and have not been prejudiced by the inordinate delay. Obviously, nevertheless, the state court foreclosure suit and the allowance and liquidation of the Fisher judgment has been stymied by procedural niceties.
This court, therefore, confronts the issues on the ratio decidendi in our prior decisions, particularly Matter of Berry, 5 B.R. 515, 6 B.C.D. 649, 2 C.B.C.2d 663 (S.D.Ohio 1980); Citicorp Person-To-Person Financial Center v. Jordan, 32 B.R. 867 (S.D.Ohio 1983); and Matter of The Concord Storage and Warehouse Company, Inc., et al. 40 B.R. 831 (Bkrtcy.S.D. Ohio 1984).
In Berry, supra, this court held that in all Chapter 13 cases wherein property or funds are being diverted to special creditors “outside the plan”, a court should for the protection of all interested parties and superintendency of the estate retain complete jurisdiction over the entire estate, including future earnings and anticipated income, which must be under the Trustees exclusive control because the primary thrust and responsibility in exercising jurisdiction will be to protect all creditors affected by the plan as confirmed.
In Citicorp, supra, this court accordingly held that the use of the words “outside” the Plan is a misnomer. Regardless of who distributes the estate funds, payments contemplated by a proposed plan are “inside” the Plan as confirmed.
In Concord Storage et al., supra, this court opined at pages 13-14 as follows: “The bankruptcy courts cannot feasibly function as merely a sanctum sanctorum while the fundamental conflict resolution and conflict management impacting the reorganization process is subject to the jurisdiction of extraneous forums. Already the disposition of issues in this case not justiciable in the bankruptcy court have been forestalled for over two years, and no end is in sight.”
Adverting to the facts instanter it is noted that the amount of the judgment lien *903claim of the Fishers has been determined by the state court and is now res judicata in the bankruptcy court. The alleged “set off” asserted by the Debtor is a separate cause of action ex contractu arising under Ohio law and must be litigated in the state courts. The amount of the claim payable by the Chapter 13 Trustee cannot be determined or estimated, therefore, until this state law question has been resolved. Likewise, the state court has exclusive jurisdiction over the real estate foreclosure action.
Hence, relief from the automatic stay of the foreclosure action must be granted to the Fishers as in the best interest of all creditors unless the Debtor forthwith (1) amends the proposed plan to afford exclusive control over all estate funds and all payments to all creditors (“inside the plan”) and (2) institutes forthwith an action in the state courts to litigate the contract action against the Fishers and files a copy of the pleadings in the instant case; and, (3) continues to maintain current payments to the other secured creditors by ad interim deposits with the Chapter 13 Trustee pending confirmation of a plan herein. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489868/ | MEMORANDUM AND ORDER
BILL H. BRISTER, Bankruptcy Judge.
Tri-Continental Leasing Corporation (“Tri-Continental”) filed motion for relief from stay to permit it to foreclose its claimed liens against an office building in Amarillo, Texas, and against personal property in the form of mining equipment located in another state. The First State Bank of Talihina, Oklahoma (“Bank”), a judgment creditor of the debtors, intervened and seeks an order directing Tri-Continental to first attempt to liquidate its indebtedness by foreclosing its lien against the personal property before proceeding to fore*28close its lien against the office building, the only known property against which the bank’s judgment lien1 attaches. Debtors challenge the amount claimed by Tri-Conti-nental to be owing on its note. The following summary constitutes findings of fact and conclusions of law after nonjury trial.
Most of the salient facts are uncontro-verted. The record is clear that on February 4, 1982, Boyce M. Box, individually and as president of Amarillo Mining, Inc., executed a promissory note to the order of Tri-Continental Leasing Corporation in the face amount of $421,012.80, payable in sixty equal and successive monthly installments of $7,016.88 each, commencing on or before February 15, 1982. Boyce M. Box and wife, L. Louise Box, executed a deed of trust for the benefit of Tri-Continental, reflecting that the conveyance was made in trust to secure payment of “one certain promissory note of even date herewith in the principal sum of $250,000.00, executed by Amarillo Mining, Inc. and guaranteed by grantors, payable to the order of TriContinental Leasing Corporation.” Also, debtors executed a security agreement against a model 125C Crawler Mounted Dry Bank Placer Plant which Box warranted would be kept at “Highway 9, three miles south of Fair Play (Park County), Colorado, on Red Hill Ranch.” Both the deed of trust and the security agreement were dated February 4, 1982, the same date upon which the $421,012.80 note was executed. However, the deed of trust did not refer to the $421,012.80 note, but described only a $250,000.00 note. A “payment authorization” executed at the same time referred to the loan as being one for $250,000.00. The indebtedness contemplated by the security agreement which was executed contemporaneously with the deed of trust, note, and payment authorization appears to be “all monies due and to become due under a secured promissory note executed by Amarillo Mining, Inc. and Boyce M. Box and dated 2-4-82.”
Although there is some discrepancy between the note described in the deed of trust and the note which actually was executed by Amarillo Mining, Inc. and by Boyce M. Box it is clear that a loan of $250,000.00 was intended by the parties. The $421,012.80 note included “add-on” interest at a rate which is not reflected by any of the relevant documents. However, while a principal loan of $250,000.00 was contemplated by the parties, Amarillo Mining, Inc. and Box did not receive all of those monies. The “payment authorization” executed by Amarillo Mining, Inc. and by Box authorized Tri-Continental, when disbursing the proceeds of the $250,-000.00 loan, to withhold $7,016.88 as the first monthly payment due under the loan. The balance of the loan proceeds were directed to Amarillo Land & Title, Inc. of Amarillo, Texas as escrow agent with instructions to “use such of the funds as are necessary to pay all liens and encumbrances against the office building” described on the deed of trust. The net loan proceeds in the sum of $242,983.12 were received and distributed by Amarillo Land & Title Company on February 12, 1982.
The parties have agreed that the value of the office building against which Tri-Conti* nental and the bank each claim liens is $188,300.00. The only evidence in the record as to the value of the mining equipment is the testimony of Box that its value is $300,000.00. The apparent issues in this case are concerned with the amount owed by the debtor to Tri-Continental and whether Tri-Continental may be required by the bank to proceed first against the mining equipment before relying upon its lien against the office building.
Tri-Continental posits that the balance owed to it, with interest to date of trial, is $198,336.36. It contends that not only is there no equity in the office building but that the debtors have not included the office building in their plan of reorganization. The debtors contend that the plan is one *29for partial liquidation and that all of their debts, including any monies owed to TriContinental and to the bank, will be paid from the proceeds of partial liquidation. They argue that under those circumstances it is not necessary to show in the plan of reorganization the precise purpose to be served by the office building. Further, they acknowledge an indebtedness to the bank in the amount of $36,251.87. However, they contend that after all payments and credits have been applied the balance owed by them to Tri-Continental on the date the bankruptcy petition was filed was only $131,631.75. Thus they contend that the stipulated value of the office building exceeds the aggregate debt of Tri-Conti-nental and the bank by more than $20,-000.00.
There is no dispute between the parties as to the payments and credits on the debt to Tri-Continental. In addition to the sum of $7,016.88 which was withheld and applied on February 12, 1982, there were payments of $7,016.88 on April 20, 1982, $21,050.64 on June 28, 1982, $14,033.76 on August 30,1982, and $14,033.76 on October 26, 1982. On December 14, 1982, the note was accelerated by Tri-Continental and on December 22, 1982, Tri-Continental applied to the note the sum of $70,000.00 which it had collected from a letter of credit issued by Taseosa National Bank. Thus the parties agreed that nine payments of $7,016.88 each have been made (although not timely made as required by the note), together with an additional credit of $70,000.00 from a letter of credit. Their only disagreement is to the application of those payments to principal and interest.
Tri-Continental claims that the Rule of 78ths should be applied to determine the application of all payments and credits. That rule is primarily used with precomputed consumer credit transactions which are “arrangements whereby the finance charge is added to the principal amount financed, resulting in a sum which represents the total amount of the debt. This amount is then divided into periodic installments, without allocation between principal and interest.” Perna, “Computing Interest Rebates Under the Rule of 78ths: A Formula For Usury Upon Default in Maximum Interest Precomputed Credit Transactions”, 10 St. Mary’s LJ 94 (1978). The “Rule of 78ths” is a mathematical formula for refunding unearned interest when an installment note is paid before maturity. General Motors Acceptance Corporation v. Uresti, 553 S.W.2d 660 (Tex.Civ.App.—Tyler 1977, writ ref’d, n.r.e.). It is also used when the acceleration clause has been triggered. Ford Motor Credit Company v. Long, 608 S.W.2d 293 (Tex.Civ.App.—Beaumont 1980, writ ref'd n.r.e.).
While the Rule of 78ths enjoys widespread use in Texas lending transactions I cannot conclude that it should be applicable to the instant situation. As mentioned above, neither the note nor any of the other security documents contained any disclosure whatsoever as to the interest rate for the $250,000.00 loan. Debtors contend that they were unsuccessful in their continuous efforts to obtain an interest rate disclosure. The instant case, therefore, is one where a promissory note provides for interest but has no specified interest rate and is not concerned with the refunding of interest. Texas law, in V.T.C. A.Bus. & C. § 3.118, is designed to meet that situation. It provides in subparagraph four that “unless otherwise specified a provision for interest means interest at the judgment rate at the place of payment from the date of the instrument, or if it is undated from the date of issue.” V.A.C.S. art. 5069-1.05, which was applicable2 on February 4, 1982, when the note was executed, provides that “all judgments of the courts of this state shall bear interest at the rate of 9% per annum...”
Therefore, the rate of interest which should be applied to the promissory note should be 9% per annum from February 4, 1982, the date of the note, to December 14, 1982, the date of acceleration. As mentioned above debtors did not receive the *30entire $250,000.00 and the sum of $7,016.88 was withheld and applied on February 12, 1982, eight days after the note was executed. Tri-Continental argues that, under the Rule of 78ths, a partial month is treated as a full month and that the entire sum of $7,016.88 was thus earned at the time it was withheld. However, I iterate that this case is not concerned with the refunding of unearned interest and application of the Rule of 78ths is suspect. Although that first sum of $7,016.88 was withheld by Tri-Continental and never received by the debtors the provisions of Bus. & C. § 3.118(4), providing for interest at the judgment rate, contemplates that interest will accrue from the date of the instrument and not from the date of actual receipt of the monies. Therefore, simple interest should be computed on the full $250,000.00 at the rate of 9% from February 4, 1982 to February 12, 1982, at that same rate of 9% on $242,983.12 from February 12, 1982 to the date of the next payment on April 20, 1982, and continuing in the same manner for each period between payments until the note was finally accelerated on December 14, 1982.
After the note is accelerated the issue is whether to apply the 9% interest rate or a higher interest rate. The note provides that “in the event of default in the payment of any sums when due or breach of the terms of the security agreement, all subsequent payments shall, at lender’s option, become immediately due and payable together with interest at the highest legal rate until paid. Where the interest rate is not set, V.A.C.S. art. 5069-1.04, in paragraphs (a) and (d) sets forth the legal rate applicable. Those provisions essentially provide that the parties to any written contract may agree to and stipulate for any rate of interest that does not exceed (1) an indicated rate ceiling that is the average rate quoted on a bank discount basis for 26 week Treasury Bills issued by the United States Government, as published by the Federal Reserve Board, for the week preceding the week in which the rate is contracted for or, as an alternative, (2) an annualized or quarterly ceiling that is the average of the computations first mentioned above. The Consumer Credit Commissioner shall compute on the computation dates of December 1, March 1, June 1, and September 1 of each year, the quarterly and annualized ceilings for the next succeeding calendar quarter beginning January 1, April 1, July 1, and October 1, respectively.
The standard quarterly rate ceiling, as computed by the Consumer Credit Commissioner, remained at 18% from the date of acceleration on December 14, 1982, until the beginning of the quarter starting October 1, 1983. The standard quarterly rate ceiling for the last quarter of 1983 was 18.52%. The rate reverted to 18% for the quarter beginning January 1, 1984.
With the guidelines set out above the parties are directed to confer and calculate the balance owed by Amarillo Mining, Inc. and by the debtors to Tri-Continental Leasing Company on February 22, 1984, the date scheduled for hearing on confirmation of debtors’ plan. If debtors’ plan is confirmed I understand that debtors’ intend to pay all creditors, including both Tri-Conti-nental and the bank, from proceeds of partial liquidation of the estate. In that event it will not be necessary to reach the issue as to which properties Tri-Continental should first liquidate. If the plan is not confirmed, or if other resolution appears to be appropriate, I will supplement this memorandum with additional findings and conclusions.
It is, therefore, ORDERED by the Court that counsel for the parties confer and make the mathematical calculations mentioned above.
All relief not herein granted is presently denied without prejudice.
. Under Texas law an abstract of judgment, when filed of record in the Office of the County Clerk, effects a judgment lien against only nonexempt real estate owned by the judgment debt- or in that county of record.
. Effective September 1, 1983, the interest rate on judgments in Texas was increased to 10%. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489869/ | OPINION
DAVID W. HOUSTON, III, Bankruptcy Judge.
CAME ON to be heard and was heard the amended complaint to determine dis-chargeability of a debt and other relief filed by the Plaintiff, Fairlene B. Lindsey, individually, and Fairlene B. Lindsey, as Executrix of the Estate of A.D. Ellis; amended answer filed by the Defendants, Elizabeth A. Jackson; Jaco, Inc.; and United Southern Bank, a Mississippi corporation; all parties being represented by their respective attorneys of record; on proof in Open Court; and the Court having heard and considered same, finds as follows, to-wit:
I.
That this Court has jurisdiction of the subject matter and the parties to this cause of action.
II.
The Plaintiff, Fairlene B. Lindsey, who was seriously injured in an automobile accident in September, 1977, is the mother of James C. Jackson, referred to herein as Jack Jackson, the former husband of the Defendant, Elizabeth A. Jackson. While convalescing from her injuries, the Plaintiff executed and delivered a power of attorney to her son dated June 15, 1978. Utilizing this poyer of attorney Jack Jackson assisted in the settlement of the personal injury claims on behalf of his mother, realizing the net sum of $49,000.00. The proceeds were designated as $40,286.19 to Mrs. Lindsey individually and $9,348.70 to Mrs. Lindsey as Executrix of the Estate of A.D. Ellis. Without contradiction, Jack Jackson invested and transferred these settlement funds, along with the balance of funds in Mrs. Lindsey’s Tuscaloosa V.A. Federal Credit Union account in the sum of $4,646.99, through the First Alabama Bank to Oxford Bank and Trust, Oxford, Mississippi, ultimately resulting in the issuance of six (6) certificates of deposit, totaling $50,000.00. Each of these certificates of deposit was initially issued in the names of Fairlene B. Lindsey or Betty Jackson, but the name of Mrs. Lindsey was subsequently stricken by bank officials on the instruction of Jack Jackson. The six (6) certificates of deposit were either pledged as collateral for several loans made to the Defendant, or were negotiated as described on Plaintiff’s Exhibit 24, the summary prepared by H.C. Wiley, Jr., Vice President and Cashier, Oxford Bank and Trust, as follows:
10-17-78 Loan # 19, made to Betty Jackson, in the amount of $10,000.00, secured by CD No. 1021. Proceeds de*40posited to checking account No. 300-694-8 (Betty Jackson).
1-2-79 Loan # 27, made to Betty Jackson, in the amount of $10,000.00, secured by CD No. 1023. Proceeds deposited to checking account No. 300-694-8 (Betty Jackson).
1-16-79 Loan # 35, made to Betty Jackson, in the amount of $5,000.00, secured by CD No. 1022. Proceeds deposited to checking account No. 300-694-8 (Betty Jackson).
3-23-79 Loan #43, made to Betty Jackson, in the amount of $10,000.00, secured by CD No. 1024. Proceeds deposited as follows: $9,000.00 to checking account No. 600-624-8 (Jaco, Inc.); $1,000.00 to checking account No. 301-301-4 (Betty Jackson).
4-23-79 Loan # 51, made to Betty Jackson, in the amount of $5,000.00, secured by CD No. 1026. Proceeds deposited to checking account No. 301-301-4 (Jack Jackson).
Total principal amount of loans secured by certificates of deposit $40,-000.00.
5-7-79 Certificates of Deposit Nos. 1021, 1022, 1023, 1024, and 1026 (total $40,-000.00) were cashed with proceeds used to liquidate loan Nos. 19, 27, 35, 43, and 51 (total $40,000.00) Interest on CDs amounted to $1,540.21 with forfeiture of $87.16 for early withdrawal (net $1,452.05) Interest on loans totaled $1,192.91.
5-17-79 Certificate of Deposit No. 1025 in the amount of $10,000.00 was cashed in with proceeds distributed as follows: Deposit to checking account No. 300-694-8 (Betty Jackson) - $900.00; cash - $8,734.05 (Total $9,634.05).
III.
According to the testimony of Jack Jackson, H.C. Wiley, Jr., and Elizabeth Jackson, Jack Jackson directed and orchestrated the sequence of financial transactions with Oxford Bank and Trust, as well as, the manner in which the funds were moved from the Alabama accounts to Oxford Bank and Trust. There was no proof in contradiction to the fact that Jack Jackson confiscated his mother’s funds, overreaching under the authority of the power of attorney, and converted the funds primarily to his own benefit. The Defendant, Elizabeth Jackson, contributed, however unwittingly, to this scenario by her careless execution of the several loan documents and the endorsement of the six (6) certificates of deposit. Although there was testimony to the effect that the Defendant received certain benefits from these funds, such benefits were insignificant in comparison to the amounts squandered directly by Jack Jackson.
IV.
The Court notes that the Plaintiff filed suit and obtained a default judgment against her son in the United States District Court for the Northern District of Mississippi in the sum of $54,281.88, plus interest and costs, representing the amount wrongfully taken from her. The Court has read the transcript of the testimony taken in that proceeding, as introduced into evidence, and finds that said testimony is consistent with the testimony in this proceeding, i.e., Jack Jackson stated unequivocally that he was the one responsible for taking and spending his mother’s monies, and that his former wife, the Defendant herein, had no part in the decisions on transferring or expending the funds.
V.
The burden of proof in this case on the issue of whether the Defendant has violated the provisions of 11 U.S.C., Section 523(a)(2)(A), is by clear and convincing evidence and rests upon the Plaintiff. Although as mentioned hereinabove, there is an element of proof concerning the Defendant’s involvement in assisting her former husband in obtaining his mother’s monies, the overwhelming proof reflects that the Defendant’s actions were at best that of the pawn and her direct benefits negligible. The Plaintiff, therefore, has failed to sustain her burden of proof in this proceeding, *41and as such, the debt if such could be considered owed to the Plaintiff by the Defendant, would be one that is discharge-able in bankruptcy.
VI.
The second part of this ease deals with the issue of whether or not Jack Jackson fraudulently conveyed his undivided one-half interest in the homestead property, formerly owned jointly by he and his wife, to the Defendant as a part of their divorce proceeding. This Court considers this point solely because the Plaintiff seeks to effect execution against an asset, claimed as exempt, of the Defendant-Debtor’s estate. To better understand this issue, a brief factual chronology should be recited. Jack Jackson and the Defendant jointly acquired the subject property on or about February 25, 1974. At this time, there was a deed of trust encumbering the property, securing an indebtedness incurred by former owners. This indebtedness, assumed by the Jacksons, is in favor of North Mississippi Savings and Loan Association and currently has a balance of approximately $18,000.00. On February 26, 1974, Mr. and Mrs. Jackson executed a promissory note and second deed of trust, encumbering the real property, in favor of Bank of Oxford; the said deed of trust contained a future advances clause applicable to either debtor. On December 10, 1979, as a part of their on-going divorce proceeding, Mr. and Mrs. Jackson executed a property settlement agreement which provided that Mr. Jackson would convey his entire title and interest to the subject real property to the Defendant herein. As such, on the same date, a quitclaim deed was executed by Mr. Jackson to his wife which is recorded in Deed Book 344 at page 476 of the official land records of Lafayette County, Mississippi. The final decree of divorce was entered on February 14, 1980. Introduced into evidence was a homestead declaration, executed by Mr. Jackson, under date of June 15, 1979, applicable to the real property that he subsequently conveyed to his wife.
Following the divorce, Mrs. Jackson, on November 7, 1980, executed a promissory note and deed of trust, encumbering the subject real property, in favor of United Southern Bank, successor corporation to the Bank of Oxford. This deed of trust was recorded in Book 471 at page 31 of the land records of Lafayette County, Mississippi, and the related indebtedness, according to the testimony of Mrs. Jackson, has a current balance of approximately $3,000.00. The judgment obtained by the Plaintiff herein against her son in the United States District Court, discussed hereinabove, was entered on July 1, 1980. Although the resolution of lien priorities is not a critical factor in this case, all as discussed herein-below, this Court is of the opinion that any lien created by the judgment obtained by the Plaintiff in the United States District Court is inferior to the two liens existing in favor of North Mississippi Savings and Loan Association and United Southern Bank, not only because of the chronology of filing dates, but because of the future advances clause contained in the Bank of Oxford deed of trust. See Whiteway Finance Company, Inc. v. Green, 434 So.2d 1351 (Miss.1983) and Newton County Bank, Louin Branch Office v. Jones, 299 So.2d 215 (Miss.1974).
VII.
In regard to whether the conveyance from Jack Jackson to the Defendant was fraudulent, the Court notes the following:
a. The conveyance was made as a part of a property settlement agreement entered into in an on-going divorce proceeding. It is a common occurrence for the husband, who is vacating the residence, to convey his interest in same for no actual cash consideration, but more often in lieu of the payment of alimony or maintenance to the wife.
b. The Court notes that the Defendant herein has continued to pay the indebtedness existing in favor of North Mississippi Savings and Loan Association, as well as, by the execution of the subsequent promis*42sory note and deed of trust in favor of United Southern Bank, has, in effect, continued the payment of the indebtedness originally executed by both spouses in favor of the Bank of Oxford. See Whitehead v. Commercial Credit Plan Consumer Discount Company, d/b/a Commercial Credit Plan, unpublished opinion written by Judge Dan M. Russell, Jr., dated September 28, 1982, United States District Court, Southern District of Mississippi.
c. Even though the property at the time of the conveyance was claimed as the homestead of Jack Jackson, the property also was and still is the homestead of the Defendant, Elizabeth A. Jackson, entitled to the $30,000.00 statutory exemption. It is illogical to presume that the conveyance by Mr. Jackson to his wife as a result of the divorce eradicated her homestead exemption privilege. If the contrary were true, every conveyance between husband and wife, resulting as the product of a divorce settlement, would annul the homestead exemption rights of the party receiving title to the real property. See Section 85-3-21, Mississippi Code of 1972, as amended; also Grass v. Great American Bank, 414 So.2d 561, (Fla.App.1982); Edmonson v. Meacham, 50 Miss. 34 (1874); Blackmon v. Blackmon, 350 So.2d 44 (Miss.1977).
d. From the evidence presented at the trial of this case, this Court is not convinced that Mr. Jackson was rendered insolvent by the conveyance of his undivided one-half interest in the homestead property to his wife. To the contrary, the testimony was undisputed that Mr. Jackson was at that time and still is being paid disability or retirement benefits from his former employer, the United States Postal Service, as well as, the Veteran’s Administration.
e. At the time of the conveyance from Mr. Jackson to the Defendant, the judgment which was subsequently entered in the United States District Court was nonexistent as a lien against any properties owned by Mr. Jackson. The only judicial lien in effect was a judgment in favor of The Anchorage Company, (See The Anchorage Company v. Elizabeth A. Jackson, Adversary Proceeding No. 82-3186, U.S. Bankruptcy Court, Northern District of Mississippi), and this judgment has now been rendered unenforceable due to the passage of the statute of limitations.
That because of the circumstances listed hereinabove, this Court is of the opinion that the conveyance of the undivided one-half interest in the homestead property from Mr. Jackson to the Defendant was not a fraudulent conveyance, and said conveyance will not be set aside by this Court.
VII.
Because of the totality of the factual circumstances in this case, as seen by a full trial on the merits, the Court feels that to award attorney’s fees against the Plaintiff would be clearly inequitable, and therefore the Court declines to do so.
An Order will be entered consistent with this Opinion. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489871/ | OPINION AND ORDER
WALTER J. KRASNIEWSKI, Bankruptcy Judge.
This matter came on for trial upon the Trustee’s Complaint for Turnover of two insurance policies with the Metropolitan Life Insurance Company in the name of James Phillips, Jr. The Court finding the Trustee holds such policies subject to a resulting trust in favor of Shirley Ann Coulter, the Trustee’s complaint is dismissed with prejudice.
FACTUAL BACKGROUND
The Debtors, James Phillips, Jr. and Bobbie Jo Phillips, filed a voluntary petition under Chapter 7 of the Bankruptcy Code in December of 1981. John J. Hunter was then appointed and has continued to be the duly qualified and acting trustee of this estate.
Bobbie Jo Phillips is the cousin of Defendant, Shirley Ann Coulter. In December of 1978 Shirley Ann Coulter’s brother, Joe Coulter, died survived by his two minor daughters, Monica Lynn and Tracey Marie Coulter, ages 12 and 10 respectively at the time of their father’s death, and his former spouse from whom he was divorced. Upon Joe Coulter’s death, Shirley Ann Coulter became the guardian of his two minor children.
Shirley Ann Coulter was the sole beneficiary of an insurance policy on the life of Joe Coulter. At his death, she became the sole owner of the proceeds of the policy in the amount of approximately $160,000. Shirley elected to receive payment of the insurance money in one lump sum of $25,-000 plus installments of approximately $3,000 four times a year for a period of 15 years.
James Phillips, Jr. and Shirley Ann Coulter set up a joint combination checking and savings account at The Huntington National Bank. All of the monies deposited into the account had their origin in the insurance money received by Shirley Ann Coulter upon her brother’s death.
Certain checks were drawn on the account with The Huntington Bank. Several of the checks were designated as “loans” to James Phillips, Jr. which totalled approximately $10,000. Another check was made payable to Shirley Ann Coulter and also *145designated as a loan. Finally, other monies were drawn from the account for the purchase of certain “endowment” life insurance policies on the lives of Monica Lynn and Tracey Marie Coulter with the Metropolitan Life Insurance Company.
Although absolute owner of the insurance money on Joe Coulter’s life, Shirley Ann Coulter testified that she intended to set up a “trust” from the money for the benefit of her brother’s children. Being uncertain as to how this could be accomplished and how the money could best be invested, she enlisted the help of James Phillips, Jr. who had college training in the field of accounting and was experienced in the areas of accounting and insurance sales.
In order to facilitate the creation of a trust for the girls, James Phillips, Jr.’s name was placed on the joint account at The Huntington Bank. The policy provisions of the endowment insurance policies with the Metropolitan Life Insurance Company (Metropolitan) showed that James Phillips, Jr. was the owner and beneficiary with Shirley Ann Coulter as successor owner and beneficiary in the event of James’ death before the girls. As “owner” of the Metropolitan Life Insurance policies, James Phillips, Jr. was entitled to exercise all rights of ownership under the policies including receipt of certain cash dividends and the right to redeem the policies at a certain cash surrender value depending upon the number of premiums paid. At the end of 15 years, if all the premiums were paid, the endowment policies would have a guaranteed cash value of $15,000 each.
DISCUSSION
The Trustee asserts that James Phillips, Jr. was the absolute owner of the life insurance policies with Metropolitan on the date of the filing of the petition in bankruptcy and, accordingly, claims that the policies are property of the debtors’ estate under 11 U.S.C. § 541. Debtors contend that the policies were held by James Phillips, Jr. in trust for Monica Lynn and Tracey Marie Coulter as a result of an oral express trust created by Shirley Ann Coulter and, therefore, deny any claim of equitable ownership or interest on the part of the trustee.
As the defendants have correctly pointed out, if the endowment life insurance policies held in the name of James Phillips, Jr. can be said to be impressed with a trust wherein James Phillips, Jr. is the holder of the legal title only, the right to beneficial enjoyment of the property being held for third persons, the trustee would hold the property subject to such equities.
The rule is elementary that the estate succeeds only to the title and rights in the property that the debtor possessed although the trustee is armed, of course, with the special rights and powers conferred upon him by the Code itself. Therefore, where the debtor is in the possession of property impressed with a trust which is valid under the terms of the Code, the estate will generally hold such property subject to the outstanding interest of the beneficiaries.
(footnote omitted)
4 Collier on Bankruptcy ¶ 541.13 at 541-70 (15th ed. 1979). The existence or validity of such third party equities in property held, by a trustee in bankruptcy is determined by local state law. Clemens v. Clemens (In re Clemens), 472 F.2d 939, 942 (6th Cir.1972). The Court must therefore determine the relative equities of the parties in this case according to the law of the state of Ohio.
Under the law of Ohio, a trust in personal property may be established orally, or in writing, by the declaration that the settlor holds the property in trust for another or by naming another trustee. Hoffman v. Vetter, 117 Ohio App. 233, 192 N.E.2d 249 (1962); Thomas v. Dye, 70 Ohio Law Abs. 118, 127 N.E.2d 228 (Ct.App.1954). Proof of creation of the trust must be by clear and convincing evidence. Id. See generally, 53 Ohio Jur.2d Trusts § 25. While the elements of an express trust have been variously stated, the Ohio Su*146preme Court has found the following elements to be essential:
(1) an explicit declaration of trust accompanied by an intention to create it, or circumstances which show beyond reasonable doubt that a trust was intended to be created; (2) an actual conveyance or transfer or a lawful, definite property, estate, or interest, for a definite term, made by a person capable of making a transfer thereof; and (3) a vesting of the legal title presently in a person capable of holding it, to hold as trustee for the benefit of a cestui que trust or purpose to which the trust fund is to be applied, or a retention of title by the owner under circumstances which clearly and unequivocally disclose an intention to hold for the use of another. It has also been held that one of the important elements of a trust is certainty.
(footnotes ommitted)
53 Ohio Jur.2d Trusts § 40 at 480-481.
In the case sub judice, the Trustee contends that no express trust can be found since Shirley Ann Coulter never expressed a present intention to create a trust but only an intention to create one in the future. The Trustee also contends that, due to the failure of the settlor to have expressed the precise terms of the purported trust, the trust should be declared void for lack of certainty.
Based upon the evidence adduced at trial, if the result of this case in fact depended upon a finding of the existence and validity of an oral express trust in the life insurance policies, the trustee's arguments against the existence of a trust may indeed be well taken. The testimony of Shirley Ann Coulter, corroborated by that of other witnesses and of the documentary evidence admitted in this case, was unequivocal that she indeed intended that the life insurance policies, purchased with her money drawn out of The Huntington National Bank were purchased with the purpose and intention of neither making a gift nor a loan of the money to James Phillips, Jr., the legal titleholder of the policies, but with the purpose and under the impression that Phillips was to use his background and experience to help her in creating a formal trust in the policies for the benefit of Monica Lynn and Tracey Marie Coulter in the future. Also, on cross-examination, Shirley Ann Coulter was unable to describe certain terms of the trust she intended to create such as when, if ever, either of the girls would have the proceeds of the policies distributed for their benefit.
At issue is whether Shirley Ann Coulter made a complete and in praesenti declaration of trust. “To constitute a declaration of trust, the language must relate to the present. Language expressing future purposes, plans, designs or intentions are inappropriate to create a trust.” Rosselott v. Rosselott, 93 Ohio App. 425, 429, 113 N.E.2d 639, 642 (1952). See also DeLacroix v. L. Eid Concrete Steel Co., 8 Ohio N.P. (n.s.) 489, 19 Ohio Dec. 767 (C.P.1909) (Loose, vague and indefinite expressions are insufficient to create a trust. A mere declaration of purpose to create a trust is of no value unless carried into effect). See generally 53 Ohio Jur.2d Trusts § 45. While not controverting Shirley Ann Coulter’s testimony, defendants contend that, notwithstanding that the parties did not understand that a trust was created, considering all the facts and circumstances of this case, the Court can infer that a trust was created. Norris v. Norris, 40 Ohio Law Abs. 293, 57 N.E.2d 254 (Ct.App.1943), appeal dismissed, 142 Ohio St. 634, 53 N.E.2d 647 (1944); Thomas v. Dye, 66 Ohio Law Abs. 391, 117 N.E.2d 515 (C.P.1953), rev’d on other grounds, 70 Ohio Law Abs. 118, 127 N.E.2d 228 (Ct.App.1954). While not compelled to decide the issue in this case, it would appear that notwithstanding her testimony or her understanding of the legal effect of her actions, Shirley Ann Coulter’s act in perfecting the purchase of the property for the benefit of her two wards should be considered to be a completed and in praesenti declaration of trust.
The Trustee’s stronger argument against the creation of an express trust would seem to lie in his claim that the trust failed for lack of the requisite degree of certain*147ty. In particular, Shirley Ann Coulter’s failure and inability to specify certain terms of the trust such as its duration and the conditions under which the trustee might distribute or expend money for the benefit of the cestui que trust would probably render the trust void for lack of certainty. See Bilovocki v. Marimberga, 62 Ohio App.2d 169, 405 N.E.2d 337 (1979) (failure to establish terms and conditions under which beneficiary was to receive money from joint and survivorship account by clear and convincing evidence caused failure of express trust); Gill v. Gill, 4 Ohio Misc. 141, 212 N.E.2d 83 (P.Ct.1965) (Trust void for uncertainty due to failure to specify its duration and vagueness of powers given to trustee). Again, however, the Court need not decide this question under the circumstances of this case.
The evidence adduced at the trial of this matter clearly showed that the money used to purchase the insurance policies was solely the property of Shirley Ann Coulter. See also, Hunter v. Phillips (In re Phillips), 41 B.R. 148 (Bankr.N.D.Ohio 1984) (Funds in joint account solely owned by Shirley Ann Coulter). The admissible testimony and documentary evidence clearly and convincingly showed that Shirley Ann Coulter intended neither a gift nor a loan of the insurance policies to James Phillips, Jr. when they were purchased but that she intended that the value of the policies be held in trust for the benefit of Tracy Marie and Monica Lynn Coulter. Under these circumstances, assuming the failure of the creation of the express trust, it is the opinion of the Court that the policies are held in a resulting trust for the benefit of Shirley Ann Coulter.
A resulting trust is a type of implied trust which, in contrast to an express trust, is not created by the direct and positive act of the settlor but, instead, is founded upon the intention, implied in law, of the parties to a transaction. 53 Ohio Jur.2d Trusts § 4. In First National Bank v. Tenney, 165 Ohio St. 513, 138 N.E.2d 15, the Ohio Supreme Court set forth the definition of a resulting trust and the situations where, historically, resulting trusts have been found:
A resulting trust has been defined as ‘one which the court of equity declares to exist where the legal estate in property is transferred or acquired by one under facts and circumstances which indicate that the beneficial interest is not intended to be enjoyed by the holder of the legal title.’ 40 Ohio Jurisprudence, 240, Section 76. The device has historically been applied to three situations: (1) Purchase-money trusts; (2) instances where an express trust does not exhaust the res given to the trustee; and (3) express trusts which fail, in whole or in part. 2A Bogert on Trusts, 405 Section 451.
165 Ohio St. at 515-516, 138 N.E.2d at 17. In the present case, the Court finds, separately and independently, a resulting trust either by virtue of a purchase-money trust or by way of an express trust which has failed.
A purchase money resulting trust arises when one party pays the purchase price of the property but title is taken in the name of another. Clemens v. Clemens (In re Clemens), 472 F.2d 939, 942 (6th Cir.1972); John Deere Indus. Equip. Co. v. Gentile, 7 Ohio App.3d 251, 459 N.E.2d 611 (1983). See generally, 53 Ohio Jur.2d Trusts §§ 101, 103.
Basically a resulting trust of this class is grounded upon the presumed intention of the one paying the purchase price, who normally intends that the property bought therewith shall inure to his own benefit and not to that of another. The presumption is founded upon an intention generally inferred from the common human characteristic that when one buys property he intends to benefit by its use. But the presumption is a rebuttable one, and it may be both established and rebutted by parol evidence.
(footnotes omitted)
53 Ohio Jur.2d Trusts § 103 at 602. An exception is noted, however, when title is taken in the name of a natural object of the purchaser’s bounty:
*148It is said that a resulting trust does not arise if the transferee is ‘a natural object of bounty’ of the person who pays the purchase price, unless it appears from other evidence that the person who paid the purchase price intended to retain a beneficial interest in the property. Restatement of the Law, Trusts 2d, at Section 442. In other words, the law presumes that a conveyance to an individual’s own child without fair consideration is a gift, unless the presumption is overcome by other evidence tending to show that the parent conveyed only the bare legal title, and intended to retain her equitable ownership.
John Deere v. Indus. Equip. Co. v. Gentile, supra, 9 Ohio App.3d at 255, 459 N.E.2d at 616. See also In re Clemens, supra, 472 F.2d at 943; 53 Ohio Jur.2d Trusts § 104.
In the present case, it has previously been noted that all the consideration for the purchase of the life insurance policy was provided by Shirley Ann Coulter. In addition, Phillips having no formal legal relation to Coulter, he would not be the natural object of her bounty creating the presumption of a gift. See 5 Ohio Jur.2d Trusts § 104. In any event, even if Phillips were a natural object of Shirley Ann Coulter’s bounty, the presumption of a gift is rebutted in this case by clear and convincing evidence of a contrary intent. See In re Clemens, supra, 472 F.2d at 943. Thus, under the theory of purchase money resulting trust, the debtors and the trustee in bankruptcy hold the property subject to equities in favor of Shirley Ann Coulter. Id.
Also, presuming the express trust attempted to be created by Shirley Ann Coulter failed due to either of the reasons specified, supra, a resulting trust arises in favor of the settlor, Shirley Ann Coulter.
Where a trust fails in whole or in part for failure of designation of beneficiaries; where the beneficiary named dies before his testator; where there is a deed in trust for a beneficiary who was dead at the time of the conveyance; where the beneficiary disclaims, or the trust fails for indefiniteness; or where for any other cause an express trust, the creation of which was attempted, fails in whole or in part, the trustee will hold the property as a resulting trust for the sett-lor or his heirs or next of kin as its nature may require.
(footnotes omitted)
53 Ohio Jur.2d § 98 at 593-594. See also, Bilovocki v. Marimberga, 62 Ohio App.2d 169, 405 N.E.2d 337 (1979).
For the foregoing reasons, it is hereby,
ORDERED that the Trustee’s Complaint for Turnover of cash surrender value of Metropolitan Life Insurance policies No. 792 165 678A and 792 464 229A be, and hereby is, dismissed with prejudice. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489872/ | ORDER DENYING MOTION FOR PRELIMINARY INJUNCTION
JON J. CHINEN, Bankruptcy Judge.
The Trustees of the Estate of Bernice Pauahi Bishop (hereafter “Bishop Estate”) are holders of the fee simple interest and lessors to Kona Hawaiian Associates (hereafter “Debtor”) of that certain leasehold interest upon which Debtor developed and now operates the Kona Lagoon Hotel. In 1972, Hawaii Western Mortgage Corporation in consideration for a $7.5 Million loan to Debtor received a promissory note secured by a mortgage against the leasehold interest of Debtor. In 1972, in connection with the aforesaid loan, and pursuant to the provisions of the lease between Bishop Estate and Debtor, Bishop Estate executed an Additional Security Mortgage of their fee simple estate underlying thé Lease in favor of Hawaii-Western Mortgage Corporation. Defendant Federal Deposit Insurance Corporation (hereafter “FDIC”) presently holds the mortgagee interest in both the original mortgage and the subsequent Additional Security Mortgage.
In April 1983, FDIC and the other defendants herein commenced a lawsuit in state court to foreclose both the Leasehold Mortgage and the Fee Simple Mortgage. The action was stayed as to Debtor due to Debtor’s filing of a Chapter 11 bankruptcy petition on July 26, 1983. The FDIC thereafter scheduled a Motion for Summary Judgment against Bishop Estate seeking to continue foreclosure on the Fee Simple Mortgage.
On December 29, 1983, Bishop Estate filed the instant Complaint for Injunction Relief, requesting that this Court enjoin FDIC and the other mortgagees from proceeding against Bishop Estate in the state court foreclosure action. Bishop Estate alleges various defenses to the foreclosure and denies liability, in addition to claiming that mortgagees cannot proceed to judgment solely against Bishop Estate because Debtor’s interests are inextricably interwoven with the claims of Bishop Estate in the state court action.
Hearing was held on Bishop Estate’s Motion for Preliminary Injunction on January 9, 1984, at which were present Susan Tius for Bishop Estate, Ton Seek Pai and Gary Okuda for Debtor, and Jerrold Guben for mortgagees. After argument by counsel, the matter was taken under consideration pending a ruling on a pending Application for Approval of Sale of Debtor’s interest in the Kona Lagoon Hotel. The sale having been approved by this court, the request for injunctive relief was rendered moot. However, the Court has recently been informed that the sale did not close on schedule, that mortgagees have rescheduled their Motion for Summary Judgment in the state court action, and this Court has been requested to issue a ruling on the pending Motion for Preliminary Injunction.
Having reviewed the argument of counsel and the record herein, the Court does not reach the merits of the controversy between mortgagees and Bishop Estate. The controversy herein is essentially a dispute between two nondebtor parties over which this Court has no jurisdiction. Northern Pipeline Construction Co., v. Marathon Pipeline Co., 458 U.S. 50, 102 S.Ct. 2858, 73 L.Ed.2d 598 (1982). The parties are free to pursue and defend the action in state court without injunction by this court.
Based on the foregoing, the instant Motion for Preliminary Injunction is hereby Denied. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489873/ | OPINION
DAVID W. HOUSTON, III, Bankruptcy Judge.
Came on to be heard and was heard the complaint to determine dischargeability of a debt filed by the Plaintiff, Dean Whitter Reynolds, Inc.; answer, affirmative matters, and affirmative defenses filed by the Defendant, James C. Davenport; all parties being represented in Court by their respective attorneys of record; on proof in Open Court; and the Court having heard and considered same, finds as follows, to-wit:
I.
The Debtor, James C. Davenport, hereinafter referred to as Davenport or Defendant, on behalf of his employer, Yazoo County Seed Company, opened and maintained a customer account with Dean Whitter Reynolds, Inc., hereinafter referred to as Dean Whitter, and as such was involved in trading commodity contracts. Davenport subsequently personally guaranteed the corpo*193rate commodity account as evidenced by his execution of a Guaranty of Account, dated July 7, 1982, (stipulated Exhibit 4). In an effort to meet certain margin calls, Davenport, who was the President of Yazoo County Seed Company and responsible for the day to day activities of that corporation, executed the following checks, all drawn on the Yazoo County Seed Company bank account with Deposit Guaranty National Bank:
a. Check dated January 18, 1983, in the sum of $48,500.00, payable to Dean Whitter Reynolds, Inc., and dishonored by Deposit Guaranty National Bank for insufficient funds.
b. Check dated January 21, 1983, in the sum of $34,735.00, payable to Dean Whitter Reynolds, Inc., and dishonored by Deposit Guaranty National Bank for insufficient funds.
c. Check dated January 24, 1983, in the sum of $100,775.00, payable to Dean Whit-ter Reynolds, Inc., and dishonored by Deposit Guaranty National Bank for insufficient funds.
(Each of the aforesaid checks was introduced into evidence as stipulated Exhibit 7.)
The total amount of the dishonored checks was $184,010.00, but Dean Whitter offset two payable transactions against this sum in the respective amounts of $58,-223.10, and $9,021.90 (totaling $67,245.00), leaving a deficit of $116,765.00. Subsequently, Dean Whitter partially settled claims against Yazoo County Seed Company, the corporate entity, and Deposit Guaranty National Bank for $40,000.00, which tentatively reduced the aforementioned deficit to $76,765.00. Dean Whitter alleges that this amount is a non-dischargeable debt as to the Defendant Davenport pursuant to Title 11 U.S.C. § 523(a)(2).
II.
11 U.S.C. § 523(a)(2) provides as follows, to-wit:
(a) A discharge under section 727, 1141, or 1328(b) of this title does not discharge an individual debtor from any debt—
(2) for obtaining money, property, services, or an extension, renewal, or refinance of credit, by—
(A) false pretenses, a false representation, or actual fraud, other than a statement respecting the debtor’s or an insider’s financial condition; or
(B) use of a statement in writing—
(i) that is materially false;
(ii) respecting the debtor’s or an insider’s financial condition;
(iii) on which the creditor to whom the debtor is liable for obtaining such money, property, services, or credit reasonably relied; and
(iv) that the debtor caused to be made or published with intent to deceive;
According to the testimony of Robert M. Harding, Dean Whitter Vice President, when initially opening the commodity account, Davenport executed on behalf of Yazoo County Seed Company a commodity account application hedge, dated November 2, 1981, which reflected a corporate net worth of $1,740,000.00, and annual sales of $1,380,000.00, (Stipulated Exhibit 1). This application would permit trades in at least 50 commodity contracts. Davenport acknowledged his signatures on this document, as well as, the other commodity account applications discussed hereinbelow.
On July 7, 1982, Davenport executed a second commodity account application hedge which would permit trades by Yazoo County Seed Company in 90 commodity contracts. This application reflected a corporate net worth of $2,344,000.00, and annual sales of $2,400,000.00, (Stipulated Exhibit 5).
On January 10, 1983, Davenport executed a third commodity account application hedge which would permit trades by Yazoo County Seed Company in 180 commodity contracts. This application reflected a corporate net worth of $2,367,-000.00, and annual sales of $5,400,000.00, (Stipulated Exhibit 6).
*194Due to the substantial increase in the number of commodity contracts that were contemplated as being traded in the third application, Harding requested audited financial statements from Davenport, but such statements were never received. On June 21, 1983, Davenport filed this individual Chapter 7 Bankruptcy, listing Dean Whitter as an unsecured creditor, resulting from his guaranty of the corporate indebtedness.
As to the information appearing on the several applications, Harding stated that he believed the figures were accurate and that he relied on these figures in extending the credit afforded by the commodity margin account. He emphasized that a customer’s net worth is a critical factor in determining the volume of commodity contracts that his company would permit to be traded. The number of such contracts is directly proportional to the amount of credit extended.
Burdette Boyd, testified that at the time of the several transactions with Dean Whit-ter, that he was Vice President and the owner of fifty percent of the stock of Ya-zoo County Seed Company. He was not aware of any corporate meetings that were held to authorize the transactions with Dean Whitter, and significantly, he testified unequivocally that the corporate net worth during this period was no more than $30,000.00.
The Defendant Davenport, when testifying, stated that he did not furnish the financial information regarding Yazoo County Seed Company, and was not aware as to whether such information appeared on the three applications when he signed his name thereto! This testimony did not appear credible to the Court, but regardless, if Davenport did, in fact, execute the applications “in blank”, then he recklessly and negligently acted at his peril. See In Re: Anderson, 10 B.R. 607 (Bankr. SD Fla.— 1981), wherein the Court held that if the debtor did not read an application, containing financial information, which he signed, that he acted with such reckless disregard that it would be found that he acted fraudulently, and the related indebtedness was accordingly non-dischargeable.
III.
That by the execution of the Guaranty of Account, the indebtedness of Yazoo County Seed Company to Dean Whitter, in effect became the debt of Davenport. Coineiden-tially, the Guaranty of Account was executed on the same date that Davenport furnished the second commodity account application hedge reflecting the corporate net worth in the sum of $2,344,000.00. In the Matter of Bardwell, 610 F.2d 228 (CA 5th Cir.—1980), the Court stated as follows:
“... Obtaining credit by a materially false financial statement will prevent bankruptcy discharge if the bankrupt either had actual knowledge of the falsity of the statement or demonstrated reckless indifference to the accuracy of the facts stated therein_ Citing cases.”
Insofar as this case is concerned, there is absolutely no question but that the three commodity account applications were materially false. This Court finds that the extensions of credit by Dean Whitter to Ya-zoo County Seed Company and/or the Defendant Davenport were obtained by false pretenses or representations amounting to actual fraud. The representations concerning the assets, liabilities, net worth, and annual sales were knowingly and fraudulently made and were reasonably relied upon by Dean Whitter in extending credit through the commodity margin account. The proof is clear and convincing that the Defendant Davenport violated the provisions of 11 U.S.C. § 523(a)(2), and as such his indebtedness to Dean Whitter is non-dischargeable. See In Re: Boettcher, 7 B.R. 258 (Bankr. SD Fla.—1980).
An Order will be entered consistent with this Opinion. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489875/ | FINDINGS OF FACT AND CONCLUSIONS OF LAW RE: COMPLAINT TO DETERMINE DISCHARGEABILITY OF DEBT
JON J. CHINEN, Bankruptcy Judge.
Creditor James L. Zahn brings the instant complaint, requesting the Bankruptcy Court to hold the debt owing by Ernest Sumió Uyehara (“Debtor”) to James L. Zahn (“Creditor”) nondischargeable pursuant to Sec. 523(a)(2) of the Bankruptcy Code. A hearing was held on February 10, 1984, at which time Ronald Tongg, Esq., represented Creditor and Lee Miki, Esq., represented Debtor. Based upon the evidence adduced, the memoranda filed, the records herein and argument of counsel, the Court makes the following Findings of Fact and Conclusions of Law.
FINDINGS OF FACT
1. Plaintiff and Defendant are both residents of the City and County of Honolulu, State of Hawaii.
2. Plaintiff is and at all times relevant hereto was a self-employed architect, and Defendant was at all times relevant hereto a general contractor and developer.
3. During 1979, Kenny Kaneshiro representing Kenny & Family Enterprise, Inc., (hereafter “Kenny”), approached Debtor to develop the property on South King Street, Honolulu, Hawaii, (“Premises”) in which Kenny had a lease-hold interest. Debtor subsequently took steps to acquire the development rights to said premises.
4. Sometime in 1980, Debtor was working with Creditor on another project. When Creditor learned of Debtor’s plan to develop a high-rise building on the Premises, Creditor expressed an interest in the project as an architect.
5. When Kenny Kaneshiro became ill, he asked Debtor to work with his daughter, Kathleen Vega, to help his family by developing the Premises.
6. After much negotiation,. Debtor obtained a written agreement from Kenny concerning the Premises on June 22, 1981, modified on June 26, 1981.
7. Debtor also obtained oral agreements with Mr. and Mrs. Peter Schubert (“Schu-berts”) and Mr. Angelo Vicari, (“Vicari”) the fee owners of the Premises and of an adjoining property, concerning development of the Premises. These agreements with the fee owners were not in writing.
8. Shortly after commencing negotiation with Kenny, Schuberts and Vicari, Debtor began negotiating with Dave’s International Properties, Inc. (“Dave’s”) regarding development of the Premises. Dave’s offered Debtor $1 million to purchase from Debtor the development rights to the Premises. However, when Debtor discussed Dave’s proposal with Creditor, Creditor suggested $2 million, which was accepted by Dave’s.
10. After an agreement with Dave’s had been signed on July 10, 1981, Debtor discussed the terms and showed the signed agreement to Creditor.
11. From 1979 through 1981, Debtor spent all of his time on the development of the Premises, and thus had no income. In July of 1981, being low on cash, Debtor requested some money from Creditor for his living expenses.
12. As a result, Creditor agreed to advance a total of $28,000.00 to Debtor. And here lies the dispute between Creditor and Debtor. Creditor contends that he agreed *321to advance the $28,000.00 to Debtor on Debtor’s representation that the said sum shall be placed in escrow as a deposit for the acquisition of the Premises. On the other hand, Debtor contends that there was no restriction on the use of the $28,000.00. Debtor states that, because Dave’s had already agreed to pay for all costs of developing the Premises, including the acquisition of the Premises by lease or otherwise, there was no need for him to spend any money on the project. Debtor also contends that Creditor was aware of the agreement with Dave’s wherein Dave’s agreed to bear all costs of acquisition.
13. On July 27,1981, Creditor and Debt- or entered into a written agreement to co-develop the Premises. As his share, Creditor was to be paid a professional architectural fee of $950,000, plus $450,000 from Leaf Construction, Inc. and was to receive an office condominium free, upon completion of the project. The agreement further provided that Creditor was to pay Debtor $14,000.00 upon execution of the Agreement and an additional $14,000.00 when Debtor acquired the Premises by purchase or a long term lease for the project. There was no restriction on the use of this $28,-000.00 in the agreement itself.
14. Although the July 27, 1981 agreement provided for payment of $14,000.00 by Creditor to Debtor upon execution, Creditor paid only $5000.00, with an agreement to pay $9000.00 within 10 days. However, the $9000.00 was not paid as agreed.
15. On August 28, 1981, Creditor and Debtor modified the July 27, 1981 agreement. Under this modified agreement, Creditor was to receive an office condominium and a total of $1,650,000.00, an increase of $250,000.00 over the July 27,1981 agreement. Also, under this August agreement, Creditor agreed to pay the $23,-000.00 balance of the aforementioned $28,-000.00 to Debtor. Debtor testified that he agreed to this proposal because Creditor wanted a larger return from the development project before he would advance the balance of $23,000.00. The Creditor knew that Debtor was in a financial bind.
16. Subsequent to August 1981, rising interest rates rendered Dave’s unable to perform and Debtor was told to find another purchaser.
17. Debtor then unsuccessfully attempted to form a limited partnership to proceed with the development. Eventually, the project failed for lack of financing.
CONCLUSIONS OF LAW
1. 11 U.S.C. § 523(a)(2)(A) which applies to the instant case provides:
(a) A discharge under Section 727, 1141 or 1328(b) of this title does not discharge an individual debtor from any debt—
(2) for obtaining money, property, services or an extension, renewal, or refinance of credit by—
(A) false pretenses, false representation, or actual fraud other than a statement respecting the debtor’s or an insider’s financial condition.
2. The burden is on Creditor to prove his case, and, in the instant case, Creditor has failed to prove that Debtor obtained the $28,000.00 from Creditor on Debtor’s representation that said $28,000.00 would be deposited in escrow to purchase the Premises.
3. Creditor was aware that Debtor had spent considerable time and money on the project since 1980, that Debtor had no income and was in need of cash for living expenses.
4. Creditor was also aware of the progress of negotiations to acquire the development rights to the Premises, was aware of the written agreement between Debtor and Dave’s whereby the latter agreed to acquire the development rights to the Premises and to take care of all expense, including the costs of acquiring the Premises by lease or purchase.
5. Creditor’s allegation that the $28,-000.00 paid after the renegotiation on August 21, 1981 was to be deposited in escrow to acquire the Premises is inconsistent with *322the evidence presented. Testimony revealed that Creditor demanded the renegotiation for a larger return from the proceeds before agreeing to pay the $28,-000.00. Creditor was aware of the arrangement with Dave’s wherein Dave’s would assume all costs, including those of acquiring the Premises. In addition, if the money were actually to have been used for acquisition of the Premises, Debtor could have insisted on payment without agreeing to increase Creditor’s share of the project proceeds. However, because Creditor knew the cash was needed by Debtor for living expenses, Creditor insisted on a larger share of the project proceeds before paying the cash. Debtor capitulated to Creditor’s demands because of his financial condition.
Based on the foregoing it is hereby found that no violation of Section 523(a) of the Bankruptcy Code has been established by Creditor, that the debt to Creditor is dischargeable, and that Debtor is entitled to judgment against Creditor for reasonable attorney’s fees and costs, to be granted upon submission of proper timesheets.
Let Judgment be entered accordingly. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489877/ | ORDER DENYING MOTION FOR AMENDMENT OF ORDER APPROVING APPLICATION TO DESIGNATE CO-TRUSTEES AS COMMISSIONERS AND DENYING APPLICATION TO SELL DEBTOR’S PROPERTY
JON J. CHINEN, Bankruptcy Judge.
On June 4, 1984, the Bankruptcy Court entered an Order Approving Application to Designate Co-Trustees as Commissioners and Denying Application to Sell Debtor’s Property, said order resulting from this Court’s ruling on May 11, 1984, after hearings held on April 27, 1984, and May 9 and 11, 1984.
Debtor, joined by insider or related creditors, by the Motion for Amendment of Order Approving Application to Designate Co-Trustees as Commissioners and Denying Application to Sell Debtor’s Property, filed on June 19, 1984, sought to amend the order to allow secured creditors to bid their secured position in satisfaction of the 5% cash deposit required by the June 4', 1984 Order. In the event of non-closure, the secured creditor’s lien would be reduced by 5%.
The Court reviewed the request and the record herein and determined that 1) the request had not been made at the earlier hearings, and 2) the request had been made by the debtor and related parties in the form of recommended orders resulting from the above hearings, but the request was rejected by the Court which chose to draft an order consistent with the hearing and requiring the 5% cash deposit from all offerors.
Due to circumstances beyond the control of this Court, the decision of this Court to deny the Motion for Amendment had to be entered in the form of a Report and Recommendation to the District Court which allowed parties ten days to file written objections before an Order could be entered implementing the Report and Recommendation. Debtor and one of debtor’s entities filed written objections on July 23, 1984, within the ten day period.
*358The apparent jurisdictional problems having been alleviated, the matter has once again been referred to this Court. Having reviewed the record herein, the argument of counsel at the above-mentioned hearing and in memoranda submitted in opposition to the June 18, 1984 Order as well as in opposition to the entry of the July 12, 1984 Report and Recommendation, this Court once again finds that there is nothing in the June 18, 1984 Order (requiring the 5% cash deposit) which conflicts with the provisions of 11 U.S.C. § 363(k) allowing a secured party-purchaser of property to offset its secured lien against the purchase price. In the instant case, where it appears unlikely that a sale of the property sufficient to fully pay the secured creditors will be consummated, a bid-in of 5% of the secured lien of the junior secured creditors is a meaningless offer on the part of the creditor, with no benefit to debtor or actual loss to such creditor if the sale is not consummated.
Based on the foregoing, it is hereby ordered that the Motion for Amendment of Order Approving Application to Designate Co-Trustees as Commissioners and Denying Application to Sell Debtor's Property be and hereby is Denied. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8490107/ | MEMORANDUM AND ORDER
CHARLES J. MARRO, Bankruptcy Judge.
Before the court is the motion of George Jamieson to allow the filing of a proof of claim after the bar date. The motion was opposed by the trustee and by Frederick Trading Company, an unsecured creditor. The matter came on regularly for a hearing. From the records in the case the following facts are established.
FACTS
The debtor, Yankee Distributing Company of Vermont, Inc. (Yankee), filed under Chapter 11 of the Bankruptcy Code (Code) on May 18, 1984. The case was converted to a Chapter 7 liquidation on February 25, 1985.
During the pendency of the Chapter 11 proceeding, the instant claimant, George Jamieson (Jamieson), loaned $10,000.00 as working capital to the president of Yankee, and created $4,574.49 of trade debt for merchandise sold on open account to Yankee. On April 18, 1985, the debtor filed a schedule of Chapter 11 unsecured indebtedness reflecting the foregoing sums, as follows:
Amount of
Name of Creditor Basis for Claim Claim
George Jamieson loan $10,844.26
G. Jamieson Company inventory 4,574.49
Also on April 18th, the court apprised George Jamieson and G. Jamieson Company of the forthcoming first meeting of creditors in the chapter 7 case, which the court had fixed for April 23, 1985.
The bar date for filing of claims in the chapter 7 proceeding was June 18, 1985. Jamieson, a resident of Poultney, Vermont with a business address of Rutland, Vermont, prepared a proof of claim on June 12, 1985. The vice president of Yankee mailed Jamieson’s proof of claim from the Poult-ney, Vermont post office on June 17, 1985. The court filed the proof of claim upon receipt on June 19, 1985.
DISCUSSION
The proof of claim was filed when received and stamped by the clerk of the court. See, e.g., In re Griffis, 31 Bankr. 279 (Bankr.D.Vt.1983) (filing of document is effective on date it is received and filed by the clerk). In the instant case, the proof of claim was filed on June 19th, one day after the June 18th bar date.
In view of the objections of Frederick Trading Company and of the trustee to Jamieson’s motion, the court may not extend the time for filing the instant claim. Long aware of the approaching bar date, Jamieson offered by way of explanation for late filing, that he had relied on the United States Post Office to timely deliver his proof of claim on June 18th. The evidence at hearing consisted solely of the following letter from the U.S. Postal Service postmaster of Poultney, Vermont, to the vice president of the debtor corporation, con*224cerning the mailing of the Jamiesons’ proof of claim, by the vice president of the debt- or, to the bankruptcy court:
In response to your inquiry regarding a letter to the U.S. Bankruptcy Court which you mailed from this office:
I have discussed this matter with the employee who was on duty at the time. She remembers the article in question being mailed on June 17, 1985. She advised me that you specifically asked if the article would be delivered in Rutland the following date, June 18, 1985, stating that it was extremely important. She advised you that it would be delivered the next day, as our service standards dictate.
The court would observe that Jamieson was noticed on April 18th as to the conversion of the Yankee reorganization case, that he prepared the proof of claim on June 12th, and that his misplaced reliance on the debtor’s vice president to timely file his claim, and her misplaced reliance on the postal system to effectuate overnight delivery of the mailed claim, do not constitute a basis on which to extend the filing period.
This case is not like the case In re Holzer, 5 Bankr.Ct.Dec. 19 (S.D.N.Y.1979) for the reason that, there, the claims were filed late “due to no fault of petitioners [and] because of the oversight of their attorney ...” Id. at 20. Here, the claimant himself, acting through the debtor’s vice president, occasioned the late filing.
Having shown neither cause for an extension of time to file the instant claim, nor excusable neglect occasioning the late filing of such claim, the instant “motion to allow filing of proof of claim out of time” must be denied.
ORDER
NOW, THEREFORE, upon the foregoing, it is ordered, that the motion to permit late filing in this chapter 7 proceeding of the claim of George Jamieson and G. Jamieson Company is DENIED. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8490108/ | OPINION
WILLIAM A. KING, Jr., Bankruptcy Judge.
The issue at bench is whether we should grant defendant’s motion for summary judgment in a proceeding commenced by plaintiff for a money judgment or, in the alternative, turnover of property. Because we conclude that defendant is not entitled to a judgment as matter of law, we will deny the motion.
The facts as stated by the pleadings are as follows: An involuntary petition under Chapter 7 of the Bankruptcy Code was filed on August 5, 1982, against Windsor Communications Group, Inc. t/a Norcross-Rust Craft Greeting Card Publishers (“Windsor”). Windsor converted the ease to a case under Chapter 11 on August 25, 1982. Windsor has been acting as debtor-in-possession in accordance with § 1108 of the Bankruptcy Code since August 25, 1982.
Windsor commenced the instant adversary proceeding against defendant, Joseph A. Cousins, d/b/a Super Duper (“Cousins”) to recover a money judgment for certain display fixtures on August 27, 1984. Pursuant to a written equipment loan agreement, Windsor provided display fixtures to Cousins, which were used to display merchandise, such as greeting cards and gift wrap, which was sold by Windsor to Cousins. By letter dated June 7, 1982, Windsor terminated the fixture loan agreement and *298gave Cousins the option to purchase the fixtures. In a subsequent undated letter, Windsor demanded that the fixtures be returned if Cousins chose not to purchase them. Attached to this second letter was an invoice dated August 18, 1982, stating the depreciated value of the fixtures as $1,082.61. Windsor received no response from Cousins. Cousins has not returned the fixtures or paid the amount requested in the invoice.
Windsor filed the instant adversary proceeding to recover the stated value of the fixtures, together with pre-judgment interest and costs of suit. Cousins filed a motion for summary judgment on November 29, 1984.
In support of its motion for summary judgment, Cousins contends that under paragraph 9 of the “Norcross, Inc. Equipment Loan Agreement”, there is no obligation to Windsor, because Cousins had no responsibility for the fixtures after the expiration of thirty (30) days from the date of the termination of the agreement. Paragraph 9 of the Equipment Loan Agreement provides that:
NORCROSS shall have no liability to Customer for its failure to remove the Equipment from Customer’s premises following termination by either party, although in such event Customer shall have no continuing responsibility for the Equipment following the expiration of 30 days after the effective date of such a termination.
Paragraph 9, however, must be read jointly with the other paragraphs of the agreement. Under paragraphs 6 and 7, Windsor has the option of removing the equipment after termination of the agreement.1 Apparently, paragraph 9 contemplates a situation where Windsor agrees to remove the fixtures, pursuant to paragraphs 6 and 7, but fails to do so. In that situation, Windsor would have no liability for its failure to remove the equipment and the customer would not be responsible for the equipment after thirty (30) days from the date of termination. However, that factual situation did not occur here. Windsor, upon termination of the agreement, gave Cousins the option to purchase the fixtures at the stated depreciated value or return the fixtures. Under paragraph 8 of the Equipment Loan Agreement, the return of the fixtures would be at the customer’s expense.2
The general rule is that silence does not constitute acceptance of an offer in the absence of a duty to speak. Solis-Cohen v. Phoenix Mutual Life Insurance Co., 413 Pa. 633, 636, 198 A.2d 554, 555 (1964). The facts pleaded in this case, however, suggest the existence of such a duty on the part of Cousins. Windsor, the offeror, terminated the Equipment Loan Agreement, then gave Cousins, the offeree, the option to either purchase the fixtures or return them. The offeree could not thereafter retain the fixtures, exercising dominion over them and remain silent. Under these circumstances, silence is not consistent with an intent to reject the offer. Retained possession and the exercise of dominion over property, being inconsistent with the offeror’s ownership thereof, may result in the offeree being bound by the terms of the offer. Chorba v. Davlisa Enterprises, *299Inc. 303 Pa.Super. 497, 450 A.2d 36 (1982); Restatement (Second) of Contracts § 69(2) and Comment e.
Summary judgment shall be granted only when the pleadings, depositions, interrogatories, affidavits and admissions filed in the case “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”. Fed.R.Civ.P. 56(c). In considering a motion for summary judgment, the Court must resolve any doubt as to the existence of genuine issues of fact against the moving party. Hollinger v. Wagner Mining Equipment Co., 667 F.2d 402 (3d Cir.1981). Summary judgment will be invoked when “the movant has established his right to a judgment with such clarity as to leave no room for controversy and that the other party is not entitled to recover under any discernible circumstances”. Ozark Milling Co. v. Allied Mills, Inc., 480 F.2d 1014, 1015 (8th Cir.1973). The facts as revealed by the papers, in light of the standard for granting summary judgment, do not indicate that Cousins is clearly entitled to prevail as a matter of law. Accordingly, we will deny the Cousin’s motion for summary judgment and list the matter for trial.
. Paragraphs 6 and 7 of the agreement provides as follows:
6. Customer shall have the privilege of terminating this Agreement at any time, upon 30 days' notice in writing to Norcross, after which time Norcross may, at its option, after notification to the Customer, remove the Equipment from the Customer’s premises.
7. Upon default of the Customer of the performance of any of its obligations hereunder, or upon change of ownership, store location, change of merchandising policy or change in the credit position of Customer, Norcross may terminate this Agreement by giving 30 days’ notice to the Customer. Norcross, in addition to any other rights it may have, may enter upon the Customer's premises and, with or without process of law, remove the Equipment from the Customer’s premises.
. Paragraph 8 provides:
8.Upon the termination of this Agreement by either party, Customer shall be responsible and shall bear all costs for such removal and for the transportation, shipping and related charges for the relocation of the Equipment as directed by Norcross, but in no event will such charges (exclusive of removal costs) be in excess of F.O.B. West Chester, Pennsylvania. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8490109/ | MEMORANDUM OPINION
ALBERT E. RADCUFFE, Bankruptcy Judge.
This matter comes before the court on the trustee’s objection to the debtors’ claimed exemption of their interest in a profit sharing plan maintained by David H. Ott, D.C., P.C. After reviewing the evidence presented at the hearing thereon and the applicable law, this court sustains the trustee’s objection and holds that such interest is not exempt.
Debtor, David H. Ott, is a licensed chiropractic physician, employed by David H. Ott, D.C., P.C. He is the sole stockholder and an officer in this professional corporation. The corporation established a profit sharing plan, with its first fiscal year beginning July 1, 1982. The debtors are the trustees of the plan.
The debtors filed their voluntary Chapter 7 petition herein on December 29, 1983. Their interest in the David H. Ott, D.C., P.C. profit sharing plan was listed, as an asset, in Schedule B-3 and also claimed exempt, pursuant to ORS 23.170.
The trustee, Thomas Huntsberger, filed an objection to the claimed exemption. At the hearing on the trustee’s objection, the trustee introduced, as Exhibit A, the David H. Ott, D.C., P.C. 1982 I.R.S. Form 5500-C, Return/Report of Employee Benefit Plan. Debtors introduced, as Exhibit 1, the written profit sharing plan (hereinafter the plan) and a letter of approval from the Internal Revenue Service. In addition, the debtor, Sheryl J. Ott, testified that fiscal year 1982 was the plan’s first year, there never have been any withdrawals from the plan and that both she and the debtor, David H. Ott, are covered as participating employees in the plan. She further testified that one other employee had been covered for a very short period of time.
The trustee maintains that the debtors’ interest in the plan is not exempt under ORS 23.170, since professional corporations are not included within the definition of an employer in the statute, the debtors retain the power to gain access to accrued benefits at any time and a true employment relationship does not exist between the professional corporation and the debtors.
The sole issue is whether or not the debtors’ interest in the plan is exempt under ORS 23.170 which provides, in pertinent part, as follows:
“... pensions granted to any person in recognition by reason of a period of employment by ... any ... . person, partnership, association or corporation, shall be exempt from execution ...”
It has already been established, in this district, that individual retirement accounts (IRAs) and self-employed Keogh plans do not qualify as “pensions” under ORS 23.-170. In re Mace 4 B.C.D. 94 (Bankr.D.Or.1978), In re Mendenhall 4 B.R. 127 (Bankr.D.Or.1980), In re Hebert, 684-08258 Slip op. (Bankr.D.Or. May 15, 1985) (Wilhardt, J.). In each case, the court viewed two factors as important in its decision.
First, as stated by Judge Folger Johnson, “... the ‘person’ granted the pension must *390be different from the ‘person’ granting the pension.” 4 B.C.D. at 95.
Second, the amount of control that the debtor may exercise over, the “pension” fund is also important. If the debtor may withdraw the funds at any time, without restriction, the fund becomes more like a conventional savings account and less like a true retirement fund. The fact that the debtor may enjoy some tax advantages from maintaining the fund and that he may have to pay a tax penalty, for early withdrawal, has not been considered to be an important factor in this court’s prior decisions. The question is whether or not the debtor may withdraw the funds at any time.
A review of the exhibits submitted as evidence and the debtors’ schedules and statement of affairs reveals the following. At the end of the plan’s first year, David H. Ott was the sole eligible employee (Exhibit A, page 2). The total assets of the plan were:
Cash $129.00
Receivables $129.00
Real Estate $26,000.00
Liabilities total $12,065.00, establishing a net worth of the plan at $14,064.00 (Exhibit A).
It appears that the real property originally belonged to the debtors. They transferred the property to David H. Ott, D.C., P.C.,' within the year prior to filing their bankruptcy petition, in return for forgiveness of indebtedness they owed the corporation and assumption of debt (debtors’ statement of affairs, page 3, question 12b).
According to the terms of the plan, the employer has sole discretion as to the estimation of net profits and the amount of contribution for each year (Exhibit 1, Article IY, page 13). A participant is fully vested upon entry into the plan. (Exhibit I, Article VI, ¶ 6.4(b), page 28). The plan also allows the employer to terminate the plan at anytime (Exhibit 1, Article VIII, page 43). Upon termination, the employer may choose to distribute the plan assets to participants, in lump sum, ór continue the trust and distribute the assets according to the plan as if it had not been terminated. (Id.). In short, the employer, professional corporation, has sole discretion to determine to what extent contributions will be made to the plan each year, the nature of the property to be contributed and may terminate the .plan, thus permitting the withdrawal of plan assets, at any time, by the debtors. As noted pbove, debtor, David H. Ott, is the professional corporation’s sole shareholder.
This court recognizes that there is, technically speaking, a distinct employer-employee relationship, in that the debtor(s) is employed by the professional corporation, David H. Ott, D.C., P.C. This court also notes, however, that as the sole shareholder of the corporation, debtor, David H. Ott, has complete control over the corporation-employer. This control must be viewed together with the provisions in the plan that allow the employer complete discretion in determining whether or not to make plan contributions and, in effect, permit distribution of the plan assets to its participants at any time. This court also notes that the only present plan participant(s) is the debt- or, David H. Ott and possibly his wife, the debtor, Sheryl J. Ott.
This court is permitted to look beyond the form of the plan to its substance. When viewed in totality, this court concludes that there is no truly separate, distinct, employer-employee relationship and that the debtor(s) may, in reality, withdraw the plan funds and/or other assets at any time. Accordingly, applying the rationale established by this court in Mace, Menden-hall and Hebert, this court concludes that the debtors’ interest in the plan does not qualify as exempt under ORS 23.170.
In light of the foregoing, we need hot decide whether or not a pension plan established by a professional corporation may qualify as exempt under ORS 23.170 or whether or not a profit sharing plan may be considered to be a “pension” under that statute.
This opinion shall constitue findings and conclusions under Federal Rule of Civil *391Procedure 52 as made applicable to this court by Bankruptcy Rule 7052, they shall not be separately stated. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8490110/ | DECISION AND ORDER
WILLIAM A. CLARK, Bankruptcy Judge.
This matter is before the court upon an “Objection to Claim” filed by the Chapter 7 Trustee in the bankruptcy case of Marvin D. Reier, Case No. 3-84-00415. The trustee objected to the allowance of the claim of Farmers State Bank and Trust Company (“Bank”) as a secured claim on the ground that the Bank failed to file a financing statement with the Secretary of State for the State of Ohio as provided in section 1309.38 of the Ohio Revised Code.
FACTS
On July 8, 1985 a trial was held before the court on the trustee’s objection and the court makes the following findings of fact:
*396The only witness appearing for either party was David D. Shives, who is a cashier for the Bank and whose duties include making loans to customers of the Bank.
On August 9, 1983 the Bank loaned the sum of $9,100.00 to the debtor, Marvin D. Reier dba Rainbow Industries, who signed a note (Defendant’s Exhibit 1) in the presence of Mr. Shives and granted a security interest to the Bank in the following items, which the debtor was in the process of purchasing:
1983 Eagle 2 horse deluxe trailer
1983 Eagle 20 foot stock trailer
1983 Eagle stock trailer
1983 Eagle 17 foot stock combination trailer
All loan documents were prepared by the Bank and an “X” was inserted in a block on the security agreement indicating that the collateral was to be used for “Business” purposes. The blocks for “Personal” and “Agricultural” purposes were left unmarked.
Mr. Shives testified that although a financing statement (Defendant’s Exhibit 6) was filed with the Recorder’s Office for Darke County, Ohio, no financing statement was filed with the Secretary of State for the State of Ohio. It was the Bank’s belief, based upon the advice of counsel, that the collateral involved “agricultural products” and, therefore, no dual filing was necessary.
On cross-examination Mr. Shives testified that the business of the debtor, Mr. Reier, consisted of building and constructing flatbed trailers, horse trailers, farm equipment, and other trailers for the purpose of transporting livestock and that the debtor also resold trailers. The loan of August 9, 1983 was made, according to Mr. Shives, for “display purposes.” Mr. Reier was preparing to attend a county fair and needed to purchase the trailers in order to display what he was capable of building. It was also Mr. Shives’ testimony that the debtor’s place of business was located in Darke County, Ohio and that the debtor was not engaged in farming and was not a farmer.
CONCLUSIONS OF LAW
Although it is clear that a valid security agreement was created by the debtor, there remains the question of whether the Bank properly perfected its security interest. Specifically, the issue is whether the Bank was required to file a financing statement with the Secretary of State for the State of Ohio in order to perfect its security interest in the debtor’s stock trailers.
I. Classification of the Collateral
Prior to determining where a creditor is required to file financing statements, it is necessary to decide what type of collateral is involved. Section 1309.07 of the Ohio Revised Code reads as follows:
Goods are:
(A) “consumer goods” if they are used or bought for use primarily for personal, family, or household purposes;
(B) “equipment” if they are used or bought for use primarily in business, including farming or a profession, or by a debtor who is a non-profit organization or a governmental subdivision or agency or if the goods are not included in the definitions of inventory, farm products, or consumer goods;
(C) “farm products” if they are crops or livestock or supplies used or produced in farming operations or if they are products of crops or livestock in the unmanu-factured states, such as ginned cotton, wool-clip, maple syrup, milk, and eggs, and if they are in the possession of a debtor engaged in raising, fattening, grazing, or other farming operations. If goods are farm products they are neither equipment nor inventory.
(D) “inventory” if they are held by a person who holds them for sale or lease or to be furnished under contracts of service or if he has so furnished them, or if they are raw materials, work in process, or materials used or consumed in a business. Inventory of a person is not to be classified as his equipment.
OHIO REY.CODE ANN. § 1309.07 [U.C.C. § 9-109] (Page 1979).
*397Clearly, the debtor’s stock trailers are neither “consumer goods” nor are they “farm products.” Because of the nature of the testimony regarding the debtor’s business, it is difficult to determine whether the collateral is “equipment” or “inventory.” While Mr. Shives testified that the debtor was in the business of reselling trailers, which leads to a conclusion that the trailers were part of the debtor’s “inventory,” he also stated that the debtor required these particular trailers for “display purposes.” If the trailers were to serve merely as samples of the debtor’s craftsmanship, a classification of the collateral as equipment would be supportable. The court is well aware that these statutory classes of goods are mutually exclusive, see, e.g. In re Houts, 31 U.C.C.Rep. Serv. 338 (D.N.D.N.Y.1981); Nat’l Bank of Commerce v. First Nat’l Bank & Trust Co. of Tulsa, 446 P.2d 277 (Okla.1968), but the evidence before the court is simply inadequate to permit a specific finding of whether the collateral is equipment or inventory. In any event, under the factual pattern of the instant case, the precise classification is immaterial.
II. Where to File
With the exception of three situations the proper place to file a financing statement in order to perfect a security interest in the State of Ohio is “in the office of the ■ secretary of state and, in addition, if the debtor has a place of business in only one county of this state, also in the office of the county recorder of such county,.... ” OHIO REV.CODE ANN. § 1309.38(A)(4) [U.C.G. § 9-401] (Page Supp.1984).
The first and third exceptions to this general rule of filing concern consumer goods and timber or minerals and are obviously inapplicable to the present case. The Bank contends, however, that the second exception is applicable:
(A) The proper place to file in order to perfect a security interest is as follows:
(1) ....
(2) when the collateral is equipment used in farming operations ..., then in the office of the county recorder in the county of the debtor’s residence ...
(3) ....
OHIO REV.CODE ANN. § 1309.-38(A)(2) [U.C.C. § 9-401] (Page Supp. 1984).
If the debtor’s property is classified as inventory, then of course, neither of the three exceptions apply and the Bank should have filed a financing statement with the Secretary of State for the State of Ohio.
Assuming arguendo that the debtor’s stock trailers are properly classified as equipment, the equipment must be “equipment used in farming operations” for the creditor to benefit from the second exception, supra.
In classifying goods and in determining whether equipment is used in farming operations, case law draws a distinction between intended use and actual use of the collateral. See, In re Yeager Trucking, 29 B.R. 131 (Bankr.Colo.1983); North Ridge Farms, Inc. v. Trimble, 37 U.C.C.Rep.Serv. 1280 (Ky.Ct.App.1983); In re ASW III. Builder-Contractor, Inc., 12 B.R. 29 (Bankr.E.D.Va.1981); In re Collins, 3 B.R. 144 (Bankr.S.C.1980); In re Cahoon, 9 U.C. C.Rep.Serv. 535 (Bankr.E.D.Tenn.1971); In re La Rose, 7 U.C.C.Rep.Serv. 964 (Bankr.Conn.1970); In re Leiby, 1 U.C.C.Rep.Serv. 428 (Bankr.E.D.Pa.1962).
A majority of courts in determining whether equipment is used in farming operations look at the use for which equipment was purchased or the use actually made of the equipment. The actual use test seems the proper criterion for determining whether equipment is 'used in farming operations.’ In re Butler, 3 B.R. 182, 184 (Bankr.E.D.Tenn.1980).
This court agrees with the majority of courts that it is the use of the equipment which is controlling and not its intrinsic or potential nature. “[T]he same collateral may be classified differently in the hands of different owners.” North Ridge Farms, Inc. v. Trimble, supra at 1288. However, in the instant matter, this court *398is not required to resolve the murky question of whether the debtor’s intended use of the collateral or his actual use is determinative in a classification of goods. Here, both uses appear to be identical. Mr. Shives testified that the debtor intended to use the stock trailers in his business for display purposes at a county fair, and there was no evidence introduced to indicate that the debtor did not in fact do so.
The Bank argues that the trailers are. “designed for agricultural purposes” and requests this court to employ neither an “intended use” nor an “actual use” test, but rather to adopt the position of the court in In re Burgess, 30 B.R. 364 (Bankr.W.D.Okla.1983). In Burgess the court rejected both the intended use and the actual use tests and devised a “normal use” test:
We hold that the proper consideration for determining place of filing is whether the particular equipment is normally used for farming. A tractor and plowing implements are equipment normally used for farming operations and therefore the proper place for filing would be the county of the debtor’s residence.
This rule rests upon a predictable approach to filing regarding equipment and other items generally associated with farming operations. Id. at 366.
Without an extensive discussion of the “normal use” test, this court merely notes that the Burgess decision is at this time a distinctly minority opinion and this court is not prepared to state unequivocally that stock trailers are “normally” used in farming operations. Such trailers are frequently used to transport animals in connection with a variety of operations not directly associated with farming. In addition, it appears sufficiently difficult for creditors to discern intended or actual uses of collateral, without imposing the necessity of divining what might be considered the “normal” use of collateral.
Therefore, whether the stock trailers of the debtor are classified as inventory or equipment, the Bank was required to file not only in the county of the debtor’s business, but also with the Secretary of State for the State of Ohio.
III. Good Faith Filing
In some instances strict compliance with the requirements of the filing statute is excused:
A filing which is made in good faith in an improper place or not in all of the places required by this section is nevertheless effective with regard to any collateral as to which the filing complied with the requirements of sections 1309.-01 to 1309.50 of the Revised Code, and is also effective with regard to collateral covered by the financing statement against any person who has knowledge of the contents of such financing statement.
OHIO REV.CODE ANN. § 1309.38(B) [U.C.C. § 9-401] (Page Supp.1984).
In cases where dual-filing of financing statements is required, however, the overwhelming weight of authority does not excuse the creditor from filing in both locations. See, In re Karachi Cab Cory., 21 B.R. 822 (Bankr.S.D.N.Y.1982); In re Hurt Enterprises, Inc., 321 F.Supp. 1307 (D.W.D.Va.1971); In re Computer Careers Institute, Inc., 9 U.C.C.Rep.Serv. 930 (Bankr.E.D.Tenn.1971); In re Hyde, 6 U.C.C.Rep. Serv. 979 (Bankr.W.D.Mich.1969).
This also appears to be the result anticipated by the drafters of the Uniform Commercial Code.
[T]he requirements of [dual-filing] are not complied with unless there is a filing in both offices specified; filing in only one of two required places is not effective except as against one with actual knowledge.
DRAFTSMEN’S COMMENT TO 1962 OFFICIAL TEXT, U.C.C. § 9-401, n. 5.
By statute a trustee in bankruptcy is not one with “actual knowledge,” and in fact his powers are granted “without regard to any knowledge of the trustee or of any creditor.” 11 U.S.C. § 544(a).
Nor does it appear that the Bank was faced with an undue burden. The Bank *399was in a position to learn of the debtor’s use of the collateral and in fact all evidence at the trial indicated that it possessed actual knowledge that the trailers were being used for business purposes and not for agricultural purposes. Where a creditor is uncertain as to the filing requirements, “the logical and better practice is for the creditor to file security interests in all possible places where filing might be required.” In re Burgess, supra at 366.
For the foregoing reasons the security interest of Farmers State Bank and Trust Company in the trailers of the debtor, Marvin D. Reier, is unperfected and it is therefore ORDERED that the claims of Farmers State Bank and Trust Company be disallowed as secured and allowed as unsecured. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489878/ | ORDER DENYING MOTION TO REINSTATE AUTOMATIC STAY WITH RESPECT TO THE MUTUAL LIFE INSURANCE COMPANY OF NEW YORK
j0N j CHINEN, Bankruptcy Judge.
On March 27, 1984, on the eve of the trial on the Motion for Relief from Stay filed by first mortgagee, Mutual Life Insurance Company of New York (hereafter “MONY”), a Stipulation for Order Granting Relief from Stay and Order thereon was entered herein, signed by counsel for *359MONY, counsel for debtor, and Masami Kato, as president and Chairman of the Board for debtor and, individually, as sole stockholder and a creditor of debtor. Said stipulation provided for relief from the stay for MONY as of March 26, 1984, and also provided that Mr. Kato would, pursuant to a schedule of payments laid out therein, purchase MONY’s secured interest, the final payment for $13,400,000.00, together with interest thereon at the rate of $4,405.48 per day from April 27, 1984, due at 4:00 o’clock p.m. Hawaiian Standard Time on July 27, 1984.
The final paragraph of the stipulation states:
6. The Debtor, Kato and MONY agree and stipulate that no appeal may be taken from this Stipulation and Order, and the Debtor, Kato and MONY waive any and all rights to seek reconsideration or modification of this Stipulation and Order.
On July 27, 1984, Debtor filed the instant Motion to Reinstate Automatic Stay with Respect to the Mutual Life Insurance Company of New York, wherein the Court is requested to extend for two months the automatic stay and the time period within which Mr. Kato is required to make the above-mentioned final payment to MONY, alleging that circumstances beyond Mr. Kato’s control precluded his ability to make the requisite final payment by July 27, 1984.
The Stipulation was freely entered by the signing parties and no acts of fraud, misrepresentation, or misconduct have been pled as grounds for the relief requested. Rather, one of the parties, currently unable to perform, wishes to extend the time for his performance after having the benefit of the other party’s restraint in pursuing relief from the stay for four months. Based on these considerations and the agreement by the parties that no modification of the Stipulation would be requested, the Motion to Reinstate Automatic Stay is hereby Denied. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489879/ | MEMORANDUM AND DECISION RE: MOTION TO DETERMINE SECURED STATUS OF MOUSE BUILDERS, INC.
JON J. CHINEN, Bankruptcy Judge.
This matter comes before the Court on a motion by Waikiki Marketplace Investment Company, (hereinafter, “Waikiki Marketplace”) to determine the secured status of Mouse Builders, Inc., (hereinafter “Mouse Builders”) and Waikiki Marketplace’s claim for post-petition administrative rent between May 1, 1982 and August 16, 1982. Hearings on the matter were held on September 24, 1982, October 29, 1982 and December 27, 1982, with Waikiki Marketplace being represented by David L. Irons, Esq. and Ke-Ching Ning, Honolulu, Hawaii, and Mouse Builders represented by Paul Maki, Esq. Having fully reviewed the testimony of witnesses, the documents on file and the exhibits submitted, the Court hereby makes the following Findings of Fact and Conclusions of Law.
FINDINGS OF FACT
1. On October 26, 1981, Rexeric, Inc. (hereinafter “Debtor”), filed a Petition for Relief under Chapter 11 with the United States Bankruptcy Court for the District of Hawaii.
2. On November 6, 1981, Waikiki Marketplace, as lessor of Debtor, filed an Application to Require Debtor to Assume or Reject Unexpired Lease. Debtor assumed the lease on December 21, 1981.
3. On January 18, 1982, upon Debtor’s request, the case was converted from Chapter 11 to Chapter 7, with Ralph Aoki being appointed Trustee.
4. On January 27, 1982, this Court confirmed a sale of the lease by the Trustee to Antonio’s Holding Company (hereinafter Antonio’s). The Order Confirming Sale of Bankrupt’s Leasehold Interest in Real Property was filed on January 27, 1982.
5. Under the Court’s Order, the proceeds of the sale were to be distributed first to Waikiki Marketplace for arrearages in back rent, then for taxes and real estate commissions, and thereafter to secured creditors. Any surplus was then to be distributed for administrative expenses and finally to general unsecured creditors.
6. The Order confirming the sale stated that, Mouse Builders held a Mechanic’s and Materialmen’s lien against the leasehold property in the amount of $58,448.74. So that the Order confirming the sale of the debtor’s leasehold interest to Antonio’s could be effectuated, Mouse Builders entered into a Settlement Agreement and Release with Waikiki Marketplace to dismiss its mechanic’s and materialmen’s lien against the property. Mouse Builders also negotiated with the Trustee for release of Mouse Builders’ mechanic’s and material-men’s lien. As consideration for release of Mouse Builders’ lien, the Trustee agreed to grant Mouse Builders a secured position in all of the assets of Debtor’s estate. This agreement, however, was never memorialized in writing, nor approved by the bankruptcy court or by Waikiki Marketplace.
7. On January 22, 1982, the Trustee and Antonio’s executed an Agreement of Sale covering the leasehold premises. On this same date, the parties executed an Assignment of Restaurant Rental Agreement, (hereinafter “Assignment”), in favor of Antonio’s. This Assignment, however, was never delivered by the Trustee to Antonio’s.
8. Under paragraph 18 of the Agreement of Sale, the Trustee was to hold the Assignment until payment in full by Antonio's. Waikiki Marketplace approved the Assignment on January 29, 1982 by executing a Consent to the Assignment.
*3689. Waikiki Marketplace was unaware of the Agreement of Sale at the time it consented to the Assignment. It was not until May 27, 1982, when it brought a summary possession action against Antonio’s for failure to pay rent, that Waikiki Marketplace learned of the Agreement of Sale between the Trustee and Antonio’s. When Antonio’s defaulted on the rent payments for May, 1982, the Trustee re-took possession and control of the leasehold premises pursuant to the Agreement of Sale.
10. On June 8, 1982, Waikiki Marketplace filed a Motion for Return of Possession and Determination of Rights of (the Parties in the) Leasehold. A hearing on the motion resulted in the issuance of an order setting a deadline for the Trustee to produce or obtain an enforceable DROA and to pay $8,000.00 in back rent by August 16, 1982, or termination of the lease would be ordered. From June through mid August, 1982, the Trustee tried unsuccessfully to obtain a buyer for the lease. The Trustee retained possession and control over the leasehold property until August 16, 1982, when this court ordered the Trustee to abandon title and return possession of the premises to the lessor, Waikiki Marketplace.
11. On September 14, 1983, Waikiki Marketplace filed the present motion to determine whether Mouse Builders is a secured creditor and whether Waikiki Marketplace is entitled to administrative rent from May 1, 1982 to August 16, 1982.
CONCLUSIONS OF LAW
A. Waikiki Marketplace’s Right to Administrative Rent
Relying upon 11 U.S.C. § 365(k), Mouse Builders takes the position that Waikiki Marketplace is not entitled to postpetition administrative rent which accrued between May 1, 1982 and August 16, 1982, because of the Assignment to Antonio’s.
Section 365(k) of the Code provides,
Assignment by the trustee to an entity of a contract or lease assumed under this section relieves the trustee and the estate from any liability for any breach of such contract or lease occurring after such assignment.
Section 365(k) does not control the instant matter because the Assignment executed between the Trustee and Antonio’s was never delivered to Antonio’s. Before a written assignment becomes binding or effective, delivery of the instrument must be made to the assignee. Scroggins v. Roper, 548 S.W.2d 779 (Tex.Civ.App.—Tyler 1977, writ ref'd n.r.e.). The mere signing of the assignment, without more, is not sufficient to convey the Debtor’s leasehold interest to Antonio’s. 219 Broadway Corp. v. Alexander’s, Inc., 414 N.Y.S.2d 889, 46 N.Y.2d 506, 387 N.E.2d 1205 (1979).
Mouse Builders maintains that the Agreement of Sale was “nothing more than a document giving the Trustee a security interest in the leasehold premises.” It argues that “Waikiki Marketplace has not, and will not suffer any prejudice resulting from this Court’s conclusion that the document entitled ‘agreement of sale’ is merely a security device, comparable to a mortgage.”
Although the Agreement of Sale is to assure payment, it is not the same as a mortgage. In Re Anderson, 36 B.R. 120 (Bankr.D.Haw.1983).
Moreover, in the instant case, after default, on the part of Antonio’s, the Trustee repossessed the premises. He changed the locks on the doors and assumed possession and control over the restaurant. The Trustee had full control and use of the leased premises from May 1, 1982, until August 16, 1982, when this Court ordered the return of the premises to Waikiki Marketplace.
Waikiki Marketplace is thus entitled to administrative rent during the occupancy by the Trustee, from May 1, 1982 through August 16, 1982. The accrued rent due Waikiki Marketplace, pro rated over the four and a half months that the Trustee occupied the premises, is $64,587.64,
*369B. Mouse Builders’ Status As a Secured Creditor
Although the Court’s order confirming the sale of the bankrupt’s leasehold interest expressly provided Mouse Builders with a mechanic’s and materialmen’s lien, Mouse Builders subsequently entered into a settlement and release agreement with Waikiki Marketplace. By this agreement, Mouse Builders relinquished its mechanic’s lien against the leasehold property with respect to Waikiki Marketplace. Thus, Mouse Builders is not a secured creditor with respect to Waikiki Marketplace.
Nor is Mouse Builders a secured party with respect to the Debtor’s leasehold interest in the property. The agreement between the Trustee and Mouse Builders, granting the latter a secured position in all of the assets in Debtor’s estate in exchange for its surrender of the mechanic’s and materialmen’s lien, was never reduced to writing, filed with any court or registered with the Bureau of Conveyances. The agreement is therefore not enforceable. The Trustee could not confer to Mouse Builders a secured position against the Debtor’s estate without first obtaining the approval of the Bankruptcy Court. Not only did the Trustee fail to obtain the Court’s authorization to grant Mouse Builders’ a secured position, but it also failed to obtain the approval of Waikiki Marketplace.
Mouse Builders does not argue that its secured status is based on the existence of a valid and enforceable mechanic’s lien but rather on the agreement with the Trustee. However, because that agreement is null and void, Mouse Builders could only acquire a secured position against Debtor’s leasehold interest through an enforceable mechanic’s and materialmen’s lien. When Debtor’s interest in the leasehold was terminated by order of this Court on August 16, 1982, Mouse Builders’ mechanic’s and materialmen’s lien was likewise terminated.
Based on the foregoing, the Court finds that Mouse Builders, is not a secured party with respect to either Debtor’s leasehold interest or Debtor’s estate. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489881/ | MEMORANDUM AND ORDER
ROBERT L. EISEN, Bankruptcy Judge.
This matter came before the court on the defendant’s (Amoco) motion for summary judgment on the plaintiffs (Wolff) complaint for declaratory judgment regarding an easement or license for access to certain real estate. This court, having carefully considered the pleadings, memoranda, depositions and affidavits submitted by the parties along with applicable case law, renders the following findings of fact and conclusions of law.
FINDINGS OF FACT
Frank Wolff is a former Amoco dealer who leased and operated an Amoco service station. Wolff owns property adjacent to that station upon which he has constructed an auto repair garage and a car wash. Wolff seeks a declaration of his rights of access to this garage and car wash because confirmation of his Plan of Reorganization under Chapter 11 of the Bankruptcy Code depends upon status of that access.
Wolff, apparently as lessee, first operated the Amoco service station located at the corner of Lake Street and Illinois Avenue in Aurora, Illinois in 1960. Subsequent leases and renewals date from at least since 1973. Those leases were substantially similar except for the rent structure and the duration. The leases provided that so long as the premises were used in a lawful manner, that the direction and control of the premises was to remain with the lessee.1 The leases also contained provisions prohibiting the lessee from encumbering the leasehold interest2 and stated that the leases set forth the entire agreement between the parties.3 The leases for the service station property continued in effect until Amoco terminated them in 1981.
*474In 1972, Wolff purchased an adjacent parcel of property (Lot 12) immediately north of the service station, tore down an existing house from the front portion of the property and constructed an auto repair garage at the rear of the parcel. Access to the repair garage was via the northernmost portion of the lot. Amoco provided Wolff with equipment for use in the garage, and made other improvements for Wolff. In 1979, Wolff sold to Amoco the eastern portion of that property which fronts on Lake Street and which provides access from Lake Street to the repair garage. Wolff reserved in that deed an eight foot easement over the front portion of the property.
In 1974 Wolff purchased property (Lot 8) on the other side of the corner immediately west of the gas station and constructed a car wash. Wolff consulted with the Amoco representative during construction of the car wash but reserved no rights of access thereto. Initially access was no problem since Wolff leased the service station from Amoco.
Wolff expended considerable sums of money on both business ventures. Amoco provided Wolff with certain improvements for both the garage and the car wash and apparently received the benefit of increased gasoline and related product sales resulting from the operation of the garage and the car wash. It is undisputed that Wolff would have to expend substantial sums of money to modify the access to his garage and car wash if his claims of access over the gas station property are denied.
Wolff claims in his affidavit that he was told that he would have access to both parcels and that he has been given a license which this court should determine Amoco is estopped from revoking because to do so would perpetrate a fraud upon Wolff. Amoco asserts that access was pursuant to the lease during its duration, that the lease specifically precluded the grant of any license and even if the court determined that a license had existed, that Amoco could revoke it at will.
ISSUES
Pursuant to Rule 56(c) of the Federal Rules of Civil Procedure, this court may grant the defendant’s motion for summary judgment if “the pleadings, depositions, answers to interrogatories 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 summary judgment as a matter of law.” Fed. R.Civ.P. 56(c). In the present case, the parties’ depositions and exhibits do not differ materially. Although the plaintiff submitted an affidavit which directly contradicts his deposition testimony, that affidavit is clearly insufficient to create any genuine issue of material fact. Therefore, summary judgment for Amoco is proper if the following questions of law are resolved in its favor:
1. Whether an irrevocable license has been created for the entire eastern portion of Lot 12 for expanded access to Wolff’s repair garage.
2. Whether an irrevocable license for access across the service station property was created for access to the car wash located on Lot 8.
DISCUSSION
A license is permission or authority to do particular acts upon the lands of another, with no estate or interest in the land created. Morse v. Lorenz, 262 Ill. 115, 118, 104 N.E. 237 (1914); Illinois Law & Practice, Licenses With Respect to Real Property, § 131 at 148. Generally, a license is revocable by the licensor at will. See, e.g., Woodward v. Seely, 11 Ill. 156 (1849); Morse v. Lorenz, 262 Ill. 115, 120, 104 N.E. 237 (1914) (stating that the reason for that rule was that oral agreements are easily misunderstood).
Illinois courts have tempered those rules by fashioning a “fraud exception” to the rule that licenses are revocable at will. See, e.g., Russell v. Hubbard, 59 Ill. 335 (1871). In order to prevent the exception from swallowing the rule, the Illinois Supreme Court determined that it would be *475applied only where revocation would cause great wrong and oppression. Forbes v. Balenseifer, 74 Ill. 188, 186 (1874). The notion was that an estoppel operated to prevent the licensor from revoking the license, Keck v. Scharf, 80 Ill.App.3d 832, 836, 36 Ill.Dec. 83, 400 N.E.2d 503 (1980). The court in that case further delineated the requirements of the fraud exception to the revocability of licenses. Those requirements are:
1. that the licensee has spent substantial sums of money which were induced by the affirmative efforts of the licensor;
2. that the improvements which the licensee made were at least partly for the benefit of the licensor; and
3. that the revocation would result in an injury which would amount to great wrong and oppression. Id. at 836-37, 36 Ill.Dec. 83, 400 N.E.2d 503.
Upon applying those rules of law to the facts regarding the garage access, it is apparent that no license was ever created. Therefore, there was none to revoke, and the estoppel doctrine simply cannot apply. Although there is evidence that Amoco received some benefit from Wolffs improvements, and evidence that Wolff will be required to alter his premises should the access he seeks be denied, Wolffs claim of irrevocable license to the garage access fails for several reasons. First, there is no credible evidence of an oral permission in the first place. As Amoco has argued, and Wolff himself testified at deposition, he needed no permission because initially he owned the property and later his lease gave him the right to control its use. Moreover, Wolff reserved an eight foot easement for himself. He is not entitled to more.
Although there was no evidence of the parol permission required to create the license, there is additionally no evidence that Amoco “induced” Wolff to spend money on the garage. By his own testimony, the garage “was his idea.” Because no parol permission was granted which would give rise to a license, and secondarily because Amoco did not induce Wolff to build the garage, Wolffs access to that garage must be limited to that which he reserved in writing for himself.
This court further concludes that there has been no irrevocable license created for access to the car wash. In similar fashion to the garage access, Amoco derived benefit via increased product sales from the construction of the car wash. Wolff would suffer harm if the access is denied. However, once again, there is no evidence of oral agreement (Again, none was necessary). Nor was there evidence of Amoco inducing Wolff to build the car wash. This court can find no authority for the proposition that simply knowing of a course of conduct, and even assisting it, in the absence of permission, can give rise to a license which can later become irrevocable upon an estoppel theory.
Although Wolff relies heavily upon the case of Mercer v. Sturm, 10 Ill.App.3d 65, 293 N.E.2d 457 (1973), to establish his claim of licenses for both parcels, that case is clearly distinguishable on the basis of precisely that element which Wolffs case lacks. In Mercer, parol permission was given. In the instant ease, it was not. Wolff apparently proceeds upon some sort of generalized estoppel theory for which no ease authority is cited. The case law clearly states that parol permission is required to establish the license, which the licensor is then estopped from revoking. (Wolff may also realize this, since subsequent to his deposition in which he testified that oral permission was not given for the garage or the car wash, he later prepared a contradictory affidavit in which he claimed it had been granted).
Thus, Wolffs claims to access must fail because there was no verbal agreement or permission. Under the leases, none was needed. Absent that element, no licenses were created.
CONCLUSION
In summary, the court finds that Wolffs access to the garage via Lot 12 is restricted to that easement which he expressly reserved when he executed the deed to Amo*476co. Second, no irrevocable license was created to provide access to the car wash on Lot 8 across Amoco’s service station property.
This court hereby grants summary judgment in favor of the defendant Amoco Oil Company.
.Paragraph 14 of the leases, which were substantively the same, provides:
14. None of the provisions of this lease shall be construed as reserving to Lessor any right to exercise any control over the business or operations of Lessee conducted upon the leased premises or to direct the manner in which any such business or operations shall be conducted, it being understood and agreed that so long as Lessee shall use said premises in a lawful manner as herein provided, the entire control and direction of such activities shall be and remain with Lessee.
. Lessee will not assign, mortgage or encumber this lease ... and will not allow any lien or encumbrance to be placed upon the leasehold interest hereby created or any part thereof, without first obtaining the written consent of Lessor. (Par. 8).
. The lease executed after building the car wash (1976) provided:
... [A]ll obligations, agreements, and understandings with respect to the leased premises [are] expressly set forth herein. (Par. 17). | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489882/ | MEMORANDUM AND ORDER
ROBERT L. EISEN, Bankruptcy Judge.
This matter is before the court on the defendant’s “the Village” motion to reconsider the order of February 28, 1984 in which this court denied East Dundee’s motion to vacate an order entered on May 16, 1983. For the reasons set forth herein, the Village’s motion to reopen the judgment pursuant to Rule 59 is denied.
FACTS
On October 5, 1982, this court ordered the Village to turn over to the plaintiff herein (USF & G) certain special assessment bonds in the amount of $57,856.57. The Village did not comply with that order. On May 17, 1983, on USF & G’s motion for a rule to show cause, this court held the Village in contempt and entered judgment against it in the amount of $57,856.57. Counsel for the Village did not appear at the May 16, 1983 hearing.
The Village has presented affidavits which set forth neglect and misrepresentation of its previous attorneys, as well as inability to comply as the reasons for its failure to comply with an earlier turnover order and failure to appear at the May 16 hearing. When considering the initial motion to vacate, this court found persuasive the fact that the Village’s new attorneys ' had known of the contempt order and judgment since July 11, 1983 yet did not file the 60(b) motion until December 2, 1983 with no explanation for those actions. Additionally, the court considered the possible prejudice to both the Village and USF & G. While the Village is forced to pay the judgment from its treasury rather than through a bond issue, it is, after all, merely paying for services of which it is enjoying the benefits. On the other hand, the court notes that USF & G had not been paid and had incurred additional expenses in litigation. The court noted those elements of prejudice in light of the time elapsed and denied the Village’s motion to vacate.
The Village asserts that the court erred 1) in finding that the Village had failed to explain its delay; 2) in finding that USF & G stands to be severely prejudiced; and 3) in “implicitly” finding that its order did not severely prejudice the Village. The court shall consider those issues in deciding the Village’s motion to reconsider under Rule 59.
DISCUSSION
Rule 59 of the Federal Rules of Civil Procedure, made applicable to adversary proceedings by Rule 9023 of the Bankruptcy Rules of Procedure provides in part that the court may “open the judgment ..., amend findings of fact and conclusions of law or make new findings and conclusions, and direct the entry of a new judgment.” Fed.R.Civ.P. 59(a). One purpose of the Rule 59 motion is to allow the trial court to exercise its “power and duty to order a new trial whenever, in its judgment, this action is required in order to prevent injustice.” 11 C. Wright & A. Miller, Federal Practice arid Procedure § 2803 (1973).
For the reasons discussed below, the court determines that it is in the interest of justice to deny the Village’s motion.
The Village has first argued that it did, in fact, explain the reasons for the delay in filing its 60(b) motion and asserts that it should have been obvious to the court that it needed time to gather information *511against its former attorney necessary to support its motion. The Village correctly points out that that argument was not explicitly made in its 60(b) motion. More important, however, is the fact that that argument explains nothing as to why other colorable grounds for relief were not brought before this court in a timely fashion after the Village became aware, on July 11, 1983 of the turnover order and the contempt order.
The second error which the Village asserts is that this court incorrectly determined that USF & G had been severely prejudiced. At the crux of that finding is the simple fact that the Village received and presumably enjoyed the benefit of the project completed nearly two years ago. USF & G, as guaranty, bore the expense of completing the project. Yet the Village has not paid USF & G. That is the primary source of prejudice to USF & G.
Tangentially, this court noted that USF & G had lost a prospective purchaser for the bonds. While the finding of prejudice was not premised upon that factor, the Village has never before contested that assertion, and cannot properly contest it for the first time at this stage of the proceedings.
Moreover, the Seventh Circuit has explicitly recognized additional time and expense of litigation as a cognizable element of prejudice. Chrysler Credit Corp. v. Macino, 710 F.2d 363, 367 (7th Cir.1983). This court referred to those criteria in finding that USF & G had been prejudiced. This court does not consider its finding of prejudice to USF & G to have been in error.
Finally, this court made no “implicit” finding that the Village had not been prejudiced, and was aware that the form of payment would differ under the May 16, 1983 contempt order. In weighing the potential harm to the parties, the court determined that the equities demanded that the court exercise its discretion in favor of the plaintiff USF & G.
The motion to open the judgment is denied. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489883/ | JON J. CHINEN, Bankruptcy Judge.
The Complaint to Determine Discharge-ability of Debt filed by First Hawaiian Bank came on for trial before the Bankruptcy Court on May 14, 1984. The Debtor was represented by Philip D. Bogetto, Esq. and First Hawaiian Bank was represented by Tod Z. Tanaka, Esq. and Jeffrey E. Brunton, Esq. Having considered the evidence and arguments of counsel, having reviewed the record and file herein, the Court makes the following Findings of Fact and Conclusions of Law.
FINDINGS OF FACT
1. Defendant Michael W. Klein, aka Michael W. Klein, Jr., debtor herein (hereafter “Debtor”), filed a petition for relief under Chapter 7 of the Bankruptcy Code on May 2, 1983.
2. Plaintiff First Hawaiian Bank (hereafter “Plaintiff”) is a Hawaii corporation with its principal place of business in the City and County of Honolulu, State of Hawaii.
3. Prior to these proceedings, Debtor lived with his wife, Patricia, and two minor children at 44-420 Kaneohe Bay Drive, Oahu, Hawaii, (hereafter “Property”) in a home built in 1961 on leasehold property. Upon divorce, Debtor assigned his interest in the Property to his ex-wife and vacated the premises. Upon the death of his ex-wife, Debtor returned to the Property which had been distributed by the Probate Court to the two minor children. In December 1973, Debtor was appointed guardian of the person and of the estate of the two minor children. At this time, the Property was subject to a mortgage executed in 1961 in favor of Equitable Life Ins. Co.
4. As guardian of the estate of the two minor children, Debtor exercised the rights of ownership over the Property on behalf of the estate and for its benefit. He regularly made the monthly payments on the mortgage. In addition, after his ex-wife’s death, Debtor spent over $150,000.00 for improvements to the Property. He had a swimming pool constructed, installed a shake roof, repainted the home on three different occasions, paid the real property taxes and purchased new appliances and furniture.
5. In 1978, Debtor was employed at Hawaii Homeowner’s Club. Because he paid all of the expenses for the Property, he believed that he was the owner. Thus, he applied for a homeowner’s loan in the sum of $10,000.00 from Plaintiff in 1978.
6. In the loan application, Debtor presented, upon Plaintiff’s request, a financial statement dated July 25, 1978, in which Debtor represented that he had title to the Property as of July 24, 1978.
*6287. The principal requirement of Plaintiffs homeowner loan program was ownership of Debtor’s home. Yet, in reviewing the loan application, Plaintiff did not verify the information contained in the financial statement. Without requesting any title report on the Property, Plaintiff approved the loan. The promissory note for $10,-000.00 was executed by Debtor on August 17, 1978.
8. Upon receipt of the $10,000 from the homeowner’s loan, Debtor opened a checking account at Plaintiff’s Kapiolani branch and deposited the entire proceeds in the account.
9. At the same time that the homeowner’s loan was made on August 17, 1978, Debtor applied for a Yes Check Reserve Line Account (hereafter “Yes Check Account”). In his application, Debtor failed to disclose the $10,000.00 homeowner’s loan from Plaintiff.
10. Prior to the approval of the Yes Check Account, Plaintiff received a Credit Line Report dated August 25,1978 (Exhibit P-11), which clearly showed the $10,000 loan from Plaintiff to Debtor. The Yes Check Account was approved on November 22, 1978 and Mr. Mark Felmet, testifying on behalf of Plaintiff, acknowledged that, by said date, Plaintiff was aware of the homeowner’s loan.
11. Debtor made regular payments on all of his obligations until January 20, 1981 when he was seriously injured in an automobile accident. He has not been working since then and has not been able to pay his debts.
CONCLUSIONS OF LAW
This Court has jurisdiction over this adversary proceeding pursuant to 28 U.S.C. § 1471, 11 U.S.C. § 523, and Rule 7001 et seq., of the Bankruptcy Rules.
Section 523(a)(2)(B) provides that the debt of an individual debtor will not be discharged.
(2) for obtaining money, property, services, or an extension, renewal, or refinance of credit, by—
(B) use of a statement in writing—
(i) that is materially false;
(ii) respecting the debtor’s or an insider’s financial condition;
(iii) on which the creditor to whom the debtor is liable for obtaining such money, property, services, or credit reasonably relied; and
(iv) that the debtor caused to be made or published with intent to deceive;
Plaintiff has the burden of proof to establish the nondischargeability of a debt. For Plaintiff to prevail in the instant case, he must prove all of the elements contained in Section 523(a)(2)(B). In Re Archangeli, 6 B.R. 50, 2 C.B.C.2d 1209 (D.Maine, 1980); In Re Saunders, 37 B.R. 766 (Bkrtcy.N.D.Ohio 1984).
Plaintiff has shown that Debtor, in his application for homeowner’s loan, represented that he was the title owner of the Property when in fact title was in the names of his two minor children. Plaintiff has also shown that Debtor, in his application for the Yes Check Account, failed to list the $10,000 homeowner’s loan in favor of Plaintiff. Plaintiff has thus satisfied the first two requirements under Sec. 523(a)(2)(B).
However, the Plaintiff’s reliance on the statement made by Debtor in his application for the homeowner’s loan was not reasonable. When an individual represents that he is the title owner of a property in an application for a homeowner’s loan, it is neither reasonable nor professional for a bank to approve the loan without requiring the loan applicant to submit a title report or some evidence of ownership.
As the Court stated in In Re Triple A Sugar Corp., 13 B.R. 969 (Bkrtcy S.D.Ohio 1981), “The majority of cases make it clear that the creditor has a duty to make a reasonable effort to check the credit rating of the Debtor and not rely upon just the financial statement.” In finding the debt in question dischargeable, the Court criticized the bank for not having made a title examination “to determine if the - Breens had on record any mortgage whether on the Dayton lot or any other property.”
*629With reference to the Yes Check Account, Debtor’s omission of the $10,000 homeowner’s loan in the application does not overcome the fact that, in spite of this omission, Plaintiff was in possession of a report revealing the $10,000 homeowner’s loan. Plaintiff’s statement that it would not have approved the Yes Check Account if it were aware of the $10,000 homeowner’s loan is without merit. If Plaintiff chooses to ignore the information and record in its own file, then it must bear the consequences.
The Court finds Plaintiff’s reliance on the applications for the homeowner’s loan and the Yes Check Account not to be reasonable. Plaintiff has not met the third requirement of Section 523(a)(2)(B), and thus said debt to Plaintiff is dischargeable.
A judgment will be signed upon presentment. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489884/ | ORDER: (1) DENYING MOTION FOR RECONSIDERATION OF CLAIM, (2) GRANTING MOTION TO ALTER OR AMEND ORDER, AND (3) GRANTING ISSUANCE OF SUPPLEMENTAL ORDER
JON J. CHINEN, Bankruptcy Judge.
On May 14, 1984, a Memorandum Decision and Order was filed by the Court concerning the objections of the Trustee for KIKI, Ltd., (“Debtor”) to the claims and judgments of the Marcia-Neal Wester-velt Revocable Trust (“Westervelt Trust”), against Debtor’s estate. 40 B.R. 82. Under the Court’s Findings of Fact and Conclusions of Law, the trustee was barred from relitigating certain defenses to the Westervelt Trust’s claim under the doctrines of res judicata and collateral estop-pel. The Westervelt Trust was also deemed to be a general unsecured creditor of Debtor and not a secured creditor because the claims and judgments held by the Westervelt Trust against the Debtor’s leasehold interest in registered land were not properly registered with the Land Court system of the State of Hawaii.
As part of its claim against Debtor’s estate, the Westervelt Trust sought recovery on a judgment entered in a state court for $3,297.69 plus interest of $434.16. This judgment was filed after Debtor had filed its Chapter XI petition for reorganization. This Court, in its decision and order of May 14, 1984, denied this judgment as part of Westervelt Trust’s claim on the basis that it was filed after the Chapter XI bankruptcy petition.
In addition to the objections against the Westervelt Trust’s claim, the trustee had also objected to a claim filed by Royal V. and Elaine D. Howard (“Howards”) in the amount of $97,412.45 plus interest. The Howards’ claim consisted of a stock certificate for 800 shares of preferred stock in KIKI, Ltd., and a judgment entered in the Hawaii First Circuit Court on August 20, 1974, for $16,612.45. The Howards claim that, because the judgment was recorded with the regular system of the Bureau of Conveyances, a judgment lien has been obtained against the Debtor’s leasehold interest. Debtor’s leasehold interest, however, is within the land court system and requires specific registration on the Transfer Certificate of Title (“TCT”). H.R.S. § 501-101; City & County v. A.S. Clarke, Inc., 60 Haw. 40, 587 P.2d 294 (1978).
On February 16, 1982, the Howards filed a joint memorandum with the Westervelt Trust arguing their secured status position against the Debtor’s leasehold interest. In their memorandum they assert that the broad statutory language of Hawaii Revised Statute, section 636-3, dealing with judgment liens, gives them a secured position against Debtor’s property upon recor-dation of their judgments with the Bureau of Conveyances. This is true they say, notwithstanding the fact that the lease affected land court property. The Howards’ and Westervelt Trust’s claims were consolidated for trial.
In the memorandum decision and order, the court herein determined that the West-*827ervelt Trust’s claim was not secured as to Debtor’s leasehold interest because it had not been properly recorded on the appropriate TCT filed with the land court system. The Westervelt Trust was therefore held to be a general unsecured creditor of debtor. The Order made no mention of the Howard claim.
On May 24, 1984, the Westervelt Trust filed a notice of appeal to the United States District Court, District of Hawaii.
On May 25, 1984, the Trustee for Debtor filed a motion (1) for reconsideration of claim, (2) to alter or amend order or for relief from order, and/or, (3) for issuance of supplemental order, along with a memorandum in support of the motion. Pursuant to Bankruptcy Rule 802, applicable to Act cases, the instant motion, having been timely filed, tolls the time for appeal and will thus be dealt with as though the notice of appeal had not yet been filed.
In petitioning this Court to reconsider its decision, the trustee for Debtor urges this Court to grant another hearing on whether or not the claims of the Westervelt Trust should be subordinated to other general unsecured claims of the estate. The trustee also requests an order altering or amending this Court’s May 14, 1984 decision and order, so as to allow a claim previously denied for $3,297.69, based on a post bankruptcy judgment against Debtor.
Finally the trustee moves to have this Court amend its order or issue a supplemental order classifying the Howards’ claim as a general unsecured claim. The Howards’ judgment was never duly recorded on any TCT as required by H.R.S. § 636-3 where land court property is affected.
On June 1, 1984, the Westervelt Trust filed a memorandum wherein they oppose the motion for reconsideration for lack of new evidence and on collateral estoppel grounds. The Westervelt Trust supports the trustee’s request for allowance of the $3,297.69 as a liquidated claim and is willing to stipulate as to its allowance.
On June 1, 1984, the Howards also replied to the trustee’s motion for reconsideration, objecting to their claims being decided by this court’s decision and order of May 14, 1984, on the basis that they never received a copy of the Court’s decision and order. They ask that their claims be decided separately and apart from the claims of the Westervelts.
The Court having reviewed the memoran-da submitted and being fully apprised of the record herein finds: (1) the motion for reconsideration is denied since no new facts have been elucidated to show that the Westervelt Trust’s claim should not be designated a general unsecured claim but should be subordinated to the claims of other unsecured creditors, (2) since the Court herein declines to reconsider the order, hearing is denied, see former Bankruptcy Rule 307 and Advisory Committee Note thereto; (3) the motion to amend this court’s decision and order of May 14, 1984, is hereby granted so as to allow the liquidated claim of $3,297.69. This claim is classified as a general unsecured claim; (4) the motion to issue a supplemental order classifying the Howard’s judgment as a general unsecured claim is also hereby granted. A separate order will be entered resolving the claim of the Howard Trust. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489886/ | *20ORDER ON DEFENDANT’S MOTION TO DISMISS AND ON PLAINTIFF’S MOTION FOR SUMMARY JUDGMENT
L. CHANDLER WATSON, Jr., Bankruptcy Judge.
The above-styled adversary proceeding is before the Court on the plaintiff’s request for a declaratory judgment on whether the automatic stay provided by 11 U.S.C. § 362(a) applies to the cosigners and guarantors of debts of the chapter 11 debtor. At a pre-trial conference in this proceeding on October 18, 1983, at Anniston, Alabama, the attorney for the plaintiff and the attorney for the defendant agreed to submit the matter to the Court on a motion for summary judgment. The plaintiff has now filed its’ motion for summary judgment and a brief in support of its motion. The defendant has moved to dismiss the complaint and filed a brief in opposition to the motion for summary judgment.
After having considered the respective motions, it is the opinion of the bankruptcy judge that there is no genuine issue as to any material fact and that the plaintiff is entitled to a judgment as a matter of law as to Counts One and Two of its complaint. 11 U.S.C. §§ 362(a), 1301(a); See, e.g., Austin v. Unarco Industries, Inc., 705 F.2d 1 (1st Cir.1983); Royal Truck & Trailer, Inc. v. Armadora, Etc., 10 B.R. 488 (N.D.Ill.1981) The Court having determined that there is no stay imposed by § 362(a) against the cosigners and guarantors of the chapter 11 debtor, the plaintiff’s motion for relief from the stay to pursue its claims against the cosigners and guarantors of the debtor’s debt may be dismissed.
Therefore, it is ORDERED by the Court that the debtor’s motion to dismiss the complaint is denied, that the plaintiff, under Counts One and Two of its complaint is adjudged to have the right to pursue its claims against the cosigners .and guarantors of the debtor, that the motion for relief from the stay is dismissed out of court, and that a copy of this order shall be sent through the United States mails to each of the following (which shall be sufficient service and notice hereof): the debtor, its attorneys, the plaintiff’s attorney, and the United States trustee. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489887/ | MEMORANDUM DECISION
THOMAS C. BRITTON, Bankruptcy Judge.
The debtor’s major creditor, who holds a judgment for $969,228, opposes discharge under seven counts and seeks exception from discharge under an eighth count. At trial, counts 5 and 7 were abandoned. The trustee is a nominal plaintiff. The debtor has answered and the matter was tried on June 5.
Counts 4, 6 and 8 have not been substantiated.
Count 4 identifies ten respects in which the debtor’s schedules are alleged to constitute a false oath under 11 U.S.C. § 727(a)(4)(A). I find that the debtor’s explanations of items 1, 2, 3, and 5 are plausible. No proof was offered with respect to items 4 and 7. The jewelry referred to in item 6 was sold before bankruptcy and did not need to be scheduled. Items 8 and 9 were abandoned at trial. Item 10 involves coins worth $220. The sum is too trivial, considering this debtor’s circumstances, to support a finding that the debtor “knowingly and fraudulently ... made a false *104oath.” Collier on Bankruptcy (15th ed.) II 727.04[1] n. 6.
Count 6 charges that the debtor has failed to explain satisfactorily his loss of $9 million between 1978 and 1984. Relying upon the findings made by the Kentucky court which rendered judgment for the plaintiff, I find that the debtor was deceived by the plaintiff creditor into the purchase of a grossly overvalued coal mine which could not be operated except at a loss. This, with the debtor’s other business reverses, satisfactorily explains his inability to pay his debts.
Exception from discharge is sought in Count 8 under § 523(a)(2)(B). However, I do not believe that the plaintiff relied upon the debtor’s financial statement, an essential element to sustain this count. In fact, I do not believe that the plaintiff even received or saw the statement before the agreement for sale was signed, in which case, plaintiff could not have relied upon the statement. Plaintiff has failed, therefore, to prove the elements required by § 523(a)(2)(B)(iii).
This leaves Counts 1, 2 and 3 which are an entirely different story. Each has been substantiated and each requires denial of discharge under § 727(a)(2). That section prohibits discharge of a debtor who during or within a year before bankruptcy, has transferred property:
“with intent to hinder, delay, or defraud a creditor or an officer of the estate.”
Count 2 presents the clearest case. On October 25, 1983 (11 days after bankruptcy), the debtor and his wife transferred to his children a Vsth interest in Tennessee land plus oil and gas mineral rights. The land and mineral rights are worth an estimated $1.2 million. There was no consideration for the transfer. The defense is that the deed was signed and delivered four years earlier. It is argued that the “transfer” occurred when the deed was executed and delivered, well before the year covered by this statute, rather than on the date the debtor recorded the deed.
There has been a split of authority. Collier on Bankruptcy (15th ed.) 11727.-02[2] n. 3. However, I am persuaded by the only Circuit decision in point, In re MacQuown, 717 F.2d 859 (3rd Cir.1983), which holds that the date of recordation is the date of transfer for the purposes of a similar provision in the former Act. In that case and in this one, the transfer was not perfected under applicable State law as against bona fide judgment creditors, purchasers, or mortgagees until recordation.
As the court noted, the old Act and the present Code define when a transfer occurs for the purpose of avoiding fraudulent transfers made within a year before bankruptcy:
“For the purposes of this section, a transfer is made when such transfer becomes so far perfected that a bona fide purchaser from the debtor against whom such transfer could have become perfected cannot acquire an interest in the property transferred that is superior to the interest in such property of the transferee. ..”. 11 U.S.C. § 548(d)(1).
Although this provision is not explicitly made applicable to § 727(a)(2), there is no good reason why it should not be adopted by analogy.
As the Third Circuit has pointed out: “In short, the potential for controversy exists where the actual date of transfer is dispositive because the issue ultimately turns on credibility. In contrast, when the recording date is used there is little likelihood of dispute because the date is a matter of public record.” MacQuown at 862.
The presumptive legislative purpose in looking at the recording date is as applicable to § 727(a)(2) as it is to § 548. I find, therefore, that this transfer was made on the date the debtor recorded the deed to his children.
It is also clear to me that the purpose of the transfer was to defraud creditors. If there were any question of the debtor’s intent, the fact that less than two months later he recorded a deed conveying the remaining Vsth interest to the children *105dispels that doubt. Although this second transfer was detected too late to be alleged as a ground for denial of discharge, it may be considered as evidence of the debtor’s intent. I am satisfied that the second deed was recorded when the debtor discovered that the first deed conveyed only a partial interest. No reason has been suggested for either transfer by the debtor other than to defraud his creditors.
The debtor’s only other argument is that because the property transferred was held jointly with his wife as an estate by the entireties, his creditors were deprived of nothing by the transfer. I disagree.
Although an estate by the entire-ties is beyond the reach of the creditors of only one spouse in Tennessee as well as in Florida, it is not beyond the reach of the creditors of both. For that reason, in bankruptcy, that part of the estate by the entir-eties which is equal to the claims of creditors of both spouses is subject to the claims of creditors through the bankruptcy trustee. Napotnik v. Equibank & Parkvale Savings Assoc., 679 F.2d 316, 320 (3rd Cir.1982). The claim file in this case includes at least one such judgment claim in the amount of $86,712. I find, therefore, that the transfer in question here was of valuable property subject to the claims of creditors of the bankruptcy estate.
Discharge must be denied under § 727(a)(2)(B) on account of the transfer alleged in Count 2.
Count 3 rests upon the transfer without consideration of a $175,000 coin collection by the debtor to an adult son in August 1983, six weeks before bankruptcy. The transfer is admitted but the defense is that the coins had been transferred to the son 14 months before bankruptcy through a notarized but unrecorded bill of sale. I find that the debtor is estopped to deny that the property belonged to him at the time of the 1983 transfer.
This finding is based upon a pleading filed by the debtor and his testimony four months after the date of the bill of sale in a lawsuit in which he alleged that the coins were owned by him and his wife. The debtor had pledged and delivered the coins as collateral for a bank loan before the bill of sale was executed. The son never had possession of either the coins or the bill of sale before August 1983.
For the purposes of this action, it is not necessary to decide whether the son ever acquired title before August 1983 or whether, if he did, he merely held title in trust for his father or gave the coins back to him. I find that the debtor owned as well as had possession of the coins on August 30, 1983 when he gave them to his son and that he did so with intent to defraud his creditors.
The debtor has argued that the coins were entireties property at the time of the transfer. I have found that evidence insufficient, but if I am mistaken, that defense fails here for the same reason it fails in Count 2.
Discharge, therefore, must also be' denied under § 727(a)(2)(A) on account of the transfer alleged in Count 3.
Count 1 involves the transfer on September 30, 1983, 14 days before bankruptcy, of two shares owned by the debtor and his wife in the corporate Florida insurance agency. The transfer was to two adult sons and, like the other transfers, was without consideration. The transfer is undisputed. The debtor has defended with the same argument based upon the estate by the entireties that has been discussed in connection with Count 2. That argument must fail here for the same reason it fails there.
A second argument here is that the transfer represented only 2/ioooths of the insurance agency and, therefore, was of such insignificant value as to negate any inference of actual intent to defraud creditors. The argument is bolstered by the fact that the debtor’s schedules filed three months after the transfer of these two shares disclosed this transfer:
“My wife and I transferred to our children jointly owned stock certificate for 2 shares in Robert C. Roy Agency, Inc.”
*106In May 1973, ten years before bankruptcy, the other 998 corporate shares appear to have been issued to all four children. However, after the date of that document, the debtor repeatedly and consistently represented that he and his wife jointly owned the corporation through the two shares admittedly retained by them and transferred on the eve of bankruptcy.
This record reflects that: (1) The corporate tax returns for 1979 through 1982 each show the debtor to be the only shareholder. (2) In two financial statements to the Sun First National Bank, in 1978 and 1981, the debtor made the same representation. (3) The two shares were pledged to Sun First National Bank as collateral for a loan and in a 1982 action to recover the shares, the debtor alleged that he and his wife jointly owned the corporation through the two shares. (4) In 1982, the corporation’s chapter 11 bankruptcy petition signed by the debtor made the same representation. (5) In August 1982, the debtor and his wife made the same representation in a contract to sell the corporation to another creditor. The sale later fell through. (6) In March 1982 in a deposition taken by still another creditor, the debtor testified that there were only two shares issued, one owned by his children and the other by him and his wife. In at least three of these instances, the debtor represented that this interest had a substantial value ranging from $1,000 to $2,500,000.
I find the debtor estopped now to argue that the transfer was of little or no value to his estate at the time of transfer. I find that the property transferred had substantial value.
I also find that the debtor’s actual intent and purpose in transferring the two shares was to defraud his creditors. No other plausible purpose has been suggested. If this had been the only transfer in the record before me, T could give greater weight to the debtor’s voluntary disclosure three months later of the transfer. It was not. On this record, therefore, I can only conclude that this transfer was another last minute effort by the debtor to place his remaining assets beyond the reach of his creditors.
It follows that discharge must additionally be denied under § 727(a)(2)(A) on account of the transfer alleged in Count I.
As is required by B.R. 9021(a), a separate judgment will be entered denying discharge under § 727(a)(2)(A) and (B). Costs may be taxed on motion. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489888/ | JON J. CHINEN, Bankruptcy Judge.
The Motion of the Trustees of the Richard Kazuo Kishi Trust, (“Kishis”), for the Court to reconsider and vacate its May 8, 1984 Order granting the Motion of the Mel-vyn Choy, Evan Cruthers, Desmond Brooks and Thomas Pagliuso and Troy Corporation to Approve the Second Revised Sublease to Spencecliff Corporation and the Amended Sublease to Surf sports Hawaii, Inc., to Terminate the Grecos’ Claim to Possession and Rental from the Reserved Premises, and to Order the Kishis to Execute Attornment and Estoppel Documents having been considered by this Court, and the Court having held evidentiary hearings on July 10, 11, and 12, 1984, regarding the issue of whether the rental to be paid by Spencecliff to Troy under the Second Revised Sublease constitutes that which would be charged by Troy Corporation if it assumed the construction obligations, and counsel William Crockett, Lex Smith, Erik Zen, and James McWhinnie appearing, and the Court having considered all of the evidence, pleadings and arguments of counsel and being fully advised in the matter, makes the following findings of fact and conclusions of law:
FINDINGS OF FACT
1. On February 21, 1975, the debtors herein, Rene and Anthony Greco, entered into a Lease with the Kishis covering the property located at 736 Front Street, Lahai-na, Maui.
2. On September 20, 1978, the Grecos entered into a Development Sublease with Troy Corporation.
3. On November 16, 1979, Anthony Gre-co filed for relief under Chapter 11 of the Bankruptcy Act. On March 25,1980, Rene Greco filed for relief under Chapter 11 of the Bankruptcy Act.
4. On May 12,1980, Rene Greco filed an Application to Assume the Lease and to enter a new sublease with Troy Corporation. The Kishis opposed Rene Greco’s Application to Assume the Lease.
5. To compromise their differences and to provide a basis for reorganization of the Greco Estate, the Kishis, the Grecos and Troy Corporation agreed on a series of transactions whereby the Grecos were to surrender the lease to the Kishis and cancel the Development Sublease with Troy Corporation. At the same time, Kishis and Troy Corporation were to enter into a new long term lease, (“Kishi-Troy Lease”). These transactions were presented to the court in an “Application for Approval of Settlement” which was heard on June 30, 1980, together with the hearing on the confirmation of the Plan of Reorganization submitted by Rene Greco.
*1786. Counsel for the Kishis appeared at the hearing on June 30, 1980 and requested several revisions in the proposed lease between the Kishis and Troy Corporation which revisions were accepted by Troy Corporation. The Plan of Reorganization was thereafter approved by the Court.
7. The Kishi-Troy Lease does not require consent on the part of the Kishis to a sublease by Troy Corporation. The Lease provides, in pertinent part:
11(c) Subleases. Lessee shall have the right, from time to time during the term of this lease, to sublet all or any part or portion of the premises to one or more qualified persons or entities without the prior consent or approval of the Lessors.
8. Section 2 of the Kishi-Troy Lease provides, in part:
Lessors and Lessee understand that the Lessee intends to sublease parts of the premises to (a “Subtenant”) who will have possession of, and operate and use the same in the highest and best use, to carry on an active business under a sublease instrument (a “Sublease”), that will provide for the payment of various amounts to the Lessee, which will be the basis for the computation and payment to the Lessors of the quarterly percentage rent.
9. The Kishi-Troy Lease entitled the Kishis to quarterly percentage rent in an amount equal to ten percent (10%) multiplied by the gross receipts for the premises. Said lease defines “Gross Receipts for the Premises,” in part, as:
[A]ll payments of any kind received by the Lessee for the use, possession or operation of the premises, or any part thereof, from any person (including without limitation rents, leasehold premiums, franchise fees or the like).
10. Under the Kishi-Troy Lease, Troy Corporation is to cause the existing premises to be renovated so that there will be a building of a minimum of 7,500 net renta-ble square feet.
11. Troy Corporation (as sublessor) and Spencecliff Corporation (as sublessee) have executed a document entitled “Second Revised Sublease,” which terminates on January 30, 2035.
12. Under the Second Revised Sublease, Spencecliff will renovate the building to provide a minimum of 7,500 square feet net rentable area.
13. Experts testifying at the hearing stated that it is impossible to tell from the drawings presently available whether there will be more than 7,500 square feet available when the renovation is completed.
14. The Second Revised Sublease, has among others, the following provisions:
(a) Spencecliff is to pay rent beginning February 1, 1984.
(b) Spencecliff is to complete renovation of the subject property on or before July 31, 1985.
(c) Spencecliff is to pay monthly rent upon completion of the renovation in the amount of $10,000 or 7% of Spenceeliff’s gross sales whichever is greater.
(d) Fixed minimum rents paid (or credited) are to be adjusted two years and nine months after completion of the renovation to the greater of either (a) $10,000 or (b) 85% of average monthly rent (fixed and percentage, without regard to rent credits) during the preceding 2 years and 9 months. Thereafter, fixed rent will be adjusted every ten years to either (a) the fixed rent for the previous fixed rent period or (b) 85% of average monthly rent during the previous three years (fixed and percentage, without regard to rent credits) whichever is greater.
(e) Fixed rents are to be adjusted periodically according to the percentage rents paid by Spencecliff. Accordingly, the fixed rent will be adjusted according to the amount of business done on the premises.
15. Troy Corporation will pay the costs of renovation of the property, together with 12% interest, through credits against Spencecliff s rent. Section 4 of the Second Revised Sublease provides for Spencecliff to offset the construction costs against rent by a set formula.
*17916. Section 4(d) of the Second Revised Sublease specifically states:
It is the intent of the parties that this construction credit will not affect Troy Corporation’s “gross receipts” upon which the rent from Troy Corporation to the Kishi Trust is based.
17. The experience and past success of a restaurant operator are significant factors to be taken into consideration when determining whether the rent provisions of a given lease are fair and reasonable. A tenant with numerous prior successful restaurant operations will generally pay lower rent than a tenant entering its first restaurant venture.
18. The most desirable portion of the subject building is the portion closest to the street on the ground floor level. Other than the ground floor portion closest to the street, the most desirable portion of the subject building is the upstairs portion closest to the street. The portions of the property located farthest away from Front Street are the least desirable, and the fair rental value of these portions is much less than the front portions.
19. The rental value of the portions of the subject property located farthest away from Front Street is further diminished by the fact that the rear portion of the property is only twenty-five feet wide, while the front portion is 42 feet wide.
20. At the hearing, expert witnesses for both Troy Corporation and the Kishis used as a “comparable” a sublease, made July 5, 1984 between Kiare Enterprises (“Kiare”) and West Maui Restaurant, Inc., (“Kiare Sublease”) for the adjoining building.
21. The Kiare Sublease covers the entire second floor of the Kiare Building, approximately 3,200 square feet, together with that portion of the first floor immediately facing Front Street sufficient for an entry and stairway to the second floor restaurant. In addition, section 21.01 of the Kiare Sublease gives the tenant an option on a first floor retail space which faces Front Street.
22. The Kiare Sublease provides for a percentage rent of 7 lk% through October 31, 1984, and thereafter 8% of annual gross sales up to $1,400,000; 5% of annual gross sales over $1,400,000 through $2,000,000 and 4% for sales above $2,000,000.
23. Expert witnesses estimated that under the Amended Sublease to Surfsports Hawaii, Inc., Surfsports would occupy approximately 1,200 square feet of desirable space on the first floor facing Front Street. If the Kishi building, after renovation, contains 7,500 square feet net rentable area, Spencecliff will occupy approximately 6,300 square feet. Thus, Spencecliff will pay fixed rent of approximately $1.58 per square foot.
24. If Spencecliff and/or Troy are able to construct a building larger than 7,500 square feet net rentable area, there will be no prejudice to the Kishis.
25. The fact that the subject property has been involved in protracted and continuing litigation has a tendency to reduce the amount of rent at which Troy Corporation could sublease the property.
26. The fact that any sublease entered by Troy Corporation is subject to the approval of Rene Greco and Anthony Greco has a tendency to reduce the amount of rent which Troy Corporation could charge for the property.
27. Although the Kishi-Troy Lease specifically permits Troy to sublease without the consent of the Kishis, any sublease entered by Troy Corporation is subject to attack by the Kishis. This possibility of additional litigation before this Court tends to reduce the amount of rent which Troy Corporation can charge for the property.
28. The fact that, at the time negotiations were entered with Spencecliff, the entire front portion of the property was leased to Surfsports Hawaii, Inc., necessitating negotiation with Surfsports Hawaii, Inc. in order to obtain important ground floor frontage on Front Street, has a tendency to reduce the amount of rent which Troy Corporation can charge for the property.
*18029. The Second Revised Sublease gives Spencecliff the right to terminate the sublease if a variance is not granted with respect to county and municipal requirements for the provision of off-street parking. If no variance is granted, Spencecliff will be required to either purchase offsite parking or terminate the sublease.
30. Substantial renovation of the property will require that offsite parking be provided. Although Spencecliff has the right to terminate the Second Revised Sublease in the event that a parking variance is not granted, the fact that after renovation any tenant will have to either obtain a variance or provide parking is likely to reduce the number of tenants interested in subleasing the property, thus reducing the fair rental value of the property.
31. The two witnesses for Troy Corporation acknowledged that, if Troy Corporation had constructed the improvements, Troy Corporation would have to recover the construction costs within the term of the lease. Such costs may be part of the lease rent. However, both witnesses further testified that, under all the circumstances surrounding the Kishi’s property, a minimum of $10,000 was a fair return to Troy Corporation. They testified that Troy Corporation is unlikely to find a tenant willing to pay a higher rent than provided under the Second Revised Sublease.
32. The witness for Kishi’s agreed that a minimum rent ranging between $8000.00 and $12,000 per month is fair.
33. Troy Corporation has diligently and efficiently undertaken to sublease parts of the premises at the highest and best rents to subtenants.
34. Pursuant to the Second Revised Sublease, Spencecliff intends to borrow funds to pay for the cost of construction on the subleased premises. Troy requests that this Court order the Kishi Trustees to execute a consent and estoppel certificate (in the form of exhibit B attached to the Second Revised Sublease) to Spencecliff’s lender for the loan.
35.Spencecliff is a subtenant of Troy. The Master Lease between Kishis and Troy provides for the protection of a mortgage of Troy’s leasehold estate. The Master Lease does not contain any provision whereby the Kishi Trustees agreed to execute an instrument to protect a mortgage of a subtenant’s subleasehold estate.
CONCLUSIONS OF LAW
1. This Court has jurisdiction over the Kishi-Troy Lease as it affects the Greco Estate. The cancellation of the Kishi-Gre-co Lease, the execution of the new Kishi-Troy Lease and the execution of the Trust documents were part of one transaction. Anything dealing with the Kishi-Troy Lease which affects the Greco Estate is a related proceeding.
2. The Kishis’ effort to prevent Troy Corporation from subleasing the property to Spencecliff Corporation is a related proceeding affecting the Greco Estate, thus this Court has jurisdiction over the matter.
3. The Kishi-Troy Lease does not require consent on the part of the Kishis to a sublease by Troy Corporation.
4. The Second Revised Sublease between Troy Corporation and Spencecliff Corporation does not violate terms of the Kishi-Troy Lease. Troy Corporation has complied with all terms and requirements of the Kishi-Troy Lease relating to subleases, including all provisions of section 2 of the Kishi-Troy Lease relating to percentage rents payable by Troy Corporation to the Kishis.
5. The Kishi-Troy Lease requires Troy Corporation to pay to the Kishis percentage rent based on the total rent received by Troy Corporation for the use, possession or operation of the premises whether paid in cash or otherwise. In computing percentage rent due to the Kishis,' Troy Corporation must include in its “gross receipts for the premises” all rents which are credited against the costs of construction on the premises as well as those which are received in cash.
*1816. Troy Corporation is not entitled to a specific performance judgment that compels the Kishi Trustees to execute the Kishi/Spencecliff Lender Consent because the Master Lease does not contain any provision whereby the Kishi Trustees agreed to execute such an instrument on behalf of a subtenant’s mortgagee.
Let Judgment be entered accordingly. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489889/ | MEMORANDUM DECISION
FREDERICK A. JOHNSON, Bankruptcy Judge.
This proceeding involves an issue which occasionally arises in bankruptcy cases but seldom creates as much animosity as it has in this relatively small Chapter 7 case. The trustee seeks to enjoin or disqualify Robert G. Frazier, who represents the debtor, from serving as counsel in this bankruptcy case to Stephen A. Freeman, sole shareholder of the debtor, individually, and Atlantis Solar Rooms, Inc., a new enterprise organized by Freeman.1 The trustee claims that Frazier’s representation of these multiple parties constitutes a conflict of interest. The court concludes that, in this case, the trustee is correct.
The corporate debtor filed a voluntary petition under Chapter 7 of the Bankruptcy Code on February 15, 1983. Frazier was, and is, the debtor’s attorney of record. Paulette Parker was appointed interim trustee on February 22, 1983, by the United States Trustee and later was appointed as trustee under 11 U.S.C. § 15703(b).
Prior to undertaking the bankruptcy case neither Frazier nor any member of his firm had represented the corporate debtor or Freeman, its sole shareholder. Since the filing of the petition, Frazier has represented both Freeman individually and a new corporation organized on April 25, 1983, by Freeman and others.
During March, Frazier, on Freeman’s behalf, negotiated with the trustee for the purchase of certain assets of the debtor, including office furnishings, equipment, and the corporate name. Negotiations eventually broke down and disputes arose regarding turnover of property to the trustee. Each party blames the other for delays in turning over the estate property to the trustee. Without deciding who was responsible for the delays, this court, on June 15, 1983, ordered that Freeman and/or Atlantis Solar Rooms, turn over estate property to the trustee or the trustee’s nominee. The order has been complied with.
In the meantime, relations between the trustee and Frazier became even more disputatious, and Mr. Ralph Dyer, senior partner of Frazier’s firm, became involved in the case.
The lawyers have engaged in extensive discovery, sought protective orders and sanctions, filed numerous motions, affidavits, memoranda, complaints, and counterclaims worthy of a large reorganization case.
The difficulties have arisen from the trustee’s insistance that because of a conflict of interest, Frazier can not simultaneously represent in this bankruptcy case the corporate debtor, Freeman, the debtor’s *263sole stockholder and officer, as an individual, and Freeman’s new corporation. Frazier, who admits that he represents all three entities, with equal insistance denies that a conflict exists.
Maine Bar Rule 3, as adopted by the Supreme Judicial Court of Maine, is the Code of Professional Responsibility for this court. See Rule 5(d)(2) of the Rules of the United States District Court for the District of Maine.
Bar Rule 3.4(c) provides:
(c) Multiple Employment Forbidden. A lawyer shall not continue multiple employment if the exercise of his independent professional judgment in behalf of a client will be, or is likely to be, adversely affected by his representation of another client, or if it would be likely to involve him in representing differing interests, except to the extent permitted by subdivision (d) of this rule.
Is Frazier engaged in “multiple employment” within the meaning and intent of Bar Rule 3.4(c)? The answer to this question is not always clear in the case of a closely held, one person, corporation such as the one we are concerned with here. At least one court has said:
in a small, closely held corporation the rights of the individual stockholders who control the corporation and of the corporation are virtually identical and inseparable. ...
In re Brownstein, 602 P.2d 655 (Or.1979).
In a bankruptcy case, however, the rights and interests of the debtor corporation and those of its officers and stockholders are not always virtually identical and inseparable. In many cases they are clearly adversarial because of the intervention of the rights of creditors and other parties in interest. It is elementary that the corporate debtor, Freeman as an individual, and his new corporation are all separate legal entities. Ulmer v. LimeRock Railroad Co., 57 A. 1001, 98 Me. 579, 594 (1904); 1 W. Fletcher, Cyclopedia of the Law of Private Corporations § 25 (C. van Swearingen rev. ed. 1983). It, therefore, is obvious that Frazier is in a “multiple employment” situation.
Does his multiple employment involve him in representing differing interests? In • many bankruptcy cases involving small, closely held corporations, such multiple employment does not place an attorney in the uncomfortable position of representing differing interests. This is especially true in chapter 7 (liquidation) cases. The interests of the debtor corporation, its officers, and its stockholders are often identical. Each seeks to maximize a recovery for the estate upon liquidation of the debtor’s assets.2 This is especially true when the officers are personally liable for taxes and/or when the officers or stockholders have personally guaranteed the corporate debts, which is often the case.
Another element is present in this case, however. Freeman, sole stockholder and only officer of the corporate debtor, has organized a new corporation, Atlantis Solar Rooms, Inc., with the objective of continuing in business. In furtherance of that objective, Freeman, on behalf of his new business enterprise, seeks to purchase from the estate certain of the debtor’s assets and the corporate name. When Frazier, attorney of record for the debtor, began to negotiate the purchase with the trustee, Frazier was in a position of multiple employment “likely to involve him in representing differing interests” within the meaning and intent of Bar Rule 3.4(c). The conflict arises because section 521 of the Bankruptcy Code requires the debtor to cooperate with the trustee as necessary to enable the trustee to perform the trustee’s duties and to surrender to the trustee all property of the estate. In the case of a corporate debtor Bankruptcy Rule 9001(5)(A) provides that: “debtor,” if designated by the court, includes “any or all of its officers, members of its board of directors ... a controlling stockholder or *264member, or any other person in control[.]” The court can find no record of having designated Freeman under the rule. However, all parties have proceeded under the assumption that Freeman, as the sole and controlling stockholder is the person who should be so designated. The fact that he was not so designated is not material to this decision.
When Freeman, the individual, opened negotiations, through Frazier, for the purchase of the corporate debtor’s assets and the corporate name from the debtor’s estate, Frazier was representing differing interests. Freeman, controlling stockholder, was required to cooperate with the trustee and to surrender to the trustee all property of the estate. The trustee was, under 11 U.S.C. § 323, the representative of the estate charged with the duty to collect and reduce to money the property of the estate, 11 U.S.C. § 704(1), investigate the financial affairs of the debtor, section 704(3), and furnish information concerning the estate and the estate’s administration to parties in interest, section 704(6).
It is in the interest of the estate, represented by the trustee, with the cooperation of the “debtor” in the person of Freeman, sole and controlling stockholder, to expeditiously collect the property of the estate and to liquidate the property for the highest possible price.
Freeman, the individual, on the other hand, was interested in purchasing the assets and corporate name for the lowest possible price, and in delaying turning over property of the estate pending negotiations. There were delays in this case. Frazier and the trustee blame each other for the delays. It is not necessary for the court to assess blame. The issue is not who caused the delays but, rather, whether Frazier’s multiple representation is “likely to involve him in representing differing interests_” Bar Rule 3.4(c). The court concludes, as it must, that Frazier’s employment by the debtor, Freeman, as an individual, and Freeman’s new corporation, Atlantis Solar Rooms, Inc., does so involve him.
Under certain circumstances multiple employment is permitted under the Bar Rules. Rule 3.4(d) provides:
(d) Multiple Employment Permitted. A lawyer may represent multiple clients if it is obvious that he can adequately represent the interests of each and if each consents to the representation after full disclosure of the possible effect of such representation on the exercise of the lawyer’s independent professional judgment on behalf of each.
Bar Rule 3.4(d) requires the consent of each client, i.e.: the debtor, Freeman as an individual, and Atlantis Solar Rooms, Inc. The record does not reveal whether Freeman and Atlantis Solar Rooms, Inc., have consented. It is clear, however, that the debtor has not consented. Only the trustee could give such consent on behalf of the debtor. In re Pacific Homes, 1 B.R. 574, 579 (Bankr.C.D.Cal.1979). See also In re National Trade Corp., 28 B.R. 872 (Bankr. N.D.Ill.1983); In re O.P.M. Leasing Services, Inc., 13 B.R. 64 (S.D.N.Y.1981). The trustee has consistently objected to Frazier’s multiple representation. Absent the trustee’s consent, which in most small chapter 7 cases should be, and is, readily given in the interest of economy and efficiency, Bar Rule 3.4(d) does not apply.
It has been argued that in a liquidation case under chapter 7 the corporate debtor ceases to exist and therefore has no “interest” in the outcome of the case, such as an individual debtor or a corporate debtor attempting to reorganize under chapter 11, would have. This argument is without merit. The corporate debtor does not cease to exist pending the administration of the case. The debtor, acting through its responsible officers, directors, or controlling stockholders, has a duty to cooperate with the trustee, surrender to the trustee all property of the estate and perform the other duties required by 11 U.S.C. § 521. The conflict arises because Freeman’s duty to cooperate with the trustee in his capacity as controlling stockholder collides with his individual interest in purchasing certain *265assets and the corporate name from the estate.
Bar Rule 3.5(b)(2) mandates that a lawyer representing a client “before a tribunal ... shall withdraw from employment ... if: (ii) He knows, or should know, that his continued employment will result in a violation of these Rules[.]” Frazier must withdraw from employment by Freeman, as an individual, and Freeman’s new corporation, Atlantis Solar Homes, Inc., in this bankruptcy case.
An appropriate order will be entered.
. Frazier, in turn, has sought removal of the trustee. That issue will not be considered at this time. Both parties have also complained to the Board of Overseers of the Bar.
. "The commencement of a case under 301, 302 or 303 of this title creates an estate.” 11 U.S.C. § 541. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489890/ | ORDER
JAMES E. YACOS, Bankruptcy Judge.
This case came before the court for a hearing on August 27, 1984 pursuant to a Notice of Intended Sale filed by the trustee on June 5, 1984, and an objection thereto filed June 27, 1984 by the debtor pro se, on his own behalf, and also purporting to be on behalf of Joanna Claire Settle.
The notice of sale required any objections to be filed by June 25, 1984, but the court overruled the trustee’s objection in that regard and heard the debtor on his objection to the sale. At the conclusion of the hearing the court dictated various findings and conclusions into the record, which are hereby incorporated by reference, and announced its ruling that the objections to the sale could not be sustained, as a matter of the law of this case.
The matter is one of some urgency since the assets in question have been accumulating administrative storage costs ever since the trustee obtained possession of the same in 1979 from locations at which they had been secreted by the debtor. The delay apparently has been due to various lawsuits and appeals which were pursued by the debtor in this and other proceedings. Suffice it to say that the assets at the Massachusetts location apparently are not worth much more than the storage costs that now have accumulated against them. The assets in the Vermont locations, while having excess value, are subject to substantial storage charges that are eroding the equity that would otherwise be available for a dividend to creditors in this estate.
The heart of the objection the debtor raises to the sale is that Judge Betley, the then bankruptcy judge, improperly deter*272mined in several orders entered in 1981 that ownership of the assets in question had vested in the trustee, free of various claims of the debtor and his relatives thereto. See 14 B.R. 31.
This matter has previously been exhaustively litigated by the debtor and trustee, both by direct appeal in this proceeding, and in a separate lawsuit brought by the debtor in the U.S. District Court in Vermont. These matters were taken up to the First Circuit and Second Circuit Court of Appeals, respectively, with denial of certio-rari by the U.S. Supreme Court, and have been determined adversely to the debtor and such rulings became final in the present case on December 13, 1982, and in the Vermont case on March 30, 1984. For ease of reference, the pertinent orders and decisions are attached as Annexes A through H to this Order. (Vt. Orders appear as Ex. C to Trustees 7/17/84 Motion to Dismiss herein.)
In a transparent attempt to avoid the binding effect of the foregoing, the debtor has added a motion to set aside Judge Betley’s orders under FRCP 60(b) (adopted by Bankruptcy Rule 9024 with certain changes) within his objection to the sale, asserting “void judgment” by Judge Bet-ley. He also demanded in his pleading that the “Motion” be heard before an Article III Judge. However, he was ambivalent at the hearing as to whether he did or did not submit the “Motion” to the undersigned for ruling. In the circumstances, since I believe the motion is not sustainable, as a matter of law, and that the issue is inseparable from the objection to the sale in any event, I include that ruling in this order. No prejudice arises since the District Judge in any appeal will be able to consider that legal question de novo.
The basic ground set forth in the body of the debtor’s pleading is that Judge Betley’s “default judgment” was void because it granted relief in excess of that requested by the trustee in any formal complaint, in violation of FRCP 54(c), and the judgment therefore was void and can be set aside under FRCP 60(b)(4).
The judgment in question was entered after several days of trial when the debt- or’s wife failed to reappear after vigorous cross-examination had commenced, and due to a pattern of repeated late appearances by the debtor. Passing the question of whether this was a “default” within the meaning of Rule 54, it is abundantly clear from the early record of this case that the debtor was quite clearly apprised of the “relief” involved.
The trustee had seized the assets in question by virtue of ex parte orders entered by the bankruptcy judge on the basis that the debtor had deliberately secreted the assets and not disclosed them on his schedules.
The issue for determination at the hearings in December 1980 and January 1981, therefore, was quite clearly the question of any ownership rights that the debtor or his relatives had in assets which were already in the trustee’s possession under a claim of right. The First Circuit notes that the notice of the hearings in question specified such was the issue for determination. (See Annex H, page 1, paragraph 1) As a matter of law I conclude that the entire record of these proceedings prior to the hearings, and the nature and circumstances' surrounding the entry of the judgment, do not constitute a violation within the scope of Rule 54(c). Accordingly, there is no legal basis to support a Rule 60(b)(4) setting aside of the judgment on the “voidness” ground.
The debtor also includes a short reference at the outset of the motion to effect that the judgment was not only void, but also was obtained “by fraud, collusion, corruption of the court & ex parte communication with the court”, without any further specification of specific facts alleged to establish such fraud and collusion. Presumably the debtor seeks to set aside the judgment on the “fraud” provision of Rule 60(b)(3).
To the extent that this “ground” relates to the simple fact of ex parte contacts, between the judge and the trustee, that contention certainly has been loudly proclaimed by the debtor in the various ap*273peals and the adverse determination thereon is now res judicata and final.
To the extent the debtor seeks to assert some new contention of actual fraud on the part of the bankruptcy judge and the trustee, FRCP 9(b) (adopted by B.R. 7009) requires that such allegations be set forth with particularity. This noncomplying pleading accordingly can be stricken in this respect for that reason alone. Moreover, in the circumstances of the assets of this estate being eaten up by storage charges as set forth above, this contention can appropriately be stricken with prejudice — in a motion filed one and one-half years after the judgment in question became final by denial of certiorari in the Supreme Court.
Independently, Rule 60(b) requires subsection (b)(3) fraud motions to be filed within one year of the entry of the judgment being challenged. While Bankruptcy Rule 9024, in adopting Rule 60 exempts certain matters from any one-year limitation, neither exemption applies here in the judgment of the court. Even if the one-year limitation were found inapplicable for any reason, the court would conclude that the resulting “reasonable time” standard in Rule 60 would not be satisfied in this case. In addition to the long delay since the entry of the judgment, the court notes that the debtor’s contention of “new” fraud grounds comes some ten months after the death of Judge Betley in August of 1983. He is no longer here to defend himself.
Finally, it is apparent throughout the debtor’s pleading, as confirmed by his oral argument before the court, that his most vociferous complaint is that he has never had a chance to present his full case to this court. That is quite correct — in the sense that Judge Betley terminated the 1980-81 hearings as indicated. But it was precisely the issue of whether Judge Betley was justified in so acting that was the subject of the appeals that were taken by the debt- or. The law of this case now is that Judge Betley was justified in his action. I have no warrant to second-guess that action at this stage, and in my opinion the present objections and motions are simply an effort indirectly to get “one more bite” of that apple.
Wherefore, in accordance with the foregoing findings and conclusions, it is accordingly
ORDERED, ADJUDGED and DECREED as follows:
1. The trustee is authorized to proceed with the sales as set forth in his Notice of Intended Sale filed June 5, 1984, and as further provided hereunder.
2. The objection to the sale, and all Rule 60(b) motions to set aside judgment contained therein, filed by the debtor as indicated above on June 27, 1984, are hereby denied, with prejudice, and without leave to amend.
3. The trustee shall proceed at the earliest practicable time with a public auction of the personal property stored at Bolster Warehouse, Brattleboro, Vermont, and in Keene, New Hampshire. Said auction shall be conducted by auctioneer Paul Lawton and Son of West Chesterfield, New Hampshire at Lawton’s auction barn, Brattle-boro, Vermont. The auctioneer Lawton shall receive 20 per cent of the gross sales as his compensation, which includes his services in addition to the necessary expenses of promoting and conducting the auction.
4. The personal property of the debtor stored at Hallmark Van Lines Warehouse, Holyoke, Massachusetts, is subject to a warehouseman’s lien for storage charges in excess of $5,500. The trustee shall make prompt arrangements with Hallmark for a Warehouseman’s Lien Sale (under the laws of Massachusetts) with the understanding that all proceeds therefrom in excess of Hallmark’s lien and necessary expenses of sale be the property of, and be paid over to, the trustee. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489891/ | MEMORANDUM AND ORDER
THOMAS M. TWARDOWSKI, Bankruptcy Judge.
In this Chapter 11 case, the American Bank and Trust Company of Pennsylvania (“American Bank”) has, pursuant to section 362(d) of the Bankruptcy Code, 11 U.S.C. § 362(d), brought a motion for relief from the automatic stay as to the debtors’ real property.1 American Bank has a mortgage *277and four judgment liens against said property. As of the date of the hearing on this matter, the parties agreed that the balance due on the mortgage was $39,944.25, and the balance due on the four judgment liens totalled $44,242.87, for a total secured indebtedness of $84,187.12. The parties also agree that the property is worth $62,-500.00. The debtors have claimed an exemption of $15,736.00 in the property.
American Bank argues, inter alia, that it is entitled to relief from the stay pursuant to § 362(d)(2) because the debtors have no equity in the property and the property is not necessary to an effective reorganization. As to the equity question, it is obvious, as American Bank points out, that the total debt secured by the property far exceeds the value of the property. Therefore, we find that the debtors have no equity in the property. The debtors’ argument to the contrary is that all but $6,819.75 of the judgment liens are subject to avoidance pursuant to sections 506 and 522(f) of the Bankruptcy Code, 11 U.S.C. §§ 506 and 522(f), and that the debtors’ claimed exemption should be considered as equity. We cannot accept this argument, however, because, for present purposes, it is sufficient to note that the debtors had not filed any lien avoidance actions as of the date of the hearing.
As to the “effective reorganization” issue, the debtors, of course, have the burden of proof. 11 U.S.C. § 362(g). While we sympathize with their plight, the debtors have presented no evidence “that there is a reasonable possibility of a successful reorganization within a reasonable time.” In re Mikole Developers, Inc., 14 B.R. 524, 526 (Bankr.E.D.Pa.1981).2
For the foregoing reasons, American Bank shall be granted relief from the automatic stay pursuant to § 362(d)(2) of the Bankruptcy Code.
. This Memorandum constitutes the findings of fact and conclusions of law required by Bankruptcy Rule 7052.
. Because we have found that American Bank is entitled to relief from the stay pursuant to § 362(d)(2), we need not consider American Bank's contention that it is likewise entitled to such relief pursuant to § 362(d)(1). | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489892/ | MEMORANDUM AND ORDER
THOMAS M. TWARDOWSKI, Bankruptcy Judge.1
In this Chapter 13 case, the plaintiffs have filed, pursuant to section 362(d) of the Bankruptcy Code, 11 U.S.C. 362(d), a complaint to modify the automatic stay as to real property of the debtors on which the plaintiff holds a long-term mortgage and as to the debtors’ stock in the Federal Land Bank Association which the plaintiff holds as collateral in addition to its mortgage.2 As of the date of the hearing, the debtors owed at least $247,457.09 in principal and interest to the plaintiff under the mortgage. We find that the subject real property has a fair market value of $238,000.00, as convincingly testified to by the plaintiff's appraiser. The debtors concede that they have no equity in this property and that the mortgage is in default.
The plaintiff argues, inter alia, that it is entitled to relief from the stay because the debtors have failed to provide adequate protection, pursuant to § 362(d)(1), of the plaintiffs secured interest in the property, which is $238,000.00, not including the stock. See 11 U.S.C. § 506(a). The debtors have attempted to provide adequate protection in the form of their proposed Chapter 13 Plan, as modified. Under this Plan, the plaintiff would receive $7,125.00 quarterly toward the payment of its mortgage. The debtors cannot afford to pay any larger amount and have been materially delinquent in paying even this amount. Based upon our valuation of the plaintiff’s allowed secured claim, supra, the payments proposed in the Plan are clearly insufficient to cure the substantial mortgage default within a reasonable time. See 11 U.S.C. § 1322(b)(5), 11 U.S.C. § 1322(c), and 11 U.S.C. § 1325(a)(1). Also see In re Reaps, 36 B.R. 1018 (Bankr.E.D.Pa.1984). Therefore, the Plan is fatally defective and is unable to adequately protect the plaintiff’s secured interest in the property. The debtors have not proposed any other method of adequate protection.
For the foregoing reasons, the plaintiff shall be granted relief from the automatic stay pursuant to § 362(d)(1) of the Bankruptcy Code.
. This Memorandum constitutes the findings of fact and conclusions of law required by Bankruptcy Rule 7052.
. The debtors do not oppose the complaint as to the stock. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489893/ | MEMORANDUM OPINION
THOMAS M. TWARDOWSKI, Bankruptcy Judge.
In this Chapter 7 case, the husband and wife debtors have filed, pursuant to § 522(f)(1) of the Bankruptcy Code, 11 U.S.C. § 522(f)(1), an application to avoid the judicial lien of the American Bank and Trust Co. of Pa. (“American Bank”). American Bank opposes the application. For the reasons hereinafter given, we shall deny the application.1
The judicial lien in question stems from a judgment entered by American Bank against the debtors on February 13,1980 in the Court of Common Pleas of Schuylkill County, Pennsylvania. The recording of said judgment created a lien on all real property of the debtors located in Schuylkill County. 42 Pa.Cons.Stat.Ann. § 4303 (Purdon 1983). The debtors’ resident real property in question is located in Schuylkill County. As of the date of the hearing, the amount due on the judicial lien was $3,159.56. American Bank also holds a mortgage against the real property, upon which the debtors owed $22,032.88 as of the hearing date. There are no other liens against the property.
The debtors claim an exemption of $4,000.00 in the real property.
The debtors’ appraiser valued the real property at $36,000.00. American Bank’s appraiser valued the real property at $41,-900.00.
Based upon the foregoing evidence, the debtors’ lien avoidance application must be denied, even assuming arguendo that we accept the $36,000.00 valuation of the debtors’ appraiser. The mortgage and judicial lien constitute a combined encumbrance of only $25,192.94. Under these facts, the debtors’ claimed exemption of $4,000.00 is simply not impaired by the judicial lien, and the lien avoidance application must, therefore, be denied.
. This Memorandum Opinion constitutes the findings of fact and conclusions of law required by Rule 7052 of the Bankruptcy Rules. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489896/ | OPINION
EMIL F. GOLDHABER, Chief Judge:
The issue at bench is whether an agency action denying a debtor’s mortgage assignment application withstands judicial review. The question is presented on the cross-motions of the debtor and the agency for summary judgment under Fed.R.Civ.P. 56 which is incorporated in this proceeding through Bankruptcy Rule 7056. For the reasons stated herein, we conclude that the agency determination was appropriate and will, therefore, grant the agency’s motion and deny the debtor’s motion.
The facts of the case are as follows: In 1981, Evelyn Madison (“the debtor”) purchased a home with a loan secured by a mortgage from the New York Guardian Mortgage Corporation (“the mortgagee”) which was insured by the United States Department of Housing and Urban Development (“HUD”). The debtor defaulted on the mortgage in 1982, and was notified that the mortgagee intended to foreclose. The debtor applied for an assignment of the mortgage to HUD under a program which provides for the acquisition of mortgages to avoid foreclosure. HUD made a final determination not to accept the assignment on the grounds that the debtor did not meet the program’s eligibility requirements. In April of 1983, the debtor filed a petition for adjustment of her debts under chapter 13 of the Bankruptcy Code (“the Code”), which was later converted to a chapter 7 proceeding. The mortgagee filed a proof of claim based on its mortgage. The debtor commenced the instant action against HUD and the mortgagee, seeking judicial review of the agency decision and declaratory and injunctive relief. The debt- or subsequently filed a motion for summary judgment, pursuant to Fed.R.Civ.P. 56, and, at the evidentiary hearing, HUD cross-moved for summary judgment.
We have determined that these matters constitute core proceedings which are subject to this court’s jurisdiction pursuant to 28 U.S.C. § 157.
HUD asserts that we may not exercise jurisdiction over this proceeding because the debtor seeks relief which would constitute a violation of a federal regulation. Section 203.650 of the Code of Federal Regulations states that a mortgage is not capable of assignment where the mortgagee is prevented by law from initiating foreclosure of the mortgage. 24 C.F.R. § 203.650 (1983). HUD contends that, since the mortgagee cannot foreclose on the mortgage as a result of the automatic stay, the assignment is legally precluded. This line of reasoning overlooks the fact that this proceeding is one of judicial review of a determination that took place four months before the commencement of the case when an assignment was possible. We, therefore, conclude that we may entertain the suit.
Section 702 of Title 5 provides that a person who is adversely affected by an agency action is entitled to judicial review thereof. 5 U.S.C. § 702. In the absence of a special statutory review proceeding, any applicable form of legal action, including *304actions for declaratory judgment or injunction, is appropriate. 5 U.S.C. § 703. In the case at bench, the debtor requests that this court define her legal rights under § 1715u of the National Housing Act, 12 U.S.C. § 1715u, enjoin foreclosure action by the mortgagee, and compel HUD to accept assignment of the mortgage.
The Supreme Court delineated the inquiry governing review of an informal agency action, pursuant to 5 U.S.C. § 706,1 in Citizens to Preserve Overton Park, Inc. v. Volpe, 401 U.S. 402, 91 S.Ct. 814, 28 L.Ed.2d 136 (1971): whether the Secretary of HUD acted within the scope of his authority; whether the choice made was arbitrary, capricious or an abuse of discretion; and whether the Secretary followed the required procedures. Since the debtor does not charge that the Secretary acted beyond the scope of his authority, or that there was a procedural violation, we are limited, on review of the proceeding, to the question of whether the decision was arbitrary, capricious or an abuse of discretion.
As we stated above, following default, the debtor applied for an assignment of her mortgage to HUD under a program which provides for the acquisition of mortgages to avoid foreclosure pursuant to 12 U.S.C. § 1715u. The reason that the debt- or gave for the default was that she had paid her son’s college tuition, as well as payments to several creditors. The debtor contended that she had expected to be reimbursed for the tuition expense through government grants and that, when the grants did not materialize, she was unable to accumulate the amount necessary to make her mortgage payments.
HUD rejected the application on the grounds that the default was not caused by circumstances beyond the debtor’s control.2 We disagree with the debtor’s contention.
To the contrary, the HUD Handbook for the mortgage assignment program gives illustrations of qualifying circumstances for default:
Curtailment of family income, such as unemployment or underemployment; loss, reduction or delay in receipt of federal, State, municipal benefits, (e.g., Social Security, Supplemental Security Income, Public Assistance, government pensions) or of private benefit payments (e.g., pensions, annuities, retirement plans); loss of support payments; or other loss of income due to divorce, illness or death.... Expenses related to death or illness in the mortgagor’s household or of family members living outside the household which have significantly reduced the amount of income available to meet the mortgage payment.
Administration of the Home Mortgage Assignment Programs, 4191.2 HUD Hand*305book § 2.1.(d). In noting that these examples are not exclusive, we hasten to add that they provide a sense of the kind of exigency which triggers § 1715u relief. We find that the circumstances leading up to the debtor’s default do not fall within the same category, and conclude that the agency determination was not “arbitrary, capricious or an abuse of discretion.”
The granting of a motion for summary judgment is appropriate only where there is no genuine issue as to any material fact and the moving party is entitled to a judgment as a matter of law. Fed.R.Civ.P. 56. The fact that cross-motions for summary judgment are presented does not change the standard and does not warrant the granting of summary judgment unless one of the moving parties is entitled to judgment as a matter of law on facts that are not generally disputed. Manetas v. International Petroleum Carriers, Inc., 541 F.2d 408 (3d Cir.1976), citing Rains v. Cascade Industries, Inc., 402 F.2d 241 (3d Cir.1968) F.A.R. Liquidating Corp. v. Brownell, 209 F.2d 375 (3d Cir.1954). Because we conclude that HUD is entitled to judgment as a matter of law on the undisputed facts of the instant case, we will grant its motion for summary judgment and deny the debtor’s motion.
. § 706 details the scope of review to be afforded an agency action:
To the extent necessary to decision and when presented, the reviewing court shall decide all relevant questions of law, interpret constitutional and statutory provisions, and determine the meaning or applicability of the terms of an agency action. The reviewing court shall—
(1) compel agency action unlawfully withheld or unreasonably delayed; and
(2) hold unlawful and set aside agency action, findings, and conclusions found to be—
(A) arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law;
(B) contrary to constitutional right, power, privilege or immunity;
(C) in excess of statutory jurisdiction, authority, or limitations, or short of statutory right;
(D) without observance of procedure required by law;
(E) unsupported by substantial evidence in a case subject to sections 556 and 557 of this title or otherwise reviewed on the record of an agency hearing provided by statute; or
(F) unwarranted by the facts to the extent that the facts are subject to trial de novo by the reviewing court.
In making the foregoing determination, the court shall review the whole record or those parts of it cited by a party, and due account shall be taken of the rule of prejudicial error.
. The relevant criterion which is found in § 203.640 of the Code of Federal Regulations states that the mortgagor’s default must be "caused by circumstances beyond the mortgagor’s control which rendered the mortgagor temporarily unable to correct the delinquency within a reasonable time and to make full mortgage payments_’’ 24 C.F.R. § 203.640. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489897/ | MEMORANDUM OPINION
THOMAS M. TWARDOWSKI, Bankruptcy Judge.
In this adversary proceeding, the plaintiff has filed, pursuant to section 523(a)(2)(A) and (B) of the Bankruptcy Code, 11 U.S.C. § 523(a)(2)(A) and (B), a complaint objecting to the discharge of the debtors’ joint debt to the plaintiff in the amount of $80,000.00. For the reasons hereinafter given,- we find that the debt is nondischargeable as to Francesco Scardino, but is dischargeable as to Anne Scardino, his wife.1
*311Through grossly fraudulent conduct, involving both oral and written statements, Mr. Scardino induced the plaintiff to extend a $100,000.00 line of credit to a corporation with which Mr. Scardino had no connection, and which was not involved in the transaction. Mr. Scardino fraudulently used the $100,000.00 for his own purposes. Subsequently, after the plaintiff learned of Mr. Scardino’s fraudulent conduct, and because of that fraudulent conduct, the debtors repaid $20,000.00 to the plaintiff and signed a judgment note payable to the plaintiff for the remaining $80,000.00. It is this $80,-000.00 judgment note debt which is the subject of the present proceeding.
The debtors argue that they committed no fraud with regard to the judgment note itself and that they did not receive any money, property, or consideration of any kind in return for signing the judgment note. Therefore, they contend that the judgment note debt is dischargeable.
We find no merit whatsoever in the debtors’ argument. It is abundantly clear to us that the judgment note debt is the direct result of Mr. Scardino’s prior grossly fraudulent conduct and cannot be considered separately from such conduct for dischargeability purposes. Therefore, we conclude that the debt is nondischargeable as to Mr. Scardino.
We find, however, that the plaintiff has not proven by clear and convincing evidence that Mrs. Scardino took part in her husband’s fraudulent conduct. Therefore, we conclude that the debt is dis-chargeable as to Mrs. Scardino.
. This Memorandum Opinion constitutes the findings of fact and conclusions of law required by Rule 7052 of the Bankruptcy Rules. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489899/ | MEMORANDUM AND ORDER
THOMAS M. TWARDOWSKI, Bankruptcy Judge.
In this Chapter 11 case, the plaintiffs have, pursuant to section 362(d) of the Bankruptcy Code, 11 U.S.C. § 362(d), filed a complaint seeking relief from the automatic stay as to the debtor’s real property.1
The evidence shows that the plaintiffs hold a first mortgage against the debtor’s real property and that the amount owed pursuant to the mortgage is in excess of $293,000.00. It is undisputed that the fair market value of the property is $154,500.00 or less. It is also clear from the record that the debtor does not have “a reasonable possibility of a successful reorganization within a reasonable time.” In re Mikole Developers, Inc., 14 B.R. 524, 526 (Bankr.E.D.Pa.1981). In this regard, the debtor has not operated its business in over four years and has not demonstrated any reasonable possibility that it can do so in the future.
Based upon the foregoing, it would appear that the plaintiffs are entitled to relief under § 362(d)(2) of the Bankruptcy Code, 11 U.S.C. § 362(d)(2). However, the debtor argues that it is entitled to a setoff of the mortgage debt of such magnitude that the remaining mortgage debt, if any, would be less than the fair market value of the property, thereby giving the debtor equity in the property and a valid defense under § 362(d)(2) to the plaintiffs’ complaint.
The debtor’s claimed setoff arose in connection with a zoning dispute between the debtor and Washington Township, North*314ampton County, Pennsylvania, the Township in which the subject real property of the debtor is located. Following extensive and unsuccessful negotiations to resolve the zoning dispute, the matter was litigated. On April 18, 1980, the Court of Common Pleas of Northampton County ruled in favor of the debtor’s right to operate its business on the subject real property. Following denial of the Township’s motion for reconsideration, the Township, on May 14, 1980, filed an appeal with the Commonwealth Court of Pennsylvania.
On May 30, 1980, well before the Commonwealth Court rendered its decision, the final agreement (after well over a year of negotiations) for the transfer of the property from the plaintiffs to the debtor was signed by the parties and consummated by the transfer of the deed, the payment of monies, and the execution of the mortgage. However, on April 23, 1981, the Commonwealth Court reversed the decision of the Common Pleas Court, thereby precluding the debtor from operating its business on the subject real property. Further legal action by the debtor on this matter was unsuccessful.
The debtor argues that the Commonwealth Court reversed because of its determination that the plaintiffs had previously violated the Township’s subdivision ordinance by conveying portions of its real property to persons other than the debtor without obtaining Township approval. Without delving into the details of this state court litigation, we shall assume ar-guendo that the debtor has correctly interpreted the Opinion of the Commonwealth Court. The debtor claims that the issue of the plaintiffs’ prior conveyances was not litigated in the Common Pleas Court and was not properly raised in either the Common Pleas Court or the Commonwealth Court. Therefore, contends the debtor, we should find the plaintiffs responsible for the debtor’s inability to use the property it purchased from the plaintiffs in the form of a setoff of the mortgage debt in an amount commensurate with the harm caused to the debtor.
We shall not, however, permit any setoff to the mortgage debt. Well before the end of 1979, the debtor and its counsel, as well as the Township, were aware of the plaintiffs’ prior conveyances.2 The debtor and its counsel were also aware at that time that the Township had taken the position that these prior conveyances were violations of the Township subdivision ordinance and that this was one of the arguments that the Township would use against the debtor in state court. We cannot hold the plaintiffs responsible for the debtor’s open-eyed error in judgment in consummating its transaction with the plaintiffs prior to the ultimate resolution of its lawsuit with the Township.
Therefore, we shall grant to the plaintiffs relief from the automatic stay pursuant to § 362(d)(2) of the Bankruptcy Code.
. This Memorandum constitutes the findings of fact and conclusions of law required by Bankruptcy Rule 7052.
. The plaintiffs took the position that their prior conveyances had not violated the Township subdivision ordinance. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489900/ | ORDER ON OBJECTION TO DEBTOR’S CLAIM OF EXEMPTION
ALEXANDER L. PASKAY, Chief Judge.
THIS CAUSE came on for hearing upon an Objection to Debtor’s Claim of Exemptions filed by New Port Richey Hospital, Inc. d/b/a Community Hospital of New Port Richey (Hospital), an unsecured creditor of Betty J. Gottling, the Debtor in the above-styled Chapter 7 case. The Hospital seeks the entry of an order disallowing the exemptions claimed by the Debtor pursuant to Art. X, § 4, Fla. Const, and § 222.01 et seq. based on the contention that the Debt- or is not the head of the household and is, therefore, not entitled to the benefits provided by the exemption laws of the State of Florida.
The facts are basically without dispute and can be summarized as follows:
On November 5, 1982, the Debtor, Betty J. Gottling, filed a Voluntary Petition for Relief pursuant to Chapter 7 of the Bankruptcy Code. The Debtor is a single woman, divorced, and she has one son, age 19, who up to the time he entered college, lived with the Debtor. On the date the Petition was filed, he was a full time resident student attending University of South Florida in Tampa, Florida. While it appears that he does spend some of his vacation time at the Debtor’s home and returns occasionally for a week-end visit, he does not reside with her. There is no doubt that the son’s educational expenses are born in part by government grants and in part by his father who resides in Illinois with his second wife and family.
The record reveals that on the date of the petition, the Debtor was unemployed, but that she receives permanent alimony in the amount of $425 per month and partial child support in the amount of $17.44 per week. While the Debtor does not provide primary financial support for her son, she claims to furnish shoes, clothes and insurance, to an unspecified extent, in addition to room and board on those occasions when he returns to his mother’s home.
On the schedules accompanying the Debtor’s Petition, she listed unsecured debts in the amount of $44,682.10, all attributable to medical expenses; and assets totalling $30,848.89, all of which are claimed as exempt property pursuant to Art. X, § 4, Fla. Const. The assets include real property claimed as homestead, valued at $30,000; a checking and savings account containing $103.89; personal clothing valued at $100.00; and household goods and furnishings valued at $645. As noted above, the Hospital contends that the Debt- or is not entitled to enjoy the benefits of the exemption laws inasmuch as she fails to qualify as head of household, a status which is indispensible in Florida to the right to claim these exemptions.
There is no doubt that in the State of Florida the exemption laws are available only to those who qualify to be head of the household. Nelson v. Franklin, 152 Fla. 694, 12 So.2d 771 (1943). In order to qualify as head of the family or household, there must be at least two persons who live together in relation of one family and one of them must be the “head” of that family. The family may be family at law, where a legal duty to maintain arises out of a family relationship, i.e. husband-wife; parent-child; or a family in fact, where the head of the household has a continuing personal authority, responsibility and obligation for the welfare of the others and the others recognize both the family relationship and the status of the head of the family. In re Kionka’s Estate, 113 So.2d 603 (1959). See also, Beck v. Wylie, 60 So.2d 190 (Fla.1952).
In this case, the Court is faced with a situation where the Debtor claims to be the head of the household, but her sole claimed dependent is an adult son who does *388not reside in the Debtor’s home; is not supported by her; is not obligated by law, legally or morally, to do so and most importantly, does not exercise the authority,- supervision or guidance over her son as head of a family unit consisting of herself and her son, an adult who is perfectly able to guide his own life and destiny and who is not a dependent on the Debtor either in an economic sense or in a moral sense.
It is true that in Florida a dependent need not be underage, Decottes v. Clarkson, 43 Fla. 1, 29 So. 442 (1901); Beck v. Wylie, 60 So.2d 190 (Fla.1952), and it is not even necessary that the dependent actually live with the purported head of the family on the homestead property. Vandiver v. Vincent, 139 So.2d 704 (Fla. 2d DCA 1962) citing Osceola Fert. Co. v. Sauls, 98 Fla. 339, 123 So. 780 (1929); Lockhart v. Sasser, 156 Fla. 339, 22 So.2d 763 (1945); Brogdon v. McBride, 75 So.2d 770 (Fla.1954). However, where the dependent does not reside on the homestead property with the head of household, the head of the household “must not only be obligated to, but must actually support such dependent.” Vandiver v. Vincent, supra at 709.
As noted earlier, the Debtor is not in any way obligated to support her son. His college expenses are paid by his father, who also pays child support, and with government funds by means of an educational opportunity grant. Further, the Debtor’s son has reached the age of majority, has no known physical or mental disabilities and has not been shown to be dependent in any sense upon his mother.
This Court is fully aware that the homestead exemption laws have always been liberally construed in order to preserve home and shelter for the family. However, even the most liberal construction of the law cannot, create a head of household status where none exists. While the result in this case is unfortunate in light of the Debtor’s illness, her unfortunate situation is of no consequence and plays no role in the resolution of the matter under consideration. In light of the foregoing, this Court is constrained to conclude that the Debtor is not the head of the household and, therefore, cannot claim the benefits of the exemption laws accorded by the Constitution of this State.
Accordingly, it is
ORDERED, ADJUDGED AND DECREED that the Objection to Debtor’s Claim of Exemptions filed by New Port Richey Hospital, Inc. d/b/a Community Hospital of New Port Richey be, and the same hereby is, sustained and the exemptions claimed by the Debtor are disallowed. It is further
ORDERED, ADJUDGED AND DECREED that the Trustee, George T. Had-ley, be, and the same hereby is, directed to administer those assets claimed by the Debtor, Betty J. Gottling. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489903/ | ORDER
CHARLES A. ANDERSON, Bankruptcy Judge.
Presently before the Court is General Discount Corporation’s [GDC] August 17, 1984, motion that debtor, O’Danny Boy, Inc., be held in contempt for failure to follow its confirmed Chapter 11 Plan of Reorganization. The Court heard this matter on September 6, 1984. The attorneys for both parties stressed the urgency for an immediate decision; the Court requested briefs within one week (by September 13, 1984). GDC filed its brief on September 14, 1984; debtor belatedly responded on September 24, 1984.
On April 1, 1983, O’Danny Boy, Inc. filed a voluntary petition for relief under Chapter 11. In its schedules, O’Danny Boy listed GDC as a secured creditor for $369,000 on four undisputed loans, which are secured by various “vans, semis and trailers.” The Security Agreements for these loans include the following language:
The proceeds of any sale or other disposition of any of the Collateral shall be applied first, to the payment of the reasonable costs and expenses of such sale or disposition and the reasonable compensation of Secured Party and its counsel; second, any surplus then remaining to the payment of particular Obligations in such order and manner as Secured Party may in its sole discretion determine; and third, any surplus then remaining to Debtor.
On July 26, 1983, GDC filed a complaint for relief from stay. The parties settled this matter and submitted a Settlement Agreement which was approved by the Court on November 4, 1983. The Agreement stated in pertinent part,
“4. On April 23, 1984, O’Danny Boy shall recommence payments of the Indebtedness pursuant to the terms and *607conditions set forth in the original contracts between the parties....
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“5. In the event any payment required hereunder is not paid within forty days from the date on which such payment is due, O’Danny Boy shall deliver to GDC all collateral securing the Indebtedness, including the collateral particularly described in the first through sixth claims for relief set forth in the Complaint (the “Collateral”) as well as the Vehicle, and GDC shall be permitted to dispose of all such Collateral and the Vehicle pursuant to the remedies provided to secured parties under the Uniform Commercial Code (as the same may then be in effect in Ohio). GDC will be permitted to repossess all of .said Collateral and the Vehicle and dispose of same all without further proceedings or appearances in the Bankruptcy Court or without further order of the Bankruptcy Court.”
Debtor’s “Disclosure Statement”1 filed on October 3, 1983, placed GDC in Class 2 “Secured Creditors with Impaired Value of Collateral.” As to GDC, the Statement read:
“(C) General Discount Corporation —Four separate loans. Security 1970 Chevrolet Step Vans, 1 1974 International Harvester Truck Trailer, 1 1971 International Harvester Truck Trailer, 1 1960 International Harvester Tow Truck, 1 1979 Freightliner Tanden Axel [sic] Truck Trailer, 1 1979 American Freezer Trailer, 1 1972 Fruehauf Freezer Trailer and 1 1969 16 Ft. Refrigerator Truck Trailer — approximate balance on all of the loans combined $116,000. $1500.00 cash to be paid on or before September 25, 1983. In addition, $500.00 to be paid direct to the creditor outside of the Plan at the end of each month, beginning the end of October, 1983, and to continue until approximately May or June, 1984, when the payments on the notes as called for in .the notes, are due. The $500.00 per month to be paid until that time is to give the creditor adequate protection for depreciation, etc. Each of the four notes that were signed will be paid as is in accordance with the terms of the respective notes as each of them become due. No reduction in payments will be made on any of the notes. Again, the $500.00 per month will only be paid until May or June, 1984, when the notes become due and payable as is. In the event that the $500.00 per month payment is more than forty (40) days late, then the creditor shall have the option of immediately picking up all of their collateral without further order of the Court. In addition when the payments on the notes are due, in 1984, if any one of the payments is more than ten (10) days late, then in that instance, the creditor again will have the option of immediate pick-up of all of the vehicles without further order of the Court. The value of the collateral being held by this creditor has been appraised at approximately $106,000.
GDC voted to accept debtor’s Plan of Reorganization, which was confirmed after a hearing by this Court by an order dated July 18, 1984.
As explained by GDC, and not contested, certain collateral was repossessed from which was received in April and May, 1984, approximately $72,900 from the sale of this collateral as a release price. GDC then applied these proceeds
“to reduce the principal owed by Debtor (and to the monthly payments due on one of the notes), on three (3) of the five (5) notes then outstanding and due at the time. As a result, the monthly payment due by by the Debtor O’Danny Boy, Inc, was substantially reduced on each of these notes. Furthermore, the release price funds were also applied to a fourth note, paying it off in its entirety. Credi*608tor GDC also applied the funds received to its then outstanding legal fees which were expended in seeking to protect and preserve its claim against Debtor O’Danny Boy, Inc.”
On August 17, 1984, GDC filed this motion which alleges that debtor had missed seven payments in June and July, 1984, on the four notes. Although no amounts were given in the motion, from the case record it is deduced that the alleged missed payments were in the following amounts: two payments of $3,738.92, two payments of $3,145.92, two payments of $3,196.17 and one payment of $3,511.25, making the total alleged default $23,673.27.
The attorneys stipulated that the total amount to be paid under the Plan in 1984 was $74,718.06 and that the total amount actually paid, including the proceeds from the sale of the collateral, was $74,900.55.
Debtor generally alleges that it is not in default, maintaining that the sale proceeds should be used to offset the total amount due under the notes. Thus, debtor maintains that GDC was paid $182.49 more than what was required under the Plan, using the above stipulated figures. The Court disagrees.
Sale proceeds from collateral are typically applied first to pay off the note on which the collateral was security and the costs of repossession and sale. Thus, the proceeds from the sale (the details of which were not presented to the Court) shall be credited to payment of the secured obligation^), thus relieving debtor from making payments on only those notes that were paid off in full. If there remains a surplus after paying off the note(s) secured, that surplus can be applied to the other notes, as per the Security Agreements quoted above. So, to the extent that regular payments on unpaid notes were not made (to the maximum amount as alleged in the motion), debtor is in default. But, because of this bona fide dispute, no sanctions in contempt will issue at this time. See, O.R.C. § 1309.47 (U.C.C. 9-504).
Since GDC has failed, except in the most general terms as quoted above, to inform the court as to the. details of the repossession, sale and application of the proceeds, GDC and debtor are hereby ordered to submit within 20 days of the filing of this decision a detailed accounting of such information, including the exact amounts owing under each note, which collateral was sold, which note(s) this collateral had secured, how the proceeds were specifically applied and exactly how much GDC claims to be delinquent. Debtor is then to make any defaulted payments within 20 days of the filing of the detailed joint accounting.
GDC has also requested attorney’s fees, but has failed to offer into evidence either the total amount requested or an itemization of the nature of the work performed by its counsel (including time spent and complexity of the work). This Court will not order an undetermined amount of attorney’s fees. Further, absent such crucial information, the Court is unable to determine the reasonableness of the amount requested, as required by the Security Agreement. Also, the Court notes ambiguity in GDC’s memorandum reciting that the sale proceeds were “applied ... to its then outstanding legal fees.... ” From this language, the Court cannot determine that the “then outstanding legal fees” were incurred for other rendered services concerning this debtor. GDC’s request for attorney’s fees is provisionally denied.
However, if the debtor does not timely make, as herein ordered, the defaulted payments found owing per the detailed joint accounting, the Court will consider a new motion for contempt and for attorney’s fees as sanctions.
GDC also seeks an affirmation from this Court that it has “the immediate right to reposses the vehicles held by Debtor against which GDC as secured creditor holds a security interest....” Both the November 4, 1984 Settlement Agreement and the October 3, 1984 Disclosure Statement fairly and adequately delineate GDC’s rights as to repossession.
. The Debtor filed its Proposed Plan of Reorganization and its Disclosure Statement on the same date. The terms and apparent purposes for each document were not readily ascertainable. The operative terms of the Plan, nevertheless, were only incorporated into what was termed a “Disclosure Statement”. In the absence of any objections to this format, the Court treated the entire presentation as a "Plan” for the purposes of confirmation. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489905/ | MEMORANDUM OPINION
ALEXANDER L. PASKAY, Chief Judge.
THIS IS a Chapter 11 case and the matter under consideration is an objection by the Debtor, CSY Yacht Corporation (CSY) to claim number 72 filed by Alan R. Jaegar and Katherine Jaegar (Jaegars). The claim under challenge was filed as a priority, claim in the amount of $900 and as secured in the amount of $39,100. CSY does not object to the priority claim asserted under § 507(a)(5) of the Bankruptcy Code nor to the allowance of an unsecured claim for $37,000, but does object to the claim as secured. The Jaegars claim secured status of this claim on the basis that they have a special property interest in CSY’s materials, supplies and parts inventory pursuant to Fla.Stat. § 672.502 (1981).
The matter came on for hearing and the parties, by stipulation, created the record through submission of depositions. The facts as adduced from the record as created and pertinent to resolution of the matter may be summarized as follows:
At the time pertinent to the transaction under consideration, CSY was engaged in the business of manufacturing and selling sailing yachts. The Jaegars became interested in purchasing a yacht from CSY after attending a sailing school conducted by one of CSY’s affiliates. Before executing the sales contract, the Jaegars paid an initial deposit of $1,000 to CSY in August of 1980 and a second deposit of $4,000 on February 5, 1981 toward the purchase of a 44 foot cutter to be constructed by CSY for a total purchase price of $176,111. On February 24, 1981, the Jaegars executed the sales purchase agreement with CSY and pursuant to the agreement paid an additional $35,000 towards the purchase price of the yacht.
CSY was in poor financial condition and by the spring of 1981 following the receipt of the Jaegars $35,000, CSY ceased constructing any new yachts. The Jaegers’ yacht was one of several yachts which were never started.
On August 28, 1981, CSY filed its petition for relief pursuant to Chapter 11 of the Bankruptcy Code. While operating as a debtor in possession, CSY completed the yachts which were already under construction at the time of the commencement of the case and then proceeded to sell its unneeded inventory. Notice of Sale was sent to all interested parties and creditors of CSY. The Notice provided that the items would be sold free and clear of all liens and any liens or claims against the items sold would attach to the proceeds of the sale. In February, 1982 the sale was concluded.
The Jaegars did not file their claim contending a secured position until March 29, 1982. It is without dispute that the Jae-gars do not have a security agreement nor did they file a financing statement pursuant to § 679.302 in order to perfect a secur*621ity interest under Article 9 of the TJ.C.C. as adopted in this State by Florida Statute § 679.101. The basis for the Jaegars’ asserted secured claim is based on paragraph 14 of the sales and purchase agreement which provides as follows:
“The boat and all materials, engines and equipment attached to the boat or any material in the possession of the builder and designated for use on the boat shall become the property of the purchaser upon the payment of the first installment. The boat and all the materials, engines and equipment in the possession of the builder shall be subject to a lien in favor of the builder as against the purchaser. In the event of any rejection of any materials or equipment by the purchaser, title to such goods will revest in the builder.”
It is Jaegars’ position that they have a right to recover goods from CSY as an insolvent seller under Fla.Stat. § 672.502 and that this right was transferred to the proceeds of the sale under the notice of the sale. Fla.Stat. § 672.502 provides as follows:
§ 672.502. Buyer’s right to goods on seller’s insolvency
(1) Subject to subsection (2) and even though the goods have not been shipped a buyer who has paid a part or all of the price of goods in which he has a special property under the provisions of the immediately preceding section may on making and keeping good a tender of any unpaid portion of their price recover them from the seller if the seller becomes insolvent within ten days after receipt of the first installment on their price.
In order for a buyer to recover goods in the seller’s possession after the seller has become insolvent several elements must be present. The buyer must (1) have a special property interest in the goods under Fla.Stat. 672.501; (2) have paid part or all of the purchase price; and (3) keep good a tender of any unpaid portion of the purchase price. Additionally, the seller must become insolvent within ten days following the receipt of the first installment of the purchase price. 3A Bender’s Uniform Comm. Code Serv., § 14.-03[2] (1983).
There is no dispute that the Jaegars paid part of the purchase price or that they were willing to keep good a tender for the remaining balance. The only issues to be resolved are whether the Jaegars have a special property interest in the goods and whether CSY became insolvent within ten days of receiving the $35,000 installment.
In order to determine if the Jaegars have a special property interest in the goods, it is necessary to refer to Fla.Stat. § 672.-501(l)(a) and (b) which provides as follows:
§ 672.501. Insurable interest in goods manner of identification of goods
(1) The buyer obtains a special property and an insurable interest in goods by identification of existing goods to which the contract refers even though the goods so identified are nonconforming and he has an option to return or reject them. Such identification can be made at any time and in any manner explicitly agreed to by the parties. In the absence of explicit agreement identification occurs:
(a) When the contract is made if it is for the sale of goods already existing and identified;
(b) If the contract is for the sale of future goods other than those described in paragraph (c), when goods are shipped, marked or otherwise designated by the seller as goods to which the contract refers.
According to Fla.Stat. § 672.501 the buyer obtains a special property interest when the goods are identified. In the present case the Jaegars contracted to purchase a yacht to be built in the future. Pursuant to paragraph 14 of that contract, the boat and all materials, engines and equipment attached to the boat would become property of the Jaegars upon payment of the first installment. Since construction of the boat never commenced-there were obviously no materials, engines or equipment attached to the boat.
*622As noted earlier, Paragraph 14 of the contract further provides that any materials designated for use on the boat shall become property of the Jaegars upon payment of the first installment. The Jaegars contend that this provision is inconsistent with Paragraph 3(b) which requires the installment to be paid at least 30 days prior to construction of the hull, unless CSY designated the materials to be incorporated into the boat from its inventory when it received the first installment.
Paragraph 3(b) merely requires that 30% of the purchase price be paid before construction will begin. Identification is governed by paragraph 14 which occurs when the materials were “designated” by CSY. Nothing in the record indicates that the materials were set aside or ever designated for the Jaegars yacht.
In the alternative, the Jaegars take the position that the materials and inventory of CSY constitute a tangible bulk and that reference to the materials in the contract is for an undivided share of the fungible bulk which is sufficient to establish identification for purposes of UCC 2-501. In support of their position, the Jaegars rely on Comment 5 of UCC 2-501 which provides as follows:
5. Undivided shares in an identified fungible bulk, such as grain in an elevator or oil in a storage tank, can be sold. The mere making of the contract with reference to an undivided share in an identified fungible bulk is enough under subsection (a) to effect an identification if there is no explicit agreement otherwise.
The Jaegars reliance on Comment 5 is misplaced. The contract did not refer to an identified fungible bulk such as 35,000 pounds of fiberglass and resin. Rather, the contract explicitly referred to those materials “designated” for use on the Jae-gars’ yacht. As a result, this Court is satisfied that the Jaegars’ contention is without merit.
In light of the foregoing, the Court is satisfied that the materials were never identified so as to create a special property interest pursuant to UCC 2-501. As a result, the Jaegars cannot recover any property from CSY under UCC 2-502.
This being the case, it is unnecessary to address the question of whether CSY became insolvent within ten days after it received the $35,000 installment from the Jaegars.
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/8489907/ | MEMORANDUM OPINION
ALEXANDER L. PASKAY, Chief Judge.
THIS IS a Chapter 7 case and the matters under consideration are two Motions for Summary Judgment, one filed by Jary C. Nixon, the duly appointed and acting Trustee for the estate of James T. and Gloria N. Nichols (Debtors); and the other by the Debtors. While the initial complaint named P.J. Pedone and Company, Inc. as a Defendant, the corporation is not involved in the matters under consideration. The above-captioned adversary proceeding was commenced by the Trustee who filed the complaint and sought an order of turnover of monies and initially named only P.J. Pedone & Company, Inc. as a defendant. The initial claim of the Trustee was based on the contention that the Defendant, P.J. Pedone & Company, Inc. has in its control and possession certain funds which, according to the claim of the Trustee, are properties of the estate by virtue of § 541 of the Bankruptcy Code, and, therefore, the same shall be turned over to the Trustee pursuant to § 542 of the Bankruptcy Code to be administered for the benefit of the creditors.
Shortly after the commencement of the adversary proceeding, the Debtors intervened and claimed that the monies held by the initially named defendant are not properties of the estate and, therefore, should not be turned over to the Trustee for administration. In due course, the Trustee and the Debtors moved and sought a determination of the controversy by way of a Motion for Summary Judgment contending that there are no genuine issues as to any material facts and that the controversy can be resolved as a matter of law.
*774James T. Nichols, at the time relevant to the matters under consideration, was employed by the initially named Defendant and while he was employed, the company maintained a profit sharing and trust plan for the benefit of its employees. Under the framework of the plan, the company established a trust which consisted of contributions made by the employer and also by the participating employees together with any income and any appreciation which was derived from the contributions (Plan ¶ 2.25, 2.26). The company maintained a separate account for the benefit of each participating employee to which all contributions made by the employer were allocated (Plan U 2.7). The profit sharing and trust plan also provided that the amount of the employer’s contributions which would vest depended on the length of the employment of the participating employee and also upon the reason of the termination of the employment of the employee (Plan H 6.2, 6.3). The account of the participating employees to which the employees’ contributions were also allocated is deemed to be 100% vested at all times and thus, not conditioned either on the length of employment or on the reason for termination of the employment (Plan 112.17, 6.1). While employed by the company, Mr. Nichols was a participant in the plan and at the time relevant to the controversy, that is, April 27, 1983, his account indicated a balance of $5,376.51.
The plan was designed to establish a qualified trust within the meaning of § 401 of the Internal Revenue Code and was designed in a fashion to take advantage of the special tax treatment accorded to such trust by § 501 of the Internal Revenue Code. In order to comply with the requirements of the Internal Revenue Code, the plan contains a provision that the participants have no right to transfer, assign, encumber or otherwise alienate any of the benefits or proceeds from the benefits which they might expect to receive (Plan ¶ 11.2). The plan further provides that none of the benefits obtained under the plan are subject to any claim of any of the creditors of the participating employees.
In spite of the seemingly iron-clad provisions in the plan which are designed to prohibit alienation of any funds contributed to the plan either by the employer or by the employee, the plan provides that the participating employee is able under certain specific conditions to borrow funds from the trust. The administrative committee of the trust has the discretion to authorize the trustee to loan a participating employee any amount not in excess of the participating employee’s vested interest in both his and the employer’s account. The plan also provides that any such loan made must carry a reasonable interest rate, must be adequately secured and must be repayed within ten years.
It is the contention of the Trustee that the funds now held by the Defendant are properties of the estate by virtue of § 541(a) of the Bankruptcy Code, thus, subject to a turnover proceeding by virtue of § 542 of the Code and must be turned over to the estate forthwith. While the initially named Defendant does not resist the Trustee’s efforts to obtain the funds, the Debtors, as noted, intervened in the adversary proceeding and now contends that the funds held by the company are not properties of the estate by virtue of the exclusionary clause of § 541(c). In the alternative, the Debtors contend that even if the funds are property of the estate, they are exempt by virtue of § 522(b) of the Bankruptcy Code and for this reason, the Trustee, although he may be entitled to obtain the funds from the Company, will not be able to use the same for the benefit of the estate, but the same must be allowed as exempt and turned over to the Debtors.
Based on the contentions advanced by the parties, it is evident that the resolution of this controversy must be resolved by considering the relevant provisions of the Code; that is, § 541(a), which defines what are properties of the estate; the exclusionary clause of § 541(c) which defines certain types of properties excluded from the estate; and, the pertinent provisions of the Code which deal specifically with exemptions.
*775The Trustee s contention is based on § 541 which defines properties of the estate and in pertinent part provides as follows:
(a) The commencement of a case ... creates an estate. Such estate is comprised of all the following property, wherever located:
(1) Except as provided in subsections (b) and (c)(2) of this section, all legal or equitable interests of the debtor in property as of the commencement of the ease. (c)(1) Except as provided in paragraph (2) of this subsection, an interest of the debtor in property becomes property of the estate ... notwithstanding any provision—
(A) that restricts or conditions transfers of such interest by the debtor; ...
In opposition, the Debtors contend that the Plan contains, a valid anti-alienation clause enforceable under non-bankruptcy law and, therefore, is excluded from the estate. In support of his claim, the Debtor relies on § 541(c)(2) of the Bankruptcy Code which provides as follows:
§ 541(c)(2)
(c)(2) A restriction on the transfer of a beneficial interest of the debtor in a trust that as enforceable under applicable non-bankruptcy law is enforceable in a case under this title.
As noted earlier, this Plan contains an anti-alienation and anti-assignment clause designed to qualify the Profit Sharing Plan as tax exempt under IRC § 401. Both ERISA (Employee Retirement Income Security Act) and IRC § 401 pertaining to qualified pension and profit sharing plans contain nearly identical language prohibiting the alienation or assignment of plan benefits. Thus, at first blush the funds now held by the Company appear to come under the exception set forth in sub-clause (e)(2) of § 541 of the Bankruptcy Code. However, the answer is not that simple and eases dealing with this problem, i.e. the inclusion of ERISA benefits in the bankrupt estate are in conflict.
There are cases which hold that by virtue of § 541(c)(2), the trustee cannot reach the debtor’s interest in funds held in an ERISA type plan. In re Pruitt, 30 B.R. 330 (Bankr.Colo.1983); Clotfelter v. CIBA-GEIGY Corp. (In re Threewitt), 24 B.R. 927 (D.Kan.1982); Shults v. Rose’s Stores, Inc. (In re Holt), 32 B.R. 767, 10 B.C.D. 1267 (Bankr.D.Tenn.1983); In re Rodgers, 24 B.R. 181 (D.Ariz.1982). The holdings of these cases are based on a broad expansion of the reach of § 541(c)(2) by encompassing assignment and transfer restrictions recognized in general federal non-bankruptcy law in addition to recognizing the traditional state trust law. In reaching this conclusion, some of these courts noted that the language of § 541(c)(2) on its face is clear and unambiguous and does not contain any reference to the term “spendthrift.” Therefore, the subsection should be read to include any and all trusts which bar creditors from reaching the Debtor’s interest. Because these courts found that ERISA’s transfer restrictions were enforceable under federal non-bankruptcy law, the courts contend that there was no need to consider the local law concerning the validity of the restrictions.
Rejecting this reasoning, the other line of cases held that § 541(c)(2) was intended to protect only a debtor’s interest in traditional spendthrift trusts. Goff v. Taylor (In the Matter of Goff), 706 F.2d 574 (5th Cir.1983); Firestone v. Metropolitan Life Insurance Co. (In re DiPiazza), 29 B.R. 916 (Bankr.N.D.Ill.1983); Samore v. Graham (In re Graham), 24 B.R. 305 (Bankr. N.D.Iowa 1982), aff’d 726 F.2d 1268, Bankr.L.Rep. (CCH) If 69,705 at 84,306 (8th Cir.1984). In an extensive discussion on the subject the Court of Appeals for the 5th Circuit in Goff, supra analyzed the legislative history and overall congressional scheme in reaching its conclusion concerning the relationship between ERISA and § 541(c)(2). The 5th Circuit determined that the concept of property of the estate under the Code was intended to have a broad scope which would be frustrated if ERISA’s assignment and transfer restrictions were applied with a “sweeping brush.” Goff, supra 787. Furthermore, *776that Court found that ERISA did not constitute a federal exemption within the meaning of § 522(b)(2)(A). As a result, the court found it improbable that Congress intended to ambiguously remove ERISA benefits from the reach of creditors through § 541(c)(2) when it clearly could have done so in § 522. Although it would be of little benefit to recount the entire discussion of the legislative history of § 541(c)(2) as set forth in Goff, supra, it is sufficient to say that this Court, as was the 5th Circuit, is persuaded that the legislative history reveals' that this provision was intended to cover traditional spendthrift trusts.
This Court is inclined to follow the reasoning of the 5th Circuit in Goff, supra and reject the holding in Threewitt, Holt, and Pruitt, supra. Accordingly, the Court is compelled to consider whether this profit sharing and trust agreement would qualify as a spendthrift trust under Florida law and thus, be excepted from the estate pursuant to § 541(c)(2).
Spendthrift trusts are designed to provide a fund for the maintenance of the beneficiary while at the same time securing it against the beneficiary’s own improvidence and incapacity. Croom v. Ocala Plumbing & Electric Co., 62 Fla. 460, 57 So. 243 (1911). The typical spendthrift trust bars the voluntary or involuntary alienation of the life beneficiary’s interest in his right to receive income. Waterbury v. Munn, 32 So.2d 603 (Fla.1947). In order to create a spendthrift trust, the settler must clearly manifest his intent to restrain the beneficiary from alienating his interest. Lowell, Florida Law of Trusts, § 27-1 (1976). However, where a debtor has the power to terminate the trust or reach the corpus to give him virtually absolute dominion over the trust, a spendthrift clause does not secure the property from the creditors. Croom, supra; In re Watson, 13 B.R. 391 (Bankr.M.D.Fla.1981).
In the present proceeding, the Debt- or has a vested interest in $5,000 and may compel its distribution. This right to receive the $5,000 coupled with the Debtors’ ability to borrow from the trust fund makes it apparent that the Debtor has sufficient control over the funds to remove them from the protection of the spendthrift restrictions.
The Debtors further contend that the spendthrift restrictions are valid despite the power of the Debtor to terminate employment and compel distribution. In support of their proposition, the Debtors rely on Waterbury, where there were five beneficiaries three of which were also the trustees. The Florida supreme court in Waterbury upheld the spendthrift restrictions even though the trustee had the power to sell the trust corpus and distribute the proceeds.
This Court does not find Waterbury, supra controlling under the facts presented in this case. Not all of the beneficiaries in Waterbury had the power to terminate the trust or compel the trustee to distribute the corpus. Based on the foregoing, this Court finds that § 541(e)(2) does not except the Debtor’s interest in the Plan from the estate.
In the alternative, the Debtors contend that even if the funds in the Plan are estate properties, § 522(b)(2)(A) exempts that property from the estate. That section in pertinent part provides as follows:
§ 522(b)(2)(A)
Notwithstanding Section 541 of this title, an individual debtor may exempt from property of the estate ...
(2)(A) any property that is exempt under Federal law, other than subsection (d) of this section ...
The legislative history of the Code lists some exemptions from creditors provided by other federal laws. The list contains the following:
Foreign Service Retirement and Disability payments, 22 U.S.C. § 1104 [section 1104 of Title 22, Foreign Relations and Intercourse];
Social security payments, 42 U.S.C. § 407 [section 407 of Title 42, The Public Health and Welfare];
*777Injury or death compensation payments from war risk hazards, 42 U.S.C. § 1717 [section 1717 of Title 42];
Wages of fishermen, seamen, and apprentices, 46 U.S.C. 601 [section 601 of Title 46, Shipping];
Civil service retirement benefits, 5 U.S.C. 729, 2265 [sections 729 and 2265 of Title 5, Government Organization and Employees];
Longshoremen’s and Harbor Workers’ Compensation Act death and disability benefits, 33 U.S.C. 916 [section 916 of Title 33, Navigation and Navigable Waters];
Railroad Retirement Act annuities and pensions, 45 U.S.C. 228(L) [former section 228(1) of Title 45, Railroads]; Veterans benefits, 45 U.S.C. 352(E) [section 352(e) of Title 45];
Special pensions paid to winners of the Congressional Medal of Honor, 38 U.S.C. 3101 [section 3101 of Title 38, Veterans Benefits]; and
Federal homestead lands on debts contracted before issuance of the patent, 43 U.S.C. 175 [section 175 of Title 43, Public Lands].
S.Rep. No. 95-989, 95th Cong., 2d Sess. 75, reprinted in 1978 U.S.Code Cong. & Ad. News 5787, 5861; H.Rep. No. 95-595, 95th Cong., 2d Sess. 360 (1977); reprinted in 1978, U.S.Code Cong. & Ad.News 5787, 5963, 6316.
The Courts have split in deciding whether 29 U.S.C. § 1056(d)(1) (ERISA) and 26 U.S.C. § 401(a)(3) constitute the type of federal exemption to which § 522(b)(2)(A) of the Code refers.
The Debtor relies on Barr v. Hinshaw (In re Hinshaw), 23 B.R. 233 (Bankr.D. Kansas 1982), for the proposition that ERI-SA qualified pension plans are exempt under § 522(b)(2)(A). The Hinshaw, supra court undertook an analysis of the statutory provisions cited by Congress and found that the similarity between the provisions of those statutes and ERISA and 26 U.S.C. § 401(a)(3) with its accompanying Treasury Regulations, supported the conclusion that the scope of § 522(b)(2)(A) was intended to include ERISA type plans. Hinshaw, supra at 235.
In contrast, the courts in Goff, and Graham, reached an opposite result from that in Hinshaw and held that plans qualifying under 29 U.S.C. § 1056(d)(1) and 26 U.S.C. § 401(a)(13) were not exempt under § 522(b)(2)(A) of the Code. These courts noted that ERISA was enacted prior to the Code yet Congress failed to include these statutes in the illustrative list. Furthermore, each of the listed exempt statutes directly precluded all benefits from alienation or assignment while ERISA and 26 U.S.C. § 401(a)(13) prohibit alienation merely as a condition for obtaining qualified tax statutes. Graham, supra at 312; Goff, supra at 585. Evaluating the issue and the applicable authority, this Court reaches the conclusion that tax qualified plans such as the one presently before this Court were not intended to fall within the purview of § 522(b)(2)(A).
In light of the foregoing, this Court finds that the Debtor’s interest in the Plan shall be included in the estate and does not qualify as exempt pursuant to § 522(b)(2)(A).
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/8489909/ | FINDINGS OF FACT AND CONCLUSIONS OF LAW
SIDNEY M. WEAVER, Bankruptcy Judge.
Plaintiff, Hialeah Hospital, Inc. (“Hialeah”), is a Florida not-for-profit corpora*943tion which owns and operates a 411-bed acute care hospital located in Hialeah, Dade County, Florida. Defendants, Robert A. Schatzman and Justin P. Havee, Co-Trustees of King Memorial Hospital (“Co-Trustees”), are the duly qualified and acting Co-Trustees of King Memorial Hospital, Inc. and Florida Hospital Group, Inc., debtors in Chapter 7 proceedings. Defendant, Department of Health and Rehabilitative Services (“HRS”), is an administrative agency of the State of Florida charged with the responsibility of enforcing and administering the Florida Certificate of Need law. HRS has the sole and exclusive responsibility for determinations as to the existence, preservation, and relocation of exemptions from the Florida Certificate of Need law. Defendant, Republic Health Corporation (“Republic”), is a Delaware corporation with its principal place of business in Dallas, Texas. Republic entered into an Offer to Purchase with the Co-Trustees and Miami Capital Development, Inc. (“Miami Capital”) to purchase the real property, improvements, and other personal property, including a certain exemption from the Florida Certificate of Need law (the “Exemption”) for the construction of a 126-bed general acute care hospital, from the estate in bankruptcy of King Memorial Hospital, Inc. (“King”). Defendant Miami Capital is a Florida corporation with its principal place of business in Dade County, Florida. Miami Capital claims an interest in the property of the estate.
Plaintiff Hialeah has filed a three count adversary complaint in this Court seeking declaratory and injunctive relief against HRS, the Co-Trustees, Republic, and Miami Capital, contending that it had a right to notice and to be heard with regard to the sale and relocation of the site for construction of the 126-bed general acute hospital to be built pursuant to the Exemption. Defendants contend that this court had the authority to authorize the sale and relocation of the Exemption by virtue of the provisions of the Bankruptcy Code and the laws of the State of Florida and that HRS, acting as legal representative of the people, determined that the Exemption could be transferred and relocated within certain parameters and acted adequately, sufficiently, and in accordance with law in reaching a court approved settlement with the Co-Trustees.
The above styled and numbered adversary proceeding was heard by the Court on August 7, 1984, and adjourned to August 28, 1984, at which time the trial was concluded. After considering all of the evidence, arguments, and briefs of counsel, the Court makes the following Findings of Fact and Conclusions of Law:
FINDINGS OF FACT
1. King, a 27-bed hospital facility located in Opa Locka, Florida, filed for relief under Chapter 11 of Title 11 of the United States Code on October 2, 1979. Shortly thereafter, on November 8, 1979, Robert A. Schatzman and Justin P. Havee were appointed Co-Trustees. On March 2, 1982, the Chapter 11 case was converted to a case under Chapter 7 of the Bankruptcy Code.
2. Prior to the institution of the Chapter 11 proceeding, in December of 1973, King was advised by letter from the HRS that King qualified for an Exemption from the Florida Certificate of Need law relating to the construction of a hospital. Five years later, in July of 1978, King was notified by HRS that the Florida Certificate of Need law had been amended to repeal future exemptions and that King’s Exemption would be preserved if it engaged in “physical and continuous” construction of a hospital by July, 1979.
3. On November 30, 1979, HRS notified the Co-Trustees of King that HRS had determined that King had forfeited the Exemption and gave King a period of time during which to request an administrative hearing pursuant to the Florida Administrative Procedures Act. Whereupon, the Co-Trustees filed an adversary proceeding in this Court against HRS seeking injunc-tive relief to restrain HRS from entering any order revoking the Exemption. On February 14,1980, this Court enjoined HRS from entering any orders regarding the Exemption. The Court entered its order in
*944the adversary proceeding on June 24, 1980 providing that the automatic stay of Section 362 of the Bankruptcy Code prevented HRS from using administrative proceedings to revoke the Exemption. In Re King Memorial Hospital, Inc., 4 B.R. 704 (Bankr.S.D.Fla.1980). On April 30, 1982, this Court determined that the Exemption which was at issue was preserved and that the Co-Trustees were authorized to construct a health care facility and were accordingly to submit a construction schedule. In Re King Memorial Hospital, Inc., 19 B.R. 885 (Bankr.S.D.Fla.1982). Such order is now final.
4. During the course of these Chapter 7 proceedings, the Co-Trustees have made a diligent and deliberate effort to dispose of the estate’s interest in the real and intangible property known as King Memorial Hospital, Inc. including the Exemption. The Co-Trustees offered the assets for sale to thirty-three proprietary hospital companies situated in the United States, advertised the assets for sale in the Miami Herald and the Wall Street Journal, and made additional private inquiries. The Court finds that the Co-Trustees utilized due diligence in seeking a purchaser for the assets of the estate.
5. The Co-Trustees were unable to sell the Exemption in its original location because it was not economically feasible to construct a hospital on the original site or to profitably operate the facility located thereon. Recently civil disturbances occurred in the area where the site is located. The area has been, and continues to be, economically depressed. The original construction site does not have sufficient land available to make a hospital facility economically viable.
6. On May 23, 1983, the Co-Trustees filed an adversary proceeding against HRS seeking a declaratory judgment determining the Co-Trustees’ rights to construct a 126-bed hospital facility at a relocated site generally within the Opa Locka area.
7. Neither the Exemption nor this Court’s order of April 30, 1982 providing that the Exemption was preserved limit the hospital site to a specific location.
8. HRS and the Co-Trustees subsequently entered into a settlement of the May 23, 1983 adversary proceeding. On November 28, 1983, after notice pursuant to the provisions of the Bankruptcy Code and the Bankruptcy Rules of Procedure, this Court entered its order approving the Joint Application for Settlement between the Co-Trustees and HRS which provided in part that HRS approved of King’s transfer of the Exemption to defendant Republic. The settlement and order approving it recognized Republic had sufficient resources and the necessary commitment to serve the needs of the Opa Locka community and that HRS considered Republic to have the same status and rights as a party holding a Certificate of Need to construct a 126-bed general acute care hospital at a relocated site. In the settlement agreement HRS acknowledged that this Court had exclusive jurisdiction to issue any order with respect to the sale of the Exemption to Republic.
9. On December 16, 1983, this Court entered its Order approving a sale of the real property and improvements to Republic for the sum of $1,000,000.00 and providing that Republic would acquire the Exemption.
10. On January 12, 1984, the Co-Trustees accepted Republic’s Offer to Purchase the real property, improvements, and other personal property including the Exemption.
11. Republic’s obligation to close the transaction pursuant to the Offer to Purchase is contingent upon among other things, its ability to relocate on a new site.
12. The Exemption is the major asset of the estate.
13. In the usual course of its administration of the Florida Certificate of Need law and exemptions therefrom, HRS has interpreted Florida law as permitting projects which were exempted prior to July 1, 1979 to go forward without Certificate of Need review if the projects were under physical and continuous construction pursuant to final construction plans approved by the Office of Licensure and Certification by July 1, 1979.
*94514. It is the policy of HRS in the usual course of its administration of the Florida Certificate of Need law and exemptions therefrom to permit an exemption to be moved to a different site so long as HRS approves the exemption for the general geographic area within which it is to be relocated.
15. The Court finds there is no credible evidence to support Hialeah’s allegations that any direct or indirect influence was exerted upon HRS to enter into the settlement with the Co-Trustees.
16. The Court finds no facts which establish that Hialeah had any right, privilege or immunity secured by the Constitution or laws of the United States in connection with the Exemption, its transfer, sale or relocation.
17. The court finds there is no credible evidence to support Hialeah’s allegations that Hialeah was deprived of any right, privilege or immunity secured by the Constitution or laws of the United States.
18. Where appropriate the foregoing Findings of Fact shall also be considered to be Conclusions of Law.
CONCLUSIONS OF LAW
1. This adversary proceeding is a Core Proceeding inasmuch as it involves matters concerning the administration of the Debt- or’s estate; the sale of property of the estate other than property resulting from claims brought by the estate against persons who have not filed claims against the estate; and, affects the liquidation of the assets of this estate and does not involve a personal injury tort or a wrongful death claim. 28 U.S.C. § 157(b)(2)(A), (N), (0).
2. The resolution of this proceeding requires consideration of Title 11 of the United States Code and the laws of the State of Florida. It does not require consideration of laws, other than Title 11, regulating organizations or activities affecting interstate commerce. 28 U.S.C. § 157(d).
3. This Court has jurisdiction of the subject matter of this litigation and of all parties before it.
4. King holds an Exemption from the Florida Certificate of Need law. Florida Statutes Annotated, § 381.497.
5. The repeal of the Exemption from the Florida Certificate of Need Law, Chapter 78-194, Laws of Florida, did not affect King’s Exemption.
6. King’s Exemption precludes any requirement for Certificate of Need review or a Certificate of Need because it is a total exemption. Inasmuch as King’s Exemption was preserved and currently exists, Republic’s acquisition of the Exemption does not necessitate either Certificate of Need review or a Certificate of Need. Palmetto General Hospital, Inc. v. State Dept. of Health and Rehabilitative Services, 333 So.2d 531 (Fla. 1st D.C.A.1976).
7. The statute granting the Exemption is clear and unambiguous and must be construed according to its plain meaning. Bingham v. Manson, 363 So.2d 370 (Fla. 1st D.C.A.1978).
8. HRS’ statutory interpretation of the Florida Certificate of Need law and the exemption therefrom must be accorded great weight. Daniel v. Florida State Turnpike Authority, 213 So.2d 585 (Fla.1968).
9. The rights which plaintiff Hialeah seeks to enforce in this adversary proceeding are identical to the rights of the public which are protected and enforced by HRS under the Florida Certificate of Need law and exemptions therefrom.
10. Under Florida law, plaintiff Hialeah does not have any right or remedy relating to the construction of a hospital by a third party operating under an exemption from the Florida Certificate of Need law which are distinct from, or supplemental to, the rights of the public protected and enforced by HRS.
11. The final judgment approving the settlement in the prior action between the Co-Trustees and HRS is binding upon plaintiff Hialeah because HRS’ involvement and position in the earlier suit adequately represented any interest which Hialeah *946may assert. In Re Engelhard and Sons Co., 231 U.S. 646, 34 S.Ct. 258, 58 L.Ed. 414 (1914); Southwest Airlines Co. v. Texas Int’l. Airlines, 546 F.2d 84 (5th Cir.1977); Berman v. Denver Tramway Corp., 197 F.2d 946 (10th Cir.1952); Battle v. Cherry, 339 F.Supp. 186 (N.D.Ga.1972).
12. A judgment should be entered denying the plaintiff Hialeah all relief which it seeks in this adversary proceeding.
13. Where appropriate the foregoing Conclusions of Law shall also be deemed to be Findings of Fact. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489911/ | DECISION
BURTON PERLMAN, Bankruptcy Judge.
In this adversary proceeding a claim is asserted against defendant/debtor Thomas L. Owens based upon 11 U.S.C. § 523(a)(6), it being the position of plaintiffs that there is a debt owed them by defendant “for willful and malicious injury by the debtor” to the property of plaintiffs. More specifically, it is the contention of plaintiffs that defendant, who was then in the business of repairing automobiles, willfully and maliciously converted their Corvette which they had turned over to him for repairs. (Title to the vehicle was in the name of plaintiff Roberta S. Grimsley. Roberta Grimsley did not appear at the trial, but rather did her husband Joseph G. Grimsley, Jr., (hereafter “Grimsley”) testify at the trial. Because plaintiffs are resident in Florida it was stipulated between the parties that Roberta Grimsley need not appear at the trial.) The proceeding came on for hearing. The only evidence was the testimony of Grimsley and of Thomas L. Owens. At the conclusion of the evidence we reserved decision.
The facts are essentially undisputed, though the parties draw radically different inferences from the facts. During the period here in question, from March 1981 until the spring of 1983, defendant was engaged in the automobile repair business in a sole proprietorship named Owens Corvette Center, located in Withamsville, Ohio. The proprietorship terminated in bankruptcy on August 1, 1983. In March 1981 Grimsley brought his Corvette to defendant’s premises for repair. The vehicle had been involved in a rear-end collision. With plaintiffs’ consent, the Corvette remained at those premises for some two years. Very extensive restoration was necessitated by the collision. As plaintiffs accumulated funds to pay for work, defendant performed it. Thus, the first thing that was done was in March 1981. It consisted of the installation of a new clip on the car, which connotes extensive body work. Further work was performed on two other occasions. The witnesses could not recall what had happened the second time but the third time, new brakes were installed and a major tune-up was done. The tune-up was in March 1982.
After the tune-up defendant moved the car outside and shortly thereafter the wheels and tires were stolen. Defendant reported the theft and informed plaintiff of it. Defendant had serious and continuing problems with vandalism and theft and kept guard dogs on the premises in an effort to deal with these problems. Defendant was not insured against the loss of the wheels and tires. The car remained on the ground without wheels and tires for an extended period of time, until some time in 1983.
*12Defendant never contacted Grimsley to tell him that the car had disappeared. Grimsley phoned defendant to find out where it was when he discovered that the car was no longer at defendant’s premises. He left messages, but defendant never called him. Defendant testified that he did not call back because he was too busy. In addition, he initially thought that Grimsley might have removed the car himself — that someone was trying to pull something on him.
After discovery of the disappearance of the car, Grimsley called the police department and filed a stolen car report. The police did go out and check the report. No evidence was introduced with respect to the result of that investigation. Defendant on occasion offered to purchase the car from plaintiffs. After the disappearance of the vehicle, defendant did not return the ignition key for the car to plaintiffs.
Based upon the foregoing state of the record, it is the position of plaintiffs that they have carried their burden of showing a willful and malicious conversion by defendant of the vehicle here in question.
We have in prior decisions had occasion to deal with the law relevant to the question which is here presented to us. Thus, in In re Walker, 44 B.R. 1 (Bankr.S.D.Ohio), we said at pp. 2-3:
The applicable statute is 11 U.S.C. § 523(a)(6) which provides:
(a) A discharge under section 727, 1141, or 1328(b) of this title does not discharge an individual debtor from any debt—
* * * sk *
(6) for willful and malicious injury by the debtor to another entity or to the property of another entity:
* * * * * *
Under the Bankruptcy Act, § 17(a)(2) made express reference to willful and malicious conversion as ground for denying discharge of a debt. The word ‘conversion’ is omitted from the successor legislation, that above quoted, but the language ‘willful and malicious injury’ was intended by the Congress to include a willful and malicious conversion. See 3 Collier on Bankruptcy, (15th ed.) ¶ 523.16[3], pp. 523-126 through 523-127.
In a decision under the Bankruptcy Act, In Re Johns, No. B-1-76-2164, slip op. at 6, (Bankr.S.D.Ohio entered Aug. 31, 1977), we said the following:
But even assuming, arguendo, that net proceeds from sale of gasoline in the hands of defendant were plaintiff’s property, we cannot see that there was a willful and malicious conversion thereof, even recognizing as urged by plaintiff that there is no need to prove any animus or actual malice. Not all conversions are willful and malicious, and whether a conversion is to be described as willful and malicious depends on the facts and circumstances of the case. U.S.F. & G. Co. v. Tanner, 279 F.Supp. 396, 400 (D.C.Col.1968); Rees v. Jensen, 170 F.2d 348 (9th Cir.1948); Royal Indemnity Co. v. Sherman, et al., 124 Cal.App.2d 512 [269 P.2d 123] 42 A.L.R.2d 890 (1954). Emphasis supplied.)
This statement is valid under the Bankruptcy Code as well. See generally, In Re Haynes, 19 B.R. 849 9 BCD 226 (Bankr.E.D.Mich.1982); In Re Norton, 21 B.R. 725 (Bankr.W.D.Mo.1982).
Further in In Re Greenwell, Adversary File No. 1-81-0111, Decision entered Dec. 30, 1981 (Bankr.S.D.Ohio) we said the following at pp. 2-3:
The main case applied in the interpretation of the now superseded Bankruptcy Act of § 17(a)(8) was Tinker v. Colwell, 139 [193] U.S. 473 [24 S.Ct. 505, 48 L.Ed. 754] (1902). It is clear that in enacting the Bankruptcy Code, the Congress meant to change the way in which that case was being applied, as may be seen from a review of the legislative history of 11 U.S.C. § 523(a)(6), provided that a debtor ‘for willful and malicious injury by the debtor to another entity or to the *13property of another entity’ was nondis-chargeable. (H.R.8200 95th Cong. 1st Sess. [1977]. The accompanying report (H.R.Rep. No. 595, 95th Cong. 1st Sess. 365 [1977] then elaborated upon this section as follows:
[Paragraph] 6 excepts debt for willful and malicious injury by the debtor to another person or the property of another person, Under this paragraph, ‘willful’ means deliberate or intentional. To the extent that Tinker v. Colwell, 139 [193] U.S. 473 [24 S.Ct. 505, 48 L.Ed. 754] (1902) held that a looser standard is intended, and to the extent that other cases have relied on Tinker to apply a ‘reckless disregard’ standard, they are overruled.
The Senate then modified this suggested language by adding ‘conversion or’ after ‘willful and malicious.’ 523(a)(5), S.B. 2266 95th Cong., 2d Sess., 416 (1978). Its report in all other aspects echoed the House Report S.Rep. No. 989, 95th Cong., 2d Sess. 79 (1978). The compromise bill, however, only contained the language of the House version. 124 Cong.Rec. H11509 (Daily Ed. Sept. 28, 1978). The statements of the sponsors in the House 124 Cong. Rec. H11096 (Daily Ed. Sept. 28, 1978) and the Senate 124 Cong.Rec. § 17412 (Daily Ed. Oct. 6, 1978) were likewise identical and referred exclusively to the language contained in the House version of the bill.
What is to be gleaned from this review is that Congress intended that it not be sufficient to classify an act as willful and malicious that it be one done with reckless disregard for consequences. An intentional act is required. It is not, however, necessary to find that personal ill will existed in order for there to be a finding of willful and malicious injury.
From the foregoing it is clear that in order to succeed plaintiffs must make out a prima facie case of intentional conversion. After a careful review of the record, we have come to the conclusion that Grims-ley’s testimony is insufficient for this purpose. Specifically, we are unable to conclude that plaiiitiffs haye shown that there was a conversion rather than a theft. Plaintiffs do not succeed, not because they are mistaken as to the law, but because their evidence is insufficient to establish their case. The parties agree that plaintiffs’ car disappeared from defendant’s premises while it was there for repairs.
To make their case that defendant caused the disappearance plaintiffs argue that an inference of conversion arises because defendant admittedly was in financial difficulty at the time of the disappearance, and defendant failed to notify them of the disappearance when it occurred. He would not return the phone calls of Grims-ley. Plaintiffs add to these facts the statement by defendant that he replaced the tires and wheels of the car shortly before its disappearance. We hold this evidence to be insufficient as a matter of law to make out plaintiffs’ case.
Further, we are satisfied that the evidence established that there was a high incidence of vandalism and theft in defendant’s vicinity, for defendant testified that he kept guard dogs in an effort to discourage such activity, and Joseph Grimsley admitted that he had seen such dogs. Nor can we, as do plaintiffs, attach to defendant’s testimony that he replaced the wheels and tires, an implication that this was in furtherance of a scheme to convert the vehicle. There was no other source of evidence about replacement of wheels and tires and there would be no reason for defendant to admit that he had done this act if it were done for the purpose of enabling the conversion of the car.
There is totally missing from this record evidence to complete the circumstantial case which plaintiffs seek to make. An adequate case for plaintiffs would require, for example, some evidence of possession by defendant of unexpected funds at about the time of the disappearance of the vehicle. This might be seen through payment of supplier’s bills or elsewhere in defendant’s business records. No evidence of this sort is present. Also absent is any testimo*14ny by employees of defendant regarding the circumstances surrounding disappearance of the vehicle.
Plaintiffs rely upon In Re Klix, 23 B.R. 187 (Bankr.E.D.Mich.1982) in which a conclusion of nondischargeability of a debt on account of vehicles was reached by the court. That case is, however, distinguishable. Firstly, it involved a complaint by a secured creditor. A conversion was found by the court upon evidence that defendant transferred title to three vehicles without remitting the principal amount which he had borrowed from plaintiff as required by the floor planning agreement. The case does not turn upon the fact of disappearance of the vehicles. The question of sufficiency or insufficiency of the evidence was not before the court in that case.
Accordingly, we find the issues in favor of defendant. The complaint will be dismissed.
The foregoing constitutes our findings of fact and conclusions of law. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489912/ | ORDER
ROBERT L. EISEN, Bankruptcy Judge.
The dispute here involves the malpractice liability of three accounting firms. It is before the court on the debtor’s (“Witte”) request that the court enjoin Bruce C. Moats and Houston Fabricating, Inc. (“Houston”) from naming the debtor and Fox & Co. as defendants in a malpractice suit filed in Texas. This determination is necessary in the bankruptcy proceeding because Fox holds funds due the estate, but refuses to relinquish those funds pending resolution of the malpractice question, or alternatively, pending a ruling that Fox cannot be liable on the facts alleged herein. By agreement, the parties have submitted to the court for resolution the question whether Lester Witte and, hence, Fox is liable under applicable Texas partnership law and the relevant agreements between the parties for possible malpractice which may arise from the performance of accounting services by Maness, Broome & Associates (“M.B. & A.”) for Moats and Houston.
For the reasons set forth in this memorandum, this court determines that Witte and Fox could not be liable for malpractice under Texas partnership law, even if Mannes, Broome & Associates are found liable.
FACTS
The facts in the matter presently before the court are undisputed. Bruce Moats owned most shares of two companies, *79Houston Fabricating, Inc. and Bayport. In 1974 Moats arranged with the M.B. & A. accounting firm to provide certain accounting services.
Specifically, Moats wanted to transfer substantial operating losses incurred by Bayport to Houston which had taxable income for the year in question. Houston paid M.B. & A. an advance fee of $50,000. Regarding that fee, Houston, Moats and M.B. & A. agreed as follows:
4. In the event that all or any part of any deduction claimed by Client for purposes of reporting its federal income tax liability arising out of any transaction entered into and undertaken by Client pursuant to the plan and course of action recommended by Accountant to Client in the Opinion, is disallowed by the Internal Revenue Service, and any deficiency of payment of federal income taxes is assessed against Client as a result thereof, and such assessment is sustained at the appellate level of the Internal Revenue Service, then Accountant shall repay to Client, within thirty (30) days following the date of formal notice of such decision by the appellate staff of the Internal Revenue Service, a pro-rata amount of the accounting fees paid and payable by Client to Accountant hereunder, the amount of such repayment to be equal to the result obtained by multiplying the accounting fee ($50,000) by a fraction, the numerator of which is the amount of the deduction disallowed and the denominator of which is the amount of Bay-port’s net operating loss claimed by Client as a deduction or loss in the tax year in question.
On January 28, 1982, the IRS Appellate Division disallowed Houston’s attempt to utilize Bayport’s net operating loss.
Prior to the IRS action, on January 1, 1978, M.B. & A. and Lester Witte & Co. (“Witte”) had entered into an agreement whereby M.B. & A. would stop providing accounting services to certain of its Houston, Texas clients and Witte would make itself available to do so. M.B. & A. remained in business in other cities. M.B. & A. continued to advise Moats and Houston regarding the net operating loss matter.
Four years later, Witte ceased accounting practice in Houston and entered into an agreement with a third firm, Fox & Company. The agreement between Fox and Witte provided that Fox assume only certain of Witte’s business liabilities and that Witte would indemnify and hold Fox harmless from claims, liabilities, costs or expenses "... relating to or arising out of the performance of professional services by Witte” prior to the date of the agreement between Witte and Fox. It is undisputed that neither Witte nor Fox performed professional services for Moats or Houston on the net operating loss matter.
Rather, Moats and Houston allege that Witte and Fox are liable for the work performed by M.B. & A. and have filed a lawsuit in the state courts of Texas. Witte has sought a temporary restraining order and a judgment declaring that Witte is not liable for any work performed by M.B. & A. on the net operating loss matter. The parties have agreed to submit to the court for resolution the question of whether under applicable Texas law, Witte and, hence, Fox could be liable to Moats and Houston for professional services rendered by M.B. & A.
DISCUSSION
The liability of Lester Witte & Co. and Fox for professional services rendered by the accounting firm of M.B. & A. is governed by the Texas Uniform Partnership Act, Vernon’s Ann.Civ.St. art. 6132b. Three subsections of that Act are asserted to control the instant facts and serve as a basis for finding Witte and Fox liable.
The first subsection which Moats and Houston assert imposes potential liability on Witte and Fox. is section 41(1). That subsection provides:
Sec. 41. (1) When any new partner is admitted into an existing partnership, or when any partner retires and assigns (or the representative of the deceased partner assigns) his rights in partnership *80property to two or more of the partners, or to one or more of the partners, and one or more third persons, if the business is continued without liquidation of the partnership affairs, creditors of the first or dissolved partnership are also creditors of the partnership so continuing the business.
Texas Civ.Code Ann. art. 6132(b) § 41(1) (Vernon 1982).
Where one partnership assigns to another the right to provide accounting services to a certain number of clients and no partners of the first partnership remain as partners of the second, the second partnership, in the absence of a specific agreement to the contrary, is not liable for the malpractice of the first. Source and Comments, Vernon’s Ann.Civ.St. art. 6132(b) § 41(1).
Moats and Houston have argued that subsection 41(1) of the Texas Partnership Act imposes liability on Witte and Fox in stating that “creditors of the first or dissolved partnership are also creditors of the partnership so continuing the business.” Section 41(1) does not impose liability on Witte and Fox. That subsection applies to a situation where a new partner is admitted to an existing partnership or a partner of the first partnership retires and assigns his property rights to the remaining partners or third persons. The Official Comment to the Uniform Partnership Act, from which Act the Texas Act was taken, clearly indicates that the section addresses situations in which a new partner is admitted or a partner is expelled or dies. Official Comment U.P.A. § 41 at 511. The Source and Comments to the Texas Act state that the section is the same as the national act. Source and Comments, Texas Civ.Code Ann. art. 6132b § 41(4). Moats and Houston have argued that because a former partner of M.B. & A. remained with Witte as a manager, subsection 41(1) applies. They further assert the fact that he did not join Witte as a partner is irrelevant. This court disagrees. The Code Comment’s examples clearly contemplate instances in which the composition of the partnership changes but at least one partner of the first partnership remains in the successor partnership as a partner. That is not the situation in the present case. Therefore, subsection 41(1) of the Texas Uniform Partnership Act does not impose liability on Witte and Fox.
Second, Moats and Houston assert that subsection 41(2) renders Witte & Fox liable for any malpractice by M.B. & A. That subsection provides:
(2) When all but one partner retire and assign (or the representative of a deceased partner assigns) their rights in partnership property to the remaining partner, who continues the business without liquidation of partnership affairs, either alone or with others, creditors of the dissolved partnership are also creditors of the person or partnership so continuing the business.
Texas Civ.Code Ann. art. 6132b § 41(2) (Vernon, 1982). This subsection contemplates a situation where all but one partner retires or all assign their rights and the remaining partner continues the business either alone or with others. Again, under the present facts, there is no partner of the first partnership who continued as a partner with the successor partnership. Moats and Houston argue that that fact is irrelevant and have cited Miller v. Doughty, 520 S.W.2d 586 (Tex.Civ.App.1975), in support of that proposition. The court has reviewed that case and finds that it does not further the Moats and Houston argument. That case involved new partners entering an existing accounting partnership. The situation at hand is one in which M.B. & A. sold to Lester Witte the right to provide accounting services to certain clients. M.B. & A. continued in business elsewhere. Furthermore, Witte has asserted and M.B. & A. has not contested that M.B. & A. actually continued to advise Moats and Houston with regard to the net operating loss issue subsequent to the M.B. & A.— Witte agreement. Thus, the facts here are entirely different from those in Miller v. Doughty or those contemplated by the commentary to the Texas Uniform Partner*81ship Act. Hence, Witte and Fox are not liable under section 41(2) of the Texas Uniform Partnership Act.
Moats and Houston’s third argument is that liability should be imposed upon Witte and Fox pursuant to subsection 41(4) of the Texas Uniform Partnership Act. That section provides:
(4) When all the partners or their representatives assign their rights in partnership property to one or more third persons who promise to pay the debts and who continue the business of the dissolved partnership, creditors of the dissolved partnership are also creditors of the person or partnership continuing the business.
Texas Civ.Code Ann. art. 6132b § 41(4) (Vernon, 1982). In the absence of an agreement to the contrary, where partners transfer the right to provide services to a certain group of clients to a second partnership which later transfers those rights to a third partnership which latter partnership agrees to assume the liabilities of the second, liability for malpractice of the first will not obligate the third. The Official Comment to the Uniform Partnership Act and the Texas Act both explain that subsection 41(4) contemplates an express promise to assume the debts of the first partnership. Official Comment, Uniform Partnership Act § 41(4) (1968); Source and Comments, Texas Civ.Code Ann. art. 6132b § 41(4). The agreement between Witte and M.B. & A. contained no such promise. Therefore, Witte cannot be found liable based on this provision.
Moats and Houston also argue that Fox is liable because in its agreement with Witte, Fox expressly assumed all liabilities of Witte. However, Witte could not be liable either under section 41(4) or other provisions of the Act. Since there is no statutory basis for imposing liability on Witte, there is no liability for Fox to assume under these facts. Therefore, the provision of the Witte-Fox agreement which contained Fox’s promise to assume Witte’s liabilities does not impose liability on Fox in the present circumstances. Moats and Houston further argue in general terms that one accepting the benefits of a contract must also accept its burdens. That argument is without merit in this situation. Cases cited in support of that argument are irrelevant here, since liability of Witte and Fox is controlled by the Texas Uniform Partnership Act. The cases cited in support of this argument are factually distinguishable and, therefore, inapplicable. Sanchez v. Leggett, 463 S.W.2d 517 (1971); Daniel v. Goesl, 341 S.W.2d 892 (1960).
Therefore, Witte and Fox cannot be found liable under applicable Texas law for malpractice in conjunction with accounting services provided by M.B. & A. Witte and Fox were not properly named as defendants in the suit filed in Texas.
So ordered. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489913/ | MEMORANDUM OPINION
THOMAS M. TWARDOWSKI, Bankruptcy Judge.
The issue before us is whether the plaintiffs are entitled to a voluntary dismissal of this adversary proceeding pursuant to Bankruptcy Rule 7041. For the reasons hereinafter given, we shall dismiss the adversary proceeding with prejudice and in accordance with other terms.1
The plaintiffs’ complaint, which initiated this adversary proceeding, essentially claims that a mortgage assignment from plaintiff Robert C. Montgomery to defendant Hamilton Bank was not properly perfected and is invalid. The mortgagors are the defendants trading as Skiadas Bros. Enterprises (hereinafter “defendants Skia-das”). In the complaint, the plaintiffs, based upon their contention that the mort*88gage obligation of the defendants Skiadas was, and still is, payable to them rather than to Hamilton Bank, seek various types of relief against the defendants. The plaintiffs have now concluded, however, that they would not prevail in this adversary proceeding, and therefore, have filed their instant motion for its voluntary dismissal pursuant to Bankruptcy Rule 7041. Hamilton Bank consents to the dismissal, but defendants Skiadas oppose it.
During the interim between the filing of the complaint and the motion for voluntary dismissal, debtor Robert C. Montgomery and Hamilton Bank confessed judgment against defendants Skiadas on the mortgage obligation in state court. Defendants Skiadas then filed in state court a petition to strike or open the confessed judgment, which is still pending. Also during this period of time, defendants Skiadas filed in our court a motion for leave to deposit money into court, to which the plaintiffs and Hamilton Bank have responded.2 The motion requests -entry of an Order (1) directing defendants Skiadas to pay accrued monthly payments and future monthly payments under the mortgage obligation into the registry of the court, (2) relieving defendants Skiadas from further liability to either the plaintiffs or Hamilton Bank beyond the monthly payments, and (3) permitting defendants Skiadas to claim their attorneys’ fees from the funds deposited. The motion alleged that the Order was requested because conflicting demands for the money had been made on defendants Skiadas by the plaintiffs and Hamilton Bank and that the latter were, in bad faith, attempting to accelerate the indebtedness due under the mortgage obligation.
Bankruptcy Rule 7041 incorporates Rule 41 of the Federal Rules of Civil Procedure, which states, in relevant part:
“(a) Voluntary Dismissal: Effect Thereof....
(2) By Order of Court. Except as provided in paragraph (1) of this subdivision of this rule, an action shall not be dismissed at the plaintiff’s instance save upon order of the court and upon such terms and conditions as the court deems proper. If a counterclaim has been pleaded by a defendant prior to the service upon him of the plaintiff’s motion to dismiss, the action shall not be dismissed against the defendant's objection unless the counterclaim can remain pending for independent adjudication by the court. Unless otherwise specified in the order, a dismissal under this paragraph is without prejudice.”
Rule 41(a)(2), F.R.C.P.
In opposing the plaintiffs’ motion for voluntary dismissal, the main contention of defendants Skiadas is that their motion for leave to deposit money into court is in effect a countérclaim for interpleader and that, therefore, the adversary proceeding should not be dismissed unless their “counterclaim” can remain pending for our independent adjudication. It is true, as defendants Skiadas point out, that a defendant may file a counterclaim for interpleader. Bankruptcy Rule 7022; Rule 22, F.R.C.P. However, defendants Skiadas simply did not file a counterclaim nor did they file any type of interpleader action. Rather, their motion was brought pursuant to Bankruptcy Rule 7067, which incorporates Rule 67, F.R.C.P. (Deposit in Court). Defendants Skiadas cite, without discussion, only one case, Bank of China v. Wells Fargo Bank and Union Trust Co., 209 F.2d 467 (9th Cir.1951), in support of their contention. However, this case involved a defendant bank who was ordered by the trial court, during the pendency of the case, to pay into court money that was subject to conflicting claims. The issue before the court was at what point in time the defendant was relieved of its obligation to pay interest on the money. The court found, not surprisingly, that such obligation ended on the date that the money was deposited into *89court, and explained its finding at 209 F.2d 475:
“At that time, parties claiming adverse interests in the fund were before the court and Wells Fargo’s position became akin to that of an interpleader and involuntary stakeholder who has divested himself of all claims to the fund and who is no longer enjoying any benefit therefrom.”
In Bank of China, supra, the trial court’s order requiring the defendant to pay the money into court was not done at the request of the defendant nor pursuant to any pleading of the defendant. In fact, in rejecting the defendant’s contention that its interest obligation should have ended sooner, the court specifically noted that the defendant had failed to avail itself of the use of, inter alia, Rule 22, F.R.C.P., which could have been used by the defendant well before the trial court’s order. Bank of China did not involve, and contained no discussion of, the question of under what circumstances a pleading should be considered a counterclaim, a motion or complaint for interpleader, or anything else. Therefore, Bank of China provides no support whatsoever for defendants Skiadas’ position.
For the foregoing reasons, we reject the argument of defendants Skiadas that we should consider their motion to be a counterclaim for purposes of Bankruptcy Rule 7041.
Defendants Skiadas also argue that they would be substantially prejudiced by the dismissal of the adversary proceeding and that, therefore, in our discretion, we should deny the motion for voluntary dismissal. They contend that there are two important issues before us on their motion that are not at issue in the aforementioned state court proceeding. The issues are whether the attempted acceleration of the mortgage indebtedness is proper and whether they should be awarded attorney’s fees. The plaintiffs and Hamilton Bank do not agree that these issues are not properly before the state court, and we question whether the record in our case demonstrates that these issues are not subject to disposition in the state court proceeding. However, even assuming arguendo that the characterization of the state court proceeding by defendants Skiadas is correct, they have failed to show both (1) that they cannot raise these issues in state court in some manner, in connection with the present state court proceeding or other,-wise, and (2) that it was not through their own failure to raise these issues that the issues are not now properly before the state court. Therefore, we cannot find that defendants Skiadas would be prejudiced by our dismissal of the adversary proceeding.3
For all of the foregoing reasons, the plaintiffs’ motion for voluntary dismissal shall be granted and this adversary proceeding- shall be dismissed with prejudice and in accordance with the other terms set forth in our accompanying Order.
ORDER
AND NOW, this 2nd day of October, 1984, in accordance with the foregoing Memorandum Opinion, it is ORDERED that the within Adversary Proceeding is, pursuant to Bankruptcy Rule 7041, hereby DISMISSED with prejudice and it is further ORDERED that:
(a) Hamilton Bank shall not attempt to assert that its $3,428.37 charge card claim against the debtors is secured by the, mortgage assignment; and
(b) Hamilton Bank shall not voluntarily deaccelerate the mortgage without the agreement of the plaintiffs.
. This Memorandum Opinion constitutes the findings of fact and conclusions of law required by Bankruptcy Rule 7052.
. By agreement of all of the parties, no further action was taken with regard to either the state court proceeding or defendants Skiadas’ motion until this Court rules on the present motion for voluntary dismissal.
. It is also clear to us that the debtors’ bankrupt- ■ cy estate would in no way be diminished or harmed by the dismissal of this adversary proceeding. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489914/ | MEMORANDUM OPINION
T. GLOVER ROBERTS, Bankruptcy Judge.
This matter came on before the Court in the above adversary proceeding on the Motion of the Defendant, Air Line Pilots Association (ALPA), for a Stay of Discovery and for a Protective Order. In addition, or in the alternative, ALPA has requested the expansion of the Protective Order (copy appended) entered by Judge R.F. Wheless, Jr. of this Court on December 12, 1983. After proper notice to all named defendants, this matter was heard on May 2,1984. For the reasons described below, the Motions of ALPA are denied.
FACTS AND BACKGROUND
On January 30, 1984, Continental Air Lines, Inc. and Texas International Airlines, Inc., Debtors in Possession (CAL) filed their First Amended Complaint in this Adversary Proceeding, CAL having filed its Chapter 11 Petition on September 24, 1983. That Complaint asserts certain causes of action against ALPA and several of its members under the Racketeer Influenced and Corrupt Organizations Act of 1970. This pleading was filed under seal by the Plaintiff in recognition of a Protective Order entered by this Court on December 12, 1983. CAL later moved to unseal that Complaint and to permit unsealed filing of future papers in this case.
CAL also filed a Motion to Produce with ALPA as Respondent therein. ALPA does not resist the Motion to Unseal the Complaint, except for paragraphs 39-41, inclusive, therein. With the exception of those paragraphs of the Complaint, that Motion was granted by Order of this Court dated May 2, 1984. However, ALPA countered with a Motion for Stay of Discovery and for a Protective Order. As to the latter item, ALPA seeks to extend the December 12, 1983 Protective Order, in ALPA’s words, “which covered only depositions and documents produced at those depositions, to all documents which may be produced over the course of this civil action, and specifically to the documents presently requested by Plaintiffs.” 1
ALPA apparently concedes the legitimacy of CAL’s Motion to Produce in its December 27, 1983 request, without waiving the right to assert attorney-client or work-product privilege, with regard to certain documents, since ALPA states in its Reply Brief2 that ... “the only issue in dispute is ALPA’s Motion for a Protective Order, on which the Court must rule before ALPA should be required to respond to Continental’s Rule 34 Request.”
ALPA seeks the Protective Order under Rule 26(c) of the Federal Rules of Civil *132Procedure, as to the documents, records and information requested by CAL from this particular defendant. In reviewing the Motions and Supporting Briefs of ALPA, the only specific grounds raised by pleading in support of the Protective Order is that “serious embarassment, prejudice, oppression and annoyance ... would be sustained by ALPA.”3 In its motion, ALPA asserts supportive reasons relating to defenses of the other individual defendants, defenses and arguments which ALPA is clearly unable to raise, since it has been extremely specific on the record that it is defending only its interest and not those of any of the individual defendants. The Court notes at this juncture that although the First Amended Complaint and all above-described motions have been properly and timely served on all parties defendant, ALPA is the only defendant who has made any appearance in this action, although proper notice also has been given of the May 2, 1984 hearing.
In any regard, the arguments concerning postponement of all phases of this civil action appear to now be moot. Two of the defendants herein, Hall and Earley, were indicted on felony charges relating to certain acts described in Plaintiffs First Amended Complaint. The record in this hearing and the transcript of the December 12, 1983 hearing in which Judge R.F. Wheless, Jr. entered a Protective Order, of which this Court takes notice, reveals that the reason for this December 12 Order was the Court’s concern of avoiding potentially adverse pre-trial publicity that might endanger Hall and Earley’s ability to have an unbiased jury and criminal trial. That concern was likewise voiced by this Court on March 1, 1984 as one of the reasons for staying all activity in this action until the completion of the Hall and Earley trials. The Court is now advised, on the record, that the Hall and Earley trials now are complete, having resulted in guilty verdicts. Other individual defendants in this action also received felony indictments for criminal acts apparently alleged to be connected with this civil matter. However, the Court was apprised at the May 2, 1984 hearing that these matters too are complete for trial purposes since pleas had been entered by the defendants in the criminal matters, with the exception of one misdemeanor matter.
This being the status, the Court is therefore of the opinion that the reasons for entering the December 12, 1983 Protective Order and for the Court’s informal stay of this civil litigation are now moot.
In its Motion for a Protective Order and Related Briefs, the only bases cited by ALPA for relief sought are; (1) the delay on the criminal matters and (2) the quoted statement described above. At the hearing, no other bases or issues were raised. The record does reflect the filing of a Declaration of the Trial counsel for ALPA in this matter. The Declaration provides a chronology of the development of the matters described above, but provides no information on which to base any facts, which might support this position. Paragraph four of counsel’s Declaration provides the only statement in the entire document concerning a bases of its argument for the granting of a Protective Order, this being “... ALPA filed an emergency motion for a Protective Order on the depositions on the ground that publicity surrounding the depositions would be used to harass and embarass ALPA and might prejudice criminal defendants in pending criminal cases.”4
ALPA’s motion was accompanied by no affidavits signed by this defendant. At trial, ALPA offered no evidence either oral or documentary, in support of its position.
CAL vigorously opposes ALPA’s motion, arguing that ALPA has made no showing to justify the entry of a protective order.
CONCLUSIONS
The argument concerning pending criminal matters now being moot, the Court is faced with a very narrow issue for decision, *133this being: Should this Court provide a Rule 26(c) protective order to ALPA restricting the distribution and dissemination of documents produced by ALPA and deposition testimony taken in this cause to the parties to this proceeding to “be used only for purposes of this proceeding and no other purpose whatsoever...”,5 under the circumstances existing in this action?
In making such a determination, the language of Rule 26(c) of the Federal Rules of Civil Procedure must be examined. In relevant part, the Rule states:
(c) Protective Orders. Upon motion by a party, or by the person from whom discovery is sought, and for good cause shown, the Court in which the action is pending, ..., may make any order which justice requires to protect a party or person from annoyance, embarassment, oppression or undue burden or expense ...
The determinative language in this instance involves whether “good cause” has been shown by ALPA in its request for a protective order. This Court finds that “good cause” has not been demonstrated by ALPA in its Motion, and that it should be denied, for the reasons described below.
It is settled that “to establish ‘good cause’ for a protective order under Rule 26(c), (t)he courts have insisted on a particular and specific demonstration of fact, as distinguished from stereotyped and conclu-sary statements...” 8 Wright & Miller, Federal Practice and Procedure, Section 2035 at 265 (1970).6 In this vein, this Court finds the rationale and holding of In Re Halkin7 controlling.
Halkin involved an application for a protective writ of mandamus to vacate a district court order prohibiting counsel and parties from publicly disclosing information obtained through discovery. Halkin addressed the “good cause” criteria succinctly:
Thus, in determining whether “good cause” exists to issue a restraining order limited to discovery material and to lawyers, and parties, the trial court must also require a specific showing that dissemination of the discovery materials would pose a concrete threat to an important countervailing interest.
It is clear and apparently unanimous that the' party seeking the protective order bears the burden of proof.8 In this instance, the burden would therefore be on ALPA, as the proponent.
The standard which must be met in carrying the proponent’s burden, likewise, is equally clear. This Court specifically follows and adopts the Halkin standard. The Court holds that “an order restricting dissemination must be based on full assessment of the interest at stake, with the party seeking the restraining order bearing the burden of making a concrete and specific showing of the likelihood *134of harm.”9 Further, this Court stresses that “... the mere allegation of conjectual harm is insufficient to meet the moving party’s burden.” 10
At the hearing, the Court asked if ALPA intended to put on any witnesses or would move forward with any evidence. ALPA responded in the negative, presenting only argument. The Court then recessed to Chambers to review the documents produced by ALPA in camera.
The Court concludes that ALPA has failed to meet its burden under the above standards, since ALPA has made no particular concrete and specific demonstration or showing of fact on which to form a bases for which relief may be granted. ALPA’s mere allegations and arguments of conjectural harm do not meet the necessary burden. For these reasons, the ALPA Motion must fail and shall be denied.
The Court would observe, in summary, that “a protective order is an extraordinary device”. Matter of DeLorean Motor Company, 31 B.R. 53, 56 (Bkrtcy.E.D.Mich.1983). The documents of ALPA have been reviewed in camera by the Court, and nothing has been perceived that would warrant, from the Court’s record or review, such a protective measure. Were a protective order granted each time a question bearing peripherally on the pending civil action elicited a Rule 26(c) protective response by ALPA, First Amendment privileges would be seriously curtailed.
In adopting the Halkin rationale and holding, the Court would note that litigation itself is a form of expression protected by the First Amendment rights, and those rights extend to discovery materials. Also, “A party’s right to disseminate information is far stronger for discovery materials than for information that has been stolen or obtained in breach of contract .... a party (obtaining) documents or information through the discovery process ... can ‘use that information in any way which the law permits.’ ” Halkin, at p. 189. “Good cause” not having been shown by ALPA, the materials may be used by CAL in accordance with the above Halkin language, including “communicating useful information to the public”, Halkin, at p. 187, citing In Re Primus, 436 U.S. 412, 413, 431, 98 S.Ct. 1893, 1895, 1904, 56 L.Ed.2d 417 (1978). An order shall be entered accordingly.
APPENDIX
PROTECTIVE ORDER
The Court having considered applicant’s motion, it is hereby ORDERED that:
1. The parties, their counsel, their agents, employees or representatives, will not utilize any documents, books, records, writings, depositions and transcripts produced in the course of said depositions, or the depositions or transcripts themselves, for any purpose other than the preparation and conduct of the litigation- of this action, except for any report to a public regulatory or law enforcement agency having jurisdiction.
2. The examination of witnesses on deposition shall be held with no one present except the reporter, the witness and his attorney or attorneys, counsel for the parties, and three designated client representatives for plaintiffs jointly and three designated client representatives for defendant, each of which is bound by the terms of this order.
3. The transcripts of said depositions shall be sealed and remain sealed until ordered to be opened by the Court.
Dated: Dec. 12, 1983
R.F. Wheless Jr. United States Bankruptcy Judge
. ALPA Reply in Support of Emergency Cross-Motion for Stay of Discovery and for a Protective Order, p. 2.
. Ibid, at p. 2.
. Id., at p. 3.
. Declaration of James L. Linsey, p. 3.
. In Re Halkin, 598 F.2d 176, 193 (D.C.Cir.1979); Reliance Insurance Co. v. Barrons, 428 F.Supp. 200, 202-03 (S.D.N.Y.1977).
. Ibid, at 6.
. Halkin, Id, at p. 194, footnote 42, In Re San Juan Star, 662 F.2d 108, 155-117 (1st Cir., 1981) Reliance Insurance Co., Ibid, at 6.
. Id., at 6.
. Id., at 6. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489915/ | ORDER
JAMES D. TRABUE, Bankruptcy Judge.
At Alton, in said district, this matter coming on for hearing on a complaint to *181determine dischargeability of a debt and objecting to the discharge of the debtors, filed on behalf of the plaintiff by his attorney, Gordon E. Maag; Paul E. Riley representing debtors; after reviewing the evidence and otherwise being fully advised in the premises, the Court makes the following findings and conclusions:
1. Debtors filed a petition under Chapter 7 of the Bankruptcy Code.
2. Plaintiff is a creditor of the above-named debtors.
3. Plaintiff filed a complaint under §§ 523 and 727 of the Bankruptcy Code, claiming that debtors converted plaintiffs property with a fair market value of $75,-000.00.
4. Debtors had an agreement with plaintiff to care for and feed certain livestock on behalf of plaintiff.
5. Debtors sold out of trust and were unable to properly account for ninety head of cattle.
6. Plaintiff entered into an agreement with a third party, Poos Investment Company, whereby the damages debtors owed plaintiff were reduced to a liquated amount and debtors were conditionally released of liability, so long as the terms of said agreement were complied with.
Several mixed issues of law and fact confront the Court. The facts are uncon-troverted insofar as the sequence of events is concerned. Debtors admit that they converted plaintiffs livestock to their own use. The issues that must be resolved are: (1) has plaintiff properly stated a cause of action against debtors and met his burden of proving the same; and (2) does the agreement between plaintiff and the third-party extinguish the old debt arising from the conversion and create a new debt that is dischargeable?
Plaintiff has failed to state a cause of action under § 727 and therefore that portion of his complaint relating to the objection to discharge must be dismissed. Section 727 relates to certain acts that Congress deemed to be wrongful to all creditors as a whole so as to preclude the grant of discharge. Plaintiff failed to allege or prove that the provisions of § 727 relate to debtors’ actions in any way.
Although plaintiff failed to state with specificity which provisions of § 523 are applicable, his complaint does state a cause of action under that Code section. Ostensibly, §§ 523(a)(4) or (a)(6) provide plaintiff with a cause of action against debtors based on his allegations. The unlawful taking of plaintiff’s cattle constitutes larceny under § 523(a)(4) and a conversion under § 523(a)(6). Larceny is the unlawful taking of property without the owner’s consent. Car Village Buick-Opel v. DeRosa (In re DeRosa), 20 B.R. 307, 312 (Bankr.S.D.N.Y.1982). Clearly, under the terms of the parties’ original agreement (Ex. 1), the cattle was not to be removed from debtors’ premises without the supervision of plaintiff’s agents. Thus, the breach of trust constitutes larceny under § 523(a)(4). With respect to § 523(a)(6), the conversion must be found to be willful and malicious to be nondischargeable. Under the Code, willful means “done with will or intentionally, and not inadvertently,” while malicious means “done consciously and knowingly wrongful,” rather with evil or ill will. Birmingham Trust National Bank v. McGiboney, 8 B.R. 987, 989 (Bankr.N.D.Ala.1981). The Court finds that debtors absconded with plaintiff’s property intentionally and debtors knew or should have known that the transaction was wrongful.
Debtors assert that the debt in question is dischargeable, despite any findings that their acts constitute larceny or a willful and malicious injury. Debtors contend that the agreement between plaintiff and Poos Investment liquidates the indebtedness arising from their wrongful acts, giving rise to a new debt. Under debtors’ theory, the new debt is dischargeable because it does not retain any of the characteristics of the seemingly nondischargeable debt that has been liquidated through the agreement. Greenberg v. Schools (In re Schools), 14 B.R. 953 (Bankr.S.D.Fla.1981) *182has been cited as authority for debtors’ proposition.
The Court finds that debtors’ debt to plaintiff remains nondischargeable, notwithstanding the agreement between plaintiff and the third party. First, the decision in Schools is distinguishable from the instant case. In Schools, the parties had entered into an agreement in settlement of litigation in the state court. The debtor had committed acts that would have rendered the resulting debt to 'the plaintiff nondischargeable. Upon finding the debt dischargeable, the court found that the settlement agreement was not entered into in bad faith and public policy prevented it from upsetting the parties’ valid agreement. The court’s holding rests in large part on the fact that the plaintiff relied upon the new liquidated debt when seeking to enforce the agreement in state court upon debtor’s default. In the instant case, plaintiff has not sought to rely upon the new liquidated debt.
Furthermore, the concerns the Schools court had for maintaining the vitality of settlement agreements seem somewhat misplaced. Schools seems to ignore the fact that the plaintiff in that case failed to receive the benefit of his bargain when the debtor filed bankruptcy and the debt was declared dischargeable. This Court will not allow a debtor to circumvent the dis-chargeability provision in the Bankruptcy Code by entering into agreements, liquidating the amount of the debt and then, seeking the haven of the bankruptcy process, assert the defense that debt as liquidated is dischargeable. Allowing debtors to proceed in such a manner has a more perverse effect on the public policy favoring extrajudicial settlement of controversies than forcing debtors to be responsible for their actions.
It is significant that the matter at bar does not involve a novation. The agreement between plaintiff and Poos Investment cannot be construed to relieve debtors of liability for the debt. Had the parties effectuated a novation, whereby the plaintiff had agreed to unconditionally hold debtors harmless and look only to Poos Investment for payment, a different result may have been reached herein.
WHEREFORE, IT IS ORDERED, ADJUDGED AND DECREED that the debt of Roger W. Poos and Linda S. Poos to Brady McCall, d/b/a Cassidy Livestock Order Company, Inc. and Cassidy Livestock Order Company be, and the same hereby is, deemed nondischargeable under 11 U.S.C. § 523(a). | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489916/ | *183ORDER ON OBJECTION TO CLAIM
ALEXANDER L. PASKAY, Chief Judge.
THIS IS a Chapter 11 ease commenced by Southern Pump & Supply, Inc. (Debtor) and the matter under consideration is an objection to an unsecured priority tax claim filed by the Internal Revenue Service (IRS). The Debtor seeks to disallow the tax claim on the ground that all indebtedness owed to the IRS has been paid in full.
The facts pertinent to this matter as adduced at trial are as follows:
The Debtor is a corporation engaged in the business of manufacturing, selling, and servicing water pumps and related products. The corporation developed financial difficulties and failed to pay its payroll taxes for 1981 and the first quarter of 1982. On March 1, 1982, the Debtor filed its petition for relief pursuant to Chapter 11 of the Bankruptcy Code.
On October 19, 1983, Mr. Ken Burnsed, the President and sole stockholder of the Debtor, along with his attorney, met with a revenue agent of the IRS to discuss the delinquent payroll taxes of the Debtor. At the meeting, the agent requested full payment from Mr. Burnsed for the taxes collected from the corporate employees and for which he personally assessed as a “responsible person” under the Internal Revenue Code. Mr. Burnsed did not have the ability to make this payment but wished to pay off the corporate portion of the tax assessment. The next day, Mr. Burnsed’s accountant delivered the 941 Forms and a corporate check in the amount of $16,-859.87 (Debtor’s Exh. # 1). The check was endorsed as paid in full. It is without dispute that the amount of the check exceeded the tax obligation assessed to Mr. Burnsed individually.
Because payment was not by a certified or cashier’s check, the agent sent the check to the Jacksonville office where the check was cashed.
Instead of applying the payment by the corporate check to the corporation’s assessment as contemplated by Mr. Burnsed, the revenue agent credited the payment to the penalty assessed against Mr. Burnsed individually.
The Debtor takes the position that it delivered the check to the IRS with the intent that the payment be credited against the corporate tax liability as contemplated by the settlement agreement entered into with the revenue officer on October 19, 1982, rather than the penalty assessed against Mr. Burnsed. As a result, the Debtor contends the corporate tax liability has been paid in full and, therefore, the IRS claim should be disallowed.
In response, the IRS contends that the revenue agent had no authority to compromise a tax claim and, therefore, it is not estopped from asserting its claim against the corporation.
The Internal Revenue Code addresses who may settle or compromise a tax controversy in § 7121 and § 7122 which provide in pertinent part as follows:
§ 7121. Closing agreements
(a) Authorization
The Secretary is authorized to enter into an agreement in writing with any person relating to the liability of such person (or of the person or estate for whom he acts) in respect of any internal revenue tax for any taxable period.
§ 7122. Compromises
(a) Authorization
The Secretary may compromise any civil or criminal case arising under the internal revenue laws prior to reference to the Department of Justice for prosecution or defense; and the Attorney General or his delegate may compromise any such case after reference to the Depart*184ment of Justice for prosecution or defense.
(b) Record
Whenever a compromise is made by the Secretary in any case, there shall be placed on file in the office of the Secretary the opinion of the General Counsel for the Department of the Treasury or his delegate, with his reasons therefor, with a statement of—
(1) the amount of tax assessed.
It is clear that the Code authorizes the Secretary of the Treasury to compromise a claim. However, the Code does not authorize a revenue agent to enter into such an agreement. The Courts have found that agreements and settlements made without the approval of the designated officer are not binding. Botany Worsted Mills v. United States, 278 U.S. 282, 49 S.Ct. 129, 73 L.Ed. 379 (1929); Bowling v. United States, 510 F.2d 112 (5th Cir.1975); Hughson v. United States, 59 F.2d 17 (9th Cir. 1932).
The record fails to disclose any evidence that the Secretary consented or approved the settlement in accordance with IRC § 7121 and § 7122. Without the Secretary’s approval, the Government is not bound by the agreement to apply the payment to the corporate liability. As a result, the Debtor remains liable for payroll tax deficiencies incurred during 1981 and the first quarter of 1982.
In light of the foregoing, this Court is satisfied that the Debtor’s objection shall be overruled and the claim of the IRS shall be allowed.
Accordingly, it is
ORDERED, ADJUDGED AND DECREED that the Objection to Claim filed by the Debtor, Southern Pump & Supply, Inc. be, and the same hereby is, overruled. It is further
ORDERED, ADJUDGED AND DECREED that the claim filed by the IRS in the amount of $4671.70 be, and the same hereby is, allowed as filed. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489917/ | *238MEMORANDUM AND ORDER
CHARLES J. MARRO, Bankruptcy Judge.
The matter is before the court on the following applications for allowances:
(1) Application of Joseph C. Palmisano, Esquire, for the Allowance of Interim Compensation in the sum of $43,-521.00 and Expenses of $5,511.94;
(2) Application of Lewis A. Sassoon, Esquire, Attorney for Creditors’ Committee, for the Allowance of Compensation in the sum of $5,387.50;
(3) Application of Briggs, Keyes Co., Certified Public Accountants, for the Allowance of' Compensation of $12,-003.75 and Expenses of $142.40;
*239(4) Application of VCL Partners, for the Allowance of $188,587.47, together with the further sum of $34,950.37 for Reimbursement of Expenses of Administration plus a management fee of $30,000.00 through May 31, 1984, with the management fee accruing at $250.00 per day;
(5) Application of Gene R. Kazlow for. Interim Administrative Expenses of $8,256.25.
An objection had been interposed by Gene R. Kazlow to the application of VCL Partners and some question had been raised as to the amount to be allowed for Briggs, Keyes Co., Certified Public Accountants. However, at the hearing an agreement was reached as to these applications, pursuant to which a stipulation was filed on September 12, 1984 which is being considered by the court and, in all likelihood, it will be approved. This leaves for determination the applications of Joseph C. Palmisano, Esquire, and Lewis A. Sassoon, Esquire, as attorneys for the debtor and for the creditors’ committee, respectively, as well as the application of Gene R. Kaz-low. These applications are being considered in the light of the following BACKGROUND:
The debtor, Air Vermont, Inc., commenced business in September 1981, as a commuter air line operation from the International Airport in South Burlington, Vermont to various points mostly in the northeast. It suffered the growing pains of over-expansion at a rapid rate to the point that it started having financial difficulty which necessitated the filing of a petition for relief under chapter 11 of the Bankruptcy Code on January 31, 1984.
On the same day it filed an Emergency Motion for Authority to enter into an Interim Secured Financing Agreement with certain lenders known as VCL Partners to incur debt with superior priority over other administrative expenses and senior to existing liens including that of the Internal Revenue Service. This motion recited that VCL Partners were willing to lend the debtor on an interim basis, pending negotiations for a long term financing agreement, immediately $100,000.00 and up to $200,000.00 maximum on terms and conditions set forth in an agreement between the debtor and VCL Partners as lenders. The motion was granted and VCL Partners assumed the operation of the debtor which was continued for a period of one month. At the end of the period VCL Partners came to the conclusion that the debtor could not be rehabilitated and closed down the operation but not until it had incurred claimed expenses of $188,587.47 plus additional administrative expenses of $34,-950.37 and a management fee of $30,-000.00. The stipulation filed indicates that all of these claims of VCL Partners have been settled for $151,000.00 and that the allowance requested by the accountants has been reduced to $6,000.00.
After VCL Partners terminated the operation of the airline the attorney for the debtor suggested that it would be most feasible for the benefit of the creditors that the chapter 11 proceeding continue as a liquidation and, accordingly, filed a disclosure statement and a liquidation plan. He subsequently requested the court to hold in abeyance a hearing on the liquidation plan since there were negotiations in progress for the possible resumption of management of the debtor by the principals who had operated the airline prior to the filing of the chapter 11 petition. At this point it was clear that nothing had been accomplished other than the running up of substantial administrative expenses.
It is in this posture that the court must consider the reasonableness of the amounts requested by the applicants. Section 331 of the Bankruptcy Code states that a debt- or’s attorney or any professional may apply to the court not more than once every 120 days after an order for relief in the case for such compensation for services rendered before the date of such application or reimbursement for expenses. Under this section the court may approve such compensation and reimbursement for expenses so that the applicant may not be required to wait until the end of the case, which in *240some instances, may be for years. This court has had some reservations about passing upon interim compensation early in the case for the reason that it is difficult at that stage to determine what constitutes a reasonable allowance since success in a chapter 11 case is probably the most determining factor. However, the attorney for the debtor has requested that the court pass upon the amount that should be allowed to him for his services so that he can make a judgment as to whether he wishes to continue as attorney for the debtor. Accordingly, the court is making a determination of the three pending applications for allowances.
AS TO THE APPLICATION OF JOSEPH C. PALMISANO, ESQUIRE, FOR INTERIM COMPENSATION AND EXPENSES
The attorney for the debtor has filed an application for the allowance of $43,521.00 for compensation for services and $5,511.94 for reimbursement for expenses. His services cover a period from January 29, 1984 through May 25, 1984, a total of 397.75 hours at $100.00 per hour or a request of $39,775.00. In addition, he is claiming compensation for the services of an associate for the period from January 31, 1984 through May 14, 1984, a total of 72.25 hours at $65.00 a hour or a request for him of $4,696.25. The total amount of compensation requested in the itemized schedule is $44,471.25, but for some reason the attorney has reduced this request in his application to $43,521.00.
DISCUSSION
Under § 330 of the Bankruptcy Code the Court may allow a professional person or the debtor’s attorney reasonable compensation for actual, necessary services rendered by him based on the time, the nature, the extent, and value of such services, and the cost of comparable services other than in a case under title 11 of the Code; and reimbursement for actual, necessary expenses.
The criteria for the allowance of reasonable compensation are recited in Johnson v. Georgia Highway Express, Inc., 488 F.2d 714 (5 Cir.1974) as follows:
“(1) the time and labor required;
(2) the novelty and difficulty or the questions presented by the case;
(3) the skill requisite to perform the legal service properly;
(4) the preclusion of other employment by the attorney due to acceptance of a case;
(5) the customary fee for similar work in the community;
(6) whether the fee is fixed or contingent;
(7) time pressures imposed by the client or the circumstances;
(8) the amount involved and results obtained as a result of the attorneys’ services;
(9) the experience, reputation and ability of the attorneys;
(10) the ‘undesireability’ of the case;
(11) the nature and length of the professional relationship with the client;
(12) awards in similar cases.”
In a chapter 11 case this court is inclined to give more weight to th.e novelty and difficulty of the questions presented, the skill with which the services were performed, the amount involved and the result obtained as a result of the attorney’s service. And if there is to be one dominant factor it is “success.”
The instant case is somewhat out of the ordinary in that it involves the operation of an airline with unusual ramifications arising in the determination of perfected security interests especially since the filing requirements are controlled by the Federal Aviation Act rather than the Uniform Commercial Code.
The Court also recognizes that the applicant has had many years of experience in bankruptcy matters but it does have considerable reservation that he performed his legal services in this case with his unusual skill. He had himself made this concession in his statement on page 3 of his applicant as follows:
*241“The applicant does not feel he has performed to the level that he should, and therefore, has not requested the premium hourly rate that he normally would charge.”
It is difficult for the Court to comprehend what the applicant means by the “premium hourly rate.” The usual charge for legal services in bankruptcy matters as well as for comparable services in non-bankruptcy proceedings in this area ranges from $75.00 to $100.00 an hour. The applicant has charged what the Court considers the maximum.
The court has made a careful examination of the itemization of the services rendered by the applicant and this reveals that the vast majority of them were of a routine nature such as the preparation of pleadings, conferences, attendance at routine hearings, negotiations, correspondence, telephone conversations and travel. Charges for such routine services are generally held compensable at a much lower rate than the maximum charged by the attorney for the debtor. And this rule obtains irrespective of the experience and competency of the attorney who performed them. In Re Hamilton Hardware Co., Inc. (Bankrtcy.E.D.Mich.1981) 11 B.R. 326; In Re Underground Utilities Construction Co. (Bankrtcy.S.D.Fla.1981) 13 B.R. 735; In Re International Coins & Currency, Inc. (Bankrtcy.D.Vt.1982) 22 B.R. 127, 130.
With reference to routine and ministerial services the Court notes that there is a charge of 30 plus hours in the preparation and rewriting of schedules for which the applicant seeks compensation of about $3,000.00. The nature of these services is clearly clerical most of which should be rendered by an accountant warranting a much smaller fee. In Re Olen (Bankrcy.E.D.Mich.1981) 5 C.B.C.2d 944, 947.
The Court recognizes that the applicant did in fact or was in the process of preparing and filing complaints in adversary proceedings for the avoidance of preferences and the recovery of substantial sums of money. However, none of these as of the date of his filing of the application for compensation resulted in any recovery for the benefit of the debtor’s estate. As a matter of fact some of the action taken by the attorney for the debtor has been detrimental to the estate. For example, in a motion instituted by Comair, Inc. for abandonment of aircraft the applicant conceded that there was no equity for the benefit of the estate and stipulated in writing for such abandonment. Gene R. Kazlow, an officer of the debtor and an attorney, resisted the motion and, after a hearing, the Court determined that there was equity in the aircraft. In addition the Court, in examining the security documents in anticipation of the preparation of its memorandum and order discovered that Comair, Inc. did not have a perfected security interest in one of the planes with a valuation of over $100,000.00. In fairness to the applicant it is pointed out that the controversy is on appeal in the U.S. District Court.
In another proceeding the applicant as attorney for the debtor filed an application to reject two executory contracts for the purchase of aircraft from one Ralph Cutillo and the Court, after hearing, determined that Cutillo did not have a perfected security interest in the aircraft and denied the debtor’s motion to reject the contracts.
The applicant spent much time and effort in a proceeding to avoid an alleged preference in favor of Pioneer Commercial Funding Corp. for over $100,000.00. After hearing the Court decided against the debtor and the matter is on appeal.
The Court is reluctant to point out the shortcomings of the applicant in rendering legal services to the debtor but at the same time, in doing so, it is carrying out its obligation in fixing a reasonable fee for such services. See In Re Erewhon, Inc. (Bankrtcy.D.Mass.1982) 21 B.R. 79, 86:
“The Court is charged with the responsibility to make an independent determination of the reasonable necessity of the services and the appropriate charges for such services as they apply in general *242terms but to the specific matters before the Court.”
The Court also recognizes that the attorney for the debtor may be successful in matters on appeal and that the prosecution of complaints in adversary proceedings may, in the future, result in moneys coming into the estate. If such occurs, through the efforts of the applicant, the court will not hesitate to grant him adequate and reasonable compensation. However, as of now, the Court can make a determination on the basis of the actual and necessary services rendered during the interim period. In doing so the Court can consider its own knowledge of the case. See In Re TMT Trailer Ferry, Inc., 577 F.2d 1296, 1304 (5th Cir.1978):
“the court, either trial or appellant, is itself an expert on the question (of attorney’s fees) and may consider its own knowledge and experience concerning reasonable and proper fees and may form an independent judgment either with or without the aid or testimony of witnesses as to value.”
After carefully reviewing the applicant’s application, the schedule of time spent, the nature of the services performed and the results accomplished, the Court concludes that $21,000.00 is a reasonable fee for his services.
In making this allowance the court is cognizant of the applicant’s allegation in his petition that, because of the size of the case, he has had to refuse other business and.has had to be available daily and, that he may continue to be, so that he will be unable to undertake many other major matters until this case is further advanced. The court realizes that the applicant has spent a considerable amount of time on this case but it also notes that the attorney for the debtor is on the panel of trustees in this district and, as far as it knows, he has accepted all assignments made to him as trustee by the Clerk and has been, during this interim period, involved in large assets cases.
The applicant also states that the debtor has assets of between $500,000.00 and $1,500,000.00 and that the court has determined that certain assets would be free of any liens with a value of about $500,000.00 to $700,000.00. The court considers these statements rather exaggerated and, in addition, any avoidance of liens during the interim period could not be attributed to the efforts of the applicant.
The schedules do list the assets at $2,112,725.30 but their value has been grossly overstated. At the outset the debt- or did have cash listed at $70,000.00 but most of this has been used up in operating expenses while at the same time the administrative expenses for which allowances are now being sought have been incurred. At the same time the debtor at the time of filing had unpaid wages of $56,671.52, deposits owed of $61,650.89 and unsecured claims of $1,354,436.84. In sum the picture was rather bleak at the outset and it continued to deteriorate rapidly during the operation of the business under chapter 11.
The debtor also seeks reimbursement of $5,511.94 in expenses of which the sum of $2,279.52 constitutes telephone charges not itemized. The court is willing to waive itemization since it feels that this sum is for toll calls which were actually made by the applicant. Therefore, expenses of $5,511.94 are approved.
AS TO APPLICATION OF GENE R. KAZLOW
This applicant seeks reimbursement of $8,256.25 for fees and expenses of his attorneys, Saxer, Anderson and Wolinsky, Esquires. They, in turn, filed a separate application for the same amount itemizing services from February 21, 1984 through June 26, 1984. The request for reimbursement is apparently predicated on § 503(b)(3)(D) of the Bankruptcy Code which provides that actual necessary expenses may be allowed to a creditor — an equity security holder in making a substantial contribution in a case under chapter 9 or 11 of this title.
Section 503 has previously been applied by this court and it did allow to an attorney *243for the shareholders’ committee compensation for such legal services as tended to foster and enhance, rather than to retard or interrupt the progress of reorganization under chapter 11. In re Real Estate Investment Trust, 26 B.R. 905 (Bankrcy.Vt.1983).
In the instant case the applicant is a shareholder and a principal in the debtor corporation. He retained Douglas J. Wo-linsky, Esquire, on a personal basis to represent him in these proceedings. For some reason or other he abdicated management of the airline operation before or soon after the chapter 11 proceeding was instituted. It was turned over to VCL Partners as a management team who conducted the business of the airline for about one month after the filing. At all times and even as of now the debtor is represented by Joseph C. Palmisano, Esquire. At one point a disagreement arose between Kazlow and VCL Partners. After operation ceased the debtor filed a disclosure and liquidation plan. Kazlow was adamant that the airline should be operated and could be reorganized. The legal services for which Kazlow seeks reimbursement are itemized in a schedule attached to one of the applications. They include the period from February 21, 1984 through June 26, 1984 — a total of 109.25 hours at $75.00 an hour = $8,156.25. Out of pocket expenses sought are $100.00.
Most of the services rendered by Kaz-low’s attorney were for the benefit of Kaz-low so that he could obtain control of the debtor. Management has since been returned to Kazlow under certain conditions and he has continued to retain Palmisano as attorney for the debtor. The latter has made charges for similar legal services for which Kazlow is seeking compensation. This has resulted in a duplication of effort and of charges. In fairness to Kazlow the court recognizes that he did in fact resist a petition of Comair, Inc. for abandonment of 4 airplanes after the attorney for the debt- or had consented to abandonment. The court sustained his objection to abandonment as to 3 and allowed the application as to the fourth. This matter is now on appeal before the U.S. District Court. The court also determined that Comair had an unperfected security interest in a Piper Chieftain airplane worth over $100,000.00 but this came about from the examination of the security documents introduced as exhibits by Comair rather than from an input by Kazlow.
Kazlow also resisted the application of the debtor to reject two executory contracts with one Ralph Cutillo which would have the effect of abandoning some aircraft. Likewise the court found that Cutil-lo did not have a perfected security interest in the airplanes. . This matter is also on appeal. In addition there is pending an application for relief from the automatic stay filed by a prior lienholder which, if successful, will greatly decrease the value of the legal services rendered in contesting the application to reject the Cutillo executo-ry contracts.
In sum, the legal services rendered by Kazlow’s attorney from February 21 through June 26, '1984 were substantially for his benefit, were duplications of those rendered by the attorney for the debtor and involved matters which are still pending with no assurance that they will ultimately be resolved in favor of the debtor. Under the circumstances the court concludes that Kazlow should be allowed $1,000.00 as reimbursement for legal services plus $100.00 for out of pocket expenses.
AS TO ATTORNEY FOR CREDITORS’ COMMITTEE
Lewis A. Sassoon, Esquire, as attorney for the creditors’ committee has filed an application for interim compensation for the period April 3, 1984 through June 28, 1984 charging 23.25 hours for himself @ $130.00 per hour = $3,022.50 and 21.50 hours for a partner @ $110.00 per hour = $2,365.00 — a total of $5,387.50.
The applicant is based in Boston, Mass, and the court is aware that these hourly rates are considered reasonable for that area as well as in other metropolitan com*244munities. However, this court has held that the reasonableness of the compensation requested should be determined in the light of the usual charges for legal services in the area or district in which they are rendered, In re Sutherland (Bankrcy.D.Vt.1981) 4 C.B.C.2d 1580, 14 B.R. 55. See also In Re Liberal Market, Inc. (Bankrcy—S.D. Ohio 1982) 24 B.R. 653, 659.
The services rendered by the applicant were purely of a routine nature not requiring any special skill. They have not as of now produced any result beneficial to the creditors or the estate of the debtor. As a matter of fact the Court is under the impression that the Attorney for the Creditors’ Committee has adopted a “wait and see” attitude. The average charge for legal services in bankruptcy matters in this district is $75.00 an hour but the Court is inclined to allow even less because of the nature of the services rendered. Accordingly, the Court approves $2,200.00 as a reasonable fee.
ORDER
In view of the foregoing,
IT IS ORDERED:
1. Joseph C. Palmisano, Esquire, is allowed $21,000.00 for legal services and $5,511.94 as reimbursement for expenses.
2. Gene R. Kazlow, Esquire, is allowed $1,100.00 as reimbursement for legal services and expenses.
3. Lewis A. Sassoon, Esquire, is allowed $2,200.00 as compensation for services as attorney for the creditors’ committee.
4. The Stipulation for Payment of the allowance to VCL Partners and to Briggs, Keyes Co. is being approved by separate order.
5. In the event that payments are made to the applicants under this order and it is later determined that there are insufficient funds with which to pay all administration expenses incurred in this Chapter 11 proceeding or to pay all of the administration expenses which may occur in a Chapter 7 liquidation if this case is converted to Chapter 7, then each applicant who receives payment shall be obliged to pay over to the Debtor or to the trustee such pro-rata share of such sum received by him under this Order as is chargeable to him under the applicable provisions of the Bankruptcy Code. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489918/ | FINDINGS OF FACT, CONCLUSIONS OF LAW AND MEMORANDUM OPINION
ALEXANDER L. PASKAY, Chief Judge.
THIS IS a misuse of credit card case and the matter under consideration is the dis-chargeability vel non of a debt in the amount of $4,770.42 admittedly owed by, Robert E. Moore (Debtor) to The Chase Manhattan Bank, N.A., (Chase Manhattan), the Plaintiff who instituted this adversary proceeding.
The claim of non-dischargeability is based on 11 U.S.C. § 523(a)(2)(A) and alleges that the Defendant obtained monies or properties from the Plaintiff through false pretenses, false representation and actual fraud. The evidence presented at the final evidentiary hearing is largely without dispute and can be summarized as follows:
Sometime in July, 1982, Chase Manhattan mailed a Visa Request Certificate to the Debtor informing him that they were holding a Chase Manhattan Visa Card with a credit line of $1,500 for his use. The Debtor, in response to the invitation to use the services of Chase Manhattan, returned the Request Certificate indicating that he would be glad to accept the card. In due course the card was mailed to the Debtor who promptly paid the $20.00 service charge. In October, 1982, the Debtor made several purchases using the Visa Card, but it was not until December, 1982, that he exceeded the credit limit previously indicated on the Visa Request Certificate. The first statement showing a balance which exceeded the credit limit was the December statement which Chase Manhattan mailed to the Debtor in January, 1983. The statement showed a balance of $2,121.56. While the Debtor made a $900 payment in February, 1983, which brought the balance within the credit limit, the Debtor continued to use the credit card and the balance ultimately reached a high of $4,695.30.
*371Although Chase Manhattan attempted to back charge merchants in the amount of $1,100.77, it appears that the merchants refused to accept these back charges and Chase Manhattan, therefore, redebited the Debtor’s account. It further appears that some time in February, although the date is uncertain, Chase Manhattan attempted to contact the Debtor, put him on notice that he had charged in excess of his credit limit, and advise him not to use the card until he paid down the balance below the credit limit.
The record reveals that there were several telephonic communications and correspondence from Chase Manhattan to the Debtor, however, the exact dates, particularly of the telephonic communications are uncertain. It is clear, however, that Chase Manhattan never actually revoked the Debtor’s privilege to use and possess the card.
The first communication which is in evidence is dated February 5, 1983 (PL’s Exh. No. 2) and states “your $1,750.07 balance is considerably higher than your $1,500 credit line causing your account to be closed for further purchases. Contact your over line department and discuss the matter.” On February 26, a similar communication was sent to the Debtor which included the following statement, “failure to make satisfactory arrangements to correct this situation will result in cancellation of your account”. (Emphasis supplied) Even as late as May 4, 1983, the statement sent to the Debtor indicated that if the amount due is not paid, the card privileges would be can-celled. (Emphasis supplied) There is no evidence in this record that this Debtor made any purchases or any charges after March 11, 1983.
It should be noted that the record is totally devoid of any evidence of as to the financial status of the Debtor at the time these purchases were made; nor is there evidence in this record regarding the Debt- or’s earnings during the pertinent time period or his ability to meet these obligations.
This is factual background against which the Court must be called upon to apply the legal principles which govern dischargeability of debts connected with use of credit cards. The claim of dischargeability is based on § 523(a)(2)(A) which in pertinent part provides as follows:
§ 523 Exceptions to Discharge
(a) 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 debtor’s or an insider’s financial condition;
11 U.S.C. § 523(a)(2)(A).
The claim of non-dischargeability based on misuse of credit has been considered over the years by the 5th Circuit and also by the 11th Circuit. The first case often cited and also criticized was Davison-Paxon Co. v. Caldwell, 115 F.2d 189 (5th Cir.1940) cert. den. 313 U.S. 564, 61 S.Ct. 841, 85 L.Ed. 1523 (1941). In this case the Bankruptcy Court héld that debts incurred prior to the Bankruptcy filing were dischargeable because they were not obtained by means of actual overt false pretenses and representations. This decision was affirmed by the District Court and ultimately by the Fifth Circuit. Davison-Paxon has been repeatedly criticized by commentators because it is understood to mean that a Debtor’s fraudulent concealment of insolvency is rewarded by permitting the Debtor to obtain release of obligations created by misuse of credit. The Eleventh Circuit considering, in the case of First National Bank of Mobile in Roddenberry, 701 F.2d 927 (11th Cir.1983), indicated its view however, that Davison-Paxon did not really intend to reward a deceitful Debtor. On the contrary, “it sought to deny a particularly improvident creditor the special privilege of an exemption from the general discharge.” Roddenberry, 701 F.2d at 930.
The Eleventh Circuit stated that “[notwithstanding its critics, Davison-Paxon retains its validity under limited circumstances, especially when the credit transactions *372involve a one-on-one relationship between a Debtor and Creditor of a type which was common in 1940.” Roddenberry, 701 F.2d at 932. The Court pointed out, however, that further analysis is necessary when third party creditors are involved. The Eleventh Circuit, in ruling in favor of the Debtor stated that once a credit card is used, the Bank agreed to trust the cardholder and to extend credit, and once the credit is extended, the Bank must decide when and if the credit will be revoked. See Roddenberry, supra. Having considered the matter, then, the Eleventh Circuit concluded that a voluntary assumption of a risk on the part of a Bank continues until it is clearly shown that the Bank unequivocally and unconditionally revoked the right of the cardholder to further possession and use of the card and until the cardholder is aware of the revocation. Roddenberry, supra. Accordingly, debts arising prior to the communication of revocation are part of the risk assumed by the Bank, authorizing the conditional possession of the cards.
Applying the foregoing legal principles as stated by the highest Court of this Circuit, it is clear that the Plaintiff failed to establish or furnish any proof that in this particular instance the right to possess and use the card was ever effectively communicated to this debtor. Therefore, it is clear that'the claim of non-dischargeability cannot be sustained. Moreover, unlike in other credit card cases, there is no evidence in this record that at the time pertinent, the Debtor was not in a financial condition to meet these obligations. The fact of the matter is, that in February, 1982, he made a $900 payment toward the account and coupled with the fact that the last purchase was made on March 11, 1982, it is impossible and unwarranted to conclude that at the time he made the additional purchases, he had no intention or capability of meeting the obligations in spite of the fact that he exceeded his credit limit. This being the case, the Plaintiff failed to establish with the requisite degree of proof, the essential elements under Roddenberry of á claim of non-dischargeability and therefore, the Complaint shall be dismissed with prejudice.
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/8489920/ | MEMORANDUM
KEITH M. LUNDIN, Bankruptcy Judge.
The issue is whether the secured claim of Farmers Home Administration (“FmHA”) *630is limited to the amount stated on the face of its U.C.C.-l financing statement. Because the reference to the original loan amount on the financing statement in this case is not a misleading surplusage, the FmHA is fully secured for subsequent advances to the debtor.
The following constitute findings of fact and conclusions of law pursuant to Bankruptcy Rule 7052.
The facts have been stipulated and the proceeding submitted on cross-motions for summary judgment. On or about November 21, 1978, Jimmy E. Davis (“debtor”) borrowed $30,600 from the FmHA. A promissory note and a security agreement were executed and a financing statement was filed with the appropriate Register of Deeds for Macon County, Tennessee. The financing statement adequately described the collateral and also contained the addresses and signatures of both parties. There is no claim that the security agreement or financing statement does not meet the minimum requirements of Tennessee law. However, the financing statement contained the additional words “Loan amt. $30,600.00” which represented the amount of the original promissory note.1 These added words are the source of the present controversy.
In June 1979, June 1980, June 1981, June 1982 and May 1983, the parties executed new notes and security agreements covering the same collateral as the original security agreement. New funds were advanced at these times, but no new financing statement was executed. A “continuation” of the original financing statement was filed on May 9, 1983.
On September 24, 1983, the debtor’s property was sold at auction, including the collateral covered by the FmHA financing statement and security agreements. On October 5, 1983, proceeds from the auction in the amount of $57,698.88 were applied by FmHA to three of its notes with the debtor. On October 20, 1983 the debtor filed bankruptcy. The Chapter 7 trustee brought this adversary proceeding claiming that FmHA’s security interest should be limited to $30,600. FmHA concedes that if its security interest is limited to $30,600 then the excess application of funds ($27,-098.88) constituted an avoidable preference under 11 U.S.C. § 547.
This court must look to the state law of Tennessee to determine the sufficiency of the FmHA financing statement. See United States v. Kimbell Foods, Inc., 440 U.S. 715, 740, 99 S.Ct. 1448, 1464, 59 L.Ed.2d 711 (1979). In Tennessee the formal requirements for a financing statement are found at TENN. CODE ANN. § 47-9-402.2 Reference to the amount of debt is not required.3 As stated in the “comments to official text” the only content requirements are (1) signatures and addresses of both parties and (2) a description of the collateral by type or item.
In the parlance of U.C.C. cases, the inclusion of information on a financing statement which is not formally required by state law is “surplusage.” Such sur-*631plusage may be so misleading as to make the financing statement defective or it may be considered a minor error which does not negate the effectiveness of the filing. The distinction is dependent upon the particular facts of each case.
The Uniform Commercial Code as adopted in Tennessee states that “a financing statement substantially complying with the requirements of this section is effective even though it contains minor errors which are not seriously misleading.” TENN. CODE ANN. § 47-9-402(5). Most of the case law interpreting this provision has concerned errors involving the required elements of the financing statement — incorrect spelling of names, wrong or omitted addresses, alleged inadequate description of collateral, and problems in filing for individuals doing business under assumed names. In these situations the courts have “utilized a flexible, ad hoc approach to determine by an essentially factual inquiry, the extent to which an error would be misleading to one undertaking a reasonable search.” In re McCauley’s Reprographics, Inc., 638 F.2d 117, 119 (9th Cir.1981).
Cases in this area are usually concerned with the effect the error will have on notice to subsequent parties examining the filing records. For example, filing under a trade name may be insufficient to perfect a security interest against an individual debtor. In a leading Second Circuit case, the court asked “would a subsequent creditor looking under ‘Leichter’ [individual name] be led to find the security interest filed and indexed under ‘Landman’ [trade name]?” In re Leichter, 471 F.2d 785 (2d Cir.1972). Even where required information may be completely missing, the effect on notice is still analyzed. See, e.g., Rooney v. Mason, 394 F.2d 250 (10th Cir.1968) (omission of the debtor’s address was not fatal).
Where extra, unnecessary words are added, the effect of the surplusage should be analyzed much the same as errors involving the required details. If anything, a less strict scrutiny should be used where the financing statement accurately provides the required information since there is then less likelihood that the sur-plusage affects notice. If the extra words are false or purposefully misleading, there may be good reason to hold the financing statement defective. See In re Parks, 16 Ohio Misc. 135, 5 U.C.C.REP. 1107 (Bankr.N.D. Ohio 1968) (the filing in Ohio of an instrument bearing a different date then original California financing statement was a “falsified” financing statement which failed to continue the perfection of the original California lien in Ohio). However, where the surplusage merely gives additional, albeit unnecessary, information which does not hinder the notice effect of the financing statement, the surplusage should not affect the validity of the filing. See Barton v. ITT Diversified Credit Corp. (In re Skinner), 22 U.C.C.REP. 1286 (Bankr.W.D.Mich.1977) (addition of trade name and spouse’s name in financing statement is not seriously misleading).
On the facts of this proceeding, the language “Loan amt. $30,600.00” does not nullify or alter the notice effect of the financing statement. A financing statement is designed to give notice that the secured party identified in the statement may have a security interest in the collateral described. Any third party who wants to know further details is given names and addresses of the parties to contact. See TENN. CODE ANN. § 47-9-402 “Comments” ¶ 2. The phrase “Loan amt. $30,-600.00” used in the present financing statement was true at the time of filing and certainly does not by its terms preclude further indebtedness between the parties. It would be just as reasonable to interpret the words “Loan amt. $30,600.00” as indicating the amount of the first of several advances as to believe that the words were intended to limit the total debt to be incurred. On similar facts in a case where the secured party added to a financing statement the words “the present amount of indebtedness is $100,000,” Chief District Judge Morton held that the phrase implied the possibility of additional indebtedness in the future and, therefore, did not limit the secured claim. Jackson County Bank v. *632Ford Motor Credit Co., 488 F.Supp. 1001, 1007 (M.D.Tenn.1980).4 See Genn v. CIT Corp., 40 Md.App. 516, 392 A.2d 1135, 25 U.C.C.REP.SERV. 1176 (1978).
In the present case, all the security agreements contained future advances clauses and there is no contention that all the subsequent advances and notes were not binding as between the parties. A single financing statement can cover security agreements which include future advances. The financing statement itself need not contain reference to future advances. See In re Bates, 35 B.R. 475, 480 (Bankr.M.D.Tenn.1983); In re Rivet, 299 F.Supp. 374 (E.D.Mich.1969). Anyone put on inquiry by the filed financing statement could easily discover that the parties had entered into new loans secured by the same collateral as the original agreement.5
A different conclusion was reached in In re HGS Technical Associates, Inc., 14 U.C.C.REP.SERV. 237 (Bankr.E.D.Tenn.) aff'd., 14 U.C.C.REP.SERV. 247 (E.D.Tenn.1972). Therein, the bankruptcy court held that although the words “Amount of indebtedness $30,000.00” were not required on a financing statement “if an amount is placed thereon, it is a representation of fact and if that representation is incorrect, the creditor should not be heard to complain.” 14 U.C.C.REP.SERV. at 245. In affirming, the district court observed that “anyone relying upon the stated representation that $30,000 was the extent of the indebtedness would obviously be seriously misled if such indebtedness was considerably more than that amount.” 14 U.C.C.REP.SERV. at 248.
We do not say that extra words in a financing statement concerning the amount of debt could never be so misleading as to bind the secured party. However, as indicated above, this court does not believe that the words “Loan amt. $30,600.00” should be considered as either a binding representation of future fact or a seriously misleading surplusage.
Other federal and state decisions addressing Tennessee law on this issue have mainly focused on the effect of a failure to pay the proper state recording tax upon filing of the financing statement.6 See American City Bank v. Western Auto Supply, 631 S.W.2d 410, 423 (Tenn.App.1981) (“the effectiveness of any financing statement as an instrument of priority is limited in that respect to the amount upon which a privilege tax is paid”). See also Jackson County Bank v. Ford Motor Credit Co., 488 F.Supp. 1001 (M.D.Tenn.1980);7 Commerce Union Bank v. Possum Holler, Inc., 620 S.W.2d 487 (Tenn.1981). It is not necessary for us to re-examine the status of Tennessee law with regard to this taxing issue. See In re Bates, 35 B.R. 475, 480 (Bankr.M.D.Tenn.1983). We are only here concerned with the effect of surplus words on the financing statement and it is our view that these particular words are not misleading to third parties.
An appropriate order will be entered.
. It is not uncommon in Tennessee for creditors to note the amount of current indebtedness on the face of the financing statement to signal the taxing authorities of the basis for calculating the Tennessee recording tax. See TENN. CODE ANN. § 67-4-409(b).
. TENN. CODE ANN. § 47-9-402 reads in pertinent part as follows:
(1) A financing statement is sufficient if it is signed by the debtor and the secured party, gives an address of the secured party from which information concerning the security interest may be obtained, gives a mailing address of the debtor and contains a statement indicating the types, or describing the items, of collateral. A financing statement may be filed before a security agreement is made or a security interest otherwise attaches. When the financing statement covers crops growing or to be grown or goods which are or are to become fixtures, the statement must also contain a description of the real estate concerned and the name of the record owner thereof. A copy of the security agreement is sufficient as a financing statement if it contains the above information and is signed by both parties.
.Professor Gilmore has noted that "statements of the original amount of indebtedness secured are relatively unhelpful, since there is no way of knowing how much may have been paid down.” G. Gilmore, Security Interests in Personal Property, Vol. 1 p. 469-470 (1965).
. See fn. 7 infra.
. See TENN. CODE ANN. § 47-9-208 which provides a method by which the debtor may request information, including the amount of indebtedness, from the secured party. The comments state this section is designed to help subsequent creditors and purchasers who need more detailed information.
. The FmHA is not subject to the state recording tax. 7 U.S.C. § 1984.
.This case was vacated and remanded on the tax issue by the Sixth Circuit. 698 F.2d 1220 (6th Cir.1982). The unpublished circuit court order directed the district court to consider the Possum Holler and Western Auto state court decisions which were handed down after the original district court decision. On remand the case was settled and dismissed. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489921/ | ORDER ON OBJECTION TO CLAIM
ALEXANDER L. PASKAY, Chief Judge.
THIS CAUSE came on for hearing upon an Objection to Claim of the National Collection Agency, Inc. filed by Nicholas and Venus Pastis, the Debtors in the above-styled Chapter 11 case. National filed its claim in the amount of $32,830 for monies due and owing pursuant to an equipment lease entered into between Equico Lessors and the Debtors which was later assigned to National by Equico. The Debtor objects to the claim on the grounds that the claim for damages by National is excessive and that the sale of the equipment was not conducted in a commercially reasonable manner.
The facts pertinent to a resolution of this matter as adduced at a final evidentiary hearing are as follows:
On August 24, 1978, William Pastis as Vice President of Hillsborough Fish & Chips, Inc. (Fish & Chips) leased from Equico certain restaurant equipment including such items as an ice drink machine, deep fryers, refrigerator and furniture col- or coded for Arthur Treacher’s stores. On the same day, Mr. Pastis executed a personal guaranty agreement whereby he personally guaranteed the 60 monthly rental payments of $841.63.
Fish & Chips remained current on its lease payments through March of 1981 and Equico had received a total of 33 payments. However, Fish & Chips failed to make the April, 1981 payment and the May, 1981 payment became due when the restaurant ceased operating on May 13, 1981. Shortly thereafter the Debtors caused the equipment to be removed from the premises and on May 19, 1981, they notified Equico that the equipment was being stored at a U-Store storage facility. Although the record is unclear when Equico responded to the Debtor’s notice, it is apparent that Equico made no efforts to contact the Debtors until after the Debtors surrendered the equipment in July to a recovery service hired by Equico to recover the equipment and after recovery, to liquidate same. Between the time the Debtors removed the equipment and notified Equico and the time the equipment was turned over to the Recovery Service, the Debtors incurred storage and removal costs in the amount of $260.
After receiving the equipment, the Recovery Service contacted prospective pur*640chasers; mailed notices of the proposed sale to approximately forty restaurant equipment retailers in the area. In September of 1981, the Recovery Service conducted an auction at the U-Store lot and charged a fixed fee of $661.98 for handling the sale. The recovery service received five bids and was instructed by Equico to accept the highest bid for the entire package of equipment in the amount of $961.54.
The Debtors take the position that Equi-co is entitled to recover only the rent payments which were in default at the time the Debtors notified Equico that the restaurant had terminated the lease. In support of their position, the Debtors rely on Monsalvatge & Co. of Miami, Inc. v. Ryder Leasing, Inc., 151 So.2d 453 (3rd DCA Fla. 1963); Cutter Gate Bldg. Corp. v. United States Leasing Corp., 165 So.2d 207 (Fla. 3rd DCA 1964).
These Courts hold that when a leasee defaults on his lease, the lessor may not recover both the amounts of the unpaid balance on the lease and have the beneficial use of the property for the remaining term of the lease. Such a result would give the lessor a windfall as the lessor would be entitled to a double recovery in the amount of a default. Monsalvatge, at 455.
Subsequent eases have not interpreted the Monsalvtge and Cutler Gate decisions as establishing a per se rule that only payments in default can be recovered regardless of the contractual damages provision agreed upon by the parties. Chandler Leasing Division, Pepsico Service Inds. Leasing Corp. v. Florida-Vanderbilt Devel. Corp., 464 F.2d 267 (5th Cir.1972); Bidwell v. Carstens, 316 So.2d 264 (Fla.1975). In Chandler, the Fifth Circuit reasoned that such an absolute rule would allow the leasee to breach a lease with impunity being subject only to payments in default while the lessor would never know when and in what condition the property would be returned. Chandler, at 270.
The courts in Chandler and Bidwell then examined whether the contract clause provides for damages in the event of default in order to determine whether the lease provided an opportunity for double recovery. In Chandler, the Fifth Circuit determined that the default provisions in the lease did not provide for a windfall since the lessor was required to either sell or relet the chattel and credit the leasee with the proceeds received.
In Bidwell, the leasee appealed the trial court’s decision that the leasee was liable for lease payments for the entire lease term even though the lessor retained the beneficial possession of the vehicle for approximately one year after the default. The District Court of Appeals affirmed the decision, but was overruled by the Florida Supreme Court which found that the lease permitted a windfall and directed that the leasee be given credit for the year that the lessor retained possession of the vehicle.
Under the Florida law there are three remedies available to a lessor on breach of the lease agreement which are (1) terminate the lease and resume possession for the lessor’s own use; (2) retake possession for account of the tenant and then hold the tenant in general damages for the difference between the rentals stipulated and amount recoverable from good faith releting; or (3) stand by and sue the leasee as each installment of rent falls due or for the whole amount when it becomes due. Chandler, at 271.
Although these remedies are ordinarily applicable in landlord-tenant relationships, courts have recognized the remedies in cases involving the lease of personal property. Chandler, at p. 271; BVA Credit Corp. v. Fisher, 369 So.2d 606, 609 (1st DCA Fla.1978). These remedies are intended to supply remedies when none are provided in the lease or when the contractual remedy violates public policy. Chandler at 271.
Regardless of whether the default provision of the lease in the case at bar permits the opportunity of a double recovery it is clear that Equico’s actions fell within the second category of available remedies. There is no evidence that Equico used the equipment or retained possession for its *641own benefits. Rather the equipment remained at the U-Store lot where the Debtors had stored it until the equipment could be sold in September.
As noted earlier, the equipment sold at the auction consisted of items used in an Arthur Treacher’s restaurant. However, the equipment was not so specialized that it could not be used in other restaurants. As a result, the fact that the recovery service did not specifically notify other Arthur Treacher restaurants of the sale did not render the sale commercially unreasonable.
In light of the foregoing, the Court is satisfied that the claim of the National Collection Agency shall be allowed in the amount equal to the 25 monthly rental payments of $841.63 remaining unpaid on the lease plus the two rent payments of $841.63 each which are in arrears reduced by the $961.54 received at the sale and $120 for storage expenses incurred by the Debt- or prior to the sale. This sum of $21,642.47 shall be further reduced by 15% for present value for a final total of $18,396.10.
Accordingly, it is
ORDERED, ADJUDGED AND DECREED that the Objection to Claim filed by the Debtors, Nicholas and Venus Pastis, be, and the same hereby is, overruled. It is further
ORDERED, ADJUDGED AND DECREED that the claim of National Collection Agency, Inc. be, and the same hereby is, allowed in the amount of $18,396.10. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489923/ | MEMORANDUM OPINION
THOMAS M. TWARDOWSKI, Bankruptcy Judge.
In this adversary proceeding, the plaintiffs/debtors have filed a complaint which essentially seeks enforcement of a prior Order of this Court, which was based upon a stipulation among the parties.1
The debtors were the owners of two parcels of real property. Defendant American Bank and Trust Company of Pennsylvania *703(“Bank”) held a first judgment lien against one of the parcels. Defendant Gordon J. Frazer (“Frazer”) held a judgment lien against the other parcel. Frazer’s judgment lien resulted from his having confessed judgment in state court on the bond and warrant which accompanied his first mortgage on the property. Both the Bank and Frazer had issued writs of execution on their judgments. However, their execution proceedings were stayed by the debtors’ Chapter 7 bankruptcy filing on June 8, 1983. The debtors claimed an exemption of $3,000.00 in the parcel subject to the Bank’s lien (“Bank property”) and an exemption of $8,000.00 in the parcel subject to Frazer’s lien (“Frazer property”).
In settlement of various proceedings in our Court among the parties, the description of which is not necessary to our decision today, the parties entered into a stipulation. The parties agreed that the aforementioned judgment liens of the Bank and Frazer were judicial liens for purposes of 11 U.S.C. § 522(f)(1). They also agreed to the avoidance of said liens pursuant to 11 U.S.C. § 522(f)(1) to the extent that they impaired the debtors’ exemptions in their real property. They further stipulated that “to the extent of Said exemption amounts, Debtors retain an interest in said property or in the proceeds therefrom.”
The stipulation also provided:
“Subject only to the terms and conditions of this Stipulation, Debtors hereby agree that the automatic stay pursuant to 11 U.S.C., Section 362, shall be lifted as to Frazer and Bank, and Frazer and Bank may proceed on the executions referred to above.”
The stipulation further provided that the parties “hereby agree that an order shall be entered, confirming the agreements of the parties as set forth herein....”
Pursuant to the stipulation, we entered our Order of November 8, 1983, the body of which states in its entirety:
“AND NOW, this 8th day of November, 1983, in consideration of the attached Stipulation, it is hereby ORDERED and DECREED that the Stipulation attached hereto is incorporated herein by reference and made the order of this Court. The judicial liens of American Bank & Trust Co. of Pa., filed to the Court of Common Pleas of Berks County, Pennsylvania, to No. 429 August, 1979 J.D., and the judicial lien of Gordon J. Frazer and Dolores C. Frazer, filed in the Court of Common Pleas of Berks County, Pennsylvania, to No. 447 March, 1983, are hereby avoided to the extent that they impair Debtors’ exemptions in property, and to the extent of said exemptions, Debtors shall retain an interest in said property or the proceeds therefrom. It is further ORDERED and DECREED that, subject only to Debtors’ exemption as set forth herein, the automatic stay pursuant to 11 U.S.C., Section 362, is hereby lifted, and American Bank & Trust Co. of Pa. and Gordon J. Frazer and Dolores C. Frazer are hereby authorized to proceed with execution on said property at the sale scheduled for November 10, 1983.”2
As contemplated in our Order, Sheriff’s Sales were held on November 10, 1983 as to both the Bank property and the Frazer property. The Bank property was sold to the Bank, the lone bidder, for $10.00. The Frazer property was sold to Frazer, the lone bidder, for $10.00 also. Neither the debtors nor their counsel was present at either Sheriff’s Sale. The Bank and Frazer have been and are represented by the same counsel. It is undisputed that at the time of the execution of the aforementioned stip*704ulation, counsel for the Bank and Frazer had actual knowledge that neither the debtors nor debtors’ counsel intended to appear at the Sheriffs Sales on November 10, 1983. As a result of the Sheriff’s Sales, the Bank and Frazer received title to their respective parcels of property. Subsequently, notwithstanding the stipulation and Order of November 8, 1983, the Bank and Frazer took the position that the debtors no longer had any interest in their respective properties nor any rights with regard thereto.
The debtors thereafter filed their present complaint. The gravamen of the complaint is that, pursuant to the stipulation and Order of November 8, 1983, the lifting of the automatic stay and consequent Sheriff’s Sales were expressly conditioned upon the debtors’ retention of an interest in both properties to the extent of the amount of the debtors’ exemptions therein: $3,000.00 in the Bank property and $8,000.00 in the Frazer property. Therefore, the debtors request that we enter an Order declaring that they continue to have a $3,000.00 interest in the Bank property and an $8,000.00 interest in the Frazer property. They further request that we impose an equitable lien in their favor in the amount of $3,000.00 on the Bank property and $8,000.00 on the Frazer property.
The Bank argues that, according to Pennsylvania law, inasmuch as no proceeds were generated from the Sheriff's Sale of the Bank property, there were no proceeds from which the debtors’ exemption could be taken and the exemption was forfeited. The Bank further argues that, according to Pennsylvania law, the debtors’ exemption interest in the property was divested by the Sheriff’s Sale and transfer of title to the Bank and, therefore, no longer exists. In this regard, the Bank cites Butner v. United States, 440 U.S. 48, 99 S.Ct. 914, 59 L.Ed.2d 136 (1979), for the proposition that property interests must be defined by reference to state law. Butner held, however, that, in bankruptcy cases, the courts should look to state law to determine a debtor’s property interests unless Congress or some other federal interest requires otherwise. In the present ease, we find that the parties voluntarily and knowingly entered into their stipulation, the obvious purpose of which was to settle their pending litigation by expressly agreeing upon their respective property rights. As specifically requested by the parties, we incorporated the stipulation into our Order of November 8, 1983 and entered an Order entirely consistent with the stipulation. No party claims that our Order is in any way inconsistent with the stipulation. Nor does any party claim that our Order was an improper exercise of our judicial authority. It is axiomatic that we have the inherent judicial authority to interpret and enforce our own Orders. Also see 11 U.S.C. § 105(a). This inherent judicial authority clearly constitutes a sufficient “federal interest” under Butner, supra, to require us to determine the debtors’ property interests in accordance with our Order of November 8, 1983 rather than by reference to state law. We find that our Order of November 8, 1983 unambiguously supports the debtors’ contention that, following the Sheriff’s Sales and transfers of titles, the debtors retained an interest of $3,000.00 in the Bank property and $8,000.00 in the Frazer property. Therefore, we must reject the Bank’s Pennsylvania law argument.
Frazer makes a different argument from that of the Bank, although Frazer’s argument is also based upon Pennsylvania law. Frazer’s argument is based upon the fact that he held the first mortgage on the Frazer property. Frazer argues, in essence, that, under Pennsylvania law, its confession of judgment on the bond accompanying the mortgage did not result in a lien against the Frazer property. The mortgage lien, claims Frazer, remained as the only lien held by Frazer against the property. Therefore, continues Frazer, there was no judicial lien to avoid under 11 U.S.C. § 522(f)(1) and the debtors’ exemption “cannot displace the lien of a mortgage.” Frazer’s brief, p. 5. Thus, claims Frazer, the debtors now have no interest in the Frazer property.
*705In general, Frazer’s argument appears tenuous, and we note that he cites no bankruptcy cases other than those which simply hold that a mortgage is not a judicial lien for purposes of 11 U.S.C. § 522(f)(1). We need not consider this argument further, however, because it is irrelevant in the present context.' Most strikingly, Frazer’s argument conveniently and completely ignores the fact that he expressly agreed in the stipulation that his judgment on the bond was a judicial lien for purposes of 11 U.S.C. § 522(f)(1). Furthermore, our Order of November 8, 1983 expressly found it to be so. Frazer has never, either timely or otherwise, appealed that Order or asked us to reconsider it. Also, the bargained-for agreement of the parties, as evidenced by the stipulation and Order, was obviously premised on the judgment on the bond being a judicial lien under 11 U.S.C. § 522(f)(1). There is also no doubt that the Sheriff’s Sale on the Frazer property was conducted pursuant to the execution on the judgment on the bond and that that Sheriff’s Sale was expressly contemplated in the stipulation and Order.
For these reasons, we find that Frazer occupies no better position in the present action than does the Bank, whose defense we have already rejected, supra.
For all of the foregoing reasons, we conclude that the debtors continue to have a $3,000.00 interest in the Frazer property and an $8,000.00 interest in the Bank property. Therefore, we shall impose a first lien in their favor in the amount of $3,000.00 against the Bank property and a first lien in their favor in the amount of $8,000.00 against the Frazer property.
. This Memorandum Opinion constitutes the findings of fact and conclusions of law required by Rule 7052 of the Rules of Bankruptcy Procedure.
. All parties agree that Dolores C. Frazer, the wife of Gordon J. Frazer, has never had any lien against the debtors' real property and that statements to the contrary in the stipulation and Order are erroneous and should be disregarded. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489924/ | OPINION
EMIL F. GOLDHABER, Chief Judge.
The question before us is whether we should grant a trustee’s motion for summary judgment in this proceeding against a lessor to avoid a transfer pursuant to section 547(b) of the Code. Because we conclude that there are material issues of fact regarding the existence of the necessary *725elements for a voidable preference, we will deny the motion.
The facts of the case, in light of the standard for granting summary judgment, are as follows:1 In November of 1979, Louis DiPaolino, Jr. (“the lessor”) leased certain property to Norman A. Council (“Council”). One month later, Energy Saving Center, Inc. (“the debtor”), with Council as its president, commenced business operations at the location. In early October of 1982, the lessor and Council rescinded their lease agreement, and Council transferred the contents of the leased premises to the lessor in satisfaction of rental arrearages. On October 22, the,, debtor filed a voluntary petition for relief under chapter 7 of the Bankruptcy Code (“the Code”). The trustee instituted an adversary proceeding to avoid the transfer pursuant to section 547(b) of the Code. The trustee subsequently filed a motion for summary judgment pursuant to Fed.R. Civ.P. 56 which is incorporated in this proceeding through Bankruptcy Rule 7056. The motion was opposed by the lessor who sought to implead Council as a third party defendant, pursuant to Fed.R.Civ.P. 14 which is incorporated in this proceeding through Bankruptcy Rule 7014.
The granting of summary judgment is appropriate if the pleadings, depositions, answers to interrogatories, admissions and affidavits indicate that there is no genuine issue as to any material fact and the moving party is entitled to a judgment as a matter of law. Fed.R.Civ.P. 56(c). On a motion for summary judgment, it is the function of the court to determine whether a triable issue exists, rather than to resolve the issue. Lockhart v. Hoenstine, 411 F.2d 455 (3d Cir.1969), cert. denied, 396 U.S. 941, 90 S.Ct. 378, 24 L.Ed.2d 244 (1969).
Section 547(b) provides that the trustee may avoid any transfer of property of the debtor
(1) to or for the benefit of a creditor;
(2) for or on account of an antecedent debt owed by the debtor before such transfer was made;
(3) made while the debtor was insolvent;
(4) made—
(A) on or within 90 days before the date of the filing of the petition; 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.
11 U.S.C. § 547(b).
In order for the trustee to prevail on a motion for summary judgment, he must establish that there are no material issues of fact present with respect to any of the necessary elements for a voidable preference. The facts of the case before us do not support this conclusion.
As we stated above, Council transferred the contents of the leased premises to the lessor in satisfaction of rental arrearages several weeks before the debtor filed its petition for relief. The trustee alleges that this transfer of property, on account of an antecedent debt, made within 90 days of the filing of the petition, satisfies the requirements imposed by § 547(b)(1), (2) and (4).
While admitting that the transfer took place, the lessor claims that the antecedent *726debt was owed by Council, as an individual, rather than by the corporate debtor. The lessor further contends that any transfer of property of the debtor took place between the debtor and Council, and that Council is liable to the trustee as the transferee of the debtor’s property.
The affidavit and papers submitted by the trustee to substantiate his position that the debtor owed the antecedent debt are inconclusive.2 Moreover, the trustee failed to provide any support for his allegation that the requirements imposed by § 547(b)(3)3 and (5) have been satisfied.
Because we conclude that there are material issues of fact present with respect to the necessary elements for a voidable preference, we will deny the motion for summary judgment, and list the matter for trial. Since the lessor asserts that Council is liable for the trustee’s claim, we will also grant his motion to bring in Council as a third 'party defendant in the proceedings.
. In considering a motion for summary judgment, the court must resolve any doubt as to the existence of genuine issues of fact against the moving party. Hollinger v. Wagner Mining Equipment Co., 667 F.2d 402 (3d Cir.1981).
. Affidavits submitted under Rule 56 must be made on personal knowledge, setting forth such facts as would be admissable in evidence, and showing affirmatively that the affiant is competent to testify to the matters stated therein. Sworn or certified copies of all papers referred to in an affidavit must be served therewith. Fed.R.Civ.P. 56(e).
. Section 547(f) of the Code creates a presumption of insolvency for the 90 days preceding the commencement of the case. 11 U.S.C. § 547(f). As defined in Rule 301 of the Federal Rules of Evidence, the presumption has the effect of placing on the opposing party the burden of establishing the nonexistence of the presumed fact, once the party invoking the presumption establishes the basic facts giving rise to it. Fed. R.Evid. 301 Advisory Committee Notes. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489925/ | MEMORANDUM OPINION AND ORDER DENYING JUDY UNKEPER’S MOTION FOR SUMMARY JUDGMENT RE: CLAIM OF $50,000 HOMESTEAD EXEMPTION
ROGER G. MOOREMAN, Bankruptcy Judge.
Sherman Unkefer, III and Judy Unkefer, husband and wife, were named as debtors in an involuntary Chapter 7 petition that was filed on February 7, 1983. These debtors subsequently dissolved their marriage, and now each has claimed a $50,000 homestead exemption pursuant to 11 U.S.C. § 522(b) and A.R.S. § 33-1101, et seq. The homestead property was sold in court, and in excess of $50,000 in equity above existing encumbrances was realized upon the sale. Pursuant to a stipulation among the Unkefers and the Trustee, the court authorized the distribution of $25,000 to each of the Unkefers from the sale proceeds.
Judy Unkefer has moved for summary judgment on the issue of her entitlement to an additional $25,000 distribution from the sale proceeds. In other words, she contends that she is entitled to exempt a $50,-000 homestead independently of the exemption claimed by her former husband. Both the Chapter 7 Trustee and creditor, Harry V. Eastlick, as Trustee of North American Coin & Currency, Ltd., No. B-82-2549PHX-RGM, have opposed Judy Unkefer’s motion.
Congress provided a schedule of exempt property available to debtors, but it also decided that the states could elect to define the exemptions themselves. 11 U.S.C. §§ 522(a), 522(b) and 522(d). Arizona has chosen to have state law determine the exemptions available to debtors. A.R.S. § 33-1133(B). Debtors may only take those exemptions that were available under state law on the date the petition in bankruptcy was filed. In re Cameron, 25 B.R. 119, 120 (Bankr.N.D.Ohio 1982).
At the time the petition in this case was filed, A.R.S. § 33-1101(C) stated that “[o]nly one homestead may be claimed by a married couple or a single person under the *57provisions of this section. 1 Judy Unkefer contends that this attempt to allow different exemptions to single and married persons is preempted by 11 U.S.C. § 522(m), which states that “[t]his section [defining available exemptions] shall apply separately with respect to each debtor in a joint case.”
This court concludes that there is no conflict between the state and federal statutes and that, therefore, the Arizona homestead statute is not preempted by § 522(m). See In re Goering, 23 B.R. 1010, 1012-14 (Bankr.N.D.Ill.1982) (Preemption occurs only when construction of state and federal statutes establishes that they actually conflict.) The legislative history of § 522(m) does not suggest that the statute was intended to mandate that married and single individuals be treated identically under state exemption laws. See In re Webb, 29 B.R. 280, 282 n. 2 (Bankr.E.D.N.Y.1983). Section 522(m) is properly construed as simply requiring that each debtor in a joint case be allowed to exempt that property which an individual filing separately might exempt. See In re Brooks, 31 B.R. 302, 10 B.C.D. 1051 (Bankr.S.D.N.Y.1983).
In Arizona, if only one spouse files a bankruptcy petition, that spouse may claim the full exemption allowed to a married person under state law. If both spouses file, either separately or jointly, they may each claim the full exemption allowed to a married person, but married people are only entitled to exempt a total of $50,000 in equity between them. Section 522(m) does not require a different result. 31 B.R. at 305 and n. 1.
Unkefer argues that the Arizona homestead law violates the Equal Protection Clause of the fourteenth amendment to the United States Constitution. She contends that there is no rational basis for the disparity in the way the statute treats married and single persons.
The Arizona homestead law does not deny equal protection so long as “there is some ground of difference that rationally explains the different treatment accorded married and unmarried persons_” Eisenstadt v. Baird, 405 U.S. 438, 92 S.Ct. 1029, 1035, 31 L.Ed.2d 349 (1972). A similar “reasonable basis” test has been articulated for judging whether or not a state’s social and economic regulations violate the Equal Protection Clause. See Dandridge v. Williams, 397 U.S. 471, 486, 90 S.Ct. 1153, 1161, 25 L.Ed.2d 491.
This court finds that there is a rational basis underlying the Arizona legislature’s decision to allow different exemptions to single and married persons. In Matcha v. Winn, 131 Ariz. 115, 638 P.2d 1361, 1363 (Ct.App.1981), the court stated that “the fundamental purpose of the homestead law is to protect the family against the forced sale of home property from certain creditors _” In McLaws v. Kruger, 130 Ariz. 317, 636 P.2d 95 (1981) (In Division), the Arizona Supreme Court held that a debtor is not entitled to exempt the cash proceeds of his own voluntary sale of the homestead property. This is further evidence that the homestead exemption is directed primarily at helping the debtor keep his home.
It may reasonably be expected that married persons will share the same residence and that single persons will each desire a separate residence. Thus, it was not unreasonable for the Arizona legislature to allow married individuals a smaller per person exemption than single individuals. That the effective per person exemption for married individuals is less than that allowed single individuals does not deprive the state exemption scheme of its rational basis that the amount that is available is the same per residence.
The state exemption scheme does not achieve its purpose in a perfect way. When the debtors filed their petition, for example, the exemption statute in effect *58expressly allowed debtors to exempt “[l]and in a compact body which the claimant designates.”2 Thus, a debtor could claim an exemption in property on which he did not reside. In 1983, the statute was redesigned so that now a debtor must reside on homestead property. A.R.S. § 33-1101(A).
In Unkefer’s case, the statute does not appear to achieve its objective because she and her former husband no longer share the same dwelling. She does not receive the full benefit the statute intended to confer on married persons, nor does she receive the full benefit afforded single persons. Nevertheless, the homestead exemption does not deny equal protection “merely because the classifications made ... are imperfect.” Dandridge v. Williams, 397 U.S. at 485, 90 S.Ct. at 1161).
Unkefer raises one additional preemption argument in support of her motion for summary judgment. She contends that the Arizona homestead statute is preempted by the Equal Credit Opportunity Act, 15 U.S.C. § 1601 et seq. She states that the Act was designed to prevent discrimination in the availability of credit based upon marital status and that the Arizona homestead statute causes such discrimination. See 15 U.S.C. § 1691(a)(1).
First, this court finds that Unkefer lacks standing to make this argument. She has alleged no injury to herself, as it concerns her attempts to obtain credit, that this court should attempt to redress by overturning the Arizona homestead law. See Simon v. Eastern Kentucky Welfare Rights Organization, 426 U.S. 26, 48 L.Ed.2d 450, 96 S.Ct. 1917 (1976).
Second, this court is not persuaded that the Arizona homestead statute actually conflicts with the Equal Credit Opportunity Act. As previously noted, either a single or a married person is entitled to claim the full $50,000 homestead exemption when filing a bankruptcy petition. In other words, whether the person applying for credit is either single or married, the lending creditor can expect to be able to reach all of the borrower’s equity in the property except $50,000. Thus, the court discerns no per se conflict in the statutes, and nothing in the record before the court suggests that the homestead law is discriminatory in its effect upon the availability of credit.
Third, there is no direct evidence of a congressional intent to override state exemption laws to effectuate the purposes of the Equal Credit Opportunity Act. The Trustee notes the following statement of the United States Supreme Court from Hisquierdo v. Hisquierdo, 439 U.S. 572, 581, 99 S.Ct. 802, 808, 59 L.Ed.2d 1 (1979):
On the rare occasion when state family law has come into conflict with a federal statute, this Court has limited review under the Supremacy Clause to a determination whether Congress has ‘positively required by direct enactment’ that state law be pre-empted ... A mere conflict in words is not sufficient. State family and family property law must do ‘major damage’ to ‘clear and substantial’ federal interests before the Supremacy Clause will demand that state law be overriden ....
The court finds that this case does not strictly involve issues of family law. The interrelationship with family law is close enough, however, to require a clearer statement of intent before inferring that preemption was intended. Requiring that such intent need be manifest more directly seems reasonable in light of the congressional decision to allow states to define the controlling scheme of bankruptcy exemptions. 11 U.S.C. § 522.
Judy Unkefer and her former husband may, therefore, only exempt a total of $50,-000 in homestead equity. As noted, they stipulated with the Trustee concerning the distribution of this sum, and they are not entitled to any further distributions.
Based upon the foregoing opinion,
*59IT IS ORDERED that Judy Unkefer’s motion for summary judgment to the effect that she is entitled to claim a $50,000 homestead exemption totally independent of that claimed by her former husband and that she is entitled to receive an additional $25,-000 distribution from the equity in the homestead property is hereby denied.
APPENDIX
HOMESTEAD — MOBILE HOMES CHAPTER 123
HOUSE BILL 2394
An Act relating to property; prescribing value of homestead which is exempt from attachment, execution and forced sale, and amending section 33-1101, Arizona Revised Statutes.
Be it enacted by the Legislature of the State of Arizona:
Section 1. Section 33-1101, Arizona Revised Statutes, is amended to read:
§ 33-1101. Homestead defined; homestead exemptions; persons entitled to hold homesteads
A. Any person the age of eighteen or over, married or single, who resides within the state may hold as a homestead exempt from attachment, execution and forced sale, not exceeding twenty fifty thousand dollars in value, any one of the following:
1. Real property in one compact body upon which exists a dwelling house in which the claimant resides.
2. Land in a compact body which the claimant designates.
B. Any person the age of eighteen or over, married or single, who resides within the state may hold as a homestead exempt from attachment, execution and forced sale, not exceeding ten thousand dollars in value, any of the following:
4, — A-mobile-home-in-which -the claimant resides, any of the following:
1. A mobile home in which the claimant resides, not exceeding twenty-five thousand dollars in value.
2. A mobile home in which the claimant resides plus the land upon which that mobile home is located at the time of filing, not exceeding thirty-five thousand dollars in total value for both the mobile home and the land.
C. Only one homestead may be claimed by a married couple or a single person under the provisions of this section. ' The value as specified in this section refers to the equity of a single person or married couple claiming the homestead.
Sec. 2. Emergency
To preserve the public peace, health and safety it is necessary that this act become immediately operative. It is therefore declared to be an emergency measure, to take effect as provided by law.
Approved by the Governor, April 14, 1982.
Filed in the Office of the Secretary of State, April 14, 1982.
. 1982 Ariz. Sess. Laws, Ch. 123, § 1 (attached). This limitation is now contained in A.R.S. § 33-1101(B).
. A.R.S. § 33-1101(A)(2) prior to the 1983 amendments. See 1982 Ariz. Sess. Laws, Ch. 123, § 1 (attached). | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489926/ | MEMORANDUM OPINION ON MOTION FOR SUMMARY JUDGMENT
ALEXANDER L. PASKAY, Chief Judge.
THIS CAUSE came on for hearing upon a Motion for Summary Judgment filed by Alexander Doak Campbell, the Defendant in the above-styled adversary proceeding. The Plaintiffs, Thomas A. and Jane F. Coyle (Plaintiffs), initiated this proceeding by filing a four count Complaint against the Debtor which seeks an order denying the general discharge of the Debtor and in the alternative seeks a determination of dischargeability of an alleged debt owed to the Plaintiffs pursuant to § 523(a)(6) of the Bankruptcy Code. In response to the complaint, the Debtor filed the Motion presently under consideration seeking to have a summary judgment entered in his favor as a matter of law on Counts III and IV of the Complaint. Earlier, this Court granted summary judgment in favor of the Debtor on Count IV. Thus, only the Motion for Summary Judgment addressed to Count III of the Complaint remains to be resolved.
The Court considered the record and finds the undisputed facts as they appear from the record and which are relevant to the Motion under consideration are as follows:
In August of 1982, the Debtor signed or caused to be signed the signatures of the Plaintiffs to a contract of guaranty and a financial statement in order to induce ITT Diversified Credit Corporation to extend credit to Economical Mobile Homes, Inc., (Economical), a corporation controlled by the Debtor. When Economical defaulted on its obligation, ITT brought suit against the Plaintiffs on their guaranties.
It is the Plaintiffs’ position that the right to an “unimpaired financial condition” is a property interest which is entitled to a protection and which if impaired would create a non-dischargeable obligation under § 523(a)(6) of the Bankruptcy Code. In support of this proposition, the Plaintiffs contend that their financial condition was impaired because of the legal expenses which they incurred during litigation brought upon them as a result of the Debt- or’s willful and malicious conduct.
Although the Debtor does not admit that he forged the signature of the Plaintiffs on *118the guaranties he contends that the matter is amenable to resolution as a matter of law because even assuming without admitting that he forged the names of the Plaintiffs, the right to an “unimpaired financial condition” is not a “property” interest entitled to protection by § 523(a)(6).
The Court’s construing § 17(a)(8) of the Bankruptcy Act of 1898, the predecessor of § 523(a)(6) of the Code, defined the term “property” as:
“Something subject to ownership, transfer or exclusive possession and enjoyment, which may be brought within the dominion and control of a court through some recognized process.”
Ward v. Prenzi (In re Prenzi), 3 B.R. 165 (Bankr.D.Ariz.1980); Lawrence T. Lasagna, Inc. v. Foster, 609 F.2d 392 (9th Cir. 1979); Gleason v. Thaw, 236 U.S. 558, 35 S.Ct. 287, 59 L.Ed. 717 (1915). There is nothing either in the Section or in the legislative history dealing with this subject which indicates that the case law interpreting the statutory predecessor of § 523(a)(6) no longer represents a proper construction of the term “property” within the meaning of that term as used in § 523(a)(6) of the Bankruptcy Code.
There is hardly any question that the right to maintain “unimpaired financial condition” is not something which can be transferred or something which is capable of cognizable ownership or translateable to cognizable monetary value. Accordingly, this Court is satisfied that an unimpaired “financial condition” is not a property right within the meaning of § 523(a)(6) which can be maliciously injured in the conventional sense. This being the case, the Plaintiff cannot prevail as a matter of law and the remaining Count of the Complaint shall be dismissed for failure to state a claim for which relief can be granted.
Accordingly, 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/8489927/ | MEMORANDUM
GEORGE C. PAINE, II, Bankruptcy Judge.
In this adversary proceeding, the plaintiff, Commerce Union Bank of Sumner County, sought a determination that two debts owed by the debtor were non-dis-chargeable pursuant to 11 U.S.C. § 523(a)(2) and (6) (West 1979). Of the two debts challenged, one concerned a business loan for the purchase of an International Harvester dozier and the other concerned a debt secured by the debtor’s pleasure motor boat and trailer. At the hearing of this matter on March 9, 1984, the court found the debts in question to be dischargeable and the plaintiff’s complaint was dismissed. The only issue remaining before the court is a determination of the proper compensation for the debtor’s attorney pursuant to 11 U.S.C. § 523(d) (West 1979). Upon consideration of the evidence presented, exhibits, briefs of the parties, statement of counsel, and the entire record, the court concludes that the debtor’s attorney is entitled to fees in the amount of $3,107.
The following shall represent findings of fact and conclusions of law pursuant to Rule 7052 of the Federal Rules of Bankruptcy Procedure.
The parties have agreed that the adversary proceeding in question concerned two separate debts. One debt was a business debt involving a dozier, while the other debt was a consumer debt involving a boat, motor, and trailer. The plaintiff has objected to the attorney’s fees requested by the debtor’s attorney on two grounds. First, the plaintiff has claimed that since it sought a determination that the consumer debt was non-dischargeable under only § 523(a)(6) (West 1979), the debtor is not entitled to attorney’s fees. Second, the plaintiff submits that if the debtor is entitled to attorney’s fees, he should only be awarded a portion of the fees requested since the adversary proceeding included both the determination of the discharge-ability of a consumer debt as well as the determination of the dischargeability of a business debt.
The plaintiff, in its complaint, raised a number of issues. Among its primary allegations, the plaintiff claimed that the debt- or fraudulently disposed of the boat, motor, and trailer, impairing the plaintiff’s security interest. The pre-trial order framed the issue relative to the boat, motor, and trailer as a determination of whether the debtor converted the plaintiff’s collateral within *185the meaning of 11 U.S.C. § 523(a)(6) (West 1979). After the trial on this matter, the court, in a written decision, held that the plaintiff failed to meet its burden of proving that the debtor either converted the boat, motor, and trailer willfully and maliciously within the meaning of 11 U.S.C. § 523(a)(6) (West 1979) or that the defendant committed fraud in regard to the boat, motor, and trailer within the meaning of 11 U.S.C. § 523(a)(2) (West 1979).
On April 25, 1984, the debtor’s attorney filed an affidavit in support of a fee request in the amount of $2,918.50. Pursuant to an order by this court, the debtor’s attorney amended his affidavit to include time spent relative to his request for attorney’s fees and to exclude time related solely to the non-consumer debt aspect of the adversary proceeding. The debtor’s attorney identified 7.3 hours of time which was not related to the issue of dischargeability of the consumer debt. Accordingly, the applicant requested compensation for 47.8 hours at $65 per hour, for a total of $3,170.
Under 11 U.S.C. § 523(d) (West 1979), this court is required to grant a judgment against a creditor and in favor of the debt- or for reasonable attorney’s fees incurred in successfully defending a challenge to the dischargeability of a consumer debt under 11 U.S.C. § 523(a)(2) (West 1979).1 A recent 6th Circuit case holds that, absent a finding of clear inequity, no judicial discretion is permitted in determining whether or not attorney’s fees should be awarded under § 523(d). Thorp Credit, Inc. v. Carmen, 723 F.2d 16 (6th Cir.1983); First Service Corporation v. Schlickmann, 7 B.R. 139 (Bankr.D.Mass.1980). Since the parties have stipulated that the allegations relating to the boat, motor, and trailer concern the dischargeability of a consumer debt, the first issue this court must resolve is whether these allegations are pursuant to 11 U.S.C. § 523(a)(2) (West 1979).
Dischargeability is denied under § 523(a)(2) if a debtor obtains money by false pretenses, a false representation, or actual fraud.2 In the present case, the complaint alleged that the debtor misrepresented his ownership interest or rights in the boat, motor, and trailer, thereby fraudulently inducing the plaintiff to extend him credit. After a trial on the merits, the court specifically held that the debtor had not committed any fraud on the plaintiff in regard to the boat, motor, and trailer within the meaning of § 523(a)(2). Accordingly, the court holds that the plaintiff did in fact request and receive a determination of the dischargeability of a consumer debt under § 523(a)(2).
The second issue raised by the plaintiff is whether or not the debtor’s attorney may be compensated for time which relates to both a determination of dischargeability of a consumer debt under § 523(a)(2) and a determination of the dischargeability of a non-consumer debt. The affidavits submitted by the debtor’s attorney establishes that the time for which compensation is requested related to defense of the dischargeability of the consumer debt. No compensation is requested for time which is attributable solely to the nonconsumer debt issues.
In analyzing this problem, the court received some guidance from the manner in *186which federal courts have awarded attorney’s fees in similar circumstances under the Civil Rights Attorneys Fees Awards Act of 1976, 42 U.S.C. § 1988. In the case of Hensley v. Eckerhart, 461 U.S. 424, 103 S.Ct. 1933, 76 L.Ed.2d 40 (1983), the Supreme Court dealt with the issue of whether a partially prevailing civil rights plaintiff may recover attorney’s fees on related but unsuccessful claims.
Since many of a civil rights plaintiff’s claims for relief involve a common core of facts, the Court, in Hensley, noted that the counsel’s time would be “... devoted generally to the litigation as a whole, making it difficult to divide the hours expended on a claim-by-claim basis.” Hensley, 461 U.S. at 435, 103 S.Ct. at 1940, 76 L.Ed.2d at 51. As a result, the Court held, the trial court cannot view the litigation as a series of discrete claims, but must focus on the significance of the overall relief obtained by the plaintiff in relation to the hours reasonably expended. Thus, when a plaintiff obtains excellent results, the attorney should receive full compensation. When a plaintiff is unsuccessful on certain claims, the denial of fees is contingent on the finding that these claims are “distinctly different claims”, i.e. based on “different facts and legal theories” than the successful claims. Hensley, 461 U.S. at 435, 103 S.Ct. at 1940, 76 L.Ed.2d at 51. See Devine v. Sutermeister, 733 F.2d 892, 897 n. 4 (D.C.Cir.1984); Grendel’s Den, Inc. v. Larkin, 582 F.Supp. 1220, 1227 (D.Mass.1984); Delaware Valley Citizens’ Council for Clean Air v. Pennsylvania, 581 F.Supp. 1412, 1420 (E.D.Pa.1984).3
In the present case, the plaintiff alleged that the debtor pledged security which it did not own as a means of persuading the bank to loan funds for both a business debt and for a consumer debt. Due to the interrelated nature of the claims and due to the common facts, the issues were tried together. At the conclusion of the trial, the debtor prevailed on all issues and both the business debt and consumer debt were found to be dischargeable. Due to the unquestioned success of the debtor and the interrelated nature of the claims, the court finds that it would be impossible to allocate the time requested between the consumer debt and the non-consumer debt. Based on these considerations, the court determines that the debtor is entitled to be compensated for the full 47.8 hours of time spent in this litigation.
The debtor’s attorney has requested an hourly rate of $65 per hour. The plaintiff has not objected to this rate, and the court finds that this rate is both fair and reasonable. Accordingly, the court will enter an order awarding the debtor attorney’s fees for 47.8 hours at the rate of $65 per hour, for a total amount of $3,107.
IT IS, THEREFORE, SO ORDERED.
. 11 U.S.C. § 523(d) (West 1979) provides in relevant part:
"If a creditor requests a determination of dischargeability of a consumer debt under subsection (a)(2) of this section, and such debt is discharged, the court shall grant judgment against such creditor and in favor of the debtor for the costs of, and a reasonable attorney's fee for, the proceeding to determine dischargeability, unless such granting of judgment would be clearly inequitable.”
. 11 U.S.C. § 523(a)(2) (West 1979) provides in relevant part:
"(a) 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 debtor’s or an insider’s financial condition; ...”
. The court in Hensley held that the standards set forth in its decision were generally applicable to all cases in which Congress authorizes an award of fees to a "prevailing party”. Hensley, 461 U.S. at 433 n. 7, 103 S.Ct. at 1939 n. 7, 76 L.Ed.2d at 50 n. 7. Since § 523(d) is a congressional mandate allowinfg the award of attorney's fees to a prevailing debtor, this court is convinced that the standards enunciated in Hensley are appropriately applied in § 523(d) cases. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489965/ | FINDINGS OF FACT AND CONCLUSIONS OF LAW
SIDNEY M. WEAVER, Bankruptcy Judge.
THIS CAUSE came on to be heard on January 30, 1985, upon the Plaintiffs JAMES B. McCRACKEN, TRUSTEE, complaint to recover monies improperly transferred to the Defendant after the bankruptcy petition of JOE H. SCOTT was filed and for damages and the Court having heard the testimony, examined the evidence presented, observed’ the candor and demeanor of the witnesses, considered the arguments of counsel and being otherwise fully advised in the premises does hereby make the following findings of fact and conclusions of law:
This Court has jurisdiction over the parties and subject matter of this action by virtue of 28 U.S.C. § 1334 and § 157.
The Plaintiff was duly appointed Trustee in this case on March 30,1983. At the time the bankruptcy was filed (March 28, 1983), the Debtor, JOE H. SCOTT, had a personal injury claim against South Carolina Insurance Company due to injuries resulting from an accident in May 1982.
The Trustee, by virtue of the filing of Debtor’s petition, became vested with the Debtor’s claim against South Carolina Insurance Company under 11 U.S.C. § 549. After becoming aware of the personal injury claim, the Trustee wrote to Debtor’s counsel on May 23, 1983 and June 1, 1983, stating that the Trustee should be provided with all information relative to the claim and. that any recovery would vest with the estate.
On July 26, 1983, the Debtor and his counsel, Philip Berman, completed negotiations on the personal injury claim and recovered a $9,500.00 settlement. Out of the settlement $4,068.66 was paid to Broward County Board of County Commissioners, Social Service Division in payment of a pre-petition debt. No other pre-petition creditors were paid out of the settlement proceeds. Additionally, the settlement was negotiated and disbursement was made without the knowledge of the Trustee and without this Court’s approval in contravention of the Bankruptcy Code.
After failing to receive any response to his inquiries the Trustee obtained counsel who discovered the settlement had already been negotiated and disbursement already made. Demand was made upon the Defendant to return the monies because the disbursement was an improper post-petition transfer of funds belonging to the estate.
The Court concludes the transfer of $4,068.66 to the Defendant was an improper post-petition transfer under 11 U.S.C. § 549 and that the transfer is avoided. As an avoided transfer, the Defendant is required to return the sum of $4,068.66 to the estate. Failure to do so will result in a final judgment against the Defendant for $4,068.66.
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/8489966/ | OPINION
EMIL F. GOLDHABER, Chief Judge:
The issue presented for resolution in the case before us is whether we should sustain the trustee’s objection to the application for attorney fees and expenses filed by counsel to the Creditors’ Committee of Mortgage Secured Noteholders (“the Note-holders’ Committee”). For the reasons stated herein we will sustain the objection and deny the application in full.
The facts of this dispute are as follows:1 The debtor filed a petition for reorganization under chapter 11 of the Bankruptcy Code (“the Code”) and, as mandated by § 1102(a) we appointed a committee of creditors holding unsecured claims (“the Unsecured Committee”). A creditor, one Horace Godshall, (“Godshall”), held documents of debt issued by the debtor which were denominated “mortgage secured notes”. Based on these notes, he believed that his interest in the debtor’s estate differed materially from the interests of the unsecured creditors represented by the Unsecured Committee. Predicated on this belief, Godshall contacted the law firm of Dechert, Price & Rhoads (“Dechert”) for representation. Accordingly, Dechert convened a meeting of other holders of mortgage secured notes who agreed that Dec-hert should represent them. On hearing of Dechert’s representation of the notehold-ers, the Unsecured Committee notified those holders that their so-called mortgage secured notes were, in fact, unsecured and, thus, being unsecured creditors, they were being represented by the Unsecured Committee. Notwithstanding this notification, Godshall moved for court approval of the Noteholders’ Committee to which the Unsecured Committee objected. We overruled the objection and entered an order officially sanctioning the Noteholders Committee. Dechert then applied for appointment as counsel for that committee and we granted the request. The Unsecured Committee appealed2 our order appointing the Note-holders Committee and the District Court vacated our order and remanded the matter to us. Several months later Dechert moved in this court on behalf of the Note-holders Committee for the withdrawal of its representation of that committee and also moved for the merger of said committee with the Unsecured Committee. By this point Dechert had apparently concluded that the mortgages securing the note-holders’ bonds were not recorded. Dechert then applied for the allowance of counsel fees and expenses incurred in its representation of the Noteholders’ Committee.3 It is to this application that the trustee objects.
We commenced our discussion in this case by noting that in a chapter 11 proceeding the court must appoint a committee of creditors holding unsecured claims such as the Unsecured Committee appointed in this case. 11 U.S.C. § 1102(a). “On request of a party in interest, the court may order the appointment of additional committees of creditors or of equity security holders if necessary to assure adequate representation of creditors or of equity security holders.” § 1102(b) (in part). But as applied to the case at bench, the District Court vacated our order appointing the Noteholders Committee since the *183record did not reflect that the appointment of such a committee was “necessary to assure adequate representation of” the noteholders constituting that committee. The District Court stated that such a finding must be made in light of “both the desirability of providing such protection, and the desirability of avoiding undue additional expense to the estate.” In Re Fidelity America Mortgage Co., 82-1959, slip op. at 5 (E.D.Pa. Aug. 23, 1982). Thus, one reason for requiring a showing that the appointment of an additional committee is necessary, is to avoid undue additional expense to the estate. In the absence of a valid, extant order appointing such an additional committee, the court’s awarding of fees or expenses to such an unwarranted committee would constitute an illegitimate diversion of estate assets. Consequently, we will deny Dechert’s application for fees and expenses since there stands no valid order appointing the Noteholders Committee. This result renders it unnecessary for us to address the bases of objection advanced by the trustee, all of which assert that we should- deny Dechert’s application for fees and expenses in part. For reasons inexplicable to us the trustee did not advance the legal theory on which this opinion is predicated although in his objection to Dechert’s request for fees and expenses he made brief reference to the District Court’s order of August 23, 1982.
We will accordingly enter an order sustaining the trustee’s objection to Dechert’s application for fees and expenses and deny that application in its entirety.
. This opinion constitutes the findings of fact and conclusions of law required by Bankruptcy Rule 7052 (effective August 1, 1983).
. . The Unsecured Committee filed a notice of appeal but in its opinion the District Court labeled it an "application to the Court for leave [which] was erroneously docketed as a notice of appeal." The court granted leave to appeal, nunc pro tunc. In Re Fidelity America Mortgage Co., No. 82-1959, slip op. at 2 (E.D.Pa. Aug. 23, 1982).
.In its application Dechert requests $31,962.00 in fees and $429.67 in expenses. For such sums Dechert reached the conclusion that the mortgages securing the debtor's notes were not recorded. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489967/ | MEMORANDUM DECISION RE: DISQUALIFICATION OF HODDICK, RE-INWALD, O’CONNOR & MARRACK
JON J. CHINEN, Bankruptcy Judge.
The issue before this Court is whether the firm of Hoddick, Reinwald, O’Connor & Marrack, hereafter “Hoddick firm”, should be disqualified from representing Anthony Greco, hereafter “Greco”, in the subject proceeding because of an alleged conflict of interest. A hearing was held on September 24, 1984 at which time John Chanin, Esq., represented James Stubenberg, who has alleged the conflict of interest, and Erik R. Zen, Esq., represented the Hoddick firm.
Based upon the records in the file, the correspondence between the law firm of John Chanin and the Hoddick firm and arguments of counsel, the Court makes the following Findings of Fact and Conclusions of Law.
FINDINGS OF FACT
The Hoddick firm has been representing Anthony Greco since April 19, 1983 in the subject cause. On behalf of Greco, the Hoddick firm has filed claims for fees against Stubenberg and others.
On or about October 13, 1982, certain individuals filed an action against Mr. Stu-benberg in the State Circuit Court (Civil No. 73795), alleging malpractice claims relating to the subject bankruptcy proceedings. As a result, Mr. Stubenberg referred said action to his professional liability insurance carrier, Illinois Union Insurance Company, whose Hawaii counsel is the Hoddick firm.
Pursuant to Section 1(b) of the insurance policy, which section requires the cooperation of the insured with the insurer, Mr. Stubenberg cooperated with the Hoddick firm. In addition, Mr. Stubenberg’s counsel, John Chanin, Esq. also cooperated with the Hoddick firm. In his letter to Mr. Wesley Ching, Esq. of the Hoddick firm dated February 22,1984, Mr. Chanin at Mr. Ching’s request gave an updated status report concerning the bankruptcy proceedings, including his strategy for resolution of the problems in that cause.
CONCLUSIONS OF LAW
It is fundamental that an individual cannot properly represent two masters with conflicting claims.
This Court has consistently ruled that whenever there is a conflict or possible future conflict of interest an attorney should refrain from representing opposing parties. In Re Bergdog Productions of Hawaii, Inc., 7 B.R. 890 (D.Hawaii, 1980); In Re 765 Associates, 14 B.R. 449 (D.Hawaii 1981).
In In Re 765 Associates, this Court stated:
3. An attorney should not place himself in a position where he may be required to choose between conflicting duties. (Citations omitted.)
*281This Court then cited Gillette v. Newhouse Realty Co., 75 Utah 13, 282 P. 776 (Utah 1929), where the court stated:
The rule that an attorney may not by his contract of employment place himself in a position where his own interests or the interest of another, whom he represents, conflict with the interests of his client, is founded upon principles of public policy. It is designed to serve various purposes, among them, to prevent the dishonest practitioner from fraudulent conduct, to preclude the honest practitioner from putting himself in a position where he may be required to choose between conflicting duties or between his own interests and those of his client, to remove from the attorney any temptation which may tend to cause him to deviate from his duty of enforcing to the full extent the right of this client, to further the orderly administration of justice, and to foster respect for the profession and the courts.
282 P. at 779.
In the instant case, the Hoddick firm represents Greco and Stubenberg by virtue of the Hoddick firm being local counsel for the insurance company defending Stuben-berg in malpractice suits. Greco and Stu-benberg have conflicting interests. Thus, the Hoddick firm has been in a position of conflict since February 1984, when it requested from Mr. Stubenberg and his counsel an updated status report of the bankruptcy proceeding as it related to the malpractice action. The Hoddick firm should no longer represent Anthony Greco and all services rendered subsequent to February 1984 by the Hoddick firm will not be charged against Stubenberg.
Judgment will be signed upon presentment. | 01-04-2023 | 11-22-2022 |
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