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https://www.courtlistener.com/api/rest/v3/opinions/8490086/ | FINDINGS OF FACT, OPINION AND CONCLUSIONS OF LAW
RANDALL J. NEWSOME, Bankruptcy Judge.
This Chapter 11 adversary proceeding is before the Court pursuant to a trial on the merits conducted on June 6, 1985 upon the complaint for money due on promissory notes filed by plaintiff Baldwin-United Corporation (“BU”). Pursuant to BU’s requests for admission which have been deemed admitted by defendant Morley P. Thompson (“Thompson”) under Rule 36 of the Federal Rules of Civil Procedure for failure to file a timely response thereto; the testimony and exhibits admitted at tri*143al; and the stipulation of facts entered into by the parties on June 5, 1985, which is attached hereto and incorporated herein by this reference; the Court hereby submits its Findings of Fact, Opinion, and Conclusions of Law.
Findings of Fact
1. Thompson executed promissory notes in favor of BU on or about April 16, 1979 (the “1979 promissory note”), February 15, 1980 (the “1980 promissory note”), October 2, 1981 (the “1981 promissory note”), and July 16, 1982 (the “1982 promissory note”) (collectively, the “promissory notes”) for the purchase of shares of BU common stock. Exhibits “A”, “B”, “C”, and "D” to plaintiff’s Complaint are true and correct copies of the promissory notes.
2. BU has fulfilled all of the terms and conditions imposed upon it under the promissory notes.
3. The promissory notes, and each of them, were at all times and are now binding and enforceable according to their terms and conditions. The terms of the promissory notes have not been amended or altered in any way by BU.
4. In exchange for the promissory notes, BU transferred to Thompson the following amount of shares of BU common stock on or about the following dates: April 16, 1979 — 8,000 shares; February 15, 1980 — 12,000 shares; October 2, 1981 — 9,-500 shares; and July 16, 1982 — 5,000 shares. Thompson has subsequently transferred to others each of these shares.
5. Thompson is in default on each of the promissory notes.
6. BU made written demand on Thompson for the then-outstanding balance on the promissory notes on or about March 13, 1984. Thompson made no payments on the promissory notes subsequent to said demand.
7. The following amounts are due and owing by Thompson to BU on the promissory notes as of June 6, 1985:
Principal Interest Total
1979 Promissory Note $112,288.16 $21,736.41 $134,024.57
1980 Promissory Note 333,702.47 64,597.49 398,299.96
1981 Promissory Note 331,629.21 64,196.06 395,825.27
1982 Promissory Note 91,899.75 17,789.83 109,689.58
Total $869,519.59 $168,319.79 $1,037,839.38
8. Interest continues to accrue in favor of BU on the promissory notes at the total aggregate rate of $228.69 per day from June 6, 1985.
9. The foregoing constitutes a complete and final disposition of all of the claims in plaintiffs complaint. There is no just reason for delaying entry of judgment in favor of BU on the promissory notes in question.
Accordingly, the judgment entered contemporaneously with these findings is hereby certified to be final pursuant to Rule 54(b) of the Federal Rules of Civil Procedure.
Opinion
Given the above findings as well as the evidence and stipulations upon which they are based, no factual or legal disputes remain for our consideration in determining plaintiffs claims. The need for a memorandum of law on this matter arises solely out of the plaintiffs motion for immediate entry of a final judgment pursuant to Rule 54(b) of the Federal Rules of Civil Procedure,1 as incorporated by Bankruptcy Rule 7054. Defendant has opposed this motion, and has asked in the alternative that if the Court certifies the judgment as final, it stay the enforcement of that judgment under Rule 62(h).2
*144The United States Supreme Court has carefully set forth the standards governing certification under Rule 54(b). We must first determine whether there has been “an ultimate disposition of an individual claim entered in the course of a multiple claims action.” Sears, Roebuck & Co. v. Mackey, 351 U.S. 427, 436, 76 S.Ct. 895, 900, 100 L.Ed. 1297 (1956). We must then decide whether there is any “just reason for delay” in entering final judgment. Our inquiry should focus on promoting sound judicial administration and basic fairness to the litigants. The factors to be considered include whether:
the claims finally adjudicated were [are] separate, distinct, and independent of any of the other claims or counterclaims involved; that review of these adjudicated claims would not be mooted by any future developments in the case; and that the nature of the claims was such that no appellate court would have to decide the same issues more than once even if there were subsequent appeals. Curtiss-Wright Corp. v. General Electric Co., 446 U.S. 1, 5-6, 100 S.Ct. 1460, 1463-64, 64 L.Ed.2d 1 (1980).
The Court should consider the relative hardship and solvency of the litigants, as well as any other equitable considerations which might be present. While a potential recovery on a claim of set-off or a counterclaim is one such equitable consideration, the Supreme Court has clearly held that it is by no means dispositive. Curtiss-Wright Corp., 446 U.S. at 9, 100 S.Ct. at 1465.
In this proceeding it is apparent that a final judgment has been rendered, and that appropriate “juridical concerns” favor certification. Id. at 10, 100 S.Ct. at 1466. BU’s claims on the promissory notes have been completely adjudicated, since both the fact and amount of Thompson’s liability on those notes has been determined. Rudd Construction Equipment Co. v. Home Insurance Co., 711 F.2d 54, 56 (6th Cir.1983). Both the factual and legal basis for BU’s claims are entirely separate and distinct from that of Thompson’s counterclaims for wrongful termination, severance pay, and indemnification. Indeed, to the extent that the decision on BU’s claims poses any questions of fact or law for the District Court to review, there is no threat of repetitious rulings on those questions in subsequent appeals; nor will Thompson’s liability on the notes be rendered moot by subsequent proceedings in this matter.
Our consideration of the equities among the parties also leads us to conclude that certification is appropriate. While we do not doubt that immediate enforcement of the judgment against Thompson will pose a financial hardship for him, that hardship differs only in amount from that of hundreds of other past and present BU employees similarly situated. To allow the former president of the company to evade his repayment obligations for months or years through drawn out litigation, while present employees of lesser means are repaying their notes through payroll deductions, would grossly compromise the integrity and fairness of the judicial system.
By the same token, this Court cannot ignore the present hardship of BU and its investors. According to recent financial information, the company has a negative net worth of $1 billion. Many of the holders of company securities are elderly and on fixed incomes. They have not received interest or dividends since sometime prior to September, 1983, and the value of their securities has fallen dramatically. Their only hope of recovery lies in the company’s struggle to reorganize. If that goal is to be reached by the January 15, 1986 deadline imposed under a settlement agreement with the Arkansas & Indiana insurance re-habilitators, the company must maximize the collection of cash and other assets owed to it as quickly as possible. To the extent that certification under Rule 54(b) should be limited to the “infrequent harsh case,” we believe that the circumstances of Baldwin-United’s bankruptcy amply meet that qualification. Compare Curtiss-Wright Corp. v. General Electric Co., 446 U.S. 1, 9-10, 100 S.Ct. 1460, 1465-66, 64 L.Ed.2d 1 (1980) with Rudd Construction Equipment Co. v. Home Insurance Co., *145711 F.2d 54, 56 (6th Cir.1983). See also, Union Oil Co. v. Service Oil Co., Inc. 766 F.2d 224, 227-28 (6th Cir.1985).
Thompson asserts that BU’s insolvency is matched by his own, and he has threatened to file his own Chapter 11 petition. Unlike the company’s, his insolvency has yet to be fully explored and established. Even if his assertion is correct, the entry of a final judgment on his liability to BU, either now or years from now, will put him in no better or worse position. Certainly it will have no effect on his ability to seek the protection of the bankruptcy laws.
Thompson argues that this Court committed error in its holding that a stockholder has no right of setoff as to a debt for unpaid stock, and that a recovery on his setoff claims would substantially reduce his liability on the notes. In re Baldwin-United Corp., 48 B.R. 49, 55 (Bankr.S.D. Ohio 1985). While we have considered the possibility that Thompson might recover some of what he must pay to the company if he prevails on his counterclaims, we adhere to our view that he has no right of setoff. Given his admitted liability on the notes, we do not believe that possible recovery on his counterclaims outweighs the other equitable considerations outlined above.
Finally, Thompson suggests that if this Court grants BU’s motion, it should stay the enforcement of the judgment pursuant to Rule 62(h) of the Federal Rules of Civil Procedure. See, Curtiss-Wright Corp. v. General Electric Co., 446 U.S. at 13 n. 3, 100 S.Ct. at 1467 n. 3 (1980). For the same reasons outlined above, the equities do not favor the issuance of a stay of enforcement of the judgment. As was noted in Robbins Flooring, Inc. v. Federal Floors, Inc., 445 F.Supp. 4, 13 (E.D.Pa.1977):
The power to stay execution should be exercised with caution and never unless the case is plain and the equity of the party seeking it free from doubt or difficulty.
While the Court recognized that execution on the judgment might result in the defendant’s financial ruin, the failure to offer an “acceptable plan for the judgment’s satisfaction” and the “elusive and uncertain” prospect for recovery on its counterclaim precluded the issuance of a stay. Id. at 14. The reasoning of Robbins Flooring rings equally true in this proceeding. See also, Gregory v. Garrett Corp., 589 F.Supp. 296, 301 (S.D.N.Y.1984).
For the above stated reasons, the Court shall direct that final judgment be entered in favor of the plaintiff in the amount of $1,037,839.38, with interest to accrue at the rate of $228.69 per day. The motion for certification under Rule 54(b) is hereby GRANTED. The request for stay of execution under Rule 62(h) is hereby DENIED.
Conclusions of Law
1. This Court has subject matter jurisdiction over this adversary proceeding pursuant to 28 U.S.C. § 1334 and § 157.
2. The action is a “core” proceeding pursuant to 28 U.S.C. § 157.
3. The promissory notes were at all times and are now binding and enforceable according to their terms and conditions.
4. Thompson received good and valuable consideration for the promissory notes.
5. Thompson is in default on the promissory notes.
6. BU has fulfilled all of the terms and conditions imposed on it under the promissory notes.
7. Pursuant to 28 U.S.C. § 1961 and Ohio Revised Code § 1343.02, interest on the promissory notes shall be computed until payment is made at the rate specified in the promissory notes.
8. BU is entitled to judgment in its favor and against Thompson in the sum of $1,037,839.38 plus interest at the rate of $228.69 per day from June 6, 1985.
9. BU is entitled to immediate entry of judgment pursuant to Federal Rule of Civil Procedure 54(b) and Bankruptcy Rule 7054 and the Clerk is hereby directed to enter judgment for BU forthwith.
*14610. The execution of judgment shall not be stayed pursuant to Federal Rule of Civil Procedure 62(h).
IT IS SO ORDERED.
. Rule 54(b) reads in pertinent part as follows: When more than one claim for relief is presented in an action, ... the court may direct the entry of a final judgment as to one or more but fewer than all of the claims or parties only upon an express determination that there is no just reason for delay and upon an express direction for the entry of judgment.
. Rule 62(h) reads as follows:
When a court has ordered a final judgment under the conditions stated in Rule 54(b), the court may stay enforcement of that judgment until the entering of a subsequent judgment or judgments and may prescribe such conditions as are necessary to secure the benefit thereof to the party in whose favor the judgment is entered. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8490088/ | MEMORANDUM OF OPINION
JOHN F. RAY, Jr., Bankruptcy Judge.
This matter is before the Court on the motion of plaintiff, Hunt Energy Company, Inc. (“Hunt”), for summary judgment against defendant, Boyd Electric Company, now known as Boyd Liquidation Corp. (“Boyd”), on Boyd’s counterclaim against Hunt.
*366Hunt commenced the within proceeding under Chapter 11 of the Bankruptcy Code on February 10, 1984. On February 8, 1985, Hunt filed a complaint to sell assets comprising the Hunt mini-mill, in which Hunt sought authority to sell certain “mini-mill assets” free and clear of liens, interests and claims. The complaint required all of the defendants named therein to assert their liens or other interests in the mini-mill assets, or be forever barred from asserting any lien or interest in such assets or the proceeds thereof. Hunt subsequently filed an amended complaint to sell assets comprising the Hunt mini-mill on February 15, 1985.
On February 27, 1985, Boyd served its answer to the complaint, and asserted a counterclaim against Hunt. In its counterclaim, Boyd alleged that it contracted with Hunt to furnish labor and material in the erection, alteration and repair of certain of the mini-mill assets. Boyd sought a determination in its counterclaim that it has a valid and subsisting mechanic’s lien in the amount of $115,262.84 against the fund derived from the sale of the mini-mill assets, by virtue of an affidavit to obtain a mechanic’s lien filed on its behalf, a copy of which was attached to its answer and counterclaim as “Exhibit A”.
On March 8, 1985, Hunt filed its reply to Boyd’s counterclaim, in which it asserted the affirmative defense that Boyd’s counterclaim failed to state a claim upon which relief could be granted.
Boyd failed to attach to its affidavit of original contractor a certificate of material-man or, in lieu thereof, a written waiver of lien, release or receipt from Yankee Electric Supply Company (“Yankee Electric”), as required by Ohio Revised Code Section 1311.04. Instead, there appears below the certificate of materialmen for Professional Electric Products Co. merely the stamp of “Yankee Electric Supply Co.” and a signature by Leon Thompson, President, without any certification or information with respect to the nature of the machinery, material or fuel furnished by Yankee Electric, the date Yankee Electric commenced furnishing the same and the amount then due or owing Yankee Electric.
To obtain a valid mechanic’s lien under Ohio law, a lien claimant must strictly comply with all applicable statutory requirements. In the case of Clapp Co. v. Fox, 124 Ohio St. 331, 178 N.E. 586 (1931), the Supreme Court expressed the strict rule of construction as follows; “[M]eehanic’s liens should be strictly construed as to the question whether a lien attaches, but are liberally construed after the lien has been created ...” 124 Ohio St. at 335, 178 N.E. 586 (emphasis added).1
In order to obtain a valid mechanic’s lien, an original contractor must, in addition to filing and serving an affidavit to obtain a mechanic’s lien in accordance with the provisions of Ohio Revised Code Sections 1311.06 and 1311.07, strictly comply with Ohio Revised Code Section 1311.04. Section 1311.04 requires that, when served, a sworn statement or affidavit of original contractor “shall be accompanied by a certificate signed by every person furnishing machinery, material, or fuel to him.” Ohio Rev.Code § 1311.04.
Section 1311.04 sets forth a form of “affidavit of original contractor,” the contents of which include, as the statute mandates and under the heading “Materialmen,” the name and address of every materialman and the amount due or to become due to each. Under such heading the following unambiguous language appears: “Note:— The above must be accompanied by ‘Certificate of Materialman.’ (See Certificate below).” Id.
Section 1311.04 also sets forth a form of “Certificate of Materialmen,” in which all materialmen named in such certificate and the affidavit of original contractor are required to confirm certain representations contained in the affidavit of original contractor, including:
*367that the nature of said machinery, material, or fuel furnished, the date when they commenced furnishing the same and the amount now due or owing to each of them, [are] correctly stated and set opposite their repsective names and addresses ...
Id. (emphasis added). In lieu of such certificate, the contractor may furnish a written waiver of lien release or receipt from each materialman listed.
The necessity of delivering to the owner both a complete affidavit of original contractor and complete certificates of materi-almen before the owner may make a payment to the original contractor is set forth in the following mandatory language of Section 1311.04:
The owner, part owner, lessee, or his agent shall retain out of any money then due or to become due to the principal contractor, an amount sufficient to pay all demands that are due or to become due to such ... materialmen, as shown by the contractor’s] ... state[ment] and the certificates of materialmen for ... machinery, material, or fuel furnished, and shall pay said money to them according to their respective rights.
Id. (emphasis added)
Complete compliance with the statutory requirements as a condition precedent to the perfection of the contractor’s lien is further mandated by the following provision of Section 1311.04:
Until the statements are made and furnished in the manner and form provided for in this section, the contractor has no right of action or lien against the owner, part owner, or lessee, on account of such contract ... and any payments made by the owner, part owner, or lessee, before such statements are made or without retaining sufficient money ... to pay the subcontractors, laborers, or materialmen, as shown by the said statements and certificates; are illegal and made in violation of the rights of the persons intended to be benefited by sections 1311.01 to 1311.24 inclusive, of the Revised Code, ...
Id. (emphasis added).
Ohio cases have held, as dictated by the clear language of Section 1311.04, that a contractor’s or subcontractor’s failure to attach certificates of materialmen to its affidavit invalidates the contractor’s or subcontractor’s lien. See, e.g., Suburban Heating Co. v. Lougher, 4 Ohio App.2d 343, 212 N.E.2d 659 (1964), where the subcontractor’s affidavit was held defective and its lien invalidated since it failed to list a materialman and failed to attach a certificate of materialman to its affidavit.
Ohio cases also hold that an original contractor must be in complete compliance with the formal requirements of Section 1311.04; substantial compliance is not sufficient. Laird Lumber Co. v. Teitelbaum, 14 Ohio St.2d 115, 236 N.E.2d 531 (1968). The Ohio Supreme Court, in Laird, interpreted Section 1311.04 as follows: “Section 1311.04, Revised Code, clearly requires the contractor to list in his affidavit every ma-terialman and to obtain certificates from them,” (citing to Frisch v. Ammon, 34 Ohio App. 447, 171 N.E. 247 (1929). 14 Ohio St.2d at 118, 236 N.E.2d 531.
Section 1311.04 and the Suburban Heating and Laird decisions are clear that unless the statutory requirements are met in the manner and form provided, a contractor’s lien is unperfected and, therefore, void and invalid.
As is shown by “Exhibit 1” to counsel’s affidavit, Boyd failed to attach to its affidavit of original contractor a proper certificate of materialman from Yankee Electric, as required by Section 1311.04. Instead, merely the stamp of “Yankee Electric Supply Co.” and the signature of Leon Thompson, President, were obtained. Consequently, without a proper and complete certificate of materialman, the contents of such certificate as mandated by Section 1311.04 are absent, including the nature of the machinery, material or fuel furnished by Yankee Electric, the date Yankee Electric commenced furnishing the same and *368the amount then due or owing to Yankee Electric.
An original contractor must be in complete compliance with the formal requirements of Section 1311.04, so that an owner may use the certificates of materialmen to properly ascertain the identity of the mate-rialmen and the actual amount then due or owing to each, and to make payments in accordance therewith. Section 1311.04 provides that unless such requirements were met by Boyd in the manner and form provided by the statute, Boyd’s asserted lien was and is invalid.
. See also In re Rocco Homes Building Co., 23 Ohio Op. 514 (N.D.Ohio 1941); Manpower Inc. v. Phillips, 173 Ohio St. 45, 179 N.E.2d 922 (1962); Kelly Co. v. Haendiges, 60 Ohio App.2d 318, 397 N.E.2d 416 (1978), aff'd, 58 Ohio St.2d 505, 391 N.E.2d 723 (1979). | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8490089/ | MEMORANDUM AND ORDER
ROBERT E. GINSBERG, Bankruptcy Judge.
The trustee appointed in this Chapter 11 case, Bernard C. Chaitman, instituted this adversary proceeding against Chicago Boiler Company to recover two alleged preferential transfers under 11 U.S.C. § 547(b). The defendant has filed a motion for summary judgment.
The facts in this case are not in dispute. The debtor filed a petition for relief under Chapter 11 of the Bankruptcy Code on February 24, 1983. Prior to the filing of the petition, the defendant had delivered certain goods to the debtor for use in the ordinary course of the debtor’s business. The debtor paid for these goods with two separate checks. Each check raises a separate legal issue.
November 24, 1982 Cheek
The first check, in the amount of $6,956.52, was dated November 24, 1982 and was mailed to the defendant at about that time. Sometime thereafter, the defendant received and deposited the check. The check cleared the debtor’s bank account on December 1, 1982.
Under 11 U.S.C. § 547(b), for a transaction to be avoidable as a preference the trustee must prove six elements 1 (1) a transfer of the debtor’s property (2) to or for the benefit of a creditor (3) on account of antecedent debt (4) made while the debt- or was insolvent (5) on or within 90 days before the filing of the petition2 (6) where such transfer allows the creditor to receive a greater percentage of the debtor's estate than it would have received had the transfer not taken place and had the debtor’s assets been liquidated and distributed in a Chapter 7 case. The only element in dispute here is whether the debtor’s check caused a transfer of funds on or within 90 days before the filing of the Chapter 11 petition.
The defendant argues that the debtor’s property was transferred on the date of the check, November 24, 1982. If so, the transfer would have occurred 92 days before the filing of the petition and would not be avoidable as a preference. The trustee asserts that no transfer of the debtor’s property occurred until the debtor’s bank honored the check on December 1,1982. If this contention is correct, the transfer would have occurred 85 days before the filing of the petition and would be avoidable as a preference.
The vast majority of courts that have considered this issue have held that a transfer for purposes of § 547(b) occurs on the date the debtor’s bank honors the check. See, e.g., Klein v. Tabatchnick, 610 F.2d 1043, 1049 (2d Cir.1979) (interpreting section 60 of the Bankruptcy Act); Matter of Ellison (Harris v. Harbin Lumber Co.), 31 B.R. 545, 548 (Bankr.M.D.Ga.1983); Matter of Richter & Phillips Jewelers & Distributors, Inc. v. Dolly Toy Co., 31 B.R. 512, 514 (Bankr.S.D.Ohio 1983); In re Skinner Lumber Co., Inc. (Campbell v. Kimberly Clark Corp.), 27 B.R. 669, 670 (Bankr.S.C.1982); Matter of Advance Glove Manufacturing Co. (Grogan v. Chesebrough-Ponds, Inc.), 25 B.R. 521, 524-25 (Bankr.E.D.Mich.1982).3 Some theories *584were raised in pleadings and arguments about the applicability of § 547(e) to this transaction.4 How this provision was thought to apply is unclear. Apparently the argument is that the relation back provision of § 547(e)(2) relates back the cashing of the check to the time of mailing, which would be more than 90 days before the petition. The legislative history of these subsections, however, restricts their application to matters involving secured transactions. See S.Rep. No. 595, 95th Cong., 2d Sess. 89 (1978); see also In re Arnett (Ray v. Security Mutual Finance Corp.), 731 F.2d 358, 362 (6th Cir.1984); Matter of Fasano/Harriss Pie Co. (Remes v. Acme Carton Corp.), 43 B.R. 871, 875 (Bankr.W.D.Mich.1984).
In any case, the issuance of a check is not a transfer. The money in the checking account is not transferred unless and until the check is cashed. U.C.C. § 3-409 (1983). To apply § 547(e)(2) here would lead to the result of a transfer being deemed to occur for preference purposes before it in fact occurs. This is a result that the drafters of the 1978 Bankruptcy Code clearly wished to avoid. See S.Rep. No. 595, 95th Cong., 2d Sess. 89 (1978). Moreover, although the Bankruptcy Code does define the term “transfer,” see 11 U.S.C. § 101(48), the Code does not list the necessary events that cause a transfer to occur. Consequently, it is appropriate to consider state law on this issue. Matter of Advance Glove Mfg. Co., 25 B.R. at 524. Consistent with the majority viewpoint, Illinois statutes provide that the giving of a check does not constitute payment or discharge of the underlying indebtedness, but rather is conditional upon the honoring of the check by the drawee bank. See Ill. Ann.Stat. ch. 26, §§ 2-511, 3-409, 3-802 (Smith-Hurd 1984-85); Tri-State Bank v. Blue Ribbon Saddle Shop, Inc., 76 Ill. App.3d 445, 32 Ill.Dec. 230, 233, 395 N.E.2d 177, 180 (1979); Leavitt v. Charles R. Hearn, Inc., 19 Ill.App.3d 980, 312 N.E.2d 806, 809 (1974).
The debtor’s bank did not honor the check payable to the defendant until December 1, 1982, 85 days before the filing of the bankruptcy petition. Thus, the transfer of the debtor’s property took place within 90 days preceding the petition. As a result, the defendant's motion for summary judgment as to the November 24, 1982 check is denied.
December 10, 1982 Check
The defendant acknowledges that the transfer resulting from the second check it received from the debtor, in the amount of 9,823.94, dated December 10, 1982 and honored by the debtor’s bank on December 16, 1982, satisfies all. the ele*585ments of a preference. The defendant claims, however, that the transfer of funds falls under the § 547(c)(2) exception to avoidable preferences. The pre-1984 version of § 547(c)(2) prevents the trustee from avoiding a transfer (1) made in the ordinary course of the debtor’s business (2) in payment of a debt incurred by the debtor in the ordinary course of business (3) made according to ordinary business terms and (4) made not later than 45 days after such debt was incurred. It is clear that the first three elements of the exception are present. The only question is whether the transfer took place within 45 days of the time the debt was incurred.5
The defendant states that the check dated December 10, 1982 was a payment for goods shipped October 1, 1982 and for which an invoice required payment on November 1, 1982. The defendant argues that the debt was incurred on the date that the invoice stated payment was due, November 1,1982. If so, the debt would have been paid within 45 days after it was incurred. The trustee argues that the debt was incurred on October 1, 1982, when the order was shipped to the defendant. If this contention is accepted, payment would not have been made within 45 days after the debt was incurred.
Again, there is a clearest majority rule on this issue. Most courts, including the United States Court of Appeals for the Seventh Circuit, have held that a debt is incurred for purposes of § 547(c)(2) when the debtor becomes legally obligated to pay. See Barash v. Public Finance Corp. 658 F.2d 504, 510 (7th Cir.1981); See also In re Gold Coast Seed (Nolden v. Van Dyke Seed Co., Inc.), 751 F.2d 1118, 1119 (9th Cir.1985); In re Wathen’s Elevators (Dickinson v. Meredith), 37 B.R. 870, 871 (Bankr.W.D.Ky.1984); Richter & Phillips Jewelers, 31 B.R. at 515; In re Super Market Distributors Corp. (Artesani v. Travco Plastics Co., Inc.), 25 B.R. 63, 66 (Bankr.Mass.1982); Matter of Advance Glove, 25 B.R. at 524. The legal obligation to pay arises either on shipment or delivery, depending on the contractual agreement. Id 6 The date of invoicing or the date payment is due is not the date the debt was incurred. Matter of Emerald Oil Co. (Sandoz v. Fred Wilson Drilling Co.), 695 F.2d 833, 837 (5th Cir.1983); Richter & Phillips Jewelers, 31 B.R. at 515. The logic of this conclusion is inescapable. If the debtor had filed Chapter 11 on October 15, 1982, before the invoice date but after the shipment date, it is hard to imagine that the defendant would have been unable to assert a claim in the case. See 11 U.S.C. §§ 101(4), (11).
In the case at bar, shipment occurred on October 1, 1982. Assuming the debt was incurred on this date, it would not have been incurred within 45 days of payment, which was at earliest on December 10, 1982.7 The defendant does not allege the date that it received the goods, which would have been the latest date that the debtor could have been obligated to pay the defendant. Because this date has not been alleged to have fallen within the 45-day period set out in § 547(c)(2), the defendant’s motion for summary judgment re*586garding the December 10, 1982 check must be denied.
. The date of the petition requires that this proceeding be governed by § 547 as it read before the 1984 amendments. See Pub.L. 98-353, § 553.
. The 90 day period is extended to one year in certain circumstances where the creditor receiving the transfer is an insider. See 11 U.S.C. § 547(b)(4)(B). There is no allegation that the defendant in this proceeding was an insider.
.This holding is limited to the time that a transfer of money in a checking account takes place for purposes of § 547(b). As indicated *584infra, it is unnecessary for us to determine whether a different result obtains under § 547(c)(2). See infra note 7.
. Sections 547(e)(1), (e)(2), and (e)(3) were not intended to apply in these circumstances. Section 547(e)(1) states:
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 real property, is perfected when a bona fide purchaser 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.
Section 547(e)(2) states:
For the purposes of this section, except as provided in paragraph (3) of this subsection, a transfer is made—
(A) at the time such transfer takes effect between the transferor and the transferee, if such transfer is perfected at, or within 10 days after, such time;
(B) at the time such transfer is perfected, if such transfer is perfected after such 10 days; or
(C) immediately before the date of the filing of the petition, if such transfer is not perfected at the later of—
(i) the commencement of the case; or
(ii) 10 days after such transfer takes effect between the transferor and the transferee.
Section 547(e)(3) states:
For the purposes of this section, a transfer is not made until the debtor has acquired rights in the property transferred.
.The 45 day payment restriction was omitted from § 547(c)(2) by the Bankruptcy Amendments and Federal Judiciary Act of 1984. The Act, however, is applicable only to cases filed on or after October 9, 1984. See In re Quality Holstein Leasing, Inc. (Vineyard v. Abel), 46 B.R. 70, 72 (N.D.Tex.1985). The defendant argued that the “spirit” of the 1984 Amendments should apply to this case and the 45 day requirement be dropped in this proceeding. The clear legislative direction is to the contrary. Pub.L. 98-353, § 553. Therefore, the court gives no weight whatsoever to the 1984 Amendments in deciding this matter.
. The difference between shipping date and delivery date is irrelevent as the goods seem to have been shipped and delivered on October 1, 1982.
. The defendant's brief raises the question of whether for § 547(c)(2) purposes, the transfer took place on the date the check was issued (December 10, 1982) or the date it was honored by the drawee bank (December 16, 1982). It is unclear why this issue was raised, as both dates fall within 45 days of when the defendant claimed the debt was incurred, November 1, 1982. See Bankruptcy Rule 9006(a). | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8490090/ | ORDER ON MOTIONS FOR SUMMARY JUDGMENT
ALEXANDER L. PASKAY, Chief Judge.
THIS IS a Chapter 11 case and the matter under consideration is the validity, vel non, of a mortgage lien claimed by Hank Vroom (Vroom) and Gordon Kuder (Kuder), the Defendants named by Punta Gorda Pines Development, Inc. and Pines at Pun-ta Gorda, Debtors in the above-captioned adversary proceeding. The Complaint of the Debtors sets forth five claims in five separate Counts and basically challenges the legal validity and enforceability of a mortgage lien claimed by Vroom and Ku-der on the landholdings of these Debtors who seek relief under Chapter 11 of the Bankruptcy Code. The immediate matter under consideration is a Motion for Summary Judgment filed by the Plaintiffs which more accurately should be described as a Motion for Partial Summary Judgment inasmuch as it is addressed only to Count I and Count V of the Complaint. In Count I of the Complaint, the Plaintiffs seek, by way of declaratory relief, a determination that the mortgage lien claimed by the Defendants, Vroom and Kuder, is invalid and unenforceable as a matter of law and since there are no genuine issues of material facts, according to the Plaintiffs, they are entitled to resolution of this controversy without the necessity of a trial by a Partial Final Judgment on Count I in their favor and against both Defendants.
The Plaintiff’s Motion for Summary Judgment as it relates to Count V, seeks a determination by this Court that even if this Court ultimately finds the mortgage lien claimed by Vroom and Kuder to be valid, that mortgage lien should be subordinated to the interest of the other Defendant named in the adversary proceeding, Goldome Savings Association (Goldome Savings). The right to subordinate is claimed to be based on a subordination agreement.
The Motion of the Plaintiffs is not supported by an Affidavit, but is based solely on documents attached as Exhibits to the Complaint. The Defendants, Vroom and Kuder, filed what is titled “Response to the Motion.” They also filed, in the alternative, their own Motion for Partial Summary Judgment contending that there are no genuine issues of material facts and they are entitled to a judgment as a matter of law.
The undisputed facts germane to the resolution of the controversy under consideration, as it appears from the record, may be summarized as follows:
Punta Gorda Pines Development, Inc., one of the Debtors, is a Florida corporation and is the owner and operator of a trailer park located in Charlotte County, Florida. On the 18th day of September, 1981, Robert Cohen and Jeffrey Kolodney, executed an instrument entitled “Security Agreement” (Agreement). The Agreement describes Cohen and Kolodney as the “Debt- *618or” (sic) and describes Kuder and Vroom as “Secured Party” (sic). A sub-title of the Agreement entitled “Creation of Security Interest” purports to create and grant a security interest in one hundred (100) shares of stock of Punta Gorda Pines Development, Inc., stocks represented by Certificate Numbers 4 and 5, respectively. The body of the Agreement under this subtitle contains the following language: “It is recognized that the major asset of the corporation is the fee simple title in the property described as follows:
The W V2 of the SE Vi of the NE lk, the E Vi of the NE the NE Vt of the NW Vi of the SE Vi of the SE Vi; the SE Vi of the NW Vi; and the SW Vi of the NE Vi of the SE Vi; all of Section 27, Township 41 South, Range 23 East, Charlotte County, Florida, less and except road rights of way.
which shall be considered as part of the Collateral of this Security Agreement.”
The Agreement also contains an original sub-title entitled “Obligation Scheduled” in which it is recited:
“collateral shall secure payment of any and all indebtedness, liabilities and obligations of a debtor (emphasis supplied), whether absolute or contingent, now existing or hereafter arising, due or to become due, secured or unsecured, or joint or several, herein referred to an indebtedness, including a promissory note executed this same date, a copy of which is attached hereto.”
At the end of the Agreement, there is a statement which appears to be an addendum, inasmuch as it is typed after the original Agreement had already been signed by Kolodney and Cohen described as Debtors which reads as follows:
“PUNTA GORDA PINES DEVELOPMENT, INC., a Florida corporation, agrees to the terms and conditions of the foregoing Security Agreement executed on the (sic) day of September, 1981.”
This statement is signed in the presence of two subscribing witnesses by Robert Cohen as President of Punta Gorda Pines Development, Inc. It is without dispute that the addendum, just as the Agreement described above, was duly recorded in the Public Records of Charlotte County, Florida.
The record further reveals that a promissory note was executed on September 18, 1981 in the principal amount of $1,080,000 evidencing the indebtedness purportedly secured by the Agreement. The promissory note is signed by Robert Cohen, as Trustee for the owners of stock of Punta Gorda Pines Development, Inc. The promissory note was also recorded in the Public Records of Charlotte County, Florida.
Based on this record, it is the contention of the Plaintiffs that there are no genuine issues of material fact and they are entitled to a judgment as a matter of law for the following reasons.
First, it is the contention of the Plaintiffs that the document referred to as the “Agreement” was, ineffective as a matter of law, to create a valid, enforceable mortgage lien on the real property owned by the Debtor. This proposition, according to the Plaintiffs, is based on the very language of the document which, on its face, indicates that the Agreement intended to create a security agreement only in the corporate stock described in the “Agreement” and, although there is an reference in the Agreement to the landholdings of the Debtor, this reference falls far short to effectively create an interest in land as a matter of law. In addition, it is the contention of the Plaintiffs that even assuming, but not admitting, that the reference in the Agreement to the subject land as part of the collateral, intended to create a mortgage lien, the same is not supported by any obligation of this Debtor. Thus, the mortgage lien, if one exists, is invalid and unenforceable for failure of consideration. In support of this contention, the Plaintiffs point to the signature line of the promissory note which, on its face, clearly indicates that it represents and evidences only an indebtedness of Robert Cohen, as Trustee, who executed the note on behalf of the stockholders of the Debtor and nowhere is there any indication, even indirect, that the *619promissory note was intended to create a valid and enforceable obligation of the Debtor corporation. In any event, so contends the Plaintiffs, since none of the documents carry the corporate seal, the documents did not, as a matter of law, create a valid and enforceable mortgage lien interest in land owned by this corporate Debtor. This contention is based on § 692.01 Fla. Stat. which requires that all conveyances and mortgages executed by a corporation shall be under the seal of the corporation.
The final contention of the Plaintiffs is that even if the Agreement was deemed to be a valid interest in land, the Agreement would be indexed according to the name of the parties granting the security interest, i.e. Robert Cohen and Jeffrey Kolodney and would not appear in the index under Punta Gorda Pines Development, Inc. and is, therefore, unperfected as to the Debtor corporation.
Based on the last proposition, it is the contention of the Plaintiffs that by virtue of the special voiding power granted to the Trustee by § 544(a)(3) and (b) of the Bankruptcy Code, the Trustee, as well as a debtor in possession, will be able to defeat the unperfected interest in land.
In opposition to the contentions advanced by the Plaintiffs, Vroom and Kuder, assert first that the Agreement did create a valid mortgage lien on the land by virtue of the language quoted earlier; that the addendum to the Agreement contains, if nothing else, an assumption by the corporation of the terms of the Agreement and the assumption is signed by Mr. Cohen, as President of the Debtor corporation; it is the requirement of the statute that conveyances and mortgages executed by corporations must carry a seal is merely permissive and not mandatory; that the absence of a seal is not fatal and does not impact the legal validity of the document. While Vroom and Kuder do not dispute that the promissory note was not a note of the corporate Debtor, they contend that there is nothing to prevent a corporation from guaranteeing and pledging its property to secure an obligation of another. Citing Emerald Hills Country Club v. Hollywood, Inc. (In re Emerald Hills Country Club), 32 B.R. 408 (Bankr.S.D.Fla.1983). They also urge that §§ 607.141 and 607.237 expressly authorized corporations in this State to secure indebtedness of others by pledging or mortgaging corporate properties. Lastly, counsel for Vroom and Kuder argue, in the alternative, that even assuming the documents failed to create a mortgage lien by the language used, the documents clearly demonstrate as sufficient legal ambiguity, latent at least, which would require the receipt of parol evidence to ascertain the true intent of the parties and this alone would prevent a disposition of the controversy by summary judgment. While this Court is in agreement with the proposition advanced the Defendant that lack of corporate seal is not fatal and neither is the lack of consideration to the corporate Debtor from the mortgage lien claimant, this Court is satisfied that regardless the Plaintiffs are entitled to a granting of their Motion for Summary Judgment for the following reasons:
Having considered the respective contentions advanced by the parties, this Court is satisfied that there are, indeed, no genuine issues of material fact and it is proper to dispose of the controversy without the necessity of a trial.
The Agreement entitled “Security Agreement” no doubt did intend to create a security interest in the corporate stock described in the Agreement. It is equally clear, however, that it did not effectively create a valid mortgage lien in the real property owned by the Debtor corporation. First, because there is nothing in this record to evidence that the grantors, i.e. Cohen and Kolodney, had any ownership interest, legal or equitable, in the subject land and it needs no elaborate discussion to establish the obvious, that one cannot grant a mortgage lien in property in which one acting as grantor has no interest. Houston v. Forman, 92 Fla. 1, 109 So. 297 (1926); Shuman v. State, 62 Fla. 84, 56 So. 694 (1911).
*620Second, the so-called assumption which was, in fact, signed by Cohen as President of one of the Debtors, while it might have been effective to operate as an assumption of a personal liability of Cohen and Kolod-ney by the Debtor corporation, it was legally insufficient as a matter of law to make the Debtor corporation, in fact, the grantor of the lien or an entity, assuming there already is a valid existing mortgage lien encumbering the subject property, simply because there was none to begin with. Moreover, the Defendants’ reliance on Emerald Hills is misplaced simply because the alleged “assumption” by the corporate Debtor was not an assumption at all, but merely acknowledgement that the corporate Debtor was made aware and agreed to stock pledged by Cohen and Kolodney, a practice not uncommon and clearly understandable.
Based on the foregoing, the Court is satisfied that the Agreement failed to create an interest in the real property of the Debtor corporation; and that it is, therefore, unnecessary to address in detail the remaining contentions of the parties relating to Count I of the Complaint. Because there is no valid lien on the property, the subordination issue raised by Count V of the Complaint is moot. Accordingly, it is
ORDERED, ADJUDGED AND DECREED that the Motion for Summary Judgment, treated as a Partial Motion for Summary Judgment, be, and the same hereby is, granted in favor of the Plaintiffs and against the Defendants, Vroom and Cohen, and a separate final judgment shall be entered in accordance with the same declaring the mortgage lien claimed by the Defendants Vroom and Cohen to be legally invalid and unenforceable. It is further
ORDERED, ADJUDGED AND DECREED that the Motion for Summary Judgment filed by the Defendants Vroom and Cohen be, and the same hereby is, denied. It is further
ORDERED, ADJUDGED AND DECREED that the Motion for Summary Judgment, treated as a Partial Motion for Summary Judgment as it relates to the claim set forth in Count V of the Complaint be, and the same hereby is, denied and the claim set forth in said Count shall stand as dismissed. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8490091/ | MEMORANDUM AND ORDER ON TRUSTEE’S MOTION FOR APPROVAL OF PROPOSED COMPROMISE AND SETTLEMENT OF CLAIM
ORDER NO. 104
CLIVE W. BARE, Bankruptcy Judge.
On May 26, 1983, an involuntary petition was filed against Earl Wilson. The petition was sustained, and an order for relief under chapter 7 was entered August 3, 1983. Upon debtor’s failure to do so, his wife, Harriette Wilson, filed a list of property claimed as exempt. 11 U.S.C.A. § 522(Z) (1979). She filed an amended claim of exemptions on May 1, 1984. Thereafter, on May 30, 1984, the court entered Order No. 64, decreeing Tennessee to be debtor’s domicile for the purpose of exemption claims. 11 U.S.C.A. § 522(b)(2) (1979). On appeal, the district court affirmed this court’s ruling as to debtor’s domicile for the purpose of claiming exemptions in bankruptcy. However, the district court held, contrary to this court’s conclusion, that the date of the order for relief, not the petition date, is the proper date to determine which property is exempt in an involuntary case. Further, the district court remanded the matter for reconsideration of the exemptions claimed by Harriette Wilson, including property she holds as a tenant by the entirety with the debtor.
On June 14, 1985, the trustee filed a motion requesting approval of a compromise settling both the exemption claims and any claims the estate might have against Harriette Wilson. The trustee filed a memorandum supporting his motion on July 26, 1985. Pursuant to the compromise the estate will receive: (1) the entire corpus of the Earl D. Wilson Irrevocable Trust No. 2, valued at $98,783.34 as of March 15, 1985;1 (2) stock, owned by debt- or and Harriette Wilson as tenants by the entirety, in Resorts Group, Inc.2 and Rolex, Inc. and Triad Corporation; (3) approximately $.49,000 cash in an escrow account representing a joint tax refund and proceeds from property held by debtor and Harriette Wilson as tenants by the entirety; (4) certain promissory notes held by debtor and Harriette Wilson as tenants by the entirety; and (5) a country club membership, office furniture, and two watches, all of which the trustee will sell to Har-riette Wilson for $9,600.
*636Section 522(b)(2) of Title 11 of the United States Code, as of the involuntary petition date in debtor’s case, provided in part:
(b) Notwithstanding section 541 of this title, an individual debtor may exempt from property of the estate either—
(2)(A) any property that is exempt under Federal law, other than subsection (d) of this section, or State or local law that is applicable on the date of the filing of the petition at the place in which the debtor’s domicile has been located for the 180 days immediately preceding the date of the filing of the petition, or for a longer portion of such 180-day period than in any other place; and
(B) any interest in property in which the debtor had, immediately before the commencement of the case, an interest as a tenant by the entirety or joint tenant to the extent that such interest as a tenant by the entirety or joint tenant is exempt from process under applicable nonbankruptcy law.
11 U.S.C.A. § 522(b)(2) (1979).
The current marital residence, with an equity of $450,000 or more, in Longwood, Florida, is among the property claimed exempt under § 522(b)(2)(B). Under Tennessee law, the applicable state law in determining debtor’s exemptions, the estate’s interest in the Longwood residence, purchased with entireties funds during the gap between the involuntary filing and entry of the order for relief, is limited to debtor’s survivorship interest.
The trustee has identified potential claims totaling approximately $85,000 against Harriette Wilson, due to cash transfers to her from the debtor or her withdrawal of funds from joint accounts. However, the trustee represents that Har-riette Wilson’s “only substantial asset” is her entireties interest in the Longwood residence. The trustee asserts that Harriette Wilson is entitled to a homestead exemption in the residence under Florida law.3 Further, Harriette Wilson maintains the trustee cannot avoid her withdrawals of funds from joint accounts as fraudulent transfers. This is a controverted issue.
The trustee proposes to release Harriette Wilson from any and all claims the estate may have against her and to abandon any claim or interest of the estate in the Long-wood residence.4 Thus, excluding the value of debtor’s survivorship interest in the Longwood residence, the trustee is surrendering claims of approximately $85,000 for property minimally worth $120,000, according to the trustee’s attorney.
The trustee “strongly believes” the settlement is in the best interest of the estate. According to the trustee, the value of the assets the estate will receive exceeds his potential claims against Harriette Wilson; the result of litigation, an expense to the estate, against Harriette Wilson is uncertain; and recovery of any judgment against her appears improbable. Considering these factors, as well as the absence of objection by any creditor, and the limited interest of the estate in the Longwood residence, the trustee’s motion for approval of *637the proposed compromise and settlement is GRANTED.
IT IS SO ORDERED.
. The principal asset of the trust is a 159-acre farm owned by debtor and Harriette Wilson as tenants by the entirety. Harriette Wilson will receive a right of first refusal to purchase this farm for not less than eighty-five (85) percent of the appraisal value.
. The trustee will sell the Resorts Group, Inc. stock to Harriette Wilson for $1,000. Believed to be worthless, the stock may nonetheless have value to Harriette Wilson for tax purposes.
. Fla.Const. art. X, § 4 provides in part:
Homestead — exemptions
(a) There shall be exempt from forced sale under process of any court, and no judgment, decree or execution shall be a lien thereon, except for the payment of taxes and assessments thereon, obligations contracted for the purchase, improvement or repair thereof, or obligations contracted for house, field or other labor performed on the realty, the following property owned by a natural person:
(l) a homestead, if located outside a municipality, to the extent of one hundred sixty acres of contiguous land and improvements thereon, which shall not be reduced without the owner’s consent by reason of subsequent inclusion in a municipality; or if located within a municipality, to the extent of one-half acre of contiguous land, upon which the exemption shall be limited to the residence of the owner or his family....
. With the exception of her waiver of limitations defense, the settlement is null and void if the trustee discovers a material nondisclosure by Harriette Wilson of property of the estate transferred to or for her benefit by the debtor. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8490092/ | MEMORANDUM AND ORDER GRANTING PLAINTIFF’S MOTION FOR SUMMARY JUDGMENT
CLIVE W. BARE, Bankruptcy Judge.
An involuntary petition was filed against Earl D. Wilson a/k/a Earl Wilson at 2:45 p.m. on May 26, 1983. The petition was sustained and an order for relief under chapter 7 was entered on August 3, 1983.
On October 31, 1984, plaintiff trustee commenced an adversary proceeding1 against Wilson Properties, Ltd., a Tennessee limited partnership for which Earl Wilson was the general partner. The trustee asked the court to find that Wilson Properties, Ltd. was the instrumentality and alter ego of Earl Wilson and to administer the partnership’s assets and liabilities as part of Earl Wilson’s bankruptcy ease. Wilson Properties, Ltd. did not file an answer to the trustee’s complaint, but on December 13, 1984, an agreed order was entered which recites:
It appearing to the Court and the parties herein having agreed that the allegations of the Complaint are true, and Defendant, Wilson Properties, Ltd., having admitted the truth of the allegations of the Complaint, it is
ORDERED that the entity known as Wilson Properties, Ltd. is set aside and that the assets and liabilities of Wilson Properties, Ltd. shall be administered as *638part of and consolidated with the proceeding under Chapter 7 of Earl D. Wilson.
On May 26, 1983, the same date the involuntary petition was filed, Wilson Properties, Ltd. executed a deed of trust against nine lots in Washington County, Tennessee to secure antecedent debts of Earl Wilson, David C. Combs, and James W. Cook to defendant Bank of Commerce. This deed of trust, naming defendant Ken Southern as trustee for the Bank of Commerce, was received for record in the Washington County register’s office on May 26, 1983, at 3:20 p.m., thirty-five (35) minutes after commencement of the involuntary proceeding.
Plaintiff trustee contends2 he is entitled to avoid the transfer by Wilson Properties, Ltd. pursuant to Bankruptcy Code § 549, which enacts in part:
Postpetition transactions
(a) Except as provided in subsection
(b)and (c) of this section, the trustee may avoid a transfer of property of the estate—
(1) that occurs after the commencement of the case; and
(2)(A) that is authorized under section 303(f) [transfers by involuntary debtor prior to entry of order for relief] ... or
(B) that is not authorized under this title or by the court.
(b) In an involuntary case, a transfer that occurs after the commencement of such case but before the order for relief is valid against the trustee to the extent of any value, including services, but not including satisfaction or securing of a debt that arose before the commencement of the case, given after the commencement of the case in exchange for such transfer, notwithstanding any notice or knowledge of the case that the transferee has.
(c)The trustee may not avoid under subsection (a) of this section a transfer, to a good faith purchaser without knowledge of the commencement of the case and for present fair equivalent value ... of real property located other than in the county in which the case is commenced, unless a copy of the petition was filed in the office where conveyances of real property in such county are recorded before such transfer was so far perfected that a bona fide purchaser of such property against whom applicable law permits such transfer to be perfected cannot acquire an interest that is superi- or to the interest of such good faith ... purchaser. A good faith purchaser, without knowledge of the commencement of the case and for less than present fair equivalent value, of real property located other than in the county in which the case is commenced, under a transfer that the trustee may avoid under this section, has a lien on the property transferred to the extent of any present value given, unless a copy of the petition was so filed before such transfer was so perfected.
11 U.S.C.A. § 549(a)-(c) (1979) (emphasis added).
Since the partnership was his alter ego, the nine lots owned, and mortgaged to Bank of Commerce, by Wilson Properties, Ltd. were property of the estate as of the commencement of the debtor’s case. 11 U.S.C.A. § 541 (1979). The deed of trust conveyance to Bank of Commerce is clearly a postpetition transaction. The conveyance is not excepted from the trustee’s avoidance power by § 549(b) or (c), because Bank of Commerce accepted the deed of trust to secure antecedent debts and did not give “present fair equivalent value,” § 549(c), in exchange for the deed of trust..
In consideration of the deed of trust, however, Bank of Commerce asserts it did release 9,000 shares of stock in George Washington Savings and Loan Association which secured a loan to the debtor. Additionally, Bank of Commerce avers it re*639leased other collateral — 21,000 shares of stock in the same savings and loan owned by David Combs — on a note it held, in exchange for the deed of trust.
The parties agree that the value of the nine lots is $126,000. Pursuant to 11 U.S. C.A. § 550 (1979) the trustee requests judgment for the value of the nine lots, as opposed to return of the lots. The trustee is entitled to recover of the defendants $126,000, less the value of the 9,000 shares of stock in George Washington Savings and Loan,3 less the cost incurred by Bank of Commerce for an appraisal of the nine lots in issue.4 Because the value of the 9,000 shares of stock is not a matter of record, absent stipulation by the parties, trial to determine the value of the stock will be held on September 25, 1985, at 1:30 p.m., at the Bankruptcy Courtroom, 15th Floor, Plaza Tower, Knoxville, Tennessee.
IT IS SO ORDERED.
. William L. Davis v. Wilson Properties, Ltd., Adv.Proc. No. 3-84-0319.
. In his complaint filed May 20, 1985, the trustee asked the court to avoid the deed of trust transfer on a fraudulent conveyance theory. However, the trustee asserts his rights under § 549 in his Response to Defendants’ Motion for Judgment on the Pleadings and Brief in Support of Plaintiff's Motion for Summary Judgment, filed August 23, 1985. *
. Bank of Commerce is not entitled to any reduction in its liability for the value of the 21,000 shares of stock in George Washington Savings and Loan released to David Combs. See American Gypsum Co. v. Grover Trucking Co., 36 B.R. 360, 363 (Bankr.D.N.M.1984) (gap period transfers avoidable except to the extent the debtor receives new value).
. Bank of Commerce asserts it obtained an appraisal of the nine lots in reliance upon the representation by the trustee’s attorneys that the property would be abandoned if an appraisal showed that there was no equity in the property. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8490093/ | ORDER
GEORGE C. PAINE, II, Bankruptcy Judge.
This matter is before the court on motions filed by A1 Phillips Insurance Agency, Inc., members of the Grubbs family, and Nashville City Bank (hereinafter referred to as the “movants”) to alter or amend this court’s judgment entered October 24, 1984. The movants allege that the court failed to recognize their secured status when it held that the Chapter 7 trustee was not bound by provisions of a preceding Chapter 11 plan according first priority to administrative expense claimants of the Chapter 11 estate. The movants argue that the cases relied upon by this court allowed first priority to Chapter 7 administrative expenses under 11 U.S.C. § 726(b) (West 1979) only when the administrative expenses of the preceding Chapter 11 case were unsecured. The movants further urge this court to alter its judgment claiming that the estate has sufficient proceeds to pay both the movants’ claims and the administrative expenses of the Chapter 7 estate. Upon consideration of statement of counsel and applicable authority, the court finds no reason to alter or amend its previous order and hereby DENIES the mov-ants’ motion to alter or amend.
The court is convinced that the parties could not, in a Chapter 11 plan, agree to grant super-priority to Chapter 11 administrative expenses unless they entered into a 11 U.S.C. § 364 (West 1979) financing order. The movants argue that both In re Flagstaff Foodservice Corporation, 739 F.2d 73, BANKR.L.REP. (CCH) § 69,938 (2nd Cir.1984) and In re Universal Table Top Co., Inc., 10 B.R. 706 (Bankr.E.D.N.Y.1981) support their contention that Chapter 11 administrative claimants may be granted priority over subsequent Chapter 7 administrative expenses. Upon review of these cases, the court finds that they both dealt with § 364 financing orders in which priority was accorded creditors for advancing future funds. In its earlier decision, the court was not presented with a situation in which the debtor-in-possession entered into a § 364 financing order in return for future advances of funds.1 Accordingly, the authority cited by the movant does not support alteration of the court’s earlier order.
Finally, the movants’ argument that sufficient funds exist to pay both the administrative claimants of the preceding Chapter 11 estate and the administrative claimants of the existing Chapter 7 estate do not support alteration of this court’s previous judgment. On the contrary, the court notes that pursuant to 11 U.S.C. § 726(b) (West 1979) and 11 U.S.C. § 507(a)(1) (West 1979) the administrative claimants of the preceding Chapter 11 estate are entitled to payment after payment of the Chapter 7 administrative expenses. Thus, if sufficient funds exist, this court's previous decision will not preclude the Chapter 11 administrative claimants from receiving payment.
Accordingly, the court hereby ORDERS, ADJUDGES, and DECREES that the mov-ants’ motion to alter or amend this court’s *7judgment entered on October 24, 1984, is hereby DENIED.
IT IS, THEREFORE, SO ORDERED,
. This order does not address Nashville City Bank’s motion to dispose of the issue reserved by the court in footnote 5 of its earlier decision. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8490095/ | MEMORANDUM OPINION
HENRY L. HESS, Jr., Bankruptcy Judge.
This matter came before the court upon Washington Leasing Corporation’s (hereinafter referred to as “WLC”) objection to confirmation of the debtor’s proposed chapter 13 plan herein.
WLC objects to the debtor’s proposed plan, primarily on the ground that the plan improperly treats WLC as a secured creditor. WLC contends that, in fact, it is a lessor of certain photographic equipment to the debtor pursuant to the terms of a written agreement. Accordingly, WLC asserts that the debtor must assume or reject the lease under 11 U.S.C. § 365, but may not modify WLC’s rights.
In response, the debtor argues that the agreement, while denominated a “Lease Agreement”, is actually a contract of sale and security agreement. Accordingly, the debtor argues, she may treat WLC as a secured creditor to the extent of the value of the collateral and pay the allowed secured claim over time.
At a hearing on the objection, Mr. Maurice, President of WLC, testified that the agreement in question was prepared by WLC. The agreement provided, in an addendum labeled “Exhibit ‘A’ ”, the following:
Lessee guarantees to Lessor that the net sales proceeds from the sale of the equipment at the end of the term of the Lease shall be $8,808.48. Lessor shall use its best efforts to sell the equipment within sixty (60) days of the termination of the lease. The sale may be on any terms so long as Lessor acts in good faith and in a commercially reasonable manner, but so long as Lessor so acts, it shall be conclusively presumed that the sales price is the fair market value of the equipment and that the failure to realize the guaranteed residual value is due to excessive use of the property or other cause, not anticipated when the Lease was signed, and entitling the Lessor to additional rental. Under this clause, if the net sales proceeds are less than the guaranteed residual value, Lessee agrees to pay Lessor in cash, the difference within thirty (30) days after the date of sale. Attached to and made a part of that certain Equipment Lease Agreement dated _, between Dee Ann Redifer dba QSS 60 Minute Photo Express as LESSEE Dee Ann Redifer dba QSS 60 ING CORPORATION LESSOR By: /s/ Carole Reis, Title: VP, Date: 1/18/83— LESSEE DeeAnn Redifer dba QSS 60 Minute Photo Exp. By: /s/ Dee Ann Redifer, Title: Owner, Date: Jan 3, 83.
In an-earlier part of the agreement, at paragraph 7, WLC was given the option to sell the equipment after default and repossession. The addendum referred to above, however, is a provision regarding the disposition of the property at the end of the term of the agreement. It is not a default provision, as is paragraph 7.
At a hearing on the objection, the debtor testified that she understood the agreement gave her an option to purchase the equipment at the end of the term of the agreement for $8808.48. This figure, she testified, was 10% of the original purchase price of the equipment.
The addendum states that the lessee guarantees that the net proceeds from the sale of the equipment shall be $8808.48 and that the lessor shall use its best efforts to sell the equipment within 60 days of the termination of the agreement. The addendum does not give the lessor the option to sell the equipment. The addendum refers to “the sale” of the equipment in seven different places. Further, the addendum provides that the lessor is guaranteed that *37the “net sale proceeds from the sale of the equipment ... shall be $8808,48.” (Emphasis added.) This provision does not indicate that WLC is entitled to more than that amount. It can be read to require WLC to accept $8808.48 from the debtor as payment in full for the equipment. This fact, and the remaining language of the addendum add credence to the debtor’s testimony that she understood the agreement gave her an option to purchase the equipment for $8808.48.
At best, the addendum creates an ambiguity as to whether WLC had the option to sell the equipment at the end of the term of the agreement or whether the debtor had the option to purchase the equipment for $8808.48.
It is axiomatic that ambiguities such as this are construed against the drafter of the document. See, e.g., Meskimen v. Larry Ange II Salvage Co., 286 Or. 87, 592 P.2d 1014 (1979). Therefore, this court concludes that the agreement in question gives the debtor the option to purchase the equipment for $8808.48 at the end of the term of the agreement.
At the hearing on WLC’s objection, the debtor presented expert testimony that, at the end of the term of the agreement, the equipment would be worth at least $16,-000.00. This testimony was not contradicted. Therefore, the debtor could acquire an equity of approximately $7200.00 in the equipment by purchasing it for $8808.48 at the end of the term of the agreement.
This court has previously held that the primary distinction between a contract of sale and a true lease is that, in a contract of sale, the debtor may acquire an equity in the property while, in a true lease, the debtor will never acquire an equity in the property. In Re Niemi, 27 B.R. 215 (Bkrtcy.D.Or.1983); In Re Odell, 27 B.R. 520 (Bkrtcy.D.Or.1983). Other factors include provisions in the agreement that require or state that:
1. The lessee insure the property;
2. The lessee pay all taxes, licensing, registration, and similar charges levied against, or required for use of, the property;
3. The lessee is responsible for all repairs and maintenance costs;
4. All warranties are disclaimed;
5. Rent payments are accelerated upon default. Id., at 219.
The agreement in question contains all of these provisions.
Since the agreement, as interpreted by the court, provides for the acquisition of equity in the property, and since all the other relevant factors are present, the court concludes that the agreement in question is a contract of sale. As such, WLC’s objection is not well taken and must be overruled.
An order consistent herewith will be entered. This opinion constitutes the court’s findings of fact and conclusions of law in accordance with Bankruptcy Rule 7052. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8490096/ | MEMORANDUM OPINION
ALEXANDER L. PASKAY, Chief Judge.
THIS IS a contested discharge proceeding and the matter under consideration is the dischargeability, vel non, of a debt admittedly due and owing by Gary Gebhart, a Debtor currently involved in a Chapter 7 case. The claim of non-dischargeability is asserted by AAV-United Service Company (AAV-United) and is based on the contention that the Defendant-Debtor obtained by false pretenses, made with actual intent to defraud the Plaintiff, $10,000 from the Plaintiff and, therefore, by virtue of Section 523(a)(2)(A), the debt shall be declared to be non-dischargeable. The facts relevant to the resolution of the controversy as developed at the final evidentiary hearing can be summarized as follows:
At the time relevant to this transaction, Gary Gebhart was the President and principal operating officer of a corporation known as Skate Key Roller Rink, Inc. (Skate Key) located in St. Petersburg, Florida. Skate Key, besides operating the roller rink, also maintained on its premises *50several coin operated and amusement machines which were placed on location by a distributor of coin operated amusement devices and vending machines. AAY-United is engaged in a similar business and also has coin operated amusement machines and vending machines placed in several locations in Pinellas County. Under the usual arrangement, the owner of the establishment was to receive a commission from all monies collected by the machines.
Sometime in April, 1982, Gebhart approached the representative of AAV-United and sought to explore the possibility of obtaining coin-operated amusement machines. This is the initial transaction with the representative of AAV-United which forms the basis of this controversy. It is alleged by AAY-United that Gebhart assured the representative of AAV-United that the amusement machines which were at that time on Skate Key’s premises and which were leased from Eli Witt, will be removed shortly inasmuch as there were only two months left on that particular lease and AAV-United will be able to replace all the machines with its own. It is without dispute that the Eli Witt lease still had a year and one-half more to go before it expired and it was not expiring by its own terms as indicated or claimed to have been indicated by Gebhart. It is claimed by AAV-United, based on these representations, AAV-United did, in fact, enter into a lease agreement for the lease of vending machines and amusement devices. The lessees named in the lease were Jerry Sweat-man and Gary Gebhart, d/b/a Skate Key. It is clear that neither Jerry Sweatman nor Gary Gebhart operated the skating rink as a partnership or as a joint venture, but the roller rink was operated by Skate Key, Inc., a corporation. The lease executed on May 8, 1982 was prepared by AAV-United on its customary lease form, which included the provision that AAV-United agreed to advance to the leasee against commissions to be earned the sum of $10,000. It further appears that in connection with this transaction, Gebhart submitted an application for advance against commission. It is admitted by Gebhart that AAV-United did, in fact, advance $10,000 as part of this transaction. In due course, the application was forwarded to the home office of AAV-United and was approved. To further complicate the matter, however, the application indicated that the applicants were Jerry Sweatman and Gary Gebhart, d/b/a Renaissance Restaurant, Inc. It appears that at that time Gebhart and possibly Sweat-man contemplated to form a corporation and to open up a restaurant and operate the same under the name of the Renaissance Restaurant. It is without dispute that at the time of this transaction, the restaurant was not in business, it had no facilities whatsoever for the placement of any coin-operated machines. The application indicated that the coin-operated machines were to be placed on the premises of Skate Key without identifying, however, whether the machines were to be used by a corporation operating a restaurant or a restaurant operated by Gebhart individually under a fictitious name.
The promissory note executed in connection with the $10,000 transaction was signed by Jerry Sweatman, Gary Gebhart, d/b/a/ Renaissance Restaurant, Inc. by Gary Gebhart as President. The note was signed by Gebhart and Sweatman as individual endorsers. No place in the promissory note appears the name of Skate Key and there is no reference made to the Skate Key, whatsoever, with the exception of the equipment lease which describes the customer as Jerry Sweatman and Gary Geb-hart, d/b/a Skate Key and which was signed by Jerry Sweatman and Gary Geb-hart, d/b/a Skate Key. It was also endorsed individually by Gebhart. On the same day the note and lease were executed, there was an identical lease executed which identified the lessee of the equipment as Jerry Sweatman and Gary Gebhart, d/b/a Renaissance Restaurant. This was also signed by Gebhart as President, for Jerry Sweatman and Gary Gebhart, d/b/a Renaissance Restaurant and again it was individually endorsed by Gebhart. On the same day, there was an identical lease executed involving cigarette vending ma*51chines. This was again executed by Geb-hart in the same fashion as he executed the contract relating to the coin-operated equipment lease. As part of this transaction, Gebhart executed a security agreement and financing statement on the same date, identifying AAV-United as a secured party. The security agreement was signed by Renaissance Restaurant, Inc. by Gary Geb-hart, Partner/President. It further appeared that the check actually issued by AAV-United was made payable to Jerry Sweatman and Gary Gebhart. The check was endorsed by Gebhart and it was apparently deposited in the bank account maintained by one of the entities operated by Gebhart, although it is impossible to tell from the check itself where it was deposited inasmuch as the reverse side of the check merely indicates that it was credited to the account of the “written name payee” (sic) and in the sense there are two, possibly four, named payees on the check — Jerry Sweatman, Gary Gebhart, d/b/a Renaissance and Jerry Sweatman and Gary Geb-hart. Thus, it is impossible to tell whether or not this check was deposited in a personal account of Gebhart or in the business account maintained by him for either the restaurant or .for the Skate Key.
Based on the foregoing, it is the contention of AAV-United that a statement made by Gebhart to the representative of the Plaintiff that the Eli Witt contract will expire in two months and, therefore, he will be in a position to enter into an equipment lease with the Plaintiff was materially false; that the Plaintiff relied on said false statement and, upon reliance of said statement, advanced the $10,000 against commissions to be earned by Gebhart and, therefore, it is entitled to a declaration that the debt was, in fact, obtained by false pretenses by Gebhart and, therefore, non-dischargeable by virtue of § 523(a)(2)(A) of the Bankruptcy Code.
It should be pointed out at the outset that the burden of proof to establish all operating elements of a claim of non-dis-chargeability under § 523 is clearly the burden of the plaintiff. National Bank of North America v. Newmark (In re Newmark), 20 B.R. 842 (Bankr.E.D.N.Y.1982). The quality of proof required is clear and convincing although it is not a proof beyond reasonable doubt.
Using this standard, it is clear that AAV-United failed to establish its claim of non-dischargeability with the requisite degree of proof. First, it is unclear whether Gebhart, qua an individual, obtained any monies whatsoever for AAV-United. The most that can be said, based on this record, is that AAV-United advanced $10,000 either to a partnership of Gebhart and Sweatman or to a corporation known as Skate Key, Inc. or to a corporation known as Renaissance, Inc. This being the case, since the obtaining of money by a debtor is an indispensable element of a claim of non-dischargeability under § 523(a)(2)(A), AAV-United’s claim must fail, not even considering the inadequacy of proof needed to establish fraud.
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/8490098/ | FINDINGS OF FACT AND CONCLUSIONS OF LAW
SIDNEY M. WEAVER, Bankruptcy Judge.
This cause having come on before the Court on August 21, 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 on August 31, 1982, for the sale and purchase of 30 one hundred ounce silver bars and 70 one ounce gold Krugerrands. The Defendant paid the Debtor the purchase price of $52,250.00 (composed of $2,834.00 in cash together with 30 one hundred ounce silver bars and 65 gold Kruger-rands with a then cash equivalent value of $49,425.00) on September 7, 1982. The Debtor issued to the Defendant a Precious Metals Certificate of Ownership on September 7, 1982.
On March 14, 1983, after repeated demands by the Defendant, the Debtor delivered to the Defendant 3,000 one ounce silver bars and 70 one ounce gold Kruger-rands which, together with two checks previously issued by the Debtor to the Defendant on February 28, 1983 in the respective amounts of $3,325.00 and $4,995.00, was intended by the Debtor to be in adjusted satisfaction of the August 31, 1982 precious metals contract.
The Court finds that the Complaint alleges all of the elements required under Section 547 of the Bankruptcy Code. Matter of Advance Glove Mfg. Co., 42 B.R. 489 (Bankr.E.D.Mi.1984); In re Saco Local Development Corp., 30 B.R. 870 (Bankr.D.Me.1983); In re Satterla, 15 B.R. 166 (Bankr.W.D.Mi.1981). The Courts finds that the Defendant received the property of the Debtor in satisfaction of the antecedent debt created on September 7, 1982, and that the date of delivery of the 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 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 *59the 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 un-rebutted.
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 on September 7, 1982, the date the Defendant received from the Debtor the Precious Metals Certificate of Ownership.
The Court finds that the evidence and testimony does not support the Defendant’s Affirmative Defenses outlined above. 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 shipment on March 14, 1983. 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 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 DCA 1982); Rudisill v. Taxi Cabs of Tampa, Inc., 147 So.2d 180 (2nd DCA 1962). The Court finds with respect to the precious metals purchased for cash that the evidence does not support the existence of any agreements for bailment and, further, that the Debtor never possessed the precious metals purchased by the Defendants until March 14, 1983, the date of transfer of the subject precious metals.
Consistent is the Court’s further finding, with respect to the 30 one hundred ounce silver bars and the 65 one ounce gold Krugerrands entrusted by the Defendant to the Debtor under the August 31, 1982 contract, that any agreement for storage or bailment between the Defendant and the Debtor as to said gold and silver was lawfully abrogated under Section 672.2-403(2) and (3), Fla.Stat. Those Sections provide as follows:
(2) Any entrusting of possession of goods to a merchant who deals in goods of that kind gives him power to transfer all rights of the entruster to a buyer in ordinary course of business.
(3) “Entrusting” includes any delivery and any acquiescence in retention of possession regardless of any condition expressed between the parties to the delivery or acquiescence and regardless of whether the procurement of the entrusting or the possessor’s disposition of the goods have been such as to be larcenous under criminal law.
The evidence clearly shows that the Debt- or, as a merchant which dealt in the sale and purchase of precious metals, applied the Defendant’s gold and silver to other purposes immediately upon receipt of the gold and silver and never stored it for the account of the Defendant in its vault. The evidence also shows that the Debtor’s shipment of its own 3,000 one ounce silver bars and 65 one ounce gold Krugerrands to the Defendant on March 14, 1983 was intended by the Debtor to replace the Defendant’s 30 one hundred ounce silver bars and 65 one ounce gold Krugerrands. Accordingly, no bailment of this silver existed and the March 14, 1983 gold and silver shipment of *60the Debtor s assets in satisfaction of the August 31, 1982 precious metals contract.
Lastly, the Court concludes that the value of the subject precious metals on the day they were received by the Defendant was $70,975.00.
In summary, the Court finds that the Trustee is entitled to judgment against the Defendant for the return of the aforede-scribed precious metals and property of the Debtor 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/8490099/ | MEMORANDUM OPINION
HENRY L. HESS, Jr., Bankruptcy Judge.
This matter came before the court upon Seattle-First National Bank’s (hereinafter referred to as the “Bank”) objection to confirmation of the debtors’ proposed chapter 13 plan.
The Bank’s principal objection is that the plan does not comply with 11 U.S.C. § 365, in that the plan treats the Bank as a secured creditor rather than a lessor. 11 *63U.S.C. § 365 governs the assumption or rejection of executory contracts and leases.
The debtors argued that the agreement in question, while denominated a lease, is in fact a contract of sale for a 1982 Dodge. Accordingly, they argue, § 365 does not apply and the plan may properly treat the Bank as a secured creditor.
The parties submitted a copy of the agreement. The court has examined the agreement and reached the following conclusions.
The agreement indicates that the parties estimated the value of the vehicle at the end of the “lease’.’ to be $3,875.00. Paragraph 11 grants the “lessee” an option to purchase the vehicle at the end of the “lease” for this estimated value.
This court has previously held that the factor of primary importance in distinguishing a lease from a contract of sale is whether the “lessee” acquires any equity in the property. In Re Niemi, 27 B.R. 215 (Bkrtcy.D.Or.1982).
While the Oregon courts have identified several other factors which may be considered, this court feels that all of these factors (identified in Niemi at p. 219) can be present in a true lease as well as a contract of sale. The one factor which cannot be present in a true lease, however, is the “lessee’s” ability to acquire an equity in the property. Oregon law recognizes this principle in O.R.S. 71.2010(37). That statute provides:
“Security interest” means an interest in personal property or fixtures which secures payment or performance of an obligation. The retention or reservation of title by a seller of goods notwithstanding shipment or delivery to the buyer is limited in effect to a reservation of a “security interest”. The term also includes any interest of a buyer of accounts or chattel paper which is subject to ORS 79.1010 to 79.5070. The special property interest of a buyer of goods on identification of such goods to a contract for sale under ORS 72.4010 is not a “security interest”, but a buyer may also acquire a “security interest” by complying with ORS 79.1010 to 79.5070. Unless a lease or consignment is intended as security, reservation of title thereunder is not a “security interest” but a consignment is in any event subject to the provisions on consignment sales. Whether a lease is intended as security is to be determined by the facts of each case; however, (a) the inclusion of an option to purchase does not of itself make the lease one intended for security, and (b) an agreement that upon compliance with the terms of the lease the lessee shall become or has the option to become the owner of the property for no additional consideration or for a nominal consideration does make the lease one intended for security.
From this, it is apparent that where the “lessee” can acquire the property for substantially less than its value, the court may find that the agreement was a contract of sale. Acquiring property for less than its value is the same as acquiring an immediate equity in the property.
It further appears from this statute, and from general contract principles, that it is the intent of the parties to the agreement that governs the interpretation of the agreement.
Accordingly, the court must consider whether the parties, at the time they entered into the agreement, intended to allow the “lessee” to purchase the property for substantially less than its estimated value at some point in the future. If so, the agreement is a contract of sale regardless of its denomination. O.R.S. 71.2010(37). If not, then the agreement is a lease.
In this case, the agreement plainly states that the estimated value of the vehicle at the end of the “lease” is $3,875. The debtors signed the agreement directly below an acknowledgment that they had read the agreement. Based on this, the court could conclude that both parties estimated that the value of the vehicle at the end of the “lease” would be $3,875.00.
*64No evidence has been presented to the court from which it could be determined whether, at the time the agreement was entered, the parties contemplated that the stated estimate of value at the end of the “lease” was nominal. In the absence of a request to present evidence upon this question made within 15 days of the date of this memorandum opinion, the court will conclude that the estimated value of $3,875 was considered to be the expected actual value.
This memorandum opinion constitutes the court’s findings of facts and conclusions of law according to Bankruptcy Rule 7052. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8490100/ | MEMORANDUM OF OPINION
JOHN F. RAY, Jr., Bankruptcy Judge.
This matter came before the Court on the motion of Aetna Casualty & Surety Company (“Aetna”) to quash subpoena duc-es tecum served upon the Nashville law-firm of Gullett, Sanford & Robinson (formerly Gullett, Steele, Sanford, Robinson & Merritt (“Gullett”) by Thomas E. Ray, the Successor Receiver/Trustee, to produce “all documents arising from or related to the bankruptcy proceeding” of General Transportation Services, Inc. (“GTS”). Gullett had represented Irwin A. Deutscher, the former Receiver/Trustee of GSI.
Irwin A. Deutscher was appointed Receiver/Trustee by the Bankruptcy Court on July 30, 1975. He immediately employed counsel to represent him in his fiduciary capacity. By order of the Court on December 2, 1983, Irwin A. Deutscher was removed as Receiver/Trustee and subsequently Thomas E. Ray was appointed as Successor Receiver/Trustee. Thomas E. Ray thereafter filed a motion objecting to the prior Receiver/Trustee’s report and moved the Court to surcharge the Receiver/Trustee. Parties to the contested matter include Aetna, as the surety on Irwin Deutscher’s bond, and Bobbie Deutscher, as Executrix of the Estate of Irwin Deutscher who died while this matter was pending.
On April 18, 1985, the deposition of Deutscher’s primary attorney, William. Lamar Newport, was taken at the behest of Aetna and pursuant to a subpoena and notice to take deposition. Mrs. Deutscher did not appear, nor did she interpose any objections to the deposition of Mr. Newport. During the course of the deposition, no objections on the grounds of privilege were raised. A thorough examination was made of Attorney Newport concerning his involvement in the case, his representation of Irwin A. Deutscher and the actions of Irwin A. Deutscher in this matter. The subpoena called for the production of all of the books and records in the possession of Mr. Newport. Prior to the deposition, Mr. Newport informed counsel for Aetna that he did not have any of the books and records, and that they were retained at the successor firm known as Gullett, Sanford & Robinson, by whom he was no longer employed. Counsel for Aetna has examined the books and records of Deutscher’s attorneys presently maintained at Gullett. This examination was done without notice to or knowledge of the Successor Receiver/Trustee. On April 4, 1985, Attorney James Thomas, acting on behalf of Mrs. Deutscher, wrote Attorney Newport as follows:
I am writing you as a follow-up to Tracy Shaw’s April 3, 1985, letter. Bobbie Deutscher and I spoke by telephone this afternoon, and as the executrix of the estate, she has waived any applicable attorney-client privilege that might have existed as between you and Irwin Deutscher in your representation of him as the trustee/receiver in the GTS case. Speaking as former counsel for Irwin, I can assure you that this most definitely was our intention and Irwin’s intention to begin with.
I appreciate your concerns about the attorney-client privilege, and I hope this letter is sufficient to dispell [sic] any reservations you might have.
The examination of the records at Gullett was made pursuant to this letter.
During the course of the deposition of Attorney Newport, several important matters came to the attention of the movant, including a letter dated June 16,1976, from Irwin A. Deutscher to William Lamar Newport. Attorneys for the Successor Receiver/Trustee were allowed to read the letter, *69but were not given a copy of the letter, and Aetna has refused to provide a copy of the letter on the grounds of attorney-client privilege and work product privilege.
Aetna has moved to quash the subpoena served by the Successor Receiver/Trustee on the law firm of Gullett, in order to prevent the Successor Receiver/Trustee from examining the records, pleadings, correspondence, books and documents in its possession or under its control arising from or related to the bankruptcy proceeding of GTS. The basis of the motion to quash filed by Aetna is the attorney-client privilege as between Irwin Deutscher and the law firm of Gullett.
The Successor Receiver/Trustee contends that:
1. Aetna has no standing to raise the attorney-client privilege.
2. The attorney-client privilege does not apply to the Successor Receiver/Trustee since the Successor Receiver/Trustee stands in the shoes of the former Receiver/Trustee in his fiduciary capacity and, therefore, would be the “client” entitled to assert the privilege.
3. Any such privilege has been waived both expressly and impliedly.
There are two questions before this Court, namely:
1. Does Aetna or the Successor Receiver/Trustee have standing to raise the attorney-client privilege?
2. Was the privilege waived by James G. Thomas’s letter of April 4, 1985 to William L. Newport, which permitted Aetna to review the books and records of Deutscher’s attorneys?
As a general rule, the privilege of nondisclosure of confidential information may be invoked only by the person protected, or by someone on his behalf such as a spouse, guardian or an executor or executrix of his estate. Aetna, in its brief, makes the statement that it now “stands in Deutscher’s shoes” as his surety, thereby giving it the right to invoke the privilege.
The Successor Receiver/Trustee takes the position that the attorney-client privilege does not apply to him, since he now stands in the shoes of Deutscher in his fiduciary capacity and, therefore, would be the “client” entitled to assert the privilege.
This Court is of the opinion that neither Aetna nor the Successor Receiver/Trustee can invoke the privilege. The privilege is personal to the client, and the client, not the attorney, may assert the privilege. See Garner v. Wolfinbarger, 430 F.2d 1093 (5th Cir.1970). Since Deutscher is deceased, only his spouse or the personal representative of his estate can invoke the privilege.
Bobbie Deutscher, as Executrix of the Estate of Irwin A. Deutscher, deceased, voluntarily and expressly waived the attorney-client privilege when her lawyer, James G. Thomas, advised William L. Newport by letter dated April 4, 1984 that Bobbie Deutscher, as Executrix of the Estate of Irwin A. Deutscher, had waived any attorney-client privilege between him and Irwin Deutscher. The waiver permitted Aetna to take the deposition of William L. Newport, and also permitted Aetna, without the knowledge of the Successor Receiver/Trustee, to examine the books and records of Deutscher’s attorney in the GTS case. As stated in Permian Corp. v. United States, 665 F.2d 1214, 1219 (D.C.Cir.1981) (quoting United States v. American Telephone & Telegraph, 642 F.2d 1285, 1299 [D.C.Cir.1980]), “[a]ny voluntary disclosure by the holder of such a privilege is inconsistent with the confidential relationship and thus waives the privilege.” See also, In re Sealed Case, 676 F.2d 793, 800-01 (D.C.Cir.1982); In re Subpoenas Duces Tecum, 738 F.2d 1367, 1369-70 (D.C. Cir.1984), In re Blier Cedar Co., Inc., 10 B.R. 993 (D.Maine 1981), Chubb Integrated Systems Limited v. The National Bank of Washington, 103 F.R.D. 52 (D.D.C.1984).
Based upon the foregoing, the motion of Aetna to quash the subpoena duces tecum should be denied. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8490103/ | AMENDED MEMORANDUM AND ORDER
ROBERT E. GINSBERG, Bankruptcy Judge.
The debtors have filed a motion for summary judgment, seeking to invoke 11 U.S.C. § 522(f)(1) to avoid a judicial lien in favor of the adversary defendant. Section 522(f)(1) permits a debtor to avoid a judicial lien in the debtors’ property to the extent that the lien impairs one of the debtors’ exemptions.1
*109The facts in this case are not in dispute. The debtors’ residence is valued at $95,-000.00. Morris Federal Savings and Loan holds a first mortgage of $76,000.00 on that real estate. On March 6, 1985, the adversary defendant Hahn recorded a $16,-645.57 judgment he had previously obtained in the Illinois state courts against the debtors. On April 22, 1985, the Circuit Court in Coles County, Illinois, held a hearing on Hahn’s citation to discover assets. Debtor Robert Gilbertson appeared pro se at the citation hearing. Debtor Marka Gil-bertson did not appear although she was also a defendant in that action. At that hearing, counsel for Hahn told the court that the parties had entered into an agreement whereby the debtors would pay the defendant $300.00 per month and either execute a promissory note for the judgment amount or give a mortgage in their residence.2 The court accepted the agreement and asked that a written order be submitted to reflect its terms.
On June 13, 1985, the debtors filed a petition under Chapter 7 of the Bankruptcy Code. In their schedule of exempt property, the debtors each claimed the statutory limit of $7,500.00 under the homestead exemption, Ill.Ann.Stat. ch. 110, § 12-901 (Smith-Hurd 1985). The debtors now seek to avoid the defendant’s judicial lien under 11 U.S.C. § 522(f)(1) to the extent that it impairs their joint homestead exemption of $15,000.00.3
Hahn argues that the debtors should not be able to avoid his lien by claiming their homestead exemption. He supports this argument by claiming that the state court had ordered the debtors to execute a written waiver of homestead. This Court does not agree. There - is no evidence in the record that the state court ordered the debtors to execute a waiver of homestead. The only statement in any of the documents submitted to this Court that the debtors would waive their homestead rights is contained in an order drafted by an unspecified author apparently after the hearing to discover assets. The copy of the order supplied to this Court was not signed by the circuit court judge, the debtors or Hahn. The docket in the state court proceedings does not reflect that the order was ever entered. Therefore, the order does not appear to bind the debtors in this proceeding.
Even if the order had been entered, however, it would not be controlling in these proceedings. The pleadings concede that the debtors never executed a second mortgage in favor of Hahn. In the absence of a properly executed second mortgage, Hahn continued to possess only a judicial lien on the debtors’ property.4
Even if there is actually an agreement to execute a mortgage that somehow gives rise to an equitable mortgage, Hahn has no additional rights. An agreement to execute a mortgage would be ineffective against the debtors’ exemption rights in the context of this dispute. See 11 U.S.C. §§ 522(h), 544(a). The same result obtains *110with an unperformed order to execute a mortgage.5
Section 522(f)(1) facilitates a debtor’s fresh start by allowing the avoidance of such judicial liens. It should be interpreted liberally. In re Barker, 768 F.2d 191, 196 (7th Cir.1985). There is no genuine issue of fact here.6 The Court therefore grants the debtors’ motion for summary judgment against the defendant.
. Section 522(f)(1) states:
Notwithstanding any waiver of exemptions, the debtor may avoid the fixing of a lien on an interest of the debtor in property to the extent that such lien impairs an exemption to which the debtor would have been entitled under subsection (b) of this section, if such lien is—
(1) a judicial lien; ...
. The adversary defendant for his part agreed not to take any further action to collect his judgment as long as the debtors complied with the agreement.
. The debtors also allege that a preference occurred for purposes of 11 U.S.C. § 547(b). The debtors claim that the transfer of their property occurred on the date the defendant executed his judgment, March 6, 1985. The debtors argue that this transfer occurred within 90 days of the filing of the petition, June 13, 1985, as required by 11 U.S.C. § 547(b)(4)(A). The debtors' mathematical calculations, however, are faulty. Ninety-nine days lie between the date of the alleged transfer and the date the debtors filed their bankruptcy petition. As such, no preference occurred and the debtors cannot avoid the judgment on that basis. It is nowhere alleged or suggested that Hahn is an "insider” for preference purposes.
.Had the debtors executed the mortgage, Hahn’s judicial lien would have become a "security interest” for Code purposes and been taken outside of 11 U.S.C. § 522(f)(1). See 11 U.S.C. §§ 101(30), (43). Of course, as suggested in the next paragraph of the text, the mortgage would also have to be recorded to be valid against either the trustee or the debtors’ exemption rights under 11 U.S.C. §§ 522(h) and 544(a).
. The draft state court order submitted to this Court contains a clause purporting to order the debtors to execute a waiver of homestead in favor of the judgment creditor. Whether or not that order was ever actually signed or entered is irrelevant in this case, because the mortgage documents, including a waiver of homestead, were never executed. Therefore, we need not reach the question of whether a judicially compelled waiver of a state exemption right outside of bankruptcy precludes the assertion of the exemption right in a subsequent bankruptcy case.
. We note that the parties in effect have stipulated by their pleadings that the property which is the subject of this dispute is worth $95,000.00. The first mortgage is $76,000.00. Thus, the equity above the first mortgage is $19,000.00. The debtors’ homestead exemption is only $15,-000.00. Because the trustee was not a party to these proceedings, we make no ruling at this time as to who is entitled to the apparent $4,000.00 remaining after the first mortgage and homestead exemptions are deducted from the value of the debtors’ property. We also make no finding as to the validity of Hahn’s lien as to the $4,000.00 or his priority against the trustee. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8490104/ | MEMORANDUM OPINION
MARK B. McFEELEY, Bankruptcy Judge.
This matter came before the Court for trial on the merits based on the trustee’s complaint for turnover of the proceeds from a sale of real and personal property.
Debtor and Tri-Square Investments entered into a lease agreement on June 1, 1980. This lease was for the premises on which P.J.’s Family Restaurant operated and required monthly payments of $1,850.00.
Pursuant to the original lease, Tri Square was given a first lien upon all personal property of the lessee which was located in the leased premises. Further, the lease provided that lessee was to return the leased premises in as good condition as when the lessee obtained possession, except for reasonable wear and tear.
In June 1983, the Klotzes abandoned the premises and breached the lease agreement without notice to Tri-Square. Tri-Square re-entered the' premises and on June 24, 1983, commenced a civil action in Valencia County District Court for breach of the lease and to foreclose on its landlord lien. On August 5, 1983, Tri-Square obtained a default judgment against the Klotzes for the balance of rent due on the lease, attorneys’ fees and costs and foreclosed the landlord’s lien on the goods, chattels, and other property belonging to the Klotzes and located on the premises.
The lessor then listed and sold the real estate which is the subject matter of the lease agreement. The sale closed on September 14, 1983. The property sold for $250,000.00 of which $15,000.00 was attributed to the purchase of equipment on the property. The disposition of this $15,-000.00 is the dispute currently before this Court.
The trustee brought suit against Tri Square to recover the balance of the $15,-000.00, after back rent and reasonable costs. It is for this Court to decide the amount of damages to be paid to TriSquare.
The parties have agreed that several of the items are properly payable from the $15,000.00. They are as follows:
Actual lost rent $4,563.33
Roof Repairs 4,302.75
Attorney Fees 702.34
Locksmith 64.96
Unpaid Utilities 282.02
Interest 57.04
For Sale Sign 35.00
Mileage 462.50
Total $10,469.94
Remaining for this Court to decide are whether the commission for the sale of the real and personal property and the closing costs are proper elements of damages. TriSquare argued that it is entitled to set off the entire commission of the broker on the sale of the real estate in the amount of $2,500.00 and the closing costs of $1,334.00 as costs incurred in mitigating their damages for breach of the lease.
The trustee argued that Tri-Square is only entitled to offset that portion of the real estate commission which is attributable to the sale of the personal property (1% of $15,000.00 or $150.00) and that none of the closing costs should be allowed as an offset because they were substantially documented as costs for a real estate title insurance policy. The Court agrees with the trustee’s position on both the sales commission and the closing costs.
In arriving at this conclusion, we must look to the lease agreement to see what the parties bargained for. Special damages of the vendor do not, of course, include any items of expense he would have *150had even had the contract been fully performed. D. Dobbs, Handbook on the Law of Remedies (1973) § 12.11 at p. 853. Had the Klotzes fully performed on the lease, Tri-Square would not have been entitled to closing costs if they decided to sell the property at the expiration of the lease. It should not be entitled to the closing costs now since it was Tri-Square’s decision to sell the property as opposed to re-leasing it. Damages recoverable for breach of contract are those damages contemplated by the parties at the time of making the contract. State Farm General Insurance Company v. Clifton, 86 N.M. 757, 527 P.2d 798 (1974).
The costs of the sales commission, for the same reasons stated above should be allowable expenses only as to that portion attributed to the sale of the personal property. The lease agreement provided that the landlord had a lien on the personal property within the premises. It is foreseeable and reasonable that if the lessee breached the lease agreement that the lessor would foreclose on the personal property and that costs would be involved in effecting the sale.
The purpose of damage awards in breach of contract cases is to compensate the injured party for loss occasioned by the conduct of the breaching party, not to penalize the wrongdoer or to allow plaintiff to recover a windfall. Farmers and Bankers Life Insurance Company v. St. Regis Paper Company, 456 F.2d 347 (5th Cir.1972) at p. 351. Thus it is this Court’s opinion that the Klotzes are responsible for the commission paid on the sale of the personal property in the amount of $150.00. This fairly compensates Tri-Square for the costs of foreclosure on the personal property and yet does not unfairly penalize the Klotzes.
Therefore, the trustee is entitled to $4,380.06.
This memorandum opinion constitutes findings of fact and conclusions of law. Bankruptcy Rule 7052
An appropriate order shall enter. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8490105/ | MEMORANDUM OPINION
HENRY L. HESS, Jr.,' Bankruptcy Judge.
This matter came before the court upon the United States of America’s motion to dismiss. Pursuant to FRCP 12(b), the court will treat this as a motion for summary judgment.
The trustee filed a complaint against Mr. Hay and the State and Federal governments alleging that all were the recipients of fraudulent conveyances from the debtor corporation.
There is no dispute as to the relevant facts. Hay was an employee of the debtor. Within one year of the petition herein, the' debtor credited Hay with a $40,000 “bonus” by discharging a debt Hay owed to the debtor. Subsequently, the debtor paid the Internal Revenue Service (hereinafter referred to as the “IRS”) and the Oregon Department of Revenue (hereinafter referred to as the “ODR”) $14,202.20 and $4,215.52 respectively. These sums represent the federal and state income tax with-holdings from Hay’s “bonus”.
The trustee’s complaint alleges that the “bonus” to Hay was fraudulent under 11 U.S.C. § 548. Accordingly, the trustee’s complaint alleges that the payments to the IRS and ODR are recoverable under 11 U.S.C. § 550(a), which states:
(a) Except as otherwise provided in this section, to the extent that a transfer is avoided under section 544, 545, 547, 548, 549, 553(b) or 724(a) 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.
The state filed an answer which denied the material allegations against it. The IRS, however, filed a motion to dismiss for failure to state a claim. After a hearing, the court denied the motion to dismiss and, in response, the IRS filed a motion for reconsideration of the order denying the motion to dismiss.
The IRS argued in its motion for reconsideration that it was an initial transferee under § 550(a)(1), but that the transfer in question was not avoidable under § 547 since it fell within the “ordinary course of business” exception found in § 547(c)(2). Alternatively, the IRS argued it was a “mediate” good faith transferee under § 550(b)(1).
The first argument misses the point for two reasons. First, the trustee’s complaint does not allege that the IRS received a preferential transfer under § 547(c)(2). Second, the IRS was not an initial transferee of the withholding payment. In this case, the bonus was declared in favor of Hay. As a result of the bonus income, Hay incurred a debt to the IRS. The debtor would only have been liable had it not withheld and paid the IRS the proper sum from Hay’s bonus. 26 U.S.C. §§ 3402 and 3403. The money withheld represented Hay’s income tax liability resulting from the bonus. In other words, the source of the withholding payment was Hay, not the debtor. For analytical purposes, then, it is as if the entire $40,000 were paid to Hay who then paid $14,402.20 back to the debt- or which then paid that sum to the IRS. When viewed from this perspective, the IRS becomes a “mediate” or subsequent transferee under 11 U.S.C. § 550(a)(2).
Since the IRS was a mediate transferee under 11 U.S.C. § 550(a)(2), § 550(b)(1) applies. That section states:
The trustee may not recover under section (a)(2) of this section from—
(1) a transferee that takes for value, including a satisfaction or securing of a present or antecedent debt, in good *152faith, and without knowledge of the voidability of the transfer avoided ....
As Hay’s transferee, the IRS gave value to Hay when it satisfied Hay’s income tax liability which resulted upon the payment of the bonus. Even though the bonus may now be deemed fraudulent and hence, recoverable by the trustee, under the “claim of right” doctrine, Hay was indebted to the IRS as soon as he received the bonus. The claim of right doctrine precludes the court from “unwinding” this transaction so as to return all the parties to the status quo immediately preceding the bonus. See North American Oil Consolidated v. Burnet, 286 U.S. 417, 52 S.Ct. 613, 76 L.Ed. 1197 (1932).
Further, there is no argument that the IRS acted in bad faith or with knowledge of the voidability of the transfer to Hay when it accepted the payment and discharged Hay’s liability.
Therefore, even if the bonus were a fraudulent conveyance as to Hay, the trustee could not recover from the IRS. Naturally, if the bonus were not a fraudulent conveyance, there could be no recovery from Hay or the IRS. Because of the somewhat unusual “claim of right” doctrine which fixed Hay’s liability at the time of the bonus, the trustee’s argument that the IRS did not give value in exchange for the payment fails.
Since the Oregon Department of Revenue has not joined the IRS in the motion to dismiss (treated as a motion for summary judgment), the court will only grant summary judgment to the IRS.
An order consistent herewith shall be entered. This opinion constitutes the court’s findings of fact and conclusions of law in accordance with Bankruptcy Rule 7052. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8490106/ | MEMORANDUM AND ORDER
CHARLES J. MARRO, Bankruptcy Judge.
The matter before the court is the objection of Sugarbush Valley, Inc. to confirma*222tion of the amended reorganization plan of Trails End Lodge, Inc.
Code Section 1129(a) provides in relevant part,
The court shall confirm a plan only if ...
(11) Confirmation of the plan is not likely to be followed by the liquidation, or the need for further financial reorganization, of the debtor ... unless such liquidation or reorganization is proposed in the plan.
Code Section 1129(a)(ll) contains the feasibility standards for confirmation of a plan. The provision requires a determination by the court that implementation of a proposed plan reasonably would take place following confirmation. See House Report No. 595, 95th Cong., 1st Sess. 413 (1977); Senate Report No. 989, 95th Cong., 2d Sess. 128 (1978), U.S.Code Cong. & Admin. News 1978, pp. 5787, 5914, 6369.
In view of the feasibility requirement imposed by Code Section 1129(a)(ll), the debtor’s amended reorganization plan is not susceptible of confirmation by the court. The debtor presented no evidence at hearing to establish that the plan is viable in keeping with the § 1129(a)(ll) standards ingredient to confirmation. The records in the ease, and the plan itself, counsel that implementation as provided in the plan reasonably would not take place following confirmation. Specifically, the plan is underfunded, visionary, impractical. See In re Kors, 13 B.R. 676, 680 (Bankr.D.Vt.1981) (“speculative” plan does not merit consideration by the court).
No infusion of fresh money working capital is provided for in the plan, when, historically, the debtor’s disbursements have consistently exceeded revenues resulting in negative cash flow throughout this proceeding.
The asset sales contemplated to fund the plan would have to occur within the near future and yield top dollar in order for implementation of the plan to take place. During the pendency of this proceeding, the debtor has demonstrated its inability to sell the contemplated assets in the current market. The debtor has established no basis on which the court reasonably may find that the debtor, to fund the plan, is positioned to sell soon and at a premium the very assets it has been unable to dispose of for less than top dollar during the course of this proceeding.
The plan contemplates that the debtor will remedy for $40,000 or less certain environmental engineering defects concerning which, prepetition, a money judgment issued against the debtor for $178,000. However, the debtor has established no basis on which the court reasonably may find that the debtor is positioned to correct the environmental engineering for $40,000 so as to realize the plan.
The court cannot confirm the debtor’s reorganization plan for the reason that the plan does not appear feasible.
ORDER
NOW, THEREFORE, upon the foregoing, it is ordered that the objection of Sugarbush Valley, Inc. to confirmation of the third amended plan of reorganization of Trails End Lodge, Inc., is SUSTAINED. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8490122/ | FINDINGS AND ORDER
FRANCIS G. CONRAD, Bankruptcy Judge.
The Ledges Apartments, a partnership, filed for reorganization in bankruptcy under Chapter 11 of the Code. The Hanover Bank and Trust Company (“Hanover”) has moved the Court pursuant to Bankruptcy Rules 4001 and 9014 to modify the stay of actions against the partnership automatically imposed by 11 U.S.C. § 362(a). Because Hanover is not a party in interest, as required by 11 U.S.C. § 362(d), the motion is denied.
*86Hanover asks us to modify the automatic stay of actions against The Ledges Apartments so it can proceed against four individuals who gave the bank unlimited personal guarantees to cover credit extended to Earthworks Greenhouses, Inc. (“Earthworks”), a corporation in Chapter 11 bankruptcy. The guarantors are partners in The Ledges Apartments and officers in Earthworks.
At the final hearing held on August 15, 1985, Hanover attempted to introduce into evidence the personal guarantees of the individuals. Debtor’s attorney objected and we sustained because the personal guarantees were not relevant to the proceeding. Hanover was unable to show it was either a creditor or a debtor of the partnership. All parties waived the 30 day limit of 11 U.S.C. § 362(e), and submitted memoranda to buttress their arguments.
Under 11 U.S.C. § 362(d), only a “party in interest” may move to lift or modify a stay. Hanover must be either a creditor or a debtor of the partnership in bankruptcy, a real party in interest under the applicable substantive law of the State of Vermont to invoke the Court’s jurisdiction. In re Comcoach Corporation, 698 F.2d 571 (2d Cir.1983). See In re Tour Train Partnership, 15 B.R. 401 (Bkrtcy.D.Vt.1981) (judgment creditor of debtor’s unsecured creditor not party in interest); In re Baker, 29 B.R. 174 (Bkrtcy.D.Miss.1983) (assignee of debtor’s creditor not party in interest). Compare In re Thayer, 38 B.R. 412 (Bkrtcy.D.Vt.1984) (assignee who has been paid in full not party in interest). Since Hanover has the status neither of a debtor nor of a creditor of The Ledges Apartments, the bank cannot move to modify the automatic stay.
An issue apparently waiting in the wings here is whether the stay created when Earthworks filed under Chapter 11, as a separate case and never consolidated with this case pursuant to Bankruptcy Rule 1015(b), prevents Hanover from proceeding against these individuals. We cannot decide the scope of that stay in the contested matter now before us. We shall address this issue only if and when it is properly raised in the appropriate case.
Accordingly, the motion of the Hanover Bank and Trust Company to modify the automatic stay in this case is DENIED. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8490123/ | DECISION AND ORDER ON DIS-CHARGEABILITY OF DEBT
WILLIAM A. CLARK, Bankruptcy Judge.
This matter came before the Court as a consolidation of three adversary proeeed-*104ings filed by the Plaintiff' against Barbara Inez Lawson, James A. Lawson and Maryanne Lawson Wolf, principals in the Ivy Lounge restaurant. Plaintiff alleges that the debt owed by the three defendants to the Plaintiff was the result of a false representation and actual fraud. Plaintiff maintains that her debt should be determined nondischargeable because of fraud as provided by 11 U.S.C. §§ 523 and 727.
At the conclusion of the testimony presented by the plaintiff, defendant moved for dismissal of the complaint on the ground that plaintiff failed to meet the burden of proof to establish fraudulent conduct on the part of the defendants. The Court finds that said motion is well taken.
The facts proved at the hearing showed that Barbara Inez Lawson requested plaintiff, her employee and friend, to loan money over a period of several years so that defendants could pay taxes and business expenses due resulting from the operation of the Ivy Lounge. Without making inquiry as to the financial condition of the business, Marie H. Smith loaned the Law-sons $35,700.00. The evidence showed that the defendants used the loan proceeds to pay taxes owing for the operation of the Ivy Lounge in the form of withholding taxes for employees, sales taxes and other business debts. When plaintiff became concerned about the repayment of the loan, she had a demand cognovit note prepared providing for the payment of $34,800.00 at 10% interest, which was signed by the three defendants on January 19, 1983. With agreement of Barbara Inez Lawson in 1984, plaintiff began withholding money from her daily settlement as a waitress at the Ivy Lounge until she retained $1,900.00 as payments upon the loan.
Plaintiff testified that she made the loans because she knew her friend needed the money and she trusted that it would be repaid. She did not ask for nor were financial statements offered at the time any of the loans were made.
In order to support a finding of fraud the following elements must be proved by clear and convincing evidence the plaintiff:
1. false representation
2. intent to deceive
3. material fact
4. reasonable reliance.
See In re Buford, 25 B.R. 477, 481 (Bankr.S.D.N.Y.1982).
Plaintiff has failed to prove a false representation made by any of the defendants. Barbara Inez Lawson asked for the loans for the purpose of paying business expenses and taxes. When she received the money she used the funds for the purpose she had stated to plaintiff. There is no evidence of an intent to deceive plaintiff. Since there was no proof of a false representation and no proof of an intent to de-cieve, plaintiff has failed to meet the burden of proof of two of the elements of fraud. Further discussion of the remaining elements is needless.
The testimony of Ivy Lounge employees testimony of defendants’ failure to pay premiums for medical coverage and requests by the Lawsons for small loans to pay electricity bills demonstrate the difficult financial situation of the Ivy Lounge rather than any scheme of fraudulent activity.
It is extremely unfortunate that plaintiff was so inexperienced and trusting that she did not recognize the risk she took in loaning money to the defendants for their struggling business. The Court is sympathetic to the defendant’s need for a remedy. However, under the requisite elements of fraud she has not proved her case. Sympathy may not be substituted for long established legal principle in deciding the case.
As to the allegation that defendants have violated § 727 by hindering, delaying, removing, destroying or concealing property or records of financial condition, the evidence was insufficient to establish that any of the defendants committed such acts.
The Dayton police Offense Reports showed that there were two break-ins by unknown persons, one June 27, 1983 and the other September 3, 1985. The first break-in resulted in a loss of $20.00 cash. *105The second resulted in a damaged plateg-lass window, doorlock and window with nothing reported missing. These incidents were not connected to the defendants by the evidence. There is no basis for a finding against the debtors under the provisions of § 727 to prevent a discharge for acts of the debtors.
For all of the above reasons, the motion of the defendants to dismiss the complaint is sustained and the debt owing to the plaintiff in the amount of $32,900 ($34,800 less payments of $1900.00) is dischargea-ble. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8490124/ | ORDER OVERRULING DEBTOR’S OBJECTION TO CLAIM # 4 OF THE INTERNAL REVENUE SERVICE
GEORGE L. PROCTOR, Bankruptcy Judge.
This matter is before the Court on debt- or’s Objection to Proof of Claim #4 filed by the Internal Revenue Service. A hearing was held on September 19, 1985, and the parties submitted post-hearing memorandums. The Service’s proof of claim represented assessed deficiencies in income taxes for the years 1977, 1978 and 1979 along with penalties imposed pursuant to 26 U.S.C. § 6651(a)(1) and § 6653(a). Debt- or objected asserting that no amount was due since her wagering losses exceeded her wagering winnings for the years in question.
The facts before the Court show that the debtor’s 1977, 1978 and 1979 federal income tax returns were selected for examination by the Service. During the examination, debtor admitted that she had received more gambling winnings than she had reported; however, she could not document these winnings. The only records debtor had of her gambling activities were parimutuel tickets which she kept in shoe boxes. Debtor asserted that the reason she did not report the additional wagering income was because the losses exceeded the gain. Finding that the debtor did not sustain her burden of proving that her gambling losses. offset her winnings, the Service increased debtor’s income for the years in question by the amount of wagering income reported and disallowed any alleged wagering losses. The Service also assessed a negligence penalty against debt- or for failing to keep adequate records of *113her gambling activities and for failing to timely file her income tax returns.
On May 26, 1982, the Service issued a notice of deficiency for the taxable years in question. Debtor controverted this notice by filing an untimely petition with the Tax Court who summarily dismissed it for lack of jurisdiction. The Service then assessed the taxes determined in the notice of deficiency on March 31, 1983. The debtor filed for relief under 11 U.S.C. Chapter 13 on October 16, 1984. The Service subsequently filed a proof of claim for the unpaid assessed amounts.
The issue before the Court is whether debtor’s production of gambling tickets was sufficient evidence to prove that her gambling losses exceeded her gambling winnings for the years in question and thus sustain her burden of proving that no additional tax was due.
Internal Revenue Code section 165(d) provides that “[ljosses from wagering transactions shall be allowed only to the extent of the gains from such transactions.” 26 U.S.C. § 165(d). The burden of proving this deduction is on the claiming tax payer. See Burnett v. Houston, 283 U.S. 223, 51 S.Ct. 413, 75 L.Ed. 991 (1931); Mack v. Commissioner, 429 F.2d 182 (6th Cir.1970); Donovan v. Commissioner, 359 F.2d 64 (1st Cir.1966).
The Tax Court has addressed this precise issue in the past and found that more evidence is needed than gambling tickets in order to substantiate gambling losses. See Scoccimarro v. Commissioner, TCM 1979-455 [39 TCM (CCH) 486]; Salem v. Commissioner, TCM 1978-142 [37 TCM (CCH) 614]; see also DelGozzo v. Commissioner, 1983-613 [46 TCM (CCH) 1590].
The Scoccimarro court astutely articulated why gambling tickets are not sufficient evidence:
Parimutuel tickets such as were introduced in evidence in this case are of slight, if any, evidentiary weight where no corroboration is offered of petitioner’s own statement that each and every one was a losing ticket purchased by her.... We have no way of knowing whether petitioner purchased these tickets or received them from acquaintances and friends at the tracks or acquired them by resorting to the time honored technique of stooping; i.e. stooping down and picking up the discarded stubs of disheartened bettors.
Scocciamarro at 487.
This Court concurs with the sound logic of the Tax Court and finds that debt- or failed to carry her burden of proving that her gambling losses exceeded her gambling winnings. Debtor did not present any evidence other than the gambling tickets and her self-serving testimony. Debtor admitted that her winnings exceeded the amount she claimed as income on her income tax returns and that she had no idea exactly how much she had won. Lastly, debtor failed to keep any contemporaneous record of her gambling activities or even tabulate the sum of the tickets prior to the time of the examination.
The final question this Court must address is whether the Service timely assessed the amounts determined in the notice of deficiency. Based on the limited evidence before the Court it appears that the assessment of tax was made within the period provided by law.
Wherefore, it is ORDERED:
(1) Debtor’s Objection to the Proof of Claim # 4 filed by the Internal Revenue Service is overruled;
(2) The proof of claim of filed by the Internal Revenue Service in the amount of $11,276.27 is allowed. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8488806/ | 2022 IL App (1st) 210694-U
SECOND DIVISION
November 22, 2022
No. 1-21-0694
NOTICE: This order was filed under Supreme Court Rule 23 and is not precedent except in the
limited circumstances allowed under Rule 23(e)(1).
______________________________________________________________________________
IN THE
APPELLATE COURT OF ILLINOIS
FIRST JUDICIAL DISTRICT
______________________________________________________________________________
)
SAMANTHA BLACK, ) Appeal from the
) Circuit Court of
Plaintiff-Appellant, ) Cook County
)
v. ) 2019-L-2604
)
VALLUVAN JEEVANANDAM, DOUGLAS ) Honorable
RICHARDSON, ABIGAIL IRVINE, ) Daniel Kubasiak,
THE UNIVERSITY OF CHICAGO, and THE ) Judge Presiding.
UNIVERSITY OF CHICAGO DIVISION OF )
BIOLOGICIAL SCIENCES, DEPARTMENT OF )
SURGERY, )
)
Defendants-Appellees. )
)
_____________________________________________________________________________
JUSTICE ELLIS delivered the judgment of the court.
Presiding Justice Fitzgerald Smith and Justice Howse concurred in the judgment.
ORDER
¶1 Held: Affirmed. Court correctly dismissed amended complaint, as plaintiff did not timely
exhaust administrative remedies before suing defendants in circuit court, and individual
defendant could not be held personally liable for acts attributable to his employer.
¶2 Litigation via the Illinois Human Rights Act can be difficult, even treacherous,
considering that some miscues can be fatal for a plaintiff. This case, unfortunately, is an
No. 1-21-0694
example.
¶3 Plaintiff, Samantha Black, claims she was sexually harassed while on the job at the
University of Chicago’s Department of Surgery, which is in its Biological Sciences Department.
Plaintiff, a physician’s assistant, says that the person in charge of training her sent her sexually
harassing text messages. When she turned down his advances, he excluded her from training
opportunities. She reported the harassment to administrators, but Dr. Valluvan Jeevanandam, one
of the defendants here, began to disparage her to his colleagues. Eventually, the University asked
her to leave the hospital or risk being terminated. When she refused to leave, the University fired
her, purportedly for bad performance. She believed she was the victim of retaliation.
¶4 This triggered a mess of litigation, often with the wrong parties, in the wrong forum, at
the wrong time, and with the wrong claims. Eventually, Plaintiff tried to sue the University of
Chicago, Jeevanandam, and two university administrators, Douglas Richardson and Abigail
Irvine, in circuit court for violating her civil rights. When the dust settled, the circuit court
dismissed plaintiff’s claims, largely because she did not exhaust the administrative remedies
available to her under the Human Rights Act. We agree and affirm.
¶5 BACKGROUND
¶6 We gather the following from the record, and because this case was dismissed at the
pleading stage, we take the allegations in the amended complaint as true and draw all reasonable
inferences in favor of plaintiff. Krozel v. Court of Claims, 2017 IL App (1st) 162068, ¶ 13.
¶7 Plaintiff, a physician’s assistant, was hired by the University of Chicago’s Department of
Surgery on October 13, 2017. Tim Wombacher was assigned to help train her, and plaintiff and
Wombacher frequently texted back and forth. Wombacher’s texts eventually went beyond work
topics and included several sexually harassing and explicit messages. Plaintiff rebuffed his
2
No. 1-21-0694
advances, which caused Wombacher’s tone to shift. He began to tell Black that she shouldn’t
“get too comfortable” in her job because she might not be at the hospital very long. Wombacher
also began to exclude plaintiff from the operating room and effectively stopped training her.
¶8 In January 2018, plaintiff reported Wombacher’s sexual harassment to Abigail Irvine, the
Section Administrator in the department. Irvine later reported the harassment to Douglas
Richardson, the department’s Executive Administrator.
¶9 In February 2018, and after plaintiff had reported the harassment to Irvine and
Richardson, Dr. Valluvan Jeevanandam, the Chairman of the Cardio-Thoracic Surgery
Department at the University, began to disparage plaintiff to her colleagues, telling other
surgeons to exclude plaintiff from surgeries because her job performance was poor. Plaintiff,
however, received positive feedback from other coworkers and thus alleges that Jeevanandam
harbored a grudge against her for reporting Wombacher’s behavior. Jeevanandam, who worked
with Wombacher on a daily basis, continued to disparage plaintiff, at one point scolding her for
poor work she did on a patient, even though another person in the room believed plaintiff had
done a good job.
¶ 10 Meanwhile, Irvine asked plaintiff if she would consider relocating to Riverside Hospital
in Kankakee, approximately 70 miles from where plaintiff lived. Plaintiff never requested the
transfer and wanted to continue working in Hyde Park. Plaintiff began to feel like she was being
punished for reporting the sexual harassment. The matter came to a head on March 2, 2018,
when Richardson sent plaintiff an ultimatum: accept a small severance and resign or be
terminated. Plaintiff refused to quit, and on March 25, 2018, the University fired plaintiff,
allegedly for poor performance.
¶ 11 This triggered a long series of charges and complaints, which we discuss in detail
3
No. 1-21-0694
because they explain the disposition of this appeal.
¶ 12 On May 15, 2018, plaintiff filed charges of sexual harassment and retaliation with the
Illinois Department of Human Rights (the Department) against Jeevanandam, the University of
Chicago Medical Center (UCMC), and Sharon O’Keefe, president of the UCMC. Plaintiff,
however, did not file charges against the University, Irvine, or Richardson. On September 18,
2018, Jeevanandam filed a response to the charges, denying that he sexually harassed or
retaliated against her and likewise denying that plaintiff worked for the UCMC (though he did
not specify the entity for whom plaintiff did work).
¶ 13 On January 4, 2019, the Department dismissed the charges against Jeevanandam and
O’Keefe. The Department said that, because plaintiff did not allege that Jeevanandam or
O’Keefe personally sexually harassed her, those charges could not stand. The Department
dismissed the retaliation charges as well, reasoning that plaintiff was pursuing charges of
retaliation against the UCMC, and the Illinois Human Rights Act (“the Act”) did not allow a
charging party to name an individual as personally liable when also attacking an official action
of her employer. After this, only the charge against the UCMC remained pending.
¶ 14 In February 2019, plaintiff’s counsel reached out to the Department investigator who was
looking into plaintiff’s claim, as there appeared to be confusion over the identity of plaintiff’s
employer and whether the correct employer had been named in the charges. Counsel did not
believe that the UCMC was an entity separate and distinct from the University. He asked,
however, for the investigator to send him “a technical amendment to change Respondent to
UCMC,” even though UCMC was already the respondent in the charge. The investigator later
responded and told counsel that the Department was trying to determine who the correct
respondent was and that a technical amendment could be made during or after a fact-finding
4
No. 1-21-0694
conference in the case. Plaintiff never sought to amend her charge and add the University as a
respondent, however.
¶ 15 On March 11, 2019, plaintiff filed a two-count complaint in the circuit court of Cook
County, naming Jeevanandam, O’Keefe, and the UCMC as defendants and alleging sexual
harassment and retaliation. On April 4, 2019, she amended the complaint, this time naming
Jeevanandam, Irvine, Richardson, the University, and the University’s Division of Biological
Sciences, Department of Surgery (the BSD). Plaintiff dropped the UCMC and O’Keefe from the
suit.
¶ 16 Five days later, on April 9, the Department dismissed plaintiff’s charges against the only
remaining respondent, the UCMC. The Department concluded that the UCMC was not plaintiff’s
employer as the Act defines it. Rather, plaintiff was an employee of the University; the
University and the UCMC are two separate legal entities with their own human resources
departments, and the UCMC cannot make employment decisions for employees of the
University. The Department also found that Wombacher, Irvine, and Jeevanandam were also
employees of the University, not the UCMC.
¶ 17 Back in the circuit court, the defendants moved to dismiss the amended complaint in July
2019. Plaintiff voluntarily dismissed the BSD with prejudice because it was not a legal entity that
could be sued and was instead part of the University.
¶ 18 On October 19, 2019, the circuit court dismissed the amended complaint without
prejudice against the remaining defendants. In doing so, the court determined that plaintiff had
failed to exhaust administrative remedies against the University, Irvine, and Richardson, as the
Act requires. As for the count of retaliation against Jeevanandam, the court noted that the Act
does not allow retaliation claims to be brought against individual employees unless the
5
No. 1-21-0694
retaliation is personally motivated or done without the knowledge or consent of the employer.
¶ 19 On November 14, 2019, plaintiff filed new charges with the Department, naming for the
first time the University itself in a claim of sexual harassment, along with a count of retaliation
against Jeevanandam. The Department dismissed both charges in August 2020, again
determining it lacked statutory authority to hear them. The Department noted that the sexual
harassment charge was filed 655 days after the last incident of harassment occurred, and that the
retaliation charge had been filed 599 days after it allegedly occurred. The Act requires that such
charges be brought within 300 days of the incident for the Department to have jurisdiction to
investigate them; since neither were, the charges were dismissed. The Department dismissed the
charges against Jeevanandam for the same reason it had in 2019, again finding he could not be
personally liable under the Act.
¶ 20 In September 2020, plaintiff refiled an identical copy of the original complaint in circuit
court naming the UCMC, Jeevanandam and O’Keefe as the defendants. A month later, plaintiff
refiled the amended complaint that named Jeevanandam, Irvine, the University, and the
University’s Division of Biological Sciences Department of Surgery.
¶ 21 Defendants moved again to dismiss the suit, this time with prejudice, arguing that
plaintiff had failed to exhaust the available administrative remedies because she failed to bring a
timely charge against the University with the Department. Jeevanandam moved to dismiss the
charge for the same reasons it was dismissed previously, specifically that he could not be held
individually liable for retaliation absent evidence he was personally motivated or that it was done
without the University’s knowledge or consent.
¶ 22 The circuit court agreed and dismissed the complaint with prejudice. It discussed the
lengthy procedural history of the case and noted that plaintiff did not file a timely charge with
6
No. 1-21-0694
the Department against the University, meaning plaintiff did not avail herself of her available
administrative remedies and exhaust them. So the Act did not give the circuit court subject-
matter jurisdiction to hear her case. It also dismissed the counts against Jeevanandam because
plaintiff did not allege he was personally motivated to retaliate against her, or that his alleged
retaliation was done without the University’s consent or knowledge. This appeal followed.
¶ 23 ANALYSIS
¶ 24 I. Notice of Appeal
¶ 25 In her notice of appeal, plaintiff appeals the court’s order of “May 21, 2019” that
dismissed her amended complaint. There is no order of any kind on that date. The court’s
judgment order of dismissal was on May 21, 2021. It is clear from the briefing on appeal,
however, that plaintiff is challenging this May 21, 2021 judgment, and it is equally apparent that
defendants understood the appeal to be in regard to that May 2021 judgment. Since it is clear to
all concerned what plaintiff intended to appeal, and defendants were not prejudiced in any way,
we will chalk up the faulty notice of appeal to a scrivener’s error and deem our jurisdiction
proper. See In re Marriage of Crecos, 2015 IL App (1st) 132756, ¶¶ 17-18.
¶ 26 II. Motion to Strike and Dismiss Appeal
¶ 27 Defendants ask us to dismiss this appeal, claiming that plaintiff’s opening brief flagrantly
violates Illinois Supreme Court Rule 341 (eff. Oct. 20, 2020). As defendants note, our supreme
court’s rules are not mere suggestions; they are mandates. See Perona v. Volkswagen of America,
Inc., 2014 IL App (1st) 130748, ¶ 21; Burmac Metal Finishing Co. v. West Bend Mut. Ins. Co.,
356 Ill. App. 3d 471, 478 (2005). If an appellant’s brief violates the rules, we may dismiss the
appeal without ever reaching the merits. In re Jacorey S., 2021 IL App (1st) 113427, ¶ 17.
¶ 28 The purpose of these rules is to require parties to make clear and orderly arguments so
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No. 1-21-0694
that we may properly ascertain the issues involved. U.S. Bank Trust National Ass’n v. Junior,
2016 IL App (1st) 152109, ¶ 17. We are entitled to have the issues clearly defined and with
citations to pertinent authority. People ex rel. Illinois Dept. of Labor v. E.R.H. Enterprises, 2013
IL 115106, ¶ 56. We are “not simply a depository into which a party may dump the burden of
argument and research.” Id.
¶ 29 We agree that plaintiff’s brief has several shortcomings in terms of compliance with Rule
341. For example, her Statement of Facts is mostly a multi-page, single-spaced quotation of the
complaint in the circuit court. While Rule 341 allows quotations of two or more lines to be
single-spaced, “lengthy quotations are not favored and should be included only where they will
aid the court’s comprehension of the argument.” Ill. S. Ct. R. 341(a) (eff. Oct. 1, 2020).
Reproducing the entire complaint is an abuse of this limited privilege and does the opposite of
aiding our comprehension.
¶ 30 The Argument section is largely devoid of citations to the record, in violation of Illinois
Supreme Court Rule 341(h)(7) (eff. Oct. 1, 2020) and leaving us to comb the record to locate the
sources of her arguments. See McCann v. Dart, 2015 IL App (1st) 141291, ¶ 15. And plaintiff
cites no more than three cases in her entire brief. “[I]t is a rudimentary rule of appellate practice
that an appellant may not make a point merely by stating it without presenting any argument in
support.” Housing Authority of Champaign County v. Lyles, 395 Ill. App. 3d 1036, 1040 (2009).
¶ 31 That said, striking a party’s brief and dismissing an appeal is a harsh sanction that is
appropriate only when the rule violations hinder our review. See Gruby v. Department of Public
Health, 2015 IL App (2d) 140790, ¶¶ 12-13. And doing so would not just punish counsel but
plaintiff. So we will not strike the brief or dismiss the appeal.
8
No. 1-21-0694
¶ 32 III. Circuit Court’s Dismissal of Claims
¶ 33 The amended complaint was dismissed pursuant to section 2-619(a)(1) of our Code of
Civil Procedure. 735 ILCS 5/2-619 (West 2020). A section 2-619 motion to dismiss admits the
legal sufficiency of the complaint but asserts other affirmative matters that defeat the claim.
Goral v. Dart, 2020 IL 125085, ¶ 27. The motion also admits all well-pleaded facts in the
complaint as true, as well as any reasonable inferences that can be drawn from them. Id.
Subsection (a)(1) allows the court to dismiss a complaint when it lacks jurisdiction over the
subject matter of the action. 735 ILCS 5/2-619(a)(1) (West 2020). Our review of a section 2-619
dismissal is de novo. Kean v. Wal-Mart Stores, Inc., 235 Ill. 2d 351, 361 (2009).
¶ 34 Among its many goals, the Illinois Human Rights Act (“the Act”) protects those who,
like plaintiff, believe they have been sexually harassed in their jobs and/or subjected to
retaliation for resisting or speaking out about the harassment. 775 ILCS 5/2-101 et seq. (West
2020). The Act creates two administrative bodies to carry out its goals: the Illinois Department of
Human Rights (the Department), and the Illinois Human Rights Commission (the Commission).
See 775 ILCS 5/5-101 et seq (West 2018); 775 ILCS 5/8-101 et seq (West 2018).
¶ 35 The General Assembly empowered the Department, among other things, to receive and
investigate charges of human rights violations because its specialized expertise would allow it to
efficiently investigate complaints involving civil rights. Castaneda v. Illinois Human Rights
Commission, 132 Ill. 2d 304, 322-23 (1989). The Commission is tasked with adjudicating
allegations of unlawful discrimination, and the legislature intended to vest the Commission with
the authority and ability to decide all matters regarding civil rights violations. See id. at 322;
Cruz v. Department of Human Rights, 2022 IL App (1st) 211276-U, ¶ 27 (Department’s role is
investigative, while Commission’s is adjudicative).
9
No. 1-21-0694
¶ 36 The Act is the exclusive source for redress of civil rights violations; except for limited
exceptions not relevant here, the Commission is vested with exclusive authority, at least initially,
over the subject of an alleged civil-rights violation. Weatherly v. Illinois Human Rights
Commission, 338 Ill. App. 3d 433, 437 (2003). Except as otherwise provided by law, no court of
this state shall have jurisdiction over the subject of a civil-rights violation other than as set forth
in the Act. 775 ILCS 5/8-111(D) (West 2020).
¶ 37 Thus, a court may only exercise subject-matter jurisdiction over a civil-rights claim that
arises under the Act if the aggrieved party has first exhausted the available administrative
remedies in the Act. See Castaneda, 132 Ill. 2d at 308. Said differently, if a party sues in circuit
court for a civil-rights violation before she has exhausted her administrative remedy against that
defendant, the suit is subject to dismissal for lack of subject-matter jurisdiction. Id.
¶ 38 Plaintiff’s claims of sexual harassment and retaliation in the workplace fall under Article
2 of the Act. See 775 ILCS 5/2-101 et seq. (West 2018). Article 7A lays out the procedures for
the filing and investigation of such claims. Id. § 7A-101 et seq. Under section 7A, a party who
believes her civil rights have been violated must file a charge with the Department within 300
days of the alleged violation. Id. § 7A-102(A)(1). The charge must “be in such detail as to
substantially apprise any party properly concerned as to the time, place, and facts surrounding
the alleged civil rights violation.” Id. § 7A-102(A)(2).
¶ 39 The Department then conducts a full investigation to determine whether substantial
evidence exists to sustain the claim. Spencer v. Illinois Human Rights Comm’n, 2021 IL App
(1st) 170026, ¶ 30; 775 ILCS 5/7A-102(D)(2) (West 2018). If the Department finds a lack of
substantial evidence, it dismisses the charge, and the complainant may seek review of that
determination before the Commission. Spencer, 2021 IL App (1st) 170026, ¶ 30; 775 ILCS
10
No. 1-21-0694
5/7A-102(D)(3) (West 2018). The complainant may also sue in circuit court within 90 days of
that dismissal. 775 ILCS 5/7A-102(D)(3) (West 2018). (There are similar procedures in place if
the Department determines that substantial evidence exists to sustain the claim. See id. §7A-
102(D)(4). But that scenario is not relevant here.)
¶ 40 With that in mind, we turn to the claims against defendants here, starting with the
University. Plaintiff did not follow the path described above—that is, she did not sue the
University after receiving a determination (favorable or otherwise) from the Department. She
filed suit in the circuit court against the University before ever filing a charge against the
University with the Department. The circuit court thus correctly found, the first time plaintiff
sued the University in circuit court, that plaintiff had failed to exhaust her administrative remedy
against the University before filing suit in state court. See Castaneda, 132 Ill. 2d at 308.
¶ 41 Plaintiff complains that the Department should have allowed her to amend her initial
charge, which incorrectly named the UCMC as her employer, to name the University as a
respondent. But she never asked the Department to amend her original charge to name the
University. Her lawyer sent an email to the Department investigator suggesting he might wish to
amend the charge to name the UCMC as a respondent—a typo, obviously, because the UCMC
was already the respondent—but it was incumbent on plaintiff to seek leave to do so. Had she
done so, she likely would have been allowed to relate her claims against the University back to
her original complaint date, making them timely. See 56 Ill. Adm. Code § 2520.360(a) (1994)
(“A charge may be amended to cure technical defects or to set forth additional facts or
allegations related to the subject matter of the original charge, and such amendments shall relate
back to the original filing date.”).
¶ 42 The bigger point, however, is that, if plaintiff believed that the Department somehow
11
No. 1-21-0694
wronged her by not allowing her to make an amendment that she never asked to make—her brief
implies that the Department investigator may have led her astray—the remedy was to appeal the
Department’s determination to the Commission with that very complaint about the Department’s
investigator. But plaintiff did not appeal the Department’s determination and thus allowed any
complaint she had with the Department to die on the vine. Instead, having never named (or even
attempted to name) the University before the administrative body, she simply leapfrogged to
state court, naming the University for the first time in a lawsuit in the circuit court.
¶ 43 The circuit court obviously could not allow that suit against the University to stand, given
that plaintiff had not exhausted her administrative remedy against the University. But the court
dismissed the claims against the University without prejudice, granting plaintiff leave to refile
them in circuit court if and when she first exhausted her administrative remedy.
¶ 44 Unfortunately, by the time plaintiff finally pursued that administrative remedy against the
University, filing a new charge with the Department on November 14, 2019, it was far too late.
Plaintiff alleged that the sexual harassment ended on January 18, 2018. So she had until
November 14, 2018 to file a charge against the University. The November 2019 charge against
the University was untimely by a year.
¶ 45 As such, the Department was required to dismiss plaintiff’s charge against the University.
See Vulpitta v. Walsh Construction Co., 2016 IL App (1st) 152203, ¶ 26 (compliance with time
requirements for filing charge with Department “is a condition precedent to the right to seek a
remedy” before Commission and, if plaintiff “did not originally file them with the Commission
on time, he is precluded from pursuing them in the circuit court.”); Weatherly, 338 Ill. App. 3d at
437 (300-day window limitations period is mandatory; failure to timely file charge mandates
dismissal of claim before Commission). And for that same reason, when plaintiff then returned to
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No. 1-21-0694
circuit court, refiling her claims against the University, the circuit court was required to dismiss
the claims for lack of subject-matter jurisdiction, as plaintiff had failed to exhaust her
administrative remedy in a timely fashion.
¶ 46 We thus uphold the circuit court’s dismissal of the claim against the University in the
amended complaint.
¶ 47 For the same reason, the circuit court did not have subject-matter jurisdiction to hear the
claims against Irvine and Richardson. Plaintiff never filed any administrative charges against
those individuals with the Department. The first time they appeared in the legal proceedings in
this case was in the amended complaint in circuit court. So these claims, too, were properly
dismissed for failure to exhaust administrative remedies.
¶ 48 That leaves Jeevanandam, the only person against whom plaintiff arguably did file a
timely charge with the Department. The Department dismissed the charge against him the first
time around because Jeevanandam could not be held personally liable under the Act when acting
within the scope of his employment, unless there was evidence the retaliation was personally
motivated or done without the knowledge and consent of the University—and the charge against
Jeevanandam made no such allegations. See Watkins v. Office of the State Appellate Defender,
2012 IL App (1st) 111756, ¶ 37. As the Department noted, when a supervisor retaliates against
an employee in the name of the employer, the aggrieved employee must charge the employer
with retaliation, not the supervisor individually. Id.; see Anderson v. Modern Metal Products,
305 Ill. App. 3d 91, 101-02 (1999).
¶ 49 Plaintiff then sued in circuit court, as noted previously, first naming Jeevanandam in her
amended complaint on April 4, 2019. But the circuit court dismissed that claim, agreeing with
the Department that Jeevanandam could not be sued personally for actions taken within the scope
13
No. 1-21-0694
of his employment based on the allegations in the amended complaint.
¶ 50 Plaintiff then filed a second charge with the Department against Jeevanandam (at the
same time she charged the University for the first time), raising the same retaliation allegations
she had originally made. And like her claims against the University, by this point her charge was
time-barred, coming far after the 300-day time window. Not to mention that her claim once again
failed because plaintiff was required to sue the employer, not the individual employee, for the
acts alleged. Watkins, 2012 IL App (1st) 111756, ¶ 37; Anderson, 305 Ill. App. 3d at 101-02.
¶ 51 So when plaintiff then returned to circuit court with her refiled amended complaint, the
circuit court dismissed the claims against Jeevanandam for both of those reasons—Jeevanandam
could not be sued individually for the actions alleged, and her second charge against
Jeevanandam was time-barred, depriving the circuit court of subject-matter jurisdiction. The
circuit court was clearly correct on both counts.
¶ 52 In sum, the circuit court properly dismissed the claim against the University because
plaintiff did not timely exhaust her administrative remedy. The claims against Irvine and
Richardson were properly dismissed because plaintiff never made any attempt whatsoever,
timely or otherwise, to exhaust her administrative remedy against them. And the claim against
Jeevanandam was correctly dismissed both for failure to timely exhaust administrative remedies
and because Jeevanandam could not be sued individually for his alleged actions. We affirm the
circuit court’s judgment in its entirety.
¶ 53 CONCLUSION
¶ 54 The judgment of the circuit court is affirmed.
¶ 55 Affirmed.
14 | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8490125/ | D. JOSEPH DeVITO, Bankruptcy Judge.
On October 6, 1983, Dee Wood Industries, Inc. (Dee) filed its complaint seeking to marshal the assets of the debtors, Jack Dillon Construction Co., Inc., John Dillon and Donna Dillon, his wife (the Dillons).
PROCEDURAL AND FACTUAL HISTORY
On August 18, 1982, the Dillons and the Jack Dillon Construction Co. filed voluntary petitions for relief under Chapter 11 of the Bankruptcy Code. Dee is a secured creditor holding third mortgages encumbering the Dillons’ property located at 4 Harvard Road, Linwood, New Jersey (the Linwood property) and 19 N. Madison Avenue, Margate, New Jersey (the Margate property). The debt underlying the two mortgages now totals $116,799.24, together with interest from May 2, 1983.
Midlantic National Bank (Midlantic) and Heritage Bank, N.A. (Heritage), also secured creditors of the debtors, hold second mortgages encumbering the Margate and Linwood properties, as well as mortgages encumbering debtors’ property located at 125 North Lafayette Avenue, Ventnor, New Jersey, and 408 New Road, North-field, New Jersey. The debt underlying the above mortgages now totals $430,-000.00.
Heritage holds a first mortgage on the Margate property and a second mortgage on the debtors’ property located at 31 Ced-ercrest Avenue, Pleasantville, New Jersey, as well as liens on four life insurance policies, construction contracts and their proceeds, and the 1.875 per cent interest owned by John Dillon in the Magnum and Magnum Associates II Partnership (the *137Magnum Partnership). The debt owed by the debtors to Heritage totals $200,000.
On January 20, 1984, a consent order was entered in the matter of Dee Wood Industries, Inc. v. Jack Dillon Construction Co., Inc. et al., Adversary No. 83-0584, wherein Dee, Heritage and Midlantic agreed to a marshalling of the debtors’ assets. The order provided, inter alia, that:
a. Dee, to the extent it is a junior creditor, and Midlantic, to the extent it is a junior creditor, will be subrogated and substituted to the liens of the paramount creditors in singly charged funds to the extent of the proceeds paid to said paramount creditors from doubly charged funds.
Apparently, the debtor also agreed to the above order, excepting and excluding the Magnum Partnership interest from the marshalling concept. The precise issue before the Court is whether the Magnum Partnership is subject to the marshalling of debtors’ assets.
In these considerations it is helpful to define paramount creditor, singly charged fund, and doubly charged fund. It is generally recognized that a paramount creditor is one who has a lien on both singly and doubly charged funds or property of the debtor. A singly charged fund is property in which only one creditor (the paramount creditor) has a lien. A doubly charged fund is property in which both creditors, the paramount creditor and the creditor requesting marshalling, have liens. Dee contends that the Magnum Partnership interest is subject to marshalling because Midlantic and Dee have been subrogated to the liens of the paramount creditor (Heritage) in singly charged funds (Magnum Partnership) to the extent of the proceeds paramount creditors receive from doubly charged funds. In the sale of the Margate property, Heritage received $60,388.16 from the resulting proceeds. Midlantic and Dee contend that, after the extinguishment of Heritage’s lien, they each have the right to collect $60,388.16 from the Magnum Partnership by virtue of subrogation.
The debtors maintain that the Magnum Partnership is not subject to marshalling because of a consent judgment reached between the debtors and Heritage which provided, inter alia, that Heritage’s security interest in the Magnum Partnership is limited to the amount not recovered from the sale of other collateral securing Heritage’s security interest. The debtors maintain, further, that they would be prejudiced as a hypothetical lien creditor under § 544[a][l] if marshalling were allowed.
The Supreme Court has noted that “[t]he equitable doctrine of marshalling rests upon the principle that a creditor having two funds to satisfy his debt, may not by his application of them to his demand, defeat another creditor, who may resort to only one of the funds.” Sowell v. Federal Reserve Bank, 268 U.S. 449, 456-57, 45 S.Ct. 528, 530-31, 69 L.Ed. 1041 (1925). When determining the relevance of the doctrine to a particular case, the Supreme Court observed that
marshaling is not bottomed on the law of contracts or liens. It is founded instead in equity, being designed to promote fair dealing and justice. Its purpose is to prevent the arbitrary action of a senior lienor from destroying the rights of a junior lienor or a creditor having less security. It deals with the rights of all who have an interest in the property involved and is applied only when it can be equitably fashioned as to all of the parties.
Meyer v. United States, 375 U.S. 233, 237, 84 S.Ct. 318, 321, 11 L.Ed.2d 293 (1963). In Meyer the Supreme Court also found that, absent federal law to the contrary, state law must be considered when determining the extent of the doctrine’s application. Meyer, supra, 375 U.S. at 239, 84 S.Ct. at 322.
The equitable doctrine of marshalling is firmly established and well recognized in New Jersey. See Herbert v. Mechanics Building and Loan Association, 17 N.J.Eq. 497, 502-04 (1864). New Jersey courts have explained that “[t]he right of subrogation does not depend on any privity *138of contract, but is independent of any agreement, and rests upon principles of natural justice and equity.” Gordon v. Arata, 114 N.J.Eq. 294, 301, 168 A. 729 (1933) (quoting Hackensack Brick Co. v. Borough of Bogota, 86 N.J.Eq. 143, 146-47, 97 A. 725 (1916)). The right of subro-gation is clearly a recognized mechanism for enforcement of the doctrine of mar-shalling of assets. Gordon, supra, 114 N.J.Eq. at 301, 168 A. 729.
The Court finds that the Magnum Partnership is subject to marshalling for the following reasons: (A) The Magnum Partnership is an asset subject to the enforcement procedure of marshalling by subro-gating or substituting Midlantic, then Dee, to the rights of Heritage to collect payments from the Magnum Partnership. Failure to apply the doctrine of marshalling in this case would create an undeserved inequity and unfairness to the positions of two secured creditors — Midlantic and Dee. All the requirements for application of the doctrine have been met: (1) the same debtors are involved; (2) doubly and singly charged funds exist; and (3) the paramount creditor (Heritage) satisfied its lien through the doubly charged fund (the Mar-gate property) to the detriment of junior creditors (Dee and Midlantic). (B) The consent judgment agreed to by Heritage, Mid-lantic and Dee, and verbally agreed to by the debtor, fails to exclude the Magnum Partnership from application of the equitable doctrine. Furthermore, the judgment provides specifically for Dee and Mid-lantic to have rights of subrogation and substitution.
Finally, the Court finds debtors’ argument that they would be prejudiced under § 544[a][l] if marshalling were allowed is without merit. The case relied on by the debtors, In re Spectra Prism Industries, Inc., 28 B.R. 397 (Bankr.App. 9th Cir.1983), is wholly inapplicable to the facts of the case sub judice for the reason that the Spectra court based its decision on California case law, holding that the trustee is within the class of persons whose interests could not be prejudiced by marshalling. New Jersey courts have not recognized the Spectra court’s finding. The Court is unconvinced that the debtors would, in fact, be prejudiced as a result of marshalling.
Based upon the foregoing, Dee’s application to subject the Magnum Partnership to marshalling is granted.
Submit an order in accordance with the above. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8490126/ | MEMORANDUM OPINION
MARK B. McFEELEY, Bankruptcy Judge.
This matter came before the Court on the defendant’s motion for judgment on the pleadings. This motion is based on a complaint to avoid a judicial lien pursuant to 11 U.S.C. 547(b). The parties stipulated to the facts of the case. The Court must decide if a lien attached to moneys held in the registry of the Bernalillo County District Court, and if it did attach, the date of attachment. For the sake of clarity of this decision, the *175stipulated facts will be set forth in this opinion prior to addressing the issue.
A. Stipulated Facts
1. On July 16, 1980, judgment was entered in favor of Smalley & Company and against Albuquerque Western Solar Industries, Inc., in Bernalillo County Cause No. CV 80-04547 in the total amount of $3,139.75 and bearing interest at the rate of ten percent per annum. A transcript of said judgment was recorded in the records of the Bernalillo County Clerk on July 24, 1980, in Book Mise. 787, page 238.
2. On May 7, 1982, the sum of $22,-860.00 was deposited in the Bernalillo County Court Registry pursuant to the Order of the District Court in Meyer v. Albuquerque Western Solar Industries, et at, Cause No. CV 80-08426. These funds represented royalties due to Albuquerque Western Solar Industries, Inc. pursuant to a licensing agreement between Albuquerque Western Solar Industries, Inc. and Tulsa Pipe and Supply Company.
3. On August 4, 1982, ten months prior to the filing of the petition for relief in this Court, Smalley & Company caused to be served on the Bernalillo County District Court Clerk a Writ of Execution levied against the sum belonging to Albuquerque Western Solar Industries, Inc., and held in the Bernalillo County District Court registry pursuant to the Order of the District Court.
4. This judgment remained unsatisfied as of June 27,1983, the time of the filing of the petition for relief by Albuquerque Western Solar Industries, Inc., in the United States Bankruptcy Court for the District of New Mexico.
5. Smalley & Company by and through its attorneys, attended the first meeting of creditors but did not otherwise take any action in this bankruptcy proceeding.
6. On November 7, 1983, an Order of Disbursement was issued by the Bernalillo County Court Clerk stating “the Clerk of the Court shall disburse to the Plaintiff, Warren A. Meyer, the amount of $2,388.81 and the balance of the funds remaining in the Court Registry should be disbursed to the Defendant, Albuquerque Western Solar Industries, Inc. It is further ordered that the Clerk of the Court should not disburse any funds pursuant to this Order until she receives a Court endorsed copy of an Order lifting the automatic stay, allowing this disbursement from the United States Bankruptcy Court for the District of New Mexico, where the Defendant is currently involved in Chapter XI proceedings.”
7. There is a balance of $2,070.94 in the Court Registry in said case. •
8. On January 26, 1984, Albuquerque Western Solar Industries, Inc. delivered to Smalley and Company by certified mail a certificate evidencing ownership of 5,903 shares of the common stock of Albuquerque Western Solar Industries, Inc., pursuant to the plan of reorganization approved by this Court, which certificate remains in the possession of Smalley and Company.
Plaintiff argues that funds held by the Court are not attachable and Smalley therefore has no interest in the money held by the Bernalillo County Court Clerk Registry; thus their lien can be avoided under 11 U.S.C. § 547(b).
Defendant Smalley argues that the levy of the writ of execution effectuated the property transfer on August 4,1982. They contend that this “transfer” of property occurred ten months prior to the filing of the bankruptcy, and this is not subject to avoidance as a preferential transfer.
The question for this Court is when the lien attached to the funds in the Court Registry. Generally, absent statute to the contrary, property of a debtor in custodia legis is not subject to garnishment. J.N. Laughlin v. F.N. Lumbert, 68 N.M. 351, 362 P.2d. 507 (1961). The funds being held by the Court are in the custody of the Court and will thus not be attachable unless permitted under New Mexico Statute.
In New Mexico, attachment maybe effected against the following:
the lands, tenement, goods, moneys, effects, credits and any right, title, lien or *176interest whether legal or equitable upon, in or to real or personal, tangible or intangible property whether present or possessory or reversionary or in remainder and all property which could be reached upon execution or upon equitable proceedings in and of execution, of the debtor in whosesoever hands they may be except such property as is now, or may hereafter be, specifically exempted from attachment or execution by law
§ 42-9-4 N.M.S.A. (1978 Comp.)
In Laughlin the Court requires that a statute specifically state that property in the custody of the Court is attachable in order to do so. The statute, on the other hand, is broad and all encompassing. However, no where does it state that property in the custody of the Court is attachable.
In United States v. Hunt, 513 F.2d 129 (10th Cir.1975) addressed a similar situation. In that case, the Internal Revenue Service brought an action to foreclose a federal tax lien on all property and property rights of a deceased taxpayer, including garnished funds held by the State Court in Wyoming. The Court of Appeals stated:
The IRS was not at liberty, upon knowledge of the fact that the funds in the case at bar had been garnished and delivered into the custody of the Wyoming State Court ... to ignore those proceedings or the jurisdiction of the court, id.
Smalley and Company has attempted to attach the funds in the Court Registry from Meyer v. Albuquerque Western Solar Ind., Inc., CV-80-08426, in the same way that the IRS attempted to do in that underlying case.
The Court of Appeals held that the IRS could not do so when they stated:
Property and funds in custodia legis are not attachable or garnishable when they are already in the custody of the attaching or levying officer under civil process in a prior case. Such property is under the sole direction, order and disposition of the Court. 6 Am Jur 2d, Attachment and Garnishment, § 196, 197; Mundil v. Hutson, 33 N.M. 388, 268 P. 566, 59 A.L.R. 522 [(1928)]; First National Bank v. Corporation Comm. of North Carolina, 161 Md. 508, 157 A. 748, 86 A.L.R. 1407 [(1932)].
Therefore, Smalley and Company could not attach their lien to the funds being held in the Court Registry prior to the conclusion of the previous suit.
Once the funds had been disbursed by the Bernalillo County Clerk, a different question arises, that is, once the underlying obligation from the previous suit has been satisfied by the funds in the Court Registry, what happens to the remainder of the fund?
According to Mundil v. Hutson, 33 N.M. 388, 268 P. 566 (1928), “a custodian holding funds subject to orders of the Court becomes subject to garnishment upon final order and adjudging ownership of the fund and directing disbursement. Id. The Bernalillo Court Clerk issued the Order of Disbursement on November 7, 1983. Thus, it is at this time that the funds being held became attachable, and attached to the remainder of the funds.
However, the attachment took place nearly six months after the debtors filed for relief in the United States Bankruptcy Court. In this situation, the transfer would be preferential treatment to Smalley and Company and thus it can be avoided. Becker v. American Bank of Commerce, (In re Town and Country Color Television, Inc.), 22 B.R. 421 (N.M.1982).
Therefore, the motion to avoid the judicial lien, pursuant to 11 U.S.C. 547(b) is proper and the lien can been avoided.
An appropriate order shall enter.
This constitutes findings of fact and conclusions of law. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8490128/ | FINDINGS OF FACT, CONCLUSIONS OF LAW, AND FINAL JUDGMENT OF DISMISSAL OF COMPLAINT
DENNIS J. STEWART, Bankruptcy Judge.
The plaintiff trustee in bankruptcy has filed the within action requesting turnover by the defendant of the sum of $11,880.00 as a matured account or contract right payable to him on demand within the meaning of § 542(b) of the Bankruptcy Code. After joinder of the issues by the pleadings, the action came on before the bankruptcy court to be heard on its merits on April 26, 1985, in Little Rock, Arkansas. At that time, the plaintiff trustee in bankruptcy appeared by counsel, Thomas H. McLain, Esquire, and the defendant also appeared personally and also by counsel, C. Richard Crockett, Esquire. The evidence which was then adduced warrants the following findings of fact.
Findings of Fact
It is the contention of the plaintiff that the defendant, while he was in the employment of the debtor corporation, had an account with the debtor corporation consisting, on one side, of his advances or “draws” of money from the debtor corporation and, on the other side, the rights of the defendant to compensation for the services which he rendered to the debtor corporation. The plaintiff contends that there is an excess of the former over the latter in the amount of $11,880.00 which now should be recovered by the debtor corporation’s successor in interest, the trustee in bankruptcy. In support of this contention the plaintiff adduced in evidence, over the defendant’s objection,1 a set of checks made to defendant by Summa T Realty, Inc., in the total sum of $11,880.00. No record was made by means of any admissible evidence of any offsets which might be due to the defendant on account of services rendered to the corporation.2 It was the testimony of the defendant Linn Kempner that he was not hired as a salesman and that the bookkeeping entries which purported to show that he had drawn advances as a salesman were simply erroneous; that he was hired as a kind of “contact” person who was to use his social position and his ability to communicate with persons of *209means to attempt to interest them in investing in David Kane’s projects; that he was paid for his endeavors in this respect rather than as' a salesman; that it was contemplated that he might become a salesman in the future and, to this end, he at one time took the required broker’s examination; that he failed to pass the examination, but it was not regarded as essential to his continued employment; that he fully earned the “advances” which he received; that he did not work for the debtor corporation whose trustee is the plaintiff in this action, Summa T Realty, Inc., but rather worked for Diversified Financial Services; that he questioned Mr. Kane early in his employment as to why his paycheck came from an entity other than Diversified Financial Services, Inc., and Mr. Kane advised him that that was “standard procedure”; that he did not work on a commission basis, but worked on a straight salary basis under which he was to receive a gross salary of approximately $1,000.00 every two weeks. The defendant’s testimony to this effect was corroborated by that of Jay DeHaven, another former employee of the same organization as that which employed the defendant, who testified that defendant was not employed as a salesman, but rather as a salaried employee. The testimony of Mr. Kane, however, was insistent that the payments made to the defendant were only advances made against commissions which might be earned in the future if and when the defendant became a lawful and authorized sales representative. He admitted, however, that, prior to becoming a lawfully authorized sales representative, Mr. Kempner could call on customers in tandem with an authorized sales representative and that it was intended that he do so.
Otherwise, it was demonstrated without contradiction that the books and records of the debtor organization did not reflect any payments to Linn Kempner or any balance due from him; that there is a lingering factual question over whether the identification number on the checks issued to the defendant is actually that of Summa T Realty, Inc.3; and that there is no testimonial contradiction of the defendant’s contention stated by him under oath that he never worked for the debtor organization, but rather worked for Diversified Financial Services.
Conclusions of Law
The defendant has moved to dismiss these adversary proceedings on two principal grounds. The first of these is that the underlying title 11 case should be dismissed; that, in prior chapter 11 proceedings filed by entities related to David Kane, the undersigned entered an order abstaining from those proceedings and dismissing them with prejudice; and that that ruling is res judicata and binds this court to dismiss the case underlying this adversary action. This motion is without merit for manifold reasons. First of all, the defendant is not a creditor who has standing to move to dismiss the underlying title 11 case.4 Second, the debtor entity was not involved in the cases which were abstained from and dismissed and there is thus no identity of the parties as is ordinarily a requirement when the doctrine of res judi-cata or collateral estoppel is applied.5 And *210finally, this court has previously held that dismissal with prejudice of a chapter 11 proceeding is not res judicata with respect to a subsequent liquidation proceeding inaugurated by the same entity. See Matter of Lenz, In proceedings under title 11 of the Bankruptcy Code, 54 B.R. 638 (Bkrtcy.W.D.Mo.1984), to the following effect:
“The dismissal of the prior chapter 11 case with prejudice bars only the filing of a subsequent chapter 11 case, not the within chapter 7 case, in which a demonstrably different form of relief is sought.”
Therefore, for the foregoing separate and independent reasons, the motion to dismiss based upon the theory of res judicata or collateral estoppel must be denied.
The second potential ground for dismissal is one which was only imperfectly raised in the course of trial, but it is nevertheless patently meritorious. Counsel for the defendant explicitly contended during the trial that the defendant was not an employee of the debtor organization and was not actually paid by it. Curiously, counsel then objected to the admission in evidence of the two species of documents which tended to prove this defense. The computer records which purported to document the accounts of Summa T Realty, Inc., with its employees was objected to as hearsay, even though those records showed no disbursements to the defendant Linn Kempner. And counsel also objected to the admission in evidence of the checks by which the defendant was in fact paid, although it was his contention that the checks did not bear the identification number of Summa T Realty, Inc., and, although granted an ample and explicit opportunity to do so, the plaintiff did not demonstrate that the checks bore the correct identification number.
Nevertheless, it is the plaintiffs burden to demonstrate that it is the proper party in interest having standing to recover the alleged overpayments.6 On the basis of the evidentiary record, this burden has not been met. Despite the miscalculation of counsel for the defendant in objecting to the admission of these pieces of evidence, the court may, and, in fact, must deem them admissible insofar as they constitute admissions by a party opponent.7 So admitted, they tend to show that the defendant was not paid by the plaintiff and it must therefore be concluded that plaintiff has not sustained his burden of demonstrating that he is the proper party plaintiff.8
This action must therefore be dismissed. The dismissal may be entered by the bankruptcy court. There can be little doubt that the action brought by the trustee is a “noncore” action which, on its merits, should ordinarily be submitted to the district court for a final judgment. See §§ 157(b)(3), (c)(1), Title 28, United States *211Code. But the dismissal of this case is basically on the ground that bankruptcy court jurisdiction is lacking for the reason that one of the parties is not the trustee or a debtor.9 In such instances, district court bankruptcy jurisdiction is as absent as is bankruptcy court jurisdiction10 and dismissal by the bankruptcy court is accordingly the appropriate action.11
Alternatively, however, even if there is jurisdiction, the above findings of fact warrant a determination that there is no merit in plaintiffs complaint; that, even if it could be found that the debtor was the entity which actually paid defendant, he was simply a salaried employee who fully earned all that he was paid; and that the credible testimony of Kempner and the witness DeHaven fully and substantially supports this conclusion.
Accordingly, it is hereby
ADJUDGED that this action be, and it is hereby, dismissed.
. The court denied the objection, which was based upon a contention that the checks were not relevant to demonstrate the source from which payment was actually made. As noted below in the text of this memorandum, the checks were actually necessary to demonstrate the source of payment and there was really no question of their authenticity or genuineness.
. The computer records and other records which might have shown the existence of such credits were successfully objected to by counsel for the defendant on the grounds that a proper foundation could not be laid for their admission in evidence.
.There was some evidence to show that the identification number which was contained on the checks which had been issued to the defendant was 71 04433826, whereas, in other places, on other documents, the proper identification number of Summa T Realty, Inc., was 71 0518874. The plaintiffs principal witness, when questioned about this apparent conflict or ambiguity in the evidence, stated that he could not state with any certainty what the proper identification number for the debtor was. But the burden of proof on this issue, as on the others in the action, devolves upon the plaintiff. And the evidence does not show clearly what entity the payment came from nor its relationship to the entity which is the named plaintiff in this action.
. Ordinarily a party who has no claim to any of the estate’s assets nor is in any sense a current creditor of the debtor is without standing to request dismissal of the title 11 case. See, e.g., Matter of Property Management and Investments, 17 B.R. 728, 730 (Bkrtcy.M.D.Fla.1982).
. Nor does the evidence show that the named debtor was a successor to or otherwise in privity with any entity in the former proceedings. See note 3, supra.
. See note 3, supra.
. "No guarantee of trustworthiness is required in the case of an admission. The freedom which admissions have enjoyed from technical demands of searching for trustworthiness in some against-interest circumstance, and from the restrictive influences of the opinion rule and the rule requiring firsthand knowledge, when taken with the apparently prevalent satisfaction with the results, calls for generous treatment of this avenue to admissibility." Weinstein’s Evidence para. 801, p. 801-42, vol. 4 (1984).
. The last two sentences of Rule 17(a) of the Federal Rules of Civil Procedure, as made applicable in bankruptcy cases by Rule 7017 of the Rules of Bankruptcy Procedure provide that "(n)o action shall be dismissed on the ground that it is not prosecuted in the name of the real party in interest until a reasonable time has been allowed after objection for ratification of commencement of the action by, or joinder or substitution of, the real party in interest; and such ratification joinder, or substitution shall have the same effect as if the action had been commenced in the name of the real party in interest.” In this action, however, there has been no showing of any persuasive quality as to who the real party in interest may be; nor is there any showing that the statute of limitations may run out before an action can be instituted in the name of the real party in interest. And see note 9, infra.
. Even "consent cannot operate to confer jurisdiction on the bankruptcy court as to a claim asserted by strangers to the proceedings over a matter in no way connected with the administration or distribution of the bankrupt estate.” 2 Collier on Bankruptcy para. 23.08, p. 534, n. 7 (1976).
. Like bankruptcy court jurisdiction, district court jurisdiction is based upon actual or constructive possession of the property of the estate. See section 1334(d), Title 28, United States Code.
.“After the plaintiff, in an action tried by the court without a jury, has completed the presentation of his evidence ..., (t)he court as trier of the facts may then determine them and render judgment against the plaintiff or may decline to render any judgment until the close of all the evidence (including) ... a dismissal for lack of jurisdiction ...” Rule 41(b), F.R.Civ.P.; Rule 7041 of the Rules of Bankruptcy Procedure. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8490129/ | FINDINGS OF FACT AND CONCLUSIONS OF LAW RE: MOTION TO LIFT STAY
JON J. CHINEN, Bankruptcy Judge.
On March 14, 1985, Benge Corp. (“Benge”) filed a voluntary petition for relief under Chapter 11 of the Bankruptcy Code. On April 12, 1985, Kaiser Development Company (“Kaiser”) filed a Motion to Lift Stay and a preliminary hearing was held on May 1,1985 at which time the court continued the stay and scheduled a final hearing for May 14, 1985. The Court also requested supplemental memoranda from counsel on the issue as to whether the Deposit Receipt Offer and Acceptance (“DROA”), dated August 22, 1984, as amended by the Amendment, Final Extension of Closing Costs and Automatic Termination of Deposit, Receipt, Offer and Acceptance dated February 28, 1985 terminated by its own terms on March 14, 1985 as claimed by Kaiser.
At the hearing scheduled for May 14, 1985, all counsel agreed that the matter should be continued until May 24, 1985 to permit the parties to arrive at a settlement and that, if there were no settlement by May 24, 1985, the Court was then to rule based upon the memoranda, pleadings and records in the file.
Thereafter, by agreement of all the parties concerned, the matter was continued until July 26, 1985 at 7:30 a.m. At said hearing, Benge’s counsel stated that there was an agreement with Kaiser whereby Mr. Becker was to deposit $50,000.00 with Kaiser by noon of that day to show good faith in taking over the development from Benge. However, because Benge learned that Mr. Becker was not able to raise the necessary funding for that project, Benge offered to Kaiser a Mr. Henry Wong to replace Mr. Becker. Because this new offer was not yet resolved, the Court continued the matter until August 2, 1985 at 7:30 a.m. to give the parties an opportunity to reach a solution. The Court stated that, if there were no agreement among the parties, it would rule on August 2, 1985.
*227At the hearing on August 2, 1985, present were Richard MacMillan, Esq., representing Debtor, R. Charles Bocken, Esq., representing Kaiser; Gary Dubin, Esq. representing Mr. Frank and Mr. William Benge; Riccio Tanaka, Esq. representing Mr. William Becker, William Burgess, Esq., representing Mr. Barnes.
Mr. MacMillan explained the proposal of substituting Mr. Henry Wong for Mr. Becker. However, Ronald Yee, Esq., counsel for Mr. Wong, stated that Mr. Wong was only willing to provide the start-up funds and wanted to be repaid when the construction loan was available. Mr. Bock-en stated that Kaiser was not willing to be further involved in any internal dispute of Benge, financial or otherwise, and stated that, because Mr. Becker did not deposit the $50,000.00 by 12:00 noon of July 26,' 1985, Kaiser wanted the DROA of August 22,1984, as amended, deemed of no further effect. Mr. Bocken acknowledged that someone had offered to deposit the $50,-000.00 with Kaiser but that Kaiser did not accept said sum because it had no information on that “someone”.
The Court, having been informed that there is no settlement, renders this Memorandum Decision based upon the memoran-da, pleadings, and records in the file and on arguments of counsel. The issue is whether the DROA, as amended by the document dated February 28, 1985, automatically terminated as of March 14, 1985, when Benge failed to pay Kaiser $2,849,006.40 as provided for in the DROA, as amended.
FINDINGS OF FACT
On or about August 22, 1984, Benge and Kaiser entered into a Deposit Receipt Offer and Acceptance, wherein Benge agreed to purchase and Kaiser agreed to sell a certain parcel of land situate at Kaneohe, Hawaii. Thereafter, by several agreements among counsel, the date by which payment of the consideration was to be made and the date of the final closing were extended several times. Finally, on February 28, 1985, Benge and Kaiser executed a document entitled Amendment, Final Extension of Closing Date and Automatic Termination of Deposit Receipt, Offer and Acceptance (“Final Extension”).
The pertinent provisions contained in the Final Extension provide as follows:
(1) In Paragraph 2, Benge acknowledged that Kaiser had done all things required to be done on its part for closing on each of the previously agreed upon closing dates and, in each case, closing did not occur because Benge was unable to do so. Benge further agreed that it shall now and hereafter obtain any further consents or agreements required and if such consents or agreements are not obtained and closing does not occur on the new scheduled date of March 15, 1985, the DROA shall automatically terminate and Kaiser shall retain the $100,000.00 deposit and interest pursuant to paragraph 6.
(2) Paragraph 3 states that, on or before 12:00 noon on March 14, 1985, Benge shall tender to Kaiser a cashier’s check from Bank of Hawaii or First Hawaiian Bank in the amount of $2,849,006.40.
(3) Paragraph 6 provides that, if Benge does not pay Kaiser as provided in Paragraph 3 or if the transaction does not close on or before 12:00 noon on March 15, 1985, for any reason whatsoever, the DROA shall automatically terminate without any further act on the part of anyone. Paragraph 6 further provides that, upon termination of the DROA, Kaiser shall retain the deposit of $100,000.00 plus interest for failure of Benge to pay as provided in Paragraph 3. Paragraph 6 also provides that this limitation of Kaiser’s entitlement to only $100,000.00 plus interest is applicable only if Benge fails to make payments as required. In the event of any other default by Benge, other than the failure to make payments, in addition to retention of the $100,000.00 plus interest, Kaiser may pursue other remedies available to it on account of such default. If the termination is caused by the lack of the consents of the lessors and sublessors, then the $2,849,-006.40 shall be returned to Benge and Kaiser shall be entitled to retain the $100,-000.00 plus interest.
*228On March 14, 1985 at 10:55 a.m., Benge filed a voluntary petition for relief under Chapter 11 of the Bankruptcy Code.
Benge failed to make the payment by 12:00 noon on March 14,1985. As a result, Kaiser sent a letter, also dated March 14, 1985, stating that for failure on the part of Benge to make the payment as required, the DROA was automatically terminated as of 12:00 noon on March 14, 1985.
On April 12, 1985, Kaiser filed its Motion for Relief from Automatic Stay.
CONCLUSIONS OF LAW
The DROA, as amended by the Final Extension, indicates that Benge had an option. If Benge failed to pay the $2,849,-006.40 on March 14, 1985, there was no breach on its part. Kaiser was limited to retention of the $100,000.00 deposit for granting Benge time from September 1984 until March 14, 1985 to raise sufficient funds to purchase the Kaneohe property. Kaiser could not ask for specific performance or seek other remedies against Benge.
There was no duty on the part of Kaiser to perform under the DROA as amended until Benge exercised its option. Once Benge paid the $2,849,006.40 on March 14, 1985, then an executory contract would come into existence and both Benge and Kaiser were then required to perform their duties. Failure to perform by either Benge or Kaiser then gave the other party a cause of remedy against the defaulting party.
However, in the instant case, failure to pay on March 14, 1985, did not automatically terminate the DROA, as amended by the Final Extension. Upon filing the petition for relief on March 14, 1985 at 10:55 a.m., Benge had 60 days thereafter to pay the $2,849,006.40 if it so desired, under Section 108(b) of the Bankruptcy Code.
The Ninth Circuit Bankruptcy Appellate Panel, in In re Santa Fe Development, etc., 16 B.R. 165 (Bankr. 9th Cir.1981), faced a similar situation. In In re Santa Fe Development, etc., after an extended litigation, the Seller and the Buyer entered into a stipulated settlement for the sale of certain parcels of land. The closing date was scheduled for June 16, 1980 and the stipulated settlement .provided that the Buyer could extend the closing date by paying additional non-refundable deposits. The closing, however, could not be extended beyond September 16, 1980.
In accordance with the stipulated settlement, the Buyer extended the closing date until August 16, 1980 by making additional payments on June 15 and July 15, 1980. On August 5, 1980, the Buyer filed a petition for relief under Chapter 11. The Buyer failed to extend the closing date and failed to close on August 16, 1980. The Buyer filed a Complaint for Declaratory relief, seeking a determination as to the respective rights of the parties.
The Appellate Panel held that, under California law, it was clear that the Buyer would have lost all rights to the contract when closing was not extended beyond August 16, 1980. However, the Appellate Panel held that, under Section 108(b) of the Bankruptcy Code, the Debtor-Buyer has a minimum of 60 days after the order of relief in which to perform. The Appellate Panel noted that the Code provides for adequate procedures for the shortening of the 60-day period to prevent gross inequities.
Based on the ruling by the Ninth Circuit Appellate Panel in the Santa Fe Development case, this Court finds in the instant case that Benge had 60 days from March 14, 1985 to pay the $2,849,006.40 if it so desired. The 60-day period was extended by agreement to July 26, 1985. However, since Benge failed to perform as of March 26, 1985, the DROA, as amended, has automatically terminated and Benge has no further rights under the DROA, as amended.
An Order will be signed upon presentment. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8490130/ | *236FINDINGS OF FACT, CONCLUSIONS OF LAW AND ORDER RE PROOF OF CLAIM FOR EDWARD KIM
JON J. CHINEN, Bankruptcy Judge.
On November 25, 1983, Jung Hwa Kim, (“Debtor”) filed for relief pursuant to Chapter 13, Title 11, U.S.C. On February 15, 1984, Edward Y.N. Kim, (“Claimant”) filed a Proof of Claim in the unsecured amount of Thirteen Thousand Six Hundred Fifty Dollars and no/100 ($13,650.00). Debtor filed an objection to Claimant’s Proof of Claim on February 29, 1984.
The matter of amount due claimant, if any, came on regularly for trial without a jury on November 27, 1984 and November 28, 1984, before the undersigned bankruptcy judge. Claimant having been represented by Peter A. Howell, Esq., and Debtor, Jung Hwa Kim, having been represented by Enver W. Painter, Jr., Esq., and the Court, having heard the testimony of the witnesses and having reviewed the evidence presented by the parties hereto, hereby enters the following Findings of Fact and Conclusions of Law.
FINDINGS OF FACT
1. This case arises out of an Amended Claim filed June 8, 1984 by Edward Y.N. Kim, (“Claimant”), an attorney. Claimant filed the Amended Claim against his former client, Jung Hwa Kim, (“Debtor”) for the balance allegedly due him of $13,650.03 for attorneys fees and costs in representing her in connection with a suit filed in the First Circuit Court, State of Hawaii, Civil No. 57441, Jung Hwa Kim v. Luke & Luke Realty Inc., et al. The facts in the instant claim are the same as those in the civil suit, Edward Y.N. Kim v. Jung Hwa Kim, Civil No. 66602 filed in the First Circuit Court.
2. On October 8, 1978, the Debtor and Alan B. Kruse (“Kruse”), as trustee under an irrevocable trust, signed a Deposit, Receipt, Offer and Acceptance (“DROA”) whereby Kruse agreed to sell to Debtor a condominium apartment known as Penthouse B at 1535 Punahou Street, in Honolulu, Hawaii.
3. Kruse breached the agreement under the DROA by refusing to deliver title to Debtor. As a result, in December of 1978, Debtor contacted Claimant with respect to legal representation in enforcing the aforementioned DROA.
4. Claimant and Debtor did not execute a written fee agreement nor did they initially discuss the issue of Claimant’s fees.
5. Several days later, the parties discussed the case again and Claimant agreed to represent Debtor in an action for specific performance under the DROA and was paid an initial retainer of One Thousand Five Hundred Dollars and no/100 ($1,500.00).
6. Subsequently, Claimant requested Debtor to pay an additional Three Thousand Dollars and no/100 ($3,000.00) for costs of suit. The Debtor paid this amount to Claimant.
7. Between December 1978 and the time of trial, December 1980, Debtor, on several occasions inquired about the issue of fees and was advised by Claimant not to worry about the fees.
8. Claimant never billed Debtor for any fees incurred from the time of the initial conference in December 1978 until after the successful completion of the litigation.
9. The trial in Civil No. 57441 was held on December 8, 9 and 10, 1980. Thereafter, before the ruling by the Court, on January 27, 1981, Claimant billed the Debt- or $20,000.00 for attorney’s fees, less $4,000.00 received as a retainer, leaving a balance due of $16,000.00 plus 4% tax of $640.00, plus costs of $835.97, for a total of $17,475.97.
10. After receiving this bill, the Debtor and a friend, Harry Thompson, went to Claimant’s office to discuss the fee. According to Claimant, Debtor had no objection to his fee. However, Debtor denies this.
11. On February 3, 1981, the State Court entered its Findings of Fact and Conclusions of Law and Judgment in Debtor’s favor in which the Court granted Debtor’s prayer for specific performance, dismissed *237defendant’s counterclaim for damages for breach of contract and awarded Debtor reasonable attorney’s fees and costs of suit, which costs totalled $1,152.61.
12. On February 9,1981, Claimant filed a Motion to Set Attorney’s Fees in Civil No. 57441 in which he requested fees in the amount of $22,337.50 for services rendered from December 1978 through and including February 3, 1981. Attached to the motion were Applicant’s time sheets and affidavit. The Defendant objected to the granting of both the attorney’s fees and costs.
13. By lettér to Claimant, dated February 12, 1981, Debtor requested a breakdown of the amount of his legal services and, although she expressed appreciation for his services and for the result of the trial, she was taken aback by the size of the bill sent to her.
14. Following a hearing on the Motion to Set Attorney’s Fees in the State Court, on March 10, 1981, the Court issued an Order Amending Bill of Costs reducing the award of fees from $1,152.61 to $910.61. And, on March 10, 1981, the Court also issued a separate Order Granting Attorney’s Fees wherein Debtor’s attorney was awarded “25% of the requested attorney’s fees of $22,337.50 or the sum of $5,584.38.”
15. On March 13, 1981, Claimant re-billed Debtor as follows:
Attorneys Fees $22,337.50
4% State Tax* 893.50 $23,231.00
Retainer and costs re* ceived on account $ 4,537.64
Fees allowed by Court 5,584.38 (-)10,122.01
Balance of Fees Due
Add: Costs Advanced $ 1,451.66
Less: Costs allowed by Court 910.61 541.05
Net Due: $13,650.03
As of this time, Claimant had not yet provided Debtor with a detailed break-down of the services rendered and the costs incurred as requested by Debtor.
16.Although Claimant believed that Debtor was entitled to additional attorney’s fees from Kruse in the State Court action, he failed to move for reconsideration or other relief from the order granting fees and costs.
17. After several requests by Debtor and after the Claimant filed suit in the State Court on July 23, 1981 to recover $13,650.03 fees from Debtor (Civil No. 66602), Claimant finally filed a breakdown of the fees.
18. Following the completion of the successful trial, Debtor insisted she was entitled to two parking stalls. Even though the DROA called for one parking stall, Claimant reviewed the HPR documents to satisfy Debtor. In addition, Claimant had to prepare for the appeal which had been filed, but which was later not pursued by Kruse.
18a. Thereafter, Debtor discharged Claimant as her attorney and hired new counsel to represent her to resist Claimant’s claim for the balance of his fees.
19. On July 23, 1981, Claimant sued Debtor in Circuit Court in Civil 66602 as above described. Shortly before trial, the Debtor filed these proceedings in this Court which stayed the Circuit Court proceedings.
20. On February 15, 1984, Claimant filed a Proof of Claim in these proceedings. On June 8, 1984, he filed an Amended Proof of Claim and, on June 13, 1984, he filed a Supplemental Proof of Claim attaching a Schedule of his services rendered in Civil No. 57441, together with a copy of his bill to Debtor dated March 13, 1981 for $13,650.03. The schedule of services is identical to that filed by Claimant with his Motion to Set Attorney’s Fees in Civil No. 66602, in which Claimant requested $22,-337.50 but was awarded $5,584.38.
21. This claim for $13,650.03 is premised on two alternative theories: (a) that when Debtor authorized and instructed Claimant to seek specific performance of the DROA so that she could have the apartment conveyed to her, she, in fact, expressly or impliedly agreed to pay his fee which he then estimated to be $20,000; or (b) if the Court cannot find an express or implied contract in fact to pay his fee, then the law implies a promise to pay and he is entitled to recover the reasonable value thereof in *238quantum meruit; otherwise, she would be unjustly enriched at his expense.
21a. On the other hand, Debtor’s position is that her attorney was to be paid only out of what she advanced him during the course of the proceedings — about $4,500 — plus whatever he could recover from any award of attorneys fees the Court might render against Kruse and that she owes him nothing more. She concedes that he performed his agreement with her to obtain the apartment and that the result was successful.
CONCLUSIONS OF LAW
This is the second engagement of Claimant by Debtor for legal services. In the first employment involving a transfer of the Horseman’s Bar, the Debtor did not pay Claimant’s fees, which were paid by the other party to the transaction.
In the instant case, Claimant explained to Debtor that she may proceed to obtain the apartment or seek damages for breach of contract on the part of Kruse. Claimant further explained that, if she sought damages only, Claimant will also seek the attorney’s fees and costs from Kruse, but that if she sought specific performance, she was responsible for his fees, which was estimated at $20,000.00. Because Debtor believed that the apartment which she had agreed to purchase in 1978 for $124,000.00 had increased in 1981 to over $200,000.00, she wanted the apartment.
The litigation was not simple, but complicated, taking three days of trial. Kruse, not only resisted Debtor’s claim for specific performance but counter-claimed for $420,-000.00 damages, claiming that Debtor was unable to perform and breached the contract. Because of his thorough preparation and skillful advocacy, claimant was successful in obtaining the apartment for Debtor and resisting the counter-claim of Kruse. Claimant was concerned about Debtor’s ability to perform because, after executing the DROA in 1978 to purchase the Punahou Street Apartment, Debtor acquired another apartment on Wilder Street.
Where Debtor or Debtor’s estate is to pay an attorney’s fees, it is the responsibility of the attorney to justify his fees. The Bankruptcy Court requires the attorney to provide the court with time sheets that clearly set forth in detail the type of service rendered and the time spent for each service. As was stated in In re Horn & Hardart Baking Co., 30 B.R. 938 at 944 (Bankr.E.D.Pa.1983).
The Court should not be required to indulge in guesswork, nor undertake extensive labor to justify a fee for an attorney who has not done so himself. We do not find it to be an unbearable burden to require an attorney seeking compensation to enlighten the court as to the nature of his toil and the relation it bears to the matter at hand. Absent such a statement, compensation may not be allowed.
And, in In re Nation Ruskin, Inc., 22 B.R. 207, 210 (Bkrtcy.E.D.Pa.1982), the Court stated:
General statements will not justify fee awards. Lumping-together services and failure to adequately specify how much time has been expended for each individual service is not acceptable for the court’s inspection and evaluation.
After several requests for detailed time-sheets, both by Debtor and by the Court, Claimant through counsel submitted time-sheets which, among others, showed 75 hours spent for trial preparation, research and interviewing witnesses. This is called “lumping” and courts have consistently found it inadequate. In re Horn & Hardart Banking Co., 30 B.R. 938; In re Nation Ruskin, Inc., 22 B.R. 207. Thus, this court is compelled to deduct 75 hours from the 178.7 hours submitted by Claimant, leaving a balance of 103.7 hours as compensable.
103.7 hours at $125 per hour shows that claimant is entitled to $12,962.50. However, the State Circuit Court, based on the same break-down of time submitted by Claimant, after a hearing, awarded Claimant $5,584.38. This court is bound by the decision of the State Court and declines to act as an appellate court. The objection is *239sustained, and the court finds that Debtor does not owe Claimant any additional sum on this original time break-down.
However, subsequent to the conclusion of the litigation in the state court, at the request of Debtor, Claimant did an additional 14 hours of work with reference to the parking stalls and Notice of Appeal filed on behalf of Kruse, Applicant had not previously filed for fees in any court for these 14 hours. The Court finds Applicant entitled to $125.00 per hour for the 14 hours, and thus awards Applicant the sum of $1750.00 plus Hawaii Excise Tax in the sum of $70.00.
IT IS HEREBY ORDERED that the proof of claim filed by Claimant is amended to indicate that the Claimant has an unsecured claim in the amount of $1750.00 plus Hawaii Excise Tax in the sum of $70.00. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8490131/ | FINDINGS OF FACT AND CONCLUSIONS OF LAW
JON J. CHINEN, Bankruptcy Judge.
On July 16,1985, Samoa, Inc., dba Samoa Airlines, (“Debtor”), filed a voluntary petition under Chapter 11 of the Bankruptcy Code. On July 17, 1985, Aero Filipinas, by and through its attorneys, the Law Offices of John A. Chanin, filed a Motion for Relief From Automatic Stay, Or In the Alternative for Turnover of Property. A preliminary hearing was conducted on July 17, 1985. Thereafter, the Court conducted final hearings on July 26, July 30, August 12, and August 26. During the course of the hearings, the Court considered the testimony of Emerson Manawis, a representative of Aero Filipinas, and Ronald Pritch-ard, President of the Debtor corporation. The court also received into evidence numerous exhibits in the form of documents and the deposition of Ronald Pritchard.
Aero Filipinas requests the return of an aircraft which was originally leased to the Debtor. In particular, Aero Filipinas requests the lifting of the stay provided by 11 U.S.C. § 362(a) and the return of the *260aircraft. Aero Filipinas also asserts that the aircraft is not property of the estate and that the Debtor therefore should return the aircraft which is wrongfully held in its possession.
The Court having considered the memo-randa, affidavits, exhibits, testimony of witnesses, deposition transcripts, arguments of counsel, and the entire record of the case, and being fully advised of the premises therein finds as follows:
FINDINGS OF FACT
1. On July 6, 1984, Debtor and Aero Filipinas entered into an Aircraft Lease Agreement (“Lease”) for the lease of a Boeing 707-351C aircraft. Paragraph 111(a) of the Lease states that the term of lease “shall be for a term of six months, commencing from the time of delivery....”
2. At the same time, the parties entered into a Memorandum of Understanding. This document gave Aero Filipinas 30% of the annual gross operating profit of Debt- or, to be paid semi-annually. Pritchard testified that this is to be calculated by taking the year-end financial data of the company, calculating the percentage, and then paying the amount due to Aero Filipinas in semiannual installments.
The Lease and Memorandum of Understanding were drafted by counsel for Aeros Filipinas. Debtor was unrepresented by counsel.
3. Shortly after the execution of the Lease, on July 10, 1984, Aero Filipinas sent a telex to Debtor, disclosing for the first time that Aero Filipinas had made previous commitments to a Japanese charterer for use of the aircraft for charters to be flown during the month of August. It urged Air Samoa “to adjust your schedule in accordance with above info as your guideline for start up operations.” Aero Filipinas was aware of the fact that Debtor was anxious to receive the aircraft as soon as possible, so that it could commence the FAA certification process, which had to be completed before Debtor could commence services.
4. As a result of the request of Aeros Filipinas, another Memorandum of Understanding was executed on August 7, 1984 between the Debtor, Aero Filipinas and Nikka Air Service Company, Ltd., the Japanese charterer. This document shows that the charter agreements entered into by Aero Filipinas were made on February 7, 1984 and April 3, 1984. Thus, Aero Filipi-nas knew at the time it executed the Lease with Debtor on July 6, 1984, that it had these obligations and nevertheless did not disclose these obligations to Debtor.
5. As a result of the second Memorandum of Understanding, dated August 10, 1984, Debtor and Aero Filipinas together cooperated to fly the charters during the month of August 1984. Thus, the aircraft was not delivered in Honolulu, until September 1, 1984.
6. On January 18, 1985, the parties met in Honolulu to discuss their concerns under the Lease. The parties agreed that Debtor would be authorized to pledge the aircraft as collateral for a $1.5 million loan, provided that Debtor paid $500,000.00 from the loan proceeds to Aero Filipinas. This was followed by a written confirmation dated May 3, 1985.
7. At the same time, the parties also discussed an equity participation by Aero Filipinas, whereby it would acquire 51% of the company stock. This proposal was under consideration for the next several months, although Pritchard had a reservation about its legality due to the foreign ownership of Aero Filipinas.
8. Also at this meeting, Emerson Mana-wis, who was an assistant to Mr. Pritch-ards, was recruited by Aero Filipinas. Thereafter, Emerson Manawis became the Official Representative of Aeros Filipinas.
9. On January 31, 1985, the parties executed a Lease Extension Agreement, extending the original Lease until March 1, 1985. Pritchard testified that this document evidenced the parties’ understanding that, since the aircraft was not delivered until September 1, 1984 in Honolulu, the basic term of the lease would not end until March 1, 1985.
*26110. On March 1, 1985 and subsequently on April 1, 1985, two additional Lease Extension Agreements were executed between the parties, which further extended the Aircraft Lease Agreement, together with the Memorandum of Understanding executed on July 6,1984, until May 1,1985. Pritchard testified that these Extensions extended the basic term of the Lease to May 1, 1985.
11. At the hearing, Aero Filipinas took the position that after May 1, 1985, Debtor had the aircraft on a “day to day lease”. However, on cross-examination, Manawis acknowledged that he had not told Pritch-ard or anyone else from Debtor that Debt- or had only a “day to day” lease after May ■1,1985. Further, the evidence showed that on May 3,1985, Aero Filipinas gave written authorization to Debtor to obtain a $1.2 million loan, using the aircraft as collateral.
12. Between May 1, 1985 and July 1, 1985, Manawis and Pritchard met or communicated on a regular basis several times a week. During these communications, Pritchard made regular reports of the condition of the company to Manawis. This included the fact that in June 1985, South Pacific Island Airways (“SPIA”), a competitor along the same flight route, had been grounded by the FAA, and thus Debtor’s situation had improved. Aero Filipinas was also aware, through these communications, that Debtor was entering into many contractual undertakings which required future performance. These included in particular its payment for a “hush kit”, of $70,000 per month to Comtran, the maker of the hush kit. Debtor paid a total of $210,000 to Comtran for the hush kit for the months of May, June and July 1985. In addition, during this time, Debtor entered into agreements with Hawaiian Independent Refinery, Inc., a refueler, with the State of Hawaii for lease of office space at the airport, with Hawaii Medical Services Association, with ground handling service operators, as well as with several others.
13. Debtor also sold tickets to the public, which were valid for a year. In particular, Debtor, in June 1985, sold a block of coupons to the Government of American Samoa for $50,000.00. These tickets were not to be used until some future time.
14. During the period between the meeting in January 1985 to early July 1985, Debtor continued to approach lenders, hired a specialist to prepare a loan package, and made applications to lenders for loans, representing to these lenders that the aircraft would be used as collateral. Even Manawis made efforts to obtain a loan on behalf of Debtor, visiting a foreign country for such purpose, but without success.
15. Pritchard testified that in his numerous communications with Manawis, the parties agreed that Debtor may continue to offer the aircraft as collateral to obtain a loan and that Debtor may show it as an asset on its financials. Pritchard felt that, if Aero Filipinas wished to have the aircraft returned, it would give due notice to Debtor, and that thereafter, it would give Debtor a reasonable period of time within which to obtain a replacement aircraft, being 60 to 90 days. Pritchard testified that 60 to 90 days was necessary because that was the time necessary to find and review a replacement aircraft and to negotiate and finalize a lease agreement.
16. Aeros Filipinas contended that a letter of termination dated July 1, 1985 terminated the May 3rd letter of authorization. However, the original envelopes of both the original and the copy of the letters to Victor Sims, an officer of Debtor corporation, were postmarked July 8, 1985. In addition, the parties met on July 7, 1985 and, at this meeting, Manawis delivered a letter to Pritchard stating that the lease “is officially terminated as of Midnight of July 7, 1985.” Thus, the Court finds that no notice earlier than July 7, 1985 was given to Debtor, evidencing the intention of Aeros Filipinas to terminate the lease.
17. The Court finds that it is not reasonable for Aero Filipinas to assert that Debtor was on a “day to day lease”, since no business, particularly anyone in the airline business, could operate under such constraints. This is particularly so when the *262evidence is clear that Debtor did not have notice that this was the position of Aeros Filipinas.
18. Aero Filipinas further contends that the lease provides for only a 20-days notice and that 20-days have expired since the notice of termination of July, 1985.
However, Aeros Filipinas did not demand strict compliance with the lease. Even after the written lease terminated on May 1, 1985, Aeros Filipinas permitted Debtor to use the aircraft for passenger service and to use it as a collateral for a loan. This only could lead Debtor to understand that it may enter into long-term contracts and that, before Aero Filipinas terminates its permission to use the aircraft, Aero Filipi-nas will give Debtor reasonable notice so that it may acquire a. substitute aircraft.
19. Aeros Filipinas knew that no airline can operate on a “day to day basis”. To be a successful venture, an airline company must have a long range plan. It must sell tickets in advance for the future to make certain that each flight will not be a losing proposition. It must also enter into certain long-term contracts so that it will have sufficient fuel, proper maintenance, proper airport facilities and sufficient personnel. To do otherwise will be contrary to all good business judgment.
20. Debtor justifiably relied on the conduct of Aero Filipinas in entering into the many contractual obligations with other parties, as well as with members of the public and the government of American Samoa during the period May 1st to early July 1985. Such justifiable reliance led to the payment of at least $210,000 on the Comtran contract. As a result, to permit Aero Filipinas to terminate use of the aircraft without giving Debtor a reasonable period of time to find a substitute aircraft would be unjust and inequitable. Aero Fili-pinas is estopped from denying the existence of the Lease for a reasonable period after July 7, 1985, the date of the final letter of termination.
CONCLUSIONS OF LAW
1.The law of the Philippines, which applies in this case under the Aircraft Lease Agreement and the Memorandum of Understanding of July 6, 1985, recognizes the equitable concept of estoppel. See Book IV, Obligations and Contracts, Title IV, Civil Code of the Philippines; Tolenti-no, Commentary and Juris Prudence on the Civil Code of the Philippines, pages 598, 601.
2. Aero Filipinas is estopped from repudiating its tacit agreement to give reasonable notice to Debtor for the return of the aircraft after the final notice of intent to terminate.
3. In the instant case, Pritchard did not say the reasonable time after notice of termination was 90 days. He said it ranged between 60 to 90 days. Because Debtor is in default for over $500,000.00 and because Debtor has been seeking financing since May of 1985 after the termination of the last written extension period, the Court finds 75 days from July 7, 1985 to be a reasonable “grace period”.
4. Thus, Aero Filipinas’ Motion herein is denied, provided that Debtor shall return the aircraft to Aero Filipinas by 4:00 p.m. H.S.T. on or before 75 days from July 7, 1985, which is September 20, 1985.
5. However, in requesting equitable treatment, Debtor must do equity. Thus, in the instant case, unless Debtor offers additional security to Aero Filipinas, the court is requiring Debtor to pay forthwith to Aero Filipinas for the current use of the aircraft, based upon a reasonable rent. If the parties cannot agree upon the reasonable rent, the court will determine the reasonable rent. Until such determination, the rent provided for in the lease is deemed reasonable. And, such rent must include the sum necessary to pay for the overhaul of the aircraft engines. Any default will be sufficient cause to automatically grant a lifting of the stay, based upon an affidavit filed by counsel for Aero Filipinas.
Let judgment be entered accordingly. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8490133/ | FINDINGS OF FACT AND CONCLUSIONS OF LAW
JON J. CHINEN, Bankruptcy Judge.
Aquarian Foundation, Inc., a Washington religious nonprofit corporation (“Founda*289tion”), challenges the dischargeability of a debt allegedly owing to it by Misty Angel, formerly known as Denise Charlotte Thomas and Denise Charlotte Herr, (“Debtor”). The debt is alleged to amount to $31,-412.87, including principal in the sum of $24,165.17, as reflected in the joint and several Judgment entered by the Superior Court of the State of Alaska, Third Judicial Circuit, on April 17, 1980, in No. 3AN-80-141 CIV. against Debtor and her former husband Michael Herr. The Judgment was subsequently entered in the First Circuit Court of the State of Hawaii in Civil No. 61579 on October 3, 1981. The Foundation seeks interest on the full amount of the Judgment at 8% from April 17, 1980 until October 3, 1981 and 10% Hawaii State interest from October 3, 1981 until the present.
Trial on the Foundation’s claim was heard on March 18, 1985, at which hearing Wayne D. Parsons, Esq. and Trudy Senda, Esq. appeared on behalf of the Foundation and Debtor appeared on behalf of herself pro-se. Based upon the evidence presented, the records in the file and arguments adduced, the Court finds as follows.
FINDINGS OF FACT
Debtor was a former member of the Foundation which was incorporated around 1955, with several branches or “unofficial” groups now organized throughout the Western World. It was in Hawaii about January, 1973, that Debtor first met Reverend Keith Rheinhart, the founder and “guru” of the Foundation, who persuaded her to join the Foundation.
Debtor then moved to Seattle, Washington, the headquarters of the Foundation. In 1976, she became a “spiritual leader” and thereafter, in 1977, she and Michael Herr, whom she had met in Seattle, were married. Debtor and Herr were divorced in 1980.
While they were in Seattle, both Herr and Debtor devoted their full time to the services of the Foundation, at which time, they were both completely dominated and controlled by the Foundation. For awhile, Herr and Debtor both lived in the same residence with Rev. Rhinehart and they believed and obeyed his instructions. Because of their devotion and belief, Herr and Debtor were requested to travel to Anchorage, Alaska and to establish an organization and to recruit members for the Foundation.
When Herr and Debtor went to Anchorage and held their first meeting, only one individual was present. Both Herr and Debtor did missionary work to recruit members and increased the membership to around 12. In conducting the meetings and other gatherings, Herr and Debtor followed the personal instructions of Rev. Rhinehart.
At the meetings, Herr and Debtor gave instructions in the religious beliefs of the Foundation and they distributed literature received from the Foundation. When the members made contributions to the Foundation, Herr and Debtor furnished them with “sacred” gems in white envelopes. Then, pursuant to the personal instructions of Rev. Rhinehart, until mid-1978, Herr and Debtor forwarded two-thirds of the weekly collection to Rev. Rhinehart himself or to a designated person and retained the other one-third for their own use.
Sometime in January of 1978, in Seattle, Washington, in the presence of Rev. Rhine-hart, Herr and Debtor received two separate checks from Thomas Rentz, each for $7,500.00. At his deposition held in Anchorage, Alaska, Rentz did not state that, when he gave the checks to Herr and Debt- or, he informed them that the $15,000.00 were to be used by them to purchase a home for the Foundation. And, at the hearing, Rev. Rhinehart did not testify that, at the time that Rentz gave the checks to Herr and Debtor, Rentz or Rhine-hart informed Herr and Debtor that the checks were to be used for the purpose of the Foundation. On the other hand, Debt- or testified that Rentz purposely gave two separate checks to Herr and herself as a gift and that Rentz stated that he would take care of the gift taxes.
*290For several months, Herr and Debtor faithfully followed the teachings and instructions of Rev. Rhinehart. Then, after awhile, they both became disenchanted with the Foundation. Debtor testified that Herr and she found questionable the Foundation’s practice of passing off cheap jewelry as “sacred” gems in return for donations ranging anywhere from $25.00 to $1,000.00 for each gem.
Herr and Debtor decided to disassociate themselves from the Foundation and sometime in May of 1978, they caused the incorporation of The Truth Center. After organizing The Truth Center, Herr and Debtor continued to use materials obtained from the Foundation’s headquarters and represented that The Truth Center was a branch of the Foundation.
Shortly after incorporating The Truth Center, Herr and Debtor purchased a dwelling in their own names. In doing so, they requested April Lee, the broker who handled the transaction and a member of the Foundation, to keep such purchase confidential. Thereafter, Herr and Debtor represented to the membership that the dwelling in which they were residing and where they conducted the meetings was to be purchased in the future in the name of the Foundation.
After purchasing the dwelling in their own names, Herr and Debtor requested donations from the membership to help pay for the “rent” for the residence. Certain members, believing that the dwelling was being acquired later in the name of the Foundation, donated materials and labor estimated to be in excess of $12,000.00 to improve the dwelling. These members testified in their depositions held in Anchorage that, had they known that the “home” had been purchased by Herr and Debtor as their personal residence, they would not have spent so much time and money on the dwelling. They did so only in the belief that the “home” would eventually be acquired in the name of the Foundation.
After going to Anchorage, Alaska from Seattle, Herr and Debtor devoted their full time to the teachings of the Foundation, then later of the Truth Center. They did not have any outside work. However, somehow, after incorporation of the Truth Center, they acquired a new Cadillac, expensive China ware, expensive cameras, stereos and other personal luxury items. Debtor did not explain how she and Herr obtained the money to purchase these luxuries.
Sometime around September of 1978, the Foundation headquarters received reports that Herr and Debtor were making unkind remarks about the membership of the Foundation. As a result, in October, Mr. and Mrs. Dunn were sent to Anchorage, from Seattle to investigate the activities of Herr and Debtor. There was disagreement as to whether Herr and Debtor were sending to Seattle the proper amount of money donated by the membership. In addition, the membership was disturbed to learn that the residence had been secretly purchased by Herr and Debtor in their own names sometime in May of 1978. Great animosity brewed between Herr and Debtor on one side and the members of the Foundation on the other.
As a result, Herr and Debtor sold the dwelling to the Foundation and retained $18,000.00 for themselves. And, after Herr and Debtor had left Anchorage, a default judgment was obtained against them in the Alaska State Court.
Debtor filed her Chapter 7 petition on December 30, 1983, and the Foundation filed an objection to dischargeability on March 2, 1984, based upon 11 U.S.C. Section 523. A Complaint Against Discharge-ability was then filed on May 23, 1984. Debtor filed an Answer to the Complaint on July 24,1984 denying all the allegations. The Foundation seeks to have declared non-dischargeable the $15,000.00 given to Herr and Debtor by Rentz which the Foundation claims should have been used for purposes of the Foundation. The Foundation also seeks to have declared nondischargeable $9,165.17 of money donated by the members of the Foundation in Alaska to Debtor and Herr which the Foundation claims were misappropriated.
*291CONCLUSIONS OF LAW
1. The Complaint for Determination of Dischargeability of Debts filed by the Foundation was brought pursuant to 11 U.S.C. Sections 523(a)(2) and 523(a)(4).
Sections 523(a)(2)(A) and 523(a)(4) provide as follows:
§ 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, property, services, or an extension, renewal, or refinancing of credit, to the extent obtained by—
(A) false pretenses, a false representation, or actual fraud, other than a statement respecting the debtor’s or an insider’s financial condition; ....
(4) for fraud or defalcation while acting in a fiduciary capacity, enbezzlement, or larceny.
2. With reference to Section 523(a)(2)(A), to present a prima facie case of nondischargeability, the Ninth Circuit Court in In re Taylor, 514 F.2d 1370, (9th Cir.1975) held that the Plaintiffs must prove the following elements.
(1) that the debtor made the representations; (2) that at the time of making the representations the debtor knew they were false; (3) that he made them with the intention and purpose of deceiving the creditor; (4) that the creditor relied on such representations and (5) that the creditor sustained the alleged loss and damage as the proximate result of the representations having been made.
3. To prevail under Sec. 523(a)(4), the Foundation must prove two elements: (1) that Debtor was a fiduciary of the Foundation, and (2) that while a fiduciary, Debtor committed a fraud or defalcation.
4. And all of the elements that must be proven under Section 523(a)(2)(A) and Section 523(a)(4) must be proven by clear and convincing evidence, and the burden of proof is on the party seeking the exception to the discharge. Schlect v. Thornton, 544 F.2d 1005 (9th Cir.1976). And the exceptions to discharge are to be construed against the creditor and in favor of debtor. In re Vickers, 577 F.2d 683 (10th Cir.1978); In re Kleppinger, 27 B.R. 530 (Bkrtcy.M.D.Pa.1982).
5. With reference to the $15,000.00 received by Debtor and Herr from Rentz, there is absolutely no evidence of any solicitation by Herr or Debtor of said sum with the representation that the money will be used to purchase a home for the Foundation. Further, there is no evidence to show that, after receipt of the money, Herr and Debtor represented that the money will be used for the benefit of the Foundation.
6. Since the Court finds no representation on the part of Debtor, the court finds that the Foundation has not carried its burden of proof on this matter of the non-dischargeability of the $15,000.00 under Sec. 523(a)(2)(A).
7. In the instant case, neither Rev. Rhinehart nor Rentz testified that, when the $15,000.00 were given to Herr and Debtor in two separate checks, they made it clear that the money was to be used for the Foundation. Rentz only said he thought the money was to be used for the Foundation. On the other hand, Debtor testified that the $15,000.00 were purposely given to Herr and herself in two separate checks because they were gifts and that Rentz had informed them that he would take care of the gift taxes. There was no rebuttal to Debtor’s testimony, no explanation by Rentz as to the reason for two separate checks, instead of there being only one check.
8. The Court finds that the Foundation has failed to carry its burden of proof with reference to the $15,000.00 under Section 523(a)(4). Therefore, said sum is dis-chargeable.
9. With reference to the $9,165.17, the Court finds that such sum was obtained by Herr and Debtor as the official representative of the Foundation in Anchorage with authority to collect donations for the Foundation. As such official representatives, Herr and Debtors were fiduciaries of the Foundation. Thus, the first element necessary to prevail under Section 523(a)(4) is satisfied.
*29210. The evidence presented also shows that Debtor did not adequately account for the $9,165.17 received from the membership of the Foundation. And, Debtor did not explain from where the money was received for Herr and herself to purchase the Cadillac and other luxury items, when neither was engaged in any gainful employment. While purchasing these expensive luxury items, Herr and Debtor were constantly requesting the membership of the Foundation to help defray their living expenses, especially their “rent”.
11. Defalcation includes the failure by a fiduciary to account for money received in his fiduciary capacity. In Re Kleppinger, 27 B.R. 530 (Bkrtcy.M.D.Pa.1982). Since Debtor has failed to adequately account for the $9,165.17, the Court finds that the second element of Sec. 523(a)(4) has been satisfied.
12. The sum of $2,357.73 having been previously garnisheed from Debtor’s salary, the Foundation is entitled to the sum of $9,165.17, less $2,357.73 which amounts to $6,807.44. Thus, the sum of $6,807.44, together with legal interest until paid, is non-dischargeable.
Let Judgment be entered accordingly. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8490136/ | MEMORANDUM OPINION
JOHN M. KLOBUCHER, Bankruptcy Judge.
This case involves a question of state law which would ordinarily be left to the state courts for interpretation. However, the interpretation of a Washington State construction lien statute has arisen in this case because a general contractor has filed a petition in bankruptcy and the trustee is holding the proceeds from the sale of a home on which conflicting liens are claimed. Upon the trustee’s Notice of Intent to Distribute Proceeds to the construction lender, the trustee received an objection from a supplier, which was claiming a priority lien on the funds. Due to the lack of case law on this subject, this Court felt compelled to interpret this statute.
THE FACTUAL BACKGROUND
Aspen Homes, Inc. was a general contractor engaged in residential construction. Sterling Savings Association financed the construction of several homes including the project in question at South 3227 Robie Road, Spokane. Aspen Homes purchased building supplies from Valley Best-Way Building Supply, Inc. and they were delivered to the construction site in November, 1983. Payment for those materials, as shown by the invoices and billing statements, was due on the tenth of the month following delivery. Thus, on December 10, 1983, the debtor owed Valley Best-Way $7,015.73 for the materials delivered in November, 1983. The debtor had been having financial difficulties and its account with Valley Best-Way was in arrears at that time. Nevertheless, Valley Best-Way continued to extend credit to the debtor and accepted the debtor’s proposal to pay what it could, when it could. Valley Best-Way accepted sporadic payments from the debt- or and applied them to several seriously past-due accounts, but not to the account on the South 3227 Robie Road property.
Sterling Savings Association advanced monies to the debtor, Aspen Homes, under its construction loan agreement in the following amounts:
November 10, 1983 $11,250.00
December 9,1983 3,600.00
January 9,1984 9,900.00.
On January 12, 1984 the debtor filed a petition in bankruptcy. The trustee sold the residence and is holding the funds pending a decision on the priority for payment.
Valley Best-Way served a “Lien Claimant’s Notice to Lender” (stop notice) to Sterling Savings Association on February 1, 1984 claiming a lien in the amount of $8,387.30 for sums due for the materials delivered in November, 1983.1 After re*543ceiving the stop notice, Sterling Savings Association made no further disbursements to the debtor and endeavored to complete construction itself by making disbursements directly to the suppliers and laborers for work performed.
IS R.C.W. 60.04.210 APPLICABLE?
ln determining whether the requirements of R.C.W. 60.04.2102 have been met so that Valley Best-Way may avail itself of the lien priority under subsection (6) of this statute, the parties disagree on whether *544Sterling Savings’ direct payment to subcontractors constitutes a disbursement of the construction financing and whether the stop notice served by Valley Best-Way was timely. Sterling Savings has argued that the debtor walked away from the construction project. Therefore, Sterling has concluded that it owed the debtor nothing on the construction financing and that it made no further disbursements. The statute, however, is not limited to disbursements made only to the general contractor. Sterling Savings continued to disburse sums directly to subcontractors. Therefore, I am not persuaded by the bank’s argument that R.C.W. 60.04.210 does not apply. However, the fact that I have found the statute applicable does not necessarily mean that the bank has wrongfully disbursed funds. That issue will be explored later in this opinion.
WAS THE STOP NOTICE TIMELY?
The other contention is Valley Best-Way’s argument that its stop notice was timely served as to all materials supplied because it had voluntarily extended the payment due date for the debtor.3 Under my interpretation of the statute this would be immaterial because the extension of the due date would still not affect the amount to which Valley Best-Way is entitled as hereinafter explained.
Assuming the supplier and debtor had modified their credit terms, the parties seem to agree that in that case, the stop notice would have been served within the requisite time period. However, the interpretation which the parties have placed upon the statute would reward subcontractors who extend their due date at the expense of others who continue to supply materials in anticipation of payment from subsequent draws. I do not think this was the intent of the legislature. Under my interpretation of the statute the subcontractor is only entitled to protection under the statute for materials supplied and used for a stage of construction for which a draw has not yet been made. This construction will encourage subcontractors not to grant extensions of payment if they wish to afford themselves of the full benefits of this statute.
THE GENERAL RULE
Under R.C.W. 60.04.220,4 a mortgage or deed of trust is prior to all other liens or encumbrances which were not recorded pri- or to the recording of the mortgage or deed of trust. Under this general rule, it is not disputed that Sterling Savings had a recorded deed of trust before Valley Best-Way delivered materials to the construction site which gave rise to the materialmen’s lien.
THE EXCEPTION
The Washington State legislature created an exception to the general rule on priorities when it enacted R.C.W. 60.04.210. Recognizing that the construction lenders can help prevent future nonpayment of subcontractors once the lender is notified of the problem, the legislature has authorized the lender to withhold sums from the draws to be used to pay subcontractors. Although the statutory language is terribly confusing, the legislative intent is relatively clear. Once the subcontractor notifies the lender that he has delivered materials to the contractor, that a default in payment *545has occurred, and that he expects to deliver materials in the future, the lender, through the withholding of percentages of each draw may ensure that the subcontractor will be paid in the future. The statute does not put the responsibility on the lender to ensure payment of sums owing to the subcontractor for past services and materials covered by a prior certification of job progress. Those amounts are so to speak “water under the bridge”. Subsection (4) of R.C.W. 60.04.210 instructs the lender how to provide for subcontractors who are having trouble getting paid. After receiving notice from the lien claimant, the lender may withhold from the “next draw” to cover a claim for labor and materials that have contributed to that portion of job completion and he may withhold from “subsequent draws” to cover the amount which the lien claimant indicates will become due for future stages of construction.
How much may the lender withhold from the draw?5 Here, the language “for the draw in question” is the key. From the “next draw”, the lender may withhold the percentage which the lien claimant has contributed to the completion of the job as of the date of the certification of job progress “for the draw in question”. Thus, assume that on this project, the certifications of job progress were made at stages of 10 percent completion and then 25 percent completion. Assume also, that a stop notice was received after the 10 percent draw had been made. If the subcontractor had delivered $1,000.00 worth of materials which were used in the first stage and $3,000.00 worth of materials which were used and attributable to the second 15% of the completion of the project giving rise to a 25% certification of job progress, then “for the draw in question”, that being the one corresponding to the 25% certification, the lender would not be responsible for withholding as to the $1,000.00. The draw for the 10% completion has been made and the lien claimant is left with his materialmen’s lien for that amount. As to the $3,000.00 the lender may withhold from the draw the same percentage as the $3,000.00 bears to the total for labor and materials making up that 15% of the job completion.
In the case at bar the Court concludes that all of the disbursements made after the stop notice collectively constituted the last draw. The statute requires that draws be made only after certification of job progress by the general contractor and the owner or his agent. Since the bank undertook completion of the project itself, it can only be assumed that there were no other certifications of job progress. Had Valley Best-Way notified Sterling Savings that it intended to make future deliveries and had those deliveries been completed, Sterling Savings would have been able to withhold sums from the final draw to cover their payment.
Although the statute uses the word “shall”, the Court has used the word “may” in discussing the lender’s authority to withhold sums from each draw. The position taken by Valley Best-Way that this withholding by the lender is optional is persuasive. The lender has three choices when served with a stop notice. He may discontinue disbursements and foreclose his mortgage or deed of trust, he may withhold the proper percentage on behalf of the lien claimant, or he may continue making disbursements and have his mortgage or deed of trust subordinated to the lien claimant to the extent of funds wrongfully disbursed.
In this case, the bank continued making disbursements after the stop notice and would have its deed of trust subordinated to the extent it wrongfully disbursed funds. Since the stop notice was sent February 1, 1984 and Valley Best-Way did not deliver materials which would be covered by draws after that time Sterling Savings was not obligated to withhold any funds *546from the final draw and its continued disbursements cannot be considered wrongful. Therefore, it is not necessary to use a formula to determine the extent of the subordination.
The trustee may submit an order permitting disbursal to Sterling Savings Association of the remainder of the funds from the sale of the South 3227 Robie Road property.
. It is not clear from the record how Valley Best-Way determined to use the sum of *543$8,387.30 in its stop notice. Its November statement to the debtor,' Aspen Homes, showed a balance of $7,015.73 which would normally be due on December 10, 1983. The December statement showed the previous balance of $7,015.73 and indicated additional purchases of $1,838.14. When these figures are totaled it appears that sums owing for some of the materials were not included in the stop notice. Due to the credit extension reached between Aspen Homes and its supplier, Valley Best-Way asserts that both the November and December statements were payable on January 10, 1984. The statute at that time required the supplier to wait twenty (20) days after the payment due date before it could file the stop notice. In this case the twenty (20) days would have expired on January 31, 1984 and Valley Best-Way served its stop notice on February 1, 1984.
. R.C.W. 60.04.210 reads as follows:
Interim or construction financing — Notice of lien — Duty of lender to withhold from disbursements — Liabilities of lender and lien claimant
Any lender providing interim or construction financing where there is not a payment bond of at least fifty percent of the amount of construction financing shall observe the following procedures:
(1) Draws against construction financing shall be made only after certification of job progress by the general contractor and the owner or his agent in such form as may be prescribed by the lender.
(2) Any potential lien claimant who has not received a payment within five days after the date required by his contract, employee benefit plan agreement, or purchase order may within twenty days thereafter file a notice as provided herein of the sums due and to become due, for which a potential lien claimant may claim a lien under Chapter 60.04 RCW.
(3) The notice must be filed in writing with the lender at the office administering the interim or construction financing, with a copy furnished to the owner and appropriate general contractor. The notice shall state in substance and effect that such person, firm, trustee, or corporation is entitled to receive contributions to any type of employee benefit plan, has furnished labor, materials and supplies, or supplied equipment for which right of lien is given by this chapter, with the name of the general contractor, agent or person ordering the same, a common or street address of the real property being improved or developed, or if there be none the legal description of said real property, description of the labor, or material furnished, or equipment leased, or a brief statement describing the nature of the contributions owed to any type of employee benefit plan, the name, business address and telephone number of said lien claimant which notice shall be given by mailing the same by registered or certified mail, return receipt requested.
(4) After the receipt of such notice, the lender shall withhold from the next and subsequent draws such percentage thereof as is equal to that percentage of completion as certified in subsection (1) of this section, which is attributable to the potential lien claimant as of the date of the certification of job progress for the draw in question less contracted re-tainage. The percentage of completion attributable to the lien claimant shall be calculated from said certification of job progress, and shall be reduced to reflect any sums paid to or withheld for the potential lien claimant. Alternatively, the lender may obtain from the general contractor or borrower a payment bond for the benefit of the potential lien claimant in such sum.
(5) Sums so withheld shall not be disbursed by the lender except by the written agreement of the potential lien claimant, owner and general contractor in such form as may be prescribed by the lender, or the order of a court of competent jurisdiction.
(6) In the event a lender fails to abide by the provisions of subsections (4) or (5) of this section, then the mortgage, deed of trust or other encumbrance securing the lender will be subordinated to the lien of the potential lien claimant to the extent of the interim or construction financing wrongfully disbursed, but in no event in an amount greater than the sums ultimately determined to be due the potential lien claimant by a court of competent jurisdiction, or more than the sum stated in the notice, whichever is less.
(7) Any potential lien claimant shall be liable for any loss, cost or expense, including reasonable attorney fees, to the party injured thereby arising out of any unjust, excessive, or premature notice of claim under this section. For purposes of this subsection, "notice of claim” does not include notice given by a potential lien claimant of the right to claim liens under this chapter where no actual claim is made.
Wash.Rev.Code § 60.04.210 (Supp 1986).
At the time Valley Best-Way served its stop notice the statute required that the potential lien claimant wait twenty (20) days, rather than five *544(5) days from the date payment was due before he could serve a stop notice. Wash.Rev.Code § 60.04.210 (Supp 1984).
. Supra note 1.
. R.C.W. 60.04.220 states:
Interim or construction financing — Priorities Except as provided in RCW 60.04.050 or in RCW 60.04.200 through 60.04.220 any mortgage or deed of trust shall be prior to all liens, mortgages, deeds of trust and other encumbrances which have not been recorded prior to the recording of such mortgage or deed of trust to the extent of all sums secured by such mortgage or deed of trust regardless of when the same are disbursed or whether such disbursements are obligatory.
.. One commentator has suggested there are two ways to calculate the amount of money to be withheld by the lender from subsequent draws. Michael F. Keyes, The Construction Lien Practice and Procedure Manual for the State of Washington, at 22, (1976). See generally, Note, Mechanics’ Liens: The "Stop Notice" Comes to Washington, 49 Wash.L.Rev. 685 (1974). | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8490137/ | *810OPINION AND ORDER
D. JOSEPH DeVITO, Bankruptcy Judge.
The petitioner herein moves for permission to reopen the above captioned bankruptcy proceeding and to amend the list of creditors to include a debt of his daughter, upon which the petitioner was a co-signer.
The debtor’s petition was filed on July 19, 1979, with the Notice of Discharge issuing on September 17, 1979.
'The co-signer, the debtor herein, alleges that by reason of a wage execution served upon him, subsequent to the issuance of his discharge, he became aware that he was subject to a wage execution held by the Chrysler Credit Corporation.
It appears that in July of 1977 the petitioner co-signed a loan for his daughter to enable her to purchase an automobile. The car was subsequently repossessed due to the daughter’s default on the loan payments. Chrysler Credit Corporation, the creditor, is now, apparently, pursuing the petitioner in his role as co-signer of the note. The petitioner states that he did not understand the potentiality of this debt, and, thus, he did not explain the situation to his attorney, nor take steps to insure that it was included among his dischargea-ble debts.
The Bankruptcy Code places an affirmative duty on the debtor to file a list of his creditors. 11 U.S.C. § 521[1]; Bankruptcy Rule 1007[a][l]. This list may be amended by the debtor as a matter of course any time before the case is closed. Bankruptcy Rule 1009. With respect to the reopening of a case, a bankruptcy proceeding may be reopened to, inter alia, accord relief to the debtor. 11 U.S.C. § 350[b]. This may be done on motion by the debtor or other party in interest. Bankruptcy Rule 5010.
It is the opinion of this Court that the petitioner herein made an honest mistake in not including Chrysler Credit Corporation among his creditors, said error due to his misunderstanding of his contingent liability as a co-signer of the loan made to his daughter. As such, he should be permitted to reopen his case and be allowed to amend his schedules, so that the full measure of relief granted by the Bankruptcy Code may be accorded to him.
WHEREFORE, it is hereby
ORDERED, ADJUDGED, and DECREED:
Pursuant to 11 U.S.C. § 350[b], the bankruptcy proceeding of the petitioner, Willie C. Norman, be reopened, and the petitioner, pursuant to Bankruptcy Rule 1009, may amend his schedule of creditors to list the debt owed to the Chrysler Credit Corporation by virtue of his having co-signed the automobile loan made to his daughter in July, 1977. Said debt shall be subject to the full force and effect of 11 U.S.C. § 524, in accordance with the discharge granted. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8490138/ | PEDER K. ECKER, Bankruptcy Judge.
This matter is before the Court on a Response to' Motion to Discharge Non-bankruptcy Judgments and to Avoid Judicial Liens filed September 11, 1985, on behalf of Citibank (New York State), N.A., by Attorneys Raymond C. Stilwell, Rochester, New York, and Marilyn Marshall Maloney, Aberdeen, South Dakota. A hearing was held in Aberdeen, South Dakota, on September 20, 1985. Attorney William J. Pfeiffer appeared for the debtors and Attorney Maloney for Citibank.
The relevant facts are these. Citibank obtained a $13,823.86 judgment in the Supreme Court of New York, Ontario County, which was filed and docketed with the Ontario County Clerk on August 11, 1982. This judgment arose from an amount outstanding after a motor home repossession in the State of New York. On November 8, 1985, an exemplified copy of the New York judgment was filed in Codington County, South Dakota.
On November 23, 1984, the debtors filed a voluntary Chapter 7. While the meeting of creditors was held on February 19,1985, a notice of proposed action regarding a compromise of excess exemptions was filed by the trustee on March 5, 1985.1
Neither the debtors’ schedules nor Citibank’s motion allege Debtors’ ownership of any real or personal property in the State of New York. The debtors’ schedules only list real property located in Clark County, South Dakota, as homestead property and, therefore, exempt under S.D.C.L. § 43-45-3. The value claimed as exempt is less than $30,000. See S.D.C.L. § 43-45-3.
The arguments advanced within Citibank’s motion are summarized as follows:2
*8121. The New York Supreme Court judgment, as applied to any of the debtors' property located in Ontario County, New York, survives discharge granted under 11 U.S.C. § 727.
2. Unless the homestead property consists of a mobile home not registered for at least six months, Citibank’s judicial lien filed in South Dakota may constitute an impairment to a claimed exemption under 11 U.S.C. § 522(f)(1).
The first issue is whether the New York Supreme Court judgment, as applied to any of the debtors’ property located in Ontario County, New York, survives discharge under 11 U.S.C. § 727.
After careful consideration of the file and arguments provided by counsel, the Court holds that it need not decide this issue. This is because neither the debtors’ schedules nor Citibank’s motion allege Debtors’ ownership of any real or personal property located in the State of New York and the Court does not issue advisory opinions. 28 U.S.C. § 157(b) and In re Davis, 23 B.R. 773, 777 (9th Cir.Bkrtcy.Pan.1982); J.N.S., Inc. v. State of Indiana, 712 F.2d 303 (7th Cir.1983). Regardless of any New York judicial lien, the underlying personal liability of the debtors on the Citibank debt is discharged. See 11 U.S.C. §§ 727 and 524(a), (b), and 28 U.S.C. § 1334(d).
The second issue is whether the homestead exemption properly applies to the real property listed on the debtors’ schedules. The Court also need not decide this issue. This is because Citibank is essentially raising an objection to property claimed as exempt, and this objection is untimely filed. See Bankr.R.P. 4003(b) and In re Hilmoe, 56 B.R. 262 (Bkrtcy.D.S.D. 1985). Rule 4003(b) reads, in pertinent part, as follows:
“[A]ny creditor may file objections to the list of property claimed as exempt within 30 days after the conclusion of the meeting of creditors ... or the filing of any amendment to the list....” See also Local Rule 2.
Regardless of whether a compromise of excess exemptions constitutes “any amendment to the list” under Bankr.R.P. 4003(b), Citibank’s September 11, 1985, motion was not filed within the required thirty-day period. The certificate of mailings show that Citibank received notice of all proceedings. Thus, because of the untimely filing, this objection is dismissed.
Because the debtors value in real property located in Clark County, South Dakota, claimed as homestead and exempt under S.D.C.L. § 43-45-3 is less than $30,-000, Citibank’s South Dakota judicial lien impairs this exemption. The Court voids this lien under 11 U.S.C. § 522(f). See In re Eisner, 35 B.R. 115 (Bkrtcy.D.S.D.1983).
The above and foregoing letter decision constitutes the Court’s Findings of Fact and Conclusions of Law in the above-entitled matter pursuant to Bankr.R.P. 7052 and 9014 and F.R.Civ.P. 52. Counsel for the debtors is directed to submit a proposed Order and Judgment, consistent with the Court’s Findings of Fact and Conclusions of Law and in accordance with Bankr. R.P. 9021, to the Clerk of this Court.
. The trustee filed a notice of proposed action regarding compromise and settlement of excessive exemptions for $541.50. This compromise had a twenty-day objection period. No objections were filed.
. Citibank’s motion alleges, among other things, that:
1) "The Ontario County, New York judgment is only a lien upon any and all real property owned by the Debtors and located within the County of Ontario, State of New York.... *812Therefore, said judgment in no way impairs the Debtors’ rights to exempt real property under the laws of South Dakota_ Obviously, the Debtors’ homestead is not in the State of New York; the judgment against their property there should therefore be permitted to survive the bankruptcy because its existence in no way impairs their rights to a South Dakota exemption.”
2) "The South Dakota judgment may or may not impair a right of the Debtors to a South Dakota exemption. If the Debtors’ South Dakota homestead consists of real property, CITIBANK’S judicial lien may well be an impairment. However, to the extent that their homestead consists of a mobile home, they would appear to have no homestead interest under South Dakota law, because mobile homes must be registered in South Dakota for at least six months prior to the claim of exemption.” | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8490140/ | OPINION
EMIL F. GOLDHABER, Chief Judge:
The primary issue, arising under a buyer’s counterclaim against the debtor, is whether the debtor failed to deliver goods within a reasonable time, thus giving the purchaser of the goods a cause of action for damages. We find that delivery was timely, thus precluding recovery on this cause of action.
We find the facts of this case as follows:1 The debtor filed a petition for reorganization under chapter 11 in 1982. The following year the debtor was approached by Chiappisi Brothers Interior Components *816(“Chiappisi”) which was a subcontractor on a building project in Massachusetts. The debtor agreed to manufacture column covers for Chiappisi which are hollow cylindrical enclosures for steel support members in the construction project at issue. Each column was designed for manufacture as two semi-circular, half-columns, each looking like a truncated log-canoe. At the job site each half would be joined to its mate with adhesive and caulk. When installed, many of the column covers are bisected by imaginary planes in which are mounted the building windows, and thus the column covers are an integral part of the building’s protection against the elements.
Although the contract was let several months earlier, the debtor could not feasibly commence manufacturing until the debtor received exact contract specifications and schematic drawings which did not occur until either July 21, 1983, or “about the middle of August,” 1983. With an eye toward the approach of the colder weather of autumn and winter, the debtor met with Chiappisi and the contractor on August 16, 1983, to discuss the expected delivery of the column covers. With optimism running high, the parties drafted at the meeting a proposed delivery schedule for the column covers with the final shipment set for a delivery date of September 13. The parties intended that the dates in the schedule would only be “target dates” rather than guaranteed delivery dates. The parties did not intend that a failure of compliance with the schedule would result in an action for damages. During the meeting the debtor informed Chiappisi that the product could be delivered in compliance with the schedule only if a host of variables proved favorable to the debtor.
As with many who file for bankruptcy, Lady Luck was just a nodding acquaintance to the debtor and the project was beset with delay. Thirteen of the fourteen shipments of column covers were delivered by November 9, 1983, but the last shipment was not delivered until December 19, 1983, since the debtor did not receive the final specifications for this shipment until November 28, 1983.
Although the proper chronological sequence for installation was the window frame, the column covers and then the windows, the threatened appearance of colder weather without the arrival of the column covers caused Chiappisi to install the windows prior to the columns in an effort to seal the building against the weather. This deviation cost Chiappisi significant amounts of time and money. Other costs were likewise incurred by Chiappisi due to the untimely arrival of the columns. Although these costs were incurred, we find that the debtor’s manufacture and delivery time for the columns was reasonable.
Although the debtor had not contracted to sell Chiappisi adhesive, the debtor supplied it for use in joining each half-column to its counterpart. After a short time the adhesive cracked and crazed, thus necessitating Chiappisi’s replacement of the joint compound.
Prior to installation many of the column covers arrived at the construction site pitted and asthetically flawed. In this aspect the columns failed to comply with contract specifications but these deficiencies were rectified by Chiappisi on the job site. Chi-appisi failed to establish the amount of costs incurred in curing this deficiency.2
The first point for consideration is whether the debtor is in breach of its contract with Chiappisi based on the assertion that the debtor failed to deliver the column covers in a timely manner. Under the common law of contracts, where no time for performance is provided in the written instrument, the law implies that it shall be done within a reasonable time. Field v. Golden Triangle Broad, Inc., 451 Pa. 410, 418, 305 A.2d 689 (1973). Even when the parties have expressly agreed to the time of performance in a building contract, “[t]ime is not ordinarily of the essence ... *817that is, [the] failure of the builder to complete his work at the time agreed will not deprive him of the right of action for the price.” 6 Williston on Contracts § 849, p. 198 (3rd ed. 1962).3 Attempts to modify an existing contract to incorporate a specific date for performance, must be supported by consideration as must all modifications. Wilcox v. Regester, 417 Pa. 475, 207 A.2d 817 (1965).
Article 2 of the Uniform Commercial Code (“the UCC”) of Pennsylvania, entitled “Sales,” has substantially redefined contract law as to transactions governed by that article. 13 Pa.Cons.Stat.Ann. §§ 2101-2725 (Purdon 1984). Modifications to a contract under Article 2 need not be supported by consideration. 13 Pa.Cons.Stat.Ann. § 2209. Compliance with the statute of frauds provision of 13 Pa.Cons. Stat.Ann. § 2201 is nonetheless required. § 2209(c). Contrariwise, the UCC preserved the common law rule that in the absence of a contract term to the contrary, the time for delivery, shipment or other action shall be a reasonable time. 13 Pa. Cons.Stat. § 2309(a).
The applicability of the Article 2 of the UCC is defined at 13 Pa.Cons.Stat.Ann. § 2102:
§ 2102. Scope; certain security and other transactions excluded from division
Unless the context otherwise requires, this division applies to transactions in goods; it does not apply to any transaction which although in the form of an unconditional contract to sell or present sale is intended to operate only as a security transaction, nor does this division impair or repeal any statute regulating sales to consumers, farmers or other specified classes of buyers.
13 Pa.Cons.Stat.Ann. § 2102. As applied to the case at bench the debtor was a mere seller of column covers who effected no installation of the sold items. Thus, Article 2 applies to the contract at issue.
Although the schedule drafted at the August 16th meeting was incorporated *818into the contract, we found above that the. proposed delivery dates were merely the parties’ aspirations, and if delivery was not met by the suggested dates the parties did not intend that a cause of action for damages would lie. In the absence of a legally binding delivery schedule, the debtor was obligated to deliver the goods within a reasonable time. We previously determined that the debtor delivered the goods in a reasonable time even in light of the suggested delivery schedule. We thus conclude that no cause of action lies against the debtor for the alleged untimely delivery of the goods.
Chiappisi also claims damages due to the failure of the debtor’s adhesive. Although it is clear that the debtor supplied the adhesive and that it did not function properly, it is also clear that the debtor supplied the joint compound gratuitously. Since the debtor was under no contractual duty to supply the adhesive, no breach of contract action may be predicated on its failure. Chiappisi has advanced no other theory for recovery on the adhesive.
The next issue is whether we may award damages to Chiappisi due to flaws in the appearance of the column covers. Although we found that the surface of some of the items was marred, Chiappisi failed to prove the measure of the damage. The figure it sought to prove was the alleged damage it suffered due to the surface flaws and reapplication of adhesive. No breakdown between the two was provided.
The only remaining matter for consideration is the debtor’s claim against Chi-appisi for the unpaid contract balance of $7,753.75. There is no dispute that this amount is still owing, and since none of Chiappisi’s bases for offset are valid, we will enter judgment in favor of the debtor and against Chiappisi in the amount of $7,753.75. Since none of Chiapissi’s bases for relief are meritorious, we will deny all relief on its counterclaims.
. This opinion constitutes the findings of fact and conclusions of law required by Bankruptcy Rule 7052.
. Chiappisi did introduce evidence on the combined costs of replacing the joint compound and smoothing surface flaws but no evidence was produced solely on the latter element alone.
. As also stated in Williston :
§ 846. Meaning of Time Being of the Essence. When it is said that time is of the essence, the proper meaning of the phrase is that the performance by one party at the time specified in the contract or within the period specified in the contract is essential in order to enable him to require performance from the other party. It does not mean-that delay will give rise to a right of action against him. A breach of any promise in a contract, whether of vital importance or not, will do that, nor does the phrase mean merely that time is a material matter, but that it is so material that exact compliance with the terms of the contract in this respect is essential to the right to require counter-performance. Even where time is not of the essence, it is generally true that an unreasonable lapse of time may be fatal. Thus, time is almost always in varying degrees material but not so often an essential matter.
It is obvious, as stated in the preceding section, that in any contract one party may make his promise expressly conditional on the exact performance of any agreed condition, and, hence, that performance on a specified day or hour, or before a specified day may be made such a condition. Moreover, though performance at such a time is in terms merely a promise, yet, if the parties also provide that time is of the essence, in those or equivalent words, they thereby agree that a breach of the promise is material or, otherwise expressed, that timely performance is in effect a condition.
Therefore, the first point to be determined in an inquiry whether time is of the essence in a particular case is whether the parties have expressly made it so. And it is only when this question has been decided in the negative that any rule of law other than one of interpretation is called into play. But often the defendant has not made his promise to perform expressly conditional on the plaintiff’s performance on a fixed day; he has contented himself with exacting from the plaintiff a promise of performance at that day and has not stated that the time is essential. On an inquiry, then, whether a breach by the plaintiff of his promise to perform at that time excuses the defendant from liability, the justice of imposing such an excuse on constructive condition depends chiefly on two considerations:
1. Is the delay in performance of the plaintiffs promise after part performance, or did he fail to perform at the agreed day at a time when the contract was still wholly executory.
2. Is the nature of the contract, or market conditions, or other significant factors such as to make time of vital importance?
6 Williston on Contracts, § 846 (3rd ed. 1962) (footnotes omitted). | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8490142/ | OPINION
D. JOSEPH DeVITO, Bankruptcy Judge.
The trustee moves for reconsideration of the Court’s opinion, entered in the above captioned matter on February 6, 1985, which opinion relates to the motion of Joseph S. Soriano seeking summary judgment declaring the underlying debt to be nondischargeable, and determining that he (Soriano) has the status of a secured creditor. For the reasons set forth below, the motion is denied. The opinion herein shall constitute the findings of fact and conclusions of law required by Federal Rule of Civil Procedure 52, adopted for adversary proceedings by Bankruptcy Rule 7052.
The factual background of this matter commenced with the institution of a state court suit against Gilbert Broadcasting Corporation, the debtor herein, by Joseph Soriano, a former employee of Gilbert. In that action, Soriano charged that Gilbert’s termination of his employment was unjust and in violation of his civil rights. Soriano prevailed in the state court action and was awarded a money judgment of $202,138.17.
Seeking to satisfy the noted judgment, Soriano sought to attach an outstanding debt of $330,000 which Sound Radio, Inc. owed Gilbert. It should be noted that the above debt was the result of the settlement of an administrative proceeding before the Federal Communications Commission, involving both Gilbert and Sound Radio. Following one abortive attempt, Soriano successfully levied an alias execution against Sound Radio on July 18, 1983.
A controversy ensued over Soriano’s purported levy, which controversy came to this Court by reason of a bankruptcy petition filed by Gilbert on August 30, 1983. Following certain preliminary matters not pertinent here, the within adversary proceeding was filed by Soriano. In that proceeding, Soriano moved for summary judgment determining that the debt owed to him is nondischargeable, and that he be deemed a secured creditor in the amount of that judgment. The motion was granted. Soriano v. Gilbert Broadcasting Corp., No. 83-0891 (Bkrtcy.D.N.J. Feb. 6,1985).
Of significance to the instant matter are the portions of the February 6th opinion disposing of the arguments put forth by the trustee. The trustee alleges that, due to the failure of certain aspects of the aforementioned settlement of the F.C.C. administrative proceeding, the debt of Sound Radio to Gilbert was so immature that it could not be levied against.
Specifically rejecting that argument, the opinion states: “[t]he Court finds that the levy served upon Sound on July 18, 1983, a date following satisfaction of the prerequisites of the settlement agreement, did, in fact, perfect Soriano’s lien.” Id., slip op. at 5-6. Thus, it was unequivocally decided that the matter giving rise to the $330,000 debt was settled and that Soriano held a valid lien thereon.
The Court now proceeds to the instant motion. In moving to alter or amend the prior opinion, the trustee relies on two points of argument. The first is essentially a restating of the assertions that the levied upon debt of $330,000 was not ripe for execution, thereby rendering Soriano’s levy unenforceable.
The Court rejects this argument out of hand. The trustee is directed to the afore-cited holding in the February 6th opinion, where the Court did, indeed, find that the debt in question was sufficiently matured as to allow Soriano to attach it. Again in that opinion, the Court decided that Soriano held a perfected lien. Having already decided the specific question, it is incumbent upon the trustee to introduce new matter to convince this Court to revise or modify its previous decision. As the argument merely repeats contentions already considered, it is unpersuasive and the prior ruling will stand.
*853The second point of argument by the trustee is founded upon fresh ground. There it is alleged that the levy is a preferential transfer and, thus, subject to the trustee’s avoiding powers, pursuant to § 544 of the Bankruptcy Code. The trustee contends that the levy was executed less than ninety days prior to the filing of Gilbert’s bankruptcy petition, thereby constituting it to be a preferential transfer by virtue of the § 547 prohibition against transfers made within that time frame. Unfortunately, the Court finds the trustee’s assertions to be incomplete.
Upon a fuller examination of the entirety of § 547, the Court finds that the levy by Soriano is not a preferential transfer in nature. To be sure, § 547 does indeed deem transfers made within the ninety days preceding a bankruptcy filing to be preferential and, thereby, subject to the trustee’s avoiding powers. § 547[b][4][A]. However, this proscription is but one facet of a multi-pronged test. The next immediate subparagraph of § 547 further requires, as an element of preference, that the transfer be one:
that enables such creditor to receive more than such creditor would receive if—
[A] the case were a case under chapter 7 of this title;
[B] the transfer had not been made; and
[C] such creditor received payment of such debt to the extent provided by the provisions of this title.
11 U.S.C. § 547[b][5].
The quantum of proof required to resolve this issue is succinctly stated in the leading authorities.
Section 547[b][5] is a central element of the preference section because it requires a comparison between what the creditor actually received and what other creditors would of the same class receive in a chapter 7 liquidation. The trustee must prove that the effect of the transfer is to enable the creditor to obtain a greater percentage of its debt than it would receive under the distributive provisions of the Code. Specifically, the creditor must receive more than it would 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 the Code.
4 Collier on Bankruptcy ¶ 547.35 (15th ed. 1979). Note the burden on this point squarely resides with the trustee. See also Landy v. Silverman, 189 F.2d 80, 81 (1st Cir.1951). Should the trustee fail to show that the transfer has the effect as specified in § 547[b][5], he fails to meet the burden, and the transfer cannot be classified as preferential even though all the other elements of § 547 are satisfied. Accord L & M Realty Corp. v. Leo, 249 F.2d 668, 671 (4th Cir.1957).
In his argument, the trustee does not address the test of § 547[b][5]. See Brief in Support of Motion To Reconsider Judgment at 2-3, whereat the trustee, in his direct quotation of the very statute, omitted consideration of subparagraph [b][5]. Brief at 2. In this circumstance, the Court has no recourse but to reject the trustee’s point of argument for his failure to respond to or, for that matter, even acknowledge the final requisite for a preferential transfer.
As a further aside, the Court must comment that, in any event, the trustee would have an arduous burden in this matter. Since the facts, as stipulated, clearly indicate that Soriano is oversecured to the extent of at least one hundred thousand dollars, in such circumstance it would be indeed difficult to prove a preferential transfer under § 547[b][5]. It is unlikely that it could be shown that Soriano would receive a greater amount by reason of his levy than he would receive normally, simply due to the uncontroverted fact that his judgment lien is more than adequately covered by the debt he attached. This being so, Soriano would receive the same amount on his judgment in any circumstances.
In conclusion, this Court reaffirms its opinion of February 6, 1985, in its entirety. The trustee’s motion presents no factual *854basis to warrant any alteration or modification of said opinion. The trustee having failed to meet his burden of proving that Soriano's levy is a preferential transfer, the motion by the trustee to alter or amend the February 6, 1985 opinion is hereby denied.
Submit an order in accordance with the above. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8490143/ | OPINION
D. JOSEPH DeVITO, Bankruptcy Judge.
Upon a review of the issues raised in the above matter, the Court has reached a decision and embodies it in the following letter opinion.
The facts in this case are quite clear. The debtor failed to make the rental payment due on May 15, 1985. On May 31, 1985, the landlord terminated debtor’s lease and memorialized said termination in letter bearing date as previously noted.
The landlord’s action was taken pursuant to two wholly unambiguous provisions in the lease agreement. Paragraph 8.2[a] states that the landlord shall terminate the lease for nonpayment of rent if such default continues for five (5) days. Paragraph 8.1 states that, in the event of a default in the payment of rent, the landlord may, at its own option, terminate the lease at any time following the default upon giving the tenant five (5) days notice in writing.
An examination of the docket reveals that the debtor’s petition in bankruptcy was filed on June 6, 1985.
Based upon the foregoing, the Court must conclude that the landlord validly exercised its right to terminate the lease agreement for failure of rental payments. Having terminated the lease, there is nothing for the debtor to assume. The law in this matter is explicit. In the matter of In re Triangle Laboratories, Inc., 668 F.2d 463, 467-68 (3d Cir.1981), the Court of Appeals held: “an executory contract or lease validly terminated prior to the institution of bankruptcy proceedings is not resurrected *855by the filing of a petition in bankruptcy, and cannot therefore be included among the debtor’s assets.”
Having decided that the lease agreement is no longer in existence, the motion to assume is denied.
Turning to the cross-motion to extend the time to assume or reject and the companion motion to assign the assumed lease, these motions are denied as being moot.
Submit an appropriate order. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8490144/ | MEMORANDUM DECISION
GEORGE L. PROCTOR, Bankruptcy Judge.
This adversary proceeding was commenced by the trustee, Charles W. Grant, to pierce the corporate veil and hold Carson Lee Schaeffer personally liable for the debts of debtor, Schaeffer Utility Services, Inc.
Carson Schaeffer formed debtor corporation in 1975, and from incorporation to the present has been the president, director and sole shareholder. Through these positions, Mr. Schaeffer controlled the debtor’s activities, business and financial transactions on a daily basis. In December, 1981, a judgment was rendered against the debt- or. Business began to fail and by December, 1982, debtor had ceased conducting its normal business and had liquidated the majority of its assets. The only assets that remained were outstanding account receivables. Mr. Schaeffer continued to draw a salary during this time until the debtor voluntarily filed for relief under 11 U.S.C. Chapter 7 in April, 1984. Mr. Schaeffer’s personal income tax returns reflected income from debtor corporation in the amount of $25,500.00 in 1982, $17,398.00 in 1983 and $2,307.00 in 1984. The debtor’s corporate tax returns reflected payment of a larger salary to Mr. Schaeffer but the difference was carried as an account payable on the debtor’s books.
Plaintiff asserts that payment of a salary to Mr. Schaeffer while the debtor was allegedly insolvent and in the process of liquidating its assets was an impermissible distribution under § 607.144, Florida Statutes (1975). Additionally, plaintiff asserts that these salary payments constitute a preference in accordance with Florida case law. See Poe & Associates, Inc. v. Emberton, 438 So.2d 1082 (Fla. 2d DCA 1983).
The Court finds that the plaintiff failed to establish by a preponderence of the evidence that a preference had occurred or that Mr. Schaeffer’s actions were such that the Court is warranted in piercing the corporate veil.
Section 607.144(1)(c) holds an assenting director liable for the amount of assets distributed in a liquidation where the distribution occurs without the directors making adequate provision for “all known debts, obligations and liabilities of the corporation.” Florida Statute, 1975, § 607.-144(1)(c). This section has been applied to the factual situations where the insolvent corporation transferred a substantial quantity of assets to an insider of the corporation in satisfaction of debts owing and thus preferred the insider to other unsecured creditors or transferred the assets to an insider for less than full consideration. See Headley v. Pelham, 366 So.2d 60 (Fla. 1st DCA 1978); James Talcott, Inc., v. Crown Industries, Inc., 323 So.2d 311 (Fla. 2d DCA 1975). Plaintiff has failed to show that a preferential transfer occurred or that the debtor corporation did not receive full consideration in the form of services for the salary paid to Mr. Schaeffer while the debtor was in the process of liquidating.
In order to pierce the corporate veil, plaintiff needs to show that “the corporation is a mere device or sham used to mislead creditors or for fraudulent purposes.” Computer Center, Inc. v. Vedapco, Inc., 320 So.2d 404, 406 (Fla. 4th DCA 1975). It is a legitimate practice under Florida law to form a corporation in order to avoid personal liability. See Donnelly v. Marriott Corporation, 266 So.2d 183 (Fla. *8593rd DCA 1972). Plaintiff has failed to prove that an injustice or fraud will occur unless the Court pierces the corporate veil and finds Mr. Schaeffer personally liable.
For the reasons set forth above, a final judgment in favor of the defendant will be separately entered. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8490147/ | ORDER DENYING APPROVAL OF GRA AGREEMENT
THOMAS C. BRITTON, Bankruptcy Judge.
This chapter 11 debtor has requested approval upon the basis of shortened and restricted notice of a proposed Agreement with GRA, a Connecticut partnership. The matter was called for hearing on September 23, but debtor’s counsel had to leave the courtroom for a conflicting appointment before the matter was heard. He therefore requested that it be reset. The matter was rescheduled and reheard on October 7.
This case was filed four-and-one-half months ago by a limited partnership in the retail furniture and carpet business. Giving credence to the facts recited by the debtor and GRA, the debtor’s inventory has a wholesale value of $350,000. It proposes to sell this inventory in bulk to GRA for 66% of its wholesale value ($233,333). Most of the purchase price (85%) will be paid directly by GRA to (a) a bank which has a first lien on all assets ($150,000); (b) an additional retainer to the debtor’s attorney ($20,000); and (c) a deposit to the local newspaper ($30,000) to cover the cost of advertising a 30-day bankruptcy liquidation sale to be followed by a 60-day going-out-of-business sale.
In return, GRA obtains a first lien for all it pays on all the debtor’s assets except equipment, together with all its overhead expenses, an 8% commission on all sales, and an additional 5% commission to all salesmen employed by GRA.
The net effect of this agreement would be to leave the remaining creditors nothing or next to nothing. The apparent surplus available to the debtor from the sale in the amount of $33,333, if not entirely consumed by GRA’s overhead expenses and commissions, must be divided between the debtor and GRA as joint venturers. The other creditors are federal, state and local taxing authorities ($180,000), customers who have paid deposits which have been spent by the debtor ($150,000), and unsecured trade creditors ($500,000).
GRA was introduced to this debtor by the debtor’s attorney who will receive $20,-000. The principal beneficiaries of this scheme are GRA and the debtor’s attorney. The secured bank gains nothing it is not assured in any event. The taxing authorities, who have a priority claim, are represented by overworked and underpaid representatives who, if aware at all of this transaction, may lack the sophistication to even appreciate what is going on. The customers will be left with empty promises from a debtor who has already betrayed their trust. The trade creditors have little or no chance of recovering anything from this bankrupt under any circumstances.
This liquidation could be and should be performed by a disinterested panel trustee whose compensation is regulated by statute and would be a fraction of the sum demanded by GRA.
I have left to the last this court’s concern for the integrity of the liquidation sales conducted under the name of this court. In doing so, I do not intend to subordinate this concern to the concern expressed above for the creditors in this case. I believe that if this agreement were approved, GRA would conduct a heavily advertised sale for 90 days which would consist to a large extent of inventory not presently owned by the debtor, but brought in specially for the sale. The sale would appear to be a bankruptcy liquidation sale* conducted by a trustee. Such a sale would be a fraud on the public and would tend to undermine the confidence of this community in this court, its trustees and the liquidation sales conducted by those trustees. For this additional reason, therefore, this proposed agreement is disapproved.
The debtor’s attorney is directed to send a copy of this order to all scheduled creditors forthwith. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8490155/ | OPINION and ORDER
D. JOSEPH DeVITO, Bankruptcy Judge.
The defendant moves to amend the findings and order filed by the Court on February 15, 1985. The subject matter of the February 15th motion concerned questions relating to the appropriateness of the notice given the defendant prior to its purchase of certain property formerly owned by the debtor. Both the defendant and debtor moved for summary judgment. In the circumstances underlying that matter, the Court found that summary judgment was inappropriate, and the motions were denied. See Williston Oil Corp. v. Cavalier Oil Co., et al. (In re Williston Oil Corp.), No. 84-0058 (Bankr.D.N.J. Feb. 15, 1985).
In reviewing the instant motion, the Court finds no reason to amend the February 15th order. Conflicting assertions and contradictory statements as to both the facts and law have been made by the parties. Accordingly, summary judgment un*297der Federal Rule of Civil Procedure 56 is unavailable to either side. The Court deems further proceedings necessary to fully adjudicate this matter.
For these reasons, the Court hereby orders the motion to reconsider be denied, and further directs the parties to proceed with their case. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8490156/ | MEMORANDUM OPINION
EDWARD J. RYAN, Bankruptcy Judge.
Eagle Marine Trading Company is a Chapter 7 debtor, formerly engaged in towing and marine transportation services. David Askanase, trustee of the bankruptcy estate, has filed suit against defendant *351South Hampton Refining Company to recover various accounts receivable, allegedly arising from services performed in April and May of 1981.
Eagle Marine, as carrier, and South Hampton, as shipper, initially entered into a voyage charter party to transport oil from a terminal in Beaumont, Texas, to Good Hope, Louisiana. This product movement is not now in dispute and the parties have settled appropriate charges.
In a second carriage, however, Eagle Marine agreed to transport oil for South Hampton from Beaumont to a dock in St. Rose, Louisiana. On this voyage, the parties did not draw up a second written charter party, but orally agreed to rely on the same terms specified in the contract for the Good Hope transport as well as previous trading practices.
Two barges, NMS 3106 and 3107, loaded product in Beaumont and proceeded through the Intercoastal Canal to St. Rose. Upon arrival, South Hampton was unable to secure a safe berth to discharge product until thirty-five hours later. Once in position, Barge 3107 was able to discharge its complete cargo in a twenty-one hour period.
Barge 3106, however, could not complete its discharge and went to another dock for steam heating of the oil to facilitate its removal. After a further delay, caused by fog and South Hampton’s inability to find dock space for additional discharge, 3106 finally docked a second time at St. Rose. Although discharge commenced, the pump lost suction and 3106, once again, departed the St. Rose dock. During the next eight days, while the pump was under repair, both barges were off charter.
Upon completion of the repair work, barge 3106 went back on charter. For another eleven days, the barge went through more shifting and steaming until South Hampton directed its movement from St. Rose to the LaJet facilities at St. Cecelia, Louisiana. At LaJet, the addition of a different grade oil allowed the repaired pump to gain suction and discharge its remaining cargo in approximately one hour. Barge 3106 then left the St. Cecelia dock, joined the National Marine Service fleet, and went permanently off charter.
The central issue arising from these facts is the responsibility for shifting and steaming costs, tankerman’s charges, and demurrage following completion of the repair of the pump on barge 3106. The defendant takes the position that the pump breakdown was the cause of delay. It further argues that the cause of this breakdown was entirely a mechanical defect. The product itself, as developed in the evidence, was at a sufficiently high tempera--ture to permit pump suction. The shipowner, responsible for the seaworthiness of the ship, should, in the defendant’s view, assume any subsequent charges.
The primary difficulty with this position is that it completely ignores and even specifically denies the existence of any agreement among .the parties. Testimony of the plaintiff’s expert witness, however, indicated the parties had entered into a voyage charter party for an earlier product movement from Beaumont, Texas, to Good Hope, Louisiana. The parties orally agreed to incorporate these same terms in the second product movement to St. Rose. The expert and Graham Schooley, president of Eagle Marine in 1981, further verified that this was the custom and practice in the industry and that charter parties were rarely reduced to writing. Taking the defendant’s argument in its best light, Eagle Marine has already recognized its responsibility for the proper mechanical functioning of the pump and barge by voluntarily taking the barge off charter while the pump was under repair.
The plaintiff argues on the basis of the voyage charter party and substantial authority that one in position of the defendant is generally liable for all expenses, less lay time, until the release of the vessels. U.S. v. Atlantic Refining Co., 112 F.Supp. 76, 80 (D.N.J.1951); G. Gilmore & C. Black, The Law of Admiralty, 211 (2d ed. 1975); 2B Benedict on Admiralty § 31 (7th ed. 1985). In addition, testimony of the plaintiff's expert witness affirmed the custom *352and practice of the industry for the charterer to cover incidental expenses, such as tankerman’s fees, shifting and steaming charges. The only exception to this would be an equipment breakdown, which would normally reduce demurrage time. CIA. Estrella Blanca, LTDA. v. S.S. Nictric, 247 F.Supp. 161, 164 (D.Ore.1965); S.T. Lake Palourde (ARB), 1977 A.M.C. 1692, 1697.
The plaintiff further argues that South Hampton’s control of the barge’s movements, once the pump was repaired and the barge was back on charter, supports its liability for demurrage. In support of this position, plaintiff cites Shaver Transportation Co. v. Louis Dreyfus Corp., 414 F.Supp. 1040 (D.Ore.1976). There, the court imputed demurrage liability to the ultimate consignee, who had accepted bills of lading with knowledge that the carrier barges remained loaded in the face of adverse prospects for immediate discharge. The plaintiff presents this case to support an imputed demurrage liability to the party in control of and with knowledge of circumstances for unloading, such as South Hampton.
While a charterer clearly has numerous responsibilities to avoid the accrual of demurrage, the case law shows that mere control of a vessel does not ipso facto run demurrage time. Well-recognized exceptions to the unconditional responsibility of the charterer include specific exonerating clauses in the charter party, a delay being attributable to the fault of the shipowner, or a vis major. U.S. v. Atlantic Refining, 112 F.Supp. 76, 80 (N.J.1951); 2B Benedict on Admiralty § 38 (7th ed. 1985).
In any case, the record did not disclose sufficient evidence of the exact obstacles and vicissitudes encountered by South Hampton in the eleven days prior to docking at LaJet to permit a ruling on the basis of South Hampton’s control of the barge’s movements.
The far better ground for the plaintiff’s case is the existence of a charter party incorporating standardized demur-rage clauses among parties experienced in their respective businesses and with a record of previous dealings. In admiralty, an oral charter party is enforceable. In the absence of evidence of an express agreement, a charter party is inferrable from the circumstances concerning the actual possession and use of the vessel. Keller v. U.S., 557 F.Supp. 1218, 1227 (New Hampshire, 1983). Under these facts, plaintiff is entitled to demurrage, shifting, steaming and tankerman’s charges from the time barge 3106 went back on charter, following repair of the pump to when it rejoined the fleet and went permanently off charter.
Plaintiff also requests attorneys’ fees, alleging the defendant’s' refusal to pay charges caused substantial expense to the estate and delay in its administration. While almost exactly two years elapsed from the filing of the complaint until actual trial, the fault does not lie with the parties. The problem is much more with a congested docket and overburdened judicial system which must all too often defer consideration of vital and urgent matters. The record does not indicate the bad faith and dilatory behavior sufficient to justify the sanction of attorneys’ fees. See, Roadway Express, Inc. v. Piper, 447 U.S. 752, 100 S.Ct. 2455, 65 L.Ed.2d 488 (1980); Alyeska Pipeline Co. v. Wilderness Society, 421 U.S. 240, 95 S.Ct. 1612, 44 L.Ed.2d 141 (1975).
Plaintiff shall recover damages in the sum of $62,811.24 with interest and costs. Let judgment enter accordingly. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8490157/ | OPINION
EMIL F. GOLDHABER, Chief Judge:1
The issue before us in this case is whether we should grant a creditor’s motion for reconsideration and amend our earlier order and accompanying opinion2 which fixed the size of one of the creditor’s claims at $300,000.00, in order to allow interest, attorneys’ fees and other advances. For the reasons expressed herein, we conclude that the motion is devoid of merit.
The facts of this case which are pertinent to the motion for reconsideration are as follows:3 The First Peoples National Bank (“the Bank”) filed a proof of secured claim for $350,000.00 plus interest, attorneys’ fees and other advances. The debtor objected and at the hearing the Bank introduced conflicting evidence on the principal outstanding balance of the loan. At one point the Bank testified that the principal debt was $350,000.00 plus a specified amount of interest while at another juncture it testified that the principal indebtedness was $300,000.00 as a result of certain “write offs” against the alleged $350,-000.00 figure. In light of the facts that the Bank’s bookkeeping was execrable and that it introduced two conflicting figures as to the principal indebtedness, as fact finder we resolved the ambiguity against the Bank and found that the indebtedness was $300,000.00. Since there was insufficient evidence for us to establish when the “write off” occurred on the loan, we could not compute the interest component on the loan, since the time of the “write off” would affect the amount of accrued interest. No proof was introduced on the amount of allowable attorneys’ fees. Our decision was simply predicated on a lack of adequate proof.
The Bank moved for reconsideration and stated at the hearing on that motion that the “write off” was “not a write off as to liability ... but it’s a write off as to what the bank examiners feel should be written off.” At the original hearing there was a dearth of evidence as to the meaning of the “write off.” Within the realm of reason was the possibility that the “write off” represented a partial satisfaction of indebtedness through the Bank’s receipt of the debtors’ payments. As stated above, we resolved the ambiguity against the Bank. The hearing on the motion for reconsideration has not changed that determination since the factual record was closed at the termination of the hearing on the objections to the proofs of claim. The salutory purpose of such a rule is that it promoted the finality of litigation. Although under certain instances we may reopen the factual record, the Bank has not addressed the point and we see no compelling justification to grant such relief sua sponte.
We will accordingly enter an order denying the motion for reconsideration.
. Specially designated to hear and dispose of cases in the United States Bankruptcy Court for the District of New Jersey at Camden.
. In Re Lanza, 51 B.R. 125 (Bankr.D.NJ.1985).
.This opinion constitutes and 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/8490158/ | MEMORANDUM DECISION
THOMAS C. BRITTON, Bankruptcy Judge.
Plaintiff is a liquidating trustee selected by the creditors and appointed through the chapter 11 plan confirmed in August 1984 for the debtor, Chase & Sanborn Corp. In these two adversary proceedings, the trustee seeks subordination of very large claims filed against this debtor’s estate on behalf of two other related bankruptcy estates. Number 85-0704 is against the liquidating trustee for the estate of chapter 7 debtor Alberto Duque, a case presently pending before me. Number 85-0705 is against a chapter 11 debtor-in-possession, Colombian Coffee Co. This case is also pending before me.
The claim against Chase & Sanborn, which is involved in No. 85-0704 is claim # 347 in the amount of $11.9 million. The claim involved in No. 85-0705 is # 288 for $50 million damages multiplied by three as a R.I.C.O. claim, making a total of $150 million.
The claims of other creditors against the assets of Chase & Sanborn, which were sold last year, substantially exceed the assets of this debtor’s estate. Therefore, subordination of these claims is as a practical matter the denial of these claims against the assets of this debtor. It presently appears completely unlikely that the claims of creditors against either of the defendants’ bankruptcy estates can ever be satisfied through the administration of those cases. The essential conflict here, therefore, is whether the unaffiliated creditors of Chase & Sanborn must share the assets of Chase & Sanborn with the unaffiliated creditors of two other bankrupt entities, Duque and. Colombian Coffee.
This debtor filed for bankruptcy on May 18, 1983. On the following day, Duque, Colombian Coffee and Domino Investments, a Cayman Islands corporation, also filed for bankruptcy. Duque dominated and controlled each of the other three entities. Through Domino, Duque held 100% control of Chase & Sanborn. Duque and members of his family held 100% control of Colombian Coffee.
Duque, a native of Colombia, so managed his own affairs and the affairs of the entities he controlled that it is not economically feasible now (if indeed it would be possible) to reconstruct the financial records of any of the four entities with even relative precision. All participants in these cases agree that the available records are a mess.
For the foregoing reason, and perhaps other reasons as well, Colombian Coffee sought substantive consolidation of these *453four estates many months ago. (C.P. No. 1033). That application was fiercely resisted by other interested parties and, after a hearing, was denied. (C.P. No. 1062). That decision was not appealed and has become final.
Each of the parties before me has attempted through the investigation and testimony of capable and disinterested CPA’s to reconstruct enough of the debtors’ affairs to express general conclusions necessary to the resolution of the issue before me. Unfortunately, these diligent experts do not agree.
The plaintiff’s proof through a financial consultant employed by Chase & Sanborn (which at that time was known as General Coffee Corporation) two weeks before bankruptcy has convinced me that this debtor has been grossly insolvent at least since September 30, 1982. He was able to establish with satisfactory precision that on the date of bankruptcy, May 18, 1983, the debtor was insolvent to the tune of $26 million, and he was able to work backward from that date to September 30, 1982, by adjustments for substantial transactions through available records of the debtor and from other sources. A certified audit, again prepared by independent CPA’s, existed for the debtor as of September 30, 1982.
That audit showed the debtor to be solvent and was used to obtain a $35 million line of credit from a Boston banking syndicate. However, this witness has also demonstrated that a large part of the assets relied upon in the certified audit were fictitious. The huge inventories of coffee beans simply did not exist. With adjustment for the inflated assets, this debtor was seriously insolvent on the date of that audit.
There is no present basis known to me, however, to reject the other data which formed a part of that audit. The plaintiff’s witnesses, by using that audit and the working papers of those independent auditors, have demonstrated that Chase & San-born was a net creditor with respect to Duque and the related entities controlled by him to the extent of approximately $5.7 million as of September 30, 1982. By the date of bankruptcy, May 18, 1983, that net creditor situation had increased to $13.5 million. The documentation for these transactions is so sparse that one must guess at their purpose and justification. Duque, who is presently in trial on criminal fraud charges, has invoked the Fifth Amendment and offers no help. At least $2 million was paid during this interval to Duque individually.
Colombian Coffee was the affiliate that supplied coffee beans processed by Chase & Sanborn. It received payment through a letter of credit for $2.1 million in February, 1983, about 90 days before bankruptcy, upon bills of lading which were found to be fraudulent, representing fictitious coffee.
Plaintiff’s complaint against each defendant is cast in three counts. The first alleges preferential transfers under 11 U.S.C. § 547. The second alleges fraudulent transfers under § 548. At trial, plaintiff abandoned count 1 as to the estate of Du-que. Plaintiff does not seek the recovery of anything under any of these counts. The bankruptcy automatic stay in § 362(a) would prevent such a recovery. Instead, plaintiff invokes § 502(d) which requires that this court:
“disallow any claim of any entity ... that is a transferee of a transfer avoidable under section ... 547, 548 ... of this title, unless such entity or transferee has paid the amount, or turned over any such property, for which such entity or transferee is liable ...”
At trial, with the consent of all the parties, the trial was restricted to the issues presented by count 3, leaving counts 1 and 2 to be tried if plaintiff fails to prevail on count 3.
Count 3 is based upon § 510(c)(1):
“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 ...”
*454The bankruptcy doctrine of equitable subordination had its genesis in Taylor v. Standard Gas & Electric Co., 306 U.S. 307, 59 S.Ct. 543, 83 L.Ed. 669 (1939) and Pepper v. Litton, 308 U.S. 295, 60 S.Ct. 238, 84 L.Ed. 281 (1939). It remained a judicially devised rule until the 1978 enactment of § 510(c)(1).
In Benjamin v. Diamond (In re Mobile Steel Co.), 563 F.2d 692, 699-700 (5th Cir.1977), the basic principles were announced as follows:
“Three conditions must be satisfied before exercise of the power of equitable subordination is appropriate.
(i) The claimant must have engaged in some type of inequitable conduct ...
(ii) The misconduct must have resulted in injury to the creditors of the bankrupt or conferred an unfair advantage on the claimant ...
(iii) Equitable subordination of the claim must not be inconsistent with the provisions of the Bankruptcy Act.”
THE CLAIM FOR DUQUE
There is no question that Duque had and exercised complete control over Chase & Sanborn. He was, therefore, an “insider.” § 101(25)(B)(iii). As such he occupied the role of a fiduciary. The financial records available to the plaintiff and to this court make it clear that he co-mingled the credit and assets of the several entities which he controlled, including this debtor and Colombian Coffee, and used those assets to serve his individual purpose without any regard for the interests of unaffiliated creditors of the respective entities. Each entity was, therefore, an alter ego of Du-que.
It is clear to me from the record available to the plaintiff and to this court that as a result of these interaffiliate transactions, Chase & Sanborn was a net creditor with respect to Duque and the related entities controlled by him to the extent of $13.5 million on the date of bankruptcy. However, Duque failed to maintain or preserve an adequate financial record which would enable an independent auditor to certify today with acceptable precision that Chase & Sanborn occupied a net creditor situation on the date of bankruptcy with respect to any individual affiliate, including Duque.
The foregoing conduct on Duque’s part was inequitable and resulted in an injury to the creditors of Chase & Sanborn because it impeded, if not prevented, the establishment of claims against the individual affiliates. For the same reason, Duque’s misconduct conferred an unfair advantage on Duque by impeding or preventing the plaintiff from defeating the claims of Duque and Colombian Coffee under the provisions of § 502(d). It would be completely inequitable to permit Duque to benefit at the expense of the unaffiliated creditors of Chase & Sanborn from the consequences of his own inequitable conduct. I agree with the plaintiff, therefore, that the claim for Duque must be subordinated to the claims of all unaffiliated creditors. This conclusion is not inconsistent with any provision of the Act.
The defense offered by Murphy as the trustee for Duque’s estate, that no inequitable conduct is charged against Murphy, is unpersuasive. Murphy’s claim as trustee for Duque’s estate cannot exceed Du-que’s claim and is subject to every infirmity of that claim. Plaintiff is not required to prove misconduct on the part of Murphy.
THE CLAIM FOR COLOMBIAN COFFEE
By definition, Colombian Coffee was an “affiliate” of Chase & Sanborn. § 101(2)(B). By definition, therefore, Colombian Coffee was also an “insider” of Chase & Sanborn. § 101(28)(E). Colombian Coffee, therefore, also dealt with Chase & Sanborn as a fiduciary. The facts which establish this relationship between the parties, unlike other facts pertinent to this case, are without significant dispute.
It is clear that the claims of fiduciaries:
“are subjected to rigorous scrutiny and where any of their contracts or engagements is challenged the burden is on [the fiduciary] not only to prove the good *455faith of the transaction but also to show its inherent fairness from the viewpoint of the corporation and those interested therein.” Pepper v. Litton, 308 U.S. 295, 306, 60 S.Ct. 238, 245, 84 L.Ed. 281 (1939).
The facts related in the foregoing discussion of the Duque claim provide at least a sufficient basis to overcome the prima facie validity of Colombian Coffee’s $150 million claim against Chase & Sanborn and, therefore, shift to Colombian Coffee the burden of proving its inherent fairness. Colombian Coffee has been unable to carry that burden. It cannot disassociate itself from the consequences of the misconduct of Du-que, its principal.
For the foregoing reason, therefore, each statement made above in connection with the analysis of the Duque claim is equally applicable to the Colombian Coffee claim. I agree with the plaintiff, therefore, that the Colombian Coffee claim against the Chase & Sanborn assets must be subordinated to the claims of the unaffiliated creditors of Chase & Sanborn.
As is required by B.R. 9021(a), a separate judgment will be entered in each of these adversary proceedings in favor of the plaintiff and subordinating the respective claims under § 510(c)(1). Costs may be taxed on motion. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8490159/ | MEMORANDUM OF DECISION
LAWRENCE OLLASON, Bankruptcy Judge.
This matter came to be heard on a motion filed by the plaintiffs, Paul and Leanna Johnson, for a court order requiring the Debtors and defendants in this matter, Marian and Christine Kaczmarczyk, to abandon real property. In response, the Debtors filed a motion requesting that the court deny the plaintiffs’ motion.
From the records in this case, representations of counsel and concessions made in the Memoranda of Law filed, the facts are as follows:
FACTS
The Debtors, as purchasers, executed a Promissory Note for the sale of real property herein with the plaintiffs on April 2, 1979. A Deed of Trust was recorded on the property in question with the plaintiffs as the beneficiaries. The Debtors ceased making payments on the note in December of 1984. Pursuant to the Deed of Trust and state law, the plaintiffs and the account servicing agent, Pioneer Trust, mailed a Notice of Election to Forfeit to the Debtors on or about March 21, 1985. This notice set the forfeiture date for April 10, 1985 at 5:00 P.M. The Debtors filed their Chapter 11 petition on April 11, 1985.
The record before the court indicates that the Notice of Election to Forfeit was recorded in the Maricopa County records on March 21, 1985. However, plaintiffs admit in their moving papers that the Affidavit of Completion of Forfeiture was not recorded before the Debtors filed their bankruptcy petition and has not been recorded to date. The record further indicates that the property in question is income producing property in the form of an apartment complex.
In support of their motion to abandon, plaintiffs argue that the Debtors’ failure to reinstate the contract before the forfeiture date, April 10, 1985, resulted in the Debtors’ loss of any legal or equitable interest in the property. The Debtors argue that the failure of the plaintiffs to file the Affidavit of Completion of Forfeiture resulted in the real property in question becoming property of the bankruptcy estate at the time the petition was filed pursuant to 11 U.S.C. 541(a)(1).
ANALYSIS
The question presented for decision is whether the filing of the bankruptcy petition before the Affidavit of Completion of Forfeiture has been recorded results in the real property becoming property of the bankruptcy estate.
In 1981, the Arizona legislature revised its statutes concerning the forfeiture and reinstatement of the purchaser’s interest under a real estate purchase contract. The former forfeiture and redemption statutes did not provide for a notice of forfeiture date after a grace period or for an affidavit of completion of forfeiture to be filed signifying that the forfeiture process has been completed. Former statutes A.R.S. 33-741 and 742 (1956) (Amended in 1981) simply provided that the purchaser loses his interest in the property at the end of the grace *487period provided for in A.R.S. 33-741 (1956) (Amended in 1981).1
The Arizona statutes now provide for a three step process in the non-judicial forfeiture of a purchaser’s interest in a real estate purchase agreement. A.R.S. 33-742 (1981) contains the first step and reads in part under subsection A that:
“If a purchaser is in default by failing to pay monies due under the contract, a seller may, after expiration of the applicable period stated in subsection D of this section and after serving the notice of election to forfeit stated in Section 33-743, complete the forfeiture of the purchaser’s interest in the property in the manner provided by Section 33-744 or 33-745” .2
The second step is contained in A.R.S. 33-743 (1981). This statute provides that if the purchaser under the contract defaults on his payments in the manner required by A.R.S. 33-742(D) (1981), the seller and the account servicing agent may record a Notice of Election to Forfeit and set a forfeiture date at least twenty days after the date of mailing the notice to the purchasers and any lien holders.3
A.R.S. 33-745 (1981) discusses the final step in the non-judicial forfeiture process. Subsection A provides in part that:
“If an account servicing agent has been appointed to hold documents and collect monies due under the contract and the agent has recorded and served the notice of election to forfeit, as provided in Sec*488tion 33-743, the seller and account servicing agent may complete the forfeiture of the interest of the purchaser and persons having an interest in or a lien or encumbrance on the property, the priority of which is subordinate to that of the seller, by recordation of an affidavit of completion of forfeiture with the county recorder in which the real property is located”.
Subsection B of A.R.S. 33-745 (1981) states that the recordation of an affidavit of completion of forfeiture terminates all the purchaser’s rights in the property and serves as conclusive evidence that all the statutory requirements regarding forfeiture have been met.4
The case law in Arizona is based on the former forfeiture statutes. These cases must therefore be distinguished from the present statutes.
The Arizona Supreme Court in Trevillian v. Lee, 111 Ariz. 229, 231, 527 P.2d 100, 102 (1974) stated that “the manner in which the sellers could enforce a forfeiture was governed by the terms of the contract and the statutory provisions”. In that case the buyer had 30 days pursuant to A.R.S. 33-741(A)(1) (1956) (Amended in 1981) after she had defaulted to bring her payments up to date otherwise forfeiture of her interest could be enforced. The seller completed the requirements for forfeiture under the contract and the court held that the forfeiture was complete even though the buyer had not recorded or delivered the quit claim deed deposited with the escrow agent.
The bankruptcy court in this district also had occasion to consider the former forfeiture statutes in Arizona. In re Simpson, 7 B.R. 41 (Bkrtcy.D.Ariz.1980). In Simpson the buyer defaulted on his payments and the seller first had to reinstate the “time is made the essence” clause in the contract. After the clause was reinstated, the 30 day grace period pursuant to A.R.S. 33-741(A)(1) (1956) (Amended in 1981) was commenced. The buyer failed to reinstate the contract during the grace period and the seller initiated the forfeiture procedures provided for in the contract. It is important to note that under this statute the buyer’s interest would be forfeited at the end of the grace period if there were no additional steps required for forfeiture in the contract. Trevillion v. Lee, supra.
The contract required that the seller send a declaration of forfeiture to the buyer which gave the buyer 10 days to pay all sums due under the contract. If the buyer fails to meet this requirement, the escrow agent may then file the affidavit of completion of forfeiture. In the Simpson case the seller sent the declaration of forfeiture notice to the buyer and the buyer failed to tender any sums due prior to the 10 day expiration period. However, before the escrow agent could file the affidavit of completion of forfeiture, the debtor filed his petition for bankruptcy. The debtor argued that he still held an interest in the property which transferred into the bankruptcy estate at the time the petition was filed. The bankruptcy court found that “the failure to record the Declaration of the Affidavit of Termination of Forfeiture before the filing of the petition in bankruptcy does not affect the validity of the forfeiture of the plaintiff’s interest”. In re Simpson, supra, at pg. 44.
Although the case at bar is similar to Simpson, the statutes regarding the forfei*489ture of a purchaser’s interest have since been revised. As stated before, the statutes now provide a complete step by step process in achieving a forfeiture of an interest upon default. The first step is the commencing of the grace period upon the purchaser’s default. A.R.S. 33-742 (1981). If the purchaser makes no payment during the grace period, then the seller may record a notice of election to forfeit and serve the purchaser with this document. A.R.S. 33-743 (1981). The third and final step is contained in A.R.S. 33-745(A) (1981) and provides that the
“seller and account servicing agent may complete the forfeiture of the interest ... by recordation of an affidavit of completion of forfeiture...” (emphasis added).
A reading of these state statutes leaves the court with the distinct impression that the Arizona legislature intended the purchaser to have an interest in the property until the affidavit of completion of forfeiture is recorded.
In the instant case, the purchase agreement provided that upon default, the forfeiture of interest would be in the manner required under state law. The plaintiffs properly recorded and served the notice of election to forfeit on the debtors after the grace period for reinstatement had expired. The notice set the forfeiture date on April 10, 1985 and the debtors failed to reinstate the contract before that date. However, the plaintiffs never completed the final step in the forfeiture process as required by A.R.S. 33-745 (1981). The debtors filed their bankruptcy petition on April 11, 1985.
This court holds that pursuant to Arizona law the debtors had an interest in the property which became property of the bankruptcy estate pursuant to 11 U.S.C. 541(a)(1). For the reasons cited above, the plaintiff’s motion to abandon is hereby denied.
This Memorandum of Decision constitutes the Findings of Fact and Conclusions of Law required by Bankruptcy Rule 7052.
. A.R.S. 33-741 (1956) (Amended in 1981) provided that:
A. Forfeiture of the interest of a purchaser in default under a contract for conveyance of real property may be enforced only after expiration of the following periods after the default:
1. When the purchaser has paid less than twenty percent of the purchase price, thirty days.
2. When the purchaser has paid twenty percent, or more, but less than thirty percent of the purchase price, sixty days.
3. When the purchaser has paid thirty percent, or more, but less than fifty percent of the purchase price, one hundred and twenty days.
4. When the purchaser has paid fifty percent, or more, of the purchase price, nine months.
A.R.S. 33-742 (1956) (Amended in 1981) provided that:
A. A purchaser in default under a contract for the conveyance of real property may, at any time prior to expiration of the period, provided for in Section 33-741, avoid the forfeiture of his interest by complying with the terms of the contract up to the date of compliance.
B. A trustee with power of sale in a contract or trust for the conveyance of land, not executed to secure repayment of a loan of money, may sell and convey, without right of redemption, the property or any part thereof, described in the contract and in accordance with its terms at any time after default and after the period of time applying thereto as provided by Section 33-741.
As amended Laws 1971, Ch. 136, Sec. 6.
. A.R.S. 33-742(A) (1981) provides:
A. If a purchaser is in default by failing to pay monies due under the contract, a seller may, after expiration of the applicable period stated in subsection D of this section and after serving the notice of election to forfeit stated in Section 33-743, complete the forfeiture of the purchaser’s interest in the property in the manner provided by Section 33-744 or 33-745. If the contract provides that the seller may elect to accelerate the principal balance due under the contract to the seller on the purchaser’s failure to pay the monies due, the seller may accelerate the principal balance due to the seller at any time after the purchaser has failed to pay the monies due under the contract. The acceleration may occur before or after the expiration of the applicable period stated in subsection D of this section and without serving the notice of election to forfeit stated in Section 33-743. If the seller elects to accelerate the principal balance due to the seller, the seller may only foreclose the contract as a mortgage in the manner provided by Section 33-748. If a purchaser is in default under the contract for reasons other than failing to pay monies due under the contract, the seller may only foreclose the contract as a mortgage in the manner provided by Section 33-748.
.A.R.S. 33-742(D) (1981) provides:
D. Forfeiture of the interest of a purchaser in the property for failure to pay monies due under the contract may be enforced only after the date such monies were due:
1. If there has been paid less than twenty percent of the purchase price, thirty days.
2. If there has been paid twenty percent, or more, but less than thirty percent of the purchase price, sixty days.
3. If there has been paid thirty percent, or more, but less than fifty percent of the purchase price, one hundred and twenty days.
4. If there has been paid fifty percent, or more, of the purchase price, nine months.
. A.R.S. 33-745(B) (1981) provides:
B. Recordation of an affidavit of completion of forfeiture terminates without right of redemption all right, title and interest of the purchaser and all persons having an interest in or a lien or encumbrance on the property, the priority of which is subordinate to that of the seller, including the interest of any persons acquiring an interest in or a lien or encumbrance on the property subsequent to recordation of the notice of election to forfeit. On recordation of the affidavit, the property reverts to the seller clear of all interests, liens and encumbrances, the priority of which was subordinate to that of the seller. The recordation of the affidavit of completion of forfeiture also raises the presumption of compliance with all requirements of this article and constitutes conclusive evidence of the meeting of the requirements in favor of purchasers or encumbrancers for value and without actual notice. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8490161/ | MEMORANDUM DECISION
THOMAS C. BRITTON, Bankruptcy Judge.
The liquidating trustee under a confirmed chapter 11 plan has sued to avoid and recover an alleged preference of $2 million. He has also, in counts 2, 3 and 4, alleged that three other related debtors have no interest in the preference he seeks to recover. One of these three, Domino Investments, Ltd. (count 3) concedes it has no interest. The other two are represented *542by creditor spokesmen who assert a claim to the money sought by the plaintiff.
One of these other two related debtors, Colombian Coffee Co., through its special counsel has asserted an amended cross-claim (C.P. No. 23) in the amount of $2 million against Nabisco alleging both actual and constructive fraud under 11 U.S.C. § 548(a)(1) and (2).
At trial all parties agreed that resolution by this court of Colombian Coffee’s affirmative defenses and its cross-claim against Nabisco would dispose of all remaining issues which have been tentatively adjusted between all other parties. On this premise, the Colombian Coffee issues were tried on November 21.
The affirmative defenses are that the plaintiff is without legal capacity or authority to maintain an action to recover a preference under § 547 and that no stay relief has been granted by this court under § 362(d) for him to seek relief from the co-debtor, Colombian Coffee.
The first contention has been rejected in a previous decision by this court with which all counsel are familiar. No purpose would be served by repeating that discussion here.
The second contention is equally without merit. The confirmation of the Chase & Sanborn liquidation plan, including the specific creation of a liquidating trustee to pursue preference and fraud claims against co-debtors represented by a single law firm and dominated by a single individual, constitutes good cause, as I see it, for stay relief to permit that trustee to initiate that litigation and pursue it in this court.
I believe that Colombian Coffee abandoned its actual fraud allegations under § 548(a)(1). If not, I find that there is no showing of actual fraudulent intent on the part of either Chase & Sanborn or Nabisco.
Colombian Coffee’s claim to the $2 million in question here rests upon the following uncontroverted facts:
1. On March 23,1985 a third party bank issued a letter of credit in the amount of $2,090,000 on behalf of Chase & Sanborn.
2. On the next day it was presented to Banque Worms (which held the Colombian Coffee account) under direction that and with the understanding that $2 million would be immediately credited to the account of Chase & Sanborn (also in Banque Worms) and would then be immediately wired to a third bank for the account of Nabisco in payment of an outstanding account.
The three banks are all in New York. The funds went by wire from the first bank to the second and then to the third on the same day. The $2 million was in Colombian Coffee’s account and possession only instantaneously. It was neither intended nor understood to ever have been for the benefit of Colombian Coffee.
It is Colombian Coffee’s threshold burden under § 548(a) to prove that the $2 million was “an interest of the debtor [Colombian Coffee] in property.” The inference of title and ownership which arose from the fact that the money was in its account, however fleetingly, has been shattered by the undisputed circumstances present here. With the exception of the $90,000, all of the letter of credit was never intended for Colombian Coffee and the latter’s account was merely a conduit for transmittal of the $2 million to Nabisco. The testimony and documentary evidence is so clear it need not be repeated here.
Section 548(a) is a statutory elaboration of a classic equitable remedy designed to. assure that the remaining assets of an insolvent debtor be available to those in good conscience most entitled to these assets. It should not be construed to defeat that purpose. I agree with all the parties, except Colombian Coffee, that the $2 million never constituted “an interest of the debtor” and, therefore, could not have been the subject matter of a fraudulent transfer from Colombian Coffee’s estate. Cf. Sun Railings, Inc. v. Silverman (In re Sun Railings), 5 B.R. 538, 539 (Bankr.S.D.Fla.1980). I do not consider the facts of Jones v. *543J.E.G. Enterprises, Inc. (In re Greenbrook Carpet Co., Inc.), 22 B.R. 86 (Bankr.N.D.Ga.1982) and LaRose v. Bourg Insurance Agency (In re Dick Henley, Inc.), 45 B.R. 693 (Bankr.M.D.La.1985) relied upon by Colombian Coffee, to be sufficiently analogous to the facts here to suggest a contrary conclusion.
It is not necessary, therefore, to reach the remaining elements of a constructive fraudulent transfer.
The plaintiff is directed to submit a judgment in accordance herewith, and incorporating the agreed resolution of all other issues presented by this adversary proceeding. The judgment may include entry of relief by default under count 3 against Domino Investments. Costs may be taxed on motion. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8490162/ | FINDINGS OF FACT AND CONCLUSIONS OF LAW RE SEC’S SUMMARY JUDGMENT MOTION AND CO-TRUSTEES’ MOTION THAT FUNDS HELD BY CO-TRUSTEES ARE PROPERTY OF THE DEBTORS’ ESTATE
Hearing
RALPH G. PAGTER, Bankruptcy Judge.
On September 9, 1985 the Securities and Exchange Commission’s (“Commission”) “Motion for Summary Judgment” (“Summary Judgment Motion”) in the above-captioned adversary proceedings and the “Co-Trustees’ Motion for Order Determining That Funds Held By The Co-Trustees Are Property Of The Debtors’ Estate” (“Co-Trustees’ Motion”) came on for hearing before the undersigned United States Bankruptcy Judge in the above-captioned Court. Theodore B. Stolman and Michael H. Goldstein appeared on behalf of the Co-Trustees; James A. Shalvoy appeared on behalf of the Commission; and Bruce Emard appeared on behalf of the Creditors’ Committee.
Having considered the pleadings and accompanying declarations filed, the arguments and representations of counsel, all pleadings and documents in this bankruptcy case and these adversary proceedings, and this Court’s “Memorandum Opinion Granting Co-Trustees’ Motion for Order Determining Nature of Funds, Denying The Motion Of The SEC For Summary Judgment and Granting Summary Judgment To The Co-Defendant Trustees,” the Court herein sets forth its “Findings of Fact and Conclusions of Law Re SEC’s Summary Judgment Motion and Co-Trustees’ Motion That Funds Held by Co-Trustees are Property of Debtors’ Estate.” The Court’s Findings of Fact and Conclusions of Law herein apply to the Commission’s Summary Judgment Motion and the Co-Trustees’ Motion.
FINDINGS OF FACT
1. This Court has jurisdiction over these adversary proceedings pursuant to 28 U.S.C. § 1471; Section 404 of Public Law 95-598; Local Rules governing Bankruptcy proceedings of the United States District Court, Central District of California, dated December 27, 1982; 11 U.S.C. § 541(d); 11 U.S.C. § 105; 11 U.S.C. § 103(a); and Bankruptcy Rule 7001.
2. Plaintiff Commission is a governmental agency of the United States expressly charged, inter alia, with enforcement of the provisions of the Securities Act of 1933, the Securities Exchange Act of 1934, and the Investment Company Act of 1940 and is vested with the power to bring civil actions in any district court of the United States to enjoin violations thereof and make requests for and prosecute ancillary relief for the benefit .of public investors in such actions.
3. On November 25, 1983, the Commission filed a Complaint for Injunction and Other Equitable Relief in the United States District Court for the Central District of California against Thomas D. Carter (“Carter”), individually and doing business as “The Carter Company” (“Carter Company”), and Tom Carter Enterprises, Inc. (“Tom Carter Enterprises”), among others (collectively “Carter entities”).
4. The Commission’s Complaint alleged violations by the Carter entities of the anti-fraud and registration provisions of the federal securities laws.
5. Based on evidence submitted by the Commission, the district court granted a temporary restraining order and froze all of the assets of the defendants, including $4,664,413.65 contained in various Carter controlled bank accounts.
6. Shortly thereafter, the Carter entities filed in this Court .voluntary petitions *545for reorganization under Chapter 11 of the Bankruptcy Code (“Code”).
7. Each of the debtors consented to the appointment of defendants Curtis B. Canning (“Danning”) and James J. Joseph (“Joseph”) as Co-Trustees.
8. The trustees demanded that the Commission turn over to them the $4,664,-413.65, asserting that it constituted property of the debtors’ estates.
9. The Commission took the position that the funds belonged to defrauded public investors in the fictitious Carter medical factoring business and should be the subject of a constructive trust in their favor.
10. The Commission entered into a stipulation with the trustees which conditionally released to the trustees the $4,664,-413.65.
11. The stipulation was ordered implemented by the district court on March 12, 1984.
12. Pursuant to the terms of the stipulation, the trustees took possession of the funds without prejudice to the rights of any person to impose a constructive trust on all or some of the $4,664,413.65.
13. The trustees agreed to segregate the money, to direct their accountants to prepare an analysis tracing the source of the funds within 90 days of the district court’s order, and to petition this Court for instructions regarding distribution of the funds.
14. At the request of the trustees, the time in which to complete the analysis was extended to August 15, 1984.
15. The trustees request for an additional two-month extension in which to complete the analysis was not agreed to by the Commission.
16. By letter dated October 23, 1984, Joseph forwarded to the Commission the accountant’s analysis of the bank accounts.
17. The accountants’ analysis has been filed with this Court and is attached as Exhibit 3 to the Commission’s Summary Judgment Motion.
18. The trustees filed their Motion for Order Determining That Funds Held by Co-Trustees Are Property of the Debtors’ Estate” on or about August 9, 1985.
19. Notice of the Co-Trustees’ Motion was given to all creditors of the debtors herein.
20. Tom Carter Enterprises was incorporated in the State of California in 1981 and was located at the same address as the Carter Company.
21. Carter was president and a shareholder of Tom Carter Enterprises.
22. Concept 80 is an entity with offices located in Anaheim, California.
23. Funds in five separate accounts, to-talling $4,664,413.65, were transferred to defendants pursuant to the stipulation entered into between defendants and plaintiff.
24. All monies taken in by the Carter entities were deposited into account 117, the “master account.”
25. Payments from account 117 were made exclusively to account 118, the “disbursing account.”
26. Payments from account 118 were made variously to investors, Carter controlled entities, account 115 (Tom Carter Enterprises general purpose account), and account 116 (Tom Carter Enterprises payroll account).
27. Although the $4,664,413.65 represents money received from investors, no individual investor’s money can be specifically traced to the $4,664,413.65 except for the approximate $64,000 which was on hand in account 117 at the time Carter’s bank accounts were frozen.
28. The Carter Company books and records contained no payments, receipts, or billings whatsoever from or to any doctor, medical group, or insurance company which indicated the existence of any medical factoring business.
29. There were no corporate ledgers contained in the Carter entities’ business records.
*54630. Carter Company maintained no books that are normally used by a business.
31. The only documents in Carter Company’s books and records relating to a medical factoring business were medical factoring agreements between investors and Carter Company.
32. There was no correspondence between any of the Carter entities and any insurance companies with respect to medical factoring agreements.
33. There was no documentation or correspondence between the Carter entities and any doctors regarding any medical factoring.
34. There were no disbursements from any of the Carter bank accounts to any medical factoring business or any health insurance corporation. ■
35. There was no documentation at all regarding any business activities by the Carter entities.
36. Any Finding of Fact which should be deemed a Conclusion of Law is hereby adopted as such.
CONCLUSIONS OF LAW
1. Hearsay and speculative testimony do not constitute evidence upon which a motion for summary judgment may be granted, particularly where all factual ambiguities must be decided in favor of the responding party. Arney v. United States, 479 F.2d 653, 659 (9th Cir.1973). A substantial number of the documents submitted in support of the motion of the Commission for summary judgment constituted hearsay and other speculative testimony.
2. The existence of disputed genuine issues of material fact precludes granting summary judgment in favor of the Commission. In re Airport Car Rental AntiTrust Litigation, 766 F.2d 1292 (9th Cir.1985); Cardwell v. Kurtz, 765 F.2d 776 (9th Cir.1985); Daily Herald Co. v. Munro, 747 F.2d 1251, 1255 (9th Cir.1984); Jewel Companies v. Payless Drug Stores Northwest, 741 F.2d 1555, 1559 (9th Cir.1984); Fed.R.Civ.P. 56(c).
3. There exist genuine issues of dispute as to the following:
A. What representations were made to each investor creditor respecting a medical factoring business being carried on by Carter.
B. Whether the representations that were made to each investor creditor respecting Carter’s medical factoring business were false.
C. Whether the representations that were made to each investor creditor respecting Carter’s medical factoring business were made by Carter or other third parties.
D. Whether Carter had knowledge that any false representations were made to investor creditors respecting his medical factoring business and whether Carter intended investors to rely on such false representations.
E. Whether each investor creditor relied on false representations made by Carter respecting his medical factoring business.
F. Whether each investor creditor justifiably relied on false representations made by Carter respecting his medical factoring business.
G. Whether each investor creditor was damaged by his justifiable reliance on false representations made by Carter respecting his medical factoring business.
H. Whether the investment instruments which were issued to investors are securities within the meaning of Bankruptcy Code § 101(40).
I. Whether the Commission’s action to impose a constructive trust on the funds is a claim arising out of the rescission of the purchase or sale of a security within the meaning of Bankruptcy Code § 510(b).
J. Whether any investor creditors are parties to agreements with Carter or third parties which are in violation of California’s usury laws.
*547K. Whether any investor creditors have already received payments from Carter that exceed their initial investment.
L. Whether the investor creditors have unclean hands such that they are not entitled to the equitable remedy of a constructive trust.
M. Whether the imposition of a constructive trust would be inequitable to the investor creditors on whose behalf the constructive trust would be imposed as well as other creditors.
N. Whether there would be any dilution of the bankruptcy dividend to investor creditors if the funds were included within the property of the debtors’ estates.
O. Whether investor creditors who liquidated their accounts prior to the commencement of the debtors’ bankruptcy would receive a windfall from a determination that the funds are not property of the estate.
4. Under federal bankruptcy law all creditors of the debtors are to be treated equally. Cunningham v. Brown, 265 U.S. 1, 13, 44 S.Ct. 424, 427, 68 L.Ed. 873 (1924); In re North American Coin & Currency Ltd., 767 F.2d 1573, 1577-1578 (9th Cir.1985).
5. The claims of the investor creditors cannot be elevated above those of other general creditors by the imposition of a constructive trust. 11 U.S.C. § 510(b); In re Flight Transp. Corp. Securities Litigation, 730 F.2d 1128, 1137 (8th Cir.1984).
6. Imposition of a constructive trust in bankruptcy must be consistent with bankruptcy policy of treating general creditors equally. In re North American Coin & Currency Ltd., 767 F.2d 1573, 1575, 1577-1578 (9th Cir.1985).
7. The Commission has not met its burden of tracing any individual investor’s money to the funds held by the Co-Trustees. The inability to trace an individual investor’s investment to the fund held by the Co-Trustees prohibits imposition of a constructive trust. In re Kennedy & Cohen, Inc., 612 F.2d 963, 966, cert. denied, 449 U.S. 833, 101 S.Ct. 103, 66 L.Ed.2d 38 (1980); In re First Fidelity Financial Services, Inc., 36 B.R. 508, 514 (Bankr.S.D.Fla.1983); First National Bank of Louisville v. Hurricane Elkhorn Coal Corp., 19 B.R. 609, 613 (Bankr.W.D.Ky.1982).
8. A constructive trust cognizable under state law will not automatically be recognized under federal bankruptcy law where the effect would violate the spirit and intent of the Bankruptcy Code to treat creditors equally. In re North American Coin & Currency Ltd., 767 F.2d 1573, 1575, 1577-1578 (9th Cir.1985). Thus, even if the Commission could satisfy the elements to establish a constructive trust under state law, imposition of a constructive trust herein would violate the policy of the Bankruptcy Code.
9. As there are genuine issues of fact in dispute, no investor’s money can be traced to the funds held by the Co-Trustees and imposition of a constructive trust would defeat the purposes of the Bankruptcy Code, the Commission’s Motion for Summary Judgment is denied.
10. “[I]f one party moves for summary judgment and, at the hearing, it is made to appear from all the records, files, affidavits and documents presented that there is no genuine dispute respecting a material fact essential to the proof of movant’s case and that the case cannot be proved if a trial should be held, the court may sua spante grant summary judgment to the non-moving party.” Cool Fuel, Inc. v. Connett, 685 F.2d 309, 311 (9th Cir.1982). As the Commission cannot prevail at trial, summary judgment is granted in favor of the Co-Trustees.
11. As the policies of the Bankruptcy Code would best be served by including the funds held by the Co-Trustees within the estate of the debtors herein, the Co-Trustees’ Motion For Order Determining That Funds Held by Co-Trustees Are Property of the Debtors’ Estate is granted in its entirety.
*54812. Notice given of the Co-Trustees’ Motion was appropriate and adequate given the particular circumstances.
13. Any Conclusion of Law hereinabove recited which should be deemed a Finding of Fact and is found to be true in all respects is hereby adopted as such. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8490163/ | ORDER ON MOTION FOR PRELIMINARY AND MANDATORY INJUNCTIVE RELIEF
ALEXANDER L. PASKAY, Chief Judge.
THIS IS a Chapter 11 case and the matter under consideration is a Motion for Preliminary Injunction, filed by Joseph Gassen, trustee of the estate of Berkley Multi-Units, Inc. (Berkley), the debtor currently involved in this Chapter 11 reorganization case. The precise matter presented for this Court’s consideration is in the context of an adversary proceeding commenced by the trustee, who named Universal Building Materials, Inc. (UBM) as Defendant. The Complaint filed by the trustee seeks to avoid an unperfected mortgage lien of the Defendant, UBM, pursuant to § 544 of the Bankruptcy Code.
The trustee’s challenge of the validity of the mortgage lien is directed to a mortgage lien encumbering certain real property, an Adult Congregate Living Facility located at Sea Bonae Oceanfront Inn, 2000 North Atlantic Blvd., Ft. Lauderdale, Florida. At the duly scheduled hearing, the Court heard argument of counsel for the respective parties and considered the record and, although no evidence was presented, the following undisputed facts appear from the record.
Sometime prior to January, 1985 Berkley entered into a negotiation for the purpose of acquiring the facility known as Sea Bo-nae Apartments. It further appears that on January 20, 1985 Berkley executed a mortgage deed in favor of UBM in the amount of $1,300,000.00 which was secured by the real property involved in this controversy. It further appears that on February 18, 1985 Berkley executed a new note in favor of UBM and the transaction was closed. Berkley filed its voluntary petition for relief under Chapter 11 on February 25, 1985. There is no question and it is without dispute that the mortgage notes were not recorded in the public records of Bro-ward County until March 29, 1985, or thirty-nine days after closing and thirty-two days after the commencement of the case.
It further appears that UBM filed a motion and sought relief from the automatic stay in order to enforce its mortgage lien against the subject property, which mortgage, at that point, was already in default. It is without dispute that the trustee con*586sented to lifting the automatic stay and, as a matter of fact, permitted UBM to take possession of the facility and maintain it and run it pending the foreclosure action, simply because the trustee did not have the funds needed to upkeep and maintain the property. It is without dispute, although it is not specified, that while UBM was, and, in fact, still is in possession of the subject property, UBM had to spend substantial sums of money to maintain and keep up the facility.
It appears that in the pending foreclosure action a hearing was scheduled to consider UBM’s Motion for Summary Judgment for November 26, 1985. In order to prevent the loss of the property, the trustee filed the Motion under consideration, seeking injunctive relief and a Complaint in which it seeks to invalidate the mortgage lien of UBM, pursuant to § 544 of the Bankruptcy Code. The claim of the trustee is based on the contention that inasmuch as the mortgage lien of UBM was not perfected on the date of the commencement of the case, the mortgage lien is unenforceable against the estate and UBM is nothing but just a general, unsecured creditor of Berk-ley. This is so, according to the trustee, because by virtue of the ideal judgment lien creditor status granted to the trustee by § 544(a)(1) and the status of a bona fide purchase for value granted to the trustee by § 544(a)(3), unperfected liens against properties of the estate are defeasible by the trustee.
The immediate relief sought is an injunction which, of course, requires a showing by the trustee that (1) he has a substantial likelihood of success on the merits; (2) he would suffer irreparable injury if the injunction is not granted; (3) the threatened injury to the Plaintiff outweighs the harm of an injunction to the Defendant; and (4) a preliminary injunction would not disserve the public interest. Camenisch v. University of Texas, 616 F.2d 127 (5th Cir.1980). See also Virginia Petroleum Jobbers Association v. Federal Power Commission, 259 F.2d 921, 925 (D.C.Cir.1958); Belcher v. Birmingham Trust National Bank, 395 F.2d 685, 686 (5th Cir.1968).
In opposition to the relief sought by the Motion, UBM takes the position, first, that the trustee’s chances to succeed ultimately on the merits are nil simply because, as a matter of law, the trustee cannot avail himself to the voiding power granted by § 544. This contention is based on the claim of UBM that on the date of the commencement of this case, the subject property was not owned by Berkley and in order to be a judgment lien creditor under this section, the property on which the lien is sought to be avoided must have been owned by the debtor. In addition, UBM claims that neither does the contention that the trustee occupies the position of a bona fide purchaser for value of real estate provided for by § 544(a)(3) apply because the property was not owned by Berkley on the date of commencement of the case and if there was a purchase, it had to be a purchase of real property from the Debtor in order to utilize the status of a bona fide purchaser. In re Minton Group, Inc., 27 B.R. 385 (Bankr.S.D.N.Y.1983), aff'd Turner v. Lee (In the matter of Minton Group, Inc.), 46 B.R. 222 (Bkrtcy.S.D.N.Y.1985).
Next, it is the contention of UBM, based on the foregoing, that this purchase actually did not take place until after the Chapter 11 case was already in progress, that is, after the commencement of the case; that it was a purchase by Berkley, a Debtor-in-Possession, who was authorized to continue to operate its business and the acquisition of the subject property was an integral part of its operation which was to purchase and sell real estate, therefore, none of the provisions giving the voiding power to the trustee by § 544 would be available to the trustee, which powers deal only with pre-petition transactions.
In addition, it is the contention of UBM that because of the fraud of the agent of Berkley, UBM is entitled to impress a constructive trust on the subject property in order to correct this wrong. In this connection (although no evidence was presented), it is contended by UBM that the reason for the delay for the recordation was Berk-ley’s failure to furnish the funds necessary *587to purchase the necessary recording stamps to the title company, even though the money was given to the agent of Berk-ley, who apparently for unexplained reasons, never delivered the same to the title company and, as a result, the mortgage lien was not recorded until March 29, 1985 or substantially after the commencement of this case.
Lastly, it is the contention of UBM that in any event it would be unfair and unjust to permit the trustee now at this late stage of the game to challenge the validity of the mortgage, especially in light of the fact that the trustee consented to the lifting of the automatic stay and that in reliance on that consent, UBM commenced a foreclosure action, took possession of the property, assumed responsibility for the upkeep and maintenance of the property, and expended substantial sums of money, therefore, the trustee, on some theory, should be estopped from asserting that the mortgage lien is invalid.
Considering seriatim the various contentions advanced by UBM, it is well to state at the outset that the resolution of the merits of the first two contentions advanced by UBM would depend on a determination of the ownership of the subject property on the date of the commencement of this Chapter 11 case.
In the case of Minton, supra, the bankruptcy court held that a trustee cannot qualify as a hypothetical bona fide purchaser of real property and a trustee cannot assert the strong arm powers on behalf of an entity because the subject property at the time of the commencement of a case was not property of the debtor.
The district court, on appeal, affirmed the bankruptcy court, concluding that the property was not owned by the debtor corporation at all but was owned by the partnership of which the debtor was a general partner and, therefore, the lien could not be avoided pursuant to § 544.
The law stated in Minton Group, both by the bankruptcy court and the district court, no doubt represents a correct statement of interpretation of § 544. However, in this case Minton Group does not furnish any solace to UBM, simply because in this particular instance, it is unclear whether the ownership of the property was, in fact, transferred to UBM prior to the commencement of the case or only after the commencement of the Chapter 11 case.
The passage of title concerning real estate is governed by local law, of course, and the law is clear in the State of Florida that the delivery of a deed by the grantor and its acceptance by the grantee consummates the deed and it is effective and operative from that date on. Lance v. Smith, 123 Fla. 461, 167 So. 366 (1936). There is no question that if the deed was actually delivered to Berkley prior to the commencement of the case, Berkley became the owner of the subject property even though the deed and the mortgage note was not recorded until after the commencement of the case. On the other hand, if no delivery took place and the deed was only delivered in escrow to the title company pending some further transaction consummating the particular sale, then, of course, the property was not owned by Berkley on the date of commencement of the case and, in that situation, the holding of the Minton case would control.
It is unclear from this record when ownership was actually transferred, in spite of the language of a letter dated April 18, 1985 addressed to Mr. George Vangeloff, Department of Health and Rehabilative Services, by Charles Dale, Jr., counsel for UBM. In this letter, counsel for UBM indicated that on February 18, 1985 UBM closed on the transfer of the subject property and the building and transferred ownership to Berkley Multi-Units, Inc.
This being the case, the contention that it is unlikely that the trustee will ultimately prevail and will be able to avoid this particular transfer is without merit.
Turning to the next contention of UBM, in order to defend against the injunc-tive relief sought, one must consider whether or not this was, in fact, a post-petition transaction, that is, was it a purchase by Berkley in the ordinary course of business. It is contended by UBM that it was the business of Berkley to buy and sell real *588estate and since this transaction was not consummated fully until after the commencement of the ease, this is a post-petition acquisition by Berkley and, therefore, the transfer cannot be challenged under § 544 by the trustee since § 544 deals only with unperfected security interests, liens and transfers which occurred prior to the commencement of a case. This contention is correct but, as noted above, there is nothing in this record to indicate the precise time when this transaction was consummated, therefore, the evidence, as ultimately presented, might very well establish that this was, in fact, a post-petition transaction in which event, of course, the trustee would not be able to avoid the mortgage lien claimed by UBM.
The next contention of UBM has a great appeal to the equitable sense of this Court because it is clear and it is without dispute that the trustee did, in fact, consent to the lifting of the stay; did consent to surrender possession of the property — reliance on which UBM commenced a foreclosure action, took possession of the property, and expended substantial sums of money. Moreover, it appears, although there is no competent evidence in this record and only statement of counsel, that UBM did everything in its power to conclude- the transaction and the fault of non-recordation was the fault of the attorney for Berkley who apparently had the funds to procure the necessary documentary stamps and deliver the same to the title company but abs-counded with the funds. The fraud committed was a fraud committed by the agent of Berkley, according to UBM, and, therefore, UBM would be entitled to impress the subject property by constructive trust to the extent of the obligation represented by the mortgage note.
This argument has great appeal but shoots wide off the mark. While it is clear that UBM would be entitled to be restored to the status quo ante, i.e. to its position prior to the removal of the stay, and compensated for the expenses it incurred in reliance of the conduct of the trustee, the mortgage lien can not be resuscitated by imposition of a constructive trust and is, in fact, invalid against the trustee.
Based on the foregoing, this Court is satisfied that the trustee has met the prerequisites for injunctive relief in that the trustee has made a showing (1) that he has a substantial likelihood to succeed; (2) the estate would suffer irreparable harm if the relief is not granted; (3) the injunctive relief to the estate outweighs the harm to UBM; and (4) the injunction would not disserve the public interest.
Accordingly, it is
ORDERED, ADJUDGED AND DECREED that the Motion for Preliminary Injunction be, and the same hereby is, granted and UBM is prohibited from undertaking any further steps in the pending foreclosure action. It is further
ORDERED, ADJUDGED AND DECREED that the final evidentiary hearing on this cause is scheduled to be held on December 31, 1985 @ 2:00 p.m. at 700 Twiggs St., Courtroom No. 703, Tampa, Florida, unless the controversy is resolved by summary judgment. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8490164/ | FINDINGS OF FACT AND CONCLUSIONS OF LAW IN SUPPORT OF ORDER OF REMAND
HAROLD C. ABRAMSON, Bankruptcy Judge.
I.PROCEDURAL BACKGROUND
On 6 November 1985 the Court heard the Motion to Modify the Automatic Stay filed by Lieber Enterprises, in which Lieber sought permission of this Court to go forward with state court litigation against Debtors and other non-debtor defendants. Counsel for Debtors appeared and opposed the motion on the basis that the relief sought in the state court litigation involved, inter alia, a request for imposition of a constructive trust on certain assets claimed by the estate. Counsel argued that such issues should be determined in this forum with due regard to the rights and claims of the other creditors. The Court entered an order lifting the stay to allow the parties to litigate their respective claims in state court. On 15 November 1985 counsel for Debtors filed a Petition for Removal with this Court, seeking to remove the entire state court action, including Lieber’s claims against two non-debtors. On 25 November 1985 Lieber filed its Motion for Remand, with a brief in support, requesting that the litigants be returned to state court. On 2 December 1985, a hearing was held, at which time counsel for Debtors essentially re-urged the positions she had argued at the 6 November hearing on the motion to lift stay. After considering the arguments of both counsel, the Court ordered this proceeding remanded to the state court pursuant to 28 U.S.C. 1452(b).
II.FINDINGS OF FACT
1. When the petition under Chapter 11 was filed, Debtors were named defendants in an action pending in the 95th District Court for Dallas County, Texas. In that action, Lieber had claimed Debtors and their co-defendants owed Lieber the sum of $350,000.00. Lieber also sought to impose a constructive trust on certain assets claimed by Debtors. The co-defendants were not, and are not, debtors under Title 11.
2. At the time this action was removed, there was pending in the state court a pre-trial hearing, scheduled for 6 December 1985. A discovery schedule had previously been set by the state court. Substantial discovery had been undertaken, and the state court had familiarized itself with the legal and factual issues to be determined.
3. To permit litigation of this action in this Court will' require substantial duplication of the efforts already expended in the state court litigation by the parties and the Court, and will cause considerable delay in the resolution of the dispute. Removal will also require this Court to adjudicate a controversy between Lieber, Lauterbach, and Johnson, all of whom are non-debtors.
III.CONCLUSIONS OF LAW
1. Notwithstanding Lieber’s assertions to the contrary, this is a core proceeding involving the contingent claim of a creditor against the estate. See 28 U.S.C. 157(b)(2)(B) and (O). Moreover, the imposition of a constructive trust, though governed by state law, has frequently been found to constitute a core proceeding. See In re Richmond Children’s Center, Inc., 49 B.R. 262, 264 (S.D.N.Y.1985); In re Martin Fein & Company, Inc., 43 B.R. 623 (Bkrtcy.S.D.N.Y.1984); In re Cohn *617Brothers, Inc., 45 B.R. 723 (Bkrtcy.M.D.Penn.1985).
2. With regard to evaluation by this Court of any state court judgment imposing a constructive trust on assets of the estate, it is clear that the interests of the creditors are not a factor, as the property upon which the trust is imposed cannot be considered property of the estate. See Code Section 541(d); H.R.Rep. No. 95-595, 95th Cong. 1st Sess. (1977) 368, reprinted in 1978 U.S.Code Cong. & Admin. News 5787, 5868. The beneficiary of any such trust would be entitled “to priority in payments as to all the assets of the bankrupt, ahead of the claims of creditors who have valid security interests, ahead of the administrative costs and expenses incurred in this court and ahead of all other priority and general creditors.” In re Kennedy & Cohen, Inc., 612 F.2d 963, 965 (5th Cir.1980), cert. den. sub nom. Wisconsin v. Reese, 449 U.S. 833, 101 S.Ct. 103, 66 L.Ed.2d 38 (1980). Accord, Matter of Quality Holstein Leasing, 752 F.2d 1009, 1012 (5th Cir.1985); Georgia-Pacific Corporation v. Sigma Service Corporation, 712 F.2d 962, 968 (5th Cir.1983). It is therefore irrelevant, from the creditors’ perspective, whether the decision is made by this Court or the state court in which the action was already pending.
3. The duplication of effort by the parties and the Court required by removal, coupled with the improper exercise of jurisdiction over the non-debtor co-defendants, compel the conclusion that equity will best be served by remanding this proceeding to the state court from whence it was removed, pursuant to 28 U.S.C. § 1452(b).
4. This Court, rather than the District Court, has authority to enter a final order of remand. Debtors have removed the case pursuant to 28 U.S.C. § 1452(a), which specifies that a party may remove a claim or cause of action in most civil actions to the District Court. By virtue of the local rule promulgated by the District Courts of the Northern District of Texas, filed 8 August 1984, this case was automatically referred to this Court for disposition, consistent with the provisions of 28 U.S.C. 157. The operative effect of this removal and withdrawal is that the instant proceeding was removed to this Court. Section 1452(b) states that “[t]he court to which such claim or cause of action is removed may remand such claim or cause of action on any equitable ground” (emphasis supplied). It is noteworthy that counsel for Debtors initially removed the action to this Court, and not to the District Court; yet when the tide turns against her she suggests that the case was actually placed before the District Court, and that only the District Court has jurisdiction to remand. Such a theory is plainly inconsistent with Rule 9027(e), which provides that “a motion for remand of the removed claim ... may be filed only in the bankruptcy court. . a motion to remand shall be determined as soon as practicable (emphasis supplied).” To suggest that a motion which may only be filed in this Court is somehow beyond the jurisdiction of this Court borders on the absurd. As the Advisory Committee Note to Rule 9027 makes clear, the subsection quoted above “direct the bankruptcy court to decide remand motions as soon as practicable (emphasis supplied).” Moreover, as stated earlier, this matter is a core proceeding under Section 157(b)(2), and the Court therefore has jurisdiction to enter final orders and judgments, pursuant to Section 157(b)(1). In addition, and with respect to this motion to remand, without regard to the underlying proceeding, it is clear that “matters concerning the administration of the estate” are core proceedings. To the extent this motion to remand is such a matter, the Court has the authority to enter a final order disposing of the issues raised in the motion.
An order will be prepared remanding this case to the state court. Counsel for Lieber are admonished that the stay has been lifted only for the purpose of proceeding with the state court litigation. Although the order of remand is unconditional1, the *618automatic stay remains in place as to any assets in the actual or constructive possession of Debtors.
. Browning v. Navarro, 743 F.2d 1069, 1079 (5th Cir. 1984). | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8490165/ | MEMORANDUM OPINION
EDWARD J. RYAN, Bankruptcy Judge.
This adversary proceeding concerns a loan renewal executed on July 30, 1976, by Intercoastal Development, Inc. (“Intercoas-tal”), Coastal Plains Development Corporation (“Coastal Plains”), and Charles Ducroz in the principal amount of $234,816.25 to Delta Savings Association of Alvin, Texas. The corporate obligors on the note were closely related, family-owned entities. Du-croz was secretary to Intercoastal Development, Inc. The note was secured initially by a deed of trust lien on approximately 300 acres of real property in Brazoria County, Texas, owned by Intercoastal (“In-tercoastal property”) and approximately 732 additional acres in the same county owned by Coastal Plains (“Coastal Plains property”). Both tracts were largely undeveloped. In August 1979, the parties to the note defaulted on their payments and both tracts became subject to foreclosure. Delta gave notice of the acceleration and posted both the Intercoastal and Coastal Plains properties for foreclosure on November 6, 1979.
Prior to the foreclosure, Leland Kee, an attorney for Intercoastal and family attorney for Ducroz, contacted A.G. Crouch, II, a member of the board of directors of Delta Savings. He was also one of its attorneys. In addition to the impending foreclosure by Delta, Jon Mercer, a judgment lien creditor for $30,000, had foreclosed on the Coastal Plains property in September, 1979. Kee had advised Ducroz there were sufficient grounds under state law to set aside the Mercer foreclosure, but wanted to negotiate with Delta, instead. In consultations with Crouch and Ducroz, Kee suggested the following scenario: Delta would proceed to foreclose on the Coastal Plains property, thereby cutting off Mercer, who held a junior lien position; presuming Delta’s bid prevailed at the foreclosure sale, Ducroz would then act as broker for a resale of the Coastal Plains property on behalf of Delta; Ducroz would receive the brokerage commission and the proceeds from the resale would apply to the indebtedness to Delta, such that the Intercoastal property would become free and clear.
During the pendency of these discussions, Kee suggested to Ducroz that he contact the law firm of Sheinfeld, Maley and Kay (“Sheinfeld”), primarily a specialist in bankruptcy. Ducroz had had previous dealings with the firm through an earlier personal bankruptcy he had filed. Both Kee and Ducroz had discussions with Arthur Moller, of counsel to Sheinfeld, and later with Tom Henderson, an associate with the firm. On November 2, 1979, She-infeld filed a Chapter 11 petition on behalf of Intercoastal Development, Inc.
On November 6, Delta foreclosed on its deed of trust lien, covering both the Inter-coastal and Coastal Plains properties. Delta made the single bid at the foreclosure sale for $110,000. Upon learning of the foreclosure, Tom Henderson called Crouch and informed him he could be “thrown in jail” for violation of the automatic stay as to Intercoastal. Crouch, after verifying this information, executed a reformation deed that would set aside the foreclosure as to the Intercoastal acreage. Some twenty-two months later, in November, 1981, Delta resold the Coastal Plains property for $297,000. In Delta’s view, the lien against the Intercoastal property is still outstanding.
On the basis of these facts, plaintiff, Intercoastal makes two primary arguments: that negotiations between Delta and Intercoastal principals amounted to a quasi-contract inferrable from the facts, and that Intercoastal, as a matter of equity, should receive a credit for the profit *644Delta made on the resale of the Coastal Plains property. In support of its first argument, Intercoastal notes various elements of detrimental reliance: Coastal Plains’ failure to contest the Mercer action in state court or to file bankruptcy itself in order to prevent Delta’s foreclosure of the Coastal Plains property. The absence of a written agreement and Intereoastal’s Chapter 11 filing were merely to avoid problems for Delta with bank regulators who would otherwise require appraisals. In all their dealings with Delta, Kee and Henderson felt Crouch had sufficient authority and ownership interest to bind Delta in any undertaking.
The defendant suggests a different reading of the evidence. Delta points to the testimony of one of the negotiators, Kee, that Intercoastal’s filing was a precaution to assure that Delta would live up to its end of the bargain. The filing was rather a defensive reaction, hardly suggesting a firm agreement. Likewise, Henderson’s submission of a brokerage agreement, some ten months after the foreclosure and containing stipulations on the division of proceeds from the sale of the Coastal Plains property, was merely an attempt to reduce to writing various negotiations. Delta’s lack of response to this writing precluded any enforceable agreement. Above all, Crouch insists he was only acting in a representative capacity for Delta Savings. Despite his personal and family ownership of the association, he insists he never gave the impression he could unilaterally bind Delta to a contract and first would have had to secure approval of its board.
The evidence plainly indicates these were negotiations, not final, enforceable agreements. The timing of the bankruptcy filing, the tone of the subsequent phone conversation between Henderson and Crouch, the later submission of a written brokerage agreement, and various other factors indicate no real meeting of minds had ever occurred. Delta Savings was acting unilaterally, despite continued entreaties by the debtor and its representatives.
In addition, taken as a whole, these discussions purported to be an agreement for the sale of real property. As such, they do not fulfill the general Statute of Frauds requirement of a writing in order to avoid unsettled land titles resting on parol evidence. Tex.Bus. & Com.Code Ann. 26.-01(b)(4) (Vernon 1985). This requirement is equally applicable to foreclosures. Kirkman v. Amarillo Savings Association, 483 S.W.2d 302, 307 (Tex.Civ.App.—Amarillo, 1972, writ ref’d n.r.e.). Moreover, while the facts may present colorable bad faith bargaining, they do not evince fraud or undue hardship sufficient to justify equitable intercession.
In its second argument, Intercoastal again turns to equity to avoid an alleged unjust enrichment by Delta. In Intereoas-tal’s view, Delta could recover twice: through the profit obtained by the resale of the Coastal Plains property and by pressing its claim for the unpaid balance on the note against the Intercoastal estate. To remedy this, Intercoastal would audit the profit of the resale, which it calculates as $43,000 against Delta’s claim in bankruptcy. In support of this, Intercoastal points to the equitable subordination provision of § 510(c) of the Bankruptcy Code and case authority permitting a bankruptcy court to allow or disallow claims. In re Spanish Trails, Inc., 16 B.R. 304, 307 (Bkrtcy.Ariz.1981).
Plaintiff cites no authority or illustration of the approach it is requesting, nor does any seem available. To permit such an allowance would contravene the principle that the purchaser at a trustee’s sale acquires all interest in the subject property possessed by the grantor at the time of the execution of the deed of trust, unless there is specific reservation of an interest. Puntney v. Moseley, 237 S.W. 1116, 1118 (Tex.Civ.App.—Amarillo, 1922, writ dism’d w.o.j.); 30 Tex.Jur.3d Deeds of Trust and Mortgages § 189 (1983). Here, there was no specific reservation. Delta Savings submitted the prevailing bid at the foreclosure sale and took full title. Its subsequent *645resale twenty-four months later was an entirely separate transaction.
As there was no enforceable agreement between the parties and there being no authority upon which it would be proper to credit a claim against Intercoastal for the profit from a resale of foreclosed property, the plaintiffs motions are denied.
Let judgment enter accordingly. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8490167/ | MEMORANDUM OPINION AND ORDER
RICHARD L. SPEER, Bankruptcy Judge.
This cause comes before the Court upon the Motion to Dismiss, Or In The Alternative, For a Stay of Proceeding filed by the Defendants in the above entitled Adversary action. Both the Defendants and the Plaintiff have filed their arguments respecting the merits of the Motion and have had the opportunity to respond to the arguments made by opposing counsel. The Court has reviewed those arguments as well as the entire record in this case. Based upon that review and for the following reasons the Court finds that the Motion should be DENIED.
FACTS
The facts in this case, to the extent they have been set forth in the pleadings, do not appear to be in dispute. The Plaintiff in this case is the Trustee for the liquidation of the Debtor-brokerage pursuant to the *874provisions of 15 U.S.C. Section 78aaa et seq. Immediately subsequent to the commencement of this liquidation proceeding, the Trustee received from both the managing partner of the brokerage and his wife, Edward P. Wolfram, Jr. and Zula Wolfram, an assignment of all their assets, interests, rights, and property. These assignments were given in an effort to return to the Debtor’s estate those assets which Wolfram had unlawfully diverted from the brokerage during the preceding ten year period.
Included in this assignment, either by direct or indirect reference, were any interests held by the Wolframs in an entity identified only as N.E.S.T., Inc. Although the precise legal status and character of this entity is unclear, it appears as though the name does not represent a corporation which has been lawfully incorporated. Rather, it appears that N.E.S.T., Inc. was the name assigned to an account at the Debtor-brokerage. It also appears that the Wolframs exercised control over this account. (It should be noted that the foregoing facts have been derived from the Complaint and other pleadings thus far filed in the case. They should not be considered to be established of record.)
At some time prior to the commencement of this liquidation proceeding, the “entity” known as N.E.S.T., Inc. purchased from the Defendants 25,000 shares of Liberty Airlines stock. The purchase price for these securities was One Hundred Twenty-five Thousand and no/100 Dollars ($125,-000.00). However, subsequent to the Wol-frams’ assignment, the Trustee apparently investigated the circumstances surrounding the sale. Believing that the sale did not comply with certain provisions of the Ohio Revised Code, the Trustee, as representative of Zula Wolfram’s interests, initiated the action which is presently before the Court. In this case, the Trustee seeks a rescission of the sale and a return to the estate of the purchase price.
In response to the Complaint, the Defendants have filed the Motion which is presently under consideration. This Motion seeks two distinct, though related, actions by this Court with respect to the continued prosecution of the case. Initially, the Defendants argue that this Court should abstain from hearing this action. This assertion is based on the contention that because this case is founded upon State law, the Court should, in deference to the filing of an action in a State court, exercise its abstention authority. In conjunction with this request, the Defendants also argue that inasmuch as Zula Wolfram has filed an action to annul the assignment of her interests, this action should be stayed until such time as that claim has been fully litigated. Secondly, the Defendants argue that the provisions under which this Court’s jurisdiction is based are unconstitutional, in that they violate the principles set forth in Northern Pipeline Const. Co. v. Marathon Pipeline Co., 458 U.S. 50, 102 S.Ct. 2858, 73 L.Ed.2d 598 (1982), and that the action should, therefore, be dismissed. The Trustee summarily opposes the Defendants’ arguments, contending that the Bankruptcy Amendments and Federal Judgeship Act of 1984, P.L. 98-353, has cured any abstention or jurisdictional barriers to an immediate adjudication of this case by this Court. He also argues that the outcome of Zula Wolfram’s claim will not alter the Defendants’ responsibilities and, therefore, the existence of that claim does not justify a stay of this proceeding. It should be noted that no action for rescission of the sale has been filed in State court by any party.
LAW
The provisions of 28 U.S.C. Section 1334(c) state in pertinent part:
(b) Notwithstanding any Act of Congress that confers exclusive jurisdiction on a court or courts other than the district courts, the district courts shall have original but not exclusive jurisdiction of all civil proceedings arising under title 11, or arising in or related to cases under title 11.
(c)(1) Nothing in this section prevents a district court in the interest of justice, or *875in the interest of comity with State courts or respect for State law, from abstaining from hearing a particular proceeding arising under title 11 or arising in or related to a case under title 11.
(2) Upon timely motion of a party in a proceeding based upon a State law claim or State law cause of action; related to a case under title 11 but not arising under title 11 or arising in a case under title 11, with respect to which an action could not have been commenced in a court of the United States absent jurisdiction under this section, the district court shall abstain from hearing such proceeding if an action is commenced, and can be timely adjudicated, in a State forum of appropriate jurisdiction.
The provisions of 28 U.S.C. Section 157 state in pertinent part:
(b)(1) Bankruptcy judges may hear and determine all cases under title 11 and all core proceedings arising under title 11 or arising in a case under title 11 referred under subsection (2) of this section, and may enter appropriate orders and judgments, subject to review under section 158 of this title.
(3) The bankruptcy judge shall determine, on the judge’s own motion or on timely motion of a party, whether a proceeding is a core proceeding under this subsection or is a proceeding that is otherwise related to a case under title 11. A determination that a proceeding is not a core proceeding shall not be made solely on the basis that its resolution .may be affected by State law.
(4) Non-core proceedings under section 157(b)(2)(B) of title 28, United States Code, shall not be subject to the mandatory abstention provisions of section 1334(c)(2).
(c)(1) A bankruptcy judge may hear a proceeding that is not a core proceeding but that is otherwise related to a case under title 11. In such proceeding, the bankruptcy judge shall submit proposed findings of fact and conclusions of law to the district court, and any final order or judgment shall be entered by the district judge after considering the bankruptcy judge’s proposed findings and conclusions and after reviewing de novo those matters to which any party has timely and specifically objected.
The operation of these statutes was explained in Cooper v. Coronet Ins. Co. (Matter of Boughton), 49 B.R. 312, 12 B.C.D. 1359 (Bkrtcy.N.D.Ill.1985). As set forth in that decision:
... [the District Court] derives jurisdiction over bankruptcy cases and proceedings related thereto by 28 U.S.C. Sections 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. Section 1334(a) (Supp.1984). Section 1334(b) grants the district court original but non-exclusive 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. Section 157(a), the Chief Judge for each district may refer bankruptcy matters delineated in Section 1334(a) and (b) to the bankruptcy courts. [The Chief Judge of the Northern District of Ohio, did so by General Order on July 16, 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. Section 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. Section 157(c)(1) (Supp.1984) ... Although ... [a] case may not be a core proceeding as that term is described in 28 U.S.C. Section 157(b)(1)(a) or (o), 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.
*876Related proceedings are, by definition, not core proceedings. They are “[those] adversary cases and controversies 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 [11 BCD 1197] (10th Cir., 1984).
49 B.R. 312, 12 B.C.D. 1360. The non-core proceeding, by virtue of its relationship to a petition filed under Title 11, is considered ancillary to the Federal claim in the underlying bankruptcy action. As an ancillary proceeding, a related non-core case need not be predicated upon the diversity of citizenship or Federal question criteria which is otherwise required in order to confer subject matter and personal jurisdiction in the Federal courts. See, Chemical Bank v. Grigsby’s World of Carpet, Inc. (In re WWG Industries, Inc.), 44 B.R. 287, 12 B.C.D. 752 (N.D.Ga.1984).
With regard to abstention, non-core proceedings, though based upon State law claims, are not subject to the mandatory abstention requirements of 28 U.S.C. Section 1334(c)(2). 28 U.S.C. Section 157(b)(4). However, if deference to the mandatory abstention provision is given, it need only be given when an action in State court has already been initiated. In the absence of a State court case, the provisions of 28 U.S.C. Section 1334(c)(2) are not applicable. Cooper v. Coronet Ins. Co., supra.
These statutes also provide that a Bankruptcy Judge is empowered to hear a non-core case which is related to a case under Title 11, and to submit findings of fact and conclusions of law to the District Court. See, 28 U.S.C. Section 157(c)(1). The adjudication of cases heard by a Bankruptcy Judge is not, in the absence of the parties’ consent, see, 28 U.S.C. Section (c)(2), final until the parties are given the opportunity for a de novo review before the District Court. While this procedure necessarily entails the hearing of cases and controversies by a non-Article III Judge, a practice declared unconstitutional in Northern Pipeline Const. Co. v. Marathon Pipeline Co. 458 U.S. 50, 102 S.Ct. 2858, 73 L.Ed.2d 598 (1982), it should be pointed out that the actual disposition of such cases and controversies is not final until the parties have had the opportunity to place both the facts and the law before an Article III Court. In that respect, the parties are afforded the constitutional protections which underlie the requirement for adjudication of cases and controversies by an Article III Court. See, Banning v. Lumis (In re Tom Carter Enterprises, Inc.), 44 B.R. 605, 12 B.C.D. 536 (C.D.Calif.1984).
In the present case, the Defendants have motioned this Court, pursuant to the authority of 28 U.S.C. Section 1334(c)(1), to abstain from hearing this case. They argue that because the case is based solely upon issues of State law, the interests of justice and the goal of comity between the State and Federal Courts will be served. In that regard, the Court notes that the case has already been filed in this Court, that the Court has conducted a Pre-Trial conference, and that the ease is related to a complex liquidation proceeding which is currently pending before this Court. On the other hand, the Defendants have not offered any explanation as to how the interests of justice and comity will be served by requiring the Trustee to seek his remedy in State court. In view of these factors, it appears that both the interests set forth in 28 U.S.C. Section 1334(c)(1) and the interests of the estate will be best served by the prosecution of this action in this forum. Accordingly, it must be concluded that the Defendants’ arguments as to this issue are without merit.
The Court has also been motioned to abstain from hearing this action on the basis that a State court proceeding is available for an adjudication of the parties’ rights. However, as previously noted, no such action has been filed. The language of 28 U.S.C. Section 1334(c)(2) clearly provides that prior initiation of a State court action is prerequisite to the applicability of *877mandatory abstention in related non-core proceedings. Accordingly, this Court should not be required to follow the mandatory abstention provisions of 28 U.S.C. Section 1334(c)(2). See, Cooper v. Coronet Inc. Co., supra. In addition it appears that consideration of mandatory abstention under 28 U.S.C. Section 1334(c)(2) is not required in related non-core cases. See, 28 U.S.C. Section 157(b)(4). Therefore, it must be concluded that abstention is not required.
The Defendants have also asked this Court to abstain from hearing this case until such time as Zula Wolfram’s claim for rescission of the assignment has been decided. In reviewing that request, it is apparent that if the case is stayed, and if Zula Wolfram is unsuccessful, the Court would then be required to reinstitute prosecution of this action and would face another delay in the effort to finalize this liquidation proceeding. In that regard, the Court notes that Zula Wolfram’s case has, as a result of the issues involved, the potential for becoming protracted litigation. If, on the other hand, Zula Wolfram is successful, then any funds collected by the Trustee as a result of this action could be returned to her at that time. In the event the action against the Defendants in this case is unsuccessful, then the question as to whether the Defendants are liable to the Trustee or Zula Wolfram becomes irrelevant. When given the alternative between prosecuting the case now and placing in escrow any funds recovered therefrom, or delaying the prosecution of this case and jeopardizing an expeditious termination of this liquidation proceeding, it is readily apparent that the best interests of the estate would be served by the former choice. Accordingly, the Defendants’ request for a stay of this case should be denied.
The second facet of the Defendants’ Motion asks this Court for a dismissal of the case on the grounds that even the provisions of 28 U.S.C. Section 157(b) do not correct the constitutional deficiencies set forth in Northern Pipeline Const. Co. v. Marathon Pipeline Co., supra. Specifically, the Defendant argues that prior case law has established the principle that adjuncts of the District Court are not permitted to hear cases and propose findings of fact and conclusions of law when the cases arise from State law. The Defendants argue that adjuncts of the District Court are only permitted to follow that procedure in cases which address constitutional or con-gressionally created rights. See, Crowell v. Benson, 285 U.S. 22, 52 S.Ct. 285, 76 L.Ed. 598 (1932), United States v. Reddatz, 447 U.S. 667, 100 S.Ct. 2406, 65 L.Ed.2d 424 (1980). In making that argument, however, the Defendants concede that adjuncts are authorized to hear State law matters and to recommend findings when the issues are attendant to cases that are before the District Court under the auspices of diversity of citizenship jurisdiction.
As has been previously explained, it has been held that a non-core adversary proceeding which is related to a petition filed under Title 11 is considered a matter ancillary to a Federal claim. Cooper v. Coronet Ins. Co., supra, Chemical Bank v. Grigsby’s World of Carpet, Inc., supra. As a case which is ancillary to a Federal proceeding, it is eligible to be heard by an adjunct or “unit”, see, 28 U.S.C. Section 151, of the District Court, despite the fact that the ancillary matter arises from State law. Provided the parties are afforded the opportunity to have a de novo review of the adjunct’s findings and conclusions by an Article III Court, it appears that the discrepancies found in Northern Pipeline Const. Co. v. Marathon Pipeline Co., supra, have been cured. Accordingly, it must be concluded that the Defendant’s Motion for Dismissal should be DENIED.
In reaching these conclusions, 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 Motion to Dismiss, Or In The Alternative, For A Stay Of Proceedings be, and is hereby, DENIED. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8490168/ | FINDINGS OF FACT, CONCLUSIONS OF LAW AND MEMORANDUM OPINION
ALEXANDER L. PASKAY, Chief Judge.
THIS IS a Chapter 11 case and the matter under consideration represents a controversy with an unusual twist. This is so because, unlike in the run of the mill fraudulent transfer action, which is ordinarily brought by the Trustee or by a Debtor-in-Possession, in the present instance it is' brought by a third party against a Debtor-in-Possession who seeks relief under Chapter 11 of the Bankruptcy Code. In short, in the present instance, it is the Debtor who is the recipient of the transfer alleged to be fraudulent, rather than the transferor of the property involved in the controversy.
The salient and significant facts germane to the resolution of the matter under consideration, laden with international overtones, are facially complex but after close analysis are not very intricate and are basically susceptible to a fairly easy resolution. However, before one can reach this point *938and be able to unravel this tangled web, it is necessary to place the actors of this many faceted play in their proper roles.
The central character of this convoluted saga is Robert Lurie (Lurie) who in 1972 formed a corporation under the laws of the Republic of Panama under the name of Florida Peach Corporation of America, International Division (FPCAID). Lurie was the chief executive and appeared to have been the sole stockholder of FPCAID. Be that as it may, there is no question that Lurie was in sole control of the affairs of FPCAID from its inception.
Shortly after its formation, FPCAID, through a series of transactions, acquired several parcels of real property located in Marion and Sumter counties of Florida. These parcels, collectively referred to as “Properties”, are known as the “Pedro Farm”, the “Martin Farm”, the “Belleview Farm”, the “Hartman Farm”, the “Coleman Farm”, the “Lurie I Farm”, and the “Lurie II Farm”.
In 1974 or 1975, Lurie also formed another Panamanian corporation under the name of International Food Corporation (International Food), the Debtor involved in this Chapter 11 case. Just as in the case of FPCAID, Lurie was again the chief executive and possibly the sole stockholder of International Food. In any event, just as in the case of FPCAID, he was in sole control of the affairs of International Food from its inception until the present. At the time of its formation, International Food was a mere corporate shell, had no assets, had no employees, and did not conduct any business of any sort.
It is equally without serious doubt that not even the most basic elementary formalities of a normal corporate existence of either FPCAID or International Food were observed by Lurie; no stocks were ever issued (with an exception discussed below), there were no meetings of stockholders or directors ever held, and, of course, there is no evidence that any minutes or resolutions of the board of directors of the two corporations were ever kept.
In addition to FPCAID and International Food, Lurie also founded and/or incorporated the following associations and entities: Florida Peach Corporation of America, a Paraguain corporation; Florida Peach Corporation of America, Agricultural Services, a Panamanian corporation; International Food Corporation of America, a Delaware corporation; Florida Peach Corporation, American International Division Leasing Corporation; Transworld Food Corporation, N.V., a Netherlands Antilles corporation; Worldwide Agricultural Investors, Inc., a Florida corporation; AG Industries, Ltd., a Bahamanian corporation; Florida Peach Orchards, Inc., a Florida corporation; Florida Peach Co-Op, Inc., a Florida corporation; Florida Peach Corporation, a Florida corporation; Marion Orchards, Ltd., a Florida limited partnership; and the 1970 Planting Partnership, II in the Early Florida Peach Industry, a limited partnership. None of these entities engaged in any apparent business activity, with the exception of transfers of the “Properties” to, from, and among them, initiated and directed by Lurie at various times.
Beginning in 1971 and up to 1980, Lurie using FPCAID as the medium, embarked on an extensive undertaking of fund raising. This was accomplished by selling undivided “interests” in “peach planting” programs in the “Properties” described as “peach orchards”. These “interests” were sold principally in Europe.
Each investor’s ownership interest in one of the peach planting programs was evidenced by a document entitled an “Ownership Certificate in Orchards to be Cultivated under the 1971 Planting Program, Section IV, the Early Florida Peach Industry— Florida Peach Corporation of America, International Division, Trustee” or similar wording depending upon the planting program (“Ownership Certificate”). Each Ownership Certificate stated:
OWNERSHIP CERTIFICATE IN ORCHARDS TO BE CULTIVATED UNDER THE 1971 PLANTING PROGRAM, SECTION IV, THE EARLY FLORIDA PEACH INDUSTRY
*939FLORIDA PEACH CORPORATION OF AMERICA, INTERNATIONAL DIVISION, TRUSTEE THIS IS TO CERTIFY that_is a Co-Owner and owns _ shares in a twenty acre plot to be cultivated under the 1971 PLANTING PROGRAM, SECTION IV, IN THE EARLY FLORIDA PEACH INDUSTRY, each share representing a l/1300th undivided interest in tenancy in common, such interest described on a deed to be recorded with the Clerk of Marion County, Florida, the United States of America. The total number of Co-owner shares to be issued is 1300.
The Holder agrees that all the land described on the deed aforesaid, including his interest, may be sold and conveyed on prior approval of the holders of 51 percent of the Co-owner shares, and on such sale, the net proceeds shall be distributed to the Co-owners in proportion to the interest held by each.
IN WITNESS WHEREOF, the said undersigned corporation whose European office is located at 4 rue de Rive, Geneva, Switzerland, has caused this certificate to be issued, and the interest of the Co-owner registered, this _ day of _, 197_
FLORIDA PEACH CORPORATION OF AMERICA, INTERNATIONAL DIVISION, TRUSTEE
The Ownership Certificate was executed by Lurie on behalf of FPCAID and delivered to the investor with a document entitled “Lease Performance Guarantee”. The Lease Performance Guarantee was executed by Lurie as President of Florida Peach Corporation of America, International Division and read as follows.
LEASE PERFORMANCE GUARANTEE
WHEREAS FLORIDA PEACH CORPORATION OF AMERICA, International Division, has been established for the purpose of managing, cultivating and developing peach orchards and peaches in Florida, and for the purpose of growing, packing and shipping peaches and peach products of all kinds and descriptions, now therefore
THIS IS TO CERTIFY that_be-ing a registered orchard owner with acreage shown above and is entitled to all benefits, rights, privileges and income as herein described in this agreement. The locations of your orchard has been recorded with our Grove Care Department at State Road 35, Belleview, Florida. This guarantee may be sold or transferred.
In token whereof we have hereunto affixed our signature and seal.
FLORIDA PEACH CORPORATION OF AMERICA, International Division
On the reverse side of the Lease Performance Guarantee, the following agreement was provided:
Whereas Florida Peach Corporation of America, International Division, referred to as the Company, has on its staff outstanding experienced grove service personnel and is preparing a program for the marketing of peaches and nectarines through large supermarkets, hotels and chain restaurants; and Whereas the Company agrees to have its staff work on behalf of the orchard owner named on the reverse side so as to obtain maximum early peach production for minimum costs, with the latest technology, equipment, fertilization, techniques of ground cultivation and economies of peach production:
NOW, THEREFORE, Florida Peach Corporation of America, International Division agrees as follows:
1. To lease the acreage represented by this certificate at a rental shown below which percentage is based on the purchase price of the original certificate:
First Year 7 lk% lease payment — paid quarterly
Second Year 8 lk% lease payment— paid quarterly
Third Year 9 xh% lease payment — paid quarterly
Fourth and Succeeding Years 60% of net income from fruit goes to the *940applicant, remaining 40% to Florida Peach Corporation of America, International Division for its services. An Independent Auditor’s Report is sent with your check.
2. The Company agrees to cultivate, maintain and manage land on behalf of the owner. Said maintenance will be done under the guidance.of the Company’s staff with the use of the latest techniques, and shall include labor, cultivation, fertilizing, pruning, thinning, limb removal, spraying and harvesting. If the owner desires to cultivate, maintain and manage his own land, he shall have the right to do so, upon sixty days notice to the Company. The Company also handles all packing and marketing services.
3. All peaches shipped by the Company will be boxed with special designs established by them for specific merchandising programs, with emphasis on special packages for mass sales appeal through supermarkets so as to create the greatest demand and receive the highest prices for the orchard owners.
Each share purportedly represented a l/1300th undivided interest in a 20 acre plot in the particular section of the Property used for that planting program. (Ex. 3, T. 16-20).
Sometime in 1971, Lurie caused the title to the “Properties” comprised of 1700 acres to be transferred to Florida Peach Corporation of America, International Division, as Trustee, and later from FPCAID as Trustee to various entities controlled by him— primarily to himself as Trustee — and ultimately to International Food, the Debtor involved in this Chapter 11 case. There is no question that none of these conveyances were supported by any consideration, certainly not by any cash consideration. It is equally without doubt that there was never a formal trust created and there is no trust instrument on record either in Marion or Sumter County, although documents entitled “Deed Certificates” were recorded in the public records of Sumter and Marion Counties. Neither do these certificates identify the alleged co-owners of the various parcels by name and did not contain references to specific owners certificate share numbers and legal description of the respective planting program sections which correspond with the Ownership Certificate issued to the investor. (Ex. 2).
The transfers of the “Properties” by and between the various entities controlled by Lurie were accomplished by quit claim and at times by warranty deeds (Ex. 9-13). There is no question that Lurie was at all times the person in full control of the affairs of the transferors and the affairs of the recipients of the various transfers. As the result of all these transactions, “Properties” originally acquired and owned by FPCAID were transferred out and now, at least as a matter of public record, are owned by International Food and some other entities controlled by Lurie. It is interesting to note that Lurie at times transferred the same property to two different entities; the first by quit claim deed, the second, a short time later, by warranty deed. There is nothing in this record which explains the reason for these various and sundry transfers to these dummy entities established by Lurie, none of which appear to have had any legitimate existence. In any event, it is clear that none of the investors who were supposed to be the beneficial owners of the property, according to Lurie, were ever informed of, let alone consented to these transfers. Thus, even assuming that the investors actually obtained a cognizable interest in the “Properties” of FPCAID when they made their investment, a proposition which is not free from serious doubt, as a result of these transfers they now have no interest in the “Properties”, at least as far as the public records are concerned.
It further appears that in 1981 FPCAID was adjudicated bankrupt under the laws of the Republic of Panama and Dr. Aro-semena was appointed Curador for the estate of FPCAID. Shortly after the commencement of this case, Dr. Arosemena filed a petition in the Jacksonville Division of this Court to institute a proceeding in this District ancillary to the foreign bankruptcy proceeding pending in Panama. An *941Order for Relief was entered in the ancillary proceeding on October 4, 1982. Dr. Arosemena also filed a complaint and sought to invalidate the transfers discussed earlier and sought to restore the “Properties” to FPCAID. In the interim, the United States Government appeared on the scene and asserted a tax lien claim against the “Properties” and intervened in the adversary proceeding. Neither Dr. Aroseme-na nor the United States Government had any luck conducting meaningful discovery because of Lurie’s consistent refusal to respond to discovery and particularly his refusal to reveal the identity of the beneficiaries of the alleged trust claimed to exist by Lurie. As the result, the Bankruptcy Court in Jacksonville on June 7, 1982 dismissed the Chapter 11 case. The ancillary case was ultimately transferred to this Court and was consolidated with this Chapter 11 case.
Subsequent to the final evidentiary hearing, in the form of a letter to the Court, IFC raised its objection to the commencement of the ancillary case and the subsequent consolidation of that case with the above-captioned case. The objection was untimely, not properly before the Court as a matter of record, and does not merit further consideration.
The “Properties”, when acquired by FPCAID, were either already encumbered by various mortgage liens and were acquired subject to the existing mortgages, or, if not, were acquired by FPCAID with small down payments, the balance of the purchase price secured by a purchase money mortgage granted by FPCAID to the sellers of the particular property. Needless to say, at the time the Panamanian bankruptcy was instituted against FPCAID most, if not all these mortgages, were in default. As the result, the mortgagees wasted no time and moved and sought to enforce their mortgage liens against the properties subject to their respective mortgage liens. Their hopes to achieve their goals were shattered in no time when International Food filed its petition for relief in this Court, which filing, of course, immediately halted all further proceedings against the “Properties” now owned by International Food as the result of the transfers discussed earlier.
On September 14, 1982, International Food filed a Complaint and sought an order authorizing the sale of the “Properties” free and clear of all liens and encumbrances. The defendants named in the Complaint were the holders of the mortgage liens on record encumbering the various parcels composing the “Properties”. The U.S. Government was also named as defendant because it filed a tax lien in the amount of $7,749,423.82 in the public records of Marion and Sumter counties.
On November 22, 1982, Dr. Arosemena filed his Motion to Intervene. The Motion was heard in due course and on December 20,1982, this Court entered an order authorizing Dr. Arosemena to intervene. Dr. Arosemena filed his Counterclaim and Crossclaim, the pleading which is the procedural vehicle used to assert the claim of fraudulent transfer. The relief sought is a decree from this Court setting aside all transfers of the “Properties” and restoring the ownership of the “Properties” to FPCAID, its original owner. The Counterclaim and Crossclaim consist of the following five counts:
Count I — Dr. Arosemena sought a modification of the automatic stay so as to permit him to prosecute the claims set forth in Counts II through V of the Counterclaim and Crossclaim;
Count II — Dr. Arosemena sought to have declared void or to avoid and set aside any and all transfers of any portion of the “Properties” in Marion and Sumter counties that have occurred or been made subsequent to acquisition of title by Florida Peach Corporation of America, International Division;
Count III — Dr. Arosemena sought declaratory judgment as to the respective rights, titles, liens or interest of the parties to the “Properties” in Marion and Sumter counties;
Count IV — Dr. Arosemena sought to quiet title to the “Properties” in Marion and Sumter counties;
*942Count V — Dr. Arosemena sought a preliminary injunction prohibiting any interference with title to the “Properties” in Marion and Sumter counties until the ancillary case commenced by Dr. Aro-semena has been closed or dismissed.
Inasmuch as the dispute concerning the ownership of the “Properties” obviously presented a threshold question, this Court directed that all further proceedings be held in abeyance in the adversary proceeding pending a resolution of the fraudulent transfer claim asserted by Dr. Arosemena.
The claim for relief of Dr. Arosemena, although not very well articulated by the pleading, is apparently based on Fla.Stat. § 726.01 (1983), a Statute of this state, which deals with fraudulent transfer of properties in general. The Statute in question in pertinent part provides as follows:
726.01 Fraudulent Conveyances Void
Every feoffment, gift, grant, alienation, bargain, sale, conveyance, transfer and assignment of lands, .... by writing or otherwise, and every bond, note, contract, suit, judgment and execution which shall at any time hereafter be had, made or executed, contrived or devised of fraud, covin, collusion or guile, to the end, purpose or intent to delay, hinder or defraud creditors or others of their just and lawful actions, suits, debts, accounts, damages, demands, penalties or forfeitures, shall be from henceforth as against the person or persons.... or their successors.... and every one of them so intended to be delayed, hindered or defrauded, deemed, held, adjudged and taken to be utterly void, frustrate and of none effect, any pretense, color, feigned consideration, expressing of use or any other matter or thing to the contrary notwithstanding; provided, that this section, or anything shall not extend to any estate or interest in lands.... which shall be had, made, conveyed, or assured if such estate shall be upon good consideration and bona fide, lawfully conveyed or assured to any person or persons.... not having at the time of such conveyance.... any manner of notice or knowledge of such.... covin, fraud or collusion as aforesaid, anything in this section to the contrary notwithstanding.
It is the contention of Dr. Arosemena that based on the relevant facts and as it appears from the record established at the final evidentiary hearing, the transfers from FPCAID through various conduits, ultimately to International Food, were transfers without consideration caused to be made by Lurie, the mastermind of the series of transactions, who was not only the grantor but, in fact, the grantee in all these transactions; that these transactions were made for the sole purpose of hindering, delaying, and defrauding the creditors of the estate of FPCAID. Thus, based on the controlling provisions of § 726.01, all of these transfers should be declared to be void as fraudulent and the ownership of the “Properties” should be restored to FPCAID, the original owner of the “Properties”.
International Food, rather than seriously question the claims of fraudulent transfer asserted by Dr. Arosemena, a proposition which facially appears to have validity, contends first that Dr. Arosemena simply has no standing to assert a claim of fraudulent transfer because such claim can only be asserted on behalf of existing creditors of FPCAID and there is no proof in this record that FPCAID, in fact, has any creditors who could have attacked these transfers as fraudulent. In addition, even assuming that the investors and creditors could have asserted the claim of fraudulent transfer, so contends International Food, there must be a showing that creditors were, in fact, injured by the transfers under consideration. Since there is no proof in this record, according to International Food, which would warrant a finding that these transfers did, in fact, cause injury, á faet indispensable for recovery under § 726.01, Dr. Arosemena is not entitled to the relief sought.
*943The last contention urged by International Food is based on the proposition that International Food holds title to the “Properties” as trustee on behalf of the investors who were supposed to be beneficiaries of the so-called trust — the very parties on whose behalf Dr. Arosemena is demanding relief. In sum, International Food contends that since the interest of the investors have not been adversely affected by the transfers under attack, whatever interest they had when they invested with FPCAID, they still have the same interest, thus suffered no injury.
ISSUE OF STANDING
It is clear that Dr. Arosemena never had and has no assertable claim of his own and if he has standing to assert a claim of fraudulent transfer at all he may do so only vicariously. Thus, the initial inquiry must be addressed to the voiding powers, if any, granted to a “Curador” under the applicable laws of the Republic of Panama. Articles 1564, 1565, 1583, and 1584 of the Commercial Code of Panama provide as follows:
Article 1564: By virtue of the declaration of bankruptcy, the debtor is, as a matter of law, precluded and prohibited from administering and disposing of its present assets and whatever assets it may acquire during the bankruptcy proceedings. Excepted from this Article are those assets that may not be attached pursuant to the Judicial Code. — C.J. 1203, 1784, 1816, C.C. (Civil Code) 1047 and ss.1615.
Article 1565: The administration of the debtor’s assets shall pass to the creditor group represented by the “Curador”, who by virtue of his appointment shall be vested with all the capacities of a general attorney without limitations other than those specified in the Judicial Code.— 1615, 1579 ss C.J. 1816, C.C. 1655.
Article 1583: Upon the request of the “Curador” or any other creditor, the following acts shall be voidable notwithstanding their date of execution nor the statue of limitations: (1) Acts or contracts which might have been shams or fraudulent, such being presumed when the parties affirm or declare things or facts that are not certain; and (2) Conveyances with or without consideration when the other party had knowledge that the debtor executed the act or the contract towards the end of removing the assets or their total or partial value out of the estate or beyond reach of the creditors. — 1557 Ord. 12, 1581 Ord. 1, (2) 1582, C.C. 996.
Article 1584: Judgments and judicial decrees that were obtained with debtor’s cooperation may be impugned under the same terms as above set forth for voidable acts or contracts for the purpose of annulling them in appropriate circumstances, to the extent that they prejudice the creditors.
Having concluded that Dr. Arosemena is armed with a far broader voiding power than a trustee in Bankruptcy under § 544 of the Bankruptcy Code, one must next consider on whose behalf he can assert the claims asserted in this instance.
The only parties on whose behalf such claim could be asserted are the creditors of Florida Peach, under the applicable laws of Panama. This, in turn, calls for an analysis of the legal nature of the “claim” of the “investors”. There is hardly any dispute that these foreign investors paid substantial sums to FPCAID through Lurie. It is equally clear that their investment was not payment for corporate stock of FPCAID or in any other entity controlled by Lurie, stock which, if ever issued, was issued to Lurie and not to the investors. As noted earlier, in 1973 Lurie issued, at least to some investors, a document entitled Ownership Certificate. It is not without difficulty even to guess what kind of ownership this Certificate evidenced.
In this connection, it should be noted that Lurie at various times, although it is not clear when, prepared by hand something called “Master Certificates” which purportedly vested in Lurie as trustee stock ownership in International Food, Ag Industries, and World Wide Agricultural Investors. *944None of these Master Certificates identify on whose behalf Lurie was supposed to hold the Master Certificate. There is no evidence on this record to show that any of these alleged shares in International Food or Ag. Industries, Limited or World Wide Agricultural Investors (Ex. No. 3) were ever, in fact, issued. There is no evidence in this record that any of the alleged stockholders owned any stock in these entities— entities in which they never invested anything and entities in which they never dealt with to begin with. In light of the fact that these shares were never even detached from the stub, it is not difficult to assume that these Certificates were prepared by Lurie for the purpose of this trial. They are all numbered Master Share Certificate # 1 with the exception of two, one of which is marked IB and the other is marked 2. Be that as it may, the investors were never intended to be and are not, in fact, stockholders of International Food, Ag. Industries, or World Wide Agricultural Investors.
There is no evidence in this record of the creation of a valid trust. As far as it appears, as noted earlier, there is no trust instrument in existence; there is no identification of the corpus of this alleged trust; the identity of the alleged beneficiaries were, at the time and are still, shrouded in mystery. It is well established in this state that a conveyance of an interest in land to one named a trustee fails to effectuate a valid conveyance of beneficial interest unless the trust instrument creating the trust is placed on record or unless the deed of conveyance identifies the beneficiaries of the trust. None of these occurred in the present instance, thus, under the controlling legal principles, the “Properties” are owned by International Food free of any beneficial interest. Glusman v Warren, supra.
It is equally evident that at no time did they acquire a cognizable ownership interest, in any of the farms composing the “Properties” acquired by FPCAID. This is so because of Article 1583 cited above and also by virtue of the specific provisions of the Florida Statute which provides as follows:
§ 689.07(1) Fla.Stat.
Every deed or conveyance of real estate .... in which the words “trustee” or “as trustee” are added to the name of the grantee, and in which no beneficiaries are named nor the nature and purposes of the trust ... shall grant a fee simple estate ... to the grantee ... provided, that there shall not appear of record among the public records ... a declaration of trust by the grantee so described declaring the purposes of such trust....
The so-called ownership certificates issued by FPCAID as Trustee could not effectively convey interest in land. It is well settled in Florida, as codified in Chapter 689 of the Florida Statutes, that all declarations and creations of trusts in land must be manifested and proven by some writing,
“.... or else they shall be utterly void and of none effect;.... ”
Section 689.05, Fla.Stat.
Although the foreign investors were not stockholders of FPCAID or any other entity controlled by Lurie including International Food and they acquired no cognizable interest in any part of the “Properties”, they certainly have a “claim”, conceivably unliquidated, against FPCAID. From here it follows that since they could have attacked these transfers, so can Dr. Arosemena in his representative capacity, provided under the laws of Panama a Cura-dor has such special voiding power. This leaves for consideration the question of injury, if any produced by these transfers, and ultimately whether this record warrants the finding that these transfers were, in fact, fraudulent, thus voidable under the statute invoked by Dr. Arosemena.
This being the case, there is no doubt that the conveyance of the “Properties” by FPCAID to the several entitites and ultimately to International Food did effectively divest FPCAID of all its land holdings and, as a result, deprived the investors of the right to look to these “Properties” for satisfaction of their claims.
*945This leaves for consideration the ultimate question which is whether Dr. Aro-semena is entitled to any of the relief he seeks. First, any resemblance between the issues raised by Dr. Arosemena in his Counterclaim and Crossclaim and the issues actually tried is not even coincidental, with the possible exception of the issues raised in Count II. As noted, the amended Crossclaim and Counterclaim seeks relief of various types, i.e. relief from automatic stay, injunctions, declaratory relief, and a declaration quieting title to the “Properties”. It is evident that none of these are any longer relevant with the exception of the claim of fraudulent transfer and the request to restore the “Properties” to FPCAID.
Based on the foregoing, this Court is satisfied that the elements of a fraudulent conveyance have been proved under the laws of the Republic of Panama and by a preponderance of the evidence as required under state law, Watson Realty Corp. v. Quinn, 452 So.2d 568, 569 (Fla.1984), and that Arosemena is entitled to a declaratory judgment vesting title to the properties at issue in Arosemena as Curador in the Panamanian bankruptcy styled Juzgado Cuarto Del Circuito De Panama, Ramo Civil, Auto No. 154.
The Court has reserved jurisdiction to address the relief sought in Count IV to determine whether the “Properties” are subject to intervening liens and the remaining Counts, Counts I, III, and V should be dismissed as moot.
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/8490169/ | MEMORANDUM OF DECISION
JAMES A. GOODMAN, Bankruptcy Judge.
This is a core proceeding brought by a Chapter 13 debtor (plaintiff) to determine the nature, extent, and priority of the defendant’s lien against the plaintiff’s real estate under 11 U.S.C. § 506. The Court finds the following relevant facts.1
The defendant in this proceeding is the former wife of the plaintiff and her interest in real property arising from the divorce judgment entered on August 30, 1983 by the Maine District Court, District Seven, Division of Southern Kennebec is the subject matter of this action. The State court in its memorandum and divorce judgment found that the plaintiff had purchased real estate consisting of a farm prior to his marriage to the defendant. During the marriage the plaintiff conveyed the farm real estate to himself and his wife, defendant herein, as joint tenants at which time it became marital property. The State court valued the property at $115,000.00. Certain farm equipment, livestock, and other assets were valued at approximately $138,-000.00. The total indebtedness of the parties was estimated at $205,000.00. The *16State court, in its divorce judgment, ordered
that the farm, including the real property, all livestock and equipment and all other personal property, appurtenances and assets located at and forming a part of the farm operation, are set apart to the [plaintiff] subject to all mortgages and encumbrances thereon, all outstanding loans with respect thereto and all indebtedness outstanding, for which the [plaintiff] shall be solely liable and with respect thereto, [plaintiff] shall hold the [defendant] harmless.
The State court further ordered the plaintiff to pay the defendant the sum of $22,-300.00 as the defendant’s share in the equity of the marital.property, both real and personal. The defendant was ordered to execute the documents necessary to convey title to the farm property and equipment to the plaintiff, who, in turn, was ordered to execute a note and mortgage deed on the farm real estate to the defendant in the sum of $22,300.00.
The plaintiff appealed the State court’s divorce judgment to the Kennebec County Superior Court. The plaintiff dismissed the appeal on February 3, 1984, and on that same date, filed a Chapter 13 petition in this Court. On February 16, 1984, the plaintiff filed a complaint to determine the secured status and motion to avoid judicial liens against the defendant. Count II and Count III of the complaint were dismissed by this Court’s order dated October 11, 1984 by consent and agreement of the parties. The only remaining Count (Count I) in that adversary proceeding (Case No. 184-00030, Adv. No. 184-0015) was whether the defendant was a secured or unsecured creditor of the plaintiff’s estate. On January 14, 1985, the plaintiff brought a separate action (Case No. 184-00030, Adv. No. 185-0018) rather than amend the original complaint. In that action the plaintiff joined as defendants the United States of America, acting through the Farmers Home Administration, United States Department of Agriculture (the Farmers Home Administration), the United States of America acting through the Agricultural Stabilization and Conservation Service, United States Department of Agriculture (the Agricultural Stabilization and Conservation Service), and the Municipality of Litchfield, Maine.2 In this new complaint, in paragraph 7, the plaintiff reiterates the same cause of action found in Count I of the complaint filed on February 16, 1984, seeking to avoid the secured status of the defendant.
The plaintiff contends that on February 3, 1984, the date the plaintiff dismissed his appeal of the State court’s judgment, defendant was no longer a joint tenant of the farm real estate but rather a secured creditor of the plaintiff in the amount of $22,-300.00. The plaintiff further maintains that the value of the farm real estate, encumbered by claims filed by the Farmers Home Administration and the Municipality of Litchfield, Maine, is insufficient to satisfy the defendant’s secured claim and that the defendant is therefore an unsecured creditor of the plaintiff’s estate.
The issue presented to this Court is to what extent defendant is a secured creditor.
Pursuant to Me.Rev.Stat.Ann. tit. 19, § 722-A (1981), the State court, in a proceeding for a divorce, “shall set apart to each spouse his property and shall divide the marital property in such proportions as the court deems just after considering all relevant factors.” Me.Rev.Stat.Ann. tit. 19, § 722-A(l) (1981). The disposition of marital property is committed to the sound discretion of the State court. See, e.g., Smith v. Smith, 472 A.2d 943, 945 (Me. 1984). The State court’s statutory authority to divide marital property under Me.Rev. *17Stat.Ann. tit. 19, § 722-A (1981) includes those powers necessary to render effective the division. Baker v. Baker, 444 A.2d 982, 986 (Me.1982). As the Supreme Judicial Court of Maine has stated:
the techniques of requiring one or both of the parties to perform certain acts ... may be the only sensible way of carrying out a division of marital property ‘in such proportions as the court deems just after considering all relevant factors’ as section 722-A requires. That technique would be preferable in many cases to requiring the sale of all or part of the marital property in order to achieve a just division.
Baker at 986.
In the case at bar, the State court ordered that the [defendant] shall execute all necessary documents to convey title to the [plaintiff] pertaining to the farm property and equipment, and ... ordered that the [plaintiff] shall execute a note and mortgage deed on the farm real property in favor of the [defendant] in reference to the sum of $22,300.00 due to the [defendant] as her share of the marital property.
Prior to compliance with the State court’s order, the plaintiff filed his Chapter 13 bankruptcy petition. The State court clearly intended that the division of the marital property was to be effected by the defendant’s execution of the documents necessary to convey title to the plaintiff simultaneously with plaintiff’s execution of a note and mortgage deed on the farm real estate to the defendant. The plaintiff’s appeal of the State court’s divorce judgment, his dismissal of the appeal, and his simultaneous filing of his Chapter 13 bankruptcy petition precluded the defendant from complying with the State court’s judgment. The plaintiff now maintains that the State court’s judgment dispossessed the defendant of her joint tenancy in the farm real estate, put the defendant in the position of a secured creditor, and that there is no equity in the farm real estate to which her security can attach. This Court interprets the State court’s decree to have clearly intended that until the defendant conveyed her interest in the farm real estate to the plaintiff and the plaintiff protected her at the same instant with the return of a note and mortgage deed, that the defendant’s interest in the farm real estate would remain that of a joint tenant. To interpret the State court decree otherwise would require the defendant to give up a joint interest in property without receiving the quid pro quo intended by that very same divorce decree. This Court finds that the defendant is a joint tenant of the farm real estate and is not a creditor, either secured or unsecured, of the plaintiff’s estate. Enter Order.
. This Memorandum of Decision constitutes findings of fact and conclusions of law in accordance with Bankruptcy Rule 7052.
. There is no dispute as to the validity and amount of the claim filed by the Farmers Home Administration as a first mortgagee on the plaintiff’s farm real estate, nor is there a dispute as to the validity and amount of the claim filed by the Municipality of Litchfield, Maine, as a statutory lienholder against the plaintiffs farm real estate for unpaid real estate taxes. The interest of the Agricultural Stabilization and Conservation Service arises solely to the extent of a silo on the plaintiffs farm and not to any portion of the real estate. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8490170/ | CLIVE W. BARE, Bankruptcy Judge.
I
For its services during the four-month period between March 1 and June 30, 1985, Cadwalader asks for compensation of $254,447.90 plus reimbursement of its expenses of $21,678.49. The Walker firm requests compensation of $37,825.00 and reimbursement of expenses totaling $3,482.74 for services performed between April 1 and July 30, 1985.
The trustee’s fifth interim report, filed September 9, 1985, reflects a cash balance of $3,617,507.8o.1 Additionally, numerous assets and claims have not been liquidated.
FDIC observes that Cadwalader and Walker will have received $1,620,845.272 if the pending applications are approved.3 FDIC asks the court to compare the compensation awarded in this case with the allowances in the cases of C.H. Butcher, Jr. (Case No. 3-83-01008) and Jake Butcher (Case No. 3-83-01036), whose cases, according to FDIC, “are not grossly disproportionate”4 to the debtor’s. FDIC maintains the fees of Cadwalader and Walker equate to $3,376.00 per day if the pending applications are approved, whereas the trustees’ per diem attorney fees in the C.H. Butcher, Jr. and Jake Butcher cases equate to only $1,495.00 and $581.00 respectively.5 FDIC notes the ratio of the attorney fees in the debtor’s case to the cash currently on hand is substantially higher than in either of the Butcher cases.
In response, Cadwalader and Walker contend that focusing on the ratio of attorneys fees to the value of assets recovered and liquidated distorts their accomplishments because: (1) the prepetition value, based on personal financial statements, of the total assets of C.H. Butcher, Jr. ($105,307,-786.00) and Jake Butcher ($77,913,856.00) substantially exceeded the value of the debtor’s assets ($18,911,499.00), and (2) in contrast to the debtor’s contumacious conduct, sizeable assets of the Butcher estates were turned over to the trustee without litigation.6 Cadwalader and Walker further contend, to date, they have recovered a far higher percentage of available assets than recovered in either of the Butcher cases and that the debtor’s case is at a more advanced stage.
The FDIC’s comparison omits any mention of the attorney time — a factor in fixing compensation under 11 U.S.C.A. § 330 (Supp.1985) — involved in each of the three cases. Further the customary rates of Cadwalader exceed those of the attorneys *44for the trustees in the Butcher cases.7 More importantly, each bankruptcy ease is unique. Accordingly, the comparison FDIC employs to deduce that the trustee’s attorney fees in the debtor’s case are excessive is not valid.
II
FDIC raises several points in its objection. Initially, FDIC contends the applicants’ statements are not sufficiently itemized to reflect the time spent performing a given service. As an example FDIC cites a March 19, 1985, narrative of services, requiring four (4) hours, performed by Mark Ellenberg of the Cadwalader firm:
Review transcript of D. Broward Craig deposition re Knox Resorts; conference with Jerry Madden about details of proof for Knox Resorts trial; conference with Murray Drabkin, Jerry Madden and Hancock re Knox Resorts settlement; review incoming pleadings; conference with Jerry Madden re Druthers settlement and trial; conference with Jerry Madden and G. Shanks of FDIC re Knox Resort lease default; draft letter to Hancock re offer of judgment; draft letter to Hancock re insolvency proof; conference with Murray Drabkin re Merrill Lynch accounts and GNMA’s.
This narrative and those of other Cadwa-lader and Walker attorneys, with exceptions noted hereinafter, sufficiently describe the services performed. While the services performed are “lumped” in some narratives the court is nonetheless able to evaluate whether the time billed is reasonable.
Next, FDIC argues that Cadwalader and Walker seek compensation for services which should have been performed by the trustee, such as: review of debtor’s redirected mail; arranging for sale of property of the estate; analyzing bank statements to locate missing checks; responding to inquiries regarding maintenance of estate property; seeking a candidate to operate a motel in which the estate had an interest; and exploring investment options for the trustee. This objection is without merit.8
FDIC also argues that a substantial amount of time is billed for services attributable to a RICO suit filed by the liquidating trustee for Southern Industrial Banking Corporation (SIBC) against the debtor personally.9 However, Cadwalader represents that the attorney for the SIBC liquidating trustee advised he would seek to enforce any judgment against the estate. Hence, the trustee’s defense of the multimillion dollar RICO suit is understandable.
Further, FDIC contends the trustee’s attorneys have inappropriately borne the burden of representation or taken responsibility for litigation when others should have borne or at least shared the responsibility and related expenses. Specifically, FDIC cites the Knox Cable matter, a complex dispute involving FDIC which was compromised, and a contested matter in the Glade Springs case (Case No. 3-83-01854) involving a letter of credit. See In re Glade Springs, Inc., 47 B.R. 780 (Bankr.E.D.Tenn.1985). The debtor’s estate had an important interest in each of these matters. Cadwalader and Walker did not assume undue responsibility in either matter.
Ill
The remaining FDIC objections pertain to the Cadwalader application.
Cadwalader
The services performed by Cadwalader, highlighted by a $400,000.00 recovery in a post-trial settlement of an action to avoid a fraudulent transfer, are outlined in its application. Involving appearances in the dis*45trict court and the circuit court of appeals in addition to numerous appearances before this court, these services were litigation intensive. The compensation requested, $254,447.90, consists of $235,012.24 billed for 1,627.11 hours of attorney time plus $19,435.66 for 412.5 hours of time logged by legal assistants. The average hourly rate for attorneys is $144.43; for legal assistants the average hourly rate is $47.12. The fee request is based on Cad-walader’s customary rates, which have been accepted by the court in fixing interim compensation previously allowed.
The court finds the following services are insufficiently described:
Date Attorney Time Amount Billed
3/5/85 S. R. Greene 1.17 $ 169.65
3/7/85 S. R. Greene 5.5 797.50
3/11/85 S. R. Greene 2.84 411.80
3/12/85 S. R. Greene 3.17 459.65
3/14/85 S. R. Greene 1.0 145.00
3/19/85 S. R. Greene 0.5 72.50
3/19/85 S. L. Pine 3.01 331.10
4/2/85 A. C. Emery 2.5 337.50
4/3/85 A. C. Emery 4/10/85 S. R. Greene 2.0 270.00 1.84 294.40
5/30/85 M. C. Ellenberg 0.34 61.20
6/27/85 J. Anderson 4.0 300.00
$3,650.30 10
In addition to the objections previously considered, FDIC contends an excessive amount of time is being spent, and billed, by attorneys in this case; charges for document control and management are excessive; and that there are instances of duplicate charges by Cadwalader attorneys.
Generally, the court disagrees with the FDIC contention that an excessive amount of time is being expended by Cadwalader in this case. However, the court finds two isolated instances where the time billed for the service appears excessive, resulting in a reduction of $290.00.11
The time billed related to document management, excluding preparation of trial exhibits, is approximately 135 hours. This equates to approximately ninety minutes per work day, assuming ninety work days during the 120-day period covered by the application. Considering the labyrinth of the debtor’s financial affairs this amount of time for document management is not unreasonable.
The fee request should be reduced by the amount of $2,713.25 due to the following duplicate charges:
Date Attorney Time Amount Billed
4/25/85 S. R. Greene 0.17 $27.20
'• 5/20/85 M. C. Ellenberg 10.67 $1,920.60
6/24/85 A. C. Emery 5.67 $765.45
Further, the court finds the following charges excessive considering the nature of the service performed:
Date Attorney Time Amount Billed
3/22/85 J. A. Madden 9.0 $1,440.00
5/16/85 A. C. Emery 6.0 $ 810.00
5/16/85 A. C. Emery 0.34 $ 45.90
The amount allowed for these services is reduced to $750.00.
Considering the factors in Code § 330(a), after subtracting charges for services insufficiently described, duplicate charges, and excessive charges, Cadwalader is entitled to interim compensation of $246,248.45 for its services between March 1 and June 30, 1985. Reimbursement of expenses totaling $21,460.87 is allowed.12
*46
Walker
During the period between April 1 and July 30, 1985, Walker has been involved in depositions, made appearances before this court and the district court, prepared motions and pleadings, and performed research. Additionally, Walker has performed numerous ministerial tasks, some related to the sale of estate property.
The $37,825.00 compensation request consists of 243.3 hours billed at $150.00 per hour for services rendered by John Walker plus 13.3 hours of services by Mary Walker billed at $100.00 per hour. The compensation request is based on Walker’s customary hourly rates.
Applying the Code § 330(a) factors, compensation cannot be allowed in the full amount requested. Considering the nature and value of many of the ministerial, yet necessary, services performed by John Walker during the relevant period, compensation at the hourly rate of $150.00 exceeds “reasonable compensation.” 11 U.S.C.A. § 330(a)(1) (Supp.1985).13 Reducing the hourly rate for John Walker’s services to $125.00, the court finds that $31,742.50 represents reasonable compensation for Walker’s services between April 1 and July 30, 1985. Reimbursement of expenses totaling $3,482.74 is allowed.
. The fifth interim report shows total receipts of $5,571,353.25 and disbursements totaling $1,953,845.45.
. This figure does not include reimbursement of expenses.
.The court has previously allowed interim compensation and reimbursement of expenses as follows:
Date of Order 10/31/84 1/3/85 2/4/85 5/23/85 Compensation Cadwalader Walker $ 699,422.44 1,520.50 234,615.58 269,610.60 $ 79,656.00 20,647.25 23,100.00 Expenses Cadwalader $ 68,441.72 21,306.93 22,445.81 Walker $ 8,440.49 2,110.60 3,605.87 TOTAL $1,205,169.12 $123,403.25 $112,194.46 $14,156.96
Future applications for compensation must state the payments previously received, in accordance with Bankruptcy Rule 2016(a).
.Transcript of Proceedings of Sept. 9, 1985, at 39.
. The FDIC computations are based on a five-day work week.
. In a prior memorandum on applications for compensation by Cadwalader and Walker the court outlined the debtor’s lack of cooperation in this case. In re Crabtree, 45 B.R. 463 (Bankr. *44E.D.Tenn.1984). Legal action has been required to obtain nearly every asset of the estate.
. At no time has FDIC interposed an objection to the customary rates of Cadwalader.
. However, the court does find that some services related to the sale of estate property do not warrant compensation at Walker’s customary rates.
.See DuVoisin v. Crabtree, Adv.Proc. No. 3-85-0721 (March 8, 1985).
. The court will reconsider the allowability of these fees if Cadwalader supplements its application with the details related to these charges.
. Both entries pertain to E.C. Rowan, whose customary hourly rate is $145.00. The court disallows charges for one hour spent on April 26, 1985, revising a brief 2004 motion and preparing a certificate of service. Also, one of the two hours billed for Rowan’s services on May 31, 1985, to prepare a settlement motion in an adversary involving Union County Bank, is disallowed.
.Postage charges of $217.62 are presently disallowed. The court will reconsider this disal-lowance if the expense does not involve routine postage charges.
. These ministerial services include attendance at auction sales; conferring with auctioneers; conferring with bank officers; phone calls to arrange deposition and hearing dates; responding to information seekers; review of billing records; and sending or supervising the sending of notices. The dates on which such services were performed are;
Month Dates
April 18, 19, 20, 24, and 29
May 7, 15, 23, 24, 29, and 30
June 4, 5, 14, 17, 18, 19, 20, and 25
July 12 and 29 | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8490171/ | *85MEMORANDUM OPINION AND ORDER
RICHARD L. SPEER, Bankruptcy-Judge.
This cause comes before the Court upon the Motion to Accept Late Filing of Proofs of Claim filed by Regina Meyers and Dais-ey Meyers. The parties have agreed that the issues addressed by this Motion are primarily issues of law and that the Court may reach a decision on this Motion based upon the written arguments of counsel. Pursuant to that agreement, the parties have submitted their arguments and have had the opportunity to respond to the arguments made by opposing counsel. The Court has reviewed those arguments as well as the entire record in this case. Based upon that review, and for the following reasons, the Court finds that the Motion to Accept Late Filing of Proofs of Claim should be DENIED.
FACTS
The facts in this case do not appear to be in serious dispute. Prior to the filing of the Debtor-In-Possession’s Petition, the Movants were plaintiffs in a personal injury action against the Debtor-In-Possession which had been filed in the Supreme Court of the State of New York, County of Kings. A trial had been conducted on the issue of the Debtor-In-Possession’s liability. However, as of January 21, 1983, the date on which the Debtor-In-Possession filed its voluntary Chapter 11 Petition with this Court, no decision had been issued.
In the schedules which were filed with the Debtor-In-Possession’s Petition the Movants were listed as disputed unliqui-dated creditors. The Movants’ counsel was notified of the filing of the petition. Shortly after the filing of that Petition, the New York Court issued a ruling which found the Debtor-In-Possession liable to the Movants. Subsequently, the Movants’ counsel, one Albert Silberman, indicated to the Debtor-In-Possession’s counsel that he intended to continue prosecution of the damages segment of the personal injury suit. In response, the Debtor-In-Possession initiated an adversary action in this Court, wherein they sought to enjoin the Movants from proceeding in New York. The Movants filed both an Answer and a counterclaim in that adversary action. The counterclaim sought a relief from the automatic stay for the purpose of continuing their prosecution of the state litigation. On April 19, 1983, this Court enjoined the Movants from continued prosecution of their case.
At some time following the entry of the injunction, Mr. Silberman contacted counsel for the Debtor-In-Possession regarding the status of the reorganization. On February 10, 1984, the Debtor-In-Possession filed its Disclosure Statement and Plan of Reorganization. On April 23, 1984, this Court entered an Order approving the Disclosure Statement and setting May 30, 1984, as the last day on which claims could be filed in this case. Counsel for the Movants was served with a copy of the Disclosure Statement, the Order Approving the Disclosure Statement, and the Plan of Reorganization. Shortly thereafter, the Movants’ counsel again contacted counsel for the Debtor-In-Possession regarding the status of the reorganization. On June 8, 1984, this Court entered an Order which confirmed the Debtor-In-Possession’s Plan of Reorganization. The Plan provided that only those disputed unliquidated creditors who had timely filed proofs of claim would be entitled to a distribution under the Plan. As of the date of confirmation, the Movants had not filed a proof of claim in this case.
At some time subsequent to the Order of Confirmation, the Movants retained one David Singer to further represent them in their proceedings against the Debtor-In-Possession. Mr. Singer contacted counsel for the Debtor-In-Possession with regard to the status of the reorganization and the Movants’ claim. The specific date on which this contact occurred is unclear. During February of 1985, Mr. Singer again contacted counsel for the Debtor-In-Possession. At that time he indicated that the Movants’ prior counsel had been unable to contact the Movants for an extended period of time, and that as a result he was unable *86to have them timely execute their proofs of claim. He also indicated that the Movants had now signed the proofs of claim and that he would be filing a motion to have those proofs of claim accepted as though they had been timely filed. It appears that Mr. Silberman’s inability to contact the Movants resulted from a fire in the Mov-ants home and their subsequent relocation to another address. It also appears that the Movants did not advise their counsel of their new location, nor did they provide him with any means by which to reach them. It is unclear as to what, if any, contact the Movants had with their counsel during the foregoing sequence of events.
LAW
The question presented by this motion is whether or not the Movants should be allowed to file their proofs of claim and to have such proofs of claim accepted as though they were filed prior to the expiration of the original filing period. In this regard, the provisions of 11 U.S.C. Section 1141 state in pertinent part:
... the provisions of a confirmed plan bind the debtor ... and any creditor ... whether or not the claim or interest of such creditor ... is impaired under the plan and whether or not such creditor ... has accepted the plan.
... the confirmation of a plan—
(A) discharges the debtor from any debt that arose before the date of such confirmation ... whether or not—
(1) a proof of the claim based on such debt is filed or deemed filed under section 501 of this title.
Under this provision the.terms of a confirmed plan of reorganization bind all creditors to the terms contained therein, regardless of whether or not any particular creditor accepted the plan or is impaired thereby. In re White Farm Equip. Co., 38 B.R. 718 (N.D.Ohio 1984).
A review of the plan in the present case finds that it provides for the estimation of unliquidated disputed personal injury claims which have been timely filed. It also provides for the creation of a fund from which the personal injury claimants will receive, based upon the estimation, a pro rata distribution. Implicit in those provisions is the requirement that a claimant, in order to participate in a distribution, must file a claim. Also implicit in those provisions is the fact that any creditor who fails to file a claim will not be eligible to participate in a distribution. These provisions appear to afford the Debtor-In-Possession some finality as to the extent of its reorganization effort. Such a goal is a legitimate and recognizable objective for a plan of reorganization. See, In re Standard Metals Corp., 48 B.R. 778 (D.Col. 1985), In re Tobilar, Inc., 29 B.R. 672 (Bkcy.W.D.La.1983).
A review of the facts in this case finds that the Movants had, from the filing of the Chapter 11 Petition until the last day on which claims could be filed, approximately sixteen months in which to file their claims. It also appears that the Movants waited approximately nine months after the expiration of the filing period before seeking authority to file a delinquent claim. The Movants have argued, through their present counsel, that their inability to timely file a claim resulted from prior counsel’s ignorance as to their whereabouts. However, a creditor must accept some responsibility for taking whatever actions are reasonably necessary for protecting his interests. In re Standard Metals Corp., supra. The Movant’s prior counsel was apparently aware of the necessity to file a proof of claim and appears to have taken the steps required to do so. The fact that the Mov-ants did not make themselves available to their counsel is the event which caused them to miss the filing date. This Court does not believe it unreasonable to expect a creditor involved in ongoing litigation to keep his counsel apprised of his whereabouts. The failure to do so is a breach of the creditor’s duty to protect his interests and to prosecute his claim. Having neglected to live up to that duty, the Movants in this case must suffer the consequences of their own failure. While the Court is sympathetic to whatever circumstances the *87Movants may have faced, the delay in this case cannot be justified by any facts which have been presented to this Court. Therefore, it must be concluded that the Motion to Accept Late Filing of Proofs of Claims should be denied.
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 to Accept Late Filing Of Proofs of Claim be, and is hereby, DENIED. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8490172/ | DECISION AFTER TRIAL OF OBJECTION TO DISCHARGE OF FRED P. BILLINGS
EDWARD J. RYAN, Bankruptcy Judge.
FINDINGS OF FACT
1. Fred P. Billings, defendant, executed an unconditional letter of guarantee to Charter International Oil Co., plaintiff, agreeing to personally pay the liabilities of a corporation known as Anchor-Inland, Inc.
2. Defendant was a principal stockholder, officer, and chief executive officer of Anchor-Inland, Inc.
3. The corporation, Anchor-Inland, filed for the protection of Chapter 11 of the United States Bankruptcy Code on April 7, 1981.
4. At the time the corporation filed its Chapter 11 petition, Linda Sue Young was serving as office manager, director, and secretary of the corporation.
5. During the winter of 1979, Linda Sue Young testified that she had decided to purchase a unit of the Covered Bridge Condominiums as a gift for her grandmother.
6. Linda Sue Young solicited the advice of her corporate superior, the defendant. The defendant then referred her to a real estate agent, one Ike Morrison.
7. Defendant claims to have had no other involvement in this real estate transaction until the date of closing.
8. Defendant accompanied Linda Sue Young to the real estate closing at the office of the title company on December 17, 1979. It was at the closing, the defendant and Linda Sue Young testified, that they then learned that title to the condominium was to be taken in the name of the defendant, Fred P. Billings. However, buyer and sellers consummated the sale, even with an incorrect grantee named, in order to allow *101the grandmother of Linda Sue Young to occupy the premises by Christmas day.
9. Linda Sue Young made the downpayment at closing by means of a Christmas bonus given to her by Anchor-Inland. Subsequently, she made each and every monthly payment directly to the original sellers, Edward and Grace Wey.
10. Defendant gave the original sellers a deed of trust and promissory note in the amount of thirty-four thousand dollars at closing. The deed was duly recorded.
11. Defendant and Linda Sue Young agreed with the sellers that she would pay them directly.
12. On January 7, 1980, the defendant executed and delivered a second deed. This one transferred title to Linda Sue Young from the defendant. Linda Sue Young executed and delivered to the defendant a promissory note in the amount of thirty-four thousand dollars. The deed conveying title from Fred P. Billings to Linda Sue Young was not then recorded.
13. Linda Sue Young said that she prepared this deed herself without the aid of an attorney by simply copying the deed and notes in the papers from the original sellers to the defendant.
14. Linda Sue Young and the defendant testified that they did not discuss the necessity of recording the second deed at this time.
15. On March 10, 1981, the defendant signed an agreed judgment against him personally and in favor of a third-party creditor, Johnson-Ryan, Inc. Defendant claims that he never discussed this judgment or its execution with Linda Sue Young.
16. Linda Sue Young, while working in the office of Anchor-Inland, testified that she noticed that the condominium was listed with papers which enumerated the personal property of the defendant which was subject to execution. She says that she asked the defendant why her property was being subjected to execution. The defendant is said to have replied that he wasn’t sure what the deal was.
17. On March 20, 1981, Linda Sue Young then personally had recorded in the deed records of Harris County, Texas, the deed from the defendant to her. This was the same deed put in her hands by the defendant on January 7, 1980.
18. The plaintiff, Charter International Oil Company, became a judgment creditor of the defendant on August 1, 1981.
19. The defendant gave a discovery deposition in the office of plaintiff’s lawyer on January 1, 1982. Defendant at that time denied that nobody owed him any money. This despite his holding of the note given on January 7, 1980.
20. On February 1, 1982, the defendant filed for relief under Chapter 7 of the United States Bankruptcy Code.
21. The deed from defendant to Linda Sue Young was at all relevant times in the possession of and under the control of the defendant who directed the grantee named therein to record the same on March 20, 1981.
22. The transfer of title to Linda Sue Young took place on March 20, 1981 with actual intent to hinder, delay and defraud creditors, including the plaintiff.
23. The transfer occurred within one year before the date of the filing of the petition of the defendant.
CONCLUSION OF LAW
The debtor, Fred P. Billings, should be and he is denied his discharge in bankruptcy pursuant to Section 727(a)(2) of the United States Bankruptcy Code. Let judgment enter accordingly. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8490173/ | OPINION
EMIL F. GOLDHABER, Chief Judge:
The basis of dispute in the case at bench is whether we should grant the trustee’s motion for an order enlarging a previously entered order of this court which directed the trustee to satisfy a sum certain due on a mortgage of estate property. The trustee would have us enlarge our order to allow the trustee to be subrogated to the mortgagee’s secured position for his payment. Since the trustee was the primary obligor on the mortgage in question, his payment extinguished the debt, thus precluding us from granting the requested relief.
The essential facts to this aspect of this labyrinthian case are as follows:1 The debtor granted a nonrecourse mortgage in a parcel of realty in 1972 to the First Pennsylvania Banking and Trust Company (“First Pennsylvania”). The debtor fell in default of the mortgage and soon thereafter filed a petition for reorganization under chapter XI of the Bankruptcy Act of 1898. The debtor was adjudicated a bankrupt in 1979 and, thereafter, we ordered the sale of the property free and clear of liens with such encumbrances attaching to the proceeds of any sale of the parcel. Ultimately a sale of the property brought $625,000.00.
First Pennsylvania commenced suit in this court for a determination of its entitlement to the proceeds of the sale and, subject to certain restrictions set forth in an earlier order and accompanying opinion of February 24, 1984, we directed the trustee to pay First Pennsylvania $280,000.00 of the proceeds. First Pennsylvania Bank, N.A. v. Harris (In Re Eagson), 37 B.R. 471 (Bankr.E.D.Pa.1984). The trustee then filed the instant motion on May 10, 1985, for enlargement of the order of February 24, 1984. The trustee would have us amend the said order so that the trustee would be subordinated to the former secured position of the mortgagee in the proceeds due to his $280,000.00 payment to First Pennsylvania. The basis for the trustee’s request is found in the loan agreement that supported First Pennsylvania’s mortgage. In pertinent part the loan agreement provides:
The parcel [of realty in question] (hereafter called the “Eagson Tract” ...) shall be released from the lien of the Mortgage prior to the final repayment of *129the loan amount in accordance with this Agreement and the terms of the Note if either (1) [the debtor] pays to [First Pennsylvania] the sum of $280,000.00 in reduction of the loan or (2) payments of $280,000.00 in reduction of the loan are made to [First Pennsylvania] by [the debtor] or others in excess of those payments required to be made to [First Pennsylvania] under Ssection 3.3. If, because of a default of Borrower, [First Pennsylvania] begins foreclosure proceedings against the property subject to the lien of the Mortgage, and if subsequent to the start of such proceedings a sum equal to the unpaid balance of the $280,000.00 payment referred to in (2) of the proceeding sentence is made to [First Pennsylvania] in order to obtain a release of the lien of the Mortgage from the [property] [First Pennsylvania] will give to the party so paying such sum a subordinated participation in the Note (to the extent of the payment so made); the payment of such sum for such purpose shall not be applied by [First Pennsylvania] in reduction of the loan, but shall be retained by [First Pennsylvania] for its own account. (Emphasis added).
Subordination would give the trustee a creditor’s secured claim against the proceeds of the sale of estate property. Since the trustee is the representative of the estate, we are faced with the anomaly that the trustee would be both a lien creditor and a lien debtor on the same obligation. A review of Pennsylvania property law is necessary to determine the propriety of this result, particularly in light of the concepts of extension of debt and the merger of a mortgage in a fee interest.
Putting the matter under discussion in perspective, one noted commentator has stated: “The question whether the acquisition of the mortgaged land of the mortgage debt by one person has, in the particular ease, the effect of discharging the debt and extinguishing the mortgage lien is frequently one of some difficulty.” 5 Tiffany, The Law of Real Property § 1479, p. 503 (3d ed. 1939). Another leading treatise has well summarized the law in this area:
11459. Termination of a mortgage— Merger.
When a greater and a lesser lead interest meet in the same person, in the same right, without any intermediate interest, a merger is said to occur, the lesser interest being swallowed by the greater. This doctrine arises from the fact that normally there is no utility served by separately maintaining two parts of the entire bundle of ownership rights when all of these rights are held by one owner. Accordingly, the law courts have followed the rule of extinction of the lesser right whenever the requisite facts are present. Equity, however, has never favored the rule of merger, and, if there is any advantage to be gained by continuing the independent existence of the rights, that continuance, explained as a product of “intent,” actual or presumed, is maintained in equity.
When, therefore, an interest in land and a mortgage thereon unite in possession in the same person, a merger ordinarily occurs, since this is normally to the advantage of that holder.
That the mortgagor may convey his equity of redemption to the mortgagee is well established, provided that the same be for a valuable consideration, and that the transaction does not result from economic pressure applied by the mortgagee to circumvent the mortgagor’s chance to redeem. Such conveyance ordinarily results in a merger of the two interests in the mortgagee, provided of course, the interest so conveyed is the entire interest subject to the mortgage. But such a conveyance does not, of itself, cut off junior liens or interests, their existence prevents a merger, the mortgage being kept alive in order to permit foreclosure against these subordinate claims. This applies also in the case of an acquisition of the interest of the mortgagor by an intermediate mortgagee, the lien being preserved in order to maintain superiority over claims of greater subordination.
*130When the mortgagee elects to foreclose the mortgage only to the extent that there is due and unpaid thereunder any interest upon the principal sum secured by the mortgage, the mortgage is not deemed to have merged in the judgment. The mortgage remains in effect as security for payment of the principal sum which remains due.
Merger is also denied in some situations where the interests of third persons are adversely affected. If the mortgagee, prior to acquisition of the equity of redemption, has collaterally assigned his mortgage to secure an obligation of his own, the mortgage lien is preserved. Similarly, if the mortgage is held by husband and wife as tenants by the entire-ties, a conveyance to the husband alone does not result in a merger, since this would destroy the wife’s interest as well.
An assignment of the interest of the mortgagee to the original mortgagor normally results in merger. When the interest of the mortgagee is assigned to a grantee of the original mortgagor, merger is unavoidable. Only so can the grantee’s duty to indemnify his grantor, to the extent of the debt if he has assumed the mortgage, and to the extent of the value of the land in all events, be effectuated.
As in the case of the acquiring mortgagee, a mortgagor is not handicapped by merger on acquiring the mortgage where intervening liens are present. Also, third parties are not prejudiced by merger, as where money is loaned to the mortgagor for the purpose of acquiring the mortgage, and the lender’s equitable lien is protected against junior claimants by keeping the acquired mortgage alive, to the extent of the advances, for his benefit.
3 Powell, The Law of Real Property ¶ 459, pp. 696.24 to 696.30 (1984) (footnotes omitted).
Notwithstanding the above quoted authority, additional principles are in the fore:
One who is primarily liable for a debt cannot acquire the debt, that is, a claim against himself, and assert that the debt is still outstanding. The same person cannot be debtor and creditor, and the effect of his acquisition of the debt is to render it no longer existent. So when the person whose debt is secured by a mortgage, ordinarily the mortgagor himself, acquires the debt with its incidental lien, the debt being discharged, the mortgage lien is extinguished. And the case is the same when a grantee of the land assumes payment of the mortgage and thereafter acquires the mortgage debt. He being primarily liable for the debt, the debt is discharged. It would seem, however, that if the person so primarily liable for the mortgage debt undertakes to acquire it by purchase, that is, by paying the amount of the debt to the holder thereof, this involves an extin-guishment of the lien by payment rather than by merger, and consequently the rule that merger necessarily results if the person primarily liable acquires the debt and incidental mortgage security would seem properly to be restricted in its actual operation to cases in which such person acquires the debt and mortgage by gift or by the payment of less than the debt. The cases usually fail to distinguish in this regard between payment and merger, but it seems sufficiently evident that if the person primarily liable pays the debt, though nominally purchasing it and taking an assignment, the debt, with its incidental mortgage lien, is extinguished not by reason of its merger but by reason of its payment. That such person cannot claim to be sub-rogated, on payment of the debt, to the rights of the creditor, even though he undertakes to obtain an assignment of the debt, has been frequently decided, and these decisions would seem to involve the view that the delivery to the creditor, by the person primarily liable, of the amount of the debt, constitutes a payment and extinguishment of the debt.
5 Tiffany, The Law of Real Property § 1482, PP. 512-13 (3d ed. 1939) (footnotes omitted). The Pennsylvania Supreme Court has upheld this view. Kinlet v. Hill, 4 Watts & Serg. 426, 432 (1842). This is in *131accord with the more general principle that subrogation will be denied where the entity paying on the debt is primarily rather than secondarily liable. Anderson v. Borough of Greenville, 273 A.2d 512, 442 Pa. 11 (1971).
Accordingly, in the case at bench, the trustee stands in the shoes of the debtor as the primary obligor on the mortgage debt, and as such the debt was extinguished on his payment of the mortgage to First Pennsylvania. Under Pennsylvania law he is not entitled to an assignment of the mortgage, since that mortgage is now extinguished. We will enter an order accordingly.
. 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/8490174/ | ORDER ON MOTION FOR ORDER TO SHOW CAUSE
ALEXANDER L. PASKAY, Chief Judge.
THE MATTER under consideration is a motion filed by Jack Glendon Sumrall (Debtor) in the above-captioned Chapter 13 case. The Debtor seeks an order finding Barnett Bank of Tampa (Bank) in contempt of court for violation of the automatic stay and seeks the assessment of fines, damages, and attorney’s fees against the Bank. The Court heard testimony of witnesses, considered the record and finds that on September 10, 1985 the Debtor filed its petition for relief under Chapter 13 of the Bankruptcy Code together with its Chapter 13 Plan. At the same time, the Debtor also filed the schedule of creditors which included the Bank together with its correct address. On September 12, 1985 the Bankruptcy Clerk prepared a Notice of Meeting of Creditors. Although the Notice bears no certificate of mailing, this Court is satisfied that it was, in fact, mailed to the Bank according to the established procedure in *135the Clerk’s Office, especially in light of the fact that all other creditors received notice and the Court did not receive the Bank’s notice returned and marked as undeliverable.
The record reflects that on September 30, 1985, in spite of the pending case, Barnett Bank debited the Debtor’s account in the amount of $556.74, representing payment on the delinquent August and September installment payments on a car loan obtained from the Bank by the Debtor.
The record further reveals that on the same date, the Debtor had met with the loan officer in charge of car loans and indicated that the Debtor wanted to pay his loan through the account and that he intended to keep it current. At that time he signed an authorization to charge his account on a monthly basis for the payment of the installment loan (Barnett’s Exh. # 1).
The Bank contends that it did not receive notice of the pendency of the bankruptcy and that by virtue of the September 30 authorization, the Debtor authorized the delinquent payments to be debited from his account.
The Debtor admits that he did sign the authorization but that he was authorizing only payments in the future, i.e. the November payment on, but not the arrearages which were to be cured under the terms of the Plan filed by the Debtor with his petition.
The automatic stay is the most basic element of protection afforded the Debtor and the properties of the estate. In re Penn Terra Ltd. v. Department of Environmental Resources, 733 F.2d 267 (3d Cir.1984). There can be no doubt that the Debtor’s bank account is property of the Debtor under § 541 of the Bankruptcy Code. There is, further, no question that the automatic stay prohibits the bank from exercising its otherwise recognized automatic right of set-off.
This Court is satisfied that the matter under consideration is a core matter as defined by § 157(b) of the Bankruptcy Code and notes that by virtue of 28 U.S.C. § 1334(d), the District Court has “exclusive jurisdiction of all of the property of the estate, wherever located, of the Debtor as of the commencement of the case.” § 151 of 28 U.S.C. authorizes the District Court to refer all matters pertaining to a case filed under Title 11. Thus, the jurisdiction granted to the District Court by virtue of 28 U.S.C. § 1334(d) is exercised by the Bankruptcy Court if the District Court has entered an order of general reference. Such an order has been entered in this jurisdiction. Consequently, the Motion to Dismiss for Lack of Jurisdiction is without basis in law and must be rejected.
This leads to the consideration of whether the Bank’s act in debiting the Debtor’s account violated the automatic stay and, if so, what remedies are appropriate under the circumstances.
There is no question that the protection afforded by the automatic stay may be waived by the Debtor as the automatic stay relates to the protection of the Debtor. It is doubtful, however, that the Debtor is in a position to waive the protection of property of the estate. Even assuming the Debt- or’s authority to reject the protection offered by the stay, the record is clear in this instance that the Debtor only authorized the Bank to debit the account beginning with the month of November.
Based on the foregoing, this Court is satisfied that the Bank’s act in debiting the account did violate the automatic stay. § 362(h) provides that an individual injured by any willful violation of the stay is entitled to recover actual damages, including costs and attorney's fees as a result of the violation. This Debtor is entitled to have its account recredited with the $556.74 previously debited by the Bank in violation of the stay.
It should be noted that this is a remedy provided by § 362(h) as distinguished from a remedy available for contempt. Be that as it may, even if this is viewed as civil contempt, this Court has ample authority to issue a contempt order and would not be limited to the remedy available under § 362(h) which requires a: willful violation. *136United States v. Talbot, 133 F.Supp. 120, 122 (D.C.Alaska 1955).
Further, § 542 of the Bankruptcy Code provides for turnover of property of the estate. As noted earlier, the funds debited from the Debtor’s account are clearly property of the estate subject to turnover by order of this Court.
Accordingly, it is
ORDERED, ADJUDGED AND DECREED that Barnett Bank shall recredit the Debtor’s account in the amount of $556.74 within five days of the date of this order. It is further
ORDERED, ADJUDGED AND DECREED that the Debtor shall recover from Barnett Bank its costs, including attorney’s fees in this matter upon proper motion. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8490176/ | DECISION AND ORDER DENYING DEFENDANT’S MOTION TO DISMISS AND DENYING PLAINTIFF’S MOTION FOR SUMMARY JUDGMENT
THOMAS F. WALDRON, Bankruptcy Judge.
This is a case arising under 28 U.S.C. § 1334(a) and having been referred to this court is determined to be a core proceeding under 28 U.S.C. § 157(b)(2)(A), (F). This matter is before the court on defendant’s motion to dismiss, plaintiff’s memorandum contra defendant’s motion to dismiss, plaintiff’s motion for summary judgment, defendant’s memorandum contra plaintiff’s motion for summary judgment, and plaintiff’s supplemental memorandum contra defendant’s motion to dismiss and in support of his motion for summary judgment.
Plaintiff’s complaint alleges that a preference, as defined in 11 U.S.C. § 547(b), was granted to defendant-creditor, Avco Finance, by the debtors, Larry David Durham and Kathy M. Durham. No facts were asserted in the complaint itself setting forth the grounds on which the alleged preference supposedly arose. The plaintiff merely attached as exhibits copies of a proof of claim filed by the defendant, copies of two Ohio Certificates of Title with defendant’s liens noted thereon, a copy of the debtors’ promissory note to defendant, and a copy of a disclosure statement.
In response to plaintiff’s complaint, the defendant filed a motion to dismiss under ■Bankr.R. 7012 and Fed.R.Civ.P. 12(b)(6) on the ground that the plaintiff had failed to “state a claim upon which relief can be granted.” No memoranda or affidavits were filed in support of this motion.
The first issue to be addressed, therefore, is whether the defendant has met his burden of proving that no claim for relief has been stated by plaintiff. 2A J. Moore & J. Lucas, Moore’s Federal Practice ¶ 12.07 [2.-5] at 12-63 (2d ed. 1985). The court finds defendant did not meet this burden.
Fed.R.Civ.P. 8(a)(2) requires that a complaint contain “a short and plain statement of the claim showing that the pleader is entitled to relief.” The general rule is “that a complaint should not be dismissed for failure to state a claim unless it appears beyond doubt that the plaintiff can prove no set of facts in support of his claim which would entitle him to relief.” Conley v. Gibson, 355 U.S. 41, 45-46, 78 S.Ct. 99, 102, 2 L.Ed.2d 80 (1957); Westlake v. Lucas, 537 F.2d 857, 858-59 (6th Cir.1976); Davis H. Elliot Co. Inc. v. Caribbean Utilities Co., Ltd., 513 F.2d 1176, 1182 (6th Cir.1975); Omaha National Bank v. T & T Parts Warehouse, Inc. (In re T & T Parts Warehouse, Inc.), 39 B.R. 399 (Bankr.W.D. Mi.1984) [hereinafter In re T & T Parts ]. The rationale behind the general rule derives from the finality of sustaining such a motion. Because dismissal of an action constitutes a judgment on the merits and is accorded preclusive effect, the courts generally disfavor granting a motion to dismiss. J. Moore, supra.
While the plaintiff in the instant case could have filed a pleading which better connected the attached documents to the proposition he sought to argue, still he is not required to explain in detail his entire claim. Westlake at 858; In re T & T Parts at 400. All the plaintiff is required to do by his pleading is give fair notice to his opponent of what his claim is and the grounds on which it rests. Conley, 355 U.S. at 47, 78 S.Ct. at 102. Here, the plaintiff clearly gave the defendant-creditor fair notice of his claim against him. He identified the section of law as 11 U.S.C. § 547(b) which sets forth the nature of the *147claim — that the creditor received preferential treatment — , and the relief sought— avoidance of the defendant-creditor’s security interest as a secured claim. The plaintiff also submitted supporting documents identifying the transaction in question and the relationship between the parties. Consequently, since the defendant-creditor was at a minimum put on notice of the claim against him, his motion to dismiss on the ground that the plaintiff has stated no claim for relief is hereby DENIED.
In his motion contra to plaintiff’s motion for summary judgment, however, the defendant raises an issue that would ordinarily warrant issuing an order of dismissal — i.e., that plaintiff as Chapter 13 Trustee had no standing to avoid a preference under 11 U.S.C. § 547(b). J. Moore, supra ¶ 12.07 [2.-5] at 12-68. This court has previously ruled that a Chapter 13 Trustee has standing to bring a preference action under § 547(b). Ledford v. Roth Realty, Inc. (In re Lonsbury) Case No. 3-83-00199; Adversary No. 3-83-0242 (Bankr.S.D.Oh. Aug. 1, 1983) (copy attached). Consequently, we find this claim of the defendant to be without merit.
Also pending in this action is plaintiff’s motion for summary judgment, brought pursuant to Bankr.R. 7056 and Fed.R. Civ.P. 56 on the grounds that the pleadings demonstrated no genuine issue as to any material fact and that the plaintiff is entitled to judgment as a matter of law, to which defendant has submitted a memorandum in opposition.
Plaintiff asserts that plaintiff-trustee has set forth a prima facie case of a preference under 11 U.S.C. § 547(b),1 and that the defendant-creditor does not meet the exception set forth in 11 U.S.C. § 547(c)(3)(B) which states:
(c) The trustee may not avoid under this section a transfer—
(3) That creates a security interest in property acquired by the debtor—
(A) to the extent such security interest secures new value that was—
(i) given at or after the signing of a security agreement that contains a description of such property as collateral;
(ii) given by or on behalf of the secured party under such agreement;
(iii) given to enable the debtor to acquire such property; and
(iv) in fact used by the debtor to acquire such property; and
(B) that is perfected on or before 10 days after the debtor receives possession of such property; (emphasis added).
The crucial factual issue over which the parties disagree is whether perfection of defendant-creditor’s purchase money security interest in the debtors’ two automobiles was timely. Plaintiff argues that it was not timely perfected because the note covered a loan to the debtors of $3,706.13 which was dated September 12, 1984, and was not perfected by notation on the two Certificates of Title until October 4, 1984, thus evidencing that the security interest was not for new value but for an account of an antecedent debt. The defendant, on the other hand, contends that the 1977 Chevrolet could not have been purchased without the creditor’s loan to the debtors, and that the security interest was not granted for an antecedent debt because the *148proof of claim shows that the 1977 Chevrolet was acquired by the debtor, Larry D. Durham, on October 4, 1984, the same date the lien was filed. The defendant did not address the issue of when title to the 1953 Chevrolet was perfected. Neither party, however, has addressed the factual starting point for determining perfection that is required by the statute, and that is: When did the debtors receive possession of the automobiles in question?
This court cannot determine a motion for summary judgment when factual issues necessary to a determination of such a motion are in dispute or not presented to the court. Atlas Concrete Pipe, Inc. v. Roger J. Au & Son, Inc., 668 F.2d 905, 908 (6th Cir.1982). Because summary judgment “operates to deny a litigant his day in court," Smith v. Hudson, 600 F.2d 60, 63 (6th Cir.1979), cert. dismissed, 444 U.S. 986, 100 S.Ct. 495, 62 L.Ed.2d 415 (1979), the movant bears the burden of proving “conclusively that there exists no genuine issue as to a material fact and the evidence together with all inferences to be drawn therefrom must be read in the light most favorable to the party opposing the motion.” (emphasis in original; citations omitted). Id. at 63. See also C.A. Wright, A.R. Miller and M.K. Kane, 10 Federal Practice and Procedure (Civil) § 2712 (1983). Since the date the debtors acquired possession of the collateral is still a material fact in issue, this court finds that the plaintiff has not met his burden of proof. Accordingly, plaintiff’s motion for summary judgment is hereby DENIED at this time.
Plaintiffs motion for summary judgment and defendant’s motion to dismiss, having been denied, IT IS FURTHER ORDERED THAT defendant SERVE upon plaintiff-trustee an ANSWER to his complaint within 10 days after entry of this court’s judgment herein, and to file the ANSWER with the court not later than the second business day thereafter. IF DEFENDANT FAILS TO DO SO, JUDGMENT BY DEFAULT WILL BE ENTERED for the relief demanded in the Complaint.
APPENDIX
GEORGE W. LEDFORD, 9 West National Road, Englewood, Ohio 45322, Plaintiff vs ROTH REALTY, INC., 4501 North Main Street, Dayton, Ohio 45405, Defendant
IN THE MATTER OF WILLIAM T. LONSBURY, ERICA DAWN LONSBURY, DEBTORS
Adv. No. 3-83-0242.
Bankruptcy No. 3-83-00199. DECISION AND ORDER
FINDINGS OF FACT
This matter is before the Court upon Motion to Dismiss filed by Defendant on 25 April 1983.
The instant Complaint, filed by the Chapter 13 Trustee on 7 April 1983, alleges that Defendant received from Debtors a preferential transfer as defined in 11 U.S.C. § 547(b). The Chapter 13 Trustee accordingly prays that “the Defendant be required to pay the Trustee all monies received by the Defendant as a result of the (alleged) transfer....” Debtors are not named parties in the instant Complaint.
The instant Motion requests dismissal on the ground that the Chapter 13 Trustee “does not have the right or responsibility to proceed with the adversary complaint, and is, therefore, not a proper party to initiate (this proceeding).” Defendant argues that in the instant proceeding the Chapter 13 Trustee is essentially attempting “to collect and reduce to money the property of the estate” as “authorized” in 11 U.S.C. § 704(1). Defendant contends, however, that the specific exclusion of 11 U.S.C. § 704(1) from the Trustee’s duties enumerated in 11 U.S.C. § 1302 renders a Chapter 13 Trustee without the “authority” to avoid preferential transfers and, therefore, “not a proper party to bring such proceeding.” 11 U.S.C. § 1302(b)(1). Defendant does not *149offer any case precedents to support this view.
The Court heard the matter on 4 May 1983, at which time the parties agreed to submit the matter on the record inclusive of any briefs if filed by 6 June 1983. To date, there have been no additional filings in the instant proceeding, and the Court, therefore, proceeds to decision exclusively upon the pleadings.
DECISION AND ORDER
The duties of a Chapter 13 Trustee enumerated in 11 U.S.C. § 1302 and, by incorporation, § 704(2), (3), (4), (5), (6) and (8) are wholly separable and not intended to restrict the avoidance powers of a Chapter 13 Trustee. A listing of nondiscretionary responsibilities should not be interpreted to preclude exercise of discretionary powers which may or may not directly assist in the performance of those responsibilities.
The Chapter 13 Trustee “is the representative of the estate” and “has capacity to sue and be sued.” 11 U.S.C. §§ 103(a) and 323. Furthermore, the Bankruptcy Code specifically provides that the Chapter 13 Trustee “may avoid” a transfer if preferential as defined in 11 U.S.C. § 547(b). 11 U.S.C. § 103(a).
IT IS THEREFORE ORDERED that the instant Motion to Dismiss is DENIED.
IT IS FURTHER ORDERED that Defendant SERVE upon George W. Ledford, Plaintiffs attorney, whose address is Box 67, Englewood, Ohio 45322, AN ANSWER to the instant Complaint ON OR BEFORE 20 DAYS FROM THE DATE OF SERVICE, AND TO FILE THE ANSWER WITH THIS COURT not later than the second business day thereafter. IF DEFENDANT FAILS TO DO SO, JUDGMENT BY DEFAULT WILL BE ENTERED for the relief demanded in the Complaint.
Entered at Dayton, Ohio in said District on the 1st day of August, 1983.
CHARLES A. ANDERSON Bankruptcy Judge
. 11 U.S.C. § 547(b) provides:
(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. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8490177/ | DECISION AND ORDER DENYING PLAINTIFF’S MOTION FOR SUMMARY JUDGMENT AND DENYING DEFENDANT’S MOTION FOR SUMMARY JUDGMENT
THOMAS F. WALDRON, Bankruptcy Judge.
This is a case arising under 28 U.S.C. § 1334(a) and having been referred to this court is determined to be a core proceeding under 28 U.S.C. § 157(b)(2)(K), in which the plaintiff-Chapter 13 Trustee disputes the validity, extent and priority of a lien.
Plaintiff-trustee’s complaint against defendant-creditor, Shillito Rikes, alleges that under 11 U.S.C. § 544, OH.REV.CODE ANN. § 1309.20 [U.C.C. § 9-301] and § 1309.31 [U.C.C. § 9-312] (Page 1979), he is a lien creditor with a priority interest which empowers him to avoid the purchase money security interest claimed by Shillito Rikes in the consumer goods it sold to the debtor, Lee D. Fields. Both parties have moved for summary judgment pursuant to Bankr.R. 7056. and Fed.R.Civ.P. 56 on the grounds that the pleadings demonstrated no genuine issue as to any material fact, and that each side is entitled to judgment as a matter of law.
The following material facts are not in dispute:
1. On July 12, 1984, Lee D. Fields purchased from the defendant tires, to be used primarily for personal, family or household purposes, and signed a security agreement covering the purchase price of $344.48, plus finance charges, thus granting to the defendant a purchase money security interest in consumer goods under OH.REV.CODE ANN. § 1309.05 [U.C.C. § 9-107] and § 1309.07 [U.C.C. § 9-109],
2. Defendant has never filed a financing statement covering this transaction.
3. On October 16, 1984, Lee D. Fields filed a petition in bankruptcy under the provisions of Chapter 13 of the Bankruptcy Code.
In his motion for summary judgment, the plaintiff argues he has a priority interest in the tires on two grounds:
(1) that as trustee he is a lien creditor under 11 U.S.C. § 544 and allowed to avoid a purchase money security interest in consumer goods when a financing statement has not been filed; and
(2) that as trustee he is a lien creditor under 11 U.S.C. § 544 which enpowers him to use OH.REV.CODE ANN. § 1309.-33(C)(2) [U.C.C. § 9-314] (Page 1979) to avoid a lien in an accession.1
*151As to the first claim, this court (See page 153) held that under OH.REV. CODE ANN. § 1309.26(C) [U.C.C. § 9-307(2)] (Page Supp.1984), the only person who can avoid the automatically perfected purchase money security interest of a creditor in consumer goods is a buyer in the ordinary course of business, and since the trustee is not authorized by 11 U.S.C. § 544 to succeed to the interest of a buyer of personalty in the ordinary course of business, he is unable to avoid a purchase money security interest in consumer goods. See also In re Ten Brock, 4 U.C.C.REP. SERV. 712 (CALLAGHAN) (Bankr.W.D. Mi.1966); In re Lucacos, 1 U.C.C.REP. SERV. 533 (CALLAGHAN) (Bankr.E.D.Pa. 1957); In re Kretzer, 1 U.C.C.REP.SERV. 369 (CALLAGHAN) (Bankr.E.D.Pa.1955).
The plaintiffs second claim requires the court to determine whether the tires should be classified as ordinary consumer goods under OH.REV.CODE ANN. § 1309.07(A) [U.C.C. § 9-109(1)] (Page 1979) or as an accession to a motor vehicle under OH. REV.CODE § 1309.33(A) [U.C.C. § 9-314(1) ]. The necessity for categorizing the tires arises because OH.REV.CODE ANN. § 1309.21(C)(2) [U.C.C. § 9-302(3)(b) ] (Page Supp.1984) excludes security interests in motor vehicles from the requirements of the Ohio Uniform Commercial Code rules of perfection regardless of whether they are purchase money security interests and regardless of whether they are consumer goods and requires instead that the perfection of security interests in motor vehicles be governed by OH.REV. CODE ANN. § 4505.13 (Page Supp.1984)— The Certificate of Motor Vehicle Title Law.2 See Official Comment 3, OH.REV. *152CODE ANN. § 1309.26 [U.C.C. § 9-307] (Page 1979); see also Commonwealth Loan Co. v. Berry, 2 Ohio St.2d. 169, 207 N.E.2d 545 (1965) (holding specific priority of liens under Certificate of Motor Vehicle Title Law as valid against general provisions in Uniform Commercial Code relating to artisan’s liens). The Ohio Certificate of Motor Vehicle Title Law stipulates that for security interests to be perfected they must be notated on the certificate of title by the clerk of the court of common pleas of the county in which the owner of the vehicle resided at the time the application for the certificate was made. See 1940 Op.Att’y Gen. No. 1867; see generally 7 OH.JUR.3D Automobiles and Vehicles §§ 58, 59 (1978).
The question before this court is whether the tires in this case are of such character as to lose their status as automatically perfected consumer goods and instead be treated as an accession to a motor vehicle requiring that any security interest in them be perfected by notation on the certificate of title. If they are accessions, and if a security interest in them was not perfected, the trustee could be considered “a creditor with a lien on the whole subsequently obtained by judicial proceedings” under § 1309.33(C)(2) and would have a priority interest over the defendant. General Motors Acceptance Corp. v. Lyford, (In re Lyford), 22 B.R. 222 (Bankr.D.Me. 1982); In re Williams, 12 U.C.C.REP. SERV. 990 (CALLAGHAN) (Bankr.E.D. Wis.1973). On the other hand, if the tires are not deemed accessions, it would appear that they would not be subject to the Ohio Certificate of Title Law, but to the Ohio Uniform Commercial Code (hereinafter U.C.C.). See Mills-Morris Automotive v. Baskin, 8 U.C.C.REP.SERV. 732 (CALLAGHAN) (Tenn.Sp.Ct.1971) (interpreting similar statutes in Tenn.) and IDS Leasing Corp. v. Leasing Associates, Inc., 590 S.W.2d 607 (Tex.Civ.App.1979) (holding the effect of finding refrigeration units not to be accessions to a motor vehicle subject to Certificate of Title Act, is that the U.C.C. must be complied with and control). If the U.C.C. controls, then the tires would be subject to an automatically perfected security interest in consumer goods which the trustee could not attach.
A frequently quoted passage on the issue of how one is to determine whether tires are an accession comes from Passieu v. B.F. Goodrich Co., 58 Ga.App. 691, 199 S.E. 775 (1938), involving an action in tro-ver:
The only premise, therefore, upon which the plaintiff in error can base his claim is that the tires and tubes form such an integral part of the truck, and are of such a nature and are so attached to it, that the truck and the tires and tubes are one and the same thing under the accession rule.
Id. at 692, 199 S.E. 776.
While affirming Passieu, the Georgia Court of Appeals has held it was error for the trial court to grant a summary judgment on the ground that a CB radio was an accession as a matter of law: “the Code does not indicate the degree to which one chattel must be affixed to another in order to constitute an accession,” Passieu therefore constituting a guide, not a literal standard. Mixon v. Georgia Bank and Trust Co., 154 Ga.App. 32, 33, 267 S.E.2d 483, 484 (1980). See also Glenn v. Trust Company of Columbus, 152 Ga.App. 314, 262 S.E.2d 590 (1979) (holding tires not an accession as *153a matter of law). Likewise, whether a security interest in awnings attached to a mobile home could be considered an accession was held to be a question of fact in State of New Mexico v. Woodward, 100 N.M. 708, 675 P.2d 1007 (1983).
In considering a motion for summary judgment, the moving party “has the burden of proving conclusively that there exists no genuine issue as to a material fact and the evidence together with all inferences to be drawn therefrom must be read in the light most favorable to the party opposing the motion.” Smith v. Hudson, 600 F.2d 60, 63 (6th Cir.1979) (emphasis in original), cert. dismissed, 444 U.S. 986, 100 S.Ct. 495, 62 L.Ed.2d 415 (1979). With this standard in mind, we cannot say conclusively that there is no genuine issue of material fact remaining. One of the plaintiff’s arguments is that the tires constitute accessions. Neither party, however, has devoted sufficient attention to the facts of the case to present a proper motion for summary judgment. There are no stipulations, admissions, affidavits, etc. to allow the court to know whether the items in controversy (automobile tires) are or ever were placed on the debtor’s automobile or what if anything, the automobile title discloses concerning them. The law is clear. Since an issue of material fact remains, summary judgment is hereby DENIED to plaintiff and defendant.
APPENDIX
In the Matter of DAVID POUNDS, DEBTOR
GEORGE W. LEDFORD, CHAPTER 13 TRUSTEE, PLAINTIFF VS. EASY LIVING, INC., DEFENDANT Bankruptcy No. 3-84-01156.
Adv. No. 3-84-0343.
DECISION AND ORDER DENYING PLAINTIFF’S MOTION FOR SUMMARY JUDGMENT AND SUSTAINING DEFENDANT’S MOTION FOR SUMMARY JUDGMENT
DATED AT DAYTON, OHIO this 5th day of December, 1985.
This is a case arising under 28 U.S.C. § 1334(a) and having been referred to this court is determined to be a core proceeding under 28 U.S.C. § 157(b)(2)(E), in which the plaintiff-Chapter 13 Trustee disputes the validity, extent and priority of a lien.
Plaintiff-trustee’s complaint against defendant-creditor, Easy Living, Inc. (hereinafter Easy Living), alleges that under 11 U.S.C. § 544 and OH.REV.CODE ANN. § 1309.20 [U.C.C. § 9-301] and § 1309.31 [U.C.C. § 9-312] (Page 1979), he is a lien creditor with a priority interest which empowers him to avoid the purchase money security interest claimed by Easy Living in the consumer goods it sold to the debtor. Both parties have moved for summary judgment pursuant to Bankr.R. 7056 on the grounds that the pleadings demonstrated no genuine issue as to any material fact and that each side is entitled to judgment as a matter of law.
The following material facts are not disputed:
1. On April 15, 1984, David Pounds purchased a color television set from defendant, to be used primarily for personal, family or household' purposes, and signed a security agreement covering the purchase price plus finance charges, thus granting to the defendant a purchase money security interest in consumer goods under OH.REV.CODE ANN. § 1309.05 [U.C.C. § 9-107] and § 1309.07 [U.C.C. § 9-109] (Page 1979).
2. Defendant has never filed a financing statement covering this transaction.
3. On May 31, 1984, David Pounds filed a petition in bankruptcy under the provisions of Chapter 13 of the Bankruptcy Code.
We find no dispute as to the material facts. The issue at law is whether the trustee can avoid under 11 U.S.C. § 544 a purchase money security interest in consumer goods when a financing statement has not been filed. We hold he cannot.
The issues of law presented by this case are identical to those decided by Judge *154William A. Clark in Ledford v. Easy Living Furniture (In re Jackson), 52 B.R. 706 (Bankr.S.D.Oh.1985). That opinion held that under OH.REV.CODE § 1309.26(C) [U.C.C. § 9-307(2)] (Page Supp.1984) the only person who can avoid the automatically perfected purchase money security interest of a creditor in consumer goods is a buyer in the ordinary course of business, and since the trustee is not authorized by 11 U.S.C. § 544 to succeed to the interest of a buyer of personalty in the ordinary course of business, he is unable to avoid a purchase money security interest in consumer goods. We find that decision controlling and hereby incorporate its rationale into the present order. See also In re Ten Brock, 4 U.C.C.REP.SERV. 712 (CALLAGHAN) (Bankr.W.D.Mi.1966); In re Luca-cos, 1 U.C.C.REP.SERV. 553 (CALLAGHAN) (Bankr.E.D.Pa.1957); In re Kret-zer, 1 U.C.C.REP.SERV. 369 (CALLAGHAN) (Bankr.E.D.Pa.1955).
IT IS THEREFORE ORDERED THAT plaintiffs motion for summary judgment is DENIED and defendant’s motion for summary judgment is SUSTAINED.
THOMAS F. WALDRON United States Bankruptcy Judge
. OH.REV.CODE ANN. § 1309.33 (Page 1979) provides:
(A) A security interest in goods which attaches before they are installed in or affixed to other goods takes priority as to the goods installed or affixed over the claims of all persons to the whole except as stated in division (C) of this section and subject to division (A) of section 1309.34 of the Revised Code.
(B) A security interest which attaches to goods after they become part of a whole is valid against all persons subsequently acquiring interests in the whole except as stated in division (C) of this section but is invalid against any person with an interest in the whole at the time the security interest attaches to the goods who has not in writing consented to the security interest or disclaimed an interest in the goods as part of the whole.
(C)The security interests described in divisions (A) and (B) of this section do not take priority over:
(1) a subsequent purchaser for value of any interest in the whole; or
(2) a creditor with a lien on the whole subsequently obtained by judicial proceedings; or
(3) a creditor with a prior perfected security interest in the whole to the extent that he makes subsequent advances; if the subsequent purchase is made, the lien by judicial proceedings obtained, or the subsequent advance under the prior perfected security interest is made of contracted for without knowledge of the security interest and before it is *151perfected. A purchaser of the whole at a foreclosure sale other than the holder of a perfected security interest purchasing at his own foreclosure sale is a subsequent purchaser within this section.
(D) When under division (A) or (B) and (C) of this section, a secured party has an interest in accessions which has priority over the claims of all persons who have interest in the whole, he may on default subject to the provisions of sections 1309.44 to 1309.50, inclusive, of the Revised Code, remove his collateral from the whole but he must reimburse any encumbrancer or owner of the whole who is not the debtor and who has not otherwise agreed to for the cost of repair of any physical injury but not for any diminution in value of the whole caused by the absence of the goods removed or by any necessity for replacing them. A person entitled to reimbursement may refuse permission to remove until the secured party gives adequate security for the performance of this obligation.
. OH.REV.CODE ANN. § 4505.13 (Page Supp. 1984) provides:
(A)(1) Sections 1309.01 to 1309.50 and section 1701.66 of the Revised Code, do not permit or require the deposit, filing, or other record of a security interest covering a motor vehicle, except as provided in division (A)(2) of this section.
(2) Sections 1309.01 to 1309.50 of the Revised Code apply to a security interest in a motor vehicle held as inventory, as defined in division (D) of section 1309.07 of the Revised Code, for sale by a dealer, as defined in division (J) of section 4517.01 of the Revised Code. The security interest has priority over creditors of the dealer as provided in sections 1309.01 to 1309.50 of the Revised Code without notation of the security interest on a certificate of title or without the retention of a manufacturer’s or importer’s certificate.
(B) Subject to division (A) of this section, any security agreement covering a security interest in a motor vehicle, if a notation of the agreement has been made by the clerk of the court of common pleas on the face of the certificate of title, is 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. All security interests, liens, mortgages, and encumbrances noted upon a certificate of title take priority according to the order of time in which they are noted on the certificate by the clerk. Exposure for sale of any motor vehicle by its owner, with the knowledge or with the knowledge and consent of the holder of any security interest, lien, mortgage, or encumbrance on it, does not render such security interest, lien, mortgage, or encumbrance ineffective as against the creditors of such owner, or against holders of subsequent security interests, liens, mortgages, or encumbrances upon such motor vehicle.
The secured party, upon presentation of the security agreement to the clerk of the county in which the certificate of title was issued, together with such certificate of title and the fee prescribed by section 4505.09 of the Revised Code, may have a notation of the security interest made on the face of such certificate of title. The clerk shall enter such notation and the date of it over his signature and seal of office, and he shall also note the security *152interest and the date thereof on the duplicate of the certificate in his files and on that day shall notify the registrar of motor vehicles, who shall do likewise. The clerk shall also indicate by appropriate notation on such agreement itself the fact that the security interest has been noted on the certificate of title.
When the security interest is discharged, the holder of it shall note its discharge on the face of the certificate of title over his signature. Prior to delivering such certificate to the owner, the holder shall present it to the clerk for the purpose of having the clerk note the cancellation of the security interest on the face of the certificate of title and upon the records of the clerk. The clerk, if such cancellation appears to be genuine, shall note such cancellation on the certificate of title, and he shall also note the cancellation of his records and notify the registrar, who shall note such cancellation. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8490179/ | ALBERT E. RADCLIFFE, Bankruptcy Judge.
This matter comes before the court upon the trustee’s Notice of Intent to Pay Five Thousand Four Hundred Sixty-seven Dollars ($5,467) to N R Ranch as an expense of administration of this estate. Two creditors, Basin Fertilizer and Chemical Company, Inc. and Don Rice, by and through their respective attorneys, Michael C. Miller and Steven A. Zamsky, have filed objections to such proposed payment. This court concludes that the objections should be overruled and that the payment proposed by the trustee should be allowed.
On April 13, 1983, debtor, Mathew R. Monroe (debtor) as lessee, entered into an agreement entitled “Crop Share Rental” with N R Ranch, a partnership, as lessor, whereby debtor, would lease approximately 330 acres of lessor’s land for the 1983 crop year. In exchange, debtor agreed that N R Ranch would receive, as rent, one third (Vs) of the gross proceeds of all grain and fifty-five percent (55%) of the gross proceeds of all hay grown on the land. Debtor agreed to supply all labor, equipment, seed, fertilizer and other supplies necessary to plant, cultivate and harvest the grain. N R Ranch agreed to provide irrigation equipment, water and to pay all utility costs resulting from irrigation carried out, by debtor, on the land. The agreement further provided that the crops grown would be owned by the parties as tenants in common from the date the crops were planted. N R Ranch’s undivided interest in the crops would be equal to the share of crop proceeds payable for use of the land. The agreement recites that approximately fifty (50) acres of land had already been planted for hay. At the hearing, the parties made no representation to the court as to when the grain was planted. This court therefore assumes, for the purpose of this opinion, that the grain was planted between April 13, 1983 and May 20, 1983.
The debtor and his wife, Barbara J. Monroe, filed a joint petition for voluntary relief under Chapter 11 of Title 11 U.S.C. (the Bankruptcy Code) on May 20, 1983. Thereafter, they continued as debtors-in-possession until their case was converted to a case under Chapter 7 of the Bankruptcy Code on December 9, 1983. J.F. Fliegel, Jr. has been duly appointed and is acting as the Chapter 7 trustee in this case.
During the administration of this estate under Chapter 11, the debtor carried out the terms of the agreement described above, by cultivating the N R Ranch property, harvesting the crops and delivering grain for storage and sale to Waldrup Brothers Grain Elevator. In his notice, the trustee represents that he has collected Sixteen Thousand Four Hundred Four Dollars Ninety-six Cents ($16,404.96) from Waldrup Brothers Grain Elevator for the sale of this grain (barley). He proposes to pay one-third (Vá) of this amount, the sum of Five Thousand Four Hundred Sixty-sev*163en Dollars ($5,467), to N R Ranch as an expense of administration, in accordance with the above-described agreement.
In response to the trustee’s notice, two creditors, Basin Fertilizer and Chemical Company, Inc. and Don Rice (objecting creditors) objected. They argue that the agreement between N R Ranch and the debtor creates a pre-petition, unsecured debt that should not be paid as an expense of administration. They further contend that any lien, held by N R Ranch, on either the grain itself or the proceeds from the sale thereof, is subject to avoidance, by the trustee, under 11 U.S.C. 545 as a statutory lien that is:
1. a lien that is "... not perfected or enforceable on the date of the filing of the petition against a bona fide purchaser ...” 11 U.S.C. 545(2);
2. "... is for rent, ...” 11 U.S.C. 545(3); or
3. "... is a lien of distress for rent.” 11 U.S.C. 545(4).
N R Ranch maintains that they are entitled to enforce the terms of the agreement since its interest in the grain is as a tenant in common, with the debtor, as provided in the agreement.
This court must first decide whether or not the estate and N R Ranch own the grain and its proceeds as tenants in common. The pertinent portions- of the agreement of April 13, 1983 are found in paragraphs 3 and 4 thereof, as follows:
3. Rent. The LESSEE shall pay to LESSOR as rent for the use and possession of the PREMISES one-third of the gross proceeds from the grain grown and produced on the PREMISES during the term of this Lease, and fifty-five percent of the gross proceeds for the hay produced on the PREMISES.
4. Ownership of Crops. Any crop planted, cultivated and/or grown on the PREMISES under the terms of this Lease shall be owned by the LESSOR and LESSEE as tenants in common. The LESSOR shall own an undivided interest in the crop equal to the share of the crop payable to him as rent for the PREMISES, referred to above, and such interest shall vest in LESSOR at the time the crop is planted on the PREMISES.
It appears to be the clear intention of the parties, as set forth in the Crop Share Rental agreement, that they would own the crops and the proceeds derived therefrom as tenants in common.
Further, in cases where an interest in the crop is reserved as payment for rent—
... the rule seems to have been settled in this jurisdiction that as to the crops in which the landlord is given a right to a fractional part as a consideration for the contract of lease, the parties thereto, namely, the. landlord and the tenant both have an estate or interest therein as tenants in common, ... Balia v. Ireland, 183 Or. 663, 675, 196 P.2d 445 (1948).
The cases cited by the objecting creditors are distinguishable from this case. Har-gett v. Beardsley, 33 Or. 301, 54 Pac. 203 (1898) involved a situation where a creditor agreed to rent land (paying the rental payments in advance) and to advance the tenant-farmer the seed to plant the crops, money for harvesting and sacks for sacking the crop. The farmer agreed to provide the necessary labor for the operation. The agreement further provided that, after harvest, the farmer would repay all funds advanced by the creditor as well as a preexisting debt. A bumper crop yielded a surplus after payment of all the agreed expenses and pre-existing indebtedness. Both parties claimed the surplus funds. The court held that the parties could not own the proceeds as tenants in common when, in reality, there was a cash rental. Although the creditor had agreed to advance funds, the ultimate burden was upon the farmer to pay the expenses, thus, the court treated the farmer as the actual tenant and owner of the surplus funds. In Varney v. Derryberry, {In re Stroh), 38 B.R. 95 (Bankr.N.D.Ohio 1984), it appeared that the rental agreement was based upon a price per acre formula or a fixed payment for the use of the land, not a fractional part of the crop, or its proceeds. It is notewor*164thy that in construing Ohio law, the court stated in its opinion that: “... when the compensation for use of the land is paid as a share of the crop, the parties become tenants in common in the crop.” 38 B.R. at 100.
This court concludes that the clear intent of the parties and the settled law in Oregon is such that the debtor and N R Ranch must be treated as owners of the grain crop and any proceeds from the sale thereof as tenants in common. The trustee was correct in his proposal to pay one-third (Vs) of the proceeds thereof to N R Ranch as and for its ownership interest in the crops. In light of this opinion, we need not discuss the other issues raised by the parties. Accordingly, the objections posed by the objecting creditors should be overruled.
This opinion shall constitute this court’s findings of fact and conclusions of law, they shall not be separately stated. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8490180/ | MEMORANDUM OF DECISION
ROBERT L. KRECHEVSKY, Chief Judge.
I.
This matter arises out of a prepetition complaint brought by Paul E. D’Orio (debt- or) against the defendant, Town of East Haddam (Town). The debtor filed a voluntary petition under chapter 11 of the Bankruptcy Code on May 1, 1985. On that date, the debtor’s complaint was pending in the Connecticut Superior Court. Paul D’Orio v. Town of East Haddam, No. CV-840042392S. The debtor, on July 29, 1985, removed his action to this court pursuant to 28 U.S.C. § 1452(a).1 The Town has not requested that the court abstain from hearing this proceeding,2 and has joined with the debtor in consenting to the court entering a final judgment.3 The issue to be decided is whether Conn.Gen.Stat. § 7-101a4 gives a town employee — the debt- or — the right to indemnification for the expenses he incurred in successfully defending a dismissal from office proceeding.5
*265ii.
The pertinent facts in this proceeding are undisputed. In November, 1982, the debt- or was the Town’s building official, an appointed position. At that time the Town’s first selectman made informal charges against the debtor and requested his resignation. The debtor did not resign, and in March, 1983, the Town started formal proceedings under Conn.Gen.Stat. § 29-2606 for the debtor’s removal from office for failing to perform his official duties. The grounds for dismissal, in general, were that the debtor improperly administered enforcement of the State building code. The debtor retained counsel to represent him in the dismissal proceeding. The hearing started on March 30, 1983 and concluded June 8, 1983. There were 675 pages of transcript, 368 pages of exhibits, 109 photographs and slides, and counsel for the Town and counsel for the debtor submitted extensive briefs to a three-member panel convened for the hearing. On November 30, 1983, the panel issued a memorandum of decision which concluded that the Town had produced insufficient evidence to support a finding that the debtor failed to perform the duties of his office, and reject*266ed the Town’s claim that the debtor be dismissed.
In defending the dismissal proceeding brought against him, the debtor incurred legal fees and litigation expenses totaling $24,736.84. On January 23, 1984, the debt- or served on the Town a notice of intention to commence an action under § 7-101a for reimbursement of those expenses. When the Town refused to indemnify the debtor, he commenced the present action on August 17, 1984.
III.
The debtor argues that § 7-101a should be read “as broadly as its framers obviously intended” in order to extend the right of indemnity to “all manner of proceedings brought against municipal employees when they sound in negligence or otherwise.” He contends it would be a “hollow victory” for a municipal employee to prevail in an extensive dismissal proceeding based upon an employee’s alleged failure to perform his duties, and be left with the kind of debt as here. The Town’s principal contention is that the Connecticut legislature intended towns to indemnify their employees only for actions brought by third parties, not actions by the town itself. Neither party has cited any relevant precedent, and the court has found no case law addressing the issue at hand. After reviewing the circumstances preceding the enactment of § 7-101a and related legislation, I conclude that the debtor is not entitled under § 7-101a to recover his costs in defending the dismissal action brought against him by the Town.
Section 7-101a provides that under stated circumstances, a municipality must indemnify an employee for expenses incurred in defending actions brought against the employee. There is no mention in the statute of a suit involving only a municipality and its employee, and the statute’s meager legislative history lends no guidance. See 14 Conn.S.Proc., Pt. 7, 1971 Sess., p. 3403; 14 Conn.H.R.Proc., Pt. 11, 1971 Sess., p. 4967. One must, therefore, examine the circumstances that brought about enactment of the statute, Jennings v. Connecticut Light & Power Co., 140 Conn. 650, 658, 103 A.2d 535 (1954), and other statutory provisions relating to the same subject matter, Connecticut Light & Power Co. v. Costle, 179 Conn. 415, 422, 426 A.2d 1324 (1980), to determine the intent of the legislature.
A suit against a municipality is not a suit against a sovereign; the doctrine of sovereign immunity does not apply, and municipalities are not immune from suit. Murphy v. Ives, 151 Conn. 259, 264, 196 A.2d 596 (1963). It has long been the rule in Connecticut, however, that municipalities enjoy a common-law immunity from liability for the negligent acts of their employees in the performance of a governmental duty. Cone v. Waterford, 158 Conn. 276, 278-79, 259 A.2d 615 (1969). Governmental acts are those performed wholly for the direct benefit of the public. Richmond v. Norwich, 96 Conn. 582, 588, 115 A. 11 (1921).7 Under this doctrine, while municipalities were protected by an immunity, their employees were not. Municipal employees were generally immune only from liability for acts done in good faith in the exercise of a discretional governmental function. “For acts or omissions occurring in the performance of a governmental function, a municipal official will not be held personally liable so long as he acts in good faith, in the exercise of an honest judgment, and not maliciously, wantonly, or in abuse of his discretion.” Sherman-Colonial Realty Corp. v. Goldsmith, 155 Conn. 175, 185, 230 A.2d 568 (1967). When the governmental function is merely ministerial, that is, performed in a prescribed manner without the exercise of judgment or discretion, a cause of action lies for an individual injured *267by a municipal employee s negligent acts against such employee. Shore v. Stoning-ton, 187 Conn. 147, 153, 444 A.2d 1379 (1982). As a result, a municipal employee would be liable to a third party injured by the employee’s negligent performance of a ministerial act, and the municipality would not be required to indemnify the employee. Although some relief in such situations had been given to town firemen, see Conn. Gen. Stat. § 7-308, no protection was available to all municipal employees until the passage in 1957 of Conn.Gen.Stat. § 7-465.8 The effect of the statute is to require the municipality to absorb liability for damages caused by its employee’s negligent performance of a ministerial act. See Note, An Act Concerning Assumption by Municipalities of Liability for Employees, 32 Conn.BJ. 180 (1958). The legislative history concerning § 7-465 indicates that the statute was intended to protect two classes of persons: municipal employees and board members, who previously had been subject to liabilities incurred in serving their towns; and victims of municipal employee negligence, who were left without a remedy when the only available defendant was a relatively impecunious municipal employee. See 7 Conn.S.Proc., Pt. 6, 1957 Sess., pp. 3230-31, 3233, 3241-43; 7 Conn.H.R.Proc., Pt. 4, 1957 Sess., pp. 2214-16, 2220-22, 2225-26.
The discussion of § 7-465 is relevant in that it provides for municipal assumption of liability in the same way that § 7-101a provides for municipal reimbursement of an employee’s expenses. There is a presumption that the legislature, in enacting a law, did so in view of relevant statutes and intended the new law to be read with existing statutes so as to make one consistent body of law. Hurlbut v. Lemelin, 155 Conn. 68, 74, 230 A.2d 36 (1967).
Section 7-101a was passed fourteen years later than § 7-465, but the two statutes are clearly in pari materia. Section 7-10 la provides for municipal indemnification of an employee’s costs in defending a suit for civil rights infringement or for damage to person or property by alleged negligence if, at the time of the act complained of, the employee was acting in the scope of his employment. Section 7-465 provides for municipal assumption of liability in the same instances. Section 7-101a provides that if a municipal employee is sued for injury caused by alleged wanton or wilful misconduct, the municipality must save the employee harmless for his expenses incurred in defending the suit, except that if judgment is entered against the employee for such misconduct, the employ*268ee must reimburse the municipality. Section 7-465, in a similar way, exempts the municipality from liability for damages resulting from an employee’s wanton or wilful misconduct. In short, when § 7-101a provides for municipal indemnification of employee expense, § 7-465 provides for municipal absorption of employee liability;9 when the one statute requires the employee to bear his own expenses, the other requires the employee to bear his own liability.10
IV.
In light of the above discussion of § 7-465, I conclude that § 7-101a was not designed to indemnify municipal employees for expenses in defending dismissal actions brought against them by their employers. The statute was designed only to protect municipal officers and employees who found themselves facing liabilities from which their employers were immune.
“The rule in Connecticut is that absent contractual or statutory authorization, each party must pay .its own attorneys’ fees.” Gino’s Pizza of East Hartford, Inc. v. Kaplan, 193 Conn. 135, 140, 475 A.2d 305 (1984). Conn.Gen.Stat. § 29-260,11 providing for dismissal of building officers, contains no such statutory authorization; as shown above, neither does Conn.Gen.Stat. § 7-101a. To interpret § 7-101a as the debtor suggests would extend the statute beyond the purpose it was intended to serve.
This memorandum shall constitute Findings of Fact and Conclusions of Law mandated by Bankruptcy Rule 7052.
. 28 U.S.C. § 1452(a):
A party may remove any claim or cause of action in a civil action other than a proceeding before the United States Tax Court or a civil action by a governmental unit to enforce such governmental unit’s police or regulatory power, to the district court for the district where such civil action is pending, if such district court has jurisdiction of such claim or cause of action under section 1334 of this title.
. 28 U.S.C. § 1334(c)(2) provides in part:
Upon timely motion of a party in a proceeding based upon a State law claim or State law cause of action, related to a case under title 11 but not arising under title 11 or arising in a case under title 11, with respect to which an action could not have been commenced in a court of the United States absent jurisdiction under this section, the district court shall abstain from hearing such proceeding if an action is commenced, and can be timely adjudicated, in a State forum of appropriate jurisdiction. Any decision to abstain made under this subsection is not reviewable by appeal or otherwise.
. This is a proceeding related to the bankruptcy case and thus within the jurisdictional grant of 28 U.S.C. § 1334(b), but it is clear that this matter is not a core proceeding under 28 U.S.C. § 157(b)(2), and a final judgment can be entered by this court only with the consent of all parties. Id. § 157(c)(2).
. Conn.Gen.Stat. § 7-101a provides in part:
(a) Each town, city, borough, consolidated town and city and consolidated town and borough shall protect and save harmless any municipal officer, whether elected or appointed, of any board, committee, council, agency or commission, or any full-time municipal employee, of such municipality from financial loss and expense, including legal fees and costs, if any, arising out of any claim, demand, suit or judgment by reason of alleged negligence, or for alleged infringement of any person's civil rights, on the part of such officer, or such employee while acting in the discharge of his duties.
(b) In addition to the protection provided under subsection (a) of this section, each town, city, borough, consolidated town and city and consolidated town and borough shall protect and save harmless any such municipal officer or full-time municipal employee from financial loss and expense, including legal fees and costs, if any, arising out of any claim, demand or suit instituted against such officer or employee by reason of alleged malicious, wanton or wilful act or ultra vires act, on the part of such officer or employee while acting in the discharge of his duties. In the event such officer or employee has a judgment entered against him for such act in a court of law, such municipality shall be reimbursed by such officer or employee for expenses it incurred in providing such defense and shall not be held liable to such officer and employee for any financial loss or expense resulting from such act.
.Although the decision here turns on the meaning of a previously unconstrued state statute, this proceeding lacks most of the factors that have traditionally led federal courts sua sponte to refer matters within their jurisdiction to state courts. The leading case on discretionary abstention by bankruptcy courts, Thompson v. Magnolia Petroleum Co., 309 U.S. 478, 60 S.Ct. 628, 84 L.Ed. 876 (1940), indicates the following factors to guide a bankruptcy court in deciding whether or not to abstain in favor of state *265courts: a difficult issue of state law: conflicting interpretations of that law by courts of equal authority; no dispositive statement by the state's high court; and the decision turns on issues traditionally left to the states — in particular, real property law. But see First National Bank of White River Junction v. Reed, 306 F.2d 481, 488 (2d Cir.1962) ("The interest of a state in the proper interpretation of its scheme for the regulation of local public utilities is quite as great as that in its land law”).
While this proceeding presents an unresolved issue of state law, the other facts present in Magnolia Petroleum are absent here. There are no conflicting interpretations of § 7-101a by lower state, courts; the statute does not affect real estate, or other matters that courts have considered of great local significance; and most important, a review of the circumstances surrounding the enactment of § 7-101a and related legislation shows that this is not a difficult matter for decision. See Magnolia Petroleum, 309 U.S. at 484, 60 S.Ct. at 631 ("the difficulties of determining just what should be the decision under the'law of (Illinois) are persuasively indicated by the different results reached by the two Circuit Courts of Appeal”); First National Bank of White River Junction v. Reed, 306 F.2d 481, 487 (2d Cir.1962) (court had "no real idea” of how state high court would have ruled on the issue); Dart & Bogue Co., Inc. v. Slosberg (In re Dart & Bogue Co., Inc.), 52 B.R. 594, 598-99 (Bankr.D.Conn.1985). Cf. Marina Management Corp. v. Brewer, 572 F.2d 43, 46 (2d Cir.), cert. den. 439 U.S. 829, 99 S.Ct. 104, 58 L.Ed.2d 123 (1978) (federal court decided previously unresolved issue of Connecticut law that was not sufficiently difficult to warrant remitting those parties to state court).
The parties have requested that this court exercise jurisdiction and render a final decision, and the court will do so.
. Conn.Gen.Stat. § 29-260:
(a)The chief executive officer of any town, city or borough, unless other means are already provided, shall appoint an officer to administer the code for a term of four years and until his successor qualifies and quadrennially thereafter shall so appoint a successor. Such officer shall be known as the building official. Two or more communities may combine in the appointment of a building official for the purpose of enforcing the provisions of the code in the same manner.
(b) Unless otherwise provided by ordinance, charter or special act a local building official who fails to perform the duties of his office may be dismissed by the local appointing authority and another person shall be appointed in his place; provided that prior to such dismissal such local building official shall be given an opportunity to be heard in his own defense at a public hearing in accordance with subsection (c).
(c) No local building official may be dismissed under subsection (b) unless he has been given notice in writing of the specific grounds for such dismissal and an opportunity to be heard in his own defense, personally or by counsel, at a public hearing before the authority having the power of dismissal. Such public hearing shall be held not less than five nor more than ten days after such notice. Any person so dismissed may appeal within thirty days following such dismissal to the superior court for the judicial district in which such town, city or borough is located. Service shall be made as in civil process. Such court shall review the record of such hearing and if it appears that testimony is necessary for an equitable disposition of the appeal, it may take evidence or appoint a referee or a committee to take such evidence as it may direct and report the same to the .court with his or its findings of fact, which report shall constitute a part of the proceedings upon which the determination of the court shall be made. The court may affirm the action of such authority or may set the same aside- if it finds that such authority acted illegally or abused its discretion.
. In contrast, municipalities have never been immune from liability for an employee’s negligent performance of a proprietary act, that is, one engaged in for the profit of the municipal corporation. Hannon v. Waterbury, 106 Conn. 13, 16-18, 136 A. 876 (1927).
. The current version of Conn.Gen.Stat. § 7-465 provides in part that:
(a) Any town, city or borough, notwithstanding any inconsistent provision of law, general, special or local, shall pay on behalf of any employee of such municipality, except firemen covered under the provisions of section 7-308, all sums which such employee becomes obligated to pay by reason of the liability imposed upon such employee by law for damages awarded for infringement of any person’s civil rights or for physical damages to person or property, except as hereinafter set forth, if the employee, at the time of the occurrence, accident, physical injury or damages complained of, was acting in the performance of his duties and within the scope of his employment, and if such occurrence, accident, physical injury or damage was not the result of any wilful or wanton act of such employee in the discharge of such duty. This section shall not apply to physical injury to a person caused by an employee to a fellow employee while both employees are engaged in the scope of their employment for such municipality if the employee suffering such injury or, in the case of his death, his dependent has a right to benefits or compensation under chapter 568 by reason of such injury. If an employee or, in the case of his death, his dependent has a right to a benefits (sic) or compensation under chapter 568 by reason of injury or death caused by the negligence or wrong of a fellow employee while both employees are engaged in the scope of their employment for such municipality, such employee or, in the case of his death, his dependent shall have no cause of action against such fellow employee to recover damages for such injury or death unless such wrong was wilful and malicious. This section shall not apply to libel or slander proceedings brought against any such employee and, in such cases, there is no assumption of liability by any town, city or borough. Any employee of such municipality, although excused from official duty at the time, for the purposes of this section shall be deemed to be acting in the discharge of duty when engaged in the immediate and actual performance of a public duty imposed by law.
.As stated above, there is no legislative history accompanying § 7-101a. Its passage subsequent to that of § 7-465 may have been a response to Martyn v. Donlin, 148 Conn. 27, 32, 166 A.2d 856 (1961), in which the Connecticut Supreme Court suggested that
In an action under (§ 7-465), as in the instant case, it may appear that the interests of the municipality and its employee are antagonistic, therefore, they should be represented by separate counsel.
.Further support for the relevance of § 7-465 in interpreting § 7-101a comes from the fact that both statutes were amended by the same bill, 1975 Conn.Acts 75-408 (Reg.Sess.), to cover expenses and liability incurred by municipal employees in suits for alleged infringement of civil rights. See Hearing before the Joint Standing Committee on Government and Administrative Policy, Conn.Gen. Assembly, 1975 Sess., pp. 278-79.
. See supra note 6. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8490181/ | MEMORANDUM OPINION AND ORDER
RICHARD L. SPEER, Bankruptcy Judge.
This cause comes before the Court upon the Motion for Summary Judgment filed by the Defendant, Lyons Electrical Supply Co., (hereinafter Lyons Electric) in the above entitled Adversary case. Both Lyons Electric and the Plaintiff have filed their arguments respecting this Motion and have had the opportunity to respond to the arguments made by opposing counsel. The Court has reviewed those arguments 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, and that Judgment should be entered for the Plaintiff.
FACTS
The Debtor-In-Possession filed its voluntary Chapter 11 Petition with this Court on October 19, 1982. In a effort to collect assets for the estate, the Debtor-In-Possession filed this action against numerous defendants, including Lyons Electric. The Complaint alleges a cause of action for the recovery of a preference pursuant to the provisions of 11 U.S.C. Section 547. Subsequent to the filing of the Complaint the Debtor-In-Possession submitted to Lyons Electric a Request For Admissions and a set of Interrogatories. Lyons Electric filed timely responses to those requests. In its responses, Lyons Electric admitted the truth of certain facts surrounding the alleged transfer. Those facts reflect that on or about August 20, 1982, the Debtor-In-Possession wrote a check in the amount of Nine Hundred Ninety and 52/100 Dollars ($990.52) and made the check payable to Lyons Electric. That check was sent to Lyons Electric in payment of a bill which had been submitted to the Debtor-In-Possession for charges made to the Debtor-In-Possession during the period between April 1, 1982, and July 23, 1982. The check was honored by the drawee bank on September 9, 1982.
Although there has been no evidence offered as to the Debtor-In-Possession’s assets and liabilities in the Motion For Summary Judgment against Lyons Electric, there has been such evidence offered in similar motions against other Defendants in this case. That evidence has been submitted by way of an affidavit of the Debt- or-In-Possession’s counsel and copies of the Debtor-In-Possession’s schedules. A review of that evidence finds that as of the time of the filing of the petition, the Debt- or-In-Possession had approximately One Million Eight Hundred Thousand and no/100 Dollars ($1,800,000.00) in liabilities and approximately One Hundred Seventy Thousand and no/100 Dollars ($170,000.00) in assets. This evidence also reflects that Lyons Electric, a general unsecured creditor, would have received approximately ten percent (10%) of the obligation it was owed had the Debtor-In-Possession been liquidated.
In moving for Summary Judgment, Lyons Electric argues that because of the proximity between the issuance of the bill and the Debtor-In-Possession’s payment, the transaction was intended as a contemporaneous exchange for value. As such *328Lyons Electric argues that it falls within an exception to the provisions of 11 U.S.C. Section 547(b). In support of the Motion, Lyons Electric offers the Affidavit of its Financial Manager and several copies of certain business records which reflect the Debtor-In-Possession’s account. The Manager avers to the accuracy of the documents and to the fact these transactions were in accordance with the usual practice between the parties.
The Plaintiff has opposed the Motion for Summary Judgment, asserting that although the check was made on August 20, 1982, it was not sent to Lyons Electric until approximately September 1, 1982. In addition, the Debtor-In-Possession indicates that the check was not debited against the Debtor-In-Possession’s account until September 9, 1982. The Plaintiff argues that because of the time which elapsed between the billing date and the debiting of the account, it cannot be viewed as a contemporaneous exchange for value. Further, the Debtor-In-Possession argues that because of the time which elapsed between those events, the transfers do not fall within the “business expenses” exception. In support of its opposition, the Debtor-In-Possession offers the Affidavit of its Chief Operating Officer, who avers to the dates on which the check was mailed and debited.
LAW
Prior to the enactment of the Bankruptcy Amendments and Federal Judgeship Act of 1984, P.L. 98-353, the provisions of 11 U.S.C. Section 547 stated in pertinent part:
“(b) ... the trustee may avoid any transfer of property of the debtor—
(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
(C) such creditor received payment of such debt to the extent provided by the provisions of this title.”
“(c) The trustee may not avoid under this section a transfer—
(1) to the extent that such transfer was—
(A) intended by the debtor and the creditor to or for whose benefit such transfer was made to be a contemporaneous exchange for new value given to the debt- or; and
(B) in fact a substantially contemporaneous exchange;
(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 pre-amendment version of that section is applicable to this adversary proceeding, inasmuch as the Chapter 11 case was filed prior to the effective date of the the amendments. See, P.L. 98-353 Section 553(a).
Under these provisions, a trustee or a debtor-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 pri- or 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).
*329A trustee can not avoid a transfer which was intended by the debtor, and which was, in fact, a contemporaneous exchange for new value. Ray v. Security Mutual Finance Corp. (In re Arnett), 731 F.2d 358 (6th Cir.1984). The most determinative factor in assessing whether or not a transfer was a contemporaneous exchange is the intent of the parties to create such an exchange. McClendon v. Cal-Wood Door {In re Wadsworth Bldg. Components, Inc.), 711 F.2d 122 (9th Cir.1983). A trustee may also not avoid any transfer to the extent it was payment of an ordinary business expense which was incurred within forty-five (45) days prior to the time the transfer was made. Quinn v. TTI Distribution Corp. (In re Moran Air Cargo, Inc.), 30 B.R. 406 (Bkcy.R.1.1983). In that regard, it is generally held that when a transfer to a creditor is accomplished by check, the transfer does not occur until the check is honored by the drawee bank. See, Harris v. Harbin Lumber Co. of Royson, Inc. (Matter of Ellison), 31 B.R. 545 (Bkcy. M.D.Ga.1983).
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 London), 87 B.R. 568 (Bkcy.N.D.Ohio 1984).
In the present case, it is established that a transfer was made to Lyons Electric and that the transfer was made because of charges which accrued on or before July 23, 1982. Such a transaction constitutes a transfer of property to a creditor on account of an antecedent debt. It is also established that the transfer occurred within ninety (90) days prior to the filing of the Debtor-In-Possession’s petition. Since the Debtor-In-Possession is presumed to have been insolvent during that ninety (90) days period, see, 11 U.S.C. Section 547(f), and since Lyons Electric received considerably more as a result of the transfer than it would have receive under a Chapter 7 liquidation, it must be concluded that all of the elements of an action to recover a preferential transfer have been shown. It must also be concluded that in the absence of a viable defense, there are no questions of material fact, and that the Debtor-In-Possession is entitled to judgment as a matter of law.
Lyons Electric has defended this action with the assertion that the transfer is subject to the “business expense” exception, or, in the alternative, that it was a contemporaneous exchange for new value. In that regard it has offered an affidavit which states that the transactions were according to the customary terms between the parties. While this evidence addresses part of the defense, it must also be shown that the transfers occurred within forty-five (45) days from the time the obligations arose. A review of the facts finds that more than forty-five (45) days elapsed between the time the last new value was given and the time the check was honored by the bank. Therefore, it must be concluded that this element of the defense cannot be satisfied, and that Lyons Electric is not entitled to prevail on this defense.
Similarly, Lyons Electric has asserted that the transfer was a contemporaneous exchange for new value, and that as such it is excepted from recovery. However, as previously indicated, the primary focus of this defense is on the intent of the parties. A review of the evidence finds that there has been no reference as to the parties intent. Furthermore, the Court cannot regard a transaction in which approximately one and one-half (FA) months pass between creation of the debt and payment therefore as contemporaneous. Accordingly, it must be concluded that Lyons Electric’s assertion of this defense is also without merit. Since Lyons Electric has not prevailed on its defense, and since the Court has already found that the Debtor-In-Possession is entitled to judgment, judgment will be so entered.
*330It should be noted that summary judgment may be entered against the moving party if the requisites under Federal Rule of Civil Procedure 56 can be met. See, Pitts v. Knowles, 339 F.Supp. 1183 (W.D. Wis.1972). As previously indicated, the court has found there to be no questions as to any material fact, and that the absence of question as to any such fact entitles the Plaintiff 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 have been referred to in this Opinion.
It is ORDERED that the Motion For Summary Judgment filed by the Lyons Electrical Supply Co. be, and is hereby, GRANTED.
FURTHER ORDERED that Judgment be, and is hereby, GRANTED to the Plaintiff against the Defendant, Lyons Electric, in the amount of Nine Hundred Ninety and 52/100 Dollars ($990.52). | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8490183/ | OPINION
D. JOSEPH DeVITO, Bankruptcy Judge.
The Court considers herein the above named defendants’ motion for summary judgment in the above captioned adversary proceeding. For the reasons set forth below, the Court denies the motion.
On November 26,1984, the above defendants filed a joint petition in bankruptcy pursuant to the provisions of Chapter 7 of the Bankruptcy Code, in which a debt owing to the plaintiff in the sum of $125,000 was listed. Plaintiff initiated the above captioned adversary proceeding by way of a complaint filed on January 18, 1985, wherein it is alleged that, in the early part of 1984, plaintiff Columbia Savings & Loan Association loaned to the defendants the sum of $125,000. Said loan was secured by a third mortgage on the defendants’ personal residence. Plaintiff alleges that the defendants specifically represented that the borrowed funds were to be used to satisfy a substantial federal income tax liability, resulting from the disallowance of certain deductions taken on the defendants’ tax returns. Despite these representations, defendants utilized the loan proceeds for other purposes. In the main, they were applied to numerous debts, only a part of which represented the tax deficiency.
Plaintiff seeks a determination by this Court finding the $125,000 debt to be non-dischargeable, pursuant to § 523 of the Bankruptcy Code. Causes of action are made out in the complaint under § 523[a][2][A] and § 523[a][2][B], The first subsection prohibits the discharge of a debt obtained by false pretenses, false representations, or actual fraud. The latter provision denies a discharge where a debt is obtained by use of a false written statement. As to its proofs, plaintiff offers two items — an affidavit of Stephen E. Nix, a commercial loan officer of the plaintiff, who personally negotiated the loan in question. Nix testified to the defendants’ rep*337resentation that the loan proceeds would be utilized to pay a debt due the Internal Revenue Service. The second item of proof consists of loan documents executed by the parties, one being a letter from the plaintiff bearing the signature of plaintiffs Director of Commercial Lending and the signatures of the defendants, which letter states that subject loan is being made for the express purpose of paying the federal taxes owing by the defendants.
In response to the complaint, defendants have moved for summary judgment alleging, in support, that plaintiff has presented no credible evidence in support of its claims under § 523 of the Code and, further, that there is no genuine issue of material fact to be decided and that they are, therefore, entitled to judgment as a matter of law.
The heart of the matter is the controversy surrounding the negotiated purpose of the loan. On that issue, the affidavit of plaintiff’s officer and the loan documents are in direct conflict with the statements attributed to the defendants, and present a genuine issue of material fact.
Federal Rule of Civil Procedure 56 and Bankruptcy Rule 7056 are limited to situations where no issues of material fact are present. If a material issue is present, summary judgment cannot be granted. This position has been enunciated repeatedly by this Court. Reference is made to the opinions rendered in Good Time Charley’s Inc. v. Zindell (In re Good Time Charley’s, Inc.), No. 82-0274, slip op. at 2-3 (D.N.J. Dec. 1, 1982) and, more recently, in Janoff v. Janoff (In re Barry Janoff), 54 B.R. 741, 742 (D.N.J.1985).
As to the question of credible evidence, as raised by the defendants, the Nix affidavit and the loan documents constitute, in this Court’s opinion, credible evidence establishing a 'prima facie case. The motion for summary judgment is denied.
We need not dwell at length on the defendants’ demand for attorney’s fees and costs entailed in these proceedings. Defendants’ counsel, in bringing on a motion so lacking in merit on the facts and law, is not entitled to the fees applied for.
An order denying the motion for summary judgment and, further, denying the right of defendants’ counsel to attorney’s fees shall be submitted. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8490184/ | D. JOSEPH DeVITO, Bankruptcy Judge.
The above captioned adversary proceeding, brought on pursuant to Bankruptcy Rule 7001, et seq., was commenced by the filing of a complaint by Albert D’Angelo against the defendants, Rand Development Corp., Raymond M. Mastapeter, Sr. and Frances Mastapeter, on January 20, 1984, wherein the plaintiff seeks an order directing defendants to convey certain real property to the plaintiff under the doctrine of specific performance. For the reasons set forth below, the Court grants plaintiff’s demand for specific performance and orders the defendants to convey the particular real property in accordance with the prior agreement between the parties.
Following the filing of the bankruptcy petitions — Raymond M. and Frances Masta-peter on August 17, 1982; Rand Development Corp. on September 3, 1982 — plaintiff and defendants entered into a contract for the sale of certain real property located in Warren, New Jersey, which contract, dated September 21, 1982, approved by the Court on April 27, 1983, fixed the consideration at $47,500, with the closing to take place on or before November 1,1982. The closing date was subsequently extended to September 7, 1983. Approximately one month prior to the closing date, it was established that time would be of the essence.
The closing did not take place on the arranged date due to the failure of Albert D’Angelo, the purchaser, to appear at the appointed time and place. Apparently, D’Angelo was hesitant because of a possible flooding problem affecting the property. On the following day, September 8, 1983, D’Angelo (purchaser) and Mastapeter (seller) met, at which time the seller reiterated his desire to consummate the sale to D’Angelo. The seller also advised purchaser’s real estate broker of his desire to sell the property to D’Angelo on two separate occasions, October 19 and October 26, 1983. D’Angelo’s broker relayed the fact of Mas-tapeter’s continued interest in the sale to D’Angleo, as expressed in the October 26, 1983 conversation. On October 28, the sell*414er’s attorney informed the purchaser that a $10,000 deposit was required. On November 16, 1983, D’Angelo complied through his attorney who, in his transmittal letter, stated that it was D’Angelo’s understanding that this was all part of the existing contract. By letter dated January 5, 1984, seller’s attorney returned the $10,000 deposit and, in his transmittal letter, advised D’Angelo that Mastapeter did not wish to “reaffirm that [sic] contract.” Notwithstanding the purchaser’s insistence that the formal contract remained valid and that he was now ready to close, sellers refused to engage in further negotiations with respect to the sale of the property. It should be noted that sellers had solicited other offers about this time, at least one of which was in an amount greatly in excess of the contract price, specifically, $90,000.
The sellers argue that the contract became null and void because of purchaser’s failure to close on September 7, 1983; and, further, that the events occurring subsequent to the original closing date of September 7, 1983 constituted negotiations relative to a new offer which the sellers rejected. In response, purchaser asserts that, though it may be true he failed to comply with the time of the essence clause contained in the contract, the behavior of the sellers constituted a waiver of any objection on that point. Purchaser seeks his remedy in equity and prays that the sellers be compelled to convey the realty.
It is well settled that equity prevails in actions to enforce contracts for the sale of land. See Dobbin v. Plager, 92 N.J. Eq. 231, 235, 111 A. 404 (1920). Underlying the foregoing, it is the general belief that land may have a peculiar and special value to a purchaser. See McVoy v. Baumann, 93 N.J. Eq. 638, 643, 117 A. 725 (1922).
The controlling issue here is the time of the essence proviso and its effect. The leading case in New Jersey on this point is Salvatore v. Trace, 109 N.J.Super. 83, 262 A.2d 409 (App.Div.1969), aff'd per curiam 55 N.J. 362, 262 A.2d -385 (1970). There, the parties had contracted to convey real property as of a certain date, with a time of the essence clause in their agreement. Due to difficulties in obtaining zoning approvals, the closing did not occur at the appointed time and place. However, the buyer, still interested in the property, contacted the seller in a further attempt to set up a new closing date, approximately five weeks beyond the original date. 109 N.J. Super, at 86-89, 262 A.2d 409. In deciding the matter, the appellate court looked to Professor Williston’s renowned treatise on contracts, and concluded “conduct may operate as a waiver” where “the subject matter involves realty,” even though the writing states that the time for settlement is of the essence. Id. at 91, 262 A.2d 409. Such a waiver “is not violative of the Statute of Frauds.” Id. at 92, 262 A.2d 409. The Appellate Division found there was no question that the conduct of the parties acted as a waiver, and the transaction retained its vitality even after the called-for closing date. To allow the seller to terminate the contract because the stipulated closing date was not adhered to would bring about an “unconscionable result”. Id. at 92, 262 A.2d 409. The court further stated that the state of mind of the parties was of “vital significance”. Id. at 94, 262 A.2d 409. Clearly, said the court, the parties believed the contract would continue past the primary closing date. Id.
The Salvatore case sets the precedent in New Jersey for matters such as the one now before this Court. This Court is duty bound to apply Salvatore by virtue of the landmark case of Erie R.R. Co. v. Tompkins, 304 U.S. 64, 58 S.Ct. 817, 82 L.Ed. 1188 (1938) (deciding federal courts must apply the common law of the forum state in ruling upon nonfederal questions). In examining the testimony proffered to this Court, it is evident that the conduct of the parties in the instant proceeding clearly parallels the acts of the parties in Salvatore. In the case at hand, the plaintiff and defendants continued to perform as if the original contract remained in full force and effect, despite the lapse of the purported time of the essence closing date. Such conduct clearly acts as a waiver of the time of the essence clause, as contemplated by *415the Appellate Division in Salvatore. With the clause thus waived, the defendants cannot now assert that the -land sale contract is a nullity. Moreover, the subsequent acts of the parties were not indicative of new negotiations, but of a mere continuance of the previous agreement.
This Court, furthermore, takes note of plaintiffs second point relating to the authority vested in the defendants’ attorney. However, this question need not be reached for purposes of this decision. The trial testimony evinces acts committed by the defendant Mastapeter himself which constituted a waiver of the time of the essence clause. Basing its decision on the defendant’s own acts, the acts of his counsel are not pertinent.
In consideration of all of the above, the Court hereby finds the acts of the parties constituted a clear waiver of the time of the essence clause contained in the original contract, pursuant to New Jersey case law referred to above. Accordingly, the parties should be held to the performance of the previously negotiated agreement.
It is hereby ORDERED, ADJUDGED, and DECREED that the plaintiff’s demand for specific performance is granted, and the defendants are to convey the property in question to the plaintiff in accordance with the contract for sale of real property entered into September 21, 1982. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8490186/ | MEMORANDUM DECISION AND ORDER RE: MOTION TO ALTER OR AMEND FINDINGS OF FACT AND CONCLUSIONS OF LAW RE: BANK OF HONOLULU’S REQUEST FOR INTEREST ON ATTORNEY’S FEES
JON J. CHINEN, Bankruptcy Judge.
On August 1, 1985, Bank of Honolulu filed a Motion to Alter or Amend Findings of Fact and Conclusions of Law re: Bank of Honolulu’s Request for Interest on Attorney’s Fees. A memorandum in opposition was filed by the Trustee on August 12, 1985. The court, being advised in the premises, and having reviewed the files and memoranda, now renders this memorandum decision and order.
The Court concludes that the Bank of Honolulu is entitled, by the terms of the Agreement of Sale with the Debtor, to interest at the rate of 10% per annum on advances made by the Bank on the Debt- or’s behalf. Bank of Honolulu previously included only a lump sum request for interest. The Court was under the erroneous impression that this requested interest amount was solely for interest on attorney’s fees. Bank of Honolulu has indicated, however, that $2,056.36 represents interest on advances made by Bank of Honolulu on Debtor’s behalf. Accordingly, it is clear that Bank of Honolulu is entitled to $2,056.36 in interest on the advances made.
Bank of Honolulu also requests that this Court to reconsider its ruling that it is not entitled to interest on attorneys’ fees. Section 506(b) of the Bankruptcy Code is dispositive. It provides that such interest is allowable only if the agreement provides for such interest. Because the agreement does not so explicitly provide, as previously explained in the order of this Court, 51 B.R. 397, dated July 22, 1985, this Court is without authority to grant such interest.
IT IS HEREBY ORDERED that the order of July 22, 1985, is hereby amended to read:-
Based on the foregoing, this Court finds that the Agreement does not provide for interest to the Bank on attorney’s fees expended pursuant to Paragraph 16 of the Agreement.
The Trustee is directed to pay to Bank of Honolulu the sum of $2,056.36 in interest on advances made by the Bank on Debtor’s behalf.
IT IS SO ORDERED. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8490187/ | MEMORANDUM DECISION AND ORDER RE: MOTION TO DETERMINE ALLOWABLE AND AWARD OF ATTORNEY’S FEES AND COSTS
JON J. CHINEN, Bankruptcy Judge.
On June 28, 1985, Vicki Lynn Burton filed a Motion to Determine Allowance and Award of Attorney’s Fees and Costs of Ralph Sahara, former attorney for Vicki Lynn Burton. A hearing was held on June 28, 1985 before the undersigned Judge.
Having reviewed the time-sheets submitted, the Court finds that they are confusing and difficult to read. It is the responsibility of the attorney to provide the court with time-sheets that clearly set forth in detail the type of service rendered and the time spent for each service. In In re Horn & Hardart Baking Co., 30 B.R. 938, 944 (Bkrtcy.E.D.Pa.1983), the court stated that it
should not be required to indulge in guesswork, nor undertake extensive labor to justify a fee for an attorney who has not done so himself. We do not find it to be an unbearable burden to require an attorney seeking compensation to enlighten the Court as to the nature of his toil and the relation it bears to the matter at hand. Absent such a statement, compensation may not be allowed.
And, in In re Nation Ruskin, Inc., 22 B.R. 207, 210 (Bkrtcy.E.D.Pa.1982), the court stated:
General statements will not justify fee awards. Lumping-together services and failure to adequately specify how much time has been expended for each individual service is not acceptable for the court’s inspection and evaluation.
Further, the Court notes that some of the services provided by Ralph Sahara may be those that should have been done by the trustee in this case.
IT IS HEREBY ORDERED that Ralph Sahara submit time-sheets clearly specifying the work done in connection with this case, and the reasons thereto, and a lodged order within 20 days from the entry of this order.
IT IS FURTHER ORDERED that in the event Ralph Sahara fails to do so, the fees and costs shall be DENIED and Ralph Sahara shall pay to the trustee the sums received without further order of this court. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8490188/ | ORDER RE: APPLICATION TO DISBURSE PROCEEDS
JON J. CHINEN, Bankruptcy Judge.
On July 12, 1984, The Pool Place, Inc. (“Debtor”) filed an Application to Disburse Proceeds of Contract No. 1571, County of Kauai, to Secured Creditors and Bond claimants (“Application”). A hearing on the Application was held on October 25, 1984 at which time the matter was taken under advisement. On February 20, 1985, the Court issued a Notice to Creditors requiring creditors to file affidavits and time-sheets in support of their claims and informing creditors that a continued hearing to determine the priority of claimants will *500be held on March 13, 1985. Subsequently, the hearing was rescheduled and held on April 22, 1985. Having reviewed the files, the affidavits and documents filed in this case, the Court renders the following findings of fact and conclusions of law and order.
The Debtor is engaged in the business of installation and repairing swimming pools. The Debtor had negotiated with the County of Kauai for the installation of a new filter and chlorination system for the County’s Kapaa swimming pool. On March 23,1983, Contract No. 1571 between the Debtor and the County of Kauai became effective. Shortly thereafter, on March 29, 1983, the Debtor filed a voluntary petition under Chapter 11 of the Bankruptcy Code. Prior to as well as after the Debtor’s filing of bankruptcy, the Debtor negotiated with certain materialmen and subcontractors for services and materials which were necessary to complete the installation of the swimming pool. The services and materials were provided after the filing of the Debtor’s bankruptcy petition. After Debt- or had completed the project, the county of Kauai disbursed $27,300.00 to the Debtor’s attorney who is holding the funds in a client trust account. After payment of priority taxes, there remains $24,726.82 as of October 26, 1984.
There are competing claims to the proceeds of the contract with the County of Kauai. First, the subcontractors and mate-rialmen request payment from the proceeds.
Second, the United States Small Business Administration (“SBA”) claims that the entire proceeds are cash collateral which are subject to its security interest. In particular, SBA contends that, on November 3, 1978, the debtor executed a promissory note in the amount of $90,000.00 and a security agreement in favor of the Bank of Hawaii. A financing statement, which covers the debtor’s equipment, inventory, accounts, contract rights and general intangibles then existing or thereafter arising, was filed in the Bureau of Conveyances of the State of Hawaii (“Bureau”) on August 28, 1978. And, on April 20, 1983, a Financing Statement Change was filed in the Bureau noting that the Bank of Hawaii has assigned its rights under the Financing Statement to the SBA. The SBA claims that the Debtor owes $49,549.05 together with interest as of July 26, 1984 in the amount of $9,217.85.
Third, City Bank also claims that it is entitled to the entire proceeds. The affidavit of Richard S. Ohama, the Vice-President of City Bank, states that Chris Young, the President of the Debtor, represented that the funds were needed to obtain materials and labor for the October 8, 1982 contract with the County of Kauai. On December 8, 1982, City Bank loaned the Debtor $15,-000.00. As additional security, City Bank took from the Debtor an Assignment of Money Due under the Contract with the County of Kauai. Both the County of Kauai and the bonding agent approved and accepted the assignment to City bank.
Ohama’s affidavit further provides that prior to May 3, 1983, the Debtor applied to City Bank for the refinancing of the original $15,000.00 loan and for a new advance of $5,000.00. Young represented that the contract was not complete and that the new advance was necessary to pay suppliers and laborers in order to complete the job. City Bank approved the request for refinancing and the Debtor executed a new promissory note in the amount of $20,-000.00 on May 3, 1983. Ohama’s Affidavit provides that the Debtor did not inform City Bank that it had filed a petition in bankruptcy.
Fourth, Chris Young, the President and sole employee of the Debtor, requests $10,-000.00 in back wages, which represent $750.00 a month for one year.
Finally, the law firm of Shigemura & Ching requests attorneys fees in the amount of $4,100.00 and costs of $20.00.
The proceeds of the contract with the County of Kauai is covered by the SBA’s security interest, which was perfected in 1978. The Debtor’s assignment of the contract proceeds on December 7, 1982 to City Bank is, therefore, subordinate to the *501SBA’s interest in the contract proceeds. The Court notes that the SBA did not approve the assignment.
Based on the foregoing, the court finds that the SBA’s claim of $49,549.05 is ahead of the claim of City Bank and those of the subcontractors and materialmen.
The contract proceeds are the cash collateral of the SBA and the Debtor has not provided any method of providing adequate protection of the cash collateral. In fact, the Debtor proposes to distribute SBA’s cash collateral to others without providing adequate protection to the SBA.
The Debtor claims that there is $24,-726.82 of contract proceeds remaining in the trust account. It is evident that this amount is insufficient to pay the claims of the SBA and that of City Bank. Since the SBA’s interest was perfected prior to that of City Bank, the Court orders the distribution of the contract proceeds to the SBA subject to the following payments.
It is important to note that 11 U.S.C. § 506(c) provides that the trustee may recover from property securing an allowed secured claim the reasonable and necessary costs and expenses of preserving or disposing of such property to the extent of any benefit to the holder of such claim. It is evident that without the supplies and labor provided by the subcontractors and materi-almen, there would be no proceeds to distribute.
In In Re Sonama V, 24 B.R. 600, 8 C.B.C.2d 1032 (9th Cir.B.A.P.) 1982, the Court stated:
The cases indicate that the secured creditor may be charged for acts which directly protect or preserve the collateral in a specific and limited sense.
And, in In re Myers, et. al., 24 F.2d 349 (2nd Cir.1982). The Appellate Court held:
Finally, the mortgagee’s share of the lien is not chargeable with the general expenses of administration of the estate, but only with a ratable proportion of the expenses of sale and if so much else as actually helped to preserve the property on its proceeds.
See also In Re Korupp Associates, Inc., 30 B.R. 659, 8 C.B.C.2d 877 (Bkrtcy 1983).
These subcontractors and material-men benefitted the SBA by preserving the contract with the County of Kauai and by enabling the Debtor to complete the contract and to receive the proceeds. The court, therefore, rules that the trustee, or the debtor in possession in this case, may recover from the proceeds the amounts claimed by the subcontractors and materi-almen. The subcontractors and material-men shall file an affidavit verifying the above-mentioned amounts which are claimed within one month from the date of this Memorandum Decision and Order. The Debtor’s attorney is directed thereafter to pay the subcontractors and materi-almen, who have verified the amounts by filing affidavits.
The Court further rules that Chris Young is not entitled to any of the proceeds of the contract with the County of Kauai. In particular, the Court notes that Young, when he applied for refinancing on behalf of the Debtor, failed to inform City Bank of the Debtor’s filing of bankruptcy. Furthermore, the Court questions Young’s use of the fund which were obtained from City Bank for the purpose of completing the project and paying the subcontractors and materialmen. It is evident that Young failed to pay the subcontractors and mate-rialmen with the funds. Based on the foregoing, the Court finds that Young’s actions did not benefit the secured creditor and that it would be inequitable to allow Young to receive payment from the proceeds.
The Court also disallows payment of the Debtor’s attorney’s fees and costs from the contract proceeds except for $500.00 in attorney’s fees which this Court finds is a fair and equitable amount for the time spent in bringing this motion for distribution. The attorneys’ time-sheets indicate that the attorneys are charging for time spent in filing the petition and for other matters which are not directly related to the motion for distribution.
*502The Court rules that it would be unfair to charge these amounts requested by Debtor’s attorney to the secured creditor since such services did not benefit the secured creditor. Although the attorneys may not recover fees for such services from the contract proceeds, the attorneys may apply for compensation from the funds remaining in the Debtor’s estate after the contract proceeds are distributed.
After the subcontractors and material-men are paid, the Debtor’s attorney is directed forthwith to pay to SBA the remaining amounts from the contract proceeds. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8490190/ | MEMORANDUM DECISION AND ORDER RE: SANCTIONS
JON J. CHINEN, Bankruptcy Judge.
On September 20, 1985, Richard M. Kennedy (“Applicant”), as examiner in the Chapter 11 case, filed an Order to Show Cause why Ralph S. Aoki, Trustee herein, should not have sanctions imposed for failure to pay Examiner’s fees and costs, awarded by this Court on May 31, 1983, of $6,282.60. A hearing was held before the undersigned judge, and the Court took the matter under advisement to look into the matter of the examiner’s fees.
The Court notes that Applicant was duly appointed Examiner by order of this Court entered herein on April 22, 1982. Applicant filed an Application for Compensation for Services Rendered and for Reimbursement of Expenses Incurred as Examiner on January 11, 1983, and a hearing was held on May 6, 1983, at which time only Robert Hall, a creditor of the debtor voiced any objections. The Court reviewed the time-sheets filed, and the memorandum in opposition filed by Robert Hall, and issued its order of May 31, 1983 granting $6,282.60 to the Applicant in fees and costs. No motion for reconsideration or to alter or amend was duly filed by any party.
Having reviewed the files and the time-sheets submitted, and having reviewed the objections of Robert Hall, the court finds no reason to alter its order of May 31, 1983.
The Court notes, however, that the case was converted from a Chapter 11 to a Chapter 7 on December 15, 1982. 11 U.S.C. Section 726(b) provides that:
(b) Payment on claims of a kind specified in paragraph (1), (2), (3), (4), (5), or (6) of section 507(a) of this title, or in paragraph (2), (3), (4), or (5) of subsection (a) of this section, shall be made pro rata among claims of the kind specified in each such particular paragraph, except that in a case that has been converted to this chapter under section 1112 or 1307 of this title, a claim allowed under sec*509tion 503(b) of this title incurred under this chapter after such a conversion has priority over a claim allowed under section 503(b) of ths title incurred under any other chapter of this title or under this chapter before such conversion and over any expenses of a custodian superseded under section 543 of this title, (emphasis added).
Thus, until Chapter 7 administrative expenses are paid in full, Chapter 11 administrative expenses cannot.
Accordingly,
IT IS HEREBY ORDERED that the Trustee shall pay to the Applicant the sum of $6,282.60 when all Chapter 7 administrative expenses have been, or will be paid in full. If there is insufficient funds to pay all Chapter 11 administrative claims, payment will be on a pro-rata basis.
IT IS FURTHER ORDERED that no sanctions shall be imposed upon the trustee. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8490191/ | MEMORANDUM OPINION
R.F. WHELESS, Jr., Bankruptcy Judge.
On August 23, 1983 Channel Industries Gas Company (“Channel”) filed an inter-pleader in this Court and deposited the sum of $122,295.31. Additional funds have been deposited by Channel since the initial filing of the interpleader. On September 6, 1983 InterFirst filed a complaint for turnover against Channel and against PMI Gathering Service, Inc. (“PMI”). On October 17, 1983 the interpleader and the complaint were consolidated.
On the 29th day of June, 1984, this Court entered its order distributing proceeds of gas production. At that time this Court ordered that the sum of $14,176.90 be held in the Registry of the Court pending resolution of the claim of the Comptroller of Public Accounts for the State of Texas that the amount due the State of Texas under Texas Tax Code Ann. Sec. 201.204 constitutes a statutory trust in favor of the State. As a secured creditor InterFirst Bank Fort Worth, N.A. (“InterFirst”) objects to payment to the State of this severance tax.
THE CLAIM OF THE STATE OF TEXAS FOR SEVERENCE TAXES
At all material times InterFirst had a prior, duly perfected deed of trust and a filed financing statement and security agreement involving the Scott & Hopper # 3 Well and all proceeds thereof. The debtor, Trans Canada Enterprises of Texas, Inc. sold gas from the Scott & Hopper # 3 Well to Channel.- The sums deposited into the registry of this Court represent the proceeds of such sales. The State of Texas contends that it is entitled to be paid the severence tax imposed by Texas Tax Code Ann. Sec. 201.051 et seq., including section 201.204.
Section 201.204 provides in pertinent part:
(a) A first purchaser shall pay the tax imposed by this Chapter on gas that the first purchaser purchases from a producer and takes delivery on the premises where the gas is produced.
(b) A first purchaser shall withhold from payments to the producer the amount of the tax that the first purchaser is required to pay. This subsection does not affect a lease or contract between the State or a political subdivision of the State and a producer.
(c) Money withheld by a first purchaser under this section is held in trust for the use and benefit of the State and may not be commingled with other funds of the first purchaser.
InterFirst argues that the Statute does not create a lien in favor of the State of Texas. It further argues that its own lien, duly perfected under the Texas Business & Commerce Code, is superior to the rights of the State as provided in the statutory scheme.
InterFirst cites the provisions of Section 113.101 of Title II, which provides as follows:
“(a) No lien created by this title is. effective against a person listed in Subsection (b) of this section who acquires a lien, title or other right or interest in property before the filing, recording, and indexing of the lien:
(1) On real property, in the county where the property is located; or
*618(2) On personal property, in the county where the taxpayer resided at the time the tax became due and payable or in the county where the taxpayer filed the report.
(b) This section applies to a bona fide purchaser, mortgagee, holder of a deed of trust, judgment creditor, or any other person who acquired the lien, title, or right or interest in the property for bona fide consideration.”
InterFirst argues that Section 201.204 is a device simply to protect the State from creditors of the purchaser and does not give rights greater than those already perfected by it as a bona fide mortgagee; as provided in Section 113.101 of Title II.
Pursuant to Section 201.051 of Title II the State Taxation Act there is a tax imposed on each producer of gas. The rate of tax is 7.5% of the market value of gas produced and saved in the state by the producer. Under Section 201.203 each producer files a report with the Comptroller each calendar month. Under Section 201.-204 the “first purchaser” shall pay the tax imposed. To do so it withholds the tax from payments to the producer. As noted above the money withheld is held in trust and may not be comingled with other funds of the first purchaser.
Section 201.303 provides for a tax lien if the tax is delinquent. The lien is a prior lien for the tax, penalty and interest on all property and equipment used by the producer to produce gas. Section 201.251 provides liability to the producer and liability to the first purchaser and each subsequent purchaser. This Section requires the producer to satisfy himself that the tax on the gas has been or will be paid by the person liable for the tax.
It should be noted that the tax is not an added tax, but rather comes out of the purchase price paid for the gas. In other words the tax is not added to the purchase price of the gas. Thus the tax is being taken out of the proceeds of property to which InterFirst clearly has a duly perfected security interest.
The State Legislature could have provided for the tax lien to be imposed on the proceeds of the sale of its gas (as well as the property and equipment necessary to produce the same) and could have provided that that lien was prior to any other lien. However, the legislature did not expressly do this.
On the other hand it is clear that if InterFirst forecloses and becomes owner of the gas in place that it is clearly subject to the rules on taxation as a producer. The rights of InterFirst come from Trans Canada, the debtor herein, who is a producer as defined under the statutory scheme. Under Section 201.001 the term “producer” means a person ... who owns an interest in gas or its value, whether the gas is produced by the person owning the interest or by another on his behalf by lease, contract or other arrangement. The deed of trust and security interest of InterFirst are also interests in the gas (before and after production).
It therefore appears to this Court that InterFirst is a producer within the meaning of Section 201.001 and it is therefore liable under the statutory scheme for the tax as is the first purchaser. As a result of the foregoing and because of the provisions of 201.204 a trust is created to the extent of 7.5% of the proceeds of the gas, which sum is in favor of the State of Texas and must be paid over to the State in the satisfaction of the liability of the producers and the first purchaser.
This Court requests that the Attorney General’s Office prepare and present a proposed order directing the clerk to pay over the accumulated tax which has been deposited in the Registry of the Court ($14,-176.90) plus all accrued interest to the Comptroller of the State of Texas. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8490192/ | MEMORANDUM DECISION AND ORDER GRANTING DEFENDANT’S MOTION TO DISMISS
(Bankruptcy Rule of Procedure 7041) F.R.C.P. Section 41(b)
JOHN J. HARGROVE, Bankruptcy Judge.
I.
INTRODUCTION
On April 13, 1983, John Griesgraber, the defendant in this case, filed his Voluntary Petition for Relief under Chapter 11 of the Bankruptcy Code. Thereafter, on August *65413,1984, the plaintiff filed her Complaint to Determine Dischargeability of Debt and Objections to Discharge under 11 U.S.C. Section 523(a). Although the Complaint failed to state with any specificity precisely what subsection of section 523 she relied on, it became apparent during the trial that the plaintiff alleges violations under Section 523(a)(2)(A) and 523(a)(6).
After plaintiff completed the presentation of her evidence, the defendant moved for dismissal of the case under Bankruptcy Rule of Procedure 7041. Plaintiff requested additional time to file written Points and Authorities in opposition to the Motion and defendant requested additional time to submit written Points and Authorities in opposition thereto. The matter was then taken under submission.
II.
STATEMENT OF FACTS
On or about October 6, 1979, plaintiff entered into a written Listing Agreement with defendant real estate broker, authorizing defendant to sell her real property known as 2586 Majella Road, Vista, California. Plaintiff testified that she wanted $150,000.00 for the property. She also testified that prior to listing the property with defendant she was told by other brokers that she could never get $150,000.00 for the property and in fact one broker told her that she could only get $75,000.00 for the property. Plaintiff also testified that the property had a large amount of “debris” on it and that the road on the property needed repair work. After unsuccessful attempts to sell the property for $150,000.00, plaintiff testified she agreed to lower the price of the property to $120,000.00. She also testified that she told the defendant that she did not want cash for the property but wanted income and told the defendant that she needed about $800.00 per month.
Apparently, after plaintiff still could not attract a buyer for the real property at the $120,000 listing price, she and the defendant entered into a written Real Estate Purchase Contract and Receipt for Deposit on November 24, 1979, by which plaintiff sold to defendant her real property for the sum of $120,000.00. Pertinent portions of the written Real Estate Purchase Contract stated that:
“Seller will receive notes totalling 117,-000 initially, (until $10,000 is deducted from same). AFTER resale note(s) will be adjusted. Interest rate is to be 10%, amortized over 30 years all due in 8 years. Seller to receive 10% of profits from resale over 130,000 after deducting all renovation costs. Seller will subordinate to reconstruction or other financing buyer obtains. The agreement depends on buyer being satisfied with Paul (sic) Griesgraber’s provision of renovation funds.... ”
Plaintiff received the sum of $3,000.00 cash as a down payment and also received three promissory notes secured by deeds of trust in the respective amounts of $60,000.00, $45,000.00 and $12,000.00, for a total amount of $117,000.00. On November 27, 1979, plaintiff executed three separate documents each entitled “Subordinated Deed of Trust and Assignment of Rents” which deeds of trust secured the three promissory notes. Each of the three documents entitled Subordinated Deed of Trust and Assignment of Rents, which appear to be forms produced by Transamerica Title Insurance Company, contain the following language directly under the words Subordinated Deed of Trust and Assignment of Rents:
“NOTICE: This Deed of Trust and Assignment of Rents contains a subordination clause which may result in your security interest in the property becoming subject to and of lower priority than the lien of some other or later security instrument.”
The above-notice is blocked with a dark black line.
Thereafter, the escrow relating to the sale of the property was amended to provide for title to be in the name of Anna M. Schurmann. Plaintiff testified that defendant told her that Schurmann was his sister and that he needed to obtain more money *655to clean up the property and that the only way that he could do this was to put the property in the name of his sister. Plaintiff testified that defendant told her that it would not take long to do this and that the property would be back in his name. Plaintiff further testified that defendant told plaintiff that if he sold the property for more than he paid for it, he would give plaintiff 10% of the profit.
The escrow closed on March 26, 1980. On May 12, 1980, Anna M. Schurmann quit-claimed the subject real property to Gries-graber Company, Inc., a California corporation. On May 13, 1980, plaintiff and Anna M. Schurmann executed a written Subordination Agreement which was recorded on May 16, 1980. The written Subordination Agreement contained the following language in capital letters directly under the words “Subordination Agreement”:
“NOTICE: THIS SUBORDINATION AGREEMENT RESULTS IN YOUR SECURITY INTEREST IN THE PROPERTY BECOMING SUBJECT TO AND OF LOWER PRIORITY THAN THE LIEN OF SOME OTHER OR LATER SECURITY INSTRUMENT.”
Under the terms of the written Subordination Agreement, the three deeds of trust were held by plaintiff as beneficiary and were subordinated to a new deed of trust, securing an obligation in the amount of $40,000.00 to Oceanside Financial Services, Inc.
On May 4, 1981, over a year after plaintiff sold the subject real property, plaintiff, the Griesgraber Company, Inc., a California corporation, and Stephen G. Feeney and Rosalie Feeney (collectively “Feeney”) entered into a written “Financing Agreement” pursuant to which the Griesgraber Company sold all of its interest in the subject property to the Feeneys and the Fee-neys substituted three new Promissory Notes secured by Deeds of Trust in the amount of $43,772.63, $62,737.05 and $11,-927.42; the Notes were secured by the subject property. The written Financing Agreement stated in paragraph 1.2(d) that, “These notes shall be a novation of and substitute for the existing obligation of Griesgraber to Hufford.” Pursuant to the terms of the $43,772.63 Note, dated April 16, 1981, the plaintiff was to receive a principal installment of $5,000.00 some four months later on August 12, 1981. The Financing Agreement also indicated that, “All parties are aware that John Griesgra-ber and Feeney are real estate licensees in the State of California acting as principals only in this Agreement and the escrow in conjunction therewith. The parties acknowledge that no commissions are being paid by any party to any other party in connection with this escrow.”
Plaintiff testified that she met with Fee-ney by herself at the Airporter Inn in Newport Beach, California. She testified that the defendant was not present. She testified that she asked Feeney what the effect of the sale of the property and the Subordination Agreements would have on her promissory notes and he advised her that the sale and Subordination Agreements would have no effect. Plaintiff also testified she received $5,000.00 in cash from Feeney as part of the transaction.
On October 30, 1982, Feeney entered into a written Assumption Agreement with James W. Baumgartner, a trustee under a family trust, wherein Feeneys sold the subject property to Baumgartner and Baum-gartner, as trustee, assumed plaintiffs Promissory Notes. Plaintiff was a party to the Assumption Agreement and executed the same. Thereafter, payment on the various Trust Deeds went into default and on May 31, 1984 the real property was sold at a non-judicial foreclosure sale held pursuant to a power of sale contained in a Trust Deed senior to that of the Trust Deeds held by the plaintiff. The foreclosure sale thereby eliminated plaintiff’s security interest in the property.
III.
DISCUSSION
This Motion to Dismiss is brought pursuant to Federal Rule of Civil Procedure 41(b) *656which is made applicable to adversary proceedings by Bankruptcy Rule 7041.
A Motion to Dismiss pursuant to Section 41(b) is appropriate when:
“After the plaintiff, in an action tried by the court without a jury, has completed the presentation of his evidence, the defendant, without waiving his right to offer evidence in the event the motion is not granted, may move for a dismissal on the ground that upon the facts and the law the plaintiff has shown no right to relief.”
F.R.C.P. 41(b).
On such motions, the trial judge must accept all proof of evidence supporting the position of the plaintiff and give to the plaintiff the benefit of all inferences that may logically and legitimately be drawn therefrom and view all circumstances in the light most favorable to the plaintiff. Caporossi v. Atlantic City, New Jersey, 220 F.Supp. 508 (1963); Middleton v. Northfolk and W. Ry. Co., 165 F.2d 907 (1948).
In the instant case, plaintiff contends that defendant was guilty of fraudulent conduct under 11 U.S.C. Section 523(a)(2)(A) in failing to explain the ramifications of the Subordination Agreements which had the effect of placing plaintiff's three promissory notes in a position of second priority to the $40,000.00 note secured by deed of trust in favor of Oceanside Financial Services, Inc.
In an action based upon fraud under Section 523(a)(2)(A), plaintiff must prove that:
(1) The debtor made the representation;
(2) at the time he knew they were false;
(3) he made them with the intention and purpose of deceiving the creditor;
(4) the creditor relied on said representations;
(5) the creditor sustained the alleged loss and damage as the proximate result of the representations having been made.
In re Criswell, 52 B.R. 184, 196 (Bankr.E. D.Va.1985); In re Taylor, 49 B.R. 849, 850-851 (Bankr.E.D .Pa.1985).
Additionally, the creditor carries the burden of proof and must produce clear and convincing evidence in support of her contentions. Further, the exceptions to the discharge are to be strictly construed. In re Sobel, 37 B.R. 780, 785 (Bankr.E.D.N.Y. 1984).
In the instant case, plaintiffs own testimony dispels any notion of fraud on the part of defendant. Documentary evidence and plaintiffs testimony reveal that the defendant informed plaintiff that he was to purchase the subject property as a principal and that she understood this. Further, plaintiff testified that the defendant went through all of the purchase and escrow documents line by line with her. She also testified that the defendant may have explained “the subordination part” to her but that she could not recall it. She also testified that the defendant appeared willing to answer any questions if she asked them, but that she did not have any questions regarding the documents and that she didn’t ask the defendant to explain them because she “figured he knew what he was doing”. She testified that she glanced at the documents but did not read them because she believed that the defendant was acting in her best interests. She also testified that she has no problem in reading.
The evidence presented by plaintiff fails to show in a clear and convincing fashion that the defendant made any sort of a false representation with the intent to deceive the plaintiff. The problem in this case is that the plaintiff placed total reliance on the defendant to take care of her. However, based on the testimony of the plaintiff, it is clear that defendant assumed that the plaintiff read and understood the Purchase Agreement, Escrow Instructions and the subordination documents. The assumption appears reasonable under the circumstances since plaintiff testified that “she didn’t have any questions about the documents”. She also testified that at one point in time the defendant introduced her and her sister to an attorney because her sister needed legal work regarding real *657estate. The plaintiff testified she went to the attorney’s office with her sister but did not question the attorney regarding anything about her transaction.
The record of trial simply does not support plaintiff’s allegations of any type of misrepresentation on the part of the defendant in connection with the sale of her real property. Further, plaintiff did not, at any point in her testimony, assert that defendant converted any portion of the $40,-000.00 loan which she subordinated her trust deed to; the proceeds of which were apparently used to renovate the plaintiff’s real property thereby making it more attractive for sale at a higher price.
Plaintiff’s contention that defendant, as a licensed California real estate broker, breached his fiduciary duty to her in failing to explain the ramifications of the Subordination Agreements appears to be a case of first impression in this Circuit.
Under California law, a fraudulent breach of duty is a tort and the faithless fiduciary is obligated to make good the full amount of the loss of which his breach of faith is a cause. Pepitone v. Russo, 64 Cal.App.3d 685, 134 Cal.Rptr. 709 (1976).
Plaintiff cites Pepitone, supra, Hartzell v. Myall, 115 Cal.App.2d 670, 252 P.2d 676 (1953), and Simone v. McKee, 142 Cal. App.2d 307, 298 P.2d 667 (1956) (hereinafter the “California broker cases”) in support of her legal contention that defendant’s alleged failure to explain the legal ramifications of the Subordination Agreements amounts to active concealment or suppression of material facts, which nondisclosure, by reason of the fact that the defendant was a fiduciary, is the equivalent of a false representation under Section 523(a)(2)(A) of the Bankruptcy Code.
In the California broker cases cited by the plaintiff, the facts reveal that the broker/ defendants involved in those cases failed to disclose to the seller the existence of an acceleration clause (Pepitone, 64 Cal. App.2d at 688, 134 Cal.Rptr. 709); mispre-sented to the sellers the amount of cash they would receive at the close of escrow (Hartzell, 115 Cal.App.2d at 673, 252 P.2d 676); and failed purposely to disclose a higher offer to the seller so that the seller accepted a low offer to a different buyer which the broker within a few days of the acceptance of the lower offer then brokered a sale on the same property to the nondisclosed offeror and received commissions on both sales {Simone, 142 Cal. App.2d at 210-211, 298 P.2d 667).
Relying on the California broker cases, plaintiff attempts to equate what can only be described as classic nondisclosure by a broker with a failure to explain.
Plaintiff's reliance on the California broker cases is misplaced. Defendant broker’s failure to explain the legal effect of a Subordinated Deed of Trust and a Subordination Agreement, does not equate to a false representation actionable under Section 523(a)(2)(A) of the Bankruptcy Code. Accordingly,
IT IS ORDERED that defendant’s Motion to Dismiss is granted. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8490193/ | OPINION
EMIL F. GOLDHABER, Chief Judge:
The primary point for decision is whether a tenant/debtor may recover a penalty from her landlord under Pa.Stat.Ann. tit. 68, § 250.512 (Purdon 1965 & 1985 Supp.) due to the landlord’s alleged failure to return the debtor’s security deposit or inform her of damages to the leasehold within 30 days after the termination of the lease. Since there is no credible proof that the debtor provided the landlord with her new address in writing on termination of the lease, which is a condition precedent to recovery under § 250.512, we will deny the debtor the recovery of a penalty from the landlord.
The facts of this case are as follows:1 The debtor leased an apartment unit from Sylvia Chapman (the landlord) and gave the landlord the requisite security deposit of *698$210.00. By mutual agreement the debtor and the landlord terminated the lease, at which time the debtor may have informed the attorney’s assistant by telephone of her new address, but there is no credible evidence to support a finding that the debtor sent written notice of her new address or that the assistant wrote down said address.
There is also no credible evidence supporting the debtor’s averments that she paid for certain plumbing repairs which purportedly were the landlord’s responsibility. Likewise, the same deficiency of credibility afflicts the landlord’s assertions that the debtor damaged the leasehold.
Under Pa.Stat.Ann. tit. 68, § 250.5122 a landlord must, within 30 days of the termination of a lease, surrender the debtor’s security deposit or provide a written statement of damages caused by the tenant to the leasehold. § 250.512(a). For a breach of this mandate the tenant may recover twice the amount of the deposit. § 250.-512(c). The tenant’s failure to provide the landlord “with his new address in writing upon termination of the lease ... shall relieve the landlord from any liability under [§ 250.512].” § 250.512(e) (emphasis added). One Pennsylvania county court decision, lacking state wide precedential value,3 has held that the requirement that the tenant provide his new address in writing, was satisfied when the tenant orally informed the landlord of the new address which was then written down by the landlord. Perley v. Fannelli, 1 D & C 3d 496, 498 (Del.County, Pa.1976).
In the case before us there is no proof that the debtor sent the landlord her new address in writing and similarly there is no support for the debtor’s assertion that the attorney’s assistant wrote down the .address when called. Thus, § 250.512 is not applicable, and the debtor may not collect the penalty provided under § 250.-512(c).
We next move to the issue of the debtor’s entitlement of the return of the *699security deposit of $210.00 which was deposited by the debtor with the landlord as “reimbursement of the cost of cleaning and repairing any intentional or negligent damage to the dwelling unit caused by the tenant....” Since no such credible claim is made by the landlord, the $210.00 is due the debtor and we will enter judgment in the debtor’s favor for that amount.
. This opinion constitutes the findings of fact and conclusions of law required by Bankruptcy Rule 7052.
. § 250.512. Recovery of improperly held escrow funds
(a) Every landlord shall within thirty days of termination of a lease or upon surrender and acceptance of the leasehold premises, whichever first occurs, provide a tenant with a written list of any damages to the leasehold premises for which the landlord claims the tenant is liable. Delivery of the list shall be accompanied by payment of the difference between any sum deposited in escrow, including any unpaid interest thereon, for the payment of damages to the leasehold premises and the actual amount of damages to the leasehold premises caused by the tenant. Nothing in this section shall preclude the landlord from refusing to return the escrow fund, including any unpaid interest thereon, for nonpayment of rent or for the breach of any other condition in the lease by the tenant.
(b) Any landlord who fails to provide a written list within thirty days as required in subsection (a), above, shall forfeit all rights to withhold any portion of sums held in escrow, including any unpaid interest thereon, or to bring suit against the tenant for damages to the leasehold premises.
(c) If the landlord fails to pay the tenant the difference between the sum deposited, including any unpaid interest thereon, and the actual damages to the leasehold premises caused by the tenant within thirty days after termination of the lease or surrender and acceptance of the leasehold premises, the landlord shall be liable in assumpsit to double the amount by which the sum deposited in escrow, including any unpaid interest thereon, exceeds the actual damages to the leasehold premises caused by the tenant as determined by any court of record or court not of record having jurisdiction in civil actions at law. The burden of proof of actual damages caused by the tenant to the leasehold premises shall be on the landlord.
(d) Any attempted waiver of this section by a tenant by contract or otherwise shall be void and unenforceable.
(e) Failure of the tenant to provide the landlord with his new address in writing upon termination of the lease or upon surrender and acceptance of the leasehold premises shall relieve the landlord from any liability under this section.
(f) This section shall apply only to residential leaseholds and not to commercial leaseholds.
Pa.Stat.Ann.Tit. 68, § 250.512.
. The Supreme Court has stated that state court decisions without statewide precedent, are only entitled to "some weight” but are "not controlling” on the federal court. King v. Order of United Commercial Travelers of America, 333 U.S. 153, 160-61, 68 S.Ct. 488, 492-93, 92 L.Ed. 608 (1948). Nonetheless, for purposes of this case we will presume that Perley accurately reflects the state of the law in Pennsylvania. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8490194/ | OPINION
D. JOSEPH DeVITO, Bankruptcy Judge.
The debtor, Esteves Excavation, Inc. (Es-teves), seeks an order directing the Sussex County Municipal Utilities Authority (Authority) to turn over approximately $63,000 allegedly earned by the debtor under a public improvement construction contract prior to the filing of its bankruptcy petition. The request for a turnover order was filed simultaneously with a motion to assume the contract pursuant to 11 U.S.C. § 365. The debtor acknowledges that it would not have the financial ability to assume the contract unless the funds in question are turned over.
The relevant factual history of this matter dates from October 29, 1981, when the Authority awarded a construction contract to Esteves, obligating Esteves to construct a sewer line to be part of the Upper Wall-kill Sanitary Sewerage Project currently under construction. Esteves proceeded to engage subcontractors to work on the project. In addition, International Fidelity Insurance Company (IFIC or the Surety) executed performance and payment bonds as required of a contractor, pursuant to N.J.S.A. 2A:44-143, et seq., commonly referred to as the Bond Act.
In November of 1982, the Authority received a notice of levy filed by the Internal Revenue Service (IRS) against all funds held by the Authority for the benefit of Esteves.
On December 10, 1982, Esteves filed a petition for reorganization under chapter 11 of the Bankruptcy Code and has since been operating as debtor-in-possession.
From the date of filing until January 25, 1983, six notice of lien claims totaling $132,338.02 were filed with the Authority, pursuant to the Municipal Mechanic’s Lien Law, N.J.S.A. 2A:44-125, et seq. Two of the notices were filed the day the petition was filed. The record, however, does not indicate whether these notices were filed prior or subsequent in time to the filing of the petition. All of the notices were filed notwithstanding that the lien claimants had not obtained modification of the automatic stay imposed by 11 U.S.C. § 362.
On March 14, 1983, the Authority moved for an order under § 365[d][2] of the Bankruptcy Code directing the debtor to either assume or reject the construction contract. On March 17, 1983, the debtor filed a “cross motion” for an order authorizing assumption of the contract and a motion for an order directing the Authority to turn over “all funds in its possession to the debtor for services performed heretofore.” The debtor failed to file supporting affida*801vits, nor did it present any proof at the hearing establishing the existence or extent of its right to payment under the contract. In its brief, however, the debtor states that the Authority approved progress payment vouchers for approximately $63,000 in the fall of 1982. It is this fund which the debtor seeks to recover and use toward completion of the construction contract.
It should be noted that, although the record does not indicate whether the surety has disbursed funds on account of its bond obligations, the brief submitted by the surety represents that disbursements have not been made.
Determination of whether the debtor is entitled to possession and use of the funds held by the Authority involves an analysis of sections 541, 542 and 363 of the Bankruptcy Code. Section 542[a] requires an entity in possession of “property that the trustee may use, sell, or lease under § 363” to turn over that property to the trustee or to the debtor-in-possession.1 Section 363 permits the trustee or debtor-in-possession to use any “property of the estate”, subject to certain conditions for the protection of creditors with an interest in the property.
Section 542[b] provides generally that, an entity that owes a debt that is property of the estate as of the commencement of the case shall pay such debt to the debtor-in-possession, who may use such money if the conditions of § 363 are met.
Under § 541[a][l], the “estate” is comprised of “all legal or equitable interests of the debtor in property as of the commencement of the case.” Section 541[d], however, modifies section 541[a][l] by providing that “[pjroperty in which the debtor holds, as of the commencement of the case, only legal title and not an equitable interest ... becomes property of the estate under subsection [a] of this section only to the extent of the debtor’s legal title to such property.” Thus, if Esteves holds legal and equitable interests in the funds held by the Authority, § 542 would authorize turnover, and Esteves would be entitled to use the money so long as it provides adequate protection for those with interests in the property.
It is well established that, although federal bankruptcy law defines property of the estate, nonbankruptcy law determines the scope of the debtor’s interests therein. Missouri v. United States Bankruptcy Court, 647 F.2d 768, 773 (8th Cir.1981); GMAC v. Morgan (In re Morgan), 23 B.R. 700, 702 (Bankr.E.D.Pa.1982); 4 Collier on Bankruptcy ¶ 541.02 at 541-10 (15th ed. 1982).
The trust fund doctrine contained in N.J. S.A. 2A:44-147 provides in relevant part:
[a]ll money paid ... to any person pursuant to the provisions of any contract for any public improvement ... shall constitute a trust fund in the hands of such person as such contractor, until all claims for labor, materials and other charges incurred in connection with the performance of such contract shall have been fully paid. (Emphasis supplied.)
In Montefusco Excavating & Contracting Co., Inc. v. Middlesex County, 82 N.J. 519, 525-526, 414 A.2d 961 (1980), the New. Jersey Supreme Court held that the benefits of the trust fund doctrine apply not only to subcontractors and materialmen, but to sureties who satisfy claims against the contractor.
Although the statutory trust fund doctrine applies only to money “paid” to the contractor, see National Surety Corp. v. Barth, 11 N.J. 506, 511, 95 A.2d 145 (1953), the New Jersey Supreme Court has held that moneys not yet paid may, in the proper circumstances, be impressed with a constructive trust. Id. at 511-515, 95 A.2d 145. In National Surety Corp. v. Barth, supra, the court, analyzing the source and purpose of the funds held by the Public Housing and Development Authority, did, after finding that the funds were raised by means of state and federal appropriations and from a bond issue and that they were specifically earmarked for housing im*802provements contracted for by the Authority, impose a constructive trust upon those funds for the benefit of laborers, material-men and the surety.
Upon application of the noted New Jersey law, Esteves has a legal interest in the funds to the extent that they have been earned.2 The Court concludes, however, that to the extent subcontractors have not been paid, Esteves does not have an equitable interest in the funds because, pursuant to the Trust Fund Act, that amount is impressed with a trust immediately upon payment to the debtor.
The same conclusion is reached by applying the constructive trust theory, applicable in the circumstances under consideration, since the funds held by the Authority were derived from federal and state grants and from a bond issue, and are to be used to construct the project on which the subcontractors worked. See Barth, supra.
Accordingly, the amount of the fund impressed with the trust is not property of the estate and, therefore, is not subject to a turnover order and may not be used by Esteves.
To determine to what extent any portion of the funds held by the Authority is property of the estate, a hearing is required with proof to be submitted regarding:
1. the amount of money owed to the debtor by the Authority under the contract;
2. the amount of money the debtor owes to those entitled to the benefits of the Trust Fund Act and the constructive trust.
The Court also suggests that all parties alleging liens against the fund should offer proof to substantiate the amount of their lien claims and when obtained. In the event any of the funds are determined to be property of the estate, the Court will rule on the validity of the liens. Though the existence of liens would not preclude the debtor from obtaining and using funds which are property of the estate, such right is conditioned on providing adequate protection to lien holders requesting such security. See United States v. Whiting Pools, Inc., 462 U.S. 198, 103 S.Ct. 2309, 76 L.Ed.2d 515 (1983).
In summary, the Court finds the record insufficient to determine what, if any, portion of the funds held by the Authority should be turned over to Esteves. As noted, an evidentiary hearing must be held to determine (1) what portion of the funds are property of the estate (i.e., not subject to a trust fund); (2) the validity and extent of the alleged liens which will attach to funds which are property of the estate; and (3) whether the lien holders’ interests are adequately protected.
Counsel are to contact the Court for the scheduling of the above noted hearing. Submit order.
. Although § 542 expressly provides a trustee with turnover rights, such rights are extended to a debtor-in-possession by reason of 11 U.S.C. § 1107.
. The debtor cites In re Shore Air Conditioning & Refrigeration, Inc., 18 B.R. 643 (Bankr.D.N.J.1982) for the proposition that it holds an equitable as well as a legal interest in the funds held by the Authority. In re Shore, however, is not relevant to the case under consideration because it involved a determination of the rights of a debtor-subcontractor in funds held by an owner of a private construction project. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8490195/ | FINDINGS OF FACT AND CONCLUSIONS OF LAW
GEORGE C. PAINE II, Bankruptcy Judge.
This cause came on to be heard on December 14, 1983, before the Honorable George C. Paine, II, Judge upon the Complaint of the Trustee, Answer of the Defendants, Motion for Summary Judgment and Brief filed on behalf of the Trustee, Motion for Summary Judgment and Brief filed on behalf of Michael J. Poling and Teresa L. Poling, Stipulation of Facts, argument of counsel and from the entire record, from all of which the court finds that there are no questions of fact and that there is a proper proceeding for Summary Judgment; that the lis pendens filed by the Defendants, Michael J. Poling and wife, Teresa L. Poling, on May 20, 1981, of record in Book 8, page 589, Register’s Office for Maury County, Tennessee, was not filed upon property that was subject to the Complaint filed in the Chancery Court for Maury County, Tennessee, and, therefore, was not a valid and proper lien lis pendens under the laws of the State of Tennessee against the real estate of the Debtors and that the Trustee’s interest, pursuant to 11 U.S.C. § 544, is superior to the rights or interests of the improper and invalid lien lis pendens of Michael J. Poling and Teresa L. Poling.
*2The following shall constitute Findings of Fact and Conclusions of Law as required by Rule 7052 of the Bankruptcy Rules of Procedure:
Robert Jones Adams, a/k/a Mike Adams, and Jean Adams filed a voluntary Chapter 7 petition in bankruptcy in the United States Bankruptcy Court for the Middle District of Tennessee on or about February 19, 1982.
One of the assets listed by the Debtors was a five-acre tract of real property located in Maury County, Tennessee. Said real property was acquired by Mike Adams and wife, Jean Adams, by a Deed, of record in Book 625, page 691, Register’s Office for Maury County, Tennessee. Mike Adams and Robert Jones Adams are one and the same person.
Sam J. McAllester, III is the duly appointed and presently acting Trustee for the Debtors, Robert Jones Adams and Jean Adams. Robert Jones Adams, a/k/a Mike Adams, is now deceased.
Michael J. Poling and wife, Teresa L. Poling, filed a Complaint in the Chancery Court for Maury County, Tennessee, on May 20, 1981, Docket No. 81-233, styled Michael J. Poling and wife, Teresa L. Poling v. Mike Adams and wife, Jean Adams, seeking a judgment for the Plaintiffs in the total amount of $4,182.04. Said complaint did not seek to fix a lien lis pendens on any real estate and did not describe the five acre tract of real property of the Debtors.
The unimproved five-acre tract of real property owned by Mike Adams and Jean Adams is not the subject matter of the Complaint filed in the Chancery Court for Maury County, Tennessee. The Chancery Court Complaint involves a sales contract on a house and lot in Columbia, Tennessee, completely unrelated to the five acre tract.
Simultaneously with the filing of the Complaint in the Chancery Court for Mau-ry County, Tennessee, Frank K. Dale, attorney for Michael J. Poling and wife, Teresa L. Poling, executed a lis pendens against the five-acre tract of real property owned by Mike Adams and wife, Jean Adams. Said lis pendens was filed for record on May 20, 1981, of record in Book 8, page 589, Register’s Office for Maury County, Tennessee.
A Judgment oh the complaint of the Plaintiffs Michael J. Poling and Teresa L. Poling against the Debtors was entered in the Chancery Court for Maury County, Tennessee, on January 8, 1982 by the Honorable Robert L. Jones, Circuit Judge. A copy of said Judgment was filed for record with the' Register of Deeds for Maury County, Tennessee, on January 11,1982, of record in Lien Book 8, page 780, said Register’s Office. Said judgment does not describe the five acre tract nor does the judgment seek to fix a lien upon the five acre tract.
The recording of the Chancery Court Judgment with the Register of Deeds for Maury County, Tennessee, on January 11, 1982 was a preference as defined by 11 U.S.C. § 547(b).
The parties to the adversary proceeding stipulated that the issue to be resolved is whether the use of a lien lis pendens to establish a lien on certain real property which is not the subject matter of the lawsuit is a valid and proper use of a lis pendens under the laws of the State of Tennessee and whether such lien lis pen-dens is superior to the title and interest of the Trustee under 11 U.S.C. § 544.
COMMON LAW OF LIS PENDENS
Resolution of this case requires a clear understanding of the doctrine of lis pen-dens. Most of the litigation cited herein revolves around the question of whether a lien lis pendens provides “notice to all the world.” As will be shown, its purpose is not so much to give notice as to restrict third party rights. The true purpose for liens lis pendens is to prevent third parties from meddling with property in litigation before the court. In the opinion of French v. The Loyal Company, 5 Leigh 646-648, 32 Va.R. 627 (1834), are found the following passages showing the doctrine’s true function at a time when our country's common law was relatively pure.
*3The rule as to the effect of a lis pen-dens, is founded upon the necessity of such a rule, to give effect to the proceedings of courts of justice. Without it, the administration of justice might, in all cases, be frustrated by successive alien-ations of the property, which was the object of litigation, pending the suit, so that every judgment and decree would be rendered abortive, where the recovery of specific property was the object.
Id., at 681.
The French court noted the doctrine’s effects as used in England:
In Gaskell v. Durdin, 2 Ball & Beat. 169, the lord chancellor says, — “The rule of this court undoubtedly is, that any interest acquired in the subject matter of a suit, pending the suit, is so far considered a nullity, that it cannot avail against the plaintiffs title.”
Id., at 646.
In the French case, the survivors of the Loyal Company brought suit based on the misconduct of some of the company’s set-tlors. They further sought and were granted an injunction to prevent further patents from issuing for land surveyed by the company.
In the present case, there is no foundation for the application of the doctrine of the lis pendens.... The survey claimed by Johnston was not a part of the corpus which constituted the subject of that suit.... and I am at a loss to conceive how the lis pendens can apply, where the property purchased is not demanded, and can neither be decreed, nor in any wise affected by the determination of the case.
Id., at 684.
The first considered Tennessee opinion on lis pendens appears to be Shelton v. Johnson, 36 Tenn. 672 (1857). There the Supreme Court considered whether the doctrine of lis pendens provided Tennessee slave purchasers with notice of litigation pending in Virginia concerning claims to the slaves. In the course of the opinion, the Tennessee Supreme Court announced its understanding of the principles of lis pendens, citing French v. The Loyal Company, supra.
The rule on this subject is, that any interest acquired in the subject-matter of a suit while it is pending will be regarded as a nullity as to the plaintiff’s title, which may be established by a judgment or decree in the suit.
The rule is generally placed on the ground of notice either actual or constructive. The law presumes that “judicial proceedings during their continuance,” says Adams in his work on Equity Jurisprudence, at page 157, “are publicly known throughout the realm.” In note 1 on the same page it is laid down that “the whole world — that is, all men in that jurisdiction or State — are warned that they meddle at their peril with the property sued for, and specifically pointed out, in such judicial proceedings.” Such is there said to be the principle of lis pendens. This rule is founded more upon the necessity for it, to give effect to the proceedings of Courts, than upon any presumption of notice. Without such a principle, all suits for specific property might be rendered abortive, by successive alienations of the property in suit; so that at the end of one suit, another would have to be commenced; after that, another, by which it would be rendered almost impracticable for a man ever to make his rights available by a resort to the Courts of Justice.
Shelton v. Johnson, supra, at 680.
Every subsequent Tennessee appellate court decision to date discussing lis pen-dens involves some underlying claim to the specific property for which the lien is also claimed; eg, Massachusetts Mutual Life Insurance Co. v. Taylor Implement and Vehicle Co., 138 Tenn. 28, 195 S.W. 762 (1917)—no lien lis pendens where property sought to be executed against was not described in pleadings on court records. Land Developers, Inc. v. Maxwell, 537 S.W.2d 904 (TN.1976)—noting that the phrase “or otherwise” as used in T.C.A. 20-301, now 20-3-101, includes all types of liens lis pendens, and not just those enu*4merated in that statute (considered infra). Moore-Handley, Inc. v. Associates Capital Corp., 576 S.W.2d 354 (Tenn.App.1978)—suit involving a creditor’s furnisher’s lien. Cannon Mills, Inc. v. Spivey, 208 Tenn. 419, 346 S.W.2d 266 (1961), represents the situation where a judgment creditor with a nulla bona return is given an automatic lis pendens under T.C.A. 26-604 (now 26-4-104) providing, as later amended, he files an abstract in the register’s office. This case illustrates that there are actually two forms of lis pendens liens in Tennessee; one for a judgment creditor who seeks to execute against the particular property (T.C.A. 26-4-104); and one for a person who brings suit involving a particular piece of property (T.C.A. 20-3-101). The lien claimed in the case at bar fits neither category.
The foregoing clearly demonstrates that the doctrine of lis pendens was brought from England and into the common law of Tennessee for the purpose of protecting property in litigation from alienation and other interference. The Tennessee Legislature has acted through the above mentioned statutes to codify the scope of notice provided by a lien lis pendens.
Statutory Law Concerning Lis Pendens
This creditor’s position — that a lien lis pendens can attach to any property — reportedly stems from the repeal of T.C.A. 20-302. At first blush, the removal of the restrictions in that statute would tend to support this position; however, research of the repealing act clearly reveals that there has been no change in doctrine of lis pen-dens.
Since 1932, the general lis pendens statute required that before a “lis pendens proper” would become effective as notice to third parties, an abstract would have to be filed in the county registrar’s office. (Code 1932 § 8053, T.C.A. 20-3-101)
This system was of course appropriate to lessen the problems with “constructive notice” discussed in the French case, supra. The notice system set up by Tennessee law regarding other real property liens remained as it was and did not conform to the new lis pendens system. For example, liens of judgment were automatically notice to the world until 1967. (Acts 1967, ch. 375 § 1)
In 1967, the notice-filing system previously set up for liens lis pendens was adopted for all liens on land. See T.C.A. 25-5-101, Acts 1967, Ch. 375.
Theoretically, at that point in the legislative process, there existed two statutes describing the same filing system: (1) T.C.A. 20-301, limited by T.C.A. 20-302 to lis pen-dens only, and (2) T.C.A. 25-501, purporting to cover all liens on land. It was thus necessary to repeal T.C.A. 20-302 as it contradicted the new statutory filing system for all land liens. See American National Bank and Trust Co. v. Wilds, 545 S.W.2d 749 (Tenn.App.1976), cert. denied, 1977, at 751.
Clearly the repeal of T.C.A. 20-302 was in no way directed at altering the common law availability of a lien lis pendens. If such was the case, Section 4 of Chapter 375, 1967 Public Acts would be subject to constitutional attack as it would encompass more than one subject. Tenn. Const. Art II § 17.
The evil intended to be remedied by this constitutional provision, is to prevent laws upon one subject (lis pendens) being tacked on to a bill upon a wholly different subject (filing system for all land liens), and in this way, sometimes elude the attention of the legislature, and pass without sufficient consideration.
State v. Lasater, 68 Tenn. 584, 9 Baxt. 584 (1877).
There is evidence in the recorded legislative debates that the Senate never considered this bill (Acts 1967, Chap. 375) to do more than implement a new filing-notice system. The remarks of the Senate sponsor, Senator Ayers, are illuminating:
The purpose of this bill is to require that in the event that an individual receives a judgment or decree that it be recorded in the register of deeds office in the county in which the debtor’s land is located. The purpose of this would be so that in *5the event that anyone was attempting to buy a piece of property they’d only have to go to the register of deeds office instead of the various other offices in the county courthouse to find out if there are any liens against that property.
Senate debates on SB469, May 18, 1967, Third Reading.
Thus it is clear that the availability of liens lis pendens has in no way been altered from its common law form. Only the means of effectuating the lien, and all other land liens, has been addressed by the legislature.
Gibson’s Suits in Chancery (5th ed., Crownover) Section 75 says the following about the rule of lis pendens:
§ 75. Rule of Lis Pendens. — During the pendency of a suit in Equity, neither party to the litigation can so alienate or encumber the property in dispute as to affect the rights of his opponent. This rule of lis pendens is based both on necessity and on notice: 1, It is based on necessity, because did it not exist, any litigation might be indefinitely prolonged in consequence of successive alienations of the property in dispute, making it necessary to be constantly bringing the successive alienees before the Court. 2, It is, also, based on notice; because the records of the Court are notices to the world; and in addition the statutes permit registration in other countries.
The lis pendens and the consequent notice begin from the service of a subpoena or other process after the filing of the bill, (for the Court must have acquired jurisdiction of the defendant before he can be bound), and continue through the entire pendency of the suit, and end only when the suit is really ended by final decree. In order, however, that a purchaser pendente lite may be thus affected, the suit must be prosecuted in good faith, with all reasonable diligence, and without unnecessary delay; it is applied strictissimus juris.
Lis pendens is notice of everything averred in the pleadings pertinent to the issue or to the relief sought, and of the contents of exhibits filed and proved. In order that the notice may thus operate, the specific property to which the suit relates must be pointed out in the pleadings, in such a manner as to call the attention of all persons to the very thing, and thus warn them not to intermeddle. It is not necessary that the land should be described by metes and bounds; certainty to a common intent, reasonable certainty, is sufficient. (Emphasis added)
In the recent case of David Leonard Associates v. Airport-81 Nursing Care, Inc., 32 B.R. 960 (Bankr.Ct.E.D.Tenn.,1983) 2 Tennessee Bankruptcy Service 16-5, the Honorable Clive Bare in a similar proceeding found that T.C.A. § 20-301 is a procedural statute and does not create a lien lis pendens but sets forth the procedure for establishing a lien lis pendens. There must be some other authority equitable or otherwise providing the basis for the lien lis pendens. The plaintiff had filed a state court complaint against the debtor seeking recovery of the sum owed to the plaintiff for architectural services, and the plaintiff had concurrently filed a notice of lien lis pendens in the Register of Deeds’ office which described a parcel of property. Judge Bare held that the “or otherwise” provision of T.C.A. § 20-3-101 did not give to the plaintiff a lien right where no other authority provided the basis for the lien.
The lis pendens asserted in this cause is not a proper lien to assert under the facts as stipulated. A lien Us pendens is only available to protect a claimant who is suing on a cause wherein the specific property secured by the lis pendens is a part of the corpus which constituted the subject matter of the suit. The lien lis pendens preserves the status quo and protects the interests of the litigants in the specific property which is subject to the lawsuit from further alienation until the court can render its decision. The lawsuit giving rise to this claim was for a breach of a sales contract involving a tract of real estate unrelated to the five-acre tract. A *6lien lis pendens is not available to this creditor to defeat the interest of the creditors or the Trustee in Bankruptcy. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8490197/ | OPINION ON COMPLAINT TO RECLAIM
RODNEY R. STEELE, Bankruptcy Judge.
THE CASE
The First Montgomery Bank (FMB) seeks in this proceeding to require the Slo-comb National Bank (SNB) to turn over to FMB certain inventory consisting of fans, lights and fireplace devices. Both banks claim a valid and perfected security interest in this inventory, which is located in a store on Ross Clark Circle in Dothan, Alabama.
Trustee makes no claim to the inventory. But the banks agreed to submit the question of priority to this court, and it was submitted as of June 18, 1985, after an evidentiary hearing, and the filing of briefs.
FINDINGS
1. BMR, Inc. was organized as a merchant, selling fans, fireplaces and the like, at Montgomery sometime before August 30, 1983. The company was owned by Richard Zuck and Gayla Zuck.
2. On or about August 30, 1983, BMR pledged its inventory to FMB for a loan and FMB filed with the Secretary of State of Alabama, a UCC-1 statement, showing “BMR, Inc., 5770-C Bell Road, Montgomery, Alabama 36116.” The filing covered “all accounts receivable and inventory, including, but not limited to fans, lighting, wood stoves, fire accessories, telephones, and all brass items. This financing statement also covers future advances.”
3. After this secured transaction, Zuck and a man named Thrasher opened a similar business in Dothan, Alabama, called “A Fan ’N Fireplace.” The FMB knew of this store, and Zuck apparently arranged with FMB for some supplying of inventory to this store. This was from March through May, 1984.
4. In June, 1984, Zuck and Thrasher borrowed $10,000 from SouthTrust Bank of Dale County, for the Dothan store, and executed a UCC-1 in the name of “Zuck, Richard D., Thrasher, Tommy, A Fan ’N Fireplace — BMR, Inc., 1795 Ross Clark Circle, SE, Dothan, Alabama 36301.” This UCC-1 was recorded in Houston County, Alabama and with the Secretary of State on August 24, 1984.
5. On July 7, 1984, Zuck obtained a loan for “BMR, Inc., A Fan ’N Fireplace” from SNB for $21,000, and an additional $3,500 advanced on July 14, 1984. SNB took a security interest in “inventories of business known as A Fan ’N Fireplace located at 1795 Ross Clark Circle, SE, Dothan, Alabama.”
SNB recorded this financing statement with the Secretary of State on July 11, 1984. The debtor was listed as “BMR, Inc., 4429 Troy Highway, Montgomery, Alabama 36116.”
Zuck told SNB that “A Fan ’N Fireplace” was a subsidiary of BMR.
6. Thrasher and Zuck became involved in litigation involving the Dothan store, and SNB discovered that Zuck had made several misrepresentations to SNB. The lawsuit was eventually settled, but during its pend-ency, the business was placed under the supervision of the Circuit Court of Houston County, Alabama, and Mr. Kermit Tanton was appointed as a receiver or trustee.
7. When the lawsuit was settled, the agreement provided that Zuck was to re-execute his indebtedness to SNB and to pay off the SouthTrust Bank. Zuck signed another note and security agreement to SNB.
*30SNB, because of Zuck’s previous misrepresentations, had Zuck execute a note and security agreement as follows: “Richard D. Zuck individually, Richard D. Zuck as sole proprietor, d/b/a A Fan ’N Fireplace, and BMR, Inc., by Richard D. Zuck, president.”
This re-executed note was for $25,219.71. Zuck’s security covered “all inventory, including after-acquired inventory, located at A Fan ’N Fireplace, 1795 Ross Clark Circle, SE, Dothan, Alabama.”
8. Sometime in October or November of 1984, FMB took an inventory of the collateral of BMR, Inc. located at its store in Montgomery. Zuck assisted in this inventory, and FMB placed a value of $30,000.00 on it.
9. The testimony supports a finding that an agent of A Fan ’N Fireplace, in the fall of 1984, made several trips to Montgomery from Dothan in order to purchase inventory from BMR, Inc. The agent stated that on several occasions during that time, Zuck would make an appointment at First Montgomery Bank, the agent would meet a bank representative who would take him to BMR’s place of business, unlock the door, supervise his obtaining inventory, and accept a check written on “A Fan ’N Fireplace” and made payable jointly to FMB and BMR, Inc.
10. On December 17, 1984, BMR, Inc. filed a Chapter 7 petition in bankruptcy. On January 23, 1985, FMB filed its motion to lift stay, and the stay was lifted by an order dated February 22, 1985.
11. Meanwhile, SNB, who was not listed as a secured creditor by BMR, Inc. and who had received no word or notice of any bankruptcy filing, discovered that Zuck had recently abandoned the Dothan store. SNB obtained possession of the store in early March, 1985, and repossessed the collateral and was about to sell it when it was advised by FMB that FMB claimed the inventory at Dothan. This litigation ensued.
12. It also appears that on July 9, 10, and 13, 1984, A Fan ’N Fireplace bought and paid for by checks, inventory from BMR, Inc.
CONCLUSIONS
BMR, Inc., and the business known as “A Fan ’N Fireplace” were, at least after late June, 1984, when the Circuit Court of Houston County took over the Dothan store and appointed Mr. Kermit Tanton as receiver, a separate entity.
The evidence also supports a finding that after the store was taken over by the Circuit Court of Houston County, Alabama, the Dothan store was operated as a separate entity, individually owned by Zuck and operated separately by him. He had control over it and tried to manipulate it to the disadvantage of the SNB. He incorporated it, in fact, for that purpose.
He bought merchandise for that separate Dothan store from the BMR store in Montgomery, and FMB knew it, and in effect, refused to let the merchandise go until BMR, Inc. and its secured creditor, FMB, were paid.
The effect of the UCC-1 filing, then, by SNB on September 27, 1984, was to give SNB a first security interest on the inventory of the Dothan business, and a second security interest on the inventory of BMR, Inc.
2. The sales by BMR, Inc. to A Fan ’N Fireplace of inventory were sales in which “A Fan ’N Fireplace” took free of the security interest of FMB.
A creditor with a valid and perfected security interest in collateral continues to have that interest, even though the collateral is sold, exchanged or otherwise disposed of by the giver of security, but the security agreement may provide for disposition free of the security interest. Code of Alabama, 1975, Section 7-9-306(2).
And if the giver of security is a merchant seller, who deals in goods of the kind given as security, and he sells to one in the ordinary course of his business, then he is selling to “a buyer in the ordinary course of business,” and that buyer in ordinary course, takes free of a security interest of *31the secured creditor. Code of Alabama, 1975, Section 7-9-307(1); Section 7-1-201. There is an implicit right which the secured creditor is presumed to recognize, to sell free of the security interest.
The buyer in ordinary course may, however, lose that status if he knew that the sale to him was in violation of the security interest of the secured creditor, and if he bought not in good faith. Code of Alabama, 1975, Section 7-17201(9). He would then take subject to the security interest.
In this case, “A Fan ’N Fireplace” was a buyer in the ordinary course of business from BMR. BMR was in the business of selling the kind of inventory collateral pledged to FMB. The inventory was sold in the usual course of BMR’s business to A Fan ’N Fireplace.
That must result in a finding that “A Fan ’N Fireplace” took free of FMB’s security interest and that SNB’s security is valid and perfected and a first security interest on the Dothan inventory, unless “A Fan ’N Fireplace” purchased in knowing violation of FMB’s security rights and not in good faith.
We cannot find that “A Fan ’N Fireplace” was guilty of either of these exceptions. In the first place, the Dothan entity, even though it knew of the security interest of FMB, bought from BMR (which had a good right as a merchant to sell free of the security interest) and paid for the inventory it bought from BMR. It was not buying in violation of any right of FMB.
3. “A Fan ’N Fireplace” also bought in good faith from BMR. It paid for the inventory it bought from BMR. And in several instances, it directly paid the FMB. See Defendant’s Exhibit 1. And see the testimony of Segrest.
“Good faith” is defined as “honesty in fact in the conduct or transaction concerned.” In this case, the cash sales, the “transactions concerned” were conducted honestly; there is no evidence that “A Fan ’N Fireplace” or its agents intended to bilk FMB or deceive FMB or to deplete the inventory of BMR to the detriment of FMB or any creditor of BMR. The payment for the goods in this case constitutes good faith, and avoids any question of fraudulent transfer.
The instructive opinion in In re Del Tex Corp., (B.C.W.D.Tex., 1983) 32 B.R. 403, is distinguishable. The “good faith” of the buyer in ordinary course in that case was not established because credit sales between two entities, both merchants, were improperly handled by the common owner, with depletion of assets of the inventory of the giver of security. There was an obvious fraudulent transfer or transfers of the inventory of the giver of security. It was impossible to find good faith in that case.
For the reasons set out above, it must be concluded that the Dothan inventory is free of any security claim of the FMB, and is subject to the valid and perfected first security interest of the Slocomb National Bank.
An appropriate order will enter. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8490199/ | MEMORANDUM
RALPH H. KELLEY, Bankruptcy Judge.
This is an action by the plaintiff Bank to have the defendant debtor held liable for a debt not dischargeable in her bankruptcy case. The complaint is based on a credit card charging spree. The court finds the facts as follows.
*100The debtor had a Mastercard credit card for several years before April 11,1984. At that time, her credit limit was $1300. Charges on the card totaled $676.71. The debtor had been making regular but small payments on the debt.
As a matter of policy, the lending bank generally would stop approving charges when the cardholder already owed 1.5 times the credit limit, which in this case would have been $1,950. Approval was required, however, only for charges of more than $50.
From April 11, 1984, to May 9, 1984, additional charges were made totaling $5,794.87. Many of these exceeded $50, but approval was not denied even when the total charged exceeded $1,950.00.
Obviously, this amount of charges in such a short period of time required several charges on the same day. For example, on May 8, 1984, there were apparently ten charges. On May 9, 1984, there were sixteen charges, eleven at the same charge.
Further charges on the account were supposedly cut off on May 9, 1984.
At the trial, the debtor testified that she was unemployed during the time the charges were made. She denied that she made all of the charges and in particular denied a charge on May 10, 1984, to the Elvis Presley Hall of Fame in Gatlinburg, Tennessee. However, Lyle Matthews, an employee of the Bank, visited the debtor at her residence after the charges were made. He testified that she admitted making the charges.
At the trial the debtor testified that her card was stolen in early April, 1984. However, the Bank’s file reflected that it was reported stolen on May 11, 1984, after further charges were disallowed.
The debtor was still unemployed at the time of the trial on July 10, 1985, but had completed education requirements for getting her teaching certificate renewed.
Discussion
In a case decided under the Bankruptcy Act of 1898, the court held that a credit card charging spree may give rise to a nondischargeable debt for obtaining credit by fraud or false pretenses. In re McKelvy, No. 1-78-136 (Bankr.E.D.Tenn. July 17, 1978), noted 18 C.B.C. 842. The Bankruptcy Code did not change the statute in such a way as to undo this rule. 11 U.S.C. § 523(a)(2)(A). The question is whether at the time of making the charges the debtor did not intend to pay the debt or did not have a reasonable prospect of being able to pay the debt. See, e.g., In re Labuda, 37 B.R. 47 (Bankr.M.D.Fla.1984); In re Klein, 32 B.R. 79 (Bankr.S.D.Fla.1983).
The evidence did not show that the $676.71 debt owed before the charging spree began was incurred when the debtor had no reasonable prospect of paying the debt or did not intend to pay it. This portion of the debt is dischargeable.
The court concludes that the remaining $5,794.87 debt was the result of a charging spree during which the debtor did not have a reasonable prospect of being able to repay the amounts charged. This makes the debt nondischargeable.
The debtor argued that the nondis-chargeable debt should be reduced from this amount by deducting the charges of more than $50 made after her total charges exceeded 1.5 times her credit limit, because the charges should not have been allowed or approved. The debtor should not be relieved of her wrongdoing on the ground that it was successful despite the creditor’s safeguards.
Furthermore, the proof did not show that the approval system would have protected the Bank. It did not show that all the merchants fully complied with the approval system or that the system showed the total charges at any one moment, including charges for which a merchant had not yet made a claim. Considering the rapidity of the charges involved, the approval system may not have been able to keep up sufficiently to protect the Bank.
*101The court concludes that the entire amount of $5,794.87 is nondisehargeable. It would not appear equitable or practicable to determine whether the Bank’s judgment should include interest.
This memorandum constitutes findings of fact and conclusions of law. Bankruptcy Rule 7052. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8490201/ | CLIVE W. BARE, Bankruptcy Judge.
Claude S. Hill, debtor in possession, asks the court to void any lien defendant Robert Marcella claims against certain stock certificates and $610.00 cash in the custody of the United States Marshal for the Southern District of New York. Hill contends a prejudgment levy obtained by Marcella expired because Marcella failed to commence a “special proceeding” extending the life of the levy. N.Y.Civ.Prac.Law § 6214(e) (McKinney 1980). Marcella asserts he did in fact timely commence a proceeding to compel Hill to deliver attachment property, thereby extending the life of the levy under New York law. The parties cite conflicting case law. The issue is governed by New York law.
I
On March 7, 1983, Marcella filed a complaint in the district court for the Southern District of New York against Claude Hill and three corporations whose stock is owned solely by Hill. More than one year later, on June 22, 1984, the district court entered a prejudgment order of attachment against Hill reciting in part:
ORDERED, that the United States Marshal for the Southern District of New York and the United States Marshal *143for any District within New York State are directed to levy within their jurisdiction, at any time before final judgment, upon such property in which the said defendant Claude S. Hill has an interest and upon such debts owing to the said defendant as will satisfy the amount of $795,000, which represents the plaintiffs demand together with probable interest, costs and Marshal’s fees and expense. ...
On June 25, 1984, the order of attachment was delivered to the marshal, who in turn served Hill with the order on August 2, 1984. Hill executed a statement, dated August 13, 1984, certifying in part that when the order of attachment was served on him he owned no property located in the Southern District of New York and no debts were owing to him in that district, except a checking account with a balance of $123.54.
On September 20, 1984, Arthur Kokot, Marcella’s attorney in the New York action, executed an affidavit providing in part:
1. I am a member of Kay Collyer & Boose, attorneys for plaintiff Robert Marcella (“Marcella”) and make this affidavit in support of Marcella’s motion, pursuant to Fed.R.Civ.P. 64 and [NY] CPLR 6219, 6220 and 6214(d), to compel defendant Claude S. Hill (“Hill”) and garnishees ARP Films, Inc., Westchester Films Inc. and Westchester Merchandising Corp. (collectively the “Garnishees”) to disclose, pay and deliver to plaintiff all property in their possession or custody in which Hill has an interest and all debts owing to Hill, and to hold Hill and the Garnishees in contempt for failing to comply with this Court’s order of attachment.
Kokot further averred Hill and the garnishees had failed to deliver or disclose property subject to the attachment order and that they should be held in contempt. In conclusion, Kokot requested the court to grant Marcella’s motion1 to compel Hill and the garnishees to disclose and deliver all property in which Hill had an interest and all debts owed to Hill. Kokot also requested a finding of contempt. On September 25, 1984, the district court entered a show cause order. Thereafter, on October 5, 1984, the district court ordered Hill to appear for an examination at Kokot’s office and to “answer all questions as to any property in which Hill has an interest or any debts owing to Hill....”
At a December 13, 1984 hearing on Marcella’s motion for implementation of the attachment order entered June 22, 1984, following an off the record discussion, District Judge Pollack stated:
The plaintiff [Marcella] contends that the directions of that attachment order have been flouted. We have reached the point where I asked the plaintiff’s attorney what it was that was not turned over to the marshal, and the first statement that was made had to do with stock certificates of the respective corporations involved, and when I inquired about that, Mr. Gotbetter, speaking for Mr. Hill, announced that Mrs. Hill has those stock certificates and that she declines to turn them over.
I then said that, if necessary, this court will issue the appropriate directions to the United States Court for the District of Tennessee to enforce any requirements of this court that should be enforced, if that is the distance you want this court to go.2
On January 8, 1985, District Judge Pollack signed an Order of Attachment and Restraint and For Disclosure, in part, directing the marshal for the Southern District of New York “to levy, at any time before final judgment, upon such property in this District in which the defendant Claude S. Hill (“Hill”), ARP Films, Inc., Westchester Films, Inc., Westchester Merchandising Corp., Centaur Distribution Co., Inc., and Kid-Vid Inc. (the “Corporations”), or any of them, has an interest and upon such debts owing to the said parties as will *144satisfy the amount of $795,000.... ” The order further directed Hill to deliver to the marshal all of his stock in each of the five corporations, even though the stock certificates were reportedly in Tennessee in the custody of Hill’s wife. On January 22, 1985, counsel for Mrs. Hill hand delivered to the marshal stock certificates representing: (1) 1,000 shares in ARP Films, Inc.; (2) 12,500 shares in Centaur Distribution Co., Inc.; (3) 500 shares in Westchester Films, Inc.; and (4) 20 shares in Westches-ter Merchandising Corp.
On February 27, 1985, the district court entered judgment against Hill and ARP Films, Inc. in the respective amounts of $221,760.00 and $163,553.00. The judgment was amended on March 15, 1985, to increase to $176,874.00 the judgment amount against ARP Films, Inc. The district court dismissed several corporate counterclaims against Marcella. The judgment also provides that, with an exception for Hill’s salary payment from ARP Films, Inc., the attachments and restraints against Hill and ARP Films, Inc. shall subsist until the judgment in Marcella’s favor is fully satisfied. Hill filed a notice of appeal of the judgment but sought relief only insofar as the judgment is adverse to the corporations in which he owns the stock.
On March 7, 1985, only eight days after entry of the district court judgment, Hill filed his chapter 11 petition. Hill is solvent according to his schedules, which reflect debts totaling $648,710.00 and assets valued at $2,110,499.00.
II
In his amended complaint Hill asserts the rights of a judicial lien creditor. 11 U.S. C.A. § 544(a)(1) (Supp.1985).3 But Marcella asserts his rights as an attaching creditor, arising as of the delivery of the attachment order to the marshal on June 25, 1984, are superior to the world under New York law to the extent of the amount of the attachment, except as to: (1) a transferee acquiring the property before it was levied upon for fair consideration or without knowledge of the order of attachment, or (2) a transferee who acquired the property for fair consideration after it was levied upon without knowledge of the levy while it was not in the possession of the levying officer. N.Y.Civ.Prac.Law § 6203 (McKinney 1980). However, U.C.C. § 8-317(1) as enacted in New York provides that an attachment or levy upon an outstanding security is not valid until the security is actually seized by the officer making the attachment or levy. In any event, the marshal acquired custody of the stock certificates more than six weeks prior to commencement of Hill’s bankruptcy case.
N.Y.Civ.Prac.Law § 6214 (McKinney 1980) enacts in part:
Levy upon personal property by service of order
(a) Method of levy. The sheriff shall levy upon any interest of the defendant in personal property, or upon any debt owed to the defendant, by serving a copy of the order of attachment upon the garnishee, or upon the defendant if property to be levied upon is in the defendant’s possession or custody, in the same manner as a summons.•
(d) Proceeding to compel payment or delivery. Where property or debts have been levied upon by service of an order of attachment, the plaintiff may commence a special proceeding against the garnishee served with the order to compel the payment, delivery or transfer to the sheriff of such property or debts, or to secure a judgment against the garnishee. Notice of petition shall also be served upon the parties to the action and the sheriff. A garnishee may interpose any defense or counterclaim which he might have interposed against the defendant if sued by him. The court may *145permit any adverse claimant to intervene in the proceeding and may determine his rights in accordance with section 6221.
(e) Failure to proceed. At the expiration of ninety days after a levy is made by service of the order of attachment, or of such further time as the court, upon motion of the plaintiff on notice to the parties to the action, has provided, the levy shall be void except as to property or debts which the sheriff has taken into his actual custody, collected or received or as to which a proceeding under subdivision (d) has been commenced.
So, to perpetuate a levy pursuant to an order of attachment beyond the ninety-day period after service of the order of attachment, an officer must have taken actual custody of property or the attaching creditor must either commence a special proceeding or obtain an extension of time pursuant to motion. Seider v. Roth, 28 A.D.2d 698, 280 N.Y.S.2d 1005 (N.Y.App.Div.1967).
Citing Worldwide Carriers Ltd. v. Aris S.S. Co., 312 F.Supp. 172 (S.D.N.Y.1970), Hill contends Marcella’s prejudgment levy expired because Marcella did not commence a special proceeding, separate from the main action, within ninety (90) days after service of the attachment order on August 2, 1984. Relying on a subsequent state court decision, Simpson v. Loehmann, 365 N.Y.S.2d 368 (N.Y.Sup.Ct.1975), Marcella insists the levy did not expire because his motion by order to show cause to compel delivery is within the scope of § 6214(d).
In Worldwide Carriers, a suit against Aris and five other corporate defendants, plaintiff Worldwide obtained an attachment order pursuant to which the marshal levied upon the assets of all six defendants in the possession of five garnishees, none of whom were parties to the action. A motion by all of the defendants except Aris for discharge of the attachment in exchange for their posting a $500,000.00 bond was granted. The bond was duly posted. None of the garnishees turned over to the marshal any of the property levied upon. Less than ninety (90) days after the levy Worldwide filed a paper entitled “Petition in Proceeding to Compel Payment of Debt and/or Delivery of Property Levied Upon under Order of Attachment.” Only one of the five garnishees was served with the petition within ninety (90) days after the levy. No notice of the petition or order to show cause fixing a time for a hearing was filed or served. All defendants except Aris moved to implement the order discharging the attachment upon their posting the $500,000.00 bond and to vacate the levy, contending it was void due to Worldwide’s failure to commence the turnover proceeding required by § 6214(d) and (e) within ninety (90) days after the levy. Thereafter Worldwide obtained an order to show cause bringing on for hearing its previously filed petition. The court, after observing no notice fixing a time for a hearing was served on the garnishees at any time, stated “[n]or was an order to show cause obtained in lieu of a notice of petition until long after the time to do so had expired.” Worldwide Carriers, 312 F.Supp. at 177. Concluding a special proceeding against a garnishee within the scope of § 6214(d) must be separate from the main action, the court vacated the levy because Worldwide failed to commence a special turnover proceeding within ninety (90) days of the levy upon the garnishees. The court specifically found that Worldwide’s “Petition in Proceeding to Compel Payment of Debt and/or Delivery of Property Levied Upon under Order of Attachment” did not satisfy the requirements of § 6214(d).
However, the court in Simpson v. Loehmann, 81 Misc.2d 386, 365 N.Y.S.2d 368 (N.Y.Sup.Ct.1975), contrary to the conclusion in Worldwide Carriers, held that § 6214(d) does not require an independent proceeding separate from the main action. Simpson involved a personal injury action against an insured defendant. By way of motion plaintiffs sought judgment, pursuant to § 6214(d), directing defendant’s insurer to turn over money sufficient to satisfy their judgment against the insured defendant. The opinion of the court recites in material part:
The motion by plaintiffs to direct payment by the insurer as garnishee of *146so much of the proceeds of the attached policy as is sufficient to satisfy the verdict, with interest, costs and disbursements in the action, plus poundage and sheriffs fees and expenses, all as provided for in both the original and additional orders of attachment, is, though not specifically so designated, a special proceeding in the nature of a turnover proceeding brought pursuant to CPLR § 62H(d). Although the parties have not addressed themselves to the propriety of such procedure in this case, and no cases have been cited or found so ruling, the procedure here adopted, in lieu of a separate plenary action brought against the insurer, appears to be proper and within the compass of the statute. CPLR 6214(d) represents a significant change from the former practice which placed the onus on the sheriff, either with or without joinder of the plaintiff, to bring a plenary action against the garnishee to enforce a levy. CPLR § 6214(d) authorizes a simplified procedure by which the plaintiff may bring a special proceeding against the garnishee for delivery of property to the sheriff. As in the case of other special proceedings, if a hearing or trial be deemed necessary, such may be directed by the court. (CPLR § 410).
Simpson, 365 N.Y.S.2d at 374 (emphasis added).
This court believes Simpson, decided five years after Worldwide Carriers, represents the better rule. Section 104 of the N.Y.Civ.Prac.Law provides: “The civil practice law and rules shall be liberally construed to secure the just, speedy and inexpensive determination of every civil judicial proceeding.” To require a separate proceeding to perpetuate a levy seems hy-pertechnical where notice is properly given to all concerned. Further, the instant proceeding is factually distinguishable from Worldwide Carriers. Marcella did obtain a show cause order prior to ninety (90) days after the levy. According to the affidavit of personal service of Earle Hodge, on September 25, 1984, he served the order to show cause upon Howard Gotbetter, attorney for Hill and the corporate defendants in the New York action.4
The court finds that Marcella’s motion by order to show cause to compel delivery is within the circumscription of § 6214(d). Hence, the levy is not void for failure to proceed.
Ill
Contending the only property subject to attachment was property located in the Southern District of New York, Hill asserts the stock certificates in the possession of his wife in Tennessee were not subject to attachment or levy by the New York marshal. Assuming arguendo Hill is correct, the fact remains that the stock certificates were brought into, and delivered to the marshal for, the Southern District of New York on or about January 22, 1985. The stock certificates were subject to the Marcella levy on that date.
Hill maintains the stock certificates were delivered to the marshal because of the threat of injunction or sanctions pursuant to Judge Pollack’s January 8, 1985 order. Yet, Hill did not appeal the order directing him to deliver the stock certificates. Instead he apparently acquiesced in the turnover to the marshal. If Hill wished to challenge the propriety of Judge Pollack’s January 8, 1985 turnover order he should have filed a notice of appeal to the Second Circuit Court of Appeals. As it is, the marshal obtained possession of the stock certificates in question at a time when Marcella’s levy subsisted. Further, the February 27, 1985 district court judgment against Hill recites in part: “ORDERED that the attachments and restraints against Claude S. Hill and ARP Films, Inc. shall stand until the judgment herein in favor of plaintiff Robert Marcella is fully satis-*147fied_” Hill did not appeal this portion of the judgment against him personally.5
In conclusion, Marcella s claim is secured by a lien against the stock certificates and the $610.00 in cash in the marshal’s custody; as a debtor in possession Hill’s rights under 11 U.S.C.A. § 544(a)(1) (Supp.1985) are not superior to Marcella’s lien.6 Accordingly, Hill’s motion for summary judgment is DENIED, and Marcella’s motion for summary judgment is GRANTED.
IT IS SO ORDERED.
. The record in this proceeding does not include a copy of Marcella’s motion.
. Mrs. Hill resided in Tennessee at the time of the December 13, 1984 hearing.
. Hill withdrew his original assertion that Marcella's lien claim is a statutory lien avoidable under 11 U.S.C.A. § 545(2) (Supp.1985). See 11 U.S.C.A. § 101(45) (Supp.1985) for the definition of "statutory lien.”
. Accordingly, ARP Films, Inc., Westchester Films, Inc. and Centaur Distributing Co., Inc., unlike the garnishees in Worldwide Carriers, had notice of Marcella’s request to enforce the levy. It is not clear, however, whether two other garnishees, Kid-Vid, Inc. and Westchester Merchandising Corp., were served with the show cause order.
. In his brief in support of his motion for summary judgment, Hill states: “8. Debtor filed a timely notice of appeal of the judgment in the Southern District of New York, but sought relief from the Court of Appeals only as to the judgments against his corporations.”
. Hill’s contentions that the district court judgment is not final and that Marcella’s lien is inchoate are without merit. His argument that no final judgment was entered against him until after his bankruptcy petition was filed because an amended judgment, simply increasing the amount of the judgment against ARP Films, Inc., was filed postpetition is frivolous. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8490202/ | ORDER DENYING AMENDED MOTION FOR RECONSIDERATION
A. JAY CRISTOL, Bankruptcy Judge.
This matter has come before the court upon amended motion for reconsideration, through counsel, by claimant, Charles H. Molho, d/b/a Manhattan Ship Supply.
Counsel states that his failure to attend hearing relating to debtor’s objection to the claim filed by his client to be heard on August 2, 1985 at 10:00 a.m., was due to his own inadvertence and neglect because he became involved in reviewing another client’s case. Carelessness is not synonymous with excusable neglect. Kohlbeck v. Handley, 3 Ariz.App. 469, 415 P.2d 483; Boyd v. Marsh, 47 N.C.App. 491, 267 S.E.2d 394; Motiograph, Inc. v. Matthews, 555 S.W.2d 196, (Tex.Civ.App.1977). Forgetfulness and the press of other more important business is insufficient to establish excusable neglect. Dudley v. Stiles, 142 Mont. 566, 386 P.2d 342; Scott v. Seabreeze Pools, Inc., 300 So.2d 279, (Fla. 4th D.C.A.1974). Therefore, it is
ORDERED that claimant’s motion for rehearing is denied. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8490203/ | RALPH H. KELLEY, Bankruptcy Judge.
The trustee in the bankruptcy of A. Fass-nacht & Sons, Inc., brought this suit against Suzanne Fassnacht to recover an “insider” preference. 11 U.S.C. § 547. As the statute applies to this case, the trustee can recover only if Suzanne Fassnacht had reasonable cause to believe the company was insolvent at the time of the transfer. 11 U.S.C. § 547(b). Trial was held first only on that issue.
The transfer in question involved securing and repaying a $100,000 loan that came about as follows.
A. Fassnacht & Sons filed a petition in bankruptcy in November, 1980. It had been in business in Chattanooga for more than 100 years. Its business was selling and installing truck equipment such as beds, van bodies, utility bodies, hydraulic lifts, tool boxes, etc.
The business had always been owned and operated by members of the Fassnacht family. The defendant, Suzanne Fass-nacht, is the wife of John Fassnacht. They were married in 1948. In 1965 he became president of the company and was president when it filed its bankruptcy petition in November, 1980.
Suzanne Fassnacht became a member of the board of directors in 1971 and continued on the board through the time of filing of the bankruptcy petition. She was also elected treasurer and assistant to the president in 1976 and held those titles until June, 1980, or perhaps up to the filing of the bankruptcy petition in November, 1980.
John’s and Suzanne’s son, Rick, also worked in the business. He became vice-president in 1971 and was vice-president until his resignation immediately before the bankruptcy petition was filed in November, 1980. Rick’s wife, Yikki, also worked for the company until the spring of 1980. She handled accounts receivable and accounts payable.
John’s and Suzanne’s daughter married Chip Misgen, a psychologist by training, who went to work for the company in June, 1980.
John’s brother, Father Carl, was also on the board of directors.
The business had operated for some time before 1979 at a location on 13th Street in Chattanooga. Near the 13th Street location was a parcel of real property owned by C & E Enterprises, a company made up of John Fassnacht and his brothers and sisters and their spouses.
In 1977 or 1978 the business moved from the 13th Street location to a new location in the St. Elmo section of town.
In the summer of 1979, Rick Fassnacht asked Suzanne Fassnacht if her aunt, Bess Cason, would lend the company some money. Suzanne told Rick to ask her himself. Rick approached her about a loan when she came to visit in 1979. She declined to lend the money directly to the company but agreed to lend it to Suzanne. She told John to make arrangements with her trust officer at a Florida bank.
In return for the loan, Suzanne executed a promissory note that was made due six months after Bess Cason’s death, apparently so that the debt could be set off against Suzanne’s inheritance if it was not paid before then.
Suzanne then lent the money to the company and took a promissory note from the company as evidence of the debt. John intended that the company’s debt to Suzanne be secured by the company’s old business property on 13th Street. John had also decided to have the company’s other debts to family members or to C & E Enterprises secured by the 13th Street property. Through an error, the deeds of trust to secure all the debts described the property belonging to C & E Enterprises, rather than the company’s old 13th Street business location. The deeds of trust were recorded in July and August, 1979.
*176John Fassnacht discovered the error in late 1979 and brought it to the attention of his attorneys. In December, 1979 corrected deeds of trust were recorded to secure all the debts except the $100,000 debt to Suzanne.
In the summer of 1980, John Fassnacht knew that the Tennessee Valley Authority was interested in buying the 13th Street business property. He began getting it ready for sale. He then discovered that the deed of trust of the property to secure the $100,000 debt to Suzanne had not been corrected. He had a correct deed of trust prepared. It was recorded on June 19, 1980.
The property was sold in September, 1980, and the $100,000 debt to Suzanne was paid in full from the proceeds, as was a $5,000 secured debt to C & E Enterprises.
Under the preference statute, the lien created by the correct deed of trust was transferred when the deed of trust was recorded in June, 1980. 11 U.S.C. § 547(e). The question is whether Suzanne Fass-nacht had reasonable cause to believe the company was insolvent when the deed of trust was recorded.
The trustee makes a three point argument. He argues (1) that Suzanne Fass-nacht herself had reasonable cause to believe the company was insolvent, (2) that John Fassnacht had reasonable cause to believe the company was insolvent and his knowledge should be attributed to Suzanne because he acted as her agent in the transaction in question, and (3) that reasonable cause to believe the company was insolvent should be attributed to Suzanne because she was an officer and director of the company.
For the purpose of considering the trustee’s arguments, the court assumes that the company was insolvent at the time of the transfer.
Of course, reasonable cause to believe a debtor is insolvent does not mean actual knowledge of insolvency. Reasonable cause to believe means that the creditor had knowledge of facts sufficient to indicate to a reasonable person that the debtor was insolvent or that the creditor had knowledge of facts that should have led it to inquire and a reasonable inquiry would have revealed the insolvency. 3 Collier on Bankruptcy II 60.53 (14th ed. 1975).
The proof in this case showed numerous facts readily available to Suzanne Fass-nacht that would have shown that the company was in financial difficulty.
In early 1979, the company had a $50,000 line of credit from American National Bank. In March, 1979, the company borrowed another $100,000 from American National Bank. The proof was unclear as to how this $100,000 was used by the company. Apparently, it was used in the general operations of the business.
The company tried to borrow another $100,000 from American National Bank but was turned down. The bank referred the company to Manufacturers Hanover Trust in the hope that Manufacturers Hanover would take the Bank out by refinancing the debt. Manufacturers Hanover was not willing to lend $250,000, apparently because it was too small an amount.
After being unsuccessful with Manufacturers Hanover, Rick Fassnacht asked Suzanne about borrowing money from her aunt, Bess Cason. Rick told Suzanne and Bess Cason that the company was doing fine but was in a cash flow bind or shortage.
In 1979 the company was also behind in paying its accounts payable. The delay became longer as time passed. The company was generally paying no later than 60 days in early or middle 1979 but this grew to more than 90 days by the end of 1979. Beginning in the spring of 1980, the company would write checks to pay bills to suppliers but would hold them until the supplier called to demand payment or until accounts receivable were collected to cover the check. The time from receipt of an invoice until the check cleared the bank was around four to five months.
John Fassnacht denied that he knew how bad the accounts payable problem was in *177mid-1980. He may not have known while Rick’s wife Vikki, was still working for the company. But Loretta Bridges, who was also a bookkeeper for the company, testified that after Vikki left in April or May, 1980, she personally told John Fassnacht that the company was writing checks to pay bills and holding them until the creditors demanded payment.
At times in 1980 the company would not have enough money to meet its payroll when the checks had already been written. Loretta Bridges would hold the checks while Vikki Fassnacht collected enough accounts receivable to cover the checks. The company never failed to pay a payroll.
In the middle of 1980, some suppliers, but not everybody, were selling to the company only on a C.O.D. basis. These were not major equipment suppliers such as Reading or Midwest. Reading did, however, begin requiring payment for the preceding shipment before it would send another shipment.
In late, 1978, the company owed a large old debt to a supplier, Peabody-Galion. The debt was evidenced by a promissory note for about $23,000. The company also owed Peabody-Galion for other purchases on open account. The principal amount of the open account debt was about $76,000. Apparently the company paid the promissory note debt in full in late 1978. At the same time it also agreed to pay the open account debt in six equal monthly installments. Peabody-Galion agreed to this, except that it requested a seventh payment of $10,000 to satisfy the debt for accrued interest totaling $21,000.
The company paid three of the six installments but missed the March, 1979 installment. In April, 1979, Peabody-Galion sent a letter inquiring about payment of the remaining installments. John Fassnacht wrote back saying that collections were slow and asked Peabody-Galion’s indulgence in awaiting payments.
Almost four months later, in late August, 1979, the company still had not paid any of the remaining installments. Fred Barnett of Peabody-Galion talked to Vikki Fassnacht by telephone with the result that a payment of $2,500 was made in early September, 1979. On September 11, 1979, Fred Barnett wrote a letter demanding immediate payment in full or the account would be turned over to Peabody-Galion’s attorneys for collection. In June, 1980, the company still had not paid the remainder of the debt.
The financial statement for 1979 showed a net operating loss of about $34,000. This financial statement was presented at the annual directors’ meeting on June 24, 1980. Suzanne Fassnacht was at that meeting. The monthly financial statement up to the end of May, 1980 showed a loss so far in 1980 of about $8,700.
John Fassnacht’s salary was cut in half in 1979. Suzanne definitely knew about this. The company also let some employees go about June, 1980 in order to reduce overhead and also for cause in some cases.
The facts suggest that John Fassnacht suspected the company was failing, if not insolvent. John decided to use the old business property on 13th Street to secure not only the $100,000 debt to Suzanne but also the company's other debts to family members or to his family’s C & E Enterprises. The $100,000 that Suzanne lent to the company was used in December, 1979 to pay $50,000 on the debt to American National Bank, a debt that John Fassnacht guaranteed. Even though the debt was also secured, the collateral was insufficient to pay the balance after the $50,000 payment. John Fassnacht had to pay about $17,000 on his guarantee. John and Rick Fass-nacht both said the $50,000 payment was demanded by the bank but the bank officer who handled the account testified that he didn’t demand payment and the file didn’t show any demand. Another $10,000 from the $100,000 lent by Suzanne was paid on a debt to C & F Enterprises in March, 1980.
Furthermore, the $100,000 was received about the time Peabody-Galion was demanding payment in full of the old open account debt. But rather than use the $100,000 to pay this debt or any other trade *178debt, the money was simply put in a savings account where it sat until the $50,000 was paid to American National Bank. The remainder was then put into a certificate of deposit and was not used until $10,000 was paid to C & E Enterprises on March 26, 1980. Only then was the remainder of the money put into the operation of the company.
The facts clearly show favoritism. Debts were paid to insiders or for the benefit of family members. These were paid ahead of debts to trade creditors, especially Peabody-Galion. At the time of these payments the company was in obvious financial difficulty. It appears that John Fass-nacht was making a point of paying the company’s debts to family members when he knew or should have known that the company was not paying its trade debts from its regular income.
John Fassnacht denies this. He says that he had nothing to do with the $50,000 payment to American National Bank. Rick Fassnaeht apparently wrote the check. He also says that he didn’t know that the $10,000 paid to C & E Enterprises was from a deposit of the money lent to the company by Suzanne Fassnacht. The court also notes that the incorrect deed of trust to secure the $10,000 debt to C & E was actually executed in September, 1978, though not recorded until July, 1979. The incorrect deed of trust to secure the $5,000 debt to John and Suzanne Fassnacht was prepared in April, 1979 and recorded in July, 1979. The incorrect deed of trust to secure the $100,000 debt to Suzanne was recorded in August, 1979. John Fassnacht argues that at these times the company’s financial condition appeared to be good and the recording of the correct deeds when the company’s condition had worsened was only the correction of a mistake. The preference statute, however, requires the court to focus on the facts when the correct deed of trust to secure the $100,000 debt to Suzanne was recorded in June, 1980.
The trustee must prove that John or Suzanne Fassnacht had reasonable cause to believe the company was insolvent in June, 1980. Financial difficulties, cash flow problems, or even inability to pay debts as they mature, are not the same as insolvency under the preference statute. For purposes of the preference statute, insolvency means the debtor’s liabilities exceed the value of its assets. 11 U.S.C. § 101(26)(A). The trustee must show that John or Suzanne Fassnacht had reasonable cause to believe the company’s liabilities exceeded the value of its assets. On this point the Fassnachts’ defense is that other facts reasonably led them to the conclusion that the company was solvent. Obviously the company’s problems were sufficient to put John and Suzanne Fassnacht on inquiry as to the company’s solvency before or at the time of the transfer. Their defense is also intended to show that a reasonable inquiry would not have revealed the company’s insolvency, assuming it was insolvent. What would a reasonable inquiry have revealed?
John and Rick Fassnacht testified that as of June, 1980, they did not expect the company to fail. The company’s employees who testified also said that they did not expect the company to fail or at least did not hear any talk about the company being likely to fail. Roger Bennett said that he would not have solicited sales of $30,000 to $40,000 if he had thought the company was insolvent, by which he meant about to fail.
Rick and John Fassnacht were both of the opinion that the company was suffering only a temporary cash flow problem caused by a decline in sales that was in turn caused by a general economic downturn. Neither was especially worried by the $34,-000 loss for 1979 or the $8,700 loss for the first five months of 1980. John Fassnacht testified that the company had suffered losses during previous bad times but had continued in business. The 1979 financial statement showed that the company had a net worth of $129,000 despite the $34,000 loss. The trial balance dated May 30, 1980 showed the $8,700 loss for 1980, but also showed a net worth of $120,000.
The 1979 financial statement was prepared by Charles Strain. He was the company’s accountant from the mid or late *1791960’s through 1979 and into 1980. The 1979 financial statement was unaudited as were all the financial statements he prepared for the company. He testified that in June, 1980 he knew times were difficult but he was not worried about the financial condition of the company. He did not hear members of the Fassnacht family express concern about the continuation of the business but did hear “usual” references to the tight cash flow. He was aware that the company was slow in paying some vendors and was buying COD from others. If he had been asked in June, 1980, he would have said the company was solvent.
The 1979 financial statement showed an increase in sales of about $150,000 over the 1978 total. John Fassnacht explained the company’s borrowing in 1979 as being prompted by the company’s expansion and good prospects. The company won trips from suppliers in both 1979 and 1980 for being a leading customer in the preceding years. John and Suzanne Fassnacht took one of the trips, to Greece, in March, 1980.
Loretta Bridges, the bookkeeper, testified that if anyone had asked her about the company’s financial condition in June, 1980, she would have shown them the May 30, 1980 trial balance, which showed a net worth of about $120,000. Rick Fassnacht testified that at the time he saw no reason to go behind the May 30, 1980 trial balance to determine the company’s true financial condition. He also testified that he believed the June, 1980 trial balance was correct when he saw it. It showed a net worth of about $111,000.
An annual directors’ meeting was held on June 24, 1980. The 1979 financial statement was presented at the meeting. The directors were not especially worried by the $34,000 loss for 1979. As to the company’s problems, the discussion concerned getting the management together and increasing sales.
Lack of direction from the management was a major problem with the business. Rick Fassnacht had begun running the business around 1975 or 1976 when his father became unable to run it full time because of illness.
John Fassnacht stayed away from the business almost completely during the summer of 1979 when he and Suzanne were staying at Beersheba Springs. In the fall, hé and Suzanne moved back to their home on Lookout Mountain. He began to come to the business more regularly, but only for two or three hours a day on two or three days of the week.
The decline in sales began in the fall of 1979. John and Rick Fassnacht clashed over which one was running the company. Rick did not think his father should try to run the company on a part-time basis but his father still would not allow Rick to decide how the company should respond to the economic downturn.
Rick in effect withdrew from the battle from January through May, 1980 by going to Kingsport, Tennessee to open a branch dealership. Rick was always of the opinion that the company had to find new customers to cover the decline in sales to its regular big customers, who were primarily truck dealers. Besides opening the Kings-port office, the company was trying to sell directly to government agencies or corporations such as TVA. When Rick returned, the battle resumed but at least it was recognized as a problem.
Chip Misgen was brought into the company about June, 1980 in the hope that his training as a psychologist would allow him to mediate between John and Rick. Someone also decided that the management should hold regular operational meetings. One was held on June 19, 1980. Loretta Bridges testified that at the time no one was acting like the company was going to fail. The meeting was held to discuss generating more sales to keep the company going. The problem that was mentioned was cash flow. Another operational meeting was held on July 10, 1980. The discussion again involved generating more sales.
Rick Fassnacht had also advocated reducing overhead by laying off employees. In June and July, 1980, Harold Davis, the sales manager, and Jerome Blevins, the *180parts manager, and several shop employees were laid off.
Rick Fassnacht testified that all of the truck equipment industry was suffering at the time. Several had gone out of business. The truck dealers that were their regular big customers were not selling trucks. One dealer, Ken Gardner Ford, had itself gone into bankruptcy. He talked to other equipment dealers who also thought the recession would be short and that the way to survive was to cut back and make money from repairs. There was no particular alarm about the company’s future at the June, 1980 operational meeting.
The trustee’s proof of insolvency in another adversary proceeding in this case focused primarily on a financial statement prepared by Chip Misgen. It reduced the value of the company’s inventory to the point that it showed the company to be insolvent. The accuracy of this financial statement was hotly contested, but without regard to its accuracy, it was prepared after the date of the transfer in question. At best, it would be evidence that the company was insolvent, which would tend to show that the officers or directors should have known or could have found out that the company was insolvent. The court, however, has assumed that the company was insolvent at the time of the transfer.
The question is what information was available at the time that would have revealed the company’s solvency or insolvency. The financial statement prepared by Chip Misgen was not available. The 1979 financial statement was available. Charles Strain testified that its inventory total was consistent with other balance sheet totals. The May 30, 1980 trial balance was also available and showed the company to be solvent.
On these facts the court cannot say that Suzanne Fassnacht herself or through John Fassnacht as her agent had reasonable cause to believe the company was insolvent when the correct deed of trust was recorded in June, 1980. John and Rick Fassnacht honestly believed the company’s assets were sufficient to pay its debts. They had no particular reason to doubt the accuracy of the 1979 financial statement or the trial balances through May, 1980. All of them showed that the company had a positive net worth. Charles Strain had been the company’s accountant for many years. He believed the company was solvent in June, 1980. The facts required John or Suzanne Fassnacht to make a reasonable inquiry into the company’s financial condition. If the company was insolvent in June, 1980, it could have been discovered only by an inquiry far beyond the reasonable inquiry that was required. The Fassnachts were not hiding their eyes from facts clearly showing insolvency. What they saw were facts showing financial problems but not insolvency, and if they had made a reasonable inquiry, they would not have discovered the company to be insolvent. Thus, the trustee cannot recover from the defendant under the preference statute.
The court does not especially like the result. The company owed at least one old business debt that was not being paid. It was not paying its ordinary business debts on time because it was losing money. The Fassnachts ran the company and knew what was happening. They in effect used the company’s property to pay debts to family members or their businesses ahead of business debts to innocent third parties. The preference statute, however, does not penalize this kind of behavior. The test of insolvency is not whether the debtor was paying its debts on time but whether its liabilities exceeded its assets. In this case, the defendant did not have reasonable cause to believe the company’s liabilities exceeded its assets at the time of the transfer.
The trustee also contended that he should be allowed to avoid the transfer as a common law preference. Recovery, however, should depend on the director’s or officer’s knowledge or reasonable cause to believe that the corporation was insolvent. 19 Am.Jur.2d, Corporations § 1574 (1965); 19 C.J.S., Corporations § 1391 (1940). *181Thus, the trustee also cannot avoid the transfer as a common law preference.
Having held in the defendant’s favor, the court need not consider the jurisdictional questions raised by the defendant.
The court will enter an order accordingly-
This memorandum constitutes findings of fact and conclusions of law. Bankruptcy Rule 7052. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8490548/ | MEMORANDUM AND ORDER ALLOWING PROOF OF CLAIM
ROBERT CLIVE JONES, Chief Judge.
The Debtor, Roger Paul Ward (“Ward”), filed a petition under Chapter 13 of the Bankruptcy Code on February 19, 1985. Ward is licensed as a chiropractor by the Nevada State Board of Chiropractic Examiners under Chapter 634 of the Nevada Revised Statutes.
The Nevada State Department of Taxation (“Department”) filed a proof of claim in the amount of $18,466.59 for sales taxes which, the Department contends, Ward should have collected and paid to the state on the sale of vitamins, minerals and herbs to his patients. Ward has objected to the Department’s proof of claim, asserting that he is exempt from the payment of tax on such sales under Nev.Rev.Stat. 372.283. That statute provides in relevant part:
1. There are exempted from the taxes imposed by this act the gross receipts from sales and storage, use or other consumption of:
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(d) Medicines:
(1) Prescribed for the treatment of a human being by a person authorized to prescribe medicines, and dispensed on a prescription filled by a registered pharmacist in accordance with law;
*806(2) Furnished by a licensed physician, dentist or podiatrist to his own patient for the treatment of the patient;
(3) Furnished by a hospital for treatment of any person pursuant to the order of a licensed physician, dentist, podiatrist; or
(4) Sold to a licensed physician, dentist, podiatrist or hospital for the treatment of a human being.
(2) “Medicine” means any substance or preparation intended for use by external or internal application to the human body in the diagnosis, cure, mitigation, treatment or prevention of disease or affliction of the human body and which is commonly recognized as a substance or preparation intended for such use.
Although the statute does not expressly exempt chiropractors from the payment of the tax, Ward contends that the term “licensed physician” must be read to include chiropractors. The Department contends that chiropractors are not “licensed physicians” within the meaning of the statute.
In Sierra Pacific Power Co. v. Dept. of Taxation, 96 Nev. 295, 297, 607 P.2d 1147 (Nev.1980) the Nevada Supreme Court stated:
As a general rule, tax exemptions are strictly construed. Bingler v. Johnson, 394 U.S. 741, 752, 89 S.Ct. 1439, 1445, 22 L.Ed.2d 695 (1969); Kunes v. Samaritan Health Service, 121 Ariz. 413, 590 P.2d 1359 (1979). There is a presumption that the state does not intend to exempt goods or transactions from taxation. Thus, the one claiming exemption must demonstrate clearly an intent to exempt. Clark County Sports Enterprises, Inc. v. City of Las Vegas, 96 Nev. 167, 606 P.2d 171 (1980). Any reasonable doubt against the applicability of an exemption must be construed against the taxpayer. Matter of 711 Motors, Inc., 56 Hawaii 644, 547 P.2d 1343 (1976).
Thus, the burden is on Ward to demonstrate an intent on the part of the Nevada Legislature to exempt chiropractors from the payment of taxes on the sales of vitamins, minerals and herbs to his or her patients. For the following reasons, the Court finds that Ward has not met that burden.
Chapter 630 of the Nevada Revised Statutes, entitled “Physicians and Assistants”, confers upon the State Board of Medical Examiners the powers necessary to ensure that only competent persons practice medicine within the state of Nevada. Nev.Rev.Stat. 630.014 defines “physician” as “a person who has complied with all the requirements of this chapter for the practice of medicine.” (emphasis added). To qualify as a physician, a person must have (1) received the degree of Doctor of Medicine from an accredited medical school and (2) passed all parts of the examination given by the National Board of Medical Examiners and all parts of the Federation Licensing Examination. Nev. Rev.Stat. 630.160. The licensing requirements for the practice of chiropractic are different. See Nev.Rev.Stat. 634.070 to .130. For example, although chiropractors are subject to their own particular educational requirements, they need not have attended medical school. Nor are they required to have passed the same exams as physicians. In light of these qualifications, it appears that the legislature clearly views physicians and chiropractors as engaging in different professions.
An examination of other sections of the Nevada Revised Statutes further supports the conclusion that the legislature’s use of the term “licensed physician” does not contemplate chiropractors. Chapter 634 of the Nevada Revised Statutes governs the practice of chiropractic. Nev.Rev.Stat. 634.-120(2) states: “A license to practice chiropractic authorizes the holder thereof to use the term ‘chiropractic physician’.” Ward contends that since chiropractors may use the term “chiropractic physician”, they should be considered “physicians” for purposes of Nev.Rev.Stat. 372.283. The Court disagrees. The Court feels that the legislature’s placement of the term “chiropractic physician” within quotation marks, indicates that it is a term of art. Thus, rather than supporting Ward’s position, the language of section 634.120(2) indicates that *807licensed chiropractors may not designate themselves “physicians” without using the phrase in conjunction with the term “chiropractic”.
Further limitation of the use of the phrase “physician” is found in the general provisions of the Nevada Revised Statutes. Nev.Rev.Stat. 0.040 provides:
1. Except as otherwise provided in subsection 2, “physician” means a person who engages in the practice of medicine, including osteopathy and homeopath.
2. the terms “physician,” “osteopathic physician,” “homeopathic physician” and “chiropractic physician” are used in chapters 630, 630A, 633 and 634 of NRS in the limited sense prescribed by those chapters respectively.
(emphasis added).
Nev.Rev.Stat. 634.220 provides that “[njothing in this chapter shall be construed to permit a chiropractor to practice medicine, osteopathic medicine, dentistry, optometry or podiatry, or to administer or prescribe drugs.” Thus, since a chiropractor is specifically prohibited from engaging in the practice of medicine, he or she does not fall within the definition of “physician” as provided in section 0.040(1). Further, the list of specific types of physicians in section 0.040(2) indicates that the legislature clearly intended to limit the scope of the terms “physician” and “chiropractic physician.”
Ward has given several examples of instances in which the Nevada Attorney General has stated that a chiropractor may-be treated in the same manner as a physician. Specifically, Ward notes that the Attorney General has issued an opinion stating that a chiropractor may be treated as a “physician” for purposes of Nev.Rev.Stat. 392.-050, which permits a student to be excused from participation in physical education activities at school upon the written certificate of a “physician.” Ward also notes that the Attorney General has stated that a chiropractor may be treated as a “physician” for purposes of Nev.Rev.Stat. 440.-380, which governs the issuance of certificates regarding the cause of death. The Department contends that certain recent revisions to the Nevada Revised Statutes make it unlikely that a chiropractor would currently be able to perform either function.
The Court need not evaluate this argument. Even if Ward is correct in asserting that chiropractors may be treated as physicians for certain purposes, the Court is persuaded that the term “physician” in section 372.283 does not include chiropractors. Here, by excluding the language “chiropractic physician” from the tax exemption statute, it appears that the legislature has chosen not to exempt chiropractors from the payment of sales tax. As noted, any reasonable doubt against the applicability of a tax exemption must be construed against the taxpayer. Sierra Pacific, 96 Nev. at 297, 607 P.2d 1147. Had the legislature intended the exemption to apply to chiropractors, it could have specifically so provided. Accordingly, the Court finds that Ward has not demonstrated an intent on the part of the legislature to exempt chiropractors from the payment of sales tax.
EQUAL PROTECTION
Ward next contends that if the exemption is not granted to chiropractors, the statute violates the Equal Protection Clause of the United States Constitution. Ward argues that it is unconstitutional for the legislature to treat chiropractors, who may legally dispense vitamins, minerals and herbs, differently, under the tax exemption statute, than physicians who may dispense those items as well. The Court does not agree.
The United States Supreme Court has frequently examined state taxing statutes under the Equal Protection Clause. In Allied Stores of Ohio, Inc. v. Bowers, 358 U.S. 522, 79 S.Ct. 437, 36 L.Ed.2d 480 (1958) the Court delineated the relevant standards:
The applicable principles have been often stated and are entirely familiar. The States have a very wide discretion in the laying of their taxes. When dealing with their proper domestic concerns, and not *808trenching upon the perogatives of the National Government or violating the guaranties of the Federal Constitution, the States have the attribute of sovereign powers in devising their fiscal systems to ensure revenue and foster their local interests. Of course, the States, in the exercise of their taxing power, are subject to the requirements of the Equal Protection Clause of the Fourteenth Amendment. But that clause imposes no iron rule of equality, prohibiting the flexibility and variety that are appropriate to reasonable schemes of state taxation. The state may impose different specific taxes upon different trades and professions and may vary the rate of exise upon various products. It is not required to resort to close distinctions or to maintain a precise, scientific uniformity with reference to composition, use, or value. If the selection or classification is neither capricious nor arbitrary and rests upon some reasonable consideration of difference or policy, there is no denial of the equal protection of the law.
[I]t has long been settled that a classification, though discriminatory is not arbitrary nor violative of the Equal Protection Clause of the Fourteenth Amendment if any state of facts reasonably can be conceived that would sustain it.
358 U.S. at 526-28, 79 S.Ct. at 440-42 (emphasis added); see also Kahn v. Shevin, 416 U.S. 351, 94 S.Ct. 1734, 40 L.Ed.2d 189 (1974) (applying the same principles in upholding a Florida statute allowing widows a $500 exemption from property taxation, but denying a similar exemption to widowers); Lehnhausen v. Lake Shore Auto Parts Co., 410 U.S. 357, 93 S.Ct. 1001, 35 L.Ed.2d 351 (1973) (applying the same principles in upholding an Illinois statute exempting individuals from ad valorem taxes on personal property but not exempting corporations).
Here, it is not difficult for the Court to conceive of a legitimate state interest that might sustain the classification. For instance, the legislature may have assumed that most of the items prescribed by chiropractors would be available in retail outlets where they would be subject to the tax. Accordingly, the legislature may not have wanted to allow a separate exemption which would result in a competitive disadvantage to retail outlets, while the competitive advantage given physicians over chiropractors and retail outlets would be relatively insignificant.
Because there is clearly a rational basis for exempting physicians and not chiropractors from the payment of taxes on the sales of vitamins, minerals and herbs to their patients, the court concludes that the classification does not contravene the Equal Protection Clause of the Fourteenth Amendment of the Constitution.
Accordingly, Ward’s objection to the Department of Taxation’s proof of claim must be rejected. The proof of claim of the Department of Taxation in the amount of $18,466.59 is hereby ALLOWED. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8490206/ | OPINION
EMIL F. GOLDHABER, Chief Judge:
The essence of the dispute in the case at bench is whether we should sustain the trustee’s objection to a proof of claim filed by a retail purchaser of carpet on the basis that the customer received in substance the same type of carpet he ordered. For the reasons stated herein, we conclude that the trustee’s objection should be sustained.
We summarize the facts of this case as follows:1 The debtor filed a petition for reorganization under chapter 11 of the Bankruptcy Code (“the Code”). Thereafter, Stephen Lebisky (“Lebisky”) ordered carpeting from the debtor and paid the full purchase price of $1,113.08. After much delay the debtor delivered and installed the carpet. Lebisky balked that the carpet was not what he had ordered and that it was not properly installed. But on the basis of expert testimony, we find that the carpeting and the installation essentially complied with Lebisky’s order.
Lebisky filed a proof of claim (“claim No. 197”) for $1,113.08 on the grounds that the carpet and installation deviated from what he had ordered. The trustee objected to the proof of claim. Since the facts reveal that there is no basis for Lebinsky’s complaint, we will accordingly enter an order sustaining the trustee’s objection to Lebin-sky’s proof of claim.
. 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/8490208/ | ORDER ON OBJECTION TO CLAIM FINDING CLAIMANT TO HOLD A PERFECTED SECURITY INTEREST NOTWITHSTANDING LACK OF RECORDATION
A. JAY CRISTOL, Bankruptcy Judge.
This matter came on to be heard on August 12, 1985 at 9:00 a.m. on the objection of the trustee in bankruptcy to Claim No. 1 filed by Sears, Roebuck & Company.
The court is called upon to decide whether a purchase money security interest in consumer goods is an exception to the requirement that a financing statement must be recorded to perfect a security interest.
Sears, Roebuck & Company timely filed its claim, Claim No. 1, in the amount of $1,376.07 and alleged said claim to be a secured purchase money claim against various and diverse consumer merchandise purchased from Sears pursuant to the Sears, Roebuck & Company security agreement. The agreement signed by the debtor, dated July 2,1982, was attached to the claim filed by Sears, Roebuck & Company.
Paragraph 7 of the agreement states as follows:
“7. SECURITY INTEREST IN GOODS. Sears has a security interest under the Uniform Commercial Code in all merchandise charged to the account. If I do not make payments as agreed, the security interest allows Sears to repossess only the merchandise which has not been paid in full.”
It is the position of Sears that under the Florida Uniform Commercial Code, Fla. Stat. § 672.401, the retention by Sears of the title and the goods is limited to a reservation of a security interest subject to Article IX of the Uniform Commercial Code. Sears relies on the definition of consumer goods under Fla.Stat. § 679.109(1), as goods used or bought for use primarily for personal, family or household purposes. Sears claims it has a purchase money security interest in such consumer goods sold to its customers where the purchase of that item is financed by Sears and that the purchase money security interest is defined by Fla.Stat. § 679.107 as a security interest retained by the seller of the collateral to secure all or part of its price or where the seller gives value to enable the debtor to acquire the collateral. Sears further argues that a purchase money security interest in consumer goods is an exception to the requirement that a financing statement must be filed to be perfected. Sears cites Fla.Stat. § 679.302(l)(d) for the proposition that a financing statement does not have to be filed to perfect a purchase money security interest in consumer goods regardless of the value of the collateral.
This theory has been upheld In re Tucker, 36 B.R. 706 (S.D.Ill.1984).
A similar result was confirmed In re Anderson, 23 B.R. 130 (D.Neb.1982).
*330There are apparently two exceptions to the provisions of Fla.Stat. § 679.302 which states that filing is not required to perfect a purchase money interest in consumer goods. The first exception is that filing is required if the goods are also fixtures and filing must be made with the Clerk of the Circuit Court under Fla.Stat. § 679.313. The second exception is that if the debtor sells the consumer goods to a third party buyer, that buyer takes free of the security interest even though it is perfected, if the buyer has no knowledge of the security interest and buys the goods, for value, for his own personal, family or household purposes. The security interest is only good against that innocent purchase for value if a financing statement has been filed with the Secretary of State.
This court is satisfied that recording is not required to perfect a purchase money security interest (Fla.Stat. § 679.107) in consumer goods (Fla.Stat. 679.109; Fla. Stat. § 679.302(l)(d)). Accordingly, it is
ORDERED that the objection to claim of the trustee in this cause is overruled and that Sears is entitled to a secured position on the specific assets of the debtor identified in the purchase invoice nos. 8056932 and 8056933 as attached to the claim of Sears in this cause to the extent of a value of $1,356.57. Any amount left unpaid after liquidation of said securities, is thereafter allowed as an unsecured claim against the estate of the debtor. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8490209/ | ORDER DENYING MOTION FOR RELIEF FROM JUDGMENT FOR DEFENDANT AND ORDER DENYING MOTION FOR REHEARING
A. JAY CRISTOL, Bankruptcy Judge.
This cause came on to be heard upon the motion for relief from judgment for defendant and order denying motion for rehearing filed by Stephen H. Judson, trustee, on December 30, 1985.
This court is initially concerned with its jurisdiction to hear this motion purportedly filed under Rule 60(b), Fed.R.Civ.P. because a notice of appeal was filed in this cause by Stephen H. Judson, trustee, on December 6, 1985. (C.P. No. 24). At least one other judge opined that it was inappropriate, due to lack of jurisdiction, for the court to rule on a motion under Rule 60(b) after a notice of appeal has been filed. In re Bialac, 694 F.2d 625, 627 (9th Cir.1982). The Eleventh Circuit seems to indicate that *342there is a “discretionary power of a ... court to consider such a motion even after an appeal has been noticed. Parrott v. Wilson, 707 F.2d 1262, 1266-1267, n. 8 (11th Cir.1983). This prospect of simultaneous jurisdiction in an appellate court and a trial court creates substantial concern in the mind of this court as to the possible problems that might result. This court agrees with Judge Paskay’s decision, In the Matter of Urban Development Ltd., Inc., 42 B.R. 741, 744 (Bankr.M.D.Fla.1984), wherein he stated: “While the bankruptcy court has a wide latitude to reconsider and vacate its own prior decisions, it may not do anything which has any impact on the order on appeal.” The court will, however, assume jurisdiction here in the interest of judicial economy since the merits are clearly dispositive of the matter.
To correct a mistake in a stipulation submitted to the court, the trustee relies on Rule 60(b), Fed.R.Civ.P. The court will determine whether this reliance is legally justified.
On May 20, 1985, the trustee filed his original complaint (C.P. No. 1) in which he alleged his appointment as trustee on May 18, 1985. The defendant generally denied this allegation in paragraph 2 of an answer filed on July 17, 1985 (C.P. No. 6) and once again denied this allegation in an amended answer filed on July 26, 1985 (C.P. No. 7).
Thereafter, pursuant to pre-trial procedures, counsel for the plaintiff (the trustee) and the defendant met and agreed on a stipulation of fact that was Part C of a Pre-Trial Report, filed on August 14, 1985. The trustee and the defendant quite clearly stipulated that the trustee was appointed on May 18, 1983. (C.P. No. 10).
On August 15, 1985, the defendant filed a memorandum of law on the untimely filing of this proceeding noting that the complaint was filed two years and two days after May 18, 1983, the date of the appointment of the trustee (C.P. No. 11). On the same day, the plaintiff filed a pre-trial memorandum which opposed this defense with the assertion that the filing was timely based on B.R. 9006(a) (C.P. No. 12).
On August 30, 1985, this court prepared Findings of Fact and Conclusions of Law and also issued a Final Judgment, which were docketed by the clerk on September 11, 1985 (C.P. Nos. 13 and 14).
Then, on September 9, 1985, plaintiff-trustee filed a motion for rehearing (C.P. No. 15) in which he further argued the timeliness of the filing. The court observes he chose not to question the stipulated fact that May 18, 1983 was the date from which the statute of limitations began to run. Also on September 9, 1985, the trustee filed a notice of appeal (C.P. No. 16).
Plaintiff submitted a memorandum of law in support of rehearing, filed September 25, 1985, in which he again argued for the timely filing of the complaint. He cited B.R. 9006(a) and Rule 6(a), Fed.R.Civ.P. in support of his claim, but he failed to raise any issue concerning the accuracy of the factual stipulation that May 18, 1983 was the date of the trustee’s appointment.
On September 26, 1985, the defendant filed a memorandum of law arguing the issue of timeliness and opposing plaintiff’s motion for rehearing (C.P. No. 21).
On November 29, 1985, the court signed an order denying plaintiff’s motion for rehearing which was docketed by the clerk on December 4, 1985 (C.P. No. 23).
An additional notice of appeal was filed by the trustee on December 6, 1985 (C.P. No. 24). Then, on December 12, 1985, plaintiff filed a motion for relief under Rule 60(b) Fed.R.Civ.P. (C.P. No. 26) in which he raised for the first time, the issue of “mistake of fact” regarding the stipulated date of May 18, 1983, which purportedly is not the true date of the trustee’s appointment.
The trustee relies heavily on U.S. v. Gould, 301 F.2d 353 (5th Cir.1962), (hereinafter Gould) as authority for relief from mistake of fact. In that case, Chief Judge Tuttle extensively quoted from Moore’s Federal Practice treatise which sets forth the various grounds a court should consider in granting a motion under Rule 60(b). *343However, Professor Moore specifically points out that Rule 60(b) is not a substitute for an appeal. Gould at 356.
The court will carefully weigh both sides of the argument. On the trustee’s side of the scale are the points that the rule should be liberally construed for the purpose of doing substantial justice and that there are apparently no substantial intervening equities which would make it inequitable to grant relief. The other side of the scale, however, carries heavier weight. The principles of finality and predictability dictate that a final judgment should not be lightly disturbed. This consideration is reemphasized by Professor Moore when he cautions “that the principle of finality of judgments serves a most useful purpose for society, the courts, and the litigants — in a word, for all concerned.” Gould at 356. Professor Moore advises that the court should also consider:
1. “Whether in the particular case the interest of deciding cases on the merits outweighs the interest in orderly procedure and in the finality of judgments.” Gold at 356. In this case, it does not.
2. “Whether the movant had a fair opportunity to present his claim.” Gold at 356. The court believes he did.
3. Whether “the motion is made within a reasonable time[?]” Gold at 356. Under the circumstances of this case, raising the point of mistake of fact at this stage of the proceedings is not within a reasonable time. The trustee had ample opportunity to study the record. In fact, he had in excess of two years to prepare his case. Such preparation should include knowing when the statute of limitations begins to run. After filing the original complaint two years and two days after the date set forth in the complaint as the date commencing the statute of limitations, the trustee presented the argument that the complaint was properly filed under Rule 6(a), Fed.R.Civ.P. No doubt, a body of caselaw exists in support of the trustee’s argument under Rule 6(a). In rejecting this line of opinion, this court felt the other view was the better view and decided the case accordingly. The mistake of fact remained uncovered because the trustee persisted in traveling down another legal road. Mistake of fact could have been raised in the initial arguments and corrected at that time. It could have been raised on the motion for rehearing. Nowhere, in his Motion for Relief (C.P. No. 26) which raises the ground of mistake of fact, does the trustee even attempt to explain or excuse what may be considered as the late arrival of the cavalry after the legal battle is over. The court believes that District Judge Marshall has stated well the principle that should be applied. “When a party seeks to invoke Rule 60(b)(1), he must show he was justified in failing to avoid the mistake or inadvertence ... [and] neither ignorance nor carelessness on the part of a litigant or an attorney will provide grounds for Rule 60(b) relief.” Sears, Sucsy & Co., v. Insurance Company of No. Amer., 392 F.Supp. 398, 412 (N.D.Ill.1974). In 1958, the Second Circuit stated: “Motions brought under Rule 60(b) invoke the discretionary power of the ... court.” Benton v. Vinson, Elkins, Weems & Searls, 255 F.2d 299, 300 (2nd Cir.1958) (hereinafter cited as Benton). The court went on to say that, “In any event, ignorance ... on the part of the appellant, an experienced lawyer, is not ... the kind of ‘mistake, inadvertence, surprise, or excusable neglect’ contemplated by Rule 60(b).” Benton at 301. See also Hulson v. Atchison T. & S.F. Ry. Co., 289 F.2d 726 (7th Cir.1961) (hereinafter cited as Hulson) in which Chief Judge Hastings stated “Ignorance of the rules .... cannot serve to furnish grounds for relief under Rule 60(b).” Hulson at 730.
Rule 60(b) provides for extraordinary relief and may only be invoked upon a showing of exceptional circumstances. In the Hulson case, as in this case, the movant made absolutely no allegations that would support the granting of relief under Rule 60(b).
The court must avoid condoning sheer ignorance, which, if excused for no real *344reason, may contribute to the loss of efficient use of judicial time.
In Ohliger v. United States, 308 F.2d 667, 668 (2d Cir.1962), the court stated: “Counsel’s carelessness cannot be excused by this Court if it is to perform its obligation to other litigants whose cases are necessarily delayed by such conduct.”
In Hoffman v. Celebrezze, 405 F.2d 833, 835 (8th Cir.1969) (hereinafter cited as Hoffman), the court stated, “It is generally held that neither ignorance nor carelessness on the part of an attorney will provide grounds for 60(b) relief.” The court then went on to say, “Parties are generally bound by their agreements made in court.” Hoffman at 836.
There is little disagreement that “[t]he general rule is that parties are bound by stipulations voluntarily made and that relief from such stipulations after judgment is warranted only under exceptional circumstances ... [The party] in its 60(b) motion does not assert that the stipulation was induced by any fraud or misconduct on the part of plaintiff or his counsel.” Farmers Co-Op. El. Ass’n Non-Stock, Big Springs, Neb. v. Strand, 382 F.2d 224, 229 (8th Cir.1967). Likewise, in this case, no suggestion can be found by this court that the alleged mistake of fact was induced by fraud or improper conduct on the part of opposing counsel. The date of the trustee’s appointment is a fact particularly within the knowledge of the trustee and trustee’s counsel. Opposing counsel merely accepted this representation by plaintiff as true. At the pre-trial conference, plaintiff was presented with a statute of limitations defense based upon the stipulated date. This was the most opportune time for plaintiff to correct the alleged mistake since everyone’s attention was focused on the date.
In Greenspahn v. Joseph E. Seagram & Sons, 186 F.2d 616 (2nd Cir.1951) (hereinafter cited as Seagram), the court pointed out, after reviewing the unilateral mistake made by one party, that the only act needed to avoid the mistake was for the officer in charge of the litigation to have made inquiry. The court specifically stated: “The slightest investigation would have disclosed them [the facts] to the defendant’s officer in charge of the litigation.” Seagram at 619. Likewise, in this case, the slightest investigation of the court file would have disclosed to the parties in charge of the litigation the alleged mistake of fact. They chose not to make that slight investigation until after the matter was on appeal. It is now too late.
Failure by a party to proficiently prepare its case can not be lightly excused by a court. In U.S. v. Thompson, 438 F.2d 254, 256 (8th Cir.1971) (hereinafter cited as Thompson), the court of appeals upheld the district court’s denial of a Rule 60(b) motion because “the most that can be said for [the] appellants’ position is that they failed to bring the Arkansas statute to the District Court’s attention at the time the decree was entered.” The Thompson decision relies on the Hoffman rationale that “neither ignorance nor carelessness on the part of an attorney will provide grounds for 60(b) relief.” Thompson at 256.
Relief from mistake is not automatic. The party seeking relief has the burden to bring himself within the provisions of the rule. The “motion to vacate judgment under Rule 60(b) is addressed to the sound discretion of the Court.” Smith v. Kincaid, 249 F.2d 243, 245 (6th Cir.1957). This court finds the trustee has not made a sufficient showing to bring himself within Rule 60(b). Merely alleging that a mistake was made and calling upon the procedural rule number is insufficient to cure carelessness.
The court has carefully considered Seven Elves, Inc. v. Eskenazi, 635 F.2d 396 (5th Cir.1981) (hereinafter cited as Seven Elves), which the trustee cites for the proposition that Rule 60(b) should be liberally construed in order to do substantial justice. But even in that decision, the court made clear “that final judgments should [not] be lightly reopened. The desirability of order and predictability in the judicial process calls for the exercise of caution in such matters.” Seven Elves at *345401. The court believes that this is a case where such caution ought to be exercised. Therefore, it is
ORDERED that plaintiff’s motion for relief under 60(b), Fed.R.Civ.P., is denied. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8490210/ | OPINION
EMIL F. GOLDHABER, Chief Judge:
The matter for resolution in the case before us is whether the debtor has lodged a valid objection to a former employee’s proof of claim in which the employee seeks vacation and severance pay. On the basis of the reasons outlined below we will sustain the objection in part and reduce the claim from $10,764.67 to $7,783.16.
The facts of this controversy are as follows: 1 Through its president, Bernard J. David (“David”), the debtor hired the claimant, Nicholas Page (“Page”), as its sales manager, vesting him with duties as both a salesman and a manager of the debtor’s sales force. Page was hired by the debtor although David was familiar with certain undesirable aspects of Page’s personality with which David came to know while the two were college roommates.
Under Page’s employment contract, he was entitled to two weeks of paid vacation per year. During the year of his employment Page took three of his ten days of vacation, leaving him with seven. The employment contract also provided that:
Your employment with the [debtor] may be terminated by the company at any time with or without cause. If the [debt- or] terminates this Agreement without reasonable cause, the [debtor] shall continue to pay you the pay schedule in *351Schedule A for a period of 3 months following such termination.
The base salary under schedule A was $1,100.00 per month plus a sliding commission on all sales made by Page. This figure was augmented by a “commission override of two percent (2%) of the gross receipts of all of the sales persons managed by [Page plus] ... a commission of five percent (5%) of the gross receipts of all of the sales originated by [Page].” Page’s base salary was increased to $1,400.00 in February of 1984. In September of 1984 his base salary was increased to $2,000.00 per month plus 1% of all work “invoiced.”
The salary change in September was prompted by the debtor’s desire to transform its regional sales base into a national base. Profitable accounts were transferred from Page to others in the sales office while he was left with less profitable ones.
After the debtor adopted the policy to boost national sales, overall sales plummeted. This reduction in income prompted the debtor to terminate the services of “5 or 6” of its 19 employees at the end of 1984. Shortly thereafter, the debtor dismissed Page from employment on the asserted basis that certain aspects of his personality made him incompatible with other members of the sales force, thus rendering him an ineffective manager of the sales department. Although the testimony partially supports the debtor’s position, we find that the predominant basis for Page’s dismissal was simply a cost-cutting measure. Thus, the termination of Page’s employment was not “for cause,” and Page is entitled to three months severance pay.
In his proof of claim Page asserts a debt of $10,764.67 for vacation pay, severance pay and commissions. The parties agree that Page is owed $1,139.03 in commissions. On the amount of severance pay, we conclude that Page is due three months of salary at $2,000.00 per month for a total of $6,000.00. However, Page failed to introduce adequate proof on the amount of commissions which would have augmented this sum.
The debtor contends that Page is not entitled to vacation pay on the basis of an employees’ handbook, adopted after the commencement of Page’s employment, which prohibits employees from carrying unused vacation days from one year to the next. We find the debtor’s position unsupported by the evidence since no handbook was produced at trial and the oral evidence supporting its existence was weak. Thus, the debtor owes Page salary for seven days of vacation pay for a total of $644.13.2
Hence, the debtor owes Page $1,139.03 in commissions, $6,000.00 in severance pay and $644.13 in vacation pay for a total of $7,783.16. Accordingly, we will sustain in part the debtor’s objection to Page’s proof of claim and reduce the claim from $10,-764.67 to $7,783.16 and will enter an appropriate order.
. This opinion constitutes the findings of fact and conclusions of law required by Bankruptcy Rule 7052.
. Dividing the typical 365 day year into 12 months we have an average of 30.42 days per month. Only five of every 7 days a week are typically working days, meaning that only 21.60 days per month are working days. Given a monthly salary of $2,000.00, salary accrues at a rate of $92.59 a day. Thus, the 7 vacation days are worth $644.13. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8490211/ | FINDINGS OF FACT AND CONCLUSIONS OF LAW
A. JAY CRISTOL, Bankruptcy Judge.
This cause came on to be heard on July 3, 1985 upon the complaint to determine validity and extent of liens filed by plaintiff/debtor, Robert Charles Sabin and the responses of Stephen H. Butter and Brian R. Hersh, defendants. The parties stipulated and agreed that the facts were undisputed and the court should decide the issues presented as a matter of law.
The following facts are the undisputed basis on which the court came to its conclusions of law set forth hereinafter:
1. Robert Charles Sabin and Susan Sabin acquired Lot 9, Block 2, Palmetto Pines Estates, Plat Book 95, at page 11, of the Public Records of Dade County, Florida, as their marital residence by deed from Jennings Construction Corporation, dated August 2, 1974.
2. Robert and Susan had their marriage dissolved by final judgment of dissolution of marriage in Dade County Circuit Court, Case No. 82-1433 on January 17, 1984.
3. Upon the dissolution of marriage, the title to said marital residence became vested in Robert and Susan Sabin as tenants-in-common, each owning an undivided one-half interest thereof and subject to the temporary right of possession of the marital home reserved to Robert Sabin, pursuant to paragraph la of the final judgment of dissolution of marriage.
4. This bitter and expensive domestic litigation was financed, at least in part, by three mortgages, one granted by Robert *354Sabin to his attorney, Stephen H. Butter, dated September 17, 1982 and recorded on September 20, 1982 in Official Record Book 11560, page 765, another granted by Susan Sabin to her attorney, Brian Hersh, dated March 2, 1983 and recorded March 16, 1983 in Official Record Book 11727, page 1839 and another granted by Susan Sabin to her attorney, Brian Hersh, dated February 13, 1984 and recorded on March 6, 1984 in Official Record Book 12099, page 1615.
5. The debtor submits that all three mortgages are void by virtue of the homestead character of the property at the time of recording of the mortgages and the fact that the homestead status of the property remains uninterrupted.
6. There is no dispute that the property was homestead property during their marriage and that after the wife left the house, the husband continued to reside there with the parties’ minor children and as of December 1985, in fact continues to so reside in accordance with the possessory rights granted under the final judgment of divorce.
7. The September 17, 1982 mortgage from Robert Sabin to Stephen Butter and the March 2, 1983 mortgage from Susan Sabin to Brian Hersh were each executed when title to the property was held as a tenancy-by-the-entireties and in each instance the mortgage was executed by only one spouse without the joinder of the other. These mortgages were ineffective to encumber the property in its status as entireties property but attached to Robert Sabin’s interest and Susan Sabin’s interest in the property which they acquired in the “twinkling of a legal eye,” upon the entry of final judgment of dissolution of marriage on January 17, 1984. Hillman v. McCutchen, 166 So.2d 611, (Fla. 3rd DCA 1964).
8. The February 13, 1984 mortgage from Susan Sabin to Brian Hersh was executed after the final judgment of dissolution at a time when Susan Sabin owned an undivided one-half interest in the property as a tenant-in-common and therefore had full power to encumber said interest subject to the possessory rights provided in the final judgment of dissolution of marriage. This mortgage is therefore also valid and binding although subordinate to the temporary possessory interest of Robert Sabin.
The right of the parties to foreclose their mortgages or otherwise enforce same or to seek other forms of relief are not raised in this proceeding and therefore the court will not rule thereon; although, the court will comment that the case of Daniels v. Katz, 237 So.2d 58, (Fla. 3rd DCA 1970) seems to be on point as to the undisputed factual situation presented.
A Final Judgment will be entered concurrently with these Findings of Fact and Conclusions of Law. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8490212/ | MEMORANDUM GRANTING SUMMARY JUDGMENT
DONAL D. SULLIVAN, Bankruptcy Judge.
Plaintiffs moved for summary judgment under 11 U.S.C. § 523(a)(2)(A) on affidavits and on the claimed collateral estoppel effect of defendant’s plea of guilty to and conviction for securities fraud in the Circuit Court for Multnomah County. Pursuant to Bankr.R. 7056 incorporating Fed.R.Civ.P. 56, I find that summary judgment should be entered in favor of plaintiffs and against the defendant on all issues under 11 U.S.C. § 523(a)(2)(A).
Offensive use of collateral estop-pel arising from a defendant’s prior criminal conviction precludes the relitigation in a subsequent civil case of all issues necessarily determined against the defendant in the criminal case even though identity of parties is absent. Parklane Hosiery v. Shore, 439 U.S. 322, 99 S.Ct. 645, 58 L.Ed.2d 552 (1979); Hinkle Northwest v. S.E.C., 641 F.2d 1304, 1308 (9th Cir.1981). Where the civil plaintiff was a victim of the crime for which the civil defendant was previously convicted, this circuit and six other circuits apply collateral estoppel where the prior conviction was based upon a plea of guilty. United States v. Bejar-Matrecios, 618 F.2d 81, 83 (9th Cir.1980); Ivers v. United States, 581 F.2d 1362, 1367 (9th Cir.1978); see also cases cited in Otherson v. Department of Justice, I.N.S., 711 F.2d 267, 277 n. 11 (D.C.Cir.1983). This is based on the equitable theory that, after conviction, the defendant in fairness should not be permitted to litigate entitlement to the proceeds of his crime. Gray v. Commissioner, 708 F.2d 243, 246 (6th Cir.1983) cert. den. 466 U.S. 927, 104 S.C. 1709, 80 L.Ed.2d 182; Plunkett v. Commissioner, 465 F.2d 299, 305 (7th Cir.1972); Nathan v. Tenna Corp., 560 F.2d 761, 763 (7th Cir.1977); In re Alsco—Harvard Fraud Litigation, 523 F.Supp. 790, 802 (D.D.C.1981). Additional justification is provided by the fact that federal courts may not enter a judgment on a guilty plea “without making such inquiry as shall satisfy it that there is a factual basis for the plea.” Fed.R.Crim.P. 11(f); Otherson at 275 n. 8. Thus, notwithstanding the dicta in Haring v. Prosise, 462 U.S. 306, 316, 103 S.Ct. 2368, 2374, 76 L.Ed.2d 595 (1983) referred to in Otherton, 711 F.2d at 275 n. 8 & 277 n. 11, the federal courts have not generally accepted the rule suggested by the Restatement of Judgments which requires actual trial and, as with a plea of nolo contendere, will not allow collateral estop-pel where there has been a plea of guilty. See Restatement (Second) of Judgments § *44885, comment b, at 296 (1982 ed.) (estoppel effect of guilty plea is evidentiary, not issue preclusive). However, in dischargeability cases, there is uncertainty in this circuit over whether the prior determination should only be given a prima facie evidentiary effect as suggested by the Restatement, see In re Houtman, 568 F.2d 651 (9th Cir.1978), or a complete issue preclusion effect, see Brown v. Felsen, 442 U.S. 127, 139 n. 10, 99 S.Ct. 2205, 2213 n. 10, 60 L.Ed.2d 34 (1979).
These conflicts, whether real, theoretical, or merely semantic, need not be resolved in this case because plaintiffs should prevail under any rule. The affidavits and records supporting the motion for summary judgment establish sufficient identity of issues, identity of necessary judicial determinations and identity of standards between the prior criminal case and the present case to establish that there is no genuine issue of fact under either the Houtman or Brown rule to require a trial. The present record is sufficient to grant summary judgment based on the independent determination of bankruptcy issues and use of the prima facie rule under Houtman as well as the application of collateral estoppel and resolution of any remaining issues under Brown. For purposes of entry of judgment against defendant, plaintiffs satisfied their burden of showing that the defendant obtained money from them based upon a fraudulent representation within 11 U.S.C. § 523(a)(2)(A).
The District Attorney’s Information and the dischargeability complaint both charged essentially that the defendant obtained money from the plaintiffs with the intent to defraud. The affidavits established that the facts charged in both proceedings were the same facts. The defendant admitted both the facts specifically and their legal effect generally in his guilty plea. The judgment of conviction included an order of probation which the defendant accepted requiring the defendant to make restitution to these plaintiffs in the amounts claimed in the bankruptcy complaints. Given the applicable constitutional limitations on what a sentencing judge may do in requiring restitution, and the procedural protections afforded to the defendant, everything in the criminal judgment, including the damage to plaintiffs, was “necessarily” determined. Municipality of Anchorage v. Hitachi, 547 F.Supp. 633, 643 (D.Alaska 1982).
Alternatively, summary judgment should be granted to the plaintiffs on the merits independently of the Houtman or Brown rules based upon the evidentiary effect of the admissions made by the defendant during the criminal case and the affidavits supplied in support of the motion for summary judgment. With or without regard to the judicial determinations in the criminal case, the record, when aided by the affidavits, establishes every element of the dischargeability complaint.
Defendant’s denial of fraudulent intent, his assertion that plaintiffs were not deceived, and his effort to use his plea to the separate charge of sale of unregistered securities to create undetermined fact issues are overcome by the record and by his admissions. Plaintiffs, in loaning money based upon defendant’s dishonest representation of security, were victims both of fraud and of the defendant’s sale of unregistered securities as charged in both infor-mations. Defendant admitted that he had no intention to perform. His rebutting affidavit, on the other hand, does not satisfactorily explain his post-conviction change of heart or show that evidence contradicting the record of his admissions exists outside of his own denials. All available evidence is before the Court in some form. Under the standards of Fed.R.Civ.P. 56(e) incorporated by Bankr.R. 7056, there is no genuine issue of fact to try.
Separate judgments should be entered requiring defendant to pay to plaintiffs the sums claimed in the complaints with interest as allowed by law and declaring the judgments to be nondischargeable in bankruptcy. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8490213/ | ORDER DENYING DEBTORS’ MOTION TO DISMISS
THOMAS C. BRITTON, Bankruptcy Judge.
This chapter 7 case was filed voluntarily on August 16. Three months later the debtors moved for voluntary dismissal alleging that:
“At the present time, the debtor wishes to pay his creditors and no longer desires to discharge his liabilities.”
The debtors also allege their opinion that dismissal is automatic and would not require a hearing before the court.
The motion was heard on December 9. Title 11, § 707(a) is controlling. It provides that:
“The court may dismiss a case under this chapter only after notice and a hearing and only for cause, including (1) unreasonable delay by the debtor that is prejudicial to creditors; or (2) nonpayment of any fees or charges required under chapter 128 of Title 28.”
It is clear, therefore, that the debtors may not voluntarily dismiss a chapter 7 case without notice to all affected parties, which would include at least all creditors and the trustee, and without a hearing. A hearing necessarily presumes the exercise of some discretion by the court and a court order. I agree with the analysis in Collier on Bankruptcy, ¶ 707.01, notes 2 and 2a, (15th Ed. 1985), which concludes that the trustee has standing not only on his own behalf but also on behalf of creditors to oppose a voluntary dismissal. In this instance, the trustee opposes the dismissal.
The trustee successfully opposed the debtors’ claim of exemptions. The trustee expects to recover the property claimed to be exempt, and if successful will be able to effect a substantial distribution to creditors. The debtors have provided no tangible assurance of their ability to pay all scheduled creditors, and since the time for filing claims against this estate has not yet expired, it is not yet certain that all creditors have been identified or that the admitted claims represent all claims of the creditors.
The trustee’s argument that the bird which he considers to be within reach if not actually in hand is far more meaningful to the creditors than the bird in the bush offered by the debtors’ wish to pay their creditors is persuasive to me.
The motion to dismiss is denied. Gill v. Hall (In re Hall), 15 B.R. 913 (9th Cir.B.A.P.1981) reaches the same conclusion on very similar facts. Like concurring Judge Hughes, I believe that the court went further than was necessary, but I am aware of no authority for a contrary conclusion in this case. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8490214/ | ORDER DENYING MOTION TO ALLOW LATE FILED CLAIM
THOMAS C. BRITTON, Bankruptcy Judge.
Joan Feeney, a creditor, filed a proof of claim on October 9, 1985 in this chapter 7 case. The motion to permit the late filing of this claim was heard on December 23.
The case was filed on January 15, 1985 by Joan Feeney as president of the debtor corporation. On February 11, this court entered an order in accordance with the Rules and the Code setting June 2, 1985 as the deadline for the filing of claims. (C.P. No. 5). The order is clear and unambiguous. The movant was properly scheduled and listed as a creditor and received a copy of the order specifying the claims’ bar date.
Movant asserts that a timely claim was filed by her but never entered by the clerk of the court. I find nothing in this record nor has movant submitted any proof of this alleged filing. I find that no claim was ever filed by movant with the clerk’s office before the bar date.
As an alternative argument, movant contends that her communications with the trustee’s attorney constitute the filing a claim. Counsel admits that he received correspondence from movant and had discussions with her in connection with other matters he was asserting on behalf of the estate. At no time did movant assert her claim through the trustee’s attorney in a documented form. Counsel has stated that if movant had attempted to assert her claim with him, he would have referred her to the clerk’s office. I find that movant never filed a claim with the trustee’s attorney by informal discussions or correspondence.
In this Circuit it has been noted with approval that a creditor’s telephone communications with a trustee to apprise him of its claim does not constitute an informal *483filing of a claim. Biscayne 21 Condominium Assoc., Inc. v. South Atlantic Financial Corp. (In re South Atlantic Financial Corp.), 767 F.2d 814, 820 (11th Cir.1985) (citing In re Pigott, 684 F.2d 239 (3d Cir.1982)).
The Eleventh Circuit summarized the information a creditor’s filing must contain in order to constitute an informal proof of claim:
“the document must apprise the court of the existence, nature, and amount of the claim ... In addition, it must evidence an intent on the part of the claimant to hold the debtor liable for that claim.” Id. at 819 (citations omitted).
I have not overlooked the case cited by movant, In re Gibralter Amusements Ltd., 315 F.2d 210, 213 (2d Cir.1963), where the court stated that the requirement that claims be filed in the bankruptcy court is deemed complied with by filing with the trustee. However, there is no factual predicate here that a claim was filed with the trustee’s attorney, which under B.R. 5005(b) could be transmitted to the clerk. Even if this was intended, there is no legal support in this Circuit for holding that the informal communications which constitute the alleged claim meet the current standard for asserting a claim in the bankruptcy court.
In this Circuit it has been recognized and upheld in recent decisions that:
“mere notice of a claim alone is not to be called an informal proof of claim and does not excuse the absence of a proper timely proof the law requires. An informal claim may be asserted, if it can be at all, only when it is apparent that the creditor intends to seek recovery from the estate and when the informal proof of claim is ‘filed’ prior to the bar date ... ‘Mere knowledge of the existence of the claim by the debtor, trustee or bankruptcy court is insufficient.’ ”
U.S. v. International Horizons, Inc. (In re International Horizons, Inc.), 751 F.2d 1213, 1217 (11th Cir.1985); See also In re South Atlantic Financial Corp., 767 F.2d 814 (11th Cir.1985).
Therefore, this court is without authority to extend the time for filing a claim as to this movant. The motion is denied. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8490215/ | ORDER ON MOTION FOR SUMMARY JUDGMENT
ALEXANDER L. PASKAY, Chief Judge.
In 1974 the Florida Legislature established a special taxing unit known as the Crews Lake Road and Bridge District (District). The District was established for the purpose of creating a tax base in order to service a bond issue sold to the public. The funds derived from the sale of the bonds were to be used for the construction of roads and bridges and improvements on the real property located within the boundaries of the District. The only property within the boundaries of the District was then owned by Suncoast Highlands, Inc. and by various of its principals including Thomas Petersen and Peter Lenhardt.
The property was acquired for the purpose of developing it as a residential community. Mr. Petersen and Mr. Lenhardt became members of the Board of Commissioners appointed by the Governor of the State of Florida. In 1977 the District issued bonds to be serviced by a combination of general obligations and special assessments. The bond issue was validated by the Circuit Court of the Thirteenth Judicial District by the entry of the amended final judgment entered in May, 1977. This final judgment was never appealed. In 1979, the District levied a special assessment on the subject property to service the bonds.
At that time the property was encumbered by a mortgage lien held by Chemical Bank of New York which was in default, as a result of which the mortgage was ultimately foreclosed, divesting Suncoast Highlands of its title to the subject property. The county taxes which included the taxes assessed by the District were also unpaid and were past due. In due course, the tax collector sold the tax deed on the subject property. The tax deeds were purchased by Mr. Petersen through an intermediary third party, who, in turn, conveyed title to the subject property to a corporation newly formed for the obvious purpose of acquiring title to the subject property and to ultimately develop the subject property. This new corporation is Pineview Estates, the Debtor involved in this Chapter 11 case, which is presently seeking to effectuate a reorganization of its affairs.
The resolution to impose the special tax was adopted by Linda B. Dove, N. Scott Coates and Connie C. Bishop. It is without dispute that none of them were elected or appointed to serve as commissioners for the District when the resolution was passed and only Linda B. Dove has ever been appointed to serve as commissioner for the District. (Cert, of Sec. of State). There is no evidence in this record that either of the other two, i.e. Ms. Coates or Ms. Bishop *485were ever elected or appointed to serve as commissioners for the District. It is equally without dispute that Linda B. Dove’s term as commissioner expired in 1978 or a year before the assessment was made pursuant to the resolution. There is nothing in this record to show that the persons who were acting as commissioners at the time the resolution was passed ever qualified to serve as commissioners by posting a bond required by § 336.62(5)(b) of Fla.Stat. or met the qualification to serve as commissioner for the District as required by § 336.62(2)(g).
As noted earlier, in 1979 the District levied special assessment taxes on the subject property in order to serve the bonds. In due course, these taxes were certified to the Tax Collector of Pasco County and by operation of law they became a lien on the subject property as of January 1, 1979, and it is without substantial dispute that in 1981 the Debtor granted a mortgage lien encumbering the subject property in favor of the Metropolitan Bank (Metropolitan). There is no dispute that this mortgage was granted to Metropolitan only as an additional collateral to secure three previous loans made by Metropolitan not to this Debtor but to Mr. Petersen personally, to Ocala Properties, Ltd., and Ferndale Estates, Inc. — entities owned and controlled by Petersen. There is no question that this Debtor received no consideration whatsoever either by funds from Metropolitan or otherwise. At the time the Debtor granted the mortgage lien to Metropolitan, all three loans mentioned earlier were already in default.
In 1982 Metropolitan collapsed and, as a result, the Comptroller of the State of Florida closed Metropolitan pursuant to § 658.-79 Fla.Stat. (1981). On February 12, 1982 the Comptroller invited FDIC to assume the role of the liquidator of the. assets of Metropolitan. FDIC accepted the invitation and pursuant to 12 U.S.C. 1821(c) took over the assets of Metropolitan and pursuant to a “Purchase and Assumption Agreement” acquired among other receivables the mortgage encumbering the subject property now owned by Pineview, the Debt- or.
On September 14, 1984 the District instituted an action pursuant to § 170.10 Fla. Stat. in the Circuit Court in and for Pasco County and sought to foreclose the tax liens imposed on the subject property by the special assessment levied on the property by the District. The District named the Debtor and the FDIC as defendants in the foreclosure action. The FDIC removed the foreclosure action to the District Court, which in turn, referred the foreclosure suit to this Court, no doubt because one of the defendants named in the foreclosure action is the Debtor currently seeking relief in this Court under Chapter 11 of the Bankruptcy Code.
It should be noted at the outset that the present controversy is not between the District and the Debtor at all which, of course, would ordinarily be the underlying basis for this Court’s competence to consider the matter. The controversy is between the District and the FDIC. Notwithstanding, this Court was confronted with the duty to consider the issues presented by the District and by the FDIC, a situation not uncommon in spite of the restrictive jurisdictional provisions of § 28 U.S.C. 1334. However, since neither of the parties to this controversy challenged this Court’s jurisdiction under the Bankruptcy Amendments and Federal Judgeship Act (BAFJA), this Court does have subject matter jurisdiction by consent, a novel concept indeed, introduced by BAFJA. Thus, this Court is constrained to discharge its duty and will consider the matter in controversy.
As noted, the controversy is presented for this Court’s consideration by Motions for Summary Judgment filed both by the District and by the FDIC. Both Motions are based on the contention that all material and operative facts are without dispute and each of the moving parties is entitled to judgment as a matter of law. Both the District and the FDIC agree that there are no genuine issues of material facts, however, this is the limit of their agreement *486because both parties urge that they are entitled to a judgment as a matter of law.
In support of its Motion, the District advanced the following contentions:
First and foremost, the District contends that under the applicable law, the FDIC has no standing to challenge the validity of the tax lien sought to be foreclosed by the District.
Second, even if the FDIC has standing, it failed to follow the required statutory procedures to challenge the assessment of the tax in question.
Third, this Court lacks jurisdiction under State law to determine the validity of the taxes involved in this controversy, which determination can only be obtained from a circuit court under applicable laws of this State, according to the District.
In support of its Motion, the FDIC contends:
First, the District “commissioners” who purportedly levied the special assessment which created the District’s claimed lien were neither elected nor appointed.
Second, the District had no statutory authority to levy or collect special assessments before completing and accepting the improvements contemplated to be financed by the proceeds of the bond issue.
Third, there has been limited, if any “special benefit” to the assessed property and special assessment liens are limited by law to the amount of special benefit conferred on the property subject to the lien.
Fourth, the FDIC is not estopped to challenge the District’s claimed lien.
Fifth, the FDIC has standing to challenge the validity of the District’s claimed lien.
Sixth, the FDIC is not subject to a lack of consideration defense.
Considering the respective contentions of the parties, it is apparent that the jurisdiction of this Court to consider this controversy on its merits presents a threshold question which must be resolved before the remaining contentions of the parties are considered. Then, assuming that this Court has jurisdiction, the standing of the FDIC to challenge the validity of the tax lien must be found to exist before the remaining contentions of the parties can be considered.
The District did, in an off-handed fashion, touch upon the jurisdictional question but basically focused its attention on its contention that the District is entitled to a Summary Judgment in its favor because the FDIC has no standing to challenge the assessment; that the facts in this record do not warrant a disposition of this controversy in favor of the FDIC as a matter of law; and that the FDIC is estopped, in any event, to challenge the validity of the tax lien sought to be foreclosed by the District.
It should be pointed out at the outset that this Court must find that it has subject matter jurisdiction, even in the absence of a jurisdictional challenge. The source of jurisdiction of this Court is to be found, since the adoption of BAFJA, in 28 U.S.C. § 1334 et seq. and in 28 U.S.C. § 157 et seq., particularly § 157. 28 U.S.C. § 1334(b) grants the district court original, albeit, not exclusive jurisdiction of all civil proceedings “arising under, in, or related to” cases under Title 11. 28 U.S.C. § 157 authorizes the district court to refer all eases under Title 11 and any and all proceedings arising under, arising in or related to a case under Title 11 to the bankruptcy judge of the district. Subclause (b) of § 157 defines proceedings which are “core” proceedings over which the bankruptcy judge has full jurisdiction if there is full reference pursuant to § 157 of 28 U.S.C.
One of the proceedings specifically designated by § 157(b)(2) is a proceeding to determine the validity, extent and priority of liens. Based on the foregoing, it is clear that this Court has jurisdiction to consider the challenge of the validity of the tax lien sought to be foreclosed by the District, simply because the lien under challenge encumbers property of the estate by virtue of § 541 of the Bankruptcy Code. Unfortunately, this conclusion is still insufficient to permit the consideration of the ultimate merits of the controversy, i.e. the validity *487of the tax lien and, in turn, the right of the Debtor to foreclose the mortgage lien of the FDIC on the subject property and because of the unresolved question of the FDIC’s standing to challenge a tax lien.
STANDING OF FDIC
The right to challenge the validity of any tax imposed by a taxing authority is governed by specific statutory provision and, in the absence of a specific provision dealing with the subject, by general principles which govern standing. Fla.Stat. § 194.181 (1983) specifically sets forth who may contest taxes on real property.
“(1) The plaintiff in any tax suit shall be the taxpayer contesting the assessment of any tax, the payment of which he is responsible for under the law.... (4) in any suit involving a tax other than an ad valorem tax on property, the tax collector charged under the law with collecting such tax shall be defendant.”
Clearly, only the taxpayer/property owner has standing to challenge taxation of his property. City of Sebring v. Wolf, 141 So. 736 (Fla.1932).
The Supreme Court of this State had occasion to consider the question of standing in the case of City of Sebring v. Wolf, supra. In this case, the tax in question was challenged by an owner of the property who acquired the property after the enactment of the statute which validated void tax certificates. The Supreme Court held that the right to challenge the validity of the statute validating tax certificates was a right personal to the owner of the property and unless the party challenging the tax in question has a cognizable ownership interest in the subject property, the challenge interposed can not be sustained. It is well established law of this State that a mortgagee is a mere holder of a lien and has no ownership interest in the property itself. Fla.Stat. § 697.02 (1983); Martyn v. First Federal Savings and Loan Association, 257 So.2d 576 (Fla. 4th DCA 1971).
There is nothing in the case of City of Treasure Island v. Strong, 215 So.2d 473 (Fla.1968), cited by the FDIC in an attempt to distinguish City of Sebring, supra, from the one under consideration, which requires a different conclusion. While it is true that in Treasure Island both the owners and the mortgagees challenged the validity of the tax assessed by the City, the case did not deal with the right of the mortgagees to challenge the tax but merely held that the owners waived the defense because they failed to timely object to the assessment.
Since there is a specific statutory provision in this State which governs the right to contest the assessment of any tax, general principles which generally govern standing furnish no assistance to the FDIC.
In light of the foregoing, the fact that a foreclosure by the District may or will adversely affect the mortgage lien of the FDIC is of no consequence. Neither is the fact that the challenge in the instant case is based on the contention that the assessment is not merely voidable but void ab initio. It is still the owner of the property who has standing to challenge the validity of the tax. This conclusion assumes an additional special significance in the present instance. This is so because in this case it is not the Debtor who is challenging the tax in question but a lien claimant and as a general proposition ordinarily this Court should not be involved in the resolution of controversies between non-debtors.
PROPRIETY OF THE PROCEDURE EMPLOYED BY FDIC TO CHALLENGE THE TAX IN QUESTION
The procedure to challenge taxes in this State is dealt with by § 194.171 of the Fla.Stat. This Statute provides, inter alia, that (1) the action must be brought within 60 days of the date the tax is certified for collection (2) the amount of the tax must be paid and the receipt of the tax collector must be attached to the Complaint and (3) any subsequent taxes in the years following the contested tax must be paid before they become delinquent.
The taxes involved in this controversy were levied by the District in August, 1979. *488The tax roll was certified for collection and the taxes in question became a lien on the subject property as of January 1, 1979. The first challenge by the FDIC was presented by its counterclaim filed in the foreclosure action commenced by the District in the state court. The counterclaim was filed against the District and not against the tax collector. § 194.181 Fla. Stat. (1983) provides that any suit contesting the assessment of any tax shall be brought against the tax collector.
Based on the foregoing, it is the considered opinion of this Court that (1) this Court has jurisdiction to consider the matters (2) that FDIC has no standing to challenge the validity of the lien sought to be foreclosed by the District and (3) even if it has standing, it failed to comply with the procedural requirements of the applicable statutes of this State. In light of the foregoing, it is not necessary to consider the basic contentions advanced by the FDIC in its counterclaim, to wit, the invalidity of the tax because they were levied by parties who lacked the power to act because they were neither elected nor appointed to act as commissioner at the time of the levy or that in any event the assessment could have no validity until all the improvements connected with the taxes were accomplished. Neither is it necessary to consider the contention of the District that the FDIC is estopped to challenge the validity and the opposing contention of the FDIC that the FDIC cannot be estopped to challenge the validity of the tax as a matter of law because of its special status granted by an act of Congress which created FDIC.
Accordingly, it is
ORDERED, ADJUDGED AND DECREED that the Motion for Summary Judgment filed by the FDIC be, and the same is hereby, denied and its counterclaim challenging the validity of the tax lien sought to be foreclosed by the District is dismissed. It is further
ORDERED, ADJUDGED AND DECREED that the Motion for Summary Judgment filed by the District be, and the same is hereby, granted and the tax lien of the District be, and the same is hereby, declared to be superior in rank to the mortgage lien of the FDIC. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8490216/ | MEMORANDUM OPINION AND ORDER
RICHARD L. SPEER, Bankruptcy Judge.
This cause comes before the Court upon the Motions For Summary Judgment filed by Defendant Kendall’s Transport Refrigeration, Inc. (hereinafter Kendall), and by the Plaintiff against Kendall. The parties have each submitted arguments as to the merits of these motions and have had the opportunity to respond to the arguments made by opposing counsel. The Court has reviewed those arguments as well as the entire record in this case. Based upon that review and for the following reasons the Court finds that the Plaintiffs Motion For Summary Judgment should be GRANTED, and that Kendall’s Motion For Summary Judgment should be DENIED.
FACTS
The Plaintiff in this adversary proceeding is the Debtor-In-Possession in the related Chapter 11 case. The Debtor-In-Possession filed its voluntary Chapter 11 Petition with this Court on October 19, 1982. In an effort to collect assets for the estate, the Debtor-In-Possession filed this action against numerous Defendants, including Kendall. The Complaint alleges a cause of action for the recovery of a preference pursuant to the provisions of 11 U.S.C. Section 547. Subsequent to the filing of the Complaint, the Debtor-In-Possession submitted to Kendall a set of interrogatories and a request for admissions. These requests were directed at discovering certain facts which surround the alleged preference. As set forth in the pleadings, the responses to the discovery requests, and the exhibits attached thereto, it appears that Kendall was employed by the Debtor-In-Possession to perform maintenance on certain refrigeration units. In response to the invoices which were sent to the Debtor-In-Possession for the work, the Debtor-In-Possession issued two checks to Kendall from its operating accounts. The relevant dates of the service and the payments are shown below:
Invoice Date of No. 2715 2736 2784 2851 2913 2912 3072 3071 3073 Service 7/12/82 7/12/82 7/15/82 7/19/82 7/27/82 7/27/82 8/21/82 8/21/82 8/21/82 Date Pymt. Due 7/26/82 7/26/82 7/26/82 8/2/82 8/10/82 8/10/82 9/3/82 9/3/82 9/3/82 Amount $ 4.22 $ 497.09 $ 387.93 $ 181.82 $ 35.19 $ 84.80 $ 211.36 $ 56.84 $2,628.88
It should be noted that the date of payment is the date on which the funds were debited from the Debtor-In-Possession’s account. The invoices sent by Kendall represent billings for both labor and materials which were utilized during the course of the maintenance.
In its Motion For Summary Judgment, the Debtor-In-Possession contends that by virtue of the proximity between the payments and the filing of the Petition, and that fact that the invoices were paid subsequent to the date on which payment was due, the payments constitute voidable preferences under 11 U.S.C. Section 547. On the other hand, Kendall contends that because of the proximity between the rendition of services and the payments for those services, the payments are subject to the “business expense” exception to an otherwise voidable preferential transfer.
LAW
Prior to the enactment of the Bankruptcy Amendments and Federal Judgeship Act of 1984, P.L. 98-353, the provisions of 11 U.S.C. Section 547 stated in pertinent part:
“(b) ... the trustee may avoid any transfer of property of the debtor-
(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;
*551(4) made—
(A)on or within 90 days before the date of the filing of the petition;
(5) that enables such creditor to receive more than such creditor would receive if—
(A) the case were a case under chapter 7 of this title;
(B) the transfer had not been made; and
(C) such creditor received payment of such debt to the extent provided by the provisions of this title.”
“(c) The trustee may not avoid under this section a transfer—
(1) to the extent that such transfer was—
(A) intended by the debtor and the creditor to or for whose benefit such transfer was made to be a contemporaneous exchange for new value given to the debt- or; and
(B) in fact a substantially contemporaneous exchange;
(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 pre-amendment version of that section is applicable to this adversary proceeding, inasmuch as the Chapter 11 case was filed prior to the effective date of the amendments. See, P.L. 98-353 Section 553(a).
Under these provisions, a trustee or a debtor-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).
A trustee could not avoid a transfer which was intended by the debtor, and which was, in fact, a contemporaneous exchange for new value. Ray v. Security Mutual Finance Corp. (In re Arnett), 731 F.2d 358 (6th Cir.1984). The most determinative factor in assessing whether or not a transfer was a contemporaneous exchange is the intent of the parties to create such an exchange. McClendon v. Cal-Wood Door (In re Wadsworth Bldg. Components, Inc.), 711 F.2d 122 (9th Cir.1983). In that regard, it is generally held that when a transfer to a creditor is accomplished by check, the transfer does not occur until the check is honored by the. drawee bank. See, Harris v. Harbin Lumber Co. of Royston, Inc. (Matter of Ellison), 31 B.R. 545 (Bkcy.M.D.Ga.1983).
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).
I
In considering the Debtor-In-Possession’s Motion For Summary Judgment, a review of the facts finds that the Debtor-In-Possession made two payments to Kendall, and that these two payments were made within the ninety (90) day period which preceded the filing of the Petition. The facts also show that the payment which was made on August 27, 1982, was made on service which was given more than forty-five (45) days prior to the payment, and some value which was given less than forty-five (45) days from the date of *552payment. July 13, 1982, appears to be the cutoff date. (The Debtor-In-Possession has sued to recover only that portion of the August 27, 1982, payment which covers the July 12, 1982, service. Therefore, only that portion of the transfer will be considered.) The payment made on October 8, 1982, was made approximately one and one-half (IV2) months subsequent to the date on which Kendall actually rendered the services. Since no security interest appears to have been taken in connection with the debt, it is clear that these were payments made to an unsecured creditor on account of an antecedent debt. Furthermore, the Debtor-In-Possession is presumed to have been insolvent during the ninety day period. See, 11 U.S.C. Section 547(f).
Although not presented in connection with the Motion For Summary Judgment against Kendall, the Debtor-In-Possession has presented in Motions For Summary Judgment against other defendants evidence of the fact that such defendants received more as a result of the transfer than would have been received under a liquidation. In that regard the Debtor-In-Possession has offered the affidavit of its counsel, wherein it indicated that at the time of the filing of the Petition the Debt- or-In-Possession had approximately One Million Eight Hundred Thousand and no/100 Dollars ($1,800,000.00) in liabilities and One Hundred Seventy and no/100 Dollars ($170,000.00) in assets. A review of the evidence indicates that had the Debtor-In-Possession been liquidated, Kendall, a general unsecured creditor, would receive approximately ten percent (10%) of its claim. Since Kendall was paid a substantially greater percentage of its claims a result of the transfer than it would under a liquidation, it must be concluded that the final element of a preferential transfer has been shown. It must also be concluded that, in the absence of a viable defense, the Debtor-In-Possession is entitled to judgment as a matter of law.
II
In considering Kendall’s Motion For Summary Judgment, a review of the facts appears to reflect that Kendall performed maintenance on the Debtor-In-Possession’s refrigeration units. In that respect, it could be argued that the payments for parts and labor were a contemporaneous exchange for new value. Although it is unclear whether or not parts and labor qualify as “new value”, the availability of the defense also requires some evidence that the parties intended the transfer to be a contemporaneous exchange. In addition, there must be a showing that the transfer was, in fact, a contemporaneous exchange. The record presently before the Court bears no evidence as to the intent of the parties or the actual value of Kendall’s services.
Similarly, the facts show that some of the services performed by Kendall fell within the forty-five day period which preceded the payment. While inclusion or exclusion from this forty-five day period is the primary focus of the business expense defense, the availability of the defense also requires a showing that the debts were incurred in the ordinary course of the Debt- or-In-Possession’s business. It also requires the debts to have been paid according to ordinary business terms. In this case, there is no evidence as to the circumstances surrounding the debt, nor is there any evidence as to the Debtor-In-Possession’s ordinary practice in paying its ongoing obligations.
In the same manner that a plaintiff must demonstrate all elements of a cause of action, so too must a defendant demonstrate all elements of a defense. See, Rovzar v. Southern Maine Metal, Inc. (In re Saco Local Development Corp.), 30 B.R. 867 (Bkcy.D.Me.1983). As to both the contemporaneous exchange defense and the business expense defense, Kendall has failed to submit sufficient evidence which establishes that the transfers in question fall within the exceptions available under 11 U.S.C. Section 547(c). Therefore, it must be concluded that there are questions of material fact as to the circumstances surrounding the transfers to Kendall, and *553that Kendall 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 Debtor-In-Possession’s Motion For Summary Judgment be, and is hereby, GRANTED.
It is FURTHER ORDERED that Kendall’s Transport Refrigeration, Inc.’s Motion For Summary Judgment be, and is hereby, DENIED.
It is FURTHER ORDERED that Judgment be, and is hereby, GRANTED for the Plaintiff against the Defendant, Kendall’s Transport Refrigeration, Inc., in the amount of Three Thousand Three Hundred Ninety-four and 17/100 Dollars ($3,394.17). | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8490218/ | *864OPINION
DAVID W. HOUSTON, III, Bankruptcy Judge.
On consideration of the complaint filed by the Plaintiff, Barrister’s Land Company, Inc., hereinafter referred to as Barrister’s, against the Defendants, Merchants & Farmers Bank of Columbus, Mississippi, and National Bank of Commerce of Mississippi, hereinafter respectively referred to as M & F Bank and NBC; answers to said complaint filed by the Defendants; on consideration of the motions seeking to modify the automatic stay filed by M & F Bank and NBC, as well as, the motion to dismiss filed by NBC; responses to said motions filed by Barrister’s; all parties being represented by their respective attorneys of record; on proof before the Court; and the Court having heard and considered same, finds as follows, to-wit:
I.
The Court has jurisdiction of the parties to and the subject matter of this proceeding pursuant to 28 U.S.C. § 1334 and 28 U.S.C. § 157. These adversary and contested matters are all core proceedings as defined in 28 U.S.C. § 157(b)(2)(A), (B), (0).
II.
Pursuant to an agreed order, dated October 10, 1985, approved by all parties to this proceeding, each of these adversary and contested matters were consolidated for hearing.
Essentially, Barrister’s is a real estate holding corporation whose sole assets are two office buildings located in the City of Columbus, Mississippi. Barrister’s filed its voluntary Chapter 11 bankruptcy petition in this Court on April 10, 1985.
The two office buildings were occupied several years ago by the law firm of Bur-gin, Gholson, Hicks, and Nichols. At that time, there was free inside access between the two buildings, both of which were utilized by the law firm. Following the dissolution of the law firm partnership, the inside access between the two buildings was eliminated, so that for all practical purposes, the two buildings became independent of each other, although they are situated side by side. The western most building will be referred to as the “old building”, and the eastern most building will be referred to as the “new building”.
On January 5, 1978, Barrister’s executed a promissory note in favor of National Bank of Commerce of Mississippi in the principal sum of $120,000.00, which was to be repaid in 120 monthly installments of $1,536.40, each. The note was secured by a deed of trust encumbering all of the real property owned by Barrister’s. This note has been in default since November, 1984, and effective November 1, 1985, the amount of the indebtedness, including accrued interest and attorney’s fees, was $69,630.63. (See Defendants’ Exhibit 12).
On April 30, 1980, Barrister’s executed a promissory note in favor of Merchants & Farmers Bank in the principal sum of $35,-648.32, which was secured by a second deed of trust encumbering only the “new building”. This note has been in default since February 15, 1985, and effective November 1, 1985, the amount of the indebtedness, also including accrued interest and attorney’s fees, was $78,468.39. Interest accrues on this indebtedness at the rate of $22.83, per day, and accrues on the NBC indebtedness at the rate of $15.57, per day. (See Defendants’ Exhibit 12).
In August, 1984, William G. Burgin, Jr., Vice President of Barrister’s, approached Hampton Couchman, a Vice President at M & F Bank, with an offer to deed certain real property owned by Barrister’s to M & F Bank in exchange for the following: (a) M & F Bank was to cancel and/or satisfy the Barrister’s indebtedness owed to M & F Bank; and (b) M & F Bank was to service the Barrister’s indebtedness owed to NBC until the debt was paid in full. At this time, Couchman was under the mistaken impression that the M & F Bank lien, like the NBC lien, encumbered both the “new building”, as well as, the “old building”. In this same context, Couchman testified that he thought the Barristers’ offer, ex*865tended through Burgin', applied to all of the property owned by Barrister’s which had formerly been utilized as the law offices for the Burgin, Gholson, Hicks, and Nichols firm. On the other hand, Burgin unequivocally testified that the offer applied exclusively to the “new building”, which was the only property encumbered by the M & F Bank deed of trust. Couchman indicated that he would bring the offer before the bank’s board of directors. In a letter dated September 14, 1984, (Plaintiffs Exhibit 4), M & F Bank agreed to take the “Barristers Land property”, in what was apparently thought to be in conformity with Burgin’s proposal. The letter also requested that a deed be prepared and delivered to the bank. On September 18, 1984, Burgin delivered a duly executed deed to Couchman at M & F Bank, encompassing only the “new building”. As a result of an apparent verbal communication between Couchman and Burgin between September 14, 1984, and September 18, 1984, Couchman did not record the deed, but retained it in his possession until January 23, 1985. (See Plaintiffs Exhibit 6).
It is important to note at this point that the loan committee minutes for M & F Bank, dated August 28, 1984, (Defendants’ Exhibit 13) tend to underscore Couchman’s opinion that all of the Barrister’s real property was to be conveyed to the bank. A paragraph in the minutes reflects the following pertinent language: “Approval was given for the Bank to accept deed from Barrister Land Co. for former Burgin, Gholson, Hicks and Nichols firm and assume payments at NBC provided all legal aspects are all right.”
On September 19, 1984, Couchman, having realized that the deed delivered by Bur-gin only covered the “new building”, rather than all of the Barrister’s real property, immediately advised Ronald W. Tew, the President of M & F Bank, of this discrepancy. Following discussions with Tew, Couchman wrote Burgin a letter, dated September 19, 1984, (Plaintiff’s Exhibit 7), stating that it was not the bank’s understanding that Barrister’s only wanted to convey one building; and if this was the case, that M & F Bank would require an assignment of the rents applicable to the “old building”. Burgin testified. at trial that this condition was not acceptable to Barrister’s.
Although an assignment of rental income exists by virtue of the deed of trust held by NBC, contrary to its position that a binding contract was in effect with M & F Bank, Barrister’s accepted and utilized all of the rental income generated by both buildings from September, 1984, until the present. During this same time frame, Barrister's attempted to sell the properties, and on March 1, 1985, leased a part of the “new building” to the Tennessee-Tombigbee Waterway Development Authority. (See Defendants’ Exhibit 5). Additionally, subsequent to the Couchman letter of September 19, 1984, Barrister’s attempted to borrow additional monies from M & F Bank to pay ad valorem taxes owed on the property, as well as, to service the NBC indebtedness. However on two occasions, (see Defendants’ Exhibits 2 and 16), M & F Bank indicated that it was unwilling to lend additional monies to Barrister’s.
III.
Assuming, arguendo, that a valid contract existed between Barrister’s and M & F Bank that satisfied the statute of frauds, the contract may be voidable because of mutual mistake as to the subject matter of the contract.
The Restatement of Contracts (2d) defines a mistake as “a belief that is not in accord with the facts.” Restatement of Contracts (2d) § 151 (1981). § 152(1) specifically deals with mutual mistake and provides that:
(1) where a mistake of both parties at the time a contract was made as to a basic assumption on which the contract was made has a material effect on the agreed exchange of performances, the contract is voidable by the adversely affected party unless he bears the risk of the mistake under the rule stated in § 154. Id.
*866§ 154 of the Restatement of Contracts (2d) sets out circumstances when a party-will bear the risk of a mistake, to-wit:
A party bears the risk of a mistake when
(a) the risk is allocated to him by agreement of the parties or
(b) he is aware, at the time the contract is made, that he has only limited knowledge with respect to the facts to which the mistake relates but treats his limited knowledge as sufficient, or
(c) the risk is allocated to him by the court on the ground that it is reasonable in the circumstances to do so. Id.
In respect to § 152(b) of the Restatement of Contracts (2d), § 157 states that:
A mistaken party’s fault in failing to know or discover the facts before making the contract does not bar him from avoidance or reformation under the rules stated in this chapter, unless his fault amounts to a failure to act in good faith and in accordance with reasonable standards of fair dealing. Id.
In comment (a) under § 152, three conditions must be met before a contract is voidable by an adversely affected party. “First, the mistake must relate to a ‘basic assumption on which the contract was made’. Second, the party seeking avoidance must show that the mistake has a material effect on the agreed exchange of performances. Third, the mistake must not be one as to which the party seeking relief bears the risk.” Id.
Mississippi is not without case law on the subject of mutual mistake. The case of Powell v. Plant, 23 So. 399 (Miss.—1898), held that it is “unquestionable” that mutual mistake will relieve the parties to a contract of the mutual obligations. In reaching this conclusion the court cited the case of Nabours v. Cocke, 24 Miss. 44 (1852), which held that “[equity] will grant relief where both parties enter into the contract under a mutual mistake in a material fact, and without which mistake the contract would not have been made.” Id.
Perhaps a case most on point is Allen v. Luckett, 94 Miss. 868, 48 So. 186 (1909). This case dealt with a vendor of real property who conveyed what he thought was 50 acres. In actuality, he had conveyed approximately 200 acres. The court, in rescinding the contract between the parties, held that “[i]f the terms are stated according to the intent of the parties, but there is an error of one or both in respect of the thing to which these terms apply — its identity, situation, boundaries, title, amount, value, and the like — then it is elementary that a court of equity may grant appropriate relief, provided the fact about which the mistake occurs was a material element in the transaction.” (emphasis added) Id., 48 So. at 187.
Another case dealing with mutual mistake is Hollister v. Frellsen, 148 Miss. 568, 114 So. 385 (1927). That case held that in order for a binding contract to be formed “the minds of the parties must meet upon a definite proposition and its acceptance as made.” Id., 114 So. at 386.
From the evidence presented in this trial, the Court is simply of the opinion that there was no “meeting of the minds” or mutual assent as to the terms of the contract. Neither party has alleged, nor attempted to prove, any deliberate misrepresentations. Succinctly stated, Couchman misunderstood the offer and Barrister’s misunderstood the acceptance. There was never an acceptance by M & F Bank of the proposition offered by Burgin on Barrister’s behalf. See Hollister v. Frellsen, supra., and A. Copeland Enterprises v. Pickett & Meador, Inc., 422 So.2d 752 (Miss.—1982).
The quantity of the real property to be conveyed was clearly the “basic assumption” on which the contract was made and without a meeting of the minds on this matter, the parties each held a mistaken belief as to what the other intended to accept as consideration for the contract. Thus, the mistake had a material effect on the contract.
It is clear, also, that neither party accepted the risk of mistake, nor is it proper in these circumstances for the court to allocate the burden of risk. Neither party to *867the attempted transaction sought to rely on limited knowledge, knowing that such knowledge was limited. Each party thought that it was acting with full knowledge of the facts.
As mentioned briefly hereinabove, the lack of good faith is certainly not an issue in this proceeding. The pleadings and the proof presented demonstrate without reservation that both parties acted in good faith, but with erroneous impressions as to the essential terms of the purported contract.
As pointed out hereinabove, Mississippi accepts the idea that parties to a contract can mutually misunderstand a material fact to such a degree that a contract is never formed. This acceptance of the concept of mutual mistake reiterates the idea that a sufficient meeting of the minds must occur before a contract can have a binding effect.
In this case, the Court finds that each of the parties was under the mistaken belief that the other had accepted its proposal which, in fact, was not the case. Only a few days had elapsed following the September 14, 1984, letter when the mistake became apparent to Couchman and M & F Bank. There was certainly no demonstrated harm or damage caused to Barrister’s during this period. This is a Court of equity and equity will not permit this Court to find that a binding enforceable contract existed between Barrister’s and M & F Bank under the existing factual circum-' stances. Consequently, the complaint filed by Barrister’s will be dismissed at its cost.
IV.
As set forth hereinabove, both NBC and M & F Bank filed motions seeking relief from the automatic stay so that they might be permitted to foreclose their respective deeds of trust. In a reorganization case such as this, a creditor seeking relief from the automatic stay must meet the requirements of 11 U.S.C. § 362(d), which provides as follows:
(d) On request of a party in interest and after notice and a hearing, the court shall grant relief from the stay provided under subsection (a) of this section, such as by terminating, annulling, modifying, or conditioning such stay—
(1) for cause, including the lack of adequate protection of an interest in property of such party in interest; or
(2) with respect to a stay of an act against property under subsection (a) of this section, if—
(A) the debtor does not have an equity in such property; and
(B) such property is not necessary to an effective reorganization.
On Defendants’ Exhibit 12, the debts owed to these two creditors, effective November 1, 1985, are set forth as follows:
*868
Barrister’s and the two secured creditors presented appraisal testimony applicable to both buildings which is summarized as follows:
A. The Barrister’s appraisal was presented through James A. Lancaster, a licensed real estate broker, as follows:
(1) “new building”, located at 518 Second Avenue North, Columbus, Mississippi: Cost Approach — $166,800.00
Income Approach — $238,900.00
Based on the cost and income approach figures, Lancaster indicated that the fair market value of the property, effective the date of his appraisal, was the sum of $175,-000.00. (See Plaintiff’s Exhibit 1).
(2) “old building”, located at 516 Second Avenue North, Columbus, Mississippi: Income Approach Only — $60,200.00 (See Plaintiff’s Exhibit 2).
B. The NBC and M & F Bank appraisal was presented through Rick Humphreys, an M.A.I. appraiser, who utilized the income approach exclusively, as follows:
(1) “new building”, 518 Second Avenue North, Columbus, Mississippi:
Income Approach — $130,000.00
(2) “old building”, 516 Second Avenue North, Columbus, Mississippi:
Income Approach — $35,000.00
As set forth hereinabove, the NBC deed of trust encumbers both buildings, while the M & F Bank deed of trust encumbers only the “new building”. As additional security, the NBC indebtedness is guaranteed individually by the former partners in the Burgin, Gholson, Hicks, and Nichols law firm. Considering the lower appraisal figures and disregarding the individual guaranties, it is obvious that NBC is an over secured creditor whose interest is adequately protected. Although not in as favorable a position, considering once again the lower appraisal figures, M & F Bank enjoys an “equity cushion” at least for the present time. This is particularly true in view of the fact that NBC and M & F Bank are primarily the only creditors of Barrister’s, and as such, the equity that might exist in the “old building” is available to satisfy any portion of the M & F Bank claim that might be deemed unsecured.
Since Barrister’s has already expressed an indication that it wishes to divest itself of the “new building”, this Court can envision several realistic possibilities that Barrister’s might employ to successfully reorganize, retaining its ownership in just the “old building”. Consequently, this Court finds that NBC and M & F Bank have not met the requirements mandated by 11 U.S.C. § 362(d). Therefore, the motions seeking relief from the automatic stay are not well taken and are hereby overruled. The Court is also of the opinion that the motion to dismiss filed by NBC is also not well taken and will be overruled at this time without prejudice.
Concerning the rental income assignment that is set forth in the NBC deed of trust, this Court directs Barrister’s within thirty (30) days from the date of this Opinion to make an accounting to NBC for all rental income received since the filing of this bankruptcy case, as well as, any expenditures made from the rental income proceeds for expenses related to the maintenance and operation of the two buildings. All rental income generated from and after the date of this Opinion shall be deposited in a special escrow account to be opened and maintained at NBC. There shall be no further expenditures from this account until an order is obtained from this Court permitting Barrister’s to use this cash collateral, as contemplated by the provisions *869of 11 U.S.C. § 363(e)(2). Barrister’s is further directed to formulate a plan of reorganization and file same with this Court, along with a disclosure statement, within thirty (30) days of the date of this Opinion. Failure to file said plan and disclosure statement shall result in this Court setting a hearing to show cause why this case should not be dismissed in its entirety. These instructions to Barrister’s shall not be construed as extending the exclusivity period to Barrister’s to file its disclosure statement and plan of reorganization, all as set forth in 11 U.S.C. § 1121(b).
An Order will be entered consistent with this Opinion. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8490219/ | OPINION
DAVID W. HOUSTON, III, Bankruptcy Judge.
On consideration of the motion filed by the Debtor, Billy Hawkins, for authority to incur debt and grant security therefor; response to said motion filed by the United States of America for and on behalf of the Farmers Home Administration, hereinafter referred to as FmHA; all parties being represented by their respective attorneys of record; on the presentation of evidence and argument to the Court; and the Court having heard and considered same, hereby finds and adjudicates as follows, to-wit:
I.
The Court has jurisdiction of the parties to and the subject matter of this proceeding pursuant to 28 U.S.C. § 1334 and 28 U.S.C. § 157. This is a core proceeding as defined in 28 U.S.C. § 157(b)(2)(A) and (D).
II.
Through his motion, the Debtor seeks authority to enter into a price support loan with the Commodity Credit Corporation in the approximate sum of $113,000.00, pledging as collateral his 1985 crops which for the most part have been harvested and stored. FmHA has objected to this proposed loan transaction contending that it holds a valid first lien against the 1985 cotton crop pursuant to three security agreements, dated April 2, 1981, May 13, 1983, and June 7, 1984, the lien resulting from the said security agreements being perfected by the filing of a Uniform Commercial Code financing statement with the *19Chancery Clerk of Humphreys County, Mississippi, on April 2, 1981. The security agreements, by the language expressed therein, encumber the following:
Item 1. All crops, annual and perennial, and other plant products now planted, growing or grown, or which are hereafter planted or otherwise become growing crops or other plant products (a) within the one-year period or any longer period of years permissible under State law, or (b) at any time hereafter if no fixed maximum period is prescribed by State law, on the following real estate:
Each of the security agreements contains a future advances clause which is set forth as follows:
... to secure the prompt payment of all existing and future indebtedness and liabilities of debtor to secured party and of all renewals and extensions thereof and any additional loans or future advances
FmHA argues that its security interest extends to the Debtor’s 1985 cotton crop, which was planted prepetition, by virtue of the interaction of 11 U.S.C. § 552(b), § 75-9-201, § 75-9-204, and § 75-9-403(2), Mississippi Code of 1972, as amended, all of which are set forth respectively hereinbe-low:
11 U.S.C. § 552. Postpetition effect of security interest.
(a) Except as provided in subsection (b) of this section, property acquired by the estate or by the debtor after the commencement of the case is not subject to any lien resulting from any security agreement entered into by the debtor before the commencement of the case.
(b) Except as provided in sections 363, 506(c), 522, 544, 545, 547, and 548 of this title, if 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 of the case to the extent provided by such security agreement and by applicable non-bankruptcy law, except to any extent that the court, after notice and a hearing and based on the equities of the case, orders otherwise. [Emphasis supplied] § 75-9-201, Mississippi Code of 1972, as amended. General validity of security agreement.
Except as otherwise provided by this code a security agreement is effective according to its terms between the parties, against purchasers of the collateral and against creditors. Nothing in this chapter validates any charge or practice illegal under any statute or regulation thereunder governing usury, small loans, retail installment sales, or the like, or extends the application of any such statute or regulation to any transaction not otherwise subject thereto.
§ 75-9-204, Mississippi Code of 1972, as amended. After-acquired property; future advances.
(1) Except as provided in subsection (2), a security agreement may provide that any or all obligations covered by the security agreement are to be secured by after-acquired collateral.
(2) No security interest attaches under an after-acquired property clause to consumer goods other than accessions (section 75-9-314) when given as additional security unless the debtor acquires rights in them within ten (10) days after the secured party gives value.
(3) Obligations covered by a security agreement may include future advances or other value whether or not the advances or value are given pursuant to commitment (section 75-9-105(1)). [Emphasis supplied]
§ 75-9-403(2), Mississippi Code of 1972, as amended.
(2) Except as provided in subsection (6), a filed financing statement is effective for a period of five (5) years from *20the date of filing. The effectiveness of a filed financing statement lapses on the expiration of the five (5) year period unless a continuation statement is filed pri- or to the lapse. If a security interest perfected by filing exists at the time insolvency proceedings are commenced by or against the debtor, the security interest remains perfected until termination of the insolvency proceedings and thereafter for a period of sixty (60) days or until expiration of the five (5) year period, whichever occurs later. Upon lapse, the security interest becomes un-perfected unless it is perfected without filing. If the security interest becomes unperfected upon lapse, it is deemed to have been unperfected as against a person who became a purchaser or lien creditor before lapse. [Emphasis supplied]
III.
It is noted at this point that FmHA concedes that its lien does not reach the Debt- or’s 1985 soybean crop, which was planted postpetition, due to the effects of 11 U.S.C. § 552(a), quoted above. The Debtor does not contest the validity of the FmHA lien, and also does not seriously dispute that this lien reaches the proceeds of collateral acquired long after its perfection. The Debtor, however, argues that this Court should disallow the lien as a result of the “equities of the case” language appearing in 11 U.S.C. § 552(b). The Debtor also argues that he should be authorized to pay those creditors, designated hereinbelow, who enabled him to plant, maintain and harvest the 1985 cotton crop pursuant to 11 U.S.C. § 506(c), which provides as follows:
(c) The trustee may recover from property securing an allowed secured claim the reasonable, necessary costs and expenses of preserving, or disposing of, such property to the extent of any benefit to the holder of such claim.
.The creditors mentioned above, who provided production funds, supplies, services, etc., for the planting, maintaining, and harvesting the cotton crop are listed as follows:
Citizens Bank (Crop
production loan) $20,000.00 + Int.
Scott Petroleum Corp.
(Fertilizer) 11,101.72
Auto Parts Co. (Parts) 582.44
Sudduth Tractor Co. (Parts) 1,560.43
James C. Simpson, Jr.
(Entomologist) 900.00
Superior Parts, Inc. (Parts) 1,269.50
Mohamed’s Auto Parts (Parts) 32.66
Spencer Tire Service (Tires &
Repairs) 208.92
Delta Crop Insurance 3,746.37
Belzoni Ag Supply
. (Chemicals) 814.48
Joel B. Cunningham, C.P.A. 1,698.50
Delta Picker Repair (Repairs) 7,236.39 Planters Gin Co. (Ginning Cotton) 2,180.00
Cash (Repay Sister & Son) 7,100.00
Ray’s Flying Service 330.00
Filler-Up, Inc. (Gas & Oil) 875.01
Gorton Clinic (Labor) 69.00
Wood’s Welding (Repairs) 164.90
Wayne’s Service Station (Gas & Oil) 116.40
J.D. Bodry (Rent) 5,300.00
J.D. Priestly Est. (Rent) 2,500.00
James Duthu (Rent) 5,000.00
Jean Kiker (Rent) 3,000.00
Marion K. Robertson Trustee Est. (Rent) 1,100.00
Kelly M. Robertson (Rent) 1,100.00
Mrs. Orene Sumrall (Rent) 1,100.00
TOTAL $79,086.72
IV.
The Court is of the opinion that at this time the FmHA lien on the Debtor’s 1985 cotton crop should not be disallowed completely because of the “equities of the case.” The proof before the Court is insufficient to justify such potent relief.
Inasmuch as the proposed Commercial Credit Corporation loan transaction is actually in the nature of a crop price support, this Court is of the opinion that the Debtor should be permitted to enter into the loan transaction, subject to the disbursement of the proceeds as set forth hereinbelow.
Pursuant to the provisions of 11 U.S.C. § 506(c), those creditors designated herein-below, who would be considered as holding valid statutory liens against the crop, or who obtained a lien by order of this Court, should be paid by the Debtor from the *21Commodity Credit Corporation loan proceeds, to-wit:
Citizens Bank (Crop production loan) $20,000.00 + Int.
Planters Gin Co. (Ginning Cotton) 2,180.00
J.D. Bodry (Rent) 5,300.00
J.D. Priestly Est. (Rent) 2,500.00
James Duthu (Rent) 5,000.00
Jean Kiker (Rent) 3,000.00
Marion K. Robertson Trustee Est. (Rent) 1,100.00
Kelly M. Robertson (Rent) 1,100.00
Mrs. Orene Sumrall (Rent) 1,100.00
TOTAL $41,280.00
The amount of each of these claims was uncontradicted in the proof.
The balance of the loan proceeds should be deposited by the Debtor in an interest bearing escrow account to be disbursed on the subsequent order of this Court, following either the confirmation of the Debtor’s plan of reorganization or after the consideration of whether any of the other creditors, listed in Paragraph III hereinabove, fall within the ambit of 11 U.S.C. § 506(c), or whether any of the creditors have perfected a lien against the crop which would be superior to that of FmHA, such as contemplated in § 75-9-312(2), Mississippi Code of 1972, as amended, which is set forth as follows:
A perfected security interest in crops for new value given to enable the debtor to produce the crops during the production season and given not more than three (3) months before the crops become growing crops by planting or otherwise takes priority over an earlier perfected security interest to the extent that such earlier interest secures obligations due more than six (6) months before the crops become growing crops by planting or otherwise, even though the person giving new value had knowledge of the earlier security interest.
As to these remaining creditors, the proof is simply insufficient to determine whether 11 U.S.C. § 506(c) or § 75-9-312(2), Mississippi Code of 1972, as amended, is applicable. See In Re: Northeast Chick Service, Inc., 43 B.R. 326 (Bkrtcy.D.Ma. — 1984), cited by the Debtor, which held as follows:
The FmHA, however, does not have an unqualified right to all of the proceeds derived from the sale of the chickens. Under 11 U.S.C. § 506(c), the trustee ‘may recover from property securing an allowed secured claim the reasonable necessary costs and expenses of preserving, or disposing of, such property to the extent of any benefit to the holder of such claim.’ The trustee has the burden of showing that the expenses were reasonable, necessary and for the benefit of the secured party. See, e.g., In re Trim-X, Inc., 695 F.2d 296 (7th Cir.1982); In re Korupp Associates, Inc., 30 B.R. 659 (Bankr.D.Me.1983); and Dozoryst v. First Financial Savings and Loan Association, 21 B.R. 392 (Bankr.N.D.Ill.1982).
The trustee alleged in its counterclaim that he had incurred costs in preserving the chickens prior to their sale. The trustee did not, however, introduce any evidence as to the amount of the expenses incurred. The Court can assume that if the expenses were incurred to preserve the flock of chickens, they were for the benefit of the FmHA. But, the Court cannot rule on the necessity or reasonableness of the expenses unless and until further evidence regarding the nature and amount of the expenses is provided. To that end, the Court will allow the trustee the opportunity to provide the aforementioned information before ruling on the amount to which the FmHA is entitled. Therefore, the Court finds that the FmHA has a valid security interest in the proceeds of the sale of the flock of starcross shaver chickens and is entitled to recover such proceeds, subject to the debtor’s claim for costs and expenses, the amount of which remains to be determined.
Id. at 332-33.
An Order will be entered consistent with this Opinion. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8490220/ | PARTIAL SUMMARY FINAL JUDGMENT
GEORGE L. PROCTOR, Bankruptcy Judge.
This matter came before the Court on the defendant’s, Deseo Marine, Inc., Motion for Summary Judgment. The complaint alleges that the plaintiff is entitled to foreclose a statutory lien on a seagoing vessel known as “Contender,” which was constructed by Deseo.
It is undisputed that PJ & L was a contractor in privity with Deseo, that PJ & L purchased from the plaintiff certain electrical fixtures, equipment and supplies, that the plaintiff duly invoiced PJ & L for those items, and that those items were used in the construction of Contender. It is further uncontested that the plaintiff furnished defendants Deseo and Barnett Bank with a “Notice of Lien” on or about July 2, 1985, and that Ace is unpaid in the amount of $5,329.03 due it under its agreement with PJ & L.
The Court having read the affidavits submitted by both parties and having heard oral argument on December 10, 1985, reaches the following conclusions of law:
1. Because Deseo Marine was not in privity with the plaintiff, any lien rights are governed by § 713.75 Florida Statute which provides in pertinent part,
A lien shall exist from the time of delivery of either notice for the amount unpaid on the contract of the owner with the person contracting with the lienor and the delivery of the notice shall also create a personal liability against the owner of the personal property in favor of the lienor giving notice, but not to a greater extent than the amount then unpaid on the contract between the owner *42and the person with whom the owner contracted.
The uncontroverted affidavit submitted by defendant Deseo indicates that it contracted with PJ & L Associates for a total sum of $26,500, of which $24,600 had already been paid at the time that notice of the lien was served. The balance of the contract sum $1,900 had not been earned by PJ & L, and was in fact never earned because PJ & L had quit the job around the time of the notice to Deseo. There was no money due and owing to PJ & L, and Deseo paid no money to PJ & L subsequent to its receipt of the July 2 notice. At the time of delivery of the notice there was not in the language of the statute, any “amount then unpaid on the contract between the owner and the person with whom the owner contracted.” As a matter of law, no lien could have arisen.
2. Deseo is not to be obligated to pay plaintiff on the basis of any oral assurances that may have been received by David English, an employee of the plaintiff, from Charles Stevens of Deseo. Section 725.01, Florida Statutes, renders unenforceable,
“any special promise to answer for the debt, default or miscarriage of another person ... unless the agreement or promise ... or some note or memorandum thereof shall be in writing and signed by the party to be charged therewith or by some other person by him thereto lawfully authorized.”
Clearly, any representation made by Mr. Stevens is within the statute of frauds and hence unenforceable.
3. The letter of May 22, 1985 from David English to Charles Stevens, plaintiffs exhibit A, does not constitute notice and is as a matter of law not sufficient to create a lien under the provisions of § 713.75, Florida Statutes. The notice provision of § 713.75, Florida Statutes is as follows:
A person entitled to acquire a lien not in privity with the owner of the personal property shall acquire a lien upon the owner’s personal property as against the owner and persons claiming through him by delivery to the owner of a written notice that the person for whom the labor has been performed or the material furnished is indebted to the person performing the labor or furnishing the material in the sum stated in the notice.
The clear policy of the notice statute is to provide owners of personal property protection from unexpected mechanics’ and materialmen’s liens where the owner has made good faith payments to the contractor. The letter of May 22, 1985 would not appear to the reasonable layman to constitute a notice under the statute. It appears rather to be a routine business inquiry and request. This conclusion is supported by the plaintiff’s decision to send a proper notice of lien on July 2, 1985.
The purpose of a cautionary notice is to enable the owner to protect himself by reserving sufficient funds to pay for labor and materials. It is a warning to the owner advising him to take heed as it were (emphasis added)
Ramsey v. Hawkins, 78 Fla. 189, 82 So. 823, (1919).
It is instructive to draw an analogy to § 713.06, Florida Statutes, which deals with acquisition of liens by persons not in privity with owners of real property. That statute includes a form of notice to owner, as follows:
NOTICE TO OWNER
To (owner’s name and address)
The undersigned hereby informs you that he has furnished or is furnishing services or materials as follows:
(general description of services or materials) for the improvement of the real property identified as (property description) under an order given by_ Florida law prescribes the serving of this notice and restricts your right to make payments under your contract in accordance with § 713.06, Florida Statutes. Copies to: (Lienor’s signature and address)
*43Such a form of notice leaves no question as to its intent and serves the purpose set forth in Ramsey v. Hawkins, supra, of enabling the owner to protect himself. It is contrary to legislative intent to permit creation of a lien by the delivery of a document which does not purport to have any legal effect. The letter of May 22nd is simply not sufficient to warn a reasonable business entity that rights and liabilities are being created.
4. Accordingly, the court hereby enters Final Judgment in favor of the defendant, Deseo Marine, Inc., and rules that no valid lien exist in plaintiff’s favor against said Defendant. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8490221/ | DECISION ON MOTIONS FOR SUMMARY JUDGMENT
BURTON PERLMAN, Bankruptcy Judge.
Plaintiff and defendant trustee have filed motions for summary judgment. In an earlier decision in this adversary proceeding, we said the following, which we repeat, as a summary of the pleadings herein:
The complaint in the present adversary proceeding brings before us a controversy in a curious way. Plaintiff was evidently engaged in real estate development with debtors/defendants in 1981, and at that time and in connection with that relationship, plaintiff executed a *44promissory note to debtors in the amount of $180,000.00. There was an “attempted” assignment of that promissory note to defendant The First National Bank in Rifle, Colorado (“Bank”). Plaintiff asks this Court to set aside that assignment, find the note to be an asset of the bankruptcy estate, and adjudicate alleged defenses and offsets available to plaintiff against any claim arising on the promissory note. Bank’s answer puts in issue the invalidity of the assignment, and seeks dismissal of the suit, observing that the issues raised are presently being litigated in the state courts of Colorado. Debtors also filed an answer, generally denying the allegations of the complaint, and also seeking dismissal of the complaint for failure to name an indispensable party, to wit, the bankruptcy trustee. Thereafter, plaintiff added the trustee as a party. The trustee then filed his answer containing two counterclaims, the first against Bank (properly, a cross-claim), second against plaintiff. In his first counterclaim, the trustee seeks to set aside the assignment and requests a finding that the note is property of the estate. The second counterclaim seeks to collect the promissory note.
In re Meyer, 59 B.R. 16, 17 (Bankr.S.D.Ohio, 1985).
In his motion for summary judgment, plaintiff urges that a certain installment promissory note in issue in the litigation is an asset of the bankruptcy estate and that plaintiff is entitled to set off a claim which he asserts against such note. In his motion for summary judgment, trustee asserts that plaintiff is not entitled to set off his claim against the note he holds from plaintiff, because the debts in question are not mutual debts.
There is an issue regarding ownership of the note which was executed by plaintiff in favor of Meyer. (We will hereafter so designate defendant/debtor Kelley Meyer.) The parties are in agreement that the court should proceed on the basis that, for present purposes only, it will be assumed that trustee is the owner of that note. Further, we will, for present purposes, find facts only to the extent necessary to resolve the issues presented by the motions for summary judgment. Such facts are not disputed.
Meyer owned real estate in Rifle, Colorado, but lacked funds to develop it. He sold a one-half interest therein to plaintiff for $300,000.00. Of that purchase price, $120,-000.00 was paid in cash and a promissory note for $180,000.00 was signed by plaintiff, and made payable to both Meyer and his wife, Shirley Meyer.
Plaintiff and Meyer were residents of Rifle and engaged in business together in 1980 and 1981, the time when the relevant events occurred. Plaintiff and Meyer were members of two partnerships. One was a limited partnership for the development of real estate in Rifle called “Chevy Addition”. Plaintiff and Meyer were the two general partners in that partnership and had agreed to share equally the partnership expenses and debts. The second partnership was named K & K. Its business was to buy and sell real estate and to do general construction. Plaintiff and Meyer jointly made a loan from the First National Bank of Rifle (hereafter “Bank”) to develop the Chevy Addition property. The K & K partnership included a third individual, Scott Brynildson, in addition to plaintiff and Meyer. This partnership purchased some real estate from sellers Urquhart.
In May, 1982, because of the termination of a major shale oil project in Rifle, the economy of Rifle crashed.
Meyer moved from Rifle to Texas in July, 1982, and left plaintiff to liquidate the partnerships. Plaintiff did so, and in the process, paid off partnership obligations for which Meyer was liable in an amount which exceeds plaintiffs indebtedness to Meyer on the promissory note for $180,-000.00. The trustee does not dispute the latter fact. What is in issue, so far as the trustee is concerned, is whether, employing the term to be found in 11 U.S.C. § 553, the obligation sought to be set off by plaintiff is “mutual”.
*45In resolving the issue presented to us, attention must be paid to the language of the pertinent statute, 11 U.S.C. § 553(a):
(a) Except as otherwise provided in this section and in sections 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, ...
Certain exceptions to setoff are provided for in the statute, but the parties do not make any contention that such exceptions are here relevant.
The statute itself answers the initial question which must be faced in this case. That question is whether a creditor with a claim against a debtor is entitled to set it off against a bankruptcy trustee who has succeeded to a claim which the debtor has against that creditor. The statutory language unequivocally states that such debts may be set off.
What is being made an issue by the trustee is whether the debt which plaintiff owes to Meyer may be set off against the claim which plaintiff asserts against Meyer. The trustee says that because the latter claim, that asserted by plaintiff against Meyer, arises out of their partnership relationship, it is not a mutual debt, considering that the debt owed by plaintiff to Meyer is a personal and direct debt.
To resolve this question, we must examine closely the nature of plaintiff’s claim against Meyer. The two were general partners in the K & K partnership and, in addition, were two of the three partners in the other partnership. Plaintiff paid off the indebtedness of the partnerships and his claim against Meyer derives from this action benefitting the partnerships. We have reached the conclusion that the trustee is incorrect in asserting that a claim by one partner against another partner which originates in the payment by the first partner of claims against the partnership, does not give rise to a direct and personal obligation by the other partner or partners in the partnership to the partner who has paid off the partnership indebtedness and thus benefitted the partnership. This conclusion is inevitable because the law is clear that a partner who pays off partnership claims is entitled to indemnification by his other partner or partners. See, 60 Am. Jur. 2D Partnership § 114 (1972); 13 O.Jur. 3rd Business Relationships § 964 (1979). These authorities establish that the right to indemnification is directly provided for in the Uniform Partnership Act which has been adopted both in Ohio and Colorado. See, Ohio Rev.Code § 1775.17. Because plaintiff has a direct and personal right to payment by Meyer, we hold that the debt so arising is a mutual debt with that owing by plaintiff to Meyer.
The trustee argues that the foregoing conclusion is incorrect, relying primarily for that position on Gray v. Rollo, 85 U.S. (18 Wall.) 629, 21 L.Ed. 927 (1874) and In re Baldwin-United Corp., 48 B.R. 49 (Bankr.S.D.Ohio 1985). Those cases, however, are distinguishable on their facts. The Gray case involved a situation where a debtor insurance company was indebted to its insured, Gray Brothers, a firm composed of Moses Gray and Franklin Gray. Moses Gray jointly with one Gaylord held two promissory notes of the debtor insurance company. Moses Gray sought to offset what he, together with Gaylord, owed the debtor against what the debtor owed to Gray Brothers. Setoff was not allowed, the court saying simply that these were not mutual debts, for they were not between the same parties. The court went on to explain that the claim of Moses Gray against the debtor was not due to him alone, but jointly to him and his brother. The case before us is not the same. While the debt owed by debtor to plaintiff grows out of the partnership, it is not a debt due to the partnership, but rather to plaintiff alone.
The Baldin-United case is also different. Judge Newsome, of this court, in that case did not permit the setoff by Thompson of his claims for wrongful termination, sever-*46anee pay, attorneys’ fees, etc., against the claim of the debtor against Thompson for payment for purchase of debtor’s stock. The claims were found not to be mutual for the reason that the obligation to pay for unpaid stock constitutes a trust fund for the creditors of debtor, as well as for debt- or. Again, in the instant case, the obligation of plaintiff to Meyer bears no resemblance to the character of that owed by Thompson to Baldwin-United.
Accordingly, we have reached the conclusion that the debts here in question are mutual and may be set off. To that extent, plaintiff is entitled to summary judgment, while defendant trustee’s motion for summary judgment is overruled. Questions still remain to be litigated. One was that indicated at the beginning of this decision to have been set aside by the parties, ownership of the note from plaintiff Leiman to Meyer. A further question goes to the amount that plaintiff is entitled to set off against the claim asserted against him by trustee. This record does not present sufficient evidence to enable us to fix the amount to which plaintiff is entitled to be indemnified by reason of his partnership relationships with Meyer.
So Ordered. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8490222/ | ORDER ON MOTION TO EXTEND TIME TO FILE AN OBJECTION TO THE DISCHARGE OF A DEBT AND A MOTION AUTHORIZING A 2004 EXAMINATION
ALEXANDER L. PASKAY, Chief Judge.
THIS IS a Chapter 7 liquidation case and the matter under consideration is a motion filed by Joseph Arena (Arena) who seeks an order extending the time to file an objection to the discharge of a debt, that is, seeking a determination of the non-dis-chargeability of an obligation and, at the same time, seeks authorization to conduct an examination of Lawrence Smith pursuant to Bankruptcy Rule 2004. The facts relevant to the resolution of the motion are *47without dispute and appear to be as follows:
Prior to the commencement of this Chapter 7 case, Arena filed a suit against the Debtor in the Circuit Court for Pasco County. On August 9, 1985 counsel for the Debtor filed a suggestion for bankruptcy in the State Court action. It is without dispute that on August 9th there was no bankruptcy case pending initiated by or against the Debtor. Having verified this fact with the Bankruptcy Court, Arena advised the Circuit Court who then proceeded with the case and on August 12, 1985 entered a final judgment in favor of Arena and against the Debtor.
The Petition for Relief under Chapter 7 was filed on August 26,1985. It is without dispute that Arena was not scheduled as a creditor by the Debtor and, consequently, he did not receive notice of the filing nor of the bar date to file a Complaint, either objecting to the discharge or to seek a determination of the non-dischargeability of debts pursuant to § 523(a)(2), (4) and (6), a bar date which was fixed by the order entered by this Court on December 2, 1985.
It further appears and it is without dispute that one Mr. Berstein filed a suit against Arena and the Debtor in the Circuit Court for Hernando County but, after having received a Suggestion of Pendency of Bankruptcy, filed a voluntary dismissal of the suit against the Debtor. The notice of voluntary dismissal did not mention anything about the pendency of a bankruptcy, but merely stated that the Plaintiff desired to dismiss his action against the Debtor.
It further appears that when counsel for Arena received a copy of the notice he merely contacted Mr. Bernstein when he learned of the time, on December 11, that the Debtor, in fact, filed bankruptcy. Immediately thereafter, that is, the following day, the attorney for Arena filed a Motion to Extend Time also a Motion Seeking Authority to Examine the Debtor under Bankruptcy Rule 2004. It is without dispute that on December 23 the general bankruptcy discharge was issued and the Debtor received his discharge. Of course the discharge ordinarily would have discharged all his debts, including those which could have been challenged under § 523(a)(2), (4) and (6) of the Bankruptcy Code, the type of debt claimed to be owed by the Debtor to Arena.
It is the contention of counsel for Arena that inasmuch as he was not scheduled, did not receive any notice, and did not actually learn about the pendency of the bankruptcy until the expiration of the time originally fixed by this Court, he should be permitted to obtain an order extending the time and giving him an opportunity to litigate his claim that the debt represented by the final judgment obtained against the Debtor is a non-dischargeable obligation based on § 523(a)(6) of the Bankruptcy Code.
In opposition, it is the contention of the Debtor that since the time already expired to challenge the dischargeability based on § 523(a)(2), (4) and (6) of the Bankruptcy Code, the time fixed by the Court can no longer be changed and, therefore, the creditor is forever barred from litigating his claim.
The difficulty with the contention of the Debtor is that the last day to file such a Complaint pursuant to Rule 4007(c) would have been December 23, which is 60 days from the date of the first date set for the Meeting of Creditors pursuant to § 341. While it is true that the order entered by this Court fixed the bar date to be December 2, the fact remains that, theoretically, the time could have been extended if there was a timely motion filed prior to the expiration of the bar date. The question remains of whether the bar date can be extended if a motion is filed prior to the expiration of the 60 days but after the bar date fixed by order of the court.
This brings into play the equitable consideration of the matter and, considering the totality of the evidence, this Court is satisfied that it is more than justified to grant a motion and extend the time and authorize Arena to file a Complaint challenging the dischargeability of a debt owed to him which is represented by a judgment *48pursuant to § 523(a)(6) of the Bankruptcy Code. This being the case, this Court is satisfied that the Motion to Extend the Time is well taken and should be granted.
It is further the opinion of this Court that in light of the fact that Arena never had an opportunity to examine the Debtor since Arena was not scheduled as a creditor nor notified of the Meeting of Creditors, he should be given an opportunity to conduct such an examination. It should be noted, also, that the Statement of Affairs filed by the Debtor indicated that Arena obtained a judgment against the Debtor on which there was an attempt made to levy and, therefore, it is very awkward and hard indeed to contend that omission from the list of creditors was an oversight or forgetfulness. Be that as it may, the matter under consideration does not involve a claim on non-dischargeability based on § 523(a)(3) but merely seeks an extension of time which, as noted earlier, under the circumstances would be appropriate and proper.
Accordingly, it is
ORDERED, ADJUDGED AND DECREED that a Motion to Extend the Time to File a Complaint pursuant to § 523(c) based on the claim of non-dischargeability pursuant to § 523(a)(6) be, and the same is hereby, granted and Arena is granted thirty (30) days from the date of entry of this order to file such a Complaint if so deemed to be advised. It is further
ORDERED, ADJUDGED AND DECREED that the Motion for Authority to Conduct a 2004 Examination be, and the same is hereby, granted and the Debtor shall submit to a properly noticed examination at a time and place convenient to both parties. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8490223/ | DECISION OF OBJECTIONS TO DISCHARGE OF DEBTOR
EDWARD J. RYAN, Bankruptcy Judge.
I
FINDINGS OF FACT1
1. Grizzly Plumbing & Heating, Inc. is a debtor in a Chapter 7 case no. 84-04703-Hl-4 currently pending in the United States Bankruptcy Court, Southern District of Texas, Houston Division.
2. From March 20, 1984 to September 12, 1984, Floyd Bridgewater (“Debtor”) owned more than twenty percent (20%) of the issued and outstanding stock of Grizzly Plumbing & Heating, Inc. and was president of Grizzly Plumbing & Heating, Inc.
3. Between March 20, 1984 and September 12, 1984, Debtor transferred a 1980 Chevy % ton Van and a 1981 Ford xk ton Van to Karen E.P. Dunn, who subsequently became Debtor’s spouse.
4. These transfers were listed of public record as “gifts” as evidenced by Plaintiff’s Exhibit No. 5. The fair market value of the vans on the date of transfer was no less than $8,775.
5. Between March 20, 1984 and September 12, 1984, Grizzly Plumbing & Heating (“Grizzly”) transferred a Chevrolet Van to Mr. Miles Cluck, Debtor’s cousin, who was residing in Debtor’s home at the time. The alleged consideration for the transfer, if any, was no more than $2,000. The fair market value of the van at the time of transfer was no less than $4,925.
6. During the three months prior to commencement of the Grizzly Plumbing & Heating bankruptcy, Grizzly transferred in excess of $25,000 to Debtor and Debtor’s friends and relatives on checks signed by Debtor. These transfers were as follows: check no. 5560 for $2,684 to Miles Cluck; *93check no. 5585 for $1,000 to Floyd Bridge-water; check no. 5573 for $1,738 to Floyd Bridgewater; check no. 5479 for $753.49 to Floyd Bridgewater; check no. 5531 for $336.58 to Food City; check no. 5519 to American Express Company for $980.72 (Debtor has an American Express card, Grizzly did not); check no. 5573 for $1,738 to Floyd Bridgewater; check no. 5423 in the amount of $1,428.01 payable to “cash” (which Floyd Bridgewater testified he obtained); check no. 5436 for $1,000 to Karen Bridgewater (for “vacation pay”); check no. 5584 to Judy Bridgewater (Debtor’s sister-in-law) for $2,000; check no. 5467 to Rayford Yarberry (Debtor’s step-father) for $300; check no. 5504 to Doris Robb (Debtor’s aunt) for $500.
Debtor has failed to explain, to the satisfaction of the Court, the utilization of Debt- or’s funds, within the two month period prior to bankruptcy, represented by these transfers. These transfers were for less than fair consideration and were made with intent to hinder, delay and defraud creditors.
7. Grizzly was insolvent at the time each of the transfers of vans and funds were made.
8. In determining that these transfers were made with intent to hinder, delay and defraud creditors, the Court finds the following facts which demonstrates actual intent to hinder, delay and defraud creditors:
A. None of the transfers of vans to Mrs. Bridgewater and Miles Cluck were disclosed on the Schedules of Grizzly Plumbing & Heating, signed by Debtor as President.
B. There is no payroll record indicating that Miles Gluck was entitled to $2,000 for work performed for Grizzly.
C. There are no books or records supporting the payments to American Express, Food City, or $1,000.00 to Floyd Bridgewa-ter.
D. Mrs. Bridgewater took approximately two weeks of vacation for the year 1984 and that she worked at most, part-time during the years 1982 and 1983. Mrs. Bridgewater testified that Mr. Craig Eco-nopouly, former president of Grizzly at the time when the vacation pay in question would have been earned, stated that he would not authorize Grizzly to pay her any salary.
E. Debtor served as the “manager/operator” of Grizzly Bear Heating & Plumbing, a company set up by his wifé in July, 1984 which took over a substantial portion of the business of Grizzly Plumbing & Heating at the same time that Debtor was the president and shareholder of Grizzly Plumbing & Heating.
F. Debtor “paid” his wife a full salary for serving as “bookkeeper” for Grizzly Plumbing & Heating at the same time that she was setting up and operating the Grizzly Bear Plumbing & Heating with the vans she had received from Grizzly Plumbing & Heating. During the final two months of her employment as the Grizzly bookkeeper, Mrs. Bridgewater failed to keep the general ledger, failed to record transfers of cash to Miles Cluck and failed to keep any records supporting or evidencing many of the other transfers.
9. Mr. Lowell Cage, duly appointed and acting trustee of the estate of Grizzly Plumbing & Heating proves that unsecured creditors of the estate of Grizzly Plumbing & Heating will receive no dividend.
10. Both Grizzly Plumbing & Heating and Debtor have failed to keep or preserve books, documents, records or papers from which the business transactions of Grizzly with respect to transfers of Grizzly assets and customers to Debtor’s wife, Mrs. Karen Bridgewater, can be ascertained. Debt- or has failed to keep these records both as the president of Grizzly Plumbing & Heating and as a manager/operator of Grizzly Bear Plumbing & Heating, a company allegedly belonging to Debtor’s wife.
11. These failures to keep books and records are not justified under all of the circumstances of this case.
*9412. Floyd Bridgewater has failed to explain to the satisfaction of this Court the loss of assets or deficiency of assets of Grizzly to meet Grizzly Plumbing & Heating’s liabilities.
13. The diminution of assets of Grizzly resulting from Debtor’s action above described has reduced the value of the Grizzly stock, one of the assets of Debtor’s personal bankruptcy estate to zero. This value is shown on Debtor’s personal bankruptcy Schedules (Plaintiff's Exhibit # 1), where Debtor lists the value of his interest in corporations and unincorporated companies as zero.
14. Debtor has concealed, or failed to keep or preserve, recorded information from which the transfers of accounts receivable, employees, customers, vehicles and cash from Grizzly Plumbing & Heating to Debtor’s wife, friends and related entities can be ascertained. Under the circumstances of this case, such failure is not justified.
15. Republicbank Spring Branch is a creditor and a party-in-interest in the Estates of Floyd Bridgewater and Grizzly Plumbing & Heating.
II
CONCLUSIONS OF LAW
1. The burden of proof with respect to the issues of whether the transfers of property described in the findings of fact above were accomplished with the actual intent to hinder, delay or defraud creditors has been shifted to Debtor, Floyd Bridgewater.
2. Grizzly Plumbing & Heating is an insider of Floyd W. Bridgewater as that term is defined in § 101(28)(A) and (E) and § 727(a)(7) of the Bankruptcy Code.
3. Republicbank Spring Branch as a creditor of Floyd W. Bridgewater and Grizzly Plumbing & Heating has a standing to object to the granting of Debtor’s discharge under § 727(c)(1) of the Bankruptcy Code.
4. The transfers of Grizzly assets were accomplished with intent to hinder, delay or defraud creditors.
5. The concealment or failure to keep or preserve records from which the said transfers can be ascertained was not justified under all the circumstances of this case.
6. Debtor has failed to explain to the satisfaction of this Court before determination of denial of his discharge the loss or the deficiency of assets to meet the liabilities of Floyd W. Bridgewater and Grizzly Plumbing & Heating.
7. The conduct of Floyd Bridgewater falls within the purview of § 727(a)(2), (3), (5) and (7) of the Bankruptcy Code. Therefore, he is denied a discharge.
. The Court is fully aware that the trial court may not blindly accept the proposed findings of fact and conclusions of law of the prevailing party. United States v. El Paso National Gas, 376 U.S. 651, 84 S.Ct. 1044, 12 L.Ed.2d 12 (1964).
However, when the proposed findings of the prevailing party are substantially consistent with the evidence and the conclusions are agreeable to the state of the law, no useful purpose would be served by recasting the same in the language of the Court. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8490224/ | Order
JOHN D. SCHWARTZ, Bankruptcy Judge.
This matter is before the Court for hearing on the motion of the United States Trustee requesting, pursuant to 11 U.S.C. § 1112(b), that the Chapter 11 case of the debtor, CLDC Management Corp., be converted to a case under Chapter 7, or in the alternative, that the case be dismissed. The Court has considered the motion and being otherwise fully advised in the premises, finds:
1. The debtor, CLDC Management Corp. (“CLDC”), filed a voluntary petition for relief under Chapter 11 of the Bankruptcy Code on November 14, 1979. CLDC is the owner of the beneficial interest in a land trust which holds title to certain real property improved with a racquetball club hereinafter called the Club. Since the filing of its petition CLDC has only intermittently operated the Club as a going concern.
2. The Trustee’s motion requests either dismissal of the Chapter 11 case or conversion to a Chapter 7, alleging that CLDC is unable to rehabilitate its affairs or effectuate a plan, and further alleging that CLDC has failed to perform the duties imposed on a Chapter 11 debtor. The last monthly financial reports filed by CLDC covered the period from December 1, 1980 to December 31, 1980. On June 18, 1985 CLDC filed a plan of reorganization. No disclosure statement has ever been filed. The proposed plan fails to address the necessary issues, including the source of funding for the plan.
3. CLDC after requesting time has filed no response to the Trustee’s motion and has now informed the Court that it will not be presenting any witnesses to contravene the Trustee’s motion.
4. The Club is security for certain loans whose principal amount is approximately $600,000.00. With the addition of accumulated interest there are liens against the Club in excess of $1,000,000.00. Although the Court heard no testimony as to the value of the Club, counsel for CLDC stated in open court, at a prior hearing, that the principal amount of the loans excluding the interest exceeded the value of the Club. Accordingly, CLDC has no equity in the Club.
5. The purpose of a Chapter 11 reorganization is to assist financially distressed businesses “by providing them with breathing space in which to return to a viable state.” Matter of Winshall Settlor’s Trust, 758 F.2d 1136, 1137 (6th Cir.1985). Under 11 U.S.C. § 1112(b) it must be demonstrated that there is both a continuing loss to or diminution of the estate and the absence of a reasonable likelihood of rehabilitation. It has been almost six years since CLDC filed for relief under Chapter 11 and in that time CLDC has been unable to reorganize. Whereas CLDC has no equity in the Club, there is essentially nothing to reorganize and since there are no other assets to distribute, a conversion to Chapter 7 would be futile.
Based on the foregoing, the Court finds and concludes that the Chapter 11 case of CLDC should be dismissed.
NOW THEREFORE IT IS ORDERED that the Chapter 11 case of the debtor, CLDC Management Corp. be, and the same hereby is dismissed. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8490225/ | OPINION
D. JOSEPH DeVITO, Bankruptcy Judge.
The above debtor moves for reconsideration and amendment of the prior order of this Court, entered on September 12, 1985. For the reasons set forth below, the motion is denied, thus permitting the September 12, 1985 order to stand. Moreover, this Court hereby abstains from exercising jurisdiction over any further proceedings on this particular issue.
This matter finds its roots in a hearing before this Court on August 27, 1985.1 The hearing was initiated by an order to show cause brought on by the debtor, wherein it sought a declaratory judgment determining the debtor to be exempt from the jurisdiction of the Jersey City Rent Control Board (“the Board”), and restraining the Board from taking action against the debtor. The Court found and determined that the debtor, by reason of its failure to raise jurisdictional questions or objections in proceedings before the Board, had consented to the Board’s jurisdiction under the Jersey City Rent Leveling Ordinances. SLHI, Inc. v. Rent Leveling Board of The City of Jersey City, N.J., No. 85-0315 (Bankr.D.N.J.Sept. 12, 1985).
The dispositive portion of that order stated:
ORDERED:
A. That Debtor-Plaintiff’s Order to Show Cause seeking a temporary restraining Order and preliminary and permanent injunction herein is denied.
B. That Debtor-Plaintiff is not exempt from the coverage of the Jersey City Rent Leveling Ordinance, Title XX, Multiple Dwelling Rent Controls.
C. That the Complaint of Debtor-Plaintiff is dismissed with prejudice.
D. That a copy of this Final Order be served upon counsel for Debtor-Plaintiff by regular mail within 5 days hereof.
Id.
The debtor seeks reconsideration and amendment of that order. The debtor contends that subject matter jurisdiction may not be waived and may be raised at any time, concluding that its alleged consent to the Board’s jurisdiction is invalid. The debtor asserts that this Court is the proper forum, and again requests that this Court make a determination under the applicable Jersey City ordinances as to the Board’s power over the debtor. In response, the Board argues, inter alia, that its assertion of jurisdictional power over the debtor is properly made pursuant to the interpretation of those same local statutes.
The basic question before the Court is one of jurisdiction. It appears from a thoughtful analysis that the question be treated in two steps. First, who may properly raise, at this time, the issue of jurisdiction? Second, does this Court actually have jurisdiction in this matter?
The answer to the initial query is found in the Federal Rules of Civil Procedure.
Whenever it appears by suggestion of the parties or otherwise that the court *254lacks jurisdiction of the subject matter, the court shall dismiss the action.
Fed.R.Civ.Pro. 12[h][3],
The Rule speaks for itself and requires no embellishment. “The rule is that the parties cannot confer on a federal court jurisdiction that has not been vested in the court by the Constitution and Congress. The parties cannot waive lack of jurisdiction, whether by express consent, or by conduct, nor yet even by estoppel.” Wright, Hornbook on Federal Courts, § 7 at 23 (West 4th ed.1983) (citations omitted). There is, therefore, no question of the debt- or’s absolute right to raise its objection at this or any time when such objection is grounded upon lack of subject matter jurisdiction.
Having ruled that the debtor’s objection is proper, the Court must decide if it does indeed have subject matter jurisdiction over this issue. In its consideration, this Court was acutely aware of two facts. (A)-the briefs and other supporting papers submitted by both parties are overwhelmingly composed of state and local law. It cannot be denied that both sides have posited the jurisdictional issue as a question necessitating the interpretation of the local ordinances of Jersey City. (B)-the Court takes notice of a memorandum submitted by counsel for the United States Department of Housing and Urban Development. In that letter, H.U.D.’s legal counsel states that, in his opinion, H.U.D. has not acted to preempt local rent control ordinances with federal regulations. Memorandum in Opposition at Appendix F-4, SLHI, Inc. v. Rent Leveling Board, etc., supra (Oct. 22, 1985).
The conclusion to be drawn from the above is unmistakable. The Board’s subject matter jurisdiction over the debtor is a question of local law. All that has been put before the Court expresses it as such. Moreover, the opinion issued by H.U.D.’s Office of the General Counsel, noted above, is clearly indicative of the absence of a federal question in the present case.
The law to be applied in such a situation was postulated by this Court in In re Horace, 54 B.R. 671 (Bankr.D.N.J.1985). As in the instant matter, the court was asked in Horace to resolve questions of purely state law. Id. at 673. The court abstained from hearing the matter, invoking the mandatory abstention provisions of 28 U.S.C. § 1334[c][2]. The court opined:
New § 1334[c][2], as enacted by the 1984 Reform Act in accordance with the Supreme Court’s decision in [Northern Pipeline Construction Co. v. Marathon, [Pipeline Co., 458 U.S. 50, 102 S.Ct. 2858, 73 L.Ed.2d 598 (1982)], demands mandatory abstention where a proceeding involves a state law claim which, absent bankruptcy, could not be rightly entertained before a federal court.... Certainly, the circumstances here fall within the contemplation of the statute. We consider here a claim founded upon state law which, except for the fact of bankruptcy, is totally without a basis for federal jurisdiction....
Id. at 673.
The path before us is clear. This Court already decided in Horace, supra, that it will not become embroiled in controversies of state law which, absent bankruptcy, would not even be in this Court. Congress, by enacting the mandatory abstention of § 1334[c][2], has prohibited such action. Therefore, the Court will abstain from deciding any matter which pertains to the scope of the local ordinances of Jersey City and the effect of said local laws on the debtor.
In conclusion, the Court shall not modify the order of September 12, 1985. Such order’s effect is consistent with the declaration of abstention made above. Further, the aforementioned abstention shall be effective as to any further proceedings on these or related issues of state and/or local law.
Submit an order in accordance with the above.
. Honorable William H. Gindin, sitting by temporary designation. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8490226/ | D. JOSEPH DeVITO, Bankruptcy Judge.
The Court has considered the defendant/debtors’ motion to stay this Court’s order of December 9, 1985, 56 B.R. 413, pending appeal. Upon further deliberation, the motion is denied.
Federal Rule of Civil Procedure 62[c] states that the issuance of a stay pending appeal is a matter within the court’s sound discretion, considering the security of the rights of the adverse party. It has been certified to this Court that a tax lien in excess of $7,000 is on file and, further, interest payments as called for in a prior order of this Court have not been made. Lastly, the defendant/debtors have made no representation that they would be-able to post a supersedeas bond as required by Rule 62.
For the above reasons, it would be prejudicial to the best interests of the adverse parties to stay the order pending appeal. The Court hereby orders that the motion to stay pending appeal is denied.
The attorney for plaintiff is to submit the appropriate order. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8490229/ | *305MEMORANDUM DECISION
PEDER K. ECKER, Bankruptcy Judge.
Motion to Dismiss for Failure to State a Claim
On May 1, 1985, the debtors, Andrea and Harvey Sheehan, filed a complaint objecting to the allowance of the claim of Prudential Insurance Company of America. The defendant responded with a motion to abstain or, in the alternative, for withdrawal of reference; a motion to dismiss the complaint for failure to state a cause of action; and a motion to dismiss for lack of jurisdiction. On July 10, 1985, the Court held a pre-trial conference. An order was subsequently entered which established a briefing schedule on the motion to dismiss for failure to state a cause of action and continued the remaining motions pending the outcome of the motion to dismiss and the outcome of several matters in the main case. Discovery was to proceed with any conflicts to be heard by the Court on ten days’ notice by either party.
The matters at issue in the main case were decided and an opinion was entered February 19, 1986, 58 B.R. 296. The Court has now carefully considered the files, pleadings, and briefs of counsel in this adversary and denies the motion to dismiss for failure to state a cause of action.
A motion to dismiss for failure to state a claim upon which relief may be granted under F.R.Civ.P. 12(b)(6) is to be construed in the light most favorable to the pleading party, with all material allegations taken as admitted and doubts to be resolved in favor of the pleader. Scheuer v. Rhodes, 416 U.S. 232, 94 S.Ct. 1683, 40 L.Ed.2d 90 (1974). The court, in ruling on a 12(b)(6) motion, primarily considers the allegations in the complaint, although matters of public record and exhibits attached to the complaint also may be taken into account. 5 C. Wright & A. Miller, Federal Practice and Procedure, Civil, § 1357 (1969).
The motion to dismiss for failure to state a claim is rarely granted and looked upon with disfavor by the federal courts, whose policy favors a resolution of actions on their merits. Id. The Supreme Court, in Conley v. Gibson, 355 U.S. 41, 78 S.Ct. 99, 2 L.Ed.2d 80 (1957), set out the test most often used in determining the sufficiency of a complaint:
... in appraising the sufficiency of the complaint, we follow, of course, the accepted rule that a complaint should not be dismissed for failure to state a claim unless it appears beyond doubt that the plaintiff can prove no set of facts in support of his claim which would entitle him to relief.
Id. at 45-46, 78 S.Ct. at 101-102.
A complaint should not be dismissed because the plaintiffs allegations do not support the legal theory upon which he intends to proceed. The court has a duty to examine the allegations to determine if relief is possible on any theory. Bonner v. Circuit Court of City of St. Louis, 526 F.2d 1331, 1334 (8th Cir.1975). Likewise, a complaint should not be dismissed because the court has doubts about whether the plaintiff will prevail in the action, which is more properly determined upon the basis of proof rather than the pleadings. Bramlet v. Wilson, 495 F.2d 714 (8th Cir.1974).
For the most part, complaints are dismissed under Rule 12(b)(6) only in cases in which there is a bar to relief which cannot be overcome under any set of facts. Thomas W. Garland, Inc. v. City of St. Louis, 596 F.2d 784, 787 (8th Cir.1979). Examples might include a complaint alleging wrongful termination of employment based upon a contract specifically providing for termination at will; or an action for negligence in which the complaint alleges facts indicating the sole proximate cause of the injury was the negligence of the plaintiff and not the defendant. See 5 C. Wright & A. Miller, Federal Practice and Procedure, Civil, § 1357 (1969).
In the instant case, the plaintiffs/debtors, the Sheehans, allege that Prudential Insurance Company of America, the de*306fendant, exercised control of the Sheehans’ farmland in contravention of the South Dakota statutes and the legislature’s stated public poliey prohibiting corporate control of agricultural land. See S.D.C.L. § 47-9A-1, et seq. The relief they seek is to have the mortgage upon which Prudential bases its claim in their bankruptcy proceedings declared void as against public policy and to have Prudential’s claim in the Chapter 11 case disallowed.
To find that the complaint states a cause of action, the court need only conclude that, in some instances, a violation of South Dakota’s ban on corporate control of agricultural land might constitute grounds to declare a contract, such as the mortgage here, void as against public policy. Facts in support of the debtors’ allegations might demonstrate some basis for relief under S.D.C.L. § 53-5-3, which provides:
Where a contract has but a single object and such object is unlawful in whole or in part, or wholly impossible of performance, or so vaguely expressed as to be wholly unascertainable, the entire contract is void.
The South Dakota Supreme Court has declared other contracts to be void as against public policy. See, e.g., Bartron v. Codington County, 68 S.D. 309, 2 N.W.2d 337 (1942); State ex rel. Meierhenry v. Spiegel, Inc., 277 N.W.2d 298 (S.D.1979). Thus, this Court cannot conclude that, based upon the pleadings, the debtors have failed to state a cause of action, and the motion to dismiss under Rule 12(b)(6) will be denied.
Accordingly, based on the foregoing, this Memorandum Decision constitutes the Court’s Findings of Fact and Conclusions of Law in the above-entitled matter pursuant to Bankr.R.P. 7052 and F.R.Civ.P. 52. Counsel for the debtors is directed to prepare an appropriate order in accordance with Bankr.R.P. 9021 and to schedule another pre-trial conference according to the Court’s previous pre-trial order of July 24, 1985. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8490230/ | *307FINDINGS OF FACT, CONCLUSIONS OF LAW AND MEMORANDUM OPINION
ALEXANDER L. PASKAY, Chief Judge.
THIS IS a Chapter 7 case and the matter under consideration is a Complaint filed by Chase Manhattan Bank, N.A., the Plaintiff in the above-styled adversary proceeding, which seeks an order from this Court declaring certain debts owed to Chase Manhattan Bank by the Debtor to be non-dis-chargeable pursuant to § 523(a)(2)(A) of the Bankruptcy Code. The facts relevant to a resolution of the matter under consideration may be summarized as follows:
On March 15, 1984 the Debtor executed and delivered a Visa Request Coupon to Chase Manhattan Bank, which, in turn, issued a Visa credit card to the Debtor with a $1,000 credit limit. Upon receipt of the card, the Debtor utilized same for purchases of goods and services on credit. During the months of May, June and July, 1984, the Debtor exceeded the $1,000 credit limit. The Bank cancelled the Debtor’s account as shown on her June 6, 1984 statement.
“Your account has been closed to further purchases. Return your cards, cut in half, if you have not already done so”.
No further purchases were made by the Debtor after the account was cancelled. The Debtor filed a Petition for Relief on July 26, 1984, with a sum of $2,776.22 due and owing at the time the petition was filed.
The claim of dischargeability is based on § 523(a)(2)(A) which, in pertinent part, provides as follows:
§ 523 Exceptions to Discharge
(a) A discharge under § 727, 1141, or 1328(b) of this title does not discharge an individual debtor from any debt—
(2) for obtaining money, property, services, or an extension, renewal, or refinance of credit by—
(A) false pretenses, a false representation, or actual fraud other than a statement respecting the debtor’s or an insider’s financial condition;
The claim of non-dischargeability based on misuse of credit has been considered over the years by the Fifth Circuit and also by the Eleventh Circuit. The first case often cited and also criticized was Davison-Paxon Co. v. Caldwell, 115 F.2d 189 (5th Cir.1940) cert. den. 313 U.S. 564, 61 S.Ct. 841, 85 L.Ed. 1523 (1941). In this case the Bankruptcy Court held that debts incurred prior to the bankruptcy filing were dis-chargeable because they were not obtained by means of actual overt false pretenses and representations. This decision was affirmed by the district court and, ultimately, by the Fifth Circuit. Davison-Paxon has been repeatedly criticized by commentators because it is understood to mean that a Debtor’s fraudulent concealment of insolvency is rewarded by permitting the Debt- or to obtain release of obligations created by misuse of credit. The Eleventh Circuit, considering in the case of First National Bank of Mobile v. Roddenberry, 701 F.2d 927 (11th Cir.1983), indicated its view however, that Davison-Paxon did not really intend to reward a deceitful Debtor. On the contrary, “it sought to deny a particularly improvident creditor the special privilege of an exemption from the general discharge”. Roddenberry, 701 F.2d at 930.
The Eleventh Circuit stated that “notwithstanding its critics, Davison-Paxon retains its validity under limited circumstances, especially when the credit transactions involve a one-on-one relationship between a debtor and creditor of a type which was common in 1940”. Roddenberry, 701 F.2d at 932. The Court pointed out, however, that further analysis is necessary when third party creditors are involved. The Eleventh Circuit, in ruling in favor of the Debtor, stated that once a credit card is used, the bank agreed to trust the cardholder and to extend credit, and once the credit is extended, the bank must decide when and if the credit will be revoked. See Roddenberry, supra. Having considered the matter, the Eleventh Circuit concluded that a voluntary assumption of a risk on the part of a bank continues until it is clearly shown that the bank unequivocally and unconditionally revoked the right of *308the cardholder to further possession and use of the card and until the cardholder is aware of the revocation. Roddenberry, supra. Accordingly, debts arising prior to the communication of revocation are part of the risk assumed by the bank, authorizing the conditional possession of the cards.
Applying the foregoing legal principles, as stated by the highest court of this Circuit, it is clear that the Plaintiff failed to establish that the Defendant obtained monies or properties from the Plaintiff through false pretenses, false representation and actual fraud. At no time did the Debtor, Deborah Moore, submit any false financial statement which would show any false representation on her part to obtain the Visa card. Instead, the Bank sent a Visa Request Coupon, which entitled her to the Visa card the Bank was holding for her, upon her signing and returning the coupon to the Bank. At no time prior to the June 6, 1984 Visa statement did the Bank attempt to revoke the right of the Debtor to further possession and use of the card, and there is no evidence that after the Bank revoked the Debtor’s right to the use and possession of the Visa card that the Debtor continued to use the Visa card for any purpose. This being the case, the Plaintiff failed to establish, with the requisite degree of proof, the essential elements under Roddenberry of a claim of non-dis-chargeability and, therefore, the Complaint shall be dismissed with prejudice.
A separate final judgment will be entered in accordance with the foregoing. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8490231/ | MEMORANDUM
CLIVE W. BARE, Bankruptcy Judge.
Plaintiff seeks a determination of nondis-chargeability of a debt in the amount of $10,406.95, alleging that the debtor obtained a loan by false pretenses, a false representation, or actual fraud. 11 U.S.C. § 523(a)(2)(A) (West Supp.1985). Trial was held October 30-31, 1985.
I
In 1982, for a short period of time, Ralph Tallent and the debtor, Robert Coppock, were engaged in buying and reselling used automobiles. On July 9, 1982, Tallent and Coppock visited a branch office of the Valley Fidelity Bank and Trust Company (Bank) for the purpose of obtaining a loan on a new vehicle, a 1982 Pontiac Grand Prix. The automobile had purportedly been purchased by Tallent. He also had purportedly written a check for the purchase price and needed financing to cover the cheek. It was initially contemplated that Tallent would obtain the loan and that Coppock would co-sign. However, because Tallent did not have earned income at the time or any prior dealings with the Bank, the parties agreed that Coppock would be the maker and Tallent the co-maker.1 A loan application was thereupon prepared and signed by Coppock. On July 13, 1982, a manufacturer’s statement of origin reflecting the transfer of a 1982 Pontiac Grand Prix, Serial No. 1G2AP3743CP626291, from General Motors to Rogan Pontiac, 311 Main Street, Rogers-ville, Tennessee, with a first assignment to Ralph Tallent dated July 8, 1982, and a second assignment to Bob Coppock dated July 12, 1982, (both assignments are on the reverse side) was presented to the Bank officer, along with a purported bill of sale dated July 12,1982, from Rogan Pontiac to Bob Coppock. The bill of sale was purportedly acknowledged before Ralph Allen, a notary public. Relying upon the documents presented, a Bank officer’s verification of the information in the documents by phoning a number provided by Coppock and Tallent, and Coppock’s prior dealings with the Bank, the Bank approved the loan. Coppock and Tallent executed a note and security agreement listing the automobile as collateral. The Bank issued a check to Coppock in the amount of $9,250.00. A certificate of title was thereafter issued by *320the Department of Revenue to Bob Cop-pock, with the Bank’s lien noted thereon.
Arrangements also were made whereby Tallent’s Social Security disability check would be deposited at the Bank with the monthly payment on the car loan to be deducted therefrom. This arrangement apparently did not materialize or was discontinued after only one payment was made and, when the loan became delinquent, the Bank unsuccessfully attempted to locate and repossess the automobile. At this point the Bank learned that no Pontiac Grand Prix with the vehicle identification number shown on the various documents had been manufactured. Although the Bank officer had seen a 1982 Pontiac Grand Prix at the time the loan was made, she had not verified the serial number on the vehicle.
Both the manufacturer’s statement of origin and the bill of sale are fraudulent. The statement of origin is a forged form. Although the bill of sale, dated July 12, 1982, identifies Rogan Pontiac as the seller and Ralph Allen as the salesman, Wanda Vaughan, an employee of Railey-Vaughan Motor Company, testified that she, her husband, and her father acquired the Pontiac dealership in Rogersville, Tennessee, from Rogan Pontiac in July or August 1980, that Rogan Pontiac was not in business in May 1982, and that she knew no person by the name of Ralph Allen.2
Patrick Wade, a special agent with the National Automobile Theft Bureau, and a former criminal investigator with the Knoxville Police Department, testified that the manufacturer’s statement of origin presented to the Bank was a forged document, that no automobile with the designated serial number was ever produced by General Motors. Wade testified:
There was no vehicle with the serial number ever produced. There was a vehicle produced that had the same nine characters, which are essential for us to do our work, and which is how our computer is set up. It was a Bonneville that was shipped to South Carolina and is currently registered to a man — or, couple in South Carolina.3
At some point in time, both Coppock and Tallent became the subject of a police investigation. As the result of searches of their separate apartments, a number of items — according to the Bank, “tools of the trade” — were seized: spurious manufacturers statements of origin, (both apartments), showing General Motors Corporation, Chrysler Motor Corporation and Ford Motor Company; blank bills of sale (both apartments); rubberized stamps with the names of the three automobile manufacturing companies (both apartments); a notary public seal with the name “ED POE” embossed thereon (Coppock’s apartment);4 three notary public seals, one with “RALPH ALLEN” embossed thereon (Tal-lent’s apartment); and N.A.D.A. Official Used Car Buyers Guides (both apartments).
The “RALPH ALLEN” notary seal was introduced into evidence. Wade testified that this seal originally had been embossed with the name “RALPH TALLENT” but that it had been altered to read “RALPH ALLEN.”5 The alteration was effected by filing down the first and last letters of “TALLENT.”
Coppock’s explanation for the “tools of trade” found in his apartment is that they were brought there by Tallent, who requested that he keep them for him.
They were in a brown paper bag in my safe in my bedroom. Mr. Tallent brought them over and asked if he could leave them in my safe because he had *321someone living with him that he didn’t trust, and he wanted to lock them up. And I told him I’d unlock the safe, and told him to put them in there.6
Coppock denies that he ever examined the contents of the bag.
As to the missing “non-existent” Pontiac, Coppock testified he did not know its whereabouts, but that Tallent told him he had loaned it to a friend to go to Florida.7
II
Section 523 of Title 11 of the United States Code enacts in material part:
(a) A discharge under section 727, 1141, or 1328(b) of this title does not discharge an individual debtor from any debt—
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(2)for money, property, services, or an extension, renewal, or refinancing of credit, to the extent obtained by—
(A) false pretenses, a false representation, or actual fraud, other than a statement respecting the debtor’s or an insider’s financial condition....
11 U.S.C.A. § 523(a)(2)(A) (West Supp. 1985).
To sustain an objection to dischargeability under § 523(a)(2)(A) a creditor must prove that:
(1) the debtor knowingly made a materially false representation;
(2) the debtor made the false representation with the intention to deceive the creditor;
(3) the creditor reasonably relied upon the debtor’s materially false representation; and
(4) the creditor sustained a loss proximately resulting from the debtor’s materially false representation.8
The proof clearly establishes that Cop-pock’s warranty of ownership in the seeurity agreement he gave to the Bank is materially false. The Bank’s reliance upon the false representation of ownership of the 1982 Grand Prix was reasonable. Further, the Bank’s loss in this matter is a proximate result of Coppock’s materially false representation. The decisive issue is whether Coppock knowingly made the false representation of ownership with intent to deceive the Bank.
Denying any intent to deceive or defraud the Bank, Coppock maintains he was merely doing a favor for Tallent, considered to be a friend at the time of the loan. According to Coppock he too is a victim of Tal-lent’s fraud.
Martha Swain Wallen, the Bank officer who made the loan, testified:
Mr. Coppock and Mr. Tallent came into my office to apply for the loan. Before any applications were completed they told me the situation of what they wanted to do. Mr. Tallen [sic] had purchased an automobile for which he had written a check, and he wanted to — the two of them wanted to borrow some money. At no time did I ever see Mr. Tallent by himself.
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When the loan was approved, I told Mr. Coppock at that time that if we were going to use the Pontiac as collateral for the loan, that I would have to have papers in order to apply for certificate of title in order to note our lien.
He indicated to me at that time that the papers were issued to Mr. Tallent, but that the two of them would go back to the dealership and have the MSO [manufacturer’s statement of origin] switched over to Mr. Coppock’s name.
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Q. And who was it that provided this documentation to you? Did they come *322in and bring it together, or did one of them present it?
A. I never saw Mr. Tallent by himself prior to the completion of the loan.
Q. So, this documentation you told them you had to have was brought to you by them?
A. That is correct. And it was my understanding at that time that Mr. Coppock accompanied Mr. Tallent to the dealership. That is what they intimated to me, was that the two of them had it changed.9
Wallen further testified that she “called the number that they [Coppock and Tal-lent] had given [her] to verify that the transfer of the MSO [manufacturer’s statement of origin] had been done.”10 Wallen does not recall if either Coppock or Tallent told her the name of the dealer from whom the 1982 Grand Prix was purportedly purchased. In any event, she does not remember the represented identity of the person she called to verify the transfer to Cop-pock.
Coppock insists that at the time of the loan he did not even know what a manufacturer’s statement of origin was. He also insists Tallent took care of all the paperwork himself and that he never accompanied Tallent to a dealership. Undoubtedly he did not accompany Tallent to a dealership to acquire the 1982 Grand Prix.
When asked the identity of the seller of the 1982 Grand Prix, Coppock answered, “I have no idea.”11 The court cannot believe that Coppock would not have asked Tallent where he had purchased the 1982 Grand Prix. It is a natural question. Indeed it is a critical question for a person receiving an assignment of title, as Coppock did from Tallent.12
Coppock’s explanation for his possession of the “ED POE” notary seal and the forged manufacturers statements of origin also is not credible. In the first instance, why would Tallent deliver these items to Coppock for safekeeping yet apparently retain similar items at his own apartment?13 More importantly, Coppock’s testimony that he agreed to store a brown paper bag and its contents in his safe for Tallent without inquiring about the contents of the bag is not credible.14
In discussing the intent necessary to support a determination of nondischargeability, Judge Paskay has stated:
[W]hile fraud is never presumed and evidence showing the possibility of fraud or showing circumstances which might create a suspicion of fraud are not sufficient ... the fraud may be found to exist, even in the absence of direct proof, which of course, is rarely available. If the totality of the circumstances present a picture of deceptive conduct by the borrower, which indicates that the borrower intended to deceive and cheat the lender, the intended falsehood, coupled with this conduct, is sufficient to establish the requisite intent required under the Act.
Century Bank v. Clark, 1 B.R. 614, 617 (Bankr.M.D.Fla.1979). *323The totality of the circumstances in this proceeding presents a picture of deceptive conduct by Coppock. It is the conclusion of the court that he knowingly misrepresented he had ownership rights to the 19S2 Grand Prix with the intent to deceive the Bank. Accordingly, pursuant to § 523(a)(2)(A) Coppock’s debt to the Bank is nondischargeable.
This Memorandum constitutes findings of fact and conclusions of law, Bankruptcy Rule 7052.
. Tallent’s loan application with the Bank reflects monthly disability income of $1,500.80 and rental income in an unspecified amount.
. As heretofore noted, Ralph Allen's name and seal appear as both the "Salesman” of Rogan Pontiac and the "Notary Public” in the bill of sale from Rogan Pontiac to Bob Coppock. His name also appears as the "Salesman” in the two assignments on the reverse side of the manufacturer’s statement of origin.
. Transcript of Proceedings at 63.
. Wade testified that this seal had been used in other automobile fraud schemes.
. The two other seals found in Tallent's apartment had the names "Ralph Tallent” and "Ralph P. Tallent” embossed thereon.
. Transcript of Proceedings at 85.
. Tallent did not testify in this proceeding. He is apparently in jail, facing charges of receiving stolen property, specifically automobiles. Charges are also pending against Coppock.
.See McLemore v. Simpson County Bank (In re Krulik), 6 B.R. 443, 448 (Bankr.M.D.Tenn.1980).
. Transcript of Proceedings at 36, 37 and 39 (emphasis added).
. Transcript of Proceedings at 38.
. Transcript of Proceedings at 14.
. Coppock is not an unsophisticated person insofar as purchasing automobiles. He testified that he met Tallent at an auto auction and that they bought and resold automobiles through the auction.
. The dates the respective apartments of Cop-pock and Tallent were searched is not a matter of record.
. The court also finds that Coppock's testimony about his interest in the 1982 Grand Prix was evasive. When asked if he had an interest in the 1982 Grand Prix, Coppock answered: “What I was actually doing is doing a favor for someone that I considered a friend of mine at the time.” Transcript of Proceedings at 25. He further testified:
Q. You did warrant to the bank on your security agreement that you had an interest or title to the car and that you could give title to that car, didn’t you?
A. Yes, sir.
Q. But you didn’t have it, did you?
A. I saw a car. There was a car in existence. I rode down to the bank in the car. Transcript of Proceedings at 86-87. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8490232/ | FINDING AS TO OBJECTIONS TO DISCHARGE
H.F. WHITE, Bankruptcy Judge.
A trial was held on February 25, 1986 on Counts I, II, and IV of the complaint objecting to discharge of the debtor, Peter H. Bandy, by Richard I. Kuhn, trustee of the estate of Crane Howard Lithograph Company. Appearing on behalf of the trustee was David M. Hunter, and on behalf of Peter H. Bandy, James L. Bickett and Dale V. Wilson. At the close of all evidence, the plaintiff moved for admission into evidence of all his exhibits:. The court admitted into evidence the following exhibits: Plaintiff’s Exhibits 1, 4, 6, 7, 8, 9, 10, 13, 13(a), 13(b), 13(f) and 13(g). The defendant then moved for a directed verdict as to Counts II and IV which motion was granted by the court. The plaintiff presented no evidence as to Count I. Based upon the pleadings, briefs, oral testimony and exhibits admitted into *360evidence at trial, the court makes the following Finding of Fact and Law.
FINDING OF FACT
1. On March 22, 1984 The Crane Howard Lithograph Company (herein “Crane Howard”) filed its petition for relief under chapter 11 of title 11 of the United States Code which was later converted to a case under chapter 7 on March 25, 1985.
2. On September 7, 1984 Peter H. Bandy filed his petition for relief under chapter 7 of title 11 of the Code.
3. Mr. Bandy owned a controlling interest in Crane Howard from 1973 until on or about February 14, 1984, initially as an 80 percent shareholder and finally as a 97 percent shareholder.
4. Crane Howard was a custom printing establishment, and among its clients were Goodyear Rubber Company, Standard Oil, Ohio Bell Telephone Company, Borden Foods, Rex Humbard Foundation, PTL Television Network, and Arocom.
5. In November, 1980 Mr. Bandy on behalf of Crane Howard entered into an agreement with Union Commerce Bank nka Huntington National Bank (herein “Bank”) which provided Crane Howard with a line of credit valued at 80 percent of its “qualified accounts receivable” plus a certain percentage of the value of its inventory. The line of credit was established on a revolving basis depending upon the current value of the accounts receivable, and it varied from approximately $1.1 to $1.3 million. The phrase “qualified accounts receivable” was defined by the Accounts Receivable and Inventory Security Agreement between the parties as meeting certain specifications, inter alia that the goods sold to create the account receivable had been shipped to the account débtor. Plaintiffs Ex. 4.
6. Crane Howard would report its accounts receivable activity, and report all cash received, daily to the Bank under the direction and supervision of Mr. Bandy.
7. The accounts receivable activity of Crane Howard was also subject to periodic review by the Bank’s auditors. The auditors would reconcile the receivables against the daily report by checking the business records of Crane Howard, and perform a test procedure as to the validity of the receivables. Crane Howard always cooperated by providing any and all records requested by the auditors. Through this periodic review, the Bank established the eligible base for the revolving line of credit.
8. In addition to its security interest in the accounts receivable, inventory, equipment and works in process of Crane Howard, the Bank also held a secured position in a certain wet press and in a 29 acre farm located in Stark County and owned by Mr. Bandy.
9. It was the practice of Crane Howard to generate computer invoices for some works in process, to retain these invoices, to report the relevant accounts to the Bank as qualified accounts receivable, then to later credit the original invoice and reissue a new invoice for the same goods which second invoice was sent to the customer at or near the time of shipment. This “pre-billing” practice had gone on for a number of years, and was necessary at times to accommodate the larger corporate customers which were slow in generating purchase orders and which sometimes asked Crane Howard to warehouse the orders.
10. The Bank was aware of this pre-bill-ing procedure and acquiesced in this practice. Robert J. Graham, Vice President of asset-based lending, business development and administration of secured borrowers for the Bank from August, 1983 until September, 1985, first became aware of this pre-billing practice in mid-September, 1983 from the Bank’s own audit. The Bank never told Mr. Bandy not to pre-bill, nor did it cut off Crane Howard’s line of credit.
11. In mid-January, 1984, Mr. Graham discussed with Mr. Bandy an Arocom invoice for $140,000 dated November 30, 1983 for pre-billed goods which appeared on the Bank’s audit report, but did not threaten to cancel the line of credit, nor did he credit the account back to the debtor.
*36112. There was some evidence presented that it was an industry practice to pre-bill accounts and to hold completed orders for drop-shipment later at the customer’s request.
13. Mr. Bandy owned another business entity known as Saalfield Motors dba Alpha Press. The books of Crane Howard show a transfer of some real estate valued at $110,210 and investment vehicles valued at $94,000 to Crane Howard, and a corresponding reduction of an indebtedness of Alpha Press to Crane Howard. See Plaintiff’s Ex. 10. The relevant corporate records cover a period ending December 31, 1982. The real estate was never transferred by deed to Crane Howard. The transfer of the vehicles by the car dealership (Saalfield Motors) was made at the Bank’s request. The transfer of the vehicles appeared in the corporate minutes, but the titles to the vehicles were never transferred to Crane Howard. Mr. Bandy testified that the titles were not transferred to Crane Howard in order to save the otherwise payable 5V2 percent sales tax on the transfer. Crane Howard had physical possession of only some of the vehicles. There was no concealment; all entries were documented on the corporate books and records of the debtor.
' ISSUE
Whether the plaintiff presented sufficient evidence on Counts II and IV of the complaint seeking a denial of discharge of Peter H. Bandy pursuant to 11 U.S.C. section 727 for falsifying the accounts receivable records of Crane Howard, and for his fraudulent transfer of certain assets to Crane Howard to reduce his personal indebtedness?
DISCUSSION OF LAW
Richard I. Kuhn, trustee of the estate of The Crane Howard Lithograph Company and plaintiff, seeks a denial of discharge of Peter H. Bandy, debtor and defendant herein, for certain acts in violation of 11 U.S.C. section 727(a):
(a) The court shall grant the debtor a discharge, unless—
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(2) the debtor, with intent to hinder, delay, or defraud a creditor or an officer of the estate charged with custody of property under this title, has transferred, removed, destroyed, mutilated, or concealed, or has permitted to be transferred, removed, destroyed, mutilated, or concealed—
(A) property of the debtor, within one year before the date of the filing of the petition;
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(3) the debtor has concealed, destroyed, mutilated, falsified, or failed to keep or preserve any recorded information, including books, documents, records, and papers, from which the debtor’s financial condition or business transactions might be ascertained, unless such act or failure to act was justified under all of the circumstances of the case;
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(7) the debtor has committed any act specified in paragraph (2), (3), (4), (5), or (6) of this subsection, on or within one year before the date of the filing of the petition, or during the case, in connection with another case concerning an insider; ...
(Subsection 727(a)(7) was amended by Pub.L. No. 98-353, § 480(a)(2), to add the phrase “under this title or under the Bankruptcy Act” after “another case.” This amendment is effective for cases filed after October 7, 1984. Pub.L. No. 98-353, § 553(a)).
The plaintiff presented no evidence as to Count I of the complaint, and the defendant was granted summary judgment on Count III of the complaint by this court’s order of October 2, 1985. The only issues remaining for this court are whether the plaintiff has sustained his burden of proof as to the alleged falsification of the ac*362counts receivable records of Crane Howard, an insider, by Mr. Bandy, under 11 U.S.C. §§ 727(a)(3) and 727(a)(7), and as to Bandy’s alleged fraudulent transfer of certain assets to Crane Howard to reduce his personal indebtedness to Crane Howard, under 11 U.S.C. §§ 727(a)(2)(A) and 727(a)(7).
The plaintiff carries a difficult burden under section 727. The keystone of the Bankruptcy Code is to give the honest debt- or a discharge of his debts. The provisions denying a discharge to a debtor are construed “liberally in favor of the debtor and strictly against the creditor.” 4 Collier on Bankruptcy, para. 727.01A (15th ed. 1985) (citations omitted). Bankruptcy Rule 4005 provides that at the trial on a complaint objecting to discharge, the plaintiff has the burden of proof. See also, In re Clemons, 42 B.R. 796 (Bankr.S.D.Ohio 1984). The ultimate burden of persuasion rests upon the plaintiff. In re Glaser, 49 B.R. 1015, 1018 (Bankr.S.D.N.Y.1985).
In Count II plaintiff alleges that Mr. Bandy falsified or caused to be falsified the accounts receivable records of Crane Howard in order to obtain additional funds from the Bank under the terms of a revolving line of credit. This is not a ease of failure to keep proper books and records, but rather the intentional misrepresentation and falsification of corporate records to secure additional financing. In addition to knowing misrepresentations alleged by plaintiff, he must show an act of falsification of recorded information by the debtor or someone acting for him and that by the act complained of it is impossible to ascertain the financial condition and material business transactions of the debtor. 4 Collier at para. 727.03[4].
The plaintiff failed to show that Mr. Bandy’s practice of pre-billing some accounts was a falsity, or misrepresentation, much less that this practice was carried out with intent to deceive the Bank, or that it did deceive the Bank. Evidence at trial showed that the Bank was aware of this practice of prebilling some accounts; the schedules indicate that the prebilling practice had gone on for years. The Bank’s officer in charge of account-based lending testified that he discovered “pre-billings” in the second month of his tenure at the Bank through an audit performed by Bank personnel. Although he testified that the Bank was only aware of 2 or 3 day early billings, and there was evidence presented that some billings predated shipment by a much longer period of time, the Bank tacitly accepted this practice, thereby acquiescing in it. The Bank never told Crane Howard or Mr. Bandy that this practice violated the lending agreement between them, nor did it ask Crane Howard or Mr. Bandy to stop this practice, nor did it threaten to cancel the line of credit. Other pre-billings could have been discovered by the Bank’s periodic audit, and indeed, a significant pre-billing to Arocom was discovered in late 1983. See Finding of Fact 11. Again, the Bank acquiesced. There was also evidence presented that it was an industry practice to pre-bill some customers. Mr. Bandy testified that some pre-billings were necessary due to warehousing of goods by Crane Howard for its customers, and the delay suffered by Crane Howard in receiving the purchase orders from large corporate customers. The plaintiff failed to show that Mr. Bandy knowingly misrepresented corporate records to secure a higher line of credit; in fact, the practice of pre-billing accounts and billing for works in process appears justifiable under the circumstances of this case. The plaintiff also failed to show that the Bank was misled by these practices, or that it could not ascertain the financial condition of Crane Howard. There was no evidence whatsoever that any employee of Crane Howard attempted to mislead the Bank’s auditor; in fact, the auditor admitted that he was given free access to all records of Crane Howard. The Bank was aware of some of these practices and acquiesced in them, and at all times had free access to the business records of Crane Howard.
In Count IY plaintiff alleges that Mr. Bandy fraudulently transferred certain assets to Crane Howard to reduce his per*363sonal indebtedness to Crane Howard, and that these assets were assigned inflated values so as to maximize the reduction of his personal obligation to Crane Howard. The plaintiff failed to present any evidence as to the true or fair market value of these assets. The evidence further showed that the assets transferred on the corporate records of Crane Howard were actually the property of a separate entity, Saalfield Motors dba Alpha Press, and that the transfer served to reduce the indebtedness of Alpha Press to Crane Howard. Although there was evidence presented that Mr. Bandy was the controlling owner of this entity, there was no evidence presented sufficient to prove that it was merely the alter ego of Mr. Bandy. The plaintiff is required to prove four elements to state a prima facie case under 11 U.S.C. § 727(a)(2)(A), see Clemons, 42 B.R. at 800, not the least of which is actual fraudulent intent. The plaintiff presented no evidence of fraudulent intent. Indeed, the evidence showed that it was property of a separate entity that was transferred to Crane Howard to reduce its indebtedness, and the transfer was well outside of the one-year period prior to the filing of either of the petitions of Crane Howard or Mr. Bandy.
At the close of plaintiffs case the defendant moved for a directed verdict as to Counts II and IV. After reviewing all evidence in a light most favorable to the plaintiff, the court finds the motion to be well-taken. As the plaintiff presented no evidence as to Count I of the complaint, judgment will accordingly be awarded defendant on that count as well.
A separate order in accordance with the Finding will be entered. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8490233/ | ORDER
WILLIAM J. O’NEILL, Bankruptcy Judge.
Before the Court is the motion of Debtors, Robert and Patricia Gash, to avoid judicial liens of Sears, Roebuck and Co., Joseph Horne Co., J.C. Penney Co., May Co., and Daniel C. Carmack, Trustee. Joseph Horne Co. filed a motion to dismiss and a brief in opposition to relief requested. No other responses were filed. Debtors and Respondent submitted this matter on the following stipulations:
“1. The fair market value of the property owned by debtors at 89 Wilmington Drive, Painesville, Ohio, is $59,000.00.
2. That a mortgage in the sum of $43,-900.00 to Ohio Savings Association, filed July 7, 1977, is in full force and effect.
8. That a certain second mortgage to Ohio Savings Association, filed March 4, 1981, in the sum of $10,712.00, is in full force and effect.
4. That a certain mortgage filed March 29, 1982, to Ameritrust Company, in the sum of $37,500.00 is in full force and effect.
5. That the amount due on the above described mortgages is in excess of $59,-000.00.
6. That the following judgment liens are filed of record: judgment lien in favor of Joseph Horn (sic) Company, filed November 15, 1984, at Judgment Lien Docket 35, page 381B, in the sum of $1,046.07, plus costs and interest; judgment lien in favor of J.C. Penny (sic) Co., filed January 10, 1985, at Judgment Lien Docket 35, page 519B, in the sum of $971.50, plus interest and costs; and judgment lien in favor of Daniel C. Carmack, Trustee, filed May 2, 1985, at Judgment Lien Docket 36, page 390B, in the sum of $6,250.00, plus interest and costs.”
In addition the Court finds:
7. On July 16, 1985, Debtors filed their petition under Chapter 7 of the United States Bankruptcy Code.
8. On August 20, 1985, Joseph Horne Co. filed a $988.82 claim which was subsequently withdrawn.on February 11, 1986.
9. On September 16, 1985, Daniel C. Carmack, Trustee in Bankruptcy for the estate of Debtor, Robert C. Willis, filed a general unsecured claim for $6,250.00 to which there is no objection.
10. On October 21, 1985, Sears, Roebuck and Co. filed a general unsecured claim for $2,161.51 with no objection thereto.
11. None of the remaining lien holders at issue filed claims.
Debtors seek avoidance of the judgment liens under Section 506. 11 U.S.C. § 506. Specifically, they assert there is no equity to support the liens which are, therefore, unsecured claims under Section 506(a) and thus void liens under 506(d). Respondent questions the procedural propriety of Debtors’ motion and maintains Section 506 does not provide the requested relief. The Court addresses the Debtor’s motion on substantive rather than procedural grounds.
Section 506(a) provides in part:
“(a) An allowed claim of a creditor secured by a lien on property in which the estate has an interest ... is a secured claim to the extent of the value of such *436creditor’s interest in the estate s interest in such property ... and is an unsecured claim to the extent that the value of such creditor’s interest ... is less than the amount of such allowed claim. Such value shall be determined in light of the purpose of the valuation and of the proposed disposition or use of such property, and in conjunction with any hearing on such disposition or use or on a plan affecting such creditor's interest.” 11 U.S.C. § 506(a).
As stipulated, Debtors’ property is subject to three mortgages and no equity exists therein. The judgment liens on the property are, therefore, unsecured under Section 506(a). This unsecured status, however, provides no basis for avoidance of the liens under Section 506(d) which states,
“(d) To the extent that a lien secures a claim against the debtor that is not an allowed secured claim, such lien is void, unless—
(1) such claim was disallowed only under Section 502(b)(5) or 502(e) of this title; or
(2) such claim is not an allowed secured claim due only to the failure of any entity to file a proof of such claim under Section 501 of this title.”
A lien is not void by the terms of this section unless a party in interest requested the court, under Section 502, to determine allowability of the claim which the lien secures. The legislative history supports this view:
“Subsection (d) permits liens to pass through the bankruptcy case unaffected. However, if a party in interest requests the court to determine and allow or disallow the claim secured by the lien under Section 502 and the claim is not allowed, then the lien is void to the extent that the claim is not allowed.” H.R.Rep. No. 95-595, 95th Cong., 1st Sess. 357 (1977), U.S.Code Cong. & Admin.News 1978, pp. 5787, 6313.
Therefore, while a lien which secures a claim is not an “allowed secured claim” under Section 506(a), it survives bankruptcy if there was no determination of its allowability under Section 502. See Simmons v. Savell, 765 F.2d 547 (5th Cir.1985); In re Endlich, 47 B.R. 802 (Bankr.E.D.N.Y.1985); Spadel v. Household Consumer Discount Co., 28 B.R. 537 (Bankr.E.D.Pa.1983); Nefferdorf v. Federal National Mortgage Association, 26 B.R. 962 (Bankr.E.D.Pa.1983); and Hotel Associates, Inc. v. Trustee of Central States S.E. and S. W. Areas Pension Fund, 3 B.R. 340 (Bankr.E.D.Pa.1980).
Respondent’s claim herein was withdrawn and, consequently, no party in interest requested determination of allowability under Section 502. Moreover, the reason Respondent holds no “allowed secured claim” is “due only to the failure of any entity to file a proof of such claim under Section 501 of this title”. 11 U.S.C. § 506(d)(2). Similar circumstances and treatment are accorded the remaining liens sought to be avoided except those of Daniel C. Carmack and Sears, Roebuck and Co. Carmack and Sears filed claims; however, since no determination of allowability under Section 502 was requested, their liens are not void under Section 506(d).
For reasons stated, the Debtors’ motion is denied.
IT IS SO ORDERED. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8490234/ | MEMORANDUM OPINION PURSUANT TO ORDER ON REMAND
ALEXANDER L. PASKAY, Chief Judge.
THIS IS a Chapter 11 case and the matter before this Court is an adversary proceeding instituted by Helen Costello (Costello) against F & M Enterprises (Debtor). The Complaint filed by Ms. Costello sought a determination by this Court that a certain transaction between her and the Debtor was, in fact, a mortgage loan transaction whereby Ms. Costello granted a mortgage to the Debtor and was not a conveyance of title of the subject property. In the alternative, Ms. Costello claimed that the warranty and a quit claim deed executed by her in favor of the Debtor was obtained by fraud, thus, should be declared to be null and void and unenforceable.
In due course the matter was tried, at the conclusion of which this Court entered its Memorandum Opinion and found that Ms. Costello failed to meet her burden of proving by the preponderance of the evidence that both parties intended the transaction to be a mortgage rather than a conveyance.
The Court also found and concluded, concerning her claim of fraud asserted in the alternative, that Ms. Costello failed to establish by clear and convincing evidence that the president of the Debtor intended to deceive her and that she was, in fact, deceived. This Court’s conclusion was based on the then prevailing law of this State, enunciated by the Supreme Court in Canal Authority v. Ocala Manufacturing, Ice and Packing Co., 332 So.2d 321 (Fla.1976). This Court entered a final judgment based on the foregoing and dismissed Ms. Costello’s Complaint with prejudice.
Ms. Costello, having been aggrieved by this Court’s decision, timely filed a Notice of Appeal. In due course, the district court considered the appeal and entered its order on appeal. The district court, while it agreed with this Court’s conclusion that the transaction under consideration was, in fact, intended to be a conveyance and not merely a mortgage as contended by Ms. Costello, concluded that in light of the fact that the standard of proof enunciated earlier by the Supreme Court in this State has been expressly overruled by the Supreme Court in Watson Realty Corp. v. Quinn, 452 So.2d 568 (Fla.1984). Based on this, the District Court remanded the fraud issue for further consideration by this Court in light of the change of law related to the quantum of proof required to establish fraud.
In Watson Realty the Supreme Court held that the plaintiff may prove fraud by the mere preponderance of the evidence rather than by clear and convincing evi*438dence as required previously by Canal Authority. Thus, this is the matter before this Court for consideration pursuant to the Order of Remand. Without reciting in detail the previous findings made by this Court and by the district court, it shall suffice to state the following:
There is no question that Ms. Costello never intended to sell her home to the Debtor. The record is more than sufficient to warrant the conclusion that all she wanted was to borrow enough money to save her home which she was about to lose at foreclosure. It is equally clear that Mr. Foster, the president of the Debtor, was willing to obtain the funds needed to pay off the encumberances including the mortgage which was about to be foreclosed, but only on his terms which was to structure the transaction as a sale rather than a mortgage. Of course, this was necessary since the Debtor certainly did not have the funds needed by Ms. Costello, neither did F & M Enterprises, an entity ostensibly acting as a mortgage broker and an entity also controlled by Mr. Foster, the president of the Debtor. While it is true that the Debtor gave an option to Ms. Costello to repurchase the property initially for $68,-000, the fact remains that the warranty deed executed by Ms. Costello effectively vested title in the Debtor to the subject property.
It is clear that Mr. Foster, dealing on behalf of the Debtor, wanted to structure the transaction as a conveyance and obtain the deed to the property so he could borrow the needed funds from Barnett Bank and use the funds to satisfy the outstanding encumberances on the property. Of course, Mr. Foster could accomplish this only by obtaining a warranty deed from Ms. Costello on September 25, 1980 and recording same on the same date and by delaying the recordation of the repurchase agreement until October 22, 1980. This was, of course, necessary because it is highly unlikely that Barnett would have granted the loan if the repurchase agreement appeared on the public records.
While it is true that Ms. Costello certainly knew that the document she signed on September 25, 1980 was a warranty deed, she never intended to sell the property to the Debtor and was never informed that Mr. Foster was going to use the deed executed by her to obtain a mortgage loan from Barnett by using the property as collateral. When she questioned the transaction, she was told repeatedly that “that is the way we are doing business”.
The right to repurchase the property granted to Ms. Costello on September 25, 1980 and recorded on October 22, 1980 as an Agreement for Deed was a one year option. At the expiration of the option time Ms. Costello did not have the funds to pay $68,000, the purchase price fixed in the Agreement for Deed, and asked for an extension. As a result of the discussion with Mr. Foster, Ms. Costello executed a “Letter of Understanding” (Plaintiffs Exh. # 9) which acknowledged the respective positions of the parties and the Debtor granted Ms. Costello an additional year to exercise the option to repurchase the property until September, 1982. Pursuant to the terms of the “Letter of Understanding”, Ms. Costello agreed to pay $6,600 to the Debtor quarterly and agreed to pay $110,-000 as the full repurchase price prior to the expiration of the second option time. She also executed a quit claim deed in favor of the Debtor pursuant to the “Letter of Understanding” in consideration of the “Repurchase Option” to be granted to Ms. Costello whereby she was supposed to have the right to repurchase the property for $110,000 before September 27, 1982. Of course, the net effect of the quit claim deed executed by Ms. Costello was to extinguish the rights granted to her by the Agreement for Deed and since the promised option was never granted, she effectively lost all rights to her home.
It is noteworthy that the business of the Debtor was to purchase properties at foreclosure for distress prices, repairing and renovating them for the purpose of resale. While the Debtor attempted to make a showing that F & M Enterprises, the general partnership, engaged in the business *439of a mortgage broker was a totally separate entity not connected with the Debtor, the evidence is overwhelming that both entities were controlled by Mr. Foster. Both used not only the almost identical name but operated out of the same business premises. As previously noted by this Court, the business practices of the Debtor were conducive to lead easily to misunderstanding even by a fairly sophisticated person, let alone by a non-sophisticated person. Moreover, this Court is now satisfied that the modus operandi of the Debtor was designed to mislead even the person with average sophistication and the conclusion is not unwarranted that the method of operation was purposely designed by Foster to produce precisely this result, that is, to facilitate the acquisition of properties at distress prices. The fact of the matter is there is testimony in this record that the Debtor obtained deeds in the same fashion on two other occasions from one Ms. Wigal and from one Mr. Carroll.
In sum, while Ms. Costello obviously knew the nature of the documents she signed, she never intended to sell her home to the Debtor and agreed to the transaction because it was the only way the Debtor was willing to arrange for the funds needed to save her home. Based on the foregoing, this Court is now satisfied that the proof presented by Ms. Costello met the standard of proof set by the Supreme Court in Watson Realty. A separate final judgment will be entered declaring the warranty deed and the quit claim deed to be invalid and unenforceable as one obtained by fraud and restoring the title to the subject property to Ms. Costello.
A separate final judgment will be entered in accordance with the foregoing. | 01-04-2023 | 11-22-2022 |
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