url stringlengths 56 59 | text stringlengths 3 913k | downloaded_timestamp stringclasses 1 value | created_timestamp stringlengths 10 10 |
|---|---|---|---|
https://www.courtlistener.com/api/rest/v3/opinions/8489968/ | FINDINGS OF FACT AND CONCLUSIONS OF LAW
JON J. CHINEN, Bankruptcy Judge.
Upon issuance of an Order to Show Cause filed herein on November 7, 1984, the Court held hearings on December 14, and 21, 1984. Having considered the evidence and arguments of counsel, and having reviewed the record and file herein, the Court makes the following Findings of Fact and Conclusions of Law.
FINDINGS OF FACT
1. On November 8, 1983, debtor filed its voluntary petition under Chapter 11 of the Bankruptcy Code.
2. While debtor was in Chapter 11, John Hungria, who was then the president of debtor, negotiated with Mr. Francisco Ugale, president of Creative Management Corporation (“Creative”) for the sale of certain sheetmetal equipment. The parties orally agreed to a purchase price of $80,-000.00 for the equipment, which included a forklift.
3. Prior to the consummation of the sale of the equipment from the debtor to Creative, the debtor was converted to Chapter 7 on February 15, 1984, and Ralph Aoki was appointed Trustee.
4. On the same day, February 15, 1984, the Trustee filed an application to sell the sheetmetal equipment to Creative for $80,-000.00 cash. The application requested the sale of the equipment free and clear of the liens of City Bank and First Interstate Bank of Hawaii and that the liens attach to the proceeds which would be distributed between City Bank and First Interstate on *331a prorata basis. A list of the equipment was set forth in Exhibit A and B attached to the application.
5. Mr. Ugale and Creative were not contacted prior to filing the application. Moreover, Mr. Ugale and Creative were not served with a notice of the hearing on the application.
6. On March 9,1984, a hearing was held on the application and on March 30, 1984, an order approving the sale to Creative free and clear of the liens was filed. The order does not specifically state that Creative is required to pay $80,000.00 to the debtor.
7. Because this Court subsequently lifted the stay and allowed the landlord to go forward with eviction proceedings with respect to the debtor’s Waipahu warehouse, where the equipment was stored, the debt- or was required to vacate the warehouse. Because Mr. Ugale promised to pay the $80,000.00 purchase price and because the debtor was required to vacate the warehouse, the Trustee permitted Creative to remove the equipment from the warehouse. Creative transported the equipment to its premises on Sand Island Access Road in April or May of 1984. A forklift, which Mr. Ugale claimed was part of the equipment which was sold to Creative, was not part of the equipment which was transported to Sand Island Access Road. No evidence was received at the hearing which established the fact that the $80,000.00 included the cost to transfer and to set up the equipment.
8. Because of Creative’s failure to make any payment, the debtor and the Trustee brought a Motion for Order to Show Cause in which they requested (a) that Creative be required to comply with the order approving the sale; (b) that Creative be held in contempt for failure to comply with the order approving sale; (c) that the Court require Creative to return the equipment if it fails to pay and that Creative be assessed with any deficiency upon resale; and (d) that Creative be required to pay attorney’s fees and costs.
9. Debtor incurred the following expenses in moving the equipment from Wai-pahu to Sand Island Access Road and to make the equipment operable:
a. $7,314.61 for moving costs.
b. $17,798.51 for electrical work to make the equipment operable.
e. $968.00 for rental of certain equipment which were utilized with the purchased equipment.
d. $3000.00 for electrical output to operate the equipment.
3. $14,400.00 for wages paid to Mr. Hungría.
10. The cost to replace the missing forklift is approximately $5000.00
11. Following the conversion of the debtor from Chapter 11 to Chapter 7, Creative employed Mr. Hungría from February 21, 1984 until July 27, 1984 to obtain sheetmetal contracts. Mr. Ugale testified that his contract to purchase the equipment was conditioned on Mr. Hungria’s assurance that he will work for Creative and will be able to obtain profitable sheetmetal contracts for Creative. Because Mr. Hungría subsequently failed to provide such contracts, Mr. Hungría was dismissed on July 27, 1984.
12. Creative also hired Jason Sebastian and Lionel Ribellia, who were formerly associated with the debtor, to work for Creative in its new sheetmetal business. Sebastian and Lionel are presently employed by Creative.
13. After the equipment was removed by Creative, the Trustee and the attorney for the debtor made repeated efforts to have Creative pay the $80,000.00. Creative, however, refused to make any payments. The only complaint raised by Mr. Ugale was with respect to the absence of the forklift, for which he sought a setoff. Prior to the hearings in these proceedings, Mr. Ugale had not claimed that his contract to purchase the equipment was conditioned on Mr. Hungria’s employment with Creative and on Mr. Hungria’s assurance that he could obtain profitable sheetmetal contracts for Creative. In addition, Mr. Ugale *332never asked prior to the hearings in these proceedings for a reduction in the purchase price because of the costs incurred with moving the equipment and making the equipment operable.
CONCLUSIONS OF LAW
1. The absence of a written contract between Creative and the debtor or the Trustee is of no consequence. The undisputed evidence clearly establishes that Creative received the equipment for which it submitted a bid. Any statute of frauds problem is obviated by the fact that the goods have been received and accepted by Creative. See, Hawaii Revised Statutes § 490:2-201(3)(c).
2. Debtor was only in a position to sell its equipment. It did not have the ability to control any agreement concerning personal services between Creative and individuals formerly employed by debtor, such as Hungría, Ribellia and Sebastian or between Mr. Ugale and such individuals. The contract between debtor and Creative with respect to the purchase of the equipment was separate and distinct from any contract for personal services.
3. Creative’s obligation to perform under its contract to purchase the equipment is not conditioned in any way by Mr. Hungria’s performance under any contract of employment with Creative and/or with Mr. Ugale. Such contract was a contract for personal services between Mr. Hungría and Creative and/or Mr. Ugale. Debtor, as such, is not responsible for any payment to Mr. Hungría as a result of his employment with Creative and/or with Mr. Ugale.
4. Creative did not receive notice of the Application to sell the sheetmetal equipment and, therefore, was not present at the hearing on the Application. Nevertheless, after the sale was approved, Creative’s actions demonstrated acceptance of the sale and ownership over the equipment. In particular, it removed the equipment from the debtor’s warehouse to its premises, repaired and used the equipment.
5. Until the Order to Show Cause hearings, Creative failed to request a reduction of the purchase price because of the additional costs which it incurred to remove, repair and set up the equipment for its use. Moreover, prior to the hearings in this proceeding, Creative failed to mention that'the contract to purchase the equipment was conditioned upon Hungria’s assurance that he could obtain profitable sheetmetal contracts for Creative.
6. Because Creative demonstrated acceptance of the sale, exercised ownership over the equipment, failed to raise objections prior to these hearings and bene-fitted from the use of the equipment, Creative is estopped from claiming that it is entitled to have the contract rescinded and from attaching conditions to its bid. Godoy v. Hawaii County, 44 Haw. 312, 354 P.2d 78 (1960). In addition, In re Kealoha, 2 B.R. 201 (Bankr.Haw.1980), this court held that the right to rescind is waived by treating the contract as a subsisting obligation and summarized the rule as follows:
[A]ny act indicating an intent to continue the contract is an election, and election to continue may occur simply by failure of the injured party to take action to end the agreement within a reasonable time after becoming aware of the facts. Under that view, if performance continues and is accepted, the right to end the contract cannot be preserved even by explicit expression of intent; any inconsistent act results in the loss of the right, unless the other party assents to its retention by the aggrieved party. The continued acceptance of benefits under the contract is the most common and clearest case of election by conduct.
Id. at 201, quoting Cities Service Helex, Inc. v. United States, 211 Ct.Cl. 222, 543 F.2d 1306, 1313 (1976).
7. Creative, however, purchased operable equipment. The equipment which was released to Creative was defective and Creative, therefore, was required to expend $17,798.51 to make the equipment operable.
8. In addition, the equipment sold to Creative included a forklift. The forklift, *333however, was not released to Creative. It will cost Creative approximately $5000.00 to purchase another forklift.
9. Deducting the cost of repairing the equipment to make it operable ($17,-798.51) and the cost of the forklift ($5000.00) from $80,000.00, the Court finds that Creative owes the debtor the sum of $57,201.49.
10. The costs of transporting the equipment from Waipahu to Sand Island and of renting machinery to use with the equipment are the responsibility of Creative and not the debtor.
11. Creative is hereby ordered to pay debtor the sum of $57,201.49 within 14 days from the date hereof, plus attorney’s fees and costs.
12. If Creative fails to make the payment of the $57,201.49 plus attorney’s fees and costs as ordered, Creative is required to relinquish the equipment to the debtor, who is then authorized to resell the equipment. In the event of repossession by the debtor, the Court will hold a further hearing to determine the amount of reasonable rent for the use of the equipment by Creative, and the Court will take this amount into consideration in determining the deficiency, if any, in the event of a resale.
13. Because Creative was not served with a notice of the Application for Approval of Sale of the Equipment and, therefore, was not present at the hearing and because the order approving the sale did not specifically direct Creative to pay the $80,000.00, Creative is not in contempt of the order approving the sale of the equipment. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489969/ | GEORGE, Bankruptcy Judge.
Appeal has been taken from a reconveyance order of the lower court and from a judgment denying the debtor’s petition to set aside an allegedly preferential transfer. These matters were, initially, consolidated on appeal. Sometimes after oral argument, however, the parties agreed to a dismissal of the appeal dealing with the issue of preference. For the reasons stated hereinafter, we vacate and remand, for further consideration, the bankruptcy court’s reconveyance order.
I. BACKGROUND
The facts underlying this appeal are relatively without contest. On November 13, 1979, the appellees, GEORGE ROSENBER-GER, a director and shareholder of the debtor, and GARY FOWLER, commenced a civil suit against the debtor in California Superior Court. In connection with this civil action, on January 22, 1980, the appel-lees obtained an attachment lien against the debtor’s real property, located in San Luis Obispo County, California. Therefore, on July 28, 1980, the debtor filed a voluntary petition under Chapter 11 of the Bankruptcy Code.
Following the filing of the debtor’s petition, the bankruptcy court lifted the automatic stay to permit the appellees to proceed with their state court action. On December 7, 1981, a judgment was entered in favor of the appellees in that state court proceeding, which granted them a judgment lien in the subject real property, in the amount of $48,750.00.
In the meantime, on April 10, 1981, the bankruptcy court entered an order permitting the sale and conveyance of the debt- or’s restaurant business, including the real property on which it was located, to This Ol’e House, Inc. and Foothill Associates, “in a form satisfactory to the Purchaser.” Pursuant to this order, the debtor subsequently conveyed this business and real property to the appellants, JOHN E. KING and DOUGLAS REDICAN, who were partners in Foothill Associates. A quitclaim deed from the debtor to King and Redican, dated March 27, 1981, was recorded on April 14, 1981.
Approximately one year following the sale of the debtor’s restaurant property, Rosenberger and Fowler became convinced and concerned that the March 27, 1981 transfer to King and Redican precluded a merger of Foothill Associates’ superior deed of trust interest into the title it would have obtained, had the debtor conveyed its real property title to that entity, in strict compliance with the April 10, 1981 order of the bankruptcy court. The appellees, *483therefore, complained to have the March 27,1981 conveyance set aside and a conveyance from the debtor to Foothill Associates ordered.
On October 5,1982, the bankruptcy court ordered King and Redican to reconvey the restaurant property to the debtor, and the debtor, in turn, to convey the property to Foothill Associates. In its memorandum of decision, which accompanied this order, the trial court observed that
“[i]f Vista Concepts, Inc. had conveyed the real property to Foothill Associates in accordance with the court order of April 10, 1981, the interest of Foothill Associates as beneficiary of the deed of trust would have merged with their interest as owners of the property. The property should be placed in the name of Foothill Associates as was originally intended by the order of April 10, 1981.”
This appeal followed entry of the bankruptcy court’s order and memorandum of decision.
II. ANALYSIS OF THE FACTS " AND THE LAW
The panel believes that a vacation and remand of the lower court’s order of recon-veyance is necessary. The April 10, 1981 order of the trial court, permitting the sale of the “This Ol’e House” business and real property, required that the sale be both to This Ol’e House, Inc. and to Foothill Associates, as one “Purchaser.” The order further provided that the conveyance be “in a form satisfactory to the Purchaser.” The panel must presume that this order was pursuant to an agreement between these entities and the then debtor-in-possession. Although the court below could clearly enforce its order according to its wording and intent, it could not alter, without their approval, the agreement between these parties on the sale and purchase of the debt- or’s restaurant. Hence, at the very least, the conveyance from the debtor should have been to the “Purchaser” named in the April 10, 1981 order, i.e., both This Ol’e House, Inc. and Foothill Associates.
The addition of the phrase “in a form satisfactory to the Purchaser,” could be interpreted as having permitted This Ol’e House, Inc., and Foothill Associates to name a third party or parties to receive title to the real property and restaurant business. Since this language is somewhat ambiguous, we remand this matter to the trial court to make additional findings on the question of whether This Ol’e House, Inc. and Foothill Associates were justified, by this provision, in naming King and Redi-can to receive their title to the subject real property.
The panel finds that the trial court’s reference to the doctrine of merger, in the Memorandum of Decision which supports this- order, was unnecessary under the pleadings before the court and, in any event, an incorrect conclusion of law. See 1 H. Miller & M. Starr, Current Law of California Real Estate § 3:50, at 411-12 (1975). Even though this merger language is not necessary support for the trial court’s order and may be deemed non-binding dicta, we specifically reject this conclusion of law, to prevent any future inadvertent reliance upon it, under the doctrine of collateral estoppel.
III. CONCLUSION
We hold that the trial court’s order of reconveyance improperly required a conveyance of the debtor’s real property solely to Foothill Associates. Hence, we vacate that order and remand this matter to the trial court for additional proceedings in conformity with our holding.
The trial court’s conclusion of law on the issue of merger, found in the Memorandum of Decision which accompanied its recon-veyance order, is specifically reversed as a basis for that order. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489971/ | ABRAHAMS, Bankruptcy Judge.
This is an appeal from a judgment that the debtor’s obligation on a stipulated judgment debt is dischargeable. We affirm.
The plaintiffs sold the debtor a business, Tax Control Bureau, Inc. The debtor pledged all of the stock of the business to the plaintiffs as security for the sale price. When the debtor failed to pay the purchase price as agreed, the plaintiffs sued in the state court, alleging five causes of action. The case was settled before trial by a stipulation providing that a judgment would be entered pursuant to the fourth cause of action and that $20,000 would represent damages.
In the present proceeding to determine dischargeability, the issue before the trial court was whether that judgment debt should be excepted from discharge under 11 U.S.C. section 523(a)(2), (4) or (6). The plaintiffs argued that the fourth cause of action constituted an action for fraud and for defalcation while acting in a fiduciary capacity. They further argued that the doctrine of res judicata applied. It is unclear from the transcript what the debtor’s position on the res judicata issue was, but the court stated at the hearing that res judicata was not applicable to this type of dischargeability proceeding. The parties submitted the case on the question whether the judgment was res judicata, and the court allowed the parties to file additional authorities.
In rendering its decision, the court examined the stipulation for judgment as well as the fourth cause of action as alleged in the superior court complaint. It found, based on its reading of the complaint, that:
at the time the defendant transferred the assets and customer goodwill of Tax Control Bureau, Inc. to another company, Tax Control Bureau, Inc. had a negative net worth. In other words, the capital stock that was pledged to plaintiffs to secure the purchase price was worthless.
The court then concluded that because the stock was worthless the plaintiffs had not *491shown that they had been damaged and the plaintiffs had therefore failed to prove a necessary element of their complaint. The court thus ignored the state court judgment and the parties’ earlier stipulation that there was $20,000 in damages. ' ;/
DISCUSSION
The appellants argue here that the trial judge was precluded from reexamining the issue of damages. They base their position on California state law holding that a stipulation for judgment, as any other judgment, is conclusive and that the principle of res judicata applies under Avery v. Avery, 10 Cal.App.3d 525, 89 Cal.Rptr. 195, 196 (1970).
The Rule in this circuit has been to the contrary. Where the bankruptcy court has exclusive jurisdiction in actions to determine dischargeability, state judgments are not res judicata and do not have collateral estoppel effect because of the bankruptcy court’s exclusive jurisdiction. Matter of Rosier, 611 F.2d 308 (9th Cir. 1979), citing In re Houtman, 568 F.2d 651 (9th Cir.1978). See, Bankruptcy Act of 1898, as amended § 17(c)(2) and 11 U.S.C. § 523(c). We believe this rule must apply to stipulated judgments as well as those that result from a trial.
If both parties had rested their cases in the bankruptcy court on the earlier judgment, the bankruptcy court could treat issues as collaterally estopped. Matter of Easier, supra at 310. In the instant case, however, there is no showing that the debt- or chose to rest his case on the prior judgment. Although in one instance the debtor seemed to rely on res judicata, later, the debtor refused to stipulate to submitting the case on the basis of the earlier judgment. Instead, he asked to go forward with an evidentiary hearing.
In a recent decision, the Ninth Circuit has held that a state court determination of the amount of liability can be binding in a dischargeability action. In re Comer, 723 F.2d 737 (9th Cir.1984). Comer involved state spousal and child support judgments. The circuit court reasoned that the Hout-Wian and Easier rule of exclusive jurisdiction was only necessary as to the nature of tfee debt and not its extent. The court also held that the policy of the Supreme Court decision in Brown v. Felsen, 442 U.S. 127, 99 S.Ct. 2205, 60 L.Ed.2d 767 (1979), would not be violated by giving res judicata effect to only the amount of an earlier judgment.
We hold that this reasoning of Comer is not applicable to our case for two reasons. First, in Comer the court was concerned with a litigant “who has had full incentive to litigate, and who has fully litigated, an issue in state court.” 723 F.2d at 740. This reasoning assumes that the issues as' to damages would be identical under both the state law and dischargeability law. The issues as to the amount would surely be identical in support cases. In cases such as fraud, however, the issues may differ drastically. State law may allow a different measure of damages from section 523(a); e.g., state law may allow benefit of bargain damages in some instances. See 4 Witkin, Summary of California Law (8th ed.) §§ 908, 908A. A different quantum of proof may be required under state law, e.g., compare Liodas v. Sahadi, 19 Cal.3d 278, 137 Cal.Rptr. 635, 562 P.2d 316 (1977) with Love v. Menick, 341 F.2d 680 (9th Cir.1956). The state law of “fraud” may be less demanding than section 523(a)(2) (e.g., Wright v. Lubinko, 515 F.2d 280 (9th Cir., 1975)), so that a lesser amount of damages would be appropriate for the more restricted liability recognized by section 523(a).
A second reason for distinguishing Comer is that the fact of damage or injury is an essential element of liability in fraud and other tort cases. It is not merely a measure of the extent of liability as in support obligations.1
*492We therefore hold that neither res judica-ta nor collateral estoppel applied to the instant case and that the bankruptcy judge was free to make his own determinations on the facts and issues relevant to dis-chargeability. The judgment is hereby AFFIRMED.
. There is also a third possible basis for distinguishing Comer. That case assumes that bankruptcy courts have exclusive jurisdiction to determine the family support exception to discharge of 11 U.S.C. section 523(a)(5). Apparently, counsel had failed to advise the court of the generally recognized view that state courts have concurrent jurisdiction with bankruptcy courts *492over that type of dischargeability proceeding. 3 Collier on Bankruptcy (15th ed.1983) ¶ 523.-15[6]; compare 28 U.S.C. § 1471(b) with 11 U.S.C. § 523(c). If this view is correct, the Houtman-Kasler rule does not apply to family support obligations and there can be collateral estoppel or res judicata on all issues. Because there is exclusive jurisdiction for the section 523(a)(2), (4) and (6) exceptions concerned in the instant case, the Houtman-Kasler rule would govern the issues in our case. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489972/ | ORDER DENYING APPLICATION WITH RESPECT TO CLAIM FOR I.R.S.
THOMAS C. BRITTON, Bankruptcy Judge.
The motion filed January 4 by these chapter 7 debtors (C.P. No. 35) requesting either (a) that the time for the I.R.S. to file a claim in this case be extended or, (b) that the debtors be allowed to file a claim for the I.R.S. was heard on January 17.
The debtors’ acknowledged purpose is to make certain that the assets in this case, presently about $27,000, be applied toward the debtors’ non-dischargeable debt owed to the I.R.S. rather than to the payment of any other creditors. The only notice given by the debtors of this motion, however, was to the trustee and to an employee of the I.R.S. The motion cannot be granted without notice to the general creditors, the only parties who would be adversely affected.
The motion must be denied for another reason. There is no present deadline for the I.R.S. to file a claim against this estate. Although the debtors’ Schedule A-l recites that $48,000 is owed for 1982— 1983 U.S. taxes, the I.R.S. is not listed as a creditor and no notice of this bankruptcy case, filed on April 20, 1984, has ever been given to the District Director for this District in accordance with B.R. 2002(j). The claims’ bar date for all scheduled creditors in this case was August 19,1984, therefore, the I.R.S. claim, if any it has, cannot be affected by this ease. There is, therefore, *528no basis to extend the time for the I.R.S. to file a claim.
Similarly, there is no basis to permit the debtors to file a claim for the I.R.S. Section 501(c) and B.R. 3004 permit the debtor to file a proof of claim for a creditor who “does not timely file a proof of such creditor’s claim”. That provision is not applicable with respect to an unscheduled creditor whose claim is not subject to any bar date. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489973/ | MEMORANDUM AND ORDER ON OBJECTION TO CLAIM NO. 14
CLIVE W. BARE, Bankruptcy Judge.
Debtor, an independent insurance agency engaged in the business of insurance sales and services, filed its chapter 11 petition on July 22, 1983. Two Netherlands Antilles corporations, N.V. Menlo Corporation and Minford, N.V. Inc., and their agent, Milton A. Turner, a real estate developer, filed a proof of claim in the amount of $3,700,000. The claim arises from the fire damage to property in Brunswick, Georgia, known as the Brunswick Mall Shopping Center. Although debtor denies any liability, the claimants now contend they have suffered damages totaling $1,548,558.92 as a consequence of debtor’s negligence and failure to settle their fire loss claim. As described by claimants, the elements of their damage claim are:
I
For a period of five or six years previous to bankruptcy the debtor procured insurance coverage on not less than twenty-five properties in which Milton A. Turner owned an interest. Prior to issuance of the insurance policy in question, Turner told debt- or’s representative responsible for his account he wanted full coverage on his properties and that in the event of loss he wanted to replace improvements without any out-of-pocket expense other than any agreed deductible.
Debtor originally obtained a replacement cost policy on the Brunswick Mall property through Aetna. However, Holland America submitted a more competitive bid in response to debtor’s solicitation. On March 16, 1983, Holland America issued an all risk policy, including a business interruption clause, on the Brunswick Mall. *590Debtor’s representative mistakenly assumed the policy provided replacement cost coverage. In fact, the policy explicitly recites:
4. Valuation. The Company shall not be liable beyond the actual cash value of the property at the time any loss or damage occurs, and the loss or damage shall be ascertained or estimated according to such actual cash value with proper deduction for depreciation... ,1
Because he relied upon the debtor’s expertise, neither Turner nor any of his employees read the Holland America policy.
In September 1983, fire destroyed a substantial portion of the Brunswick Mall. Claimants sought payment under their policy with Holland America, which employed Joe Eudy to adjust the claim. Eudy specializes in adjusting large fire losses and major business interruption claims; he has twenty-nine years experience as a claims adjuster. Through his discussions with Eudy, Turner learned for the first time that Holland America’s liability for the property damage was limited to the actual cash value of the premises destroyed. Eudy also informed Turner that the Holland America policy did not include an endorsement covering increased costs attributable to changes in building code standards. (Turner had never discussed building code coverage with representatives of the debtor, and none of his insurance policies procured through the debtor included “up to code” coverage until April 1984.)
Eudy employed Wise Construction Company, Inc. (Wise), a South Carolina general construction company experienced in building shopping centers, to estimate the replacement cost at Brunswick Mall. Based on previous experience, Eudy was confident Wise would provide him with a detailed, proper estimate.2 Wise’s replacement cost estimate, after deduction for items Eudy could not approve, was $4,156,-168. However, at Eudy’s request, certain costs for cleaning and other work already performed at a store only partially damaged by the fire were excluded from the estimate. Also, the extent of damage to the slab was not apparent prior to completion of Wise’s estimate. With adjustment for these two factors, Eudy determined the replacement cost, including tenant finishes, totaled $4,568,825.95.3 Based on the parties’ agreement on a depreciation factor of $857,000, the actual cash value of the portion of Brunswick Mall destroyed by fire was $3,711,825.95.
In settlement of its liability Holland America paid, and claimants accepted, $4,161,486.02. This sum consists of the actual cash value of the premises destroyed, $3,711,825.95, plus a $440,660.07 business interruption payment, plus an additional $10,000 apparently related to business interruption, less a $1,000 deductible. Two advance payments totaling $79,500 were made in 1983; the balance of the insurance proceeds was paid by a draft dated March 19, 1984.
Pursuant to their lease agreements with the tenants at Brunswick Mall, claimants are obliged to restore the premises with due diligence in the event of fire or other casualty. Hillman Construction Corporation has contracted to reconstruct the premises destroyed by fire for $4,602,980.4 This sum includes a cost of $218,000 for a sprinkler system required to comply with the Brunswick building code, upgraded since the initial construction of Brunswick Mall. Subtracting $3,584,168.11,5 the *591amount available from the insurance proceeds for rebuilding, from the Hillman contract price, claimants assert damages of $1,018,811.89 due to debtor’s failure to procure a replacement cost policy with an “up to code” endorsement.
Debtor concedes it did not secure the coverage requested by Turner due to an oversight. However, debtor insists its own negligence is excused by claimants’ failure to read the Holland America policy. Alternatively, debtor disputes the cost to replace the improvements at Brunswick Mall. In support of its alternative position, debtor proffered the testimony of A.W. Hutchison, III, a self-employed engineer whose company provides construction management services. Hutchison has nearly twenty years of experience related to the construction industry. Although his experience with shopping center construction is limited, Hutchison maintains it is a relatively simple form of construction. He testified that he could rebuild Brunswick Mall as it was, including tenant finishes, but up to current code standards, for $3,668,937, an amount nearly $1,000,000 less than the Hillman contract price.
II
The threshold question is one of choice of law. Contending it is inconsequential whether their claim is for breach of contract or negligence, claimants assert the law of Tennessee is applicable. Debtor argues the law of Georgia controls the interests of the parties under the Holland America insurance policy. Assuming ar-guendo debtor is correct, claimants and Holland America have already reached a settlement respecting claimants’ rights under the policy actually issued. The claim at issue pertains to debtor’s failure to procure insurance in conformity with Turner’s instructions. This failure occurred in Tennessee, the situs of debtor’s business operations. Tennessee law governs the contested claim whether it arises from breach of contract, Sloan v. Jones, 192 Tenn. 400, 241 S.W.2d 506 (1951) (lex loci contractus), or negligence, Winters v. Maxey, 481 S.W.2d 755 (Tenn.1972) (lex loci delicti).
Debtor insists its responsibility for failing to obtain the requested coverage is nullified by claimants’ failure to read the Holland America policy. In support of its position that claimants had a duty to read their policy, debtor cites Beasley v. Metropolitan Life Ins. Co., 190 Tenn. 227, 229 S.W.2d 146 (1950); DeFord v. National Life & Accident Ins. Co., 182 Tenn. 255, 185 S.W.2d 617 (1945); Montgomery v. Reserve Life Ins. Co., 585 S.W.2d 620 (Tenn.Ct.App.1979), cert. denied; and Hardin v. Combined Ins. Co. of America, 528 S.W.2d 31 (Tenn.Ct.App.1975), cert. denied. In each of these cases an insurance policy was unenforceable because the insured had signed an application containing material misrepresentations. The alleged failure of the insured to read the insurance application before signing did not excuse the material misrepresentation to the insurer. The claim in question, however, is readily distinguishable from these cases. Misrepresentation by the claimants is not an issue; they did not tender a false application to the debtor. An insurance applicant has a duty to read, or understand, the representations he makes in his application. This principle, however, does not necessarily extend to impose a duty on an insured to read his policy.6 The court in Henry v. Southern Fire & Casualty Co., 46 Tenn.App. 335, 330 S.W.2d 18 (1958), cert. denied, stated:
*592Nor do we think the complainants are to be repelled because they did not read their policies.
“Courts in most jurisdictions take judicial notice of the fact that it is customary for insureds to accept policies and keep them without reading them. Vance on Insurance, 2d Ed., 214-224, and numerous cases there cited.”
Henry, 46 Tenn.App. at 366, 330 S.W.2d at 32. (Citations omitted.)
Turner unequivocally instructed debtor’s representative tó obtain full coverage for his properties. Relying completely upon the debtor, Turner was lulled into a false sense of security prejudicial to claimants. Claimants' failure to read the insurance policy does not absolve the debtor, Glisson v. Stone, 4 Tenn.App. 71 (1926), cert. denied, especially since the Holland America policy was renewal coverage solicited by the debtor. See Commercial Standard Ins. Co. v. Paul, 35 Tenn.App. 394, 245 S.W.2d 775 (1951), cert. denied.
As a general rule, an insured damaged by a broker’s failure to procure a proper policy may sue for either breach of contract or negligence. 43 Am.Jur.2d Insurance § 139 (1982).7 Debtor, having assumed a duty, failed in its undertaking to obtain the insurance coverage requested for Brunswick Mall. Hence, debtor is liable for the difference between the amount that would have been due if the requested coverage had been provided and the amount paid by Holland America. Id.8
The amount of damages is strenuously disputed. Harold Hahn, an architect with one of Turner’s companies, testified the proposed replacement structure is redesigned from the original and that claimants have done all they can to reduce costs. According to Hahn, the cost to rebuild Brunswick Mall pursuant to the Hillman construction contract is approximately $29.50 per square foot. Asserting it is an arm’s length agreement, claimants observe that the Hillman construction contract price ($4,602,980) excluding the sprinkler system cost ($218,000) is less than Eudy’s adjustment of the replacement value cost ($4,568,825.95).
On behalf of the debtor, Hutchison testified that the replacement structure, though approximating the original in size, is shaped quite differently. The replacement structure will adjoin an existing structure formerly unconnected with the original.9 Hutchison estimates he could rebuild Brunswick Mall as it was, excluding tenant finishes but “up to code,” at a cost of $22.02 per square foot. Including tenant finishes, Hutchison’s replacement estimate ($3,668,937) slightly exceeds $23 per square foot. Hutchison testified that another mall, involving a more expensive type of construction, is presently under construction in Brunswick, less than one mile from the Brunswick Mall site, at a cost of only $20 per square foot. Five other malls, at unidentified locations in Georgia, priced by Hutchison either are being or were built at a cost between $18 to $23 per square foot, exclusive of site work expenses. Although he concedes claimants’ use of some materials differing from those in the original probably is cost-saving, Hutchison testified that the Hillman contract price exceeds his estimate to restore the Brunswick Mall by approximately $1,000,000. Specifically, *593Hutchison questions the necessity of the following items in the Hillman contract to restore the Brunswick Mall as it was: (1) concrete work — $269,000; (2) site work and other allowances — $275,000; (3) paving and curbs — $70,000; and (4) site work and sidewalks — $32,200. Additionally, Hutchison stated that he could perform the required electrical and mechanical work for approximately $400,000 less than Hillman.
On cross-examination claimants introduced a report, prepared by Hutchison’s company in December 1983, some two months after the fire, reflecting an estimate of $4,010,717 to rebuild Brunswick Mall as it was but “up to code.” The report also includes an estimate of $3,801,-338 to replace the original with a redesigned structure including updated construction methods. Each estimate projects reusing the existing slab, contrary to the Hillman proposal. Also, each estimate excludes $177,648 in tenant finish work reportedly not disclosed on the original plans but allowed by Eudy in his adjustment, based on the estimate and investigation by Wise, Hutchison’s report expressly recites that specific information concerning finish items was incomplete or lacking with respect to several stores. Accordingly, Hutchison’s December 1983 estimate to rebuild Brunswick Mall as it was, with tenant finishes as determined by Wise, would approach $4,200,000. To explain the difference of approximately $500,000 between his former and current estimates, Hutchi-son testified his former estimate was conceptual and prepared without a complete set of the original plans.10
The court concludes that the preponderance of the evidence favors finding that the replacement cost more closely approximates either Eudy’s adjustment figure or the Hillman reconstruction price as opposed to either Hutchison’s current or former estimate. The existing slab, admittedly damaged, is not reusable.11 The estimated cost of a second slab, $190,000, is not included in Hutchison’s estimates. It is also unclear whether Hutchison’s estimates include approximately $175,000 representing certain charges excluded from the Wise estimate at Eudy’s request but subsequently included in his adjustment.12 Further, Eudy testified the Wise estimate upon which he relied was conservative and that there was no way to rebuild the Brunswick Mall as it was for $3,711,825.95, the actual cash value. Considering Eudy’s twenty-nine years of experience and his expertise in adjusting major fire loss claims, the court finds his testimony quite reliable.13 Also, the Hillman reconstruction contract was negotiated without any guarantee *594claimants would recover the difference between replacement cost and actual cash value from the debtor or its errors and omissions insurer. Thus, it was in claimants’ best interest to negotiate for reconstruction at a minimal cost.
If the debtor had procured replacement cost coverage the insured loss would have been the smallest of:
(1) the amount of this policy applicable to the damages or destroyed property;
(2) the replacement cost of the property or any part thereof identical with such property on the same premises and intended for the same occupancy and use; or
(3) the amount actually and necessarily expended in repairing or replacing said property or any part thereof.14
Claimants are entitled to a claim against the debtor equaling the difference between the amount available from the insurance proceeds for rebuilding ($3,584,168.11) and the amount actually and necessarily expended in reconstructing Brunswick Mall. Disallowing items in the Hillman contract not directly related to the fire loss, and thus not necessary replacement items,15 the claim equals $890,811.89, inclusive of a $218,000 sprinkler system necessary to comply with current building code standards. Though “up to code” coverage was never specifically discussed by debtor’s employees and Turner before the Brunswick Mall fire loss, this coverage should have been obtained. Turner unequivocally instructed debtor’s representative to provide full coverage for his properties. He clearly communicated he wanted to be able to replace any improvement subject to a casualty loss without any expense apart from the policy deductible.16 Payment of this claim, however, is contingent upon the actual expenditure of the sums necessary to rebuild Brunswick Mall in accordance with the Hill-man reconstruction contract. See Higgins v. Insurance Co. of North America, 256 Or. 151, 469 P.2d 766 (1970). Also, debtor is entitled to set off any increase in the premium which would have been payable for replacement cost and “up to code” coverage.
Ill
Claimants ask the court to allow inclusion in their claim of $529,747.03 attributable to lost rents. As previously noted, claimants have an obligation to their tenants to rebuild Brunswick Mall. The tenants had a correlative obligation to remain if after any casualty loss the premises were restored with due diligence.17 If reconstruction had commenced in March 1984, when Holland America paid $4,081,-986.02 to claimants, it could have been completed in December 1984. However, reconstruction was not commenced until December 1984, and will not be completed until September 1985. Thirty-three of claimants’ forty-one tenants on the date of the fire loss will not return.
Claimants were forced to seek financing to rebuild because the insurance proceeds were not available to them.18 The initial financing arrangement reportedly collapsed due to debtor’s failure to assure claimants the depreciation factor (the difference between replacement cost and actual cash
*595value) would be paid. Alternative arrangements to rebuild were necessary, delaying the commencement of reconstruction until December 1984.
Claimants assert they notified the debtor in early 1984 that consequential damages would ensue if the debtor failed to adjust their claim and provide adequate assurance of payment of the depreciation factor. However, debtor’s chapter 11 petition was filed on July 22, 1983, two months prior to the fire loss. Any claim for lost rents attributable to the postpetition delay in settlement or failure by debtor to assure payment of the depreciation factor is a postpet-ition claim, not allowable as a claim against the estate. 11 U.S.C.A. § 502(b) (1979).19
Claim No. 14 is allowed as a contingent claim in the amount of $890,811.89 less the premium increase which would have been payable if a policy affording replacement cost coverage with an “up to code” endorsement had been issued.20
IT IS SO ORDERED.
. No modifying endorsement is attached to the policy.
. Eudy testified that he chose Wise because “[t]hey have done a lot of work for me in this area [fire loss adjustment]." Deposition of Joe L. Eudy at 12.
. This amount does not include the cost of a sprinkler system required to comply with the current building code in Brunswick, Georgia.
. Hillman’s original contract, dated October 1, 1984, provided for a maximum reconstruction cost of 14,300,000. Due to delay in commencement the contract has been amended to increase the maximum reconstruction cost to $4,602,980.
. This figure represents the difference between the $3,711,825.95 (actual cash value) insured property loss and expenses totaling $127,657.84 for debris removal, temporary security measures, and repair of a partially damaged store.
. In DeFord v. National Life & Accident Ins. Co., 182 Tenn. 255, 185 S.W.2d 617 (1945), the court reasoned that the obligation of an insured to read, or acquaint himself with, an application which he signs applies likewise to a policy he does not sign, but accepts and relies on. However, the statement is dictum. Also, five of the six cases cited in support of the proposition involve misrepresentation, and in the sixth, Dickens v. St. Paul Fire & Marine Ins. Co., 170 Tenn. 403, 95 S.W.2d 910 (1936), recovery was allowed where the insured had not completed an application nor read his policy, which included a material inaccuracy as to his interest in the property insured.
. Contrary to debtor's characterization, the contested claim is not based on any asserted right to reform the policy issued (and impose liability on Holland America). Instead, the claim is based on debtor’s breach of duty to claimants.
. Subject to certain conditions subsequent, claimants conveyed the Brunswick Mall to Pioneer Investment Services Company (PISCO), a related entity with the same beneficial owners as Menlo and Minford, to facilitate financing for reconstruction. The conditions subsequent include completion of and payment for reconstruction. Debtor nonetheless contends claimants are now barred from recovery for lack of an insurable interest. The contention is merit-less. Claimants still have an interest in the Brunswick Mall property. PISCO will not pay claimants until fulfillment of the conditions subsequent. Also, claimants have a stake in the reconstruction due to contractual obligations to the former tenants to rebuild.
.According to the original construction plans, the distance between the two structures was one hundred feet. See Exhibit 22.
. Hutchison represents that conceptual estimates without the benefit of an architect’s plans are generally ten to fifteen percent higher than estimates made by reviewing such plans. Specifically, Hutchison stated that his current estimate is based on the following reductions in his former estimate: (1) change interior partitions by substituting dry walls for masonry — $200,000 plus; (2) eliminate contingency cost — $100,000; (3) air conditioning and electrical changes— $84,200; (4) lower rough carpentry estimate— $62,065; and (5) job overhead reduction due to shortening project by three months — $42,000.
. Hutchison’s belief that the existing slab is reusable is based on a report from Law Engineering Testing Company. Claimants object to the admissibility of the report (Exhibit 24), contending it is hearsay and not within any exception to the hearsay rule, Fed.R.Evid. 802. The objection is sustained. The report, dated December 7, 1984, the same date as the hearing on debtor’s objection to the claim, is calculated for use in litigating a claim; it is not within the hearsay exception for records of a regularly conducted activity, Fed.R.Evid. 803(6). See Trout v. Pennsylvania R.R. Co., 300 F.2d 826, 830 (3rd Cir.1962). Also, the report is not within the scope of the residuary exception, Fed.R.Evid. 803(24), because debtor did not inform claimants sufficiently in advance of the hearing of an intention to offer the report as evidence. Assuming arguendo that the report is admissible, the court is not persuaded that the existing slab is fit for reuse.
. See text following note 2, supra. The charges aggregating approximately $175,000 represent repairs at the Belks store, cleaning, electrical, and plumbing expenses. (See Exhibit 17.)
. Although Eudy’s adjustment is based on the Wise estimate (see note 2, supra, and accompanying text), he is familiar with construction costs. Eudy has taught classes to insurance adjusters on both adjustment of property losses and estimating construction costs. He also lectures on the subject of business interruption in insurance courses at the University of South Carolina.
. See Replacement Cost Endorsement, Exhibit 2.
. The items disallowed as unnecessary are:
Landscaping $25,000
Sign and Logo 4,000
Boulevard Entrance and roadway 25,000
Site lighting 10,000
Paving and curbs 70,000
$134,000
In accordance with Hutchison’s December 1983 report, $6,000 is allowed to cover repair of asphalt damaged during the reconstruction process.
. Building code compliance coverage was available when the Holland America policy was issued. Cf. E.K. Hardison Seed Co. v. Continental Casualty Co., 56 Tenn.App. 644, 410 S.W.2d 729 (1966), cert. denied, (impossible to obtain coverage asserted by claimant when policy issued).
. All of the tenants had loss of income insurance coverage for a one-year period.
. Claimants’ first mortgagee, holding a mortgage note for nearly $2,000,000, elected to be repaid. The balance of the proceeds was paid, on demand, to satisfy another loan secured by the capital stock of Menlo and Minford.
. Assuming arguendo that the claim for lost rents is a prepetition claim, somehow originating in debtor’s failure to procure replacement cost coverage, it clearly was impossible for the debtor in early 1984 to assure claimants the depreciation factor would be paid. Debtor's schedules reflect liabilities, excluding the claim in question, totaling 12,215,277.67 and assets valued at only 199,268.31. Claimants could not in good faith expect assurance from the debtor of payment of the depreciation factor.
. This amount is not within the record before the court. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489974/ | DECISION AND ORDER
CHARLES A. ANDERSON, Bankruptcy Judge.
Denise S. Brown (the Debtor) filed a petition for relief under Chapter 13 on 5 July 1984. The Debtor’s Plan provides generally for payments to the Trustee of $500.00 per month and for payment of real estate mortgage arrearages and secured claims pro rata, with 10% interest. Unsecured non-priority claims would be paid after payment of the secured and priority claims at 50%. An Order of Confirmation was entered on 27 August 1984 without objection. Two real estate mortgagees were scheduled.
The First National Bank of Dayton (hereinafter the Bank) was scheduled as a secured claim in the amount of $2675.40, with a 1977 Chevrolet as collateral. The Bank filed its secured proof of claim on 20 July 1984 in the amount of $2129.01, accepting the Plan as noticed.
The matter was submitted on the pleadings; a stipulation of facts and exhibits incorporated in a pretrial order entered on 19 November 1984; the Plaintiff’s brief filed 27 December 1984; and the Defendant’s brief filed 11 January 1985.
FACTS (as stipulated)
“The debtor filed a Chapter 13 petition on July 5, 1984.
On May 25, 1984 the defendant had an outstanding balance of $1452.32 on a note of the debtor’s which was secured by a lien properly perfected on May 5, 1983 on the debtor’s 1977 Chevrolet.
On May 25, 1984 the debtor owed to the defendant $689.43 on a MasterCard debt.
On May 25,1984 the debtor executed and delivered to the defendant a note for $2141.75 which paid off the indebtness on the 1977 Chevrolet and the MasterCard debt.
On June 15, 1984 Defendant made a notation on the Certificate of Title that the lien perfected May 5, 1983 was discharged. *616The lien was cancelled by the Montgomery County Common Pleas Clerk of Court on June 27, 1984.
The value of the 1977 Chevrolet on May 25, 1984 was $800.00.
On June 27,1984 the defendant perfected a lien on the debtor’s 1977 Chevrolet based on the Note of May 25, 1984.
The defendant has filed a proof of claim for $2129.01.”
The parties subsequently agreed that the valuation of the 1977 Chevrolet should be changed to $1000.00 as of the time of the May 25, 1984 note. Both the Debtor in the schedules, and the Bank, in its proof of claim, agreed that the vehicle had a value of $800.00 on the date of the petition.
DECISION
The Trustee argues that within 90 days of the filing of the Debtor’s petition the Bank perfected a security interest in the Debtor’s 1977 Chevrolet and this transfer was not a contemporaneous exchange for new value and is avoidable by the Trustee pursuant to § 547(b) of the Bankruptcy Code, citing Gower v. Ford Motor Credit Company, 734 F.2d 604 (11th Cir.1984); In re Arnett, 731 F.2d 358 (6th Cir.1984); and In re Mandrell, 39 B.R. 455 (M.D.Tenn.1984).
The Bank argues that the loan on May 25, 1984, was not an enabling loan, and no transfer of any interest of the Debtor occurred within the 90-day preference period; or, in the alternative that the transfer did not meet all of the elements of § 547(b)(5)(B), as it (the transfer) did not enable the Bank to receive more than it would receive if the alleged transfer had not been made, also citing In re Davis, 734 F.2d 604 (cited supra, as Gower v. Ford Motor Credit Company); In re Arnett, 17 B.R. 912 (D.C.Tenn.1982); and In re Arnett, 13 B.R. 267 (Bkrtcy.Tenn.1981), holding that “Defendant at no time relinquished its security interest in . debtor’s property. Debtor’s interest was merely transferred from one obligation of debtor to a rewrite of that obligation, which rewrite also included an unsecured antecedent debt of debtor....”
I am constrained to agree with the Bank that all of the elements of a voidable preference under § 547(b)(5)(B) are not established by the facts as to the original balance due prior to the “rewrite.” The security interest of the Bank is valid to defeat the Trustee’s avoidance powers as to the original loan balance. The new lien, however, is avoidable as to the unsecured MasterCard balance added. There was not in the latter respect a “contemporaneous exchange for new value”, regardless of when the security interest was finally perfected under the Ohio law. As opined by this court in Butz v. Pingel, 17 B.R. 236 (Bkrtcy.Ohio 1982) and cited with approval in the Arnett case, 731 F.2d at p. 364, the first inquiry is the intention of the parties. On the facts sub judice the parties did not intend a contemporaneous exchange as to the antecedent unsecured debt.
As to the original secured loan, however, the Bank did not receive more than such creditor would receive if the transfer had not been made. § 547(b)(5)(B). On May 25, 1984, the Debtor owed a secured debt of $1452.32 on the May 5, 1983 promissory note secured by collateral then worth $1000.00. In connection with the May 25, 1984 note, an additional unsecured loan in the amount of $689.43 was added. The title was delivered to the clerk on or about June 15, 1984. The cancellation of the lien noted on the Certificate of Title for the 1983 secured loan made May 25, 1984, and the notation of the substituted lien for the May 25, 1984, rewrite both were entered by the Clerk of Courts on June 27, 1984. This ministerial function by the Clerk as such did not effect an enhancement of either the secured or the unsecured debts.
Accordingly, neither the “enabling loan” exception nor the “contemporaneous exchange” exception is decisive herein. 11 U.S.C. § 547(e)(1) does not protect a lien securing an enabling loan from avoidance and a preference if all of the elements of a preference are otherwise proven and the lien was perfected beyond the ten-day *617grace period allowed by § 547(c)(3). All .of the elements of a preference are not established herein, nevertheless, as to the ‘‘rewrite” portion of the already secured loan. The release of one lien and the perfection of the superceding lien were intended by the parties to be and were simultaneous. A searching of the records by a theoretical third party subsequent execution creditor would have so revealed the nature of the replacement loan (not counting the incorporated unsecured portion herein excepted).
In conclusion, the lien of the Bank is avoided only as to the unsecured MasterCard debt in the amount of $689.43 as added by the promissory note executed and delivered May 25, 1984. The lien noted on the vehicle Certificate of Title is secured to the extent of $1000.00, the value of the collateral at the time of the substituted lien. For the purposes of distribution under the confirmed Chapter 13 Plan, the claim should be considered as secured for only $800.00, the valuation upon filing for relief. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489975/ | SIDNEY M. WEAVER, Bankruptcy Judge.
This matter came before the Court to consider objections raised to the Debtor’s claimed exemptions. The Court, having heard the testimony and examined the evidence presented, and being otherwise fully advised in the premises, does hereby make the following findings of fact and conclusions of law.
The Trustee of this Debtor’s estate timely filed objections to the claimed exemption of personal property. The Trustee bases her objections on two grounds: The Debtor is not the head of a family, and the value of the personal property exceeds the $1,000 exemption permitted by Florida law to the head of a family. Both parties agree that the value of the property exceeds $1,000. Accordingly, the only issue before the Court is whether the Debtor is the head of *618a family under Article X, Section 4, of the Florida Constitution.
The Debtor is married to Dr. Robert Jacobson. Dr. Jacobson and the Debtor have one son, age 14. For the past three years, the Debtor and her husband have been involved in divorce proceedings and the two live separately. During the week, their son lives with the Debtor in her apartment. On weekends, the son stays with his father. The child also spends vacations with his father.
Dr. Jacobson provides the Debtor with $4,500 per month for temporary alimony. In addition, Dr. Jacobson provides the Debtor with $2,500 per month in child support for their son. The monthly child support and temporary alimony payments fully meet the cost of supporting the Debtor and her son. The Debtor has been unemployed for four years and does not contribute any funds for the support of her son.
Both the Debtor and Dr. Jacobson supervise their son’s education, health and general upbringing. Neither parent is solely in charge of raising the child.
Finally, the Court notes that Dr. Jacobson filed a voluntary petition for relief on May 18, 1983. In his schedules, Dr. Jacobson has claimed the benefit of the exemptions available to the head of a family in the State of Florida. This claim of exemption as the head of a family passed unchallenged in Dr. Jacobson’s bankruptcy case. Consistent with his claim as head of a family, Dr. Jacobson lists his son as a dependent on his federal income tax returns; the Debtor does not.
In determining the meaning of the head of a family, the courts of the State of Florida have applied two alternative tests by which a person claiming head of family status must show: (1) a legal duty to support arising out of the family relationship at law; and/or (2) continuing communal living by at least two persons with one person recognized as being in charge. Killian v. Lawson, 387 So.2d 960 (Fla.1980). Clearly, it is the Debtor’s husband, Dr. Jacobson, who satisfies the first test and not the Debtor: all the support for the Debtor’s son is paid by Dr. Jacobson. In fact, pending resolution of the couple’s divorce proceeding, Dr. Jacobson is obligated to provide for the support of their son.
Thus, the question is whether it is the Debtor who is the one person recognized as being in charge of her son’s upbringing. The evidence indicates that neither parent is the one person in charge of the son’s upbringing: both the mother and the father supervise the son’s education, recreation, health and other matters relating to his general upbringing. Dr. Jacobson testified that decisions relating to raising the child are reached by consensus between the Debtor and himself, and this is not disputed by the Debtor.
The Court finds that Dr. Jacobson, and not the Debtor, is the head of a family composed of the Debtor, Dr. Jacobson, and their son. The fact that Dr. Jacobson does not live with his son, full-time does not preclude a finding that he is the head of the family. Killian v. Lawson, 387 So.2d 960 (Fla.1980); Osceola Fertilizer Co. v. Sauls, 98 Fla. 339, 123 So. 790 (1929). Moreover, a wife’s custody of a minor child, alone, is not a sufficient basis for finding that the role of head of family rests with the wife — she must also contribute some support for the child. Matter of Estridge, 7 B.R. 873 (Bkrtcy.M.D.Fla.1980); cf. Matter of Shapiro, 2 B.R. 28 (Bkrtcy.S.D.Fla.1979). Therefore, the Debtor is not entitled to the personal property homestead exemption provided by Article X, Section 4, of the Florida Constitution.
Accordingly, it is
ORDERED, ADJUDGED AND DECREED that the Trustee’s objections to property claimed as exempt be, and the same hereby is, sustained. It is further
ORDERED, ADJUDGED AND DECREED that the claimed exemption filed by the Debtor on her B-4 Schedule be, and the same hereby is, disallowed, and the Trustee is directed to recover and administer the subject property for the benefit of the estate’s creditors. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489976/ | MEMORANDUM OPINION
STEPHEN B. COLEMAN, Bankruptcy Judge.
Noel Manufacturing Company, Inc. filed a petition under Chapter 11 on August 1, 1984, and has continued in operation of its business several months after Congress passed the Bankruptcy Amendments and Federal Judgeship Act of 1984. Upon filing, the case was automatically referred to the Bankruptcy Judge under the standing Order of Reference. Thereafter, on November 1, 1984, an action was begun by a creditor in the United States District Court, CV 84-H-2715-S, seeking a judgment against an individual, Mark G. Noel, and the said case is still pending before the United States District Court. The Debtor is not a party. On January 2, 1985, the Debtor filed with the Bankruptcy Judge an application for an injunction of the said case now pending before the United States District Judge, seeking to enjoin the Plaintiff.
Plaintiff cites the case of In re Lorren, 45 B.R. 584, 12 B.C.D. 549, involving cases pending under the Emergency Rule adopted by the Northern District of Alabama on December 22, 1982, which case related to referral of cases to the Bankruptcy Judges under 28 U.S.C. §§ 151-158 involving dischargeability of debts, a core proceeding. That case was filed prior to the 1984 Amendments. The soundness of In re Lorren is not questioned, but its applicability to this situation is. What is sought here is a ruling by the Bankruptcy Judge whether the general reference to the Bankruptcy Judge includes issues involved in related matters in a civil action filed and pending before the District Judge, after the reference of the case to the Bankruptcy Judge. Would not enjoining the plaintiff interfere and infringe the right of the District Judge to order the plaintiff to appear and plead?
It is the feeling of the Bankruptcy Judge that the District Judge should decide whether he wants the Bankruptcy Judge to also hear the new matter pending before him in the form of a civil action involving a third party in a related proceeding similar to the issues developed in Northern Pipeline v. Marathon Pipeline Co., 458 U.S. 50, 102 S.Ct. 2858, 73 L.Ed.2d 598 (1982). The Bankruptcy Judge does not feel that he should use his discretion without some consent or reference by the District Judge since the matter was not in existence nor included in the original reference in this case.
It has been the practice for several years when the sole defendant becomes a debtor in bankruptcy for the District Judge to *626dismiss or suspend his case by his own order. Of course, where a creditor is pursuing a debtor he could get the same relief by filing a proof of claim in bankruptcy. Here a creditor is suing a third party.
It is contemplated by the 1984 Amendments that the District Judge will decide what matters he wants Bankruptcy Judges to hear. If the original Order of Reference (which is the only authority under which the Bankruptcy Judges can claim jurisdiction) is so broad that it carries matters that are later filed in the District Court then it should be the practice of the District Judge to abstain or dismiss the proceeding and refuse to hear the matter or refer it to the Bankruptcy Judge, which is well within his power. To put the matter bluntly, the Order of Reference does not give the Bankruptcy Judge the prerogative of abstracting from the District Judges cases which they are in the process of hearing. Would it not be presumptuous for the Bankruptcy Judge to tell the District Judge that “I have decided to hear the case and therefore, you cannot hear it?”
The Bankruptcy Judge finds that considering all of the jurisdictional sections of the Bankruptcy Amendments and Federal Judgeship Act of 1984, it can be determined that the Bankruptcy Judge has authority to hear only what the District Judge wants him to hear. Admittedly, this is a broad power and includes all core proceedings and perhaps most related proceedings even though the Bankruptcy Judge cannot make a final Order in related proceedings, except by consent of the parties. It is not the purpose of this Opinion to try to limit the general Order of Reference, except to construe it not to apply to a civil action filed against third parties before the District Judge after the original Order of Reference. It is strongly suggested that the remedy is a special Order of Reference of the new matter by the District Judge to the Bankruptcy Judge which is in effect a removal of the case by referring it by special order1 to the Bankruptcy Judge.
The application to enjoin should be denied with the right of the Debtor to apply for a ruling by the District Judge, although appeal is available, it should not be necessary. A simple motion or application should be sufficient.
. If the point here is unduly labored, it is because attorneys are persistent that In re Lorren is controlling. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489978/ | DECISION AND ORDER
CHARLES A. ANDERSON, Bankruptcy Judge.
Presently before the Court are the Complaint Objecting to Discharge filed by Plaintiff Gary L. Fancher on August 7, 1984, and the Motion to Dismiss filed by Debtor-Defendant Catherine Lee Szeman on August 21, 1984. The Court considered this matter at a pretrial conference on October 15, 1984 and at a trial on January 23, 1985.
On September 27, 1983, Szeman while driving her car ran a stop sign and struck Fancher who was riding his motorcycle. Fancher was injured. Szeman was found guilty of negligent driving by the local Municipal Court and was ordered to make restitution to Fancher. Since she had been driving without automobile insurance coverage, the Ohio Bureau of Motor Vehicles suspended her license in January, 1984, pursuant to the Ohio Financial Responsibility Act, O.R.C. § 4509.01 et seq.
On March 6, 1984, Szeman went to Fancher’s attorney’s office to discuss her restitution to Fancher. This meeting resulted in a letter signed by the attorney stating that a “temporary arrangement” had been made, pending further settlement negotiations. Szeman never signed this letter/agreement, but made an initial payment of $50.00. Szeman immediately took this letter to the Bureau of Motor Vehicles in Columbus, Ohio, and regained her driving license.
*682In a letter dated March 12, 1984, Fancher’s attorney advised Szeman that the total damages to be paid as restitution was $5,982.00, prior to commencing other legal proceedings. The letter offered Szeman the option of using a payment plan in light of her economic plight.
Szeman did not respond and Fancher filed suit in state court on April 27, 1984, seeking damages of $8,464.
On May 9, 1984, Szeman filed a voluntary petition for Chapter 7 relief in bankruptcy. She listed $12,285.60 as her total debts, $8,464 of which was to Fancher and $2,500 of which was to Fancher’s insurance company.
Fancher claims that Szeman perpetrated fraud on him by agreeing to settle the personal injury action in exchange for documentation so that she could regain her license, and then by filing her petition in bankruptcy. Thus he seeks to have his debt declared nondischargeable pursuant to 11 U.S.C. § 523.
Szeman counters that she made a good faith effort to resolve their differences, but after learning the total amount of restitution to be paid she had no alternative but to file her petition for relief. She further claims that there was never a meeting of the minds as to a final settlement and that when she agreed to the temporary settlement, she was without counsel.
It is axiomatic that the plaintiff carries the burden of proof to show the fraud necessary to declare a debt nondischargeable. Upon careful review of the evidence, I am constrained to find that Fancher has not met his burden of proof as to Szeman’s intent to defraud. Thus, Szeman’s debt to Fancher is dischargeable.
In particular, the Court notes that Sze-man never signed the temporary settlement agreement; that she was without the benefit of counsel while negotiating in March; and, that she only filed her petition after being sued in state court.
However, conformably to prior decisions of this Court, Fancher may report Sze-man’s failure of restitution to the Ohio Bureau of Motor Vehicles if no monetary collections from debtor are attempted or effected thereby. See, In re Hinders, 22 B.R. 810, 9 B.C.D. 655 (Bankr. S.D. Ohio 1982). | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489979/ | FINDINGS OF FACT AND CONCLUSIONS OF LAW
SIDNEY M. WEAVER, Bankruptcy Judge.
THIS CAUSE having come before the Court on Tuesday, February 19, 1985, for Final Hearing and the Court having considered the evidentiary exhibits and heard argument of Counsel, renders its Findings of Fact and Conclusions of Law as follows:
*685This is a Complaint by the Trustee for damages, interest and costs against the Defendant Bank for the alleged unlawful delivery of the contents of a vault to the wife of the principal of the debtor. The issues of liability were tried in a separate Adversary Proceeding, to wit: Case No. 84-0182-BKC-SMW, 39 B.R. 1022. Pursuant to findings in that earlier proceeding the Court found the Defendant Bank liable for any loss caused to this estate.
The Trustee has offered, as Proof of damage, the Schedules and Statement of Affairs of the Debtor. Under Statement of Affairs question 7(b) the following question and answer is set forth:
7. Bank accounts and safe deposit boxes.
Question: What safe deposit box or boxes, or other depository or depositories, have you kept or used for your securities, cash or other valuables within the two years immediately proceeding the filing of the original petition herein? (Give the name and address of the bank or other depository, the name in which each box or other depository was kept, the name and address of every person who had the right of access thereto, and if the box has been surrendered, state when surrendered, or if transferred, when transferred, and the name and address of the transferee).
Answer: Southeast First National Bank, Coral Way Banking Center, Miami, Florida; precious metal and jewelry valued at $15,000.00
The Defendant Bank has objected to the introduction of the Statement of Affairs on the grounds that they constitute hearsay. However, the statement is admissible for the reason that it falls within an exception to the heresay rule because the Declarant is unavailable. See Federal Rule of Evidence No. 804. The Plaintiff Trustee has demonstrated, both during the prior hearing and at the time of this hearing, that the person who executed the statement and schedules, Samuel Ventura, principal of the Debtor is unavailable and, it is believed by the attorney for the Debtor, that he has returned to South America.
The Defendant, being unable to introduce, despite an opportunity to do so, any evidence whatsoever as to the value of the property that was in the vault and misdelivered by the Defendant, the Court holds that they have failed in their burden in this matter.
Pursuant to Bankruptcy Rule 9021, a separate Final Judgment will be entered in accordance herewith against the Defendant Bank in the amount of FIFTEEN THOUSAND DOLLARS ($15,000.00) together with interest at the rate of one percent (1%) a month from June 25, 1985 (the time of the adjudication of liability) plus costs. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489980/ | MEMORANDUM OPINION AND ORDER
WILLIAM B. LEFFLER, Bankruptcy Judge.
The issue is whether the Law Offices of Boyd & Boyd (hereinafter referred to as the Plaintiff), by virtue of Tennessee’s statutory attorney’s lien, can collect legal fees owed to the Plaintiff by Janice Lee Burson King (hereinafter referred to as the Defendant) by exercising his lien on the $600.00 per month alimony payment that is received by the Defendant as a result of a divorce proceeding from which the Plaintiff’s legal fees arise.
Upon consideration of the testimony and exhibits at trial, oral arguments of counsel, and the entire record, the Court makes the following findings of fact and conclusions of law in accordance with Bankruptcy Rule 7052(a).
FINDINGS OF FACT
The Plaintiff represented the Defendant in divorce proceedings in the Chancery Court of Lake County, Tennessee. The last order in the cause was filed by the Clerk for the said Chancery Court on April 8, 1983. The divorce decree awarded the Defendant $600.00 per month for ten years as alimony. The divorce decree does not award the Plaintiff attorneys fees. The Plaintiff billed the Defendant $3,812.57 for his services. The Defendant has made no payments to the Plaintiff.
On November 14, 1984, the Defendant filed a voluntary petition under Chapter 7 of the Bankruptcy Act. The Defendant listed the Plaintiff as an unsecured creditor in the amount of $3,812.57. The Defendant seeks to discharge the debt. The Defendant disputes neither the existence nor the amount of the Plaintiff’s bill.
The Plaintiff’s contention is that under Tenn.Code Ann. § 23-2-102 it has a lien on the Defendant’s alimony award that secured his right to payment of the attorneys fee.1
*2CONCLUSIONS OF LAW
The Court finds that the case of Chumbley v. Thomas, 198 S.W.2d 551 (1947) is controlling in the instant proceeding. In Chumbley, the Tennessee Supreme Court states: “In order for a solicitor to have the benefit of his lien, we think it necessary that it should be set up in the decree in which the services are rendered; otherwise, there would be no notice to the public or a subsequent purchaser.” at p. 552.
The divorce decree entered by the Lake County Chancery Court makes no mention of the Plaintiffs attorneys fees. Therefore, the Plaintiff does not have a lien; he is merely an unsecured creditor. Since there was no proof offered on the allegation of nondischargeability, the debt is hereby discharged.
. Tenn.Code Ann. § 23-2-102 states as follows:
Lien on right of action. — Attorneys and solicitors of record who begin a suit shall have a lien *2upon the plaintiffs or complainant’s right of action from the date of the filing of the suit. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489981/ | MEMORANDUM OPINION
CHARLES J. MARRO, Bankruptcy Judge.
The matter is before the court on the motion of the Trustee for removal of the subject matter of an administrative proceeding within the U.S. Department of Agriculture to the Bankruptcy Court. The matter came on regularly for a hearing. From the records in the case and the representations of counsel at the hearing the following facts were established.
FACTS
The debtors, Steven and Michele Lar-ocque, entered into a contract with the United States under which the debtors undertook to comply with a milk reduction plan administered by the Department of Agriculture in return for compensation equivalent to the value of the milk that the debtors agreed not to produce. The contract obligates the debtors (1) to reduce the quantity of milk marketed for commercial use during the five-quarter period between January 1,1984 and March 31,1985, and (2) to not transfer any dairy head from their location as of the date of the execution of the contract to any other place during the life of the contract. The federal regulations governing the administration of the contract, and the contract language itself, provides in substance that any breach, if established at an administrative hearing conducted pursuant to the statutory delegation of authority, may subject the obligor to a fine and to forfeiture of any and all monies received as payments during the life of the contract.
On September 11, 1984, roughly five weeks after the debtors filed the voluntary chapter 7 petition commencing this case, the administrative body charged with supervision of the instant contract held an official meeting, after notice to the debtors and to their attorney, for the purpose of inquiring into alleged violations of the contract. In broad terms, the purpose of the meeting by the Agricultural Stabilization Conservation Service County Committee (“County Committee”) was to enforce its regulatory power as a governmental unit. The County Committee issued administrative findings on September 13, 1984; the findings stated that the contract had been breached. Accordingly, the County Committee required the debtor to refund all compensation received under the contract. The County Committee also assessed a penalty fine.
The County Committee findings included a brief statement of the contract obligor’s appeal rights under 7 C.F.R., Part 780. Neither the trustee, who was present at the county committee meeting, nor the debtors took an administrative appeal from the County Committee determination.
On September 26, 1984 the trustee moved for a turnover of property, specifically, for the turnover of $10,922.40 of future payments scheduled under the con*85tract. The contract schedule provided for payment of such funds in two installments, one in January 1985 and one in April 1985. Also on September 26 the trustee filed for a removal of the County Committee proceeding to the Bankruptcy Court.
DISCUSSION
Bankruptcy Code (“Code”) section 362(b)(4) exempts from the automatic stay of Code section 362(a) “the commencement or continuation of an action or proceeding by a governmental unit to enforce such governmental unit’s police or regulatory power.” Under this section, the official meeting of the County Committee on September 11, and the issuance of its findings on September 13, as actions of a governmental unit enforcing its regulatory power, did not constitute a violation of the automatic stay.
The trustee objects that the debtors’ due process rights were violated at the County Committee meeting. However, the Bankruptcy Court is not a vehicle for horizontal appeal, and the debtors chose to file no appeal with the executive agency and to forego the opportunity for District Court review as provided by law. The trustee also protests that at the County Committee meeting the burden of proving compliance with the contract was put on the contract obligor. However, in haec verba the contract places the burden of proving compliance on the contract obligor. The trustee’s dispute with the contract provisions do not appear to be a denial of due process, and should a denial of due process have taken place, the debtors were positioned to act in timely fashion to preserve their appeal from the County Committee determination.
Boiled down, the trustee’s purpose in moving for removal is to gain, if possible, an opportunity to reargue before the court the subject matter of the Department of Agriculture administrative hearing. Although the executive agency has primary jurisdiction over the instant matter, there is jurisdiction in the court since the matter is related to the bankruptcy proceeding. There are however strong equitable grounds for the court to abstain. First, the cause has already been fully heard and determined by the administrative agency charged with responsibility to handle all matters pertaining to the Milk Diversion Program. Second, the resolution of the dispute between the debtors and the agency involves substantially the exercise of administrative discretion. Third, judicial self-restraint, i.e. abstention, is appropriate generally with respect to regulatory enforcement matters. See generally Western Union Tel. Co. v. Graphic Scanning Corp., 360 F.Supp. 593, 595 (S.D.N.Y.); Cavanagh Communities Corp. v. New York Stock Exchange, Inc., 422 F.Supp. 382, 385, 386 (S.D.N.Y.). The policy behind statutory removal to bankruptcy court gives the bankruptcy court broad discretion in the exercise of its jurisdiction. See, e.g., In re Tidwell, 4 B.R. 100, 6 B.C.D. 622, 623 (Bankr.N.D.Tex.1980). The court also has authority to decline to exercise its jurisdiction. Id. Thus the court has wide latitude to permit the instant matter to rest in its place of origin. See, In re Harlow, 12 B.R. 1, and 13 B.R. 475 (Bankr.D.Vt.1981) (motion for removal dismissed). With respect to the instant matter, the court considers it appropriate to refrain n from interceding where the debtors have been provided an opportunity to be heard.
Judgment to be entered accordingly. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489982/ | MEMORANDUM OPINION
CHARLES J. MARRO, Bankruptcy Judge.
On October 1, 1984 the debtor filed a voluntary chapter 11 petition. The instant matter is before the court on the motion of Beacon Milling Company, Inc. (“Beacon”) to allow enforcement of an irrevocable assignment and security agreement. The matter came on regularly for a hearing. From the records in the case the facts which follow were established.
FACTS
On December 14, 1983 Beacon and the debtors entered into a stipulation in settlement of litigation whereby Beacon was accorded a judgment against Charles Clark, individually, for a sum of $10,000. The same day, Charles Clark directed his milk receivers,
to pay to Beacon the sum of Three Hundred Dollars ($300.00) per month from monies due to Debtor from milk sold ... commencing in the month of January, 1984 and continuing for thirty-three (33) consecutive months thereafter until the total sum of Ten Thousand Dollars ($10,-000.00) has been paid to Beacon. Debtor agrees that this Milk Check Assignment is irrevocable and may not be cancelled by Debtor... Debtor hereby specifically and irrevocably directs said milk receivers to make said payments outlined above directly to Beacon...
On February 24, 1984 Chittenden Superior Court awarded judgment to Beacon “[bjased upon the pleadings and specifications set forth therein, and upon the Stipulation to Judgment entered into by the parties ...”
At the time of receiving judgment, Beacon had a perfected security interest in Clark’s “[fjarm products, specifically all milk produced by any and all cattle located on the farm of Charles Clark, Jr... Proceeds of Collateral are also covered,” as evidenced by a filed financing statement containing the foregoing description of the collateral under a preexisting security agreement covering the same collateral to secure the payment of $10,000.00, payable as follows: $300.00 per month commencing in the month of November, 1983 as evidenced by a certain Stipulation to Judgment and Judgment Order, issued by the Chittenden Superior Court of Vermont in a case entitled ‘The Beacon Milling Co., Inc. d/b/a Beacon Feeds, Inc. vs. Charles Clark’ Docket No. S408-83CnC.”
DISCUSSION
The issue is whether the assignment operates to place the assigned interest outside the bankruptcy estate.
It is axiomatic that property rights arise under state law. In Vermont, a valid assignment given for consideration constitutes a transfer from assignor to assignee of the subject matter of the assignment. Thus, as of bankruptcy day, Clark had no cognizable interest in the subject matter of the assignment. To the extent that the debtor had no interest in postpetition milk production proceeds under the terms of the assignment, such proceeds did not constitute property of the debtor as of the commencement of the case. The result is that the subject matter of the assignment is not property of the estate under Code section 541(a)(1). See Matter of Dias, 24 B.R. 542 (Bankr.D.Idaho 1982).
The court does not find apposite the case In re Hurricane Elkhorn Coal Corp. II, 19 B.R. 609 (Bankr.W.D.Ky.1982), for the reason that the instant assignment was not so much a financing arrangement as a method to collect upon a judgment. The Elkhorn case involved business financing arrangements, and did not involve a judgment.
Even were the subject matter of the instant assignment property of the estate under Code section 541(a)(6) (“[pjroceeds, produce, offspring, rents, or profits of or *90from property of the estate” are property of the estate), the subject matter of the assignment would be within Beacon’s reach in keeping with the security interest perfected pre-petition. In this regard, the Code provides:
[I]f the debtor and an entity entered into a security agreement before the commencement of the case and if the security interest created by such security agreement extends to property of the debtor acquired before the commencement of the case and to proceeds, product, offspring, rents, or profits of such property, then such security interest extends to such proceeds, product, offspring, rents, or profits acquired by the estate after the commencement case to the extent provided by the security agreement and by applicable non-bankruptcy law...
Code section 552(b). This section underscores that the court does not have freewheeling power to consider every conceivable equity pertaining to the matter before it. In the instant case, Beacon has moved to allow enforcement of its assignment and security interest, and the debtor has provided no showing that the equities of the case do not favor the granting of Beacon’s motion.
Judgment is entered accordingly. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489983/ | MEMORANDUM OPINION
CHARLES J. MARRO, Bankruptcy Judge.
This matter is before the Court on the Motion of the State of Vermont, Department of Taxes for Relief from Automatic Stay so that it may complete administrative proceedings pending before the Commissioner of Taxes of the State of Vermont to determine the liability of the Debtors for Vermont personal income tax for 1976, 1977 and 1978 and for land gains taxes due in 1974, 1976 and 1977. For some reason or other, this matter has been pending be*91fore the Commissioner of Taxes for at least three or four years without a determination.
On July 6, 1983, Merton N. Thayer and Verna S. Thayer filed a Petition for Relief under Chapter 7 of the Bankruptcy Code, and the State of Vermont is listed as a priority creditor with the amount shown as “unbilled.”
In addition to the Motion of the State of Vermont for Relief from Automatic Stay, it did on November 23, 1984 file a Motion in this Court to determine the validity and priority of its claim for taxes.
The parties have submitted memoranda of law in support of their respective claims and the following written Stipulation of the facts has been executed by the Debtors, the State of Vermont, and the Trustee, and they are adopted by this Court:
“1. On August 3, 1979, the Department assessed Vermont land gains tax in the amount of $10,206.09 plus interest in the amount of $3,641.57 and penalty in the amount of $2,551.53, for a total as of that date of $16,399.19, against the Debtors for tax due with respect to transactions occurring in the years 1974, 1976 and 1977. A true copy of the Department’s Notice of Assessment is attached to and made a part of this stipulation as Exhibit 1. The Debtors timely appealed the Department’s assessment of land gains tax to the Commissioner of Taxes.
“2. On April 15, 1981, the Department assessed Vermont personal income tax in the amount of $12,433.63 plus interest in the amount of $5,999.86, for a total as of that date of $18,433.49, against the Debtors for calendar years 1976, 1977 and 1978. A true copy of the Department’s Notice of Assessment is attached to and made a part of this stipulation as Exhibit 2. The Debtors timely appealed the Department’s assessment of personal income tax to the Commissioner of Taxes.
“3. Because the Department’s land gains and personal income tax assessments against the Debtors involve common questions of law and fact, the Commissioner consolidated the actions for a joint hearing. The Debtors’ attorney agreed to the consolidation by letter dated June 4, 1981, a true copy of which is attached to and made a part of this stipulation as Exhibit 3.
“4. No administrative hearing has been held on the Debtors’ appeals to the Commissioner and no determination of their appeals has been made by the Commissioner. The Department’s land gains tax assessment has remained under appeal continuously since August 3, 1979; its personal income tax assessment has remained under appeal continuously since April 15, 1981. A true copy of all correspondence between the Department and the Debtors’ attorney, Robert B. Chi-mileski, relevant to the scheduling of a hearing on the debtors’ appeals is attached to and made a part of this Stipulation as Exhibits 4-19.
“5. The Debtors filed a petition under Chapter 7 of the Bankruptcy Code on July 6, 1983.
“6. On July 28, 1983, the Department filed a proof of claim with this Court, stating that the Debtors were as of that date indebted to the Department in the sum of $36,713.77 for 1974, 1976 and 1977 land gains and 1976, 1977 and 1978 income taxes and interest. The Department listed the claim as an unsecured priority claim.
“7. The Debtors have described the Department’s land gains and personal income tax assessments as a disputed claim in the amount of $35,000.00.
“8. No offer in compromise was made by the Department of the Debtors within 240 days after the Department’s assessment of personal income tax.
“9. The Debtors’ Vermont personal income tax returns for calendar years 1976, 1977 and 1978 were each due more than .three years prior to the date the Debtors filed their petition for relief.
“10. The Debtors’ Vermont land gains tax returns for transactions occurring in 1974, 1976 and 1977 were each due more than three years prior to the *92date the Debtors filed their petition for relief.
“11. The Debtors filed Vermont personal income tax returns for the years 1976, 1977 and 1978 more than two years before the date they filed their petition for relief.
“12. The Department does not allege that any of the Debtors’ income or land gains tax returns were fraudulent.
“13. The Debtors have never filed a Vermont land gains tax return relating to the sale of land to Gallup on July 23, 1974. The Department assessed tax in the amount of $1,128.70, interest to the date of assessment of $669.32 and a penalty of $282.18 on this transfer. The Debtors filed Vermont land gains tax returns for every other transaction relevant to the Department’s assessment more than two years before they filed their petition for relief.”
DISCUSSION
The issue for determination by the Court is whether the taxes assessed by the State of Vermont against the Debtors are dis-chargeable. § 523(a)(1) excepts from the discharge certain types of taxes which are entitled to priority of payment under § 507(a)(7). The pertinent part of § 507(a)(7) upon which the State of Vermont relies for priority of payment reads as follows:
“(A) a tax on or measured by gross receipts—
... (iii) other than a tax of a kind specified in section 523(a)(1)(B) or 523(a)(1)(c) of this title, not assessed before, but assessable, under applicable law or by agreement, after, the commencement of the case;”
By its stipulation (11 2) the State of Vermont has conceded that all the taxes at issue were assessed more than two years prior to the filing of the Debtors’ petition.
The administrative sections of the Vermont Statutes with respect to deficiencies and assessments (32 V.S.A. §§ 5881 et seq.), cited by the State, repeatedly use the terms “notice of deficiency” and “assessment” interchangeably and synonymously.
The Court concludes that the notice of deficiency was an assessment under applicable law and that the claim of the State of Vermont for personal income taxes was assessed before the commencement of the case. Therefore, that claim is not entitled to priority by 11 U.S.C. § 507(a)(7)(A)(iii).
The State of Vermont concedes that its claim for land gains tax is not entitled to priority. In addition, the State is not entitled to priority for the reason that land gains tax does not come within the purview of the exceptions to discharge recited under § 523(a)(1)(A), (B), or (C). Since the personal income taxes for 1976, 1977 and 1978 and the land gains taxes due in 1974, 1976, and 1977 are not entitled to priority within the purview of § 506(a)(7), they are not excepted from the discharge.
In sum, they are dischargeable and a Judgment is this day being entered in accordance with this Memorandum Opinion. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489984/ | ORDER DENYING APPLICATION FOR PRELIMINARY INJUNCTION
DENNIS J. STEWART, Bankruptcy Judge.
This court formerly entered its judgment on December 21, 1984, granting the defend*164ant relief from the automatic stay with respect to certain motel property. 45 B.R. 229. In the exercise of the relief thus granted, the defendant proceeded to foreclosure of the property and the foreclosure sale was scheduled for February 15, 1985.
In the meantime, the debtor filed this action, seeking to enjoin the foreclosure sale thus scheduled, on the grounds that there were “changed circumstances” in that the debtor now had a purchaser who would promise to pay an amount over the space of 15 years as would completely pay off all existing creditors. Pursuant to that filing, this court earlier conducted an emergency, summary hearing on the debtor’s motion for a temporary restraining order to restrain the foreclosure until a hearing could be held’ on its application for preliminary injunction. It was determined from the evidence then adduced that the foreclosure should be temporarily restrained pending a hearing on the issue of whether a preliminary injunction should issue.
Now, on the date of February 26, 1985, the hearing on the issue of whether the preliminary injunction should issue has been completed. The matter has been taken under advisement in order to ensure full consideration by the court of all relevant factors. Because it is imperative, however, that a ruling be issued immediately, the court is constrained to set out only the most important and material factual findings and conclusions of law.
The hearing of February'26, 1985, was comprised, in the main, of the testimony of Ron Goldberg, the controlling insider of Ron Don, Inc., the corporation which proposes to take over the subject motel under the agreement which now purports to exist between it and the debtor. In the hearing on the motion for a temporary restraining order, it was represented to the court that Ron Don, Inc., had made an offer to purchase the motel for an amount, payable over a term of 15 years, which would result in payment of all creditors of the debtor, both secured and unsecured. In the hearing of February 26, 1985, however, it was testified by Mr. Goldberg that the contemplated arrangement was a lease by him of the motel property from the debtor for a period of two years with an option to purchase within that two year period for $1.8 million. The payments under the lease were to be $11,000 per month to the lessor debtor, $8500 of which would go toward retirement of the indebtedness to Wenhope Associates, Inc., and $2500 of which would go toward the retirement of other debts. Accordingly, it is proposed that $8500 per month be paid in cash and $2500 per month either in cash or in “recognized satisfaction of claims against the debtor,” a provision which, it is contended, will encourage Ron Don, Inc., to compromise by mutual agreement the claims of many creditors. It was shown to the court, otherwise, that Mr. Goldberg, working through Ron Don, Inc., has extensive experience in acquiring businesses such as the debtor’s and rescuing them from precipitous circumstances and turning their losses into profits. The evidence also demonstrates that Ron Don, Inc., is rather thinly capitalized and would not, without some infusion of capital, be likely to undertake any material improvements in the property. And Mr. Goldberg testified that it was his principal intention to “get the property in condition to sell to somebody else” and that he accordingly does not know whether he himself, working through Ron Don, Inc., will operate the motel business indefinitely. If payments continued to be made at the rate which is predicated by the proposed arrangement, they would be slightly higher than the monthly contract rate owed to Wenhope by virtue of the mortgage which it seeks to enforce. Thus, some gradual reduction of arrearages may be accomplished, but there is no plan for any prompt cure of the arrearages which are now owed. The property was purchased by the debtor from Wenhope in 1978 for a purchase price of $1.2 million. A down payment of $69,000 in cash was then made and a note in the sum of $1,131,000 issued bearing interest at the rate of 6% per annum. According to the testimony of Le Roy Roell, secretary of the debtor corporation, the debtor has since paid over $400,000 against the outstanding *165indebtedness and quit paying the monthly payments prior to the date of bankruptcy because they were continually being “harassed” by Wenhope concerning improvements which Wenhope desired that they make. After the debtor quit making the monthly payments, its officers arranged for a meeting with officers of Wenhope, hoping to resolve the differences which existed between them. But, according to Mr. Roell’s testimony, Wenhope then “seized” the motel property pending the hearing. Later, as has been recounted in orders earlier issued by this court in these chapter 11 reorganization proceedings, after the Honorable Frank P. Barker, Jr., issued his order of September 24, 1984, conditioning the automatic stay so as to grant the debtor an opportunity to obtain financing, the officers of Wenhope virtually destroyed any hope that the debtor had to obtain such financing by hiring the same attorney which had formerly been representing the debtor to register judgments against the debtor’s principals, Hebert and Roell, in Louisiana. Since that time, and prior thereto, for nearly the past year and a half, the debtor corporation has been seeking unsuccessfully to sell the motel property. This effort has been hampered, its officers claim, by the actions of Wenhope. But only general descriptions of such actions are contained in the evidence offered in connection with these proceedings, except with respect to the registration of judgments mentioned above.
As to the registration of those judgments, that complaint was made an essential feature of the debtor’s previous defense to Wenhope’s requesting unqualified relief from the automatic stay from the undersigned after the debtor failed to comply with the conditions imposed on the stay by Judge Barker’s order of September 24, 1984. At that time, this court denied the defense, stating that the judgments which were registered after September 24, 1984, were in existence prior to that date; that, therefore, the possibility of their being registered had to have been within the contemplation of the parties; that the order of Judge Barker entered on September 24, 1984, was absolute in its terms and purported to make no exception to the “immediate” relief which was to be granted in the event of any noncompliance with its conditions; that “Judge Barker’s order was issued in contemplation of the possibility that the debtor would fail to obtain financing because of an honest disclosure of its financial resources to potential lenders”; and that “all that the actions of the mov-ant, in registering its judgment against Hebert and Roell actually accomplished was the notification of the potential lenders of the true financial status of the principals of the debtor.” This court therefore believed itself to be bound by the absolute order of Judge Barker, which was unequivocal in its ruling to the effect that “(u)pon default of performance of any condition hereof requiring payment of funds to Movant, Mov-ant shall be entitled to immediate relief as prayed in its Motion.” And “where a judge ... or a judge assigned to a ... Court, while a case is on his calendar, renders a decision and makes a judicial order in such case, and thereafter the case is transferred to another judge of the same court, the latter judge should respect and not overrule such decision and order.” Stevenson v. Four Winds Travel, Inc., 462 F.2d 899, 904-905 (5th Cir.1972).
As observed above, pursuant to the above described order of the undersigned, which was entered on December 21, 1984, the defendant proceeded to schedule the foreclosure sale for February 15, 1985. The present action was filed on February 12, 1985, and the court entered its temporary restraining order on February 14, 1985. In so doing, the court noted that it considered, at the earlier stage in this action, the issue of irreparable injury to be the most crucial and that there was apparently an offer in existence which might result in the cure of the provisions of Judge Barker’s order of September 24, 1984. It was observed in the order of the court issued on February 14, 1985, that the offer which had been represented to have been made might be improved before the hearing on the issue of the preliminary *166injunction and that the evidence then before the court tended to show “the existence of a likely purchaser who would unequivocally promise to pay the amounts necessary to sustain a chapter 11 plan.”
Thus, if, in the hearing of February 26, 1985, it had been shown to the court that an arrangement was soon to be effective which would result in the prompt curing of all the monetary noncompliances with Judge Barker’s order of September 24, 1984, and which otherwise showed a reasonable likelihood of success in achieving confirmation of a chapter 11 plan, then relief from this court’s prior order unconditionally granting relief from the automatic stay might have been justified. As this court noted in its order of February 14, 1985:
“(T)he action at bar may well be viewed as one for relief from (this court’s prior order of December 21, 1984), because its operation and effect would no longer be equitable. Rule 60(b)(5) of the Federal Rules of Civil Procedure pertinently provides for relief from judgment when ‘it is no longer equitable that the judgment should have prospective application.’ The rule has previously been deemed applicable to ‘a ... lien ... which continues to keep property out of the chapter 11 estate.’ Matter of E.C. Bishop and Son, Inc., 32 B.R. 534, 536 (Bkrtcy.W.D.Mo.1983).”
But the evidence which is recounted above does not so show. Rather, it would substitute wholly different payment arrangements and deadlines than those which were imposed by Judge Barker on September 24, 1984, with the imperative that they either be timely met or relief from the automatic stay was to be “immediate.” If compliance with those conditions were now offered, plus compensation for the delay in payment beyond the deadlines which were fixed by Judge Barker, then equity might well demand that the court set aside its order of December 21, 1984, granting relief from the automatic stay. But the evidence unambiguously shows that there is no intention to cure any arrearages, including the arrearages existing by reason of the noncompliance with Judge Barker’s order of September 24, 1984. Judge Barker obviously considered the payment provisions of paramount importance, directing that they not be modified, but rather be only the subject of “immediate” relief for any noncompliance. Under the evidence which has' now been presented, this court continues to believe itself bound by Judge Barker’s order of September 24, 1984.
Separately and independently, this court could not find, on the basis of the evidence which is now before it that, even if Judge Barker’s order could now be modified, there is any reasonable likelihood that the debtor could successfully gain confirmation of the chapter 11 plan which will be based on the arrangement now evidenced. As previously noted, “(a) party seeking a restraining order (or injunction) must make a persuasive showing of ... likelihood of prevailing on the merits.” New Motor Vehicle Board v. Orrin W. Fox Co., 434 U.S. 1345, 1347, n. 2, 98 S.Ct. 359, 361, n. 2, 54 L.Ed.2d 439 (1977). Permanent injunction could be obtained only upon confirmation of a plan; and, in order to confirm a plan of reorganization under chapter 11, the reorganization court must find, inter alia, that:
“Confirmation of the plan is not likely to be followed by the liquidation, or the need for further financial reorganization, of the debtor or any successor to the debtor under the plan, unless such liquidation or reorganization is proposed in the plan.” Section 1129(a)(ll) of the Bankruptcy Code.
On the record of evidence now before the court, however, a court would not be justified in ruling it to be unlikely that liquidation or further reorganization will not be necessary after the two-year lease to Ron Don, Inc., is terminated. That matter is left wholly in the discretion of Mr. Goldberg, who would be granted the opportunity to abandon the project if further losses continue to be experienced in the motel operations. Mr. Goldberg, further, refuses to be pinned down on his intentions with respect to continuing further in the business. In fact, he states that it would be his *167present intention to get the property m condition to sell to another person. There is no likelihood in evidence, therefore, that reorganization under the putative plan now put forth by the debtor would not be followed by liquidation or further reorganization.
The court has been given pause in rendering its decision by the tremendous stakes involved and the potential for individual liability on the guarantees made by Mr. Hebert and Mr. Roell. But the unequivocal demands of Judge Barker’s order of September 24, 1984, will not permit this action to remain in a holding pattern for the indefinite future. And that is all the debtor now proposes — a two-year holding pattern until further decisions and developments can take place.
It is therefore, for the foregoing reasons,
ORDERED AND ADJUDGED that the debtor’s application for a preliminary injunction be, and it is hereby, denied. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489985/ | DECISION AND ORDER
CHARLES A. ANDERSON, Bankruptcy Judge.
This matter is before the Court on Plaintiff Thorp Credit, Inc.’s Objection to Avoidance of Lien filed on August 14, 1984, in response to debtor James E. McGuire’s proposed plan provision to avoid Thorp’s non-possessory, nonpurchase-money lien on McGuire’s household goods and furnishings pursuant to 11 U.S.C. § 522. Both named defendants, McGuire and the Chapter 13 Trustee, filed answers. The Court heard this matter on December 5, 1984. Briefs were submitted on December 19, 1984 and January 9, 1985.
FACTS
As the parties agree, the material facts herein are not in dispute.
McGuire voluntarily executed a security agreement on December 21, 1983, giving Thorp a security interest in his household goods in considerations for a loan. Thorp perfected the security interest by filing a financing statement on December 22, 1983, with the Miami County (Ohio) Recorder. (McGuire was and remains a resident of Miami County.)
McGuire filed a voluntary petition for relief under Chapter 13 on July 6, 1984. Thorp was scheduled as a creditor with a “voidable” debt of $1,645 and with a lien on debtor’s furniture. (Total debts listed amounted to $5,597.) In preprinted language, Schedule B-4 of the petition provid*184ed: “Any lien which may be avoided pursuant to 11 U.S.C. 522(f) shall be avoided for the benefit of the debtor(s). The debtor claims all exemptions allowed pursuant to the Federal and State exemption laws to which the debtor is entitled, whether specified and itemized herein or not.”
Thorp filed a proof of claim on August 9, 1984, for $1,991.75 and claims that the fair market value of the furniture on which it has a lien is $500.
DECISION
To support McGuire’s claim to avoid the instant lien, he and the Chapter 13 Trustee set forth several arguments, each of which will be dealt with in turn. However, as the Trustee and McGuire acknowledge, they are aware that several of these arguments have already been presented to and decided by this Court in In re Thompson, 44 B.R. 580 (Bankr.S.D.Ohio 1984).
Their first argument is that In re Spears, 12 B.C.D. 475, 744 F.2d 1225 (6th Cir.1984) is not controlling on the issue at bar, although Spears appears to be on all fours. They state that the linchpin of Spears is In re Pine, 10 B.C.D. 1467, 717 F.2d 281, B.L.R. (C.C.H.) ¶ 69, 357, 9 C.B. C.2d 573 (6th Cir.1983) cert. den. — U.S. -, 104 S.Ct. 1711, 80 L.Ed.2d 183, and that Pine which interprets Tennessee law has been distinguished from application to Ohio law by this Court in In re Lewis, 38 B.R. 113, 10 C.B.C.2d 437 (Bankr.S.D.Ohio 1984) and by other Ohio courts. See, In re Lunsford, 41 B.R. 822 (Bankr.N.D.Ohio 1984).
While this Court might otherwise follow its reasoning in Lewis, it notes that Lewis was decided before Spears, which specifically makes Pine applicable to Ohio debtors. As held in Thompson, in light of the clear dictate of the Sixth Circuit ruling in Spears, this Court is constrained to follow the subsequent decision in Spears.
The next argument presented concerns the validity of the opt out provisions of § 522(b)(1). It is urged that although “the defendants are aware that this Circuit and the 7th Circuit have upheld the validity of the opt out provision of § 522(b)(1), Rhodes v. Stewart, 705 F.2d 159, 10 B.C.D. 596 (6th Cir.1983); In re Sullivan, 680 F.2d 1131, 9 B.C.D. 140 (7th Cir.1982), ... submit that while Rhodes is controlling on this Court that it should not be controlling as to the ability of the various States to opt out of the lien avoidance provision of § 522(f).” They then argue that “Congress did not delegate to the states the authority to restrict the avoidance powers of debtors under § 522(f) and did not grant to the States the authority to preempt § 522(f) by the subterfuge of redefining the debtor’s ‘interest’ in property under § 522(b)(1) from a ‘legal interest’ to an ‘equitable interest’ above third party liens.”
By its own language, § 522(f) applies only to the avoidance “of a lien on an interest of the debtor in property to the extent that such lien impairs an exemption to which the debtor would have been entitled under subsection (b) of this section, ...” (Emphasis supplied.) Thus, the threshhold question before a debtor can avoid any lien pursuant to § 522(f) is what exemption is provided by the statutes. Congress specifically allowed in § 522(b)(1) the individual states to determine what exemptions their residents may be entitled to. This opt out provision in § 522(b)(1) was upheld in Rhodes and by other courts. A state can provide that its residents are entitled to no exemptions. However, Ohio has provided for certain nebulous exemptions, which are binding upon Ohio debtors even though more semantical than real. These Ohio exemptions have in turn been interpreted by the Sixth Circuit Court of Appeals, binding upon this Court, as was the situation in Spears. These case precedents afford no reason to differentiate between exemptions as they apply to § 522(b)(1) and § 522(f).
Defendants McGuire and the Trustee then argue that Debtor is entitled to claim the Federal exemptions because the General Assembly of Ohio allegedly violated the Ohio Constitution’s “one subject rule” when it extended the opt out period *185to January 1, 1986.1 Defendants in their brief state, “The Defendants are also aware of this Court’s decision in Thompson finding that this latest extension is valid.” Furthermore, in George W. Ledford, Chapter 13 Trustee v. Forrest A. Brown, 48 B.R. 19 (Bankr.S.D.Ohio 1984), this Court upheld the Trustee’s argument that Ohio debtors are required to claim the Ohio exemptions. This Court remains satisfied that there is now no basis presented to change these opinions.
Lastly, defendants argue that O.R.C. § 2829.661 conflicts with federal bankruptcy law and should thus be declared invalid. O.R.C. § 2329.661 reads:
[§ 2329.66.1] § 2329.661 Certain claims not exempted.
(A) Division (A)(1) of section 2329.66 of the Revised Code does not:
(1) Extend to a judgment rendered on a mortgage executed, or security interest given on real or personal property by a debtor or to a claim for less than four hundred dollars for manual work or labor;
(2) Impair the lien, by mortgage or otherwise, of the vendor for the purchase money of real or personal property that the debtor or a dependent of the debtor uses as a residence, the lien of a mechanic or other person, under a statute of this state, for materials furnished or labor performed in the erection of a dwelling house on real property, or a lien for the payment of taxes due on real property;
(3) Affect or invalidate any mortgage on any real property, or any lien created by such a mortgage.
(B) No promise, agreement, or contract shall be made or entered into that would waive the exemption laws of this state, and every promise, agreement, or contract insofar as it seeks to waive the exemption laws of this state is void.
(C) Section 2329.66 of the Revised Code does not affect or invalidate any sale, contract of sale, conditional sale, security interest, or pledge of any personal property, or any lien created thereby.
Specifically, defendants argue that “§ 2329.661(C) has the same operative effect as a contractual waiver of exemption provision in a security agreement.”
The Bankruptcy Code makes unenforceable any waiver of a debtor’s exemptions. 11 U.S.C. § 522(e) provides:
(e) A waiver of an exemption executed in favor of a creditor that holds an unsecured claim against the debtor is unenforceable in a case under this title with respect to such claim against property that the debtor may exempt under subsection (b) of this section. A waiver by the debtor of a power under subsection (f) or (h) of this section to avoid a transfer, under subsection (g) or (i) of this section to exempt property, or under subsection (i) of this section to recover property or to preserve a transfer, is unenforceable in a case under this title.
To support their claim that granting a security interest violates § 522(e), defendants cite In re Lawson, 12 B.C.D. 62, 42 B.R. 206 (Bankr.E.D.Ky.1984), interpreting Kentucky law.
The Ohio statute also specifically prohibits any waiver of allowable exemptions available to Ohio debtors. Case law from Ohio and other jurisdictions generally have concluded that enforcement of prospective waivers would frustrate the public policy underlying exemptions. (These cases mostly concern promises to assert exemption rights through a clause contained in the body of a promissory note or other instrument and contemplate future wages, etc.) See, e.g. Dennis v. Smith, 125 Ohio St. 120, 180 N.E. 638, 36 Ohio L.Rep. 228, 11 Ohio L.Abs. 510 (1932); Mayhugh v. Coon, 460 Pa. 128, 331 A.2d 452 (1975).
Nevertheless, the Ohio statute specifically enforces security interests in property which would have been exempt from third party levies of execution. See, also *186City Loan & Savings v. Keenan, 136 Ohio St. 125, 24 N.E.2d 452, 16 Ohio Op. 71 (1939). The debtor’s interest thereby never vests (in order to be waived). Most other states have similar statutes. See, Annot. 94 A.L.R.2d 974; 57 Notre Dame Lawyer 215, 222; 43 Ohio St.L.J. 335.
Thus, both the federal and the Ohio statute prohibit waivers of exemptions; but it must be emphasized that Ohio exemptions do not cover property to the extent it is encumbered by security interests. Furthermore, the statute prohibits only contractual, consensual waivers of exemptions. The waiver presently at issue (§ 2329.661) is a “statutory waiver,” as opposed to a contractual waiver. Since a state may allow no exemptions, it may by statute circumscribe semantical exemptions.
This Court does not consider the granting of a security interest in property to be a waiver of an exemption. To the extent of the encumbrance, no exemption exists.
. See, File 99, Amended Substitute Senate Bill No. 171 (eff. 6-13-84), as found in Page’s Ohio Rev.Code, 1984 Legislative Bulletin # 1, pp 28-34. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489986/ | MEMORANDUM OPINION
DAVID L. CRAWFORD, Bankruptcy Judge.
This matter involves a dispute between two unsecured creditors of Bird Engineering, Inc., the debtor corporation. The First National Bank and Trust Company of Fremont, Nebraska, is the unsecured holder of a $300,000 subordinated capital debenture issued by the debtor, which the bank took as security for a $300,000 loan to Fred Schweser, Jr., principal stockholder of the debtor corporation. Mr. Schweser in turn loaned the monies to the debtor in exchange for the $300,000 subordinated capital debenture. Tecumseh Products Company is an unsecured creditor of the debtor and one of the debtor’s major suppliers. The claim of Tecumseh Products is in excess of $350,000.
Tecumseh Products seeks, through a variety of theories, to subordinate the claim of the First National Bank to its claim or to the claims of all general unsecured creditors of the debtor.
The debtor was a manufacturer of reere-ational-type vehicles located in Fremont, Nebraska. Fred Schweser, Jr., was the sole stockholder of the company. Pursuant to a loan agreement dated May 1, 1978, the Omaha National Bank (ONB) was the primary financing agency for the debtor.
During a period of time from 1978 to 1980, Fred Schweser, Jr., was incapacitated and took no part in the business or its management. His father, Fred Schweser, Sr., had authority to act on behalf of his son in the operation of the company. During that period, a firm known as MCS, Management Consultant Services, worked with the company as management consultant and was instrumental in the operation of the company.
The business encountered financial problems, and in August of 1982, the Omaha National Bank declared the debtor’s line of credit to be a “problem” line.
Early in 1983, with the financial problems of the debtor continuing, the Omaha National Bank required that an additional $300,000 of working capital be injected into the company as a condition precedent to the Omaha National Bank’s continuing its financing of the company.
Fred Schweser, Jr., obtained that $300,000 additional working capital for the company by borrowing $300,000 from the First National Bank of Fremont on or about April 1, 1983, and in turn lending that $300,000 to the debtor in exchange for a $300,000 subordinated capital debenture. The debenture was then pledged to First National Bank of Fremont to secure his *195loan from the bank. Mr. Schweser executed a security agreement for pledge of collateral and a separate document conveying the subordinated debenture to the First National Bank of Fremont. He also delivered the original debenture to the bank as security. As further security for the loan, Mr. Schweser pledged his stock in the debt- or corporation and pledged stock in another corporation of which he was the sole stockholder.
The $300,000 borrowed by Mr. Schweser from First National of Fremont was then loaned to the debtor and the money was used by the debtor for operations and became part of its working capital.
The financial condition of Bird Engineering continued to deteriorate to the extent that in August of 1983, the Omaha National Bank discontinued its financing of the debtor and called its loans. ONB then arranged to sell substantially all of the physical assets of the company to Nebraska Engineering. That sale was done in the form of a voluntary repossession of the assets by Omaha National Bank from the debtor.
At the time of'the sale of the debtor’s assets, an agreement was reached between First National Bank of Fremont, Fred Schweser, Jr., the Omaha National Bank, and Nebraska Engineering whereby Schweser, the ONB, and Nebraska Engineering agreed to participate up to $50,000 each in any losses that might be suffered by the First National Bank after the assets of the debtor had been liquidated and distributed to creditors. These participation agreements were entered into on or about August 24, 1983, simultaneously with the sale of the assets of Bird Engineering to Nebraska Engineering. Fred Schweser, Jr., was released of any further liability to First National Bank of Fremont except for his agreement to participate in the First National Bank indebtedness up to $50,000.
Tecumseh Products Company, a major supplier of engines to the debtor, is the holder of an unsecured claim herein. The indebtedness of Bird Engineering to Tecumseh Products was secured by the personal guaranty of Fred Schweser, Jr., executed first in 1973 and again in 1974. As part of that guaranty, Mr. Schweser also agreed to subordinate any indebtedness owed him by the debtor to any debt which the debtor owed Tecumseh.
The debtor has been able to confirm a plan under Chapter 11 and this litigation exists because a fund of money has been created under that confirmed plan for distribution to creditors when their relative rights and priorities are determined.
At the outset, I conclude that First National of Fremont has a perfected security interest in the $300,000 subordinated capital debenture because it falls within the definition of an “Instrument” under Section 9-105 of the Nebraska Uniform Commercial Code. Section 9-305 of the Nebraska UCC specifies that perfection of a security interest in an instrument is accomplished by taking physical possession of it. That perfection would make First National of Fremont’s claim to the proceeds of the debenture superior to the rights of all other parties, at least to the extent that the Uniform Commercial Code controls.
Tecumseh Products, however, contends that the subordination agreements it received from Mr. Schweser in 1973 and 1974 subordinate Mr. Schweser’s claims to the claims of Tecumseh Products. Since those claims are now in the hands of First National of Fremont by virtue of the debenture, Tecumseh Products contends First National’s claim is to be subordinated to the claim of Tecumseh Products. (It should be noted that the capital debenture which First National of Fremont holds is subordinated only to the claims of Omaha National Bank and not to general unsecured claims against the debtor.) Stated differently, Tecumseh Products argues simply that because Mr. Schweser’s claims against the corporation were subordinated to the claim of Tecumseh Products, when Mr. Schweser assigned his debenture to First National of Fremont, the Bank took subject to the subordination agreement held by Tecumseh Products.
*196First National of Fremont claims that it was without notice, and there is no evidence to suggest that First National of Fremont knew, of the 1973 or 1974 subordination agreements held by Tecumseh Products. Therefore, the Bank asserts that the subordination agreement is ineffective as against it, arguing that Tecumseh Products should have complied with the Uniform Commercial Code’s filing requirements if it were to give constructive notice to First National of its claim under the subordination agreement.
Tecumseh counters that subordination agreements are not covered by the Uniform Commercial Code and points to an optional provision, Optional Section 1-209 of the Uniform Commercial Code and the Comments following. The Comments appear to say that there is no intention to make subordination agreements subject to the provisions of Article 9 of the UCC.
I would conclude generally that subordination agreements need not be perfected under the Uniform Commercial Code to be effective. However, in the limited case where a creditor holding a subordination agreement seeks to enforce it against a secured party’s perfected interest in an “instrument”, it would seem that the party with the subordination agreement will have to have complied with the Uniform Commercial Code or will find that its rights are those of an unperfected security interest holder subordinated to the perfected security holder’s claim. Thus, Tecumseh Products’s subordination agreement is not superior to the claim of First National of Fremont with its perfected security interest in the debenture.
Alternatively, Tecumseh Products contends that although the debenture is called a “Capital Debenture” it should in fact be found to be an equity infusion and not debt. Here Tecumseh Products points to a number of cases dealing with the right of individuals who have loaned money to failing corporations and who have later sought to classify those loans as bad debt deductions against contentions by the Government that they were infusions of capital in fact if not in word. [See, for example, J.S. Biritz Construction Co. v. Commissioner, 387 F.2d 451 (8th Cir.1967); In Re Uneco, Inc., 532 F.2d 1204 (8th Cir.1976).] Those cases set forth a number of criteria which are objective standards for determining whether a loan made to a thinly capitalized corporation is to be treated as a loan or an infusion of equity when determining whether a bad debt deduction should be allowed. Whatever the outcome in that arena, the test should be otherwise when we deal, as here, with a bank’s taking a security interest in a corporate debenture in exchange for a loan made directly to the president of the corporation, and where as here, there is no evidence of improper manipulation by the bank or actual knowledge of the under-capitalized nature of the corporation which spawned the debenture. In the instant case, there is no evidence that First National of Fremont had any knowledge of the capital structure of the debtor corporation. Thus, I conclude that the rationale of the tax-related cases should not be superimposed on this case. At issue is a reasonably straight-forward commercial transaction of a commercial lender lending upon the strength of a corporate debenture without knowledge of the capital structure of the corporation. Accordingly, I decline to characterize the debenture as equity which would relegate First National to payment with other stockholders of the corporation.
For its final theory, Tecumseh Products asserts that the claim of First National of Fremont should be equitably subordinated under 11 U.S.C. Section 510(c) of the Bankruptcy Code. That statutory provision authorizes subordination under the label of “equitable subordination” without providing any guidelines for its application, to-wit:
... after notice and a hearing, the court may—
(1) under principles of equitable subordination, subordinate for purposes of distribution all or part of an allowed claim to all or part of another allowed claim or *197all or part of an allowed interest to all or part of another allowed interest; or
(2) order that any lien securing such a subordinated claim be transferred to the estate. 11 U.S.C. 510(c)
Some help in applying the statutory provision ii\ question is supplied by a recent article,'DeNatale & Abram “The Doctrine of Equitable Subordination as Applied to Non-management Creditors,” 40 Bus.Law. No. 2, 417 (Feb. 1985).
In order to employ the doctrine of equitable subordination, certain requirements must be met. Fraud or other inequitable conduct must have occurred which produced actual harm to other creditors or resulted in an unfair advantage in the bankruptcy distribution results. Additionally, subordination of the claim or interest must not be contrary to the principles of the bankruptcy laws. [See DeNatale & Abram, Id.; In re Multiponics, 622 F.2d 709 (5th Cir.1980)].
Where fraud or misrepresentation affects part or the entire bankruptcy estate, where there is such domination and control by a creditor that a duty arises toward other creditors, or where there is other inequitable conduct, the doctrine of equitable subordination has been applied. See e.g., In re Mobile Steel Co., 563 F.2d 692 (5th Cir.1977); In re T.E. Mercer Trucking Co., 16 B.R. 176 (N.D.Tex.1981); In re Sepco, Inc., 36 B.R. 279 (D.S.Dak.1984); In re Monex Corp., 32 B.R. 82 (S.D.Fla.1983): [Conduct did not justify reordering priorities for distribution.]. Further, where equitable subordination is applied, “... it can ... ordinarily go no farther than to level off actual inequitable disparities on the bankruptcy terrain for which a creditor is responsible, to the point where they [sic] will not create unjust advantages in claim positions and liquidation results ... [its application must be] fitted to the actual injury that has been done or the unjust enrichment that is involved.” In re Kansas City Journal-Post Co., 144 F.2d 791, 801 (8th Cir.1944).
Equitable subordination is unwarranted in this case. It is important to note that I deal with the claim of First National of Fremont. There is no evidence before me to indicate that First National of Fremont dealt with this debtor corporation in any way except in an arm’s-length transaction. It had no history of involvement with the debtor and in fact had not actively sought one. First National of Fremont had no knowledge of the capital structure of the debtor and relied when making the $300,000 loan to Mr. Sehweser upon Omaha National Bank’s continued financing of the business. It seems to me that all that First National of Fremont did which can be said to be irritating to other unsecured creditors is to find itself in the fortuitous position of having an indebtedness due from Mr. Sehweser from which he wanted release at a time when Omaha National Bank sought Schweser’s voluntary relinquishment of possession of the assets of the corporation. At the time when the sale of the physical assets of the corporation was desirable in Omaha National Bank’s opinion, Mr. Sehweser held a key position. His consent to voluntary repossession by Omaha National Bank was essential. From that bargaining position, Mr. Sehweser required that his indebtedness to First National be modified as the price of his voluntarily relinquishing possession of the assets. At this point, Omaha National Bank and Nebraska Engineering agreed to buy participation agreements in the $300,000 indebtedness up to a maximum of $50,000 each, Mr. Sehweser agreeing also to participate to the extent of $50,000. Each needed the other. First National of Fremont simply benefited from the dynamics of the situation. That is not the type of conduct contemplated in the cases authorizing equitable subordination, and I decline to do so here.
In general, my finding is in favor of First National of Fremont and against Tecumseh Products. A separate order is entered in accordance with the foregoing. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489987/ | MEMORANDUM OPINION AND ORDER
RICHARD L. SPEER, Bankruptcy Judge.
This cause comes before the Court upon the Motions for Summary Judgment filed by each of the parties to this adversary action. The parties have argued the merits of their respective Motions and have had the opportunity to respond to the arguments made by opposing counsel. In support of the Defendant’s Motion, the Securities Investor Protection Corporation (hereinafter SIPC) has also offered its arguments. The Court has reviewed these arguments as well as the entire record in this case. Based upon that review and for the following reasons, the Court finds that the Plaintiff’s Motion for Summary Judgment should be GRANTED.
FACTS
The parties have filed a stipulated set of facts which they have agreed may be used by the Court in reaching a decision in this matter. On February 4,1983, the Plaintiff, a customer of the Debtor-brokerage, ordered the brokerage to sell from his account 3500 shares of Toledo Trustcorp stock. Later that same day, the Plaintiff received confirmation from the Debtor that buyers for the stock had been found. The purchasers were other stock brokers, including the Debtor, who were buying the securities in various quantities for their own inventories. None of the buyers was acting on behalf of any customer.
On February 5, 1983, a Petition was filed with the United States District Court for the Northern District of Ohio, Western Division, wherein the SIPC sought an order declaring the customers of the Debtor in need of protection under the provisions of 15 U.S.C. § 78aaa et seq. That Court issued such an order on February 10, 1983. As a result of that judgment entry, the sale which had been pending on February 4, 1984, was never consummated. The Trustee did, however, credit the Plaintiff’s account with cash in an amount equal to that which would have been received had the contract been completed. The Trustee, having cancelled the sale to the prospective purchasers, retained possession of the stock certificates which were, at the time of filing, registered in a “street name” and in the Debtor’s hands.
During the period which followed the Order for Relief, the Plaintiff requested the Trustee to return to him the shares of Toledo Trustcorp stock in lieu of receiving any advances by SIPC and any distribution of estate proceeds. This request was denied. Nevertheless, the Plaintiff has received sufficient SIPC and estate distributions so as to satisfy his claim against the Debtor, had it been made solely for the cash that would have been in his account. However, the Plaintiff believing that he is entitled to a return of the actual stock certificates, filed this adversary proceeding.
LAW
Thé sole issue presently before this Court, and the sole issue to be discussed in this Opinion, is whether or not the Trustee had authority to “complete” a sale of securities ordered prior to the filing date but not yet fully performed when the Debtor was Ordered into liquidation. This issue calls into question the provisions of 15 *530U.S.C. § 78fff-2(e) which state in pertinent part:
“(e) Closeouts.—
(1) In general — Any contract of the debtor for the purchase or sale of securities in the ordinary course of its business with other brokers or dealers which is wholly executory on the filing date shall not be completed by the trustee, except to the extent permitted by SIPC rule.”
Under this provision, the Trustee may not complete contracts with other brokers which, at the time of filing, are wholly executory in nature. Such contracts may, however, be completed if SIPC has adopted alternative regulations allowing those sales to be performed. The provisions of this section are a modification of the prior statute which allowed the closeout of uncompleted contracts if a customer of any brokerage had an interest in the transaction. See, 15 U.S.C. § 78fff(d)(6) (1970) (amended 1978).
The SIPC has adopted alternative regulations. SIPC Series 300 Rules (Rules Regarding Closeout or Completion of Open Contractual Commitments) Rule 301 states in pertinent part:
“An open contractual commitment shall be closed out or completed if:
(a) The open contractual commitment:
(1) Arises from a transaction in which a customer ... of the other broker or dealer had an interest.”
Pursuant to this rule, the Trustee may complete only those sales in which there exists a customer of the non-debtor broker that has an interest in the transaction. For purposes of Rule 301, Rule 300(c) defines an “Open contractual commitment” as:
“(c) The term “open contractual commitment” shall mean a failed to receive or a failed to deliver which had a settlement date prior to the filing date and the respective obligations of the parties remained outstanding on the filing date or had a settlement date which occurs on or within five business days subsequent to the filing date: Provided however, that the term “open contractual commitment” shall not include any contractual commitment for which the security which is the subject of the trade had not been issued by the issuer as of the trade date.” (Emphasis theirs)
“Failed to deliver” is defined by Rule 300(b), which reads:
“(b) The term “failed to deliver” shall mean a contractual commitment of the debtor, made in the ordinary course of business, to deliver securities to another broker or dealer against receipt from such broker or dealer of the contract price in cash, provided that the respective obligations of the parties remained outstanding until the close of business on the filing date.”
The term “open contractual commitment” originally appeared in the previous closeout statute, 15 U.S.C. § 78fff(d)(6)(d), and appears to address the same uncompleted transactions as are addressed by the term “executory contracts” in 15 U.S.C. § 78fff-2(e).
A review of 15 U.S.C. § 78fff-2(e) and Rule 301 finds that their intent is to protect customers of other brokers from incurring financial hardship as the result of the demise of another broker. As indicated in Securities & Exch. Com’m. v. Aberdeen Securities Co., Inc., 480 F.2d 1121 (3rd Cir.1973), the closeout provisions were intended to limit the possible “domino effect” that could result from the failure of one brokerage. By allowing the completion of open contractual commitments, customers would be able to receive that which had been contracted for prior to the filing of the petition, thereby avoiding a chain reaction among other brokers. However, the statute relied upon by that Court allowed the completion of contracts in which the customer of any brokerage had an interest. See, Securities & Exch. Com’m. v. Aberdeen Securities Co., Inc., supra, at 1125. Subsequent to that decision, however, the statute has been modified so as to preclude the completion of executory commitments, except as provided by SIPC rule. The regulations adopted by SIPC only provide for the completion of contracts in which a customer of the non-debtor broker has an in*531terest. Apparently, the purpose of this rule is to preserve the protection afforded to the non-debtor’s customer while at the same time allowing the estate’s assets and the relationships of creditors to become fixed as of the moment the petition is filed. This purpose would be consistent with the provisions of the Bankruptcy Code which fix a debtor’s assets and the rights of creditors as of the filing of the petition. See, 11 U.S.C. §§ 362, 541.
Having established the intent behind the operation of the closeout provisions, it must next be determined whether or not they are applicable in this case. It is well settled that an executory contract, for purposes of bankruptcy, is an agreement under which the obligations of both parties are so far unperformed that the failure of either to complete performance would constitute a material breach of the contract. 2522 South Reynolds Corp. v. Russell (In re 2522 South Reynolds Corp.), 33 B.R. 616 (Bkcy.N.D.Ohio 1983). In the present ease, the parties have agreed that the shares were never transferred to the purchasers nor was payment from the purchasers ever received.
Although the Plaintiff’s account has been credited with cash in the same amount as would have been generated by the sale, this money was advanced by the Debtor’s estate on behalf of the would-be purchasers. The purchasers never received the certificates subsequent to the filing of the petition.
Under the present circumstances, it must be concluded that at the time of filing the contract in question was an executory contract and an open contractual commitment within the meaning of 15 U.S.C. § 78fff-2(e) and Rule 301. The contract contemplated the sale of securities and was entered into during the ordinary course of the Debtor’s business. At the time the petition was filed, there remained to be performed on the contract, as between the Plaintiff-seller and the broker-purchasers, substantial performance, specifically, transfer of the certificates and payment therefore. In the absence of liquidation proceedings, the unilateral failure of either party to perform these duties would constitute a material breach of the agreement. Since, at the time of filing, the contract was substantially unperformed, it must be held to be an executory contract within the scope of 15 U.S.C. § 78fff-2(e). Furthermore, inasmuch as Rule 301 only allows the Trustee to complete those executory contracts in which a customer of the non-debt- or broker has an interest, and the purchasing parties were brokers acting on their own behalf and not on behalf of any customer, it must also be concluded that the Trustee should not have “completed” the sales.
In so holding, the Court notes that the intent of 15 U.S.C. § 78fff-2(e) and Rule 301 has been accomplished. The assets of the estate and the rights of the creditors became fixed at the time the Petition was filed, thereby avoiding further complication of the Debtor’s affairs. When the petition was filed, the certificates became part of the Debtor’s estate and the Plaintiff became a creditor of the Debtor for whatever claim may be allowed by law.
The Trustee has argued that the provisions of 15 U.S.C. § 78fff-2(e) and Rule 301 do not apply to the present circumstances. He argues that as of the date of filing there was no contract which required any further performance for its completion. This argument is based on the assertion that at the time the Plaintiff ordered the securities sold, the order for sale and the subsequent verification initiated a chain of intradependant transactions employed by the securities industry for the buying and selling of certificates. As argued by the Trustee, when the Plaintiff agreed to sell the certificates they were sold to the Debt- or who, in turn, sold them to the respective purchasers. If these purchasers had been brokers acting on behalf of their own customers, they would have, in turn, sold the certificates to them.
This system of transfer, if reflective of the underlying intent behind the transactions, would remove the exchange *532between the Plaintiff and the Debtor from the limitations of 15 U.S.C. § 78fff-2(e), and Rule 301, inasmuch as it was not a contract between the Debtor and another broker. However, the Court cannot, despite the practices of the securities industry, view the sale as a multi-faceted transaction. The underlying nature of the customer-broker relationship is that of principal-agent. rather than as independently contracting parties. When a broker undertakes to sell a customer’s securities, it is both the understanding and intent of the parties that it is the customer’s securities which are to be sold, and that the customer will receive the proceeds of any such sale. Although the methods employed in effectuating the actual transfer of certificates may be more involved than those found in a simple buyer-seller relationship, this fact alone does not alter the fundamental relationship between the parties. Similarly, it does not affect the protective results intended by the closeout provisions. Therefore, it must be concluded the position argued by the Trustee is without merit.
The argument could be raised that as to those securities purchased by the Debtor, the sale would not be subject to the restrictions of 15 U.S.C. § 78fff-2(e) and Rule 301 by virtue of the fact that it is not a sale between the Debtor (on behalf of a customer) and another broker. Such a contract could be viewed as being between independently contracting parties and therefore, would not necessarily be precluded from closeout. Although this argument may, at first glance, appear to have some merit, further consideration finds that it is subject to the same considerations given to the contracts with other brokers.
As previously indicated, the amendment to the closeout provision and the rules pertaining thereto are intended to preserve a debtor’s estate as of the date of filing. The closeout exception allows closeouts only to the extent necessary to protect the customers of non-debtor brokers. The fact that the language of these statutes does not specifically address a sale between a debtor and a customer does not prevent the Court from applying the policies espoused in those statutes to the present situation. These policies dictate that the rights of creditors and the assets of the estate are to be fixed as of the time of the petition. The assets are then to be distributed to all creditors according to applicable liquidation procedures. If a pre-petition sale to the debtor were allowed to be completed, it is possible that the seller would receive a greater percentage of his claim than would customers not having had the fortune to sell securities to the Debtor immediately prior to the petition. The equitable nature of the Bankruptcy Code and the closeout provisions of 15 U.S.C. § 78fff-2(e) cannot support such a result. Therefore, it must be held that any crediting of the Plaintiff’s account as a result and in contemplation of the sale of securities to the Debtor was also improper.
Accordingly, for the foregoing reasons, it must be concluded that the Trustee was not authorized to closeout the sale of the Plaintiff’s securities. It appearing that this question is dispositive of this case, it must also be concluded that there are no genuine issues of material fact that remain in this case, and that the Plaintiff is entitled to judgment as a matter of law.
In reaching these conclusions, the Court has considered all the evidence and arguments of counsel, regardless of whether or not they are specifically referred to in this Opinion.
It is ORDERED that the Plaintiff’s Motion of Summary Judgment be, and is hereby, GRANTED to the extent that it decides the issues presently before the Court.
It is FURTHER ORDERED that any further adjudication of the Plaintiff’s claim, as established in this Opinion, will be filed in the primary case file. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489988/ | MEMORANDUM DECISION
THOMAS C. BRITTON, Bankruptcy Judge.
The plaintiff/creditor in this chapter 7 case seeks a determination that the defendant bank’s asserted pre-petition attachment lien against a fund of about $65,000 is not a valid lien and, therefore, the bank is an unsecured creditor and this fund should be turned over to the trustee for ratable distribution to all unsecured creditors. The bank has answered (C.P. No. 5) and the matter was tried on February 14.
The writ of attachment was issued on January 8, 1981 by the State court against the second mortgage interest of the debtor corporation in certain real property in Dade County. The following day, the State court entered an Order modifying the writ of attachment in order that a closing between third parties and the debtor corporation scheduled for that day not be frustrated. That Order released the attached mortgage proceeds for partial distribution to other interested parties and provided that:
“The balance of the fund ... shall be retained in the trust account of Pertnoy and Greenberg and not disbursed to any person until further order of this Court.”
The writ of attachment was never levied upon the mortgage, that is to say it was never served upon the mortgagor. Instead, the writ of attachment was served upon the escrow agents after the mortgage proceeds had been paid in cash to the escrow agents.
*591It is the plaintiff’s argument that because a writ of attachment does not lie against money, but only against “the goods and chattels, lands and tenements of a debtor”, the writ of attachment was never perfected and, therefore, never became a lien before the date of bankruptcy, at which moment the trustee acquired title to the escrowed funds under the bankruptcy “strong arm” clause. 11 U.S.C. § 544(a). It is not disputed that under Florida law a writ of attachment does not become effective until the levy of the writ. Fla.Stat. § 76.14 (1983); 13 Fla.Jur.2A, Creditors’ Rights § 115. It is also conceded that the appropriate writ against money is a writ of garnishment rather than a writ of attachment. Fine v. Fine, 400 So.2d 1254, 1255 (Fla. 5th Dist.Ct.App.1981). Therefore, the plaintiff argues, the writ of attachment was totally ineffective to perfect any pre-petition lien against the money in question which is valid as against the bankruptcy trustee.
I disagree. Plaintiff’s argument disregards the effect of the State court order modifying the writ of attachment. Although that Order does not expressly or explicitly say so, the actual and only effect of that Order was to amend the writ of attachment to a writ of garnishment effective against the cash proceeds of the mortgage. The intent of the State court and the parties cannot be interpreted otherwise. Furthermore, by that Order the State court recognized the effectiveness of the attachment/garnishment in favor of the bank by expressly retaining control over the funds in question here.
On November 8, 1984, upon the bank’s motion in this court under § 362(d), the bankruptcy stay was modified to permit the bank to proceed in the State court to obtain a judgment and an order directing release of the funds in question. The bank has done so, and on January 4, 1985, it obtained an Order Releasing Attached Funds from the State court. In the Order granting relief from the bankruptcy stay, it was explicitly stipulated that the trustee or any other party in interest could file an action in the bankruptcy case contesting the validity of the bank’s attachment lien and its right to the funds as directed by the State court. That provision was proposed by stipulation between the parties and was approved by this court. The present action constitutes an exercise of the reserved jurisdiction.
However, as has already been noted, I am satisfied that the bank’s pre-judgment writ of attachment issued by the State court was modified by the State court on the next day into a writ of garnishment which was immediately served upon the escrow holders, thus perfecting for the bank a secured position with respect to those funds. The State court has since upheld the bank’s claim and its entitlement to those funds.
As is required by B.R. 9021(a), a separate judgment will be entered determining that the defendant, Great American Bank of Dade County, is entitled to the funds in question here and the State court’s Order Releasing Attached Funds entered January 4, 1985 may be enforced. Costs may be taxed on motion. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489989/ | DECISION
ELLIS W. KERR, Bankruptcy Judge.
Because of the numerous pleadings filed in this case and the great number of hearings this Court considers it best to start this Decision with a resume of the pleadings filed and a resume of the various hearings.
PLEADINGS
This Adversary Proceeding was instituted by the filing by Attorney Coen on behalf of the Plaintiff, what is designated “Complaint To Turn Over Assets; For Attorney Fees And Money Judgment” alleging Plaintiff entered into an oral lease with Defendant for certain equipment to be used by Defendant in the operation of a foundry in London, Kentucky which, at that time, was contemplated would do foundry castings for the Plaintiff on a wholesale basis. The equipment is listed in part on an exhibit attached as that designated as Exhibit,A. The complaint also alleges that Plaintiff left with the Defendant certain patterns to be used for the production of certain castings which were patterns from the customers of the Plaintiff and were entrusted to the Plaintiff by the customers; that the patterns are not the subject of any lease and are merely in the possession of the Defendant by reason of the fact that Plaintiff entrusted the patterns to the Defendant for the purpose of making the castings. Plaintiff alleges that demand has been made for the return of the equipment and the patterns, but the Defendant failed and/or refused to turn over the equipment and the patterns; that it is essential that the equipment and patterns be returned without delay to the Plaintiff in order that they may produce or have produced castings for customers who have placed orders with the Plaintiff; that time is of the es-*684senee in that certain production dates have been made a part of the purchase orders and it is essential that the orders be filled without delay or both the customers and the Plaintiff would be damaged and suffer irreparable harm.
The complaint also alleges that the Plaintiff incurred obligations for attorney fees and long distance telephone charges in various attempts to retrieve the equipment and patterns and that Plaintiff should be entitled to judgment for the reasonable value of the attorney fees incurred; that Defendant is obligated in the amount of $210.00 per month until June 1, 1983 and $630.00 per month thereafter until the date the equipment is returned, for lease rentals unpaid by the Defendant.
The prayer of the complaint is for the Court to order the Defendant to forthwith turn over to the Plaintiff all of the equipment and patterns in good condition; for a determination of the rental obligation and judgment for said amount; for reasonable attorney fees and for equitable relief.
On August 22, 1983 Defendant filed Motion to Vacate “Order.” The Motion-sought to terminate an Order which had been filed August 17, 1983 requiring Defendant to turn over motor vehicles and equipment. Defendant contends that the Order was prematurely entered prior to answer time after having been incorrectly assigned for a Preliminary Hearing. As will be later shown the Order about which the complaint had been made had not even been docketed at the time of the docketing of the Defendant’s Motion to Vacate the Order.
On September 6, 1983 Attorney Slavens for the Defendant filed what is designated “Answer, Counterclaim and Third Party Complaint.” Included in the allegations was the complaint that the Plaintiff had failed to join all parties necessary; that the complaint failed to state a cause of action upon which relief could be granted and that the items in question had been sold to Defendant for good and valuable consideration. Counterclaims included the following; That Defendant had provided certain work, goods, materials and services worth $4,051.86 to the Plaintiff which owed the Defendant that amount. As a second cause of action and third party complaint it is alleged that in September 1982 Plaintiff and a third party Defendant, Jack Somers, sold to Incorporators of the Defendant a Linberg Induction Melting Furnace with Pillar Electronic Control Cabinet, Sand Mullers, Core Mixers, Squeezers, Screen Erator for Muller, ladle head crane, air grinders, rammers, hand ladles and miscellaneous tools in consideration of $40,000.00, promises and agreements; that of the $40,-000.00, $10,000.00 had been paid to Jack Somers September 3, 1982 and the balance was paid January, 1983; that as a part of the sale transaction Plaintiff and Somers promised and agreed to pay Defendant and its Incorporators one-half of all operating expenses and costs incurred in moving, establishing, incorporating, operating, and insuring the new furnace until the outstanding obligation on the furnace due the First National Bank, Dayton, Ohio was paid; that Defendant and its incorporators performed their terms of the agreement and incurred expenses of $28,936.00; that Defendant had ratified all of the acts of its incorporators and in incurring the above mentioned operating expenses relied upon the representations of the Plaintiff and third party Defendant, Jack Somers and that Plaintiff and Somers owe Defendant on its counterclaim, second cause of action, the sum of $14,468.00. Defendant prayed that the complaint be dismissed in its entirety or in the alternative, if Defendant be required to turn over any assets to the Plaintiff that the interest of the Defendant be adequately protected. Defendant asked for judgment against Plaintiff in the amount of $4,081.86 plus interest and costs and for judgment on the Counterclaim, Second Cause of Action and its Third Party Complaint against Plaintiff and Somers in the sum of $14,468.00 plus interest and cost.
On October 4, 1983, Plaintiff filed a Motion to Dismiss the Answer and counter*685claim for the reason that it was filed without authority of the Defendant.
On October the 18th, Defendant filed a response and Objection to the Motion to Dismiss the Answer and counterclaim alleging that the major stockholder and President of the Defendant was unaware that a suit was pending against the corporation at the time he spoke with the attorney for the Plaintiff and that the actions on behalf of the Defendant had been ratified by the officers and directors of the Defendant. In support the Defendant filed an affidavit of one Delford McKnight which states that McKnight owns 51% of the stock of the Defendant; that he is President of the Defendant corporation and is a member of the Board of Directors and that one James Jones owns 49% of the stock. The affidavit states that the Board of Directors of the Defendant ratified all of the acts and pleadings taken on behalf of the Corporation by James Jones and Attorney Slavens and that the Defendant does have defenses to the action brought by the Plaintiff and has claims to assert against the Plaintiff.
On November 23,1983 Attorney Coen, on behalf of the Plaintiff and Third Party Defendant Somers filed a pleading which denies paragraphs five and six of what Defendant designated the first cause of action of a counterclaim; denies paragraphs 7 thru 13 of the Defendant’s counterclaim denominated second cause of action and third party complaint; alleges that the counterclaim fails to state a cause of action and that the counterclaim is barred by the applicable provisions of the uniform commercial code of Ohio relating to documents required to be in writing.
On December 5, 1983 Defendant filed what is designated Motion to Compel Answer or to Order Sanction. It seeks an Order requiring Plaintiff to provide the Defendant with answers to questions proposed during a deposition. In the alternative the request is made for an Order barring the Plaintiff’s defense of “rejection.” The memo attached to the Motion refers to a deposition in which Defendant sought information; that some of the information requested concerned companies who allegedly rejected goods delivered and that refusal to disclose the information is based on a false claim trade secret.
HEARINGS SET
9:45 AM., August 11, 1983 Preliminary Hearing by Order dated July 28, 1983. Present were Coen, Attorney for the Plaintiff, Mr. Somers, President of Plaintiff and Mrs. Somers. It was agreed an Order would be submitted. An Agreed Order was submitted and approved September 12, 1983. It provided for release by the Defendant to the Plaintiff, of two Ford Stake and Pick-up trucks, certain patterns and other items.
1:30 P.M., October 13, 1983 A pre-trial on Motion by Defendant to vacate a Default Order which had been submitted, but which had not been docketed prior to the Motion to vacate which had been docketed. Only Attorney Slavens appeared for Defendant. The matter was continued to be heard October 19th which had been set for trial, but this trial date was cancelled — a new trial date to be set.
1:30 P.M., October 19, 1983 Hearing on Motion to which reference was made in preceding paragraph. Present were attorneys for each party and Somers of the Plaintiff. Motion overruled and pending matters were continued to 9:30 A.M., November 10th for trial or pretrial.
9:30 A.M., November 10, 1983 There was another Pre-Trial Hearing at which time trial date was set for 9:30 A.M., January 16, 1984.
January 16, 1984 The entire day was devoted to trial, but the attorney had underestimated the time which would be required. Not being able to conclude the trial it was continued to 9:30 A.M., March 19,1984. Again more time was required so the trial was again continued to 9:30 A.M., August 2, 1984 on which date it was concluded.
* * * * * *
*686On August 16, 1984 there was filed “Plaintiffs Post-Trial Brief.”
August 80, 1984 was filed “Defendant’s Post-Trial Brief.”
“Plaintiff’s Post-Trial Reply Brief” was filed September 11, 1984.
Because of complications, the great number of items in dispute, the numerous exhibits, and the great extent of and the conflict in testimony the Court chooses to start this opinion first with comments about the property in dispute.
The first paragraph of the complaint alleges that the Plaintiff entered into an oral lease with the Defendant for equipment to be used. That equipment is described in Exhibit A attached to the complaint. This Exhibit A is exactly the same as Plaintiff’s Exhibit 6. Among other things, the Plaintiff seeks return of this equipment.
Plaintiff’s Exhibit 2 is a Bill of Sale. It is dated January 13, 1983. It is from the Plaintiff to the Defendant. The consideration is $40,000.00. The property described in it is as follows:
Linbergh 1 ton Induction Melting Furnace and Pillar Electronic Control Cabinet including water cooling tower
Sand Muller
Core Mixer
Squeezer
Screenerator for Muller
Ladle and overhead crane
Air Grinders and rammers, hand ladles and miscellaneous tools
Wheel-a-brator
Mold Turner
Much of the dispute is whether the equipment listed in Exhibit A (Plaintiff’s Exhibit 6) is the same as or included in the items listed in the Bill of Sale. A copy of Exhibit A (Plaintiff’s Exhibit 6) copy is attached as the next page.
EXHIBIT A
KRAMER BROTHERS EQUIPMENT ON THE PREMISES OP CUMBERLAND VALLEY FOUNDRY, LONDON, KENTUCKY
Clearfield Sand Muller
Clark 4000# fork truck
Batch mixer for cores'
2 HP motor and air compressor
1966 Ford stake truck
Back chassis rail for truck
Air-powered rammers (1 table and 1 floor)
Air grinders (2)
Core blower unit (yellow) B & P
Squeezer machine
Squeezer flasks and jackets
10 X 20 12 X 24 13 sq. 16 sq.
14 x 19 13 X 21 14 sq. plus others
Large flasks and jackets
All steel flasks 40 X 40 etc.; Pouring jackets; Slip flasks
Patterns: (All patterns with appropriate core boxes)
27‘A X 27 y-i square state highways grate
Large rectangular pattern for DP&L with flasks (frame and lid)
Barbell pattern — 6 on
KB manhole frame and lid pattern for K 118 — cope and drag
Tamper 8x8 9x9 10x10 plus core box
Pipe cutting tools
Hand ladle and carrier 150# size
*687Leeds and Northrup chart recorder and pouring stand for CE determination
Electro-nite immersion pyrometer
Bottom boards for flasks
1982 Ford pick-up truck — white—leased from Stengers Ford
For the purpose of clarity and logical order the Court further chooses to proceed with comments as to each of the items listed on Plaintiffs Exhibit 6.
Included in item 6 are items in regard to which there is no dispute because of an Agreed Order of September 12, 1983 these were released by the Defendant to the Plaintiff. These are the fifth, thirteenth and last item listed on Exhibit 6. They are: 1966 Ford Stake Truck, Patterns (including all items described in the listing of the said patterns), and 1982 Ford Pick-Up Truck-White-Leased from Stengers Ford.
CLEARFIELD SAND MULLER
The first item in Exhibit 6 is Clearfield Sand Muller. The Bill of sale includes a sand muller, but does not describe whether it is or is not a Clearfield. As previously stated, this bill of sale was dated January 13, 1983. Defendant contends that on that date most of the equipment that is at issue in this case was located at London, Kentucky; that on that date the Clearfield Muller with Screenerator were in place and in operation. A “screenerator for Muller” was also one of the items included in the bill of sale. Defendant contends that the screenerator is only operable with the Clearfield Muller and that there is no good reason for the Defendant to purchase a screenerator for a muller and at the same time purchase a Beardsley and Piper Muller which is incompatible with the screener-ator purchased.
Plaintiff contends that it was a Beardsley and Piper Muller which was sold to the Defendant.
Somers testified that it was the Beardsley and Piper Muller which the Defendant purchased, but that because it needed repair; that it was taken to a repair shop to be repaired, but Jones picked it up before the repairs were completed and took it to Kentucky; that Jones asked if he could not have the Clearfield Muller until the other one was repaired and the Clearfield was installed on a temporary basis until the other could be repaired.
Somers further testified that in January when he was in Kentucky a Beardsley and Piper Muller was in the yard still awaiting repair.
From the testimony and the evidence the Court must conclude and find as a matter of fact that it was not the Clearfield Muller which the Defendant purchased and which is the property of the Plaintiff and should be returned to the Plaintiff.
CLARK 400 FORK TRUCK
This is the second item on Exhibit 6. Defendant contends it had been given to Jones to replace equipment which he released to his landlord in Harlan, Kentucky to pay rental arrearage; that it is not included in the bill of sale because it concerns a separate transaction between Jones and Somers. Plaintiff insists that Jones admitted that this truck was the property of the Plaintiff. Somers was definite in his testimony that this truck was part of the leased equipment; that it was used to lift castings; that it was a front loader; that it became leased property when the Defendant did not purchase; that the value had been $6,000.00 to $7,000.00, but as of the date of testimony was only $4,000.00 to $5,000.00. But Jones testified that he “considers” this, truck his; that in November of 1982 Somers had told Jones that Jones could have it. Plaintiff insists that Jones had told Plaintiff it could pick up this truck. The brief of the Defendant claims that the testimony indicated this truck is not in good condition and valued at approximately only $5,000.00. Defendant further contends that Somers did not contest the ownership of this truck in January 1983 when it was in London, Kentucky and being used. There is nothing in the testimony or other evidence to indicate there is *688any reason for Somers at that time to contest the ownership. His truck was merely part of other equipment being used by the Defendant to do the work that was intended. The affidavit filed by McKnight is specific that there was ratification of all acts and pleadings taken on behalf of the corporation by Jones. The Court finds as a matter of fact that this truck was merely one of many items involved in the dealings between the Plaintiff and the Defendant; that it did not involve a separate transaction between Somers individually and Jones individually; that there was insufficient testimony and evidence to sustain the claim of the Defendant that this truck had been given to Jones to replace equipment which he released to his landlord in Harlan, Kentucky; that whatever problem Jones had with his landlord is not a part of this case; that if this truck were to be considered a part of the property purchased by the Defendant it would have and should have been included in the bill of sale and that, therefore, this truck is property of the Plaintiff and Defendant should return it to the Plaintiff.
BATCH MIXER FOR CORES
In its Brief the Defendant claims that at the time the bill of sale was signed there were two batch mixers on the property of the Defendant; that one was what was described as a smaller one and the other a larger one; that at the time the bill of sale was signed the smaller one was the one in operation; that the larger one was outside the building and not being used; and that, therefore, the bill of sale referred to the smaller one. In the Brief of the Plaintiff it is stated that the Defendant can have either one it wants. Therefore, the larger of the two batch mixers should be returned by the Defendant to the Plaintiff.
TWO HP MOTOR AND AIR COMPRESSOR
Defendant in its Brief contends that this was a part of a separate transaction between McKnight and Somers; that Somers in using an air compressor belonging to Mr. McKnight burned up the equipment and that Somers thereafter replaced the one which was destroyed by giving his own to Mr. McKnight. This case does not involve any separate transactions between McKnight and Somers. The issues are those between the Plaintiff and the Defendant. The statement that Mr. Somers in using the compressor burned up the equipment is a statement that is without foundation as far as the testimony in evidence is concerned. It was not Somers who was using the equipment. It was the Defendant which was using the equipment. If any equipment was burned up it would seem to be the obligation of the Defendant to replace it. There was a question as to whether there was more than one air compressor. Jones for the Defendant testified that the Defendant had only one air compressor; that it did not come from the Plaintiff and that it was a five horsepower air compressor. There was not sufficient testimony to refute this. The Court finds that the Plaintiff did not sustain sufficient burden of proof to show that it was entitled to the air compressor in question and the Defendant will not be ordered to give to Plaintiff the air compressor.
BACK CHASSIS RAIL FOR TRUCK
Neither party seems to attach any importance to this item. There was no testimony on behalf of the Defendant that the Plaintiff was not entitled to this item. The testimony on behalf of the Plaintiff did not clearly establish that the Defendant even had this item. Lack of proper argument about it in the Briefs leaves the Court with just one choice, to wit: If the Defendant has this item it should return it to the Plaintiff.
AIR-POWERED RAMMERS (1 TABLE AND 1 FLOOR)
Defendant contends that there was no dispute as to these until the complaint was filed. Mr. Jones on behalf of the Defendant testified that he had three rammers all *689of which were his and that the bill of sale covers the rammers in dispute. The brief of the Plaintiff contends that additional rammers have been picked up by workmen when transporting the second muller to Kentucky; that this equipment was dupli-cative and that it is only the second ram-mer that Plaintiff alleges to be the subject in dispute. On behalf of the Plaintiff Som-ers testified by describing the rammer, giving the diameter and the length and explained that it was used to pound sand but the Plaintiff failed to sustain the burden of proof that the Defendant had any rammer to which the Plaintiff is entitled.
It should be noted that the bill of sale was not for a rammer but is in the plural referring to rammers.
The Court concludes that the Plaintiff is not entitled to the return of any rammer.
AIR-GRINDERS (2)
The situation as to these is similar to that in regard to the rammers.
Defendant contends that these items were never disputed until the complaint was filed and they are included in the bill of sale. The Plaintiff did not in any way sustain the burden of proving that the grinders are property of the Plaintiff. The bill of sale again uses the plural in referring to “air grinders”. Taking into consideration the wording of the bill of sale the Plaintiff had a responsibility to get in writing signed by the Plaintiff and the Defendant an instrument which would indicate that there were grinders in addition to those listed in the bill of sale to which the Plaintiff is entitled.
The Court must conclude that the Defendant does not have any grinders to which the Plaintiff is entitled.
CORE BLOWER UNIT (YELLOW) B AND P
Defendant contends that on January 13, 1983 the date of the bill of sale, the core blower unit was not at the location of the Defendant; that it arrived later; that it is not on the bill of sale and not on the March, 1983 document listing eight items; that there had been no demand for the return by a virtue of the unspecific letter from the attorney for the Plaintiff. The Plaintiff contends that the Defendant stated it was not going to be used by the Defendant who admitted that it was a property of the Plaintiffs.
Somers testified that Jones took it down to Kentucky and that it at the time of the trial was outside. Jones admitted that the unit was taken to Kentucky and that Som-ers had told him he could have it if he got it out of the way and that the value was only about $200.00. However, on cross examination Jones admitted that he had informed the Plaintiff that it could pick up this unit.
It is definite that this item was not included in the bill of sale. There was not very much testimony in regard to this item, but from what testimony there was the Court concludes that this is property of the Plaintiff and should be returned to the Plaintiff.
SQUEEZER MACHINE
There were originally two squeezer machines but neither worked properly. Parts of one were used to repair the other thus making a complete operating squeezer. The Plaintiff in its brief states that it is willing to accept the cannibalized squeezer and make it operable.
A squeezer is included in the bill of sale. The Court finds that this applies to the squeezer that was made operable but that the other squeezer machine should be returned by the Defendant to the Plaintiff.
SQUEEZER FLASKS AND JACKETS
10 x 20 12 X 24 13 sq. 16 sq.
14 x 19 13 X 21 14 sq. plus others
*690Jones testified that sand goes into a flask and forms a pattern and that the jacket keeps the iron from running out. He considers these hand tools. The brief of the Defendant contends that they are hand tools. Defendant’s Exhibit 5 was used in examination of witnesses but was not offered in evidence. It is a photo of flasks, jackets and bottom boards. From the testimony and the evidence it seems clear to the Court and the Court finds as follows: These flasks and jackets had been used by the Plaintiff in producing castings for specific customers; that they are not included in the bill of sale; that they are not a part of the property “leased” to the Defendant; that they were merely loaned by the Plaintiff to the Defendant to produce castings for customers; that not only can they not be considered hand tools but must be considered as property of the Plaintiff to be used in regard to production for specific customers and must be returned by the Defendant to the Plaintiff.
LARGE FLASKS AND JACKETS ALL STEEL FLASKS 40 x 40 ETC.; POURING JACKETS; SLIP FLASKS
The testimony on behalf of both the Plaintiff and the Defendant was not so enlightening as it might have been in distinguishing between squeezer flasks and jackets and the large flasks and jackets. The comments made above about the squeezer flasks and jackets are also applicable as to these items. They are not in the bill of sale. They are not part of property considered “on lease”. They were merely on loan from the Plaintiff to the Defendant. The Court finds that these should be returned by the Defendant to the Plaintiff.
PIPE CUTTING TOOLS
The Plaintiff contends that the pipe cutting tools were borrowed by the Defendant to install a furnace and were to be returned. Defendant at page eight in its brief lists six items among which are pipe cutting tools. The Defendant contends that none of these items were in dispute in January of 1983 as they are listed in the bill of sale. This is not correct. These items as such are not listed in the bill of sale except the one item of hand ladle. Obviously what the Defendant is trying to contend is that all six of these items are hand tools. The Defendant claims that the March 19,1983 list is enlightening for what it does not include such as the six items set out in the brief. The brief does not go into detail as to the March 1983 list. If it is the list which is Defendant’s Exhibit 19 the following comments would be appropriate.
Defendant’s Exhibit 19 is “To: Cumberland Valley Foundry”. It lists eight items loaned to Defendant, the property of Plaintiff, returnable on demand and if kept longer than ninety days a lease fee will be charged at one and one-half per cent per month. It is not dated nor is it signed. McKnight testified that this instrument was given by Somers to McKnight who is requested by Somers to sign it but McKnight refused to sign. Jones testified that he had not seen this exhibit. Further, Jones testified that he had pipe cutting tools. It is not necessary to determine whether pipe cutting tools are hand tools. The Plaintiff failed to sustain the burden of proof that the Defendant had pipe cutting tools borrowed from the Plaintiff which should be returned to the Plaintiff.
Therefore, the Court must conclude that there can be no Order requiring Defendant to return to Plaintiff pipe cutting tools.
HAND LADLE AND CARRIER 150# SIZE
Plaintiff claims that additional ladles had been picked up by workmen when transporting a second muller to Kentucky; that this was duplicative and that it is only the second hand ladle that Plaintiff alleges to be subject to “lease”. A hand ladle and carriers is included in what Defendant claims to be miscellaneous hand tools and is one of the six items mentioned in previous comments about pipe cutting tools. The bill of sale lists hand ladles.
Jones testified that a hand ladle and carrier 150 were taken from Dayton to Ken*691tucky. Although Somers had testified that the ladle and carrier were merely loaned from all of the testimony and the evidence the Court must conclude that the Plaintiff failed to sustain the burden of proving that the Defendant has any ladle other than that in the bill of sale. As a result no Order can be made that the Defendant should return to the Plaintiff this item of hand ladle and carrier.
' CHART RECORDER, PYROMETER, AND BOTTOM BOARDS
There remain for consideration of items on Plaintiffs Exhibit 6 just three, to wit: Leeds and Northrup chart recorder and pouring stand for CE determination. Elec-tro-nite immersion pyrometer, and bottom boards for flasks. These will be considered together.
Previous comment has been made in regard to contention of the Defendant in its brief at page six that the six items listed were miscellaneous hand tools. Among those six items are chart recorder, pouring stand and pyrometer.
McKnight testified that all of these could be carried by hand. There are many things that can be carried by hand, but just because they can be so carried cannot be considered miscellaneous hand tools. Jones even testified that he considered the flasks and jackets to be hand tools.
The Defendant admits that all of these items were at the Defendant’s location on January 13, 1983 when the bill of sale was executed. The Defendant claims the items are necessary for the operation of the foundry business. The bill of sale was prepared by the attorney for the Defendant. If these items were considered to be those among the items purchased they should have been set out in the bill of sale.
The Defendant in its brief and listing what are claimed to be hand tools at page six includes flasks and jackets which are not on the list on page eight. On page eight is an item bottom boards for flasks which is not included in the list on page six of the brief of the Defendant. The testimony on behalf of the Defendant attempted to bring under the “umbrella” of hand tools as many items as possible.
Somers testified that the chart recorder was only loaned. Jones testified it tells how much silicon and carbon are in the iron; that he considered this to be a hand tool.
Somers testified that the pyrometer had a value of $500.00 to $600.00 and that it was at the Kentucky location on January 13th, the date of the bill of sale. Jones testified that it is used to test how hot the iron is.
As to the bottom boards Jones testified these were taken to Kentucky within a three month period and that he considered these to be hand tools.
The uses to which put and the values of these items must be taken into consideration.
Without going into anymore detail in regard to the testimony and considering all of the testimony and the evidence the Court is satisfied that the chart recorder and pouring stand, the pyrometer and the bottom boards ar.e property of the Plaintiff and that the Defendant should return these to the Plaintiff.
LEASE
Before proceeding further in this opinion a general comment should be made that applies not only to the lease, but to other matters.
The Court recognizes that because of the financial condition of the Plaintiff that he sought relief in this Court. Being unable to continue operations as previously the Plaintiff still wanted to stay in business and in order to do this entered into negotiations with the Defendant to do work for the Plaintiff. The Defendant obviously thought that it could establish a business which would be benefited by the negotiations with the Plaintiff which have led to the issues in dispute in this case. Under these circumstances neither party exercised due care in business arrangements. For men who were experienced in business *692matters there was a complete failure to put into writing matters that should have been and which have resulted in the disputes between these parties. The disputes in regard to most of the items listed in Plaintiffs Exhibit 6 could have been avoided if there had been written agreements between these parties. This applies also to the matter of the lease.
There was no written lease as such. But there obviously was agreement as to some things which agreement can be considered an oral lease. Regardless of what this agreement might be called the difficulty is ascertaining what was included in such agreement. The Defendant claims there were items sold other than the items in the bill of sale. The Plaintiff claims that nothing was sold except what is in the bill of sale; that items in dispute not in the bill of sale were either leased by the Plaintiff to the Defendant or loaned to the Defendant.
Somers testified that some equipment was taken to Kentucky on loan to be examined by the Defendant and later leased at one and one-half percent of the value the amount of which was to be later determined and that it was in August of 1982 that there was a first request for a lease payment; that the time given the Defendant to decide whether to buy or lease was within ninety days prior to January 13, 1983 and that the charge for rental was invoiced to the Defendant.
McKnight testified that March 9, 1983 was the first that he became aware of a claim of the Plaintiff that it had a lease.
Jones testified he never consented to any rental charges. This is not consistent with the letter from Jones to Somers dated March 31, 1983 in which Jones specifically refers to leased equipment on the premises of the Defendant which belonged to the Plaintiff and that as of the date of the letter it was not the intent of the Defendant to purchase the equipment valued at $14,000.00 of which Defendant was paying one and one-half percent per month for lease.
At the time of the date of the letter which is Plaintiffs Exhibit 3 it was obvious that the Defendant was claiming the Plaintiff owed it money the balance of which was sixty days past due. The letter further stated the equipment in question could not be removed until the balance was paid and that after forty-five days from the date of the letter the leased equipment and patterns left would become the property of the Defendant and treated as such if the balance is not paid in full by that time.
It is important to note that this letter refers to a lease and to leased equipment. The wording would indicate that the patterns were not considered leased equipment. If not leased they can be considered as on loan.
It is obvious without the necessity of citation of law or cases that the Defendant could not take title to the leased equipment and patterns just by making that statement in the March 31st letter from Jones and Somers.
In his brief the Defendant contends that it was not until invoices accumulated to approximately $4,081.86 in March of 1983 that Somers first attempted to initiate the lease concept. The brief further states that on about March 7, 1983 Somers went to the Defendant and attempted to secure the signatures of Jones or McKnight on a document which claims seven or eight items had been loaned to the Defendant; that neither Jones nor McKnight executed the document and disagreed with the lease concept as both were of the opinion that they had purchased the property and acquired ownership. The brief is not specific but it is assumed that this document to which reference is made is Defendant’s Exhibit 19. This exhibit contains no heading except “To: Cumberland Valley Foundry”. It lists eight items loaned to Defendant, the property of the Plaintiff, returnable on demand and if kept longer than ninety days a lease fee will be charged at one and one-half percent per month. However, it is not signed nor is it dated. This contention of the Defendant is not supported by the evidence. On the contrary Plaintiff’s Exhibit 3 of the March 31, 1983 letter from Jones to Somers clearly indicates that the De*693fendant had considered that there was a lease.
The Defendant contends there is no evidence of any lease entered into during the fall of 1982 and that there is no evidence of any demand having been made prior to the complaint being filed demanding the return of the equipment. In the opinion of the Court there is no question that there was a lease. The question is when such an oral agreement was made. The contention of the Defendant that no request for return of the equipment was made prior to the filing of the complaint is incorrect. Plaintiffs Exhibit 7 which is a letter to Jones from the attorney for the Plaintiff dated June 1, 1983 it was stated that if the rent is not paid or the equipment returned, application would be made to the Court for a turn-over Order. While commenting upon this Plaintiff’s Exhibit 7 it should be added that the letter making effective immediately rental of $630.00 per month beginning June 1, 1983 cannot be considered as establishing that amount of rent per month. It is self-serving. It purports to set that amount of rent if the equipment is not returned. The question still remained as to the dispute as to what equipment was property of the Plaintiff and should be returned and what property the Defendant would not have to return. The Court finds that under such circumstances the mere raising of the rent by a letter cannot be considered, in and of itself, as binding. It can be considered only as a charge being made by the Plaintiff for increased rental.
The Plaintiff contends that the rental began approximately ninety days after the October 1983 agreement; that the Defendant would either purchase the remainder of the equipment or lease it at one and one-half per cent per month on a $14,000.00 valuation and that this is substantiated by Exhibits 4 and 5, the ledger cards, and the lining of the cards by both parties. Such Exhibits cannot, by themselves, be considered evidence of any date of agreement of rental or that there was an agreement. The only thing made clear by the lining in the ledger cards is that the balance set out at the time of the lining was agreed by both parties to be a correct balance. The initials at the lining are the initials of both a representative of the Plaintiff and a representative of the Defendant. The one definite piece of evidence is Exhibit 3 which indicates that the lease agreement had to be entered into prior to March 31, 1983.
The testimony in regard to the lease was conflicting.
Wilma Somers is the wife of Jack Som-ers. She is Secretary-Treasurer of Plaintiff. She testified that the lease payments started in September of 1982 at $230.03 a month. This is the amount charged as set out at seven different places on Plaintiff’s Exhibit 4. But this ledger card had the first entry of this amount as of January 15, 1983. However, Mrs. Somers had testified that this lease for the Ford pick-up truck was included in a charge made also for the use of a Mustang; that the total amount for the two was $445.00. On Plaintiff’s Exhibit 4 there are four different entries for this amount. The first of these was September 20, 1982. The evidence indicates and the testimony clearly showed that this Mustang was used by Mr. Somers. Defendant tried to get Mrs. Somers to explain why a charge should be made to the Defendant for the use of a Mustang in the name of the Plaintiff and used by the President of the Plaintiff. At this point it should be emphasized that the Court does not consider in dispute or at issue any of the entries made on Plaintiff’s Exhibits 4 and 5 above the so-called red lines (which are in blue) drawn across these exhibits. Both parties had agreed on the balances as of the time the lines were drawn. Both parties consumed entirely too much time-wasted time-in introducing testimony concerning matters involved in transactions pertaining to the entries of amounts made above these lines. It is the matters involving the entries made below these lines that are important. Nevertheless, the very fact that the Defendant agreed to the matters entered above the line drawn across Exhibit 4 clearly indicates that it was not disput*694ing the charges of $230.03 a month for the rental of the pick-up truck and the $210.00 a month charge for rental of equipment which amount is entered on Plaintiffs Exhibit 4 under date of February 15, 1983.
The Ford pick-up truck was returned by the Defendant to the Plaintiff in accordance with an agreed Court Order of September 12, 1983. The testimony indicated that this was returned on September 15, 1983. The Court finds that the charges made by the Plaintiff for this $230.03 a month were proper charges down to and including this entry of September 15, 1983.
Trying to ascertain the claims and cross claims of these parties was made more difficult by the unbusinesslike manner in which they handled the transactions between themselves.
For example, Mrs. Somers testified that there were no entries on the accounts showing checks passing hands; that this was because they considered when what amount each owed the other balanced out no checks were written. Another questionable practice on the part of the Plaintiff was indicated by the testimony of Mrs. Somers that in regard to monthly payments there were no separate invoices for each month; that there was just the first invoice in regard to the first payment due but that after that charges for monthly rental were merely made by entering on the accounting card. An example of this is Defendant’s Exhibit 3 dated September 20, 1982 for the $445.00 charge as entered on Plaintiffs Exhibit 4 under the same date. Another example is Defendant’s Exhibit 4 at $1,200.00 invoice for monthly lease payment dated September 20, 1982. This was for rent payment on the furnace. An entry for this amount was made under the same date of September 20, 1982 on Plaintiff’s Exhibit 4. But these were also examples of exhibits introduced and time taken for testimony in regard to such exhibits when they all pertained to entries made above the lines drawn across the Exhibits 4 and 5 of the Plaintiff and which were not even at issue in the trial because of the agreement indicated by the line drawn across the exhibits.
Before proceeding further in regard to rental on the equipment it is necessary to first comment upon the first item under “the line” on Plaintiff’s Exhibit 4. It is dated April 15, 1983. The amount is $880.06. The testimony clearly showed that this was charge which included two months for rental of the equipment and two months rental for the pick-up truck. $460.06 would be for the truck and $420.00 for rental of equipment.
We now make the following findings in regard to the rental on the equipment. The value of the equipment which the Defendant retained and should have returned to the Plaintiff is set at $14,000.00 with the charge being made at the rate of one and one-half percent or $210.00 a month. This amount entered on Plaintiff’s Exhibit 4 under the date of February 15, 1983 was above the line at which point agreement had been reached. It is the amount in Defendant’s Exhibit 18. This $210.00 amount is a maximum that can be charged the Defendant. The $630.00 charges are improper. As previously indicated, the larger amount cannot be considered a proper charge just because of the letter sent the Defendant by the Plaintiff.
The next question is for what period of time these rental charges can be considered proper. The Defendant denies that there was any lease. There was a valid dispute between the parties. Having found in favor of the Plaintiff that there was a lease, we, nevertheless, conclude that the Plaintiff is entitled to lease payments only through the month of July, 1983, the complaint having been filed July 25, 1983.
As to proper charges below “the line” the proper rental for the Ford truck is $1,610.21. For rental of equipment the amount is $1,050.00.
CLAIMS AND COUNTERCLAIMS
The prayer of the complaint filed by the Plaintiff is for a Court Order to the Defendant to turn over to the Plaintiff equip*695ment and patterns, for the determination of rental obligations, for attorney fees and for an Order that the equipment and motor vehicles be delivered to Plaintiffs place of business in Dayton, Ohio.
This decision has already made findings in regard to the turnover of the equipment and patterns and also in regard to the rental obligation. As to attorney fees the Court finds that each party should be required to pay only the fees of its own attorney.
As to the delivery of the equipment and the motor vehicles to the Plaintiffs place of business in Dayton the matter of motor vehicles is now moot and as to the equipment the Court finds that the Defendant must return to the Plaintiffs place of business in Dayton the equipment and patterns which the Court has herein found should be returned to the Plaintiff.
Although a finding has been made in regard to the lease and the rent that mat-' ter must be further explored because of cross-claims of the Defendant.
The prayer of the Defendant in its Answer Counterclaim And Third Party Complaint includes request for Judgment for $14,468.00. This is one-half of the amount set out in paragraph ten of said pleading. In paragraph nine it is alleged that as a part of the sale transaction the Plaintiff and Somers agreed to pay Defendant one-half of the expenses and cost incurred in moving, establishing incorporating, operating and insuring the new furnace until the outstanding obligation on the furnace due the First National Bank of Dayton was paid in full. There was no written agreement as to this matter. The testimony and evidence did not support this claim of the Defendant. It should be noted that at no place in the Brief of the Defendant is this matter even mentioned. Whether this is because the Defendant realized it could not prove such allegation and, therefore, elected not to pursue the matter further is something of which the Court is not certain. In any event, finding is HEREBY made against the Defendant in regard to this Counterclaim.
In addition, the prayer of the Defendant seeks Judgment for $4,081.86 plus interest and costs for work, goods, materials and services provided Plaintiff. This brought into question the matter of set-off by the Plaintiff for the amount of rental due the Plaintiff. But whether the amount claimed by the Defendant as due is correct it is complicated by disputes as to the amounts which disputes included claims by the Plaintiff that certain work done by the Defendant for the Plaintiff was rejected by the customers. We now make comments as to these matters.
It should first be made clear that no • findings are made in favor of either party as to interest and costs. Previous comment has been made as to the lack of a businesslike manner in which these negotiations were handled. Each party is at fault in creating the situation which has led to this Adversary Proceeding. Neither party is entitled to interest on any Judgment granted. Nor is either party entitled to Judgment for costs.
Attached to the Defendant’s pleading are copies of five invoices the total of which is the $4,081.86 for which Judgment is claimed. The first four of these invoices are the same as the Defendant’s Exhibit Number 1. The fifth invoice 1006 is not a part of Defendant’s Exhibit 1. This invoice has a written notation “rejected” as to the first item in the amount of $68.40. That credit was given for this item is verified by the invoice 1007 attached to Defendant’s Exhibit 2. Thus, it is obvious that even at the time the Defendant filed its counterclaim the amount due was $68.40 less than the amount prayed for. It should be noted that this invoice 1006 was also Plaintiff’s Exhibit Number 12.
While on the subject of Defendant’s Exhibit 2 we deem it appropriate at this time to make comments about the five sheets attached to Defendant’s Exhibit 2 pertaining to Detroit Stoker Company. These all involve rejections by this company. The first pertains to thirteen jump plates. This is the same item as mentioned in Plaintiff’s *696Exhibit 13. In one of the Court hearings in this case a dispute arose as to whether there were rejections by Stoker. In order to avoid further delay and trouble and further because of necessity of discovery proceedings the Court took it upon itself to write Stoker on February 15, 1984 and received an answer which by agreement was made a part of the record on March 19, 1984. Because it was made a part of the record it is deemed necessary to go into detail in regard to these portions of Defendant’s Exhibit 2. At page five of the Brief of the Plaintiff it stated that it had ascertained that Detroit Stoker was not insisting upon this amount and that it should not be charged back and the sum, $1,068.00, should be deleted from the set-offs and the amount due the Plaintiff reduced accordingly. Plaintiffs Exhibit 5 reveals the entry of this item of $1,068.00 under the date of April 13, 1983.
While on the subject of the Stoker rejections and the Defendant’s Exhibit 2 this Exhibit first has a copy of invoice Number 1003 for $1,680.80. This is reflected in Plaintiff's Exhibit 5 on the November 5th entry. The second sheet of Defendant’s Exhibit 2 is invoice 1001 for $294.00. This is reflected in Plaintiff’s Exhibit 5 under entries dated October 12th and October 22nd.
While on the subject of Plaintiff’s Exhibit 5 we merely call attention to the last six entries made above the line drawn across the accounting card. These all pertain to the invoices previously mentioned in connection with the invoices attached to the Defendant’s counter complaint.
No other comment is needed in regard to Plaintiff’s Exhibit 5 because the evidence and the testimony was clear that the balance of $5,314.92 which is initialed was a balance agreed upon at that time.
In regard to Plaintiff’s Exhibit 4 the testimony and the evidence was clear that there was agreement as to the balance of $3,334.28 on the line initialed just above the line marked across the accounting card.
There were questions asked and answers given at the various hearings in this case that do not justify comment because they involve charges and credits entered above the initialed lines in both Plaintiff’s Exhibit 4 and Plaintiff’s Exhibit 5. For example, Mrs. Somers was asked questions about invoices 1003 and 1001 in Defendant’s Exhibit 2. But both of these Exhibits involved entries that were made, as previously pointed out, above the line which marked agreement as to the balance due at that time.
In Plaintiff’s Exhibit 5 there are two items entered below the line drawn across the ledger sheet. The amount of $699.40 having been entered by the Plaintiff on its own books is accepted as proper and after the credit of $1,068.00 previously mentioned leaves the balance of $4,946.32 which the Court finds to be a correct balance.
There was even more confusion in regard to the 1982 Ford pick-up truck leased from Stenger Ford. This and a 1966 Ford Stake Truck were among the items released by the Defendant to Plaintiff by an Agreed Order of September 12, 1983. There was never any written agreement in evidence as to the lease of any vehicle. The Plaintiff had been paying lease rental to Stengers Ford for this vehicle. Defendant had the use until it was towed back from Kentucky. The Plaintiff claimed that the transmission had been ruined and its Exhibit 14 indicates paid to Stengers a repair bill of $166.92. Mrs. Somers testified that the expense of gaining possession of the truck was $189.00 paid to Stengers, $100.00 for labor and $40.00 for gas which makes a total of $329.00. Plaintiff’s Brief lists the total as $264.00. The Court finds that the Defendant did have the use of this vehicle and should be required to reimburse the Plaintiff for this $264.00 amount in regard to which the Plaintiff certainly sustained the burden of proof.
The Plaintiff failed to sustain the burden of proof that it was entitled to payment for the last four items on Plaintiff’s Exhibit 4, each of which was for $495.00. Somers testified that the last three of these were just “recently” added to the card; that *697they were for rental of leased equipment that still remained on the premises of the Defendant. It was never satisfactorily explained why the difference between the $230.03 charges and the $630.00 charges or that it was for anything other than for what had been charged above on the card. And no explanation was given why mention was made of the last three items, but nothing explained as to the connection between the last three items and the October 15, 1983 item of the same amount. If these were for lease payments they are beyond the period for which such charges can be made by the Plaintiff, as previously found by this Opinion.
Plaintiff’s Exhibit 11 has nothing to do with claims of parties as to amounts due. It was introduced by the Plaintiff for the purpose of showing that Plaintiff had good reason to take action against the Defendant. The exhibit is a Foundry magazine. At page sixty (60) is an advertisement for sale. The Plaintiff was concerned that the property being put up for sale included property of the Plaintiff.
SUMMARIZING
IT IS THE JUDGMENT OF THIS COURT that Defendant must return to the Plaintiff at its place of business in Dayton, Ohio the equipment as indicated in this opinion should be returned to wit:
CLEARFIELD SAND MULLER, CLARK 400 FORK TRUCK, the larger of the two BATCH MIXERS FOR CORES, BACK CHASSIS RAIL FOR TRUCK (if Defendant has it), CORE BLOWER UNIT (YELLOW) B AND P, ONE SQUEEZER MACHINE, SQUEEZER FLASKS AND JACKETS (10 x 20-12 x 24-13 sq. 16 sq.; 14 x 19-13 x 21-14 sq. — plus others), LARGE FLASKS AND JACKETS-ALL STEEL FLASKS 40 x.40 ETC.-POURING JACKETS-SLIP FLASKS, and CHART RECORDER, PYROMETER, AND BOTTOM BOARDS.
FURTHER, JUDGMENT IS HEREBY rendered in favor of the Plaintiff in the amount of $1,312.17. This amount is based upon the following computation: Start with
the agreed balance due as stated on Plaintiffs Exhibit 4 in the amount of $3,334.28 and add to this the truck rental of $1,610.21 plus rental of equipment of $1,050.00, plus the $264.00 item pertaining to the vehicle rented from Stenger Ford gives a total of $6,258.49. Deduct from this amount the $4,946.32 balance on Plaintiffs Exhibit 5 results in the amount of $1,312.17. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489990/ | CLIVE W. BARE, Bankruptcy Judge.
I
On February 19,1985, the trustee for the debtors’ estates, James R. Martin, filed a motion seeking approval of four agreements to compromise and settle claims.1 Notice of a hearing on the trustee’s motion was given to creditors of both estates. Only one creditor, Federal Deposit Insurance Corporation (FDIC), appeared. However, the United States of America appeared as an amicus curiae.
The subject of the first agreement is a condominium in Key Biscayne, Florida. Cecil H. Butcher, III, the debtors’ son, has offered to purchase the trustee’s interest in the condominium without warranty. The consideration for the purchase of the condominium, presently appraised at $280,000, is: (1) the assumption of an existing first mortgage debt of approximately $80,000; (2) a non-interest bearing $140,000 promissory note, secured by a second mortgage, providing for payment of $70,000 within one year of closing and $70,000 within two *815years of closing; and (3) approximately $43,000 cash to be paid upon closing. The trustee is willing to accept less than the appraised value due to the present “soft market” for condominium properties in southern Florida.2 Further, the trustee wishes to avoid incurring any expense in connection with the condominium.3
The second agreement involves the trustee’s claim to rights in certain luxury automobiles. According to the trustee’s agreement with Shirley Butcher and Seo/Cor, Inc., a Florida corporation, C.H. Butcher, Jr. leased a Rolls Royce automobile in December 1981 from the Bank of Commerce. Upon default, Shirley Butcher paid $50,000 and B & B Properties Ltd. paid $69,000 to the Bank of Commerce. Title to the Rolls Royce was issued in the name of Seo/Cor, which in turn sold the vehicle to Michael Adler in exchange for his $60,000 promissory note and $30,000 cash. Although the trustee contends the Rolls Royce is property of the debtors’ estates, Shirley Butcher maintains the vehicle was legally and properly sold to Adler by Seo/Cor. The trustee also asserts rights to three other automobiles and a promissory note to Sco/Cor in the amount of $8150 from Zane Daniels. Shirley Butcher denies ownership of any interest in these three automobiles or the Daniels note. In settlement of the trustee’s claims, Sco/Cor agrees to: (1) pay $30,000 cash; (2) assign to the trustee Adler’s $60,000 note, having an unpaid balance of between $52,000 and $53,000; and (3) transfer to the trustee Sco/Cor’s interest in the proceeds from the Daniels note, previously deposited in the court’s registry, totaling approximately $8900 including interest. The trustee represents he will receive approximately $92,000 under the second agreement and that the maximum recovery on his claims, excluding costs and expenses, is $132,000.
The trustee zealously recommends court approval of both the condominium sale and the “automobile claims” agreements. FDIC, principal creditor of the C.H. Butcher, Jr. estate and a holder of substantial claims against the Shirley Butcher estate, concurs, apparently wholeheartedly,4 in the trustee’s recommendation. No creditor of either estate has interposed an objection to either agreement. At the urging of the trustee, the representative of all creditors, and relying upon the trustee’s recommendation and FDIC’s concurrence, as well as the absence of objection by any creditor, the court approves the trustee’s settlement agreement with respect to the automobiles.
However, the court declines to approve the agreement for the proposed condominium sale. Presumably, the appraiser’s valuation of the condominium takes into account the current market conditions.5 The present value of the consideration offered by the debtors’ son ($244,000) approximates eighty-seven (87) percent of the current appraised value ($280,000).6 A private sale of property in a bankruptcy case to a debtor’s relative for less than fair market value should not be approved *816absent a conclusive showing that market value cannot be obtained.7
II
As originally submitted, the two remaining agreements, the “Preferred Stock Agreement” (a/k/a the Red Gate agreement) and the “Red Wind Agreement,” recite in part:
6. The Trustee acknowledges that Mr. Butcher, III, through his attorneys and others, during the past year has engaged in good faith negotiations with the Trustee to resolve all claims by the Trustee against him and entities owned by him and has cooperated with the Trustee and, to the Trustee’s knowledge, has not acted to hinder, delay or defraud the Bankruptcy Estates of C.H. Butcher, Jr. and Shirley R. Butcher.
7. Trustee has served Mr. Butcher, III with an Order Requiring Attendance and Testimony at 2004 Examination and Production of Documents; in response thereto Trustee has obtained testimony and documents. Trustee releases Mr. Butcher, III and Red Gate from further obligations to respond to such Order, and agrees not to seek or obtain any additional discovery orders.8
At the hearing on the trustee’s motion for approval held March 13, 1985, the court inquired about the reason for these provisions. Neal Melnick, an attorney for the trustee, advised the court that these provisions, included at the request of attorneys for Cecil H. Butcher, III, formed part of the consideration for the two agreements. According to Melnick, the provisions are accurate and no reason exists not to accede to their inclusion in the Red Gate and Red Wind agreements. Representing FDIC, Deborah Stevens stated that from its standpoint FDIC sees no problems with the inclusion of these provisions and does not really care whether or not the language is included in the settlements.
On March 12, 1985, the day preceding the hearing on the trustee’s motion, the United States filed a motion for leave to file, and a memorandum as, amicus curiae. Formal intervention was not requested. Guy Blackwell, Assistant United States Attorney, stated during the March 13th hearing that the United States felt obliged to file a memorandum as an amicus curiae because the quoted language in the Red Gate and Red Wind agreements conflicts with the facts. According to Blackwell, Cecil H. Butcher, III has refused to provide the trustee with records properly subpoenaed and failed to offer any excuse for the non-production. Further, according to Blackwell, Cecil H. Butcher, III, asserting the Fifth Amendment privilege against self-incrimination some sixty-four (64) times, repeatedly refused to answer the trustee’s questions at a deposition proceeding. Jeffrey Hall, appearing on behalf of Cecil H. Butcher, III, did not challenge or controvert Blackwell’s representations.
Although it is suggested that the court’s approval of the agreements, inclusive of the provision regarding cooperation and an absence, to the trustee’s knowledge, of acts by Cecil H. Butcher, III to hinder, delay, or defraud creditors, would not amount to an “imprimatur,” this court categorically refuses to approve any settlement agreement which includes inaccurate or misleading provisions. Under the facts presented to the court, the agreement by the trustee and his attorneys to an acknowledgement of cooperation is simply not supported by the records.
At the conclusion of the March 13th hearing the court declined to approve either the Red Gate or the Red Wing agree*817ment. On the following day, March 14, 1985, the two agreements, without the two paragraphs quoted hereinabove, were resubmitted by the trustee.
Ill
The trustee holds preferred stock of Red Gate Quarterhorses, Inc. (Red Gate) in the face amount of $3,000,000. This stock was issued to C.H. Butcher, Jr. in consideration of capital contributions. Cecil H. Butcher, III is president and one hundred (100) percent owner of the common stock of Red Gate. The rights related to ownership of the preferred stock have not been outlined by the trustee; the value of these rights is also not a matter in the record before the court. According to the trustee, Red Gate has never made a profit nor paid a dividend.
In exchange for an option to purchase, for a nominal amount, forty-five (45) percent of the stock in George Washington Federal Savings and Loan Association (GWFSL), a federal savings and loan institution located in upper East Tennessee, the trustee proposes to release Cecil H. Butcher, III and Red Gate from any claim arising from the ownership of the Red Gate preferred stock. The release extends to all claims the trustee “might assert as a shareholder or beneficiary of Red Gate ... and all claims arising from the operation and management of Red Gate_” The trustee and FDIC represent that the consideration to be received exceeds the expected recovery even if the trustee succeeds in causes of action related to Red Gate. But the value of the GWFSL stock is not reported by the trustee. Indeed, when the trustee requested approval of the Red Gate agreement, he and his attorney had not completed a review of the GWFSL books and records.
Faced with a lack of material information, the court cannot independently determine whether the Red Gate agreement is in the best interest of the C.H. Butcher, Jr. estate. Numerous questions pertaining to the management of Red Gate’s financial affairs, including the disposition of sizeable sums of money, are unanswered. Accordingly, based on the present record, the court must deny approval of the Red Gate agreement.
The record reflects that Red Wind, Inc. is a Florida corporation. As of June 20, 1983, Shirley Butcher was president and Cecil H. Butcher, III was apparently secretary of Red Wind. However, when asked in September 1984 about Red Wind, Cecil H. Butcher, III stated he had heard the name but to the best of his knowledge he was not an officer, director, shareholder, or creditor of Red Wind. He now contends that he has a $400,000 claim against Red Wind.
The trustee asserts ownership rights to certain promissory notes allegedly purchased by C.H. Butcher, Jr. from the Bank of Cumberland. Red Wind may claim some interest in the same notes. The trustee also asserts ownership of a Red Wind bank account with a balance of approximately $50,000. In settlement of the trustee’s turnover claims against him, Cecil H. Butcher, III proposes to disclaim his interest, if any, in Red Wind in favor of the trustee and to waive his claim for repayment of monies loaned to Red Wind. In exchange, the trustee proposes to release Cecil H. Butcher, III “with regard to Red Wind and the turnover claims of Trustee.”
When questioned in October 1984 by the trustee’s attorney about Red Wind, Cecil H. Butcher, III again denied knowing anything about Red Wind. Confronted with a Red Wind corporate resolution, dated June 20,1983, purportedly bearing his signature, Cecil H. Butcher, III refused to acknowledge or deny the signature. He asserted his constitutional privilege against self-incrimination in response to several questions about Red Wind, including whether he participated in an alleged disbursement to his father on July 11, 1983, of Red Wind funds in the amount of $97,000.
The trustee’s proposed release is absolute with respect to Red Wind-related claims against Cecil H. Butcher, III. Based on the present record the court cannot determine whether the Red Wind agreement is in the best interest of credi*818tors. Hence, neither can the Red Wind agreement be approved by the court.
In summary, the agreement between the trustee, Shirley Butcher, and Sco/Cor, Inc. is APPROVED. The agreement for the sale of the condominium and the agreements relating to the trustee’s Red Gate and Red Wind claims are DISAPPROVED.
IT IS SO ORDERED.
. One agreement is actually a real estate sales contract not involving any dispute.
. The Key Biscayne condominium was appraised at $340,000 in 1984 by the same appraiser who recently submitted a current appraisal of $280,000. Also, the trustee listed another condominium, located in Stuart, Florida, with a realtor some six months ago. As of March 14, 1985, no one had expressed any interest in purchasing the second condominium, according to the trustee’s attorney.
. The monthly first mortgage payment is $1262; an estimated monthly utility charge necessary to prevent mildew damage is $120; annual property taxes are approximately $5500; condominium fees and insurance premiums present additional expenses.
. John King, an attorney for FDIC, observed that luxury automobiles and condominiums are often sold for a bargain price because individuals who can afford such items ordinarily purchase them new. According to King, the purchase price of such luxury items may be quite different from the appraised value.
. See note 2, supra, and accompanying text.
. According to the trustee’s attorneys, the present value of the $140,000 note offered by C.H. Butcher, III is $121,000.
. When asked about his familiarity with the March 1984 condominium purchase option agreement between the trustee and himself, C.H. Butcher, III answered: "No, I'm not familiar with it, but I understand there was an option to purchase that took place. That’s as much as I know on it.” Discovery Deposition of C.H. Butcher, III at 111 (September 18, 1984). Further, when asked if he knew the option price, C.H. Butcher, III stated: "At one time I was told, but I don’t remember exactly." Id.
. Identical provisions in the Red Wind agreement are numbered as paragraphs 9 and 11, except that "Red Gate" is deleted in paragraph 11 of the Red Wind agreement. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489991/ | ORDER
GEORGE B. NIELSEN, Jr., Bankruptcy Judge.
At the hearing of a contested matter on December 21, 1984, I ruled against Creditor Sierra Office Building Partnership (“Sierra”) and directed the prevailing parties to lodge a formal order. Adversary Docket Item 45.
The debtor did so, serving a copy on Sierra. Adversary Docket Item 44, at 2. The lodged order was signed and filed on December 27. Supra. No request having been made that notice of the entry of the order be mailed by the Clerk, such notice is *862deemed waived. Local District Rule 41(b); Local Bankruptcy Rule 9033. Sierra filed a notice of appeal on January 31, 1985. Docket Item 47. The Trustee, also a prevailing party, has moved to dismiss this appeal as untimely. Rule 8002(a), F.Bk.R. Sierra has responded and requested I hear this matter along with its “countermotion” to allow its notice of appeal. Docket Item 55. I cannot construe this March 1, 1985 “countermotion” as a motion to extend the appeal time as it is also untimely. Rule 8002(c), supra.
Sierra did lodge, and I did sign, a January 22, 1985 order which exactly duplicates the language of the December 27 order. Docket Items 46, 44.
That order, which was unaccompanied by a supporting motion, does not purport to extend the appeal period. Supra. I know of no authority allowing extension of the ten day appeal limit through the device of subsequently lodging an order which merely duplicates an earlier one.1
Nor do I have the power to honor Sierra’s request to hear this matter. Bankruptcy-Court jurisdiction is essentially limited to hearing timely motions to extend the appeal time. Rule 8002(c). All other substantive motions, including the Trustee’s dismissal request, are to be heard by the Appellate Court. Rule 8011(a). Accordingly, if not already accomplished, the Bankruptcy Clerk is directed to transmit the notice of appeal, the orders of December 27, 1984 and January 22, 1985 and this order to the District Court for disposition of the Trustee’s dismissal motion. Rule 8007(b).2
This appeal arises from an original inter-pleader action filed by the debtor naming Sierra and Dennis Moore as defendants. Thereafter, the issues became obscured in a welter of motions and cross claims. The facts necessary to resolve the original conflict are as follows;
Debtor settled an earlier adversary proceeding filed by Moore through the payment of $78,000 in cash and a $40,000 promissory note. Moore had claimed to be secured on all the stock and assets of debt- or. Claimant failed to secure the note and released any security interests he might have previously held at the time of settlement. This was a major error.
Thereafter, Moore assigned some or all of the note proceeds to Sierra. When conflicting demands to note proceeds were received, debtor instituted the present action. Subsequently, the Chapter 11 reorganization was converted to a Chapter 7 liquidation. 11 U.S.C. § 1112. The funds were not deposited into the Court’s registry, as is the normal interpleader practice, but instead placed by debtor into a “trust” account. No documents establishing a trust were prepared. The Chapter 7 Trustee seized the funds as property of the estate. 11 U.S.C. § 541. Moore and Sierra want the funds turned over to them, arguing the fund is not estate property.
Whether this fund can be used to pay all creditors or must go solely to Creditor Moore is entirely dependent on the nature of Moore’s rights in the proceeds. Sierra’s rights as assignee of whatever rights Moore had in the fund are entirely derivative. Farmers Reliance Insurance *863Co. of New Jersey v. Miami Rug Co., 227 F.Supp. 187, 189-90 (S.D.Fla.1963).
Sierra first argues debtor’s filing of an interpleader action is inconsistent with a claim to the res. However, the federal interpleader statute applies both to “true” interpleader suits and suits in the nature of interpleader. 28 U.S.C. § 1335(a). Such action may be maintained by a plaintiff who claims an interest in the fund under dispute. Farmers Elevator Mutual Insurance Co. v. Jewett, 394 F.2d 896, 898 (10th Cir.1968), citing State of Texas v. State of Florida, 306 U.S. 398, 406-07, 59 S.Ct. 563, 567-68, 83 L.Ed. 817 (1939) and Brisacher v. Tracy-Collins Trust Co., 277 F.2d 519, 525 (10th Cir.1960). While debtor’s liability to Moore is undisputed, Moore’s rights (and Sierra’s derivative rights) to the fund in preference to all other creditors is entirely dependent on a finding he is secured by the fund or a trust relationship was established.
Sierra argued a trust was established by the interpleader and segregation of the res into an interest bearing account. I find no authority for such a proposition as a matter of law. Factually, claimants did not convince me the parties expressly or impliedly created a security interest or trust in the fund, although they undoubtedly had the opportunity to do so in connection with their settlement.
Finally, I am not persuaded Sierra was misled to its detriment by debtor’s filing of the interpleader or alleged reference to the monies “in trust.” First, Sierra is charged with knowledge of the operation of the Bankruptcy Code and interpleader statute. Second, its rights being purely derivative from Moore, there is little it could do independently to protect itself, when its assign- or did not.
Nothing here should condone debtor’s failure to live up to its settlement agreement with Moore. This default being a fact, what remains is to determine if Moore sufficiently protected himself against debt- or’s default at the time of the original settlement. I do not believe he did.
Undoubtedly, the United States District Court will correctly resolve the dismissal motion. Without impinging on its jurisdiction, I would observe as follows:
Sierra defends against the charge its notice of appeal was untimely filed by submission of a secretary’s affidavit. Although Sierra timely received a copy of the proposed adversary order, the secretary complains she repeatedly telephoned a certain Bankruptcy Deputy Clerk in early January, who was never able to determine that the proposed order was ever filed, much less signed. Adversary Docket Item 56. Yet, the order had been both signed and filed on December 27, 1984. Adversary Docket Item 44. It is unfortunate counsel did not cross the street to personally review the adversary file and discover the document.
Regardless, if this situation is the “fault” of the Bankruptcy Clerk, possibly the District Court will afford relief. In re Donnell, 639 F.2d 535, 539-42 (9th Cir.1981) (to constitute excusable neglect, the failure to learn of the entry of judgment must be the fault of the lower court and not the mere failure of counsel to learn of the entry date); In re Snow, 23 B.R. 655, 657 (Bankr.E.D.Ca.1982). Otherwise, the Ninth Circuit strictly construes and compulsorily applies the ten day appeal requirement. Matter of Ramsey, 612 F.2d 1220, 1222 (9th Cir.1980); Matter of Estate of Butler’s Tire & Battery Co., 592 F.2d 1028, 1033-34 (9th Cir.1979); In re Zeller, 38 B.R. 739, 741-42 (9th Cir.B.A.P.1984); cf. In re Magouirk, 693 F.2d 948, 950-52 (9th Cir.1982) (liberal interpretation of excusable neglect justifying late filing of objection to discharge is different from the strict interpretation of excusable neglect allowing late filing of an appeal).
It is not clear the present difficulty was caused by the Clerk’s alleged inexplicable failure to locate an order resting in the file since December 27, 1984. The Deputy Clerk identified in the Sierra affidavit is my administrative docket clerk, responsible for the docketing of main bankruptcy files, including bankruptcy file 83-268-PHX-GBN. She would have no knowledge or responsibility for the docketing of adversary files, *864including Adversary 83-1357-GBN, the file in which the offending order rests. There is no allegation affiant ever contacted my adversary docket clerk or made clear her telephonic inquiry concerned an adversary file rather than a bankruptcy file.
I have raised the above to make three points:
1. Possibly counsel may wish to supplement their pending motions.
2. In circumstances where the filing date of a lodged order is critical and telephonic contact with the Clerk is inconclusive, the better practice is for counsel to personally inspect a file, rather than depend upon a continuing series of telephone calls between two non-attorneys.
3. Another method to avoid such difficulty is for counsel to demand notice of entry of the formal order following the ruling in open Court as expressly contemplated by Local District Rule 41(b).
Nothing in this order should be interpreted as dispositive on whether Moore or his assign is entitled to priority as an administrative claimant. That issue has been neither raised nor briefed by any party.
ORDERED ACCORDINGLY.
. This duplicative order of January 22, 1985 is the only document filed within the time limits of Rule 8002(c) and, as above stated, cannot be construed as a motion asking me to extend the appeal time. Adversary Docket Item 46. Sierra nearly missed the ten day limit a second time by not filing its notice of appeal until nine days later, on January 31. Docket Item 47.
. The Bankruptcy Court routinely retains the file during pendency of an appeal so other aspects of the case can continue to be administered. Adversary Docket Item 49; Rule 8007(c). The Arizona District and Bankruptcy Clerks have apparently adopted a practice of not forwarding any documents to the District level until the parties provide copies of the documents designated as the record on appeal. Supra; cf. Rule 8002(b). Since there is a possibility the District Court might dismiss the appeal, the Bankruptcy Clerk is directed to immediately transmit the above documents to the District Court for purposes of judicial economy without waiting for the parties to provide copies of the record. Perhaps the Clerks will amend their practice accordingly whenever a party files a motion to dismiss an opponent’s appeal. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8490111/ | FINDINGS AND ORDER
FRANCIS G. CONRAD, Bankruptcy Judge.
This adversary proceeding came before the Court on the motion of the debtor, Clough Enterprises, Inc. (“Clough”), to avoid the fixing of a lien on a bank account maintained in a local Vermont bank. The judgment lien creditor, Qualitad Sales Corporation (“Qualitad”), opposed the motion. The Trustee joined the proceeding and moved in opposition to all parties to recover the account for the estate.
For the reasons stated, we hold that the trustee may recover the funds held by Vermont National Bank (“VNB”).
Clough maintained two accounts with VNB. The first, a general account, was used in the ordinary course of business to receive revenues and pay expenses. The second, entitled “Clough Enterprises, Inc.,” was treated as a “payroll account.” Clough’s payroll, for purposes of disbursement and accounting, was maintained by ADP, a computerized payroll service. Mr. Clough, president of Clough, was the sole authorized signatory on this second account.
The evidence elicited by Clough showed that it was the debtor’s practice to deposit in the “payroll account” every week enough to cover net payroll, payroll deductions, and expenses. When ADP was ready to issue the payroll checks, the “payroll account,” by contractual agreement, was reduced by an amount equal to gross payroll and employer payroll expenses. This was done by debit memo, check or draft against the “payroll account.” The transferred funds were then credited to another account in the sole custody and control of ADP.
On April 4, 1985, VNB was served by Qualitad with a “Summons to Trustee in Satisfaction of Judgment,” pursuant to Rule 4.2(d) of the Vermont Rules of Civil Procedure. The “Summons to Trustee in Satisfaction of Judgment,” dated March 28, 1984, derived from a judgment obtained by Qualitad against Clough in Rutland District *427Court on January 30, 1985. It is not clear from the evidence whether a levy on execution was attempted or whether disclosure by the trustee, VNB, was made pursuant to V.R.C.P. 4.2(f). In any event, all parties stipulated at trial that VNB was holding, as trustee, the sum of $1,595.11 in account number 24015928 in the name of “Clough Enterprises, Inc.”
On April 8, 1985, believing that the “pay-. roll account” could not be subject to levy, Mr. Clough directed the debtor’s bookkeeper to make the weekly payroll deposit into the “payroll account.” VNB, having received notice of the trustee process, did not allow the “payroll account” to be reduced by an amount sufficient to cover the weekly payroll. Learning of the account deficiency, ADP stopped payment on the weekly payroll checks. On April 15, 1985, the debtor filed for liquidation in bankruptcy.
It is quite clear that the “payroll account” served as a conduit, a temporary repository to ensure that sufficient funds were available for payroll disbursement. Ownership of the funds in the “payroll account” before any transfer to the ADP account remained with the debtor. Since no transfer to ADP’s account seems to have taken place, the funds in Clough’s “payroll account” belonged to the debtor and were subject to trustee process under Rule 4.2 of the Vermont Rules of Civil Procedure.
The post-judgment trustee summons was served on VNB on April 4, 1985. The evidence reveals that the “payroll account” was overdrawn by $4.89 on that day. Clough’s bookkeeper deposited funds on April 8, 1985, however, within the time for disclosure required by the summons. Under 12 V.S.A. § 3013:
“The goods, effects or credits of the defendant which are in the hands of such trustee at the time of service of the writ upon him, or which come into his hands or possession before disclosure (emphasis added), shall thereby be attached and held to respond to final judgment in the cause ...”
The deposit on April 8,1985 comes within the intended scope of 12 V.S.A. § 3013. The application of the statute gives Quali-tad no claim to the funds except what it acquires by trustee process, which operates as an attachment. Hartford Life Insurance Co. v. Weed and Hunt, 75 Vt. 429, 431, 56 A. 97 (1903). The trustee process against the “payroll account” changes the character of Qualitad’s unsatisfied judgment once there is a lien against the funds by operation of the trustee process as an attachment. See State v. Rogers, 123 Vt. 422, 426, 193 A.2d 920 (1963). This lien created an inchoate right in Qualitad to the detriment of other creditors.
The inchoate right that arose under the lien created by the trustee process looks like an indirect transfer of an interest of the debtor in property. If this transfer is one within the scope of 11 U.S.C. § 547(b), then it is a transfer that may be voided by the trustee.
Under 11 U.S.C. § 547(b), in order to avoid a transfer to a non-insider of an interest of the debtor in property, five criteria must be met. The transfer must be:
(1) to or for the benefit of a creditor;
(2) for or on account of an antecedent debt owned by the debtor before such transfer was made;
(3) made while the debtor was insolvent;
(4) made on or within 90 days before the date of the filing of the petition; and
(5) one that enables the creditor to receive more than the creditor would receive if the case were a liquidation case, if the transfer had not been made, and if the creditor received payment of the debt to the extent provided by the provisions of Title 11.
On the evidence, requirements (1), (2), and (4) are clearly satisfied. No evidence was presented on requirement (3), which is thus governed by the presumption of insolvency in 11 U.S.C. § 547(f). An unrebutted presumption establishes the presumed fact as a matter of law. F.R.E. 301; United States v. Ahrens, 530 F.2d 781 (8th Cir.1976). Finally, taking notice of the file in this case, the Court finds that this is a “no *428assets” case, fulfilling requirement (5). Consequently, we find the inchoate interest that arose under 12 V.S.A. § 3013 is a transfer within the meaning of 11 U.S.C. § 101(48) and the trustee in bankruptcy is therefore entitled to recover from VNB for the benefit of the estate.
Accordingly,
It is ORDERED that the trustee may recover from Vermont National Bank the amount of $1,595.11, plus any interest accruing on the account and less any service charges. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489992/ | ORDER
CHARLES A. ANDERSON, Bankruptcy Judge. ■
Presently before the Court is the Chapter 13 Trustee’s Complaint objecting to debtor’s claim of exempt property.
Debtor, Forrest A. Brown, filed a Chapter 13 petition on July 12, 1984. He is the owner of a 1980 Ford Mustang with a fair market value of $3,600, which he claimed is entirely exempt by virtue of 11 U.S.C. § 522(d). Debtor’s exemption in his Mustang would be $1,400, if he were required to use the Ohio exemption statute § 2329.66(A)(2), (17).
In support of his claimed exemption, debtor claims
that Ohio’s ‘opt out’ of the federal exemptions by § 2329.662 O.R.C. was repealed by operation of law on 28 September 1983 as the expiration date of the extension by House Bill 291, passed 30 June 1983, was violative of the “one subject rule” of Article II, § 15 of the Ohio Constitution.
Debtor then cites in support this Court’s prior opinion in In re Lewis 38 B.R. 113, 10 C.B.C.2d 437 (Bankr.S.D.Ohio 1984), the Supreme Court of Ohio’s opinion, State, Ex rel, v. Celeste, 11 Ohio St.3d 141, 464 N.E.2d 153 (1984), and decisions from other bankruptcy courts In re Lawson, 42 B.R. 206, 12 B.C.D. 62 (Bankr.E.D.Ky.1984) and In re Lunsford, 41 B.R. 822 (Bankr.N.D. Ohio 1984).
As this Court recently wrote in In re Thompson, 44 B.R. 530 (Bankr.S.D.Ohio 1984):
However, subsequent action by the General Assembly of the State of Ohio after the Lewis decision has mooted this constitutional issue. In Amended Substitute Senate Bill No. 171, File 99, effective as of June 13, 1984, the Ohio opt-out section was extended until January 1, 1986. This extension appears proper and not in violation of the Ohio Constitution’s “one issue rule.” Given such intent by the Ohio General Assembly, this Court will not distinguish between those debtors filing during any gap period and those filing after such valid extension.
Accordingly, IT IS ORDERED that the Trustee’s Objection is well taken and that the debtor claim his exemptions under applicable Ohio law. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489993/ | ORDER FOR TURNOVER
THOMAS C. BRITTON, Bankruptcy Judge.
The trustee’s motion for turnover (C.P. No.13) was heard on February 7. The debtor made no procedural objection under B.R. 7001, therefore, I presume that the objection has been waived.
It is conceded that the debtor was not a “head of a family” on October 30,1984, the date this bankruptcy petition was filed. Under former Article X, § 4, Florida Constitution, only the head of a family may claim the $1,000 personal property exemption from the claims of creditors, which this debtor has claimed. It is the trustee’s position, therefore, that the debtor is entitled to no exemption and that the trustee is entitled to an order requiring the debtor to turn over forthwith the $3,463 worth of personal property she admittedly held on the date of bankruptcy.
The amendment to the Constitutional provision in question was adopted pursuant to an election held in November, 1984, eliminating the requirement at issue here and granting the exemption in question to “any natural person, not just the head of a family”. It is, therefore, the position of the debtor that she is entitled to the exemption.
The Constitutional amendment of Article X, § 4, did not become effective until January 8, 1985. Article XI, § 5(c), Florida Constitution. Therefore, on the date this bankruptcy petition was filed, the Constitutional amendment was not in effect or. applicable.
The State exemptions recognized under the bankruptcy code, 11 U.S.C. § 522(b)(2)(A), are those:
“applicable on the date of the filing of the petition at the place in which the debtor’s domicile has been located”.
It follows, therefore, that the recent Constitutional amendment is not applicable with respect to this debtor’s claimed exemptions in this bankruptcy case and, therefore, the debtor is ordered to surrender forthwith to the trustee all personal property listed by her in Schedule B-2 of her bankruptcy schedules. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489994/ | FINDINGS OF FACT, OPINION AND CONCLUSIONS OF LAW
RANDALL J. NEWSOME, Bankruptcy Judge.
This Chapter 11 adversary proceeding is before the Court pursuant to its removal from the U.S. District Court for the Southern District of Ohio by agreement of the parties. The plaintiff, D.H. Baldwin Company (“Baldwin”), seeks recovery of an income tax deficiency and interest assessed for its 1976 tax year. A trial on the merits was held August 21 through 23, 1984. Two issues are presently before us, both arising from alleged deficiencies in 1976 reported gross income of the Baldwin Piano and Organ Company (“Piano Company”), a wholly-owned subsidiary of Baldwin which filed its 1976 corporate income tax return on a consolidated basis with the plaintiff. The first, known as the commissions issue, involves the question of whether under Internal Revenue Code (“IRC”) § 482 Baldwin’s 1976 reported gross income should have been increased by $725,-614 by virtue of alleged additional commission income to the Piano Company under a contract with the D.H. Baldwin Trust. The second, known as the installment accounts receivable issue, raises the question of whether under IRC § 482 Baldwin’s 1976 reported gross income should have been increased by $640,195 attributable to collections in 1976 on certain installment sales contracts originally sold by the Piano Com*59pany to a group of banks and then repurchased by a Baldwin affiliate company. The remaining issues pending in this adversary proceeding were severed from this trial by our Order of August 20, 1984 (Court Doc. 50).
The Court hereby submits the following Findings of Fact, Opinion and Conclusions of Law. In our Findings of Fact we have incorporated the facts stipulated before the District Court where relevant.
Findings of Fact
1. For all years relevant to this case, Baldwin and the Piano Company were both Ohio corporations with their principal places of business at the same address in Cincinnati, Ohio. The Piano Company was a wholly owned subsidiary of Baldwin in 1976, but has now been sold as part of the bankruptcy reorganization. (Final Pretrial Order, Rubin, C.J., at p. 4, Stipulation No. 1) (hereinafter “Stip.”).
2. Baldwin and the Piano Company used the accrual method of accounting and, when available, the installment method of accounting for tax purposes. Baldwin and the Piano Company filed their income tax return on a calendar year basis (Stip. 2).
3. Pursuant to filing extensions granted to that date, on September 15, 1977 Baldwin filed a consolidated U.S. Corporation Income Tax Return (Treasury Form 1120) for the taxable year 1976, reporting therein income of the Piano Company. Such return reported a federal income tax liability of $1,704,670, the full amount of which was timely paid to the Internal Revenue Service (“IRS”) (Stip. 3-4; Joint Ex. I).
4. On June 18, 1982 the IRS assessed a deficiency of $1,840,969 of income taxes against Baldwin and its consolidated subsidiaries for 1976, plus $932,399.34 of statutory interest thereon. After recalculation by the IRS, the amount of assessed statutory interest was reduced by $27,107.10. Baldwin timely paid the total so assessed to the IRS (Stip. 5).
5. On December 7, 1982 Baldwin filed a claim for refund of $1,293,674 of the assessed deficiency of income tax for 1976 plus the paid statutory interest attributable thereto plus interest thereon provided by law. The IRS denied such claim on December 30, 1982 (Stip. 6).
Commissions Issue
6. The Baldwin Foundation (“Foundation”), created on May 20, 1961, is an Ohio nonprofit corporation which maintained its office at the same address with Baldwin and the Piano Company. The Foundation was formed under Ohio Revised Code (“ORC”) § 1702.01 as a nonprofit corporation and constitutes a charitable corporation as defined by ORC § 1702.01(D). The Internal Revenue Service (“IRS”) determined the Foundation to be a charitable organization under Internal Revenue Code (“IRC”) § 501(c)(3). The IRS ruling of October 25, 1962 that made this determination remains in effect (Stip. 7, Joint Ex. II).
7. The trustees of the Foundation in the period from December 1, 1967 through 1976 were Lucien Wulsin, Jr., Morley P. Thompson, Robert Coghill, James M.E. Mixter, R.S. Harrison, Donald E. Waggoner, James E. Schwab, Philip Wyman, John F. Jordan, A.J. Schoenberger and J. Leland Brewster. During their period of service as trustees they were also officers or directors of Baldwin or the Piano Company (Stip. 8).
8. In an effort to achieve, inter alia, off balance sheet financing and a reduction in state and local income taxes for themselves, Baldwin and the Piano Company desired to enter into a contract with a third party for the sale of substantially all finished inventory of the Piano Company, to be consigned to the Piano Company’s dealer network. Baldwin and the Piano Company also desired to produce revenue for the Foundation (Stip. 9, Tr. 149, 181).
9. On December 19, 1967 the D.H. Baldwin Trust (“the Trust”) was formally created by agreement between the Foundation and Alan R. Vogeler, J. Leland Brewster and D. Michael Poast in their fiduciary capacity as the initial trustees. The Trust continues in existence to the present date (Stip. 10, Joint Ex. III).
*6010. All trustees of the Trust were appointed by the trustees of the Foundation, which had the right to remove any trustee upon thirty days’ notice. (See, Joint Ex. Ill, Trust Agreement, Article V(A)). From 1967 through 1977 the Foundation had not removed any trustee of the Trust. From December 19, 1967 through 1976, the trustees of the Trust were Alan Vogeler (to March 31, 1968), J. Leland Brewster II (to December 31, 1968), D. Michael Poast (to March 31, 1968), Walter S. March (1968-70), Fred Lindsey (1968-1976), J. Tracy Kropp (1970-1976), Charles G. Lindeman (1971-1976), and Adam Bauer (1968-1973). None of the trustees of the Trust was an officer, director, or employee of the Piano Company or its parents or affiliates while serving as a trustee (Stip. 11).
11. While serving as trustees, Alan R. Vogeler and J. Leland Brewster were partners and D. Michael Poast an associate of the law firm of Kyte, Conlan, Wulsin & Vogeler, which in 1967 and 1968 represented Baldwin as principal attorneys. Prior to becoming trustees, Walter S. March and Fred Lindsey had been employed as vice presidents of Central Trust Company, a creditor of Baldwin at all times relevant. J. Tracy Kropp had been partner in charge of the Peat, Marwick, Mitchell & Co. office in Cincinnati, Ohio, the certified public accounting firm which audited Baldwin and its subsidiaries’ books during the relevant time periods. Charles G. Lindeman had been employed previously as the controller of Baldwin. Adam Bauer had been employed previously as director of manufacturing of the Piano Company (Stip. 11).
12. On December 19,1967, effective December 30, 1967, the Trust entered into a contract (“the contract”) with the Piano Company to purchase all of the new pianos, organs, piano benches and accessories (“the inventory”) then owned or thereafter manufactured by the Piano Company except for such items needed by the Piano Company to stock its own retail stores and for promotional, charitable or other business reasons. In 1972 the contract was amended to provide for the sale to the Trust of inventory consigned to the Piano Company’s retail stores. As used hereinafter “dealer” includes independent and company-owned stores (Stip. 13, Joint Ex. V, Second Amended Agreement, 1972 (“SAA”)).
The Trust’s only business activity in 1976 was the contract with the Piano Company; it had no employees (Tr. 225).
13. The Trust executed a credit agreement on December 28, 1967 with the Central Trust Company. With certain amendments from time to time a credit agreement remained in effect for the duration of the contract with the Piano Company (Stip. 12, Joint Ex. IV). The interest rate specified in the credit agreement was .5% over prime rate. This favorable rate is attributable to Baldwin and its subsidiaries being major customers of the Central Trust Company (Tr. 188-9).
The credit agreement required the Trust to provide the Bank with yearly certified audits of the Trust, Baldwin and the Piano Company (Joint Ex. IV, § 4(f), Tr. 190-1).
As part of the Trust’s credit arrangements Baldwin adopted a resolution guaranteeing full performance by the Piano Company of its obligations under the contract with the Trust (Def. Ex. E-l-3, Tr. 187-8).
14. The contract called for the Trust to purchase items of inventory from the Piano Company at the prices specified in “Schedule B” to the contract and known as the “cost price” or factory billing price. The cost prices were the normal prices a manufacturer would charge for the sale of its product to a wholesaler. The price at which each item would be sold by the Trust to dealers, known as the “wholesale price” or consignment price was also shown on Schedule B. The cost prices on Schedule B were subject to change by the Piano Company on reasonable notice to the Trust, and the wholesale prices were subject to change by the Trust upon reasonable notice to the Piano Company, subject however, to certain limitations (Joint Ex. V, SAA § 4).
15. For 1976, the contract between the Piano Company and the Trust was imple-*61merited as follows: the Piano Company manufactured the inventory and sold it to the Trust at the cost prices in effect on Schedule B. At this time, the Piano Company reported in its gross profit the difference between its cost of goods sold and the prices for which they were sold (Stip. 16).
The total price at which the Piano Company sold merchandise to the Trust in 1976 was $52,736,956. The total sales of the Piano Company for 1976 were $58,456,111 upon which the Piano Company had a gross profit of $14,965,505 and net profit of $8,307,982 (14.212% of sales). Such profits were reported in its 1976 income tax return (Stip. 23).
16. The Trust did not take physical possession of the inventory it purchased or make any physical alterations to it. Instead, the inventory was consigned to dealers by the Trust and delivered directly to them from the Piano Company. If a dealer sold an item of inventory to a consumer for cash, the dealer bought the item of inventory from the Trust at the “wholesale price” on Schedule B. If the dealer arranged the sale on the installment plan using Piano Company financing, the Piano Company repurchased the item of inventory from the Trust and an installment contract was created between the consumer and the Piano Company. On installment sales through an independent dealer, the Piano Company paid the dealer a sales commission (Stip. 16, 17).
The contract between the Piano Company and the Trust also provided for the Piano Company to act as collection agent for the Trust in connection with cash sales made of Trust inventory (Stip. 24).
17. The agreement further provided for the employment by the Trust of the Piano Company as servicing agent for the Trust in its transactions with dealers, with the following responsibilities:
(a)Conducting periodic audits of goods owned by the Trust, wherever located, followed by prompt and full reporting of the results thereof.
(b) Handling all matters concerning the relationship between the dealer and the Trust.
(c) Establishing and operating an accounting system for all goods purchased by the Trust and all goods consigned to dealers.
(d) Handling all settlements with dealers for consigned goods sold to or by them, including particularly the collection of all monies becoming due by reason of such sales and remitting such monies to the Trust.
(e) Handling all customer complaints, inquiries and claims made by customers under the manufacturer’s warranty.
(f) Handling all dealer complaints or disagreements under the Dealer Contract or Company Store Contract and execution of trust instructions with respect to such contracts.
(g) Removing consigned goods from the floor of any dealer who failed to comply with the terms of his Dealer Contract or Company Store Contract or who was terminated as a dealer.
(h) Maintaining insurance on all consigned goods for the account of the Trust and any bank or other financing institution or agency having an interest in the goods.
(i) Reporting to the Trust any information regarding or affecting the security of the merchandise on consignment (Stip. 15).
In consideration for the services provided to the Trust by the Piano Company as servicing agent, the contract between the Piano Company and the Trust required the Trust to pay the Piano Company “commissions” (Joint Ex. V, SAA § 11(b)).
18.The amount of commissions which the Piano Company received was based on total collections from dealers on cash sales of inventory. The contract provided for the Piano Company to receive as commissions for its services such part of the total collections as remained after deduction of:
(a) the aggregate “cost prices” of all items of inventory paid for by dealers during the month;
*62(b) the aggregate “cost prices” of all items of inventory which became old stock during the month;
(c) expenses reasonably incurred by the Trust in the ordinary conduct of its business including, but not limited to trustee’s fees, cost of furniture and equipment, salaries of Trust employees, rent, interest on loans, amounts payable to Trustees, taxes and state law costs; arid
(d) a reasonable profit.
A profit of one-tenth of one percent of the average aggregate cost prices of all goods held by the Trust during the month was deemed reasonable. (Joint Ex. V, SAA § 11(a) and (b)).
19. Prior to 1974, the Piano Company and the Trust had each used the First-In-First-Out (“FIFO”) method for valuing inventory for tax purposes. Using the FIFO method of valuing inventory, sales of fungible inventory during a year are deemed to be of the oldest inventory first.
Effective for the year 1974, both the Piano Company and the Trust adopted the Last-In-First-Out (“LIFO”) method for valuing inventory. Using the LIFO method, sales of fungible inventory during a year are deemed to be of the newest inventory first. In a period of rising prices of inventory, use of LIFO rather than FIFO will increase reported cost of goods sold and reduce reported taxable profits.
For the relevant taxable years, any taxpayer using a FIFO method could adopt a LIFO method for valuing inventory upon filing with the IRS notice of intention to do so (Form 970) and paying any taxes for the year of change and the year prior thereto (IRC § 472(d)). Both the Piano Company and the Trust timely filed such forms for 1974 (Stip. 18, 19).
20. For years in which a taxpayer employs a LIFO method of valuing inventory, a year-end adjustment of the books of the taxpayer of the inventory value must be made to reflect the difference between what the inventory value would be if a FIFO method had been employed. This difference is called a LIFO reserve. The Trust’s year-end LIFO inventory reserve adjustment for 1976 was in the amount of $725,614 (Stip. 20).
21.Testimony at trial indicated that the Trust’s adoption of LIFO was discussed between a representative of the Piano Company, Charles Lewis from the D.H. Baldwin controller’s office, trustees of the Trust, namely, Mr. Kropp and Mr. Linde-man and Mr. Mellott of Mellott and Mellott, the Trust’s accountants. Mr. Lewis made a presentation regarding LIFO at a Trust meeting (Tr. 262-3). Mellott and Mellott prepared a memorandum dated January 21, 1975 strongly urging that the inventory valuation method used by the Trust be converted to the LIFO method effective for the year ended December 31, 1974 (PI. Ex. 1). The memo states that “there will not be a material difference in income as a result of changing to LIFO since cost of sales will increase and commissions to the Baldwin Piano and Organ Company will decrease on a dollar for dollar basis.” Among the advantages of LIFO outlined was improvement of cash flow to the Trust.
Mr. Lewis explained that implicit in the Trust’s considering the adoption of LIFO was an agreement between the Piano Company and the Trust that the amount of commissions to be paid to the Piano Company under the contract would be determined by the Trust’s LIFO cost of goods sold. For 1976, the amount the Trust actually paid for inventory to the Piano Company did not change from the “cost prices” shown on the Schedule B then in effect (Tr. 266). But the parties agreed that for purposes of computing commissions, the “cost price” used would be the Trust’s reported cost of goods sold under the LIFO method of valuing inventory (Tr. 265-6, 271-3).
The parties did not amend the written contract to reflect this new manner of computing commissions (Tr. 255-6). The services performed by the Piano Company for the Trust were not reduced or changed as a result of the reduction in commissions to be paid to the Piano Company (Tr. 168).
Mr. Lewis further testified that the Piano Company was agreeable to receiving *63reduced commissions as a result of the Trust’s adoption of LIFO because the Trust would have additional cash to either purchase inventory from the Piano Company or to repay the Trust’s indebtedness (and therefore reduce the interest expense component of the commissions formula) (Tr. 116, 260). He did not know whether these benefits to the Piano Company actually occurred (Tr. 260, 274).
22. Transactions between the Trust and the Piano Company were summarized on monthly settlement statements (Joint Ex. XVI). The Piano Company prepared these statements for review by the trustees and Mellott and Mellott (Tr. 103). The settlement statement for December 1976 shows-a deduction for “LIFO reserve 12/31/76” in the amount of $725,614.89. The parties stipulated that the Trust received a credit of $725,614 from the Piano Company against its indebtedness to the Piano Company as reflected on the settlement sheet of December 31, 1976 (Stip. 21).
The 1976 accounting records of the Piano Company, in particular, Account No. 9295 “Commission on Trust” shows a gross figure of $6,194,330.88 at December 31, 1976. A “charge” of $725,614.89 is shown for December 31, 1976 for a reduced gross commission amount of $5,468,715.99 (PI. Ex. 5, Tr. 157). Account No. 2080 “D.H. Baldwin Trust Account Receivables” shows a gross figure of $1,137,846.34 at December 31, 1976 with a “credit” of $725,614.89 to the Trust (Def. Ex. H-2). A “Journal Entry” dated 12/31/76 shows a debit to Account No. 9295 and a credit to Account No. 2080 each in the amount of $725,-614.89, explained as “[r]ecord commission due D.H.B. Trust after offset for Trust LIFO inventory Adj [sic] at 12/31/76” (Def. Ex. H-l).
23. The Piano Company reported commission income of $5,841,616.29 for its 1976 tax year (Tr. 120,156; PI. Ex. 2). This was computed from the figures shown in Plaintiff’s Exhibit 5, as follows:
Gross Commissions
(Account No. 9295, Tr. 157) $6,194,330.88
Trust’s LIFO reserve adjustment
(725,614.89)
5,468,715.99
Display Charges $1,375,323.01
(Account No. 9210, Tr. 155) 54,757.56
6,898,796.56
Trust Expense
(Account No. 9698, Tr. 156) (40,334.09)
6,858,462.47
Interest Expense
(Account No. 9329, Tr. 153) (1,016,846.18)
$5,841,616.29
The IRS increased the reported gross income of the Piano Company by $725,614 by virtue of alleged additional commission income to the Piano Company. This increased the plaintiff’s tax liability by $348,-295 according to plaintiff’s calculation and resulted in $345,130 in interest being paid (Tr. 329).
24.During 1976, the net earnings of the Trust amounted to $15,722 and the sum of $16,300 was paid directly to the Foundation (Stip. 25). As a result of the IRS adjustment for 1976 increasing the Trust’s commission expense by $725,614, the Trust had a net operating loss in 1976 of approximately $710,000 (Tr. 123).
Installment Accounts Receivable Issue
25. As noted above, when an installment sale of an inventory item was procured by a dealer, the Trust sold the inventory item back to the Piano Company and an installment contract (installment account receivable) was created between the consumer and the Piano Company (Stip. 16, Tr. 285-86).
26. Installment contracts that the Piano Company held following an installment sale of a piano were assigned by the Piano Company to the Baldwin Finance Company (Joint Ex. XIX, Tr. 287).
27. In 1974 the Piano Company wanted to sell by December 31, 1974 its then existing installment contracts (and those discounted with Baldwin Finance Company). Thereafter, it could adopt the installment method of accounting for sales as permitted by IRC § 453(a) without incurring the *64tax disadvantages prescribed by IRC § 453(c) for installment method taxpayers receiving payments on accounts already reported in income under the accrual method of accounting (Stip. 29, Tr. 292).
28. The Piano Company requested and on December 17, 1974 received a private letter ruling from the IRS that a proposed sale of installment contracts would constitute a bona fide sale. The ruling holds that the Piano Company could thereafter elect the installment method of accounting for sales of inventory and avoid collections on the contracts sold being taxable (Stip. 29, Joint Ex. VIII p. 3, Tr. 294-96).
The ruling from the IRS was based on a proposed contract with a group of banks headed by Continental Illinois National Bank and Trust Company (“Continental”). Under the contract, collections on the installment contracts would be made by the Piano Company as agent for the banks (Stip. 32, Joint Ex. VIII p. 1-2, Joint Ex. IX § 6, Tr. 295-96).
29. Prior to the sale of installment contracts to Continental, Baldwin Finance Company assigned its portion of such contracts to the Piano Company (Tr. 297-98).
30. On December 31, 1974 the Piano Company entered into an agreement with a group of banks headed by Continental (the “Agreement”) for the sale of installment contracts. The installment contracts sold had a principal value of $18,385,311.42 and future interest payable of $4,793,094.81.
Under the Agreement, the sale price to Continental was $21,091,422. Of this amount, Continental held back 10% as a reserve, or $2,109,142.26 (Joint Ex. IX § 4(B), PI. Ex. 9, Tr. 300-03).
31. The principal value and accrued interest on all installment contracts covered by the Agreement were reported in the Piano Company’s gross income in 1973 and 1974 based upon the accrual method of accounting. In addition, gross profit of $2,706,111 (that is, the difference between the contract price with Continental and the principal balances on the installment contracts sold) was also included in the Piano Company’s gross income in 1974 (Stip. 35, PI. Ex. 9, Tr. 294, 303).
32. As of January 1, 1975, the Piano Company elected to report sales of inventory on the installment method of accounting (Stip. 36, Tr. 288-9).
33. The Agreement with Continental gave the Piano Company an option to repurchase any “defaulted installment contract” from Continental at a price equal to the contract’s then unpaid contract balance — all amounts remaining to be paid on the installment contract, both interest and principal (Stip. 31, Joint Ex. IX).
A defaulted installment contract was defined as one on which any installment was past due in whole or in part for a period in excess of 90 days (Stip. 31, Joint Ex. IX § 1(D)).
34. If the Piano Company repurchased any defaulted installment contracts from Continental, any collections on such contracts would be includable in the Piano Company’s gross income as received, even though the full amount of principal and accrued interest on the contracts had previously been included in its gross income for 1974.1 The December 17, 1984 ruling from the IRS specifically holds that:
Any Contracts which are repurchased by Piano from the Agent [Continental] will become part of its installment accounts receivable and will be treated, for Federal income tax purposes, as if the accounts were never sold.
*65(Joint Ex. VIII, p. 3, Tr. 310-11)
35. If a defaulted installment contract2 was not purchased from Continental, Continental could charge the entire unpaid contract balance against the 10% reserve (Stip. 31). If Continental charged a defaulted installment contract against the 10% reserve, any future collections on such defaulted installment contract were to be added to the reserve. The 10% reserve required by the Agreement was reduced proportionately as collections were made and was payable ultimately to the Piano Company (Joint Ex. IX § 11, Tr. 361-2).
Plaintiff believed it would be taxed a second time on collections added to the reserve, as though it had repurchased the contracts (Tr. 309-10). Plaintiff also believed that depletion of the 10% reserve by Continental’s charging defaulted contracts against it would have jeopardized the Piano Company’s credit relationship with Continental, particularly since at the time of the transfer to Continental a number of contracts were already at or near default (Tr. 305, 335). One means for avoiding these problems appeared to be for a third party to purchase the defaulted contracts from Continental (Tr. 310).
36. National Farmer’s Union Service Corporation (“NFU”) is an insurance holding company and a Delaware corporation, all of the outstanding common shares of which were owned by the Farmers Educational and Cooperative Union of America, a Texas nonprofit corporation (Stip. 26, Tr. 367-68).
37. As of December 12, 1973, Baldwin gained ownership of convertible, participating, cumulative preferred stock of NFU which could be converted into 90% of the outstanding common stock of NFU at any time until a certain date at which time conversion became mandatory. The preferred stock was previously held by Baldwin-Central, Inc., a wholly owned subsidiary of Baldwin, and the mandatory conversion date was January 1, 1975. After the preferred stock was reissued to Baldwin, the mandatory conversion date was postponed until after 1976 (Stip. 26).
Ownership of the preferred stock entitled the owner to 90% of the net earnings, if any, of NFU (Stip. 26, Joint Ex. VI.). The conversion of NFU preferred stock into common stock took place in January, 1978 (Tr. 322-3).
38. Baldwin’s Form 10-K for its fiscal year ended December 31, 1976, filed with the Securities and Exchange Commission, states that:
Although The Farmers’ Educational and Cooperative Union of America (National Farmers Union) owns 100% of the outstanding common stock of Service [NFU], Baldwin controls Service by virtue of its ownership of all of the four percent (4%) cumulative, convertible participating preferred stock issued by Service in 1970.”
(Def. Ex. C p. E-8-9) See also, Def. Ex. B. p. 31.
39. There have been no allegations that the directors or officers of NFU during the requisite time period had any relationship to Baldwin or the Piano Company. The directors of NFU in 1974 through 1976 were individuals who were directors or officers of the various state farmers unions which owned common stock of NFU. The officers of NFU were appointed by the board of directors of NFU (Stip. 27, 28).
40. NFU did not file a consolidated federal income tax return with Baldwin or the Piano Company for 1976 or any year prior thereto (Stip. 37, Tr. 323).
41. In early January 1975, James Schwab, treasurer of Baldwin, telephoned Paul Huff, vice president and treasurer of NFU and its insurance subsidiaries, inquiring whether NFU had any interest in purchasing the defaulted installment contracts. The yield to be expected on the *66investment was represented to be 14% or better, with an initial investment of $500,-000 to $600,000. Mr. Huff decided that NFU would acquire the contracts (Tr. 370-373).
42. The purchase of defaulted installment contracts by NFU was done on a month-to-month basis. The Piano Company advised NFU of the total purchase price it was to pay to Continental for the acquisition of defaulted installment contracts. NFU wired funds directly to an account at Continental in an amount equal to the remaining principal and interest that was to be paid on the defaulted installment contracts (Tr. 315-6, 337-8, 373-4, 401-2, PI. Ex. 3).
43. At the time NFU purchased the contracts, the Piano Company reimbursed NFU for the amount of unearned interest it had paid to Continental as part of the purchase price of, the contracts. Subsequently, all collections of principal and interest on the contracts purchased from Continental by NFU were paid to NFU. Therefore, NFU’s profit on the transaction consisted of the interest or “carrying charge” portion of the collections as well as the late charges collected on the contracts (Tr. 335-6, 352, 359-60, 371, PI. Ex. 3). The Piano Company also reimbursed NFU for up to 10% of its original purchase of defaulted contracts which had ultimately become uncollectible (Tr. 319-21).
44. The Piano Company acted as collection agent for NFU of the amounts collected on the installment contracts NFU purchased and received a service charge of $.50 per month per contract (Tr. 374, 382, PI. Ex. 4).
During 1976, NFU was credited with $1,129,576 by the Piano Company from collections on installment contracts purchased from Continental (Stip. 38.).
45. Mr. Huff testified that the acquisition of the defaulted contracts was a profitable investment for NFU with a rate of return between 14 and 16 percent. This rate of return was calculated by measuring the principal balance of the notes, i.e., the amount invested, against the income from interest and late charges.
46. The understanding between the Piano Company and NFU regarding the purchase of installment contracts was not reduced to writing until 1977 and then only to satisfy the insurance examiners for the State of Utah (Tr. 375-6, PI. Ex. 4).
47. NFU reported in its 1976 tax return the profits that it earned from the installment contracts (Tr. 387).
48. The Piano Company did not include in its gross income for 1976 collections from the defaulted installments purchased from Continental by NFU (Tr. 326).
49. The IRS increased the reported gross income of the Piano Company by $640,195 attributable to collections in 1976 on installment sales contracts purchased by NFU. This increased plaintiffs 1976 tax liability by $265,512 and resulted in interest of $263,099 being paid (Tr. 327).
Opinion
I. Commissions Issue
The plaintiff asserts that the IRS erred in increasing the Piano Company’s reported gross income for 1976 by $725,614 in additional commission income. The IRS cites as authority Internal Revenue Code (“IRC”) § 482, which in the case of two organizations controlled directly or indirectly by the same interests authorizes the IRS to allocate gross income between such organizations in order to prevent evasion of taxes or clearly to reflect income.
The first inquiry under § 482 is whether the Trust and Piano Company were controlled by the same interests:
The term “controlled” includes any kind of control, direct or indirect, whether legally enforceable, or however exercisable or exercised. It is the reality of the control which is decisive, not its form or the mode of its exercise. Treas.Reg. § 1.482-l(a)(3).
While the control relationship in this case is not readily apparent because of the interposition of the Foundation between the Piano Company — a wholly owned subsidiary of Baldwin — and the Trust, all of these enti*67ties were subject to Baldwin's control. The Foundation’s trustees were all officers or directors of Baldwin or the Piano Company. The Foundation’s trustees appointed the trustees of the Trust.3
All of the Trustees of the Trust had a present or past relationship to Baldwin or the Piano Company. Moreover, the Trust was established for the express purpose of providing the Piano Company with a vehicle to sell its inventory, and only secondarily to provide revenue for the Foundation. Indeed, the Trust’s only business activity was its contract with the Piano Company. These factors constitute sufficient evidence of direct or indirect control of the Trust by Baldwin to support a reallocation of income under § 482 to clearly reflect income or prevent evasion of taxes.
The standard to be applied under § 482 is that of an uncontrolled taxpayer dealing at arm’s length with another uncontrolled taxpayer. Treas.Reg. § 1.482-1(b)(1). The “agreement” for the Trust to adopt LIFO, with the Piano Company to accept reduced commissions, cannot withstand the test of arm’s length dealings. We do not believe that two unrelated taxpayers would structure an agreement to pay commissions for services performed around one taxpayer’s adoption of the LIFO method of inventory valuation. The Trust had no independent reason to adopt LIFO. Indeed, use of the LIFO method for 1976 without a reduction in commissions resulted in a huge loss to the Trust. Further, the services performed by the Piano Company for which commissions were paid did not decrease when commissions were reduced. See, Treas.Reg. § 1.482-2(b)(3). The business justification asserted for the Piano Company’s receiving reduced commissions is unpersuasive and unsubstantiated.
A determination of deficiencies by the IRS is presumed correct and the taxpayer has the burden of showing it to be otherwise. Davis v. Commissioner, 585 F.2d 807, 812 (6th Cir.1978), cert. denied, 440 U.S. 981, 99 S.Ct. 1789, 60 L.Ed.2d 241 (1979). The plaintiff has not carried its burden of proving that the defendant was incorrect in allocating an additional $725,-614 in commission income to it for 1976.
Under the written contract in effect, the Piano Company had a right to commissions determined by reference to the “cost prices” shown on Schedule B. The parties continued to operate under that contract in 1976, with the Trust purchasing inventory at the Schedule B prices, and the Piano Company recording “gross commissions” from collections on sales by dealers. By agreement of the parties, however, the Piano Company received $725,614.89 less in commissions than it was entitled to under the contract.
This was tantamount to a waiver of earned commissions by the Piano Company. In a similar but much simpler case on point, the IRS’ determination of a deficiency in reported commission income was upheld. In Mensik v. Commissioner, 37 T.C. 703, 748 (1962) aff'd, 328 F.2d 147 (7th Cir.1964), cert. denied, 379 U.S. 827, 85 S.Ct. 55, 13 L.Ed.2d 37 (1964), the taxpayer was entitled to commissions on insurance sales equal to 20% of the initial premiums paid. However, on sales to employees, friends and relatives, 20% was deducted by them before making the premium payment to the taxpayer. The Tax Court held that having earned the premiums he could not escape taxation thereon by voluntarily waiving or assigning his right thereto to someone else, citing Lucas v. Earl, 281 U.S. 111, 50 S.Ct. 241, 74 L.Ed. 731 (1930) and Helvering v. Horst, 311 U.S. 112, 61 S.Ct. 144, 85 L.Ed. 75 (1940). The Piano Company’s agreeing to accept less commissions than it had earned under the contract, with the attendant reduction in taxable income, does not appear to warrant a different result from Mensik. See also, Hugh *68Smith Inc. v. Commissioner, 8 T.C. 660, 670-1 (1947) aff'd, 173 F.2d 224 (6th Cir. 1949), cert. denied, 337 U.S. 918, 69 S.Ct. 1161, 93 L.Ed. 1728 (1949).
We find that plaintiff is not entitled to a refund of taxes and interest paid as a result of the IRS’ allocation of an additional $725,614 in income to it for 1976.
II. Installment Accounts. Receivable Issue
The IRS contends that the purchase by NFU of the defaulted installment contracts was a sham; that in substance, if not form, the contracts were repurchased by the Piano Company. In the alternative the IRS argues that the sole purpose for the purchases by NFU was the evasion of taxes by the Piano Company, therefore requiring an allocation of income to the Piano Company from collection on the contracts under § 482.
We disagree with both theories. The plaintiff has produced sufficient credible evidence to overcome the presumptive correctness of the IRS’ determination. Davis v. Commissioner, 585 F.2d 807, 812 (6th Cir.1978).
The testimony of Mr. Huff, coupled with Plaintiff’s Exhibits 3 and 4, establishes that NFU did purchase and pay for the defaulted installment contracts. In turn the Piano Company acted as collection agent for a monthly fee and remitted the collections on the contracts to NFU. The IRS has produced no evidence to support its theory that the Piano Company repurchased the contracts from Continental.
The attempt by the Piano Company to avoid being taxed on collections on the contracts after changing from the accrual method to the installment method of accounting is a justifiable business purpose for a bona fide sale of installment accounts receivable. A taxpayer has the legal right “to decrease the amount of what otherwise would be his taxes or altogether avoid them, by means which the law permits,” and the motive of the taxpayer to escape payment of a tax will not alter the result. Gregory v. Helvering, 293 U.S. 465, 55 S.Ct. 266, 79 L.Ed. 596 (1935). In City Stores v. Smith, 154 F.Supp. 348 (E.D.Pa. 1957) the Court held that payments on installment accounts sold by plaintiff to two banks to avoid “double taxation” would not be included in plaintiff’s income, overruling the IRS’ argument that the sales were not bona fide. The IRS indicated it would follow the result in City Stores, that is, a taxpayer electing the installment method need not include in gross income amounts attributable to installment obligations sold in the previous year. Rev.Rul. 59-343, 1959-2 C.B. 137.
We need not decide whether Baldwin had the ability to exercise direct or indirect control of NFU for purposes of § 482, because the sale to NFU meets the test of arm’s length dealings regardless. The sale of defaulted installment contracts from Continental to NFU was advantageous to Baldwin for both tax reasons and to maintain a good creditor relationship with Continental. From NFU’s perspective this was an attractive investment opportunity which produced an excellent rate of return. The Piano Company’s reimbursing the interest portion of the contracts to NFU provided the impetus for NFU to make the investment. Defendant’s post-trial brief admits that the payments made to NFU were less than the additional tax which would have been owed by Baldwin if it were treated as having repurchased the contracts directly from Continental (Court Doc. 60 at p. 17.)
Once the taxpayer meets its burden of proof with the production of competent and relevant credible evidence sufficient to establish that the IRS’ determination is erroneous, the burden of going forward with the evidence is shifted. If the IRS offers no evidence to support a deficiency assessment, uncontroverted evidence that the IRS’ determination is incorrect will meet the taxpayer’s ultimate burden. Sullivan v. United States, 618 F.2d 1001, 1008-9 (3rd Cir.1980.)
The IRS here has produced no evidence to support its deficiency assessment. The IRS’ assertion that Continental had no *69knowledge of or dealings with NFU was not supported by credible or reliable evidence, and was refuted by plaintiffs witnesses.
Based upon the foregoing we find that plaintiff is entitled to a refund from the defendant of $528,611.
Conclusions of Law
1. This Court has jurisdiction over this action under 28 U.S.C. § 157 as enacted July 10, 1984.
2. Defendant’s allocation of an additional $725,614 in commission income to plaintiff for its 1976 tax year was correct, and judgment is hereby rendered in favor of the defendant on the commission issue.
3. Defendant’s allocation of an additional $640,195 in income to plaintiff for 1976 attributable to collections on installment accounts receivable was incorrect.
4. Plaintiff is entitled to a refund of $528,611 in taxes and interest it paid attributable to the installment accounts receivable deficiency assessment, and judgment is hereby rendered in favor of the plaintiff on the installment accounts receivable issue.
IT IS SO ORDERED.
. The Defendant’s post-trial brief explains that "while income which may have been previously included in gross income under the accrual method of accounting must be reported again as installments are collected, double taxation is prevented by Section 453(c).” That section provides for a credit in the year of the second income inclusion for the amount of the income tax already paid because of the prior inclusion of the same item in income. The problem however, is that "[m]ore tax is due from Baldwin on that income because it had more taxable income on a consolidated basis in 1976 than it reported in 1973 and 1974, and thus the tax credited from the prior years’ inclusion of the installment income in income for tax purposes, does not equal the additional tax for 1976.” (Court Doc. 60 p. 12 n. 5, p. 17.)
. During 1975, installment accounts receivable included in the Agreement in the amount of at least 11,947,196 fell into the category of defaulted contracts.
During 1976, installment accounts receivable included in the Agreement in the amount of $562,-947 fell into the category of defaulted contracts (Stip. 33, 34).
. While not dispositive of this issue we note that a control relationship in the case of "charitable" organizations which are exempt from federal income tax is established where a majority of the trustees of one organization are appointed by the trustees of another organization. See, Treas.Reg. § 1.509(a)—4(g)(l)(i). | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489995/ | ORDER
MICKEY DAN WILSON, Bankruptcy Judge.
This adversary proceeding was filed by Kenneth L. Stainer, trustee for the debtor estate and plaintiff herein, on December 6, 1982. Plaintiff objects to the claim of a security interest in debtors' tax refunds for 1981 filed by Stephen C. Wolfe, defendant. Plaintiff alleges that defendant does not have a perfected security interest in debtors’ tax refund because defendant does not have a valid security agreement signed by debtors. Plaintiff requests that defendant’s claim be allowed only as a general, unsecured claim in the amount as filed.
FACTS
On January 4, 1984, plaintiff and defendant filed a Stipulation summarized as follows:
1. Debtors filed their Petition in Bankruptcy on March 3, 1982. Plaintiff was *176appointed trustee of the estate March 4, 1982.
2. This Court has jurisdiction over this adversary proceeding pursuant to 28 U.S.C. § 1471 and 11 U.S.C. §§ 541, 544, 545, 546 and 547.
3. The Court may decide this case based on the Stipulation as if all facts were proven in trial.
4. On the date the Petition in Bankruptcy was filed, debtors were entitled to 1981 federal and state tax refunds totaling $532.00.
5. Defendant filed a Proof of Claim in Bankruptcy Case Number 82-00198. Defendant attached copies of the financing statement filed in the County Clerk’s Office of Tulsa County on December 15,1981, and the document defendant relies upon as a security agreement (promissory note).1
6. Plaintiff objects to defendant’s claim as stated in the Complaint. Defendant has filed an Answer to the Complaint.
7. The issue presented to the Court is whether defendant has a properly perfected security interest in the debtors’ 1981 federal and state tax refunds.
8. If the Court finds that defendant has a perfected security interest in the tax refunds, plaintiff will not have any right, title or interest in the refunds. If the Court finds that defendant does not have any right, title or interest in the refunds, the plaintiff’s objection to defendant’s secured claim will be sustained and the claim allowed only as an unsecured claim in the amount as filed.
DISCUSSION
The Stipulation limits the issue for resolution to the question of whether defendant has a valid perfected security interest in the 1981 tax refunds due the debtors. To have a valid perfected security interest, there must be a valid security interest in collateral securing an enforceable debt or obligation, and proper perfection of that interest. To evaluate the issue submitted, the Court must first decide whether the defendant has created a valid security interest as evidenced by a security agreement.
A “ ‘security agreement’ means an agreement which creates or provides for a security interest.” 12A O.S. 9-105(l)(h). In Pontchartrain State Bank v. Poulson, 684 F.2d 704-6 (10th Cir.1982), the court inferred that promissory notes, financing statements or other documents can serve as security agreements if they satisfy the requirements of Article 9 and contain language creating or providing for a security interest. The court also reviewed prior court decisions concerning the language necessary to evidence the creation of a valid security interest:
“There appears to be a split among the courts regarding the language which is needed to give rise to a security agreement, however. Some courts have held that a document, to be a security agreement, must contain language specifically granting a security interest in collateral, (citations omitted) In reaching this conclusion, these courts, relying upon a line of cases beginning with American Card Co. v. H.M.H. Co., 97 R.I. 59, 196 A.2d 150 (1963), equate the § 9-105 ‘creates or provides for’ terminology with the word ‘grants’.
Other courts have been more flexible. In In re Amex-Protein Development Corporation, 504 F.2d 1056 (9th Cir. 1974), the court rejected the argument that a security agreement must contain language explicitly conveying a security interest. The court found that a promissory note containing the line: ‘This note is secured by a Security Interest in subject personal property as per invoices’ was sufficient to create a security interest.
*177The promissory note in this case provided that it was 1... secured by pledge and delivery of the securities or property mentioned on the reverse ... ’ thereto. The note does not specifically grant a security interest to Bank; thus, under the law of this Circuit interpreting the Oklahoma Commercial Code, it does not satisfy the requirements for the creation of a security agreement.”
Defendant relies upon the promissory note attached to his Proof of Claim as a security agreement. The language handwritten on the form states, “This note is secured by personal income tax refund 1982. (for the year 1981) both State and Federal”. In consideration of Tenth Circuit reasoning, this court finds that the language defendant used on the promissory note is insufficient to grant a security interest in the tax refunds. A financing statement may serve as a security agreement if it contains the proper words to evidence intent of the parties which must include words of grant. However, the Court further finds the identical language handwritten on the financing statement is insufficient. The maker of the note and owner of the income tax refunds did not sign any document granting a right, title or interest in tax refunds to the defendant. Therefore, the Court finds that there never was a proper security agreement in writing and signed by the debtors evidencing their intent to grant a security interest in the tax refunds due them for 1981 to defendant.
Even if defendant had a valid security interest which attached to the tax refunds, the Court could not find proper perfection of the claim. Defendant is required to file a financing statement in the proper place for the collateral claimed to perfect a secured claim under 12A O.S. 9-302. Defendant filed his financing statement in the Tulsa County Clerk’s Office. However, tax refunds are properly classified as general intangibles. In re Scherbenske Excavating, Inc., 38 B.R. 84 (Bankr.D.N.D.1984); In re Kendrick & King Lumber, Inc., 14 B.R. 764 (Bankr.W.D.Okla.1981); In re Metric Metals Intern., Inc., 20 B.R. 633 (D.C.S.D.N.Y.1981); In re Certified Packaging, Inc., 8 U.C.C.Rep. 95 (D.Utah 1970).
The place of filing for perfection of different types of collateral are listed in 12A O.S. 9-401:
§ 9-401. Place of Filing; Erroneous Filing; Removal of Collateral
(1) The proper place to file in order to perfect a security interest is as follows:
(a) when the collateral is equipment used in farming operations, livestock, farm products, or accounts, contracts rights or general intangibles arising from or relating to the sale of farm products by a farmer, or consumer goods, then in the office of the county clerk in the county of the county of the debtor’s residence, or if the debtor is not a resident of this state, then in the office of the county clerk in the county where the goods are kept, and in addition, when the collateral is crops, in the office of the county clerk in the county where the land on which the crops are growing or to be grown is located;
(b) when the collateral is timber to be cut or is minerals or the like, including oil and gas, or accounts subject to subsection (5) of Section 9-103.1 of this title, or when the financing statement is filed as a fixture filing (Section 9-313) and the collateral is goods which are or are to become fixtures, then in the office where the mortgage on the real estate would be filed or recorded;
(c) in all other cases, in the office of the county clerk of Oklahoma County.
The statute indicates that a financing statement listing general intangibles as collateral must be filed in the Office of the County Clerk of Oklahoma County. Therefore, since the defendant did not file the financing statement in the .Office of the County Clerk of Oklahoma County, his claim can be allowed only as an unsecured claim.
This Court finds that the plaintiff’s right, title, and interest in the 1981 tax refunds due the debtors are superior to the right, title and interest of the defendant; that *178plaintiffs objection to defendant’s claim as a secured claim should be sustained; that the claim should be allowed only as an unsecured claim in the amount as filed.
AND IT IS SO ORDERED.
. With the Answer to this Complaint, defendant submitted copies of the promissory note and the termination statement. The Court generously takes judicial notice of defendant’s proper attachment of copies of the promissory note and financing statement to his Proof of Claim in Bankruptcy Case Number 82-00198. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489996/ | MEMORANDUM OF DECISION
re Complaint to Avoid Fraudulent Transfers
RICHARD MEDNICK, Bankruptcy Judge.
Debtor, Burbank Generators, Inc. dba Universal Auto Electric, filed a Chapter 11 petition on July 28, 1981. On September 18, 1981, this Court converted the Chapter 11 case to one under Chapter 7. The Chapter 7 trustee is the plaintiff in this adversary proceeding.
The debtor manufactured starters, generators and alternators primarily for use in imported cars. In March, 1981, a federal grand jury indicted Robert Kaye, president and principal shareholder of the debtor; John Lee, an employee of the debtor; and five other individuals. The indictment alleged various substantive counts against Mr. Kaye and Mr. Lee, including “conspiracy, damage to property by means of explosive and making threats and committing acts of violence to obstruct commerce.” Count Twenty of the indictment named all of the. defendants and alleged that they had participated in a pattern of racketeering in violation of 18 U.S.C. § 1962(c).1
Anthony Brooklier, the defendant herein, is an attorney whose practice is concentrated in the criminal defense area. In April, 1981, Anthony Brooklier agreed to represent John Lee at his impending criminal trial. The indictment charged Mr. Lee with offenses which occurred while he was an employee of the debtor. Robert Kaye, the debtor’s president, who owned 95 per cent of the outstanding shares of stock in the debtor, directed the debtor to pay Lee’s attorneys’ fees. Mr. Brooklier was concerned that a conflict in the criminal matter might arise if the debtor paid his fees on behalf of Lee, since Robert Kaye was a co-defendant. The defense brought the situation to the attention of the trial court in the criminal proceeding and that court approved the fee arrangement.
On May 15, 1981, the debtor paid Mr. Brooklier $12,500, and on June 18, 1981, it paid him an additional $5,000. These payments represented compensation for Mr. Brooklier’s services rendered as defense counsel to Mr. Lee. Mr. Lee’s trial began *206on July 14, 1981. At its conclusion, the jury found both him and Robert Kaye guilty on all counts. Mr. Brooklier continued to represent Mr. Lee on appeal. The Court of Appeals reversed Count One (conspiracy), but otherwise affirmed the convictions.
On January 27, 1983, the Chapter 7 trustee filed his complaint to avoid fraudulent and preferential transfers from the debtor to Mr. Brooklier. On December 30, 1983, this Court heard the trustee’s motion for summary judgment on the second, third and fourth claims for relief which were based upon 11 U.S.C. § 548(a)(2) (1979).2 The Court granted the summary judgment motion with respect to all elements of a fraudulent transfer except one. The Court denied the motion for summary judgment on the factual issue of whether the debtor received a reasonably equivalent value in exchange for its transfer. The defendant contended that his legal defense of John Lee provided the debtor with a reasonably equivalent value in exchange for the debt- or’s transfer of $17,500 to the defendant. The trustee acknowledges that Mr. Brooklier represented Mr. Lee professionally and does not contend that the amount of the fees were unreasonable. The trustee has not prosecuted the first and fifth claims for relief and the Court hereby dismisses them with prejudice for lack of prosecution.
To set aside a transfer of funds, the Court must find that the debtor “received less than a reasonably equivalent value in exchange for such transfer or obligation.” 11 U.S.C. § 548(a)(2)(A) (1979). At trial, the parties presented evidence on this one issue.
ANALYSIS
The issue presented here is best expressed by inquiring whether the debtor received any value in exchange for its transfer. If this Court finds that the debt- or did not receive any value, then the question of reasonably equivalent value does not arise.
The decision of the United States Court of Appeals for the Tenth Circuit in In re O’Bannon, 484 F.2d 864 (10th Cir.1973), is instructive on the present issue. In O’Bannon, two individuals filed bankruptcy. They were principal shareholders of a corporation. The individuals paid an attorney to file a bankruptcy petition on behalf of the corporation. The trustee for the individual estate sought to recover the attorneys’ fees as a fraudulent conveyance pursuant to § 67(d)(2)(a) of the Bankruptcy Act, the predecessor to the present 11 U.S.C. § 548. The issue under the Bankruptcy Act was whether the transfer was made “without fair consideration.” The Court of Appeals decided that there had been “a complete absence of consideration.” The only possible consideration that inured to one of the individual debtors was peace of mind. Id. at 867.
In this case, the debtor paid an obligation of a third party. It paid defendant’s fees for legal services rendered to John Lee. If a transfer solely benefits a third party, it is clear that the debtor has not received reasonably equivalent value in exchange. Rubin v. Manufacturing Hanover Trust Co., 661 F.2d 979, 991 (2d Cir. 1981); In re Christian & Porter Aluminum Co., 584 F.2d 326, 337 (9th Cir. 1978). A debtor’s transfer on behalf of a *207third party may produce a benefit that ultimately flows to the debtor, albeit indirectly. If the indirect benefit constitutes reasonably equivalent value to the debtor, a trustee cannot avoid the transfer as fraudulent. See Rubin, 661 F.2d at 991; Klein v. Tabatchnick, 610 F.2d 1043, 1047 (2nd Cir.1979). The estate should be able to identify and to quantify the benefit which replaced the debtor’s transfer of assets from the estate.
The debtor first employed John Lee as a truck driver in the early 1970s. Eventually, he became a salesman and his sales accounts included some of the debtor’s major customers. He was one of the debtor’s “key” employees. At trial, the testimony showed that Robert Kaye, president of the debtor, exclusively controlled the corporation. He established policy and he alone possessed the authority to decide on behalf of the corporate entity. John Lee never owned stock in the debtor nor was he ever an officer or director of the corporation. Mr. Lee was solely an employee.
Mr. Brooklier contends that the debtor was preserving its assets by providing Mr. Lee with defense counsel. The indictment alleged that the prosecution would be seeking only the forfeiture of Robert Kaye’s stock in the debtor.3 The defendant submits that Lee and Kaye benefitted by being defended in concert, because the indictment named them in five counts together. At the criminal trial, the defense counsels’ strategy was that the acquittal of John Lee ultimately would assist Kaye’s defense and obtain his acquittal. He further contended that the benefit to the debtor, if the jury had acquitted Kaye, would have been that Kaye would not have had to relinquish his shares of stock in the debtor.
Defendant’s contentions are in error. The debtor did not benefit from John Lee’s defense. The debtor was not a named defendant in the action.4 Whatever connections actually existed between Lee and the debtor were too tenuous and distant to confer a benefit on the debtor. The essence of the defendant’s argument here is that Mr. Lee’s defense assisted Mr. Kaye’s defense. Mr. Kaye’s conviction could have lead to.the forfeiture of his stock in the debtor. However, even assum*208ing this to be true, the Court finds that protecting Mr. Kaye’s interest in the stock of the debtor is not the equivalent of conferring a benefit on the debtor. The defense has failed to prove that a “benefit” was exchanged for the $17,500 that the debtor paid to the defendant. The defendant did not present evidence regarding the consequences to the debtor if the government confiscated Kaye’s stock in the debt- or. The Court will not speculate on this point except to note that the debtor’s stock is not the same as the debtor’s assets, and therefore, the Court finds that no benefit accrued to the debtor from having Mr. Kaye retain his stock in the debtor. The Court specifically finds that the debtor did not receive any value from its transfer of $17,500 to defendant Brooklier.
The Court further notes that the debtor was not under any legal obligation to pay for Mr. Lee’s attorneys’ fees. California law does provide that a corporation may indemnify an employee’s litigation expenses including attorneys’ fees in certain circumstances. Cal.Corp.Code § 317 (West Supp.1984).5
From the language of the statute, it is apparent that the corporate indemnification of Mr. Lee’s fees is completely discretionary. Cal.Corp.Code § 317 gives authority to a corporation to indemnify an employee but in no manner mandates such action. In addition, the statute is clear that when the proceeding is a criminal matter, the person, in this case Mr. Lee, must have reasonably believed that his conduct was lawful. Given the types of acts that were prosecuted in the criminal proceeding which included making threats and various violent acts, the Court does not find that Mr. Lee thought that such acts were lawful. The debtor did not possess the authority to pay the defense costs of its employees for clearly unlawful acts.
Accordingly, judgment is for the plaintiff for $17,500 plus interest from the date of the entry of the judgment. The above shall constitute Findings of Fact and Conclusions of Law pursuant to Bankruptcy Rule 7052.
. 18 U.S.C. § 1961-1968 (1984) entitled "Racketeer Influenced and Corrupt Organizations” commonly known as R.I.C.O. 18 U.S.C. § 1962(c) provides:
It shall be unlawful for any person employed by or associated with any enterprise engaged in, or the activities of which affect, interstate or foreign commerce, to conduct or participate, directly or indirectly, in the conduct of such enterprise’s affairs through a pattern of racketeering activity or collection of unlawful debt.
. 11 U.S.C. § 548(a)(2) provides:
(a) The trustee may avoid any transfer of an interest of the debtor in property, or any obligation incurred by the debtor, that was made or incurred on or within one year before the date of the filing of the petition, if the debtor ...
(2)(A) received, less than a reasonably equivalent value in exchange for such transfer or obligation; and
(B)(i) was insolvent on the date that such transfer was made or such obligation was incurred, or became insolvent as a result of such transfer or obligation;
(ii) was engaged in business, or was about to engage in business or a transaction, for which any property remaining with the debt- or was an unreasonably small capital; or
(iii) intended to incur, or believed that the debtor would incur, debts that would be beyond the debtor's ability to pay as such debts matured.
. The R.I.C.O. count in the indictment alleged that Robert Kaye’s shares of the debtor’s corporate stock were subject to the forfeiture provision of 18 U.S.C. § 1963(a). § 1963(a) provides that a defendant’s interest in "... any enterprise which he has established, operated, controlled, conducted or participated in the conduct of in violation of section 1962” may be forfeited to the United States. The indictment did name the debtor as the ’’enterprise” through which the defendants conducted their unlawful pattern of racketeering. See 18 U.S.C. § 1961(4) (1984). However, the debtor corporation was not indicted as a defendant.
. The indictment referred to the debtor only in Count Twenty. Count Twenty stated:
"A. Introduction
1. Burbank Generators, Inc., dba Universal Auto Electric, constituted an 'enterprise’ as defined by Title 18, United States Code, Section 1961(4). Defendants ROBERT KAYE, JAMES DANNO, JAMES GREENE, JOHN LEE, PAUL DeLUCA, JAY BROWN, and DONALD JOHNSON were all persons employed by and associated with this enterprise.
B. Pattern of Racketeering
2. Beginning in or about the Fall of 1973 and continuing to on or about May 1, 1980, within the Central District of California and elsewhere, defendants ROBERT KAYE, JAMES DANNO, JAMES GREENE, JOHN LEE, PAUL DeLUCA, JAY BROWN, and DONALD JOHNSON, being persons employed by and associated with Burbank Generators, Inc., dba Universal Auto Electric, an enterprise engaged in and the activities of which affected interstate and foreign commerce, unlawfully, willfully and knowingly conducted and participated, both directly and indirectly, in the conduct of the affairs of this enterprise through a pattern of racketeering, within the meaning of Title 18, United States Code, Section 1961(1) and (5), in violation of Title 18, United States Code, Section 1962(c).
C. Forfeiture
5.The Grand Jury further alleges that defendant ROBERT KAYE’S nineteen (19) shares of corporate stock in Burbank Generators, Inc., constituting an interest he has acquired and maintained in violation of Title 18, United States Code, Section 1962 and an interest in, and property affording a source of influence over, an enterprise he has conducted, and participated in the conduct of, in violation of Section 1962, are subject to forfeiture by defendant ROBERT KAYE to the United States of America pursuant to Title 18, United States Code, Section 1963.”
. Cal.Corp.Code § 317(b) (West Supp.1984) provides that:
"A corporation shall have power to indemnify any person who was or is a party ... to any proceeding ... by reason of the fact that such person is or was an agent of the corporation, against expenses, judgments, fines, settlements and other amounts actually and reasonably incurred in connection with such proceeding if such person acted in good faith and in a manner such person reasonably believed to be in the best interests of the corporation and, in the case of a criminal proceeding, had no reasonable cause to believe the conduct of such person was unlawful....” | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489997/ | CLIVE W. BARE, Bankruptcy Judge.
At issue is whether the debtor’s loan to defendant within 90 days preceding bankruptcy constitutes an avoidable preferential transfer under 11 U.S.C.A. § 547(b) (1979) where the loan was made in exchange for defendant’s promissory note secured by un-matured investment certificates owing by the debtor to the defendant.
Also at issue is whether defendant is entitled under 11 U.S.C.A. § 553 (1979) to set off against his liability on the promissory note the debt due him upon maturity of the investment certificates.
I
On March 22, 1982, the defendant Emmett Foster paid $400,000 to the debtor Southern Industrial Banking Corporation (SIBC) in exchange for four investment certificates. The investment certificates were scheduled to mature 12 months later on March 22, 1983, with accrued interest of $66,000.
On February 4, 1983, some six weeks before the certificates were to mature, defendant took out a $470,000 loan from SIBC, utilizing the investment certificates as collateral. Defendant executed a promissory note to SIBC for $480,956.02, consisting of the $470,000 principal plus interest and service charges. The promissory note was scheduled to come due on March 22, 1983, the same date as the investment certificates were to mature. Defendant executed an assignment of each of the investment certificates to SIBC to be held as collateral for the loan. Defendant also executed a security agreement identifying the four investment certificates as collateral for the loan. In addition to specifying the four certificates as collateral, the promissory note itself also purports to identify as collateral “the right of offset against your deposit accounts with us.”
On March 10, 1983, before either the investment certificates or the promissory note came due, SIBC filed a voluntary chapter 11 petition in bankruptcy. Both the investment certificates and the promissory note came due as scheduled on March 22, 1983. By letter dated March 28, 1983, defendant tendered to SIBC $14,956.02 (the difference between the $480,956.02 loan balance and the $466,000 maturity value of the certificates). Defendant requested that SIBC apply the proceeds of the check, together with the proceeds of the matured certificates, in full satisfaction of his indebtedness under the promissory note. Subsequently, after appointment of a trustee in the chapter 11 case, the trustee returned the $14,956.02 check to defendant and declined to set off the investment certificates against the loan balance.
Defendant denied having any personal knowledge of SIBC’s financial difficulties until sometime after he entered into the *308loan transaction on February 4, 1983. Defendant testified that he took out the loan in February because he needed the money to pay another loan debt coming due at about that time. The SIBC loan officer who processed defendant’s loan verified that another bank released to SIBC possession of the four investment certificates upon receipt of cashier’s checks paying a debt to the other institution.
The loan officer testified that in making so-called “certificate loans” SIBC sometimes structured the loan to come due at a time later than the maturity date of the certificate in order to encourage the certificate holder to renew the certificate. Here, he acknowledged, the loan was structured to mature with the certificates.
Defendant testified that he opted to take out a loan at SIBC rather than to prematurely redeem the certificates because the penalty for early withdrawal was too severe. He further testified that when he obtained the SIBC loan he foresaw three options regarding the loan at maturity: (1) applying the proceeds of the matured certificates to repay the loan, (2) renewing the note, or (3) borrowing funds elsewhere to repay the loan. However, defendant acknowledged in his answer to the complaint and intervening complaint that he intended upon maturity of the promissory note and the investment certificates to apply the proceeds of the investment certificates in payment of the promissory note.
The trustee commenced this adversary proceeding on May 21, 1984, contending that the February 4 transfer of loan proceeds to defendant constitutes an avoidable preferential transfer under 11 U.S.C.A. § 547(b) (1979). Subsequently, Bank of Commerce, successor to SIBC, intervened as a plaintiff seeking judgment against defendant on the promissory note.
Defendant contends that the transaction was not a preferential transfer since it involved a collateralized loan transaction rather than an early redemption of the investment certificates. Defendant further asserts, in defense of his liability on the promissory note, a right of setoff under 11 U.S.C.A. § 553 (1979).
II
The $470,000 transfer to defendant in exchange for defendant’s promissory note on February 4, 1983, does not constitute a preferential transfer under 11 U.S. C.A. § 547(b) (1979).1 In order to be an avoidable preference a transfer must have been “for or on account of an antecedent debt.” 11 U.S.C.A. § 547(b)(2) (1979). Such was not the case here. The transfer was not in payment of SIBC’s existing, antecedent debt under the investment certificates. Rather, the transfer was made in exchange for present consideration in the form of defendant’s promissory note.
[T]he Bankruptcy Code does not avoid every transfer of property made by the debtor within 90 days of bankruptcy, but only those preferential transfers that result in a depletion of the debtor’s estate .... In order that a preference be effected, the transfer must diminish directly or indirectly the fund to which *309creditors of the same class can legally resort for the payment of their debts....
4 Collier on Bankruptcy ¶ 547.21 at 79-83 (15th ed. 1984).
“[T]he mere exchange of property of equal value within the 90 days preceding bankruptcy does not constitute a preference.” 4 Collier on Bankruptcy 11 547.20 at 71 (15th ed. 1984). “Preference implies paying or securing a pre-existing debt of a person preferred. [citation omitted] Where one gives an insolvent person value for a transfer of property, where he makes an exchange of property, there is no preference.” In re Perpall, 271 Fed. 466, 468 (2d Cir.1921).
Here the loan transaction was an exchange of property which in no way diminished the debtor’s estate. As such, it does not amount to an avoidable preferential transfer under § 547(b).
However, the court disagrees with defendant’s contention that he is entitled to set off his liability on the promissory note against SIBC’s debt to him on the investment certificates. Section 553(a)(3) of the Bankruptcy Code provides:
(a) Except as otherwise provided in this section and in section 362 and 363 of this title, this title does not affect any right of a creditor to offset a mutual debt owing by such creditor to the debtor that arose before the commencement of the case under this title against a claim of such creditor against the debtor that arose before the commencement of the case, except to the extent that—
(3) the debt owed to the debtor by such creditor was incurred by such creditor—
(A) after 90 days before the date of the filing of the petition;
(B) while the debtor was insolvent; and
(C) for the purpose of obtaining a right of setoff against the debtor.
11 U.S.C.A. § 553(a)(3) (1979) (emphasis supplied).
The court is satisfied that defendant incurred his loan debt “for the purpose of obtaining a right of setoff” within the meaning of § 553(a)(3)(C). In determining the meaning of this statutory phrase, it is essential to note a critical difference between § 553(a)(3) and pre-Code law. Under the former Bankruptcy Act, a creditor could not set off claims against the bankrupt acquired by the creditor “with a view to such use and with knowledge or notice that such bankrupt was insolvent or had committed an act of bankruptcy.” 11 U.S.C.A. § 108(b) (repealed 1978). The Bankruptcy Code modifies this limitation
to apply to a claim acquired within three months before the case at a time when the debtor was insolvent, without regard to knowledge or notice of insolvency on the part of the creditor, and adds a phrase, codifying case law, to expand the ... limitation to the situation where a creditor incurs a debt to the debtor rather than merely acquires a claim.
H.R.Rep. No. 595, 95th Cong., 1st Sess. 185, reprinted in 1978 U.S. Code Cong. & Ad.News 5787, 5963, 6145.
Section 553(a)(3) does not require, then, any showing that the creditor knew that the debtor was insolvent when the creditor incurred the debt to the debtor. Rather, the determinative inquiry is only whether the creditor, at the time of incurring the debt to the debtor, intended to apply that debt to offset the debtor’s debt to the creditor. Compare Niagara Mohawk Power Corp. v. Utica Floor Maintenance, 31 B.R. 509 (Bankr.N.D.N.Y.1983) (power company not entitled to set off utility security deposit against debtor’s utility debt since power company collected deposit, and thus incurred debt to debtor, for purpose of obtaining right to set off deposit against utility debt) with Allbrand Appliance & Television Co. v. Merdav Trucking Co., 16 B.R. 10 (Bankr.S.D.N.Y.1980) (creditor trucking company entitled to set-off where it incurred debt to debtor for C.O.D. collections in ordinary course of business and not for purpose of offsetting against debt owed creditor for unpaid delivery service).
*310A finding that the creditor was aware of the debtor’s financial difficulties may support the conclusion that the creditor incurred the debt for the purpose of setoff. See e.g., Union Cartage Co. v. Dollar Savings & Trust Co., 38 B.R. 134 (Bankr.N.D.Ohio 1984). However, the statute clearly does not require such a finding.
Here, there can be no question that defendant incurred his loan debt to SIBC with intention that it be set off against SIBC’s debt to defendant on the investment certificates. Indeed, in his answer to the complaint and intervening complaint, defendant readily states:
The defendant avers that it was his intention upon maturity of the promissory note and the investment certificates to apply the proceeds of such investment certificates to the amount then payable to Southern Industrial Banking Corporation, all of which he sought to accomplish in accordance with the terms of his agreements regarding such loan transaction.
Defendant’s Answer, ¶ 6.
The promissory note specifically purports to identify as part of SIBC’s security “the right of offset against your deposit accounts with us.” In addition, defendant testified as follows:
Q. Now, on February 4 of ’83 when you signed that promissory note, did you have any specific plan as to how you would repay that promissory note?
A. Well, I had two options available to me, either through liquidation of the certificates or renewing the note there or renewing it elsewhere. I guess I had three options.
Deposition of Emmett Foster, at 21 (September 20, 1984).
The promissory note and the investment certificates were scheduled to mature simultaneously. The court is persuaded that the evidence establishes conclusively that defendant, at the time of the loan, envisioned the payment of his loan debt to SIBC by applying against that debt the amount due defendant on the investment certificates. The court is satisfied that defendant incurred the loan debt to SIBC “for the purpose of obtaining a right of setoff against the debtor” within the meaning of § 553(a)(3). Defendant is not entitled to set off SIBC’s debt on the matured investment certificates against his liability on the promissory note.
This memorandum constitutes findings of fact and conclusions of law, Bankruptcy Rule 7052.
. This subsection provides:
(b) Except as provided in subsection (c) of this section, the trustee may avoid any transfer of property of the debtor—
(1) to or for the benefit of a creditor;
(2) for or on account of an antecedent debt owed by the debtor before such transfer was made;
(3) made while the debtor was insolvent;
(4) made—
(A) on or within 90 days before the date of the filing of the petition; or
(B) between 90 days and one year before the date of the filing of the petition, if such creditor, at the time of such transfer—
(i) was an insider; and
(ii) had reasonable cause to believe the debtor was insolvent at the time of such transfer; and
(5)that enables such creditor to receive more than such creditor would receive if—
(A) the case were a case under chapter 7 of this title;
(B) the transfer had not been made; and
(C) such creditor received payment of such debt to the extent provided by the provisions of this title.
11 U.S.C.A. § 547(b) (1979). | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489998/ | ORDER ON DEBTOR/DEFENDANT’S APPLICATION FOR HOMESTEAD EXEMPTION AND FOR ALLOWANCE OF EXPENDITURES MADE TO DECEASED MOTHER
RODNEY R. STEELE, Bankruptcy Judge.
In this adversary proceeding, the court entered an order on January 22, 1985, determining that within 180 days from the filing of this bankruptcy, the debtor inherited real property consisting of a house and lot in Clanton, Alabama, from his mother, and under Title 11, United States Code, Section 542 and 543 and under Section 541(a)(5), the trustee was entitled to that house and lot as property of this estate.
Thereafter, the trustee has filed applications to sell that property free and clear of certain liens and encumbrances.
The order of January 22, preserved to the debtor/defendant the right to file a *436claim of homestead as to this property, and to file a claim for reimbursement for certain expenses which he claims to have made for improvement of that property.
The application of the defendant/debtor for his homestead exemption and for the allowance of such expenses came on for hearing at Montgomery on March 11, 1985.
Testimony was taken from Young William Smith, from Margo Parrish, and from David Parrish.
As to the homestead exemption, the debtor testified that it was always his intention to reside at the home of his mother, that he was residing there with his wife at the time of the filing of his bankruptcy in June of 1983, and that he had certain property located in those premises which were his property.
But we give great weight to the following factors in concluding that he is not entitled to a homestead exemption. In the first place,” at the time of the filing of his bankruptcy petition, the home was in the name of his mother and Young William Smith had no interest in that property. He and his wife had moved back into the property in May because his mother was ill and they needed to take care of her. Thereafter, the mother died on August 6, 1983. The debtor testified that he sometimes lived in his mother’s home, and sometimes lived with his wife at her trailer home outside of Clanton.
He discussed after his mother’s death selling the property to David Parrish and his wife, Margo, and finally rented that property to Margo and David Parrish in March of 1984.
The debtor does not now live in the house, and it is still rented to Mr. and Mrs. Parrish. Before his mother’s illness, the debtor had lived sometimes at his mother’s home, and sometimes with his wife.
We conclude that the debtor did not have a homestead in this property at the date of the filing of this bankruptcy. It was the homestead of his mother at that time. Moreover, he never intended to make this his homestead. He was living with his wife at her trailer home. He intended at all times after his mother died to rent or sell this property, and in fact, offered to sell it to Mr. and Mrs. Parrish.
Nor did he intend to claim or have any interest in the furniture. He does have certain personal property consisting of mo-mentos and other personal property, but the furniture and fixtures in the home are not his and were intended to be his.
We conclude that the homestead exemption claim is not well taken.
As to the allowances for expenditures made on behalf of the deceased mother, the testimony of the debtor was that fully 80% of these expenditures was made before she died, that they were made for the upkeep and repair of the house, and that they were not expenditures made by him in anticipation of living in the home. He was, in effect, protecting and repairing the home of his mother.
Moreover, it appears from the testimony for Mr. Parrish, that some of the repairs which are listed and included as expenditures made by this debtor on this home at 903 Sixth Avenue, North, Clanton, Alabama, were never made, or were made by others, and not paid for by the debtor. It moreover appears that some of the claimed expenditures were not made in the amounts claimed, but were made in much smaller amounts.
We lay aside here any claim this debt- or/defendant may have for payments to an attorney or to the funeral home in connection with the death of his mother, and the probate of her will.
We conclude finally that the debtor had not made any substantial payments of any kind towards improvement or upkeep of this property on his own behalf, but made them for the repair and upkeep of his mother’s home before she died.
It is therefore ORDERED as follows:
1. The debtor’s claim of a homestead exemption is hereby denied, and debtor shall take nothing from the proceeds of the sale of this property as a homestead ex*437emption or proceeds from the sale of a homestead exemption.
2. The expenditures claimed by this debtor for upkeep and repair on this home are hereby denied any repayment, and debtor shall take nothing for any expenses which he may have incurred in connection with the repair and upkeep of this house, from the sale by trustee of this property. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8489999/ | ORDER ON APPLICATION FOR SALE OF REAL PROPERTY AND FEDERAL LAND BANK STOCK
RODNEY R. STEELE, Bankruptcy Judge.
The debtors in this case filed a motion on February 26, 1985, to sell 890 acres of Mississippi farm land and stock in the Federal Land Bank, valued at $25,000.00.
The application asserts that the farm land has been appraised, and it has a value of $750,000.00, and that the stock has a value of $25,000.00, and that the debtors have obtained a purchaser for $775,000.00.
*446The real property is mortgaged to the Federal Land Bank of Jackson, in the amount of $739,971.83, as of March 1, 1985, and that debt is bearing interest at the rate of $215.79 per day.
The application was set to be heard at Montgomery on March 18, 1985. The debtors notified the creditor’s committee and other interested parties, including the proposed purchaser and the Federal Land Bank.
At the time of the hearing in this case, on March 18,1985, there appeared the debtors and their attorney, and the attorney representing American Petrofina. That attorney has also, in the past, served as a communicator of the affairs of this estate to the creditor’s committee, which consists of several oil companies who claim to have a debt against these debtors. The large claims of these oil companies against these debtors is in dispute, and will be on submission to this court on or after May 15, 1985.
There were no objections to the application to sell this real property. Two appraisals were attached-to the petition, and these appraisals reflect a valuation of $660.00 per acre in one instance, and $720.00 per acre from the second appraisal. The property is to be sold for $850.00 per acre, and that amount is offered by the purchaser, Macon W. Gravlee, Jr.
Under the ruling in In re Lionel Corp., (2nd Cir.1983) 722 F.2d 1063 and In re Allison, (D.C.D.N.M., 1984) 39 B.R. 300, the court concludes that it is obliged to make some inquiry concerning the details of this transaction in this Chapter 11 proceeding. We are particularly called upon to make this inquiry in view of the fact that no disclosure or plan has been filed in these proceedings, and that these proceedings were filed in 1983.
The delay in proposing the plan and filing a disclosure statement is due to the on-going litigation which is a contest of claims, between these debtors and the oil companies referred to above.
Although the appraisals do not appear to be made by appraisers with any outstanding credentials, we conclude that they are some evidence of the value of this property in Mississippi, against which the proposed sale price may be gauged.
We also have the representation of the debtor, Doyle Chism in this case, that the land has not been farmed by him for over two years; that it was leased in 1984 for $34,000, an amount which did not service the mortgage and pay the taxes; that the taxes on this property have not been paid by the debtors in the last two years, but have been paid by the Federal Land Bank, the mortgage holder.
It moreover appears from representation of the debtor that this property is only farm land, with no significant improvements. It has one small house on it.
It consists of 880 acres of grazing or crop lands, and has been used by the debt- or in years past to raise soy beans and wheat.
The only property nearby which the debt- or could testify to which might be comparable, was an adjoining property consisting of 1400 acres, purchased two or three years ago by Mr. Gravlee, the proposed purchaser here, for $1,200 an acre. But this land, according to Mr. Chism, is improved property, with many out buildings, and is used for the raising of cattle primarily.
Mr. Gravlee, according to Mr. Chism, is a wealthy owner of a chain of grocery stores.
The arrangement under which this property is to be sold provides for Mr. Gravlee to take over the Federal Land Bank mortgage and the debt, and the Federal Land Bank will release both the debt and the mortgage insofar as these debtors are concerned, and Mr. Gravlee will assume both. In addition, the Federal Land Bank will release its mortgage on 395 acres of real property, and that property will be free and clear of any encumbrances, and will belong to this estate.
Moreover, this estate will retain lk of 1k of the mineral interest on the 880 acres, and this Vi6 interest in the debtors as to mineral or oil rights will be an asset of this *447estate, free and clear of the mortgage encumbrance to the Federal Land Bank.
The 880 acres has not been rented for the year 1985, and there will be no income from its use to this estate.
The debtor in this case is unable to service the Federal Land Bank mortgage. It is impossible, according to his representations, to pay any of the principal or any of the interest, and he has been delinquent in his taxes on the land for the last two years.
This is, in effect, a liquidating Chapter 11 case, and it is not anticipated that a plan or a disclosure statement will be filed in the immediate future. When such a plan is filed, it appears that it will be a liquidation proceeding in which the debtors will be entitled only to whatever exemptions the law may permit them at the time of the filing of the Chapter 11. They may, of course, be able to garnish something in addition from their creditors through whatever plan may be confirmed. But it appears that secured creditors must be first satisfied, and that this will satisfy a large secured creditor. It also appears that this liquidation will dispose of approximately half of the value of the debtors’ estates.
We conclude that the liquidation to Mr. Gravlee in this case is for a wise business reason, which will reduce considerably the daily interest rate accruing on the farm land in Mississippi, will free up additional farm land from the only mortgage on it, will reduce the necessity for paying taxes and administrative expenses in this proceeding, and that the sale is for a not unreasonable price per acre, and that the sale ought to be approved. It is therefore
ORDERED that the application of the debtors in this cause is hereby granted. Debtors are hereby authorized and empowered to execute and deliver any and all instruments necessary under Mississippi law to convey good and merchantable title to the subject real property, and Federal Land Bank stock to Macon W. Gravlee, Jr., with all customary convenants of warranty and such conveyances shall be free and clear of all liens and encumbrances except as to the Federal Land Bank. The debtors are further authorized to pay to the Federal Land Bank or to authorize direct payment on their behalf the sum of $25,000.00 from the net proceeds of the sale of the real property and Federal Land Bank stock in return for the releases as set forth in the debtors’ application.
The land to be sold is described in Exhibit A, attached hereto.*
Ed. note: not submitted for publication. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8490000/ | *589MEMORANDUM OPINION
CHARLES J. MARRO, Bankruptcy Judge.
The matter is before the court on the motion of Air Vermont, Inc., (“Air Vermont”) to amend this court’s judgment of March 8, 1985. Air Vermont asserts that the court erred in awarding possession of an aircraft (“3529A”) to Cutillo on March 8. Air Vermont rests the instant motion on two grounds: (1) that with respect to 3529A “no Motion on the part of Ralph Cutillo (“Cutillo”) had been filed,” and (2) in the event the matter was properly before the court on March 8, Cutillo as an unsecured creditor with respect to 3529A held a right of possession inferior to the right of Air Vermont as a hypothetical lien creditor.
The records in the case establish the facts which follow.
FACTS
Air Vermont bought 3529A from Cutillo under an installment sale contract that was executory on bankruptcy day. As of the commencement of this case, the per diem on Air Vermont’s installment note to Cutil-lo was $57. At all relevant times 3529A was subject to a perfected purchase money equipment security interest in favor of a third party, South Shore Bank of Quincy, Massachusetts (“South Shore”). Cutillo, however, never perfected his own security interest.
In early February 1984, Air Vermont voluntarily surrendered 3529A to Cutillo for the reason that the aircraft was of no use to the debtor. In re Air Vermont, 40 B.R. 61, 65 (Bankr.D.Vt.1984). When Air Vermont relinquished possession of 3529A, its fair market value, according to Air Vermont’s president, was “equal or approximately the same as the indebtedness owed” by Air Vermont to Cutillo. Id. at 63. Air Vermont in effect abandoned 3529A to avoid potential deficiency exposure under its note to Cutillo. In re Air Vermont, 47 B.R. 540, 541 (1985). Shortly after taking possession, Cutillo sold 3529A for less than the outstanding Air Vermont-Cutillo contract indebtedness, and also for less than Cutillo’s outstanding obligation to his financier, South Shore. The correspondence in the case and the representations of counsel at hearing indicate that Cutillo paid off the deficiency to South Shore in order to obtain a release.
DISCUSSION
Air Vermont contends that it was inappropriate for the court to award possession of 3529A to Cutillo, in that “on March 8, 1985, the Bankruptcy Court for the District of Vermont granted summary judgment in favor of Ralph Cutillo as to aircraft 3529A when no motion on the part of Ralph Cutillo had been filed.” However, Air Vermont had filed for summary judgment on the issue of possessory rights to 3529A, and the court may grant judgment against a party moving for summary judgment and in favor of a party opposing such *590motion even where the latter has not moved for summary judgment. See, e.g., Proctor and Gamble Independent Union v. Proctor and Gamble Mfg. Co., 312 F.2d 181 (2d Cir.1962) cert. denied, 374 U.S. 830, 83 S.Ct. 1872, 10 L.Ed.2d 1053; International Longshoremen’s Association v. Seatrain Lines, Inc., 326 F.2d 916 (2d Cir.1964). Moreover, Cutillo did file motions for summary judgment with respect to pos-sessory rights in 3529A, and hearings were held on Cutillo’s motions. The wording of Cutillo’s motions for summary judgment embraces all the aircraft at issue on March 8, not just aircraft other than 3529A. The court declines to adopt the reasoning of Air Vermont, see Air Vermont’s Memorandum, January 21, 1985, at 1, 3, that Cutillo’s motions for summary judgment were motions for partial summary judgment only on the basis that Cutillo’s accompanying memoran-da of law, while addressing aircraft other than 3529A, did not specifically address 3529A. Also, the Court is aware that at the relevant hearings Cutillo’s counsel queried whether the matter of 3529A was ripe for decision in view of an appeal pending in another case concerning a ground for relief advanced by Cutillo in this case. However, the trial court need not await an appellate decision in order to take other and further matters under advisement. Moreover, this court rested its decision of March 8 on a ground other than the issue under appellate review. Thus, the outcome of the unrelated appeal was not ingredient to the determination of whether Cutillo or Air Vermont had the superior right to 3529A. In sum, there is no merit to Air Vermont’s suggestion that Cutillo’s right to possess 3529A was not at issue on March 8, 1985.
There is no merit to Air Vermont’s assertion that the court erred in awarding possession of 3529A to Cutillo. As previously noted, Air Vermont voluntarily surrendered possession of the aircraft to Cutil-lo with the intention, at the time of relinquishment, of retaining no claim to 3529A or to any proceeds of sale. Under the circumstances, Air Vermont’s act of relinquishment constituted an abandonment of the aircraft. In re Air Vermont, 47 B.R. 540, 541, 544 (1985). Air Vermont would have the court construe Air Vermont’s failure to seek court approval of its affirmative act of abandonment, as fault on the part of Cutillo; thus Air Vermont moved for a contempt judgment against Cutillo. However, Cutillo met and conferred in good faith with Air Vermont and retook the aircraft by agreement of the parties. By the agreement Air Vermont sought to avoid deficiency liability. For this reason Air Vermont truncated its rights in the aircraft and put Cutillo in possession. The soundness of Air Vermont’s decision to abandon has been born out by subsequent facts: in an arms length sale of 3529A at market, Cutillo was able to realize by the sale, neither the outstanding balance owed to him by Air Vermont, nor even the outstanding balance he owed to South Shore. Nevertheless, the court would observe, as Air Vermont’s attorney has correctly pointed out, that the memorandum opinion of March 8,1985 does contain certain language which amounts to error, albeit harmless error. For the reason that creditor protection under Code section 1110 is available only to secured creditors, see In re Air Vermont, 39 B.R. 875, 878 (Bankr.D.Vt.1984), it was harmless error for the court to indicate that Cutillo, an unsecured creditor, could obtain relief under section 1110, “abandonment by Air Vermont of 3529A hypothetically absent.” In re Air Vermont, 47 B.R. 540, 544 (1985).
. CONCLUSION
The court construes Air Vermont’s voluntary relinquishment of possession with a present intention to retain no rights in the aircraft as an unequivical abandonment of the property and of any interest Air Vermont may have had in the property. This conclusion is buttressed by the reorganization plan of record in this case, a plan of liquidation under chapter 11. Although the plan was filed after the abandonment of 3529A, the abandonment of an asset which *591had little probability of yielding funds in excess of the amount needed to destroy the perfected lien of South Shore, and Air Vermont’s termination of operations and filing of a liquidation plan, are consistent events which support the proposition that the debtor intended to renounce any interest it may have had in 3529A. In fact, by the abandonment, the debtor did in fact terminate all its rights in 3529A. Having no present right in the 3529A or in any proceeds thereof, Air Vermont may not now dispossess Cutillo of the proceeds of Cutil-lo’s sale of 3529A.
Even were Air Vermont entitled to the sale proceeds, it would not be entitled to those proceeds free and clear of the erstwhile existing lien of South Shore. The point is that were Air Vermont entitled to recover the property it abandoned, it could recover that property as it existed at the time of abandonment, that is, subject to a perfected lien of a value in excess of the fair market value of the abandoned property. By the instant action, could Air Vermont succeed, it could in equity obtain for the estate only a burden represented by the amount of the deficiency Cutillo paid South Shore.
Judgment to be entered accordingly. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8490001/ | MEMORANDUM OF DECISION
LOUISE DeCARL MALUGEN, Bankruptcy Judge.
I.
FACTS
An involuntary Chapter 7 petition was filed against Diana K.M. Devereaux (“Dev-ereaux”) in July 1984. In, October 1984, pursuant to a stipulation, an order for relief was entered against the debtor and a trustee appointed.
Devereaux is the subject of a grand jury investigation to determine whether she has committed certain criminal acts, the nature of which have not been revealed to this Court. Devereaux has filed blank schedules and statements of affairs, claiming her Fifth Amendment privilege against self-incrimination. The trustee has moved the Court to order Devereaux to surrender all property of the estate and certify under penalty of perjury that she has done so. Devereaux resists this motion on the grounds that the act of turning over all assets and certifying that she has done so are violative of her Fifth Amendment rights.
II.
ISSUE
Does an order requiring the debtor to turn over property of the estate and certify under penalty of perjury that she has done so, violate her Fifth Amendment privilege against self-incrimination?
III.
ANALYSIS
Devereaux claims that the United States Attorney and the Grand Jury are currently investigating her financial dealings and attempting to determine what monies she received and what monies were disbursed. Devereaux contends that admission of the mere ownership of certain assets at a given point in time would be an incriminating clue when connected up with other evidence, citing the protection extended to “clue” facts in Couselman v. Hitchcock, 142 U.S. 547, 564, 12 S.Ct. 195, 198, 35 L.Ed. 1110 (1892).
The argument of Devereaux overlooks the reasoning of Justice Holmes in the In re Harris, 221 U.S. 274, 31 S.Ct. 557, 55 L.Ed. 73 (1911) case where, in overruling a debtor’s challenge to a district court order compelling the debtor to deliver his books of account to his receiver, he stated:
“If the order to the bankrupt, standing alone, infringed his constitutional rights, it might be true that the provisions intended to save them would be inadequate and that nothing short of statutory immunity would suffice. But no constitutional rights are touched. The question is not of testimony, but of surrender, —not of compelling the bankruptcy to be a witness against himself in a criminal case, present or future, but of compelling him to yield possession of property that he no longer is entitled to keep.” (emphasis added) 221 U.S. at 279, 31 S.Ct. at 558.
This result was affirmed by the Supreme Court in the case of In re Fuller, 262 U.S. *64691, 43 S.Ct. 496, 67 L.Ed. 881 (1923). In that case, involuntary debtors, prior to adjudication, turned over certain books and records to a receiver under , an agreement that the books and records would not be turned over to the district attorney or the grand jury, because the debtors had claimed that the books would tend to incriminate them. When a trustee in bankruptcy was appointed, the district court judge ordered the receiver to turn over the books and records to the trustee, which, with certain exceptions, was done. The district attorney immediately served a subpoena on the trustee requesting production of the debtors’ records. The district judge also ordered the debtors to turn over to the trustee those records redelivered to them by the receiver. In denying a stay of the turnover orders to one of the debtors under indictment, the court stated:
“A man who becomes a bankrupt or who is brought into a bankruptcy court has no right to delay the legal transfer of the possession and title of any of his property to the officers appointed by law for its custody or for its disposition, on the ground that the transfer of such property will carry with it incriminating evidence against him. His duty and its possession pass from him by operation and due proceedings of law, and when control and possession have passed from him, he has no constitutional right to prevent its use for any legitimate purpose. His privilege secured to him by the Fourth and Fifth Amendments to the Constitution is that of refusing himself to produce, as incriminating evidence against him, anything which he owns or has in his possession and control, but his privilege in that respect to what was his and in his custody ceases on a transfer of the control and possession which takes place by legal proceedings and in pursuance of the rights of others, even though such transfer may bring the property into the ownership or control of one properly subject to subpoena duces tecum.” (emphasis added) In re Fuller, 262 U.S. 91-93-94, 43 S.Ct. 496, 497-98 (1923).
In this instance, Devereaux is not requested to turn over books, records or other recorded information to her trustee. She is requested to turn over property of the estate which, by reason of the appointment of her trustee, is no longer hers to retain. When faced with a similar request in the matter of In re Crabtree, 39 B.R. 726 (Bkrtcy.E.D.Tenn.1984), the bankruptcy judge declined to extend the protection of Fisher v. United States, 425 U.S. 391, 96 S.Ct. 1569, 48 L.Ed.2d 39 (1976), cited by Devereaux herein, to the turnover of assets, stating:
“Whereas recorded information is clearly ‘testimonial,’ the turnover of property of the estate, exclusive of recorded information, does not involve testimony, (citations omitted) The turnover of assets is incidentally communicative, involving a tacit representation that the assets are property of the estate. Compulsion is obviously involved; a self-incriminatory link may be. Nonetheless, because the turnover of property of the estate, exclusive of recorded information, does not compel testimony on his part, the debtor may not decline to surrender assets of the estate on the basis of the privilege against self-incrimination. The debtor’s obligation to surrender his assets is outside the protective scope of the Fifth Amendment.” (at 731)
The bankruptcy judge in the Crabtree case also directed the debtor to certify unconditionally that he had turned over all property of the estate. Devereaux resists so doing, claiming the certification is a “testimonial averment under compulsion of court order which might claim to incriminate Devereaux.” Memorandum of Points and Authorities in Opposition to Motion for Surrender of Property of the Estate, p. 10, 1.16-17. Once again, this Court finds the reasoning of Bankruptcy Judge Bare in the Crabtree case persuasive. He observed:
“Whether the debtor has turned over all property of the estate with the exception of privileged recorded information, is within his exclusive knowledge. Although he may not be compelled to dis*647close privileged information pertaining to property of the estate, he is not otherwise excused from surrendering to the trustee any and all property of the estate. Assets may not be retained on the theory that their surrender will incriminate the debtor.” (at 732)
The certification that all property of the estate within Devereaux’ control has been turned over to the trustee will presumably be co-extensive with the assets turned over. As she is merely certifying that she has surrendered all of that property which she is no longer entitled to retain, the “testimonial averment” she is being required to make in so doing is likewise outside the protective arm of the Fifth Amendment.
Based on the foregoing, no later than May 15, 1985, Devereaux be and hereby is directed to (1) turn over all property of the estate within her control, custody or possession, actual or constructive, excepting any privileged recorded information relating to the property and, (2) certify unequivocally and without qualification under penalty of perjury that she has done so. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8490004/ | MEMORANDUM AND ORDER
BILL H. BRISTER, Bankruptcy Judge.
The trustee challenged the claim of the debtor, Brent S. Roper, that he is entitled to exempt $55,365.87 held in his Teacher Retirement Account from the § 541 property of the estate. The trustee contends successively that the fund properly cannot be exempted under Texas law, that only the portion of the fund which was contributed by the State of Texas can be *5exempted, and that in any event the amount which can be exempted, when combined with other personal property exemptions claimed by the debtor, cannot exceed the $30,000.001 limitation provided by Texas Property Code § 42.001 et seq. (formerly V.A.C.S. article 3836). The following summary constitutes findings of fact and conclusions of law after nonjury trial.
The debtor filed petition for order for relief under Chapter 7 of Title 11 United States Code on March 19, 1984. He claimed the nonbankruptey exemptions provided by state law, itemizing property valued at $8,195.00 under former V.A.C.S. art. 3836. In addition he claimed as exempt property all proceeds in his Teacher Retirement Account held by Lincoln National Life Insurance Company, Fort Wayne, Indiana, totalling $55,365.87, accumulated under the provisions of the Texas Optional Retirement Program, Vernon’s Ann.Civ.St. Title HOB, Chapter 36 (1983).2
At all times relevant to this Memorandum debtor was a member of the faculty at Texas Tech University. As a faculty member he was required by state law to contribute funds to a retirement account. He could elect to participate in either the Teacher Retirement System or the Texas Optional Program, but participation in one or the other was mandatory. Debtor elected the alternate Optional Retirement Program and has remained an active participating member in that program since September 1971. Presently social security taxes are paid by the debtor in addition to his contribution to the retirement fund. On the date of filing of the petition in bankruptcy the debtor’s account with the Optional Retirement Program totalled $55,-365.87, of which the State of Texas, as employer, had contributed one-half in matching dollar-for-dollar contributions. The debtor seeks to exempt the entire fund as well as the remaining personal property exemptions claimed under the Texas Property Code.
The issues raised by the trustee are ones which have not enjoyed frequent treatment in existing case law. A review of the basics could be helpful to an understanding of this Memorandum.
Congress, in its adoption of the Bankruptcy Code, provides an individual debtor with the option to elect between exemption systems. Under § 522(b)(1) an individual debtor may exempt from property of the estate the “laundry list” of exemptions specifically provided by § 522(d) of the Code (unless state law that is applicable to the debtor specifically does not so authorize that election). In the alternative the debtor may choose the exemptions to which he is entitled under nonbankruptcy federal law and the law of the state of his domicile. See § 522(b)(2)(A) and (B). If the debtor chooses the nonbankruptcy exemptions some of the items that may be exempted under other “Federal law” include Foreign Service Retirement and Disability payments, 22 U.S.C. § 1104; Social Security payments, 42 U.S.C. § 407; Injury or Death Compensation Payments from War Risk Hazards, 42 U.S.C. § 1717; Wages of Fishermen, Seamen and Apprentices, 46 U.S.C. § 601; Civil Service Retirement Benefits, 5 U.S.C. § 8346; Longshoremen’s and Harbor Workers’ Compensation Act Death and Disability Benefits, 33 U.S.C. § 916; Railroad Retirement Act Annuities and Pensions, 45 U.S.C. § 228(L); Veterans Benefits, 45 U.S.C. § 352(e); Special Pensions Paid to Winners of the Congressional Medal of Honor, 38 U.S.C. § 3101; and Federal Homestead Liens on Debts Contracted Before Issuance of the Patent, 43 U.S.C. § 175.
The exemptions normally claimed by a Texas debtor, who elects nonbankruptcy exemptions under § 522(b)(2), are the homestead and certain general categories *6of personal property of the aggregate value of $30,000.00 for a family ($15,000.00 for a single person who is not a constituent member of a family) as set out in Texas Property Code § 42.001 et seq. Sections 42.001 and 42.002 speak in terms of “eligible” personal property, but the list of personal property described in § 42.002 as being “eligible” for the exemption is substantially the same property described in its predecessor statute, V.A.C.S. art. 3836. In my opinion, the legislature did not intend, by the use of that term, to limit exemptions to only that property described in § 42.002 as being “eligible” property. Just as there are specific federal statutes which make provision for exemptions, the legislatures of the State of Texas on diverse occasions have provided by special statutes for exemptions in particular funds. This list is not intended to be exhaustive, but included among those special statutes are V.A.C.S. art. 4099 (current wages for personal services); Insurance Code art. 3.50-2 § 10 (Texas Employers Uniform Group Insurance Benefits Act); Insurance Code art. 3.50-3 § 9 (Texas State College and University Employees Uniform Insurance Benefits Act); and Title HOB § 21.005 (Public Retirement Systems).
The exemptions provided by those special statutes are supplementary to the general exemptions provided by the Texas Property Code, § 42.001(a) et seq. Those funds so exempted by special statutes are not subject to the $30,000.00 limitation on the general exemptions, that limitations being applicable only to that list of general personal property exemptions detailed in § 42.001 et seq.
Those special exemptions provided by Texas state law include funds accumulated for participants in both the Teachers Retirement System and the Optional Retirement Program, Vernon’s Ann.Civ.St. Title 110 B, Chapter 36. Exemption for rights accruing under subtitle D, (Teacher Retirement System of Texas), wherein the Optional Retirement Program is described, is provided by § 31.005, as follows:
All retirement allowances, annuities, refunded contributions, optional benefits, money in the various retirement system accounts, and rights accrued or accruing under this subtitle to any person are exempt from garnishment, attachment, state and municipal taxation, sale, levy, and any other process, and are unassignable.
Thus two of the objections advanced by the trustee are answered adversely to his challenges. It is clear that under Texas law the specific fund which was created by the debtor under the Optional Retirement Program was intended to be exempt property. That exemption so created is supplementary and in addition to the personal property exemptions claimed by the debtor under the Texas Property Code (formerly art. 3836) and the fund is not subject to the $30,000.00 limitation.
The trustee contends, further, that only one-half of the fund ... that amount contributed by the employer ... is capable of being exempted. The trustee argues in support of his contention that at most only one-half of the fund is capable of being exempted with citation to a recent opinion of the United States Court of Appeals for the Fifth Circuit. Matter of Johnson, 724 F.2d 1138 (5th Cir.1984). In that case a library employee of West Texas State University had created an annuity in a fund maintained and operated by Lincoln National Life Insurance Company. That annuity was established for West Texas State University as “group master contract owner” but the annuity was funded solely by the contributions of each electing employee. The only involvement by the university was to permit the insurance company to promote its plan and to pay over monthly salary deductions. Johnson argued that because she is employed by a state university she is entitled to exempt the annuity from her bankruptcy estate under the Texas State College and University Employees Uniform Insurance Benefits Act, Tex.Ins. Code Ann. art. 3.50-3 § 9(a) (Vernon 1981). That act provides that “insurance benefits and other payments or transactions made *7pursuant to the provisions of this act to any employee ... shall be exempt from execution, attachment or garnishment”. The Fifth Circuit opinion properly noted that the exemption under that particular act was intended to. exempt only employer provided benefits and did not extend to an annuity created by a participant solely from her own contributions. The opinion emphasized that “our conclusion might be different if appellant had demonstrated that the university was required by the Act to contribute to her annuity as an insurance benefit.”
The instant case is easily distinguishable from Johnson. Under § 31.005 V.A.C.S. of Title HOB “all ... money in the various retirement system accounts ... is exempt....”
I conclude, therefore, that the entire funds totalling $55,365.87 in the Texas Optional Retirement Program may be exempted by the debtor, in addition to the regular personal property exemptions claimed by the debtor under the Texas Property Code.
It is, therefore, ORDERED by the Court that the objections by the trustee, Robert B. Wilson, to the exemptions claimed by the debtor, Brent S. Roper, be, and they are hereby, overruled and denied.
All relief not herein granted is denied.
. Debtor is a single person, but he is legally and morally obligated to support his minor children by a prior marriage. Thus, for exemption purposes, he is a “constituent of a family". See In re Evans, 25 B.R. 105 (Bkrtcy.N.D.Tex.1982).
. Title 110B (Public Retirement System), Acts 1981, 67th Leg., Chapter 453, effective September 1, 1981, as amended in the 1983 Regular and First Called Sessions. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8490008/ | MEMORANDUM OF DECISION
JAMES A. GOODMAN, Bankruptcy Judge.
On September 30,1983, the debtor filed a voluntary petition for relief under Chapter 7 of the United States Bankruptcy Code in the United States Bankruptcy Court for the District of Maine. On April 27, 1984, the duly appointed trustee, plaintiff herein, filed a complaint against the defendant, E.B. Kitfield & Co., seeking to set aside an alleged preferential transfer under 11 U.S.C. § 547(b). The defendant, having filed an answer to the trustee’s complaint, filed a motion for summary judgment on November 2, 1984. The trustee, on November 19, 1984, filed a cross-motion for summary judgment.
The facts in this proceeding are not in serious dispute. Prior to the filing of the bankruptcy petition, the debtor ordered one Coates Water Heater from the defendant. According to the defendant’s invoice number 3342 dated February 14, 1983, the defendant shipped the heater to the debtor on February 7) 1983. On April 21, 1983, the debtor remitted an amount totalling $810.46 to the defendant as payment for the heater. On May 23, 1983, the defendant shipped to the debtor a second Coates Water Heater, as is evidenced by the defendant’s invoice number 3412 dated May 25, 1983. The debtor did not pay the de*153fendant for the second heater, but instead telephoned the defendant in June, 1983 to state that both heaters were of an incorrect voltage.1 The debtor and the defendant agreed that the debtor would return the heaters, that the debtor would receive credit for the returned heaters, and that the defendant would ship two replacement heaters of the correct voltage. The two heaters were returned to the defendant on July 7, 1983, and the debtor received credit for the two units, less the value of certain parts not returned with the defective heaters. According to the defendant’s invoice number 3386 dated July 14, 1983, the defendant shipped two replacement heaters to the debtor on June 30, 1983. Taking into account the credit received for the two returned heaters, the debtor owed the defendant $1035.84. On August 12,1983, the ■ debtor, by its check numbered 115745, remitted payment to the defendant in an amount totalling $810.46. The debtor’s check referred to the defendant’s invoice numbered 3412 and thus suggests that the payment was to be credited against the heater shipped on May 23, 1983.
Contending that the payment made on August 12, 1983 was remitted on account of the heater shipped on May 23, 1983, the trustee seeks to recover the sums paid under 11 U.S.C. § 547(b).2 The defendant maintains that the heater shipped on May 23, 1983 had been returned, that the obligation to pay for the heater had ceased, and that the payment made on August 12, 1983 was in partial payment of the two replacement heaters shipped on June 30, 1983. The defendant, citing 11 U.S.C. § 547(c)(2), insists that the trustee may not recover the sums paid on August 12, 1983.3
Under Maine law, a buyer of goods may elect to reject the goods if they fail to conform to the contract of sale. Me.Rev. StatAnn. tit. 11, § 2-601(1) (1964). Rejection of the goods must be within a reasonable time-after delivery or tender of the goods and the buyer must seasonably notify the seller of the rejection. Me.Rev.Stat. Ann. tit. 11, § 2-602(1) (1964). A buyer has seasonably notified the seller if he notifies the seller within a reasonable time. Me.Rev.Stat.Ann. tit. 11, § 1-204(3) (1964). What is a reasonable time depends on the nature and circumstances of each case. Me.Rev.Stat.Ann. tit. 11, § 1-204(2) (1964). A rightful rejection relieves the buyer of any further obligation with respect to the goods. Me.Rev.Stat.Ann. tit. 11, § 2-602(2)(c) (1964).
The Court finds that the debtor properly rejected the heater shipped on May 23, *1541983.4 Shortly after receipt of the second Coates Water Heater, the debtor notified the defendant that the heater, and the heater shipped on' February 7, 1983, were of incorrect voltage. The debtor and the defendant agreed that the debtor would return the heaters, that the debtor would receive a credit for the returned heaters, and that the defendant would ship the debt- or two replacement heaters. The defective heaters were, in fact, returned on July 7, 1983. The debtor’s obligation to pay for the heater shipped on May 23, 1983 had ceased.
The two replacement heaters were shipped on June 30, 1983. The payment at issue was made on August 12, 1983. While the check submitted to the defendant referred to the defendant’s invoice numbered 3412 and thus to the heater shipped on May 23, 1983, it is clear that the payment was made on account of the two replacement heaters. The debtor, having indicated to the defendant that the two original heaters were nonconforming and having voluntarily returned the heaters, must have known that any obligation to pay for the heater shipped on May 23, 1983 had ceased and no payment was then due. The mere fact that the debtor’s payment mistakenly referred to a contract of sale that had been effectively terminated should not now be the basis for requiring the defendant to return the sums paid on August 12, 1983. To hold otherwise would be to penalize the defendant for the debtor’s error.
The debt at issue was incurred on June 30, 1983, the date the two replacement heaters were shipped to the debtor. On August 12, 1983, within 45 days of that date, the debtor submitted payment of $810.46 to the defendant. The defendant alleges, and this Court finds, that the payment was made on account of a debt incurred in the ordinary course of business or financial affairs of the debtor and the defendant, made in the ordinary course of business or financial affairs of the debtor and the defendant, and made according to ordinary business terms. Having therefore satisfied the requirements of 11 U.S.C. § 547(c)(2), the trustee may not avoid the transfer at issue under 11 U.S.C. § 547(b).
The motion for summary judgment filed by the defendant on November 2, 1984 is granted. The trustee’s cross-motion for summary judgment filed on November 19, 1984 is denied.
. The pleadings now before the Court do not specify the exact date the debtor telephoned the defendant to inform the defendant that the heaters were nonconforming.
. Section 547(b) states:
Except as provided in subsection (c) of this section, the trustee may avoid any transfer of property of the debtor—
(1) to or for the benefit of a creditor;
(2) for or on account of an antecedent debt owed by the debtor before such transfer was made;
(3) made while the debtor was insolvent;
(4) made—
(A) on or within 90 days before the date of the filing of the petition; or
(B) between 90 days and one year before the date of the filing of the petition, if such creditor, at the time of such transfer—
(i) was an insider; and
(ii) had reasonable cause to believe the debtor was insolvent at the time of such transfer; and
(5)that enables such creditor to receive more than such creditor would receive if—
(A) the case were a case under chapter 7 of this title;
(B) the transfer had not been made; and
(C) such creditor received payment of such debt to the extent provided by the provisions of this title.
.Section 547(c)(2) states:
The trustee may not avoid under this section a transfer — ...
(2) to the extent that such transfer was—
(A) in payment of a debt incurred in the ordinary course of business or financial affairs of the debtor and the transferee;
(B) made not later than 45 days after such debt was incurred;
(C) made in the ordinary course of business or financial affairs of the debtor and the transferee; and
(D) made according to ordinary business terms.
. The Court notes that the debtor submitted payment to the defendant for the heater shipped on February 7, 1983. The only issue now before the Court is whether or not the debtor rightfully rejected the heater shipped on May 23, 1983. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8490011/ | GEORGE B. NIELSEN, Jr., Bankruptcy Judge.
This litigation concerns a challenge by a junior creditor to a request by a senior lien claimant to foreclose its security. Since the affirmative defenses contest the validity of the senior lien, the junior creditor has been allowed to intervene to press its case in this Court. In re Davenport, 34 B.R. 463, 466 (Bankr.M.D.Fla.1983). However, because intervenor has failed to carry her burden of proof, a finding for the senior creditor has previously been issued. The purpose of this memorandum is to express the findings and conclusions supporting the prior ruling. Rule 7052, F.Bk.R.
I.
The controversy arises from a request by Palo Verde Management and Financial Services Co. (“movant”) for relief from the automatic stay in regard to a Phoenix, Arizona residence. 11 U.S.C. § 362(d); Rule 4001, F.Bk.R.
The home was previously owned by Chapter 7 debtor Ware Properties, Inc. (“Ware”). Corporate debtor’s sole officers, directors and shareholders are Albert W. and Joyce H. Nash (“Nash”), who are debtors in a separate Chapter 7 administration. Mr. and Mrs. Nash briefly held an interest in the home themselves. Accordingly, the stay lift request was directed at both the corporate and individual debtors’ rights in the property. Neither debtors nor their trustees opposed the motion. However, creditor Mary L. Ward, former owner and holder of a third position trust deed, appeared and objected. Creditor Ward was allowed to intervene, solely to raise any defenses available to debtors or the trustee. In re Fidelity America Mortgage Co., 15 B.R. 70, 72 (Bankr.E.D.Pa.1981); Rule 7024, F.Bk.R.
Specifically, she attacks the validity of the second trust deed securing Palo Verde’s claim, originally placed on the realty by Ware.
Ms. Ward became the original owner of the home in 1971. It was placed on the market on July 12,1982 through the assistance of real estate broker Susan Wood, now deceased. Ms. Ward and Albert Nash1 signed a real estate purchase contract on July 16, 1982. Nash agreed to assume an existing first mortgage of $14,-000, pay a series of deposits totalling $8,000 and provide a note of $14,170 for the balance of the $36,270 purchase price. Exhibit 4, at 1. The note and a trust deed securing it were signed by Nash on behalf of Ware Properties, Inc. in August of 1982. Exhibit 8. Ms. Ward’s warranty deed of the premises to the corporation was acknowledged by a notary public on July 21, 1982 and recorded by escrow agent U.S. Life Title Company of Arizona on August 20. Supra.
The purchase contract provided buyer might wish to obtain a new loan on the premises “in an amount sufficient at least to return buyer’s investment and costs_” Exhibit 4, at Addendum A, ¶ 5. Ms. Ward expressly agreed such new loan could be recorded prior to her $14,170 trust deed. Supra. Appearing at the escrow company in July, 1982, she learned from escrow officer Judith L. Dersham that Nash had taken out an $18,500 loan on the property. Although concerned about this amount, creditor Ward signed an escrow amendment which relegated her lien to third position rather than terminate the sale. Exhibit 7, at 5. She was then given a check for $4,658.67. Prior to signing the amendment, Ms. Ward had discussed the matter with her own broker, Ms. Wood. She understood this provision allowed Nash to place a lien with higher priority on the premises. She further understood that foreclosure of such lien would emperil her *257own interests. Payments under the Ware-Nash note commenced in March, 1983. Debtors defaulted after the August 1, 1983 payment. Creditor Ward now objects to the amount of the trust deed, of which movant is the assignee. Exhibit 11.
By close of escrow, Ms. Ward received $4,658.67 cash, was credited with three late payments of $153.00 each to first lienholder Utah Mortgage, along with a $20.48 late fee, previously received $1,000.00 directly from Nash as an advance,2 had her Utah Mortgage obligation of $14,027.11 assumed and her broker’s commission paid. Exhibit 7.
Debtor Albert Ware Nash, Jr., a retiree, established Ware Properties, Inc. to invest in real estate. Since 1981, Mr. and Mrs. Nash would commingle funds between their personal account and that of the corporation. From 1980 to 1982, debtors estimate assigning 25-30 collateralized notes to Palo Verde Management or other affiliated companies owned or controlled by Paul Schulman. Most notes involved dealings between Mr. and Mrs. Nash and their corporation. Debtors transacted with other investors besides Mr. Schulman, however. Palo Verde’s procedure was to loan debtors 75% of the parcel’s appraised value, less prior liens, in short terms with a balloon payment at the end. Interest was at the market rate. When Palo Verde would actually purchase a note, the price would be set by the discount rate in the secondary mortgage market for second trust deeds, less escrow costs and title fees.
Acting on the prior advice of a title and trust company, Mr. and Mrs. Nash would not seek a direct Palo Verde sale, but instead utilize Ware as an intervening third party to avoid Arizona’s usury limits. This maneuvering, which ultimately led in part to Ms. Ward’s challenge, was unnecessary. Well prior to this transaction, the state legislature removed the interest lid on eon-senual loan transactions. Cf A.R.S. § 44-1201 A (1980), with § 44-1201 B (1956). Nash instituted this practice prior to his dealings with Schulman and Palo Verde.
Nash invested $3,000 into the Ward home, including a $1,400 fence and incurred escrow costs and a down payment of over $11,600, as well. Addendum A, containing the parties' subordination agreement, was prepared by escrow agent Ders-ham, not debtors. To establish the desired “third party” Nash, as part of his routine practice, prepared a trust deed and note from Ware Properties to Mr. and Mrs. Nash for $18,500, secured by the Ward home. Exhibit 11. Although Nash previously testified at a deposition that the consideration for the Ware-Nash transaction was a ledger entry, there is no record in that amount. By August 13,1982, debtors’ practice of commingling personal and corporate accounts was well advanced. The Ware Properties bookkeeper was Louise F. Authement, a Nash daughter, who tried “her darnest” to keep the accounts separate. She was unsuccessful.
A separate escrow was established by U.S. Life Title to effectuate transfer of the Nash interest in the Ward home to Palo Verde. Exhibit 10. At the time of the July, 1982 Ward real estate purchase contract, debtors had not contacted Palo Verde for financing. During this period, debtors were thus free to transact with other investors, and would have done so had Schulman refused the transaction. At this time, debtors owned some 45 houses. By an amendment to the Nash-Palo Verde escrow instructions, Nash directed U.S. Life Title to apply any funds necessary to close the Ward-Ware Properties escrow. Exhibit 10, at 3. This resulted in a transfer of $7,396 to that escrow. Escrow settlement sheet of August 20, 1982, Exhibit 10. The $8,593.50, disbursed to Mr. and Mrs. Nash from the Palo Verde escrow, was placed in the Ware corporate account.
Debtors used the “straw man” transactions between themselves and their corpo*258ration to create notes for sale to other investors besides Schulman. There is a Ware Properties corporate resolution which purports to allow such dealings.
Debtors’ ledger, “Houses for resale,” reflects a credit of $8,598.50 on the Ward home, indicating this sum went to the corporation’s savings account. Exhibit 2. Another entry reflects the $7,396 transferred to the Ward escrow. These figures do not fully account for the $18,500 “loan” between Mr. and Mrs. Nash and the corporation. Consequently, the ledger will not balance.
Escrow agent Dersham prepared the August 16, 1982 amendment to escrow instructions, which identifies the $18,500 pri- or lien placed on the home by Ware. Exhibit 7. This amendment, signed by Ms. Ward, was prepared on Ms. Dersham’s own initiative. Although she knew Nash owned Ware Properties, she saw no reason to so identify them in the $18,500 prior lien referenced in the amendment. In regard to the Ware-Nash transaction, she had no recollection if the note, trust deed and assignment to Palo Yerde were attached together, although she did notarize both the trust deed and the assignment on August 13, 1982. Exhibit 11. Such assignments were always on a separate document.
In handling the Ward escrow, Ms. Ders-ham has no recollection when Ms. Ward appeared to close the transaction, but does know she would not have arranged for the instruments’ August 20, 1982 recordation until the amendment was signed. It would be office procedure for Ms. Ward to sign the amendment prior to recordation of the Palo Verde transaction. She has no control over the exact time the County Recorder processes instruments, however.
Mr. Schulman, as President of Palo Verde, dealt with debtors from 1979 to 1982, ultimately purchasing 30-35 Ware-Nash notes. Palo Verde did not inquire concerning the $18,500 debt between Nash and Ware Properties, although Schulman knew Mr. and Mrs. Nash were Ware’s only officers. Neither did Palo Verde inquire concerning the purchase and subordination agreement between debtors and Ms. Ward. Palo Verde’s criterion in all its dealings was that only one encumbrance be ahead of it, that the note be short term and bear market interest. Movant did obtain a title insurance policy to verify the entire transaction was legally appropriate, rather than investigate the Ward-Nash transaction. Palo Verde paid $16,344 for the Nash-Ware position plus a commission of $1,633.44. Exhibit 2.
As usual in its dealings with debtors, Palo Verde received a financial information sheet from Nash on the Ward property, Exhibit 12, and paid for an appraisal. Exhibit 20.
In August of 1982, Palo Verde had seven separate Nash-Ware transactions. At the time debtors first offered Ware-Nash notes, Palo Verde sought and obtained a legal opinion that such self-dealing was permissible. Thereafter, movant would accept such notes, unless they did not fall within its investment criterion. Schulman did not counsel Nash on how to structure his transactions to avoid the state usury law.
II.
Litigants stipulate that liens exceed the parcel’s value, assuming the validity of movant’s interest. Transcript of May 23, 1984, at 4, lines 4-8. (Hereafter “Transcript, at _”). If the Palo Verde interest is invalid, there would be some estate equity based on an appraised value of $39,000 and liens of Utah Mortgage and intervenor Ward of approximately $15,000 each. Exhibit 16; 11 U.S.C. § 362(d)(2). Such an equity cushion may or may not be sufficient to allow stay to remain in effect for an additional time, presumably to allow sale of the home. Accordingly, the validity of Palo Verde’s lien must be determined.
III.
Intervenor first argues Palo Verde is not a holder in due course of the Ware-Nash paper and is thus subject to defenses available to any party. A.R.S. § 47-3306(2); *259U.C.C. § 3-306. The present defenses include fraud and lack of consideration between Ware and Nash in their dealings.
Ward complains her transaction was fraudulent because her understanding was that her purchaser would only encumber the home for around $11,000. She further argues she was uninformed the prior encumbrance would benefit Nash personally, or that ultimate financing came from Palo Verde.
In fact, Ms. Ward’s testimony establishes she had no prior understanding there was a specific limitation on the amount of the prior lien to be placed on the home. Addendum A to the purchase contract of July 16, 1982, signed by her and specifically referred to in the contract, reflects an agreement any new priority lien would “at least ” be in an amount sufficient to return Nash’s investment and costs. Exhibit 4, at 2; Transcript, at 13, lines 14-19; p. 23, lines 15-22; p. 27, lines 19-25; p. 28, lines 1-8; p. 29, lines 11-15; p. 33, lines 22-25; p. 34, lines 1-2.
She was further aware of the exact. amount of the $18,500 prior lien by the August 16, 1982 amendment to escrow instructions, which she signed prior to receiving her check. Exhibit 7, at 5. Certainly, she was free to inquire as to the identity of the beneficiary of the lien and refuse to close until she received answers to her satisfaction. This she did not do.
The criminal case of State v. Haas, 138 Ariz. 413, 675 P.2d 673 (1983), does not mandate a finding of fraud here. Haas upheld a real estate broker and agent’s fraud conviction when he was aware (1) the language used in a purchase contract to describe “security” for the deferred balance would be insufficient to establish a lien, and (2) he knew the sellers probably would not realize this was the case. 675 P.2d, at 679-81.
This is distinguishable from the present circumstances where Ms. Ward did receive a valid lien which attaches to at least some equity in the $39,000 home. Her lien would have been fully secured, had she not agreed to subordinate. The existence of this equity, unlike the situation in Haas, and the plausible explanation for the demise of debtors’ operations, due to high interest rates and collapse of the housing market, establishes no fraudulent intent here.
Further support for this finding is evidenced by Nash’s description of the Ware-Nash transactions as an ill-considered attempt to avoid nonexistent usury laws. While such machinations were neither praise-worthy nor effective, the explanation is credible. Debtors’ testimony is consistent with the large number of transactions in which this dubious method was utilized prior to the Ward contract.
Finally, the source of the funds for the second lien are not material to the fraud issue. As early as the day of the purchase contract, intervenor Ward was given notice Nash intended to refinance:
Buyer advises seller that buyer may desire to obtain a new loan on subject property in an amount sufficient at least to return buyer’s investment and costs, and seller agrees that said new loan may be recorded prior to the deed of trust created in 4 above. To facilitate this, the deed of trust will incorporate a thirty day substitution of collateral clause. This explanation is given so seller will clearly understand buyer’s intentions with regard to subject property.
Exhibit 4, at 2, ¶[ 5.
Before her escrow would close, Ms. Ward was required to read and sign the following amendment:
Seller is aware and understands that the buyer herein, WARE PROPERTIES, INC., has elected to place a secondary loan on the property conveyed in this escrow, thereby placing the seller’s Note and Deed of trust created herein, in third position. The terms of the second Note and Deed of Trust are as follows:
The sum of $18,500.00 payable in regular monthly installments of $246.67 or more, due on or before the 15th day of every month, beginning October 15,1982, with interest at the rate of 16% per ah-*260num, from 8-20-82 (Close of escrow), the interest to be first deducted from the regular monthly installment and the balance to be applied upon the principal; PROVIDED HOWEVER, if not sooner paid the entire unpaid balance of principal and interest is all due and payable on NOVEMBER 15, 1985.
All other terms and conditions remain the same.
Exhibit 7, at 5. As previously noted, Ms. Ward was free to demand additional information concerning this refinancing, including the complete identity of all parties. Accordingly, I find no fraud as to Ms. Ward.
IV.
This leads to intervenor’s challenge for lack of consideration. The first complaint is that Ware Properties, Inc. did not receive consideration for the $18,500 note it executed to Nash. Exhibit 11. There can be no dispute debtors did not respect the status of Ware Properties as a separate legal entity, or that the corporation’s books are out of balance and incomplete. There likewise can be no credible argument that $18,500 in cash actually changed hands. Debtors admit they treated corporate and personal accounts as one and the same as early as 1981. Transcript, at 49-58, 97. Regardless, Ware Properties received adequate consideration for its execution of the documents.
At least $7,396 of the Palo Verde sale proceeds went to fund the corporation’s escrow with Ms. Ward. Exhibit 2, at 1. Of the proceeds’ remainder, $8,593.50, was deposited in the corporation’s savings account. Although Nash could not recall into which account the funds were deposited, Transcript, at 86, 91-92, Ware’s bookkeeper declared emphatically the money went into the company’s account. Transcript of July 12, 1984, at 121, 122, 126-27.
Ware’s August, 1982 ledger supports this testimony. Exhibit 2. No bank records to the contrary were received. Finally, as record owner, Ware received the benefits of Nash’s expenditure of $3,000 worth of improvements to the home prior to sale. Intervenor did not attempt to establish these funds came instead from the corporation. Accordingly, sufficient consideration for the Ware-Nash transaction was received by the corporate entity.
V.
More problematic is the assertion the Ware-Nash note and trust deed are invalid because Ware is a mere alter ego. The constant commingling of corporate and personal funds certainly points in that direction. Regardless, a finding of alter ego is not enough. It is also necessary to find that adherence to the fiction of the entity’s separate existence would sanction a fraud or injustice in the particular circumstances. Home Builders & Suppliers v. Timberman, 75 Ariz. 337, 344-45, 256 P.2d 716, 721 (1953), citing Phoenix Safety Investment Co. v. James, 28 Ariz. 514, 237 P. 958 (1925). I cannot find such conditions here.
Ms. Ward agreed to subordinate her secured position, knowing full well a priority lien would imperil her security upon default. That is precisely what occurred. Debtors’ continuous violence to the concept of a corporation’s separate existence was not fraudulent as to her. Intervenor’s cited cases do not compel a different result.
Yosemite Portland Cement Corp. v. State Board of Equalization of California, 59 Cal.App.2d 39, 138 P.2d 39 (1943); Canandaigua National Bank & Trust v. Commercial Credit Corp., 285 A.D. 7, 135 N.Y.S.2d 66 (N.Y.App.Div.1954) and Forest Investment Corp. v. Chaplin, 55 Ill.App.2d 429, 205 N.E.2d 51 (1965), are urged for the proposition there must be two separate entities to create a valid contract. Yosemite Portland stands for that principle but factually has no relevance. 138 P.2d, at 40. Canadiagua National Bank and Forest Investment involve nonentity proprietor-ships purporting to contract with their sole owners, with a subsequent assignment of the paper to institutional lenders. Although the conditional sales contracts were found invalid for lack of sufficient parties, the courts did construe the transactions as *261sufficient to transfer title or constitute a ehattle mortgage. 205 N.E.2d, at 54; 135 N.Y.S.2d, at 68-69. By contrast, Ware Properties is arguably a legal entity— which a proprietorship never can be — and intervenor’s alter ego argument has been rejected.
VI
Palo Verde’s holder in due course status is also attacked because of an alleged improper endorsement through an allonge. An allonge is a paper annexed to an instrument containing endorsements for which there is no room on the instrument itself. Black’s Law Dictionary 70 (5th ed. 1979). Under Arizona law, an endorsement must be on the instrument or on a paper so firmly affixed as to become part of the instrument. A.R.S. § 47-3202 B; U.C.C. § 3-202(2). The assignment was signed and notarized by Ms. Dersham on August 13, 1982, the same day as the Ware-Nash notarized trust deed. Exhibit 11, at 5. It specifically references the Nash-Palo Verde escrow number, identifies Ware Properties as the maker of the assigned note and its date, and recites that the note is to be attached to the assignment. Supra. Vice President Russell 0. Riggs of the escrow company could not specifically recall if the note and assignment originally had been stapled together. The company’s file had been pulled apart, copied and put back together. There is no set file policy as to the order in which the documents are kept. Their present order, in which the note and assignment are physically separated, bears no significance to their original receipt. Transcript, at 43-48. Given the clear intent that the note and assignment were to be physically attached, the evidence is insufficient to establish an invalid endorsement under A.R.S. § 47-3202 B.
VII.
Intervenor also argues Palo Verde cannot be a holder in due course because it accepted the paper with sufficient knowledge to question its validity. A.R.S. § 47-3304 A(l). Notice of such defense will defeat Palo Verde’s status. A.R.S. § 47-3302 A(3).
Although Palo Verde estimates 30-35 prior dealings, no evidence was presented establishing it had notice Nash was commingling personal or corporate assets. The critical time for such notice is when Palo Verde came into possession of the note and trust deed. Mecham v. United Bank of Arizona, 107 Ariz. 437, 441-42, 489 P.2d 247, 251-52 (1971). Movant cannot avoid such notice by refusing to investigate, if it possessed sufficient facts to suggest an irregularity. Stewart v. Thornton, 116 Ariz. 107, 109, 568 P.2d 414, 416 (1977). No Arizona case establishing a duty to investigate in a similar factual situation has been cited here. If movant lacks knowledge of suspicious circumstances, it is under no duty to investigate the financial position of its transferor. Chemical Bank of Rochester v. Haskell, 51 N.Y.2d 85, 93-94, 432 N.Y.S.2d 478, 479-481, 411 N.E.2d 1339, 1340-42 (1980). The mere fact of prior dealings, or close connections, between movant and debtors does not by itself justify denial of holder in due course status. Christinson v. Venturi Construction, 109 Ill.App.3d 34, 64 Ill.Dec. 674, 676-677, 440 N.E.2d 226, 228-29 (1982).
No particular factors are present which would mandate additional investigation by Palo Verde. Nor do I discern fraud, lack of consideration or any other viable defense which could be discoverable had such duty arose.
VIII.
Ms. Ward’s knowing subordination of her lien rights to an $18,500 security interest in a modest home already carrying a first mortgage may not have been wise in hindsight. Certainly, debtors’ ill-advised and abortive attempts to avoid a nonexistent usury bar cannot be condoned.
Regardless, as one opposing modification of stay, intervenor has failed to carry her burden of establishing the existence of fraud or any other viable defense which could be asserted against assignee Palo *262Verde. 11 U.S.C. § 362(g). Movant, possessing a valid lien as a holder in due course, is entitled to relief from stay to foreclose upon the parcel as debtors’ property. Relief from stay will be effective ten days from the date of this memorandum.
ORDERED ACCORDINGLY.
. Identified as "AW Nash or Nominee." Respondent’s Exhibit 4, at 1.
. Ms. Ward received this advance from Nash on July 17, 1982 to finance her move to an apartment. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8490012/ | MEMORANDUM OPINION AND ORDER
FREDERICK J. HERTZ, Bankruptcy Judge.
I.
This case comes to be heard on the Motion of Coronet Insurance Company (“Coronet”) to dismiss the adversary complaint of Lawrence Cooper, trustee of the estate of Kenneth Boughton (“debtor”). The question raised is a jurisdictional one, requiring the court to examine whether the case is a core or non-core proceeding, and whether mandatory or discretionary abstention should be exercised.
II.
On November 1, 1982, debtor, while driving his car, struck a pedestrian, Marilyn Robertson (“Robertson”), and injured her. At that time, debtor was insured under an automobile liability policy issued by Coronet. According to the terms of the policy, Coronet was obligated to pay any judgment rendered against the debtor as driver of the insured vehicle, with a maximum liability of $15,000 per person, $30,000 per occurrence.
Prior to filing suit, Robertson sent notice of the salient facts to Coronet. Coronet did not respond. Robertson then initiated proceedings in the Circuit Court of Cook County, 83 L 9490, on May 12, 1983. As the case proceeded towards trial, counsel for Robertson offered at least three times1 to settle the claim for the policy limit. Counsel representing both Coronet and the debtor failed to respond to these offers for *314settlement until the week before the date of trial. Robertson rejected this late acceptance as being untimely.
On March 26, 1984, trial of the case was conducted. Judgment was rendered for plaintiff Robertson in the amount of $48,-750 — $33,750 in excess of the policy limits. The order was not appealed.
On July 17, 1984, shortly after the unfavorable judgment, Kenneth Boughton filed for relief under Chapter 7 of the Bankruptcy Code. The record was designated as a “no asset” case. Attorney Lawrence Cooper was appointed as trustee.
On January 10, 1985, Cooper filed the present adversary action, alleging that debtor suffered damages as a proximate result of Coronet’s “negligent and willful failure” to accept Robertson’s offers. Cooper alleges jurisdiction pursuant to 28 U.S.C. § 1334, maintaining that debtor’s interest in the suit is property of the estate by virtue of 11 U.S.C. § 541.
Coronet has filed a motion to dismiss for want of jurisdiction based upon the contention that the suit is an unrelated, non-core proceeding. In the alternative, Coronet argues that the court must or should abstain pursuant to 28 U.S.C. § 1334(c). The trustee opposes the motion on the basis that the proceeding is a related one and that the mandatory abstention provision does not apply under these facts.'
III.
In order to consider properly movant’s jurisdictional objections, the court will examine the statutory basis upon which its authority lies. This court derives jurisdiction over bankruptcy cases and proceedings related thereto by 28 U.S.C. §§ 157 and 1334 (Supp.1984). Section 1334 grants original and exclusive jurisdiction to the district court over cases under Title 11 of the United States Code. 28 U.S.C. § 1334(a) (Supp.1984). Section 1334(b) grants the district court original but nonexclusive jurisdiction over cases “arising under” title 11, “arising in” a title 11 case, and proceedings “related to” a case under title 11.
Pursuant to the power granted by 28 U.S.C. § 157(a), the Chief Judge for each district may refer bankruptcy matters delineated in § 1334(a) and (b) to the bankruptcy courts.2 The Chief Judge of the Northern District of Illinois, Eastern Division, did so by General Order on July 10, 1984.
Section 157 divides bankruptcy matters into “core” and “non-core” proceedings. Core proceedings may be decided by the bankruptcy court subject to appeal according to a “clearly erroneous” standard. 28 U.S.C. § 157(b)(1) (Supp.1984). Non-core proceedings are those which are “related to” a title 11 proceeding, but do not “arise in” or “arise under” it. The bankruptcy court has jurisdiction over such non-core proceedings; however, its decision will be subject to de novo review. 28 U.S.C. § 157(c)(1) (Supp.1984).
Coronet contends at the outset that not only is the case sub judice non-core, it is a non-core, unrelated proceeding over which this court has no jurisdiction. Coronet is too hasty in declaring this court’s jurisdiction to be circumscribed. Although this case may not be a core proceeding3 as that term is described in 28 U.S.C. § 157(b)(2)(A) or (0), relating to administration of the estate or proceedings affecting the liquidation of assets of the estate, it is a case “related to” a proceeding under title 11.
Related proceedings are, by definition, not core proceedings. They are *315“[those] adversary cases and controvérsies which are triable only by Article III or State courts ... [They] are traditional state common-law actions not made subject to a federal rule of decision and related only peripherally to an adjudication of bankruptcy under federal law . Matter of Colorado Energy Supply, Inc., 728 F.2d 1283, 10 C.B.C.2d 542, 544-45 (10th Cir., 1984). It has been suggested that only two categories of cases are related proceedings: 1) causes of action owned by the debtor at the time he files for relief under the Code, on which the representative of the estate wishes to proceed for the benefit of creditors; and, 2) disputes between third parties, resolution of which will have a negligible effect, if any, on the estate. 1 Collier’s on Bankruptcy, par. 3.01 et seq. (15th Ed.). The case before the court falls squarely within the first category.
In the instant case, debtor possessed an unliquidated cause of action against Coronet prior to the time that he filed for relief under the Bankruptcy Code. This cause of action, therefore, became property of the estate upon the filing. 11 U.S.C. § 541. As property of the estate, any eventual recovery which may be had by the trustee, will inure to the benefit of creditors. In this manner, the case is “related to” a proceeding under Title 11. Pacor, Inc. v. Higgins, 743 F.2d 984, 994 (3rd Cir., 1984) (“... test for determining whether a civil proceeding is related to bankruptcy is whether the outcome of that proceeding could conceivably have any effect on the estate being administered in bankruptcy”) (citations and emphasis omitted) (interpreting parallel term as used in former 28 U.S.C. § 1471). Consequently, this court may retain jurisdiction of the case and, at its conclusion, issue proposed findings of fact and conclusions of law to the district court pursuant to 28 U.S.C. § 157(c)(1). In re K & L, Ltd., 741 F.2d 1023, 1028 (7th Cir., 1984).
Coronet opposes this result by asserting that the mandatory abstention provision set out in 28 U.S.C. § 1334(c)(2) applies under these facts.4 The operation of § 1334(c)(1) is dependent upon the fulfillment of five requirements. They are: 1) there must be a timely motion; 2) the proceeding must be based upon State law; 3) the proceeding must be related to a case under Title 11, but not arising under Title 11 or arising in a case under Title 11; 4) the proceeding must be one which could not have been brought in federal court absent the bankruptcy proceeding; and, 5) the suit must be one which is presently pending, and can be timely adjudicated, in a State court. The facts of this case fail to meet the fifth requirement.
Section 1334(c)(2) states that mandatory abstention only applies if “an action is commenced, and can be timely adjudicated in a State forum”. 28 U.S.C. § 1334(c)(2) (Supp.1984). The parties have pointed to, and this court finds, no cases construing this language. Coronet suggests that the cited language means “is commenced or can be commenced ... in a State forum”. That is not, however, the import of the language used. Had Congress wished to achieve that result, it undoubtedly would have known how to use language appropriate to the purpose. Furthermore, there is no evidence that this case could be “timely adjudicated” in a State forum. A lengthy *316time lapse before trial would constitute an undue delay, seriously disrupting the administration of the estate. This may be viewed as an independent basis for denying application of § 1334(c)(2) under these facts. See 1 Collier’s on Bankruptcy, par. 3.01 at p. 3-45 (15th Ed.).
Finally, Coronet moves the court to abstain pursuant to the discretionary authority granted it in 28 U.S.C. § 1334(c)(1). Under that section, the court may abstain in the interests of justice or comity. Comity and justice would dictate that this court abstain if the matter before it involves issues of State constitutional law, important State policy, or unsettled State law. Thompson v. Magnolia Petroleum Co., 309 U.S. 478, 60 S.Ct. 628, 84 L.Ed. 876 (1940). The cause of action put forward in this adversary involves none of these.
It has long been recognized in Illinois that where the amount of damages is likely to exceed policy limits, the insurer has a duty to settle within the policy limits or face an excess liability claim for breach of duty owed the insured. Krutsinger v. Illinois Casualty Co., 10 Ill.2d 518, 141 N.E.2d 16 (1957). The insurer has a duty to give the insured’s interests at least as much deference as its own where the recovery may exceed policy limits. Adduci v. Vigilant Ins. Co., Inc., 98 Ill.App.3d 472, 53 Ill.Dec. 854, 424 N.E.2d 645 (1981). The mere fact of entry of the excess' judgment against the insured may constitute damage and harm sufficient to permit recovery. Id. The duty to settle in good faith has been recognized and construed by federal courts in the Seventh Circuit. See e.g., General Casualty Co. of Wisconsin v. Whipple, 328 F.2d 353 (7th Cir., 1964). This is decidedly not an issue of unsettled or constitutional state law.
When determining whether to abstain, a number of bankruptcy courts have considered whether the outcome of the proposed litigation will have any effect on the estate. United American Bank v. Debeaubien, 27 B.R. 713 (Bankr.E.D.Tenn., 1983); Benchic v. Century Entertainment Corp., 25 B.R. 502 (Bankr.S.D.Ohio 1982); Energy Shed, Inc. v. Cardanas, 20 B.R. 338 (Bankr.E.D.Wis.1982). If the proceeding will have no effect on the estate, it is proper to abstain. Ghen v. Branca, 12 B.C.D. 889, (Bankr.E.D.Penn.1985). The case at bar will most definitely have an effect on the estate. This is a no-asset case. The outcome of the present adversary proceeding will determine whether the creditors are to receive any dividend whatsoever. For this reason, the court will decline to exercise its discretion to abstain.
Counsel for the trustee will submit an order in accordance with this opinion within five (5) days.
IT IS SO ORDERED.
. The record reflects that in addition to sending notice to Coronet prior to filing suit, Robertson also filed a Notice of Policy Demand on August 22, 1983. Coronet responded by letter stating that no payment could be made prior to completion of discovery. On December 13, 1983, depositions of Robertson and debtor took place. On December 19, 1983, Robertson offered to settle the case for the policy limits. Robertson repeated the offer on January 10, 1984. Coronet failed to respond in any manner to either offer. On January 12, 1984, discovery was completed and a pretrial conference was held. On February 29, 1984, Robertson made her final offer to settle. No response from Coronet was forthcoming. On March 13, 1984, Robertson made a motion to have the case advanced towards trial. Trial was set for March 26, 1984.
It is debtor’s contention that in addition to responding to the express offers of settlement. Coronet should have examined the possibility of settlement from the time when notice was first given Coronet, and at every other juncture of the case.
. This grant of jurisdiction remains subject to the district court's right to withdraw the reference upon its own motion or that of one of the parties. 28 U.S.C. § 157(d) (Supp.1984).
. Section 157(b)(2)(A)-(0) lists examples of "core proceedings.” The list is non-inclusive and is cited in an attempt to illustrate the type of proceeding which is so interrelated with the bankruptcy case itself as to be naturally determined with the case as a whole. 1 Collier’s on Bankruptcy, par. 3.01(b)[2][b] (15th Ed.).
Core proceedings are those which would not arise absent applicability of the Bankruptcy Code. Id.
. The mandatory abstention provision was one of two sections contained in the 1984 Bankruptcy Amendments and Federal Judgeship Act which did not apply to all cases as of the date of enactment, July 10, 1984. (The other provision was one relating to the availability of jury trials). Rather § 1334(c)(2) was to apply only to cases filed after the date of enactment. 28 U.S.C. § 122(b) (Supp.1984) Coronet points out that there is some question as to whether the provision applies so long as the adversary proceeding was filed after July 10, 1984; or, whether both the bankruptcy case and the related adversary proceeding must be filed after July 10, 1984, in order to trigger this provision. Compare In re Atlas Automation, Inc., 42 B.R. 246 (Bankr.N.D.Mich., 1984) with In re Dakota Grain Systems, Inc., 41 B.R. 749 (Bankr.N.Dak., 1984). It is not necessary for the court to presently decide this issue because it finds § 1334(c)(2) to be inapplicable to the instant case, and because both the bankruptcy case and the adversary proceeding were filed subsequent to the enactment of the ’84 amendments. (July 17, 1984, and January 10, 1985, respectively.) | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8490014/ | MEMORANDUM OPINION AND ORDER
WILLIAM A. HILL, Bankruptcy Judge.
This is an adversary case commenced by the Trustee on September 18, 1984, seeking turnover of the present value of the Debt- or’s United States Coast Guard pension benefits. The Debtor and the United States of America resist the Trustee’s efforts, arguing that military pension benefits are not property of the Debtor’s estate. The case was tried on February 12, 1985, with the parties stipulating to the essential facts. All parties filed post-trial briefs. The facts as material may be stated as follows:
FINDINGS OF FACT
The Debtor, Charles C. Greiner, was retired from the United States Coast Guard on October 1,1981, after serving for nearly 21 years. Upon retirement, he became eligible for a full pension and is currently receiving $972.00 per month. The benefits available to him are pursuant to 10 U.S.C. § 1315. He and his wife filed for bankruptcy on September 15, 1982, and were granted a discharge on July 8, 1983.
The pension benefits are received by the Debtor on a monthly basis and terminate upon his death. There are no survivor benefits, and there is no right on the part of the Debtor to cash out his retirement benefits for a lump sum payment. The monthly payments are taxable and are subject to garnishment and attachment. So long as the Debtor accepts such payments, he remains subject to recall for military service in the case of national emergency pursuant to 14 U.S.C. § 331. He also remains subject to the Uniform Code of Military Justice. Thus far, the Debtor has, however, not been recalled to active military service.
CONCLUSIONS OF LAW
The issue presented is whether United States Coast Guard pension benefits are property of a debtor’s estate under section 541 and thereby subject to the turnover provisions of section 542. The Trustee, placing principal reliance upon the recent Eighth Circuit decision of In re Graham, 726 F.2d 1268 (8th Cir.1984), argues that a broad application of section 541 establishes that military pension benefits fall within the scope of “property of the estate”. Both the Debtor and the United States, disagreeing, cite In re Haynes, 679 F.2d 718 (7th Cir.) cert. denied, 459 U.S. 970, 103 S.Ct. 299, 74 L.Ed.2d 281 (1982) as a decision clearly holding that military retirement benefits do not become property of the debtor estate. The Graham case was not concerned with military retirement plans but rather addressed ERISA profit sharing plans. The Eighth Circuit’s decision in Graham was in accord with the majority of courts in holding that ERISA pension plans and KEOGH plans are property of the debtor’s estate. The facts of Graham, typical of ERISA plans, are dissimilar to the facts attendant to the Debt- or’s United States Coast Guard retirement plan. In Graham, the debtor was one of two employee/shareholders of Charles W. Graham, M.D., Ltd., a corporation whose earnings were derived solely from the debt- or’s services as a physician. The professional corporation made employer contributions to the plan based on the participant’s salary percentage and, in addition, each of the two participants could make voluntary contributions. The Eighth Circuit, while broadly applying section 541, noted that ERISA plans are private employer pension systems and do become property of the bankrupt estate. The retirement plan available to the Debtor as a United States Coast Guard retiree is available by virtue of federal law. That law (10 U.S.C. § 1315) provides that a retired member of the arm*395ed forces is entitled to retired “pay” providing he remains subject to active duty recall. Haynes, supra., 679 F.2d 718 at 719, noted that because a military retiree is subject to continuing duties, his retirement benefits are more kin to wages than a pension. Such benefits are actually reduced compensation for reduced services. See also McCarty v. McCarty, 453 U.S. 210, 101 S.Ct. 2728, 69 L.Ed.2d 589 (1981); United States v. Tyler, 105 U.S. 244, 15 Otto 244, 26 L.Ed. 985 (1881); Costello v. United States, 587 F.2d 424 (9th Cir.1978). Other factors which distinguish military pensions from ERISA and KEOGH plans are that a military retiree remains subject to the Uniform Code of Military Justice and has various restrictions placed upon his post-military service activities. McCarty, supra. On the basis of these distinctions, the Seventh Circuit in Haynes concluded that military retirement benefits were services performed subsequent to filing of the bankruptcy petition and therefore did not become property of the estate under section 541.
Perhaps, as the Trustee suggests, the distinction between ordinary pensions and military pensions made by the Haynes court is a fiction. It is, nonetheless, a fiction based on clearly derived distinctions which have been recognized by the Supreme Court as well as circuit courts. This Court believes that the Eighth Circuit, if it were to review the facts of the instant case, would fall in with Haynes and recognize the distinctions. In any event, the Trustee’s position is against the current weight of authority with regards to treatment of military pensions under the Bankruptcy Code.
Accordingly, it is the opinion of this Court that the United States Coast Guard pension benefits available to the Debtor herein are not property of the estate under section 541 of the Bankruptcy Code and are therefore not subject to section 542. On the basis of the foregoing, the Trustee’s Complaint is DISMISSED.
IT IS SO ORDERED.
JUDGMENT MAY BE ENTERED ACCORDINGLY. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8490015/ | MEMORANDUM OPINION
THOMAS M. TWARDOWSKI, Bankruptcy Judge.
The Delaware Solid Waste Authority (“DSWA”) has filed, pursuant to 11 U.S.C. § 362(d)(1), a motion for relief from the automatic stay so that it may commence and pursue to conclusion a condemnation action in Delaware state court against a parcel of the debtor’s real property located in Delaware. The motion is opposed by the debtor and by the debtor’s Official Unsecured Creditors’ Committee, although the latter has not taken an active part in this litigation. For the following reasons, we shall grant the relief requested by DSWA.1
It is undisputed that DSWA needs the property in question in order to construct a landfill. It is also undisputed that the debtor, operating under a confirmed liquidating Chapter 11 Plan, has no desire to keep the subject property, and has no objection to transferring its interest in the property to DSWA, provided that the debt- or receives what it believes to be a fair price for the property. There is no evidence, nor any suggestion by the debtor, that anyone other than DSWA is interested in acquiring the property from the debtor. Negotiations between the debtor and DSWA for DSWA’s purchase of the property were unsuccessful, and DSWA has taken all of the required preparatory steps to commencing a condemnation action against the property in Delaware state court.
The debtor opposes the proposed Delaware state court condemnation action because it contends that the only dispute between it and DSWA is the value of the property and that the Bankruptcy Court can decide the valuation issue more expeditiously, with greater expertise, and with less expense to the debtor's estate than can the Delaware state court in a condemnation action. Thus, the debtor requests that “all issues regarding the sale, condemnation, and/or valuation of Cherry Island be tried by this [Bankruptcy] Court.” (Debtor’s Memorandum of Law, p. 27).
We first note that there is absolutely nothing before our Court with regard to “the sale, condemnation, and/or valuation of Cherry Island” other than DSWA’s instant motion. While the debtor states that, if the instant motion is denied, it intends to immediately request a “valuation hearing” in our Court, the debtor provides no further explanation (and we can only speculate) as to the actual nature of such a request and any consequences which may ensue pursuant to the request, particularly in light of our obvious lack of authority to force DSWA to condemn or purchase the property. Therefore, since we do not know what we might be called upon to decide should the debtor request a “valuation hearing”, we have no basis for adopting the debtor's contention that we can decide the “valuation issue” more expeditiously, with greater expertise, and with less expense to the debtor's estate than can the Delaware state court in a condemnation action. Furthermore, we are satisfied from the record that the proposed condem*519nation action in Delaware state court will likely proceed reasonably expeditiously, absent any delay by the debtor, and will not be unduly financially burdensome to the debtor’s estate, particularly since the debt- or is contesting only the value of the property and not the taking of the property.
Our decision to grant stay relief is also supported by the companion cases of Matter of Chicago, Milwaukee, St. Paul and Pacific Railroad Company, 738 F.2d 209 (7th Cir.1984) and Matter of Chicago, Milwaukee, St. Paul and Pacific Railroad Company, 739 F.2d 1169 (7th Cir.1984), which both stand for the proposition that a bankruptcy court should permit a state to exercise its power of eminent domain to the greatest extent consistent with the purposes of a bankruptcy case. Here, the purpose of the debtor’s bankruptcy case is the orderly, fair, and reasonably prompt liquidation of its remaining property. We find that the proposed state condemnation action is consistent with this purpose.2 Also see Hayfield Northern R.R. v. Chicago and North Western, —U.S.-, 104 S.Ct. 2610, 81 L.Ed.2d 527 (1984), which generally supports the proposition that exercise of a state’s power of eminent domain should not readily be found to conflict with the purposes of federal law.
For the foregoing reasons, we shall grant to DSWA its requested relief from the automatic stay.
. This Memorandum Opinion constitutes the findings of fact and conclusions of law required by Bankruptcy Rule 7052.
. Of course, both the United States Constitution and the Delaware Constitution mandate just compensation for the taking of private property for public use. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8490016/ | ORDER
BARNEY E. EATON, III, Bankruptcy Judge.
WHEREFORE, the debtor having presented by motion to this court a request that this court hold as exempt under Section 85-3-21, Miss.Code (1972), as amended, the sum of $30,000.00 of the proceeds from the sale of Courtland Plantation, and this court having considered all facts as stipulated by both parties and read into the record, said proceeds are found to be exempt.
Upon reviewing the Stipulation of Facts By and Between the Debtor, and Glen A. Stinson, Mary Kathryn Ellis Stinson and Glen Ellis Stinson, and same being read into the record by attorneys Dick Kingsafer and Stratton Bull, the court makes the following findings of fact, to-wit:
1. Clyde E. Williamson (the “Debtor”) filed his Chapter 11 bankruptcy petition on March 1, 1983, as debtor-in-possession.
2. In April, 1978, Clyde E. Williamson (the “Debtor”) moved a mobile home onto Courtland Plantation, owned by Barnett Serio, Sr. and located in Sections 27, 28, 29 and 37, Township 5 North, Range 1 West, Adams County, Mississippi, said plantation containing eight hundred fifty-four (854) acres, more or less.
3. On October 26, 1978, the Debtor entered into a Contract of Sale with S. Barnett Serio, Sr. for the purchase of the said Courtland Plantation. This was an exec-utory contract which provided for annual cash payments to Mr. Serio and annual installment payments to Federal Land Bank on an existing deed of trust which encumbered the property. The contract was subject to an Agricultural Lease dated April 28, 1978, by and between Mr. Serio and the Debtor. Debtor made payments under «the terms of the Contract of Sale prior to his petition herein in an aggregate sum in excess of $250,000.00.
4. The Contract of Sale between Mr. Serio and the Debtor was in full force and effect and not terminated at the time the Debtor filed his petition in bankruptcy. The Debtor had defaulted in the payment of the January 1, 1983 payment. The Contract provided that any payment due thereunder which became and remained in default for a period of more than sixty (60) days would automatically cause the Contract to be terminated. The Debtor filed his voluntary petition prior to the expiration of the sixty (60) day period and prior to the termination of the Contract, which termination was stayed.
5. The Contract of Sale between Mr. Serio and the Debtor does not expressly prohibit assignment of the contract by the Debtor, however, does expressly provide as Page 5 the following:
“All of the terms and conditions of this Contract of Sale, and this Contract in its entirety, shall inure to the benefit of, and be binding upon Purchaser and Seller, their respective heirs, executors, administrators, successors and assigns.”
The Contract of Sale is subject to approval by the Federal Land Bank of New Orleans, in writing, according to the terms and provisions of the Deed of Trust from the seller, dated September 23, 1977, and properly recorded.
6. The Debtor was in continuous possession of Courtland Planation from October 26, 1978, until the filing of his bankruptcy petition herein on March 1, 1983, and thereafter, until its sale in April, 1984, under the terms and conditions of said Con*677tract of Sale, and has occupied his mobile home thereon with his family as their sole and only place of residence at all times pertinent to this litigation.
7. The mobile home which the Debtor and his family have occupied as their residence since April of 1978 is a 14' x 52' Hyton three axle mobile home. Since the time it was moved onto Courtland Plantation and continuously since that time, it has been on concrete blocks, tied down with metal straps and ground anchors, with the tires and wheels still attached to the axles. The mobile home is supplied water by a water well drilled on Courtland Plantation by the Debtor in 1978 and is attached to a septic tank and field filter system. The mobile home is serviced with electricity from Southwest Electric Power Association with its main office in Lorman, Mississippi.
8. On March 22, 1982, Cloverleaf Cooperative (AAL) obtained a judgment against the Debtor in Adams County Circuit Court Cause No. 5058 in the amount of $49,-922.10, plus interest, attorneys’ fees and costs. This judgment was enrolled March 23, 1982, in Judgment Roll Book M, page 192 in the Adams County Circuit Clerk’s Office.
9. On April 21, 1982, Glen Ellis Stinson, Mary Kathryn Ellis Stinston and Glen A. Stinson filed their complaint against the Debtor in the Chancery Court of Adams County, Mississippi in Cause Number 30,-950. On September 28, 1982, the complainants and the Debtor entered into a letter agreement. On October 5, 1982, an agreed Final Decree was entered awarding a judgment in favor of the complainants against the Debtor in the principal amount of Thirty-three Thousand Five Hundred Dollars ($33,500.00) plus costs and post-judgment interest. This Final Decree was enrolled October 5, 1982, in Judgment Roll Book N at page 223 in the Circuit Clerk's Office of Adams County, Mississippi.
10. The Debtor filed his bankruptcy petition in this matter on March 1, 1983, and thereafter filed his Statement of Affairs and Schedules claiming the Federal Exemptions and not claiming any homestead exemption.
11. On March 29, 1984, this Court entered its Order Authorizing Debtor to Assume Executory Contract and Confirming Sale. Pursuant to this Order, Mr. Serio conveyed the subject Courtland Plantation to the Debtor by Warranty Deed dated April 13, 1984, filed for record in the Office of the Chancery Clerk of Adams County, Mississippi, April 13, 1984, and recorded therein in Deed Book 16-H at page 335. Thereafter, the Debtor and his wife executed a Warranty Deed to H.P. Brooks, Jr. conveying Courtland Plantation which deed is dated April 13, 1984, and filed in said records on April 13, 1984, recorded in Deed Book 16-H at page 339. The Debtor and his family presently reside on Courtland Plantation at the same location in the same mobile pursuant to a reservation in the deed of conveyance from the Debtor and his wife to H.P. Brooks, Jr. of a two-acre tract for a period of one (1) year and the Debtor is presently farming Courtland Plantation with H.P. Brooks, Jr. The sale of Courtland Plantation to H.P. Brooks, Jr. netted for the benefit of the bankruptcy estate the sum of Sixty-one Thousand Nine Hundred Fifty-five Dollars Ninety-nine Cents ($61,955.99).
12. On June 1, 1984, the Debtor filed his Notice of Filing Amendments in this bankruptcy and therein changed the property claimed as exempt on Schedule B-4 to the exemptions permitted under the laws of the State of Mississippi and claimed a homestead exemption in the amount of Thirty Thousand Dollars ($30,000.00).
13. On June 1, 1984, the Debtor filed two Motions to Avoid Lien Impairing Debt- or’s Exemptions, one as to the Cloverleaf Cooperative judgment lien, and one as to the Stinsons’ judgment lien.
14. On or about June 28, 1984, the Stin-sons filed their Objection to Filing Amendment and their Answer to Motion to Avoid Lien Impairing Debtor’s Exemption. Cloverleaf Cooperative has never filed an objection nor answer to the Amendments or to the Motion to Avoid.
*67815. The hearing on both of Debtor’s Motion to Avoid Liens and on the Stinsons’ Objection to Filing Amendments and Answer to Motion to Avoid Lien was set for August 14, 1984, at 9:30 o’clock a.m. The Stinsons and Debtor appeared through counsel, however, Cloverleaf Cooperative made no appearance.
16. At the time the Debtor filed his Petition on March 1, 1983, he was a resident citizen of Adams County, Mississippi, residing therein on Courtland Plantation with his wife and son in their mobile home. Debtor had also been a registered voter in Adams County, Mississippi since October 5, 1978.
This Court makes the following Conclusions of Law, to-wit:
Citing Negin v. Salomon, 151 F.2d 112, 116 A.L.R. 1005 (2nd Cir.1945), 9 Am.Jur.2d § 655 states that “the rule is that a transfer of property by the bankrupt, prior to bankruptcy, which is not invalid or voidable in bankruptcy as a fraudulent conveyance or an unlawful preferential transfer even though the transfer is ineffective for some other reason, does not constitute a surrender or waiver of the right to claim an exemption in such property in bankruptcy, in the absence of a rule of state law to the effect that an exemption is surrendered by a transfer of the property.” In other words, absent state law to the contrary, a bankrupt can claim the proceeds of the sale of the homestead as exempt. The applicable state law in Mississippi is § 85-3-21 of Miss.Code Annotated 1972 which merely limits the amount to $30,000.00 for the homestead exemption.
9 Am.Jur.2d § 655 further states that an agreement by a bankrupt prior to bankruptcy to sell his homestead is not effective to deprive the bankrupt of his homestead exemption. Am.Jur. cites In Re Chakos, 24 F.2d 482 (7th Cir.1928), in support of the proposition that the bankrupt’s executory contract to sell his homestead which was made prior to his declaring bankruptcy, did not effect his right to his homestead exemption. However, Wisconsin law, which was determinative in this case, established a limit of $5,000 on the proceeds of homestead property sales. Therefore, Mr. Cha-kos was allowed to claim as exempt $5,000 from the sale of his home.
In the case at bar, the homestead was sold for some $61,000.00. The first $30,-000.00 is rightfully claimed as exempt proceeds from the sale of the homestead. State case law is quite clear on this point. In Davis v. Lammons, 246 Miss. 624, 151 So.2d 907 (1963), a judgment creditor issued a writ of garnishment against a homestead owner. The Supreme Court said in this ease that under the statute, the proceeds of a voluntary sale of a homestead are exempt under all circumstances, regardless of the vendor’s continuing to be a householder, or his acquiring another homestead, or the intent with which he keeps the proceeds.
Having found that the debtor in this case meets the most stringent requirements of a homestead claim in having title, actually occupying the property and having citizenship status at the place of homestead, a right to a homestead exemption claim is established. The creditors claim to the proceeds are burdened with and subject to this homestead exemption claim.
THEREFORE, IT IS ORDERED, ADJUDGED AND DECREED that the motion of the debtor, Clyde E. Williamson d/b/a Triangle 44 Farms, is well taken and he is hereby granted an exemption of the proceeds of the sale of the homestead in the amount of $30,000.00 pursuant to 11 U.S.C. § 522(b) and the laws of the State of Mississippi. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8490017/ | ORDER
GEORGE C. PAINE, II, Bankruptcy Judge.
This matter is before the court on a motion for summary judgment filed by Riv-ergate Executive Park, Ltd. (hereinafter referred to as “defendant”). The controversy concerns whether the defendant paid sufficient Tennessee privilege taxes to secure its $517,785 claim against property formerly owned by the debtor. Upon consideration of the stipulations, statement of counsel and the entire record, this court concludes that the defendant has a secured interest against property formerly owned by the debtor in the amount of $421,526. Due to the debtor’s failure to pay privilege taxes on the accumulated interest on the second mortgage, the court holds that it did not properly perfect its security interest in $96,259 of accumulated interest.
The following shall represent findings of fact and conclusions of law pursuant to Rule 7052 of the Federal Rules of Bankruptcy Procedure.
The parties, in their pretrial statement, have stipulated to the facts in this case. On April 1, 1980, the defendant recorded a second deed of trust on property formerly owned by the debtor, paying privilege tax on indebtedness of $335,000, the principal amount of the second mortgage. On November 3, 1982, the plaintiff’s predecessor in interest, United American Bank in Knoxville, recorded a third deed of trust paying a privilege or recording tax on an indebtedness of $6,900,000.
After the debtor filed its Chapter 11 petition, this court approved the sale of the real property upon which the defendant and plaintiff held second and third deeds of trust respectively. As a result of this sale, the defendant received $517,785 in full satisfaction of its claim and the plaintiff received $87,505 in partial satisfaction of its claim. The defendant’s claim consisted of $335,000 of principal indebtedness, $54,026 in advancements to the holder of the first mortgage, $96,259 in accumulated interest on the second mortgage and $32,500 in *688attorney’s fees incurred by the defendant in pursuing its claim against the property. The plaintiff had a total indebtedness of $2,268,316.41 and has only received the above-stated amount of $87,505.
The plaintiff asserts that the defendant was only secured up to $335,000, the amount upon which it paid a recording tax. The defendant argues that it was properly secured for the full amount of its indebtedness since it complied with the Tennessee recording tax statute by paying tax on the principal amount of the indebtedness. The defendant asserts that accumulated interest, attorney’s fees and payments to the first mortgage holder cannot be construed as principal under the Tennessee recording tax statute. In the alternative, the defendant claims that it acted in good faith and is entitled to a perfected security interest in the full amount of its claim under the Tennessee Supreme Court case of Commerce Union Bank v. Possum Holler, Inc., 620 S.W.2d 487 (Tenn.1981).
I.
The Tennessee recording tax statute requires, prior to the “... recordation of any instrument evidencing an indebtedness, including but not limited to mortgages, deeds of trust ...”, the payment of a tax “of ten cents (10$) on each one hundred dollars ($100) or major fraction thereof of the indebtedness so evidenced.” TENN. CODE ANN. § 67-4-409(b) (1983). Indebtedness is defined as “... the principal debt or obligation which is, or under any contingency may be, secured at the date of the execution of the interest instrument or at any time thereafter_” TENN. CODE ANN. § 67-4-409(b)(5) (1983) (emphasis added).1
In examining this statute, a number of courts have held that a party may only be secured up to the amount of indebtedness upon which it has paid Tennessee recording tax. In the case of Jackson County Bank v. Ford Motor Credit Company, 488 F.Supp. 1001 (M.D.Tenn.1980), Chief Judge Morton held that Ford Motor Credit Company’s security was limited to the amount upon which it had paid recording tax. Likewise, the Tennessee Court of Appeals in the case of American City Bank v. Western Auto Supply Company, 631 S.W.2d, 410, 423 (Tenn.Ct.App.1981) concluded that “... we believe that the effectiveness of any financing statement as an instrument of priority is limited in that respect to the amount upon which the privilege tax is paid. Beyond that it is a nullity.”
The defendant argues that the Tennessee recording tax statute limits the amount of the tax to the principal amount of the indebtedness. Under this rationale, accumulated interest, attorney’s fees and other amounts secured under the security agreement are not taxable. On an examination of the legislative history of the statute and Tennessee case law, this court concludes that the statute intended to tax the entire obligation upon which a party seeks secured status.
In the case of American City Bank v. Western Auto Supply, 631 S.W.2d 410, 426 (Tenn.Ct.App.1981), the Tennessee Court of *689Appeals examined the legislative history of the Tennessee recording tax statute. The court noted that the statute was amended in 1967 to “... include financing statements and to place the tax on the maximum indebtedness to be secured, whether the maximum existed on the filing date or arose later.” American City Bank, at 426. In 1974, the General Assembly again amended the Tennessee recording tax statute by defining indebtedness to include future as well as presently-existing obligations. After examining the legislative history of this amendment, the court found that the reason for its enactment was crystal clear and was embodied in a speech by Senator Dunavant during floor debate:
“... [I]t has been possible to avoid the tax filing instruments which evidence only part of the intended indebtedness, or none at all, thereby paying less tax than contemplated by the law, or none at all. This permits debts incurred later or additional debt to avoid taxation.
This Section seeks to ensure taxation of the total amount of indebtedness contemplated at the time of recording.... The intent of this Section is not to create a new source of revenue, but to close the loophole which allows avoidance of the tax, and thereby thwarts the intention of the Legislature in enacting the law....”
American City Bank, at 426-427.
The cases examining the Tennessee recording tax statute, as amended, have consistently allowed a secured interest up to the maximum amount of tax paid. They have not distinguished between the principal amount of a debt and other secured portions such as interest or attorney’s fees. See Jackson County Bank v. Motor Credit Company, 488 F.Supp. 1001 (M.D.Tenn. 1980); Stewart v. Farmer’s Bank (In re Johnson), 39 B.R. 358 (Bankr.M.D.Tenn.1984); In re Bates, 35 B.R. 475 (Bankr.M. D.Tenn.1983); American City Bank v. Western Auto Supply Company, 631 S.W.2d 410 (Tenn.Ct.App.1981).
The Tennessee case law as well as the legislative history lead this court to conclude that the broad language employed by the Tennessee legislature was intended to allow a party security up to the amount of the tax paid. To limit the tax to the principal amount of an indebtedness without requiring tax on accumulated interest payments would open a loophole to the tax statute which the legislature attempted to close.
In this case, the court cannot hold that the defendant was required to pay tax on only the principal amount of the indebtedness. Accordingly, the court must further analyze the facts of the case before it to determine whether the defendant may avail itself of the exception established in the Tennessee Supreme Court case of Commerce Union Bank v. Possum Holler, Inc., 620 S.W.2d 487 (Tenn.1981).
II.
In the Possum Holler case, the Tennessee Supreme Court established a good faith exception to the harsh rule that a party was secured up to only the amount of recording tax paid. The court held that if the facts established that a party “... made a good faith effort to comply with the indebtedness tax statute ...”, then its security interest would not be limited to the amount of tax paid.2 Commerce Union Bank v. Possum Holler, Inc., 620 S.W.2d 487, 492 (Tenn.1981). In determining whether a party acted in good faith, the court examined the secured debt and the amount of tax paid to ascertain whether the party deliberately attempted to avoid tax or attempted to comply with the tax statute. In the Possum Holler case, the *690bank was found to have made a good faith effort to comply with the tax statutes and had in effect actually overpaid the tax.
The court finds it appropriate to examine the nature of the three amounts the defendant is claiming as part of its secured debt and determine whether it acted in good faith in failing to pay a tax on these amounts. The first portion upon which the defendant seeks secured status is accumulated interest in the amount of $96,259. The promissory note given by the debtor to the defendant evidences a loan of $335,000 at 12% interest per annum for a term of three years. Under the terms of the note, the principal balance with accumulated interest became due on the third annual anniversary of the execution of the note. Since the note contemplated a one-time payment of principal and interest, it is a simple matter to determine the total amount of indebtedness which will be secured immediately prior to the time when the note becomes due. The court holds that the defendant did not act in good faith by failing to pay a recording tax for the amount of accumulated interest.
The defendant has also sought secured status with respect to payments it made to the first mortgage holder to protect its second mortgage and payment of attorney’s fees in seeking to foreclose on its security. While the deed of trust contemplated that such payments would under certain eventualities become part of the secured indebtedness, it would be an impossible task to determine the exact amount such payments might be under any contingency. Accordingly, the court holds that the defendant acted in good faith when it paid tax on $335,000 of the indebtedness, but failed to include any amount for attorney’s fees or payments to the first mortgagee.
Accordingly, the court holds that the defendant is not properly secured for $96,259 in accumulated interest but is properly secured for $54,026 in advancements to the first mortgage holder and for $32,-500 in attorney’s fees. The court hereby ORDERS, ADJUDGES and DECREES that the defendant’s motion for summary judgment is GRANTED in part and DENIED in part.3
IT IS, THEREFORE, SO ORDERED.
. TENN. CODE ANN. § 67-4-409(b)(5) (1983) provides in full:
"(5) As used herein ‘indebtedness’ means the principal debt or obligation which is, or under any contingency may be, secured at the date of the execution of the instrument or at any time thereafter. If the principal indebtedness secured or by which any contingency may be secured is not determinable from the terms of the instrument, or if the instrument is given to secure the performance by the mortgagor, grantor, debtor or any other person of a contract obligation other than the payment of a specific sum of money, and the maximum amount secured or which by any contingency may be secured is not expressed therein, such instrument shall be taxable upon the value of the property covered by the instrument. The value of the property shall be determined by the receiving official charged with the duty of recordation and collection of the tax, unless, at the time of presenting the instrument, the owner thereof shall file a sworn statement of the maximum amount secured by the instrument. If such maximum amount is expressed in the instrument, or the aforementioned sworn statement, such amount shall be the basis of assessing the tax imposed under this item.”
. The court in Possum Holler bolstered its decision by noting that "[i]n addition, since it is the Department of Revenue, rather than a subsequent secured creditor, who challenges the priority of the original secured party, it cannot be said that anyone detrimentally relied on the fact that between January and November of 1976 the bank had paid the tax on only $5,376.36.” Possum Holler at 492. Based on this court’s reading of the Possum Holler decision, the court finds that detrimental reliance is not a necessary element of the good faith exception. Accordingly, the court will not analyze this issue.
. The defendant has also argued that the FDIC should be estopped from bringing this claim since it failed to raise the privilege tax issue at a previous hearing in which the defendant was granted relief from the stay to foreclose against the subject property. The court finds that the FDIC’s right to challenge the defendant's security interest was. properly reserved within this court’s order allowing the sale of the subject property pursuant to 11 U.S.C. § 363 (West 1979).
The court finds no justification for the defendant’s position on this issue. The FDIC was not a party to the relief stay litigation. Furthermore, the relief stay litigation determined the issues of whether the debtor had equity in the property and whether said property was necessary for a reorganization. Such determinations do not preclude the FDIC from bringing their present claim. Accordingly, the court finds that the FDIC has standing to attack the defendant’s security interest in this proceeding. The fact that the defendant chose not to appear at the 11 U.S.C. § 363 (West 1979) hearing is of no relevance. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8490018/ | MEMORANDUM DECISION
THOMAS C. BRITTON, Bankruptcy Judge.
The debtors’ largest secured creditor seeks a determination of the amount, validity and priority of its lien. The matter was heard on March 14.
The plaintiff’s lien is disputed by the debtors through two counts which assert breaches of contract, one count which alleges fraud, another count which alleges criminal usury, and a fifth count which asserts a civil RICO claim.
Shortly after this adversary complaint was filed by the plaintiff/creditor, the debtors amended their complaint then pending in the District Court against the plaintiff/creditor by adding the five counts identified. In this action, the debtors have requested a stay by this court until the District Court can hear and determine the five counts in question after a jury trial.
These chapter 11 debtors have presented a plan for reorganization and the plaintiff/creditor has presented an alternative plan. Both plans are scheduled to be considered by confirmation, after a vote by the creditors on April 29. The plaintiff’s claim exceeds $225 million and accrues interest at the rate of $2.4 million per month. The parties agree that every effort should be made to avoid any delay in the consideration of the pending plans and in the disposition of the dispute before them.
I am convinced that this court can best serve the parties, the remaining creditors who are not parties to this action, and the District Court by hearing and deciding now the plaintiff/creditor’s contention that the five defenses raised by the debtors are barred by releases executed by the debtors in June 1983 and again in June 1984.
The release of June 23, 1983 is in the form of a letter executed by the debtors Gould, Holywell Corporation, Miami Center, Ltd., Partnership and Chopin Associates in consideration of continued financing by the plaintiff bank. It provides that:
“The undersigned release and discharge the Bank, its participants, successors and assigns, for all time, from any claims of any nature which the undersigned ever had, now or hereafter can, shall or may have in connection with or arising out of (i) the Loans or (ii) the Loan Documents.”
The release dated June 11, 1984 is executed by the same four parties together with the debtor Miami Center Corporation. It is in consideration of the bank’s forbearance of acknowledged defaults as well as additional financing. It provides:
“Chopin, Miami Center, Holywell, MCC and Gould each jointly and severally hereby release and discharge the Bank, its participants, successors and assigns for all time from any claims of any nature, whether known or unknown, which Chopin, Miami Center, Holywell, MCC or Gould ever had, now or hereafter can, shall or may have in connection with, or *696arising out of, or otherwise relating to the Loans or the Loan Documents.”
The execution and delivery of these releases is conceded. The debtors do not claim any fraud or other irregularity in the inducement or execution of either release nor do they assert any other ground for avoidance of either release. It is the debtors’ only contention that three of their five defenses: the fraud, criminal usury and RICO civil claim (or at least some of these three defenses) did not exist at the time these releases were executed and, therefore, are not barred by the releases and, alternatively, it is not legally possible for a party to bar by release defenses of the nature asserted in these three counts. I find no merit in either contention.
The parties agree that the effect of these releases, which were executed in Florida, is to be determined by resort to Florida law. In Gunn Plumbing Inc. v. Dania Bank, 252 So.2d 1, 4 (Fla.1971), the Florida Supreme Court held that the waiver by defendants of the defense of usury in a prior action constituted an estoppel from raising the defense of usury to a second renewal note. The court noted that usury is a purely personal defense which may be waived and that:
“it has no especial claims upon the indulgence and favor of the court, but must be disposed of upon the same principles and in the same manner as other defenses.”
The court also said:
“This Court is committed to the rule that it not only approves but favors stipulations and agreements on the part of litigants and counsel designed to simplify, shorten or settle litigation and save costs to the parties, and the time of the court, and when such stipulation or agreements are entered into between parties litigant or their counsel, the same should be enforced by the court, unless good cause is shown to the contrary.”
Although the Gunn case involved a stipulation in a pending case rather than a release executed by a possible prospective defendant, I am aware of no basis for considering that a different rule would apply to a release. Similarly, I see no basis to enforce the release of the defense of usury but refuse to enforce the release of either a fraud or RICO civil claim merely because fraud and RICO claims, like usury, are based upon conduct which is contrary to public policy and is prohibited by statute.
Munilla v. Perez-Cobo, 335 So.2d 584 (Fla.Dist.Ct.App.1976) follows and applies Gunn.
In Weingart v. Allen & O’Hara, 654 F.2d 1096, 1103 (5th Cir.1981), the court applied Florida law, saying:
“The district court was correct in determining that both of plaintiffs’ claims, fraud and breach of contract, with respect to the Hollows and Boot Lake subcontracts, were released, and thus did not err in granting judgment n.o.v. on that basis.”
In Ingram Corporation v. J. Ray McDermott & Co., Inc., 698 F.2d 1295, 1323, n. 30 (5th Cir.1983), the District Court had denied summary judgment in RICO claims and state and federal antitrust claims, where summary judgment hád been sought by defendant based upon releases. The Court reversed and remanded holding that the antitrust and RICO claims are barred by releases unless the release is avoidable on equitable grounds. I see no reason why the same result should not be reached in the application of Florida law.
The debtors have relied upon Schaal v. Race, 135 So.2d 252 (Fla.Dist.Ct.App.1961), which appears to me to be completely irrelevant to the issues before me, Bond v. Koscot Interplanetary, Inc., 246 So.2d 631 (Fla.Dist.Ct.App.1971) and Frye v. Taylor, 263 So.2d 835 (Fla.Dist.Ct.App.1972). The last two cases each hold that agreements which violate statutes or are contrary to public policy are illegal, void and unenforceable as between parties. Neither case involved a release or other waiver of a defense asserting illegality. It appears clear to me that although usury, for example, violates a statute and is contrary to public policy and, therefore, is *697illegal and unenforceable as between the parties, a party may lawfully waive and estop himself from asserting a defense based upon usury and that he may do so by executing and delivering a release. That appears to be the effect of the holding m Gunn. Neither of these cases undercuts that conclusion.
The two releases executed by the debtors each explicitly contracted to release future as well as existing claims and unknown as well as known claims. I am aware of no Florida decision declaring such releases unenforceable, and the debtors have presented no such authority.
I find, therefore, that each of the five defenses asserted by the debtors is barred by the releases executed by these debtors. There is, therefore, no useful purpose to be served by the stay of this adversary proceeding pending determination by the District Court of the action before it. I fully recognize, of course, and take comfort from the fact that the determination of this court is subject to review by the District Court.
The debtors’ motion for stay is denied. The parties have agreed that they can present a judgment fixing the exact amount of the debt owed to the plaintiff by each debtor and that plaintiff’s lien has been duly perfected and is applicable to collateral which is undisputed. The parties are directed to submit such a judgment which will incorporate this court’s determination that the plaintiff’s lien is valid and enjoys a first priority. Costs, if any, may be taxed on motion. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8490020/ | CLIVE W. BARE, Bankruptcy Judge.
Plaintiff is the liquidating trustee for Southern Industrial Banking Corporation (SIBC), a former industrial loan and thrift, whose chapter 11 petition was filed on March 10, 1983. Defendant First Tennessee Bank (FTB) is a state banking corporation which purchased certain assets of the former United American Bank (UAB), an insolvent bank, from the Federal Deposit Insurance Corporation (FDIC) on February 15, 1983.
Plaintiff's complaint, seeking to avoid alleged preferential transfers to either UAB *761or FTB totaling in excess of $11,000,000, was filed on April 13, 1984.1 Plaintiff has undertaken extensive discovery through interrogatories and requests for production of documents. On February 14, 1985, attorneys for plaintiff and defendant FTB submitted a proposed protective order to the court. The proposed order is substantially similar to other protective orders previously entered in the local district court.2 On March 6, 1985, the Knoxville News-Sentinel Company filed its motion to intervene for the purpose of opposing entry of the protective order. After a hearing the motion to intervene was granted.
The objections of the News-Sentinel are detailed in its memorandum accompanying its March 6th intervention motion. According to the News-Sentinel, the proposed protective order will inhibit its ability to accurately and completely report information to the public. Further, the News-Sentinel contends the proposed protective order violates the First Amendment and common law rights of the press and the public.
Attorneys for FDIC and FTB have indicated their willingness to consider suggested modifications of the proposed protective order by the News-Sentinel, but apparently no agreement has been reached. In any event, FDIC and FTB insist a protective order is necessary to preserve both their respective proprietary information interests and the privacy rights of persons not parties to this litigation. FDIC and FTB also maintain the protective order is necessary to safeguard from criminal sanctions FDIC employees and agents who make documents available to plaintiff in response to discovery demands.
Plaintiff trustee and his attorneys are willing to abide by the terms of the proposed protective order. Indeed, plaintiffs counsel represents that he has no interest in the identity of the customers of UAB; he merely wants to discover how UAB did business.3
Bankruptcy Rule 7026 incorporates Fed. R.Civ.P. 26, which provides in part:
(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, embarrassment, oppression, or undue burden or expense, including one or more of the following:
(2) that the discovery may be had only on specified terms and conditions ... (7) that a trade secret or other confidential research, development, or commercial information not be disclosed or be disclosed only in a designated way....
Preservation of the confidentiality of materials revealed during discovery but not made public at trial is one important purpose of a pre-trial protective order. National Polymer Products, Inc. v. Borg-Warner Corp., 641 F.2d 418, 424 (6th Cir. 1981). “[P]retrial depositions and interrogatories are not public components of a civil trial.” Seattle Times Co. v. Rhinehart, — U.S. -, 104 S.Ct. 2199, 2207, 81 L.Ed.2d 17 (1984) (footnote omitted). Furthermore, “an order prohibiting dissemination of discovered information before trial is not the kind of classic prior restraint *762that requires exacting First Amendment scrutiny.” Rhinehart, 104 S.Ct. at 2208.
At issue in Rhinehart was whether a newspaper, a party in the civil litigation, had a First Amendment right to disseminate information, obtained through the pretrial discovery process, in advance of trial. The Court held the First Amendment is not violated where a protective order, entered on a showing of good cause, “is limited to the context of pretrial civil discovery, and does not restrict the dissemination of the information if gained from other sources.....” Rhinehart, 104 S.Ct. at 2209-10.
The court is persuaded that good cause exists in this case for the entry of a protective order. Plaintiffs counsel represents it is impossible for him to effectively subpoena documents because he does not know what UAB records exist and are in the possession of either FDIC or FTB. Federal and state law impose limitations upon the disclosure of relevant information in this case by either FDIC or FTB. Section 3417(a) of Title 12 of the United States Code enacts:
Civil penalties
Liability of agencies or departments of United States or financial institutions
(a) Any agency or department of the United States or financial institution obtaining or disclosing financial records or information contained therein in violation of this chapter is liable to the customer to whom such records relate in an amount equal to the sum of—
(1) $100 without regard to the volume of records involved;
(2) any actual damages sustained by the customer as a result of the disclosure;
(3) such punitive damages as the court may allow, where the violation is found to have been willful or intentional; and
(4) in the case of any successful action to enforce liability under this section, the costs of the action together with reasonable attorney’s fees as determined by the court.
Tenn.Code Ann. § 45-10-104 (Supp.1984) provides:
Requisites for disclosure.—Except as provided in § 45-10-103, a financial institution may not disclose to any person, except to the customer or his agent, any financial records relating to that customer unless:
(1) The customer has authorized disclosure to that person as provided in § 45-10-105, or
(2) The financial records are disclosed in response to a lawful subpoena which meets the requirements of §§ 45-10-106 and 45-10-107.
Also, federal law imposes criminal sanctions for improper disclosure of information in a bank examination report:
Disclosure of information from a bank examination report
Whoever, being an examiner, public or private, ... discloses the names of borrowers or the collateral for loans of any member bank of the Federal Reserve System, or bank insured by the Federal Deposit Insurance Corporation examined by him ... to other than the proper officers of such bank, without first having obtained the express permission in writing from the Comptroller of the Currency as to a national bank, the Board of Governors of the Federal Reserve System as to a State member bank, or the Federal Deposit Insurance Corporation as to any other insured bank, or from the board of directors of such bank, except when ordered to do so by a court of competent jurisdiction ... shall be fined not more than $5,000 or imprisoned not more than one year or both.
18 U.S.C.A. § 1906 (1984).
Furthermore, legitimate concerns exist pertaining to proprietary information.
However, the proposed protective order is too broad. Accordingly, the court will enter a modified version of the proposed protective order pertaining to documents exchanged during pre-trial discovery.
. FDIC in its receivership capacity, though not initially named, was joined as a defendant in this action pursuant to an order entered March 28, 1985.
. See Federal Deposit Insurance Corp. v. Arnold, Case No. 3-81-325 (protective order filed July 14, 1981); Ginn v. Federal Deposit Insurance Corp., Case No. Civ. 2-83-207 (protective order filed July 18, 1984); Allen v. Federal Deposit Insurance Corp., Case No. 3-84-274 (protective order filed August 7, 1984); and Federal Deposit Insurance Corp. v. Hardin, Case No. Civ. 2-84-121 (protective order filed October 5, 1984).
.Masking the identity of UAB customers in documents furnished in the discovery process would presumably require an inordinate effort. Further, FDIC and FTB contend they cannot identify all documents which might be relevant to the theory they believe plaintiff is advancing (i.e. a de facto merger occurred between UAB and FTB). | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8490021/ | ORDER DENYING CONFIRMATION OF PLAN
JON J. CHINEN, Bankruptcy Judge.
The proposal of Love-Seemann Properties, (“Debtor”) for an Order to Confirm the Plan of Reorganization and the Motion for Appointment of Trustee filed by Honolulu Limited, a creditor, came on for hearing before the undersigned Judge on December 21, 1984 and February 11, 1985. At the hearing, Debtor was represented by James A. Wagner, Esq., Honolulu Limited by Glen M. Miyajima, Esq., the Federal Deposit Insurance Corporation (“FDIC”) by Louise Y. Ing, Esq. and First Interstate Bank of Hawaii (“First Interstate”) by Gordon Nelson, Esq. The Court, having considered the evidence, the memoranda filed by the parties and the arguments of counsel and being fully advised in the premises, hereby renders the following Findings of Fact, Conclusions of Law, and Order.
FINDINGS OF FACT
This Court has jurisdiction of this contested matter pursuant to 28 U.S.C. § 1471 and 11 U.S.C. §§ 362, 363 and 552(b) and also under 11 U.S.C. § 1104, et seq.
Debtor filed its petition under Chapter 11 of the Bankruptcy Code on April 18, 1984, and is in possession of its property. Honolulu Limited is a corporation duly organized under the laws of the State of Hawaii.
The Debtor claims an interest in certain residential real property located in Hanalei, Island and County of Kauai, State of Hawaii, more particularly described as Tax Map Key Nos. 5-5-002-005 and 5-5-002-105 (“subject property”). Honolulu Limited is the fee owner of the subject property.
On or about May 5,1978, Honolulu Limited entered into a certain Agreement of Sale whereby it agreed to sell and James C. Blackwell, Jr., and Virginia R. Blackwell (“Blackwells”) agreed to purchase the subject property. Shortly thereafter on or about May 12, 1978, the Blackwells entered into two Sub-Agreements of Sale whereby the Blackwells agreed to sell and Michael *771S. Seemann agreed to purchase the subject property.
Subsequently, on or about May 15, 1978, Michael S. Seemann assigned both of the aforementioned Sub-Agreements of Sale to Debtor. Payments in full of the total purchase price under the Agreement of Sale and under both Sub-Agreements of Sale were due on May 22, 1983.
The Debtor has failed to pay the balance of the purchase price due to the Blackwells under both Sub-Agreements of Sale in the principal amount of $560,000.00. Upon the Debtor’s default on May 22, 1983, interest has accrued and continues to accrue on the indebtedness at the rate of 12% per annum or $67,200.00 per year.
The Debtor has failed to pay real property taxes on the premises since 1980. As of March 9, 1984, the delinquent amount of such taxes, interest and penalties totalled $18,882.43 and the Debtor has not paid any real property taxes from March, 1984 to the date of the hearing. The Debtor has disclosed that the real property tax delinquencies exceed $20,000.00. The Debtor’s indebtedness to the Blackwells has remained in default since May 22, 1983 and as a result Honolulu Limited has received no payments since May 22, 1983.
On or about June 20, 1983, Honolulu Limited filed suit against, inter alia, the Debtor, seeking cancellation of the May 5, 1978 Agreement of Sale and/or foreclosure, in Civil No. 3046, in the Circuit Court of the Fifth Circuit, State of Hawaii. On or about February 22, 1984, the Circuit Judge granted Honolulu Limited’s Motion for Summary Judgment and For Appointment of Commissioner For Sale of Real Property. The auction in foreclosure was scheduled to be held on April 19, 1984. The Debtor filed its petition in bankruptcy on April 18, 1984.
The Debtor has had the benefit of an over 20 months delay from the state court action since the filing of its petition in bankruptcy. Notwithstanding this delay, the Debtor has been unable to sell the subject property or to obtain financing to satisfy the Sub-Agreements of Sale which would thereby satisfy Honolulu Limited’s Agreement of Sale.
The amount of Honolulu Limited’s claim is increasing at the rate of nearly $5,000.00 per month, and the Debtor’s debt to the Blackwells is increasing at the rate of $5,600.00 per month, all at the expense of the unsecured creditors of the Debtor.
The Debtor admits that it has listed the subject property for sale at $2.9 million and at $2.6 million, both figures being substantially higher than Debtor’s own “appraisal”.
Debtor is not operating any business on the subject property which is being used primarily as a vacation residence for the two partners. The property itself does not produce any income. The Debtor itself has no source of income and relies, if anything, upon monies to be furnished by one of the partners, namely by Stephen Love, who has admitted that he has no source of income and in fact has extensive liabilities and debts which are already in default and are subject to foreclosure proceedings in other courts.
Since the purchase of the property, the Debtor has had approximately 6 V2 years in which to attempt to sell the property and has been unsuccessful. The Debtor’s proposed plan of reorganization provides that the Debtor shall have two more years after confirmation of the plan within which to sell the property. Since the subject property is not business property and is used as a vacation home by the two partners, there are no employees other than a caretaker.
Dennis Nakahara, a real estate appraiser, testified that the subject property has a cash sale value, as of December 19, 1984, of not less than $1,750,000.00. Terry Hand, the real estate broker who presently holds a listing of the property, testified that the value of the property is between $1,750,000.00 and $2,300,000.00, depending on the terms of the sale.
Since the filing of the petition on April 18, 1984, the Debtor has been actively marketing the subject property and has received three successive offers of $1,000,-*772000.00, $1,200,000.00 and $1,350,000.00 respectively.
The Debtor’s liabilities, based upon its own Ex Parte Application to Approve Listing Agreement filed on November 23, 1984, are approximately as follows:
1. Secured claims, including the claim of First Interstate Bank. 595,000.00
2. Priority claims (Wages & Taxes) 24,000.00
3. Unsecured claims 180,000.00
$799,000.00
Instead of immediately selling the subject property, the Debtor proposes to take two years to market the property at $2.6 to 2.9 million, which would enable the Debtor to pay the creditors 100 percent of their claims. The Debtor contends that, if the subject property is sold at foreclosure at this time, all of the creditors may not receive a return of 100 percent.
CONCLUSIONS OF LAW
The purpose of the Bankruptcy Code is to afford a means to a hard-pressed Debtor to avoid a forfeiture of his investment and to afford him an opportunity for a “fresh-start”. Fresh-start means an ability to clear his liabilities without incurring any forfeiture. Any abuse of the spirit of the Code will not be condoned by the Court.
In the instant case, an Agreement of Sale and two Sub-Agreements of Sale are executory contracts and, as such, when assumed by the Debtor all defaults must be forthwith cured or assurances must be given to cure such default.
Both the Agreement of Sale and the Sub-Agreements of Sale were fully due on May 22, 1983, almost two years ago. However, no payment has been made since May 22, 1983 by the Debtor on its Sub-Agreements of Sale which, in turn, means that the Blackwells have not paid their obligation to Honolulu Limited on their Agreement of Sale.
The Debtor’s total liabilities amount to approximately $800,000.00. Since filing its Petition for Relief, the Debtor has received offers to purchase the subject property at $1 million, $1.2 million and $1.35 million. If the Debtor accepts the $1,350,000.00 offer, even if the closing costs, including real estate broker’s commission, should total 10% or $135,000.00, the Debtor will receive $1,215,000.00. After deducting the Debt- or’s existing liabilities of $800,000.00, there will be a net of $415,000.00 for the Debtor, which is more than adequate for a fresh-start.
Instead of seeking merely a fresh-start, the Debtor’s plan of reorganization seeks to market the subject property at $2.6 to $2.9 million, at a price which is higher than its own witnesses’ opinion of the market value of the property. The Debtor is seeking to become a millionaire through the Bankruptcy Court.
If the subject-property is not sold at the end of two years, the Debtor proposes to have it sold at auction. Yet, the Debtor claims in its Disclosure Statement that, if the subject property is presently sold at liquidation, the proceeds may not be sufficient to pay all the creditors 100% of their claims. If there is such a risk presently, to wait two years means that there will a greater risk that all the creditors may not be paid 100% of their claims, especially in light of the fact that the interest and other costs are increasing daily.
The subject property is not producing any income. The Debtor does not propose to pay Honolulu Limited anything until the subject property is sold. The Debtor proposes to pay the monthly maintenance costs, such as utilities and caretaker’s salary, through contributions by one of the general partners. Yet, Debtor does not reveal the partner’s source of income.
In Matter of Madison Hotel Associates, 749 F.2d 410 (7th Cir.1984), the Circuit Court stated as follows:
Thus, for purposes of determining good faith under section 1129(a)(3), as well as section 1325(a)(3), the important point of inquiry is the plan itself and whether such plan will fairly achieve a result consistent with the objectives and purposes of the Bankruptcy Code.
*773According to the good faith requirement of section 1129(a)(3), the court looks to the debtor’s plan and determines, in light of the particular facts and circumstances, whether the plan will fairly achieve a result consistent with the Bankruptcy Code. The plan ‘must be ‘viewed in light of the totality of the circumstances surrounding confection’ of the plan [and] ... [t]he bankruptcy judge is in the best position to assess the good faith of the parties’ proposals.’ In re Jasik, 727 F.2d 1379, 1383 (5th Cir.1984) (quoting Public Finance Corp. v. Freeman, 712 F.2d 219, 221 (5th Cir.1983).
In Matter of Jesus Loves You, Inc., 46 B.R. 37 (Bkrptcy.M.D.Fla.1984), even though a plan called for 100% payment to all the creditors, the Bankruptcy Court held that, where the Petition was filed in bad faith, the plan will not be confirmed and the petition will be dismissed.
In the instant case, upon viewing the plan “in light of the totality of the circumstances surrounding confection of the plan”, the Court finds that the Debtor’s plan will not achieve a result consistent with the objectives and purposes of the Bankruptcy Code.
Instead of trying to avoid forfeiture and to obtain a fresh-start, the Debtor is trying to achieve the status of a millionaire under the umbrella of the Bankruptcy Court. This is an abuse of the Bankruptcy Code and such conduct cannot be and will not be condoned.
ORDER
IT IS HEREBY ORDERED that confirmation of the plan is denied. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8490022/ | RALPH H. KELLEY, Bankruptcy Judge.
Steve Fults filed claim number 15 for $58,000 for the use of a leased combine in harvesting the debtors’ crops in the spring and fall of 1983. This was after commencement of the debtors’ chapter 11 case and after a trustee had been appointed. Mr. Fults filed the claim as an administrative expense claim which, if allowed, will have priority over other unsecured claims. 11 U.S.C.A. §§ 503(b)(1) & 507.
The trustee objected to allowance of the claim as an administrative expense. The court made oral findings of fact and entered an order sustaining the trustee’s objection. The court indicated that on request of a party it would enter a written memorandum. Steve Fults has requested a written memorandum in conjunction with a motion to extend the time for appeal. This written memorandum supplements the court’s oral findings.
Steve Fults is the brother-in-law of William Richard (Dick) Spears. When the Spears filed their chapter 11 petition in September, 1982, Mr. Fults had been employed by them in their farming operations for 13 to 15 years. He spent 90% of his working time in the employment of Mr. & Mrs. Spears. He did a little farming on the side.
In October, 1982, Dick Spears was not satisfied with the performance of his two-wheel-drive combines in harvesting on wet ground. Steve Fults went to a local John Deere dealer and leased a four-wheel-drive John Deere combine in his name.
The lease required five payments of about $22,000 each. The first payment was due at the time of leasing and one payment was due each January from 1984 through 1987.
The first lease payment in October, 1982, was made by trading in two combines, an International Harvester and a Massey-Ferguson. The International Harvester combine belonged to Mr. Fults but the Massey-Ferguson combine belonged to the debtors. Mr. Fults and Dick Spears both testified that the debtors’ Massey-Ferguson was worn out. Dick Spears said it wasn’t worth anything. According to Mr. Fults, Dick Spears traded the debtors’ combine in return for Mr. Fults using the leased John Deere to finish the harvest. Mr. Fults estimated the cost of finishing at about $1,200. Mr. Fults also received a $2,000 refund from the John Deere dealer because it valued the trade-in combines at more than the first lease payment of $22,000. The court finds that debtors’ property which was traded in had reasonable value.
The debtors did not obtain prior court approval of the trade-in of their combine. See 11 U.S.C.A. § 363(e).
The leased combine was thereafter used almost exclusively for harvesting the Spears’ crops. Mr. Fults by comparison did very little farming on his own and did not use the combine in the business of harvesting for hire.
Mr. Fults testified that he paid labor for running the combine but other testimony showed that it was operated mostly by Eddie Spears, the debtors’ son and a paid employee. The debtors also furnished the fuel for the combine. The court has no doubt that the combine was bought, placed *805on the Spears farm, and used in accordance with the orders of Dick Spears.
The trustee in bankruptcy was appointed in December, 1982 — before the harvesting in the spring and fall of 1983 that is the basis of Mr. Fults’ claim. Neither Mr. Fults nor Mr. Spears discussed the use of the leased combine with the trustee until the spring harvesting had been done and the fall harvest had begun. Apparently Dick Spears then told the trustee that if Mr. Fults could not get paid from the bankruptcy estate he could let John Deere retake the combine. The trustee never agreed that the estate would be liable to Mr. Fults for the use of the combine.
The alleged agreement between Mr. Fults and Mr. Spears was for $20 per acre for use of the combine. The claim is for harvesting 1,800 acres in the spring of 1983 and 2,000 acres in the fall of 1983. The trustee doubted that this many acres were harvested. At $20 per acre the charge for 3,800 acres would be $76,000. The claim is for only $58,000, apparently because Mr. Spears has already paid some for the use of the combine. The court does not believe the testimony of Mr. Fults and Mr. Spears regarding the alleged agreement.
The proof did not show that $20 per hour would have been an exorbitant charge for use of the combine, though it may have been a little high if the debtors furnished the labor and the fuel.
When the harvesting was done, Mr. Fults was also an employee of the debtors, apparently with the trustee’s consent on behalf of the bankruptcy estate. Mr. Fults, however, was obeying the orders of his employer, Dick Spears.
Discussion
Once a trustee in bankruptcy is appointed in a chapter 11 case, the trustee has the final decision as to what debts the bankruptcy estate will incur either in the ordinary course of business or out of the ordinary course of business. 11 U.S.C.A. §§ 364,1106 & 1108. The trustee may hire a debtor such as Mr. Spears to be a manager but his authority is not unlimited. He may have the authority to obligate the estate for some expenses incurred in the ordinary course of business. Hiring someone to harvest crops is in the ordinary course of business in the sense that it is regularly done. However, hiring someone to harvest 3,800 acres at $20 per acre for a total debt of $76,000 is not in the ordinary course of business. Mr. Fults and Mr. Spears obviously knew that a trustee had been appointed before the harvesting that gave rise to Mr. Fults’ claim. They could not presume that Mr. Spears had full authority to bind the bankruptcy estate to pay a large debt for harvesting the crops, which were property of the bankruptcy estate. Mr. Fults and Mr. Spears should have sought the court’s and the trustee’s approval of their alleged arrangement as to the use of the combine.
This is especially true since the facts show that the arrangement from the beginning was intended to acquire the use of the combine for the bankruptcy estate at its expense. Mr. Fults said that he wanted a new combine, but he could not justify leasing a machine of this capacity to harvest his own crops, and he did not use it to harvest crops for anybody who would hire him. The combine was leased to harvest the Spears’ crops with the understanding that the bankruptcy estate would save Mr. Fults from having to make the lease payments. Mr. Fults apparently lacked the means to make the payments. The court does not doubt that Dick Spears, not Mr. Fults, was the moving party behind Mr. Fults’ decision to buy the combine in his name. The combine was used any way Dick Spears wanted it used. For all practical purposes it belonged to Spears.
The court concludes that Mr. Fults’ claim should not be allowed as a priority claim under § 503(b)(1) because the debt was incurred out of the ordinary course of business and without notice and a hearing and without the court’s approval. 11 U.S. C.A. § 364; In re Supreme Plastics, Inc., *8068 B.R. 730 (N.D.Ill.1980); In re Botany Industries, Inc., 3 Bankr.Ct.Dec. 1196 (Bankr.E.D.Pa.1977); In re Bullock Corporation, 2 Bankr.Ct.Dec. 286 (Bankr.N.D.Tex.1976). Creditors should have had the opportunity to consider the overall effect of a proposed deal in which the estate would trade in its combine, Mr. Fults would thereby acquire a combine to be used to harvest the estate’s crops, and Mr. Fults would have a priority claim for the use of his combine.
Mr. Fults’ claim should also be subordinated to other administrative expense claims on equitable grounds. Not only were creditors denied notice, Mr. Fults was also an insider with knowledge that a trustee had been appointed before he entered into the alleged agreement with Dick Spears to harvest the crops. Moreover, Mr! Fults doubtlessly leased the combine for the benefit of the Spears in harvesting the crops, but he now seeks payment from the estate of charges that greatly exceed the lease payments. The estate would have been better served in these circumstances to have leased the combine itself with due notice as required by the statutes. The estate would then be liable only for the lease payments. As it turned out, however, Mr. Spears acquired the combine for his use through his brother-in-law, Mr. Fults, and is now attempting to take care of Mr. Fults better than other creditors who extended credit or furnished goods or services during the chapter 11 phase of this case. These circumstances meet the requirements for equitable subordination of Mr. Fults’ claim to other administrative expense claims. 11 U.S.C.A. § 510; 3 Collier on Bankruptcy ¶ 510.05 (15th ed. 1984).
The court therefore concludes that Mr. Fults claim should be disallowed as a priority claim and allowed as a general unsecured claim.
This memorandum constitutes findings of fact and conclusions of law pursuant to Bankruptcy Rule 7052. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8490023/ | CLIVE W. BARE, Bankruptcy Judge.
Asserting avoidability pursuant to 11 U.S.C.A. §§ 548 and 550 (1979 & Supp. 1985), the trustee seeks to recover from defendant Pueblo Corporation, a subsequent transferee, a limited partnership interest in Knox Resorts, Ltd., or the value thereof. Pueblo denies liability maintaining it took for value, in good faith, and without knowledge of the voidability of the initial transfer. 11 U.S.C.A. § 550(b)(1) (1979). Alternatively, Pueblo contends only the value of the limited partnership interest should be recovered under § 550(a) and that the interest was valueless at the time of transfer (to Pueblo).
I
Knox Resorts, Ltd. is a Tennessee limited partnership formed in December 1981 to acquire and manage a Howard Johnson’s Motel in Knoxville, Tennessee. The original partners were Robert Windham, general partner, and limited partners Donald Cameron and Desh Investment Corporation, a Tennessee corporation owned by Douglas Beaty, Michael Downing, and debtor David Crabtree. The certificate of limited partnership, recorded on December 28, 1981, has been amended four times, reflecting changes in ownership interests as follows:
Amendment Agreement Recordation Date Date General Partner Limited Partners
2/1/82 3/23/82 Robert Windham 25% Douglas Beaty 12.5%
Donald Cameron 12.5%
David Crabtree 37.5%
Michael Downing 12.5%
4/21/83 6/30/83 Pueblo Corp. 12.5% Michael Downing Benjamin Strand, Jr. Trustee for Cameron Trust 12.5% 12.5%
Theodore Erck, Trustee for David A. Crabtree Irrevocable Trust 62.5%
*808Amendment Agreement Date Recordation General Date Partner Limited Partners
7/8/83 7/8/83 Pueblo Corp. 63.5% Michael Downing 12.5% Benjamin Strand, Jr. Trustee for Cameron Trust 12.5%
MMD, Inc. 5.75%
DRC, Inc. 5.75%
7/21/83 8/19/83 Pueblo Corp. 62.5% Michael Downing 12.5% Benjamin Strand, Jr. Trustee for Cameron Trust 12.5%
MMD, Inc. 6.25%
Dandridge Investors, Inc. 6.25%
On March 29, 1983, debtor and Robert Windham entered into an agreement dissolving their joint ownership of various entities. Pursuant to this agreement, Wind-ham agreed to transfer to debtor his entire partnership interest, twenty-five (25) percent, in Knox Resorts, Ltd. Thereafter, on May 25, 1983, Windham assigned his interest in Knox Resorts, Ltd., upon debtor’s direction, to Theodore Erck, trustee of the David A. Crabtree Irrevocable Trust, an intervivos trust established June 24, 1981, for the benefit of debtor’s minor son. Debtor agreed to indemnify Windham from any liability as general partner for the debts of Knox Resorts, Ltd.
Debtor also transferred his thirty-seven and one-half (37.5) percent interest in Knox Resorts, Ltd. to the David A. Crabtree Irrevocable Trust. Hence, on or before June 30, 1983, the Crabtree trust owned sixty-two and one-half (62.5) percent of Knox Resorts, Ltd. No consideration was paid to the debtor by the trust for either his transfer or the assignment, at debtor’s direction, of Windham’s twenty-five (25) percent interest.
At or about the time Windham assigned his interest in Knox Resorts, Ltd. to the Crabtree trust, Douglas Beaty, former attorney for the debtor, transferred his twelve and one-half (12.5) percent limited partnership interest to Pueblo, then wholly-owned by Beaty. Upon Windham’s withdrawal, Pueblo became the general partner of Knox Resorts, Ltd.1
Under the terms of an agreement dated July 6, 1983, Beaty caused Pueblo to transfer a five and three-fourths (5.75) percent interest in Knox Resorts, Ltd. to both MMD, Inc. and DRC, Inc. in consideration of $50,000 paid to Pueblo. Concurrently, Beaty transferred all the outstanding stock in Pueblo to defendant Gary Long in exchange for $60,000. The assets of Pueblo acquired by Long included a one percent interest in Knox Resorts, Ltd. and the $50,-000 paid by MMD, Inc. and DRC, Inc. for eleven and one-half (11.5) percent of Knox Resorts, Ltd.
An order for relief under chapter 7 was entered against the debtor on August 22, 1983. The trustee’s original complaint, filed November 9, 1984, named only Pueblo as a defendant. On February 7, 1985, the trustee filed an amended complaint joining Gary Long, Federal Deposit Insurance Corporation (FDIC), and Gregory Shanks as defendants. The trustee asks the court to avoid the transfers to the Crabtree trust by debtor and Windham of, and transfer to the debtor’s estate, their combined, former sixty-two and one-half (62.5) percent interest in Knox Resorts, Ltd. Alternatively, the trustee requests avoidance of the Crabtree trust’s transfer to Pueblo of the sixty-two and one-half (62.5) percent interest in Knox Resorts, Ltd.2 Further, the trustee sought *809injunctive relief prohibiting FDIC and Shanks, trustee under deeds of trust held by FDIC against the motel property, from conducting foreclosure proceedings, scheduled for February 11, 1985.3 The court entered a preliminary injunction on February 11, 1985, enjoining the scheduled foreclosure.4 Trial was held on March 25, 1985.5
II
Section 548 of Title 11 of the United States Code enacts in relevant part:
Fraudulent transfers and obligations
(a) The trustee may avoid any transfer of an interest of the debtor in property ... that was made ... on or within one year before the date of the filing of the petition, if the debtor voluntarily or involuntarily—
(1) made such transfer ... with actual intent to hinder, delay, or defraud any entity to which the debtor was or became, on or after the date that such transfer was made ... indebted_
11 U.S.C.A. § 548 (Supp.1985).
Pueblo concedes that the transfers to the Crabtree trust by the debtor and Windham are avoidable under § 548(a)(1),' given the evidence adduced at trial. However, Pueblo, as a subsequent transferee, denies any liability to the trustee based on 11 U.S.C.A. § 550 (1979 & Supp.1985), which recites in part:
Liability of transferee of avoided transfer
(a) Except as otherwise provided in this section, to the extent that a transfer is avoided under section ... 548 ... of this title, the trustee may recover, for the benefit of the estate, the property transferred, or, if the court so orders, the value of such property, from—
(1) the initial transferee of such transfer or the entity for whose benefit such transfer was made; or
(2) any immediate or mediate transferee of such initial transferee.
(b) The trustee may not recover under section (a)(2) of this section from —
(1) a transferee that takes for value, including satisfaction or securing of a present or antecedent debt, in good faith, and without knowledge of the voidability of the transfer avoided.... (emphasis added)
The trustee contends Pueblo is an initial transferee of the fraudulent transfer because the Crabtree trust was in reality debtor’s alter ego. The court has previously entered an order in debtor’s case approving a settlement of claims recognizing that all assets of the trust with the exception of two insurance policies are property of the estate. Further, defendant Long did not negotiate with Erck, trustee of the Crab-tree trust, for the transfer to Pueblo of the sixty-two and one-half (62.5) percent interest in Knox Resorts, Ltd.6 While admitting Crabtree directed Erck to effect a *810transfer to Pueblo of the Crabtree trust’s interest in Knox Resorts, Ltd., Pueblo and Long contend proof to sustain the trustee’s alter ego theory is wholly absent. Pueblo and Long further contend the alter ego theory is not necessarily applicable here simply because the assets of the Crabtree trust are property of the estate. It is not necessary for the court to resolve the question.
Assuming arguendo that Pueblo is not an “initial transferee,” the transfer to it by the Crabtree trust is nonetheless avoidable because Pueblo did not give value for the sixty-two and one-half (62.5) percent interest in Knox Resorts, Ltd.7 Though Long paid $60,0008 to Beaty for all the stock of Pueblo, no value was given by Pueblo for its acquisition of the sixty-two and one-half (62.5) percent interest in Knox Resorts, Ltd.
Pueblo argues that the interest in Knox Resorts, Ltd. it acquired was valueless at the time of the transfer. Although the partnership debts may have totaled as much as $6,400,000 as of July 6, 1983, the record does not conclusively establish that a majority interest in Knox Resorts, Ltd. was valueless in July 1983. Knox Resorts, Ltd. purchased its interest in the Howard Johnson’s Motel in late 1981 or early 1982 for approximately $5,500,000, or more.9 Three different appraisals reflect a great disparity as to the value of the Knox Resorts, Ltd. interest in the motel property:
Appraiser Valuation Date Estimated Value
G.T. Ballenger, Jr. 3/22/85 $4,150,000
The Gates Companies, Inc. 9/13/84 $7,650,000
Douglas Bailey 6/12/84 $7,453,220
Only Ballenger testified at the trial. He believes the value of the partnership’s interest in the motel property was $4,600,000 as of July 1983.10
The Howard Johnson’s Motel is strategically located on a major thoroughfare and in the vicinity of an interstate highway exit. The motel complex, the only asset of Knox Resorts, Ltd., is spread over 7.28 acres of extremely valuable property. Although Knox Resorts, Ltd. owns less than two acres of the site in fee simple, it has a long-term lease on the remainder. Going concern value is a significant factor. Without assigning a specific value to the motel property, and hence to Knox Resorts, Ltd. itself, the court finds the majority interest in Knox Resorts, Ltd. was not valueless in July 1983. Accordingly, the trustee is entitled to the return of the sixty-two and one-half (62.5) percent interest in the partnership or its value. 11 U.S.C.A. § 550(a) (1979 & Supp.1985).
Ill
Pueblo insists it would be inequitable and unfair to require the return of the property transferred instead of payment of the value thereof. This insistence *811is based on the argument that Pueblo and Long have made a substantial investment in Knox Resorts, Ltd. Yet Pueblo asserts the revenues from the motel property are insufficient to pay operating expenses and service fixed debts and that a “foreclosure is essential to the financial rehabilitation of the motel property.”11 Further, Pueblo also asserts there currently is no marketable value for a sixty-two and one-half (62.-5) percent interest in Knox Resorts, Ltd.
Fixing a value at the time of transfer of the Knox Resorts, Ltd. interest to Pueblo is an undertaking pregnant with potential for error. Returning the property interest transferred is a more appropriate, and certain, remedy under the circumstances. Pueblo’s rights, if any, are safeguarded under § 550(d).12
This Memorandum constitutes findings of fact and conclusions of law, Bankruptcy Rule 7052.
. Beaty testified that he did not want to be the general partner for Knox Resorts, Ltd.
. Under the terms of a settlement agreement involving three other adversary proceedings in *809the debtor’s case, with the exception of two insurance policies, all assets of the David A. Crabtree Irrevocable Trust are property of the estate.
. The unpaid balance on the deed of trust notes held by FDIC was $5,488,000.23 through March 25, 1985.
. The preliminary injunction directs Long to cause Pueblo to pay to FDIC all cash exceeding operating costs for application to promissory notes secured by deeds of trust against the partnership’s interest in the motel property.
. Motions to intervene and intervening complaints were filed prior to trial by the limited partners in Knox Resorts, Ltd. Defendants Pueblo and Long moved to dismiss the inter-venors’ complaints for failure to allege any basis for jurisdiction and lack of subject matter jurisdiction. Alternatively, defendants Pueblo and Long suggest abstention on the intervenors’ complaints, contending the rights intervenors assert do not arise under the Bankruptcy Code nor in the case. As of the trial date the court had not ruled on the motion to dismiss inter-venors’ complaints.
.See Exh. 24, Discovery Deposition of Gary Long (Oct. 24, 1984) at 35. Long was apparently approached with an offer by Beaty who proposed to sell Pueblo. According to Long, three days elapsed between the date he was contacted by Beaty and the execution of the July 6, 1983, agreement, whereunder Long acquired Pueblo from Beaty.
.Page 10 of Pueblo’s post-trial brief recites in part: ”[T]he proof compels the conclusion that their [Long and Pueblo] contribution of services, their commitment to a beneficial long-term management agreement at a substantially below market rate, together with their efforts and commitment to attempt to save the distressed partnership, constitutes more than adequate ‘value’ in exchange for the transfer made to Pueblo." The court disagrees. Perhaps these elements constitute value to Knox Resorts, Ltd. and its current partners; but, they do not represent value to either the debtor or the Crabtree trust in exchange for the sixty-two and one-half (62.5) percent interest in Knox Resorts, Ltd.
. The $60,000 paid to Beaty for Pueblo included $50,000 paid by DRC, Inc. and MMD, Inc. for eleven and one-half (11.5) of Pueblo's twelve and one-half (12.5) percent interest in Knox Resorts, Ltd. Hence, only $10,000 of Long’s own funds were paid to Beaty.
. Exh. 21, Deposition of David Crabtree at 6 (March 18, 1985). The purchase price may have been as much as $5,800,000.
. Pueblo’s objections to admissibility of the two other appraisals is overruled. These appraisals were prepared for Burk Wallace, a mortgage broker who assisted Long in an attempt to obtain long-term financing for Knox Resorts, Ltd. See Fed.R.Evid. 801(d)(2).
. Reply Brief of Pueblo Corporation and Gary F. Long to Trustee’s Supplemental Trial Brief at 8.
. (1) A good faith transferee from whom the trustee may recover under subsection (a) of this section has a lien on the property recovered to secure the lesser of—
(A) the cost, to such transferee, of any improvement made after the transfer, less the amount of any profit realized by or accruing to such transferee from such property; and
(B) any increase in the value of such property as a result of such improvement, of the property transferred.
(2) In this subsection, “improvement" includes—
(A) physical additions or changes to the property transferred;
(B) repairs to such property;
(C) payment of any tax on such property;
(D) payment of any debt secured by a lien on such property that is superior or equal to the rights of the trustee; and
(E) preservation of such property. 11 U.S.C.A. § 550(d) (1979 & Supp.1985). | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8490112/ | MEMORANDUM AND ORDER
WILLIAM A. HILL, Bankruptcy Judge.
This matter is before the Court on the objection of the Debtor, Twin Valley Seed Company, to the claims of South Central Idaho Bacterial Blight Control Association, Inc. of Jerome, Idaho (SOUTH CENTRAL) and Southwestern Idaho-Malheur Co. Oregon Bacterial Blight Control Association, Inc. of Caldwell, Idaho (SOUTHWESTERN) in the sum of $41,943.00 and $4,042.50 respectively. Originally filing as unsecured creditors, the Associations later amended their claims asserting secured status. $45,000.00 is currently held by the Debtor in escrow as adequate protection for these claims pending their determination.
The parties have submitted a Stipulation of Facts and have agreed the Associations’ claims may be determined on that basis. From the Stipulation of Facts and the attendant documents, the facts as material may be stated as follows:
FINDINGS OF FACT
1.
Both of the Associations are Idaho nonprofit corporations organized by seed bean growers in order to assist them in the control and prevention of bean diseases. For the period from planting until October 15, 1984, both Associations entered into agreements termed “Membership Application and Pooling Agreement” with their respective growers. For 1984, South Central obtained Agreements covering 27,120 acres, and Southwestern had Agreements covering 14,225.9 acres. The Agreements utilized by each Association are identical in their terms as material to the issues except as noted herein. The Agreements provide that the member grower will be assessed for “dues” (the per-acre assessment is referred to in the parties’ briefs as “dues”; the Agreements themselves refer only to *595“Assessments”) up to a maximum of $15.00 per harvested or blight-destroyed acre ($7.50 per acre in the case of Southwestern) and that the Agreement would be treated as a crop assignment in favor of the Association exercisable in the event the per acre assessment is not paid by the grower. The Association agreed to act as collecting and disbursing agent for pooled funds and would disburse collected funds to injured growers up to a maximum of $300.00 per acre ($450.00 per acre for Southwestern). The Grower Agreements further indicate that the Cooperating Company will sign a separate cooperating agreement. In the event the participating grower does not pay the per-acre assessment in cash, the grower, by the terms of the Agreement, authorized the Cooperating Company to sell enough beans to meet the assignment before December 1, 1984. The South Central Agreement states that the Cooperating Company will honor the Grower Agreement as a crop assignment in favor of the Association. There is no such reference in the Southwestern Agreement. The Agreement further provides that the Association will notify the Cooperating Company by November 15, 1984, of any assessments against a grower. Twin Valley is not a signatory to the Membership Application and Pooling Agreement.
The Debtor, Twin Valley Seed Company, as a Cooperating Company for the year 1984, entered into a separate agreement called a “Company Agreement” with each of the Associations. As material to the issues herein, the two Agreements are identical. ■ By terms of the Company Agreement, the respective Associations agreed in part to make assessments to the Cooperating Company before November 15, 1984. The Cooperating Company, for its part, agreed to collect and turn in the assignments set by the Association prior to December 1, 1984. The Company Agreement does not contain any provision obligating the company to honor the Grower Agreement as a crop assignment nor does it obligate the company to hold back, set off, or pay the grower per-acre assessment. The Company Agreements do not specifically refer to the company as agent of the Association for any purpose. There are no other documents evidencing the obligations of the Associations, the growers or Cooperating Company beyond the Membership Application and Pooling Agreement and the Company Agreement. Beyond these two Agreements, there are no other security agreements or financing statements.
2.
During the 1984 season, 1,278 acres under agreement with South Central were destroyed and, pursuant to its Grower Agreements, South Central became obligated for payment to those growers of $383,-400.00 at $300.00 per acre. Southwestern, by virtue of similar circumstances, became obligated to its participating growers for $101,250.00 at $450.00 per acre for 225 acres. Of the total harvested acres, 2,796 acres were under Grower Agreement with South Central, and 550 acres were under the Southwestern Grower Agreement. Based upon the South Central Grower Agreement, this meant that participating growers of harvested crops would be assessed $15.00 per acre assessment, and those participating with Southwestern would be assessed $7.50 per acre. The total per-acre assessment due from growers to South Central for the 1984 crop season was $41,942.00, and the total per-acre assessment due Southwestern from its growers for the 1984 crop season was $4,042.50.
Rather than the Association making a demand of the grower for cash payment of the per acre assessment as provided for in the respective Grower Agreements, the practice since 1979 was for the parties to wait until there had been a settlement between the grower and Twin Valley. Twin Valley, according to past practice, would deduct the per-acre assessments from payments due the participating growers and later pay this sum to the Associations.
Twin Valley filed for relief under Chapter 11 on December 10, 1984. As of the date of filing, neither South Central nor Southwestern had collected the per-acre as*596sessments for 1984 nor had Twin Valley made any payment to growers from which the per-acre assessments had been deducted. The Debtor, anticipating making a deduction from its grower payments in consequence of these per-acre assessments, had entered in its books and records an obligation due South Central for $41,943.00 and an obligation due Southwestern of $4,042.50.
CONCLUSIONS OF LAW
The Associations first of all argue that, by virtue of the crop assignment evidenced by the Grower Agreements, they had a security interest in all beans delivered by member growers to Twin Valley; that Twin Valley was an agent of the Associations for: signing up growers to the Grower Agreements, collection of the per-acre assessments and collection of the crop assignments; that by virtue of this agency relationship the Associations’ security interest in the beans was perfected by Twin Valley, as its agent, taking possession of the bean crop. The Associations also urge that, by virtue of Twin Valley’s agency status, a fiduciary relationship arose whereby Twin Valley held all beans delivered to it in constructive trust for the Associations in consequence of the per-acre assessment and had a fiduciary duty to turn over the sums of $41,943.00 and $4,042.50 representing the Associations’ per-acre assessments. The Associations ask the Court to now find that Twin Valley held the beans as constructive trustee for the payment of these per-acre assessments and that the proceeds of the sale of Twin Valley’s bean inventory are also subject to the constructive trust.
Twin Valley asserts that any claimed security interest in beans delivered to it is voidable under section 544 of the Bankruptcy Code because of the Associations’ failure to perfect in compliance with the Uniform Commercial Code. Twin Valley also challenges the assertion that under the terms of the Company Agreement, it became the Associations’ agent; that its only obligation was to collect assignments actually set by the Associations. Because it was not the Associations’ agent, no fiduciary relationship existed; and, hence, a constructive trust did not arise. Twin Valley finally argues that in absence of a security interest perfected pursuant to the Uniform Commercial Code, the Associations have no property interest in the beans to which a constructive trust could attach, and their claims can be regarded as nothing more than unsecured obligations.
The issues thus framed appear complex and overlapping but may be reduced to these essentials: First, what obligation did Twin Valley have under the terms of its Agreement with the Associations with respect to the beans delivered to it; secondly, what obligation did Twin Valley have under the terms of its Agreement with the Associations regarding the per-acre assessment?
1.
The relationship between the Associations and Twin Valley is not defined nor affected by the Membership Application and Pooling Agreements. These Agreements, individually entered into by each participating grower member and the respective Association, are binding as to those parties only. The Cooperating Company is not identified on the form and did not sign it. Consequently, a Cooperating Company such as Twin Valley cannot be held to any obligation that might be imputed to it by the language of the Grower Agreements.
Whatever relationship exists between the Associations and Twin Valley, as' a Cooperating Company, must spring from the Company Agreement itself or from the parties’ course of dealing. The Associations, believing a fiduciary relationship to exist by virtue of an agency relationship, places their reliance not only upon the language of the Company Agreement but in the existence of an implied agency as well.
Agency is a relationship created by agreement. It depends upon the existence of an agreement and the consent between the parties that an agency exists. *597Although consent may be either in express language or implied from conduct, that consent must show the principal intended the agent to act for him and the agent intended to accept the authority and act upon it. Thornton v. Budge, 74 Idaho 103, 257 P.2d 238 (1953); 3 Am.Jur.2d Agency, § 17, 18. If the agency is to be implied from conduct rather than written contract, that conduct, whether words, prior habit or course of dealing, must be of such a nature or degree that when reasonably interpreted one is left with the conviction that the parties, through such conduct, actually place themselves in an agency relationship. Growe v. Hertz Corp., 382 F.2d 681 (5th Cir.1967); True v. High-Plains Elevator Machinery, Inc., 571 P.2d 991 (Wyo.1978); Restatement (Second) of Agency § 26 (1957). Regardless of whether the agency is expressed from a written document or implied from conduct, the essential elements of intention to create an agency and manifestation of such intent must be shown to exist. True v. High-Plains Elevator Machinery, Inc., 577 P.2d at 998. Idaho courts, relying upon the Restatement definition of agency, have held that the intent of both parties must be manifested. Thornton v. Budge, 74 Idaho 103, 257 P.2d 238 (1953); Gorton v. Doty, 57 Idaho 792, 69 P.2d 136 (1937); Jensen v. Sidney Stevens Implement Co., 36 Idaho 348, 210 P. 1003 (1922). The party alleging agency has the burden of proof both as to the existence and nature of the alleged agency. True v. High-Plains Elevator Machinery, Inc., 577 P.2d at 997. If an agency relationship is found to exist, then the agent is a fiduciary with respect to matters within the scope of the agency. Restatement (Second) of Agency § 13 (1957).
Although the Associations are correct in stating that state law should be looked to in determining the existence of a fiduciary relationship, Jaffke v. Dunham, 352 U.S. 280, 77 S.Ct. 307, 1 L.Ed.2d 314 (1957); Elliot v. Bumb, 356 F.2d 749 (9th Cir.1966), as we have seen, the courts of Idaho in discerning whether or not particular circumstances establish an agency relationship rely upon generally applicable law. In this posture, we now turn to first an examination of the written Company Agreement by which the Associations believe Twin Valley agreed to procure grower Membership Applications, collect and turn over the per-acre assessments, and collect and turn over the crop assignments. The Court cannot find such an expansive intention expressed in the documents. There is no reference whatsoever to any agreement on the part of Twin Valley to collect or, indeed, to do anything with the per-acre assessment. The only obligation Twin Valley had with regards to procuring Membership Applications was to have the forms available and assist in signing up growers. To the Court, this cannot be read as an intention on the part of either party that Twin Valley assumed an obligation to “procure” grower memberships. As for the crop assignments, Twin Valley was to collect and ton in the assignments “set” by the Association by December 1, 1984.1 By express terms, Twin Valley’s obligation was only as to specific crop assignments which were set by the Associations. There was no written obligation to act as the Associations’ agent generally as to the assignments until and unless first set by the Association. Once set, Twin Valley had an obligation to collect and turn in the assignments. However, it is not clear from the Company Agreement that Twin Valley, by virtue of this obligation, became the Associations’ agent. The crop assignments were from specific growers to the Associations and were immaterial to a cooperating company’s relationship with a grower until an association, pursuant to the terms of the Grower Agreement, elected to pursue its rights under the assignment rather than seek cash payment from the grower. If electing to pursue its assignment remedy, *598the Association had to take an affirmative step before any obligation on the part of the Cooperative Company was triggered— it had to “set” the particular assignment. Failure to take this step left a Cooperating Company without any obligation whatsoever with regards to the Associations. Once “set”, the Cooperating Company’s obligation was to simply honor the assignment by surrendering beans from its own inventory. There is no evidence suggesting that the Associations ever set the 1984 crop assignments. Contrary to the Associations’ interpretation, this Court, after reviewing the language of the Company Agreement, does not reach the conclusion that Twin Valley thereby agreed to become the Associations’ agent.
Nonetheless, the course of conduct between the Associations and Twin Valley was, for a number of years, at variance with the written agreement. Rather than demanding Twin Valley to honor the Grower assignments by liquidation, the Associations looked to Twin Valley instead of the grower himself for cash payment of the per-acre assessment. Up to the time when Twin Valley filed its bankruptcy, no request by the Associations had been made for liquidation of the assignments. Hence, as mentioned, Twin Valley had no obligation to set aside or sell bean inventory in recognition of the assignments. The question becomes, however, whether by the parties' course of practice, Twin Valley became the Associations’ agent for collection of the per-acre cash assessment. Since 1979, Twin Valley deducted in cash the per-acre assessments from its payments due to the growers for beans sold and delivered by them to Twin Valley. These deducted amounts would then be turned over to the respective Associations. This method of satisfying the per-acre assessments is not provided for in the written Agreement but was the understood and accepted course of dealing between Twin Valley and the Associations. Did Twin Valley thereby impliedly become the Associations’ fiduciary for purposes of collecting and turning over the per-acre assessment? The Associations argue that an agency relationship did exist and that the fiduciary relationship necessary for the imposition of a constructive trust thereby exists. Whether the parties’ relationship is labeled as principal/agent or beneficiary/trustee, the existence of such relationship depends upon Twin Valley’s intent, express or implied, to assume a fiduciary relationship and deal with certain funds for the benefit of the Associations. With regards to money, even in the face of express trust language, courts will not find a fiduciary relationship to exist where there has been no effort on the part of the alleged trustee to segregate funds or treat them any differently than money in its general account. Several cases cited by counsel for Twin Valley bear on this issue. In Carlson, Inc. v. Commercial Discount Corporation, 382 F.2d 903 (10th Cir.1967), the debtor had expressly agreed to hold the claimant’s daily cash proceeds “in trust”. The court, affirming the decision of the bankruptcy court, noted that there was nothing to indicate that the debtor was collecting money on behalf of the claimant; rather, all money came from sales made in the debtor’s name with the understanding the proceeds would be co-mingled with those of the claimant. The source of the funds to be later turned over to the claimant was the debtor’s own general fund, a fund which it had unrestricted use of. Similarly, in In re Penn Central Transportation Company, 328 F.Supp. 1278 (E.D.Pa.1971), the claimant sought to recover proceeds of ticket sales held by the debtor in consequence of an express agency agreement. In denying the existence of a fiduciary relationship, the court noted the crucial factor in distinguishing a fiduciary relationship from an ordinary debtor/creditor relationship was whether the recipient of the funds was entitled to use them as his own and co-mingle them with his own. See also In re Lord’s, Inc,, 356 F.2d 456 (7th Cir.1965); In re Alda Commercial Corporation, 327 F.Supp. 1315 (S.D.N.Y.1971); In re Dexter Buick-GMC Truck Co., 2 B.R. 247 (Bankr.D.R.I.1980). Each of these cited decisions involved situations where *599there existed written documents purporting to define the parties’ relationship with regard to particular funds as one of trust or agency. The case of In re Barker, 40 B.R. 356 (Bankr.D.Minn.1984), decided by the undersigned, is one case where the fiduciary relationship was found to exist. In that ease, the claimant had entrusted proceeds from the sale of his home to his real estate agent for specific investment purposes. When the agent misappropriated the funds, he was found to have committed a fraud while acting in a fiduciary capacity. In Barker, the money belonged to the claimant, and the agent had no present right to receive or retain the funds except as specifically authorized by written agreement. The agent had no right to co-mingle the claimant’s money with his own or do anything with it except to make an investment as directed. In the instant case, the Associations are not armed with a specific written agreement purportedly establishing a trust fund for the per-acre assessments. Here, we have only a course of dealing to look to. First of all, the funds from which Twin Valley was to pay the per-acre assessment were its own funds. The money did not come into Twin Valley’s hands as a consequence of doing business with or on behalf of the Associations. Thus, as initially generated these funds came from sources wholly unrelated to the Associations. Twin Valley had no duty to account to the Associations for the money as it received it and had no duty to segregate the funds or do anything other than to treat the money as its own general fund. Twin Valley’s only obligation as a business was to pay its obligations, including those obligations to growers who sold their beans to it. Even then, however, there was no duty to segregate or earmark portions of its general revenues for that purpose. At the time when a grower was to be paid, Twin Valley would, based upon past practice, set off from that grower’s money a specific sum representing the grower’s per-acre assessment obligation to the Association. It was the grower’s money, not the Association’s, that was being held back as a consequence of the assessment, and by the terms of the Grower Agreement, it was the grower’s obligation to pay the per-acre assessment. No mention is made in the Stipulation of Facts regarding the grower’s acceptance of or acquiescence to this arrangement, but surely the grower’s approval was necessary for the deduction to be made from money Twin Valley owed to the grower. Presumably, if the deduction were not made by Twin Valley, the Associations would look not to Twin Valley for ultimate payment but to the grower who was a party to the Agreement specifying a per-acre cash assessment.
The facts and circumstances of this case do not establish a fiduciary relationship between the Associations and Twin Valley with respect to the per-acre assessments. Consequently, no constructive trust is found to exist as to any portion of Twin Valley’s cash now existing.
2.
Irrespective of whether a fiduciary relationship exists, the Associations also assert that they hold a security interest in Twin Valley’s bean inventory and proceeds by virtue of the growers’ crop assignments, assignments which are not subject to section 544 avoidance. It is well to keep in mind that the crop assignments in question were assignments by the growers of growers’ beans intended as an alternative means of collecting the per-acre assessment in the event the growers did not pay the assessment in cash. It was not a present assignment of beans but intended only as security for the per-acre assessment in the event the cash payment was not made. When the growers sold beans to Twin Valley, the assignment was effective as between the grower and the Association. The Associations argue that Twin Valley could not take the beans free of the assignments because, as a purchaser of a farm product even in the ordinary course of business, it would remain subject to a security interest created by the growers. Reliance is placed upon Idaho Code § 28-9-307 which subsumes that the security interest claimed by the Associations is perfected. Here, the Associations claim perfection was *600accomplished by the Debtor as the Associations’ agent taking possession of the beans, thereby accomplishing perfection by possession. Idaho Code § 28-9-305 does provide for perfection of a security interest in goods by the secured party taking possession. However, this Court does not agree with the Associations’ assertion that when Twin Valley purchased the beans from the growers, it did so as their agent. The argument for perfection by possession fails for this reason. Parenthetically, even if Twin Valley as Debtor was an agent of the Associations, it appears that under applicable law that agency could not stand as a means of perfecting the Associations’ interest as creditor in collateral held by Twin Valley. Matter of Staff Mortg. & Inv. Corporation, 550 F.2d 1228 (9th Cir.1977). If the Associations’ security interest in the guise of a crop assignment is to be effective against Twin Valley, it must be perfected. Idaho Code § 28-9-302(1) does not provide for any exception for crop assignments and, as construed by the Bankruptcy Court for the District of Idaho, a security interest in crops must be perfected in compliance with Article 9 in order to be valid as against a debtor-in-possession. In re Wood, 38 B.R. 375 (Bankr.E.D.Idaho 1983). From the facts of this case, it is established that no financing statement was filed. The Associations’ claimed security interest is unperfeeted and is subject to the avoidance powers accorded the debtor-in-possession by virtue of section 544. Under section 544(a), a trustee at the time of the bankruptcy filing becomes vested with the status of a hypothetical lien creditor without knowledge, giving it rights paramount to the holder of an unperfected security interest. In re F.R. of North Dakota, Inc., 54 B.R. 645, 41 U.C.C.Rep.Serv. 265 (Bankr.D.N.D.1985); In re Galvin, 46 B.R. 12 (Bankr.D.N.D.1984). In such capacity, Twin Valley must be presumed to be without knowledge of the fact that the growers’ beans were incumbered by a crop assignment at the time they purchased them from the growers. See In re Flaten, 50 B.R. 186 (Bankr.D.N.D.1985); In re Trestle Valley Recreation Area, Inc., 45 B.R. 458 (Bankr.D.N.D.1984).
For the reasons stated herein, the claims of South Central Idaho Bacterial Blight Control Association, Inc. and Southwestern Idaho-Malheur Co. Oregon Bacterial Blight Control Association, Inc. are unperfected and entitled to no special status. The claimants are accordingly entitled to having their claims treated as unsecured claims.
IT IS SO ORDERED.
. The term "set” is not defined in the Company Agreement nor is it defined in the Stipulation of Facts or the parties’ Briefs. This Court’s research did not reveal a particular legal usage but, from its manner of use, the Court believes it to mean the fixing of the value or extent of the grower assignments. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8490116/ | OPINION
D. JOSEPH DeVITO, Bankruptcy Judge.
The trustee of M.S. Wien & Co., Inc. (Wien) moves to disallow the claim of Michael R. Claiborne as a preferred “customer claim”, pursuant to the Securities Investor Protection Act. The trustee’s principal contention is that the claim is correctly classified as a general claim against Wien’s estate.
The facts herein are generally undisputed. Claiborne was employed by Wien as manager of Wien’s Dallas branch office. Claiborne’s agreed upon compensation included commissions based on brokered sales generated by the Dallas office. Claiborne, maintaining his own individual account with Wien, directed payment of his commissions into that account. Despite repeated requests to do so, the administrative staff of Wien never complied. The commissions were never deposited into Claiborne’s account, nor did he receive payment in any other manner. According to Claiborne, the amount due him totals $23,-495.83.
*19Appearing pro se before this court, Claiborne asserts that, since the monies in question should have been paid into his brokerage account, his claim is a “customer claim” and is, therefore, entitled to the preferential status of such claims under the Securities Investor Protection Act. The trustee, to the contrary, contends Claiborne’s claim is a general creditor claim, not a “customer claim”.
In 1970 Congress passed the Securities Investor Protection Act (SIPA), a body of law designed to facilitate the orderly liquidation of insolvent brokerage firms. 15 U.S.C. § 78aaa et. seq. Incorporated therein were provisions providing for the preferential treatment of the claims of customers of such liquidating brokers. Id. In establishing such protection, Congress found it necessary to promulgate definitions of “customers” and their protected property.
The term “customer” of a debtor means any person (including any person with whom the debtor deals as principal or agent) who has a claim on account of securities received, acquired, or held by the debtor in the ordinary course of its business as a broker or dealer from or for the securities accounts of such person for safekeeping, with a view to sale, to cover consummated sales, pursuant to purchases, as collateral security, or for purposes of effecting transfer. The term “customer” includes any person who has a claim against the debtor arising out of sales or conversions of such securities, and any person who has deposited cash with the debtor for the purpose of purchasing securities, ....
15 U.S.C. § 78LLL[2],
The term “customer property” means cash and securities (except customer name securities delivered to the customer) at any time received, acquired, or held by or for the account of a debtor from or for the securities accounts of a customer, and the proceeds of any such property transferred by the debtor, ....
15 U.S.C. § 78LLL[4].
Since the enactment of SIPA, a body of case law has evolved delineating the boundaries of these definitions. Much of this case law originated in the Southern District of New York. In the case, S.E.C. v. Howard Lawrence & Co., 4 C.B.C. 1, 6 (Bankr.S.D.N.Y.1975), wherein the “customers” made claims on the basis of a broker/debt- or’s noncompliance with orders to sell the shares in question, the late Judge Galgay opined in dicta:
The SIPA does not protect customer claims based on fraud or breach of contract. The Act is designed to remedy situations where the loss arises directly from the insolvency of the broker-dealer. Customers are protected from funds or securities lost as a result of the liquidation of the broker. It does not apply to the case where the loss arises from a breach of contract. The failure to comply with a sell order does not result from the insolvency, but rather gives rise to a cause of action for breach of contract. SEC v. S.J. Salmon & Co., Inc., [375 F.Supp. 867] 1974 Fed. Sec L Reg. 94 582 (S.D.N.Y.) in Bankruptcy Court 72 Civ. 560 (10/15/74). This breach of contract action if successful would place claimants in the position of general creditors.
Also see S.E.C. v. S.J. Salmon & Co., Inc., 375 F.Supp. 867 (S.D.N.Y.1974).
Similar results were obtained in companion cases arising from the liquidation of another broker/debtor, In re Weis Securities, Inc., [1976-1977 Transfer Binder] Fed. Sec.L.Rep. (CCH) 1195,678 (Bankr.S.D.N.Y. July 29, 1976); In re Weis Securities, Inc., [1976-1977 Transfer Binder] Fed.Sec.L. Rep. (CCH) 1195,681 (Bankr.S.D.N.Y. Aug. 2, 1976), wherein Judge Babitt ruled that the nonpayment of commissions to claimant was a simple breach of contract action, not a “customer claim”. In general terms, Judge Babitt ruled that SIPA does not provide for the satisfaction of customers” claims arising out of debtor’s negligent conduct; that a claim grounded upon a broker/debtor’s failure to carry out a customer’s orders was a general creditors’ claim, not a customer claim. Id.
In S.E.C. v. JHT Investors, Inc., [1979 Transfer Binder] Fed.See.L.Rep. (CCH) H 96,729 (Bankr.S.D.N.Y. Feb. 9, 1978), pre*20siding Judge Ryan, m considering claims of the same character as those before this Court, ruled that such claims should be pursued against the general estate of the broker/debtor as actions for breach of contract or possibly tort claims. Clearly, the prevailing judicial interpretation of SIPA is that it “was not designed to provide full protection to all victims of a brokerage house collapse. Its purpose was to extend relief to certain classes of customers.” S.E.C. v. Packer, Wilbur & Co., Inc., 498 F.2d 978, 988 (2d Cir.1974). Accord S.I.P.A. v. Wise (In re Stalvey & Associates, Inc.), 750 F.2d 464 (5th Cir.1985).
Upon applying the above noted decisional law to the facts herein, this Court rules that the claim of Michael R. Claiborne is not a “customer claim” within the purview of the SIPA and, therefore, is accorded the status of a general creditor’s claim against the broker/debtor’s general estate.
Submit an order in accordance with the above. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8490117/ | MEMORANDUM OPINION AND ORDER
RICHARD L. SPEER, Bankruptcy Judge.
This cause comes before the Court upon the Motion For Summary Judgment filed by the Plaintiff in the above entitled adversary action. Although the Defendant has filed an Answer in this case and has been afforded the opportunity to respond to the Motion for Summary Judgment, no such response has been received. The Court has reviewed the Motion as well as the entire record in this case. Based upon that review and for the following reasons the Court finds that the Motion For Summary Judgment should be GRANTED.
FACTS
The Plaintiff in this case is the duly appointed Trustee for the Debtor’s voluntary Chapter 7 Petition. Included in the Debtor’s estate was a 1969 Revline boat. The certificate of title for this boat reflected that the Debtor was the recognized owner. At the time the Debtor’s Petition was filed, the First National Bank of Toledo (hereinafter First National) asserted that it had a security interest in the craft. However, the certificate of title does not bear any indication of a security interest on behalf of First National. This adversary proceeding was initiated to determine the validity of First National’s assertion.
LAW
The provisions of 11 U.S.C. Section 544 state in pertinent part:
“(a) The trustee shall have, as of the commencement of the case, and without regard to any knowledge of the trustee or of any creditor, the rights and powers of ...
(1) a creditor that extends credit to the debtor at the time of the commencement of the case, and that obtains,. at such *37time and with respect to such credit a judicial lien on all property on which a creditor on a simple contract could have obtained such a judicial lien, whether or not such a creditor exists.”
Under these provisions, the trustee is afforded the status of a perfected judgment lien creditor as to all of the debtor’s property. This status places a trustee in a superi- or position to any creditor whose security interest in property remains unperfected at the time the debtor’s petition was filed. Joelson v. Austin Bank of Chicago (In re Maltezos), 35 B.R. 800 (Bkcy.N.D.Ohio 1983), Steinberg v. Morton (In re Buchanan), 35 B.R. 849 (Bkcy.E.D.Tenn.1983).
The provisions of Ohio Revised Code Section 1548.20 state in pertinent part:
“Any security agreement covering a security interest in watercraft ... in the case of a certificate of title, if a notation of such instrument has been made by the clerk of the court of common pleas on the face of such certificate, shall be valid as against the creditors of the debtor, whether armed with process or not, and against subsequent purchasers, secured parties, and other lienholders or claimants.”
Under these provisions, a lien against boats and other watercraft is perfected by having the encumbrance noted on the certificate of title. See, 9 Ohio Jur.2d Boats, Ships & Shipping Section 11.
In the present case, the certificate of title which accompanies the boat in question does not reflect any lien in favor of First National. As a result of that absence, any interest held by First National remains un-perfected. While the failure to perfect does not necessarily negate a creditor’s security interest, it does subject the lienholder to the interests of any other creditor who obtains an interest in the property and who properly perfects that interest. The first lienholder’s interest would be subordinated to the interests of the perfected creditor. Inasmuch as the Trustee is accorded the status of a perfected lienholder against all of the debtor’s property, his interest in the boat becomes superior to any interest held by First National. Accordingly, it must be concluded that any interest asserted by First National is unperfected and is, therefore, avoided by the Trustee’s status under 11 U.S.C. Section 544(a).
In reaching this conclusion the Court has considered all the evidence and arguments of counsel, regardless of whether or not they were specifically referred to in this Opinion.
It is ORDERED that the lien asserted by the First National Bank of Toledo be, and is hereby, held as VOID.
It is FURTHER ORDERED that Judgment be, and is hereby, entered for the Plaintiff. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8490118/ | MEMORANDUM OPINION AND ORDER
RICHARD L. SPEER, Bankruptcy Judge.
This cause comes before the Court upon the Motion for Summary Judgment filed by the Plaintiff against the Defendant, Davis Cleaver Foods, Inc., (hereinafter Davis Cleaver). Although Davis Cleaver has filed an Answer in this adversary proceeding, it has not responded to the Motion for Summary .Judgment. The Court has reviewed the Motion as well as the entire record in this case. Based upon that review and for the following reasons the Court finds that the Motion for Summary Judgment should be DENIED.
FACTS
The Debtor-In-Possession filed its voluntary Chapter 11 proceeding on October 19, 1982. In an effort to collect assets for the estate, the Debtor-In-Possession filed this action against numerous defendants, including Davis Cleaver. The Complaint, as against Davis CleaVer, alleges a cause of action to recover a preference pursuant to 11 U.S.C. Section 547. Subsequent to the filing of the Complaint, the Plaintiff submitted to Davis Cleaver a request for admission of certain facts surrounding the alleged preference. As set forth in both the Complaint and the request for admissions, Davis Cleaver delivered goods to the Plaintiff on or about June 8, 1982. An invoice payable in the amount of One Thousand Two Hundred and no/100 Dollars ($1,200.00) was submitted to the Debtor-In-Possession at that time. On August 9, 1982, the Debtor-In-Possession issued a check to Davis Cleaver in the amount of One Thousand Two Hundred and no/100 Dollars ($1,200.00). Although the Answer filed by Davis Cleaver generally denied the allegations set forth in the Complaint, the request for admissions was never answered.
LAW
The provisions of 11 U.S.C. Section 547 state in pertinent part:
“(b) ... the trustee may avoid any transfer of an interest of the debtor in property—
(1) to or for the benefit of the creditor;
(2) for or on account of an antecedent debt' owed by the debtor before such transfer was made;
(3) made while the debtor was insolvent;
(4) made—
(A) on or within 90 days before the date of the filing of the petition;
(5) that enables such creditor to receive more than such creditor would receive if—
(A) the case were a case under chapter 7 of this title
(B) the transfer had not been made; and
*39(C) such creditor received payment of such debt to the extent provided by the provisions of this title.”
Under these provisions, a trustee or a debt- or-in-possession, see, 11 U.S.C. Section 1107, may avoid the transfer of an interest of the debtor in property which was made to a creditor on account of an antecedent debt within ninety (90) days prior to the petition if the debtor was insolvent at the time of the transfer and if the transfer enables the creditor to receive more than they would have received in a Chapter 7 proceeding had the transfer not been made. Allison v. First Nat. Bank & Trust Co. (In re Damon), 34 B.R. 626 (Bkcy.D.Kan.1983).
Federal Rule of Civil Procedure 36, as made applicable by Bankruptcy Rule 7036, states in pertinent part:
“(a) Request for Admission. A party may serve upon any other party a written request for the admission ... of the truth of any matters ... set forth in the request that relate to statements or opinions of fact ...
The matter is admitted unless, within 30 days after service of the request ... the party to whom the request is directed serves upon the party requesting the admission a written answer or objection addressed to the matter, signed by the party or by his attorney ...”
Under this rule, when requests for admissions are not answered within the prescribed time, the facts stated in the requests are deemed to be true and may be used as the basis for summary judgment. United States v. Brown, 31 F.R.D. 185 (W.D.Mo.1962), Donovan v. Porter, 584 F.Supp. 202 (D.Md.1984).
A party is entitled to a summary adjudication if they can demonstrate that there are no genuine issues as to any material fact and that they are entitled to judgment as a matter of law. See, Bankruptcy Rule 7056, Federal Rules of Civil Procedure 56. However, a plaintiff must be able to demonstrate all elements of a cause of action in order to prevail. See, Chalmers v. Benson (In re Benson), 33 B.R. 572 (Bkcy.N.D. Ohio 1983), Simmons v. Landon (In re Landon), 37 B.R. 568 (Bkcy.N.D.Ohio 1984).
In the present case, the Plaintiff submitted to Davis Cleaver a request for admission of certain facts regarding the payment on account. This request was not responded to by Davis Cleaver. Under the operation of the Federal Rules of Civil Procedure, the facts set forth in the Plaintiffs request are then deemed to be true. A review of those facts finds that the Debtor-In-Possession transferred to Davis Cleaver One Thousand Two Hundred and no/100 Dollars ($1,200.00). Such a transfer constitutes the payment of an antecedent debt, inasmuch as the debt arose approximately two (2) months prior to the payment. The facts also illustrate that the payment was received within the ninety day period which preceded the filing of the Debtor-In-Possession’s petition. Furthermore, the Debtor-In-Possession is presumed to have been insolvent within that ninety (90) day period. See, 11 U.S.C. Section 547(f). Therefore, it must be concluded that the Debtor-In-Possession has established four of the elements which are required to be shown in an action brought under 11 U.S.C. Section 547.
However, as previously indicated, a plaintiff must prove all elements in order to prevail in an action. A further review of the facts finds that there has been no showing that Davis Cleaver, as a result of the payment in question, received more than would have been received in a liquidation of the Debtor-In-Possession under Chapter 7. The Court has examined this adversary case with respect to other similarly situated defendants and has been unable to find evidence sufficient to support this element. Although the Court is cognizant of the status of this Chapter 11 case, it cannot hold that this final element of the preference provision has been fulfilled. There must be an independent and admissible showing that the transferee received more than would have been received had the debtor been liquidated. Without such evidence a plaintiff cannot prevail in an action to recover preferential transfers. *40Accordingly, it must be concluded that the Debtor-In-Possession has failed to demonstrate all the elements of a preference, and that it is not entitled to judgment as a matter of law.
In reaching these conclusions the Court has considered all the evidence and arguments of counsel, regardless of whether or not they are specifically referred to in this Opinion.
It is ORDERED that the Motion for Summary Judgment against Davis Cleaver Foods, Inc. be, and is hereby, DENIED.
It is FURTHER ORDERED that a PreTrial conference in this case, as between these parties, be, and is hereby, set for Tuesday, August 20, 1985, at 1:30 o’clock P.M., in Courtroom No. 2, United States Courthouse, 1716 Spielbusch Avenue, Toledo, Ohio. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8493364/ | DECISION DENYING EMERGENCY MOTION OF THE DEBTOR IN POSSESSION FOR RELIEF FROM THE COURT’S ORDER OF MAY 13, 2002
RUSSELL A. EISENBERG, Chief Judge.
This case was commenced on February 15, 2001, by the filing of a voluntary petition in bankruptcy under Chapter 11 of Title 11 of the United States Bankruptcy Code. The subsequent history of this case is well established in the court file, the court’s minute orders and the official hearing transcripts. As the court believes a full recital of all dates and events in this case is unnecessary for a determination of the pending motion, it will only discuss the dates and events relevant to this decision.
On February 15, 2002, after a lengthy hearing with extensive testimony, cross-examination, and argument, the court denied the motions of the United States Trustee and St. Francis Bank to convert *757this case from Chapter 11 to Chapter 7 “subject to very strict conditions, terms and requirements” (Mins. & Order of February 15, 2002), which were read in detail into the court record. If any of the conditions was not met, the court indicated that it would sign a proposed order which would immediately convert the case from Chapter 11 to Chapter 7 (Hr’g Tr. of February 15, 2002, at 14).
The parties are in agreement that at least one of the February 15, 2002, Order conditions was not met, specifically, the refinancing of the Lodge. In fact, the debtor indicated at the hearing on May 3, 2002, that he was no longer attempting to obtain refinancing for the Lodge and would not attempt to do so in the future until he, at a minimum, was out of bankruptcy. Due to this lack of compliance with the February 15, 2002, Order, St. Francis Bank and the United States Trustee requested that the court enforce its prior order and convert the case immediately. The debtor opposed the conversion and sought relief from the portion of the February 15, 2002, Order which required him to obtain refinancing for the Lodge.
After another lengthy hearing, with extensive testimony, cross-examination, and argument, the court on May 13, 2002, denied the debtor’s motion for partial relief from the February 15, 2002, Order. The court’s findings of fact, conclusions of law, and its decision on May 13, 2002, were clear and concise. The court stated that it did not believe that the spirit or the purpose of the February 15, 2002, Order was fulfilled without the Lodge refinancing, as the debtor contended. The court further indicated that even if the court agreed with the debtor that it had substantially complied with the February 15, 2002, Order, regardless of not obtaining the required Lodge refinancing, substantial compliance with February 15, 2002, Order was not sufficient under thé facts of this case to justify the partial relief requested.
On May 14, 2002, the debtor filed an Emergency Motion for Relief from the Court’s Order of May 13, 2002. The motion itself states that it is brought pursuant to Federal Rule of Civil Procedure 60(b). In contrast, at oral argument on the motion, debtor’s counsel indicated that the motion was instead brought pursuant to Federal Rule of Civil Procedure 59(a). The court is never enthusiastic when a party midstream attempts to switch the law under which it is proceeding, because the court believes that such actions are unfair to the other parties in the case. Nonetheless, the court will address the merits of the motion and decide, regardless of what law this newest motion is brought under, whether the court should grant the substantive relief requested, in essence, whether the February 15, 2002, Order should remain fully in effect.
The debtor argues, for the first time, in its motion for relief from the May 13, 2002, Order that the court should not use Federal Rule of Bankruptcy Procedure 9024 and, thereby, Federal Rule of Civil Procedure 60(b) to rule on its motion for partial relief from the February 15, 2002, Order. The debtor believes that the February 15, 2002, Order was interlocutory and not final, and therefore, Rule 60(b) did not apply because it refers to a “final judgment, order, or proceeding.” The debtor may be correct on all accounts. The February 15, 2002, Order may not have been final, and therefore, Rule 60(b) may not be applicable to the motion for partial relief from the February 15, 2002, Order. But what the debt- or ignores is that the court did not base its decision exclusively, or even primarily, on Rule 60(b).
The February 15, 2002, Order created a “doomsday” provision. A “doomsday” is not uncommon in bankrupt*758cy proceedings. Its general purpose is to give the debtor one last chance to rectify its situation, usually, as with this debtor, after previous defaults. In this case, the “doomsday” order, as with almost all “doomsday” orders, mandated strict compliance. The court explicitly stated in its oral decision .on February 15, 2002, page 6:
The Court.. .is imposing strict conditions on the debtor and the debtor’s counsel. And Mr. Kerkman, please stress to your client that these conditions are strict conditions. They’re not subject to negotiations. They’re not subject to argument. They’re not subject to coming back and saying will you change these? This is it. And these are the conditions which the debtor shall meet, not that the debtor may meet and not if the debtor is busy or something. He doesn’t have time to do something else. These conditions are mandated, and they’re strictly mandated.
The above language is unambiguous. It is not confusing, uncertain, or open to varying interpretations. The debtor acknowledges that he did not obtain the required refinancing, and therefore, the debtor was not in full compliance with the order. This is true whether the February 15, 2002, Order was considered final or not. This is true whether the court applies Rule 60(b) or not. The debtor is in default, and in accordance with the “doomsday” provision in the February 15, 2002, Order, the case must be converted from Chapter 11 to Chapter 7.
The debtor argues in its motion that a court always has the power to modify earlier orders in a pending case. That may very well be true, but the court has no intention for invoking its power to do so, if it in fact possesses such power, in this matter. The February 15, 2002, Order was neither precipitously nor improvidently entered by the court. The court carefully weighed the conditions which it enumerated. Each was fashioned after listening closely to the needs and requests of the parties, particularly the debtor himself, in an attempt to keep the debtor operating while still providing for some, albeit limited, protection to the other parties in the case. Even if the court were to “rethink” its earlier order, as the debtor urges in his motion, it would now impose the same conditions that it did on February 15, 2002, and it would now rule the same way that it did both on that day and on May 13, 2002.
The Lodge refinancing was a major, possibly even the major condition imposed in the February 15, 2002, Order. As the court repeatedly stressed on May 13, 2002, there have been no changed circumstances, no unforeseen events, nor any new evidence which would support removing the Lodge refinancing from the enumerated list of conditions. The court comes to this same conclusion using, independently, the standards under Rule 60(b) as well as any general discretion the court may have to modify its prior order. The debtor has repeatedly defaulted on court directives throughout this case and has afterward always offered another excuse, an additional explanation, and a new promise. However, when the court removes the well crafted arguments of debtor’s counsel, the truth is that this case has seen little actual, tangible progress over its lengthy duration. Enough is enough. The court cannot find any “reason justifying relief from the operation” of the February 15, 2002, Order under Rule 60(b)(6), nor will the court find, based on any inherent discretionary power it may possess, that the debtor is entitled to be relieved from the refinancing requirement in that order.
The debtor additionally argues in its emergency motion for relief from the May 13, 2002, Order, that the court erred in not addressing Section 105 of the Unit*759ed States Bankruptcy Code. Presumably the debtor is referring to Section 105(a), which provides in part that, “[t]he court may issue any order, process, or judgment that is necessary or appropriate to carry out the provisions of this title.” Perhaps the court could use this language to grant the relief that the debtor is requesting, but the debtor has no right under the Bankruptcy Code to demand that the court do so. The provision is wholly discretionary, and the court has no intention of invoking it in this matter, nor does the court believe that it would be appropriate to do so under these facts. It is well acknowledged under prevailing case law as well as in the court’s own outline and presentation on the subject for the Federal Judicial Center that the purpose behind Section 105(a) is to prevent an abuse of the bankruptcy process. If there has been any abuse in this case, as indicated both above and below, it is by the debtor, not of the debtor.
The court, perhaps incorrectly, has had a great deal of sympathy for the debtor throughout the pendency of this case. The debtor’s business has been in the family for over a century and offers a vacation destination in a lovely locale. Accordingly, the court has been far from eager to convert this case from Chapter 11 to Chapter 7. On the contrary, the court has taken great pains to give the debtor numerous chances to propose a confirmable plan which offers a feasible method of reorganization. The court has been more lenient with the debtor in this case, perhaps, again, incorrectly, than with most other debtors have who appeared before it. This debtor, however, has not responded to the repeated opportunities provided to him in a remotely timely or equitable fashion. The other parties in this case have legal rights, too, and they are unquestionably entitled to have the court uphold those rights.
If an order is to have any true meaning, if a party is to be able to place any justifiable reliance on an order, if a court is to have any credibility and command any respect, then it must enforce its own orders. This, the court believes, is the purpose of upholding a “doomsday” provision and of properly applying the strict standards under Rule 60(b). The court will not use Section 105(a) or any inherent discretionary power it may possess to find otherwise.
Accordingly, the Emergency Motion of the Debtor in Possession for Relief from the Court’s Order of May 13, 2002, is denied. A separate order consistent with this decision shall be signed on this date. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8490027/ | ORDER ON EXEMPTIONS AND TRUSTEE’S COMPENSATION
THOMAS C. BRITTON, Bankruptcy Judge.
This case was filed in California. The debtors moved here after filing and the case was transferred to Florida. The case, which began in Chapter 11, was converted to chapter 7 and a trustee was appointed here almost a year ago. He has fully administered the case and the estate which amounts to $3,458 is now ready for distribution.
The trustee has requested review of the debtors’ claim of exemption under the California Code and he has applied for compensation.
The debtors were California residents on the date of bankruptcy and their entitlement to exemptions in this case is, therefore, governed by the law of California. Collier on Bankruptcy ¶ 522.06 n. 8 (15th Ed.). Under California law, they were entitled to claim the federal exemptions. § 703.130 California Civil Procedure Code. The fact that Florida has opted to disallow the federal exemptions is irrelevant here.
The result of the foregoing conclusion is that the entire estate is exempt from the claims of creditors.
A bankruptcy trustee’s compensation is limited by 11 U.S.C. § 326(a) to a sliding percentage:
“upon all moneys disbursed or turned over in the case by the trustee to parties in interest, excluding the debtor, but including holders of secured claims.” (Emphasis added.)
The harsh consequence of the literal application of the foregoing provision has led some courts, including this one, to grant compensation to a trustee when the estate is returned to the debtor upon a dismissal of the case. However, I am aware of no precedent for disregarding the plain language of the statute with respect to that part of the estate which is exempt. In re Flying S Land & Cattle Co., Inc., 23 B.R. 56, 57 (Bankr.C.D.Calif.1982). As stated there:
“Bankruptcy Code § 326(a) was meant to exclude the recovery of compensation to the trustee only on exempt property returned to the debtor.”
For the foregoing reason, the trustee’s application for compensation is denied. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8490028/ | THOMAS C. BRITTON, Bankruptcy Judge.
ORDER DENYING CONTINUANCE
The chapter 11 debtor’s motion for continuance filed May 2 is denied. It is not essential that the debtor appear in person on May 23. He may appear through counsel.
The debtor has also questioned this court’s discretion to order the debtor to show cause on May 23 why no plan has been filed in this case. This case will then have been pending over five months. A chapter 11 debtor is required to perform all the functions and duties of a trustee. 11 U.S.C. § 1107(a). A chapter 11 trustee is, therefore, required to:
“as soon as practicable, file a plan under § 1121 of this title, file a report of why the trustee will not file a plan, or recommend conversion of the case to a case under chapter 7 or 13 of this title or dismissal of the case.” § 1106(a)(5).
It appears that this debtor has failed to perform that duty. This court has authority to issue any order, process or judgment necessary or appropriate to enforce performance of that duty. § 105(a).
This motion has been denied without a hearing because movant’s counsel has specifically requested an ex parte ruling. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8490029/ | OPINION ON ORDER GRANTING MOTION TO LIFT STAY
(Army Aviation Center Federal Credit Union)
RODNEY R. STEELE, Bankruptcy Judge.
Creditor filed a motion to lift stay to foreclose on certain real property which served as security for a note by debtor. This note and mortgage were in default at the filing of reorganization and creditor alleged no adequate protection. Debtor joined issue with a defense of equity in the property.
The case was called April 27, 1984, and continued twice until trial July 27, 1984, before the Honorable Leon J. Hopper in Dothan, Alabama. Testimony was taken from Kirk Sasser, Assistant Manager of the Credit Union, Jim Tindel, real estate appraiser for petitioners, and Doyle Chism, defendant-debtor.
Before an opinion and order entered, Judge Hopper died, and this matter was scheduled to be heard October 18, 1984, by the undersigned. It was determined at that time that the petition for relief ought to be set for rehearing November 29, 1984, unless the parties mutually agreed to a submission upon the bench notes and the record made July 27, and provided the court with a transcript of the evidence. When the case was called November 29, 1984, no person appeared on behalf of the Credit Union, no transcript, and no mutual agreement to submit were presented and petitioner was denied relief from automatic stay. On December 26, 1984, the Credit Union moved for reconsideration. At the hearing set February 13, 1985, the motion was granted. The parties agreed to submit on prior testimony on the original motion to lift stay.
*56ISSUE PRESENTED
Whether debtor has provided secured creditor, Army Aviation Center Federal Credit Union with adequate protection.
FINDINGS OF FACT
At the filing of a petition for reorganization under the Bankruptcy Code August 22, 1983, Doyle and Norma Chism (debtors), were owners of several business enterprises and land holdings. One of the real estate parcels was subject to Army Aviation Center Federal Credit Union mortgage and consisted of a five bedroom house on about 2V3 acres and approximately 23 small unimproved building lots. The principal amount of the mortgage made August 1982 was $100,000, and was due to be paid in a single payment February 22, 1983. The note and mortgage had been in default six months when the petition in bankruptcy was filed.
At the time of trial the uncontroverted and fully creditable appraisal testimony established the liquidation value of the house at $50,000, and the lots at $64,200. The debt was in the amount of $130,788.03.
Certain other facts were found:
1. that interest was accruing at the rate of $46.58 per day;
2. that at the date of trial, no payments had been made to Credit Union;
3. that the house was vacant;
4. that the house was deteriorating;
5. that repairs were not being made on the house;
6. that some of the lots had been sold off;
7. that debtor feared a sale of the property by Credit Union would result in a deficiency;
8. that the property was not vital to a plan or reorganization.
Debtors at the time of this decision have filed no disclosure statement or plan or reorganization.
CONCLUSIONS OF LAW
Credit Union seeks to have the automatic stay lifted under Title 11, United States Code, Section 362(d) to proceed with foreclosure.
Three portions of the Code are relevant in deciding whether creditor is entitled to relief. Section 362(d) reads:
(d) On request of a party in interest and after notice and a hearing, the court shall grant relief from the stay provided under subsection (a) of this section, such as by terminating, annulling, modifying, or conditioning such stay—
(1) for cause, including the lack of adequate protection of an interest in property under subsection (a) of this section 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.
Section 362, subsection (g):
(g) In any hearing under subsection (d) or (e) of this section concerning relief from the stay of any act under subsection (a) of this section—
(1) the party requesting such relief has the burden of proof on the issue of the debtor’s equity in property; and
(2) the party opposing such relief has the burden of proof on all other issues.
Section 361:
§ 361. Adequate protection. When adequate protection is required under section 362, 363, or 364 of this title of an interest of an entity in property, such adequate protection may be provided by—
(1) requiring the trustee to make a cash payment or periodic cash payments to such entity, to the extent that the stay under section 362 of this title, use, sale, or lease under section 363 of this title, or any grant of a lien under section 364 of this title results in a decrease in the value of such entity’s interest in such property;
*57(2) providing to such entity an additional or replacement lien to the extent that such stay, use, sale, lease or grant results in a decrease in the value of such entity’s interest in such property; or
(3) granting such other relief, other than entitling such entity to compensation allowable under section 503(b)(1) of this title as an administrative expense, as will result in the realization by such entity of the indubitable equivalent of such entity’s interest in such property.
Because the court finds that debtor had no equity in the collateral and that the property is not necessary for reorganization, the sole remaining question is whether debtor has afforded Credit Union with adequate protection.
The absence of an equity cushion is not necessarily fatal to the automatic stay if the creditor is protected against a decrease in value. See In re Sam Clemente Estates, 5 B.R. 605 (B.C.S.D.Cal.1980), In re Pine Lake Village Apartment Co., 19 B.R. 819 (B.C.S.D.N.Y., 1982), reh. denied, 21 B.R. 478 (1982). Other forms of protection may be given:
A. Periodic payments. In re Five-Leaf Clover Corp., 6 B.R. 463 (D.W.Va.1980).
B. The giving of additional or replacement security. In re Inforex Inc., 9 C.B.C.2d 159 (D.Mass.1979).
C. The granting of other relief. In re Alyucan Interstate Corp., 12 B.R. 803 (B.C.D.Utah 1981).
In this case, however, debtor offered no protection to the creditor other than a possible equity cushion unsupported by credible testimony. In re Family Investments, Inc., 8 B.R. 572 (B.C.W.D.Ky.1981). The value of the collateral has steadily dropped while the debt has increased. Admissions by debtor that the property in question was in need of repair have been considered in the court’s determination that Credit Union has not been afforded adequate protection.
It is therefore ORDERED that the Motion to lift stay filed by Army Aviation Center Federal Credit Union is hereby granted. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8490032/ | ORDER DENYING MOTION TO DISMISS
G.L. PETTIGREW, Bankruptcy Judge.
The moving creditors present the issue of whether debtors’ failure to perform according to the creditors’ PERCEPTION of the debtors’ duty or according to a private agreement with the debtors is enforceable in a confirmed Chapter 13 Plan.
The Court record prior to confirmation did not include the private correspondence between debtors and counsel for the moving creditors. The duty allegedly violated is not a part of the Chapter 13 Plan, a stipulation filed with the Court, or the confirmation order entered in this case. Chapter 13 cases cannot be administered based on a creditor’s PERCEPTION of the debtor's duties under the plan, unilaterally implied terms of the plan, private agreements (not stipulations made part of the court record) or correspondence. To make these enforceable as a ground for dismissal would make a nullity of the Court’s records, its orders and the concept of performance of a Chapter 13 plan. In the average case where 25-30 creditors are involved, each creditor may have a different perception and/or understanding of the debtor’s duties in the case. Those perceptions, understanding and private agreements would make mayhem of the Chapter 13 case administration process. The parties are bound to the plan by the order of confirmation. See: In re Evans; Anaheim Savings and Loan v. Evans, 30 B.R. 530 (B.A.P. 9th Cir.1983).
This matter came on for hearing on the joint application for dismissal or for relief from stay filed on behalf of John Deere and P.C.A. The creditors seek to have these confirmed Chapter 13 cases dismissed on the basis of a “material default” in the performance of the Plans. The record in these cases indicates that in May of 1982 these cases were filed and confirmed in February of 1983. The Plans provided for $200.00 monthly payments and lump sum payments of $46,500.00, $51,-500.00 and $56,500.00 in annual installments. The record establishes that at the time of the hearing, the debtors had contributed $101,000.00 to creditors in addition to the regular $200.00 monthly payments. Further, the record in these cases establishes that the debtors as farm debtors were opposed and faced litigation on every issue relating to confirmation of a Chapter 13 case. The opposition of P.C.A. was focused on feasibility, good faith and best interest test. P.C.A. also pursued litigation on the market rate of interest it would receive as a rejecting secured creditor as provided by Memphis Bank & Trust Co. v. Whitman, 692 F.2d 427 (6th Cir.1982), which was decided during the protracted litigation over confirmation.
The essence of the question presented by these creditors is whether dismissal of this case is in the best interest of creditors because the debtors have not made payments on specific payment dates as the creditors perceived those payments would be made. In addition, the creditors contend that at the meeting of creditors held on July 20, 1982, counsel for the debtors stated that the annual payments would be made on January 15th of each year. No such provision was included in the Plan, its many amendments or the order of confirmation. Further, the attorney for the debtors states that those representations were made based on his expectation that these Plans would be confirmed in a period of three to four months and in no way anticipated the lengthy persistent and aggressive litigation directed at the debtors in these proceedings. On the creditors’ contention that the debtors have engaged in a material default in the Plan, the Court finds no such default and DENIES the *313motion to dismiss and DENIES the motion for relief from stay or adequate protection on the basis that the debtors are performing the Plans as confirmed and the creditors are not entitled to adequate protection since the performance of the Plans is the adequate protection to which these creditors are entitled.
IT IS SO ORDERED. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8490033/ | MEMORANDUM AND ORDER
WILLIAM A. HILL, Bankruptcy Judge.
The Plaintiff, Lawrence P. Wild, commenced the instant action by Complaint filed on December 4, 1984. His wife, Lorraine S. Wild, was granted leave to intervene as party plaintiff on January 25,1985. By their Complaint, the Plaintiffs seek judgment of this Court declaring their one-third interest in crops grown on Debtor’s leasehold to be paramount to any claim of the Trustee. As material to the ultimate issue, the Trustee in his Answer alleges that because the Plaintiffs failed to perfect their interest according to state law, such interest in the crops is inferior to the Trustee’s claim. The case turns upon application of section 544 of the Bankruptcy Code. The Trustee on January 10, 1985, moved for Summary Judgment; and on January 21, 1985, the Plaintiffs filed a Cross-Motion for Summary Judgment.
Rule 56 of the Federal Rules of Civil Procedure, made applicable to adversary proceedings by Rule 7056 of the Rules of Bankruptcy Procedure, provides that summary judgment shall be granted if the pleadings, depositions, answers to interrogatories, and admissions on file, together with affidavits, if any, show that there is no genuine issue as to any material fact and the moving party is entitled to judgment as a matter of law. Jewson v. Mayo *412Clinic, 691 F.2d 405 (8th Cir.1982). In instances where, as here, both parties have moved for summary judgment, the court should weigh each party’s claim against this standard. If no material facts remain necessary with which to render a decision, the case may be resolved in favor of the movant who prevails on the facts and law. The Court has before it and has considered the pleadings, the affidavits of the Trustee, Lawrence P. Wild and Lorraine S. Wild, as well as a copy of the farm lease in issue and the Plaintiffs’ reply to a request for admissions. Lawrence P. Wild identified the 1984 crop agreement between the parties and has admitted that it was not filed with the Register of Deeds. After reviewing the above documents, the Court is satisfied that there exists no material fact which is not already evident from the state of the pleadings, affidavits and admissions.
FINDINGS OF FACT
The facts as derived from the documents on file are not in dispute and may be summarized as follows: Lawrence P. Wild and his wife, Lorraine S. Wild, are the owners of real property situated in Cavalier County, North Dakota, described as follows:
The Southwest Quarter (SWXA) of Section Sixteen (16);
The Southwest Quarter of the Northeast Quarter (SWXANEXA) of Section Seventeen (17);
The Southeast Quarter (SEXA) of Section Seventeen (17);
The West Half of the Southwest Quarter (WV2SWV4) of Section Twenty-two (22); and
The Southeast Quarter of the Southwest Quarter (SEXASWXA) of Section Twenty-two (22). All tracts being located in Township One Hundred Fifty-nine (159), Range Fifty-seven (57) in Cavalier County, North Dakota.
For several years, they rented the farmland to the Debtor, Lawrence W. Wild, and his wife, Susan Wild, for cash rent. Some time during the spring of 1984, they agreed to again rent the land to the Debtor and his wife for the 1984 crop year. According to the Affidavit of Lawrence P. Wild, the agreement was reduced to writing on April 22, 1984. The written agreement does not bear a date but is signed by the two Plaintiffs as well as the Debtor and his wife. It is captioned “Crop Agreement 1984” and provides:
This will certify that Lawrence P. Wild and Lorraine S. Wild, legal owners of the following described property SWXA section 16 — SWV4NEV4 section 17, SEXA Section 17, Wx/aSW XA section 22 — SEXA SWiA section 22, all located in township 159 Range 57, do herewith rent to Lawrence W. Wild and Susan Wild for the crop year of 1984. Renter to furnish all things necessary to produce a crop of good value.
Terms of the lease to be one-third to the landlord and two-thirds to the renter. Landlords share to be delivered to a legally operated elevator buying grain.
Land to be farmed in a good workman like manner. After crop is removed land must be fall worked, except 60 to 70 acres on section 16.
Roadside ditches must be mowed of grass. Any sloughs that cannot be mowed for hay should be burnt in the fall.
Plaintiff, Lawrence P. Wild, admits that the foregoing lease was not filed in the Office of the Register of Deeds for Cavalier County. The Debtor and his wife took possession of the leased land and farmed it for the 1984 season raising 1,211 bushels of wheat, 51,500 pounds of sunflowers, 7,259 bushels of spring wheat and 6,976 bushels of barley. These crops were harvested and placed in storage.
On October 5, 1984, Lawrence W. Wild filed a petition for relief under Chapter 7 of the Bankruptcy Code. The Trustee, claiming an interest in the crops superior to that of the Plaintiffs, brought a motion to sell the crops free and clear of the Plaintiffs’ claim. The Court, at a hearing held on January 30, 1985, granted the Motion providing that the Plaintiffs’ lien would extend to proceeds which would be escrowed in an interest-bearing account until resolution of *413the instant adversary proceeding. Commodity Credit Corporation also claims an interest in a portion of the wheat, but this claim is not a subject of the instant adversary now in contention.
CONCLUSIONS OF LAW
The issue here is whether the Plaintiffs as landlords lost their one-third interest in the crops by virtue of their failure to record the lease as required by North Dakota law. North Dakota Century Code § 47-16-03 provides:
When a lease of a farm contains a provision reserving title to all or any part of the crops in the lessor until the conditions of the lease have been complied with by the lessee and a division of the crop is made, such lease must be filed in the office of the register of deeds in the county in which the land described therein is located prior to July first in the year in which the crops are raised to render such reservation of title effective as to subsequent purchasers or encumbranc-ers of the lessee of the grain raised upon such land. The failure to file such lease or contract in accordance with the requirements of this section shall constitute a waiver by the lessor of all rights reserved by him in such crops as against any subsequent purchaser or encum-brancer of the lease.
N.D.Cent.Code § 47-16-03. The Trustee argues that because Plaintiffs as landlords failed to file the lease as required by the foregoing section, their interest is unper-fected as against the claim of the Trustee. The Plaintiffs believe the terms of their lease may be distinguished from the type of lease governed by section 47-16-03. In their view, their lease merely sets forth the interest of the Plaintiffs as landowner to a one-third interest in the crops. They argue the lease contains no reservation of title, no provision for division of crops nor any grant to the Plaintiffs of any lien or interest in the lessee’s share of crop. In other words, their position is that the lease conveyed no interest to the Plaintiffs. By virtue of being the lessor, they already had an ownership interest in the one-third crop share. The purpose of the statute, they say, is to merely compel the lessee’s compliance with the contract terms and, therefore, a mere reservation of title by a lessor does not' come within view of section 47-16-03.
Generally, parties to a contract may bind themselves to any terms and conditions they wish. In absence of agreements to the contrary, however, a lessee is presumed under section 47-16-04 of the North Dakota Century Code to be owner of all crops produced during the term of the lease. See Hamilton v. Winter, 281 N.W.2d 54 (N.D.1979). If the dispute in the instant case were between the lessor and lessee, then the terms of the lease would be binding as a variance of section 47-16-04, irrespective of whether or not the lease was filed as required by section 47-16-03. Without an agreement between the lessor and lessee, however, a lessor is not, under North Dakota law, entitled to any of the crops. What this means is that a lessor cannot and does not retain an interest in crops merely by virtue of being the fee owner of the leased real property. North Dakota Century Code § 47-16-04 makes that quite clear. If an interest of any kind is to be retained by or preserved in the lessor, it must be by express agreement of the parties. Thus, in the instant case, the Plaintiffs’ interest in the crops can exist only by virtue of the terms of the agreement which in this instance is the lease denoted “Crop Agreement 1984”. This agreement provides that the crop produced should go “one-third to the landlord and two-thirds to the renter”. The applicability of section 47-16-03 does not turn on the nature of the landlord’s claim of interest, whether it be a mere lien or claim of title as owner. In the early case of Kern v. Kelner, 27 N.W.2d 567 (N.D.1947), the North Dakota Supreme Court recognized that a lease of farm land may be more than a reservation to the landlord of an interest in a lessee’s share of crop. In that case, the court construed a lease as being an agreement where the landlord was owner of the crop. The Kern decision recognized, *414as does this Court, that the law does not prevent lessors and lessees from making contracts to farmland as they see fit. The court in Kern noted that former section 47-1603 of the North Dakota Revised Code of 1943 (predecessor to present N.D.C.C. § 47-16-03) recognized that the interest of a landlord may indeed be more than that of a mere lienholder. Section 47-1603, said the court, invisions as well a reservation of title. Although the lease between the Plaintiffs and the Debtor in the instant case is not particularly clear in its terms, it may be assumed, as Lawrence P. Wild argues, that the Plaintiffs intended to reserve an ownership interest in one-third of all crops produced. If so, then the interest reserved was a reservation of title. There can be no greater claim of interest than that of title owner. In property law, a “reservation” operates for the benefit of the grantor and serves to retain in him his ownership to the extent stated. The term “title”, without limiting language, commonly denotes a complex bundle of rights in property and, in normal legal usage, signifies ownership of the thing in question. See generally Kohl Indus. Park Co. v. County of Rockland, 710 F.2d 895 (2nd Cir.1983); Standard Oil Co. v. Clark, 163 F.2d 917 (2nd Cir.1947).
If the lessor intends to reserve a title interest, that interest may be preserved as against the lessee by merely entering into an agreement for the same. If, however, such reservations are to be effective as against subsequent purchasers and encumbrancers of the lessee, then the lease providing for an exception to the general law of section 47-16-04 must be filed with the register of deeds. Failure to file a lease as required constitutes a waiver by the lessor of all rights reserved by him in the crops. Even a reservation of a title interest may be lost in this fashion. Growing crops are susceptible to many types of liens under North Dakota law. Threshing liens, crop production liens, fertilizer, farm chemical and seed liens, sugar beet production liens and farm laborers’ liens are expressly authorized by Chapters 35-07 through 35-11 of the North Dakota Century Code. All of these potential lien claimants are precisely the encumbrancers which have priority over the lessor’s reservation of title unless that reservation is preserved by filing as required by section 47-16-03. The purpose of requiring a lessor to file a lease if he wishes to preserve his claim of interest or reserve title in crops grown on a leasehold is to protect third parties who otherwise would have no knowledge of what the arrangement might be between the lessor and lessee and without such knowledge quite properly would assume, based on section 47-16-04, that all crops grown belonged to the lessee and were thus available to satisfy their lien.
Under section 544(a) of the Bankruptcy Code, the trustee at the time of filing the bankruptcy petition becomes vested with the status of a hypothetical lien creditor regardless of his personal knowledge or the knowledge of others. In re Star Safety, Inc., 39 B.R. 755 (Bankr.N.D.1984). He inherits the status of a judicial lien creditor holding an execution returned unsatisfied- as of the date of the filing of the petition. In re Lebus-Albrecht Lumber Co., 38 B.R. 58 (Bankr.N.D.1984). His status is similar to any other individual or entity who would have a right to claim a lien against the crops grown on the leasehold estate.
In order to protect themselves against the lien claims of third parties, including the claim of the trustee under section 522 of the Bankruptcy Code, the Plaintiffs were required by section 47-16-03 to file the lease with the Register of Deeds for Cavalier County prior to July 1, 1984. Their failure to do so leaves them in no better position in respect to the 1984 crop than any other unsecured creditor. While this result is harsh in its effect, the Plaintiffs unlike many of the Debtor’s other creditors at least had an opportunity afforded to them under North Dakota law to protect their interest in the crop to the exclusion of all third-party lien claimants. Their failure to do so renders their claim inferior to the claim of the Trustee.
*415Accordingly, and for the reasons stated, summary judgment shall be entered in favor of the Trustee. It is the holding of the Court that the interest of the Trustee in the one-third crop raised in 1984 land leased from the Plaintiffs is superior to the claim of the Plaintiffs, Lawrence P. Wild and Lorraine S. Wild. All proceeds from the sale of said crops shall be turned over to the Trustee.
IT IS SO ORDERED.
JUDGMENT MAY BE ENTERED ACCORDINGLY. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8490034/ | ORDER ON MOTION TO DISMISS
ALEXANDER L. PASKAY, Chief Judge.
THIS IS a Chapter 11 case and the matter under consideration is a Motion to Dismiss the entire ease, filed by the Commonwealth of Virginia (Commonwealth). The Commonwealth seeks a dismissal on the ground that the Chapter 11 case, if permitted to stand, would produce a diminishment *418of the Debtor’s estate because of continued losses if the Debtor is permitted to remain in control of the affairs of the Debtor. This part of the Motion is based on the factual allegations that: (1) the Debtor’s current and projected cash flow is negative and (2) the president of the Debtor misappropriated or embezzled funds of the Debt- or and may continue to do so unless the case is dismissed. As additional grounds for dismissal, the Commonwealth urges that this Debtor has no reasonable likelihood to achieve rehabilitation, therefore, a dismissal is warranted pursuant to § 1112(b)(3) of the Bankruptcy Code.
At the Final Evidentiary Hearing, this Court having received testimony and having considered the record now finds and concludes as follows:
First Federal Corporation of Delaware (FFC of Del.) is a corporation formed by Mr. John R. Swaim sometime in 1982. Mr. Swaim was and still is the sole executive in charge of the affairs of this Debtor. He also serves as its president. The initial business undertaking of the Debtor was the acquisition of an office building located in Pinellas County, Florida. The office building is encumbered by a mortgage in favor of Federal Savings and Loan Insurance Corporation (FSLIC). This mortgage is in default representing an outstanding indebtedness in the principal amount of $2,191,609.16, together with unpaid interest up to and including January 18, 1985 in the amount of $754,506.71 and advances for taxes and insurance in the amount of $10,-617.00 or a total debt secured by a mortgage of $2,956,732.87.
In addition to owning and operating this facility, the Debtor also launched a travel related business venture whereby it sold to the public travel packages. Each package was sold for $1,500, which entitled the purchaser to use one round trip or two individual trips each for 10 years on any route serviced by Air Florida. The package was sold in turn to the airline for $1,000, thus the Debtor was to realize a gross profit from each sale of $500.00. While some sales may have been for cash, a substantial number of sales were financed by the Debt- or itself who charged the purchasers an annual interest rate of 12.8%. The balance of the purchase price was payable in monthly installments over a five year period of time.
It appears that the Debtor pledged at least part of its receivables to the National Bank of Washington, where the Debtor maintained its general corporate account, a collection account and also an escrow account in which monies collected on the installment business contracts were supposed to be deposited. The Debtor sold more than 3,000 of these travel packages to individuals generating a gross income in excess of $4,000,000.
Upon learning the financial difficulties of Air Florida, which ultimately landed Air Florida in the Bankruptcy Court, the funds on deposit in the Washington Bank were frozen by the Bank. The Bank also exercised its right of set-off and paid itself all funds advanced to the Debtor. It appears that the Bank no longer claims any of the funds which it deposited in the registry of the Court, having filed an inter-pleader.
It is without dispute that Air Florida is no longer in the airline business because, as part of a plan of reorganization, confirmed by the Bankruptcy Court, it was absorbed by Midway Express. Furthermore, there are no airlines today in the United States which currently service all the routes previously serviced by Air Florida.
The Debtor no longer maintains a sales office; it no longer sells air travel packages; it has not contracted with any airlines who would be willing to honor any of the coupons already sold; and, for obvious reasons, none of the purchasers of the travel packages who financed the purchase are making any payments under the installment contracts. Thus, while the Debtor claims to have made some minimal profit in the first year of its operation, it has admittedly lost money ever since.
On March 14, 1985 the FSLIC filed a Motion and sought relief from the automatic stay in order to enforce its mortgage lien *419against the office building owned by the Debtor. It is without doubt that the Debt- or has no income whatsoever at this time from operating the office complex. In light of the fact that this Court already granted the Motion filed by the FSLIC and lifted the automatic stay, it is very unlikely that it will be able to salvage the office building.
It further appears that Mr. Swaim, the President of the Debtor, was indicted by the Federal Government and he was tried and found guilty in a United States District Court in Mississippi. This conviction was affirmed by the Fifth Circuit Court of Appeals. In light of the foregoing, it is inevitable that Mr. Swaim shortly will have to commence to serve his sentence imposed on him in a District Court and will be incarcerated for at least 3 or a maximum of 5 years. While Mr. Swaim indicated that he arranged for a suitable substitute in his forced absence who will be able to run the affairs of the Debtor, it appears that his choice is far from satisfactory. The person selected by him does not have any bankruptcy background; and does not appear to have the know-how to guide this Debtor through a difficult and complex reorganization process or the ability to handle the other difficult tasks facing the seriously troubled Debtor.
Based on the foregoing, the Commonwealth urges that this record is more than sufficient to warrant the finding that its Motion should be granted and this case should be either dismissed or converted to a Chapter 7 liquidation case.
In opposition of the Motion, counsel for the Debtor urged that while it is true that the current status of the Debtor may warrant a conversion, it should be given a reasonable opportunity to attempt to negotiate a contract with a major airline who would be willing and able to honor the travel packages previously sold by the Debtor and since funds on deposit are sufficient and theoretically could be used to make refunds to those who do not desire to go with the program, the conversion at this time would be premature. The allegation of the Commonwealth that assets of the estate are diminishing and that the estate suffers continuing losses have not been established by this record. Notwithstanding, this Court is satisfied that this Debt- or’s ability to achieve an effective reorganization under Chapter 11 is more than problematic if not totally non-existent. As noted, this Debtor no longer maintains any operating force; it no longer sells anything, and lacks viable means to reorganize its affairs and resume the operation of any business in the conventional sense. It is about to lose one of its major assets, the office building. There is no doubt it has no realistic prospect to resuscitate the travel package program and to negotiate a contract with a major airline who would be willing to participate in the future of the travel package program. Based on the foregoing, the Motion should be granted pursuant to § 1112(b)(2). Accordingly, it is ORDERED, ADJUDGED AND DECREED that the Motion to Convert be and the same is hereby granted and the above captioned case is hereby converted to a Chapter 7 liquidation case and a separate Order of Conversion shall be entered in accordance with the foregoing. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8490035/ | MEMORANDUM OPINION AND ORDER
RICHARD L. SPEER, Bankruptcy Judge.
This cause comes before the Court upon the Motion for Summary Judgment filed by the Plaintiff in the above entitled adversary action. Although the Plaintiff has served the Defendant with this Motion and the arguments offered in support thereof, the Defendant has not filed any response or opposition. The Court has reviewed the Motion as well as the entire record in this case. Based upon that review and for the following reasons the Court finds that the Motion for Summary Judgment should be GRANTED.
FACTS
The Plaintiff in this case is the Trustee for the liquidation of the Debtor-brokerage pursuant to the provisions of 15 U.S.C. § 78 aaa et seq. As stated in the Complaint, on or about March 15, 1979, the managing partner of the brokerage, Edward P. Wolfram, Jr., made the first of what was to become a series of loans to the Defendant. These loans were made from either brokerage accounts or accounts which belonged to Wolfram. The terms of these loans were never reduced to writing. The loans were made at irregular intervals and in varying amounts. The last of these loans appears to have been made on or about January 31, 1983. Although the Defendant repaid part of his indebtedness, at the time the brokerage was ordered closed there remained an outstanding balance of approximately One Hundred Forty-three Thousand Seven Hundred Fifty and no/100 Dollars ($143,750.00).
At the time the brokerage was ordered into liquidation, Wolfram assigned all of his assets, including causes of action, to the brokerage which, in turn, assigned its rights to the Trustee for the benefit of the Debtor’s creditors. The Trustee has filed this action in an effort to collect on the obligations owed by the Defendant to both Wolfram and the Debtor. In his answer to the Complaint the Defendant admitted that sums of money were transferred to him by Wolfram; however, he substantially denied all other allegations in the Complaint. Subsequent to the filing of the Answer, the Trustee submitted requests for admission of certain details regarding the loans made by Wolfram to the Defendant. Included in *421this discovery proceeding were requests to admit that the money was loaned to the Defendant, that the loans were only partially repaid, and that the Defendant owes to the Trustee the outstanding balances. Neither answers or objections were ever filed in response to these requests for admission.
In addition to the requests for admission, the Trustee took the deposition of the Defendant. At that proceeding, the Defendant testified that he owes approximately Ninety-two Thousand and no/100 Dollars ($92,000.00) on the debt to Wolfram, and approximately Forty Thousand and no/100 Dollars ($40,000.00) on the debt to the brokerage. He further testified that the intent of the parties at the time the loans were made was that the loans were to be repaid whenever the Defendant was able to do so.
Relying on the evidence which has already become part of the record in this case, the Trustee has moved this Court for Summary Judgment. In that Motion, he asserts that because of the facts admitted by the Defendant, both at the deposition and in the requests for admission, there is no dispute as to any material fact and that he is entitled to judgment as a matter of law. The Motion for Summary Judgment is unopposed. It should also be pointed out that the Motion only moves this Court for judgment in the amount of One Hundred Thirty-two Thousand and no/100 Dollars ($132,000.00), the amount admitted to be owing by the Defendant at the deposition.
LAW
Federal Rule of Civil Procedure 36, as made applicable by Bankruptcy Rule 7036, states in pertinent part:
“(a) Request for Admission. A party may serve upon any other party a written request for the admission ... of the truth of any matters ... set forth in the request that relate to statements or opinions of fact ...
The matter is admitted unless, within 30 days after service of the request ... the party to whom the request is directed serves upon the party requesting the admission a written answer or objection addressed to the matter, signed by the party or by his attorney ...”
Under this rule, when requests for admission are not answered within the prescribed time, the facts stated in the requests are deemed to be true and may be used as the basis for summary judgment. United States v. Brown, 31 F.R.D. 185 (W.D.Mo.1962), Donovan v. Porter, 584 F.Supp. 202 (D.Md.1984).
As previously indicated, the Trustee’s requests for admission have not been answered. Accordingly, the facts set forth therein are deemed to be true. Those facts reflect that funds were transferred to the Defendant from both Wolfram and the brokerage, and that these transfers have not been repaid in full. Although the precise terms of these transfers are unclear, it is apparent from the deposition testimony, the admissions, and the fact that some of the money was repaid, that the intent of the parties at the time of the transfers was that these transactions created obligations which the Defendant would have to repay. The facts also reflect that these obligations remain unsatisfied in the amount of approximately One Hundred Forty-three Thousand Seven Hundred Fifty and no/100 Dollars ($143,750.00). Therefore, as a result of Wolfram’s assignments, it must be concluded that there is an outstanding obligation owed by the Defendant to the Trustee.
The only remaining question is whether or not this obligation is presently due and owing. This inquiry is necessary, inasmuch as a cause of action to recover a loan does not arise until the loan becomes due under the terms of the contract. In the present case, the terms of these transactions were never reduced to writing. However, according to testimony, the parties intended that the loans be repaid whenever the Defendant was able to do so. No specific maturity date was ever established.
If this loan had been evidenced by a negotiable instrument, and if no maturity date appeared on the fact of that instru*422ment, the debt would be payable on demand. See, Ohio Revised Code § 1303.07. The requirement that an instrument have a specific maturity date or that it be payable on demand is apparently intended to establish an event upon which the obligee can expect fulfillment of the obligation. If there were no such requirement, an obligor could interminably forestall ever having to satisfy the obligation. In the present case, if the loans were allowed to remain outstanding until the Defendant determined that he was able to repay them, it is possible that such a determination might never be made. In view of the purpose which underlies the rule in the case of an undated instrument, there does not appear to be any reason why the Court should not apply that rule in the present situation. To hold otherwise would effectively deny an oral contract lender any means to collect on an obligation for which no due date was established. Therefore, it must be concluded that the loans received by the Defendant were payable on demand, and that the Trustee, having made a proper demand, is presently entitled to collect. Accordingly, it must also be concluded that there is no dispute as to any material fact in this case, and that the existence of these facts entitles the Trustee to judgment on the Complaint.
In reaching these conclusions the Court has considered all the evidence and arguments of counsel, regardless of whether or not they are specifically referred to in this Opinion.
It is ORDERED that the Trustee’s Motion for Summary Judgment be, and is hereby, GRANTED.
It is FURTHER ORDERED that Judgment be, and is hereby, entered for the Trustee in the amount of One Hundred Thirty-two Thousand and no/100 Dollars ($132,000.00). | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8490036/ | MEMORANDUM OPINION AND ORDER
RICHARD L. SPEER, Bankruptcy Judge.
This cause comes before the Court upon the Motion for the Journalization of a Stipulation and Order filed by the Plaintiff-Trustee and the Objection to that Motion filed by J. Robert Jesionowski. The Court has conducted a Pre-Trial conference in this case and has afforded the parties the opportunity to submit written arguments regarding the merits of this Motion. The Court has considered the arguments of counsel and has reviewed the entire record in this case. Based upon that review and for the following reasons the Court finds that the Motion should be GRANTED.
FACTS
The facts in this matter do not appear to be in dispute. The Plaintiff in this case is the Trustee for the liquidation of the Debt- or-brokerage under the provisions of 15 U.S.C. § 78aaa et seq. At the time the Debtor was Ordered into liquidation, there was in existence at the Toledo Trust Company a profit sharing retirement plan which was to benefit the employees of the brokerage. Under the terms of the plan, the shares belonging to the general partners of the brokerage were maintained in separate accounts. The plan also provided that the partners’ funds were not subject to forfeiture.
As part of his liquidation efforts, the Trustee has attempted to dissolve the plan and to distribute the proceeds to the plan’s beneficiaries. In doing so, each of the general partners would be entitled to their shares of that fund. However, the Trustee has also initiated lawsuits against the partners for any deficiency which may remain after the Debtor’s estate has been fully administered. At the outset of this liquidation proceeding the Trustee, having anticipated a deficiency, sought an order enjoining the general partners from disposing or otherwise transferring any of their assets except as required by their daily *442needs. Such an Order was granted by this Court on March 10, 1983. This Order also required the partners to make a monthly accounting of their expenses.
The case presently before the Court seeks an injunction against the Toledo Trust Company, whereby it would be prohibited from distributing to the partners, upon dissolution of the plan, their shares of the retirement fund. The injunction is sought in an effort to sequester the partners’ assets which are presently under the Trustee’s control until a determination as to any deficiency can be made.
At the Pre-Trial conference the parties to this case were able to reach an agreement regarding the disposition of this matter. The proposed judgment entry submitted by the Trustee required the administrator of the fund to give notice to the Trustee of any requests for distribution made by any of the partners. Once notice was given the Trustee would have five (5) business days in which to object to the request. If no objection was received, the distribution could be made. If, however, an objection was made, the administrator was prohibited from making the distribution until the propriety of the request could be determined by the Court.
The proposed journal entry was circulated among all the general partners’ counsel and counsel for Toledo Trust Company for approval. J. Robert Jesionowski, one of the general partners, has objected to the journalization of that entry. The grounds for that Objection are that it does not accurately reflect the agreement made by the parties at the Pre-Trial. Specifically, Jesio-nowski contends that the provision which enjoins the Toledo Trust Company from distributing funds upon the Objection by the Trustee was not one of the terms to which he agreed. It should be noted that Jesionowski’s agreement or disagreement with this term cannot be verified, inasmuch as no record of the Pre-Trial conference was made.
LAW
The nature of the proceedings presently before the Court does not lend itself to a legal analysis and the application of law to the facts of the case. Rather, it calls upon the Court to exercise its equitable powers in arriving at a just result. In the present case, Jesionowski’s Objection to the proposed judgment entry is tantamount to the rejection of an offer to settle the case, thereby requiring the Court to proceed to an adjudication on its merits. In that event, the Court would be required to determine whether or not Toledo Trust should be enjoined from distributing to the partners their share of the fund’s proceeds.
The Court is cognizant of both the Trustee’s interest in protecting the funds which may be called upon to satisfy the Debtor’s deficiency, and the partners’ interests in having available to them the proceeds of the plan. The settlement set forth in the proposed order appears to adequately guard both of those interests. The Trustee’s interests are protected by the fact that distributions cannot be made from the fund unless prior notice to the Trustee is given. This allows the Trustee to compare the request with the partners’ monthly reports, and to make a subjective assessment as to whether or not the distribution should be made. [It should be noted that the Trustee’s sequestration of partner property in this case is not without precedent. See, In re Bell & Beckwith, 44 B.R. 664 (Bkcy.N.D.Ohio 1984)]. On the other hand, it allows the partners the opportunity to request the funds if they should become in need of them. If the Trustee should object to the request, the agreement requires the parties to place the request before the Court. This protects the partners’ interests by providing for an objective balancing of their needs with their potential liability.
Based upon the foregoing analysis, it must be concluded that the proposed settlement agreement is an equitable resolution of the issues before the Court. It respects the interests of all parties without jeopardizing their interests. Had this case ever been submitted to this Court for adjudication, a circumstance which has, as a practical matter, resulted from Jesionowski's *443Objection, it is likely that the Court would have reached a similar result. Therefore, it must be concluded that journalization of the proposed judgment entry would be in the best interests of justice and should be approved.
In reaching this conclusion, the Court has considered all the evidence and arguments of counsel, regardless of whether or not they are specifically referred to in this Opinion.
It is ORDERED that the Motion for the Journalization of a Stipulation and Order be, and is hereby, GRANTED. The Entry proposed by the Trustee will be entered of record under separate cover. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8490037/ | *459OPINION ON COMPLAINT TO SET ASIDE A PREFERENTIAL TRANSFER
RODNEY R. STEELE, Bankruptcy Judge.
STATEMENT OF FACTS
(1) On or about December 6, 1984, Edward and Mary Cauley filed a Chapter 7 bankruptcy petition with this court. At the Section 341(a) hearing, the debtor-husband (Cauley) testified that he transferred certain equipment to Morgan Distributing Company, Inc. (Morgan), on October 1, 1984. Subsequently, on or about February 27, 1985, the Trustee filed a complaint seeking to set aside this transfer of assets as a preference. Morgan Distributing Company, Inc. (Morgan) was properly served and timely filed an answer on or about March 5, 1985, denying that the transfer of assets pursuant to the bill of sale was a preferential transfer. The parties agree that this case is at issue.
(2) For many years, Morgan had been a supplier for Ed Cauley, d/b/a Cauley’s Amoco. Cauley paid his account with Morgan on a weekly basis. However, on October 28, 1983, December 30, 1983, February 24, 1984, March 23, 1984, April 13, 1984, April 19, 1984, and several other dates, Ed Cauley gave Morgan insufficient funds checks to pay for the goods supplied by Morgan. By May, 1984, Ed Cauley owed Morgan $12,744.00.
(3) To pay the debt owed to Morgan, Ed Cauley borrowed $12,744.00 from the First National Bank of the South in Opp, Alabama, on May 4, 1984. This note was co-signed by H.S. Morgan, who at the time was Chief Executive Officer of Morgan Distributing Company, Inc. The proceeds of this loan were paid to Morgan Distributing Company, Inc. in satisfaction of the debt owed by Ed Cauley.
(4) As security for the note, Cauley gave the First National Bank of the South a security interest in the following assets: “All furniture, fixtures, equipment and/or machinery, and inventory of Amoco Service Station located on Highway 52, Kinston, Alabama, together with all additions thereto and all property and items now or hereafter substituted therefor or otherwise acquired in the ordinary course of business. Furniture, fixtures, equipment and machinery included, but not limited to the following: One Master Bilt Freezer Model GT-60-F Serial # 52232, One Sunbeam lee Maker Model # C80-ABSerial # ZA0141, 3 Compt. S.S. Sink, Oyster Bar, 28 Case Westinghouse Coke Box Serial #8216918, 48 Case Pepsi Box Model #BW94 Serial # 8414509, One Master Bilt 2 door Cooler VMG-410-90620. 23 Whirlpool Air Conditioner, 23 Hotpoint Air Conditioner TEC MA-120 # 590241 MA 1215B, Shelves, Displays and Inventory. The First National Bank of the South perfected its security interest in the equipment by filing a UCC-1 Financing Statement with the Secretary of State of Alabama on May 7, 1984.
(5) In the Fall of 1984, Ed Cauley became delinquent on the note described above. Subsequently, the bank contacted Mr. H.S. Morgan, co-signer of the note, and advised him that they would be looking to him for payment of the note and would not seek collection by pursuing the equipment in which it had a security interest.
(6) On October 1, 1984, Ed Cauley acknowledged that he could not pay the note to the First National Bank of the South, and he transferred to Morgan Distributing Company, Inc., all of his equipment located at his Amoco station in Kinston, Alabama. At the time of the transfer on October 1, 1984, Ed Cauley was insolvent.
(7) On October 16, 1984, Morgan Distributing Company, Inc., paid off the note by writing a cheek payable to the Bank in the amount of $12,956.51.
ISSUE PRESENTED
Whether the transfer of assets evidenced by the bill of sale dated October 1, 1984, from Cauley to Morgan Distributing Company, Inc. was a preferential transfer under Section 547(b) of the Bankruptcy Code.
*460CONCLUSIONS OF LAW
Section 547(b) allows the trustee to avoid any transfer of an interest of the debtor in property:
(b) Except as provided in subsection (c) of this section, the trustee may avoid any transfer of an interest of the debtor in property—
(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 ninety days and one year before the date of the filing of the petition, if such creditor at the time of such transfer was an insider;
(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.
It is not clear from the facts whether Cauley owed Morgan Distributing a debt at the time of the transfer. If it is assumed that a debt was owed, then all five of the elements of Section 547(b) have been met and the transfer is due to be avoided.
If it is assumed that no debt was owed by Cauley to Morgan Distributing, then the transfer was a gratuity to one, not a creditor, and due to be avoided.
The decision to avoid the transfer in the instant case is reinforced by the fact that while Morgan Distributing Company, Inc. was both the transferee of the property and the payor on the note to the bank; it was not the co-debtor or the guarantor under Alabama law, only the surety who had paid debt can claim rights of subrogation. Alabama Code (1975), Section 8-3-2, 8-3-5, Holder v. Brooks, 261 Ala. 127, 73 So.2d 355 (1954). Any rights of subrogation would have been rights belonging to H.S. Morgan, had he paid the bank. Bradley v. Bentley, 231 Ala. 28, 163 So. 351 (1935), Alabama Code (1975) Section 8-3-11.
It is the conclusion of this court that the transfer of certain personalty described above ought to be set aside.
An appropriate order will enter. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8490038/ | MEMORANDUM OPINION AND ORDER
HELEN S. BALICK, Judge.
This motion for counsel fees arises in an action brought by John T. Walter against John A. Walter seeking a determination of nondischargeability of a debt on the ground of false pretenses or false representation under 11 U.S.C. § 523(a)(2)(A). At trial following presentation of plaintiff’s evidence, the action was dismissed on defendant/debtor’s motion. Defendant/debtor’s attorney is asking for an order requiring plaintiff, John T. Walter, to pay her counsel fees of $990.
Section 523(d) provides for the assessment of fees and costs against a creditor who brings an action on a consumer debt under § 523(a)(2) if his position is not substantially justified. The legislative history reflects that the purpose of this subsection is to discourage creditors from bringing actions in the hope of obtaining a settlement from an honest debtor anxious to save attorney’s fees. It was enacted to correct practices that impaired the debtor’s fresh start and are contrary to the spirit of the bankruptcy laws. Further, creditors holding consumer debts are generally better able to bear the costs of litigation than a debtor which places an additional disincentive on a debtor to litigate even though he believes the action unjustified. It must be noted, however, that this subsection applies only if the debt is a consumer debt. That term is defined in 11 U.S.C. § 101(7) to mean a “debt incurred by an individual primarily for a personal, family, or household purpose”. 3 Collier on Bankruptcy ¶ 523.12, p. 523-77.
This debt arose out of a father’s need for funds in his business operations and his inability to obtain a commercial loan. The son, upon the father’s promise to pay him, borrowed from Household Finance Corporation money to pay for insurance on a truck which the son was to drive in his father’s business. This provided a means of additional work for the father and the son in the father’s hauling business. Business reverses prevented the father’s repayment of this loan. This is not the kind of debt Congress envisioned when it enacted this subsection. Consequently, defendant/debtor’s motion for an order directing John T. Walter to pay John A. Walter’s counsel fees must be denied.
Assuming for purposes of argument only that the debt is a consumer debt, the *523question of whether plaintiff was justified in bringing the action must be addressed. The son’s complaint was dismissed when he failed to show that at the time the loan was made in 1981 it was the father’s intent not to repay him or that his father intentionally misled him. For approximately four years, plaintiff has been making payments on a loan his father promised to either pay direct or repay him. He has received nothing from his father. The plaintiff is 26 years old — he is not a worldly businessman. He relied on the advice of an attorney in filing the action. His failure to prove his case in and of itself is insufficient to find the bringing of the action an unjustifiable act.
Going one step further for purposes of argument only, even if John T. Walter’s act in bringing suit was not substantially justified, it would not be fair to order him to pay his father’s counsel fees. Congress did not intend equally positioned private parties, absent an abusive filing, to bear the expense of the other’s cost of litigation. 3 Collier, supra.
In light of the foregoing rulings, it is not necessary to determine whether the motion meets all of the technical standards imposed for such applications by the Court of Appeals for this Circuit. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8490039/ | MEMORANDUM OPINION AND ORDER
HELEN S. BALICK, Bankruptcy Judge.
The Debtors have objected to New Castle County’s Department of Finance claim of $3,817.38, representing taxes due for 1979 through 1983, plus statutory penalties to the filing date of their Chapter 11 petition. Three issues are raised by the objection: (1) Whether the taxes for the 1982 tax year (July 1, 1982 through June 30, 1983) should have been based on the rate for unimproved real property rather than as improved property; (2) Whether the property should have been taxed on the basis of the farmland assessment for the period of New Castle County’s claim; and (3) Whether Debtors are obligated to pay roll-back taxes for the 1979 and 1980 tax years when their property was part of a large tract of land owned by Renaissance Land Corporation which qualified for the benefits of the State Farmland Assessment Act.
The Debtors on November 17, 1981, purchased from Renaissance Land Corporation approximately 2 acres of land on which was located an old barn they renovated for use as a residence. Shortly after they had moved into the barn in June 1982 their insurance carrier condemned it because of a structural defect in the foundation. In July, Debtors applied to the County Department of Public Works, Development and Licensing for a temporary permit to place a house trailer on the property while constructing a new residence. The permit was denied but the County issued the building permit in September and a certificate of occupancy for the new residence in March 1983.
Under Delaware law, the New Castle County Department of Finance is required to prepare an annual assessment roll and to present it to the Board of Assessment Review by February 15. 9 Del.C. § 1308(a). The assessment roll is made public by March 1 and annual assessment appeals must be filed by March 15. A person who fails to file such an appeal is “liable for the tax for such year as shown by the assessment lists.” 9 Del.C. §§ 8310(a)(1); 8311(a); 8313. Based on the annual assessment role, taxes are levied on June 1 and become due and constitute liens against the property on July 1. 9 Del.C. §§ 8003(b); 8601(1) and 8705(a). Taxes are billed during July and are payable without penalty through September 30. 9 Del.C. *548§§ 8602(a); 8604(a). Recognizing that a strict application of §§ 8311 and 8313 could be unjust if property is destroyed by circumstances beyond a property owner’s control, the County Department of Finance has developed a policy by which it will correct an assessment so long as the County becomes aware of the changed circumstances before July 1, the date on which taxes become a lien against the property.
On June 1 when the taxes were levied, the Debtors were living in the renovated barn. It was not until sometime in July that the County, through Debtors’ application for a temporary trailer permit and a building permit, received any information about the demolition of the barn. Consequently, the Department of Finance could not have been advised before July 1. Thus, there is no need to consider whether the information given one County department could be imputed to another County department. Since Debtors gave no notice of the barn’s demolition before the 1982 taxes became a lien, there is no basis upon which the taxes assessed for the 1982-1983 year could be reduced. Even if notice had been given to the Department of Finance in accordance with its policy, it does not follow that the property would automatically revert to unimproved status since the land had been improved by the addition of paving, a septic system, and the availability of various public utilities.
Renaissance Land Corporation qualified for benefits under the State Farmland Assessment Act, 9 Del.C. §§ 8328-8337, when it farmed as part of a larger tract the property it later conveyed to Debtors. To qualify, a tax-payer had to own a minimum of 5 acres actively devoted to agricultural use and earn an average of at least $500 per year from the gross sales of agricultural products produced on that land. The size of the property conveyed to Debtors eliminated its eligibility under the Act. Furthermore, even if the eligibility criteria were met, the Debtors never applied for farmland assessment and could not now apply. The landowner must file an application for farmland valuation on or before February 1 of the year immediately preceding the tax year for which the assessment is sought. 9 Del.C. §§ 8334(3) and 8336.
Debtors cannot prevail in their challenge to the County’s contention that they are obligated to pay roll-back taxes imposed against the property for the 1979 and 1980 tax years. Their argument that the County should look to Renaissance Land Corporation for payment has no basis in law. Section 8335(d) provides for computation and assessment of roll-back taxes against the land. Thus, the taxes are a lien against land rather than a personal obligation and must be billed to whoever owns the land at the time the roll-back taxes issue.
Lastly, the Debtors are barred from contesting the County’s claim in the state courts by the applicable statute of limitations:
Actions for anything done in pursuance of Chapter 83 of Title 9, relating to valuation and assessment of property, shall be brought within 6 months ... (Emphasis added). 10 Del.C. § 8125.
All of the actions taken by the County which Debtors now question were done under Chapter 83, Title 9, “Valuation and Assessment of Property”. Any challenge to those actions had to be filed within six months. Debtors’ contacts with New Castle County do not meet the burden placed on property owners under § 8125. There is no provision in the bankruptcy law which revives an expired statute of limitations to permit the Debtors to collaterally attack the County’s assessment.
An order in accordance with this Memorandum Opinion is attached. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8490040/ | MEMORANDUM OF OPINION
JOHN F. RAY, Jr., Bankruptcy Judge.
This matter came on for hearing on the complaint of plaintiff, Leased Pet Departments, Inc. (“Leased Pet”), answer of defendant-debtor, Cook United, Inc. (“Cook”), stipulation of facts filed by the parties and briefs of counsel.
The parties stipulated as follows:
1. On August 25, 1982, Cook and Leased Pet entered into an agreement (“Agreement”), whereby Leased Pet would operate pet departments in 14 of Cook’s department stores.
2. The Agreement was the first such agreement to be entered into between Cook and Leased Pet. By its terms it is automatically renewable, and it continues in effect between these parties.
3. As a matter of everyday practice, when a customer desired to purchase an item from Leased Pet’s department in a Cook store, the customer paid for such item at a central checkout. At that time, the payment tendered went into the possession of a Cook employee, and a record was made on the cash register tape crediting the payment to Leased Pet under a specific account number.
4. Sales of items from Leased Pet’s departments were paid for by cash, credit card or check. On more than one occasion, sales would involve items from more than one department in each Cook store. A certain sale might involve the purchase of goods not only from the Leased Pet department, but also from other departments as well.
5. A Cook employee would obtain a “credit clearance” by telephone on all credit card and check sales. Cook bore the risk of the ultimate collection of each credit card or check transaction it approved. Therefore, the amount forwarded to Leased Pet at the end of each ten-day period may have included proceeds of credit card or check sales, payment for which *560may not have been collected by Cook at that time.
6. On a daily basis, Cook forwarded the proceeds of its sales and the proceeds of Leased Pet’s sales, together with proceeds of sales from other licensees of each respective Cook store, to a local depository bank. Thereafter, the funds from each respective local depository bank were transferred to a general fund maintained at either Ameritrust of Northeastern Ohio or Chemical Bank, New York, New York.
7. Pursuant to paragraph four of the Agreement, within ten days after the close of each business week (Sunday through Saturday, inclusive), Cook would pay to Leased Pet “proceeds from sales and service transactions” made during the business week, after deducting either the aggregate Cook’s license fee and advertising allowance or a specified minimum rent, whichever was greater.
8. During the ten-day period Cook had in its possession the proceeds of all sales, including sales made by Leased Pet, it had total control over those funds and could put such funds to whatever use or purpose Cook deemed appropriate.
9. Uniformly, since the commencement of the Agreement and pursuant to its terms, Leased Pet received an accounting of sales and a payment voucher 10 to 12 days following the close of each business week.
10. Each payment made to Leased Pet was by check drawn on Cook’s general funds, and such checks bore no indication that they were being drawn on a trust, escrow or special account. Further, all such checks were accepted by Leased Pet without objection.
11. Leased Pet had no notice that Cook was experiencing financial difficulties until five days after Cook filed for Chapter 11, when Leased Pet was advised that the check dated September 17, 1984, had been returned unpaid.
12. On October 8, 1984, and on October 10, 1984, Cook advised Leased Pet by a series of four letters that the proceeds for the weeks ending September 15, 1984, September 22, 1984, September 29, 1984 and the two days prior to the Chapter 11 filing on October 1, 1984, would be paid “at the direction of the court.” The aggregate amount of net proceeds for these periods is $57,812.28. When added to the amount of the returned check, $21,212.97, the total amount at issue in these proceedings is $79,025.25.
Leased Pet contends that cash proceeds from sales made by it and collected by Cook during September, 1984, the month before Cook filed its Chapter 11, should be treated as being held in “trust” by Cook for its benefit.
Leased Pet argues that Cook has no ownership rights in the sales proceeds, and is required by law to remit those proceeds to Leased Pet. The proceeds were turned over to Cook by employees of Leased Pet as proceeds for the weeks ending September 8, 15, 22 and 29, plus September 30 and October 1 proceeds. Leased Pet argues that Cook holds those funds as trustee for Leased Pet. Cook argues it is not a trustee, but a debtor; that the lease does not create a trust, but simply sets up a debtor-creditor relationship with regard to weekly sales proceeds.
Leased Pet argues that Ohio law and the law of this circuit and other circuits do not require separate bank accounts, as long as the funds which are commingled by the “trustee” are easily traceable. Here the funds are so traceable, and the parties do not dispute the amount at issue. According to Leased Pet, these facts, plus the language of the lease that funds are to be held “in trust,” create a trust relationship. Leased Pet relies heavily on the case of Southern Cotton Oil Co. v. Elliotte, 218 Fed. 567 (6th Cir.1914). In that case, the debtor had received funds from the plaintiff for the sole purpose of buying cotton seed to be shipped to plaintiff. Upon the filing of the bankruptcy petition, the trustee took possession of all seed which the debtor had on hand, and plaintiff sought recovery. The Sixth Circuit held that plaintiff was entitled to recover the value of the *561seed in controversy, since the debtor had purchased the seed as agent for the plaintiff, and title immediately vested in plaintiff as principal. This title was held superi- or to that of the trustee, and despite commingling by the debtor, the plaintiff was held entitled to recover from the mass of seed the value of his contribution. 218 Fed. at 572, 573.
If Cook had in fact acted as the agent of Leased Pet in collecting or handling the sales proceeds at issue here, Southern Cotton Oil might be controlling. However, in the context of department store leases, a number of circuit courts, including the Sixth Circuit, have concluded that commingling of funds destroys the possibility of finding a trust. In Mandel v. Whitmer, (In re Yeager), 315 F.2d 864 (6th Cir.1963), the court held that a lease arrangement virtually identical to the lease in the instant case did not constitute a trust. The only difference between the instant lease and the lease in Yeager was that the parties in Yeager did not provide that funds were to be held “in trust.” At least two other circuit courts have held that a provision that funds are to be held “in trust” does not create a trust where the alleged trustee may freely commingle a lessee’s sales proceeds with those of other departments. Carlson, Inc. v. Commercial Discount Corporation, 382 F.2d 903 (10th Cir.1967); Chicago Cutter-Karcher, Inc. v. Maley, 356 F.2d 456 (7th Cir.1965); see also Wohl Shoe Company v. Elliott, 388 F.2d 883 (9th Cir.1967).
One circuit court has held, in United States National Bank v. Blauner’s Affiliated Stores, Inc., 75 F.2d 826 (3d Cir.1935), that a lessor who collected and held money for a lessee was acting in a trust capacity. In Blauner’s, however, the Third Circuit found that the agreements “also provide for a separate account of these items of money collected.” 75 F.2d at 826 (quoting In re Kline, 7 F.Supp. 850, 851 [W.D.Pa.1934]). It is not clear from either the district court or the appellate court decision whether the “separate account” refers to a separate bank account or a separate set of books with all funds commingled. However, in light of the seeming unanimity of the circuits on this issue, and the ambiguous factual findings by the only “dissenting” circuit, it is clear that the relationship between Cook and Leased Pet was one of debtor-creditor, not trustee-beneficiary. In this case, as in Chicago Cutter-Karcher, Inc., supra, “it appears that ... a ‘trust’ clause has been inserted into a document which otherwise sets up a simple debtor-creditor relationship in an effort to assure the debtor’s performance of its obligation and not to create a trust.” 356 F.2d at 459.
Since the funds held by Cook are not held in trust, but merely constitute a debt owed by Cook to Leased Pet, this Court holds that the complaint of Leased Pet should be denied, and that Leased Pet has a general unsecured claim in the amount of $79,025.27 against Cook. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8490041/ | FINDINGS OF FACT AND CONCLUSIONS OF LAW
SIDNEY M. WEAVER, Bankruptcy Judge.
THIS CAUSE came before the Court on May 24, 1985, on a Complaint by the Trustee for recovery for alleged misdelivery of cargo 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:
The Defendant, COORDINATED CARIBBEAN TRANSPORT, INC., (CCT), is a foreign corporation doing business as a common carrier of merchandise by water for hire. The Complaint alleged that CCT breached its contract with the debtor, by misdelivering the cargo after it was discharged into the Instituto Nacional de Puertos, (INP), an agency of the Venezuelan government, at Puerto Cabello, Venezuela.
On three separate occasions, the debtor delivered to CCT a total of 81 refrigerated trailers of apples for shipment from Miami, Florida to Puerto Cabello, Venezuela. CCT acknowledged receipt of these trailers and issued appropriate bills of lading.
The aforesaid refrigerated trailers of apples were discharged by CCT into the INP at Puerto Cabello. Under Venezuelan law, the INP is responsible for all operations at the seaport at Puerto Cabello including ste-vedoring, warehousing, receiving and delivering of cargo.' The Court finds that CCT had no further responsibility with regard to the delivery of this cargo once it was discharged into the INP and CCT gave written notice of the cargo’s arrival, and accordingly, it was not CCT’s responsibility to deliver this cargo to the consignee.
As this is a shipment from the United States to a foreign country, it is governed by the Carriage of Goods by Sea Act, 46 U.S.C. Section 1300 et seq. From the point of discharge until proper delivery of the cargo, the terms of the Harter Act, 46 U.S.C. Sections 190-196 control. F.J. Walker Ltd. v. Motor Vessel “LEMONCORE”, 561 F.2d 1138 (5th Cir.1977).
In the most general terms, proper delivery requires discharge of the cargo upon a fit and customary wharf. F.J. Walker Ltd. v. Motor Vessel “LEMONCORE”, supra.; Isthmian Steamship Co. v. California Spray Chemicals Corp., 300 F.2d 41 (9th Cir.1961). To determine whether proper delivery to a fit and customary wharf has occurred, no rule is better settled than delivery must be according to the custom and usage of the port. Constable v. National SS Company, 154 U.S. 51, 14 S.Ct. 1062, 38 L.Ed. 903 (1894); Tan Hi v. United States, 94 F.Supp. 432 (N.D.Cal.1950). This Court finds that CCT discharged these trailers into the care, custody and control of the INP at Puerto Cabel-lo, who are the persons charged by Venezuelan law and usage of the port with the sole duty to receive cargo and distribute it to the Consignees. Allstate Insurance Co. v. Imparca Lines, 646 F.2d 166 (5th Cir.1981). This delivery of the cargo into the INP constitutes proper delivery of the cargo by CCT under the Harter Act, 46 U.S.C. §§ 190-196; All Commodities Suppliers Co. v. M/V “Acritas” 702 F.2d 1260, 1252 (5th Cir.1983).
The Court finds that the Defendant delivered the Debtor’s cargo in conformity with its bills of lading and the Harter Act, 46 U.S.C. §§ 190-196. Accordingly, the De*649fendant CCT is entitled to a judgment dismissing the Complaint, together with its costs to be hereinafter taxed by the Court upon proper application being made.
A Final Judgment will be entered herein. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8490042/ | FINDINGS OF FACT AND CONCLUSIONS OF LAW
SIDNEY M. WEAVER, Bankruptcy Judge.
This cause having come on before the Court on March 27, 1985, upon the Complaint of the Trustee to avoid a preferential transfer pursuant to Section 547 of the Bankruptcy Code 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.
On April 27,1983, The International Gold Bullion Exchange, Inc. (the “Debtor”), filed its Petition for Relief pursuant to Chapter 11 of the Bankruptcy Code. The Debtor and the Defendant had entered into a contract dated August 4,1982, for the sale and purchase of 20 one ounce gold Kruger-rands. The Defendant paid the Debtor the purchase price of $6,980.00 on August 9, 1982. The Debtor issued to the Defendant a Precious Metals Certificate of Ownership on August 9, 1982.
On March 8, 1983, after repeated demands by the Defendant, the Debtor delivered to the Defendant 20 one ounce gold Krugerrands and 10 one ounce silver *705rounds in adjusted satisfaction of the August 4, 1982 precious metals contract.
The Court finds that the Complaint alleges all of the elements required under Section 547 of the Code. Matter of Advance Glove Manufacturing Co., 42 B.R. 489 (Bkrtey.E.D.Mi.1984); In re Saco Local Development Corp., 30 B.R. 870 (Bkrtcy.D.Me.1983); In re Satterla, 15 B.R. 166 (Bkrtcy.W.D.Mi.1981). The Court finds that the Defendant received the property of the Debtor in satisfaction of an antecedent debt created on August 9, 1982 and that the dates of delivery of these precious metals were within ninety (90) days next preceding the filing of the Petition by the Debtor for Chapter 11 protection, as is required under Section 547(b)(4)(A) of the Code. Additionally, the Court finds that the Defendant’s receipt of these precious metals allowed the Defendant to receive more than he would have received had the Debtor filed its Petition under Chapter 7 of the Code (Liquidation) and there had been a distribution to unsecured creditors under said Chapter. The Court further finds that the Debtor was insolvent on the day of the Debtor’s transfer of its precious metals to Defendant, under the presumption of insolvency under Section 547(f) of the Code, which presumption the Defendant left unrebutted.
The Court considered the following Affirmative Defenses, all others either having been abandoned or deemed to be without merit:
(1) The within action by the Trustee is barred under Section 547(c)(2) of the Code as being a transaction in the ordinary course of business;
(2) The Precious Metals Certificate of Ownership rendered by the Debtor to the Defendant represented a security and, thus, possession of said Certificate represented constructive possession of the subject precious metals;
(3) There was no transfer of the Debt- or’s assets by virtue of the existence of a contract of bailment as between the Debtor and the Defendant on August 9, 1982, the date the Defendant received from the Debt- or the Precious Metals Certificate of Ownership.
The Court finds that the evidence and testimony does not support the Defendant’s Affirmative Defenses outlined above. Initially, the Court finds that the said transaction does not come within the purview of Section 547(c)(2) of the Code. The precious metals transfer on March 8, 1983 was not within forty-five (45) days of the date the debt to the Defendant by the Debtor was incurred and, thus, was not a transaction in the ordinary course of business as between the Debtor and the Defendant. Similarly, the Court finds that neither the Debtor nor the Defendant intended the subject transaction to have effect as a security, as is required under Section 679.102, Fla.Stat., but, rather, that the Certificate of Precious Metals Ownership was intended to merely evidence the indebtedness by the Debtor to the Defendant. Accordingly, the within transaction does not come within the purview of Article 9 (Secured Transactions) of the Uniform Commercial Code and, therefore, Defendant’s reliance upon this defense is without merit.
In addressing the Affirmative Defense of bailment, a contract for bailment requires that there be a mutual agreement between the parties for a bailment and that, further, there be an actual physical delivery of the items to be bailed into the hands of the bailee. Puritan Insurance Company v. Butler Aviation-Palm Beach, Inc., 715 F.2d 502 (11th Cir.1983); Blum v. Merrill Stevens Dry Dock Company, 409 So.2d 192 (3rd Fla.App. DCA 1982); Rudisill v. Taxi Cabs of Tampa, Inc., 147 So.2d 180 (2nd Fla.App. DCA 1962). The Court finds that the evidence does not support the existence of an agreement for bailment and, further, that the Debtor never possessed the precious metals purchased by the Defendant until March 8, 1983, the date of transfer of the subject precious metals.
Lastly, the Court concludes that the value of the subject precious metals on the *706day they were received by the Defendant was $8,648.30.
In summary, the Court finds that the Trustee is entitled to judgment against the Defendant for the return of the aforede-scribed precious metals or, in the alternative, in the event the Defendant fails to return same within ten (10) days from the date of the Court’s Final Judgment rendered herein, the Trustee shall be entitled to a Final Judgment for the value of said precious metals. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8490043/ | FINDINGS OF FACT AND CONCLUSIONS OF LAW
SIDNEY M. WEAVER, Bankruptcy Judge.
This cause having come on before the Court on April 17, 1985, upon the Complaint of the Trustee to avoid a preferential transfer pursuant to Section 547 of the Bankruptcy Code 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 *707make the following Findings of Fact and Conclnsions of Law.
On April 27, 1983, The International Gold Bullion Exchange, Inc. (the “Debtor”), filed its Petition for Relief pursuant to Chapter 11 of the Bankruptcy Code. The Debtor and the Defendant had entered into a contract dated October 27, 1982 for the sale and purchase of 25 one ounce gold Kruger-rands. The Defendant paid the Debtor the purchase price of $10,400.00 on October 29, 1982. The Debtor issued to the Defendant a Precious Metals Certificate of Ownership on October 28, 1982.
On February 17, 1983 and March 9, 1983, after repeated demands by the Defendant, the Debtor delivered to the Defendant, respectively, 13 one ounce gold Krugerrands and 11 one ounce gold Krugerrands, together with 1 one-tenth ounce gold Krugerrand, in adjusted satisfaction of the October 27, 1982 precious metals contract.
The Court finds that the Complaint alleges all of the elements required under Section 547 of the Code. Matter of Advance Glove Manufacturing Co., 42 B.R. 489 (Bkrtcy.E.D.Mi.1984); In re Saco Local Development Corp., 30 B.R. 870 (Bkrtcy.D.Me.1983); In re Satterla, 15 B.R. 166 (Bkrtcy.W.D.Mi.1981). The Court finds that the Defendant received the property of the Debtor in satisfaction of antecedent debt created on October 29, 1982, and that the dates of delivery of these precious metals were within ninety (90) days next preceding the filing of the Petition by the Debtor for Chapter 11 protection, as is required under Section 547(b)(4)(A) of the Code. Additionally, the Court finds that the Defendant’s receipt of these precious metals allowed the Defendant to receive more than he would have received had the Debtor filed its Petition under Chapter 7 of the Code (Liquidation) and there had been a distribution to unsecured creditors under said Chapter. The Court further finds that the Debtor was insolvent on the day of the Debtor’s transfer of its precious metals to Defendant, under the presumption of insolvency under Section 547(f) of the Code, which presumption the Defendant left unrebutted.
The Court considered the following Affirmative Defenses, all others either having been abandoned or deemed to be without merit:
(1) The within action by the Trustee is barred under Section 547(c)(2) of the Code as being a transaction in the ordinary course of business;
(2) There was no transfer of the Debt- or’s assets by virtue of the existence of a contract of bailment as between the Debtor and the Defendant as of October 28, 1982, the date the Defendant received from the Debtor the Precious Metals Certificate of Ownership;
(3) The within action by the Trustee is barred under Section 547(c)(1) of the Code as being a contemporaneous transaction for new value;
(4) The Defendant had no knowledge of the insolvency of the Debtor on the date of the transfer of the Debtor’s assets;
(5) The Defendant held, as of October 29, 1982, the date the Defendant paid the Debt- or the consideration required under the precious metals contract of October 27, 1982, an equitable lien in the precious metals ultimately transferred on February 17 and March 9 of 1983.
The Court finds that the evidence and the testimony does not support the Defendant’s Affirmative Defenses outlined above. Initially, the Court finds that the said transaction does not come within the purview of Section 547(c)(2) of the Code as the precious metals transfer was not within 45 days of the date the debt to the Defendant by the Debtor was incurred and, thus, was not a transaction in the ordinary course of business. The Court similarly finds that the said transaction does not come within the purview of Section 547(c)(1) of the Code. The Defendant introduced no evidence that the Debtor received anything constituting new value which enhanced the Debtor’s estate and which was contemporaneously exchanged for the precious metals shipments on February 17 and March 9 of *7081983. Thus, there existed no contemporaneous exchange for new value which would bar the Trustee’s avoidance powers under Section 547 of the Code.
In addressing the Affirmative Defense of bailment, a contract for bailment requires that there be an mutual agreement between the parties for a bailment and that, further, there be an actual physical delivery of the items to be bailed into the hands of the bailee. Puritan Insurance Company v. Butler Aviation-Palm Beach, Inc., 715 F.2d 502 (11th Cir.1983); Blum v. Merrill Stevens Dry Dock Company, 409 So.2d 192 (3rd Fla.App. DCA 1982); Rudisill v. Taxi Cabs of Tampa, Inc., 147 So.2d 180 (2nd Fla.App. DCA 1962). The Court finds that the evidence does not support the existence of any agreement for bailment and, further, that the Debtor never possessed the precious metals purchased by the Defendant until February 17 and March 9, 1983, the dates of transfer of the subject precious metals.
The evidence similarly supports the Court’s finding that an equitable lien could not and did not arise as there were no precious metals in existence, until date of shipment on February 17 and March 9 of 1983, to which such lien could attach. The Certificate of Precious Metals Ownership issued on October 28, 1982 both evidenced the Debtor’s indebtedness to the Defendant and gave rise only to a contractual right in favor of the Defendant in and to the precious metals purchased on said date and not an equitable lien. As a result, the Defendant’s contention that an equitable lien arose in favor of Defendant on October 29, 1982 is without merit.
Lastly, the Court finds that the value of the subject precious metals on the day they were received by the Defendant was $11,-260.52.
In summary, the Court finds that the Trustee is entitled to judgment against the Defendant for the return of the aforede-scribed precious metals or, in the alternative, in the event the Defendant fails to return same within ten (10) days from the date of the Court’s Final Judgment rendered herein, the Trustee shall be entitled to a Final Judgment for the value of said precious metals. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8490044/ | FINDINGS OF FACT AND CONCLUSIONS OF LAW
SIDNEY M. WEAVER, Bankruptcy Judge.
This cause having come on before the Court on May 22,1985, upon the Complaint of the Trustee to avoid a preferential transfer pursuant to Section 547 of the Bankruptcy Code 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.
On April 27,1983, The International Gold Bullion Exchange, Inc. (the “Debtor”), filed its Petition for Relief pursuant to Chapter 11 of the Bankruptcy Code. The Debtor and the Defendants had entered into two contracts dated December 30, 1982 and January 3, 1983 for the sale and purchase of, respectively, 2 one hundred ounce silver bars and 20 one hundred ounce silver bars. The Defendants paid the Debtor the purchase price of $2,178.00 on January 3, 1983 for the first contract and $21,940.00 on January 6, 1983 for the second contract. The Debtor issued to the Defendants two Precious Metals Certificates of Ownership on, respectively, January 3 and January 6, 1983.
On March 17, 1983, after repeated demands by the Defendants, the Debtor delivered to the Defendants, 2 one hundred ounce silver bars and 10 one ounce silver bars in adjusted satisfaction of the December 30, 1982 contract and 20 one hundred ounce silver bars, together with 10 ten ounce silver bars, in adjusted satisfaction of the January 3, 1983 contract.
The Court finds that the Complaint alleges all of the elements required under Section 547 of the Code. Matter of Advance Glove Manufacturing Co., 42 B.R. 489 (Bkrtcy.E.D.Mi.1984); In re Saco Local Development Corp., 30 B.R. 870 (Bkrtcy.D.Me.1983); In re Satterla, 15 B.R. 166 (Bkrtcy.W.D.Mi.1981). The Court finds that the Defendants received the property of the Debtor in satisfaction of antecedent debts created on January 3 and 6, 1983 and that the date of delivery of these precious metals was within ninety (90) days next preceding the filing of the Petition by the Debtor for Chapter 11 protection, as is required under Section 547(b)(4)(A) of the Code. Additionally, the Court finds that the Defendants’ receipt of these precious metals allowed the Defendants to receive more than they would have received had the Debtor filed its Petition under Chapter 7 of the Code (Liquidation) and there had been a distribution to unsecured creditors under said Chapter. The Court further finds that the Debtor was insolvent on the day of the Debtor’s transfer of its precious metals to Defendants, under the presumption of insolvency under Section 547(f) of the Code, which presumption the Defendants left unrebutted.
The Court considered the following Affirmative Defenses, all others either having been abandoned or deemed to be without merit:
(1) There was no transfer of the Debt- or’s assets by virtue of the existence of contracts of bailment as between the Debt- or and the Defendants as of January 3 and *7106, 1983, the dates the Defendants received from the Debtor the Precious Metals Certificates of Ownership.
(2) The Debtor’s consent to the entry of a State of Illinois Administrative Order on March 31, 1983 constitutes new value as between the Defendants and the Debtor, such as to premise a Section 547(c)(1) bar to the Trustee’s recovery of the precious metals transferred by the Debtor to said Defendants.
The Court finds that the evidence and the testimony does not support the Defendants’ Affirmative Defenses outlined above. A contract for bailment requires that there be a mutual agreement between the parties for a bailment and that, further, there be an actual physical delivery of the items to be bailed into the hands of the bailee. Puritan Insurance Company v. Butler Aviation-Palm Beach, Inc., 715 F.2d 502 (11th Cir.1983); Blum v. Merrill Stevens Dry Dock Company, 409 So.2d 192 (3rd Fla.App. DCA 1982); Rudisill v. Taxi Cabs of Tampa, Inc., 147 So.2d 180 (2nd Fla.App. DCA 1962). The Court finds that the evidence does not support the existence of any agreement for bailment and, further, that the Debtor never possessed the precious metals purchased by the Defendants until March 17, 1983, the date of transfer of the subject precious metals.
The Court further finds that the within-described transaction does not come within the purview of Section 547(c)(1) of the Code. The Debtor’s consent to the entry of an Administrative Order promulgated by the State of Illinois on March 31, 1983, which Administrative Order permitted the Debtor, from that date on, to continue its sale and purchase of precious metals in the State of Illinois, does not constitute new value as between these Defendants and the Debtor. Additionally, it is significant and dispositive of the issue that the Defendants received their precious metals on March 17, 1983, in advance of the date of the Administrative Order; accordingly, the Administrative Order could not have been in exchange for these Defendants’ precious metals and, thus, the Administrative Order cannot constitute new value such as to premise a Section 547(c)(1) bar to the Trustee’s recovery of the subject precious metals.
Lastly, the Court finds that the value of the subject precious metals on the day they were received by the Defendants was $24,-525.27.
In summary, the Court finds that the Trustee is entitled to judgment against the Defendants for the return of the aforede-scribed precious metals, or, in the alternative, in the event the Defendants fail to return same within ten (10) days from the date of the Court’s Final Judgment rendered herein, the Trustee shall be entitled to a Final Judgment for the value of said precious metals. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8490045/ | OPINION
EMIL F. GOLDHABER, Chief Judge:
The query, presented through the debt- or’s motion for reconsideration of our order of February 9, 1984, is whether a payment, made within the ninety day vulnerability period provided by 11 U.S.C. § 547(b)1, in satisfaction of a debt which was fully secured prior to that period, constitutes a voidable transfer under § 547(b). Since we conclude that the payment is not avoidable, we will deny the debtor’s motion for reconsideration.
The facts of this controversy are delineated as follows:2 Sears, Roebuck & Company (“Sears”) obtained a judgment against the debtor in Philadelphia Municipal Court in the amount of $659.81. More than ninety days later a settlement of the debtor’s realty was conducted at which time the debtor and his estranged wife transferred title to that property to a purchaser. At the settlement, the sum of $659.81 was deducted from the proceeds of the sale and paid to Sears in satisfaction of its judgment lien. Approximately two weeks later the debtor filed a petition for the repayment of his debts under chapter 13 of the Bankruptcy Code (“the Code”).
*716In an effort to avoid the transfer of the $659.81 payment, the debtor commenced the instant action against Sears under 11 U.S.C. §§ 547(b) and 522(h). The matter was submitted for decision on the parties’ cross motions for summary judgment. In a written opinion we concluded that the debtor failed to satisfy one of the elements of § 547(b), to wit, § 547(b)(5), which requires that a creditor receive more through the alleged preference than he would receive as payment on his debt through a chapter 7 distribution. Garris v. Sears, Roebuck & Co. (In Re Garris), 36 B.R. 842 (Bankr.E.D.Pa.1984). The debtor moved for reconsideration on the basis that Sears admitted in its answer to the debtor’s complaint that the element of § 547(b)(5) was present. Nonetheless, a review of the briefs for summary judgment submitted, of course, prior to the issuance of our original opinion indicates that Sears had alternatively asserted the absence of § 547(b)(4) on the basis that the $659.81 payment, which actually occurred within the 90 day preference period, is deemed to have occurred prior to the running of that period.
We note that a judgment obtained by a party in Philadelphia Municipal Court creates a lien on all realty of the judgment debtor within the confines of Philadelphia County. 42 Pa.Cons.Stat.Ann. §§ 1124 and 4303 (Purdon 1981). The parties are in apparent agreement that the lien was fully secured. When perfection of a lien such as in the case at bench occurs prior to the ninety day preference period, § 547(b)(5) is not met and consequently, any payment in satisfaction of that lien within the vulnerability period is not avoidable. In Re Markim, Inc., 15 B.R. 56 (Bankr.E.D.Pa.1981). Such is clearly the situation in the instant-ease.
As stated above, in the case at issue Sears admitted in its answer that the debt- or met the requirement of § 547(b)(5) although in the parties’ briefs they contested whether the payment of the $659.81 at settlement effected a transfer within the meaning of § 547(b). Although the resolution of this case is more clearly supportable under § 547(b)(5), it is likewise tenable under § 547(b)(4) and § 547(e)(1)(B). Section 547(e)(1)(B) states that for the purposes of § 547 “(B) a transfer of a fixture or property other than real property is perfected when a creditor on a simple contract cannot acquire a judicial lien that is superior to the interest of the transferee.” Since Sears’ debt was fully secured prior to the running of the preference period, $659.81 payment is deemed to have occurred at the time of the perfection of the lien. § 547(e)(1)(B); In Re Wolfarth, 27 B.R. 746 (Bankr.S.D.Pla.1983); In re Church Buildings and Interiors, Inc., 14 B.R. 128 (Bankr.W.D.Okla.1981); In Re Burnette, 14 B.R. 795 (Bankr.E.D.Tenn.1981). Thus, the payment is not deemed effected within the ninety day preference period and is unavoidable. § 547(b)(4); Markim, 15 B.R. 56.
We will consequently enter an order denying the motion for reconsideration.
. In relevant part § 547(b) states as follows:
(b) Except as provided in subsection (c) of this section, the trustee may avoid any transfer of property of the debtor—
(1) to or for the benefit of a creditor;—
(2) for or on account of an antecedent debt owed by the debtor before such transfer was made;
(3) made while the debtor was insolvent;
(4) made—
(A) on or within 90 days before the date of the filing of the petition; or
(B) between 90 days and one year before the date of the filing of the petition, if such creditor, at the time of such transfer—
(1) 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.
* * * * * Vf
(e)(1) For the purposes of this section—
(A) a transfer of real property other than fixtures, but including the interest of a seller or purchaser under a contract for the sale of such property from the debtor against whom applicable law permits such transfer to be perfected cannot acquire an interest that is superior to the interest of the transferee; and
(B) a transfer of a fixture or property other than real property is perfected when a creditor on a simple contract cannot acquire a judicial lien that is superior to the interest of the transferee.
Vf Vf * Vi Vi *
. 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/8490047/ | OPINION AND ORDER
WALTER J. KRASNIEWSKI, Bankruptcy Judge.
This matter came on for trial upon the motion of the plaintiff, The Peoples Banking Company, McComb, Ohio (Peoples Bank) to remove Quentin M. Derryberry, II, as Trustee of the estates of Larry K. Miller and Lueretia A. Miller, and upon its adversary complaint seeking damages against the Trustee and his surety for alleged violation of duties under the Bankruptcy Code in the administration of the estates. The proceedings were consolidated for trial since common issues of fact and law were involved.
One of the grounds for removal alleged by Peoples Bank and listed in both Miller cases is that the Trustee had a duty to rent the Debtors’ residence for a price in excess of what Mrs. Miller paid. Peoples Bank’s other cause for removal is an alleged conflict of interest which is asserted only in the Larry Miller case. In the adversary complaints Peoples Bank seeks damages which is the difference between what it considers the fair rental value of the Miller’s home and the amount collected by the Trustee. The Court finds that Peoples Bank has failed to show cause for removal or establish grounds for imposing liability on the Trustee or his surety. Therefore, its request for judgment must be denied in both of the Miller proceedings.
FACTUAL BACKGROUND
On October 23, 1981, Lueretia A. Miller and Larry K. Miller each filed separate voluntary petitions under Chapter 7 of the Bankruptcy Code. Quentin M. Derryberry, II was appointed Trustee for both estates.
The assets of the estate which are relevant to this decision are the marital residence and 21 shares of Peoples Bank stock. Mrs. Miller occupied the home until it was sold, a period of approximately 30 months. Peoples Bank held a first mortgage on the property in the amount of $17,012.19. The home was sold for $46,000.00, which provided full payment of the mortgage of Peoples Bank. Mr. Miller held 400 shares of stock in the Peoples Bank. Of the original 400 shares, 375 were pledged to the National City Bank of Cleveland. Those shares were abandoned by the Trustee and are not at issue here. Of the 25 remaining shares, 4 were claimed as exempt and released to the Debtor leaving 21 shares as property of the estate.
On September 7,1983, Mr. Derryberry as the Trustee in the Hartley Bankruptcy filed a six count complaint seeking judgment in the amount of $6,500,000.00 against Peoples Bank.
On November 18, 1983, The Peoples Bank filed four adversary proceedings against the Trustee seeking damages in the Hartley, Peckinpaugh and Larry and Lucretia Miller cases as a result of alleged violation of his duties as Trustee. The Trustee was served with courtesy copies of the four proceedings on November 18, 1983 in Courtroom 103 where the parties were assembled for a pretrial conference which was scheduled on the Trustee’s complaint against Peoples Bank. When the Trustee’s counsel inquired of Peoples’ counsel as to the reason for filing the adversary proceed*872ings against the Trustee he replied “because you drew first blood.”
On November 30, 1983, motions to remove the Trustee were filed in the Peckin-paugh and Miller cases, and on December 6, 1983, the Court received a motion to remove the Trustee in the Hartley case.
DISCUSSION
The Bankruptcy Code at § 324 gives the Court the power to remove the Trustee as follows:
The Court after notice and a hearing may remove a Trustee or an Examiner for cause.
However, it remains for the Court to determine what constitutes “cause” on a cáse by case basis.
Case law reveals divergent standards have been applied in determining what constitutes cause to remove a trustee. Some of the courts professed to rule on the basis of the “best interest of the estate” or as a variation on that theme “avoiding even the appearance of impropriety.” However most of the courts faced with alleged potential conflict of interest or potential wrongdoing hold that potential conflicts of interest do not warrant the removal of a trustee in the absence of “fraud and actual injury.” In re Freeport Italian Bakery, Inc. 340 F.2d 50, 54 (2nd Cir.1965).
This Court in its recent decision in the Hartley case, 50 B.R. 852, provided a lengthy analysis of why it rejected any standard less concrete than one of fraud or actual harm. In the Court’s opinion nebulous accusations that the Trustee’s actions were not in the “best interests of the estate” or had the “appearance of impropriety” do not constitute sufficient cause to remove the Trustee. Instead in a case for removal this Court demands that fraud or actual harm to the estate be proven'which is a standard that has been followed in several decisions concerning removal of the Trustee. See Baker v. Seeber (In re Baker), 38 B.R. 705 (D.Md.1983); In re Microdisk, Inc., 33 B.R. 817 (D.Nev.1983); In re Rea Holding Corporation, 2 B.R. 733 (S.D. N.Y.1980); In re O.P.M. Leasing Services, Inc., 16 B.R. 932, 8 B.C.D. 841 (Bankr.S.D.N.Y.1982) and In re Concept Packaging Corp., 7 B.R. 607 (Bankr.S.D.N.Y.1980).
The court believes it is unnecessary to repeat the reasoning in Hartley here, and that it is sufficient to state that forcing accusors to quickly come forward with evidence which proves fraud or actual harm to the estate protects trustees from the threat of specious and tenuous claims for removal which are merely part of a tactical maneuver to force the Trustee not to perform his statutory duties. A more concrete standard also has the benefit of preserving the orderly administration of the estate by not allowing creditors to remove a Trustee who has merely made them unhappy. In this case the Peoples Bank must satisfy the threshold question of whether the Trustee has a duty to perform the tasks it has alleged were not performed.
TRUSTEE’S DUTY TO RENT
The first allegation concerns whether the Trustee had a duty to rent the Debtors’ residence. Peoples Bank argues that the Trustee should be removed for permitting Mrs. Miller to live in the Debtors’ personal home rent free for 30 months. Furthermore, Peoples Bank believed the Trustee is liable for the fair rental value of the property. The Trustee’s response is that he did not have a duty to rent the Debtors’ home. As a side note the Trustee points out that Mrs. Miller did pay $1,000 in rent and she was responsible for maintaining the home which included paying the insurance.
Attempting to demonstrate a duty to rent Peoples Bank cites 11 U.S.C. § 541(a)(6) which in pertinent part states:
(а) The commencement of a case under section 301, 302, or 303 of this title creates an estate. Such estate is comprised of all the following property, wherever located:
s}: .¡: sjs ¡J; % ^
(б) Proceeds, product, offspring, rents, and profits of or from property of the estate, except such as are earnings from *873services performed by an individual debt- or after the commencement of the case.
Section 541 describes what is property of the estate. If a rental property was owned by the debtor then the Trustee has a right to collect the rents. Section 541 does not create an affirmative duty to force the debtors to pay rent or evict them to find someone who can. Needless to say Peoples Bank has not provided any legal authority for the Trustee’s duty to rent the Debtors’ residence.
The Trustee’s primary duty is to liquidate the assets as provided in § 704(1) of the Bankruptcy Code which provides: “The Trustee shall collect and reduce to money the property of the estate for which such Trustee serves, and close such estate as expeditiously as is compatible with the best interests of parties in interest.” Clearly § 704 does not specifically create a duty to rent nonrental property and the duty to close an estate quickly is not compatible with finding rentors and trying to sell property burdened with leases and tenancy rights. Therefore, the Court finds the Trustee did not have a duty to rent the Debtors’ residence and the request of Peoples Bank to remove the Trustee and assess damages for his failure to rent the home for the fair rental value must be denied.
Considering the Court has already determined that the Trustee did not have a duty to rent it may appear superfically that it is unnecessary to discuss what action the Trustee did take with regard to renting the Debtors’ home. However, the Court believes that when the Peoples Bank’s allegations, which were unsupported by law, are seen in the light of what the Trustee actually did it becomes clear that the charges in this case were a reaction to the Trustee suing Peoples Bank for $6,500,000.00 in the Hartley case.
In return for remaining in the marital residence Mrs. Miller paid for the utilities and insurance as well as taking care of the general maintenance. Not only did that arrangement spare the estate those expenses but it meant someone was available to show the home to purchasers. In addition, the Trustee was able to charge Mrs. Miller $1,000 for rent by offsetting that amount from her share of the Homestead Exemption. It appears to the Court the Trustee used sound business judgment in avoiding all the problems associated with attempting to evict the Debtor and find another renter.
TRUSTEE’S CONFLICT OF INTEREST
The second cause for removal asserted by Peoples claims that a conflict of interest arose as a result of the Trustee’s ownership of stock in Peoples Bank as the Trustee in the Larry Miller case. As the Trustee for Miller, Mr. Derryberry became the owner of 21 shares of Peoples Bank stock pursuant to 11 U.S.C. § 541. Peoples Bank argues the conflict of interest began when as the Trustee for Hartley, Mr. Derryberry sued Peoples. The Trustee contends that since Peoples Bank knew of the stock ownership and at least tacitly lent their approval to the situation, it is estopped from arguing conflict of interest two years later. The Trustee further contends that mere allegations of potential conflict are not sufficient to remove the Trustee.
The Court agrees with the Trustee who relies on In re National Public Service Corporation, 68 F.2d 859 (2d Cir.1934) which held that after a certain creditor had worked hand in hand with the Trustee for eight months without opposition that creditor was estopped from raising the issue of the conflict of interest. The Court stated, “Other creditors may be entitled to ask us to do this but we are not disposed to hear that complaint in the mouths of these appellants.” Id. at 863. It is appropriate to hold Peoples Bank is estopped from arguing conflict of interest in this case because it was aware of the stock ownership question for approximately two years and it failed to raise an objection until the commencement of an action against Peoples Bank.
The Court notes that the Trustee became the owner of the stock by operation of law. This is not the usual conflict of interest case where self dealing is involved. *874There has been no evidence presented that the Trustee was personally enriched nor that the estate was harmed. There was some testimony that Peoples Bank stock was sold for $50 a share and was repurchased at $50 per share which indicates that the value of the stock has not suffered. There was no testimony that indicated Peoples Bank stock declined as the result of the lawsuit. Of course as previously stated actual fraud or harm must be shown to establish cause for removal. Accordingly, not only is Peoples estopped from alleging conflict of interest, but it also failed to meet this Court’s standard for removal.
In light of the foregoing, it is hereby
ORDERED that the complaints of the Peoples Bank against the Trustee and his surety seeking damages in the cases of Lucretia A. Miller and Larry K. Miller be, and they hereby are, dismissed with prejudice. It is further
ORDERED that the motions of the Peoples Banking Company seeking removal of the Trustee in the cases of Lucretia A. Miller and Larry K. Miller be, and they hereby are, denied with prejudice. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8490050/ | ORDER
BURTON PERLMAN, Bankruptcy Judge.
Application has been made in the above identified ease for an attorneys fee of $1,250.20. The estate consists of the sum of $2,351.00. It arises from the sale of two vehicles for $1,275.00 and an income tax refund of $1,076.00. The vehicles were sold back to the debtors by the trustee.
The fee application submitted by the attorney for the trustee seeks compensation for 21.75 hours by various persons in the law office of the attorney for the trustee. (We note that the trustee is himself the attorney for the trustee, as permitted by statute and pursuant to Order of this Court.) The time records submitted indicate that the trustee himself devoted 4.25 hours of the total hours reported in the case. His time was consumed in the preparation of a complaint to avoid the lien on debtors’ 1976 Dodge Pick Up Truck. Another member of the firm charged 2.5 hours in this litigation. Defendant in the case did not file an answer, and the trustee was granted a default judgment in the case. In the final report of the trustee, it is reported that such truck was sold for $275.00 to the debtor. (We note that the fee application also reports some 5.0 additional hours by other members of the firm regarding the sale of this vehicle. The time records also reflect 3.25 hours devoted to various aspects of the appointment of an auctioneer for the truck, which turned out not to be necessary.)
We are taking the unusual step of issuing a written order in this case because it is in our experience about as extreme a situation as we have encountered in the request of attorneys fees by a trustee serving as his own attorney. The assembling of the assets constituting this estate normally would occupy only a marginal amount of time by an experienced trustee. An experienced trustee would explore the avenue of a sale of assets of limited value to the debtors before considering a public sale and getting involved in the initiation of such a process. The submission of a request for compensation for the number of hours here indicated in connection with the sale of an asset for $275.00 is not acceptable.
Taking into consideration the traditional factors which enter into the award of attorneys fee, particularly the benefit to the estate by reason of an adversary proceeding resulting in an asset of the value of $275.00, we hold that the attorneys fee in this case is fixed at $100.00.
SO ORDERED. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8490051/ | DECISION AND ORDER ON JURY TRIAL DEMAND
BURTON PERLMAN, Bankruptcy Judge.
Both the above identified contested matters involve claims filed by the respective claimants, Knodel and Hodges, and objections thereto by the debtor Patel.
Both claimants were employed as teachers by Campbell Commercial College, Inc., which is itself a debtor in a Chapter bankruptcy case in this court. Campbell Commercial College, Inc. was a corporate entity. Notwithstanding this fact, claimants have filed claims against the instant Chapter 11 debtor who concededly was not their employer. The instant debtor was, however, a principal in Campbell Commercial College, Inc.. It is the position of claimants that they are entitled to compensation from the bankruptcy estate of the instant debtor on a theory either of alter ego, or personal liability for exceeding his corporate authority by debtor, so that he should be held to have contracted with claimants in his own right. Claimants say that thereby debtor exposed himself to personal liability.
At a pretrial conference held in connection with these two contested matters, we ascertained that claimants wished a jury trial on the issues presented by their claims, including particularly the issue of alter ego or exceeding corporate authority. The parties have submitted memoranda on the question of claimants’ right to a jury trial.
*29After careful consideration, we have reached the conclusion that claimants are not entitled to a jury trial on any issue which arises in their claims. Both claimants and the debtor understand that the 1984 Bankruptcy Amendments have no application to the present question because both claims and also the objections to them were filed prior to July 10, 1984, the effective date of the 1984 Bankruptcy Amendments. See Sec. 122(a), P.L. 98-353. Since that is so, we treat the question before us in accordance with the state of the law governing matters in the bankruptcy court at the time these contested matters arose. At that time the stay imposed by the Supreme Court on its decision in Northern Pipeline Construction Co. v. Marathon Pipe Line Co., et al., 458 U.S. 50, 102 S.Ct. 2858, 73 L.Ed.2d 598 (1982), invalidating the jurisdictional provisions of the 1978 Bankruptcy Reform Act, had long since expired. This bankruptcy court then operated, as did all bankruptcy courts, under an Emergency Order issued by the District Court for our District:
The Emergency Order provided at (e)(1):
All cases under Title 11 and all civil proceedings arising under Title 11 or arising in or related to cases under Title 11 are referred to the Bankruptcy Judges of this district.
At (d)(1) the Emergency Order provided:
The bankruptcy judges may perform in referred bankruptcy cases and proceedings all acts and duties necessary for the handling of those cases and proceedings
The Emergency Order further provided at (d)(3)(A):
Related proceedings are those civil proceedings that, in the absence of a petition in bankruptcy, could have been brought in a district court or a state court. Related proceedings include, but are not limited to, claims brought by the estate against parties who have not filed claims against the estate. Related pro-proceedings do not include: contested and uncontested matters concerning the administration of the estate; allowance of and objection to claims against the estate; counterclaims by the estate in whatever amount against persons filing claims against the estate; ... (Emphasis supplied).
From this provision it is clear that what we are dealing with in the contested matters here submitted to us are matters which are not related matters, that is, matters which are automatically referred to the bankruptcy court and as to which we may perform all acts and duties necessary to handle them. The Emergency Rule thus places the contests regarding claimants’ contentions before us for disposition. It does not, however, offer guidance or control as to whether claimants are entitled to a jury trial on issues in their claims. We must look elsewhere for an answer to that question. While claimants contend that they should be granted a jury trial “when there is a constitutional right to one, or where state law would allow the same ... ”, controlling authority indicates otherwise.
In Katchen v. Landy, 382 U.S. 323, 86 S.Ct. 467, 15 L.Ed.2d 391 (1966) the Supreme Court said at pp. 336-337:
But although petitioner might be entitled to a jury trial on the issue of preference if he presented no claim in the bankruptcy proceeding and awaited a federal plenary action by the trustee (citation omitted), when the same issue arises as part of the process of allowance and disallowance of claims, it is triable in equity. The Bankruptcy Act, passed pursuant to the power given to Congress by Art I, § 8, of the Constitution to establish uniform laws on the subject of bankruptcy, converts the creditor’s legal claim into an equitable claim to a pro rata share of the res....
We hold that claimants are not entitled to a jury trial on any question arising in connection with their claims and the objections thereto.
SO ORDERED. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8490052/ | ORDER DISMISSING CASE.
BURTON PERLMAN, Bankruptcy Judge.
In this involuntary Chapter 7 case an order for relief was entered and an interim trustee appointed. The case was set for status conference with due notice given thereof. There was no appearance on behalf of the petitioning creditors. The interim trustee informed the court that she could find neither presence nor personnel of the debtor in the district.
In light of the foregoing, it is hereby ORDERED that the case be dismissed. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8490054/ | FINDINGS OF FACT, CONCLUSIONS OF LAW AND MEMORANDUM OPINION
ALEXANDER L. PASKAY, Chief Judge.
THIS IS a Chapter 7 liquidation case and the immediate matter under consideration is the dischargeability, vel non, of a debt in the amount of $3,042 allegedly owed by Henry J. Bonanno, Debtor, to L.M. Duncan & Sons, Inc. The Plaintiff filed a two Count Complaint and seeks, in Count I, a determination that the debt is non-dis-chargeable by virtue of § 523(a)(2)(A). Count II is based on § 523(a)(4), however, *39prior to the evidentiary hearing in this cause, the Plaintiff voluntarily dismissed Count II. Thus, the sole question before this Court is whether the Debtor with intent to deceive, made materially false representations upon which the Plaintiff relied to its economic detriment.
The Court heard testimony of witnesses, argument of counsel, considered the record and finds the following facts:
The Debtor is an electrical subcontractor, who over a period of approximately ten years, performed various electrical services for the Plaintiff, a general contractor. On May 7, 1982, the Plaintiff and the Debtor, under the name of Done Right Electrical Service, executed a subcontract agreement for certain electrical work to be performed on a project known as the Pinellas County Solid Waste (PCSW) project; on June 11, 1982, the same parties executed a second subcontract agreement for electrical work on the Flagship Bank project. (Pi’s Exh. Nos. 1 & 2). The Debtor signed the agreements as President of Done Right.
In order for a subcontractor to receive final payment for services performed, the Plaintiff requires the execution of a “Waiver of Lien” which provides in part:
It is also sworn that all laborers and/or material suppliers, who furnished labor and/or materials for the above mentioned property, have been paid.”
Affidavits for both the PCSW and Flagship Bank projects, dated August 29,1982, were delivered to the Plaintiff (Pi’s Exh. Nos. 3 & 6). Although the documents appear to have been signed by the Debtor, as President of Done Right Electrical Service, it is without dispute that at the time, the Debt- or was in a hospital in Massachusetts, having suffered a heart attack on or about August 10, 1982.
On August 30, 1982, the Plaintiff released two separate checks in favor of Done Right Electrical Service, one in the amount of $1,944 (Pi’s Exh. No. 4) and the other in the amount of $1,788.75 (Pi’s Exh. No. 5). The checks are both dated August 9, 1982.
Thereafter, Consolidated Pasco Electric Supply, Inc. filed a claim against the Plaintiff’s bond in the PCSW project and a lien against the Flagship Bank project (Pi’s Exh. Nos. 5 & 8). Ultimately, the Plaintiff paid off the claims of Consolidated and now seeks a declaration that its damages as a result of double payment in the amount of $3,042 be declared a non-dischargeable debt of this individual Debtor.
It is the Plaintiff’s position that the Debtor, with intent to deceive, executed the materially false Waivers of Lien and that in reliance on the Waivers, the Plaintiff paid the Debtor, only to find that the Debtor had not paid all of his suppliers. Thus, the Plaintiff was also compelled to make payment to Consolidated Pasco, a supplier who had not been paid by the Debtor. Further, the Plaintiff contends that despite the fact that the subcontracts and affidavits were executed by the Debtor in his capacity as a corporate officer of Done Right Electrical Service, the Debtor is individually liable because Done Right Electrical Service is neither a registered corporate name nor a fictitious name of a registered corporation.
It is the Debtor’s position that (1) he did not sign the Waivers of Lien inasmuch as he was hospitalized and not permitted to be involved with any business affairs; (2) even if he had signed the Waivers, he had no knowledge of their truth; (3) the Plaintiff did not act in reliance on the Waivers; (4) the Debtor’s business was incorporated under the name of D.I.Y., Inc. and the Plaintiff knew this when it executed the subcontracts; and (5) that the Debtor did not receive the funds but they were deposited into the accounts of D.I.Y., Inc. and used to pay operating expenses.
Section 523(a)(2)(A) provides:
§ 523. Exceptions to Discharge
(a) A discharge under section 727, 1141 or 1328(b) of this title does not discharge an individual debtor from any debt— (2) for money ... to the extent obtained by—
(A) ... a false representation, or actual fraud ...
*40There is no doubt that the Waivers of Lien submitted to the Plaintiff were false. Further, this Court is satisfied that the Debtor individually derived the benefit from the sums received inasmuch as he basically operated his business as a one man corporation. There is no doubt that the benefits flowed through the entity to the Debtor. Thus, this Court is satisfied that if the Plaintiff were able to establish the operating elements of § 523(a)(2)(A) with the requisite degree of proof, the debt would be declared non-dischargeable as to this Debt- or.
The Court finds, however, that the evidence as to whether or not this Debtor actually executed the Waivers is in equilibrium. Of course, where the evidence is equally balanced, and the Plaintiff has failed to carry its burden, the Defendant must prevail.
In addition, this Court finds that record is absolutely devoid of any evidence to establish this Debtor’s intent to deceive or defraud. Therefore, the Plaintiff has failed to carry the burden and the debt shall be declared to be dischargeable.
A separate final judgment will be entered in accordance with the foregoing. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8490056/ | ORDER ON MOTION TO AMEND FINDINGS OF FACT AND CONCLUSIONS OF LAW
BURTON PERLMAN, Bankruptcy Judge.
Debtor has filed Motion To Amend Findings of Fact And Conclusions Of Law, identifying it as based on F.R.Civ.P. 52, but furnishing no memorandum in support. In the motion debtor seeks an additional finding of fact, amendments of a finding of fact and two conclusions of law, and clarification of three conclusions of law.
It has been said that:
“... these motions [Fed.R.Civ.P. 52(b) and 59(a)] are intended to correct manifest errors of law or fact or to present newly discovered evidence.” Evans Inc. v. Tiffany & Co., 416 F.Supp. 224, 244 (N.D.Ill.1976).
We do not believe that there was any manifest error of law or fact by statement or omission of statement in our original decision; and therefore do not believe the present motion to be well taken.
Furthermore, it is our view that in our original decision, we discharged our duty with respect to the matter in controversy consistent with the observation that:
“... the trial court has discharged its duty when its findings of fact and conclusions of law cover the essential facts and propositions of law that lay the basis for decision.”
5A Moore’s Federal Practice ¶ 52.11[2]
Debtor’s motion is denied.
SO ORDERED. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8490057/ | MEMORANDUM OPINION
CHARLES J. MARRO, Bankruptcy Judge.
The Court has before it for determination the right of Robert Bilby, Plaintiff, to reclaim possession of the following firearms:
*1341. Colt Model 1849 Pocket Pistol, with Charter Oak grip; cased in rare factory book casing, with presentation inscription. Pictured in THE BOOK OF COLT FIREARMS, SAMUEL COLT PRESENTS, AND THE COLT HERITAGE. Unique set No. 198066. Excellent condition.
2. Historic Civil War presentation set of Col. Colt to General Irvin McDowell, and so inscribed; double presentation cased pair of Model 1860 Army Nos. 11706 and 11707; and cased set of Model 1861 Navy No. 1810 and Model 1862 Police No. 6495. Pictured in Samuel Colt Presents, Cold Engraving, etc., and well documented.
Bilby as Plaintiff filed his Complaint to reclaim these firearms on April 5, 1985, and his claim is resisted by both the Debtor and the Committee of Unsecured Creditors.
FACTS
The Debtor, STN Enterprises, Inc., was organized as a corporation on August 6, 1982 for the purpose of engaging in the purchase and sale of collectible firearms and related collectibles under the trade name of “Atwater Arms.” Stephen T. Noyes was its president, sole stockholder and the driving force behind the corporate business. The corporation also conducted an investment program which included the purchase of certain collections of antique firearms. Noyes died on May 5, 1984 as a result of injuries received in an automobile accident, and for several weeks prior thereto, the Debtor was having financial difficulties. These apparently precipitated the filing of a Petition for Relief on May 29, 1984 under Chapter 11 of the Bankruptcy Code. The Schedules show total liabilities of $12,-989,844.35 and assets of $5,284,415.05. Included in the assets are Bennington Firearms inventory and Greenwich Firearms inventory, listed at an estimated market value without forced sale of $2,500,000.00 and $1,500,000.00, respectively.
Bilby is the owner of a manufacturing company in Lansing, Michigan, and he first became interested in investing in antique firearms in 1982, and from that time until April, 1984 he had made from 15 to 20 investments in firearms with the Debtor, STN Enterprises, Inc. His transactions were negotiated with Stephen T. Noyes, the president and sole stockholder of STN Enterprises, Inc., d/b/a/ Atwater Arms. Before investing in the Colt Model 1849 Pocket Pistol and the Historic Civil War presentation set of Col. Colt to General Irvin McDowell, Bilby had received a return of from 15% to 20% on his previous investments with STN Enterprises, Inc.
On March 14, 1984 he purchased from Atwater Arms a Colt Model 1849 Pocket Pistol for the sum of $37,500.00 for which he made payment by his check number 439 dated March 14,1984, and payable to Atwa-ter Arms. This purchase was evidenced by a receipt dated March 22, 1984 reciting the following:
“For the purchase of:
Colt Model 1849 Pocket pistol, with Charter Oak grips; cased in rare factory book casing, with presentation inscription. Pictured in THE BOOK OF COLT FIRE ARMS, SAMUEL COLT PRESENTS, AND THE COLT HERITAGE. Unique set. No. 198066. Excellent condition.”
On or about March 22,1984 he purchased the Historic Civil War presentation set of Col. Colt to General Irvin McDowell for the sum of $100,000.00 for which he paid by his check number 445 dated 3/28/84 payable to S.T. Noyes. This check bore the notation “Spider — 70” which was a code for the description of these firearms. In connection with this purchase he received from Atwater Arms a bailment agreement dated March 22, 1984 executed by him as purchaser/owner and by Stephen T. Noyes in behalf of Atwater Arms, and reading as follows:
“Having purchased the firearm(s) listed below from Atwater Arms and realizing that improper or excessive handling can effect condition and thereby greatly reduce the value of my purchase, I wish to create a bailment, leaving my purchase in the care and custody of Atwater Arms. It is my understanding that At-*135water Arms will store this purchase either in its secured showroom in Benning-ton or in “The Vault” in Greenwich, Connecticut. It is also understood that At-water Arms has sufficient insurance on both locations and coverage while in transit. I agree to pay, on an annual basis, a reasonable fee for insurance and storage while my purchase is in Atwater Arms’ care and custody.
“Histone Civil War presentation set from Col. Colt to General Irvin McDowell, and so inscribed; double presentation composed of cased pair of Model 1860 Armys, nos. 11706 and 11707; and cased set of Model 1861 Navy no. 1810 and Model 1862 Police no. 61/.95. Pictured in SAMUEL COLT PRESENTS, COLT ENGRAVING, etc., and well documented. ”
Bilby never saw the Colt Model 1849 Pocket Pistol which he purchased for $37,-500.00 or the McDowell set firearms which he purchased for $100,000.00 and which were part of the San Antonio Collection. As far as he knew, Atwater Arms might not have had these weapons in its possession.
Joseph A. Conte, Vice Chairman of the Committee of Unsecured Creditors, participated in a number of investments with Atwater Arms through Noyes. He also represented other investors and in early February, 1984, he with a larger group of investors put up the money to purchase the San Antonio Collection which included the McDowell set. He arranged for the transportation of the San Antonio Collection from W.O. Ranch in Texas to his vault in Greenwich, Connecticut where the San Antonio Collection was stored as security for the loan made by the group of investors to Atwater Arms for purchase of this collection.
Conte provided for security by way of armed guards for the transfer of the San Antonio Collection from Kennedy International Airport in New York to his vault in Greenwich, Connecticut. The McDowell set remained in Conte’s vault as security for the loan made by the investors to Atwa-ter Arms from February, 1984 until at least April 30, 1984, and the only parties who had access to this vault were Conte and his wife. The guns which comprised the McDowell set purchased by Bilby for the sum of $100,000.00 remained in the sole and exclusive possession of Conte and they were in such possession on March 22, 1984; March 28, 1984; and March 30, 1984.
99% of the transactions between Bilby and Atwater Arms were conducted verbally with payoffs being made through the mail by checks representing his investments plus profits. Bilby was not a collector and his only interest was a monetary gain.
The fair market value of the McDowell set purchased by Bilby for $100,000.00 is $104,000.00 and the fair market value of the Colt Pocket Pistol purchased by Bilby for $37,500.00 is $27,500.00.
STN Enterprises, Inc., conducted its business in the Town of Bennington, Vermont, and no financing statements were filed either in the Office of the Town Clerk of Bennington, Vermont, or in the Office of the Secretary of State, Montpelier, Vermont.
DISCUSSION
Bilby lays claim to the firearms described in his Complaint by virtue of two alleged bailment agreements: a verbal one as to the Colt Model 1849 Pocket Pistol and the written bailment agreement of March 22, 1984 as to the McDowell set. His position is not tenable.
Bilby has the burden of proving all elements of his cause of action including the existence of valid and effective bailment agreements. 8 C.J.S. 513 § 50; 8 Am.Jur.2d 1057-8 § 322. As to the claimed verbal agreement relating to the 1849 Pocket Pistol the Court deems it most unusual that there was in fact a bailment without any documentation, especially since the parties executed a written bailment agreement as to the McDowell set. Further, Bilby himself testified that he had engaged in 15 to 20 previous transactions with Atwater Arms for investment pur*136poses, receiving a 10% to 15% profit; that he never saw any of the firearms that he purchased from Atwater Arms and did not know whether in fact Atwater Arms had possession of such weapons; that 99% of his transactions were conducted verbally and the payoffs were made by Atwater Arms through the mails with checks covering investment and profit; that he was not a collector of firearms and that his only interest was monetary gain. Under such circumstances the Court is not convinced that there actually was a bailment agreement between Bilby and Atwater Arms as to the 1849 Pocket Pistol.
Even though there was a written bailment agreement as to the McDowell set which was received by Bilby from Stephen Noyes of Atwater Arms, the undisputed testimony of Joseph Conte which the Court considers credible was that he held possession of the McDowell set as part of the San Antonio Collection from February, 1984 until at least April 30, 1984 at his vault in Greenwich, Connecticut as security for a loan made by him and investors he represented for the purchase of the San Antonio Collection. Therefore, it is clear that on the date of the written bailment agreement executed by Bilby and Atwater Arms; i.e., March 22, 1984, as well as on March 28, 1984 and March 30, 1984, Atwater Arms did not have possession of the McDowell set and, therefore, there could not be an effective bailment agreement between the parties.
A “bailment,” in its ordinary legal signification, imports the delivery of personal property by one person to another in trust for a specific purpose, with a contract, express or implied, that the trust shall be faithfully executed, and the property returned or duly accounted for when the special purpose is accomplished, or kept until the bailor reclaims it. 8 Am.Jur.2d 738 § 2. Zweeres v. Thibault, 112 Vt. 264, 23 A.2d 529.
Accordingly, there must be a delivery of the property if a bailment is to result. See 8 C.J.S. 360 § 15 where the necessity of delivery is expressed as follows:
“An actual or constructive delivery of the property to the bailee is required for a bailment, except a constructive bailment, that is the property must be taken into the bailee’s possession.”
The Court recognizes, as pointed out by Bilby, that there may be a constructive bailment without an actual or constructive delivery. 8 C.J.S. 360 § 15. But this does not eliminate the necessity of possession for a constructive bailment. Such a bailment arises only when the person having possession of a chattel holds it under circumstances that the law imposes upon him the obligation of delivering it to another. 8 C.J.S. 360 § 15 citing Hope v. Costello, 220 Mo.App. 187, 297 S.W. 100. Underscoring supplied. See also 8 Am.Jur.2d 750 § 19 defining a constructive bailment thus:
“A constructive bailment, as distinguished from constructive delivery, arises when the person having possession of a chattel holds it under such circumstances that the law imposes on him the obligation to deliver it to another.” Underscoring supplied.
In discussing the relative importance of delivery in an actual or constructive bailment the Court in Wentworth v. Riggs, 159 App.Div. 599, 143 N.Y.S. 955, said at page, 143 N.Y.S. at 956:
“The essential fact of legal significance in all these cases is possession. It certainly is not delivery, for in none of these cases of constructive bailment is there either an actual or a constructive delivery.” Underscoring supplied.
“Bailment ... begins when the possession of personal property is transferred to the bailee.” Outcault Advertising Co. v. Brooks, 82 Or. 434, 158 P. 517, 518, affirmed, 82 Or. 434, 161 P. 961.
At all pertinent times when a bailment could have been created Atwater Arms did not have possession of the McDowell set which from February, 1984 to April 30, 1984 was in the exclusive possession of Conte as security for a loan. Under such circumstances there was no bailment, and *137at the time of execution of the bailment agreement on March 22, .1984 Bilby could have been very well purchasing a pig in the poke with the McDowell set already pledged as security for the Conte, et als., loan.
Pettes v. Marsh 15 Vt. 454 and Brown v. Gleed and others 33 Vt. 147 cited by Bilby are not apposite as they involve attachments rather than bailments and the parties consented to a receipt for the property rather than actual possession. In the instant case there could be no such consent since Bilby admitted that he did not know whether Atwater Arms ever had possession of the firearms he purchased.
The evidence clearly establishes that Bilby was an investor rather than a bailor in all of his transactions with Atwa-ter Arms under an arrangement whereby Bilby turned over certain sums of money for the purchase of firearms to be resold by Atwater Arms for Bilby at a profit. Under the Uniform Commercial Code as adopted in this state, where goods are delivered to a person for sale and such person maintains a place of business at which he deals in goods of the kind involved, under a name other than the name of the person making delivery, the goods are deemed to be a sale and return and they are subject to the claims of the buyer’s creditors while they are in the latter’s possession. 9A VSA § 2-326(3). However, this subsection is not applicable if the person making delivery
(a) complies with an applicable law providing for a consignor’s interest or the like to be evidenced by a sign, or
(b) establishes that the person conducting the business is generally known by his creditors to be substantially engaged in selling the goods of others, or
(c) complies with the filing provisions' of the article on Secured Transactions (article 9).
Since Bilby knew that the Debtor was conducting business under its own name before he can reclaim the firearms he must establish that his ownership was evidenced by a sign or that the Debtor was conducting his business in a manner generally known by his creditors to be substantially engaged in selling goods of others or that he complied with the filing requirements relating to the financing statements. At the hearing he introduced no evidence tending to establish any of the foregoing alternatives .and, therefore, he has not sustained the burden required of him.
The case law also supports the Debtor. See Manufacturers Acceptance Corporation v. Pennington Sales, Inc., (1971), 5 Wash.App. 501, 487 P.2d 1053; In Re International Mobile Homes of Johnson City, Inc. (Bankr.E.D.Tenn.) 1 B.C.D. 131, 134; In Re Maurice Lipsky Music Co., Inc., (Bankr.S.D.N.Y.1976) 2 B.C.D. 371; In Re Wicaco Machine Co., Inc. (Bankr.E.D.Pa.1984) 37 B.R. 463.
As a hypothetical lien creditor as of the date of the filing of the Petition for Relief, the Debtor’s rights are superior to those of Bilby in the firearms purchased by him. § 544 and § 1107 of the Bankruptcy Code.
The Complaint of Bilby should be dismissed and his claim allowed as unsecured.
The Clerk shall enter Judgment consistent with this Memorandum Opinion. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8490058/ | ORDER REGARDING PRELIMINARY HEARING ON MOTION FOR AUTHORIZATION FOR USE OF CASH COLLATERAL
JON J. CHINEN, Bankruptcy Judge.
On July 8, 1985, Certified Corporation, (“Debtor”) filed a Motion for Authorization for Use of Cash Collateral. A hearing was held on July 10, 1985 at which time John A. Chanin and James Y. Agena appeared on behalf of the Debtor. Herbert Katz and Anthony Chan appeared on behalf of U.S. Bancorp Financial, Inc., (“U.S. Bancorp”). Michael Hong appeared on behalf of the Bank of Hawaii. Having considered the files and records in this case, the testimony of witnesses and the arguments of counsel, the Court makes the following findings:
1. The Court notes that one of the purposes of the Bankruptcy code is the rehabilitation, if possible, of a corporation which has sought relief under Chapter 11. In the case of the Debtor, the Court takes into consideration the Debtor’s statement that it employs approximately 125 employees. These employees would be adversely affected by the failure of the Debtor to successfully reorganize. The legislative history explicitly provides that the purpose of business reorganization under Chapter 11 is to permit the debtor “to restructure a business’ finances so that it may continue to operate, provide its employees with jobs, pay its creditors, and produce a return for stockholders.” H.R.Rep. No. 595 at 22, 1978 U.S.Code Cong. & Ad.News 5787 at 6179; In re American Mariner Industries, Inc., 734 F.2d 426, 431 (9th Cir.1984).
2. On the other hand, the Court must also protect a secured creditor’s collateral, which is being used by the Debtor since it is well established that the “bankruptcy power is subject to the Fifth Amendment’s prohibition against taking of private property without compensation.” United States v. Security Industrial Bank, 459 U.S. 70, 103 S.Ct. 407, 410, 74 L.Ed.2d 235 (1982). For this reason, if a creditor, who claims an interest in the cash collateral, objects to the use of cash collateral, the Court may only allow the debtor to use cash collateral after notice and hearing and upon providing adequate protection of the creditor’s interest. In re Sheehan, 38 B.R. 859, 863 (Bankr.S.D.1984). In particular, 11 U.S.C. § 363(e) provides as follows:
Notwithstanding any other provision of this section, at any time, on request of an entity that has an interest in property used, sold, or leased, or proposed to be used, sold, or leased, by the trustee, the court, with or without a hearing, shall prohibit or condition such use, sale, or *156lease as is necessary to provide adequate protection of such interest.
On July 9, 1985, U.S. Bancorp filed Objections to Motion for Use of Cash Collateral in which it requested an order prohibiting the use of cash collateral pursuant to Section 363.
3. The Debtor requests that it be allowed to use the cash collateral currently in its possession, or to be received into its possession through payment on accounts receivable, for the purchase and sale of inventory in the normal course of its business, and that of the estimated $100,000 worth of cash needed per day by the Debt- or, approximately $90,000 is to be applied and used for the purchase of inventory and approximately $10,000 for operating and overhead expenses.
4. The Debtor acknowledged that it owed approximately $4,700,000.00 to U.S. Bancorp.
5. In addition, the Debtor and John F. Damore (“Damore”), an officer of the Debtor, offered the following as adequate protection for the use of U.S. Bancorp’s cash collateral: inventory, accounts receivables, equipment, including certain motor vehicles, a lease of the Debtor’s premises, the personal residence of Damore and interest in a holding company.
6. The Court found that, based upon the evidence presented, the value of these assets was approximately $5,000,000.00, which consists of $1,400,000.00 in inventory, $1,000,000.00 in accounts receivables, $500,000.00 in the lease for the premises, $700,000.00 in the interest in the holding company and between $400,000.00 and $600,000.00 in equipment, including certain motor vehicles.
7. The Court found a slight equity in the assets which secured the loan of U.S. Bancorp and found that there is a possibility, a reasonable likelihood, that the Debtor will prevail at the final hearing.
8. U.S. Bancorp informed the Court that it did not have liens up to the full value of these amounts.
Therefore, IT IS HEREBY ORDERED that:
1. Debtor shall immediately execute and deliver to U.S. Bancorp mortgages and any other necessary documents to provide U.S. Bancorp with lien and security interests on the full value of all assets offered by the Debtor to provide adequate protection to U.S. Bancorp.
2. U.S. Bancorp is entitled to retain a lien on the inventory purchased with the cash collateral and the subsequent proceeds from the accounts receivable generated by the sale of the inventory.
3. The Court authorizes the use of cash collateral up to the amount of $100,000 per day from July 10, 1985 through Monday, July 15, 1985 at 8:45 a.m. H.S.T., at which time there shall be conducted a final hearing with respect to the request for use of cash collateral.
4. U.S. Bancorp, as the secured creditor, is permitted to inspect the property of the Debtor during normal business hours and in a manner that does not interfere with the business operation of the Debtor.
5. Debtor shall file daily with U.S. Ban-corp and with the court detailed reports reflecting the amount of cash collateral used for inventory and overhead expenses, the amount of money deposited with U.S. Bancorp and further details of the operation of its business and cash transactions.
6. U.S. Bancorp shall have a continuing lien in the cash collateral as contemplated by 11 U.S.C. Section 552.
7. The amounts collected by the Debtor since July 8, 1985, together with all subsequent amounts collected by the Debtor, from the sale of inventory for the payment of accounts receivable shall be forthwith deposited into U.S. Bancorp’s bank account at Bank of Hawaii as provided in the Loan Agreement.
8. The Court wants better evidence as to the value of the different assets securing the loan to the secured creditor, U.S. Bancorp.
9. U.S. Bancorp’s motions to lift the automatic stay and for the appointment of *157a trustee shall be heard on July 15, 1985 at 8:45 a.m. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8490060/ | OPINION
EMIL F. GOLDHABER, Chief Judge 1:
On motions filed under 11 U.S.C. § 506(a) of the Bankruptcy Code (“the Code”), the task before us is to value the debtor’s realty with an eye toward ultimately adjudicating two creditors’ requests for relief from the automatic stay. For the reasons stated below, we find that the real property is worth $3,423,930.00.
We find the facts of the case as follows:2 The debtor owns seven farms in Southern New Jersey. Four of these farms — denominated as Clearview, Marx-Rhodestown, Schofield and Elmer — were previously constituted through the annexation and merger of several smaller farms. The remaining three farms — Pierce, Clunn and Hunt— are each represented by one deed. Sometime prior to the debtor’s filing of his petition for reorganization under chapter 11, these seven farms were encumbered by mortgages granted to the Equitable Life Assurance Society (“Equitable”) and the Farmers Home Administration (“FMHA”). After the filing of the petition the two mortgagees filed the motions for relief from the automatic stay and the instant motions for valuation, although the motions for relief from the stay are not yet ripe for decision.
The debtor, Equitable and FMHA each presented an appraiser who testified at length. Based on his education, experience, facility with the subject matter, demeanor, credence, use of comparable sales and a highly detailed and persuasive valuation report, we adopt, with the modifications discussed below, the appraisal formulated by FMHA.3 Hence, we make the express factual finding that the properties at issue are worth a total of $3,423,930.00. Our resolution of the matter at hand is *175predicated on § 506(a)4 of the Code which requires that the value of the collateral be determined in light of the purpose of the valuation and the proposed disposition of the property. In the matter before us, Equitable and PMHA seek a low valuation hoping to prevail on their pending motions for relief from the automatic stay. By the same token, the debtor seeks a high valuation to defeat the efforts of the secured creditors to obtain a modification of the automatic stay. These cross purposes are reflected in appraisals differing by more than $1,000,000.00 although all are based, in part, on a proposed liquidation of the property with an attendant satisfaction of the encumbrances.
Each appraiser utilized the same definition of fair market value, which includes the presumption that the sale will be at the “highest price in terms of money which a property will bring in a competitive and open market under all conditions requisite to a fair sale, the buyer and seller each acting prudently, knowledgeably and assuming the price is not affected by undue stimulus.”5 This basis of valuation is the most appropriate under the attendant circumstances.
FMHA’s appraiser afforded the seven properties a base price of $3,113,500.00, the constituent elements of which are outlined below. The debtor contends, with the acquiescence of the mortgagees’ appraisers, that smaller farms are currently selling in the relevant area at a higher price per acre than larger farms. Consequently, if the four farms previously constituted by the merger of small farms were sold in their smaller constituent units, a higher value would be generated. FMHA’s appraiser testified that this valuation technique would augment his base valuation price by 15% to 20% for the Clearview farm and by 5% to 10% for the Marx-Rhodestown, Scho-field and Elmer farms. Taking an average for each range of values for augmentation, it appears that the Clearfield property is worth 17V2% more than the base figure offered by FHMA’s appraiser, while the values of the Marx-Rhodestown, Schofield and Elmer farms are 7V2% higher than the base valuations. We summarize FMHA’s base valuations and the adjustments thereto as follows:6
*176The sum of the augmented figures yield an aggregate value of the seven farms of $3,423,930.00 which, as stated above, is our finding on the value of the various farms.
We will accordingly enter an order fixing the value of the debtor’s farms at $3,423,-930.00.
. Specially designated to hear and dispose of cases in the United States Bankruptcy Court for the District of New Jersey at Camden.
. This opinion constitutes the findings of fact and conclusions of law required by Bankruptcy Rule 7052.
. We reject the ultimate valuation offered by Equitable’s appraiser since he used fewer com-parables, many of which proved to be unsuitable. Further testimony revealed discrepancies between the methodology of valuation described in his appraisal and the-methods actually used to calculate the value of the farms. Likewise we do not accept the valuation proferred by the debtor’s appraiser since the linchpin of his valuation was the hypothesis that land values in the subject area were appreciating, in support of which he offered no evidence.
. § 506. Determination of secured status
(a) An allowed claim of a creditor secured by a lien on property in which the estate has an interest, or that is subject to setoff under section 553 of this title, is a secured claim to the extent of the value of such creditor’s interest in the estate’s interest in such property, or to the extent of the amount subject to setoff, as the case may be, and is an unsecured claim to the extent that the value of such creditor’s interest or the amount so subject to setoff is less than the amount of such allowed claim. Such value shall be determined in light of the purpose of the valuation and of the proposed distribution or use of such property, and in conjunction with any hearing on such disposition or use or on a plan affecting such creditor’s interest.
. "Real Estate Appraisal Terminology,” American Institute of Estate Appraisers and the Society of Real Estate Appraisers (1975).
. For comparison with FMHA’s appraisal, the valuations submitted by all the appraisers are listed as follows:
Farm FMHA Equitable the debtor
Clearview $1,198,400 $1,145,000 $1,860,000
Marx-Rhodestown 491,000 500,000 700,000
Schofield 325.300 285,000 490,000
Elmer 526,500 412,500 660,000
Pierce 217.300 240,000 410,000
Clunn 28,600 22,500 66,000
Hunt 326,400 336,000 528,000
$3,113,500 $2,941,000 $4,714,000
*176Farm FMHA base Valuation augmented value
Clearview $ 1,198,400.00 $ 1,408,120.00
Marx-Rhodestown 491,000.00 527,825.00
Schofield 325,300.00 349.697.50
Elmer 526,500.00 565.987.50
Pierce 217,300.00 217,300.00
Clunn 28,600.00 28,600.00
Hunt 326,400.00 326,400.00
$ 3,113,500.00 $ 3,423,930.00 | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8490061/ | DECISION AND ORDER
BURTON PERLMAN, Bankruptcy Judge.
Robert and Lora Reardon, hereinafter “debtors” filed a Chapter 13 petition. Debtors filed Petition to Reject Executory Contract with Money, Inc. and Consumer Trade Center pursuant to 11 U.S.C. § 365(a). A hearing on the petition was held.
The contract in question was entered into by the debtors with Consumer Trade Center, Inc., hereinafter “CTC”. CTC transferred its right to payment pursuant to the contract to Money, Inc. At the hearing Money, Inc. objected to the debtors’ motion to reject the contract. CTC did not appear at the hearing and has not objected to rejection of the contract with it by debtors.
The several documents involved in the transaction were entered into evidence at the hearing. They include a retail installment sales contract dated December 17, 1983, a “V.I.P. Agreement”, a “Procedure for Ordering”, and a guarantee agreement. (Joint Exhibits # 1-4). These documents delineate a transaction whereby debtors agreed to pay for certain services to be provided by CTC. The services may be described as an undertaking to enable debtors to purchase certain merchandise on advantageous terms. Debtors agreed to pay $600.00 for these services, the $600.00 to be paid in accordance with the provisions of the retail installment sales contract which we have mentioned.
The retail installment sales contract includes the following:
“Warning — your note has been transferred to Money, Inc., 37 W. 7th Street, Room 504, Cincinnati, Ohio, 45202. If you have a claim or defense against the seller of the goods or services for which you signed this note, you must inform Money, Inc. in writing of your claim before 12/17/83 or you will be required to continue payments even though your claim or defense is valid.”
The reverse side of the contract bears Assignment by Dealer whereby CTC assigned its contract rights to Money, Inc. There can be no doubt that the debtors’ contract with CTC is executory. The debt- or is still obligated to perform by way of making payments, and CTC is continually obligated for five years to provide the goods and render the services set forth in their agreement, such as by arranging the various sales of merchandise, keeping its showroom available and refunding the debtor’s membership price if necessary. Neither party had fully performed at the time of the bankruptcy and for either party to have discontinued performance would have been a material breach of the contract. These are the classic attributes of a contract which is executory. See generally Countryman, Executory Contracts in Bankruptcy: Part I, 57 Minn.L.Rev. 439, 460 (1973); In re Jolly, 574 F.2d 349, 351 (6th Cir.1978); In re Total Transportation Service, Inc., 37 B.R. 904, 906 (Bankr.S.D.Ohio W.D.1984). Because the contract is obviously burdensome we hold that debtors may reject it.
This conclusion, however, does not terminate the present inquiry, for we still must deal with the objection of Money, Inc.. Money, Inc. contends that as to it the contract is not executory. It is clear that the status of Money, Inc. in this matter is that of an assignee of the rights of CTC under its contract with debtors. That is what CTC and Money, Inc. said in the document of transfer and there can be no doubt that an assignment to Money, Inc. of the contract right of CTC to receive money from debtors is what was intended by Money, Inc. and CTC.
But this characterization of Money, Inc. as an assignee is fatal to its present contention. The reason for this conclusion is *184that the rights of Money, Inc. are derivative. It is not in the position of an independent contracting party. If it were, there might be room for the contention which it makes. Because its rights are derivative, they can rise no higher than those of its assignor.
The assignee of an overdue negotiable instrument, or of a nonnegotiable instrument, or other chose in action, as a general rule, takes it with all the rights of the assignor, and subject to all the equities and defenses of the obligor against the same in the hands of the assignor, and to any infirmities existing at the time of the assignment; he stands in the shoes of his assignor and has no greater rights against the obligor than the assignor had. No action can be maintained by an assignee of a claim against the obligor unless there is an obligation which the obligor is bound to pay to, or perform for, the assignor, and, unless the obligor is estopped to assert such defense, any defense that may be set up against the assignor by the obligor must be considered as binding upon the assign-ee of the claim. 6 O.Jur.3rd 213-214. Assignments Section 46.
Debtors have the right pursuant to 11 U.S.C. § 365(a) to reject their executory contract with CTC, and such rejection provides a defense to any claim by CTC other than as may be provided in the bankruptcy law. Because of the above quoted elementary proposition in the law of assignments, the same defense, rejection of the exec-utory contract pursuant to 11 U.S.C. § 365(a), operates also against an assignee, in this case Money, Inc.. We observe that any other conclusion would be destructive of the long standing right provided for in bankruptcy law of a debtor to reject a burdensome executory contract.
We add a footnote to the foregoing discussion. Early in this decision we quoted the “warning” language from the retail installment contract entered into between debtors and CTC. That language purports to cut off defenses of debtors against Money, Inc. in the absence of compliance with the language there appearing. The statutes of Ohio at Ohio Revised Code, Section 1317.14 expressly invalidates any such contract provision.
In the light of the foregoing discussion, we overrule the objection of Money, Inc. to the rejection by debtors of the subject exec-utory contract.
SO ORDERED. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8490062/ | ORDER DENYING OBJECTION TO SALE
WILLIAM A. CLARK, Bankruptcy Judge.
On March 21, 1985, Office Equipment Suppliers, Inc. filed its objection to the trustee’s notice of intention to sell a certain Canon NP-120 Copier. A hearing was held July 31, 1985.
The creditor claims that it is the owner of the copier and that the debtor had possession of the copier on the basis of a “rental/approval agreement.” The trustee maintains that the copier was sold to debt- or.
Based upon the evidence at the hearing, and arguments of counsel, the court finds that creditor has failed in his burden of proof to show that debtor had possession of the copier on a “rental/approval agreement.” The Court finds from the evidence that Office Equipment Supplies, Inc. sold the copier to debtor for $2,040.00, and debt- or made one payment on the sale contract. The creditor remains an unsecured creditor for the balance of the purchase price. Office Equipment Suppliers presented no evidence of a security interest in the Canon NP-120 Copier.
IT IS THEREFORE ORDERED that the objection to the sale of the Canon NP-120 Copier is DENIED. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8490063/ | *287ORDER ON MOTION FOR RELIEF FROM FINAL JUDGMENT BY DEFAULT
ALEXANDER L. PASKAY, Chief Judge.
THIS CAUSE came on for hearing upon a Motion for Relief from Final Judgment by Default filed by William G. Kranich, III and June Elizabeth Kranich, Defendants, in the above-styled adversary proceeding. The Defendant seeks to have a final judgment by default set aside pursuant to B.R. 9024.
The Court considered the record and finds that on May 9, 1983, the trustee, Lawrence Kleinfeld, filed a complaint against Sunland Properties and William G. Kranich, III and June Elizabeth Kranich. William and June Kranich failed to respond to the complaint and on July 20, 1983, this Court entered a Final Judgment by Default in favor of the Trustee and against William and June Kranich. The Judgment voided the transfer of a parcel of real estate by the Debtor, Duval Financial Corporation to the Defendants and declared the real estate to be property of the bankruptcy estate.
On July 19, 1984, the Defendants filed their Motion to Set Aside the Default Judgment pursuant to B.R. 9024 and F.R.C.P. 60(b). In support of their Motion, the Defendants contend that they were not sufficiently experienced in legal matters to understand the importance of the papers and pleadings served. Furthermore, June Kra-nich contends that she was never served with the complaint nor did she have actual knowledge of the law suit until June of 1984.
Pursuant to Bankruptcy Rule 9024, F.R. C.P. 60 applies to adversary proceedings filed in a bankruptcy case. F.R.C.P. 60 provides in pertinent part as follows:
(b) MISTAKES: INADVERTENCE; EXCUSABLE NEGLECT; NEWLY DISCOVERED EVIDENCE: FRAUD, etc. On Motion and upon such terms as are just the court may relieve a party or his legal representative from a final judgment, order, or proceeding for the following reasons:
(1) mistake, inadvertence, surpise, or excusable neglect; ...
While courts do not favor dispositions of controversies by default, the circumstances of this case do not support a finding of excusable neglect. A Motion for Relief from Judgment shall not be made more than one year from the entry of the Judgment. F.R.C.P. 60(b). However, a party is not given an absolute year to file his motion, rather a year is the maximum amount of time. 7 Moore’s Fed.Praetice ¶ 60.22[4] (2nd ed. 1983). The Motion must be made within a reasonable time and lach-es or undue delay may preclude relief under F.R.C.P. 60, even though the motion was made within the one-year limit. Central Operating Co. v. Utility Workers of America, 491 F.2d 245, 253 (4th Cir.1974).
In the case at bar, the Defendants failed to move to vacate the Judgment until the day before the expiration of the one year deadline. Inasmuch as William Kranich was served properly there is no satisfactory excuse for his delay.
In the Motion for Relief from Final Judgment by Default, June Elizabeth Kranich claims that she was not served with the complaint, had no knowledge of the lawsuit and was unable to defend said lawsuit.
A review of the record shows that the case style in this matter, as originally filed, indicates that June Elizabeth Kranich is the wife of William G. Kranich, III. This is also indicated within the body of the Final Judgment by Default, the Default, the Motion for Final Judgment by Default, but most importantly, in the supporting Affidavit sworn to by Mr. Jeré M. Fishback, the attorney for the trustee in this case, he stated that:
“Attached hereto are photocopies of return receipts from U.S. Certified Mail indicating that defendant William G. Kra-nich, III received the summons and Notices of Trial issued to William G. Kra-nich III and June E. Kranich, his wife, on June 9,1983.” (emphasis supplied)
It is clear that June Elizabeth Kranich and William G. Kranich, III are brother and *288sister, not husband and wife as was represented by counsel for the Plaintiff and as found by the Court in the Final Judgment by Default.
This undisputed fact brings into consideration whether or not the service on William G. Kranich, III can be accepted as a valid binding service on June Elizabeth Kranich. The proper procedure of service of summons on individuals is set forth in B.R. 7004, which is subclause (b) provides as follows:
Upon any defendant, it is also sufficient if a copy of the summons and complaint is mailed to an agent of such defendant authorized by appointment or by law to receive service of process, at his dwelling house or usual place of abode or at the place where he regularly carries on his business or profession and, if the authorization so requires, by mailing also a copy of the summons and complaint to the defendant as provided in this subdivision.
Arguably, a husband may be deemed to be the agent of his wife for service of process purposes. However, in light of the undisputed facts of this proceeding, this point is of no moment since it is clear that William G. Kranich, III and June Elizabeth Kranich are not husband and wife, but brother and sister. Moreover, inasmuch as a brother is not authorized by law to accept service of process for his sister, the service was ineffective unless there is competent evidence that he was, in fact, an agent for his sister and there has been no showing that William G. Kranich, III was the agent of June Elizabeth Kranich authorized by appointment, this provision of the Rules cannot support a claim of proper service. This being the case, the validity of the service of process can only be sustained if there is sufficient evidence that the place of service was her usual place of abode or her dwelling.
Rule 7004(b)(1) states that service may properly be made;
Upon an individual other than an infant or incompetent, by mailing a copy of the summons and complaint to his dwelling house or usual place of abode or to the place where he regularly conducts his business or profession.
The record fails, however, to show with a sufficient degree of persuasion that William G. Kranich’s home where he accepted service for both himself and his sister, was actually the “dwelling house or usual place of abode” of June Elizabeth Kranich. There is some indication by William G. Kra-nich, III in his deposition of December 7, 1983 that June Elizabeth Kranich did from time to time “visit or stay” with him. The overall picture to be gleaned from the deposition, however, is very inconclusive as to whether or not his home was the “dwelling house or usual place of abode” of the defendant June Elizabeth Kranich. In fact, the deposition raises the possibility that June Elizabeth Kranich’s “dwelling house or usual place of abode” may have been the same as that of her mother or father.
Considering the totality of the undisputed evidence relevant to the matter under consideration, it is clear that she was not properly served; that the Final Judgment by Default should not have been entered against her; that the Motion for Relief from Final Judgment of Default shall be granted as to her; and, that the Final Judgment of Default must be vacated as to June Elizabeth Kranich. Accordingly, it is
ORDERED, ADJUDGED AND DECREED that the Motion for Relief from Final Judgment by Default filed by William G. Kranich and June Elizabeth Kranich, be, and hereby is, granted in part and denied in part. It is further
ORDERED, ADJUDGED AND DECREED that the Final Judgment be Default entered in this case shall stand as entered with respect to the Defendant William G. Kranich and the Default and Final Judgment by Default entered in this case shall be, and hereby is, vacated to the extent it applies to June Elizabeth Kranich. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8490064/ | FINDINGS OF FACT, CONCLUSIONS OF LAW, MEMORANDUM OPINION
ALEXANDER L. PASKAY, Chief Judge.
THIS IS a Chapter 7 liquidation case and the immediate matter under consideration involves an adversary proceeding commenced by Title and Trust Company of Florida (Title and Trust) against Richard T. Baker, the Debtor in the above-styled case. Title and Trust seeks a determination that the sum of $34,190.38, which allegedly represents sums paid by Title & Trust in satisfaction of claims, litigation costs and attorneys’ fees resulting from the Debtor’s false representations in executing Affidavits of No-Liens, is a non-dischargeable debt. The Complaint to Determine Non-dischargeability of Debt is set forth in three (3) Counts, although Count III was dismissed prior to trial. Count I seeks a determination that the Debtor used the corporate entity, Buford, Inc. as a mere alter ego, that the debt owed to Title and Trust is actually an obligation of the individual debtor and that the debt is nori-dischargeable pursuant to § 523(a)(2)(A). Count II also seeks a determination of non-dischargeability pursuant to § 523(a)(2)(A) and alleges that the Debt- or obtained money or property from the Plaintiff inasmuch as disbursements made by Title and Trust satisfied obligations of *297Buford, Inc., on which the Debtor was the guarantor.
The Court heard testimony of witnesses and argument of counsel, considered the documentary evidence and the record in its entirety, and finds the following facts:
On August 13, 1976 the Debtor and his wife, Marilyn J. Baker formed Buford, Inc., a Florida corporation, for the purpose of constructing and selling real estate. The Bakers were the sole shareholders, and with the exception of a short period of time in late 1976 and early 1977, the sole officers and directors. The corporation was involuntarily dissolved in 1979 for failure to file its annual report and Buford, Inc., filed a Voluntary Petition for Relief pursuant to Chapter 7 of the Bankruptcy Code.
Between May 1977 and January 1978 Buford, Inc., acquired title to four (4) separate parcels of real property (Pi’s Exhs. 3, 4, 5, 6) with the intention of constructing a single family dwelling on each parcel and selling the parcel as improved. In conjunction with the intended construction on the four lots, the Debtor, on behalf of Buford, obtained construction loans from Palm State Bank and executed four (4) promissory notes in the amounts of $20,700, $22,050, $33,635 and $20,160 which were secured by mortgages on the separate real parcels of real property. (Pi’s Exhs 7-14). The Debt- or and his wife individually guaranteed each o‘f the obligations. Eventually, the homes were completed and sold to the ultimate purchasers, Juanita Radford, Mr. & Mrs. Robert J. Smith, Mr. and Mrs. Hubert R. Moore and Mr. & Mrs. Floyd J. Bumgar-ner. (Pi’s Exhs. 15-18).
Abstract and Title Company of Hillsbor-ough County, (Abstract and Title) a wholly owned subsidiary of Title and Trust, acted as the closing agent and also issued the Plaintiff’s title insurance policies in conjunction with each of the sales. In each case, Richard T. Baker, on behalf of Buford, Inc., executed Affidavits of No Liens. (Pi’s Exhs. 20-23) Abstract and Title closed the transactions, issued title insurance and made disbursements from their escrow account.
It appears that at the time of each closing, Buford, Inc. was indebted on an open account, to McGinnes Lumber Company, a supplier of construction materials. It further appears that McGinnes sent, by certified mail, notices to owner prior to the closings, which notices were received by Jane Whittaker, an employee of Buford, Inc., who placed the notices in the corporate files without informing the Debtor of their receipt. While the Debtor admitted that he was aware of an outstanding balance to McGinnis at the time of the Bum-garner closing, he endorsed a check over to Palm State Bank who was to pay McGinnis. The Debtor further testified that he had no knowledge of any indebtedness or notices to owner at the time of the other three (3) closings.
McGinnis filed Claims of Lien against each of the four (4) properties and Title and Trust was ultimately obligated to settle, satisfy or litigate the claims of lien. Consequently, Title and Trust asserts that the Debtor is obligated to reimburse the Plaintiff for sums expended, and that the debt is non-dischargeable because the Debtor executed materially false affidavits of No Liens upon which Title and Trust reasonably relied to its ultimate economic detriment. The Plaintiff further contends that the Debtor obtained money or property inasmuch as he and his wife were released from their personal guarantees on promissory notes in favor of Palm State Bank which were satisfied upon closing. Of course, Title and Trust also contends that Buford, Inc. received proceeds from each of the closings and that since Buford is merely the alter ego of the Debtor, the Debtor, in fact, received cash at closing.
Based on the facts as adduced from the record, this Court is satisfied that the Debtor, at all times, operated his business as a sole proprietor despite the existence of a corporate charter. There is no doubt that the Debtor disregarded all corporate formalities and was merely acting as an indi*298vidual contractor. There is no evidence that Buford was capitalized to any extent; that stock certificates were ever issued; that there was ever a functioning Board of Directors; or that board meetings were ever conducted or minutes kept. Thus, it is clear that the Debtor, individually, is liable in the event that the Court concludes that the Plaintiff is entitled to recover.
This leads to the ultimate question of whether Title and Trust established with the requisite degree of proof, all of the operating elements of § 523(a)(2)(A). Under § 523(a)(2)(A), the Plaintiff has the burden to establish that the Debtor knowingly made false representations with the intention of deceiving a creditor who reasonably relied on the representations and as a result sustained damages. In re Ballard, 26 B.R. 981 (Bankr.Conn.1983).
There is no doubt, in the case at bar, that the Debtor executed Affidavits of No Liens which were false and that the Plaintiff sustained economic loss. However, the record is woefully short of the degree of proof required to establish either (1) that the Debtor knew of the existence of the lien claims at the time he executed the documents, or (2) that he executed the same with the intention of deceiving Title and Trust. While the evidence reveals that the Notices to Owner were sent and, in fact, received there is no competent evidence to establish that the Debtor had any knowledge of their existence. At best, the notices, upon receipt, were placed in files and never brought to the Debtor’s attention.
Finally, there is absolutely no evidence in the record to warrant the inference that the Debtor submitted the documents with the requisite intent to deceive. Based on the foregoing, this Court is satisfied that the claim of non-dischargeability cannot be sustained and the Complaint must be dismissed.
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/8490065/ | ORDER ON TRUSTEE’S APPLICATION FOR RELIEF
ALEXANDER L. PASKAY, Chief Judge.
THIS IS a pre-Code corporate reorganization case in which the Plan of Reorganization has long been confirmed and the matter under consideration relates to the last, albeit a very significant, unresolved matter. The facts as they appear from the *381record and which are not without dispute, are as follows:
In the course of the administration of the estate of the Debtor, Aldersgate Foundation, Inc. (Aldersgate), a non-profit corporation, the Trustee was successful in securing the forfeiture of earnest money deposits in the amount of $500,000 and $20,000, respectively. These monies were posted by prospective buyers as earnest monies toward the proposed purchase of the assets of Aldersgate located in Kissimmee and in Key West, Florida. In both instances, the buyers were unable to obtain the financing necessary to complete the purchase which in turn produced the forefeiture. The funds forfeited now amount to $1,009,-953.49 due to interest earned on the principals deposited in interest bearing accounts by the Trustee.
In due course, the Trustee sought a determination by this Court as to the proper allocation of these funds among the competing interests of holders of bonds secured by mortgages which encumbered the real property owned by Aldersgate at Kis-simmee and at Key West, the properties which were involved in the aborted sales which in turn produced the forfeited funds, and certain unsecured creditors. At a duly scheduled hearing, this Court adopted the distribution formula submitted by the Trustee over the objection of certain unsecured creditors (the Brewer Interest) and ordered the Trustee to proceed and make distribution in accordance with the approved formula.
The Order was entered on March 18, 1985. The Brewers, having been aggrieved by this Order, timely filed a Notice of Appeal challenging the propriety of the Order of distribution but failed to seek a stay pending appeal either from this Court or from the District Court. Notwithstanding this fact, the Trustee did not make a distribution, but instead filed an “Application for Relief,” the matter under consideration.
In his application, the Trustee seeks an order relieving him of the duty to distribute the funds as required by the Order of March 18, 1985. It is the Trustee’s contention that he should not be required to make distribution until the Brewer appeal is decided because in the event the Order of March 18, 1985 is reversed, he will be required to redistribute the funds and since, at that time, all funds will have already been distributed, he may be personally liable if he is unable to recover the funds distributed pursuant to the Order of March 18, 1985. In this connection, the Trustee points out that the distribution of dividends would involve several thousand prospective recipients residing in all but three of the fifty states of the Union and also overseas and the task to recover dividends in this instance would not only be prohibitive because of cost, but well-nigh impossible in light of the realities of the situation.
Based on this, the Trustee, being apprehensive of a possible personal exposure in case of a successful appeal by the Brewers, urges that this Court should relieve him of the requirements of the Order of March 18, 1985. The Trustee’s Application is opposed by Freedom Savings & Loan Association (successor in interest of ComBank of Winter Park), the Indenture Trustee under a bond issue sold by the Debtor. This Objection is based on the following contentions:
First, it is the contention of the Indenture Trustee that the Trustee’s Application is, in essence, a motion to reconsider and to amend the order of March 18, 1985 and in light of the pendency of the Appeal, this Court no longer has jurisdiction concerning the Order of March 18, therefore, the Court is powerless to amend the Order; citing, In re Winstead, 33 B.R. 408, 409 (M.D.N.C.1983); In re Hardy, 30 Bankr. 109, 111 (Bankr.S.D.Ohio 1983).
Next, it is the contention of the Indenture Trustee that in any event even if the Trustee’s Application is construed to be a Motion to Stay Pending Appeal, the Trustee, having been the prevailing party before this Court, has no standing to request and obtain a stay. In this connection, the Indenture Trustee points out the obvious that the burden of obtaining stay pending appeal is placed on the appellant and the appellee has no standing to seek a stay *382pending appeal. In re Weathersfield Farms, Inc., 34 B.R. 435, 439 (Bankr.D.Vt.1983); In re Neisner Brothers, Inc., 10 B.R. 299, 300 (S.D.N.Y.1981); In re Michigan-Ohio Building Corp., 117 F.2d 191 (7th Cir.1941).
In addition, it is the contention of the Indenture Trustee that there is nothing in this record to show that the Order on Appeal was erroneous, thus, it is unlikely that it will be reversed on appeal and since this is one of the elements required to be shown as a condition for obtaining a stay, even if the Trustee’s Application is construed to be a Motion for Stay Pending Appeal, cannot be granted, see, In re Sung Hi Lim, 7 B.R. 319, 321 (Bankr.D.Hawaii 1980).
There is no question that all the foregoing legal principles urged by the Indenture Trustee correctly represent the law governing stays pending appeal. The difficulty with the propositions urged by the Indenture Trustee is that their applicability to the matter under consideration is highly doubtful if not totally non-existent.
First, the Order involved is not a final judgment or decree which represents a final resolution of a precise issue raised in litigation between a plaintiff and a defendant in an ordinary civil suit. On the contrary, in the last analysis it is nothing more than an order entered by the bankruptcy court under its overall supervisory power of administration of estates and the Order deals with the administration of the estate of a debtor involved in a Chapter X corporate reorganization case. Thus, the Order of March 18, 1985 is no different from any other discretionary orders entered in the course of administration of the estate, such as orders directing the payment of interim dividends or orders making interim allowances to parties seeking compensation. There is nothing in Chapter X of the Act of 1898 (now repealed) which provides a precise mandatory timetable for distribution of dividends unless the confirmed plan itself calls for payment of dividends pursuant to a precise fixed time schedule, which is not the case in the present instance. Thus, the question really boils down to this: should this Court permit the Trustee to withhold distribution of the funds on hand pending the resolution of the appeal in order to protect the Trustee and the interest of the estate on equitable grounds, or shall this Court enforce the order of March 18, 1985 and direct distribution of the funds on deposit in order not to delay the bondholders until the appeal is resolved. To choose the appropriate method to follow between the two possible alternatives, in the absence of a controlling statutory provision, this Court must, of course, as a court of equity, apply equitable principles. In doing so, it is necessary to balance the respective interest of the bondholders, the interest of the Trustee and the interest of the general estate and the harm which might ensue if distribution is ordered to be made now or is withheld. To resolve this issue, one must consider the possible harm the Trustee may be exposed to if he is required to make distribution.
There is authority to support the proposition that the Trustee is not personally liable in the event he distributed the funds on hand pursuant to an order of distribution and he is unable to recover the dividends paid if the order of March 18, 1985 is reversed. In re Lilyknit Silk Underwear Co., 73 F.2d 52 (2d Cir.1934) and United Properties, Inc. v. Emporium Department Stores, Inc., 379 F.2d 55, 71 (8th Cir.1967). However, both cases indicate that the Trustee must attempt to recover the improperly paid dividends. This task as indicated earlier, would impose a totally unjustified oppressive burden not only on the Trustee, but on the entire estate in this instance. Even if the Trustee would be required only to write demand letters to the thousands of recipients of the improperly distributed dividends in order to meet the mandate of Lilyknit and United Properties, this would be not only unduly burdensome, but also very expensive. Moreover, this course of action most likely would not suffice and the Trustee would be required to institute legal actions against bondholders who ignored the Trustee’s demand letters in order to meet the mandate of Lilyknit and United Properties. In addition, the obvious futility of this course *383of action needs no detailed elaboration in this particular case considering the number of bondholders involved, their age and their residences. A vast number of these bondholders are elderly, many of them have already passed away and their claims are involved in probate proceedings involving several heirs or are already held by numérous heirs scattered all over the globe.
The bondholders have already received very substantial dividends and the funds on hand, if not distributed, continue to earn dividends, thus increasing the funds available for ultimate distribution. Considering the interest of the bondholders balanced against the possible harm to the Trustee and the estate, it is clear that the delay in distribution would not create an unwarranted undue hardship on them.
In light of the foregoing, this Court is satisfied that the Trustee should not be required to make distribution pursuant to the order of March 18, 1985, pending resolution of the appeal. Accordingly, it is
ORDERED, ADJUDGED AND DECREED that the Trustee’s Application for Relief be, and the same hereby is, granted and the effectiveness of the Order of March 18, 1985 is deferred pending the resolution of the appeal filed by the Brewers challenging the propriety of the Order of March 18, 1985. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8490067/ | ORDER ON DEFENDANTS’ MOTION TO DISMISS
BURTON PERLMAN, Bankruptcy Judge.
Plaintiff, trustee for the debtor, filed a complaint December 5, 1984 for specific performance of a real estate purchase contract. Plaintiff alleges that he assumed an executory contract for the purchase of real estate which had been entered into on August 25, 1984 by the debtor as seller, and the defendants, as buyers. The plaintiff further alleges that he was notified prior to the scheduled closing date that the defendants did not intend to purchase the property because they could not obtain financing and that they would not attend the closing. Plaintiff further alleges he was at all times ready, willing and able to convey the property. The plaintiff has attached and made part of the complaint a copy of the purchase contract and the motion and order allowing the trustee to assume the contract.
No answer or responsive pleading was filed until February 25, 1985 when defendants filed a motion to dismiss. The memorandum filed along with the motion states that the complaint should be dismissed because plaintiff has failed to state a cause of action upon which relief can be granted. The defendants argue that the purchase contract states that it becomes void if the defendants could not obtain financing of a specified nature by September 27, 1984 and plaintiffs complaint fails to allege that defendants were able to obtain the necessary financing.
About one month later, before any responsive memorandum was filed, the defendants filed an affidavit of defendant Garry Brasch. Much later, on May 28, 1985, plaintiff responded to the motion to dismiss and also moved to amend his complaint attaching two affidavits and a document from a bank. Defendants did not respond to plaintiffs motion to amend his complaint.
Defendants have captioned their motion as a Motion To Dismiss Pursuant To F.R. Civ.P. 12(b)(6). In ruling on this type of motion to dismiss, the court is permitted to look only to the complaint to determine whether it states a cause of action. Therefore, we will exclude any consideration of the affidavits and other documents submitted by the parties in ruling on this motion.
Defendants’ motion to dismiss is well taken. The contract attached to the complaint shows that there is a condition precedent that the buyers be able to obtain financing in the amount of $125,000 at prevailing interests rates by September 15, 1984. This date was extended by an addendum to the contract until September 27, 1984. The contract states that the purchase agreement is null and void if this condition is not met. Plaintiff fails to allege in his complaint that this condition has been met. With this omission the facts alleged in the plaintiffs complaint, even if true, are insufficient to state a cause of action against these defendants. Accordingly, we grant the defendants’ motion to dismiss.
Further, we grant plaintiff’s motion to amend his complaint. Pursuant to F.R.Civ.P. 15(a) leave to amend a pleading should be freely given when justice so requires. In the present case justice requires that the plaintiff be able to amend a technical omission in the complaint. The defendants have not provided us with any memorandum contra to plaintiff’s motion. Plaintiff shall have twenty (20) days from the date of this order to file an amended complaint. This case will be dismissed if an amended complaint is not timely filed.
We further note that F.R.Civ.P. 12(b) would allow us to consider the various affidavits and documents presented by the parties and treat defendants’ motion to dismiss as one for summary judgment. As indicated above we have declined so to treat the motion. We note, however, that we have reviewed the various affidavits and documents, and it appears to us that sum*406mary judgment would not be available in any case because an issue of fact exists.
SO ORDERED. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8490068/ | MEMORANDUM DECISION AND ORDER
JON J. CHINEN, Bankruptcy Judge.
The issues before this Court are as follows:
1. Which entities are required to make contribution to the Referee’s Salary and Expense Fund (“Referee’s Fund); and
2. What is the proper amount of contribution by each entity?
Following a hearing, on September 25, 1984, this Court issued its Findings of Fact and Conclusions of Law, wherein it held that the liens which were released at the beginning and at the end of the escrow were to be included in the basis for the calculation of the Referee’s Fund. This means that the $4,500,000.00 paid to release the liens against the estate prior to the close of escrow are to be added to the $100,000.00 paid to the Trustee for a grand total of $4,600,000.00.
The estimated value of Debtor’s property was $4,100,000.00 with the building permits preserved in existence under the protection of the bankruptcy court. In contrast, the estimated value of the Debtor’s property without the permits was between $2,300,-000.00 and $2,500,000.00.
Some of the secured lienholders claim that, based on the estimated value of the property, they should not be surcharged for the Referee’s Fund because they would have been paid with or without the building permits. These secured creditors cite the following cases in support of their claim: In re Street, 184 F.2d 710 (3rd Cir.1950) and In re La Rowe, 91 F.Supp. 52 (D.Minn.1950).
And, Charles Pankow Associates contends that, since In re Street and In Re La Rowe only address the issue of whether a surcharge should be levied against a mort*411gagee and since it is not a mortgagee, it should not be sucharged for the Referee’s Fund.
On the other hand, the Trustee and some of the lien creditors contend that, all entities which benefitted by the protection of the umbrella of the Bankruptcy Court should pay a portion of the amount they had received as their share of the Referee’s Fund. These creditors rely on the following cases, among others: In re Williams, 2 B.R. 563 (Bankr.D.Del.1980) and In re Pioneer Sample Book Co., Inc., 374 F.2d 953 (3rd Cir.1967).
The means used by the Trustee to pay all those who claimed to be creditors of the Debtor’s estate was the Joint Development Agreement which he had executed with SAJE Ventures II. At the hearing on the Application for Approval of the Joint Development Agreement, all the creditors in unison approved the Agreement since they felt that the Agreement was the only means or hope by which they could realize the full return of their claims. There was no opposition to the Joint Development Agreement.
In In re Williams, 2 B.R. 563 (Bankr.D.Del.1980), the only asset of the estate was a parcel of land. Initially, it was believed that the property was encumbered by a single mortgage and that there was a small amount of equity for the unsecured creditors. The property was sold through the Bankruptcy Court without any opposition by the first mortgagee. After the sale, it was learned that there were two other liens on the property and that the proceeds realized were sufficient to pay the first mortgagee in full, a portion of the second lien and none of the third. The Court held that, since the first mortgagee had acquiesced to the bankruptcy administration of the property, it should bear a pro rata portion of the costs of the bankruptcy administration, including a contribution to the Referee’s Fund.
Likewise, in In re Pioneer Sample Book Co., 374 F.2d 953 (3rd Cir.1967), the debt- or’s property was sold at public auction through the auspices of the bankruptcy court, which resulted in a deficiency of the claim of the secured creditor holding a lien on substantially all of the estate’s assets. The bankruptcy court ordered that all costs of administration, including the contribution to the Referee’s Fund, be paid out of the proceeds of the sale, and that the balance be paid to the secured creditor.
In affirming the order of the bankruptcy court, the court of appeals stated as follows:
In permitting the secured assets to be sold and administered in bankruptcy, the secured creditor Globe necessarily consented that the disposition and distribution of its security be the principal business of the trustee and receiver. Thus, the liened assets should bear their share of these costs, determined by the proportion of the entire estate represented by these assets.
Id. at 961.
In the instant case, though the estimated value of the property without the special building permits was between $2,300,000.00 and $2,500,000.00, there was no assurance that an auction would have realized such amount. Thus, all the secured creditors were in favor of the Joint Development Agreement and sought to remain within the protective walls of the bankruptcy court, rather than going forth beyond such protection and seeking their fortune in the hostile world, where forces were eagerly waiting to take away the special building permits.
The Bankruptcy Court is a court of equity. Where a secured creditor seeks the protection and assistance of the bankruptcy court, it is only equitable that such secured creditor bear its share of the costs of administration. In re Williams, 2 B.R. 563 (Bankr.D.Del.1980); In re Pioneer Sample Book Co., 374 F.2d 953 (3rd Cir.1967).
Since the secured creditors agreed to have the Bankruptcy Court supervise the development of the land in question rather than holding a foreclosure auction outside of the Bankruptcy Court and there*412by risk losing the special building permits, the Court finds both In re Street and In re La Rowe, which were relied upon by the secured creditors, not applicable to the facts of the instant case.
The Court finds that it is only fair and equitable that all creditors of Debtor’s estate, secured and unsecured, who received payments during the pendency of the escrow for the sale of the property in question, bear their share of the Referee’s Fund.
IT IS HEREBY ORDERED, ADJUDGED AND DECREED as follows:
1. The Trustee will forthwith determine the total amount that had been paid to creditors of Debtor’s estate, both secured and unsecured, during the pendency of escrow.
2. The Trustee will determine the amount due to the Referee’s Fund based upon the amount above determined, plus the $100,000.00 paid to the Trustee by SAJE Ventures II.
3. The Trustee will then surcharge each of the creditors of Debtor’s estate, secured and unsecured, paid during the pendency of escrow, a pro-rata share of the amount due the Referee’s Fund.
4. Upon receipt of notice of such surcharge, the creditor will pay the amount surcharged within 30 days from the date of the notice. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8490070/ | MEMORANDUM
RALPH H. KELLEY, Bankruptcy Judge.
The debtor-in-possession brought this action to avoid the defendant’s lien on real property and security interest in personal property. The dispute as to the security interest in personal property has been resolved. The question for the court to decide is whether the defendant has a perfected lien on the real property.
The defendant and his wife sold the real property to N.G.A. Welding Co., Inc., which was the predecessor to the debtor-in-possession. The deed provides that payment of the purchase price “is secured by a vendor’s lien which is hereby retained on the real estate hereinafter described”. The deed also provides that “as further security for the payment of said note and to more easily enforce its collection, the grantees have executed to The Title Guaranty and Trust Company of Chattanooga, Trustee, a Deed of Trust on said real estate, containing a full power of sale, etc., but it is agreed and understood that an entry of the release of said note ... will release both the vendor’s lien retained in their deed and the lien created by said Deed of Trust whether the said Deed of Trust be recorded or not”.
In In re McConkey the court dealt with a deed from Wallmac Corporation to McConkey that provided in part:
“to secure payment of which notes a VENDOR’S LIEN is expressly retained *531on the hereinafter described Real Estate, and to further secure payment of each of said notes ... the said Grantee, or Trustee, has executed simultaneously herewith a DEED OF TRUST to Milligan-Reynolds Guarantee Title Agency, Inc., Trustee....
Wallmac admitted that there was no such deed of trust. In re McConkey, No. 1-76-1439 (Bankr.E.D.Tenn., Feb. 2, 1978) (Certified Electric v. McConkey).
During the building of a house on the property by McConkey, Certified Electric furnished materials and labor for which it was not paid, and obtained a mechanic’s and materialman’s statutory lien.
Certified Electric argued that Wallmac did not have a vendor’s lien or was not relying on the lien reserved in the deed. The court disagreed after careful consideration of several Tennessee cases, in particular Prichard Bros. v. Causey, 158 Tenn. 53, 12 S.W.2d, 711 (1929); Bridges v. Cooper, 98 Tenn. 390, 39 S.W. 722 (1896); Ragan v. Howard, 97 Tenn. 334, 37 S.W. 136 (1896). The court also relied on Lee v. Gibson, 104 Tenn. 698, 58 S.W. 330 (1900). The court concluded:
The court cannot see that the vendor, Wallmac, failed to establish its vendor’s lien or waived it or any priority that it might have by failing to have the deed of trust executed. The vendor’s lien is independent of the deed of trust. The deed reserving the vendor’s lien was recorded on July 25, 1975. The plaintiff, Certified Electric, has not shown that it was prejudiced by Wallmac’s and McConkey’s failure to carry out strictly the recitations of the deed as to the time of execution of other documents.
The court sees no reason in this case to reach a different conclusion. The deed, with the vendor’s lien expressly reserved, was recorded so that any party subsequently acquiring an interest in the land would be on notice of the lien. A subsequent party could not reasonably rely on the absence of a recorded deed of trust as showing that the Walkers had no lien. Furthermore, the language of the deed with regard to an entry in the real estate records of a release shows that the Walkers intended to rely on the vendor’s lien without regard to whether a deed of trust was ever recorded. A deed with an express vendor’s lien might be worded to show the vendor’s intent to waive the lien in favor of a deed of trust, but a subsequent party should, as a matter of common sense, expect the waiver to take effect only if a properly executed deed of trust was in fact recorded. Thus, the court concludes that an express vendor’s lien can seldom, if ever, be waived by providing in the deed for execution of a deed of trust.
The debtor-in-possession has relied on cases involving waiver of the vendor’s implied lien. The vendor’s implied lien is not really a lien but is the vendor’s right enforced by the courts of equity to have the property back if the purchaser fails to pay the purchase price. The lien is effective as to subsequent parties only from the time suit is brought since only then will they have notice of the vendor’s claim Savings, Building & Loan Ass’n v. McClain, 18 Tenn.App. 292, 76 S.W.2d 650 (1934). Waiver of the implied lien makes sense when the deed provides for execution of a deed of trust but does not reserve an express vendor’s lien. The court has already pointed out that waiver of an express vendor’s lien by providing for execution of a deed of trust generally does not make sense.
The deed in this case reserved and gave notice of the express vendor’s lien from the time of recording. The debtor-in-possession cannot have any superior rights in the property under Bankruptcy Code § 544. 11 U.S.C.A. §§ 544 & 1107. Thus, the court concludes that the defendant has a vendor’s lien on the property superior to the rights of the debtor-in-possession.
This memorandum constitutes findings of fact and conclusions of law as required by Bankruptcy Rule 7052. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8490071/ | DECISION AND ORDER ON MOTION TO DETERMINE WHETHER A CONFLICT OF INTEREST- EXISTS
BURTON PERLMAN, Bankruptcy Judge.
Stuart Brinn, Esq., attorney for the trustee in bankruptcy of debtor Harry G. Byrd, Jr. requests a determination as to whether a conflict of interest exists by reason of that representation in view of the following facts.
Brinn was employed as special counsel by the trustee “for purposes of setting aside transfers of stock, real estate and personal property.” Pursuant to that appointment, Brinn filed two adversary cases. One case is the instant one in which Aero Marine, Inc. and Aero Marine Fuel Sales, Inc. are defendants. The other case is Adversary No. 1-84-0224 in which there is a single defendant, and that defendant is an individual. The present motion arises only in the former adversary proceeding. Brinn perceives a possible problem because his firm is collecting accounts on behalf of the Central Trust Company, N.A. against Aero Marine, Inc. and Aero Marine Fuel Sales, Inc., defendants herein. Brinn sees the fact that his firm “would be representing two different parties against the same defendants,” as that problem.
In the instant case, the real defendant is Lois Patterson, and the gravamen of the complaint is that debtor made a voidable transfer of stock of Aero Marine, Inc. and Aero Marine Fuel Sales, Inc. to Ms. Patterson. The two corporations are included as defendants only so that they might be ordered to correct their corporate records in the event that plaintiff is successful in obtaining a retransfer of stock from Ms. Patterson. It seems to us that representation as special counsel in this case under the circumstances mentioned does not conflict with representation against the same parties on behalf of a party seeking to collect an account from them.
Providing that the Central Trust Company, N.A. and the Trustee are informed of both representations and do not object, we perceive no conflict of interest between continued representation of such parties by Brinn and/or his law firm.
SO ORDERED. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8490072/ | DECISION AND ORDER ON MOTION FOR RELIEF FROM STAY
BURTON PERLMAN, Bankruptcy Judge.
In this Chapter 11 case, a secured credi-' tor of debtor, Simon and Simon, (hereinafter “creditor”), moves to have the stay which arose by reason of 11 U.S.C. § 362 lifted so that it may proceed against its collateral. Debtor resists the motion on grounds, first, that there is an executory contract involved which it has a right to assume pursuant to 11 U.S.C. § 365(a) and (b). In the alternative, debtor contends that creditor is adequately protected, the claimed adequate protection being by way of an equity cushion.
Debtor is in the business of operating a night club named San Antonio Rose located in Mt. Carmel, Ohio. Creditor sold the business to debtor, its secured position having arisen in connection with the sale. A closing on the sale occurred May 29, 1984. *658The purchase price was $130,000.00. Debt- or paid $50,000.00 down and gave a promissory note for $80,000.00 to creditor. The promissory note called for payments of $1,779.56 per month beginning July 10, 1984, to be paid out July 10, 1988. An interest rate of 12% was provided. The promissory note was secured by “all fixtures and equipment and all items used in connection with the operation of “San Antonio Rose” at 555-B Cincinnati-Batavia Pike, Cincinnati, Ohio 45244, including but not limited to the good will, name and all other property of every kind and description owned and/or controlled by the debtor in connection with said business including and and (sic) all rights and/or equities accruing to debtor by reason of the issuance of permits to the debtor by the Ohio Department of Liquor Control.”
In connection with the sale the parties entered into a Management Agreement whereby debtor could operate the business with the benefit of the liquor license, though the liquor license stood in the name of the creditor. The Management Agreement is a common subterfuge utilized in connection with the transfer of businesses of this type so that the purchaser may operate the business during the period that the liquor license is in the process of being transferred, for that process generally consumes a considerable period of time. While debtor made application to the Ohio Board of Liquor Control for a transfer of the liquor license at about the time of the sale of the business, the license was not in fact transferred until January 1985. In the meantime, because debtor was failing to make payments as required by the promissory note and because of its perception of a deterioration in the business, creditor, pursuant to a provision in the Management Agreement, sent debtor a letter of cancellation of the agreement which was received by debtor November 10, 1984.
Payments on the promissory note were made from July 1984 through October 1984. A partial payment of $500.00 was accepted by creditor on November 5, 1984. Debtor subsequently tendered another check in the amount of $579.00, but creditor did not accept it.
Further, as part of the sale of the business, the lease for the premises occupied by the business were assigned to the purchaser. Debtor thereby became obligated to pay rent in the amount of $1,900.00 per month. No payment on the lease or of taxes was made by debtor after the October 1984 rent was paid.
The facts thus are simple. The record before us is silent as to whether the club was a thriving business at the time of transfer to debtor, but it is clear that by the fall of 1984, within a very few months after the acquisition by debtor, debtor was unable to continue the payments which it had agreed to make on its promissory note to creditor and in addition had stopped paying rent to the landlord. While there was no direct testimony on the subject at the hearing, it is fair to infer that things were not going well with the business. There was testimony on behalf of creditor that the failure to make payments on the obligations of the business was accompanied by very bad practices in the operation of the business and deterioration of the furniture and equipment at the premises. In these circumstances, creditor lost no time before trying to retrieve the business and took action to this end in the state court. Debtor thereupon at the beginning of December 1984 responded by filing this Chapter 11 case. Creditor contends that it should not be deterred from securing the relief to which it deems itself entitled beca-sue of the bankruptcy proceeding.
The Bankruptcy Code at 11 U.S.C. § 362(g) provides with regard to burden of proof on a motion such as that before us, that the creditor has the burden of proof on the issue pf debtor’s equity and property, while the debtor has the burden of proof on all other issues. The battleground on which the present controversy is being played out is § 362(d)(1), not § 362(d)(2). In the latter statutory provision the question of debtor’s equity in property is relevant, while it is not per se in the former. *659Debtor therefore has the burden of proof on all of the questions with which we are here dealing. The first of these is debtor’s contention that the agreement between the parties was executory and is subject to being assumed by debtor. Specifically, while debtor agrees that the sale of the business was concluded on the closing date, there remained open the Management Agreement, and somehow this rendered the entire transaction executory. We cannot agree with this view.
The flavor of the Management Agreement may be deduced from the following language in the offer to purchase the business by debtor:
That a management contract be used to allow the Buyers to operate the business during the liquor license transfer. This management contract, to be the standard form supplied by Terrance R. Monnie, Escrow attorney, and recognized by the Department of Liquor Control.
Thus, the Management Agreement was merely a convenient device to allow a purchaser to operate a business following the purchase of an establishment depending on a liquor license prior to the time that the license could be formally transferred to the purchaser. There can be no doubt that the liquor license was an essential asset of the club being sold by creditor to debtor, and we deem it immaterial to the present proceeding that it took some time for completion of the transfer to the purchaser to occur. Upon the conclusion of the sale of the business on May 29,1984, we are satisfied that the transaction was no longer executory, applying normal bankruptcy criteria to the term “executory.” See, In re Total Transportation, 37 B.R. 904 (Bankr.S.D.Ohio 1984); In re Biron, Inc., 23 B.R. 241 (Bankr.S.D.Ohio 1982). Having concluded that the transaction between the parties was not executory, we find that debtor’s first line of defense to creditor’s present motion is without merit.
We proceed then to the question of adequate protection. Two specific varieties of adequate protection are prescribed at 11 U.S.C. § 361(1), (2), periodic cash payments, and additional or replacement lien respectively. Debtor does not propose either of these species of adequate protection. Instead, debtor urges that there is an equity cushion sufficient to insulate creditor from loss during the interim period until a plan is proposed. Equity cushion has come to be commonly relied upon as adequate protection. See, In re Mr. D. Realty Company, 27 B.R. 359, 364 (Bankr.S.D.Ohio 1983); In re Curtis, 9 B.R. 110, 112 (Bankr.E.D.Pa.1981). In support of its contention, debtor offered the testimony, first, of one who held himself out to be a prospective purchaser of the business. His offer was in the amount of $100,000.00. We do not accept this evidence as any indication of fair market value of the business, the crite-rian which is to be applied. See, In re Roe Excavating, No. 1-84-01952, (Bankr.S.D. Ohio Sept. 7, 1984). At best, the offeror’s proposal is one for a work-out. It was not arrived at by a valuation process, but rather by recognizing the various obligations of the business, placing a value on each of them, and from the total formulating a proposal. That this process is merely a bargaining tool, and not evidence of value, is clear from the fact that one of the components of the offer is the amount to be paid to the present creditor. The claim of that creditor is in the vicinity of $80,000.00, yet the proposal assigns to creditor, with no indication whatever that creditor would find it acceptable, the amount of $41,-000.00.
In addition, in support of its position, debtor adduced the testimony of a person experienced in the night club field. His testimony was sketchy at best. He offered the opinion asserted to be based upon his general experience, that regardless of the condition of a facility, presumably so long as there was a roof, running water and utilities, it would be worth in the vicinity of $100,000.00. While this witness asserted that he had had occasion to value a number of properties, no evidence of any sale was *660offered. We assign but limited value to this testimony.
Creditor also offered opinion evidence as to the value of the business. Creditor’s witness was a commercial realtor with significant experience. He offered the opinion that the hard assets including inventory were worth $45,000.00. To this he added $10,000.00 for the liquor license and $20,-000.00 for any other asset, making a total of $75,000.00 for the business. Again, while the witness testifying to these matters indicated that he had made appraisals in a number of other establishments, no evidence of comparable business values were offered.
The appraisal of property always raises difficult questions because one is not dealing with certainty, but rather with the speculative. Among the difficulties in such cases for the court is the inevitability of the production by the attacking party of a low valuation, and of the resisting party, of a high valuation. In view of these commonalities in cases involving appraisals, we will not in this case, because it is unnecessary, reach a hard and fast conclusion as to ■ a value of the business known as San Antonio Rose. It is unnecessary because, even given the value contended for by debtor, no sufficient equity cushion is present. The evidence shows that upon the sale of San Antonio Rose from creditor to debtor, a commission to the broker in the amount of $10,000.00 was paid. A like expense must be anticipated upon any further sale. Clearly the expenses of sale reduce the valuation presented by debtor below a point where adequate protection to creditor is present.
Accordingly, we hold that cause has been shown for the lifting of the § 362 stay by reason of the failure of debtor to make scheduled payments on its promissory note to creditor, and there is a lack of adequate protection for creditor. We therefore order that the stay be lifted so that creditor may proceed to enforce its security agreement.
SO ORDERED. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8490073/ | OPINION
DAVID W. HOUSTON, III, Bankruptcy Judge.
CAME ON for consideration the priority of liens dispute between the United States Small Business Administration, hereinafter referred to as SBA, and Guaranty Bank and Trust Company, hereinafter referred to as Guaranty Bank; all parties being represented by their respective attorneys of record; on a factual stipulation approved by all parties; on proof in Open Court; and the Court having heard and considered same, finds as follows, to-wit:
*677I.
This case involves a priority of liens dispute between two creditors of the debtors, Whatley Farms, Inc., John W. Whatley and wife, Ruby L. Whatley. Although this proceeding would be denominated as a “non-core” proceeding as defined in 28 U.S.C. § 157(c), the two creditors and all of the debtors have consented to trial before this Court, as well as, that this Court might enter a final order following said trial ap-pealable at the election of any of the parties pursuant to 28 U.S.C. § 158.
FACTUAL BACKGROUND
On October 28, 1975, the Secretary of State of the State of Mississippi issued a certificate of incorporation to the corporate debtor, Whatley Farms, Inc., with the individual debtors, John W. Whatley and Ruby G. Whatley, listed as incorporators. The certificate of incorporation and its proof of publication were filed in the Office of the Chancery Clerk, Humphreys County, Mississippi, on November 17,1975, and recorded in Book of Charters No. 5 at page 293. The corporate minute book of Whatley Farms, Inc., contains the certificate of incorporation, but no minutes of organizational meetings, i.e., a meeting of incorpo-rators or the initial meeting of the original board of directors, as well as, contains no signed corporate minutes for any meetings of the board of directors or of the shareholders. However, there are unsigned minutes for a special board of directors meeting dated April 9, 1976, and a resolution of the stockholders and directors dated May 24,1984. The only executed corporate document, other than the certificate of incorporation, was a resolution in the possession of SBA, dated November 11, 1981, authorizing the corporation to make application to SBA for a loan not to exceed $158,600.00, specifically including the authority to mortgage or pledge the assets of the corporation as security for the loan. The corporate stock of Whatley Farms, Inc., has never been issued and all the printed stock certificates found in the corporate record book remain in blank.
The initial balance sheet which was introduced into evidence reflected a note receivable as a corporate asset due to the corporation from Mr. and Mrs. Whatley in the sum of $52,588.94. On this same balance sheet, a value of the corporate stock was arbitrarily designated at $10,000.00. The corporate accountant designated a value for the farm equipment when creating this balance sheet and offset this value with the amount of the indebtednesses owed against the equipment. The stock valuation and the amount of the note receivable due from the Whatleys were then “plugged” to balance the assets against the liabilities and stockholders equity. § 79-3-111, Mississippi Code of 1972, as amended, was totally disregarded which requires the payment of the value of at least $1000.00, for the issuance of corporate stock prior to the transaction of any business. The preparation of the initial balance sheet amounted to no more than an artificial accounting transaction with no actual cash or value infusion being made by the Whatleys. The fact that a note receivable was established strictly violates the provisions of § 79-3-89, Mississippi Code of 1972, as amended, which prohibits loans being made by a corporation to its officers or directors.
There is no evidence in writing of a bill of sale, deed, or other instrument, except for book entries made by the corporate accountant in the depreciation schedules established for the corporation, that any personal property of any kind was ever lawfully transferred into the corporation by John W. Whatley, Ruby G. Whatley, or any other person, firm, or legal entity.
After incorporation, Whatley Farms, Inc., opened a corporate checking account at the Cleveland State Bank, Cleveland, Mississippi, and utilized this account regularly conducting business activities, including specifically the payment of several obligations to Guaranty Bank and Trust Company. However, as mentioned previously, there was no evidence introduced reflecting that this checking account was ever authorized through the corporate minutes or by a corporate resolution. For all practical purposes, the corporation was a vehicle uti*678lized by the corporate accountant for income tax purposes only. The items of machinery and equipment were depreciated annually on the corporate tax return and considered, somewhat unwittingly in a legal context, by the accountant as corporate assets from the inception of the corporation until the present.
After the issuance of the certificate of incorporation on October 28, 1975, John W. Whatley continued to purchase farm equipment in his personal name and financed these purchases through loans made by Guaranty Bank and Trust Company. These loans were secured by the execution of security agreements and UCC-1 financing statements, encumbering the farm equipment, in favor of Guaranty Bank, several of which are identified hereinbelow:
PILED EQUIPMENT SECURED PARTY EXECUTED BY
1-03-76 699-JD Cottonpicker Guaranty Bank John W. Whatley
1-22-76 1-4166 Int. Tractor Guaranty Bank John W. Whatley
5-24-77 310 Steiger Tractor disc Guaranty Bank John W. Whatley
7-22-77 l-D-6 Caterpillar dozer Guaranty Bank John W. Whatley
9-11-78 M-F 760 Rice Combine Indianola Tractor Co. John W. d/b/a Farms Whatley, Whatley
1-17-79 1-MF Rice Combine Guaranty Bank John W. Whatley
1-19-79 1-JD Tractor, 2 dirt buckets Guaranty Bank John W. d/b/a Farms Whatley Whatley
3-07-79 2 Reynolds scrappers, drawbar Guaranty Bank John W. Whatley
5-31-79 1973 Sunshine Mobile Home Guaranty Bank John W. Whatley
7-19-79 1-JD Tractor & 2 Reynolds dirt buckets Guaranty Bank John W. Whatley, d/b/a Whatley Farms
7-08-80 2-14 yds. Reynolds dirt bucket, New PTA325 Panther Steiger tractor, 1-4840 JD Tractor Guaranty Bank John W. Whatley, d/b/a Whatley Farms
5-23-83 All equipment Guaranty Bank John W. Whatley
At the hearing, the representative of Guaranty Bank acknowledged that all of the loans made to the Whatleys prior to May 23, 1983, had been paid in full and the liens satisfied. Therefore, for purposes of this proceeding, the lien in dispute is that one created on May 23,1983, when the loan was made by Guaranty Bank to the individual debtor, John W. Whatley, secured by all of the farm equipment. The date of this lien is clearly subsequent to the date of the lien created in favor of SBA which is discussed immediately hereinbelow.
In 1981, the Whatleys relocated their farming business, including their machinery and equipment, from Humphreys County, which is located in the western portion of Mississippi, across the State to Kemper County, which is located along Mississippi’s eastern boundary. On November 11, 1981, Whatley Farms, Inc., entered into a loan transaction with SBA and executed a security agreement and UCC-1 financing statement which encumbered all machinery and equipment, excluding automotive, now owned or hereafter acquired, including but not limited to certain items of property described on a list appended to the UCC-1 financing statement. As mentioned herein-above, John W. Whatley, acting individually, executed a UCC-1 financing statement *679in favor of Guaranty Bank, recorded on May 23,1983, which purported to encumber all equipment used in his row crop or catfish operations, including but not limited to equipment described on an exhibit appended thereto. Although both financing statements purported to cover “all equipment”, the following items are specifically encumbered by the financing statement in favor of SBA, as well as, the financing statement in favor of Guaranty Bank, to-wit:
One (1) 1974 IH 1466 Tractor, S/N 25265
One (1) 1971 IH 1466 Tractor, S/N 9345
One (1) 1967 IH 1206 Tractor, S/N 14913
One (1) 1974 JD 830 Tractor, S/N 110605
One (1) 1969 Gleaner F. Combine, S/N 7543
One (1) 1976 Case 580 Backhoe
One (1) 1973 JD 4630 Tractor, S/N 002321
One (1) 1967 IH 806 Tractor, S/N 42043
One (1) 1973 D-6 Caterpillar, S/N 10K6771
On April 23, 1984, John W. Whatley and Ruby L. Whatley filed their voluntary Chapter 11 petition with this Court, and on June 5, 1984, Whatley Farms, Inc., filed its voluntary Chapter 11 petition.
DISCUSSION OF THE ISSUES
As to the resolution of the priority of liens dispute, the Court must first reach a decision as to which person or entity lawfully owned the machinery and equipment, and as such had the authority to pledge these assets as collateral for a loan. At this point, it is not the function of this Court to determine whether the individual debtor, John W. Whatley, who is also a personal guarantor of the SBA loan, intentionally permitted this machinery and equipment to be pledged to two separate lenders. The Court is only called upon to resolve the priority dispute between SBA and Guaranty Bank and Trust Company. Since there was no requirement at the time that these loans were negotiated that a duplicate filing of the UCC-1 financing statements be made with the Secretary of State of the State of Mississippi, there is no question that both of these creditors acted in good faith. The factual circumstances existing in this case, including specifically the Debtors’ relocation, the existence of more than one legal entity, and the mobility of the equipment, contributed to these two creditors not being aware of the filing of duplicate liens. Rendering a decision in this case is extremely difficult in view of the fact that the factual circumstances present an extremely close question. The legal position of each of the respective creditors has both pluses and minuses, and neither position heavily outweighs the other. Therefore, this dispute must be resolved based on a preponderance of the evidence, i.e., in which creditor’s favor do the scales of justice tip, even if only slightly.
The testimony of Mr. Whatley must be given careful consideration in the resolution of this dispute. It is important to remember that he is individually liable on each of the two loans. Mr. Whatley stated unequivocally that he thought that the machinery and equipment belonged to him rather than to the corporation and that it was his intention to grant an exclusive lien to Guaranty Bank when he entered into the loan transaction in May, 1983. He also advised that a portion of the proceeds of the Guaranty Bank loan were utilized to satisfy an existing indebtedness to Merchants and Farmers Bank, Scooba, Mississippi, (Kemper County) which in his opinion held a first lien on the equipment prior to the Guaranty Bank loan. Mr. Whatley confirmed that the items of equipment were purchased by him in an individual capacity, as well as, that he had executed no bill of sale or other document conveying title to the equipment to Whatley Farms, Inc. Mr. Whatley’s testimony was largely corroborated through the testimony of his wife, as well as, through the testimony of Bruce Dunlap, the representative of Guaranty Bank, who indicated that he thought that his lending institution was receiving a first lien on the equipment when the May, 1983, loan was consummated. Dunlap also advised that he was totally unaware of the *680existence cf Whatley Farms, Inc., until the filing of the bankruptcy cases.
The Court is well aware that the lien documents in favor of SBA were executed and recorded prior to the lien documents in favor of Guaranty Bank. However, the purported SBA lien was granted by an entity that was not legally organized (see § 79-3-51, 53, 69, 89, 99, 111, 113, etc., Mississippi Code of 1972, as amended), and which had no legal title to the equipment pledged as collateral. In the considered opinion of this Court, the bookkeeping entries were ineffective to legally vest ownership of the equipment in the corporation. For these reasons, coupled with the intentions and understanding of the individual debtors, the lien of SBA as to the farm machinery and equipment must fail. Succinctly stated, Whatley Farms, Inc., had no legal capacity to grant a lien on property which it did not own. Therefore, the lien of Guaranty Bank is determined by this Court, based on a preponderance of the evidence, to be superior to the purported lien created through the SBA loan transaction.
An Order will be entered consistent with this Opinion. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8490075/ | DECISION
BURTON PERLMAN, Bankruptcy Judge.
In this adversary proceeding, plaintiff, former spouse of debtor/ defendant, seeks a judgment holding nondischargeable certain debts alleged to be in the nature of alimony. The matter came on for trial after the filing by the parties of Stipulation of Damages and Certain Facts. We set forth the following facts taken from the Stipulation and these will be part of our findings of fact.
The parties were married August 21, 1964 and are the parents of three children. The parties separated in 1982 and on March 24, 1982 signed a Separation Agreement. A Decree of Dissolution was entered in the Common Pleas Court of Shelby County, Ohio May 26, 1982. On that date all three of the children of the marriage were minors, but the oldest turned eighteen on June 18, 1983. The Separation Agreement was incorporated into the Decree of Dissolution. It was provided that child support be paid at the rate of $20.00 per child per week.
The Decree modified the Separation Agreement by mandating a time limit of ten years for the sale of the jointly owned residence occupied by plaintiff and the children, and providing for disposition of proceeds at the sale. At the time of the dissolution the parties owned a residence subject to a mortgage in the approximate amount of $35,000.00, and as to which monthly payments were $275.36. From the date of the Separation Agreement until September 29, 1984 when the residence was sold by the trustee by mutual agreement of the parties to a third party, defendant paid some but not all of the monthly installments of principal and interest on the mortgage. He fell behind in the total amount of $4,543.28. Because defendant filed bankruptcy and did not keep up the monthly mortgage payments, plaintiff was forced to accede to the trustee’s demands for sale of the real property. This was at a price considerably lower than that of an earlier appraisal. Plaintiff was forced to leave the *696residence in order to obtain a suitable rental property. She remarried on September 29, 1984.
In the Stipulation of Fact the parties set forth their respective contentions with regard to the factors bearing upon the fixing of the amount which defendant ought to pay if judgment is rendered against him. Plaintiff contends that she is entitled to a greater amount because of the forced sale caused by defendant, while defendant contends that the amount should be lower because plaintiff failed to maintain the property properly. The parties in lieu of litigating that amount have agreed to set the damage figure at $4,543.28. The Stipulation also recites that both plaintiff and defendant work for the same employer, and their 1981 incomes were $22,617.00 for defendant and $12,958.00 for plaintiff.
In addition to the foregoing facts, further facts emerged from the testimony of the parties, who were the only witnesses at the trial. Plaintiff testified that she is not now employed. She is unable to work because she suffers from a form of arthritis. Her arthritis is aggravated by stress, and it has been much worse since she was forced to move out of the residential property. Because she could not keep up the payments on that property, she moved out in May of 1984. She moved into rental property, the amenities of which were far inferi- or to the residential property she was obliged to vacate. Plaintiffs doctor required that she stop working and has advised her that she will not be able to work again. The child support payments fixed in the agreement are not adequate in and of themselves as child support. At the time that they were discussing the terms of their separation, defendant said that he would make the house payments so that the children would have a roof over their heads. Plaintiffs subsequent husband is helping plaintiff with her expenses.
Defendant was not represented by a separate attorney at the time of the separation. Actually, the terms of the agreement between the parties were mostly worked out between them at their home. There were a number of mutual bills, and each of them agreed to pay some. The house payments were one of the bills that defendant agreed to pay. Defendant fell behind on the house payments for a couple of months and when the mortgagee refused to settle the amount due, defendant was obliged to file bankruptcy.
Defendant has remarried. Both he and his wife work. His income is somewhat better than it was in 1982, and his present wife grosses about $200.00 per week. She has three children who live with them.
The question presented to us for resolution is whether the stipulated amount, $4,523.28, the amount which defendant failed to pay on the mortgage on the residence, though he had agreed to make such payments in the Separation Agreement, is dischargeable.
The dischargeability question presented to us brings into play 11 U.S.C. § 523(a)(5) which provides:
(a) A discharge under section 727, 1141, or 1328(b) of this title does not discharge an individual debtor from any debt—
******
(5) to a spouse, former spouse, or child of the debtor, for alimony to, maintenance for, or support of such spouse or child, in connection with a separation agreement, divorce decree, or other order of a court of record or property settlement agreement, but not to the extent that—
(A) such debt is assigned to another entity, voluntarily, by operation of law, or otherwise (other than debts assigned pursuant to section 402(a)(26) of the Social Security Act, or any such debt which has been assigned to the Federal Government or to a state or any political subdivision of such state); or
(B) such debt includes a liability designated as alimony, maintainance, or support, unless such liability is actually in the nature of alimony, maintenance, or support;
*697In evaluating the respective rights of the parties in this case the following language from In Re Zimmer, 27 B.R. 132, 134 (Bankr.S.D.Ohio W.D.1983), is instructive:.
In this action under § 523(a)(5), plaintiff has the affirmative burden of proving the existence of a debt and that the debt in question is in the nature of alimony, maintenance, or support. In order to carry out that burden in the present circumstances, plaintiff would have to show for instance, that her continued residence in the marital home depended upon the mortgage payments being made and that she had indeed made such mortgage payments. That is, if plaintiff had shown that in the absence of defendant’s payments into the fund, she had to advance funds herself in order to remain in occupancy, this might have satisfied the requirement of the statute. It would have shown the existence of a debt, and that the debt was in the nature of alimony because it arose in order to provide a place for her to live. We have defined alimony as ‘an allowance for support and maintenance,’ and as ‘a substitute for marital support.’ In Re Diers, 7 B.R. 18, 21 (Bankr., S.D. Ohio 1980). Providing shelter for an ex-wife is clearly in the nature of alimony as support and maintenance of the former spouse.
On the present record, however, it is entirely possible that plaintiff remained in possession, was provided a home until the house was sold, notwithstanding that mortgage payments were not made. * * It cannot then be held that plaintiff has proved her case, for there is no evidence, first, of a debt owing plaintiff, which, secondly, had for its purpose the provision of alimony, maintenance or support.
The facts of the case now before us establish that there was no debt owed to plaintiff by this defendant. This does not, however, resolve the present question, because in a case decided in the Sixth Circuit subsequent to our Zimmer decision it was held that “payments in the nature of support need not be made directly to the spouse or dependent to be nondisehargeable.” In Re Calhoun, 715 F.2d 1103, 1107 (6th Cir. 1983). Nevertheless, we are unwilling to assess the entire amount stipulated to by the parties for the reason that while that amount is computed for the total number of monthly mortgage payments not paid by defendant until the residence was sold ($275.36 per month from May 1983 to September 1984), plaintiff was not deprived of occupancy of the house for most of that time, for she continued to occupy it until May of 1984. Defendant’s failure to make the mortgage payments deprived her of occupancy of the residence only for the months June through September 1984 when the trustee sold the residence, which coincided with the date when plaintiff remarried, thus terminating her right to look to defendant for alimony.
Consistent with the foregoing, we hold that plaintiff is entitled to a determination of nondischargeability for so much of the mortgage payments which became due between June and September 1984, and plaintiff shall have judgment in the amount of $1101.44. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8490076/ | DECISION AND ORDER ON MOTION FOR SUMMARY JUDGMENT
BURTON PERLMAN, Bankruptcy Judge.
Plaintiff initiated this adversary proceeding against defendant who is a debtor in this court. Plaintiff states it leased personal property consisting of plant equipment to the debtor. The debt owed it arose from that transaction. Plaintiff alleges that its debt is nondischargeable pursuant to 11 U.S.C. § 523(a)(2)(B), because defendant obtained the lease on the plant equipment by furnishing plaintiff with a false financial statement, and also pursuant to 11 U.S.C. § 523(a)(6) in that the defendant willfully and maliciously injured the proper*708ty by failing to maintain it in good working order and allowing it to be removed from the premises by employees without plaintiff’s consent.
Plaintiff has filed a motion for summary judgment asserting that there is no genuine issue of material fact that plaintiffs debt is nondischargeable pursuant to § 523(a)(2)(B). Plaintiff does not address the second cause of action for nondis-chargeability in the motion. Defendant filed a response memorandum.
The undisputed facts of the case in the record now before us show that the plaintiff leased equipment to the defendant pursuant to a lease agreement executed in August of 1982. The financial statement which is the subject of this litigation was executed by defendant February 26, 1982 and lists defendant’s total assets as $316,-400.00 and defendant’s total liabilities as $63,000.00 leaving a net worth of $253,-400.00. Included in the computation of assets is a $100,000.00 life insurance policy with a purported cash value of $30,000.00, plant equipment worth $24,000.00 and collectible silver worth $18,000.00. Defendant’s signature appears immediately below a statement that the financial statement is a “true and correct statement of the undersigned’s financial condition.”
The defendant stated at the Rule 2004 examination that he never had a $100,-000.00 life insurance policy with a $30,-000.00 cash value but instead had a policy worth $10,000.00 with a cash value of about $2,400.00. He also stated that he did have plant equipment in the form of two tow motors, one of which was sold to the partnership for $7,500.00, while the other was sold for $2,000.00. Defendant also stated he did have collectible silver in the form of Indian jewelry which was later sold for $1,100.00.
Based on the facts in the financial statement, the defendant’s testimony at the 2004 examination and an affidavit by a principal of the plaintiff, the plaintiff moves for summary judgment asserting that all of the elements of § 523(a)(2)(B) are met. That section reads:
(a) A discharge under section 727, 1141, or 1328(b) of this title does not discharge an individual from any debt—
******
(2) for money, property, services, or an extension, renewal or refinancing of credit, to the extent obtained 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 such money, or credit reasonably relied; and
(iv) that the debtor caused to be made or published with intent to deceive.
To prevail on its motion for summary judgment plaintiff must meet the statutory criteria set forth in Rule 56 of the Federal Rules of Civil Procedure made applicable to adversary proceedings in the bankruptcy court by Bankruptcy Rule 7056. Rule 56 reads, in part:
(c) ... The judgment sought shall be rendered forthwith if the pleadings, depositions, answers to interrogatories, and admissions of file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law.
The moving party on a motion for summary judgment has the burden “of showing conclusively that there exists no genuine issue as to a material fact ...” Smith v. Hudson, 600 F.2d 60, 63 (6th Cir.1979).
Plaintiff must support his motion for summary judgment with evidence that shows conclusively that there is no genuine issue of material fact that the written statement is materially false, that it respected the defendant’s financial condition, that the creditor relied on it, that the reliance was reasonable and that the statement was prepared by the debtor with the intent to defraud the creditor. If the creditor fails to show conclusively that no genu*709ine issue exists as to each necessary element in § 523(a)(2)(B) or if the defendant presents evidence that creates a genuine factual issue about any of these elements, plaintiff’s motion must fail. See Matter of Esposito, 44 B.R. 817, 821 (Bankr.S.D.N.Y.1984).
We find no need to address all of the evidence of the plaintiff on the other elements of § 523(a)(2)(B) because we hold that plaintiff has not shown conclusively that its reliance on the defendant’s financial statement was reasonable and this alone is fatal to its motion.
On the element of reasonable reliance, the plaintiff’s evidence is an affidavit of James Williams, a partner of the plaintiff. That affidavit states, in pertinent part:
... 3. Prior to entering the Lease, the Leasing Company required Dan Kelly [debtor] and the other individuals to prepare written statements of their financial condition. The purpose of the written statement was to determine the economic status of the Leases [sic],
4. The Leasing Company relied on the financial statement in making its decision to enter into the Lease. Because the financial statement of Dan Kelly indicated a positive balance of approximately $40,000.00, it was the Company’s belief that his obligation was adequately secured.
Reasonable reliance is a necessary element to prevailing in a § 523(a)(2) action because, as stated in In re Shepherd, 13 B.R. 367, 372 (Bankr.S.D.Ohio 1981):
A necessary element in cases involving false representations, false pretenses, and actual fraud, is reliance by the creditor, and this reliance must be reasonable reliance, [citations omitted] ... Plaintiff’s own conduct put it in the position it now complains of. Plaintiff cannot conduct business without due care and then maintain that as a result of deception it extended credit.
Reasonable reliance on false financial statements would be reliance that comports with normal business practices in the industry. See, Matter of Esposito, 44 B.R. 817, 821 (Bankr.S.D.N.Y.1984).
In the present case the affidavit submitted by the plaintiff states only that plaintiff did rely on the financial statement. The affidavit does not even address the issue of the reasonableness of plaintiff’s reliance. Plaintiff’s contention that the language in the financial statement signed by the defendant that the financial statement is a “true and correct statement of the undersigned’s financial condition” shows reasonable reliance does not fill the gap. This court has said:
Such representations will be recognized as a standard provision in an agreement of this kind, but beyond that, we refuse to regard such statements in the contract as indicative of reliance on the statements.
In re Hughes, Nos. B-1-79-659, B-1-79-660, B-1-79-661, (Bankr.S.D.Ohio March 21, 1980).
Further, we perceive a genuine issue of material fact on the element of reliance itself. Defendant contends that plaintiff did not rely on the financial statements in leasing the equipment to the defendant. Plaintiff’s evidence on reliance is the affidavit by James Williams that states that the partnership did rely on the statement before leasing the equipment. However, defendant controverts that fact by way of an affidavit of the defendant that states the equipment was delivered to him in mid-June, 1982 and by plaintiff’s answer to an interrogatory that the financial statement was reviewed by “some of the partners [of the plaintiff] prior to August, 1982”. From this evidence presented by the defendant, we could conclude that the financial statement was not reviewed by the plaintiff until after the equipment was delivered to defendant. There is thus a genuine issue as to the material fact of reliance. See, In re Besch, 42 B.R. 45 (Bankr.N.D.Ill.1984).
Because there are genuine issues of fact as to reliance, as well as the reasonableness of any reliance there may have been, plaintiff’s motion must be denied.
SO ORDERED. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8490077/ | MEMORANDUM OPINION ON MOTION FOR SUMMARY JUDGMENT
ALEXANDER L. PASKAY, Chief Judge.
THIS IS a Chapter 11 Reorganization case and the immediate matter under consideration involves an adversary proceeding initiated by Shell Materials, Inc. (Debt- or), who filed a five count Complaint against First Bank of Pinellas County (Bank). The Debtor filed a Motion for Summary Judgment as to Count I of the Complaint, alleging that there are no material issues of fact and that the controversy can be resolved in favor of the Debtor as a matter of law.
In Count I of the Complaint, the Debtor alleges that the Bank, a secured creditor, violated § 697.05 Florida Statutes by failing to include statutorily required language on a balloon mortgage. The Debtor seeks (1) an extension of the annual payments until October 20, 1993 with payments to be credited to principal only; a forfeiture of interest; and, a forfeiture of attorneys’ fees and other collection charges that have been paid by the Debtor.
Both parties agree that the material facts as to Count I of the Complaint are *745without dispute and the controversy may be resolved as a matter of law. The relevant facts may be summarized as follows:
On March 1, 1982, the Debtor executed and delivered to the Bank of Coral Gables a note and mortgage encumbering certain real property to secure an indebtedness of $250,000. The mortgage includes a “future advance” clause to secure a maximum of $1,500,000. On March 31, 1982, the mortgage was assigned to the Bank and on April 1, 1982, the Bank and the Debtor executed a mortgage modification agreement which specified a request for an advance of $500,000 pursuant to the future advance clause in the March 1 mortgage. On April 5, 1982, the Debtor executed a Receipt of Advance of $500,000 “... as a mortgage loan under the provisions for future advances in the mortgage recorded in Official Records Book 3918, Page 1592, of the Public Records of Hillsborough County
On October 20, 1982, the Debtor executed and delivered to the Bank a promissory note in the amount of $487,500 and a mortgage which was recorded in Official Record Book 4016 Page 490 of the Public Records of Hillsborough County. The mortgage encumbers the identical property that stands as security for the March 1, 1982 mortgage and the April 1, 1982 advance.
It is the October 20, 1982 note and mortgage which form the basis of the controversy. The October 20 note provides as follows:
Interest shall be due and payable quarterly with the first such payment being due January 20, 1983. Principal payments in the amount of $48,150 shall be due and payable annually with the first such payment being due October 20, 1983. This is a balloon note and the entire remaining principal plus accrued interest, if any, shall become due and ^payable in full on October 20, 1987.
The mortgage also states at the top of the first page and also on the last page just above the signatures:
THIS IS A BALLOON MORTGAGE. THE ENTIRE REMAINING PRINCIPAL BALANCE PLUS ACCRUED INTEREST, IF ANY, SHALL BECOME DUE AND PAYABLE IN FULL ON OCTOBER 20, 1987.
Section 697.05 Fla.Stat. (1983) provides as follows:
.697.05 Balloon mortgages; scope of law; definition; requirements as to contents; penalties for violations; exemptions
(1) Any conveyance, obligation conditioned or defeasible, bill of sale or other instrument of writing conveying or selling real property for the purpose or with the intention of securing the payment of money, whether such instrument be from the debtor to the creditor or from the debtor to some third person in trust for the creditor, shall be deemed and held to be a mortgage, and shall be subject to the provisions of this section.
(2)(a) 1. Every mortgage in which the final payment or the balance due and payable upon maturity is greater than twice the amount of the regular monthly or periodic payment of the mortgage shall be deemed a balloon mortgage; and, except as provided in subparagraph 2., there shall be printed or clearly stamped on such mortgage: THIS IS A BALLOON MORTGAGE AND THE FINAL PAYMENT OR THE BALANCE DUE UPON MATURITY IS $., TOGETHER WITH ACCRUED INTEREST, IF ANY, AND ALL ADVANCEMENTS MADE BY THE MORTGAGEE UNDER THE TERMS OF THIS MORTGAGE.
(2) In the ease of any balloon mortgage securing the payment of an obligation the rate of interest on which is variable or is to be adjusted or renegotiated periodically:
(a) The balance due upon maturity shall be calculated on the assumption that the initial rate of interest will apply for the entire term of the mortgage;
(b) The legend shall disclose that the stated balance due upon maturity is an approximate amount based on such assumption; and
*746(c)A legend in the following form suffices to comply with the requirements of this section: THIS IS A BALLOON MORTGAGE SECURING A VARIABLE (adjustable; renegotiable) RATE OBLIGATION. ASSUMING THAT THE INITIAL RATE OF INTEREST WERE TO APPLY FOR THE ENTIRE TERM OF THE MORTGAGE, THE FINAL PAYMENT OR THE BALANCE DUE UPON MATURITY WOULD BE APPROXIMATELY $., TOGETHER WITH ACCRUED INTEREST, IF ANY, AND ALT, ADVANCEMENTS MADE BY THE MORTGAGEE UNDER THE TERMS OF THIS MORTGAGE. THE ACTUAL BALANCE DUE UPON MATURITY MAY VARY DEPENDING ON CHANGES IN THE RATE OF INTEREST.
(2)(b) This legend including the total amount due upon maturity shall appear at the top of the first page or face sheet of the mortgage and also immediately above the place for signature of the mortgagor. The legend shall be conspicuously printed or stamped in type as large as the largest type used in the text of the instrument, either as an over-print or by a rubber stamp impression.
(3) Failure of a mortgagee, creditor or a third party in trust for a mortgagee or creditor to comply with the provisions of this section shall automatically extend the maturity date of such mortgage in the following manner: The final payment or the balance due and payable is to be divided by the regular monthly or periodic payment and the quotient so secured is to be the number of months or periods the maturity date of the mortgage is extended. The mortgagor shall continue to make such monthly or periodic payments until the principal of the mortgage is paid. All such payments shall be credited to the principal only.
(4) Any mortgagee, creditor, bona fide holder, assignee, transferee, endorsee, or any agent, officer, or other representative of any such person violating the provisions of this section shall forfeit the entire interest charged, contracted to be charged or reserved under any such mortgage written in violation of this section, and only the principal sum of such mortgage can be enforced in any court in this state, either at law or in equity. Any interest, collection charge or attorney fee that has been paid or reserved or contracted for, either directly or indirectly, shall be forfeited to the person or mortgagor presently obligated under such mortgage.
(5)This section does not apply to the following:
(a) Any mortgage in effect prior to January 1, 1960;
(b) Any first mortgage;
(c) Any mortgage created for a term of more than five years;
(d) Any mortgage, the periodic payments on which are to consist of interest payments only, with the entire original principal sum to be payable upon maturity-
(e) Any mortgage securing an extension of credit in excess of $500,000.
It is the Debtor’s position that the Bank failed to comply with the “balloon mortgage statute” inasmuch as the language printed on the mortgage fails to track the statutory language. That is, the mortgage fails to specify the amount due upon maturity. Thus, in reliance on Overlook v. Marshall, 363 So.2d 131 (Fla. 4th DCA , 1978) cert. denied 368 So.2d 1372 (1979), the Debtor urges this Court to enter judgment and impose the statutory penalties against the Bank.
In response, the Bank contends that (1) the Bank substantially complied with the statute and substantial compliance is sufficient; (2) that the mortgage is excepted by § 697.05(5)(e) (excepts extension of credit in excess of $500,000) because this loan is actually secured by the original mortgage of March 1, 1982 by virtue of the future advance clause contained therein, and therefore, the total indebtedness far exceeds $500,000; and (3) to apply the balloon mortgage statute to this mortgage would violate Art. I, § 9 Fla. Const, and the Fifth and Fourteenth Amendments of the U.S. Constitution.
*747The Court considered the Bank’s arguments and finds each without merit for the following reasons: First, the constitutionality of § 697.05 Fla.Stat. has been considered and was upheld by Florida Supreme Court in the case of Winner v. Westwood, 237 So.2d 151 (Fla.1970); see also, Overstreet v. Bishop, 343 So.2d 958 (Fla. 1st DCA 1977). Likewise, this Court is satisfied that the statute does not deprive the Bank of any rights under the Fifth and Fourteenth Amendments to the United States Constitution.
Second, the Court is equally satisfied that substantial compliance with the “balloon mortgage” statute is not sufficient under the law of Florida. In Overlook v. Marshall, 363 So.2d 131 (Fla. 4th DCA 1978) cert. denied, 368 So.2d 1372 (1979), the District Court of Appeal for the Fourth Judicial District affirmed the entry of a summary judgment in favor of the mortgagor because the mortgage did not contain the language expressly required by statute. As in the case at bar, the mortgage, although in substantial compliance with the statute, failed to set forth the amount of the final payment. Despite the harsh consequences, the Court affirmed the lower court’s entry of summary judgment.
Perhaps the most attractive argument advanced by the Bank is that the third extension of credit by the Bank to the Debtor was actually part of a larger credit transaction, that is, an advance contemplated and covered by a future advance clause in the original mortgage. Thus, while the balloon mortgage fails to comply with the statute, the Bank contends that this loan is excepted from the purview of the statute because the sum total of the three loans allegedly made pursuant to the original mortgage, and future advance clause far exceeds the statutory sum of $500,000. As noted earlier, the March 1, mortgage contains a future advance clause which permits additional funding not to exceed $1,500,000. Thereafter, when the Bank authorized an advance in the amount of $500,000, the Bank required the Debtor to execute a Receipt of Advance which expressly provided that the advance was made pursuant to the original mortgage.
Unlike the second advance, the third note and mortgage make no reference to the earlier documents. In fact, there is absolutely no evidence in this record that the parties ever intended the third loan to be part and parcel of the earlier transactions. In fact, the execution of the third mortgage by the parties on terms which differ substantially from those in the earlier transactions, belie a finding that the parties intended the third loan to be secured by the original mortgage.
In light of the foregoing, this Court is satisfied that the Debtor is entitled to the entry of a Summary Judgment as to Count I.
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/8490078/ | MEMORANDUM OF DECISION ON COMPLAINT TO CANCEL WRITTEN INSTRUMENT AND TO REMOVE CLOUD ON TITLE
GERALDINE MUND, Bankruptcy Judge.
I. INTRODUCTION
The key issue in this case is that involved in two conflicting lines of California Appellate opinions, to wit: whether a deed of trust on community property may be set aside in its entirety by the spouse who did not sign it.
II. FACTUAL BACKGROUND
The apparent relationship between Ruthie and Sylvester Jones (husband and wife) and Bert Potter Bail Bonds (aka Central Jail Bail Bonds) began in January, 1983, when Mr. and Mrs. Jones executed two deeds of trust encumbering their house as collateral for bail bonds. Both of these bonds were later exonerated and the deeds of trust reconveyed.
On June 17, 1983, Sylvester Jones executed another deed of trust in favor of defendant, Central Jail Bail Bonds. This deed of trust was to secure a bail bond issued for the benefit of a third party. Sylvester Jones at the time of execution of the deed of trust and at all other times at issue was married to plaintiff, Ruthie Jones. The legal title to the property encumbered by the deed of trust was held by “Sylvester Jones and Ruthie L. Jones, husband and wife, as joint tenants.”
The evidence shows that the down payment for the home, as well as all other payments on the encumbrances, were made from community funds. Plaintiff testified that she never consented to the June, 1983 encumbrance, and did not have knowledge of it until defendant demanded payment upon forfeiture of bail.
The only evidence concerning the intent of the parties as to the nature of the property was the statements of Ms. Jones that she and her husband have always intended the property to be part of the marital community. She further stated that the use of the term “joint tenancy” in the grant deed was inserted by an escrow officer functioning under the instructions of the real estate broker involved in the purchase transaction.
No evidence was proffered to indicate that Ms. Jones had given her husband the actual or ostensible authority to execute the June deed of trust.
*836III. ANALYSIS
A. CHARACTERIZATION OF PROPERTY
The threshold issue is whether the real property held by plaintiff Ruthie Jones and her husband Sylvester Jones, as joint tenants, is in fact community property.
Record legal title to the property in question is held by plaintiff and her husband in joint tenancy. Generally how record title is held prevails. However, evidence may be introduced to prove a contrary intention and rebut the record title presumption. Tomaier v. Tomaier, 23 Cal.2d 754, 146 P.2d 905 (1944). Where the parties, by mutual agreement, intended community property ownership, substantial doubt is raised regarding the presumption that property is held as stated in the deed. Gudelj v. Gudelj, 41 Cal.2d 202, 259 P.2d 656 (1953).
In the case before this Court, the actions of the plaintiff and her husband indicate that they treated the property as community property. The down payment on this land as well as all mortgage payments were made from earnings and social security payments acquired during marriage. There is no showing that Mr. and Mrs. Jones intended title to be held in joint tenancy or were ever consulted or counseled on the type of title that would be recorded. Because there is sufficient evidence that plaintiff and her husband intended the property to be community property, then the presumption of joint tenancy vanishes and the parties hold the property as they so intended. No contrary evidence was presented by the defendant.
Not only did plaintiff and her husband treat this property as community property but the evidence indicates that the defendant, Central Jail Bail Bonds Co., was also aware of plaintiffs rights in the subject property. There were two prior deeds of trust executed as to the subject property in favor of Central Jail Bail Bonds Co. On each prior occasion both Sylvester and Ruthie Jones signed the deeds of trust. Defendant was thus on notice of the marital status of the Joneses and it, as well as the Joneses, apparently treated the subject property as community property. Therefore, the property is community property for the purposes of this decision.
B. VALIDITY, EXTENT AND EFFECT OF ENCUMBRANCE
The second issue that must be decided is whether the deed of trust created a valid lien on all or any portion of the community property. The two lines of California cases which attempt to resolve this issue agree that when a deed of trust is signed by only one spouse, it cannot create a valid lien on the entire community real property. All cases agree that the non-consenting spouse has the authority to void the lien on her1 one-half interest in the community property. One line of cases also grants her the authority to void the lien entirely as to the community property. Because the interest of the debtor’s spouse in community property becomes property of the estate (11 U.S.C. § 541(a)(2)), the Bankruptcy Court has an interest in determining the rights in the entire property of various creditors and claimants.
The conflict in California law centers around the provision in Civil Code § 5127 which grants each spouse the management and control of the community real property, but specifies that both spouses either personally, or by duly authorized agent, must join in executing any instrument by which community real property is encumbered.2 The question that arises is wheth*837er this Section must be interpreted in a literal fashion to mean that no lien is created on community real property unless both spouses execute the deed of trust, and how that relates to the Legislature’s obvious intent to give each spouse the right to control and manage community property.
The leading and most frequently cited cases on each side are Mitchell v. American Reserve Insurance Company, 110 Cal.App.3d 220, 167 Cal.Rptr. 760 (1980) and Andrade Development Co. v. Martin, 138 Cal.App.3d 330, 187 Cal.Rptr. 863 (1982). Mitchell takes the position that the transfer by one spouse is valid as to that spouse’s one-half interest in the property but may be invalidated by the other spouse as to the other spouse’s one-half interest in the property. Andrade allows the non-consenting spouse to invalidate the transfer completely. Both cases are similar in that the same law operated, the transfer was deemed by the court not to be a gift, title was held in the names of both spouses, and the marriage was continuing at the time that the non-consenting spouse moved to set aside the transfer. The Andrade opinion is highly critical of the Mitchell Court, contending that Mitchell misinterpreted the mandate of prior Supreme Court cases and violated the clear Legislative intent in its opinion. This Court agrees with the Andrade reasoning and therefore invalidates the lien entirely.
Because of the confusion created by the differing opinions of the Courts of Appeal, it is necessary to go back to the California Supreme Court cases that are controlling of the matter. All of these occurred prior to the 1975 Amendment, which granted each spouse the right to manage and control community property, and which made community property liable for the contracts of either spouse made after marriage. Pri- or to that Amendment, the husband had management and control of the community property, but was limited by Civil Code § 172(a) in that the wife or her duly authorized agent had to join him in executing any instrument which conveyed or encumbered community real property.
The six California Supreme Court cases that control each consider whether the transfer of the community real property was a gift to a third party or parties, and whether the action to set aside the transfer was filed during the existence of the community. The only logical reconciliation of these opinions is that if the non-consenting spouse brings an action to set aside the transfer during the existence of the community, the transfer will be invalidated in full; if she/he waits until the community has been terminated by law (either death or dissolution), the transfer will be invalidated only as to that spouse’s one-half interest in the property.3 No other legal effect may be given to this body of law.
Dargie v. Patterson, 176 Cal. 714, 169 P. 360 (1917) was the initial determination by the California Supreme Court of the effect of requiring that the wife consent in writing to the husband’s transfer of community property. The law, as it existed at the time of the Dargie opinion, required the wife’s consent only if the husband made a gift and confirmed that the husband had. management and control of the community property and the same power to dispose of it — other than by testamentary means — as he had of his separate property.4
*838In Dargie the husband had made a gift of community real property during the marriage without the knowledge or consent of the wife. After the husband died, the wife filed an action to set aside the transfer. The Court held that “the wife’s right to assail the conveyance where, as here, the action is brought after the husband’s death, is limited to an undivided half of the property.” (Emphasis added) Id. at 718, 169 P. 360. The Court then went on to state that the husband, during his lifetime, is the owner of the community property, with all of the rights therein and that the limitation in § 172 does not impair his power to dispose of property. The Court further analyzed that because death had occurred, the husband’s testamentary power existed and the widow need not be given greater rights than she would have enjoyed if the gift had never been made. Therefore they invalidated the transfer only as to the wife’s portion of the community property.
Similarly, in Lahaney, 208 Cal. 323, 281 P. 67 (1929) the husband had died prior to the wife instituting the action to set aside his gift of community real property. The Court stated that the deed of the husband was valid “subject only to the right in the wife to institute, seasonably, in equity an action to revoke said deed and reinstate the property as ‘community property with the title vested in the husband and subject to sale by him as before.’ ” Id. at 326, 281 P. 67. However, because the husband had died prior to the time that the wife brought the action, the community had already divided and the equities then shifted toward allowing the husband’s gift to stand in that the wife no longer had a claim to his half of the community property. Id. at 327, 281 P. 67.
Trimble, 219 Cal. 340, 26 P.2d 477 (1933), Pretzer, 215 Cal. 659, 12 P.2d 429 (1932) and Heuer 33 Cal.2d 268, 201 P.2d 385 (1949) all involve situations in which the community had been dissolved, either by death or divorce, prior to the action. In all three cases the transfer was held invalid only as to the wife’s remaining one-half interest in the property.
Britton v. Hammel, 4 Cal.2d 690, 52 P.2d 221 (1935) is the only Supreme Court decision that deals with an action filed while the community is still in existence. In invalidating the transfer as to the entire piece of real estate, the Britton Court distinguished the prior opinions of Trimble and Lahaney and stated: “[T]he husband has no right, prior to death, to give away any of the community property without the wife’s consent; and the gift cannot be regarded as the equivalent of a will because the time for effective exercise of the -power of testamentary disposition has not yet arrived.” (Emphasis added). 4 Cal.2d at 692, 52 P.2d 221. The Court went on to specify that the rights in the community property are not determined until the community is dissolved, using as an example the Court’s power to award community property upon dissolution of the marriage based upon fault. Id. at 692-3, 52 P.2d 221.
The only determination left to be made by this Court is whether the 1975 Amendments to the community property law are such that the Britton opinion is no longer controlling in a case in which the non-consenting spouse brings an action while the community is still in existence. The Court finds that it is still controlling although there may be other theories which now come into play and should be analyzed.
The only ground upon which the Britton opinion appears subject to attack is the dicta that the husband’s gift might defeat the power of the Court to compensate an innocent wife at the time of dissolution. 4 Cal.2d at 692, 52 P.2d 221. The Amendments to the Family Law Act have removed the concept of fault in divorce and now require an equal distribution of community property. However, this does not mandate that each piece of community property must be equally divided between the spouses. Civil Code § 4800(b). Therefore, although the Court can no longer award a greater part of the community *839property to one spouse, which is the example given in the Britton case, it can determine that a particular piece of community property shall go to one spouse. There does not seem to be a significant difference between apportioning the community as to amount (as described in Britton) or as to specific assets. The holding in Britton therefore is as effective today as it was when written in 1935.
Since the 1975 Amendments, no less than seven opinions by the Courts of Appeal have dealt with this problem. There is no consistency, although it appears that (with the exception of the Mitchell case cited above) they roughly fall into the same characterization: if the community is still in existence at the time that the action is brought, then the deed of trust is invalidated in full;5 if the community had dissolved at the time that the action was brought the deed of trust is set aside only as to the non-consenting spouse’s interest.6 However, not all cases can be so neatly categorized.7
Although it is not clearly stated in the cases, it appears to this Court that the Legislature intended the property to remain community property unless one of three events occur: death of a spouse, dissolution of the marriage, or contract to change the identity of the property which is entered into with the consent of both marital partners. Had the Legislature intended to allow one spouse to transmute community property into his/her separate property by unilaterally transferring an interest in that property to some third party, it would have so stated. The limitation on Civil Code § 5127 is clear: during the existence of the community, the non-consenting spouse can set aside a unilateral transfer of real property by the other spouse in its entirety and can restore the real property to its status as undivided community property.
The Mitchell opinion tries to resolve an apparent conflict between Civil Code § 5116, which makes the property of the community liable for the contracts of either spouse which are made after marriage, and the specifics of Civil Code § 5127. In interpreting an apparent conflict between two statutes, the Court must seek to give significance to every word, phrase, and sentence in the statute and to look for the Legislative intent. California Code of Civil Procedure §§ 1858, 1859; In re Borba, 736 F.2d 1317 (9th Cir.1984).
Because this Court is accustomed to categorizing the rights of creditors and claims, the Court finds that the apparent conflict between Civil Code § 5116 and § 5127 is more illusory than real. In a bankruptcy context, § 5116 allows an unsecured creditor of one spouse to become an unsecured creditor of the estate to the extent that community property exists to pay claims. It has nothing to do with creating a secured creditor relationship nor with granting rights in the community real property.
The statement in Civil Code § 5127 that both spouses “must join in executing any instrument by which such community real property or any interest therein is leased for a longer period than one year, or is sold, conveyed, or encumbered” appears clear. Civil Code § 5125 deals with the transfer and encumbrance of community *840personal property and allows each spouse much wider latitude of action in dealing with the community personal property.
This Court believes that the California Legislature intended community real property to be treated differently from personal property and intended secured transactions in community real property to comply with certain basic requirements, which are not imposed on unsecured transactions. It therefore clearly stated that both spouses must execute the deed of trust.
The recent opinion in Wolfe v. Lipsy, 163 Cal.App.3d 633, 209 Cal.Rptr. 801 (1985) directs this Court to look at one other set of facts: whether there was a declaration of homestead recorded concerning the subject property prior to the granting of the deed of trust by the husband. In the present ease the Court has been told by plaintiff that a declaration of homestead was recorded in 1975, but has not been presented with evidence of the filing.
The Wolfe case theorizes that the effect of Civil Code § 1242 prohibits a married person’s homestead from being encumbered unless the instrument that encumbers it is executed and acknowledged by both the husband and wife.8 Therefore a deed of trust executed only by the husband prior to July 1, 1983 is void if the subject property was previously homesteaded.
Although the deed of trust in this case was recorded on July 6,1983, after the new Enforcement of Judgments Act went into effect, it was executed on June 17, 1983, which should be the controlling date. To hold otherwise would be to grant the creditor more rights than existed at the time that the transaction occurred. Therefore, on an alternative ground, the deed of trust is void in its entirety if a declaration of homestead was recorded prior to June 17, 1983.
Issues of estoppel, agency, or the lack of knowledge of this creditor are not relevant in the case at hand. The creditor had previously dealt with Mr. and Mrs. Jones and knew that title to the residence was in both names, as husband and wife. In fact the creditor had previously required Mrs. Jones to sign the deed of trust. In this third deed of trust they failed to get her signature, either through negligence or intentional action.
The Court therefore finds that the deed of trust in question is null and void and creates no lien on the subject real property, but that Bert Potter Bail Bonds has an unsecured claim against the estate in the amount of $5,000.00, which is payable out of community property of the estate.
. The Court uses the feminine designation for the non-consenting spouse, as all prior cases involve a transfer by the husband.
. The relevant provisions of § 5127, as they apply to the facts of this case, are as follows: "Except as provided in Sections 5113.5 and 5128, either spouse has the management and control of the community real property, whether acquired prior to or on or after January 1, 1975, but both spouses either personally or by duly authorized agent, must join in executing any instrument by which such community real property or any interest therein is leased for a longer period than one year, or is sold, conveyed, or encumbered; provided, however, that *837nothing herein contained shall be construed to apply to a lease, mortgage, conveyance, or transfer of real property or of any interest in real property between the husband and wife; ...”
. The six cases chosen by this Court as controlling are those of Dargie v. Patterson, 176 Cal. 714, 169 P. 360 (1917); Lahaney v. Lahaney, 208 Cal. 323, 281 P. 67 (1929); Pretzer v. Pretzer, 215 Cal. 659, 12 P.2d 429 (1932); Trimble v. Trimble, 219 Cal. 340, 26 P.2d 477 (1933); Britton v. Hammell, 4 Cal.2d 690, 52 P.2d 221 (1935); and Heuer v. Heuer, 33 Cal.2d 268, 201 P.2d 385 (1949). Because the law at the time only limited the husband if the transfer was a gift, that issue was then relevant. See fn. 4.
. Civil Code § 172 as it applied in the Dargie case was as follows: "The husband has the management and control of the community property, with the like absolute power of disposition other than testamentary as he has of his separate estate. Provided, however, that he cannot make a gift of such community property, or convey the same without a valuable considera*838tion, unless the wife, in writing, consents thereto.”
. See Andrade, 138 Cal.App.3d 330, 187 Cal.Rptr. 863; Harper v. Raya, 154 Cal.App.3d 908, 201 Cal.Rptr. 563 (1984).
. See Gantner v. Johnson, 274 Cal.App.2d 869, 79 Cal.Rptr. 381 (1969) — in which the husband was incompetent at the time the wife brought the action. Head v. Crawford, 156 Cal.App.3d 11, 202 Cal.Rptr. 534 (1984) invalidates the transfer only as to the wife’s one-half interest in an action that was filed after dissolution of the marriage.
. Other cases don’t fall into the mold. Mitchell, 110 Cal.App.3d 220, 167 Cal.Rptr. 760, has a continuing community but only invalidates the transfer as to the wife’s one-half interest. Byrd v. Blanton, 149 Cal.App.3d 987, 197 Cal.Rptr. 190 (1983) confirms that the wife has a community property interest in the real property, but does not deal with the meaning of the transfer by the deceased husband to his mother. Wolfe v. Lipsy, 163 Cal.App.3d 633, 209 Cal.Rptr. 801 (1985), does not specify the status of the marriage, but invalidates the lien in full as an encumbrance upon the homestead pursuant to Civil Code § 1242.
. The holding in Wolfe emphasizes the historical confusion in the area of community property. While some Courts read Civil Code § 5127 to allow a spouse to encumber one-half of the community real property, they interpret similar language of Civil Code § 1242 to remove the lien entirely. This Court finds no justification for the distinction of interpretation of these similar statutes. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8490120/ | ORDER DENYING JURY TRIAL
THOMAS C. BRITTON, Bankruptcy Judge.
The defendant’s demand for jury trial in this adversary proceeding was heard on August 5. The demand for a jury trial is denied.
The action is to avoid a preference under 11 U.S.C. § 547(b). No right to a jury existed under the Common Law for such an action, which is a statutory remedy bottomed on principles of equity. Katchen v. Landy, 382 U.S. 323, 86 S.Ct. 467, 15 L.Ed.2d 391 (1966); Sibley v. Fulton Dekalb Collection Service, 677 F.2d 830 (11th Cir.1982); Country Junction, Inc. v. Levi Strauss & Co. (In re Country Junction, Inc.), 41 B.R. 425 (W.D.Tex.1984); Lerblance v. Rodgers (In re Rodgers & Sons, Inc.), 48 B.R. 683 (Bankr.E.D.Okla.1985); Pennels v. Barnes (In re Best Pack Seafood, Inc.), 45 B.R. 194 (Bankr.D.Me.1984). I see no reason to exercise this court's discretion to provide a jury in this instance. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8490121/ | MEMORANDUM OF DECISION
GEORGE S. WRIGHT, Bankruptcy Judge.
This cause initially came before the Court on a MOTION FOR RELIEF FROM *66STAY filed by James E. Nicholson and State Farm Automobile Insurance Company (hereinafter called “State Farm”) on July 18, 1985 seeking to receive funds placed on deposit with the debtor with the Department of Public Safety of the State of Alabama pursuant to Alabama Code Section 32-7-6 (1975). On July 23, 1985 the debtor filed a COMPLAINT FOR RETURN OF DEBTOR’S EXEMPT FUNDS seeking the same funds. Because the facts of this case are not in dispute and the only issues remaining are questions of law, the parties have consented to try the case on the stipulated facts.
FINDINGS OF FACT
July 26, 1984, the debtor was involved in an automobile accident with James E. Nicholson who was apparently insured by State Farm. Pursuant to Alabama Code Section 32-7-6 (1975), C.H. Marona posted a DEPOSIT OF SECURITY for Charles K. Marona with four postal money orders to-talling $1,923.00.
On February 4, 1985 a judgment was rendered in Court Case No. DV84-17090 against Mr. Marona and in favor of State Farm and Mr. Nicholson. The amount of the judgment was $1,922.93 plus $44.00 court costs, and no appeal was taken.
Mr. Marona filed his Chapter 7 petition on May 21, 1985; and in his Schedule B-4, the debtor has claimed the fund exempt under Alabama Code Section 6-10-6 (1980). The fund is now in the possession of Polly Conradi, Clerk of the District Court of Jefferson County, Alabama.
CONCLUSIONS OF LAW AND APPLICATION OF FACTS
Section 541 of the Bankruptcy Code provides in pertinent part:
Section 541 Property of the estate.
(a) The commencement of a case under section 301, 302, or 303 of this title creates an estate. Such estate is comprised of all of the following property, wherever located and by whomever held:
(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 case.
11 U.S.C. Section 541(a)(1) (1978). The fund which is at the heart of this dispute was created pursuant to Alabama Code Section 32-7-6 (1975). That section states in pertinent part:
Section 32-7-6. Security required; exceptions; suspension of licenses and registrations.
(a) Security required unless evidence of insurance; when security determined.— If 20 days after the receipt of a report of a motor vehicle accident within this state which has resulted in bodily injury or death or damage to the property of any one person in excess of $50.00, the director does not have on file evidence satisfactory to him that the person who would otherwise be required to file security under subsection (b) of this section has been released from liability, or has been finally adjudicated not to be liable, or has executed a duly acknowledged written agreement providing for the payment of an agreed amount in installments with respect to all claims for injuries or damages resulting from the accident, the director shall determine the amount of security which shall be sufficient in his judgment to satisfy any judgment or judgments for damages resulting from such accident as may be recovered against each operator or owner.
(b) Suspension. — The director shall within 60 days after the receipt of such report of a motor vehicle accident suspend the license of each operator and all registrations of each owner of a motor vehicle in any manner involved in such accident, and if such operator is a nonresident the privilege of operating a motor vehicle within this state, and if such owner is a nonresident the privilege of the use within this state of any motor vehicle owned by him, unless such operator or owner or both shall deposit security in the sum so determined by the director; provided, that notice of such suspension shall be sent by the director to such operator, and *67owner not less than 10 days prior to the effective date of suspension and shall state the amount required as security. Where erroneous information is given the director with respect to the matters set forth in subdivision (1), (2) or (3) of subsection (c) of this section, he shall take appropriate action as hereinbefore provided within 60 days after receipt by him of correct information with respect to said matters.
Ala.Code Section 32-7-6 (1975).
The Court concludes that Alabama Code Section 32-7-11 (1975) is dispositive of the issue presented to the Court by the facts of this case. That section states:
Section 32-7-11. Custody, disposition and return of security.
Security deposited in compliance with the requirements of this chapter shall be placed by the director in the custody of the state treasurer and shall be applicable only to the payment of a judgment or judgments rendered against the person or persons on whose behalf the deposit was made, for damages arising out of the accident in question in an action at law, begun not later than one year after the date of such accident or within one year after the date of deposit of any security under subdivision (3) of section 32-7-8, or to the payment in settlement agreed to by the depositor of a claim or claims arising out of such accident. Such deposit or any balance thereof shall be returned to the depositor or his personal representative when evidence satisfactory to the director has been filed with him that there has been a release from liability, or a final adjudication of nonliability, or a duly acknowledged agreement, in accordance with subdivision (4) of section 32-7-7, or whenever, after the expiration of one year from the date of the accident or from the date of any security under subdivision (3) of section 32-7-8, the director shall be given reasonable evidence that there is no such action pending and no judgment rendered in such action left unpaid. (Underlining for emphasis)
Ala.Code Section 32-7-11 (1978). Since the fund is “applicable only to the payment of a judgment ... rendered against the person on whose behalf the deposit was made,” id., the Court concludes that Mr. Marona no longer has any legal or equitable interest in the security deposit which could be considered property of the estate under 11 U.S.C. 541(a)(1) (1978).*
The Court is aware of the cases of In re Stephens, 43 B.R. 97 (Bkrtcy.N.D.Ala.1984) and In re Lewis, 21 B.R. 926 (Bkrtcy.N.D.Ala.1982) wherein the courts ruled that an Order of Condemnation was required to cut off the debtors’ interests in garnished wages. Those cases are not on point, however, since the Alabama garnishment statutes require such an Order of Condemnation and the Motor Vehicle Safety-Responsibility Act does not.
The Bankruptcy Court for the Eastern District of Pennsylvania dealt with a similar fact situation in the case of In re Charles L. Rolison & Sons, Inc., 28 B.R. 302 (Bkrtcy.E.D.Pa.1983). The Rolison court ruled that a fund which the debtor had posted with the prothonotary of the county as security to stay a judgment by confession so that the debtor could remain in possession of the leased premises was property of the estate but that the landlord had a security interest in the fund and was entitled to relief from stay to collect the fund. While the Rolison court expressly ruled that the fund was property of the estate, the factual similarity of the case makes it persuasive since in this case the security was deposited so that the debtor could have continued use of his driving privileges.
CONCLUSION
The court concludes that the fund which Mr. Marona posted pursuant to Alabama Code Section 32-7-6 (1975) is no longer property of the estate since it is “applicable only to the payment of a judgment ... *68rendered against the person ... on whose behalf the deposit was made _” Ala. Code Section 32-7-11 (1975). The debtor’s COMPLAINT FOR RETURN OF DEBTOR’S EXEMPT FUNDS is, therefore, due to be DENIED, and the MOTION FOR RELIEF FROM STAY filed by James E. Nicholson and State Farm is due to be GRANTED. A separate order will be entered consistent with this opinion.
The Court expressly does not address the situation where a petition for relief is entered after the security is posted but before the entry of a judgment against the debtor. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8490079/ | DECISION AND ORDER ON DEBTORS’ MOTION TO AVOID LIEN
BURTON PERLMAN, Bankruptcy Judge.
Debtors filed a chapter 7 petition in this court on October 23, 1984. Debtors listed Household Finance Corporation as a creditor with a claim of $5,000.00 secured by the debtors’ household goods. Debtors listed creditor’s debt as a nonpossessory, nonpur-chase money security interest in household goods with a value of $1,000.00. Debtors claim an exemption in household goods pursuant to § 2329.66(A)(4)(b) of the Ohio Revised Code in the amount of $4,000.00. The debtors thereafter filed a motion to avoid creditor’s lien to the extent that it impaired the debtors’ exemptions pursuant to 11 U.S.C. § 522(f). In the motion, the debtors contend that they are entitled to avoid the security interest of the creditor under the federal exemption statute because Ohio’s exemption statute was unconstitutionally amended and is therefore ineffective and inoperative. Specifically, debtors contend that the statute extending the Ohio opt-out violates the Ohio constitutional requirement that any legislative bill be limited to one subject, the “single issue” rule. Debtors say, therefore, that the state statute is unconstitutional and cannot serve effectively to “opt-out” of the federal scheme. Therefore, say debtors, the federal exemptions apply.
Debtors’ argument that they may avoid creditor’s lien pursuant to 11 U.S.C. § 522(f) because the Ohio exemption statute is unconstitutional and therefore ineffective is not well taken. Judge Anderson stated in In Re Thompson, 44 B.R. 530 (Bankr.S.D. Ohio 1984):
In Amended Substitute Senate Bill No. 171, File 99, effective as of June 13, 1984, the Ohio opt-out section was extended until January 1, 1986. This extension appears proper and not in violation of the Ohio Constitution’s ‘one issue rule’. Given such intent by the Ohio General Assembly this Court will not distinguish between those debtors filing during any gap period and those filing after such valid extension.
We agree with the rationale of Judge Anderson. Debtors’ motion is not well taken and is hereby overruled.
SO ORDERED. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8490080/ | DECISION AND ORDER ON MOTION OF CONTRACTORS MATERIALS COMPANY, SUBCONTRACTOR
BURTON PERLMAN, Bankruptcy Judge.
The bankruptcy case underlying the present adversary proceeding was filed August 6, 1984 as a chapter 11 case. On February 25, 1985 the case was converted to chapter 7.
Debtor was a concrete contractor who would typically enter into a subcontract for the concrete work on projects undertaken by general contractors. In the course of fulfilling its subcontracts, debtor would purchase materials from material suppliers.
Soon after the bankruptcy case was filed, debtor filed the present adversary proceeding, naming as defendants therein as a group, the “General Contractors of John Wolterman Concrete Company, Inc.” In its complaint, debtor asserts that it requires relief because general contractors have stopped making progress payments to debtor. The relief sought is an order directed to defendants to make direct progress payments and to turn over funds *32to debtor for work done by plaintiff/debt- or. The adversary proceeding was resolved so far as here pertinent by an Agreed Entry entered by this court on September 13, 1984. The parties involved in that Entry were debtor and Metro Developers and Contractors, Inc. (hereafter Metro.) The Entry was agreed to and signed by both these parties, and then submitted to the court for signature and entry. The Agreed Entry provided for an injunction against Metro requiring that they continue to make progress payments, paying:
“... to any designated supplier, material men, or subcontractor any funds due them for materials supplied and for work performed by any designated supplier, material men, subcontractor or laborer by payment in a joint check to “John Wolterman Concrete Company, Inc.” and the designated supplier, material men, subcontractor or laborer. The Debtor and the designated supplier, material men, subcontractor or laborer shall furnish the Defendant with the appropriate mechanic’s lien release or waiver and affidavit as required by the State Mechanic’s Lien Statutes of Indiana, Kentucky and Ohio, upon receipt of said joint check. Debtor shall immediately endorse and deliver said check to the designated supplier, material men, subcontractor or laborer.”
Contractors Materials Company (hereafter CMC) was a supplier of debtor and furnished concrete for a project on which Metro was the general contractor, and debtor was the concrete subcontractor. The parties agree that there remains unpaid to CMC the amount of $2,675.19 for materials supplied by CMC to the project on which Metro was the general contractor. Such material was furnished prior to the conversion date of the bankruptcy case. CMC filed the present motion, asserting that it was entitled to be paid such remaining amount by Metro pursuant to the September 13, 1984 Entry. Metro resists this result, contending that the conversion to chapter 7 rendered that Entry ineffective, so that thereafter the obligation of Metro was only to the party with which it had a contractual relationship, the debtor, in whose shoes the trustee in bankruptcy now stands.
A further complication is that a cash collateral order was entered in the chapter 11 case on August 9, 1984, a provision of such order being to grant secured status to the Huntington National Bank (hereafter Bank) with respect to accounts receivable of debtor. Because Bank is secured by accounts receivable, the bankruptcy trustee has declined to assert any interests in the amount here in question. The Bank takes a position consistent with that of Metro that the conversion of the case to chapter 7 vitiated the Order of September 13, 1984 in the adversary proceeding, so that any obligation of Metro ran only to its subcontractor, the debtor herein, and payment should be made by Metro to the Bank on the account receivable.
So that the positions of the parties are clear, we note that while both Metro and Bank agree that the money owing by Metro is owed to debtor, Metro and Bank disagree as to the obligation of Metro which arises thereby. Metro states that if the money is owed to its subcontractor, the debtor, then Metro has a right to set off the amount owed from the claim which Metro is asserting against- debtor. The Bank does not accept this position, but contends that if we rule that the money is owing to debtor, then it should be paid to Bank because it comprises collateral of Bank. We have reached the conclusion that the law as well as equitable considerations compel us to hold that the position of CMC is correct, and that Metro should be ordered to pay the amount in controversy to CMC.
Metro and debtor had a common interest at the time that debtor was operating in chapter 11, in seeing to it that debtor complete its obligations on the project for which it had entered into a subcontract with Metro. Metro had been refusing to make payments to debtor, and in order to break the impasse, the parties entered into an agreement which they submitted to the court as an Agreed Entry, which enabled *33the project to go forward. In reliance on that agreement as embodied in the Agreed Entry, CMC furnished materials. CMC is entitled to be paid the amount owed it for materials delivered on the strength of the Agreed Entry either (1) as a third party beneficiary of that agreement, or (2) because by the agreement embodied in that Entry, a plan to bypass the bankruptcy estate was put in place, giving rise to a direct obligation on the part of Metro to suppliers such as CMC.
Metro contests this outcome saying that the conversion to chapter 7 superseded or invalidated the Agreed Entry. Something that does happen upon a conversion, is the supplanting of the debtor in possession by a trustee. Unless the trustee has some grounds for avoiding the arrangement entered into by the debtor in possession, we see no reason, and none has been suggested, why such arrangements should terminate by operation of law. More specifically, Metro and Bank argue that it was an effect of the conversion to create an asset of the estate, an account receivable running from Metro to debtor. At the same time, both admit, perhaps tacitly, that because of the Agreed Entry, prior to the conversion there was no direct obligation running from Metro to debtor with respect to obligations to suppliers such as CMC. We see no reason, however, why conversion should have caused a change in the relations of these three parties which arose by reason of the Agreed Entry.
While In re Flooring Concepts, Inc., 37 B.R. 957, 11 B.C.D. 890 (9th Cir.B.A.P. 1984) addressed a question with which we are not directly concerned here, whether there was a preference in a situation involving parties in the positions of those before us, that case does support the proposition that in a transaction such as that which occurred here, it is possible to create an obligation in which money is to be paid by a third person (here Metro) to a creditor of debtor, and that obligation is not part of the bankruptcy estate. That is what the agreement contained in the Agreed Entry did, and nothing has been shown or suggested to us which did or ought to change the obligation of Metro which arose thereby.
Accordingly, the application of CMC is granted.
SO ORDERED. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8490082/ | OPINION
EMIL F. GOLDHABER, Chief Judge:
On remand from the district court for additional findings of fact, the question is whether holiday pay allowable under a pre-petition collective bargaining agreement is an administrative expense under 11 U.S.C. § 507(a)(1)1 of the Bankruptcy Code (“the Code”). Based on our findings set forth below, we conclude that the holiday pay is not an administrative expense.
We summarize our findings of fact as follows:2 The debtor filed a petition for reorganization under chapter 11 of the Code on October 16, 1979, although the case was converted to a chapter 7 proceeding three years later. On the day of the filing of the petition the debtor dismissed its employees who were then employed under a collective bargaining agreement. Under the agreement these workers were entitled to holiday pay for the Thanksgiving holiday of 1979 and the following day (Friday). During the postpetition period the debtor had not assumed the contract.
On behalf of the debtor’s employees, the International Association of Machinists and Aerospace Workers Local 1092 (“the Union”), filed a proof of claim, totalling several thousand dollars for Thanksgiving Day and the following day, in which it asserted that said claim was entitled to priority status under 11 U.S.C. § 507(a)(1) and (a)(3). The trustee filed an objection to the priority status of the claim.
In our original decision on this issue, we held that the Union had standing to file a claim, but that the claim was not entitled to priority under either § 507(a)(1) or (a)(3). In Re Crouthamel Potato Chip Co., 43 B.R. 934 (Bankr.E.D.Pa.1984). The Union moved for reconsideration but in a written opinion we concluded that the motion was meritless. In Re Crouthamel Potato Chip Co., 44 B.R. 537 (Bankr.E.D.Pa.1984). The Union pressed its cause to the district court on appeal. That court upheld our determination that the Union’s claim was not entitled to a priority under § 507(a)(3) but remanded the matter to us under § 507(a)(1), explaining as follows:
Once the conclusion is reached that a claim does not fall within the explicitly listed category of wages for services rendered after the commencement of the ease [under § 507(a)(3) ], it is still necessary to consider whether the claim would fit within the broader class of actual and necessary costs of preserving the estate. To make that determination, the court must consider (1) whether the claim is for costs incurred post-petition which were necessary for the preservation of the estate or provided some benefit to the estate and (2) whether the claim results from a transaction or relationship between the debtor-in-possession and the creditor as distinguished from expenses resulting solely from pre-petition relationships between the debtor and the creditor.
In Re Crouthamel Potato Chip Co., 52 B.R. 960, 967 (E.D.Pa.1985).
On remand we expressly find that: (1) the claim is not based on costs incurred postpetition which were necessary for the preservation of the estate nor is it based on *45some benefit to the estate; and (2) the claim is predicated solely on the prepetition contractual relationship between the debtor and the Union. In light of these findings we once again conclude that the Union is not entitled to a priority position under § 507(a)(1).
We will accordingly enter an order sustaining the trustee’s objection to the asserted priority of the Union’s proof of claim.
. § 507. Priorities
(a) The following expenses and claims have priority in the following order:
(1) First, administrative expenses allowed under section 503(b) of this title, and any fees and charges assessed against the estate under chapter 123 of title 28.
******
(3) Third, allowed unsecured claims for wages, salaries, or commissions, including vacation, severance, and sick leave pay—
(A) earned by an individual within 90 days before the date of the filing of the petition or the date of the cessation of the debtor’s business, whichever occurs first; but only
(B) to the extent of $2,000 for each such individual.
******
11 U.S.C. § 507(a)(1) and (a)(3).
. This opinion constitutes the findings of fact and conclusions of law required by Bankruptcy Rule 7052. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8490083/ | MEMORANDUM DECISION AND ORDER
ALFRED C. HAGAN, Bankruptcy Judge.
Transamerica Financial Services requests a determination of its secured status pursuant to a deed of trust, and lift of the stay on its collateral. It argues that the deed of trust covers a mobile home as well as 4.2 acres on which the debtors had placed that mobile home. The debtors argue that the deed of trust encumbers only the land.
The debtors purchased 4.2 acres in 1979, placed a mobile home on the acreage and made certain improvements. They dug a well and poured footings on which they placed the mobile home. They built an attached three car garage on a foundation, using siding which matched the mobile home. They poured a driveway, steps, patio and sidewalk, and built covered patios on both the front and back of the mobile home. They installed and attached all necessary utilities, and hired an electrician to install electrical service.
Transamerica contends that the home is a fixture which, under Article 9 of the Uniform Commercial Code, codified as Title 28, Chapter 9, Idaho Code, may be encumbered pursuant to real estate law. See I.C. § 28-9-313(3). The debtors contend that the enactment of I.C. § 63-307B in 1981 established the sole method of treating mobile homes as real property for financing purposes. That section requires in part that the owner or purchaser of the mobile *68home records a non-revocable option to declare the mobile home as real property. The debtors recorded no such option.
I interpret I.C. § 63-307B as intended to benefit buyers of mobile homes, not burden their financers. That section provides a method for a mobile home purchaser to legally bind himself to treat his mobile home as real property. The legislative statement of purpose for this law, then House Bill 174, provided that
The purpose of this amendment providing for a New Section is to enable the purchasers of new mobile homes the option of determining that their mobile home is real property. This will enable the purchaser of this type of housing to procure financing that is more attractive for the purchaser. The said home must be permanently affixed to a foundation on land owned or being purchased, and is a one-time, non-revocable option.
FISCAL NOTE
None to governmental entities, but substantial favorable financial improvement in financing to purchasers of mobile homes as the result of longer term financing and the possibility of one loan for the home and the land.
In this case, the debtors received the benefit of longer term financing and one loan for both the home and the land. I do not believe that the legislature intended to penalize lenders who provided such financing without the benefit of the filing of a non-revocable option. Such a filing obviously is to protect a lender by forcing a borrower to commit himself, rather than to protect the mobile home purchaser from a lender who would otherwise provide long term financing.
The parties entered into a deed of trust which encumbered a parcel of land. That deed of trust would commonly be expected to encumber the land and the residence on that land. In approving the loan, Transamerica relied upon an appraisal which valued both the land and the mobile home. I conclude that if the parties had intended to exclude the mobile home, which was the debtors’ residence, from the encumbrance of the deed of trust, it would have been explicitly excluded. Because it wasn’t explicitly excluded, I conclude that the parties intended to include both the land and the mobile home within the encumbrance of the deed of trust. In view of the legislative purpose of encouraging this goal, I do not believe that I.C. § 63-307B bars a conclusion that the deed of-trust encumbers both the land and the mobile home.
I conclude that Transamerica’s claim is secured by both the land and the mobile home on that land. The debtors stated in their confirmed plan that they would surrender the collateral which secures that claim to Transamerica. Transamerica may submit an order lifting the stay, and serve it on the debtors and the trustee. If the debtors fail to file a motion to modify their confirmed plan within 21 days after the filing of this decision, I will sign that order.
IT IS SO ORDERED. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8490084/ | A. JAY CRISTOL, Bankruptcy Judge.
FINDINGS AND CONCLUSIONS OF LAW
This matter was tried on April 29, 1985. The court having examined the case file, received evidence and otherwise being fully advised in the premises, finds and concludes:
This cause is the continuation of the bitter broth that has been brewed by the dissolution of the childless marriage of Dr. and Mrs. Bolt.
The possessions, subject to the dispute, seem somewhat out of place in a bankruptcy court since the evidence deals with a waterfront home in Fort Lauderdale, a valuable apartment building, large quantities of gold coins, many cases of vintage red bordeaux wine, a $25,000 diamond ring, oil well leases and mortgages.
The state court awarded Mrs. Bolt $29,-780.91 in attorneys’ fees, including costs, as payment relating to the dissolution proceedings between her and Dr. Bolt.
The court order entered judgment in favor of the wife’s attorneys “for representation of the wife in the dissolution proceeding.”
The doctor draws this court’s attention to a certain agreement of the parties, which if it were enforced, provides that the attorneys’ fees at issue here would be paid from substantial sums already transferred to the wife, pursuant to the agreement.
The doctor further submits that the judgment is dischargeable in bankruptcy since the judgment is in favor of Patterson & Maloney, the wife’s attorneys, rather than directly payable to the wife.
The court finds that the former wife must prevail. “[A] claim for attorney’s fees awarded to the debtor’s wife’s attorney in a divorce action is nondischargeable pursuant to 11 U.S.C. § 523(a)(5), even though the debt was payable directly to the attorney.” In the Matter of Gwinn, II, 20 B.R. 233, 6 C.B.C. 2d 1114, 1115 (Bkrtcy.Nev.1982). Also in accord are In re Spong, 661 F.2d 6 (2d Cir.1981) and In re French, 9 B.R. 464 (Bankr.S.D.Cal.1981).
In this type of case, the court will not elevate form over substance. The state court order, though perhaps inartfully drafted, did identify the expenditure for legal representation of the former wife as the husband’s expense in the nature of alimony. Therefore, Mrs. Bolt’s claim is a nondischargeable claim against the debtor since this debt is in the nature of alimony or support, pursuant to 11 U.S.C. § 523(a)(5).
The issue of payment, through enforcement of the terms of the agreement, said to exist by the debtor, will not be decided by this court. In passing, the court notes that if the agreement requires the application of assets to payment of the attorneys’ fees so that obligation were paid and discharged; yet, in this circumstance, that same sum would be deducted from the payments made for alimony and that deduction would leave an additional $29,780.91 of nondis-chargeable alimony debt unpaid.
It appears that the proper forum to determine the exact amounts due between the parties should be the circuit court which adjudged the dissolution.
Pursuant to B.R. 9021(a), a Judgment for Plaintiff incorporating these Findings and Conclusions of Law is being entered this date. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8490085/ | ORDER DISMISSING COMPLAINT
A. JAY CRISTOL, Bankruptcy Judge.
This cause came on to be heard on May 9, 1985. The debtor-plaintiff, Heart of the City, Inc., is the debtor-in-possession in the above-styled bankruptcy proceeding. It filed its petition for relief under chapter 11 of the United States Bankruptcy Code on March 21, 1985, thereby activating the automatic stay provision of 11 U.S.C. § 362(a)(1).
On May 7, 1985, debtor filed an emergency verified motion for preliminary and permanent injunctive relief from state criminal proceedings against its key officers relating to prosecution of “bad check” charges. Debtor submits that pursuant to 11 U.S.C. § 105, this court may properly enjoin the prosecutor from proceeding in a criminal prosecution. Debtor relies on 11 U.S.C. § 105 to establish the bankruptcy court’s power to issue any order necessary to carry out provisions of the Bankruptcy Code. Debtor claims that such power is broad enough to enjoin criminal prosecution. The court agrees that the power exists. But, this power should not be exercised except where the purpose of the criminal proceeding is to obtain payment of a debt in contravention of the bankruptcy laws. See In the Matter of Ohio Waste Services, Inc., 23 B.R. 59 (Bankr.S.D.Ohio, W.D.1982) and the cases cited therein.
As recently as November 30, 1984, the Honorable Thomas C. Britton, Chief Judge of this division, held that a similarly situated debtor was not entitled to injunctive relief. In re Saul Frances, 44 B.R. 1016 (Bankr.S.D.Fla.1984). Judge Britton felt bound to follow the decisions of the Eleventh Circuit. This court feels no less bound to do so.
In Barnette v. Evans, 673 F.2d 1250, 1251 (11th Cir.1982), the court held that: “There is a public interest in every good faith criminal proceeding ... which overrides any interest the bankruptcy court *109may have in protecting the financial interest of debtors.”
Therefore, according to this circuit’s settled caselaw, it is ORDERED that debtor’s complaint for injunctive relief is denied with prejudice. | 01-04-2023 | 11-22-2022 |
Subsets and Splits
No community queries yet
The top public SQL queries from the community will appear here once available.